ECONOMICS ISC FALGUNY MADHANI

STD 11TH 9820949959

11TH ISC
ECONOMICS BOOK-- 1
CHAPTER 1st TO 15TH
FALGUNY MADHANI—9820949959

Name

School

Contact number
1|Page
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959
CHAPTER 1 – DEFINITION OF ECONOMICS
1-What is Economics?
Ans-Economics, as a social science, is concerned with economic questions. It seeks
to explain systematically a large variety of questions pertaining to economic
behaviour of individuals, the society and the economy.
2-How did Aristotle define economics as?
Ans- Aristotle, the famous Greek philosopher --defined economics as the
science of management of family and state.
3-Which are the various definitions of Economics?
Wealth definition—Adam Smith
Welfare definition
Scarcity definition
Growth-oriented definition.
DEFINITIONS OF ECONOMICS BY DIFFERENT ECONOMIST
WEALTH DEFINITION BY ADAM SMITH
Adam Smith-Classical Economists
His view on Economics- ECONOMICS AS A SCIENCE OF
WEALTH.
His Famous Book- An Enquiry into the Nature and Causes of the
Wealth of Nations

WEALTH CONCEPT: Adam Smith-Father of Economics, defined

economics as “a science which enquires into the nature and cause of wealth of nation.” He
emphasized the production and growth of wealth as the subject matter of
economics.
MAIN FEATURES OF WEALTH DEFINITION OF ECONOMICS:
STUDY OF WEALTH: According to the wealth definition, economics is
the study of wealth only. The main object of economics is to examine how
people earn wealth and spend it.
CAUSES OF WEALTH: Economics seeks to examine causes which lead
to an increase of wealth. Wealth can be increased by the production and
accumulation.
ECONOMIC MAN: The wealth definition of economics considered an
‘economic man’ who is aware of his self-interest. The economic man tries
to achieve his self-interest by increasing his material gains through
acquisition of wealth.
2|Page
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959
CRITICISMS.
TOO MUCH EMPHASIS ON MATERIALISM: Classical Economist
defined as a pig science, a dismal science, bread and butter science,
gospel of mammon, etc. They alleged that by defining economics as a science
of wealth, classical economists have ignored the higher values of life such as
happiness, love, affection, etc.
NARROW VIEW OF WEALTH: Major criticism levelled against classical
economists is that they have defined wealth in a very narrow and restricted
sense. Wealth, according to them, consists of material or tangible goods. They
have excluded non-material goods or services like health and education from
the definition of wealth

SECONDARY PLACE TO MAN: Another shortcoming of the ‘wealth-

definition’ of economics is that it has given undue emphasis on wealth and, in
the process, has reduced man to a secondary place in the study of economics.
In fact, the ultimate objective of economics is to promote human and social
welfare and wealth is only a means to achieve this end.

IT IGNORES THE PROBLEM OF SCARCITY: The wealth definition of

economics ignores the basic cause of economic activity, namely relative scarcity
of economic resources.
WELFARE DEFINITION – ALFRED MARSHALL
His Famous book- Principles of Economic
Definition- “Political Economy or Economics is a study of mankind in the
ordinary business of life; it examines that part of individual and social
actions which is mostly closely connected with the attainment and the use
of the material requisites of well-being. Thus, it is, on the one side, a study
of wealth and, on the other side, a part of the study of man.”
MAIN FEATURES OF MARSHALL’S DEFINITION ARE:
STUDY OF MANKIND: Marshall placed primary emphasis on the study of
mankind. He agreed with the classical economists that economics is concerned
with wealth, as wealth constitutes material requisites of well-being. He believed
that wealth is wealth is not an end by itself, but only a means to human welfare.
Thus, according to Marshall, it is the study of man which occupies the central
place in the study of economics.

3|Page
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959
STUDY OF ORDINARY BUSINESS OF LIFE: Economics is a study of
ordinary business of life. Economic is concerned with the economic aspect of
human life. The ordinary business of life is concerned with the income-
earning and income-spending activities of mankind. Economics studies how
people earn material means of their livelihood and how they spend these for the
satisfaction of their well-being.
STUDY OF MATERIAL WELFARE: Marshall emphasised material welfare
as the primary concern of economics. According to him, economics t is
concerned with material welfare only, i.e., that part of human welfare which is
related to wealth. Economic studies those activities which are most closely
connected with the attainment and the use of the material requisites of well-
being.

EMPHASIS ON REQUISITES OF WELL-BEING: There is also

emphasis on material requisites of well-being. Obviously, the material things
like food, clothing and shelter are very important economic objects. Material
needs are very basic needs which must be fulfilled before one can think of
other needs.
EXCLUSION OF NON-ECONOMIC ACTIVITIES: Marshall has limited
the scope of economics to those forces and activities which are amenable to
measurement in terms of money. That is why political, social, cultural and
religious activities of human beings are excluded from the purview of
economics as they are not subject to measurement in terms of money.
PIGOU defined “Economics as a study of economic welfare, which is that
part of social welfare that can be brought directly or indirectly into
relationship with the measuring rod of money.”
CRITICISM.
ECONOMICS REGARDED AS A SOCIAL SCIENCE ONLY: Marshall
has been criticised for treating economics as a social science rather than a
human science. A social science studies the actions of the individuals living in
organised communities as members of the society, whereas human being
irrespective of whether he is living as a member of an organised community or
living in isolation. This is something unacceptable because some of the
important laws of economics are relevant to an individual, whether he is a
member of a community or not.

IMPRACTICAL CLASSIFICATION OF ACTIVITIES: A second

criticism against welfare definition pointed out by Robbins is that distinction
between economic and non-economic activities is unscientific, illogical and
illusory since all human activities have an economic aspect. Moreover, welfare is

4|Page
 ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959
composite and it is very difficult to separate material welfare from the total
welfare

MATERIALISTIC ASPECT: Robbins has criticised welfare definitions on

the ground that these definitions include only material things within their
purview. They exclude non-material things like the services of doctors, lawyers,
teachers, etc., from their orbit. These services have nothing material in them.
However, these services also satisfy our urgent needs and thereby promote
welfare. Hence, it is incorrect to say that economics is concerned with material
things only.

RESTRICTED SCOPE OF ECONOMICS: Robbins has also criticised

welfare definitions as they restrict the scope of study of economics. Economics
studies several activities which hardly promote economic welfare. Many goods
like liquor, cigarettes and guns do not promote economic welfare, yet
production of these good constitutes economic activity and hence it is studied
in economic

VAGUE CONCEPT OF MATERIAL WELFARE: The welfare definitions

are also subject of criticisms on the ground that material welfare cannot be
quantitatively measured. Welfare is a subjective thing; it is psychic in nature.
Thus, welfare cannot be measured in objective terms.
SCARCITY DEFINITION – LIONEL ROBBINS
According to Robbins, “Economics is the science which studies human
behaviour as a relationship between ends and scarce means which have
alternative uses.”
BOOK-Essay on the Nature and Significance of Economics
ROBBINS’S DEFINITION EMPHASIS FOUR FUNDAMENTAL
CHARACTERISTICS OF HUMAN LIFE
UNLIMITED ENDS (WANTS): Ends here refer to human wants. A
fundamental fact of economic life is that ends or human wants are unlimited
and tend to multiply over time. It is not possible to satisfy all the wants. All
wants are not of equal intensity. Since wants are unlimited, we have to make a
choice between the more important and less important wants.

SCARCE MEANS: The second fundamental fact of economic life is that

means to satisfy human wants are limited. Means refer to various productive
resources such as land, labour, capital, etc., which are needed to satisfy human

5|Page
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959
wants. It should be noted here that the term scarcity is used not in the absolute
sense but in the relative sense, i.e., in relation to demand. Since the resources
are scarce, all the wants cannot be satisfied. Hence, we have to decide which
of the wants can be fulfilled now and which ones should be left unfulfilled for
the time being. In the words of Prof. Milton Freidman, “If the means are
not scarce, there is no problem at all; there is Nirvana.” Scarcity is at the
root of most of the human economic problem.

ALTERNATIVE USES OF MEANS: The third fact which Robbins’

definition emphasises is that resources can be put to alternative uses. The use
of scarce resources in the production of one commodity prevents its use for
any other commodity. Therefore, the society has to make decision as how to
allocate the scarce resources in the production of different commodities.

CHOICE: Since the resources are scarce and are also capable of alternative
uses and the human wants (ends) are endless, people have to make choice inn
allocating these resources for producing different commodities on the basis of
their relative importance. Robbins has described this problem as the problem
of economising scarce resources.

ECONOMICS AS A SCIENCE: According to Robbins, economics is a

science. It provides a systematic knowledge with regard to human efforts in
solving economic problems arising out of scarce means and unlimited wants.
Economics is about making choices in the backdrop if scarcity. Economics
formulates various economic laws which help in solving economic problems.
MERITS
LOGICAL EXPLANATION OF ECONOMIC PROBLEM: Robbins’
definition very clearly brings out the root cause of economic problem, which
forms the foundation of economics as a social science. According to
Robbins’ definition, economic problem arises due to scarcity of means in
relation to their demand.

UNIVERSAL NATURE: The scarcity definition of economics emphasises

the universal nature of the subject in the sense that a universal problem –
everywhere and at all times. Rich as well as modern economies face the
problem of choice.

6|Page
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959
HUMAN SCIENCE: Robbins points out that economics is a human
science and not merely a social science. This is because the problem of
choice and resource allocation is faced by an individual irrespective of
whether he is a member of an organised community or is living in isolation.

WIDER VIEW OF ECONOMIC ACTIVITY: According to Robbins,

economics studies all economic activities – whether they relate to the
production of tangible (material) commodities or services – provided they
involve scarcity of means in relation to unlimited wants.

POSITIVE SCIENCE: Robbins emphasises that economics is a positive

science. Economics is a systematic body of knowledge which provides the
framework within which one can analyse economic problems faced by the
society. Robbins’ definition imparts economics the nature of a positive
science because it regards economics to be neutral between ends.
CRITICISMS
NARROW VIEW OF ECONOMICS: Robbins’ definition has been
criticised on the ground that it regards economics as a positive science by
making it neutral between ends. Many contemporary economics believe that
they as economists are required to tell what is good or bad about certain
choices. There is general agreement among economists at present that
economics is not only a positive science but also a normative science. Positive
science is concerned with ‘what is’, whereas normative science us concerned
with ‘what should be’ or ‘what ought to be’. Thus, critics consider the ‘scarcity
definition’ as narrow and restrictive in nature. As economists have to advise
on policy matters, economics cannot remain neutral between ends.

RESTRICTED SUBJECT MATTER OF ECONOMICS: A serious

objection against Robbins’ definition is that it has restricted the subject matter
of economics by restricting it to the theory of resource allocation, i.e., the
theory of product and factor pricing. It does not focus on the important
economic issues of economic instability, unemployment, income
determination and economic growth and development, etc.

STATIC DEFINITION: The greatest defect in Robbins’ definition, as

pointed out by critics, is that it is static in its contents. According to the critics,
Robbins has taken into account the possibility of increase in resources over
time. Robbins’ definition is regarded as static as it takes into consideration
presently available means only.

7|Page
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959

ECONOMICS AS A SCIENCE: Robbins has treated economics as a

science only. But in fact, economics is both a science and an art. Scarcity
definition of economics has reduced economics into a pure science, a science
that is concerned with formulation of economics laws only. Economists these
days are considered as not only ‘tool-makers’ but also ‘tool-users’

ECONOMIC PROBLEM MAY NOT ALWAYS ARISE FROM

SCARCITY: Some critics point out that economic problem does not always
arise from scarcity as suggested by Robbins. It can sometimes arise from
abundance as well.
GROWTH-ORIENTED DEFINITION – SAMUELSON
According to Samuelson, “Economics is the study of how people and society
choose, with or without the use of money, to employ the scarce productive
resources, which have alternative uses, to produce various commodities over
time and distribute them for consumption now or in the future among
various people and groups in the society.”
SAMUELSON’S DEFINITION OF ECONOMIC EMPHASISES THE
FOLLOWING:
EMPHASIS ON ECONOMIC PROBLEMS: Like Robbins, Samuelson
also emphasises the problem of choice arising out of scarce resources and
unlimited wants. Thus, this definition gives a realistic explanation of economic
problems.

LONG-TERM PERSPECTIVE: The problem of scarcity of resources is

not merely confined to the present time but also to the future. Wants are not
static, they are dynamic. Wants grow and multiply over time. Thus, Samuelson
has taken the long-term perspective of economic problems. Herein lies the
superiority of Smauleson’s definition over that of Robbins.

DYNAMIC APPROACH: [Link] has adopted a dynamic approach

to the study of economics by taking economic growth as an integral part of
economics. As such, his definition has imparted dynamism to economic
problems. This has widened the subject matter of economics.

UNIVERSAL PROBLEM: Samuelson’s definition is not only dynamic in

content, it is also wider in scope. Prof. Samuelson has rightly emphasised that

8|Page
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959
the problem of resource allocation is a universal problem both for barter
economies as well as for money-using exchange economies.
COMPREHENSIVE: Samuelsson’s definition of economics is very
comprehensive. It is growth-oriented as well as future oriented. It has
incorporated Marshall’s welfare aspect as well as Robbins’ scarcity and choice
aspect.
BROADER PERSPECTIVE: Samuelson’s definition has broadened the
subject matter of economics so as to include consumption, production,
exchange, distribution, economic growth, etc.
Samuelson’s definition is considered to be the most satisfactory because-
It presents the problem of choice in its dynamic setting.
It has also widened the subject matter of economics.
Samuelson’s definition has also a universal appeal.
It is applicable to all types of economies – capitalists, socialist and mixed.
That is why Samuelson’s definition is the most accepted definition of
economics today.
There is no universally accepted definition of economics because-
Economics is a fast growing science, and the subject matter of economics
has grown so vast that it is not possible to give a precise definition of
economics for all times.
The boundaries of economics have been expanding continuously because
‘Economics is (still) an unfinished science (Zeuthen).
SUBJECT MATTER OF ECONOMICS
TWO BRANCHES
Microeconomics
Macroeconomics.
MICROECONOMICS
The prefix ‘micro’ is derived from the Greek word ‘mikros’, meaning
‘small’.
Microeconomics studies the economic behaviour of individual
economic units and individual economic variables.
MACROECONOMICS
The prefix ‘macro’ is derived from the Greek word ‘makros’, meaning
‘large’.
Macroeconomics is the study of the economy as a whole.

9|Page
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959
Thus, macroeconomics deals with the functioning of the economy as a
whole.
Boulding states: “Macroeconomics deals not with individual quantities
as such but with aggregate of these quantities; not with individual
income but with national income; not with individual prices but with
the price level; not with the individual outputs but with national
output.”

INTERDEPENDENCE OF MICROECONOMICS AND

MACROECONOMICS
Microeconomic variables and macroeconomic variables are interdependent.
Therefore, as we analyse microeconomic variables, we have to take account
of macroeconomic variables that may affect the microeconomic variables,
and vice versa.
The basic goal of both the theories is the same – maximisation of material
welfare of the people.
From the macro point of view, the national’s material welfare will be
maximised by achieving full utilisation of productive resources of the
economy.
However, from the micro point of view, the economic welfare will be
maximised by achieving optimal allocation of resources.
DEFINE ECONOMICS ACCORDING TO [Link]
According to Lord J.M. Keynes- Economics is a study of administration of scarce
means and the determinates of employment and income

10 | P a g e
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959

DISTINGUISH BETWEEN MICROECONOMICS AND MACROECONOMICS

BASIS MICROECONOMICS MACROECONOMICS
Unit of Study Microeconomics studies the economic behaviour of The unit of study in macroeconomics is the entire
individual units make decisions and what affects these economy macroeconomics is concerned with the
decisions like individual households, firms, industries behaviour of the economy as a whole.
and individual markets.
Focus of Study Microeconomics deals with the determination of prices Macroeconomics, deals with board economic
and quantities in individual markets. It is concerned with aggregates like national income, total employment,
allocation of resources among individual firms and aggregate savings and investment, general price level,
industries. Microeconomics deals with the functioning economic growth and balance of payments.
of various markets-both commodity markets and factor
markets – and the relationship among these markets.
Basic Parameter of While price is the basic parameter of the subject matter National income is the basic parameter of
the Subject Matter of microeconomics macroeconomics.
In case of microeconomics, economic units like Macroeconomics, economic decision relating to
households and producers take economic decisions on aggregate consumption, aggregate investment, etc.,
the basis of prices in different markets. are taken on the basis of national income.

Different Microeconomics is the bottom-up view of the economy macroeconomics is the top-down view
Perspective
Method of Study Microeconomics uses the technique of ‘partial Macroeconomics, on the other hand, uses the
equilibrium analysis’. technique of ‘quasi general equilibrium analysis’.
In partial equilibrium analysis, we make the assumption Mutual dependence of macroeconomic variables is
of ceteris paribus order, i.e., other things being equal. the centerstage of macroeconomics.
Nature of In microeconomics it is assumed that total output, Macroeconomics assumes allocation of resources,
Assumption income and employment, general price level etc., (i.e., distribution of output, spending on particular goods
economic variables of macroeconomics) is given. On the and services, relative prices, etc., (i.e., economic

11 | P a g e
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959

basis of these assumptions, microeconomics studies the variables of microeconomics) as given. On the basis
problem of optimal allocation of resources. of these assumptions, macroeconomics explains
how aggregate output, income, employment and
price level, etc., are determined in the economy as a
whole.

12 | P a g e
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959

EXTRA NOTES

13 | P a g e
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959

CHAPTER 2
BASIC CONCEPTS OF ECONOMICS
WANTS
1-What is the difference between Wants and Desire
‘Desire’ is the wish to have something.
‘Want’ is an effective desire for a particular thing, which can be satisfied by
making an effort to acquire it.
2-Classify different wants
PRIMARY WANTS---Necessities
SECONDARY WANTS---Comforts and luxuries
3-What are Primary Wants?
Ans- Primary wants refer to wants refer to wants for those goods which are
necessary for the very existence of human life and for the maintenance of normal
efficiency.
4-Which are two categories of primary wants?
Those want which are necessary for the existence of human [Link]-Food,
clothing and shelter are such essential wants.
Wants for those goods which are necessary for maintaining normal
efficiency of individuals. Eg-tables and chairs may be regarded as necessities
for students.
5-What are Secondary Wants?
Ans- Secondary wants are those which relate to wants for those goods which
cater to comforts and luxuries of life.
6-Which are different types of Secondary wants?
Wants for Comforts: These are the wants for those goods which are source
of comfort and happiness for people. For example, a sofa set in a room, a
music system in the house
Wants for Luxuries: Wants for luxuries refer to wants for those goods
which are very expensive and which are meant to how the wealth and power
of a person. Modern and costly houses, expensive jewellery

14 | P a g e
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959

7-State the Features of Human Wants

➢ WANTS ARE UNLIMITED: The basic and the most important feature of
human wants is that they are unlimited or endless. Wants are unlimited because
people have multiple wants.
➢ WANTS ARE COMPLEMENTARY: Many of the wants are found
simultaneously. When two or more goods are wanted together, the want for
these goods is said to be complementary. The want for a car creates the want
for petrol.
➢ SUBSTITUTION OF WANTS: A particular want can be satisfied by one
good or the other. For example, if we are thirsty, our thirst can be satisfied by a
cold drink or by a glass of juice.
➢ WANTS ARE COMPETITIVE: Man has limited income with which he can
purchase either one commodity or the other.
➢ WANTS MULTIPLY: An important characteristic of human wants is that
they tend to multiply over time. With the growth of human knowledge and
science and technology, new goods have been produced. This has led to
creation of new wants.
➢ WANTS RECUR: The basic characteristic of human wants is that they can be
satisfied only temporarily. Therefore, they appear again and again and have to
be satisfied every time.
➢ A SINGLE WANT CAN BE SATISFIED: Although all the wants taken
together cannot be satisfied, yet it may be possible to satisfy a single want or a
few wants. This is because the resources are insufficient to satisfy all the wants
simultaneously.
➢ SOME WANTS CAN BE POSTPONED: Some wants can be postponed
while others cannot be postponed.
➢ WANTS DIFFER IN THEIR URGENCY: Another important feature of
human wants is that they differ in their urgency or intensity. Some wants are
more urgent while others are less pressing. This implies that an individual has a
scale of preference, i.e., he can arrange his wants in the order of their relative
urgency or important to him.
➢ WANTS REMAIN AHEAD OF AVAILABILITY OF GOODS AND
SERVICES: The hard truth of life is that human wants for goods and services
have always remained ahead of availability if those goods and services.
CONSUMPTION
1-Which are two categories of commodities?
Ans- Commodities are divided into two categories--goods and services.

15 | P a g e
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959

2-Differentiate between goods and services

• Goods are tangible or material things such as shirts, cars, etc.
• Services are non-tangible things such as education, medical services, haircuts,
music, etc. goods and services need to be consumed in order to satisfy
human wants.
3-Define Consumption
Ans-The act of using goods and services to satisfy human wants is called
consumption.
4-Who is Consumer?
Ans-Anyone who consumes goods and services to satisfy his or her wants is called
a consumer.
5-What is Sustainable Consumption?
Ans-Sustainable consumption is the consumption of goods and services which
meets the needs of people and improves the quality of life without having any
adverse impact on the environment and needs of the future generations.
6-State Significance of Consumption
Consumption is the primary motive for economic activities. All economic
activities like production, exchange and distribution arise due to the
consumption requirement in an economy.
Consumption is the end purpose of all economic activities. Economic
activity starts with the act of production of goods and services and ends
with the use of these goods and services for consumption.
Consumption is the index of standard of living. The level of consumption
and the types of goods consumed determine the standard of living of the
people.
Consumption is the basis of economic welfare. Economic welfare refers to
the total satisfaction obtained from the consumption of economic goods.
The larger the consumption of goods and services, the larger is the
economic welfare.
Consumption is the major determinant of employment. The level of
employment in an economy depends on the aggregate demand. Aggregate
demand depends largely on total consumption.
UTILITY
1-What is Utility?
Ans-Utility refers to the want-satisfying power of a commodity.
16 | P a g e
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959

2-How is Utility defined in objective term?

Ans-In objective terms, utility may be defined as the amount of satisfaction
derived from a good or service at a particular point of time.
3-State Features of Utility
UTILITY IS SUBJECTIVE: Utility is subjective, i.e., it cannot be
observed and identified. It depends on the individual’s own subjective
estimate of the amount of satisfaction he is likely to get from a good or
service. It resides in the mind of the people.
UTILITY IS NOT MEASURABLE: Since utility is subjective, it cannot
be measured in objective terms. It cannot be quantified and cannot be
measured by any measuring rod. However, some economist maintains that
utility can be measured.
UTILITY IS RELATIVE: Utility is not absolute but relative in view of its
subjective nature. It is relative to a person’s need. Therefore, it varies from
person to person. Moreover, utility of a thing to a person depends on his
intensity of desire for the commodity; the greater the need, the greater is the
utility. It varies from place to place, time to time and circumstance to
circumstance.
UTILITY IS DIFFERENT FROM USEFULNESS: Utility should not
be confused with usefulness; the two are different. A commodity may
possess utility even though it may not be useful. Thus, the utility of a
commodity has nothing to do with its usefulness; it may or may not be
useful but so long as it has some use to an individual, it has utility.
NO MORAL OR LEGAL CONNOTATIONS: Utility has no ethical or
legal connotations. Utility has no ethical or moral implications. It is neutral,
between good and bad, between useful and harmful. A commodity may be
considered immoral for some, but still it may possess utility.
UTILITY IS ABSTRACT: Utility is abstract in the sense that it cannot be
seen or touched.
4-Define
Total Utility -Total utility refers to the entire amount of satisfaction
obtained from consuming a given quantity of a commodity.

Marginal Utility-Marginal utility is the additional utility arising from the

consumption of one more unit of a commodity.

Law of Diminishing Marginal Utility: It is generally observed that as the

amount consumed of a commodity increases, the utility derived from the
additional units, i.e., marginal utility, goes on decreasing. This tendency of
17 | P a g e
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959

decrease in the marginal utility with successive increase in consumption of a

commodity is known as “the law of diminishing marginal utility”
PRODUCTION
1-What is production?
Ans-The act of making goods and services is called production.
2-How is Production defined in wider sense?
Ans-Production is used in the wider sense, production means the creation of
utility.
3-Which are the different ways of Utility?
FORM UTILITY: Form utility is one the ways by which utility can be
increased. It involves changing the form of a good from raw material to the
finished product.
PLACE UTILITY: Utility can also be increased by transferring goods
from one place to another.
TIME UTILITY: Time utility is created when goods are made available at
the time when they are needed.
SERVICE UTILITY: Service utility results from the provision of
personal services by the individual such as doctors, teachers, engineers,
transporters, bankers, retailers, etc.
3-Who is producer?
Ans-Anyone who helps to make goods or services is called a producer.
FACTORS OF PRODUCTION
1-What is factor of Production?
Ans-Goods and services are produced with the help of factors of production.
Productive resources are known as factors of production.
2-Why are productive resource called as factor of Production?
Ans- They are called factors of production because they are used in the process of
production. Factors of production are sometimes called inputs.
3-Name factors of Production
Ans-Factors of production are usually classified by economists into four main
groups: land, labour, capital and entrepreneurship.

18 | P a g e
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959

4-What is Land?
Ans-Land, includes all those free gifts of nature such as land, forests, minerals, etc.,
which are commonly called natural resources.
5-What is Labour?
Ans-Labour is the human effort, both physical and mental, involved in the process
of production.
6-What is Capital?
Ans-Capital is defined as the man-made or produced means of production,
consisting of such things as machinery, tools, equipments and factory buildings,
which are used in future production, i.e., in making other goods and services in
future.
7-State two features about Capital
➢ Capital is produced by human beings; it is not a gift of nature.
➢ Capital is used as a resource to produce other useful goods or services.
8-What is entrepreneurship?
Ans-An entrepreneurship is the one who organise production, takes important
decision regarding production and bears the risk and uncertainty involved in
production.
9-Who is entrepreneur?
Ans-When a new firm is set up someone must organise the new firm, arrange
finances, hire employees and undertake risks. That person is an [Link]
reward for the services of the entrepreneur is profit.
10-State Characteristics of Factors of Production
Production is the outcome of cooperation among all the factors of
production. For producing any commodity, it is necessary to combine all the
four factors of production.
Though all the factors need to be combined in every productive activity, there
is necessity, however, to combine all the factors in a fixed way.
An important characteristic of factors of production is that it is the services of
the factor rather than the factor itself that contributes to production by using
his skill and knowledge.
All the factors of production have a physical existence. They are tangible
resources, something you can see, touch and handle.
An important fact about factors of production is that the demand for
productive factors is a ‘derived demand’.
19 | P a g e
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959

Lastly, all factors of production do not have the same mobility. In general,
labour and entrepreneurs are more mobile ad compared to land and capital.
11-What is derived demand?
Ans- Derived demand refers to the fact that when firms demand a factor of
production they do so not because that factor input gives direct satisfaction to the
firms, but because the factor input enables them to produce a good which
consumers desire to purchase.
12-What is mobility?
Ans-Mobility’ refers to the ease with which a factor can move from one
employment to another employment or from one place to another place.
PRICE
1-What is price?
Ans-The price of a commodity is the unit or amount of money that has to be given
to get this commodity.
2-How is price expressed?
Ans-The price of a good or a service expressed in monetary units and is also
called ‘absolute price’ or ‘money price’.
3-What are Free goods?
Ans-Goods like air, which are the gift of nature, are known as ‘free goods’ and they
do not have a price.
4-What are Economic goods?
Ans-Economic goods are those which are scarce and they command a price.
Economic goods are produced by using factors of production or resources.
5-Why scarcity is the fundamental problem faced by all economies?
Ans-Scarcity is a fundamental problem faced by all the economies because not
enough resources are available to produce all the good and services that people
would like to consume.
6-Why economic goods have price?
Ans- Economic goods have a price because they are useful as well as scarce in their
availability. It is only because economic goods are useful that they are demanded
by buyers, and only because they are scarce that sellers are prepared to sell them at
a price.

20 | P a g e
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959

7-Goods and services are available at a [Link]?

Ans-Goods and services are available at a price because it involves some cost in
producing these goods and services with the use of scarce resources.
8-How is the price of the goods determined?
Prices are determined through the market forces of demand and supply.
The buyers create the demand for goods and the sellers offer the supply of
these goods to meet the demand of the buyers.
There is competition among the buyers to buy goods. Similarly, there is
competition among the sellers to sell goods.
It is through the interaction of the competitive forces of demand and
supply that the equilibrium price of a good, service or a factor service is
determined.
9-What is equilibrium price?
Ans-Equilibrium price is the price at which quantity demanded equals quantity
supplied.
10-What is Price mechanism?
Ans-The price is a very sensitive index. Prices respond to changes in demand and
supply. Any change in demand and supply conditions bring about change in
equilibrium price. This is known as the price mechanism.
11-What is General Price Level?
Ans-General price level refers to the average level of prices of all goods and
services produced in the economy. It is usually just called the price level.
12-What is inflation and deflation?
Inflation is generally defined as the process of persistent and appreciable rise
the general price level.
On the other hand, a large decrease in the general price level is called
deflation.
INFLATION [OPTIONAL STUDY]
1-What are important facts about definition of Inflation?
➢ Inflation refers to a process of rising prices and not a state of high prices.
➢ Inflation refers to a situation of appreciable or considerable rise in prices.
A modest rise in the price level, say between 1 and 2 per cent per annum, is
not considered as an inflationary rise. It is only when the price rise becomes
excessive and unhealthy that it is regarded as inflationary in character.

21 | P a g e
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959

➢ Rise in price should be prolonged in order to be called as inflationary price

rise. Inflation does not refer to one-time rise in the price level but rather to
persistent rise in the price level.
➢ Inflation is measured as the rate of increase in the price level as indicated by
the price index such as Consumer Price Index (CPI) and Wholesale Price
Index (WPI).
2-Which are two types of Inflation?
➢ ‘Demand-Pull Inflation’
➢ ‘Cost-Push Inflation’.
3-What is Demand Pull Inflation?
➢ Inflation originating from the demand forces is called demand-pull inflation.
➢ Demand-pull inflation occurs when the demand for goods and services
exceeds the supply available at the existing price, i.e., when there is excess
demand for goods and services.
4-What is Cost-Push inflation?
➢ Cost-push inflation refers to inflationary rise in prices which arise due to
increase in costs.
➢ Cost-push inflation may be caused by increase in wage cost and/or increase
in the profit margin.
VALUE
1-Define Value
➢ Value of a commodity refers to the valuation placed by a household on the
consumption of a commodity.
➢ The word ‘value’ has two different meanings, namely
Value-In-Use
Value-In-Exchange.
2-What is Value in use?
Ans-Value-in-use expresses the utility derived from the consumption of a
particular commodity.
3-What is Value in exchange?
Ans-Value-in-exchange relates to market value of a commodity. It is the rate at
which a particular good or service can be exchanged for other goods and services.
In modern monetised economies, the exchange value of goods is expressed in
terms of money.

22 | P a g e
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959

4-In which two ways Value in exchange can be expressed?

Ans-Value (value-in-exchange) of a commodity can be expressed in terms of
nominal value and real value.
5-What is Nominal Value?
Ans-Nominal value of a commodity refers to the value of commodity measured in
monetary units such as rupee.
6-What is Real Value?
Ans-Real value of a commodity refers to the purchasing power of a commodity in
terms of other commodities.
MARKET
1-What is a market?
Ans-A market means a system or a set-up in which the buyers and sellers of a
commodity are able to interact and communicate with each other and strike a deal
about the price and the quantity to be bought and sold.
2-What are the two facts about Market?
➢ The market need not be located in a particular place. The geographical area of
a market may be large or small depending on how scattered the buyers and
sellers are.
➢ Buyers and sellers need not have personal contact with each other. They need
to have a system of communication with each other to make a transaction.
3-What do you mean by size of the market?
Ans-The size of a market refers to the amount of goods and services demanded in
that market. The larger is the amount of goods and services demanded in a market,
the larger is the size of the market.
4-Which are the types of market?
➢ GOOD MARKETS: Goods market are those markets where goods and
services are bought and sold.
➢ FACTOR MARKETS: Factor market are those markets where factor services
are bought and sold such as labour market, capital market, etc.
MONEY
1-What is exchange?
Ans-Exchange is the act of trading the surplus goods people have to obtain the
other things which they require.
23 | P a g e
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959

2-What is Barter system?

Ans-Barter system refers to the system of exchange where goods and services are
exchanged directly for other goods and services. Primitive exchange was carried on
with the help of barter system.
3-What is Barter economy?
Ans-The economy based upon the barter exchange is known as barter economy.
4-What is money economy?
Ans-The economy using money as a system of exchange for carrying out various
types of transaction is known as money economy
5-Define Money
Ans- “Anything that is generally acceptable as a means of exchange and, at the
same time, acts as a measure and story of value.”
6-What is the basic characteristic of Money?
Ans-The basic characteristic of money is that it is generally accepted as a means of
payment for goods and services.
7-What do you mean by general acceptability?
Ans-General acceptability as a means of payment or as a medium of exchange is
the unique feature of money.
8-What doe Money consist of?
➢ Currency comprises currency notes and coins. Currency notes refer to
paper money. Currency notes are issued by the central bank of a country,
which in India is known as the Reserve Bank of India.
➢ Coins refer to metallic coins.
➢ Deposit money or bank money refers to the deposit held with the banks
on the basis of which cheques can be drawn. Cheques are widely used these
days in making payments, particularly for trade and business transactions.
INCOME
1-What is Income?
Ans-Income can be defined as a flow of goods and services or flow of money
accruing to an individual or all the people in an economy over some specified time.
2-What is Money Income?
Ans-Income is measured in terms of some monetary unit like rupee, dollar etc., is
known as money income.
24 | P a g e
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959

3-What is Factor Income?

Ans- Factor income is the income earned by an individual largely by selling his
factor services to firms. Wages, interest, rent and profits are various categories of
factor income.
4-What do you mean by Nation’s output?
Ans-All the firms in the economy produce goods and services, the sum total of
which is known as the nation’s output.
5-What is National Income?
➢ National income is defined as the value of all final goods and services
produced by the normal residents of a country in a year.
➢ According to Dornbusch and Fischer, “National income is the value of
final goods and services produced by domestically owned factors of
production during a given period.”
6-State main features of National Income
➢ In the first place, national income is expressed in monetary terms.
➢ Secondly, national income reflects the value of final goods and services sold
to the final users like households. Intermediate products, i.e., those
goods and services which are further processed before they are used or
sold to buyers, are excluded from national income because their value
is already included in the value of final products.
➢ Thirdly, national income is the flow of final goods and services. Every flow
concept like national income is expressed over a particular time period.
7-What is GDP?
Ans- Gross Domestic Product (GDP) is defined as the value of all final goods and
services produced by all enterprise located within the domestic territory of a
country.
8-How does National income differ from GDP?
Ans-National Income (Gross National Product) differs from GDP to the extent of
net factor income from aboard (the difference between the factor income received
from abroad and the factor income accruing to the foreigners).
Thus, National Income = GDP + Net Factor income from abroad.

25 | P a g e
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959

9-What is Per Capita Income?

Ans-Per capita income of a country is the average income of the normal resident
of a country in a particular year. It is income per head of population. It is obtained
by dividing national income of a country by its population.
Symbolically, Per Capita Income = National Income / Population
SAVING
1-What is saving?
Ans-Saving refers to that part of the income which is not spent on consumption.
2-Explain-
PERSONAL SAVING-Saving done by households is known as personal
savings.
INDIVIDUAL SAVINGS-Savings done by an individual income earner is
known as individual saving.
BUSINESS SAVING- i.e., saving by business, is achieved by not
distributing to shareholders all the profits made in a year. Some profits are
usually retained either to be ploughed back for the expansion of the business
or to be held as liquid reserves.
GOVERNMENT SAVING is the saving done by the central government,
state governments, local authorities and public corporations. Government
saving is achieved chiefly through a ‘budget surplus’, i.e., government
revenue exceeding government expenditure.
PRIVATE SAVINGS- Saving by individuals, by families and by business
firm is known as private saving. It is the saving done by everyone other than
the government in the economy.
AGGREGATE SAVING is the total saving done by all the people in an
economy. It is the sum total of private and government saving.
SAVINGS (plural) is the total amount of saving accumulated over time. It is
the accumulated value of past saving.
INVESTMENT
1-What is Investment?
Ans-Investment is defined as the act of using production resources for the
production of capital goods, i.e., goods that are used for producing other goods
and services in the future. Another name for investment is capital formation.
Investment and for investment is CAPITAL FORMATION.

26 | P a g e
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959

2-What are major components of Investment Goods?

PRODUCERS’ FIXED INVESTMENT: It consists of new capital
goods such as plants, equipments, tools and machinery. Capital goods are
often called producers’ fixed investment.
INVESTMENT IN RESIDENTIAL HOUSING AND NON-
RESIDENTIAL STRUCTURE: It includes investment made in the
construction of residential houses and non-residential structures like office
buildings, power plants, brides, roads, etc. A residential house gives utility
slowly over a long period.
INVESTMENT IN STOCKS: All firms keep stock of raw material, semi-
finished goods and finished goods in factories or shops for smooth
production. A net addition to stocks is considered as an investment because
it represents goods produced but not used for current consumption.
3-What is Gross investment?
Ans-The sum total of expenditure on all investment goods-producers’ fixed
investment, business construction, residential housing, stocks – is called gross
investment.
4-What is depreciation?
Ans- Investment required to keep the existing stock of capital intact by replacing
what has been worn out, or otherwise used up in the process of production, is
known as replacement investment or depreciation.
5-What is Net Investment?
Ans-By deducting depreciation from gross investment, we get net investment. It
is the net investment which increases the total stock of capital in the economy.
WEALTH
1-What is wealth?
Wealth refers to the stock of all those assets which are a source of income.
According to Hanson, “Wealth is a stock of goods at a certain time which
conform to the requirements of possessing utility, limited in supply,
transferability of their ownership from one person to another.”
2-State the characteristics of Wealth
UTILITY: It must possess utility, i.e., it must give some satisfaction.
SCARCITY: It must be limited in quantity i.e., it must be scarce in its supply.
TRANSFERABILITY: It should be transferable, i.e., its ownership can be
transferred from one person to another.

27 | P a g e
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959

EXCHANGE VALUE: It must possess exchange value. All those goods

which have the characteristics of utility, scarcity and transferability possess
exchange value.
3-What is Individual or Personal Wealth?
Ans-Individual or personal wealth refers to stock of all those assets which are
owned by a person.
4-Which are the different ways of holding wealth by individuals?
Some wealth is held as money in hand or in banks like paper money, coins and
chequable deposits with banks.
Wealth is partly kept in the form of financial assets other than money such as
bonds earning a fixed rate of interest, deposits with the companies, shares of
the companies, etc.
Real assets in the form of houses, farms and family businesses.
5-What is National wealth?
Ans-National wealth is the stock of all tangible (real) wealth that contributes to the
production of goods and services.
6-Which are two categories of Tangible Wealth?
REPRODUCIBLE ASSETS: Reproducible assets are man-made and
therefore can be reproduced. These assets consist of:
➢ Fixed assets such as machinery and equipment of all kinds and buildings
and other structures. Some of these reproducible assets like machines,
factories, etc., contribute to the production of goods and services which
people want, while others like houses satisfy the want of the people
directly.
➢ Stocks of durable goods, i.e., inventories, which are used for the
satisfaction of people’s want directly (stock of consumer goods) and
indirectly (stock of raw materials).
NON-REPRODUCIBLE ASSETS: Non- reproducible assets consist of
natural resources such as land, mineral wealth, forests, etc., which are created
by nature. They are regarded as free gifts of nature.
7-Why Financial assets held by domestic residents are not part of National
Wealth?
Ans-Financial assets held by domestic residents are not part of national wealth
because value of the domestic financial liability of the same amount.

28 | P a g e
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959

WELFARE
1-What is Welfare?
Ans-Welfare is taken to mean a sense of satisfaction and happiness, a sense of
well-being among the people.
2-Which are two types of Welfare?
ECONOMIC WELFARE: Pigou defines economic welfare as that part
of social welfare that can be directly or indirectly measured in money
terms. In other words, welfare affected by the factors which can be expressed
in monetary terms is called economic welfare. Therefore, welfare which is
influenced by factors like national income, per capita income, composition of
output, consumption, etc., is termed as economic welfare.

NON-ECONOMIC WELFARE: Welfare affected by factors which

cannot be expressed in monetary terms is called non-economic welfare.
It is the welfare influenced by non-economic factors such as environment,
social relations in the society, law and order, degree of freedom, etc. The
examples of non-economic welfare are political welfare and moral welfare.
3-What is Social Welfare?
Ans-Social welfare is defined as the sum total of the happiness of all the individuals
in the society. It is the sum total of economic and non-economic welfare.
BUSINESS CYCLE
1-What is Business Cycle?
Ans-Business cycle is defined as the recurrent fluctuations in the aggregate
economic activity in an economy.
2-Which are 4 phases of typical Business Cycle?
EXPANSION OR PROSPERITY: The expansion or prosperity phase is
characterised by expansion in the level of output, employment and income.
RECESSION: During the phase of recession, there is a downward trend in
the level of economic activity. It is a sustained period of falling level of
income, output and employment.
DEPRESSION: depression is the phase of a severe recession. It is
characterised by severe and general decline in the level of economic activity.
There is a large reduction in employment, output, income and prices.
RECOVERY OR REVIVAL: It makes the revival of economic activity
from the situation of depression. During this phase, the level of output,
employment and income in the economy rise steadily.
29 | P a g e
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959

AGGREGATE DEMAND AND AGGREGATE SUPPLY

1-What is Aggregate Demand?
Ans-Aggregate demand may be defined as the total amount of goods which all the
buyers of final output in the economy desire to purchase. Thus, Aggregate demand
=C+I+G
Consumer goods are demanded by households for consumption (C).
Goods are demanded by the firms or producers for undertaking investment
(I).
The government also purchases various types of goods (G) to discharge
its responsibilities.
2-What is aggregate supply?
Ans-Aggregate supply refers to the total amount of output which all the firms or
producers are willing to produce in an economy.
BASIC ECONOMIC ENTITIES IN AN ECONOMY
1-Which are three economic entities?[decision makers]
Households or consumers
Firms or producers
Government.
2-Explain
Firms- A firm is defined as the entity which employs factors of production
to produce commodities that it sells to other people.
Government-Government refers to a group of organisations which possess
legal and political power and exercises some control over other sectors of
the economy
Household-Households are defined as persons or group of people living
together who take economic decisions about the types of commodities to be
purchased to satisfy the wants of their family.
3-State the role played by household/consumers in economy
Households are the main owners of productive resources like land, labour
and capital.
Households are the owners and suppliers of productive resources
Household are the consumers of goods and services produced and supplied
by business firms.

30 | P a g e
ECONOMICS ISC FALGUNY MADHANI
STD 11TH 9820949959

4-State the role of Firm

Firms, producers or suppliers interchangeably.
Firms, act as producers in the commodity market
Firms also purchase factor services required to produce goods and services
in the factor market.
5-State the role of Government
The government gets its income largely from taxes imposed on household
and business sectors.
It spends the money collected through taxes to discharge various functions
in the economy such as administration, law and order, construction of
railways, highways, damns, bridges, etc.
STOCK AND FLOW VARIABLES
1-What is ‘stock variables’ and ‘flow variables’?
STOCK VARIABLES ARE THE VARIABLES WHICH ARE
EXPRESSED AT A POINT OF TIME. These variables have no time
dimension. Stock of capital, wealth, number of persons employed, total
bank deposits, total money supply are some examples of stock variables.
THE FLOW VARIABLES ARE THE VARIABLES THAT ARE
EXPRESSED PER UNIT OF TIME, such as per hour, per month or
per year. Thus, flow variables have time dimension.

31 | P a g e
EXTRA NOTES
 CHAPTER 3
BASIC PROBLES OF AN ECONOMY
ECONOMIC PROBLEM
1-What is Economic Problem?
• Economic problem is the problem regarding allocation of limited
resources for the production of alternative goods and services.
• Economic problem is the ‘problem of relative scarcity’ and the ‘problem
of choice’ arising therefrom.
2-What is the fundamental problem of every society?
Ans-Scarcity is the fundamental problem of every society.
3-What is Scarcity?
Ans-Scarcity is a situation when people’s wants exceed their resources.
4-What is economic Scarcity?
Ans-‘Economic scarcity’ refers to the basic fact of life that there exists only a limited
amount of human and non-human resources due to which we are able produce
only a limited amount of economic goods.
5-What is Economic Problem?
Ans- Economic problem is the problem regarding allocation of limited
resources for the production of alternative goods and services.
6-Why Economic problem, is the problem of choice?
Ans-Economic problem is the ‘problem of choice’. Since the resources are scarce
and they have alternative uses, there arises the problem of choice regarding the use
of these resources.
7-What is Law of Scarcity?
Ans-The law of scarcity states that goods are scarce because they are not enough
resources to produce all the goods that people want to consume.
8-What are two major determinants of the types of techniques to be used?
• What techniques are to be used for producing different products depends on
the level of technical knowledge available in the economy. This explains partly
why different economies use different techniques of production.
 • The second factor which determines the choice of technique is the relative
availability of different types of resources. Thus, labour-surplus economies
make more use of labour-intensive techniques as compared to labour-scarce
economies.
9-What two issues are involved in What to Produce?
Ans-It involves two interrelated issues, namely what commodities shall be
produced and in what quantity.
10-Which are two types of techniques of production?
Ans-There are two types of techniques of production-labour-intensive and
capital-intensive.
11-a-What are the basic problems of economy?
1-Problems concerned with allocation of resources
• ‘What to produce’
• ‘How to produce’
• ‘For whom to produce’
2- The problem of economic growth relates to growth of resources.
3-The problem of ‘fuller utilisation of resources’ and efficient utilisation of
resources’ relate to utilisation of resources;
4-The problem of economic growth relates to growth of resources.
b-On what assumptions is production Possibility curve based?
• The amount of productive resources is fixed.
• There is no change in technology.
• All the productive resources are fully employed.
• Resources are not equally efficient in the production of all the goods. This
implies that as resources are transferred from one use to another, there is
decrease in their efficiency resulting in increase in the cost of production.
12-What is Production possibility curve/Transformation curve?
Ans-A production possibility curve is the curve which shows various combinations
of two goods that can be produced with available techniques and with given
amount of resources
13-Why is Production possibility curve called as transformation curve?
Ans-It depicts a society’s menu of choices between two goods. It tells us that if the
economy wants to produce more of one commodity, it will have to transfer or
divert resources from the production of another commodity to the production of
this commodity. That is why the production ‘possibility curve’ is also called
‘transformation curve’.
ANSWER IN LONG
1-Why Does Economic Problem Arise?
Unlimited Wants:
• Human wants are unlimited.
• Human wants are multiple and they tend to multiply over time.
• Many wants keep on recurring.
• Wants differ in their urgency; some wants are more urgent while others are
less pressing.
• Therefore, individuals can list various wants in order of their urgency or
importance to them and can always choose between different wants.
• So is the case with the whole economy.
Limited Resources:
• While human wants are unlimited, resources available to satisfy human
wants are limited.
• The resources of a society consist of land, labour, capital and
entrepreneurship.
• These productive resources are called factors of production because they are
used in producing goods and services.
• These productive resources are themselves in limited supply or are scarce.
Resources Have Alternative Uses:
• Resources can be put to alternative uses.
• Economic problems arise from the scarcity of resources relative to human
wants.
• Since resources are limited, society has to choose between alternative uses of
the available resources. This is known as the problem of choice.
• Economic problem, therefore, is essentially the problem of choice.
• By economising of resources we mean that the available resources
should be allocated among different uses in such a way that resources
are put to their best possible use.
 • It refers to the best use of available resources so as to maximise output.
2-Explain basic or central problems of an economy
WHAT TO PRODUCE:
• The first central problem which every economy has to face is briefly termed
as ‘what to produce’.
• It involves two interrelated issues, namely what commodities shall be
produced and in what quantity.
• The fact that resources are scarce means that the society cannot produce all
the goods and services it wants.
• Therefore, the fundamental task of an economy is to decide which
commodities to produce and in what quantities.
• Problem of what to produce is the problem of resource allocation since
choosing to produce a particular commodity means allocating resources for
the production of that commodity.
HOW TO PRODUCE:
• The second problem which an economy has to face is how goods are
produced.
• This is the problem of ‘choice of method or technique of production’ from
various alternative techniques available, using different combinations of
resources like labour and capital.
• Broadly, there are two types of techniques of production namely labour-
intensive and capital-intensive.
• A labour-intensive technique uses more of labour and less of capital to
produce a given quantity of output.
• There are two major determinants of the types of techniques to be used.
• What techniques are to be used for producing different products depends on
the level of technical knowledge available in the economy. This explains partly
why different economies use different techniques of production.
• The second factor which determines the choice of technique is the relative
availability of different types of resources. Thus, labour-surplus economies
make more use of labour-intensive techniques as compared to labour-scarce
economies.
FOR WHOM TO PRODUCE:
• For whom to produce is the problem of ‘distributing the total output of
goods and services’ produced in an economy among its members.
 • Obviously, goods and services would be acquired by those who can pay for
them, i.e., who possess money income.
• The problem, therefore, tantamount to the problem of distribution of
income among the income-earners.
• Various factors of production cooperate to produce goods and services
during a year.
• The sum total of these goods and services (final goods and services) is
called national product.
• National product generates national income, which is distributed among
various productive resources in the form of various types of factor incomes
such as wages, interest, rent, etc.
PROBLEM OF FULLER UTILISATION OF RESOURCES:
• This is the problem of employment and unemployment of resources.
• Resources are not fully employed.
• Unemployment of resources implies that capacity to produce some goods
goes waste and the society loses goods and services that could have been
produced by these idle resources.
• Therefore, one of the problems which every economy would like to tackle is
how to make full utilisation of resources, i.e., how to avert the situation of
unemployment of resources,
PROBLEM OF EFFICIENT USE OF RESOURCES:
• Another important problem faced by every economy is to attain efficiency
in the use of resources.
• Efficient use of resources means avoiding wastage of resources.
• In a positive sense, efficient use of resources means using the economy’s
resources in the most efficient way to satisfy people’s wants and desires.
• By efficiency we mean that the resources are put to their best possible use.
• Resources are efficiently utilised if their allocation is such that they are able
to produce the maximum output.
PROBLEM OF ECONOMIC GROWTH:
• The problem of economic growth is the problem of increasing the capacity
of an economy to produce more goods and services over the years.
• Capacity to produce is largely determined by the amount of resources and
efficiency of resources.
 • Therefore, the capacity to produce in an economy increases with increased
availability of resources as well as through increase in their resources along
with an increase in the efficiency of resources.
• This is the problem of economic growth.
• Therefore, every economy wants to increase its production capacity so as to
increase national income and per capita income. Economic growth is
traditionally measured by per capita income.
3-Draw Production Possibility Curve for the following

4-State Features of Production Possibility Curve

The Production Possibility Curve Slopes Downwards to Right:
A downward sloping production possibility curve indicates that the economy must
give up some quantity of one good to obtain additional quantity of the other good,
assuming that resources are given and they are fully utilised in the most efficient
way.
It is Concave from the Origin:
A concave shaped production possibility curve indicates increasing opportunity
cost. The reason for the increasing opportunity cost (real cost) is that resources are
not equally efficient in the production of all the goods.
5-State and explain basic Problems on a Production Possibility Curve
THE PROBLEM OF SCARCITY:
 This is implied by all those combinations of the two goods which lies
outside the production possibility boundary
Points outside the production possibility boundary show combinations that
cannot be attained because sufficient quantity of resources is not available to
produce them.
The economy does not have enough resources to produce those quantities.
It is only the points on or inside the production possibility curve that are
attainable, i.e., the combinations that can be attained with the available
resources.
THE PROBLEM OF CHOICE:
This is indicated by the need to choose between the attainable points on the
production possibility curve
Given the production possibility curve, the only way to raise production of
one good is to lower the production of the other good.
THE PROBLEM OF WHAT TO PRODUCE:
The problem of what quantity of the two goods is to be produced is
represented by any particular point on the production possibility curve.
Different points on the production possibility curve represent different
combinations of the two goods.
At what point the economy decides to operate depends on tastes and
preferences of the individuals in the economy.
PROBLEMS OF FULL AND EFFICIENT UTILISATION OF
RESOURCES:
If all the resources are fully and efficiently utilised, the production will take
place at some point on the production possibility curve
But if the economy is producing any combination of goods lying inside its
production possibility curve, it would mean that either some of its resources
are lying idle, or some of its resources are used inefficiently in production.
PROBLEM OF ECONOMIC GROWTH:
A production possibility curve is drawn on the assumption of given
resources and given technology.
Economic growth results in increased availability of resources and
technological development.
As a consequence, the capacity of the economy to produce goods and
services increases.
Economic growth shifts the production possibility curve outward
EXTRA NOTES
 CHAPTER: 4TH
TYPES OF ECONOMICS
TWO TYPES OF ECONOMIES ON THE BASIS OF ECONOMIC
DEVELOPMENT
DEVELOPED ECONOMIES
DEVELOPING ECONOMIES
THREE TYPES OF ECONOMIES ON THE BASIS OF NATURE OF
ECONOMIC SYSTEM
CAPITALISM
SOCIALISM
MIXED
UN Classification
On the basis of Gross National Income (GNI) per capita of 2017,world is
divided into three categories of economic devlopment
Low income countries with GNI per capita of US $995 or less.
Middle income countries with GNI per capita ranging between US $996 and
$12,055.
High income countries with GNI per capita of US $12,056 or more.
❖ Low income countries and middle income countries combined together are
popularly described as developing economies or underdeveloped economies.
❖ High income countries are popularly called developed countries.
DEVELOPED AND DEVELOPING (UNDERDEVELOPED)
ECONOMIES
Meaning of Developed economy
A developed country is defined as the country which has a high real per capita
income. In view of the high per capita income, people in the developed countries
are able to enjoy a higher standard of living. Thus, those countries of the world
which have high per capita real incomes are considered to be developed countries.
Example- USA, Canada, Australia, New Zealand, Japan, the West European
countries and some of the East European countries
Meaning of underdeveloped/developing economy
An underdeveloped or developing country, on the other hand, is defined as a
country in which real per capita income is low and which has the potentiality of
development.
Two features emphasised by definition of underdeveloped economy
First, a developing economy is defined in terms of low per capita income.
Low per capita income is taken in the relative sense.
Second, an underdeveloped country is one which has the potential of
development so as to increase its per capita real income.
Characteristics of Developing (Underdeveloped) Economies
Low per capita income, much lower than that of the developed countries.
Existence of widespread poverty.
Large income inequalities.
Predominance of agriculture as a source of income and employment.
High growth rate of population.
Deficiency of capital in terms of small stock of capital and low rate of capital
formation.
Poor quality of human capital such as low rate of literacy, low level of
education, inadequate availability of health facilities like doctors and
hospitals
Use of traditional and less efficient techniques of production.
High and rising level of unemployment and underemployment.
Low level of productivity.
Low level of living-low standard of living, inadequate diets, lack of safe
drinking water, lack of sanitation, inadequate housing, etc.
Low quality of life-low life expectancy, high infant mortality.
Underdeveloped infrastructure in terms of shortage of transport,
communication and power supply, lack of financial institutions like banks,
etc.
Unfavourable social structure and value system.
Differences between Developed and Developing (Underdeveloped)
Economies
Characteristics of a Developing Characteristics of a Developed Economy
(Underdeveloped) Economy
1. Low per capita income. 1. High per capita income.
2. Low standard of living. 2. High standard of living.
3. Existence of widespread poverty. 3. Low incidence of poverty.
4. Large income inequalities. 4. Narrow income inequalities.
5. Predominance of agriculture as a
source of employment.
 6. Higher contribution of agriculture 5. A large proportion of labour force
in national income. depends on industrial and service
7. High growth rate of population. sectors.
8. High level of unemployment. 6. Higher contribution of industrial and
9. Low rate of saving and capital service sectors in national income.
formation. 7. Low growth rate of population.
10. Inadequate infrastructure. 8. Low level of unemployment.
11. Use of traditional and less efficient 9. High rate of saving and capital
techniques of production. formation.
12. Poor quality of human capital, low 10. Substantial infrastructural facilities.
literacy ratio, low level of 11. Use of modern and advanced techniques
education, inadequate availability of production.
of health facilities and poor 12. Better quality of human capital, high
sanitation facilities. literacy ratio, higher education level,
13. Predominance of primary exports. adequate availability of health and
sanitation facilities.
13. Exports of largely industrial products
and services.

CAPITALISM (CAPITALISTIC ECONOMY)

Meaning-A capitalistic economy is an economy in which productive resources are
owned by private individuals who use these resources to earn profits and in which
the state intervention is minimum so that economic activities are mostly unplanned
and uncoordinated.
Other names-
As the capitalistic economy is based on free enterprise with minimum interference
by the government, a capitalistic economy is also known as ‘free enterprise
economy' or 'market economy’ or laissez-faire economy and so on.
Countries example- USA, UK, France, Japan, Australia and most of the countries
of Western Europe.
FEATURES OF CAPITALISM (CAPITALISTIC ECONOMY)
The following are the main features of capitalism:
1. Private Property: The fundamental feature of a capitalistic economy is that
productive forces like land, factories, mines, machinery and other resources are
owned by private individuals. Private property means that individual owners of the
productive forces have the right to acquire, possess, use and sell property and
productive forces. This means that the owners of the productive resources take
important decisions such as what to produce, how to produce and the amount of
saving and investment in the economy. However, this right is not absolute and
unrestricted. Ownership of private property is subject to various restrictions
imposed by the government
2. Right of Inheritance: The right of inheritance is an essential corollary of
private ownership. The right of inheritance means that the property owned by an
individual can be legally passed on to his legal heirs like sons and daughters. This
provides a powerful incentive to the people to save and accumulate wealth.
3. Freedom of Enterprise and Occupation: Freedom of enterprise and
occupation is an essential feature of capitalism. Freedom of enterprise means that
the private enterprises are free to use productive resources for the production of a
product of their own choice. Freedom of occupation implies that individuals are
free to choose an occupation of their choice in accordance with their education,
talent, ability and efficiency.
4. Freedom of Choice for Consumers: There is freedom of choice for the
consumers in a capitalistic economy. Consumers are free to buy and consume
goods and services of their choice. They are free to spend their income on
whatever goods and services they prefer to buy. It is the choices and preferences of
the consumers that determine the nature and quantity of goods which are produced
in the economy. It is for this reason that the consumer is regarded a sovereign or a
king in a capitalistic economy.
5. Price Mechanism: Price mechanism or market mechanism is an essential
feature of capitalism. Price mechanism is the process through which prices of
goods and services are determined by the market forces of demand and supply. In a
capitalistic economy, every commodity has a price tag attached to it. Prices indicate
consumers' choices and preferences. Price mechanism is fundamental to the
operation of the capitalistic economy. Price mechanism is the basic coordinating
mechanism in a capitalist economy. Economic activities are coordinated largely
through price mechanism. That is why Adam Smith regarded price mechanism as
an 'invisible hand'.
6. Competition: A capitalist economy is characterised by the existence of
competition. Competition means rivalry between the participants in the market. In
a capitalistic economy, there exists a high degree of competition both in the
product market and the factor market. In the product market, producers
compete with each other in order to sell goods and services. Competition ensures
that goods and services are produced at the lowest possible cost of production.
Under competitive conditions, only efficient firms will survive and inefficient firms
will be eliminated. Similarly, competition in the factor market such as labour market
ensures that the factor services like labour give their best performance.
[Link] Motive: Profit motive is an integral part of capitalism. Maximisation of
profits is the sole motive of producers. It is the motivation for carrying out
economic activities. Profit motive is at the heart of a capitalistic economy. It
motivates the producers to undertake production. Allocation of resources is
determined by the profit motive. Producers would produce more of those goods in
the production of which they are able to earn more profits. Profit motive leads to
efficient allocation of resources as well.
8. Self-interest: A capitalist economy is characterised by the motivation of self-
interest. Each individual is guided by self-interest in his economic pursuits. For
instance, the producer aims at maximisation of [Link]-interest is the most
important motivating force in a capitalistic economy. It works as an 'invisible hand'
in coordinating the activities of millions of individuals. It gives direction and
provides orderly behaviour to the functioning of the capitalistic economy.
9. Minimum Government Interference: In a capitalistic economy, there is least
interference by the government in economic activities and in the working of market
forces. Consumers and producers are, by and large, free to take their independent
decisions. Thus, a capitalistic economy is a laissez-faire economy.

MERITS OF CAPITALISM (CAPITALISTIC ECONOMY)

1. Spirit of Enterprise: Force of profit motive has infused the spirit of enterprise
and risk-taking in the individuals. The desire to earn profits has encouraged new
entrepreneurial abilities. Producers are motivated to bring improvements in
production activities in order to earn profits and compete with other producers.
2. Incentive for Technological Progress: Producers have been motivated to
develop new techniques of production so as to survive in the face of competition
and to earn profits. Competition has encouraged producers to invent new and
improved techniques of production and new and improved products.
3. Efficient Use of Resources: In a capitalist economy, efficient individuals are
rewarded and inefficient ones are penalised. Producers are under constant pressure
to maximise efficiency of resources and to keep the cost to minimum in order to
earn high profits. Similarly, the workers work most efficiently in order to earn
higher incomes.
4. Incentive for Capital Formation: In a capitalist economy, the desire to earn
profits provides motive for higher investment. The institution of private property
and inheritance encourages saving and investment. Higher level of saving and
investment leads to higher income and a higher rate of economic growth.
5. New Consumer Goods: The capitalist economy has brought in a flood of new
products. The desire to earn profits has motivated the producers to produce new
variety of products. Competition has also encouraged them to improve the of the
old quality products.
6. Flexibility and Adaptability: The most important virtue of the capitalism is
that it possesses a high degree of and flexibility adaptability. It has adapted itself to
changed conditions and environment. It has successfully withstood various strains
and pressures like political crisis, business cycles and technological changes. It has
shown its flexibility by adapting itself to large-scale production, new techniques of
production and increased regulations by the government.
7. Automatic Working: The capitalist economic system operates in an automatic
manner. There is no planning body and central agency to. take necessary economic
decisions. Yet the capitalist economy operates in a smooth and orderly way. It is
the impersonal forces of price mechanism which enable the capitalist economy to
take all important decisions. Automatic functioning mechanism in a capitalist
economy helps the producers in solving the basic problems of 'what to produce',
'how to produce' and for whom to produce'.
8. Economic Freedom: A capitalist economy is founded on freedom. The
restrictions by the government are kept to minimum. There is freedom to
consumers and producers, and freedom to save and invest. Freedom to enterprises
constitutes the backbone of the capitalist economy. Thus, economic freedom is the
virtue of capitalism.
9. Increase in Production and Standard of Living: The greatest achievement of
the capitalist system is that it has led to a large increase in production and national
income. Countries like the USA, UK, Japan, etc., have experienced a high rate of
economic growth by adopting the capitalist economic system. This has enabled
these countries to raise their standard of living.
10. Expansion of International Trade: The capitalist economic system advocates
free trade between countries. In view of this philosophy, international trade and
global economic interaction have expanded.
DEMERITS OF CAPITALISM (CAPITALISTIC ECONOMY)
1. Inequalities of Income and Wealth: The major shortcoming of the capitalist
economy is that it has led to large disparities in the distribution of income and
wealth. This inequality is inherent in the capitalist system because of the institution
of private property, the right of inheritance and concentration of productive forces
in the hands of a small minority. Consequently in a capitalistic economy, the rich
have become richer and the poor have become poorer.
2. Class Struggle: A capitalist economy has led to a class struggle among various
groups, particularly between the capitalists and the workers. Class struggle is a
direct consequence of inequalities in the capitalist economic system. Capitalist
society has been divided into two groups, namely the capitalists and the
workers, the "haves' and the 'have-nots', the rich and the poor. There is
constant hostility, struggle and animosity between these two groups in the form of
strikes, lockouts, etc. This adversely affects the functioning of the capitalist
economy.
3. Economic Instability: An important shortcoming of the capitalist economic
system is that it can lead to economic instability. Such instability arises because
there is no coordinating agency. There is always the possibility of overproduction
or underproduction, booms and depressions, inflation and unemployment. These
economic fluctuations can cause a lot of human misery and sufferings.
4. Misallocation of Resources: The capitalist economic system has led to
misallocation of resources. In a capitalist economy, rich people have more
purchasing power. Therefore, productive resources are used for the production of
luxuries and comforts rather than necessities because producers earn more profits
from the production of luxuries. The production of necessities is neglected. Such
an allocation of resources is undesirable from the viewpoint of the society.
5. Wastes of Capitalist Production: The capitalist system of production is
responsible for various types of wastes. Some of the wastes are:
Some of the techniques of production are discarded because of the
discovery of new and better types of techniques and the pressure of
competition.
Consumers also discard many consumer goods like cars when new models
are manufactured because of status symbol.
Producers go in for excessive advertisement in order to push up sales. This
leads to increase in cost of production, the burden of which falls on
consumers.
Plant capacity remains underutilised due to cut-throat competition.
6. Emergence of Monopoly Power: Capitalist economies at present are
characterised by the domination of monopolists. A few giant firms control
production in most of the industries. Monopolist firms are exploiting the
consumers by charging higher prices and by restricting output. They are also
responsible for misdistribution of productive resources and concentration of
economic and political power.
7. Neglect of Social Welfare: In a capitalist economy, production is undertaken to
maximise private profit. Therefore, the goal of maximisation of social welfare is
neglected.
8. Domination of Economic Values: Capitalist economic system has promoted
materialism. It has given more emphasis on pecuniary values and self-interest.
Earning money has become the main purpose of life, even if it requires use of foul
methods. In fact, Overemphasis on monetary values has led to numerous personal
and family problems such as disruption of family life, increased divorces and
suicides and more worries. There is the danger of man becoming an economic
robot.
SOCIALISM (SOCIALISTIC ECONOMY)
Meaning- The socialistic economic system is defined as an economic system in
which the means of production are owned by the entire society and the operated by
public authority according to a economic general plan for the benefit of the entire
community.
Examples-Soviet Russia was the first to establish country a socialist (communist)
Most of economy. Russia, China, Cuba and Vietnam.
Features of Socialism (Socialistic Economy)
1. Socialistic Ownership of Productive Resources: Social or collective
ownership of productive resources is the most important feature of a socialist
economy. All the productive resources such as land, mines, mills, factories, banks,
trade, etc, are owned and controlled by the state. However, private property exists
to some extent in the form of productive resources owned by the handicraft
workers and personal possessions like clothes and household goods owned by
households.
2. Economic Planning: Economic planning is an essential feature of socialism.
Planning replaces the price mechanism in a socialist economy. The central planning
authority allocates all productive resources according to a definite plan in
accordance with social and economic goals set by it. All important decisions
regarding what to produce, how to produce, for whom to produce, allocation of
resources and saving and investment are taken by it.
3. Social Welfare as the Motivating Force: Under socialism, social welfare is the
chief motivating force behind all economic activities. The motive of social welfare
replaces the profit motive of capitalism. A socialist economy seeks to maximise the
interest and welfare of the entire society. In a socialist economy, the individual
interest is subordinated to a higher interest of the entire community.
4. Economic Equalities: Socialism is based on the principle of egalitarianism. It
aims at introducing equity in the distribution of income and wealth. It also aims at
providing equal opportunities to all. However, it does not mean that a socialist
society tries to bring about absolute equality. Absolute equality is neither feasible
nor desirable. Socialist society recognises that some income differences are essential
in view of differences in skill, talents and efficiency.
5. Classless Society: A socialist society aims at establishing a classless society. As
all productive resources are owned by the state, the capitalist class simply does not
exist. All people earn their income by working for the state. Therefore, they get
their income in the form of labour income. There is no scope of unearned income.
Class distinctions do not exist in a socialist economy. This means that there is no
scope of economic exploitation in a socialist economy.
6. Elimination of Competition: The socialist economic system eliminates
competition of all types. Since the government has monopoly of production of all
types of goods in a socialist economy, there is no scope of competition and rivalry
among different production units. In a socialist economic system, competition is
eliminated and a spirit of cooperation and mutual goodwill prevails.
Merits of Socialism (Socialistic Economy)
1. Better Allocation of Resources: A socialist economic system leads to better
and efficient allocation of resources for a number of reasons. First, production is done
with the objective of maximisation of social welfare. Second, in a socialist economy, allocation of
resources is made by the planning authority to promote social welfare. Luxuries are not
produced at the cost of the basic necessities of life. Third, a socialist economy is able to
eliminate various types of wastages of resources like expenditure on advertisements.
2. Fuller Utilisation of Resources: A socialist economy ensures that the available
resources are fully utilised. The planning authority would not like the resources to
go unutilised, keeping in mind the welfare of the society. Therefore, unemployment
is eliminated under socialism.
3. Elimination of Economic Instability: A socialist economy is able to avert
economic instability in the economy. All economic decisions are taken by the
central planning authority after undertaking a comprehensive survey of the needs
and resources of the economy. Therefore, there is no possibility of overproduction
and underproduction, i.e., booms and depressions. Moreover, prices of goods and
services are regulated by the state. As such, there is no possibility of inflation and
deflation.
4. Equitable Distribution of Income: A socialist economy brings about equitable
distribution of income. Socialism aims at the establishment of an egalitarian society.
It provides equal opportunities to all, irrespective of caste, colour and creed.
Moreover, there is no possibility of property income or unearned income. All
income is earned income. Income inequalities arise largely from property income,
which does not exist in a socialist economy.
5. Elimination of Class Struggle: A socialist society is a classless society.
Therefore, there is no scope of class struggle in such a society. There is no
possibility of employers-employees conflict in a socialist society. In a socialist
society, state is the employer which is guided by social welfare motive. The state
has no reason to exploit the workers. Instead, the state gives many benefits to
workers with social welfare in mind.
6. Provision of Social Security: In a socialist society, the state undertakes various
social security measures with the objective of providing basic facilities to all. State
provides the basic facilities of housing, education, health, old-age pensions, etc., to
its people.
7. Increase in Productive Efficiency: A great virtue of the socialistic economic
system is that it ensures higher productive efficiency. This is for a variety of
reasons. There are equal opportunities for all. All are provided jobs. All are
provided social security. There is no exploitation. These factors motivate the
workers to work hard. Moreover, there is no wastage of resources. Resources are
allocated in an optimal way. There is no unutilised production capacity.
8. Rapid Economic Growth: A socialist economic system ensures rapid economic
growth. Being a planned economy, socialistic economy ensures a more effective
and efficient utilisation of the available resources. This ensures higher economic
efficiency. The central planning authority is able to increase the rate of saving and
investment since it has control on consumption and saving. Moreover, the state is
in a position to provide large funds for technological research and thereby is able to
bring about improvement in technologies.
9. Production of More Useful Goods: In a socialist society, luxuries are not
produced at the cost of necessities of life. More emphasis is given on the
production of basic necessities and commodities of mass consumption such as
food, clothing, etc. Moreover, the state lays more emphasis on the production of
social goods such as drinking water, roadways, defence services, etc. These goorts
are consumed by all the people taken together.
Demerits of Socialism (Socialistic Economy)
1. Difficulties Involved in the Rational Allocation of Resources: An important
shortcoming of the socialist economy is that it is difficult to achieve rational
allocation of resources. The reason is that there is no proper basis of cost
calculation. As there are no free and markets competitive for factors of production,
the prices of factors of production cannot be determined. In the absence of of the
prices productive resources, the cost of production of commodities cannot be
calculated. Therefore, it is difficult to have a rational allocation of resources in a
socialist economy.
2. Loss of Efficiency: A socialist economic system may not lead to attainment of
maximum efficiency for many reasons. First, there is a lack of appropriate incentive
system to motivate people to work hard and improve their efficiency. Similarly,
there is no incentive to innovate new methods of production. Secondly, industries
and other economic activities are managed by bureaucrats. These bureaucrats are
not as efficient as private entrepreneurs. Bureaucracy may lead to red tapism, delays
in decision-making nepotism and corruption.
3. Loss of Incentives: There is an absence of appropriate incentives in a socialist
economy. Workers are government servants. Their jobs are protected whether they
work efficiently or inefficiently. They may not have incentives to work hard.
Abolition of private property, free enterprise and competition reduces the incentive
to work. Moreover, bureaucrats lack initiative and drive.
4. Loss of Consumers' Sovereignty: One of the biggest shortcomings of
socialism is denial of consumers' sovereignty. The consumer is no longer the king
as he usually is in a capitalist economy. Production is no longer guided by the
preferences of the consumers. A socialist economy produces goods and services of
a limited variety. Therefore, consumers are denied the choice among varieties of
goods. Consumers get only those goods which the central planning authority
decides to produce.
5. Loss of Freedom: A very serious shortcoming of a socialist economic system is
the loss of freedom. There is no private enterprise in a socialist The economy.
freedom of occupation is absent. Consumers do not enjoy choice in the real sense.
In the absence of economic freedom, people are not able to enjoy civil and political
freedom. There is no freedom of speech and expression in socialist countries.
People are not able to express their grievances freely. A socialist economy often
leads to a regimented economy.
6. Concentration of Economic and Political Power: The socialist economy
leads to concentration of both economic and political power in the hands of the
government. The government has absolute authority in the country. The
productive resources are owned by the government. Economic activities are
controlled and directed by the government. This increases the power of the
government over individuals They may become dictators as was the case with Stalin
in Soviet Russia who functioned as a dictator for about three decades. Socialist
economies have often become authoritarian economies.
7. Loopholes in the Planning Process: The planning mechanism may not work
efficiently because of various loopholes in it. Inadequate information regarding
economic resources and preference of the consumers, and inadequate statistical
data regarding production of various goods and services may stand in the way of
efficient functioning of the planning process. There is also the possibility of faulty
planning in view of political factors. This may stand in the way of a smooth
planning process.
DIFFERENCE BETWEEN CAPITALISTIC AND SOCIALISTIC
ECONOMIES
Capitalistic Economy Socialistic Economy
1. Economic resources are owned by 1. All economic resources are owned
private individuals. The right to by the| State. The right to own
own private property exists. private property 1s absent.
2. Producers, resource owners and 2. There is loss of economic freedom
consumers are free to take with| regard to consumers' choice
economic decisions relating to and allocation of resources by
production, allocation of resources individuals.
and consumption respectively. 3. Planning takes the place of market
3. Price or market mechanism is the mechanism. All important
basic coordinating mechanism. All economic decisions are taken by the
economic decisions are taken central planning authority.
through price mechanism. 4. Maximisation of social welfare is
4. Maximisation of profit is the the chief motivating force behind
principal objective of producers. all economic activities.
5. Competition is an essential part of 5. Competition of all types is
a| capitalistic economy. eliminated in a socialistic economy.
6. There is minimum intervention by 6. It is a state-regulated economy.
the government. 7. Economic and political power is
7. Economic power is concentrated in concentrated in the hands of the
the hands of the capitalist class. government.
8. There exist large inequalities in the 8. It is based on the principle of
distribution of income and wealth. egalitarianism.
9. There exists class struggle among 9. It aims at establishing a classless
various groups. society.
 MIXED ECONOMY (MIXED ECONOMIC SYSTEM)
Meaning--A mixed economy is an economy which combines the elements of both
the capitalist and the socialist economies. It is an attempt to include the best
features of both the free enterprise economy and the controlled socialist economy
while excluding the demerits of both.
Two types of mixed economies-
One form of mixed economy is the one where the government tries to
control and regulate the private sector through its policies of taxation, public
expenditure, bank rate, fixation of wages, labour laws, etc. However, the
government does not directly undertake production activity. This type of
mixed economy exists in most of the developed countries of the world such
as the USA, UK, etc.

The second type of a mixed economy is the one where the government
intervenes in the economic affairs not merely by regulating the private
sector, but also by participating in the production activity. This type of
mixed economy prevails today in most of the developing countries,
including India.
Features of Mixed Economic System
1. Coexistence of Public and Private Sectors: The main feature of a mixed
economy is the coexistence of public and private sectors.
❖ Public sector represents that part of the economy which is operated and
managed by the state or the government. The public sector dominates in
those fields which require a huge amount of investment, which are in the
interest of the entire society, where profitability is low and which have a long
gestation period. Thus, the public sector operates railways, transport and
communication, posts and telegraphs, power projects, steel plants, basic and
heavy industries, banking and finance, etc.

❖ The private sector, includes that part of the economy which is owned,
managed and operated by private individuals. The private sector operates
with the objective of earning profits. It dominates such sectors as
agriculture, consumer goods industries, retail trade, etc. The private sector
basically supplements the public sector rather than competing with it.
2. Coexistence of Capitalist and Socialist Features: A mixed economy
combines the features of both the capitalist and the socialist economies. It is
characterised by the presence of private property, profit motive, competition, price
mechanism and similar features of the capitalist economic system. On the other
hand, there is the presence of economic planning, government regulation of
economic activities and emphasis on economic equality, which characterise a
socialist economy.
3. Economic Planning: An important feature of a mixed economic system is
economic planning. Economic planning is essential to promote economic
development, to ensure smooth and systematic operation of the economy, to
regulate the entire economy and to have coordinated operations of the public and
private sectors.
4. Regulation and Control of the Private Sector: The government plays an
important part in the mixed economic system by regulating the private sector.
There is no room for unregulated private sector in a mixed economy. The
government regulates the private sector through various policies such as taxation
policy, subsidies, monetary policy, licensing policy, anti-monopoly controls, etc.
5. Promotion of Social Welfare: Promotion of social welfare is a very important
objective of a mixed economic system. The government makes efforts to promote
the welfare of the entire community. The government protects the interests of the
labourers through various labour laws. The state provides large employment
opportunities to assist the workers. Laws are enacted to protect the interests of the
consumers. The government tries to minimise economic and regional inequalities
as well.
6. Price Mechanism: In a mixed economy, price mechanism plays an important
role, but not as dominant as in a capitalistic economy. However, price mechanism
is allowed to function subject to certain regulations through price control, fixation
of minimum wages and other such measures. For example, prices of essential
commodities such as railways fares, electricity charges, gas prices, etc., are fixed by
the government.
7. Profit Motive: Though the public sector is guided largely by the motive of social
welfare, profit motive remains the guiding motive for the private sector. Profit
motive and private sector go together. However, the private sector cannot
maximise profit at the cost of social interest.
8. Preservation of Freedom: A mixed economic system is characterised by
economic and political freedom. It provides enough scope for private initiative and
enterprise. Freedom of choice of occupation exists. People are free to save and
invest as they like. Consumers are free to choose the goods and services they want
to consume. However, this economic freedom is not absolute. It is subject to
certain restrictions imposed by the government in the interest of the society.
Similarly, in a mixed economy, people enjoy political freedom subject to certain
restrictions so as to ensure national security.
Merits of Mixed Economic System
1. Proper Allocation of Resources: Economic planning ensures that the
economic resources of the economy are utilised in the best possible way. Resources
are appropriately divided between the public and the private sectors, keeping in
mind the overall interest of the economy.
2. Economic Stability: A mixed economic system ensures economic stability. It
tries to avoid ups and downs in the economy through planning and state regulation.
It eliminates overproduction and underproduction.
3. Advantages of the Market System: A mixed economic system has all the
advantages of the market economy. It retains most of the institutions of the
capitalist economic system such as private property, inheritance right, competition,
profit motive, price mechanism, freedom of enterprise, private initiative, etc. In
fact, the presence of government in a mixed economy ensures that the adverse
effects of these institutions are kept under check.
4. Rapid Economic Development: From the point of view of the economies, the
mixed developing economic system is significant since it ensures rapid economic
development. A mixed economy uses combined the resources and energies of
private and the public sectors to promote economic development. Moreover,
public ownership of productive resources ensures that economic development is
achieved with social justice.
5. Check on Concentration of Economic Power: A mixed economic system is
able to keep a check on concentration of economic power. Monopolistic control of
industries and their exploitative tendencies are curbed. At the same time, inequality
of income is kept under check by the government through the use of progressive
taxation. The government also provides equal economic opportunities to the
people.
6. Economic and Political Freedom: A mixed economic system ensures
adequate economic freedom. Consumers are free to choose the goods and services
they want to consume. People are free to choose occupations they like. At the same
time, the mixed economic system allows civil and political freedom to the people.
Demerits of Mixed Economic System
1. Conflict between the Two Sectors: A serious shortcoming of the mixed
economic system is that collision, bitterness and non-cooperation may take place
between the private and public sectors. In such a situation of mistrust and non-
cooperation, the mixed economy may not function properly.
2. Short-lived Nature: A mixed economic system runs the risk of being short-
lived. It may not continue for a long time. In course of time, each of the two
sectors may attempt to expand at the cost of the other. If the public sector expands
to such an extent that it is able to take over the private sector, a mixed economy
may become a socialist economy. On the other hand, if the private sector proves
dominant, the mixed economy may be converted into a capitalist economy.
3. Inefficient Operation: There is the danger of a mixed economy operating in an
inefficient way. The private sector may not be able to function effectively due to
excessive control and regulations of the government. The public sector, on the
other hand, may not be operating efficiently because of lack of initiative and
responsibility on the part of bureaucrats.
4. Poor Performance of the Public Sector: In a mixed economy, the public
sector has a record of poor performance. The public sector suffers from inertia,
inefficiency and red tapism. The experience of the Indian economy bears testimony
to this fact.
5. Excessive Regulations: A mixed economy is likely to give rise to a system of
excessive controls and regulations. The government may like to regulate the private
sector by imposing excessive controls like licensing system and monetary and fiscal
regulations. These excessive controls may become inconvenient, irksome and may
promote economic inefficiency.

OTHER TYPES OF ECONOMIES

A simple economy- is that economy in which each individual specialises in the
production of one commodity [Link]- In such an economy, one person
weaves the cloth, the other grows wheat, another makes utensils and the fourth
one makes tools and implements, and so on.
A complex economy- is that economy in which there is a high degree of
specialisation, complex division of labour and mutual dependence. For instance,
a labourer in a textile mill either spins or weaves or dyes the cloth. Exchange is
done with the use of money.
A closed economy-is defined as an economy which does not have any
economic transaction with other countries of the world. It does not engage in
international trade. There is no export and import of goods and services in a
closed economy.
An open economy- is that economy which has economic transactions with
other countries of the world. It is engaged in international trade-export and
import of goods and services.
 An agricultural economy- is that economy which is primarily engaged in
agricultural activities. Majority of population lives in rural areas. Most of the
underdeveloped economies are agricultural economies.
An industrial economy-- on the other hand, is an economy which is primarily
engaged in industrial activities. Industrial sector is the major source of
employment in such an economy. Industrial economies are characterised by
concentration of population in the urban areas. Developed countries are mostly
industrial economies.
REGIONAL AND GLOBAL ECONOMIC GROUPING
Why regional groups have emerged/formed by different countries?
Number of regional organisations have been formed by the governments of
different countries.
These regional groups and institutions have emerged both in the developed
and developing countries.
They seek to consolidate their economic, social and political relationship
with each other.
These institutions have been formed with the objective of its member
countries cooperating better to resolve their common problems.
The member countries of each of these institutions are those which tend to
be geographically contiguous.
South Asian Association for Regional Cooperation (SAARC):
1-What is SAARC?
South Asian Association for Regional Cooperation (SAARC)
SAARC is the intergovernmental organisation of South Asian nations.
2-When was it found?
Ans-SAARC was founded on 8 December, 1985 with seven member countries.
3-Who were original and new member of SAARC?
Original seven countries are India, Pakistan, Sri Lanka, Nepal, Bangladesh,
Bhutan and Maldives.
Its membership increased to eight with the joining of Afghanistan in 2007.
4-Where is Secretariat of SAARC?
Ans-SAARC’s secretariat is based in Kathmandu, Nepal.
5-With what objective was SAARC established?
 SAARC was set up with the objective of promoting economic, social and
cultural cooperation among its member countries and also for promoting
friendship and cooperation with other developing countries.
It believes in the respect for sovereignty, territorial independence and non-
interference in the state's internal affairs.
6-State main economic objectives of SAARC
Ans-The main economic objectives of SAARC are:
To promote the welfare of the people of South Asia and improve their
quality of life.
To accelerate economic growth, social progress and the cultural
development in the region.
To promote and strengthen self-reliance among the countries of South Asia.
Association of South-East Asian Nations (ASEAN)
1-What is ASEAN?
Ans-ASEAN-Association of South-East Asian Nations (ASEAN) is a regional
inter-governmental organisation.
2-When was ASEAN established? Who are its members?
ASEAN was established in 1967 by five founding member countries -
Indonesia, Malaysia, Philippines, Thailand and Singapore.
Its membership increased to ten with the joining of Brunei, Vietnam,
Laos, Cambodia and Myanmar.
3-Why was ASEAN established?
Ans-ASEAN was established to promote regional economic, political, social and
cultural cooperation among the member countries.
4-State achievements/contribution/role of ASEAN
It has formulated plans for economic cooperation and reduction of trade
barriers as well as a regional security forum.
In 1999, it created a free trade zone among its members so that it could
compete as a bloc in international trade.
ASEAN is struggling with those political, economic and environmental
problems affecting the region which can be tackled only with the combined
efforts of the member countries.
It has emerged as a platform to promote unity, prosperity, development
and sustainability of the region.
It has been lauded as the best established regional organisation in Asia.
5-State India’s association with ASEAN
In December 2009, India entered into an agreement with ASEAN to
eliminate import duties on a whole lot of manufactured goods.
This has resulted in the free flow of goods.
Both India and ASEAN have emerged as key markets for each other.
The free trade pact has accelerated trade between ASEAN group and India.
European Union (EU)
1-What is EU?
Ans-EU-The European Union is a political and economic union of 28 members
that are primarily located in Europe.
2-What does EU signify?
Ans-European Union is an important example of powerful countries of the world
forming an economic union with the objective of forming a single economy and a
common currency.
3-How was EU formed and expanded?
In 1957, six European countries France, Belgium, West Germany, Italy,
Holland and Luxembourg-signed the Treaty of Rome and created the
European Economic Community (EEC).
Later this became the European Community (EC), and after 1993 the
European Union (EU).
Its membership grew and its geographical Scope expanded to include 15
countries by 1997, with the joining of United Kingdom, Denmark, Ireland,
Greece, Spain, Portugal, Austria, Sweden and Finland.
In 2004, the EC reached a new milestone when it formally admitted ten new
members from the East European countries like Czech Republic, Hungary,
Estonia and Latvia.
4-State objective of EU
The EU has achieved the objective of developing an internal single market
by eliminating the internal tariff barrier.
EU policies aim at ensuring the free movement of people, goods, services
and capital within the member countries.
It also aims at formulating common policies on trade, agriculture and
regional development.
The EU has created a common currency euro, which is used by 14 EU
members, so as to eliminate fluctuations in the exchange rate.
 One of the major objectives was of creating a single common market, but
has not been achieved. However, United Kingdom left the membership of
EU in 2017.
The Group of Eight (G-8)
1-What is G-8?
Ans-A group of leading advanced industrialised countries of the world has been
meeting at regular annual summit conferences since 1997 to set economic, political
and military goals for the global future. It was earlier known as Group of Seven (G-
7) consisting of United States, Britain, France, Germany, Italy, Canada and Japan.
Subsequently, with the joining of Russia in 1997, it came to be known as the Group
of Eight (G-8).

2-What is the contribution of G-8 countries?

These G-8 countries have pledged to collectively coordinate their economic
policies through global monetary management, i.e., management of
exchange rates and interest rates.
They have been also attempting to collectively coordinate their economic
policies to assist growth of employment across the G-8 nations.
They have focussed their attention on questions of economic and social
development, energy, environment, trade, tourism, ecological and social
security.
In the political sphere, they have been trying to promote democracy as a
policy priority. However, with Russia leaving the group, the group is name
reverted to the G-7.
The Group of Twenty (G-20)
1-What is G-20?
The Group of Twenty (G-20) is an international forum that brings together
the World's 20 industrialised and emerging countries.
It was created in 1999 as an expansion of G-8. Membership of G-20 consists
of 19 individual countries (Argentina, Australia, Brazil, Canada, China,
France, Germany, India, Indonesia, Italy, Japan, Mexico, Russian Federation,
Saudi Arabia, South Africa, South Korea, Turkey, United Kingdom, United
States) and the European Union.
It is a forum for member nations to discuss key economic and financial
issues related to the global economy.
2-What is the aim of G-20?
Ans-The G-20 aims to discuss policy pertaining to the promotion of international
financial stability so as to promote global economic growth, international trade and
financial market.
3-Who attends meetings of G-20?
In the summit of G-20, the heads of the states and governments meet
annually.
There is a separate annual meeting of the finance ministers and governors of
central banks, which prepare the leaders' summit and implement their
decision.
The G-8 seeks cooperation on economic issues facing the major industrial
economies, while the G-20 reflects the wider interests of both developed
and emerging economies.
EXTRA NOTES
 CHAPTER: 5TH
SOLUTIONS TO THE BASIC ECONOMIC PROBLEMS
UNDER DIFFERENT ECONOMIC SYSTEMS
SOLUTIONS TO THE BASIC PROBLEMS UNDER
CAPITALISM
(CAPITALISTIC ECONOMY)
1-How is basic economic problem solved in capitalist economy?
Ans-In a capitalistic economy, basic economic problems are solved through price
mechanism
2-What is Price Mechanism?
Ans-Price mechanism is the mechanism in which prices play a key role in directing
the activities of producers, consumers and resource suppliers.
3-What are two important elements of price Mechanism?
Ans-There are two important elements of price mechanism:

[Link]:
Prices are the essence of price mechanism. Price mechanism works through
prices in a free-enterprise economy, where all goods and services carry price
tags with them. Prices are determined through the impersonal market
forces of demand and supply. It is through the interaction of the
competitive forces of demand and supply that the equilibrium price of a
good, a service or a factor service is determined.

Equilibrium price is the price at which quantity demanded equals

quantity supplied.
[Link]:
Market means a system or set-up in which the buyers and sellers of a
commodity are able to interact and communicate with each other and strike a
deal, ie, price and the quantity to be bought and sold. There are two types of
markets, namely goods markets and factor markets.
❖ Goods markets are those markets where goods and services are bought
and sold.
❖ Factor markets are those markets where factor services are bought and
sold such as labour market, capital market, etc.
To sum up, price mechanism is the mechanism which coordinates decisions m
in a free-enterprise economy through a system of prices and markets. Price
mechanism acts as the coordinating agency. It is fundamental to the operation
of a capitalist economy.

In a capitalist economy, economic decisions are taken and implemented through

price mechanism. It is an automatic functioning mechanism. All economic
decisions taken by a large number of individuals through the market and prices
are coordinated automatically.
Price Mechanism as a Tool to Solve Economic Problems
1. What and How Much to Produce:
In a capitalistic economy, basic economic problems are solved through
PRICE MECHANISM
In a capitalist economy ,Producers will allocate resources to the production
of various goods depending upon the demand of the consumer as main
objective of producer is to maximise profit.
It is because of this that consumer is regarded as a sovereign (king) in a
capitalist economy.
Thus, in a capitalist economy consumers ultimately determine what will be
produced by their spending-what they are willing to spend their income on.
The basic objective of the producers is to earn maximum profits. Producers
will like to produce those goods and services which yield higher profits.
Producers compete with each other to produce those goods and services
which are demanded by the consumers.
Tastes and preferences of the consumers through markets reflect the prices
they are prepared to pay. T
The higher the demand for a product, the higher will be the price and the
amount of profit. Higher prices will motivate the producers to produce more
in order to earn higher profits.
 Thus, producers will allocate and reallocate the resources depending upon
the demand of the consumers.
2. How to Produce:
Producer must minimize the cost of production in order to earn maximum
profits.
The cost of production is determined by the prices of the inputs used.
These input prices are determined by the price mechanism operating
through the forces of demand and supply
On the basis of these factors pricing a producer chooses that technique of
production which is least costly. E.g. if labour is relatively cheap than capital
the producer will adopt labour intensive methods of production or else
capital – intensive.
The firms which combine the resources in the most efficient manner will
earn the maximum profits.
3. For Whom to Produce:
This problem is related to distribution of goods and services. In the process
of production, incomes are automatically generated.
Income creates purchasing power allowing the individual consumers to
make their consumption expenditure decisions.
These decisions depend upon the pricing of the various products which
happens through price mechanism.
Income is the deciding factor for determining the individual’s share in the
national product.
Thus, solution to this problem revolves around distribution of income in the
economy.
Wages, rent, interest and profits are the various forms of incomes.
A capitalist economy experiences unequal distribution of income and hence
the distribution of goods and services are also unequal.
The rich get a larger share of the national produce and the poor get a smaller
one.
SOLUTIONS TO THE BASIC PROBLEMS UNDER SOCIALISM
(SOCIALISTIC ECONOMY)
In a socialist economy, the government sets up a central planning authority,
known as planning commission or planning ministry
1. What to Produce and How Much to Produce:
In a socialist economy, the planning authority takes decisions about what to
produce and how much to produce.
 In order to take this decision, the planning authority makes an estimation of
the available economic and human resources in the economy.
At the same time, it takes into account the requirement of the economy for
various goods and services.
While doing so, the planning authority assesses the needs of the people and
the national priorities.
The planning authority estimates the amount of various commodities which
people want and direct resources into their production.
While determining the size and the assortment of the goods to be produced,
the planning authority has to see to it that adequate amount of goods are
made available to the people.
2. How to Produce:
The central planning authority decides not only about the quantity of various
goods to be produced, but also about the appropriate method of production.
While taking decision about the types of techniques to be used, the planning
authority has to take into account various considerations.
It has to take into account the economic efficiency of various techniques.
While choosing the technique of production, it has to that ensure economic
resources of the country are fully utilised.
It also has to take into consideration the social objectives and development
goals while choosing the technique of production.
3. For Whom to Produce:
All productive resources are owned by government; people work as labourers
and earn income in the form of wages only.
Wages are determined by government by taking into account the quantity and
quality of work done by the workers.
A skilled worker gets higher wages than an unskilled worker.
Workers who get more wages are able to get more goods and services than
those who get less wages. “for each according to his capacity and to each
according to his work.
However, a socialist economy aims at equitable distribution of income while
fixing wages for different categories of workers.
 SOLUTIONS TO THE BASIC PROBLEMSs UNDER MIXED
ECONOMY (MIXED ECONOMIC SYSTEM)
In a mixed economy, basic economic problems are solved with the use of
both price mechanism and economic planning. Thus, basic problems are
solved largely by controlled or regulated market (price) mechanism.
1. What to Produce:
In the private sector of the mixed economy, price mechanism plays an
important role in solving the problem of 'what to produce'.
Those goods are produced which are demanded by the consumers as the firms
may earn large profits by producing such goods. Consumers' preferences
influence the production decisions of the firms.
However, production in the private sector is also controlled and regulated by
the government through monetary, fiscal and price control policies.
On the other hand, in the public sector, it is the planning authority that decides
what to produce and how much to produce, keeping in mind the overall
national objectives.
2. How to Produce
In the private sector of a mixed economy, it is the price mechanism that solves
the problem of how to produce'.
Firms will choose the method of production on the basis of factor prices. Profit
motive motivates them to choose the least costly or the most efficient technique
of production.
But, in the public sector, the problem of how to produce is solved by the
planning authority and the government.
While choosing the technique of production, the planning authority is
influenced not only by the input prices, but also by the objectives of generating
more employment opportunities, promoting economic growth, etc.
3. For Whom to Produce:
Price mechanism helps to solve the problem for whom to produce' in the
private sector of the mixed economy.
People with high income will be able to get a larger share of national product
because more of those goods will be produced which are demanded by the
high income earners.
The main objective of the government is to ensure that adequate quantity of
necessities is produced.
The government controls production in the private sector as well to achieve
this objective so as to ensure the availability of necessities.
EXTRA NOTES
 CHAPTER 6
ECONOMIC GROWTH AND DEVELOPMENT
1-What factors are responsible for ever-increasing interest in the problems of
economic development? Or
What are the Reasons for Current Interest in Economic Development?
Poverty eradication in underdeveloped countries--The poor countries have
become aware of their poverty. People in the poor countries of Asia, Africa, and
Latin America are demanding economic development at any cost to overcome
their poverty.

Achieving economic power for political recognition--Poor countries are

aware of their inferior economic and political status in the world. They have
realised that it is only through economic development that they can increase
their economic power, and thereby, achieve recognition in the world.

Emulation of living style of the advanced countries--People of the

underdeveloped countries have become conscious of the higher standards of
living of people in the advanced countries. They note the possession of modern
amenities and living style of the people of advanced countries. They desire to
emulate the living style of the advanced countries, which is possible through
economic development only.

Economic development as the leading and objective of the nationalist

governments in poor countries--A large number of countries of Asia, Africa,
and Latin America were under colonial rule before the Second World War.
They were exploited by the colonial powers. These countries got political
independence only after the Second World War. Subsequently, nationalist
governments were established there and these governments felt the need for
promoting economic development. Economic development has become the
leading objective of economic policy of these governments.

Economic development as a device to avoid cyclical fluctuations--Rich

countries have also become aware of the need for economic development. They
need to have a steady economic growth in order to avoid cyclical fluctuations.

Development of poor countries as a means to generate output and

employment in developed countries--The self-interest of the developed
countries itself demands development of the poor countries. Development of
 poor countries means a greater demand for the goods and services produced in
developed countries. This will generate output and employment in the
developed countries. Thus, developed countries have realised that their own
survival depends on the development of the poor countries.

ECONOMIC GROWTH
Meaning--Economic growth is the process whereby the real per capita income
of a country increases over a long period of time.
1-Which three points are to be noted in the definition of Economic growth?
Ans-Three points need to be noted in this definition:
In defining economic growth, the focus is on increase in per capita income.
While defining economic growth, we stress on the long period of time
because what is significant from the standpoint of economic growth is that
the rise in per capita income must be sustained or prolonged.
Economic growth is regarded as a process.
2-Why National income is described in terms of national income
aggregates?
Ans-Everybody agrees that a necessary requirement for economic growth is an
increased output of goods and services in the economy. Total output in the
economy is measured in terms of national income. It is with this idea that
economic growth has been defined in terms of national income aggregates.
3-What are two aggregates while calculating National income aggregates?
Total national income and
Per capita income.
4-What is National income?
Ans-National income is defined as the value of all final goods and services
produced in a country in a year. National income can be expressed in terms of
gross domestic product (GDP) or gross national product (GNP).
5-What is GDP?
Ans-GDP is defined as the value of all final goods and services produced in a year
in the domestic territory of a country. Thus, GDP of India is the value of final
output produced by all the enterprises located within the territory of India.
6-What is GNP?
Ans-GNP, is defined as the value of final goods and services produced by the
normal residents of a country during a year.
7-How does GNP differ from GDP?
Ans-GNP differs from GDP to the extent of net factor income from abroad.
8-What is Net Factor income?
Ans-The difference between the factor income received from abroad and the factor
income accruing to foreigners is the net factor income from abroad.
9-What is Per Capita income?
Ans-Per capita income is the average income of the people of a country in a
particular year. It is income per head of population. t is obtained by dividing
national income of a country by its population.
Thus:
Per Capita Income = National income of a country
Population of a country

Per Capita Income = GNP (or GDP) of a country

Population of a country

10-Which of the two national income aggregates GNP (or GDP) and per
capita income should be taken as the indicator of economic growth?
Since economic growth is concerned with increase in the average standard of
living of the population, income per head of population is more relevant. Per
capita income is a measure of the per capita availability of goods and services
to the people.
From the viewpoint of economic growth, what is important is not simply an
increase in the economy's national income but increase in income, which is
corrected for population change, i.e. per capita income.
If the criteria were only increase in national income, then it may be possible
for the total output to increase without an improvement in the average
standard of living. If population growth surpasses the growth of national
output, per capita income would fall, and this cannot be considered
economic growth. What is relevant for economic growth is that the growth
rate of national income is higher than the rate of increase in population.
 Therefore, per capita income is a more appropriate indicator of economic
development than total national income.
11-Why do we stress on the long period of time while defining economic
growth?
Ans-We stress on the long period of time while defining economic growth because-
What is significant from the standpoint of economic growth is that the rise
in per capita income must be sustained or prolonged.
Increase in real national income can be sustained only if this increase is the
outcome of some permanent increase in productive capacity of the
economy through increase in investment, technological progress, etc.
A short-period rise in per capita income as occurs during the boom period
cannot be taken as economic growth.
12- Why is Economic growth is regarded as a process?
Ans- Economic growth is a process because—
It implies that there are certain forces in operation, which are interrelated to
each other and which give rise to economic growth.
By taking economic growth as a process, we are able to identify the
principal forces which give rise to economic growth.
Economic growth involves not only more output as a result of increased
quantity inputs such as land, labour. capital, etc., but also greater efficiency
of due inputs to the use of advanced techniques of production.
Thus, economic growth does not involve quantitative changes i.e., more
output, only.
It also involves qualitative changes in the form of higher efficiency of inputs
as a result of using advanced technology.
Advanced technology provides the basis for sustained economic growth.
ECONOMIC DEVELOPMENT
Traditional View of Economic Development
Economic development in traditional sense implies a sustained increase in
real per capita income. Increase in real per capita income means increase in the
amount of goods and services available to the average citizen for consumption and
investment. Thus, traditionally, the term economic development has been used as a
synonym for economic growth.
 NEW VIEW OF ECONOMIC DEVELOPMENT
Economic development as the process whereby the real per capita income of
a country increases over long period of tine along with reduction in poverty,
inequality, and unemployment.

HOW IS ECONOMIC GROWTH DIFFERENT FROM ECONOMIC

DEVELOPMENT
Economic growth is a narrow concept, while economic development is a
more comprehensive term. Economic development is taken to mean growth
plus change. Thus, economic development is a broader concept than economic
growth.
Economic growth refers to more output, while economic development
implies both more output and changes in the socio-economic structure of
the economy.
Economic growth involves increase in income. Economic development,
on the other hand, involves not only increase in income but also reduction
in poverty, unemployment and inequality of income.
Economic growth is defined strictly in terms of economic indicator, i.e.,
income. Economic development involves not only economic indicators such as
income, but also non-economic indicators such as literacy, provision of housing,
health services, etc.
Economic growth is entirely a quantitative concept. There are various
qualitative dimensions in the development process that may be absent in the
growth process of an economy. Therefore, while economic growth is fully
measurable, economic development is not fully measurable.
Economic growth relates to the problems faced by the developed
countries, while economic development relates to the problems faced by
the present day's developing countries.
Economic growth is easier to realise. It is possible to increase output and
income by using larger quantity of inputs and increasing their efficiency.
The process of economic development is far more extensive. Therefore,
attainment of economic development is a much more difficult task. For
achieving development, the underdeveloped countries would require a much
more intensive effort than is required by advanced countries for achieving
economic growth.
Economic growth does not require much of government involvement and
intervention. However, economic development demands active
involvement of the government. Governments in the Third World Countries
 are expected to assume an active responsibility for promoting economic
development.

QUALITY OF LIFE
MEANING-Quality of life refers to the degree of economic well-being of the
people.
The Human Development Report (1996) echoes this view when it says "growth
should be judged not by the abundance of commodities it provides but by
how much it enriches people's lives".
Quality of life of the people is determined by many factors such as income,
consumption, health, education, environment, etc.
What are the important components of better quality of life are?
To provide better nourishment by providing people with more and better
food.
To provide adequate clothing and housing.
To ensure for all the people essential public services like pure drinking water,
sanitation, health, and medical services.
To provide better education.
To ensure better living conditions.
To generate more and better employment, particularly for the low-end
poverty groups.
To overcome poverty.
To reduce inequality by distributing the benefits of economic development
equitably.
SUSTAINABLE DEVELOPMENT
1-Who introduced the concept of sustainable development?
Ans-World Commission on Environment and Development in 1987.
2-What is sustainability?
Ans-Sustainability, in general, refers to meeting the needs of the present generation
without compromising the needs of the future generations.
3-What is Sustainable development?
Ans-Sustainable development may be defined as that pattern of development that
permits future generations to live at least as well as the current generation.
EXTRA NOTES
 CHAPTER 7
PARAMETERS (INDICATORS) OF
DEVELOPMENT
1-Which are the two main indicators of economic development?
Ans-The main indicators of economic development are classified into two categories, viz.:
Income-based measure of development, which consists of mainly per capita
income.
Those indicators of economic development, which measure economic
development in terms of the quality of life, such as Physical Quality of
Life Index (PQLI), Basic Needs Index, and Human Development
Index (HDI).
Two most important indicators of economic development are-
Per Capita Income Index
Human Development Index
PER CAPITA INCOME INDEX
MEANING-
Increase in per capita income over a long period of time
Per Capita Income Index is a measure of level of economic activity and the
economic size of a country.
Growth of real per capita GNP (or GDP) takes into account the ability of a
nation to expand its output at a faster rate than the growth rate of
population.
In view of this, rate of growth of real per capita GNP (or GDP) is typically
used to measure, in a broad sense, the overall economic well-being of the
population.
Limitations of Per Capita Income Index
Ans-Some of the limitations of Per Capita Income Index are:
1. The first limitation of the per capita income index is that it does not consider
the composition of output. From the viewpoint of development and economic
welfare what is important is not only more output (per capita) but also what is the
composition of output. If increase in the total output (national income) has
resulted from increase in the production of non-civilian goods like armaments, this
should not be taken as an index of economic development and economic welfare.
2. The second limitation of Per Capita Income is that it does not take into
account distribution of income that accompanies increase in income. Per
capita income may increase because of a large increase in the income of a handful
of rich people, while the majority of population may remain poor. It is possible that
along with increase in incomes, the rich may become richer and the poor may
become poorer. We cannot say for sure that economic welfare of the people has
increased even if there is increase in per capita income unless there is reduction in
the inequality in the distribution income.
3. Per capita income does not address the problem of poverty. Despite
increase in per capita income, average standard of living of the masses may not
improve because of the fact that the number of people below the poverty line may
have increased. This is what has happened in many of the developing countries in
the recent past.
4. An increase in income is not a sufficient condition for increase in welfare
and development because increase in income can involve costs such as more
work, depletion of natural resources, increased environmental pollution, etc. Per
capita income is not a perfect index of economic development because it does not
make allowance for these cost elements. From the viewpoint of economic
development, what is important to know is not only the amount of output and its
composition but also how that output has been attained.
5. Another shortcoming of the Per Capita Income Index is that many goods and
services not passing through the market are excluded from GNP estimates.
National income largely includes those goods and services for which payment is
made in money form. Valuations of Services performed out of love, affection,
regard, etc., is not done.
6. Numerous problems arise when we try to use Per Capita Income Index for
comparing the standard of living, level of economic welfare, and rates of growth of different
countries. We may mention here three such problems:
The first problem relates to the problem of expressing national income
of different countries in terms of some common currency. Usually,
national income of every country is expressed in terms of its own currency.
International comparisons are usually made by converting national income
of different countries into US dollars at the existing rates of exchange*. This
creates problems because rate of exchange keeps on changing and it may not
reflect the relative price levels of different countries.

Different countries use different concepts of national income. In the

socialist countries, national income is defined so as to include only material
 goods; services are excluded from the computation of national income. In
most of the other countries, on the other hand, both the material goods and
services are included in national income. This makes the task of comparison
of national income of different countries difficult because we tend to
compare dissimilar things.

Another problem in using Per Capita Income Index for making

comparisons of standard of living of different countries is the
difference in price levels prevailing in different countries. For instance,
the purchasing power of a dollar in India is generally much more than that in
the United States.
7. Per capita income is not an adequate measure of development because it does
not consider various issues related to social, human, and institutional
dimensions of the country.
QUALITY OF LIFE INDEX
MEANING
Quality of life, is dependent on many factors such as availability of basic
necessities of life (food, clothing, shelter, etc.), equity in the distribution of
income and wealth, literacy, healthcare, clean environment, political and civil
rights, etc.
By taking some of these indicators of quality of life, a number of attempts
have been made in the recent past to construct an index which may be called
'quality of life index'.
HUMAN DEVELOPMENT INDEX (HDI)
What Is Human Development?
Meaning-The Human Development Report (1997) has defined human
development as the process of widening people's choices as well as raising the level
of well-being achieved.
Human Development Index (HDI) is a composite index to measure the
achievements of a country in three main dimensions of human development – a
long and healthy life as measured by life expectancy, acquiring knowledge as
indicated by adult literacy ratio and gross enrolment ratio, and a comfortable
standard of living as measured by GDP per capita.
Main propositions/features of the concept of human development are:
Human development views people and the quality of their life as the centre of
development
 Human development is the end of all activities, while economic growth is only
a means to this end.
The purpose of economic development is to widen all choices.
Human development is concerned with widening not merely income choices
but covering all aspects of human development-economic, social, cultural or
political.
Human development is universal in nature. It applies equally to less developed
as well as highly developed countries.
Construction of Human Development Index
The composite Human Development Index is the measure of average achievement
of a country in three basic dimensions of human development.
A long and healthy life.
To acquire knowledge.
To have a decent standard of living.
Thus, HDI attempts to measure at least some more choices besides income. It is
based on three choices or goals of development.
Three variables to keep the index simple, only three variables have been
chosen to represent these choices:
A long and healthy life is measured by life expectancy at birth, i.e. number of
years a new born infant is expected to live.
The ability to acquire knowledge is measured by a combination of two
variables:

❖ Mean years of schooling: Average number of years of school

education received by people aged 25 and above

❖ Expected years of schooling: Number of years of schooling that a

child of school entrance age can expect to receive.

A decent standard of living is measured by a country's gross domestic product

(GDP) per capital adjusted for Purchasing Power Parity in terms of US dollars
(i.e., PPP US $). For an international comparison of GDP, one has to convert
the values of different currencies into a standard currency.
These three indicators reflecting three basic choices are used to prepare
three basic indices:
Life Expectancy Index (LEI)
Education Attainment Index (EAI)
 Adjusted Gross Domestic Product Index (AGDPI)
To construct the human development index, fixed minimum and maximum values
have been established for each of the three indicators. Each of the three
components of HDI is computed according to the general formula:
Actual value Minimum
value
Index =
Minimum value - Minimum
value

HDI is the geometric mean of normalized indices of each of the three

dimensions of human development, viz. long and healthy life, to acquire
knowledge and decent standard of living.

Performance of a country in each of these indicators is expressed as a value

between 0 and 1.

Each country would be at some point in the scale between 0 and 1 for each of
the three indicators.

Equal importance is given to all the three dimensions of human development.

Taking the simple average of the three indices (LEL, EAI and AGDPI), we can
estimate the HDI, which would be between 0 and 1 for each country.

Thus, as a composite measure of health, education, and income, the HDI

assesses level and progress using a concept of development much broader than
that allowed by income alone.
Evaluation of Human Development Index
The main merits of HDI are as follows:
The major significance of HDI is that it has combined economic (GDP per
capita) and social (life expectancy and education) indicators. It is
multidimensional in nature.
HDI is a more comprehensive measure of development than the per capita
income. It is a broader indicator of the development performance of a
country.
 HDI has greatly increased our understanding of what constitutes development
and which countries are really experiencing development (as indicated by rise
in their HDI over time).
It focuses the attention of the policy-makers on the ultimate objective of
development. Thus, they can focus their policies more directly on those areas
which need improvement.
The main demerits of HDI are as follows:
HDI has captured only a few dimensions of human development.
It cannot be treated as a comprehensive index because it is based on only
three variables.
It did not draw a comprehensive disaggregated HDI by region, gender, race,
or ethnic group.
Difficulty to get data or information of all components.
Time consuming method.
Human Development Index and India
UNDP has been compiling HDI for a large number of countries for which it is
able to gather the requisite data (189 countries as per Human Development Report,
2019).
Using the three indices-Life Expectancy Index, Educational Attainment
Index, and Adjusted GDP Per Capita Index-and composite HDI, it ranks
countries on a scale of 0 (lowest human development index) to 1 (highest human
development index).
The UNDP has been ranking the countries into four groups which are as
follows-
Very high human development index (0.800 or more): Countries like
Norway Australia, Japan, New Zealand.
High human development index (more than 0.700 but less than 0.800):
Countries like China, Sri Lanka.
Medium human development index (0.550 to 0.699 HDI): Countries like
India, Indonesia, Egypt, South Africa.
Low human development index (less than 0.550 HDI): Countries such as
Nigeria, Uganda, and Afghanistan.
 Values of Human Development Index for India
Years 1980 1990 2000 2010 2015 2016 2017 2018
HDI 0.369 0.431 0.497 0.581 0.627 0.637 0.643 0.647
Value

HDI is improving continuously since 1980. It increased from 0.369 in 1980 to

0.431 in 1990, and increased further to 0.497 in 2000 and 0.647 in 2018. The
average annual growth rate of HDI was 1.46 per cent between 1990 and 2018.

India is in the category of medium human development index countries since

1990.

For the year 2018, out of 189 countries for which UNDP has computed HDI,
India ranks 129. India climbed 6 rank points from 135 rank in 2013 to 129 rank
in 2018.

As compared to most of the developed countries having HDI for 2018 ranging
between 0.880 and 0.954, India has a much lower HDI, i.e., 0.647. However,
India has performed much better than most of the comparable countries in
terms of average annual HDI growth rate during the last decade.

As compared to some of the other developing countries, India ranks better.

Pakistan, Nepal, Bangladesh and Nigeria have HDI lower than India, but a
number of other developing countries such as Thailand, Brazil, Philippines, Sri
Lanka, China, South Africa and Indonesia have HDI higher than India.

There has been significant improvement in all the components of HDI, i.e.,
increase in life expectancy, mean years of schooling by adults and expected
years of schooling, and real GDP per capita. For example, life expectancy in
India increased from 57.9 years in 1990 to 69.4 years in 2018. Similarly, per
capita GDP (PPP) increased from $1,740 in 1990 to $7,680 in 2018. Expected
years of schooling increased from 7.6 years in 1990 to 12.3 years in 2018. Thus,
while India's HDI increased by 50 per cent between 1990 and 2018, life
expectancy increased by about 20 per cent.

However, India has a long way to improve human development. The existing
gap in health and education indicators between India and developed countries
and also many developing countries highlight the need for much faster and
wider spread of basic health and education.
EXTRA NOTES
 CHAPTER 8: SUSTAINABLE DEVELOPMENT
Sustainable Development--Meaning Development that meets the needs of the
present generation without compromising the ability of future generation to meet
their own needs.
IMPORTANT FACTORS OF SUSTAINABLE DEVELOPMENT
The stock of natural capital like quality of air, water and soil etc., physical
capital like plants, machinery etc. and human capital such as education skills
and knowledge etc. remains constant or arise over time.
Sustainable development requires that renewable natural resources are used
in a manner which does not degrade or diminish their usefulness for future
generations in fact it should increase.
Sustainable development also requires that non-renewable resources such as
minerals resources are used in a manner which should avoid wasteful and
ruthless exploitation of the non-renewable resources.

Thus, sustainable development can be achieved only if there is minimum

depletion of natural resources and environment degradation. In fact, efforts
should be made so as to conserve and improve the environment.
NEED FOR SUSTAINABLE DEVELOPMENT:
Natural resources and environment as common heritage: Economic
development and overall quality of life depend on the stock of natural resources
and quality of environment. The stock of natural resources and quality of
environment like quality of air, water and land are common heritage for all
generations. Therefore, it is ethical compulsion for the present generation to
guarantee the future generation opportunities similar to the ones it has enjoyed.

Indiscriminate use of natural resources: Many industrialized developments

in past have caused rapid depletion of the stock of natural resources. This
shows that the present generations have chased economic growth without
giving due regard to long-term consequence. This is a great concern for future
generations.

Use of natural resources as costs of development: It is widely believed now

that depletion of the stock of natural resources and degradation of environment
should be treated as the cost of development. These costs must be deducted
from national income to know the growth rates in more realistic terms.
Quality of life dependent on the quality of environment: Quality of life
depends on among other things, healthy and long life, balanced diet, safe
drinking water, clean air, better sanitation etc. which comes from natural
resources. If the benefits from rising incomes are offset by the costs imposed
on health and quality of life by pollution, this cannot be called development.
EFFECTS OF ECONOMIC DEVELOPMENT ON RESOURCE AND
ENVIRONMENT
Depletion of natural resources: Industrial development has created a large
demand for natural resources for mass production. This has led to the depletion
of resources. Demand for agriculture land has increased due to population
growth, this led to more land for agriculture by deforestation.

Water pollution: Water pollution occurs when some substances get mixed with
natural water so as to worse the quality of water. Polluted water leads to
waterborne diseases, which mainly affect children and poor people.

Air pollution: In course of economic growth, air pollution has increased mostly
in the urban areas, largely because of gaseous emission from industrial,
automobiles and domestic combustion. It has cause natural imbalance in
environment. Air pollution leads to many respiratory and other diseases eg.
Asthma and other respiratory related diseases and cancer.

Deforestation: Deforestation has done considerable damage to ecological and

environmental balance. It has led to soil erosion, resulting in the occurrence of
floods and loss of crops. It has altered the hydrological cycle, altering the
amount of water in the soil and the groundwater and moisture in air.

Use of chemical fertilizers and pesticides: In the course of agricultural

development, the use of chemical fertilizers and pesticides has increased
tremendously. This has caused serious health hazards and environmental
problems like serious ecological damage through toxic effects on fish stock,
birds and wildlife.

Global warming: Global warming refers to increase in temperature of the

earth, resulting from certain gases, especially carbon dioxide, which trap the
heat of the sun. Global warming has led to melting of glaciers, rise in sea level,
loss of coastal land etc. An appraisal of sustainable development as the world
 grows and develops economically; it faces various challenges with regards to
future availability of our natural resources and environment conservation.

The loss of natural resources and environment degradation may lead to poor
quality of life. Therefore, environment management has become very
important.
STRATEGIES FOR SUSTAINABLE DEVELOPMENT
Replenishment of Resources: Resources should not only be exploited but
should be replenished as well. Therefore, the extraction of renewable resources
should not exceed the rate at which they are renewed. And the extraction of
non-renewable resources should be minimized.

Environment Protection: Environment should be prevented further damage

to the environment and other life-support systems, instead polluting the
environment, we should conserve it.

Use of Eco-friendly Technologies: There is urgent need of modifying the

existing techniques so as to develop eco-friendly technologies, it geared towards
the conservation of environment also promote energysaving technologies and
the use of renewable resources.

Use of environment-friendly sources of energy: Use of LPG (Liquefied

petroleum gas) and CNG (Compressed natural gas) should be encouraged in
place of petrol and diesel. LPG and CNG are cleaner fuels and environment
friendly.

Development of organic farming: Organic farming is the form of agriculture

that uses bio-compose made from organic wastes of different types and
biological pest control using pesticides based on plant products. Organic
farming will help in sustainable agriculture development.

Setting air-quality and emission standards: The government must set air-
quality and emission standards for the vehicles to reduce air pollution.

Increasing public awareness: There is an urgent need for increasing public

awareness about the requirement of conserving our natural assets for the future
generation. This can be done by a road shows, exhibitions etc.
EXTRA NOTES
 CHAPTER 9 – PLANNING AND ECONOMIC
DEVELOPMENT IN INDIA
1-Define Economic Planning
Ans-Economic planning refers to the consciously directed efforts of organising and
using resources for productive purposes by a central authority for achieving certain
predetermined and well-defined objectives or goals within a specified period of
time.
2-What is planning concerned with at macro level?
Ans-Planning at the macro level is concerned with the economy as a whole.
3-When was Planning Commission set up and what did India adopt?
Ans-The Planning Commission was set up in March 1950, and thereby India
adopted Five-Year Plans for the development of Indian economy.
4-When did India enter in the era of Economic Planning?
Ans- India entered the era of economic planning with the launching of the First
Five-Year Plan on 1 April 1951 for the period 1951-56.
5-How many five year plans have we completed?
Ans-We have completed twelve Five-Year Plans. The Twelfth Five Year Plan,
which was concluded on March 31, 2017, was India’s last five year plan.
6-Who is policy think tank of the government of India?
Ans- NITI Aayog is a policy think tank of the Government of India.
7-With what aim was NITI Aayog established?
Ans- Niti Aayog was established with the aim to achieve sustainable development
goals. It provides strategic and technical advice to the central and state
governments about development priorities and other issues-involved in the
development process. It aims to involve the states in policy making in India.
8-What approach is adopted by Niti Aayog?
Ans-Niti Aayog has adopted bottom-up approach rather than the traditional top-
down approach of the Planning Commission.
ANSWER IN LONG
1-State the objectives of Five Year Plans
1. ECONOMIC GROWTH:
• The first and foremost objective of Indian Plans was the objective of
growth of the economy.
• The basic aim of economic planning in India throughout has been to
bring about rapid economic growth through development in all the
major sectors of the economy.
• Five-Year Plans were formulated in India so as to achieve a rapid increase
in national income – total as well as per capita.
• A perceptible rise in the standard of living of people can be brought
about through rapid and steady growth in GNP – total as well as per
capita.
• High growth rate of total and per capita income would help the economy
in achieving self-sustained growth.
• The target of growth rate of national income in general, has been
around 5 per cent per annum.
2. REDUCING UNEMPLOYMENT:
• Chronic unemployment and underemployment are the two evils that have
plagued the Indian economy for a long time.
• Unemployment is an important factor responsible for the low level of
income and poverty in the country.
• Hence, creation of employment opportunities and reduction in
underemployment has been important objectives of economic planning in
India.
• The approach of the Planning Commission has been that an increase in
investment and increase in national income would automatically generate
more employment.
• Efforts directed towards creation of more employment through increase in
investment and expansion of small-scale labour-intensive industries.
• Specific schemes for generation of more employment and removal of
unemployment, such as Mahatma Gandhi National Rural Employment
Guarantee Act (MGNREGA), Integrated Rural Development
Programme (IRDP), Scheme of Training Rural Youth for Self
Employment (TRYSEM), Jawahar Rozgar Yojana (JRY), Nehru
Rozgar Yojana (NRY), Prime Minister’s Rpzgar Yojana (PMRY),
 Prime Minister’s Integrated Urban Poverty Eradication Programme
(PMIUPEP), etc., were launched.

3. REDUCTION IN INEQUALITY OF INCOME:

• Another objective of Five-Year Plans was to reduce inequality in the
distribution of income and wealth.
• The process of reducing inequalities is twofold.
• On the one hand, it must raise incomes at the lower level and, on the
other hand, it must reduce concentration of income and wealth at the
higher levels.
• The objective of planning in India was to provide for balanced development
of different parts of the country. Indian Plans recognised the need for giving
special attention to less developed regions such as backward states, hilly
areas, etc. consideration of the backward regions was kept in mind while
formulating various Five-Year Plans in India.
4. REMOVAL OF POVERTY:
• One of the fundamental objectives of planning in India has been to raise the
standard of living of the people and to remove the appalling poverty of the
masses.
• Removal of poverty was taken as the specific objective from the Fifth Plan
(i.e., 1974-79) onwards.
• In the Fifth Plan, there was a visible shift in the planning approach to the
issue of poverty.
• Under the slogan of Garibi Hatao (removal of poverty), the Fifth Plan
adopted the ‘Minimum Needs Programme’, placing emphasis on the
removal of poverty. ‘Growth with justice’ became the important objective
of economic development thereafter.
• A progressive reduction in the incidence of poverty’ became the primary
objective of the Sixth Plan.
• The Seventh Plan reiterated its commitment to anti-poverty programmes
with an emphasis on the measures to reduce poverty in the rural areas.
• The thrust of the Eight Plan was on employment generation, which was
considered an important means of poverty removal.
• The primary objective of the Ninth Plan was to achieve growth with equality,
with emphasis on improving the quality of life of the people and generation
of productive employment.
5. ESTABLISHMENT OF SOCIAL SOCIETY:
• Another objective of planning was to set up a socialist society based on
equality, justice, and absence of exploitation.
• Establishment of a society implied three main things:
First, it implied equal opportunities to all in the matter of education,
public health, occupation, economic opportunities, etc.
Second there would be just and equitable distribution of wealth and the
absence of concentration of economic power in the socialist society.
Third, a socialist society would be characterised by the absence of
exploitation of man by man.
• The first three Plans talked about the establishment of a ‘socialist pattern
of society’.
• The Fourth Plan talked about the ‘establishment of a social and
economic democracy.’
6. MODERNISATION OF THE ECONOMY:
• This was a newer objective.
• Modernisation of the Indian economy was necessary to make the economy
progressive.
• The objective of modernisation of Indian economy was explicitly
mentioned for the first time in the Sixth Plan.
• Modernisation was defined very broadly in the Sixth Plan.
• It involved four types of changes.
First, it implied a shift in the sectoral composition of output with the
purpose of increasing the share of industrial and service sectors in
national product.
Second, modernisation implied development of a diversified economy
that would produce a large variety of goods.
Third, it implied use of advanced, modern, and more efficient techniques
of production.
Fourth, modernisation was also associated with certain institutional
changes such as financial institutions, educational institutions for human
development, and developing economic infrastructure like railways and
road network, power generation, irrigation, etc.
7. SELF-RELIANCE:
• Self-reliance has become an important objective of economic planning in
India.
 • The objective of self-reliance was emphasised so as to reduce vulnerability
of the Indian economy to international pressures as well as to ensure self-
sustained economic growth.
• The objectives of self-reliance had various dimensions as spelled out
in various Five-Year Plans.
First, self-reliance implied that India should be in a position to end its
dependence on foreign loans or grants.
Second, self-reliance implied eliminating the dependence of Indian economy
on the imports of certain important commodities such as food grains,
fertilisers, raw materials, machinery and equipment, etc., by increasing the
domestic production of such commodities.
Third, self-reliance also implied attainment of self-sustaining and self-
generation growth, this implies that the economy is able to generate sufficient
savings so as to finance the required level of investment
NITI AAYOG - A NEW POLICY MAKING BODY
1-What replaced Planning commission?
• The NDA government scraped the Planning Commission on January 1,
2015.
• NITI Aayog (abbreviation of National Institute for Transforming India) was
established in 2015 by NDA government to replace the Planning
Commission.
2-State composition of Niti Aayog
• Niti Aayog is headed by the Prime Minister and has a Vice-Chairman and a
CEO.
• Presently, Prime Minister Narendar Modi is the Chairman
• Dr. Rajiv Kumar is the Vice-Chairman
• Amitabh Kant is the CEO.
• As on 7 June, 2019, it had 3 full-time members, namely V.K. Saraswat, Dr
V.K. Paul and Professor Ramesh Chand.
• Four Union Ministers serve as ex-officio members.
• The Prime Minister appoints the Vice-Chairman and CEO.
• The new body has a Governing Council Comprising Chief Ministers
of all states and Lt. Governors of Union Territories.
3-How does Niti Aayog differ from Planning Commission
• Niti Aayog differs from the Planning Commission in terms of its main
functions.
 • The two key activities of the Planning Commission were: (i) to prepare and
implement the Five Year Plans, and (ii) to allocate financial resources to the
states. Neither of these two activities forms part of the activities of Niti
Aayog.
• Firstly, the era of economic planning in India is over now. Secondly, Niti
Aayog does not allocate any financial resources to states.
• The annual resources allocation exercise is now a thing of the past.
• On the other hand, Niti Aayog performs three main functions, namely (i) It
assists the central government in policy making, (ii) It serves as the
government’s think task, (iii) It plays an important role in promoting
economic federalism in the economy.
4-State the Role/functions of NITI Aayog
• It is a policy think tank of the Government of India. It assists the central
government in policy formulation by providing strategic and technical
advice.
• NITI Aayog monitors and evaluates the implementation of development
programmes.
• It plays an important role in promoting cooperative economic federalism in
the economy. It does so by involving state governments in policy making in
India.
5-State the Objectives of NITI Aayog
• To evolve a vision of national development policies and strategies with the
active involvement of state governments in the light of national objectives.
• To design strategic long term policy and programmes.
• To provide technical advice to the central and state governments about
development programmes.
• To actively monitor and evaluate the implementation of various
development priorities
• To foster cooperative federalism by involving stats in the policy formulation.
• To impart advice to the government on areas that are specifically referred to
it.
• To offer a platform for the resolution of inter-sectoral and inter-
departmental issues in order to accelerate the implementation of
development agenda.
• To focus on technology upgradation for implementation of various
programmes.
EXTRA NOTES
 CHAPTER 10TH
INDIAN ECONOMY POST LIBERALISATION
1-What is Strategy?
Ans- Strategy of planning refers to a basic long-term policy to achieve the specific
objectives of economic planning. It refers to broad actions and policies of the
government to achieve the specific objectives of various plans.

2-Which are two phases of strategy of Indian Planning?

Ans-Strategy of Indian planning can be divided into two phases:

• Pre-1991 phase
• Post-1991 phase.

3-State main features of pre-liberalisation phase

HEAVY RELIANCE ON PUBLIC SECTOR:
The characteristic features of pre-liberalisation phase was that the public
sector was assigned a greater role than the private sector.
It was required not only to initiate economic development, but also to play
a dominant role in shaping the entire pattern of economic development.
The public sector was expected to play an important role in increasing
investment on a massive scale so as to promote industrialisation, undertake
massive expenditure in building infrastructure such as transport system,
power and energy, etc., and in developing basic and heavy industries.
This meant that the state would have complete control on those industries
and infrastructure (known as commanding
The private entrepreneurs had neither the resources not the desire to
undertake investment on a large scale. Through the public sector, the
government played the promotional and entrepreneurial role in economic
affair.
REGULATED GROWTH OF PRIVATE SECTOR:
Private sector was assigned a subordinate role.
The private sector had to play its role in the process of economic
development, but subject to certain restrictions and regulations.
The government regulated the private sector so as to promote social welfare
and to confirm to the overall strategy of economic development.
For instance, the government adopted licensing system (which required that
new industries could not be established without obtaining necessary license and
 registration), and imposed price controls, control on investment by big
industrial houses.
It imposed control on the use of foreign exchange through foreign exchange
regulations.
Similarly, several restrictions were imposed on the expansion of production
capacity of large industries under the Monopoly and Restrictive Trade
Practices Act.
DEVELOPMENT OF HEAVY AND STRATEGIC INDUSTRIES:
Development of heavy industries like iron and steel, chemicals, machine
building industries, etc. was accorded a high priority in the development
strategy.
Similarly, industries of strategic importance like electric power generation
and engineering goods industries were to be developed on priority basis.
DEVELOPMENT OF SMALL SCALE INDUSTRIES:
Development of small scale industries was encouraged in view of their
contribution to employment generation, regional equality, income equality
and promotion of exports.
Development of small scale industries was encouraged by serving certain
areas of production exclusively for them and by developing financial
institutions exclusively to meet their financial needs.
INWARD LOOKING TRADE STRATEGY:
Inward looking trade strategy was an important part of trade policy during
the preliberalisation period.
Technically, this strategy is called import-substitution strategy.
This policy aimed at replacing or substituting imports with domestic
production.
This policy implied protecting the domestic industry from the foreign
competition by imposing heavy import duties and import quotas.
RESTRICTION ON FOREIGN CAPITAL:
Various restriction were imposed on foreign direct investment (FDI) such
as restricting the areas and amount of foreign direct investment through
Foreign Exchange Regulation Act (FERA).
4-State Features of the new economic policy pursued during the post-
liberalisation phase
LIBERALISATION:
Liberalisation policy was characterised by liberalisation of Indian economy
from various controls.
Prior to 1991, the government has imposed various controls like industrial
licensing system, price control, forging exchange control, investment
restrictions, etc. aimed at regulating the economic activities.
The policy of liberalisation was introduced to put an end to these controls
and restrictions with the objectives of strengthening the market forces so as to
put the economy on the path of growth and development.
PRIVATISATION:
Another feature of the economic reforms of 1991 was the privatisation of
public sector enterprises.
It basically implied expansion of the private sector and limiting the role of the
public sector.
Low efficiency, mounting losses, mismanagement, lack of accountability,
corruption, excessive political interferences in the decision making,
underutilisation of productive capacity, inefficient management and lack of
innovative ideas become rampant in the public sector enterprises.
In the backdrop of these problems, most of the public sector enterprises
became more of a liability than a source of economic development.
Accordingly, the government realised the need for privatisation of many of
the public sector enterprises by selling off their equity to the private sector.
Thus, the ownership of many PSUs is being gradually sold off to the private
entrepreneurs since 1991.
GLOBALISATION:
An important feature of economic policy reform of 1991 was opening up
the Indian economy to the other economies of the world. It is the policy of
globalisation.
As a part of globalisation policy, Indian economy was integrated with other
economies of the world through free flow of trade, capital and technology.
The government realised that India would benefit from free flow of goods
and services between different countries through unrestricted exports and
imports.
Accordingly, it pursued the policy of liberalisation of foreign trade by
reducing import duties and removing quantitative restrictions on trade.
 The government also followed the policy of liberalisation of foreign
investment so as to encourage flow foreign investment into India.

5-What are the dimensions of Agricultural policy of the rural development of

the Indian government during the Five-Year Plans?
TECHNOLOGICAL MEASURES:
The government has initiated various technological measures to increase
agricultural production and productivity.
These technological measures consist of increased supply of various
agricultural inputs such as extension of irrigation facilities, increased
availability of high-yielding varieties of seeds, chemical fertilisers, pesticides,
etc.
As a result of these measures, agricultural production and productivity have
increased substantially.
INFRASTRUCTURAL FACILITIES:
Another important measures initiated by the government is the expansion
of infrastructural facilities.
These include credit, marketing, storage, transportation, education,
agricultural research, etc.
In particular, institutional credit facilities for the farmers have been
expanded through cooperatives and commercial banks.
Regional rural banks have been set up to meet the needs of agricultural
credit.
A National Bank for Agricultural and Rural Development (NABARD) has
been set up as an apex institution in the field of rural credit.
Regulated markets have been set up to improve the system of agricultural
marketing.
Efforts have also been made to strengthen the cooperative marketing structure in
the agricultural sector.
Storage and warehousing facilities have been expanded to build up adequate
buffer stocks of foodgrains and to provide adequate storage facilities to the
farmers.
Various agricultural research institutes have been set up to develop new
techniques, to discover new highly-yielding varieties of seeds and to impart
technical education.
LAND REFORM:
Land reforms Meaning--The institutional changes in the agrarian system are
known as land reforms
Land reforms in India

• Abolition of intermediaries,
• Tenancy, reforms for fixation of rents paid by tenants, security of tenure and
conferment of ownership rights to the tenants; • Imposition of ceilings on
landholding;
• Consolidation of landholdings.
POLICY OF FIXATION OF MINIMUM SUPPORT PRICES AND
PROCUREMENT
PRICES:
As part of agricultural price policy, the government has been fixing the
minimum support prices and procurement prices for a number of
agricultural commodities (22 at present) like wheat, paddy, etc.
Minimum prices are fixed so as to ensure that prices of agricultural
commodities do not fall below these prices. The government is ready to
purchase foodgrains at the declared minimum prices.
Procurement prices are the prices at which the government purchases the
needed quantity of foodgrains for maintaining the public distribution
system and for building up buffer stocks.
Procurement prices are fixed at a higher level than the minimum support prices.
Aim of price fixation policy---This price fixation policy aims at ensuring fair
returns to the farmers so as to provide incentive to them to increase production.
INPUT SUBSIDIES TO AGRICULTURE:

• Under this policy, the government is providing various inputs such as

irrigation, fertilisers and power to the farmers at subsidised prices.
• This means that the farmers get these agricultural inputs at prices below the
market prices.
• The objective of subsidising inputs is to motivate the farmers to switch
over to modern inputs in agriculture. This will help in increasing agricultural
production and productivity.
• For this reason, these subsidies can be described as development subsidies.
FOOD SECURITY SYSTEM:

• The government has built up an elaborate food security system in the form
of public distribution system (PDS) over the year.
• The main purpose of PDS is to provide foodgrains at cheap and
subsidised rates to the people, particularly the poor people.
• This means that food subsidy has to be provided so as to provide foodgrains
at low prices to the consumers.
• PDS also helps the government in maintaining buffer-stock of foodgrains in
order to meet any situation of shortage of foodgrains during the years of
lower foodgrains production.
• Under the PDS, the Central Government is responsible for procurement
and allocation of foodgrains, while the state government are responsible for
its distribution to the eligible beneficiaries (ration card holders) through Fair
Price Shops (FPSs).
RURAL EMPLOYMENT PROGRAMMES:

• The government has introduced a number of specifically designed poverty-

alleviation programmes in the form of rural employment programmes,
particularly from the Fourth Five-Year Plan onwards.
• These programmes have been implemented in order to encourage self-
employment and wage-employment in the rural areas.
• A number of special programmes for the rural poor have been undertaken
since 1970s
• These programmes have been revamped, redesigned and restructured since
1999-2000.
• Some of the important poverty-alleviation programmes presently in
operation in the rural areas are Jawahar Gram Samridhi Yojana, Swaran
Jayanti Gram Swarozgar Yojana,
Mahatam Gandhi Employment Assurance Scheme, National Rural
Employment Guarantee Scheme, Pradhan Mantri Gramodaya Yojana,
Sampoorna Grameen Rozgar Yojana, Food-for-Work Programme and
Krishi Sharmik Yojana.
CROP INSURANCE:

• Various crop insurance schemes have been introduced since 1985.

• Pradhan Mantri Fasal Bima Yojana as the crop insurance scheme launched
in 2016 is the latest such scheme.
 • Under this scheme, the premium rates paid by farmers is very low and the
balance premium us paid by the government (both central and states).
• Insured crop loss on account of natural calamities.
PROGRAMMES INVOLVING PEOPLE’S PARTICIPATION IN
PLANNING:

• No planning can be successful without the involvement and participation of

masses in the planning process.
• In view of this objective, a number of programmes have been taken up.
• Community Development Programme was a comprehensive programme
of not only agricultural development, but also of the entire rural
development. Panchayati Raj is the programme of democratic
decentralisation of power.

6-State the main features of agricultural development

INCREASE IN PRODUCTION: There has been a substantial increase in
the production of foodgrains and non-food crops (like sugarcane, cotton,
oilseeds, etc.) overtime.
Production of rice has increased by 1.6 times and that of wheat has risen by 1.8
times during the period between 1990-91 and 2018-19. A large increase in
output of foodgrains has enabled India to achieve self-sufficiency in the
foodgrains production.

INCREASE IN PRODUCTIVITY: There has been a large increase in

land productivity (yield per hectare). For instance, productivity of wheat
increased from 2280 kg per hectare in 1990-91 to 3408 kg per hectare in 2018-
19 kg i.e. an increase of 1.5 times.

INCREASE IN AREA UNDER CULTIVATION: There was a

substantial increase in the gross area under cultivation over time partly because
of increase in net area and partly because of double cropping. Gross area under
cultivation increased by nearly 38 per cent during the planning period. Gross
area under food crops increased largely between 1951 and 1991, while gross
area under non-food crops increased largely after 1991. Increase in area under
non-food crops has been faster than increase in area under food crops.

COMMERCIALISATION OF AGRICULTURE: A large increase in the

output of nonfood crops due to increase in area under cultivation and increase
in the productivity has led to commercialisation of agriculture. This is because
non-food crops are sown exclusively for the market. This has generated money
 income for the farmers. As a result, farmers are motivated to gradually shift
from subsistence farming to commercial farming.

CHANGE IN FARMER’S OUTLOOK: Commercialisation of agriculture

has resulted in a change in the outlook of farmers. Farming is no longer
considered as merely a source of subsistence. It is rather regarded as a
commercial activity with the objective of profit earning.

USE OF HIGH YIELDING VARIETY (HYV) SEEDS AND

CHEMICAL
FERTILISERS: HYV seeds and commercial fertilisers are being increasingly
used by the farmers. This has led to a substantial rise in land productivity. The
area under HYV of seeds has increased over the years. For instance, about 88
per cent of wheat crop now is covered under HYV in the country.
MECHANISED AGRICULTURE: Indian agriculture has been
mechanised with the use of agricultural machines like tractors, harvesters, and
thresher. This has caused a rise in agricultural productivity. Use of mechanised
instrument of farming has been encouraged through availability of credit
facilities. However, the extent of mechanisation is limited and it is confined to
those areas where there is availability of irrigation, improved seeds and manure
facilities.

7-State the Problems of Indian Agriculture

LOW GROWTH RATE:

• The growth rate of the agricultural sector has remained less than the overall
growth rate of Indian economy all through the period of planning.
• Such a low rate is far from satisfactory in terms of the requirements of the
Indian economy.
• Moreover, the growth rate of Indian agriculture is low as compared to growth
rate of agriculture in other countries.
LOW LEVEL OF PRODUCTIVITY:

• Agricultural productivity is generally considered from two angles, namely

productivity of land and productivity of labour engaged in agriculture.
• Land productivity refers to yield per hectare of land.
• The overall labour productivity in India is very low – less than one third of
China and about 2 per cent that of the European countries.
• Low agricultural productivity is one of the major problems faced by Indian
agriculture. Labour productivity, i.e., productivity per worker, has also
remained low and almost stagnant over the years.
PRESSURE OF POPULATIONS ON LAND:

• The pressure of population on land has been continuously increasing.

• While the number of people dependent on agriculture has increased
substantially due to a large increase in population, the area under cultivation
has increased marginally.
• As a result, the per capita cultivated land, i.e., land per person, has declined.
• Increased pressure of population on land is partly responsible for the sub-
division and fragmentation of holdings.
• Productivity on small and uneconomic holding is low.
LAND TENURE SYSTEM:

• Land tenure system in India is still very unfavourable, which is responsible for
low agricultural productivity.
• zamindari system has been abolished in India, but the hold of large
landowners has increased. The agrarian structure of India is still characterised
by concentration of land in the hands of big landowners.
• Tenants are still exploited. They do not enjoy security of tenure.
• They have to pay exorbitant rent of land.
• This has an adverse effect on the willingness and enthusiasm of the cultivators
to increase production and productivity.
• Moreover, big landowners are able to corner the benefits of various
government schemes such as fertilisers subsidies, bank loans, etc.
UNECONOMIC HOLDINGS:

• The majority of land holdings in India is very small.

• About 86 per cent of the farmers in India are small and marginal landholders,
each owning less than 2 hectares of land.
• The small and marginal land holdings accounted for 47 per cent of the told
land holdings in 2015-16.
• Most of these holdings are uneconomical.
• It is not possible to use advanced techniques and carry out scientific cultivation
on such small-sized holdings. This results in low productivity.
TRADITIONAL OUTMODED TECHNIQUES:

• Most of the Indian farmers use traditional and outmoded techniques.

• They use wooden ploughs, bullocks, traditional varieties of seeds and manure.
• The use of high-yielding varieties (HYV) seeds, fertilisers, tractors, etc., is very
limited. Thus, Indian agriculture is, by and large, traditional.
INADEQUATE IRRIGATION FACILITIES:

• Indian agriculture also faces the problem of inadequate irrigation facilities.

• It is a matter of great concern that even today a very large percentage of
cropped area continues to depend on rainfall.
• Rainfall is often insufficient, uncertain and irregular.
• That is why Indian agriculture is called a gamble in rainfall.
INADEQUATE MARKETING FACILITIES:

• Marketing facility is another area of concern in Indian agriculture.

• No doubt, the government has taken a number of measures to improve
agricultural marketing in India still suffers from various shortcomings.
• Some of the defects of agricultural marketing in India are: lack of shortage
facilities, inadequate transport facilities, lack of grading and standardisation,
multiplicity of middlemen, malpractices of the middlemen, multiplicity of
marketing charges from the farmers by the marketing agencies, lack of
marketing information, low bargaining power of the farmers, etc.
INADEQUATE CREDIT FACILITIES:

• Deficiency of finance is another major problem facing Indian agriculture.

• The agriculture credit policy of the government is to provide cheaper, timely
and adequate amount of credit through various institutions (known as
institutional credit) such as cooperative societies, commercial banks, and
regional rural banks.
• As a result, the bulk of the credit requirement for productive purposes is now
met by these institutions.
• However, a large proportion of the institutional credit is cornered by large and
rich farmers while the small farmers, tenant cultivators, agricultural labourers,
who are the poorest of the poor, are not able to take advantage of the
institutional credit.
• They are, therefore, compelled to borrow high-cost credit from non-
institutional sources like moneylenders, rich farmers and traders who charge
very high rate of interest.
LARGE MAGNITUDE OF AGRICULTURAL LABOURERS:

• The number of agricultural labourers in India is very large, and the number has
increased over the years.
• Agricultural labour is the most backward, exploited and neglected class in the
rural sector.
• It comprises landless labourers and small cultivators who have to work as
labourers in order to supplement their meagre farm income.
• Agricultural labourers belong to the lowest rank of socio-economic set-up of
the rural society; a majority of them below the poverty line.
• Most of the agricultural labourers come from backward classes such as
scheduled castes. Wages of the agricultural workers are woefully low.
• They remain unemployed during the lean period of agricultural operations.
• They work under most trying conditions and live in abject poverty.
• Most of the agricultural labourers are under debt due to extremely low income.
• However, there has been some increase in wages in recent years due to
economic development, increase in minimum wages and adoption of various
employment generation programmes of the government.
LOW INCOME:

• In view of the low agricultural productivity, average agricultural income is very

low at about Rs.1600 per month (NSS, 2013).
• The incidence of indebtedness among cultivators is high due to low income,
and fluctuation in income, poverty and lack of economic security.
8-What was Industrial policy of 1991?
Ans- The Industrial Policy of 1991 was the policy of deregulating the industrial
economy from the era of controls, regulations and licenses which prevailed prior to
1991.

9-State main features of Industrial policy of 1991

• Abolition of Industrial Licensing: Regulatory system of industrial licensing
prevailing before 1991, which required industrial entrepreneurs to get
permission from government to start a firm, close a firm or decide the
production capacity of the firm, was abolished for almost all the industries
except 5 industries.

• Policy of Dereservation: Before 1991, private sector was not allowed in many
industries. Some industries were reserved for the public sector, while some
goods could be produced only in small scale industries. Under the new policy,
 the number of industries reserved for the public sector was reduced from 17 to
3. Many production areas which were reserved for small scale industries have
now been dereserved

• Relaxation Monopolies: Before,1991, large monopoly firms were required to

seek approval of the government for investment proposals. Now, monopoly
houses are no longer required to seek prior government approval for expansion
of the production capacity of the existing enterprises and establishment of new
industries

• Importance of Small Scale Industries: Small scale industries have been

accorded high priority view of their role in the diversification of
industrialisation, generation of employment achievement of balanced regional
growth. Development of scale industries is encouraged by providing finances,
raw material, technical expertise and infrastructural facilities.

• Reducing the Role of Public Sector Enterprises: New Industrial Policy has
redefined the role of public sector enterprises. The number of industries
reserved for the public sector has been reduced. The ownership and
management of government owned enterprises is sold out to the private sector,
i.e., the policy of disinvestment. Many of the ‘sick’ and ‘nonperforming’
public sector enterprises have been sold off to the private sector. In addition,
the government has made attempts to improve the efficiency of public sector
enterprises by giving them managerial autonomy and by enhancing their
financial powers.

10-State the Problems of Industrial Development in India

GAPS BETWEEN TARGETS AND ACHIEVEMENTS: A serious
problem with the industrialisation programme has been that the actual
achievement has mostly been lower than the targets fixed under various Five-
Year Plans.

UNUTILISED PRODUCTION CAPABILITY: A chronic problem

facing most of the industrial units has been the underutilisation of installed
capacity. It has been observed that on an average 40 to 50 per cent of the
industrial capacity remains unutilised. The main causes of underutilised capacity
are shortage of raw materials, frequent power failures, labour unrest, poor
demand for the products, etc.
 HIGH COST STRUCTURE OF INDUSTRIES: Cost and prices of goods
and services produced in India are generally higher than the international costs
and prices. The main reasons for this are low labour productivity, uneconomic
size of industrial units, underutilisation of plant capacity, higher wages in the
public sector units, etc.

INADEQUATE GENERATION OF EMPLOYMENT: Industrial

structure in India has not been able to generate large employment. This has been
largely because of the use of capitalintensive methods of production.

POOR PERFORMANCE OF THE PUBLIC SECTOR ENTERPRISES:

Performance of the
public sector units has been far from satisfactory. They have failed to earn
adequate amount of profit. A large number of them have accumulated huge losses.
The number of sick units in the public sector has increased. This has put a heavy
burden on the exchequer.

REGIONAL IMBALANCES: Industrial development has remained confined

to a few states such as Gujarat, Maharashtra, West Bengal, Tamil Nadu, etc. States
such as Bhiar, Odisha and Madhya Pradesh have remained basically non-
industrialised states.

PRODUCTION FOR ELITE GROUPS: It has been noticed that industries

catering to the demand for elite groups have expanded substantially while there
has been utter neglect of the industries catering to the demand for goods of mass
consumption. The production of luxury and semi-luxury products such as air
conditioners, TVs, cars, etc., has increased at a faster rate as compared to goods of
mass consumption like textiles, sugar, etc.

CONCENTRATION OF ECONOMIC POWER: Industrialisation has

resulted in concentration of economic power in a few hands. Compared to just
two or three big business houses in the fifties, there are about 80 large business
houses today.

INDUSTRIAL SECTOR: Alost one-seventh of the registered small-scale

units are sick in India. Sickness of industrial units is due to many factors such as
financial mismanagement, demand recession, poor technology, uneconomic size,
high cost structure, storage of raw materials and electricity, etc.

107 | P a g e
11-What are the salient features of India’s foreign trade since 199091?
LOW SHARE IN WORLD TRADE: Share of Indian’s foreign trade in
world trade is very low. Thus, India is still one of the lowest globalised economy
among the major economics of the world.

CHANGE IN COMPOSITION OF EXPORT: There has been a change in the

composition of export (types of commodities exported) over the years. There has
been a decline in the importance of agriculture and raw material like jute, cotton
and allied products
(tea, oilseeds, cashew and minerals) and substantial increase in the importance of
manufactures goods (like machines, readymade garments, gems and jewellery, jute
products, electronic goods, etc). Exports of manufactures goods now account for
almost three-fourth of total export earnings. This clearly shows a change from a
primary goods dependent economy to a vibrant industrial economy. This is a
reflection of growth-oriented nature of Indian economy.

CHANGES IN COMPOSITION OF IMPORTS: There has been a

significant change in the composition of imports. In the past, India used to import
finished goods like medicines, cloth, automobiles, electric goods, iron and steel.
But of late, India has been importing mainly raw materials and intermediate
manufactures like petroleum products, chemical, fertilisers, pearl and precious
stones, steels, machines, etc. These are largely growth-oriented products.

12-What was Trade Policy before 1991?

Ans-Before, 1991 India adopted ‘inward looking’ trade strategy.

13-What is Inward looking Trade strategy?

Ans-Inward looking trade strategy was the policy of ‘import substitution’ and ‘import
restriction’.

14-What is Import substitution?

Ans-Import substitution implies encouragement of domestic production of those
goods which the economy has been importing from other countries. This was the
strategy to save scarce foreign exchange for the import of more important goods
essential for the growth and development of the country (import of machinery, scarce
raw material, etc.), and at the same time achieving self-reliance in the production of as
many goods as possible.

15-What was the strategy of import restrictions?

Ans-The strategy of import restriction implies protection of domestic industry
through import restrictions and import duties.

108 | P a g e
16-How was the Trade policy after 1991?
Ans-After 1991, India’s foreign trade policy underwent a sea-change. Foreign trade
policy now was characterised as the policy of ‘opening up’ the economy to free trade
and globalisation.

17-What are Important international trade policy reforms under liberalisation?

The policy of import licensing was abolished.
Quantitative restrictions on imports of goods, i.e., import quotas have been
abolished.
Import duties (tariffs) have been moderated/reduced to increase competitiveness
in the domestic market.
Export duties have been removed to increase the competitive position of
Indian goods in the international markets.

18-State Problems of India’s Foreign Trade.

The rate of increase of imports have been higher than the rate of increase of
exports since 1991-92.
There has been decrease in the volume of both exports and imports in
recent years since 2012-13, leading to a negative growth rate of exports and
imports.
Share of India’s foreign trade in world’s trade is meagre as compared to other
major countries of the world.
India is facing the problem of deficit in its balance of trade. In other words,
the value of imports has been persistently higher than the value of exports.
What is a matter of concern is that the trade deficit has increased significantly
over the years.

109 | P a g e
 EXTRA NOTES

110 | P a g e
 CHAPTER 11
STRUCTURAL CHANGES IN THE INDIAN
ECONOMY AFTER LIBERALISATION

1-What do you mean by structure of economy?

Ans-Structure of an economy refers to the fundamental features of the economy like
the size of the primary, secondary and tertiary sectors in terms of their contribution to
GDP and employment.
Structural changes refer to long term and persistent shifts in the sectoral
composition in an economy.
2-What is referred LPG?
New Economic policy of 1991 of India, which brought major change in the
strategies of development of Indian economy.
This new economic policy was based on three major policy measures, namely
(i) the policy of liberalisation (L), (ii) the policy of privatisation (P), and
(iii) the policy of globalisation(G).
Thus, the new economic policy has three broad components, popularly known
as LPG.
3-State need for Economic Reforms
Ans-The need for economic reforms arose from a large variety of factors.
1. Weakness of the Pre-1991 Policies:
One of the important factors which led to economic reforms was the weakness of pre-
1991 economic policies such as low rate of economic growth, rising unemployment, stagnation in
the rate of domestic savings and investment, poor performance of the public sector industries,
inadequate infrastructural facilities, industrial licensing policy, growth of monopolies, etc.

2. Major Foreign Exchange Crisis: In the year 1991, Indian economy faced an
acute shortage of foreign exchange. Several factors were responsible for this crisis.
[very important point]
❖ First, the immediate cause for the foreign exchange crisis was the war between
the Gulf countries of Iraq and Kuwait in 1990-91 which pushed up oil prices
and as a result the oil import bill went up substantially.

❖ Second, India’s external debt had increased over time. The burden of interest
and repayment of old debts was very large. Fresh debts were being denied by
the international institutions such as the International Monetary Fund (IMF)

111 | P a g e
 and the World Bank as well as by other commercial lenders. This resulted in
drying up of foreign exchange.

❖ Third, foreign exchange in the form of NRI deposits was being withdrawn very
rapidly because of the political instability and uncertainty at home.

❖ Finally, the growth in import had always been far more than the growth in
exports. This led to deficit in the current account of balance of payments. India
had to, therefore, depend on foreign loans to cope with the deficit. The burden
of foreign debt servicing (repayment of loan and payment of interest) increased
tremendously. India reached a situation in which it had foreign exchange just
enough to meet the import needs of only about three weeks. As a result, the
foreign exchange reserves with the Reserves Bank of India almost dried up.
[Link] Imposed by IMF and World Bank: In view of the foreign
exchange crisis, the Government of India had to approach the IMF and the World
Bank to tide over the crisis. These institutes provided the much-needed foreign
exchange, but on their own terms and conditions according to which India was
required to cut down fiscal deficit and the growth of money supply. It was required to liberalise the
domestic economy and to relax restrictions on international flow of goods, services, capital and
technology.
[Link] of USSR (Union of Soviet Socialist Republics): The USSR and the East
European countries had become the major markets for Indian consumer goods over
the years. At the end of 1990, political system of these countries collapsed. Most of
these countries become market economies. India had to open up trade with these and
other countries on the basis of its ability to compete. It had to compete in the global
market to retain its share of exports. India had, therefore, to reorganise its own
policies to preserve its share in the world market.
POLICY OF LIBARALISATION OF INDIAN ECONOMY
Meaning- Economic liberalisation is the policy of deregulation of different
segments of the economy.
It is the policy of doing away or reducing the government controls over industry,
investment, imports, foreign exchange and other activities, which existed before 1991.
Aim of this policy-The objective of introducing the liberalisation policy in 1991 was
to move from a regulated system to a new system where regulations were to be
reduced and ultimately minimised.
STATE FEATURES OF LIBERALISATION POLICY
Ans-The main features of the policy of liberalisation are as follows:

112 | P a g e
 Delicensing: Before 1991,the industrial licensing policy led to unnecessary
government interference, delays in investment decisions, bureaucratic red-tapism,
etc. Therefore, there was a need to review these measures. The thrust of the policy
of liberalisation was on abolishing the requirement of licensing of industries. In
most cases, the industrial policy of 1991 has made the licensing policy very liberal.
The requirement of licensing was abolished for most of the industries except five
(alcohol, cigarettes, hazardous chemicals, defence equipment, and industrial
explosives) for security, strategic, social, and environmental reasons.

Relaxation in Controlling Monopolies: Under the Monopolies and

Restrictive Trade Practices (MRTP) Act, all the firms with assets above a
certain amount (Rs.100 crore since 1985) were permitted to enter selected
industries only, and they were required to take approval of the government for any
investment proposals. In order to make deregulations more effective, restrictions
on functioning of monopolies have been relaxed. The emphasis has shifted now to
controlling and regulating the monopolistic and restrictive unfair trade practices by
taking action against the offenders so as to safeguard the interest of the
consumers.

Industrial Location Policy Liberalised: In a departure from the earlier

industrial location policy, freedom has been given to industries to start their
operation at all locations other than the cities with more than one million
population. There is no need for obtaining the approval of the government, except
for industries subject to compulsory licensing.

Removal of Restrictions on Mergers: Restrictions on mergers, takeovers,

separation of industrial units, etc., are all removed.

Liberalisation of Capital Market: Capital market has been made free. A new
company can be floated now with the issuance of new shares and debentures
without seeking the permission of the government. However, Securities and
Exchange Board of India (SEBI) has been set up as a watchdog for
regulating the functioning of the capital market.
Foreign Exchange Market Reforms: These reforms have been introduced in
the foreign exchange market. Flexible exchange rate is determined introduced
under which exchange rate is determined by the market forces. The Reserve
Bank of India (RBI) helps only to ensure that there are no extreme
fluctuations in the exchange rate. In 1993-94, the rupee was made fully
convertible into foreign currency on trade account.

113 | P a g e
 Foreign Trade Reforms: Foreign trade policy underwent a substantial change in
the wake of liberalisation. Tariff restrictions have been considerably relaxed. The
policy of liberalisation has led to freedom to import capital goods and technology.
Imports quotas have been abolished.

Development of Infrastructure: Private sector has been allowed to enter and

develop the infrastructure such as power, roadways, communications, shipping,
civil aviation, banking, etc.

Ease of Doing Business: The NDA government has taken a series of measures
during the last three years to improve doing business in India. As part of this
policy, existing rules regarding various licenses and permissions needed for doing
business in the country have been simplified. This has created an investment
friendly environment in the country.

Other Changes: Several other changes such as liberalising the control of RBI on
commercial banks and price decontrols (for example, that of sugar and petroleum)
have been adopted as a part of the policy of liberalisation. Banking reforms has
led to a shift of the role of RBI from a ‘regulator’ to a ‘facilitator’ of the
financial sector.
State Significance of Liberalisation Policy
❖ Policy of liberalisation has tried to overcome the problems of ‘control raj’
such as problems of uncalled delays, corruption.
❖ Liberalisation policy has provided freedom to the entrepreneurs.
❖ Liberalisation policy has injected a spirit of competition in the economic
system and has encouraged the entrepreneurs to undertake investment. This
has increased efficiency in the economy
❖ Removing Barriers for Bigger Projects-After removal of MRTP Act many
companies started expansion of their business in various product
POLICY OF PRIVATISATION
Meaning--Privatisation basically implies the process which lends to transfer of
ownership of public sector enterprises from the government to the private
sector. However, taken in a wider sense, privatisation also implies the process of
granting autonomy to the public sector enterprises in decision-making and infusing
the spirit of commercialisation in them.
STATE FEATURES OF THE POLICY OF PRIVATISATION IN INDIA
Policy of Dereservation: The Industrial Policy Resolution of 1956 has reserved
17 industries for the public sector. The Industrial Policy of 1991 reduced the

114 | P a g e
 number of such industries to eight. Subsequently, the number of industries
reserved exclusively for the public sector was reduced to three, namely atomic energy,
specified minerals, railways.
➢ Policy Towards Sick Public Sector Undertakings: Sick enterprises are
those enterprises which have been incurring heavy losses year after year.
The Board for Industrial and Financial Reconstruction (BIFR) was set up in
1987 to look into the revival of sick industrial units within private
companies.
❖ Revival of sick companies from loss making to normal functioning.
❖ Making reconstruction of capital structure.
❖ Giving advice to companies Board of Directors
❖ Taking actions on merger with other companies.

Policy for Navaratnas and Miniratnas: The government introduced the

Navaratnas scheme in 1997 to identify CPSEs that had comparative
advantages and support them in their drive to become global giants. The
government of India has granted enhanced powers to the Board of Directors of
various profit-making CPSEs, known as Maharatna, Navaratna, and
Miniratna. These PSU were to be provided financial and managerial autonomy to
become global giants. These Maharatna/Navaratna/Miniratna companies have been
given additional power and freedom to incur capital expenditure, raise debt, enter
into joint ventures, restructure their board of directors, and work out their own
manpower and resources management policies.

➢ The Navaratna originated as part of the programme of the government in 1997

to identify high-performing and profit-making public sector enterprises. These
enterprises were provided financial and managerial autonomy to become global
giants. Bharat Electronics Limited, Container Corporation of India Limited,
Mahanagar Telephone Nigam Limited etc.

➢ During 2010-11, the government introduced the Maharatnas scheme under

which mega Navaratnas public sector enterprises have been empowered to expand
their operations, both on the domestic as well as foreign market. Bharat Heavy
Electricals Limited, Bharat Petroleum Corporation Limited, Coal India
Limited, Hindustan Petroleum Corporation Limited etc.

➢ The Miniratna companies followed suit to grant enhanced autonomy and

delegation of financial enterprises to some other profit making companies. These
were consistently profit-making companies. Airports Authority of India, Bharat
Sanchar Nigam Limited etc

115 | P a g e
 Memorandum of Understandings (MOU): The main objective of MOU is to
grant autonomy to the public sector enterprises by reducing the quantity of
control and increasing the quality of accountability of management. It aims at
bringing a balance between autonomy and accountability. The government
evaluates the performance to the public sector enterprises through performance
evaluation based on the comparison between the actual achievements and the
annual targets set by the government. The public sector enterprises entering into
MOU with the government are given rating as per their performance. Ratings on a
5 point scale – excellent, very good, good, fair and poor – are given to the public sector
enterprises as an incentive to improve their efficiency.

Voluntary Retirement Scheme (VRS): Government has initiated a voluntary

retirement scheme in the public sector enterprises to reduce the number of excess
workers. Under this scheme, workers seeking voluntary retirement are given
financial compensation. As a result of this scheme, the government has succeeded
in reducing the excess number of employees working with the public sector
enterprises.

Disinvestment Policy--The policy of disinvestment refers to selling of

government’s equity in the public sector units in the market. Under this
policy a part of the government shareholding in the selected public sectors
undertakings would be offered to private investors, financial institutions, mutual
funds, workers and the public at large. Its objective is to raise funds and encourage
wider participation of general public and workers in the ownership of the public
sectors enterprises.
State significance of Privatisation

[Link] of Sick Units:--Due to privatization many sick units which were loss
making and liability to government, now after privatization they are profit-making
companies. Bharat Electronics Limited, Container Corporation of India Limited,
Mahanagar Telephone Nigam Limited etc.

2. Improvement in Managerial Efficiency:--Privatisation through disinvestment

will establish a direct relationship between the shareholders and management, private
shareholders would have direct interest in increasing the efficiency of these
enterprises, there would be no political pressure and delay. It will help in improving
the quality of decision-making.

[Link] Environment:--Transfer of ownership from public to private sector

will create competition with other similar firms. It would infuse commercial spirit in

116 | P a g e
the enterprises; it will be under pressure to increase production efficiency by using
improved technologies.

[Link] employment opportunities: --Privatization will lead to opening up of

new areas to the private sector which were earlier reserved for the public sector. This
will lead to the increase in investments by the private sector. Higher investment
would mean creation of larger employment and income-earning opportunities in the
economy.

[Link] Satisfaction:--Due to privatization now main focus of enterprises is on

customer satisfactions. Hence quality of goods and services will improve.

[Link] Flexibility: The policy of privatization will be helpful in imparting greater

flexibility in the decision-making process, management would be free from any
government intervention. It would be possible to take quick and timely decisions,
which will improve business operations.

[Link] in burden on government:--Operation of the public sector enterprises

has been putting a large burden on public exchequer because of huge losses incurred
by a number of enterprise and growing amount of subsidy payments. Now due
privatization it would not be under government obligation to provide subsidy and
making up for the losses.

[Link]-OrientedDecision-Private sector due to commercial sprit will introduce

‘profit-oriented’ decision-making process in the working of enterprises. This will yield
better returns to its shareholders.

POLICY OF GLOBALISATION
Meaning of Globalisation--Globalisation is a process of integrating the
economy of a country with other economies of the world through trade, capital
flow, and technology. It means opening up the economy to the other economies of
the world. T
State Features Of The Globalisation Policy
1. Exchange Rate Reform: The most important measures of integrating India
economy with the global economy was to change over from the fixed exchange
rate system to market-determined flexible exchange rate system. This policy of
allowing the exchange rate to be determined in the international market without
official intervention is known as convertibility of the currency. The
convertibility of India rupee on trade account was achieved in August 1994. This

117 | P a g e
 policy is called partial convertibility because it covers current account transactions
only and not capital account transactions.

2. Import Liberalisation: India is committed to reducing restrictions on its foreign

trade as a member of the World Trade Organisation (WTO).
The government has also taken a number of steps in the direction of import liberalisation.
❖ The system of import licensing has been dismantled.
❖ Quantitative restrictions on imports have been almost totally abolished under
agreement with the WTO.
❖ Duties on imports and exports have been reduced to make the trade between
nations freer than before

❖ Foreign Direct Investment (FDI):-The government of India has opened its

doors to foreign investors and committed to encourage flow of FDI (Foreign
Direct Investment) for better technology, modernization and for providing goods
and services of international standards. FDI is granted from 51% to 100% equity
in various industries. The policy of government is also aimed to encourage FDI in
core infrastructure sectors like road development, housing, banks, airlines etc.
subject to certain restrictions.

❖ Foreign Technology: With a view to encourage technological development in

Indian industries, free flow of technology is allowed by the government.
Government provides automatic approval for technological agreements in case of
high priority industries. Foreign technology induction is facilitated both through
FDI and through foreign technology agreements.

State Positive Effects/Significance of Globalisation on Indian Industry

1. Inflow of Multinational Coporations (MNCs): Globalisation has attracted a
number of MNCs to Indian industries. These MNCs have brought in huge
amount of foreign investment into the Indian industries, especially in
pharmaceutical, petroleum, chemical, textile, and cement manufacturing industries.
A huge amount of FDI coming to Indian industries has boosted Indian economy.

2. Emergence of IT and BPO Sectors: One of the major benefits of globalisation

has been the emergence of information technology (IT) sector and business
process outsourcing (BPO) sector. The IT and BPO sectors of India are providing
outsourcing to the customers in other countries, particularly the USA and Europe.

118 | P a g e
3. Availability of Advanced Technology: Another benefit of globalisation for the
Indian industries is that the MNCs have bought in highly advanced technology
with them. This has helped to make Indian industry technologically advanced.

4. Providing Employment to Skilled Manpower: Setting up of industries by the

foreign companies has helped to provide employment to many people in the
country. The opening of the call centres, outsourcing of IT and BPO services, and
MNCs have created tremendous job opportunities in the country. The last few
years have seen an increase in the number of Indian skilled professionals
employed in these sectors. A new middle class has emerged around the wealth that
the It and BPO industries have brought.

5. Setting up of Special Economic Zones (SEZs): SEZs have been set up to

attract foreign companies. Creation of SEZs has enhanced the growth of
industrialisation. They have helped in generating employment opportunities,
creating world class infrastructure and in promoting investment, including foreign
investment.

6. Indian Corporate Sector Emerging as Global Player: Some of the leading

Indian industries such as the Tatas, Reliance, United Brewery, Essars, etc., have
gone global by undertaking investment abroad and by acquiring some of the
leading foreign companies. From steel to textiles, from cars to IT, Indian
companies have emerged as the new major players in globalisation.

119 | P a g e
 EXTRA NOTES

120 | P a g e
 CHAPTER 12TH
THE PROBLEM OF POVERTY IN INDIA
CONCEPT OF POVERTY
• Poverty is multidimensional.
• It involves not only lack of the basic necessities of material well-being, but it
also means the denial of opportunities to live a tolerable life, to lead a long,
healthy and creative life, to enjoy a decent standard of living, freedom, dignity
and self-respect.
• United Nations Development Programme (UNDP) has termed the former
type of poverty as the 'income poverty', and the later as the 'human
poverty'.
Income poverty refers to lack of the basic necessities of material well-
being.
Human poverty refers to denial of opportunity for living a tolerable life.
• Economic poverty can be considered in two senses, namely- "absolute poverty
and 'relative poverty'.
Absolute poverty is defined as a phenomenon when a section of the society is
unable to get even the basic necessities of life, and thereby, it is unable to have
a minimum standard of living.
Relative poverty refers to the phenomenon when the income needed for
consumption expenditure of a section of the society is distinctively below the
average income level of the society.
Concept of 'poverty line'
• The poverty has been line defined largely in terms of food poverty.
• The poverty line (or poverty level) indicates the income level, which is just
sufficient to buy the basic minimum quantity of food and a few select non-food
items.
Distinguish Between Relative and Absolute Poverty
Basis Absolute poverty Relative Poverty
Meaning Absolute poverty is defined Relative poverty refers to the
as a phenomenon when a phenomenon when the income
section of the society is for consumption expenditure of
unable to get even its basic a section of the society is
necessities of life, and distinctively below the average
thereby, it is unable to have a income level of the society.
minimum level of living.

121 | P a g e
 Indicates poverty Level of income needed to Economic status of others in
in relation to - fulfil basic needs society.
Standard Remains consistent over Changes over time.
time.
Measure Measured using poverty line Measured by comparing average
per capita income
Eradication Not possible Possible
Found in Developing countries Developed countries

VICIOUS CIRCLE OF POVERTY

Vicious circle of poverty refers to a situation of self-reinforcing forces in which
there are certain factors that are related in a circular way so as to result in
continuation of poverty and underdevelopment.
Three vicious circles are discussed below:
The first such circle operates from the supply side of capital formation.
The second type of vicious circle operates from the demand side of capital
formation.
A third vicious circle involves underdeveloped human and natural
resources.
SUPPLY SIDE OF CAPITAL FORMATION
• In underdeveloped countries, total output is low because of low
underdevelopment and productivity associated with that.
• Low productivity is reflected in low People income and are unable to save less
because of low level of income as bulk of the income is used in meeting the
consumption needs.
• At low level of income, the capacity and the willingness to save is less.
• Low income, therefore, results in low savings.
• The low level of saving leads to low investment and thereby deficiency of capital.
• The deficiency of capital, in turn, leads to low level of productivity and back to
low income.
• Thus, the vicious circle is complete from the supply side.
• Underdevelopment is explained by capital deficiency, which acts both as a
cause and consequence of a low level of income.

122 | P a g e
 DEMAND SIDE OF CAPITAL FORMATION
• This is the vicious circle of a limited market.
• Low productivity associated with capital deficiency leads to low income.
• The low level of income in the economy results in small buying power of
the people.
• This provides limited market opportunities to the entrepreneurs. Incentive
to invest depends on the size of the market.
• Since the size of the market is small, therefore, inducement to invest is low.
• This leads to deficiency of capital, and back to low productivity and low
level of income.
• While the capital deficiency is at the root, the obstacle seems to arise from
low income, which leads to low savings as well as low inducement to invest.

UNDERDEVELOPED HUMAN AND NATURAL RESOURCES

123 | P a g e
 • The development of natural resources depends on the productive capacity
of human resources (people) in the country.
• The natural resources are unutilised or underutilised in the underdeveloped
countries because people are economically backward, illiterate; they lack in
technical skill and knowledge.
• Thus, economically backward people lead to underdeveloped natural
resources.
• On the other hand, people are economically backward in a country due to
underdeveloped natural resources.
• Underdeveloped natural resources are, therefore, both a consequence and
cause of the backward people.
PROGRAMMES FOR POVERTY AND UNEMPLOYMENT
ALLEVIATION SINCE 1991
JAWAHAR GRAM SAMRIDHI YOJANA (JGSY):
JGSY was introduced in April 1999 by restructuring the JRY.
It has two main objectives:
The primary objective is to create durable productive community assets and
infrastructure at the village level.
The secondary objective is to generate wage employment for unemployed poor
in the rural areas.
• The programme is implemented by Gram Panchayats
• It is a centrally sponsored scheme.
• Its cost is shared between the centre and the states in the ratio of 75:25.
Swarnajayanti Gram Swarozgar Yojana (SGSY)
• SGSY was launched on 1 April 1999
• It is a single self-employment programme operating for the rural poor.
• SGSY aims at promoting enterprises at the elementary village level.
• It assists poor rural families to take up income generating economic activities.
• It helps the rural people by organising them into self-help groups (SHGs).
• The scheme is implemented as a centrally sponsored scheme on cost-sharing
ratio of 75:25 between the centre and the states.
• The SGSY has now been restructured as National Rural Livelihood Mission
(NRLM) since 3 June, 2011.

124 | P a g e
Employment Assurance Scheme (EAS):
• EAS was started on 2 October 1993 in 1778 rural backward blocks situated in
drought prone, desert, and tribal and hilly areas
• It is a centrally sponsored scheme on a cost-sharing ratio of 75:25 between the
centre and the states.
The two main objectives of EAS are:
The primary objective of the EAS is to create additional wage employment
opportunities during the lean agricultural season when there is acute shortage
of wage employment for the BPL rural people. It aims at providing 100 days of
work to two members of a rural family in the agricultural lean season.
The secondary objective is to create durable productive community assets for
sustained employment and development.
Pradhan Mantri Gramodaya Yojana (PMGY):
• PMGY was introduced in the Budget of 2000-01.
• Its objective is to focus on village-level development in five critical areas, i.e.,
health, primary education, drinking water, housing, and rural roads. As a result
of this, the quality of life of people in the rural areas will improve.
PMGY includes three major projects:
Pradhan Mantri Gram Sadak Yojana, with the objective of providing good all-
weather roads in the rural areas with a population of more than 500 persons.
Pradhan Mantri Gramodaya Yojana, with the objective of housing
development in the rural areas.
Pradhan Mantri Gramodaya Yojana-Rural Drinking Water Project, with the
objective of developing projects for providing water harvesting water
conservation, and drinking water for the drought-prone areas.
Sampoorna Grameen Rozgar Yojana (SGRY):
• SGRY was launched in 2001.
• The scheme was being implemented as a centrally sponsored project on a cost-
sharing8 ratio of 75:25.
• The scheme was merged with Mahatma Gandhi National Rural Employment
Guarantee Act (MGNREGA) with effect from 1 April 2008.
• The September objectives of the scheme are:
To provide wage employment along with food security in the rural areas to
BPL people.
To create durable community, social, and economic assets.

125 | P a g e
Food for Work Programme (FWP):
• This programme was launched in February 2001.
• It aims at augmenting food security through wage employment in the drought-
affected rural areas in 150 most backward districts of the country.
• Under this scheme, wages are paid partly in kind (foodgrains) and partly in
cash.
• The scheme is implemented by state governments.
• The centre helps the state governments by providing appropriate quantity of
foodgrains free of cost to drought affected states.
Krishi Shramik Suraksha Yojana (KSSY):
• This scheme was launched in July 2001.
• It aims at providing social security benefits to agricultural labourers in the of
18-60 years.
Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA):
• This flagship programme of the aims government at providing livelihood
security to rural households.
• It is one of the most ambitious pro-poor scheme in the world to tackle rural
poverty and to unemployment by providing employment rural people.
• The objective of providing at least 100 days of guaranteed unskilled wage
employment in a year to each rural household opting for it at the minimum
wage rate (which is increased every year).
• One-third of beneficiaries under this scheme are women.
• The NREGA was renamed as MGNREGA on 2 October 2009.
• The MGNREGA has also led to higher agricultural wages, benefitting all
employed workers, empowerment of women (who work in large number),
improved economic condition, and reduction in migration from rural areas.
• MGNREGA has contributed to rural development through construction of
rural roads, soil conservation, flood control and land improvement projects.
Two main schemes of poverty alleviation specifically for the urban areas,
which are discussed below:
Prime Minister's Rozgar Yojana (PMRY):
• PMRY was launched on 2 October 1993. It is a scheme aimed at helping
educated unemployed youths in establishing self-employment units in industry,
service, and business sectors.

126 | P a g e
 • Any youth between the age of 18 and 35 years and belonging to families with
annual income of less than 24,000 are eligible for financial assistance under the
scheme.
• Persons belonging to weaker sections are given priority under this scheme.
• The scheme is in operation in both urban and rural areas.
Swarna Jayanti Shahari Rozgar Yojana (SJSRY):
• National Urban Livelihood Mission (NULM) SJSRY came into operation from
December 1997 by merging various programmes operated earlier for urban
poverty alleviation like NRY and PMIUPEP. SJSRY was replaced by NULM in
September, 2013.
• It aims to provide gainful employment to the urban unemployed or
underemployed poor BPL persons through setting up of self-employment
ventures or through provision of wage-employment and by creating
opportunities for skil development.
• It has the following special schemes:
The Urban Self-Employment Programme separately for males and
females.
Skill training for Employment Promotion amongst urban poor.
The Urban Wage-Employment Programme.
Urban Community Development Network.
• SJSRY is funded on a cost sharing ratio of 75:25 between the Centre and the
states.
EFFICACY OF POVERTY ALLEVIATION PROGRAMMES A CRITICAL
ASSESSMENT
Decrease in Poverty: The decrease in the proportion of population BPL by
33 per cent points, from 55 per cent in 1973-74 to about 22 per cent in 2011-
12, was largely the result of poverty alleviation programme.
Increased in Income: According to some studies, half of the increase in
income of the poor in recent years is due to poverty alleviation programmes.
Higher Wages: One of the important impacts of the these programmes is that
it has led to increase in wages in the areas of their operation, particularly in the
backward regions, in recent years.
Improvement in Nutritional Level: The nutritional level of the poorest has
improved.
SOME OF THE IMPORTANT CAUSES FOR SUCH A LIMITED
SUCCESS OF THE POVERTY ALLEVIATION PROGRAMMES ARE:
• Unsatisfactory Administration: The administration of these programmes has
been far from satisfactory. staff Implementing is mostly inefficient. There are
127 | P a g e
 complex procedural requirements in the implementation of these programmes.
Monitoring machinery is lacking. There is no follow-up action.
• Unsatisfactory Performance of Supporting Institutions: The performance of
the supporting institutions providing facilities like credit, marketing, etc., is not
satisfactory.
• Leakages: Many a time, the definition of the poor has been vague and
unscientific. AS a consequence, a large number of non-poor also took advantage
of these schemes. Leakages are high due to corruption and inefficient
management.
• Neglect of Remote Areas: Poor household of remote areas have been neglected
due to lack of accessibility and i8norance.
• Defective Strategy: The strategy of the programmes has been defective on many
scores. First, the strategy has not taken note of the need for attacking the
exploitative agencies in the rural areas. Second, the strategy of poverty alleviation
has attempted to eradicate poverty by making a direct attack on poverty. Third, the
strategy does not recognise the fact that the poor are not able to take advantage of
the benefits of poverty alleviation programmes because they lack skill, stamina,
and initiative.
• Disjointed Programmes: Another problem of the poverty alleviation
programmes is that they are both disjointed programmes, at the policy level as well
as at the implementation stage.
• Lack of People's Participation: A major lacuna of poverty alleviation is that
programmes they have largely remained government sponsored programmes.
There is lack of effective participation of the people in these programmes.
• Not Linked with the Overall of Strategy Development: These programmes are
not linked with the overall development of strategy. There is the need integrating
these the overall programmes with development to strategy so as get maximum
benefits from these programmes.
MAHATMA GANDHI NATIONAL RURAL EMPLOYMENT
GUARANTEE ACT (MGNREGA)
1-Name the flagship programme of India to tackle poverty and unemployment
Ans-MAHATMA GANDHI NATIONAL RURAL EMPLOYMENT
GUARANTEE ACT (MGNREGA)
2-State the aim of MGNREGA
• MGNREGA aims government at providing livelihood security to rural
households.
• It is one of the most ambitious pro-poor scheme in the world to tackle rural
poverty and to unemployment by providing employment rural people.

128 | P a g e
3-When was NREGA Act implemented and what was its aim?
Ans-NREGA Act 2005-was implemented in February 2006 in 200 most backward
districts of the country with the objective of providing at least 100 days of
guaranteed unskilled wage employment in a year to each rural household opting
for it at the minimum wage rate (which is increased every year).
4-How much reservation is for women in above act/scheme?
Ans-One-third of beneficiaries under this scheme are women.
5-What was NREGA renamed as?
Ans-The NREGA was renamed as MGNREGA on 2 October 2009.
6-State main features of MGNREGA?
• MGNREGA is run by gram panchayats.
• Under this scheme, 47 crore households have been provided employment
between 2006-07 and 2018-19. On an average, 5 crore households have been
provided employment every year since 2008, affecting the lives of up to 25 crore
individuals.
• Around 2,30,000 crore was spent directly as wage payment to rural households
between 2014-15 and 2018-19.[read]
• The MGNREGA has also led to higher agricultural wages, benefitting all
employed workers, empowerment of women (who work in large number),
improved economic condition, and reduction in migration from rural
areas.
• MGNREGA has contributed to rural development through construction of
rural roads, soil conservation, flood control and land improvement
projects.
7-What was UNDP declared MGNREGA?
• UNDP, has acclaimed MGNREGA as among the best known employment
guarantee schemes providing direct jobs to rural poor.
• It has been cited as exemplary in job creation for the poorest rural households.
• UNDP Report says that the size of MGNREGA has no precedence, nationally
or internationally.
8-How has MGNREGA been criticised?
• MGNREGA has been riddled with corruption and leakages.
• Delay in wage payments has also been a dampener.

129 | P a g e
9-How is the problem/criticism of delayed payment of MGNREGA been
solved?
Ans-The MGNREGA programme has been streamlined now by integrating it with
Aadhaar Linked Payment System to provide direct benefit transfer to the bank
account of the beneficiaries, thereby reducing the delays in payment and leakage.
PRADHAN MANTRI AWAS YOJANA (PMAY)
1-What was aim of PMAY?
• Pradhan Mantri Awas Yojana (PMAY) was launched on 25 June, 2015 aims at
'providing housing for all' to the urban poor.
• The objective is to ensure that 2 crore houses are built across the country by
2022.
2-Who are primary target of PMAY scheme?
Ans-The primary target groups of PMAY are poor people belonging to low income
group and economically weaker sections.
3-State features of PMAY scheme
• Under this scheme, a subsidy will be provided by the central government to the
targeted group (ranging from 1 lakh to 2.3 lakh.)
• The government will also offer subsidy on home loans availed under this
scheme.
• The interest subsidy ranges from 3 per cent to 6.5 per cent, depending upon
the amount of loan availed of by the beneficiaries.
PRADHAN MANTRI SURAKSHA BIMA YOJANA
1-Who can register for above scheme?
Ans-Individuals who are below the poverty line can get registered to this insurance
policy.
2-State features of this scheme
• Individuals who are below the poverty line can get registered to this insurance
policy. This scheme is assisted by the central government.
• Under this scheme, uninsured people of 18-70 years of age can get themselves
into the normal insurance services (death and accidental insurance) by paying
not more than 12 annually, and can avail of up to 72 lakh death/ accidental
claim.

130 | P a g e
 PRADHAN MANTRI ATAL PENSION YOJANA (APY)
• This welfare scheme involves providing contributory insurance security to the
poor people of more than 60 years of age working in the unorganised sector.
• Under this scheme, the central government contributes up to R1000 per
person per annum for a period of 5 years.
• Persons of 18-40 years of age are eligible to join this scheme.
• APY provides a pension ranging from {1000-Rs 5000} depending upon the
subscriber's amount of contribution to the scheme.
PRADHAN MANTRI KAUSHAL VIKAS YOJANA
• This scheme was launched on 21st March 2015 to provide industry relevant
skill-training to youth.
• It was realised that after class X and XII there are a number of dropouts who
join the unemployed youth.
• Hence, if they are guided to learn a vocational skill as per their aptitude, they
can be usefully and gainfully employed.
• This plan is implemented with the help of Ministry of Skill development and
Entrepreneurship through the National Skill development corporation.
NATIONAL HERITAGE DEVELOPMENT AND AUGMENTATION
YOJANA (HRIDAY)
• This scheme was launched on 21st January 2015 to preserve and rejuvenate
the rich cultural heritage of the country.
• This 500 crore programme was launched by Urban Development Ministry
in New Delhi.
• The primary aim of this programme was to create one more avenue of
employment-generation for the skilled as well as unskilled labour, and
help as a poverty-alleviation programme.
THE NATIONAL HEALTH POLICY, 2017
This specifies targets for –

• Universalising primary health care

• Reducing infant and under 5 mortality
• Preventing premature deaths due to non-communicable diseases as well as
increasing government expenditure on health.
As a step towards achieving universal health coverage, the government of India
has announced a health insurance cover to the tune of 1 lakh poor families below
the poverty-line

131 | P a g e
 EXTRA NOTES

132 | P a g e
 CHAPTER 13
PROFILE OF INDIAN AGRICULTURE/RURAL
DEVELOPMENT
1-What is Rural Development?
Ans- 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.
2-Which are some of the areas which are in need of fresh initiatives for rural
development?
1. Development of human resources: Human resource is the process of
improvement in the knowledge, skill, ability and physical capacity of the people.
Human resources can be increased by providing education, health services, water
supply, housing, nutrition and family welfare.
2. Honest implementation of land reforms: Land reforms have been one of the
major policies for rural development. Following are the reforms required to be
undertaken: • Abolition of intermediaries between the State and tenants; • Tenancy
reforms that provide security to tenants and regulation of rent etc. • Fixation of
ceiling on landholdings, • Consolidation of holdings.
3. Infrastructure development: Infrastructure development like electricity,
irrigation, credit, marketing, transport facilities including construction of village roads
and feeder roads to nearby highways, facilities for agriculture research-and extension,
and information dissemination.
4. Input subsidies to agriculture: Under this policy, the government can provide
various inputs such as irrigation, fertilisers and power etc. This will help famers to use
modern inputs which will increase the agricultural production and productivity.
AGRICULTURE MARKETING
1-What is Agriculture marketing?
Ans-Agriculture marketing involves several activities such as collection and storage of
agricultural goods, their transportation to market place, grading and standardization
and selling the produce at attractive price.
2-State and explain the defects in Agriculture Marketing
1. Lack of collective bargaining: There are millions of small farmers who are not
united while selling their produce. The bargaining power of the farmers with the
traders is low, therefore they get low price of their produce.
133 | P a g e
2. Multiplicity of Intermediaries: There is a long chain of middleman like
wholesaler, retailer, commission agents, between the farmers and the consumers. As a
result, there is big gap between the price realized by the farmers and the price paid by
the consumers
3. Distressed Sale: An average Indian farmer is forced to sell his produce
immediately after the harvest on account of his poverty, pressure of repayment of
loans and poor holding capacity. At that time prices are generally low.
4. Lack of Grading: Farmers in India do not appreciate the importance of grading
the produce. Their produce is not classified into different grades or qualities. This
gives a lot of scope to the merchants and traders to exploit the farmers.
5. Malpractices in unorganized market: There are several malpractices indulge by
traders like underweight, clandestine (secret) fixation of price of the produce and the
levy of a number of market charges and fees.
6. Lack of Storage facilities: Lack of storage facilities in rural areas often forces the
farmer to sell his produce at the time when the market is oversupplied and the market
price is low.
7. Lack of Transport and market knowledge: Lack of transport facilities in rural
areas often forces the farmer to sell his produce in the nearby market without the
knowledge of prevailing rate at low price. Traders and commission agents take
advantage of the ignorance of farmer and exploit them by buying at low prices.
3-What measures are taken by the Government to Improve Agricultural
Marketing?
[Link] of Regulated Markets: The objectives of the regulated market
are:
To eliminate unfair and unhealthy market practices
To enforce the use of standardized weights and ensure fair price for the
farmers.
Transactions are governed by various rules and regulations.
For the management of these markets, the marketing committees, consisting of
representatives of the farmers, traders and the government.
It helps farmers in securing fair price for their produce with correct measures
and using standard measures and weights throughout the country.

2. Storage and Warehousing Facilities: In order to prevent distress sale by the

farmers immediately after the harvesting of crops, it is necessary to provide storage
and warehousing facilities. The government has made elaborate arrangements to
establish public sector warehouses through two agencies, namely Central and State

134 | P a g e
Warehousing Corporations, Food Corporation of India and in rural areas through
NABARD.
3. Uniform Standard Weights: In order to regulate the system of weights, the
government passed the Standard Weights and Measures Act. This has helped in
reducing the exploitation of farmers by traders and agents.
4. Grading and Standardization: The government has done a lot to grade and
standardize many agricultural and allied commodities such as rice, wheat, pulses,
coffee, tobacco, cotton etc. Grading of agricultural products is done under the
provisions of the Agricultural Produce Act. These graded goods are stamped with the
seal AGMARK which is the hallmark of quality
5. Marketing Information: Correct and timely information regarding marketing
conditions, price etc., can help farmers in planning their production and sales and also
ensure that they get fair prices for their products. The government collects weekly
data on market arrivals, sales, prices etc. on regular basis. It provides these types of
information to the farmers through public media such as radio, television, newspaper
and internet etc.
6. State Trading in Food grains: State trading in food grains has been introduced to
centralise the movement of food grains and also to assist the farmers in securing
reasonable prices. State trading along with Food Corporation of India undertakes the
purchase, storage, distribution and sale of food grains.
7. National Agriculture Market (NAM): NAM aims at setting up of a common e-
marketing platform to be deployed in selected regulated wholesale markets in various
states. About 450 mandis are likely to be covered by the national eplatform by 2016-
17.
Rural Credit
1-What is Rural Credit?
Ans- It refers to the provision of credit and capital facilities to the farmers,
households and small business in rural areas.
2-On what basis can Agricultural finance can be classified ?
Purpose
Tenure

ACCORDING TO PURPOSE OF AGRICULTURE CREDIT

3-Classify Rural credit on the basis of Purpose
a) Productive: Productive loans are the loans that are related to agricultural
production and are economically justified. For example, purchase of tractor, land,
135 | P a g e
seeds etc. Loan taken for these purposes can be repaid from increased income and
hence are economically justified
b) Unproductive: Unproductive credit are used for personal consumption and
unrelated to productive activity for example loans for expenditure on marriages,
religious ceremonies etc. Loan taken for such unproductive purposes do not
contribute to production and cannot be easily paid back
ACCORDING TO TENURE OF AGRICULTURAL CREDIT
3-Classify Rural credit on the basis of Tenure
(a) Short-Term: It refers to the loans required for meeting the short-term
requirements of the cultivators. These loans are generally for a short period and
repaid after the harvest. For example, loans required for the purchase of fertilizers,
HYV seed, for meeting expense on religious or social ceremonies etc. Normally these
are repaid in 15 months.
(b) Medium-Term: These loans cover a period extending from 15 months to 5
years. These are the financial requirements to make improvements on land, buying
cattle or agricultural equipment, digging up of canals etc. also for unproductive
expenditures like on marriages and other social functions.
(c) Long-Term: These loans are for a period of more than 5 years to 15-20 years, are
generally required to buy additional land or tractor or making permanent
improvements on land or to undertake investment projects which contributes to
production for many years. Source of Agricultural Credit in India:
4-Which are the sources of Agricultural Credit?
Non-Institutional Sources
Institutional Sources

5-Which are Non-Institutional Sources of Agricultural Credit?

Ans-The non-institutional finance forms an important source of rural credit in India,
constituting around 40 percent of total credit in India. The interest charged by the
non-institutional lenders is usually very high. The land or other assets are kept as
security. The important sources of non-institutional credit are as follows:
Money-Lenders
Landlords
Traders and commission agents
Credit from friends and relatives
(i) Money-Lenders: Money-lending has been the widely established profession in
the rural areas. The money-lenders charge huge rate of interest and mortgage the
136 | P a g e
property of the cultivators and in some cases even the peasants and members of his
family are kept as collateral.
(ii) Rich landlords: Provide loans to small and marginal farmers. They provide loans
for productive purpose like buying of seeds, fertilizers etc. They even force the farmer
to sell their produce at low rate as a condition for granting loans.
(ii) Other Private Sources:
➢ Traders and commission agents: The agents give credit on the
hypothecation of crops which when harvested is used to repay loans
➢ Credit from friends and relatives: These credits are generally used for
meeting personal expenditure

5-State Importance of Non-institutional sources of credit

a) These sources of finance are prepared to advance loans for any and every
purpose: productive and non-productive purpose, short as well as long period.
b) These sources are easily accessible. They live in the villages and they do not
have fixed hours of working.
c) Their method of business is very simple and flexible. They do not insist on
procedural formalities. They are ready to adjust to suit the needs of the
borrowers.
d) They do not insist on any particular type of security. They are prepared to lend
on the basis of personal security as well as they have knowledge about the
character and credibility of the borrowers

6-State Limitations of Non-institutional sources of credit

a) They charge high interest rate, ranging from 24 to 50 percent on the money
borrowed by the farmer.
b) They often indulge in various malpractices by taking advantage of the
illiteracy of the farmers.
c) They don’t show proper accounts and do not give receipts for repayment and
indulge in many more such dishonest practices.
d) They also force the borrower to sell their agricultural produce to them at low
rates.

7-Why are Institutional Sources of Agricultural Credit made available ro rural

areas?
Ans-The basic need of rural credit is to provide cheap credit in adequate quantity and
at the right time. Credit institutions aims at providing timely and adequate credit to
farmers for increasing agricultural production and productivity. Providing better

137 | P a g e
access to institutional credit for the small and marginal farmers and other weaker
sections to enable them to adopt modern technology and improved agricultural
practices.
8-State Advantages of institutional sources of credit
a) The institutional credit is not exploitative in nature. It assists, rather than exploits,
the farmers. The basic motive is to help farmers to raise their productivity so as to
maximise their income.
b) The rate of interest is low, also different rates of interest are charged for different
types of loans and for different categories of farmers.
c) Institutional credit is integrated with other agricultural operations and
improvements like the use of seeds, fertilisers etc. Institutional Agencies involved
in Rural CreditNational Bank for Agriculture and Rural Development (NABARD)
is an apex institution established in July- 1982 for rural credit in India. It doesn’t
directly finance farmers and other rural people. It grants assistance to them
through the institutions.

9-State some of the activities undertaken by NABARD for rural development

a) Provision of refinance support
b) Improving rural infrastructure
c) Preparation of credit plans at a district level and encouraging banks to achieve
these targets
d) Supervision of Regional Rural Banks (RRBs) and Cooperative Banks
e) Development of sound banking practices within the economically backward
sections of India
CO-OPERATIVE CREDIT INSTITUTIONS
1-What was the objective to set up Co-Operative Credit Institutions?
Ans-The objective of this was to establish cooperative credit societies “to encourage
saving, self-help and cooperation among agriculturists, artisans and persons of limited
means.”
2-What do you mean by Co-Operative Banks?
Ans-Co-operative banks are financial entities established on a co-operative basis and
belonging to their members. This means that the customers of a co-operative bank
are also its owners.
Cooperative banks have a three-tier structure with the
State Cooperative Banks in each state at the apex

138 | P a g e
 District Central Cooperative Banks at the district level
Primary Agricultural Credit Societies at the village level.

3-What are Primary Agricultural Credit Societies (PACS)?State its

function/importance
Ans- Primary Agricultural Credit Societies (PACS) are at the grass root level of the
shortterm cooperative credit structure.
Function/importance
They deal directly with the rural borrowers, give them loans and collect
repayments of loans given.
They serve as the final link between the ultimate borrowers, on the one hand,
and funding agencies, namely the State Cooperative banks and NABARD, on
the other hand.
Primary Agricultural Credit Societies (PACS), constitute the backbone of the
cooperative credit structure, loans are given largely for short periods, for
carrying out agricultural operations.
Medium term loans are also given for purchasing machinery, cattle etc.
4-State the main objectives of PACS
Ans-The main objective of the cooperative societies is to assist the weaker sections,
including scheduled castes and scheduled tribes at low rate of interest.
5-Explain structure and working of Land Development Banks
They are specialised institutions providing long term credit to the agriculturists
for redemption of old debts, improvement of land, purchase of costly
agricultural equipment.
Loans are given against the security of landed property and a concessional rate
of interest of 11 to 12 percent, repayable within 20 to 30 years.
It is called Land Mortgaged Banks and are registered as cooperative
societies.
Land Development Banks are at state level – central Land Development Banks
and Primary Land Development at the district level.

6-What are Commercial Banks? State its function

Commercial banks entered the field after the nationalisation of Commercial
Bank.
It provides financial assistance to agriculture both directly and indirectly.

139 | P a g e
 The direct credit by commercial banks takes the form of both short term and
medium-term loans for agricultural operations like purchasing seeds,
fertilisers, ploughs, machines etc.
It also provides loans for activities related to agriculture, dairy and poultry
farming, bee keeping etc.
The commercial banks assist agriculture sector indirectly by providing loans to
primary credit societies, Food Corporation of India etc.

7-What are RRBs? State their objective and function? Why are they called as
Small Man’s bank?
The main objective of RRBs is to provide credit to the weaker sections of the rural
areas, particularly the small and marginal farmers, agricultural labourers, artisans
and small entrepreneurs with the purpose of developing agriculture, trade,
commerce, industry and other productive activities in rural areas at lowest cost.
Therefore, they are regarded as small man’s banks.
They are under the control and regulation of NABARD.

GREEN REVOLUTION
1-What is Green Revolution?
Ans- The Green Revolution in India refers to increase in the agricultural production
due to adoption of modern methods and technology such as the use of high yielding
variety (HYV) seeds, tractors, irrigation facilities, pesticides, and fertilizers.
2-State positive effects of Green Revolution
a. Increase in Agricultural Production.
b. Increase in Productivity.
c. Increase in Employment.
d. Growth of Industrial Sector.
3-State negative/Harmful effects of Green Revolution
a. Excessive use of chemical fertilizer
b. Environmental degradation.
c. Pollution with heavy metals and pesticide chemicals.
d. 4. Soil erosion soil contamination and genetic erosion.

140 | P a g e
 AGRICULTURAL DIVERSIFICATION IN INDIA
1-What is Agricultural Diversification?
Ans-It refers to re-allocation of productive resources such as land, labour, capital,
farm equipment etc. in the agricultural sector into new activities.
2-What are the two aspects of Agricultural Diversification?
Ans-Agricultural Diversification includes two aspects namely change in cropping
pattern and shift of agricultural workforce to other allied activities like livestock
poultry, horticulture etc.
3-State Features of Agricultural Diversification in India
[Link] of cropping pattern: Diversification has largely been in favour of
non-food grain crops or commercial crops such as oilseeds, sugarcane, cotton etc. has
increased and the share of cereals and pulses in the agricultural output has decreased.
[Link] towards horticulture sector: Horticulture sector includes a wide
range of crops e.g. fruit crops, vegetable crops, flowers, spices and plantation crops.
India is the second largest horticulture producer in the world.
[Link] towards animal husbandry and fishery sector: In India
diversification has occurred also in terms of moving from crop production to other
agricultural activities, mainly animal husbandry and fishery, has gradually increased.
4-State Importance of Agricultural Diversification In India
It has provided opportunity, particularly in the rain-fed areas, to achieve
agricultural development. Small landholders have benefited due to high-value food
products which give regular, quick and high returns to them.
Agricultural diversification has generated large employment opportunities because
the production of fruits, vegetables, dairy products, poultry and other high-value
products uses labour intensive techniques.
ORGANIC FARMING
1-What is Organic farming?
Ans- Organic farming is the form of agriculture that relies on techniques such as crop
rotation, green manure, compost and biological pest control to maintain soil
productivity and control pests on a farm.
2-State Importance of Organic farming
a. Inexpensive Process. Organic farming offers a means to substitute costlier
agricultural inputs (such as HYV seeds, chemical fertilizers, pesticides, etc.) with

141 | P a g e
 locally produced organic inputs that are cheaper and thereby generate more return
on investment.
b. Generates Income. It generates income through international exports as the
demand for organically grown crops is on a rise.
c. Healthier and Tastier Food. Organically grown food has more nutritional value
than food grown with chemical farming. Thus, it provides us with healthy foods.
d. Solves Unemployment Problem. Since organic farming requires more labour
input than conventional farming, it will solve unemployment problem.
e. Environment Friendly. The produce is pesticide-free and produced in an
environmentally sustainable way.

142 | P a g e
 EXTRA NOTES

143 | P a g e
 CHAPTER: 14TH
HUMAN CAPITAL FORMATION IN INDIA
1-Define Human Capital
Ans-Human capital is-- "the stock of physical capital, ie., reproducible or man-
made means of production which help in the production of other goods in future'.
2-What is Human Capital Formation?
Ans-Human capital formation or human resource management refers to the process
of improvement in the knowledge, skill, ability and physical capacity of the people.
3-State the role of human capital in economic development
1. Helps in Absorbing New Techniques: Modern techniques have become more
complex and sophisticated. It is necessary to absorb these techniques so as to increase
production and productivity. We need knowledgeable and skilled workers who can
make better use of these techniques. Educated and skilled workers can easily
understand the problems involved in the use of these techniques. They can operate
these techniques easily and more efficiently. This enhances productivity and
accelerates the pace of economic growth.
2. Increase in Labour Efficiency: Human capital formation leads to increase in
efficiency of the labour. Skilled and technically knowledgeable workers are much
more efficient than the unskilled workers. Moreover, availability of adequate health
facilities increases physical capacity and stamina of the labourers. They can work
longer and harder.
3. Adds to Productive Capacity: Human capital formation helps in adding to the
productive capacity of the economy in a number of ways. First, skilled labourers are
helpful in updating and modernising the existing indigenous techniques through their
skill and experience. Secondly, the skilled and knowledgeable workers can adapt and
modify the imported techniques to suit local requirements. Thirdly, they can help in
developing new techniques of production.
4. Instrument of Economic Changes: Human capital formation is an important
tool for bringing about economic change in the society. Education helps people in
changing their attitude and values. People tend to acquire growth-oriented attitude
and aspirations. With education, the traditional attitude of the people is replaced by
modern attitude. Their attitude to work and save undergoes a radical change so as to
promote economic growth. Educated and skilled people are helpful in innovating new
ideas and new methods of production. Innovation is the life-line of economic growth.

144 | P a g e
5. Improves Quality of Life: Human capital formation helps in improving the
quality of life by increasing life expectancy, literacy ratio, level of per capita income
and by providing adequate water supply, housing facilities, etc., to the people.
4-Explain—
❖ FORMAL EDUCATION: Formal education is a systematic and organised
education which Is imparted according to a given curriculum and a given set of
laws and norms. It involves interaction of students with teachers in the
educational institutions. Formal education is received from educational
institutions such as schools, colleges and universities. Thus, formal education
involves education process normally adopted by educational institutes.

❖ NON-FORMAL EDUCATION: Non-formal education refers to an

organised and systematic educational activity which is conducted outside the
formal system. It consists of the form of teaching and education that is related
to formal education to a limited extent. Non-formal education provides
selected type of learning to some specified learning clientele like children living
in slums, migrant works working in constructional activities, etc. It is imparted
according to a flexible curriculum depending up the learning group like
children, women, etc. Non-formal education involves voluntary schools,
evening schools, day folk schools, etc. It may be provided by government or by
non-government organisations (NGOs).

❖ INFORMAL EDUCATION: Informal education is a general term which

includes all forms of education that takes place outside the standard
institutional (like schools) setting. It is usually gained through experience in
social environment and surroundings. Informal education occurs in a variety of
places such as home, work place through daily interaction among members of
the society. It also involves learning through various activities like listening to
radio, watching television, etc.
5-State contribution of education in economic development of the country
• Useful in Developing Scientific Outlook: Education widens the mental
horizon and raises the level of understanding of the people. It promotes a
rational and scientific outlook. Education helps people in developing
appropriate values and attitude. It develops human personality.
• Helpful in Raising Efficiency: Education makes significant contribution in
raising efficiency and productivity by developing science and technology.
• Acquiring Skill: Education plays an important role in providing basic skills to
the people. Education enables people to acquire skills and talents.

145 | P a g e
 • Increasing Participation of People in the Process of Economic
Development: Education helps people to participate in developmental
activities. Educated people are more conscious of their responsibility towards
society and development of the country. Greater participation of people in the
process of development promotes economic development.
• Ensuring Equity and Social Justice: Education is an important instrument
in ensuring equity and social justice. Better education facilities for the common
people enable them to earn higher incomes and thereby reduce the incidence
of poverty and inequalities.
• Improvement in Quality of Life: Education improves the quality of life. It is
considered a necessary input for better living. Education helps in bringing
about improvement in health, hygiene, productivity and other components of
quality of life.
6-Explain growth of education sector in India
• In our Indian Constitution, Education is placed under the concurrent
subject i.e., responsibility of both the central government (in formulating
education policies and funding centrally- sponsored plan schemes) and state
government (for expansion of education in respective states).
The education profile in India is as follows-
1-LITERACY- Literacy is a state of persons who can read and write a simple
passage in any language with understanding. The ratio of literate persons to total
population of age seven or more is known as literacy ratio. An increase in literacy is
generally accepted as an indicator of spread of education.
• National Literacy Mission programme was set up in 1988 to provide
meaningful education to the youths in the age group of 15-25 years. In 2009,
this programme was recast as Saakshar Bharat with a focus on female literacy.
• Elementary Education- It covers students from classes I-VIII in the age group
of 6-14 years. It comprises of two parts- first, Primary school (class I-V)
corresponding to age group of 6-10 years and second, Upper primary (middle)
school (VI-VIII) corresponding to the age group 11-14 years.
• Universalisation of Elementary Education have been given high priority in
India. An amendment of Education for All was passed in November 2001 to
make the right to free and compulsory education for children of the age group
of 6-14 years as a fundamental right. A landmark in the Indian education came
in the year 2009 with the enactment of Right of Children to Free and
Compulsory Education Act 2009 (RTE Act). The Act provides for free and
compulsory education for all the children of the age group of 6-14 years.

146 | P a g e
 • As per the provision of this Act, it is the responsibility of the Government and
the local authorities to establish neighbourhood schools to provide free
elementary education. It is the responsibility of the parents/ guardians to admit
their children for elementary education in these schools.
2-PROGRAMMES FOR EXPANSION OF ELEMENTARY EDUCATION
BY GOVERNMENT-
• Sarva Siksha Abhiyaan (SSA)- Launched in 2001 with the objective to focus on
elementary education covering all the children of 6-14 years age in schools so as to
improve the quality of elementary education. SSA is the programme of opening new
schools, constructing of additional classrooms, toilets, providing drinking water
facilities, providing additional teachers, free textbooks and uniforms.
• National Programme for Education of Girls at Elementary Level
(NPEGEL)- Aims at developing model schools for girls in educationally backward
areas, involving people in increasing the enrollment of the girls in these schools.
• Kasturba Gandhi Balika Vidyalaya (KGBV) - Its objective is to ensure access of
quality education to the girls of less privileged groups of society. It was launched in
July 2004 for setting up residential schools at upper primary level for girls
predominantly belonging to the scheduled castes, scheduled tribes, other backward
classes, minority communities and families below the poverty line in educationally
backward blocks. It later got merged with the SSA from 1st April 2007.
• National Programme of Mid-day Meals in schools – Under this programme,
cooked nutritious mid-day meal is provided to children in the primary and upper
primary schools. It covers all the children studying in local bodies and government-
aided primary and upper primary schools. It has not only led to the improvement
in nutritional levels among children but has also resulted in increase in school
enrolment and attendance.
• Beti Bachao, Beti Padhao (Save Girl Child, Educate Girl Child) – It aims at
preventing gender bias against the girls, ensuring survival and protection of the girls
and promoting education of the girls. It also aims at addressing the issue of lower
ratio of girls to boys. It promotes survival, protection and education of the girl child
resulting in increased awareness and conscious building on the critical issues of
gender bias.
3. SECONDARY EDUCATION- The secondary education sector prepares
students in the age group of 14-18 years for entering into higher education as well as
the labour market. It comprises secondary education for classes IX-X and senior
secondary education for classes XI-XII.
• The number of secondary and senior secondary schools has increased along with
increased student enrolment.

147 | P a g e
 • There has been an emphasis on vocationalisation and employment-oriented
courses in recent years in order to make secondary education more meaningful and
to enhance the employability of youth.
• Open schools provide educational opportunities up to pre-degree level to school
dropouts, working adults and housewives. National Institute of Open Schooling
(NIOS) was set up in 1989 as an autonomous body by the Government of India.
• A scheme of Kendriya Vidyalayas (Central Schools) under the Ministry of
Human Resource Development was launched in 1965 to cater to the needs of the
children of transferable central government employees and defense personnel.
• Establishment of pace-setting schools like Jawahar Navodaya Vidyalayas (JNVS)
were started to impart modem education of good quality to talented and gifted
children largely from rural areas. JNVs are fully residential and co-educational
schools affiliated to CBSE with classes from VI to XII standard.
• High quality model schools in educationally backward block was launched in
2008 to bring about excellence in school education. It aims to provide quality
education to talented rural children. This centrally sponsored scheme is operated by
the state governments.
• Important examination reforms were announced in 2009-10 comprising of
introduction of grades system in place of marking system in the Class X
examination, a system of continuous and comprehensive evaluation for the
assessment of students of Class IX and X and abolition of Class X Board
examination in the CBSE schools. However, Class X Board examination has been
reintroduced with effect from 2017-18.
• National Council of Education Research and Training (NCERT) was set up in
1981 to assist and advice the Ministry of Human Resource Development,
Government of India, in implementing policies and programmes in the field of
school education. The council conducts, promotes and coordinates research in
school education. It also develops, prints and distributes school textbooks.
4. HIGHER EDUCATION
• Higher education is a powerful tool to build knowledge-based 21st century
society comprising of both the general and technical education.
• University level education has shown a phenomenal progress since 1950-51
with increase in the number of colleges and universities.
• There has been development of higher educational institutions like IITs, NITs,
lIMs. The number of polytechnical institutions, engineering colleges,
agricultural universities has increased significantly.

148 | P a g e
 EXTRA NOTES

149 | P a g e
 CHAPTER 15TH
UNEMPLOYMENT IN INDIA
PROBLEMS AND POLICIES
Meaning of Unemployment
Unemployment is a 'situation when there are some able-bodied persons who have
the ability to work and are willing to work at the prevailing wage rate, but are not able
to find work which may yield them some regular income'. Unemployment, therefore,
is a situation when the person is without work involuntarily.
Voluntary unemployment refers to those persons who are voluntarily unemployed,
i.e., unemployed by their choice. They may not work due to laziness or otherwise;
they are not interested in any gainful job. They are unemployed not out of
compulsion but due to their choice. In this category, we may include both the 'idle
rich' as well as the 'idle poor.
Involuntary unemployment refers to a situation when people are willing to work at
the prevailing wage rate but are unable to find work.
The unemployment rate (UR) is defined as the percentage of unemployed workers
in the total labour force. It refers to percentage of the labour force that is without
work or is jobless.
Which age group is included in workforce?
• People who are in the working age group of 15-60 years are included in
workforce
• Children below 15 years and old persons beyond 60 years of age are not part of
the workforce.

TYPES OF UNEMPLOYMENT
CYCLICAL UNEMPLOYMENT:
1-Where is Cyclical unemployment most common?
Ans-Cyclical unemployment is the most common type of unemployment in the
developed capitalist economies.
2-What is Cyclical Unemployment?
• Cyclical unemployment is associated with the downswing and depression
phases of business cycle.

150 | P a g e
 • A business cycle consists of alternating periods of prosperity (boom) and
depression.
• Phases of booms and depression are typical characteristics of a market
economy.
• During the phase of prosperity, the level of economic activity, rises; income,
output and employment tend to increase.
• The period of depression is characterised by low level of economic activity, low
income, low output and low level of employment.
• During the downswing and depression phases of business cycle, income
and output fall giving rise to widespread unemployment. It occurs due
to cyclical fluctuations in the economy.
3-How fall in aggregate demand cause Cyclical unemployment?
Ans-Cyclical unemployment is caused by deficiency in aggregate demand. During
depression, income falls and this lowers the demand for goods and services. As a
result, aggregate demand is not sufficient to purchase the entire output that can be
produced with full employment of the labour force. Therefore, production will be less
than full employment output. Consequently, a large number of labour force will
remain unemployed.
4-How can cyclical unemployment be eliminated?
Ans-Since cyclical unemployment arises due to deficiency of aggregate spending, it
can be eliminated by raising aggregate demand sufficiently so as to increase output to
the level which can be produced with full utilisation of labour.
5-When is cyclical unemployment seen in India?
Ans-In less developed countries like India, Cyclical unemployment can be seen only
when there is a recession in the economy.
FRICTIONAL UNEMPLOYMENT
1-What is Frictional unemployment?
• Frictional unemployment exists when there is lack of adjustment between
demand for and supply of labour force.
• In a modern dynamic economy, constant changes keep on taking place. People
leave jobs for many reasons, and it takes time to find new jobs because of lack
of knowledge and mobility on the part of the labour.
• This gives rise to temporary unemployment of those workers who are moving
between jobs.
• Frictional unemployment, therefore, arises when the existing workers change
jobs.

151 | P a g e
 • Frictional unemployment a temporary phenomenon
2-Which two unemployment are common in developed countries?
3-Which unemployment are common in underdeveloped economy?
Ans-Main forms of unemployment in an underdeveloped economy are-
• Structural unemployment
• Disguised unemployment
• Underemployment
• Educated unemployment.
STRUCTURAL UNEMPLOYMENT
1-What is Structural unemployment?
• Structural unemployment refers to a situation when a large number of people
do not get work because of limited job opportunities available.
• Capacity to create jobs is limited in view of the inadequate production capacity,
mainly capital equipment.
• It is associated with the underdeveloped structure of the economy. It can,
therefore, be solved through economic development by increasing the
production capacity in the economy.
• Since this type of unemployment is associated with the structure of the
economy, and it can be taken care of by structural transformation of the
economy, it is called structural unemployment.
2-What is Open Unemployment?
• Open unemployment refers to a situation when there are some workers who
have absolutely no work to do.
• They are willing to work at the prevailing wage rate, but they are forced to
remain unemployed in the absence of work.
• Such unemployment is clearly visible as the number of such unemployed
persons can be counted. Hence, it is called open unemployment.
• Frictional unemployment, structural unemployment and cyclical
unemployment are different types of open unemployment.
3-What is Disguised Unemployment?
• Disguised unemployment refers to a situation when the number of workers
engaged in a is much job more than actually required to do the given work.
• In agriculture, employment takes the form of 'work-sharing, ie., a given work
is shared among a larger number of workers than required.

152 | P a g e
4-Why does disguised unemployment occur?
Ans- It occurs because of four interrelated reasons:
• availability of large labour force
• non-availability of alternative employment opportunity in the urban sector
• agriculture as a family occupation
• small size of holdings.
5-What is Underemployment?
Ans- Underemployment refers to a situation when the employed persons are
contributing to production and income which is less than what they are really capable
of. In this situation, people do not get the type of work they are capable of doing or
they are trained for. For example, if an automobile engineer takes up the job of an
ordinary motor mechanic for want of an appropriate job in a big company, he is said
to be underemployed.
6-What is Seasonal Unemployment?
Ans-Seasonal unemployment refers to a situation when people get work during some
days or months of the year, but not regularly throughout the year and, therefore, they
are unemployed during some part of the year. It is called seasonal because it occurs
during certain seasons of the year.
For example, a sugar mill may be closed for a number of months in a year as the
supply of sugarcane stops.
7-What is Educated Unemployment?
Ans-Educated unemployment refers to unemployment among the educated persons,
i.e., matriculate and higher educated people. Some of these people may be
unemployed in the sense of open unemployment, i.e., they are not doing any work
whatsoever.
8-Why educated unemployment constitutes a special problem?
• Educated unemployment involves a great waste of valuable human capital. A
large amount of scarce resources that go into the education and training of the
people go waste just because the economy is not able to make use of them.
• Educated unemployed are relatively more conscious. Therefore,
unemployment among them may take an explosive situation.

153 | P a g e
9-Why Educated unemployment arises?
• Educated unemployment occurs due to rapid expansion of educational
facilities. Mass education in India is responsible for the emergence of this
problem.
• Faulty education system is also responsible for this problem. The education
system in the country is not related to the available employment opportunities.
There is too much emphasis on general education rather than vocational
education.
10-What is Technological Unemployment?
Ans-Technological unemployment refers to arises unemployment that because of the
use of labour-saving techniques. Labour-saving or capital-using techniques are those
of techniques which use more capital and less of labour to produce a given amount of
output. These techniques are used because they are more efficient. Introduction of
improved machinery and new techniques has a tendency to displace labour and
thereby cause technological unemployment.
CAUSES OF UNEMPLOYMENT
Low Rate of Economic Growth: The rate of economic growth in the
economy has been rather low. Rate of economic growth determines the rate at
which new jobs are created. The job opportunities created under each Five-
Year Plan have fallen short of the job requirements of the growing labour
force. Unfortunately, non-agricultural sector, particularly the modern industrial
sector, is growing at a slow pace.

2. Low Growth Rate of Agriculture: An important cause of unemployment

in the agricultural sector is that the growth rate of the agricultural sector has
been low and tardy. A low rate of growth of the agricultural sector implies that
the growth rate of employment in the agricultural sector has been low.
Moreover, productivity in agriculture continues to be very low because of
various technological and institutional factors such as small scattered units of
cultivation, inadequate capital, outmoded technologies, etc.

3. Low Rate of Capital Formation: Another factor responsible for

unemployment in the country is the low rate of capital formation. Low rate of
capital formation has hindered the growth potentialities in the agricultural and
industrial sectors. Growth of agricultural and industrial sectors has been
hampered by non-availability of machinery, power, transport and essential raw
materials.
4. Rapid Population Growth: Rapid growth of population has also added to
the problem of unemployment in the country. This is for two reasons. First,
154 | P a g e
 rapid population growth has directly added to the problem of
unemployment by making large addition to the labour force. In other
words, it has increased the supply of labour force. Secondly, rapid
population growth has reduced the resources for capital formation. More
people means more expenditure on consumer goods and on the provision of
various facilities such as water, electricity, medical and education, etc. This has
reduced savings and investment and thereby has retarded the increase of job
opportunities.

5. Use of Capital-intensive Techniques: Various macro-policies of the

government have encouraged the adoption of capital-intensive techniques
despite availability of surplus labour in the country. Low interest rates, low
tariff duties on imports of capital goods, various concessions given for
investment, dependence on imported technology, etc., have made capital-
intensive techniques relatively more attractive.

6. Defective Education System: Our education system is also responsible for

the problem of unemployment. The education system is still based on
traditional liberal lines. It is not related to the growing developmental needs of
the country. It lays more emphasis on general education rather than vocational
and technical education.

7. Inadequate Employment Planning: Inadequate employment planning has

been responsible for continued unemployment problem. Low priority has been
given to employment objective in the Plans.

8. Weak Manpower Planning: Weak manpower planning has also led to the
problem of unemployment. Manpower planning refers to proper balancing
between manpower needs and availabilities in the various fields such as
doctors, engineers, administrators, business executives, etc.

9. Failure to Develop Projects Providing Large Employment: The Plans

have not really been successful in developing projects which have large
employment potential. For example, the Plans have not done well in
developing flood control, drainage, anti-waterlogging, rural electrification and
other employment-generating activities. Similarly, the Plans have not placed
due emphasis on the development of various schemes related to irrigation, soil
conservation, development of dairies fisheries, etc.

155 | P a g e
 10. Decline of Cottage and Small-Scale Industries: A number of traditional
village and cottage industries have declined over the years due to change e in
the demand and emergence of more efficient modern industries. Therefore a
large number of people have left their traditional jobs. This has been an
important reason for rural unemployment in India.

11. Migration of Rural Population: There has been large-scale migration of

people from rural areas to urban areas due to inadequate employment
opportunities in the rural areas and higher wages in the urban areas. But jobs
are not available for all of them in the urban areas. This has increased urban
unemployment in India.

12. Labour Laws: The government has been protecting the existing workers
and their exploitation with the help of the Minimum Wages Act, Workers'
Compensation Act and other laws. High wages have kept the demand for
labour at a low level.
SPECIAL EMPLOYMENT GENERATION PROGRAMMES-(POLICY
MEASURES AFTER 1990)
1. Jawahar Gram Samridhi Yojana (JGSY): This was introduced in April 1999 with
the objective of generating wage-employment for the unemployed poor in the rural
areas.
2. Employment Assurance Scheme (EAS): This was started in 1993 to provide
additional wage-employment opportunities for the rural people living below the
poverty line during the period of of wage-employment. Shortage
3. Sampoorna Grameen Rozgar Yojana (SGRY): This was launched in 2001 to
provide wage employment along with food security in the rural areas.
4. The Swarna-jayanti Shahari Rozgar Yojana (SJSRY): This came into operation
in 1997 to provide employment to the urban unemployed or underemployed poor
persons living below the poverty line.
5. Swaranjayanti Gram Swarozgar Yojana (SGSY): This was started in 1999 as a
selt-employment programme for the rural people.
6. Prime Ministers Rozgar Yojana (PMRY): This was started in 2001-01. It is a
scheme aimed at helping educated unemployed youths in establishing self-
employment units in industry, service and business sectors.

156 | P a g e
7. Mahatma Gandhi National Rural Employment Guarantee Act
(MGNREGA):
• The recent National Rural Employment Guarantee Act (NREGA) is a
welcome move from this point of view.
• The Parliament enacted a law in 2005 making it mandatory for the government
to provide at least 100 days of guaranteed wage employment in a year to every
rural household who is willing to undertake unskilled manual work at the
minimum wage rate fixed for agricultural labour.
• The NREGA Act was renamed as Mahatma Gandhi National Rural
Employment Guarantee Act (MGNREGA).
• MGNREGAA was implemented from February 2006 in 200 selected districts
of the country.
• Subsequently, the scheme was extended to all rural districts of the country in
[Link] programme involves both the central and the state governments.
8. Skill Development and Employment: Imparting vocational education and
training is an effective way of development skills at various levels for improving the
employability of the population.
Schemes for vocational training sector, the present NDA government has
formulated various schemes to bridge this skill gap.
(i) Pradhan Mantri Kaushal Vikas Yojana (PMKV): This scheme aims at
providing short-term meaningful, industrial relevant skill-based training to Indian
youth and helping them in securing a job. PMKVY was launched in July, 2015. It
would ensure that the youth of India are trained for respective skills so as to earn a
better living thereby. It would be helpful both to unemployed and self-employed
persons. The target is to benefit 24 lakh youths across the country. 4.38 lakh youth
had successfully completed training throughout India till January, 2016.
(ii) Deen Dayal Upadhyaya Grameen Kaushalya Yojana (DDU-GKY): This is a
placement-linked skill development scheme for rural youth who are poor. 1.75 lakh
youth have been trained and 0.6 lakh of them were placed during 2015-16 under this
scheme.
(iii) SkilI India Programme: It is a multi-skill India programme launched in March,
2015. It aims at providing training and skill for various occupations, both traditional
like carpenters, weavers as well as new occupation like real estate, textiles, gem and
jewellery. This programme will help in getting more employment and improving
entrepreneurship, leading to an improvement in economic conditions. It aims at
developing the skill of 500 million youth of rural and urban areas by 2020.

157 | P a g e
 EXTRA NOTES

158 | P a g e