Unit 2

Economic structure of India

Economic Structure
• Describes the changing balance of output, trade, income and
employment drawn from different economic sectors.
• Different economic sectors:
1. Primary (farming, fishing, mining etc.)
2. Secondary (manufacturing and construction)
3. Tertiary (tourism, banking, software)
Three major sectors (Explanation)
• Primary: activities dependent of environment as these refers to
utilization of earths resources such as land, water, vegetation,
building materials and minerals. Its also called red collar activity.
• Secondary: activities add value to natural resources by transforming
raw materials into valuable products.
• Tertiary: activities that involves in production and exchange of
services.
Economic Planning
• Its essentially a way of organizing and utilizing economic resources to
maximum advantage in terms of well defined socio-economic goals.
• In India this was advocated by Sir M Vishvesharaya in 1934.
• In 1937 National Planning Committee was set under chairmanship of
Jawaharlal Nehru.
• Bombay Plan:
Published in January 1944.
Cost of the plan 10000crores.
Period of plan 10 years.
Special emphasis on doubling per capita income and national income.
Proposed increase in agriculture output by 130%, industrial by 500% and
services by 200%.
• People’s plan:
Drafted by MN Roy.
15000 crore plan.
Span of 10 years.
Special emphasis on agriculture through nationalization of land.
• Gandhian Plan
• Post war Reconstruction Plan
• Colombo Plan for India
• Planning Commission and the plans
Process of planning
• First Stage
Three years prior to commencement of plan.
Appraisal of current state of economy.
Find out weaknesses that hinder progress, could be economical, social or
institutional.
This report to be submitted to Central cabinet and National Development
Cabinet (NDC)
The NDC will give suggestion and emphasize which sector should receive
special emphasize.
• Second Stage:
Arrange various types of studies that form basis of Draft Memorandum on
contents of Plan.
Based on these reports and suggestions of various panels the planning
commission drafts.
This draft is to be submitted to National Development Council.
• Third Stage:
Third stage Draft outline is much more detailed document than the Draft
Memorandum.
Gives fuller details on main policy issues, objectives and approaches to be
adopted.
Draft outline to be circulated among various ministries and state government
for their feedback.
The draft is published for public discussion.
Both houses discuss the draft outline.
• Fourth Stage:
Planning commission holds discussion with various state government through
central ministries.
Discussions are held at expert level and political level.
Conclusion is reached in consultation of individual Chief Ministers of States.
Obligation of Centre towards state and vise versa is reached.
• Fifth Stage:
Preparation of fresh memorandum on basis of recommendations.
Again provides it for review to NDC and Central cabinet.
In this memorandum principle features of the plan and policy directions are
further stressed upon.
• Sixth Stage:
After recommendations final plan is prepared.
This is a detailed report containing objectives programs and projects.
Role of planning commission
1. Set up on 15th March 1950, with Jawahar Lal Nehru as the
chairman.
2. PC is a non–statutory, non constitutional body
These are bodies which are formed by executive resolution or action, which
means that they are formed by governments action only. They can be
transformed into statutory body by making a new law or amending any existing
law, for example NTCA was formed by amending Wildlife Protection Act 1972
and UIDAI will be made statutory by forming new Act.
3. Set up to increase the standard of living.
4. Has been shouldered the assessment of natural resources.
5. PC works under the guidance of NDC.
6. Provides guidance for the five year plan.
7. Plays integrative approach in development.
8. Tries to increase the efficiency of allocation made.
9. Resolves problems between state and union ministries that raises
out of budgetary constraints.
10. Plays the role of consultant.
11. Disseminates information.
Members of NDC
 Chairman – Prime Minister, Chief Ministers of State Governments and
members of planning commission.
 Permanent members of PC are eight in number.
 Chairman, Vice Chairman, four full time members, secretary and
deputy secretary.
 Remaining 7 members consists of central ministers, economists,
bureaucrats.
Role of NDC
1. To strengthen and mobilize the efforts and resources of nation by
promoting policies.
2. Reviewing the National Plan.
3. Provides recommendations for smoother functioning of the plan.
4. Inviting Lt Governors and Chief Executive Councillor of the Uts.
Importance of Balanced Regional
Development
1. To minimize backlash effects.
2. Rapid Development of Economy.
3. Smooth Economic Development.
4. To Develop and Conserve Resources.
5. To defend the country.
6. To overcome social evils.
7. To promote and secure employment opportunities.
Objectives of Indian Planning
1. Economic Growth
2. Self reliance
3. Removal of Unemployment.
4. Reduction of income inequalities.
5. Elimination of poverty.
6. Modernization
Achievements of planning in India
1. Increase in national and per capita income.
2. Increased Agricultural Production.
3. Increased Industrial Production.
4. Infrastructural Development.
5. Development of international trade.
6. Development of science and technology.
7. Increase in standard of living.
8. Development of education.
Failures of Indian Planning
1. Failure in elimination of poverty.
2. Failure to solve unemployment problem.
3. Failure to reduce inequalities.
4. Failure to check black money.
5. Failure to reduce concentration of economic power.
Origin of Economic Reforms
• The Pre-British Era
• British Era
• The Nehruvian Era
• The Nationalist
• The Post-Reform Era
1. Pre British Era
• Mostly during Mughal rule.
• Almost entire India was under their rule.
• Though trade existed before this reign, Macro Economic factors that
effect trade such as building of roads.
• Emergence of important cities that pooled talented or skilled labor.
• This era started from Sher Shah Suri to Aurangazeb.
2. The British Era
• Integration of the entire country happened during British India.
• British East India Company became the single trading block.
• The entire economy worked in one direction.
• Emergence of economic power centers Bombay, Calcutta and Madras.
• But this era was largely beneficial for the British Empire.
3. Nehruvian Era
• This era started as soon as India got its freedom.
• Nehru was mesmerized by socialist model of governance.
• Socialist governance is where entire economy is directed by
Government.
• Planning Commission was formulized.
• Important period as many infrastructure projects were taken up.
• Chinese war of 1962 broke this economic structure completely.
4. Nationalist Era
• This era began under leadership of Indira Gandhi.
• Involvement of private players in Planning Commission.
• Era of green revolution.
• Nationalization of companies in important sectors such as banking
and refining sector.
• Her mistrust in foreign countries saw withdrawal of major MNCs from
India.
• Another major milestone achieved was in space and nuclear frontier.
The Post-reform Era
• BOP crisis prompted change in direction of economic structure.
• There were short term stabilization and long term economic reforms.
• Devaluation of rupee, tightening of imports pledging of gold.
• LPG
Why did we require reforms?!!!
1. Increase in Fiscal Deficit
2. Increase in adverse balance of payment
3. Gulf crisis
4. Fall in foreign exchange reserves
5. Rise in prices
6. Poor performance of public sector undertakings
Main features of economic reforms
1. Liberalization:
Removal of control imposed by government.
Measures take:
• Abolition of Industrial Licensing and Registration
• Concession from monopolies act.
• Freedom for expansion and production to Industries
• Increase in Investment limit of small industries
• Freedom to import capital goods
2. Privatization
Encouragement of private players to participate in economy
Divesting
Failure of PSUs to drive industrialization and capital accumulation

3. Globalization
Free flow of trade
Main components of Globalization:
• Increase in foreign investment
• Devaluation
• Reduction in tariffs
• Export promotion
• Rupee made convertible
Macro Economic reforms
1. Fiscal reforms:
The way government focused on earnings and spending of public money.
Reduction in corporate and individual tax
Main objective was to reduce fiscal deficit, i.e. expenditure reduction
2. Banking sector reforms
Reduction of SLR
More operational freedom
3. Capital market reforms
SEBI and NSE was formed
4. Insurance sector reforms.
Role of Public Sector
• Public sector and capital formation
• Development of infrastructure
• Strong Industrial base
• Economies of scale
• Removal of regional disparities
• Import substitution and export promotion
• Check over concentration of economic power
Role of private sector
• The dominant sector
• Importance of development
• Extensive modern industrial sector
• Potentialities due to personal incentive in small sector
Problem of private sector
• Profit generation is main motive
• Focus on consumer durables sector
• Monopoly and concentration
• Declining share of net value added in total output
• Infrastructure bottle necks
• Contribution of trade deficit
• Industrial disputes Industrial sickness
• Problems relating to finance and credit
• Threat from foreign competition
Changes in Industrial sector
• Share of industrial sector in GDP
• In 1950-51 – 15.1% and in 2010-11 – 27.9%
• Infrastructure industries
• Heavy and capital goods industries
• A well diversified industrial structure
• Rapid growth of consumer durables
• Emergence of public setor
Impacts of new policy post 1991
• Reduction in project cost and time
• Availability of foreign capital and technology
• Restrictive trade practices
• Performance of public sector
• Benefits to consumers
• Internationalization of Indian Industries
• Autonomy to PSUs
Adverse impact
• Dominance of MNCs
• Unsuitable and inferior foreign technology
• Unemployment
• Dilution of PSU
• MRTP act
• Social problems
• Industrial sickness
Service Sector
• Most dominant sector
Contribution to National income @ 57.03% in 2016-17
Growth rate 7.74%
Employment 28.6%
Revenue to Government
Helpful for primary and secondary sector
Contribution to export 67.5 billion USD
WTO and service sector
Changes in educational system
Role of infrastructure in development
1. Proper functioning of economy
2. Employment generation
3. Investment opportunities
4. Industrial development
5. Regional development
6. Social development
7. Rural development
I. Energy
II. Transport
III. Communications
IV. Irrigation and water supply
V. Banking and insurance
VI. Education, health and sanitation
Major challenge in Agriculture
• Stagnation of production of major crops
• High cost of farm inputs
• Soil exhaustion
• Depletion of fresh ground water
• Global climatic change
• Impact of globalization
• Providing food security
Economic dualism
• “an economy is dualistic when a significant part of it operates under
a paternalist or quasi-feudalist regime, while another significant
part operates under a system of wage employment—which may be
capitalist or socialist.” I.Little