INDIAN ECONOMY

Learning Outcome

 To know about the characteristics of India as a developing economy

 To gain knowledge regrading the challenges faced by Indian economy
MEANING OF UNDERDEVELOPED
ECONOMY
M.P. Todaro is of the opinion that “underdeveloped economy is that economy in
which there are low levels of living, absolute poverty, low per capita income, low
consumption levels, poor health services, high death rates, high birth rates and
dependence on foreign countries.”
CLASSIFICATION

 As per United Nations- Developed and Developing Economies

 As per World Bank-
 Low income countries with per capita GNP of $ 875 and below in 2005 and
 (b) Middle income countries with per capita GNP ranging between $ 876 and $
10,725.
 On the other hand, other countries which are mostly members of the
Organization for Economic Co-operation and Development (OECD) are placed
in the group of high-income countries whose per capita GNP is higher than $
10,725.
POINTS TO BE CONCLUDED

 Firstly, there exists gross inequality in income between these rich and poor
countries.
 Secondly, the gap between the rich and poor countries in respect of their per
capita income is gradually widening.
 Thirdly, different countries within the group of high-income economies are not
necessarily developed economies.
 For example, Oil exporting high-income economies are maintaining high per
capita income due to their export of oil at a very high price although they are
not all developed economies.
CHARACTERISTICS OF INDIA AS A
DEVELOPING ECONOMY
1)LOW PER CAPITA INCOME

 In India, the national income and per capita income is very low and it is
considered as one of the basic features of underdevelopment. As per World
Bank estimates, the per capita income of India stood at only $ 720 in 2005.
Keeping aside a very few countries, this per capita income figure of India is the
lowest in the world and it is even lower than China and Pakistan.
 In 2005, the per capita income figure in Switzerland was nearly 76 times, in
U.S.A. about 61 times, in Germany about 48 times and in Japan about 54 times
the per capita income figure in India. Thus the standard of living of Indian
people remained all along very low in comparison to that of developed
countries of the world.
 In order to convert national currency figures to the US dollars, the utilization of
official exchange rates does not allow to measure the relative domestic
purchasing power of currencies. In this connection, work of LB. Kravis and
others titled “International Comparison of Real Product and
Purchasing Power” (1978) has provided some relief.
 The United Nations International Comparison Programme (ICP) has
introduced measures of real GDP on an internationally comparable scale using
the system of purchasing power parities (PPPs) instead of exchange rates as
factors for conversion.
2)EXCESSIVE DEPENDENCE ON
AGRICULTURE AND PRIMARY PRODUCING
 Indian economy is characterized by too much dependence on agriculture and
thus it is primary producing. Out of the total working population of our country,
a very high proportion of it is engaged in agriculture and allied activities, which
contributed a large share in the national income of our country.
 In 2004, nearly 58 per cent of the total working population of our country was
engaged in agriculture and allied activities and was contributing about 21.0 per
cent of the total national income.
 In most of the countries of Asia, Middle East and Africa, from two-thirds to
four- fifths of their total population are solely dependent on agriculture. In
most of the developed countries like U.K., U.S.A. and Japan, the percentage of
active population engaged in agriculture ranges between 1 to 5 per cent
 In India 58 per cent of its active population is engaged in agriculture but
agriculture contributes only about 21 per cent of the national income of our
country. Moreover, low agricultural productivity, lack of modernization and
lack of diversification in its output are some of the basic problems from which
our agricultural sector is suffering.
 Thus our agricultural sector is overburdened as the majority of our active
population is depending on agriculture.
3)HIGH RATE OF POPULATION GROWTH

 India is maintaining a very high rate of growth of population since 1950. Thus
the pressure of population in our country is very heavy. This has resulted from a
very high level of birth rates coupled with a falling level of death rates
prevailing in our country.
 Thus whatever development that has been achieved in the country, it is being
swallowed up by the increased population. Moreover, this high rate of growth of
population necessitates a higher rate of economic growth just for maintaining
the same standard of living.
 This imposes a greater economic burden on the economy of our country as to
maintain such a rapidly growing population we require food, clothing, housing,
schooling, health facilities etc. in greater magnitude. Besides, this fast rate of
growth of population is also responsible for rapid increase in the labour force in
our country
4)CHRONIC UNEMPLOYEMENT AND
UNDER EMPLOYEMENT
 Rapid growth of population coupled with inadequate growth of secondary and
tertiary occupations are responsible for the occurrence of chronic
unemployment and under-employment problem in our country. In India,
unemployment is structural one, unlike in developed countries, which is of
cyclical type.
 Here unemployment in India is the result of deficiency of capital. Indian
industries are not getting adequate amount of capital for its necessary
expansion so as to absorb the entire surplus labour force into it.
 Moreover, larger number of labor force is engaged in the agricultural sector of
the Indian economy than what is really needed. This has reduced the marginal
product of agricultural laborer either to a negligible amount or to zero or even
to a negative amount.
 There exists disguised unemployment in Indian agricultural sector which has
resulted from too much dependence of population on land and absence of
alternative occupations in the rural areas.
 Moreover, in the urban areas of our country, the problem of educated
unemployment has also taken a serious turn. Thus both the rural and urban
area of our country has been suffering from the serious problem of
unemployment and under-employment to a large extent.
5)POOR RATE OF CAPITAL FORMATION

 Capital deficiency is one of the characteristic features of the Indian economy.

Both the amount of capital available per head and the present rate of capital
formation in India is very low. Consumption of crude steel and energy are the
two important indicators of low capital per head in the under-developed
countries like India.
 Moreover, this low level of capital formation in India is also due to weakness of
the inducement of invest and also due to low propensity and capacity to save.
 To achieve a higher rate of economic growth and to improve the standard of
living, a still higher rate of capital formation is very much required in India. In
India the rate of saving as per cent of GDP has gradually increased from 14.2
per cent in 1965-66 to 30.6 per cent in 2013-14 which is moderately high in
comparison to that of 30 per cent in Japan, 23 per cent in Germany, 15 per cent
in U.K. and 17 per cent in USA.
 But considering the heavy population pressure and the need for self sustained
growth, the present rate of saving is inadequate and thus the enhancement of
the rate of capital formation is badly needed.
6)INEQUALITY IN THE DISTRIBUTION OF
WEALTH
 Another important characteristic of the Indian economy is the mal-distribution
of wealth: The report of the Reserve Bank of India reveals that nearly 20 per
cent of the households owing less than Rs 1000 worth of assets possess only 0.7
per cent of the total assets.
 Maldistribution in income is the result of inequality in the distribution of assets
in the rural areas. On the other hand, in respect of industrial front there occurs
a high degree of concentration of assets in the hands of very few big business
houses. This shows high degree of assets concentration in the hands of very few
powerful business houses of our country.
7)POOR TECHNOLOGY

 Prevalence of low level of technology is one of the important characteristics of

an underdeveloped economy like India. The economy of our country is thus
suffering from technological backwardness. Obsolete techniques of production
are largely being applied in both the agricultural and industrial sectors of our
country.
 Sophisticated modern technology is being applied in productive units at a very
limited scale as it is very much expensive. Moreover, it is very much difficult to
adopt modern technology in Indian productive system with its untrained,
illiterate and unskilled labor.
 Thus due to the application of poor technology and lower skills, the
productivity- in both the agricultural and industrial sectors of our country is
very low. This has resulted in inefficient and insufficient production leading
towards general poverty in our economy.
8)UNDERUTILISATION OF NATURAL
RESOURCES
 In respect of natural endowments India is considered as a very rich country.
Various types of natural resources, viz., land, water, minerals, forest and power
resources are available in sufficient quantity in the various parts of the country.
 But due to its various inherent problems like inaccessible region, primitive
techniques, shortage of capital and small extent of the market such huge
resources remained largely under-utilized. A huge quantity of mineral and
forest resources of India still remains largely unexplored. Until recently, India
was not in position to develop even 5 per cent of total hydropower potential of
the country.
9)LACK OF INFRASTRUCTURE

 Lack of infrastructural facilities is one of the serious problems from which the
Indian economy has been suffering till today. These infrastructural facilities
include transportation and communication facilities, electricity generation and
distribution, banking and credit facilities, economic organization, health and
educational institutes etc.
 The two most vital sectors, i.e. agriculture and industry could not make much
headway in the absence of proper infrastructural facilities in the country.
Moreover, due to the absence of proper infrastructural facilities, development
potential of different regions of the country largely remains under-utilized.
10)LOW STANDARD OF LIVING

 The standard of living of Indian people in general is considered as very low.

Nearly 25 to 40 per cent of the population in India suffers from malnutrition.
The average protein content in the Indian diet is about 49 grams only per day in
comparison to that of more than double the level in the developed countries of
the world.
 Moreover, the low calorie intake in Indian diet is another characteristic of low
level of living. In 1996 the daily average calorie intake of food in India was only
2,415 in comparison to that of 3,400 calories per day in various developed
countries of the world. The present calorie level in India is just above the
minimum caloric level required for sustaining life which is estimated at 2100
calories.
 Moreover, a small percentage of Indian populations have access to safe
drinking water and proper housing facilities. As per the estimate of National
Building Organization (NBO), in total there was a shortage of 31 million
housing units at the end of March, 1991 and by the turn of the century, total
backlog of housing shortage in the country is around 41 million units.
11)DEMOGRAPHIC CHARACTERISTICS

 The demographic characteristics of India are not at all satisfactory rather these
are associated with high density of population, a smaller proportion of the
population in working age group of 15-60 years and a comparatively larger
proportion of population in the minor age group of 0-15 years.
 Even in China, the density is nearly 123 per sq km. Again, as per 2001 census,
35.6 per cent of the total population is in the age group of 0-14 years, 58.2 per
cent is in the working age group of 15-60 years and about 6.3 per cent in the age
group of 60 and above. All these shows that the dependency burden of our
population is very high.
MAJOR ISSUES IN DEVELOPMENT OF
INDIAN ECONOMY
1)LOW LEVEL OF NATIONAL INCOME AND
PER CAPITA INCOME
 Economic growth of any country can be viewed from its level of national income
and per capita income.
 It is said that higher the level of national income, higher is the rate of economic
growth.
 India’s net national product (NNP) at factor cost in 2007-08 at 1999-2000
prices stood at Rs 27,60,325 crore. Population during the time stood at 1124
million.
2)IMBALANCE IN DISTRIBUTION AND
GROWING INEQUALITIES
 Not only per capita income is low, but Indian economy is also marked by great
inequalities in the distribution of income and wealth. In India, as years roll on,
inequalities are on the rise. The logical corollary of this inequality is mass
poverty. Nearly 60 p.c. of the total population share one-third of India’s
national income while only rich 5 p.c. of the total population enjoy the same
amount of national income.
 This inequality widens the problem of poverty. Even in 1972-73, more than 50
p.c. of the total population lived below the poverty line.
3)INSTABILITY OF OUTPUT OF
AGRICULTURE AND RELATED SECTORS
 Less developed countries live mainly upon agriculture and extractive industries,
like mining, fisheries and forests. Predominance of agriculture is explained
from the viewpoint of sectoral composition of national income and occupational
pattern.
 In India, in 1950- 51, more than 55 p.c. of our GDP came from the agricultural
sector or the so- called primary sector. In 2007-08, however, the contribution
of this sector toward GDP came down to 19.4 p.c.
 The contributions of the secondary and tertiary sectors were 24.9 p.c. and 55.7
p.c., respectively. Thus, even after 58 years of planning, agriculture alone
contributes less than one-fifth of our national income. Occupational structure
also tells a story of predominance of the agricultural sector and the
backwardness of the industrial sector.
4)HIGH PROPORTION OF PEOPLE BELOW
THE POVERTY LINE
 Indian economy indicates a high proportion of people below the poverty line.
 In 1967-68, nearly 40% of rural and 50% of urban poor lived below the poverty
line.
 In 2005,nearly 27.5 % of Indian population was living below the poverty line.
5)Low level of productive efficiency due
to nutrition and malnutrition
 Nutrition level influences the economic development by raising the level of
productivity, efficiency and intelligence of the community.
 The National Sample Survey has estimated that nearly 56% of the urban
population and 49% of the rural population does not get appropriate calories
5)HIGH LEVEL OF UNEMPLOYEMENT

 In 2001-2002,India had nearly 9.2% of unemployment or underemployment .

 The expansion of infrastructure and social services will help generate massive
employment through expansion in construction activity and their secondary
and tertiary effects in raising agricultural productivity and income of the
poor.
6)Imbalance between heavy industry
and wage goods
 Now the economy has been able to build a reasonable industrial base, it is
important that the balance between heavy industries and wage goods should
be corrected by shifting investment policies in favor of wage goods.
 We cannot say that the country has become self reliant in heavy industry but
simultaneous development of heavy and wage goods is required for the
holistic development of the country.
 This path will help to improve the level of living of the masses.
7)Imbalance between population size,
resources and capital
 A rising population puts a lot of pressure on the existing working population as
the dependency rate increases thereby reducing the per capita income of the
individuals.
 Therefore checking the fast rate of population has become a necessary step
for economic growth.
INDIAN ECONOMY ON
THE EVE OF
INDEPENDENCE
I)INDIAN ECONOMY IN THE PRE-BRITISH
PERIOD
 Indian economy, during the pre-British period, consisted of backward, isolated
and self sustaining villages on the one hand and on the other hand, there were
number of towns which were the seats of administration, pilgrimage, commerce
and handicrafts.
 During this period, the mode of transport and communication of India were
totally backward, underdeveloped and insufficient. Under such a situation, the
size of market was also very small.
I a)STRUCTURE AND ORGANISATION OF
VILLAGES
 During the pre-British period, the village community was composed of different
groups based on simple division of labor. There were farmers who cultivated
land and tended cattle. Other groups of people were weavers, goldsmith,
potters, washer men, carpenters, cobblers, oil pressers, barber-surgeons etc.
 All the above mentioned occupations were hereditary. These various groups of
people were getting their remuneration in terms of crops during the harvesting
period against the services rendered by them.
 These Indian villages were functioning independently as most of food articles
and raw materials produced within the villages were either consumed or
purchased by the village communities itself. Agricultural and handicraft
industry were interdependent and thus the village republics were able to
function independently.
 Indian villages were almost self-sufficient in respect of daily necessities
excepting commodities like salt, spices, fine cloth, luxury and semi-luxury
goods.
 Thus during the pre-British period, Indian villages were mostly
consisting of three distinct classes:
 (a) the agriculturists,
 (b) the village artisans and menials and
 (c) the village officials.
 There were again two types of agriculturists—the land owning and the tenants.
 The village community had enjoyed a simple form of self government. The
headman, the watchman, the accountant, the preacher, the school teacher etc.
were all village officers. Thus Indian villages during those days were working as
a complete administrative and economic unit.
CONDITION OF AGRICULTURE DURING
PRE-BRITISH PERIOD
 During the pre-British period, i.e., during the mid-eighteenth century, the
condition of Indian agriculture was not at all satisfactory. During those days,
agriculture was the main source of livelihood in India. The economic condition
of Indian agriculturists was really very much painful.
 Poor farmers had to pay a high rate of taxes as imposed by the then
administrators of the country which led to high degree of exploitation on these
farmers.
 During those days Indian rulers had constructed and maintained some
irrigation projects but these works were very much insufficient as compared to
its requirement. Moreover, farmers were following traditional methods in their
agricultural operations.
 Important crops which were grown by Indian farmers included mainly rice,
wheat, bajra, jowar and minor cereals along with the commercial crops like jute,
raw cotton, groundnut, tobacco etc.
 Again, the crop rotation practices of standard pattern were followed without
any variation. Some strips of land were left fallow every year just for the interest
of regaining fertility. In those days, the agricultural implements were mostly
primitive and simple which included wooden plough, iron sickle, leather bag for
drawing water etc. During those days, agriculturists were applying only natural
organic manures.
 Thus it is better to conclude with Dr. Buchanon and Prof. Gadgil that the
conditions of Indian agriculturists in total were very much depressed.
Moreover, the land policy followed by the rulers of those days was mostly going
against the farmers and these policies were specially framed to serve the
interests of rulers and zamindars of India.
PRICE AND WAGES DURING BRITISH
PERIOD
 During the pre-British period, the prices of food grains used to fluctuate widely
between different places. Markets for most of the commodities were very much
restricted to local areas in the absence of adequate means of transport and
communications. Under such a situation, agricultural produces and the other
commodities produced by artisans in the cottage industries were not getting
remunerative prices.
 During those days, the prevailing wage rates were very low. Wages of village
artisans were paid not in terms of cash but in kind. The wages were paid mostly
once in a year and that is just after the harvesting season. The rates of wages
were mostly determined by customs and conventions.
b)The Structure and Condition of Towns
during the Pre-British Period
 During the pre-British period, the major portion of the total population of India
was living in the rural areas. Nearly 10 per cent of the total population was
living in the urban areas and those towns were merely out grown villages.
 According to Prof. D.R. Gadgil, towns of those days owed their
existence principally due to the following three reasons:
 (a) A good number of towns of India were places of pilgrimage or sacred
religious centers (for example, Gaya, Banaras, Allahabad, Puri, Nasik etc.);
 b) A good number of towns were the seats of courts of Nawabs or kings or the
capital of a province (for example, Bijapur, Golconda, Delhi, Lahore, Lucknow,
Poona etc.); and
 (c) A good number of towns were trading or commercial Centre's due to its
trade importance (for example, Surat, Mirzapur, Hubli, Bangalore etc.). These
towns were existing on different trade routes. Those towns which were actually
the trade center's proved more stable.
 Lifestyle in the towns was completely different from that of the villages. In these
towns, a large category of occupations and different varieties of trades were
existing. Thus the sizes of population of these towns were gradually increasing.
Moreover, the size of market of these towns was also wide.
Industries and Urban Handicrafts during
the Pre British Period
 Although agriculture had dominated the Indian economy during the pre-British
period yet some Indian industries, producing certain special products, enjoyed
worldwide reputation. During those days, many of the handicrafts produced in
the urban areas of India were quite famous. Among all those various famous
urban handicrafts, textile handicrafts earned a special status and were also
spread over the whole country.
 Moreover, India was well known for her other artistic handicraft industries
which include jewellery made of gold and silver, brass, copper and bell metal
wares, marble work, carving works in ivory, wood, stone etc.
 Artistic glassware were also produced in India during those days and had
earned international reputation during those days. India had also developed
high level of metallurgy by those days and the cast-iron pillar standing near
Delhi is a real testament of that.
 According to M.G. Ranade, the Indian industries “not only supplied all local
wants but also enabled India to export its finished products to foreign
countries.” During those days, Indian export items were consisting mostly of
manufactured items like cotton and silk fabrics, calicos, silk and woollen cloth
and artistic wares made of glass and metal.
 Besides, the other export items were cinnamon, pepper, opium, indigo etc.
Condition of Transport and Trade during
the Pre British Period
 During the pre-British period, there were no proper transportation systems in
India. In the absence of pucca roads, different villages of India were connected
with dusty tracks. Naturally, most of the roads become muddy during the rainy
season and even some of the villages were cut-off due to heavy rainfall followed
by consequent flood.
 In respect of water transport, it was only in some parts of Northern India where
some rivers were navigable and small wooden country boats were used for
carrying passengers as well as freights. But in most other part of the country,
bullock carts and pack animals were considered as the standard modes of
transport. Thus under such a condition, the movement of men and materials
was very slow.
 During those days weekly markets were organized in different parts of the
country and most of the people used to make their daily purchases from these
weekly markets. In some places annual fairs were organized in addition to these
weekly markets. Thus, in fine, we can conclude that the transport system as well
as the market conditions in India during the pre-British period was not at all
satisfactory.
2)ECONOMIC CONSEQUENCES OF BRITISH
CONQUEST
 The British conquest which started in 1757 with the Battle of Plassey was
completed only by 1858. During this period England was passing through the
period of changes in the techniques of production which revolutionized
manufacturing. The coming of Industrial Revolution which synchronized with
the period of British conquest helped the British to sell machine- made goods
in India in competition with Indian handicrafts.
 The British conquest led to the disintegration of the village community partly
by the introduction of the new land revenue system and partly by the process of
commercialization of agriculture. The new land system and the commercial
agriculture meant untold exploitation of the Indian peasantry and the country
was consequently plagued by frequent famines.
 The British were not interested in developing India as such. The growth of
railways or the spread of irrigation or the expansion of education or the
creation of revenue settlements were all initiated with one supreme goal, i.e., to
accelerate the process of economic drain from India. To understand the
economic consequences of the British conquest, it would be convenient to
study them under the following heads : (1) Decline of Indian handicrafts and
progressive ruralization of the Indian economy; (2) growth of the new land
system and the commercialization of Indian agriculture; and (3) the process of
industrial transition in India.
3)Decline of Indian Handicrafts and
Progressive of the Indian Economy
 The popular belief that India had never been an industrial country, is
incorrect. It was true that agriculture was the dominant occupation of its
people but the products of Indian industries enjoyed a worldwide
reputation. The calicos of Bengal, the sarees of Banaras and other cotton
fabrics were known to the foreigners. The chief industry spread over the whole
country was textile handicrafts.
 The textile handicrafts includes chintzes of Lucknow, dhotis and dopattas of
Ahmedabad, silk, bordered cloth of Nagpur and Murshidabad. In addition to
cotton fabrics, the shawls of Kashmir, Amritsar and Ludhiana were very
famous. India was also quite well-known for her artistic industries like marble-
work, stone-carving, jewellery, brass, copper and bell-metal wares, wood-
carving, etc. The cast-iron pillar near Delhi is a testament to the high level of
metallurgy that existed in India. In this way Indian industries, “Not only
supplied all local wants but also enabled India to export its finished products to
foreign countries”.
 Before the beginning of Industrial Revolution in England, the East India
Company concentrated on the export of Indian manufactured goods, textiles,
spices, etc., to Europe where these articles were in great demand. But the
Industrial Revolution reversed the face of Indian’s foreign trade. Tremendous
expansion of productive capacity of manufactures resulted in increased
demand of raw materials for British industry and the need to capture foreign
markets. Following principal causes that led to the decay of handicrafts were
as follows:-
1)Disappearance of Princely courts: The growth of industries is only
possible due to patronage of nawabs, princes, rajas & emperors who ruled in India.
The British rule meant the disappearance of this patronage enjoyed by the
handicrafts. Cotton and silk manufactures suffered especially.
 2)Competition of machine-made goods: The large-scale production that
grew as a result of Industrial Revolution meant a heavy reduction in costs. It
also created a gigantic industrial organization and, consequently, the machine-
made goods began to compete with the products of Indian industries and
handicrafts. This led to the decline of textile handicrafts. Whereas the British
emphasized the free import of machine-made manufactured goods they did not
allow the import of machinery as such. The decline of Indian handicrafts
created a vaccum which could be filled by the import of British manufactures
only.
 3) The development of new forms and patterns of demand as a
result of foreign influence: With the spread of education, a new class grew
in India which was keen to imitate western dress, manners, fashions and
customs so as to identify itself with the British officials. This led to a change in
the pattern of demand. Indigenous goods went out of fashion and the demand
for European commodities got a fllip. Besides, there was a loss of demand
resulting from the disappearance of princely courts and nobility. Thus, the
British rule, silently but surely, alienated the Indians not only from Indian
culture but also diverted in its favor their form and pattern of demand for
goods.
INDIAN ECONOMY ON
THE EVE OF
INDEPENDENCE
6)FAMINES AND FAMINE RELIEF IN INDIA

 The new land system and commercialization of Indian agriculture produced

very adverse economic consequences on the Indian economy.
 These influences halted, the process of industrialization of the Indian
economy, created "built-in depressors" in agriculture and were responsible for
the occurrence of famines in India.
FREQUENCE OF FAMINES IN THE BRITISH
PERIOD
 During 1765 and 1858, (the period of company rule) twelve famines and four
major scarcities occurred. After the transfer of power to the Crown, contrary
to expectations, the frequency of famines increased. Between 1860 and 1908,
20 famines occurred in a period of 49 years. Between 1908 and 1942, no
major famine occurred in India, although some scarcities were experienced.
 There was a comfortable feeling that famines were something of the past but
the Bengal famine of 1943 was a tragedy of an unprecedented magnitude.
The Famine Enquiry Commission estimated that the death toll due to famine
and disease was of the order of 1.5 million persons. Unofficial estimates,
however, put the number of deaths on account of this famine to 3.5 million.
NATURE OF FAMINES IN INDIA

 Before the advent of modern means of transport, especially railways, the

famines in India were localized scarcities of food in those regions where the
crops had shrunk on account of bad rains. Both the construction of railways
and the growth of trade after 1860 brought about a radical change in the
nature of famines.
 Previously a famine meant extreme hunger and the population had to undergo
suffering on account of lack of food because there were no means of
transporting the surplus food grain even if it was available in other parts of
the country. The position after 1860 was that the rapid means of transport
made it possible to carry food from one region to the other without much loss
of time.
 But periods of famine were invariably periods of high food prices and
extensive agricultural unemployment. Therefore, the mass of the poor people
found it impossible to purchase food. Consequently, the earlier famines were
described as food famines but later ones are more appropriately described as
purchasing power famines.
 Two factors were responsible for pushing up food prices : First, an impending
shortage of food meant hoarding and speculation which helped to push up the
price level very fast. Secondly, government did not allow any decrease in the
export of food grains even in the lean years. Consequently, the speculator and
the Government both accentuated the gravity of the problem.
CAUSES OF FAMINES

 1)THE DESTRUCTION OF INDIAN HANDICRAFTS-

 Fierce competition form British manufacturers resulted in the destruction of
Indian handicrafts .It stripped the artisan, weaver and the handicraftsman of
his means of livelihood.
 Under these circumstances, the unemployed increased the pressure of
population dependent on land.
 2)THE NEW LAND SYSTEM-
 The British created a class of landlords so as to affix responsibility for land
revenue ,but the British left the process of rent fixation to the free market
mechanism. The increasing demand for land for a growing agricultural
position led to an exorbitant increase in rents.
 The prices of land were gradually increasing. So the rise in the prices of the
land enhanced the value of the security in the form of land against which
peasants could borrow. This led to an increase in agricultural debt of the
Indian peasantry repeatedly exposed to uncertainities.The high interest rates
charged by the landlords made it difficult for the peasantry to repay the
loans.
 So the land gradually passed to the landlords. Thus the new land relations
between the land owners and cultivators were created. Huge amount of
produce was taken by the landlords and interest by the moneylenders. This
created in Indian agriculture a built in depressor.
 3)THE IMPACT OF COLONIAL RULE-
 Colonialism also had a deep impact on the repeated occurrence of
famines in India. The destruction of the Indian handicrafts increased
unemployment in the rural areas. Whereas in England, surplus labor from
rural areas was quickly absorbed in new industries created in the process
of industrialization, nothing of this kind happened in India.
 The industrialization of the Indian economy would have deprived England
of a ready market for its goods and so the colonial interests were opposed
to the development of industries in India. Thus, labor thrown out of
employment in traditional industries imposed additional burden on a
subsistence agriculture.
7)PROCESS OF INDUSTRIALIZATION IN
INDIA
 The process of industrial transition in the British period is broadly divided into
industrial growth during the 19th century and industrial progress during the
20th century. It was mainly the private sector—whether indigenous or foreign
— that carried industrialization forward. Only after the First World War some
protection was granted to Indian industries otherwise Indian industry had to
weather all storms and face world competition on its own strength. This
explains the slow growth of industrialization-
a)Private enterprise and industrial
growth in the 19th century
 The outstanding industrial events of the 19th century were the decline of
indigenous industries and the rise of large-scale modern industries. This
change was brought about by private enterprise. The rise of large-scale
industries was slow in the beginning but by the close of the 19th century, the
movement was more rapid.
 The period 1850-55 saw the establishment of the first cotton mill, first jute
mill and the first coal mine. In the same period, the first railway line was laid
in India. In a period of 25 years, that is, by the last quarter of the 19th
century, there were 51 cotton mills and 18 jute mills.
 Inspite of the very rapid increase in industrialization and the fact that the
foundations for the development of modern industries for the utilization of
coal and iron resources were laid by the end of the 19th century, India was
being gradually converted into an agricultural colony of the British. By 1900,
India had become a great exporter of rice, wheat, cotton, jute, oilseeds, tea,
etc. and an importer of British manufactures.
 In this way, India had become an appendage of the British colonial system.
 At the same time, Indian craftsmen too did not play the part played by their
western counter-parts in the field of industrialization because they did not
possess large capital. Besides, they were without proper training and
education.
b)Private enterprise and industrial growth in
the first half of the 20th century

 1)Tariff protection to Indian Industries-

 In 1923,the Government of India, accepted the recommendations of the First
Fiscal Commission and gave protection to selected Indian Industries against
foreign competition. The prominent industries included were iron and steel,
paper and pulp, cotton textiles ,jute etc.
 These industries were able to capture the entire Indian market and eliminate
foreign competition altogether in important fields.
 The imports from foreign countries decreased while the government demand
for them increased. Naturally the industries expanded .
 2)DECLINE IN THE SHARE OF FOREIGN ENTERPRISE-
 By the beginning of the first world war the British controlled atleast half the
production in India’s major industries. But the control decreased. The British
controlled nearly 43% of the assets in 1914 but only 3.6% in 1948.
C)Causes of the slow growth of Private
enterprise in India’s Industrialization
 1)Unimaginative Private Enterprise-
 One important reason frequently mentioned is the inadequacy of
entrepreneurial ability. Indians were reluctant to enter the industrial field
because of the comparatively easier and secure scope for profit which existed
in trading and moneylending.
 The Britishers who pioneered industrial change in India were not really
interested in industrialization of the country as such. But then Indian
industrialists too were so short-sighted, they rarely bothered about the future
and cared very little for replacement and for renovation of machinery.
 They were influenced by nepotism rather than ability in their choice of
personnel. They were also influenced by their trading background viz., high
price and high profit margin rather than low prices and larger sales. They
emphasized sales than production. To a certain extent, therefore, unimagina-
tive private enterprise was responsible for the slow growth of industrialization
in this country.
 2)Problem of capital and private enterprise –
 A larger part of the total invested capital in modern enterprises in India was
imported from Britain. Capital was scarce not only because the resources of
the country were underdeveloped but also because the avenues for the
investment of surplus wealth were few. There were no Government loans or
company stocks and debentures. Accordingly, people held their wealth in the
form of gold and silver.
 There was complete absence of financial institutions to help the transfer of
savings to industrial investment. The indigenous financial institutions
concerned themselves with rural moneylending and financing of internal
trade. Institutions which concerned themselves with rural savings for a
comparatively long period, were altogether neglected. In the early days of
industrialization, people were generally hesitant to entrust their savings to
the company promoters.
 Banking was not highly developed in India and was more concerned with
commerce rather than with industry.
 The swadeshi movement gave a fllip to the starting of banks but the number
of bank failures in this period was so great as to cancel any good effect from
banking expansion. The private bankers and joint stock banks did provide
funds for industrial enterprises but this aid was limited to well-established
concerns only.
 It is interesting to note that Indian factory-owners followed closely the British
system as regards capital resources.
 3)Private enterprise and the role of government-
 One of the important reasons and according to some authorities, the most
important reason for the slow growth of Indian industries was the lack of
support from the Government. In the 19th century, the Government did
provide certain overhead investments which helped private enterprise.
 The tariff policy in India reflected the needs of business interests in Great
Britain. Even when they imposed low duties on some goods for purposes of
collecting revenue, they sought to neutralize their effects by imposing
equivalent excise duties on goods of local origin. When the Government
ultimately adopted a policy of protection, it did not give protection to all
industries but only to a few selected industries which fulfilled certain
specified conditions.
 India leaned heavily on industry in Britain for its large purchases of equipment
for public utility in health and education, railway and military supplies, etc.
Even simple machines and standard supplies were imported. Those orders
could have served to stimulate expansion in Indian industry.
INDIAN ECONOMY ON THE EVE OF
INDEPENDENCE
Learning Outcomes

 1)To understand the forms and consequences of colonial exploitation.

 2)To understand the impact of colonialization and modernization.
The main forms of colonial exploitation
were-
1)Trade policies aimed at developing a
colonial pattern of trade in which India
would become an exporter of foodstuffs and
raw materials and an importer of
manufactures;

2)encouragement of British capital to take

up direct investment in Indian consumer
goods industries;
3)encouragement of finance capital, through
the managing agency system, to appropriate
major portion of the profits through various
malpractices; and

4)to force India to pay the costs of British

administration as well as to finance the wars
and expeditions undertaken by the British
Government.
a)Exploitation through Trade Policies

 1)Exploitation of cultivators to boost indigo export-

 Britishers forced the cultivators to grow and sell indigo at a very low price.
They even gave land to European planters in Bengal. Moreover ,other
zamindars were also compelled to allocate a portion of their land for indigo
cultivation.
2)Exploitation of Artisans through company
agents to deliver cotton and silk fabrics much
below the market price
 East India Company wanted to export Indian cotton and silk fabrics .For this,
the company appointed agents called as Gomastas.The Gomastas were Indian
employed by the company who would go to villages and force the artisans to
sign a bond with a company to provide a huge amount of their goods to them.
 The price fixed was atleast 15 and in extreme cases even 40% less than
the market price.
3)Exploitation through manipulation of
import and export duties-
A)After 1700,the imports of Indian printed cotton
fabrics in England were banned. The purpose of
this measure was to eliminate the Indian
competitor from the British market.
B)Heavy import duties were imposed on Indian goods
other than foodstuffs and raw material imported from
India and very nominal duty on the imports of British
manufacturers into India.

This was basically to encourage the production of raw

cotton, raw jute,sugarcane,groundnut and to discourage
the production of manufacturers in India.
 C)Discriminating Protection whittled down by the clause of Imperial
Preference-
 The British government decided to grant discriminating protection. During the
process of implementation, only such industries were granted protection in
which the Indian industry had to face competition with some other country
and not the great Britain.
 Within the policy of discriminating protection ,great Britain got the clause of
Imperial Preference introduced .The sum and substance of this policy was
that the imports from great Britain should enjoy the most favored nation
treatment .
 Similar preference to Great Britain was to be shown in exports vis-a-vis other
nations. Thus, the British Government took away by the left hand what it gave in
the form of discriminating protection by the right hand. In other words, the
policy of imperial preference was used to eliminate competitors from the Indian
market so that Great Britain could have full control to exploit it through its trade
policies.
1)About 3/4th of India’s imports come from the British
Empire while the remaining l/4th was of a kind that
British Empire either did not produce or was not
favorable position to supply

2)In the decision of fiscal policy concerning powerful

sections of the British people analyzed their influence
and there was the danger that might be forced to shape
her policy not in accordance with her own needs but in
accordance with needs of other members of the Empire.
3)That the Government would lose a large portion of
the revenue it received from British and colonial
imports and it would be left with no alternative too
make up the deficit by enhanced duties on foreign
goods.

4)If the matter was thought from the economic point

of view, Lord Curzon's government thought, India had
something but not perhaps very much to offer to the
empire.
b)Exploitation through export of British
capital to India
 In the early phase of colonialism, the instrument of exploitation was trade
but later the British thought of encouraging investment in India. There were
three principal purposes of these investments.
 Firstly, after the first war of Indian Independence (1857), which the British
described as the Mutiny, it was realized by the Government that for the
effective control and administration of the country, it was essential that an
efficient system of transport and communication should be developed.
 Secondly in order to effectively exploit natural resources of India, it was
essential to develop public utilities like generation of electricity and water
works.
 Thirdly, to promote foreign trade so that food and raw materials collected in
various mandis are quickly transported abroad and the manufactures im
ported in India are quickly distributed in various markets, the British thought
it necessary to link railways with major ports on the one hand and the
marketing Centre's (mandis) on the other.
 MAJOR FORMS OF INVESTMENT

1)Economic overheads and

infrastructure like railways, (2) for promoting mining of 3)some investments were
ports, shipping, generation coal, gold and petroleum made in machine building,
of electric energy, water and metallurgical engineering industries and
works, roads and industries; chemicals.
communications

6)to undertake investments

5) for promoting in consumer goods
4)investments in banking, commercial agriculture, industries like cotton and
insurance and trade; and investments in tea, coffee jute textiles, matches,
and rubber plantations woolen textiles, paper,
tobacco, sugar, etc.;
Estimate of foreign capital

 Various estimates of foreign capital were made, but most of estimates suffer
from limitations. The British investments were in so many diverse fields that a
complete statement of assets and liabilities could not be attempted
 Secondly the same British Company had investments in a number of colonial
countries.
 The growth of British investments in India in the pre-dependence period
reveals that the British were interested in creating economic infrastructure so
that they could administer the country properly and with its help trade could
be promoted.
 Secondly, the British foreign investments mainly went in consumer goods
industries and those concerned with the processing of primary produce meant
for export.
 The British took care that no basic and heavy industries were built in India.
This would have made the country industrially independent, which the rulers
did not want. Lastly, the ownership and management of the industries were
also in British hands. Thus, Indians had to content themselves with low-level
jobs.
c)Exploitation through Finance Capital
via the Managing agency system

Indian business did not possess any experience of the organization of

modern industry by setting up joint stock companies. The British
merchants who had earlier set up trading firms acted as pioneers
and promoters in several industries like jute ,cotton and coal. These
persons were called as managing agents.

The managing agency firms may be described as partnerships of

companies formed by a group of individuals with strong financial
resources and business experience. The managing agency firm is
entitled to the management of the whole affairs of the company
unless otherwise provided in the agreement.
The principal functions of the managing
agents were as follows-

2)to provide their 3)to act as agents

1)to do the
own funds and also for the purchase of
pioneering work of
to arrange for raw materials,
floating new
finance by acting as stores, equipment's
concerns;
the guarantors; and machinery;

4)to act as agents 5) to manage the

for marketing of the affairs of the
produce; business
d)Exploitation through payments for the
cost of British administration
 The British employed a large number of British officers for the military and
civil administration of the country. The British officers in the army were given
a separate cadre and were paid much higher salaries and allowances than
their Indian counterparts. All the top ranking positions were monopolized by
the British officers.
The consequences of the various forms of
exploitation were that:

1)India remained primarily an agricultural country and its

agriculture became commercialized to serve the interests of Great
Britain by exporting tea, coffee, spices, oilseeds, sugarcane and
other foodstuffs, besides other raw materials.

2)India which was an industrially advanced country during the 16th

and 17th century was not permitted to modernize her industrial
structure during the 18th and 19th century. Her handicrafts were
destroyed and she became an importer of manufactured goods.
3)The British employed the policy of discriminating protection along with
imperial preference to have complete control over the Indian market. This
also helped to provide safe and secure avenues for the British investors in
India.

4)British developed the economic infrastructure in the form of railways and

irrigation and electricity works with a view to promote foreign trade and
exploit India’s natural resources to their advantage. Direct British
investment was made in consumer goods industries like tea, coffee and
rubber plantations, but no effort was made to develop heavy and basic
industries.
5)The Managing Agency System did not help to promote consumer
goods industries in the initial phase, became exploitative in
character later. It appropriated nearly 50 per cent of the gross
profits as managerial remuneration.

6)The British exploited India through the economic drain via

home charges. India was also forced to pay for several wars like
Afghan and Burmese Wars, this was indicative of the highly
exploitative character of the British rule. The net result of the
British policies was poverty agnation of the Indian economy.
Poverty of the masses and economic
drain
 The economic drain of wealth prevented the capital creation in India but the
British brought drained out capital and set up industrial concerns in India
owned by British nationals. The government protected their interests and thus
the British could secure almost a monopoly of all trade and principal
industries.
 The British component of industries established in India further drained off
Indian wealth in the form of remittances of profits and interest. Thus, the
economic drain which commenced right from the inception of the British rule
acted as a drag on economic development till 1947.
 The introduction of the clause of 'most favored nation treatment' their made
it clear that along with profit maximization, British used the arm of the state
to obtain security maximization. There is, therefore, no basis for the criterion
that British capital was more adventurous than Indian capital.

 The main motive of all British policies was to serve the interests of England.
Thus, in 1947 when the British transferred power to India, we inherited a
crippled economy with a stagnant agriculture and a peasantry steeped in
poverty.
9)COLONIALISM AND MODERNIZATION

The British rule was a long story of the systematic exploitation by an imperialistic
government of people whom they had enslaved by the policy of divide and rule.
The benefits of British rule were only incidental ,if any.
The main motives of all the British Policies was to serve the interests of England.
Thus in 1947,when British transferred power to India,we inherited a crippled
economy with stangnant agriculture and a peasnatry steeped in poverty.
INDIAN ECONOMY ON
THE EVE OF
INDEPENDENCE
6)FAMINES AND FAMINE RELIEF IN INDIA

 The new land system and commercialization of Indian agriculture produced

very adverse economic consequences on the Indian economy.
 These influences halted, the process of industrialization of the Indian
economy, created "built-in depressors" in agriculture and were responsible for
the occurrence of famines in India.
FREQUENCE OF FAMINES IN THE BRITISH
PERIOD
 During 1765 and 1858, (the period of company rule) twelve famines and four
major scarcities occurred. After the transfer of power to the Crown, contrary
to expectations, the frequency of famines increased. Between 1860 and 1908,
20 famines occurred in a period of 49 years. Between 1908 and 1942, no
major famine occurred in India, although some scarcities were experienced.
 There was a comfortable feeling that famines were something of the past but
the Bengal famine of 1943 was a tragedy of an unprecedented magnitude.
The Famine Enquiry Commission estimated that the death toll due to famine
and disease was of the order of 1.5 million persons. Unofficial estimates,
however, put the number of deaths on account of this famine to 3.5 million.
NATURE OF FAMINES IN INDIA

 Before the advent of modern means of transport, especially railways, the

famines in India were localized scarcities of food in those regions where the
crops had shrunk on account of bad rains. Both the construction of railways
and the growth of trade after 1860 brought about a radical change in the
nature of famines.
 Previously a famine meant extreme hunger and the population had to undergo
suffering on account of lack of food because there were no means of
transporting the surplus food grain even if it was available in other parts of
the country. The position after 1860 was that the rapid means of transport
made it possible to carry food from one region to the other without much loss
of time.
 But periods of famine were invariably periods of high food prices and
extensive agricultural unemployment. Therefore, the mass of the poor people
found it impossible to purchase food. Consequently, the earlier famines were
described as food famines but later ones are more appropriately described as
purchasing power famines.
 Two factors were responsible for pushing up food prices : First, an impending
shortage of food meant hoarding and speculation which helped to push up the
price level very fast. Secondly, government did not allow any decrease in the
export of food grains even in the lean years. Consequently, the speculator and
the Government both accentuated the gravity of the problem.
CAUSES OF FAMINES

 1)THE DESTRUCTION OF INDIAN HANDICRAFTS-

 Fierce competition form British manufacturers resulted in the destruction of
Indian handicrafts .It stripped the artisan, weaver and the handicraftsman of
his means of livelihood.
 Under these circumstances, the unemployed increased the pressure of
population dependent on land.
 2)THE NEW LAND SYSTEM-
 The British created a class of landlords so as to affix responsibility for land
revenue ,but the British left the process of rent fixation to the free market
mechanism. The increasing demand for land for a growing agricultural
position led to an exorbitant increase in rents.
 The prices of land were gradually increasing. So the rise in the prices of the
land enhanced the value of the security in the form of land against which
peasants could borrow. This led to an increase in agricultural debt of the
Indian peasantry repeatedly exposed to uncertainities.The high interest rates
charged by the landlords made it difficult for the peasantry to repay the
loans.
 So the land gradually passed to the landlords. Thus the new land relations
between the land owners and cultivators were created. Huge amount of
produce was taken by the landlords and interest by the moneylenders. This
created in Indian agriculture a built in depressor.
 3)THE IMPACT OF COLONIAL RULE-
 Colonialism also had a deep impact on the repeated occurrence of famines in
India. The destruction of the Indian handicrafts increased unemployment in
the rural areas. Whereas in England, surplus labor from rural areas was
quickly absorbed in new industries created in the process of industrialization,
nothing of this kind happened in India.
 The industrialization of the Indian economy would have deprived England of
a ready market for its goods and so the colonial interests were opposed to the
development of industries in India. Thus, labor thrown out of employment in
traditional industries imposed additional burden on a subsistence agriculture.
7)PROCESS OF INDUSTRIALIZATION IN
INDIA
 The process of industrial transition in the British period is broadly divided into
industrial growth during the 19th century and industrial progress during the
20th century. It was mainly the private sector—whether indigenous or foreign
— that carried industrialization forward.
 Only after the First World War some protection was granted to Indian
industries otherwise Indian industry had to weather all storms and face world
competition on its own strength. This explains the slow growth of
industrialization-
a)Private enterprise and industrial
growth in the 19th century
 The outstanding industrial events of the 19th century were the decline of
indigenous industries and the rise of large-scale modern industries. This
change was brought about by private enterprise. The rise of large-scale
industries was slow in the beginning but by the close of the 19th century, the
movement was more rapid.
 The period 1850-55 saw the establishment of the first cotton mill, first jute
mill and the first coal mine. In the same period, the first railway line was laid
in India. In a period of 25 years, that is, by the last quarter of the 19th
century, there were 51 cotton mills and 18 jute mills.
 Inspite of the very rapid increase in industrialization and the fact that the
foundations for the development of modern industries for the utilization of
coal and iron resources were laid by the end of the 19th century, India was
being gradually converted into an agricultural colony of the British. By 1900,
India had become a great exporter of rice, wheat, cotton, jute, oilseeds, tea,
etc. and an importer of British manufactures.
 In this way, India had become an appendage of the British colonial system.
 At the same time, Indian craftsmen too did not play the part played by their
western counter-parts in the field of industrialization because they did not
possess large capital. Besides, they were without proper training and
education.
b)Private enterprise and industrial growth in
the first half of the 20th century

 1)Tariff protection to Indian Industries-

 In 1923,the Government of India, accepted the recommendations of the First
Fiscal Commission and gave protection to selected Indian Industries against
foreign competition. The prominent industries included were iron and steel,
paper and pulp, cotton textiles ,jute etc.
 These industries were able to capture the entire Indian market and eliminate
foreign competition altogether in important fields.
 The imports from foreign countries decreased while the government demand
for them increased. Naturally the industries expanded .
 2)DECLINE IN THE SHARE OF FOREIGN ENTERPRISE-
 By the beginning of the first world war the British controlled atleast half the
production in India’s major industries. But the control decreased. The British
controlled nearly 43% of the assets in 1914 but only 3.6% in 1948.
C)Causes of the slow growth of Private
enterprise in India’s Industrialization
 1)Unimaginative Private Enterprise-
 One important reason frequently mentioned is the inadequacy of
entrepreneurial ability. Indians were reluctant to enter the industrial field
because of the comparatively easier and secure scope for profit which existed
in trading and moneylending.
 The Britishers who pioneered industrial change in India were not really
interested in industrialization of the country as such. But then Indian
industrialists too were so short-sighted, they rarely bothered about the future
and cared very little for replacement and for renovation of machinery.
 They were influenced by nepotism rather than ability in their choice of
personnel. They were also influenced by their trading background viz., high
price and high profit margin rather than low prices and larger sales. They
emphasized sales than production. To a certain extent, therefore, unimagina-
tive private enterprise was responsible for the slow growth of industrialization
in this country.
 2)Problem of capital and private enterprise –
 A larger part of the total invested capital in modern enterprises in India was
imported from Britain. Capital was scarce not only because the resources of
the country were underdeveloped but also because the avenues for the
investment of surplus wealth were few. There were no Government loans or
company stocks and debentures. Accordingly, people held their wealth in the
form of gold and silver.
 There was complete absence of financial institutions to help the transfer of
savings to industrial investment. The indigenous financial institutions
concerned themselves with rural moneylending and financing of internal
trade. Institutions which concerned themselves with rural savings for a
comparatively long period, were altogether neglected. In the early days of
industrialization, people were generally hesitant to entrust their savings to
the company promoters.
 Banking was not highly developed in India and was more concerned with
commerce rather than with industry.
 The swadeshi movement gave a flip to the starting of banks but the number
of bank failures in this period was so great as to cancel any good effect from
banking expansion. The private bankers and joint stock banks did provide
funds for industrial enterprises but this aid was limited to well-established
concerns only.
 It is interesting to note that Indian factory-owners followed closely the British
system as regards capital resources.
 3)Private enterprise and the role of government-
 One of the important reasons and according to some authorities, the most
important reason for the slow growth of Indian industries was the lack of
support from the Government. In the 19th century, the Government did
provide certain overhead investments which helped private enterprise.
 The tariff policy in India reflected the needs of business interests in Great
Britain. Even when they imposed low duties on some goods for purposes of
collecting revenue, they sought to neutralize their effects by imposing
equivalent excise duties on goods of local origin. When the Government
ultimately adopted a policy of protection, it did not give protection to all
industries but only to a few selected industries which fulfilled certain
specified conditions.
 India leaned heavily on industry in Britain for its large purchases of equipment
for public utility in health and education, railway and military supplies, etc.
Even simple machines and standard supplies were imported. Those orders
could have served to stimulate expansion in Indian industry.
NATIONAL INCOME OF
INDIA
1)National Income Estimates in India

 The national income measures the flow of goods and services in an economy.
 National income is a flow not a stock.
 National wealth measures the stock of the commodities held by the nationals
of a country at a point of time whereas the national income measures the
productive power of an economy in a given period to turn out goods and
services for the satisfaction of human wants.
Pre –Independence Period Estimates

 The economy was divided into two categories –

 In the first category ,we included agriculture,pastures,forests,mines,fishing
and hunting.
 Output method was used for evaluation.
 In the second category ,we included industry,trade,transport ,public services ,
administration, liberal arts and domestic services.
 For these occupations , census of income method was used.
 To these sub totals was added the income form house property and other
items which could not be covered under the other categories.
 From the gross income so obtained , were excluded the value of goods and
services consumed in the process of production.
 By adding the net income from abroad , an estimate of national income was
computed.
Post Independence Period Estimates

 The Principle features of National Income Committee Report were as follows-

 1)During 1950-51,agriculture was also in clubbed animal husbandry , forest
and fisheries contributed nearly half of the national income.
 2)Mining, manufacturing and hand trades contributed about one sixth of the
total income.
 3)Commerce , transport and communications accounted for a little more than
one sixth of the total national income.
 4)Other services such as professions and liberal arts, administrative services,
domestic services, house property accounted for about 15 % of the national
income.
 5)Share of commodity production was about two third of the national income.
The term commodities production includes material production derived from
agriculture,mining,factory establishments, hand trades, etc.
 6)Service accounted for about one third of total national income, Service
sector includes commerce, transportation and communications,
administrative services, liberal arts ,domestic services etc.
 7)The share of the government sector in net domestic product was 7.6% in
1950-51.
 The margin of error in the calculation of national income estimates worked at
about 10%.
National Income Committee and CSO
Estimates
 1)Conventional Series-
 It provided national income data at current prices and at 1948-49 prices for
the period 1948-49 to 1964-65.
 The conventional series divided the economy into 13 series.
 Income from six sectors i.e. agriculture, animal husbandry, forestry ,fishery
,mining and factory establishments is calculated by the output method and
the income from the remaining seven sectors i.e. small enterprises, organised
banking and insurance, commerce and transport ,professions and liberal arts
and domestic service ,public authorities as well as house property is
computed by census of income method.
Net Output Method

 In agriculture the total output of each crop is estimated by multiplying the

area sown by the yield per hectare.
 From the gross value of output so obtained ,deductions for the cost of seeds
,manures and fertilizers ,market charges, repair and depreciation are made
so as to derive its net value of the product from agriculture.
 For animal husbandry ,forestry ,fishery, mining and factory establishments,
estimates of production are multiplied with the market price so as to obtain
the gross value of the output.
 From the gross value of the output, deductions are made for the cost of
materials used in the production process and depreciation charges etc to
calculate the net amount.
Net Income Method

 In order to obtain the contribution of small enterprises, an estimate of the

number of persons employed in different occupations classified under small
enterprises is prepared.
 On the basis of sample surveys , the average earnings per head are obtained.
 By multiplying the total number of persons employed with the average
earnings per head, the contribution of small enterprises is estimated.
 For banking and insurance, the balance sheets of the firms provide the
requisite information.Wages,salaries,directors fees and dividends are all
added to get the net contribution of the sector.
 For commerce and transport and for professions liberal arts and domestic
services, the procedure is the same as of small enterprises.
 For public sector wages ,salaries ,pensions ,dividends or surplus etc are added
up to arrive at the contribution of the public sector.
 To this is added the contribution of government construction and this gives
the total contribution of the government sector.
 The contribution of house property to national income is worked by
estimating the imputed net rental of all houses-urban and rural.
2)National Income Series at 1960-61
prices
 This series provided national income data at current prices and at 1960-61
prices for the period 1960-1961 to 1975-76.
 Estimates based on different base years indicate differences in magnitudes.
 The Central Statistical Organization brought out other series on national
income with 1980-81 as base year in place of the series with 1970-71 as the
base year.
2)CSO Revised National Income series
with 1900-00 as base year
 The Central Statistical Organization (CSO) has revised the existing series of
national accounts with 1993-94 as the base year with a new series with 1999-
00 as the base year.
 Besides shifting the base year, the New Series incorporates improvements in
terms of coverage and to the extent possible, the recommendations of the
United Nations System of National Accounts, 1993 have been incorporated.
The improvements in term of coverage
are as follows-
 (a) Inclusion of production of salt through sea water evaporation and the
production of betel leaf, toddy, goat, buffalo and camel milk, duck eggs and
meat production from unregistered slaughtering.
 (b) Expenditure made on few tree crops during the gestation period and
setting up of wind energy systems are included in the estimates of output of
construction sector.
 A new category of 'valuables' has been included in the gross capital
formation, in line with the recommendations of 1993 UNSNA(United Nation
System of National Accounts).
 (d) Economic activities of other communication, renting of machinery and
other equipment without operator, computer related activities in unorganized
segment, coaching centres, social work with accommodation, recreational
and cultural activities have been included.
3)Trends in National Income growth and
sector
 A)Trends in national income and per capita income-
 Figures of national and per capita income are collected at current prices. But
figures of national income at current prices do not give a correct picture
about the growth of the economy, for the increase in national income at
current prices reflects the combined influence of two factors viz.,
 (a) the increase in the production of real goods and
 (b) due to the rise in prices .
 If it is due to first case then it is an indicator of real growth because it implies
that more goods and services become available to the people.
 If it is due to the second condition ,it is because of unreal inflation of national
income in money terms.
 Consequently, national income figures are deflated at constant prices to
eliminate the effect of any change of price level during the period. National
income figures at constant prices, therefore, become comparable, but they
conceal the population effect.
 To eliminate the effect of growth of population, per capita income is
calculated.
b)Annual growth rates during the plan

 During the First Plan, annual average growth rate of NNP was 4.4 per cent (at
1999-00 prices), which to declined 3.8 per cent during the Second Plan. However,
during the Third Plan, annual average increase in national income slumped down
to 2.6 per cent which was just sufficient to neutralize the growth of population.
 This is indicated by the fact that there was 0.4 rate growth of per capita during
the third plan.
 This was largely the consequence of a serious drought 1965-66 and thus the
growth rate got depressed. This was followed by another drought year as also a
business recession. After 1967-68 the economy started picking up and the growth
rate showed signs of improvement.
 During the Fourth Plan (1969-74) period, the average annual rate of growth of
national income declined to 3.1 per cent and that of real per capita income to 0.8
per cent per annum.
 The sharp increase in prices during 1972-73 and 1973-74 and the shortfalls in
production on account of lower utilization of capacity were the principal
factors responsible for a lower growth rate during the Fourth Plan.
 During the Fifth Plan (1974-79) the average annual increase in national
income was of the order of 4.9 per cent and that of per capita income was
barely 2.6 per cent. On the whole, the performance of the economy during
the Fifth Plan can be considered very satisfactory.
 India's national income registered a growth rate of 5.4 per cent during the
Sixth Plan (1980-85) with a per capita income growth rate of 3.1 percent.
 During the Seventh Plan (1985-90), India's NNP grew on the average at the
rate of 5.5 % per annum and the annual growth of per capita NNP was 3.3 %.
 Obviously, Seventh Plan achieved its objective of 5 per cent growth rate of
NNP along with 3 % targeted growth rate of per capita NNP. This was a
welcome development.
3)Trends in distribution of national
income by industrial origin
 The following broad trends in the changing composition of the domestic
production are revealed-

 The share of the primary sector which includes, agriculture, forestry and
fishery has gone down from 55.4 percent of GDP in 1950-51 to 38 percent in
1980-81 and further declined to 14.0 per cent in 2011.
 The main cause of the decline is a rapid fall in the share of agriculture alone.
There is also a contraction in the share of forestry from about 6 percent in
1950-51 to nearly 0.7 per cent in 2011-12. The share of fishery has remained
more or less constant around 1 percent through out the period.
 (2) The share of industry which includes mining manufacturing, electricity,
gas & water supply and construction has shown a steady increase from 15 per
cent in 1950-51 to 24 percent in 1980-81 and 27.1 per cent in 2011-12.
 (3) The share of the service sector has components;
 (a) Trade, Transport, Storage and Communication,
 (b) Finance, Insurance, Real Estate and Business Services and
 (c) Community, Social Services
4)Trends in the share of public sector

 The gradual increase in the share of public sector is the direct result of the
expansion of economic activities of the State, both on side of enlarging
administrative services and of increasing productive activities in public
enterprises during the first four cades of development.
 Thereafter, economic reinforcement initiated in 1991 stressed the need for
restricting the operations of public enterprises.
5)Urban and Rural Income Breakup

 Between 1993-94 and 1999-00, the first phase after the introduction of
economic reforms, witnessed farther decline in the share of rural sector to
148 per cent.
 Not only this, per capita NDP in 1999-00 for rural areas was Rs 10,683 and for
urban areas stood at Rs 30,183. The urban-rural disparity ratio increased to
2.82 in 1999-00 as against 2.34 in 1993-94. This is not a healthy trend.
6)Changing structure of the rural GDP

 Trends reveal that a structural transformation of the rural economy is taking

place and the nonfarm sector is emerging as the major contributor to rural
GDP.
 This is also borne out by the CSO's Economic Census 2005, according to which,
about a fifth of nonfarm rural workforce is employed in agricultural
establishments, while four-fifth worked in non-agricultural establishments.
 Such a transformation is a trend in the right direction and is very desirable
because about 60 percent of India's population cannot live on the 19 percent
share of India's GDP in agriculture.
6)Share of Organised and unorganised
sector in NDP
 Organized enterprises are defined by the CSO as all enterprises which are
either registered or come under the purview of any of the Acts and/or
maintain annual accounts and balance sheets.
 Among the Unorganized enterprises are included all unincorporated
enterprises and household industries other than the Organized ones which are
regulated by any of the Acts and which do not maintain annual accounts and
balance sheets.
4)Limitations of National Income
Estimate in India
 A)The output of the non monetized sector-
 While calculating national output, the assumption normally made is that the
bulk of commodities produced are exchanged for money.
 India where agriculture is carried on a subsistence basis ,a considerable
portion of outcome does not come to the market.
 To ignore this portion of output in agriculture would substantially reduce
national output.
 At present there is no objective method of finding out the total output of
food crops and the amount consumed at home.
b)Non availability of data about the income
of small producers or household enterprises-

 A very large number of producers carry on production at a family level, or run

household enterprises on a very small scale.
 Most of these small producers are so illiterate that they have no idea about
maintaining accounts.
 The more the economy is organised in corporate or incorporate but otherwise
organised units,the greater will be the coverage of the census and the less
the error, excepting for deliberate or involuntary mistakes in returns.
c)Absence of data on income
distribution
 The National Accounts Statistics do not generate any data on income distribution
of households or persons. For this purpose, instead of making inquiries about
household income or related variables, the National Sample Survey Organization
(NSSO) have used data on consumer expenditure and collected through a pilot
survey on distribution of income, consumption and savings during 1983-84 in 5
selected states and 4 metropolitan cities.
 Although these surveys were questioned on the basis of the small size of their
samples, it was found that household incomes (Y) based on direct enquiries were
lower by 30-40 per cent than those derived indirectly as the sum of consumption
and saving (C+S).
 Conceding that the experience was disappointing, the NSSO has suggested full-
scale pilot surveys on household income, saving and consumption. There is a
strong need to compile data on income distribution so that the spread effects of
the growth process on low income households can be properly analyzed.
d)Unreported Illegal Income

 Studies about black economy pertaining to India have shown that a

significant part of the economy operates as hidden or subterranean economy
and the income generated in it goes as unreported income.
 According to a study by Dr. Arun Kumar, black economy accounted for about
40 percent of total income generated (Gross National Product) in 2000-01.
Obviously, national income estimates to that extent are under-estimates.
 It is also a fact that the size of the black economy has been growing over time
and as such the magnitude of error on account of this factor alone has been
becoming larger and larger.
Data gaps still to be covered

 It would be more desirable that the estimates of consumer expenditure on

health and education by households are supplemented by expenditures made
by institutions to develop more reliable estimates.
 Despite all the improvements, it takes about four years to finalize national
income figures for a particular year.
 We have advance estimate, quick estimate, revised estimate and final
estimate. Obviously, despite six decades of planning, data reporting
techniques with a very small time lag are still in an underdeveloped state in
India
Recommendations of the National
Statistical Commission
 For most of the service sector, the Commission noted that the GDP estimates
are derived separately for the corporate sector on the basis of the RBI's
company finance statistics.
 The same source is also used for generating domestic product estimates for
the corporate sector at the state level. However, the size of the sample, is
considered too small at the national level to generate reliable estimates.
 At the national level, the estimates are not considered scientific even at
aggregate level, not to speak of their reliability at the state level.
 If the states use the framework available with the Regional Registrar of
Companies, even once in five years, the quality of State Domestic Product by
the corporate sector would considerably improve.
 The Commission noted that the states of Karnataka and Rajasthan have
recently constituted expert groups to develop State Domestic Product and to
bring improvement in the compilation of these estimates. Other states should
also undertake similar exercises.
 The Commission has, therefore, underlined the need for developing SDP
estimates at the state level that these can be used as a crosscheck for the
nation level estimates.
 For the development of a more robust Indian Statistical System at the state
level, correspond' surveys at the state level are essential.
 HUMAN RESOURCES AND
ECONOMIC DEVELOPMENT
CONTENT

 The Theory of Demographic Transition

 Size and Growth Rate of Population in India
 Quantitative Population Growth Differentials in Different Countries
 The Sex Composition of Population Age Composition
 The Density of Population
 Urbanization and Economic Growth in India
 The Quality of Population Growth as a Factor of Economic Development
 Population Policy
 National Population Policy (2000)
 Population Projections (2001-2026)
 Demographic Dividend
 1)The theory of demographic transition

First Stage of Demographic Transition-

According to this theory, death rates are high in the first stage of an agrarian
economy on account of poor diets, primitive sanitation and absence of
effective medical aid.
Birth rates are also high in this stage as a consequence of widespread
prevalence of illiteracy, absence of knowledge about family planning
techniques, early age of marriage and, last but not the least, as a
consequence of deep-rooted social beliefs and customs about the size of the
family, attitude towards children, etc.
2)Second stage of Demographic
Transition
 Rise in income levels enables the people to improve their diet. Economic
development also brings about all-round improvement including the
improvement in transport which makes the supply of food regular.
 All these factors tend to reduce death rate. Thus in the second stage, birth
rate remains high but death rate begins to decline rapidly.
3)Third stage of demographic transition

 Economic development further changes the character of the economy from an

agrarian to a partially industrialized one. With the growth of industrialization,
population tends to shift away from rural areas towards industrial and
commercial centres.
 Growth of urban population, with the development of economic roles for
women outside the home, tends to increase the possibility of economic ability
that can better be achieved with small families, and tends to decrease the
economic advantage of a large family.
 Thus, the characteristics of the third stage are low birth rate, low death rate,
small family size and low growth rate of population. This is the stage of
incipient decline of population.
2)Size and growth rate of population in
India
 India today possesses about 2.4 per cent of the total land area of the world
but she has to support about 17 per cent of the world population. At the
beginning of this century India's population was 236 million and according to
2001 census, the population of India is 1,027 million. A study of the growth
rate of India's population .
 A Study of growth rate of India's population falls into four phases:
 1891-1921: Stagnant population
 1921-1951: Steady growth
 1951-1981: Rapid high growth
 1981-2011: High growth with definite signs of slowing down
Birth Rate

 Fertility depends on
 (i) age at which females marry,
 (ii) duration of the period of fertile union, and
 (iii) the rapidity with which they build their families.
 In India, mean age at marriage has been low as compared to other countries
of the world.
 Social awareness and spread of education can help to raise the mean age at
marriage in future.
 With an increase in the mean age at marriage and the impact of family
planning programmes, there is an over-all decline in general fertility rate
from 171 per thousand married women in 1988 to about 154 in 1993. It may
also be noted that the decline is in all age groups.
Death Rate

 In the advanced countries of the world in the beginning of the 19th century,
death rate ranged between 35-50 per thousand. It has now come down to 7-8
per thousand.
 This steep fall in death rate is the result of provision of better diet, pure
drinking water, improved hospital facilities, better sanitation and last but not
least, the control by wonder medicines of several epidemic and other diseases
which took a heavy toll of human life.
 Thus, over the last 5 decades, both birth and death rates have been
declining, but the death rate declined at a faster rate. Death rate has already
reached a very low level and whatever the level of health facilities, it cannot
fall below 7-8 per thousand. The future growth of India's population shall,
therefore, be mainly dependent on the level of the birth rate.
 Correlation co-efficient between infant mortality rates and birth rate for 15
major states of India was very high. This underlines the fact that high infant
mortality induces couples, more especially among the poor, to have larger
family size.
 Consequently, birth rate are higher in states which have higher infant
mortality rates. The analysis underlines the need for enlargement of health
facilities so as to reduce infant mortality rates and over-all death rates as a
positive measure both of family planning and family welfare.
Rural and Urban differentials in birth
and death rates
 There is no doubt that the urban areas are the forerunners in the
development of medical facilities and control of epidemics and diseases, but
these facilities have also been extended to rural areas.
 So as far as the birth rates are concerned, they have shown a decline from
30.1 per thousand in 1971 to 20 in urban areas, but in rural areas, they have
declined from 38.9 to 27.6. The rural and urban birth rate gap has reduced
from 8.8 in 1971 to just 6.9 in 2000.
 Obviously family planning programmes have to target the rural areas in a
much more effective manner so that birth rate in rural areas can be brought
down at an accelerated pace.
3)Quantitative Population growth
differentials in different countries
 The low income economies and the middle income economies which
compromised about 84% of the world population , shows a high growth
potential.
 Death rates in low income countries were higher, though birth rates were also
high.
 Most of the countries of Asia, Africa and Latin America were falling in the
categories of low income countries where poverty ,poor health and
malnutrition was widespread.
 In developed countries death rates had fallen to the lowest possible levels
and an improvement in public health measures will not reduce death rates.
 The high birth rates have also come down due to urbanization.
4)The sex composition of population

 A disturbing revelation of the 1991 census is the decline in the ratio of

females per 1,000 males. The sex ratio declined from 934 in 1981 to 929 in
1991.
 However, the over-all trend of sex ratio in the country since 1901 also shows a
continuous trend towards a decline in sex ratio, barring a marginal
improvement in 1981. In 2011, mere is a slight improvement in the proportion
of females to 940.
 Among the various states of India, Kerala alone shows a higher proportion of
females 1,084 per 1,000 males in 2011. In Himachal Pradesh, there is a
distinct improvement over 1981 level and the sex ratio has improved from 973
in 1981 to 996 in 1991 but there is a decline later and in 2011 it stood at 974.
 The states which are lower than the national average are Rajasthan, Bihar,
Uttar Pradesh, Gujrat, Maharashtra, Madhya Pradesh, Punjab and Haryana.
 There is a sharp deterioration of sex ratio in Bihar from 946 in 1981 to 916 in
2011. In Punjab, UP and Haryana females account for between 877 to 908 per
1000 males.
Poverty the main factor determining sex
ratio
 The removal of poverty in the western countries has helped the females to
overcome the biological disadvantages associated with the life of women,
both at the time of puberty and at the time of reproduction.
 A better health standard of the females, that is a consequence of the
prevalence of higher income levels, also provides them internal resilience
against disease.
 Low levels of living are accompanied by low levels of education, poor health,
unhygienic living conditions, etc. In a country which is still not able to
eradicate misery, not to speak of removing poverty, it would be futile to
expect an improvement in the condition of women.
 Sociologically speaking, there is a time lag in improving the quality of the
female population in every society.
 But for this purpose, society must break the vicious circle of poverty and
female illiteracy.
 No doubt, in the initial period, the improvement in the condition of females
will be slower than that of the males, but as economic development gathers
momentum and female literacy levels and female labor force participation
rates improve, gender bias against women is bound to indicate a decline.
 It is only when these agents of change will have a perceptible impact in India,
sex ratio will improve.
5)Age Composition

 The study of age composition is helpful in determining the proportion of the

labor force in the total population. An estimate of the labor force in India is
made in the 2001 census report. The working age of the population is
considered as 15-60.
 The principal reason for a higher child population in India is the high birth
rate. The recent decline in infant mortality has also added to our child popula
tion. A high proportion of children only reflects a proportion of unproductive
consumers.
 To reduce percentage of non-productive consumers, it is essential to bring
down the birth rate. The decline in child population in 2001 is a reflection of
the decline in overall birth rate in India.
6)The Density of Population

 The term density of population implies the average number of persons living
per square km.
 Kerala, West Bengal,Bihar,Tamil Nadu and Uttar Pradesh are some of the
highly densely populated states but Madhya Pradesh, Rajasthan ,Himachal
Pradesh ,Jammu and Kashmir and Nagaland have lower density of population.
 Density of population indicates the manland ratio. India does not rank either
among countries with a very high man-land ratio or among those with a very
low man land ratio.
 Density of population that can be supported in any country depends upon the
availability of natural resources and the extent of the use of technology to
exploit the natural resources.
7)Urbanisation and Economic growth in
India
 An urban area has thus been defined as follows:
 (a) all places with a municipality, corporation, cantonment board or notified
town area committee,
 (b) all other places which satisfy the following criteria :
 (i) a minimum population of 5,000;
 (ii) at least 75 per cent of male working population engaged in non-
agricultural pursuits; and
 (iii) a density of population of at least 400 persons per sq. km
 The process of industrialization, though initiated during the Second Plan
could make little impact on the economy in terms of population-shift to urban
areas till 1961.
 Although the Second and the Third Plans decided to have a big programme of
industrialization, the plans emphasized the development of heavy and basic
industries.
 The employment potential of these industries being limited, their growth did
not lead to an absorption of labor from the rural to urban areas to such an
extent as to have a marked impact on the economy.
 One can therefore observe that the process which started though in sixties
could not gain much momentum.
 Urbanization could hardly absorb a little more than the natural increase in
urban population.
 As a result, a serious dent in terms of the shift of population from rural to
urban areas could not be made.
Degree of Urbanisation in India-A
comparison between selected countries
 A comparison with the developed countries of the world reveals that India is
far behind the high income countries.
 The proportion of urban population to total population in 2001 was 73 per
cent in Russia, 77 per cent in USA, 79 per cent in Japan, 91 per cent in
Australia and 89 per cent in U.K.
 Compared to them, the Indian percentage of 27.8 in 2001 was too low.
Population of large cities with Million –
Plus Population
 According to Census 2011,there were 53 cities with more than 1 million
population ,against 35 in 2001.
 Population of these 53 cities was 166.5 million which was about 44.1 percent
of total urban population. Ranking of the first 7 cities remained intact, with
Bombay topping the list.
Urbanisation and character of
industrialisation in India
 Obviously, India ranks quite low among the countries of the world in the
degree of urbanization.
 Two reasons can be attributed to the increase of population in urban areas :
(a) natural increase of urban population, and
 (b) net migration from the rural areas.
 As India is passing through a period of high population growth, the natural
increase of population in the urban areas is also quite high.
8)The quality of population

 The quality of population can be judged form life expectancy ,the level of
literacy and the level of technical training attained by the people of our
country.
 Upto 1981,it was mandatory to exclude children in the age group of 0-4 and
then include the rate of literacy.
 However the census of 1991 ,has redefined the concept of literacy.
 It uses the term literacy rate related to population aged seven years and
above.
Census 2011:Qualitative Changes in
Population
 According to the results India’s population is 121 crores. Out of the total
population 51.5 percent are males while 48.5 percent are females.
 Census 2011 results show that there has been much less growth in population
between 2001 and 2011,than before, and there has been a sharp decline in
decadal growth of population.
 This means that not only the growth rate of population was lower ,less
number of people were added to the population.
Improved Sex Ratio

 Although the proportion of girls in the age group of 0-6 years has gone down,
which is definitely a cause of concern but we must realise that natural rate of
growth of overall population has come down significantly for the first time.
 Improvement in overall sex ratio from 927 to 940 is giving a sigh of relief as it
indicates at betterment of condition of women in the country.
 Thus this improved sex ratio is suggesting that the steps taken by the
governments at the centre and the states for betterment of health society in
creating awareness against ill treatment and against atrocities against women
are fructifying now.
India more literate than before

It is well known that in India most people live in the age group of 15-35 and
India is considered 'Youngistan' , a country with highest number of youth .
As such , the quality of the population would play an important role in the
development of Country . India today is the world' s third most powerful in
economic terms .
Improving the education facilities could go a long way in making our country even
more powerful .
Increase in the literacy ratio by 9 percent point is significant in this perspective .
Growth would definitely get a boost with increase in literacy rate .
Better female literacy

 The literacy rate for the entire population has improved but particularly for
females.
 The female literacy rate has improved from 53.7 percent in 2001 to 65.5
percent in 2011.In case of men it has improved from 75.3 percent to 82.1
percent during the same period.
Regional disparities also narrowed down

 25 states have shown population growth of less than 2 percent, backward

states show better results.
 Six UT’s /states show improvement in sex ratio for population under 6 years
of age.
 Except those 6 UT’s/states in 29 states /UT’s overall sex ratio has improved
including states of Punjab and Haryana.
Major Cause of Concern

 Major cause of concern is that there are 50 lakh less children in age group 0 -
6 years in 2011 than 2001 .
 This is obvious outcome of decline in rate of growth of population in the last
decade as compared to a decade before .
 This also indicates that during the last decade birth rate has been much lowe
r now .
 But in this age group (0-6 ) the major cause of concern is that in 2001 , there
were 927 girls for 1000 boys , which has now fell down to 914 .
 Thus , except decline in sex ratio in 0- 6 age group , other results of the
Census 2011 are encouraging in terms of reduction in population growth ,
literacy rates, overall sex ratio , regional disparities in human development .
Constitutional directive of providing
compulsory elementary education
 The Directive Principles of the constitution enjoined upon the Government to
provide free and compulsory education to all children up to the age of 14 by
1960 .
 It is a sad commentary on the progress of elementary education that even
after the lapse of over five decades, there is no hope of the fulfilment of this
Constitutional Directive .
 The paradox of rapid growth of population in the face of rising trend of
enrolment can be explained in terms of high dropout rates out of every 100
students enrolled in Class I , only 40 reach class V . All these drop-outs add to
the population of illiterates. Moreover , retention rate among the females
are poorer and only 16 to 18 per cent of those enrolled in class I reach class
VIII.
 The analysis of the data suggests the following :
 1)Overall literacy level in India is 65 percent which is far below the cent per
cent level of literacy achieved in Australia , Canada , United Kingdom and
United States.
 2)Whereas the difference between male female literacy has narrowed down
in the urban and the gap is to widen in the rural areas.
 3) In India , in 2001 the level of literacy was 76 per cent for males and 52
per cent for females as against nearly cent per cent in developed countries .
 4)Number of persons enrolled in higher education as percentage of population
in the age group of 17-24 was barely 6 per cent in 2000 . This figure is quite
high among low income countries , but when compared with advanced
countries , it is only one third to one fourth.
Life Expectancy

 During the last two decades the infant mortality rate has declined.
 Greater care of women due to change in our attitude towards women has also
contributed to higher life expectancy of the female population in India.
 In recent years,public healthcare measures taken have further reduced the
death rate.
9)Population growth as a factor of
economic development
 1)Population and growth of national and per capita income-
 The low growth rate of population leads to a higher per capita income.
 High rate of population growth has been a retarding factor to raising the
levels of per capita income earlier.
2)Population and Food Supply

 To compensate for the fall in the cultivated land man ratio ,it is imperative
that efforts be made to increase productivity.
 Since a major part of the increase in population takes place in the rural areas
,it also signifies that the share of family consumption in total food production
will increase and much less will be leftover as marketable surplus.
3)Population and Unemployment

 Rising population is accompanied by a rise in the labour force of the

community.
 A significant portion of the natural resources will have to be used to expand
employment opportunities to absorb the increasing labour force and the
backlog of the unemployed left over due to the continuous pressure of a
rapidly growing population.
4)Population and the burden of
healthcare, education and housing
 Rising population increases the number of children and hence demands
higher expenditure on education.
 It impacts on the creating educational institutions at primary, secondary and
tertiary levels to the needs of the growing knowledge economy.
 Indeed a lot of expenditure has to be made on public healthcare .The burden
of raising healthcare expenditure needs improvement of in medical facilities.
5)Increase in population and capital
formation
 It is essential that the national income is growing at a same rate at which the
population is increasing so that the existing level of per capita income is
maintained.
 For this capital investment is necessary.
10)Population Policy

 The significance of the growth in the population can be judged from the fact
that during the decade 1991-2001 ,there has been an increase of about 183
million reaching at a level of 1,027 million in 2001.
Family Planning and Five Year Plans

 To achieve the family planning goals the following measures were taken by
the government-
 1)Motivation programme to spread the knowledge of family planning. All mass
media radio newspapers ,TV, films etc were widely used to spread
consciousness about family limitation.
 2)Supply of contraceptives to all sections of rural and urban poor.
 3)Financial incentives for family planning in the form of cash awards for
undergoing sterilisation.
 4)Extensive use of sterilisation for both males and females.
Impact of family planning programme on
India’s Population Growth
 Family planning programmes use three methods-
 1)Sterilization gives full protection
 2)IUD insertion is supposed to give 95% protection.
 3)Regular use of oral pills is also supposed to give full protection .
 Percentage of couples effectively provided by these methods have also
increased over the time.
Steps towards a Rational Population
Policy
 History of population growth in the world shows that high fertility and high infant
mortality go together and motivation for low fertility gets strengthened to the
extent to which infant mortality and morbidity are reduced .
 In advanced countries like USA , UK , Germany , France , Japan etc . Infant
mortality has been reduced to as low a figure as 10 t o 15 per thousand births .
 In contrast , infant mortality in India is as high as 57 in 2006 .
 Secondly , advanced societies have a well-developed social security system against
the risks of unemployment , old age , sickness, accident etc .
 The well-to-do sections in India and society living in urban areas are largely free
from the worry of life risks due to schemes of social security like provident fund ,
gratuity , old age pension , life insurance etc . The rich and elite classes have a
large command over property , and income from this property provides adequate
security against life risks .
11)National Population Policy (2000)

 The National Population Policy listed the following measures to achieve a

stable population by 2046.
 1)Reduction of infant mortality rate below 30 per 1000 live births.
 2)Reduction of maternal mortality rate to below 100 per 1,00,000 live births.
 3)Universal Immunisation
 4)To achieve 80% deliveries in regular dispensaries ,hospitals and institutions
with trained staff.
 5)Access to information containing AIDS ,prevention and control of
communicable diseases.
 6)Incentive to adopt two child small family norm.
 7)Facilities for safe abortions to be increased
 8)Strict Enforcement of child marriage restraint act and pre natal diagnostic
techniques act.
 9)Raising the age of marriage girls not earlier than 18 and preferably raising it
to 20 years or more.
 10)A special reward for women who marry after 21 and opt for terminal
method of contraception after the second child.
 11)Health insurance cover for people below the poverty line who undergo
sterilization after having two children.
The Action Plan for the next 10 years

 1)Self help groups at village panchayat levels comprising mostly of housewife's

will interact with health workers and gram panchayats.
 2)Elementary education to be made free and compulsory.
 3)Registration of marriage, pregnancy to be made compulsory along with all
births and deaths.
12)Population Projections

 The Report made the following assumptions :

 1)Total fertility Rate decline observed during 1981 - 2000 will continue in the
future years also .
 2 ) Sex ratio at birth of all the states are assumed to remain constant during
future years.
 3 ) The increase in life expectancy become slower as it reaches higher levels.
 4). Inter-state net migration during 1991-2001 has been assumed to remain
constant throughout the projection period for all states.
 5) Urban-rural growth differentials for the period 1991-200 1 has been
assumed to be same in future as well upto 2026 .
Demographic Indicators

 1)Population growth will continue to register a decline in the growth rate

from 1.6% during 2011-2005 to 1.3% in 2111-15 and further to .9% during
2021-25.
 2)Crude birth rate will decline from 23.2% during 2001-05 to 16% during 2021-
25 because of falling total fertility. In contrast, crude death rate is expected
to fall marginally from 7.5% during 2011-05 to 7.2% during 2021-25.
 3)Infant mortality rate is estimated to decline from 61% in 2001-05 to 40% by
the end of the period 2021-25.
 4)Total fertility rate is expected to decline from 2.9 during 2001-05 to 2 %
during 2021-25 .
Demographic Dividend

 The actual realization of the demographic dividend will depend upon

improving health care levels as well as increasing human resource
development especially education.
 To attain the goal of population stabilization ,health care is important not
only to reaping the benefits of demographic dividend in terms of a healthy
workforce, but also reducing birth rate and promoting general welfare.
 Population stabilization can be achieved by taking care of infant mortality,
safe motherhood and increasing contraception.
 The reduction of malnutrition, in the overall population ,especially among
children and women can also contribute the growth of a healthy and a stable
population.
 In this regard, wide disparities between rich and poor, urban and rural
population, male-female population will require remedial action.
HUMAN DEVELOPMENT
IN INDIA
The concept and measures of Human
Development
 Human Development is the process of widening people’s choices and the level
of well being they achieve are at the core of the notion of human
development.
 But regardless of the level of development ,the three essential choices of
people are to lead a long and a healthy life, to acquire knowledge and to
have access to the resources needed for a decent standard of living.
 Human development does not end here, other values highly valued among
people range from political ,economic and social freedom to opportunities for
being creative and productive and enjoying self respect and guaranteed
human rights.
Human Development Index(HDI)

 HDI measures the average achievement in three basic dimensions of human

development-
 1)A long and healthy life as measured by life expectancy at birth.
 2)Knowledge as measured by the adult literacy rate (with two third weight)
and the combined primary ,secondary and tertiary gross enrolment ratio (with
one third weight).
 3)A decent standard of living as measured by GDP per capita (PPP US$).
 Before calculating HDI,an index for each of the three dimensions is created.
 For this purpose maximum and minimum values are chosen for each indicator.
 Performance in each dimension is expressed as a value between 0 and 1 by
applying the following formula
 Dimension Index =(Actual vale-Minimum Value)/(Maximum value-Minimum
Value)
b)Human Development Report,2010:Refining
the Human Development Index

 Human Development Index has been an aggregate measure of progress in

three dimensions –Health , education and income.HDR 2010 uses all the
measures but in a modified manner.
 In this report UNDP, has modified the indicators used to measure progress in
education and income. The manner in which they are aggregated has also
been changed.
 With regard to knowledge management earlier measurement was based on
literacy and gross enrolment.
 This has been replaced by mean years of schooling and expected years of
schooling respectively.
 Expected years of schooling means the years of schooling that a child can
expect to receive given current enrolment rates.
 Mean years of schooling is estimated more frequently for more countries and
can discriminate better among countries, while expected years of schooling is
content with the reframing of this dimension in terms of years.
c)Gender Inequality Index

 The Gender Inequality Index is another newly introduced index in the 2010
Global Development Report and outlines disadvantages for women in four
areas –reproductive health,education,empowerment and the labour market.
 It indicates losses in human development due to inequalities between men
and women.
 The index ranges from 0 ,indicating that women and men are fare equally to
1 ,indicating that women fare as poorly in all measured dimensions.
d)Human Poverty Index

 Human Development Report ,1997 introduced the concept of Human Poverty

Index which concentrates on deprivation in three essential elements of the
man life already reflected in HDI –longevity, knowledge and a decent
standard of living.
 The first deprivation is vulnerability to death at a relatively early age and is
represented in the HPI by the percentage of people expected to die before 40
years of age.
 The second deprivation is related to knowledge and is measured by the
percentage of adults who are illiterate.
 The third deprivation relates to a decent standard of living. This is a
composite of three variables –
 The percentage of people with access to-
 A)Health services
 B)safe water
 C)the percentage of malnourished children under the age of five
For selected OECD countries a different
human index has been used-
 This includes four variables-
 1)Probability at birth not surviving till the age of 60.
 2)Percentage of adults lacking functional literacy.
 3)Percentage of people living below the poverty line US$ 11 a day (1994 PPP)
 4)Long term unemployment rate(12 months or more) or the determinant of
social exclusion.
2)Human Development Index for various
states in India
 The index of quality of life was constructed based on five indicators-
 1)Access to safe drinking water
 2)Electricity Connection
 3)Enjoyment of two square meals a day throughout the year
 4)Residence in pucca houses
 5)Availability of beds in public hospitals
 HDI data on the basis of these studies with minor variations reveals Kerala
,Maharashtra ,Punjab, Tamil Nadu and Haryana-five states at the top.
 At the bottom are five states which are Madhya Pradesh , Orissa ,Rajasthan
,Uttar Pradesh and Bihar showing poor HDI values.
 In the middle range of HDI are five states which include-Gujarat
Karnataka,West Bengal ,Andhra Pradesh and Assam.
3)National Human Development Report

 NHDR has drawn the following conclusions from the data for HDI for the last
two decades-
 1)HDI varies between .790 for Kerala and .362 for Orissa in 2008 while Kerala
can be ranked as a medium HDI state ,Orissa and Bihar represent a dismal
value of HDI even among low HDI states.
 2)Among the better-off states ,Punjab,Tamil Nadu,Maharashtra
,Haryana,Gujarat etc had a HDI value of above .50.
 At the other end Uttar Pradesh,Madhya Pradesh,Bihar,Orissa, etc had values
less than .40.
 3)By and large ,the states maintained their relative positions between 1981
and 2008 with a few exceptions-
 A)Tamil Nadu improved its ranking by 3 positions from 7 to 4.
 B)However the position of Orissa deteriorated from 11 to 15.
 C)Bihar,Uttar Pradesh and Madhya Pradesh continued to be tail enders in HDI
case.
 4)The economically better off states are also the ones with relatively better
performance on the HDI.
 5)Inequality across states on the HDI is less than the income inequality as
captured in the state domestic product .
 The ratio between the maximum and minimum per capita NSDP for 2007-08
works out to be 4.60 but between maximum and minimum HDI is 2.18.
 This only underlines the fact that enough economic attainment represented
by per capita expenditure is an important variable,yet states can achieve
other attainments in terms of longevity and education by putting forth
effective policies in these areas.
4)Progress of Human Development in
India
 The basic purpose of planning is to widen people’s choices and improve the
well being of the people.
 In this context human development was the key issue so that people could
lead a long and a healthy life,they could acquire knowledge so as to have
better vertical mobility in life and last but not the least to achieve a decent
standard of living.
 It would therefore be appropriate to measure the progress of human
development in India.
Health Indicators

 The survival rate has considerably improved in India.In 1970,infant mortality

rate per 1000 live births was 127,it has been brought down to 53 in
2007.These are healthy developments.
 Likewise maternal mortality rate per 1,00,000 live births have been brought
down to 254 during 1985-2007.
 Control of diseases and improvement in hospital facilities has contributed to
improvements in survival rate.
Gender Related Development Indicators

 Although the gap between life expectancy of females and males is very
small,but in other gender related development indicators ,this gap is very
wide.
 Either females suffered from gender discrimination in wage income or they
did not have regular employment and a big proportion was employed as
casual labourers or a large proportion of females worked part time.
 There may be many more factors but it cannot be denied that females
suffered gender bias both in education and employment .
Economic Indicators

 Although India has shown a better record in improving its literacy rate and
gross enrolment ratio yet it lags behind considerably even with reference to
medium human development countries.
 Health Indicators reveal a continuous improvement in life expectancy, infant
mortality rate though our achievement is not commensurate enough.
 Gender related development indicators revealed the gap between male and
female in adult literacy, gross enrolment ratio and earned income was too
wide as indicated the existence of a strong gender bias.
 On the other hand India shows a moderate degree of inequality in of income
and consumption.
5)Directions of Policy

 In India we have seen striking contrasts between states-

 1)Higher human development with lower income-Kerala
 2)Lower human development at higher income-Haryana
 3)Fast economic growth and slow human development-Rajasthan
 4)Mutually reinforcing growth and human development-Punjab,Gujarat,Tamil
Nadu,Maharashtra and West Bengal
 5)Mutually depressing growth and human development –Madhya Pradesh
,Uttar Pradesh, Orissa and Bihar
 The growth process should promote equitable growth with greater people’s
participation.
 This would require huge investments in the social sector which are health and
education so that a better equipped labour force improves productivity.
 In other words there is no conflict between rapid economic growth and rapid
human development ,both are mutually reinforcing and unless India brings a
balance between the two ,the goals of equity, democracy and development
will not be achieved.
 OCCUPATIONAL STRUCTURE
AND ECONOMIC DEVELOPMENT
1)Economic Development and
Occupational Structure
 Broadly, we divide occupations into three types agriculture , animal
husbandry , forestry , fishery , etc. , are collectively known as "primary "
activities or industries.
 They are primary because their products are essential or vital for human
existence . They are carried on with the help of nature .
 Manufacturing industries , both small and large scale , are known as
"secondary " activities . Mining is sometimes included under secondary
activities , but properly speaking , it is a primary activity .
 Transport , communications , banking and finance and services are "tertiary "
activities which help the primary and secondary activities in the country . The
occupational structure of a country refers to the distribution or division of its
population according to different occupation.
 Higher per capita income is inversely correlated with the proportion of active
population engaged in agriculture .
 The advanced countries like the U.S.A. , the U.K. , Germany and Japan with a low
proportion of active population dependent on agriculture reveal a higher per
capita income .
 As against them , an underdeveloped country like India with a higher proportion of
active population engaged in agriculture has very low per capita income .
 Secondly , as the level of per capita income improves over the years the
proportion of labour force dependent on agriculture declines but that on industry
and services increases. These figures support Colin Clark's thesis that with greater
economic development and rise in national and per capita incomes , there is a
shift in occupational pattern from primary to secondary and tertiary sectors.
2)Historical Experience of Structural
change in developed economies
 Structural changes take place in economies as the process of economic
development proceeds further and gathers momentum .
 These structural changes result in changes in the proportion of national
product and of the labour force .
 The most common pattern of structural change follows a sequence of a shift
of labour force from agriculture to industry and then to services.
 These structural changes are observed both in the relative shares of national
product and in labour force .
 According to economists like Colin Clark ,A G B Fisher , the basic argument in
support of structural changes in national product is that as income level
increase , the proportion of income spent on food show a decline and that on
non-food items (or manufactures) shows a relatively higher increase .
 At still higher level of income , there is a high proportion of income spent on
services.
 In other words , low income elasticity of demand for agricultural products,
tends to shift the pattern of production in favour of manufactures which have
high income elasticity of demand .
 According to Fisher , there is a saturation level for the demand for
manufactures. Clark argued that demand for manufactured goods saturates,
setting at around 20 to 25 per cent , and , with continuing fall in the demand
for agricultural products there is an increase in the demand of services.
 Shift in demand pattern is the result of differences in elasticity of demand.
Shift in the pattern and demand does impact on transfer of labour force from
agriculture to industry and subsequently to services.
 However certain economists argued that employment or shift in labour force
is not because of change in final demand but because of the change in
productivity growth.
 Increasing share of labour force employed in services has however been
attributed by most economists to low productivity in services as compared to
manufacturing.
3)GDP and Employment shares in
selected developing countries
 A very striking feature of output pattern is that an increase in GDP per capita
(PPP) , the share of agriculture showed a very strong inverse correlation , but
this was not observed in the GDP share of industry and services.
 This implies that with an improvement in GDP (PPP) , the share of industry
and services depended on other factors and policies pursued by a country .
 For instance , China has increased its share of industry to a level of 46
percent and is described as the 'Manufacturing Hub 'of the world' , while India
seems to have speacialised in IT Sector and thus has become a 'BPO Centre ' of
the world , resulting in a sharp increase in the share of the service sector.
4)Changing profile of GDP and
Employment in India
 Changing profile of GDP in India during 1950-51 to 2001-02 over a period of
51 years .
 The data reveal that GDP from the primary sector (viz. , agriculture and
allied entities like forestry and fishing) decline and from 59 per cent in 1950-
51 to 46 per cent in 1970-71 and thereafter , sharply declined to 16. 1
percent in 2011-12 .
 This was partially neutralized by an increase in the share of the secondary
sector from 13 per cent in 1950-51 to about 2 2 per cent in 1970-71 and
further increase to about 24. 3 per cent in 2011-12 . But the biggest hike in
GDP share occurred in case of services from about 27 per cent in 1950-51 to
32 percent in 1970 and 59 percent in 2011-2012.
 The emerging structural change in GDP shares witnessed a big decline in the share of
agriculture , coupled with a modest increase in the share of industry and a much sharper
increase in the share of services which now account for nearly half of the total GDP .
 The upshot of this analysis is that whereas GDP share of agriculture declined sharply , the
corresponding decline in employment share did not take place in India .
 Meanwhile , GDP share of industry registered an increase of 5 per cent during the last four
decades (1970-71 to 2009-10) .
 But the corresponding increase in employment share was only 6 percent during the same
period .
 This only indicates that the process of industrialization failed to absorb excess labour in
agriculture in the expansion of industry . Thirdly , share of services in GDP increased sharply
to about 57 per cent , but they also failed to register a sharp increase in employment which
was barely 15 per cent as against an 25 percent increase in GDP during 1970-71 and 2009-10.
 From this it follows that Indian did not experience sequence in the growth of
GDP and employment in industry during the process of industrialization , but
skipped to post-industrialization phase of increasing its share of GDP as well
as employment in services though a relatively smaller increase in employment
in the service sector took place. We may to wait for some more time so that
secondary and sector are able to absorb more labour force in tune with their
rising share in GDP .
5)GDP Employment and productivity per
worker in India
 Technological changes during the last few decades have induced an increase
in demand for services even at relatively lower levels of per capita income.
 Moreover, development of communication technologies and reduction of the
barriers to commodity flows and movement of people, specially skilled
persons due to the impact of globalisation, have produced demonstration
effects resulting in shifting the pattern of demand in developing countries in
favour of those prevailing in developed countries much earlier than the
historical experience would justify.
 As consequences, both the production and consumption of services have
shown a quantum jump.
 Unfortunately, the pattern of production of services which is capital
intensive, has failed to bring about a significant proportion of the workforce
to services even.
 In an overview, pattern of GDP growth did not bring about a shift in
employment pattern to either manufacturing or service sector.
6)Relative shift in the shares of NSDP and
employment in agriculture ,industry and
services in different states
 It is expected that states with higher per capita NSDP should be able to
reduce their share of NSDP in agriculture and consequently raise their share in
industry if they were passing through the phase of industrialisation.
 This should also help transfer labour force from agriculture to industry.
However if the state has switched over to the post industrialisation service
economy before completing the process of industrialization,then a large share
of GDP should be derived from the service sector and a large portion of
labour should be absorbed in the service sector.
 The survey of NSDP and employment shares in various states reveals a wide
disparity.
 In Punjab and Haryana,the high share of NSDP from agriculture was the result
of high productivity in agriculture with a small reduction of employment share
in the agriculture.
 However the relatively high shares of NSDP in agriculture in poor states like
Andhra Pradesh,Madhya Pradesh ,Bihar were due to backwardness of
agriculture ,low levels of development in industry and services but these
states have a very high proportion of workforce dependent on
agriculture,which are very small proportions drawing their livelihood from
industry and services.
7)Workforce participation rates in India

 Labour , being a primary factor of production , the size of labour force is of

great importance for the level of economic activity in a country .
 In the determination of the size of the labour force , it is customary to
exclude children below the age of 15 and old people above the age of 60 ,
though in India , poverty forces people belonging to these groups also to work
for bare subsistence .
 The work force participation rate in a country , i.e. , proportion of working
population to total population , depends upon such factors as age and sex
composition , attitude to work , availability of work etc .
 All these factors differ in different countries and may differ even within the
same country in different periods. In advanced countries like England , Japan
and others, work participation rate often ranges between 45 t o 50 percent ,
while in India it has been around 33 percent.
Work Participation rate according to
2001 census
 1)The total work participation rate has shown an increasing trend from 1981
onwards. WPR 36.7 percent in 1981,it improved to 37.7 percent and further
to 39.2 percent in 2001.
 2)Increase in WPR is more perceptible in rural areas than urban areas.
 3)In case of males,WPR in rural areas was 52.4 percent in 2001 which was also
the level attained in 1991,however there is a slight improvement in WPR in
Urban areas in the WPR rising to 50.9 percent in 2001 as against 49 percent in
1991.
 4)The work participation rate for females in rural areas has increased from
27.2 percent in 1991 to 31 percent in 2001 and increase by 3.8 percent ,but in
the case of urban areas ,WPR has increased from 9.7 percent in 1991 to 11.6
percent in 2001,an increase by merely 1.9 percent.
 5)Out of a total population of 1025 million 402.5 million persons million
workers,of these 275.5 million were males and 127 million were females.
 6)Out of the total rural population of 740.2 million,workers accounted for
about 310.6 million with 199.2 million being males and 111.5 million being
feamles.
 7)In the urban population,out of a total of 285 million,91.9 million persons
constituted the urban workforce.Among these,76.3 million were males and
15.6 million were females.
 From the census data ,it emerges that the rural women are more burdened,
not only they participate in large numbers in economic activity ,they have to
return home from that activity to undertake domestic work like cooking,
cleaning ,tending of cattle, not to mention child bearing and child rearing.
 Natural Resources, Economic
Development and Environmental
Degradation
1)Natural Resources in the process of
Economic Development
 Natural resources include land , water resources , fisheries , mineral
resources , forests , marine resources , climate , rainfall and topography .
Some of these resources are known to man .
 For example , the topography of a region , the size of land surface , the
climate , the area under forests , and the discovered mines form a part of the
natural wealth about which the people of a country possess knowledge .
 But nature possesses more in its bosom and in order to discover what it hides
, man is required to develop techniques of knowing the undiscovered
resources .
 Sometimes the discovery of a resource can immediately increase its use-value
.
 Monazite sand deposits on the beaches of Kerala and Tamil Nadu had been
known for several decades , but recent advances in the science of nuclear
energy have made these resources most valuable and the new use has earned
the title of 'rare earths ' for these sands .
 In short , when we talk about the natural resources of a country , we have
obviously in mind the extent of the known or discovered natural resources
with their present uses . With the growth of the knowledge about the
unknown resources and their use , the natural endowment of a country is
materially altered .
2)Land Resources

 Barren land -
 42 million hectares or 14 per cent of the total reporting area in India are
classified as :
 ( a ) barren land , such as mountains , deserts , etc ,which cannot be brought
under cultivation , and
 ( b ) are under non-agricultural uses , that is , land occupied by buildings ,
roads and railways , rivers and canals , and other lands put to use other than
agricultural .
 Presently , 14 per cent of the total reporting area is not available for
cultivation .
 With rapid increase in population and growing urbanization , this percentage
would increase over the year.
Area under forests

 69 million hectares of land or 23 per cent of the total land area is under
forests .
 Area under forests includes all land classified as forests by law or
administered as forests , whether state-owned or private , and whether
wooded or maintained as potential forest land.
Pastures and grazing lands

 Permanent pastures and other grazing lands include all grazing land such as
permanent pastures and meadows and village common grazing land .
 1 1 million hectares or 3 per cent of the total land area—are classified as
permanent pastures .
Cultivable waste land

 Culturable waste lands , viz. , lands available for cultivation but not
cultivated during the previous 5 or more years .
 They include land under miscellaneous tree crops such as casuarina trees ,
thatching grasses , bamboo bushes and other groves for fuel , etc .
 These lands may either be fallow or covered with shrubs and jungles which
are not put to any use .
 Such lands are called culturable waste lands they account for 18 million
hectares or 6 per cent of total land area.
Fallow Lands

 These are cultivable but remain uncultivated or remain fallow during a given
year or some period .
 Fallow lands are further classified in current fallows and other fallow lands .
 Current fallow represent cropped areas which are kept fallow during the
current year , as , for example , the seeding area may not be cropped in the
same year .
 Other fallow land may include all lands which are taken up for cultivation
and are temporarily out of cultivation for a period not than one year and not
more than five years .
 The reasons for keeping such lands fallow may be due to : unremunerative
nature of farming , poverty of the cultivation inadequate supply of water ,
silting of canals and rivers etc .
Agricultural Land

 Net area sown includes the total area sown with crops and orchards , counting
area sown more than once in the same year , only once .
 Area sown more than once represents the area on which crops are cultivated
more than once during the agricultural year .
 Total cropped area represents total area covered with crops and it is the sum
total of all the covered by all the individual crops ; are a sown with more than
once during the year being counted as separate area for each crop.
Problem of Increasing cultivable area

 A)Converting grazing lands and forest lands into crop lands

 b)Bringing cultivable wastelands under the plough and
 C) shifting the cropping pattern in such a way as to divert land under fodder
crops to food crops .
 Agricultural scientists have always confident and optimistic that India can
meet the challenge , as it has vast land , water and sunlight resources.
 Most of our land , however , remains underutilised : unirrigated , single
resources cropped and low-yielding , possibility of increasing the country' s
irrigated area is vast and increased production is possible through l e
cropping .
 Between 1951 and 2000 , area sown than once had increased from 13 million
hectares 49 million hectares .
 There is thus vast scope for double cropping in India.
Vohra’s Thesis: Reduce Net Sown Area

 B.B . Vohra of the National Commission of Environmental Planning , had

pleaded a reduction of the cultivated area from the present -142 million
hectares to around 100 million hectares.
 In his Sardar Patel Memorial Lecture , in 1980 , argued that 10 0 million
hectares of good agricultural land could yield upwards of 300 million tonnes
of food grains per year which could maintain a population of 10 0 0 million or
more in reasonable comfort .
 There is , good case for Vohra' s proposition on the score of economic
efficiency in cultivation , provided of small and marginal farmers could be
profitably employed elsewhere .
 Critics , however , easily brush aside this thesis as unrealistic and
unpracticable , on the ground that only marginal and small farmers would lose
land and would be forced to become landless labourers.
3)Forest Resources

 Area Under Forests-

 The assessments since 1987 show clearly that the forest cover in India has
stabilised around 19 per cent of the total geographical area (i.e . around 64
million hectares) .
 The State of Forest Report 2003 of Forest Survey of India indicates the tree
cover over 67. 8 million hectares i.e . 20. 6 per cent of the land area .
 Actually , however , only about 3 8 million hectares are dense forests (i.e .
12 per cent ) and the rest are open forests or degraded forests (about 7 pe r
cent ) and mangroves.
 Despite their potentiality to reduce poverty and contribute to economic
growth of India and their significant contribution to local and global
environment , forest resources are not given the importance due to them .
 There is concentration of forests in a few states like Assam , Madhya Pradesh ,
Orissa and a few Union territories . Northern India is particularly deficient in
forests . There is a need to increase forest cover in the entire country as also
to develop them in deficient states.
Plan Outlays on Forests

 During the first Five-Year Plans , the expenditure of forest development has
been in the range of 0. 5 per cent to 0. 6 per cent of the total Plan
expenditure .
 The Sixth Plan outlay on forests was 69 0 crores , which was 40 percent more
than what was spent in the previous five plans Rs 480 crores ; but in
percentage terms , the Sixth Plan outlay was less than 0. 6 percent of the
total Plan outlay .
 During the successive Plans also there was been an increase in plan outlay on
forests , but in relative terms it was more or less insignificant.
Forest Policy,1952

 The target was to provide green cover over two - thirds of the land area in
the hills and mountains .
 To achieve this goal , it was necessary to secure the long - range development
of forest resources on the one hand , and to meet the increasing demand for
timber and firewood on the other . The main objectives of forest policy under
the Five-Year Plans were -
 i)to increase the productivity of forests ,
 (ii ) to link up forest-development with various forest-based industries ;
 (iii ) to develop forests as a support to rural economy. Keeping the broad
guidelines efforts were directed in the following specific areas-
1)Afforestation Measures

 To meet the deficiency of supply of wood in view of the growing demand ,

three important schemes were undertaken :
 1) Plantation of quick growing species ;
 (ii ) Plantation economic species (teak , sisso and seamal , etc.) ;
 Plantations to be raised under the scheme of rehabilitation of degraded
forests . There were various afforestation schemes under state plans and a
total area of about 4. 5 million hectares were brought under man-made
plantations between 1951and 1991.
2)Social Forestry

 The Government of India accepted the recommendation of the National

Commission on Agriculture (1976 ) and agreed to set up social forestry
projects on non-forest lands , public lands and on village commons , in order ,
 ( i ) to increase green coverage ,
 (ii ) to produce and supply firewood , fodder small timber and minor forest
produce to the rural population , specially to the landless and other weaker
sections ,
 (iii ) to produce raw materials for paper , rayon and match industries ,
 (iv ) to meet the fuelwood requirements of urban poor , and
 ( v ) to create more employment in rural area through afforestation . There
were three components in social forestry programmes , viz
 ( a ) farm forestry : Farmers were encouraged to plant trees on their own
farms with free or subsidised seedlings supplied by the forest department ;
 ( b ) public woodlots : The forest department undertook the planting of fast
growing trees along roadside , canal banks and other such public lands for
needs of the community ; and
 ( c ) community woodlots : Trees were planted by the communities
themselves on community lands to share be shared equally by all the villagers
. This was the self financing component of the social forestry programme.
3)Promotion of methods for increased
production
 In order to improve utilisation of forest resources , modern tools and
equipment's tested in advanced countries were used increasingly . Such a step
is bound to be more useful in the hilly areas . Forests at high altitudes
generally remained unexploited , due to unaccessibility.
4)Forest Development Corporations

 To attract institutional finance for forestry development , autonomous Forest

Development Corporations have been set up in various states and Union
Territories. Their main functions are : raising new plantations , developing
infrastructure to exploit forest resources through large scale investment in
economically viable projects, logging and marketing timber and minor forest
produce and so on.
Evaluation of 1952 Forest Policy

 1)Massive Deforestation-
 Massive deforestation began with the indiscriminate cutting down of vast
tracts of trees beginning with those near to the villages from which the
villagers traditionally got more than 50 per cent of their food and met their
fodder and fuel requirements .
 With the cutting down of trees by industry began the vicious circle of people's
impoverishment , indebtedness , land alienation to the moneylenders and
consequent dependence of the landless poor on the cutting and sale of
firewood for their very survival . Because of industrial and revenue
orientation and , notoriously corrupt forest officials , the pace of
deforestation has intensified after Independence .
 ( a ) between 1854 and 1952-that it is,roughly 100 years before Independence
- tree cover had come down from an estimated 40 per cent to 22 per cent of
the land area . The annual rate of decline was about 0. 2 per cent ;
 ( b ) on the other hand , between 1952 and 1988 , i.e. , in a short period of
36 years , however , tree cover had come down from 2 2 per cent to 1 2 per
cent of the total land area i.e. , at the annual rate of decline of 0. 4 per cent
 The devastation caused to the Indian economy by continued and excessive
deforestation is indeed enormous .
 Deforestation is directly responsible for greater frequency and intensity of
floods , soil erosion , heavy siltation of dams built at enormous expense and
changes in climatic conditions .
 It has also caused increased suffering to the landless labourers and marginal
and small farmers who have steadily loss to their traditional sources of fuel
wood and fodder for their cattle .
 Loss of fuelwood , in turn , has led to the use of cowdung as fuel , resulting in
loss of precious organic manure .
 Continuing deforestation , therefore , has brought us face to face with a
major ecological and socio-economic crisis.
2)Social Forestry Programme, a disaster

 The social forestry has emerged as the most controversial initiative of the
Indian Government .
 The basic weaknesses of this programme are-
 The so-called spectacular success of social forestry is actually the success of
farm forestry undertaken specially by the large farmers and encouraged by
the supply of free or heavily subsidized seedlings by the Forest Department .
 Farm forestry has become extremely lucrative because of the heavy demand
for wooden poles , and for wood pulp needed by paper and rayon mills and for
firewood in urban areas .
 The richer farmers spontaneously responded to the commercial incentive of
rising wood prices and perceived that farming fast growing short rotation
trees as a cash crop could be profitable as farming some of the traditional
cash crops.
 (ii ) The social forestry programme has completely ignored the primary
objective of ensuring for all rural households and particularly the landless in
the rural areas ready access to fuelwood and fodder for domestic
consumption and , thereby
 (a ) reduce the amount of time women and children have to spend daily in
collecting fuelwood , and
 (b ) prevent the use of animal dung as fuel
 The social forestry programme has made no real attempt to involve the
landless in afforestation programmes . Properly planned and executed , 5 to
10 million landless families could be settled in these lands , making it the
country' s largest land reform programme .
 The social forestry programme could have become an anti-poverty and pro-
employment programme .
 Instead it actually aggravated unemployment in rural areas. For instance , a
study of the Kolar district in Karnataka estimated that for each hectare of
land shifted from foodcrops to eucalyptus , there was a loss of about 258
man days of employment per year.
 An important failing of social forest programme is the lack of involvement of
poor women who ought to be the main beneficiaries of the programme. It is
the women who collect fuel for family every day but the social forestry
programme ignored them altogether .
 The male orientation of social forestry projects has turned them into cash
generating rather than basic needs generating exercise.
 Thus , the social forestry programmes which with the professed aim of
meeting the dire fuel and fodder needs of the poor have become schemes of
subsidies to support lucrative tree farming by the rich and affluent farmers .
 The forest dwellers and poor are forced to depend on the sale of fire wood
and fall deeper into the clutches of moneylenders .
 Small with unirrigated lands have not taken advantage of subsidised seedlings
.
National Forest Policy,1988

 1 . Role of tribals in forests recognised .-

 The new forest policy removes many anti-people statements of earlier
documents and recognises the symbiotic relationship between the tribal
people and forests .
 It seeks to ensure that communities living within around forest areas ,
specially the tribals should be to get their domestic requirement of fuelwood
, fodder, minor forest produce and construction timber forests .
 The new policy enunciates that all agencies responsible for forest
management , including development corporations should associate tribal
people closely in the protection, regeneration and development of forests.
2)Depletion of Forest Area and the
target for green cover
 The new forest policy assumes that forests have been depleted owing to fuel
, fodder and timber and transfer of land for non-forest uses and for revenue .
 It clearly recognizes the failure of the state to preserve forests and control
timber smugglers and contractors .
 The new policy reiterates that the green cover should be extended to two-
thirds of the land area in the hills and mountains and that the total forest
area in the country should be raised to 100 million hectares or 33 per cent of
the total geographical area in the country .
3)Discouragement to forest based
industries
 The new forest policy asserts that forest-based industries will , no longer , be
allowed to plunder the country' s forests .
 The practice of supplying forest produce to industry at concessional rates
would cease forthwith .
 The new policy , states categorically that forest land will not be made
available for lease to industry .
 The wood based industries are now advised to motivate farmers to grow trees
by supplying them with seedlings , credit , technical advice and other
measures .
4)End the system of private forest
contractors
 The new forest policy advocates an end to the system of contractors working
the forests .
 The contractors will be replaced by institutions such as tribal cooperatives ,
government corporations , etc .
 It is a well-known fact that private contractors have exploited ruthlessly the
simple and ignorant forest-dwellers .
 But the tribal development co-operatives and other official agencies had also
failed miserably and have become sources of exploitation .
 Even then , the new forest policy advocates the distribution of minor forest
produce through state-run depots.
5)Forest land not to be diverted to non
forest uses
 The forest department used to assign forest land to individuals or non-
government agencies for the purpose of reforestation .
 But it is a cognizable offence to put forest land into "non-forest uses " which
have been defined as "cultivation of tea , coffee , spices , rubber , palms ,
oil-bearing plants , horticultural crops or medicinal plants.
 The Government has generally suggested alternatives to industrial timber ,
railway sleepers and fuelwood .
 The new policy also suggests that India should import timber from other
countries.
Natural Resources, Economic
Development and
Environmental degradation
6)Mineral Resources and Mineral Policy

 The reserves of coal and iron so essential for basic industries viz. , are ample
. But there is a fairly long list of vital minerals like copper , tin , lead , nickel
, cobalt and sulphur and most of all petroleum , in which India is deficient .
Trends in mineral production

 On account of the efforts of the Indian Government , there has been

significant improvement in production of minerals both in volume and value.
 The value of mineral production has improved about Rs 5 8 crores in 1947 to
Rs 55,36 0 crores in 2 0 0 1 (consisting of R s 30,00 0 crores of minerals and Rs
25,36 0 crores of crude petroleum and natural gas production) .
 It would be useful to discuss briefly a few major minerals.
Coal

 The main problem with coal which is an important source of energy is that
two-thirds of India’s coal resources lie too deep and their extraction is always
profitable under present technological conditions .
 Despite heavy investments made in mechanisation of underground mines ,
productivity is low and has stagnated for many decades.
 With the sharp rise in oil prices since 1970's , recognised that the prime
source of energy in India will have to be coal for some decades .
 Reorganisation of old mines , introduction of new and techniques in the
development of new mines and standardisation of plant and equipment are
some of the steps adopted by the government to increase coal production.
Oil and Natural gas

 In the beginning of 2001 , it was estimated that India had reserves of 734
million tonnes of oil crude and 750 billion cubic meters (BCM ) of natural gas .
 The great stimulus to industrial development and the general intensification
of the country' s economic activities since Independence led to a rapid growth
in consumption of petroleum products , which rose 33 million tonnes in 1950-
51 to 138. 2 million to 148 million tonnes in 2011-12.
Oil Crude

 At the beginning of the First Plan , the production of indigenous crude oil was
insignificant , at 0. 3 tonnes .
 The Government went in a big way for oil exploration through the Oil and
Natural Gas (ONGC ) and Oil India Limited (OIL) .
 The discovery of oil reserves on and offshore led to increase in the indigenous
production of oil crude , rose smartly to nearly 7 million tonnes in 1970-71 ,
and to 33 tonnes by 1990-91 .
 Since then , domestic production of oil crude has been stagnant around 32 to
34 tonnes .
 Due to stagnant production of oil crude country , gross import of crude oil
went up from 21 million tonnes in 1900-91to 171.7 million tonnes in 2011-
2012.
Petroleum Products

 Rapid industrialisation and consequent growth of the transport system , the

demand for crude oil and consumption of petroleum products rose rapidly since
Independence .
 For instance , consumption of petroleum products (naphtha , kerosene , high
speed diesel oil , petrol and fuel oils ) rose from 3. 3 million in 1950-51 to 138. 2
million tonnes in 2009-10 .
 Domestic production of petroleum products was insignificant in 1950-51 — just 0. 2
million tonnes .
 However , it rose smartly so as to match with total demand ; domestic production
of petroleum products was over 17 million tonnes in 1970-71 and touched 1 5 0
million tonnes in 2009-10 .
 The gap between demand and supply of petroleum products is normally met
through imports .
Iron Ore

 Explorations of iron ore have revealed the presence of the numerous and rich
deposits of iron in Bihar , Orissa and Madhya Pradesh .
 Low grade iron - ores were also found in Tamil Nadu , Maharashtra and
Andhra Pradesh .
 The total reserves of iron have now been estimated to be of the order of
21,00 0 million tonnes .
 The Indian iron and steel industry is fortunate in the sense that it possesses
high quality iron ores and at low cost .
 India is today one of the cheapest producers of steel in the world.
Mineral Development and the Plans

 The First Plan proposed to spend Rs 2. 5 crores for the exploration of minerals .
 The Geological Survey of India and the Indian Bureau of Mines made extensive
surveys relating to the location of mineral deposits .
 The National Mineral Development Corporation Limited was set up in November ,
1958 , for the exploitation of minerals other than coal , oil and natural gas .
 From modest investments on mineral development successive five year plans
raised the outlay considerably .
 Between 50 to 60 per cent of the outlay is on the exploration and production of
petroleum crude .
 This is because of the paramount need to become self-sufficient in the production
of oil crude as soon as possible.
Mineral Policy before 1994

 The Mineral Policy of the Government of India since independence was based
on the Mines and Minerals (Regulation and Development ) Act , 1957 .
 This Act asserted :
 ( a ) the mineral wealth of the country was a natural resource , limited and
non-renewable ;
 ( b ) mineral resources were required for developmental and strategic needs
of the country ;
 ( c ) their exploitation should strike a balance between the immediate needs
of the present generation and those of the future generations ; and
 ( d ) exploitation of minerals should satisfy requirements of conservation and
environment
 The pre - 1994 mineral policy governing extraction and export was broadly
successful .
 The Government had kept a strict control over extraction and export in certain
cases , the Government had reserved for itself the exclusive ownership and
extraction .
 But this policy had to be reversed and a new liberal mineral policy had to be
introduced for two important reasons
 ( a ) Since 1991 , the Government had introduced new liberal economic policy in
industry , trade and finance . The management of mineral resources should be
closely integrated with the over-all strategy of industrial development .
 ( b ) Public sector' s exclusive ownership and exploitation of mineral wealth had
not generally promoted rapid industrial development nor had it encouraged export
of minerals adequately.
New Mineral Policy,1994

 1)To explore for identification of mineral wealth of the country and while
doing so, special attention will be given to the development of
 a)strategic minerals ,
 (b ) those minerals in which India was poor or just adequate resource base
and
 (c ) those minerals which are required for electronic and other high tech
industries.
2)To develop mineral resources taking into
account the National and Strategic
Consideration
 The strategy of development adopted by 1994 mineral policy would assure-
 A)Regular supply of mineral raw materials for industrial production
 B)exploration and supply should keep the present needs as well as future long
term needs of the country.
 C)Adoption of efficient measures of processing of minerals and effective
measures for conservation and
 D)adoption of scientific methods of exploration
3)To minimise adverse effects of mineral
development on forests ,environment and
ecology through appropriate protective
measures
 Such a plan should adequately provide for
 ( a ) controlling the environmental damage ,
 ( b ) restoration of mined areas , and
 ( c ) for planting of trees according to the prescribed norms .
 As far as possible , reclamation and afforestation should proceed
concurrently with mineral extraction .
 Efforts will be made to convert old disused mines into forests and other
appropriate forms of land use.
4)To promote foreign trade in minerals

 Minerals have been important source of foreign exchange earnings .

 The policy of export of minerals keeps in view :
 (a ) the mineral inventory position , and
 ( b ) long term needs of the country .
 As far as possible , efforts will be made to export mineral in value added
form.
5)To promote research and development
in minerals
 To promote research and development in minerals.
 The new mineral policy emphasizes the promotion of research and
development , technology upgradation , and research in mining methods.
Evaluation of 1994 mineral policy
 ( i ) The short-sighted greed for huge profits on the part of the private
companies can lead to serious damage to the long-term national interests of
the country .
 There is also the temptation and pressure to over-exploit and push up the
exports of the mineral resources to increase foreign exchange earnings .
 In this connection , the export policy for minerals must be made an integral
part of the industrial , trade and investment policy of the Government
whereby
 (a ) the foreign exchange earned through such exports is put to productive
use , and
 (b ) the countries importing minerals from India are encouraged to invest in
India to develop India's long term export capability .
 (ii ) The new liberal policy of exploitation of minerals is likely to have adverse
impact on the environment .
 The private sector is not bothered about the environmental angle .
 The Government of India must , therefore , watch carefully the role and
behaviour of the private sector — and also the public sector — mining
companies should be really concerned with the protection of the
environment.
Mineral Policy in the eleventh plan

 The eleventh plan proposes various measures to attract private investment

for exploration of mineral deposits and operation of mines.
 The plan takes concrete steps to remove procedural hassles and numerous
discretionary provisions in the laws and thus encourage prospective investors.
7)Economic Development and
Environmental Degradation
 At the same time , because of growing population and high degree of
mechanisation , mindless and ruthless exploitation of natural resources , we
have degraded our physical environment .
 By physical environment we mean the whole complex of climate , soil, water
and biotic factors on which we all subsist , and on which our entire
agricultural and industrial development depends .
 Rapid economic development is actually turning India into a vast wasteland .
Land degradation and soil erosion

 Soil erosion takes place when the surface soil is washed away through
excessive rains and floods .
 It occurs because of indiscriminate felling of trees and conversion of forests
into cultivated land , uncontrolled grazing by cattle and methods of
cultivation .
 The annual soil loss from erosion is tremendous and the consequences are
heavy siltation of the dams and reservoirs , stream and river beds reduces
their capacity to hold water and thus result in increasingly disastrous floods.
Problem of overgrazing and ecological
degradation
 The effects of haphazard grazing on the environment are alarming .
 Land degradation due to overgrazing has led to desert like conditions in many
parts of the country.
 Besides , depletion of vegetative cover , over - grazing is hardening the soil ,
preventing forest regeneration and causing soil erosion in many parts of the
country .
 In addition to ecological destruction , there is a growing hostility from
farmers against the graziers who are generally nomads .
 In fact , many nomadic groups have given up nomadism and have become
landless labourers.
 To stop ecological destruction caused by indiscriminate grazing , Indian
experts have been regularly recommending stall feeding .
 But the State Governments have ignored this recommendation and fodder
development is a low priority in the State Plans .
 Some form of co-ordinated development of fodder crops was undertaken only
from the 1970’s .
 The much publicised social forestry programmes which were to provide
fuelwood for the poor and fodder for their animals have hopelessly
deteriorated into supplying wood for the urban-based paper and rayon
industries .
 Almost nothing has been done about afforesting public lands with fodder
species and regenerating grasslands.
Deforestation and Land Degradation

 The progressive depletion of the country’s wealth is literally driving the

country towards an ecological collapse .
 Increasing floods , soil erosion , heavy siltation of dams constructed at
enormous cost , changes in the micro-climate—these are the dangerous
consequences of deforestation .
 Floods are becoming too frequent and their intensity and heavy damage to
life and property are increasing over the years .
 There is acute scarcity of fuelwood in the whole country and it is assuming
the proportions of a famine—fuelwood famine—in certain parts of the country.
Adverse environmental effects of faulty
utilisation of water resources
 1)Adverse environmental impact of big dams-
 These gigantic dams costing thousands of crores of rupees have caused
positive harm to people and to the environment .
 They display millions of innocent tribals , the poorest and the most powerless.
 They drown millions of hectares of forests .
 They have failed to prevent and control floods.
 Besides , heavy siltation of the reservoirs of major dams,reduces their
storage capacity and makes them incapable of absorbing heavy floods .
2)Evils of waterlogging

 Whenever drainage works are neglected while building roads , rail and canal
embankments , rain and flood water may be held up and land gets
waterlogged .
 Sometimes , unusual rains and floods in irrigated areas increase the supply of
of water so much that land remains under water periods .
 Over-irrigation is becoming a common practice in many areas and is another
reason for water logging .
3)Salinity

 The soil contains certain salts which are harmful for the plants .
 So long as these salts lie deep in the earth , there is no problem .
 But they are brought to the surface—known as salt effervescence —by the
seeping of the canal water into the lower layers thus forcing subsoil water to
come up.
 As the subsoil or ground water level rises , the salts of the earth come up to
the surface ruining crops and making cultivation impossible .
 The problem can be tackled best by lining canals and distributaries with
concrete to prevent water from seeping in .
 Pumping out sub - soil water by tubewells can also prevent it from coming up.
 A major portion of the salt-affected land s lies in fertile Indo-Gangetic plains
of Punjab , Haryana and U.P .
4)Destruction of Habitat

 Our water and energy planners and bureaucrats in their zeal and enthusiasm
,stress the benefits of canal irrigation and hydropower but completely ignore
the problem of human suffering involved in displacement and rehabilitation.
 Apart from the destruction of habitat ,large dams have resulted in the
decimation of millions of hectares of vital forests in the catchment areas
,increased soil erosion and landslides and consequently greater danger of
floods,dangers of earthquakes .
Natural Resources, Economic
Development and
Environmental Degradation
Environmental problems arising out of
mining
 Mining activity is a major cause of deforestation and soil erosion in certain
parts of the country.
 As mining activity is often carried out in forested regions , forests are cleared
and timber is cut and used for supporting the roof of mine galleries .
 Mining leases in India do not include provisions for conservation measures or
refilling the worked- over mines .
 Hence , a large number of abandoned stone quarries and mines are lying in
bad shape and are under extensive gully erosion.
 Through water and air pollution , mining activity degrades the quality of life
of the people who live and work in the vicinity and is responsible for various
respiratory and other illnesses .
 The worst affected are the poor tribals whose lands and forests have been
extensively damaged and whose health ruined .
 The environmental damage of mining is increased manifold when mining
activity is accompanied by industrial activity.
Industrialisation and Atmospheric
Pollution
 The major environmental problems in the west are those arriving out of waste
disposal,that is problems of air and waste pollution and of disposal of highly
toxic ,industrial and nuclear wastes.
 In India as well as in the Third World countries with progressive rate of
industrialisation,the waste disposal problems are getting worse day by day.
 The harmful effects of fumes and odour , diminished visibility , injury health ,
crops and other vegetation and dam - property through dusts and corrosive
gases , chemical and fertiliser factories and those paper , leather , and other
goods do not treat their harmful effluents and wastes but discharge them
untreated into rivers , lakes and seas .
 Thus they pollute precious water resources and destroy fish recklessly.
Measures taken during the five year plan
to control pollution
 1)Air Pollution-To reduce vehicular emission,Central Pollution Control Board
has introduced emission standards for petrol and diesel driven vehicles.
 Guidelines have been issued for setting up of industries ,24 critically polluted
areas have been identified across the country and an action plan has been
devised for the control and of pollution in these areas.
2)Water Pollution

 The government has enacted

 A)Water Prevention and Control of pollution Act,1974 to lay down and
maintain specific standards for discharge of waste water ;
 ( b ) The Environment Protection Act , 1986 to empower the Central
Government to intervene directly to protect environment ; and
 ( c ) National Water Pollution Act , 1987 to provide priority to drinking water
and proper management of water resources .
3)Industrial and hazardous waste

 The government has made the following efforts-

 A)to make an inventory of hazardous wastes
 B)to arrange for training programmes to deal with hazardous wastes
management
 C)to prohibit import and export of hazardous wastes
4)Solid Waste

 Solid wastes in India has increased from 6 million tonnes in 1947 to 48 million
tonnes in 1997 and is expected to increase to 300 million tonnes by the
middle of this century .
 The Government set up a National Waste Management Council in 1990 to
suggest disposal of municipal waste .
 Accordingly , rules have been framed and are being implemented for the use
of recycled plastic , for energy recovery of urban wastes and for biomedical
waste management and handling .
5)Industrial and hazardous waste

 It includes sludge contaminated with heavy metals ,wastes from plants and
organic chemical units and highly acidic and alkaline wastes .
 The relatively more industrialised states are Gujarat , Maharashtra , Tamil
Nadu and Andhra Pradesh face problems relating to toxic and hazardous
states.
 The major hazardous waste generating industries are petroleum and
petrochemicals , pharmaceuticals , pesticides , paints and dyes , fertilisers ,
inorganic chemicals , etc .
 Some of these hazardous wastes lead to ground water contamination .
Bio Diversity

 A series of steps have been taken to protect and conserve biodiversity .

 These include :
 ( a ) establishment of 8 8 national parks and 490 wild life sanctuaries ;
 ( b ) the setting up Indian coral reef monitoring work for the conservation
and management of mangroves and coral reefs ;
 ( c ) declaration of five sites as world heritage sites ;
 D)project tiger reserves and project elephants have been set up to ensure
long time survival of tigers and elephants in their natural habitats ;
Need to change development strategy

 While economic development has enriched small group of people — namely , the
rich landlord in the villages , the small and large industrialists , contractors , the
smugglers , the bureaucrats and politicians—environmental degradation which is
direct result of this economic development has led tremendous suffering and
misery to millions of farm " tribals , nomads and traditional craftsmen and
fisherfolk.
 It has been responsible for the steady growth in the number of landless labourers
and squalor-strick migrants to cities .
 The continuous influx of millions of rural people to the cities and towns are indeed
"ecology refugees " displaced by dams , destruction of forests , victims of floods
and droughts , and so on .
 The destruction of environment has imposed the heavier burden on women from
poor , landless , small and marginal farm families , forcing them to spend 5 to10
hours a day foraging for fuel , fodder and water addition to household work ,
agricultural work and caring for animals .
8)Global Climate and Change in India
 Increasing pollution levels are causing global warming due to the Green House Effect
(GHE) .
 The outer atmosphere of the earth has several gases , which are critical for life on
earth as they keep some of the warmth from reflecting back into space and without
them the world , would be a cold and barren to live .
 The "Green House Effect " refers to the regulating effect that such atmospheric gases
have on the earth .
 The temperature regulating called green house gases , which form a blanket : earth ,
keeping some heat from the sun within atmospheric orbit and thus keeping the planet
habitable .
 Six types of gases have been as 'Green House Gases’ ,
 1) Carbon dioxide (C02) .
 12)Methane (CH4)
 3) Nitrous oxide (N20) .
 4 )Hydro fluorocarbons (HFC's) ,
 5)Hydro fluorocarbons (PFC 's) .
UN Initiative, Kyoto Protocol and Bali
Convention
 U N took the initiative and made efforts towards coping with rising global
temperatures and hazardous effects of global warming , in the form of Inter -
Governmental Panel on climate Change (IPCC ) which gave its assessment
report in 1990 .
 The United Nations Framework Convention on Climate Change (UNFCCC )
took effect in 1994 and after a series of meetings and discussions an
International Treaty was adopted at the Kyoto Summit in 1997 , an
International agreement linked to the existing treaty , but standing on its own
.
Instruments of Kyoto Protocol

 Though targets have been set for the member countries to reduce their
emissions levels , and these targets have also been stated as binding targets ,
ability has also been provided in the protocol itself .
Emissions Trading

 The potential sellers of the carbon credits are two kinds of entities .
 a)Entities that manage forest or agricultural land might sell carbon credits
based on accumulation of carbon in their forest trees or agricultural soils .
 B)Business entities that reduce their carbon emissions may be able to sell
their reductions to other emitters.
Indian Initiative

 Various measures relating to environment issues have been introduced . They

include the following :
 A) Significant increase in the capacity of renewable energy installations .
 B)Improving the air quality in major cities by encouraging use of compressed
natural gas (CNG) .
 C)For instance the World' s largest fleet of vehicles fuelled by compressed
natural gas has been introduced in Delhi .
 D)Introduction of improved norms about vehicular pollution levels .
 E)Encouragement to afforestation.
Kyoto Protocol Bali,Copanhagen and
Cancun Conventions
 Before this convention US and its allies have toughened their stand and efforts are being
made to compel India , China and Brazil to reduce their emissions .
 Apart from this U S has changed its law , forbidding U S companies to sell green technology
to developing countries like China , India and Brazil .
 Copenhagen was unable to achieve any concrete results , except a last minute accord
reached between United States on the one had and China , India , South Africa and Brazil on
the other .
 This at best could be called a United position of these countries and does not talk of
successor of Kyoto protocol which ends in 2012 .
 Another such convention held at Cancun in 2010 also could not produce tangible results .
 In other words we can say that there is a total lack of consensus and how to save our earth .
 However there is also a hope that a holistic view would emerge on the issue of climate
change.
Objectives and Strategy
of Economic Planning in
India
NEWS!!
Development strategy and employment
objective
 The Mahalanobis strategy of planning was essentially to achieve the objective of self-
sustained long-term growth via investment in the heavy sector.
 For "rapid industrialisation and diversification of the economy" , the Mahalanobis strategy
considered the development of "basic industries and industries which make machines to
make machines needed for further development as the crucial element.
 This strategy naturally came in conflict with the employment objective of our plans.
 For , a fast an d self-sustained economic growth could be ushered in only through
emphasis on capital-intensive production , namely , "by building of economic and social
overheads , exploration and development of minerals and promotion of basic industries
like steel , machine building , coal and heavy electricals" .
Strategy to achieve social objectives-
Use to fiscal policy
 To be an important means for ensuring greater equality of opportunity to different sections of
the population .
 Public expenditure on public health and sanitation , housing , etc . was used to achieve " a
measure of redistribution in the consumption of basic necessities such as health and medical
care , sanitation , water supply and cheap housing .
 Tribals , Dalits and other backward classes were to receive favoured treatment under special
programmes.
 " Apart from the use of fiscal policy , the planners did not adopt any measures for direct
redistribution of property and wealth to achieve reduction of disparities of income and wealth
and to prevent concentration of economic power .
 The only exception was the half-hearted attempts at land reforms and ceiling on land holdings
in rural area.
Appraisal of the heavy industries
development strategy
 The heavy industries strategy was hailed during the Second and Third Plans but came in for
considerable criticism later.
 It was commended for the smart rise in saving and investment rates in the country , for the
impressive development of economic infrastructure specially in irrigation , energy ,
transport and communication , etc. , considerable expansion in the capital goods sector via
the dominant role of the public sector , self-sufficiency in consumer goods and in basic
commodities , diversification and expansion of industrial capacity and impressive growth of
science and technology .
5)Models of Economic Development
:Nehru vs Gandhi
 The strategy , therefore emphasised
 ( a ) a high rate of saving so as to boost investment to a higher level ,
 ( b ) it preferred a heavy industry bias to develop the industrial base of the
economy ,
 ( c ) it opted for the protectionist paths so as to safeguard infant industry ,
 ( d ) it encouraged import-substitution so as to achieve self-reliance , and
 ( e ) it aimed at enlargement of opportunities for less privileged sections of
the society.
 Nehru model of growth exhibited other weaknesses too .
 It failed to provide a national minimum level of living despite five plans.
 Nearly 40 per cent of the population lived below the poverty line .
 The number of unemployed and under-employed was quite high and was
increasing continuously .
 Inequalities of income and wealth had worsened and there was a growing
concentration of economic power in the hands of a few .
 Land reforms were not properly implemented , resulting in much
dissatisfaction in rural areas.
 It was in this context that the Janata Party in 1977 adopted Gandhian
Socialism as the main objective of development and the Janata Party's Sixth
Plan (1978-83 ) was broadly based on the Gandhian Model of economic
growth.
Gandhian Model of Growth

 The basic objective of the Gandhian model is to raise the material as well as the
cultural level of the Indian masses so as to provide a basic standard of life .
 It aims primarily at improving the economic conditions of the 5. 5 lakh villages of India
and therefore , lays the greatest emphasis on the scientific eevelopment of
agriculture and rapid growth of cottage and village industries.
Agriculture

 The Gandhian model aims at the reform of agriculture as the most important sector
in economic planning in India .
 The primary objective of agricultural development is national self-sufficiency in
foodstuffs and maximum regional self-sufficiency in food .
 This has to be achieved not only by larger and better inputs but also through land
reforms—change in the system of tenure , abolition of the proprietary rights on land
, consolidation of holdings , organisation of cooperative farms , etc .
 Money-lending should be abolished , and there should be increased credit facilities
for the farmers .
 The Gandhian mode lays special emphasis on dairy farming as an occupation and as
an auxiliary to agriculture.
Cottage and Village Industries

 Gandhi emphasized the conflict between village industries and capital-

intensive pattern of industrialisation based on high degree of urbanisation .
 E . Haribabu of the Indian Institute of Technology (Kanpur ) writes : "The twin
compulsions of reconstructing the economy and achieving rapid economic
development after Independence , prompted India' s rulers to adopt a model
of development based on the experience of the West : the implicit emphasis
on capital-intensive industrialisation and urbanisation .
Basic Industries

 A)Employment oriented planning to replace production oriented planning-

The basic premise here is that unemployment is our greatest enemy and that in
its solution lies the key to the problems of poverty and inequality .
It would , therefore , be advisable to replace production-oriented planning with
employment oriented planning .
This would necessitate demarcation of areas of high employment - potential
which also ensures high production and efficiency.
b)Agriculture and employment potential

 Agriculture offers great scope for enlarging employment in :

 (i ) agriculture including animal husbandry , compost-making , sanitation and
gobar gas;
 (ii ) rural works such as irrigation projects, soil conservation , land
reclamation , afforestation etc . and
 (iii ) rural or cottage industries
c)Large vs small industries

 No medium or large-scale enterprise shall be allowed to come into existence

in future which will produce goods or services that cottage or small-scale
enterprises can produce and no small scale industry shall be allowed to be
established which will produce goods or services that cottage enterprise can
produce.
d)Equitable Distribution

 The natural solution is decentralised small scale production—this will cut at

the very root of accumulation of wealth .
 And wherever large-scale production is inevitable (as in basic and key
industries) , it should be left to Government ownership and management .
 In the Gandhian model , the problem of distribution is tackled at the
production end and not at the consumption end.
Reconciliation of the Nehru and the
Gandhian Models-The only solution
 It is wrong to indict the Nehru - Mahalanobis model of growth on the ground that it
had neglected agriculture and the small sector and that this had resulted in all the
economic problems faced by the country , viz . inflationary rise in prices, acute
shortages of essential goods , industrial sickness , growing inequalities , mounting
poverty , etc .
 It would be wrong to ignore the development of heavy industry and put all the
emphasis on agriculture and the small - scale sector .
 Let us not forget that infrastructural investment is also needed for agricultural
development .
 In fact there is no conflict between the heavy industry and the agricultural sector in
the use of human and material resources .
 Both can be developed simultaneously .
6)LPG model of Globalisation

 Firstly , areas hitherto reserved for the public sector were opened to private
sector.
 The Government intended to transfer the loss-making units to the private sector,
but it failed because there were no takers for them .
 Secondly , by permitting the private sector to set up industrial units without taking
a licence , the Government removed certain shackles which were holding back or
delaying the process of private investment .
 Thirdly , by abolishing the threshold limit of assets in respect of MRTP companies
and dominant undertakings , the Government freed the business houses to
undertake investment without any ceiling being prescribed by the MRTP
Commission .
 Obviously , considerations of promoting growth were more dominant with the
Government and such issues as concentration of economic power were assigned a
back seat.
 Fourthly , with a view to facilitate direct foreign investment , the Government decided
to grant approval for direct foreign investment upto 51 per cent in high priority areas.
 The Government could also consider proposals involving more than 51 per cent equity ,
but such proposals would require prior clearance of the Government .
 No permission was required for hiring foreign technicians, foreign testing of
indigenously developed technologies, etc .
 Fifthly , chronically sick public sector enterprises were referred to the Board for
Industrial and Financial Reconstruction (BIFR ) for the formulation of revival/ '
rehabilitation schemes .
 A social security mechanism was introduced to protect the interests of workers likely
to be affected by such rehabilitation packages.
 Sixthly , to improve the performance of public sector enterprises, greater
autonomy was given to PSU managements and the Boards of public sector
companies were made more professional .
 Lastly , the economy was opened to other countries to encourage more
exports .
 To facilitate the import of foreign capital and technology and other allied
imports , reduction in import duties and other barriers were brought about.
7)PURA-A Neo Gandhian Approach to
Development
 Electronic , knowledge and thereby leading to economic connectivity to enhance the
prosperity of cluster of villages in the rural areas.
 Under physical connectivity , a group of 15 to 25 villages will be linked to each other by
road .
 These villages connected by roads will also have a ring road so that each one of them can
make use of it .
 Besides roads, provision of electricity and transport facilities have also been included .
 Second is digital connectivity which aims to link villages with modern telecommunication
and information technology services, e.g . Public call offices, cyber cafes, etc .
 Thirdly , knowledge connectivity tries to establish on every 5 to 7 kms of the circular ring
road a school , a higher education centre , a hospital , etc .
 Fourthly , economic connectivity aims to establish within this group of villages good
marketing facilities so that all the commodities and services of daily use can be procured
and the rural people can sell their produce in these market.
Government Action on the PURA Model

 The Union Cabinet in its meeting on 20 th January 2004 accorded in principle approval
for the execution of PURA within the existing gross budgetary support for bridging the
rural-urban divide and achieving balanced socio-economic development .
 The Government envisages development of over 4,000 rural clusters located in
backward regions .
 A sum of Rs 3 crores for each cluster was provided and thus , Rs 12,000 crores were to
be spent on the development of 4,00 0 PURAs .
Assessment of PURA Model of Rural
Development
 This can be achieved by undertaking such activities which create wage employment
and thus , enlarge demand potential of the rural population .
 If PURA can become a catalyst for another green revolution in the backward rural
areas in the less prosperous states, the Vision 2020 of the President to achieve a food
production of 40 0 million tonnes can be achieved .
 For this purpose , it is necessary to develop synergy among the different constituents
in the fulfillment of the PURA mission .
 Only then can we have the dream of development of rural India without population
transfers realize.
 Although PURA draws its inspiration from the Gandhian model of development which
emphasises rural development as a fundamental postulate , yet in the prescription , it is
neo-Gandhian in the sense , that it intends to bring rural regeneration with the avowed
objective of taking modern technology and modern amenities to the rural areas.
 In this sense , it does not enter into the controversy of labour intensive versus capital
intensive measures.
 However , it does emphasize the enlargement of employment as the sole objective to
make use of rural manpower in various development activities .
 In this sense , it does not think of a second grade status for rural citizens and thus can
become more acceptable to them .
 In other words , the PURA model attempts a reconciliation between employment and
GDP growth objective.
Regional Planning in India
Redifing the role of the State
1)Expanding the role of the public sector
to accelerate growth (1956 to 1990)
 From the above citations, certain issues stand out clearly :
 ( i ) The consensus on the eve of the Second Plan was that all industries of basic
and strategic importance should be in the public sector.
 (ii ) The public sector was to act as a senior partner in the process of
development and undertake investments in such areas in which the private sector
was unwilling or unable to undertake such investments.
 (iii) In the exploration of minerals and basic and capital goods industries and
infrastructure , public sector has to undertake direct responsibility .
 (iv ) While accepting the framework of the mixed economy , public sector was
expected to contribute effectively to the social ends in view and grow at a fast
rate so that the share of public sector grows both absolutely and relatively to the
private sector.
 This was a welcome decision because at that time , the Indian private
industrial sector did not either possess the capability or the resources to
undertake lumpy investments in the capital goods sector.
 Private sector was also not willing to undertake responsibility of the
infrastructure .
 Thus, to initiate the process of building an industrial base and to reduce our
dependence on industrialised nations, it was considered desirable that the
state should develop the capital goods sector which was a totally neglected
area during the British period.
Shortcomings of the public sector

 The above analysis brings out that lack of autonomy in decision-making , use of
PEs for furthering private interests, absence of a comprehensive policy for public
enterprise sector in decision-making , use of PEs by ministers and bureaucrats to
siphon of funds, low work ethics resulting in low efficiency , all these factors
conspired to create an environment of low or in some cases, negative rates of
return for public enterprises.
 Consequently , the movement for liberalisation got legitimacy and this prompted
the late Prime Minister Rajiv Gandhi in his first broadcast to the nation in 1984 to
declare in unambiguous terms: The public sector has spread into "too many areas
where it should not be.
 We will be developing our public sector to undertake jobs that the private sector
cannot do . But we will be opening up more to the private sector so that it can
expand and the economy can grow more .
2)Reducing the role of the Public Sector

 The Government of India , therefore , thought of reducing the role of the

public sector and started the process of opening more and more areas for the
private sector.
 The Industrial Policy of 1991 started the process of delicensing and but for a
small number of 15 industries, industrial licensing was withdrawn .
 This process of deregulation was aimed at enlarging competition and allowing
new firms to enter the market .
 The main aim was to abolish the licence-permit Raj and establish the rule of
the market.
 The area of the public sector was limited to the following in future :
 ( a ) Essential manufactured goods
 ( b ) Exploration and exploitation of oil and mineral resources
 ( c ) Technology development and building of manufacturing capabilities in
areas which are crucial in the long term development of the economy and
where private enterprise is inadequate .
 ( d ) Strategic areas — Defence equipment
3)Areas of Market failure and need for
state intervention
 ( i) In case of imperfect competition , markets generate situations in which
state intervention becomes necessary to ensure competition .
 (ii) In case of monopoly , market failure is obvious and the state must
intervene to break monopoly by anti monopoly legislation or other measures.
 (iii ) Market failure has also been noticed in public goods like education and
health .
 In these areas, unless the state establishes schools, colleges, universities,
primary health centres and hospitals, it would not be possible to take care of
the weaker sections of the society.
 (iv ) Market failure has also been noticed in areas of economic infrastructure
like irrigation , roads, railways, etc.
 Private sector loves to use infrastructure , but would not like to invest in
infrastructure , more especially in remote areas, where the rate of return
may be very small .
 Thus, it is generally expected that the public sector should develop
infrastructures and thus create an environment which facilitates direct
investment by the private sector.
Role of the state in the socialist society

 The socialists believed that a major factor which determined social welfare
and also affected individual welfare is inequality in ownership of property or
instruments of production .
 This resulted in inequality of incomes and thus the property owning classes
exploited the property less classes.
 To improve social welfare , it was essential to abolish private property .
 So the socialists pleaded for nationalisation of the means of production.
Interaction of the developments in
capitalist and socialist economies
 The late realisation by the socialist regimes of the role of markets in the socialist
economies and induction of democratic system of government to act as a system of
feedback and correction has brought convergence of the two systems.
 Mrinal Datta Chaudhr states in this connection : "The planned economies of the
socialist world have learned that market institutions are not exclusive to the capitalist
mode of production , and that the threat of entry and the fear of exit remain
irreparable stimuli for cost and equality consciousness in production."
 Pulin B Nayak rightly concludes the controversy of the State and the Market : "The real
issue is not whether to have the market or the state.
 This is an empty dichotomy and no serious school of political economy would today
credibly argue for only one or the other. The question however is one of striking the
right balance.
The experience of market socialism in
China
 Economic zones, regional economic disparities have widened .
 This implies that the growth impulses of liberalisation have been restricted
to certain enclaves of development and have not percolated to the backward
regions.
 In other words, growth is limited in its spread effect.
 In order to attract foreign capital, the government imposed additional taxes
on Chinese peasants to recover a part of the cost of infrastructure .
 The government acquired farmlands for industrial and other infrastructures,
but paid very inadequate compensation to the peasants. This imposed serious
burdens on the peasants.
 Average Chinese worker which guaranteed him minimum essential
requirements of living was replaced by the new system adopted in 1986 .
 Consequently , jobs were offered on five-year contractual basis and the right
to hire and fire workers was introduced .
 The contractual system was also pursued in state enterprises for all new
recruitment in place of permanent employment .
 In addition , piece work system has also been introduced in enterprises.
4)Redefining the role of the state

 In other words, the promotional role of the State in providing rural

infrastructure and extend credit to the poor at low rates of interest can
become an effective instrument in poverty removal.
 The second role of the state is to provide infrastructure — economic as well
as social infrastructure .
 Economic infrastructure consists in the provision of roads and railways, hydro-
electric works, irrigation dams, provision of drinking water etc.
 It has been observed that the private sector is not keen to invest in
infrastructure.
 The other part of the infrastructure — social infrastructure is in the form of
health and education .
 Investment in education helps human beings to acquire human capital
formation.
 Considerable investment which the public sector must undertake so as to
improve the health status of the weaker sections of the society because it is
not possible for the poor to pay for expensive health care by the private
sector.
Summing Up

 Since private sector is not forthcoming in electricity generation in an

adequate manner, the state has to continue .
 Fearing resistance by employees, the Government has not gone in for opening
banking to the private sector.
 But the government has been making repeated attempts to reduce its area of
direct investment .
 It is also being argued that if private monopoly is bad, state monopoly is also
bad.
 Consequently , to infuse competition , which is considered as the chief
instrument to promote efficiency , state monopoly is also sought to be
broken.
 The other function of the state is the regulator of the system.
 The system of quantitative restrictions resulted in corruption and acted as a
hindrance to enlarging productive capacities.
 The third function of the state is to act as a supplier of 'public goods' or 'social
goods' , this is the role of a welfare provider.
 Since,ideology is taking a back seat even in the erstwhile while communist
societies, there is a convergence that is taking place in all political systems in
the world . Nationalisation or privatisation are being viewed as the means and
not the ends in themselves.
Regional Planning in
India

Privatisation and Economic Reforms

Performance analysis of public sector

 The principal charges against the public sector are : low rate of return on
investment , declining contribution to national saving , poor capacity
utilisation , over-staffing and bureaucratization leading to excessive delays
and wastage of scare resource.
Rate of Return on Capital Employed

 This is a redeemable group of enterprises which can be resurrected to better

health if proper methods of management and structural adjustment in operations
are effected .
 In other words , the situation as it stands today indicates that about 89 per cent of
total investment in PSU s is either above the norm prescribed by the Planning
Commission or is in the redeemable area .
 The need of the hour is to initiate measures to salvage the group in the ROI range
of 8-1 2 per cent .
State government enterprises

 Uneconomical pricing policies and political pandering of peasants and

considerations of preserving vote banks have all contributed to the scandalous
situation , besides operational inefficiencies.
2)Comparison of Public and Private
Enterprises
 A)Profitability based comparative performance-

On the basis of the other equally powerful financial parameter of net profit to net
worth (NP/NW ) which measures the return on investment and real shareholder value
, the position did not farewell during 1994-95 and 1995-96 , but in 1997-98 , it fared
better than the Indian business houses as well as the total Indian Private Sector.
Other Financial Parameters

 Factual distortion about the public sector performance relates to the savings
by the public sector.
 "The negative shown against the public sector is only due to government
administration .
 Disaggregated from government administration , the total public sector
(including departmental and non-departmental public sector ) shows positive
numbers—which compare favourably with the private corporate sector.
 The contribution of the public sector in 1998-99 was 4. 5 per cent and of the
private corporate sector 4. 2 pe r cent .
3)Privatisation wave in the world

 The major problems faced by the public sector enterprises could be summed up
as under :
 1 . In socialist economies working under a command system of management ,
little initiative was left with the managers of public enterprises .
 In developing countries like India with a large public sector, freedom for decision-
making by the managing directors was extremely limited.
 2 . Pricing policies in a number of public sector enterprises are not guided by
rational economic considerations.
 Social and political constraints compel public enterprises to charge
uneconomic prices resulting in losses.
 This is the position specially in PSE s catering to infrastructure like power ,
irrigation , public transport , supply of milk etc .
 3 . Public enterprise s can afford soft budget options because their losses can
be met out of the general revenues .
 In view of the availability of this option and absence of competition , the
pressure to take hard economic decisions is conspicuous by its absence.
 4 . The managers of public enterprises tend to become procedure-oriented
rather than outcome-oriented and thus start playing safe and send even
ordinary decisions for approval of top bosses in the ministries so that in the
event of loss, they may not be held responsible .
4)Meaning and scope of Privatisation

 a)Ownership Measures-
 The set of measures which transfer ownership of public enterprises, fully or
partially , lead to privatization .
 The higher the proportion of transfer of ownership to the individual ,
cooperative or corporate sector, the greater is the degree of privatization.
Organisational Measures

 b) i) A holding company structure may be so designed that the government

limits its control interventions to apex level decisions and leaves the
operating companies within the arrangement to a sufficient degree of
autonomy in decision-making within the framework of the market forces.
 Sometimes , a very big monolithic organization is split into smaller units
without loss of economies of scale .
 Although the smaller units comprise of a family , but they become
independent in certain product lines or regional operations . A big
organization like Bharat Heavy Electricals Ltd may adopt the holding company
status by transferring a number of functions to smaller units , thereby
reducing centralized managerial functions.
 B) ii) Leasing ;
 A public enterprise while retaining ownership may lease out to a private
bidder for a specific period for use .
 The Chinese government adopted the Asset Responsibility system (ARS ) in
which a tenderer becomes the general executive of an enterprise or a
specified period of say 5 years.
 But before the appointment of the bidder is finalized , the tenderers have to
give an undertaking of the profits they would pass over to the state and also
give a convincing set of measures that they propose to undertake in this
regard.
 C) Restructuring :
 To bring public sector enterprises under market discipline , it would be
desirable to go in for two forms of restructuring :
 (a ) Financial restructuring can be effected in the sense that accumulated
losses are written off and capital composition is rationalized in respect of
debt-equity ratio ,
 (b ) Basic restructuring may be effected by redefining the set of commercial
activities which the enterprise will under - take henceforth .
 It may shed off some activities to be taken up by ancillaries or small scale
unit.
c)Operational Measures

 The measures include grant of autonomy to P E s in decision making ,

provision of incentives to blue - collar as well as white-collar employees
consistent with increase in efficiency or productivity , freedom to acquire
certain inputs from the market by a system of "contracting " instead of
producing them within the enterprise , development of proper investment
criteria , permitting PE s to go to the capital markets to raise funds etc .
 The basic purpose of these measures of operational privatization is to bring
about a drastic reform to reduce government control over the enterprise.
5)Attempts at Privatisation in India

 ( a ) There was absence of the market mechanism in these countries and the
entire pricing system was based on cost plus pricing .
 The existence of total monopoly in production gave unbridled power to the
state to determine prices of products in an arbitrary manner .
 ( b ) The size of the public sector engulfing the entire economy required the
dismantling of one system nurtured for over more than half a century and its
replacement by a new economic order.
Privatisation in a democratic society

 The absence of a social security system in India , as against well-organised

social security systems in the developed countries is another potent reason
why the trade unions are against schemes of retrenchment or voluntary
retirement .
 The employers consider the payment of compensation to workers as a burden
and use all legal and non-legal methods to delay such payments as long as
possible .
 This attitude of the employers and the bureaucratic delays in the State-
owned enterprises have not been able to instil confidence among the workers
that they would get the promised golden handshake.
6)Privatisation-The Alternative Models

 A)Privatising loss making or profit making units-

 This implies that the principal objective of privatization to infuse the commercial
spirit in PSU may not be achieved and revival of the sick unit may not be the
priority for the private sector.
 This explains the excessive emphasis on shedding the load of excess labour by
making lumpsum payment in the form of voluntary retirement schemes or
retrenchment .
 In some situations, the scheme can succeed also if very lucrative sums are paid to
the workers as golden handshakes.
 This can provide a safety net for excess labourers who may make an effort to find
an alternative job or set up some small scale unit of production to earn a living.
b)Joint Ventures

 Three kinds of proposals, broadly speaking , have been put forward :

 ( i ) 25 % ownership by the private sector (banks , mutual funds, corporations
or individuals ) and workers also to be included to the extent of 5 % equity to
be transferred to them . This creates veto power by the public sector against
the private sector.
 (ii ) Government retains 51 % equity and sells 4 9 % equity to the private
sector. Keeping the essential character of the public enterprises, it introduces
a big share for the private sector ownership .
 (iii ) 74 % of equity is transferred to the private sector and Government
retains 26 % with the added provision of Government' s veto power and
minority control over major corporate decision.
7)Public versus private sector debate-A
non issue
 "In view of the historical background of public enterprise in India , it is
inconceivable that privatisation in this country will be accepted by the society as an
end in itself , since there is no consensus in favour of market solutions and property
rights, nor are these considered as prime movers for much needed social and
economic change .
 The real issues centre on the alleviation of poverty and the upgrading of technology
in a highly differentiated society of continental dimension.
8)Economic Reforms in India

 A)Economic Reforms under Rajiv Gandhi regime(1985-1990)-

 The New Economic Policy focussed its attention on dismantling the edifice of
controls so as to remove unnecessary hurdles in securing licences, in adjusting
output to administered prices and in denying industrial licensing to MRTP
Companies .
Economic Reforms under P V Narsimha
Rao Government-The second wave
 1)Fiscal Policy-
 For achieving this target , the Government intended to strictly control public
expenditure and aim at higher tax and non-tax revenues .
 The Government intended to impose fiscal discipline both on the Central Government
and the State Governments .
 Reduction of subsidies was to be furthered by a movement to a more objective system
of administered prices taking into account market developments and domestic supply
condition.
2)External Policies

 The Government' s stabilization and import compression measures were

expected to reduce the external account deficit to 2 per cent of GDP.
3)Social Policies

 The Government was of the view that whereas the process of macro-
economic adjustment was bound to be painful , it was committed to
adjustment with a human face , and therefore , a steadfast adherence to the
objective of poverty alleviation was an integral part of our conception of
adjustment process.
4)Industrial Policy Reforms

 ( i ) Industrial licensing was abolished for all projects except for a list of 15
industries related to security , strategic or environmental concerns and
certain items of luxury consumption that had a high proportion of imported
inputs .
 (ii ) The Monopolies and Restrictive Trade Practices (MRTP ) Act applied in a
manner which eliminated the need to seek prior government approval for
expansion of present undertakings and establishment of new undertakings by
large companies . MRTP Act restriction was removed.
 (iii ) The set of activities henceforth reserved for the public sector was now
much narrower than before , and there would be no ban on the remaining
reserved areas being opened up to the private sector.
Foreign Investment Policy

 Foreign investment upto 5 1 per cent foreign equity ownership in a wide

range of industries. Earlier , all foreign investment was generally limited to
40 per cent .
 (ii ) To provide access to international markets , majority foreign equity
holdings upto 51 per cent equity would be allowed for trading companies
primarily engaged in export activities .
 (iii ) Automatic permission would be given for foreign technology agreements
for royalty payment.
Trade Policy

 Competition from a regime of quantitative restriction to price-based system .

From 1st April 2001 quantitative restrictions on all items have been removed.
Public Sector Policy

 To be reviewed with a greater sense of realism to avoid areas where social

considerations were not paramount or where the private sector would be
more efficient ;
 (ii ) enterprises in areas where continued public sector involvement was
judged appropriate would be provided a much greater degree of managerial
autonomy ;
 (iii ) budgetary support to public enterprises would be progressively reduced
 (iv ) to provide further market discipline for public enterprises, competition
from the private sector would be encouraged and part of the equity in
selected enterprises would be disinvested ; and
 ( v ) chronically sick public enterprises would not be allowed to incur heavy
losses.
9)Economic Reforms in India-An
Appraisal
 The reforms process while accelerating economic development should lead thus to
the following ends:
 ( i ) A higher rate of growth ;
 (ii ) An enlargement of employment potential leading to full employment ;
 (iii ) Reduction of population living below the poverty line ;
 (iv ) promotion of equity leading to a better deal for the poor and less well-off
sections of our society ; and
 ( v ) reduction of regional disparities between the rich and the poor states of India.
Tenth Five Year Plan
(2002-2007)
The Tenth Plan

 The developments-
 i ) Growth in the 1990 s has generated less employment than was expected ,
 (ii ) The infant mortality rate has stagnated at 7 0 per 1,00 0 for the last several
years,
 (iii ) As many as 6 0 per cent of rural households and about 20 per cent of urban
households do not have a power connection .
 (iv ) Only 6 0 per cent of urban households have taps within their homes , and far
fewer have washrooms inside the house .
 ( v ) Land and forest degradation in the rural areas, and over - exploitation of
groundwater are seriously threatening sustainability of food production ,
 (vi ) Pollution in the cities is on the increase
The Development Strategy

 This is not to say that the government has no role to play or only a minimalist role ,
in promoting development .
 On the contrary , it has an important role but a different one from that envisaged
in the past.
 There are many areas such as the social sectors, where its role will clearly have to
increase .
 There are other areas like infrastructure development , where gaps are large and
the private sector cannot be expected to step in significantly .
 In these areas the role of Government may have to be restructured .
 It will have to increase in some areas of infrastructure development that are
unlikely to attract private investment , such as rural infrastructure and road
development .
Objectives of the Tenth Plan

Economic growth cannot be the only objective for national planning and indeed over the
years, development objectives are being defined not just in terms of increase in GDP or
per capita income but more broader in terms of enhancement of human well being .
This includes not only an adequate level of consumption of food and other types of
consumer goods but also access to basic social services, especially education , health ,
availability of drinking water and basic sanitation .
It also includes the expansion of economic and social opportunities for all individuals and
groups and greater participation in decision making.
Employment Generation and Poverty
Reduction
 The Special Group on Targeting 10 million employment opportunities per year
has indicated that over the Tenth Plan , if 8 per cent growth is achieved , an
additional 30 million employment opportunities will be created .
 For this purpose , special employment generation programmes will have to be
focused on high employment generating sectors so that an additional 20
million jobs are created over the Tenth Plan period .
 If this combined target is achieved , unemployment rate is likely to decline
significantly to 5 per cent by the end of the Tenth Plan.
2)Growth target ,Savings and Investment

 Taking into account , the target of 8 per cent GDP growth as mandated in the
Tenth Plan approach , the macro-parameters for the Tenth Plan have been
estimated .
 The data reveals that the achievement of the Tenth Plan target hinges critically
upon an expected reduction in the incremental capital output ratio (ICOR ) from
4.5 3 during the Ninth Plan to 3.5 8 in the Tenth Plan .
 For this purpose , policies will have to be focussed on areas and factors which will
bring about a reduction in ICOR .
 Incidentally , it may be mentioned that ICOR was even lower during the Eighth
Plan period a t 3.43.
 For achieving 8 per cent growth rate , domestic saving rate will have to
increase from 23.5 2 per cent to 29.4 1 per cent of GDP .
 With the help of the current account surplus, investment rate or gross capital
formation will have to increase from 24.4 2 per cent in 2001 -0 2 t o 32.2 6
per cent in 2006-07 .
 Increase in investment is conditioned by our achievement to step up
additional domestic saving by about 6 per cent during the Tenth Plan.
3)Public Sector Plan-Resources and
Allocation
 The Tenth Plan , after presenting an analysis of financial resources concludes that the
these resource generation projections can be realised only if the following measures as
taken :
 1 Improving tax/GDP ratio of the Centre and States/UT s through inclusion of service tax
in the tax base , removal of tax exemptions and concessions, tightening of tax
administration and adopting an integrated value added tax (VAT ) regime .
 2 Reduction of subsidies by raising user charges of departmental services, expenditure
by cutting administrative and establishment costs and privatisation .
 3 Reduction of staff strength by a policy of downsizing and constituting a pension and
amortisation fund to make committee and payments like terminal benefits and debt
services, self-financing .
 4 Enacting a 'Fiscal Responsibility and Budget Management ' bill under which borrowing
shall be restricted in order to reduce the burden of interest payment.
 5 Improving the internal resources of State PSU s by implementing power sector
reforms so that the State electricity boards earn a minimum rate of return of 3% on
their assets.
 6.To impose a limit on state governments to issue state guarantees to state level public
enterprises by legislative or administrative selling.
4)Regional Balance and Poverty

 Relatively poor States like Uttar Pradesh , Bihar , Madhya Pradesh , Orissa ,
Rajasthan , Chhattisgarh and Assam in the range of 6- 8 per cent per annum . This
is a healthy development if these targets can be translated into reality .
 Whether the planning process would be able to create conditions for higher
growth rates in terms of economic and social infrastructure in these States so as to
boost growth rates, is the major challenge for the Tenth Plan.
5)External sector dimensions

 During the Ninth Plan period , India' s balance of payments position remained mostly
comfortable .
 The current account deficit narrowed down and on the average was 0. 8 per cent of
Gross Domestic Product (GDP) , less than one half of the 2. 1 per cent envisaged in the
Plan .
 The growth of exports in dollar terms during the Ninth Plan period has been 5. 6 per
cent as against the targeted growth rate of 11. 8 per cent .
 During the same period , import growth has been 3 . 3 per cent as against the target of
10. 8 per cent
 Invisible receipts have been buoyant .
 Foreign exchange reserves have increased significantly to around $ 5 4 billion by the
end of March 2002.
6)Employment Perspective

 Development strategy , which will revamp those sectors where the comparative
advantage is in favour of a labour intensive production .
 For this , the Tenth Plan , following the Report of Special Group recommended some
labour intensive sectors which require policy intervention.
 These sectors are agriculture , food processing , rural non-farm activities , including
khadi and village industries, small and medium enterprises and service sectors
encompassing health , nutrition , education , information technology and
communications .
 The total employment generated from these programme-based policy interventions
will be of the order of 19.3 2 million.
7)Achievements and failure of the Tenth
Plan
 Achievements-
 Firstly the tenth plan has not been able to achieve its target of 8 percent growth of
GDP but has taken the economy to a higher trajectory of growth rate at 7. 6 percent
as against 5. 5 percent in the 9 th Plan.
 Secondly gross domestic savings averaged at market prices averaged 28. 2 percent in
tenth plan as against 23. 1 percent in the 9 th Plan.
 Thirdly , the economy has been able to reduce its incremental capital output ratio
from a level of 4. 3 during the 9 th Plan to a level of 4. 2 during the 10 th plan.
 Fourthly our foreign exchange reserves reached a level of US $ 18 5 billion on
February 2007 .
 This is another indication of the strength of the economy .
 Fifthly , foreign investment flows were of the order of US $ 20. 2 billion in
2005-06 - US $ 7. 7 billion in the form of Foreign Direct Investment (FDI ) and
U S $ 12. 5 billion in the form of Portfolio Investment.
Gross Failures

 1)Failure to reduce poverty to the target levels-

 This has introduced an internal inconsistency in the Indian economy .

 While there is an improvement in GDP growth , this is not reflected in an
increase in poverty reduction .
 Rather it indicates a slowing down of rate of poverty reduction .
Consequently , the percolation effect of higher growth of GDP to the poor is
conspicuous by its absence which means the benefits of accelerated growth
are pocketed by the upper classes.
 This stark reality needs remedial action.
2)Unemployment in the increase

 The failure of the organized private sector to compensate for the fall in employment in
the public sector resulted in a sharp decline in the overall employment growth rate
becoming negative .
 There was sympathy expressed for the employment generating sectors, but in reality
the reform process pushed its agenda of strengthening corporate sector.
 The explanation for failure of the employment objective lies in the growing capital
intensity of the economy .
 Failure on the employment objective also contributed to the slowing down of poverty
reduction in the 10 th Plan.
3)Dismal performance of agricultural
sector
 The actual performance in agriculture appears to have deteriorated even
further and will possibly not exceed 1.5 percent during the first three years o
the plan.
 The estimate of actual growth in agriculture for the entire 5-year period is
now reckoned at 1.7 percent which is even less than half of the target of 4
percent growth envisaged in the Plan.
4)No reduction in regional inequalities

 Several studies are available which show that interstate inequality has
increased in the nineties as only the better-off states were able to benefit
from the economic reforms and increase their growth rate significantly .
 While it is now an established fact that the richest states benefited the most ,
but in contrast some of the poorest and most populous states experienced
decelerating growth.
5)Failure to reduce untargeted subsidies

 To cut down subsidies even of the untargeted groups raises problems of

tackling various kinds of lobbies.
 The Mid-term Appraisal stated very categorically that the minimum support
prices paid for agricultural produce and subsidies on inputs such as fertilizers
, electric power and water rates are availed of typically by the richer
farmers.
 Both the Centre and the State Governments have to muster courage to reduce
and ultimately eliminate such subsidies which are distribution ally
inequitable.
6)Financial Pattern goes Haywire

 The emerging financial pattern only underlines the stark reality that major
source of plan financing is market borrowing .
 This only shows that the original pattern of financing envisaged was only an
attempt at wishful thinking .
 As a consequence of the heavy dose of market borrowing , the liabilities of
the government in terms of interest payment would increase still further.
7)Failure to achieve the targets of reducing
IMR and malnutrition among children

 The tenth plan targeted to reduce infant mortality rate (IMR ) to 45 and
maternal mortality rate (MMR ) to 2 per 1000 live births by 2007 .
 On both counts , there is a serious failure as IMR in 2005 was still as high as 5
8 and MMR is 4 .
 There is a strong need to strengthen health improvement measures in the
country .
 The Plan has failed in these monitorable targets.
Eleventh Five Year Plan
and Inclusive Growth
1)Economic Scenario of the Eleventh
Plan
 'The percentage of population below the official poverty line has come down
from 36 % in 1993-94 to 28 % in 2004-05 .
 However , not only this is high , the rate of decline in poverty has not
accelerated with GDP growth and the incidence of poverty among certain
marginalized groups, e.g . the Scheduled Tribes , has hardly declined at all.
 Indicators of deprivation suggest that the proportion of population deprived
of a minimum level of living is much higher.
 Agriculture growth continues to be sluggish and was of the order of 2. 1
percent during the 10 th Plan despite a target of 4% growth.
 4 . Current daily status unemployment rate increased from 7.3 % in 1999-00 to
8.3 % in 2004-05 despite the higher GD P growth of 7.6 % during the 10 th
Plan.
 Moreover , the entire increase in employment has taken place in the
unorganized sector.
2)Objectives of the Eleventh Plan

 1 Rapid growth that reduces poverty and creates employment opportunities ;

 2 Access to essential services in health and education especially for the poor
 3 Empowerment through education and skill development ;
 4 Extension of employment opportunities using National Rural Employment
Guarantee Programme ;
 5 Environmental sustainability ;
 6 Reduction of gender inequality ; and
 7 Improvement in governance
3)Macro Economic Dimensions of the
Eleventh Plan
 Targets of GDP and per capita GDP-
 The eleventh plan has targeted average GDP growth of the order of 9 % for
the Plan period 2007-11 , which implies increasing gradually from 8.5 % in
2007-0 8 to 10 % i n 2011-12 .
 Per capita GDP growth will be of the order of 7.6 % per year and this would
double in 10 years.
 Eleventh Plan aims to improve the growth rate of agriculture from 2.13 %
realized in the 10 th Plan to 4% .
 Industry growth is targeted to be stepped up to 10-11 % and service sector
growth to 9-1 1 %.
 The Eleventh Plan aims at double digit growth both in manufacturing and
industry .
 For this, it will be critical to improve the performance of the core sector
(steel , coal cement , oil , fertilizers and refined petroleum ) to sustain this
growth.
Balance of Payment

 There is a need to bring about a course correction .

 Secondly , with the appreciation the Rupee , exports may slow down , but
imports may be stimulated .
 This may result in a bigger trade deficit .
 It is also possible that invisibles surplus may decline due to other competitors
in the I T sector, especially China .
 This may reduce the size of the invisibles surplus to substantially neutralize
the trade deficit .
 This may result in bigger current account deficit .
 Prudence requires that planners should adopt a more cautious approach.
4)Financing the Eleventh Plan

 Resources of surplus from public sector undertakings are continuing their forward
march and all likely to finance 32.6 % or nearly one-third of the total public sector
plan .
 But subsidies provided to petroleum products may reduce resources generation by
public sector oil companies - a major source of resource generation .
 Actual realization from PSU s will be affected by two factors:
 (a ) international price of oil and
 (b ) the policy of the Central government on petroleum subsidies.
 If the realization from PSU s decline in the Eleventh Plan , the country may witness
a higher dose of market borrowing to finance the Plan.
5)Sectoral Allocation of Resources

 A)Allocation for social services-

 Eleventh Plan intends to incur an outlay of Rs 11,02,32 7 crores (30.3% ) of
the total plan outlay on social services.
 The share of education is being stepped up to Rs 3,47,33 8 crores (9.5 % o f
plan outlay) , followed by medical & public health , nearly Rs 1,75,00 0 crores
(5 % o f total ) and urban development Rs 1,54,00 0 crores (4.2 % o f total) .
 A big programme for the provision of drinking water supply and sanitation
involving Rs 1,28,27 2 crores has been undertaken , so as to provide drinking
water to all habitation.
b)Infrastructure Development

 Good quality infrastructure is most critical physical requirement for attaining faster
economic growth in a competitive world and also for ensuring investment in backward
regions .
 The total investment needed for infrastructure defined to include electric power ,
roads, railways , airports, telecommunications , irrigation , drinking water , sanitation
, storage and warehousing will have to increase from about 5 % of GDP in 2006-0 7 to 9
% o f GDP i n 2011-12 .
 Since public private partnership is being promoted , the share of the private sector is
expected to rise to about 25% .
 Obviously public sector has to play a leading role in infrastructure.
c)Power Development

 The Eleventh Five Year Plan targets a capacity addition of 92,577 MW , out of which
the share of hydro power will b e 16,553 MW ( 17.9%) , thermal power 58,64 4 MW
(63.3%) , Nuclear power 3,38 0 (3.7% ) and wind & renewable energy sources 14,00 0
MW (15.1%) .
 Obviously , the Eleventh Plan programme of power generation is a much bolder
attempt , if the government is able to execute it within the timeframe of 5 years.
IT Sector

 Eleventh Plan targets to reach a subscriber base of 10 0 million and a rural

teledensity of 25% .
 The I T Sector at present employs over 5 million people and is expected to
provide employment to over 18 million by 2012.
Petroleum and Natural Gas

 Eleventh Plan proposes an outlay of Rs 2,13,515 crores on petroleum and

natural gas production .
 This is likely to produce 207 million tonnes of crude oil during 2007-12 and
266 bcm of natural gas production.
Roads

 An expanded National Highway Development Programme involving Rs 2,27,258 crores

is contemplated in the Eleventh Plan .
 Besides Highway Development ,the plan intends to ensure all-weather roads
connections to all habitations with population 1,000 and above (500 and above in
hilly and tribal areas) by 2009.
6)Employment Perspective in the
eleventh plan
 The following major changes were observed-
 The rate of unemployment has increased from 6.1 % in 1993-94 to 7.3 % in 1999-
00 and further to 8.3 % in 2004-05 .
 Unemployment among agricultural labour households has risen from 9.5 % in
1993-94 t o 15.3 % in 2004-05 .
 While non-agricultural employment expanded a robust rate of 4.7 % during the
period 1999-00 to 2004-05 , this growth was largely in the unorganized sector.
 Despite fairly healthy GDP growth , employment in the organized sector actually
declined , leading to frustration among the educated youth .
 Although real wages of casual labour in agriculture continue to rise during 2000-
2005 , growth has decelerated strongly as compared to 1994 - 2000 which
reflects poor performance in agriculture .
 Growth of real wage rates in non-agricultural employment during 1999-00 to
2004-0 5 has been negligible .
 Real wages stagnated or declined even for workers in the organized industry
although managerial and technical staff did secure large increase .
 Wage share in the organized sector has halved after 1980s and is now among
the lowest in the world.
7)Poverty Reduction

 Firstly, regions which have large number of poor include tribal forested
regions and rainfed agricultural regions .
 In these regions , watershed development has to be the crucial instrument
for poverty reduction .
 Secondly , the poor are concentrated in certain states or regions where land-
man ratio is the lowest .
 In these regions , effective land reforms and provision of agricultural services
need special emphasis.
 Thirdly , there is a large dependence on casual labour .
 These workers get low wages and are unable to find employment throughout the
year .
 Most of them belong to SC and STs . A programme like the National Rural
Employment Guarantee Programme can provide better wages and enhance the
number of working days for this category .
 Fourthly , the poor have to be enabled to increase their incomes by diversifying
away from agriculture to non-farm work as a source of subsidiary income .
 Fifthly , education and skill development among the poor should be enhanced so
that they can seek employment in emerging sectors like information technology ,
and other occupations requiring better skills.
8)Regional Disparities in growth rate

 Eleventh Plan has fixed targets of GDP growth in consultation with the State
Governments .
 It may be noted that whereas All-India growth rate is targeted at 9 % for the
Eleventh Plan , Bihar , Rajasthan , Madhya Pradesh , Uttar Pradesh and
Punjab are likely to remain below the 7.5 % GDP growth level .
 The planning process has to concentrate attention to stimulate growth among
the laggards.
 Many states of the North Eastern Region viz. , Anuranchal Pradesh ,
Meghalaya , Mizoram , Assam and Sikkim have indicated low growth rates.
 Planning process is helping them by a special package which will be
continued in the Eleventh Plan.
9)Critique of the eleventh plan

 A)Rate and pattern of growth-

 The 11t h Plan visualized "Faster and more inclusive growth " as its objective .
 This , by itself was a welcome development , that after a period of a decade
and half of reforms initiated in 1991 , it was realized that the reform process
has widened disparities between the rich and the poor .
 It had slowed down reduction of poverty to a modest figure of 0.74 percent
for a period 1993-9 4 and 2004-05 , it has resulted in a rise of unemployment
from about 6 percent in 1993-9 4 t o 7.3 2 percent in 1999-0 0 and further t o
8.3 percent in 2004-05 .
b)Reduction of Poverty

 But , inclusive growth is possible only with a rapid decline in poverty coupled
with rapid reduction of unemployment in the 11 t h Plan .
 On the question of setting a target of poverty reduction , the Eleventh Plan
mentions : "percentage of poverty in 2004 - 0 5 is about 2 8 percent and thus ,
the 11t h Plan intends to reduce it by 1 0 percentage points by 2017 .
 This would imply a rate of reduction of poverty by about 1 percent during
2004-0 5 and 2016-17 .
 This is even less than the decline in poverty observed during 1973-74 and
1986-8 7 when the average growth rate of GDP ranged around 5 percent. "
c)Reduction of unemployment

 The Planning Commission by reducing the estimate of new entrants to the

labour force to 45 million instead of 65 million as indicated by the Approach
paper and with a backlog of 35 million unemployed has reduced the total
requirement of employment opportunities to $ 0 million .
 B y providing the target of 5% million employment opportunities , the rate of
unemployment has been reduced from 8.36 % in 2006-07 to 4.83 % in 2011-12.
d)Issue of labour flexibility

 The Planning Commission' s 'inclusive growth failed to provide any strategy for improving
the share of labour in the surplus generated by faster growth .
 Critics had serious doubts about the sincerity with which the equity objective was sought
to be achieved by the 11t h Plan .
 The determination of wages by market forces and taking away even the medium of
protection by labour laws would be give the organized sector business magnates unbridled
power to freely exploit and pauperize labour.
e)Accelerating the growth of agriculture

 The most important issue relating to the success of the 11t h Plan was to accelerate
the growth rate in agriculture to 4 % per annum , as against 2 % rate of measures were
suggested , such as remunerative prices for farmers for their crops, shift from
productivity of individual crops to farm income security by diversifying agriculture ,
stepping up public investment in irrigation , watershed development , rural
electrification and rural infrastructure etc.
f)Projecting current account deficit to
2.3%
Between 2000-01 and 2003 the country had achieved surplus in the balance of payment .
The large surplus on invisibles of the order of $17.04 billion in 2002-03 not only wiped
out the trade deficit but created a surplus in the balance of payment .
Invisibles surplus improved to $53.40 billion in 2006-07 , our trade balance that year was
(- ) $63.1 7 billion and thus CA D rose to $9.7 6 billion in 2006-07.
g)Unrealistic Financial Pattern

 One can easily conclude that for the financial resource pattern could not be adhered .
 The government failed miserably in achieving positive balance from current revenues and
the short fall on this account had to be filled up by fresh borrowings .
 The performance of public sector enterprises was still better, as they could more or less
provide resources as per the plan projections.
 An approach to the
Twelfth Five Year Plan
2012-2017
An assessment of eleventh five year plan
and the road ahead
 Though growth in the Eleventh Plan period is almost at par with the Tenth Plan ,
but it is nevertheless a good performance , given the fact that a sever global
economic crisis depressed growth in two of these five years, and also that in the
year 2009 India had the weakest monsoon in three decades.
 The slowdown in 2011-1 2 is a matter of concern , but can be reversed if the
investment climate is turned around and fiscal discipline is strengthened.
Inclusiveness

 The improvement in this formerly low growth and low income States is
evident in many cases over the Tenth Plan period , and in some others, more
so over the Eleventh Plan period .
 It should be emphasized that those States which picked up over the Tenth
Plan period .
 We have continued to perform better in the Eleventh Plan .
 However , some formerly higher income and high growth States have shown
slightly weaker growth over the Eleventh Plan period , most prominent of
which are Karnataka and Tamil Nadu.
Plan Programs for inclusiveness

 Most of these programs are Centrally Sponsored Schemes (CSS) , which are implemented
by State Government agencies, but are largely funded by the Central Government with a
defined State Government share .
 The total expenditure on these schemes by the Central Government in 2011-12(budget
estimate ) is Rs 188.57 3 crore and the total expenditure during the Eleventh Plan period
is almost Rs 700,000 crore .
Demographics

 India has younger population not only in comparison to advanced economies but also
in relation to the large developing countries .
 As a result, the labour force in India is expected to increase by 32 per cent over the
next 2 0 years, while it will decline by 4. 0 per cent in industrialised countries and by
nearly 5. 0 per cent in China .
 This 'demographic dividend ' can add to growth potential , provided two conditions are
fulfilled .
 First , higher levels of health , education and skill development must be achieved.
Employment and Livelihood

 In the age group of 5-14 years, 89. 3 per cent of children were in school in 2009-10 , up from
82. 4 per cent in 2004-05 .
 Further this increase was higher for girls , rising from 79. 6 per cent in 2004-0 5 t o 87. 7 per
cent in 2009-10 .
 In the 15-19 years age group,59. 5 per cent of young people were in the educational system
in 2009-10 as compared to 46. 2 per cent in 2004-05 .
 Once again,the increase was more for girls , from 40.3 t o 54.6 per cent .
 In the next higher age group of 20-24 years, 22. 5 per cent of boys and 12. 8 per cent of girls
were still in the educational system in 2009-10 against only 14. 9 and 7. 6 per cent ,
respectively , in 2004-05 .
Agriculture

 Higher levels of investments in agriculture , both by the public and private sector can
yield much better results if the reforms are undertaken to streamline not only the
incentive structures for the farmers , but also the institutional framework in which
agriculture and related activities take place .
 Seeds and irrigation are priority areas, which can be catalysts for raising productivity
on the supply side.
Health

 It must be emphasised that financial resources are the only constraint .

 Shortage of health professionals at all levels has become a serious impediment to
achieving an expansion in the public provision of health services.
 There has been inadequate attention to improving higher education and training
capacities in this area .
 There are also problems of accountability of personnel even when these are
recruited .
 These lacunae will take time to rectify, but the Twelfth Plan must give a special
emphasis to solve this problem.
Education

 Resource constraints will make it difficult to meet the need of expanding higher
education entirely through the public sector.
 Not all private educational institutions are of good quality and some are quite
inferior .
 Minimum standards will have to be ensured .
 But free entry will , in the end , automatically weep out the poor quality institutions .
 Private initiatives in higher education , including viable and innovative models , will
therefore , be actively promoted .
 The current "not-for-profit " prescription in the education sector should be re-
examined in a pragmatic manner soas to ensure quality , but without losing focus one
equity.
Infrastructure Development

 Public investment in infrastructure will have to bear a large part of the infrastructure
needs in backward and remote areas to improve connectivity and expand the much
needed public services.
 Since resource constraints will continue to limit public investment in infrastructure
in other areas, PPP-based development needs to be encouraged wherever feasible .
 It is necessary to review the factors which may be constraining private investment ,
and take steps to rectify them .
 PPP , with appropriate regulation and concern for equity , should also be encouraged
in the social sectors, such as health and education .
 Several State Governments are already taking steps in this direction .
The Energy Challenge

 The Twelfth Plan must address the challenge of aligning domestic energy prices with the
global price trends.
 This is not easy to do in a short time span , but it can be done gradually over a period of
time .
 It must be emphasized that our ability to sustain high growth in the Twelfth Plan will
depend critically upon our ability to make this adjustment .
 The poor will need subsidy , which should be appropriately targeted , but energy prices
in general cannot be de-linked from global price levels , particularly in a situation where
import dependence is increasing.
Natural Resource Management –Water,
Land and Forests
 Since rapid economic growth will require incommensurate growth in energy supply
and most of our electricity generation is expected to be coal based , there are
potential conflicts between protecting the forests and ensuring an adequate supply
of energy to the economy .
 It will be necessary to evolve mechanisms through which a suitable balance can be
struck between the energy requirements of development and the need for
environmental protection.
Implementation, Accountability and
Governance
 The long delays in the judicial process are an important factor behind the
growing cynicism about the rule of law in our system .
 Reforms in the legal process need to be put in place without further delay.
2)Prospects for the Twelfth Plan

 A)Investment and savings requirements-

 It should not be difficult to secure the capital inflows necessary to finance a level of the CAD of
2. 5 per cent of GDP , relying on stable long term Foreign Direct Investment (FDI ) flows .
 But for this to happen , it is also necessary to ensure that policies relating to foreign investment
are appropriately tailored to encourage such flows.
 Indeed , the likelihood is that external capital inflows may exceed the financing requirements
indicated by the CAD .
 During the Tenth Plan and the first two years of the Eleventh Plan , external commercial
borrowings (ECBs ) and external trade credits expanded sharply .
 While this allayed all concerns regarding the sustainability of our external account and
contributed substantially to the positive image of the country globally , it did create fairly
serious challenges in domestic macro management.
3)A critique of the twelfth five year plan

 A)Growth targets seemingly unachievable-

 Further the target Gross Capital formation rate at percent at 10.7 percent of
GDP (with 9 percent growth scenario) to be unachievable and with 9. 5
growth in scenario , plus capital formation of 41. 1 percent is even more
practical .
 Therefore growth target , which primarily depends upon Gross Capital
Formation are seemingly achievable.
 B)Unrealistic Financial Pattern once again-
 The finance ministry has itself admitted that there would be an overall slippage in
all fiscal responsibility and budget management (FRBM ) requirements in 2011 - 12 .
 Generally there has always been a shortfall in surplus from the current revenues.
 It would have been better if Planning Commission had adopted a more practical
financial plan for the 12th plan period.
 C)Impracticable infrastructure targets-
 This cannot sustain the target 9.7 percent growth rate of the economy .
 Against 11th plan investment for infrastructure , projected at rupees
5,14,040 crores of total infrastructure investment , 12th plan envisages an
investment of fifty lakh crores in 5 years.
 This seems to be a very ambitious target .
 Out of this total investment of fifty lakhs crores over a period of 5 years,
private sector is expected to provide 25 lakh crore.
 D)Overemphasis on Public Private Partnership-
 Planning commission rides high on the success of PPP model in road transport and
modernization of airports; but looking at the problems being faced with regard to the
implementation and working of PPP model , government needs to go slow on PPP
model and instead of taking its hands off from provision of social services like health
and education , should try to strengthen its presence in these sectors as profit motive
of the private players may come in way of social welfare objectives of the
government.
 Poverty and the
Planning Process in India
1)The Concept of Poverty

 Poverty can be defined as a social phenomenon in which a section of the

society is unable to fulfil even its basic necessities of life .
 When a substantial segment of a society is deprived of the minimum level of
living and continues at a bare subsistence level , that society is said to be
plagued with mass poverty .
 The countries of the third world exhibit invariably the existence of mass
poverty , although pockets of poverty exist even in the developed countries
of Europe and America .
 Two types of standards are common in economic literature : the absolute and
the relative .
 In the absolute standard , minimum physical quantities of cereals, pulses,
milk , butter , etc . are determined for a subsistence level and then the price
quotations convert into monetary terms the physical quantities .
 Aggregating all the quantities included , a figure expressing per capita
consumer expenditure is determined.
 The population whose level of income (or expenditure ) is below the figure ,
is considered to be the poverty line .
 According to the relative standard , distribution of the population in different
fractile is estimated and a comparison of the levels of the top 5 to 1 0 per
cent with the bottom 5 to 10 percent of the population reflects the relative
standards of poverty.
2)Studies of Poverty in India

 B S Minhas has indicated that the percentage of the rural poor declined during the
period 1956-57 to 1967-68 .
 On the other hand , P.D . Ojha and Pranab K Bardhan indicate the increasing
proportion of the rural poor . In their view , the direction of change indicates a
trend of growing pauperization .
 Dandekar and Rath have shown a constant proportion of both the rural and the
urban poor during the period 1960-6 1 and 1967-68.
 However , in their estimate there is an absolute increase in the rural poor from 13
5 million to 16 6 million and in the urban poor from 4 2 million to 4 9 million .
Montek Ahluwalia believes that Indian experience over the past two decades does
not indicate trend increase in poverty .
 In general , a pattern of fluctuation with the incidence of rural poverty falling in
periods of good agricultural performance and rising in period of poor performance
has been observed.
 More recent evidence by the World Bank supports the view that the
proportion of persons below the poverty line come down from 52. 4 per cent
in 1970 to 42. 5 per cent in 1983 and further to 39. 6 per cent in 1988 .
 Gaurav Datt and Martin Ravallion clearly bring out that poverty gap in rural
area is 12.7 per cent and urban areas is 10.94 per cent . Obviously , greater
effort ; needed to reduce poverty gap by having specific programmes for
rural areas to alleviate poverty.
Incidence of Poverty among Rural
Households
 Two factors account for this high incidence of poverty among rural labour
households . Firstly , there is a considerable degree of unemployment and
under - employment among rural labourers.
 It has been established that incidence of unemployment is the highest among
casual labourers.
 Even during periods of employment , their weak bargaining power results in
low wages being paid to them .
 The market forces are so strong that minimum wage legislation is observed
more in breach than in compliance .
 Another major cause of rural poverty is the low asset base of the poor . The
Reserve Bank of India in its All-India Debt and Investment Survey for 1991-92
has provided data for asset distribution in rural and urban households
separately.
3)Planning Commission’s estimate of
Poverty
 States which have shown better record of poverty reduction are West Bengal ,
Gujarat , Kerala . Karnataka . Maharashtra , Tamil Nadu and Orissa though
some of these exhibit high proportion of population below poverty - more
than 40 per cent.
 A very disturbing feature of the poverty scenario is that seven major states,
viz. , Maharashtra , Uttar Pradesh , Madhya Pradesh ,West Bengal ,Tamil Nadu
, Bihar and Orrisa account for 2.319 lakh per cent of the total poor in the
country .
 This shows a high concentration of the poor in these seven states.
4)NSSO 55th Round and Poverty
Reduction Controversy
 The main reason for the slow decline in poverty is the pattern of growth that
was promoted following the policies of liberalisation , privatisation and
globalisation .
 The pattern of growth also affected geographical distribution .
 This is reflected in the diverse performance of the states in poverty reduction
and hence in the overall national performance .
 Policies of globalisation have helped the already industrialised states much
more as compared with the less industrialised states and their neglect of
agriculture has been responsible for the skewed pattern of distribution in the
post-reform period.
5)Economic Reforms and Poverty
Reduction
 The study has estimated that those who are below 7 5 percent of poverty line
. There was a decline in the proportion of the very poor from 15.5 % in 1993-9
4 to 10.3 % in 2004-05 . This implies the very poor accounted for 115 million
among the total poor reckoned at about 31 6 million . Obviously , the share of
hard core or chronic poor is quite high , around 3 7 percent of the total poor .
 Poverty continued to decline from 44.9 % in 1983 to 36.0 % in 1993 and
further to 28.3 % in 2004 - 05 . This phenomenon was also observe d in both
rural and urban areas. However , it was noted that total poverty declined at
the rate of 0.8 5 percentage points in the pre-reform period (1983-93) , while
the corresponding figure for the post - reform period was 0.70 percentage
points per annum .
 From this, it can be inferred that the rate of decline in total poverty was
slower in the post - reform period than in the pre-reform period . The same
pattern was observed in the rural as well as urban areas.
6)Need for Redefining Poverty Line

 The absolute level of poverty is estimated by standardizing the minimum

physical quantities of cereals, pulses, milk , butter etc . for a subsistence
level and then multiplying the physical quantities by price quotations to
arrive at a figure of per capita consumer expenditure .
 It may be noted that as prescribed by the Council of Medical Research , these
physical quantities should lead to the provision of 2,40 0 calories per capita
for the rural areas and 2,10 0 calories per capita in urban areas. Obviously ,
the stipulation of per capita consumer expenditure should result in providing
the recommended energy intake in the form of Required Daily Allowance.
 Components of basic human needs to arrive at a new poverty line for India
which is claimed to be one of the fastest developing economies of the world .
 1 . Nutritional Norms and cost involved
 2 Expenditure on health
 3 Expenditure on clothing
 4 Energy Consumption
7)International Comparison of Poverty

 Recent Revised Estimate of Poverty by the World Bank

 41.8 percent of the population was below the new international poverty line
in 2005 . This implies that 46 1 million persons were living in poverty as per
the revised estimate - a huge number indeed .
Food Price Inflation and Increase in
Poverty
 Food price inflation implies a sharper increase in the prices of food articles
relative to that of manufactures and other non-food articles.
 Recent price trends indicate that while the overall rate of inflation in the
Wholesale Price Index (WPI ) has dropped to 8. 4 percent in November 2008
from its peak of 13 percent in August 2008 but rate of inflation of food
articles has gone up from 8.8 4 percent to 10.4 3 percent during the same
period .
Towards a solution for the problem of
poverty
 1)Adopt a strategy of pro-poor growth instead of emphasizing liberalization
and GDP growth
 2 )Stimulating Agricultural Growth
 3) Increasing the productivity and job quality of the unorganized sector
 4)Improving the share of wages in the process of growth to achieve poverty
reduction
 5)Empowerment of the poor through education and skill formation
 6)Empowerment through provision of better health
 7)Empowerment through skill formation for our expanding IT sector
 8)Empowerment the poor through provision of housing
 9)Providing employment through National Rural Employment Guarantee
Scheme
Conclusion

 Human Capital : health , nutrition and skills needed for each person to be
economically productive
 Business capital : the machinery , facilities, motorized transport used in
agriculture , industry and services
 Infrastructure : roads, power , water , sanitation , air transport and sea ports
and telecommunication systems that are critical inputs into business
productivity.
 National capital : arable land , healthy soils , biodiversity , and well-
functioning ecosystems that provide the environmental service s needed by
the society
 Public institutional capital : the commercial law , judicial systems ,
government services and policing that underpin peaceful and prosperous
division of capital
 Knowledge capital : the scientific and technical know-how that raises
productivity in business output and the promotion of physical and natural
capital.
Unemployment in India
1)Nature of Unemployment in India

 The nature of employment , therefore , sharply differs from the one that
prevails in industrially advanced countries . Lord Keynes diagnosed
unemployment in advanced economies to be the result of a deficiency of
effective demand .
 It implied that in such economies machines become idle and demand for
labour falls because the demand for the products of industry is no longer
there .
 Thus Keynesian remedies of unemployment concentrated on measures to
keep the level of effective demand sufficient high so that the economic
machine does not slacken the production of goods and service.
2)Estimates of Unemployment in India

Chronic unemployment or 'usual Principal status employment' is measured in

number of persons i.e. , persons who remained unemployed for a major part of
the year .
This measure is more appropriate to those in search of regular employment e.g. .
educated and skilled persons who may not accept casual work . This is also
referred to as 'open unemployment’ .
(ii ) Weekly status unemployment (measured in number of persons) , i.e. .
persons who did not find even an hour of work during the survey week .
(MI ) Daily status unemployment (measured in person days or person years, i.e. .
persons who did not find work on a day or some days during the Survey week.
3)Various schemes to reduce
unemployment and under employment
 Rural Works Programme.
 The emphasis under the programme was on the construction of civil works of
a permanent nature as would contribute to the mitigation , if not the total
eradication , of the scarcity condition in the areas concerned .
 Marginal farmers and agricultural laborer's-
 Under the scheme , families were to be assisted with subsidized credit support for
agricultural and subsidized occupations like dairy , poultry , fishery , piggery-
rearing , horticultural operations , etc.
 Small Farmers Development Agencies.
 The object of the scheme was to make available to small farmers credit t o enable
them to make use of the latest technology to practise intensive agriculture and
diversify their activities Integrated Dry And Agricultural Development.
 Under the scheme , permanent works like soil conservation , land development
and water harnessing were undertaken .
 These programmes were labour-intensive and were expected to generate
considerable employment opportunity.
4)Employment Guarantee Scheme of
Maharashtra
 ( a ) To provide gainful and productive employment an individual in approved
rural works which raise the productivity of the economy .
 (b) The works undertaken should produce durable amenity assets in the area .
( c ) Productive works of labour-intensive nature like irrigation , water and soil
conservation , nalla bunding , al excavation , land development , afforestation ,
etc . could be undertaken .
 The work should be implemented incrementally and not through contractors
so that at least 1 per cent of the works expenditure is incurred on wages to
workers and 4 0 per cent in the form of materials , shipment , supervisory
experts and administrative service.
5)National Rural Employment
Programme
 The Food for work programme was restructured and renamed as National
Rural Employment Programme (NREP ) from October , 1980 . This was
implemented as centrally sponsored programme with 50 per cent central
assistance .
 Additional employment of the order of 300 - 4 0 0 million mandays per year
for the unemployed and underemployed was envisaged under the NREP .
 Besides this, the NREP aimed to create community assets for strengthening
rural infrastructure . These included drinking water wells , community
irrigation wells , village tanks, minor irrigation works , rural roads, schools
etc.
6)Rural Landless Employment Guarantee
Program
 Rural Landless Employment Guarantee Programme (RLEGP ) was launched on
the 15th August 1983 with the objective of generating gainful employment
creating productive assets in rural areas and improving the overall quality of
rural life.
 The programme was funded by the Central Government on 100 % basis.
Resources were allocated to the States/Union Territories on the basis of the
prescribed criteria giving 50 % of weightage to number of agricultural
labourers, marginal farmers and marginal workers and 50 % weightage to
incidence of poverty .
 Wages were paid to the workers under the Schedule of employment in the
Minimum Wages Act .
 Part of the wages were required to be paid in the form of subsidized
foodgrains . It was also stipulated that the wage component on a project
should not be less than 50 % of the total expenditure on the project.
7)IRDP,NREP,Rural Poverty and
Employment
 The IRDP was initiated on October 2 . 198 0 in all the 5,011 blocks in the
country . During the 5-year period (1980-85 ) in each block 600 poor families
were to be assisted .
 In this way , a total of 15 million families of about 7 5 million persons below
the poverty line were targeted to be beneficiaries. For each block a uniform
allocation of Rs 3 5 lakhs was to be shared between the Centre and the States
on a 50-50 basis.
 The programme was based on a graded scheme of subsidies which amounted
to 2 5 per cent of the capital cost of small farmers , 33.3 per cent for
marginal farmers , agricultural labourers and rural artisans and 50 per cent
for tribal beneficiaries.
 Following the Antyodaya principle , the programme was intended to reach
the poorest households first and later to reach other poor people in an
ascending order.
 The major weaknesses of the programme were as under :
 ( i ) Selection of ineligible families , though the Government claims to be
below 8 per cent , is in fact larger.
 (ii ) Training was not imparted to majority of the beneficiaries.
 (iii ) In about 22 % cases, no incremental income was generated .
 (iv ) Adequate infrastructure facilities were not available to beneficiaries.
The input facility was available to barely 40 % cases, marketing in 14 % cases
and repair facility in 5 % cases.
8)Jawahar Rozgar Yojana

 1.Social forestry works on government and community lands belonging to

panchayats ,road side plantations along canal banks or the wastelands or on
sides of railway lines etc .
 2 . Soil and water conservation works
 3 . Minor irrigation works , such as, construction of community irrigation wells
, drains and field channels
 4 . Construction/renovation of village tanks for providing irrigation as well as
drinking water
 5 . Construction of community sanitary latrines
 6 . Construction of houses for scheduled castes/scheduled tribes and freed
bonded labourers.
 7 . Construction of rural roads.
 8 . Land development and reclamation of waste lands or degraded lands.
 9 . Construction of community centres, panchayat ghar v Mahila Mandals .
Market yards , dispensaries in anganwadis etc .
 10. Construction of school buildings , etc.
9)Employment Policy in Nineth Plan

 The growth rate of employment in this sector has been of an order of 5.39 %
per annum during 1987-88 to 1993-94 compared to barely 1.8 4 % per annum
between 1983 and 1987-88 .
 But the irony of the strategy of employment outlined in the Ninth Plan is not
to compute the employment growth in education and health sector if policies
of building human capital , as suggested by Nobel Laureate Amartya Sen ,
have to be buttressed .
 This appears to be a basic fallacy on the employment growth strategy .
 To achieve the objective of 'education for all ' and 'health for all ' could result
in tremendous growth of employment , more especially in the rural sector,
which displayed serious deficiencies in this regard .
10)Changing dimensions of
Unemployment and Employment
 From sector-wise share of employment , by current daily status (CDS) , as
provided by 66th Round NSSO it is clear that , agriculture though is a major
source of employment even now .
 Its importance has come down from 65.42 per cent in 1983 to only 53. 2 per
cent in 2009-10 .
 Major gainer in employment is trade , hotel and restaurant with about 10. 8
per cent employment coming from this sector in 2009-10 , up from 6.9 8
percent in 1983 .
 Another sector which has gained significantly in terms of its share is
construction - up from 2.5 6 per cent in 1983 to 9.6 percent in 2009-10 .
 Manufacturing and Financial , insurance , real estate and business services
have also shown a gain in employment .
Unemployment Rates-Rural and Urban
Differences
 Unemployment rates are traditionally higher in urban areas than in rural
areas. As against an unemployment rate of 10. 3 per in 1977-7 8 in urban
areas, the rural unemployment rate 7 . 7 percent (CD S basis) .
 There was a significant fall in rural unemployment rate in 1987-88 to 5. 3 per
cent , the urban unemployment rate was of the order of 9. 4 cent ,
significantly higher . After 1993-94 . the period of liberalisation rural
unemployment rate again increased to 8.28 per cent while urban
unemployment also marginally increased to 8.2 8 percent during 1993-94 to
2004-05 .
 High levels of unemployment in the urban areas could be explained by a
larger proportion of organised sector unemployment which forces people to
either remain employed or unemployed , since the chances for getting
engaged in low productive activities are relatively fewer . As against this , the
rural areas indicate higher levels of disguised unemployment .
11 Structure of employment in India

 Organised vs Unorganised sector-

 The organised sector usually refers to employment in the public sector and in
private sector establishment employing 1 0 or more persons.
 It is commonly believed that wages in the organised sector are much higher
than the unorganised sector.
 Moreover , the organised sector being regulated also provides greater job
security and other benefits. Within the organised sector, jobs in the public
sector receive much higher wages and accompany log run benefits than those
in the private sector for similar skill .
 Beside s this , public sector offers greater job security.
12 Quality of Employment

 Quality of employment can be judged by certain indicators . Some of the

important indicators are :
 1. Wages received by the workers .
2 . Number of days during the year for which casual labourers were employed .
3 . Share of workers engaged in organised and unorganised sectors.
4 . Proportion of workers engaged in self - employment , regular salaried
employees and casual labour .
5 . Distribution of work opportunities among primary , secondary and tertiary
activities .
6 . Productivity of workers based on their levels of skills and educational
attainments .
13)Task force on employment
opportunities (2001)
 1 . It is necessary to encourage private corporate sector to invest in agriculture
and related activities by facilitating the creation of organised and corporatised
entities like Integrated Agricultural Complexes and Food Parks that would attract
commercial investment .
 2 . Degraded and wasteland , can be taken out of the purview of tenancy laws
and agro-companies allowed to have , develop , cultivate and sell this land .
 3 . The active involvement of larger industrial including MNC s and cooperatives
where possible , in the Food Processing Industries , is essential ... Major national
and international food processing companies should be approached to ascertain
the nature of the problem which limit their activities at present .
 4 . A phased process of dereservation of small-scale industries should be
completed in the next four years.
 5 . In the construction sector , the present bias against large construction firms
should be removed .
14 SP Gupta special group on targeting 10
million employment opportunities per year

 Estimate of employment and unemployment-

 The organised sectors employment generating capacity (measured in terms of
employment elasticity ) came down to near zero and has been negative in most
cases in the public sector.
 This is primarily due to
 ( i ) The present policy of shedding excess labour than this sector is carrying in
order to meet the growing market competition , often known as rightsizing;
 (ii) The trend towards increasing capital intensity per unit of output ; and
 (iii) The pattern of growth moving in favour of capital-intensive sectors.
 If we go beyond the data analysed by S P Gupta Committee and includes the
figures of 2004-05 (61st NSSO) ,we find acceleration in rate of unemployment .
 But again in 2009-10 we find a fall in unemployment rate.
15 Unemployment Rates

 The public sector annual employment growth declined to -0.60 % during 1994-
200 4 from 1.52 % during 1983-94 .
 It remained negative even during 2004-0 9 a t -0.5 6 percent .
 While it was expected that the private sector would compensate or more than
compensate it by pushing up private sector employment growth , but the
expectations of the advocates of economic reform were believed by the
actual employment growth in private sector marginally declined from 0.45 %
during 1983-9 4 to just +0.36 % during 1994-2004 .
 This was due to the increasing capital intensity in the organized private
sector.
 While shedding the load of surplus workers in public sector should continue ,
there is an urgent need to step up employment growth in the organized
private sector.
16 Employment Policy of the Eleventh
Plan
 The planners aims to provide 65 million additional employment opportunities
. As a consequence , the AM approach Paper states:
 "This will not create full employment but it will at least ensure that the
unemployment falls somewhat. "
 However , even this modest change implies that the rate of growth of non-
agricultural employment would need to accelerate to 5.8 % per annum from
4.7 % in 1999-2005 .
 In other words , a massive reversaliastion required from the negative
employment growth in the organized sector witnessed during the last decade
.
17 Alternative Model of development
for stimulating growth of employment
 1)Top Priority to Agriculture , Irrigation and Watershed Development
 2)Promoting SSI sector for employment generation
 3)Housing for the poor
 4)Provision of rural infrastructure
 5)Expansion of social infrastructure
 6)Need for reformed outlook towards informal sector
 7)Employment Potential of Information Technology
 8)Special Employment Programmes
18)Employment Guarantee Act,2005

 Role of the State Government-

 For the implementation of the Scheme , each State Government shall prepare
an Employment Guarantee Programme .
 The main features to be included in the Programme are :
 ( 1) Only productive works that are based on economic , social and
environmental benefits, contributing to social equity , and have the ability to
create permanent assets will be taken up under the Programme .
 (II ) The works shall be located in rural areas.
 (iii) When wages are directly linked with the quantity of work , they shall be
paid according to the schedule of rate fixed by the State government . For
unskilled labourers, this schedule shall be so fixed that seven hours of work
shall fetch wages equal to the statutory minimum wage fixed by the state.
Dismal Experience of NREGA:Lessons for
future
 1)Lack of professional staff
 2)Lack of proper project planning
 3)Beau acratic Resistance to NREGA
 4)Lack of transparency and social audit
 5)Inappropriate rates of payment
Indian Agriculture under the
Five Year Plans-The Green
Revolution
1)The Place of Agriculture in the Indian
Economy
a)Share of the agriculture in the National Income

b)Indian Agriculture and the pattern of employment in

our country

c)Importance of agriculture for industrial development

d)Rate of agriculture in the field of International Trade

e)Role of agriculture sector in economic planning

2)Progress of agriculture under the five
year plans
A)Agriculture under the first five year
plan
 The chief objective of First 5-Year Plan was to restore the disequilibrium
created by the Second World War and the Partition. The Partition of the
country resulted in a transfer of the fertile wheat areas of the Punjab and rice
areas of Bengal to Pakistan.
b)Agriculture under second plan

 The over-fulfillment of First 5-Year Plan target of food output made the
planners think that the food problem was solved and that the agricultural base
was strengthened.
 Hence, they devoted a relatively less outlay for agriculture 20% of the public
outlay (or Rs. 4800 crores) as compared to 33% in the First Plan.
c)Agriculture under the third plan

 Third 5 year Plan gave a Predominant emphasis to agriculture. One of the

major objectives of the Plan was to achieve self-sufficiency in food grains and to
increase agricultural production for exports.
d)Agriculture under the fourth plan

 The bitter experience of the Third Plan made the Planning Commission realize
the fact that planning would be a failure unless agricultural production was
increased rapidly. Accordingly Planning Commission assigned a high priority to
agriculture.
e)Agriculture under the fifth plan

 During the Fifth Plan, Rs. 7,411. crores will be spent on the development of
agriculture and irrigation which accounts for 20% of the total Plan outlay.
Beside this, investments by the private sector shall be of the order of Rs. 2,950
crores.
f)Agriculture under the sixth plan

 The Sixth Five Year Plan (1980-85) was started in an extremely different
circumstances as the year of 1979-80 witnessed a worse drought. It affected
agricultural production adversely. However, the achievements of the plan were
satisfactory.
g)Agriculture under the seventh plan

 The outlay for agriculture and allied sector including forestry and wild life was
Rs. 10524 crore in Seventh Plan against Rs.6440 crores in Sixth Five Year Plan
Period.
 The average level of annual production of food grains during the plan period
was around 155 millions tonnes.
 In 1990-91 food grain production reached to the level of 176-92 million tonnes
against the production of 140.35 million tonnes in 1987-88.
h)Agriculture under the eighth plan

 Eighth Plan envisages to spend Rs. 22,467 crore on agricultural development.

For rural development a total sum of Rs. 34,425 crore has been fixed whereas
Rs. 6,750 crore on special area programme and Rs. 35,525 crore on irrigation
and flood control have been proposed in the draft of the plan.
i)Agriculture in the ninth plan

 Accordingly the Ninth Plan target is to achieve a growth rate of about 4.5 per
cent per annum in agricultural output and production of 234 million tonnes of
food grains by 2001-02.
 In order to achieve the goal of doubling the food output and alleviation of
hunger, a regionally differentiated strategy based on agro-climatic regional
planning will be adopted.
g)Agriculture in the tenth plan

 Accordingly the Ninth Plan target is to achieve a growth rate of about 4.5 per
cent per annum in agricultural output and production of 234 million tonnes of
food grains by 2001-02.
 In order to achieve the goal of doubling the food output and alleviation of
hunger, a regionally differentiated strategy based on agro-climatic regional
planning will be adopted.
h)Agriculture development in the
eleventh plan
 Although the agricultural sector of the country is having a great potential but
the growth rate of the sector is very low.
 The greatest challenge before the Eleventh Plan is to double the growth rate of
agriculture so achieved in the Tenth Plan.
 This will require steps both on the demand side as well as the supply side.
3)Present status of Indian agriculture-
Looming Agricultural Crisis
a)Agriculture still a gamble in
the monsoons

b)Limited use of new

agricultural technology

c)Decline in investment in
agriculture
d)Failure of land reforms

e)Growing exploitation of the

tenants

f)Failure to control growth of

rural population
g)Unbalanced
agriculture development
Looming Crisis

 The NDA Government , however , was worried about the huge stocks of food
grains in Government godowns and the heavy burden it involved .
 Much of the stock was sold to flour mills illegally .
 Over 1 0 million tonnes of food grains were exported .
 The buffer stocks of food grains built ups carefully over the years were
frittered away .
 Even in June 2005 , the Government claimed that India was "self sufficient in
wheat" .
 But the reality was the liquidation of as much as 6 0 million tonnes of buffer
stocks in a period of three years, even in the midst of famine deaths in Orissa
and Rajasthan.
 The last two years of lean agricultural production with growing farmers '
suicides all over the country has created a sense of panic in the country .
 Unprecedented hoarding of cereals and pulses by traders and huge rise in the
prices of articles of daily consumption has forced the Government of India to
resort to import of wheat for the first time in nearly three decades.
 As much as 5 million tonnes of wheat is being imported this year .
 This trend of large imports of wheat will continue in the years to come.
4)Green Revolution

 Large-scale demonstration of better cultivation in actual field conditions would

induce farmers in other areas to adopt improved techniques.
 Thus , the intensive development programme would set in motion a beneficent
cycle .
 In this way , the spread effect of the programme would raise overall level of
productivity in Indian agriculture .
 Lastly , increased agricultural production in a certain region would produce
secondary and tertiary effects.
 For instance , the availability of more food in the country would decrease our
dependence on food imports and thereby release scarce foreign exchange
resources for other sections of the economy .
 Similarly , increased production of commercial crops would lead to the expansion
of agro-based industries .
Achievements of the new agriculture
strategy
a)Boost in the production of
cereals

b)Increase in the production of

commercial crops

c)Significant changes in the crop

pattern
d)Boast to agricultural
production and employment

e)Forward and backward

linkages strengthened
Weaknesses of the new strategy

a)Indian agriculture is still a gamble in

the monsoons

b)Growth of capitalistic farming in

Indian agriculture

c)Sidetracking the need for institutional

reforms in Indian agriculture
d)Widening disparities in income

e)New strategy and socio

economic relations in rural areas

f)Problems of labour
displacement
Indian Agriculture
5)New Thrust Areas in Agriculture

1)Output and coarse cereals has

shown negligible improvement.

2)Stagnation in the output of

pulses.

3)Another thrust area is to boost

the production of edible oils.
4)New Strategies of Irrigation and
Water Management

5)The use of bio-fertilisers has to be

extended.

6)Emphasis should shift to dry farming

6)Green Revolution and the future
prospects
 Obviously , for the Indian farmer , the more important consideration is the
total yield during the year, rather than simply yield per crop.
 Thus , the transformation from a mono cropping to multi-cropping system has
enabled the development of rice or wheat varieties of different maturities,
which have been integrated in the phenomenon described as the Green
Revolution .
 Obviously , the success of the Green Revolution should be judged in terms of
the over-all yield (income ) generated by the farmers per hectare in a year
rather than in terms of productivity per hectare of a single crop.
 Indians should make an effort to bring down the seeds cost by standardizing
hybrid rice seed production techniques.
 The Government should also provide hybrid rice seed at subsidised rates to
farmers .
 However , the hybrid technology in wheat is still at an infant stage of
development and research efforts shall have to be strengthened for quite
some time so as to achieve a breakthrough in the yield barrier.
7)The National Commission on farmers
and second green revolution
 Strategy to improve the economic conditions of framers-

a)Soil Health Enhancement

b)Irrigation water supply augmentation

and demand management

c)Credit and Insurance

d)Technology

e)Market
Five Point Action Plan

 First , undertake soil health enhancement through integrated measures in

improving organic matter and macro-and-micro-nutrient content , as well as
the physics and microbiology of the soil .
 Secondly , promote water harvesting , conservation , and efficient and
equitable use by empowering gram sabhas to function as "Pani Panchayats" .
 Thirdly , immediately initiate credit reforms coupled with credit and
insurance literacy . The Finance Minister has announced a reduction in the
interest on short-term loans to 7 percent .
 Fourthly , bridge the growing gap between scientific know-how and the field
level do-how both in production and post-harvest phase of farming .
 Finally , the gap between what the rural producer gets and the urban
consumer pays should be made as narrow as possible .
8)Crop Pattern in India since 1951

 Factors affecting crop pattern in India-

1)Physical and technical factors and

cropping pattern

2)Economic factors and cropping pattern

3)Government action and crop pattern

Horticulture-New Initiative

 Indian farmers are now appreciating the importance of horticulture — the

sector includes fruits , vegetables, spices, floriculture and coconut — in
improving the productivity of land , generating employment , providing
nutritional security and improving their economic conditions .
 Horticulture covered over 18. 7 million hectares of land in 2005-06 ,
accounting for 9. 5 per cent of the gross cropped area of the country (12. 3
million hectares in 1991-92) .
 Between 1992 and 2006 production of major horticultural crops rose from 97
million tonnes to 182 million tonnes , India has tremendous scope to increase
horticultural products — India is the second largest producer of fruis in the
world.
 Chapter-Irrigation and
other agricultural inputs
Better Utilisation of Irrigation Capacity

 The following are some of the important factors for underutilisation and the
necessary steps to remove them-
 ( i ) Indian farmers , by and large lack the necessary knowledge to optimise
irrigation use . They do not know appropriate agronomic practices including
suitable varieties of short-maturing crops, appropriate crop rotations , etc .
 In this connection , it is necessary to provide better extension services,
suitably linked with research organisation of scientists, and adapted to multi-
cropping farming practices.
 (ii ) Supporting facilities necessary for optimum use of irrigation etc. , land
levelling , land shaping , land consolidation , efficient land channels, etc. ,
are absent in many parts of the country.
 (iii ) Even major and medium irrigation works have not been properly
maintained . Minor irrigation works , particularly tanks and open wells , have
been largely neglected .
 To remove this important defect , it is necessary to undertake extensive
rehabilitation , renovation and modernisation of existing irrigation system.
 iv)Faulty irrigation practices and absence of adequate drainage facilities have
not only been responsible for waste of water but for water - logging , salinity
and alkalinity which have permanently damaged considerable portion of
cultivable land .
 Education in water management and provision of drainage facilities will help
to remove this defect.
2)Multipurpose River Valley Projects-A
controversy

a)Irrigation benefits exaggerated

b)Hydro power is not cheap

c)No benefit of flood control

d)Adverse environmental effects

 3)Irrigation in the eleventh plan

 The Eleventh Plan intended to enlarge irrigation capacity and at the same time improve the
efficiency of irrigation-
( i ) To improve water use efficiency by progressive reduction in conveyance and application losses .
(ii ) To bridge the gap between potential created and its utilisation by strengthening the Command
Area Development (CAD ) programme , institutional reform and promoting farmers ' involvement in
irrigation management .
(iii ) To complete all ongoing projects particularly those which were started during pre-Fifth and
Fifth Plan period.
 Iv)To introduce rational pricing of irrigation water based initially on Operation and
Management ( O & M ) cost .
 ( v ) To promote Participatory Irrigation Management (PIM ) with full involvement of
water user community , which will be at the centre stage of the implementation of
the strategy .
 (vi ) To encourage and implement the conjunctive use of ground and surface water
towards optimal utilisation of water resources and to have its development
environmentally sustainable as well.
4)Private sector participation in the
irrigation sector
 Role of Government-
 While private sector participation may be more suitable for medium and minor projects,
it may pose problems in the case of major projects.
 The Government has, therefore , to continue its role of financing big irrigation projects.
 2 To help the private sector, clearances such as forests, environment , resettlement and
rehabilitation of oustees, acquisition of land etc should be carried out by the government
department .
 3 The Government should offer concessions to private sector investors to augment their
return .
 These concessions can take the form of tax concessions , moratorium on loans , tourism
facilities , navigation etc .
 4 . There should be a guarantee on the return of investment by the private sector.
 5 The Government should spell out clearly the obligations of the Government and the
private sector in the agreement for such participation.
Sequencing of Privatisation of
Agriculture
 At the first stage , it would be in the fitness of things to promote , NGOs and
Consultancy firms , and involve them in water-distribution and collection of
water rates.
 A period of 5 years may be used to allay the fears NGOs .
 At the second stage , it would be prudent to undertake legal and institutional
reforms to facilitate the process of privatisation of irrigation .
 As the first and the second stage get consolidated , the more difficult options
involving private corporate sector in construction and management of
irrigation may be attempted.
5)Fertilisers and Manures

 Large imports of fertilizers through the use of scarce foreign exchange and heavy
subsidies was the result of the absence of a clear-cut and vigorous policy of setting
up fertiliser units within the country .
 In the international market , fertilizer was becoming scarce and its price was
shooting up particularly after the middle of 1973 in the wake of the oil crisis.
 Heavy pressure of demand , the high cost of feed-stock of fertiliser factories, high
rates of ocean freight—all these have reduced the international supplies of
fertilisers to India and at the same time have raised their price.
 There has always been considerable controversy on the question of fertilizer
subsidy and its growing burden on the Central Government .
 As already mentioned the fertilizer subsidy rose from Rs 4,400 crores in 1990-9 1
and is expected to be Rs 67,19 9 crores in 2011 - 12 (RE) .
 A basic criticism is that the benefit of subsidy goes to more affluent and rich
farmers and not to small and marginal farmers who use almost no fertilizers .
 The fertilizer factories have always questioned the method of the Government
calculation of selling prices of fertilizers and delayed disbursal of subsidies.
 The fertilizer industry - a basic industry - has suffered heavily and has remained
stagnant for a long period .
Irrigation and other
agricultural inputs
6)Improved Seeds

 Seed is "basic and crucial input for attaining sustained growth in agricultural
production.
 " Seed is the carrier of new technology to crop production , propagation and
multiplication .
 Accordingly , production of quality seeds and distribution of new improved
plant varieties constitute an important component of Government' s
agricultural policy .
 In fact , it is the success of this policy initiative which is the main reason for
India' s current self-sufficiency in foodgrain.
The Seeds Bill,2004

 The government formulated the Seeds Bill , 2004 . The salient features of the
Bill are :
 ( i ) Compulsory registration of varieties based on agronomic performance
data ;
 Ii)accreditation of organizations for certification ; such as Indian Council of
Agricultural Research (ICAR) , State Agricultural Universities, Private
Organisations to be authorized for certification ;
 Iii) regulation of import and export of seeds;
 ( i v ) exemptions for farmers to save , use , exchange , share or sell their
seed without registration ; and
 ( v ) enhance of penalty for major and minor infringement
Setting up of a Seeds Bank

 The Government of India has set up a Seeds Bank in 1999-200 0 to make

available seeds for meeting any contingent requirement and also develop
infrastructure for production and distribution of seeds.
 The Seeds Bank is being implemented through National Seeds Cooperation ,
State Farms Corporation of India and State Seeds Corporations of various
States.
 During 2001-02 , the Seeds Bank had fixed a physical target of maintaining
over 1,33,20 0 quintals of certified seeds, 9,000 quintals of foundation seeds
of various major crops, besides 11,00 0 quintals of certified seeds for the
North-Eastern States.
7)Soil conservation and Reclamation

 The remedies to soil erosion are : prevention of forests and afforestation ,

contour bunding , regulation of land use , etc . The Union Government set up
the Central Soil Conservation Board in 1952 and similar boards were set up for
each State .
 Nearly 40 million hectares of land have been brought under soil conservation
measures till 1997-98 .
 The programme consists of contour bunding , bench terracing , land levelling
and shaping as well as improved agronomical practices on agricultural lands.
Soil and water conservation programmes constitute an important activity to
protect the soil resources of the country , check soil erosion and land
degradation and reclaim degraded and problem lands.
8)Livestock and Dairy Development

 Importance of livestock in India-

 The significance of livestock sector in the Indian economy arises also because
of its assistance to tackle the serious problems of unemployment and under -
employment for weaker sections in the country and for providing subsidiary
occupation for income generation .
 It also plays a dominant role in dry-land agriculture particularly in the semi-
arid and arid areas of the country .
 Animal husbandry and dairy development are being used as a poverty-
eradication measure , i.e. , to provide additional employment and increase
family income of the rural poor.
Five Year Plans and Animal Husbandry

 The development programmes of animal husbandry under the five year plans have a
threefold objective—to increase the supply of milk and milk products, to provide
draught animals for farm operations and to raise the output of such products as
woodland hides which have commercial importance .
 The Plans have proposed to increase production of livestock products by improved
methods of animal husbandry supported by a co-operative marketing structure .
 Planned cross-breeding for improving the productivity of cows and draught power of
bullocks , improving the buffalo stock and promotion of poultry in rural areas,
selective breeding and cross-breeding of sheep , goats and pigs, the production of high
yielding varieties of fodder—these are some of the policies which are vigorously
implemented.
9)Mechanisation of Agriculture

 1 By use of better tools , equipment and machinery , it is possible to increase

agricultural production .
 2 Agricultural mechanisation helps efficient handling , transport and storage of
agricultural produce (post harvest technology ) so as to reduce wastage and bring
greater revenue to the producer .
 3 Agricultural mechanisation helps in processing agricultural produce near the
places of production , thus adding value to agricultural output .
 4 Agricultural mechanisation reduces the physical labour and drudgery attached
with various agricultural operations .
 5 . The basic purpose of mechanisation is to raise agricultural productivity ,
increase profitability in agriculture.
Progress of Mechanisation in India

 However , it may be noted that the sale of tractors and power tillers , though indicative of
the progress of mechanisation in agriculture , does not indicate by itself an increase in
agricultural productivity in various states in India .
 Uttar Pradesh and Madhya Pradesh are at the top in the share of sales in tractors as
compared with Punjab and Haryana who have shown much better progress in yield per acre .
 Similarly , West Bengal , Tamil Nadu , Assam and Karnataka are at the top in the use of
power tillers , but not so in yield per hectare .
 Despite progressive increase in the use of agricultural machines , its sustainable benefits to
- wards agricultural development have not been uniform in all states.
 In fact , these benefits have been mostly cornered by northern states and by some others
where irrigation facilities have been developed.
 Size of Farms and
Productive Efficiency
The Meaning of Economic Holding

 It is a holding which allows a man a chance of producing sufficient income to

support himself and his family in reasonable comfort after paying his
necessary expenses .
 It is also defined as the one which will provide for an average family at the
minimum standard of life considered satisfactory.
 But minimum standard of life and reasonable comfort are vague terms.
 It is rather difficult to say what considers a minimum or reasonable standard
of living.
Factors on which the size of economic
holdings depend

Fertility of Method of
soil Cultivation

Nature of
Crops
a)Fertility of Soil

 The more fertile the soil, the less will be the amount of land required in order
to provide reasonable standard of living to the peasant family.
 In this connection, it is necessary to remember that those lands which have
artificial irrigation facilities enjoy comparatively high fertility.
 Therefore the size of economic holding of irrigated and fertile lands would be
comparatively better.
b)Method of Cultivation

 The size of economic holding will depend upon the method of cultivation.
 If the farmer makes use of agricultural machinery such as tractors
,harvestors,etc the size of the economic holding will have to be large.
 On the other hand ,if the farmer uses less mechanized techniques he cannot
manage more than a few hectares of land say 6 to 8 hectares.
C)Nature of her crops

 The size of the economic holding will also depend upon the type of crops
raised.
 For instance, vegetable cultivation is highly intensive and even a small farm
of 2 or less hectares can provide full and continuous employment to and
average agricultural family, and provide it with reasonable level of living.
2)Changing pattern of ownership and
operational holdings
 1)The share of marginal and small farmers in the area owned has been
increasing over time ,but their percentage of ownership holdings has also
risen substantially.
 2)The proportion both in total ownership of holdings and area operated has
been rapidly declining in case of large owners (25 acres and above) which
indicates the surplus after ceiling legislation has been transferred to semi-
medium and medium farmers.
 3)It is the semi-medium and medium farmers who are the main gainers in
terms of total area owned and this group has emerged as the politically most
powerful group in rural India.
a)Marginal Holdings-

 It indicates that the group of marginal cultivators who have little land continued to live below
the poverty line since the average size of marginal holdings is too meagre to earn out a living.
 There is a growing pauperization of the Indian peasantry as indicated by the data swelling the
ranks of marginal famers nearly landless farmers.
b)Small Holdings

 Since the average size of the holdings declined from 1.45 hectares in 1980-1981 to 138
hectares in 2005-2006 ‘the situation remained more or less the same.
 The farmers may be able to have subsistence income in this group.
c)Semi-Medium Holdings

 Since the average size of holdings in this group was 2.78 hectares in 1980-81
and 2.68 acres in 2005-2006 this indicates that this group is able to earn a
better living.
d)Large Holdings

 This group comprises of holding of the size 10 hectares and above.

 Average size of the holdings in this group which was 17.4 hectares in 1980-81
also showed a slight decline to 17.1 hectares.
3)Farm Size, Productivity/Profitability
and Farm-Efficiency
 A)Inverse relationship between Farm Size and productivity-
 The common explanation of inverse relationship between farm-size and productivity is in
terms of higher output of family labor in small farms.
 In a labor surplus economy such as India ,the opportunity cost of family labor is low, and
therefore the small farms use abundant family labor and extend the cultivation of up to the
point where the marginal productivity of labor may approach zero or may even become zero
,while in case of large farms which use a high proportion of hired labor, the application of
hired labor will be stopped at the point where the marginal productivity of hired labor
equals the ruling wage rate.
 In case of small farms,ouput per acre is maximized ,while in case of large
farms using hired labor ,output per unit of labor is maximized.
 While the application of heavy dose of labor to small farms is obviously a
factor for the inverse relationship
b)The Inverse Relationship and the
Green Revolution
 The Green Revolution in agriculture has been characterized basically by a capital intensive
technology in which hybrid seeds, use of chemical fertilizers ,existence or creation of
assured irrigation etc,play a significant role .
 Even though the new agricultural technology is size neutral ,the access to capital and use of
inputs for small and large farms has not been the same and accordingly, the distribution of
gains between them has been uneven.
c)Farm Size and Profitability

 1)A good proportion of even the smallest sized farms showed positive profit.
 2)The losses are to be found not only in small sized farms but also in bigger
land holdings.
 3)The most interesting thing is that size classes show loss in one year but
frequently profit in another year.
4)The Problem of subdivision and
fragmentation of holdings
 Causes of small size of holdings in India-

The decline of
Growing population in The law of
the country joint family
inheritance
system

The decline of Rural

handicrafts and Indebtedness
indigenous and indigenous
money lenders money lenders
Remedies for sub division and
fragmentation
 A)Creation of economic holdings-
 One of the important aspects of land reforms in India is the increase in the
size of holdings and the consolidation of scattered holdings.
 To establish economic holdings ,the following important measures have to be
adopted.
1)The fixation of ceiling on land holdings ,so that all of those who have more
than the prescribed limit in a village will have to surrender their surplus land to
the public authorities who will then distribute the same among those who have
uneconomic holdings.
 2)Those farmers who have extremely small holdings may be induced to give
up their lands and shift to other occupations in rural areas and
 3)The pressure on land may be reduced by the starting of industries in rural
areas to provide employment to the landless laborers and the marginal
farmers.
2)Consolidation of Holdings

 For a long time it has been realized that the proper solution to the problem of
scattered holdings is the consolidation of holdings.
 By consolidation we mean the bringing together in one compact block all plots
of land of a farmer which are scattered all over the village.
 Consolidation is first achieved by the first pooling of all land in the village
into one compact block among all the farmers in the village.
3)Co-operative Farming

 According to some authorities as well as the Indian Government ,a permanent

solution is the problem of small and scattered holdings is co-operative
farming.
 Since then government of India at one stage accepted co-operative farming as
the official policy in one scheme of agrarian re-organization .
5)Co-Operative Farming

 The ultimate objective of co-operative farming was to establish co-operative

farms in India and to setup a co-operative rural economy.
 The Indian National Congress realized it long ago that in India co-operatives
would be of great use in mobilizing individual initiative for social and
economic needs.
Kinds of Co-operative Farming

 1)Co-operative tenant farming-

 It refers to a system in which a society, consisting of a number of
farmers,owns land which is divided into smaller holdings and then leased to
individual members of the society.
 The society provides facilities of credit ,seed,manure and implements and
undertakes marketing of members produce.
 Every member pays a fixed rent for his holding but the produce of his holding
is his own and is entirely at his disposal.
2)Co-operative Collective farming

 It implies the type in which members surrender their land irrevocably.

 Land ,livestock and other equipment are joint ,work is common and the
management is generally through an elected council.
 Under this system of farming,besides wage very person gets a share in the
surplus produce of the farm.
 The collective farm is a large scale farm and is highly mechanized.
3)Co-operative better farming

 It implies the system in which some or all the farmers in a village join
together for the purpose of improved methods of farming.
 They will combine together in in all agricultural operations such as
ploughing,weeding,harvesting etc.
 In this type of farming every farmer is independent,can put can put his land
into any use he likes and does not lose his title to land.
4)Co-operative joint farming

 It implies pooling of land on the part of small cultivators whose separate

holdings are not large enough to permit economic cultivation.
 The plots are pooled into one unit and the cultivation is joint ,though every
farmer retains ownership of land.
Critical Evaluation of Co-Operative
Farming
 1)Failure to make a frontal attack on the existing ineligiration economic
structure.
 2)Co-operative farming societies functioning as joint stock companies with
paid managers help capitalistic agriculture in India.
 3)Opposition by Indian Bureaucracy
LAND REFORMS
1)The need and scope for land reforms
in a developing economy
 Basically , land reform measures are aimed at alleviating rural poverty in the
following manner :
 ( i ) By distributing land among the landless by taking possession of surplus land from
large land holders ;
 (ii ) By providing security of tenure and ownerships to tenants and share-croppers and
by regulating payable by them to the landlords.
 (iii ) By protecting the interests of tribals in land preventing non-tribals to
encroach upon tribal land .
 (iv ) By promoting consolidation of holding to improve the size of operational
holdings thereby paving the way to raise productivity .
 ( v ) By development of public lands thereby providing better access to the rural
poor to obtain fuel wood and fodder .
 (vi ) By providing access to women to land and other productive assets .
 (vii ) By protecting homestead rights of the rural poor on lands owned by them
and providing them with house sites to enable them to construct residential
house.
2)The abolition of intermediaries

 It is customary to classify the various categories of land tenure systems before

independence into three broad heads : Zamindari , Mahalwari and Ryotwari.
 ( i ) Zamindari Tenure -
 Under the Zamindari system , which was introduced by Lord Cornwallis in 1793 in
Bengal , land was held by one person or at the most by a few joint owners who were
responsible for the payment of land revenue .
 The system was introduced by the East India Company to create vested interests in
land and thereby cultivate privileged and loyal class .
 The various forms of tenure such as Zamindari , Jagirdari , Inamdari , the princely
States etc were artificially created .
 The revenue collectors were raised to the status of landowners .
 Earlier they were responsible for collecting land revenue for which they received a
commission .
 The Zamindari settlements made them owners of land , thereby creating a
permanent interest in land.
 (ii ) Mahalwari Tenure
 Under the Mahalwari tenure , the village lands were held jointly by the village
communities , the members of which were jointly and severally responsible for the
payment of land revenue .
 The system was first introduced in Agra and Oudh and later on in Punjab .
 Under the system , the village common or Shamla is the property of the village
community as a whole .
 Similarly , the waste lands also belong to the village community and it is free to
rent it out and divide the rents among the members of the community or partition
it to bring it under cultivation without any leave of the Government .
 The system is the product of Muslim tradition and development , particularly in
Punjab.
 Ryotwari Tenure –
 Under the Ryotwari tenure , land may be held in single independent holdings .
 The individual holders were directly responsible to the state for the payment of
land revenue .
 The first Ryotwari settlement was made in Madras in 1972 .
 It was the product of Hindu tradition .
 This form of tenure was prevalent in Bombay , Berar and Central India .
 The ryot is at liberty to sub-let his land and enjoys a permanent right of tenancy
so long as he pays the rent.
Abolition of Intermediaries –The Policy
and the measures
 Although steps were taken earlier then actual abolition of intermediaries
started in 1948 with the enactment of legislation in Madras .
 Legislation was passed in all states , but for a few minor tenures and inams
as in Assam , Gujarat , Madras and Maharashtra .
 Incidentally it may be mentioned that West Bengal-the state worst affected
by the ravages of absentee landlordism—was among the late comers to adopt
legislation in 1954-55 .
 As a result of the conferment of rights, about 30 lakh tenants and share-
croppers acquired ownership rights over a total cultivated area of 62 lakh
acres throughout the country.
Compensation to Intermediaries

 The basis and rate of compensation varied from state to state .

 Compensation was fixed as a multiple of the income of the proprietor at the
time of expropriation .
 This multiple was high in the case of lower income brackets and declined in
upper income brackets .
 In States , uniform multiple of net income was introduced as compensation ,
but proprietors with small outcomes were , in addition , to be paid
rehabilitation grant.
 In some States compensation was a multiple of the revenue assessment .
 Yet in some other States compensation was correlated with the market value
of land.(e.g. , i n Kerala).
 The compensation was however to be paid in cash or in bonds .
 These bonds were to be redeemed in equal instalments spread over a long
period ranging between 10 t o 3 0 years in various states .
 The big proprietors were to be given bonds but the comparatively small
proprietors were to be paid in cash .
 The ex-intermediaries were given compensation amounting to Rs 670 crores in
cash and in bonds .
3)Tenancy Reforms
 Extent of tenancy-
 Broadly speaking , tenants are divided into three categories
 (i ) Occupancy or permanent tenants ,
 (ii ) Tenants-at-will or temporary tenants , and
 (iii ) Sub-tenants .
 The rights of tenancy of the occupancy tenants are permanent and heritable .
 They can also receive compensation from the landlords in case they make some
improvements on land . They enjoy a fixity and security of tenure which makes them
the virtual owners of land . It can be said that the only difference between the
occupancy tenant and the peasant proprietor is that the former is required to pay
rent to the landlord and the latter to pay land revenue to the state .
Informal or Oral Tenancy

 The principal purpose of shifting to informal tenancy is to extract higher land

rents from tenants .
 This is more so in view of the high-yielding varieties programme which has
brought a realisation among landlords that land is a very valuable asset and
promises high rate of return .
 In a country marked by land hunger , it is possible to take advantage of the
situation by charging high rents .
 Secondly , informal tenancy arrangements are a convenient device with the
landlords for nullifying tenancy reforms .
 Thus , unrecorded or clandestine tenancy perpetuates a semi - feudal land
system which was sought to be abolished by measures of land reforms.
Measures of Tenancy Reforms

 A)Regulation of Rents-
 Another suggestion in this regard is to fix rents in cash rather than in kind .
Historically , rents have been paid in kind in India but in view of the fact that
the peasants have to make a good many payments in money , while
purchasing seeds , fertilisers , implements and other necessaries of life , it
would be desirable to switch over to cash payment of rents .
 This is in fitness with the requirements of a rural economy changing rapidly
from barter to money exchange.
b)Security of Tenure

 While framing legislation pertaining to security if tenure , three essential

aims have to be kept in mind firstly that large-scale ejectments of tenants do
not take place ; secondly , that resumption of land may be taken up by the
owner for personal cultivation only ; and thirdly , that in the event of
resumption , a prescribed minimum area is left with the tenant.
c)Ownership Rights

 i)All tenants have been given without giving the owners the right of personal
cultivation
 (ii ) Owners have been given the right to resume a limited area (not more
than a family holding in any ie ) subject , however , to the condition that a
minimum area is left with the tenant.
 (iii ) A limit has been placed on the extent of land which a land-owner may
resume , but the tenant is not entitled to retain minimum area for cultivation
in all cases.
4)Ceiling on Land Holdings

 Land reforms in India had envisaged that beyond a certain specified limit , all lands
belonging to the landlords would be taken over by the state and allotted as small
proprietors to make their holdings economic or to landless laborer's to meet their
demand for land .
Problems of Ceiling

 A)Mala Fide Transfers-

 The legislation pertaining to ceiling on holdings led to a large number of mala
fide transfers . These transfers are principally of three types :
 (a ) transfers among the members of the family ,
 (b ) benami transfers and other transfers which have not been made for
valuable consideration and through a registered document , and
 (c ) transfers made for valuable consideration through a registered
document.
b)Compensation and allotment of
surplus lands
In the allotment of surplus lands those tenants who have been displaced as a
result of resumption for personal cultivation should be given preference .
Along with the case of farmers with uneconomic holdings , landless labourers ,
particularly those belonging to scheduled castes and scheduled tribes , should be
kept in the priority list.
Implementation of ceiling laws

 To complete ceiling laws it is necessary to make survey of the lands held in ownership
by different persons/families in the village .
 To make a historical analysis of the ownership of land to study problems like
partitioning of land , to evade the ceiling law by voluntary surrenders , or forced
evictions , it would be relevant to identify big landowners in a village and prepare
genealogical trees for each family .
 This will enable the government to know the amount of land held in ownership
before the introduction of ceiling legislation and the manner in which it was dispersed
among the members of the family.
Land Ceiling-A failure

 The purpose of land ceiling legislation , was to ration out land—the most
scarce yet the most basic asset in Indian rural life—among those who were
actual tillers , viz. , landless labourers , share - croppers or small holders .
 This could be done by imposing a limit on the possession of land by big
holders .
 Apart from the objection by landlord classes against ceiling legislation , a very
large number of loopholes were left in the ceiling legislation .
 Consequently , evasion was possible even within the legal provision.
5)An appraisal of Land Reforms

 Land Reforms and New Economic Policy-

 "The emphasis should now shift to the role of land reform in fostering agricultural
growth and augmenting employment opportunities .
 An improvement in the incomes of the rural poor is a matter of high priority not just
for altruistic reasons . Increasing incomes mean increased purchasing power .
 The resulting spurt in the demand for goods of mass consumption will foster
industrial growth . And that could pave the way for the success of the new economic
policy that depends on the market as the engine of economic growth .
 We need certain minimal measures of land reform to facilitate the growth of the
Indian economy on the capitalist path of development that we have now chosen.
Organization of Rural
Credit In India
1)Needs for credit for Indian farmers

 Period of Credit-
 A)Framers need funds for short periods of less than 15 months for the purpose
of cultivation or for meeting domestic expenses.
 For example they want to buy seeds,food for cattle tec.
 They may require funds to support their families in those years when the
crops have not been good enough or adequate for the purpose.
 2)The farmers require finances for medium period ranging between 15 months
and 5years for the purpose of making some improvement on land ,buying
cattle,agricultural equipments etc.
 These loans are larger than short terms loans and can be repaid over longer
periods of time.
 3)The farmers need finances for the purpose of buying additional land ,to
make permanent improvements on land ,to pay –off old debt and to purchase
costly agricultural machinery.Usually the duration of the loan is more than 5
years.
Sources of Credit

 A)Landlords
 B)Non-Institutional Sources-
 1)The money lenders freely supplies credits for productive and non productive
purposes ,and also for short term and long term requirements of the farmers.
 2)He is easily accessible and maintains a close and personal contact with the
borrower often having relations with family extending over generations.
 3)His methods of business are simple and elastic.
 4)He has local knowledge and experience and therefore can lead against land
as well as against promissory notes .He knows to protect himself against
default, through legal and illegal methods.
2)Credit Delivery mechanism in rural
finance: Multi Agency Approach
 1)Need for institutional finance-
 A)It is based on profit motive and therefore ,it is always exploitative.
 B)It is very expensive and it is not related to the productivity of land.
 C)It does not flow into most desirable channels and to most needy persons
 D)It is not properly integrated with the agriculturalists other needs.
 E)It is not available for making agricultural improvements and much of the
necessary improvements are undertaken as funds are not available for long
periods at low rates of interest.
National Policy and Objectives

 The basic objectives of this policy are-

 A)To ensure timely and adequate flow of credit to the farming sector.
 B)To reduce and gradually eliminate the moneylenders from the rural scene.
 C)To make available credit facilities to all the regions of the country,ie reduce
regional imbalances.
 D)To provide larger credit support to areas covered by special programmes
like Pulses Development Programme,National Oilseeds Development
Programme.
Shortcomings of Institutional Credit

 1)The many new institutions created by the government and the vastly extended
facilities of rural finance provided by these institutions have generally been
appropriated by top 30 percent of middle and affluent farmers in the country.
 2)Even those credit facilities exclusively created for small and marginal famers and for
economically backward classes do not reach the target groups but are misappropriated
by more affluent farmers through collusion with government officials and politicians.
 3)Precious little is being done for the weakest of the rural population
consisting of bonded laborers ,tribals,scheduled castes and tribes .
 These people constituting 25-30 percent of rural population continue to be
cruelly exploited by the high caste money lenders and landlords.
Problems of Multi-Agency Approach

 1)There has been a steady declining trend in the share of co-operative banks
in the flow of institutional credits over the years .
 2)There was no coordination between different agencies operating in the
same area and as a result there was multiple financing ,over –financing in
some areas and under-financing in some areas.
 3)Despite the adoption of lead bank schemes and district credit plans ,the
different agencies often failed to formulate and develop meaningful
agricultural credit programmes in given blocks and districts.
 4)Despite guidelines issued by RBI,different agencies adopted by different
producers and policies in matters proving loans and in their recovery.
 The result was unnecessary competition among the different agencies.
 These were practical problems in the recovery of loans when different
agencies had lent to the same persons against the same securities .Ultimately
there were heavy overdues.
3)Rural Co-Operative Credit Societies

 1)Primary Agricultural Credit Society-

 Role -
• It is the basic unit organized at the village’s grass-root level with the main role
of dealing with agricultural borrowers of the village by giving agricultural, short-
term, and medium-term purpose loans to the borrowers then collecting the
repayments against those loans.
• They act as a link between the country’s higher financial agencies who can
resolve various issues of the members and the ultimate borrowers. It is an
important role because it is very difficult for the farmers to approach directly to
the higher financial agencies for their problems, and thus, PACS helps them in
that matter.
Objectives of PACS

• 1)The loan should be provided by the PACS only to its member, the repayment
schedule of which can be decided on the basis of the purpose and tenure for
which the members take the loan. Also, the loan should be given only for short
and medium-term purposes.
• 2)The PACS area should be limited only to the village level to which it belongs
and for the benefit of its members.
• 3) It should be of enabling common interest if all the members of society and
society should demand all of its members’ contribution.
• 4)The membership of society should be given only to those located at the
village where the credit society is established. There should be unlimited liability
of all the PACS members.
• 5)For the deposits as well as the loan which are there on its account, PACS is
liable.
Functions of PACS

• 1)The main function of the PACS is to provide short and medium-term purpose
loans to its members.
• 2)Borrowing an adequate amount of funds from central financial agencies in
order to help its members in a timely manner.
• 3)Maintaining the supply of the hire light machinery for the agricultural purpose.
• 4)It is to promote savings habits among its members.
• 5)To make the arrangement of supplying of the agricultural inputs is another
function of the PACS. Example of the inputs for agricultural purpose includes
seeds, fertilizers, insecticides, etc. Along with this, they also supply required
domestic products like kerosene, etc.
Advantages of PACS

• 1)Primary Agricultural credit society helps the farmers to get credit for
agricultural, short-term, and medium-term purpose and government-related
funds distribution to eligible farmers at their place.
• 2)These credit societies also help in implementing any government schemes
which are related to farmers at their level and also to observe these schemes if
they are attaining the purpose or not.
• 3)PACS acts as a link between the higher financial agencies of the country who
can resolve various issues of the members and the ultimate borrowers, thereby
helping in resolving the problems of the farmers.
Disadvantages of PACS

• 1)Organizational Weakness: Though this corporative society covers the major

portion of the villages, still there are few parts of villages, especially to the
northeast side, which are not covered in this scheme. Thus this may be a
disadvantage.
• 2)Over Dues: The larger over dues of this scheme are from landowners than
compared to the small cultivators, which means undue advantage was taken
against this scheme by a few of the farmers who are relatively stronger in the
village.
• 3)Lack of Resources: There was no appropriate resources given to the short
term and medium credits. Hence inappropriate resources cause a disadvantage
to the scheme.
4)Long Term Rural Credit :Co-Operative
Agricultural and Rural Development Banks
(CARDB’s)
 Land Mortgage Banks-
 The long term problems of the farmers were traditionally met by the money
lenders but later by other agencies as well such as the State Governments and
Co-operative Credit Banks.
 Initially land mortgage banks were organized for the purpose of providing long
term credit to farmers.
 These banks were latter called land development banks.
 In recent years they have been named as co-operative agricultural and rural
development banks.
 These are classified into Primary Co-Operative and agricultural and rural
development banks and state co-operative agricultural and rural development
banks.
The Structure of CARDB’s

 The long term credit structure consists of the central land development banks
generally one for each state and are now called State Co-operative Rural
Development Banks and Primary Cooperative Agricultural Rural Development
Banks.
 In some states, there are no primary development banks but in their place,
there are branches of central land development banks.
Finances of CARDB’s

 CARDB’s obtain their funds from share capital reserves, deposits and issue of
bonds or debentures.
 Debentures are long term loans which are issued by SCARDB’s carrying fixed
interest and for fixed periods ,generally up to 20 years.
Problems of CARDB’s

2)Lack of
1)Problems of
Trained
Overdues
Manpower

3)Diversification
of Loans
5)Rural Co-Operative Movement in India
–An Evaluation
 Benefits
 The Co-Operative societies have led to the use of better farming methods,
such as the use of improved seeds,manures etc.
 The marketing and processing societies have helped members to buy their
requirements cheaply and sell their agricultural produce at good prices.It has
also provided good storage facilities to the farmers.
Weaknesses of the Movement

 1)Lack of Spontaneity
 2)Lack of Funds
 3)Loans for Productive Farmers Only
 4)Provision of Credit Only
 5)Competition from Private Agencies
 6)Lack of Co-operation on the part of the people
 7)Defective Management and Leadership
 8)The Attitude of the Government
 9)The Nature of Indian Rural Society
6)Commercial Banks and Rural Credits

 Banks should give preference to village industries, tiny industries and other
small scale units in that order, while meeting the credit requirement of the small
scale sector;
 (b) The banks should step up the credit flow to meet the legitimate
requirements of the SSI sector in full during the Eighth Five Year Plan;
 (c) An effective grievance, redressal machinery be introduced within each bank
which can be approached by the SSI in case of difficulties; and
 (d) Banks should adopt the single window clearance scheme of SIDBI for
meeting credit requirements of small scale units.
RBI Guidelines on farm credit ,1998

 A)Credit Norms and sales of finance-

 Commercial banks should extend credit not only to ready viable cultivators
for further increasing their surpluses but more important to marginal and
potentially viable cultivators.
 B)Margins of Security-
 Banks were asked to be liberal in their loans to the farmers,and were asked
to keep as low a margin on the loans as possible.
 3)Securities against loans to cultivators-
 As lending was production-oriented ,a mere charge or hypothecation of crops
should be sufficient for short term loans.
 4)Recovery of defaults-
 Commercial banks should evolve a suitable set of rules and procedures to
determine the circumstances in which defaults might be condoned on account
of crop failures and which the farmer-borrower might be given relief .
 E)Need of co-ordination-In the initial stages of the entry of commercial banks
in the field of rural finance ,there was unavoidable duplication, it was found
that more than one commercial banks as well as operative society has
financed the same borrower for the same purpose and against the same
security.
7)Lead Bank Scheme

• Aim of the scheme-

• The aim of the scheme is providing adequate banking and credit in rural areas
through an ‘service area approach’, with one bank assigned for one area.
Objectives

• To identify unbanked and underbanked center's in districts and to evaluate their

physiographic, agroclimatic end Socio-economic conditions through economic
survey.
• To help in removing regional imbalances through appropriate credit deployment;
• To extend banking facilities to unbanked areas;
• To estimate credit gaps in various sectors of an economy of a district and prepare a
credit plan accordingly.
• To identify economically viable and technically feasible schemes.
• To effect structural and procedural changes in banking sector.
• To develop co-operation amongst financial and non-financial institutions, in overall
development of the districts.
• To serve as a clearing house for discussions of problems arising out of financing
priority sectors.
8)Service Area Approach-New Strategy
for Rural Lending
 Problems faced in service area approach (SAA )Strategy-

Under
Allocation of Tribal and
Villages Utilization of
Hilly Areas
Bank Staff

Organizational
Problems
9)Regional Rural Banks

 Regional Rural Banks are the Scheduled Commercial banks in India conducting
banking activities for the rural regions at the state level.

 Functions of RRB-
 Accept Deposits
• RRBs accept deposits from their members who hold an account in the bank.
• Deposits can be made in current or savings accounts.
• Depositors can also be made in fixed or recurring forms.
2)Loan Extension

• The RRB Act of 1975 states that the RRB can extend loans and credit services to
the Priority Sector (PS). The loans to this sector are classified under PSL or Priority
Sector Lending. The RBI announced the coverage of RBBs in PSL from FY 1997.
• The priority sector comprises of small and marginal farmers, craftsmen and artisans,
local traders, medium and small scale businesses, education, housing, renewable
energy, etc. which needs development and financial investment.
• 75% of the total Bank Credit has to be provided to the Priority Lending Sector. Out of
this total credit, 10% has to be given to the economically weaker sections.
• Hence, short- term loans on a low rate of interest are extended by these banks to the
priority sector. RRBs cannot, however, extend large or long- term loans to its
customers.
3)Wage Disbursement

• The Regional Rural Banks in India perform the important function of distribution of
wages under the MGNREGA (Mahatma Gandhi National Rural Employment
Guarantee Act), the Pradhan Mantri Gram Sadak Yojana (PMGSY).
• The pensions provided under the poverty alleviation schemes and pension schemes
of India are also distributed through these banks.
Secondary Functions of RRB

• Similar to commercial banks, the secondary functions of the Regional Rural Banks in
India are providing agency services and general utility services to their customers.
• Agency services like foreign exchange, bill payments, money wire transfer, etc. are
performed by RRBs.
• Utility services like ATM, UPI, issuance of debit cards, locker facilities, etc. are also
provided by RRBs in India.
10)NABARD and its role in rural credit

 1.To serve as an apex financing agency for the institutions providing investment
and production credit for promoting various developmental activities in rural
areas;
 2. To take measures towards institution building for improving absorptive
capacity of the credit delivery system, including monitoring, formulation of
rehabilitation schemes, restructuring of credit institutions and training of
personnel;
 3.To coordinate the rural financing activities of all institutions engaged in
developmental work at the field level and liaison with the Government of India,
the State Governments, the Reserve Bank and other national level institutions
concerned with policy formulation; and
 4. To undertake monitoring and evaluation of projects refinanced by it.
 5. NABARD gives high priority to projects formed under Integrated Rural
Development Programme (IRDP).
 6. It arranges refinance for IRDP accounts in order to give highest share for the
support for poverty alleviation programs run by Integrated Rural Development
Programme.
 7. NABARD also gives guidelines for promotion of group activities under its
programs and provides 100% refinance support for them.
 8. It is setting linkages between Self-help Group (SHG) which are organized by
voluntary agencies for poor and needy in rural areas.
 9.It refinances to the complete extent for those projects which are operated
under the ‘National Watershed Development Programme‘and the ‘National
Mission of Wasteland Development‘.
 10. It also has a system of District Oriented Monitoring Studies, under which,
study is conducted for a cross section of schemes that are sanctioned in a
district to various banks, to ascertain their performance and to identify the
constraints in their implementation, it also initiates appropriate action to correct
them.
Agricultural Marketing
and Warehousing
1)The Present state of Agricultural
marketing in India
 A)Basic facilities needed for agricultural marketing-
 The farmer should enjoy certain basic facilities-
1)He should have proper facilities for storing his goods.
2)He should have holding capacity, in the sense that he should be able to wait for
times when he could get better prices for his produce and not dispose of his
stocks immediately after the harvest when the prices are very low.
 3)He should have adequate and cheap credit facilities which would enable
him to take his surplus produce to the mandi rather than dispose of it in the
village itself to the village moneylender cum merchants at low prices.
 4)He should have clear information regarding the market conditions as well as
about the ruling prices, otherwise he may be cheated. There should be
organized and regulated markets where the farmers will not be cheated by
the dalaals and arhatiyas.
 5)The number of intermediaries should be as small as possible so that the
middleman’s profits are reduced. This increases the return to the farmers.
Defects of Agricultural Marketing in
India
 1)Indian famers don’t have storage facility for their produce.
 2)The average farmer is so poor and indebted that he has no capacity to wait
for better prices.
 3)The transport conditions in rural areas continue to be bad that even richer
farmers, who have large amounts of surplus, may not be interested in going to
the mandis.
 4)The conditions in mandis is such that the farmer may not be able to dispose
of his produce.
 5)The number of intermediaries and middleman between the farmer and final
consumer of his produce is too many and the margin going to them too large.
2)Regulated Markets

 Regulated markets aim at the development of the marketing structure to –

 A)Ensure remunerative price to the producer of agricultural commodities,
 B)Narrow down the price spread between the producer and the consumer
 C)Reduce non-fictional margins of the traders and commission agents.
New Thinking on Regulated Markets

 1)Permission to farmers ,local authorities and others to establish new markets

in any area
 2)No compulsion to growers to sell their produce through existing regulated
markets.
 3)Setting up of purchase centres,farmers/consumer markets for direct sale
 4)Promotion of public-private partnership in the management and
development of agricultural markets
 5)Setting up of special markets, for such perishable commodities as fruits and
vegetables.
 6)Regulation and promotion of contract farming arrangements in the country.
3)Co-Operative Marketing

 A co-operative sales association is a voluntary business organization

established by its member patrons to market farm products collectively
for their direct benefit. It is governed by democratic principles and
savings are apportioned to the members on the basis of their patronage.
 The members are the owners, operators and contributors of the
commodities and are the direct beneficiaries of the savings that accrue
to the society. No intermediary stands to profit or loss at the expenses
of the other members.
Advantages of Co-Operative Marketing
Societies
 1)The marketing society substitutes collective bargaining in place of
individual bargaining. The farmer by himself is weak but the marketing
society is strong.
 2)It advances loans to the farmers and enabled them to wait for better
prices. Besides it lends to them for their other needs .Thus co-operative
farming societies can link credit ,farming ,marketing and processing to the
best advantage of the farmers.
 3)It can have its own storage and warehousing facilities, it can thus reduce
the damage to agricultural produce through ants, dampness etc.
 4)It can arrange to have quick and cheap transport and sometimes it can even
have its own transport.
 5)It can encourage the farmers to produce graded and standardized products
and discourage them from adultering their produce.
 It can control the flow of supplies and thus influence the prices.
 It can eliminate many of the middleman and thus remove their larger profit
margins.
Co-Operative Processing

 The processing of agricultural produce has strategic place in the rural

economy for providing better returns to the farmers,co-operative processing
helps to create a non-exploitative industrial environment in the rural agro-
industry.
Co-Operative Storage

 Agricultural co-operatives require godowns for undertaking various functions

like marketing of agricultural produce, supply of agricultural produce, supply
of agricultural inputs and distribution of consumer goods.
4)Government and agricultural
marketing
 1)Marketing Surveys
 2)Grading and Standardization(AGMARK)
 3)Setting up of Regulated Market
 4)Provision of Warehousing Facilities
 5)Organization of Co-operative marketing societies
 6)Setting up of social boards
 7)Boost of export of agricultural products
 8)Agricultural marketing reforms
 9)Futures Trading
Warehousing in India

 Warehousing facilities are necessary to prevent the loss arising out of

defective storage and also to equip the farmers with a convenient instrument
of credit.
 With a view to create scientific storage in rural areas, the government is
implementing since 2001 a Central sector scheme for the construction of rural
godowns.
 The scheme provides a subsidy to private and co-operative bodies on the
capital cost of the storage projects.
 During the sixth and the seventh year plan, the Central Government has been
promoting a national programme of storage with a view to develop a well
spread out storage grid from the farm to the national level.
 At the base the progarmme envisaged the construction of rural godowns each
of 100 tonnes capacity.
6)Reforms in Agricultural Marketing with
special reference to model APMC Act
• 1)As per the act, the State is divided into several market areas, each of which is
administered by a separate Agricultural Produce Market Committee (APMC)
which impose its own marketing regulation (including fees).
• 2)Apart from that, legal persons, growers, and local authorities are permitted to
apply for the establishment of new markets for agricultural produce in any area.
• 3)There will be no compulsion on the growers to sell their produce through
existing markets administered by the Agricultural Produce Market Committee
(APMC).
• 4)Separate provision is made for notification of ‘Special Markets’ in any market
area for specified agricultural commodities.
• 5)Provision for Contract Farming, allowing direct sale of farm produce to
contract farming sponsor from farmer’s field.
• 6)Single point levy of market fee on the sale of notified agricultural commodities
in any market area.
• 7)Provision made for resolving disputes arising between private market/
consumer market and Market.
• 8)Provides for the creation of marketing infrastructure from the revenue earned
by the APMC.
Industrial Pattern and the
Plans
1)The Role of Industrialization

 The pattern of growth through trade in primary commodities was however

realized in the nineteenth century when industrialization was closely linked
with international trade because-
 A)Countries previously isolated by high transport costs as well as other
barriers came to specialize and
 B)Economic development through trade was diffused in outlying areas
because the pattern of advance in the rising industrial countries
happened to be such as to cause a rapidly growing demand for crude
products of the soils which those areas were fitted to supply.
 As rising levels of per capita consumption have gradually transformed the
composition of demand for goods and services and as technological
changes have resulted in the more economic use of raw materials or the
creation of synthetic substitutes ,the growth of import demand of the
advanced countries for most primary products has lost the momentum of
the earlier period, and currently it lags behind the growth in their domestic
incomes and output.
2)The Pattern of Industrialization

 Industrial development depends upon the rate of capital formation.

 Supply of capital goods can be augmented either through imports or
through domestic production.
 Increase in imports of capital goods depends on the rate of growth of
exports.
 Since the scope for expansion of products of primary commodities is
limited,export promoting manufacturing industries may be developed or
alternatively ,certain import substituting domestic industries may be
developed,the effect of which will be to release foreign exchange for the
imports of capital goods.
 Thus export promoting industries, import substituting industries,and
domestic capital goods industries are not mutually exclusive industries.
 Simultaneous development of the three classes of industries will prove to
be the most effective strategy of industrialization.
3)Planning Pattern on the Eve of
Independence

 The British government put definite hindrances and cold shouldered their
development. The main features of the industrial pattern in India on the
eve of planning were-
 1)Lop-Sided pattern of industry-
 The peculiarity of the industrial pattern of India was the highest
concentration of employment either in small factories and household
enterprises ie the lowest size group or that there was a high concentration
of employment in large factories that is the highest size group.
 The medium sized factories did not develop in India .The existence of the
lop sided industrial pattern was due to the colonial nature of our economy.
b)Low capital intensity

 Another feature of the Indian Industrial pattern was the prevalence of low
capital intensity.
 It was the result of two factors-first the general level of wages in India was
low level of wages ,and second the small size of home market in the view
of the low per capita income and the limited use of mass production
techniques resulted in low capital per worker employed.
c)Composition of manufacturing
output

 Industrial pattern in India was on the eve of planning was marked by low
capital intensity, limited development of medium sized factory enterprises
and imbalance between consumer and capital goods industries.
4)Industrial Pattern and the Five Year
Plans

 1)Rise in the share of secondary sector in GDP-

 The share of industrial sector in GDP (Gross Domestic Product) has increased
continuously during the plan periods. The share of industry in GDP at FC rose
from 13.3% in 1950-51 to 21.6% in 1980-81 and furthermore to 24.6 % in 2003-
04.
2)Rise in consumer goods industry

 Due to the policy liberalization the growth of consumer goods industries increased
steadily during recent years.
 The growth rate of this sector was 14.4 % per year in 1981-85, increased sharply to
16.9% per year during 1985-90. Again there was a setback in 90s. but it rose
thereafter and stood at 14.5 % per year during 2000-01.
3)Substantial increase of the
infrastructure industries-

 The infrastructure industrial development includes the growth of electricity, coal,

steel, petroleum and cement. In 1950-51 electricity generation was 5.1 billion
KwH, rose to 558 billion KwH in 2003-04.
 The production of crude petroleum was only 0.3 million tonnes in 1950-51,
increased to 33.4 million tonnes in 2003-04. The manufacture of steel increased
from 1.04 million tonnes in 1950-51 to 36.9 million tonnes in 2003-04.
4)Expansion of the government
sectors

 Just after Independence there were only few private sector Industries in India.
However from the dawn of the plan periods, the government (public) sector are
getting maximum emphasis from the government. There were only 5 public sector
industries during the First Plan.
 The member had increased to 227 during 2003, with a total capital investment of
Rs 4.18,758 corers. It plays a key role in expanding the production of fuel, basic
ferrous and non-ferrous metals communication, tools, fertilizers and other prime
industries in the country.
5)Varieties of Industry Goods

 During the time of First Five Year Plan there were only four industries like food
products textiles wooden furniture and basic metals responsible for about 70% of
the total production. However, the picture has changed in recent years.
 The share of these industries have fallen and in their place share of machinery,
transport, chemicals and other equipment’s industries has increased steadily.
Thus, a large variety of industrial goods expanded within the country
6)Rise in chemical and petrochemical
goods

 At the early stage of industrial expansion, the country had noticed the growth of
basic, metals, metal products, electrical and non- electrical goods.
 However from 1980s the scenario had changed. The growth of chemicals,
petrochemical and allied industries has come up at high pace. As a result, a
number of chemical and petrochemical hubs have come up after 1980s.
5)Review of industrial growth under
planning-Structural transformation

 Industrial Progress since independence-

 India ahs attained self sufficiency in almost all consumer goods. Growth of
capital goods production has been specially impressive.
 An impressive industrial capacity has been achieved in mining and
metallurgical industries ,chemical and petrochemical industries including
sophisticated equipment for steel mills,fertiliser plants ,heavy engineering
industries ,power and transportation industry.
 Further India can sustain the future growth of vital sectors of the economy
primarily through domestic effort and only with marginal effort.
Rate of Industrial Growth

 Industrial growth has not been uniform since 1951.

 During the seventh plan,the growth had picked up to an average of 8
percent per annum and in the eight plan it had declined to 7.3 percent.
 During the nineth plan growth slupmed to 4.6 percent but during the 10th
plan it improved again.
Strategy of Industrial Development

 From the very beginning,planners anticipated shortage of foreign

exchange as a major constraint to the development effort.
 For decades ,primary commodities exported by developing countries
were priced adversely and there was no hope to fill the gap between
expanding demand and the earnings of foreign exchange.
 The planners therefore,rightly decided to develop industries to reduce
demand of imports and to generate expanding foreign exchange
earnings.
 Further there has been substantial measure of import substitution and our
foreign exchange situation has improved to an extent where there is no
longer a major constraint on development.
Growing importance of Basic and
Capital Goods

 Basic industries which include iron and steel,fertilisers,chemicals etc have

improved their position significantly under the impact of industrialization.
 Several capital good industries unknown have been brought into
existence and developed.
 On the other hand during the same period ,during the same period ,the
share of consumer goods industry such as textiles,sugar ,paper,declined in
terms of productive employment and value-added.
Structure of Effective Demand and
Pattern of industrial Development

 A critical feature is that the pattern of industrial development that has

emerged in the last five decades reflects the structure of effective
demand which is determined by the distribution of incomes.
 An unduly large share of resources is absorbed in production which relates
directly or indirectly to maintain or improving the living standards of the
higher income groups.
 The demand of this relatively small class,not only for a few visible items,of
conspicuous consumption but for the outlay on high quality housing and
urban amenities aviation and superior travel facilities,sustains a large part
of the existing industrial structure.
Growth of Infrastructure

 The development of the modern industry as well as of agriculture has

stimulated the growth of banking, insurance and commerce and required
matching expansion and modernization of ports,shipping and internal and
external air services.
 The major beneficiaries have been the wealthier sections of the
population both in rural and urban areas.
Inadequacies of the Programme of
Industrialisation

 Though the government has been proclaiming the policy of developing

new growth centres as to diversify the industrial structure,its policies have
also resulted in concentration of industrial development in selected cities
and among top capitalists.
 The promotion of small scale sector in consumer goods required for mass
consumption can reconcile the objectives of higher growth and higher
employment.
 Sufficient attention has not been paid in this direction during the last five
decades of planning.
6)Pattern of Ownership of Industries

 Although the public sector was relatively small in comparison to the private
sector yet a noteworthy feature of the changing industrial pattern ,in the
planning era in India is the growth of the public sector in a gig way in the
heavy and basic industries which provided the industrial base of the
economy and thus created basic infrastructure of the economy.
Some Large Scale
Industries
1)The Iron and Steel Industry

• India has many intrinsic advantages in the production of steel.

• Some of the richest iron ore mines with the highest iron content are found
to be in India.
• What is more ,coal and iron ore are found in close proximity to each
another .In fact at on time,the cost of production of steel in India was
much lower than in other countries.
Steel Authority • It was created in 1974 and was made
responsible for the development of the steel
of India industry and also for the development of
Limited(SAIL) industries.
• SAIL was to bring about coordinated and
synchronized development of all major units
brought under its control.
Progress of Steel Industry under since the 1980’s

• In the following years the reforms in the iron and steel sector consisted of
liberalization of import and export of steel materials,abolition of price and
distribution controls,and successive reduction of import duties on iron and
steel products.
• The iron and steel industry is now faced with a competitive environment .
• The competitive pressures are likely to increase with further liberalization
in trade policy.
• The steel industry has performed very well
in the recent years due to recent
liberalization measures ,such as the
abolition of Steel Development Fund, steady
reduction of import tariff, the modernization
and upgradation of technology,the
complulsory cost reduction through quality
improvement and optimum capacity
utilization .
Problems of Iron and Steel Industry

2)The Problem of
1)Inefficiency of 3)Underutilization
administered
public sector units of Capacity
prices

4)Sickness of 5)Problem of
Mini-Steel Plants Metallurgical coal
2)The Cotton and Synthetic Textile Industry

A significant feature of the consumption pattern in the last 32 years or so is

the shift to polyester and polyester blends.
The polyester blends are priced 3 to 4 times more than the cotton textiles
but have a wear life 3 to 4 times and in some cases even longer than that of
cotton cloth.
Problems of Cotton Textile Industry

3)Obsolete
1)Government
2)Problem of Raw Machinery and
controls and heavy
Materials need for
excise duties
modernization

5)Competition
4)High cost and
from the
competition in
Decentralized
foreign markets
sector
Textile Policy 2000

• The government of India is keen to modernize the textile sector which is

critical for facing competition from other textile producing countries like
China, Taiwan ,South Korea etc.
• The government would implement in a time bound manner the Technology
upgradation fund scheme covering all manufacturing sectors to the textile
industry .
• The main aim of the policy is to achieve an increase in cotton productivity
by at least 50 percent by upgrading quality to global standards.
• For the spinning sector, the New Textile Policy would continue to
modernize ,liberalize and encourage export of yarn and review the hank
yarn obligation while encouraging adequate quantity of yarn to handloom
weavers.
3)The Jute Industry

• Production of jute textiles was stagnant for many years despite all types of
measures and incentives given by the government.
• The jute industry is modernizing the its post spinning equipment by new
high speed machines and the installation of broadlooms for the
manufacture of carpet backing.
Problems of the jute industry

1)THE PROBLEM OF 2)MODERNIZATION OF 3)COMPETITION FROM 4)HIGH PRICES

RAW MATERIALS PLANT AND MACHINERY SUBSTITUTES
4)The Sugar Industry

• The production and supply of sugar has been quite comfortable during the
last 2 decades. While production of sugar was steadily rising ,consumption
too had been rising but a lower rate.
• Actually sugar production in India has been higher than the rate of growth
of sugar consumption.
Problems with the sugar industry
1)Shift in Locational
Pattern
2)Role of the Co-operative
sector
3)Need for cane
development
4)Competition from Gur
Production
5)Problem of production
of sugar
6)The problem
7)The problem
of high prices
of by-products
of sugar

8)Faulty
Government
Policy
Policy Measures

• 1)Complete decontrol of sugar in order to provide level playing filed to the

domestic industry vis a vis imported sugar.
• 2)Discontinuation of sugar through PDS so as to prevent PDS sugar
entering the open market.
• 3)Setting up of a board for determining statutory minimum price for
sugarcane
• 4)Prescribed a minimum distance of 15 kms instead of 25 kms between an
existing sugar mill and a new sugar mill.
• 5)Continuation of import of sugar under OGL in order to protect the
consumers against any unusual rice in prices
• 6)Abolition of existing incentives for a new factory.
5)The Cement Industry

• The cement industry has recorded continuous growth since the planning
started .The average annual growth rate of production of cement has
fluctuated violently due to unimaginative government policy on control
and distribution of cement.
 1)Inadequate Production

2)Cost escalation and rigid prices

Problems
facing the
industry 3)Partial control and dual pricing

4)Unrealistic distribution policies

6)The Paper Industry
• There are at present 515 registered paper mills producing paper and
paper board in the private sector with installed capacity of 51 lakh
tonnes.
• These units are of diverse size,type and magnitude.
• There are about 30 large integrated mills ,well organized and well
equipped and there are about 270 small units,which are too
small,and too moderately equipped .
• The small sector accounts for about 50 percent of the capacity and of
production of paper in the country.
Rapid Growth of small units
• The government gave necessary fillip and encouragement to
technocrats and entrepreneurs to venture into the paper industry and
the investment funds came easily from the public sector financial
institutions such as the IDBI ,IFCI and the ICI.
• The small paper units went into production and averted the paper
crisis and also the need to import paper and paper board and thus
have helped the country to save Rs 300 crores of foreign exchange
annually.
Basic Problems of the Paper Industry

2)The Problem 3)Problem of

1)High cost of
of raw royalty and
Production
materials leases

4)Over capacity 5)Sickness in

and small paper
underutilization units
7)Petrochemical Industry
• Significance of the petrochemical industries-
• A)Use of polymers to bring within the reach of affluent items of everyday use such as
footwear , buckets and clothing which they cannot afford as the related raw materials
are very expensive ;
• ( b ) Use of synthetic fibres and blends which are durable and which have wash and wear
qualities and can be made as cheap and inexpensive as in other countries ;
• ( c ) Increasing use of synthetic rubber in the transportation industry ;
• ( d ) Tremendous scope for plastics as building materials as door and window frames ,
water tanks , tubes etc.—U.S.A . uses annually 4 million tonnes of plastics in the building
industry alone a s against 50,00 0 tonnes by India ;
• ( e ) Increasing use of plastic packaging instead of conventional packaging materials like
jute , paper , glass and wood for such basic items of consumption as foodgrains , edible
oils , milk , sugar etc.—the re-usable HDPE crates for packing fruits and vegetables are a
good substitute for wooden crates (which destroy forests systematically) .
• ( f ) Major role of plastics for improving farm productivity : efficient
substitutes for metal and concrete pipes in irrigation , use of LDPE
sheets for canal and reservoir lining to prevent seepage , use of
plastic pipes and fittings in drip irrigation , etc .
Kapur Committee Recommendations
( i ) At the present and the anticipated rate of growth of the industry in the
country , there will be a big shortage of petrochemical goods in the country .
(ii ) There is a quality shift emerging in the usage pattern of plastic products
meant for sophisticated industries like automobiles and electronics .
It is, therefore , expected that the coming years will witness greater
consumption of speciality plastics like nylon , polycarbonate , polyacetal ,
PTFE and filled plastics. The demand for plastics in packaging , in agriculture
etc is expected to increase in a big way .
(iii ) The level of investment required to meet the gap between demand and
availability of petrochemicals in India by the year 2000 is projected at Rs
26,30 0 crores. To raise this order of finances will indeed be a huge task but it
will not be impossible.
• Iv)The use of naphtha should be restricted to fertilisers and
petrochemicals and the price of the feedstock should be the same in
both the industries . This is necessary if the end-products are to be
made available to consumers at reasonable prices because they are
essential commodities .
• ( v ) If the various inputs are made available to the petrochemical
industry at international prices, it will be possible for Indian units to
be competitive with international suppliers in terms of technology ,
efficiency of operation and cost.
Government and the Petrochemical industry
• In the first place the price of napatha should be reduced to
international level ,and the present irrational discrimination in the
price of napatha between fertilisers and petrochemicals should be
given up.
• Secondly the government should reduce the tax burden in terms of
excise duty,sales tax etc so as to bring down the prices of articles of
every day consumption.
• Thirdly the government should help the petrochemical units to grow
to minimum economic sizes.
• Fourthly the government should adopt a liberalized policy on imports
of technology and modern equipment for processing plastics into end
products for this would give the much needed boost to the small
scale conversion units to modernize their facilities and build up local
and export markets.
• Fifthly the government should not plan relocation of petrochemical
units in the name of environmental pollution.
8)Automobile Industry
• The automobile industry consist of passenger cars,multi utility
vehicles,commercial vehicles,two wheelers and three wheelers.
• After liberalization in 1991,there is a progressive growth in the
number of manufacturers thus replacing the earlier monopoly of a
few manufacturers.
• At present there are 15 manufacturers of passenger cars and multi
utility vehicles ,14 manufacturers of two/three wheelers.
Information Technology
Industry
1)Information Technology and
knowledge economy
Information Technology is the industry which through the use of computers and other
supporting equipment helps in the spread of knowledge.
Emergence of Knowledge Economy
With advancement in information technology information is being regarded as the fourth factor
of production, along with the land, labour and capital.
Information has, therefore, become an important and distinct input in production.
Thus along with three sector model of primary, secondary and tertiary industries, a fourth sector
information-related industries has emerged. Information is therefore used as a raw material of
knowledge just as iron is a raw material for machinery.
Information technology has integrated the world by the use of internet.
It is now possible to download information from any part of the world after the introduction of
World Wide Web (www).
Internet economy has become very powerful.
2)IT in India in the Global Context
Information Technology is of recent origin, but it is spreading fast in India.
However, India has a long way to go before it can catch up with the developed countries.
Take for instance, TV sets, India accounted for 320 sets per 1,000 population in 2006 as against
990 in Japan, 980 in USA and Russian Federation and 890 in China.
Telephones (Mainline) accounted for 32 per 1,000 in India, as against 500 in USA, 540 in UK, 310
in Russian Federation and 230 in China.
Although information technology is penetrating in India, it has not accessed the masses and is
thus the preserve of only rich and elite in Indian society.
As per the data provided by Telecom Regulatory Authority of India, in Dec. 2010,there were 18.7
million internet users in the country.
Apart from this telecom mobile companies have reported that 50 million mobile users in
December,2012 accessed internet through mobile phones.
3)Major Issues in Information Technology
Industry
1)Infrastructure and services
2)Electronic Governance;
3) Education; and
4)Mass Campaign for IT Awareness
1)Infrastructure and Services
For providing infrastructure and services to the common man the working group set up by the
Ministry of Information Technology in May 2000 was of the view that three conditions are
necessary:
(i) Availability and affordability of access devices;
(ii) Establishment of communications and networking infrastructure including
telecommunication network, Internet enabled cable TV network; and
(iii) Development of IT services
2)Electronic Governance
The government sector is the largest consumer of IT services in India.
State governments and the Central Government have initiated the process of computerization.
Particular mention should be made of the State governments of Karnataka, Andhra Pradesh and
Tamil Nadu for making vigorous efforts to computerize government departments with a view to
offer better services to the people.
Income Tax and other departments of the Central Government have also taken steps to
computerize their operation
3)Education
IT education issues may be divided into two categories:
(i) IT education and training; and
(ii) Use of IT for education and literacy. IT education requires the training of human beings in
various skills associated with the wide range of products and processes.
Since quite a good number of high quality jobs exist in the IT sector, it is very necessary to train
the required number of personnel to take advantage of these job opportunities. Two kinds of
trained personnel are needed:
(i) for hardware and
(ii) for software.
4)Growth and present state of IT in India
IT sector is of recent origin.
It picked up in the nineties. In fact, its growth took place only after the international treaty of
1994. Since India has a very big middle class of nearly 400 million, there are high expectations in
India about the growth of IT industries.
Since the country due to its earlier pre-British connection has a huge stock of English-knowing
population, it facilitates the adoption of software, which has been developed in the English
language much more easily. There has been a gradual increase in the use of IT in government,
public sector, private sector, universities, schools and colleges and technical institutes.
Structure of Indian Software Export
Industry
It may be noted that in 2015,out of 10 companies only three companies were MNCs and all
others were Indian companies, taking into consideration the revenue generation .
This underlines the fact that Indian companies have outperformed MNCs in the total revenue
and even IT-export market share.
However, the MNC segment emerged as an important contributor to the total software and
services export revenue with a significant share. This implies that the MNCs may be able to
compete with Indian companies in future and may overtake them.
5)Future Prospects of IT Industry
Special Action Plan
1Opening of Internet Gateway access to private Internet Service Providers.
2. Encouraging private Software Technology Parks.
3. Zero customs and excise duty on IT Software.
4. Income tax exemption to software and service exports.
5. Setting up Rs 100 crore Information Technology Venture Capital Fund (VCF) in collaboration
with Small Industries Development Bank of India (SIDBI).
6.Promoting e -commerce, a centre for e-Commerce has been set up at CMC Ltd., Hyderabad.
7. Framing cyber laws.
8. Earmarking 1 per cent to 3 per cent budget for every ministry/department for IT applications
. 9. Networking of all universities and Research institutions.
10. Dollar Linked Stock Option to employees of Indian software companies.
11. Sweat Equity.
12. Financial package for buying computer
Objectives of the tenth plan
To promote the IT sector ,the Tenth Plan lays down the following objectives:
(1) Ensuring the sustained growth of software and IT-enabled services and increase India's share
in the global IT market as well as expanding the domestic market;
(2) Putting in place a policy framework to make India a major force in hardware manufacturing
sector:
(3) Greater use of IT in governance;
(4) Bridging the digital divide;
(5) Promoting the development of software in Indian languages; and
(6) Improving the quality of manpower, skills and research and development in the sector. So far
as the role of the state is concerned, it will confine itself to being a facilitator and a catalyst for
accelerated growth of the sector.
Strategy for the tenth plan
1)Hardware Development-
The stagnant growth of the IT hardware production are distorted tariff structure, poor
infrastructure, high cost of finance and stiff competition from MNCs. This sector is likely to face
stiffer competition after 2005 when the zero duty regime will be implemented as per WTO
agreement.
This would require a comprehensive package of measures, both short-term and long-term to
ensure accelerated development of IT sector. This necessitates the development of world class
products to be made available at competitive prices. Existing Indian companies have a major
role to play in this regard. This will also require the promotion of HRD and skill development in
key technologies.
2)Software Development-
Advanced IT skills in the Indian software industry are limited to a few leading companies which
contribute about 65 per cent to the total software exports.
The Small and Medium Enterprises (SMEs), which are larger in number, contribute about 35 per
cent to software exports.
The planners conclude that "unless the SMEs are promoted through suitable policies, including
fiscal incentives, it may be difficult to achieve the Tenth Plan target of $ 50 billion software
export."
Broad Objectives and targets during the
eleventh plan
For this purpose, the following targets have been laid down.
• To reach a telecom subscriber base of600 million.
• To reach a target of 20 million broadband connections and 40 million Internet connections by 2010
as envisaged in Broadband Policy 2004.
• To provide telephone connection as well as broadband connection on demand across the country
by 2012.
• To facilitate introduction of mobile TV.
• To provide broadband connectivity to every Secondary School, Health Centre, Grampanchayat on
demand in two years.
• To make India a hub for telecom equipment manufacturing by establishment of telecom specific
Special Economic Zones (SEZs)
6)Outsourcing,Nationalism and
Globalisation
Outsourcing implies obtaining goods or services by contract from an outside source. Firms resort
to outsourcing within the country as well. Producers of cars do not produce all the parts within
the firm, but may outsource some parts from the producers who have specialized in them. This
helps firms to cut costs.
Electronics and export promotion Council being more forthright in its comment stated: "The
new legislation would send wrong signals to the globalization efforts, particularly of countries
like India, which have undertaken a number of liberalization measures in a short span of time
garnering political will to push ahead the reform process.’
Small-Scale Enterprises
1)Definition of small scale and cottage
enterprises

 The Government had defined small scale industries and within the small scale , it provided
a definition of tiny enterprises.
 However , from the small scale , there was direct shift to large scale units and no definition
was provided for medium scale enterprises.
 With effect from October 2 , 2006 , not only the three categories have been clearly
defined (Micro or tiny enterprises would cover all enterprises with investment in plant and
machinery of less than Rs 2 5 lakhs ; for small enterprises with investment between Rs 2 5
lakh s and Rs 5 crores and for medium enterprises with investment between Rs 5 crores and
Rs 1 0 crores) , but a comprehensive act , called the Micro , Small and Medium Enterprises
Development Act , 200 6 came int o force .
 The Act is aimed at facilitating the growth of small enterprises so that they graduate to
medium enterprises, thus improving their competitive strength.
Classification

 A common classification is between traditional, small and modern

industries .
 Traditional small industries include khadi and handloom , village industries ,
handicrafts , sericulture , coir , etc .
 Modern small-scale industries produce wide range of goods from
comparatively simple items to sophisticated products such as television
sets, electronics control system , various engineering products , particularly
as ancillaries to the large industries .
 The traditional small industries are highly labour-intensive , while the
modern small-scale units make use of highly sophisticated machinery and
equipment.
 Traditional village and small industries are largely carried on by labourers
and artisans living below the poverty line , while modern small industries
can provide a good source of livelihood .
 Hence , if with an expansion of employment , the number of persons living
below the poverty line has also to be reduced , then a rapid and much
larger expansion of the modern small sector will have to be planned.
2)Role of small scale industries in
Indian Economy

 The small-scale industrial sector which plays a pivotal role in the Indian
economy in terms of employment and growth has recorded a high rate of
growth since Independence in spite of stiff competition from the large
sector and not so-encouraging support from the Government .
 This is evidenced by the number of registered units which went up from
16,000 in 1950 t o 36,00 0 unit s in 196 1 and to 33. 7 lakh units in 2000 - 2001
.
 During the last decade alone , the small-scale sector has progressed from
the production of simple consumer goods to the manufacture of many
sophisticated and precision products like electronics control systems ,
micro-wave components , electro-medica l equipment . T.V . sets, etc
 Since 2006-07 , the nomenclature of the Ministry of Small Scale Industries has
been changed and now it is named as Ministry of Micro , Small and Medium
Enterprises .
 As the name suggests now service sector enterprises working at small scale
have also been included in the MSME sector .
 Latest data published by the Ministry in its Annual Report 2009-10 now gives
composite number of enterprises (both manufacturing and service) .
 Likewise production figures also pertain to MSME and not just Small Scale
Industries .
 Fourth census of MSME sector estimated that 67 percent of the MSMEs are
manufacturing enterprises and 3 3 per cent are service enterprises.
Exports

 The obvious conclusion is that the growth of SSI s in terms of number and
output is comparatively much higher in reserved items than in unreserved
items . The policy of reservation has, therefore , positively helped the
growth of this sector.
3)Third Census of small scale
industries(2001-02)

 Third Census has brought out the hard reality that there is very high
concentration of SSI units in seven states, viz. , Maharashtra , Uttar Pradesh
, Punjab , Haryana , Tami l Nadu , Andhra Pradesh and West Bengal .
 These states accounted for 5 5 per cent of total employment , 68 per cent
of total fixed investment and about 6 0 per cent of the total production .
 On the basis of the first criterion (Erosion of net worth or delay in repayment
of institutional loan or continuous decline in gross output) , 8.2 2 lakh units
were reckoned as sick units .
 But on the basis of second criterion laid down by the Reserve Bank of India
(Erosion of net worth or delay in repayment of loans among units having
outstanding institutional loan) , only 0.8 5 lakh units were reckoned as sick
units .
 It appears that the first set of criteria is more comprehensive since it
includes continuous decline in gross output as the third criterion , besides
the other two i.e . erosion of net worth and delay in repayment of loan.
4)Quick Estimates of 4th All India
Census of MSME

 A)The Size of the MSME Sector-

 The size of the registered MSME sector was provisionally estimated to be
1552. 5 thousand .
 Of the total working enterprises, the proportions of micro , small and
medium enterprises were 95.05%,4.74% and .21% respectively . This
comprises of 66.67 % manufacturing enterprises and 33.33% services
enterprises.
b)Nature of Activity

 67.1 0 % o f the enterprises in the registered MSME sector were engaged in

manufacturing / assembling/processing , whereas 16.13 % of the units
were engaged in repair and maintenance .
 The remaining 16.7 8 % of the enterprises were in the services activities .
c)Types of Organization

 MSME sector were proprietary enterprises.

 About 4.0 1 % of the enterprises were run by partnerships and 2.7 8 % of the
enterprises were run by private companies .
 The rest were owned by public limited companies , cooperatives/trusts.
4)Type of management/ownership

 An enterprise managed by one or more women entrepreneurs in

proprietary concerns , or in which she / they individually or jointly have a
share capital of not less than 5 1 % a s partners/ share holders / Directors of
Private Limited Company / Members of Co-operative Society is called a
'Woman Enterprise’ .
 It was found that 13.7 2 % (numbering 2 1 5 thousand ) of the units in the
registered MSME sector were women enterprises.
5)The case for small scale industries

1)The 3)The Latent

2)The Equality
Employment Resources
Argument
Argument Argument

4)The
Decentralization
Agreement
6)Policies and Programmes to Remove
Disabilities

1)Credit
2)Marketing 3)Technical
and
Assistance Assistance
Finance

4)Industrial 5)Industrial
Estates Estates
7)Small Sector Industrial Policy

 Tiny Enterprises-
 Government have already announced increase in the investment limits in
plant and machinery of small scale industries , ancillary units and export-
oriented units to Rs 6 0 laths ,Rs 7 5 lakhs and Rs 7 5 lakhs respectively .
 Such limits respect of "TINY " enterprises would now be increased from the
present Rs 2 lakhs to Rs 5 lakhs , irrespective of locations of the unit.
Financial support measures

 Inadequate access to credit—both short term and long term—remains a

perennial problem facing the small - scale sector .
 Emphasis would henceforth shift from subsidised/cheap credit , except for
specified target groups, and efforts would be made to ensure both
adequate flow of credit on a normative basis, and the quality of its
delivery , for viable operations of this sector.
Infrastructural facilities

 A Technology Development Cell (TDC ) would be set up in the Small

Industries Development Organisation (SIDO ) which would provide
technology inputs to improve productivity and competitiveness of the
products of the small -scale sector.
 The TDC would coordinate the activities of the Tool Rooms , Process-cum-
Product Development Centre s (PPDs) , existing as well as to be
established under SIDO , and would also interact with the other industrial
research and development organisations to achieve its objectives.
Modernization,Technological and
Quality Upgardation

 Industry associations would be encouraged and supported to establish

quality counselling and common testing facilities.
 Technology and markets would be established.
Promotion of entrepreneurship

 Government will continue to support first generation entrepreneurship

through training and will support their efforts.
 Large number of EDP trainers and motivators will be trained to significantly
expand the Entrepreneurship Development Programme s (EDP) .
 Industry Associations would also be encouraged to participate in this
venture effectively .
 Women entrepreneurs will receive support through special training
programmes .
Village Industries

 The activities of the Khadi and Village Industries Commission and the State
Khadi and Village Industries Boards would be expanded and the
organizations strengthened to discharge their responsibilities more
effectively .
Unorganized Sector and
Informalization of the
Indian Economy
1)Unorganized sector and India’s
Informal Economy

 The Unorganized sector consists of all unincorporated private enterprises

owned by individuals or households engaged in the sale and production
of goods and services operated on a proprietary or partnership basis and
with less than ten total workers.
 Following this definition , in agriculture , only the plantations and other
types of organized agriculture (i.e . corporate or co-operative farming )
are excluded .
 Thus , a very large part of the workers engaged in agriculture are included
.
 Unorganized workers consist of those working in the enterprises or
households, excluding regular workers with social security benefits, and the
workers in the formal sector without any employment ,social security
benefits provided by the employers.
 This definition excludes casual or contract workers and thus captures
unorganized sector employment in a more realistic manner .
2)Size of the unorganized sector

 It is revealed that though during 1999-00 and 2004-05 , total employment

in the economy increased from 397 million to 45 8 million , i.e . an increase
by 61 million during the 5 - year period , the number of organized workers
remained stagnant at 3 5 million and the entire increase of employment
was in the category of unorganised worker.
 "What this means in simple terms is that the entire increase in the
employment in the organized sector over this period has been informal in
nature i.e. without any job or social security .
 This constitutes what can be termed as informalisation of the formal sector
, where any employment increase consists of regular workers without social
security benefits and casual or contract workers again without the benefits
that should accrue to formal workers."
Categories of the workers among the
unorganized workers

 Wage workers: Wage workers are persons employed for remuneration

among the unorganised workers, directly by employers or through
agencies or contractors.
 Wage workers include casual and temporary workers or those employed
by households including domestic workers .
 2) Self-employed in the unorganised sector:
 These are workers who operate farm or non-farm enterprises or engage in
a profession or trade , either on own account , individually or with partners,
or as home-based workers .
 Own account workers include unpaid family workers also.
Home workers as distinct category

 The International Labour Organisation (ILO ) in 1996 defined a home

worker who carried out work for remuneration in the premises of his/her
choice , other than the work place of the employer , resulting in a product
or service as specified by the employer , irrespective of who provided
equipment , materials or inputs used .
 These workers , therefore , work under the 'putting out system" .
 Mostly , home workers have to purchase , repair and maintain their own
tools or machines , and bear the costs of some inputs (e.g . garment
workers often have to buy their own thread) , transportation to and from
the contractor to obtain work and then handover the finished product ,
and also provide space within their homes to carry out the tasks of
production .
3)POVERTY , VULNERABILITY AND NON -
ORGANISED SECTOR EMPLOYMENT - THE
HIGH DEGREE OF CORRELATION

 There is no doubt that this Shining India has expanded in the past and is still
expanding at a very high rate .
 But this picture is spoiled by a virtually stagnant consumption expenditure
and miserable working and living conditions of the 7 7 percent of our
population who are poor and vulnerable... . This is the other world which
can be characterized as the India of the Common People , constituting
more than three - fourths of the population and consisting of all those
whom the growth process has , by and large , by - passed. "
 By and large ,population in the urgonised sector coming for informal work
are of the order of 836 million or 7 7 percent of the population .
 They constitute 9 2 percent of workforce employed in the informal or
unorganised sector of our economy .
 Thus , there is a close correlation between the poor and vulnerable groups
with the unorganised sector or informal economy.
4)Estimate of Organized and
Unorganized Workers

 Among the 42 3 million workers in the unorganized sector, agricultural

workers constituted 256 million (56. 0 percent) and non-agricultural workers
were of the order of 1 6 7 million (36. 4 %) .
 Among 35 million organized workers, merely 3 million were agricultural
workers and 3 2 million were non-agricultural workers .
Poverty Ratios among organized and
unorganized workers

 4 % among unorganised workers in comparison to merely 4.1 % among

organised workers .
 This indicates among the non-agricultural workers , unorganised sector
poverty ratio was five times more than that of the organised worker.
Poverty Ratios by nature of
employment

 Among the three types of workers , poverty ratios among casual workers
were the highest , followed by self employed workers and they were the
lowest among regular workers .
 However , it may be noted that poverty ratio among unorganised workers
were much higher than among their counterparts in the organised sector.
5)Self –Employed workers in the
agricultural sector

 a) Own Account Workers:

 They work on their own using their labour power .
 To eke out a better living , they stretch their work for longer hours .
 This phenomenon is referred to as 'self-exploitation' by Chayanov , a
Russian economist .
 (b) Unpaid Family Workers: These persons do contribute their labour but do
not get any separate remuneration .
 Their contribution becomes a part of the family income.
 Employers i.e. those who hire at least on ewage worker , but the total
number of hired workers is less than 10 , to use the definition provided by
the National Commission for Enterprises in the Unorganised Sector.
Two types of Enterprises-

 1)OAE-Own Account Workers-

 It may be noted that concentration of workers in own account enterprises
(OAEs ) is a little much lower in urban areas - 59 % as against rural areas
accounting for 87% .
 On the whole it may be mentioned that OAE s constitute 87 of the
informal enterprises with 7 3 percent of all workers engaged in them .
2)Self employed establishments with
hired workers

 Average value in fixed assets in the establishments with hired workers is

nearly Rs 3 lakhs as against RS 39,000 in OAEs .
 Obviously , their scale of operation is much better than that of OAEs .
 In fact , average fixed assets in larger establishments with 6- 9 workers is
even higher than Rs 6 lakhs . The return to assets in these larger units is also
higher since they are enabled to use a higher value of fixed assets well .
6)Agricultural Laborers

 Minimum Wages and agricultural wages-the Minimum Wage Act , 1948 , the
first National Minimum wage was fixed at Rs 6 6 irrespective of the rural-urban
location .
 The second is the minimum wage of Rs 4 9 for rural areas as proposed by the
National Commission for Rural Labor (NCRL) .
 However , the prevailing wage rates were often observed to be much lower
than either of these minimum wage norms .
 In 2004-05 , about 91 percent of agricultural laborers received wage rates
below the National Minimum wage and about 6 4 percent below the NCRL nor
minimum wages fixed for rural areas.
 This is a very distressing scenario in view of high GDP growth rates observed in
recent years in the Indian economy.
 Pattern of employment shows that growth rate of employment stagnated
at 0. 2 percent per annum during 1994-00 .
 NCEU S analyzing the factors for this stagnation of employment mentions :
"Prime among these was a lower investment in irrigation , drought proofing
and agricultural research because of which there was no intensification of
farming in rain-fed and dry-land areas.“
 As consequence , between 1993-9 4 and 2004-05 . there was a decline in
the number of days of wage employment available per year to
agricultural laborers from 224 to 209 .
 This further reduced the annual earning of agricultural labourer.
7)Bonded Labor

 Bonded labour or forced labour implies compelling a person to accept

employment at wages or remuneration which is much less than the legally
prescribed Minimum wage or at times , even without any payment , in lieu
of debt .
 Agricultural labourers are the most vulnerable section of the agrarian population .
 In view of the low wages received by agricultural labour and only for about 20 0 days in a
year , his income remains as very low to have basic needs for himself and of his family .
 The Minimum Wages Act is more often observed in breach , rather than in compliance .
 Consequently , it has failed to provide the much-needed relief . There is no social security
mechanism to help .
 Agricultural labourers have not succeeded in forming unions except in a few states.
 In the absence of social security for the informal sector and particularly for agricultural
labourers , their condition remains as grim .
8)Working Conditions of Farmers

 Credit,Indebtedness and Suicides-

 Small and marginal farmers ' households need credit to meet both the
consumption needs so as to maintain subsistence as well as for production
purposes to meet the rising costs of cultivation .
 But unfortunately , they are able to get a relatively small proportion of
credit from institutional sources like Government , co-operative societies
and banks , and have to depend on non-institutional sources like
moneylenders , traders, relatives and friends.
Purpose of Loans

 The loans for sub-marginal and marginal farmers were at very high rates of
interest from non - institutional lenders, they increased the burden of debt.
 These poor farmers with very low capacity found it impossible to repay
them and thus, borrowed more for the payment of interest as well.
9)Action Programme for the
Unorganized Sector

 A)Protective Measures for unorganized workers-

 Ensuring Minimum Condition of work which include the following :
 Minimum level of social security - NCEUS recommends two comprehensive bills
separately for agricultural and non-agricultural workers providing the following
benefits:
 (a) Life Insurance : Rs 30,00 0 for natural death or Rs 75,00 0 in the event of
accidental death or total disability ;
 (b) Health insurance : Hospitalization for each worker and his family members ,
costing Rs 15,00 0 a year with Rs 10,00 0 per ailment in designated hospitals.
 (c) Old age security : All BP L (Below the poverty line ) workers will get a
monthly pension of Rs 20 0 at the age of 6 0 plus ; all workers other than BP L will
be entitled to provident fund .
b)Package of measures for the small
and marginal farmers
1) Emphasis on Accelerated Land and
Water Management

 The Commission is of the view that in rainfed areas, the watershed

development programmes are of crucial importance and have a high
benefit cost ratio .
 About 45 million hectares have been covered under watershed
development programme so far, while about 75 million hectares remain to
be covered .
2)Credit for Marginal-Small Farmer s

 The Commission recommends that priority sector lending guidelines of the

RBI should be amended and a 10 percent quota , out of the 1 8 percent
presently assigned for agriculture , be fixed for farmers with landholding
below 2 hectares.
3)Farmers Debt Relief Commission

 To alleviate the distress faced by farmers with respect to 31 districts, in four

states of Andhra Pradesh , Maharashtra , Karnataka and Kerala , the
Government has launched a special package of debt relief .
C)Measures to improve growth of non-
agricultural sector

 1)Improve credit flow to the non-agricultural sector-

 Agriculture 18 percent ,weaker sections 10 percent and others including
micro and small enterprises 12 percent .
 There is no specific target for small and micro enterprises.
 The Commission recommends that an explicit target of 10 percent be set
for lending to micro and small enterprises.
2)Creation of a National Fund for
Unorganized sector

 The Commission recommends an agency be created for the

development of unorganised sector which shall be called National Fund
for the Unorganised Sector (INAFUS) with an initial corpus of Rs 5,00 0
crores, contributed by Centra l Government , public sector banks ,
financial sector institutions and other government agencies.
3)Upscaling of Cluster development
through growth poles

 The Commission recommends the development of 'growth poles ' for the
unorganised sector, based on concept of a cluster of clusters with public-
private partnership .
 This recommendation involves an upscaling of cluster development efforts
through the provision of common infrastructure , service centres etc .
designed to take the existing cluster development approach to the next
level.
D )Measures to expand employment
and improve employability
programmes
 1)Expand employment through self –employment programmes-
 The Commission recommends that target of employment under self-
employment schemes should be raised to 5 million per year as against 2
million per year proposed by the Eleventh Plan .
2)Universalize and Strengthen
(NREGA)

 The Commission recommends the extension and universalisation of

National Rural Employment Guarantee Programme to all districts in the
country .
 At present , NREGA programme covers 330 districts.
3)Improving the Employability through
Skill Development

 The Commission and the Skill Development Initiatives ' (SDI ) being
provided at present a total cost of Rs 55 0 crores.
 The objective of the scheme is to provide training to school leavers,
existing workers , ITI graduates to improve their employability .
 On an average , an expenditure of Rs 5,000 per person is expected to be
incurred on training imparted and certification of trainees under SDI
Scheme.
10 Assessment of NCEUS
Recommendations

 A close perusal of the NCEUS recommendations reveal that some of the

recommendations are distant goals which cannot be realized in the near
future .
 The entire set of minimum conditions or work - eight-hour working day with
a weekly holiday , national minimum wage of all workers in the
unorganized workers , equal wages for men and women , child-care and
basic amenities at workplace - is an attempt to implement the concept of
decent work .
 These conditions do not exist even in the organized sector. Moreover ,
after the introduction of economic reforms , these conditions are being
violated with impunity.
The Foreign Trade
of India
1)Importance of foreign trade for a
developing economy
 For this , imports of machinery and equipment which cannot be
produced in the initial stages at home are essential .
 Such imports which either help to create new capacity in some lines
of production or enlarge capacity in the other lines of production
are called developmental imports.
 For instance,the imports required for setting up of steel plants, the
locomotives factory and the hydro-electric projects are of a
developmental nature .
 Secondly , a developing country which sets in motion the process of
industrialisation at home requires the imports of raw materials and
intermediate goods so as to properly utilise the capacity created in
the country .
 Imports which are made in order to make a full use of the
productive capacity are called maintenance imports.
 These maintenance imports are vital for a developing economy as
many of the industrial projects are also held up for lack of maintenance
imports .
 For a developing economy , the developmental and maintenance
imports set limits to the extent of industrialisation which can be carried
out in a given period .
 Besides these imports developing economy is also required to import
consumer goods which are in short supply at home during the period of
industrialisation .
 Such imports are anti-inflationary because they reduce the scarcity of
consumer goods. One example of such imports is the foodgrains import
s in India in the post-independence period which helped to arrest the
rise of prices at home .
2)Foreign Trade since
Independence
 During 2001 exports increased from US $ 36,822 million in 1999-2000
to U S $ 44,56 0 million in 2000-01 , showing a sharp rise by 21. 0 per
cent .
 This was largely due to rupee depreciation along with further trade
liberalisation , reduction in tariffs and more openness to foreign
investment in export oriented sectors like information technology .
 However on the import side during 199-2000 and 2000-01 , there has
been a sharp increase in the international price of crude oil .
 This has resulted in a sharp escalation of the POL (petroleum , oil and
lubricants ) imports from US $ 6,39 9 million in 1998 - 9 9 to U S $ 9,60 7
million in 1999-2000 and further j acking it up to U S $ 15,65 0 million in
2000-01 , implying an increase of 6 3 per cent during 2000-01 over
the previous year .
 The sharp increase in POL imports prevented non - P O L imports to
increase adequately .
 Non POL imports rose by 11.3 percent during 1992-2000 from U S $
35,990 million in 1998-99 to US $ 40,064 million in 1999 - 2000 , but
declined by 14. 9 per cen t i n 2000-01 t o U S $ 34,45 0 million .
 This implies that the increase in POL imports resulted in depressing
the rise of non-POL imports so as to keep total imports within
manageable limits .
3)Composition of India’s Foreign
Trade
 Pattern of Imports-
 Non-bulk Imports . Bulk imports are further sub - divided into three
components - (i ) Petroleum , crude and products,
 (ii ) Bulk consumption goods which comprise of cereals and pulses,
edible oils and sugar,
 (iii ) other bulk items comprising of fertilizers , non-ferrous metals ,
paper and paper boards, rubber , pulp and waste paper, metallic
ores, iron and steel.
 Non-Bulk imports are also further classified into three components –
 (i ) Capital goods which include metals, machine tools , electrical
and non-electrical machinery , transport equipment and project
goods,
 (ii ) Mainly export - related items consist of pearls, precious and
semi-precious stones, organic and inorganic chemicals, textile , yarn
and fabrics, cashew nuts,
 (iii ) Others include artificial resins and plastic materials , professional
and scientific instruments, coal and coke , chemicals - medicinal
and pharmaceutical products, non-metallic mineral manufactures
etc .
Structural change in imports since
1951
 Rapid growth of industrialisation necessitating increasing imports of
capital goods and raw materials ;
 ( b ) growing imports of raw materials on the basis of liberalisation of
imports for export promotion ; and
 ( c ) declining imports of foodgrains and consumer goods due to
the country becoming self - sufficient in foodgrains and other
consumer goods through agricultural and industrial growth .
 ( d ) rapid growth in Petroleum , oil and lubricants due to sharp rise
in international prices and fast increase in domestic demand .
Principal Imports

 1)Foodgrains
 2)Petroleum,Oil and Lubricants
 3)Metals
 4)Chemicals,Drugs and medicines
 5)Pearls and Precious Stones
 6)Fertilisers
Pattern of Exports

 Exports of India are broadly classified into four categories :

 (i ) Agriculture and allied products which include coffee , tea , oil
cakes, tobacco , cashew kernels , spices, sugar , raw cotton , rice,
fish and fish preparations , meat and meat preparations , vegetable
oils , fruits , vegetables and pulses;
 (ii ) Ores and minerals include manganese ore , mica and iron ore ;
(iii ) Manufactured goods include textiles and ready-made
garments , jute pearls and precious stones, chemicals , engineering
goods and iron steel ; and
 (iv ) mineral fuels and lubricants .
Principal Exports

 1)Tea and Coffee

 2)Cotton,Yarn and Manufacturers
 3)Readymade Garments
 4)Leather and Leather manufacturers
 5)Iron Ore
 6)Handicrafts
 7)Engineering Goods
Changing structure of Exports

 Thus the pattern of India' s exports indicates that

 (a ) the Indian economy is being diversified and (b ) non - traditional
items of exports are growing in importance .
 ( b ) The large expansion of engineering goods is partly the result of
pick-up in demand in industrial countries and also from the Middle
East countries which have undertaken infra-structural projects like
roads, ports and rail construction , tele-communication and civil
construction .
 ( c ) India is now in a position to take advantage of both favourable
demand situation and attractive price situation in international
markets
 ( d ) While some commodities have tremendous exports potential
(e.g . handicrafts, engineering goods and ready mades) , others
(like sugar , jute , yarn and manufactures , iron and steel) have
fluctuated widely .
 ( e ) With the announcement of the new agricultural policy ,
emphasis is being given to boosting the export of agricultural
produce . Rice export is gaining importance . Besides this , fruits and
vegetables and processed foods are also becoming significant in
our export.
4)Direction of India’s Foreign Trade

 ) Our trade with OPEC region has also improved significantly -

exports increasing from 6. 1 percent in 1987-88 to 21. 5 percent in
2010-11 .
 However , imports from OPEC have shot up to 33. 8 percent in 2010-
11 . This is due to the increasing international price of oil and also the
growing demand in India .
 Among the OPEC countries , UAE is most important , followed by
Indonesia and Saudi Arablia .
 (iv ) With Africa , India's foreign trade has also begun , though the
share of Africa in exports was 6. 5 percent in 2010-11 and the share
in imports was 3. 5 percent . However , Africa is emerging as a small
partner with greater potential in future .
 With Africa , India's foreign trade has also begun , though the share
of Africa in exports was 6. 5 percent in 2010-11 and the share in
import s was 3. 5 percent .
 However , Africa is emerging as a small partner with greater
potential in future .
 ( v ) USA occupies the first place among individual countries with a
share of about 10. 0 percent in our exports and second largest in
terms of imports with 5 . 2 percent in our imports . UK , however , has
lost its position of pre-eminence and accounts for barely 2. 8 t o 1.4
percent of our exports and imports respectively .
 Latin America which accounted for barely 0.3 % in exports has
improved its position to 4.1 % in 2010-11 . Similarly , in our imports also
, its share is 2.4 % in 2010-11 .
 However , there is good scope for expanding trade with Latin
America .
 (ix ) In 2010-11 , six countries viz. , USA , Hong Kong and China , UAE ,
Germany , U K and Japan accounted for 31. 5 percent of our export
s and 33. 9 percent of our imports .
Conclusion

 To sum up , it may be concluded that India' s foreign trade has

become much more diversified and excessive dependence on
OECD countries has declined .
 However , with developing countries , more especially with Asian
countries , there is an improving uptrend both in exports and imports
. These are welcome signals in the direction of India' s foreign trade .
India’s Balance of
Payments
 The balance of payments of India is classified into-
 ( a ) balance of payments on current account , and
 (b ) balance of payments on capital account . The current account of the
balance of payments of India includes three items :
 (a ) visible trade relating to imports and exports ;
 (b ) invisible items , viz , receipts and payments for such services as
shipping , banking and insurance , travel , etc. , and
 (c ) unilateral transfers such as donations .
1)India’s Balance of Payment on
Current Account

 There is no doubt that our invisibles showed a positive balance of Rs 1,39,59 1

crores in 2004-05 , but this could wipe out the trade deficit only to the extent of
9 2 percent .
 Consequently , a current account deficit of Rs12,17 4 crores was witnessed in
2004 - 0 5 . This is an unhealthy development , but since the same reckless
policy of import liberalisation is being pursued later also , the situation worsened
further and current account deficit increased to the extent of Rs 43,73 7 crores
in 2004-0 5 and Rs 1.31,61 4 crores in 2008-09 .
 However , taking the Tenth Plan period (2002-0 3 t o 2006-07 ) as whole , the
total current account deficit was of the order of Rs 5,65 1 crores.
 The trade deficit in the Tenth Plan was wiped out by the surplus from invisibles
to the extent of 993% .
 However situation worssened after 2003-07 as we find net invisibles fell short
of trade deficit , resulting in heavy deficit of balance of payment to th e
tune of Rs 6,34,79 crores in 2007-08 .
2)Balance of Payment Crisis

 Basic aim of the 1985 Export - Import Policy was

 ( a ) to facilitate production through easier and quicker access to
imported inputs ;
 ( b ) to strengthen export production base ; and
 ( c ) to facilitate technological upgradation .
 Similarly , the introduction of MODVAT was also aimed at weaning away
Indian industry from dependence on imported components to increased
use of indigenous products.
 In other words , the policy was imperceptibly reversed toward self-reliance
and the Government tacitly accepted its mistake in opening the import-
window rather too wide.
Rangarajan Panel for correcting BOP

 1)The Committee stressed the fact that a realistic exchange rate and a
gradual relaxation of restrictions on current account transactions have to
go hand in hand .
 2 . The Committee suggested that the current account deficit of 1.6 per
cent of GDP should be treated as ceiling rather than as target .
 3 . A number of recommendations were made regarding foreign
borrowings , foreign investment and external debt management .
3)Balance of Payments since the new
economic reforms of 1991

 Invisibles and Balance of Payments-

 India has achieved commendable success in its receipts from invisibles .
 As a consequence , surplus from invisibles not only wiped out deficit in
balance of trade , but also created a positive balance on current
account .
 For stance , in 2003-04 , trade deficit was of the order $ 13. 7 billion , but
the surplus from invisibles shot up to $27. 8 billion .
 As a result , the balance of payment on current account became positive
to the extent of $ 14. 1 billion.
 "The main driver behind the current account surpluses , buoyant invisible
flows , particularly private transfers comprising remittances, along with
software services exports , have been instrumental in creating and
sustaining current account surpluses for India.
4)India’s Trade Policy

 Main features of India’s Trade Policy-

 The Mahalanobis strategy of economic development through heavy
industries, which India adopted since the Second Plan , called for
 (a ) banning or keeping to the minimum the import of non-essential
consumer goods ,
 (b ) comprehensive control of various items of imports ,
 (c ) liberal import of machinery , equipment and other developmental
goods to support heavy-industries based economic growth , and
 (d ) favourable climate for the policy of import substitution
 To pay for its essential imports and to minimise dependence on foreign
countries, expansion of exports was very essential .
 It was also realised that the market for many goods within India may not
be adequate to absorb that entire domestic production and hence a
search for markets elsewhere was a necessity.
5)India’s Foreign Trade Policy

 Major Trade Reforms-

 1.Rep will become the principal instrument for export related imports .
 2 . All exports will now have a uniform Rep rate of 30 per cent of the f.o.b . value . This was a
substantial increase from the present Rep rates which vary between five per cent and 2 0 per
cent of f.o.b . value .
 3 . The new Rep scheme gave maximum incentive to exporters whose import intensity was low .
 For example , agricultural exports which earlier had very low replenishment rate s o f five percent
or 10 per cent will now gain considerably .
 4 . All supplementary licences shall stand abolished except in the case of the small scale sector
and for producers of life-saving drugs/equipment .
 5 . All additional licences granted to export houses shall stand abolished .
 6 . All items now listed in the Limited Permissible List OGL items would hereafter be imported
through the Rep route.
 7 . The Exim policy contained a category known as Unlisted OGL . This
category stands abolished and all items falling under this category may be
imported only through the Rep scheme .
 8 . Advance licensing had been an alternative to the Rep route for
obtaining imports for exporters. It was expected that many exporters
would find the Rep route more attractive now . However , for exporters
who wish to go through advance licensing , this route would remain open .
 9 . The goal of the government was to decanalise all items except those
that are essential .
 1 0 . In the light of the substantial liberalisation of the trade regime , and
also the recent changes in exchange rates (after devaluation).
6)Import-Export Policy

 1 . List of items imported under Open General Licence (OGL ) were expanded to facilitate
easy access to import of items that are not available within the country .
 2 . The number of capital goods items permitted under OG L was increased from 1,26 1 t o
1,343 . This has been the major thrust of liberalisation .
 3 . Imports of certain raw materials such as petroleum products, fertilizers , oils/oilseeds,
feature/video films, newsprint , cereals, phosphoric acid , ammonia etc . were canalised
through public sector agencies in view of the essential character of these imports from
the point of view of bulk consumption and the requirements of small Actual Users .
However , trading houses/star trading houses were also permitted to import canalised
items in order to promote exports.
 4 . A scheme of automatic licensing was introduced under which upto 10 per cent of the
value of the previous year's licence can be imported .
 5 . For Registered Exporters , the concept of net foreign exchange earnings was made a
guiding criterion for the issue of licenses.
Evaluation of India’s export-import
policy

 A)Adverse effects on the growth of capital goods industry in India

 B)Import Policy likely to hit small scale industries
 C)Adverse effect on indigenous industry
 D)Technological dumping in the name of technology upgrading.
7)Export-Import Policy(2002-2007)

 1)Special Economic Zones

 2)Employment Oriented Measures
 3)Growth Oriented
 4)Duty Neutralization Instruments
8)Foreign Trade Policy (2004-09)

 Objectives of foreign trade policy-

 ( i ) To double India's percentage share of global merchandise trade from
0. 7 per cent in 2003 to 1.5 per cent in 2009;and
 (ii ) To act as an effective instrument of economic by giving a thrust to
employment generation , especially in semi-urban and rural areas.
Key Strategies

 1.Unshackling of controls ;
 2 . Creating an atmosphere of trust and transparency ;
 3 . Simplifying procedures and bringing down action costs;
 4 . Adopting fundamental principle that duties and levies should not be
exported ; and
 5 . Identifying and nurturing special focus areas to facilitate development
of India as a global hub for manufacturing , trading and services.
Special Focus Initiatives

 Sectors with significant export prospects coupled with potential for

employment generation in semi-urban and rural areas have been
identified as thrust sectors. These include agriculture , handicrafts ,
handlooms , gems and jewellery and leather and footwear sectors.
9)An analysis of trends in imports and
exports

 The country increased its import of Machinery and Transport Equipment in

the post-reform to step up the industrialization of economy by nearly 19.03
percent in the 1 7 year period (1990-91 to 2007-08 ) - average annual
increase by 18. 9 percent . On the export side , the country was able to
increase the export of machinery and transport equipment by about 10.63
percent during the 17 year………………..
 period indicating annual average increase by 14. 9 percent .
 A commendable achievement on the export front was the 'increase ' in
the quantum export chemicals by 1( percent in the post-reform period - an
average annual increase by 14. 6 percent).
Special Economic Zones
Special Economic Zones-An Overview

 Special Economic Zones denote geographical areas which enjoy special

privileges as compared with SEZ areas in the country . The main motivating
force setting up SEZs came from the Ministry of Commerce a view to boost
exports by attracting both Indian and for corporates to undertake
investment in these areas.
 Export Processing Zones are now also being converted Special Economic
Zones .
 Accordingly , the Government has converted Export Processing Zones (EPZ
) located at Kandla and Surat (Gujarat) , Santa Cruz Mumbai
(Maharashtra Falta (Wes t Bengal) , Chennai (Tamil Nadu) ,
Vishakhapatanam (Andhra Pradesh ) and NOIDA (Uttar Pradesh ) into SEZs.
Objectives of Setting up SEZ

 The main argument to establish SEZ is to promote exports by concentrating

resources in some pockets (designated as SEZs) .
 The policy was introduced in April 2000 to provide internationally
competitive and hassle-free environment exports .
 The units may be set up to manufacture goods render services. The unit in
the SEZ area has to be a net foreign exchange earner , but no
conditionality has been imposed to export a specified proportion of the
output.
Special Privileges of SEZ

 SEZ’s Are duty-free enclaves of development and are deemed as foreign

territories for purpose of trade ,duties and tarrifs .The policy offers several fiscal
and regulatory incentives to developers of the SEZ as well as to the units within
these zones.
 For SEZ developers ,all raw materials from cement to electrical parts shall be
exempt from any tax / duty . All imports for developing SEZs shall be exempt
from any customs duties.
 For SEZ’s ,the Government will acquire vast tracts of land and provide it to the
corporations or developers, A basic condition is that 25 % of the area of SEZ
must be for export related activities and the remaining 75 % the area can be
used for economic and social infrastructure . All the benefits and concessions
of SEZ be availed of for the whole area.
 The list of authorised operations includes roads,housing apartments ,
convention centres, cafeterias and restaurants , air conditioning , telecom
and other communication facilities and recreational facilities .
 Sector-specific SEZs will be allowed to have additional operations including
hotels , schools ,educational & technical institutes. Multi-product SEZ s also
be allowed to have ports, airports and golf – courses.
Critique of SEZ Policy

 There is a need to have reconsideration of SEZ approach to industrialization in

export promotion . The Finance Minister and the Reserve Bank of India do not
see any justification in having system of differential taxation in SE Z and non-SEZ
; causing an erosion of tax revenues ranging from 1,00,000crore s to R s 1,75,00
0 crores according to differ estimates .
 Moreover , the earlier policy of exempting revenues if new industrial units in the
hinterland are set up to mitigate the additional costs required was justified . But
most of the SEZ units are planned around the metropolitan towns . For instance
,Reliance wants to set up to Maha Mumbai SEZ , the second largest SE Z in the
world - 1 Shenzhen in China - spread over an area of 35,000 acres.
 Nearly 10 0 villages covering 1.5 lakh families face eviction in view of the
notices served by the Maharashtra Government .
2)Some recent development in the
evolution of SEZ Policy

 Firstly driven by the private investment decision,it has no limits other than
profit perception . It is, therefore , necessary to reconsider the meaning of
public purpose so as to expand the notion of "public purpose " to include
infrastructure and public facilities.
 Secondly , the applicability of Resettlement and Rehabilitation (R&R )
Policy is to be enlarged to include all cases of involuntary displacement -
not merely those hit by projects displacement but also those losing houses,
livelihood and adversely affected otherwise .
 Thirdly , the proposed Land Acquisition Amendment Bill should redefine
public purpose to include strategic purposes relating to navy , military and
airforce and any other work vital to the State . This would cover public
infrastructure such as electricity , communication , mining , water supply
and public facilities .
 Fourthly , it also proposed to have public purpose include cases of
"persons " (meaning any company or association or body of individuals ,
whether incorporated or not ) where land is required for purposes "useful
for the general public.
3)Parliamentary Standing Committee
Report on Special Economic Zones

 In India ,while passing the SEZ Act in May,2005 the following objectives
were laid down
 • Generation of additional economic activity ;
 • Promotion of exports of goods and services;
 • Promotion of investment from domestic and foreign sources;
 • Creation of employment opportunities ; and
 • Development of infrastructure facilities .
Minimum and Maximum area of
various types of SEZ

 The SEZ act prescribes a minimum area of SEZ s but does not prescribe any
maximum area for them .
 The Standing Committee has laid down a maximum area limit as well . The
Standing Committee held the view that under present system , the
Developers may be tempted to acquire more area than is necessary ,
particularly for developing profitable support activities in the non-
processing area .
 It is, therefore , necessary to prescribe a maximum area also for various
types of SEZs , with the condition that at least 50 % of the area will be used
as ""processing area. " This condition should not be relaxable .
Master Plan for SEZ’s

 The Committee has suggested a Master Plan for civic amenities , which
would determine the areas for residential space , the commercial areas,
the green area , roads and pathways etc . for an integrated development
of an SEZ .
 In this regard , Indian planners must take note of the fact that one of the
earliest Chinese SEZs at Shenzhen used to be a small village and it grew to
a city of 10 million within a short span of 20 years. The Government should ,
therefore , enunciate a clear policy with regard to governance issues
pertaining to areas surrounding SEZs .
Tax exemptions need rationalisation

 The SEZ Act provides for exemptions , drawbacks and concessions for the
entrepreneurs as well as developers of the SEZs . Private developers would
be able to derive tax exemptions from direct taxes for a period of 10 years
for their operations in non-processing area . Since the developers activities
do not result in enhancement of exports , such tax concessions are not
justified .
 The Committee , therefore , recommended that fiscal incentive ,
unrelated to exports , should not be granted . Tax benefits should be
granted only for export activities and infrastructure development.
Widening the composition of the Special
Economic Zone Authority

 The Standing Committee recommends that "the composition of the

authority should be expanded to represent some more stakeholders. At
least one nominee of the Developer , two nominees of the concerned
State Government , one nominee of resident workers , one financial expert
and one security expert may be included in the composition of the
Authority . One half of the total members may form the quorum for its
meetings. "
Appraisal of the report on SEZ
functioning

 It endeveours to build democratic structure of the farmers , sharecroppers

and other co-workers who are the stakeholders in the implementation of
SEZ policy .
 First issue pertains to the attitude of the State Governments towards the
Standing Committee itself .
 It has been argued that Land Acquisition Act (1894 ) has become outdated
because it was designed by the imperialist power to facilitate acquisition of land
to suit their objectives .
The situation has dramatically changed after independence . Most politicians
believe , and rightly so that this Act needs replacements by a modern legislation .
The Government also concedes the need for doing so , but has not initiated any
concrete steps to prepare a draft for the consideration of the Parliament .
In this context , the Standing Committee should have done a great service , had it
applied its energies in preparing draft legislation . Similar is the case of framing the
National Relief and Rehabilitation Act .
 Thirdly , the question of declaring SE Z as a 'public utility service ' and thus
abrogating the application Labour Laws also needed serious
consideration .
GATT,WTO and India’s
Foreign Trade
1)The Uruguay round of negotiations-
8th Round of GATT

 Uruguay Negotiations contained the mandate to have negotiations in 15

areas. In Part I negotiations on Trade in Goods were to be conducted in 1
4 areas and in Part I I negotiations on Trade in services were to be carried
out .
 Part I (Trade in Goods ) declaration in UR containe1)Tarrifs 2)Non-Tariff
Measures 3)Tropical Products , (4 ) Natura l resource-base d products , (5 )
Textiles and clothing , (6 ) Agriculture , (7 ) GATT articles. (8) Safeguards, (9
) MT N (Multilateral Trade Negotiations ) agreements and
arrangements,(10 ) Subsidies and countervailing measures, (11 ) Dispute
settlement , (12 ) Trade Related Aspects of Intellectual Property Rights
(TRIPs) , (13 ) Trade Related Investment Measures TRIMs ) (14 ) Functioning
of the GATT systems (FOGS)
 Thus besides the tariff and non-tariff barriers and improvement in GATT rules
and disciplines on subsidies and countervailing measures, anti-dumping
measures etc. , certain new areas Rich as Trade Related Aspects of
Intellectual Property Right s (TRIPs) , Trade Related Investment Measures
(TRIMs ) and Trade in Services were included for the first time for
negotiations .
2)Uruguay Round Final Act and its
implications for India

 Reduction in basic duties and export subsidies-

 The GATT agreement stipulates the anti dumping proceedings will be
terminated if the volume of dumped imports from a particular country is
less than 1 % of the domestic market .
 The only exception is instances where dumping countries collectively
account for more than 2. 5 percent of the domestic market . Anti-dumping
proceedings will be terminated if the margin of dumping is less than 2% .
These clauses do help India to protect its exports from anti - dumping
investigations .
Effect of Trips on Indian Economy

 TRIP s requires an understanding about the scope of the new patent

regime .
 Under TRIPs patents shall be available for any invention whether product or
process in all fields of industrial technologies . Patent protection will be
extended to micro - organisms , non-biological and micro-biological
processes and plant varieties.
 This implies that the entire industrial and agricultural sectors and to a n
extent bio-technology sector will be covered under the patent provisions .
TRIMS and its impact on India

 ( i ) All restrictions on foreign capital/investors / companies should be

scrapped .
 (ii ) The foreign investor shall be given the same rights in the matter of
investment as a national investor .
 (iii ) No restrictions will be imposed on any area of investment .
 (iv ) Nor will there be any limitation on the extent of foreign investment—
even 100 percent foreign equity will be permitted .
 ( v ) Imports of raw materials and components will be allowed freely.
 (vi ) Foreign investor will not be obliged to use local products and materials
.
 (vii ) Export of part of the output will no longer be mandatory .
 (viii ) Restrictions on repatriation of dividend , interest and royalty will be
eliminated .
 (ix ) There will be a complete exclusion of provisions like phased
manufacturing programme which is intended to increase the indigenous
content in manufacture.
3)Social Clause in GATT

 A startling proposal was made in the finalisation of the GATT agreement

towards the end of March 1994 . This proposal , commonly referred to as
"social clause " was moved by US to be incorporated in the Marakkesh
Declaration .
 The US representative proposed under the social clause to levy a
countervailing duty on imports from developing countries aimed at
offsetting the low labour costs prevailing there . In plain language , the
proposal implied the following : If a shirt in India cost $50 , while it cost $ 20
0 in the US , then this differential was largely a consequence of the
difference in labour costs.
 To remove this differential advantage ,Indian exports to the U S A would
have to pay a duty aimed at neutralising the cost advantage .
 The social clause , it was stated , is motivated by humanitarian concern ,
so that the developing countries adopt proper standards of living for the
workers and pay their labour better wages.
4)Impact of WTO on various aspects of
Indian Economy

 WTO has been urging to lower import duties,remove controls on consumer

goods imports , reduce quantitative restrictions , etc .
 Under the Uruguay Round Agreement , India offered to reduce tariffs on
capital goods , components, intermediate goods and industrial raw
materials to 40 % in case our tariffs were above that percentage ; to 25 %
in case our tariffs were between 25 to 40 per cent and to bind the tariff
ceiling at 2 5 percent in case our tariffs were below that percentage .
 This reduction in tariffs was to be achieved by the year ending 2000 .
Impact of WTO on SSI Units

 WTO agreement do not discriminate on the basis of size of industries or

enterprises. In the WTO regime , reservations may have to be withdrawn ,
preferential purchase and other support measures may not be available
and thus SSIs have to compete not only with the large units within the
country , but also with cheap imported products.
 SSIs are thus losing their markets to cheap imported products.
Consequently , a very large number of S S I units are becoming sick or
have closed down.
Double Standards of Developed
Countries

 Unfair game in agreements on textiles-

 Countries through various protectionist measures deny access to cost
efficient textile producers.
 These measures take the form of anti-dumping duties, unilateral change in
the rule of origin and unjustifiable foisting of environmental issues. All of
these measures are taken to protect domestic industry in developed
countries and thus, these measures hamper free flow of Indian textile
export.
5)WTO,Subsidies and Agriculture

 Green Box Subsidies-

 Government services such as research , disease control , infrastructure and
food security . They also include payments made directly to farmers that
do not stimulate production , such as certain forms of direct income
support assistance to help farmers restructure agriculture , and direct
payments under environmental and regular assistance programmes . This
definition is very wide and includes all types of Government subsidies.
 Blue Box Subsidies-
 These are certain direct payment to farmers where the farmers are to limit
production , certain government assistance programmes to encourage
agriculture and rural development in developing countries , and other
support on a small scale when compared with the total value of the
products supported 1 5 per cent or less in the case of developed countries
and 1 0 per cent or less for developing countries.
6)India’s Role at Doha Ministerial
Conference (2001)

 A survey of the globalisation policies followed India reveals that the

promised benefits of globalisation in the form of sharp increase in GDP ,
exports , foreign direct investment , reduction of poverty , deceleration of
unemployment could not be realised by India during the 1990s.
 Globalisation has adversely affected Indian industry , it has enabled the
developed countries to push their exports to India at much faster rate , but
did not facilitate the process of access to international markets ; small
scale industry has suffered due to the policy of dumping practised by
developed countries , more especially in consumer goods.
 The most distressing part of the story is the double standards practised by
the developed countries which manifest in the form of unfair agreement
on textiles; a policy marked by a bias in favour of the farmers of
developed countries as against the poor farmers in India .
 Developed countries brought forth spurious environmental and social
issues to prevent the exports from India of such commodities in which the
country possessed comparative advantage.
7)GENEVA Framework of WTO and
India

 Firstly , out of four contentious issues which the developed countries

wanted to be included in the Doha Round , three issues, namely ,
investment , competition policy and government procurement have been
dropped from the agenda .
 Only trade facilitation will be taken up for consideration.
 Secondly , developed countries have agreed to do away with direct and
indirect subsidies provided to their export.
 Thirdly the developed countries have recognised the need for special and
differential treatment for developing countries in terms of quantum of tariff
reduction, tariff rate quota expansion , number and treatment of sensitive
products and the length of implementation period .
 Fourthly , developing countries have the right identify the number of
special products, based on the criteria of food security , livelihood security
and rural development needs, which would be eligible for flexible
treatment.
 Lastly a special safeguard mechanism has been provided in the
framework against disruptive imports , the details of which are to be
worked out .
 The developed countries have also accepted the adoption of less-than-
full reciprocity principle for developing countries .
8)Update on Trade Negotiations

 Liberalization in services and investment would have severe implications

for India' s existing and future small and homegrown industries and
businesses related to agricultural , manufacturing and services.
 This agreement would also seriously affect the scope of intellectual
property protection and enforcement .
 If EU s demand for liberalising government procurement is accepted than
our small and medium enterprises, poorer section of the society and
poorer states would be adversely affected .
 This would also adversely affect the government' s ability to adopt suitable
policies to take care of economic upheavals.