BA520ECO-E

B.A.
THIRD YEAR SEMESTER – V

ECONOMICS
Indian Economy
(Discipline Specific Course)

“We may forego material benefits of civilization, but we

cannot forego our right and opportunity to reap the benefits
of the highest education to the fullest extent…”
Dr. B. R. Ambedkar

Dr. B. R. AMBEDKAR OPEN UNIVERSITY

HYDERABAD
2020
 COURSE TEAM

Editor Associate Editor &

Prof. S. Radhakrishna Course Co-ordinator
Dr. K. Krishna Reddy

Writers: Units
Prof. S. Radhakrishna 1
Dr. M. Yadagiracharyulu 12
Dr. A. Venkatewarlu 7&8
Dr. K. Mohan Reddy 4, 5 & 6
Dr. M. Varaprasad 9 & 15
Dr. K. Madhubabu 3
Dr. S. Vidyasagar 2, 10 & 14
Dr. S. Ramesh 13
Dr. K. Krishna Reddy 11

Cover Design:
G. Venkat Swamy

First Published: 2020

Copyright © 2020 Dr. B. R. Ambedkar Open University, Hyderabad, Telangana.

All rights reserved. No part of this book may be reproduced in any form without permission in
writing from the University.

This text forms part of Dr. B. R. Ambedkar Open University Programme.

Further information on Open University programmes may be obtained from the Director
(Academic), Dr. B. R. Ambedkar Open University, Prof. G. Ram Reddy Marg, Road No.46,
Jubilee Hills, Hyderbad-500033.
Website: www.braou.ac.in
E-mail to: info@braou.ac.in
Printed on behalf of Dr. B. R. Ambedkar Open University, Hyderabad by the Registrar.

Lr. No. –

Printed at : ............................................................................................
 P R E FA C E

The course of 'Indian Economy' is included in the syllabus for the 5th Semester
in B.A. Economics Programme offered under CBCS by Dr. B. R. Ambedkar Open
University. The syllabus for the sake of convenience is divided into Blocks, each of
which comprises a number of units. Each Block generally covers a specific area of
the subject.

An attempt is made in this book to introduce the concepts of growth,

development, underdevelopment and deprivation. Further, major issues of Indian
economy such as trends in national income, planning (NITI Aayog), performance of
agriculture, industry and service sector, income inequalities, poverty and
unemployment, LPG model, pattern of inflows of Foreign Direct Instruments, regional
imbalances and migration etc. have been analysed.

The units are prepared by the experienced teachers of economics and converted
into self-instructional material to enable the learner to read and understand them
without difficulty. Each unit begins with the contents, i.e., the aspects to be covered
in the unit, followed by objectives of the unit. The Subject matter of the unit starts
with the introduction and ends with the summary. Check your progress exercises are
provided in each unit wherever necessary and model answers are also given. Model
examination questions, including objective type questions and references are given
at the end of the unit.

The University hopes that this material will help the student to get acquainted
with the Principal issues of 'Indian Economy' which make for its distinctiveness
and significance.

III
 CONTENTS

Block/Unit No. Title Page No.

BLOCK - I : Basic Structure and Demographic Features

of the Indian Economy 1-36
Unit - 1 : Development, Underdevelopment,
Economic Growth and Deprivation 2-12
Unit - 2 : Growth and Structural Changes in Indian Economy 13-21
Unit - 3 : Growth and Occupational Structure of Population 22-36

BLOCK - II : National Income, Income Inequalities,

Poverty and Unemployment 37-89
Unit - 4 : National Income in India : Estimation,
Trends and Composition 38-54
Unti - 5 : Poverty and Income Inequalities in India 55-72
Unit - 6 : Unemployment In India 73-89

BLOCK - III : Agricultural Sector 90-145

Unit - 7 : Agrarian Structure, Land Reforms and Green
Revolution in India 91-110
Unit - 8 : Agrarian Crisis and Food Security in India 111-128
Unit - 9 : Agricultural Finance, Marketing and Pricing 129-145

BLOCK - IV : Industrial Sector 146-190

Unit-10 : Industrial Structure, Growth and MSMEs 147-160
Unit-11 : Industrial Policies 161-175
Unit-12 : Economic Reforms: LPG and Foreign Direct Investment 176-190

BLOCK - V : Service Sector, Planning and Regional Imbalances 191-242

Unit-13 : Service Sector and Infrastructural Development in India 192-205
Unit-14 : Five Year Plans and NITI Aayog 206-217
Unit-15 : Regional Imbalances and Migration 218-242
Model Question Paper 243-245

IV
 BLOCK – I
BASIC STRUCTURE AND DEMOGRAPHIC
FEATURES OF THE INDIAN ECONOMY
This block introduces the concepts of Growth, Development, Underdevelopment and
Deprivation. It also explains the basic features of Indian economy, growth trends, structural
changes occurred since Independence. At the end, it analyses the growth, composition and
occupational distribution of population.
This block contains the following units:
Unit - 1 : Development, Underdevelopment, Economic Growth and
Deprivation
Unit - 2 : Growth and Structural Changes in Indian Economy
Unit - 3 : Growth and Occupational Structure of Population

1
UNIT-1: DEVELOPMENT, UNDERDEVELOPMENT,
ECONOMIC GROWTH AND DEPRIVATION
Contents
1.0 Objectives
1.1 Introduction
1.2 Concept of Economic Growth
1.3 Concept of Economic Development
1.4 Economic Growth versus Development
1.5 Concept of Underdevelopment
1.6 Concept of Deprivation
1.7 Summary
1.8 Check Your Progress – Model Answers
1.9 Model Examination Questions
1.10 Glossary
1.11 Reference

1.0 OBJECTIVES
Economic development has become the goal and ambition of millions of people in the
world. It is through the process of economic development that a community raises itself from
lower to higher levels of economic well-being. During the post world war II period, immediately
after getting independence, several Afro-Asian countries put economic development on their
agenda. Since the per capita real income in all these countries happened to be conspicuously
low, they decided to accord a very high priority to programmes which could realize the maximum
possible growth rates under the given condition. Economic growth is generally restricted to
mean growth in output. But, economic development is a wider concept and includes not only
growth in output but also several structural changes and a rise in the general economic welfare
and freedom. After reading this unit you will be able to:
● understand the concepts of economic growth, economic development, underdevelopment
and deprivation;
● distinguish between economic growth and development. and
● explain the causes of underdevelopment.

1.1 INTRODUCTION
Since the end of World War II, governments in Latin America, Africa, the Middle East,
Asia and some European countries have become increasingly ‘development minded.’ Majority
of these countries have embarked upon the formulation and execution of the plans of economic

2
development. More and more people in underdeveloped countries have come to realize that
their poverty is neither necessary nor inevitable and realization has acted as a stimulus to the
desire for improvement. The two different socio-economic systems in the capitalist and the
communist countries seem to be in keen competition in the field of developing the poor countries.
Each system is being recommended by its supporters as being the best and most suitable for the
economic development of backward regions. This sort of rivalry has added impetus to the
struggle for economic development in poorer nations.
Earlier Conventional wisdom equated development with growth. There two terms were
treated as synonyms. It was believed, following the trickle down’ theory, that economic growth
and through it prosperity had a tendency to spread as prosperity has multiplier effects. This
spread effect was believed to benefit the poor along with the rich in the society. But, the
trickledown theory is rejected by modern economists for more than one reason, the more
important being the long time that it will take to benefit the poor. And so, they advocated a
direct attack on poverty through promotion of opportunities for increasing their income levels
through gainful and sustained employment. Thus, the goal of economic development is redefined
today in terms of acceleration of the rate of growth in the country and concurrently reducing
the incidence of poverty, unemployment and inequalities.
It was realized in the seventies that the concept of development should be broadened so
that it should justify that well-being of the people has increased. This led to the view that
economic development should not be judged on the basis of growth in GNP alone. Sakhamoy
Chakravarthy rightly pointed out that “The rate of growth strategy is by itself an inadequate
device to deal with the problems of generating employment opportunities and for reducing
economic disparities. Much depends on the composition of the growth process and how growth
is financed and how benefits from growth process are distributed”.

1.2 CONCEPT OF ECONOMIC GROWTH

In recent literature the term Economic growth refers to sustained annual increases in an
economy’s real national income over a long period of time. In other words, economic growth
means rising trend of net national product at constant prices. The other way of defining economic
growth is to do so in terms of per capita income or output. According to this view, economic
growth means the annual increase in real per capita income of a country over the long period.
Arthur Lewis says that ‘economic growth means the growth of output per head of population.’
Most of the country’s economic growth is measured both in terms of increase in overall Gross
Dominic Product (GIP) and increase in per capita income.
According to Micheal P Todaro, ‘economic growth is a steady process by which the
productive capacity of the economy is increased over time to bring about rising levels of national
output as income’. To Simon Kugets “economic growth is a long term process, wherein the
substantial and sustained rise in real national income, total population and real per capita income
takes place”. To be precise, growth of an economy may be defined as movement from a low
equilibrium to high level equilibrium.

3
 The important determinants of growth can the understood as: 1. Rate of saving of the
economy; 2. Capital – output ratio; 3. Rate of growth of labour force; and 4. Rate of growth of
technological progress.

1.3 CONCEPT OF ECONOMIC DEVELOPMENT

It is difficult to give a precise meaning to the term ‘economic development’. The difficulty
arises because of the different criterion used for distinguishing the ‘developed’ from
‘underdeveloped countries.’ For some writers an improvement in national income of a country
should be regarded as an index of economic development. Kuznets, Paul Albert, Meiers and
Baldwin are the main representatives of this approach to economic development. On the other
hand, Benjamin Higgins, Arthur Lewis, Viner and Harvey Leibenstein are of the opinion that
increases in per capita real income must be the appropriate index of economic development.
Hence, most of the definitions of economic development generally concentrate either around
the concept of increasing the national product or that of increasing the real per capita income.
To Prof. Viner, reduction of mass poverty is the true index of economic development. He
opined that the ultimate realization of development must be higher levels of consumption of
the masses. Richard Lipsy also supports this view and says that ‘one primary reason for desiring
growth is to raise the general living standards of the population.’ Harvey Leibenstein, too, is of
the opinion that development implies the enhancement of an economy’s power to produce
goods and services per capita, for such enhancement is the pre-requisite to raising levels of
living. All these writers emphasize that true economic development takes place only when
along with rising per capital income the living standards of the masses also improve. Majority
of the economists are in favour of adopting the per capita approach although much scientific
truth can also be claimed for national approach. The national income approach to economic
development emphasizes that it is a process by which community’s national income increases.
Any increase in national product must be regarded as development process; whether it results
in raising per capita income or not will depend upon whether rate of growth of population is
less or more than the rate of growth in national income. Thus, the primary index of economic
development is growth of national income. Meier and Baldwin define economic development
‘as a process whereby an economy’s real national income increases over a long period of time.’
By ‘real national income’ is meant the total output of final goods and services in real terms
rather than in money terms. In other words it is the national income at constant prices.
According to the UNO, development is not only related to the material needs of man but
it is also concerned with an improvement in the social conditions of his life. In this contest
Michael P. Todaro and Stephen C. Smith assert, “Development must, therefore, be conceived
as a multi-dimensional process involving major changes in social structures, popular attitudes,
and national institutional, as well as the acceleration of economic growth, the reduction of
inequality, and the eradication of poverty. Development, in its essence, must represent the
entire gamut of change by which an whole social system, tuned to the diverse basic needs and
desires of individuals and social groups within that system, moves away from a condition of
life widely perceived as unsatisfactory toward a situation or condition of life regarded as
materially and spiritually better.’ Hence, development is not only economic growth but it is a
4
sum total of social, cultural, institutional and economic changes. It is a multi-dimensional
phenomenon; it involves not only increase in money incomes, but also improvement in real
habits, education, public health, greater leisure and, in fact all the social and economic
circumstances that make for a fuller and happier life. From the above discussion it is clear that
the term economic development simply means the achievement by poor countries of higher
levels of real per capita income and improved conditions of living for their people.
Recently, the concept of economic development has been further widened so that it now
involves not only reduction in poverty, inequality and unemployment but also requires
improvement in quality of life which includes cleaner environment, better education, good
health and nutrition. Thus the concept of economic development has been greatly broadened.
Today economic development is interpreted as not only in more growth in economic wellbeing
but also in terms of good quality of life which, according to Amrtya Sen, consists in enlargement
of opportunities for people and freedom of human choices.’ This new concept of development
includes achievement of freedom from servitude to ignorance and illiteracy. It also includes
enjoyment of human rights.

Check Your Progress.

Note: a) Space is given below for utilizing your answer.
b) Compare your answer with the one given at the end of the unit.
1. Define Economic Growth.
..........................................................................................................................................
2. Define Economic Development.
..........................................................................................................................................

1.4 ECONOMIC GROWTH VERSUS DEVELOPMENT

Generally the terms ‘economic development’ and ‘economic growth’ are used in the
same sense but economists, particularly, JA. Schumpeter, Hills and Alfred Bonne have tried to
distinguish between the two. To them, economic growth is supposed to be a natural or normal
process requiring no special efforts on the part of the community. Economic development, on
the other hand, involves structural changes without which the inertia of the social system cannot
be overcome and decisive break with the past achieved. For instance, economic advancement
of USA in the 19th century can be described as economic growth while the economic advancement
of USSR and also of the countries of Asia and Africa can be called economic development
because it is the result of their conscious efforts. According to Schumpeter ‘development is a
discontinuous and spontaneous change in the stationary state which forever alters and displaces
the equilibrium state previously existing; while growth is a gradual and steady change in the
long run which comes about by general increase in the rate of savings and population.’ Mrs.
Ursula Hicks observes that the term ‘growth’ is applicable to economically advanced countries
where most of the resources are already known and developed while development should relate
to backward countries where there is possibility of developing and using hitherto unused
resources. According to Alfred Bonne ‘Development requires and involves some sort of direction,
5
regulation, and guidance to general forces of expansion and maintain them. This is true of most
of the underdeveloped countries, whereas the spontaneous nature of growth characterizes
advanced free enterprise economics.’ From these definitions it is clear that economic
development has wider implications than economic growth.
The concept of economic growth as propounded by Simon Kuznets is a wider concept
including structural and institutional changes. However many economists view that growth is
related to the increase in output. It may have to be mentioned in this context that even the wider
concept of economic growth excluded the welfare aspects. Paul Baran opinioned that it is better
to use both ‘development’ and ‘growth’ to mean the process of change by which an economy
attains a higher level of economic performance. Kindleberger writes ‘economic growth’ means
more output and economic development implies both more output and changes in the technical
and institutional arrangements by which it is produced. From the above discussion the distinction
between Economic growth and Economic development can be illustrated as follows:
Economic Growth = Sustained rise in output, both national and per capita.
Economic Development = Economic growth + structural changes + institutional and
organizational adjustment + rise in the level of public welfare + sustaining and enhancing
economic freedom.
At the end, we sum up the differences between growth and development.
1. The scope of economic growth is narrow because it is concerned with changes in per
capita income only. Whereas, the scope of development is wide and comprehensive. Its
link is not only with an increase in income but also with the well being of society and
economy.
2. Mere quantitative increase in total income employment and output is growth, whereas
development involves qualitative and technological changes.
3. Growth is due to increase in outputs. Development raises both production and productivity.
4. Development involves structural changes in attitudes, organization and techniques. These
changes are not necessary conditions for growth.
5. There may or may not be any social changes in case of economic growth. It is only
concerned with change in income level without giving due consideration to social changes.
In case of economic development, social changes are compulsory. It refers to the better
jobs, availability of food, better health and education and a sustained increase in living
standards where environmental issues are also given a due consideration.

Check Your Progress.

3. Write any two differences between ‘Economic growth’ and ‘Economic development’.
..........................................................................................................................................

1.5 CONCEPT OF UNDERDEVELOPMENT

The term ‘underdevelopment’ generally implies a low level of economic and technological
development, application of outdated techniques, low per capita real income and absence or
6
slow pace of the development of economic institutions. Underdevelopment of a country does
not necessarily mean that the country is potentially poor; it means that country’s developmental
potentialities have not been utilized as they ought to be.
According to UNO experts, the term underdeveloped countries is used to mean countries
in which per capita real income is low when compared with the per capita incomes of developed
countries. The main drawback of this definition is that it does not indicate the fact that an
underdeveloped country is poor because of the lack of development of its resources. Indian
Planning Commission has given a better definition of an underdeveloped country and according
to it ‘underdeveloped country is one which is characterized by the coexistence, in greater or
less degree, of unutilized manpower, on the one hand, and of unexploited natural resources on
the others. This definition is better than the above definition because it accepts underutilization
of resources as an index of underdevelopment. But the main defect of this definition is that it
does not throw any light on the causes of underutilization of resources. On the basis of above
definitions, it can be concluded that an underdeveloped country is one that is economically
poor compared with other countries regarded as developed. The country is generally poor because
of the under-utilization of its resources which may be the result of capital deficiency,
technological backwardness or institutional rigidities, poor quality of manpower etc. Thus, an
underdeveloped country is one which has the potentiality of development. In other words,
through better utilization of its resources it has got the capacity to maintain its population at a
higher standard of living.
More usually, the ‘initial conditions’ that are supposed to inhibit growth are attributed to
the people or society of these underdeveloped countries. Most ‘sociological’ theories of
underdevelopment belong to this category. Absence of certain qualities among the ‘Eastern’
people, namely, inventiveness, dynamism, rationality, achievement motivation which are
necessary in the process of development is stressed. These views are inconsistent with the
empirical evidence. Another variant of this approach ascribes underdevelopment to the lack of
technological dynamism. This view also is questioned on historical evidence. Colonial
background of the underdeveloped countries is another explanation. The neoclassical model of
underdevelopment is concerned with the persistence of underdevelopment. Historical evidence
also suggests a negative association between colonial rule and industrial revolution. The
economic structures of the colonial nations as well as their educational and social institutions
have been typically modeled on those of the former colonial rulers. The autonomy of local
communities and institutions was eroded. This is the essence of structural theory of
underdevelopment. These days the underdeveloped countries are usually called developing or
less developed countries. As per World Bank classification, low income economies which have
per capital income of 745 US dollars or less, are generally described as developing economies.

Check Your Progress.

4. What are the causes of underdevelopment?
..........................................................................................................................................

7
1.6 CONCEPT OF DEPRIVATION
Human deprivation is related to deficiency (lack) of access to minimum of resources to
meet their economic and social requirements for a dignified life in the society. This is called
lack of basic social security (BSS). Deprivation is a multi-dimensional concept, and it is related
with other two concepts poverty and exclusion. The three are not mutually exclusive, but
interactive and interdependent concepts.
Adam Smith’s focus on the deprivation involved in not “being able to appear in public
without shame” is a capability deprivation that takes the form of social exclusion. This relates
to the importance of taking part in the life of the community, because man is a social animal as
per Aristotle. If some people are excluded from social relations, it leads to other deprivations as
well, thereby further limiting their living opportunities (Sen, 2000).
Social exclusion can be understood from Indian caste system, particularly in the case of
scheduled castes and scheduled tribes. The SCs faced the segregation despite living within the
mainstream dominant caste society and they were compelled to take up menial jobs to keep
themselves alive. In fact, the STs had no problem of untouchability, but isolated from the mainstream
society. The scheduled castes have had a greater exposure to the larger society as compared to the
scheduled tribes, as they lived with the dominant society (Virginius Xaxa, 2001).
According to United Nations, absolute poverty is a condition characterized by severe
deprivation of-basic human needs, including food, safe drinking water, sanitation facilities,
health, shelter, education and information. It depends not only on income but also on access to
social services. Further, the World Bank differentiates five core dimensions of poverty, reflecting
the deprivation of human capabilities: economic (income, livelihoods, decent work), human
(health, education), political (empowerment, rights, voice), socio-cultural (status, dignity) and
protective (insecurity, risk, vulnerability).
Human deprivation is lack of human capabilities, opportunities, choices, values and
access to basic needs such as food, shelter, cloth, health, education etc. But, poverty may be
seen as deprivations in opportunities that can result in lesser accumulation of human capabilities,
which are essential for leading a tolerable life. Poverty is viewed not only in terms of lack of
adequate income, but as a state of deprivation spanning to social, economic and political context
of the people that prevent their effective participation as equals in the development process.
Poverty is often defined in terms of a person’s income. Human deprivation in capabilities
results from lack of opportunities, i.e., from lack of access to services, assets and employment
As per Sen (2000), if people’s incomes increase, it may expand freedoms enjoyed by
them in the society. But freedoms depend also on other determinants, such as social and economic
arrangements (for example, facilities for education and health care) as well as political and
civil rights (for example, the liberty to participate in the public discussion and scrutiny). There
are five distinct types of freedom: (1) political freedoms, (2) economic facilities, (3) social
opportunities, (4) transparency guarantees and protective security. Each of them helps to advance
the general capability of a person.

8
Deprivations: Subjective, Objective and Relative Objective
The definition and measurement of poverty is dependent on ‘relative deprivation’. This
is to specify and measure conditions of deprivation which some people experience relative to
others. So the social scientist has to collect evidence about (a) objective deprivation, (b)
normative deprivation, and (c) individual subjective or group deprivation. The distinction
between the second and third is in some ways a matter of degree. The former represents a
dominant or majority valuation in society. The latter may reflect the views held by different
kinds of minority group. The non-fulfillment of minimum housing standards or amenities, etc.,
represents objective deprivation.
The concept of ‘relative deprivation’ has been fruitfully used in the analysis of poverty.
Being poor has clearly much to do with being deprived, and it is natural that, for a social
animal, the concept of deprivation will be a relative one. However, to contrast between ‘feelings
of deprivation’ and ‘conditions of deprivation’, one has to use ‘relative deprivation’ ‘in an
objective sense to describe situations where people possess less of some desired attribute, be it
income, favourable employment conditions or power, than do others. Then, the choice of
‘conditions of deprivation’ cannot be independent of ‘feelings of deprivation’. There is an
irreducible core of absolute deprivation in the idea of poverty, which translates reports of
starvation, malnutrition and visible hardship into a diagnosis of poverty without having to
ascertain first the relative picture. Thus the approach of relative deprivation supplements rather
than supplants the analysis of poverty in terms of absolute dispossession. Quantification of
poverty would, thus, be necessary to combine considerations of absolute and relative deprivation
(Sen, 1982).
But to describe multi-dimensions of deprivation, different sets of indicators are required.
Deprivation indices are broader measures because they reflect different aspects of living
standards, including personal, physical and mental conditions, local and environmental facilities,
social activities and customs.

Check Your Progress.

5. What is Human Deprivation?
..........................................................................................................................................

1.7 SUMMARY
The problem of economic development of underdeveloped regions has come to the
forefront assuming significance for economic analysts. Due to structural and institutional factors
they are not in a position to have a high rate of growth of their economies. The trickledown
theory has failed and all the sections of the people are not included in the development process.
Consequently, absolute poverty, unemployment and inequality are persisting on a large scale.
Though several programs meant for poverty eradication and creation of employment
opportunities have been implemented in these countries, due to failure of delivery mechanism
the benefits are not completely reached to the target groups.

9
 The economic factors such as the per capita income level and its rate of growth are
important measures of economic growth. Through economic growth is dependent upon its
natural resources, human resources, capital, enterprise and technology, it is not possible to
achieve higher levels of economic growth so long as social institutions, political conditions
and moral values in a nation do not encourage development. Deprivation is a multi-dimensional
concept and need a multi-dimensional approach.

1.8 CHECK YOUR PROGRESS – MODEL ANSWERS

1. The term economic growth refers to sustained increase in economy’s real national income
over a long period of time. In otherwords economic growth is the steady process by
which the production capacity of the economy is increased over time to bring about
rising levels of national income. Thus, Economic growth = Sustained rise in output, both
national and per capita.
2. Economic development means not only growth (i.e. Sustained increase in GNP) but also
includes the technological and institutional changes with the ultimate objective of ensuring
individual welfare and freedom to live the way they would like to, without restrictions
on his liberty to pursue a vocation of his / her choice. Thus, Economic Development =
Economic growth + Structural changes + institutional, organizational adjustment + rise
in levels of public welfare + sustaining and enhancing freedom.
3. The scope of economic growth is narrow because it is concerned with changes in per
capita income only. Whereas, the scope of development is wide and comprehensive.
Development involves structural changes in attitudes, organization and techniques. These
changes are not necessary conditions for growth.
4. Causes of underdevelopment, according to different theories are viz. eliminate; absence of
certain qualities among the Eastern people namely, inventiveness, dynamism, rationality,
achievement motivation which are necessary in the process of development, lack of
technological dynamism, under utilization of resources, colonial background of the
underdeveloped countries etc. Just like poverty, underdevelopment is also multi-dimensional.
5. Human deprivation is related to deficiency (lack) of access to minimum of resources to
meet the people’s economic and social requirement for a dignified life in the society.

1.9 MODEL EXAMINATION QUESTIONS

I. Answer the following questions in about 10 lines each.
1. Analyse the causes of underdevelopment.
2. Define economic growth and state important determinants of economic growth.
3. Distinguish between human deprivation and poverty.
II. Answer the following questions in about 30 lines each.
1. Explain the concepts of Economic growth and development, what are their differences?
2. Write a note on Deprivation.
10
III. One mark questions.
A. Multiple choice questions.
1. Economic growth according to Todaro -
A. Raising levels of output and income B. Reduction in poverty
C. Increase in standard of living of people D. None of the above
2. Underdeveloped countries are usually called as
A. Backward countries B. Less developed countries
C. Poor countries D. Developing countries
3. Human deprivation is related to ……..
A. Lack of access to minimum of resources to meet economic and social requirements.
B. Lack of income C. Poor living conditions D. None of the above
Answers: 1 – A, 2 – D, 3 – A.

B. Fill in the blanks.

1. According to UN, absolute poverty is a condition characterized by ………….
2. As per A.K. Sen, freedom also depends on ………..
3. Economic Development includes…………..
Answers: 1. Severe deprivation of basic human needs; 2. Social and economic arrangements;
3. Technological and institutional changes.

C. Match the following

A B
1. Economic Growth A. Institutional changes
2. Economic Development B. Deficiency of access to minimum basic needs.
3. Human Deprivation C. Sustained increase in real national income.
4. Sen, A.K. D. Capability approach
Answers: 1 – C; 2 – A; 3 – B; 4-D.

1.10 GLOSSARY
1. Absolute Poverty: A situation where a population or section of a population is able to
meet only its bare subsistence needs of food, clothing and shelter. Extreme poverty is
another name for it.
2. Economic Growth: The steady process by which the production capacity of the economy
is increased over time to bring about rising levels of national income.
3. Neoclassical Model of Underdevelopment: Model whose main proposition is that
underdevelopment exists in the third world countries because of continuing exploitative

11
 economic, political and cultural policies of former colonial rulers toward less developed
countries.
4. Structural Theory of Underdevelopment: Hypothesis that underdevelopment in the
third world is due to under utilization of resources arising from structural and institutional
factors that their origins in both domestic and international dualistic situations.
5. Trickle-Down Theory of Development: The notion that development gains would
automatically reach the poor in the form of jobs and other economic opportunities.

1.11 REFERENCES
1. A.P. Thirlwall: Growth and Development: With Special Reference to Developing
Countries, Second Education, Macmillan, London, 1982.
2. Michael P. Todaro: Economic Development and the Third World, Fourth Ed., Orient
Longman, Hyderabad, 1991.
3. Ajit K. Dasgupta: Economic Theory and the Developing Countries, Macmillan,
London, 1982.
4. 4. Sen, A.K. (2000a) : Development as Freedom, Oxford University Press, New Delhi.
5. Sen. Amartya: Poverty and Famines - An Essay on entitlement and Deprivation,
Oxford University Press.
6. Xaxa Virginius: Politics of Language, Religion and Identity: Tribes in India, EPW,
Vol. 40, No. 13, March 26 – April 1, 2005, pp1363 – 1370.
7. Townsend, P. (1979): Poverty in the United Kingdom, London, Allen Lane and Penguin.

– Prof. S. Radhakrishna, Senior Academic Associate, Dr. BRAOU.

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UNIT – 2 : GROWTH AND STRUCTURAL CHANGES IN
INDIAN ECONOMY
Contents
2.0 Objectives
2.1 Introduction
2.2 Basic Features of Indian Economy
2.3 Trends in Growth Rates of GVA
2.4 Structural Changes in Indian Economy
2.5 Summary
2.6. Check Your Progress - Model Answers
2.7 Model Examination Questions
2.8 Glossary
2.9 References

2.0 OBJECTIVES
The unit discusses the basic features of Indian Economy and examines the trends in
growth rates of different periods. Further it analyses the structural changes in the Indian economy
since 1951. After reading the unit, you will be able to:
● explain the basic features of Indian economy.
● understand the trends in decadal growth rates. and
● analyse the structural changes in Indian economy.

2.1 INTRODUCTION
Most of the features of underdeveloped economy are more or less present in Indian
economy. Thus, Indian economy can be treated as one of the under developed but developing
economies of the world. It is therefore essential to study the basic features and growth trends in
the Indian economy. Attaining structural changes in the economy is considered as one of the
pre-conditions for economic development. Over time, structures of economies including India
undergo major structural changes. Here, the term ‘Structural’ is to be understood as significant
changes in composition, shifts in sectors’ output and labour absorption, changes in technology
etc. In this unit all these aspects were explained in detail.

2.2 BASIC FEATURES OF INDIAN ECONOMY

The Indian economy can be treated as one of the underdeveloped but developing
economies of the world. The basic features of Indian economy are presented here under:
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 under development. The per capita NNI in
13
India in 2010-11 is Rs. 62,550 and in 2016-17 (at 2011-12 constant prices) it is Rs. 82,269.
India is at 31 position in the list of Asian Countries and world rank is 126. Low level of income
indicates low standard of living i.e. low level of consumption. Whatever progress that has been
made in terms of the increase in production, the same is not reflected in increase in per capita
income because of rapid growth of population along with the growth of production. The
population has also increased rapidly. This means that a large proportion of population have
income level much below the average. In India about one third of the population is living below
the poverty line and they are not able to afford even the minimum nutrition required.
2. Excessive Dependence on Agriculture: Indian economy is characterized by too much
‘dependence on agriculture and thus it is primary producing. In 2011 nearly 49 per cent labour
force was engaged in agriculture in India. The contribution of agriculture to national income is
about 19 per cent, while in most of the developed countries it is in between 2-4 per cent and the
working force engaged in agriculture ranges between 2 - 9 per cent. With the accelerated growth
of population, the pressure on available land has increased due to this; the marginal productivity
of labour in agriculture is low. In India, vast area of agricultural land is still not covered by
irrigational facilities and modern technology used in agriculture is limited to certain areas only.
3. High Rate of Population Growth: India is maintaining a very high rate of growth of population
since 1950. This has resulted from a very high level of birth rates coupled with a falling level of
death rates. In India the rate of growth of population has been gradually increasing from 1.31 per
cent per annum during 1941-50 to 2.5 per cent during 1971-81 to 2.1 per cent during 1981-91 and it
is raising at a rate of 1.84 per cent as per 2011 census per annum. A high growth of rate of population
puts additional pressure on resources. In such a situation the movement in per capita income will be
much less than the increase in total population (national income). Over population creates complex
economic problems. It imposes a greater economic burden on the economy as to maintain such a
rapidly growing population we require food, clothing, housing, schooling, health facilities etc., in
greater magnitude.
4. Low Rate of Capital Formation: The low level of income results in low level of savings,
which results in low level of capital formation. The low level of capital formation in India is
also due to weakness of the inducement to invest and also due to low propensity and capacity
to save. In India the rate of saving as percentage of GDP has gradually increased from 14.2 per
cent in 1965-66 to 33.0 per cent in 2014-15. 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 necessary. India has a large potential of natural
resources, but due to low level of capital the country is not able to utilize them effectively.
5. Technological Backwardness: The economy of our country is suffering from technological
backwardness. Due to the application of outdated technology and lower skills, the productivity
in both agricultural and industrial sectors of our country is low. Sophisticated modern technology
is being applied in productive units at a limited scale. The expenditure incurred on research and
development is very low when compared to other developing countries. The outlay for R&D
should be enhanced besides implementing skill development programs for creating self
employment opportunities to the youth.
6. Inadequate Infrastructure Facilities: The vital sectors viz., agriculture and industry could
not make much headway in the absence of adequate Infrastructural facilities which include;
transportation, power generation, banking services, economic organization, education and health
14
infrastructure etc. Due to Inadequate infrastructure facilities, development potential of different
regions of country largely remains under utilised.
7. Poor Quality of Human Capital: Literacy rate is one of the indicators to measure socio
economic progress. The national literacy rate, according to the 2011 census was 74.04 per cent
and the rest 25.96 per cent still remain illiterate. The adult literacy rate is 61.3% is still way
below the 76%, average for developing countries and 81.7% global average (2017). The illiteracy
and low skills among youth is retarding the process of economic growth of the country. Apart
from the above mentioned features of Indian economy, there are a few other distinguishing
features (of these economies) viz. high infant mortality rate, tradition bound attitudes towards
work and life, joint family system, suffering from maturation, high sex-ratio etc.
In spite of structural constraints stated above, the Indian economy is experiencing a socio-
economic transformation. The per capita income has increased though not at a very fast rate. The
service sector has been recording a high rate of growth. The infrastructural development has also
been taking place at a satisfactory level. The development process is slowly picking up in the post-
globalisation phase. Considering this development strategy followed during the planned era and the
progress attained in certain crucial areas, Indian economy can the considered as a developing economy.

2.3 TREND IN GROWTH RATES OF GVA (GROSS VALUE ADDED)

Growth of an economy is normally measured in terms of GVA/GDP and also by per capita
income in real terms. Decadal-wise Growth rates beginning from 1950-51 are presented in table
2.1. It is found that the growth rate during the decades 1960-61 to 1979-80 decreased when
compared to that of 3.68 per cent of the 1950-51 to 1959-60. In the first three decades, growth
rates were in between 3 to 4 per cent only. However, growth rate rose to 5.17 per cent during
1980-81 to 1989-90 and the increasing trend continued in the subsequent two decades up to 2000-
01 to 2009-10. However, it decreased marginally to 6.84 per cent during 2010-11 to 2018-19.

Table - 2.1: Growth Rates of GVA in the Different Periods

S. No. Period Trend Growth P.A.
1 1950-51 to 1959-60 3.68
2 1960-61 to 1969-70 3.29
4 1970-71 to 1979-80 3.45
5 1980-81 to 1989-90 5.17
6 1990-91 to 1999-00 6.14
7 2000-01 to 2009-10 6.86
8 2010-11 to 2018-19 6.84
Source: CSO website (Computed by Venkateswarlu Akina, CESS)
Note: 2016-17 to 2018-19 are Provisional Figures given in Agricultural Statistics at A Glance
2018, Ministry of Agriculture & Farmers Welfare, GOI, January 2019.
Per capita GDP and NNP have also increased over the decades beginning with 1950-51.
Growth rate of GDP in 2016-17 over 1950-51 is 6 to 7 times. Similarly, NNP also increased at
the same rate during this period. Both per capita GDP and NNP have increased at higher rates
from 1990-91 on wards in the post-reforms era.
15
 Table-2.2: Percentage Shares of Main Sectors in Gross Value Added -
from Series of 2011-12 Constant Prices
Sectors 1950 1960 1965 1966 1970 1980 1990 1999 2005 2010 2013 2016
-51 -61 -66 -67 -71 -81 -91 -00 -06 -11 -14 -17

Primary (%) 57.67 53.52 45.94 44.77 47.35 41.16 33.79 27.12 21.91 18.32 17.75 15.26

Secondary (%) 16.59 20.73 25.40 26.01 24.52 27.14 29.36 28.89 30.86 33.00 31.16 31.50

Services (%) 25.74 25.75 28.66 29.22 28.13 31.70 36.85 43.99 47.22 48.67 51.09 53.24

Gross Value Added 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00100.00

FIRE % 11.76 10.62 10.91 11.03 10.24 11.09 15.12 18.68 19.58 19.02 20.60 21.67

Per Capita GDP and NNI

Per Capita GDP (Rs.) 13840 16983 17992 17618 20134 21567 29971 41625 53478 69994 78348 93888

Per Capita NNI (Rs.) 12493 16004 16836 16423 18702 19925 27319 37968 48387 62170 68572 82229

Source: Central Statistical Organisation, updated Back Series into Constant Prices 2011-12, at www.mosp.nic.in.
Growth rates were computed by Venkateswarlu Akina, Consultant at CESS, Hyderabad.
Notes: (i) Primary Sector =Agriculture, Livestock, Forestry and Fishing; (ii) Mining and Quarrying is included in
Secondary sector following V.K.R.V Rao; (iii) FIRE= Finance, Insurance and Real Estate (including
Professional and Business services).

Table-2.3: Sectoral Distribution of Workforce in India - Decadal Changes (%)

Occupation 1901 1951 1961 1971 1981 1991 2001 2011
Agriculture & Allied Activities 71.8 72.1 71.8 72.1 68.8 66.8 56.8 48.9
Industry(1+2+3) 12.6 10.7 12.2 11.1 13.6 12.7 18.2 24.4
1. Mining & Quarry 0.1 0.6 0.5 0.5 0.6 0.6 0.6 0.5
2. Manufacturing 11.7 9.0 10.6 9.4 11.3 10.2 13.9 13.2
3. Construction 0.8 1.1 1.1 1.2 1.7 1.9 3.7 10.6
Services(4+5+6) 15.6 17.2 16.0 16.8 17.6 20.5 25.1 26.7
4. Trade & Commerce 6.0 5.2 4.0 5.6 6.3 7.5 9.4 11.4
5. Transport storage and 1.1 1.5 1.6 2.5 2.7 2.8 4.0 4.4
communication
6. Other services 8.5 10.5 10.4 8.5 8.6 10.2 11.7 10.9

Total = 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: Census of India, 1951 to 2011.

Gross value added (GVA) is defined as the value of output less the value of intermediate
consumption. It is used to measure the output or contribution of a particular sector. When such
GVAs from all sectors (ΣGVA) are added together and adding taxes (product) and reducing
subsidies (product), we can get the GDP (at market price). GVA thus shows the production
contribution of a particular sector.
Technically,

16
 GDP at Market Prices = Σ GVA at basic prices + product taxes - product subsidies.
In this context, when GVA from all sectors are added together and necessary adjustment
for taxes and subsidies are made, we will get the GDP for the economy.
Students have to remember the following:
GVA is for a particular sector.
ΣGVA is for the economy.
GDP is for the economy.

Check Your Progress.

Note: a) Space is given below for utilizing your answer.
b) Compare your answer with the one given at the end of the unit.
1. State basic features of Indian economy.
..........................................................................................................................................
2. Define the concept of Gross Value Added.
..........................................................................................................................................

2.4 STRUCTURAL CHANGES IN INDIAN ECONOMY

While structure means composition, the term structural is understood as basic /
fundamental / dynamic changes in composition, shifts in sectors output and labour absorption,
changes in technology etc. In most of the underdeveloped countries, the structural changes
may be initiated through the shifts in economic activities i.e. reduction in proportion of population
engaged in his agriculture and thereby increase in the number of persons engaged in non-
agricultural occupations. Social system has much impact on the economic phenomenon of the
country. Social institutions, habits and attitudes are influencing the productive activities and
expenditure patterns substantially, especially in the underdeveloped countries. Savings and
investment patterns are considerably influenced by cultural and social considerations. Therefore,
in order to attain structural change in the economy, there is the necessity of change in the social
structure of its society.
Structure of an economy shows the nature and composition of the productive sectors of
the economy. Basically, economies may be agricultural based, industrial or export oriented.
Over a period of time economies undergo dynamic changes in the composition and shifts in
sectoral output, absorption of labour force and technology. These changes or shifts are referred
to as structural changes. Adam Smith, Karl Marx and the 20th century economists postulated
important changes in the structure of the economies during the process of development. Colin
Clark and Simon Kuznets proposed a hypothesis which states that, in the economies on the
path of growth shifts occur both in the composition of structural output and work-force
deployment. As such the relative share of agriculture (Primary sector) goes on declining, that
of industry rises and ultimately the service sector rises rapidly and supersedes the industry. It
implies that the largest shares are claimed by the service sector both in GDP (or GVA) and total

17
work force deployed in the economy. Keeping the twin propositions of Clark and Kuznets in
view, empirical analysis of the structural changes in the Indian economy during the planned era
are given here with.
Over the last 6 to 7 decades, Indian economy has witnessed significant changes in the
structure in terms of sectoral shares in output and employment. Gross value Added (GVA)
which is equivalent to GDP at market prices is taken for the three basic sectors in this approach.
Table 2.2 shows that the share of primary sector in GVA rapidly decreased from 57.67% in
1950-51 to 15.26% in 2016-17. At the same time, the shares of secondary and service sectors
increased significantly. The share of the primary sector has come down by 42 percentage points,
while the shares of the secondary and service sectors are doubled during this period. The share
of the primary sector had been more than 50% up to 1960-61 and started to decline from decade
to decade. Finally, it dipped to 15.26% by 2016-17. Service sector with its share of 53.24% in
2016-17 has occupied the top place as contributor to GVA. The share of the service sector is
higher than the combined shares of primary and secondary sectors. Secondary sector has also
witnessed an increase in its share by 15 percentage points. Thus, Clark-Kuznets hypothesis is
validated from the changes in the relative shares of the three basic sectors in GVA (GDP).
In terms of work force deployment, the trends go against the postulation of Clark-
Kuznets. Though there are changes, they are not similar to those of GDP. Table 2.3 reveals that
the share of agriculture and allied activities (primary sector) in employment was 72% in 1951
and it remained constant till 1971. From 1981 decrease started marginally to become constant
in 1991. However, the decreasing trend continued in 2001 and 2011 in higher percentage points.
Even then, the overall decrease between 1951 and 2011 is just 23 percentage points. It can be
surmised that close to half of the work force in India still depends on agriculture as a means of
livelihood. It is paradoxical to note that the income share of agriculture sharply declined while
its employment share decreased marginally. In developed countries, the contribution of
agriculture to GDP and employment is about 3% - 5%. But in India the shares of agriculture in
GDP and employment are 15 and 49 per cent. Income levels of the work force involved in
agriculture are awfully low in view of this trend. The shares of industry and service sectors in
employment have increased significantly, industry by 14 and services by 9.5 percentage points.
Shares of these two sectors, in income as well as employment have improved considerably.
However, both in income and employment the shares of the service sector are relatively higher
than those of industry.

Check Your Progress.

3. What do you mean by ‘Structural Changes’ in an economy?
..........................................................................................................................................
4. What do you mean by ‘Occupational structure’?
..........................................................................................................................................

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2.5 SUMMARY
Inspite of structural constraints, the Indian economy is experiencing a socio-economic
transformation. Considering the development strategy followed during the planned era and the
progress attained in certain areas especially during post-globalization phase, Indian economy
can be considered as a fast developing economy. Both per capita GDP and NNP have increased
at higher rates from 1990-91 onwards in the post-reforms era.
Service sector with its share of 53.24 per cent in 2016-17 has occupied the top place as
contributor to GVA. Secondary sector has also increased its share 31.50 per cent and stood in
second place. However, the share of primary sector in GVA rapidly decreased to 15.26 per cent
in 2016-17. Thus, Clark-Kugnets hypothesis is validated from the changes in the relative shares
of the three basic sectors in GDP. In terms of work force deployment, the trends go against as
nearly half of the work force in India still depends on agriculture as means of livelihood.

2.6 CHECK YOUR PROGRESS - MODEL ANSWERS

1. The basic features of Indian economy are: 1. Low per capita income; 2. Excessive
dependence on agriculture; 3. High rate of population growth; 4. Low rate of capital
formation; 5. Technological Backwardness; 6. Inadequate Infrastructure facilities; and
7. Poor quality of Human capital.
2. Gross value added (GVA) is defined as the value of output less the value of intermediate
consumption. It is used to measure the output or contribution of a particular sector.
When such GVAs from all sectors (“ GVA) are added together and adding taxes (product)
and reducing subsidies (product), we can get the GDP (at market price). GVA thus shows
the production contribution of a particular sector.
3. The term “structural’ is understood as basic / fundamental / dynamic changes in
composition, shifts in productive sectors to output and labour absorption, changes in
technology etc. These changes or shifts are referred to as structural changes.
4. The occupational structure of a country refers to the distribution of its population according
to different occupations. Occupations are divided into three types namely: Primary sector,
secondary sector and service sector or tertiary sector.

2.7 MODEL EXAMINATION QUESTIONS

I. Answer the following questions in about 10 lines each.
1. Explain the basic features of Indian economy.
2. Discuss the trends in the growth rates since 1951.
3. State important changes in sectoral distribution of GVA.

19
II. Answer the following question in about 30 lines each.
1. Analyse the structural changes that have taken place in Indian economy.
2. Explain the changes in occupational distribution of labour force in India since 1951.
3. India is a developing economy – discuss.

III. One mark questions.

A. Multiple choice questions.
1. Mining & Quarrying comes under the following sector:
a) Primary sector b) Secondary sector c) Tertiary sector d) None of the above.
2. Structural changes in an economy means:
a) Changes in GDP / GVA b) Changes is distribution of labour force
c) Both 1&2 d) None of the above
Answers: 1-b, 2-c.

B. Fill in the blanks.

1. Indian economy can be treated as _________________ of the world.
2. Per capita NNI in India during 2016 -17 is Rs. ____________.
3. Contribution of primary sector in GVA during 2016 -17 is ______________%.
4. Growth rate (PA) of GVA during 2010-11 to 2018 -19 is _________%.
Answers: 1) Developing Economy 2) 82, 229 3) 15.26% 4) 6.84%.

C. Match the following.

List - I List - II
1. Share of service sector in GVA in 2016-17 a. 13.2%
2. Share of manufacturing in GVA during 2016-17 b. 6.86%
3. Growth rate of GVA during 2001-10 c. 53.24%
4. % of workforce in agriculture & Allied sectors as per 2011 Census d. 48.9%
Answers: 1-c, 2-a, 3-b, 4-d.

2.8 GLOSSARY
1. Primary Sector: Includes agriculture forestry horticulture and fishing.
2. Secondary Sector: Comprises of mining and quarrying, manufacturing, construction,
electricity, gas and water supply.
3. Tertiary Sector: Includes trade, transport, storage, communications banking, insurance,
real estate, community and personal services.

20
4. Structural Changes: Significant changes in the sectoral contribution of GDP and sectoral
distribution of labor force.
5. Gross Value Added (GVA): The value of output less the value of intermediate
consumption. It is used to measure the output or contribution of a particular sector.

2.9 REFERENCES
1. Datt ad Sunderam: Indian Economy (2018 edition).
2. Mishra & Puri: Indian Economy (2018 edition).
3. S. Kishan Rao & Prabhapanth : Telangana–Indian Economies, Environment &
Development Issue, NAD, 2015.
4. PK. Dhar: Indian Economy and its Growing Dimensions, Kalyani Publication (2017).

– Dr. S. Vidyasagar, KU.

21
UNIT-3: GROWTH AND OCCUPATIONAL
STRUCTURE OF POPULATION
Contents
3.0 Objectives
3.1 Introduction
3.2 Demographic Features of India
3.3 Trends in Growth of Population
3.4 Population Explosion
3.5 Causes for Rapid Growth of Population
3.6 Population Growth and Economic Development
3.7 Population Policy in India
3.8 Features of Workforce in India
3.8.1 Occupational Structure and Economic Development
3.9 Occupational Distribution of Population in India
3.10 Factors Responsible for Failure in the Change in Occupational Structure
3.11 Summary
3.12 Check Your Progress – Model Answers
3.13 Model Examination Questions
3.14 Glossary
3.15 References

3.0 OBJECTIVES
India’s turn to enjoy the opportunity of demographic dividend has been repeatedly
highlighted by the experts and international organizations alike. At the peak of discussion, it
was covered thoroughly by the Economic Survey 2014-15 devoting an exclusive chapter to it.
The unit discusses the demographic features of India, size, growth and composition of India’s
population. Further this unit also analyses the occupational distribution of population in India.
After going through this unit, you will be able to:
• analyse the demographic features of India’s population.
• know the population Explosion.
• discuss causes for rapid growth of population. and
• explain occupational distribution of population in India.

22
3.1 INTRODUCTION
The world is populated today as it has never been before. Although rates of population
growth have fallen and will continue to fall, we currently add about a million people every four
days to the world population, net of deaths. Demography is the science of population and the
word “Demos” in Greek means population. Unless otherwise specified, population means totality
of human beings (we also make use of the term such as cattle, lorry and vehicle population).
According to the Census of India, Ministry of Home Affairs, the decade of 2001 to 2011 is the
1st decade post Indian Independence, which added least number of people to the country's
population. The percentage of decadal growth in the nation, for the first time, showed a decrease
by 3.90 % since, the present Census of India 2011 has registered the rate to be 17.64 % from the
rate of 21.54 % in the earlier Census conducted in the year 2001. Among the total decadal
growth rate, the rural areas of India grew at 12.18 % whereas, the urban areas of the country
grew at the rate of 31.80 % in the last Census decade. The state of Bihar showed the highest
decadal growth rate in between the years 2001 to 2011. India is thus the second country in the
world after China to cross 1 billion mark. It is now estimated that by 2050. India will most
likely overtake China to become the most populous country on the earth. It is this rising trend
of population in our country. That is really a matter of concern. In this unit, an attempt is made
to explain the demographic features of India’s population, trends, population explosion,
population policies of the government of India, occupational structure and related issues.

3.2 DEMOGRAFIC FEATURES OF INDIA

The Census of India unleashes a vast source of data relating to the demographic profile
of the country. The important aspects of demographic features are discussed below:
1. Density of Population: Density of population means the number of people living per square
kilometer of area. In India, the density of population was as low as 77 persons per Sq. k.m in
1901 and then it rose to 117 in 1951. Again in 2011, the density of population further increased
to 382 persons per Sq. k.m. According to the 2011 census, the density of population in the State
like Bihar, West Bengal, Kerala and Uttar Pradesh were very high and they were considered
highly densely populated states. But Arunachal Pradesh, Mizoram and Sikkim are having a low
density of population. The density of population of the two union territories i.e. Delhi and
Chandigarh were the highest in the country being 11,320 and 9,258 persons per Sq. k.m.
2. Sex Ratio: Sex ratio refers to the number of female per thousand males. It is observed that
there is a trend in favour of female population in western hemisphere whereas, in Asia and
more particularly in India there is a trend in favour of male population. The numbers of females
per 1000 males in India were 972 in 1901 and then gradually declined to 955 in 1921, 941 in
1961, 930 in 1971, 933 in 1981 and then 929 in 1991. Again in 2001, the numbers of females
per 1000 males in India were 933. According 2011 Census, it is 943. Among the states, Kerala
has more females than males.
3. Rural – Urban Composition: The Ratio of rural-urban population of a country is an index
of the level of industrialization of that country. The rural urban composition of India’s population

23
reflects the pattern of living of the country’s population. In India, a majority of the population
lives in rural areas. But there is a growing trend for a gradual shift of population from rural to
urban areas. As per 1961 Census the total population of India was 439.2 million, and the rural
population was 360.3 million and urban population was 78.9 millions. According to 2011 Census,
the total population in India was 1,210.2 million with a rural population of 833.1 million and
urban population of 377.1 millions. Thus, it is observed that although the size of urban population
in India has been increasing gradually, the pace of urbanization in the country is considered
still low.
4. Age Structure: An analysis of the age composition of the population can determine the
proportion of labour force to the total population of the country. The age group of working
population in India is considered as 15-59 years. This age group constituted 62.5 per cent of the
population in 2011. Another significant segment is that of children who fall in the age group of
0-14 years. This accounted for 29.5 per cent of the population. The old people above 60 years
are about 8.0 per cent of the population. This means that the burden of dependents on the
population is excessive.
5. Life Expectancy: Expectancy of life refers to the average life of the inhabitants of a nation.
Before independence, the expectancy of life was very low. For instance, in 1921 the expectancy
of life was 19.4 years. In 1931 it was increased to 26.9 years. In 1991, it was 59 years and 63
years in 2001. As per 2011 Census, life expectancy is further increased to 67.01 years. The
women and men life expectancies were at 68.33 years and 65.8 years respectively.
6. Literacy Rate: The quality of population of a country can be assessed on the levels of
literacy attained by it. In India, the level of literacy which was only 18.3 per cent in 1951
gradually increased to 52.1 per cent by 1991. According to 2011 census the literacy rate in the
country is 74.04 per cent, and 82.14 per cent and 65.46 per cent for male and female respectively.
Highest literacy rate is recorded in the state of Kerala with 93.91 per cent and the lowest in
Bihar with 63.82 per cent. The census data over the period shows that the literacy among males
and females has been improved. However, the improvement is substantial in the case of females.

Check Your Progress.

Note: a) Space is given below for utilizing your answer.
b) Compare your answer with the one given at the end of the unit.
1. Write a note on density of population.
..........................................................................................................................................
2. State the sex ratio and age structure of India’s population.
...........................................................................................................................................

3.3 TRENDS IN GROWTH OF POPUATION

According to Kingsley Davis, the population is at around 125 million in 1600 AD. As
per the estimations of Mahalanobis and Bhattacharya the population is 207 million in 1800
AD. It is interesting that both Kingsley Davis and Mahalanobis have made almost identical
24
estimates about India's population in 1871 Table - 3.1: Growth of Population in India
is 255 and 256 million respectively. The (1891-2008)
decennial Census of India has been Census Population Increase or Percentage
conducted 15 times, as of 2011. While it Year in Millions Decrease Increase
has been undertaken every 10 years, or Decrease
beginning in 1872 under British Viceroy 1891 236
Lord Mayo, the first complete census was 1901 236 0.0 0.0
taken in 1881. Post 1949, it has been 1911 252 +16 +5.7
conducted by the Registrar General and
1921 251 -1 -0.3
Census Commissioner of India under the
1891-1921 +15 +0.19
Ministry of Home Affairs, Government of
India. All the censuses since 1951 were 1931 279 +28 +11.0
conducted under the 1948 Census of India 1941 319 +40 +14.2
Act. The last census was held in 2011, 1951 361 +42 +13.3
whilst the next will be held in 2021. 1921-1951 +110 +1.22
India’s population in 2011 1961 439 +78 +21.6
according to the census of 2011 was 1971 548 +109 +24.8
121.09 crore. According to the census of 1981 683 +135 +24.7
1901, the population of the country was
1951-1981 +322 +2.14
23.83 crore. This shows that in a period of
1991 846 +161 +23.9
110 years, the population of the country
has increased by more than 97 crore. This 2001 1,029 +183 +21.5
can be viewed in the context of a relatively 2011 1,210 +181 17.64
slow economic growth, is really an 1981-2011
alarming situation. The data table 3.1 Compound Annual Growth Rate of Population
shows since 1971; decadal growth rate of 1891-1921 0.19
population has been consequently
1921-1951 1.22
declining and has come down from 24.8
1951-1981 2.15
in 1961-71 to only 17.64 during 2001-11.
1981-1991 2.11
1. Birth and Death Rates: Table 3.2
1991-2001 1.93
reveals that after 1921, a clear fall in death
rate is noticeable. Death rate which stood 2001-2011 1.64
at 48.6 per 1,000 in 1911-20 came down Source: Census of India, Series 1, Paper 1 of
to 19.2 during 1961-70. As against it, the 2001, Provisional Population Totals, Economic
Survey 2009-10, Census 2011.
birth rate showed a slight decline. As a
consequence of the family planning drive, came other healthcare measures, birth rate also
registered a decline to 21,8 per 1,000 in 2011. Death rate has further fallen to a level of 7.1 per
1,000. The high growth rate of population can be explained in terms of a persistently high birth
rate but a relatively fast declining death rate.
2. Infant Mortality Rate: The infant mortality rate in India was as high as 204 at the beginning
of the twentieth century. The infant mortality rate is calculated as a ratio of the number of

25
deaths among the 1,000 born children before Table - 3.2: Average Annual Birth
they reach their first birthday. The main factors and Death Rates in India
which are responsible for this high infant
Decade Births Deaths
mortality rate include malnutrition, diarrhoea,
per 1,000 per 1,000
pneumonia infections and parasitic diseases. The
1891-1900 45.8 44.4
infant mortality rate in India which was recorded
1901-1910 48.1 42.6
218 per thousand in 1916-20 came down to 71.2
1911-1920 49.2 48.6
per thousand in 2000 and as per 2011 Census it
1921-1930 46.4 36.3
was decline to 42 per thousand. S m a l l p o x
1931-1940 45.2 31.2
which took a heavy toll of lives has been
1941-1950 39.9 27.4
completely eradicated and other child diseases
1951-1960 40.0 18.0
have also been checked and thus the infant
1961-1970 41.2 19.2
mortality rate has come down.
1971-1980 37.2 15.0
3. Total Fertility Rate: Total fertility rate
1985-1986 32.6 11.1
stands for the number of children that would be 2010-2011 21.8 7.1
born to a woman if she were to live to the end of Source: Ministry of Health and Family
her child bearing years and bear children at each Welfare, Annual Report (2000-01) and
age in accordance with prevailing age-specific Economic Survey (2009-10).
fertility rates. In 2011 the total fertility rate of
India was estimated at 2.6. The total fertility rate for the country as a whole is expected to go
down from 2.3 births per woman in 2016 to 2 births per woman by 2026. It also seems plausible
to suggest that women will continue to move towards a family building pattern in which they
marry young, have two births in quick succession, and then get sterilized while still at a relatively
young age.

3.4 POPULATION EXPLOSION

India is known to be one of the world’s demographic pressure centers of the last century
as well as in this century also. It has 2.4% of the world’s land area with 17.8% of the world’s
population. It ranks second in terms of world’s population only next to China and seventh in
terms of land area. Population explosion is a grave situation faced by a country. It experiences
a high rate of growth of population but little economic growth. This is the second stage of
demographic transition where the country faces a high rate of growth of population due to its
fall in the death rate and high birth rate. India has been passing through the stage of population
explosion where its population is increasing at a very high rate. Since 1921, the size of Indian
population has increased four times i.e. from 25.1 crore in 1921 to 102.71 crore by 2001.
India’s population in according to the Census of 2011 was 121.09 crore. The latest data
shows that Indian population with 132.4 crore in 2016 is more than the combined population of
USA, Indonesia, Brazil, Pakistan, Bangladesh and Japan put together which is 127.54 crore.
These facts clearly indicate that the pressure of population on the land in this country is very
high. The alarming situation in this country can be easily followed from the fact that the national
income of India is presently even less than 1.2 per cent of the total world income.

26
3.5 CAUSES FOR RAPID GROWTH OF POPULATION
The following are some of the major factors which are responsible for the high rate of
growth of population in India.
1. Hot Climate: One of the reasons of fast rising population in India is its hot climate. Due
to hot climate, maturity comes at early age in boys and girls, due to which they give birth
to their children at their early age. This is one of the main reasons for population explosion.
2. Child Marriage and Multi Marriage System: In India the tradition of child marriage
system is prevalent. Marriage of around 80% girls of the country is took place at their
young age of between 15 to 20 years. Thus, the result of long married life comes in the
farm of excessive childbirth. Apart from it, the increasing tendency of widow marriage,
due to the social reforms is also increasing childbirth up to some extent.
3. Religious Superstitions: Our religious Gurus say that if a Hindu person does not has son,
then who will perform the religious ritual in its absence. Due to this, person remains
engage in the continuous process of giving birth, one by one, in search of male baby. In
the same manner, in Muslims both male and female child is a boon sent by Allah,
prevention of their birth by using any means of family planning is a sin. Due to these
reasons, population is continuously increasing.
4. Illiteracy and Unawareness: In India still around 18% males and 34.5% females are
illiterate. Neither they have full knowledge of family planning nor they know about the
consequences of excessive childbirth. This is one of the reasons of rising population and
the situation of Population Explosion' is emerged.
5. Poverty: Due to poverty, population is increased of the poor families of our country.
People lives in slum, uses their children as a tool, to earn money, hence they always try
to increase the number of children in their families.
6. Birth Rate: In India the average age for marriage is very low, comparatively other nations
of the world. This is also a reason for population explosion. This results a higher birth
rate. In 1911 the birth rate was 49.2 per thousand, but by 2011 it was come down to 21.8
per thousand. Declines in birth rates are minimal, leading to population explosion.
7. Death Rate: In the year 1911 the death rate in India was 48.6 per thousand and in 2011 it
was reduced to 7.1 per thousand. This become 'possible in the country by good and hygienic
food, pure drinking water, facilities of hospitals, good cleanness, medical facilities at
affordable rates and control over Malnutrition, Pneumonia, Cholera, Epidemic etc.
8. Lack of Social Security: Due to lack of social security system in India, every parent
seeks shelter at the time of crises and for their old age. Hence, they prefer too many
children, so that any of them would be support of their old age.
9. Arrival of Refugees: Population is very much increased due to continuous arrivals of
refugees in India. At the time of division of India and. Pakistan in 1947, more than 1
crore refugees came to India. In 1962 at the time of attack of China, a huge number of
Tibetan refugees came to India. Similarly, in 1971, more than 1 crore Bangladeshi refugees
27
 came to India and even today this problem is still continued. Apart from this, continuous
arrival of Nepalese is also still continued. More than 5 lakhs Tamil refugees had come to
India due to Sri Lankan Tamil problem. All these are responsible for population explosion.

3.6 POPULATION GROWTH AND ECONOMIC

DEVLOPMENT
In the case of underdeveloped countries, population growth has come in the way of their
economic development. These countries have experienced slower growth in their per capita
income because of the rapid growth in population. It has caused other equally complex problems
such as poverty, undernourishment unemployment and excessive fragmentation of land. The
entire battle against poverty is thwarted by the rapid increase in population. The effects of
growth in population on economic development are briefly discussed hereunder.
1. Per capita Income: In India rapidly rising population is retarding factor in rising its per
capita income. During 1950-51 and 1995-96, the net national product at factor cost (1980-81
prices) rose by 493 per cent, but on account of arises in population by 159 per cent, the per
capita NNP rose only by 131 per cent. The annual average growth rate of the national income
works out to 4.0 per cent (compound) and of per capita income only to 1.88 per cent. With
decline in the rate of growth in population, the net increase in the per capita income will rise,
but a high growth rate of population is a retarding factor to raising the levels of per capita
income in the country.
2. Food Supply: Rapidly growing population in a country can create serious food shortage.
Due to high rate of growth of population in India, the per capita cultivated land declined from
1.11 acres in 1921 to 0.47 acres by 1991, indicating a fall of 58 per cent. . In view of this
declining land man-ratio, steps were taken to raise productivity. Consequently, we were able to
increase the food grain production five times when compared to 1951 but there was small
increase in per capita availability of food grains. According to economic survey 2018-19 the
food grains production in India is 280 tonnes.
3. Burden of Unproductive Consumers: The population in the age group of 15-59 belongs to
the “economically active” or working population and the population below the age of 15 and
above the age of 59 belongs to dependent population (unproductive consumers). During the
period 1961-2001 the ratio of working to non-working population in India has deteriorated
from 43:57 in 1961 to 39:60.7 in 2001. By 2001 the number of non-working population in India
has increased to 623 million from 464 million in 1981.
4. Unemployment: Rising Population is accompanied by a rise in the labour force in the
country. The efforts of government have not been successful in tackling the problems of
unemployment because of these large additions to the labour force The Ninth Plan (1997-
2002) has estimated the total backlog of unemployment as 36.8 million in 1996. According to
approach paper of the 11th plan, unemployment rate as a proportion of the labour force increased
to 8.3 per cent. The increase in unemployment both in absolute and relative terms indicates that
during the last 60 years of planning, the five year plans were not able to absorb the net additions
to the labour force not to speak of clearing the backlog of unemployment.
28
5. Burden of Social Expenditure: Increasing population needs heavy expenditure on education,
health, transport facilities, housing. Etc; There is a heavy demand for such services as increasing
population contains none of child population and hence demands higher expenditure on
education. Moreover, this rising population in India is also increasing the burden of expenditure
on medical core public health and housing.
6. Capital Formation: The rapid growth of population has also an adverse effect on capital
formation. In India, the capital output ratio being 5.5, for raising the national income at the rate
of 2.2 per cent (which is equal to the rate of growth of population) capital accumulation at the
rate of 12 per cent (5.5x2.2) is very much essential.

3.7 POPULATION POLICY IN INDIA

The policy to control population growth was adopted by the government as far back as in
1952. Initially it was taken up in a modest way placing much reliance on family planning and
neglected various social and economic measures. The census of 1961 showed a higher growth
in population that anticipated. Since then, family planning became the “kingpin” of the population
policy.
I. The National Population Policy - 1976
The following are the main features of the national population policy 1976.
1. To raise the age of marriage to 21 for boys and 18 for girls.
2. To raise the monetary compensation for individual acceptance of family planning.
3. To introduce group incentives for the involvement of teaching and medical profession,
Zilla Parishads, Panchayat Samithies, Co-operative Societies etc.
4. Implementation of new multimedia national strategy for availing all media, news papers,
radio, T.V. films etc to move from urban approach to rural oriented approach and to
spread the knowledge of family planning and family limitations.
5. To adopt small family norms for the employees of the union government and to make
necessary changes in their service and conduct rules.
6. Introduction of special measures to raise the level of female education in all states.
7. Freezing the population base at the 1971 level for 25 years, to determine central plan
allocations to states and also freeze the quota of Lok Sabha seats.
II. The National Population Policy - 2000
The National Population Policy 2000 was announced by the Central Government in
February, 2000. The New Policy proposed to freeze the proportional quota of Lok Sabha seats
at the current level till 2026. The medium term objective of this policy is to bring down the
total fertility rate to replacement levels by the year 2010 and the long term objective is to
achieve a stabilized population by 2045 at a level consistent with the requirements of sustainable
economic growth, social development and environmental protections.
The following are the main feature of the National Population Policy 2000.
1. Address the unmeant needs for basic reproductive and child health services and
infrastructure.
2. Achieve universal immunization of children against all vaccine preventable diseases.
29
3. Promote delayed marriage for girls, not earlier than 18 years and preferably after 20
years of age.
4. Achieve universal 80 per cent institutional deliveries and 100 per cent deliveries by
trained persons.
5. Achieve 100 per cent registration of births, deaths, marriage and pregnancy.
6. Prevent and control communicable diseases.
7. Contain Acquired Immune Deficiency Syndrome (AIDS) and promote greater integration
between the management of reproductive tract infection and sexually transmitted infection
and National Aids Control Organization.
8. Integrate Indian System of medicine in the provision of reproductive and child health
services and in reaching out to households.
9. Promote vigorously the small family norms to achieve replacement levels of total fertility rate.
10. Achieve universal access to information counseling and services for fertility regularization
and contraception with a wide basket of choice.
11. Bring about convergence in implementation of related social programmes so that family
welfare becomes a people centered programme.
Check Your Progress.
3. What are the major causes for rapid growth of population in India?
..........................................................................................................................................
4. What do you mean by population explosion?
..........................................................................................................................................

3.8 FEARTURES OF WORKFORCE IN INDIA

Labour is considered as an original or primary of production. Labour force is important for
maintaining a sound level of economic activity in any country. The size of the labour force is
determined by the economic activities. It is also determined by the number of persons in the age
group of 15-60. Children in the age group of 0-15 years and old people above 60 years are excluded
from the labour force. There are some distinctive features of workforce in India. These are:
1. Participation Rates: Most important feature is the low participation rate of the workforce.
The Work Participation Rates in India as per 2011 Census was at 39.8% (table3.4). The analysis
the total rural and urban main workers to total workers in India shows a decreasing trend over
the three decades. Interestingly, reverse trends are observed in all the categories of marginal
workers in same period as they have actually a sharp rise (table 3.3).

Table-3.3: Percentage of Main and Marginal Workers to Total Workers in India

Census Year Percentage of Main Workers Percentage of Marginal Workers
Total Rural Urban Total Rural Urban
1981 91.0 89.4 97.4 9.0 10.6 2.6
1991 91.0 89.3 97.8 9.0 10.7 2.2
2001 77.8 73.9 90.8 22.2 26.1 9.2
2011 75.2 70.5 87.6 24.8 29.5 12.4
Source: Analytical Report on Primary Census Abstract.
30
 NOTE: Main Workers: A person who has worked for major part of the reference period
(i.e. six months or more during the last one year preceding the date of enumeration) in any
economically productive activity is termed as main worker. Marginal Workers: A person who
worked for three months or less but less than six months of reference period (i.e. in the last one
year preceding the date of enumeration) in any economic activity is termed as marginal worker.
The analysis of 2011 census, total work participation rate of India shows that Himachal
Pradesh, Sikkim, Daman & Diu, Nagaland and Chhattisgarh have emerged as the top five work
participation rate States/Union Territories of India whereas Lakhadweep, Uttar Pradesh, NCT of
Delhi, Bihar and Jammu & Kashmir where among the bottom five states/UTs. The highest work
participation rate is observed in Himachal Pradesh (51.9%) and lowest in Lakhadweep (29.1%).
With regard to rural work participation rate, Nagaland, Sikkim, Himachal Pradesh,
Andhra Pradesh and Chhattisgarh have emerged as the top five states/UTs whereas NCT of
Delhi, Lakhadweep, Uttar Pradesh, Bihar and Jammu & Kashmir are the bottom five states/
UTs the highest rural work participation rate is observed In Nagaland (54.0%) and lowest in
NCT of Delhi (31.1%).
Daman & Diu, Dadra & Nagar Haveli, Sikkim, Manipur and Mizoram states/UTs are
among the top five in urban work participation rate in India. In comparison Lakshadweep,
Bihar, Jharkhand, Uttar Pradesh and Rajasthan are among the bottom five states/UTs, the
highest urban work participation rate observed in Daman & Diu (53.6%) and lowest in
Lakshadweep (28%).
Table – 3.4: All India Workers and WPR
Workers (main + marginal) Work Participation Rate (WPR)
Total Rural Urban Total Rural Urban
1981 244,604,986 197,308,289 47,296,697 36.8 38.9 30
1991 314,131,370 249,028,944 65,102,426 37.5 40 30.2
2001 402,234,724 309,956,070 92,278,654 39.1 41.7 32.3
2011 481,888,868 348,743,092 133,145,776 39.8 41.8 35.3
Source: Analytical Report on Primary Census Abstract.
2. Distribution of Work Force by Sex: Another feature is the lower ration of female in the
work force. This is not surprising, given India’s social structure. Even now after 65 years
independence, women by and large under take productive work only under economic compulsion
and this is the main reason why female participation rates are higher for economically
underprivileged communities such as peasantry, artisans and scheduled castes etc.

3.8.1 Occupational Structure and Economic Development

Economic development creates various types of occupations in an economy. By
occupational structure we mean the distribution of work force among the different occupations.
The study of the occupational structure is an important aspect of the study of population of a
country. Economists have divided occupations in to three types.
1. Primary Sector: This sector consists of agriculture, animal husbandry, forestry and fishery.
The primary sector industries are the industries based on nature. These are primary because
these products are essential or vital for human existence.

31
2. Secondary Sector: Manufacturing industries, both small scale and large scale, are grouped
under secondary sector. This sector is the secondary as it is dependent upon the raw- material
from the primary sector.
3. Tertiary Sector: Banking insurance, trade and finance constitutes the tertiary sector. This
sector is mainly the service sector as services dominate this sector.
Changes in occupational structure are very much associated with economic development.
The rate of economic development and the level of per capita income increase as more and
more workforce shift from the primary sector to the secondary sector or the tertiary (service)
sector. A.G.B. Fisher aptly remarked that “We may say that in very progressive economy there
has been a steady shift of employment and investment from the essential primary activities to
secondary activities of all kinds and to a still greater extent into tertiary production”.
Thus to attain a rapid growth of economic development inter-sectoral transfer of work
force is necessary. This is possible only when productivity in agriculture increase due to the
introduction of modern methods of production. The increase in productivity in agriculture
transfers surplus workforce from agriculture to other sectors. The extent and pace of inter-
sectoral transfer of work force depend in the rate of increase in productivity in the primary
sector in relation to other sector.

3.9 OCCUPATONAL DISTRIBUTION OF POPULATION IN INDIA

Occupational distribution of population reflects the degree of development and the
diversification achieved in the economy. The decadal variation in the occupational distribution
of working population during the period from 1901 to 2011 presented in table 3.5.

Table-3.5: Occupational Distribution of Working Population in India Percentages

Occupation / Sector 1901 1951 1961 1971 1981 1991 2001 2011
Agriculture allied activities 71.8 72.1 71.8 72.1 68.8 66.8 56.8 48.9
Industry(1+2+3) 12.6 10.7 12.2 11.1 13.6 12.7 8.2 4.4
1. Mining & Quarry 0.1 0.6 0.5 0.5 0.6 0.6 0.6 0.5
2. Manufacturing 11.7 9.0 10.6 9.4 11.3 10.2 13.9 13.2
3. Construction 0.8 1.1 1.1 1.2 1.7 1.9 3.7 10.6
Services(4+5+6) 15.6 17.2 16.0 16.8 17.6 20.5 5.1 6.7
4. Trade & Commerce 6.0 5.2 4.0 5.6 6.3 7.5 9.4 11.4
5. Transport storage 1.1 1.5 1.6 2.5 2.7 2.8 4.0 4.4
and communication
6. Other services 8.5 10.5 10.4 8.5 8.6 10.2 11.7 10.9
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Source: Various reports of Census 1951to 2011.
Table 3.4 reveals that the share of agriculture and allied activities (primary sector) in
employment was 72.1% in 1951 and it remained constant till 1971. From 1981 decrease started
marginally to become constant in 1991. However, the decreasing trend continued in 2001 and

32
2011 in higher percentage points. Even then, the overall decrease between 1951 and 2011 is
just 23 percentage points. It can be surmised that close to half of the work force in India still
depends on agriculture as a means of livelihood. It is paradoxical to note that the income share
of agriculture sharply declined while its employment share decreased marginally. In developed
countries, the contribution of agriculture to GDP and employment is about 3% - 5%. But in
India the shares of agriculture in GDP and employment are 15 and 49 per cent. Income levels of
the work force involved in agriculture are awfully low in view of this trend. The shares of
industry and service sectors in employment have increased significantly, industry by 14 and
services by 9.5 percentage points. Shares of these two sectors, employment have improved
considerably. However, employment shares of the service sector are relatively higher than
those of industry.
Because of the massive expansion in the field of trade, commerce and transport etc., in the
post 1991 period, there has been a substantial increase in employment in the service sector. The
NMP- (National Manufacturing Policy) announced by the Government of India on November 4th,
2011 aims at creating 100 million additional jobs in the manufacturing sector by 2022.

3.10 FACTORS RESPONSIBLE FOR FAILURE IN THE

CHANGE IN OCCUPATIONAL STRUCTURE
The following factors are responsible for the failure in the change in occupational
structure.
Firstly our planning failed to make any serious attempt for the development of the rural
economy, for utilizing the vast idle labour force and also to raise the productivity of labourers.
All the attempts made by the government, all these years for reduction of unemployment and
under employment in rural areas failed miserably. Secondary, land reforms in India also failed
in realizing its objectives and to create small owner holdings. Thirdly, facilities provided by the
government in the form of credit and marketing, subsidies for fertilizers, etc. did not benefit the
poor and small farmers but helped the already prosperous land owning class. Fourth, very little
effort was made by the planners to develop non-agricultural rural employment such as
reclamation work, machine repair, rural transport services etc. Finally, efforts of the planners
to develop industries helped the large scale capital goods sector and the plans could not create
much response to the development of small scale and cottage industries. The development of
large scale highly capital intensive industries could not create much employment potential and
this create no impact on the occupational structure of the country.

Check You Progress.

5. State the top and bottom five States/UTs in work participation rates.
..........................................................................................................................................

3.11 SUMMARY
Population is one of the determinants of growth. India accounts for 17.99 per cent of the
world population. India’s turn to enjoy the opportunity of demographic dividend has been
33
repeatedly highlighted by the experts and international organizations alike. In India, the density
of population was as low as 77 persons per Sq. k.m in 1901 and then it rose to 117 in 1951.
Again in 2011, the density of population further increased to 382 persons per Sq. k.m. rapidly
growing population in a country can create serious food shortage. Due to high rate of growth of
population in India, the per capita cultivated land has declined. Economic development creates
various types of occupations in an economy. By occupational structure we mean the distribution
of work force among the different occupations. The extent and pace of inter sectoral transfer of
work force depend on the rate of increase in productivity in the primary sector in relation to
other sectors.

3.12 CHECK YOU PROGRESS – MODEL ANSWERS

1. Density of population means the number of people living per square kilometer of area.
In India, the density of population was as low as 77 persons per Sq. k.m in 1901 and then
it rose to 117 in 1951. Again in 2011, the density of population further increased to 382
persons per Sq. k.m. According to the 2011 census, the density of population in the State
like Bihar, West Bengal, Kerala and Uttar Pradesh were very high and they were
considered highly densely populated states.
2. The numbers of females per 1000 males in India were 972 in 1901 and then gradually
declined to 955 in 1921, 941 in 1961, 930 in 1971, 933 in 1981 and then 929 in 1991. An
analysis of the age composition of the population can determine the proportion of labour
force to the total population of the country. The age group of working population in India
is considered as 15-59 years.
3. The following are some of the major factors which are responsible for the high rate of
growth of population in India. i. Sharp fall in death rate; ii. No substantial fall in the
birth rate; iii. Accelerating natural growth rate; iv. Poverty; v. Universality of marriage;
vi. Early marriage; vii. Religious and social attitudes; and viii. Ignorance and lack of
conscious family planning.
4. Population explosion is a grave situation faced by a country. It experiences a high rate of
growth of population but little economic growth. This is the second stage of demographic
transition where the country faces a high rate of growth of population due to its fall in
the death rate and high birth rate.
5. The analysis of 2011 census, total work participation rate of India shows that Himachal
Pradesh, Sikkim, Daman & Diu, Nagaland and Chhattisgarh have emerged as the top
five work participation rate States/Union Territories of India whereas Lakshadweep,
Uttar Pradesh, NCT of Delhi, Bihar and Jammu & Kashmir where among the bottom
five states/UTs.

3.13 MODEL EXAMINATION QUESTIONS

I. Answer the following questions in about 10 lines each.
1. Write a note on density of population.

34
2. What are the causes for rapid growth of population in India?
3. What do you mean by population explosion?
II. Answer the following questions in about 30 lines each.
1. Discuss the features of India’s Population.
2. Explain the population policy 2000.
3. Analyse the trends the growth of population in India.
4. Define occupational structure and examine the factors responsible for the failure for
considerable change in its structure.
5. Explain the changes in work participation rates in India.

III. One mark questions:

A. Multiple choice questions:
1. Which is the highest density of population of Union Territories in India?
a) Delhi-Chandigarh b) Chandigarh-Lakshadweep
c) Delhi-Lakshadweep d) Delhi-Dadra
2. What is the highest female population state in India 2011 census?
a) Andhra Pradesh b) Kerala c) Uttar Pradesh d) Tamilnadu
3. What is the age group of working population in India is considered as working population?
a) 16-60 b) 22-59 c) 15-60 d) 15-59
4. What is the literacy rate in India as per 2011 census?
a) 70.06 b) 74.04 c) 80.05 d) 75.05
Answers: 1) a 2) b 3) d 4) b

B. Match the following:

A B
a) 68.33 i) Men life expectancy
b) 65.8 ii) Women life expectancy
c) 21 iii) Minimum age for marriage for females
d) 18 iv) Female literacy rate in India 2011 census
e) 65.46 v) Minimum at age for marriage
Answers: a) ii b) i c) v d) iii e) iv

C. Fill in the blanks:

1. India’s population as per 2011 Census_____________________.
2. The abbreviation of NRR is ________________________.
3. The Government of India announced its modified National Population Policy in the
____ year.
35
4. What is abbreviation of AIDS is ____________________.
5. The highest literacy rate is in the state of __________________.
Answers: 1) 121.09 crore 2) Net Reproduction Rate 3) 1977
4) Acquired Immune Deficiency Syndrome 5) Kerala

3.14 GLOSSARY
1. Demographic Dividend: The demographic dividend is defined as a rise in the rate of
economic growth due to a rising share of working age population.
2. Density of population: The population per Sq. km in a state is the density of population
in the state.
3. Fertility Rate: Fertility rate to the number of live births by a woman during the entire
reproductive period.
4. Sex-Ratio: It refers to the number of females per thousand males.
5. Population Explosion: It refers to unlimited increasing of population in the country. It
experiences a high rate of growth of population but little economic growth.

3.15 REFERECNCES
1. Mahindra K. Premix: “Population of India in the New Millennium Census 2001.” (New
Delhi, 2006).
2. Pravin Visaria: “Demographic Aspects of Development” (Uma Kapila (ed) Indian
Economy Since Independence (New Delhi- 2003).
3. V.K. Puri & S.K. Misra: “Indian Economy” 37th Edition, 2019.
4. Government of India: Economic Survey: 2018 & 2019.

– Dr. K. Madhubabu, ANU.

36
 BLOCK – II
NATIONAL INCOME, INCOME INEQUALITIES,
POVERTY AND UNEMPLOYMENT
This block is devoted to analyse the trends and composition of national income in
India, magnitude of income inequalities and remedial measures to reduce it. It also explains
the twin problems of poverty and unemployment which India has been facing. Further an
evaluation of poverty alleviation and employment generation programmes being implemented
during the plan period is also presented.
This block contains the following units:
Unit - 4 : National Income in India : Estimation, Trends and Composition
Unti - 5 : Poverty and Income Inequalities in India
Unit - 6 : Unemployment In India

37
UNIT–4: NATIONAL INCOME IN INDIA :
ESTIMATION, TRENDS AND COMPOSITION
Contents
4.0 Objectives
4.1 Introduction
4.2 A Backdrop to National Income Estimates
4.2.1 Pre-Independence Period Estimates
4.2.2 Post-Independence Period Estimates
4.3 Methodology of Estimation
4.4 Trends in National Income in India
4.5 Sectoral Contribution to National Income
4.6 Share of Public Sector and Private Sector in GDP/GVA
4.7 Difficulties in National Income Estimates in India
4.8 Summary
4.9 Check Your Progress – Model Answers
4.10 Model Examination Questions
4.11 Glossary
4.12 References

4.0 OBJECTIVES
This unit examines the estimates, methodology and the broad trends in the growth of
national income in India. After reading this unit, you will be able to:
● know the estimates of national income in India during Pre and Post- Independence period.
● have an idea over the methodology used in the estimation of national income.
● understand the broad trends in national income.
● analyse the sectoral contribution to national income. and
● explain the difficulties in national income estimates.

4.1 INTRODUCTION
The estimation of national income is beset with many practical problems. These problems
arise mainly because of data inadequacies. In fact, in estimating the national income of India,
all the three approaches are adopted, applying an approach best suited to the sector. National
income trends reflect the progress of the economy over time. The performance of the economy
between 1950-51 and 2017-18 not so promising as per the expectations of the people in general
and authorities in particular. The structural change in the composition of national income by
38
industrial origin is the consequence of the process of economic growth initiated during the
plans. At present, service sector is the predominant source of the net domestic product in India.
National income is generated in public sector as well as private sector. Prior to 1951, the share
of public sector was very small. Since the inception of planning, the share of public sector in
national income has gradually increased.

4.2 A BACKDROP TO NATIONAL INCOME ESTIMATES

National income trends, especially the changes in gross or net national product, per
capita gross or net national product and sectoral distribution of gross or net domestic product
adequately reflect the progress of the economy. As per the National Income Committee (1949),
A National income estimate measures the volume of commodities and services turned out
during a given period counted without duplication. Thus, national income measures the net
value of goods and services produced in a country during a particular year. The National income
is a flow but not a stock, whereas national wealth measures the stock of commodities held by
the nationals of a country at a point of time.
In India, National income estimates are related to the financial year (April 1 to March
31). No specific attempts were made for estimating national income in India during pre-
independence era. Several estimates of national income were prepared in the British period.
Notable among the estimators were: Dadabhai Naoroji (1868), William Digby (1899), Findlay
Shirras (1911, 1922 and 1931), Shah and Khambatta (1921), V.K.R.V. Rao (1925-29 and 1931-
32) and R.C. Desai (1931-40). Soon after independence, the Government of India appointed
the National Income Committee in August, 1949 so as to compile authoritative estimates of
national income. The committee consisted of Prof. P.C. Mahalanobis, Prof. D.R. Gadgil and
Prof. V.K.R.V. Rao. The first report of the National Income Committee appeared in 1954. Usually
national income is estimated by adopting a normal year (that is an year where droughts or
famines or national calamities or absence economic fluctuations to other causes) as the base
year. The base year had been changing over the decades and recently CSO has introduced a
new series on National Income with 2004-05 as base year. National income includes the
contribution of three sectors of the economy – Primary sector (Agriculture, Forest, Fisheries,
and Mining) Secondary sector (Industries – Manufacturing and Construction) and Tertiary
Sector (Trade, Transport, Communications, Banking, Insurance, Real Estate, Community and
Personal Services).

4.2.1 Pre-Independence Period Estimates

Before independence, no attempt was made by any government agency to estimate the
national income and all the estimates available were prepared by private individuals only. In
the pre-independence period, at a time when adequate and reliable statistics were not available,
various efforts have been made to calculate India’s national income and ascertain the standard
of living of the Indian people. The pioneering work in this direction was done by Dadabhai
Naoroji in 1876 to estimate the national income and the per capita income for the period 1867
to 1870. He estimated the national income of British India at Rs. 340 crores which meant a per
capita income of Rs. 20. Later, many such attempts were made as summarized in Table - 4.1. A
39
perusal of these estimates would show that there have been wide divergences. These divergences
arc largely due to conceptual and statistical differences and also personal bias. Personal bias
affected the estimates because the nationalist economists wanted to bring out poverty and a
low per capita income in India in order to prove that the British regime failed to increase the
standard of living whereas the pro-government persons wanted to show that the per capita
income was not as low as it was thought to be. Moreover, these estimates were not based on the
same concepts and definitions. Further, the geographical coverage was not uniform and the
estimates were made on the basis of current prices. However, one has to appropriate the
pioneering work done by the above economists in calculating India’s national income at a time
when they faced many difficulties. The estimates provide a rough picture of the standard of
living of the Indian people in the pre-independence period.
The first scientific calculation was undertaken by V.K.R.V. Rao. In spite of a weak
statistical base, his estimate was considered to be the best among the estimates prepared during
the pre-independence period. He divided the Indian economy into two categories. Industry,
trade, transport, public services, administration, professions, liberal arts and the domestic services
were included in the first category and the income method was used for this category. Agriculture,
pastures, mines, forests, fishing and hunting were the major items under the second category
and the output method was used for this category in the estimation of national income.

Table-4.1: Pre-Independence Estimates of National Income &

Per Capita Income of India
Author Estimates for National Income Per Capita
the Year (in Rs. Crores) Income (in Rs.) Coverage
Dadabhai Naoroji 1868 340 20 British India
F.J.Arkinson 1875 574 31 British India
Baring and Barbour 1882 525 27 British India
Lord Curzon 1897-98 675 30 British India
William Digby 1899 390 17 British India
Sir B.N. Sharma 1911 - 50 British India
Findlay Shirras 1911 1942 80 British India
Wadia and Joshi 1913-14 1087 44 British India
Atnold Lupton 1919-20 2854 114 British India
Shah and Khambata 1921-22 2364 74 British India
V.K.R.V.Rao 1931-32 1689 62 British India
B Natarajan 1938-39 1482 67 British India
Eastern Economist 1939-40 1934 67 British India
Ministry of Commerce
(GOI) 1945-46 6234 198 British India

40
4.2.2 Post Independence Period Estimates
The Government of India appointed the National Income Committee in 1949 with P.C.
Mahalanobis as chairman and D.R.Gadgil and V. K. R.V.Rao as members to suggest measures
for improving the quality of data and collecting further essential statistics and to recommend
ways and means of promoting research in the field of national income. The committee submitted
its First Report in April 1951 and the Final Report in February 1954.
The following were the main features of the National Income Committee report:
1. Agriculture including forestry, animal husbandry and fishery contributed about one half
of the national income of the country during 1950-51.
2. Mining, manufacturing and hand trades contributed nearly one-sixth of the national income
of India.
3. Commerce, transport and communication also contributed a little more than one-sixth of
the total national income of the country.
4. Income earned from other services such as professions and liberal arts, house property,
administrative and domestic services contributed nearly 15 per cent of the total national
income of the country.
5. Commodity production constituted nearly two-thirds share of the national income whereas
services contributed the remaining one-third of the national income of India.
6. In 1950-51, the share of the Government sector contributed about 7.6 per cent of net
domestic product.
7. In the computation of national income estimates, the margin of error was estimated at
about 10 per cent.
The task of estimating the national income in India was entrusted to the Central Statistical
Organisation (CSO) in 1954. Since, this organization continuous to do the job of estimating the
national income of our country till today.
The official series of national income estimates have been regularly prepared and
published by the Central Statistical Organization in their annual publication entitled National
Accounts Statistics. Subsequently, many improvements were brought about in the data-base
and the methodology by the Central Statistical Organization. The coverage has been gradually
extended so as to incorporate the estimates of capital formation, savings, private consumption
expenditure and factor incomes. The detailed methodology adopted at present is discussed in
the CSO publications entitled National Accounts Statistics: Sources and Methods 1989 and
System of National Accounts (SNA) 1993.

Check Your Progress.

Note: a) Space is given below for utilizing your answer.
b) Compare your answer with the one given at the end of the unit.
1. How do you mean by national income estimate?
..........................................................................................................................................
41
2. State the importance of national income estimates.
..........................................................................................................................................
3. Write any three features of the National Income Committee report.
..........................................................................................................................................

4.3 METHODOLOGY OF ESTIMATION

For estimating the national income in India, the various economic activities are classified
into: i. agriculture including animal husbandry; ii. forestry and logging; iii. fishing; iv. mining
and quarrying; v. manufacturing: 1) registered manufacturing; 2) un-registered manufacturing;
vi. construction; vii. electricity, gas and water supply; viii. transport, storage and communication;
ix. Trade, hotels and restaurants; x. banking and insurance; xi. real estate, ownership of dwellings
and business services; xii. public administration and defence; and xiii. other services.
On the basis of the data availability and the method of estimation adopted, these sectors
are classified into three broad categories. The first category includes the first six sectors except
unregistered manufacturing. For each of these sectors, data on output, input and prices is available
on a regular basis. The second category consists of railways, electricity, communications, banking
and insurance, real estate and public administration and defence. Annual accounts of these
undertakings provide data on factor incomes for these sectors. The third category includes
unregistered manufacturing, trade, hotels and restaurants and other services. No satisfactory
data is available either on output and input or on factor incomes for this category.
Of the three approaches, viz., the product, income and expenditure approaches to the
estimation of national income, the product approach can be used only for commodity producing
sectors. Hence, for the first category, the product approach is used. The income approach in its
direct or indirect form is adopted for the remaining two categories.
The estimate of gross domestic product for the sectors in the first category is arrived at
as follows. The value of output of each sector is estimated by multiplying the quantity produced
with the price, in the case of some sectors like animal husbandry, forestry and fishing, annual
data is not available and hence the estimates are derived by following the methods of
extrapolation. The second step is the estimation of intermediate inputs used in the production
of these products. These estimates are derived from some benchmark surveys, which provide
the input-output proportions for the year of survey. These proportions are used for other years
also. The gross value added is obtained by deducting the total value of inputs from total value
of output.
The estimates relating to sectors falling under the second category are obtained by
following the income approach in its direct form. The annual accounts of the undertakings
provide data on compensation for employees, interest payments, rent, operating surplus and
depreciation allowances. They are used to estimate the total factor earnings which taken together
constitute the value added.
The major difficulty is only with the sectors falling under the third category. No systematic
data is available for these sectors. The estimates of the working force are derived from decennial
42
census. Hence, they are available for the benchmark years 1951, 1961, 1971, 1981, 1991, and
2001. The year –to-year estimates are derived by interpolation or extrapolation. The estimates
of the average value added per worker are obtained for benchmark year on the basis of the
sample surveys conducted especially for this purpose. Using these estimates and the estimates
of the work force, value added for each sector is computed.
The estimates for different sectors are aggregated to arrive at the gross domestic product.
The consumption of the fixed capital is estimated for each sector separately and then aggregated.
This aggregate is subtracted from the gross domestic product to arrive at the net domestic
product. The estimates of net factor earnings from abroad are derived from the exchange control
data compiled by the Balance of Payments Division of the Reserve Bank of India. The estimates
of gross national product and net national product are obtained by adding the net factor earnings
from abroad to the corresponding aggregates of domestic product.

Check Your Progress.

4. List out the various economic activities while estimating the national income in India.
..........................................................................................................................................

4.4 TRENDS IN NATIONAL INCOME IN INDIA

In order to understand the impact of planning in India, a study of trends in national
income is necessary. It would be, therefore, better if the trends in national income and changes
in the structure of national product are analysed.

Trends in Net National Product 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 services and b) the rise in
prices. If the increase in national income is due to the first factor, 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 factor, it represents an 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 national product or per capita income is calculated. Whereas the
growth of the net national product at constant prices is an index of the total productive effort on
the part of the community and indicates the rate of growth of goods and services in the economy,
the growth of per capita income at constant prices is an indicator of the change in the standard
of living of the people.
CSO has provided a series of national income data at 1999-2000 prices from 1950-51 to
2007-08. Although this indicates slightly different growth rates for different periods, but this
was inevitable because of coverage and a change in procedure.

43
 Plan-wise study of growth of real income in India, however, does indicate an encouraging
fact that although the annual rate of increase in national income was pretty low at 3.5 per cent
per annum during the first three decades of economic planning; it has risen to 5.9 per cent per
annum since 1980-81. The description of the national income trends during the past six decades
clearly highlights the main features of growth in this country. They are: erratic growth, growth
rate at best is modest, post -1991 reform growth less fragile.

Table-4.2: Net National Income at Factor Cost and Per capita NNI
Year NNI Per capita NNI NNI Per capita NNI
(Rs. Crores) (Rs.) (Rs. Crores) (Rs.)
At 2004-05 Prices At Current Prices
1950-51 2,69,724 7,513 9,829 274
1960-61 4,11,519 9,482 17,062 393
1990-91 13,42,031 15,996 5,26,012 6,270
2000-01 22,91,795 22,491 19,47,788 20,259
At 2010-11 Prices At Current Prices
2011-12 77,42,330 63,462 77,42,330 63,462
2012-13 80,94,001 65,538 87,66,345 70,983
2013-14 85,78,417 68,572 98,97,663 79,118
2014-15 92,31,556 72,805 1,09,53,761 86,647
2015-16 99,82,112 77,826 1,20,76,882 94,731
2016-17 1,06,86,776 82,229 1,34,08,211 1,03,870
2017-18 1,14,04,413 86,668 1,47,10,563 1,12,835
Source: i. Compiled and computed from data given in Economic Survey (2017-2018),
ii. CSO National Accounts Statistics, 2017.
From the time India switched over to economic planning, the net national product has
continued to grow, despite erratic growth in agricultural production and shortfalls in the industrial
output. There is no doubt that this is an encouraging development in an economy which had
suffered long spells of stagnation under the British. However, assessment of the performance
of an economy can more accurately be made by examining the trends in per capita national
income which is the same thing as per capita net national product at factor cost. The data given
in Table-4.2 shows that during the 67 years (1950-51 to 2017-18), the Net National Income
increased from Rs. 2,69,724 crore to Rs. 1,14,04,413 crore at constant prices, whereas at current
prices the national income has increased from Rs. 9,829 crores to Rs. 1,47,10,563 crore in the
same period. The per capita income has also increased from Rs. 7,513 in 1950-51 to Rs. 86,668
in 2017-18 at constant prices. Even at current prices, it has increased from Rs. 274 to Rs.
1,12,835. Thus, from the data presented in Table-4.2, it can be said that there is an increasing
trend both in NNP and per capita NNP since the inception of planning.

44
 From the data given in Table-4.3, it is revealed that during the 30-year period (1950-51
to 1980-81), the annual rate of growth of national income (1999-2000=100) was of the order of
3.5 per cent and that of per capita income was merely 1.4 per cent. Calculated at current prices,
the annual rate of growth of net national product was of the order of 9.0 per cent and that of per
capita income was 6.7 per cent. But much of this increase in NNP at current prices is only
illusory because it indicates a monetary increase consequent upon a sharp increase in prices,
more especially during the period following the Third plan.
A further break-up of the data into three periods reveals that during the first 10 years of
planning (1950-51 to 1960-61), net national product increased at the annual rate of 4.2 per cent
and the performance of the economy has been on the decline thereafter. During 1960-61 and
1970-71, the rate of growth of NNP came down to 3.5 per cent and that of per capita NNP to 1.2
per cent per annum. In the subsequent 10-year period (1970-71 to 1980-81), the rate of growth
of NNP was 2.9 per cent and that of per capita NNP slumped down to 0.6 per cent per annum.

Table-4.3: Growth Rates of National Income and Per capita Income (Per cent)
Period National Income Per capita National Income Per capita
at Constant Income at 1999- at Current Income at
Prices 2000 Prices Prices Current Prices

1950-51 to 1960-61 4.2 2.3 5.5 3.2

1960-61 to 1970-71 3.5 1.2 9.9 7.5
1970-71 to 1980-81 2.9 0.6 11.7 9.2
1980-81 to 1990-91 5.2 3.0 14.2 11.8
1990-91 to 2000-01 5.5 3.4 14.0 11.9
2000-01 to 2004-05 7.5 5.9 12.4 10.7
1950-51 to 1980-81 3.5 1.4 9.0 6.7
1980-81 to 2000-01 5.6 3.2 14.1 11.8
2000-01 to 2004-05 6.4 4.7 10.5 3.6
2004-05 to 2013-14 7.3 5.8 14.9 13.4
Source: i. Compiled and computed from data given in Economic Survey (2013-2014),
ii.CSO National Accounts Statistics, 2011.
There was a very perceptible improvement in growth rate during the eighties. During
1980-81 and 1990-91, net national product showed a growth rate of 5.2 per cent per annum and
the per capita NNP (at 1999-2000 prices) improved on an average by 3.0 per cent per annum.
This is a very healthy development because the economy was able to cross the barrier of the
Hindu rate of growth, to use the phrase of late Prof. Raj Krishna. During 1990-91 to 2000-01,
the annual average rate of growth of net national product (at 1999-2000 prices) was just of the
order of 5.5 per cent per annum and that of NNP per capita was 3.4 per cent. During the two
decades (1980-81 and 2000-01), the average annual growth of NNP was 5.6 per cent and that of
per capita NNP was 3.2 per cent. It implies that the economy has performed better during these
two decades as compared with the earlier three decades. 45
 During 2000-01 and 2004-05, NNP growth rate accelerated to 6.4 per cent and per capita
NNP grew at the rate of 4.7 per cent per annum (at 1999-2000 prices). During 2004-05 and
2013-14 we find further acceleration in the NNP growth rate to 7.3 per cent and that of per
capita income to 5.8 per cent (at 2004-05 prices). This implies a further acceleration in the
growth of national income at a higher level. This is a very healthy development.

Annual Growth Rates of National Income and Per capita Income during the Plans
Annual growth rates of national income and per capita income during the plans have
been presented in Table-4.4. During the First Plan, annual average growth rate of NNP was 4.4
per cent (at 1999-2000 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 of growth of per capita income during the Third plan. This was largely
the consequence of a serious drought in 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 utilisation of capacity
were the principal factors responsible for a lower growth rate during the Fourth Plan.

Table-4.4: Annual Growth Rates in Various Plans

Various Plans I II III IV V VI VII VIII IX X XI XII
National & Per 4.4 3.8 2.6 3.1 4.9 5.4 5.5 6.7 5.3 7.8 7.6 8.0
capita Income 2.6 1.7 0.4 0.8 2.6 3.1 3.3 4.5 3.3 6.1 6.2 -
Source: i. CSO and Economic Survey (2017-18),
ii.RBI, Hand book of statistics on Indian Economy, 2017-18.
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 per cent.
During the Seventh Plan (1985-90), India’s NNP grew on the average at the rate of 5.5
per cent per annum and the annual growth of per capita NNP was 3.3 per cent. Obviously,
Seventh Plan achieved its objective of 5 per cent growth rate of NNP along with 3 per cent
targeted growth rate of per capita NNP. This was a welcome development.
During the Eighth Plan (1992-97) NNP growth rate of order of 6.7 per cent has been
achieved with a per capita growth of about 4.5 per cent. This healthy trend needs to be sustained.
During the Ninth plan (1997-2002), NNP growth was 5.3 per cent with a per capita growth of
about 3.3 per cent. During the Tenth Plan (2002-07), NNP growth was 6.1 per cent – the highest
recorded so far. During Eleventh Plan, rate of growth of NNP remained 7.6 per cent and 6.2 per
cent in per capita NNP. During the twelfth plan, the rate of growth of NNP was 8 per cent.

46
 On viewing the performance of the economy between 1950-51 and 2012-13, in the light
of the goal set out in the First and Second Plans, it turns out to be disappointing. The rate of
increase in per capita net national product has not only remained low but despite six decades of
economic planning, is still unsteady and erratic. There were years of spurts in per capita net
national product, but there were also some years in which it either declined or remained constant.
Further, years of spurts in per capita net national product were the same in which agricultural
production had increased significantly, and the periods in which per capita net national product
had either declined or fluctuated around the level achieved in the preceding year were not
different from those marked by bad weather resulting in crop failures. Such a pattern of economic
growth brings credit neither to the society, nor to the planning system followed by the government
in this country. However, during the last 22 years (1991-92 to 2012-13) the rate of growth in
per capita national income has been significantly higher – it was as high as 4.7 per cent per
annum over this period compared to only 2.3 per cent per annum during the earlier four decades.

Check Your Progress.

5. State the Annual Growth Rates of National Income and Per capita Income during the plans.
..........................................................................................................................................

4.5 SECTORAL CONTRIBUTION TO NATIONAL INCOME

The study national product by the sectoral contribution explains the anatomy of the
economic structure. The analysis of sectoral contribution is equally important as of the trends
in national income. The structural change in the composition of national income by industrial
origin is the consequence of the process of economic growth initiated during the plans. Table-
4.5 presents detailed information in this regard.

Table-4.5: Share of National Income by Industry of Origin (Percent)

Year Industry Group
Primary Sector Secondary Sector Tertiary Sector
1950-51 57.2 14.8 25.0
1960-61 56.6 17.1 26.3
1970-71 50.1 19.7 30.2
1980-81 41.1 23.3 35.6
1990-91 33.2 25.9 40.9
2000-01 25.1 22.1 52.4
2007-08 18.0 26.0 56.0
2011-12 20.5 24.6 54.9
2012-13 19.9 23.8 56.3
2013-14 13.9 26.2 59.9
2016-17 17.9 29.4 52.7
2017-18 17.2 29.3 53.5
2018-19 6.11 29.6 54.3
Source: i. Compiled and computed from the data provided by RBI, Hand book of statistics on
the Indian Economy (2011-12, 2012-13, 2013-14&2018-19),
ii. CSO National Accounts Statistics, and Economic Survey ( 2013-14 and 2018-19).
47
 At present service sector is the predominant source of the Net Domestic Product (NDP)
in India as shown in table-4.5. In the past, it has contributed about 1/3 share to NDP. The share
of agriculture has declined enormously. The following broad trends in the changing composition
of the domestic production are:

Contribution of the Primary Sector: The primary sector consists of agriculture, forestry
and logging, and fishing. During the post-independence period, the share of the primary sector
(of which agriculture is the major constituent) in the net domestic product (NDP) has varied
from the maximum of 57.2 per cent in 1950-51 to the minimum of 16.1 per cent in 2018-19.
Thus, over the years, share of the primary sector in net domestic product has declined. The
main cause of the decline is a rapid fall in the share of agriculture alone as a result of unfavourable
weather conditions as well as the structural transformation that had been taking place. In recent
years, the country’s economy has undergone some structural changes. Transport and trade,
banking and insurance and other service sectors have grown faster than agriculture and this
fact is reflected in the estimates of net domestic product by industry of origin. These changes
notwithstanding, the agricultural sector still remains an important sector in the Indian economy
in terms of its share in the country’s net domestic product. Even now for a larger increase in the
country’s national income, rapid growth of the agricultural sector is necessary.

Contribution of the Secondary Sector: The secondary sector comprises of mining and
quarrying, manufacturing, construction, and electricity, gas and water supply has shown a steady
increase from 15 per cent in 1950-51 to 24 per cent in 1980-81 and 29.6 per cent in 2018-19.
Two major components of industry are manufacturing and construction. The share of
manufacturing increased from 8.9 per cent in 1950-51 to 14.9 per cent in 2013-14. Similarly,
the share of construction improved from 4.4 per cent in 1950-51 to 7.4 per cent in 2013-14.

Contribution of Tertiary Sector: The share of tertiary sector which includes trade, transport,
storage, communications, banking, insurance, real estate, community and personal services
had improved from 25 per cent in 1950-51 to about 54.3 per cent in 2018-19. There was a
significant increase in the share of trade, transport and communications from only 11.3 per cent
in 1950-51 to 26.4 per cent 2013-14. The expansion of transport, especially road transport and
communications has been the major contributor to this increase.
The share of finance, insurance, real estate and business services marginally declined
from 7.7 per cent in 1950-51 to 7.5 per cent in 1980-81 and thereafter improved to 20.6 per cent
in 2013-14. The process of economic development involves a rapid expansion of public
administration especially a rapid expansion of economic and welfare services such as education,
health and family welfare. Taking community and personal services as a group, there was an
improvement in its share from 10.6 per cent in 1950-51 to 12.9 per cent in 2013-14.
There is a sudden jump of the Indian economy to pass on to the stage of a post-industrial
service economy without completing the phase of industrialization. The changing structure of
national income needs to be further strengthened by stepping up the programme of
industrialization. This does not imply a neglect of agriculture, industrialization of the economy
with emphasis on agro-based industries and industries supplying inputs to agriculture is a sine-
qua-non for a faster growth of the economy.
48
Check Your Progress.
6. State the contribution of the Primary Sector to National Income.
..........................................................................................................................................
7. Explain the contribution of the Secondary Sector.
..........................................................................................................................................

4.6 SHARE OF PUBLIC AND PRIVATE SECTORS IN GDP

At the time of Independence, activities of the public sector were restricted to a limited
field like irrigation, power, railways, communications and some departmental undertakings.
After Independence, the area of activities of the public sector expanded at a very rapid speed.
To assure the private sector that its activities will not be unduly curbed, two industrial policy
resolutions were passed in 1948 and 1956 respectively, to establish a mixed economy in India.
These policy resolutions divided the industries into different categories. So, some other fields
were left entirely for the public sector, while some fields were divided between the public
sector and private sector and some others were left to the private sector only.

Table-4.6: Share of Public Sector and Private Sector in the GDP

Year National Share of Share of Percentage Percentage
Income Public Sector Private Sector Share of Share of
(Rs. Crores) (Rs. Crores) (Rs. Crores) Public Sector Private Sector

At 1999-00 prices
1950-51 2,04,924 16,393 1,88,530 8.0 92.0
1960-61 3,09,045 30,905 2,78,140 10.0 90.0
1970-71 4,37,719 61,281 3,76,438 14.0 86.0
1980-81 5,83,548 1,16,710 4,66,838 20.0 80.0
1990-91 9,67,773 2,28,394 7,39,379 23.6 76.4
1993-94 10,88,897 2,82,024 8,06,876 25.9 74.1
2000-01 16,47,903 3,82,314 12,65,589 23.2 76.8
At 2004-05 prices
2005-06 28,72,212 6,23,270 22,48,942 21.7 78.3
2008-09 36,69.890 7,41,318 29,28,572 20.2 79.8
2009-10 39,59,653 8,39,446 31,20,207 21.2 78.8
Source: i. CSO National Accounts Statistics, 2011; ii. Various Issues of Economic Survey.
National income is produced in public sector as well as in private sector. Prior to 1951,
the share of public sector was very small. With the introduction of Five Year Plans there was a
gradual increase in the economic activities of the State. As a result, the share of public sector in
national income has gradually increased. It is clear from Table-4.6 that in the last five decades,
the share of the public sector in the national income has shown a steady improvement. Measured
49
at 1999-00 prices, the public sector accounted for 8 per cent of the GDP in 1950-51, its share in
2000-01 had risen to 23.2 per cent. However, it declined to 21.7 per cent in 2005-06 and further
to 20.2 per cent in 2008-09 and again there is a slight increase i.e. 21.2 per cent in 2009-
10.Thus, the public sector accounts about one-fifth of the national income. Though, this is
largely due to a rapid expansion of the public sector enterprises, the private sector still occupies
a dominant position in the economy.
In fact, during the last five decades, the private sector occupied a dominant position in
the share of national income in the country. The share of the private sector has been declining
from 92 per cent in 1950-51 to 76.4 per cent in 1990-91. After the introduction of economic
reforms, the share of private sector in the national income increased from 76.8 per cent in
2000-01 to 79.8 per cent in 2008-09 and 78.8 per cent in 2009-10.

4.7 DIFFICULTIES IN NATIONAL INCOME ESTIMATES IN

INDIA
The estimation of national income in any country is a very difficult task and in India the
difficulties are very much glaring. The major difficulties among them are as follows.
1. Lack of Reliable Statistics: The most serious handicap is the inadequacy, non-availability
and unreliability of statistics. Reliable statistical information regarding agriculture and allied
occupations is not available. There is also no information available regarding consumption
expenditure and savings of either rural or urban population. Besides, owing to regional diversities,
statistics available about one region cannot be used for another region.
2. Difficulties of Estimating the Output of the Non-monetised Sector: In India, where
agriculture is largely carried on a subsistence basis, a considerable portion of the output does
not come to the market for sale, but is either consumed by the producers themselves or is
bartered away in exchange for other goods and services. Thus a serious difficulty arises in
regard to the estimation of the imputed value of the produce of the non-monetised sector and to
add it to the value of the monetised sector.
3. Absence of Proper Accounts: Literacy of the people and the lack of practice in keeping
accounts is another difficulty. In Western countries, economic statistics are collected directly
from individuals and enterprises. This is obviously not possible in India. Moreover, Indian
people are by tradition suspicious and do not cooperate in/the collection of data.
4. Inability to Estimate: Besides, major part production is not capable of knowing the exact
quantity and the value of their products. Thus, an assessment of output, produced by self-
employed agriculturists, small producers and owners of households enterprises in the unorganized
sector would require an element of guess work.
5. Unorganised Production: a major part of the production both agricultural and industrial
sectors is unorganised and scattered. Thus, it does not admit of easy calculation. The Indian
agricultural sector is dominated by subsistence farming and is a semi-stagnant sector and has
therefore small significance in estimating the national income of a developing economy. This
also applies to household crafts.

50
6. Lack of Proper Classification: A major part of the Indian economy consists of household
enterprises which perform functions belonging to different occupational categories
simultaneously. Thus, the usual industrial classification cannot be followed.
7. Lack of Uniform Basis: Another difficulty is the absence of an uniform basis, which could
be used for evaluating commodities and services in terms of money. This is made more difficult
by the fact that a considerable portion of the output in India does not come into the market at all
either it is consumed by the producers themselves or is bartered for other commodities and
services. The large unorganised and non-monetised sector of the Indian economy presents the
greatest difficulty in national income estimation.
8. Lack of Common Denominator: Lastly, there is the universal academic difficulty of reducing
the numerous economic activities of the millions of people to a common measurable denominator.
For example, it is difficult to add together the services of a street sweeper and those of the
Prime Minister. But the above difficulties should not be allowed to act as deterrents to the
computation of national income. Some element of guesswork is inevitable. However, the national
income estimates, rough and ready as they may be are of great value in shaping the economic
policies and for the adoption of suitable remedies for tackling various economic problems.

Check Your Progress.

8. List out the difficulties in the estimation of national income in India.
..........................................................................................................................................

4.8 SUMMARY
A National income estimate measures the volume of commodities and services turned
out during a given period counted without duplication. In order to understand the impact of
planning in India, a study of trends in national income is necessary. On viewing the performance
of the economy between 1950-51 and 2012-13 in the light of the goal set out in the First and
Second Plans, it turns out to be disappointing. The rate of increase in per capita net national
product has not only remained low but despite six decades of economic planning, is still unsteady
and erratic. There were years of spurts in per capita net national product, but there were also
some years in which it either declined or remained constant. Further, years of spurts in per
capita net national product were the same in which agricultural production had increased
significantly, and the periods in which per capita net national product had either declined or
fluctuated around the level achieved in the preceding year were not different from those marked
by bad weather resulting in crop failures. Such a pattern of economic growth brings credit
neither to the society, nor to the planning system followed by the government in this country.
However, during 1991-92 to 2012-13 the rate of growth in per capita national income has been
significantly higher – it was as high as 4.7 per cent per annum over this period compared to
only 2.3 per cent per annum.

51
4.9 CHECK YOUR PROGRESS – MODEL ANSWERS
1. As per the National Income Committee (1949), A National income estimate measures
the volume of commodities and services turned out during a given period counted without
duplication.
2. Several estimates of national income were prepared in the British period. Notable among
the estimators were: Dadabhai Naoroji (1868), William Digby (1899), Findlay Shirras
(1911, 1922 and 1931), Shah and Khambatta (1921), VK.R.V.Rao (1925-29 and 1931-
32) and R.C. Desai (1931-40).
3. The three main features of the National Income Committee Report are: i. Agriculture
including forestry, animal husbandry and fishery contributed about one half of the national
income of the country during 1950-51. ii. Mining, manufacturing and hand trades
contributed nearly one-sixth of the national income of India. iii. Commerce, transport
and communication also contributed a little more than one-sixth of the total national
income of the country.
4. For estimating the national income in India, the various economic activities are classified
into: i. agriculture including animal husbandry; ii. forestry and logging; iii. fishing; iv.
mining and quarrying; v. manufacturing: 1) registered manufacturing; 2) un-registered
manufacturing; vi. construction; vii. electricity, gas and water supply; viii. transport,
storage and communication; ix. trade, hotels and restaurants; x. banking and insurance;
xi. real estate, ownership of dwellings and business services; xii. public administration
and defence; and xiii. other services.
5. The annual growth rates of national income and per capita income is presented in the
Table:
Various Plans I II III IV V VI VII VIII IX X XI XII
National & Per 4.4 3.8 2.6 3.1 4.9 5.4 5.5 6.7 5.3 7.8 7.6 8.0
capita Income 2.6 1.7 0.4 0.8 2.6 3.1 3.3 4.5 3.3 6.1 6.2 -
6. The primary sector consists of agriculture, forestry and logging, and fishing. During the
post-independence period, the share of the primary sector (of which agriculture is the
major constituent) in the net domestic product (NDP) has varied from the maximum of
57.2 per cent in 1950-51 to the minimum of 13.9 per cent in 2013-14. Thus, over the
years, share of the primary sector in net domestic product has declined.
7. The secondary sector comprises of mining and quarrying, manufacturing, construction,
and electricity, gas and water supply has shown a steady increase from 15 per cent in
1950-51 to 24 per cent in 1980-81 and 26.2 per cent in 2013-14.
8. The estimation of national income in any country is a very difficult task and in India the
difficulties are very much glaring. The major difficulties among them are: i) Lack of
Reliable Statistics; ii) Difficulties of Estimating the Output of the Non-monetised Sector;
iii) Absence off Proper Accounts; iv) Inability to Estimate; v) Unorganised Production;
vi) Lack of Proper Classification ; vii). Lack of Uniform Basis; viii) Lack of Common
52 Denominator
4.10 MODEL EXAMINATION QUESTIONS
I. Answer the following questions in about 10 lines each:
1. State the Pre-Independence Period Estimates of National Income.
2. Bring out the Post-Independence Period Estimates of National Income.
3. List out the main features of the National Income Committee Report.
4. Explain the methodology of estimation of National Income.
II. Answer the following questions in about 30 lines each:
1. Describe the broad trends in the growth of national income and per capita income.
2. Analyse the changes in the contribution of primary, secondary and tertiary sectors of the
economy to the National Income of India.
3. Examine the relative shares of public and private sectors.
4. Discuss the difficulties beset in the estimates of national income in India.

III. One mark questions:

(A) Multiple choice questions:
1. Which one of the estimates belongs to the Pre-Independence period:
a) V.K.R.V. Rao b) P.C. Mahalnobis c) D.R. Gadgil d) None of the above
2. National Income estimates are related to the financial year of :
a) Dec. 1 to January 31 b) April 1 to May 31
c) April 1 to March 31 d) All of the above
3. The first report of the national income committee appeared in the year:
a) 1949 b) 1954 c) 1951 d) 1950
4. The chairman of the National Income Committee in 1949.
a) V.K.R.V. Rao b) D.R. Gadgil c) Dadabhai Naoroji d) P.C. Mahalnobis
5. C.S.O stands for
a) Central Statistical Organisation b) Chief Security Officer
c) Central Services Organisation d) None of the above
Answers: 1) a; 2) c; 3) b; 4) d; 5) a.

B. Match the following:

A B
1. P.C. Mahalnobis (a) Final Report of National Income Committee
2. Raj Krishna (b) The Hindu Rate of Economic Growth
3. 1954 (c) Chairman of National Income Committee
4. Primary Sector (d) Industrial Sector
5. Secondary Sector (e) Agricultural Sector
Answers: 1) c; 2) b; 3) a; 4) e; 5) d. 53
C. Fill in the blanks:
1. The national income is a ______ concept.
2. In India, national income estimates are related to the financial year of ____________.
3. The Government of India appointed the National Income Committee in August, 1949
under the chairmanship of _____________.
4. The final report of the National Income Committee was published in the year ______.
5. ___________ used the Phrase of Hindu Rate of Growth.
Answers: 1) flow; 2) Aril, 1 to March, 31; 3) Prof. P.C. Mahalnobis; 4) 1954; 5) Prof. Raj
Krishna.

4.11 GLOSSARY
1. National Income: The volume of commodities and services turned out during a given
period counted without duplication.
2. Per capita Income: National income ÷ population.
3. Primary Sector: Primary sector of the economy includes agriculture and allied activities,
and mining and quarrying activities.
4. Secondary Sector: Secondary sector of the economy includes manufacturing,
construction, energy, gas and water supply activities.
5. Tertiary Sector: Tertiary sector of the economy consists of transport, storage, and
communication, trade, hotels and restaurants, public administration, banking, finance
and real estate; and community and personal services.
6. Mixed Economy: An economy in which both public and private sectors are operating
side by side.
7. Gross Domestic Product: The market value of all final goods and services produced
within the domestic boundaries of a country during a year.

4.12 REFERENCES
1. Jean Dreze & Amartya Sen: An Uncertain Glory, India and its contradictions, Allen
Lane, 2013.
2. Lekhi, R.K: The Economics of Development and Planning, Kalyani Publishers, New
Delhi, 2003.
3. Misra & Puri: Economics of Development and Planning, Himalaya Publishing House,
New Delhi, 2005.
4. Misra & Puri: Indian Economy, 32nd Revised Edition, 2014.
5. Prathyogita Darpan: General Studies- Indian Economy, 2014.
6. Ruddar Datt & K.P.M Sundaram: Indian Economy, 70th Revised Edition, 2015.
– Dr. K. Mohan Reddy, KU.
54
UNIT-5: POVERTY AND INCOME INEQUALITIES IN
INDIA
Contents
5.0 Objectives
5.1 Introduction
5.2 The Concept of Poverty
5.2.1 Types of Poverty
5.2.2 Incidence of Poverty in India
5.2.3 The Poverty Gap Index
5.2.4 Causes of Poverty
5.2.5 Consequences of Poverty
5.2.6 Remedial Measures to Reduce the Poverty
5.3 Income Inequalities in India
5.3.1 Causes of Income Inequalities
5.3.2 Remedial Measures
5.4 Nexus between Poverty and Income Inequalities
5.5 Summary
5.6 Check Your Progress – Model Answers
5.7 Model Examination Questions
5.8 Glossary
5.9 References

5.0 OBJECTIVES
This unit primarily deals with the twin problems of our country -poverty and income
equalities. After reading this unit, you will be able to:
● define the concept of poverty and its nature.
● analyse the causes, consequences of poverty and remedial measures.
● explain the magnitude of poverty in India.
● identify the nature, causes, consequences, remedial measures of income inequalities.
and
● describe the nexus between poverty and income inequalities.

5.1 INTRODUCTION
Poverty and income inequalities are the twin problems which the country has been
facing since the beginning of the 20th century. These problems have aggravated since the middle
55
of the 20th century owing to increase in population at a high rate and growing the problem of
unemployment. It is only since the last 40 years that some serious attempts have been made to
reduce the incidence of poverty, income inequalities and the unemployment in the economy of
the country.

5.2 THE CONCEPT OF POVERTY

Poverty can be defined as a social phenomenon in which a section of the society is
unable to fulfill even its basic necessities of life. When a substantial segment of a society is
deprived of minimum level of living and continues at a bare subsistence level, that society is
said to be plagued with mass poverty. Rangarajan panel has suggested to the government that
those spending more than Rs.972 a month in rural areas and Rs. 1,407 a month in urban areas
in 2011-12 do not fall under the definition of poverty. Thus, for a family of five, the all-India
poverty line in terms of consumption expenditure, as per the Rangarajan committee, would
amount to Rs. 4,760 per month in rural areas and Rs. 7,035 per month in urban areas. If calculated
on a daily basis, this translates into a per capita expenditure of Rs. 32 per day in urban areas in
2011-12. As per the Tendulkar methodology for 2011-12, the poverty line was Rs. 816 in rural
areas and Rs. 1,000 in urban areas, which if calculated on a daily basis come out at Rs. 27 per
day in rural areas and Rs.33 in urban areas. The Tendulkar committee had pegged this at Rs.
4,080 and Rs. 5,000.
The countries of the Third World exhibit invariably the existence of mass poverty. Attempts
have been made in all societies to define poverty, but all of them are conditioned by the vision
of minimum or good life obtaining in society. There are two types of poverty common in
economic literature; the absolute poverty and the relative poverty.

5.2.1 Types of Poverty

1. Absolute Poverty: In the absolute standard, minimum physical quantities of cereals, pulses,
milk, butter etc are determined for a subsistence level and then the price quotations are converted
into monetary terms for 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 considered to be the absolute poverty or a person whose
income or consumption expenditure is so meager that he lives below the minimum subsistence
level is called absolute poverty. In this regard, it is pertinent to make a mention about this type
of poverty in term calories. As per the Indian Council of Medical Research, these physical
quantities should lead to the provision of 2,400 calories per capita for the rural areas and 2,100
calories per capita in urban areas.
2. Relative Poverty: According to the relative standard, income distribution of the population
in different fractile groups is estimated and a comparison of the levels of living of the top 5 to
10 per cent with the bottom 5 to 10 per cent of the population is called relative poverty, or those
who are in the lower income groups receive less than those in the higher income groups. The
people with lower incomes are relatively poor compared with higher incomes, even though
they may be living above the minimum level of subsistence and hence it is known as relative
poverty.
56
 It is the absolute poverty with which we are concerned when we talk of the problem of
poverty in India. Advanced countries such as the USA, UK, have succeeded in removing absolute
poverty for their people, but relative poverty, prevails even in these countries because of uneven
distribution of income.

5.2.2 Incidence of Poverty in India

The Planning Commission has provided estimates of the incidence of poverty since the
early 1970s. As stated earlier, it determined the poverty line for rural population at Rs.49.63
(at 1973-74 prices) per capita per month while for urban population, poverty line was fixed at
Rs.56.64 per capita per month. These poverty lines have been updated over time keeping price
changes in view. Estimates for the years 1973-74, 1983-84 and 1993-94 are presented in Table-
5.1 along with poverty lines in these years.

Table-5.1: Percentage of Population Below the Poverty Line

Areas 1973-74 1983-84 1993-94 2011-12
Poverty Percentage Poverty Percentage Poverty Percentage Poverty Percentage
line (‘) of persons line (‘) of persons line (‘) of persons line (‘) of persons

Rural 49.63 56.4 89.50 45.7 205.84 37.3 816.0 25.70

Urban 56.64 49.0 115.65 40.8 281.35 32.4 1000.0 13.70

Combined - 54.9 - 44.5 - 36.0 - 21.92

Source: RBI, Hand book of statistics on the Indian Economy, 2018-19.

According to this Table, more than half of the population was below the poverty line in
1973-74. Over the two decade period 1973-74 to 1993-94, there was a perceptible decline in
the incidence of poverty – from 54.9 per cent in 1973-74 to 35.6 per cent in 1993-94. However,
in view of the fact that the population had increased considerably over the period, it can be
safely concluded that the absolute number of poor people did not decline.

Poverty Estimates Based on 61st Round of the NSSO

The 61st Round of the NSSO provides estimates on poverty for the year 2004-05 on the
basis of two methods 1) URP (Uniform Recall Period) and 2) MRP (Mixed Recall Period).
While the consumption data for URP uses 30-day recall/reference period for all items of
consumption, the consumption data for MRP uses 365-day recall/reference period for 5
infrequently purchased non-food items, namely, clothing, footwear, durable goods, education
and institutional medical expenses and 30-day recall/reference period for remaining items.
Data on the basis of both the methods are presented in Table-5.2.

Table-5.2: Poverty Estimates Based on 61st NSSO Round (Year 2004-05)

Reference period All India Rural Urban
Uniform Recall Period (URP) method
Mixed Recall Period (URP) method 27.521.8 28.321.8 25.721.7
Source: Economic Survey, 2007-08.

57
 According to the 61st Round of NSSO, the poverty ratios for the country as a whole in
2004-05 were 27.5 per cent on the basis of URP and 21.8 per cent on the basis of MRP. Poverty
ratio for rural India is considerably higher than the poverty ratio for urban areas on the basis of
URP while it is almost the same on the basis of MRP.

Poverty Estimates Based on 68th Round of the NSSO

On July 22, 2013, the planning commission released the estimates of poverty for the
year 2011-12 computed from the 68th Round NSSO (2011-12) data on household consumer
expenditure survey. The poverty line has been defined at Rs. 27.20 per capita per day for rural
areas and R. 33.33 per capita per day for urban areas (this translates to Rs. 816 per capita per
month in rural areas and Rs. 1,000 per capita per month in urban areas). On this basis, 21.9 per
cent of the population was below poverty line in 2011-12 (25.7 per cent in rural areas and 13.7
per cent in urban areas).

5.2.3 The Poverty Gap Index

The poverty gap index is defined by the mean distance below the poverty line expressed
as a proportion of that line (where the mean is formed over the entire population, counting the
non-poor as having zero poverty gap). The poverty gap thus measures the transfer that would
bring the income of every poor person exactly up to the poverty line, thereby eliminating the
poverty. In this way the poverty gap reflects the depth of poverty, as well as its incidence. The
poverty gap index is calculated with the help of the following principle.
Poverty line - Average consumption expenditure of the poor
Poverty Gap =
Poverty line
Human Development Report 1997 introduced a Human Poverty Index (HPI) in an attempt
to bring together in a composite index the different features of deprivation in the quality of life
to arrive at an aggregate judgement on the extent of poverty in a community. Human Development
Report 2010 introduced the concept of Multidimensional Poverty Index (MPI) to replace HPI.
The MPI is the product of the multidimensional poverty head-count (the share of people who
are multi-dimensionally poor) and the average number of deprivations each multi-dimensionally
poor household experiences (the intensity of their poverty). It has three dimensions mirroring
the HDI – health, education and living standards – which are reflected in 10 indicators.

5.2.4 Causes of Poverty

The causes of poverty in India are as follows:
1. Concentration of Economic Power: In India, the income gap has a significant urban-rural
bias and these income differences have increased over the 1990’s. Consequently, the phenomenon
observed in the Indian economy is: It has started growing; the rich are reaping the benefits of
development. The poor are disillusioned since the benefits do not percolate to raise their level
of living. Thus, inequalities in income and wealth, concentration of economic power were the
reasons for the rich becoming richer and poor becoming poorer.
2. Under-exploitation of Natural Resources: To improve the standard of living of the people

58
in the country, it is essential that one should achieve higher rate of growth in national income.
To increase the national income, the natural resources in the country must be fully and profitably
exploited. In our country there is under-exploitation of natural resources. River water, forest
wealth, mineral wealth of the country has not been fully utilized. Therefore, inspite of 60 years
of planning experience, still 19.3 per cent of the population live below the poverty line.
3. Heavy Population Pressure: The main problem in India is the high level of birth rates
coupled with a falling level of death rates. The average annual growth rate of population from
1951-2001 was 2.1 per cent. The fast rate of growth of population necessitates a higher rate of
economic growth in order to maintain the same standard of living of the population. To maintain
a rapidly growing population, the requirements of food, clothing, shelter, medicine, schooling
etc., rise. Moreover, a growing population leads to an increase in the labour force and creates a
higher supply of labour than its demand leading to unemployment and poverty. A high growth
rate of population and low growth rate of national income will bring down the per capita
income, which means the per capita expenditure will also come down. This means an increase
in poverty.
4. Unemployment: In India, labour is an abundant factor and consequently, it is very difficult
to provide gainful employment to the entire working population. Unemployment is structural
and results in deficiency of capital. The Indian economy does not find sufficient capital to
expand industries to such an extent that the entire labour force is absorbed. This results in the
unemployment and poverty in the country. With an increase in the number of unemployed
persons, the incidence of poverty also increases.
5. Poor Education: Another major cause of poverty is the low educational attainments of the
poor. These educational differentials are one of the main factors for relatively lower levels of
income among the poor. Poor parents are not able to help their children to reach higher
educational levels. There is a direct relationship between earnings and level of education. The
earnings of arts, science, commerce graduates were nearly six times as compared with those of
illiterates and 3.5 times as compared with those with primary level education.
6. Low Availability of Essentials: Another important cause of poverty in India is the low
availability of essential commodities. The consumer goods shortage is responsible for low
level of standard of living. There is a wide disparity in the consumption levels of the top rich
and the bottom poor.
7. Inflation: Rising prices are another cause of poverty. When prices rise, the purchasing
power of money falls and it leads to impoverishment of the lower middle and poorer sections of
the society. Thus, the inflationary pressures further increase the poverty in the country.
8. Low Technology: Low level of technology is also responsible for the poverty in India. Not
only in manufacturing processes and agricultural production, techniques are far below the
developed economies, but even marking skills, the capacity to organize production units, and
financial markets are at low level. As a result of low technology, per capita productivity remains
at a low level. The return on capital employed and income fail to raise to the desired extent for
a higher rate of capital formation thereby keeping the economy in the rate of poverty.

59
9. Capital Deficiency: The development of the economy depends on capital formation in the
country. In India, most of the people are illiterate, unskilled, use outmoded capital equipment
as methods of production. They practice subsistence farming, lack mobility and have little
connections with the market sector of the economy. This marginal productivity is extremely
low. Low productivity leads to low real income, low saving, low investment and to a low rate of
capital formation. In real terms it is much below the level required for the rapid growth in the
economy.
10. Failure of Five Year Plans: The basic objective of planning is the provision of a national
minimum of level of living. The Garibi Hatao (Remove Poverty) slogan of Mrs. Indira Gandhi
could be provided a meaningful content only if measures were taken to remove poverty. It was
felt that the growth rate that we have achieved during the five decades of planning would not be
sufficient, to remove poverty and, instead, it would be more desirable to undertake specific
measures to remove poverty. Thus, poverty removal programmes were made an integral part of
the Fifth Plan and subsequent plans.
11. Liberalisation, Privatisation and Globalisation Model of Development: This model
bypasses agriculture and agro-based industries which are a major source of generation of
employment for the masses. The model emphasized a capital intensive pattern of development
and there are serious apprehensions about employment potential. It is being made out that it
may cause unemployment in the country. This strategy has less trickledown effect on the
economy; therefore, poverty may increase in the country.
12. Social Factors: In India, people are caught in the vicious circle of the poverty due to the
prevalent socio-cultural institutions. In order to fulfill social obligations and observe religious
ceremonies from cradle to grave; people spend extravagantly. With low level incomes, they
either dissave or borrow. Since savings are negligible, the chances of borrowing are much
greater. The high level of indebtedness is both the cause and effect of poverty. Besides, illiteracy,
ignorance, religious ideas, casteism and joint family system prevented people from adopting
modern ideas and techniques whereby they could increase their income and keep the wolf of
poverty off their doors.

5.2.5 Consequences of Poverty

Poverty of any kind causes serious repercussions on the social, economic and political
life of a country. In fact, poverty generates vicious circles which were started during the earlier
phases of development. The entire society is divided into two classes as of haves and have
nots, where have nots constitute a considerable section of the population. The haves enjoy all
facilities of luxuries but have nots are totally deprived of even the basic needs of life such as
food, cloth and shelter. The adverse effects of the problem of poverty are mentioned hereunder:
1. Unequal opportunities: Generally, haves avail all better opportunities with the aid of money
and supremacy of resources while the poor class always remained deprived off even the basic
needs. Consequently, the poor are more severely affected.
2. Concentration of economic power: Another far-reaching consequence of poverty is that it
leads to the concentration of economic power in a few pockets. The rich people make use of
their economic powers to attain the political power.
60
3. Inefficiency: Due to the prevalence of the poverty, the poor do not get opportunities of
education and other specialized training. Thus, they fail to widen their mental and physical
horizon which greatly affects the efficiency of the work and lessen their capabilities. Without
proper understanding and skill, there is overall inefficiency in the production process.
4. Problem of unemployment: The problem of poverty leads to the problem of unemployment
in the country as the poor do not have many opportunities to employment. All big assignments
get the favour of rich in society. Unemployment hinders a country from developing into a
strong economic system. A high unemployment rate can impede a country from progressing in
all aspects.
5. Income Inequalities and Insecurity: The problem of poverty leads to the growth of income
inequalities. Further, it creates the feeling of insecurity.
6. Society: Poverty also has social effects. Many people living in poverty are homeless, which
puts them on the streets. There also seems to be a connection between poverty and crime.
When people are unemployed and homeless, social unrest may take over and lead to increases
in crime. When people have nothing and no money to buy necessities, they may be forced to
turn to theft in order to survive. Homelessness and high crime rates impact a country’s people
and can create many problems within a society.
7. Malnutrition: The most common effect of poverty is malnutrition. This is especially seen in
children of poor families. People living in poverty rarely have access to highly nutritious foods.
Even if they have access to these foods, it is unlikely that they are able to purchase them. The
healthiest foods are usually the most expensive; therefore, a family on a very small budget is
much more likely to purchase food that is less nutritious, simply because that is all they can
afford. Sometimes people in poverty are malnourished simply because they do not eat enough
of anything.
8. Health: One of the most severe effects of poverty is the health effects that are almost always
present. This ranges from occurrence of diseases to lesser life expectancy and a greater
expenditure on medicine. Diseases are very common in people living in poverty because they
lack the resources to maintain a healthy living environment. They are almost always lacking in
nutritious foods, which decreases their bodies’ ability to fight-off diseases. Sanitation conditions
are usually very low, increasing the chance of contracting a disease. Sometimes these diseases
can be minor, but at other times they can be life-threatening. In general, people living in poverty
cannot afford appropriate health care to treat these illnesses.
9. Education: Education is largely affected by poverty. Many people living in poverty are
unable to attend school from a very early age. Families may not be able to afford the necessary
clothing or school supplies. Others may not have a way for their children to go to school.
Whatever the reason, there is a clear correlation between families living in poverty and their
lack of education. Without the ability to attend school, many people remain illiterate.

5.2.6. Remedial Measures to Reduce the Poverty

Since poverty and unemployment are inseparable, the policy measures for reducing
unemployment are equally applicable for the removal of poverty. In 1950’s and 1960’s Indian
61
planners believed in the trickle-down theory. According to this view, poverty alleviation was
a gradual and automatic process as the economy grew. So emphasis was on increasing the
growth rate of the economy. Unfortunately, the trickle-down theory failed to eradicate poverty,
rather poverty increased over the years. This led the planners to adopt four broad categories of
programmes in stages for poverty alleviation.
1. Resource and Income Development Programmes: A number of programmes have been in
operation in the country, since 1970, and some are introduced recently. They aim at improving
the economic conditions of the rural poor is to increase their income. Special programmes in
this category are Small Farmers and Development Agency(SFDA), Marginal Farmers and
Agricultural Labour Agency (MFAL), Integrated Rural Development Programme (IRDP) etc.
were introduced to develop the resources and incomes of the rural poor.
2. Special Area Development Programmes: In this category are included such programmes
as Drought Prone Area Programme (DPAP), Desert Development Programme (DDP), Hill
Development Programme were aimed at forestry, dairy development to raise the incomes of the
weaker sections of the society.
3. In the third category are included such Employment Generation or National Rural
Employment Generation Programmes as National Rural Employment (NREP) Rural Landless
Employment (TRYSEM) and the Food for Work Programme (FWP), Prime Minister Integrated
Urban Poverty Eradication Programme (PMIUPEP) which aim at creating supplementary
employment to the poor. The NREP is rechristened as MGNREGP (Mahatma Gandhi National
Rural Employment Generation Programme).
4. The fourth category includes minimum needs programme, 20 point programme which
aim at improving the consumption levels of the poorer sections in order to raise their productive
efficiency. This includes the elementary education, health, water supply, roads, electrification,
housing, and nutrition to both rural and urban poor.
In recent years, a two pronged strategy was introduced by the Government towards a
solution to the problem of poverty in India viz; 1. The expansion of sectors which promise
higher labour absorption; and 2. Empowering the poor with education, skill formation and
health so that they can enter into the sectors which require higher competence and provide
better remuneration which enable the poor to cross the poverty line.
Amartya Sen’s entitlement approach emphasises the above aspects. Various strategies
have been utilized at the Central and State level to eradicate poverty. Some of the important
strategies have been mentioned to indicate how the State countered the severity of existence of
poverty in the country. They are: i. Adoption of a Strategy of Pro-Poor Growth Instead of
Emphasizing Liberalisation and GDP Growth; ii. Stimulating Agricultural Growth; iii. Increasing
the Productivity and Job Quality of the Un-organised Sector; iv. Improving the Share of Wages
in the Process of Growth to Achieve Poverty Reduction; v. Empowerment of the Poor through
Education and Skill Formation; vi. Empowerment through Provision of Better Health; vii.
Empowering the Poor through Provision of housing; viii. Empowerment through Skill Formation
for Expanding IT Sector; and ix. Providing Employment through NREGP.

62
 By and large, from the preceding analysis, it can be said that poverty reduction requires
a pro-poor strategy of growth which implies creation of more and more productive employment
opportunities in the sectors which help the poor to raise their level of income.

Check Your Progress.

Note: a) Space is given below for utilizing your answer.
b) Compare your answer with the one given at the end of the unit.
1. Define the concept of “Poverty Gap”.
...........................................................................................................................................
2. What do you mean by “Poverty Line”.
........................................................................................................................................
3. Distinguish between absolute poverty and relative poverty.
........................................................................................................................................
4. Bring out the consequences of the problem of poverty.
........................................................................................................................................

5.3 INCOME INEQUALITIES IN INDIA

In India, there is no official organisation to compile data on income distribution. In
1960, the Committee on Distribution of Income and Levels of Living under the chairmanship
of P.C. Mahalanobis was appointed to look into the question of distribution of income. Since
then a similar attempt has not been made again. However, the National Council of Applied
Economic Research (NCAER) and some individual researchers have examined the pattern of
income distribution in India at different points of time. They are good enough to provide a
reasonably clear picture of the income distribution. Besides income distribution data, another
way to capture inequalities is by using expenditure data. Estimates of household expenditure
for 1980’s, 1990’s, 1995’s, 2000’s, 2005’s and 2010’s are provided in Table-3.6. According to
these estimates, between 1980’s and 1990’s there seems to be some improvement in the
distribution of household expenditure. In this period while the share of the lowest 40 per cent
in household expenditure increased from 21.3 per cent to 21.7 per cent, that of the highest 20
per cent decreased from 41.3 per cent to 39.3 per cent. However, thereafter, the distribution of
consumption expenditure became more inequitable. These were the years of liberalisation policy.
In these years, the share of the highest 20 per cent population rose from 39.3 per cent in 1995’s
to 43 per cent in 2010, while the share of the top 10 per cent rose from 25.0 per cent to 29 per
cent. The ratio of the expenditure share of richest 10 per cent to that of the poorest 10 per cent
of the population in 2010 was as high as 7.3. Economists use Gini Index to measure the overall
changes in income distribution. The Gini Index in 2010 was 34 which is considered to be on the
higher side, reflecting increasing expenditure inequalities. The Indian Human Development
Survey 2004-05, includes income data and makes it possible to estimate the Gini coefficient of
per capita income in India, which turns out to be 0.54 (much higher than the value of 0.35 or so
that typically emerge from per capita expenditure data). This suggests, as a World Bank study
63
concludes that ‘inequality in India appears to be in the same league as that in Brazil and South
Africa, both high inequality countries. Hence the general belief that income distribution in
India is less unequal than in many of the other developing countries is very seriously open to
question. It may also be pointed out here that income inequalities are generally much greater
than expenditure inequalities (given in the Table-3.6), because, whereas the first and second
quintile groups of households constituting the households below the poverty line do only
negligible savings, it is the highest 20 per cent households that do most of the savings. Further,
there has been a significant increase in the savings of the household sector since 1983 which
reflects a rapid increase in the income of the highest 20 per cent.
The latest data on income inequalities is available from 68th Round of NSSO for the
year 2011-12. According to these data, the monthly per capita expenditure (MPCE) of the
poorest 10 per cent of the rural population rose by 11 per cent during 2011-12 compared with
the 66th round for the year 2009-10. As against this, the richest 10 per cent population increased
by as much as 38 per cent over the same period. In urban India, the growth was 17.2 per cent
and 30.5 per cent respectively over the same period. As far as ratio between MPCE of the top
10 per cent to the bottom 10 per cent is concerned, this ratio rose from 5.8 in 2009-10 to 6.9 in
2011-12 for rural areas.

Table-5.2: Percentage Share of Household Expenditure by

Percentile Groups of Households
Percentile Groups of Households 1980’s 1990’s 1995’s 2000’s 2005’s 2010’s
Lowest 20 per cent 8.1 8.8 9.2 8.1 8.6 9
Second Quintile 12.3 12.5 13.0 11.0 12.2 12
Third Quintile 16.3 16.2 16.8 15.0 15.8 16
Fourth Quintile 22.0 21.3 21.7 19.3 21.0 21
Highest 20 per cent 41.4 41.3 39.3 46.1 42.4 43
Highest 10 per cent 26.7 27.1 25.0 33.5 28.3 29
Source: The World Bank, Various World Development Reports of 1992, 1993, 1997, 1999/
2000, 2012 & 2013.
A report on income inequality in different countries released by OECD in December
2011 has pointed out that inequalities in earnings in India have doubled over the past two
decades (which is the period of economic reforms) making it one of the worst performers on
this count among emerging economies. According to the report, the top 10 per cent of wage
earners make 12 times more than the bottom 10 per cent, compared to six times 20 years ago.
The massive income inequalities that presently exist in the Indian economy are further highlighted
by the fact that India’s richest 100 had a combined net worth of as high as Rs.12,06,375 crore
in 2011 which was almost 17 per cent of India’s GDP of Rs. 71,57,412 crore in 2010-11.

5.3.1 Causes of Income Inequalities

The foregoing evidence candidly shows that there are glaring income inequalities in
India. The main reasons for these inequalities are as given here under:
64
1. Inequalities in Land Ownership: There was concentration of landed property in India during
the British period on account of the Zamindari system. The Zamindari system was abolished
immediately after Independence, yet the concentration of land ownership could not be broken.
Even as late as in 2010-11, 67 per cent of total operational holdings were marginal holdings (less
than one hectare in size) but area operated under them was just 22.2 per cent (with average
holding size being just 0.38 hectare). If we consider marginal and small holdings together (with
area less than 2.0 hectare), we find that as many as 84.9 per cent holdings in 2010-11 fell in this
category but they operated only 44.3 per cent area. As against this, large holdings (area 10 and
above hectares) were only 0.7 per cent of the total holdings but operated 10.9 per cent of the total
cultivated area (average size of such holdings being as large as 17.37 hectares).
2. Concentration of Assets in the Private Corporate Sector: There is an extreme concentration
of economic wealth and power in the hands of large industrialists and they have succeeded in
acquiring massive assets over time. They have been aided in their efforts by the easy availability
of finance from banks and other financial institutions, besides equity capital which they raise
from the market. The evidence on the concentration of assets in the private corporate sector
indicates that in the two-decade period from 1951 to 1971, only between 1958 and 1964 share
of certain (comparable) monopoly groups in the total assets of the private sector did not rise. In
the remaining fourteen years, there was a clear trend of assets concentration. Between 1971
and 1975 it seems that the share of these monopoly groups remained constant.
A survey conducted by NCAER for the year 1975-76 indicated that the distribution of assets in
urban areas was very much skewed. In this year, the top 10 per cent had accounted for 46.28 per
cent of the total wealth in urban areas as against a mere 11.67 per cent wealth being in possession
of the bottom 60 per cent. A survey conducted by the National Sample Survey for the year
1981-82 also indicated a highly skewed distribution of tangible assets in urban areas. This
pattern of assets distribution has enabled the industrialists, traders, transporters and owners of
urban property to prosper over the years.
3. Inequalities in Professional Training: Incomes of business executives, engineers,
information technologists, physicians, lawyers and other professionals are often high and from
this fact it emanates the false notion that income inequalities arise from professional competence
or lack of it. On superficial consideration, this may look convincing, but the truth is otherwise.
In a class society like ours, training required for professional competence is not available to all.
Only children belonging to elite families have access to higher and professional education.
Sons and daughters of agricultural labourers, industrial workers and socially handicapped like
tribals and dalits cannot hope to get this education. Therefore, even the education and training
which perpetuate inequalities in income distribution in this country has their roots in unequal
distribution of wealth and private property.
4. Inflation and the Price Rise: Since the mid-1950s prices have been rising continuously
eroding the real income of the working class, while the industrialists, traders, and farmers with
large marketable surplus have benefited a great deal from this inflationary process. In India,
very little has been done to offset this redistributive effect of inflation, and as a result it has
greatly accentuated income inequalities.

65
5. Inequity in Credit Facilities: In India, there is inequity in credit facilities which accentuates
the inequalities arising from an unequal distribution of wealth. Business firms and individuals
having an access to the formal capital markets manage to obtain finance on very favourable
terms, while vast mass of small and marginal farmers, agricultural labourers and artisans depend
heavily on moneylenders who charge an exorbitant rate of interest and also exploit these poor
people in a number of ways.
6. Urban Bias in Private Investment: While 70 per cent of the population in this country
lives in rural areas, about 70 per cent of private investment goes to industries in urban areas.
Therefore, there is a distinct ‘urban bias’ in the pattern of private investment. This urban bias
takes the form of highly mechanised projects in which the share of wages in value added is
relatively low. This naturally leads to inequality in income distribution.
7. The Role of the Government: Though the State is often proclaimed as a precursor and
initiator of economic change in India, the fact is that the State investment essentially plays a
supportive role to private investment (especially the large and capital-intensive enterprises). This
is due to the fact that the State depends for its support on the same social forces which own the
wealth of the country and supply the technicians, administrators and the dominant political groups.

5.3.2 Remedial Measures to Overcome the Problem of Income Inequalities

In the earlier phase of economic planning, elimination of inequalities in income
distribution was one of the proclaimed objectives of the government in this country. Plan
documents and policy declarations of the State from time-to-time indicated various measures
remedial measures to overcome the problem of income inequalities. Some of them are as follows:
1. Land Reforms and Redistribution of Agricultural Land: It is a well-known fact that
income inequalities in the rural sector emanate mainly from the concentration of agricultural
land. Before the abolition of the Zamindari system most of the land belonged to the absentee
landlords who appropriated a large portion of the agricultural production while the tiller of the
soil got hardly enough for subsistence. Thus, legislative measures were undertaken to abolish
landlords and other intermediaries and ceilings on holdings were fixed. Serious attempts to
carry out these reforms would have broken the concentration of agricultural land. But
unfortunately not only the legislative measures to carry out land reforms were inadequate and
defective; their implementation was also scuttled at various levels. As a consequence, even
now about 40 per cent of the agricultural land belongs to top 5.0 per cent of the rural households.
2. Control over Monopolies and Restrictive Trade Practices: Control of monopoly tendencies
is considered necessary for reducing income inequalities. However, for more than two decades
after this country got Independence virtually nothing was done to prevent the growth of
monopolies. The Monopolies and Restrictive Trade Practices Act was passed as late as 1969.
Now with the increasing stress on liberalisation in the industrial sector, it is very likely that
with more and more mergers and acquisitions, monopoly trends are further strengthened and
economic disparities increase.
3. Employment and Wage Policies: Until the Fourth Five Year Plan, the employment objective
was not taken seriously. However, since the beginning of the Fourth Plan some special

66
programmes were undertaken such as the Crash Scheme for Rural Employment, the Drought
Prone Areas Programme, self-employment schemes for engineers, employment schemes for
educated unemployed, Food for Work Programme and so on. These programmes were short-
lived as they were undertaken in an ad hoc manner. The Integrated Rural Development
Programme (IRDP) was started in 1978-79 and extended to the entire country during the Sixth
Plan period. The Integrated Rural Development Programme, the National Rural Employment
Programme (NREP) and the Rural Landless Employment Guarantee Programme (RLEGP)
aimed at providing employment to the rural poor with a view to eliminating poverty in the
countryside. On April 1, 1989, the NREP and the RLEGP were merged into the Jawahar Rozgar
Yojana. No doubt, these attempts were in the right direction, but the experience at the
implementation level was very disappointing. The IRDP and allied programmes such as Training
of Rural Youth for Self-Employment and Development of Women and Children in Rural Areas
have been restructured into a single self-employment programme called Swarnajayanti Gram
Swarozgar Yojana (SGSY) from April 1999. The JRY has been rechristened and renamed as
Jawahar Gram Samridhi Yojana (JGSY) with effect from April 1999. The UPA government at
the Centre introduced Mahatma Gandhi National Rural Employment Guarantee Scheme
(MGNREGS). This is the most ambitious scheme introduced in the post-Independence period
to alleviate poverty.
4. Social Security Measures: Although the country does not have a comprehensive social
security system, yet there are some social security provisions which are expected to help the
workers in the organised sector. For example, the Workmen’s Compensation Act entitles
industrial workers to compensation in case of injury resulting in death, disability or disease
while on duty. Similarly, the Maternity Benefit Act regulates the employment of women workers
for certain periods before and after child birth and the Employees’ Provident Fund Act entitles
workers employed in organised industries to the benefit of provident fund. The most
comprehensive social security measure, however, is the Employees State Insurance Act which
entitles the insured workers to medical benefits, disability benefit, benefits for the period of
sickness, maternity benefit and benefits to dependents. All these measures make a frontal attack
on poverty and thereby reduce income inequalities. Unfortunately, these measures have not
been introduced in India as yet.
5. Minimum Needs Programme: Since the beginning of the 1970s, a very influential section
of development economists has started asking for the pursuit of the minimum needs programme
in developing countries. They assert that the benefits of growth do not automatically percolate
downwards and thus less developed countries have no choice except to pay direct attention to
the basic needs of the people at the lowest strata of the society. They further argue that it would
be wrong to believe that there is necessarily a conflict between the two objectives, viz., the
basic needs and growth. Since the Sixth Five Year Plan the government has been providing free
or subsidised services through public agencies which are expected to improve the consumption
levels of those living below the poverty line and thereby improve the productive efficiency of
both the rural and urban workers.
6. Programmes for the Uplift of the Rural Poor: The hardcore of the poverty is to be found
in the rural areas. The poorest sections in the rural areas belong to the families of landless
67
agricultural labourers, small and marginal farmers, rural artisans, Scheduled Castes and
Scheduled Tribes. In order to raise income of these categories of rural poor, broadly the following
three types of programmes have been undertaken: (i) Resource and income development
programmes for the rural poor, (ii) Special area development programmes, and (iii) Works
programmes for the creation of supplementary employment opportunities.
7. Taxation: Looking at the taxation structure and the degree of progression in the rates of
direct taxes one gets the impression that the Indian tax system is progressive and has been
designed to prevent concentration of wealth in a few hands.

Check Your Progress.

5. Bring out the causes for the problem of income inequalities in India.
..........................................................................................................................................
6. State the remedial measures to overcome the problem of income inequalities in India.
..........................................................................................................................................

5.4 NEXUS BETWEEN POVERTY AND INCOME INEQUALITIES

The Nobel Laureate Simon Kuznets published a paper on “Economic Growth and Income
Inequality”. The paper was largely based on speculation and its empirical content was very
little. Even so his speculation appears to be valid. He said that in the early phases of development
and industralisation, income inequalities tend to widen in the underdeveloped countries. One
important factor for the observed inequalities is dualism. Underdeveloped countries are
characterized by significant dualism. For the same commodity, same labour or same capital,
wages, prices or interest rates differ from sector to sector or industry. Side by side, technologically
and institutionally backward and modern coexist. Other important factors for the continued
inequalities are structural deficiencies, wrong pattern of investment and policies of the
government. With this background, we now inquire into the relation between income inequalities
and poverty.
In reality, it is observed that often poverty and inequalities go together. It means, higher
the degree of inequalities, greater is the intensity of poverty. However, theoretically inequalities
and poverty are un-correlated. There can be perfect equality in incomes but with much poverty.
This is the case when an economy is growing slow and the size of the national income is small
compared to the population. Also, it is quite possible that there can be no poverty but high
inequalities. In many industrial advanced countries, absolute level of poverty is almost equal to
zero but the inequalities are sizeable. From this, it can be concluded that to abolish poverty
more redistribution of income is not sufficient when the national cake is small. As a first step
growth of the economy is to raised. At the same time, distribution of income should be in
favour of the poor through policy instruments. Theoretically, it is quite possible to achieve
growth with social justice. It means along with increasing investment, production, income and
employment, poverty can be minimized by choosing a proper mix of investment projects and
technologies of production.

68
5.5 SUMMARY
The various measures supposedly undertaken by the government have made little impact
on poverty, and thus income inequalities perpetuate in their ugliest form. In this country, although
rich and poor, literate and illiterate, men and women, all participate in electing the government,
yet the power always remains in the hands of the capitalists, landlords and rich farmers. Under
these circumstances, one should not expect any positive approach from the government for the
elimination of economic disparities. However, if the employment generation programmes
currently being undertaken by the government succeeds, more employment opportunities are
likely to be created. This might help somewhat in reduction of poverty. But, income inequalities
are not likely to decline. They can decline only if strong and effective redistributive policies
are implemented by the government. Such policies would include changes in distribution of
assets, direct redistributive transfers, increased spending on health and education and creation
of quality jobs and social safety nets for the poor and vulnerable.
Poverty can be defined as a social phenomenon in which a section of the society is
unable to fulfill even its basic necessities of life. There are two types of poverty- absolute
poverty and the relative poverty. Concentration of economic power, under exploitation of
natural resources, heavy population pressure, unemployment and poor education are the
important causes for the problem of poverty in India. Since poverty and unemployment are
inseparable, the policy measures for reducing unemployment are equally applicable for removal
of poverty. Planners adopted four broad categories of programmes for the poverty alleviation
– resources and income development programmes for the rural poor; special area development
programmes; work programme for the creation of supplementary employment opportunities;
and the minimum needs programme to improve the consumption levels of the poor in order to
raise their productive efficiency.

5.6 CHECK YOUR PROGRESS – MODEL ANSWERS

1. The poverty gap index is defined by the mean distance below the poverty line expressed
as a proportion of that line (where the mean is formed over the entire population, counting
the non-poor as having zero poverty gap).
2. The poverty line as the midpoint of monthly per capita expenditure class having a daily
calorie in take of 2400 per person in rural area and 2100 in urban area.
3. The population whose level of income or expenditure is below the figure considered to
be the absolute poverty or a person whose income or consumption expenditure is so
meagre that he lives below the minimum subsistence level is called absolute poverty.
The people with lower incomes are relatively poor compared with higher incomes, even
though they may be living above the minimum level of subsistence and hence it is known
as relative poverty.
4. The adverse effects of the problem of poverty are:- i. Unequal opportunities; ii.
Concentration of economic power; iii. Inefficiency; iv. Problem of unemployment; v.
Income Inequalities and Insecurity; vi. Society; vii. Malnutrition; viii. Health; and ix.
Education. 69
5. There are glaring income inequalities in India. The main reasons for these inequalities
are:- i. Inequalities in land ownership; ii. Concentration of assets in the private corporate
sector; iii. Inequalities in professional training; iv. Inflation and the Price Rise; v. Inequity
in Credit Facilities; vi. Urban Bias in Private Investment; and vii. The Role of the
Government.
6. The various remedial measures for reducing income inequalities are:- i. Land Reforms
and Redistribution of Agricultural Land; ii. Control Over Monopolies and Restrictive
Trade Practices; iii. Employment and Wage Policies; iv. Social Security Measures; v.
Minimum needs programme; vi. Programmes for the Uplift of the Rural Poor; and vii.
Taxation.

5.7 MODEL EXAMINATION QUESTIONS

I. Answer the following questions in about 10 lines each.
1. Examine the causes for poverty.
2. Explain the consequences of poverty.
3. Distinguish between absolute poverty and relative poverty.
4. Enumerate the poverty gap index.
5. Analyse the causes of income inequalities.
II. Answer the following questions in about 30 lines each
1. Define the concept of poverty and analyse the causes, consequences of the problem of
poverty.
2. Analyse the remedial measures to overcome the problem of poverty in India.
3. Examine the incidence of poverty in India.
4. Enumerate the causes for the problem of income inequalities.
5. State how do you reduce inequalities in the distribution of income and wealth?

III. One mark questions.

(A) Multiple choice questions.
1. Human Development Report 1997 introduced the concept of:
(a) Multidimensional Poverty Index (b) Absolute Poverty Index
(c) Relative Poverty Index (d) Human Poverty Index
2. The concept of Multidimensional Poverty Index (MPI) is introduced by:
(a) Human Development Report of 1997 (b) Human Development Report of 2010
(c) Human Development Report of 2008 (d) Human Development Report of 2014
3. Which one is not the consequence of poverty?
(a) Concentration of economic power (b) Problem of unemployment
(c) Equal opportunities for all the people in the society (d) Malnutrition
70
4. IRDP stands for:
(a) Indian Research and Development Programme
(b) Integrated Rural Development Programme
(c) International Research and Development Planning (d) None of the above
5. “Garibhi Hatao” slogan associated with the name of:
(a) Jawaharlal Nehru (b) Jaya Prakash Narayana
(c) Ambedkar (d) Indira Gandhi
Answers: 1) d; 2) b; 3) c; 4) b; 5) d.

B. Match the following:

A B
1. Absolute Poverty (a) The depth and incidence of poverty
2. Relative Poverty (b) 2010 Human Development Report
3. Poverty gap reflects (c) 1997 Human Development Report
4. Human Poverty Index (d) Income distribution of the population in different
fractile groups is estimated
5. Multidimensional Poverty (v) Measured in monetary terms for the physical
quantities Index
Answers: 1) e; 2) d; 3) a; 4) c; 5) b.

C. Fill in the blanks:

1. People having income below the ___________ are called poor.
2. The percentage of people living below the poverty line is known as ___________.
3. Economists use _________ index to measure the overall changes in income distribution.
4. The distribution of national income in India totally remained ____________ although
its volume. has grown sizeably.
5. The Expert Group under the chairmanship of ___________ revised the national poverty
line at 2004-05 prices.
Answers: 1) poverty line 2) head count ratio 3) Gini 4) inequal/unequal 5) Prof. S.D. Tendulkar.

5.8 GLOSSARY
1. Absolute Poverty: A person whose income or consumption expenditure is so meagre
that he lives below the subsistence level.
2. Relative Poverty: The people with lower income are relatively poor compared with
higher incomes, even though they may be living above the minimum level of subsistence.
3. Poverty Gap: Poverty line - Average consumption expenditure of the poor ÷poverty
line.

71
4. Poverty Line: The poverty line as the midpoint of monthly per capita expenditure class
having a daily calorie in take of 2400 per person in rural area and 2100 in urban area.

5.9 REFERENCES
1. Jean Dreze and Amartya Sen - An Uncertain Glory, India and its contradictions,
Allen Lane, 2013.
2. Lekhi, R.K: The Economics of Development and Planning, Kalyani Publishers, New
Delhi, 2003.
3. Misra & Puri - Economics of Development and Planning, Himalaya Publishing House,
New Delhi, 2005.
4. Misra & Puri - Indian Economy, 32nd Revised Edition, 2014.
5. Prathyogita Darpan - General Studies- Indian Economy, 2014.
6. Ruddar Datt & K.P.M Sundaram - Indian Economy, 70th Revised Edition, 2015.

– Dr. K. Mohan Reddy, KU.

72
UNIT – 6: UNEMPLOYMENT IN INDIA
Contents
6.0 Objectives
6.1 Introduction
6.2 The Concept of Unemployment
6.3 Types of Unemployment
6.4 Concepts of Unemployment
6.5 Estimates of Unemployment in India
6.6 Causes of Unemployment
6.7 Consequences of Unemployment
6.8 Remedial Measures to Overcome the Problem of Unemployment
6.9 Poverty Alleviation and Employment Generation Programmes in India
6.9.1 The Earlier Phase – Ad hocist Approach
6.9.2 The Latter Phase – Comprehensive Programmes
6.9.3 The Strategy of Poverty Alleviation and Employment Generation Programmes
6.10 Summary
6.11 Check Your Progress – Model Answers
6.12 Model Examination Questions
6.13 Glossary
6.14 Reference

6.0 OBJECTIVES
Among the three important problems, the two problems – poverty and income inequalities
had examined in the fifth unit. This unit primarily deals with another important problem of our
country i.e. unemployment. After having gone through this, you will be able to:
● substantiate the nature and magnitude of the problem of unemployment.
● know the different types of unemployment, causes and consequences.
● explain the remedial measures to overcome the problem of unemployment. and
● examine the poverty alleviation and employment generation programmes in India.

6.1 INTRODUCTION
The size of employment in a country depends to a great extent on the level of development.
Therefore, when a country makes progress and its production expands, the employment
opportunities grow. In India, during the past three decades the production has expanded in all
the sectors of the economy. In response to these developments the absolute level of employment
73
in absolute terms has increased. This has happened because during the first three decades of
economic planning, trend rate of growth was considerably lower than the targeted rate. Therefore,
jobs in adequate number were not created. Further, economic growth by itself does not solve
the problem of unemployment.

6.2 THE CONCEPT OF UNEMPLOYMENT

In broad sense a state of unemployment appears when a labourer does not obtain
employment opportunity despite his willingness to work on existing wage rate. India is a
developing economy where the nature of unemployment is entirely different from that of
developed nations. Lord J.M. Keynes diagnosed unemployment in developed economies to be
the result of a deficiency in effective demand. To Keynes such unemployment can be removed
from the economy by increasing effective demand. But in developing economies like India the
unemployment situation arises due to different reasons. These economies also face the problem
of inflation side by side with the unemployment.
Present unemployment problem in India is mostly structural in nature. Unemployment
can be broadly classified into (i) Rural Unemployment (ii) Urban Unemployment.
1. Rural Unemployment: In India the incidence of unemployment is more pronounced
in the rural areas. Rural unemployment is again of two kinds: (i) Seasonal Unemployment; and
(ii) Disguised Unemployment or Perennial Unemployment.
2. Urban Unemployment: It is of two types: (i) industrial unemployment; and (ii)
educated or middle class unemployment.

6.3 TYPES OF UNEMPLOYMENT

The different types of unemployment are as follows:
1. Structural Unemployment: This type of unemployment is associated with economic structure
of the country. When demand for labour falls short to the supply of labour due to rapidly
growing population and their immobility, the problem of unemployment appears in the economy.
Besides, due to growing population, rate of capital formation falls down which again limits the
employment opportunities. This type of structural unemployment is of long run nature. Indian
unemployment is basically related to this category of unemployment.
2. Under-Employment: Those labourers are under-employed who obtain work but their
efficiency and capability are not utilized at their optimum and as a result they contribute in the
production upto a limited level. A country having this type of unemployment fails to exploit the
efficiencies of their labourers.
3. Disguised Unemployment: A person does not contribute anything in the production process
or in other words, if he can be removed from the work without affecting the productivity
adversely, he will be treated as disguisedly unemployed. The marginal productivity of such
unemployed person is zero. Agriculture sector of underdeveloped/developing economies
possesses this type of unemployment on a large scale.
4. Open Unemployment: When the labourers live without any work and they don’t find any
work to do, they come under the category of open unemployment. Educated unemployment
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and unskilled labour unemployment are included in open unemployment. The migration from
rural to urban areas in search of work is very often found in India which is an example of open
unemployment.
5. Educated Unemployment: Even when a person who is educated/trained and skilled, fails
to obtain a suitable job suited to his qualifications, he is said to be educated unemployed.
Presently this type of unemployment has become a problem for developing economies,
particularly for India.
6. Frictional Unemployment: The temporary unemployment which exists during the period
of transfer of labour from one occupation to another is called frictional unemployment. It
arises due to the imperfections of labour market. Imperfections in labour market are reflected
in the ignorance of labour about job opportunities.
7. Seasonal Unemployment: Seasonal unemployment appears due to a change in demand
based on seasonal variations. Labourers do not get work round the year. They get employment
only in some seasons in the year. They get employment in the peak season of agricultural
activities and become unemployed when these activities are over. Indian agriculture ensures
employment for only 7-8 months and labourers remain unemployed in the remaining period.
This temporary type of employment gives birth to seasonal unemployment.
8. Cyclical Unemployment: The main cause of cyclical unemployment is the slackness in
business activities. This type of unemployment is generally witnessed in the developed countries.
9. Technological Unemployment: When the introduction of new technology causes
displacement of workers, it is called technological unemployment.
10. Non-Employment: The people who are working in their household activities or un-
organised sector in developing countries are treated as coming under non-employment category.

Check Your Progress.

Note: a) Space is given below for utilizing your answer.
b) Compare your answer with the one given at the end of the unit.
1. Define the concept of unemployment.
...........................................................................................................................................
2. Define the concept of disguised unemployment.
...........................................................................................................................................
3. What do you mean by structural unemployment?
..........................................................................................................................................

6.4 CONCEPTS OF UNEMPLOYMENT

A person working for 8 hours a day for 273 days of the year is regarded as employed on
a standard person year basis. On the basis of the recommendations of the Committee of Experts
on Unemployment Estimates set up by the Planning Commission, three estimates of
unemployment were generated in the 27th Round of NSS.
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i. 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 for 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.
iii. 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.
The usual status (US) unemployment rate is generally regarded as the measure of open
unemployment during the reference year; the current weekly status (CWS) unemployment rate
also measures chronic unemployment, but with reduced reference period of a week. The current
daily status (CDS) is considered to be a comprehensive measure of unemployment, including
chronic unemployment as well as under-employment, on weekly basis.

6.5 ESTIMATES OF UNEMPLOYMENT IN INDIA

During the 1951-2011 periods, population in this country increased at an alarming rate
of around 2.1 per cent per annum and with it the number of people coming to the labour market
in search of jobs also rose rapidly, whereas employment opportunities did not increase most of
the time correspondingly due to slow economic growth. Hence, there has been “an increase in
the volume of unemployment from one plan period to another.” This unemployment, on account
of its very nature, can be eliminated only by introducing certain radical reforms in the structure
of the economy.
From the data provided in Table-6.1, certain disturbing trends in the unemployment
rates become evident in the post-reform period. Although the reforms were introduced in 1991,
yet the year 1991-92 was particularly a depressed year and the reform process really got a
going by 1993-94. Thus, 1993-94 to 2004-2005 - the 11-year period can be considered as the
period of liberalisation. It may be noted that all categories of unemployment showed a declining
trend during the period 1977-78 to 1993-94, but the trend got reversed during 1993-94 and
2004-05. Unemployment as measured by UPS criterion declined from 4.23 per cent in 1977-78
to 2.56 per cent in 1993-94, but indicated an increase to 3.06 per cent in 2004-05. In 2011-12,
unemployment on UPS criterion was estimated to be 2.7 per cent. Even the most comprehensive
measure of unemployment, viz., current daily status (CDS) unemployment rate declined from
8.18 per cent in 1977-78 to 6.03 per cent in 1993-94, but the declining trend was reversed and
unemployment increased to 8.28 per cent in 2004-05. In 2011-12, rate of unemployment on
CDS basis is estimated to be 6.6 per cent again showing a decline vis-à-vis 2004-05 rates. The
same situation can be observed with respect to both urban and rural areas. However, it may be
noted that whereas CDS rate for urban areas increased very slightly from 7.43 per cent in 1993-
94 to 8.28 per cent in 2004-05, this very rate increased much faster from 5.63 per cent in 1993-
94 in the rural areas to 8.28 per cent in 2004-05. Though we notice a decline in unemployment
rates in 66th Round of NS SO, it does not seem to be any deviation from the earlier trend. This
is so because between 2004-2005 and 2009-10 we find addition to labour force to be only 9.2
76
million which is much less than the earlier period. The same phenomenon could be observed in
all measures of unemployment both in the rural and urban areas. This underlines the relative
neglect of the rural economy in the first phase of economic reforms. Usual Principal Status
(UPS) measures open unemployment throughout the year, but current daily status (CDS) besides
taking into account open unemployment also measures under-employment. From the data given
in Table-3.9, it becomes obvious that whereas the UPS rates are modest, the CDS rates are
quite high.

Table-6.1: Unemployment Rates: Alternative Measures

Year Usual Principal Status (UPS) Current Daily Status (CDS)
Rural Urban All India Rural Urban All India
1977-78 3.26 8.77 4.23 7.70 10.34 8.18
1983 1.91 6.04 2.77 7.94 9.52 8.28
1987-88 3.07 6.56 3.77 5.25 9.36 6.09
1993-94 1.80 5.21 2.56 5.63 7.43 6.03
1999-2000 1.96 5.23 2.81 7.16 7.74 7.31
2004-05 2.5 5.3 3.06 8.28 8.28 8.28
2009-10 2.1 3.7 2.5 6.8 5.8 6.6
2011-12 2.3 3.8 2.7 5.7 5.5 5.6
Source: Planning Commission (2001): Report of Taskforce on Employment Opportunities,
NSSO, 61st Round (2004-05) NSSO, 66th Round, NSSO 68th Round (2011-12).
Note: These estimates are based on NSS data combined with Census data.
Data provided in Table-6.1 also reveal that unemployment rates are traditionally higher in
urban areas than in rural areas. As against an unemployment rate of 10.3 per cent in 1977-78 in
urban areas, the rural unemployment rate was 7.7 per cent (CDS basis). There was a significant
fall in the rural unemployment rate in 1987-88 to 5.3 per cent, but the urban unemployment rate
was of the order of 9.4 per cent, significantly higher. After 1993-94, in the period of liberalisation
rural unemployment rate again increased to 8.28 per cent while urban unemployment also
marginally increased to 8.28 per cent during 1993-94 to 2004-05. High levels of unemployment
in the urban areas could be explained by a larger proportion of organized 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. Gradual and continuous decline of urban unemployment
rates till 1993-94 and even a very marginal increase in 2004-05 may be due to greater attention
being given to urban areas in the development process, but the increase in unemployment rates in
rural areas may be due to the neglect of rural areas in the post-reform period. It may be also be due
to a shift in the composition of employment from self-employment to casual labour.
Though, we find a decline in both rural and urban unemployment rates as per NSSO
Round 68th, to 5.7 per cent and 5.5 per cent respectively, in 2011-12 the difference between

77
rural and urban unemployment rates on the basis of CDS has narrowed down, as rates of
unemployment were recorded as 5.7 per cent and 5.5 per cent in rural and urban areas respectively.
Information on rural and urban unemployment rates for the year 2011-12 is available in 68th
Round Survey of NSSO. This is presented in Table-6.2.

Table-6.2: All-India Rural and Urban Unemployment Rates for 2011-12.

S.No. Estimate Rural Urban Total
1. UPS 2.3 3.8 2.7
2. UPS (adjusted) 1.7 3.4 2.2
3. CWS 3.4 4.4 3.7
4. CDS 5.7 5.5 5.6
Source: NSSO 68th Round, Employment and Unemployment in India, 2011-12 (June 2013),
Table 3, p. 15.
As is clear from this Table, unemployment rate according to UPS approach was 2.7 per
cent in 2011-12. Compared to the unemployment rate in rural areas, unemployment rate was
higher in urban areas where it was 2.3 per cent in rural areas and 3.8 per cent in urban areas.
Practically, similar trends were found in UPS (adjusted) approach. Unemployment rates in
CWS were considerably higher as against UPS (adjusted) - almost double. Unemployment
rates estimated according to the CDS approach were the highest that is 5.7 per cent in rural
areas and 5.5 per cent in urban areas (5.6 per cent overall).

Table-6.3: Unemployment rates (in per cent) as per the Usual Status (PS+SS)
and Current Weekly Status (CWS) (2017 – 18)
Status Rural Urban Rural and Urban
Male Female Persons Male Female Persons Male Female Persons
Usual Status 5.8 3.8 5.3 7.1 10.8 7.8 6.2 5.7 6.1
(US) (PS+SS) (3.2) (0.7) (2.0) (4.0) (1.7) (2.9) (3.4) (1.0) (2.2)
Current Weekly 8.8 7.7 8.5 8.8 12.8 9.6 8.8 9.1 8.9
Status (CWS) (4.8) (1.2) (3.1) (5.0) (2.0) (3.5) (4.8) (1.4) (3.2)
Source: Annual Report, Periodic Labour Force Survey (PLFS), (2017-18).
Table-6.3 shows the Unemployment Rates (UR) as per the Usual Status (PS+SS) and
Current Weekly Status (CWS). While looking at the Table, it can be said that in the Usual
Status (PS+SS), unemployment rates were 5.8 per cent among males and 3.8 per cent among
females in rural areas, while the rates were 7.1 per cent among males and 10.8 per cent among
females in urban areas. In the case of Current Weekly Status, the unemployment rates were 8.8
per cent among males and 7.7 per cent among females in rural areas while the rates were 8.8
per cent among males and 12.8 per cent among females in urban areas.

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6.6 CAUSES OF UNEMPLOYMENT
The foregoing analysis of unemployment in India has made it evidently clear that most
of the unemployment in this country is structural. Some of the main causes are mentioned
hereunder:
1. Jobless Growth: During, the first three decades of economic planning, the GDP growth
rate was as low as 3.5 per cent per annum. In this period, employment increased at a reasonable
rate of 2 per cent per annum. However, thereafter, while the GDP growth rate picked up
considerably, employment growth rate registered a sharp fall. In fact, while employment growth
was as high as 2.82 per cent per annum over the five year period 1972-73 to 1977-78, it fell to
only 1.02 per cent per annum over the five year period 1993-94 to 1999-2000. The country
witnessed a phenomenon of jobless growth in the period of 1990s. The rate of growth of
employment picked up considerably to 2.90 per cent per annum during the five year period
1999-2000 to 2004-05 but again declined to almost zero per cent over the next five years 2004-
05 to 2009-10. Thus, the country could add only one million jobs during 2004-05 to- 2009-10.
This is despite the fact that in three years in this period (2005-06, 2006-07 and 2007-08) the
rate of growth of GDP exceeded 9 per cent per annum. This shows that in recent period again,
we have witnessed a phenomenon of jobless growth.
2. Increase in Labour Force: Since Independence, death rate has rapidly declined and the
country has entered the second stage of demographic transition. The rate of population growth
rose to 2.2 per cent per annum during the 1960s, and, as a consequence, rate of increase in
labour force also rose to 1.9 per cent per annum. During the period 1983 to 1993-94 both
demographic and social factors further raised the rate of growth of labour force. Thereafter,
there has been a decline in the rate of growth of labour force. Over the years, mortality rate has
declined rapidly without a corresponding fall in birth rate and the country has thus registered
an unprecedented population growth. This was naturally followed by an equally large expansion
in labour force. The economy has, however, failed to respond to these challenges and the net
result is a continuous increase in unemployment backlog. In rural areas, whereas on account of
growing labour force, unemployment has increased mainly in disguised form, in urban areas it
is open and visible.
3. Inappropriate Technology: In India, while capital is a scarce factor, labour is available in
abundant quantity. Under these circumstances, if market forces operate freely and efficiently,
the country would have labour-intensive techniques of production. However, not only in
industries, but also in agriculture, producers are increasingly substituting capital for labour. In
the Western countries, where capital is in abundant supply, use of automatic machines and
other sophisticated equipment is both rational and justified while in India, on account of
abundance of labour, this policy results in large unemployment.
4. Inappropriate Educational System: The educational system in India is defective. It is, in
fact, the same educational system which Macaulay had introduced in this country during the
colonial period. To Gunnar Myrdal, India’s educational policy does not aim at development of
human resources. It merely produces clerks and lower cadre executives for the government and

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private concerns. With the expansion in the number of institutions which impart this kind of
education, increase in unemployment is inevitable. It is so because education in arts, commerce
and science will not ensure employment on account of its limited utility for productive purposes.
Any educational system which fails to develop human resources properly will not be able to
provide employment to all those who have received it and, accordingly, would need drastic changes.
5. Neo-Liberal Economic Policy: With the introduction of neo-liberal structural reforms in
India since the early 1990’s, income inequalities have increased. Growing income inequalities
generally lead to demand constraint; recession and unemployment.

Check Your Progress.

4. State the causes of unemployment.
..........................................................................................................................................

6.7 CONSEQUENCES OF UNEMPLOYMENT

The widespread unemployment in urban as well as in rural India is a complex problem
caused by many factors. Unemployment affects not just the person himself but also his/her
family and in the long-run the society where he lives. Unemployment brings with it despair,
unhappiness and anguish. The major consequences of the problem of unemployment are as
follows:
1. Loss of Human Resources: The problem of unemployment causes loss of human
resources. Labourers waste their maximum time in search of employment.
2. Increase in Poverty: Unemployment deprives a man of all sources of income. As a
result he grows poor. Therefore, unemployment generates poverty.
3. Social Problems: Unemployment breeds many social problems and social security is
jeopardized.
4. Political Instability: Unemployment gives birth to political instability in a country.
Unemployed persons can easily be enticed by anti-social elements. They lose all faith in
democratic values and peaceful means.
5. Exploitation of Labour: In the state of unemployment, labourers are exploited to the
maximum possible extent. Those labourers who get work have to work under diverse
conditions of low wages. All this tells upon the efficiency of labourers.
6. Standard of living: In times of unemployment, the competition for jobs and the
negotiation power of the individual decreases and thus also the living standard of people
with the salaries, packages and income reduced.
7. Employment gaps: To further complicate the situation, the longer the individual is out
of job the more difficult it becomes to find one. Employers find employment gaps as a
negative aspect. No one wants to hire a person who has been out of work for some time
even when there’s no fault of the individual per say.
8. Lose of skills’ usage: The unemployed is not able to put his/her skills to use. And in a
situation where it goes on for too long the person may have to lose some of his/her skills.
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Check Your Progress.
5. What are the consequences of unemployment?
..........................................................................................................................................

6.8 REMEDIAL MEASURES TO OVERCOME THE PROBLEM

OF UNEMPLOYMENT
Unemployment was recognised as a problem from the very beginning of the planning
process in India. Despite removal of unemployment has been a proclaimed objective of Indian
economic planning, until the Sixth Plan one does not find any reference to long-term employment
policy with a bold approach to tackle the unemployment problem in the country. Accordingly,
employment generation was accepted as a goal of development planning. However, a faster
growth with special emphasis on employment-intensive sectors like the small-scale industry
was considered adequate to generate employment of the order required to take care of the
problem. Following the publication of the Bhagwati Committee report in 1973, the
Government took the following measures to provide employment and alleviate under-
employment.
1. 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.
2. Marginal farmers and Agricultural Labourers: Under the scheme, families were to be
assisted with subsidized credit support for agricultural and subsidiary occupations like dairy,
poultry, fishery, piggery-rearing and horticultural operations, besides other opportunities coming
up in the provision of infrastructure in rural areas.
3. Small farmers Development Agencies: The objective of the scheme was to make available
to small farmers credit to enable them to make use of the latest technology to practice intensive
agriculture and diversify their activities.
4. Integrated Dry Land 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
opportunities.
5. Agro Service Centres: The schemes provided for assistance for self-employment to the
unemployed graduates and diploma-holders in mechanical, agricultural and electrical engineering
and allied fields and graduates in agriculture and science with experience in industry or
agriculture. It aimed to help in establishing workshops, organising agricultural machinery,
repairing and hiring facilities and other technical services like supply of spare parts, inputs and
other ancillaries.
6. Area Development Schemes: These schemes are related to the development of adequate
infrastructure facilities like roads, market complexes in areas commanded by ten major irrigation
projects.
7. Crash Programme for Rural Employment: The primary objective of the scheme was to
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generate additional employment through a network of rural projects of various kinds which are
labour-intensive and productive. The scheme had a two-fold purpose. Firstly, a project in each
block was to provide employment to 100 persons on an average continuously over a working
season of 10 months in a year. Secondly, each project was to produce works or assets of durable
nature in consonance with the local development plans. The various types of projects included
schemes relating to minor irrigation, soil conservation and afforestation, land reclamation,
flood protection and anti-water logging, pisciculture, drinking water and construction of roads.
8. Employment Guarantee Scheme of Maharashtra: Maharashtra Government introduced
the Employment Guarantee Scheme (EGS) in 1972-73. The scheme was the first of its kind to
give recognition to the ‘right to work’ enshrined in the Constitution.
9. 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 300-400 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 and
Balwadi buildings and panchayat ghars and other works such as bunding in rural areas.
10. Rural Landless Employment Guarantee Programme: The 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.
11. IRDP, NREP, Rural Poverty and Employment: A multiplicity of agencies has been
carrying on the task of providing rural employment. They included primarily Employment
Guarantee Schemes, Food for Work Programme, Small Farmers Development Agency (SFDA),
Marginal Farmers and Agricultural Labourers (MFAL), Drought Prone Area Programme (DPAP)
and Desert Development Programme (DDP) and Command Area Development Programme
(CADP). The Sixth Plan (1980-85) proposed that “such multiplicity of programmes for the
rural poor operated through a multiplicity of agencies should be ended and replaced by one
single integrated programme operative throughout the country.” This programme was named
as the Integrated Rural Development Programme (IRDP).
12. Jawahar Rozgar Yojana: Prime Minister Rajiv Gandhi announced on 28th April, 1989
the launching of the Jawahar Rozgar Yojana (JRY). All the existing rural wage employment
programmes were merged into JRY. This implies that National Rural Employment Programme
(NREP) and Rural Landless Employment Guarantee Programme (RLEGP) have been merged
so as to be brought under this umbrella programme referred to as Jawahar Rozgar Yojana.
13. Indira Awaas Yojana (IAY): Indira Awaas Yojana was aimed at providing houses, free of
cost, to the members of the SC/ST, freed bonded labourers. From 1993-94, the scheme was
extended to other poor categories (besides SC/ST) as well. The financial assistance provided
for new construction in the form of full grant is 70,000/- per unit for plain areas and 75,000/
- for hilly/difficult areas. The government is making all efforts to bring down the housing
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shortage in the rural areas of the country and the size of the scheme has increased substantially
in recent years. The budgetary outlay for rural Housing has been enhanced from 1991 crore in
2001-02 with a physical target of construction of 12.94 lakh houses to 11075.00 crore in 2012-
13 for construction of 30.10 lakh houses.
14. Jawahar Gram Smridhi Yojana (JGSY): It was introduced in April 1999 as a successor
to Jawahar Rozgar Yojana (JRY) is being implemented as a centrally sponsored scheme on a
cost sharing ratio of 75:25 between the Centre and the States. Under the programme, all works
that can result in the creation of durable assets are taken up.
15. Swaran Jayanti Gram Swarozgar Yojana (SGSY): It was introduced in April 1999 as a
result of restructuring and combining the Integrated Rural Development Programme (IRDP)
and Million Wells Scheme (MWS) into a single self-employment programme. It aimed at
promoting micro-enterprises and helping the rural poor into self-help groups. It was implemented
as a Centrally Sponsored Scheme on cost sharing ratio of 75:25 between the Centre and the
States.
16. Swaran Jayanti Shaha Rozgar Yojana (SJSY): The Urban Self-employment Programme
and Urban Wage-Employment Programmes of the Swaran Jayanti Shahari Yojana, had
substituted in December 1997 various programmes operated earlier for poverty alleviation.
SJSRY was funded on 75:25 basis between the Centre and the States.

Check Your Progress.

6. State the remedial measures to overcome the problem of unemployment.
..........................................................................................................................................

6.9 POVERTY ALLEVIATION AND EMPLOYMENT

GENERATION PROGRAMMES IN INDIA
6.9.1 The Earlier Phase - Ad hocist Approach
The strategy of direct assault on poverty through rural development and rural employment
programmes was first adopted in the 1970s. With the Fifth Plan, poverty alleviation came to be
accepted as one of the principal objectives of economic planning in this country. During the
1970s, a number of special programmes for the rural poor were undertaken of which the important
ones were: Small Farmers’ Development Agency (SFDA), Marginal Farmers’ and Agricultural
Labourers’ Development Agency (MFAL), Drought-Prone Areas Programme (DPAP), Crash
Scheme for Rural Employment (CSRE), Pilot Intensive Rural Employment Project (PIREP)
and Food for Work Programme (FWP). None of these programmes comprehensively covered
the whole country, though in certain parts of the country some of these programmes operated
simultaneously for the same target groups. Apart from this territorial overlap, the major limitation
of these programmes was that they were reduced to mere subsidy-giving programmes, lacking
any planned approach to enable the rural poor achieve a higher level of income. The element of
ad hocism in these programmes further reduced their effectiveness from the point of view of
poverty alleviation. Hence, the need was felt for undertaking programmes which were not only
far more comprehensive in coverage but could also make a direct assault on rural poverty.
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6.9.2 The Latter Phase -Comprehensive Programmes
The Integrated Rural Development Programme (IRDP), the National Rural Employment
Programme (NREP) and the Rural Landless Employment Guarantee Programme (RLEGP)
were conceived keeping the objective of poverty alleviation in view. The IRDP was initially
started in 1978-79 in 2,300 development blocks as a programme of total development. In the
Sixth Plan, the IRDP was extended to the entire country. The NREP also commenced at the
same time as part of the Sixth Plan and aimed at helping that segment of population which
depended largely on wage employment and had virtually no source of income during the lean
agricultural period. The RLEGP was launched on August 15, 1983 with the objective of
expanding the employment opportunities for the rural landless. However, with a view to making
the implementation of these wage employment programmes more effective, NREP and RLEGP
were merged into a single rural employment programme since April 1, 1989. The merged
programme was named Jawahar Rozgar Yojana (JRY).
The IRDP conceived as anti-poverty programme aimed at helping the small and marginal
farmers, landless labourers and artisans. It was thought by the planners that these people were
poor because they possessed neither any productive assets nor any special skills. Therefore, the
IRDP was designed to help the poor by creating new assets for them. These assets would
include sources of irrigation, bullocks and implements besides inputs like seeds and fertilisers
for farming, animals for dairy and other animal husbandry activities and tools and training for
cottage industries and handicrafts. The basic strategy was self-employment of the poor with
the help of these assets so that they manage to earn enough to rise above the poverty line. The
skill endorsement aspect was covered under the Training of Youth for Self-Employment
(TRYSEM). The general conclusion that emerges from the studies of The Programme Evaluation
Organisation of the Planning Commission (PEO), the RBI, the NABARD and the Institute for
Financial Management evaluated the performance of the IRDP at different points of time is
that the IRDP was not very effective as a poverty alleviation measure. However, it has now
been restructured and renamed as Swarnajayanti Gram Swarozgar Yojana (SGSY). Moreover,
certain allied programmes including TRYSEM have been merged into it. Employment Assurance
Scheme (EAS) until it was merged into Sampoorna Grameen Rozgar Yojana (SGRY) in
September 2001 provided 100 days of unskilled manual work to the rural poor seeking
employment.
At present, special programmes for employment generation are being implemented both
in rural and urban areas. All these programmes aim at poverty alleviation as well. The
programmes for the rural poor include Swarna jayanti Gram Swarozgar Yojana (SGSY) and
Sampoorna Grameen Rozgar Yojana (SGRY). The Nehru Rozgar Yojana (NRY) was launched
in October 1989 for the benefit of the urban poor. It was merged into the Swarna jayanti Shahari
Rozgar Yojana in 1997-98. Sampoorna Grameen Rozgar Yojana (SGRY) was launched in
September 2001. Jawahar Gram Samridhi Yojana (JGSY) and Employment Assurance Scheme
(EAS) were merged into it. SGRY aims at providing wage employment in rural areas as also
food security. Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS)
was introduced in February 2006. The Scheme aims to provide at least 100 days of guaranteed

84
employment in a financial year to every household in the rural areas covered under the scheme
and whose adult members volunteer to do unskilled manual work subject to the conditions laid
down in the Act.

6.9.3 Strategy of Poverty Alleviation and Employment Generation Programmes

A careful examination of the poverty alleviation programmes reveals that the planners
have made the assumption that the poor constitute a homogeneous category. The planners
made no attempt to segment the group in terms of common characteristics and their requirements.
At present there seems to be little integration in transfer of assets and skills approach and
employment approach. It is suggested that in future there has to be greater coordination between
these two elements of poverty alleviation programme. The actual mix between the two will,
however depend on the circumstances prevailing in the particular region for which the micro
level plan is prepared. A major limitation of the existing poverty alleviation strategy is that it
has no programmes for those households who neither have assets nor skills and, in addition, do
not have any able bodied adult member and thus cannot benefit from wage employment
programmes. For such a category, separate policy measures would be required. Obviously
these destitutes are to be covered under social security schemes.
Under the Seventh Plan, the basic emphasis was on productive employment rather than
the alleviation of poverty. The programmes for poverty alleviation were viewed as supplementing
the basic plan for overall growth. Therefore, in the Seventh Plan poverty alleviation was not in
focus. The planners claimed that the Seventh Plan policies were formulated after a careful
analysis of lessons from performance of various poverty alleviation programmes. The Seventh
Plan aimed at reducing the percentage of the population below the poverty line from 39.9 per
cent at the beginning of the Plan period to 28.2 per cent by 1990.
Elimination of poverty was one of the major objectives of the Eighth Plan. The planners
had hoped to realise this objective by pursuing employment-oriented growth strategy. Hence,
expansion of employment opportunities and augmentation of productivity and income levels
of both the underemployed and unemployed poor were made the principal instruments for
achieving this goal during the Eighth Plan. The Ninth Plan relied essentially on the trickle-
down effects of economic growth for poverty alleviation. It nevertheless recognised the role of
anti-poverty programmes.
The Tenth Five Year Plan sought to achieve a faster reduction in poverty rate by redressal
of regional imbalances for which aggregate growth target was broken down State-wise. Thus,
the Tenth Plan also like the Ninth Plan relied on the tickle-down effect of economic growth for
poverty alleviation. The Eleventh Five Year Plan also emphasised rapid growth of the economy
to achieve reduction in poverty. However, it emphasised that this growth must be better balanced
to rapidly create jobs in the industrial and services sector.
The Twelfth Five Year Plan emphasises faster, sustainable and more inclusive growth.
According to the planners, while the objective of development is broad-based improvement in
the economic and social conditions of our people, rapid growth of GDP is an essential
requirement for achieving this objective. Two reasons are cited in support of this contention.

85
First, rapid growth of GDP produces a larger expansion in total income and production which,
if the growth process is sufficiently inclusive, will directly raise living standards of a large
section of the population by providing larger employment opportunities and other income
enhancing activities. Second, rapid growth generates higher revenues which help to finance
critical programmes of poverty alleviation and inclusiveness like Mahatma Gandhi National
Rural Employment Guarantee Scheme (MGNREGS). Sarva Shiksha Abhiyan (SSA), Mid-Day
Meals (MDMs), Integrated Child Development Services (ICDS), National Rural Health Mission
(NRHM) etc.

6.10 SUMMARY
The state of unemployment appears when a labourer does not obtain employment
opportunity despite his willingness to work on existing wage rate. The different types of
unemployment are structural unemployment, under employment, disguised unemployment,
open unemployment, educated unemployment, frictional unemployment, seasonal
unemployment, cyclical unemployment and technological unemployment. Levels of
unemployment can be measured through three important concepts, namely Usual Principal
Status, Weekly Status and Daily Status Unemployment. Most of the unemployment in India is
definitely structural in nature. The data of unemployment reveal the fact that the unemployment
rates are higher in urban areas than in rural areas. Jobless growth, increase in labour force,
inappropriate technology and educational system, and neo-liberal economic policy are the
important causes for the problem of unemployment in India. To overcome the problem of
unemployment, the Government has introduced many programmes - SFDA, RLEGP and
MGNREGA etc,.

6.11 CHECK YOUR PROGRESS – MODEL ANSWERS

1. In broad sense a state of unemployment appears when a labourer does not obtain
employment opportunity despite his willingness to work on existing wage rate.
2. A person does not contribute anything in the production process or in other words, if he
can be removed from the work without affecting the productivity adversely, he will be
treated as disguisedly unemployed. The marginal productivity of such unemployed person
is zero. Agriculture sector of underdeveloped/developing economies possesses this type
of unemployment on a large scale.
3. Structural unemployment is associated with economic structure of the country. When
demand for labour falls short to the supply of labour due to rapidly growing population
and their immobility, the problem of unemployment appears in the economy. Besides,
due to growing population, rate of capital formation falls down which again limits the
employment opportunities. This type of structural unemployment is of long run nature.
Indian unemployment is basically related to this category of unemployment.
4. The major consequences of the problem of unemployment are:- Loss of Human Resources;
Increase in Poverty; Social Problems; Political Instability; Exploitation of Labour;
Standard of living; Employment gaps; and Lose of skills’ usage.
86
5. With the publication of the Bhagwati Committee report in 1973, the Government took
the measures to provide employment and alleviate under-employment are:- Rural Works
Programme; Marginal farmers and Agricultural Labourers; Small farmers Development
Agencies; Integrated Dry Land Agricultural Development; Jawahar Gram Smridhi Yojana
(JGSY); Swaran Jayanti Gram Swarozgar Yojana (SGSY); and Swaran Jayanti Shaha
Rozgar Yojana (SJSY)

6.12 MODEL EXAMINATION QUESTIONS

I. Answer the following questions in about 10 lines each.
1. Examine the causes of unemployment.
2. Discuss the consequences of unemployment.
3. Explain the concepts of unemployment.
4. State the remedial measures to overcome the problem of unemployment.
5. Distinguish between disguised unemployment and under-employment.
II. Answer the following questions in about 30 lines each.
1. Define the concept of unemployment and describe the different types of unemployment.
2. Examine the estimates of unemployment in India.
3. Analyse the causes and consequences of the problem of unemployment.
4. Enumerate the different types of policy measures to overcome the problem of
unemployment in India.

III. One mark question:

(A) Multiple choice questions:
1. Which programme is directly related with self-employed persons?
(a) Food for work (b) NREP (c) PMRY (d) TRYSEM
2. Indian unemployment is basically related to the category of:
(a) Cyclical unemployment (b) Frictional unemployment
(c) Structural unemployment (d) None of them
3. Disguised unemployment is pertaining to the
(a) Hired labour (b) Family labour (c) Child labour (d) Above all
4. Frictional unemployment is a common phenomenon in the case
(a) Developing countries (b) Developed countries
(c) Socialistic countries (d) None of the above
5. The introduction of new technology causes displacement of workers is called:
(a) Educational unemployment (b) Cyclical unemployment
(c) Technological unemployment (d) Seasonal unemployment
Answers: 1) d; 2) c; 3) b; 4) b; 5) c.
87
(B) Match the following:
A B
1. Community Development Programme a) 2006
2. TRYSEM b) 1980
3. IRDP c) 2005
4 Janani Suraksha Yojana d) 1979
5. MGNREGS e) 1952
Answers: 1) e; 2) d; 3) b; 4) a; 5) c.

C. Fill in the blanks.

1. _______ unemployment is associated with economic structure of the country.
2. The marginal productivity of unemployment pattern is zero is known as ________
unemployment.
3. _________ unemployment is only a temporary unemployment.
4. Displacement of workers due to the introduction of new technology is called __________
unemployment.
5. The C.D.S stands for ______________.
Answers: 1) Structural; 2) disguised; 3) Frictional; 4) technological; 5) Current Daily Status.

6.13 GLOSSARY
1. Standard Person Year: A person working for 8 hours a day for 273 days of the year is
regarded as employed on a standard person year.
2. Underemployment: Under utilization of labour time of the workers, some of the workers
classified as usually employed do not have work throughout the year due to seasonality
in work or their labour time is not fully utilized.
3. Seasonal Unemployment: It appears due to a change in demand on seasonal variations.
4. Educated Unemployment: Even when a person who is educated/trained and skilled,
fails to obtain a suitable job suited to his qualifications.
5. Structural Unemployment: Related to the inadequacy of productive capacity to create
enough jobs for all those able and willing to work.
6. Disguised Unemployment: A person whose marginal productivity is zero or when more
people are engaged in a job than actually required.
7. Non-Employment: The people who are working in their household activities or un-
organised sector in developing countries.

88
6.14 REFERENCE
1. Jean Dreze and Amartya Sen - An Uncertain Glory, India and its contradictions,
Allen Lane, 2013.
2. Lekhi, R.K – The Economics of Development and Planning, Kalyani Publishers, New
Delhi, 2003.
3. Misra & Puri - Economics of Development and Planning, Himalaya Publishing House,
New Delhi, 2005.
4. Misra & Puri - Indian Economy, 32nd Revised Edition, 2014.
5. Prathyogita Darpan - General Studies- Indian Economy, 2014.
6. Ruddar Datt & K.P.M Sundaram - Indian Economy, 70th Revised Edition, 2015.

– Dr. K. Mohan Reddy, KU.

89
 BLOCK – III
AGRICULTURAL SECTOR
In this block various issues related to agricultural sector such as; trends in agricultural
production and productivity, green revolution, land reforms and its impact, agricultural finance,
agricultural marketing and pricing, and food security in India are discussed.
This block contains the following units:
Unit - 7 : Agrarian Structure, Land Reforms and Green Revolution in India
Unit - 8 : Agrarian Crisis and Food Security in India
Unit - 9 : Agricultural Finance, Marketing and Pricing

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UNIT-7: AGRARIAN STRUCTURE, LAND REFORMS
AND GREEN REVOLUTION IN INDIA
Contents
7.0 Objectives
7.1 Introduction
7.2 Pre-Independence Agrarian Structure
7.3 Land Reforms in India after Independence
7.3.1 Abolition of Intermediaries
7.3.2 Tenancy Reforms
7.3.3 First Round Ceiling Laws of the Early 1960s
7.3.4 Second Round Ceilings of the 1970s and Land Distributed
7.3.5 Overall Defects in Implementation of Land Reforms
7.4 Pre-Green Revolution Period – Agricultural Development
7.4.1 Necessity of Adopting Green Revolution
7.4.2 Expansion of Green Revolution Technology
7.5 Cropping Pattern and Productivity of Important Crops
7.6 Costs of Green Revolution
7.7 Regional Imbalances and Coverage
7.8 Achievements of Green Revolution Technology
7.9 Summary
7.10 Check Your Progress - Model Answers
7.11 Model Examination Questions
7.12 Glossary
7.13 References

7.0 OBJECTIVES
The objective of this unit is to explain the status of agriculture in the pre-Independence
period, pre-green-revolution period (including land reforms) and post-green revolution period.
After reading this unit, you will be able to:
● understand the theory of interaction of institutions and technology in agriculture.
● know the agrarian structure in pre-Independence period of India.
● get an overview of the land reforms undertaken after Independence.
● analyse the agricultural performance in the pre-green revolution period. and
● evaluate agriculture in post-green revolution period.
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7.1 INTRODUCTION
Agricultural sector’s development, as a part of the overall economy, undergoes changes
in its agrarian structure. Agricultural development depends on the agrarian structure (its
institutions and land relations). Depending on agrarian structure, agricultural technology
develops. Technology is the science of practical or industrial arts. It is an application of science
for inventing or improving instruments of production. The technology in general is conditioned
by the social institutions and political conditions. But is not passive, it can also influence the
institutions. Thus, there is a dialectical interaction between technology and institutions. The
interaction may be understood as follows. In a feudal society, the feudal institutions, through
extra economic coercion, do not allow technical progress. If the institutional change is introduced
through land reforms and institutions of credit and marketing, there is an impetus for technical
change. Johnston and Mellor (1961) call this as preconditions for agricultural development.
Once the technical change is in progress, it brings in changes in the institutions. Peasant
farming may be replaced by collective or co-operative agriculture. But these processes of
change may not always be smooth. Within agricultural institutions, changes in land tenure are
important for appropriate adoption of agricultural technology.
The modern agricultural technology may be divided, as per Shigemochi (1978, pp.5-6)
into four categories: (i) hydrological technology, (ii) mechanical technology, (iii) bio-chemical
technology, and (iv) managerial technology. If we include hydrological technology as part of
mechanical technology and managerial technology as part of human capital formation, possessed
by labour, we have only two categories of modern technologies, viz: 1. mechanical technology
and 2. bio-chemical technology. Mechanical technology, contributed by physics and engineering
sciences, is concerned with the instruments of production, both motive and stationary. Generally
this is biased to scale, cost-reducing and capital-intensive. It requires higher doses of fixed
capital. Biological-chemical technology provides the contributions of chemistry and biology.
The chemical technology gives chemical fertilizers, pesticides, weedicides, herbicides etc.,
which help replenish the lost fertility of the soil and protects plants from diseases and pests.
Biological technology works on the genetics and physiognomy of the plant, ultimately giving
higher yield. The bio-chemical technology is labour-absorbing, land-saving and scale-neutral
(Venkateswarlu, 1998, p.14).
Mechanical technology, though treated as capital-intensive may also be land-saving
and labour absorbing as timely field crop operations lead to multiple cropping in a single year.
In the same way, the bio-chemical technology, which is labour-absorbing, may also be labour-
saving as is possible by using herbicides and weedicides (Gotch, 1972). However, as per
Hayami and Ruttan (1971, p.5), “Yet, historically, the dominant factor for saving labour has
been the progress of mechanization; and the dominant factor for saving land has been the
biological innovations.”
In India also, agricultural sector plays an important role in economic development of
India, just as in any economy. There are demand side factors and supply side factors that the
agricultural sector can contribute to the economic development. It can supply (i) foodgrains to
the workers of non-agricultural sector; (ii) agricultural raw materials for agro-based industries
92
(cotton, sugarcane etc.); (iii) labourers (found surplus to itself) to non-agricultural sectors; and
(iv) capital to the non-agricultural sector from two sources by extracting surplus within the closed
economy or earning foreign exchange through exporting agricultural goods. On demand side, it
creates demand for (a) non-agricultural goods which are useful for consumption in agricultural
sector i.e., for both durable and non-durable goods; and (b) agricultural inputs, such as HYV
seeds, fertilizers and pesticides and agricultural Implements and Machinery (I & M).

7.2 PRE-INDEPENDENCE AGRARIAN STRUCTURE

The English conquest of India brought many drastic changes in Indian land system. The
most fundamental of the changes was the disintegration of the older structure of the village
community, partly as a result of new land system introduced by the British, during 1793-1850;
and partly as a result of the spread of commercial agriculture in the late nineteenth and the
early twentieth centuries, i.e., during 1850-1947. After Plassey battle of 1757, East India
Company (EIC) started to expand their rule all over India. Land being the only productive
sector, the EIC found agriculture as the source of revenue for their military and civil
administrative expenditure. They experimented with permanent settlement system of revenue,
a zamindari system, in Eastern parts. Zamindars with permanent rights on land used to collect
revenue from farmers/tenants to pay back to EIC after retaining a seventh part. In Southern and
Western parts, EIC wanted to have direct relation in collecting revenue with cultivating farmers,
called ryotvari system. In North-Western parts, they implemented mahalwari system in which
village elders used to assume responsibility to pay revenue to EIC. Ultimately with increased
moneylenders role, as they could take possession of land of the farmers, who could not pay
back loans as per the legal system, leading zamindari system in the latter two systems also.
After, the direct British rule form 1858 to 1947, the commercial agriculture was forced on India
to get and raw materials (cotton, sugar, indigo, etc.,) for their flourishing industries in England.
LAND REFORMS: By the term ‘lend reforms’, we mean reforms of institutional factors
related to land. In the rural areas, land is the main source of livelihood for a majority of the
rural population. In order to promote social justice through redistribution of inequalities in
land ownership, there is a strong need for introducing institutional changes in the form of
redistribution of ownership of land i.e., land reforms. Government’s direct intervention to bring
about a change in the agrarian structure called land reforms.

Objectives of Land Reforms

The planning commission has mentioned the objectives of land reforms in 1951, which
ore presented hereunder:
1. Rational use of scarce land by changing the conditions of land holdings and imposing
ceilings.
2. Raise the standard of living of the rural poor through redistribution of land.
3. Protection of the tenants from exploitation.
4. Prevision of security of tenure to the tiller of the soil.
5. Improvement in the agricultural production through land reclamation.
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6. To attain planned development of agricultural sector on long term basis.
The redistribution of land to the rural poor is specifically mentioned as one of the
objectives in the eighth plan.

7.3 LAND REFORMS IN INDIA AFTER INDEPENDENCE

National Commission on Agriculture (GOI, 1976, p.20) noted that before World War II,
none of the Agrarian Programmes advocated by the Congress had raised the question of radically
altering the system of land tenure or land ownership. Due to feudal and semi-feudal oppression
and exploitation, the peasant struggles started before India became independent, in almost all
parts of India. Tebhaga peasant struggle in Bengal and Telangana peasant armed struggle were
among such historical struggles. All such peasant struggles were being mobilised by the
Communist Parties. This compelled the Congress Party to take up the agrarian question.

7.3.1 Abolition of Intermediaries

As such, the Congress Party, in its Election Manifesto of 1945-46, put forward the case
for “The removal of intermediaries between the peasant and the state.” When the power was
transferred to the Congress Party, in 1947, it recognized the importance of land reforms. After
India’s Independence, Congress appointed Agrarian Reforms Committee (ARC) whose Chairman
was J.C.Kumarappa. Its Report noted that a type of feudal or semi-feudal structure existed in
1947-48, with the zamindari system in areas which formerly constituted British India, which
covered 57 per cent of the privately owned agricultural land, the ryotwari system 38 per cent
and the mahalwari system 5 per cent. (ARC, 1949, p.6). Agrarian Reforms Committee
recommended to implement land reforms in three spheres namely (i) abolition of Intermediaries
(ii) tenancy Reforms and (iii) ceiling on land holdings for solving agrarian problems, with
objectives (Kotovsky, 1964, p.45):
1. Immediate abolition of all forms of feudal exploitation of the peasantry, with a moderate
compensation.
2. To set up small and medium farms by allotting land to the tenants, share croppers and
agricultural labourers in opposition to the establishment of landlord type capitalist farms.
3. There should be no scope for exploitation of one class by another.
All the states passed Acts of Abolition of Intermediaries in this respect between 1946
and 1953. The implementation was under process throughout the decade 1950’s. As a result, 20
million tenants were brought into direct relationship with the state. This legislation was
implemented quite forcefully and therefore led to some positive changes (Dandekar and Rath,
1971). The bourgeoisie which came to power was dependent on local Zamindars or landlords
to win elections. As such, it did not expropriate or confiscate the lands of the Zamindars,
Jagirdars and Inamdars. But the abolition was made by paying good amount of compensation.
In 1951, the estimation of compensation was between Rs. 3500 – 4000 million. But it went
upto Rs.6700 million in 1961, by steps, as a result of direct encouragement and even pressure
by representatives of the Congress High Command. Further, compensation was also paid to the
landlords who had lost their rights in the British period.
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 The zamindars were allowed to keep lands for self- cultivation, viz., Sir, Khudkhast and
Khas lands. In the wake of impending legislation, the zamindars were alert to extend their sirs, by
evicting the tenants. It was easy for the zamindars to manipulate the records due to influential life.

7.3.2 Tenancy Reforms

Tenancy reforms were concerned with the regulation of rent and the security of tenure,
for the tenants. These two together should gradually lead to the conferment of ownership rights
on the tenants. The peasant uprisings in Zamindari and Raitwari areas and the famines gave
scope for ensuring some protection to the peasants in the British period. Tenancy Reform had
a long history in India since 1885 in Bengal under the British, to solve some problems of
permanent settlement. All the states enacted Tenancy Acts throughout the 1950s, along with
abolition of intermediaries. By September 2006, totally 12.56 million tenants were conferred
with 6.77 million hectares.
Regulation of Rent: There had been no uniform norms for fixing fair rent in all the states.
Originally fixed-rents were high in some States. In some States, the fair rent was fixed as a
multiple of land revenue (as in Madhya Pradesh), in many states, the rent was a portion of gross
produce. The Planning Commission Report on Progress of Land Reforms (1963) and Chief
Ministers Conference on Land Reforms (1970) insisted to maintain the rent between one fourth
to one-fifth of gross produce. After this, the Andhra Pradesh Government reduced fair rent (in
Andhra Area) to lie between 25 percent to 30 percent of gross produce, by an amendment
(Parthasarasthy and Suryanarayana, 1971). Even this was not in conformity with the Planning
Commission’s suggestion. In Tamilnadu, Punjab, Haryana and Jammu & Kashmir, the fair
rents fixed were higher than what Planning Commission suggested (Appu, 1975).
Security of Tenure: Security of tenure depends on five factors as per Appu (op. cit..), and they
are: (i) definition of the term ‘tenant’, (ii) the circumstances in which landowners are allowed
to resume tenanted land for personal cultivation, (iii) definition of the term ‘personal cultivation’,
(iv) provision for regulating voluntary surrender of tenancy and (v) status of land records.
The persons cultivating the lands of other land owners or landlords on payment of rent in
cash or kind are treated as tenants. But the sharecroppers were not treated as tenants in some
states. Share croppers and sajhis in U.P., bhargadars in West Bengal, bagchasis in Orissa;
bataidars in Bihar and adhiars in Assam are not treated as tenants (Dandekar and Rath, 1971).
From this aspect no difference could be seen between these Acts in Independent India and the
Bengal Tenancy Act of 1885 under the British. However in West Bengal since early 1970’s
bhargadars have been recognized as tenants, particularly after ‘Operation Bharga’.
Resumption of land by the owners for personal cultivation was allowed in all States
except Uttar Pradesh and West Bengal (i.e., it is inapplicable in respect of Bhargardars). Further
ejectment of tenants was permitted on nearly 24 grounds of which one third are flimsy in
nature as pointed out by National Commission on Agriculture (GOI, 1976, p.66). In some
states the land owners are allowed upto ceiling limit. In several states the tenants are to be left
with one half of the tenanted area. In some states, the small farmers are allowed to resume the
entire land leased out. In some, the resumption was allowed upto some period, after which the
tenants would be conferred with ownership rights. However, as per Appu (1975), “In course of
95
time, it was found that even the limited right of resumption granted to landowners resulted in
all tenures being rendered insecure and the tenants being harassed.”
Personal cultivation was defined in a way that it was enough for the person or member
of his family to supervise the cultivation by hired labour paying wages in cash or kind, but not
by share crop. This gives scope for many manipulations and leads to concealed tenancy.
Participation, through manual labour, in the field was not insisted. Voluntary surrenders are
another name for forceful eviction of tenants by the landowners.

7.3.3 First Round Ceiling Laws of the Early 1960s

As regards imposing ceiling on size of land holdings, the First Five Year Plan simply
expressed view in favour of the principle that there should be an upper limit to the amount of
land that any individual may hold. When the farm management studies were conducted in
seven or eight districts in the mid-1950s, the small farm size groups showed higher productivity
per acre than on medium and large farms. Thus, E.J.Long (1961) and Amartya Sen (1962)
supported land redistribution to the actual tillers. As an impact, the Nagpur session of AICC,
held in 1959, had adopted the resolution on ceilings unanimously (Kotovsky, 1964, pp.83-87).
All the states enacted first Round of Ceiling Laws, imposing ceiling limits on land in the early
1960s. But due to lack of political will only negligible land was declared surplus, assumed
possession and distributed, due to loopholes.
The Second Five Year Plan suggested a reasonable ceiling should be fixed at three
times the family holdings, where a family holding was deemed to be capable of yielding an
annual income of Rs.1200. Thus the ceiling suggested to be fixed at an income level of Rs.
3600 a year, at the then prevailing prices (GOI, 1976, p.72). But the states did not follow any
uniform procedure in ceiling limits. Generally the ceilings were at higher levels by which no
large surplus land could be obtained. By 1970 only 0.477 million hectares was distributed as
against 1.038 million hectares declared surplus. This was far below the expectations made.
Thus, the first round of ceiling laws by the mid-1960s could not achieve objective of land to the
tiller, due to many defects as follows:
1. The unit of application was individual instead of the family in Andhra Pradesh, Assam,
Bihar, Haryana, Himahcal Pradesh, Jammu & Kashmir, Orissa, Punjab, Uttar Pradesh
and West Bengal. Only in Gujarat, Karnataka, Kerala, Madhya Pradesh, Maharashtra
and Tamilnadu the family was the unit. In the former states each individual could have
ceiling.
2. Nearly 42 categories of land were exempted from the ceilings, as noted by NCA (GOI,
1976, p.73). For example, lands of religious institutions, tank fisheries, efficiently
managed farms etc. Many of these exemptions could be used for manipulations.
3. The Legislative measures were full of loopholes which were taken advantage of by the
big land owners to circumvent the laws, through benami transfers which were fictitious.
4. Recourse to litigation by big landholders.

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7.3.4 Second Round Ceilings of the Early 1970s and the Extent of Distributed
Land
The Second Round of ceilings had to be undertaken after the agrarian unrest late 1960s
had pervaded all over India, and the Home Affairs gave a warning in December 1969. As a
result, the prime minister held meetings with chief ministers, and in July 1972 meeting it was
resolved to make family as a unit (instead of each individual in family), by reducing limit
substantially and removing several exemptions. In Chief Ministers Conference in 1972, the
National Guidelines for ceilings were accepted (GOI, 1976, pp.40-41). They were:
1. The limit of ceiling should be between 10-18 acres for best category of land, with assured
irrigation and capable of yielding two crops a year. With allowances for degree of
irrigation or no irrigation maximum holding to be allowed was 54 acres.
2. The unit of application should be family, with 5 members of family (i.e., wife and
husband and 3 minor children) with allowance for more members, the maximum is two
ceilings.
3. Every major son would be treated as a separate unit.
4. Exemption would be allowed only on a few categories of land, such as plantations and
Agricultural Institutions.
5. Inclusion of ceilings in the Ninth Schedule of the Constitution, to make the process
litigant-free.
6. Retrospective effort from the date falling not later than 24.1.1971.
Thus, Ceiling Laws of Second Round were enacted in the early 1970s by all the states,
with retrospective operation from January 24, 1971. By 2013, totally 2.62 million hectares of
surplus land was distributed among 5.73 million beneficiaries. This is somewhat laudable.

7.3.5 Overall Defects in Implementation of Land Reforms

1. Loopholes in the Acts: There are loopholes in the land reforms Acts. These includes:
unsatisfactory definition of personal cultivation and ‘tenant’ from the point of tenancy
reforms etc. Big landlords with their financial and political power are able to retain their
ownership on land.
2. Lack of Political Will: Strong political wills determination is very much important for
the implementation of land reform measures. The political parties in power have not
evinced real interest in the implementation of the acts to favour the big land lords and
therefore diluted the acts.
3. Passive Nature of Beneficiers: Marginal and small farmers and landless labourers have
no unions in the rural areas. Most of them are illiterate and ignorant. Their failure to
demand their due under the acts has made the reforms ineffective.
4. Bureaucratic Obstacles: Indian bureaucracy always tried to play safe by following a
‘luckwarm attitude. They have been apathetic to the land reform and cause of the rural
poor. In some cases even administrators have joined hands with the politicians to grab
the surplus land (declared).
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5. Litigation: There are faults and defects in laws related to land reforms. Some of the big
landlords have approached the courts of law by taking advantage of these loopholes in
the Act. At present, total amount of land declared surplus under provisions of Land
Ceiling Act but remained under legislation stands at 9.59 lakh acres.
6. Non Availability of Records: For decades, land records have not been maintained
property. Implementation without accurate land records become a different task.
7. Disparities in the Acts: Agriculture is a State subject. Different states have enacted acts
differently with no uniformity. National Council for Land Reforms was established in
2008 to resolve the issues.
8. Delay in the Follow-up Action: There has been enormous Delay in taking follow up
action. All the land declared surplus was not taken by the government and whatever land
taken under the Ceiling Act was not distributed in total.

Check Your Progress.

Note: a) Space is given below for utilizing your answer.
b) Compare your answer with the one given at the end of the unit.
1. State the demand side factors which the agriculture sector contribute to the Economic
development.
..........................................................................................................................................
2. On what factors security of Tenure depends?
..........................................................................................................................................
3. Mention the National Guidelines for Ceiling adopted in 1972.
..........................................................................................................................................

7.4 PRE-GREEN REVOLUTION PERIOD - AGRICULTURAL

DEVELOPMENT
By the time of Independence, under British rule, India was reduced to foodgrain importing
country from the state of foodgrain exporting country under the British rule. After Independence,
due to foodgrain scarcity, India had to depend on imports from the US and other countries.
In 1946-47, India had to import foodgrains of 2.58 million tons. The food situation
worsened by the partition of India, as only 18.0 percent population was transferred to Pakistan,
while the higher share of cultivated area, 31.0 percent, was transferred, that too mostly irrigated
and fertile land.
The import of foodgrains went on increasing from 2.3 million tonnes in 1947-48, to 4.7
million tonnes in 1951-52 (Bhawani Sen, 1962, p.2). Only the US government involved itself
in evolving policies and programmes to increase foodgrain production in India, but also started
exporting food grains from 1951 and later under PL-480, as and when there were food grain
shortages. The US sponsored Community Development Programme (CDP) in 1952, and
National Extension Service (NES) in 1953, were introduced for rural reconstruction and
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increasing foodgrain production. In a decade, this programme covered the entire country. In
the First Plan, due to higher allocation, there was some increase in foodgrain production reducing
imports. Again in 1956, the net import of cereals was 1.39 million tones, thereafter it went up
regularly.
But during Second Plan, again scarcities arose and dependence on imports increased.
According to Bhawani Sen (1962, pp. ix and x), under the (first) two five year plans, the
improvement in agricultural technique was too inadequate to ensure an upsurge in agricultural
production and that institutional changes, mainly land reforms, were too insignificant to rouse
the productive initiative of the peasant masses.
The Agricultural Production Team sponsored by the Ford Foundation, visited India in
January 1959 and submitted its report entitled India’s Food Crisis and Steps to Meet It. To give
precise shape to the recommendations of the committee, a second Team of Agricultural Experts
sponsored by the Ford Foundation visited India in October 1959 and developed a ten-point
programme for stepping up food production in certain selected areas. The Intensive Agricultural
District Programme (IADP) was formulated on the basis of recommendations made by the
Ford Foundation Team.
The IADP was launched in 1960 and the Ford Foundation accepted to render both financial
and technical assistance for the successful implementation of the programme. It was implemented
first in seven districts and latter extended to cover eight more districts. In October 1965, the
new policy was put into practice when 114 districts (out of 325) were selected from Intensive
Agricultural Areas Programs (IAAP).

7.4.1 Necessity of Adopting Green Revolution

But, due to wars with China in 1962, and with Pakistan in 1965; passing away of two
Prime ministers Nehru in 1964 (May) and Shastry in 1966 (January); and also two consecutive
failures of crops due to drought, in 1966 it was necessitated to import the foodgrains to the tune
of 10.34 million tonnes from the US and this was the peak level import of food grain the
India’s history so far. Mrs. Indira Gandhi, who became the Prime Minister on January 24, 1966,
was keen on solving food problem of India. She had agreed to rupee devaluation to get import
of green revolution to India from the US by April 1966 through supplies of Mexican High
Yielding Varieties of Wheat and thereafter HYV rice from International Rice Research Institute
(IRRI) of Philippines. However, along with seeds, the imports of chemical fertilizers, tractors
and pesticides also came from the US. Thus, green revolution was initiated in India since
1966-67.
In fact, if the surplus land had been acquired through genuine implementation of ceiling
laws to proper land redistribution, the food production would have resulted in to solve the food
problem in India. But it did not happen so. But by mid-1960s, the issue of redistribution of land
on the basis of static superiority of small-farm efficiency (due to labour-intensive techniques)
became less compulsive, while encouraging mechanization of the large farms.
In this connection, on the eve of the import of green revolution technology,
C.H.Hanumantha Rao (1965, p.63) opined that under the system of family-farming and labour-

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intensive techniques, productivity of land and total output could be increased if the structure of
land ownership was altered and a more even distribution was ensured as this would, among other
things, make for a greater identity between the factors of ownership, management and labour.
But, as the existing structure of land ownership could not be disturbed, then the introduction of
mechanized processes had become necessary for a more effective utilization of land, as this
would lessen the supervising and managerial bottlenecks among larger farmers. Of these two
alternatives, the former had already proved far from being feasible politically, and the latter seemed
to be gradually developing in many regions of the country. Thus, the importance of adoption of
green revolution became necessary for the ruling government under Mrs. Indira Gandhi.
The new seed-fertilizer technology was called as Norman Borlaug technology, as Norman
Borlaug was responsible for new wheat seed varieties at CIMMYT, Mexico and he was awarded
Nobel Prize in 1970 for his achievement in new seed varieties. Later, it was named as green
revolution. Originally the term “Green Revolution” was used to refer to the radical peasant
political movements in Eastern Europe in the inter-war period, but since 1968, the term ‘green
revolution’ has been used to describe new high-yielding cereals technology, and this term was
first suggested by William Gaud, the USAID administrator (Hayami and Ruttan, 1971, p.42).

7.4.2 Expansion of Green Revolution Technology

Having dealt with the preconditions for adoption of new agricultural technology, we
may now consider the extent of expansion of this technology in the country mainly in terms of
irrigated area, machinery, areas under HYVs and fertilizer use. The analysis is undertaken for
two periods: Pre-green revolution period (P-I): 1950-51 to 1965-66; and Post-green revolution
period (P-II): 1966-67 to 1989-90.
As irrigation is the most indispensable pre-requisite for the adoption of new technology,
the investment on irrigation expansion was pursued in various parts of India with varying
outcomes. At the national level, the net irrigated area (NIA) expanded from 20.85 m.ha. in
1950-51 to 26.24 m.ha. in 1965-66, with a growth of 1.55 per cent per annum. It increased to
36.70 m.ha. in 1989-90, showing a growth rate of 2.43 per cent per annum during the period
1965-66 to 1989-90. The share of NIA in net sown area (NSA) was 17.56, 19.34, and 32.81 per
cent in 1950-51, 1965-66 and 1989-90 respectively. Further, the irrigation intensity (ration of
gross irrigated area in NIA) increased rapidly in the latter phase from 117.30 in 1965-66 to
132.44 in 1989-90 (it was only 108.20 in 1950-51). This shows clearly that irrigation expansion
was an item of high priority in the latter phase. As a result, gross cropped area increased so that
the cropping intensity in the country rose from 111.05 in 1950-51 to 114.01 in 1965-66 and
then to 128.05 in 1989-90. The interesting feature is that the share of NIA under wells including
tube wells rose from 28.67 per cent to 32.85 per cent and then to 51.16 per cent in the three
respective years. Investment in wells and tube wells was largely on private investment.
If we consider modern implements and machinery, electric motors increased at a very rapid
rate of 20.30 per cent per annum in the former phase (1951-56), while in the latter phase (1966-87)
they grew at 12.04 per cent. However, the former higher rate may be attributed to lower base (in
1950-51). Oil engines grew at 12.27 and 16.05 percent respectively in both phases. The GR period
shows its growth for expansion into places where electricity supply was not available.
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 Tractors increased at 13.03 and 13.26 per cent, being nearly at the same growth, in the
two phases; the growth in the former period was due to initial low base. Byres (1982, pp.28-29)
pointed out that, in India, in the decade 1966-67 to 1976-77, the availability of four-wheel
tractors was doubled and their domestic production increased four-fold; and the peak level
import of tractors was made in 1970-71, to extent of 12,032. This achievement could be
understood well if we look at the remarkable reduction in the net sown area per item, over a
period (Table 7.1).
The weight of new agricultural technology depends on the bio-chemical package which
includes mainly the extension of area
under HYVs and the use of chemical Table-7.1: Net Sown Area in Hectares per Each Item
fertilizers. The area under HYVs for
Item 1951 1966 1972 1982 1987
five major cereal crops (paddy,
Electric Motor 4,567 328 87 40 9
wheat, jowar, bajra and maize)
increased from 1.886 m.ha. in 1966- Oil Engine 1,431 289 91 46 4
67 to 61.165 m.ha. in 1989-90, Tractor 13,808 2,522 945 274 58
recording a remarkable growth of
16.33 per cent per annum over 23 years. By 1976-77, the HYV area reached 33.560 m.ha. From
the table 7.2, it is seen that during the decade of GR, it increased at 33.36 percent per annum
during 1966-67 to 1976-77; while in the remaining period from 1976-77 to 1989-90; it recorded
only 4.73 percent per annum. It is to be noted that in the early decade of GR, the growth was the
highest due to the lower base in 1966-67.
The use of chemical fertilizers rose from 0.066 m. tonnes in 1951-52 to 0.785 m. tonnes
in 1965-66 and it jumped to 1.101
m.tonnes in the initial year, 1966-67, of Table-7.2: Compound Annual Growth Rate
GR. Thereafter it went up rapidly, (CAGR) Growth Rate of HYV Area
reaching 3.411 m.tonnes in 1976-77.
S.No. Period Years CAGR
Then it rose to 11.568 m.tonnes by
1989-90. As seen from Table 3, the 1 1966-67 to 1989-90 23 16.33
growth rate over the entire period of GR 2 1966-67 to 1976-77 10 33.36
was 20.66 percent per annum during 3 1976-77 to 1989-90 13 4.73
1966-67 to 1989-90; and in the early
Note: CAGRs are computed from end values.
decade between 1966-67 and 1976-77,
it was 11.98 percent per annum. However, in the late GR period of 13 years from 1976-77 to
1989-90, it rose at 9.85 percent per
annum. The growth rate in the former Table-7.3: Compound Annual Growth Rate
periods was due to the lower base in the (CAGR) Growth Rate of Chemical Ferilizers
initial year of GR in 1966-67. The S.No. Period Years CAGR
higher growth during the former phase 1 1966-67 to 1989-90 23 20.66
is due to a practically nil base in the
2 1966-67 to 1976-77 10 11.98
initial year.
3 1976-77 to 1989-90 13 9.85
Note: CAGRs are computed from end values.
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 Further, when we look at the consumption of fertilizers in terms of per hectare gross cropped
area, the figures appear amazing. It increased from 0.53 kg in 1950-51 to 5.05 kg in 1965-66 and
in 1966-67; it went up to 7.00 kg. Then, it jumped to 20.38 kg in the first decade of GR and then
to 63.47 kg in 1989-90. If we compare the level of 1976-77 with 1966-67, per acre use was thrice;
and 1989-90 with 1966-67, it was nearly seven times. Thus, the usage of chemical fertilizers over
the entire period (23 years) of GR was spectacular with 600 percent increase.

7.5 CROPPING PATTERN AND PRODUCTIVITY OF

IMPORTANT CROPS
Cropping pattern implies the proportion of area under different crops at a point of time
and change in the distribution of area under different crops over a period of time. The cropping
pattern is mainly determined by natural factors like rainfall, climate and soil conditions. In
addition to these, technological factors also play an important role in influencing the proportion
of area under different crops.
Factors Determining Cropping Pattern: The cropping pattern in any country in
influenced by a variety of factors which are as follows.
1. Natural Factors: These factors include the nature of soil, climate, the extent of rainfall, etc.
These factors determine the basic crop-pattern of a region over a period of time. For example,
the areas having sufficient rainfall and water logging the most appropriate crop is rice. In areas
having scanty rainfall, the appropriate crops are jowar, maizc and bajra. Similarly, wheat is the
appropriate crop in the Indo-Gangetic plans.
2. Economic Factors: These consists of the price of agricultural products, incomes of farmers,
profitability of crops, the amount of risk involved in undertaking a specific crop cultivation and
the size of holding. For instance, the increase in the price of a particular crop relative to other
crops certainly induces the farmers to allocate large proportion of their cultivable lands to that
crop. In the same way due to the size of holding, small farmers cultivate food crops to fulfill
their basic food requirements. At against this, large farmers allocate large proportion of their
holdings to commercial crops. Availability of agricultural inputs such as seeds, fertilizers,
irrigation etc. also affects the crop pattern to some extent.
3. Social Factors: Social environment, customs, traditions etc. also influence crop pattern to
some extent. These factors induce the farmers to cultivate traditional crops using traditional
varieties of seeds and methods.
4. Government Policy: Policies of the government relating to different crops, exports, taxes,
subsides, supplies of inputs, availability of credit can affect the cropping pattern in a significant
way. The government policies pertaining to the expansion of irrigation facilities, announcement
of procurement and minimum support prices, input subsidy policies can contribute to the changes
in the cropping pattern.
Now we may look into the cropping pattern, covering the period of three phases as in
Table 7.4. P-I is pre-green revolution period and P-II covers the early and late green revolution
periods.

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 It is clear that food crops dominate in the gross cropped area, in P-I, between 1950-51
and 1965-66, the shares of food crops and cereals assume nearly 3/4ths and 3/5ths of gross
cropped area respectively. In P-II, the share of foodgrains decreases by nearly 4 percentage
points by 1989-90. For coarse cereals also the share decreases by 8 percentage points within P-
II. Nine oilseeds group shows the increasing trend by the end of P-I with an increase of 1.7
percentage points (from 8.1 to 9.8). But in P-II, the increase recorded by 3 percentage points
(from 9.53 to 12.5 percent).
Table-7.4: Cropping pattern of India in Selected Years as per Phases - 1950-51 to 1989-90
S.No. Year 1950-51 1960-61 1965-66 1966-67 1980-81 1989-90
1 Rice 23.36 22.34 22.84 22.4 23.26 23.14
2 Wheat 7.39 8.46 8.1 8.16 12.91 12.89
3 Jowar 11.81 12.05 11.39 11.47 9.16 8.14
4 Bajra 6.84 7.51 7.71 7.78 6.75 5.98
5 Maize 2.4 2.89 3.09 3.22 3.48 3.25
6 Gram 5.74 6.07 5.16 5.08 3.81 3.55
7 Tur 1.65 1.59 1.65 1.6 1.65 1.98
8 G.Nut 3.4 4.23 4.96 4.64 3.94 4.78
9 Rape S &M 1.57 1.89 1.87 1.91 2.38 2.73
10 Sunflower 0 0 0 0 0.07 0.65
11 Soyabeen 0 0 0 0 0.35 1.23
12 S.Cane 1.3 1.58 1.83 1.46 1.55 1.89
13 Cotton 4.46 4.98 5.13 4.98 4.53 4.22
14 All Others 30.09 26.41 26.28 27.28 26.17 25.58
GCA 100 100 100 100 100 100
15 Foodgrains 73.79 75.66 74.12 73.28 73.38 69.55
16 Cereals 59.31 60.23 59.49 59.22 60.37 56.71
17 Pulses 14.47 15.42 14.63 14.06 13.01 12.84
18 C Cereals 28.56 29.43 28.55 28.66 24.2 20.68
19 Oilseeds (9) 8.14 9.01 9.82 9.53 10.2 12.51
NSA (m.hectares) 118.75 133.2 136.2 137.23 140 142.34
GCA (m.hecatres) 131.89 152.77 155.28 157.35 172.63 182.27
Note: Nine Oilseeds: Groundnut, Rapeseed & Mustard, Castorseed , Seasamum, Nigerseed, Soybean, Sunflower,
Safflower, and Linseed.
There are 13 important crops shown in the Table 7.4. In P-I, they together increased by
3.8 percentage points (from 69.9 to 73.7 percent). By the end of P-II, this share reached 74.4
percent. Within those 13 crops, four cops - rice, jowar, wheat and bajra - occupied first to
fourth positions; and in P-I, they together assumed share of around one half of the GCA (50.0
percent). Gram and cotton assumed fifth and sixth positions, together accounting for 10.0 to
12.0 percent, as in Table.
At the end of P-II, first four crops together occupy a share of 50.2 percent only. However,
rice and wheat occupy shares with just more than 23.0 percent for rice and just less than 13.0
percent for wheat. Thus, the increase in the combined share of these two crops (nearly 5
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percentage points) is contributed by the decrease of combined share of jowar and bajra. In P-II,
the fifth and sixth positions are captured by groundnut and cotton respectively, by the end they
together accounted for 9.0 percent.

7.6 COSTS OF GREEN REVOLUTION

The introduction of the green revolution technology entailed considerable costs which
kept on increasing almost incessantly in the seventies and eighties. For example, per hectare
irrigation cost under major/medium projects increased from Rs.1200 under the First Plan to
Rs. 21,515 in the Sixth Plan. Similarly, the minor irrigation costs increased from Rs.509 to
Rs.4745 respectively (Rao and Deshpande, 1987, p.171). In the first three years of the seventh
Plan, costs in the former case rose to Rs.44,000 per hectare (Qazi,1989). Further, the government
had to spend huge sums on fertilizer subsidies, in addition to committed expenditure on extension
services, agricultural universities and so on. Thus, the agriculture had become a high cost
economy and the increasing capital: output ratio in this sector was emerging almost as an
enduring reality. The cost at this level was necessitated inevitably when the population of the
country was rising at 2.1 percent as noted by Bhalla (1979).
Environmental problems arose due to increased chemicalisation of the GR. The Green
Revolution created the perception that soil fertility could be produced in chemical factories
(Shiva, 1992, p.118). Pfeiffer (2006, p.7) in his book, said that Eating Fossil Fuels, The Green
Revolution increased the energy flow to agriculture by an average of 50 times its traditional
energy input. In the most extreme cases, energy consumption by agriculture has increased a
hundredfold or more. In a very real sense, we are eating fossil fuels.

7.7 REGIONAL IMBALANCES AND COVERAGE

However, there are some imbalances in the agricultural development process after the
introduction of new agricultural technology. For example, one can think of region-bias, cop-
bias and class-bias. The better endowed regions such as Punjab, Haryana, Western UP, and
some parts of AP and Tamilnadu could immediately adopt the new technology, because of
more and better irrigation facilities, while the eastern states lagged far too behind. As the
HYVs were provided mainly for rice and wheat and they required irrigation to yield good
results, and this crop-bias led to the region-bias. These two biases together acted to reinforced
class-bias, as the resourceful large farmers alone could adopt the new technology in full form
and content. These biases were unavoidable at the beginning of the green revolution, since at
that time, the food situation was so precarious that the distribution implications of the new
technology were deliberately glossed over.
By the end of 1980s, Rao (1989) noted that the disparities in growth between the
irrigated and rained or dry areas was not so sharp as it was in the early years of green revolution.
It was also heartening to find that many of the states where poverty was widespread and where
the growth of foodgrains output had slowed down in the first decade of green revolution, e.g.,
Assam, Bihar, Orissa, Madhya Pradesh and West Bengal had shown a much better performance
in the last decade.
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7.8 ACHIEVEMENTS OF GREEN REVOLUTION TECHNOLOGY
The major hallmark of the new agricultural technology was that India could achieve
self-reliance in the food grain production, overcoming the painful memories of the agrarian
crisis of mid-sixties. Food grain production rose from 50.00 m.tones in 1950-51, to 74.23
m.tones in 1966-67, and then it increased to 171.04 m.tones in 1989-90, recording overall
growth of 242 percent in 39 years, while the population rose from 361 million in 1951 to 828
millions in 1990, with overall increase of 129 percent; thus the overall growth of food grains
was nearly double the growth of population. However, it was pointed out by some scholars that
there was deceleration in the growth of agricultural production in the post-green revolution
period (1967-68 to 1983-84) compared with the pre-green revolution period (1949-50 to 1964-
65). But, the studies of Sawant (1987, p.219-221) and Bhalla (1987, p.237) showed that the
deceleration hypothesis was not correct.
Another interesting feature is that the growth of yield had compensated for the slow (or
negligible) growth of cropped area. The contribution of yield expansion to output growth
increased from 49 per cent in the pre-green revolution period of 81 per cent in the post-green
revolution period (Bhalla, op.cit., p.237), Rao (1989) says that its contribution should have
reached cent per cent in the decade 1978-79 to 1988-89, as the cropped area remained more or
less stationary. Because of the land-augmenting character of the biochemical technology, it
was reported that more employment had been generated and that the labour-productivity had
also increased (Bhalla, op.cit., p.252).
Table-7.5: Yield Levels of of Important Crops (Kgs/ha)
Year Wheat Rice Tur G.Nut Cotton Su.Cane Cereals Pulses F.grains 9 Oilseeds

1950-51 663 668 788 775 88 33422 542 441 522 481
1960-61 851 1013 849 745 125 45549 753 539 710 507
1965-66 827 862 678 554 104 43717 676 438 629 419
1966-67 887 864 448 604 114 40336 707 377 644 428
1979-80 1436 1074 643 805 160 49358 982 385 876 516
1989-90 2121 1745 763 930 252 65612 1530 549 1349 742
Overall Growth Rates (between end Years)
Phase-I 24.74 29.04 -13.96 -28.52 18.18 30.80 24.62 -0.68 20.50 -12.89
Phase-II 139.12 101.97 70.31 53.97 121.05 62.66 116.46 45.62 109.47 73.36
Note: Nine Oilseeds: Groundnut, Rapeseed & Mustard, Castorseed , Seasamum, Nigerseed, Soybean, Sunflower,
Safflower, and Linseed,

Table 7.5 shows the yield levels (Kgs/ha) for 2 main food crops, 4 cash crops and 4 crop
groups. In P-I, pre-green revolution period, wheat and rice increased 25 to 29 percent, but in P-
II, the post-green revolution period, wheat and rice rose by 139 and 102 percent respectively.
This shows the weight of green revolution technology. Tur and groundnut showed negative
increase in P-I, but performed well in P-II, with 70.3 and 54.0 percent respectively. Cotton
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yield increased by 18.1 percent in P-I and in P-II it grew at 121.1 percent. In regard to crops
groups, cereals and foodgrains showed good performance in post green revolution period at
around 110 percent each. Pulses and 9 oilseeds showed negative growth in P-I, but they performed
well in P-II with 45.6 and 73.4 percent respectively. Thus, performance of all the crops and
crop-groups shown in Table-7.5 is remarkable in the post-green revolution period.
Moreover, since agricultural growth was considered to be a power mechanism towards
alleviation of rural poverty, especially during the mid-sixties when it had touched fairly high
levels, the equity question did not engage a serious attention. As Dantwala (1987, pp.148-149)
says, “Growth and equity become concordant” to begin within the country with widespread
poverty. In any case, it is gratifying that absolute poverty came down in the states, over a
period due to expansion of new technology, the highest decline being experienced by
agriculturally advanced regions. It is particularly so in the period 1977-78 to 1983-84, as per
Bhalla. However, it is a fact that the relative poverty reflecting inequalities in the income
distribution in terms of Loreng curve and Gini coefficient increased in the developed regions.
Taking all the values in 2011-12 constant prices, the gross value added (GVA) from
agricultural sector (crop production, livestock, forestry and logging, and fishing aquaculture)
was as high as 61.7 percent in 1950-51. But in the GR period it decreased from 47.1 in 1966-67
to 35.6 percent in 1989-90. The fact is that though these relative shares decreased, the absolute
numbers were on the increase. It is important to note that in the GR period, the weightage of
crop production increased from 54.4 percent in 1966-67 to 63.7 percent in 1989-90, as the
weighatage forestry and logging went down from 24.6 to 15.0 percent in this period.

Check Your Progress.

4. State necessity of adopting Green Revolution.
..........................................................................................................................................
5. What are the major achievements of Green Revolution?
..........................................................................................................................................

7.9 SUMMARY
Land reforms are required for technical change, though technical change can influence
institutions. In view of this only, in the post-Independence period, land reforms were implemented
by the government of India, by abolition of intermediaries and enacting tenancy laws in 1950s;
and then for redistribution of surplus land, ceiling laws were enacted and implemented in
1960s and 1970s. The failure in the effective implementation of land reforms so far is depressing
as the poorer sections did not get the desired benefits out of these reforms. Many studies pointed
out that there exists a wide gap between acquisition and distribution of surplus land. However,
in the approach paper to the Eleventh plan, the need to implement unfinished land reforms has
been emphasized. When there was food grain scarcity, first Indian government imported food
grain form the US under PL 480. But in 1966, it was necessary to import more than 10 million
tonnes of food grains from the US, the then PM, Smt. Indira Gandhi entered into agreement
with the US to import Green revolution from the US in 1966-67, by accepting rupee devaluation.
106
Accordingly the US imported seeds of high yielding varieties (HYVs), chemical fertilizers,
tractors, etc. Irrigation was provided through several dams by government. Tube well irrigation
also increased very well. Green revolution was successful in meeting the food needs, so that
India could achieve self-sufficiency in food grains; and maintains comfortable buffer stocks by
the end of 1980s. But it is important to recognize the fact that the costs of green revolution
reflected in terms environmental and ecological problems, due to salinity, chemicalisation and
water logging. Further, the adoption of mono crop culture disturbed the crop diversity.

7.10 CHECK YOUR PROGRESS- MODEL ANSWERS

1. On demand side, it creates demand for (a) non-agricultural goods which are useful for
consumption in agricultural sector i.e., for both durable and non-durable goods; and (b)
agricultural inputs, such as HYV seeds, fertilizers and pesticides and agricultural
Implements and Machinery (I & M).
2. Security of tenure depends on five factors viz., (i) definition of the term ‘tenant’, (ii) the
circumstances in which landowners are allowed to resume tenanted land for personal
cultivation, (iii) definition of the term ‘personal cultivation’, (iv) provision for regulating
voluntary surrender of tenancy and (v) status of land records.
3. (i) The limit of ceiling should be between 10-18 acres for best category of land, with
assured irrigation and capable of yielding two crops a year. With allowances for degree
of irrigation or no irrigation maximum holding to be allowed was 54 acres. (ii) The unit
of application should be family, with 5 members of family (i.e., wife and husband and 3
minor children) with allowance for more members, the maximum is two ceilings. (iii)
Every major son would be treated as a separate unit. (iv) Exemption would be allowed
only on a few categories of land, such as plantations and Agricultural Institutions. (v)
Inclusion of ceilings in the Ninth Schedule of the Constitution, to make the process
litigant-free. (vi) Retrospective effort from the date falling not later than 24.1.1971.
4. Wars with China in 1962, and with Pakistan in 1965, two consecutive failures of crops
due to drought, in 1966, it was necessitated to import the food grains to the tune of 10.34
million tonnes from the US.
5. The significant impacts of green revolution are; i) increase is foodgrain production ii)
Employment opportunities in rural areas iii) improvement in incomes iv) improvements
in Exports of agriculture and allied products.

7.11 MODEL EXAMINATION QUESTIONS

I. Answer the following questions in about 10 lines each.
1. Explain the Land Ceiling measures initiated by the government.
2. Write a note on ceiling on land holdings.
3. Explain the necessity of adopting green revolution.
4. Explain the implementation of land reforms after independence.
5. Analyse the trends in agriculture production and productivity in India.
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II. Answer the following question in about 30 lines each.
1. What are the objectives of land reforms in India and analyse the various land reform
measures initiated by the Government.
2. Explain the role of agriculture in Economic Development.
3. Analyse the impact of green revolution on cropping pattern and productivity of major
crops.
4. Examine the achievements of Green Revolution Technology.
5. Explain the factors effecting cropping pattern.

III. One mark questions.

A. Multiple choice questions.
1. New Land System introduced by the British during.
A. 1719-20 B. 1793-1850 C. 1929 D. None of these
2. Tebhaga peasant struggle held in the state of ….
A. Andhra Pradesh B. Tamil Nadu C. Bengal D. Karnataka
3. The chairman of Agrarian Reforms Committee was …..
A. P.V. Narasimha Rao B. J.C.Kumarappa
C. Swaminathan D. Ch. Hanumantha Rao
4. The limit of best category of land under ceiling as per national guidelines 1972 was
A. 5-10 acres B. 10-18 acres C. 5 acres D. 15 acres
Answers: 1-B; 2-C; 3-B; 4-B.

B. Fill in the blanks.

1. As per Johnston and Mellor _________ is the precondition for agricultural development.
2. There is a dialectical interaction between technology and ___________.
3. Tenancy reforms were concerned with ________ and ___________.
4. ‘Green revolution’ has been used to describe ___________.
Answers: 1. Technical change 2. Institutions 3. Regulation of rent and security of tenure
4. New high yielding cereals technology.

C. Match the following.

A B
1. IADP assisted by A. Norman Borlaug
2. New seed-fertilizer technology B. Ford foundation
3. Hall mork of new technology C. Peasant struggle in Bengal
4. Tebhaga D. Self-reliance in food grain production
Answers: 1-B; 2-A; 3-D; 4-C
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7.12 GLOSSARY
1. Productivity: Yield per Hectare or Rate.
2. Cropping Pattern: Proportion of area under different crops at a point of time.
3. Land Reforms: The direct intervention of the Government to reduce inequalities in
land ownership.
4. Tenancy Reforms: Measures initiated by the Government to protect the interest of tenants.
5. Land Ceiling: Statutory limit on the maximum size of holding, a family unit can have
its ownership.

7.13 REFERENCES
1. Appu, P.S (1975),”Tenancy Reform in India”, Economic and Political Weekly, Vol. 10,
Issue No. 33-35, August 06 (Special).
2. Bhalla, G.S (1979), “Transfer of Technology and Agricultural Development in India”,
Economic and Political Weekly, Vol.14, No.51-52, December 22-29.
3. Bhalla, G.S (1987), “Some Issues in Agricultural Development in India – An Overview”,
in P.R.Brahmananda and V.R. Panchamukhi (eds.).
4. Brahmananda, P.R and V.R. Panchamukhi (eds.) (1987), The Development Process of
the Indian Economy, Himalaya Publishing House, New Delhi.
5. Dandekar, V.M and Nila Kanth Rath (1971), “Poverty in India”, Economic and Political
Weekly, January 9.
6. Gotsh, Carl H., (1972), “Technical Change and the Distribution of Income in Rural
Area”, American Journal of Agricultural Economics, Vol. 54, No. 2 May.
7. Government of India (1976), Report of the National Commission on Agriculture –Part
XV-Agrarian Reforms, Ministry of Agriculture and Irrigation, New Delhi.
8. Hayami, Yujiro and Rattan, Vernon W., (1971): Agricultural Development : An
International Perspective, The Johns Hopkins Press, Baltimore.
9. Kotovsky, G (1964), Agrarian Reforms in India, Peoples Publishing House.
10. E.J (1961), “The Economic Basis of Land Reforms in Underdeveloped Countries”, Land
Economics, May.
11. Parthasarathy, G and Suryanarayana, K (9171),” Andhra Pradesh (Andhra Area) Tenancy
Amendment Act”, Economic and Political Weekly, March 27.
12. Rao, C.H. Hanumantha (1965), Agricultural Production Functions, Costs and Returns
in India, Asia Publishing House, Bombay.
13. Rao, C.H. Hanumantha (1989), “Technological Change in Indian Agriculture Emerging
Trends and Perspective”, Indian Journal of Agricultural Economics, October-December.

109
14. Rao, V.M and Deshpande, R.S (1987), “Agricultural Growth in India: A Review of
Experience and Prospects”, in P.R. Brahmananda and V.R. Panchamukhi (eds.).
15. Sawant, S.D (1987), “A Review of Performance in the Agricultural Sector”, in P.R.
Brahmananda and V.R. Panchamukhi, (eds.).
16. Sen, Amartya (1962), “An Aspect of Indian Agriculture”, Economic Weekly, Annual
Number, February.
17. Sen, Bhawani (1962), Evolution of Agrarian Relations in India, Peoples Publishing House,
New Delhi.
18. Shigemochi, Hirashima (1978), The Structure of Disparity in Developing Agriculture,
Institute of Developing Economies, Tokyo.
19. Venkateswarlu, Akina (1998),Developing Agricultural Technology: A Study of Andhra
Pradesh Agriculture, Rawat Publications, Jaipur.

– Dr. A. Venkateswarlu, Consultant, CESS.

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UNIT-8: AGRARIAN CRISIS AND FOOD SECURITY IN
INDIA
Contents
8.0 Objectives
8.1 Introduction
8.2 Expansion of Irrigation, HYV area and Chemical Fertilizers in Post Globalisation Period
8.3 Agriculture in the Early and Late Globalization Phases
8.4 Impact of Globalisation on Agriculture and Agrarian Crisis
8.5 Policies to Solve the Agrarian Crisis
8.6 Food Security in India
8.7 Food Policy in Independent India
8.8 Summary
8.9 Check Your Progress – Model Answers
8.10 Model Examination Questions
8.11 Glossary
8.12 References

8.0 OBJECTIVES
The main objective of this unit is to explain the state of agriculture after Neo-liberalisation
in 1991 and India’s entry into WTO in 1995, due to liberalization, privatization and globalization
(LPG) policies. After reading this unit, you will be able to:
● know the conditions that led to liberalization, privatization and globalization (LPG).
● describe the expansion of irrigation, HYV area, and chemical fertilizers.
● analyse the agricultural development in the early and late globalization.
● evaluate the impact of globalisation on Indian agricultural sector.
● suggest some policies to solve the agrarian crisis. and
● understand the concept of food security and food policies of GOI.

8.1 INTROUCTION
During the 1980s and in the early 1990s, there had occurred many political changes at
international level, as the socialism was falling down in the East European countries (1989)
and the USSR (1991), and the first signal of change was initiated with Solidarity Movement in
Poland in 1980, under Lech Walesa. In India also, throughout 1980s, there were changes in the
economic and political conditions; and a new economic policy (NEP-I) came into existence in
1985, leading to partial liberalization of internal and external economic affairs under the

111
leadership of the then Prime minister, Rajiv Gandhi, who was influenced by Reagan and Thatcher.
Quick political changes took place in India and economic conditions got worsened in the domestic
and external debt.
New Government formed in 1991, under Sri P.V.Narasimha Rao as Prime Minister, and
Dr. Manmohan Singh as Finance minister who initiated Second Round of new economic policy
(NEP-II), called economic reforms, as was necessitated by the World Bank loan, under the
conditions of rupee devaluation and liberalization of the economy. New Government also signed
the Dunkel Draft, and entered the WTO with effect from January 01, 1995. As a consequence
of NEPs of 1985 and 1991, on the one hand, and the entry into WTO in 1995, on the other; in
all sectors of Indian economy, liberalization was accelerated including agricultural sector.
We take up the performance of Indian agriculture in the early globalisation period (1990-
91 to 1999-00), Phase-III or P-III and in the late globalisation period (2001-02 to 2016-17),
Phase-IV, simply P-IV.

8.2 EXPANSION OF IRRIGATION, HYV AREA AND

CHEMICAL FERTILIZERS
1. Irrigation Expansion: First we consider the changes in net irrigated area (NIA), gross
irrigated area (GIA), net sown area (NSA), gross cropped area (GCA), irrigation intensity (II)
and cropping intensity (CI) in the two phases, viz., Phase III and Phase IV.
The share of NIA in net sown area (NSA) increased gradually, from 33.58 percent in
1990-91 to 44.78 percent in 1999-00 and then to 48.80 percent in 2014-15 respectively. It is
remarkable that over 25 years’ period, the increase was over 15 percentage points. Further, the
irrigation intensity (percentage of gross irrigated area to NIA) increased rapidly from 131.62 in
1990-91 to 137.00 in 1999-00, and then to 141.10 respectively in 2014-15. As a result, gross
cropped area also increased so that the cropping intensity in the country rose from 129.90 in
1990-91 to 133.60 in 1999-00, and then to 141.55 respectively in 2014-15. Thus, the Irrigation
Intensity (II) and Cropping Intensity (CI) moved in unison with each other.
At the national level, the net irrigated area (NIA) expanded from 48.02 million ha. in
1990-91 to 57.53 million ha in 1999-00, with a growth in P-III with 2.02 percent per annum. It
increased to 68.40 million ha in 2014-15, showing a growth rate of 1.61 percent per annum in
P-IV. The NIA grew at a higher rate in P-III than P-II (late green revolution phase, with 1.77
percent).
In the Phase-III, the share of Government canals, remained nearly the same from beginning
of P-III to its end (around 17.00 million hectares); but the share of tube wells rose from 14.26
to 22.04 million hectares between 1990-91 and 1999-00. This being the globalisation and
liberalization period private investment in irrigation increased. Thus, tube well irrigation
grew at the highest rate, whereas Government canals increased at very lower rate. Further tank
irrigation decreased and total canal irrigation did not grow at all. In the Phase-IV, tube well
irrigation grew at relatively high rate, whereas Government canals increased but at lower rate.

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2. High Yielding Varieties (HYVs): High yielding varieties are taken into account from the
year, 1966-67, when green revolution was officially initiated. It was seen that in Phase-II, the
early GR period, the area under HYVs for five major cereal crops (paddy, wheat, jowar, bajra
and maize) increased at a remarkable growth. By the end of late GR period, in 1989-90, in
Phase-II, the HYV area formed 33.56 percent in GCA of all crops. Further in this Phase, paddy
achieved a growth rate double that of wheat.
After green revolution period, the data of HYV are available for Phase-III (1990-91 to
1998-99 only) for the early globalization period only. The total five crops area under HYV
increased from 73.73 million hectares (34.32 percent of GCA) in 1990-91 to 77.05 million
hectares (40.20 of GCA) in 1998-99.
3. Chemical Fertilisers and Pesticides: The use of total chemical fertilizers rose from 69.80
thousand tonnes in 1950-51 to 784.60 thousand tonnes in 1965-66 and by 1989-90, it reached
11568.20 thousand tonnes. In P-III, total chemical fertilizer use increased from 12.55 to 18.07
million tonnes and then to 21.65 million tonnes in 2006-07 and reached 26.59 million tonnes
by 2017-18 the end of P-IV. When we look at the consumption of fertilizers in terms of per
hectare of cropped area, in Phase-III, it increased from 87.74 kg in 1990-91 to 128.10 kg in
1999-00. In P-IV, the peak globalization period, it rose to 182.55 kg (in 2014-15), which is
more than doubled when compared to that of 1990-91.
In this connection, the impact of structural adjustment programme (SAP) of NEP-II and
WTO led to affect ratio of NPK (Nitrogen-N, Phosphorus-P, and Potassium-K). As a part of SAP,
the effect of reduction of fiscal deficit first fell on fertiliser subsidy, in August 1991, which led to
a rise in the fertiliser prices. Fertiliser is a part of biochemical inputs and its use is size-neutral, as
it is used by all farmers including marginal and small ones. Its price rise would cause reduction in
its consumption, resulting in reduction of both productivity and production. Some economists
(Utsa Patnaik and Meera Nanda) expressed concern over the price rise of fertilizers due to reduction
of subsidies, as this would ultimately lead to price rise of food.

8.3 AGRICULTURE IN THE EARLY AND LATE

GLOBALIZATION PHASES
The major hallmark of the Green Revolution is that India could achieve self-reliance in
the food grain production, by the late 1970s, overcoming the painful memories of the agrarian
crisis of mid-sixties. Food grain production increased from 50.82 to 72.35 million tonnes
between 1950-51 and 1966-67, in the pre-green revolution period (P-I). By the end of the
green revolution period (P-II), by 1989-90, it increased to 171.04 million tonnes. By the end of
P-III (i.e., 1999-00), food grain production rose to 209.80 million tonnes and by the end of P-IV
(i.e., 2016-17), its quantum reached 275.70 million tonnes.
1. Cropping Pattern: The cropping pattern, covering the period of two phases, P-III and P-
IV, in Table 8.1. As usual, it is clear that Food grain crops dominate in the gross cropped area;
and in P-III, between 1990-91 and 1999-00, the share of Food grain crops captured nearly 2/3rds
of GCA; and cereals assumed more than half of GCA (around 55 percent). In P-IV, the shares
of these crop groups decreased by 2.5 to 3.5 percentage points by the end of this phase.
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 Table-8.1: Cropping Pattern of India in Selected Years as per Phases
1990-91 to 2014-15 (% in GCA)
S.No. Year/Crop 1990-91 1995-96 1999-00 2000-01 2005-06 2006-07 2014-15
1 Rice 22.98 22.85 23.97 24.12 22.65 22.77 22.24
2 Wheat 13.01 13.34 14.59 13.88 13.74 14.55 15.87
3 Jowar 7.73 6.04 5.44 5.32 4.50 4.40 3.11
4 Bajra 5.64 4.97 4.72 5.30 4.97 4.94 3.69
5 Maize 3.18 3.19 3.41 3.57 3.94 4.10 4.63
6 Gram 4.05 3.80 3.26 2.80 3.60 3.89 4.16
7 Tur 1.93 1.84 1.82 1.96 1.86 1.85 1.94
8 G.Nut 4.47 4.01 3.65 3.54 3.50 2.92 2.40
9 Rape S &M 3.11 3.49 3.20 2.42 3.78 3.53 2.92
10 Sunflower 0.88 1.13 0.68 0.58 1.21 1.12 0.30
11 Soyabeen 1.38 2.69 3.30 3.46 4.00 4.33 5.50
12 S.Cane 1.99 2.21 2.24 2.33 2.18 2.68 2.56
13 Cotton 4.01 4.82 4.62 4.60 4.50 4.75 6.46
14 All Others 25.64 25.60 25.10 26.11 25.58 24.16 24.22
GCA 100.0 100.0 100.0 100.0 100.0 100.0 100.0
15 Foodgrains 68.83 64.55 65.33 65.31 63.09 64.31 62.66
16 Cereals 55.55 52.66 54.12 54.33 51.47 52.25 50.79
17 Pulses 13.28 11.88 11.21 10.98 11.62 12.05 11.87
18 Cereals 19.55 16.47 15.57 16.33 15.08 14.92 12.69
19 Oilseeds 13.00 13.85 12.87 12.29 14.45 13.78 12.90
NSA (m. hectares) 143.00 142.20 141.06 141.34 141.16 139.82 140.13
GCA (m. hectares) 185.74 187.47 188.43 185.34 192.74 192.38 198.36
Note: Nine Oilseeds: Groundnut, Rapeseed & Mustard, Castorseed , Seasamum, Nigerseed, Soybean, Sunflower,
Safflower, and Linseed,

For the nine oilseeds group, the share remained around 13.00 percent in P-III. In P-IV,
its share reached peak in 2005-06 (14.50 percent), a rise by 1.5 percentage points. This happened
because of the oil seeds development programme of the GOI, with incentives, to discourage
imports. But with Vajpaye’s sudden decision to import oil from Malaysia, as a quid pro quo to
get concessions to Indian capitalists in Malaysia (as Pillai, ex-Commerce Secretary of GOI,
said) the share declined to 12.90 percent, by 2014-15. As regards pulses, there had been no
much increase in the share over the P-IV and P-V, lying around 11-12 percent.
Within the 13 crops, four crops – rice, wheat, jowar and bajra - occupied first to fourth
positions in P-III. Their share in P-III did not much change. However, their share in P-IV,
114
which was 48.62 percent in 2000-01 gradually decreased and decreased to 44.91 percent, thus
recording a decrease by 3.7 percentage points. Very interestingly, in this period commercial
crops cotton and soybean gradually rose to occupy 3rd and 4th positions after rice (1st) and wheat
(2nd). These two crops together covered GCA of 8.06 percent in 2000-01, but by 2014-15 they
occupied 11.96 percent of GCA, recording an increase of 3.9 percentage points. Thus, the
share lost in main food grains was gained by cash crops.
2. Agricultural Production and its Allied Sectors: Now we may examine the performance
of agricultural sector (Table 8.2), in the post-globalisation period from 1990-91 to 2016-17,
dividing it into two Phases mainly: P-III (1990-91 to 1999-00) and P-IV (2000-01 to 2016-17).
In P-III, the agricultural GVA (including allied activities) grew at 2.77 percent Compound rate
per annum, whereas in P-IV, it rose to 2.84 percent. The growth of total GVA in the early
globalisation period assumed 5.28 percent compound annual rate, rising to 6.23 percent in the
late globalization period. Thus, both AGVA and TGVA performed well in P-IV.
Table-8.2: Agri. GVA, GVA and Share of Agri. GVA; and Shares of Agri. Allied
Activities in Agri. GVA: 1990-91 to 2016-17.
Year Agri. GVA Total GVA % Agri. % Shares in Agricultural GVA
(Rs.Crore) (Rs.Crore) GVA in Crops Live Forestry Fishing Agri.
TGVA stock and and GVA
Logging Aquaculture

1990-91 811,417 2,310,015 35.13 64.2 18.28 14.26 3.26 100

1999-00 1,065,918 3,864,524 27.58 65.29 18.63 12.14 3.94 100
2016-17 1,716,746 11,247,629 15.26 60.17 26.15 8.08 5.59 100
Source: Computed from CSO at Constant Prices of 2011-12 fo back Series; and at 2011-12
Prices thereafter.
Note: The shares of Agricultural Activities were found from the actual summation from
the back series. But Absolute figures for Agri.GVA and Total GVA were taken from the Back
series as they were given.
Table 8.2 also portrays the share of agricultural GVA in total GVA and the shares of
agricultural allied activities within agricultural GVA. The share of agricultural GVA in total GVA
was 35.1 percent in 1990-91, at the beginning of P-III; and by the end of this phase it reached 27.6
percent, and it went down to 15.3 percent by the end of P-IV. Thus in the early and late globalization
phases, the share of agriculture decreased from more than one-third to more than one-sixth of
GVA; while in the same period, on the whole, agricultural GVA increased by 111.6 percent and
total GVA rose by 386.9 percent, i.e., the latter rose treble the speed of the former.
In the right part of Table 8.2, the shares of agricultural allied activities within agricultural
GVA, over 27 years are shown. It is seen that the share of crop production assumed more than
three-fifths (more than 60 percent) in each year, and in most of the years it was nearer to two-
thirds of the agricultural GVA. After crop production, livestock sector assumes dominance
throughout the period, with just more than 18.0 percent in the P-III. Forest and logging sector
was sliding down in the P-III continuously, starting from 14.3 percent in 1990-91 and reaching
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8.1 percent in 2016-17. Fishing and aquaculture sector showed 3.3 percent in the beginning of
P-III, but rose to 3.9 percent at the end of P-III. But its share rose to 5.6 percent by the end of P-
IV. Thus, its contribution to AGVA is remarkable.
3. Yield Levels and Growth Performance of Principal Crops: Table 8.3 shows the yield
levels (Kgs/hectares) for 2 main crops, 4 cash crops and 4 crop groups. In P-III, early globalization
period, wheat and rice increased by 21.8 and 14.1 percent, but in P-IV, the late globalization
period, wheat and rice rose by 18.8 and 31.1 percent respectively. Rice performed well, and
wheat seemed to have exhausted yield increasing effects in P-IV. Cotton showed no growth,
and groundnut had negative growth in the decade of P-III. Cotton yield increased by 173.2
percent in P-IV, because of Bt cotton seeds adopted in India since 2002. However, tur and
groundnut also performed well in P-IV, with yield increase around 44 percent. Sugarcane
showed good performance in P-III with 8.5 percent, compareed with only less than 2 percent in
P-IV. All the crop groups performed well in P-IV than in P-III. Pulses and nine oil seeds showed
remarkably higher growth in P-IV with 43.2 and 51.2 percent respectively than in P-III.

Table-8.3: Yield Levels of of Important Crops (Kgs/hectares)

Year Wheat Rice Tur G.Nut Cotton Sug.Cane Cereals Pulses F.grains 9 Oilseeds

1990-91 2281 1740 673 904 225 65395 1571 578 1380 771
1999-00 2778 1986 786 764 225 70934 1926 635 1704 854
2000-01 2708 1901 618 977 190 68578 1844 544 1626 810
2006-07 2708 2131 650 866 421 69022 2020 612 1756 916
2014-15 2750 2391 729 1552 462 71512 2331 728 2028 1075
2015-16 3034 2400 646 1465 415 70720 2393 656 2042 968
2016-17 3216 2550 885 1424 519 69886 2564 779 2153 1225
Overall Growth Rates (between end Years)
Phase-III 21.79 14.14 16.79 -15.49 0.00 8.47 22.55 9.86 23.48 10.77
Phase-IV 18.76 34.14 43.20 45.75 173.16 1.91 39.01 43.20 32.41 51.23
P-III+P-IV 40.99 46.55 31.50 57.52 130.67 6.87 63.17 34.78 56.01 58.88
Note-1: Nine Oilseeds: Groundnut, Rapeseed & Mustard, Castorseed , Seasamum, Nigerseed, Soybean,
Sunflower, Safflower, and Linseed,
Note 2: Overall Growth rate = ((Yn/Yi) -1)*100, where Yi= Initital Year value and Yn= End Year Value.

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 Table-8.4: Growth of Production, Area and Yield -Selected
Crops- between 1990-91 to 2016-17.
S.No. Crop 1990-91 to 1999-00 Yield 2001-02 to 2016-17 Yield
(Phase-III) Effect (Phase-IV) Effect
P A Y (%) P A Y (%)
1 Foodgrains 2.09 -0.07 2.17 104 2.24 0.29 1.94 87
2 Cereals 2.20 0.05 2.15 98 2.15 0.03 2.12 99
3 Pulses 0.65 -0.60 1.26 193 3.41 1.39 2.00 59
4 Coarse Cereals -0.01 -2.09 2.14 - 2.27 -1.30 3.61 159
5 Rice 2.02 0.67 1.34 66 1.84 0.03 1.81 98
6 Wheat 3.57 1.72 1.82 51 2.47 1.33 1.13 46
7 Jowar -3.07 -3.54 0.48 - -3.06 -3.89 0.86 -
8 Bajra 0.95 -1.39 2.38 251 1.65 -1.78 3.50 212
9 Maize 3.29 0.94 2.26 69 5.19 2.35 2.78 53
10 Gram 2.96 1.26 1.69 57 4.60 3.11 1.44 31
11 Tur 0.95 -0.65 1.60 167 2.73 1.68 1.03 38
12 Oil seeds (9) 2.25 0.15 2.09 93 3.09 0.92 2.15 70
13 Groundnut -1.25 -2.30 1.07 - 1.01 -1.88 2.94 291
14 R&M 0.78 0.72 0.06 8 2.76 1.11 1.63 59
15 Sunflower -3.14 -2.97 -0.22 7 -6.88 -8.49 1.77 -
16 Soyabean 13.06 10.24 2.57 20 5.53 4.45 1.03 19
17 Sugar Cane 2.73 1.67 1.05 38 1.68 1.06 0.62 37
18 Cotton 2.30 2.71 -0.41 - 9.33 3.01 6.14 66
Note-1: P= Production; A = Area; and Y = Yield: R&M = Rape seed and Mustards.
Note-2: Nine Oilseeds: Groundnut, Rapeseed & Mustard, Castorseed, Seasamum, Nigerseed, Soybean, Sunflower,
Safflower, and Linseed.
Note-3: Growth rates are computed by the author by trend line method, by formula: log Y= log A + t log b
Table 8.4 shows the growth rates and yield effects of different crops in two Phases (P-III
and P-IV). When we look at the five groups of food grains, cereals, pulses, coarse cereals and
nine oil seeds, except cereals, other four groups showed better performance in P-IV than P-III.
Pulses and nine oil seeds had higher growth rates, 3.41 and 3.09 percent in P-IV, whereas they
showed growth of 0.65 and 2.25 percent in P-III respectively. Cereals maintained almost the
same growth 2.20 percent/pa in both P-III and P-IV. Coarse cereals rose from negative to
positive growth -0.01 to 2.27 percent from P-III to P-IV. In both phases, these five crop groups
showed higher yield effects, varying between 70 to 193 percent.
Among oil seeds, only soybean showed better performance in production but it was
contributed by area expansion only in all the phases. For groundnut, in P-III, production and

117
area had negative growth; whereas in P-IV area had negative growth despite production showed
positive growth, thus showing the highest yield effect in the last phase. Rapeseed & mustard
showed higher growth in P-IV with 2.76 percent/pa; Sunflower showed negative growth rates
for both production and area in the two phases. Among two cash crops, sugar had better growth
in P-III and thereafter decreased. In P-III, cotton showed positive production growth of 2.30
percent with negative growth of yield (-0.41 percent). In P-IV, it performed better, having the
highest production and yield growth of 9.33 and 6.14 percent/pa and yield effect of 66 percent,
due to adoption of Bt cotton since 2002.

Check Your Progress.

Note: a) Space is given below for utilizing your answer.
b) Compare your answer with the one given at the end of the unit.
1. State the trends in the use of chemical fertilizers use.
..........................................................................................................................................
2. Analyse the trends in production, area and yield of crops during 1990-91 to 2016-17.
..........................................................................................................................................

8.4 IMPACT OF GLOBALISATION ON AGRICULTURE –

AGRARIAN CRISIS
The GOI signed the Dunkel Draft in 1994 and India became part of WTO in 1995, within
a few years of accepting the SAP loan in 1991. As per the Agreement on Agriculture (AOA) of
WTO, three areas of policy reform were required to be enforced in India, as in other developing
countries. They are (i) market access, (ii) domestic support and (iii) export subsidies.
1. Dependence on Agricultural Exports Not Beneficial to India: Due to WTO rules, India
also has to engage international trade in agricultural commodities including rice and wheat. There
is no problem with the encouragement of exports of commercial crops. But, it is necessary to be
careful in liberalizing the trade in foodgrains, particularly cereals - wheat and rice; because the
self sufficiency in foodgrain supply is to be ensured in a large country like India. Further, for
importing foodgrains, there should be availability of sufficient foreign exchange to meet foodgrains
imports. The exportable surplus of foodgrains, particularly wheat is concentrated in five developed
countries, the US, France, Canada, Australia and Germany, which accounted for nearly 70 per
cent of the total exports of wheat. The situation is somewhat better in the case of rice as all major
exporting countries, except the US are from the developing world.
2. Increased Dependence on Importing Pulses and Edible Oils: Unfortunately no
breakthroughs in the research and technology for pulses occurred to meet the domestic demand.
In 67 years, production of pulses increased from 8.4 to 23.0 million tonnes, nearly trebling over
the period; whereas the cereals got six-times the initial production over 67 years. But, Pulses
are important for the growth of the human body. Similarly edible oils are also essential for the
health. But their production is not sufficient to meet the demand in India. Thus, dependency on
imports became necessary.

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3. Export of Fish and Fish Preparations after Globalisation: After globalization, the exports
of fish and fish preparations have assumed importance in the globalisation period from 1991.
In 1990-91, their exports had a value of Rs.960 crores only; and by 1994-95, the value reached
Rs.3,547 crores, by showing a growth of 270 percent in the immediate post-reform period. The
value of these exports increased to Rs.6,928 crores by 2002-03, and to Rs. 39,707crores by
2016-17, thus recording growth of 622 and 4036 percent over 1990-91 respectively. Further,
the share of fish and fish preparations in the value of total exports varied between 0.84 per cent
in 2008-09 and 4.28 percent during 1994-95, being the least and highest shares between 1990-
91 and 2016-17.
4. Impact of Globalisation on Employment in Agricultural Sector: From the NSS
surveys, as there are four classifications, here we consider the combined principal status and
subsidiary status (ps+ss). Now we may look into the shares of rural agricultural employment
(RAE) based on NSS data. Among males, the share of RAE decreased from 77.5 to 71.4 percent
between 1983 and 1999-00. The down shift is very high among males between 1999-00 and
2011-12, with a decrease of 12 percentage points. Among females also, its decrease is also high
with 8.4 percentage points. Thus, in respect of NSS data, the down shift has been more in the
late globalisation period.
5. Input-intensive Cropping Pattern: The changing cropping pattern due to euphoric
conditions has led to a diversified crop mix, so that costlier inputs - seeds, ferlitlisers and
pesticides along with costlier irrigation through tubewells with electric pumpsets - have been
necessitated. From the cropping pattern for all-India, it is clear that the share of paddy was
22.99 percent in 1990-91 and remained at 21.66 percent in 2015-16. The share of non-food
crops went up from 18.80 percent in 1950-51 to 20.25 percent in 1990-91; and then to 28.32
percent in 2015-16. Thus the role of commercial crops has been on the rise, which crops are
costly input-intensive.
6. Rise in MSPs leading to Environmental Problem: The policy of maintaining higher
prices for wheat and rice due to higher levels of MSPs, coupled with low cost irrigation water,
leads to intensive wheat-rice cropping pattern which causes the rapid deterioration of ground
water resources, on the one hand, and on the other, the deterioration of soil fertility due to
overuse of land with fertilisers and pesticides (Landes and Gulati, 2003). This has happened so
particularly in prosperous states.
7. Rising Input Costs and MSPs Cannot Cover Actual Costs: As it was already pointed
out, the input intensive crops, like cotton, are suffering more due to lack of remunerative prices.
MSPs cannot cover the costs. Not only this, farmers are always reporting that just as industrialists
and service-renders, the farmers are not in a position fix the price with sufficient profit margin
over the cost of production. Farmers are also of the view that cost evaluation made by
Commission for Agricultural Costs and Prices CACP is not realistic. For example, though Cost
C3 is reported to be covering 10 percent over Cost C2* (Cost C2* + 10% of C2* on account of
managerial functions performed by farmer), it is not enough.
8. The Indebtedness of Farmers: The indebtedness of farmers as per 70th Round of NSS for
2013, AP (new) has outstanding debt of Rs.1,23,400 per household, with the highest share of
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agricultural holdings being indebted (92.7 percent). The next highest share of households with
outstanding debt is in Telangana (89.1 percent). At all-India level, such share is only 51.9
percent, with an outstanding loan of Rs.47,000 per household.
9. Swaminathan’s Commission Report – MSP 50% over Cost: Recently GOI declared
that MSP will be decided so as to arrive at 150 percent of the cost of cultivation (Cost-C). In
fact, the Report of M.S. Swaminathan Commission recommended that GOI has to fix the MSP
above 50 percent of Cost of Cultivation.
10. Suicide of Farmers: Mishra (2008) noted that in India during 2001-05, there were 86,922
farmers’ suicides, of which, 86 per cent were males. Now, the data on farmer suicides notified
by National Crimes Record Bureau (NCRB) was 3,33,398 over the period of 22 years from
1995 to 2016.

8.5 SOME POLICIES TO SOLVE THE AGRARIAN CRISIS

1. Steps to Reduce the Debt Burden of Farmers through Remunerative Prices: Government
of India announces minimum support prices (MSPs) for 26 crops every year. But, all the crop
outputs are not procured equally, except paddy and rice. In fact, farmers and the state government
also always claim that MSPs can not at all meet the actual costs of production. Further there is
no parity between the increasing input costs and the MSPs or market prices. Most of the time
intermediate traders and commission agents never give MSPs even. Particularly, marginal,
small and tenant farmers cannot wait till remunerative prices rule the markets. All these farmers
get loans at higher rates of interest and they have to pay back loans as soon as the crops are
harvested. Thus, debt burden is the most important problem facing them. This is to be solved
by providing them institutional credit liberally.
2. Tenancy Problem – Resolving by Registering Tenants, Not Affecting Owners Rights:
After the implementation of land ceiling laws in two rounds in 1960s and later 1970s onwards,
and also the fragmentation of land holdings over the four decades increased the small and
marginal holdings, on the one hand, and also the increasing tendency of tenancy among marginal
and small farmers and landless households, on the other. In the last two decades, the tenant
cultivation increased but they have no credit facilities through institutional agencies and do not
get benefits of government aided schemes in regard to compensation for the failure of crops,
insurance etc. To ensure tenants to get such benefits, tenancy has to be registered without
affecting owner rights.
In this connection, Government of India proposed an Act on the basis of Report of the Expert
Committee on Land Leasing- RECLL (GOI, 2016) which prepared a Model Act of Tenancy.
Chapter II of the model act provides the most important provision under 3(f) to clarify on the
objection of landowners about fear that they may lose land if tenants are registered as licensed
cultivators, that is, “ Provided further that any period of lease as per the lease agreement under
this Act shall not create any protected tenancy right on a Lessee Cultivator”. Further, the Act
does not fix the duration of the lease period [3(f)], and a minimum or maximum lease amount
in fixed cash or kind or share of produce [3 (g)].

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3. Programmes like Rythu Bandhu Scheme are Necessary: Just one year before the elections
of 2019 in the state, the Telangana Chief Minister K. Chandrashekhar Rao announced Rythu
Bandhu Scheme during the Farmers’ Coordination Committee Conference Rythu Samanvaya
Samithi; held at Jayshankar Agricultural University in February 2018; to be implemented during
2018-19. Its aim was to give the farmers Rs.8000/- per acre for both seasons (if the farmer
raises Rabi crop in addition to Kharif also). The estimated number of beneficiaries was 58
lakh needy farmers. The revolutionary scheme was launched on 10th May 2018 after allocation
of Rs.12,000 crores in the state budget subsequent to the announcement
4. Central Government’s Scheme - Pradhan Mantri Kisan Samman Nidhi Yojana:
Government of India has already planned to give priority to agriculture so that income of the
farmers will be doubled by 2022. Before that in 2019-20 budget, it took decision to implement
a scheme on par with that of Telangna government and declared Pradhan Mantri Kisan Samman
Nidhi Yojana. Under the scheme, landholder farmer families with total cultivable holding upto
2 hectares shall be provided a benefit of Rs.6000 per annum per family payable in three equal
installments, every four months. The scheme took effect from 01.12.2018.
5. Farmers Suicides have to be Curbed by Education and Counseling: At the district level
and block/mandal level, there should be some agencies with governmental and non-governmental
coordination Committees to approach the indebted farmers and educate them psychologically,
while also showing the ways of temporary relief by coordinating with banks and other
governmental sources.

8.6 FOOD SECURITY IN INDIA

Concept of Food Security: In fact, food security has been discussed at various forums as
Primary Goal of Development. The basic concept of food security as implied in the definition
of Food and Agriculture Organisation – (FAO, 1983) is that all people at all times have both
physical and economical access to basic food they need. The World Bank (1986) modified it as
“Food Security is access by all people at all times to enough food for an active healthy life”.
The definition of food security given by the Rome Declaration on World Food Security at the
World Food Summit (1996) is, “food security exists when all people, at all times, have physical
and economic access to sufficient, safe and nutritious food to meet their dietary needs and food
preferences for an active and healthy life.” Ray (2011) depicts that food security has following
dimensions:
1. Availability of food means food production within the country, food imports and the
previous years stock stored in government granaries.
2. Accessibility means food is within reach of every person.
3. Affordability implies that an individual has enough money to buy sufficient, safe and
nutritious food to meet one’s dietary needs.
Then, 4th dimension, viz., ‘stability’ was added by the Report of the High Level Committee
on Reorienting the Role and Restructuring of Food Corporation of India (GOI, 2015), added
which means the food system should be reasonably stable, as high volatility in food systems

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impacts adversely not only the poor but also endangers the stability of political and social
systems.

Major Components of Food Security System

Following are the main components of the food security system:
1. to increase domestic production of food so as to meet its increasing demand of growing
population.
2. to reduce under nutrition among a large section of population and to raise the nutritional
level.
3. to provide minimum support prices for procurement and storage of food items.
4. to operate public distribution system effectively.
5. to maintain buffer stocks so as to take care of natural calamities resulting in temporary
shortage of food, and to act as a countervailing mechanism against traders and
businessman, indulging in stockpiling and black marketing of food items during the
period of shortages in food supply.
Various Levels of Food Security: Food security, needs to be considered at various levels viz.,
Global, National, State, Household and Individual as Food self-sufficiency at macro-level does
not automatically ensure food security at micro-level. For instance, world food production may
be sufficient to feed world population but food production in some countries may be much
below their requirement and Government in such countries may not be in a position to ensure
food security to its citizens. Like-wise a country may be producing sufficient food, yet many
households may experience food insecurity due to their low purchasing power. Even within a
household, for various reasons, some individuals manage to get sufficient food while others
remain under-fed. Therefore, food sufficiency does not automatically ensure food security.
As regards India, Dr. S.P.Gupta Committee (GOI, 2002) made it clear that during the
second half of the twentieth century India’s rapid population growth posed a threat to national
food security. The single most important implication of that threat reached dangerous proportions
in the mid-1960s, leading to the launching of the Green Revolution, achievement of food self-
sufficiency, and subsequently, a growing stock of surplus food grains by the mid-1970s. Happily,
such a threat no longer exists for the country. Growth of food production has exceeded population
growth for each of the past three decades.
PDS supplies have increased rapidly since the mid-sixties: the annual average supply
increased from 6.5 million tonnes during 1961-65 to 18.4 million tonnes during 1990-92, declined
to 12.86 million tonnes in 1994-95 and then increased to 18.69 million tonnes in 1998-99. A
noteworthy feature of these trends is the response of government supply to fluctuations in
production; it is higherin drought years than in normal ones (Radhakrishna and Reddy, 2002).

8.7 FOOD POLICY IN INDEPENDENT INDIA

Food is an essential item for the survival of human beings and has therefore always
received the top most attention of mankind in the past. It is going to be so in future too. No
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Government can claim itself as a Welfare Government unless it provides access to food, clothing
and shelter to all its citizens, in general and to vulnerable sections of the society, in particular.
Further, the Government is also expected to provide essential services like self-drinking water,
education and health services. No doubt, among all these items, the provision of food is bound
to be on the top of the agenda.
The food policy of independent India was examined by a Food Grains Policy
Commission (1947). The Commission felt that imports were necessary to enable the maintenance
of central reserves to guard against crop failures and such reserve could be of the tune of two
million tons and to be liquidated in phases. Further, it recommended to continue with the existing
rationing system. The Commission also recommended that the indigenous food grains production
should be increased by 10 million tons per annum till self-sufficiency is achieved. However, in
December 1947, all controls on food grains, imposed in the wake of Bengal Famine and War,
were removed all at once.
The Food Grains Policy Commission of 1947 was followed by a number of Commissions
which examined the food policy from time-to-time. Food Grains Investigation Commission of
1949 again stressed self-sufficiency. Food grains Procurement Commission (1950) stressed on
maintaining a reasonable level of food grains prices to ensure adequate supplies to consumers.
Further, to protect the consumers, it recommended rationing in all the towns with population of
more than 50,000, informal rationing in other towns and some regulated supply of grains in
rural areas.
The next and very important landmarks were setting up of the Food Corporation of
India (FCI) and the Agriculture Prices Commission in 1965 (renamed as the Commission for
agricultural Costs and Prices (CACP). The former was to provide price support to farmers by
purchasing quantities that could not fetch minimum support prices in the market, store the
grains scientifically, move the grains from surplus to deficit areas and make available the grains
to states to food the public distribution system. The purpose of Agricultural Price Commission
is to advise the Government on price policy for agricultural commodities and evolve a balanced
and integrated price structure keeping in mind the needs of both the producers and the consumers
(Nawani, 1994).
To tackle the quantitative and qualitative aspects of food security problem, the Government
of India has relied on three food based safety nets : (i) Public distribution System (PDS); (ii)
Integrated Child Development Services (ICDS); and (iii) Mid-day Meals (MDM) Programme.
Public Distribution System is the one of the oldest Government policy to provide Food
Security to the households. Over a period of time, the policy has undergone several changes. In
the initial years, the PDS was meant to prevent adverse impact of famines and inflation on
household consumption. It was supposed to be universal in nature. However, critics opine that
there was urban bias coupled with targeting errors in the implementation of the policy. In 1992
Revamped Public Distribution System (RPDS) to strengthen and streamline the PDS as well as
to improve its reach to poor families especially in the far-flung, hilly, remote and inaccessible
areas. Subsequently in June, 1997, the Central Government introduced the Targeted Public
Distribution System (TPDS) with focus on the poor families. Under the TPDS, States were
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required to formulate and implement fool-proof arrangements for the identification of the poor
for delivery of food grains. The Scheme aimed to benefit about six crore poor families.

National Food Security Act (NFSA), 2013 – Two Types of Beneficiaries

National Food Security Act (NFSA), 2013 is to provide for food and nutritional security
in human life cycle approach, by ensuring access to adequate quantity of quality food at affordable
prices to people to live a life with dignity and for matters connected therewith or incidental
thereto: (a) Commencement would be from 5th July 2013, and (b) Provisions for food security
by coverage / identification of beneficiaries. To the extent of up to 75 percent population of
Rural and up to 50 percent population of Urban areas may be identified as eligible households
for food security.
The eligible households will be identified in two categories: Households covered under
Antyodaya Anna Yojana (Identified to the extent as may be specified by the central government
for each state in accordance with the guidelines of Antyodaya Anna Yojana Scheme launched
by Central government on 25th December 2000), and Priority Households (to be identified in
accordance with such guidelines as the State Government concerned may specify). NFSA,
2013 came into existence with effect from July 05, 2013. But states were given one year’s time
to implement the Act. But by the end of one year, i.e., by 05.07.2014, only 11 states adopted
implementation. NFSA aims to cover overall 67 percent of population (75 percent of rural and
50 percent urban).
The households covered under Antyodaya Anna Yojana could be entitled to get 35 Kg
of foodgrains per household per month. Every person belonging to priority household could
be entitled to get 5 kg of foodgrains per person per month. The said foodgrains would be
provided at the prices of Rs.3 per kg for rice, Rs.2 per kg for wheat and Rs.1 per kg for coarse
grains respectively. By the end of 2015, the number of States/UTs implementing the Act had
increased to 25.
Measures: The following are some of the measures for attaining food security:
1. ensuring sustainable availability of food through maintaining the growth in food
production over the population growth, as has been possible during the past decades.
2. sustaining the productivity of the recourse base over the period by keeping the economic
and environmental costs at minimum.
3. ensuring adequacy of household incomes through promotional social security measures
such as accessing assets, employment and empowerment.

Check Your Progress.

3. Write a note on inspect of Globalisation on employment in association sector.
..........................................................................................................................................
4. Define Food Security.
..........................................................................................................................................

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5. State three major components of Food Security.
..........................................................................................................................................

8.8 SUMMARY
After implementation of neo-liberal policies in 1991, and India’s entry into WTO in
1995, Indian agriculture has to face some challenges due to opening up of the agricultural
sector and competition in the international market. Further, a lot of euphoria was created in the
minds of farmers that India could export several crop products, like rice, chilly, cotton, prawn,
etc. The farmers changed cropping pattern diverting to commercial crops, which required
costly seeds, and pesticides, in addition chemical fertilizers. But, due to stringent hygiene
conditions, like pesticide residues, the export market could not be captured as expected.
Increased costs of agricultural inputs, without proportionate rise in the prices of crop
outputs, the farmers faced crisis, particularly in cash crops where costs of seeds and pesticides
were very high. For food crops, every year Government of India would declare minimum support
prices (MSPs), but MSPs could never meet the requisite remunerative prices. The farmers
always have to undersell due to the operation of adverse market conditions. The most important
genuine issue raised by the farmers is that any non-agricultural producer could determine his
price with margin over the costs of production, but in agriculture which is crowded by the
marginal and small farmers and tenant farmers, having no retention capacity have to undersell
and subjected to severe losses, mainly in cash crops as well as food crops. As a result, the
farmers’ suicides have become the order of the day since the liberalization, privatization and
globalization (LPG) policies were implemented in 1991. Between 1995 and 2016, the farmers
suicides reported had crossed 3.30 lakhs.
Though the Report of M.S. Swaminathan Commission recommended in 2004 that GOI
has to fix the MSP above 50 percent of Cost of Cultivation, so that small farmers should at
least get net income on par with Class-IV government employee. Recently, Government of
India is planning to double the income farmers by 2022. Cash transfers to farmers are being
implemented by Telangana state government (irrespective of size) from 2018-19; and by
Government of India, among farmers operating land upto 2 hectares, from 2019-20.
The problems faced by tenant farmers (mainly landless and marginal) have to be solved
by ensuring registration, without affecting owners’ rights, so that the tenants can get government
benefits under different schemes, and easy institutional credit. Further, agricultural markets are
to be made favourable to farmers by forming farmers’ collectives. Further, sufficient allocations
have to be made for extension services, so that farmers may be educated to use chemicals in
requisite quantities. Further, it is also necessary to encourage natural/organic farming by the
government with some price protection measures.
Food security has been discussed at various forums as primary Goal of Development.
PDS in one of the mechanisms used by various degree of success. The success of Food Security
Programme depends to a great extent on the design of the scheme and the manner of its
implementation. A survey of rural households in Bihar reveals that the performance of PDS has
significantly improved after the implementation of National Food Security Act – 2013.
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8.9 CHECK YOUR PROGRESS - MODEL ANSWERS
1. The use of total chemical fertilizers rose from 69.80 thousand ones in 1950-51 to 784.60
thousand ones in 1965-66 and by 1989-90, it reached 11568.20 thousand ones. In P-III, total
chemical fertilizer use increased from 12.55 to 18.07 million ones and then to 21.65 million
ones in 2006-07 and reached 26.59 million ones by 2017-18 the end of P-IV. When we look at
the consumption of fertilizers in terms of per hectare of cropped area, in Phase-III, it increased
from 87.74 kg in 1990-91 to 128.10 kg in 1999-00. In P-IV, the peak globalization period, it
rose to 182.55 kg (in 2014-15), which is more than doubled when compared to that of 1990-91.
2. When we look at the five groups of food grains, cereals, pulses, coarse cereals and nine oil
seeds, except cereals, other four groups showed better performance in P-IV (2001-02 to 2016-
17) than P-III (1990-91 to 1999-00). Pulses and nine oil seeds had higher growth rates, 3.41
and 3.09 percent in P-IV, whereas they showed growth of 0.65 and 2.25 percent in P-III
respectively. Cereals maintained almost the same growth 2.20 percent/pa in both P-III and P-
IV. Coarse cereals rose from negative to positive growth -0.01 to 2.27 percent from P-III to P-
IV. In both phases, these five crop groups showed higher yield effects, varying between 70 to
193 percent.
3. The shares of rural agricultural employment (RAE) based on NSS data reveals that among
males, the share of RAE decreased from 77.5 to 71.4 percent between 1983 and 1999-00. The
down shift is very high among males between 1999-00 and 2011-12, with a decrease of 12
percentage points. Among females also, its decrease is also high with 8.4 percentage points.
Thus, in respect of NSS data, the down shift has been more in the late globalisation period.
4. Food security exists when all people, at all times, have physical and economic access to
sufficient, safe and nutritious food to meet their dietary needs and food preferences for an
active and healthy life.
5. Major components of Food Security: i. To increase domestic production of food so as to
meet its increasing demand of growing population. ii. To reduce under-nutrition among a large
section of population and to raise the nutritional level. iii. To operate public distribution system
affectivelly.

8.10 MODEL EXAMINATION QUESTIONS

I. Answer the following questions in about 10 lines each.
1. Define food security and state the major components of food security.
2. Explain the measures to be taken for attaining food security in India.
3. Write a note on NFSA-2013.
4. Examine the Cropping pattern during late globalization phases.
5. Write a note on yield levels and growth performance of principal crops after 1990-91.
II. Answer the following question in about 30 lines each.
1. Describe the expansion of irrigation, HYV area and chemical fertilizers use during post-
126 globalization period.
2. Analyse the agricultural development in the early and late globalization phases.
3. Evaluate the impact of globalization on Indian agriculture.
4. What policies do you suggest to solve the agrarian crisis?
5. Explain the food policy in Independent India.

III. One mark questions.

A. Multiple choice questions.
1. As per 70th Round of NSS the highest share of households with outstanding debt is in...
A. A.P. B. Telangana C. Bihar D) Assam
2. Share of Crops in agricultural GVA during 2016-17 is
A. 50% B. 80% C. 70% D. 60.17%
3. Targeted Public Distribution System (TPDS) focuses on
A. Poor families B. All people C. Marginal & Small farmers D. SCs & STs
Answers: 1-B, 2-D, 3-A

B. Fill in the blanks.

1. The use of total quantity of chemical fertilizers reached to __________ by 2017-18.
2. Ford grain production rose to ______________ in the year 2016-17.
3. % of Agri GVA in Total GVA during 2016-17 is ________________.
4. Among oil seeds _____________showed better performance in production.
Answers: 1. 26.59 mt. 2. 275.70 mt 3. 15.26 4. Soyabeen.

C. Match the following.

A B
1. India became part of WTO A) 28.32 Percent
2. Share of non-food crops in 2015-616 B) Provide Nutritional Security
3. Raithu Bandhu scheme was launched on C) 10th May 2018
4. NFSA – 2013 D) 1995
5. Component of Food Security System E) Operate PDS effectively
Answers: 1-D; 2-A; 3-C; 4-B; 5-E

8.11 GLOSSARY
1. New Agricultural Strategy: Adoption of new methods in agriculture i.e. the use of
modern inputs. HYV seeds etc.
2. Green Revolution: Increase in food grains output due to the adoption of new agricultural
strategy.

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8.12 REFERENCES
1. Government of India (2002), Report of the Committee on India Vision 2020, Planning
Commission, New Delhi, (Chairman, Dr. S. P. Gupta), December.
2. Government of India (2015), Report of the High Level Committee on Reorienting the
Role an Restructuring of Food Corporation of India, Report of High Level Committee
(Chairman, Shanta Kumar), January.
3. Landes, Rip and Ashok Gulati (2003), “Policy Reform and Farm Sector Adjustment in
India”, Paper presented at the Workshop on The Policy Reform and Adjustment, Imperial
College, London, 23-25 October, Agricultural Adjustment Project, Penn University
4. Nanda, Meera (1995), “Transnalisation of Third World State and Undoing of Green
Revolution”, Economic and Political Weekly, January 28.
5. National Commission on Farmers (2005a), Serving Farmers and Saving Farming- From
Crisis to Confidence, Second Report, Ministry of Agriculture, Government of India New
Delhi, August
6. National Commission on Farmers (2005b), Serving Farmers and Saving Farming - 2006
Year of Agricultural Renewal, Third Report, Ministry of Agriculture, , Government of
India New Delhi, December
7. National Commission on Farmers (2006a), Serving Farmers and Saving Farming- Jai
kisan: A Draft National Policy for Farmers, Fourth Report, Ministry of Agriculture,
Government of India New Delhi, April.
8. National Commission on Farmers (2006b), Serving Farmers and Saving Farming -
Towards Faster and More Inclusive Growth of Farmers’ Welfare, Fifth and Final Report,
Ministry of Agriculture, Government of India, New Delhi, October.
9. Patnaik, Utsa (1996), “Export-Oriented Agriculture and Food Security in Developing
Countries and India”, Economic and Political Weekly, Special Number, September.
10. Radhakrishna, R and K. Venkata Reddy (2004), “Food Security and Nutrition: Vision
2020”, (3rd Chapter in background papers), in Government of India (2004), India Vision
2020, Planning Commission, Academic Foundation, New Delhi (pp.201-220).
11. Rao, C.H. Hanumantha (1998), “Agricultural Growth, Sustainability and Poverty
Alleviation: Recent Trends and Major Issues of Reform”, Economic and Political Weekly,
July 18.
12. Ray, Sarbapriya (2011), “Role and Effectiveness of Public Distribution System in Assuring
Food Security in India: An Appraisal”, Journal of Economics and Sustainable
Development (online), Vol.2, No.4, 2011, pp.238-252.
13. Indrakanth, S (2018), “Food Security: Where Telangana Stands?, Presidential Address
an TEA Annual Conference held at Kakatiya University Campus, Khammam.

– Dr. A. Venkateswarlu, Consultant, CESS.

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UNIT–9: AGRICULTURAL FINANCE, MARKETING
AND PRICING
Contents
9.0 Objectives
9.1 Introduction
9.2 Need for Agricultural Credit
9.3 Types of Agricultural Finance
9.4 Sources of Agricultural Finance
9.4.1 Non-Institutional and Institutional Sources of Credit
9.5 Agricultural Marketing
9.6 Measures’ Taken by the Government to Improve the Agricultural Marketing
9.7 Agriculture Pricing
9.8 Summary
9.9 Check Your Progress – Model Answers
9.10 Model Examination Questions
9.11 Glossary
9.12 References

9.0 OBJECTIVES
The objective of this unit is to explain the need, types and sources agricultural finance;
the nature of agricultural marketing and cooperative marketing. Further, the unit also explains
about agricultural price policy and minimum support prices and related issues. After reading
this unit, you will be able to:
● identify the need for agricultural credit in India.
● know the needs and types of agriculture finance and have an idea over different sources
of agriculture finance.
● understand the agriculture marketing and measures taken by the government to improve
it. and
● explain agriculture pricing and minimum support price system in India.

9.1 INTRODUCTION
Agricultural Finance is considered as separate field of study dealing with lending and
borrowing by organizations and farmers. Agricultural finance is one of the important inputs
which influence crop output and also the income of the farmers. Availability of credit at lower
rates of interest contributes positively to the growth of the agricultural sector. In addition to
institutional finance, Government support in the marketing of agricultural produce, organizational
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measures also contribute to the betterment of the farmer. There is a need to focus on agricultural
prices and better agricultural price policy.

9.2 NEED FOR AGRICULTURAL CREDIT

Emphasis on the development of institutional sources of credit to agriculture was
considered as an antidote to the exploitative money lending by non-institutional sources.
Moreover, there was a need for credit not only for cropping but also for building some capital
base for long-term improvement at the farm level. A major thrust to the provision of institutional
credit was provided by the nationalisation of the major commercial banks in 1969. This was
followed by the establishment of Regional Rural Banks in 1975 and the National Bank for
Agriculture and Rural Development (NABARD) in 1982. These steps have brought about far
reaching changes in the rural credit scenario. Some of these are as follows:
There has been a rapid expansion of branches of commercial banks in rural areas from a total
of 8,262 rural branches of commercial banks in 1969; the number in June 2004 has risen to 32,178
There has also been a priority accorded to credit to be given by commercial banks to
agriculture. The banks were required to lend 13.5 per cent of their total credit to agriculture.
This has of late been revised by the Advisory Commercial Committee on the Flow to Agriculture
and Related Activities to 18 per cent (also known as V.S. Vyas Committee).
Subsidise interest rates for the agricultural sector were also recommended. With the fall in
the interest rates and lending rates in the past few years, the subsidy element has considerably
disappeared.
Specialised institutions in the form of regional rural banks were set up to cater to the
needs of small producers and other disadvantaged sections of the rural sector. Considerable
progress has been made in the supply of credit to agriculture as well as creating a network of
outlets of credit. From a total institutional credit only Rs. 214 crore allotted to agriculture in
1960-61, the total credit available to the agriculture sector in 2003-04 has risen to nearly Rs. 87
thousand crore and to 1168 thousand crore by 2017-18.
In spite of a plethora of measures and substantial increase in agricultural credit, a number
of issues and concerns still remain. These are briefly explained hereunder:
1. Inadequacy of the Amount: Following table shows the increase in the flow of institutional
credit to agriculture.
Table-9.1: Flow of Institutional Credit of Agriculture in Recent Years (Rs. Crore)
Years 1990-91 1995-96 2000-01 2009-10 2015-16 2016-17 2017-18
Co-operative Banks 4608 10479 20801 63497 153295 142758 150389
Commercial Banks 5010 11553 32026 321017 762214 922997 1018114
including Regional
Rural Banks
Total 9618 22032 55827 9618 22032 55827 9618
Source: Economic Survey 2018-19 and Agriculture Statistics at a Glance 2015.
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 The per hectare availability of credit given to 16.5 crore hectares that were cultivated in
1990 did not exceed Rs. 600. In the year 2003-04 assuming 18 crore hectares is the gross
cropped area in the country, per hectare availability is well below Rs. 5000. It rose to Rs 655.72
in 2017-18.
Besides the overall inadequacy of capital for agriculture, the institutional credit flow has
hardly been able to cover the rural poor. Nearly 50 per cent of the rural households in the
country are still outside the ambit of formal credit system. Moreover, not more than 14 per cent
of the total scheduled commercial bank credit has been made available to the rural borrower.
Given that 78 per cent of the population is located in rural areas, the highly inadequate proportion
of credit available to the rural sector becomes evident. Neglect of the small and marginal farmers
coupled with the general level of inadequacy of credit further accentuates the inequalities within
the farming sector. Rich and larger farmers have a better access to institutional credit than the
marginal and small farmers. Yet fallout of the inadequacy of the credit flow to sector is that
agriculture will find it difficult to diversify to high value crops.
2. High Cost of Rural Credit Operations: By all standards, rural credit operations are high
cost operations. Among the factors influencing this is the non-profitability of large number of
farming enterprises. Absence of infrastructure and supportive system in rural areas further
adds to the cost. Lack of familiarity with the nature of farm operations and timing of requirement,
the credit agencies find it difficult to decide. The transaction costs therefore tend to rise.
Situation is further worsened due to high establishment costs. Since the rural credit
institutions continue to be modeled on the urban banking system with high cost of wages and
salaries, their operations tend to have a higher cost. Unless rural credit institutions adapt themselves
to the realities of the rural banking needs, they will continue to remain loss-making units.
Yet another dimension of the high cost of rural credit operations is the existence of non-
performing assets or lack of recoveries. This proportion has decreased over time. Part of the
blame must be assigned to the lapses on the part of lending institutions. (Lapses may have to do
with those in project preparations, timing of release of credit, amount of credit sanctioned etc.).
There is certainly a need to improve recoveries but the credit products must be designed
specifically to suit the farmer’s needs. In times of crop failure or other calamities, linkage of
credit to agricultural (or crop) insurance scheme may be of considerable help.
3. Declining Share of Commercial Bank Credit to Agriculture: In the period following economic
reforms, there has been a significant decline in the advances by the commercial banks to the
agricultural sector. This has declined to 11-12 per cent of net bank credit. The position is pretty
difficult in the eastern and north-eastern states. The Rural Infrastructure Development Fund (RIDF)
started a decade ago, presumably as a temporary measure to provide infrastructure support to
agriculture in lieu of the falling share of commercial bank credit, seems to have been turned into
an easy way of meeting the stipulated obligations. As a consequence, individual needs of the
farmer for investment and production credit are not being met. This declining priority to agriculture
is apparently explained by the effort on the part of the banks to reduce ‘transaction costs’ and
minimise risks. Focus of the new agenda for the future of the banking sector is to relegate the
responsibility of credit supply to agriculture to the co-operative sector, regional rural banks and
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non-banking financial companies. The Governor of Reserve Bank of India in delineating the
agenda for the future for the banking sector states that:
“... It is useful to note that the nature of competition and accountability to shareholders,
governing the functioning of commercial banks which would make their foray into rural credit
predominantly subject to commercial considerations. There is a need for legal and institutional
changes relating to governance, regulation and functioning of rural co-operative structure and
regional rural banks that have to be critical instruments for rural credit in future.”
4. Micro-finance: The programme of linking Self-Help Groups (SHGs) of the rural poor with
the banking system was launched in 1992. Over the years, this has emerged as a major micro-
finance programme in the country. 560 banks including 48 commercial banks, 196 regional
rural banks, and 316 co-operative banks are now actively involved in the operation of this
programme. The SHG-bank linkage has provided the rural poor access to the formal banking
system. The programme provides thrift linked credit support to the members of SHG’s. While
the programme directly benefits the members, it also helps the banks in reducing their transaction
costs as well as risk in delivering small loans. A notable aspect of the programme is that 90 per
cent of the groups linked with banks are exclusively women groups.
In conclusion, it may be stated that 60 per cent of the credit requirement of the farmers
are now being met by institutional sources and the remaining 40 per cent by informal sources.
As stated earlier, the total amount of credit is certainly highly inadequate for the growth of
agriculture. Small and marginal farmers, including tenants who account for nearly 80 per cent
of holdings and one-third of area operated, depend far more heavily on informal sources. The
role of the moneylender has not been eliminated and given the fact that the relative share of
commercial bank credit is on the decline, the role of the moneylender is likely to increase.

9.3 TYPES OF AGRICULTURAL FINANCE

The financial needs of the farmers can be classified into two categories by the
considering period of time and purpose of credit. They are: a) on the basis of time credit b)
purpose of credit. The credit requirements of farmers on the basis of period of time can be
divided into three types such as short, medium and long term. Similarly, the credit requirement
of farmers can be classified into productive, consumption and unproductive. All these types of
credit are discussed below.
1. Short Term Loans: Farmers are in need of short term loans to purchase seeds, fertilizers,
pesticides, feeds and fodder for cattle, payment of wages to hired workers etc. The duration of
loan is 15 months. Generally short term loans can be repaid after harvest.
2. Medium Term Loans: Farmers take these loans for the purchase of cattle, agricultural
implements, repair and construction of wells. The duration of this loan extends from 15 months
to 5 years. Medium term loan is normally larger in size than short term loans.
3. Long Term Loans: These types of loans required to farmers to make permanent improvements
of land, buying additional land, digging wells or tube wells, purchase of agricultural implements
and machinery i.e. tractors, harvesters and to repay the old debts. The duration of these loans
are beyond 5 years. Long term loans can be repaid on the basis of installments.
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4. Productive Credit: As this type of credit exclusively directly affects the agricultural
productivity, hence it is called productive credit. This include the farmers need for the purchase
of seeds, fertilizers, manures, agricultural implements, live stock, digging and repair of wells
and tube wells, payment of wages, making permanent improvements on land etc.
5. Consumption Credit: Farmers require credit for some times consumption purposes also.
Due to long gap between the marketing of the present crop and harvesting of the next crop,
majority of farmers cannot be sustained as their financial position is very weak. Therefore,
they have to obtain loans to meet their consumption needs. For this purpose, they depend on
private sources.
6. Unproductive Credit: In addition to productive and consumption needs, farmers require
loans to meet unproductive purposes such as to fight litigations, perform marriages and social
functions like birth days or anniversaries of family members, religious functions, festivals etc.
This expenditure is not increasing the productivity of the agriculture. Just for the sake of prestige
farmers are bearing this expenditure. To meet these needs, generally farmers borrow funds
from village money lenders at high interest rate.

9.4 SOURCES OF AGRICULTURAL FINANCE

Farmers are borrowing funds from different sources. Broadly, sources can be classified
into two categories. They are non-institutional sources and institutional sources. Non-
institutional sources include money lenders, relatives, traders, commission agents, landlord
and mahajans. The institutional sources contain co-operatives, schedule commercial banks,
regional rural banks and NABARD. Let us discuss in detail.

9.4.1 Non-institutional and Institutional Sources of Credit

I. Non-Institutional Sources of Credit
1. Money Lenders: Money lenders accounted a major share in the total credit provided to the
agriculture sector after independence. In 1951-52 money lenders accounted for 69.7 percent of
rural credit. They charged high rates of interest and dictated the terms of credit due to lack of
other sources of credit. Illiteracy of the farmers is an advantage to the money lenders to
manipulate farmer’s accounts to their advantage. Also, they forced the farmers to sell their
produce to them for low prices.
Government initiated several measures slowly but steadily to save and free up the Indian farmers
under the clutches of village money lenders. Because of this, the share of money lenders in the
total farm credit declined from 69.7 percent to 1951-52 to 15.7 percent in 1991.
2. Traders and Commission Agents: Farmers generally take the loans from the traders and
commission agents for productive purpose much before the crop harvest. Here also farmers
forced to sell their produce at low prices less than the market price and charge heavy commission.
Traders and commission agents accounted for 5.5 percent of rural credit in 1951-52 and 3.2
percent in 1981. This indicates bare fact that, the importance of these sources of loans were
declining.

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3. Relatives and Friends: To meet their temporary and personal credit needs farmers generally
approach relatives and friends. This may be in the form of hand loans, carries low interest or
no interest rate and promised to be repaid immediately after the harvest. In emergency cases
only farmers go for this type of credit. The share of this also declined from 14.2 percent to 8.7
percent during 1951 to 1981.
4. Landlords: Especially small farmers and tenants borrow funds from the land-lords to meet
their financial requirements for the purpose of agricultural operations. This source has all the
defects of other non-institutional sources of finance. Against the security of land only this loan
is provided. If a farmer fail to repay the debt, either he has to sell the land or handover the land
to the land-lord. The share of this source was 3.3 percent in 1951 and increased to 8.8 interest
in 1981.
The Government identified all the evils of non-institutional sources of agricultural
credit. To provide timely and adequate credit to threshold of the farmers the Government has
established various credit agencies to provide loans through the institutional sources.

II. Institutional Sources of Finance

The credit provided through co-operatives, commercial banks, regional rural banks
and other agencies of the Government is known as the institutional sources of finance. The
main aim of institutional credit is to assist the farmers in raising agricultural production and
productivity and maximizing their income. This source of credit is free from all sorts of
malpractices or evils of no-institutional credit.
1. Co-operative Credit: The loans from the co-operative credit societies are the cheapest and
important source of credit for the agricultural sector. These co-operative credit societies provide
credit at low interest rates and operate at three levels. The Primary Agricultural Co-operative
Credit Societies (PACCs) operate at village level, at the district level District Central Co-
operative Banks and the State Co-operative Banks (SCBs) operate at the state level. PACCs
generally advance loans only for productive purposes. DCCBs advances loan to PACCs and
the SCBs in turn advance loans to DCCBs.
2. Land development banks: These banks are established to solve the problem of long term
credit needs of the farmers. Against the mortgage of farmers agricultural lands LDBs provide
long term credit. Loans are providing at low rates of interest and the repayment duration is
from 15 to 20 years. For the purpose permanent improvements on land such as digging borewells,
repair of tube wells and leveling of land etc.
3. Commercial banks: Prior to 1969, the share of the commercial banks in rural credit was
insignificant. Before nationalization, their operations are limited to urban areas. After
nationalization, note-worthy changes are taken place in lending operations of commercial banks.
According to RBI instructions now all the commercial banks extending credit to the agricultural
sector on a priority basis. Commercial banks by implementing village adoption scheme and
service area approach trying to meet the credit requirements of the farmers.
4. Regional rural banks: Regional Rural Banks were established on October 2, 1975 in order
to cater credit needs of small and marginal farmers, agricultural labourer and rural artisans.
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These banks provide loans for productive purposes. A major proportion of credit is flown from
these banks to weaker sections. The number of RRBs branches increased from 17 in 1975 to
14,454 in 1999. Since 1975, these banks are playing vital role in transforming the rural economy
by providing the timely and adequate credit to farmers. At the same time, these banks also
facing certain problems such as poor recovery, mounting losses, inefficient management and
unwillingness of the staff to live in rural areas.
5. Taccavi loans: Even though various financial institutions sources are available, in some
times Government has to provide the loans to the farmers. The Government provides short
term and long term loans. The loans provided by the Government to farmers are known as
Taccavi loans. Generally, these loans are extended during times of emergency, such as famine,
flood etc. The Government charges 6 percent interest on these loans and the mode of repayment
is very convenient.
6. NABARD and rural credit: The National Bank for Rural Development (NABARD) was
established in 1982 to cater the credit needs of the agricultural sector. NABARD is the apex
bank in the area of rural credit. The RBI established the Agricultural Refinance and Development
Corporation (ARDC) in 1963 to meet the long term credit needs of the agricultural sector. In
1982, the ARDC was merged with the NABARD.
The functions of the NABARD are: i) it is an apex institution which caters the credit
needs of the agricultural sector; ii) it has authority to supervise the functioning of the co-
operative sector; iii) it provides short term &medium term credit to the state co-operative banks;
iv) It extends medium term credit to the regional rural banks; v) It contributes long term credit
to the state co-operative banks, land development banks and RRBs; vi) It provides long term
assistance in the form of loans to the State Governments.
Since the NABARD is an apex institution in the field of the rural credit, it does not
provide loans directly to the rural people. It contributes to the development of agricultural
sector indirectly through providing financial support to the co-operatives and RRBs.

Check Your Progress.

Note: a) Space is given below for utilizing your answer.
b) Compare your answer with the one given at the end of the unit.
1. Define agriculture finance.
..........................................................................................................................................
2. What are the different types of agriculture finance?
..........................................................................................................................................
3. Name the components of Non-institutional sources of finance.
..........................................................................................................................................
4. State institutional source of agriculture finance.
..........................................................................................................................................

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9.5 AGRICULTURAL MARKETING
Marketing of agricultural produce is the most important activity for the farming community
as it is the means to getting a value for the produce. It is particularly important for the small
producers with small marketable surplus. Since crop output is a seasonal phenomenon, there is
every possibility of the crop price being low in the harvest season and the farmers being exploited
for their viability to hold the crop for a long period. To promote the interests of the farmers,
Government has organised marketing of agricultural commodities through a network of regulated
markets. However, studies indicate that the institution of regulated markets has achieved limited
success as these markets restricted development of free and direct marketing, smooth raw
materials supplies to agro-processors, information exchange, and adoption of innovative
marketing systems and technologies.
Attempts have been made periodically to improve the internal marketing system for
agricultural produce. In this context, an inter-ministerial Task Force set up by the Ministry of
Agriculture suggested a package of reform measures including amendments to the State
Agricultural Produce Marketing Committee Act. The objective is to encourage development of
competitive agricultural markets in the private and co-operative sectors and to deregulate the
marketing system to promote private investment in marketing infrastructure. The
recommendations also suggested promotion contract farming and expansion of future trading.
The model Act suggested by the Central Government and adopted by the State governments
provides, inter-alia, for the establishment of the direct purchase centres and farmers’ markets
for direct sale to consumers, transparency in the pricing system, payment to the farmers on the
same day etc. There is a hope that the new act will remove some of the difficulties of the
farmers. The gap between the consumer prices of agricultural products and the producer prices
received by the farmers will be reduced.
Contract Farming: Contract farming is a new policy initiative in the country. It is considered
beneficial for both the farmers and the contracting companies usually the agri-processors. The
Tenth Plan document also focuses on its promotion. It may be particularly helpful for the small
farmers who are unable to participate in the agricultural markets due to several constraints like
lack of access to the requisite credit and technical guidance or means of accessibility to markets.
It is felt that contract farming can be a useful means of making agricultural production a profitable
option for the farmers. Several big companies such as Pepsi Foods, Kellogg, Cadbury India,
ITC and Cargill have already entered into contract farming. In theory, this can raise the incomes
of the farmers and reduce the risks emanating from marketing. In view of the fact that contract
farming is an agreement between unequal partners, there is a considerable scope for exploitation
by the big companies.
Futures Trading in Agricultural Commodities: One of the innovations for the new APMC
Act is the introduction of futures trading in agricultural commodities. Major steps were initiated
by the Government of India in this direction in the year 2003-04. These included removal of
prohibition of futures trading in all the commodities by issuing a notification and establishment
of national level commodity exchanges. These exchanges have started functioning but are yet
to pick up a major momentum in the area of futures trading in agricultural commodities.
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 The major agricultural commodities traded at these exchanges were soya oil, guar seed,
gram, cotton, jute, rubber, wheat, pepper, turmeric etc. These exchanges have introduced various
innovations, which would increase efficiency of agricultural marketing in the country. The
development of a system of physical delivery of commodities backed by warehouse receipts
system is expected to help eliminate rigidities in the trading of physical goods. This system
blends together the protection against both prices as well as quality risks. The National Commodity
and Derivative Exchange has launched pilot projects to help farmers understand the concept and
benefits of hedging the price risk on the trading platform of an Exchange prior to harvesting. Such
a system is likely to help the farmers with large marketable surplus. It may also enable the co-
operative marketing federations to realise better prices for their members. A sound regulatory
system must, however, be put in place, if the futures market in commodities is to function efficiently.

9.6 MEASURES’ TAKEN BY THE GOVERNMENT TO

IMPROVE AGRICULTURAL MARKETING
Some of the measures recently introduced in the area of improving marketing system for
agricultural commodities have considerable potential for benefiting the farmers. Their impact
can, however, be gauged only after sometime when some of these measures like contract farming,
futures trading in agricultural commodities or other provisions of the new APMC Act are tried
for some time. In theory, these steps are expected to reduce the marketing hazards which the
farmers face despite the existence of regulated markets.
1. Regulated Markets: Regulated markets are established to protect the farmers from unfair
practices adopted by the middlemen in the unregulated markets. The day-to-day operations of
regulated markets are carried out by a “market committee” which consists of nominees from
the State Government, local bodies, brokers and farmers. The marketing committee performs
the following functions. They are 1. Fixation of charges for weighing and brokerage; 2.
Prevention of unauthorized deductions; 3. Enforcing the use of standard weights; and 4. Providing
up-to-date and reliable market information.
In the regulated markets, licenses are issued to the buyers and brokers for carrying out
the operations related to the purchase of agricultural produce. The marketing committees
cancel their licenses, if they adopt unfair practices. So the buyers and brokers are afraid of
adopting malpractices such as wrong weights and measures and unauthorized deductions. As
a result, farmers are expected to receive a reasonable price for their produce. The regulated
markets protect the farmers from various forms of defective practices adopted by the
intermediaries.
2. Grading and Standardization: Grading and standardization play an important role in
improving the system of marketing agricultural produce. The regulated markets will have
facilities for grading and standardization. Initially, grading was adopted with respect to tobacco.
Later, this was extended to a large number of other agro-based products. For grading and
standardization, the government has set up Central Quality Control Laboratory at Nagpur along
with subsidiaries in other places. After laboaratory tests, they issue AGMARK seal to authorized
dealers.
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3. Use of Standard Weights: One of the important defects of unregulated markets is the use of
wrong weighs to cheat the illiterate farmers. To arrest this practice, the government passed the
Standard Weights Act and later adopted the metric system of measures.
4. Godowns and Storage Facilities: The provision of godowns and storage facilities certainly
helps the farmers and encourage them to abstain from distress sales. If storage facilities are
ensured, farmers can store their produce till they get reasonable price. Keeping this in mind the
Government set up, a Central Warehousing Corporation in 1957. Later on, the State Governments
also set up State Ware Housing Corporation to improve the storing capacity of the farmers
5. Market Information: Market information, particularly related to prevailing prices, helps
the farmers to take a decision regarding whether to sell the product or not. The Government
initiated measures to provide information about the prevailing prices in different markets through
the All India Radio, the news papers, the Doordarshan and market intelligence reports.
6. Directorate of Marketing and Inspection: In order to co-ordinate the activities of the various
agencies involved in agricultural marketing and to advise the central government on the problems
pertaining to agricultural marketing. The Government of India set up the Directorate of Marketing
and Inspection. The operations of this directorate include; 1. Promotion of grading and
standardization of agricultural and allied commodities; 2. Statutory regulation of markets and
market practices; 3. Training personnel; 4. Market extension; and 5. Market research, survey and
planning. The directorate supervises the implementation of the cold storage facilities. It provides
financial assistance to selected regulated markets for providing grading facilities,
7. Fixation of Support Prices: In order to protect the interests of farmers from undue price
fall, the Government has set up the Agricultural Prices Commission in 1965. Since then, the
APC has been announcing minimum support prices and procurement prices for most of the
agricultural commodities. Minimum support prices are in nature of ensuring a reasonable
return, after covering all costs of the farmer. The Government makes large scale purchases of
agricultural produce through the procurement prices, in order to meet the requirements of the
public distribution system.
8. Co-operative Marketing: The advantages are co-operative marketing are: 1. it improves
the bargaining strength of the farmers; 2. It helps the farmers to deal directly with the final
buyers by eliminating all intermediaries. This ensures reasonable prices to the farmers; 3. Co-
operative marketing societies provide financial support to farmers in case of need, so that, the
farmers can avoid ‘distress sale’ and improve their returns; 4. By forming co-operative societies,
the farmers can sell in bulk quantities and reduce the transportation costs; 5. Co-operative
marketing societies generally have storage facilities. Farmers can store their produce in these
cold storages till they get fair price; 6. Grading and standardization will become easy under co-
operative marketing; 7. Co-operatives can get market information on a regular basis; and 8. If
the co-operative societies are strong, they can influence the market prices and there by the
farmers can get better price.
In the field of co-operative marketing, the National Agricultural Co-operative Marketing
Federation (NAFED) is the apex body at the national level. At present, primary, central and

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state co-operative marketing societies are operating at the village, district and state levels
respectively. But the progress of these co-operative marketing societies is far from satisfactory.

9.7 AGRICULTURE PRICING

Macro-economic policy measures that may not be directly aimed at agriculture sector,
can nevertheless affect the sector in a big way altering the production as well as social relations.
These policies have been affecting the Indian agriculture, particularly through movements in
terms of trade and through pricing, fiscal, credit and exchange rate policies. These issues have
recently acquired added importance because of the on-going structural adjustment process.
The issue of pricing has attracted considerable attention in recent years. Two major causes may
be mentioned for this. Firstly, there has been a rise in the political power of the formidable farm
lobby. The second cause for propelling the pricing strategy to the forefront of debate on
agricultural issues emanate from the strong macro-linkages which have a potential to significantly
alter the result of the stabilisation-cum-structural reform package in vogue. Fiscal, monetary,
exchange rate and credit policies can sizably affect the agricultural price scenario and through
a feedback relationship affects all the sectors of the economy, including agriculture. A plausible
approach to meet the challenge posed by the pricing dilemma is to remove the present negative
protection to the agriculture sector and let prices correct themselves through increases staggered
over the next few years. But, while allowing for such increases, it is immensely important that
the poor and the vulnerable sections of population are provided a meaningful and workable
safety net. This can only be achieved through increased allocation to poverty alleviation and
employment generation programmes and through strengthening the Public Distribution System
(PDS) to a narrowly targeted population.
To analyse the trends in prices, costs and profitability is essential to understand the state
of the agricultural economy of India and the trend in returns to investments. Data relating to
costs in a situation in which there is a substantial share of family labour engaged in agriculture,
and the limitation of imported data for capital charges and rent makes the cost of production
data somewhat hazy. Likewise, the price data that become available in relation to agriculture
are generally price paid out and need not necessarily be the prices actually received by the
farmers with a proportion of price being deducted as the commission for the intermediaries.
Estimation of farm level incomes, thus, becomes somewhat intractable.
Given the large output fluctuations arising out of the vagaries of rainfall and given the
low-price elasticity of demand for foodgrains in the country, prices fluctuate substantially from
year to year. Changes in supply affect the harvest season prices significantly. It is harvest
season prices, which are relevant for the farmer. To minimise the impact of such fluctuations
on the farmers’ incomes, a system of Minimum Support Prices (MSP) has been put in place for
some crops. This MSP system acts as an insurance against excessive price fall in the years of
boom in production. These are prices at which the Government is willing to buy any amount of
grain from the farmer.

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 There is a general consensus that MSP must fully cover the cost of production but there
is considerable debate on what constitutes true element of cost. Specifically, the debate refers
to the appropriateness of not only the so-called paid out costs but also the imputed value of the
services of family labour and land in the calculation of the ‘full’ average cost. A price covering
such a complete cost is deemed to be “a forward-looking floor because it ensures cash incomes
to farmers over and above the actual money expenditure incurred”. Moreover, it incorporates
the principal of input return parity, since family inputs are given the same remuneration that
they could notionally earn outside the family farming activity.
It will be important to note that all the factors influencing the decisions to estimate the
imputed costs are not necessarily based on market considerations. For instance, the ‘statutory
minimum wages’ are used to impute labour cost rather than the actual wages paid. The impact
of political influences and farm lobbies on the fixation of MSP is thus evident.
There is no doubt that the interest of the farmer as also the need for self-reliance propels
the Government to adopt a policy of price support. Government has been announcing the MSP
for 24 major crops such as paddy, wheat, jowar, bajra, maize, ragi, pulses, oilseeds, cotton,
jute, sugar-cane and tobacco. Thus, a very large number of crops are covered by the MSP
system. This not only entails a considerable workload for the Government machinery, the
financial commitment is also increasing. The manageability of such a system over a long period
of time may be suspected. The application of MSP should be to a limited number of crops
which are facing a sustained increase in production because of some technical break through.
Long-term support and guarantee may not be very helpful in improving the efficiency of the
agricultural sector in the country. Moreover, MSP should be fixed with reference to the cost of
production in the least-cost state.
Price interventions by the Government by way of MSP have resulted in some distortions
in the cropping pattern. One of the major factors influencing the cropping pattern is the income
accruing to the farmer or the expected income from cultivating a crop. As a risk averter generally,
the Indian farmer has preferred crops which not only have a high yield per hectare but also a
price support accompanied by elaborate procurement operations. In addition, the prices of
these crops have risen relatively faster. Lower yield rates for coarse cereals and pulses, high
cost of production for these crops and the lower scale of procurement operations have all
contributed to the farmers switching to the production of rice and wheat.

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 That the MSP for wheat and rice have increased sharply over the past few years may be
observed from the following table.

Table-9.2: MSP for Wheat & Paddy during the Past Few Years (Rs. per quintal)
Year Paddy index 1990 Coarse index 1990 index 1990 index 1990
Common -91=100 Cereals -91=100 Wheat -91=100 Gram -91=100

1990-91 205 100 180 100 225 100 450 100

1995-96 360 176 300 167 380 169 700 156
2000-01 510 249 445 247 610 271 1100 244
2005-06 570 278 525 292 650 289 1435 319
2010-11 1000 488 880 489 1170 520 2100 467
2015-16 1410 688 1325 736 1525 678 3500 778
2016-17 1470 717 1365 758 1625 722 4000 889
2017-18 1550 756 1425 792 1735 771 4400 978
2018-19 1750 854 1700 944 1840 818 4620 1027
Source: Economic Survey and www.agricoop.nic.in.
There is an increasing trend of MSP for both Paddy and Wheat crops. The MSP for
Paddy has increased from Rs. 1360 in 2014-15 to Rs. 1750 in 2018-19. Wheat MSP also
increased from Rs. 1450 in 2014-15 to Rs. 1840 in 2018-19. In five years duration, the MSP of
Paddy rise at 29 percentage and rise of Wheat MSP at 27 percentage.
It is obvious that over the last fifteen years the rise in MSP for both wheat and paddy has
been nearly three-fold. The index for paddy has increased from 100 in 1990-91 to more than 273
in 2004-05. The rise in the wheat MSP is even sharper. It may be significant to note that most of
the increase took place during the decade of 1990’s when the rate of growth of production and
productivity was decelerating in both these crops. If this rise is all to be attributed to the rise in
cost of production of the two main crops of Indian agriculture, then certainly the economics of
cultivation needs a critical examination and a major shift in the technology of cultivation is called
for. However, if a major part or some part of the increase in MSP is attributable to the influence of
farm lobbies in ‘fixing’ the MSP, the basic paradigm of accelerated economic growth in India is
under a severe strain. Coupled with the fact that suicides among farmers have been on the rise
while there has been a significant rise in prices, the issues of efficient production techniques
becoming available to the farmers is of critical importance. Incomes of some farmers may increase
through the MSP system but incomes of most farmers will rise, if the productivity levels rise.
Moreover, the basic issue of allocative efficiency should not be distorted by price interventions
like the MSP becoming a permanent element of agricultural price policy. An alternative
development path for agriculture needs to be chartered sooner than later.
The MSP system has also been a factor contributing to the growing stocks of foodgrains
with the attendant problems of high carrying and storage costs besides increasing food subsidies.
It also causes strain on the fiscal system besides the credit advanced to the Food Corporation of

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India for carrying out the procurement and distribution operations. It can also crowed out the
direct credit to the farming sector.
An analysis of the prices and costs shows that the MSP is more likely to have introduced
distortion in the agricultural sector of the country particularly in respect of wheat and rice
crops. It has also been inimical to the efficient allocation of resources within the agricultural
sector. The system of minimum support prices has been able to keep the incomes of the farmers
with large marketable surplus high but has been responsible for a fiscal strain and increasing
funds being blocked in food storage more than required for reasonable food security and
reasonable level of price stability.

Check Your Progress.

5. State few functions of NABARD.
..........................................................................................................................................
6. List out any three advantages of Cooperative Marketing.
..........................................................................................................................................
7. What is the concept of Regulated Markets?
..........................................................................................................................................

9.8 SUMMARY
Agricultural finance is one of the critical inputs, which influences crop yields and the
future of farmers. In the initial years of independence, to a large extent, the farmers depended
on private sources or non-institutional sources of finance. These non-institutional sources were
explosive in nature and charged very high rates of interest. With a view to free the Indian
farmers from clutches of money lenders and non-institutional sources, the government has
taken a few measures. Accordingly, the Agricultural Refinance and Development Corporation
were established in 1963. In 1969, the government nationalized 14 commercial banks since
then these commercial banks are extending credit to the agricultural sector by treating agriculture
as priority sector. RRBs were established in 1975 to cater to the credit needs of the small and
marginal farmers.
To bring the rural credit agencies under a single umbrella, the government established
the NABARD in 1982 as an apex bank in the rural credit sector. As a result of all these measures,
the Indian farmers are able to meet a major proportion of their productive credit needs through
institutional sources.
Apart from agricultural finance, another area of concern for Indian farmers is the marketing
of agricultural produce, in the initial years of independence, due to the absence of regulated
markets, farmers sold their produce to unregulated markets. The marketing intermediaries in
these markets exploited the farmers by restoring to various types of malpractices, the government
initiated measures such a s the establishment of regulated markets, grading and standardization,
proper weighting systems, fixation of minimum support prices, co-operative marketing and
ryot bazaars to put an end to malpractices adopted by the marketing intermediaries and ensure
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fair price to farmers. The role of Government in establishing Grading and standardization, Use
of standard weights, Godowns and storage facilities, market information, Fixation of support
prices and Co-operative marketing were stressed upon.
The prices of agricultural commodities play an important role in influencing agricultural
output and also allocation of resources. To avoid the year to year fluctuations in the agricultural
output and to stabilize the prices of food grains, there is a need for a proper agricultural price
policy. The government has set up “Agricultural Price Commission” (APC) in 1965 to realize
the objectives of agricultural price policy. The APC has been announcing minimum support
prices (MSP) for most of the agricultural products prior to the sowing seasons. These MSPs
induce the farmers to allocate their acreage under different crops. The APC has been announcing
the procurement prices to procure food grains required to maintain the buffer stock and to run
the public distribution system (PDS). The PDS is playing an important role in stabilizing the
prices to food grains. There has been a debate on the terms of trade between agriculture and
industry. Some economists point out that the terms of trade is favourable to agriculture, some
others that the terms of trade is unfavourable to the agriculture

9.9 CHECK YOUR PROGRESS – MODEL ANSWERS

1. Agricultural Finance is considered as separate field of study dealing with lending and
borrowing by organizations and farmers.
2. The different types of agriculture finance are: Short term loans, Medium term loans,
long term loans which include Productive Credit, Consumption credit.
3. Money lenders, Traders and commission agents, Relatives and friends and Land-lords.
4. The credit provided through co-operatives, commercial banks, regional rural banks and
other agencies of the Government is known as the institutional sources of finance. It
includes Co-operative Credit, land development banks, Commercial banks, Regional
rural banks and Taccavi loans. It also has NABARD and rural credit.
5. The functions of the NABARD are as follows: 1. it is an apex institution which caters
the credit needs of the agricultural sector. 2. it has authority to supervise the functioning
of the co-operative sector. 3. it provides short term &medium term credit to the state co-
operative banks. 4. it extends medium term credit to the regional rural banks.
6. The advantages are co-operative marketing are as follows: 1. it improves the bargaining
strength of the farmers. 2. It helps the farmers to deal directly with the final buyers by
eliminating all intermediaries. This ensures reasonable prices to the farmers. 3. Co-
operative marketing societies provide financial support to farmers in case of need, so
that, the farmers can avoid ‘distress sale’ and improve their returns.
7. Regulated markets are established to protect the farmers from unfair practices adopted
by the middlemen in the unregulated markets. The day-to-day operations of regulated
markets are carried out by a “market committee” which consists of nominees from the
State Government, local bodies, brokers and farmers.

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9.10 MODEL EXAMINATION QUESTIONS
I. Answer the following questions in about 10 lines each.
1. Explain different types of agriculture finance.
2. Bring out Non-institutional sources of agricultural credit.
3. Give small note on contract farming.
4. What is a Regulated market?
5. List out the advantages of cooperative markets.
6. Analyse the trends in Minimum Support Price.
II. Answer the following questions in about 30 lines each.
1. Explain the need for agricultural credit.
2. Describe the measures taken by the Government to improve agricultural marketing.
3. Explain the importance of agricultural pricing for stabilization of agricultural prices.
4. Discuss the different sources of agricultural fiancé.
5. Discuss the role and importance of NABARD.

III. One mark questions.

A) Multiple choice questions.
1. Agriculture finance is an important input which influences:
a) crop output b) income of the farmer
c) positive growth for agricultural development d) ALL
2. The duration of Short term loan is:
a) 15 months b) three years c) ten years d) none
3. Which is productive credit from below?
a) purchase of fertilizers b) Performing marriages c) repairs of wells d) a & c
4. Which is not institutional source of finance?
a) cooperative credit b) land development banks
c) commercial banks d) money lenders
5. Taccavi loans are provided by:
a) Government b) NABARD c) IMF d) SBI
Answers: 1. d, 2. a, 3. d, 4. d, 5. a.

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B. Match the following:
A B
a. Regional Rural Banks (i) 1975
b. NABARD (ii) 1982
c. Institutional source (iii) land Development Banks
d. Productive credit (iv) Purchase of seeds
e. Non-institutional sources (v) Money lenders
Answers: a) i; b) ii; c) iii; d) iv; e) v.
C. Fill in the blanks:
1. Nationalisation of commercial banks in the year ___________.
2. RIDF stands for ___________.
3. ___________term loans to make permanent improvement of Land.
4. ___________is the apex bank for agricultural credit.
5. ___________marketing improved the bargaining strength of the farmers.
Answers: 1)1969 2) Rural infrastructure Development fund, 3) long, 4) NABARD;
5) Cooperative.

9.11 GLOSSARY
1. Non-Institutional Sources: The flow of credit through money lenders, relatives, friends
& land lords.
2. Institutional Sources: Flow of credit through commercial banks, RRBs NABARD etc.
3. Taccavi Loans: The loans provided by the Government, such as for floods.
4. Agriculture Marketing: The marketing or sale of agricultural produce by farmers.
5. Micro Finance: Provision of financial services on a small scale to the rural and urban
poor includes self employed.

9.12 REFERENCES
1. Misra & Puri - Economics of Development and Planning, Himalaya Publishing House,
New Delhi, 2005.
2. Misra & Puri - Indian Economy, 32nd Revised Edition, 2014.
3. Prathyogita Darpan - General Studies- Indian Economy, 2014.
4. RuddarDatt & K.P.M Sundaram - Indian Economy, 70th Revised Edition, 2015.

– Dr. M. Varaprasad, Satavahana University.

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 BLOCK – IV
INDUSTRIAL SECTOR
Industrial Sector is of great importance for economic development of a country. In
this block, the structure, growth, development and problems of Indian industry including
MSME sector, industrial policies, disinvestment policy, LPG model and nature and magnitude
of FDI are discussed.
This block contains the following units:
Unit-10 : Industrial Structure, Growth and MSMEs
Unit-11 : Industrial Policies
Unit-12 : Economic Reforms: LPG and Foreign Direct Investment

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UNIT-10 : INDUSTRIAL STRUCTURE, GROWTH AND
MSMEs
Contents
10.0 Objectives
10.1 Introduction
10.2 Structure of Indian Industry
10.3 Trends in Industrial Growth in India
10.4 Major Changes in Industrial Pattern
10.5 Problems of Indian Industry
10.6 Role of MSME in Indian Economy
10.7 Problems of MSME Sector
10.8 Sickness in MSME Sector
10.9 Summary
10.10 Check Your Progress - Model Answers
10.11 Model Examination Questions
10.12 Glossary
10.13 References

10.0 OBJECTIVES
The story of Economic growth is half-documented without narrating the story of Industry.
India, being a home to more than 137 crore people, needs to build a robust industry. It is a
historical fact that countries with strong industrial base have shown more economic growth
and development, improvement in national income and living standards of people. Industrial
development reduces dependence on agricultural exports to earn foreign exchange. In this
Unit, the structure, growth trends and problems of industry including MSME sector are discussed
in detail. After reading the unit, you will be able to:
● know the importance of industrial sector.
● understand the structure of industry.
● examine the problems of Indian industry.
● analyse the trends of industrial growth. and
● explain the role and problems of MSME sector including sickness.

10.1 INTRODUCTION
Industry plays a decisive role in determining the overall growth of an economy. Without
rapid growth of industries, development of other sectors including that of agriculture con’t be

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sustained. The Industrial sector which possesses a relatively high marginal propensity to save
and invest contributes significantly to the eventual achievement of a self-sustaining economy
with continued high levels of investment and rapid rate of increase in income. Further, it raises
the productive capacity of the people and creates ever increasing employment opportunities.
Indian industry had a global presence before the advent of Britishers in India. Before the
advent of British in India, India accounted for a quarter of world’s industrial output. The exports
from India consisted of manufacture goods like cotton, silk, artistic ware, silk and woollen
cloth. The impact of British policies and industrial revolution led to the decay of Indian handicraft
industry. Post-industrial revolution in Britain, machine-made goods started flooding into Indian
markets. The decline of traditional handicrafts was not followed by the rise of modern
industrialisation in India due to the British policy of encouraging the imports of British made
goods and export of raw materials from India. This is called de-industrialisation. Modern
industrialisation commenced after 1850s gathering pace during the world war. At the time of
British economy was overburdened to take advantage of the market opportunity that the Indian
manufacturing units could meet. The British government never permitted setting up of any
basic / core/ heavy industries in India. Real Industrialisation began only after independence in
the 1950s.
Since the 1950s, industrial development has been attempted by means of conscious
policies and a pro-active role of the governments directing public investment and providing
various incentives and facilities to the private sector. During 1990s the focus was shifted to
private initiative and policies continue to shape industrial development.
Since 2014, the Government of India has initiated a number of measures in crucial sectors
to accelerate higher manufacturing growth such as start-up India, Ease of doing Business,
Make in India, FDI policy reforms etc. India has considerably improved its ranking to 77th
position in 2018 among 190 countries assessed by the World Bank. Doing Business Report,
2019 has kept India 23 ranks over its rank of 100 in 2017.

10.2 STRUCTURE OF INDIAN INDUSTRY

In India Industries are grouped (Structured) on the following basis.

I. Structure in Terms of Usage

1. Basic Industries: Capital goods i.e., heavy engineering and machine building industries are
produced by these industries, These include machine tools, Industrial machinery, Process plant
equipment, construction & mining equipment, electrical equipment and textile machinery etc.
2. Consumer Good Industries: These industries produce consumer goods such as – food
production, packaged goods, clothing leather goods, beverages, automobiles and electronics.
3. Intermediate Industries: An intermediate good is a product used to produce final goods.
Rubber, Chemicals, Clay – Cloth- Jute etc belong to intermediate good industries.

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II. Structure by Type of Ownership
1. Public Sector Undertakings: A state-owned enterprise in India called a public sector
undertaking. The company stocks needs to be majority-owned, managed and controlled by
government it is called PSU. For ex: ONGC, BHEL, Coal India ltd. BSNL are some of the
major PSUs.
2. Private Sector Undertakings: These industries / companies are owned managed and controlled
by private individuals or firms. The major private Ltd. companies in India are: Bharati Infratel
Ltd., HDFC, ITC Ltd, TCS, Infosys, Hindustan Unilever Ltd., Reliance Industries Ltd etc.
3. Joint Sector Undertakings: Industries owned jointly by the government and private
entrepreneurs, individuals who have contributed to the capital. In Joint sector, both public
sectors and private sector join hands to establish new enterprise. For ex: Indian Oil Sky tanking
Ltd, Indian Synthetic Rubber Ltd, Cochine Refineries Ltd., BPCL, Mahanagar Gas Ltd. etc.

III. Structure by Size of the Capital

The MSMED Act 2016 defines the following industries based on investment in plant
and machinery (fixed capital).
1. Large Industries: Large industries provide an impetus to the industrialisation of the country.
Usually these industries produce capital and basic goods (investments, machines chemicals
etc). If the Investment is more than 10 crores, the unit may be called large industry.
2. Medium Industries: A medium scale industry will be one with investment in plant and
machinery of more than 5 crore to less than 10 crore. Thus limit is more than two crore rupees
but does not exceed 5 crore rupees in service enterprise.
3. Small Scale Industries: The industry in which the investment is more than Rs. 25 lakhs but
does not exceed Rs 5 crore. In the case of service enterprise, the investment is more than Rs 10
Lakhs but does not exceed Rs. 2 Crore.
4. Micro Industries: The industry whose investment is less than Rs 25 lakhs in manufacturing
units is called micro industry. This limit is Rs 10 lakhs in service enterprise.

IV. Structure by Type of Enterprises

1. Private Limited and Public Limited Companies: There are two types of companies in
India limited by shares viz. private limited company and public limited company. A private
company is the one which has a minimum paid up share capital of Rs. 1 lakh or such higher
capital as prescribed by the companies Act. The right to transfer its shares; limits the number of
its members from 2 to 50. On the other hand, a public limited company is a voluntary association
of members which is incorporated and therefore has a separate legal existence and the liability
of whose members is limited. It has minimum of 7 shareholders. It has to have a minimum paid
– up share capital of Rs. 5 lakh.

V. Classification of Industries
The industries can be broadly grouped into the following;
1. Primary Good Industry: Primary goods are available from nature. Significant primary product
industries include agriculture, fishing, mining and forestry.
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2. Manufacturing Industry: Manufacturing industries are engaged in transforming raw material
into finished product with the help of machines and manpower. These include all foods,
chemicals, textiles, machines and equipment.
3. Construction & Infrastructure Sector: Construction industry takes up the work of
construction of buildings, bridge roads, dams, canals etc. In India, this industry is an important
indicator of the development as it creates investment opportunities across various related sectors.
It contributes about 8-10 per cent to the nation's GDP.
4. Service Sector: In recent times service sector plays a vital role in the economy. The major
industries under this sector are hotel industry, tourism industry etc.
The infrastructure sector has become the biggest focus area of the GOI. Under Union
Budget 2019-20, US 63.20 billion were allotted to the sector. In 2018, India was ranked 44th out
of 167 countries in world Bank’s Logistics Performance Index (LPI) 2018. India was also
ranked second in the 2018 Agility Emerging Markets Logistics Index.

Check Your Progress.

Note: a) Space is given below for utilizing your answer.
b) Compare your answer with the one given at the end of the unit.
1. What is the industrial structure in terms of usage?
..........................................................................................................................................
2. Define primary good industry, manufacturing industry and service sector.
..........................................................................................................................................

10.3 TRENDS IN INDUSTRIAL GROWTH IN INDIA

The Index of Industrial Production (IIP) is a measure of industrial performance which
sheds some light on the status of industrial growth. It assigns a weight of 77.63 per cent to
manufacturing sector, 14.37 per cent to mining and 7.99 per cent to electricity sectors based on
their relative importance. Further, the IIP has also adopted Use based classification of the sectors
of production to gauge the performances over the years. Table-10.1 reveals the growth rates on
both counts for the last 7 years i.e. from 2012-13 to 2018-19 with 2011-12 as the base year.
It can be observed from the table that the overall growth rate of industrial sector increased
to 4 per cent from 3.3 per cent between 2012-13 and 2014-15 and then decreased to 3.4 per cent
in 2015-16. Though it increased to 4.6 per cent in 2016-17 it decreased in the subsequent two
years to 4.4 and 3.6 per cent respectively. Of the three sectors in this analysis, the performance
of the mining sector decreased from 5.3 per cent of 2016-17 to 2.9 per cent in 2018-19 while
the manufacturing sector registered continuous decrease in growth rates in all the years of
reckoning. The electricity sector maintained increasing growth rates between 2012-13, and
2014-15 but decreased alarmingly in the subsequent years.
In terms of Use-based classification of IIP the index of infrastructure / construction
goods remained higher at 5.6 and 7.5 per cent in 2017-18 and 2018-19 though it declined

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between 2014-2017. Large scale public spending has helped to boost these sectors; primary
goods registered an increasing trend up to 2015-16 and then declined. Growth rate in the capital
goods sector was low and negative up to 2015-16. However, it increased to 4 per cent in 2017-
18 and again declined. Growth rate in the intermediate goods sector had been in the range of 4-
6 per cent up to 2014-15 after which it slipped down in 2018-19. The growth rate of the consumer
durables decreased from 5.7 per cent to 0.8 per cent between 2013-14 and 2017-18 after which
it climbed up significantly to 5.5 per cent. Though consumer durables dipped to 2.7 per cent
growth in 2015-16, they registered a substantially higher growth rate of 10.6 per cent in 2017-
18 followed by a growth rate of 3.9 per cent in 2018-19. The entire analysis brings out the weak
links in the Indian economy pointing out the trends of imminent recession.

Table-10.1: Annual Growth Rates of Index of Industrial Production (IIP) % at

Sectoral Level (Base 2011-12)
Sector Weights 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19

Mining 14.377 -5.3 -0.1 -1.4 4.3 5.3 2.3 2.9

Manufacturing 77.633 -4.8 3.6 3.9 3.0 4.4 4.6 3.6
Electricity 7.994 4.6 6.1 14.8 5.7 5.8 5.4 5.2
General Index 100 3.3 3.4 4.0 3.4 4.6 4.4 3.6
Use Based Classification
Primary goods 34.05 0.5 2.3 3.8 5.0 4.00 3.7 3.5
Capital goods 8.22 0.4 -3.6 -0.8 2.1 3.2 4.0 2.8
Intermediate goods 17.22 5.1 4.5 6.2 1.5 3.3 2.3 0.5
Infrastructure /
Construction goods 12.34 5.4 5.7 5.0 2.8 3.9 5.6 7.5
Consumer durables 12.84 5.0 5.7 4.0 4.2 2.0 0.8 5.5
Consumer
non-durables 15.33 6.1 3.7 4.1 2.7 7.0 10.6 3.9
Source: Press information Bureau, Ministry of Commerce & Industry, GOI for 2016-17 to
2018-19 (P), Economic Survey 2018-19, P. 198.
The index of eight core industries measures the performance of coal, crude oil, Natural
Gas, Petroleum Refinery Products, Fertilisers, steel, cement and electricity. These eight core
industries are assigned about 40.3 per cent weight in the IIP. The overall index of these eight
core industries registered a growth rate of 4.3 per cent in 2018-19 and maintained above 4 per
cent of growth rates between 2014-15 and 2018-19 with the exception of 2015-16. The production
of coal and cement registered significant growth rates in 2018-19 in comparison to the base
year. Production of Natural gas indicates negative growth rates up to 2016-17 and then positive
trends in 2017-18 and 2018-19. The growth rates of production in Fertilisers have been low and
declining trend is evident. Refinery products have increasing trends though a decline is observed
in 2018-19. Production of steel touched the maximum of 10.7 per cent growth rate in 2016-17

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and then slipped to 4.7 per cent in 2018-19. With regard to Electricity, the growth rate touched
the maximum level of 14.8 per cent and then remained in the range of 5-6 per cent. It can be
stated on the basis of this analysis that the core sector in India has not been weak though it is
not robust.

Table-10.2: Growth of Production of Eight Core Industries (in %)

Sector Weight 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 (P)

Coal 10.3335 1.0 8.0 4.8 3.2 2.6 7.4

Crude Oil 8.9833 -0.2 -0.9 -1.4 -2.5 -0.9 -4.1
Natural Gas 6.8768 -12.9 -5.3 -4.7 -1.0 2.9 0.8
Refinery Products 28.0376 1.4 0.2 4.9 4.9 4.6 3.1
Fertilizers 2.6276 1.5 1.3 7.0 0.2 0.03 0.3
Steel 17.9166 7.3 5.1 -1.3 10.7 5.6 4.7
Cement 5.3720 3.7 5.9 4.6 -1.2 6.3 13.3
Electricity 19.8530 6.1 14.8 5.7 5.8 5.3 5.2
Overall Index 100.0000 2.6 4.9 3.0 4.8 4.3 4.3
Source: Same as earlier table and Economic survey 2018-19, p.200.

I. Industrial Growth in India

British Government never intended to develop the industries in India during pre-
independence period. At the end of British Rule, India remained a very backward, predominantly
agrarian economy. The non-agriculture sector was very small and unbalanced in structure.
Within industry the vast majority were employed in household and small industries. Few
industries in the field of agro-processing were developed. Heavy and capital goods industries
were insignificant. Partition caused a great dislocation to agro-based industries; a colonial,
backward, exploited, depleted, stagnant, semi-feudal economy had to be transformed into a
modern, industrial, vibrant, dynamic economy through planning after independence.
The dawn of independence created a favourable environment for industrial development
in India. Development planning was initiated with the introduction of the First Five Year Plan in
1951. So far 12 Five year plans have been implemented. During the plan period several new
industries have been promoted. Some have been nationalised. Duming the period of reforms,
since mid 80s, several institutional and structural changes have taken place in the industrial sector.
Industrial Growth during Plan Era: In India the rate of industrial growth has not been uniform
since 1951. During the initial period of 14 years (1951-65) i.e. the first three plan periods,
Indian industries registered a steady growth of about 8 per cent. Later a fluctuating trend was
observed in industrial growth. Table 10.2 shows that, a near stagnancy was experienced during
1966-68 and industrial sector recorded a high level of growth around 9.5 per cent during 1976-
77 and a negative growth rate of 1.4 per cent during 1979-80. Even in the 1960s the average
annual growth rate was only 5.5 p.a and during 1970s it further came down to 4 per cent.

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 During 1980s the industrial performance had improved. The annual growth rate during
1980-85 was 5.5 per cent p.a. due to slowing down of rate of industrial growth. During seventh
plan (1985-90), the growth rate had picked up to an average of 8.5 per cent p.a. and in the
Eighth plan it had declined to 7.0 per cent p.a. During the Ninth plan (1997-2001-02), Industrial
growth slumped to 4.6 per cent p.a. but during Tenth plan (2001-02 to 2006-07) it picked up
significantly to 8.2 per cent p.a.
Table-10.2: Plan-Wise Industrial Growth Rates
During the Eleventh plan, the
Industrial growth witnessed a considerable Plan Period Growth Rate
degree of fluctuations. After growing at more Third Five Year Plan 8.2
than 8 per cent, the growth declined to 2.8 1966-67 Annual Plan 0.6
per cent in the year 2008-09. The main 1967-68 Annual Plan 1.2
reason for this was the global financial crisis 1968-69 Annual Plan 6.7
that hit the world in the year 2008. The Fourth Plan 4.4
industrial growth started recovering in the Fifth Plan 5.9
year 2009-10 and reached a high of 10 per Sixth Plan 5.9
cent. The industrial growth after some Seventh Plan 8.5
setbacks again recovered during 2010-11 to 1990-91 Annual Plan 8.3
reach 8.2 per cent. For the plan as a whole, 1991-92 Annual Plan 0.6
the growth rate was 7.5 per cent. During the Eigtath Plan 7.3
period of Twelfth plan i.e. during 2012-13, Ninth Plan 6.3
2013-14, 2014-15 and 2015-16, the annual Tenth plan 8.2
growth rates attained in the industrial sector Eleventh plan 7.5
were 2.7%, 5% 5.7%, as 7.3% respectively. Source: GOI, Hand book of Industrial Statistics

10.4 MAJOR CHANGES IN INDUSTRIAL PATTERN

Industrial pattern had undergone a considerable change during the Five Year Plan period.
Industrial Production went up by about 5 times, making India the tenth most Industrial country
of the world. The industrial structure has been widely diversified covering broadly the entire
range of consumer, intermediate and capital goods. There is a drastic change in the composition
of India’s foreign trade, for instance, the share of imports of manufactured goods has steadily
declined, on the other hand, industrial products, particularly engineering goods have became a
growing component of India’s exports. Further, a significant growth in technological and
managerial skills was also taken place.
Indian has attained self-sufficiency in almost all consumer goods. More particularly the
consumer durable industries expanded at a faster rate and registered 6.2% growth rate in 2016-
17 and is expected to grow at 8.5% in 2020. Growth of capital goods production has been
impressive and there was clear shift in favour of basic and capital good sector. This group
accounted for about 50 per cent of productive capital in 1959 but its share is more than 80 per
cent. The capital good sector contributed approximately 10.4 billion to exports in 2016-17.
Another notable change during 1980s was rapid expansion of chemicals, petro-chemicals and
allied industries.

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 A significant feature of industrial development in India has been the significant expansion
of the public sector. It contributes about one-fifth of the share of industrial sector in the national
income.

10.5 PROBLEMS OF INDIAN INDUSTRY

After completing more than six decades of economic planning, India could not attain a
sound level of industrial development. Some of the major problems that are being faced in the
process of industrialization of the country are presented hereunder:
1. Gap between Targets Achievements: Since the third plan onwards, the gap between targets,
and achievements widened. It is only during sixth and seventh plan; the industrial sector could
achieve its targets.
2. Lack of Infrastructure: Energy crisis has a great bearing on the industrial development and
production. The installed capacity created is much short of the actual demand. Installed capacity
is 35.7, 87.5 TWh and electricity generation in the country during 2018-19 was 1561.1 TWh.
Lower power availability inturn led to decrease in productivity and efficiency and lower output
rates. Another major component in infrastructure is Transportation. Transportation in India is
very costly and slow. The Indian Government noticed this problem in infrastructure and is
working to resolve it.
3. Lesser Labour Productivity: This is because of supply chaine management, transportation
production planning out maintenance. The country has been facing the problem of dearth of
technical and efficient personnel required for industrial development.
4. Lack of Innovation and Technologies in Manufacturing Sector: Lack of invention in
production process, planning, machine capacity etc. were rampant.
5. Low Demand: There is low demand for industrial products in the country due to low
consumption level, weak purchasing power and poor standard of living. Production of
commodities for the mass consumption has recorded a slow growth rate. On the other hand
growth rate in the production of elite oriented consumption goods is increasing.
6. Lack of Capital: Indian industrial development is facing acute shortage of capital. A huge
amount of foreign exchange is being utilized in the payment of loans taken from international
agencies like World Bank, ADB etc. Further, poor rate of capital formation has been responsible
for slow rate of industrial growth.
7. Poor Performance of Agricultural Sector: The poor performance of agricultural sector
resulting from natural calamities like drought, famine, flood etc. It badly effects agricultural
production as well as the supply of raw material. Failure of monsoon even effects the purchasing
power of the people and also the demand for industrial products. Cement industry is recently
facing such crisis.
8. Poor Performance of the Public Sector: A majority of public sector enterprises are incurring
huge losses regularly due to faulty pricing policy and mismanagement. Thus, they are not in a
position to generate surplus money to go for new industrial ventures and launch schemes for
social development. To avoid this burden on exchequer, the government is promoting
privatisation and disinvestment of shares of PSUs.
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9. Indusial Sickness: The causal factors for industrial sickness are: (i) deficient management,
equipment and production techniques (ii) under utilisation of capacity due to shortage of inputs
(iii) obsolete machinery, equipment and production techniques (iv) uneconomical scale of
production (v) lack of demand for products (vi) lack of marketing facilities and other difficulties
in selling the products. According to ministry of MSME enterprise, the number of sick MSMEs
during 2015–16 has doubled to 4, 86, 291 compared to 2, 22, 204 sick units registered during
2012–13.

10.6 ROLE OF MSME IN INDIAN ECONOMY

After the enactment of Micro, Small and Medium Enterprises Development (MSMED)
Act, 2006, the small and medium sector has been defined as micro, small and medium enterprises
with effect from 2nd October 2006. Accordingly separate investment limits have been prescribed
for manufacturing and service enterprises, as shown below:

MANUFACTURING SECTOR
Enterprises Investment in Plant & Machinery
1. Micro Enterprises Does not exceed Rs. 25 lakhs.
2. Small Enterprises More than Rs. 25 lakhs but does not exceed Rs. 5 crore.
3. Medium Enterprises More than Rs. 5 crore but does not exceed Rs. 10 crore.
Service Sector
1. Micro Enterprises Does not exceed Rs. 10 lakhs.
2. Small Enterprises More than Rs. 10 crore but does not exceed Rs. 2 crore.
3. Medium Enterprises More than Rs. 2 crore but does not exceed Rs. 5 crores.
Indian MSMEs comprise three sub-sectors:
1. Predominantly rural based, traditional household industries.
2. Small and medium industries, functioning with relatively obsolete technologies.
3. Modern, small and medium enterprises, which are owned and operated by techno-entrepreneurs
operating in new industries such as software and bio-technology, among others.

Role of MSMEs
MSMEs have been playing a significant role in Indian economy. A catalyst for socio-economic
transformation of the country, the sector is critical in meeting the national objectives of generating
employment, reducing poverty and rural-urban migration. These enterprises help to build a thriving
entrepreneurial eco system, in addition to promoting the use of indigenous technologies. Further, it
reduces inequalities in the economy by contributing in distribution of wealth.
The number of MSMEs registered on Udyog Aadhaar Memorandum (UAM) portal till
July 12, 2018 (since September 2015) is 48.40 lakh. However, as per the 73rd round of the NSS
data, the total number of MSMEs in the country was 633.88 lakh. India’s export of products
from the MSMEs increased to $ 137.1 billion in 2016-17, registering a growth of 4.8 per cent
which was an improvement from the negative growth of 5.9% in 2015 – 16.

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 According to the Ministry of MSME (2017), MSMEs provide employment to 8 crore
people. They provide over 6000 products which account for 8% of the GDP, 45% of
manufacturing output and 40 per cent exports. Thus, MSME sector has been contributing to
gross volume of output, employment and exports etc., MSMEs also play a considerable role in
national development through high contribution to domestic production, expert earnings, low
investment requirements, operational flexibility, low intensive imports, import substitution etc.,
India has been the breeding ground for ideas and entrepreneurs in the recent past. Start-up
activity is at an all–time high.
Small scale industries can mobilise a good amount of savings and entrepreneurial skill
from rural and semi-urban areas remained untouched. Further, MSMEs are playing an important
role in dispersing the industrial units of the country in the various parts of the country. The SSIs
are monitoring better industrial relations between employers and employees and this led to less
number of industrial disputes.

Government Initiatives for the Growth of MSME Sector

In November 2018, Government of India made various key announcements for faster
growth of this sector and for promoting ease of doing business that included in principal approval
for loans upto Rs. 1 crore within 59 minutes through on line portal. Interest subvention of 2%
for all GST registered MSMEs on incremental credit upto Rs. 1 crore is also being provided
and will be in operation for a period of 2 financial years 2018-19 and 2019-20 with an allocation
of Rs. 975 crore. SIDBI acts as the nodal agency for implementation of the scheme.
The government has under taken a number of schemes/programmes like the Prime
Minister’s Employment generation programme, Credit Guarantee Trust Fund for Micro and
Small Enterprises, Credit Linked Capital Subsidy scheme for technology upgradation, Scheme
of Fund for Regeneration of Traditional Industries and Micro and Small Enterprises Cluster
Development programme for the establishment of new enterprises and development of existing
ones (Economic Survey 2018 -19).

10.7 PROBLEMS OF MSMES SECTOR

In spite of having huge potentialities, the MSME sector could not progress in a desirable
manner and presently seriously handicapped in comparison with larger units. Some of the
major problems faced by this sector are presented here under:
i) Financial Problem: The all India Census of SSI units (1992) stated ‘financial problem’ as
the reason for closure of 35% of the units. Scarcity of working capital is a major problem for
SSI units. MSMEs are often unable to procure adequate financial resources for the purchase of
Machinery equipment and raw materials as well as for meeting day–to–day expenses. Further
they find it difficult to recruit and motivate skilled managerial and technical personnel.
ii) Absence of Organized Marketing Facility: The units of MSME sector find it difficult to
sell their output at remunerative prices and can’t spend much on advertising, marketing research
etc., They also face stiff competition from large firms. In case of 14.4% of SSI units, marketing
problems were stated as the reason for closure.
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iii) Obsolete Technology: The small scale sector will have to attach more importance and pay
attention to the areas of technology upgradation and modernization. However, due to lack of
information on the area of technology upgradation, entrepreneurs who have plans for technical
upgradation are net going ahead. This lack of technology sophistication will act as a constraint
in exploiting the opportunities presented by globalization.
iv) Under Utilization of Capacity: substantial under utilization of capacity is an important
character of SSIs in India. It is in between 47 to 58 per cent (Economic Survey 2007).
v) Poor Project Planning: The entrepreneurs of SSI do not attach much significance to viability
studies before starting the enterprise regarding demand aspect, marketing, availability of raw
materials and proper infrastructure. Project feasibility analysis covering these aspects in addition
to technical and financial viability of the projects is not at all given due importance.
vi) Skilled Manpower: Most of the SSIs located is rural, semi-urban areas have been facing
the problem of non-availability of skilled workers. A majority of them do not possess technical
knowledge regarding machinery and thus depend on hired skilled workers. In some cases the
skilled workers may be reluctant to work in rural areas and secondly the enterprise may not
afford to pay the wages and provide other facilities demanded by these workers.
vi) Other Problems: a) absence of regular power supply; b) unsuitable location; c) competition
from large scale units; d) irregular supply of scarce raw materials; e) labour problems; and f)
low technical skill and managerial ability.

10.8 SICKNESS IN MSMES

RBI issued a notification in the year 2012, to define sickness of MIMEs. According to
this notification, an MSME is considered sick when any of the borrowed account of the enterprise
remains NPA (non – performing asset) for three months or more or there is erosion in the net
worth due to accumulated losses to the extent of 50 per cent of its net worth. To RBI, the new
definition would enable early detection of sickness and timely action for their revival.
Magnitude of Sickness
No. of Sick MSMEs in India
Table shows that the number of sick MSME units has
doubled during the period from 2012-13 to 2013-14. Further Year No. of Sick Units
it has increased marginally during the next financial year. 2012-13 2, 22, 204
During 2015-16, it is slightly declined. On the whole, the 2013-14 4, 68, 399
magnitude of sickness in MSMEs sector is alarming.
2014-15 5, 37, 269
Causes of Industrial Sickness
2015-16 4, 86, 291
Causes of industrial sickness are divided into two
categories viz. 1) external; and ii) internal. The external factors originate outside the unit and
therefore, are not under the control of the unit. The internal factors which originate within the
unit. Internal causes for sickness includes: lack of finance, wrong production policies, lack of
marketing, inappropriate personal management, labor problems etc. The external causes include:
non availability of skilled labour, marketing constraints, production constraints, government
policies and market demand, power cuts etc.,
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Check Your Progress – 2
3. Write a note on index of growth rates of Eight Core Industries.
..........................................................................................................................................
4. What are the sub-sectors of MSMEs?
..........................................................................................................................................
5. Write the RBI definition of sickness of MSMEs.
..........................................................................................................................................

10.9 SUMMARY
Industry plays a decisive role in determining the overall growth of the economy. The
analyses of IIP during the last 7 years bring out the weak links in the Indian economy pointing
out the trends of imminent recession. The index of eight core industries reveals that the core
sector in India has not been weak through it is not robust. The Government of India has taken
several industry specific reform initiatives since 2014 that would significantly improve the
overall business environment. To improve ease of doing business, the emphasis has been given
to simplification and rationalisation of the existing rules and introduction of IT to make
governance more efficient and effective. Sickness in MSME sector is alarming. The Government
is taking certain initiatives to support the MSME sector with better credit flow, technology
upgradation ease of doing business and market access etc.

10.10 CHECK YOUR PROGRESS – MODEL ANSWERS

1. Basic Industries: Capital goods i.e., heavy engineering and machine building industries
are produced by these industries. These include machine tools, Industrial machinery,
Process plant equipment, construction & mining equipment, electrical equipment and
textile machinery etc. Consumer good industries: These industries produce consumer
goods such as – food production, packaged goods, clothing leather goods, beverages,
automobiles and electronics. Intermediate industries: An intermediate good is a product
used to produce final goods. Rubber, Chemicals, Clay, Cloth, Jute etc belong to
intermediate good industries.
2. Primary good industry: Primary goods are available from nature. Significant primary
product industries include agriculture, fishing, mining and forestry. Manufacturing
Industry: Manufacturing industries are engaged in transforming raw material into finished
product with the help of machines and manpower. These include all foods, chemicals,
textiles, mechines and equipment. Service sector: The major industries under this sector
are hotel industry, tourism industry etc.
3. The index of eight core industries measures the performance of coal, crude oil, Natural
Gas, Petroleum Refinery Products, Fertilisers, steel, cement and electricity. These eight
core industries are assigned about 40.3 per cent weight in the IIP. The overall index of
these eight core industries registered a growth rate of 4.3 per cent in 2018-19 and
maintained above 4 per cent of growth rates between 2014-15 and 2018-19 with the

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 exception of 2015-16.
4. Indian MSMEs comprise three sub-sectors: 1. predominantly rural based traditional
household industries 2. Small and medium industries, functioning with relatively obsolete
technologies 3. Modern, small and medium enterprises, which are owned and operated
by techno-entrepreneurs operating in new industries such as software and bio-technology,
among others.
5. RBI issued a notification in the year 2012, to define sickness of MIMEs. According to
this notification, an MSME is considered sick when any of the borrowed account of the
enterprise remains NPA (non-performing asset) for three months or more or there is
erosion in the net worth due to accumulated losses to the extent of 50 per cent of its net
worth.

10.11 MODEL EXAMINATION QUESTIONS

I. Answer the following questions in about 10 lines each.
1. Explain the structure of India Industry.
2. Analyse the trends in Index of eight core industries.
3. Examine the role of MSMEs in Indian economy.
4. What is the new classification of MSMEs?
II. Answer the following questions in about 30 lines each.
1. Analyse the trends in IIP growth rates.
2. Examine the major problems of Indian industry.
3. Explain the magnitude and causes of sickness in MSMEs.
4. Describe the problems faced by the MSME sector.

III. One mark questions.

A. Multiple choice questions.
1. The annual growth rate of Index of infrastructure and construction goods during 2018-
19 is…
a) 3.2% b) 5.6% c) 7.5% d) None of the above
2. Investment limit of small enterprise (MSME sector) in plant & machinery is -
a) More than Rs 25 lakh but does not exceed Rs 5 crores
b) Does not exceed Rs 25 Lakh c) Does not exceed Rs 10 lakh
d) None of the above
Answers: 1-a, 2-a.

B. Fill in the blanks.

1. India’s rank as per the Doing Business Report – 2019 is _________________.

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2. Construction and infrastructure sector contributes about________ per cent to the nations
GDP.
Answers: 1- 23, 2- 8 to10.

C. Match the following.

List - I List - II
1. The contribution of MSME sector in GDP a) 77.63%
2. Core industry b) 8%
3. The weight of manufacturing c) Steel industry
4. The growth rate in 11th Five Year Plan d) 7.5%
Answers: 1-b, 2-c, 3-a 4-d.

10.12 GLOSSARY
1. Small Enterprise: The enterprise whose investment is more than Rs. 25 lakhs but less
than Rs. 5 crores in manufacturing Units, and this limit is Rs. 10 lakhs to 2 crores in
service organizations.
2. Industrialisation: The process of building up a country’s capacity to process raw
materials and produce manufacture goods.
3. MSMED Act 2006: As per Micro, Small and Medium Enterprises Development
(MSMED) Act 2006, the small and medium sector has been defined as micro, small and
medium enterprises (MSMEs).
4. Intermediate Industries: An intermediate good is a product used to produce final goods.
Ex: chemicals, Jute, Rubber industries.

10.13 REFERENCES
1. Ruddar Dutt & KPM Sundaram: Indian Economy, S. Chand & Company, New Delhi.
2. S. Kishan Rao & Prabhapanth: Telangana-Indian Economies Environment & Development
issues, NAD, 2015, Hyderabad.
3. Economic Survey (2018-19): Ministry of Finance, GOI, New Delhi.

– Dr. S. Vidyasagar, KU.

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UNIT-11: INDUSTRIAL POLICIES
Contents
11.0 Objectives
11.1 Introduction
11.2 Basic Features of Industrial Policy
11.3 Industrial Policy Resolution 1948
11.4 Industrial Policy Resolution 1956
11.5 Industrial Policy Resolution 1991
11.6 FEMA
11.7 Competition Commission of India
11.8 Disinvestment Policy in India
11.9 Summary
11.10 Model Examination Questions
11.11 Check Your Progress – Model Answers
11.12 Glossary
11.13 References

11.0. OBJECTIVES
Industrialization is said to be an important element of economic development of a country,
especially in case of the developing economies like India. Thus, right from independence, the
government of India has assumed an active role to promote rapid industrialization in the country.
In any country, industrial policy changes over time. Before Independence, the industrial policy
in our country was designed by the British to promote their interests. After Independence, the
formulation of industrial policy is influenced by several political and economic forces. After
reading the unit, you will be able to:
● know the meaning, features and importance of industrial policy;
● explain different industrial policy resolutions after Independence;
● discuss the change of FERA into FEMA; and
● know about CCI and also examine the Disinvestment Policy in India.

11.1 INTRODUCTION
A policy frame work was felt necessary to achieve the objectives of industrialization in
the country. Accordingly, the Indian government formulated and announced its policy regulations
from time to time since 1948 till date. 1956 industrial policy resolution was a land mark in the
history of the Indian industrial development. Strictly speaking this was the blue print of the
Indian industrial sector till 1991. All the public sector undertakings came into existence with
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this policy. In the post- economic reforms era, liberalization, privatization and globalization
era paved the way for changes in the fabric of industrial structure in country. Industrial policy
includes all aspects related to industrial sector. After Independence, the industrial policy of the
country was formulated keeping in view the larger national interests. Public enterprises were
established in the crucial and strategic sectors of the economy. They were vastly expanded.
Government regulation and control on production and prices fixed by the Private sector were
required. Licensing system was introduced. Its implementation was subject to a lot of criticism
at later stage particularly with the onset of LPG model. The licensing system has been liberalized
and simplified. Privatization trend is on the rise. .The road towards globalization is opened.

11.2 BASIC FEATURES OF INDUSTRIAL POLICY IN INDIA

An independent country has to spell-out its approach towards industrial development
and it consists of the formulation of principles, rules and strategies for industrialization. Industrial
policy includes national socio-economic policies, such as fiscal policy, monetary policy, tariff
policy and labour policy and so on. Fiscal Policyconsists ofthe collection of tax revenue and
non-tax revenue, expenditure on various developmental and non-developmental works and
borrowing from domestic and foreign institutions by governments. Tariff policy administers
tariffs at different rates on items of imports and exports and thereby discouraging or encouraging
trade flows. Labour Policy enact and enforce labour laws on recruitment, training, wages,
retirement, industrial relations etc. have to reflect in an industrial policy. Further, government
policy on aspects like, the future of public sector, the relative role of public and private sectors,
foreign investment and foreign technology are also part of industrial policy. India therefore
declared its policy in the form of the Industrial Policy Resolution 1948.
The relative role of the public sector and private sector in economy will not be the same
always. They change over period of time. India opted for a mixed economy. Both public and
private sectors were given same importance in the initial stages of economic planning, with
special emphasis on growth and expansion of the public sector. As a result, public sector
expanded rapidly. The task of providing a strong industrial base for the economy was assigned
to the public sector.

11.3 INDUSTRIAL POLICY RESOLUTION 1948

The first important industrial policy statement was announced by the government on
April 6th 1948 in the form of the industrial Policy Resolution, 1948. The policy recognized the
importance of both the public and private sectors. It was the first industrial policy statement
formulated by the government of India. At the time of independence national consensus was in
favor of rapid industrialization. In the policy resolution of 1948, importance of public sector
was recognized considering the limited resources of the private sector. Leading role was given
to the public sector and industries were divided into four categories.
In the first category, there were three fields of activity viz., arms and ammunition,
atomic energy and rail transport. These areas were placed under state monopoly and private
entities were not allowed to enter into these areas. In the second category, six industries were
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specified .These were –coal, Iron and steel, aircraft manufacture, ship building, manufacture
of telephone, telegraph and wireless apparatus (excluding radio sets) and mineral oils. This
was called mixed sector. New units were to be set up by the public sector only but existing
private sector units were allowed for 10 years. The government announced that the status of
existing private units in this category will be reviewed after 10 years. In the third category,
there were 18 industries. Private sector was allowed to set up units in areas but the government
can direct and regulate such industries. Some of the industries in this category were machinery,
automobiles, electrical engineering, cement etc.Industries not included in these three categories
were put in the fourth category and were left for the private sector.
The 1948 resolution also accepted the importance of small and cottage industries and
announced the policy to promote these industries. Foreign capital was considered important
that the ownership and control should be in the hands of Indians. The policy also emphasized
the need for improving the relationship between laborers and management.

11.4 INDUSTRIAL POLICY RESOLUTION 1956

The industrial policy of 1948, though the first industrial policy of the country, provided
broad framework for industrial sector development in the country. By 1956, Planning
Commission helped in the process of policy resolution. Our constitution came into force from
26th January, 1950 and it envisaged for the establishment of socialistic pattern of society.During
the first five year plan, Industrial (Development and Regulation) Act-1951 was passed. The
experience of the first policy (1948) also provided the input for the next industrial policy. All
these developments thus framed the industrial policy 1956as a unique industrial policy for the
country till 1991. It laid down broad objectives to achieve through the industrial policy. These
are: acceleration of growth rate and industrialization, expansion of the public sector, development
of broad based cooperative sector with healthy participation of public and private sectors,
development of heavy and machine making industries,reduction of inequalities in income and
wealth and to control concentration of economic power and monopolistic tendencies in the
industrial sector.
The 1956 resolution was shaped by Mahalanobis Model of growth with emphasis on
heavy industries. The mixed economy approach was slightly changed giving more importance
to public sector. The Resolution aimed providing a strong industrial base for the economy by
developing heavy industries, accelerating the pace of industrialization by expanding public
sector, initiating measures to curb monopolies and strengthening the cooperative sector. More
importance was given to the public sector. The 1956 Resolution divided the industries into the
following three categories. First category consists of 17 industries. This list was known as
“Schedule A”.The state takes up the responsibility of developing these industries. Of the 17
industries, four industries – arms and ammunition, atomic energy, railway and air transport
were to be government monopolies. The remaining 13 industries, new units were to be
established by state but existing private units will be allowed to grow and expand.
In second category (“Schedule B”), 12 industries (listed in Schedule B) are included.
These include minerals (except minor minerals), road transport, sea transport, machine tools,

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Ferro-alloys and tool steels, basic and intermediary products required by chemical industries
such as manufacture of drugs dyestuffs and plastics, antibiotics and other essential drugs,
fertilizers, synthetic rubber, chemical pulp, carbonization of coal, and Aluminum and other
non – ferrous metals those not included in the first category. In these industries, state would
increasingly establish new units. But, private sector would be allowed to setup units and expand
existing units.
Industries not included in. ’Schedule A’ and ’Schedule B’ were placed in the third
category(“Schedule C”) and responsibility for the development of these was left for the initiative
of private sector.
Another objective spelt out in the Industrial Policy Resolution-1956 was the removal of
regional disparities through development of regions with low industrial base. Accordingly,
adequate infrastructure for industrial development of such regions was duly emphasized. Given
the potential to provide large – scale employment, the Resolution reiterated the Government‘s
determination to provide all sorts of assistance to small and cottage industries for wider dispersal
of the industrial base and more equitable distribution of income. Analysis and comparison of
the two polices establish the common features as well as the differences. The common feature
is that both the policies were based on the principle of mixed economy and recognized the role
of private sector with public sector to achieve the goal of rapid industrialization. But the 1956
policy expanded the role of the private sector, controls and regulations were further reduced to
expand the scope of private sector vis-à-vis public sector.

INDUSTRIAL POLICY STATEMENT 1977

There was a change in the central government in 1977 Janata Party came to power in
the place of Congress (I). It announced its industrial policy statement. The main objectives
were as follows: 1) to increase the rate of industrial growth. 2) to raise the level of employment,
3) to increase the productivity of workers, and 4) to develop cottage and small scale industries.
The industrial policy statement gave greater importance for the development of cottage and
small scale industries. The government expanded the list of reserved items for these industries
from 180 to 800. For the development of these industries, it was proposed to set up district
industries center’ in each district. The nationalised banks were asked to set up separate centers/
departments to enhance credit facilities. In other respects, the statement of industrial policy,
1977, followed the path of 1956 resolution. Both in the case of industrial licensing, tacking
industrial sickness, import of machinery etc. it showed a great deal of liberalism.
The industrial policy of 1977 laid emphasis on decentralization and on the role of small-
scale, tiny and cottage industries. For the first time, a tiny unit was defined as a unit with
investment in machinery and equipment upto Rs. 0.1 million and situated in town or village
with less than 50,000 population.

Check Your Progress:

1. State the basic features of industrial policy - 1956.
..........................................................................................................................................

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2. Write a note on Industrial Policy Resolution - 1948.
..........................................................................................................................................

11. 5 THE NEW INDUSTRIAL POLICY 1991

The Government announced a New Industrial Policy (NIP) on July 24, 1991. The main
aim was further deregulation of the industrial sector. The policy aimed at correcting the
weaknesses that might have crept in ensuring sustained growth in productivity and employment,
and maintaining international competitiveness. The government announced major changesin
many areas. The main objectives of this policy were, to Unshackle the industrial economy
ofIndia from the cob-webs of bureaucratic control, to introduce liberalisation with a view to
integrate the Indian economy with the rest ofthe world economy., to remove restrictions on
foreign direct investment, to liberate domestic industrial establishments from the provisions of
MRTP Act and to reduce or sell away loss making units as also units of low profitability.
Inorder to secure these goals, the government has taken some steps.
Reducing the number of industries in respect of which industrial licensing will be
compulsory. The Industrial Policy Resolution of 1991 had made the Industries Development
and Regulation Act 195I ineffective. Compulsory licensing system has been abolished in the
case of all projects except for industries related to security and strategic concerns, social reasons,
hazardous chemicals and environment polluting concerns classified under 18 groups. However,
at present, only 6 industries need license. These are alcohol, cigarettes, hazardous chemicals,
electronics aerospace and defense equipment drugs and pharmaceuticals and industrial
explosives.The Industrial Licensinghas been abolished to remove unnecessary governmental
interference and delay in investment decisions and bureaucratic red-tapism, corruption etc.
The role of the public sectorhas been diluted. The 1956 Resolution has reserved 17
industries for the public sector. The 1991 Industrial Policy reduced this number to 8 in 1993;
the number was further reduced to six. In 1993, two more were deserved. On May 9, 2001 the
government opened up arms and ammunition sector also to the private sector. Thus, at present,
only 3 industries are reserved for the public sector. The public sector units are granted more
autonomy. Thus by restricting the exclusive jurisdiction ofthe public sector, the scope for
private sector was increased. Investment opportunities for the new entrepreneurs were enhanced.
The government initiated steps to sell equity in select public sector units. Under the
MRTP Act, all firms with assets above a certain size (Rs.100 crore since 1985) were classified
as MRTP firms. The new industrial policies scrapped the threshold limit of assets in respect of
MRTP and dominate undertakings. The MRTP Act has been amended accordingly.
There is now free entry to foreign investment and technology in the case of certain
industries, automatic permission is granted for foreign direct investment (FDI). Indian companies
were permitted to accept investment under automatic approval route without obtaining prior
permission from the RBI. Foreign equity up to 100 percent has been permitted in electricity
generation, transmission and distribution (excluding atomic reactor power plants) and in
construction and maintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels,
ports and harbors. In 2000-01, FDI flow has been further liberalized - 100 percent FDI has
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been allowed in many areas. Still the process is going on. TheIndustrial Location Policy has
been liberalized in 1997-98. The requirement of obtaining industrial approvals from the central
government (except for the industries under compulsory licensing) for establishing units at
locations not falling within 25 kms of the periphery of cities having a population of more than
one million.
Disinvestment is taking place in the public sector. During the planning era, the public
sector had grown enormously. Many successes were recorded. Also several weaknesses were
witnessed. Therefore, disinvestment from certain units of public sector took its birth. This
process is gaining momentum since 1991.

11. 6 FEMA
Foreign Exchange regulation act [FERA (1973)] came under severe criticism particularly
for the section which stipulated that whenever a person was prosecuted against for contravention
of any provision, rule, regulation, directive or any order under the Act the onus of proving that
he had the requisite permission was on him. This often led to unnecessary harassment of bonafide
persons and companies with show cause notices and prosecution for alleged violation of FERA
and got away scoot free. Government initiated process of liberalization of Indian economy in
1991. Foreign investment in various sectors was permitted. The increased flow of foreign
exchange to India and hence foreign exchange reserve has increased substantially. In view of
this, FERA has been repealed and FEMA (Foreign Exchange Management Act) has been passed.
The Act has been made effective from 1st June 2000.
Foreign Exchange Management Act (1999) refers to the management of transactions
involving foreign exchange by the government or a centralize authority. The origin of exchange
management or control of regulation can be traced back to nineteen thirties. After the First
World War period many countries of the world found themselves with depleted gold reserves
and foreign exchange and imposed payment restrictions to prevent massive capital withdrawals
and instill stability in the domestic economy. Since then exchange control or management has
been adopted by a large number of countries and for different purposes.
As per statement of objectives to the FEMA Bill, the main objective of FEMA is to
consolidate and amend the law relating to foreign exchange with the objective of facilitating
external trade and payment and for promoting the orderly development and maintenance of
foreign exchange markets in India. The approach of FEMA is radically different from FERA –
from conservation to facilitation and from control to regulation. Many drastic penal provisions
in FERA have been removed in FEMA.The Foreign Exchange Management Act, 1999 (which
came into effect on 1-6-2000), contains only basic legal framework. Section 46 of FEMA
authorizes Central Government to make rules and section 47 authorities RBI to make regulations
to carry out the provisions of the Act.
Some of the features of the FEMA discussed hereunder; According to Section 3 of FEMA
(1998) no person shall deal in or transfer foreign exchange or foreign security to any person not
being an authorized person if such sale or drawl is a current transaction, provided that the
Central Government may, in public interest and in consultation with RBI, impose such reasonable
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restrictions for current account transitions as may be prescribed.
Section 6 states that any person may sell or draw foreign exchange to or from an
authorized person for a capital account transition. RBI, in consultation with the Government of
India may specify the class of capital account transitions, which are permissible, the limit up to
which foreign exchange shall be admissible for such transactions. RBI may prohibit, restrict or
regulate the following: transfer or issue any foreign security by a person resident in India; by a
person resident outside India, or by any branch office or agency.
In Section 6, subsection 4 provides that a person resident in India may hold, own, transfer
or invest in foreign currency, foreign security or any immovable property situated outside
India, if such currency, security or property was acquired, held or owned by such person when
he was resident outside India or inherited from a person who was resident outside India.
Section 6, sub-section 5 applies to persons who reside outside India. Further, every
exporter of services shall furnish to RBI a declaration containing the true and correct material
particulars in relation to payment for such services.
The amount of foreign exchange is due or has accrued to any person resident in India,
such person shall take all reasonable steps to realize and repatriate to India within a period and
manner specified by RBI.
Section 9 refers to certain exemption from realization and repatriation in certain cases
Contravention and Penalties. The Central Government shall establish an Appellate Tribunal
for Foreign Exchange to hear appeals against the orders of the adjudicating authorities under
this Act. Appeal against the judgment of the Appellate Tribunals lies with the High Court.
The Central Government shall establish a Directorate of Enforcement to enforce the
provisions of this Act. Section 40 of the Act gives power to the Central Government to suspend
or relax, either indefinitely or for a specific period the operation of all or any of the provisions
of FEMA. The notification issued by the Central Government in this regard will have to be
placed before the Parliament and got approved within a specified period.
FEMA provides the following: Free transactions on current account subject to reasonable
restrictions that may be imposed RBI control over capital account transitions. Control over
realization of export proceeds dealing in foreign exchange through Authorized Persons like,
Authorized Dealer / Money Change / Off-shore banking unit, Adjudication of offences. Appeal
provisions including Special Director (Appeals) and Appellate Tribunal, Directorate of
Enforcement. Basically, FEMA makes provisions in respect of dealings in respect of foreign
exchange. Broadly, all current account transactions are free. However, Central Government
can impose reasonable instructions by issuing rules. Capital Account Transactions are permitted
to the extent specified by RBI by issuing regulations. FEMA envisages that RBI will have a
controlling role in management of foreign exchange. FEMA also makes provisions for
enforcement, penalties, adjudication and appeals.
FEMA envisages that RBI will have a key role in management of foreign exchange. It
has been held that RBI is entrusted with sole responsibility of FERA and RBI is ‘solo guardian
and only custodian’ of foreign exchange of India. RBI alone has to decide whether permission

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may or may not been granted. (Decision under FERA is equally applicable to FEMA also).
The main functions of RBI under FEMA are as follows: Control over dealings in foreign
exchange by giving general or special permission for dealing in foreign exchange, excluding
those cases where specified provisions have been made in Act, rules or regulations.
Though RBI exercises overall control over foreign exchange transitions, enforcement of
FEMA has been entrusted to a separate “Directorate of Enforcement’ formed for this purpose.
An enforcement Directorate – looks after enforcement of FEMA. Though RBI is authority to
decide all policies in connection with foreign exchange, enforcement of FEMA is not with
RBI. Directorate of enforcement has been formed to ensure that provisions of the Act are
scrupulously followed. Directors of Enforcement, Additional Director, Special Director, Deputy
Directors and Assistant Directors of Enforcement are appointed by Central Government. These
officers can investigate violations of FEMA. The officers have powers similar to those conferred
on Income Tax Act. Theses powers can be exercised subject to limitations lay down under
Income Tax Act.

11.7 COMPETITION COMMISSION OF INDIA (CCI)

In India, the Competition Commission of India (CCI) was established under the Competition
Act - 2002. Consequent upon a challenge to certain provisions of the Act and the observations of
the Hon’ble Supreme Court, the Act was amended by the Competition (Amendment) Act, 2007.
The Monopolies and Restrictive Trade Practices Act, 1969 [MRTP Act] repealed and is replaced
by the Competition Act, 2002, with effect from 01st September, 2009.
Structure: According to the concerned legislations, the Commission shall consist of a
Chairperson and not less than two and not more than ten other Members who shall be
appointed by the Central Government. The Competition Commission of India is currently
functional with a Chairperson and two members. The commission is a quasi-judicial body
which gives opinions to statutory authorities and also deals with other cases. The Chairperson
and other Members shall be whole-time Members.

Objectives of the Commission.

1. To make the markets work for the benefit and welfare of consumers.
2. Ensure fair and healthy competition in economic activities in the country for faster and
inclusive growth and development of the economy.
3. Implement competition policies with an aim to effectuate the most efficient utilization
of economic resources.
4. Develop and nurture effective relations and interactions with sectoral regulators to ensure
smooth alignment of sectoral regulatory laws in tandem with the competition law.
5. Effectively carry out competition advocacy and spread the information on benefits of
competition among all stakeholders to establish and nurture competition culture in Indian
economy.

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 The Role of CCI is to eliminate practices having adverse effect on competition, promote
and sustain competition, protect the interests of consumers and ensure freedom of trade in the
markets of India. To give opinion on competition issues on a reference received from a statutory
authority established under any law and to undertake competition advocacy, create public
awareness and impart training on competition issues. The Competition Commission is India’s
competition regulator, and an antitrust watchdog for smaller organizations that are unable to
defend themselves against large corporations. CCI has the authority to notify organizations
that sell to India if it feels they may be negatively influencing competition in India’s domestic
market. The Competition Act guarantees that no enterprise abuses their ‘dominant position’ in
a market through the control of supply, manipulating purchase prices, or adopting practices
that deny market access to other competing firms. A foreign company seeking entry into India
through an acquisition or merger will have to abide by the country’s competition laws.
Important Achievements: During 2018-19, the Commission received sixty-eight cases
related to anti-competitive agreements and abuse of dominant position. On the basis of existence
of prima-facie case, the Commission directed the Director General to undertake investigation
into twenty-two matters and closed forty-three. The DG completed investigation in fifty one
matters during the year 2018-19. The Commission received ninety four notices of proposed
combinations in 2018-19, besides seven notices which were pending at the beginning of the
year and approved eighty-nine combination notices during the year. The Commission imposed
an aggregate penalty of Rs. 357.85 crore vis-à-vis Rs. 436.65 crore in 2017-18.
Implementation of competition policy ensures products are available at optimum prices
to the customers and also provides incentive for firms to improve quality of goods and services
which in turn results in increased choices to customers. The Commission is focusing on the
twin pillars i.e. enforcement and advocacy. While the enforcement function has ensured the
preservation of fair competitive landscape in the markets, the proactive advocacy activities
have helped the stakeholders to be engaged with the Commission and follow competition
compliance thereby ensuring fair operations in the markets. All these activities have direct and
indirect positive impact on the consumers and the economy as a whole.
Commission has reviewed mergers in sectors such as e-commerce, gas production and
railways etc. that have wider impact on the economy. The Commission ensured there is fair
competition in the market by not only enforcing the provisions of the Competition Act, but also
by engaging with the respective departments of the Government when deemed necessary. By
expeditiously completing the reviews of merger cases involving stressed assets in crucial sectors
such as Steel, that were undergoing resolution process under the Insolvency and Bankruptcy
Code, the Commission has enabled broader macro-economic impact through its enforcement.

11.8 DISINVESTMENT POLICY IN INDIA

The new Industrial Policy Statement 1991 based on economic reform measures envisaged
disinvestment of a part of government holding in the case of select public sector enterprises to
provide financial support and improve the performance of public sector enterprises. This became
necessary because of the withdrawal of budgetary support to the extent of 60 percent by the

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government to the loss-making units. The Rangarajan Committee of 1993 constituted by the
GoI for this purpose made important observations. It maintained that the units to be disinvested
should be identified and disinvestment could be made up to any level, except in defence and
atomic energy areas where the government should retain the majority holding in equity. Further,
disinvestment should be a transparent process duly protecting the rights of the workers. It
suggested the constitution of an autonomous body for the smooth functioning and monitoring
of the disinvestment programme. The Disinvestment Commission was thus constituted in 1996
as an advisory body having a full-time chairman and four part-time members. The Commission
was required to advise the government on the extent, mode, timing and pricing of disinvestment.
It suggested four modes of disinvestment: Trade sale; Strategic Sale; Offer of shares; Closure
or Sale of Assets.
Concept of Disinvestment: By disinvestment we mean the sale of shares of public
sector undertakings by the government. The shares of government companies held by the
government are earning assets at the disposal of the government. If these shares are sold to get
cash, then earning assets are converted into cash. So it is referred to as disinvestment.
Disinvestment is the process through which privatization could take place. Some of the salient
features of disinvestment are: 1. Disinvestment involves sale of only part of equity holdings
held by the Government to private investors. 2. Disinvestment process leads only to dilution of
ownership and not transfer of full ownership. 3. While, privatization refers to the transfer of
ownership from government to private investors, the disinvestment is called as ‘Partial
Privatization’.
The following are the primary objectives of the disinvestment policy of the Government.
1. To reduce the financial burden of the Government.
2. To encourage wider share of ownership.
3. To improve public finances.
4. To rationalise and retrain their workforce.
5. To introduce, competition and market discipline.
6. To depoliticise essential services.
7. To help public enterprises upgrade their technology to become competitive.
8. To build competence and strengthen their R & D.
9. To initiate diversification and expansion programmes.
In India a large number of PSUs were set up across sectors, which have played a significant
role in terms of job creation, social welfare, and overall economic growth of the nation; they
rose to occupy commanding heights in the economy. Over the years, however, many of the
PSUs have failed to sustain their growth through growing liberalization and globalization of
the Indian economy. It is also contended that the functioning of many public sector units (PSUs)
has been characterized by low productivity, unsatisfactory quality of goods, excessive manpower
utilization, inadequate human resource development and low rate of return on capital.

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 Progress of Disinvestment in India: The 1991 economic reforms introduced the
privatization process when sale of minority stake was undertaken in some public sector
undertakings. However, now the focus has
shifted to strategic sale of the identified Anexure-I: Targeted & Actual Disinvestment
public sector units. During the period 1991- from April 1991-92 to 2015-16 (Rs. Crores)
2008, the progress of disinvestment has been
Year Targeted Actual
a normal one. Against the budgeted
Receipts Receipts
disinvestment of Rs. 96,800 crore, only an
amount of Rs.51, 609 crore collected. The 1991-92 2,500 3,038
pressure of the Left parties has largely 1992-93 2,500 1,913
restricted the pace of disinvestment. The 1993-94 3,500 Nil
period from 2009-10 to 2017-18 a stable
1994-95 4,000 4,843
government and improved stock market
conditions initially led to a renewed thrust 1995-96 7,000 168
on disinvestments. The Government started 1996-97 5,000 380
the process by selling minority stakes in 1997-98 4,800 910
listed and unlisted (profit-making) PSUs.
1998-99 5,000 5,371
However, from 2011 onwards,
disinvestment activity slowed down 1999-00 10,000 1,860
considerably. As against a target of Rs.40, 2000-01 10,000 1,871
000 crore for 2011-12, the Government was
2001-02 12,000 5,658
able to raise only Rs.14, 000 crore. However,
2002-03 12,000 3,348
the subsequent years saw some
improvement and the Government was able 2003-04 14,500 15,547
to raise Rs. 23,857 crore against a target of 2004-05 4,000 2,765
Rs. 30,000 crore in 2012-13 and Rs. 21,321
2005-06 No target 1,570
crore against a target of Rs. 54,000 in 2013-
14. The achieved target dropped to Rs. 2006-07 No target Nil
24,338 crore against a target of Rs. 58,425 2007-08 No target 4,181
crore in 2014-15. In 2015-16 the 2008-09 No target Nil
Government was able to raise Rs. 32,210
2009-10 No target 23,553
crore against a target of Rs. 69,500 crore
and Rs. 46,378 crore against a target of Rs. 2010-11 40,000 22,144
56,500 in 2016-17. Further, some steep 2011-12 40,000 18,037
improvement was seen and the Government 2012-13 30,000 24,000
was able to raise Rs. 1, 00,642 crore against
2013-14 40,000 18,254
a target of Rs. 72,500 crore in 2017-18.
2018-19 onwards the NDA Government 2014-15 43,425 26,353
has set an ambitious disinvestment target of 2015-16 41,000 -
Rs. 80,000 crore. Total 2,36,625 1,85,814
Challenges of Disinvestment Source: GOI, Central Public Enterprises Survey,
Policy: Disinvestment was a very bold and 2008-09 & 2010-11, Economic Survey 2014-15.
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important step initiated by the government as a part of its reform measures. But the way it was
handled has defeated its very purpose. The challenges are: The process of disinvestment is not
favoured socially as it is against the interest of the socially disadvantageous people and society
at large. This process will definitely affect the social objectives of the government. Politically
the coalition government at the centre with a number of parties sharing power has posed a
serious threat to this programme. Conflicting interests have made it difficult to arrive at a
national consensus. From the Economic side, most of the units identified for disinvestment are
in a very bad shape and do not offer good returns. The government, due to paucity of funds, is
not in a position to revive them. The government does not have a well-defined disinvestment
policy under a time-bound framework. The question of profit making public enterprises
(NAVARATNAS) had been another issue for debate.Utilization of proceeds from disinvestment
and safeguard of workers and employees interests are also in question. The government has
failed to maintain transparency in various stages of the disinvestment process which has dented
its reputation. Lack of co-operation and co-ordination between the disinvestment ministry and
other ministries concerned has also greatly affected the disinvestment programme.
Disinvestment is a process. The disinvestment process needs to be taken up more seriously
by the government. The Government should try to come out with a time bound programme to
conduct the process with transparency in every activityconected to the disinvestment policy.

Check Your Progress.

3. Write the main aim of New Industrial Policy 1991.
...........................................................................................................................................
4. Write a note on FEMA.
...........................................................................................................................................
5. State two important objectives of the Competition Commission India.
...........................................................................................................................................

11.9 SUMMARY
Industrialisation is said to be an important element of economic development of a country,
especially in case of the developing economies like India. Industrial policy is a component of
economic policy. Before independence, the industrial policy was designed by the British to
promote their self-interest. After independence, respective central governments have framed
several industrial policy resolutions. The statements, reports and enactments related industrial
policy are to safeguard the larger interests of the industrial development of the economy of the
country. Thus, right from independence, the government of India has assumed an active role to
promote rapid industrialization in the country. A policy frame work was felt necessary to achieve
the objectives of industrialisation. Accordingly, the Indian government formulated and announced
its policy regulations from time to time since 1948 till date. 1956 industrial policy resolution
was a land mark in the history of the Indian industry. Strictly speaking this was the blue print of
the Indian industrial sector till 1991. The new economic reforms and subsequent 1991 industrial
policy resolution paved the way for changes in the fabric of industrial structure in country.
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 In line with the liberalization move introduced during the eighties, the new policy radically
liberalized the rules and regulations to suit the globalisation. The licensing system has been
reformed, liberalised and simplified. It has paved the way for faster industrial development.
The MRTP Act (1969) is transformed into an instrument for checking restrictive trade practices.
The MRTP Act repealed and replaced by the Competition Act, 2002. The commission is a
quasi-judicial body which gives opinions to statutory authorities and also deals with other
cases. In the process to promoting rapid industrialization, the Government of India has introduced
its disinvestment policy in the year 1991. It is a process, and this process needs to be taken up
more seriously by the government and implement with more transparency.

11.10 CHECK YOUR PROGRESS – MODEL ANSWERS

1. The 1956 resolution was shaped by Mahalanobis Model of growth with emphasis on
heavy industries. The mixed economy approach was slightly changed giving more
importance to public sector. The Resolution aimed providing a strong industrial base for
the economy by developing heavy industries, accelerating the pace of industrialization,
by expanding public sector, by initiating measures to curb monopolies and by
strengthening the cooperative sector.
2. The 1948 Policy Resolution was the first industrial policy statement formulated by the
government of India. At the time of independence national consensus was in favor of
rapid industrialization. In the policy resolution of 1948, importance of both, public sector
was recognized but considering the limited resources of the private sector, leading role
was given to the public sector industries were divided into four categories.
3. The main aim of 1991Policy Resolution was to further deregulate the industrial economy.
The policy aimed at correcting the weaknesses that might have crept in ensuring sustained
growth in productivity and employment, and maintaining international competitiveness.
4. The Foreign Exchange Management Act (FEMA) Bill, which was introduced in July
1998 in the Parliament, seeks to repeal FERA (1973) and consolidate and simplify the
law relating in Foreign Exchange with the objective of facilitating external trade and
payments and for promoting the orderly development and maintenance of foreign
exchange market in India.
5. The objectives of CCI are:i) to make the markets work for the benefit and welfare of
consumers; ii) ensure fair and healthy competition in economic activities in the country
for faster and inclusive growth and development of the economy.

11.11 MODEL EXAMINATION QUESTIONS

I. Answer the following questions in about 10 lines each.
1. Write a brief note on Industrial Policy 1948.
2. What are the basic features of industrial policy 1956?
3. State the objectives and role of Competition Commission of India.

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II. Answer the following questions in about 30 lines each.
1. Examine the New Industrial policy - 1991.
2. State the primary objectives and challenges of disinvestment policy.
3. Explain the role of FEMA in foreign exchange market of India.
III. One Mark Questions.
A. Multiple Choice Questions.
1. Which one of the following are the importance was given by the Industrial Policy
Resolution-1948?
A) Public B) Private C) Public and Private sector D) None of these.
2. The objective of the disinvestment policy of the Government is to -
A) Reduce the financial burden on the Govt.
B) Encourage wider share of ownership.
C) Improve public finances. D) All the above
3. Which one of the following are replaced by the Competition Act, 2002?
A) FEMA B) MRTP C) FERA D) Disinvestment Policy
Answers: 1) C; 2) D; C) B.
B. Fill in the Blanks.
1. The Industrial Policy Resolution-1948 was announced by the government
on___________.
2. ______________ is ‘solo guardian and only custodian’ of foreign exchange of India.
Answers: 1) April 6th 1948; 2) RBI.
C. Match the Following.
I II
1. Disinvestment Commission constituted A) Mahalanobis Model
2. 1956 resolution B) July 24, 1991
3. New Industrial Policy C) 1996
4. Conserve foreign exchange resources D) FERA
Answers: 1) C; 2) A; 3) B; 4) D.

11.12 GLOSSARY
1. FEMA:is an Act of the Parliament of India to consolidate and amend the law relating to
foreign exchange with the objective of facilitating external trade and payments and for
promoting the orderly development and maintenance of foreign exchange market in India.
2. FDIs:is an investment in the form of a controlling ownership in a business in one country
by an entity based in another country.
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3. MNCs:A multinational corporation (MNC) is usually a large corporation incorporated
in one country which produces or sells goods or services in various countries. The two
main characteristics of MNCs are their large size and the fact that their worldwide activities
are centrally controlled by the parent companies.
4. SEZs: A special economic zone is an area in which the business and trade laws are
different from the rest of the country. SEZs are located within a country’s national borders,
and their aims include increased trade balance, employment, increased investment, job
creation and effective administration.

11.13 REFERENCES
1. Dutt & Sundaram: Indian Economy, (Latest Edition).
2. Govt. of India: Economic Surveys.
3. Misra and Puri: Indian Economy (Latest Edition).
4. Annual Report of Competition Commission of India, March 31, 2019.
5. Administrative Reforms Commission (ARC) Report of the Study on Public Sector
Undertakings.
6. Department of Disinvestment, Ministry of Finance.
7. www.divest.nic.in.
– Dr. K. Krishna Reddy, Dr. BRAOU.

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UNIT-12: ECONOMIC REFORMS – LPG AND
FOREIGN DIRECT INVESTMENT
Contents
12.0 Objectives
12.1 Introduction
12.2 Need for the Implementation of LPG Model
12.3 Implementation of LPG Model through Economic Reforms
12.4 Strengths and Weaknesses of the LPG Model
12.5 Appraisal of Economic Reforms
12.6 WTO and Indian Economy
12.7 Foreign Direct Investment
12.8 Summary
12.9 Check Your Progress – Model Answers
12.10 Model Examination Questions
12.11 Glossary
12.12 References

12.0 OBJECTIVES
Economic reforms were introduced in India in 1991 to restore internal and external
confidence. The economy of India had undergone significant policy shifts due to the
implementation of economic reforms. The primary objective of this new model of economic
reforms LPG (Liberalisation, Globalisation and privatisation) was to make the economy of
India the fastest developing economy in the globe. Liberalising Foreign Direct Investment was
another important part of India’s reforms. After reading this unit, you will be able to:
● Explain prevailing conditions in the Indian economy at the time of 1990.
● Analyse the need for the Implementation of LPG Model.
● Know the favourable and against arguments of LPG Model.
● Evaluate the impact of economic reforms on Indian economy.
● Impact of WTO’s policies on Economic Reforms Indian economy. and
● Analyse the pattern of Foreign Direct Investment inflows in India.

12.1 INTRODUCTION
Since 1950s Indian government adopted the path of economic planning. Growth with
justice was the main objective of economic planning. Reduction in unemployment and poverty
levels, reduction of inequalities in income and wealth distribution, balanced regional
development, stable price level, balance of payments equilibrium and human capital development
176
are some of the other important objectives. Under the dogma of the socialistic pattern of society,
infact, India had practiced a number of restrictions ever since the introduction of the first
industrial policy resolution of 1948 to protect the public sector. Number of programmes designed
for industrial development failed in developing well motivated and innovative entrepreneurship
in the absence of strong competition and successful efforts for export promotion. By 1990s
these restrictions have become major bottleneck for the faster growth rate to pick up with pace
of developed economies. Hence it has become mandatory for the Government to withdraw
these restrictions to provide conditions of undeterred economic activities. Under the process of
globalisation led liberalisation, India has moved in that direction by withdrawing some of the
impeding restrictions to ease the cord of restrictions, so that business firms and individuals
from other countries may be induced to operate their business in India, while Indians/ firms can
operate abroad.

12.2 NEED FOR THE IMPLIMENTATION OF LPG MODEL

Indian economy faced grave economic crisis and external pressure for foreign exchange
during the period 1985-1990, while there was an internal debt trap which continued from 1986
onwards backed by severe liquidity crisis. The economy was almost on the brink of defaulting
international financial/capital market. The foreign exchange crisis was stimulated by long-
term and short-term foreign debts. Foreign borrowings were almost become impossible. The
country’s monetary system, particularly the foreign exchange situation was in a very disastrous
footing, it was known as ‘Balance of Payments Crisis’. The origin of such major economic
crisis of early 1991 is directly attributable to the improper macroeconomic management of
economy during 1980s which lead to large and persistent macroeconomic imbalances. The
internal imbalance in the fiscal situation and the external imbalance in the payments situation
were closely related to the absence of efficiency in the macroeconomic management. The then
Union Finance Minister Dr. Manmohan Sing had a great task to introduce ways and means for
the recovery of the ailing monetary system. Change in exchange rate structure was, therefore,
the first weapon in his hands.
While foreign exchange reserves were not sufficient enough even for a few weeks, and
import of essential goods were inevitable, particularly due to shortfall of industrial and
agricultural production. Any import-cut would have crippled the economy including the transport
system of the country. This has resulted in increasing trade deficit, acute decline of foreign
exchange reserves, mounting foreign debts and high debt service cost. This is all due to heavy
restrictions on trade and investment. The country had, therefore, to attract foreign exchange on
the one hand, and increase exports backed by decrease of imports on the other. Liberalisation
was one of the major instruments to realize this purpose. Developing an industrial base and
increasing the industrial production were immediately required, especially in the face of a
declining economic trend. We were also in needed of latest technology base, greater innovation,
capital formation and generation of more employment opportunities for vast unemployed
manpower, latest technical know-how to suit the global market, and inflow of foreign capital.
Without an appropriate liberalisation, foreign investors were unwilling to invest in India, which
was necessary for reducing external indebtedness too.
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 The need of increase in inflow of foreign capital include, increase in production and
export oriented goods, increase in production of goods for import substitution, reduction of
external debt, an improvement in the quality base of the goods and services to meet the global
standards and increase in the overall economic activities in the country. Further, too much
dependency on public sector units with great expectations unfortunately turned to be ‘white
elephants’ exerting tremendous pressure on the exchequer with accumulated losses. Those
units with high investment had low productivity, were either to be made viable or to be
disinvested. Liberalisation was thought of the best option for this purpose.
Furthermore, the rate of inflation rose to 10.3 percent in 1990-91. In terms of the
consumer price index, the rate of inflation increased to 11.2 percent per annum. The most
negative feature of this inflationary situation was that the prices of food risen substantially.
All these developments eroded international confidence in the Indian economy, India’s
credit rating in the international capital markets declined steeply. By 1990 the series of oil
shocks made large impact on the economy and a macroeconomic crisis developed into
unsustainable fiscal and current account deficit and accelerating inflation. Despite the existing
tremendous potentiality, vast natural resources, and extensive trained manpower, our contribution
to the world trade in1992 was 0.53 percent, much below the level of even Thailand, and we are
listed among the poor countries in the world.
The tremendous change that took place globally in the recent past, particularly during
the last one decade necessitated every nation to incorporate corresponding changes in its
respective economy to adopt itself to the rapidly changing environment. Countries started
thinking in terms of the global economy and global market. In a nutshell a global philosophy of
business has emerged so swiftly. No country can now resist the forces of globalisation and the
resultant changes that take place globally. Asian common market philosophy is also gaining
ground, particularly in the context of the successful business operations of the countries like
Japan, Singapore, South Korea, Taiwan and Hong Kong. It is, therefore, been obvious for
Indian economy to rise to the occasion and adopt a policy to adapt itself to the emerging global
market. This called for the abandonment of the restrictive policies followed in the past and
open up the economy to the world. Of late, this fact is realized by India which led to initiation
of LPG model.

12.3 IMPLIMENTATION OF LPG MODEL THROUGH

ECONOMIC REFORMS
The early reforms initiated by the Government of India from 1985 onwards were
intended to improve productivity, absorption of modern technology and fuller utilization of
capacity and the major thrust of the early reform policy was greater role for the private sector.
To provide larger scope to the private sector a number of changes in policy were introduced
with regard to industrial licensing, export-import policy, technology upgradation, fiscal policy,
foreign equity capital, removal of controls and restrictions, rationalizing and simplifying the
system of fiscal and administrative regulations. However the early reforms haven’t yielded the
desired results.
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 To meet the internal and external crisis the Government of India introduced the economic
reform programme through LPG model intensively from 1991 onwards. This intensive reform
policy represented complete renunciation of the old policy framework and brought liberalization
out in the open. The new economic reforms initiated in 1991 consisted of two distinct strands,
they are: macroeconomic stabilization and structural reforms. While stabilization deals with
demand management, the structural reforms deal with sectoral adjustments designed to tackle
the problems on the supply side of the economy are intended to bring out structural adjustment
in the overall economic policy pursued during the post-independence period.
Macroeconomic stabilization measures carried out by the Government of India through
the policies of returning to low and stable inflation and a sustainable fiscal and balance of
payments position. On the other, the structural reforms carried out by the Government of India
since 1991 through comprehensive liberalization measures intended to improve the supply side
of the economy. Among these the more important are: trade and capital flows reforms, industrial
deregulation, disinvestment policy and public sector and financial sector reforms.
The government also proposed to increase the efficiency and international competitiveness
of industrial production by encouraging foreign investment and transfer of foreign technology.
Simultaneously, the government had decided to remove barriers to entry and limits on growth
in the size of the firms in the domestic economy. Competition and private enterprise would be
encouraged in the domestic market so that there are adequate incentives for raising productivity,
improving resource use and efficiency and reducing costs. The new policy package also sought,
along with domestic competition, to remove barriers to foreign trade and capital flows. The
role of public sector would be confined to infrastructure and hi-tech sectors.
Let us go through several major changes have taken place with the emphasis on
Liberalisation, Privatisation and Globalisation (LPG).
Liberalization: Liberalization as understood entails the lowering or eliminating of
customs, tariffs and quota restrictions and encouraging a free flow of goods and services in and
out of the country. The path of liberalisation has to dismantle the walls of restrictions in India
which has been multi-pronged. First of all, the Indian Government has gradually released the
economy from the restrictive rules and regulations. It also initiated the policy towards building
of market- oriented economy and simultaneously sustaining the private sector- friendly image.
The real task before the Government is two-fold, viz., firstly to win the confidence of the
foreign investors, and secondly to allay the fears of the Indian public about the entry of the
foreign investors into India in a big way and effectively check the problems of inflation and
unemployment.
Privatization: Privatization entails the divestment of firms owned and controlled by the
government which are sold to either foreign firms, domestic firms or joint ventures of domestic
and foreign firms. In case of loss making companies, the objective is, to put an end to the drain
of scarce government resources that are swallowed by loss making public sector companies
and to encourage higher productivity and better access to global markets. Profitable public
sector firms may also be privatized, to enable the government to focus its resources on better
governance and social welfare and leave the business enterprises of running the businesses.
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 The government promoted privatization process, by permitting the private sector to set
up individual units without taking a license, the government removed certain shackles in the
form of prior approvals, which were holding back or delaying the process of private investment.
Secondly, 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. Thirdly, with a view to facilitate direct foreign investment, the
government decided to grant approval for direct foreign investment upto 51 percent and gradually
to 100 percent in many sectors including high priority areas. No permission was required for
hiring foreign technicians, foreign testing of indigenously developed technologies, etc.
Fourthly, it has been decided to refer chronically sick public sector enterprises 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 by granting greater autonomy to PSU managements and the Boards of public sector
companies were made more professional. Finally, 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.
Globalization: Globalization of a nation’s economy as generally can be understood in
terms of dovetailing the country’s economy with the global economy. The measures undertaken
are aimed at enabling the country to benefit economically and provide a better standard of
living and quality of life for its people. No country can now resist the forces of globalisation
and the resultant changes that take place globally. It is, therefore, obvious that India has risen to
the occasion and adopted a policy to adapt itself to the emerging global market.
In addition to trade flows, foreign investment flows are also important part of globalisation.
Here, direct investment flows are more important. Direct foreign investment flow into India,
prior to1991was about $ 3-4 billion. Foreign institutional investment is also of the same order.
The total foreign investment is 2 to 3 percent of the entire investment in India. After 1991
foreign equity is permitted upto 51 percent in some of the strategic sectors of industry. Prior to
1991, the equity participation of foreign agencies was restricted to 40 percent only. Even then,
the investment flows were meagre. In 1990-91, the foreign equity investment was only 6 percent
of the total foreign investment. By 1999-2000, this investment has gone up to 58 percent. It is
also called portfolio investment. Such investors have the right to sell their shares in the market.
They can transfer their funds to their country according to their choice. The flow of foreign
financial resources encourages globalisation. Foreign exchange rate was regulated either by
the government or the RBI until recently. Now it is being determined in the market by market
forces. Its transactions are made easier. Current account transactions are liberated from the
provisions of foreign exchange regulations. Convertibility of capital account is also made easier.

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12.4 STRENGTHS AND WEEKNESSES OF THE LPG MODEL
Now, we can discuss the reasons and arguments in favour of globalisation. Revolutionary
changes have occurred in the field of information and communication and such process is
going on. The time and cost of exchange of information is getting reduced beyond imagination.
Slowly, the world is becoming a global village. Transport sector is not only expanding fast but
also picking up speed. The market for goods and services is expanding. In order to regulate,
standardise, expand the business environment, multilateral institutions such as the World Bank,
IMF, WTO, WHO, ILO etc. were established to with a further intention to keep up the pace of
global investment. Developing countries have proposed a targeted growth rate of 8 to 10percent
of GDP. It may not so easy to attain such level of growth with its domestic savings only.
Foreign savings have to flow into the countries in the form of investment. Along with the
foreign investment, foreign technology and management also are very much needed. With this,
industrial efficiency can be raised and growth impulses can be expanded through global trade.
Through the policy of globalisation, production and exports can be raised; economies of scale
can be reaped and social welfare can be augmented. It leads to international cooperation and
promotes world peace. In view of these advantages, the developing countries including India
entered into collaboration agreements with foreign companies. The Public-Private-Partnership
(PPP) formula is expanding without leaps and bounds.
The arguments against liberalisation and globalisation are many. Let us consider some
of the arguments. The relaxation of controls on investment is likely to strengthen the market
forces which are guided by demand factors. It results in production of pro-rich luxury goods at
the cost of consumer goods of the masses. The increased flow of foreign investment and the
fall in the rate of interest is most likely to foster capital-intensive methods of production. Jobless
growth may result. Social interests get undermined. Foreign investment especially portfolio
investment rises. It is called ‘hot money’. The ups and downs in flow of portfolio investment
from the host country became faster and sudden. This will create inconsistencies in the growth
process may lead to new form of crisis witnessed in recent years by East-Asian countries.
Globalisation increases the role of multinational corporations (MNCs). They can pull down
existing governments. They can turn the market forces in their favour. By unscrupulous ways,
they can turn the economy into doldrums. The future of developing nations and poor people
will be at stake. The sovereignty of nations gets diluted. Neo-imperialism emerges leading to
neo-colonialism. The effects of globalisation are not limited to the political-economic sphere;
cultural values of the country can collapse. Social institutions get weakened.
Critics have pointed out certain fundamental weaknesses of the LPG model of
development. This model has a very narrow focus since it largely concentrates on the corporate
sector which accounts. The model bypasses agriculture and agro- based industries which are a
major source of generation of employment for the masses. It did not delineate a concrete policy
to develop infrastructure. Financial and technological support, particularly the infrastructural
needs of agro-exports are likely to be neglected. By permitting free entry of the multinational
corporations into the consumer goods sector, the model will hit the interests of the small and
medium scale sectors engaged in the production of consumer goods with more labour intensive
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methods. There is also danger of labour displacement in the small sector if unbridled entry of
MNCs is continued.
Further, to facilitate the imports, the government has opened the import window too
wide and consequently, the benefits of rising exports are more than offset by much greater rise
in imports leading to a larger trade gap. This badly hits the native industries and more particularly
the small and micro enterprises. It may give scope for higher unemployment rate. Moreover, an
economy in which the growth of labour force is taking place at the rate of about 1.8 percent per
annum, the implications of the model which mostly emphasises capital intensive techniques of
high concentration may lead to slowdown in the rate of growth of employment. It is of serious
concern. As a whole the shortcomings of the reform programme can be classified as: absence
of a broader development strategy, wrong sequencing of reforms, hasty pace of reforms,
prerequisites of the reforms are ignored and absence of human development goals as integral
part of the strategy.

Check Your Progress.

1. Analyse the need for implementation of LPG Model in the Indian Economy.
..........................................................................................................................................
2. What are the fundamental weaknesses of LPG Model?
..........................................................................................................................................

12.5 APPRAISAL OF ECONOMIC REFORMS

The assessment of the economic reforms reveal that, in the light of national socio-economic
objectives stated in the plan and other policy documents during the pre-reform period., economic
reform programme may result in a pattern of production and an income distribution which may
very much biased in favor of the middle and high income classes and detrimental to the masses.
Economic reforms may aggravate the problem of inequalities in income and wealth distribution.
Increasing use of capital intensive technologies will adversely affect employment objective.
The phenomenon of “jobless growth” may become more serious.
In the context of liberalization, corporate sector dominated by a few big business houses
enables them to corner the gains from their business. The reform programme set aside the
equity goal and the growth with justice objective. Dilution of MRTP Act may lead to further
concentration of economic power.
Further, during the post-reform period the Net National Product (NNP) at factor cost at
constant prices grew significantly higher than the annual average growth during the pre-reform
period. The first decade of reform period provided higher growth rate than second decade of
the reform period. As a whole during the reform period, the Indian economy showed better
performance going by the growth rates of national income and per capita income. The structure
of Indian exports has been changing in favor of manufactured goods and petroleum products
whose combined share went up significantly during the last two decades of economic reforms.
The trade and payments position remained reasonably comfortable during the two decades of

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the post-reform period. There has also been a marked improvement in the flow of invisible
receipts. Together, these changes brought about a sharp reduction in the ratio of the current
account deficit to GDP, from an unsustainable level. India’s balance of payments position
withstood the turbulence of the international economic and financial markets.
Economic growth during the era of reforms is to be converted into human development
for an effective percolation of fruits of economic reforms in India. Agriculture and rural
employment should be given much focus. In this regard massive investments would be required
to take eradicate poverty from rural areas. Ensuring growth with redistribution of income and
wealth in India require the transformation of state-society relations towards a more inclusive
growth paradigm.

12.6 WTO AND INDIAN ECONOMY

The second generation economic reforms at the turn of the 21st century are being guided
by compulsions to follow the norms set by the WTO in matters of trade policy, to which India
committed itself at the conclusion of the Uruguay round of GATT negotiations.
At the fourth WTO Ministerial Conference was held at Doha during November, 2001
concentrated on the future programme of the WTO. There were strong pressures to launch a
comprehensive round of negotiations including multilateral regimes on investment, competition
policy, trade facilitation, government procurement policy and environmental concerns. India
opposed to any of such (non -trade or new issues in the agenda) decisions which may overburden
the multilateral trading system. India underlined the need for resolving the implementation
issues, arising from the current agreements in a time bound manner before addressing new
issues for negotiations.
India played a proactive role in the deliberations at the fourth Ministerial Conference at
Doha. It wanted a genuine resolution towards implementation of current issues and concerns
such as increased market access in agriculture, sufficient flexibility and clarity under TRIPS
and public health policies and strongly opposed to introduction of non – trade issues like labour
in the agenda. India along with other developing countries worked to ensure that their interests
and concerns are adequately taken care of in the WTO future programme.

Impacts of WTO
A. Positive Impact: There is a continuous restructuring of Indian economy and the contribution
of the both the secondary and tertiary sectors to Gross Domestic Products (GDP) rising as
compared to the primary sector. In 2018-19 it is 54 percent. Structural changes have taken
place in India’s trade and it is moving towards an increasing share of manufacturing goods
during the post WTO era. The GDP growth rate under WTO regime is also encouraging.
Moreover, India’s share in global trade increased to 0.7 per cent in 2001-02 from the 0.64 per
cent of 2000-01. (At present it is around 2.1 percent.)
B. Negative Impact: Indian rupee has constantly fallen since introduction of economic reforms
in 1991. It stood at more than Rs.47 per U.S. Dollar in post-reforms period. (By March 2020,
it reached to Rs.75 per U.S. Dollar). Such “hidden devaluation” which encourages exports

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does not reflect real performance of our export sector. India’s share in total foreign direct
investment (FDI) flowing into all the developing countries including China has persistently
fallen from 1.9 per cent in 1995 to 1.0 per cent in 1999. In response of the slow progress of
India’s manufacturing sector in the second half of 1990s, the stock market has shown mostly
the bearish trend. Cost of living index is also increased.
On external front, there is a marked decline in not only total imports but also the exports of
agricultural and industrial products. The export of agro-products has shown negative growth and
reached to the level of -15.48 per cent in the year 1990-00. In the next year it increased to a
positive growth of 7.5 per cent. But in the year 2001-02 again there was a decline in the export of
agro products; it decreased by –2.2 per cent. India’s export performance has deteriorated during
the fiscal year 2002-3 because of recession in U.S.A., Western Europe and Japan.
The implementation of WTO agreements has placed the countries like India in perplexed
situation. The opening of market under free trade pretext has enabled the developed countries
to have free access to the markets of developing countries while the latter continue to face
several problems in the name of environment, and labour standards. While India maintained
zero or low tariff rates on most of the imported products except beverages as compared to the
negotiated tariff rate, the developed countries not only imposed higher tariff rates but also
adopted other methods.
In particular, the USA and European Union extending large amount of output subsidies
to their farmers in order to enable them to export farm products at competitive rate in the world
market. These steps have discriminated against exports from developing countries.
The TRIPS, TRIMS and GATS all have carried out distressing effects on Indian economy
because of the insistence on their one-sided implementation. TRIPS did not take into account
India’s desire for disclosing the sources of materials used in the innovations of materials used
in the innovations of products. Neem and Basmati rice are best examples in this context. India
adopted its own patent Act in 1970 pursuing innovative approach in the processes of production
as well as final products.
The developed countries are also using the provision of equal treatment rule to all the
companies irrespective of their origin under TRIMS The provisions of TRIMS treating
multinationals on equal terms and exempting them from using local raw material and export
obligations means the developing countries becoming the colonies of developed countries.
Similarly, the GATS have placed the Indian service sector in a disadvantageous position.
The free trade in services like banking, insurance and shipping transport and
telecommunications etc., is promoting growth in the developed countries by providing larger
market in developing countries. The technology transfer clause under GATs hasn’t benefited
India much. The labour movement is restricted only to perform the particular services normally
performed by the professionals of developed countries. The mobility of unskilled labour has
been excluded from WTO agreements.

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Check Your Progress.
3. State the negative Impacts of WTO policies on India Economy.
..........................................................................................................................................
4. Define the concepts of Liberalisation and Globalisation.
..........................................................................................................................................

12.7 FOREIGN DIRECT INVESTMENT

Foreign Direct Investment (FDI) is a form of investment which controls the ownership
of a business in one country by an individual or institution based in another country. Generally,
FDI takes place when an investor enters into foreign business activity or purchases foreign
business assets in a foreign company. Mostly it will be in the form of long term investment.
FDI can be distinguished from a foreign portfolio investment by its nature of direct control
over business.

Key Elements
● Foreign direct investments (FDIs) are the investments made by one company into another
company located in a foreign country.
● FDIs are dynamically operated in open markets rather than closed markets for investors.
● Horizontal, vertical, and conglomerate are types of FDI’s. Horizontal FDIs follow the
similar type of business activity in another country which they are doing in their home
country. Vertical FDI is a different form of activity within the similar type of business
doing in home country, and Conglomerate FDI is an unrelated business venture to the
business activity of home country.

FDI Policy
The Department for Promotion of Industry and Internal Trade (DPIIT) is the nodal
department for formulation of the policy of the government on Foreign Direct Investment (FDI).
It is also responsible for maintenance and management of data on inward flow of FDIs into
India, based upon the remittances reported by the Reserve Bank of India. To attract higher
levels of FDI inflow, the government has adopted a liberal policy on FDI, under which FDI up
to 100% is permitted under the automatic route in most sectors/ activities. Significant changes
have been made in the FDI policy regime in recent times, to ensure that India remains an
increasingly attractive investment destination.
Further, Foreign Investment Promotion Board (FIPB) was abolished and process for
granting FDI approvals has been simplified and processing of applications for FDI and approval
of the government is now being handled by the concerned Ministries/Departments. However,
Department for Promotion of Industry and Internal Trade (DPIIT) is a single point interface of
the government to facilitate investors for Foreign Direct Investment through automatic approval
route. In this regard, new portal (http:// www.fifp.gov.in) has been created and the portal will
continue to facilitate the single window clearance of applications.

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Categories of FDI Approvals: At present there are three categories of FDI approvals, they
are:
● Category-I: 100 % FDI permitted through Automatic Route,
● Category-II: Upto 100% FDI permitted through Government Route, and
● Category-III: Upto 100% FDI permitted through Automatic+Government Route.
Under the Automatic Route, the non-resident investor or the Indian company does not
require any approval from Government of India for the investment.
Under the Government Route, prior to investment, approval from the Government of
India is required and the proposals for foreign investment are considered by respective
Administrative Ministry/ Department.

Permitted FDIs in Different Sectors:

a) Floriculture, Horticulture, and Cultivation of Vegetables & Mushrooms under controlled
conditions Development and Production of seeds and planting material, Animal Husbandry
and services related to agro and allied sectors Tea and Coffee, Rubber, Cardamom
plantations, Palm oil tree plantations and Olive oil tree plantations placed under 100%
automatic route in agriculture sector.
b) Mining and Exploration of metal and non-metal ores, Coal & Lignite, Mining and
mineral separation of titanium bearing minerals and ores, its value addition and
integrated activities also come under 100% automatic route in Mining sector.
c) Petroleum and natural gas and exploration activities are permitted for 100% automatic
route of FDI approval.
d) Manufacturing Sector has 100% automatic approval route.
e) Retail Trading including through e-commerce, food products manufactured and /or
produced in India also under 100% automatic approval route. However, Multi-brand
Retail trade upto 49%is placed in government route.
f) In Defence area, upto 49% FDIs should go through automatic route and beyond 49%
percent through government route.
g) Service Sector: i) Broadcasting carriage services including Teleports, Direct to Home
(DTH), Cable networks and Head end-in-the Sky Broadcasting Service (HITS) are under
100% ‘automatic route’ ii) Terrestrial Broadcasting FM services and up-linking of ‘News
& Current Affairs’ TV Channels are permitted upto 49% and under the ‘government
route’ and iii) Up-linking of ‘News & Current Affairs’ TV Channels are 100% automatic
route.
iv) Print media: Publishing of newspaper and periodicals and publication of Indian editions
of foreign magazines dealing with news and current affairs allowed upto 26% through
government route.
h) Civil Aviation: 49 -100 % through both automatic and government route.

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i) Construction Development: Townships, Housing, Built-up Infrastructure are under 100%
automatic.

Furthermore;
Infrastructure Company in the Securities Market: 49%, Insurance: up to 49%, Medical
Devices: up to 100%, Pension: 49%, Power Exchanges: 49% are also under 100% automatic
route and Petroleum Refining by PSUs granted 49% automatic route.
Sectors which come under the ‘up to 100% Government Route’ category are Banking &
Public sector: 20%, Core Investment Company: 100% and Satellite (Establishment and
operations): 100%.
FDI Prohibited Sectors are few industries where FDI is strictly prohibited under any
route. These industries are Atomic Energy Generation, Any Gambling or Betting businesses,
Lotteries (online, private, government, etc.), Investment in Chit Funds, Nidhi Company,
Agricultural or Plantation Activities which are not specified in 100% automatic route, Housing
and Real Estate (except townships, commercial projects, etc.), Trading in Transferable
Development Rights (TDRs), Cigars, Cigarettes, or any related tobacco industry and Railway
operations (other than permitted activities).

FDI Inflow
Cumulative flow of FDIs (including Equity inflows, Reinvested earnings and ‘Other
capital’) into India from April 2000 to September 2019 stands at US$ 6, 42,364 million. Among
these cumulative FDI flows, equity inflows have major share and it is US$ 4, 46,116 million.
Total FDI flows during the second quarter of the financial year 2019-20 i.e. July 2019 to
September 2019 are US$ 14,064 million and out of these, the equity inflows are to the tune of
US$ 9,766million. Of the total inflows from different countries, major share of FDIs came
from Mauritius (32%) and lowest from Cyprus, France and UAE with 2 % each. Highest FDI
equity flows have been attracted by Service sector (18%) and the lowest by Power sector (3%).
As per RBI report Mumbai Regional Office has received highest inflows (29 %) and the lowest
by Guwahati and Patna Regional offices at 0.03% each. Provisional estimates show that the
financial year 2018-19 has attracted highest FDI flows and it stands at US$ 62,001million. And
the lowest inflow was in the year 2000 (US$ 4029 million).

Check Your Progress.

5. What is FDI?
..........................................................................................................................................

12.8 SUMMARY
To meet the internal and external crisis the Government of India introduced the economic
reform programme through LPG model intensively from 1991 onwards. This intensive reform
policy represented complete renunciation of the old policy framework and brought liberalization
out in the open. The Economic Reform process implemented through LPG Model of development
in India ultimately emphasises a bigger role of the private sector. It envisages a much larger
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quantum of foreign direct investment to supplement our growth process. It aims at a strategy of
export led growth as against import substitution practiced earlier, it aims at reducing the role of
the State significantly and thus abandons planning fundamentalism in favour of a more liberal
and private sector involvement. The government has succeeded in liberalizing the economy to
the private sector. Structural changes also taken place in India’s trade moving towards the
increasing share of manufacturing goods during the post WTO era. The GDP growth rate
under WTO is also encouraging. But the total scenario of implementation of economic reforms
and WTO agreements is with somewhat mixed and perplexed results.
FDIs have become important component of the development of Indian economy. To
attract foreign investors and companies through FDIs and make India as ultimate destiny for
investment, the Government of India has taken several steps in the form of opening more areas
and sectors for 100 percent FDIs via automatic route.
Only few areas like, generation of Atomic energy, Gambling, Lotteries, Cigars Cigarettes
and certain activities related to Railways are prohibited from the entry of FDIs. In between
April 2000 and September 2019 US$ 6, 42,364 million dollars of FDIs flown into the country.

12.9 CHECK YOUR PROGRESS – MODEL ANSWERS

1. The tremendous change that took place globally in the recent past, particularly during
the last one decade necessitated every nation to incorporate corresponding changes in its
respective economy to adopt itself to the rapidly changing environment. Countries started
thinking in terms of the global economy and global market. In a nutshell a global
philosophy of business is fast emerging. No country can now resist the forces of
globalisation and the resultant changes that take place globally. Indian economy to reap
benefits out of changing scenario entered into the era of economic reforms. There was
urgent need to address internal and external economic crisis. Thus the GOI implemented
LPG model from 1991 onwards.
2. The LPG model has a very narrow focus since it largely concentrates on the corporate
sector. This model bypasses agriculture and agro- based industries which are a major
source of generation of employment for the masses. It did not delineate a concrete policy
to develop infrastructure. Financial and technological support, particularly the
infrastructural needs of agro-exports are likely to be neglected. By permitting free entry
of the multinational corporations into the consumer goods sector, the model will hit the
interests of the small and medium scale sectors engaged in the production of consumer
goods with more labour intensive methods. There is also danger of labour displacement
in the small sector if unbridled entry of MNCs is continued.
3. The negative impacts of WTO policies on India economy are: 1. Indian rupee has
constantly fallen since introduction of economic reforms in 1991; 2. On external front,
there is a marked decline in not only total imports but also the exports of agricultural and
industrial products; 3. The opening of market under free trade pretext has enabled the
developed countries to have free access to the markets of developing countries while the
latter continue to face several problems in the name of environment, and labour standards;
188
 4. The TRIPS, TRIMS and GATS all have carried out distressing effects on Indian
economy because of the insistence on their one-sided implementation.
4. Liberalization as understood entails the lowering or eliminating of customs, tariffs and
quota restrictions and encouraging a free flow of goods and services in and out of the
country. Globalization of a nation’s economy as generally can be assumed in terms of
dovetailing the country’s economy with the global economy.
5. Foreign Direct Investment (FDI) is a form of investment which controls the ownership
of a business in one country by an individual or institution based in another country.
Generally, FDI takes place when an investor enters into foreign business activity or
purchases foreign business assets in a foreign company. Mostly it will be in the form of
long term investment.

12.10 MODEL EXAMINATION QUESTIONS

I. Answer the following questions in about 10 lines each.
1. Examine the impact of WTO policies on Indian Economy.
2. Briefly review the implementation of Economic Reforms in India.
3. Write a note on FDIs in India.
II. Answer the following questions in about 30 lines each.
I. Analyse the need for the implementation of Economic reforms in India.
2. Examine the different components of Economic Reforms.
3 Discuss the arguments in favour and against of LPG Model.
III. One mark questions.
A. Choose the correct answer.
1. The new economic reforms initiated in 1991 consisted of two distinct strands, they are:
a) Macroeconomic stabilization b) Structural reforms
c) A & B d) none of the above
2. MNC stands for
a) Multinational Corporation b) Multination Corporation
c) Multinational Cities d) Multinational Council
3. Process of integration of different countries is called
a) Liberalization b) Privatization c) Globalization d) None of the above
Answers: 1) c 2) a 3) c
B. Fill in the blanks.
1. The investment made by one company into another company located in a foreign country
is called as _____________.
2. Foreign technology helps in _________ the productivity.
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3. MRTP Stands for ____________.
Answers: 1) Foreign direct investment 2) Raising 3) Monopolies and Restrictive Trade Practices.
C. Match the following.
A B
1. Major economic crisis of early 1991 A) A positive impact of liberalisation
2. Developed countries initiative B) Balance of Payments
3. Increase in GNP’ C) Rapid integration between countries
4. Globalisation D) WTO
Answers: 1) B 2) D 3) A 4) C

12.11 GLOSSORY
1. Economic Planning: is a mechanism for the allocation of resources between and within
organizations which is held in contrast to the market mechanism.
2. MNC: A multinational Corporation or worldwide enterprise is a corporate organization
that owns or controls production of goods or services in at least one country other than
its home country.
3. Foreign Direct Investment (FDI): is an investment in the form of a controlling ownership
in a business in one country by an entity based in another country.
4. Automatic Route: the entry of FDIs without any approval by the government
5. LPG Model: the form of economic reformsimplemented through Liberalisation,
Privatisation and Globalisation in the country is known as LPG Model.

12.12 REFERENCES
1. S.K. Misra and V.K. Puri : Indian Economy.
2. Dutt and Sundaram : Indian Economy, S. Chand, New Delhi.
3. Government of India : Approach Paper on 12th Five Year Plan.
4. Government of India : Various amendments regarding FDIs

– Dr. M. Yadagiracharyulu, Associate Professor, (Retd.) Warangal.

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 BLOCK – V
SERVICE SECTOR, PLANNING AND REGIONAL IMBALANCES
This block deals with Service Sector, Planning and Regional Imbalances. Service
sector is the fastest growing sector in the economy and has largest share in GDP. The
components, trends and infrastructural development with respect to Transport, Banking,
Insurance, IT, Communication and Tourism have been examined. This block also explains
the major objectives and achievements of Five Year Plans, structure and functions of NITI
Aayog; and regional imbalances and migration.
This block contains the following units:
Unit-13 : Service Sector and Infrastructural Development in India
Unit-14 : Five Year Plans and Niti Aayog
Unit-15 : Regional Imbalances and Migration

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UNIT-13 : SERVICE SECTOR AND INFRASTRUCTURAL
DEVELOPMENT IN INDIA
Contents
13.0 Objectives
13.1 Introduction
13.2 Role of Service Sector
13.3 Role of Infrastructure Development in Economic Growth
13.3.1 Transport
13.3.2 Banking
13.3.3 Insurance
13.3.4 Information Technology
13.3.5 Communication
13.3.6 Tourism
13.4 Summary
13.5 Check Your Progress – Model Answers
13.6 Model Examination Questions
13.7 Glossary
13.8 References

13.0 OBJECTIVES
In recent years, Service Sector experienced a rapid shift in its favour in generating both
employment and income and has become a major player in almost all the countries in the
world. The very success of social and economic transformation of an economy lies in providing
inclusive and sustainable infrastructure amenities to the people and the pace of economic growth
depends on how can competently and judiciously an economy is able to address its infrastructure
bottlenecks. In view of its significance, an attempt has been made in this unit to discuss the
concept, components, trends and role of service sector in India. Further, the infrastructural
development related to transport, banking, insurance, IT, communication and tourism are also
briefly explained. After reading this unit, you will be able to:
● understand the concept and role of service sector in the economy.
● know the importance of infrastructural development in economic growth. and
● evaluate the growth and progress of infrastructural development in India related to
transport, banking, insurance, IT, communications and tourism.

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13.1 INTRODUCTION
Unlike agricultural and industrial production which are essentially engaged in producing
commodities (material goods), service sector production (immaterial goods). Most of the services
are useful and partake the nature of infrastructure facilities. Economists like Fisher, Clark and
Kuznets made a prognosis that on the path of development with industrialization and urbanization,
first industrial sector and eventually service sector overtakes the other two sectors in total output
(GDP) and workforce development. Changes in habits, needs, higher income elasticity of demand
for comforts and luxuries, innovations etc. are the causes for the growing importance of the
service sector. Compared to agriculture and industry, its output is highly heterogeneous with
different types of immaterial services and hence difficult to quantify precisely.
In economic literature, infrastructure is popular by the name ‘overhead capital’ or ‘social
overhead capital’. To A.O. Hirchman ‘social overhead capital’ is the basic service without
which primary, secondary and tertiary productive activities can’t function.
Components of Service Sector: The components of the service sector in India are : (i) trade;
(ii) hospitality services (hotels and restaurants); (iii) transport ( railways, roadways, airways
and waterways); (iv) communications, storage and real-estate; (v) financial services, banking
and insurance; (vi) business services, IT services and consultancy services; (vii) public
administration, defence, judiciary and police; (viii) education, healthcare , sanitation etc. and
(ix) personal and domestic services. NSSO Survey 63rd Round in 2006-07 has included financial
institutions, self help groups, micro finance institutions, use of commercial vehicles, etc. in the
service sector.

13.2 ROLE OF SERVICE SECTOR

The service sector has emerged as the largest and fastest growing sector in India as well
as world and making higher contribution to the output. It is the most dynamic part of the Indian
Economy both in terms of employment potential and contribution to national income. The
economy has moved from agriculture based economy to a knowledge based economy and
information technology enabled services is the dominant industry in the service sector. The
development of the sector has contributed to the transformation of agriculture, rapid
industrialization and urbanization. The most important services in the Indian economy have
been health and education. They are the most challenging sectors and key to the development
of India. The role of service sector is explained and analyzing with the following indicators
viz: i) employment generation of service sector; ii) contribution to GDP; iii) investment in
service sector; iv) contribution to Human Development; and v) exports from service sector.
These are briefly explained hereunder.
1. Employment Generation of Service Sector: Although the service sector has grown at a
fast rate during the period of economic reforms (i.e., since 1991), its share in the total employment
continues to be quite low. During 2018-19 the share of services in GDP at 2011-12 prices was
54.4 per cent while its share in employment was only 30.6 per cent. This indicates that India
has witnessed a relatively jobless growth in service sector during the post- reform period. This

193
is unlike the experience of other countries, where the services
Table - 13.1: Share of
sector has also tended to gain larger share of employment over
Service Sector in GDP
time. When compared with other countries, India has
exceptionally low in per centage of workforce employed in Year Services
service sector. For instance, the share of service sector in 1950–51 30.3
employment was 76.6 per cent in Brazil and 47 per cent in China. 1960–61 30.8
2. Contribution to GDP: The service sector contributes more 1970–71 33.8
than half of the GDP in India i.e., 54.40% in 2019 (table-13.1.
1980–81 38.0
The service exports in India have grown up to US $ 100 Billion
in 2012–13 to US $ 153.5 Billion in 2019. The service sector 1990–91 42.7
covers a wide range of activities. 2000–01 50.4
From the table 13.2, it can be noticed that the sectoral 2010–11 57.7
growth performance of Indian economy reveal that, there have 2018–19 54.4
been considerable increases in the service sector during last two
Source: Economic Survey,
decades, and looking in the trend of last five years, the GDP had
Govt. of India 2018-19.
increased to 7.5 percent in 2018–19.
Table - 13.2: Growth of Rate of GDP at Factor Cost at 2011–12 Prices
Sector Wise Growth Rate (%) Share at Current Price (%)
2016-17 2017-18 2018-19 2016-17 2017-18 2018-19
Agriculture, Forestry
& Fisheries 6.3 5.0 2.9 17.9 17.2 16.1
Industry 7.7 5.9 6.9 29.4 29.3 29.6
Mining of quarrying 9.5 5.1 1.3 2.3 2.3 2.4
Electricity, Gas, Water
supply & Other services 10.0 8.6 7.0 2.5 2.7 2.8
Construction 6.1 5.6 8.7 7.8 7.8 8.0
Services 8.4 8.1 7.5 52.7 53.5 54.3
Trade, Hotel, Transport,
Storage, Communication 7.7 8.1 7.5 52.7 53.5 54.3
Financial & Real Estate 8.7 6.2 7.4 20.9 21.0 21.3
Public, Administrational,
Defence, Other services 9.2 11.9 8.6 13.6 14.3 14.7
GDP at Basic price 7.9 6.9 6.6 100.0 100.0 100.0
Source: Central Statistical Office.
Service sector is the most dynamic sector in the economy and has remained the key
driver of economic growth along with being a major contributor to GDP and export basket of
the Indian economy. Service exports has become one of the main stay of India’s total exports in

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or easing manifold from Rs.0.746 lakh crore in 2000–01 to Rs.14,389 lakh crore in 2018–19
raising its share in total exports from 26.8 percent to 38.4 percent. The share of India in world
service exports has also increased from 2 percent in 2005 to 3.5 percent in 2017. This share is
much higher than that of manufacturing exports, which standards at 1.8 percent in 2017.
Factors such as increasing input usage of service by other sectors, higher foreign demand
due to trade liberalization and high income elasticity for services have led to the growth of
service sector. On the supply side, the increased trade in service following trade liberalization
policies and other reforms since 1990’s induced growth of reforms in service sector. The other
important reasons for the growth of service sector in India are identified as human development
approach, women empowerment, cultural changes, it revolution, conservation of natural
resources, development of markets, health facilities, economic liberalization, migration, export
potential and goods and service tax.
3. Investment in the Service Sector: Five year plans have accorded highest priority to tertiary
sector in plan allocations. During 12th Plan Rs.76,69,807 crore or 59.1 per cent of the plan
outlay was allocated for service sector. In this the transport (15.7 per cent), communication
(1.1 per cent), Science and Technology (2.2 per cent), general economic service (4 per cent),
general service (1.4 per cent) are priority areas.
4. Contribution to Human Development: Service sector has been rendering valuable services
related to heath services, educational, facilities, IT and IT enabled services, skill development,
health tourism, sports, cultural services etc. which may enhance the human capabilities.
5. Exports from Service Sector: The service sector in India also generating surplus from
invisibles in the foreign trade. India has achieved commendable success in its receipts from
invisible in the foreign trade. Net balance of invisible account increased from US $ 794 million
in 2000-01 to US $ 1,11,319 millions in 2017-18. India has become one of the major exporters
of tertiary sector services such as: Technical and Consultancy services, Engineering design,
Project evaluations, scientific research, R&D etc.

Check Your Progress.

Note: a) Space is given below for writing your answer.
b) Compare your answer with one given at the end of the unit.
1. Write any five components of service sector.
..........................................................................................................................................
2. State the contribution of service sector to GDP in India.
..........................................................................................................................................
3. Write about the contribution service sector in foreign trade.
..........................................................................................................................................

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13.3 INFRASTRUCTURE DEVELOPMENT IN INDIA
The role of infrastructure development in economic growth has been well recognized in
the literature. The correlation on between infrastructure investment and economic growth for
India is very high (Economic Survey, 2019-20). The correlation of investments in inland, road,
rail and airport infrastructure to GDP are higher than 0.90, indicating that there exists a strong
correlation between GDP and investments in infrastructure.
With the aim of boosting investment in infrastructure, National Investment and
Infrastructure Fund has been created with a capital of approximately Rs. 400 billion to provide
investment opportunities to commercially viable projects. In addition, a Credit Enhancement
Fund for infrastructure projects for increasing the credit rating of bonds flouted by infrastructure
companies is going to be launched in the country. A new Credit Rating System for infrastructure
project, based on Expected Loss Approach, had also been launched which seeks to provide
additional risk assessment mechanism for informed decision making by long term investors.
Further, measure like infrastructure investment trusts and real estate investment trusts have
been formulated to pool investment in infrastructure.

Table-13.3: Trends in the Performance of Infrastructure Sector

Unit 1950-51 2013-14
Energy
1. Coal m. tones 32 610
2. Electricity Generated b. kwh 5 1166
3. Petroleum – Oil Crude m. tones 0.4 37.8
Finished Steel m. tones 87.67
Cement m. tones 2.7 300
Transport and Communication
1. Railway goods Traffic m. tones 73 1051
2. Corgo handled at major ports m. tones 19 555
3. Telecommunications:
Total Telephones provided millions NA 933
*As on October 2012. Source: Economic Survey (2014-15), Central Statistical Organization.
Table 13. 3 reveals that Coal production including lignites rose from 32 million tones to
610 million tones between 1951 and 2014. During the same period power generation from
public utilities, excluding power generation from capitive and non conventional power plants
rose from five billion kwh in to 1166 billion kwh; and production of petroleum crude rose from
an insignificant 04 million tones to over 37.8 million tones. Likewise there has been tremendous
expansion in the other infrastructure facilities.
The Govt. of India has introduced various schemes like ‘Housing for all by 2022’ and
‘Affordable housing schemes’ to further boost the sector build more for opportunities and
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attract more investment. The infrastructure development with regard to transport, banking,
insurance, IT, communications and tourism are briefly explained hereunder.

13.3.1 Transport System

Transport system is a very important component of economic infrastructure. Transport
helps in the free movement of people and materials across places. Various types of vehicles
transport raw materials, fuel and other inputs to rural areas and to industries for the production
of goods. Various kinds of transport connect hilly regions, tribal areas, forest, remote regions
and river basins all over the country.
Categories of Transport: Transport sector comprises of roadways, railways, civil aviation
and shipping.
1. Roadways: Roadways is the most commonly used mode of transport in India. Roads are
generally classified into the following categories.
i. National Highways: These roads are the primary roads of the country and connect large
cities and big industrial centres. Their development and maintenance is the responsibility of
the Central Government.
ii. State Highways: These roads link all the important centres of industry, trade and commerce
of the State and National Highways.
iii. District Roads: These roads connect different parts of the district, important industrial
centres.
iv. Rural Roads: These roads are found in villages and are usually two types – Pucca (Metalled)
and Kutcha (non-metal). The National Highway Development Programme (NHDP) and Pradhana
Mantri Gram Sadak Yojana (PMGSY) programmes are to focus on the development or rural
and highway roads NHDP Phase VII aimed at expansion of 700 KMs road length under Public-
Private Partnership (PPP) model. The expected expenditure is Rs.16,680 crore. Development
of 2 lane, 4 lane and 6 lane roads, bypass roads, ring roads is the thrust area. Loans from World
Bank are to be utilized for this purpose. India has the second largest road network in the world.
The length of National Highways comprises, 1,14,158 KMs with 1,75,030 KMs of State
Highways and 56,08,500 KMs of other roads.
2) Railways: The first Railway line was operationalised in 1853 between Bombay to Thane.
Railways were nationalized in 1950. The total route length of Indian Railways is 68,400, KMs,
of which, 29,400 KMs (43%) are electrified. The Railways operate services on three gauges –
the board gauge (1.676 metres), the metre gauge (1.00 metre) and the narrow gauge 0.762
metre). The broad gauge network is the largest operation system (55,956 KMs) in the country.
Total outlay for railways in the 12th Plan was Rs.5,19,221 crore. Metro train projects are
functioning in 4 Metro cities and construction is going in Hyderabad and Bengaluru to ease
traffic. Hyderabad Metro Rail is the Second Largest metro in India and was started on 29th
November, 2017.
3) Shipping: Water transport connects canals, lakes, rivers and backwaters within the country;
Shipping connects major ports of the country and the world. India with 5200 KM of river and

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485 KMs of Canals has a vast potential for inland water transport. It is the cheapest and least
polluting mode of transport. . India has a coastal line of 7,156 KM with 13 major and 200
minor sea ports. The share of shipping in total transport sector is 29%. Shipping is basically
used to transport bulk transport items like, petroleum products, coal and iron, etc.
4) Civil Aviation: Air transport is the most modern, the quickest and the latest addition to the
modes of transport. In India, a beginning in air transport was made in 1920 when the Government
first decided to prepare air routes between Mumbai to Kolkata and Kolkata to Rangoon. The
civil aviation works were actually started in 1924–25, but progress was slow until the first
plan, During the first plan about Rs.6.6 crore were spent on these works, 12th Plan aims at to an
investment of was estimated to invest Rs.67,500 crore (of which the share of the private sector
investment share is Rs.50,000 crore).
Air India and Indian Airlines operating in the International Sector and domestic sector
respectively. Since 1953, they were both in the public sector. However, in recent years, a large
number of private sector companies have entered the civil aviation sector as the Government
has ended the monopoly of Air India and India Airlines by replacing the Air Corporation Act
1953. Air India and Indian Airlines were merged on August 27, 2017 to form National Aviation
Company of India Ltd. (NACIL).

13.3.2 Banking
Banking sector helps in economic growth through mobilization of savings and advances
the same to the individual and institutional investors. Modern banking in India began in 1786
with the establishment of General Bank of India. In the olden days banks used to accept
deposits and provide loans. In recent years banks are playing a crucial role in the socio-economic
development of the country. After the Nationalization of Commercial Banks (1969) and
Introduction of Lead Bank Scheme (1982) in India, the Banks are assisting not only the well
established large industrial and business houses, but also small and weaker industrial units,
small farmers, artisans. A vast number of branches have been opened and there has been an
expansion of bank deposits and credit. Profitability of banks also increased to a great extent
and their activities are also diversified.
Coming to expansion of bank branches in the country in the year 1969, there were only
8,260 branches of commercial banks in India and by 2017 they increased to 91,549 branches.
In otherwords, the bank branches were increased by more than 12 times since 1969. In recent
years in order to meet the credit requirements of the weaker sections, small and marginal farmers,
landless labourers, artisans and small entrepreneurs, the Regional Rural Banks (1975) have
been set up in different parts of the country. As at end of March 2017, the number of branches
increased to 21,343. The foreign scheduled banks operate mostly is big cities and had 285
branches in the country. Other scheduled commercial banks are in private sector and their
branches numbered 24,890 by the end of March 2017. The State Bank of India had highest
number of branches of 24,000 and the number of ATMs are about 59,000 across the country.

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13.3.3 Insurance
Insurance is a means of reducing risk. The term ‘risk’ may therefore be defined as a
situation which bears the possibility of loss. In other words, risk is an uncertainty that is likely
to impose some loss. It may be understood further as an uncertainty that can be quantified and
measured. A fire accident an explosion, an earth quake, a natural calamity like floods, ill-
health, the timing of death are some examples of uncertain situations involving some loss.
They are all risks. They are likely to impose loss of life or property ultimately involving some
financial loss.
Insurance in India: Life Insurance business in India has started in 1818. Indian life Insurance
Act was the first statutory act to regulate business. Insurance Amendment Act of 1950 was the
first step taken by the Government of Independent India. In 1956 Life Insurance was nationalized
and Life Insurance Corporation of India (LIC) came into existence. Till Late 1990’s LIC was
the monopoly in Life Insurance business in India. As on day along with LIC, 21 private Life
Insurance Companies are in the business.
General Insurance Council framed a code of conduct and sound business practices in
1972. General Business Insurance Act (GBINA) was passed from 1st January 1973 and General
Insurance Corporation of India (GIC) was formed with subsidiaries of GIC viz., i) National
Insurance Company Limited, ii) New India Assurance Company Limited, iii) Oriental Insurance
Company Limited and iv) United India Insurance Company Limited. Private General Insurance
Companies were merged with these for subsidiaries.
GIC with four subsidiaries was the monopoly in general insurance business till 2000.
As a part of economic reforms in 2002, GBINA, act was amended. GIC was converted as
reinsurer. It is for subsidiaries were restructured as independent public sector general insurance
companies. They carry on general insurance business with 17 private insurance companies.
Ex. ICICI Lombard, L & T Insurance, SBI General Insurance, TATA AIG etc.
Two more specialized companies i.e., i) Agricultural Insurance Company of India
Limited and, ii) Export Credit Guarantee Corporation of India were established to meet the
specific requirement of agriculture and exports.
LIC with 8 zonal offices, 113 divisional offices, 2408 branch offices operates through
around 12 lakh agents, 1,16,711 employees of which 24,470 are women. It has sold 368 lakh
policies. It has invested about Rs.15 lakh crore in social sector and about Rs.59 lakh crore in
Government Securities. General Insurance is also called non-life Insurance. It includes fire
insurance, motor insurance, marine insurance and other miscellaneous insurance business till
1972. General Insurance in India was in the private sector. The Government of India nationalized
insurance business on 01-01-1973 by enacting and legislation called General Insurance Business
(nationalisation) Act 1972.
Insurance Regulatory Authority of India (IRDA): IRDA Act was passed in 1999. IRDA
was constituted as an autonomous body. It was given statutory status in 2000 to regular and
develops the insurance industry. IRDA has the duty to regulate, promote and ensure orderly
growth of Insurance and reassurance business.

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13.3.4 Information Technology
The first software technology park under NCP 1984, with assured supply of electricity
and telecommunications bandwidth was located at Bangalore. Software Technology Parks of
India (STPI) were later setup in many other important cities like Hyderabad, Pune, Noida,
Mohali, Gandhi Nagar, Mumbai, Chennai, Mysore, Jaipur, Indore, Thiruvananthapuram,
Bhubaneswar, Kolkata etc. These centres provide single window interface and high speed
Data Communication (HSDC) facility to the software experts.
An Information Technology (IT) Act, 2000 was approved by the Government. The Act
provides a legal frame work to facilitate electronic commerce and electronics transactions and
aims at recognizing electronic contracts, prevention of computer crimes, electronic filing,
documentation, digital signature etc. It is the new service sector industry in the knowledge
based world. Information technology is the technological revolution that has transformed and
integrated the world as the “Global Village”, it has become indispensable in all major sectors
of all economies in the world. IT services comprise of IT, R & D Services, Engineering design,
Hardware and BPO.
ITES is the Information Enabled Service. It is a form of outsourced service that merged
due to the use of IT in banking, insurance, finance, telecom etc. Ex-Medical Transcription,
Office Accounting, Insurance Claims, Credit Card Processing etc. The top 5 IT providers in the
country are TATA Consultancy Services, Cognizant Technologies, Infosys, Wipro and HCL.

Growth of Information Technology

Share in Exports: Information Technology in India is an industry consisting of two major
components: IT services and Business Process Outsourcing (BPO). The size of the IT industry
has grown considerably during the period of the last two decades from $1.1 billion in 1995-96 to
as large as $ 139.9 billion in 2016-17. A considerable part of the growth is due to the export
market which increased from $ 0.6 billion in 1995-96 to $ 116.1 billion in 2016-17. In 2001-02,
the total size of IT was $ 13.4 billion of which the export market was $ 7.6 billion (56.7 %) and
the domestic market was $ 7.6 billion (43.3 %). In 2016-17, the total size of the IT was $ 139.9
billion of which the export market was $ 116.1 billion (83 %) and the domestic market was $ 23.8
billion (17 %). The size of the IT is estimated at $ 150-$152 billion in 2017-18 (export market is
estimated at $124-$125 billion and domestic market is estimated at $26-$26.5 billion). NASSCOM
has projected the IT to grow at 7-9 % in the financial year 2018-19. The most important export
market for India's software is USA. Its share in India's software export was as high as 66.7 % in
2014-15 and 64.6 % in 2015-16. Over 600 multinational companies are known to be sourcing
product development and engineering services from their centers in India.
Employment: The total employment in Indian IT in 2016-17 is estimated at nearly 39 lakh
people (an addition of around 1,73,000 persons over 2015-16) and it is India's largest private
sector employer. The industry comprises 16,000 plus firms that offer the complete range of
services with over 4,750 start-ups.
Contribution to GDP: Its contribution to GDP is estimated to have increased from 1.2 % in
1997-98 to nearly 9.5 % in 2015-16, and 7.7 % in 2016-17 and is expected to contribute 10% of
India's GDP by 2025.
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13.3.5 Communication
Communications means the imparting or transmission of Information Communications
comprises of posts, telegraphs, and telecommunication. Radio and Television, Internet, etc,
and it provides necessary information about markets. The Sufficient and effective
communication system facilities trade and boosts industrial growth.
1. Postal Services: Postal Services in India have started in 1776. Since 1950–51 postal
networking in India has been expanding. India has the largest networking of postal services in
the world. They are 1,54,856 post offices in the country on an average each post office serves
over 7,000 people. Each village with 500 population has a post offices and villages with less
than 500 people have post boxes in 3 KMs radius. The government is taking steps fill the gap
by utilizing the services of existing infrastructure of gram panchayats.
From the point of view of communications, post offices provide Inland postal
communication services. The three means normally used for this purpose are – a) Post card, b)
Inland letters, c) Envelopes. Important letters are articles can be sent by Registered post.
Goods less than a prescribed weight can also be sent through parcels. The government adopted
a scientifically designed six digits postal index number code popularly known as PIN in 1972
(ex: 508213). 5 is state 08, district, 213 places). Quick Mail Service (QMS) was introduced in
1975. This service covers all state capitals, and union territories, head quarters and important
commercial towns. Under the speed post service introduced on August 1, 1986, articles are
delivered under definite time frame, with money back guarantee for any service defect to provide
better service to the customers, computerization of postal operations is being progressively
introduced.
2. Telecommunication: The telecommunications sector has witnessed revolutionary changes
in recent years and the Indian telecom network is now the second largest in the world after
China. In 2004, the total number of telephone subscribers were only 7.65 crore. This was
increased to 118.34 crore million as at end March 2019. The wireless/mobile connections now
constitute 98.17 percent of all subscriptions whereas share of landline connections now at only
1.83 per cent.
A regulatory authority in the telecom sector known as Telecom Regulatory Authority of
India (TRAI) was setup on February 20, 1977. It has been set up with a view to discharge
regulatory functions. In 1999, the government announced a new Telecom Policy (NTP, 1999), in
terms of this policy, the government opened the National Long Distance Service to private operators
without any restriction on the number of operators with effect from August 13, 2000. Companies
registered in India are being licensed to plan, install, operate and maintain the basic services.
The 12th Plan Programmes for the telecom sector were guided by the National Telecom
Policy (NTP), 2012, was on raising the competitiveness of Indian Telecom Sector to make it
world leader and at the same time, making available a variety of services on a single platform
utilizing the technological advancements taking place in the sector. The mobile industry in
India currently contribution 6.5 per cent ($ 140 billion) to the country’s GDP and employs over
4 million people directly and indirectly.

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13.3.6 Tourism
Tourism is one of the largest service sector industries in the 21st century. It is the number
one exchange earner in about 50 countries. The Indian Planning Commission has identified
Tourism as the second highest growth generating sector in the economy. In view of rapid growth
and revenue earning capacity, it is called the fourth dimension of modern economics.
Tourism sector plays a key role in Socio-economic development of the country. It promotes
inter-continental, cooperation, friendship exchange of knowledge, science and technology. It
also contributes to economic growth and certain of jobs. Tourism enriches the economy with
foreign exchange earnings, generate revenue and promote trade. Tourism is a multi-dimensional
service industry, the development of tourism involves, agriculture, horticulture, manufacturing,
handicrafts, transport, information and communication. The 12th Plan projected 12% growth of
the tourism sector during 2012-16. The employment potential of this sector is 2.5 Million Jobs.
Forms of Tourism: There are two forms of Tourism and discussed here under.
i. Domestic Tourism: Domestic Tourists are the residents of the country who travel within the
geographical boundaries of their country. Traditionally people use their vacations to visit religious
places, pilgrimage centres and historical places. The modern generation spends their vacations
visiting wild life sanctuaries, beaches, hill stations, monuments, entertainment parks and resorts
in the country.
ii. International Tourism: International Tourists are the foreign passport holders visiting another
country. They visit other countries for business, leisure, fitness, wellness, medical, religious, spiritual,
archeological, sports, conference, seminar etc. Important tourist destinations in India are Agra, Delhi,
Jaipur, Kashmir, Goa, Kerala, Hyderabad, Tamil Nadu, Odisha and Maharashtra etc.

Check Your Progress.

4) State the growth of Banking Services in India.
..........................................................................................................................................
5) Write the importance of IT Sector.
..........................................................................................................................................

13.4 SUMMARY
The service sector has emerged as the largest and fastest growing sectors in India as well
as world and making higher contributions to the output and employment. It is the most dynamic
part of the Indian economy both in terms of employment potential and contribution to national
income. The economy has moved from agriculture based economy to a knowledge based
economy and information technology enabled services is the dominant industry in the service
sector. The service sector covers a wide range of activities such as trading, transportation,
communications, information technology, financial real estate, hotels and restaurant, banking,
insurance, business services, education, health, community, social and personal services. The
growth of Indian economy in the post reform period has been a services-led growth. The dynamic
service sector has the capacity to compensate poor agriculture and industrial growth in the

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future as well and thus play a crucial role in maintaining the growth momentum of the economy.
If India is to transition to modern economy, it direly needs strong industrial sector along with
sound services sector. Both Industry and services sectors needs to be strengthened through a set
of policies towards sustainable development of the Indian economy.

13.5 CHECK YOUR PROGRESS – MODEL ANSWERS

1. The component of the Tertiary sector in India are: (i) trade; (ii) hospitality services
(hotels and restaurants); (iii) transport (railways, roadways, airways and waterways);
(iv) communications, storage and real-estate; (v) financial services, banking and insurance.
2. The service sector is the most dynamic part of the Indian Economy both in terms of
employment potential and contribution to National Income. This sector has contributed
54.40 per cent to the GDP of India in 2018–19.
3. The service sector in India also generating surplus from invisibles in the foreign trade.
India has achieved commendable success in its receipts from invisible in the foreign
trade. Net balance of invisible account increased from US $ 794 million in 2000-01 to
US $ 1,11,319 millions in 2017-18. India has become one of the major exporters of
tertiary sector services such as: Technical and Consultancy services, Engineering design,
Project evaluations, scientific research, R&D etc.
4. Banking sector helps in economic growth through mobilization of savings and advances
the same to the individual and institutional investors. In the year 1969 there were only
8,260 branches of commercial Banks in India and by 2017, this number has been increased
to 91,549.
5. It is the new service sector industry in the knowledge based world. Information technology
is the technological revolution that has transformed and integrated the world as the “Global
Village”, it has become indispensable in all major sectors of all economies in the world.
IT services comprise of IT, R & D Services, Engineering design, Hardware and BPO.

13.6 MODEL EXAMINATION QUESTIONS

I. Answer the following questions in about 10 lines each.
1. Write about the Importance of Service Sector.
2. Explain the Tourism Development in India.
3. Explain the Transport Development in India.
II. Answer the following questions in about 30 lines each.
1. Examine the trends in the growth of service sector in India.
2. Analyze the role of banking and insurance sectors in India.

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III. One mark questions.
A. Choose the correct answer.
1. The service sector contribute to GDP per centage in 2018–19 is:
(a) 40% (b) 54% (c) 65% (d) 75%
2. In which of the following sub-sector belong to service sector?
(a) Banking (b) Insurance (c) Transport (d) All of them
3. In which Rank in the world Commercial Service exports of India?
(a) 6 (b) 8 (c) 10 (d) 12
4. The 12th Five Year Plan period is:
(a) 2007-2012 (b) 2012-2017 (c) 2010-15 (d) 2015-2020
5. In which year nationalized 14 commercial banks?
(a) 1969 (b) 1975 (c) 1979 (d) 1991
Answers: 1) b 2) d 3) b 4) b 5) a
B. Fill in the blanks.
1. Service Sector named as __________________.
2. The Air Corporation Act was passed in the year __________________.
3. Regional rural Banks established in __________________.
4. The first Railway line was operationalised in 1853 between _______________.
Answers: 1) Tertiary Sector; 2) 1957; 3) October 2, 1975; 4) Bombay to Thane.
C. Match the following.
A B
1. HDI Formulated by ( ) A) 1991
2. Repo Rate by ( ) B) UNDP
3. TRAI ( ) C) 1956
4. LIC ( ) D) 1997
5. Economic reforms ( ) E) RBI
Answers: 1) B 2) E 3) D 4) C 5) A

13.7 GLOSSORY
1. Invisibles: In the foreign trade the trade in services is known as invisibles. In. India
software services and private transfers are important invisible items in the exports.
2. Micro-Insurance: Insurance services with a very low premium for the member of self
help group small farmers, small scale entrepreneurs, migrant workers can be known
micro-insurance.

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3. Health Indicators: An improvement in health care of a country can be known by studying
the health indicators such as life expectancy, infant mortality rate, maternal mortality
rate and total fertility rate.
4. ATMs: Automated Teller Machines: They have emerged as an alternative banking channel
which facilitates low cost banking transactions. Bank customers need not go to the bank
branches but can withdraw money and deposit cheques at ATMs through the use of ATM
Cards.

13.8 REFERENCES
1. S.K. Misra and VK. Puri - Indian Economy.
2. Dutt and Sundaram - Indian Economy.
3. Government of India - Economic Survey, 2012-13 & 2018-19.
4. Government of India - Budget 2019-20.

– D. S. Ramesh, GDC, Malkajgiri, Hyderabad.

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UNIT - 14: FIVE YEAR PLANS AND NITI Aayog
Contents
14.0 Objectives
14.1 Introduction
14.2 Concept of Planning
14.3 Importance of Planning
14.4 Major Types of Planning
14.5 Major Objectives of Plans in India
14.6 Brief review of Five Year Plans
14.7 NITI Aayog
14.8 Summary
14.9 Check Your Progress – Model Answers
14.10 Model Examination Questions
14.11 Glossary
14.12 References

14.0 OBJECTIVES
This unit explains the concept of planning, types, importance and major objectives of
planning in India. NITI Aayog, its objectives and functions are also described. At the end, a
brief review of Indian Five Year Plans is analysed. After reading the unit, you will be able to:
● explain the concept, types and importance of planning.
● examine the major objectives of Indian Five Year Plans.
● review the performance of Five Year Plans and. and
● know the structure and functions of NITI Aayog.

14.1 INTRODUCTION
Every country has its economic planning in some degree with its own methods of
implementation. It is a rational and scientific control of the economy to serve given purposes.
Even though governments are changing and ideologies of the people are undergoing changes,
India has been continuing planned development. Planning is as old as human beings. It is
deeply rooted in human psychology. The concept of economic planning is applied at the level
of a country is a novelty of the 20th century. Before 1930s, the concept of economic planning
was rarely discussed. After the communist revolution in the former Soviet Russia, with the
introduction of Five Year Plans from 1928, planning has attracted global attention. With the
emergence of the third world counties around the 1950s; the exploited under developed countries
needed planned development to accelerate the growth process for improving living conditions
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and to catch up with the west. The NITI Aayog (National Institution for Transforming India), is a
think tank of the GOI established on 1st Jan 2015 as a replacement for the planning commission
to give suggestions to the Governments at central and state levels with relevant strategic, directional
and technical advice across the spectrum of key elements of policy/development process.

14.2 CONCEPT OF PLANNING

The term plan and planning are used to convey different meanings. A plan simply means
a document, a blue print an action oriented model. But planning induces the blue print and the
efforts to achieve the goals. The essence of planning is scientific choice and systematic thinking
and economic efforts in a) estimation of resources i.e., men, material, machines and money
incomes, b) mobilisation of resources and c) allocation of resources d) to achieve predetermined
objectives of the country. Different economists defined the economic planning here under.
To H.D. Dickinson, “economic planning is the making of major economic decisions -
what and how much is to be produced and to whom it is to be allocated by the conscious
decision of a determinate authority, on the basis of comprehensive survey of the economic
system as a whole”. Todaro defined planning as “the conscious governmental effort to influence,
direct and some cases, even control changes in the principal economic variables (consumption,
investment, savings, exports, imports etc) of a certain country or region over the course of time
in order to achieve a predetermined set of objectives.” The essence of economic planning is
summed up in these notions of governmental influence, direction and control.

14.3 IMPORTANCE OF PLANNING

Economic planning is considered as a panacea for all the economic ills. Once planning
commences, it never ends, because there is no end to higher levels of goals of human beings. A
capitalist society needs planning to minimize the ills of recurring booms and depressions and
other evils of market. To stabilize prices and exchange rates, planning is essential. The national
or global poverty and unemployment can’t be eradicated without planning. Today environmental
issues are in the forefront. Without concerted efforts and international planning the problems
of global warming, pollution of atmosphere and ecological degradation can’t be solved. The
other advantages of planning are ; (i) natural resources are properly used as per the socio –
economic needs of the country (ii) balanced regional development through allocation of resources
can be made effective (iii) social equality, social security and social justice through equal
opportunities to the people can be made possible (iv) through planning, economic activities
can be better organised avoiding over production or under production (v) A planned economy
always gives importance to social gain keeping the social goals of the nation in views.
Under liberalization, planning is conceived essentially as planning for policy. There is a
shift from micro control to macro control. It is wrong to think that liberalisation and planning
do not go together. Liberalization does not dispense with planning. It needs planning. There is
a change is the role of government. Under economic reforms, goals of economic activity or
planning remain the same. The job of planning commission and the state is to bring market
forces under control and make them effective, and at the same time the gaps left by market are
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to be filled by the state. Market forces under liberalization may ensure equilibrium between
demand and supply but not needs and supply. Under liberalisation provision of safety net and
addressing the basic needs of the downtrodden remain the responsibility of the state.

Check Your Progress.

Note: a) Space is given below for utilizing your answer.
b) Compare your answer with the one given at the end of the unit.
1. Define planning.
..........................................................................................................................................
2. State the types of planning.
..........................................................................................................................................

14.4 MAJOR TYPES OF PLANNING

Theoretically there are different types of planning. Some of the major types of planning
are presented here under.
1. Planning under Capitalism: Planning is anti - thesis of pure capitalism. The later depends
heavily on market mechanism, freedom of enterprise and consumers. All activities are guided
by the selfish interest and profit motive. State intervention is at the most in terms of providing
a few basic facilities and maintaining law and order. In the modern world, there is no country
which is purely capitalist in nature.
2. Planning in a Mixed Economy: In a mixed economy public sector and private sector coexist.
Great Britain is the first country where planning was implemented under a mixed economy
setting. French and Indian economies are other important examples of planning under mixed
economy mixed economy, the central planning authority prepares the plan and the private
sector should also comply with it. Through planning process private sector is assisted, controlled
and regulated in the interests of plan objectives.
3. Planning under Socialism: The planning process followed by the state economies (i.e., the
socialist or communist) is known as the imperative planning. Such planning is also called as
directive or target planning. In the socialist system, all economic decisions were centralised in
the hands of the state with collective ownership of resources (except labour). A socialist economy
must necessarily be a planned economy. The central planning authority mobilises the resources
and allocate them to different sectors in accordance with the plan objectives. Almost no role for
market, no price mechanism exists and no private participation in the economy.
4. Democratic and Authoritarian Planning: Under democratic planning, the state will not
control all the means of production and the authority of the state rests on support of the masses.
Objectives and targets of the plan are fixed by considering the opinions of people. Freedom in
the economic activities is allowed in democratic planning. Authoritarian planning is nothing
but socialist centralised planning. In this type, the entire economy is directed by the planning
authority. The plans are formulated, financed and executed by the state and people do not have
any say. Few decades 1990’s of such type of planning had been in vogue in USSR.
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5. Centralised and Decentralised Planning: Based on the mechanism of economic choice,
planning may be classified as centralised and decentralised. Centralised planning was adopted
in the former Soviet Russia. It is a socialist planning. Decentralised planning implies planning
in mixed economy, because in a mixed economy only a few important decisions are taken by
the central authority and freedom is given to the units in the execution.
6. Planning from Above and Below: Under planning from above, central planning authority
prepares the national plan and forwards the regional plan to the state or regional plan to the
state or regional units at district level. They have to simply implement the plans and do not
participate in preparation of plan Planning from below is more realistic and is based on local
needs and aspiration of people. People at grass root level participate and prepare regional
plans. All these regional plans are consolidated and a national plan is proposed.
7. Perspective Planning and Annual Planning: True comprehensive plans are always
perspective plans. They have a vision of a long term period of 15-20 years. These plans project
a perspective for development over a period. It is a blue print of development to be undertaken
over a longer period. For operational purpose, perspective plan is split into short team plans of
3 to 5 years. Each short team plan is again divided into annual plans. Under the annual plans,
targets of various Five Year Plans are sub – divided into annual targets for implementation.
8. Structural and Functional Planning: Structural planning aims at transforming the entire
structure of the economy. The functional planning involves changing, strengthening a specific
damaged structure. The objective of functional planning is not changing the basic structure of
the society but improve a particular part of the economy. Developing counties like India are
implementing this type of planning.
9. Normative Planning and System Planning: The type of planning which gives less emphasis
upon the social and institutional dimensions is known as the normative planning. In such
planning, the planners search for the best positive results in relation to the established goals
giving less importance to issues like caste, creed, religion, region, language, marriage, family,
etc. In the contrast to this the system planning gives due importance to the socio – institutional
factors. This is a planning from social – technical point of view but only suitable for a country
which has lesser degree of social diversities (naturally, not fit for the Indian conditions)
10. Sectoral and Spatial Planning: In sectoral planning, the planners emphasise the specific
sector of the economy i.e., agriculture, industry or the services. In spatial planning, development
is seen in the spatial framework. Indian planning has been essentially normative, single level
economic planning with a greater reliance on the sectoral approach, though the multi level
regional or spatial dimensions are being increasingly emphasized, since the early 1990s.

14.5 MAJOR OBJECTIVES OF PLANS IN INDIA

Indian plans simultaneously aim at social and economic objectives. Economic objectives
are related to producing more and improving living standards. Social objectives focus on equity
and establishment of egalitarian society.

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 Objectives of 5 year plan.
Plans Plan Period Major Objectives
I 1951-56 Agriculture and irrigation development
II 1956-61 Development of large scale industries
III 1961-66 Self-sufficiency in food grains production
IV 1969-74 Steady growth, self-reliance and gareebi hataoo
V 1974-79 Poverty eradication & self-reliance
VI 1980-85 Poverty eradication through providing gainful employment
VII 1985-90 Increase in food grain production and productivity
VIII 1992-97 Human resource development
IX 1997-02 Equality, economic growth with social justice
X 2002-07 Equality, social justice, enhancement in the quality of human
resources
XI 2007-12 Inclusive growth
XII 2012-17 Faster, Sustainable and more inclusive growth
The major common objectives of planning in India are briefly presented here under.
1. Economic Growth: Sustained increase in the GDP and through it improving the living standards
of people. The objective of economic growth continues to be a foremost objective of planning
including in the 12th Five Year Plan, which aims at achieve 8 per cent growth per annum.
2. Self Reliance: During the 1930s and 1940s, there was an ardent desire among the nationalists,
capitalists for making the economy. The self-reliant in every field of economic sphere. Self
reliance means enabling the economy to stand on its own legs. It also means not depending on
other nations for essential things. It is implemented through import substitution. Self reliance
may lead to self sufficiency.
3. Balanced Regional Development: One of the goals of the Indian Five-Year Plans is balanced
regional development. It refers to more or less equal development of regions and states in India.
There are glaring disparities both among the states and within states, among the constituent regions.
Both in the industrial and agricultural fronts inequalities exist among the regions.
4. Poverty Alleviation & Employment Generation: Several programs have been launched in
India directing the cause of poverty alleviation by all the governments till date and the process
continues even today with more seriousness. Employment generation in India has been, therefore,
part and parcel of the objective of poverty alleviation in India.
5. Social Justice: It implies equity and special care of weaker sections and proper distribution
of fruits of development. Reducing inequalities, poverty and unemployment constitute social
justice. Implementation of land reforms and investment towards development of poor are the
best means of social justice.

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6. Modernisation: Modernisation means application of modern science and technology in all the
fields of production including agriculture. It enables to raise the productivity. Through
modernization a variety of structural and institutional changes in the economic activities is possible.
7. Inclusiveness and Sustainability of Growth: The Eleventh Five Year Plan introduced the
objective of inclusiveness and sustainability of growth. Inclusiveness primarily aims at providing
economic benefits to hither to neglected and marginalized sections so that the economy can
move towards an equitable growth. Twelfth Five Year Plan specifically stated the need for
environment protection and sustainable growth.

14.6 BRIEF REVIEW OF FIVE YEAR PLANS

The achievements of the economy during the plan ere are briefly reviewed hereunder,
keeping in mind the major objectives of planning.
1. The average growth rate during the plan period of First Five Year Plan to Eleventh plan
works out to be about 4.5 per cent. This is quite a considerable achievement. The GDP growth
which was just 1 per cent during the British rule of 1900-47 was raised to 3.5 per cent during
the first two decades of planning. The economist Raj Krishna called this 3.5 per cent growth as
Hindu Rate of Growth. However, in succeeding every Five Year Plan i.e., V, VI, VII, VIII, IX,
X, XI and even majority of XII plan, the average growth rate p.a. has been around 4 per cent.
On the whole, during the six decades of plan period of development, the annual growth rate is
little less than 5 per cent (2-3 per cent of a agriculture and 6-8 per cent of industrial growth).
Indian economy fairly modernized. We could increase food grain production from 51m.t. in
1951 to over 281 m.t. in 2008-19. This is a great achievement.

Targets and Achievements of Five Year Plans

S.No. Plan Target Actual
1 First plan (1951-56) 2.1 3.6
2 Second Plan (1956-61) 4.5 4.1
3 Third Plan (1961-66) 5.6 2.8
4 Fourth plan (1969-74) 5.7 3.3
5 Fifth plan (1974-79) 4.4 4.8
6 Sixth plan (1980-85) 5.2 5.7
7 Seventh Plan (1985-90) 5.0 6.0
8 Eighth plan (1992-97) 5.6 6.8
9 Ninth plan (1997-2002) 6.5 5.4
10 Tenth plan (2002-07) 8.0 7.5
11 Eleventh plan (2007-12) 9.0 8.3
Source: Planning Commission, Ninth five year plan (1997-2002), Vol. 1 and Tenth Five plan
(2002-07), CSO, Press release 31st may 2012.

211
Note: The growth targets of the first three plans were set with respect to national income. In the
Fourth Plan, it was with the NDP. In all the subsequent plans, the GDP has been used.
2. The backbone of any agricultural revolution is access of farmers to modern agricultural
inputs. These agricultural inputs range from improved seeds, fertilizers and crop protection
chemicals to machinery, irrigation etc. The progress in the use of agricultural inputs has been
especially spectacular in the plan period.
3. Among 115 developing countries of the world, India alone achieved nears self – reliance. In
the field of self – reliance India has made two achievements. First the country is now almost
self sufficient in food. Second, with the growth of iron and steel, machine tools and heavy
engineering industries, India made advancement towards self-reliance in capital equipment.
4. Indian plans failed in developing regions equitably. Both in agricultural and industrial
development, only half a dozen states are developed and others remain backward. The inter-
state disparities in the growth of GSDP have increased in the post reform period beginning
from the early nineties when compared to eighties. More than half of the share in the FDI and
foreign technical collaborations were attracted by the advanced states such as Maharashtra,
Gujarat and Tamil Nadu.
5. The major failure of our Five Year Plans is in the area of social justice and regional disparities.
6. Inspite of considerable reduction in poverty and unemployment, still the poor are about 27
crores (poverty ratio 22 per cent) and the unemployed about 1-2 crores (about 2.2% - 6% of
unemployment rate).
7. In spite of relatively satisfactory performance in some of the macro economic variables,
post-reform period witnessed slow rate of reduction in poverty, low quality of employment
growth, increase in rural-urban disparities, increase in income inequalities across the social
groups and increase in regional disparities etc.
Inclusion of social and marginal groups, women, and minorities in the growth process,
regaining agricultural dynamism by improving status of famers (farm incomes), and developing
human resources are the major challenges in the economy.

14.7 NATIONAL INSTITUTION FOR TRANSFORMING INDIA

(NITI Aayog)
NITI Aayog was established by the Government of India as a replacement for the planning
commission on 1 January 2015. It serves as an advisory body or a ‘think tank’ of the Government
of India to advice on social and economic issues. It is being formed on the basis of extensive
consultations across the stakeholders viz. State Governments, relevant institutions, experts and
the people at large. It is a body established to provide a critical, directional and strategical input
to the development process.
Nature of NITI Aayog: The planning commission era witnessed centre – to – state one way
flow of policy. NITI seeks genuine and continuing partnership of centre and Indian states. One
of its aims is to make states as part of planning process, giving weightage to their needs. It
helps to evolve, promote and strengthen co-operative federalism believing that strong states
212
make strong nation. It helps in preparing village level plans and later integrates them at higher
levels of government. It ensures that all sections of society would benefit adequately from
economic processes. It will create a knowledge, innovation and entrepreneurial support through
collaborations. It gives reduced and redefined role to centralised planning. The role of
government as a player in the industrial and service sector is to be reduced.

Major Objectives of NITI Aayog

1. To change the role of the government from provider of the first and last resort to that of
an ‘enabler’.
2. To evolve a shared vision of national development priorities, sectors and strategies with
the active involvement of states in the light of national objectives.
3. To develop mechanisms to formulate credible plans at the village level and aggregate
these progressively at higher levels of government.
4. To ensure that the interests of national security are incorporated in economic strategy
and policy.
5. To pay special attention to the sections of our society that may be at risk of not benefitting
adequately from economic progress.
6. To provide advice and encourage partnerships between key stakeholders and national
and international like- minded think tanks, as well as educational and policy research
institutions.
7. Finally it monitors the implementation of the policies and programs and evaluates their
impact.

Organisational Structure of NITI Aayog

The NITI Aayog comprises the following manner.
1. Chairperson: Prime Minister.
2. Vice-chairman to be appointed by the Prime Minister.
3. Regional councils Consists of Prime Minister, Chief Minister of the states and Lt.
Governors of Union Territories.
4. Experts, specialists and practitioners with relevant domain knowledge as special invitees
nominated by the Prime Minister.
5. The full-time organizational framework will comprise of, in addition to the Prime Minister
as the chairperson:
i. Vice-chairperson to be appointed by the prime minister.
ii. Full-time members.
iii. Maximum of 2 part-time members from leading universities, research organizations and
other relevant institutions in an Ex-Officio capacity.
iv. Maximum of 4 members of the Union Council of ministers to be nominated by the Prime
Minister as Ex-Officio members.
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v. Chief executive officer to be appointed by the Prime Minister for a fixed tenure in the
rank of Secretary to the Government of India.
vi. Secretariat as deemed necessary.

Functions of NITI Aayog

1. It will facilitate to transform India into cooperative and competitive federalism. National
agenda is provided to the prime minister for development along with priorities and
strategies.
2. To pay special attention to the sections of our society that may be at risk of not benefiting
adequately from economic progress.
3. To design strategic and long term policy and programme frameworks and initiatives, and
monitor their progress and their efficacy. The lessons learnt through monitoring and
feedback will be used for making innovative improvements, including necessary mid –
course corrections.
4. To provide advice and encourage partnerships between key stakeholders and national
and international like – minded Think Tanks, as well as educational and policy research
institutions.
5. To offer a platform for resolution of inter – sectoral and inter departmental issues in
order to accelerate the implementation of the development agenda.
6. To focus on technology upgradation and capacity building for implementation of
programmes and initiatives.
Thus, the NITI Aayog will try to frame a proper development policy for the country and
will also seek to put an end to slow and tardy implementation of policy, by fostering better inter
– ministering co-ordination. Moreover one of the major tasks of the NITI Aayog is to actively
monitor and evaluate implementation of programs and initiatives which is something new under
the present setup.

Check Your Progress.

3. What are the major objectives of Five Year Plans?
..........................................................................................................................................
4. Write the advantages of Planning.
..........................................................................................................................................
5. Mention three objectives of NITI Aayog.
..........................................................................................................................................

14.8 SUMMARY
Plan simply means a book, model or blue print. Rational thinking and effort in estimating,
mobilizing and allocating resources to achieve pre-determined aims is called planning. Planning
is needed to achieve the objectives of improving the living standards of people and quality of

214
life. Today’s concern of environment can’t be solved without some type of national and global
planning. There are different types of planning and a country chooses the one that suits its
political structure.
Enthused by the economic development of the then USSR after the 1917 resolution,
Indian government introduced planning from 1951 with the constitution of the planning
commission in 1950. Planning has different objectives like proper utilization of the national
resources, employment generation, higher growth rates, balanced regional development,
environmental protection and equitable distribution of income and wealth. India so far, has
completed 11 Five Year Plans and in the middle of the 12th plan. In January 2015, NITI Aayog
has been introduced in the place of planning commission. It acts as a think tank and converts
states into partners in the process of development. In the present days of liberalisation, planning
is conceived essentially as planning for policy. Gaps left by the market are filled by the state.
Provision of safety net and basic needs to the poor remain the responsibility of the state under
liberalization.

14.9 CHECK YOUR PROGRESS – MODEL ANSWERS

1. To H.D. Dickinson, economic planning is “the making of major economic decisions -
what and how much is to be produced and to whom it is to be allocated by the conscious
decision of a determinate authority, on the basis of comprehensive survey of the economic
system as a whole”.
2. The typs of planning are: Planning under Capitalism, Planning in a Mixed Economy,
Planning under socialism, Democratic and Authoritarian planning, Centralised and
decentralised planning, Planning from Above and Below, Perspective planning and annual
planning.
3. The major objective of Five Year Plans are: Economic Growth, Self reliance, Balanced
regional development, Poverty alleviation & Employment Generation, Social justice,
Modernisation, Inclusiveness and sustainability of growth.
4. The advantages of planning are: (i) natural resources are properly used as per the socio
– economic needs of the country (ii) balanced regional development through allocation
of resources can be made effective (iii) social equality, social security and social justice
through equal opportunities to the people can be made possible.
5. The objectives of NITI Aayog are: 1) To change the role of the government from provider
of the first and last resort to that of an ‘enabler’, 2) To evolve a shared vision of national
development priorities, sectors and strategies with the active involvement of States in
the light of national objectives., 3) To develop mechanisms to formulate credible plans
at the village level and aggregate these progressively at higher levels of government.

14.10 MODEL EXAMINATION QUESTIONS

I. Answer the following question in about 10 lines.
1. What are the major objectives of planning in India?
215
2. Review the performance of Five Year Plans in India.
3. Write a note on NITI Aayog.
II. Answer the following questions in about 30 lines.
1. Explain briefly different types of planning.
2. Describe the objectives and functions of NITI Aayog.
3. Examine the importance of planning.

III. One mark questions.

A. Multiple chaise questions.
1. Duration of perspective plan is:
A) long-term period B) short-term period
C) very short period (D) None of these
2. The objective of inclusive growth introduced in the following plan.
A) 9th plan B) 10th plan C) 5th plan D) 11th plan
3. NITI Aayog was established in
A) January 2015 B) January 2016 C) January 2014 D) None of these
4. Chairperson of the NITI Aayog is -
A) President of India B) Prime Minster of India
C) Home Minister of India D) None of these
Answers: 1-A; 2-D; 3-A; 4-B.

B. Fill in the blanks.

1. Economic plan was introduced in Soviet Russia in ____________.
2. A plan simply means________________.
3. In Mixed economy___________and___________ co-exist.
4. Authoritarian planning in nothing but____________planning.
Answers: 1 – 1928; a blue print; 3 – private and public sector; 4 – socialist centralized.

C. Match the following.

A B
1. Example of mixed economy A) No role for market
2. Socialist system B) Improve a particular part of the economy
3. Objective of functional Planning C) Strong states make strong nation
4. NITI Aayog D) India
Answers: 1-D; 2-A; 3-B; 4-C.

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14.11 GLOSSARY
1. Self Reliance: Production of goods & services with in the country and not depending on
imports.
2. Five – Year Plan: Preparation of plan targets and investment & resource allocations for
a five – year period duration.
3. Annual Plans: Planning for one year duration with short-term targets.
4. Economic Growth: Quantitative measurement in terms of Gross Domestic Product.
5. NITI Aayog: National Institution for Transforming India (NITI) Aayog was established
replacing planning commission on 1st January 2015. It serves as an advisory body of the
GOI to advice on social and economic issues.

14.12 REFERENCES
1. Mishra & VK Puri: Indian Economy, Himalaya Publishing House.
2. Datt & Suudaram: Indian economy, S. Chand Publications, 2018 Edition.
3. P.K Dhar: Indian Economy its Growing Dimensions, Kalyani publications.

– Dr. S. Vidyasagar, KU.

UNIT – 15: REGIONAL IMBALANCES AND
MIGRATION
Contents
15.0 Objectives
15.1 Introduction
15.2 Regional Imbalances: Concept and Theory
15.3 Regional imbalances and Domestic Product
15.4 Agricultural Development and Regional Imbalances
15.5 Industrial Development and Regional Imbalances
15.6 Infrastructural Development and Regional Imbalances
15.6.1 Social Infrastructure
15.6.2 Physical Infrastructure
15.7 Causes for Regional Imbalances
15.8 Consequences of Regional Imbalances
15.9 Measures to Remove the Regional Imbalances, Major Limitations
15.10 Suggestions for Balanced Regional Development
15.11 Rural-urban Imbalance – Migration
15.12 Summary
15.13 Check your Progress – Model Answers
15.14 Model Examination Questions
15.15 Glossary
15.16 References

15.0 OBJECTIVES
In India few States are relatively advanced economically while other States are backward.
Even within the States, some regions or districts are more developed while others lag behind.
Further, rural-urban disparities are also widening and people in search of employment are
moving for rural to urban centres. This situation of coexistence of relatively developed states
and regions with in the States is referred to as regional imbalances. After reading this unit, you
will be able to:
● define the concept of regional imbalance.
● discuss the basic theoretical framework relating to regional imbalance.
● analyse the regional imbalance in terms of macroeconomic aggregates like growth rate,
per capita GDP, sectoral contribution in GDP, etc.

218
● examine the regional imbalances in rural-urban areas.
● identify the causes, consequences of regional imbalances and suggest remedial measures.
and
● understand the concept of migration.

15.1 INTRODUCTION
India is among those countries which remained under the foreign yoke for a considerable
period. Consequently, the development of the country was guided by the economic interests of
its colonial masters. They paid attention to the development of only those regions of their
colony which served their economic interests most. This is how historical forces guided the
development of port towns such as Bombay, Calcutta and Madras, which in turn worked as a
nucleus for development of Maharashtra, West Bengal and Tamil Nadu respectively. On the
other hand, resource rich regions such as Bihar, Orissa and Madhya Pradesh lagged behind.
The discriminatory development of some regions, by the British Raj, was made possible by
linking the hinterland with the port towns by railways. Thus, it is clear that the regional pattern
of industrialization which emerged during the Imperial rule was highly uneven and which gave
birth to a severe rural-urban dichotomy.

15.2 REGIONAL IMBALANCES: CONCEPT AND THEORY

Regional imbalances relate to a situation where various indicators such as per capita
income, consumption level, food availability, agricultural and industrial development,
infrastructural development human development are not same among regions. The problems of
regional development have been mostly universal in nature except its intensity differs in different
countries.
An explanation for the interregional imbalances in India is reflected in the factors like
availability of infrastructure in terms of transport, power and means of communications,
agglomeration economies, size of the market, linkages - inter-industry (technological) and
marketing, availability of cheap and dutiful labour urbanisation, entrepreneurship, level of
agricultural development, and the like strongly affect the development of any region. Thus it
can be postulated that the regional variations in the level of development will prevail to the
extent the aforesaid factor varying across States.
There are various studies which have trace out the path of development in India with a
special focus on its regional pattern. Most of them have used ‘States’ as the unit of region and
studied cross-sectional imbalances in development over a few time-points to study the long-
term trend in it. In the State level they used District as a unit of region.
Williamson (1965, 1968) did the pioneering work in this regard as a part of his international
study and concluded that regional inequalities in India increased during the 1950s. This
conclusion was refuted first by Dhar and Sastry (1969), and then by Mahajan (1982). Others
claiming a narrowing down of regional imbalance have been Gupta (1973), Lahiri (1969), and
Rao (1972). Broadly parallel results have been reported by Majumdar (1970), Nair (1982),

219
Ganguli and Gupta (1976), and Mathur (1983, 1987). As against this school, there have been
studies that either claim a rise in regional inequality or do not find any evidence to reveal
significant narrowing down of the gap. Venkataramiah (1969), Rao (1973), Nair (1973),
Chaudhry (1974), Sampath (1977) and Mohapatra (1978) belong to this group who argue that
regional imbalances in India have increased over the years.

15.3 REGIONAL IMBALANCES AND DOMESTIC PRODUCT

Perhaps, the most
Table-15.1: Share of States in NSDP (%)
comprehensive and extensive work has
been that of Prof. Ashok Mathur. In State/Year 1970-71 1990-91 2013-14
his article of 2000, he has covered, in Andhra Pradesh 7.72 8.66 10.58
one long sweep, the issues of National Assam 3.05 2.81 2.02
and Regional Growth experiences in
Bihar 4.98 4.69 4.13
India from 1950-51 to 1996-97, and in
some cases up to 2000. As a result, he Gujarat 5.82 5.98 8.78
had been able to bring out the different Haryana 2.84 3.71 4.25
trends exhibited by the three
Himachal Pradesh 0.89 0.85 0.91
subsectors regarding regional
Jammu &Kashmir 1.22 1.06 0.89
imbalance in growth, as also the
diverse trends perceived in the four Karnataka 5.64 5.56 6.54
decades. Rajashri Majunder (2005) by Kerala 5.61 4.31 4.46
taking data from 1971-95 of national
Maharashtra 5.69 5.38 4.77
and regional level concluded that the
imbalance seems to be widening over Madhya Pradesh 11.42 14.03 18.45
time, especially in the post-reform Orissa 4.35 2.94 2.55
period. Punjab 4.00 4.77 3.41
Table -15.1 gives the share of Rajasthan 4.80 5.35 4.83
states in total NSDP of all the States.
Tamil Nadu 9.03 8.20 9.72
The developed States have witnessed
an increasing share over a period of Uttar Pradesh 14.10 13.64 9.18
1970-71 to 2017-18. In 1970-71 West Bengal 8.83 8.06 7.61
Maharashtra has witnessed a share of ST.DEV 3.47 3.72 4.34
11 per cent and UP 14 per cent in NSDP.
Mean 5.88 5.88 5.88
The scenario remained same till 2013-
14 with Maharashtra dominating in the COV 58.92 63.25 73.82
share. The share of UP has witnessed a Source: Data compiled from various issues of economic
downtrend by 2013-14. Its share survey and other sources.
declined to 9 per cent from 13 per cent
in 1990-91. Likewise, one can observe that the backward States assuming the share below the
average have witnessed a downtrend during the period 1970-71 to 2013-14. These States are
Assam, Bihar, Himachal Pradesh, Madhya Pradesh, Jammu and Kashmir, Rajasthan and Orissa.
The forward States like Kerala, Haryana, Punjab and West Bengal too witnessed a down trend
220
over a period. Some of the forward States whose share is above average more or less witnessed
an uptrend in their share. They are Gujarat, Karnataka Tamil Nadu and Andhra Pradesh; there is
a widening gap between backward and forward States during the period. The coefficient of variance
has increased from 58per cent to 63 percent and then to 73 per cent.

Table-15.2: Regional Imbalances in Per capita Net State Domestic Product (Rs.)
(Base: 1999-2000) (Base: 2004-05) (Base: 2011-12)
State / Union 1999 2004 Growth 2004 2011 Growth 2011 2017 Growth
Territory -00 -05 % -05 -12 % -12 -18 %

Andhra
Pradesh 15427 19963 5.3 25959 38556 6.07 69000 106864 7.84
Arunachal
Pradesh 13990 19339 6.7 26721 35527 4.12 73068 89217 3.16
Assam 12282 13946 2.6 16782 21741 3.69 41142 57099 5.54
Bihar 5786 6772 3.2 7914 13149 8.27 21750 28101 4.17
Jharkhand 11549 12869 2.2 18510 25265 4.56 41254 54246 4.50
Gujarat 18864 23346 4.4 32021 56634 9.61 87481 144090 9.24
Haryana 23222 30690 5.7 37972 61716 7.82 106085 157649 6.94
Himachal
Pradesh 20806 26244 4.8 33348 49203 5.94 87721 128840 6.70
Jammu &
Kashmir 13816 15414 2.2 21734 28790 4.06 53173 63995 2.91
Karnataka 17502 19840 2.5 26882 41492 6.79 90269 142943 8.34
Kerala 19461 25122 5.2 32351 52808 7.90 97912 136364 5.61
Madhya
Pradesh 12384 12032 -0.6 15442 23272 6.34 38551 55677 6.35
Chhattisgarh 11629 14070 3.9 18559 27163 5.79 55177 68543 3.46
Maharashtra 23011 26603 2.9 36077 61276 8.73 99564 141152 5.97
Odisha 10622 13311 4.6 17650 24542 4.88 48370 69864 6.35
Punjab 25631 27905 1.7 33103 46325 4.99 85577 110834 4.22
Rajasthan 13619 14908 1.8 18565 29612 7.44 57192 74453 4.31
Tamil Nadu 19432 22975 3.4 30062 57093 11.24 92984 129328 5.58
Uttar Pradesh 9749 10421 1.3 12950 18014 4.89 32002 41082 4.05
Uttarakhand 13516 19524 7.6 24726 52606 14.09 100305 147204 6.68
West Bengal 15888 19367 4.0 22649 32164 5.25 51543 65497 3.87
Delhi 38913 45157 3.0 63877 106677 8.38 185361 262682 5.96
All India 15881 19331 4.0 24143 38048 7.20 63462 87623 5.44
Telangana 24409 45277 10.69 91121 132380 6.47
Source: Data compiled from various issues of economic survey and other sources.
221
 The per capita Net State Domestic Product increased from 24143 rupees to 38048 rupees
during the time period 2004-05 to 2011-12 with a growth rate of 7.2 per cent. On the other
hand, the growth rate of per capita NSDP during 1999-00 to 2004-05 is only 4.0 per cent. It
increased from 63462 rupees to 87623 rupees during the time period 2011-12 to 2017-18 with
a growth rate of 5.44 per cent. The state having highest per capita NSDP is Rs. 262682 in Delhi
followed by Haryana (Rs. 157648). The states that registered lowest growth rate are Bihar (Rs.
28101) and Uttar Pradesh (Rs. 41082). The rank of states in terms of per capita income shows
the imbalance among different states. The rank of Bihar in terms of PCI is the lowest in the
period 1999-00, 2011-12 and 2017-18. Whereas the top rank in terms of per capita NSDP
captured by Delhi in all the three periods of study.

15.4 AGRICULTURAL DEVELOPMENT AND REGIONAL

IMBALANCES
As discussed above, the contribution Table-15.3: Share of States in Agriculture at
of agricultural sector to the total GDP has All India (%)
been gradually decreasing over time.
State / Year 1970-71 1990-91 2013-14
Agriculture’s contribution reduced from
Andhra Pradesh 9.34 9.14 12.83
51.9 to 14.5 per cent during the period
1950-51 to 2013-14. During 20013-14 the Assam 3.40 3.55 2.47
agricultural sector contributed 14.6 per Bihar 7.10 6.34 4.34
cent to GDP whereas its contribution is 58 Gujarat 6.68 5.00 6.02
per cent of total work force. The state-wise
Haryana 3.91 4.72 4.49
analysis shows that in the developed states
Himachal Pradesh 0.92 0.98 0.89
like Punjab and Haryana, the contribution
of agricultural sector to GDP is high and Jammu &Kashmir 0.96 1.00 1.07
the labour force participation in agriculture Karnataka 6.51 5.70 5.47
is comparatively low Kerala 3.60 3.08 2.07
The share of agriculture State-wise Maharashtra 5.54 5.86 10.22
is given in Table-15.3 Madhya Pradesh, Madhya Pradesh 6.70 8.59 8.43
Andhra Pradesh and Uttar Pradesh Odisha 5.31 3.39 2.94
witnessed a higher share in agriculture in
Punjab 4.85 6.60 5.26
2013-14. The agriculture States Punjab and
Rajasthan 7.04 7.37 6.91
Haryana which are supposed to be ranking
first and second have witnessed downtrend Tamil Nadu 6.27 5.03 4.60
Maharashtra, West Bengal and J&K Uttar Pradesh 15.68 16.02 14.13
recorded uptrend. The remaining states, West Bengal 6.19 7.65 7.85
Himachal Pradesh, Assam, Bihar, ST.DEV 3.34 3.51 3.84
Karnataka, Kerala, Orissa, Rajasthan and
Mean 5.88 5.88 5.88
Tamil Nadu recorded a downtrend. The
C0V has also recorded an increasing trend COV 56.77 59.66 65.29
resulting in the widening disparities over Source: Data compiled from various issues
the period. of economic survey and other sources.
222
 Table - 15.4: Share of Ag.culture & allied sector in NSDP at current prices
(Base 2004-05) (Rs.crs)
Share of Agriculture Agriculture Growth rate over
in NSDP share in Rs. Crs previous year of
and Per cent NSDP in Agriculture
Year/State/Ut 2005-06 2009-10 2013-14 2013-14 2005-06 2009-10 2013-14

Andaman &
Nicobar Islands 11.22 10.50 356 9.27 -26.45 0.77 2.86
Andhra Pradesh 28.74 26.93 55150 25.88 -2.03 6.20 7.80
Arunachal Pradesh 35.15 28.66 1726 32.62 -2.82 -1.78 4.06
Assam 26.40 24.26 16381 22.20 1.61 6.64 3.39
Bihar 28.35 22.06 30299 19.34 -13.03 -16.00 -6.24
Chandigarh 0.90 0.60 50 0.37 2.48 -12.97 -0.59
Chhattisgarh 25.30 19.70 16559 22.02 13.21 6.82 0.56
Delhi 1.00 0.81 1483 0.66 -3.49 26.93 3.24
Goa 8.84 5.17 912 3.50 24.38 -0.51 15.39
Gujarat 19.20 12.46 51205 13.28 24.10 -3.44 19.08
Haryana 21.81 17.88 28214 15.82 -2.23 -2.08 3.51
Himachal Pradesh 26.19 18.24 7422 19.34 6.53 -13.74 12.70
Jammu & Kashmir 28.55 23.56 7753 20.64 -0.29 -0.49 2.63
Jharkhand 16.95 16.79 16818 17.87 3.33 -7.08 5.42
Karnataka 19.49 16.89 38963 14.19 10.25 3.65 1.88
Kerala 15.48 10.70 16144 8.09 3.65 -3.67 -1.20
Madhya Pradesh 29.64 24.95 60253 29.86 7.13 9.03 21.28
Maharashtra 10.67 8.43 62936 7.76 9.32 0.46 4.15
Manipur 23.76 26.71 1474 20.30 0.95 14.21 2.87
Meghalaya 23.80 18.83 1939 16.50 4.93 1.90 6.69
Mizoram 23.17 22.21 950 18.92 1.36 9.01 -0.40
Nagaland 33.34 28.89 2789 26.51 2.74 2.66 3.79
Odisha 24.99 21.91 20330 18.81 3.36 7.75 -11.25
Puducherry 4.27 3.87 496 3.94 -3.73 -19.82 6.06
Punjab 33.21 26.35 32899 21.94 0.70 -1.01 0.59
Rajasthan 25.33 20.64 47275 21.05 -0.09 -3.53 5.12
Sikkim 17.79 9.57 546 10.37 4.32 3.42 3.46
Tamil Nadu 11.55 8.95 31501 7.37 13.42 5.98 7.35
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Telangana 20.45 15.75 29044 16.38 24.47 -12.88 8.35
Tripura 25.17 25.23 3996 22.70 2.87 4.06 7.98
Uttarakhand 19.08 12.34 6048 9.92 -4.11 9.92 -3.37
Uttar Pradesh 29.96 24.51 90826 22.51 2.10 -1.22 1.18
West Bengal 24.01 20.51 55820 16.79 2.14 6.54 3.01
INDIA 18.27 14.64 738559.0 13.94
Source: Date compiled from RBI website www.rbi.org.in.
Table 15.4 presents the contribution of agricultural sector to total NSDP of each of the
states and UTs. The contribution of agricultural sector in 1980-81 is 35.7 per cent which reduced
to 18.27 in 2005-06 and to 13.94 in 2013-14. The state level picture also shows the same
declining trend in the contribution of agricultural sector. The same trend is witnessed in the
developed states like Maharashtra, Tamil Nadu and West Bengal, the contribution of agriculture
has declined. The contribution of Tamil Nadu is less than one half of the contribution of Odisha.
The states experiencing low contribution to primary sector includes Tamil Nadu (7.37 per cent)
and Maharashtra (7.76per cent). The state with higher contributes Arunachal Pradesh, Madhya
Pradesh, Nagaland and Andhra Pradesh as on 2013-14. The state with provision of higher
employment in agriculture constitutes Bihar and Chhattisgarh as per census 2011. The lower
employment in agriculture is provided by Kerala and Punjab. Though Punjab is depending on
agriculture the employment is very low in agriculture. The lowest agriculture growth is witnessed
in Odisha and Bihar and highest in Madhya Pradesh and Gujarat as per 2013-14.
When Share of NSDP is depicted the Primary sector has played an important role in an
economy. But at present it shares is declined in GDP. In 2005-06, its share in NSDP was 18.27
per cent which includes Agriculture, fishing, forestry and livestock. The share declines rapidly
from 14.64 per cent in 2009-2010 to 13.94 per cent in 2013–14. This rapid decline in agriculture
sector indicates that an economy is growing as an increase in industries and service sectors
share in gross domestic production is witnessed which is visible like many developed economies
in the world. In the year 2004-05, more than average share is recorded by Arunachal Pradesh
37.2%, Nagaland 35.8% and Bihar stood third place with 31.7%. The lowest share of primary
sector states is Chandigarh (0.9%), Delhi (1.1%) and Goa (7.7%).

Check Your Progress

Note: a) Space is given below for utilizing your answer.
b) Compare your answer with the one given at the end of the unit.
1. State the concept of Regional Imbalance.
..........................................................................................................................................

224
15.5 INDUSTRIAL DEVELOPMENT AND REGIONAL
IMBALANCES
Like other developing countries,
Table-15.5: Share of States in Industry
industrial concentration is observed in some
at All India (%)
of the pockets of India. Keeping this in view,
Government of India has adopted a excess 1970 1990 2013
of measures to achieve a balanced regional -71 -91 -14
development. The policies are guided by Andhra Pradesh 5.33 7.44 7.62
industrialisation mixed with highly regulated Assam 3.24 2.69 1.39
policies with many industries reserved for
Bihar 3.66 3.18 2.62
public sector. After opening of the economy
with minimum role of the state in industrial Gujarat 7.35 7.84 12.72
growth and development, it has been argued Haryana 3.96 5.29 4.21
that the industries have concentrated in the Himachal Pradesh 1.06 0.95 1.25
economically advanced states due to their
Jammu & Kashmir 1.59 1.38 0.82
comparative advantages in social and
economic infrastructure. This argument has Karnataka 4.88 5.05 6.16
been supported by other country level studies. Kerala 7.32 5.68 4.39
In India industry constitute the contribution Madhya Pradesh 3.15 3.52 4.50
from Mining and Quarrying, Manufacturing,
Maharashtra 17.11 19.19 20.06
Electricity, Gas Water Supply and
Construction. Manufacturing sector plays a Odisha 4.04 2.95 2.30
key role in Industry in India. In Punjab 3.40 3.39 3.87
manufacturing Registered sector has a
Rajasthan 4.91 4.06 5.17
dominant role In India and across States.
There is a gradual increase in industrial Tamil Nadu 8.54 9.12 10.67
imbalances over a period of time especially Uttar Pradesh 8.53 10.93 7.50
after implementation of economic reforms West Bengal 11.91 7.34 4.38
post 1991.
ST.DEV 4.01 4.39 4.88
Table-15.5 shows the share of states
Mean 5.88 5.88 5.86
in industry during 1970-71 to 2013-
14.Maharashtra, Gujarat and Tamil Nadu are COV 68.15 74.63 83.28
the industrially developed states. The Source: Data compiled from various issues of
backward industrial States being, West economic survey and other sources.
Bengal, Orissa, Kerala, Assam, Bihar,
Haryana, Himachal and J&K. Punjab, Rajasthan and MP which have recorded an uptrend
though they are backward industrially. AP and Karnataka are also experiencing an increasing
trend. The C0V has also increased over the period showing a rising imbalances in industrial
development over the period and especially after implementation of economic reforms.

225
 Table-15.6: Percent share of Industry in NSDP of various States at constant prices (2004-05)

Share of Industry share Growth rate over

industry in in Rs. Crs previous year of
NSDP and Per cent industry NSDP
Year/State/UT 2004 2009 2013 2013 2005 2009 2013
-05 -10 -14 -14 -06 -10 -14
Andaman & Nicobar Islands 2.54 2.90 80 2.08 30.46 20.35 7.63
Andhra Pradesh 12.29 11.40 19955 9.36 1.29 2.40 -2.15
Arunachal Pradesh 8.82 8.76 328 6.20 3.16 14.69 -1.82
Assam 18.38 12.67 6977 9.46 -4.15 11.88 -7.32
Bihar 5.88 6.25 6863 4.38 -4.94 -3.21 4.91
Chandigarh 7.28 7.50 873 6.49 -5.75 21.51 0.89
Chhattisgarh 32.93 28.49 12644 16.82 -16.63 -10.49 -1.06
Delhi 7.41 5.58 9888 4.40 7.56 -5.37 -0.17
Goa 33.76 31.89 4740 18.17 8.22 9.61 -0.66
Gujarat 28.31 31.73 99170 25.73 13.71 34.28 1.37
Haryana 20.14 17.94 28760 16.13 8.05 15.23 0.27
Himachal Pradesh 15.46 18.39 6709 17.48 2.47 22.60 2.11
Jammu & Kashmir 9.31 9.86 3839 10.22 0.30 10.67 6.91
Jharkhand 44.05 27.36 24286 25.80 -20.05 3.86 7.94
Karnataka 18.21 16.59 39415 14.36 0.77 -7.65 10.20
Kerala 9.01 7.61 14303 7.17 3.12 1.95 0.70
Madhya Pradesh 15.85 17.61 26128 12.95 1.71 6.78 -1.42
Maharashtra 19.95 20.71 146959 18.11 29.46 8.78 8.25
Manipur 6.29 7.79 657 9.04 11.28 20.67 2.49
Meghalaya 12.71 12.62 1275 10.85 14.65 14.46 4.96
Mizoram 3.62 2.89 192 3.82 5.56 -3.14 17.71
Nagaland 2.34 3.21 284 2.70 16.76 26.80 7.70
Orissa 18.96 14.02 11402 10.55 -5.52 -28.75 1.63
Puducherry 33.78 35.94 2969 23.59 53.44 25.01 2.76
Punjab 15.99 21.51 30500 20.34 6.95 12.77 3.53
Rajasthan 15.21 18.74 45541 20.27 8.49 16.94 0.36
Sikkim 7.26 41.52 2233 42.36 15.03 416.85 3.50
Tamil Nadu 18.98 18.71 74257 17.38 14.05 32.38 3.95

226
Telangana 17.00 16.19 22869 12.89 9.76 -0.28 -1.06
Tripura 6.05 5.28 863 4.90 -13.86 22.88 8.98
Uttarakhand 13.27 21.74 15558 25.52 46.16 18.20 11.40
Uttar Pradesh 13.71 14.16 49439 12.25 4.16 15.20 2.16
West Bengal 11.81 10.77 30962 9.31 -1.95 10.47 9.22
All India 20.05 20.43 740917.72 18.70
Note: Data compiled from RBI website www.rbi.org.in.
Table 15.6 presents the contribution of industrial sector to total NSDP of each of the
states and UTs. The contribution of industrial sector in 1980-81 was18.05 per cent which
increased to 20.05 per cent in 2005-06 and reduced to 18.70 in 2013-14. The state level picture
also shows the same declining trend in the contribution of industrial sector after an initial
increase. The same trend is witnessed in the developed states like Maharashtra, Tamil Nadu
and West Bengal, the contribution of agriculture has declined except Punjab, Rajasthan,
Uttarakhand, Sikkim and other smaller states, Himachal Pradesh, J&k, Manipur and Mizoram.
The states experiencing low contribution to industry sector includes Bihar (4.38 per cent),
Delhi (4.4per cent),West Bengal (9.31per cent) and Kerala (7.17 per cent). The state with
higher contribution is Gujarat, Jharkhand, Maharashtra and Uttarakhand as on 2013-14.
Table-5.7: Percent share of service sector in NSDP of states at constant prices (2004-05)
Share of Services share Growth rate
services in in Rs. Crs and over previous year
NSDP Per cent of NSDP in Services
Year/State/UT 2005 2009 2013 2013 2005 2009 2013
-06 -10 -14 -14 -06 -10 -14
Andaman & Nicobar
Islands 85.64 86.60 3404 88.65 10.83 14.31 3.69
Andhra Pradesh 59.47 61.67 138024 64.76 10.64 7.88 8.57
Arunachal Pradesh 56.01 62.58 3237 61.18 6.82 12.72 13.20
Assam 56.50 63.08 50421 68.34 6.09 9.71 9.50
Bihar 65.92 71.69 119509 76.28 3.11 14.31 14.48
Chandigarh 92.92 91.90 12523 93.13 12.35 4.19 10.31
Chhattisgarh 47.69 51.81 45984 61.16 9.27 10.17 5.03
Delhi 91.78 93.61 213284 94.94 10.69 9.02 9.91
Goa 57.43 62.94 20440 78.34 6.31 10.27 8.38
Gujarat 52.70 55.81 235097 60.99 11.79 9.25 9.02
Haryana 58.23 64.18 121334 68.05 14.32 16.55 9.08
Himachal Pradesh 59.22 63.37 24244 63.18 11.17 7.94 5.83

227
Jammu & Kashmir 62.53 66.58 25971 69.14 7.72 6.03 6.37
Jharkhand 46.17 55.86 53017 56.33 9.50 19.92 9.52
Karnataka 63.87 66.52 196153 71.45 13.08 1.22 5.75
Kerala 76.09 81.68 169031 84.74 12.55 11.70 7.81
Madhya Pradesh 55.01 57.44 115430 57.20 4.89 10.53 7.00
Maharashtra 66.78 70.86 601373 74.13 10.99 11.14 10.78
Manipur 69.68 65.50 5132 70.66 8.23 2.76 7.74
Meghalaya 62.68 68.54 8534 72.65 7.56 6.35 11.20
Mizoram 73.28 74.90 3880 77.26 9.56 12.91 8.64
Nagaland 64.18 67.91 7449 70.79 14.62 6.15 7.40
Orissa 57.86 64.08 76348 70.64 8.31 8.24 3.82
Puducherry 54.80 60.18 9120 72.47 14.56 17.67 14.38
Punjab 50.50 52.14 86550 57.72 7.18 7.95 7.70
Rajasthan 59.20 60.62 131816 58.68 9.44 6.21 6.27
Sikkim 74.62 48.91 2492 47.27 10.98 21.43 13.21
Tamil Nadu 69.53 72.35 321424 75.24 14.70 6.47 8.34
Telangana 63.47 68.05 125451 70.73 15.23 4.05 5.21
Tripura 69.95 69.49 12746 72.40 9.84 11.77 10.30
Uttarakhand 63.93 65.92 39365 64.56 14.04 18.20 9.12
Uttar Pradesh 56.54 61.33 263243 65.24 8.36 7.52 6.88
West Bengal 65.10 68.72 245643 73.89 9.48 7.72 7.83
INDIA 61.67 64.94 3487667.1 67.36
Source: Data compiled from RBI website www.rbi.org.in.
Table 15.7 shows the share of service sector to total NSDP in major states and union
Territories of India. The contribution of service sector increased from 45.26 per cent to 64.94
per cent between 1980-81 to 2009-10 and to 67.36 per cent by 2013-14. This means there is a
marked 22 percentage point increase in the said period. In the year 1980-81 West Bengal shows
a highest share in service sector (40.38 per cent) and Haryana shows a lowest share in service
sector. In 2013-4, Delhi, Kerala and Goa showed a high share of service sector to total NSDP
and Sikkim, Jharkhand and Madhya Pradesh registered a lower share. In short, the States like
Bihar, Sikkim, Arunachal Pradesh, Meghalaya, Maharashtra, Tripura, Delhi, Jharkhand, Assam,
Uttarakhand, Haryana, Gujarat, Mizoram and Andhra Pradesh shows higher growth rate as
compared to all India figure. On the other side the States like Goa, Tamil Nadu, West Bengal,
Kerala, Manipur, Punjab, Nagaland, Madhya Pradesh, Uttar Pradesh, Jammu & Kashmir,
Rajasthan, Himachal Pradesh, Karnataka, Telangana, Chattisgarh and Odisha show low growth
rate as compared to All India figure.

228
15.6 INFRASTRUCTURAL DEVELOPMENT AND REGIONAL
IMBALANCES
The importance of infrastructure in economic development and in reducing imbalance
within the country/region has been acknowledged by many scholars (Iqbal and Suleman 2010;
Siddiqui and Hussain 2010; Sarkar 2009; Hangaragi 2008; Narendra and Aneja 2008; Kundu
1999). Availability of adequate infrastructure especially the physical infrastructure facilities is
the pre-requisite for sustainable economic and social development. Non-availability or
inadequate availability of infrastructure poses a serious threat to growth.

15.6.1 Social Infrastructure

The social infrastructure broadly includes health, education and sanitation. The indicators
for the availability of education infrastructure in India are number of elementary schools (primary
schools and upper primary schools) across states. These indicators are converted on per 10,000
population to facilitate comparison among states.
Education: It is very much evident that literacy of any region or area has a positive relation to
the overall development. It enables people to access new opportunities to participate in society
in different ways. The census data shows that the literacy rate increased from 18.3 per cent in
1951 to 74.04 in 2011. However, there are wide inter-state and intra-state disparities among
different states. Likewise, the male-female gap in literacy is high and rural urban literacy gap is
also high in India.
Regional imbalance can also be observed from the gap in literacy level in different states in
India. The gap is worked out by deducting the female literacy rate from male literacy rate form
2011 literacy data set. A clear pattern emerges from the data on literacy in gender is that the
developed states like Kerala, Delhi, Punjab registered a low gender gap in literacy rate whereas
the low developed states like Rajasthan, Jharkhand, Chattisgarh registered a high gender literacy
gap. Among the major states, Rajasthan shows a high gap in literacy rate (28 per centage point)
and Kerala (4 per centage point) registered a low literacy gap between male and female.
The regional imbalances in education can be seen from some other indicators like per
centage of single classroom school, per centage of single teacher school. In India 6 per cent
elementary schools have only a single classroom. Among the states Andhra Pradesh and
Arunachal Pradesh registered a high proportion of single room schools whereas Kerala, Delhi,
Haryana, Chattisgarh show a low proportion of school with single classroom. The other important
indicator is the single teacher school. In India 9.3 per cent of schools have only a single teacher.
Among the states, Arunachal Pradesh and Rajasthan registered a high single teacher school.
Kerala and Gujarat have low proportion of single teacher schools in the year 2009-10.
Some of the basic facilities in schools also influence the educational development. These
facilities include toilet facility, drinking water, girl child toilet facility, condition of school
building. In India only 45 per cent of schools are having toilet facility. West Bengal and Orissa
have a high per centage of schools with common toilet facility. On the other side in the states
like Jharkhand, Arunachal Pradesh and Chhatisgarh, a low proportion of schools are having
common toilet facility.
229
 One of the important indicators of education is the pupil-teacher ratio (PTR). The higher
the PTR, the lower the quality of education imparted to children. In India 3.5 per cent schools
are having PTR greater than 100. The backward states like Bihar (14.8 per cent) and Uttar
Pradesh (8.9 per cent) have a large proportion of schools with a greater than 100 PTR. Similar
scenario existed for 2013-14 except that the PTR ratio declined to 40. (8th AISES Report)The
quality of school building is an important indicator to analyse the school infrastructure. In
India 73.5 per cent of elementary schools are running in pucca school building. Rajasthan and
Utarakhand have a high proportion of schools with pucca school building. Arunachal Pradesh,
West Bengal and Orissa show a low proportion of schools with pucca school building. 11 per
cent of schools do not have any school building. The states like Chhattisgarh, Andhra Pradesh,
Bihar, Jharkhand and West Bengal show a high proportion of schools without a school building.

15.6.2 Physical Infrastructure

The physical infrastructure includes transport, communication, electricity etc. As observed
earlier, India suffers from inadequate physical infrastructure, as measured by many accepted
indicators. Not only infrastructure is inadequate and weak, it varies from state to state and even
within each state from district to district.
The per capita consumption of electricity is the most important indicators of development.
The per capita electricity consumption for India was 778.71 kwh, which is quite low when
compared with many countries like Canada 17053 kwh China 2471 kwh, USA 13647 kwh. The
per capita electricity consumption for the world is 2,782 kwh. The per capita electricity
consumption by states shows a huge imbalance between the various states. The developed
states like Delhi, Gujarat and Punjab show the highest per capita consumption of electricity.
The states like Bihar registered one seventh part of per capita consumption of electricity of all
India average and one fifteenth part of consumption of Punjab.
The household level data on consumption of electricity in rural India reflects that 55 per
cent of household in India have the access to electricity. With the rural and urban average of
consumption is being as 43.5 and 83.5 per cent respectively. The state having lowest percentage
of households having access to electricity are Bihar (5.13 per cent), Jharkhand (9.99 per cent),
Uttar Pradesh (19 per cent) in rural area. On the other side the states like Himachal Pradesh
(94.48 per cent) and Madhya Pradesh (92.76 per cent) have highest percentage of households
having access to electricity (Census of India, 2001).

15.7 CAUSES FOR REGIONAL IMBALANCES

In India like in other developing countries, regional disparities date back primarily to the
colonial rule. At that time, the areas lying farther away from the seacoast began to fall behind
those close to it, though the differences in the state of development were also influenced by
other factors which cannot be attributed to the colonial period alone. The important factors are
summarized below:
1. Low Per capita Income: Imbalances in per capita income is the main cause for regional
inequalities. This can be explained in terms of the economic sector thesis of Colin Clark which

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states that the levels of income are higher in those regions where a larger proportion of working
population is engaged in manufacturing and tertiary sectors. Per capita income has tended to be
higher in those States where a larger proportion of population is engaged in tertiary occupations.
2. Low Level of Industrialization: The other most important factor is the industrial location
pattern. The industrial growth in the past had been influenced by the early pattern of railway
construction. These centers of industrial location in conformity with Gunnar Myrdal’s thesis
have attracted a considerable portion of industrialisation towards themselves because of
conglomeration economies.
3. Government Will Power: Historically, the developed states have had relatively more efficient
systems of governance in terms of skills, responsiveness and quality of delivery systems. An
outmoded social structure can never bring about or sustain good governance in the modern
sense. On the contrary, it can frustrate exogenous attempts at good governance by its debilitating
and corrupting influence.
4. Historical Factors: A related historical factor is the driving force for development of
infrastructure. In better developed regions owe it to their inbuilt infrastructure dating back to
the time when they were still princely states. In other regions, the princely states did not pay
much attention to the development, priding themselves on being messengers of God or something
believing they were born to rule.
5. Financial Support: Similarly, in more recent times, there has been substantial decline in the
government’s budgetary support for financing infrastructure. Developed states and, especially
large cities and towns have been the major destinations points for internal as well as external
assistance.
6. Banking Facilities: Operations of the term-lending institutions as also the commercial banks
have also shown a distinct tendency towards concentration of investments in the relatively
more developed States. Subsidised lending by banks for financing priority credit and refinancing
facilities given by financial institutions have helped the richer states to gain greater access to
investible funds at subsidised rates.
7. Social Infrastructure: There exist glaring regional imbalance and imbalance among different
states in the country in the provision of educational and training facilities, specially the technical
education.
8. Public Finance Pattern: Operations of the system of public finance in the country have also
contributed to the creation and aggravation of inter-State disparities. In the low-income States,
the level of public investment, infrastructural growth and standard of administrative services
are lower compared to those in the high income States, thus perpetuating disparities. The system
of sales taxation enabled the richer states to export a significant portion of their tax burden to
the residents of poor states.
9. Lack of Skills: With increasing globalisation, India has chosen a skill-intensive path to
growth; wages for skilled labour are already being bid up. In this situation, it is necessary for
firms to have scale to ensure the proper use of scarce skilled labour. But it is only in the fast-
growing states that the environment and infrastructure exist for scale. This further identifies
disparities.
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10. Public Sector: In the pre-reform period, the public sector had played a crucial role in
maintaining regional equality by directing resources to backward areas. With a change in the
focus of the public sector following the reforms, this process has become weaker. The economic
reforms gave greater freedom and impetus to the private sector and export-oriented production.
These sectors, which were attempting to reduce costs and become competitive, were attracted
to areas that were relatively more developed. As a result, investment and activity shifted to
these areas, strengthening the forces of divergence. In short, the richer states are rich because
of higher infrastructure spending. A positive significant correlation is observed between
infrastructure and real per capita gross state domestic product across states.

15.8 CONSEQUENCES OF REGIONAL IMBALANCES

The coexistence of relatively developed and economically deprived states and even regions
within each state is known as regional imbalance. The following are the consequences of regional
imbalance
1. Inefficiency: regional imbalance affects investment. Low investment lead to inefficiency of
the human resource due to less expenditure on skill development and education.
2. Economic Concentration: regional imbalance makes economic concentration because
industrially developed regions attract more investments as they are already developed compared
to rest of the regions.
3. Unequal Opportunities: Regional imbalances do not attract industries due to backwardness.
The people living in backward areas do not have basic skills which hinder them getting
employment opportunities in industries and service sectors.
4. Unemployment: The people living in backward area seasonally get employment opportunities
in the primary sectors. Other than seasonal employment they lack other employment
opportunities.
5. Other Effects: regional imbalance affects many areas of the society and economy in the
backward areas. Basically regional inequalities lead to poverty, illiteracy, income inequalities,
labour exploitation, and migration from rural to urban areas which reduce living standards of
the society.

Check Your Progress.

2. Name the states whose agriculture sector’s contribution in GSDP has declined since
1980-81.
..........................................................................................................................................
3. What are implications of relatively lower decline of agricultural sections contribution in
total SDP?
..........................................................................................................................................
4. State whether regional disparities in industrial development have declined over a period
of time.
..........................................................................................................................................
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5. State the indicators of educational development.
..........................................................................................................................................

15.9 MEASURES TO REMOVE THE REGIONAL IMBALANCES

AND LIMITATIONS
The various programmes undertaken to remove/reduce regional disparities can be
identified as follows:
1. Resource Transfers from the Centre to the States: Weighed in favour of Backward States
is required. The resource transfers take place via (a) the Planning Commission mainly in the
form of plan transfers, and (b) the Finance Commission in the form of non-plan transfers. The
location of Central projects and Centrally-sponsored schemes are determined in the planning
process by the Planning Commission in collaboration with the relevant wings of the Government.
A recent study on the subject suggests that the poorer states have been receiving proportionately
larger amount of funds for developmental purpose relative to their rich counterparts.
2. Priority given to Programmes which spread over the entire Area within the Shortest
Possible Time: Programmes of agriculture, community development, irrigation and power,
transport and communications and social services have the widest coverage, and aim at providing
basic facilities and services to people in all the regions. Since, these programmes are included
in the plans of States; it is largely through the shape given to State plans and the changes
through which they pass in the course of the plan period that the benefits of development are
carried to every part of the country.
3. Provision of Facilities in Areas which lag Behind Industrially: River valley projects form
the most important segment in the plans of several States and large investments have been
made in multi-purpose projects. These and other projects are essential for the development of
vast regions in the country, some of which suffer from scarcity or unemployment or otherwise
poorly developed. The implementation of agricultural production and community development
programmes, and of education and health schemes also carries the benefits of development to
the remotest areas.
4. Programmes for the Expansion of Village and Small Industries: Village and small
industries are spread all over the country and various forms of assistance provided by the
Central and State Governments are made available in the areas according to programmes
undertaken. Industrial estates have been set up in all States, and increasingly, they are being
located in smaller towns and rural areas.
5. Diffusion of Industrial Activity: In the location of public sector projects, the claims of
relatively backward areas have been kept in view wherever this could be done without giving
up essential technical and economic criteria. The location of several important projects has
been determined based on expert study and on economic considerations. But as they are situated
in areas which were hitherto industrially backward, the latter will benefit.
While in the selection of sites for basic capital and producer goods industries, proximity
to raw materials and other economic considerations have naturally been important, it is felt that
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in a wide range of consumer goods and processing industries, it is possible to foster a regional
pattern of development.
To some extent, the development of new processes and new uses of raw materials have
assisted in the spread of industry. To encourage such elements, care need to be taken to ensure
that a balance is maintained in the regional spread of industrial activities
6. Schemes for Development of Backward Areas: The present policy for the development of
backward areas comprises a set of special schemes under which plan funds are provided over
and above the funds allocated for general sectoral programmes. The special schemes can be
classified as follows:
• Schemes focusing on target group: Small farmers’ development agencies and the special
component plan for Scheduled Castes.
• Schemes providing incentives and concessions for particular activities in backward
areas (concessional finance from financial institutions, tax relief, investment subsidy,
transport subsidy and priority in raw material allocations and hire-purchase of machinery,
for industries located in 246 backward district/areas, and relaxed viability and loan
repayment terms for extensions of electricity by the Rural Electrification Corporation in
backward areas.
• Rashtriya Sama Vikas Yojana has been launched in 150 districts. A sum of Rs. 25,000
crore Backward States Grant Fund has been set up; the Fund will be operational for five
years starting 2005-06.

Major Limitations
1. A great drawback of all schemes is that there is hardly any feedback about the actual physical
progress of these schemes in the field. There is a widespread feeling that most of the plans are
paper plans without techno-economic teeth and without a corresponding real action on the
ground. Leakage of vast funds into the bureaucracy itself and/or the local oligarchy is also
suspected.
2. Although the amounts of funds earmarked for area development schemes nominally appear
to be large, the total development outlays per capita available to less-developed areas remain
small in comparison with those in the more developed regions.
3. The effects of industrial and transport subsidies remain unevaluated. But the scrappy evidence
available suggests that subsidies have an inducement effect only if basic infrastructure is
accessible.
4. There was no uniformity and consistency of norms for identification of backward areas from
different States and Union Territories for either income tax concession or Central investment
subsidy scheme and licensing. As a result, the existing procedures for selection of backward
areas may have detracted from the potency of the provision in promoting the growth of regions
and areas which were backward in all India perspective.

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15.10 SUGGESTIONS FOR BALANCED REGIONAL
DEVELOPMENT
A recent study on the subject suggests following measures for balanced regional
development:
1. Increase Investment in Agriculture: Investment in agriculture needs to be stepped up
especially in the lagging regions. The backward and forward linkages of agriculture in poorer
regions need to be emphasised more. Investment in water harvesting, soil conservation, rural
roads, warehouses, processing activities and promotion of high value crops should be emphasised.
Since agricultural growth is found to be different in different regions, steps to equalise it will
certainly reduce the regional 74 imbalances.
2. Develop Service Sector: Service sector has been found to be the new driver of the growth
process, the banking and insurance sector and infrastructure have contributed to acceleration
of growth in many states. There is a need to promote these sectors, on priority, in backward
regions.
3. Providing Basic Infrastructure: Improvement in basic infrastructure facilities like power,
transport, telecommunication and irrigation in backward states is a precondition to improve the
quality of life of people and to usher in sustainable development in them. Availability of assured
power supply, developed transport system and modern telecommunication facilities are important
factors to attract private investments in these states.
4. Devolution of Financial Resources: The formulae according to which Centrally-collected
resources are transferred to the States should be made steadily more progressive. In the formulae
used by the Finance Commission and the Planning Commission for the distribution of the
resources among the States, the main factors used are: (a) population, (b) tax collection, (c)
some index of backwardness, and (d) outlays required for large irrigation and power projects
or, for the upgrading of particular service. The emphasis on the population factors to which 70
to 90 per cent weight has been given in different formulae is understandable, but allocations in
proportion to tax effort and the expenditure on big projects generally tend to be regressive in
character. Tax collection and project formulation capabilities are systematically higher in States
with a high per capita income. It is, therefore, desirable that these criteria to be omitted altogether
from all allocation formulae. Allocations need to be made only in proportion to population and
an appropriate index of backwardness.
5. Funds to Backward Districts: Further, it need to be pointed out that backward regions
within states are not considered when Centre-State transfers are set. It is not the size of such
transfers that affects poverty but more important is how such transfers are used. Hence, it is
necessary that unit of resource allocation ought to be district rather than States, with highest
priority to be given to the most backward districts. Instead of spreading the butter too thin by
scattering funds and concessions all over the place, it could be more beneficial to concentrate
on intensive resource deployment by identifying the priority investment areas on the basis of
industrial backwardness

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6. Public Sector Investment: Direct public sector investment by the Central Government in
the states is likely to dry up gradually due to severe budget constraint of the Centre. Under such
circumstances, important factor that influences the economic progress of a state is the quality
of governance. A better administered state is more efficient in raising revenues and putting
them to better use. There are the states, which will attract more investment both from domestic
and foreign sources. Such states are also able to prepare viable projects and successfully bid
central assistance or external funding. Hence, governance needs to be given immediate attention,
especially in the backward states.
7. Decentralised Investments: In the coming years, a key factor affecting choice of location in
investment decision-making will be environmental policies of states. Global rules and agreements
are creating demand for a coherent set of policies related to the environment, particularly for
the extractive industries such as oil and metals. The states need to pay more attention to this
aspect.
Ultimately, the key to balanced regional development lies not merely in increasing resource
flows to backward regions but in creating an enabling environment to attract more resources,
using them properly and assuring a fair deal to investors. The overall investment climate and
governance need to be upgraded.

15.11 RURAL - URBAN IMBALANCES AND MIGRATION

A rural area is an open area of land that has few homes or other buildings, and not very
many people. The area not under towns or cities is rural area. Nothing but not urban area comes
under rural premises.
The population density is very low in this area. Many people live in a city, or urban area.
Their homes and businesses are located very close to one another. In a rural area, there are
fewer people, and their homes and businesses are far apart. Agriculture is the primary industry
in most rural areas. Most people depend on farming for livelihood. Wildlife is more frequently
found in rural areas than in cities because of the absence of people and buildings. The people
live close to nature unlike in urban areas. Throughout the world, more people live in rural areas
than in urban areas. This has been changing rapidly, however. Urbanization is happening all
over the world and in India.
Migration: Migration is a movement of people from one place to another in search of
livelihood, employment, education, marriage etc. There are different types of migration such
as counter-urbanization, emigration, immigration, internal migration, international migration
and rural-urban migration.
People are migrating to urban areas for many reasons such as agricultural technology,
industrial technology, and the hope of changing one’s economic circumstances. Agricultural
technology has decreased the need for agricultural workers as improved transportation, use of
fertilizer, and genetically modified crops resulted in increased production of food with fewer
workers. Thus, driving many farmworkers into cities in search of employment.

236
 Industrial technology has also created many jobs unique to urban areas. As developing
countries expand the use of industrial technology increases and they often shift their focus to a
service-based economy. As service-based economies use industrial technology to provide finished
goods and services to people. In India, one can observe this syndrome where many people
practice agriculture in rural areas. As the Indian economy grows more people migrate to urban
areas like Bangalore or Hyderabad to work in the technology industry.
Many rural pupil travels to cities to take advantage of economic opportunities there. The
cost of living in urban areas is usually much higher than in rural areas. It costs more for rent
houses, buy food, and use transportation. For this reason, wages are usually higher in urban
areas. Thus, a search for higher wages is another reason people migrate from rural areas.
According to Census 2011, in India 833.5 million (68.8 %) population live in rural
areas and 377.1 million (31.2%) in urban areas. With regard to Literacy rate rural male literacy
was 77.2 per cent and rural female literacy was 57.9 per cent compared to urban male literacy
of 88.2 per cent and urban female literacy of 79.1 per cent. Thus, gender gap is high in rural
areas than in urban areas with respect to literacy. The work participation rate is high in rural
areas 41.8 per cent compared to 35.3 per cent in urban areas. The sex ratio is also high in rural
areas 949 per 1000 to 929 per 1000 in urban areas.
Data provided in Census reveals that death rate in Urban India declined from 9.7 per
thousand in 1971 to barely 6.3 in 2000. But against, death rate in rural India declined from 16.4
per thousand in 1971 to 9.3 in 2000. This depicts that urban areas are the forerunners in medical
facilities which resulted in declining death rate.
From Table 15.9 it is clearly shown that the per cent of rural population in India is
declining and urbanization is taking place during 2001 and 2011. The states with highest rural
population are Uttar Pradesh 18.6 per cent followed by Bihar 11.1 per cent and West Bengal
7.5 per cent. The state of Delhi, Goa have registered lowest rural population and showing a
decline in rural population during this period. Major change is witnessed in Kerala with a 25
Per cent decline in rural population.
Table-15.9: State-wise Proportion of Rural Population to
Total Population & Rural Population of the State
State-wise Proportion of Share of Rural Population
Rural Population to in Total Rural
Total Population (%) Population of India (%)
States/Year 2001 2011 2001 2011
Andhra Pradesh 72.7 66.6 7.5 6.8
Arunachal Pradesh 79.2 77.1 0.1 0.1
Assam 87.1 85.9 3.1 3.2
Bihar 89.5 88.7 10.0 11.1
Chhattisgarh 79.9 76.8 2.2 2.4
Delhi 6.8 2.5 0.1 0.1
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 Goa 50.2 37.8 0.1 0.1
Gujarat 62.6 57.4 4.3 4.2
Haryana 71.1 65.1 2.0 2.0
Himachal Pradesh 90.2 90 0.7 0.7
Jammu & Kashmir 75.2 72.6 1.0 1.1
Jharkhand 77.8 76 2.8 3.0
Karnataka 66 61.3 4.7 4.5
Kerala 74 52.3 3.2 2.1
Madhya Pradesh 73.5 72.4 6.0 6.3
Maharashtra 57.6 54.8 7.5 7.4
Manipur 73.4 67.5 0.2 0.2
Meghalaya 80.4 79.9 0.3 0.3
Mizoram 50.4 47.9 0.1 0.1
Nagaland 82.8 71.1 0.2 0.2
Odisha 85 83.3 4.2 4.2
Punjab 66.1 62.5 2.2 2.1
Rajasthan 76.6 75.1 5.8 6.2
Sikkim 88.9 74.8 0.1 0.1
Tamil Nadu 56 51.6 4.7 4.5
Tripura 82.9 73.8 0.4 0.3
Uttar Pradesh 79.2 77.7 17.7 18.6
Uttarakhand 74.3 69.8 0.8 0.8
West Bengal 72 68.1 7.8 7.5
All-India 72.2 68.8 100 100
Sources: Census of India, 2001; 2011.
Table-15.10: All-India Proportion of Migrants by Reason for Migration in Rural Areas
(Per Cent)
Reasons for migration 1993 1999–2000 2007–08
Employment-related reasons 28.0 15.7 14.7
Studies 2.6 2.9 5.6
Marriage 32.0 49.1 50.3
Movement of parents/earning member 22.3 16.2 13.3
Other reasons 15.2 16.3 16.2
All 100.0 100.0 100.0
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 According to Census 2011, there were 454 million migrants in India. This had risen by
139 million from 315 million in 2001 in Census 2011 and 220 million in 1991, a doubling over
1991-2011. As seen in Table II.1, marriage and other family related migration, which was
72.2% of all migration during 1991 to 2001, now is 74.7% of all migration during 2001 to
2011. The similar scenario is reflected in NSS data also. The employment related migrants are
slowly going down from 28.0 per cent in 1993 to 14.7 in2007-08. The reason for education
migration has increased from 2.6 per cent to 5.6 per cent in rural areas. The same scenario is
seen about reason for migration due to marriage especially among women.

15.12 SUMMARY
Regional imbalance in India has been a major challenge for planners and policy makers.
Despite a number of developmental programmes overtime, regional disparities have persisted.
Regional disparities are observed in growth rates, per capita SDP, per capita consumption
expenditure, sectoral contribution to NSDP, agricultural development, Industrial development,
infrastructural development and also in human development. The important factors responsible
for regional disparities are: variation in the occupational structure of workers, historical factors
like variation in infrastructure development, decline in budgeting support for financing
infrastructure, availability of financial institutions, provision of education and training facilities
etc. Many flag ship programmes have been launched by the Government towards removal of
regional imbalances but lack strong will power. However, all these schemes and programmes
have suffered from several limitations and a concrete sincere effort need to be done for ensuring
balanced regional development. Proper effort is also needed to address the gap between rural
and urban centers and check the issues relating to migration and urbanization.

15.13 CHECK YOUR PROGRESS-MODEL ANSWERS

1. Regional imbalances relate to a situation where various indicators such as per capita income,
consumption level, food availability, agricultural and industrial development, infrastructural
development human development are not same among regions.
2. The contribution of agricultural sector in 1980-81 is 35.7 per cent which reduced to 21.0 in
2005-06 and to 16.26 in 2013-14. The state level picture also shows the same declining trend
in the contribution of agricultural sector. The same trend is witnessed in the developed states
like Maharashtra, Tamil Nadu and West Bengal, the contribution of agriculture has declined.
3. This rapid decline in agriculture sector indicates that an economy is growing as an increase
in industries and service sectors share in Gross domestic production is witnessed which is
visible like many developed economies in the world.
4. The regional imbalances in industrial development have actually increased after 1991,
implementation of economic reforms. The C0V has also increased over the period showing a
rising imbalances in industrial development over the period and especially after implementation
of economic reforms.
5. The indicators of educational development are a) Pupil Teacher Ratio (PTR) should be low
b) Gross Enrolment Ratio (GER) which should be high, c) literacy Rate d) single classroom

239
and single teacher schools. Some of the basic facilities in schools also influence the educational
development. These facilities include toilet facility, drinking water, girl child toilet facility,
condition of school building etc.,

15.14 MODEL EXAMINATION QUESTIONS

I. Answer the following questions in about 10 lines each.
1. Which suggestions would you like to overcome the problem of regional imbalances?
2. Examine the sectoral disparities in India.
3. What are the consequences of regional imbalances?
II. Answer the following questions in about 30 lines each.
1. In the context of regional imbalance, what do you mean by multiplier-accelerator
mechanism? How will you examine the regional disparities of a country?
2. Empirically examine the role of infrastructural development in explaining the regional
imbalances in India.
3. Critically evaluate the various steps taken by Govt. of India towards removal of regional
disparities.
III. One mark questions.
A. Multiple choice questions.
1. The co-existence of relatively developed and economically underdeveloped states is
known as:
A. Regional Imbalance B. Regional development
C. Equitable development D. None
2. Which are the indicators to know Regional Imbalance?
A. State per capita B. Poverty C. HDI D. All
3. Which state contributes of more agriculture sector to GDP in India?
A. Punjab, Haryana B. Delhi, AP C. Orissa, Punjab D. Rajasthan, Tamil Nadu
4. Which states are industrially developed in India?
A. Maharashtra B Gujarat C. Tamil Nadu D. All
5. Social sector includes:
A. Health B. Education C. Sanitation D. All
Answers: 1) A 2) D 3) A 4) D 5) D

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B. Match the following.
A B
1. Physical infrastructure (i) Poverty
2. Social infrastructure (ii) Maharashtra
3. Indicator of economic backwardness (iii) Odisha
4. Highest Poverty state (iv) Education
5. Industrialized State (v) Transport
Answers: 1) v, 2) iv 3) i, 4) iii, 5) ii
C) Fill in the blanks.
1. RSVY stand for __________________.
2. Improvement in ________________ in backward states leads to regional development.
3. Banking and insurance come under __________sector.
4. ___________ is the highest per capita NSDP.
5. All India percentage of agriculture workers to total population is ___________ (2011).
Answers: 1. Rastriya Sama Vikas Yojana, 2. Investment, 3. Service, 4. Delhi, 5. 54.61%

15.15 GLOSSARY
1. The Coefficient of Variation (Co V):It is a method of measuring intrinsic variation in a
population and is found out by dividing standard deviation by its mean and this is explained
in per centage terms. A higher per centage value of C V refers to higher variation within
the group and vis-a-versa.
2. GDP and NDP: Gross domestic product (GDP) refers to the market value of all final
goods and services produced within a country in a given period. The net domestic product
(NDP) equals the gross domestic product (GDP) minus depreciation on a country’s capital
goods.
3. The Credit-Deposit Ratio: is one of the most widely used banking indicators for
analysing the role of banks in promoting productive sectors and contributing to economic
growth. In a bank-based financial system, the CD ratio assumes greater significance as
an aggregative measure for gauging the effectiveness of credit delivery system. Higher
the CD ratio implies for greater credit orientation of banks.

15.16 REFERENCES
1. Alois Kutscherauer, Hana Fachinelli, MroslavHuèka, Karel Skokan, Jan Sucháèek, Petr
Tománek, Pavel Tuleja, (2010): ‘Regional disparities in regional development of the
Czech Republic’, VŠB-Technical University of Ostrava.
2. Myrdal, Gunner (1957): “Economic Theory and Underdeveloped Regions”, Gerald
Duckworth and Co Ltd, London.
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3. Hirschman, A (1958): “The Strategy of Economic Development”, Yale University Press,
New Haven.
4. Kuznets, S (1963): “Quantitative Aspects of the Economic Growth of Nations, V111.
Distribution of Income by Size”, in Economic Development and Cultural Change Vol.
Xl, No 2, Part 11, pp 1-45.
5. Bhattacharya BB, Sakthivel S (2004): Regional Growth and Imbalance in India:
Comparison of Pre- and Post-Reform Decades. Economic and Political Weekly, 39(10):
1071-77.
6. Kar S, Sakthivel S (2007): Reforms and Regional Inequality in India. Economic and
Political Weekly, 42(47): 69-77.
7. Puga D (1999): The Rise and Fall of Regional Inequalities. Eur. Econ. Rev., 43: 303-
34.and Policies. Commission on Growth and Development Working, Washington.
8. Kim S (2008): Spatial Inequality and Economic Development: Theories, Facts and
Policies, DC. 16.
9. Papola, T.S, Nitu Maurya, Narendra Jena (November 2011): Inter Regional Disparities
in Industrial Growth and Structure, Institute for Studies in Industrial Development, New
Delhi.

– Dr. M. Varaprasad, Satavahana University.

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