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Planning
 Economic planning is the making of major economic decisions what and how much is to
be produced, how, when and where it is to be produced, and to whom it is to be
allocated by the comprehensive survey of the economic system as whole.
(H.D.Dickinsom)

 Planning was adopted for the first time in the world by Soviet Union

Planning in India

 Planning in India starts in 1930s. Even before independence, the colonial government
had established a planning board that lasted from 1944 to 1946.
 Before independence private industrialists and economists published three
development plans in 1944.
 India’s leaders adopted the principle of formal economic planning soon after
independence as an effective way to intervene in the economy of faster growth and
social justice.

Four decades of planning show that India’s economy, a mix of public and private enterprise, is
too large and diverse to be wholly predictable or responsive to directions of the planning
authorities.

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Important Dates

 1934: M. Visvesvaryya, in his book ‘Planned Economy of India’, advocates the necessity
of planning in the country much before Independence.
 1944: Bombay Plan, published in January 1944, prepared by eight leading industrialist of
Bombay.
 Gandhian Plan put forward by S.N. Agrawal (1944).
 1944: Planning Development Council was set up under the chairmanship of A. Dalal.
 Peoples Plan drafted by M.N. Roy (1945).
 1946: Interim Government sets up the Planning Advisory Board.
 1947: Economic Programme Committee was set up under the chairmanship of
Jawaharlal Nehru.
 1950: Planning Commission was set up.
 2015: Formation of NITI Aayog.

Visvesvarayya Plan

 Proposed the first blueprint of Indian Planning

 Democratic capitalism with emphasis on industrialisation
 Simply, its a shift of labour from agri sector to industrial sector targeting double national
income in a decade

FICCI Proposal

 1934: FICCI recommended serious need of National Planning

 Reason: Laissez Faire, Great Depression, New Deal in USA, Soviet Experiment in
National Planning

Congress Plan

 National Planning Committee @ 1938 – initiative of Subash C.Bose

 Reason to start NPC: to work out concrete programmes for development
encompassing all major areas of economy
 NPC under the chairmanship of J.L.Nehru
 Final report of NPC was published in 1949

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Important Developments
o Post-War reconstruction committee (1941) – To consider various plans for the
reconstruction of the economy
o Consultative committee of economists (1941) – setup under the chairmanship of
Ramaswamy Mudaliar to advise 4 Post-War reconstruction committees for
executing the National Plan
o Planning and Development Dept (1944) – created under a separate member of
Viceroy’s Executive council for organising planning work in the country. Ardeshir
Dalal (controller of Bombay Plan) was appointed as acting member. Finally this
dept was abolished in 1946

Bombay Plan:

 Popular title of “A Plan of Economic Development for India”

 Prepared by Capitalists
 Published in 1944-45

Important Agreements between NPC and Bombay Plan Club

1) Agrarian restructuring
2) Rapid industrialisation
3) Development of essential consumer goods industries
4) Promoting medium scale, small scale and cottage industries
5) Social welfare

Gandhian Plan

 Sriman Narayan Agarwal formulated this plan in 1944

 More emphasis on agriculture
 Promote cottage and village level industries
 Articulated a “Decentralised Economic Structure” for India with self-contained
villages

People’s Plan

 M N Roy formulated this plan in 1945

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 Plan was based on Marxist Socialism

 Focused on the need for providing “basic necessities of life”
 Agricultural and industrial sectores  equally highlighted
 “Economic reforms with the human face” – slogan of 1990s economic reforms
has the resonance of People’s plan

Sarvodaya Plan

 Jayprakash Narayan formulated this plan in 1950

 Inspired from the Gandhian techniques of constructive works and Sarvodaya
concept of Acharya Vinoba Bave
 Major ideas of the plan were similar to Gandhian Plan
 Negative impact of Indian Planning process @ 1960s  Increasing centralising
nature and dilution of people’s participation in it
 Idea of democratic decentralisation was disliked by the rulers  led to the
formation of Jayprakash Narayan Committee @ 1961
 JPC pointed out planning and execution of plans wrt PRI
 Disregarding the advice of JPC , central schemes like SFDA, DPAP, ITDP, IADP
were introduced  outside the purview of Panchayats
 After 73rd and 74th amendments, role of local bodies and their importance in the
process of planned development was accepted

Planning Commission

 The Planning Commission was established in 1950, in accordance with Article 39 of the
Directive Principles of the Constitution of India headed by Prime Minister.
 The Commission is independent of the Cabinet.
 A staff drafts plans under the guidance of the Commission; the draft plans are presented
for approval to the National Development Council, which consists of members of the
Planning Commission, the Chief Ministers of the States and Administrators of UTs and
All Union Ministers.
 The Council can make changes in the draft plan.
 After Council approval, the draft is presented to the Cabinet and subsequently to
Parliament, whose approval makes the plan an operating document for Central and
State governments.

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Jawaharlal Nehru was the first chairman of the Planning Commission by virtue of his being
the Prime Minister of India.

Functions
1) Assessment of the material, capital and human resources of the country, including
technical personnel and formulation of proposals for the augmentation of such
resources;
2) Formulation of plans for effective and balanced utilization of resources;
3) Defining stages in which the plan should be carried out;
4) Determination of the resources necessary for implementation of the plans;
5) Appraisal from time to time of the progress achieved;
6) Public co-operation in national development;
7) Perspective planning;

National Planning Council:

 Advisory body attached to the Planning Commission
 It was established in 1965
 It includes experts representing a cross-section of the Indian economy.

NITI Aayog
 The government of India has replaced Planning Commission with a new institution
named NITI Aayog (National Institution for Transforming India).
 The institution will serve as ‘Think Tank’ of the Government - a directional and policy
dynamo.
 NITI Aayog will provide Governments at the Central and State Levels with relevant
strategic and technical advice across the spectrum of key elements of policy, this
includes matters of national and international importance on the economic front,
dissemination of best practices from within the country as well as from other nations,
the infusion of new policy ideas and specific issue-based support.

Composition:

NITI Aayog will have

 Prime Minister as its chairman
 1 Vice-Chairman cum chief-executive officer
 5 fulltime members
 2 part time members
 4 central government ministers
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Five Year Plans

The development plans drawn up by the Planning Commission to establish India’s economy in
five-year phases are called

Five-Year Plan : A five-year plan is an indicative plan of action reflecting largely the intent of the
government for that period at the national, regional, and sectorial level.

First Plan (1951-56)

Reasons:
 Influx of refugees
 Severe food shortage
 Mounting inflation
 Heavy dependence on imports and foreign assistance

o As the economy was facing the problem of large scale food grains import (1951) and the
pressure of price-rise, the modest overall target of 2.1% was fixed

Major Objective:
 Agriculture, Price Stability, Power & Transport.
 The first five year plan focused on to stimulate balanced economic development while
correcting imbalances caused by World War II and partition various objectives were.
 It was based on Harrod Domar Model.
 Its highest priority on agriculture, irrigation and power projects.

Goals:
 Rate of investment was targeted at 7% of national income.
 Modest overall growth target of 2.1%

Outlay:
 44.6% went in favour of public sector undertakings (PSUs)
 Under the first five year plan provision was made to spend a total of 2,378 crore during
the plan period. But the actual expenditure outcome to 1960 crore only.

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Achievements:
 National income grew by 18% and per capita income by 11%.
 Actual Growth Rate – 3.6%
 Food production increased by 20%.

Negative Aspect:
 Development of public sector industries was neglected and only 6% fund was spent on
this.

Postitive Aspect:
 The plan got beginner’s success with 3.6% annual growth rate, actually prices came
down. Many multipurpose irrigation projects were conceived and rural development
initiative was taken up.

Outcome:
 Successful plan primarily because of good harvests in the last 2 years of the plan
 Objectives of rehabilitation of refugees, food self sufficiency and control of prices
were more or less achieved

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Second Plan (1956-61)

Reasons:
 Lack of purchasing power
 Unavailability of Infrastructure
 Umemployment

Major objective:
 Rapid Industralisation
 It was based on Mahalnobis Model
 The emphasis of Mahalanobis model was on achieving self-reliance and also to
meet the needs of our domestic economy

Goals:
 Goal of establishing the socialistic pattern of society (Industrial Policy of 1956)
 Growth target of 4.5%
 It targeted a 25% increase in national income through rapid industrialisation
 Rate of investment planned to be raised from 7 % to 11% of national income.
 Rapid industrialization with particular emphasis on development of basic and heavy
industries.

Outlay:
 Public sector – 4800 cr
 Pvt sector – 3100 cr
 Actual outlay, however, amounted to Rs. 4,600 crores of which investment amounted to
Rs. 3,650 crores and the balance Rs. 950 crores was current developmental expenditure

Achievements:
 Actual achievement was only 20%
 Achieved growth – 4.21%
 Per capita income rose by 8%.
 Large industries including steel plants (Durgapur, Bhilai and Rourkela) were set up.
 The locomotive factory at Chittaranjan and Coach factory at Perambur were other
major projects of this period.

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Negative Aspect:
o Due to the assumption of a closed economy, shortages of food and capital were felt
during this plan

Positive Aspects
o Second plan was conceived in an atmosphere of economic stability
o This plan is known for a top-down industrialisation of the big industries creating a
base for the growth of medium and small scale industries and going down to
village and cottage industries
o Gave birth to the concept of Public Sector of state run enterprises based on the
Russian model of Industrialisation
o Most of the public sector in India was set up during this plan period and also
known as the industrialisation or the public sector plan

Outcome
 Acute shortage of foreign exchange led to pruning of development targets
 Price rise was also seen
 Plan was only moderately successful

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Third Plan (1961-66)

Reason:
 At its conception, it was felt that Indian economy has entered a “takeoff
stage”

Major Objective :
 Self sustaining growth
 Based on John Sandy and S Chakravarthy model

Goals:
 Make India a 'self-reliant' and 'self-generating' economy
 Growth target of 5.6%
 Integrated growth of industry balanced with agriculture

Outlay:
 Total proposed outlay  Rs. 11,600 crore [ Rs. 7,500 crore was for the public sector ]
 Actual public sector outlay  Rs. 8,576 crore

Achievements:
 Growth rate of only 2.2% achieved as against a target of 5% per annum

Negative aspects:
 Emphasis on basic industries continued but agriculture and allied sectors (irrigation
and power) were allocated 35% of the outlay
 A series of crises - China war (1962), Nehru’s death (1964), Pakistan war (1965) and
Shastri’s death (1966), major drought (1965-66) - marred the smooth implementation of
the plan
 Inflation (36%) ate up much of the achievement; Rupee devaluation (1966)

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Positive Aspects:
 Due to conflicts the approach during the later phase was shifted from development to
defence & development
 Engineering industries like automobiles, cotton textile machinery, diesel engines,
electric transformers and machine tools, advanced according to set-targets
 FCI was established to store grains imported under USPL-480 programme and PDS was
started for rationing

Outcome:
 Slowdown in industrial development
 Failure of monsoon and drought in many parts of the country
 Only 2% growth rate in foodgrain production
 Increase in inequality in income and wealth
 Challenging balance of payment situation
 Growth rate of per capita income was almost negligible
 It was a failed plan

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Three Annual Plans or Holiday Plan (1966-69)

Major Objectives
 To overcome the ill-effects of two wars
 To solve the food problem
 To control inflation
 To prepare the base for the 4th plan

 Failure of Third Plan that of the devaluation of rupee (to boost exports) along
with inflationary recession led to postponement of Fourth FYP, a plan holiday was
declared for three years.

Outlay
 Total  Rs. 6,625.4 cr
 Agriculture and irrigation  25% of total investment
 23%  Industrial Sector
 18% each in power and transport

Positive aspects:
 All available resources were mobilised for building a buffer stock and for stepping up
food production learning from the experience of near-famine years (1965-66).
 Favourable monsoons and technological break-through in wheat popularly known as
‘green revolution’ reduced the inflationary pressure.
 Nationalisation of banks was another major step during this period.
 Devaluation of currency in 1966

Negative aspect:
 Failed to control unemployment and inflation

Outcome:
o Annual growth rate touched 6.9 % per annum
o Production of food grains reached 95 million tons in the year 1967-68

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Fourth Plan (1969-74)

Reason:
 Refusal of supply of essential equipment and raw materials from the allies during Indo
Pak war

Major objective:
 Growth with stability and progress towards self-reliance [Based on Gadgil Strategy]
 Emphasis on growth with distributive justice.

Goals :

 self-sufficiency in agriculture and industrial production. (In agriculture, growth rate of

5% per annum and in industrial production growth rate of 8% to 10% per annum were
targeted)
 A substantial increase in the outlay for family planning (278 crores from 25 crores in
third plan)

Outlay  15782 cr

Achievements:
 Growth rate of only 3.3% achieved as against a target of 5.7% per annum
 National income grew by 3.3% per annum
 Per capita income by 1.2% per annum

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 Agricultural production by 2.8%

 Industrial production by 3.9%

Negative Aspect:
 Droughts and the Indo-Pak war of 1971-72 led the economy to capital diversions
creating financial crunch for the plan

Positive Aspect:
 Nationalisation of 14 banks in 1969

Outcome:
 Agriculture and Industrial sector growth rate was good in first two years but failed to
continue momentum in the last 3 yrs
 High rate of inflation
 Sub-optimal utilization of capacities in the industrial sector
 Slowdown in new capacity creation
 Labour unrest
 Irregular monsoon
 High unemployment rate
 Higher growth rate of population
 Oil crisis in 1972-73
 Problem of refugees after 1971 war with Pakistan
 Growth rate of National Income was 3.2% (Actual Target --> 5.7%)
 Growth rate of per capita income was negligible

Fifth Plan (1974-79)

Reason:
 Economic crisis arising out of run-away inflation fuelled by hike in oil prices and
failure of the Govt. takeover of the wholesale trade in wheat

Major objective:
 Twin objectives of poverty eradication and attainment of self-reliance

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 A National Programme for Minimum Needs including elementary education, safe

drinking water, health care, and shelter for landless.
 Adequate collection and distribution system in order to provide the commodities of
necessary consumption to the poor people on reasonable and stable prices.
 Stress on Export Promotion and Import Substitution

Outlay  39426 cr

Achievements:
 Growth rate of only 4.8% achieved as against a target of 4.4% per annum
 Agricultural production increased by 4.2% – the highest so far

Negative Aspects:
 The plan was declared closed one year before the schedule but later on the decision was
reversed by the Congress Govt
 No improvement in unemployment situation
 Reduced targets for growth rate of national income as well as different sectors

Positive Aspects:
 Moderate inflation of 2.1% per annum

Outcome:
 Govt. Launched the Twenty-point programme
 Due to high inflation, cost calculations for the Plan proved to be completely wrong and
the original public sector outlay had to be revised upwards
 The plan period was badly disturbed by 1975 emergency and a change of Govt in the
centre in 1977
 Havocs of inflation led the Govt to hand over a new function to RBI to stabilise inflation
 This plan saw an increase in the socio-economic and regional disparities

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Emergency years (1975-1977)

 The Janata Government terminated the Plan in 1978.

Rolling Plan (1978-80)

Reason:
 Janata Party Govt ended the 5th plan one year before schedule and started 6th plan
(1978-83)

Outlay  12,177 cr

Positive Aspect:
 Janata Govt launched this rolling plan emphasising on employment in contrast to Nehru
model which the govt criticised for concentration of power, widening inequality and for
mounting poverty

Negative Aspect:
 Due to political instability and change in the Govt in the terminal year of the 5th plan, 6th
plan could not be started on April 1, 1979 and was postponed for one year

Outcome:
 This plan could not be completed due to fall of ‘Janata Party’ govt

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 The year 1979-80 was declared as annual plan and 6th plan started from April 1, 1980

Sixth Plan (1980-85)

Reason:
 In 1980, there was again a change of Govt at the centre with the return of the congress
which abandoned the 6th plan of the Janata Govt in the year 1980 itself and launched a
different plan aimed at directly attacking on the problem of poverty by creating
conditions of an expanding economy

Major objective :
 Poverty Alleviation [Garibi Hatao]  it marked the transformation from allocating
scarce resources in the economy to welfare orientation

Goals:
 To ensure faster rate of economic development
 Efficient utilization of resources
 Reduction in unemployment and poverty
 To encourage modernisation for achieving economic and technological self-sufficiency
 Rapid development and efficient utilisation of the energy sources
 To increase people’s participation through education
 To minimise regional disparity
 To minimise disparity of income and wealth
 Policies for controlling the population explosion

Outlay  1,10,468 cr

Positive aspects:
 Poverty alleviation gives the top priority
 Qualitative improvement in the living standards of people by means of Minimum Need
Programme (MNP)
 Schemes for transferring skills (TRYSEM) and assets (IRDP) and providing slack season
employment (NREP)  these were not new schemes, all different schemes were
combined as one scheme and known as Integrated Rural Development Programmes
(IRDP)
 First plan to focus on gender issues, women empowerment and the growing inequalities
amongst the states and also intra-regional imbalances
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Negative aspects:
 Industrial growth rate was less than the targeted rate

Achievements
 Actual growth of national income was higher at 5.7% against a target of 5.2%
 Increase of 16% per annum in real investment in fixed asset by private sector
 Poverty declined from 48.3% in 1977-78 to 37.4% in 1983-84

Outcome:
Sixth Plan could be taken as a success as most of the targets were realised even though
during the last year (1984-85) many parts of the country faced severe famine conditions and
agricultural output was less than the record output of previous year.

“ First six five year plans were directed plans as there was a larger role of public sector and
substantially larger investment by the Govt or the Govt could ensure investment in specific
areas as it was the major investor.

The major emphasis in these plans were towards industrialisation, setting-up of the public
sector, self-reliance and establishing India as a self-generating economy, to provide
employment and meeting the needs of the economy, rather than they being provided directly
by the Govt. Towards 5th and 6th plans, poverty and welfare orientation of the plans became
visible.”

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Seventh Plan (1985-90)

Reason:
 With the success of 6th FYP, Govt geared up towards long term perspective planning
1985-2000 with special focus on energy sector

Major objective: Growth, Modernisation, Self-reliance and Social justice

Goals
 Establishment of a self-sufficient economy
 Progress towards a social system based on equality and justice
 To prepare firm base for technological development in agriculture and industrial sector
 Faster growth in energy sector with focus on domestic resources
 Ecological and environment protection
 Strong emphasis on creation of productive employment on farm as well as rural
subsidiary occupations.
 Stress on increasing the production of food grains, oilseeds, sugar, textiles, domestic
fuel and housing.
 Outward-looking strategy with exports receiving high priority.

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“This plan had two very important areas, one that of larger agricultural sector orientation of
increasing production and productivity and the second pertains to a steady decline in the public
sector investment implying a larger contribution of private sector ”

Negative Aspects
 Tempo of domestic and external liberalisation hastened
 There was a severe short fall in mining sector (5.6% against a target of 13%)
 Social sector performance fell far short of targets– especially in housing for the
landless, elementary education and general poverty alleviation.
 By the end of the plan, India had a highly unfavourable balance of payment situation. It
has experienced for the first time, a problem of imports outstripping exports resulting in
the balance of payment crisis requiring India to seek loan from IMF.

Positive Aspects:
 The Plan had a 15-year perspective (1985-2000) for removal of poverty, providing for
basic needs, achieving universal elementary education and total access to health
facilities.
 Modernisation of various public sector units was taken up
 Promotion to sunrise industries especially food processing and electronics
 For the first time, share of public sector in total plan outlay was less than 50%  47.8%
 Jawahar Rojgar Yojana (JRY) was launched in 1989 with the motive to create wage-
employment for the rural poor

Achievements:
 Average annual growth rate during the plan period was 5.6% (target 5%).
 Agriculture grew at 4.1% against a target of 4%.
 Manufacturing industries achieved a growth rate of 8.8% (target 8%).

Outlay  2,18,730 cr

Outcome:
 The plan was very successful as the economy recorded 6% growth rate against
the targeted 5% with the decade of 80’s struggling out of the ’Hindu Rate of Growth’.

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Two Annual Plans (1990-92)

Reason:
 Due to economic crisis and political instability at the centre, 8th plan could not be
started in 1990

Outcome:
 “New Industrial Policy” was announced and it is considered the beginning of
large scale liberalisation in the Indian Economy
 The two consecutive annual plans were formulated within the framework of the
approach to the 8th plan with the basic thrust on maximisation of employment
and social transformation

“Each successive plan after 7th plan has seen a phased reduction in public sector outlay
and large levels of private sector, changing planning from ‘directed to indirected’, which
is indicating which sectors require investments in terms of priorities and private sector is
accordingly expected to make investment in those sectors.”

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Eighth Plan (1992-97)

Key issues during the launch of the plan:

 Worsening balance of payment situation
 Rising debt burden
 Widening budget deficit
 Recession in Industry
 Increasing inflation

Major objective: Human resource development

Goals :
 Creation of sufficient employment opportunities and achieve full employment by the
end of the century
 To control population explosion by people’s participation
 Modernisation and diversification of industries to make them more competitive
 Special emphasis on areas like primary education, drinking water, health
 Universalisation of primary education and 100% literacy in the age group 15-35 yrs
 Diversification in agriculture sector with the objective of self sufficieny and surplus for
export

Outlay:
 The level of national investment proposed was Rs. 7,98,000 crore and the public sector
outlay, Rs. 4, 34,100 crore.
 Consistent with the expected resources, the size of the plan of the States and Union
Territories was projected at Rs. 1,86,235 cr and of the central plan at Rs. 2, 47,865 crore.

Positive aspects:
 The plan was launched in 1992 after the plan holiday during the economically and
politically difficult days of 1990-91 and 91-92
 It was Manmohan-Rao (F.M- P.M.) Era of economic liberalization
 Modernisation of industries was focused
 India became member of WTO to pace with world economics

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Negative aspects:
 Share of the public sector in total plan outlay was 34.3% much below the target of
45.2%
 Actual employment growth was only 2% against a target of 2.6%.

Achievements:
 Per capita national output grew by 3.9% per annum. But, this growth masked
considerable distortion in the distribution front. From data regarding inflation and price
indices, there is evidence that the poor became poorer despite ‘the safety net’.
 Annual growth rate achieved in the Plan period is 6.8% against the target of 5.6 %.
 Agriculture sector growth rate was 3.6% higher than the target of 3.5%
 Industrial sector growth rate 8.5% higher than the the target of 8.1%

Outcome:
 The Eighth Plan was to walk on ‘two legs’ - one leg of alleviating poverty and removing
unemployment; and the other ‘leg’ providing a ‘safety net’ for those who will be
affected by the structural adjustment programme. The plan had thus built in the ‘human
face’ element of adjustment.
 Rapid economic growth (highest annual growth rate so far – 6.8 %)
 High growth of agriculture and allied sector, and manufacturing sector
 Growth in exports and imports
 Improvement in trade and current account deficit

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Ninth Plan (1997-2002)

Reason:

 8th plan period ended in 1997. Implementation of the 9th plan was to begin from the
same year.
 But a series of political crises in the country delayed the formulation and approval of
the plan by two years.
 The NDC finally approved the plan in February 1999, envisaging a GDP growth rate of
6.5 percent per annum. Though delayed by two years in approval, the plan was to run its
period through to 2002

Major objective: Equitable distribution and growth with equality

Goals:
 To extend the achievements of 8th plan
 To create sufficient productive employment
 To give priority to the development of agriculture for eradication of poverty
 To keep the prices under control for faster economic development
 To ensure food and nutritional security to all, especially the vulnerable
 To control the population growth rate
 To provide the basic minimum services like clean drinking water, primary health care
facility , universal primary education, housing etc.

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 To enocurage mass particicpation through institutions like Panchayati Raj institutions,

cooperatives and voluntary organisations

Outlay:
The size of the plan was estimated to be Rs. 8,59,000 crore at 1996-97 prices. This included
plans of the Centre, States and public sector undertakings. The gross budgetary support to the
plan from the Centre was fixed at Rs. 3,74,000 crore. Resources from public sector undertakings
and states were estimated to be Rs. 2, 90,000 crore and Rs. 1, 95,000 crore respectively.

Positive Aspects:
 The development strategy emphasised the role of markets and the need for government
to intervene to promote a degree of competition through suitable legislation. Licence
Raj was to be ended. The Plan emphasised cooperative federalism. It also stressed the
importance of infrastructural development.
 Aimed to depend prominently on the private sector
 The Plan was indicative in nature, focusing on policies. It also provided a 15-year
perspective.
 It aimed to achieve a growth rate of 8% per annum in the medium term and a rate of
6.5% during the plan period (1997-2002).
 It assigned priority to agriculture and rural development with a view to generate
adequate productive employment and eradicate poverty
 Envisaged the creation of 52 million jobs as against the demand for job opportunities
for 60.5 million persons.
 The backlog of unemployment, which was 7.5 million at the close of the eighth Plan, was
expected to be 6.6 million at the end of the Ninth Plan.

Negative aspects:
 The GDP grew only by 5.35% per annum during the plan period against the target of
6.5%. The shortfall was due to poor performance by agricultural and industrial sectors,
as explained in the table below.

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 9th plan was launched when there was an all round ‘slowdown’ in the economy by the
South East Asian Financial Crisis (1996-97)
 Some other development during the ninth plan, such as cyclone in Orissa, earthquake in
Gujarat, Kargil war etc. also resulted in diversion of resources from investment and
consequent decline in the growth rates.

Outcome:

The issue of fiscal consolidation became a top priority of the govts for the first time,
which had its focus on the following related issues:
(i) Sharp reduction in revenue deficit of govt, including centre, states and PSUs through a
combination of improved revenue collections and control of in-essential expenditures
(ii) Cutting down subsidies, collection of user charges on economic services (i.e. electricity,
transportation, etc.), cutting down interest, wages, pension, PF, etc;
(iii) Decentralisation of planning and implementation through greater reliance on states and
the PRIs.

9th was developed in context of 4 important dimensions of the government policy:

 Improving the quality of the life

 Generation of Productive employment
 Creation of regional balances
 Self reliance

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Tenth Plan (2002-07)

Reason:
Taking note of the inabilities of the earlier Five Years Plans, especially that of the 9th Five Year
Plan, Govt decided to take up a resolution for immediate implementation of all the policies
formulated in the past.

Major objective: Growth with emphasis on human development

Goals:
 The Tenth Plan laid down an ambitious target of 8% annual growth rate for the
economy, against the prevailing rate of 5.5%.
 Its long term vision was to double the per capita income in the next ten years, to reduce
the decadal population growth from 21.3% (1991-2001) to 16.2% by 2010-11 and to
ensure that the growth in gainful employment kept pace with the addition to the labour
force.

Total outlay: Rs. 15,92,300 crore

Positive Aspects:
 Accepting that the higher growth rates are not the only objective – it should be
translated into improving the quality of life of the people

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 For the first time the plan went to set the ‘monitorable targets’ for 11 select indicators
of development for the centre as well as for the states
 ‘Governance’ was considered a factor of the development
 Agriculture sector declared as the priming moving force (PMF) of the economy
 Increased emphasis on the social sector i.e. education, health etc.

Negative Aspects:
 For too many people still lacked the basic requirements for a decent living in terms of
nutritional standards, access to education and basic health, and also many other public
services such as water supply and sewage.
 The benefits did not reach fully some disadvantages sections like the Scheduled Castes
and Tribes and minorities.
 Regional imbalances - both across states and even within states - were also noticed.
 Against the ambitious target of 8%, the economy grew at the rate of 7.7% on an
average during the 10th Plan period.
 Evaluation by the Planning Commission noticed that while the rate of growth was
impressive, it was lop-sided and did not benefit all people alike.

Outcome:
 Poor performance of agriculture sector
 Critical areas like employment and social infrastructure were neglected
 Foreign exchange reserves have gone up from about $50 billion to more than $200
billion

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Eleventh Plan (2007-12)

Reason:
10th plan reflected the concern that economic growth alone may not lead to the attainment of
the long term sustainability and of adequate improvement in social justice

Major objective: Faster and more Inclusive Growth

Goals:
 The Eleventh Plan targets to resolve the regional imbalance still prevailing in the
country.
 The Plan document, sub-titled Inclusive Growth, outlines a strategy for making growth
both faster and more inclusive. Encouraged by the achievement of a rate of 7.7% on an
average during the 10th Plan, itself a target of 9% growth during the Plan period, with
acceleration during the period to reach 10% by the end of the Plan.
 The target of 9% growth requires the average rate of investment to rise from 32%
(during 10th Plan) to 37% in the current plan, reaching 39% at the end of the plan
period.
 Private investment which has contributed 78% of the investment during the 10th Plan is
expected to maintain its share.

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 Public investment is expected to be maintained at the same level of 22% as in the 10th
Plan.
 Planning Commission has framed a plan for achieving faster growth with greater
inclusiveness which involves the following interrelated components:
a) a continuation of the policy of economic reform which has created a competitive
private sector capable of benefiting from the opportunities provided by greater
integration with the world;
b) more emphasis on agriculture,
c) improved access to essential services in health and education (including skill
development);
d) special thrust on infrastructural development;
e) special attention to the needs of disadvantaged groups, and
f) good governance at all level, central, state and local.

 The broad targets fixed by the 11th Plan include a 4% per cent growth in Agriculture
sector, 10% growth in Industries and Minerals, and investment in infrastructure to grow
from 5.43% of GDP in 06-07 to 9.43% by the end of the 11th Plan.

Total public sector outlay in the Eleventh Plan (both Central and States and including the PSEs)
is estimated at 36,44,718 crore. Of this total, the share of the Centre (including the plans of
Public Sector Enterprises (PSEs) will amount to 21,56,571 crore, while that of the States and
union territories (UTs) will be ` 14,88,147 crore

27 National Targets under 11th Plan

The Plan has adopted 27 targets at the national level to ensure inclusive growth. These are
related to:
(i) income and poverty
(ii) education
(iii) Health
(iv) women and children
(v) infrastructure
(vi) environment

a) Targeted growth of GDP at 9% per year.

b) To raise industrial growth rate from 9.2% in 10th Plan to 10% in 11th Plan.
c) To reduce unemployment among educated youth to less than 5%.

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d) To reduce Infant Moraling Rate (IMR) to 28 and Material Morality Rate (MMR) to 1 per
1000 on live births by the end of plan.
e) To increase sex-ratio to 935 by 2011-12 and 950 by 2016-17.
f) To ensure that all children enjoy a safe childhood, without any compulsion to work.
g) To ensure electricity connection to all villages and BPL household by 2009 and 24-hour
power supply by the end of this plan.
h) To achive standards of air quality in all cities
i) To treat all urban waste water by 2011-12.
j) To increase forest and tree cover by 5%.

Negative Aspects:
 Restoring dynamism in agriculture
 Managing India’s water resources
 Problems in achieving power generation targets
 Issues pertaining to urbanisation
 Special problems of urban development
 Increase in the key deficit indicators
 Issue of price stability

Positive Aspects:
 It has brought out the need for neo-liberal policies given the changing political
dynamics and a changed face of the economy
 It gave thrust to Public Private Partnership (PPP) model for infrastructural
development in the economy

Achievements:
 Growth rate of 8% achieved as against a target of 9% per annum
 The shortfall in achievement of (various growth targets) can be attributed both to
internal and external factors viz. global slowdown, fluctuations in international prices,
strong inflationary pressures and negative growth in agriculture due to drought like
situation
 Domestic savings and investment averaged 33.5 % and 36.1% of GDP at market
prices respectively in the Eleventh Plan which is below the target but not very far.

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Outcome:
 India had emerged as one of the fastest growing economy by the end of the Tenth Plan
 The savings and investment rates had increased, industrial sector had responded
well to face competition in the global economy and foreign investors were keen to
invest in India
 But the growth was not perceived as sufficiently inclusive for many groups, specially SCs,
STs & minorities as borne out by data on several dimensions like poverty, malnutrition,
mortality, current daily employment etc
 Since the period saw two global crises - one in 2008 and another in 2011 – the 8%
growth may be termed as satisfactory.
 Based on the latest estimates of poverty released by the Planning Commission,
poverty in the country has declined by 1.5 percentage points per year between 2004-
05 and 2009-10.

Eleventh Plan Achievements on Inclusive Growth:

 GDP growth in the Eleventh Plan 2007–08 to 2011–12 was 8 % compared with 7.6 % in
the Tenth Plan (2002–03 to 2006–07) and only 5.7 % in the Ninth Plan (1997–98 to
2001–02). The growth rate of 7.9 % in the Eleventh Plan period is one of the highest of
any country in that period which saw two global crises.
 Agricultural GDP growth accelerated in the Eleventh Plan, to an average rate of 3.7 %,
compared with 2.4 % the Tenth Plan, and 2.5 % in the Ninth Plan.
 The percentage of the population below the poverty line declined at the rate of 1.5
percentage points (ppt) per year in the period 2004–05 to 2009–10, twice the rate at

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which it declined in the previous period 1993–94 to 2004–05. (When the data for the
latest NSSO survey for 2011–12 become available, it is likely that the rate of decline may
be close to 2 ppt per year.)
 The rate of growth of real consumption per capita in rural areas in the period 2004–05
to 2011–12 was 3.4 % per year which was four times the rate in the previous period
1993–94 to 2004–05.
 The rate of unemployment declined from 8.2 % in 2004–05 to 6.6 % in 2009–10
reversing the trend observed in the earlier period when it had actually increased from
6.1 per cent in 1993 –94 to 8.2 per cent in 2004–05.
 Rural real wages increased 6.8 % per year in the Eleventh Plan (2007 –08 to 2011–12)
compared to an average 1.1 % per year in the previous decade, led largely by the
government’s rural policies and initiatives
 Complete immunization rate increased by 2.1 ppt per year between 2002–04 and
2007–08, compared to a 1.7 ppt fall per year between 1998–99 and 2002–04. Similarly,
institutional deliveries increased by 1.6 ppt per year between 2002–04 and 2007–08
higher than the 1.3 ppt increase per year between 1998–99 and 2002–04.
 Net enrolment rate at the primary level rose to a near universal 98.3 % in 2009–10.
Dropout rate (classes I–VIII) also showed improvements, falling 1.7 ppt per year
between 2003–04 and 2009–10, which was twice the 0.8 ppt fall between 1998–99 and
2003–04.

Twelfth Five Year Plan (2012-2017)

Reasons:
 Global economy was going through a second financial crisis, precipitated by the
sovereign debt problems of the Euro-zone
 The crisis affected all countries including India. Our growth slowed down to 6.2% in
2011-12.
 Domestic economy has also run up against several constraints. Macro-economic
balances have surfaced following the fiscal expansion undertaken after 2008 to give a
fiscal stimulus to the economy. Inflationary pressures have built up.

Major objective: Faster, Sustainable and More Indusive Growth

Planning Commission in its meeting held on April 2011, the Prime Minister, Dr. Manmohan
Singh, addressed the Planning Commission concerning the twelth Five Year Plan of India. The
main point of the Twelfth Plan are:

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Resource Allocation Priorities in 12th plan

 Health and Education received less than projected in Eleventh Plan. Allocations for
these sectors will have to be increased in 12th plan.
 Health, Education and Skill Development together in the Centre’s Plan will have to be
increased by at least 1.2% point of GDP.
 Infrastructure,including irrigation and watershed management and urban infrastructure,
will need additional 0.7 percentage point of GDP over the next 5 years.
 Since Centre’s GBS will rise by only 1.3 percentage points over 5 years, all other sectors
will have a slower growth in allocations.
 Decrease the number of Centrally Sponsored Schemes (CSS) to a few major schemes.
For the rest, create new flexi-fund which allow Ministries to experiment in other CSS
areas.
 PPP model must be encouraged, including in the social sector, i.e. health and education.
Efforts on this front need to be intensified.
 Distinction between plan and non-plan being reviewed by Rangarajan Committee.

Broad Objectives of 12th Five Year Plan

 To reduce poverty
 To improve regional equality across states and within states
 To improve living conditions for SCs, STs, OBCs, Minorities
 To generate attractive employment opportunities for Indian youth
 To eliminate gender gaps

Monitorable Targets of the Plan:

25 core indicators listed below reflect the vision of rapid, sustainable and more inclusive
growth of the twelfth Plan:

Economic Growth
1. Real GDP Growth Rate of 8.0 %
2. Agriculture Growth Rate of 4.0 %
3. Manufacturing Growth Rate of 10.0 %
4. Every State must have an average growth rate in the Twelfth Plan preferably higher than that
achieved in the Eleventh Plan.

Poverty and Employment

5. Head-count ratio of consumption poverty to be reduced by 10 percentage points over
the preceding estimates by the end of Twelfth FYP.

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6. Generate 50 million new work opportunities in the non-farm sector and provide skill
certification to equivalent numbers during the Twelfth FYP.

Education

7. Mean Years of Schooling to increase to seven years by the end of Twelfth FYP.
8. Enhance access to higher education by creating two million additional seats for each age
cohort aligned to the skill needs of the economy.
9. Eliminate gender and social gap in school enrolment (that is, between girls and boys, and
between SCs, STs, Muslims and the rest of the population) by the end of Twelfth FYP.

Health

10. Reduce IMR to 25 and MMR to 1 per 1,000 live births, and improve Child Sex Ratio (0 –6
years) to 950 by the end of the Twelfth FYP.
11. Reduce Total Fertility Rate to 2.1 by the end of Twelfth FYP.
12. Reduce under-nutrition among children aged 0–3 years to half of the NFHS-3 levels
by the end of Twelfth FYP.

Infrastructure, Including Rural Infrastructure

13. Increase investment in infrastructure as a percentage of GDP to 9 % by the end of Twelfth

FYP.
14. Increase the Gross Irrigated Area from 90 million hectare to 103 million hectare by the end
of Twelfth
FYP.
15. Provide electricity to all villages and reduce AT&C losses to 20 % by the end of Twelfth FYP.
16. Connect all villages with all-weather roads by the end of Twelfth FYP.
17. Upgrade national and state highways to the minimum two-lane standard by the end of
Twelfth FYP.
18. Complete Eastern and Western Dedicated Freight Corridors by the end of Twelfth FYP.
19. Increase rural tele-density to 70 % by the end of Twelfth FYP.
20. Ensure 50 % of rural population has access to 40 lpcd piped drinking water supply, and 50 %
gram panchayats achieve Nirmal Gram Status by the end of Twelfth FYP.

Environment and Sustainability

21. Increase green cover (as measured by satellite imagery) by 1 million hectare every
year during the Twelfth FYP.
22. Add 30,000 MW of renewable energy capacity in the Twelfth Plan
23. Reduce emission intensity of GDP in line with the target of 20 % to 25 % reduction over
2005 levels by 2020.
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Service Delivery
24. Provide access to banking services to 90 per cent Indian households by the end of Twelfth
FYP.
25. Major subsidies and welfare related beneficiary payments to be shifted to direct cash
transfer by the end of the Twelfth Plan, using the Aadhar platform with linked bank accounts.

 13th Finance Commission increased the devolution to the states from 30.5 %to 32
% of divisible pool and it covers the period up to 2014-15, which includes the first three
years of the twelfth Plan.
 The projections of resources for the Twelfth Plan have been made assuming 28.45 %
of tax devolutions of the Gross Tax revenue.
 This has been assumed by factoring in the surcharges being phased out and keeping the
same ratio beyond 13th FC period till the terminal year of the Twelfth Plan.
 Recently 14th Finance Commission increased the devolution to the states from 32 %to
42 % of divisible pool and it covers the period up to 2015-16

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Review of Five Year Plans

Sectorial Growth Rate in Different Five Years Plans

The following interferences can be drawn from the above table

 The average growth during the period of 1st to 11th plan works out to be about 4.5%.
This is quite a considerable achievement compared to 1% growth during the pre-
Independence period
 Agriculture has been growing at 2-3% during the plan periods as against 0.3% growth
during the pre-Independence period
 Spectacular industrial progress has been made during the plan periods. The industrial
growth is recorded at 6-8% which is nearly 3-4 times higher than the growth rate during
the pre-Independence period
 The trend growth rate during the first 3 decades of the planning was extremely modest
at the rate of 3.5% per annum. In the later phase of 1981-2013, the growth rate was
recorded at 5.9% per annum
 It is clear that there was a sharp acceleration in the rate of growth since 1980. It went
almost unnoticed. It came into limelight in the early 2000s. A majority of scholars opined
that the structural break in the economic performance of independent India occured
around 1980. The growth was impressive, not only in comparison with the part in India
but also in comparison with the performance of most developed countries in the world.

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 In developed countries, the industrial and service sectors contribute a major share in
GDP with agriculture accounting for a relatively lower share. During the progress of
growth over the years, the Indian economy too experienced an improvement in the
shares of industry and services sector in overall GDP. However, the share of agricultural
sector in GDP has been continuously declining and it came down to 13.9% in 2013-14. It
is a cause of worry as the Indian agriculture has been in crisis with crop holidays and
farmers suicides
 A significant growth rate is noticed with regard to service sector. During 2008-09 to
2013-14, the contribution of services to GDP growth was as high as 69.8%. It reflects the
structural transformation of the economy, as it moves to a somewhat higher level of
development. However, one should think about the sustainability of this pattern of
growth. The real failure, throughout the second half of the 20 th century, was India’s
inability to tranform its growth into development, which would have brought about an
improvement in the living conditions of common people.

Self Reliance:

 The 4th plan set before itself the two principal objectives of “growth with stability” and
“progressive achievement of self-reliance”
 Even in the subsequent plans, planned development enabled India to be self sufficient in
most of the important sectors and productive activities
 It is no small achievement to note that India is the only country with self sufficiency to
a considerable extent among the 115 developing countries of the world
 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

Balanced regional development:

 Regional disparities in development have been a major concern throughout the plan
period. The Planning Commission has sought to tackle the problem of regional
disparities in 3 ways:
1) The recognition of backwardness as a factor to be taken into account in the
transfer of financial resources from centre to states
2) Special area development programmes directed at development of backward
areas
3) Measures to promote private investment in backward areas
 It is now well established that the inter-state disparities in the growth of GSDP have
increased in the post reform period beginning from early 90s when compared to 80s

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 The general view is that the richer states have grown faster than the poorer states.
 The regional disparities in per capita GSDP growth is even greater because the poorer
states in general have experienced a faster growth in population
 The states whose pre-reform conditions were favourable in respect of infrastructure
could benefit from the opportunities opened up, especially in the service sector, by
economic reforms and could register higher growth rates in GSDP
 Naturally, the private investment has been flowing basically to the high income states
where per capita outlays have been higher and where infrastructure is well developed
 More than half of the share in FDI and foreign technical collaborations were attracted by
the advanced states such as Maharashtra, Gujarat and Tamil Nadu

Enhancement of employment opportunities:

 The extent of unemployment in the country at the start of the planning and its
reduction over the years shows how eradication of unemployment is being undertaken
 As per the 68th round of NSSO;unemployment rate according to Usual Principal Status
(UPS) was 2.7% for 2011-12; while it was 3.7% according to Current Weekly Status
(CWS) and 5.6% according to Current Daily Status (CDS). It implies that high degree of
intermittent unemployment is there in India
 Rural unemployment in the form of seasonal unemployment is higher than urban
unemployment
 Over the years, Govt has introduced different employment generation programmes on
permanent basis sometimes and on majority of times

Reduction in Income Inqualities:

 During the plan period, income distribution in India has been skewed in favour of the
top 20% of people in the country
 In the mid 90s income disparity between the top and bottom levels of the population
was nearly 5 times
 During the whole plan period, income inqualities have not been reduced in India
 In the post reform period, especially last one and half decades income inequalities have
been further widening

Elimination of Poverty:

 During the plan period, various measures have been introduced by the govt to reduce
the problem of poverty in the country.
 Provision of essential food items and kerosene through the PDS at subsidised prices,
rural and urban employment programmes, free education, health and housing facilities
are some key govt programmes in this direction
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 The govt has also proposed food security legislation according to which food at
affordable prices would be made available to the people below the poverty line
 All the estimates state that rural poverty is relatively more when compared to urban
poverty

Modernisation:

 The term modernisation means a variety of structural and institutional changes in the
economic activities
 India has given importance to science, technology and rationalization during the plan
period to improve productivities
 New agricultural strategy in the form of green revolution was introduced in the 3rd five
year plan
 From the 7th plan onwards technological advances were given priority under
modernization

Inclusiveness and sustainability of growth:

 Inspite 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 of growth, increase in rural-urban disparities, increase in income
inequalities across the social groups and increase in the regional disparities.
 Agricultural growth was low in the last 10 yrs and farmer suicides are more evident in
the post-reform period.
By keeping these imp issues in mind , 11 th FYP introduced the objective of
inclusiveness and sustainability of growth
 Inclusive growth is a broader concept covering economic, social and cultural aspects of
development.
The major components of inclusive growth in India are
(i) Agriculture growth
(ii) Employment generation and poverty reduction
(iii) Reduction in regional and other disparities
(iv) Achieving an equitable growth

The objective of inclusiveness is reflected in the adoption of monitorable targets in 12th

FYP. Inclusiveness primarily aims at providing economic benefits to hither to neglected
marginalized sections so that economy can move twds an equitable growth.

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Major challenges in the economy:

 Delivering essential public services to the poor

 Regaining agricultural dynamism and improving the status of farmers with reference to
performance of human development particularly in health and education
 Increasing manufacturing competitiveness to face global competition
 Developing human resources
 Protecting the environment
 Improving governance
 Removing regional backwardness
 Bridging the gap between urban and rural India
 Inclusion of social and marginal groups, women, minorities and children in growth
process
 Women empowerment

Achievements of Planning:

 There is a considerable rise in Net Domestic Product, savings and investment

 Per capita incomes have increased
 India has achieved self-sufficiency in almost all basic and capital goods industries and
consumer goods industries
 Self-sufficiency in foodgrains production is achieved and food security is assured
 There is a good deal of diversification in industrial structure
 The plans have created significant infrastructure particularly in the fields of transport,
irrigation and telecommunications
 There has been tremendous development of educational sector and there has been a
significant geowth in trained scientific and technical manpower. India is one of the
leading nations in IT and space exploration

Failures of Planning:

 Incidence of poverty is relatively high in rural areas

 Unemployment has risen. This is the basic reason for poverty in both urban and rural
areas
 Inequalities of income have not been reduced. They have been widening in the post
reform era
 There is unequal land ownership as land reforms are inadequately implemented
 Regional disparities still persist

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FROM PLANNING TO NITI AAYOG

 NITI  National Institution for Transforming India
 Established by the Govt of India as a replacement for the Planning Commission
 It is formed on the basis of extensive consultations across the stake holders – state
govts, relative institutions, experts and the people at large
 India has undergone a paradigm shift over the past six decades - politically,
economically, socially, technologically as well as demographically. The role of
Government in national development has seen a parallel evolution.
 NITI has not come into existence all of a sudden. The document of 8th five yr plan,
standing committee on finance in its report on demand for grants (2011-12) and
Manmohan Singh accepted in his farewell address to the Planning Commission in 2014
have sought appropriate changes in the Planning Commission

8th Five Year Plan document:

 The very first plan after the liberalisation of 1991 - itself categorically stated that, as the
role of Government was reviewed and restructured, the role and functions of the
Planning Commission too needed to be rethought.
 The Planning Commission needed to be reformed to keep up with changing trends;
letting go of old practices and beliefs whose relevance had been lost, and adopting new
ones based on the past experiences of India as well as other nations.

Standing Committee on Finance of the 15th Lok Sabha

 Observed in its 35th Report on Demand for Grants (2011-12) that the Planning
Commission "has to come to grips with the emerging social realities to re-invent itself to
make itself more relevant and effective for aligning the planning process with economic
reforms and its consequences, particularly for the poor"

Mahatma Gandhi had said:

 "Constant development is the law of life, and a man who always tries to maintain his
dogmas in order to appear consistent drives himself into a false position". Keeping true
to this principle our institutions of governance and policy must evolve with the changing
dynamics of the new India, while remaining true to the founding principles of the
Constitution of India, and rooted in our Bharatiyata or wisdom of our civilizational
history and ethos.

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 Keeping with these changing times, the Government of India has decided to set up NITI
Aayog (National Institution for Transforming India), in place of the erstwhile Planning
Commission, as a means to better serve the needs and aspirations of the people of
India
 The new institution will be a catalyst to the developmental process; nurturing an
overall enabling environment, through a holistic approach to development going
beyond the limited sphere of the Public Sector and Government of India
 At the core of NITI Aayog’s creation are two hubs – Team India Hub and the
Knowledge and Innovation Hub. The Team India Hub leads the engagement of states
with the Central government, while the Knowledge and Innovation Hub builds NITI’s
think-tank capabilities. These hubs reflect the two key tasks of the Aayog.

Functions and Mandates of NITI Ayog:

 Think tank for Government policy formulation.

 Find best practices from other countries, partner with other national and international
bodies to help their adoption in India.
 Cooperative Federalism: Involve state governments and even villages in planning
process.
 Sustainable development
 Urban Development: to ensure cities can remain habitable and provide economic
venues to everyone.
 Participatory Development: with help of private sector and citizens.
 Inclusive Development or Antyodaya: Ensure SC, ST and Women too enjoy the fruits of
Development.
 Poverty elimination to ensure dignity and self-respect.
 Focus on 5 crore Small enterprises– to generate more employment for weaker sections.
 Monitoring and feedback. Midway course correction, if needed.
 Make policies to reap demographic dividend and social capital.
 Regional Councils will address specific “issues” for a group of states. Example: Regional
Council for drought, Left-wing extremism, Tribal welfare and so on.
 Extract maximum benefit from NRI’s geo-economic and Geo-political strength for India’s
Development.
 Use Social media and ICT tools to ensure transparency, accountability and good
governance.
 Help sorting inter-departmental conflicts.

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Structure of NITI:

NITI Aayog will comprise:

 Chairperson: Prime Minister of India

 Governing Council: comprising the Chief Ministers of all States and Lt. Governors of
Union Territories
 Regional Councils: will be formed to address specific issues and contingencies impacting
more than one state or region. Strategy and Planning in the NITI Aayog will be anchored
from State-level; with Regional Councils convened by the Prime Minister for identified
priority domains, put under the joint leadership of related sub-groups of States
(grouped around commonalities which could be geographic, economic, social or
otherwise) and Central Ministries.

Regional Councils will

 Have specified tenures, with the mandate to evolve strategy and oversee
implementation
 Be jointly headed by one of the group Chief Ministers (on a rotational basis or
otherwise) and a corresponding Central Minister.
 Include the sectoral Central Ministers and Secretaries concerned, as well as State
Ministers and Secretaries.
 Be linked with corresponding domain experts and academic institutions.
 Have a dedicated support cell in the NITI Aayog Secretariat

 Special Invitees: experts, specialists and practitioners with relevant domain knowledge
as special invitees nominated by the Prime Minister.

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NITI Ayog’s Full-time Organisational Framework

Chairperson - Prime Minister

Vice-Chairperson
Members: Full-time
(appointed by PM)

Max. 2 Max. 4 Chief

Part time Ex-officio Executive Secretariat
members members Officer

 Prime Minister as the Chairperson

 Vice-Chairperson: to be appointed by the Prime Minister
 Members: full-time
 Part-time Members: maximum of 2, from leading universities, research organisations
and other relevant institutions in an ex-officio capacity. Part time members will be on a
rotational.
 Ex-Officio Members: maximum of 4 members of the Union Council of Ministers to be
nominated by the Prime Minister.
 Chief Executive Officer: to be appointed by the Prime Minister for a fixed tenure, in the
rank of Secretary to the Government of India.
 Secretariat: as deemed necessary

NITI Aayog will aim to accomplish the following objectives and opportunities:

 An administration paradigm in which the Government is an "enabler" rather than a

"provider of first and last resort."
 Progress from "food security" to focus on a mix of agricultural production, as well as
actual returns that farmers get from their produce.
 Ensure that India is an active player in the debates and deliberations on the global
commons.
 Ensure that the economically vibrant middle-class remains engaged, and its potential is
fully realized.
 Leverage India's pool of entrepreneurial, scientific and intellectual human capital.
 Incorporate the significant geo-economic and geo-political strength of the Non-Resident
Indian Community.

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 Use urbanization as an opportunity to create a wholesome and secure habitat through

the use of modern technology.
 Use technology to reduce opacity and potential for misadventures in governance.

The NITI Aayog aims to enable India to better face complex challenges, through the following:

Leveraging of India's demographic dividend, and realization of the potential of youth,

men and women, through education, skill development, elimination of gender bias, and
employment
Elimination of poverty, and the chance for every Indian to live a life of dignity and self-
respect
Redressal of inequalities based on gender bias, caste and economic disparities
Integrate villages institutionally into the development process
Policy support to more than 50 million small businesses, which are a major source of
employment creation
Safeguarding of our environmental and ecological assets

VEHICLE OF GOOD GOVERNANCE

Chanakya had mapped out centuries ago how good governance was at the root of a nation’s
wealth, values, comfort and happiness

NITI Aayog will seek to facilitate and empower this critical requirement of good governance,
which is people-centric, participative, collaborative, transparent and policy-driven. It will
provide critical directional and strategic input to the development process, focussing on
deliverables and outcomes. This, along with being as incubator and disseminator of fresh
thought and ideas for development, will be the core mission of NITI Aayog.

Niti Aayog’s Vision for New India:

With the aim to transform India, NITI Ayog has envisioned an ambitious agenda for the
country to be achieved by 2032. The five year plan will be replaced by a three year action plan
which will be a part of a seven year strategy that will in turn help to realise 15 year long term
vision.

The target set for next 15 years include 3 fold rise in GDP, Rs. 2 lakh increase in per capita GDP
and facilities such as housing with toilets, electricity and digital connectivity for all, a fully

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literate population with unhindered access to health care and a clean India with clean air and
water etc.

What is the need of the hour ??

Today, there is a need to identify and address the challenges faced because of global
environment, consistent poverty within India, regional inequalities etc.

Indian economy will grow at a rapid pace provided certain preconditions are met. When there
is matter of planning and growth, the tendency is to look into investment, capital output ratio
etc. but beyond that, there is a need to look at investment in social capital, human capital
which is badly neglected. There is a need of social harmony in country when news such as
recent killing of CRPF jawans in sukma, unrest in Kashmir shows a warfare going on in certain
parts of country. It is not possible to grow efficiently if there is domestic discord and social non-
harmony.

Challenges :

Employment- Today, India is seeing high economic rate with almost jobless growth. Indian
workforce is increasing every month by 1 million and the jobs getting created are in lakhs.
Without large job creation there isn’t going to be poverty reduction. The challenge to tackle job
less growth and less employment opportunity is going to become worse even at 9% growth
with technological changes.

Education- higher literate population talks about good quality education for all, which means
doubling public investment in education, health care and social protection is required. Lack of
public expenditure in social capital will create long term problems.

Agrarian crisis is visible almost everywhere but there is hardly any steps to protect farmers’
income and building resilience for small rain fed farmers. Every year, knee-jerk or situation
based actions are taken.

Malnutrition is related to all other inequalities, condition of women, adolescent girls, lack of
access to clean water and sanitation, conditions of tribal population.

How to address the current challenges?

The focus has to be on

 3 D- demand, demography and democracy which are inherent to India.

 Inclusiveness- need to focus on inclusiveness by providing health facilities, education for
all and expenditure in infrastructure, agriculture etc.

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 Resilience- the focus has to be on public institutions by strengthening them. Regulating

environment, banking system and management of natural resources important for
resilience.

Funding the development

Earlier, lot of funds used to come to states from central government through two ways-

o Devolution as per finance commission’s recommendation which is 42% of revenue share

of the centre.
o Through special schemes of various union ministries to which any eligible state can lay a
claim and get money.

The NITI Ayog has a system of laying out outcomes to be achieved in healthcare, education and
water management which are thought out in detail. For this, secretaries of departments of
state government, chief secretaries and occasionally CMs are convened by the NITI Ayog to
monitor, evaluate and incentivise. This is happening. But enough money is not going into it. In
healthcare, India spends far less than any other country, just 1% of GDP. There cannot be
sustenance of social capacity that is required to generate the kind of growth expected for 15
years.

The positive impact of Niti Aayog can be seen as

 Cooperative Federalism : The centre and states have been brought on a single platform
with state Chief ministers heading certain committees. Eg. DBT on Kerosense in Andhra
 It has been able identify best practices of certain states and replicate them in others
abandoning the previous top down approach eg. UP’s seed DBT replication, Yantradoot-
Farm Machine rent scheme being replicated
 Various indices such Agri marketing index, Health index have created competitive
environment among states to foster reforms
 The extra constitutional role of Planning commission which usurped the domain of
finance commission has been done away with

Certain issues are

 Its role has become that of think thank whose recommendations are advisory
 Center’s domination and bias in the institution is still persistent as some states don’t
attend center state meetings

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Niti aayog ‘s vision, action and strategy reflects the new aspirational India as

o It has fostered the SETU and Atal Innovation Mission to boost startup ecosystem in India
o Its 3 year and 15 year plans are in line with tangible short term and long term goals for
the nation
o It is overseeing authority for SDG which seek to make India at par with developed
nations
o Its reformative suggestions in the agriculture sector such as land leasing and land
pooling have potential to transform rural India

Though transformed role of Niti aayog has been much appreciated it is accused of being urban
centric organisation with little focus for the rural youth who form the bulk of the young
population of the country towards which it needs to redirect its focus

Guiding Principles

In carrying out the functions, NITI Aayog will be guided by an overall vision of development
which is inclusive, equitable and sustainable. A strategy of empowerment built on human
dignity and national self-respect, which lives up to Swami Vivekananda’s idea of our duty to
encourage everyone in his struggle to live up to his own highest idea”.

Antyodaya: Prioritize service and uplift of the poor, marginalized and downtrodden, as
enunciated in Pandit Deendayal Upadhyay’s idea of ‘Antyodaya’. Development is incomplete
and meaningless, if it does not reach the farthest individual. In the centuries old words of
Tiruvalluvar, the sage-poet, nothing is more dreadfully painful than poverty”.

Inclusion: Empower vulnerable and marginalized sections, redressing identity-based

inequalities of all kinds gender, region, religion, caste or class. As Sankar Dev wrote decades
ago: "to see every being as equivalent to one’s own soul is the supreme means (of attaining
deliverance)". Weaker sections must be enabled to be masters of their own fate, having equal
influence over the choices the nation makes

Village: Integrate our villages into the development process, to draw on the vitality and energy
of the bedrock of our ethos, culture and sustenance.

Demographic dividend: Harness our greatest asset, the people of India; by focussing on their
development, through education and skilling, and their empowerment, through productive
livelihood opportunities.

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People’s Participation: Transform the developmental process into a people-driven one, making
an awakened and participative citizenry the driver of good governance. This includes our
extended Indian family of the Non-Resident Indian community spread across the world, whose
significant geo-economic and geo-political strength must be harnessed.

Governance: Nurture an open, transparent, accountable, pro-active and purposeful style of

governance, transitioning focus from Outlay to Output to Outcome.

Sustainability: Maintain sustainability at the core of our planning and developmental process,
building on our ancient tradition of respect for the environment.

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Five years plans of Andhra Pradesh

 The central planning commission was formulated on 15 March, 1950 to enable the
economy to move forward in a regular and smooth way towards the development .
 One of the main objectives of the ‘planned development’ was to achieve balanced
regional development; and to fulfill that aim different states also gained the approval of
central government to prepare their own plans according to their requirements.
 From then onwards, the state governments, along with the centre formulated their own
plans and started working towards achieving the goals set in them for the progress of
their states.
 This enabled the states to utilize their local resources in required manner to develop
different regions of the state equally and work towards integrated development of the
state, which in turn helps towards the process of the country all over.

STATE PLANNING MACHINERY

 State planning board  formulates plans of the state.

 The Chief Minister of the State works as the Chairman of State Planning Board, while
the state financial and experts work as it members.
 The state planning board contains a chairman, Vice chairman and 6-9 members from the
state government.
 Depending upon the priority of resources of the state, the draft plan of the state is
formulated in tandem with the objectives of the central plans.
 The Chief Minister of the state submits the draft plan before the central planning
commission.
 The state government starts the implementation of the plan after the approval of the
central planning commission.
 If a state has to go ahead in the path of development, implementation of plans, active
participation of people and their co-operation is necessary. That is why the government
needs to review the machinery that plays key role in the implementation of plans.
 Towards this objective, Committees for planned development were formulated at
state, district and mandal level.
 Planning committees were established in each state and district through the 73rd
amendment and additional of clause 243 (J) in the Indian constitution.
 These committee collect the data of new programmes conducted in panchayats and
Municipalities of each district and formulates the draft development plan of the district.

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Structure of the state planning Committee

 This committee is appointed by the state government and is called as state planning
recommendation committee.
 It contains both official and unofficial members.
 The state chief minister acts as the Chairman of the committee, while the minister of
planning is vice chairman and four MLAs and four MPs and 11 experts from different
fields are un-official members in it.
 Along with above, the chief secretary of the state, secretaries of public works, transport,
finance, industry, Co-operative and labour departments are also members of this
committee.
 This committee has the power to appoint different sub – committees to study special
issues according to necessity.

Cabinet committee for planned development

 All the ministers in the state cabinet are members in this committee.
 The commissioner of developmental department acts as its secretary.
 It prepares the state administrative machinery to implement plans and other reforms.

Structure of District Plan Committees

 The district plan and development committee is established to implement plans at

district level.
 The district collector acts as the chairman of the committee.
 District level officers concerned with the planning and development of the district,
members of parliament of the district, MLAs and municipal chairman of the district and
experts from several fields act as members of the committee.
 This committee gives suggestions for the social and financial restricting of the district,
review the implementation of different plan programmes and creates and submits the
development reports to the state government.

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 The committee has the power to appoint sub-committees according to necessity and
also to include un-official representatives from different fields in the implementation of
planning programmes.

Structure of Mandal level planning Committee

 This committee contains 25 members

 They include MPs and MLAs of the mandal, representatives of the panchayat, Co-
operative society, agriculturists, SC and ST societies and social activists.
 This mandal level planning committee reviews the implementation of different plan
programmes at the regional level; invites participation from local leaders and people;
provides information about different development programmes and ensure that they
reach the people in need.

FIVE YEAR PLANS THEIR PRIORITIES, ALLOTMENTS, SUCCESSES AND FAILURES

First Five Year Plan (1951-56)

 The First Five Year Plan of India was implemented between 1951-56
 During this period, coastal Andhra and Rayalaseema regions were in Madras state while
the Telangana region belonged to the Hyderabad state.
 This plan was formulated by the madras state planning commission, according to the
suggestions of central planning commission.
 The Andhra was formed on 1st October 1953, with Kurnool as its capital. So, several
amendments were made to the 1st plan.
 During this plan period, Rs. 64.23 crores were allotted to the Andhra state but Rs. 64.52
were spent.
 As plan allotment funds were not available to the Hyderabad state, half of amount of
Andhra allotments were added to the expenditure and the total plan expenditure
during the first plan period for Andhra Pradesh was calculated as Rs. 96.78 crores
 In 1953 the Hindustan ship yard was inaugurated during this period.
 The Community Development programme (C D P) was inaugurated in 1952.
 In 1954 the Bharat Electronics Limited (B E L) was established in Hyderabad.
 The construction of Nagarjuna Sagar project started on 10 December, 1955.
 The machkhand hydro electricity project, was also inaugurated during this plan period
with the help of odisha government.
 Implementation of family planning programmes was also introduced during this period.
 Production of food grains increased from 39 lakh tones to 55 lakh tones by the end of
this plan.

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 Capacity of electricity production reached to 56 megawatts

 But according to some economics, implementation of first plan in the state was only
imaginary. Though a number of programmes were inaugurated from October 1953 in
the name of five year plan, they were not implemented properly.

Second Five Year Plan (1956-1961)

 The second Five Year Plan was inaugurated by the Indian government on 1st April 1956
and after 7 months the state of Andhra Pradesh was formed on 1st November, 1956
plan funds were allotted to the whole region of new A.P.
 The estimated expenditure of this plan was Rs.179.85 crores while the actual
expenditure was Rs. 188.60 crores.
 Highest priority was given to irrigation sector and second priority was given to the
electricity sector during this plan.
 As first priority was given to irrigation sector, irrigation facilities were provided to 1.810
lakh hectares through heavy and medium water projects and 0.162 lakh hectares
through small water projects (a total of 1.972 lakh hectares).
 Production of pulses reached the peak stage in A.P. during this period and 10% of the
total production of the country was produced here.
 Capacity of electricity production doubled to 14 megawatts during this plan period.
 A.P State Finance Corporation was established in 1956.
 In 1960-61 Integrated Agricultural District Programme, was implemented in 7 districts
in the country. One of the district was west Godavari in A.P.
 Construction of Ramagundam Thermal electricity project and Tungabhadra hydro
electric project started during this plan period.
 The A.P State Godowns Organization was established in 1958
 The mineral development corporation was established by the state government in
1961.
 The APSFC was established in 1956 and APIDC was formed in 1960 for the development
of industries in state.
 The Hindustan Zinc Limited in visakhapatnam and National Building Construction
Corporation in Hyderabad were established in 1960.
 The Praga tools corporation was established in 1959 in Hyderabad for fulfill defence
sector needs.
 Production of food grains increased from 58 lakh tones to 62.65 lakh tones during this
plan period.
 Construction of Machkhand Hydro-electricity project was completed during this period.

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 Improved growth was recorded in education and health sectors.

 On the whole, the second plan period was recorded as a successful period. The
expected growth target was 4.5% was recorded at 4.21%

Third Five Year Plan (1961-66)

 Implemented between 1961-66.

 It was the first plan in which allotments were completely provided for the integrated
state of A.P.
 In this plan Irrigation, Electricity and social and community services were given priority.
 Estimated plan outlay was Rs.326.79 crores while the actual expenditure was
Rs.352.42 crores.
 Maximum share was given to irrigation sector with 35.32% of the total expenditure
while second priority was given to electricity sector with 26.56% of total allotment.
 Third priority was given to social and community sector with 15.18% agriculture and
allied sectors 6.35%, transport and communications 4.82% and industry and mines
4.31% share was allotted.

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 As irrigation sector was given highest priority in the 3rd five year plan also, irrigation
facilities were provided to 3.680 lakh hectares through heavy and medium irrigation
projects and to 0.612 lakh hectares through small projects (total of 4.178 lakh hectares)
 In 1965, the IADP was extended and its name changed to Intensive Agriculture Area
Programme and was introduced in 114 districts, country wide. It was introduced in 117
blocks in A.P.
 While the AIADO was experimentally introduced in West Godavari district, as the IAAP,
it was extended to East Godavari, Krishna, Guntur, Warangal, Karimnagar and
Mahabubnagar.
 State Agriculture university was established in Hyderabad in 1964
 Construction of Andhra Paper mill in Rajahmundry was completed in 1964.
 The first sheep form of the state was established at Kavali of Nellore district
 Indian Drugs and Pharmaceuticals Limited (IDPL) was established at Hyderabad in 1961.
 Bharat Heavy Electricals Limited (BHEL) was established at Hyderabad in 1963.
 Cement Corporation of India was established at Erraguntla, Kadapa and Adilabad in
1963.
 Hindustan Aeronautics Limited (HAL) and Modern food Industries were established at
Hyderabad in 1965.
 Bharat Heavy Plates and Vessels (BHPV) Limited was established at Visakhapatanam in
1966.
 Because of wars with China in 1962 and Pakistan with 1965, this plan did not succeed as
expected. It’s estimated growth was 5.6% but the achieved growth is only 2.72%.
 Wars with neighbouring countries, intense drought conditions, inflation and others
forced the central government to postpone the formulation of 4th five year plan and
instead of it, three annual plans between 1966-67, 1967-68, 1968-69 were implemented
i.e. a three year plan holiday was observed.
 In the above annual plans central allotments constitute 69% i.e., Rs. 163 crores.
 During annual plans period, a soil fertility protection centre and oil research centre
were established at Anantapur.
 Milk cold storage centre was established at Gudlavalleru of Krishna district.
 Veterinary biological research institute was founded at Hyderabad and Bacon
(processed pork) factory was established at Gannavaram near Vijayawada.
 Srisailam hydro electric project construction started in 1968.
 Women’s polytechnic college was started at Guntur and three PG centre were
established at Warangal, Guntur and Anantapur.
 Rani Chandramathi hospital construction started at Visakhapatanam and the Koti eye
hospital was established at Hyderabad.

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 Sanatnagar industrial estate was established at Hyderabad for small scale and cottage
industries.
 Government glass and china factory was founded at Gudur.
 ECIL and HMT factories were established at Hyderabad in 1967.
 Rural Electrification Corporation (REC) was founded at Hyderabad in 1969.
 Hyderabad milk project started production from 1967.

Fourth Five Year Plan (1969-74)

 After implementation of three annual plans the Fourth Five Year Plan was put into
implementation from 1969 as the economy almost returned to normal position in the
country.
 The fourth five year plan draft noted that the problems of unemployment and poverty
continued in the country inspite of the implementation of plans.
 This led the Prime Minister Indira Gandhi to give the slogon of ‘Garibhi Hathao’, abolish
pensions to ruler and nationalization of banks.
 In this five year plan, first priority was given to electricity sector and second priority to
irrigation sector.
 During this plan period, irrigation facilities were provided to 1900 lakh hectares
through heavy and medium irrigation projects and to 0.630 lakh hectares through small
projects.
 Irrigation was given first priority in second and third five year plans but in the fourth
plans, electricity sector was given prominence.
 This plan suggested that 10% of the State plan outlay should be allotted to backward
regions. It noted that in A.P. these were to spent in 5:3:2 ratio amoung Telangana,
Rayalaseema and Coastal region.
 Cabinet Sub-committee for the development of Telangana: In 1969, the A.P.
government appointed a senior officials committee at the cabinet level to solve the
Telangana problem, according to the Prime Minister’s 6 point formula. The
responsibility of this committee was to formulate development schemes for Telangana
regions and supervise their implementation.
 Rayalaseema Development Board: The government formed a Rayalaseema
Development board in 1969-70. It’s chief objective was to make the people’s
representatives of the region participate in the developmental schemes actively and
also to review their implementation and allotment of funds.

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Special schemes proposed by the Centre

 The Central government proposed several special schemes to implement during this
plan period, in order to decrease regional imbalances and provide social justice. They
are –
 Drought affected areas development programme was introduced in 1973.
 Small farmers development agency was established in 1970.
 Bharat Dynamics Limited (BDL) was established in 1970 at Hyderabad.
 ICRISAT was set up at Hyderabad in 1972, with the help of United Nations.
 Nagarjuna Engineering College was founded in 1965, which was converted to JNTU in
1972.
 Leather industries development corporation of AP was set up for the development of
leather sector.
 The AP Industrial Infrastructure Development Corporation was established.
 As the high inflation continued and separatist tendencies turned into movements,
expected development did not occur during this plan.
 The expected growth rate was 5.7% but the achieved rate was only 2.05%.

Fifth Five Year Plan (1974-79)

 This plan was implemented vigorously so as to speed up the economic development

process extensively as far as the state of A.P. was concerned.
 This plan was inaugurated with the chief objectives of abolition of poverty and
achieving self sufficiency.
 This plan was cancelled one year before its term I.e., in 4 years.
 Electricity and irrigation sectors were given highest priority.

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 Allotments of the plan were Rs. 1353.76 crores while total expenditure was Rs. 1441.71
crores.
 It was decided to complete Nagarjuna Sagar, Pochampadu, Tungabhadra upper canal,
Vamsadhara and Godavari barrage projects during this plan period.
 The minimum needs scheme was introduced during this plan and was allotted Rs. 177
crores.
 In 1975 the 20 point formula, announced by the PM Indira Gandhi. It was implemented
in A.P.
 Co-operative consumer stores and super bazaars were introduced to provide daily
necessities to low income groups in lowest prices.
 According to the 6 points formula of Indira Gandhi, a total of Rs.90 crores (Rs. 18 crores
per year) were allotted for the development of backward regions and an additional Rs.
5 crores to development of the twin cities Hyderabad and Secunderabad by the Centre.
 Hyderabad Urban Development Agency (HUDA) was established for the development
of twin cities.
 To develop the ayacut under major irrigation projects (under constructions) speedly, the
Command Area Development Authority (CADA) was established in August 1974.
 The A.P. Irrigation Commission was set up in 1974.
 The World Bank provided 45 million dollars loan for the construction of Godavari
barrage under the condition of completing it with in four years. The bank also provided
loan to Srisailam project, to convert it into a multi level project.
 The modern dairy industry under co-operative sector was established at Visakhapatnam
while a milk dairy was set up with the help of National Dairy Development Corporation
at Sangam Jagarlamudi of Guntur district.
 Hyderabad Central University was established in 1975-76.
 In 1976, the Nagarjuna University at Guntur, Sri Krishnadevaraya University at
Ananthapur and Kakatiya University at Warangal were established.
 In 1975, the Misradhatu Nigam limited (Midhani), National Thermal Power Corporation
(NTPC), Computer Maintenance Corporation and Dregding Corporation of India limited
were established in Hyderabad.
 Hyderabad TV station was set up in 1977.
 Centre for Cellular and Molecular Biology (CCMB) was established at Hyderabad in
1977.
 National Academy of Agriculture Research Management was established at Hyderabad
in 1976.
 AP State Planning Commission was established during this plan period.
 AP Forest Development Corporation was set up in 1975.

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 This five year plan was cancelled one year before it’s term.
 The estimated growth rate of this plan was 4.4% while the achieved rate was 4.483%
which proves that it was a successful plan.

Sixth Five Year Plan (1980-85)

 For the first time, social and community service sector was given first priority in this
plan.
 Outlay of this plan was Rs. 3,100 crores, while actual expenditure was Rs. 3,237 crores.
 In fact first priority in allotments was given to irrigation sector but actual expenditure
was higher in community services. So it had been considered as the first priority of the
plan.
 For the first time, decentralized planning system was introduced as district level during
this plan period. As a part of this, Rs. 23 crores were allotted to 23 districts (one each).
 District Planning Councils were also established.
 For the first time, a non-congress government had come to power in A.P. during this
plan period.
 The 15 point programme ‘Pragati Patham’ was introduced for the development of lower
castes in 1983.
 Rs. 2 kilo rice programme was introduced in 1983.
 The new 20 point financial scheme was introduced to increase wages and others for
weaker sections and economically backward communities so as ti improve their
standard of living.
 The Southern Pesticides at Kovvur and a sponge iron plant at Palvancha were set up in
1980.
 The Visakha Steel Plant was constructed in Visakhapatanam in 1982.
 The IRDP, NREP and RLEGP schemes were implemented in the state.
 Expected growth rate of the 6th five year plan was 5.2% and the actual achieved rate
was 5.54%.

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Seventh Five Year Plan (1985-90)

 It was the first five year plan which had given higher allotments to social and
community services.
 It was implemented to speed up the growth and development rate of the state of A.P.
in an extensive way.
 Objectives at the national level were to increase work and productivity in all sectors.
 The plan outlay was Rs. 5560 crores while the actual expenditure was Rs. 5978 crores.
 Irrigation sector was given second priority in this plan.
 Irrigation facilities were provided to 0.892 lakh hectares through major and medium
projects and to 0.668 lakh hectares through small projects (a total of 1.560 lakh
hectares)
 District level plans were formulated during this plan period.
 Development funds were specially allotted to districts.
 Development funds were allotted to rural areas through ‘Telugu Grameena Kranti
Patham’, which was introduced in 1985-86.
 Scholarship were granted to students through ‘Telugu Vignana Parithoshikam’ scheme
to encourage merit students.
 The ‘Telugu Giri Women training Pranganams’ were set up to provide trining to 200
poor women who had no other means of living from each district.
 The ‘Single Window’ system was introduced in 1987 to provide loans to farmers under a
single umbrella, through cooperative sector, according to the recommendations of
Mohan Kanda (IAS Officer).
 Telugu Ganga scheme, intended to provide drinking water to the state of Tamil Nadu
was inaugurated.
 The Ichampally, Bhima and Pulichintala irrigation projects were started as a new
schemes under major irrigation department.

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 AP Beverages limited was established in 1986.

 An additional electricity production capacity of 669 mega watts was achieved by the end
of this plan.
 Total food grain production by the end of this plan was 120 lakh tones.

Eighth Five Year Plan (1992-97)

 For the first time in the history of planning human resources sector was given highest
priority in this plan.
 It was also the first plan to be implemented in the background of economic reforms in
the country.
 Chief objectives of this plan were – to implement population control measures, to
increase job opportunities, to reduce illiteracy and provide drinking water and health
facilities to all.
 Allotment to the plan were Rs.11,845 crores, while actual expenditure was Rs. 13,606
crores.
 Thought highest funds were allotted to irrigation sector, actual expenditure on
electricity sector was more than irrigation.
 0.467 lakh hectares were provided with irrigation facilities through major and medium
scale projects, while 0.245 lakh hectares were provided with irrigation facilities through
small scale project. (A total of 0.706 lakh hectares.)
 The ‘Governance towards people’ programme (Prajala Vaddaku Palana) was
inaugurated on 1st November 1995.
 ‘Sramadanam’ scheme was inaugurated on 1st January 1996.
 Chief Minister’s ‘Yuvasakti ‘ scheme was inaugurated on 1st December, 1996.
 Following the Central orders, the state government of AP also implemented marco
economic stabilization efforts.
 Reforms regarding treasury, electrically and administration were also introduced.
 Two schemes namely- ‘Prajala Vaddaku Paalana’ and ‘Sramadaanam’ scheme called
‘Janmabhoomi’ on 1st January, 1997. (This scheme was based on the ‘semal anudong’
programme of South Korea.
 In 1995 Hiten Bhayya Committee was appointed on ‘reforms in electricity sector’ in AP.
 For the first time, electricity production plants were set up in private sector in AP
during this plan period.
 First private sector power plant was established at Jegurupadu of East Godavari district.
 In 1996, additional power of 1408 megawatts was produced in the state and 210
megawatts of power was produced in private sector for the first time.

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 Target growth rate of 8th plan was 5.6%, while the achieved actual rate was 6.68%.

Ninth Five Year Plan (1997-2002)

 Highest priority was given to electricity, irrigation and community services respectively
in the 9th Five Year Plan.
 Improvement and introduction of protected water schemes, housing schemes,
establishing primary health facilities, distributing nutritive food to children at primary
school level, improving public distribution system and others were taken up during thi
plan period.

Chief Objectives

 Though irrigation sector was given third priority, 1.924 lakh hectares were provided with
irrigation facilities through major and medium projects and 0.462 lakh hectares were
provided with water facilities through minor/small projects (a total of 2.376 lakh
hectares).
 Allocation for special regional development schemes and social schemes like
‘Janmabhoomi’ were increased in this plan.
 Irrigation societies were formed in June 1997 and their responsibility was handed over
to farmers.
 ‘Watershed Scheme’ was inaugurated in 1997.
 The ‘power sector reforms Act’ was introduced in 1998, depending upon the
recommendation of Hiten Bhayya Committee.
 The ‘Clean and Green’ (pachadanam-Parisubhrata) programme was introduced in 1998
and the ‘Mundugu’ scheme for the improvement of scheduled castes was also
introduced in the same year.
 ‘Adarana’ scheme for professional workmen and ‘cheyutha’ scheme for handicapped
persons were also introduced in 1998.
 The AP Electricity Regulatory Commission was formed in 1999. The AP State Electricity
Board was divided into APGENCO and APTRANSCO in the same year.
 ‘Chaitanyam’ scheme for the development of tribals and ‘Roshni’ scheme for the
development of minorities were introduced in 1999.
 The ‘Vision 2020’ document, targeted to develop the state as ‘Swarnandhra Pradesh’
was released on 26 January, 1999. It was jointly formulated by the AP State government
and McKensy Organisation.
 The slogan of ‘Vision 2020’ was ‘Think globally; Act locally’. It’s targeted to provide
cooking gas at lower price for BPL women was inaugurated in 1999.

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 ‘Velugu’ scheme was introduced to remove poverty in 2000. Women’s group were
formed under this Scheme.
 ‘Sukhibhava’ programme to provide medical help to pregnant woman was also
introduced in 2000.
 ‘Neeru-Meeru’ programme to protect and increase under ground water was introduced
in 2000, which intended to store rain water and improve underground water.
 In the same year, electricity transmission section was separated from electricity
distribution section. For this four transmission organizations were set up statewide
1. APEPDCL - Visakhapatanam
2. APCPDCL - Hyderabad
3.APNPDCL - Warangal
4.APSPDCL - Tirupati

 While targeted growth rate of this plan was 6.5% actual achieved rate was 5.5%.
 The ‘Kisan Credit Cards’ were issued starting from 1998, to provide easy and faster
loans to farmers of the state, under the guidelines of NABARD.
 The ‘Capital Intensive Subsidy Scheme for cold storages’ was introduced in the state
from July 1999.
 ‘Mana TV’ was inaugurated in 2001 by the state government through KV band, to
establish satellite communication network in the state.

Tenth Five Year Plan

 Tenth five year plan was implemented in a way to speed up the economic growth
process of the state in A.P.

 Chief objectives of the plan – to decrease economic imbalance, providing primary

education to all by 2010; achieving development in per capital and macro income of the

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state in different sectors; measures to control population growth and achieving

complete literacy.
 At first only Rs. 46,661 crores were allocated to state for 10th plan, but later, the
planning commission amended it by adding 49% additional fund allocation, which
increased the total allocations to Rs. 69,511 crores. The total actual expenditure was Rs.
6,177 crores.
 Irrigation sector was given first priority, while community services and power sectors
were given second and third priorities respectively.
 ‘Jalayagnam’ programme was inaugurated during this plan to provide irrigation to one
crore acres and to stablise irrigation facilities to 21 lakh acres. As a part of this, 41 major,
25 minor irrigation projects were proposed. Irrigation was provided to 16 lakh acres.
 As ‘Jalayagnam’ programme was inaugurated, high priority was given to irrigation
sector.
 Co-operative tribunals were set up at Visakhapatnam and Warangal in 2003.
 The A.P. Micro irrigation programme was introduced in 2003 to protect underground
water and to encourage micro-irrigation.
 ‘Raitu Mitra’ groups were introduced in June 2003.
 Kasturiba Gandhi girls schools were introduced in 2004-05.
 Social services was given second highest priority, in which highest allocations were
given to SC, ST and Minority welfare.
 ‘Rajiv Pallebaata’ programme was inaugurated in 2004 at Chevella of Rangareddy
district to understand problems of people at grass roots level.
 ‘Rajiv Yuvasakti’ scheme was also introduced in 2004 to provide easy access to
government services to rural people. A voluntary organization called ‘Times’ took the
responsibility of setting these centres up through Bharat Electronics Limited (BEL).
 Miryalaguda of joint A.P., was selected to implement the ‘pura’ scheme of Central
Government, inaugurated in 2004.
 The ‘contributory pension scheme’ was implemented for government employees, who
joined in service after 1 September, 2004.
 The family planning insurance scheme was introduced in 2004-05.
 A scheme called ‘Indira Prabha’, was introduced in 2004 at allot assigned lands to poor
and also to develop them. This was an integrated land development scheme
inaugurated at Sirigan-dayapalem of Guntur district.
 ‘Pavala Vaddi’ scheme was introduced in 2004 to benefit self help groups.
 Velugu and Dwacra schemes were merged to start a new programme called ‘Indira
Kranthi Patham’, which was intended to improve the conditions of rural poor. This
scheme was implemented by the ‘society for elimination or rural poverty’.

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 ‘Rajiv Nagara baata’ programme was introduced in 2005 at Rajendranagar of

Rangareddy district, in order to enquire about the problems of people in Urban areas
directly.
 Programmes by Agriculture technology management agency were implemented in all
states and UTs from 2005 by the Central government.
 Irrigation facilities were provided to 3.2 lakh hectares by the end of this plan.
 The ‘Akshara Bharati’ scheme was introduced in October 2004 to increase literacy in
State.
 The ‘Rajiv Abhyudaya Yojana’ scheme was introduced between 2005-069 and 2012-03
in order to improve the economic level of people who were dependent on their caste
profession.
 ‘Jawahar Knowledge Centres’ (JKCs) were set up in every district in order to improve
working skills of engineering students.
 ‘Badi baata’ intended to bring back drop outs was implemented in 2005.
 For the first time land distribution programme was inaugurated in 2005 in A.P.
 The ‘Polam badi’ (farm school) scheme was introduced in June 2005, which to teach
integrated farming management skills and systems to farmers, like regular check up of
fields so as to protect natural pesticides and etc.
 The ‘ATMA’ scheme (Agricultural Technology Management Agency) was inaugurated in
June 2005.
 The ‘Rajiv Grihakalpa’ scheme, intended to build houses for low income groups in urban
areas was inaugurated in 2005 at Rajendranagar near Hydaeabad.
 The ‘Ambedkar Jeevanadhara’ programme was inaugurated on 14 April, 2005, in order
to provide Drinking water to dalit colonies.
 108 services set up in 2005.
 To improve the living conditions of rural people, the ‘INDIRAMMA’ (Integrated Novel
Development in Rural Areas and Model Municipal Areas) scheme was started in April
2006.
 The Indiramma women employment scheme (Mahila Upadhi Pathakam) was
inaugurated in 2006 to provide loans for self employment to women.
 The ‘Prajapatham’, intended for MLAs and ministers to go to people directly and
enquire about their problems was inaugurated in 2006.
 The National Rural Employment Guarentee Scheme (NREGS) was also inaugurated in
2006.
 Production of food grains increased to 169.5 lakh tones by the end of this plan.
 Additional power production capacity acquired by the end of this plan was 1906
megawatts.

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 Recorded power production by the end of this plan was 12,129 megawatts.
 The Indiramma pond scheme (Indiramma Cheruvu Pathakam), intended to get repairs
done to pond in rural areas and also to create employment to the poor was inaugurated
in January 2007.
 Targeted growth rate for the 10th five year plan was 6.8% while the achieved actual rate
was 7.42%.

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11th Five Year Plan (2007-2012)

 The 11th five year plan was implemented between 2007-2012 Andhra Pradesh was in
the second place after Uttar Pradesh in the states.
 The social sector was given first priority and in it, education was given highest
importance in this plan.
 ‘Inclusive and fast development’ was the slogan of the 11th plan.
 The Central Planning Commission ordained 27 objectives in this plan at national level,
while at state level 13 objectives or targets were set up.
 In the 11th plan, targeted state level GDP rate was 9.5%, while the achieved rate was
5.28%.
 Targeted growth rate of industrial sector was 10% , while actual achieves rate was
7.26%.
 Targeted growth rate of industrial sector was 11%, while actual achieved rate was
9.81%.
 By the end of the plan period per capita income of state was recorded as Rs, 68,970,
which was higher than the national per capita income.
 Share of agriculture and allied sectors in the state GSDP was 21.27%.
 ‘Rashtriya Krishi Vikas Yojana’ inaugurated in 2007 by the centre, was allotted Rs. 1862
crores.
 Rs. 607 crores were spent on National Horticulture Mission, which was inaugurated on
3 November, 2005.
 The Mahatma Gandhi national Rural Employment Guarantee Scheme (MGNREGS) was
rejunevated in this plan period in AP, by creating 100 working days in a year. This
benefitted 55 lakh families in 22 districts. Rs. 18,981 crores was spent for this scheme
during 11th plan period.
 Expenditure on ‘Indira Awas Yojana’ (1985) during this plan was Rs. 4996 crores.
Objective of this scheme is to construct houses to rural poor, SC and ST communities.
 The ‘Arogyasri’ programme was inaugurated by the government of AP on 1 April, 2007.
 Rs. 403 crores was spent on Nirmal Bharat Abhiyan Scheme, which was intended to
construct lavatories for families who living with out them.
 Rs. 2562 crores was spent on ‘Pradhanamantri Gram Sadak Yojana’ which was intended
to built roads to raodless villages.
 Rs. 11,785 crores was allocated in this plan to construct 56 project as a part of the
‘Accelerated irrigation benefit programme’ (1996).
 Rs 886 crores was allocated to A.P. for Rajiv Gandhi electrification scheme, commenced
by the Centre in 2005. The scheme was intended to provide electricity to rural areas.

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 ‘Abhaya hastam’ scheme was commenced in 2008, intending to provide economic

freedom to women.it’s name was changed to YSR Abhaya Hastam’ in 2009.
 The second stage of Arogyasri scheme was commenced in 2008.
 The second rural IIITs were inaugurated in 2008. These are working under the Rajiv
Gandhi University of Knowledge Technologies.
 A special fund called the A.P. Rural Development Fund was established in 2008 to
improve rural roads in the state.
 The AP Fiscal responsibility and Budget management Act was passed in 2009.
 The ‘Palle Pilupu’ scheme was commenced in 2009.
 ‘Pasukranti Pathakam’ was inaugurated in 2007.
 ‘Indira life insurance scheme’ was also commenced in 2007.
 The Rs. 2 per kg rice scheme was implemented in 2008.
 Rachha banda scheme was commenced in 2011.
 The ‘Women fund’ (Stree nidhi) scheme was inaugurated in 201 to provide interest free
loans to members of self help groups.
 Conferences for woman farmers (Raitu Mahila Sadassulu) were commenced in 2011 to
bring about awareness in about agriculture among children.
 ‘Indira Jalaprabha’ scheme, intended to develop 10 lakh acres of waste land that
belonged to SC and STs was inaugurated in 2011.
 The ‘Rajiv Yuva Kiranalu’ scheme, intended to provide employment to 15 lakh youth
was commenced in 2011.
 Targeted growth rate of 11th five year plan was 9.5% and actual achieved rate was
8.18%.

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12th Five Year Plan (2012-2017)

 This plan was inaugurated on 1 April, 2012.

 It’s main objective was ‘speedy, sustainable and organized growth’.
 Other than the above objective, it was intended to increase the economic growth to 9%;
agricultural growth to 4%, Industrial growth to 9.56%, Service sector growth to 11.5% in
the policy document of the plan.
 While targeted annual growth rate in twelth plan is 9.0%.
 It was also decided to keep the continual growth rate stable; reduce fiscal deflect abd
develop physical, social and infrastructural facilities.
 The policy document also visualized – achievement of 100 percent literacy;
universaliation of secondary education and increasing enrolment ratio to 20% through
it, by 2017.
 It was decided to work for the increase of expenditure on public health from 1.3% to 2 –
2.5% of the GDP.
 Along with that, to increase expenditure on infrastructure, irrigation, watershed
management, allocating funds for urban infrastructure and increasing them to 0.7% of
the GDP.

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 Increasing capacity of nuclear power to one lakh megawatts and at the same time
maintaining continual security standards.
 It was decided that policy of foreign direct investment and also trade policies shall be
more liberalized so as to increase FDIs.
 To take proper action for the development of manufacturing sector so as to increase
employment opportunities; growth rate in this sector should be 11-12%.
 To improve agriculture infrastructure and extended the Programme ‘Rashtriya Krishi
Vikas Yojana’ to developing the Agricultural sector.
 To limit subsides on LPG, Kerosene to the below Poverty line category of people.
 The ‘Indiramma bata’ scheme, was launched in 2012, for the chief minister, MLAs to
visit their constituencies and monitor the implementation of government schemes.
 The ‘Rajiv Vidya Deevena’ scheme invented to provide education to weaker sections
was also inaugurated in 2012.
 The ‘Indiramma Amrita hastam pathakam’ intened to Provide nutrious food to
Pregnant and lactating women was also introduced in 2012.
 The ‘Eruvaka Purnima’ scheme was introduced in June 2012 at the beginning of South-
West Mansoons, Which was intended to make farmers use modern implements in
farming to get high Production rates.
 The ‘Rupanthara Pathakam’ which was intended to create infrastructure facilities in
Ashrama school of tribal welfare department, was introduced in December 2012.
 ‘Chinnari Chupu’ scheme intended to test the eye sight of students of government
school and Provide spectacles and medicines where necessary was introduced in
October 2012.
 ‘Mana biyyam’ (our rice) scheme, which was intended to Procure Paddy locally through
civil supplies department and after milling

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TARGETS AND SCHEMES IN TWELTH PLAN

The Central Government recognized 25 monitorable targets, while the A.P State government
recognized 50 monitorable targets as State target

 Target GSDP of the State - 10%

 Target Growth rate of agriculture sector - 6%.
 Target growth rate of industrial sector - 10.5%
 Target growth rate of services sector - 11.5%

 To decrease percentage of poverty to 12% by the end of plan.

 Cultivation of ‘sri’ type of Paddy in 10 lakh hectares.
 Increasing Paddy Production from 131 lakh tones to 216 lakh tones.
 Increasing production of food grains from 204 lakh tones to 300 lakh tones.
 Increasing Production of pulses from 19.7 lakh tones to 24.2 lakh tones.
 Construction of cold storage units and establishment of mega food pack in every district.
 Increasing Production of fisheries sector from 16.5 lakh tones to 22.5 lakh tones.
 Increasing milk production from 120 lakh tones to 240 lakh tones through state milk
mission.
 Providing irrigation facilities to on additional 78.9 lakh acres.
 Encouring women’s (self help) group by enrolling 1.45 crore women as members.
 Providing employment to 37 lakh people in textiles, IT, Tourism, construction, health
Services and Food processing sector.
 A ‘Sub-Plan’ was introduced in 2013 for the development of SCs and STs.
 To provide sanitation facilities and protected drinking water to 21,700 village
Panchayats; and to establish school anganwadi centers.
 To increase literacy in the state to 86%. Distributing it through government ration shops
or PDS Outlets, was introduced in 2013
 The ‘Indiramma kalalu (dreams) scheme was introduced in April 2013, to propagate the
goals of the SCs and STs sub plan Act state wide.
 The ‘Amma hastham’ scheme intended to Provide daily necessities to white ration card
holders for low prices was introduced in April 2013.
 The ’Bangaru talli’ scheme, intended to increase the number of girls (and gender ration)
in state, inaugurated in June 2013. This scheme is applicable to girls born after 1 May
2013 in families of white card holders in the state.

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 The ‘Sree nidhi bank’ was established with a capacity of 1000 crore Rupees in
September 2013, according to the A.P cooperative societies Act- 1964.
 ‘Mee dabbulu mee chethiki’ (your money in your hands) scheme, which is on Adhar
Card based money transfer scheme was introduced in March 2013.
 To Prevent child mortality, schemes called ‘Sisu Sanjivini’ ‘Akshaya’ and Amma laalana
were Introduced in August 2012 under the supervision of medical and health
department.
 The Gas Money transfer scheme for LPG gas consumers was inaugurated in June 2013.
 ‘Polam Pilustondi’ scheme was inaugurated in August 2014.
 ‘Swatcha Andhra Pradesh’ ‘Neeru-Chettu’ and ‘NTR sujala Sravanthi’ schemes were
inaugurated on 2 October 2014.
 The ‘Indiramma’ scheme was changed into the ‘NTR housing board’ scheme.
 The A.P Cabinet had decided to change the name of ‘Rajiv Arogyasri’ scheme to ‘NTR
Vaidyaseva’ (Medical services) in November, 2014.
 ‘Badi Pilustondi’ scheme was introduced to enable all children between the age of 6 –
14 was introduced.
 The ‘Indira Jala Prabha’ scheme was changed to ‘NTR Jalasiri’ in April 2015.
 ‘Roshini’ ,‘Dukan-Makan’ and other schemes intended for minority welfare were
renovated.
 Along with them a scheme called ‘Dulhan’ was introduced in April 2015, which is
intended to Provide Rs.50,000 to Muslim brides at the time of their marriage.
 The A.P government announced three schemes- namely ‘Mata Sisi traking syatem’,
‘Giri gorumuddalu’ and ‘E-Arogyam’ on 15 August 2015.

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National Income

What do you mean by “Economics”

 The word ‘Economics’ originates from the Greek word ‘Oikonomikos’; Oikos (means
‘Home’) + Nomos (means ‘Management’)’means Home management.

Let’s make it simple

Study of human activity  satisfy needs and wants

What exactly is “Economics” in our daily life

 Economics is the study of how people and society end up choosing, with or without the
use of money, to employ scarce productive resources that could have alternative uses to
produce various commodities over time and distributing them for consumption, now or
in the future, among various persons or groups in society.

 It analyses costs and benefits of improving patterns of resource allocation.

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For better understanding of economics  need to understand "THE CONCEPT OF SCARCITY"

and "MICRO AND MACRO ECONOMICS"

Concept of Scarcity:

 Scarcity- tension b/n limited resources and individual's unlimited wants and needs
 Individual - resources  time, money and skill
 Country- resources  natural resources, capital labour forces and technology

Micro Economics:

 Supply and demand interaction in individual markets for goods and services
 Examines the economic behaviour of individual actors  consumers, business-man,
households in the face of scarcity and what effects they have

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Macro Economics:

 How the overall economy works

 Studies - employment, GDP, inflation , govt policy debates
 Studies economy as a whole and its features like national income, Employment,
poverty, balance of payments and inflation

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What do you mean by “Economy”

 The term Economy means the state of country or region in terms of the production and
consumption of goods and services and the supply of money.

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Types of Economy

Traditional economy:

 Very little govt involvement

 Allocation of resources based on rituals, habits or customs
 Economic roles  family and people work together for the common good
 Very little individual choice in this system
 Ex: tribes in Amazon, Aborigines in Australia etc

Free market economy:

 Very little govt control

 Economic decisions based on market principles
 Lot of competition between firms >> many choices to consumers
 Resources for production are under private ownership and they make their decisions
with the desire to maximise profits.

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 There are no pure free market economies, United States and Australia come close to
this type

Command economy:

 Resources of production are completely under govt control

 These economies are run based on central planning
 Due to lack of competition, resource allocation is inefficient and consumers have very
little choices
 Ex: Former Soviet Union, Cuba, North Korea etc.

Mixed economy:

 Combination of public sector and private sector units

 Govt is the decision maker for the public sector
 Individuals and businesses for private sector
 Basically incorporates governmental involvement in a market based economy
 Ex: India, Russia and UK

Open economy:

 Trade with other economies

 Market is mostly free from trade barriers >> exports and imports form of a large
percentage of the GDP
 The degrees of the openness of an economy determines govt's freedom to pursue
economic policies of its choice and the susceptibility of the country to international
economic cycles

Closed economy:

 No trade or trade area with other economies

 Consumer get everything within the economic borders and govt act as the arbitrator,
articulator and facilitator

Capitalist economy:

 Capitalism - basic economic system based on private or corporate ownership of

production and distribution of goods.
 Capitalists favour a system of free enterprise which means the govt does not interfere
in the economy that the laws of supply and demand will make sure that the economy
runs most efficiently in meeting people's needs.

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 Capitalism is characterised by competition in which there is rivalry in supplying or

getting an economic service or good

Socialist economy:

 Socialism is an economic theory or idea that states the govt or the state should be
incharge of economic planning , production and distribution of goods
 Socialism tends to favour cooperation whereas capitalism is characterised by
competitions
 Communism advocates class struggle and revolution to establish a society of
cooperation with strong govt control
 Communism predominated in the former Soviet Union and much of eastern Europe at
one time.
 Today it predominates in China and Cuba, but its influence has lessened

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Salient Features of Indian Economy

Mixed Economy

 India is a mixed economy.

 In a mixed economy, public sector (government-owned) business enterprises exist
alongside the private sector to achieve a welfare state with socialistic pattern of
society.
 Ever since independence, India’s economic development has been guided by the twin
objectives of developing:
(a) a rapidly and technologically progressive economy by democratic means; and
(b) a social order based on justice, offering equal opportunity to every citizen of the country.

Dominance of Agriculture and Heavy Population Pressure on Agriculture

In India, almost 60-70% of the total population still resides in rural areas and hence they
depend on agriculture for their livelihood.

Over-Population

 India is over populated.

 In every decade Indian population gets increased by about 20%
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 During 2001- 11, population increased by 17.6%. With this high growth rate of
population about 1.7 crore new persons are added to Indian population every year.
 According to 2011 census, the total Indian population stands at a high level of 121.02
crore which is 17.5% of the world’s total population which is second largest population
of the world.
 To maintain this 17.5% of world population India holds only 2.42% of total land area of
the world.

Unbalanced Economic Development

India has not yet achieved the goal of balanced economic development. According to latest
data available about 64% of total labour force is dependent on agriculture, 16% on industries
and the rest about 20% on trade, transport and other services.

Low rate of capital formation

 Another basic characteristic of the Indian economy is the existence of capital deficiency
which is reflected in two ways –
 firstly, the amount of capital per head available is low; and secondly, the current rate of
capital formation is also low.

Lack of Infrastructure Facility

There is a lack of physical infrastructure (i.e. road electricity, banking, transportation, insurance,
energy) and social infrastructure(i.e. education, health, housing, drinking water, sanitation) that
hinders the development process of a country.

Poor Economic Organisation

 Another important feature of the Indian economy is poor economic organisation.

 Certain institutions necessary for economic development are not adequately developed.
 For instance, to mobilise savings and more especially the savings of the rural sector, the
creation and development of financial institutions is essential.
 India suffers from inadequacy of financial institutions in rural areas.
 Similarly, India being a country of a large number of small farmers, the development of
certain agencies of credit for granting loans to farmers on easy terms is needed.
 Likewise, to provide medium and long-term loans to industries for the development of
industrial finance corporation is quite necessary.
 There is a great scarcity of skilled and efficient administrators and managers.

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Structure and Composition of Indian Economy

 There are 3 major sectors of Indian economy- primary sector, secondary and the
tertiary sector.

Manufactured goods used as Inputs

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National Income of India

 National income measures the net value of goods and services produced in a country
during a year and it also includes net earned foreign income.
 In other words, a total of national income measures the flow of goods and services in
an economy. National income is a flow not a stock.
 As contrasted with national wealth which measures the stock of commodities held by
the nationals of a country at a point of time, national income measures the productive
power of an economy in a given period to turn out goods and services for final
consumption.

Concepts of National Income

The various concepts of national income are as follows:

Per Capita Income

It is a measure of the amount of money that is being earned per person in a certain area.

PCI = National Income / Population

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Gross National Product (GNP)

 The word “national” here refers to all the citizens of a country

 Gross National Product refers to the money value of total output or production of final
goods and services produced by the nationals of a country during a given period of
time, generally a year.
 In the calculation of GNP, we include the money value of goods and services produced
by nationals outside the country.
 Hence, income produced and received by nationals of a country within the boundaries
of foreign countries should be added in Gross Domestic Product (GDP) of the country.
 Similarly, income received by foreign nationals within the boundary of the country
should be excluded from GDP.. let’s make it simple

It considers income of both resident and non -resident citizens of a country

while the income of foreigners who reside within the geographical boundary of
the country is excluded

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In equation form: GNP = GDP + X – M, or GNP = GDP + NFIA

Where
X = Income earned and received by nationals within the boundaries of foreign countries
M = Income received by foreign nationals within the country
If X = M, then GNP = GDP

Similarly, in a closed economy

X=M=0
then also GNP = GDP

In equation form : GNP = GDP + NFIA

Where 
NFIA = Net Factor Income from abroad
also NFIA = Factor incomes received from abroad — Factor income paid to abroad.
It is to be noted here that in a closed economy which does not deal with outside world, has
no NFIA, i.e. its NFIA is equal to Zero. Hence, for such countries, GDP = GNP

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Example –
1. 125 crores Indian earns 100 crores in Indian Territory.
2. Five crore foreigners (USA) earn 10 crores in Indian Territory and send their money to USA.
3. Five crore Indians earn 20 crores in Saudi Arabia and send their earnings to India.

According to formula the GNP would be 120 crores = 110 + (20 – 10) crores = 120 cr

Gross Domestic Product (GDP)

 It is the total money value of all final goods and services produced within the
geographical boundaries of the country during a given period of time.
 Domestic product emphasis the total output which is raised within the geographical
boundaries of the country
 National product focuses not only on the domestic product but also on goods and
services produced outside the boundaries of a nation.
 Simply, It considers production by both resident citizens as well as foreign
nationals who reside within country.
 Central Statistics Office (CSO), Ministry of Statistics and Programme
Implementation releases the estimates of Gross Domestic Product(GDP) at constant
(2011-12) and current prices.

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 The components of expenditure on Gross Domestic Product, namely, consumption

expenditure and capital formation, are normally measured at market prices

GDP (FC) = GDP (MP) – Indirect taxes - Subsidies

In equation form GDP = Q*P

 Q is total quantity of final goods and services produced in the country
 P is price of final goods and services

Example –
1. 125 crores Indian earns 100 crores in Indian Territory.
2. Five crore foreigners (USA) earn 10 crores in Indian Territory and send their
money to USA.
3. Five crore Indians earn 20 crores in Saudi Arabia and send their earnings to India.
So, now GDP of India will be 100+10 = 110 crores only (why not 130 crores? Because we have to
include only those earnings or income which had been earn in Indian Territory)

3. Net National Product (NNP)

NNP is obtained by subtracting depreciation value (i.e. capital stock consumption) from GNP.
In equation form : NNP = GNP – Depreciation

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Question arises why we have deducted depreciation?

Because the part, which replaces the depreciated parts of the product, already, produced,
does not add value to current year’s total produce. It is just keeping the already produced
product intact

NNP with market prices includes indirect taxes and excludes subsidies, which are given
to produce goods and services.

Example - The cost of production of LPG gas is 600 rupees for 15 kg but after government
provides subsidy of 200 rupees then the price of product came to 400 rupees. This is called
as NNP-MP i.e. NNP at market price

National Income

GNP is based on market prices of produced goods which includes indirect taxes and subsidies.
NNP can be calculated in two ways-
(i) at market prices of goods and services
(ii) at factor cost
 When NNP is obtained at factor cost, it is known as National Income.
 National Income is calculated by subtracting net indirect taxes (i.e. total indirect tax
subsidy) from NNP at market prices.

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Adding of subsidies and deduction of indirect taxes from NNP-MP is called as

NNP-FC. This is done to find payments made to factors of production (land,
labour, capital, entrepreneurship)
 The obtained value is known as NNP at factor cost or National income. So,

NNP at factor cost or National Income

= NNP at market price – (Indirect Taxes – Subsidy)
= NNP(mp) – Indirect Tax + Subsidy

Personal Income
 Personal income is that income which is actually obtained by nationals.
 Sometime part of national income is not available to individuals and sometimes
payments made to some individuals are not included in national income.
 So, while calculating national income- parts of national income that are not
available to individuals of the country is deducted from the national income. The
monetary payments made to individuals but not included in national income are added
to the national income

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 Personal income is obtained by subtracting corporate taxes and payments made for
social securities provision from national income and adding to it government transfer
payments, business transfer payments and net interest paid by the government. So,

Personal Income = National income – undistributed profits of corporation – payments for social
security provisions – corporate tax + government transfer payments + Business transfer
payments + Net interest paid by government.
It should always be kept in mind that personal income is a flow concept.

Undistributed profits - A portion of corporates profit which is for future expenditure and
expansion and it is not share with shareholders and factors of production.

Corporate Tax - It is imposed on the earnings made by the firms

Net interests paid by the households - The households do receive interest payments from
private firms or the government on past loans advanced by them. Households may have to
pay interests to the firms and the government as well, in case they had borrowed money
from either
Transfer payments - The households receive transfer payments from government and firms
(pensions, scholarship, prizes, for example).

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6. Personal Disposable Income

 Definition – Income available to individuals that can be spent at their will

 Example – suppose your father’s income is 50000 rupees per month. After paying
direct tax payments and fines, the remaining income is disposable personal income.

When personal direct taxes are subtracted from personal income, the obtained value is called
disposable personal income (DPI).

So,
Disposable personal income DPI = [Personal income] – [Direct Taxes] or

Personal Disposable Income (PDI) = PI – Personal tax payments – Non-tax payments

Personal tax payments : example – income tax

Non-tax payments : like fines

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Graphical Representation of relationship between various measures

Methods of Measuring National Income:

National Income of a country is calculated by following three methods :

1. Production Method

 In this method net value of final goods and services produced in a country during a year
is obtained and the total obtained value is called total final product. This represents
Gross Domestic Product (GDP) (OR )
 In this method, National income is calculated by aggregate annual value of goods
and services produced in a country in one year.

Now question arises do we calculate aggregate of all goods and services produced by all
the firms such as Reliance, Vodafone, Maruti, HP etc. in an economy?
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Example – Suppose Flying machine company buys some cotton from farmer and give it to
weaver who weaves the cotton into cloth and return it to company. Now company gives
this cloth to tailor to stitch a shirt. Tailor stitches it and return it to company. Company
added some more things in it, package it and sold in market for 1500 rupees. This shirt
produced by firm is not entirely of its own contribution, it also has contribution of tailors,
weavers, farmers etc. To calculate net contribution of firm we have
to subtract the contributions made by famers, weaver and tailors. If we do not do that
then it will lead to double counting.

 The net contribution made by firm is called its value added

 Value added of a firm = value of production of the firm – value of intermediate
goods used by firm

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 Value added by firm is distributed among factors of production i.e. land, labor, capital
and entrepreneurship
 So, wages + interest + profits + rent must be equal to value added of firm

Let’s understand this with an example

Farmer Weaver Tailor Flying Machine
Total 500 300 200 1500
Production
Intermediate 0 0 0 500
Goods used
Value Added 500 300 200 1500-500=1000

Here intermediate goods used by firm is of 500 rupees for cotton while 1000 rupees is
value added, out of which 500 is paid to weaver and tailor as wages.

Value added is a flow variable i.e. measured over a period of time (weekly, monthly,
annually)

 Net income earned in foreign boundaries by nationals is added and depreciation is

subtracted from GDP.

Gross Value Added and Net Value Added

 Here we have to understand about “Depreciation”
 It is also known as “Consumption of fixed capital”. But why is it called so?
 Capital goods gradually undergo wear and tear and so producer has to invest in
repair or replacing of weared parts to keep the value of capital constant
 This replacement investment is same as depreciation of capital. In other words, it is
same as using up of capital
 If we add depreciation into value added, then we get Gross value added. Gross
value added = value added + Depreciation
 If we deduct depreciation from Gross value added, then we get Net value added.
Net Value added = Gross value added – Depreciation

2. Income Method

 The calculation of National Income by compiling income of factors of production is

called as Income method.

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 In this method, a total of net incomes earned by working people in different sectors
and commercial enterprises is obtained.
Symbolically : National Income = Total Rent + Total Wages + Total Interest + Total Profit

In our country it is calculated by following formula (this formula sometimes appear in

economic survey) –

Compensation of employees – Salaries paid in cash and other benefits to employees. In simple
words – ‘wage’

Consumption of fixed capital – Wear and tear of machinery. These are replaced with new parts
or machinery. It adds to income of the machinery and spare parts producers.

Net tax production = other taxes on Production – subsidies on production

Other taxes on Production – There is a difference between Tax on product and Tax on
production.
 Tax on product – It includes taxes like Sales tax and Excise duty. It is the tax imposed as
it was produced and sold.
 Tax on production - Tax imposed irrespective of production like license fees and land
tax

Gross operating surplus – balance of value added after deducting above 3 components. It
goes to pay rent of land and interest of capital. Roughly analogous to profit.

3. Consumption Method

 It is also called expenditure method.

 Income is either spent on consumption or saved.
 Hence national income is the addition of total consumption and total savings.
[summing up all of the expenditures made on final goods and services]
 There are four main aggregate expenditures that go into calculating GDP: consumption
by households, investment by businesses, government spending on goods and
services, and net exports, which are equal to exports minus imports of goods and
services.

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 In India a combination of production method and income method is used for estimating
national income.
Symbolically : N.I = C + I + G + (X – M)
Where, C= Total consumption expenditure
I = Total Investment Expenditure
G = Total Govt. Expentiture.
X = Export; M = Import

Main components under Expenditure method

Consumer spending
 Most dominant component in calculation of GDP under expenditure method.
 It accounts for the majority of India’s GDP.
 It is about 59% and consumption expenditure is the reason that our economy is less
affected by up and downs in global world. The economies, which export a lot, are
affected by global winds.
 It includes purchasing of durable goods, non-durable goods and services.

Government spending
 It is the spending by central, state and local governments on basic services (like
education, health care etc.) and defence.
 Dominant after consumer spending

Business investment
 Most volatile component
 It includes capital expenditure by firms on capital goods.

Net exports
 It represents the effect of foreign trade of goods and services on the economy

Estimates of National Income in India

 In 1868, the first attempt was made by Dada Bhai Naoroji. He, in his book ‘Poverty and
Un-British Rule in India’ estimated Indian per capita annual income at a level of Rs. 20.
 Some other economists followed it and gave various estimates of Indian national
income, some of these estimates are as follows :
Findlay Shirras ( 1911) - Rs. 49
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Wadia & Joshi ( 1913-14) – Rs. 44.30

Dr. V.K.R.V. Rao (1925-29) – Rs. 76

 After Independence, the Government of India appointed the National Income

Committee in August 1949 under the chairmanship of Prof. P.C. Mahalanobis, to
compile authoritative estimates of national income.
 For further estimation of national income, the government established Central
Statistical Organisation (CSO) which now regularly publishes national income data.

CSO & NSSO to be Merged :

The government is planning to merge Central Statistical Organisation (CSO) and National
Sample Survey Organisation (NSSO) for promoting statistical network in the country. The newly
merged unit will be named as National Statistical Organisation (NSO). The head of the
organisation will be designated as ‘Chief of Statistician of India’ and will be having the rank of
Chief Secretary.

Indicators of Economic Development

The major indicators to increase the levels of development are :

(i) Net National Product (NNP)

 It is defined as the total output produced by a country in one financial year.

 It can be computed by subtracting depreciation from GNP.
 NNP is also called as National Income.

(ii) Per Capita Income

 A high per capita income indicates a better standard of living and thus, economic
development on the whole.
 Further, a rise in per capita income will always mean a rise in aggregate real output.

(iii) Quality of Life Index (QLI) :

The Index of Quality of life depends upon mainly three factors, i.e. life expected, Basic Literacy
ad Infant Mortality Rate. Most of the countries with low per capita GNP tends to have to QLI
and vice-a-versa.

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(iv) Human Development Index (HDI): It is one of the most recent and significant indicator of
economic development of a country. It is a composite of three indicators, i.e. Life Expectancy
Index (LEI); Education Attainment Index (EAI) and Standard of Living Index. (HDI) ranks
countries in relations to each other. It can be computed by using following formula:

Analytical Questions

Why GDP includes expenditure on investment but not the expenditure on intermediate
goods?
Reason – Investment goods remain with the firm, whereas intermediate goods are consumed in
the process of production.

Why do we need GDP at constant prices?

 To compare the GDP figures of different countries
 To compare the GDP figures of the same country at different points of time.

Why do we calculate national income at constant price?

Reason - To check whether the National Income has grown or not.

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ECONOMIC REFORMS (LPG)

BACKGROUND

 From all accounts, 1991 was one of the most significant turning points for the Indian economy.
 The nation charted a new path moving towards a liberalized and market-driven economy and
greater integration with the global economy. The country was then on the brink of a deep crisis
on many fronts.
 The balance of payments position was precarious and international confidence in our economy
had eroded considerably.
 Despite large external borrowings, there was sharp reduction in foreign exchange reserves and
there were strong inflationary pressure. Before examining the various aspects of the critical
position in which the country found itself and the measures taken to tackle them, it is necessary
to look at its genesis and the factors which led to the crisis.

Reasons for economic crisis and need for new set of policy measures

The origin of the financial crisis can be traced from the inefficient management of the Indian economy in
the 1980s. Government’s expenditure was more than its income.

What happens when expenditure is more than income?

 Govt borrows to finance the deficit from banks and also from people within the country and
from international financial institutions.
 Govt had to overshoot its revenue to meet problems like unemployment, poverty and
population explosion (revenues were very low; no chance of generating immediate returns)
 No generation of additional revenue even via taxation.
 Income from public sector undertakings was not very high to meet the growing expenditure.
 Govt borrowed foreign exchange and spent the money on meeting consumption needs.

Govt neither made any attempt to reduce such profligate spending nor sufficient attention
was given to boost exports to pay for the growing imports.

In the late 1980s

o Government expenditure began to exceed its revenue by such large margins that meeting
the expenditure through borrowings became unsustainable
o There was sharp rise in the prices of many essential goods
o Imports grew at a very high rate without matching growth of exports
o Foreign exchange reserves declined to a level that was not adequate to finance imports for
more than two weeks

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o No sufficient foreign exchange to pay the interest that needs to be paid to international lenders.

REFORMS AND PROBLEMS DURING 1985-90

 The decade starting from 1980 was relatively better for the economy. While the annual rate of
growth of GDP for the preceding 30 years (1950 to 1980) was only 3.52% while is cynically
referred to as The Hindu rate of growth during the decade 1980-81 to 1989-90, the annual rate
of growth was 5.13 %. Also, while the per capita GDP increased at an annual rate of 1.37 %
during 1950-51 to 1980-90, the same increased during the period 1980-81 to 1989-90 at an
annual rate of 3.09 %.
 Food grains production which stood at 50.8 million tones (MT) in 1950-51 had reached 129.5
MT by 1980-81 and 145.5 MT by 1984-85. In the 1980’s, the industrial sector was impressive
compared to the 70’s. The annual growth rate of manufacturing sector was 7% and of registered
manufacturing 8.1 %. Against such benign growth environment, the Seventh Plan (1985-90)
started on an optimistic note.
 The Govt under Rajiv Gandhi (1984-89) initiated several reform measures. These included
reducing state control and regulation of the private sector, greater freedom to import even
capital goods, liberalization in the application of FERA, and the operation of companies under
MRTP Act. In short, it aimed at replacing government control by market forces.
 But there were also many ominous signs on the fiscal front which became visible during this
period. Prudent fiscal management required that revenue receipts not only meet revenue
expenditure, but also generate surplus the finance the Plan and other capital and development
outlays. But all through the 1980’s, the government revenues fell short of expenditure. The
gross fiscal deficit as a proportion of GDP increased from 5.4 % in 1981-82 to 8.0 % in 1989-90.
The fiscal imbalance persisted and worsened during the 1980’s, as the gross fiscal deficit, on an
average, rose from 6.3 %in the Sixth Plan Period (1980-85) to 8.2 %in the Seventh Plan Period
(1985-90).
 Another distributing trend was that almost throughout the 1980s, non development
expenditure increased faster than development outlays. While the non development
expenditure in 1990-91 was about 5.5 times the 1980-81 level, development outlays increased
only 4.4 times. It indicates that long-term development of the country received less priority.
 Another adverse factor was that the relative share of direct taxes in the total tax revenue
continued to decline while the share of indirect taxes, the burden of which falls mostly on the
masses, showed increase.

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THE 1991 ECONOMIC CRISIS

Background to the Crisis

 The process to reform the economy had begun from the mid-eighties under the Rajiv Gandhi
government (1984-89) whose vision was to take India to the 21th Century. With a view to
modernize the economy, boost investment, and achieve rapid industrial growth, many controls
and restrictions were removed, industrial licensing policy was revamped, and greater role was
accorded to the private corporate sector. Import controls were relaxed to upgrade industrial
technology and improve capacity utilization and productivity.
 However, towards the late 1980s, macroeconomic imbalances began to emerge. The fiscal
deficit of the Central Government, which is a measure of the difference between revenue
receipts and total expenditure, was over 8 % of the GDP in 1990-91 as compared with 6 % at the
beginning of 1980s and 4 % in mid-1970s. This deficit had to be about 55 % of GDP. By 1990, the
deficit of the Central Government had mounted to Rs. 13,000 crore as a result of revenue
shortfalls and expenditure overruns. Productivity of investment was low and there were poor
rates of return on past investments.
 On the foreign exchange front, the balance of payments position came under severe stress.
During the eighties, India’s imports were more than what could be covered by the exports and
normal aid on concessional terms. The current account deficits had to be financed by borrowing
from abroad on commercial terms both from the capital market and non-resident Indians
(NRI’s). External debt which was $22.8 billion in 1983-84 had risen to $69.3 billion in 1990-91.
The burden of servicing the accumulated internal and external debt became onerous. This was
further exacerbated by the steep increase in oil prices and disruptions caused by the Iraqi
invasion of Kuwait in August 1990. With the disintegration of Soviet Union in December 1991,
India lost a major trading partner.
 The persistent fiscal imbalances accentuated inflationary pressures. That inflation was
concentrated in essential commodities, despite good monsoons and good harvests in the three
preceding years, was of greater concern as it hurt the poorer sections the most. Besides all
these, there was political instability at home-there were two changes in the Government at the
Centre between December 1989 and June 1991.
 All these led to considerable erosion of international confidence in our economy. Despite large
borrowings from the International Monetary Fund (IMF) in July 1990 and January 1991, the
foreign exchange reserves had touched rock bottom, and it was barely enough to meet the
needs of two weeks of imports. Foreign commercial banks had stopped lending to India and
NRI’s were withdrawing their deposits. Shortage of foreign exchange forced massive import
squeeze which further impeded the industrial growth.
 Due to the combined effect of all these, the nation was on the brinks of a major crisis which
called for drastic remedial measures.

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The Turnaround-The Reforms of 1991

 It was against this grim background that a newly elected Government headed by P.V.
Narasimha Rao took over in June 1991. He at once set about the task of pulling the economy
back from the brink, and appointed Manmohan Singh as the Finance Minister. The new
Government initiated a number of radical measures to bring about macroeconomic stability
and address the balance of payments crisis through fiscal consolidation and tax reforms. Urgent
steps were taken to avert default in international debt obligations and to control inflation. A
decision taken earlier to use part if the gold held by the Reserve Bank of India to mobilize
temporary liquidity abroad was implemented, but as planned the gold was redeemed as soon
as the foreign exchange position stabilized. The situation also called for credible fiscal
adjustment followed by fiscal consolidation.
 This involved progressively reduction the fiscal and revenue deficits of the Central Government
and reduction of current account deficit in the balance of payments. The aim was to contain the
unfettered rise in internal and external debt and thus limit the burden of debt servicing. Efforts
were made to raise more resources internally without burdening the poor.
 The steps taken by the new government to tackle the balance of payments crisis involved both
short-term and long-term measures. Devaluation of the Rupee by about 18 %was effected in
two steps on July 1 and 3, 1991. International Monetary Fund (IMF) and the World Bank which
had to be approached for a major loan had stipulated that economic reforms be undertaken to
revive the economy. As a result of short-term measures proposed to be put in place, the
country was able to raise funds from the IMF and other aid agencies. It helped to tide over the
crisis and restore international confidence in the country’s economic management.
 At this juncture, concerns had been expressed whether the country implemented these reform
measures at the dictates of IMF and the World Bank who were approached for financial
assistance to tide over the crisis. The Government had clarified that the discussion held with the
lending institutions were only on the amount and type of assistance and the valid down and
accepted for the assistance was sought. The conditions laid down and accepted for the
assistance were only in consonance with the reform programme already envisaged and drawn
up by the Government, and which formed part of the party’s election manifesto. Thus, it was
contended that the country’s national interests or sovereignty had in no way been
compromised.

India’s strategy to tackle BOP crisis:

 India approached the International Bank for Reconstruction and Development (IBRD)—World
Bank and the International Monetary Fund (IMF) and received $7 billion as loan to manage the
crisis

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How to avail the loan?

International agencies expected India to liberalize and open up the economy by

 Removing restrictions on the private sector

 Reducing the role of the government in many areas
 Removing trade restrictions

Here comes the move twds New Economic Policy:

India agreed to the conditionality’s of World Bank and IMF —announced the New Economic Policy
(NEP) which consisted of wide ranging economic reforms, such as:

 Creating a more competitive environment in the economy by removing the barriers to entry and
growth of firms
 Introduced liberalization with a view to integrate the Indian economy with the world economy
 To remove restrictions on direct foreign investment as also to free the domestic entrepreneur
from the restrictions of Monopolies and Restrictive Trade Practices (MRTP) Act
 To unshackle the Indian industrial economy from the cobwebs of unnecessary
bureaucratic controls
 To shed the load of public sector enterprises which have shown a very low rate of return or
which were incurring losses over the years

THE NEW REFORM MEASURES

New Trade Policy

 As part of the reform measures, a new Trade Policy was drawn up in 1991. It marked a radical
shift from the Import Substitution policy which India had relied on far the last four decades.
While it may have been necessary in the very early stages of development to protect our
nascent industries from foreign competition, in the long-term it provided to be neither efficient
nor one that helped the industry for its robust growth. In fact, in contrast, the East Asian
economics which took to the path of ‘Export Promotion’ strategy in 1970’s forged far ahead of
India in development.
 It was, therefore, realized rather quite belatedly, that the time had come to open up the
economy and expose Indian industry to competition from abroad in a phased manner. With this
in view, the Government introduced changes in Import-Export policy, liberalized import
licensing, optimally reduced imports, and aimed at vigorous export promotion. The two-step
devaluation of the Rupee effected in July 1991, referred to above, and easing of the

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replenishment licence system were two major steps in Trade Policy reform. It involved a
transition from a regime of Quantitative restrictions (QR’s) to one of price-based mechanism.

Measures to Promote Exports

 The trade policy was further revamped in 1992. A system of partial convertibility of the Rupee
on the Current Account was introduced. Under this system, all foreign exchange earned
through exports of goods or services, or remittances, could be converted into rupees. 40 % of
the foreign exchange could be converted at the official exchange rate while the remaining
60 % was to be converted at a market-determined rate. The foreign exchange surrendered at
official exchange rate could be used to meet the foreign exchange requirements of essential
imports like petroleum, oil products, fertilizers, defense, and life-saving drugs. Imports of raw
materials and capital goods were made freely importable on Open General Licence (OGL) but
the foreign exchange required for these had to be obtained from the market. There was only a
specified ‘negative list of raw materials and capital goods which available also to Indian
workers working abroad who were making considerable amount of remittances and thus
making valuable contribution to India’s foreign exchange earnings.
 Earlier, to provide incentive for exports, a complex scheme of import replenishment was in
vogue under which an exporter was allowed to import certain raw materials and components
equal to the actual import content of exports. Also, there was a components cash support
scheme to compensate for taxes not refunded under a duty drawback scheme (i.e., refunds of
indirect taxes including import duties on inputs used in exports) and losses incurred on exports
when domestic demand was inadequate to use installed capacity fully. By eliminating import
licensing and introducing partial convertibility of the Rupee, the reforms got rid of these
complex web of incentives with varying rates for different commodities which prevailed under
the import replenishment and compensatory cash support schemes.

Removal of Import Controls

 These reforms removed import controls which had earlier resulted in inefficiency, bureaucratic
delays, and left scope for corrupt practices. Trade policies were further modified and refined in
subsequent years. Import licences were further modified and refined in subsequent years.
Import licences were eliminated on most items of capital goods, raw materials, and
components. These items became freely importable against foreign exchange purchased in the
market. The system had worked fairly well and the market exchange rate had remained
remarkably stable. It created an environment in which Indian entrepreneur had the flexibility
needed to compete with other developing countries in the world markets.
 However, the existence of a dual rate hurt exporters and other foreign exchange earners who
had to surrender 40 % of their earnings at the official rate and getting the benefit of higher
market rate on only 60 %. Exporters represented that this amounted to a tax on exporters at a
time when they needed full support. The Government considered this and finding that the

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balance of payments could be reasonably managed with a unified exchange rate, the dual rate
arrangement was dispended with. All exporters as well as foreign exchange earners like
Indian workers abroad were allowed to convert 100 % of their earnings at the market rate.
All imports were also liable to be paid for the market rate.

Other Important Measures

 Several other steps were also taken in 1993-94 to promote exports various restrictions on items
of export were removed. Reserve bank of India took steps to ensure availability of adequate
credit for export. Banks were asked to see that credits given for exports amounted to at least
10 percent of their total advances. The interest rate on rupee export credit was reduced by one
percentage point. Further, banks were exempted from levying interest tax on export credit
provided by them.
 In order to promote new investment in industry, the customs duty levied on capital goods and
import items for projects such as general machinery was progressively reduced from 1993-94.
These duties were quite high compared to what was prevailing in competitive countries. This
was to benefit critical sectors like power, coal mining, and petroleum refining. At the same time,
to ensure that the lower duties on imported machinery did not hurt the domestic capital goods
industry, import duty on components were also lowered to enable our domestic manufactures
to compete effectively. Duties on many other capital goods, metals, and chemicals were also
reduced and rationalized to help domestic industries.
 To promote the electronics industry which was a major provider of employment and with much
potential for export, and to make it world class, rates of duty for project imports, raw materials,
and components were brought down.

The New Industrial Policy 1991

Introduction

 Another major plank of the structural reform was opening up the industrial sector to infuse
new dynamism into the economy.
 It was felt that the industrial sector faced many constraints and there was much scope for
upgradation of technology, improving quality standards and reduction in costs which would
increase the efficiency and competitiveness of the Indian industry and benefit both the
producers and the consumers
 Restrictive policies like barriers to entry and limits on the size of firms had shackled industry and
led to a degree of monopoly in the sector by facilitating foreign investment and infusing foreign
technology to increase productivity.

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Main Characteristics:

Delicensing

 Industrial licensing was abolished for all industries except for a short list of 18 industries
involving security and strategic factors, social considerations, hazardous and environmental
aspects and those producing items of elitist consumption. Later, more industries were
delicensed and presently compulsory licensing applies only to 6 industries. Coal and lignite
have also been removed from the list of industries reserved for the public sector.

PRELIMS: Only 6 industries were kept under licensing scheme

 Industries reserved for the small scale sector continued to be so reserved. The removal of
licensing was to benefit particularly the many dynamic small and medium entrepreneurs who
had been hampered by the licensing system. Also, this was to make industry more competitive,
more efficient and modern, and take its rightful place in the world not to apply to the small-
scale units taking up the manufacture of any of the items reserved for exclusive manufacture in
the small scale sector.

Promotion of foreign investment

 For promoting foreign investments in high priority industries, requiring large investments and
advanced technology, direct foreign investment up to 51 % foreign equity in such industries
was allowed. Also, foreign equity up to 51% was allowed for trading companies primarily
engaged in export activities. Foreign investment would facilitate technology transfer, help to
enhance productivity, nurture better management practices, and provide greater access to
world markets. High priority industries could get automatic approval for entering into
technology agreements and were allowed to negotiate the terms of technology transfer directly
with their foreign counterparts according to their own commercial judgement.

Promotion of exports

 For promoting exports of Indian products, which required interaction with some of the world’s
largest international manufacturing and marketing firms, services of foreign trading companies
were to be availed to assist us in the export activities.

MRTP Act

 The Monopolies and restrictive Trade Practices Act (MRTP Act) which came into force in 1970
had over the years hampered industrial growth and expansion. To foster healthy competition,
achieve economies of scale, and enhance productivity, it was imperative to remove interference
by the Government, through the provisions of this Act, in decisions of large companies
regarding investment, capacity addition, etc. the legal provisions for getting prior government

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approval for expansion of existing undertaking and setting up new ones was removed. The
accent was to be only on controlling unfair and restrictive business practice and the MRTP
Commission was empowered to investigate and act on such practices.
 The MRTP Act was later repealed and replaced by the Competition Act, 2002.

Strengthening the Public Sector

 The Industrial Policy Resolution of 1956 had given the public sector a strategic role in the
economy. Public sector enterprises have been set up in key sectors such as steel, power, heavy
engineering and heavy electrical, telecom, defence, aircraft manufacture, etc. massive
investments were made over the past four decades to expand the public sector which has
come to occupy a commanding role in the economy. However, while some of the public sector
units have played a notable role in the country’s development process, many of them face a
plethora of problems such as lagging productivity, lack of R & D and technological upgradation,
low returns on capital invested, and HR and labour issues which have retarded their progress.
Many of them were also considered sick units which called for some drastic measures. The
government considered the need to reinvigorate them and hence took certain steps under the
Industrial Policy of 1991.
 Specified sectors of the economy were reserved for the public sector. These were:
(i) Essential infrastructure goods and services;
(ii) Exploration and exploitation of oil and mineral resources;
(iii) Technology development and building of manufacturing capabilities in areas crucial for
the long-term development of the economy and where private sector investment is
inadequate; and,
(iv) Manufacture of products where strategic considerations predominate such as defence
equipment.
 Government would strengthen those public enterprises which fall in the reserved or high
priority areas that have successfully expanded production, built up technical competence, or
are generating profits. Such enterprises would be given much greater degree of autonomy.
Competition will also be induced in these areas by allowing private sector to participate. And in
the case of enterprises which have been chronically sick and incurring heavy losses, part of
Government holding in their equity share capital would be disinvested in order to provide
market discipline to their performance.

Disinvestment:

 Disinestment was carried out in many public sector enterprises

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Liberalisation of Foreign Policy:

 The limit of foreign equity was raised to 100% in many activities i.e. NRI and foreign investors
were permitted to invest in Indian Companies

Liberalisation in Technical Area:

 Automatic permission was given to Indian companies for signing technology agreements with
foreign companies

Setting up of Foreign Investment Promotion Board:

 This board was setup to promote and bring foreign investment in India

 Due to economic redorms of 1991, India witnessed a wide and tremendous changes across the
country in every sector specially in industrial sector. The foreigners got more autonomy on their
investment, which gradually helped India to recover its economic crisis.

IMPACT OF THE REFORMS

The impact of economic reforms can be categorised in 3 major components  Liberalisation,

Privatisation and Globalisation

LIBERALISATION

 The term “liberalization” in this context implies economic liberalization.

 The essence of this policy is that greater freedom is to be given to the entrepreneur of
any industry, trade or business and that governmental control on the same be reduced to
the minimum
 Rules and laws which were aimed at regulating the economic activities became major
hindrances in growth and development. Hence, Liberalisation was introduced to put an end to
these restrictions and open up various sectors of the economy.
 The main purpose of the process to economic liberalization is to set business free and
to run on commercial lines. The underlying belief is that commerce and business are not
matter to be contained to fixed national boundaries; they are global phenomena. Here,
artificial govt. restrictions which hinder economic and commercial activities and flow of
goods and services were removed.
 The liberalization intended to liberalize commerce and business and trade from the clutches of
controls and obstacles.

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KEY FEATURES OF THE POLICY OF LIBERALISATION:

 Lessened Government control and freelance to private Enterprises.

 Capital Markets opened for private Entrepreneurs
 Simplification of Licensing policy
 Opportunity to purchase foreign exchange at market prices
 Right To Take Independent Decisions Regarding The Market
 Better opportunity for completion
 Widened Liberty in the Realm of Business and Trade

Important Measures :

Removal of Industrial Licensing:

 All industrial licensing was abolished except a shortlist of 18 industries related to

security and strategic concerns, social reasons, hazardous chemicals and over-riding
environmental reasons and items of elitist consumption industries reserved for the small scale
sector which were to continue under the reservation list.
 Subsequently, all industries except for a small group of 5 industries [alcohol, cigarettes,
hazardous chemicals industrial explosives, electronics, aerospace and drugs and
pharmaceuticals], industrial licensing requirements have been done away with.
 Reservations for Public sector: defence equipment, atomic energy generation and railway
transport.
 Deregulation of goods produced in small scale industries.
 Market mechanism to determine the prices.

Financial Sector Reforms:

 Financial sector which includes financial institutions such as commercial banks, investment
banks, stock exchange operations and foreign exchange market - are regulated by the
Reserve Bank of India (RBI)
 All the banks and other financial institutions in India are regulated through various norms
and regulations of the RBI. RBI decided the amount of money that the banks can keep with
themselves, fixed interest rates, nature of lending to various sectors etc.
 One of the major aims of financial sector reforms is to reduce the role of RBI from
regulator to facilitator of financial sector i.e., the financial sector was allowed to take
decisions on many matters without consulting the RBI.
 For instance, the reform policies led to the establishment of private sector banks, Indian as well
as foreign.

Liberalization of Foreign Investment:

 While earlier prior approval was required by foreign companies, now automatic approvals
were given for Foreign Direct Investment (FDI) to flow into the country.
 A list of high-priority and investment-intensive industries were de-licensed and could invite

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up to 100% FDI including sectors such as hotel and tourism, infrastructure, software
development etc.
 Use of foreign brand name or trade mark was permitted for sale of goods

Public Sector Reforms:

 Greater autonomy was given to the PSUs (Public Sector Units) through the MOUs
(Memorandum of Understanding) restricting interference of the government officials and
allowing their managements greater freedom in decision-making

MRTP Act :

 The Industrial Policy 1991 restructured the Monopolies and Restrictive Trade Practices
Act.
 Regulations relating to concentration of economic power, pre-entry restrictions for setting up
new enterprises, expansion of existing businesses, mergers and acquisitions etc. have been
abolished.

In a NUTSHELL:

 Liberalisation refers to end of license, quota and many more restrcitions and controls which
were put on industries before 1991.
 Indian companies got liberalisation in the following way:
a) Abolition of license except in few
b) No restriction on expansion or contraction of buisness activities
c) Freedom in fixing prices
d) Liberalisation in import and export
e) Easy and simplifying the procedure to attract foreign capital in India
f) Freedom in movement of goods and services
g) Freedom in fixing the prices of goods and services

PRIVATISATION

Privatisation has to be viewed in two ways:

 In a narrow sense, it implies the induction of private ownership in a public sector undertaking.
 In a broader sense, it implies the enlargement of the scope of the private sector in the growth
of the economy.

o Privatization is closely associated with the phenomena of globalization and liberalization.

o Privatization is the transfer of control of ownership of economic resources from the public
sector to the private sector. It means a decline in the role of the public sector as there is a shift
in the property rights from the state to private ownership.
o The public sector had been experiencing various problems, since planning, such as low
efficiency and profitability, mounting losses, excessive political interference, lack of
autonomy, labour problems and delays in completion of projects. Hence to remedy this

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situation with Introduction of National Industrial Policy 1991 privatization was also initiated into
the Indian economy

CONCEPT OF DISINVESTMENT:

 Another term for privatization is Disinvestment.

 The objectives of disinvestment were to raise resources through sale of PSUs to be directed
towards social welfare expenditures, raising efficiency of PSUs through increased competition,
increasing consumer satisfaction with better quality goods and services, upgrading technology
and most importantly removing political interference.

Prelims:

 In the initial phase of development planning in India, more especia lly after the Industrial Policy
of 1956, the socialisation of the economy was measured by the size of the public sector
in the national economy. The greater the share of the public sector, the greater was the degree
of socialisation of the economy.
 Under economic reforms after 1991, the main thrust is that the private sector is
considered as the engine of growth. By placing restrictions on the public sector and by reducing
its role in several areas where it earlier enjoyed a monopolistic position, the new environment
assigned an increasing role for the private sector.

Key Objectives of Privatisation:

 The process of Privatization has been triggered with the main intention of improving
industrial efficiency and to facilitate the inflow of foreign investments.
 It also wants to make the public sector undertakings strong able efficient companies. It
recommends a change in the role of the government from that of the “owner manager” to that
of a mere “controller” or “regular”.
 It also intends to ensure efficient utilization of all types of resources including human resources.
 Privatization insists on the government to concentrate on the area such as education
administration and infrastructure and to give up the responsibility of looking after
business and running industries.It is expected to strengthen the capital market by following
appropriate trade policies.

Main Aspects:

Autonomy to Public sector:

o Greater autonomy was granted to nine PSUs referred to as ‘navaratnas’ (ONGC, HPCL, BPCL,
VSNL, BHEL) to take their own decisions

De-reservation of Public Sector

o The numbers of industries reserved for the public sector were reduced in a phased manner from
17 to 8 and then to only 3 including Railways, Atomic energy, specified minerals
o This has opened more areas of investment for the private sector and increased competition for
the public sector forcing greater accountability and efficiency

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Disinvestment Policies
o Till 1999-2000 disinvestment was done basically through sale of minority shares but since then
the government has undertaken strategic sale of its equity to the private sector handing over
complete management control such as in the case of VSNL , BALCO etc

Joint Venture
o This implies partial induction of private ownership from 25 to 50 %or even more in a public
sector enterprise, depending upon the nature of the enterprise and state policy in this regard.

Three kinds of proposals have been put forward:

1) 26 % ownership by the private sector (banks, mutual funds, corporations, or individuals) and
workers also to be included to the extent of 5 % equity to be transferred to them. However, in
this situation, veto power remains with the public sector against the private sector.
2) Government retains 51 % equity and sells 49 % equity to the private sector. Although the basic
character of the enterprise remains unaltered and it continues to be a public sector unit, it
introduces a big share for the private sector.
3) 74% of the equity is transferred to the private sector and the Government retains 26 % with
the added provision of Government veto power and minority control over major
corporate decisions.

These three variants of privatization indicate different degrees of ownership by the private sector in
the joint venture. The basic aim of the transfer of ownership is that it will enable the joint venture to
improve productivity of assets and convert them into profitable concerns.

ARGUMENTS IN FAVOUR OF PRIVATIZATION

 Privatization is Necessary to Revitalize the State Owned Enterprises

 Privatization is Necessary to Face Global Competition
 Privatization is Needed to Create More Employment Opportunities in Future
 Helpful for Mobilizing and Investing Resources
 Recognition of Talents and Good Performance of work

ARGUMENT AGAINST PRIVATIZATION

 Profitability Alone Should Not Become the Sole Yardstick to Measure Efficiency
 Role of Public Sector Undertaking From the socio-Economic Angle Also Cannot be ignored
 Protection of the Interests of the Weaker Section
 Price –fixing Policy Here is Not Profit- Oriented
 Argument that the Private Sector Is More Efficient than the Public Sector is Not Right

In a NUTSHELL

Privatisation refers to giving greater role to private sector and reducing the role of public sector.
To execute the policy of pivatisastion govt. took the following steps:

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a) Disinvestment of public sector i.e. transfer of public sector enterprise to private sector
b) Setting up of board of Industrial and Financial Reconstruction (BIFR) This board was setup to
revive sick units in public sector enterprises suffering loss
c) Dilution of stake of the govt  If in the process of disinvestment private sector acquires more
than 51% shares then it results in transfer of ownership and management to the private sector

GLOBALISATION:

Globalization essentially means integration of the national economy with the world economy. It
implies a free flow of information, ideas, technology, goods and services, capital and even people across
different countries and societies. It increases connectivity between different markets in the form
of trade, investments and cultural exchanges

Key elements:

 To open the domestic markets for inflow of foreign goods, India reduced customs duties
on imports. The general customs duty on most goods was reduced to only 10% and import
licensing has been almost abolished. Tariff barriers have also been slashed significantly to
encourage trade volume to rise in keeping with the World trade Organization (WTO) order
under (GATT) General Agreement on Tariff and Trade.
 The amount of foreign capital in a country is a good indicator of globalization and growth. The
FDI policy of the GOI encouraged the inflow of fresh foreign capital by allowing 100 % foreign
equity in certain projects under the automatic route. NRIs and OCBs (Overseas Corporate
Bodies) may invest up to 100 % capital with repatriability in high priority industries. MNCs and
TNCs were encouraged to establish themselves in Indian markets and were given a level
playing f ield to compete with Indian enterprises.
 Foreign Exchange Regulation Act (FERA) was liberalized in 1993 and later Foreign
Exchange Management Act (FEMA) 1999 was passed to enable foreign currency transactions
 India signed many agreements with the WTO affirming its commitment to liberalize trade such
as TRIPs (Trade Related Intellectual Property Rights), TRIMs (Trade Related Investment
Measures) and AOA (Agreement on Agriculture)

Advantages of Globalization:

 There is a decline in the number of people living below the poverty line in developing countries
due to increased investments, trade and rising employment opportunities.
 There is an improvement in various economic indicators of the LDCs (Less Developed
Countries) such as employment, life expectancy, literacy rates, per capita consumption etc.
 Free flow of capital and technology enables developing countries to speed up the
process of industrialization and lay the path for faster economic progress.
 Products of superior quality are available in the market due to increased competition,
efficiency and productivity of the businesses and this leads to increased consumer satisfaction.
 Free flow of finance enable the banking and financial institutions in a country to fulfill
fin ancial requirements through internet and electronic transfers easily and help businesses to
flourish.

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 MNCs bring with them foreign capital, technology, know-how, machines, technical and
managerial skills which can be used for the development of the host nation

Disadvantages of Globalisation:

o Domestic companies are unable to withstand competition from efficient MNCs which have
flooded Indian markets since their liberalized entry. It may lead to shut down of operations, pink
slips and downsizing.
o Moreover skilled and efficient labours get absorbed by these MNCs that offer higher pay
and incentives leaving unskilled labour for employment in the domestic industries. Thus there
may be unemployment and underemployment.
o Payment of dividends, royalties and repatriation has in fact led to a rise in the outflow of foreign
capital.
o With increased dependence on foreign technology, development of indigenous technology
has taken a backseat and domestic R and D development has suffered.
o Globalization poses certain risks for any country in the form of business cycles,
fluctuations in international prices, specialization in few export tables and so on.
o It increases the disparities in the incomes of the rich and poor, developed nations and LDCs. It
leads commercial imperialism as the richer nations tend to exploit the resources of the poor
nations.
o Globalization leads to fusion of cultures and inter-mingling of societies to such an extent that
there may be a loss of identities and traditional values. It gives rise to mindless aping of western
lifestyles and mannerisms however ill-suited they may be.
o It leads to overcrowding of cities and puts pressure on the amenities and facilities available in
urban areas

In a NUTSHELL

Globalization refers to integration of various economies of the world. Till 1991 Indian Govt was
following strict policy in regard to import and foreign investment with regard to licensing of imports,
tariff, restrictions etc. but after new policy govt adopted globalization by following measures:

(i) Import liberlisation  govt removed many restrcitions from import of capital goods
(ii) Foreign Exchange Regulation Act (FERA) was replaced by Foreign Exchange Management
Act(FEMA)
(iii) Rationalisation of tariff structure
(iv) Abolition of export duty
(v) Reduction if import duty

Limitations of LPG

Low Growth of Agriculture Sector

 Agriculture has been and still remains the backbone of the Indian economy. It plays a vital role
not only in providing food and nutrition to the people, but also in the supply of raw
material to industries and to export trade

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 In 1991, agriculture provided employment to 72% of the population and contributed

29.02 % of the gross domestic product. However, in 2014 the share of agriculture in the GDP
went down drastically to17.9 per cent. This has resulted in a lowering the per capita income of
the farmers and increasing the rural indebtedness

Threat from foreign competition

 Due to opening up of the Indian economy to foreign competition through Liberalization

and FDI policy more MNC’s are attracted towards India after 1991 reforms and they are
competing local businesses and companies
 Since, these MNC’s have lots of financial capacity or those are big organizations with
advanced foreign technology so, they have large production capacity and huge money for
promotion and other research activities they are easily defeating our Indian local
companies. And they had acquired many Indian companies as well.
 Because of financial constraints, lack of advanced technology and production inefficiencies
our Indian companies are facing problem in this globalization period

Adverse Impact on Environment

 Globalization has also contributed to the destruction of the environment through

pollution and clearing of vegetation cover.
 With the construction of companies, the emissions from manufacturing plants are causing
environmental pollution which further affects the health of many peoples.
 The construction also destroys the vegetation cover which is important in the very survival of
both humans and other animals

Increase in Income disparity

 Globalization leads to widening income gaps within the country. Globalization benefits
only to those who have the skills and the technology in the country.
 The higher growth rate achieved by an economy can be at the expense of declining
incomes of people who may be rendered redundant.
 Globalization has widened the gap between the rich and poor, rises inequalities

Growth and Employment:

 Though the GDP growth rate has increased in the reform period, scholars point out that the
reformed growth has not generated sufficient employment opportunities in the country

Broad Indicators

 Some of the indicators of the progress of the economy are the growth rate of Gross Domestic
Product (GDP), the changing sectoral composition of the GDP, and the standards of living of
the people as reflected in the quality of life. The growth rate of the economy had fallen to less

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than one %in the crisis year 1991-92 but rebounded to 5 %per annum in 1992-93 and 1993-94.
It further accelerated to 6.3 %in 1994-95.
 While the annual average growth rate during the decade 1980-81 to 1989-90, the pre-reform
period, was 5.18 per cent, the average rate for the period 1993-94 was 6.8 %based on the new
series of GDP

Sectoral Share in GDP

 The sectoral share in GDP of the three sectors – primary which includes agriculture, fisheries,
and forestry, secondary which includes industry, manufacturing, and mining and tertiary which
includes all services such as banking, insurance, transport and communications, constructions
and real estate, hotels, trade, etc is an indication of the progress of the economy. Between
1980-81 and 1990-91 (pre-reform period), share of primary sector declined from 38.1 %to 34.0
per cent, that of secondary declined marginally from 25.9 %to 24.9 per cent, while the tertiary
sector showed perceptible increase.
 While the share of agriculture has been steadily declined and that of services rising consistently,
the share of industry had been sluggish and fluctuating which had fallen below one %in 1991-92
to 2000-01). Industrial growth which had fallen below one %in 1991-92, showed broad based
recovery by 1994 and rose to 8.7 per cent. Manufacturing sector grew even faster at 9.2 %in
1991-92 and at 10.6 %in 1996-97.
 The growth rate of agriculture and allied sector was 3.6 %in the Eleventh Plan (2007-12) as
against 2.5 %and 2.4 %respectively in the Ninth Plan (1997-2002) and Tenth Plan (2002-07). As
for the industrial growth rate, after a decline of 0.8 %in 1991-92, it rose to 2.2 %in 1992-93, 8.6
%in 1994-95, and 10.6 %in 1996-97. During the Ninth Plan, industrial growth declined to 4.3
%but recovered to touch 9.4 %in the Tenth Plan. And again it recorded only 7.9 %in the Eleventh
Plan. The deceleration and fluctuation in industry is due to structural and cyclical factors
affecting business, lack of domestic demand in case of failure of monsoon which adversely
affects the rural sector, which is a major source of demand for manufactured items, and lack of
demand for items of exports. But it can be said that the New Industrial Policy has helped to
reinvigorate and energize the industrial sector.
 The services sector has shown steady growth both in regard to its share in GDP as well as rate of
growth. Its share in GDP which was 48.5 %in 2000-01 has risen to an estimated 59 %in 2013-14.
It recorded a growth rate of 7.9 %in the Ninth Plan, 9.3 %in the Tenth Plan, and 10.1 %in the
Eleventh Plan.
 India’s GDP growth rate increased. During 1990 -91 India’s GDP growth rate was only 1.1%
but after 1991 reforms due LPG policy India’s GDP growth rate is increased year by year 
Because of the Abolition of Industrial licensing, privatisation, advanced foreign technology
and Reduction of taxes India’s GDP is increased after 1991 reforms

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Employment pattern in Sectors

 From the above account, it will be seen that there have been significant changes in the sectoral
composition of GDP which is a positive indication of economic development. Though a vital
sector in the economy, the share of agriculture has steadily come down and the contribution of
industry and services to GDP has been going up. However, the declining share of agriculture in
the national income has not been accompanied by corresponding decline in the workforce has
still not removed to non-agricultural occupations and the pressure of population on land
continues. It also indicates that there is disguised and under-employment in the sector resulting
in low productivity per person engaged.
 In 1991 unemployment rate was 4.3% but after India adopted new LPG policy more
employment is generated
 The percentage share of agriculture in total workforce declined only marginally from 72 % in
1951 to 69.8 % in 1971, 66.7 % in 1981, and 64.75 % in 1993-94. Though it has further declined,
it still provides employment to about 55 % of the workforce in the country. Employment in
industry has also been hovering from 12.43 % in 1993-94 to 12.1 % in 1999-2000. In 2012-13, it
stood at 11.9 %. Whereas it is the services sector which has provided more additional
employment the shares of the services (including construction sector) in employment increased
from 22.82 % in 1993-94 to 34.90 % in 2009-10.
 Though employment levels have gone up, it has not kept pace with the increase in the labour
force resulting in creeping unemployment. Also, the qualitative nature of jobs in the
unorganized sector where labour laws and working conditions may be lax.
 All this part, a major challenge confronting the country is the huge number of youth entering
the labour force. An estimated 12 million persons will be entering the job market each year an
average of one million every month for the next ten years who have to be provided
employment. This is a major challenge for the present and future governments.

Foreign Direct Investment (FDI)

 India has already marked its presence as one of the fastest growing economies of the world.
 It has been ranked among the top 3 attractive destinations for inbound investments.
 Since 1991, the regulatory environment in terms of foreign investment has been consistently
eased to make it investor-friendly.
 India has also firmly established itself as a lucrative foreign inves tment destination. Foreign
direct investment inflows hit an all-time high of $60.1 billion in 2016-17.
 India’s forex reserves have been rising with a total accretion of $4.389 billion to the kitty since
14 July 2017. It had touched a record high of $393.448 billion after it rose by $581.1
million in the week to 4 August 2017.
 India has allowed 100% FDI in medical services, Telecom sector, and single brand retail etc.

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Per capita income

 Per capita income or average income measures the average income earned per person in a
given area (city, region, country, etc.).
 It is calculated by dividing the area's total income by its total population.
 In 1991 India’s Per capita Income was Rs. 11,235 but in 2014-15 Per Capita Income is reached
to Rs. 85,533.
 Per Capita income is increased due to Increase in Employment, due to new economy
policy of globalization and privatization many job opportunities are created so, and
people’s income was increased.

Impact of Reforms on Poverty

 One of the primary aims of India’s economic policy right after Independence has been to
achieve growth with equity and social justice. This was natural considering the all pervasive
poverty and widespread inequality which persisted in the country. Though several measures
such as rural development and anti-poverty schemes have been implemented to remedy this,
both poverty and inequality continue to be a challenge. There have been different studies and
surveys on ascertaining number of people who live below the ‘poverty line’. According to data
released by National Sample Survey Organization (NSSO) and erstwhile Planning Commission,
the percentage of population below the poverty line was increasing day by day
 Economic reforms measures coupled with poverty alleviation programmes like Mahatma
Gandhi Rural Employment Guarantee Scheme (MNREGS) have helped to lift a significant
section of the population above the poverty line. The extent and spread of it, however, has not
been uniform. As a result of much of the reform measures being directed at the organized
sector, its effects are felt first on the urban organized sector, next on the urban informal sector,
and then on the rural sector. The rural sector is influenced more by the anti-poverty schemes
which make a direct impact on the income and living conditions of the rural poor. Another
significant factor impacting the rural population is the state of agriculture which again is largely
dependent on the monsoon and various other factors.
 There is also concern that following the implementation of reforms, inequality between
different segments of society has widened. This can be remedied only through a vigorous
process of growth with equity, more investments in the social sector education, public health,
and housing directed to benefit particularly the lower sections of the population, and
redistributive measures through fiscal policies.

Effects of Liberalisation and Globalisation

Increasing Competition:

 After the new policy, Indian companies had to face all round competition which means
competition from the internal market and the competition from the MNCs

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 The companies which could adopt latest technology and which were having large number of
resources could only survive and face the competition
 Many companies could not face the competition and had to leave the market

More demanding customers:

 Prior to new economic policy there are very few industries or production units
 As a result there was shortage of product, in every sector
 Because of this shortage the market was producer-oriented i.e. producers became key persons
in the market
 Nut after new economic policy, many more businessmen joined the production line and various
foreign companies also established their production units in India
 As a result there was surplus of products in every sector. This shift from shortage to surplus
brought another shift in the market i.e. producer market to buyer market

Rapidly changing technological environment:

 Prior to new economic policy there was a small internal competition only
 But after the new economic policy the world class competition started and to stand this global
competition the companies need to adopt world class technology
 To adopt and implement world class technology the investment in R & D dept has to increase

Necessity for change:

 Prior to 1991 business enterprises could follow stable policies for a long period of time but after
1991 the business enterprises have to modify their policies and operations from time to time

Need for developing Human resources:

 Before 1991 Indian enterprises were managed by inadequately trained personnel’s

 New market consitions require people with higher competence skill and training

Market orientation:

 Earlier firms were following selling concept i.e. produce first and then go to market but now
companies follow marketing concept i.e. planning production on the basis of market research,
need and want of customer

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Loss of Budgetary support to Public Sector:

 Prior to 1991 all the losses of public sector were used to be made good by govt by sanctioning
special funds from budgets
 But today the public sectors have to survive and grow by utilising their resources efficiently
otherwise these enterprises have to face disinvestment
 On a whole LPG brought positive impacts on Indian business and industry

Export a matter of survival:

 Indian businessman was facing global competition and the new trade policy made the external
trade very liberal
 As a result to earn more foreign exchange many Indian companies joined the export business
and got lot of success in that
 Many companies increased their turnover more than double by starting export division

Focus Point

 To sum up, the result of 1991 reforms has been a mixed one. While it has certainly opened
up the economy after decade of keeping India as a ‘protected and virtually closed
economy’ on the plank of Import Substitution policy, and has helped to integrate it with the
global economy, India has not been able to realize the full potential. This is despite having a
large technically skilled workforce and oppurtunities of building a robust manufacturing
base as China did over the last two decades. In hindsight, precious time and ground has
been lost and now India has to compete with other developing countries in East Asia and
Latin America. There is urgent need to push for another round of major reforms which the
present government has embarked upon. But in the democratic framework in which the
country is placed, there are many legislative and political roadblocks which are already
playing out and due to delays caused by them, the country may be forced to pay a heavy
price.

Key Lines in examination point of view

 In 1991 was a major turning point for Indian economy; precarious balance of payments position
and inflationary pressures.
 New Industrial Policy, 1991 was announced on July 24, 1991
 1980s started on a good note – higher GDP growth rate, comfortable food position and
industrial sector looking up; liberalization measures undertaken by Rajiv Gandhi government.
 But problems were building up; considerable increase in gross fiscal deficit and worsening fiscal
imbalance persisted; increase in non developmental expenditure added to the problems.

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 Factors which led to the 1991 economic crisis higher fiscal deficit and unsustainable internal
public debt; foreign exchange position became critical resulting in erosion of international
confidence; inflation was hurting the poorer sections.
 Radical reforms were initiated in 1991 by the government under Narasimha Rao to achieve
macroeconomic stability; measures included containing fiscal deficit, improving balance of
payments position; rupee was devalued in two steps and funds raised the IMF and other
sources.
 New trade policy drawn up replacing the ‘import substitution’ policy followed hitherto; imports
were liberalized and several measures were taken to vigorously promote exports; the economy
was steadily opened up.
 New Industrial Policy was introduced which included industrial delicensing, except in strategic
sectors; foreign investment was promoted to help industries upgrade technology and enhance
their competitiveness; the MRTP Act was repealed and Competition Act of 2002 enacted; public
sector units performing well were to be strengthened while sick units were to be subjected to
disinvestment.
 Growth rate of the economy improved by 1992-93 and again in 1994-95; there were fluctuations
in industrial growth due to cyclical factors, but overall, industry benefited from the new policy;
services sector also made steady advances with its share in GDP touching 48.5 %in 2000-01.
 Significant changes were taking place in sectoral shares in GDP; share of agriculture was
declining and that of industry and services were going up; but these changes were not reflected
in a commensurate way in their shares in employment; agriculture continued to support 55 %of
the worlk force while employment in the services sector showed substantial increases; that in
industry was rather stagnant.
 Providing employment to the huge numbers of youth joining the labourforce, a major challenge.
 Impact of reforms on poverty; despite many rural development and antipoverty programmes
launched, poverty continues to persist through the number of those below the poverty lines has
been coming down; there is also concern about widening inequities in society following the
reform measures.
 While India did integrate with the global economy, she has not been able to realize the full
potential from it unlike Chain could do over the last two decades; India lost precious time in the
process and has now to compete with other emerging nations; India’s legislative and political
roadblocks also hamper rapid development.

Important One Liners:

 In the Industrial Policy 1991, except 18 industries, all others were exempted from compulsory
licensing
 In 1993, Govt announced the exemption of 3 more industries – automobiles, white goods,
leather and leather products

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 In December 1996, electronic goods were exempted

 In July 1997, 5 more industries were exempted
 In the budget 1998-99, coal and petroleum were exempted from compulsory licensing  after
this only 6 industries are under compulsory licensing
1) Alcohol
2) Tobacco
3) Hazardous chemicals
4) Electronic Aerospace and Defence equipments
5) Industrial explosives
6) Drugs and Pharmaceuticals
 In 1956 industrial policy, 17 industries were reserved for the public sector. In 1991, this number
was reduced to 8 industries
1) Arms and ammunition
2) Atomic energy
3) Atomic minerals
4) Coal and lignite
5) Mineral oils
6) Mining of iron ore, manganese ore, chrome ore, gypsum, sulphur, gold and diamond
7) Mining of copper, lead, zinc, tin, molybdenum
8) Mining of wolafarm
 In 1993, 3 industries were de-reserved
I. Atomic energy
II. Atomic minerals
III. Rail transport
 FDI upto 51% foreign equity in high priority industries requiring large investments and advanced
technology was permitted
 With a view to inject techmological dynamism in the Indian Industry, Govt provided automatic
approval for technological agreements related to high priority industries and eased procedures
for hiring of foreign technical expertise
 Policy of Disinvestment  In order to raise resources and ensure wider public participation of
PSUs, it was decided to offer is shareholding stake to mutual funds, financial institutions,
general public and workers
 Policy of MoU  In order to revive and rehabilitate chronically sick PSUs, it was decided to refer
them to the Board for Indistrial and Financial Reconstruction. The policy also provided for
greater managerial autonomy to the Boards of PSUs
 Realizing the increased import competition with the removal of quantitative restrictions since
April 2001, the govt has adopted a policy of dereservation and has pruned the list of items
reserved for Small Scale Industries Sector gradually
 FDI upto 100% has been allowed under automatic route for most manufacturing activites in
SEZs.

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 In 2004, the FDI limits were raised in the private banking sector (upto 74%), oil exploration (upto
100%), petroleum product marketing (upto 100%), petroleum product pipelines (upto 100%),
natural gas and LNG pipelines (upto 100%) and printing of scientific and technical magazines,
periodicals and journals (upto 100%)
 In February 2005, FDI ceiling in telecom sector in certain services were increased from 49% to
74%
 Equity participation upto 24% of the total shareholding in small scale units by other industrial
undertakings has been allowed  enable small sector to access the capital market and
encourage modernization, technological upgradation etc.
 Foreign equity participation upto 100% has been allowed in construction and maintenance of
roads and bridges

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Human Development
Terminology

 Infants exclusively breastfed: Percentage of children ages 0–5 months who are fed
exclusively with breast milk in the 24 hours prior to the survey

 Infants lacking immunization against DPT: Percentage of surviving infants who have not
received their first dose of diphtheria, pertussis and tetanus vaccine.

 Infants lacking immunization against measles: Percentage of surviving infants who have
not received the first dose of measles vaccine.

 Child malnutrition (stunting moderate or severe): Percentage of children ages 0–59

months who are more than two standard deveiations below the median height-for-age
of the World Health Organization Child Growth Standards.

 Infant mortality rate: Probability of dying between birth and exactly age 1, expressed
per 1,000 live births

 Under-five mortality rate: Probability of dying between birth and exactly age 5,
expressed per 1,000 live births.

 Adult mortality rate: Probability that a 15-year-old will die before reaching age 60,
expressed per 1,000 people

 Deaths due to malaria: Number of deaths due to malaria from confirmed and probable
cases, expressed per 100,000 people.

 Deaths due to tuberculosis: Number of deaths due to tuberculosis from confirmed and
probable cases, expressed per 100,000 people.

 HIV prevalence, adult: Percentage of the population ages 15–49 that is living with HIV.

 Life expectancy at age 60: Additional number of years that a 60-year-old could expect to
live if prevailing patterns of age-specific mortality rates stay the same throughout the
rest of his or her life.

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 Physicians: Number of medical doctors (physicians), both generalists and specialists,

expressed per 10,000 people

 Public health expenditure: Current and capital spending on health from government
(central and local) budgets, external borrowing and grants (including donations from
international agencies and nongovernmental organizations) and social (or compulsory)
health insurance funds, expressed as a percentage of GDP.

Definition of Human Development

 Human development is defined as the process of enlarging people’s freedoms and

opportunities and improving their well-being.
 Human development is about the real freedom ordinary people have to decide who to
be, what to do, and how to live.

 Human development grew out of global discussions on the links between economic
growth and development during the second half of the 20th Century.
 By the early 1960s there were increasingly loud calls to “dethrone” GDP: economic
growth had emerged as both a leading objective, and indicator, of national progress in
many countries

Even though GDP was never intended to be used as a measure of wellbeing; in the 1970s and
80s development debate considered using alternative focuses to go beyond GDP, including
putting greater emphasis on employment, followed by redistribution with growth, and then
whether people had their basic needs met.

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These ideas helped pave the way for the human development approach, which is about
expanding the richness of human life, rather than simply the richness of the economy in which
human beings live. It is an approach that is focused on creating fair opportunities and choices
for all people. So how do these ideas come together in the human development approach?

People:

 The human development approach focuses on improving the lives people lead rather
than assuming that economic growth will lead, automatically, to greater opportunities
for all.
 Income growth is an important means to development, rather than an end in itself.

Opportunities:

o Human development is about giving people more freedom and opportunities to live
lives they value.
o In effect this means developing people’s abilities and giving them a chance to use
them.
o For example, educating a girl would build her skills, but it is of little use if she is denied
access to jobs, or does not have the skills for the local labour market

Choices:

 Human development is, fundamentally, about more choice.

 It is about providing people with opportunities, not insisting that they make use of
them.
 No one can guarantee human happiness, and the choices people make are their own
concern.
 The process of development – human development - should atleast create an
environment for people, individually and collectively, to develop to their full potential
and to have a reasonable chance of leading productive and creative lives that they
value.

Concept of Human Development

 The concept of human development was introduced by Dr Mahbub-ul-Haq.

Dr Haq has described human development as development that enlarges people’s choices
and improves their lives. People are central to all development under this concept. These

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choices are not fixed but keep on changing. The basic goal of development is to create
conditions where people can live meaningful lives.

A meaningful life is not just a long one. It must be a life with some purpose. This means that
people must be healthy, be able to develop their talents, participate in society and be free
to achieve their goals.

 Dr Mahbub-ul-Haq and Prof Amartya Sen worked together under the leadership of Dr
Haq to bring out the initial Human Development Reports. Both these South Asian
economists have been able to provide an alternative view of development.

 Dr Mahbub-ul-Haq created the Human Development Index in 1990. According to him,

development is all about enlarging people’s choices in order to lead long, healthy lives
with dignity. The United Nations Development Programme has used his concept of
human development to publish the Human Development Report annually since 1990.

 Nobel Laureate Prof Amartya Sen saw an increase in freedom (or decrease in
unfreedom) as the main objective of development. Interestingly, increasing freedoms
is also one of the most effective ways of bringing about development. His work explores
the role of social and political institutions and processes in increasing freedom.

 Leading a long and healthy life, being able to gain knowledge and having enough means
to be able to live a decent life are the most important aspects of human development
 Therefore, access to resources, health and education are the key areas in human
development

THE FOUR PILLARS OF HUMAN DEVELOPMENT

Idea of human development is supported by the concepts of

1) Equity
2) Sustainability
3) Productivity
4) Empowerment

Equity :

o Equity refers to making equal access to opportunities available to everybody.

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o The opportunities available to people must be equal irrespective of their gender, race,
income and in the Indian case, caste

Example: In any country, it is interesting to see which group the most of the school dropouts
belong to. This should then lead to an understanding of the reasons for such behaviour. In
India, a large number of women and persons belonging to socially and economically backward
groups drop out of school. This shows how the choices of these groups get limited by not
having access to knowledge

Sustainability:

 Sustainability means continuity in the availability of opportunities.

 To have sustainable human development, each generation must have the same
opportunities.
 All environmental, financial and human resources must be used keeping in mind the
future.
 Misuse of any of these resources will lead to fewer opportunities for future generations.

Example: Importance of sending girls to school  If a community does not stress the
importance of sending its girl children to school, many opportunities will be lost to these young
women when they grow up. Their career choices will be severely curtailed and this would affect
other aspects of their lives. So each generation must ensure the availability of choices and
opportunities to its future generations.

Productivity:

 Productivity here means human labour productivity or productivity in terms of human

work.
 Such productivity must be constantly enriched by building capabilities in people.
 Ultimately, it is people who are the real wealth of nations. Therefore, efforts to increase
their knowledge, or provide better health facilities ultimately leads to better work
efficiency

Empowerment:

 Empowerment means to have the power to make choices.

 Such power comes from increasing freedom and capability.
 Good governance and people-oriented policies are required to empower people.
 The empowerment of socially and economically disadvantaged groups is of special
importance

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Approaches to Human Development

(a) Income approach

(b) Welfare approach
(c) Minimum needs approach
(d) Capabilities approach

Income approach:

 This is one of the oldest approaches to human development.

 Human development is seen as being linked to income.
 The idea is that the level of income reflects the level of freedom an individual enjoys.
 Higher the level of income, the higher is the level of human development.

Welfare approach:

 This approach looks at human beings as beneficiaries or targets of all development

activities.
 The approach argues for higher government expenditure on education, health, social
secondary and amenities.
 People are not participants in development but only passive recipients.
 The government is responsible for increasing levels of human development by
maximising expenditure on welfare.

Minimum needs approach:

 This approach was initially proposed by the International Labour Organisation (ILO).
 Six basic needs i.e.: health, education, food, water supply, sanitation, and housing were
identified.
 The question of human choices is ignored and the emphasis is on the provision of basic
needs of defined sections.

Capabilities approach:

 This approach is associated with Prof. Amartya Sen.

 Building human capabilities in the areas of health, education and access to resources is
the key to increasing human development.

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http://ncert.nic.in/ncerts/l/lhgy104.pdf
http://dev-hdr.pantheonsite.io/sites/default/files/hdr2016_technical_notes_0.pdf

Human Development Index

The HDI was created to emphasize that people and their capabilities should be the ultimate
criteria for assessing the development of a country, not economic growth alone. The HDI can
also be used to question national policy choices, asking how two countries with the same level
of GNI per capita can end up with different human development outcomes. These contrasts can
stimulate debate about government policy priorities.

 The Human Development Index (HDI) is a summary measure of average achievement in

key dimensions of human development: a long and healthy life, being knowledgeable
and have a decent standard of living. The HDI is the geometric mean of normalized
indices for each of the three dimensions.
 The health dimension is assessed by life expectancy at birth, the education dimension is
measured by mean of years of schooling for adults aged 25 years and more and
expected years of schooling for children of school entering age.
 The standard of living dimension is measured by gross national income per capita.
 The HDI uses the logarithm of income, to reflect the diminishing importance of income
with increasing GNI.

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The scores for the three HDI dimension indices are then aggregated into a composite index
using geometric mean.

The HDI simplifies and captures only part of what human development entails. It does not
reflect on inequalities, poverty, human security, empowerment, etc.

A fuller picture of a country's level of human development requires analysis of other indicators
and information presented in the statistical annex of the report.

 Human Development Index (HDI) is a summary measure of achievements in three key

dimensions of human development: a long and healthy life, access to knowledge and a
decent standard of living.
 The HDI is the geometric mean of normalized indices for each of the three dimensions.

Steps to calculate the Human Development Index

Step 1: Creating the dimension indices

Minimum and maximum values (goalposts) are set in order to transform the indicators
expressed in different units into indices on a scale of 0 to 1.

 Life expectancy at 20 years is based on historical evidence that no country in the 20th
century had a life expectancy of less than 20 years

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 Societies can subsist without formal education, justifying the education minimum of 0
years
 The maximum for expected years of schooling, 18, is equivalent to achieving a master’s
degree in most countries. The maximum for mean years of schooling, 15,is the projected
maximum of this indicator for 2025
 The low minimum value for gross national income (GNI) per capita, $100, is justified by
the considerable amount of unmeasured subsistence and nonmarket production in
economies close to the minimum
 The maximum is set at $75,000 per capita. Kahneman and Deaton (2010) have shown
that there is virtually no gain in human development and well-being from income per
capita above $75,000.
 Currently, only four countries (Kuwait, Liechtenstein, Qatar and Singapore) exceed the
$75,000 income per capita ceiling

Having defined the minimum and maximum values, the dimension indices are calculated as

For the education dimension, this equation is first applied to each of the two indicators,
and then the arithmetic mean of the two resulting indices is taken.

Step 2: Aggregating the dimensional indices to produce the Human Development Index

HDI is the geometric mean of the three dimension indices:

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Country Groupings:

Positive Aspects (Human Development Report):

 In India, between 1990 and 2015, life expectancy has improved by 10.4 years.
 Child malnutrition declined by 10% points from 2015.
 There were some modest gain in infant and under-five mortality rates.
 The report praised India’s reservation policy, saying even though it has not remedied
caste-based exclusions, it has had substantial positive effects.

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 It also hailed the MGNREGA, Right to Information, National Food Security, and Right to
Education Acts.
 It commended the Indian grassroots group Mazdoor Kisan Shakti Sanghatan for
popularising social audits of government schemes.

What needs to be done?

After 1990, the rise in incomes that came with a more open economy has not translated
into a higher quality of life for many Indians.
Significant inequalities persist, particularly between States and regions, which act as
major barriers to improvement.
A central focus on social indicators is necessary for India to break free from its position
as an underachiever.
More should be done to eliminate subsidies for the richest quintile.
The rise in revenues should go towards making public education of high standards
accessible to all and delivering on the promised higher budgetary outlay for health care.
One crucial metric that gets insufficient attention in the measurement of development
is the state of democracy, reflected among other things in access to justice.
It is relevant to point out that India has not ratified UN conventions on torture, rights of
migrant workers and their families, and protection against enforced disappearance.
Sustaining and improving the quality of life will depend on policies crafted to handle
major emerging challenges such as urbanisation, the housing deficit, access to power,
water, education and health care.

What does the Human Development Index tell us?

o The Human Development Index (HDI) was created to emphasize that expanding human
choices should be the ultimate criteria for assessing development results.
o Economic growth is a mean to that process, but is not an end by itself.
o The HDI can also be used to question national policy choices, asking how two countries
with the same level of Gross National Income (GNI) per capita can end up with different
human development outcomes.
o For example, Malaysia has GNI per capita higher than Chile, but in Malaysia, life
expectancy at birth is about 7 years shorter and expected years of schooling is 3 years
shorter than in Chile, resulting in Chile having a much higher HDI value than Malaysia.
o These striking contrasts can stimulate debate about government policy priorities.

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What are the criteria for a country to be included in the HDI?

o The Human Development Report Office strives to include as many UN member

countries as possible in the HDI.
o To include a country in the HDI they need recent, reliable and comparable data for all
three dimensions of the Index.
o For a country to be included, statistics should ideally be available from the national
statistical authority through relevant international data agencies.

Why is it important to express GNI per capita in purchasing power parity (PPP) international
dollars?

o The HDI attempts to make an assessment of 188 diverse countries and territories, with
very different price levels.
o To compare economic statistics across countries, the data must first be converted into a
common currency.
o Unlike market exchange rates, PPP rates of exchange allow this conversion to take
account of price differences between countries.
o In that way GNI per capita (PPP $) better reflects people's living standards uniformly.
o In theory, 1 PPP dollar (or international dollar) has the same purchasing power in the
domestic economy of a country as US$1 has in the US economy.
o The current PPP conversion rates have been introduced in May 2014 they were based
on the 2011 International Comparison Programme (ICP) Surveys, which covered 199
economies from all geographical regions and from the OECD.

Can GNI per capita be used to measure human development instead of the HDI?

o No. Income is a means to human development, and not the end.

o The GNI per capita only reflects average national income.
o It does not reveal how that income is spent, nor whether it translates to better health,
education and other human development outcomes.
o In fact, comparing the GNI per capita rankings and the HDI rankings of countries can
reveal much about the results of national policy choices.

Can the HDI alone measure a country’s level of human development?

o No. The concept of human development is much broader than what can be captured by
the HDI, or by any other composite index in the Human Development Report
(Inequality-adjusted HDI, Gender development index, Gender Inequality Index or
Multidimensional Poverty Index).

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o The composite indices are a focused measure of human development, zooming in on a

few selected areas.
o A comprehensive assessment of human development requires analysis of other human
development indicators and information presented in the statistical annex of the report

Can the HDI indicators be adapted to compute the HDI at the country level?

o Yes, the HDI indicators can be adapted to country-specific indicators provided they meet
other aspects of statistical quality.
o For example, some countries have used under-5 mortality rates at sub-national levels
instead of life expectancies and some have used average disposable income per capita
instead of GNI per capita.
o The HDI can also be disaggregated at sub-national level to compare levels and
disparities among different subpopulations within a country, provided that appropriate
data at the level of disaggregation are available or can be estimated using sound
statistical methodology.
o The highlighting of internal disparities using HDI methodology has prompted
constructive policy debates in many countries.

Why is geometric mean used for the HDI rather than the arithmetic mean?

o In 2010, the geometric mean was introduced to compute the HDI.

o Poor performance in any dimension is directly reflected in the geometric mean. That is
to say, a low achievement in one dimension is not anymore linearly compensated for by
high achievement in another dimension.
o The geometric mean reduces the level of substitutability between dimensions and at the
same time ensures that a 1 percent decline in index of, say, life expectancy has the same
impact on the HDI as a 1 percent decline in education or income index.
o Thus, as a basis for comparisons of achievements, this method is also more respectful of
the intrinsic differences across the dimensions than a simple average.

What is the effect of fixing the maximum of GNI per capita at $75,000?

o Income is instrumental to human development, but the contribution diminishes as

incomes rise.
o Also a high income without being translated into other human development outcomes
is of less relevance for human development.
o Fixing the maximum at $75,000 means that for countries with GNI per capita greater
than $75,000, only the first $75,000 contributes to human development.
o In this way the higher income is prevented from dominating the HDI value. Currently
only 4 countries with GNI pc above the cap – Liechtenstein, Kuwait, Qatar and
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Singapore. The projections based on fairly realistic growth rates have shown that by
2018 not more than five countries will exceed the limit.

Are the HDI dimensions weighted equally?

o The HDI assigns equal weight to all three dimension indices; the two education sub-
indices are also weighted equally.
o The choice of weights is based on the normative assumption that all human beings value
three dimensions equally.
o The choice of minima and maxima for transformation of component indicators into
indices gives more equal ranges of variation of dimension indices - implying that the
effective weights are more equal than it was before.

Why does the HDI not include dimensions of participation, gender and equality?

o As a simple summary index, the HDI is designed to reflect average achievements in

three basic aspects of human development – leading a long and healthy life, being
knowledgeable and enjoying a decent standard of living.
o Participation and other aspects of well-being are measured using a range of objective
and subjective indicators and are discussed in the Report.
o Measurement issues related to these aspects of human development demonstrate the
conceptual and methodological challenges that need to be further addressed.

Why India is not improving its rank in HDI ?

 1.5 billion people worldwide still live in multidimensional poverty, 54% of them
concentrated in South Asia. While poverty fell significantly from 1990 to 2015,
inequalities sharpened in the region. India shares major portion of this population
 Due to lesser spending on health , India shares a huge burden of NCDs & other diseases.
Out of pocket expenditure , lack of awareness , focus on curative rather than preventive
low insurance penetration all these causes high IMR & MMR . Thus India scored poorly
in life expectancy
 Prevalent discrimination in society holds the women, disabled & other marginalised
sections to enroll in schools & colleges. People opt for informal employments earlier in
the life due to poverty thus resulting in exodus from schools & colleges.
 Huge population is a burden on India . Though Economic reforms, distributive policies of
government have resulted in increase in Per capita income, though the increase in
insignificant due to huge population. Unemployment, lack of infrastructure, skills. Rising
NPAs catch the growth, thus there is a reduction in per capita income.

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 The success of national development programs like Skill India, Digital India, Make in
India and Beti Bachao Beti Padhao, aimed at bridging gaps in human development, will
be crucial in ensuring the success of Agenda 2030.
 Human development is crucial in order to be benefitted from demographic dividend
hence work on improving it must be done on war footing level.

Inequality-adjusted HDI (IHDI)

 The Inequality-adjusted Human Development Index (IHDI) adjusts the Human

Development Index (HDI) for inequality in distribution of each dimension across the
population.
 The IHDI accounts for inequalities in HDI dimensions by “discounting” each dimension’s
average value according to its level of inequality.
 If there is no inequality across people, HDI is equal to IHDI. However, in case of
inequalities, the value of IHDI is always less than HDI. This implies that the IHDI is the
actual level of human development (accounting for this inequality), while the HDI can
be viewed as an index of “potential” human development (or the maximum level of
HDI) that could be achieved if there was no inequality.
 The “loss” in potential human development due to inequality is given by the difference
between the HDI and the IHDI and can be expressed as a percentage.

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Gender related Development Index (GDI)

The Gender related Development Index (GDI) measures gender inequalities in achievement in
three basic dimensions of human development as follows:

 Health, which is measured by female and male life expectancy at birth

 Education, which is measured by female and male expected years of schooling for
children and female and male mean years of schooling for adults ages 25 and older
 Command over economic resources, measured by female and male estimated earned
income
 The index shows the loss in human development due to inequality between female and
male achievements in these dimensions. It ranges from 0, which indicates that women
and men fare equally, to 1, which indicates that women fare as poorly in comparison to
their male counterparts as possible in all measured dimensions.
 In order to address shortcomings of the GDI, a new index Gender Inequality Index (GII)
was proposed. This index measures three dimensions viz. Reproductive Health,
Empowerment, and Labor Market Participation.

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Multidimensional Poverty Index (MPI)

The Multidimensional Poverty Index (MPI) identifies multiple deprivations at the individual
level in health, education and standard of living. It uses micro data from household surveys, as
basis of deprivation of Cooking fuel, Toilet, Water, Electricity, Floor, Assets. Each person in a
given household is classified as poor or non-poor depending on the number of deprivations his
or her household experiences. These data are then aggregated into the national measure of
poverty. The indicator thresholds for households to be considered deprived are as follows:

Education

 School attainment: no household member has completed at least six years of schooling.
 School attendance: a school-age child (up to grade 8) is not attending school.

Health

 Nutrition: a household member (for whom there is nutrition information) is

malnourished, as measured by the body mass index for adults (women ages 15–49 in
most of the surveys) and by the height-for-age z score calculated using World Health
Organization standards for children under age 5.
 Child mortality: a child has died in the household within the five years prior to the
survey.

Standard of living

 Electricity: not having access to electricity.

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 Drinking water: not having access to clean drinking water or if the source of clean
drinking water is located more than 30 minutes away by walking.
 Sanitation: not having access to improved sanitation or if improved, it is shared.
 Cooking fuel: using ‘dirty’ cooking fuel (dung, wood or charcoal).
 Having a home with a dirt, sand or dung floor.
 Assets: not having at least one asset related to access to information (radio, TV,
telephone) and not having at least one asset related to mobility (bike, motorbike, car,
truck, animal cart, motorboat) or at least one asset related to livelihood (refrigerator,
arable land, livestock).

Computation of the Multi-Dimensional Poverty Index (MDPI) reveals that, despite recent
progress in poverty reduction, more than 2.2 billion people are either near or living in
multidimensional poverty.

Gender Inequality Index

 Gender inequality remains a major barrier to human development.

 Girls and women have made major strides since 1990, but they have not yet gained
gender equity.
 The disadvantages facing women and girls are a major source of inequality.
 Women and girls are discriminated against in health, education, political representation,
labour market, etc.—with negative consequences for development of their capabilities
and their freedom of choice.

 The GII is an inequality index. It measures gender inequalities in three important

aspects of human development
1) Reproductive health, measured by maternal mortality ratio

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2) Adolescent birth rates; empowerment, measured by proportion of

parliamentary seats occupied by females and proportion of adult females and
males aged 25 years and older with at least some secondary education;
3) Economic status, expressed as labour market participation and measured by
labour force participation rate of female and male populations aged 15 years and
older.

 The GII is built on the same framework as the IHDI—to better expose differences in the
distribution of achievements between women and men. It measures the human
development costs of gender inequality. Thus the higher the GII value the more
disparities between females and males and the more loss to human development.
 The GII sheds new light on the position of women in 159 countries; it yields insights in
gender gaps in major areas of human development. The component indicators highlight
areas in need of critical policy intervention and it stimulates proactive thinking and
public policy to overcome systematic disadvantages of women.

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Poverty
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 plagued with mass poverty
 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

The UN Human Rights Council has defined poverty as “A human condition characterized by the
sustained or chronic deprivation of the resources, capabilities, choices, security and power
necessary for the enjoyment of an adequate standard of living and other civil, cultural, economic,
political and social rights”.

Three percepts are often used to define poverty Absolute Poverty

I. The amount of money required by a person to subsist I and II

II. The life below a ‘minimum sub­sistence level’ and ‘living standard’ prevalent at a given time
in a given place
III. The comparative state of well-being of a few and the deprivation and destitution of the
majority in society  social concept in terms of the share of the total national income
received by those at the bottom

Types of Poverty:

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 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 is considered to be the
absolute poverty of a person whose income or consumption expenditure is so meagre that he
lives below the minimum subsistence level is called absolute poverty
 As per ICMR, 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 on daily basis

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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% with bottom
5 to 10% 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 income groups receive less than those in the higher income groups
 The people with lower income groups 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
 It is the absolute poverty with which we are concerned when we talk of the problem of poverty
in India
 Advanced countries such as 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

Behaviouristic concept of poverty:

 Along with absolute and relative poverty, a behaviouristic concept of poverty has been attracted
with great interest of the academicians in recent years.

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 The first studies of household show that, more income was spent on consumption of food which
is rather known as Engle's Law

 Poverty can be defined objectively as well as poverty is because of lack of resources to obtain
diet, lack of participation in activities by the poor and the negligence of economic resource like
capital assets, fringe benefits, public social services, income in kind etc.

Always poor:

 These people are never having income above poverty line in their lifetime

Usually poor:

 Those people who are generally poor but who may sometimes have a little more money.
ex: casual workers

Chronic poor:

 Always poor and usually poor together are categorised under chronic poor.

Churning poor:

 Those people who regularly move in and out of poverty. ex: small farmers and seasonal workers

Occasionally poor:

 Those who are rich most of the time but may sometimes have a patch of bad luck.

Transient poor:

 Churning poor and occasionally poor are categorised under this.

Non – Poor:

 Those who are never poor in their lifetime

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How to measure Poverty ??

 Head count ratio (HCR) is the proportion of a population that exists, or lives, below the
poverty line
 Poverty headcount ratio at national poverty line (percentage of population) in India was last
reported at 21.9% in 2011-12
 Definition:-When the number of poor is estimated as the proportion of people below the
poverty line, it is known as 'head count ratio'.

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Poverty gap index:

 Poverty gap is the difference between the poor’s expenditure or income and the pre-
determined poverty line
 Poverty gap index is a measure of the intensity of poverty
 Defined as the average poverty gap in the population as a proportion of the poverty line
 Poverty gap index is an improvement over the poverty measure headcount ratio which simply
counts all the people below a poverty line, in a given population, and considers them equally
poor
 Poverty gap index estimates the depth of poverty by considering how far, on the average, the
poor are from that poverty line
 The most common method of measuring and reporting poverty is the headcount ratio, given
as the percentage of population that is below the poverty line.
 One of the undesirable features of the headcount ratio is that it ignores the depth of poverty; if
the poor become poorer, the headcount index does not change
 Poverty gap index provides a clearer perspective on the depth of poverty. It enables poverty
comparisons. It also helps provide an overall assessment of a region's progress in poverty
alleviation and the evaluation of specific public policies or private initiatives

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Squared Poverty Gap Index:

 Weighted PGI is squared poverty gap index

 Here more weight is given to the poorest among the poor
 Squared Poverty Gap Index determines the degree of poverty for a given area.
 This method squares the poverty gap for each individual/household, and thus puts more
emphasis on observations that fall far short of the poverty line rather than those that are closer.
 This measure is a member of the FGT (Foster, Greer, Thorbecke) family of poverty measures
 Squared Poverty Gap Index is very similar to the Poverty Gap Index because it also weights the
poor based on how poor they are. The difference between them is that the shortfalls of people
below the poverty line are squared giving the very poor much more weight than those falling
only a few cents short of the poverty line
 Squared Poverty Gap Index is more beneficial to the poor who are further away from the
poverty because they will not receive the same amount of aid from the government.

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Dimensions of Poverty:

 Although household expenditure levels remain the main measure of living standard by which
incidence of poverty is measured, and the Human Consumption Rate has become the main
indicator of poverty.
 But the UN Human Development Index (HDI) captures the multidimensional nature of
deprivation in living standards. Income should be regarded as a means to improve human
welfare, not as an end in itself.
 Further Human and gender development indicators have been used successfully for advocacy,
for ranking of geographical spaces and to capture improvements in human well-being more
reliably than per capita income.
 The HDI is a simple average of three dimension indices, which measure average achievements
in a country with regard to ‘a long and healthy life’, ‘knowledge’ and ‘a decent standard of
living’

 Related to this only the Ministry of Women and Child Development uses the
infant mortality rate (IMR) and life expectancy at age 1 to estimate a long and
healthy life
7+ literacy rate and mean years of education for the 15+ age group to estimate
knowledge
estimated earned income per capita per year to capture a decent standard of living.

 Alkire and Santos in 2010 presented the Multidimensional Poverty Index (MPI), which reflects
the deprivations that a poor person faces simultaneously with respect to education, health and

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living standards. This reflects the same three dimensions of welfare as the HDI but the indicators
are different in each case and are linked to the MDGs.

The components of MPI are:

1. Education(each indicator is weighted equally at 1/6)

 Years of Schooling:deprived if no household member has completed five years of

schooling
 Child Enrolment:deprived if any schoolaged child is not attending school in yrs 1 to 8

2. Health(each indicator is weighted equally at 1/6)

 Child Mortality:deprived if any child has died in the family
 Nutrition:deprived if any adult or child for whom there is nutritional information, is
malnourished

3. Standard of Living(each indicator is weighted equally at 1/18)

 Electricity:deprived if the household has no electricity.
 Drinking water:deprived if the household does not have access to drining water or clean
water is more than 30 minutes walk from home
 Sanitation:deprived if they do not have an improved toilet or if their toilet is shared
 Flooring:deprived if the household has dirt, sand or dung floor
 Cooking Fuel:deprived if they cook with wood, charcoal and dung
 Assets:deprived if the household does not own more than one of: radio, TV, telephone,
bike and do not own a car or tractor

Hence poverty is determined with regard to not only income or expenditure but also access to a number
of other necessities. Based on this measure 55% of India’s population in 2005 was classified as poor

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Poverty Line:

NITI Aayog (earlier planning commission) estimates poverty using NSSO data
Every 5 years, NSSO conducts surveys to collect household consumption expenditure
Monthly per capita consumption expenditure is used to determine poverty line
Poverty line estimates vary depending on the methodologies developed by various expert
panels
Ministry of Rural Development conducts BPL census

How Poverty Line is Estimated in India?

 The history of counting the poor in India can be dated back to the 19th century.
 The earliest effort to estimate the poor was Dadabhai Naoroji’s “Poverty and Un-British Rule in
India” in which he estimated a subsistence-based poverty line at 1867-68 prices.
 Using the diet prescribed to “supply the necessary ingredients for the emigrant coolies during
their voyage living in a state of quietude”, which includes “rice or flour, dhal, mutton,

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vegetables, ghee, vegetable oil and salt”, he came up with a subsistence cost based poverty line,
ranging from Rs. 16 to Rs. 35 per capita per year in various regions of India.
 Next, in 1938, the National Planning Committee (NPC) estimated a poverty line ranging from
Rs 15 to Rs 20 per capita per month. Like the earlier method, the NPC also formulated its
poverty line based on ‘a minimum standard of living perspective in which nutritional
requirements are implicit’.
 In 1944, the authors of the ‘Bombay Plan’ (Thakurdas et al 1944) suggested a poverty line of Rs
75 per capita per year.
 Whereas after independence the Planning Commission has been estimating the number of
people below the poverty line (BPL) at both the state and national level based on consumer
expenditure information collected as part of the National Sample Survey Organization (NSSO)
since the Sixth Five Year Plan.
 In 1962, the Planning Commission constituted a working group to estimate poverty
nationally, and it formulated separate poverty lines for rural and urban areas – of Rs 20 and
Rs 25 per capita per year respectively.
 The estimation of the poverty is done by the planning commission on the basis o f large sample
survey of the consumer expenditure carried out by the National Sample Survey office (NSSO)
carried out after an interval of 5 years.
 The Ministry of Rural development conducts the Below Poverty Line(BPL) Census with
the objective of identifying the BPL households in rural areas, who could be assisted under
various programmes of the ministry.

The recommendations of different committees for estimation of poverty:

VM Dandekar and N Rath

o Made the first systematic assessment of poverty in India in 1971, based on National Sample
Survey (NSS) data from 1960-61.
o They argued that the poverty line must be derived from the expenditure that was adequate to
provide 2250 calories per day in both rural and urban areas.
o This generated debate on minimum calorie consumption norms while estimating poverty and
variations in these norms based on age and sex

Lakdawala Committee (1993)

 The Lakdawala Committee defined the poverty line based on per capita consumption
expenditure as the criterion to determine the persons living below poverty line.
 The per capita consumption norm was fixed at Rs.49.09 per month in the rural areas and
Rs.56.64 per month in the urban areas at 1973-74 prices at national level, corresponding to a
basket of goods and services anchored in a norm of per capita daily calorie intake of 2400 kcal
in the rural areas and 2100 kcal in the urban areas.

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Suggestions:

(i) Consumption expenditure should be calculated based on calorie consumption as earlier

(ii) State specific poverty lines should be constructed and these should be updated using the
Consumer Price Index of Industrial Workers (CPI-IW) in urban areas and Consumer Price
Index of Agricultural Labour (CPI-AL) in rural areas
(iii) Discontinuation of ‘scaling’ of poverty estimates based on National Accounts Statistics.

This assumes that the basket of goods and services used to calculate CPI-IW and CPI-AL
reflect the consumption patterns of the poor.

Tendulkar Committee (2009) Report to Review the Methodology for Estimation of Poverty

 The Planning Commission constituted an Expert Group in December 2005 under the
Chairmanship of Professor Suresh D. Tendulkar to review the methodology for estimation of
poverty.
 The Expert Group submitted its report in December 2009.
 While acknowledging the multidimensional nature of poverty, the Expert Group recommended
moving away from anchoring poverty lines to the calorie - intake norm to adopting MRP based
estimates of consumption expenditure as the basis for future poverty lines and MRP
equivalent of the urban poverty line basket (PLB) corresponding to 25.7 % urban headcount
ratio as the new reference PLB for rural areas.
 On the basis of the above methodology, the all-India rural poverty headcount ratio for 2004-05
was estimated at 41.8 %, urban at 25.7 %, and all- India at 37.2 %

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Saxena Committee Report to Review the Methodology for Conducting BPL Census in Rural Areas

 An Expert Group headed by Dr N.C. Saxena was constituted by the Ministry of Rural
Development to recommend a suitable methodology for identification of BPL families in rural
areas.
 The Expert Group submitted its report in August 2009 and recommended doing away with
score-based ranking of rural households followed for the BPL census 2002.
 The Committee recommended automatic exclusion of some privileged sections and automatic
inclusion of certain deprived and vulnerable sections of society, and a survey for the remaining
population to rank them on a scale of 10.

Other imp committees:

o Alagh Committee (1979)

o Dr. Arjun sengupta committee for poverty related to unorganised sector (Rs. 20 per day
criteria)
o Rangarajan Committee
o World Bank's “money metric” approach

Alagh Committee (1979):

 In 1979, a task force constituted by the Planning Commission for the purpose of poverty
estimation, chaired by YK Alagh, constructed a poverty line for rural and urban areas on
the basis of nutritional requirements.
 As per the recommendations poverty line was devised to be 2400 calories for rural and 2100
calories for urban

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Automatic Exclusion

Households that fulfil any of the following conditions will not be surveyed for BPL census:

1.Families who own double the land of the district average of agricultural land per agricultural
household if partially or wholly irrigated (three times if completely unirrigated).
2.Families that have three or four wheeled motorized vehicles, such as, jeeps and SUVs.
3.Families that have at least one mechanized farm equipment, such as, tractors, power tillers, threshers,
and harvesters.
4.Families that have any person who is drawing a salary of over Rs. 10,000 per month in a non-
government/ private organization or is employed in government on a regular basis with pensionary or
equivalent benefits.
5.Income tax payers

Automatic Inclusion

The following would be compulsorily included in the BPL list:

1.Designated primitive tribal groups.
2.Designated most discriminated against SC groups, called Maha Dalit groups.
3.Single women-headed households.
4.Households with a disabled person as breadwinner.
5 Households headed by a minor.
6.Destitute households which are dependent predominantly on alms for survival.
7.Homeless households.
8.Households that have a bonded labourer as member.

 Poverty Line Basket (PLB) is a socially acceptable minimal basket of inter-dependent basic
human needs that are satisfied through the market purchases.
 The all India rural and urban PLB are derived separately for urban and rural areas based on per
capita calorie norms of 2400 (rural) & 2100 (urban). It is specified in terms of required per
capita total household consumer expenditure to achieve this level of calorie intake.

The amount required for this has to be determined and those who earn less than this
level are considered to be living below poverty line. The first stage to identify the poor is to fix the
poverty line. This is an imaginary line. The usual procedure in India is to decide the poverty line keeping
that as the yardstick.

On the basis of this, in 2004-2005, it was decided that a person earning less than Rs. 356.30 in
rural areas and Rs.538.60 in urban areas, in a month, falls below the poverty line.

 Poverty ratio can be found out by dividing the number of poor by the total population.
 Poverty ratio shows the percentage of people living below the poverty line.

 It is important to understand that a poverty line is essentially a monetary value.

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 The idea is to collect data on people’s consumption expenditure, and to ascertain how many
people surveyed fall below that poverty line.
 In India, there were two main ways of collecting data: Uniform Reference Period (URP) and
Mixed Reference Period (MRP)
 Up until 1993-94, the poverty line was based on URP data. This involved asking people about
their consumption expenditure across a 30-day recall period. In other words, the information
was based on the recall of consumption expenditure over the last month alone.
 Since 1999-2000, however, data are being collected according to MRP. Under this method,
data on five less-frequently used items are collected over a one-year period, while sticking to
the 30-day recall for the rest of the items. The low-frequency items include expenditure on
health, education, clothing, durables etc.
 Currently, all poverty line data are compiled using the MRP method. These include the most
recent estimates by the Suresh Tendulkar and Rangarajan Committees.

 World Bank has used a new method for collecting data, called the modified mixed reference
period, or MMRP for estimating 2011-12 poverty rates
 In this method, for some food items, instead of a 30-day recall, only a 7-day recall is collected.
Also, for some low-frequency items, instead of a 30-day recall, a 1-year recall is collected. This
is believed to provide a more accurate reflection of consumption expenditures.
 When such data was collected, consumption expenditures for people in both urban and rural
areas went up by 10 % to 12 %
 This happened essentially because people could better recall their food expenditure over a
shorter, 7-day period than what they might have done over the longer 30-day period. The higher
expenditures, combined with the high population density around the poverty line, essentially
meant that the poverty rate for India (for 2011-12) came down sharply.
 MMRP method was first used in 2009-10, alongside MRP

MMRP was used by Rangarajan Committee for the first time in India to estimate poverty
Mixed Reference Period (MRP)  reference period for 5 non-food items (education,
institutional medical expenses, clothing, footwear and durable goods) changed to 1 year
Uniform Reference Period (URP)  used by NITI Aayog to estimate poverty line

World Bank Approach for Calculating Poverty:

 The World Bank uses the “money metric” approach, whereby it converts the “one dollar per
day” international poverty line into local currencies using “purchasing power parity” conversion
factors.
 It then uses national household surveys to identify the number of persons whose local income
is lower than the national poverty lines.

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 Both the dollar a day and $1.25 measures indicate that India has made steady progress against
poverty since the 1980s, with the poverty rate declining at a little under one percentage point
per year.
 This means that the number of very poor people who lived below a dollar a day in 2005 has
come down from 296 million in 1981 to 267 million in 2005.
 However, the number of poor people living under $1.25 a day has increased from 421 million in
1981 to 456 million in 2005.
 This indicates that there are a large number of people living just above this line of deprivation (a
dollar a day) and their numbers are not falling.

There have been many criticisms against the World Bank’s approach to measuring poverty.

 Firstly, the Bank’s method is unreliable because its results are excessively dependent on the
chosen PPP base year. The Bank compares the consumption expenditure of a person in one
country and year with that of another person from another country and year, by using national
CPIs that deflate or inflate the two national currency amounts into “equivalent” amounts of a
common base year, and then using PPPs for this base year to compare the resulting national-
currency amounts. PPPs of different base years and the CPIs of different countries each weigh
prices of underlying commodities differently, as they reflect distinct global and national
consumption patterns. As a result, comparisons over space and time together are path
dependent: if they are undertaken in different ways they may lead to different results.

 Secondly, consumption patterns vary from country to country for reasons of tastes, as actual
consumption patterns are strongly influenced by prices and by the existing income distribution.

 Thirdly, the Bank’s estimates of global poverty involve errors due to measurement problems
associated with the data used under the Bank’s preferred approach.

Linkage between Poverty and Development:

 Economic growth is the most powerful instrument for reducing poverty and improving the
quality of life in developing countries.
 Thus Poverty is inter-related to problems of underdevelopment.
 In rural and urban communities, poverty can be very different. In urban areas people often have
access to health and education but many of the problems caused by poverty are made worse by
things like overcrowding, unhygienic conditions, pollution, unsafe houses, etc.
 In rural areas there is often poor access to education, health and many other services but
people usually live in healthier and safer environments.
 Growth can generate virtuous circles of prosperity and opportunity.

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 Strong growth and employment opportunities improve incentives for parents to invest in their
children’s education by sending them to school.
 This may lead to the emergence of a strong and growing group of entrepreneurs, which should
generate pressure for improved governance.
 Strong economic growth therefore advances human development, which, in turn, promotes
economic growth.
 A typical estimate from cross-country studies reveal that a 10 % increase in a country’s average
income will reduce the poverty rate by between 20% and 30 %.

Some examples:

1.China alone has lifted over 450 million people out of poverty since 1979. Evidence shows that rapid
economic growth between 1985 and 2001 was crucial to this enormous reduction in poverty.

2.India has seen significant falls in poverty since the 1980s. This has been strongly related to India’s
impressive growth record over this period.

3.Mozambique illustrates the rapid reduction in poverty associated with growth over a shorter period.
Between 1996 and 2002, the economy grew by 62 per cent and the proportion of people living in
poverty declined from 69 % to 54 %

 A successful strategy of poverty reduction must have at its core measures to promote rapid and
sustained economic growth.
 The challenge for policy is to combine growth promoting policies with policies that allow the
poor to participate fully in the opportunities unleashed and so contribute to that growth.
 This includes policies to make labour markets work better, remove gender inequalities and
increase financial inclusion.

Thus India’s most recent development plan has the main objective of raising economic growth and
making growth more inclusive.

Sustainable development in the developing countries should include the following:

o Increases in real income especially for the ‘wretched of the earth’. This implies poverty
alleviation
o Improvements in health and nutritional status especially children and young mothers who are
vulnerable to most preventable diseases
o Education achievement
o Access to resources
o A fairer equitable distribution of income. The basic salary of the least paid worker should be
adequate to maintain his nuclear family
o Increases in basic freedoms and guaranteed security of all citizens; respect and responsible
relationship with ecosystem

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Causes of Poverty in India

All types of poverty and deprivation in India are caused by the following factors.

Colonial Exploitation:

 Colonial rule in India is the main reason of poverty and backwardness in India.
 The Mughal era ended about 1800.
 The Indian economy was purposely and severely de-industrialized through colonial
privatizations.
 British rule replaced the wasteful warlord aristocracy by a bureaucratic- military establishment.
 However, colonial exploitation caused backwardness in India. In 1830, India accounted for
17.6 % of global industrial production against Britain's 9.5%, but, by 1900, India's share was
down to 1.7 % against Britain's 18.5 %.
 This view claims that British policies in India, exacerbated by the weather conditions led to mass
famines, roughly 30 to 60 million deaths from starvation in the Indian colonies.
 Community grain banks were forcibly disabled, land was converted from food crops for local
consumption to cotton, opium, tea, and grain for export, largely for animal feed.

Lack of Investment for the Poor:

 There is lack of investment for the development of poorer section of the society.
 Over the past 60 years, India decided to focus on creating world class educational institutions
for the elite, whilst neglecting basic literacy for the majority.
 This has denied the illiterate population - 33 % of India - of even the possibility of escaping
poverty.
 There is no focus on creating permanent income-generating assets for the poor. Studies on
China (2004) also indicated that since universal and free healthcare was discontinued in 1981,
approximately 45 million (5 per cent of its 900 million rural population) took on healthcare-
related debts that they could not repay in their lifetimes.
 Since then, the government has reintroduced universal health care for the population.
 Given India's greater reliance on private healthcare spending, healthcare costs are a significant
contributor to poverty in India.

Social System in India:

 The social system is another cause of poverty in India.

 The social subsystems are so strongly interlocked that the poor are incapable of overcoming the
obstacles.

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 A disproportionally large number of poor people are lower caste Hindus.

 According to S. M. Michael, Dalits constitute the bulk of poor and unemployed.
 Many see Hinduism and its structure, called the caste system, as a system of exploitation of
poor, low ranking groups by more prosperous, high ranking groups.
 In many parts of India, land is largely held by high ranking property owners of the dominant
castes that economically exploit low ranking landless labourers and poor artisans, all the while
degrading them with ritual emphasis on their so-called, God-given inferior status.

Over-reliance on Agriculture:

 In India there is high level of dependence on primitive methods of agriculture.

 There is a surplus of labour in agriculture.
 Farmers are a large vote bank and use their votes to resist reallocation of land for higher-income
industrial projects.
 While services and industry have grown at double digit figures, the agriculture growth rate has
dropped to single digit.
 About 60 % of the population depends on agriculture, whereas the contribution of agriculture to
the GDP is minimal.
 The agricultural sector has remained very unproductive.
 There is no modernization of agriculture despite some mechanization in some regions of India.

Heavy Population Pressures:

 Although demographers generally agree that high population growth rate is a symptom rather
than cause of poverty and add to poverty.
 Mahmood Mamdani aptly remarked "people are not poor because they have large families.
Quite contrary, they have large families because they are poor".
 However this is a general argument in developing countries that population growth is a major
obstacle to development and cause of poverty.

High Unemployment:

 There is high degree of underutilization of resources.

 The whole country suffers from a high degree of unemployment.
 India is marching with jobless economic growth.
 Employment is not growing, neither in the private sector, nor in the public sector.
 The IT sector has become elitist, which does not improve the poverty situation in the country.
 Disguised unemployment and seasonal unemployment is very high in the agricultural sector of
India. It is the main cause of rural poverty in India.

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PROGRAMMES FOR POVERTY ALLEVIATION

MGNREGA

 This flagship programme of the Government of India aims at enhancing livelihood security of
households in rural areas of the country by providing at least 100 days of guaranteed wage
employment in a financial year to every household whose adult members volunteer to do
unskilled manual work.
 It also mandates 1/3rd participation for women.
 The primary objective of the scheme is to augment wage employment.
 This is to be done, while also focusing on strengthening natural resource management through
works that address causes of chronic poverty like drought, deforestation, soil erosion and thus
encourage sustainable development.

Deendayal Upadhyay Antyodaya Yojana (DAY)

 To reduce poverty and vulnerability of the urban poor households by enabling them to access
gainful self employment and skilled wage employment opp-ortunities, resulting in an
appreciable improvement in their livelihoods on a sustainable basis, through building strong
grassroots level institutions of the poor.
 NULM aims at universal coverage of the urban poor for skill development and credit facilities
 The mission would aim at providing shelters equipped with essential services to the urban
homeless in a phased manner.
 It focuses on organizing urban poor in their strong grassroots level institutions, creating
opportunities for skill development and helping them to set up self-employment venture by
ensuring easy access to credit
 In addition, the mission would also address livelihood concerns of the urban street vendors by
facilitating access to suitable spaces, Institutional credit, social security and skills to the urban
street vendors for accessing emerging market opportunities.
 Funding will be shared between the Centre and the States in the ratio of 75:25. For North
Eastern and Special Category - the ratio will be 90:10

National Health Mission

 The National Health Mission (NHM)with its two Sub-Missions, namely the National Urban Health
Mission (NUHM) and National Rural Health Mission (NRHM) covering both the rural and urban
areas came into effect with Cabinet approval of 1st May,2013.

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 The main programmatic components of NHM include Health System Strengthening in both rural
and urban areas, Reproductive-Maternal- Neonatal-Child and Adolescent Health (RMNCH+A)
interventions, and control of Communicable and Non-Communicable Diseases.

Pradhan Mantri Suraksha Bima Yojna

 Pradhan Mantri Suraksha Bima Yojana is available to people between 18 and 70 years of age
with bank accounts.
 It has an annual premium of Rs. 12 excluding service tax, which is about 14% of the premium.
The amount will be automatically debited from the account.
 In case of accidental death or full disability, the payment to the nominee will be Rs.2 lakh
(US$3,000) and in case of partial Permanent disability Rs.1 lakh (US$1,500).
 Full disability has been defined as loss of use in both eyes, hands or feet. Partial Permanent
disability has been defined as loss of use in one eye, hand or foot.
 This scheme will be linked to the bank accounts opened under the Pradhan Mantri Jan Dhan
Yojana scheme.
 Most of these account had zero balance initially.
 The government aims to reduce the number of such zero balance accounts by using this and
related schemes

Atal Pension Yojana

 Under the Atal Pension Yojna Scheme (APY), the subscribers, under the age of 40, would
receive the fixed monthly pension of Rs. 1000 to Rs. 5000 at the age of 60 years, depending on
their contributions.
 To make the the pension scheme more attractive, government would co-contribute 50% of a
subscriber’s contribution or Rs. 1,000 per annum, whichever is lower to each eligible subscriber
account for a period of 5 years from 2015-16 to 2019-20.
 The benefit of government’s co-contribution can be availed by those who subscribe to the
scheme before December 31, 2015.

Pradhan Mantri Jeevan Jyoti Bima Yojana

 Pradhan Mantri Jeevan Jyoti Bima Yojana is low cost life insurance policy provided by
government of India.
 Maximum sum offered under this scheme is Rs. 2 Lakh Premium payable for this insurance
scheme is Rs. 330 per year or less than 1 rupee per day.
 It is Available to people in the age group of 18 to 50 and having a bank account.

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 People who join the scheme before completing 50 years can, however, continue to have the risk
of life cover up to the age of 55 years subject to payment of premium.

Pradhan Matri Awaas Yojana

The Mission will be implemented during 2015-2022 and will provide central assistance to Urban Local
Bodies (ULBs) and other implementing agencies through States/UTs for:

 In-situ Rehabilitation of existing slum dwellers using land as a resource through private
participation
 Credit Linked Subsidy
 Affordable Housing in Partnership
 Subsidy for Beneficiary-led individual house construction/enhancement.

Credit linked subsidy component will be implemented as a Central Sector Scheme while other three
components will be implemented as Centrally Sponsored Scheme (CSS).

Jawaharlal Nehru National Urban Renewal Mission (JNNURM)

 It aims at integrated development of slums through projects for providing shelter, basic
servi ces and other related civic amenities with a view to providing utilities to the urban poor.
 It has two components - Basic Services for Urban poor (BSUP) and Integrated Housing
and Slum Development Programme (IHSDP).
 Cities identified based on urban population (Census 2001), cultural and tourist importance was
covered under BSUP and the remaining cities were covered under IHSDP.

Reforms taken under JNNURM

1. Earmarking of 25% of municipal budget for the urban poor for provision of basic services including
affordable housing to the urban poor.
2. Implementation of 7- Point Charter, namely provision of land tenure, affordable housing,
water, sanitation, education, health and social security to the poor in a time -bound manner
ensuring convergence with other programmes.
3. Reservation of 25% of developed land in all housing projects, public or private, critical for
slum improvement.

Why Poverty Alleviation Programmes have Failed in India?

 The Govt. of India has many schemes for the poor and for their welfare.
 Overall assessment of the CAG and other governing bodies has found, the scheme that has been
implemented by the Indian Government has many loopholes where the executives and
operatives take the benefit.
 Govts, international agencies and donors have spent billions of dollars to address poverty.

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 For example, in rural India, the govt spends significant funds on subsidies (for electricity,
fertilizer, fuels, etc.), food rations, price supports, land allocation/distribution, job training and
financial assistance for initiatives in agriculture and small businesses.
 Loans from the World Bank and other international agencies and bilateral aid supplement
domestic government resources.
 But who has benefited from all these programmes and assistance? The beneficiaries are usually
corrupt officials who manage and distribute funds, and landlords and powerbrokers who directly
or indirectly extract benefits for themselves. In India, over 90% of the agricultural land is owned
and partly cultivated by less than 10% of the rural population who are termed farmers; others
are mostly labourers.
 Govts allocate land to the poor, but they are unable to utilize it because of limited water
resources, bad soil conditions, and/or the inability to secure credit.
 Larger subsidies benefit bigger farmers, but the poor do not gain much directly from any govt
programs.
 The presumption that with more money, corrupt and inefficient governments and bureaucratic
institutions will utilize funds efficiently and improve the deplorable conditions of the poor is an
illusion.
 There are too many impediments to poverty reduction: bribery, political influence in the
allocation of land and/or credit, diffused focus and priorities, poor execution, a shortage of rural
infrastructure, and social inequality, among other factors.
 Corruption and misallocation of development funds are ultimately the result of failed
governance

Major reasons for failure of poverty alleviation

programmes are:

Planning process is faulty:

o Identifying the ‘poor’

o Defining ‘poor’
o Processing of the identification involves too many stages.
o Lack of technology upgradation.
o Ideally the programme should be broad based. (benefitting the large number of people)
o Disjointed programmes- not integrated.

Implementation of programmes:

o Corrupt officials/ staffs.

o Lack of involvement of people
o Local politics. (selection of beneficiaries)
o Improper follow up of programmes/ review or revision.

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Lack of support from the credit and marketing system:

o Role of local money lenders and banks.

o Inability to sustain income generated from the asset credited.

What Should be Done to Improve Poverty Alleviation Programmes?

 Poverty alleviation programmes have been designed to address different facets of rural poverty.
 Micro credit-linked programmes provide a package of services, including credit and subsidy to
set up micro enterprises.
 Wage employment programmes address the issue of transient poverty.
 Besides, schemes for infrastructure development and provision of basic services contribute to
the well being of the rural people.

Thus successful implementation of these programmes requires appropriate policy framework, adequate
funds, and effective delivery mechanism.

The success of these programmes ultimately depends on the capability of the delivery system to
absorb and utilise the funds in a cost-effective manner.
An effective and responsive district level field machinery with a high degree of commitment,
motivation, professional competence and, above all, integrity has been recognized as one of the
prerequisites for successful implementation of an anti poverty strategy.
An effective governance system has to ensure people’s participation at various stages of
formulation and implementation of the programmes, transparency in the operation of the
schemes and adequate monitoring.
International experience shows that greater functional and financial devolution to local
governments results in higher allocation of resources for social sectors which are accompanied
by efficiency gains in resource use. Such trends in social spending have been witnessed in many
Indian States as well.
Panchayati Raj Institutions (PRIs) have been given a constitutional role in the governance of the
country. Functional responsibilities for subjects that are central to the well being of the
communities have been devolved on the PRIs by the Constitution.
Truly empowered PRIs can play an important role in improving the efficiency and effectiveness
of the schemes and reducing leakages.
The Non Governmental Organisations (NGOs) and Community Based Organizations (CBOs) have
been playing an active role in building up people’s awareness and providing support to the
governmental agencies and the Panchayati Raj Institutions in executing projects for
development in rural areas.
The NGOs can play an important role in capacity building, access to information, organisation of
rural poor in self help groups and increasing their awareness and capabilities.

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All these initiatives have good governance as their ultimate goal. It is expected that through the
accelerating convergence of all these favourable factors it will be possible for the country to
achieve the goals of inclusive growth as envisaged in XIIth FYP

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Inequality:

 Inequality is observed both in urban and rural areas and because of inequality population is
experiencing the poverty.
 The study of inequality did not determine the level of poverty line.
 Therefore it is difficult to measure the poverty only on the basis of analysing the inequality in
income

Some mathematical and statistical techniques have been used to measure the inequality

Lorenz Curve :

 The Lorenz curve shows the percentage of income received by the bottom x % of the
population with x varying from 0 to 100.
 In Lorenz Curve, the size of items and the frequencies are both cumulated and taking the total
as 100 percentages are calculated for the various cumulated values.
 If there is proportionately equal distribution of the frequencies over various values of a variate,
the points would lie in a straight line.
 If the distribution of items is not proportionately equal, it indicates variability and the curve
would be away from the line of equal distribution
 Lorenz curve just explains the inequality but it does not give the numerical value of the extent
of inequality. It merely gives a picture of the extent to which a series pulled away from an actual
line of equality.

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Gini Coefficient :

 The Gini Coefficient means a welfare function.

 In this weighted average of the different people's income level with the weights being
determined by the rank order position of the person in the ranking by income levels.
 The higher value of Gini coefficient (G) shows greater inequality, which leads to less welfare
 Gini Coefficients are aggregate inequality measure vary anywhere from 0 to 1

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Unemployment
 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 different from that of
developed nations
 J.M.Keynes diagnosed unemployment in developed economies to be the result of a deficiency
in effective demand
 International Labour Organization  Unemployment occurs when people are without jobs but
are willing and able to work for pay and have actively searched for work
 The most frequent measure of unemployment is unemployment rate.
 The unemployment rate is defined as a number of unemployed people divided by the number
of people in the labour force.
 Labour Force: Persons who are either working (or employed) or seeking or available for work (or
unemployed) during the reference period together constitute the labour force.

Measure of Unemployment in India:

Usual Status Approach: [Unemployed for majority of the year]

 Usual Status approach records only those persons as unemployed who had no gainful work for
a major time during the 365 days preceding the date of survey and are seeking or are available
for work.
 The status of activity on which a person has spent the relatively long time of the preceding 365
days prior to the date of survey is considered to be the usual principal activity status of the
person
 The Usual Status captures long-term unemployment in the economy.
 The Usual Principal Activity status (UPS), written as Usual Status (PS), is determined using the
majority time criterion and refers to the activity status on which he/she spent longer part of
the year.
 Principal usual activity status is further used to classify him in/out the labour force.
For instance, if an individual was ‘working’ and/or was ‘seeking or available for work’ for a major
part of the year preceding the date of the survey then h/she is considered as being part of the
‘Labour Force’.
 For example, if an individual reports as having worked and sought/available for work for seven
months during the year or having sought or available for work for seven months then he/she is
classified as being in the Labour Force.

Weekly Status Approach:

 The weekly status approach records only those persons as unemployed who had no gainful
work for a major time during the seven days preceding the date of survey.

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 The weekly status approach captures both the long-term open chronic unemployment and the
seasonal unemployment.
 A person is considered to be employed if he or she pursues any one or more of the gainful
activities for at least one-hour on any day of the reference week. On the other hand, if a person
does not pursue any gainful activity, but has been seeking or available for work, the person is
considered as unemployed.

Daily Status Approach:

 In the Daily status approach, current activity status of the person with regard to whether
employed or unemployed or outside labour force is recorded for each day in the reference
week. The measure adopts half day as a unit of measurement for estimating employment or
unemployment.
 The approach is most inclusive than the other two. Since it also captures the days of
unemployment of those who are recorded as employed on the weekly status approach.
 A person who works for 4 hours or more but up to 8 hours on a day is recorded as employed
for the full day.
 A person who works for 1 hour or more but less than 4 hours is recorded as employed for the
half day.
 Accordingly, a person having no gainful work even for 1 hour in a day is described as
unemployed for a full day.

Types of Unemployment:

Structural Unemployment:

o This type of unemployment is associated with economic structure of the country

o Demand for labour falls short to the supply of labour due to rapidly growing population and
their immobility
o This type of structural unemployment is of long run nature
o Indian Unemployment is basically related to Structural Unemployment
o Due to growing population, rate of capital formation limits the employment opportunities

“According to Nurks surplus labour can be withdrawn from agriculture and utilized for capital
formation activities like road building , irrigation projects, railway construction, building of houses ,
factories etc.”  Nurks recognized disguised unemployment as a saving potential. That is in
Nurks’s view there is a hidden saving in disguised unemployment which can be used for capital
formation in the under- developed countries

Lets make it simple

 Occurs due to structural changes in the economy

 Structural changes  change in technology or change in pattern of demand

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Example: An economy transforms itself from a Labour intensive economy to a Capital intensive
economy.

 Occurs when a labour market is unable to provide jobs for every person who wants one because
there is a mismatch between the skills of the unemployed workers and the skills needed for the
available jobs

Example: Due to advance technological progress, the production of cars is done through robotic
machines rather than traditional Machines. As a result, those workers who do know how to operate
the new and advanced machines will be removed.

 Arises when the qualification of a person is not sufficient to meet his job responsibilities
 In India structural employment exists in rural and urban areas

From an individual perspective, structural unemployment can be due to:

 Inability to afford or decision not to pursue further education or job training

 Choice of a field of study which did not produce marketable job skills
 Inability to afford relocation
 Decision not to relocate, in order to stay with a spouse, family, friends

Technological Advancement, Robotics, Artificial Intelligence, Mechanisation and Automation

are the main causes of Structural unemployment.

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Voluntary Unemployment:

 In every economy, there are some people who are unwilling to work at the prevailing wage
rate.
 Jobs are available to them but they do not accept them.

 Voluntary unemployment is attributed to the individual's decisions, but involuntary

unemployment exists because of the socio-economic environment (including the market
structure, government intervention, and the level of aggregate demand) in which individuals
operate.
 Voluntary unemployment includes workers who reject low-wage jobs, but involuntary
unemployment includes workers fired because of an economic crisis, industrial decline,
company bankruptcy, or organizational restructuring.

Reasons for Voluntary Unemployment:

 Generous unemployment benefits, which make accepting a job less attractive.

 High marginal tax rates, which reduce effective take home pay.
 Unemployed hoping to find a job more suited to skills/qualifications.
 Some jobs are seen as ‘demeaning’ or too tedious. Example: Security guard

Open Unemployment:

 Open unemployment is a situation in which people have no work to do.

 They are able and willing to work, but there is no job for them in the country.

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Frictional Unemployment:

 Frictional unemployment occurs when workers lose their current job and are in the process of
finding another one.
 It is also called search unemployment.
 It is time spent between jobs when a worker is searching for a job or transferring from one job
to another

Casual Unemployment:

 Casual Unemployment is when the worker is employed on a day to day basis for a contractual
job and has to leave it once the contract terminates.

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Seasonal Unemployment:

 Seasonal Unemployment exists because certain industries or sectors only produce or distribute
their products only at certain times of the year.
 Seasonal Unemployment is common in agriculture and tourism.

Disguised Unemployment:

 Disguised Unemployment occurs when marginal productivity of labour becomes zero or

negative.
 More workers are employed on a single piece of work than actually required.
 Simply, the persons who are employed and remains unproductive throughout the work is said to
be disguisedly unemployed.

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Classical Unemployment:

 Classical Unemployment is caused when wages are too high.

 It is also called as real wage unemployment.
 For example, if a company is willing to pay 24 lakhs per year for a job but potential employees
will not accept less than 50 lakhs, the job will go unfilled

Regional Unemployment:

 When structural unemployment affects local areas of an economy, it is called regional

unemployment.

Technological Unemployment:

 Technological Unemployment is the loss of jobs caused by technological change in the

economy

Cyclical Unemployment:

 Cyclical Unemployment exists when individuals lose their jobs as a result of a down turn in
aggregate demand.
 It is called either demand deficient or Keynesian unemployment.
 Demand for most goods and services falls, less production is needed and consequently fewer
workers are needed, wages are sticky and do not fall to meet the equilibrium level, and
unemployment results.

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 One suggested intervention involves deficit spending to boost employment and goods demand.
Another intervention involves an expansionary monetary policy to increase the supply of
money, which should reduce interest rates, which, in turn, should lead to an increase in non-
governmental spending.

Chronic Unemployment:

 Chronic Unemployment is caused due to long term unemployment persisting in the economy.

Under Employment:

 It is a situation in which someone or something is not used as much as they should be.

Types of Under Employment:

1) Visible Under Employment: It is when people get work for less than the normal hours of work
like 2 hours a day
2) Invisible Under Employment: It is the situation in which people work full time, but their income
is very low or they work in jobs, in which they cannot make full use of their ability like MBA
person working as a driver

Reasons why India’s economic growth has not increased employment in the country:

Secondary sector neglected structural transformation

Jobless growth
Less focus on MSMEs
Stringent labour laws
Delay in official paper works

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Slow infrastructural development

Import oriented economy than export dominated

Philips Curve:

 Philips Curve shows the inverse relationship between unemployment and inflation in an
economy

Lorenz Curve:

 Lorenz Curve maps the relationship between percentage of income or wealth earned or
appropriated and percentage of people earned that particular percentage of income or wealth

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Gini Coefficient:

 Gini Coefficient measures the inequality using Lorenz curve

 It is the ratio between area above the Lorenz Curve and area below the Lorenz Curve

Kuznets Curve:

 Kuznets Curve says that in a developing economy initially the inequality will increase and with
increase in growth the inequality will come down

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Sources of data on unemployment:

 Reports of Census of India

 National Sample Survey Organisation’s Reports of Employment and Unemployment Situation
 Directorate General of Employment and Training Data of Registration with Employment
Exchanges

Labour Force:

 It includes all people in the working age group (15-59 yrs) who are able and willing to work
 Labour force equals the workforce plus the number of unemployment people
 So, unemployment refers to only involuntary unemployment

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Measurement of Labour Force:

Usual Principal Status (UPS) Approach:

 The major time criterion based on the 365 days is used to determine the activity pursued by a
person under the Usual Principal Status (UPS) Approach
 Accordingly, the major time spent by a person (183 days or more) is used to determine
whether the person is in the labour force or out of labour force
 A person found unemployed under this approach reflects the chronic unemployment

Usual Principal and Subsidiary Status (UPSS) Approach:

 The other important approach to measure the labour force parameters is the Usual Principal
and Subsidiary Status (UPSS) Approach
 This approach is a hybrid one which takes into consideration both the major criterion and
shorter time period (30 days or more in any economic activity)
 Thus a person who has worked even for 30 days or more in any economic activity during the
reference period of last 12 months is considered as employed under this approach
 In this approach, the reference period is same as taken in the Usual Principal Status (UPS)
Approach

Labour force participation rate:

 The labour force participation rate is the measure to evaluate working-age population in an
economy.
 The participation rate refers to the total number of people or individuals who are currently
employed or in search of a job.
 People who are not looking for a job such as full-time students, homemakers, individuals
above the age of 64 etc. will not be a part of the data set.
 This is an important metric when the economy is not growing or is in the phase of recession.
 It is that time when people look at the unemployment data.
 At the time of recession, it is generally seen that the labour force participation rate goes
down. This is because, at the time of recession, the economic activity is very low which results in
fewer jobs across the country.
 When there are fewer jobs, people are discouraged to focus on employment which eventually
leads to lower participation rate.
 The participation rate is also important in understanding the unemployment rate in the
economy.
 Analysing consistently the unemployment rate in the economy is very important.

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