Unit - 2

Demographic features of Economic Population

By demographic features we mean the characteristics of population like, size,
composition, diversity, growth and quality of population etc.
To have basic understanding of the population problem of a specific country, one should
have a complete knowledge regarding the basic features of population of that country.
The following are features of India’s population:

1. Large Size and Fast Growth:

The first main feature of Indian population is its large size and rapid growth. According
to 2001 census, the population of India is 102.87 crore. In terms of size, it is the second
largest population in the world, next only to China whose population was 127 crore in
2001. India’s population was 23.6 crore in 1901 and it increased to 102.7 crore in 2001.
In addition to its size, the rate of growth of population has been alarming since 1951. At
present, India’s population is growing at a rate of 1.9 percent per annum; 21 million
people are added every year which is more than the population of Australia. This
situation is called population explosion and this is the result of high birth rate and
declining death rate.

2. Second Stage of Demographic Transition:

According to the theory of demographic transition, the population growth of a country
passes through three different stages as development proceeds. The first stage is
characterised by high birth rate and high death rate. So in this stage the net growth of
population is zero. Till 1921, India was in the 1st stage of demographic transition.
The second stage is featured by high birth rate and declining death rate leading to the
rapid growth of population. India entered the second stage of demographic transition
after 1921. In 1921-30 India entered the 2nd stage, the birth rate was 464 per thousand
and death rate was 363 per thousand.
In 2000-01, birth rate was 25.8 and death rate declined to 85. This led to rapid growth
of population. India is now passing through the second stage of demographic transition.
While developed countries are in 3rd stage.

3. Rapidly Rising Density:

Another feature of India’s population is its rapidly rising density. Density of population
means to the average number of people living per square kilometer. The density of
population in India was 117 per square km. in 1951 which increased to 324 in 2001. This
makes India one of the most densely populated countries of the world. This adversely
affects the land-man ratio.

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 India occupies 2.4 per-cent of the total land area of the world but supports 16.7 per-cent
of the total world population. Moreover, there is no causal relationship between density
of population and economic development of a country. For example, Japan & England
having higher density can be rich and Afghanistan & Myanmar having lower density can
be poor. However in an underdeveloped country like India with its low capital and
technology, the rapidly rising density is too heavy a burden for the country to bear.

4. Sex Ratio Composition Unfavorable to Female:

Sex ratio refers to the number of females per thousand males. India’s position is quite
different than other countries. For example the number of female per thousand males
was 1170 in Russia, 1060 in U.K., 1050 in U.S.A. whereas it is 927 in India according to
1991 census.
The sex ratio in India as 972 per thousand in 1901 which declined to 953 in 1921 and to
950 in 1931. Again, in 1951, sex ratio further declined to 946. In 1981, sex ratio reduced
to 934 against 930 per thousand in 1971. During 1991, sex ratio was recorded 927 per
thousand.
The sex ratio is 933 per thousand in 2001. State wise Kerala has more females than
males. There are 1040 females per thousand males. The lowest female ratio was
recorded in Sikkim being 832. Among the union territories Andaman and Nicobar
Islands has the lowest sex ratio i.e. 760. Therefore, we can conclude that sex ratio
composition is totally unfavourable to female.

5. Bottom heavy Age Structure:

The age composition of Indian population is bottom heavy. It implies that ratio of
persons in age group 0-14 is relatively high. According to 2001 census, children below 14
years were 35.6%. This figure is lower than the figures of previous year. High birth rate
is mainly responsible for large number of dependent children per adult. In developed
countries the population of 0-14 age group is between 20 to 25%. To reduce the
percentage of this age group, it is essential to slow down the birth rate.

6. Predominance of Rural Population:

Another feature of Indian population is the dominance of rural population. In 1951,
rural population was 82.7% and urban population was 17.3%. In 1991 rural population
was 74.3% and urban population was 257. In 2001, the rural population was 72.2% and
urban population was 27.8. The ratio of rural urban population of a country is an index
of the level of industrialisation of that country. So process of urbanisation slow and
India continues to be land of villages.

7. Low Quality Population:

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 The quality of population can be judged from life expectancy, the level of literacy and
level of training of people. Keeping these parameters in mind, quality of population in
India is low.
(a) Low Literacy Level:
Literacy Level in India is low. Literacy level in 1991 was 52.2% while male-female
literacy ratio was 64.1 and 39.3 percent. In 2001, the literacy rate improved to 65.4
percent out of which made literacy was 75.8 and female literacy was 52.1 percent. There
are 35 crore people in our country who are still illiterate.
(b) Low level of Education and Training:
The level of education and training is very low in India. So quality of population is poor.
The number of persons enrolled for higher education as percentage of population in age
group 20-25 was a percent in 1982. It is only one fourth of the developed countries. The
number of doctors and engineers per million of population are 13 and 16 respectively. It
is quite less as compared to advanced countries.
(c) Low Life Expectancy:
By life expectancy we mean the average number of years a person is expected to live.
Life expectancy in India was 33 years. It was increased to 59 in 1991 and in 2001, life
expectancy increased to 63.9. Decline in death rate, decline in infant mortality rate and
general improvement in medical facilities etc. have improved the life expectancy.
However life expectancy is lower in India as compared to life expectancy of the
developed nations. Life expectancy is 80 year in Japan and 78 years in Norway.

8. Low Work Participation Rate:

Low proportion of labour force in total population is a striking feature of India’s
population. In India, Labour force means that portion of population which belongs to
the age group of 15-59. In other words, the ratio of working population to the total is
referred to as work participation rate.
This rate is very low in India in comparison to the developed countries of the world.
Total working population was 43% in 1961 which declined to 37.6% in 1991. This
position improved slightly to 39.2% in 2001. That means total non-working population
was 623 million (60.8 percent) and working population was 402 million (39.2%).
Similarly low rate of female employment and bottom-heavy age structure are mainly
responsible for low work participation in India.

9. Symptoms of Over-population:
The concept of over-population is essentially a quantitative concept. When the
population size of the country exceeds the ideal size, we call it over-population.
According to T.R. Malthus, the father of demography, when the population of a country
exceeds the means of substance available, the country faces the problem of over-
population.

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 No doubt, food production has increased substantially to 212 million tonnes but
problems like poverty, hunger, malnutrition are still acute. Agriculture is overcrowded
in rural areas of the country which is characterised by diminishing returns. This fact
leads to the conclusion that India has symptoms of over-population. Indian low per
capita income, low standard of living, wide spread unemployment and under-
employment etc. indicate that our population size has crossed the optimum limit.

Size and Growth of Population and

Economic Development
1. Population Growth and Rate of Saving and Investment:

Economic growth requires increasing supplies of capital goods. A higher rate of

economic growth can be achieved by accelerating the rate of capital formation.
Increasing supplies of capital goods become possible only with higher rate of investment
and a higher role of investment, of turn, is possible if the rate of savings is high.

Now, increase in population by adding to the number people whose requirements of

“feeding and clothing” have to be met which tends to raise consumption and, therefore,
lowers both saving and investment. Coale and Hoover, in their famous work explained
that saving rate was reduced by population growth because of increase in burden of
dependency.

He argued that with high fertility rate among the younger persons and declining
mortality (death) rate among the old-age people, in the growing population the
proportion of non-working age groups which depend on the working or earning
members of their families increases.

Since all must consume, in the absence of increase to productivity, saving per person
must fall. Thus rapid growth of population by causing lower rate of savings and
investment tends to hold down the rate of capital formation and therefore the rate of
economic growth in developing countries like India. Under conditions like those in India
population growth therefore actually impedes economic development rather than
facilitate it.

2. Investible Resources and Raising Per Capita Income:

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 While on the one land rapid growth in population reduces investible resources for
accelerating capital formation, it raises the requirements for investment to achieve a
given target increase in per capital income. Suppose population of a country A is
increasing at 1 per cent per annum and that of a country B at 3 per cent per annum.

Given that capital-output ratio is 4: 1, then country A would have to invest 4 per cent of
its current income to maintain its per capita income, while country B would have to
invest 12 per cent of its current income even to maintain its per capita output.

Thus, when the population is increasing at a rapid rate, comparatively larger

investments are needed to maintain the current level of income. Thus, given the scarcity
of investible resources adequate resource are not left to raise per capita income
significantly.

3. Lowers Growth of Per Capita Income:

Like a thief in the night, population growth robs us of most of the gains in national
income made from higher investment. Rapid population growth nullifies our investment
efforts to raise the living standards of our people. In other words, a high rate of increase
in population swallows up a large part of the increase in national income so that per
capita income or living standards of the people do not rise much.

This is precisely what has happened during the planning era in India. Thus, while the
aggregate national income of India went up by 3.6% per annum in the First Plan period
and 4.1% per annum in the Second Plan period, per capita income rose by only 1.8 per
cent and 2 per cent per annum respectively.

Average annual growth in national income and per capita income in various Five Year
Plan Periods in given in Table 41.2. It will be seen from this table that the annual growth
in per capita income has been much less than the annual growth rate in that national
income. It is the population growing at 2 per cent per annum or more during the
planning period that has caused per capita income to rise much less than the increase
achieved in national income.

Table 41.2. Annual Average Growth Rate (at 2004-05):

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However, since 1991 population growth rate has been less than 2 per cent, it was 1.93
per cent between 1991 to 2001 and 1.6 per cent between 2001-2011, on the one hand and
growth rate of national income was much higher on the other (see Table 41.2).

Therefore, the growth rate of per capita income has been relatively higher. Per capita
income (at 2004-05 prices) grew at the rate of 4.6 per cent in the Eighth Plan period
(1992-97), 3.5 per cent in the 9th plan period (1997-2002), 5.9 per cent in the 10th plan
period and 6.3 per cent in the 11th plan period. This higher per capita income growth
rate since 1991 has tended to raise the standard of living of the people higher than
before.

That the population growth prevents the rapid rise in per capita Income and therefore
rise in living standards of the people can be expressed by the following growth formula

g = Iα – r

where g stands for the rate of growth of per capita income, I represents rate of
investment, a stands for output-capital ratio (or productivity of capital) and r represents
rate of population growth.

Since rate of growth in national income is given by the rate of investment multiplied by
the output-capital ratio, la will signify the rate of growth of national income. Now, it will
be seen that rate of population growth r appears as a negative factor and will therefore
lower the rate of growth of per capita income g. It therefore follows that if rate of growth
of per capita income g, and the rate of rise in living standards with a given rate of
investment is to be raised, the rate of growth of population should be lowered.

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4. Population Growth and Marketed Surplus of Food-grains:

Another way in which growth in population is impeding economic development is its

effect on marketed surplus of food-grains. The marketed surplus of food-grains is a pre-
requisite for expansion in non-agricultural employment and output.

When a country grows and accelerates its pace of industrialization, it requires food-
grains to feed the workers who are employed in industries. If enough surpluses of food-
grains are not forthcoming this acts as an important constraint on the industrial
development.

This prevents the living standards of the people to rise rapidly. Now, marketed surplus
of food-grains is the difference between the output of food-grains by the agricultural
population and their consumption of them. Thus,

Marketed surplus of food-grains = (0 – Cs).

Where 0 stands for output of food-grains, and C. for consumption of food-grains by the
fanners themselves. As about 65% of the population is engaged in agriculture, the most
of the increase in population also takes place there.

This increase in population in the agriculture raises the consumption of food-grains, i.e.,
Csin the above equation and therefore reduces the marketable surplus, if output remains
the same. Even if output is rising, the extra consumption by the increase in population
tends to lower the growth in marketed surplus for food-grains.

We thus see that the growth in population has an adverse effect on the marketed surplus
of food-grains and these acts as a drag on the growth of output and employment in
industries. In India, in several years, increase in agricultural output has not been
enough and further that the rapid growth in population has tended to reduce the growth
of marketable surplus. This had an adverse effect on industrial development in India.

Rapid growth in population in an already over-populated country also raises the

problem of food security in the country. The cause of food problem in India is the rapid
growth in population since 1951. In order to overcome the shortage of food-grains and to
prevent the occurrence of famines in the country, India was forced to import food-grains

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 and spend a good amount of valuable foreign exchange on them. This worsened the
balance of payments problem of the country.

As a result sufficient amount of foreign exchange to import materials, machines and

equipment for our industries could not be made and this obstructed the growth of
industrial output. This also shows how rapid growth in population by causing food
shortage inhibits the rate of industrial development.

5. Population Growth and Unproductive Investment:

In his study of population growth and economic development in India Coale and Hoover
focussed on the adverse effect of population growth on the resources a variable for
productive investment. According to them, rapid population growth forces the country
to make non-productive investment, that is, to invest in duplicating certain social
welfare facilities such as the construction of parks, houses, social buildings, sanitation
works.

To the extent the Government has to increase its expenses on duplicating these social
welfare facilities, investment resources for productive type of capital such as machines
for industries, irrigation and fertilisers for agriculture, crucial basic goods such as steal,
coal, electricity generation etc would be reduced. Thus, rapid population growth
obstructs economic development by reducing the growth of productive capital.

6. Population Growth and Unemployment:

Economic development requires that employment should increase adequately so that

unemployment should decrease. Explosive growth in population has caused serious
unemployment and under-employment problem in India. Due to explosive growth in
population in India labour force has been increasing rapidly since 1951.

In recent years labour force which was2estimated at 309 million in 1983, went up to 333
million in 1988, to 382 million in 1994 and to 406 million in 1999-2000. As a result of
this explosive increase in labour force demographic pressure on the economy has
increased resulting in increase in backlog of unemployment and under- unemployment
at the beginning of each successive Five Year Plan. In view of this much of our
investment efforts are directed at ‘absorbing the growing labour force in productive
employment, our ability to raise productivity of labour is severely constrained.

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Since production processes in modem organised industrial sector is highly capital
intensive, much of the growing labour force cannot be employed there. As a result,
demographic pressure on land and agriculture increases resulting in the severe drop in
the net sown area per capita.

In agriculture, self-employment is predominant and the joint family system prevails

under which both household’s income and work are shared among the family members.
Therefore, in the absence of employment opportunities outside agriculture, much of the
additional labour force is forced to remain in agriculture and allied activities.

Agriculture performs the role of residual absorber. They share work in agriculture with
other family members no matter how low the productivity per person becomes. Thus,
with the fall in net sown area per person and increased Population pressure, disguised
unemployment emerges in agriculture.

Disguised unemployment means more workers seem to be employed in it but quite a

large number of additional workers do not add to agricultural output, that is, marginal
productivity of workers in agriculture is zero or nearly zero.

Since population growth reduces savings and investable resources, it is very difficult to
withdraw any significant number of workers from agriculture so as to equal, them with
the required capital to provide them productive employment outside agriculture. To a
certain extent lack of capital may be made up by harder work by workers in a country
like India.

But such a method of adjustment is not easy to achieve in India. This is because in the
modern times man can produce little with bare hands. To provide them productive
employment workers need to be equipped with enough capital goods.

Even employment generation in agriculture apart from high yielding inputs such as
fertilisers, HYV seeds, and pesticides as requires irrigation works, an important capital
needed for extension of double cropping which is highly employment generating way in
agriculture. Due to lack of investible resources caused partly by population growth, it
has not been possible to extend irrigation facilities to the currently known irrigation
potential.

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 It follows from above that labour force consequences of population growth are to a good
extent responsible for huge unemployment and underemployment prevailing in India.

7. Population Growth and Poverty:

Last but not the least the important consequence of rapid population growth is that it
has made very difficult to make a significant dent into the problem of mass poverty
prevailing in’ the country. This is clear from the fact that as large as about 18 million
people over and above one billion populations estimated on March 1, 20.01 are being
added to our population every year as per 2001 census. This gives rise to a huge problem
of properly feeding and clothing them.

Further, as has been explained in detail in the above sections such large increase in
population and consequently huge increment in labour force lowers our capacity to
make productive investment and thereby to increase productivity of labour to ensure
eradication of poverty Prof. K. Sundaram rightly writes, “the size of increments to
population is itself of some consequence. Thus is because the resource requirements of
feeding and clothing even at the current low levels are such that the incremental
population itself constraints the ability of the economy to raise the living standards of
the existing population.”

A vicious circle of poverty operates in this regard. Rapid population growth leads to
lower productivity which causes poverty, poverty causes high infant mortality rate which
in turn causes high population growth. There is no wonder then, even after over 50
years of planned economic development, 317 million people lived below the poverty line
in 1993-94. The decline in number of poor people to 260 million in 1999-2000 is
doubtful’ because of the change methodology made in NSS of 1999-2000.

Persons are means as well as ends of economic development. They are an asset if in
adequate strength and prove to be a liability if excess in strength.

Population has crossed the optimum limit in India and has become a liability.

So problem of population explosion in India has proved to be a big hindrance in the

success of economic planning and development.

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 Following are the main effects of population
explosion:
1. Problem of Investment Requirement:

Indian population is growing at a rate of 1.8 percent per annum. In order to achieve a
given rate of increase in per capita income, larger investment is needed. This adversely
affects the growth rate of the economy. In India, annual growth rate of population is 1.8
percent and capital output ratio is 4:1. It means that in order to stabilize the existing
economic growth rate (4 X 1.8) = 7.2 percent of national income must be invested.

2. Problem of Capital Formation:

Composition of population in India hampers the increase in capital formation. High

birth rate and low expectancy of life means large number of dependents in the total
population. In India 35 percent of population is composed of persons less than 14 years
of age. Most of these people depend on others for subsistence. They are unproductive
consumers. The burden of dependents reduces the capacity of the people to save. So the
rate of capital formation falls.

3. Effect on per Capita Income:

Large size of population in India and its rapid rate of growth results into low per capita
availability of capital. From 1950-51 to 1980-81. India’s national income grew at an
average annual rate of 3.6 percent per annum. But per capita income had risen around
one percent. It is due the fact that population growth has increased by 2.5 percent.

4. Effect on Food Problem:

Rapid rate of growth of population has been the root cause of food problem.

Shortage of food grains hampers economic development in two ways:

(a) People do not get sufficient quantity of food due low availability of food which affects
their health and productivity. Low productivity causes low per capita income and thus
poverty.

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 (b) Shortage of food-grains obliges the under-developed countries to import food grains
from abroad. So a large part of foreign exchange is spent on it. So development work
suffers. So rise in population causes food problem.

5. Problem of Unemployment:

Large size of population results in large army of labour force. But due to shortage of
capital resources it becomes difficult to provide gainful employment to the entire
working population. Disguised unemployment in rural areas and open unemployment
in urban areas are the normal features of an under developed country like India.

6. Low Standard of Living:

Rapid growth of population accounts for low standard of living in India. Even the bare
necessities of life are not available adequately. According to Dr. Chander Shekhar
population in India increases by about 1.60 crore. It requires 121 lakh tonnes of food
grains, 1.9 lakh metres of cloth and 2.6 lakh houses and 52 lakh additional jobs.

7. Poverty:

Rising population increases poverty in India. People have to spend a large portion of
their resources for bringing up of their wards. It results into less saving and low rate of
capital formation. Hence improvement in production technique becomes impossible. It
means low productivity of labour.

8. Burden of Unproductive Consumers:

In India, a large number of children are dependent. Old persons above the age of 60 and
many more in the age group of 15-59 do not find employment. In 2001, working
population was 39.2 percent while 60.8 percent are unproductive workers. This high
degree of dependency is due to high rate of dependent children. This dependency
adversely affects effective saving.

9. Population and Social Problems:

Population explosion gives rise to a number of social problems. It leads to migration of

people from rural areas to the urban areas causing the growth of slum areas. People live
in most unhygienic and insanitary conditions.

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 Unemployment and poverty lead to frustration and anger among the educated youth.
This leads to robbery, beggary, prostitution and murder etc. The terrorist activities that
we find today in various parts of the country are the reflection of frustration among
educated unemployed youth. Overcrowding, traffic congestions, frequent accidents and
pollution in big cities are the direct result of over-population.

10. More Pressure on Land:

Rising rate of population growth exerts pressure on land. On the one hand, per capita
availability of land goes on diminishing and on the other, the problem of sub-division
and fragmentation of holdings goes on increasing. It adversely affects the economic
development of the country.

11. Impact on Maternity Welfare:

In India, population explosion is the result of high birth rate. High birth rate reduces
health and welfare of women. Frequent pregnancy without having a gap is hazardous to
the health of the mother and the child. This leads to high death rate among women in
the reproductive age due to early marriage. Hence to improve the welfare and status of
women in our society, we have to reduce the birth rate.

12. Pressure on Environment:

Population explosion leads to environmental degradation. Higher birth rate brings more
pollution, more toxic wastes and damage to biosphere. Briefly speaking, population
explosion hinders the economic development. It should be controlled effectively.

Human Development
Human Development is a development paradigm that is about much more than the rise or fall of
national incomes. It is about creating an environment in which people can develop their full
potential and lead productive, creative lives in accord with their needs and interest.

The Human Development Index (HDI) is a tool developed by the United Nations to measure and
rank countries' levels of social and economic development.

Human Development Index is a comparative measure of life expectancy, literacy, education and
standards of living for countries worldwide.

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The United Nations Development Programme (UNDP) has developed a composite index, now
known as the Human Development Index (HDI).

Component of Human Development

The components of human development are as follows.

∑ Life Expectancy at Birth: It means the number of years a new born infant live it
prevailing patterns of mortality as the time of birth wrer to stay the same throughout the
child’s life.

∑ Adult Literacy Rate: It is the percentage of people aged 15 and above can, with
understanding, both real and write a short, simple statement on their everyday life.

∑ Gross Enrolled Ratio: It is the number of students enrolled in a level of education,

whether or not they belong in a relevant age group for that level, as percentage of the
population in the relevant age group for that level.

∑ Real GDP per capital: It is the GDP per capital of a country converted into rupees on
the basis of purchasing power party of the country’s currency.

Importance of Human Development

∑ Higher Productivity: Human Development leads to higher productivity in an

organization and thereby in the whole of economy. It is very necessary for an economy to
develop its human resource or the labor force if it wants to achieve higher productivity as
the well trained skill force is an asset for an economy.

∑ Lower Family Size: Human development is needed for lowering the family size of the
country. Population is one of the most serious problems faced by the Indian economy.
Therefore if the human resource of the economy is well developed it will definitely help
them educating and making them understand the benefits of small family and which will
thereby reduce the infant mortality rates and problems related with family size.

∑ Increases efficiency of People: Human development involves availability of better

health and education facilities. Better skills and better health standards help to improve
the overall efficiency and productivity of the people in the society.

∑ Control of population: Human development involves education on the part of the

people. Literacy makes people aware of the negative consequences of large families in
India. One of the main causes of high population is the low literacy rate, especially in

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 females. Literate people can control population through effective population control
measures.

∑ Equity: Human Development ensures the concept of equity. Equity is one of the essential
components of the human development. The people who enjoy high levels of human
development are conscious of the principle of equity or social justice. These people help
to create an environment for equitable access to opportunities in the field of education,
business and other activities.

Issues in Human Development

∑ Social Progress: It leads to greater access to knowledge, better nutrition, and health
services.

∑ Economics: The importance of economic growth as a means to reduce inequality and

improve levels of human development.

∑ Efficiency: it is in terms of resource use and availability. Human development is pro-

growth and productivity as long as such growth directly benefits the poor, women and
other marginalized group.

∑ Equity: It is in terms of economic growth and other human development parameter.

∑ Sustainability: It is future generations in ecological, economic and social terms.

∑ Human Security: Security in daily life against such chronic threats as hunger and abrupt
disruptions including joblessness, famine, conflict etc.

Various measures of Human Development

∑ HDI (Human development Index)

∑ GDI (Gender Related Development Index)
∑ HPI (Human Poverty Index)

∑ HDI (Human development Index)

The Human development index is a comparative measure of life expectancy, literacy, education
and standards of living for countries worldwide. It is standards means of measuring well being,
especially child welfare. It is used to distinguish whether the country is developed, a developing
or an underdeveloped country, and also to measure the impact of economic policies on quality of
life. The index was developed in 1990 by Pakistan economist Mahbub-ul-Haq and Sir Richard

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Jolly, with help from Gaurav Ranis of Yale University and Lord Meghnad Desai of London
School of Economics.

∑ GDI (Gender Related Development Index)

The Gender related development index and Gender Empowerment Measure were introduced in
1995 in the Human Development Report written by the United Nations Development Program.
The aim of these measurements was to add a gender sensitive dimensions to the Human
Development Index (HDI). The first measurement that they created as a result was the Gender
related Development Index (GDI).the GDI is defined as a “Distribution sensitive measure that
accounts for the human development impact of existing gender gaps in the three components of
the HDI”. GDI measures achievement in the same basic capabilities as the HDI does, but takes
note of inequality in achievement between women and men.

∑ HPI (Human Poverty Index)

Human Poverty Index is a compound index, based on a number of components measures that
calculates a summary statistic on the economic welfare of the poor in a society. Since poverty is
a multidimensional issues and a relative concept, therefore different factors and different
expectations need to be taken into account in different countries. HPI concentrates on the
deprivation in the three essential elements of human life already reflected in the HDI.

∑ Longevity
∑ Knowledge
∑ Decent standard of living

Human Development Index

Although it is not possible to have a flawless quantitative measure of human
development, the United Nations Development Programme (UNDP) has developed a
composite index, now known as the Human Development Index (HDI).

It includes (i) longevity of life, (ii) knowledge base, and (iii) a decent material standard
of living. To keep the index simple, only a limited number of variables are included.
Initially, life expectancy was chosen as an index of longevity, adult literacy as an index of
knowledge and per capita Gross National Product adjusted for Purchasing Power Parity
(PPP) as an index of decent life. These variables are expressed in different units.
Therefore, a methodology was evolved to construct a composite index rather than
several indices.

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 In India, three sets of indicators have been selected for preparing the Human
Development Report. Among them, a core set of composite indices presents the state of
human development for the society as a whole. Besides, Gender Equality Index has been
estimated to reflect the relative attainments of women, and the Human Poverty Index to
evaluate the state of deprivation in the society.

Several other variables have gradually been added to the above sets of indicators.
Among them, health indicators related to longevity are birth rate, death rate with special
reference to infant mortality, nutrition, and life expectancy at birth.

Social indicators include literacy particularly female literacy, enrolment of school-going

children, drop out ratio, and pupil-teacher ratio. Economic indicators are related to
wages, income, and employment. Per Capita Gross Domestic Product, incidences of
poverty and employment opportunity is also favoured indicators in this group. They are
converted into a composite index to present the holistic picture of the Human
Development.

Computing the HDI:

To construct the Index, fixed minimum and maximum values have been established for
each of the indicators:

1. Life expectancy at birth: 25 years and 85 years;

2. General literacy rate: 0 per cent and 100 per cent;
3. Real GDP per capita (PPP$); PPP$ 100 and PPP$ 40,000.

Individual Indices are computed first on the basis of a given formula. HDI is a simple
average of these three indices and is derived by dividing the sum of these three indices
by 3.

With normalization of the values of the variables that make up the HDI, its value ranges
from 0 to 1. The HDI value for a country or a region shows the distance that it has to
travel to reach the maximum possible value of 1 and also allows inter-country
comparisons.

17
HDI of India:

As compared to the pre-independence days India has done well in development in

general. As per Human Development Reports (HDRs) published annually by the UNDP,
India has consistently improved on human development front and is grouped among the
countries with ‘medium human development’.

According to Human Development Report 2005, India ranked 127 (same rank as in the
previous two years) out of 177 countries (Table 15.1). Even though India did not improve
her rank, the report applauds its state policies for promoting political, social and
religious aspects.

Among South Asian countries, India ranks third after Maldives (84) and Sri Lanka (93).
Pakistan Nepal and Bangladesh are worse than India. Their ranks are 135,136 and 139
respectively (Table 15.1). Globally, Norway, Iceland and Australia are the top three
performers when it comes to giving their citizens good quality of life. Burkima Faso and
Sierra Leone Niger have worst human development indices.

In spite of all these developments, India still lags behind developed and evens the
developing countries so far as human development is concerned. Not only developed
countries but some of the developing countries such as Sri Lanka and Indonesia are
much better than India with respect to HDI. India’s gender development index (GDI) is
also lower than that of Sri Lanka, China and Indonesia.

Some of the principal indicators used for calculating Human Development Index (HDI)
are briefly discussed below:

Health Indicators:

Health in a major component of human development. It is measured in terms of birth

rate, death rate (with special reference to infant mortality rate), nutrition, and life
expectancy at birth.

Crude death rate is defined as the number of deaths per thousand populations in a
particular year. It declined rapidly from 25.1 per thousand in 1951 to 12.5 per thousand
in 1981 and to 8.1 per thousand in 2002. Decline in infant mortality rate (number of
deaths of children under one year of age per thousand live births) was less than half in
2002 of what it was in 1951. Child (0-4 years) mortality rate declined from 57.3 per

18
thousand in 1972 to 19.3 in 2001. It means risk of death has declined at each stage of
life. Certainly it is a definite improvement in health.

The Crude birth rate (defined as the number of births per thousand populations in a
particular year) has also declined from 40.8 per thousand in 1951 to 33.9 per thousand
in 1981 and 25 per thousand in 2002. But the decline in birth rate has been much slower
than that of the death rate.

For example, death rate declined by 17 points between 1951 and 2002 while birth rate
declined by 14.2 points only during the same period. It is worth mentioning that birth
rate has always been higher than the death rate which results in rapid increase in
population. Similarly, total fertility rate (number of children born to a woman during
child-bearing age) also reduced from 6 children in 1951 to 3.1 children in 2001.

Life Expectancy:

Life expectancy has gone up with the decline in vital rates such as birth, death and
fertility rates. In the year 1951, it was only 37.2 years for males and 36.2 years for
females. The corresponding figures increased to 63.9 and 66.9 years respectively in
2001 – 06. The increase in life expectancy has been more conspicuous in females than
in males. It was lower than males in 1951 which became higher in 1981 and still
continues to be higher.

Although considerable progress has been made in socio-demographic parameters over

the last two decades, the country continues to lag behind several other countries in the
region . The Tenth Five Year Plan targeted a reduction in Infant Mortality Rate (IMR) to
45 per 1000 by 2007 and 28 per 1,000 by 2012; reduction in Maternal Mortality Rate
(MMR) to 2 per 1000 live births by 2007 and 1 per 1000 live birth by 2012 and
reduction of decadal growth rate of population between 2001- 2011 to 16.2 per cent.

The National Population Policy, 2000 aims at achieving net replacement levels of total
fertility rate by 2010 through vigorous implementation of inter-sectoral operational
strategies. The long term objective is to achieve population stabilization by 2025.

19
 Economic Development
Characteristics of the Indian Economy
1. Low per capita income:

In India, the national income and per capita income is very low and it is considered as one of the
basic features of underdevelopment. As per World Bank estimates, the per capita income of India
stood at only $ 720 in 2005. Keeping aside a very few countries, this per capita income figure of
India is the lowest in the world and it is even lower than China and Pakistan. In 2005, the per
capita income figure in Switzerland was nearly 76 times, in U.S.A. about 61 times, in Germany
about 48 times and in Japan about 54 times the per capita income figure in India. Thus the
standard of living of Indian people remained all along very low in comparison to that of
developed countries of the world

2. Excessive dependence of agriculture and primary producing:

Indian economy is characterized by too much dependence on agriculture and thus it is primary
producing. Out of the total working population of our country, a very high proportion of it is
engaged in agriculture and allied activities, which contributed a large share in the national
income of our country. In 2004, nearly 58 per cent of the total working population of our country
was engaged in agriculture and allied activities and was contributing about 21.0 per cent of the
total national income.

In most of the countries of Asia, Middle East and Africa, from two-thirds to four- fifths of their
total population are solely dependent on agriculture. In most of the developed countries like
U.K., U.S.A. and Japan, the percentage of active population engaged in agriculture ranges
between 1 to 5 per cent.

3. High rate of population growth

India is maintaining a very high rate of growth of population since 1950. Thus the pressure of
population in our country is very heavy. This has resulted from a very high level of birth rates
coupled with a falling level of death rates prevailing in our country.

In India, the rate of growth of population has been gradually increasing from 1.31 per cent
annually during 1941-50 to 2.5 per cent annually during 1971-81 to 2.11 per cent annually
during 1981-91 and then finally to 1.77 per cent during 2001-2011.

20
The prime cause behind this rapid growth of population is the steep fall in its death rate from 49
per thousand during 1911-20 to 7.1 per thousand in 2011. On the other hand, compared to its
death rate, the birth rate of our population has gradually declined from 49 per thousand during
1911-20 to 21.8 per thousand in 2011.

4. Existence of chronic unemployment and under-employment

Rapid growth of population coupled with inadequate growth of secondary and tertiary
occupations are responsible for the occurrence of chronic unemployment and under-employment
problem in our country. In India, unemployment is structural one, unlike in developed countries,
which is of cyclical type. Here unemployment in India is the result of deficiency of capital.
Indian industries are not getting adequate amount of capital for its necessary expansion so as to
absorb the entire surplus labour force into it.

5. Poor rate of capital formation:

Capital deficiency is one of the characteristic features of the Indian economy. Both the amount of
capital available per head and the present rate of capital formation in India is very low.
Consumption of crude steel and energy are the two important indicators of low capital per head
in the under-developed countries like India.

6. Inequality in the distribution of wealth:

Another important characteristic of the Indian economy is the mal-distribution of wealth: The
report of the Reserve Bank of India reveals that nearly 20 per cent of the households owing less
than Rs 1000 worth of assets possess only 0.7 per cent of the total assets.

Moreover, 51 per cent of the households owing less than Rs 5000 worth of assets possessed
barely 8 per cent of the total assets. Lastly, the top four per cent households possessing assets
worth more than Rs 50,000 held more than 31 per cent of the total assets.

Five basic objectives of Economic Development

Good economic development programs are built around five basic objectives. Specific strategies
vary from town to town, but a good program will address all five.

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 a. Make existing employers more competitive
Many professionals feel this is the most cost-effective approach to economic development
because it emphasizes holding onto what a community already has. Improved profitability could
also mean business expansion. Some strategies include establishing job training programs,
providing business counseling and helping firms improve their marketing skills. These strategies
help local business "tune in" to the changing world.

b. Encourage new employers

Strategies associated with this objective strive to create new enterprises that serve local markets
or those outside the community. The essence of entrepreneurship is the development of new
products for manufacturing or the creation of innovative services not presently available. New
businesses that add value to local resources or products may be created.

c. Capture more local dollars

Many of the dollars that come into a community leave just as quickly, in lost retail sales, taxes
paid to higher governments, and purchases of services and supplies elsewhere.

For example, up to 20 percent of a community's income leaves town to pay energy costs. A
housing weatherization program could succeed in putting a large chunk of that back into
community pockets. Programs that encourage institutions to purchase goods and services locally
are another effective strategy for capturing the local dollar.

d. Attract new employers

Recruiting businesses and industries that are looking to move or expand into new locations is an
important part of an overall economic development program. Effectively targeting industries can
help a community diversify, raise income levels and fill voids. Enticing a manufacturer to locate
in a community may involve the use of tax credits or infrastructure improvements.

e. Access outside sources of capital

Retirees bring with them resources that may spur activity throughout the community. Transfer
payments are an important source of income throughout the state.

In addition, the array of programs and services available from federal and state governments and
other public sector agencies increase a small community's opportunity to grow.

f. Quality of life
Many communities find that increasing capacity is not just a quantitative goal, but a qualitative
ideal. It may be more important to increase the skills of current employees than to increase the
number of low-skill jobs. A good economic development program will use all the resources
within a community: economic, cultural and social.

Indeed, a community's sense of "self" and "vision" are essential resources, and a broad-based
economic development program will evolve from its unique values and traditions. Grassroots

22
organizations and volunteers are extremely important to the economic developer trying to foster
change.

Every community views its "capacity" differently, and each should judge itself by the quality of
what it has and then judge its future the same way.

Problems of Economic Development in India

The Economic Issues in India
Being a poor country and one of the fastest growing economies in the world, there are some
unique economic issues in India as explained below:

Low per capita income

Usually, developing economies have a low per-capita income. The per capita income in India in
2014 was $1,560. In the same year, the per-capita Gross National Income (GNI) of USA was 35
times that of India and that of China was 5 times higher than India.

Further, apart from the low per-capita income, India also has a problem of unequal distribution
of income. This makes the problem of poverty a critical one and a big obstacle in the economic
progress of the country. Therefore, low per-capita income is one of the primary economic issues
in India.

Huge dependence of population on agriculture

Another aspect that reflects the backwardness of the Indian economy is the distribution of
occupations in the country. The Indian agriculture sector has managed to live up to the demands
of the fast-increasing population of the country.

According to the World Bank, in 2014, nearly 47 percent of the working population in India was
engaged in agriculture. Unfortunately, it contributed merely 17 percent to the national income
implying a low productivity per person in the sector. The expansion of industries failed to attract
enough manpower either.

Heavy population pressure

Another factor which contributes to the economic issues in India is population. Today, India is
the second most-populated country in the world, the first being China.

We have a high-level of birth rates and a falling level of death rates. In order to maintain a
growing population, the administration needs to take care of the basic requirements of food,

23
clothing, shelter, medicine, schooling, etc. Hence, there is an increased economic burden on the
country.

The existence of chronic unemployment and under-employment

The huge unemployed working population is another aspect which contributes to the economic
issues in India. There is an abundance of labor in our country which makes it difficult to provide
gainful employment to the entire population.

Also, the deficiency of capital has led to the inadequate growth of the secondary and tertiary
occupations. This has further contributed to chronic unemployment and under-employment in
India.

With nearly half of the working population engaged in agriculture, the marginal product of an
agricultural laborer has become negligible. The problem of the increasing number of educated-
unemployed has added to the woes of the country too.

Slow improvement in Rate of Capital Formation

India always had a deficiency of capital. However, in recent years, India has experienced a slow
but steady improvement in capital formation. We experienced a population growth of 1.6 percent
during 2000-05 and needed to invest around 6.4 percent to offset the additional burden due to the
increased population.

Therefore, India requires a gross capital formation of around 14 percent to offset depreciation
and maintain the same level of living. The only way to improve the standard of living is to
increase the rate of gross capital formation.

Inequality in wealth distribution

According to Oxfam’s ‘An economy for the 99 percent’ report, 2017, the gap between the rich
and the poor in the world is huge. In the world, eight men own the same wealth as the 3.6 billion
people who form the poorest half of humanity.

In India, merely 1 percent of the population has 58 percent of the total Indian wealth. Also, 57
billionaires have the same amount of wealth as the bottom 70 percent of India. Inequal
distribution of wealth is certainly one of the major economic issues in India.

Poor Quality of Human Capital

In the broader sense of the term, capital formation includes the use of any resource that enhances
the capacity of production.

24
Therefore, the knowledge and training of the population is a form of capital. Hence, the
expenditure on education, skill-training, research, and improvement in health are a part of human
capital.

To give you a perspective, the United Nations Development Program (UNDP), ranks countries
based on the Human Development Index (HDI). This is based on the life expectancy, education,
and per-capita income. In this index, India ranked 130 out of 188 countries in 2014.

Low level of technology

New technologies are being developed every day. However, they are expensive and require
people with a considerable amount of skill to apply them in production.

Any new technology requires capital and trained and skilled personnel. Therefore, the deficiency
of human capital and the absence of skilled labor are major hurdles in spreading technology in
the economy.

Another aspect that adds to the economic issues in India is that poor farmers cannot even buy
essential things like improved seeds, fertilizers, and machines like tractors, investors, etc.
Further, most enterprises in India are micro or small. Hence, they cannot afford modern and
more productive technologies.

Lack of access to basic amenities

In 2011, according to the Census of India, nearly 7 percent of India’s population lives in rural
and slum areas. Also, only 46.6 percent of households in India have access to drinking water
within their premises. Also, only 46.9 percent of households have toilet facilities within the
household premises.

This leads to the low efficiency of Indian workers. Also, dedicated and skilled healthcare
personnel are required for the efficient and effective delivery of health services. However,
ensuring that such professionals are available in a country like India is a huge challenge.

Demographic characteristics

According to the 2011 Census, India had a population density of 382 per square kilometer as
against the world population density of 41 per square kilometer.

Further, 29.5 percent was in the age group of 0-14 years, 62.5 percent in the working age group
of 15-59 years, and around 8 percent in the age group of 60 years and above. This proves that the
dependency burden of our population is very high.

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Under-utilisation of natural resources

India is rich in natural resources like land, water, minerals, and power resources. However, due
to problems like inaccessible regions, primitive technologies, and a shortage of capital, these
resources are largely under-utilized. This contributes to the economic issues in India.

Lack of infrastructure

The lack of infrastructural facilities is a serious problem affecting the Indian economy. These
include transportation, communication, electricity generation, and distribution, banking and
credit facilities, health and educational institutions, etc. Therefore, the potential of different
regions of the country remains under-utilized.

New Economic Policy: Privatization,

Liberalization, Globalization

Globalization
Definition of Globalization
∑ Globalization is the process of interaction and integration among people, companies, and
governments worldwide.

∑ Globalization is the free movement of goods, services and people across the world in a
seamless and integrated manner.
∑ Globalization is defined as the increasing process of interdependence and interconnected
between different political, social and economic components of the world. It is the way in
which the world is seen as the global village.

∑ The process by which businesses or other organizations develop international influence

or start operating on an international scale

Features of Globalization
1. Liberalization:
It stands for the freedom of the entrepreneurs to establish any industry or trade or
business venture, within their own countries or abroad.
2. Free trade:
It stands for free flow of trade relations among all the nations. Each state grants MFN
(most favoured nation) status to other states and keeps its business and trade away from
excessive and hard regulatory and protective regimes.
3. Globalization of Economic Activity:

26
 Economic activities are being governed both by the domestic market and also the world
market. It stands for the process of integrating the domestic economies with world
economy.
4. Liberalization of Import-Export System:
It stands for liberating the import-export activity and securing a free flow of goods and
services across borders.
5. Privatization:
Keeping the state away from ownership of means of production and distribution and
letting the free flow of industrial, trade and economic activity across borders.
6. Increased Collaborations:
Encouraging the process of collaborations among the entrepreneurs with a view to secure
rapid modernisation, development and technological advancement.
7. Economic Reforms:
Encouraging fiscal and financial reforms with a view to give strength to free world trade,
free enterprise, and market forces.
8. Several dimensions of Globalisation:
Globalization has social, economic, political cultural and technological dimensions. It
involves all round inter-linkages among all the people of the world.
Free flow of knowledge, technology goods services and people across all societies is it
key feature
Dimensions of Globalization

1. Economic globalization (the internationalization of trade and

finance)
Economic globalization refers to the widespread international movement of goods, capital,
services, technology and information. Economic globalism involves long-distance flows of
goods, services and capital and the information and perceptions that accompany market
exchange

It is the increasing economic integration and interdependence of national, regional, and

local economies across the world through an intensification of cross-border movement of

27
goods, services, technologies and capital. Economic globalization primarily comprises the
globalization of production, finance, markets, technology, organizational regimes, institutions,
corporations, and labor.
2. Cultural Globalization (expansion of cultural flows across the
globe)
Cultural Globalization refers to the transmission of ideas, meanings, and values around the
world in such a way as to extend and intensify social relations.
Globalization has allowed for the spread of customs, language and products. Globalization has
allowed for people to be able to attain goods and services not previously available. Globalization
has allowed people to become familiar with the culture of other countries allowing for a greater
understanding
For example : You can find Coca-Cola, McDonalds and KFC in most major cities throughout
the world
This process is marked by the common consumption of cultures that have been diffused by
the Internet, popular culture media, and international travel. The circulation of cultures enables
individuals to partake in extended social relations that cross national and regional borders.
Cultural globalization involves the formation of shared norms and knowledge with which people
associate their individual and collective cultural identities.

3. Ecological Globalization
Ecological Globalization include population growth, access to food, worldwide reduction in
biodiversity, the gap between rich and poor as well as between the global North and global
South, human-induced climate change, and global environmental degradation.
Globalization has led to an increase in the consumption of products, which has impacted the
ecological cycle. Increased consumption leads to an increase in the production of goods, which
in turn puts stress on the environment. Globalization has also led to an increase in the
transportation of raw materials and food from one place to another. Earlier, people used to
consume locally-grown food, but with globalization, people consume products that have been
developed in foreign countries.
4. Political globalization (expansion of political interrelations around
the globe)
Political globalization refers to the growth of the worldwide political system, both in size and
complexity. That system includes national governments,
their governmental and intergovernmental organizations as well as government-independent
elements of global civil society such as international non-governmental organizations and social
movement organizations.
For example: The creation and existence of the United Nations has been called one of the classic
examples of political globalization.

Stages in Globalization

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Domestic Company
Market potential is limited to the home country. Production and marketing facilities are located
at home only. Surplus may or may not be exported. There are no overt efforts to develop foreign
markets. It may add new product lines, serve new local markets but whole planning is limited to
national markets only.
Features:
i. Their focus remains with domestic market.
ii. Their productions facilities remain based in home country. Their analysis is focused
on the national market.
iii. They do not think globally and avoid taking risk in going global.
iv. Their top management may have traditional kind of business management
competency and less global expertise.

2. International Company
Some ambitious efficient domestic companies after going beyond their domestic marketing
capacities start thinking of expanding their operations in International Markets. The main
strategy for entering international market is:
a) Off-shoring/global outsourcing (seeking cheaper source of raw material or labor)
b) Exporting
c) Licensing
d) Franchising
e) Joint Ventures/Acquisitions
f) Direct Investments

Features:
i. Focus on going beyond, domestic

29
 ii. Their management remains ethnocentric with a vision to expand internationally. They
extend their domestic products, domestic prices and other business practices to
foreign countries.
iii. They keep their marketing mix constant and extend their operations to new countries.
iv. Their management style remains centralized for their home nation and extended top
down to the overseas market country.

3. Multinational Company
After sometime, international companies realize that the domestic model and practices adopted
through extension policies do not serve the purpose. The foreign customers may not prefer the
products that are sold in domestic market. Hence, these companies respond to the needs of
different customers in different countries and produce such goods and services that will satisfy
them.

Features:
i. Companies when they spread their wings to more nations become multinational
companies.
ii. Sooner or later they realize that they have to change their marketing mix according to
the foreign market.
iii. This can also be termed as multi domestic, in which different strategies are adopted
for different market.
iv. The management of such company’s remains decentralized and even production may
be in the host country.
v. Performance evaluation is done at different host countries.

4. Global
The global company adopts global strategy for marketing its products. It may produce either in
the home country or in any other single country and market its products throughout the world.It
may also produce the products globally and market them domestically.

Features:
i. Such companies have a global marketing strategy.
ii. They either produce in home country or in a single country and focus marketing
globally.
iii. They adapt to the market conditions according to the foreign market.
iv. Their performance evaluation is done worldwide.

5. Transactional Company
Transactional Company operates at the global level by way of utilizing global resources to serve
the global markets. It has geocentric orientation and has integrated network. Its key assets are
dispersed and every sub-unit of the company contributes towards achievement of the company
objectives. It produces best quality raw materials from the cheapest source in the world, process
them in the country wherever it is economical and sells the finished products in those markets
where prices are favorable.

30
Feature:
i. Transnational companies have a geocentric approach,which means they think globally
and act locally.
ii. Transnational companies collect information worldwide and scan it for use beyond
geographical boundaries.
iii. The vision of such to grow more in a global way.
iv. The R&D, management, product development are shared worldwide.
v. Their human resources procurement and development remains globally.

Globalization: Effect/Limitations/Advantages or Disadvantages

A journey towards new collaborations and unity, it has changed the world into a global
village
Globalization integrates trade, technology, investments, and the mobile factors of production like
labor and capital.
For Examples : All types of goods ranging from Coca-Cola, Sprite, Louis Philippe shirts, Marie
Claire bags, Police sunglasses, to Adidas and Nike shoes are all available in every market
globally, all credit to globalization.

Advantages of Globalization
1. Employment
Considered as one of the most crucial advantages, globalization has led to the generation of
numerous employment opportunities. Companies are moving towards the developing countries
to acquire labor force. This obviously caters to employment and income generation to the people
in the host country. Also, the migration of people, which has become easier, has led to better jobs
opportunities.

2. Free Movement of Labor

Increased labour migration gives advantages to both workers and recipient countries. If a country
experiences high unemployment, there are increased opportunities to look for work elsewhere.
This process of labour migration also helps reduce geographical inequality. This has been quite
effective in the EU, with many Eastern European workers migrating west.
Also, it helps countries with labour shortages fill important posts. For example, the UK needed to
recruit nurses from the far east to fill shortages.
However, this issue is also quite controversial. Some are concerned that free movement of labour
can cause excess pressure on housing and social services in some countries. Countries like the
US have responded to this process by actively trying to prevent migrants from other countries.

3. Education
A very critical advantage that has aided the population is the spread of education. With numerous
educational institutions around the globe, one can move out from the home country for better
opportunities elsewhere. Thus, integrating with different cultures, meeting and learning from

31
various people through the medium of education is all due to globalization. Developing countries
or labour-intensive countries have benefited the most.

4. Product Quality
The onset of international trade has given rise to intense competition in the markets. No longer
does one find limited number of commodities available. A particular commodity may fetch
hundreds of options with different prices. The product quality has been enhanced so as to retain
the customers. Today the customers may compromise with the price range but not with the
quality of the product. Low or poor quality can adversely affect consumer satisfaction.

5. Cheaper Prices
Globalization has brought in fierce competition in the markets. Since there are varied products to
select from, the producer can sustain only when the product is competitively priced. There is
every possibility that a customer may switch over to another producer if the product is priced
exorbitantly. ‘Customer is the King’, and hence can dictate the terms to a very large extent.
Therefore, affordable pricing has benefited the consumer in a great way.

6. Free Movement of Capital

Capital, the backbone of every economy, is of prime importance for the proper functioning of the
economy. Today, transferring money through banks is possible just by the click of a button, all
due to the electronic transfer that has made life very comfortable. Many huge firms are investing
in the developing countries by setting up industrial units outside their home country. This leads
to Foreign Direct Investment, which helps in promoting economic growth in the host country.

7. Communication
Information technology has played a vital role in bringing the countries closer in terms of
communication. Every single information is easily accessible from almost every corner of the
world. Circulation of information is no longer a tedious task, and can happen in seconds. The
Internet has significantly affected the global economy, thereby providing direct access to
information and products.

8. Transportation
Considered as the wheel of every business organization, connectivity to various parts of the
world is no more a serious problem. Today with various modes of transportation available, one
can conveniently deliver the products to a customer located at any part of the world. Besides,
other infrastructural facilities like, distribution, supply chain, and logistics have become
extremely efficient and fast.

9. International Trade
Purchase and sale of commodities are not the only two transactions involved in international
trade. Today, international trade has broadened its horizon with the help of business process
outsourcing. Sometimes in order to concentrate on a particular segment of business it is a
practice to outsource certain services. Some countries practice free trade with minimal
restrictions on EXIM (export-import) policies. This has proved beneficial to businesses.

10. GDP Increase

Gross Domestic Product, commonly known as GDP, is the money value of the final goods and
services produced within the domestic territory of the country during an accounting year. As the

32
market has widened, the scope and demand for a product has increased. Producers familiarize
their products and services according to the requirements of various economies thereby tapping
the untapped markets. Thus, the final outcome in terms of financial gain enhances the GDP of
the country. If statistics are of any indication, the GDP of the developing countries has increased
twice as much as before.

11. Increased Economies of Scale

Production is increasingly specialized. Globalization enables goods to be produced in different
parts of the world. This greater specialization enables lower average costs and lower prices for
consumers.

Limitations/Disadvantages of Globalization
1. Health Issues
Globalization has given rise to more health risks and presents new threats and challenges for
epidemics. A very customary example is the dawn of HIV/AIDS. Having its origin in the
wilderness of Africa, the virus has spread like wildfire throughout the globe in no time. Food
items are also transported to various countries, and this is a matter of concern, especially in case
of perishable items. The safety regulations and the standards of food preparation are different in
different countries, which may pose a great risk to potential health hazards.

2. Loss of Culture
Conventionally, people of a particular country follow its culture and traditions from time
immemorial. With large number of people moving into and out of a country, the culture takes a
backseat. People may adapt to the culture of the resident country. They tend to follow the foreign
culture more, forgetting their own roots. This can give rise to cultural conflicts.

3. Uneven Wealth Distribution

It is said that the rich are getting richer while the poor are getting poorer. In the real sense,
globalization has not been able to reduce poverty. Instead it has led to the accumulation of
wealth and power in the hands of a few developed economies. Therefore the gap between the
elite and the underprivileged seems to be a never ending road, eventually leading to inequality.

4. Environment Degradation
The industrial revolution has changed the outlook of the economy. Industries are using natural
resources by means of mining, drilling, etc. which puts a burden on the environment. Natural
resources are depleting and are on the verge of becoming extinct. Deforestation is practiced
owing to the non-availability of land, thereby drastically reducing the forest cover. This in turn
creates an imbalance in the environment leading to climate change and occurrence of natural
calamities.

5. Disparity
Though globalization has opened new avenues like wider markets and employment, there still
exists a disparity in the development of the economies. Structural unemployment owes to the
disparity created. Developed countries are moving their factories to foreign countries where
labor is cheaply available. The host country generates less revenues, and a major share of the
profits fall into the hands of the foreign company. They make humongous profits thereby
creating a huge income gap between the developed and the developing countries.

33
6. Cut-throat Competition
Opening the doors of international trade has given birth to intense competition. This has affected
the local markets dramatically. In recent times the standard of living has improved. People are
therefore ready to shell out extra money for a product that may be available at a lower price. This
is because of the modern marketing techniques like advertising and branding. The local players
thereby suffer huge losses as they lack the potential to advertise or export their products on a
large scale. Therefore the domestic markets shrink.

7. Conflicts
Every economy wants to be at the top spot and be the leader. The fast-paced economies that are
the developed countries are vying to be the supreme power. It has given rise to terrorism and
other forms of violence. Such acts not only cause loss of human life but also huge economic
losses.

8. Monopoly
Monopoly is a situation wherein only one seller has a say in a particular product or products. It is
possible that when a product is the leader in its field, the company may begin to exploit the
consumers. As there exists no close competitors, the leader takes full advantage of the sale of its
product, which may later lead to illegal and unethical practices being followed. Monopoly is
disastrous as it widens the gap between the developed and developing countries.

9. Inflation
Strong demand for food and energy has caused a steep rise in commodity prices. Food price
inflation has placed millions of the world’s poorest people at great risk.

5 Measures Adopted to Promote Globalization in India

Measure 1: Import Liberalization:

For liberalizing foreign trade, import controls through licensing was abolish

Measure 2# Imports of Gold and Silver:

Imports of Gold and Silver have been considerably liberalized. This reduced the incentive for
smuggling.

Measure 3# Liberalization of Foreign Investment:

The new economic policy adopted since 1991 considerably liberalized the scope of foreign
investment, both direct and portfolio. Earlier investment by foreign companies required prior
approval of the government and was restricted to 40 per cent equity participation and was also
subjected to the conditions of technology transfer to India. Besides, foreign investment was

34
permitted in priority areas only. Foreign portfolio investment was allowed mainly into a limited
number of public sectors bond issues.

Measure 4# Convertibility of Rupee:

Another important reform for globalizing the Indian economy was the convertibility of rupee on
balance of payments on current account. This implies the importers can get their required
quantity of foreign exchange by converting their rupee resources into dollars from the foreign
exchange market. The exporters do not have to surrender their foreign exchange (US dollar or
EU Euro) earned abroad to RBI but can now sell them in the foreign exchange markets.

Measure 5# Market-Determined Exchange Rate:

An important measure in external sector was to devalue the rupee in July 1991 and after about 2
years in 1993 exchange rate was changed from basket based pegged exchange rate system to
market-determined exchange rate. With this the exchange rate of the rupee today is determined
by demand and supply conditions in the foreign exchange markets

Foreign Direct Investment (FDI)

Foreign direct investment (FDI) is an investment in a business by an investor from another
country for which the foreign investor has control over the company purchased.
The Organization of Economic Cooperation and Development (OECD) defines control as
owning 10% or more of the business. Businesses that make foreign direct investments are often
called multinational corporations (MNCs) or multinational enterprises (MNEs). An MNE may
make a direct investment by creating a new foreign enterprise, which is called a greenfield
investment, or by the acquisition of a foreign firm, either called an acquisition or brownfield
investment.

Advantages of FDI
Typically, there are two main types of FDI: horizontal and vertical FDI.
Horizontal: a business expands its domestic operations to a foreign country. In this case, the
business conducts the same activities but in a foreign country. For example, McDonald’s
opening restaurants in Japan would be considered horizontal FDI.
Vertical: a business expands into a foreign country by moving to a different level of the supply
chain. In other words, a firm conducts different activities abroad but these activities are still

35
related to the main business. Using the same example, McDonald’s could purchase a large-scale
farm in Canada to produce meat for their restaurants.

Advantages of FDI
In the context of foreign direct investment, advantages and disadvantages are often a matter of
perspective. An FDI may provide some great advantages for the MNE but not for the foreign
country where the investment is made. On the other hand, sometimes the deal can work out
better for the foreign country depending upon how the investment pans out. Ideally, there should
be numerous advantages for both the MNE and the foreign country, which is often a developing
country. We'll examine the advantages and disadvantages from both perspectives, starting with
the advantages for multinational enterprises (MNEs).

∑ Access to markets: FDI can be an effective way for you to enter into a foreign market.
Some countries may extremely limit foreign company access to their domestic markets.
Acquiring or starting a business in the market is a means for you to gain access.
∑ Access to resources: FDI is also an effective way for you to acquire important natural
resources, such as precious metals and fossil fuels. Oil companies, for example, often
make tremendous FDIs to develop oil fields.
∑ Reduces cost of production: FDI is a means for you to reduce your cost of production if
the labor market is cheaper and the regulations are less restrictive in the target foreign
market. For example, it's a well-known fact that the shoe and clothing industries have
been able to drastically reduce their costs of production by moving operations to
developing countries.

FDI also offers some advantages for foreign countries.

For starters, FDI offers a source of external capital and increased revenue. It can be a
tremendous source of external capital for a developing country, which can lead to economic
development.
For example, if a large factory is constructed in a small developing country, the country will typically
have to utilize at least some local labor, equipment, and materials to construct it. This will result in
new jobs and foreign money being pumped into the economy. Once the factory is constructed, the
factory will have to hire local employees and will probably utilize at least some local materials and
services. This will create further jobs and maybe even some new businesses. These new jobs mean
that locals have more money to spend, thereby creating even more jobs.
Additionally, tax revenue is generated from the products and activities of the factory, taxes
imposed on factory employee income and purchases, and taxes on the income and purchases now
possible because of the added economic activity created by the factory. Developing governments can
use this capital infusion and revenue from economic growth to create and improve its physical and
economic infrastructure such as building roads, communication systems, educational institutions, and
subsidizing the creation of new domestic industries.
Another advantage is the development of new industries. Remember that an MNE doesn't
necessarily own all of the foreign entity. Sometimes a local firm can develop a strategic alliance with
a foreign investor to help develop a new industry in the developing country. The developing country

36
gets to establish a new industry and market, and the MNE gets access to a new market through its
partnership with the local firm.

1. Increased Employment and Economic Growth

Creation of jobs is the most obvious advantage of FDI. It is also one of the most important
reasons why a nation, especially a developing one, looks to attract FDI. Increased FDI boosts
the manufacturing as well as the services sector. This in turn creates jobs, and helps reduce
unemployment among the educated youth - as well as skilled and unskilled labour - in the
country. Increased employment translates to increased incomes, and equips the population
with enhanced buying power. This boosts the economy of the country.
2. Human Resource Development
This is one of the less obvious advantages of FDI. Hence, it is often understated. Human
Capital refers to the knowledge and competence of the workforce. Skills gained and
enhanced through training and experience boost the education and human capital quotient of
the country. Once developed, human capital is mobile. It can train human resources in other
companies, thereby creating a ripple effect.
3. Development of Backward Areas
This is one of the most crucial benefits of FDI for a developing country. FDI enables the
transformation of backward areas in a country into industrial centres. This in turn provides a
boost to the social economy of the area. The Hyundai unit at Sriperumbudur, Tamil Nadu in
India exemplifies this process.
4. Provision of Finance & Technology
Recipient businesses get access to latest financing tools, technologies and operational
practices from across the world. Over time, the introduction of newer, enhanced technologies
and processes results in their diffusion into the local economy, resulting in enhanced
efficiency and effectiveness of the industry.
5. Increase in Exports
Not all goods produced through FDI are meant for domestic consumption. Many of these
products have global markets. The creation of 100% Export Oriented Units and Economic
Zones have further assisted FDI investors in boosting their exports from other countries.
6. Exchange Rate Stability
The constant flow of FDI into a country translates into a continuous flow of foreign
exchange. This helps the country’s Central Bank maintain a comfortable reserve of foreign
exchange. This in turn ensures stable exchange rates.
7. Stimulation of Economic Development
This is another very important advantage of FDI. FDI is a source of external capital and
higher revenues for a country. When factories are constructed, at least some local labour,
materials and equipment are utilised. Once the construction is complete, the factory will
employ some local employees and further use local materials and services. The people who
are employed by such factories thus have more money to spend. This creates more jobs.
These factories will also create additional tax revenue for the Government, that can be
infused into creating and improving physical and financial infrastructure.

37
8. Improved Capital Flow
Inflow of capital is particularly beneficial for countries with limited domestic resources, as
well as for nations with restricted opportunities to raise funds in global capital markets.
9. Creation of a Competitive Market
By facilitating the entry of foreign organisations into the domestic marketplace, FDI helps
create a competitive environment, as well as break domestic monopolies. A healthy
competitive environment pushes firms to continuously enhance their processes and product
offerings, thereby fostering innovation. Consumers also gain access to a wider range of
competitively priced products.

Disadvantages of FDI
Disappearance of cottage and small scale industries:
Some of the products produced in cottage and village industries and also under small scale
industries had to disappear from the market due to the onslaught of the products coming from
FDIs. Example: Multinational soft drinks.

Cultural erosion:
In all the countries where the FDls have made an inroad, there has been a cultural shock
experienced by the local people, adopting a different culture alien to the country. The
domestic culture either disappears or suffers a setback. This is felt in the family structure,
social setup and erosion in the value system of the people. Importance given to human
relations, hither to suffers a setback with the hi-fi style of living.

Inflation in the Economy:

The presence of FDIs has also contributed to the inflation in the country. They spend lot of
money on advertisement and on consumer promotion. This is done at the cost of the
consumers and the price is increased. They also form cartels to control the market and exploit
the consumer.

Political corruption:
In order to capture the foreign market, the FDIs have gone to the extent of even corrupting
the high officials or the political bosses in various countries. The FDIs influence the political
setup for achieving their personal gains. Most of the Latin American countries have
experienced such a problem.

Contribution to the pollution:

Foreign direct investments contribute to pollution problem in the country. The developed
countries have shifted some of their pollution-borne industries to the developing countries.

38
 The major victim is automobile industries. Most of these are shifted to developing countries
and thus they have escaped pollution.

Trade Deficit:
The introduction of TRIPs (Trade Related Intellectual Property Rights) and TRIMs (Trade
Related Investment Measures) has restricted the production of certain products in other
countries. For example, India cannot manufacture certain medicines without paying royalties
to the country which has originally invented the medicine. The same thing applies to seeds
which are used in agriculture. Thus, the developing countries are made to either import the
products or produce them through FDIs at a higher cost. WTO (World Trade Organization) is
in favor of FDIs.

World Bank and lMF Aid:

Some of the developing countries have criticized the World Bank and IMF (International
Monetary Fund) in extending assistance. There is a discrimination shown by these
international agencies. Only those countries which accommodate FDIs will receive more
assistance from these international institutions.

Liberalization
The basic aim of liberalization was to put an end to those restrictions which became
hindrances in the development and growth of the nation. The loosening of government
control in a country and when private sector companies’ start working without or with fewer
restrictions and government allow private players to expand for the growth of the country
depicts liberalization in a country.

Objectives of Liberalization Policy

∑ To increase competition amongst domestic industries.

∑ To encourage foreign trade with other countries with regulated imports and exports.
∑ Enhancement of foreign capital and technology.
∑ To expand global market frontiers of the country.
∑ To diminish the debt burden of the country.

Impacts of Liberalization in India

Positive impacts of liberalization in India Negative impacts of liberalization in India

Free flow of capital: Liberalization has Destabilization of the economy: Tremendous

improved flow of capital into the country redistribution of economic power and political
which makes it inexpensive for the companies power leads to Destabilizing effects on the entire

39
to access capital from investors. Lower cost of Indian economy.
capital enables to undertake lucrative projects
which they may not have been possible with a
higher cost of capital pre-liberalisation,
leading to higher growth rates.

Stock Market Performance: Generally,

Impact of FDI in Banking sector: Foreign direct
when a country relaxes its laws, taxes, the
investment allowed in the banking and insurance
stock market values also rise. Stock Markets
sectors resulted in decline of government’s stake in
are platforms on which Corporate Securities
banks and insurance firms.
can be traded in real time.

Political Risks Reduced: Liberalization

Threat from Multinationals: Prior to 1991
policies in the country lessen political risks to
MNC’s did not play much role in the Indian
investors. The government can attract more
economy. In the pre-reform period, there was
foreign investment through liberalization of
domination of public enterprises in the economy.
economic policies. These are the areas that
On account of liberalisation, competition has
support and foster a readiness to do business
increased for the Indian firms. Multinationals are
in the country such as a strong legal
quite big and operate in several countries which has
foundation to settle disputes, fair and
turned out a threat to local Indian Firms.
enforceable laws.

Diversification for Investors: In a liberalised Technological Impact: Rapid increase in

economy, Investors gets benefit by being able technology forces many enterprises and small scale
to invest a portion of their portfolio into a industries in India to either adapt to changes or
diversifying asset class. close their businesses.

Impact on Agriculture: In the area of

Mergers and Acquisitions: Acquisitions and
agriculture, the cropping patterns has
mergers are increasing day-by-day. In cases where
undergone a huge modification, but the
small companies are being merged by big
impact of liberalisation cannot be properly
companies, the employees of the small companies
measured. It is observed that there are still all-
may require exhaustive re-skilling. Re-skilling
pervasive government controls and
duration will lead to non-productivity and would
interventions starting from production to
cast a burden on the capital of the company.
distribution for the produce.

40
 Privatization
This is the second of the three policies of LPG. It is the increment of the dominating role of
private sector companies and the reduced role of public sector companies. In other words, it
is the reduction of ownership of the management of a government-owned enterprise.
Government companies can be converted into private companies in two ways:

∑ By disinvestment
∑ By withdrawal of governmental ownership and management of public sector companies.

Forms of Privatization

∑ Denationalization or Strategic Sale: When 100% government ownership of productive

assets is transferred to the private sector players, the act is called denationalization.
∑ Partial Privatization or Partial Sale: When private sector owns more than 50% but less
than 100% ownership in a previously construed public sector company by transfer of shares,
it is called partial privatization. Here the private sector owns the majority of shares.
Consequently, the private sector possesses substantial control in the functioning and
autonomy of the company.
∑ Deficit Privatization or Token Privatization:When the government disinvests its share
capital to an extent of 5-10% to meet the deficit in the budget is termed as deficit
privatization.

Objectives of Privatization

∑ Improve the financial situation of the government.

∑ Reduce the workload of public sector companies.
∑ Raise funds from disinvestment.
∑ Increase the efficiency of government organizations.
∑ Provide better and improved goods and services to the consumer.
∑ Create healthy competition in the society.
∑ Encouraging foreign direct investments (FDI) in India.

Advantages of Privatization

∑ Private companies always have a better incentive than public companies. The managers
and officials of a private company have skin in the game, i.e. their income is related to
the performance of the company. In public companies, such an incentive is not present.
So privatization usually leads to higher efficiency in the company.

∑ In a public company, there is a lot of political interference. This may dissuade the
company from taking economically beneficial decisions. However, a private company
will not let political factors affect their performance.

41
 ∑ In public companies, at times the government can only think about the upcoming
elections. So all their goals may be short-term in the process of trying to gain favours of
the voting public. But a private company does not have such restrictions. They have
long-term goals and ambitions and steer the company in the right direction.

∑ Privatization will also increase competition in the market. Consequently, this has proved
to be very beneficial to consumers. Healthy competitiveness in an economy will push
efficiency and performances.

What Is Unemployment?
Unemployment is a situation where in the person willing to work fails to find a job that earns
them living. Unemployment means lack of employment. In simple way, unemployment means
the state of being unemployed.

Types of Unemployment

There are following main types of unemployment:

Structural unemployment

Structural unemployment occurs when a labor market is not able to provide jobs for everyone
who is seeking employment. There is a mismatch between the skills of the unemployed workers
and the skills needed for the jobs that are available. It is often impacted by persistent cyclical
unemployment. For example, when an economy experiences long-term unemployment
individuals become frustrated and their skills become obsolete.

Cyclical unemployment

Cyclical unemployment is a type of unemployment that occurs when there is not enough
aggregate demand in the economy to provide jobs for everyone who wants to work. In an
economy, demand for most goods falls, less production is needed, and less workers are needed.
With cyclical unemployment the number of unemployed workers is greater that the number of
job vacancies.

Frictional unemployment
It is the time period between jobs when a worker is searching for or transitioning from one job to
another. Frictional unemployment is always present to some degree in an economy. It occurs
when there is a mismatch between the workers and jobs. The mismatch can be related to skills,
payment, work time, location, seasonal industries, attitude, taste, and other factors.
Unemployment may be categorized as follows:

∑ Seasonal unemployment,

42
 ∑ Industrial unemployment,
∑ Educational unemployment,
∑ Technological unemployment, and
∑ Disguised unemployment.
∑ Agricultural laborers, farmers, workers of sugar mills, rice sellers, cotton
ginning units and ice factories are included in seasonal unemployment.

∑ Workers forced to be unemployed due to saving devices are counted

in industrial unemployment.

∑ Educated unemployment arises when a large number of educated people

are unemployed or unable to secure a job.

∑ Technological unemployment refers to the situation when people have

been put out of work by the introduction of a superior technology in their idea
of operation.

∑ Disguised unemployment is a common feature in agriculture. It arises

when more than the required human-resource have been engaged in the
cultivation of the same plot. It is a sort of under employment.

Unemployment Problem in India

The following are the main causes of unemployment:

(i) Caste System:

In India caste system is prevalent. The work is prohibited for specific castes in some areas.

In many cases, the work is not given to the deserving candidates but given to the person
belonging to a particular community. So this gives rise to unemployment.

(ii) Slow Economic Growth:

Indian economy is underdeveloped and role of economic growth is very slow. This slow growth
fails to provide enough unemployment opportunities to the increasing population.

(iii) Increase in Population:

Constant increase in population has been a big problem in India. It is one of the main causes of
unemployment. The rate of unemployment is 11.1% in 10th Plan.

(iv) Agriculture is a Seasonal Occupation:

Agriculture is underdeveloped in India. It provides seasonal employment. Large part of
population is dependent on agriculture. But agriculture being seasonal provides work for a few
months. So this gives rise to unemployment.

43
(v) Joint Family System:
In big families having big business, many such persons will be available who do not do any work
and depend on the joint income of the family.

Many of them seem to be working but they do not add anything to production. So they encourage
disguised unemployment.

(vi) Fall of Cottage and Small industries:

The industrial development had adverse effect on cottage and small industries. The production of
cottage industries began to fall and many artisans became unemployed.

(vii) Slow Growth of Industrialisation:

The rate of industrial growth is slow. Though emphasis is laid on industrialisation yet the
avenues of employment created by industrialisation are very few.

(viii) Less Savings and Investment:

There is inadequate capital in India. Above all, this capital has been judiciously invested.
Investment depends on savings. Savings are inadequate. Due to shortage of savings and
investment, opportunities of employment have not been created.

(ix) Causes of Under Employment:

Inadequate availability of means of production is the main cause of under employment. People
do not get employment for the whole year due to shortage of electricity, coal and raw materials.

(x) Defective Planning:

Defective planning is the one of the cause of unemployment. There is wide gap between supply
and demand for labour. No Plan had formulated any long term scheme for removal of
unemployment.

(xi) Expansion of Universities:

The number of universities has increased manifold. There are 385 universities. As a result of this
educated unemployment or white collar unemployment has increased.

(xii) Inadequate Irrigation Facilities:

Even after the completion of 9th five plans, 39% of total cultivable area could get irrigation
facilities.

Due to lack of irrigation, large area of land can grow only one crop in a year. Farmers remain
unemployed for most time of the year.

44
(xiii) Immobility of labor:
Mobility of labour in India is low. Due to attachment to the family, people do not go to far off
areas for jobs. Factors like language, religion, and climate are also responsible for low mobility.
Immobility of labour adds to unemployment.

Measures to remove unemployment

(1) Population Control
India has to put a check on its rising population if it wants to solve most of her problem. It is
essential so that the additional jobs created do not fall short of new entrants to the labour market.

(2) Reform education system

There should be vocationalization of education. Effort should be made to shape the skills of the
individuals so that they can be put to practical use.

(3) Self-employment scheme

In India more than half of the population is self employed in trade, transport, cottage industries
etc. Hence government should take some measures to develop self help centres.

(4) Rapid Industrialization

More industries should be set up to generate employment opportunities.

(5) Policy towards Seasonal Unemployment:

In India most of the people are engaged in agriculture which is a highly seasonal work. Hence
they become unemployed during the rest of the year. Hence steps should be taken to promote
allied activities like animal husbandry, dairy farming, horticulture etc. Cottage industries should
be developed to help them during non-seasonal periods.

What Is Poverty?

“A chronic and debilitating condition that results from multiple adverse synergistic risk factors
and affects the mind, body, and soul.”

The official poverty thresholds are set by the Office of Management and Budget (OMB). Persons
with income less than that deemed sufficient to purchase basic needs—food, shelter, clothing,
and other essentials—are designated as poor.

Classification of poverty
45
We can identify six types of poverty: situational, generational, absolute, relative, urban, and
rural.

1. Situational poverty is generally caused by a sudden crisis or loss and is often temporary.
Events causing situational poverty include environmental disasters, divorce, or severe health
problems.
2. Generational poverty occurs in families where at least two generations have been born into
poverty. Families living in this type of poverty are not equipped with the tools to move out
of their situations.
3. Absolute poverty, which is rare in the United States, involves a scarcity of such necessities
as shelter, running water, and food. Families who live in absolute poverty tend to focus on
day-to-day survival.
4. Relative poverty refers to the economic status of a family whose income is insufficient to
meet its society's average standard of living.
5. Urban poverty occurs in metropolitan areas with populations of at least 50,000 people. The
urban poor deal with a complex aggregate of chronic and acute stressors (including
crowding, violence, and noise) and are dependent on often-inadequate large-city services.
6. Rural poverty occurs in nonmetropolitan areas with populations below 50,000. In rural
areas, there are more single-guardian households, and families often have less access to
services, support for disabilities, and quality education opportunities. Programs to encourage
transition from welfare to work are problematic in remote rural areas, where job
opportunities are few (Whitener, Gibbs, & Kusmin, 2003). The rural poverty rate is growing
and has exceeded the urban rate every year since data collection began in the 1960s. The
difference between the two poverty rates has averaged about 5 percent for the last 30 years,
with urban rates near 10–15 percent and rural rates near 15–20 percent.

Problem of Poverty
(i) Heavy pressure of population:

Population has been rising in India at a rapid speed. This rise is mainly due to fall in death rate
and more birth rate.

India’s population was 84.63 crores in 1991 and became 102.87 crores in 2001. This pressure of
population proves hindrance in the way of economic development.

(ii) Unemployment and under employment:

Due to continuous rise in population, there is chronic unemployment and under employment in
India. There is educated unemployment and disguised unemployment. Poverty is just the
reflection of unemployment.

46
(iii) Capital Deficiency:

Capital is needed for setting up industry, transport and other projects. Shortage of capital creates
hurdles in development.

(iv) Under-developed economy:

The Indian economy is under developed due to low rate of growth. It is the main cause of
poverty.

(v) Increase in Price:

The steep rise in prices has affected the poor badly. They have become more poor.

(vi) Net National Income:

The net national income is quite low as compared to size of population. Low per capita income
proves its poverty. The per capita income in 2003-04 was Rs. 20989 which proves India is one of
the poorest nations.

(vii) Rural Economy:

Indian economy is rural economy. Indian agriculture is backward. It has great pressure of
population. Income in agriculture is low and disguised unemployment is more in agriculture.

(viii) Lack of Skilled Labour:

In India, unskilled labour is in abundant supply but skilled labour is less due to insufficient
industrial education and training.

(ix) Deficiency of efficient Entrepreneurs:

For industrial development, able and efficient entrepreneurs are needed. In India, there is
shortage of efficient entrepreneurs. Less industrial development is a major cause of poverty.

(x) Lack of proper Industrialisation:

Industrially, India is a backward state. 3% of total working population is engaged in industry. So

industrial backwardness is major cause of poverty.

(xi) Low rate of growth:

47
The growth rate of the economy has been 3.7% and growth rate of population has been 1.8%. So
compared to population, per capita growth rate of economy has been very low. It is the main
cause of poverty.

(xii) Outdated Social institutions:

The social structure of our country is full of outdated traditions and customs like caste system,
laws of inheritance and succession. These hamper the growth of economy.

(xiii) Improper use of Natural Resources:

India has large natural resources like iron, coal, manganese, mica etc. It has perennial flowing
rivers that can generate hydro electricity. Man power is abundant. But these sources are not put
in proper use.

(xiv) Lack of Infrastructure:

The means of transport and communication have not been properly developed. The road
transport is inadequate and railway is quite less. Due to lack of proper development of road and
rail transport, agricultural marketing is defective. Industries do not get power supply and raw
materials in time and finished goods are not properly marketed.

Suggestions for Removal of Poverty from India

(i) Population Control:

Population in India has been increasing rapidly. Growth rate of population is 1.8%. For removal
of poverty the growth rate of population should be lowered.

(ii) Increase in Employment:

Special measures should be taken to solve the problems of unemployment and disguised
unemployment. Agriculture should be developed. Small scale and cottage industries should be
developed in rural areas to generate employment.

(iii) Equal distribution of Income:

Mere increase in production and control on population growth will not remove poverty in India.
It is necessary that inequality in the distribution of income should be reduced.

(iv) Regional poverty:

48
In States like Orissa, Nagaland, U.P and Bihar etc. the percentage of the poor to the total
population is high. Govt. should give special concession for investment in these regions. More
PSU’s should be established in these states.

(v) Problem of Distribution:

The public distribution system (PDS) should be strengthened to remove poverty. Poor section
should get food grains at subsidized rates and in ample quantity.

(vi) Fulfillment of minimum needs of the Poor:

Govt. should take suitable steps to meet minimum needs of the poor e.g., supply of drinking
water and provision of primary health centres and primary education.

(vii) Increase in the productivity of the Poor:

To remove poverty, it is necessary to increase productivity of the poor. The poor should be given
more employment. More investment should be made in pubic and private sectors to generate
employment.

(viii) Changes in techniques of Production:

India should adopt labour intensive techniques of production. We should have technical
development in our economy in such a way that labour resources could be fully employed.

(ix) Stability in Price Level:

Stability in prices helps to remove poverty. If prices continue to rise, the poor will become more
poor. So Govt. should do it best to keep the prices under control.

(x) Development of Agriculture:

The agriculture should be developed to remove poverty. Rapid rate of growth of agriculture
production will help to remove urban as well as rural poverty. Agriculture should be mechanized
and modernized. Marginal farmers should be given financial assistance.

(xi) Increase in the rate of growth:

Slow rate of growth is the main cause of poverty. So growth rate must be accelerated. In 2003-04
the growth rate has been 6.5% despite that 26% of population remains below poverty line.

49
 Questions Banks (Unit – 2)
Q1. Discuss the main economic problems and challenges of development facing the Indian
economy.

Q2. Determinants of economic development.

Q3. Explain the Types of Unemployment. Discuss the problem of unemployment in India.

Q4. Jean Dreze and Amartya Sen said “Economic growth is indeed important, not for itself, but
for what is allows a country to do with the resources that are generated, expanding both
individual incomes and the public revenue that can be used to meet social commitments”.
Analyze the economic growth and development of india in the light of above statement.

Q5. Critically analyze the pros and cons of Foreign Direct Investment. How FDI has helped
India in its Economic Development.

Q6. Discuss the salient features of Indian Economy. What is the importance of agriculture in our
economy?

Q7. Examine the trends in India’s foreign trade during the last two decades, Evaluate the impact
of liberalization measures adopted by the Government on the foreign trade sector of India.

Q8. Absolute & Relative Poverty.

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