Study Notes

Indian Economy

August 29, 2021

Economic Development
Economic Growth, Development and Underdevelopment
Economic Growth: It is rate of expansion that can move an
underdeveloped country from a near subsistence mode of living to
substantially higher levels in a comparatively short period of time.
The process of economic growth can be described in terms of
greater commercialization of economic activities.
According to some economists, Economic growth is a process
whereby an economy’s GDP increases over a long period of time.
But if the population growth is higher then the better way to
define economic growth is in terms of a rise in per capita
product(or income).

Economic Development: Economic growth plus progressive

change in social indicators.
According to Mahbub ul Haq , the problem of development must
be defined as a selective attack on the worst forms of poverty.
Development goals must be defined in terms of progressive
reduction and eventual elimination of malnutrition, disease,
illiteracy, unemployment and inequalities.
Economic Underdevelopment: An underdeveloped country is
characterized by a low level of per capita income.
Some indicators of an underdeveloped country are:
I Primary sector provides employment to a large proportion of
labor force.
I Low per capita income.
I Underutilized manpower.
I Unexploited natural resources.
I Worst kinds of deprivation i.e presence of poverty, income
inequalities and unemployment.

Common characteristics of developing countries

I Low GNP per capita => In 2018, GNP per capita in India
was $2020.
I Scarcity of capital in majority of developing countries => due
to low income and widespread poverty, saving rate is low. so,
the rate of capital formation is also low.
I Rapid population growth and high dependency burden
I Low levels of productivity => In developing countries, low
level of productivity depends on poor health, poor skills of
workers, etc.
I Technology backwardness => lack of R&D and labor
displacing tech is opposed by workers
I High level of unemployment and underemployment =>
Disguised unemployment in agri is widespread
I Lower level of human well being => higher adult illiteracy,
lower life expectancy, high under five mortality rate
I Wide income inequalities and high incidence of poverty
I Agrarian economy
I Lower participation in foreign trade
I Less development of human capital
I Developing economies are ’Soft State’(lack social discipline)
Economic and Human Development

Economic development is influenced by the following three factors.

1. Natural resources
2. Economic factors
I Available capital stock and the rate of its accumulation
I Capital-output ratio in various sectors
I Agricultural Surplus
I Conditions in foreign trade
I Economic system
3. Non-Economic factors
I Size and quality of human resources
I Political freedom
I Social Organization
I Technical know-how and general education
I Absence of corruption
I Will to develop on the part of people
Role of Natural Resources in Economic Development
I Development of many countries depends on the kind and size
of the resource base they have.
I Availability of fertile soil with irrigation provides favourable
conditions for agri development.
I Adequate reserves of coal and petroleum and water resources
for electricity generation.
I Minerals like iron ore, copper, tin, bauxite, and uranium can
induce the process of industrialization.
I Sea coasts provides navigation facilities for overseas trade.
I The natural resource of a country place general limits on the
possibility of economic development. However, resource
availability is not a sufficient condition for human progress.
Role of Economic Factors in Economic Development
I Capital formation: A country which wants to accelerate the
pace of growth, has no choice but to save a high ratio of its
income, with the objective of raising the level of investment.
I Marketable surplus of agriculture: Marketable surplus(=
total agri production − fraction of production required for
rural population to subsist) met the demand of food in urban
areas.
I Conditions in foreign trade: Unrestricted trade may results in
deficits in the balance of payments of developing countries but
it’s main advantage is that it allow efficient allocation of
resources.
I Economic system: Capitalist system vs socialist system vs
Mixed economy system
Role of Non-Economic Factors in Economic Development
I Human Resources: If a country can manage to use its
manpower properly, it will prove to be an important factor in
development. if not then the same manpower will be burden
on the economy.
I Technical know-how and general education: As the scientific
and technological knowledge advances, man discovers more
and more sophisticated techniques of production which
steadily raise the productivity level.
I Political freedom: If a country can’t take its decision
independently, it can’t prosper.
I Social organisation: Mass participation in development
programmes is a precondition for accelerating the growth
process.
I Corruption: Corruption operates as a negative factor in the
growth process.
Human Development
Human Development Report has defined human development as
the process of enlarging people’s choices.
The most critical choices are
I to lead a long and healthy life
I to be educated
I to enjoy a decent standard of living
Additional choices include political freedom, other guaranteed
human rights and various ingredients of self-respect. According to
Mahbub ul Haq, ”the defining difference between the economic
growth and the human development is that the first focuses
exclusively on the expansion of only one choice − income − while
the second embraces the enlargement of all human choices −
whether economic, social, cultural or political.”
Why expansion of income can’t enlarge all other choices? =>
Because Income may be unevenly distributed within a society.
Human Development Index (HDI) is the measure of Economic
Development. United Nations Development Programme
introduced the HDI in its first Human Development Report
prepared under Mahbub ul Haq and published in 1990 . The
measure has been enlarged and many related indices of Human
development like Gender-related Development Index(GDI), Gender
Empowerment Measure(GEM), Gender Inequality Index(GII),
Human Poverty Index(HPI) and Multidimensional Poverty
Index(MPI).
Why Human Development?
I Human development is the end while economic growth is only
one of the means to this end.
I Human development is a means to higher productivity =>
Well nourished, healthy, educated , skilled alert labour force is
the most important productive asset.
I It helps in lowering the family size by slowing human
reproduction.
 I Human development and reduced poverty contributes to a
healthy civil society, increased democracy and greater social
stability.
I Human development is good for physical environment.
Essential Components of Human Development
I Equity: If development is to enlarge people’s choices, people
must enjoy equitable access to opportunities i.e land reforms,
distribution of income, equalisation of political opportunities,
gender equality reform etc.
I Sustainability: The next generation’s right to enjoy the same
well-being that we now enjoy makes sustainability an essential
component of human development.
I Productivity: It requires investment in people and an
enabling macroeconomic environment for them to achieve
their maximum potential.
I Empowerment: it means that people are in a position to
exercise choices of their own free will.
Human Development Index
The main reason for the shift of focus of many economists from
economic growth to human development is the growing recognition
that the real objective of development is to enlarge people’s
options. Income is only one of the several options essential for the
human development.
HDI does not replace GNP but adds considerably to an
understanding of the real position of a society in many respects.
Besides income, HDI measures education and health.
HDI is more meaningful as a national average than the GNP
because there are much greater extremes in income distribution
than the distribution of life expectancy and literacy.
HDI covers both the economic and social choices. (In the past, for
economic choices = GNP and for social choices = PQLI(
Physical Quality of Life Index developed by David Morris. )
Construction of HDI
Since 2010, HDI is defined as the geometric mean of normalized
indices measuring achievements in three basic dimensions of
human development: a long and healthy life, access to knowledge
and a decent standard of living.
1/3 1/3 1/3
HDI = Ilife .IEducation .IIncome
where Ilife = Health index; IEducation = Education index; IIncome =
Income index;
−20
Health Index = LE85−20 ; Education Index =
MYSI +EYSI
2 where
MYSI=Mean years of schooling index and EYSI=Expected years of
schooling index (Maximum value of expected years of schooling is
18 and maximum value for mean years of schooling is 15); Income
log PPP−log 100
Index = log 75000−log 100
Other Indices of Human development report
I Inequality-Adjusted HDI: First introduced in HDR 2010. The
difference between HDI and IHDI measures the loss in
potential human development due to inequality.
I Gender Development Index: GDI gives the ratio of female to
male HDI values.
I Gender Inequality Index: First introduced in HDR 2010, GII
includes three critical dimensions for women - reproductive
health, empowerment and labor market participation.
The index shows the loss of human development due to
inequality between female and male achievements in these
dimensions. It ranges from 0(good) to 1(bad).
Worldwide the female HDI value averages about 6% lower
than the male HDI value.
Among regions, the largest gap is in South Asia(20.7%)
between HDI values of both gender.
I Multidimensional Poverty Index: First introduced in HDR
2010. MPI is the product of the multidimensional poverty
headcount(the share of people who are multidimensionally
poor) and the average number of deprivations each
multidimensionally poor household experiences(the intensity of
their poverty). It has three dimensions mirroring the HDI -
health, education and living standards -which are reflected in
10 indicators. The education and health dimensions have two
indicators each, so each component is worth 5/3(or 16.7%).
The standard of living dimension has six indicators, so each
component is worth 5.6%.
I Planetary pressures-adjusted HDI: multiplying the HDI by an
adjustment factor. If a country puts no pressure on the
planet, its PHDI and HDI would be equal, but the PHDI falls
below the HDI as pressure rises.
The adjustment factor is the arithmetic mean CO2 emissions
per capita index, and material extracted footprint per capita
index.
Human Development Report 2019
I Theme of the report is
” Human Development and the Anthropocene ”.
I Top five HDI rank countries are Norway(rank-1 with HDI of
0.957), Ireland(rank-2), Switzerland(rank-2), Hong
Kong(rank-4), Iceland(rank-4)
I India’s HDI rank is 131/189 and HDI value is 0.645.
I South Asia’s HDI: Srilanka > Maldives > Bhutan > India >
Bangladesh > Nepal > Pakistan > Afghanistan
I India’s IHDI rank is 132
I India’s gini coefficient is 37.8
I India’s GII rank is 123, Maternal mortality ratio(deaths per
100,000 live births) is 133, Share of seats in parliament is
13.5%, Female Labour force participation rate is 20.5%
I Percentage of the population living below the international
poverty line of $1.90 (in purchasing power parity [PPP] terms)
a day in India is 21.2%.
Links Between Economic Growth and Human Development
I Economic growth => remunerative employment to people
I Economic growth => more equitable distribution of income
and economic opportunities => improving the general human
well-being.
I Investment in education, health and skills of the people =>
economic growth
I taking steps to ensure gender equality => Economic growth
The Environment and Development
Some Facts
I The Limits to Growth published in 1972 by D.H. Meadows,
D.L. Meadows and R. Randers
I World Development report 1992
I Brundtland Report - Our Common Future(1987) clearly define
the sustainable development.
 Sustainable Development: It seeks to meet the needs and
aspirations of the present without compromising the ability of
future generations to meet their own needs.

Growth and Environmental Degradation

Process of rapid industralisation have been causing massive
environmental damage. And most of the environmental and
ecological damage is irreversible leading to widespread concerns
among environmentalists regarding the sustainability of the present
rates of economic growth.
According to a World Bank’s Report released in 2013, the total
estimated cost of environmental degradation in India at about
5.7% of GDP in 2009.
The acceleration of economic growth in recent decades has
coincided with unprecedented environmental plunder - fall in water
tables, majestic rivers reduced to sewage drains, mining activities
destroys the forests and other ecosystems and air pollution.
Environmental damage is frequently discussed under the following
categories:
Water Pollution
I Water quality of surface as well as of ground water is
continuously deteriorating and most widespread
contamination of water is industrial waste(contains toxic
chemicals, heavy metals such as lead and mercury).
I Water pollution is the most serious environmental problem
because a large portion of world’s population still lack access
to clean water and sanitation.
I The impact of waterborne diseases is huge especially for poor.
the main health impacts of unclean water and poor hygiene
are diarrheal diseases, typhoid and paratyphoid.
I According to Water Aid, an international organisation, an
alarming 80% of India’s surface water is polluted.
Outdoor Urban Air Pollution
I It has significant negative impacts on public health and results
in premature deaths.
I PM10 is generally taken as the primary measure of air
pollution.
I PM2.5 can go further into the lungs and airway and carry
more dangerous toxins, such as heavy metals.
I Other pollutants of concern are Sulphur Dioxide, Nitrogen
oxide. Nitrogen Oxide creates ozone on the ground - a major
component of smog.
Indoor Air Pollution
I According to WHO, more than 1.5 million people die each
year globally due to indoor smoke from the use of traditional
fuels in the home.
I Firewood constitutes the major source of cooking energy in
India.
Solid and Hazardous Wastes
I Open dumping and uncontrolled landfilling
I Inadequate collection and unmanaged disposal present a
number of problems for human health and productivity.
I hazardous waste pollute groundwater resources.
Soil Degradation
I Soil erosion denudes the agricultural land of its top fertile
layer and thus affects agri productivity adversely.
I Salinisation and water-logging are other serious forms of soil
degradation. if threshold salinity level is exceeded, the land
becomes unfit for cultivation.
I Three categories of soil degradation in India(soil erosion,
salinisation and water-logging), world bank study estimates
losses arising from such degradtion at 1.1% of GDP in 2010.
I India faces a growing crisis of land degradation: Nearly 30%
of its land area has been degraded through deforestation,
over-cultivation, soil erosion and depletion of wetlands.
Deforestation
I Forest provide a livelihood and cultural integrity for forest
dwellers and a habit for a wealth of plants and animals.
I Forest protect and enrich soils, provide natural regulation of
the hydrologic cycle, affect local and regional climate through
evaporation, influence watershed flows of surface and
groundwater, and help to stabilise the global climate by
sequestering carbon as they grow.
I Forest preserve the ecological and environmental balance and
play role in maintaining the biodiversity and ecosystems.
I Deforestation has continued at a fast rate as man cleared
forests for extending agri and obtaining firewood, industrial
wood, timber and constructing material.
I India’s North-Eastern mountainous states continue to
experience deforestation due to widespread practice of shifting
cultivation.
Loss of Biodiversity
I Biological diversity - a composite of genetic information,
species, and ecosystems − provide material wealth in the form
of food, fibre, medicine and inputs into industrial processes.
I Loss of Biodiversity jeopardize all this above mentioned.
I In India, 103 species of mammals and birds have been listed
as endangered under the wildlife (protection) Act, 1972.
Atmospheric changes
I Greenhouse effect and global warming: Water vapor, CO2 ,
CH4 , O3 and N2 O are all GHGs naturally present in the
atmosphere. The warming effect created by the natural levels
of these gases is ”the natural greenhouse effect”. Gases
released from human activities greatly amplified the natural
greenhouse effect.
 I The heat trapping caused by GHGs is likely to result in
considerable global warming which could cause the melting of
ice-sheets and a consequent rise in sea level; increase in floods,
droughts, and forest fires in many regions; spread of infectious
and diarrhoel diseases as a result of extreme heat; extinction
of a quarter of all animal species, significant declines in food
production adverse impact on environment and ecology.
I Ozone depletion: due to increasing atmospheric
concentrations of chlorine originating from CFCs.

Environment policy in India

I In the wake of the Stockholm Conference, the National
Committee on Environment Planning and Coordination was
set up in 1972.
I Environmental protection was incorporated in the constitution
by 42nd Amendment Act of 1976. Art. 48A was added to the
DPSP which states, ”The State shall endeavor to protect and
improve the environment”.
I Ministry of Environment and Forests was setup in 1985. A
National Environment Policy was announced in 2006.
I The first major environmental legislation was the
Water (Prevention and Control of Pollution) Act of 1974 . It
led to the establishment of State Pollution Control Boards to
set and enforce effluent standards. To coordinate the activities
of these boards, CPCB was also setup. For meeting the
expense of boards, the Water Cess Act was enacted in 1977 .
I The National Water Policy 2002 lays emphasis on integrated
water resources development and management for optimal and
sustainable utilisation of available surface and groundwater.
I The Air (Prevention and Control of Pollution) Act, 1981 is
the main legislation for regulating air quality, through
pollution control boards in the states.
I Environment (Protection) Act, 1986 - it empowered the
center to take all such measures as it deems necessary or
expedient for the purpose of protecting and improving the
quality of the environment and preventing, controlling and
abating environmental pollution.
I Environment Impact Assessment(EIA) involves evaluation of a
project which is likely to cause damage to the environment.
This is intended to ensure that environment concerns are
integrated in the developmental activities in order to achieve
sustainable development. EIA are crucial tools to assess the
ecological feasibility and desirability of projects.
I In order to promote afforestation, tree planting, ecological
restoration and eco-development activities in the country, the
National Afforestation and Eco-Development Board was
setup in 1992.
I The Biological Diversity Act 2002 provide for constitution of
state boards and Management Committees for conservation,
documentation and sustainable utilisation of biodiversity.
I Project Tiger was launched in 1973 after an amendment of
Wildlife (Protection) Act 1972 .
I Biosphere Reserves − this programme was started in 1986
with UNESCO support for integrating social, cultural, and
ecological values of ecological rich landscapes.
I The coral reefs protect the coastal areas from sea erosion
while mangroves protect us from cyclone damage. Mangroves
in India account for about 5% of world’s mangrove vegetation.
The four major coral reefs areas in India are Gulf of Mannar,
Gulf of Kachchh, and Andaman and Nicobar Islands and
Lakshadweep.
I Disaster Management Act 2005 establish requisite
institutional mechanisms for drawing up and monitoring the
implementation of disaster management plans, ensuring
measures by various wings of govt for prevention and
mitigating the effects of disaster, and for undertaking a
holistic, coordinated, and prompt response to any disaster
situation. The National Disaster Management Authority was
setup under this Act, under the chairmanship of PM.
Global Agenda
I In 1992, at the Earth Summit in Rio, heads od state from 132
countries approved the framework Convention on Climate
Change.
I In 1997, the Climate Change Convention was held in Kyoto to
decide the targets and time-schedules for reducing GHGs
emission. kyoto protocol came into effect in 2005. It required
industralised countries(Annex I countries) to bring down their
emission to 5% less than the 1990 levels by 2012.
I The political accord arrive at in Copenhagen) (Copenhagen
Conference in 2009) aims at a 2 degree Celsius limit to global
warming by reducing emissions 50% by 2050 and $130 billion
for mitigation and adaptation by 2020.
I Cancun Climate Change Conference (COP16), 2010, agreed
on a Long-term Cooperative Action. Establish Green Climate
Fund to provide long-term financing to poor countries to
enable them to adapt to climate impacts.
I Paris Climate Agreement : 2015 UNFCCC COP21 held in
paris. It is to apply from 2020 onwards. Main points are:
Global warming target kept well below 2 degree Celsius with
an endeavor to limit it to 1.5 degree celsius by the end of
2100. The Govt of India in its INDCs has pledged to produce
40% of its electricity from renewable sources by 2030.
I Bonn climate change conference − COP23, 2017
I Talanoa dialogue - related to climate change
Structure of the Indian
Economy
Nature of the Indian Economy
India-An Underdeveloped Economy
I Low per capita income : Based on per capita income, India is
among the poorest country of the world. In 2018, India’s PPP
estimate of GNP per capita was as low as $7680, one-eighth
of the USA’s PPP estimate of GNP per capita.
I Inequitable Distribution of income : According to World
Development Indicators 2018, the share of the bottom 10% of
the population in aggregate household expenditure was only
3.5% in 2011 while the share of the top 10% was as high as
29.8%. Gini Index for the year 2011 was 35.7 (a value of 0
indicates absolute equality, and a value of 100 absolute
inequality).
I High Incidence of poverty : The problem of mass poverty is a
natural outcome of income inequalities.
In 2013, Planning commission released the estimates of
poverty computed from the data on Household Consumer
Expenditure Survey and on this basis, 21.9% of population
was below the poverty line in 2011-12.
I Predominance of agriculture : Despite of 45% of workforce
engaged in Agriculture and allied sectors, it contributed only
14.8% of the Gross Value Added in 2017-18.
I Rapid Population growth and high dependency ratio
I low level of human development
I Unemployment : Widespread unemployment is the most
strinking symptom of inadequate development in India. NSSO
reported, Usual status unemployment rate in 2012-15 was
6.11 − highest in four decades. Unemployment in India is
chronic and results from structural defects in the economy.
I Scarcity of Capital : The rates of saving and investment in
India in 2017-18 were 30.5% and 32.3% respectively, which is
low incomparision to china and south korea.
I Technology backwardness and lack of entrepreneurs
India-A Developing Country
I Rise in net national product : India’s NNP in 1950-51 was
around Rs. 2.7 lakh crore and in 2018-19, NNP was around
Rs. 123 lakh crore. Average growth rate since 1950-51 to
2011-12 was around 5.7% per annum.
I Rise in per capita income : per capita income in 1950-51 was
Rs. 7500 while in 2018-19, it was around Rs. 92000.
I Significant changes in sectoral distribution of domestic
product
I Slow change in employment structure

I Growth in basic capital goods industries : iron and steel,

heavy chemicals, nitrogenous fertilizers, heavy engineering,
machine tools, locomotives, heavy electrical equipment etc.
I Expansion in Social overhead capital : social overhead capital
broadly includes transport facilities, irrigation system, energy
production units, educational system and health facilities.
their development creates favourble conditions for growth.
I Progress in the banking and financial services
I Since Independence significant progressive changes have taken
place in the banking and financial structure of India.
I Oranisation of money and capital markets has improved in last
six decades, banking services have increased and modern banks
have reached small towns and villages.
I the growth of commercial banks and cooperative credit
societies has been really spectacular and as a result of it the
importance of money lenders has declined
I The process of Nationalisation was initiated after
independence. First, RBI was nationalised in 1949. Thereafter,
Imperial Bank of India nationalised and convert into SBI in
1955. In 1969, 14 big commercial banks wer nationalised.
I After Nationalisation, a radical change was witnessed in the
credit policy of the banks as more funds were made available
to priority sectors(Agriculture, small-scale industries, retail
trade, microcredit, education and housing)
Statistics of Indian Economy
Infrastructure
Development of Infrastructure is a very essential to Economic
Development. For instance, development of agri depends on
adequate expansion and development of irrigation facilities.
If proper attention is not paid to the development of infrastructure,
it is likely to act as a severe constraint on economic development
process in the country.

Power or Electricity
I Electricity and power generation plays a crucial role in
economic development.
I Electricity is a vital input for industry and agriculture. Not
only this, mainly all sectors of the economy need electricity.
I Due to the increasing dependence on electricity in every
sector, demand for electricity is increasing at a exponential
rate. So, the future development of the country will depend
upon the rate of growth of power generation capacity.
I Expansion of generation capacity
I The total installed generating capacity in the country rose
from only 2.3 GW in 1950 to as high as 379 GW as at the end
of march 2021.
I To facilitate grid operation and transfer of power from surplus
to deficit areas, construction of inter-state and inter-regional
lines was undertaken.
I Still there is large gap between the demand for and supply of
electricity. Due to which power shortages have become a
normal phenomenon.
I According to planning commission, the power shortages is
mainly due to the slippages in the capacity additions,
unsatisfactory performance of thermal stations,
non-completion of transmission line.
I Problems in the Electricity Sector
I delay in installing and commissioning of projects. delays are
mainly due to land acquisition, inter-state water disputes, late
delivery of steel etc and funding constraints.
I State Electricity Boards face a number of problems like poor
financial and commercial performance which has crippled their
capacity to finance future programmes and heavy T&D losses.
The heavy T&D losses is due to energy sold at low voltage,
sparsely distributed loads over large rural areas, improper
billing and theft.
I Cost recovery in distribution is very poor. Many state govt are
providing electricity at very low rates to agri sector. When
electricity is supplied at very low rates to the agri sector and
households, industrial sector is charged tariffs that are much
above cost of supply.
I Electricity Act, 2003 : It was enacted with the main
objectives of providing a liberal and progressive framework for
growth of power sector. It has removed barriers to entry of
private sector. It ensure protection of interests of the
consumers in terms of quality of service, price regulation etc.
I Sources of power (Electricity)

I UDAY(Ujwal DISCOM Assurance Yojana) : UDAY scheme

was launched in 2015 for financial turnaround of power
distribution companies. The scheme envisages reduction in
interest burden, cost of power and aggregate technical &
commercial(AT&C) losses.
Coal
I India has the world’s fourth largest coal reserves and is the
second largest coal consumer, importer and producer. Major
source of energy in India
I Coal-based generation of power constitutes round 66% of
total electricity generated.
I Coal mines were nationalized in the early 1970s. this radical
move paved the way for the introduction of newer
technologies, standardization of equipment and creation of
infrastructural facilities.
I To increase the production of coal, following policy measures:
I New coal distribution policy was notified in 2007.
I system of e-auction for sales of about 20% of total production
has been introduced
I new technologies for mining introduced
I offered financial incentives to the private sector and removed
restrictions on the end-use of the fuel in a bid to reduce
imports and make India a net coal exporter.
Energy Crisis
1. Oil prices and the inflationary pressure. The energy crisis in
India began with the hike of oil prices in 1973. In this year,
OPEC had raised oil prices by more than four times. since
then, the oil prices have been increased several times by the
OPEC. this has often contributed to the inflationary pressure.
2. Growing oil imports bill. Beginning from 1973-74, India’s oil
imports bill has recorded a substantial increase. In 2019-20,
India import bill reached around Rs 10 lakh crore.
3. Demand-supply imbalance in commercial strategy. The heavy
dependence on energy imports is a serious cause for concern
and calls for an appropriate energy strategy in the future.
Energy Strategy to reduce the dependence on imported oil
1. Accelerated Exploitation of domestic conventional energy
resources − oil, natural gas, coal, hydro and nuclear power
2. Management of oil demand
3. Substitution of natural gas for oil products
4. Energy conservation
5. Exploitation of new renewable sources of energy like solar
energy, wind power and biogas etc
6. Intensification of research and development in emerging
technologies.
Railways
I The development and expansion of railways has revolutionized
the transport system the world over.
I In India, the railways provide the principal mode of
transportation for freight and passengers.
I The railways are the most convenient mode of transport for
long distances and are most suitable for carrying heavy and
bulky goods.
 I In terms of route length, the Indian railway system is fourth
largest in the world after US rail/road and Russian and
Chinese railways.
I The 43% of route length of railways is electrified in India.
I Problems and Issues in Railway development:
I Inadequate network capacity and infrastructure.
I Freight traffic rate on Indian railways is among the highest in
the world. High freight rates cross-subsidies the low passenger
fares.
I heavy traffic moving on the golden quadrilateral
I common corridor for both freight and passenger traffic.
I large shelf of pending projects
I under-investment in Indian railways
I market share of rail transport is falling
I existing technology of both electric and diesel locomotives is
considerably old.
Road Transport
I Roads are generally classified into the following categories:
National highways, State highways, District roads, and Rural
roads.
I India has the second largest road network in the world.
I out of the total road network, NHs comprises around 1 lakh
km and SHs comprises around 2 lakh km and rest 56 lakh km
are other roads.
I Three imp initiatives in the road sector were undertaken in
recent years: The National highway development project
(NHDP), Pradhan Mantri Bharat Jodo Pariyojana (PMBJP),
and PM gram sadak yojana(PMGSY).
I National Highways Development Project
I NHDP is a project to upgrade, rehabilitate and widen major
highways in India to a higher standard.
I The government has planned to end the NHDP program in
early 2018 and consume the ongoing projects under a larger
Bharatmala project.
I Phase I: The Golden Quadrilateral (GQ; 5,846 km) connecting
the four major cities of Delhi, Mumbai, Chennai and Kolkata.
I Phase II: North-South and East-West corridors comprising
national highways connecting four extreme points of country.
I Phase III, IV, V, VI: up-gradation of existing highways, convert
existing single-lane highways into two lanes , constructing
expressways etc.
I Pradhan Mantri Gram Sadak Yojana (PMGSY): to provide
connectivity to unconnected Habitations as part of a poverty
reduction strategy.
I problems in road sector:
I delays in land acquisition and removal of structures
I significant increase in land acquisition cost
I lack of equity with developers and poor performance of some
contractors
I too many checkpoints on national highways
I law and order problems in some states
I high cost of financing and shortfall in funds for maintenance
I cartelisation during bidding for contracts.
Communications

Communications means the imparting or transmission of

information.
The conveyance of information is very necessary for the
development of industries, commerce and trade in the country.
The most important means of communications are the postal
services, telephone services, teleprinters, radio and television,
internet, etc.
Telecommunications The Indian telecom network is now the
second largest in the world after china. From only 7.65 crore
telephone subscribers in 2004, the number increased to 118.34
crore as at end-March 2019. This increase has been entirely due to
spectacular increase in wireless connections or mobile connections.
The overall tele-density in India stands at 90.10%, the rural
tele-density being 57.50% and urban tele-density being 159.66% at
the end of March 2019.
A regulatory authority in the telecom sector known as Telecom
Regulatory Authority of India (TRAI) was setup in 1997. It has
been setup with a view to discharge regulatory functions, thereby
providing a level playing field in the telecom sector.
The mobile industry in India currently contributes 6.5% to the
country’s GDP and employs over 4 million people directly and
indirectly.
Digital India
I Govt started a Digital India campaign in 2015
I To make the Digital India campaign a success, a lot of
reforms carried out in the telecom sector, especially in
spectrum management.
I To convert India into a digital economy, a lot of emphasis has
been placed on increasing the digital penetration in rural
villages via a programme called ’Bharat Net’ , whose mission
is to link all gram panchayats in the country through
broadband optical fibre network.
I Bharat Net => facilitate the delivery of e-services.
The Population Growth and Economic Development
Stages of Demographic Transition
India’s Population: Size and Growth Trends
I Size of Population
I ranks second, next to china
I 2.4% world’s area sustaining 17.8% world’s population.
I Population of India was 135 crore in 2018 as against 121 crore
based on 2011 census.
I Rate of Population Growth
I the rate of growth of population during the decade 1941-51
was 1.25% per annum which rose to 1.96% per annum in
1951-61 and further to 2.20% per annum in 1961-71 and then
decline to 1.64% per annum in 2001-2011.
I Birth and Death Rates
Year Birth rate per 1000 Death rate per 1000
1950-51 39.9 27.4
1960-61 41.7 22.8
1970-71 36.9 14.9
1980-81 33.9 12.5
1990-91 29.5 9.8
2000-01 25.4 8.4
2017 20.2 6.3
India’s Population Growth and selected Demographic Indicators
India’s population in 2011 121.09 crore
Average growth rate during 2001-11 1.38%
Crude birth rate per 1000 in 2018 20.0
Crude death rate per 1000 in 2018 6.2
Total fertility rate per women in 2018 2.2
Maternal mortality ratio per 1 lakh live births in 113
2016-18
Infant mortality rate per 1000 live births in 2018 32
Life expectancy at birth for male 68.2
Life expectancy at birth for female 70.7
Sex ratio at birth in 2016-18 899
Percent population in 15-59 age group 66%
Percent population in 0-14 age group 25.9%
Percent population in 60+ age group 8.1%
Mean age at effective marriage for females 22.3
India’s Population: the future
I The UN projects that India’s population will be 1.64 billion by
2050 from 1.21 billion in 2011.
I The population of four states-Bihar, MP, Rajasthan and UP
will increase at faster rate than other states.
I TFR for the country expected to go down to 2 per women by
2026
I through higher level of immunisation, increasing sanitation
and clean environment, there is considerable scope for future
mortality gains.
I Double burden of disease => various degenerative ailments
like cancers, diabetes, and hypertension will grow in relative
importance, but major infectious disease will remain as serious
health problems.
I level of urbanization will be about 36% in 2026.
I pressure on environment will increase multi-fold as population
and gdp per capita increase.
 I the country is expected to reap the benefits from the
demographic dividend in future as country’s working age
population is going to grow faster than the total population
but this demographic dividend can be disastrous if
employment opportunities especially skilled employment
opportunities will not increase in the same manner.
Causes of the Rapid Growth of Population: There are only
three possible causes of an increase in the population of a country:
I a high birth rate
I predominance of agriculture favor large families
I slow urbanisation process and predominance of villages
I widespread poverty => benefit of having additional child
exceed the cost of upbringing.
I near universality of marriage and lower marriage age
I joint family system => burden of children distributed.
I lack of education especially among women
I high under-five mortality rate
 I a relatively lower death rate
I Elimination of famines => reduction mass mortality
I Control of epidemics and decline in the incidence of malaria
and tuberculosis
I improved supply of drinking water
I improved sanitation and hygiene
I Expansion of education and increased literacy
I Expansion of medical facilities such as immunisation etc.
I immigration : this is not the major factor in population
increase in India.

Population and Economic Development

Population growth is an Obstacle
I Population growth lead to decline in land-man ratio. Density
of population is 382 per sq.km as against 117 per sq.km in
1951. pressure on agricultural land has increased.
I Population growth and capital formation: rapidly growing
population makes increasing demands on resources for
unproductive purposes and thus hinders capital accumulation.
 I population growth has resulted in large-scale unemployment
and underemployment.
I rapid growth of population has made it difficult to raise the
level of per capita income and the standard of living.
I rapid population growth may lead to shortage of food grains.
I rapid growth of poulation prevents change in occupational
distribution of population.
Population growth is not an obstacle
I Population growth should always be seen in relation to
development of productive forces.
I In many developing countries, underpopulation holding back
growth because it leads to non-utilisation of cultivable land,
low demand for industrial goods resulting in low industrial
production, etc.
Remedies for Population explosion To deal with the existing
population proble, three fold measures would be required.
I Economic Measures
I Expansion of the industrial sector: the family size of industrial
people is smaller than agri people.
I Creation of employment opportunities in urban areas:
Migration from the villages to the cities will happen only if
there is ample employment in the cities. Urbanization checks
the population growth.
I Equitable distribution of income and removal of poverty: Once
the poor people start getting basic amenities of life, they will
have no economic compulsion to have more children and their
attitude towards the size of their families will undergo a
change.
I Social Measures
I Education: changes the attitude of a person towards family,
marriage and the no. of children he should have.
I Improving status of women => more educated women, no
discrimination => family size is small
I Raising the minimum age of marriage
 I Family planning programme
importance of family planning programme as a device to
control population explosion is now universally recognised.
According to UNFPA’s state of world population report 2012,
85% of married women of child-bearing age in china used
contraception during the period 1955-2011 as against 55% in
India.
Under the family planning programme, the govt has
introduced various schemes under which incentives are being
given to those who accept family planning.
National Population Policy, 2000
I NPP 2000 outlined immediate, medium-term and long-term
objectives.
I The immediate objective was to meet needs of contraception,
health infrastructure, health personnel and to provide
integrated service for basic reproductive and child health care
I The medium-term objective was to lower down the total
fertility rates to the replacement level by 2010.
I The long-term objective is to achieve a stable population by
2045.
I In pursuance of these objectives, the following National
Socio-Demographic Goals to be achieved in each case by 2010
are formulated:
I Address the unmet needs for basic reproductive and child
health services, supplies and infrastructure.
I school education up to age 14 free, reduce drop outs.
I Reduce infant mortality rate to below 30 per 1000 live births.
I Reduce MMR to below 100 per 100,000 live births.
I Achieve universal immunization of children against all vaccine
preventable diseases.
I Promote delayed marriage for girls
I Achieve 80 percent institutional deliveries and 100 percent
deliveries by trained persons.
I Achieve universal access to information/counseling, and
services for fertility regulation and contraception with a wide
basket of choices.
I Achieve 100% births, marriage, pregnancy registration.
I Prevent and control communicable diseases.
I Promote vigorously the small family norm to achieve
replacement levels of TFR.
I Bring about convergence in implementation of related social
sector programs.
Low Sex ratio in India
I Female-male ratio registered a significant decline from 0.972
in 1901 to 0.927 in 1991 and thereafter registered a increase
from 0.927 to 0.940 in 2011.
I Sex ratio in India’s different states differs significantly from
the all-India sex-ratio. only in Kerala it was favourable in 2011
in the sense that there were 1084 females per 1000 males.
I four states (Punjab, Haryana, MP, Maharashtra) where
economic growth has been higher during the
post-independence period have not cared to empower the
women, and thus sex-ratio has remained distinctly lower in
these states as compared to all-India sex ratio.
I North-western states are notorious for highly unequal gender
relations, some symptoms of which include the continued
practice of female seclusion, low female labor-force
participation rates, a large gender gap in literacy rates,
extremely restricted female property rights, strong boy
preference in fertility decisions, widespread neglect of female
children and drastic separation of a married woman from her
natal family.
I Child sex ratio (CSR) indicates the number of girls per 100
boys in the 0-6 age group. CSR decline from 927 in 2001 to
918 in 2011.
I Worst states in CSR are Punjab and Haryana showing some
marginal improvement. While there is large drop in CSR in
some states- Jammu and Kashmir, Rajasthan etc.
I The main reason for the falling child sex ratio is the
widespread practice of sex-selective abortion (or female
foeticide). Behavioral factors including care seeking practices
operate against young female children, girls are less likely to
receive proper medical attention than boys.
I The rate at which girls and women die relative to men is
higher in low- and middle-income countries than in
high-income countries. World development report 2012,
quantify this excess female mortality (“missing” girls and
women) and reported that About two-fifths of them are never
born, one-fifth goes missing in infancy and childhood, and the
remaining two-fifths do so between the ages of 15 and 59.
I Beti Bachao Beti Padhao Scheme, 2015 :
I The decline from 945 in 1991 to 927 in 2001 and further to
918 in 2011 is alarming. The decline in the CSR is a major
indicator of women disempowerment.
I CSR reflects both, pre-birth discrimination manifested through
gender biased sex selection, and post birth discrimination
against girls.
I Social construct discriminating against girls on the one hand,
easy availability, affordability and subsequent misuse of
diagnostic tools on the other hand, have been critical in
increasing Sex Selective Elimination of girls leading to low
Child Sex Ratio.
I Beti Bachao Beti Padhao initiative is being implemented
through a national campaign and focussed multi sectoral
action in 100 selected districts low in CSR.
I This is a joint initiative of Ministry of Women and Child
Development, Ministry of Health and Family Welfare and
Ministry of Human Resource Development.
I The objectives of this initiative are: Prevention of gender
biased sex selective elimination, Ensuring survival & protection
of the girl child, Ensuring education and participation of the
girl child
Age Structure of Population and its demographic dividend
I What is Demographic Dividend?
I it is defined as a rise in the rate of economic growth due to a
rising share of working age people in a population.
I This phenomenon occurs with a falling birth rate and the
consequent shift in the age structure of the population towards
the adult working ages.
I Impact on Economic growth
I Saving rate is expected to increase during the age structure
transition because share of workers to non-workers in
population is expected to increase (i.e large surplus available
for investment). so, automatically generate capital resources
that the country needs for investment purpose.
I With the decline in fertility, more women are likely to enter
into the labor market resulting in increased economic activity.
This is expected to give a spurt to economic growth.
I people invest more on their own health when children are fewer
in number, leading to better productivity and economic
benefits to the household.
I Government will also be in a position to spend and invest in
more productive activities with the decline in the number of
children.
I Age Structure of India’s Population
I Share of working age (15-59) population is increasing at
consistent rate, from 53.3% in 1961 to 60.3% in 2011.
I there is significant decline in 0-14 population, from 41% in
1961 to 30.8% in 2011.
I prevalent fertility rates in India signifies that share of
working-age population in India will continue to rise for few
more decades.
I Low dependency ratio (a measure of the number of
dependents aged zero to 14 and over the age of 60, compared
with the total population aged 15 to 59) gives India a
comparative advantage and a progressively lowering
dependency ratio will result in improving our competitiveness.
I In 2020, average Indian will be only 29 years old, compared
with 37 in china and the US, 45 in western Europe and 48 in
Japan.
I The peak of the demographic dividend for India is fast
approaching.
I Demographic Dividend and Skill Deficit :
I utilisation of the demographic dividend depends on the policy
environment of the country.
I With India facing a major deficit in the area of health and
education, the conversion of a growing labor force into a
quality workforce is difficult to achieve.
I the demographic dividend argument ignores the fact that
available workers are not automatically absorbed to deliver
growth.
I Without training growing workforce in skills and making them
employable, the potential resource that the country’s
demographic transition offers will be wasted.
I the state of women in India might prevent it from capitalizing
on the one-time window of opportunity of demographic
dividend.
I India’s poor rank on the basis of Human capital index and
Human development index is an indication that it is not fully
equipped to reap the benefits of demographic dividend.
 I Increasing Unemployment and Collapsing Dividend :
I Unemployment rate among the youth has increased
significantly in recent times.
I The labor force participation rate has also declined.
Urbanisation and the Development Process
I Urbanisation is a part of the development process. In
backward stagnant societies the process of urbanization is
rather slow, because cities fail to offer employment
opportunities to people living in the countryside. Those who
migrates to cities in such societies are in fact pushed out of
villages due to economic and social pressure.
I Urbanisation is fast in rapidly growing economies where newly
established industries and ancillary activities continuously
provide jobs to people who wish to migrate to cities.
I Urban Area : urban area has been defined in India as follows:
I All places with municipality, cantonment board etc.
I all other places with minimum population of 5000 and at-least
75% of male working population engaged in non-agri sector
and density of population at-least 400 persons.
I Urban Agglomeration: a city or towns with a continuous
outgrowth.
I Urbanisation trends in India:
I In 1961, India’s urban population was 18% of the total
population. By 2011, it had increased to 31.2% of the total
population.
I The decadal growth rate of urban population has consistently
been higher than the decadal growth of rural population.
I the 2001-11 decadal increase in the size of urban population
was greater than that of the rural population for the first time
since independence.
I Urban challenges:
I urbanisation process has got concentrated in large cities.
I government investment is less in small towns.
I lack of urban infrastructure: electricity, water and sanitation
I planning process is lacking in mainly all urban centers - no
proper mechanism of land use, no provision of schools,
healthcare centers, community centers, public parks etc.
I lacking urban governance structure and lack of funding for
these governance structure.
I lack of Institutional infra, physical infra, social infra, economic
infra.
Migration of Rural Population to urban Areas in India
I In earlier times, migration from rural to urban areas was
largely on account of non-economic factors, such as social,
physical, demographic, cultural and communication factors. In
villages, social organisations are rigid and, in the past, people
who wanted to break away from these organisations used to
migrate to cities. climatic and meteorological disasters like
floods and droughts often compelled the people to leave
villages.
I In recent times, with the decline in mortality rates which
resulted in rapid population growth in rural areas, young
people have shown a tendency to look for jobs in cities.
I Improved transportation, urban-oriented education and
modernizing impact of cinema, radio and television have also
induced migration of people from rural to urban areas.
I Apart from above non-economic factors, Economic factors
play a major role in migration. These factors are push from
subsistence agriculture; pull of relatively high urban wages and
push back toward rural areas as a result of high urban
unemployment.
Human Resource Development: Education and Health
Inequality of income distribution

I Income inequality is how unevenly income is distributed

throughout a population.
I The less equal the distribution, the higher income inequality
is, i.e gains of economic growth are unevenly distributed.
I Gini coefficient can be used to analyze the level of income
inequality in a population.
I Income inequality is not only about developing countries. it is
a problem everywhere.
I Most inequality in the world is due to income differences
between countries, not differences in income between
individuals within those countries
I Over the past 20 years, on average, household income
inequality has risen in high-income (developed) and
developing countries.
Income Inequalities in India
Based on the NSSO household surveys data and national accounts
data, following points concluded by researchers:
I The share of national income accruing to the top 1% income
earners is now at its highest level since the creation of the
Indian income tax in 1922.
I From 1980 to 2014, the top 1% captured around 30% of total
growth, as much as the bottom 85%put together.
I the top 10% now account for 55% of all income
I the bottom 50% accounted for only 15% of income in 2013-14
I According to World Inequality report 2018, the income
inequality in India has risen substantially from 1980s onwards,
following profound transformations in the economy that
centered on the implementation of deregulation and
opening-up reforms.
Causes of Income Inequalities in India
I Inequalities in land ownership and concentration of tangible
wealth in the rural sector
Land holders and their criteria % land holder & % area
Marginal Farmers(< 1 ha) 67% cultivate 22.5% agri land
Small farmers(> 1& < 2 ha) 18% cultivate 22% agri land
Large farmers(>= 10 ha) 0.7% cultivate 11% agri land
I Concentration of assets in private corporate sector: the top 5
private sector companies in 2016-17 hold around 11 lakh crore
of assets.
I Rising capital intensity of technology: demand in favor of
more skilled workers relative to less skilled workers and
simultaneously more skilled worker is paid more => both
things raised inequality
I Inflation and the price rise => less or no savings for low
income group and erode the real income of the working class.
I Inequity in credit facilities: poor and small & marginal farmers
depend on moneylenders who charge very high rate of interest.
 I Urban bias in private investment: while 70% of the population
lives in rural areas, about 70% of private investment goes to
industries in urban areas.
I Economic reforms and liberalisation of 1991 and subsequent
years lead to the weighing the economy substantially in favor
of capital over labor.
Government policy and measures to curb the income
inequality
I Land reforms and redistribution of agricultural land after
independence.
I Employment and wage policies: some scheme in this regard
I Integrated Rural Development Programme (IRDP) 1978-79
I Jawar Rozgar Yojana 1989
I MGNREG Scheme 2006
I Social Security measures: Code on Social Security, 2020
include The Employee’s Compensation Act, 1923; The
Maternity Benefit Act, 1961; etc.
I Programmes for the uplift of the rural poor: In order to raise
the income of rural poors, broadly three types of programmes
have been undertaken:
1. Resource and income development programme for the rural
poor
2. Special area development programme
3. Works programme for creation of supplementary employment
opportunities
I progressive taxation
Employment and Unemployment in India
The size of employment depends to a great extent on level of
development.
In India, production has expanded in all the sectors of the economy
over the years. In response to these developments, absolute
employment has also grown but unemployment in absolute terms
has also increased.
Infact, while the country witness impressive rates of economic
growth during many years in the economic reform period(post
1991 period), rate of growth of employment lagged considerably
behind with the result that unemployment has increased
significantly. this phenomenon is often referred as the phenomenon
of jobless growth .
Employment Trends
I In the recent past, there has been deceleration in the growth
of employment in India in spite of the accelerated economic
growth.
I Overall employment elasticity (ratio of employment growth to
growth in value added) which was 0.52 during 1972-73 to
1983, declined to 0.41 in the next 10-year period and further
to 0.29 during 1993-94 to 2004-05. During 2004-05 to
2011-12, it declined to just 0.04(i.e, almost zero).
I 23 million jobs were created during period 1993-94 to
1999-2000 and as many as 60 million during five year period
1999-2000 to 2004-05, only 5 million jobs could be created
over the five year period 2004-05 to 2009-10. 11 million jobs
were created during 2009-10 to 2011-12.
I Withdrawal of Rural females from the total labor force :
While labor force participation rate hovered around 33% for
most of the period spanning 1977-78 to 2004-05, it came
down to 26% from 2004-05 to 2009-10. Two reason for that
I Women participation in education has increased tremendously.
The no of girls enrolled in secondary and senior secondary
education increased significantly.
I With the rise in the level of income in rural India, rural females
engaged in casual work/unpaid work in agriculture are,
perhaps, withdrawing from the labor force.
Structure of Employment
Sectoral Distribution of Employment
I Main sector for employment continues to be agriculture
I the absolute decline in the no of workers in Indian agri after
2004-05 occurred and is indicative of a structural
transformation of the economy.
I no significant change in employment in the manufacturing
sector during the period of the last three decades.
I the sector which has registered the fastest growth in recent
times as far as employment generation is concerned, has been
the construction sector.
I As far as result of economic reforms in the post-1991 period,
there has been substantial expansion in employment in (a)
transport, storage and communication (b) financing, real
estate and business services.
I Structural shift in employment is evident with the share of
agri declining over the entire period.
I the backbone of the industrial and economic progress i.e., the
manufacturing sector, continues to face stagnation in terms of
employment.
I Gender wise sectoral distribution of workers reveals the
following information:
I percent male workers in agriculture fell from 58% in 1993-94
to 43% in 2011-12.
I 78% of female workers were employed in agriculture in
1993-94. this percentage fell to 63% in 2011-12.
 Employment in Informal and Unorganized Sectors
Informal sector: used to denote tiny units, engaged in the
production of goods and service but whose activities are not
recognised, recorded, protected or regulated by the public
authorities.
Unorganised Sector: the organised sector includes all
establishments in the public sector and all non-agri establishment
in the private sector employing or more than workers. All units
complementary to the above coverage comprise the unroganised
sector.
I people working in informal and unorganised sectors of the
economy have low wage, no income security, long working
hours, no sick leave, no social security etc.
I Employment in the unorganised sector was as high as 86.3%
of total employment.
I The share of informal sector employment in total employment
is around 92%.
I Organised enterprises employers are increasingly hiring workers
on contractual terms.
Increasing casualisation
I In rural males, the share of casual labor in total employment
rose from 22% in 1972-73 to 36% in 2011-12.
I In rural females, the share of casual labor in total employment
rose from 31% in 1972-73 to 35% in 2011-12.
I In urban males, the share of casual labor in total employment
rose from 10% in 1972-73 to 15% in 2011-12.
I some casualisation in rural areas was distress driven as small
and marginal land holders and land labourers unable to find
gainful work in agriculture. Some people opted for
non-agriculture activities as they offer better earnings.
I In case of male, the share of casual labor in total employment
rose from 19% in 1972-73 to 30% in 2011-12.
I In case of female, the share of casual labor in total
employment first increase from 31% in 1972-73 to 37% in
1999-2000 and then decline to 31% in 2011-12.
Nature and estimates of unemployment in India
Unemployment in underdeveloped countries is both open and
disguised.
Concept of Unemployment : The three concepts of unemployment
developed by the NSSO are:
I Usual Status Unemployment: It indicates chronic
unemployment because all those who are found ”usually”
unemployed in the reference year are counted as unemployed.
I Current Weekly Status Unemployment: A person having
w-orked for an hour or more on any one or more days during
the reference period(7 days) gets the employed status. The
current weekly status unemployment rate, like the usual status
unemployment rate, is also a person rate.
I Current Daily Status Unemployment: A person who works for
one hour but less than four hours is considered having worked
for half a day. If he works for four hours or more during a day,
he is considered as employed for the whole day. The current
daily unemployment rate is a time rate.
Unemployment in Post-reform Period
I the estimates of current daily status unemployment indicate a
worsening of the unemployment situation during the period of
economic reform in all the four population segments -rural
males, rural females, urban males and urban females.
I The rate of unemployment has increased from 6% in 1993-94
to 8.3% in 2004-05.
I Unemployment among agri labor households has risen from
9.5% in 1993-94 to 15.3% in 2004-05. while non-agri
employment expanded during this period.
I despite healthy gdp growth, employment in the organized
sector actually declined.
I there was large slowdown in employment generation during
the period 2004-05 to 2009-10. despite this slowdown, total
no of unemployed decline because actual labor force had
declined during this period.
I In 2011-12, Unemployment rates estimated according to CDS
approach were the highest − 5.7% rural areas and 5.5% in
urban areas(5.6% overall).
I 2015-16 unemployment situation,

I 2018-19 unemployment situation,

Agricultural Unemployment
the CDS unemployment rate for rural workers as a whole was 8.2%
in 2004-05 and 5.7% in 2011.12. Most of this unemployment is
agri unemployment which may be classified into:
1. Seasonal Unemployment: on an average, the agri laborers
have around 8 months of employment. this 3-4 month
unemployment due to large unirrigrated area.
2. Disguised Unemployment: Indian agri is characterized by the
existence of considerable amount of surplus labor. In 2015-16,
the surplus workers were 52 million.
3. Usual Status Unemployment
Causes of Unemployment
I Jobless and jobloss growth
I The rate of growth of employment has been considerably less
than the rate of economic growth.
I total employment growth was 1.8% per annum during 1993-94
to 2004-05 and just 0.45 percent per annum during 2004-05 to
2011-12.
I the main reason for jobless growth is that investment on the
required scale is not happening.
I Increase in labor force: death rate rapidly declined but birth
rate continued to be high, lead to unprecedented population
growth, followed by an equally large expansion in labor force.
Education among women also increasing, it lead to women
compete with men for jobs in the labor market.
I Inappropriate technology: In India, while capital is a scare
factor, labor is available in abundant quantity. Under these
circumstances, if market forces operate freely and efficiently,
the country would have labor-intensive techniques of
production. However, not only in industries, but also in
agriculture, producers are increasingly substituting capital for
labor.
I Inappropriate educational system: India’s educational policy
does not aim at development of human resources. it merely
produce clerks and lower cadre executive for the govt. and
private concerns.
Government policy for removing unemployment
I The fifth year plan(1974-79) envisaged a reorientation of
development strategy towards an employment-oriented growth
and introduction of special anti-poverty and employment
programmes.
I The employment policy under the sixth plan (1980-85) aimed
at the two major goals of reducing underemployment for the
majority of labor force and cutting down on long-term
unemployment.
I The central element in the development strategy of the
seventh plan(1985-90) is the generation of productive
employment.
Employment strategy during post-reform period
I growth is necessary but not sufficient condition to solve the
unemployment problem in India. In India, employment
elasticity is quite low, an annual growth of 8-9% can provide
only partial solution to unemployment problem.
I The Eighth plan(1992-97) set a target of 2.6-2.8% annual
growth in employment with a view to achieving a near full
employment situation in a period of 10 years.
I The ninth plan(1997-2002) emphasized the need for providing
productive work as it is a basic source of human dignity and
self-respect.
I The eleventh plan (2007-12) aimed at creating 58 million job
opportunities.
I mainly all five year plan has placed great emphasis on the
creation of jobs by advocating the appropriate policy changes
for faster development of labor-intensive sector like
construction, tourism etc. but nearly all five year plans failed
to create the required employment.
Major employment programmes
I Swaranajayanti Gram Swarozgar Yojana: launched in 1999
after restructuring the IRDP and allied schemes and later
restructured as NRLM, subsequently renamed as Aajeevika
in 2011, to implement it in a mission mode across country.
It is the only self-employment programme for rural poor. the
objective is to bring the self-employed above poverty line by
providing them income generating assets through bank credit
and govt subsidy.
NRLM is implemented through scheduled commercial
banks(including RRBs).
NRLM will ensure that at least one member from each
identified rural poor household, preferably a woman, is
brought under the SHG network in a time-bound manner.
I The Swarana Jayanti Shahari Rozgar Yojana: 1997,
subsuming the earlier urban poverty alleviation
programmes.The scheme provides gainful employment to the
urban unemployed and underemployed poor, by encouraging
the setting up of self-employment ventures by the urban poor
and also by providing wage employment.
I Mahatma Gandhi National Rural Employment Guarantee
Scheme:
National Rural Employment Guarantee Act was enacted in
2005. It came into force in 2006 and was implemented in a
phased manner. The Scheme was reached to all the districts
of India in 2008. From October 2009, NREGS has been
renamed as MGNREGS.
Features of MGNREGS
I at least 100 days of guaranteed wage employment in a year to
at least one member of every rural household.
I different from other programmes because it is now a legal right.
I Unique features => time-bound employment and wage
payment within 15 days, 90% of the cost borne by the center.
I At least 33% of the beneficiaries are to be women.
I focus of MGNREGS is on works relating to water conservation,
drought proofing, land development, flood control, etc.
I the Act is also a significant vehicle for strengthening
decentralisation and deepening the grass root democratic
structure.
I wage is link to CPI-AL
 I Main Achievements of MGNREGS
I Increasing employment opportunities
I Enhancing wage earning and impact on minimum wages
I Increasing outreach to disadvantaged groups
I Financial inclusion
I Women empowerment
I Strengthening natural resource base of the economy
I more socially inclusive scheme involves women, SCs, STs as
workers
Criticism of MGNREGS
I MGNREGS has been losing momentum in recent times
I Irregularities in implementation
I Widespread corruption
I Delayed payment of wages
I Declining share of wages: labor component declining
Rethinking the employment strategy: focus on
manufacturing
I to meet the unemployment challenge, it requires organised
manufacturing to become the engine of growth for India’s
economy
I focus should be on internal as well as on external demand i.e.
export market
I Expanding the domestic market will require twin policies of
achieving rapid growth of agriculture and creation of
integrated national market. rapid growth in agri bring rapid
expansion of domestic demand for manufacturing. policies
need to be devised to accelerate growth in agri. this include
increasing public investment in infra like irrigation, cold
storage, rural roads etc.; promoting agro-processing industries;
good thing is govt is working on all these aspects to revive the
agri growth.
I Remove supply-side constraints(inadequate and poor quality
physical infra, inadequate supply of skilled manpower) on the
manufacturing sector.
I focus on employment-intensive industries like textiles, leather,
metals, transport etc.
National Policy for Skill Development and Entrepreneurship
2015
I The Vision of the Policy is “to create an ecosystem of
empowerment by Skilling on a large Scale at Speed with high
Standards and to promote a culture of innovation based
entrepreneurship which can generate wealth and employment
so as to ensure Sustainable livelihoods for all citizens in the
country”.
I To achieve this Vision, the Policy has four thrust areas.
I It addresses key obstacles to skilling.
I the Policy seeks to align supply and demand for skills by
bridging existing skill gaps.
I Equity is also a focus of the Policy, which targets skilling
opportunities for socially/geographically marginalised and
disadvantaged groups. Skill development and entrepreneurship
programmes for women are a specific focus of the Policy.
I the Policy seeks to educate and equip potential entrepreneurs
and promote a focus on social entrepreneurship.
I only 4.69% of total workforce in India has undergone formal
skill training as compared to 52% in USA.
I Policy outlines a no. of measures for skill development:
I skilling will be integrated with formal education
I national skills universities and institutes will be promoted
I skilling will be increasingly integrated with higher education
with polytechnics offering NSQF aligned courses.
NSQF: NSQF is a nationally integrated education and
competency-based framework that enables persons to acquire
desired competency levels. The National Skills Qualifications
Framework (NSQF) organizes qualifications according to a
series of levels of knowledge, skills and aptitude.
I Skill India and make in India: Skill India or the National Skills
Development Mission of India is a campaign in 2015 to train
over 40 crore people by 2022. It is managed by the NSDC. PM
Kaushal Vikas Yojana launched under this mission.
Make in India (2014) encourage companies to manufacture in
India. The initiative targeted 25 economic sectors for job
creation and skill enhancement, and aimed ”to transform India
into a global design and manufacturing hub.” It had three
objectives: to increase the manufacturing growth rate to
12-14%; to create 100 million manufacturing jobs by 2022; to
ensure that the manufacturing contribution to GDP is
increased to 25% by 2022 (later revised to 2025).
National Skill Development Agency: NSDA was setup as a
society in 2013. NSDA will focus on the two verticals of quality
assurance and policy research in the skill space. it will be
responsible for NSQF.
National Skill Development Corporation (NSDC): it is a
not-for-profit public limited company setup in 2008. NSDC was set
up as Public Private Partnership (PPP) model with govt holds
49% of the share capital, while the private sector has the balance
51% of the share capital.
NSDC aims to promote skill development by catalyzing creation of
large, quality and for-profit vocational institutions.
Pradhan Mantri Kaushal Vikas Yojana (PMKVY)
I It is the flagship scheme of the Ministry of Skill Development
& Entrepreneurship (MSDE). The objective of this Skill
Certification Scheme is to enable a large number of Indian
youth to take up industry-relevant skill training that will help
them in securing a better livelihood. Individuals with prior
learning experience or skills will also be assessed and certified
under Recognition of Prior Learning (RPL).
 I Launched in 2015
I key components of PMKVY scheme: Short Term Training;
Special Projects; Recognition of Prior Learning; Kaushal &
Rozgar Mela; Placement Assistance; Continuous Monitoring;
Standard Branding & Communication.
I The objective of this Scheme is to encourage skill
development for youth by providing monetary rewards for
successful completion of approved training programs.
Deen Dayal Upadhyaya Grameen Kaushalya Yojana
I DDU-GKY was launched in 2014, under Ministry of Rural
Development.
I Vision of DDU-GKY is to ”Transform rural poor youth into an
economically independent and globally relevant workforce”.
I It aims to target youth, in the age group of 15–35 years.
I DDU-GKY is a part of the National Rural Livelihood Mission
(NRLM), tasked with the dual objectives of adding diversity
to the incomes of rural poor families and cater to the career
aspirations of rural youth.
I DDU-GKY is a poverty alleviation initiative and proposes to
make skill acquisition a necessity and aspirational amongst the
rural youth. This would help in creating a highly skilled and
productive workforce. The following are the salient features:
I Market-led, placement-linked training programme for the rural
youth initiated in a PPP Mode.
I Mandatory and assured placement to a minimum of 75% of
the trained candidates.
I Focus on the rural youth from poor families as well as in the
age category of 15 to 35 years who belong to the following:
MGNREGA worker household; if any individual from the
household has completed 15 days of work, RSBY household,
Antyodaya Anna Yojana card household, BPL PDS card
households, NRLM-SHG households, Households that are
covered under the auto-inclusion parameters of SECC 2011.
I Social inclusion of the candidates through the mandatory
coverage of socially disadvantaged groups; for SC/ ST: 50%,
Minorities: 15%, and Women: 33%.
I Regional inclusion of candidates has been enabled through
Himayat scheme for J&K and Roshini scheme for left-wing
Extremist (LWE) areas.
I Rural India Skills Emblem or RISE standard for rating skilled.
Capital fromation in India
Domestic Savings
I CSO estimates the rates of savings and investment.
I CSO defines saving as the excess of current income over
current expenditure and is the balancing item on the income
and outlay accounts of producing enterprises, and households,
govt administration and other final consumers.
I For the purpose of estimating domestic saving, the economy
has been divided into three broad institutional sectors:
Household; Private Corporates; and Public.
I Saving of the Household sector is measured as: (a) the total
of financial saving, and (b) saving in the form of the physical
assets. The financial saving involves possession of currency,
net deposits, investment in shares and debentures, other net
claims like small savings, provident fund etc. Physical assets
include construction, machinery, equipment and stocks held
by individual etc.
I In 1950-51, gross domestic saving rate was 9.5%, which was
very low.
I In 2007-08, saving rate of 36.8% was achieved. this is the
highest rate achieved.
 I Saving rate is declining since 2011-12, the main reason for
this declining is the sharp fall in household savings.
I Household(HH) contributed around 60% of gross domestic
savings in 2018-19.
I Share in domestic saving: HH > private > Public
Why was Saving rate stuck at a modest level till 2001-02?
I Low per capita income
I Exemption of agricultural income from income tax: follow
consumption habits of rich zamindars
I Demonstration effect in Indian cities: follow consumption
habits of rich
I Failure of the private corporate sector
I failure of the public sector
Domestic Capital Fomation or Investment
I Investment size in any country depends on domestic saving
and capital inflow.
I Unsatisfactory level of investment in India for a 8-9% growth.
I Cause of gap b/w the desired and actual rate of investment:
I Inadequate rise in the rate of saving
I Failure of public enterprises like underutilisation of installed
capacity, low level of efficiency etc.
I Defective economic planning
I Inadequate and defective resource mobilisation
I poor banking habit in the people, particularly in the
countryside.
I virtually no tax on agricultural income.
Price Trends and Inflation
I price stability is an essential condition for stability in economic
life as well as economic growth. fluctuations in price =>
atmosphere of uncertainty, not good for economic growth.
WPI and CPI
I Wholesale Price Index; base year-2011-12 , relesed by the
Office of Economic Adviser, DPIIT
I measures the average change in the prices of commodities for
bulk sale at the level of early stage of transactions.
I WPI basket=(primary articles(22.62%), fuel & power(13.15%),
and manufactured products(64.23%))
I Prices(not include indirect taxes), WPI not cover services
I WPI Food Index (24.38%) =(’Food Articles’ from Primary
Articles + ’Food Products’ from Manufactured Products)
I Headline inflation and core inflation : Headline inflation is
total inflation including such as food and energy prices. core
inflation does not take into account commodities that have
volatile prices like food and fuel. Headline inflation increases
due to supply shocks arise from poor crop yield or rise in fuel
prices. core inflation will not be affected by these shocks.
 I Consumer Price Index, base year-2012 , relesed by NSO
I reflects the cost of living for a homogeneous group of
consumers
I commodity basket derived from consumer expenditure surveys
and weight for each commodity are proportionate to their
expenditure.
I retail prices taken into account
I four CPI in India: CPI-Agri labor, CPI-rural labor,
CPI-industrial worker, CPI(urban+rural) combined.
I CPI(combined) is now taken as measure of headline inflation
and is tracked by RBI to anchor its monetary policy.
Price Trends in India
I the wholesale prices in India during 1980-95 rose at an annual
rate of 8.2%. the main reason for this price rise was heavy
fiscal deficits.
I By 2000, the rate of inflation came down to 3%, mainly due
to slow growth in the money supply.
I In 2008, inflation rate rose to 12%, in response to this, RBI
raised the CRR from 7.5% to 9% in phased manner.
I due to global recession trends, the WPI almost touched zero
level in 2009.
I the overall average inflation during the year 2010-11 was as
high as 10%. major concern was a rise in food prices in this
period. In response to this, RBI continued with its policy of
increasing the repo and reverse repo rates.
I Inflation has been under control over the period from
2015-2020.
I The annual rate of WPI inflation is 12% for the month of
June, 2021(over June 2020) as compared to -1.81% in June
2020. The high rate of inflation in June 2021 is primarily due
to low base effect and rise in prices of mineral oils.
I All India Consumer Price Index (CPI) and corresponding
Consumer Food Price Index (CFPI):
I After hovering around below 4%, CPI and WPI once again
showing upward trends -
Factors on the demand side affecting prices
I Increase in public expenditure: The govt. expenditure on
non-developmental services, by putting purchasing power into
the hands of its employees, creates demand for goods and
services, but does nothing whereby their supply could increase.
I Deficit Financing: When a govt is not able to raise adequate
revenue for its expenditure, it can meet its deficit by
borrowing funds from the banking system. this technique of
resource mobilization is called deficit financing.
Factors on the supply side affecting prices
I Erratic Agri growth: rise/fall in food-grain prices led to
rise/fall in the wage rates which further led to the rise/fall in
prices of goods and services.
I Hoarding of essential articles: artificial scarcity, a phenomenon
of planning period. now not a major issue.
I Agriculture price policy of the Government: Disturbing the
market equilibrium by purchasing the agri items by the govt at
higher price year after year.
 I Inadequate rise in industrial production: generally due to bad
sales forecasting by the industry.
I Upward revision of administered prices: losses due to
inefficiency are generally cover up by the government by
increasing the administered prices. other than this, rising
prices of imports and heavy taxation of the commodities of
mass consumption also caused a rise in general price level.
Consequences of the Inflationary price rise
I mild dose of inflation is good for an economy
I when prices rise continuously over a long period, inequalities
of income and wealth increase.
I it is price stability which provides a better environment in
which growth can occur and social justice can be ensured.
I relative prices of agri products more rapidly, large farmers
derived great benefits. for small farmers, this development
had little relevance.
I due to inflation, demands for India’s products declined in
foreign markets and imports become cheaper.
Anti-Inflationary policy of the government
I Monetary Policy
I policy of controlled expansion of money supply
I on the recommendation of Narasimham Committee, the govt.
abandoned the policy of relying on CRR and SLR to control
inflation. the RBI accordingly reduced both CRR and SLR in a
phased manner. SLR at presently 18% and CRR at 3%.
I In recent times, RBI has relied basically on repo and reverse
repo rate to control inflationary pressures. repo rate is
presently 4% and reverse repo rate is 3.35%.
I The RBI introduced Liquidity Adjustment Facility (LAF) in
June 2000. LAF operates through reverse repo auctions, i.e.,
the sale of government securities from RBI portfolio for
absorption of liquidity and repo auctions, i.e., buying of
government securities for injection of liquidity on daily basis,
thereby creating a corridor for call money rates and other
short-term interest rates
I LAF has also emerged as the key instrument of managing
capital inflows
I In april 2004, the Market Stabilization Scheme(MSS) was
introduced to provide the RBI with an additional instrument of
liquidity management.
I Fiscal Policy
I to control the inflation, govt. keep the non-developmental
expenditure within reasonable limit
I various tax incentives provided to producers to augment the
supply
I efforts are being made to avoid deficit financing. the govt.
adopted the FRBM Act in 2004 and committed itself to bring
down the fiscal deficit.
I Public Distribution System
I PDS ensure supplies of essential consumer goods of mass
consumption to people at reasonable prices.
I Food corporation of India has continued its open market sale
of rice and wheat to prevent increases in their market prices.
I Sustained increase in production in response to rising demand
holds the key to price stability.
Inflation Targeting: Urjit Patel Committee Report
I the report pointed that inflation has the following
consequences:
I wit high and persistent inflation, real interest rates have
remained negative for savers during most of the post-global
crisis leading to a decline in domestic financial saving
I Since India’s inflation has persisted at a level higher than that
of trading partners, external competitiveness is getting eroded.
I large demand for gold as a hedge against inflation exacerbated
the decline in financial savings and contributed to widening of
the current account deficit(CAD).
I persistently high inflation contributes to a worsening of income
distribution as the poor use disproportionately higher
cash-in-hand as part of their savings.
I report advocated for adoption of policy of inflation targeting.
I According to Committee, the true inflation that consumers
face is in the retail market. therefore committee chosen
CPI(reflects the cost of living) as the inflation metric.
I Committee recommended the nominal anchor or inflation
target at 4% with a band of +/-2%.
I In 2016, RBI Act was amended for implementation of the
flexible inflation targeting framework. The amended RBI Act
provides for the inflation target to be set by the Govt. of India,
in consultation wit RBI in every five years. If average inflation
out of the range provided for three consecutive quarters, then
that constitute failure to achieve the inflation target.
Indian Money market
I Money market refers to a mechanism whereby on the one
hand borrowers manage to obtain short-term loanable funds
and on the other, lenders succeed in getting creditworthy
borrowers for their money.
I In any money market, commercial banks are the most
important lenders. these banks are not merely the lenders of
money, they also create credit.
I the central bank’s role is important as the controller of credit.
I The money market expected to perform three broad functions:

I provide an equilibrating mechanism to even out demand for

and supply of short-term funds
I provide a focal point for central bank intervention for
influencing liquidity and the general level of interest rates in
the economy
I provide reasonable access to providers and users of short-term
funds to fulfil their borrowing and investment requirements at
an efficient and market clearing price
 I It is broadly divided into two parts-unorganised and the
organised.
I Moneylenders, indigenous bankers and unregulated non-bank
financial intermediaries( such as loan companies, chit funds,
nidhis etc.) constitute unorganized sector of the money
market.
I Both nationalised and the private sector commercial banks
constitute the core of the organized sector of money market.
The foreign banks, cooperatives banks and the RBI, the
discount and finance house of India, development finance
institution and investment finance companies like LIC and
mutual funds also operate in organized sector.
I The RBI is the apex organization in the Indian money market.
Organised Sector of the Indian Money market
I The principle constituent of organised money market are: The
Call Money market, The Treasury Bill Market, The Repo
Market, The Commercial Bill market, The Certificates of
Deposits Market, The Commercial Paper Market and Money
Market Mutual funds.
The Call Money market
I It is an important segment of the money market where
uncollateralised borrowing and lending of funds takes place on
overnight basis.
I participants in the call money market currently include
scheduled commercial banks(excluding RRBs), cooperative
banks(other than land development banks), and primary
dealers, both as borrower and lenders.
I When one bank faces temporary shortage of cash, it borrows
from another bank that has surplus cash. Money that is thus
lent for one day, or on overnight basis, is known as call money.
I call money market is indicator of liquidity position of the
money market.
I On the recommendation of Vaghul Committee, the DFHI was
setup in 1988. DFHI was allowed to operate both as lender
and borrower in the call money market. Now DFHI emerges
as a major force in the call money market and also
contributed to the development of market.
The Treasury Bill Market
I deals in treasury bills.
I In India, treasury bills are short-term liability of the central
government. these bills issued for meeting temporary deficits
which a govt faces due to its excess of expenditure over
revenue at some point of time.
I every year a part of treasury bills held by the RBI was
converted into long-term bonds.
I RBI is under an obligation to purchase all the treasury bills
which are being offered to it by the government. it is also
required to re-discount treasury bills that are presented to RBI
by banks and others. This has resulted in the monetisation of
public debt and has been a major source of inflationary
expansion of money supply.
I following types of TBs in India: 91-Day TBs, 182-Day TBs,
364-Day TBs.
I 364-Day TBs are not rediscountable with the RBI.
The Repo market
I repo is a money market instrument which helps in
collateralised short-term borrowing and lending through
sale/purchase operations in debt instruments.
I repo rate is the rate at which RBI lends to the banks while
reverse repo is the rate at which it borrows from the banks.
I rbi allowed repo transactions in all govt securities and TBs.
I state govt securities, PSUs bonds and private corporate
securities have been made eligible for repos.
Commercial Bill Market
I The commercial bill market is the sub-market in which the
trade bills or the commercial bills are handled.
I the legitimate purpose of a commercial bill is to reimburse the
seller while the buyer delays payment.
I A commercial bill or a bill of exchange is a short-term,
negotiable, and self-liquidating money market instrument
which evidences the liability to make a payment on a fixed
date when goods are bought on credit. It is an asset with high
degree of liquidity and a low degree of risk.
The Certificate of Deposit (CD) Market
I A CD is a certificate issued by a bank to depositors of funds
that remain on deposit at the bank for a specified period.
I CDs are similar to the traditional term deposits but are
negotiable and tradeable in the short-term money markets.
I CDs are issued at discount to face value and the discount rate
is market determined.
Commercial Paper(CP) Market
I CP is a short-term instrument of raising funds by corporates.
I It is essentially a sort of unsecured promissory note sold by the
issuer to a banker or a security house.
I highly rated corporates which can obtain funds at a cost lower
than the cost of borrowing from banks are particularly
interested in issuing CPs.
Money market Mutual funds
I A scheme of money market mutual funds(MMMFs) was
introduced by the RBI. the objective of the scheme was to
provide an additional short-term avenue to the individual
investors.
I The MMMFs have been brought under the perview of the
SEBI regulations.
Characteristics of the Indian Money market
I lack of integration in the Indian money market
I lack of rational interest rates structure -need standardization
of interest rates
I Absence of an organized bill market
I shortage of funds in the money market
I seasonal stringency of funds and fluctuations in interest rates
I Inadequate banking facilities
Reforms measure to strengthen the Indian money market
I deregulation of money market interest rates by RBI
I Introducing new money market instruments
I introduction of repos and reverse repos
I RBI also instituted a new marginal standing facility (MSF)
from which scheduled commercial banks can borrow overnight
funds(upto 1% of net demand and time liabilities) at rate 100
bps above the repo rate and reverse repo rate 100 bps below
the repo rate. thus created a 200 bps corridor but this
corridor is not fixed, it is shrinking with every policy statement
by the RBI.
I setting up of the discount and Finance house of India
I Introducing MMMFs
I Developing call/notice money market
Commercial Banking in India
I In 1949 tow major action were taken which were very imp.
from point of view of structural reforms in the banking sector.
First, the banking regulation Act was passed. It gave
extensive regulatory powers to RBI over commercial banks.
another development was the nationalisation of the RBI.
I The establishment of the SBI in 1955 nd the creation of the
State bank group by nationalising eight regional banks in 1960
allowed scope for a new experiment in the Indian banking.
Nationalisation of Banks
I In 1969, 14 banks were nationalised, 6 more in 1980.
I objectives for nationalisation of banks were:
I removal of control by a few
I provision of adequate credit for agriculture and small industry
and export
I giving a professional bent to management
I encouragement of a new class of entrepreneurs, and
I provision of adequate training as well as terms of service for
bank staff
I Situation before nationalisation of banks were:
I Control of big business houses over commercial banks
invariably results in concentration of wealth and economic
power.
I the lending policy of the commercial banks was highly
discriminatory towards small borrowers
I hoarders and black marketers borrowed heavily from the banks
to corner the supplies of essential commodities including food
grains.
I commercial banks had shown no interest in establishing offices
in semi-urban and rural areas.
I After nationalisation, following main objectives were laid down
before public sector banks:
I mobilisation of deposits through a massive programme of
branch expansion particularly in the unbanked rural areas
I ensuring adequate financial assistance to the priority sectors of
the economy.
Regional Rural Banks(RRBs)
I In term of business, public sector banks have a dominant
position as they account for 70% of banking assets.
I The nationalisation of commercial banks though successful in
many aspects could not do much to solve the problem of rural
indebtedness. therefore a new type of banking institution
called RRBs was conceived. The working group on rural
banks(chairman: M. Narasimham) recommended the setting
up of these banks as part of a multi-agency approach to rural
credit. these banks known as RRBs have been setup under an
Act of 1976.
I A RRB is sponsered by a public sector bank which also
subscribes to its share capital.
I the RRBs meet the credit requirement of weaker sections,
small and marginal farmers, landless labourers, artisans and
small entrepreneurs.
I due to massive losses in RRBs, govt allowed them to grant
loans to non-priority sectors as well.
Lead Bank Scheme and Branch Expansion
I the area approach in respect of bank financing proposed by
the Gadgil study group in 1969, culminated in the Lead Bank
Scheme.
I The RBI accepted the recommendations of the Nariman
Committee and prepared the Lead bank Scheme. Under the
Lead bank Scheme, districts were allotted to the public sector
banks and private sector banks.
I The lead bank was assigned a major development
responsibility in the district allotted to it. it was expected to
familiarise itself with socio-economic conditions prevailing in
the district. for this purpose, it was required to undertake a
survey of a techno-economic nature. the lead bank had to
identify centers for banking development in the light of this
survey information.
I the lead banks prepared phased programmes for banking
development which they implemented with the cooperation of
other commercial banks.
I Lead bank scheme played significant role in the increase of
bank offices, opening of branches in rural areas etc.
Deposit Mobilisation
I The banking sector has played an important role in the
financial intermediation process by mobilising savings in the
form of deposits.
I The banking deposit rose to as high as 130 lakh crore in 2019
(in 1969, they were just 4.5 thousand crore). this phenomenal
rise in bank deposit was partly due to inflationary increase,
partly due to rise in national income and partly due to deposit
mobilisation efforts of the banks.
I the share of time deposits in aggregate deposits was 88%
while the share of demand deposits was only 12%.
I Amount of deposit mobilisation in any state depends very
much on its level of economic development, particularly
industrialization.
Bank Lending and Priority Sectors
I lending function is the most important function of commercial
banks.
I Total advances(bank credit) of all scheduled commercial
banks in India stood at around Rs. 100 lakh crore in 2019. In
1969, it was only Rs. 3400 crore. this phenomenal rise due to
the inflationary expansion in the supply of money and massive
deposit mobilisation.
I in recent past bank lending lagging. As a result credit-deposit
ratio fell to 70% in July 2021 from 77.7% in 2016.
I before nationalisation of banks, agriculture and other priority
sectors were in low priority for credit by banks.
I After the nationalisation, radical shift in the credit policy of
PSBs. the new policy placed special emphasis on credit to
priority sectors including agriculture and small-scale industries.
I In 1968, National credit council was setup with a view to
provide a forum for deciding credit priorities on all-India basis.
I The share of agriculture in ANBC (adjusted net bank credit)
was 18.12% in 2019 which was equal to the target of 18%.
share of micro and small enterprises in ANBC was 13.9%.
Note: ANBC is the net banking credit after taking into
account bill discounting, non-SLR securities and other
exemption via long-term bonds.
I In an effort to widen and make the directed credit system
more effective, the guidelines on lending to the priority sectors
revised time to time. According to latest revision:
I revised categories of the priority sector are: Agriculture,
MSMEs, export credit, education, housing, social
infrastructure, renewable energy, and others. weaker sections
category is the subset of all the above priority sectors.
I the overall target for the priority sector lending has been kept
unchanged at 40% of ANBC. for RRBs and small finance
bank-this target is 75%. for Primary Urban Co-operative Bank
(PUCB) this target will increase in phased manner from 40%
to 75%.
I The target for agriculture also remain unchanged at 18% of
ANBC(within 18%, 8% for small and marginal farmers, which
further increase to 10% in phase manner)
I 7.5% target for micro enterprises. 12% to weaker section
among different priority sectors, which increase from 10% in
phase manner.
Evolution of banking since nationalisation
I aggregate bank deposits have risen from 11% of GDP in 1969
to 66% of GDP in 2019.
I no. of branches increase 18 times and 1/3rd in rural area
I opening of rural branches has improved mobilisation of savings
in the rural sector. presently rural deposits account for about
15% of total deposits
I priority sector credit has also increased many times.
I regional disparities have declined and the concentration of
banking business is now less
I but the directed investment and directed credit programmes
together with mounting expenditures completely eroded the
profitability of the banks
I in the process of ignoring profitability considerations, many
commercial banks lost their financial viability.
I Causes of low profitability in nationalisation pahse
I Directed investment: the rise in fiscal deficit since 1980s put
pressure on the govt to borrow from both the RBI and
non-RBI sources. The govt. borrowing from the RBI generated
inflationary pressure which was countered by raising the CRR.
the pressure to borrow from non-RBI sources resulted in
increase in SLR. this way the banks were required to make
heavy investment in govt securities.
I Directed credit programmes: serious departures from the
principles of sound banking on account of shift from
security-oriented credit to purpose oriented credit.
I Subsidization of credit: priority sectors have been receiving
credit at concessional interests rates which affected the
profitability of bank.
I Increase in Expenditure: unremunerative branches have been
setup in semi-urban and rural areas. these branches only act as
the deposit centers and never generated adequate credit
business.
I Large political interference
I lack of competition among public sector banks because of
regulated interest rates.
Banking sector reforms
I Narasimham committee on the financial system(1991)
recommended the strengthening of banking supervision and
drastically changing its character, away from intensive
micro-intervention over credit decisions towards prudential
regulation. these recommendation were accepted by the
government. hence the RBI issued guidelines in 1992 for
income recognition, asset classification and provisioning, and
adopted the Basel capital adequacy standards.
I Non-performing loans have defined as credit facility in respect
of which interest has not been received for 180 days. these
loans are classified as substandard, doubtful and lost,
depending on how long they have been non-performing.
I provisioning has to be made at 10% for substandard loans,
20-25% for doubtful loans and 100% for lost loans.
I As for capital adequacy, banks are expected to reach a 9%
capital to risk-weighted asset ratio(CRAR). the actual CRAR
is now well above the limit.
I Due to high NPA, a cleanup operation was thus required in
the mid-1990s. to this, the banks were provided legal support
in their recovery efforts. for instance, the Debts Recovery
Tribunals(DRTs) were setup under the RDDBFI Act, 1993, to
help banks and Financial Institutions recover their dues
speedily.
I The Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interests(SARFAESI) ACT, 2002
went a step further by enabling banks and some FIs to enforce
their security interest and recover dues.
I SLR and CRR in pre-reform period were very high but now on
the recommendation of Narasimham Committee, SLR has now
been reduced to 18% of total NDTL and CRR is presently 3%.
I the Narasimham committee recommended a phasing out of
the directed credit programme.
 Deregulation of Interest Rates
I In 2003, the system of Benchmark Prime Lending
Rate(BPLR) was introduced. this was expected to serve as a
benchmark rate for bank’s pricing of their loan products.
BPLR system fell short of its original objective of bringing
transparency to lending rates. this was mainly because under
the BPLR system, banks could lend below the BPLR.
I RBI issued guidelines for a new system of base rate in 2010.
Base rate system was introduced in order to ensure that banks
cannot lend below a certain benchmark. the base rate
calculation take into account cost of funds(i.e interest tayes
offered by banks on deposits), operating expenses to run the
bank, minimum rate of return(i.e profit), and cost of
maintaining CRR. under this system, most of the banks follow
the average cost of fund calculation. As a result, any cut or
increase in repo rate does not get transmitted to the
customers immediately.
I In order to improve the monetary policy transmission, the RBI
has introduced the MCLR (marginal cost of fund lending rate)
with effect from 2016. As per RBI, MCLR calculation is based
on operating expenses, cost of maintaining CRR, marginal
cost of funds. Now any change in key rates like repo will bring
change in marginal cost of funds requiring an immediate
change in the MCLR.

More reforms in banking sector

I banking has been opened up to the private sector.
I Prompt Corrective Action (PCA): while taking the decision on
putting a bank under PCA, the RBI assesses its standing on
three counts namely capital adequacy ratio(CAR), net NPAs,
and return on assets(RoA). Bank become PCA candidate
when they fail the minimum requirment of CAR or net NPAs
rise above 6% or the RoA is negative for two years. The banks
under PCA regime face restrictions on expanding loan book.
I the govt rolled out a seven-point action programme named
’Indradhanush’ in 2015 aimed at improving the performance of
PSBs. The seven points are:
I separation of posts of CEO and MD to check excess
concentration of power and smoothen the functioning of banks;
I proposal for a ’bank board bureau’ (BBB) – will replace the
appointments board of PSBs
I plan for capitalisation
I plan for de-stressing banks book
I empowerment of PSBs by encouraging them to take the
business decision independently
I a new framework for accountability based on KPI
I better governance through continuous engagement with banks
Indian Banking: Concerns and Challenges for Future
The NPAs are rising, profitability ratios are declining, and bank
frauds of immense magnitude are emerging which have shakes
people’s faith in the entire banking system. below are concerns and
challenges that need to be met in the banking sector on urgent
basis are:
1. Ensuring Financial inclusion
I Financial Literacy is defined as a combination of financial
awareness, knowledge, skills, attitude and behaviour necessary
to make sound financial decisions and ultimately achieve
individual financial well-being.

I People achieve Financial Literacy through the process of

Financial Education. The achievement of Financial Literacy
empowers the users to make sound financial decisions which
result in financial well-being of the individual.
I Financial inclusion is a National priority of Government of
India and the Financial Sector Regulators (RBI, SEBI, IRDAI
and PFRDA) as it is an enabler for inclusive growth.
I In the Indian context, financial inclusion is the process of
ensuring access to appropriate financial products and services
needed by vulnerable groups such as weaker sections and low
income groups at an affordable cost in a fair and transparent
manner by mainstream institutional players.
I Financial inclusion provides an avenue to the poor for
integrating with the formal financial system.
I While financial inclusion is essentially a supply-side
intervention, financial education is a demand side intervention.
I Financial education initiatives by concerned stakeholders will
help people achieve financial well-being by accessing
appropriate financial products and services through regulated
entities. These efforts will be guided by the National Strategy
for Financial Education (NSFE).
I India has made tremendous progress in bringing its citizens
into the formal financial system over the last decade.
I During this period, important financial inclusion initiatives by
Government of India such as
I Pradhan Mantri Jan-Dhan Yojana (PMJDY), also known as
the National Mission for Financial Inclusion (2014)
I social security schemes viz. Pradhan Mantri Jeevan Jyoti Bima
Yojana (PMJJBY), Pradhan Mantri Suraksha Bima
Yojana(PMSBY), Atal Pension Yojana (APY), Pradhan Mantri
Kisan Maan Dhan Yojana (PM-KMY), Pradhan Mantri Shram
Yogi Mann Dhan Yojana (PM-SYM) and Pradhan Mantri
Mudra Yojana (PMMY).
I These initiatives are not only bringing the excluded sections
into the financial mainstream but also ensuring access to
various financial services such as Basic Savings Bank Deposit
Account (BSBDA), need based credit, remittance facility,
insurance and pension to the excluded sections.
I The latest available World Bank’s Findex 2017 Report had
brought out that the proportion of adults with a formal
account in the country has risen from 35% in 2011, to 53% in
2014, to 80% in 2017.
I In the National Strategy for Financial Education (2020-2025),
A ‘5 C’ approach would be adopted for dissemination of
financial education through emphasis on development of
relevant Content (including Curriculum in schools, colleges
and training establishments), developing Capacity among the
intermediaries involved in providing financial services,
leveraging on the positive effect of Community led model for
financial literacy through appropriate Communication
Strategy, and lastly, enhancing Collaboration among various
stakeholders.
2. Improving credit flow to rural areas : Efforts need to be taken to
improve credit flow to rural areas as also to the north-eastern,
eastern and central regions.
3. Conforming to the priority sector lending target : Non-adherence
to the agricultural lending target by a large no. of banks raises a
concern.
4. Financing Infrastructure : a big issue in bank financing of
infrastructure is the asset liability mismatch. while infrastructure
requires long-term financing, the deposits of banks, their main
source of funds, are relatively short-term.
5. Resolving the NPA Problem : the ratio of gross NPAs to gross
advances for scheduled commercial banks has been rising
consistently during recent times and this is a serious cause of worry.
I banks do not earn any interest on their NPAs and, on top of
that, they need to set aside money for them.
I the gross NPAs to gross advances ratio was 2.5% in 2011 rose
to 11.2% in 2017-18 and drop to 9.1% in 2018-19.
I more than 86% of the NPAs are in the PSBs.
I due to high NPAs, it has become extremely difficult for the
PSBs to earn enough income on their assets to cover their
running and deposit costs.
I Many PSBs have continued to record negative profitability.
I To tackle the problem of NPAs, RBI devised two schemes:
I One is the Strategic Debt Restructuring (SDR) scheme which
allowed the banks to convert their debt into equity according
to a pre-determined formula, take control of the company and
then induct new management to turn it around.
I The second scheme was the Scheme for Sustainable
Structuring of Stressed Assets(S4A), under which banks could
offer existing management an opportunity to rehabilitate the
project by dividing the debt into two parts: a ’sustainable’
component which wourld be serviced by the project and
’excess’ component which would be converted into equity.
I two other proposals under the discussion for tackling the
problem of NPAs are: (i) selling assets to privately managed
asset reconstruction companies(ARCs), (ii) creating a govt
owned bad bank which would purchase problem loans from
the banks and concentrate on turning the projects around.
6. Tackling the menace of bank frauds : increase in frauds:
I lack of oversight by line manager or senior management of
deviation from standard or existing processes
I business pressures to meet targets
I lack of tools to identify potential red flags
I collusion between employees and external parties
7. Tackling the four ’Rs’ : the need for four ’Rs’ for tackling the
problems fo the banking sector. these four ’Rs’ are:
I Recognition: RBI’s asset quality review has revealed that the
gros NPA ratio of banks is higher than earlier thought.
I Resolution of problem Loans: IBC 2016 is a major progress.
once a account is referred by a creditor under the IBC to the
NCLT, the powers of the management and the board are
transferred to an independent insolvency professional(IP). IF
the IP succeeds in finding an investor willing to take over the
project with a sufficient reduction of debt, then new
management takes over. If no one willing to take over, the
company simply liquidated. this process must be completed in
180 days.
 I Recapitalisation: needed to finance economic activity and spur
infrastructure lending.
I Reforms: What we need are reforms that improve governance,
upgrade the skill set and improve the quality of risk
assessment with the public sector banks. Indian banks will
have to upgrade their risk management architectures.

Payment Banks and Small Finance Banks

I RBI began issuing licenses for the setting up payment banks
and small finance banks in 2016.
I Bharti Airtel set up India’s first payments bank, Airtel
Payments Bank.
I payment banks based on the recommendation of Nachiket
Mor committee.
I primary objective of both bank is furthering financial inclusion
I Capital Small Finance Bank was the first small finance bank
to begin operations
I apart from maintaining CRR, small finance banks will required
to invest minimum 75% of their ’demand deposits balances’ in
govt securities and other securities. and hold maximum 25%
in current and time/fixed deposits with other commercial
banks for operational purposes and liquidity management.
I SFBs have PSL target of 75% of ANBC
Reserve Bank of India
Note: Established in 1935, nationalised in 1949.
Main Functions of the RBI
I Issue of currency notes: RBI has sole right to issue currency
notes.
I Banker to the government: Teh RBI renders useful service to
the government in the capacity of its banker, agent and
adviser.
I Banker’s bank: RBI has been vested with extensive powers to
control commercial banks under the RBI Act 1934 and
Banking regulation Act 1949. The RBI provides financial
assistance to SCBs and State Cooperatives banks in the form
of discounting of eligible bills and loans and advances against
approved securities.
I Exchange management and control: RBI is required to
stabilise the external value of rupee. for this purpose it
functions as the custodian of nation’s foreign reserves. It is
obligatory for the RBI to buy and sell currencies of all the
I Credit Control: credit control is considered to be the principle
function of a central bank.
I Mobilization of savings and extending banking to unbanked
areas: it attempts to mobilise savings through banks and
other financial institutions for productive purposes. RBI also
putting pressure on commercial banks to open their branches
in semi-urban and rural areas.
I providing security to depositors
I helping the development of specialised institutions of
industrial finance
Monetary Policy of the RBI
I monetary policy refers to a regulatory policy whereby the
central bank maintains its control over the supply of money
for the realisation of general economic goals.
I the chakravarty committee had emphasized that price
stability, growth, equity and social justice, promoting and
nurturing new monetary and financial institutions are
important objectives of monetary policy in India.
I In order to ensure RBI’s complete control over the supply of
money and credit, it has been given exclusive power to issue
currency notes.
I In 2015, An agreement, between GOI and RBI, has put in
place a monetary policy framework which makes flexible
inflation targeting the official goal of the central bank.
I Amended RBI Act provides for an empowered six-member
monetary policy committee(MPC) to be constituted by the
central govt.
I The MPC determines the policy interest rate required to
achieve inflation target.
I The RBI’s Monetary Policy Department assists the MPC in
formulating the monetary policy. The Financial Markets
Operations Department operationalises the monetary policy,
mainly through day-to-day liquidity management operations.
I in India, presently both currency notes and cheques are used
for payment purposes.
Control of Currency by the RBI
I RBI enjoys monopoly power to issue currency.
I RBI can issue any amount of notes on the basis of reserves
maintained in the form of gold bullion, foreign securities,
rupee coins, rupee securities and TBs.
I The RBI is under a statutory obligation to lend any amount of
money that the central govt decides to borrow from it.
The Reserve Money
I The reserve money is often referred to as high powered
money, basic money, primary money or monetary base.
I The ability of the banking system to create deposit money
depends on the amount of rserve money available and the
portion of it which public hols in the form of currency.
I the components of the reserve money are: currency in
circulation, banker’s deposits with the RBI and other deposits
with the RBI.
I another factor determines the ability of the banks to create
deposit money is deposit multiplier, which depends on the
currency-deposit ratio and the required reserve-deposit ratio.
Control of Credit by the RBI
I the legal framework of the RBI’s control over the credit
structure has been provided under the RBI Act, 1934 and the
banking regulation Act, 1949.
I to control credit, the RBI resorts to bank rate manipulations,
OMOs, reserve requirement changes, direct action, rationing
of credit and moral suasion. it also directly influences
commercial banks lending policy, rates of interest, form if
securities against loans and portfolio distribution.
I The bank rate policy: bank rate is the re-discounting rate that
RBI extends to banks against securities such as bills of
exchange, commercial papers and any other approved
securities.
I OMOs: RBI conduct purchase and sale operations in the govt
securities, TBs and other approved securities.
 I CRR: the cash reserve ratio is a portion of bank’s NDTL(net
demand and time liabilities) or deposits that they are required
to maintain with the RBI in their specified current accounts.
This money earns no interest. CRR is 3% currently.
I Statutory Liquidity Ratio (SLR): apart from CRR, banks are
also required to maintain a minimum percentage of their
deposits with them in the form of gold, cash, govt bonds or
other approved securities. the current SLR is 18%.
Short-term Liquid Management
I Monetary policy in India pursues the objectives of price
stability, provision of appropriate credit for growth and
increasingly, financial stability.
I RBI is now able to influence short-term interest rates by
modulating the liquidity in the system through repo
operations under the Liquidity Adjustment Facility(LAF),
reinforced by interest rate signals. Thus, short-term liquidity
management via repo operations and LAF has become an
important operating procedure of monetary policy.
I LAF has also emerged as the key instrument of managing
capital inflows that India has experienced since 2001-02
through sterilisation(Sterilization is a form of monetary action
in which a central bank seeks to limit the effect of inflows and
outflows of capital on the money supply.).
I In 2004, Market Stabilisation Scheme(MSS) was introduced
to provide the RBI with an additional instrument of liquidity
management and to relieve the LAF from the burden of
sterilisation operations. RBI now carries out short-term
liquidity management through OMOs in form of outright
purchases/sales of govt securities and repo and reverse repo
operations under LAF. Since 2004, MSS has also been used as
an instrument of liquidity management. The latest instrument
introduced by RBI is marginal standing facility(MSF).
I Repo and reverse repo rate: repo rate is the rate at which RBI
lends to banks. reverse repo rate is the rate at which RBI
sucks out money from banks.
I Liquidity Adjustment Facility(LAF): difference b/w repo and
reverse repo rates is the liquidity corridor or the LAF. LAF
operates through reverse repo auctions and repo auctions on
daily basis, thereby creating a corridor for the call money rates
and other short-term interest rates. the funds under LAF are
expected to be used by banks to meet their day-to-day
mismatch of liquidity. Tha LAF has emerged as the principal
operating instrument of monetary policy enabling the RBI to
modulate short-term liquidity under varied financial market
conditions.
I The MSS is an arrangement b/w the govt and the RBI to mop
up the excess liquidity generated on account of the accretion
to the foreign exchange assets of the banks to neutralize the
monetary impact of capital flow. Under Market Stabilization
Scheme or MSS, if there is an excess money supply in the
economy, RBI intervenes by selling Government securities (like
Treasury Bills, Cash Management Bills & Dated securities.).
This helps to withdraw the excess liquidity from the system.
I Marginal Standing facility: Marginal standing facility (MSF) is
a window for banks to borrow from the Reserve Bank of India
in an emergency situation when inter-bank liquidity dries up
completely.
Banks borrow from the central bank by pledging government
securities at a rate higher than the repo rate under liquidity
adjustment facility or LAF in short. The MSF rate is pegged
25 basis points above the repo rate. Under MSF, banks can
borrow funds up to one percentage of their net demand and
time liabilities (NDTL) for 1 day period. last year, RBI
allowed banks to avail of funds under the MSF by dipping into
the Statutory Liquidity Ratio (SLR) up to an additional one
per cent of net demand and time liabilities (NDTL), i.e.,
cumulatively up to 3 per cent of NDTL.
Capital market in India

I The term ’financial market’ collectively refers to all those

organisations and institutions which lend funds to business
enterprises and public authorities. It is composed of two
constitutes: Money Market and Capital market.
I While the money market deals with the provision of
short-term credit, the capital market deals in the lending and
borrowing of medium and long-term credit.
Structure of the Capital market
I capital market can be divided into two constituents: financial
institutions (ex: IFCI, IDBi, Exim Bank, SIDBI, IDFC, LIC
etc.) and the securities market.
I securities market is divided into: the gilt-edged market and
the corporate securities market.
 I The gilt-edged market is the market in govt securities of the
securities guaranteed by the govt. the govt securities market
consists of two parts- the new issues market and the secondary
market. RBI is responsible for all the new issues of govt loans
as it manages public debt operations of the center and the
states. the secondary market deals in old issues of govt loans.
I Corporate securities market is a market where securities issued
by corporate firms( i.e shares, bonds and debentures) can be
bought and sold freely. it consists of new issues
market(primary market) and the stock exchange(secondary
market).
Role of capital market in India’s growth
I Mobilization of savings and acceleration of capital formation.
I Promotion of industrial growth
I raising long-term capital
I proper channelization of funds
Growth of capital market in India
I capital issues consists of two parts - shares and debentures.
resources were raised through both debentures and shares.
I The person who hold shares are known as shareholders or
members and are part owners of the company. so they enjoy
certain rights like voting power, receipt of profits in the form
of dividends etc. A company can issue two types of shares,
namely equity shares and preference shares. the preference
shares carry fixed rate of dividend and enjoy preference in
respect of payment of dividend and repayment of capital in
the event of failure of company. equity shareholders are not
guaranteed any dividend. almost the entire amount raised
through shares in recent years has been through the floating
of equity shares.
I debenture holder do not have any share in the ownership of a
company. debentures are merely loans which carry fixed rate
of interest and must be paid annually. debentures can be
either convertible or non-convertible.
 I The Indian debt market is composed of govt bonds and
corporate bonds.
Securities and Exchange Board of India(SEBI)
I SEBI setup in 1988 was given statutory recognition in 1992.
I all intermediaries associated with the securities market are
now regulated by SEBI.
Indian Tax Structure
I Tax-GDP ratio was 6.3% in 1950-51 and now it is around
18%, which is very small for the size of Indian Economy.
I Chelliah committee on Tax reform
Tax revenue of central govt
I share of direct tax in total tax revenue of central govt has
increased from 16% in 1990-91 to 51% in 2018-19.
I In 2018-19, the share of personal income tax in total direct
tax revenue was 43.7% (Rs 3,33,000 crore out of Rs. 7,62,000
crore), which increase from 1990-91 share but decrease from
2001-02 share.
I the share of corporation tax in total direct tax fall from 72.6%
in 1970-71 to 46.3% in 2018-19 (Rs. 4,30,000 crore out of Rs.
7,62,000).
I of the total indirect tax revenue of 7,21,000 in 2018-19, the
share of excise duties stood at 30%. the share of custom
duties was only 11.5%.
Tax revenue of the State govt
I principle tax revenue sources of the state govt over the years
have been the share of the states in the central taxes and
duties, land revenue, stamp duties, GST and registration fees,
and other state excise duties on alcohol and petroleum.
Taxes on income and wealth
I high tax rates on personal income in the past were highly
unrealistic. they failed to reduce economic disparities. on the
contrary, they put a high premium on tax evasion.
I for realising the objective of income redistribution, income tax
should not only be levied in a progressive manner but its tax
base should also be wide enough.
I due to narrow base and lack of flexibility, manipulations in the
rates of income tax, would have little impact on the effective
demand. So, income tax has hardly any role to play as an
anti-inflationary measure in this country.
 I The Union Budget 2019-20 reduced the corporation tax rate
to 25% for companies with less than Rs. 400 crore turnover.
I The Union Budget for 2018-19 introduced LTCG(long-term
capital gains) tax. Long-term capital gains(gains from shares
held for more than one year) have enjoyed tax exemption. but
now, the tax rate is 10% on long-term capital gains exceeding
Rs 1 lakh without allowing the benefit of any indexation. the
gains from equity shares held upto one year will remain
short-term capital gains and will continue to be taxed at the
rate of 15%.
Indirect taxation: GST
I Since July 1, 2017, Indirect taxes subsumed under GST are as
follows:
I Central taxes: Central excise duty; additional duties of excise;
additional duties of customs; service tax; cesses and surcharges
related to supply of goods or services.
I State taxes: state VAT; central sales tax; purchase tax; luxury
tax; entry tax; entertainment tax; taxes on lotteries betting,
gambling, advertisements; state cesses and surcharges.
I the central govt has guaranteed all state govt 14% annual
growth in revenue for the next five years.
I GST is destination based tax, ALL SGST on the final product
will ordinarily accrue to the consuming state.
I all sales within a state are taxed both by the centre as well as
the states over a common base, and at the same rate, which
together add up to full GST rate.
I IGST is a tax levied on all Inter-State supplies of goods
and/or services. IGST will be applicable on any supply of
goods and/or services in both cases of import into India and
export from India.
Under IGST: Exports would be zero-rated; Tax will be shared
between the Central and State Government.
I GST has different tax rates: 0, 5, 12, 18, and 28. the tax on
host of goods and services like food, health and educational
services is 0% whil on luxury items, it is 28%.
I on ultra-luxury items and demerit goods such as big cars and
tobacco products, there is a special cess (over and above a
28% GST rate)
I Gold is taxed at 3%.
I Alcohol, petroleum products, stamp duties on real estate, and
electricity duties are excluded from the GST regime.
I GST excludes small firsm with turnover below Rs 20 lakh, and
only taxpayers with turnover of Rs 1.50 crore or more charge
GST on sales.
I A GST council has been created for coordination b/w the
centre and the states, under the chairmanship of the Union
Finance Minister.
I GST has removed cascading of taxes. GST has paved the wy
for making whole nation a common market. IT will help in
furthering ’ cooperative federalism’.
I Tax rates in the Indian GST system are among the highest in
the world. and among the highest no. of different GST rates
in the world.
Indirect Taxation: Custom duties
I central govt levied duties on both imports and exports.
I Import duties in India are generally levied on ad valorem basis
which implies that they are determined as a certain
percentage of the price of commodity.
I custom duties perform two major functions: raise revenue and
regulate foreign trade.
I After several years of steady and progressive trade
liberalisation, India seems sliding into a protectionist groove,
again. Several rounds of duty hikes since the Modi 1.0
government assumed office in 2014 have significantly increased
import barriers; besides, the planned stringency on checking
sub-standard imports could keep a section of imports at bay.
India’s applied (real) tariff has increased to an average of
17.6% in 2019 from 13.5% in 2014, according to the latest
data compiled by the WTO. Trade-weighted average tariff,
too, rose from 7% to 10.3% between 2014 and 2018, the
latest year for which the data are compiled.
Evaluation of Indian Tax Structure
I Tax buoyancy (a tax is buoyant when revenue increase by
more than 1% for a 1% increase in GDP.) is expected to
touch 1.2 in FY22, marginally lower than 1.3 in FY21.
I Regressive tax system: India’s direct to indirect tax
ratio(centre and states combined) was roughly 36:64 in
2016-17. So, marginal impact of indirect taxes on the
economical weaker sections of the society is far greater.
I multiplicity of tax laws ans lack of integration
I the burden of tax exemptions
Public expenditure in India: trends and issues
Growth in public expenditure
I public expenditure-GDP ratio was as high as 28.4% in
2017-18 and 28.2% in 2018-19. it was 25% in 1997-98.
I growth in public expenditure is due to expansion in
development activities; expenditure on subsidies; expenditure
on social services; defence; interest payments, etc.
Public Expenditure Management
I fiscal deficit must be reduced since it was considered to be a
source of instability for the economy. It can be inflationary or
may cause external deficits. large fiscal deficits will reduce
more desirable private investment by reducing the availability
of investible resources and raising the interest rate on
borrowing. fiscal deficits result in accumulation of public debt
and increased future interest obligations of the govt., and are
this not sustainable. fiscal deficit can be cut by lowering the
ratio of public expenditure(especially revenue expenditure, but
in India generally capital expenditure curtailed) to GDP;
curtailing subsidies.
Budget has two parts: (a) Receipts; and (b) Expenditure.
Public debt in India
I Internal liabilities (around 89 lakh crore out of 94 lakh crore
total liabilities in 2018-19) divided into following parts:
I Internal debt (around 72 lakh crore in 2018-19): two important
constituent of internal debt are market loans(with maturity of
12 months or more) and Treasury Bills(major source of
short-term funds). Market loans around 55 lakh crore in
2018-19. TBs total = 4 lakh crore.
I Small Savings, Deposits and Provident funds (total = 10 lakh
crore)
I reserve funds and Deposits (total = 2.5 lakh crore)
I other accounts (total= 3.5 lakh crore)
I External liabilities(or debt): around 5 lakh crore in March
2019.
I Public debt =internal debt + external debt
I In 2018-19, center’s debt-GDP ratio was 48.65% and states
debt-GDP ratio was 24.25% =¿ combine debt-GDP ratio was
68.3% in 2018-19.
 I public debt, if it is owned by the central bank of a country,
would be a device to increase the supply of money.
I Sustainability of debt depends on following factors: level of
debt; interest payments as a percentage of GDP; short-term
debt; and External debt.
I a greater proportion of short-term debt in total debt increases
the risk profile and hence reduces the sustainability of debt.
I higher is the proportion of external debt in the overall debt,
higher is the risk from currency fluctuations.
Public debt management
I Reducing public expenditure and increasing revenues
I reduction in the interest rate
I using amount realised from disinvestment
I selling a part of the vast real estate to raise resources
I selling contraband gold to retire debt
India’s Fiscal Policy
I Fiscal policy is the use of govt revenue collection and
expenditure to influence the economy.
I Fiscal policy has a multidimensional role. It particularly aims
at improving the growth performance of the economy and
ensuring social justice to the people.
Objectives of Fiscal Policy in India
I Improving the growth performance of the economy
I Fiscal policy affects growth by influencing the mobilisation of
resources for development. Apart from tax revenue other
important aspects of resource mobilisation are generation of
non-tax revenues, restricting of current govt expenditure and
raising of surpluses of public sector enterprises.
I Fiscal policy exercises its influence by improving the efficiency
of resource allocation. An efficient and rational allocation of
resources will be helpful in raising the rate of economic growth.
I ensuring social justice to the people
Fiscal imbalance and deficit finance
I Fiscal imbalances was seen in terms of the overall budget
deficit. this deficit was sought to be filled by deficit financing
which in India is defined as borrowing from RBI against the
issue of TBs and running down of accumulated cash balances.
When govt borrows from RBI, it merely transfers its securities
to the bank who issues more notes and put them in circulation
on behalf of the govt. this amounts to creation of money.
I The need for deficit financing in this country arises on the one
hand from the failure of the govt to mobilise the desired
volume of surplus for the public sector plans and on the other,
from its rapidly growing expenditure.
I capital accumulation in developing countries through deficit
financing is likely to generate inflation because in these
countries ” the propensity to consume is high”.
The Fiscal Imbalance and the new fiscal approach
I fiscal deficit is measured by the difference b/w total govt
expenditure over govt revenue and grants and thus reflect the
total resource gap.
I the revenue deficit = revenue expenditure - current revenue
I primary deficit = fiscal deficit - interest payments
I there was a steady decline in fiscal deficit-GDP ratio as result
of enactment of Fiscal Reforms and Budget Management
(FRBM) Act.
I The resources for liquidating a part of the internal debt can
be raised by disinvesting in public enterprises and selling a
part of vast real estate that the govt owns in the country.
I if fiscal deficit is to be brought down, there is need of
reduction in the expenditure, particularly in subsidies, capital
assistance to non-viable and inefficient enterprises, govt’s
consumption expenditure related to staff and defense
expenditure.
I New Fiscal Policy:
I simplify both tax structure and the tax laws.
I shift to a regime of reasonable direct tax rates, combined with
better administration and enforcement, to improve compliance
and revenue.
I fostering of a stable and predictable tax policy environment.
I Greater recognition and weight given to the resource allocation
and equity consequences of taxation
I more reliance on non-discretionary fiscal and financial
instruments.
I improve tax administration
I growing appreciation of the links b/w fiscal and monetary
policy
Fiscal Responsibility in India
I The Fiscal Responsibility and Budget Management Act, 2003
(FRBMA) is an Act of the Parliament of India to
institutionalize financial discipline, reduce India’s fiscal deficit,
improve macroeconomic management and the overall
management of the public funds by moving towards a
balanced budget and strengthen fiscal prudence. The main
purpose was to eliminate revenue deficit of the country and
bring down the fiscal deficit.
I In 2016, a review committee to evaluate the FRBM Act, 2003
under the chairmanship of N. K. Singh. it suggested using
debt as the primary target for fiscal policy. A debt to GDP
ratio of 60% should be targeted with a 40% limit for the
centre and 20% limit for the states, achieved by 2023. It also
recommended that govt target a fiscal deficit of 3% in years
upto March, 2020 and to 2.5% by 2022-23. It suggested
’escape clause of 0.5%’ in case of over-riding consideration of
national security, acts of war, calamities and collapse of
agriculture. revenue defict should also brought down to 0.8%
of GDP in 2022-23 and also setup a fiscal council.
Federal Finance in India: Centre-State Financial Relations
Division of resources
I Art 275 provides for grant-in-aid to the states in need of
assistance. Different sums can be fixed for different states, so
that the weaker states can be given specific assistance to
meet their duties to the people.
Art 282 provides for grant by the union to the states for any
public purpose.
Under Art. 275 grants-in-aid are fixed on the advice of the
finance commission, while under Art 282 grants can be fixed
by the centre on its own discretion.
state govt also borrow from the centre to carry out various
developmental and rehabilitation programmes.
Thus, transfer of resources from the centre to the states can
be considered under three heads- share in taxes and duties;
grants; and loans.
I the share of these transfers in aggregate expenditure of the
states has varied b/w 35% and 45%. this shows heavy
dependence of states on centre.
Finance commission
I The commission is appointed under Art 280 and is entrusted
with the task of recommending:
I the distribution b/w the union and the states of the net
proceeds of taxes which are to be, or may be, divided b/w
them and the allocation b/w states of the respective shares of
such proceeds.
I the principles which should govern the grants-in-aid of the
revenue of the states out of the consolidated fund of India
I any other matter referred to the commission by the president
in the interest of sound finance.
I Consequent upon the adoption of the ’Constitution (80th)
Amendment Act, 2000’, now all central taxes and duties
(except those referred in Art 268 and 269, and the surcharges
and cesses) are to be shared b/w centre and states.
I 15th finance commission was appointed on Nov 2017 with N.
K. Singh as chairman.
I the 14th Finance commission has raised the share of states in
the central divisible pool from 32% under the 13th finance
commission to 42% for the period 2015-2020.
I 14th FC has proposed a new horizontal formula for the
distribution of the states share in divisible pool among the
states.

I 14th FC has not recommended any grants for sector-specific

and state-specific schemes. it recommended revenue deficit
grant.
Report of the Fifteenth Finance Commission (2021 to 2026)
I The Fifteenth Finance Commission (XVFC)’s ToR was unique
and wide ranging in many ways. The Commission was asked
to recommend performance incentives for States in many
areas like power sector, adoption of DBT, solid waste
management etc.
I Another unique ToR was to recommend funding mechanism
for defence and internal security.
I In order to maintain predictability and stability of resources,
especially during the pandemic, XVFC has recommended
maintaining the vertical devolution at 41 per cent – the same
as in the interim report for 2020-21. It is at the same level of
42 per cent of the divisible pool as recommended by FC-XIV.
However, it has made the required adjustment of about 1 per
cent due to the changed status of the Jammu and Kashmir.
I Total XVFC transfers (devolution + grants) constitutes about
34 per cent of estimated Gross Revenue Receipts of the Union
leaving adequate fiscal space for the Union to meet its
resource requirements and spending obligations on national
development priorities.
I Based on principles of need, equity and performance, overall
devolution formula is as follows.

I On horizontal devolution, while XVFC agreed that the Census

2011 population data better represents the present need of
States, to be fair to, as well as reward, the States which have
done better on the demographic front, XVFC has assigned a
12.5 per cent weight to the demographic performance
criterion.
XVFC has re-introduced tax effort criterion to reward fiscal
performance.
I Based on uniform norms of assessing revenues and
expenditure of the States and the Union, XVFC has
recommended total revenue deficit grants (RDG) of Rs
2,94,514 crore over the award period for seventeen States.
I The total size of the grant to local governments should be Rs.
4,36,361 crore for the period 2021-26.
I XVFC has recommend that health spending by States should
be increased to more than 8 per cent of their budget by 2022.
I The Union Government may constitute in the Public Account
of India, a dedicated non-lapsable fund, Modernisation Fund
for Defence and Internal Security (MFDIS). The total
indicative size of the proposed MFDIS over the period
2021-26 is Rs. 2,38,354 crore.
I Mitigation Funds should be set up at both the national and
State levels, in line with the provisions of the Disaster
Management Act. The Mitigation Fund should be used for
those local level and community-based interventions which
reduce risks and promote environment-friendly settlements
and livelihood practices.
For SDRMF, XVFC has recommended the total corpus of
Rs.1,60,153 crore for States for disaster management for the
duration of 2021-26, of which the Union’s share is Rs.
1,22,601 crore and States’ share is Rs. 37,552 crore.
National Income of India
The national income trends
I India’s Net National income at constant prices was Rs.
269724 crore in 1950-51 and this rose to Rs. 1,17,18,380
crore in 2020-21.
I growth rate of NI was as high as 8.1% in 2016-17, 7.0% in
2017-18, 6.9% in 2018-19, 4.2% in 2019-20, -8.0% in 2020-21.
I over the four years ending 2006-07, India’s domestic output
grew annually at 8.6%, making it the world’s second fastest
growing economy after china.
I the recent growth revival in India is predominantly
consumption-driven.
Main features of the NNP growth
I Erratic growth: no consistent increase
I growth rates fluctuate with fluctuations in agri
I Acceleration in growth rate in recent period
I post-1991 reform growth less fragile
1. GNP = GDP + Net factor income from abroad
Net 2. National Product (NNP) =GNP-Depreciation
3. Net National Product at factor cost or National Income = NNP
at market prices – (Indirect taxes – Subsidies) = NNP at market
prices – Net indirect taxes
4. Personal Income (PI) = NI – Undistributed profits – Net
interest payments made by households – Corporate tax + Transfer
payments to the households from the government and firms.
Per capita national income
I India’s per cpaita NNI at constant prices was Rs.7513 in
1950-51 and this rose to Rs. 92565 in 2018-19
I post-reform period has witness fairly high rates of growth in
per capita income.
Services led growth
National Product by Industry of Origin
I Agriculture and Allied Activities: share of agri and allied
activities in GDP has declined consistently from 53.1% in
1950-51 to only 13.9% in 2013-14 and GVA at basic prices for
agri and allied activities was 14.9% in 2017-28 and 14.4% in
2018-19.
I Mining and quarrying: share in GDP was 1.9% in 1950-51 and
share in GVA at basic prices was 3.2% in 2017-18 and 2.9% in
2018-19.
I manufacturing: share was 9.2% in 1950-51 and share in GVA
at basic prices in 2018-19 was 18%.
I construction: share in GVA at basic price in 2018-19 was
8.2%.
Poverty in India
Concept of poverty line
As pointed out by Tendulkar Committee, the concept of poverty is
associated with socially perceived deprivation with respect to basic
human needs. These basic needs are usually listed in the material
dimension as the need to be adequately nourished, the need to be
decently clothed, the need to be reasonably sheltered, the need to
escape avoidable diseases, the need to be atleast minimally
educated and the need to be mobile for purpose of social
interaction and participation in economic activity. this shows the
concept of poverty is multidimensional.
For the year 2011-12, the planning commission has defined the
poverty line as Rs 27.20 per capita per day in rural areas and Rs.
33.33 per capita per day in urban areas. Rangarajan Committee
(2014) defined poverty line for 2011-12 at Rs. 47 per capita per
day for urban areas and Rs. 32 per capita per day for rural areas.
World bank defines poverty line at $1.90 per capita per day(at
2011 PPP basis). based on this definition, 21.2% indian ware
below poverty line.
Poverty estimates of Tendulkar Committee (2009) and its
main recommendations
I Need to move away from anchoring the poverty line to a
calorie based norm.
I poverty estimates to continue to be based on private
household consumer expenditure of Indian Households
collected by the NSO
I Broadening of the scope of the minimum standard of living by
greater attention to its non-food components. In fact, the
proposed poverty line basket (PLB) takes into account all
items of consumption (except transport and conveyance) for
construction of price indices.
I Including private expenditure on education and health in
determination of poverty line.
I The tendulkar committee estimated the new all-India poverty
line for the year 2004-05 for rural areas at Rs 446 per capita
per month and for urban areas at Rs 578 per capita per
month. on this basis, 37.2% of the people were below poverty
line.
Poverty estimates based on 66th round of NSSO
I based on Household consumer expenditure survey in 2009-10,
the poverty line was defined as Rs 22.40 per capita per day in
rural areas and Rs 28.60 per capita per day in urban areas. on
this basis, 29.8% population was below poverty line in
2009-10.
World Bank Estimates of Poverty: it defines poverty line at $
1.90 per capita per day( at 2011 price on PPP basis). based on
this, 21.2% population was below poverty line.
Multidimensional Poverty
I Human development report 1997 introduced a human poverty
index (HPI) in an attempt to bring together in a composite
index the different features of deprivation in the quality of life
to arrive at an aggregate judgment on the extent of poverty in
a community.
I HPI focused on the deprivation in the following three elements
of human life -longevity, knowledge, and a decent standard of
living.
I Human Development Report (HDR) 2010 introduced the
concept of Multidimensional Poverty Index (MPI) to replace
HPI.
I The MPI is the product of the Multidimensional poverty
head-count (share of people who are multidimensional poor)
and the average no. of deprivations each multidimensional
poor household experiences (the intensity of their poverty).
I It has three dimensions - health, education and living
standards - which reflect in 10 indicators
I MPI = (Head-count ratio)*(Intensity of poverty)
where Head-count ratio = (no. of multidimensional poor)/
total population
Intensity of poverty = weighted average deprivation score of
multidimensional poor (not in percentage)
Socio-Economic Caste Census (SECC) 2011
I SECC 2011 was the first caste-based census since 1931 Census
of India, and it was launched on 29 June 2011 from the
Sankhola village of Hazemara block in West Tripura district.
I SECC-2011 is a study of socio economic status of rural and
urban households.
I SECC 2011 has three census components which were
conducted by three separate authorities but under the overall
coordination of Department of Rural Development. Census in
Rural Area has been conducted by the Department of Rural
Development (DoRD). Census in Urban areas is under the
administrative jurisdiction of the Ministry of Housing and
Urban Poverty Alleviation (MoHUPA). Caste Census is under
the administrative control of Ministry of Home Affairs:
Registrar General of India (RGI) and Census Commissioner of
India.
I The rural development ministry has taken a decision to use
the SECC data in all its programmes such as MGNREGA,
National Food Security Act, and the Deen Dayal Upadhyaya
Grameen Kaushalya Yojana.
I Census report of SECC 2011:
I There are 24.49 crore (243.9 million) households in India, of
which 17.97 (179.7 million) crore live in villages. Of these,
10.74 crore households are considered as deprived.
I 5.37 crore (29.97%) households in rural areas are ”landless”.
I As many as 2.37 crore (13.25%) families in villages live in
houses of one room with ’kachcha’ (impermanent) walls and
roof.
I 21.53%, or 3.86 crore, families living in villages belong to
SC/ST categories.
I Of the 64% literate rural Indians, more than a fifth have not
completed primary school.
I 60% of the 17.91 crore rural households are deprived or poor.
I 74.5% (13.34 crore) of rural households survive on a monthly
income of Rs 5,000 for their highest earner.
I 1,80,657 households are engaged in manual scavenging for a
livelihood.
Safety Nets for Poor -Poverty Alleviation Programmes
I Drought prone area programme: Drought Prone Areas
Programme (DPAP) is the “earliest area development
programme” launched by the Central Government in 1973-74
to tackle the special problems faced by those fragile areas
which are constantly affected by severe drought conditions.
I Food for work programme (1977): The FWP aimed at
eradication of hunger and unemployment, creation of durable
community assets, strengthening of the rural infrastructure
and utilisation of surplus foodgrains for the development of
human resources.
I Integrated Rural Development Programme (1978-79): It aims
to provide self-employment program to poor rural families to
help them increase their income and cross the poverty line.
I National Rural Employment Programme:The NREP was
launched in 1980 with a view to significantly increase
employment opportunities in rural areas. This was viewed as a
major step towards poverty alleviation. The NREP replaced
the food for work (FFW) programme.
I The Rural Landless Employment Guarantee Programme
(RLEGP) was launched on 15 August 1983 during the Sixth
Five-Year Plan. it was to be limited only to the landless, with
guaranteed employment of 100 days.
I NREP and RLEGP were merged into a single rural
employment programme since 1989. the merged programme
was named Jawahar Rozgar Yojana.
I Swarnajayanti Gram Swarozgar Yojana (SGSY) was launched
with effect from April 1999 with the merger of IRDP,Training
of Rural Youth for Self-Employment (TRYSEM),
Development of Women and Children in Rural Areas
(DWCRA), Supply of Improved Toolkits to Rural Artisans
(SITRA) and Ganga Kalyan Yojana (GKY), MWS (Million
Wells Scheme) into it with the following objectives : (i)
focussed approach to poverty alleviation, (ii) capitalising
advantages of group lending; and (iii) overcoming the
problems associated with multiplicity of programmes.
The SGSY is conceived as a holistic programme of micro
enterprises covering all aspects of self - employment which
includes organising rural poor into Self-Help Groups (SHGs).
I Sampoorna Grameen Rozgar Yojana was launched in 2001.
Jawahar Rozgar Yojana merged into it. SGRY aims at
providing wage employment in rural areas as also food security.
I MGNREGS was introduced in 2006. scheme aims to provide
at least 100 days of guaranteed employment in a financial year
to every household in the rural areas covered under the
scheme.
I Aajeevika - National Rural Livelihoods Mission (NRLM) or
Deen Dayal Antyodaya Yojana - National Livelihoods Mission
(NRLM) was launched by the Ministry of Rural Development
(MoRD), Government of India in June 2011 as a restructured
version of Swarna Jayanti Gram Swarozgar Yojna (SGSY).
The Mission aims at creating efficient and effective
institutional platforms of the rural poor enabling them to
increase household income through sustainable livelihood
enhancements and improved access to financial services. In
November 2015, the program was renamed Deendayal
Antayodaya Yojana (DAY-NRLM).
I DDU-GKY was launched in 2014. DDU-GKY is a part of the
National Rural Livelihood Mission (NRLM).
Causes of Poverty
Solution of poverty
Income Inequalities in India

Report: Indian Income Inequality 1922-2014: from british raj

to billionare raj? by Chancel and Piketty
I The share of national income accruing to the top 1% income
earners is now at its highest level.
I from 1980-2014, top 1% captured 29% of total growth, as
much as the bottom 84% put together.
I the top 10% now account for 55% of all income.
I the bottom 50% accounted for only 14.9% of income in
2013-14
World Inequality Report released by Wealth and Income
Database
I National income share of bottom 50% was just two-thirds of
the share of the top 1%.
Gini Coefficient
I The Gini coefficient (Gini index or Gini ratio) is a statistical
measure of economic inequality in a population. The
coefficient measures the dispersion of income or distribution
of wealth among the members of a population.
I Gini coefficient of India was 35.1 in 2011.
I A Lorenz curve is a graphical representation of income
inequality or wealth inequality developed by American
economist Max Lorenz in 1905. The graph plots percentiles of
the population on the horizontal axis according to income or
wealth.
Causes of Income Inequalities in India
I Inequalities in land ownership and concentration of tangible
wealth in the rural sector
I concentration of assets in private corporate sector.
I rising capital intensity of technology: profit rising fast
 I Inflation and the price rise
I Inequity in credit facilities
I Urban bias in private investment
I role of government and economic reforms
Government Policy and measures to tackle income
inequalities
I Land reforms and redistribution of agri land
I control over monopolies and restrictive trade practices
I Employment and wage policies
I Social Security measures
I Minimum needs programme
I Programmes for the uplift of the rural poor
I taxation
Part-III Basic Issues in Agriculture: Read from book
Part-IV The Industrial Sector and Services in Indian
Economy: Read from book
Part-V Foreign Trade and Foreign Capital: Read from book
Part-VIII Economic Planning and Policy: Read from book
Read Economic Survey and Budget and VISION IAS PT
365
Union Budget 2021-22 Analysis
I Expenditure: The government proposes to spend Rs 34,83,236
crore in 2021-22.
I Receipts: The receipts (other than borrowings) are expected
to be Rs 19,76,424 crore in 2021-22, which is 23% higher
than the revised estimates of 2020-21. In 2020-21, revised
estimates for receipts were 29% lower than budget estimates.
Given the impact due to COVID-19, it is useful to see the
growth from 2019-20, an annual increase of 6%.
I GDP growth: Nominal GDP is expected to grow at of 14.4%
(i.e., real growth plus inflation) in 2021-22.
I Deficits: Revenue deficit is targeted at 5.1% of GDP in
2021-22, which is lower than the revised estimate of 7.5% in
2020-21 (3.3% in 2019-20). Fiscal deficit is targeted at 6.8%
of GDP in 2021-22, down from the revised estimate of 9.5%
in 2020-21 (4.6% in 2019-20). The government aims to
steadily reduce fiscal deficit to 4.5% of GDP by 2025-26.
Main tax proposals in the Finance Bill
I No changes in income tax rates for individuals and
corporations
I Limit on tax-free Income from provident funds
I Extensions on tax incentives by a year upto the end of fiscal
2021-22.
I Agriculture and Infrastructure Development Cess
Policy Highlights
I Legislative Changes: A Securities Markets Code will be
introduced to consolidate four Acts including the SEBI Act,
1992. Increase the permissible FDI limits in insurance
companies from 49% to 74%, and allow foreign ownership and
control with safeguards. The Companies Act, 2013 will be
amended to revise the definition of small companies by
increasing threshold for paid up capital (from Rs 50 lakh to Rs
2 crore) and annual turnover (from Rs 2 crore to Rs 20 crore).
The minimum loan size for NBFCs to be eligible for debt
recovery under the SARFAESI Act, 2002 will be reduced from
Rs 50 lakh to Rs 20 lakh.
I Disinvestment: Disinvestment of Air India, IDBI Bank, and
Pawan Hans will be completed in 2021-22. Legislative
amendments will be introduced to privatise two public sector
banks and a General Insurance company. The IPO for LIC will
also be completed in 2021-22. The government has approved
a strategic disinvestment policy under which CPSEs will be
maintained only in four sectors, with the rest being privatised.
States will be incentivised to disinvest their public sector
companies.
I Finance: An Asset Reconstruction Company Limited and
Asset Management Company will be set up to consolidate and
take over existing stressed debt, and manage and dispose
assets. An institutional framework will be created for the
corporate bond market to instil confidence among participants
and enhance liquidity of secondary markets.
I Corporate Affairs: Alternate methods of debt resolution and
special frameworks for MSMEs will be introduced. A
Conciliation Mechanism will be set up for quick resolution of
contractual disputes.
I Commerce and Industry: Seven textile parks will be
established over three years to create infrastructure and
increase exports.
I Labour and Employment: A portal to collect information on
gig workers, and construction workers, among others will be
launched to help frame schemes on health, housing, insurance,
and others for migrant unorganised workers. The
Apprenticeship Act will be amended to enhance apprenticeship
opportunities.
I Health and Nutrition: PM Atma Nirbhar Swasth Bharat
Yojana will be launched to develop capacity of health systems,
strengthen national institutions, and create institutions to
detect and cure new and emerging diseases. Mission Poshan
2.0 will be launched after merging Supplementary Nutrition
Programme and the Poshan Abhiyan to strengthen nutrition
outcomes. The National Nursing and Midwifery Commission
Bill will be introduced.
I Education: Legislation to set-up a Higher Education
Commission of India will be introduced, having vehicles for
standard-setting, accreditation, regulation, and funding. A
grant to create formal umbrella structures for institutes of
higher education in nine cities will be created. More than
15,000 schools will be strengthened to include all components
of the National Education Policy and subsequently mentor
other schools to achieve ideals of Policy.
I Infrastructure and Real Estate: A Bill to establish a
Development Financial Institution for infrastructure financing
will be introduced. The DFI will be used to establish a lending
portfolio of at least five lakh crore rupees for financing
infrastructure projects. A National Monetisation Pipeline of
potential infrastructure assets such as dedicated freight
corridor assets of the railways will be launched. Debt
financing of real estate and infrastructure investment trusts by
foreign portfolio investors will be enabled to ease access of
finance in the infrastructure and real estate sectors.
I Transport: Economic corridors to augment road infrastructure
are being planned in Tamil Nadu, Kerala, West Bengal, and
Assam. A scheme to enable private sector to finance, acquire,
operate and maintain buses in public transport services will be
launched. New technologies including MetroLite and
MetroNeo will be used to develop metro rail systems in Tier-1
and Tier-2 cities. A voluntary vehicle scrapping policy to
phase out old and unfit vehicles was also announced.
I Energy: A reforms-based scheme to provide assistance to
power distribution companies for infrastructure creation will
be launched to address concerns over viability. A framework
to provide choice to consumers among distribution companies
will be launched. Ujjwala scheme will be extended to cover
one crore more beneficiaries. An independent gas transport
system operator will be set up to coordinate booking of
common carrier capacity in all natural-gas pipelines. A
Hydrogen Energy Mission to generate hydrogen from green
power sources will be launched.
I Science and Technology: A scheme to provide financial
incentives for digital modes of payments has been proposed.
The Deep Ocean Mission will be launched, covering survey
explorations and projects for conservation of bio-diversity.
I Water and Sanitation: The Jal Jeevan Mission (Urban) will
be implemented to enable universal water supply and liquid
waste management in urban areas. The Urban Swachh Bharat
Mission 2.0 will focus on sludge and waste water
management, and on ensuring a reduction in single-use plastic
and air pollution.
I Agriculture and allied sectors: Operation Green Scheme,
currently applicable to tomatoes, onions, and potatoes, will be
enlarged to include 22 perishable products. The Agriculture
Infrastructure Fund will be made available to APMCs to
improve infrastructure facilities.
I Social Justice: To facilitate credit flow for SCs, STs, and
women, margin money requirement under Stand Up India
scheme will be reduced from 25% to 15%. 750 Eklavya model
residential schools will be established in tribal areas.
Foreign Trade
Exchange Rates
The value of a currency depends on factors that affect the
economy such as imports and exports, inflation, employment,
interest rates, growth rate, trade deficit, performance of equity
markets, foreign exchange reserves, macroeconomic policies,
foreign investment inflows, banking capital, commodity prices and
geopolitical conditions.
Income levels influence currencies through consumer spending.
When incomes increase, people spend more. Higher demand for
imported goods increases demand for foreign currencies and, thus,
weakens the local currency.
Balance of payments, which comprises trade balance (net
inflow/outflow of money) and flow of capital, also affects the value
of a country’s currency.
A country that sells more goods and services in overseas markets
than it buys from them has a trade surplus. This means more
foreign currency comes into the country than what is paid for
imports. This strengthens the local currency.
Another factor is the difference in interest rates between countries.
Let us consider the recent RBI move to deregulate interest rates on
savings deposits and fixed deposits held by non-resident Indians
(NRIs). The move was part of a series of steps to stem the fall in
the rupee. By allowing banks to increase rates on NRI rupee
accounts and bring them on a par with domestic term deposit
rates, the RBI expects fund inflows from NRIs, triggering a rise in
demand for rupees and an increase in the value of the local
currency.
The RBI manages the value of the rupee with several tools, which
involve controlling its supply in the market and, thus, making it
cheap or expensive.
”Some ways through which the RBI controls the movement of the
rupee are changes in interest rates, relaxation or tightening of rules
for fund flows, tweaking the cash reserve ratio (the proportion of
money banks have to keep with the central bank) and selling or
buying dollars in the open market.
The RBI also fixes the statutory liquidity ratio, that is, the
proportion of money banks have to invest in government bonds,
and the repo rate, at which it lends to banks.
While an increase in interest rates makes a currency expensive,
changes in cash reserve and statutory liquidity ratios increase or
decrease the quantity of money available, impacting its value.
Every generation complains about price rise. Prices shoot up when
goods and services are scarce or money is in excess supply. If prices
increase, it means the value of the currency has eroded and its
purchasing power has fallen.
Let us say the central bank of a country increases money flow in
the economy by 4 per cent while economic growth is 3 per cent.
The difference causes inflation. If the growth in money supply is 10
per cent, inflation will surge because of the mismatch between
economic growth and money supply. In such a scenario, loan
repayments will be a lesser burden if interest rates are fixed, as you
will pay the same amount but with a lower valuation.
A fall in purchasing power due to inflation reduces consumption,
hurting industries. Imports also become costlier. Exporters, of
course, earn more in terms of local currency.
However, if the increase in money supply lags economic growth,
the economy will face deflation, or negative inflation. The
purchasing power of money will increase when the economy enters
the deflationary state. If you think deflation will help you consume
more and enjoy life more, you are wrong.
Unless the fall in prices of goods is because of improved production
efficiencies, you will have less money to spend. If you have a
fixed-interest loan to repay, your debt will have a higher valuation.
Yields from fixed-income investments made before deflation set in
will, of course, increase in value.
Money is printed by governments, but they cannot print all the
money they need. When a government prints money to meet its
needs without the economy growing at the same pace, the result
can be catastrophic. Zimbabwe is a recent example.
In the past, governments used to back their currencies with gold
reserves or a foreign currency such as the US dollar that could be
converted into gold on demand. The gold standard currency
system was abandoned as there was not enough gold to issue
money and currency valuations fluctuated with the supply and
demand of gold.
In the modern economy, governments print money based on their
assessment of future economic growth and demand. The
purchasing power of the currency remains constant if the increase
in money supply is equal to the rise in gross domestic product and
other factors influencing the currency remain unchanged.
The foreign exchange rate for conversion of currencies depends on
the market scenario and the exchange rate being followed by the
countries. Floating exchange rates, or flexible exchange rates, are
determined by market forces without active intervention of central
governments. For instance, due to heavy imports, the supply of the
rupee may go up and its value fall. In contrast, when exports
increase and dollar inflows are high, the rupee strengthens.
Earlier, most countries had fixed exchange rates. This system has
been abandoned by most countries due to risk of devaluation of
currencies owing to active government intervention. Most
countries now adopt a mixed system of exchange rates where
central banks intervene in the market to buy or sell the different
currencies to control the movement of their own currencies.
Not everyone loses in a weak currency scenario. Exporters across
the 17-country euro zone, for instance, are benefiting from a weak
local currency. Sometimes countries use various ways to keep their
currencies undervalued to promote exports. Chinese Renminbi is
one such currency that several economists say is undervalued.
Development projects

Multi-purpose projects are called ‘temples of modern India’ as they

brought about :
(i) economic prosperity in terms of agriculture, industrial
development and urbanisation.
(ii) promotion of tourism contributed to foreign exchange.
(iii) it would integrate the development of agriculture and the
village economy with rapid industrialisation and growth to urban
economy.
Regional parties
Regional political parties play a major role in strengthening
federalism in a democratic country like India.
1. Regional parties take regional issues to the national stage and
find a solution.
2. They have different agendas and hence the Parliament of India
is diverse.
3. They form an alliance with the National party and thus help in
the formation of the Coalition Government if such a situation
arises.
4. Many social groups and communities represent their demands
through regional parties.
5. They assist the Union Government in solving local issues thus
sharing the burden.
The Regional parties check the National Government in the
execution of its power thereby strengthening federalism and
democracy.
Political parties are extremely important in a democracy for the
following reasons-
a. The very existence of political parties means upholding of the
spirit of democracy.
b. Political parties contest to form the ruling government. The
number of political parties gives people an option to choose their
ruler.
c. Political parties play various roles in the government, whether
they win or lose. For example, there is always an opposition party
to the ruling one in order to keep their activities in check.
d. Parties put forward various opinions and plans which are meant
for the development of the country.
e. Parties make a democratic country truly of the people, by the
people and for the people.
Hence, political parties are an integral part if the political setup.
National Human Rights Commission
The National Human Rights Commission, India has been set up by
an Act of Parliament under the Protection of Human Rights Act,
1993 for the protection and promotion of human rights. The
functions of the Commission as stated in Section 12 of the Act and
apart from enquiry into complaints of violation of human rights or
negligence in the prevention of such violation by a public servant,
the Commission also studies treaties and international instruments
on human rights and make recommendations for their effective
implementation to the Government.
The Commission is responsible for spreading of human rights
awareness amongst the masses and encouraging the efforts of all
stake holders in the field of human rights literacy not only at the
national level but at international level too. NHRC is a unique
institution because it is one of the few National Human Rights
Institutes (NHRIs) in the world whose Chairperson is the former
Chief Justice of the country. The world looks at NHRC of India as
a role model in promoting and monitoring effective implementation
of promotion and protection of human rights.
Section 2(1) (d) of the PHR Act defines Human Rights as the
rights relating to life, liberty, equality and dignity of the individual
guaranteed by the Constitution or embodied in the International
Covenants and enforceable by courts in India.
The Protection of Human Rights Act mandates the NHRC to
perform the following:
Proactively or reactively inquire into violations of human rights by
government of India or negligence of such violation by a public
servant
the protection of human rights and recommend measures for their
effective implementation
review the factors, including acts of terrorism that inhibit the
enjoyment of human rights and recommend appropriate remedial
measures
to study treaties and other international instruments on human
rights and make recommendations for their effective
implementation
Reservation to SC, ST, OBC
Justifications of Reservation:
1. The Preamble to the Constitution of India aims to secure
Justice-Social, Economic and Political among all its citizens. But
so long as the social and economic inequalities continue, this
objective cannot be secured. The Scheduled Castes, Scheduled
Tribes and other Backward Castes are victims of such inequalities.
So it is necessary to provide them special care and protections
through reservations until they come forward at par with others.
2. The weaker sections of the society, like STs, SCs and Dalit’s
have been the victims of exploitation for many centuries. Their
backwardness, underdevelopment and deprivation can be removed
through the compensatory provisions of reservation.
3. Empowerment of the weaker sections in the society will be
possible through reservation. They can play their role in the
political process of the system with confidence. In India,
reservation has become a means of empowerment.
4. The weak persons always deserve some extra care. Similarly, the
weaker sections of Indian society are requiring some extra village
which is being provided in the form of reservation in jobs and seats
in legislature.
5. The Constitution of In gives directives to State to take special
care for protecting the interests of the weaker sections of the
society. The best way of protecting their interest is to provide
them some facilities in the way of reservations.
Criticisms of Reservation
1. The policy of reservation was designed as an adhoc policy for
ten years. But it is continuing and getting extension after the end
of every ten years. It is creating some sort of frustrations among
the high caste people as they are deprived of opportunities either
to get a job or to take admission in any educational institution due
to the reservation policy.
2. The Reservation Policy actually has created a “new class of
vested interest” in the society. They have earned permanently the
benefit of the reservation policy. Thus, the policy has created the
psychology of dependency among them.
3. The policy of reservation is contrary to the principle of equality.
Equality presupposes equal treatment to all and equal protection of
all people. But special privileges and extra protection to certain
class of people is against the policy of equality. It violates the very
spirit of democracy.
4. The policy of reservation of jobs is violating the efficiency and
merit system of recruitment. While the meritorious and talented
persons are deprive of their due share of appointment, the
authority is forced to make compromise with quality.
5. The policy of reservation has given rise to the politics of
casteism in Indian political system. The over consciousness of
caste identity is obstructing the process of national integration.
Moreover, castes have been used as instruments for maintaining
the vote banks of different political parties.
Achievements and failures of Indian planning
Achievements of Five Year Plans
I Increase in National Income
I Increase in Per Capita Income
I Increase in Rate of Capital Formation
I Growth of Agricultural Sector
I Development of Industries
I Development of Economic Infrastructure
I Development of Social Infrastructure
Failures of Economic Planning
I No Substantial Increase in the Standard of Living
I Rise in Prices
I Increase in Unemployment
I Inadequate Increase in Production
I Inadequate Development of Infrastructure
I Inefficient Administration
I High Capital Output Ratio
LABOUR AND LABOUR REFORMS
I Work is part of everyone’s daily life and is crucial to one’s
dignity, well-being and development as a human being.
Economic development means not only creation of jobs but
also working conditions in which one can work in freedom,
safety and dignity
I The State Government are also competent to enact
legislation, as labour is a subject in the Concurrent List under
the Constitution of India.
Salient Features of Four Labour codes
I The Code on Wages, 2019
I Subsumes 4 Labour Acts, namely, the Minimum Wages Act,
1948; the Payment of Wages Act, 1936; the Payment of Bonus
Act, 1965 and the Equal RemunerationAct, 1976
I Universalizes minimum wages to all employees in all sectors as
against employees of scheduled employment, at present
I Central Government to fix National Floor Wages
I Revision of minimum wages ordinarily at an interval of 5 years
I Universal applicability of provisions of timely payment of wages
I The Industrial Relations Code, 2020
I Subsumes 3 Labour Acts, namely, the Industrial Disputes Act,
1947; the Trade Unions Act, 1926; the Industrial Employment
(Standing Orders) Act, 1946.
I Recognition of trade unions or federation of trade unions by
the Central and State Government
I Concept of Recognition of Negotiating Union/Council
introduced
I Definition of Worker and definition of Industry
I Fixed Term Employment worker category included
I Concerted casual leave by 50% or more workers on a day to be
treated as strike
I Set up Industrial Tribunal. Two Members Industrial Tribunal.
Each individual Member can adjudicate all issues except
matters relating to retrenchment, closure, strike, etc.
I Dispute of registered trade unions included within the purview
of Industrial Tribunal as demanded by Trade Unions
I Incorporation of 14 days’ notice period for all strikes and
lockouts which was earlier required for public utility services
only
I Introduction of provision of compounding of offences
I The Occupational Safety, Health and Working Conditions
Code, 2020
I Subsumes 13 Labour Acts relating to Factories , Mines, Dock,
Construction Workers, Plantation, Motor Transport & Beedi
and Cigar, Contract Labour & Inter- State Migrant Workers.
I Code envisages: Occupational Safety standards for different
sectors; Healthy Working Conditions; Welfare provisions;
Mandatory provision for granting appointment letter by the
employer;
I One registration for establishments having 10 or more
employees as against separate registrations under 6 Central
Acts.
I The ambit of the benefit to ISMW(Inter-state migrant worker)
have been replaced to provide (a) lump- sum allowance for
undertaking journey by migrant worker to visit his native place
in a period to be decided by appropriate Government; and (b)
to formulate a scheme for providing portability of benefits of
public distribution system and portability of benefits to a
worker who is engaged in building and other construction work
in one State and move to another State by appropriate
Government.
 I The Code on Social Security, 2020
I Subsumes 9 Labour Acts including Employees’ Provident
Funds & Miscellaneous Provisions Act, Employees’ State
Insurance Act, Payment of Gratuity Act, Maternity Benefit
Act, Employees Compensation Act, Building and Other
Construction Workers Welfare Cess Act.
I to create a framework legislation for social security
I A right based system for phased universalization of social
security contribution to be made by the employer/employee
I Government may contribute for deprived category of worker
I Wage ceiling for calculation of compensation under the
Employees’ Compensation Act, 1923 has been revised to Rs.
15,000/- p.m. from Rs. 8,000/- p.m. w.e.f. 03.01.2020.
Pradhan Mantri Shram Yogi Maan-dhan & National Pension
Scheme for Traders, Shopkeeper and Self-Employed Persons
I The PM-SYM and NPS Traders Scheme was launched in
March and September, 2019 with the objective to provide
social security and assure the monthly pension of Rs. 3,000/-
per month to the workers of unorganised sector as well as
Traders who are not covered under EPFO/ESIC Govt.
Contributed NPS/PMSYM.
 I LIC is the Pension Fund manager for the both the schemes
and shall be responsible for pension fund pay out.
I The integration under PM-SYM, NPS Traders Pensions
Schemes and other schemes being implemented through the
portal. Shramik Setu Mobile App for registration and
leveraging of social security schemes. The portal also provide
portability of the benefits to the migrant and construction
worker and also provide a comprehensive database to Govt.
for tackling any National Crisis like COVID-19 in future.
GOVERNANCE REFORMS THROUGH TECHNOLOGY
I A unified Web Portal ’Shram Suvidha Portal’, to bring
transparency and accountability in enforcement of labour laws
and ease complexity of compliance.
I Start Up India: Facility for exemption from Labour
Inspections under six Central Labour Acts is being provided to
the Start-ups which submit self- certified declarations through
Shram Suvidha Portal.
 I SAMADHAN is an online portal devised to introduce the
workers to an easy way of filing their dispute with the
concerned Conciliation Officer where Central Government is
the appropriate government.
Pradhan Mantri Rojgar Protsahan Yojana
I The Pradhan Mantri Rojgar Protsahan Yojana (PMRPY)
Scheme was launched on 9th August, 2016 to incentivise
employers for generation of new employment, where
Government of India was paying the full employer’s
contribution of 12% or as applicable towards EPF& EPS both
w.e.f 01.04.2018 for new employment.
I This scheme had dual benefit, where, on the one hand, the
employer is incentivised for increasing the employment base of
workers in the establishment, and on the other hand, these
workers will have access to social security benefits of the
organized sector.
I The scheme is being implemented through EPFO.
Startup India Scheme
I Startup India is a flagship initiative of the Government of
India, intended to catalyse startup culture and build a strong
and inclusive ecosystem for innovation and entrepreneurship in
India. Launched on 16th January, 2016. It is managed by
Department for Industrial Policy and Promotion (DPIIT).
I States’ Startup Ranking 2019: best performer-Gujarat, top
performer- Karnataka & Kerala.
Pradhan Mantri Garib Kalyan Yojna (PMGKY)
I PMGKY is a comprehensive relief package of Rs 1.70 Lakh
Crore Yojana for the poor to help them fight the battle
against Corona Virus.
I Insurance cover of Rs 50 Lakh per health worker
I 80 crore poor people will to get 5 kg wheat or rice and 1 kg of
preferred pulses for free every month. 20 crore women Jan
Dhan account holders to get Rs 500 per month.
I An ex-gratia of Rs 1,000 to 3 crore poor senior citizen, poor
widows and poor disabled. increase in MGNREGA wages.
I to provide the upfront benefit of total 24% contribution to the
International Labour Organization
I The only tripartite U.N. agency, since 1919 the ILO brings
together governments, employers and workers of 187 member
States , to set labour standards, develop policies and devise
programmes promoting decent work for all women and men.
Note: International Labour Day, 1st May
I The main aims of the ILO are to promote rights at work,
encourage decent employment opportunities, enhance social
protection and strengthen dialogue on work-related issues.
I Headquarters: Geneva, Switzerland
I Head: Director-General; Guy Ryder
I Founder: Paris Peace Conference
I Founded: 1919
I The Virtual ILO Global Summit was held from 1-9 July, 2020.
I Shri Apurva Chandra completed his tenure as Chair of
Governing Body of ILO on June 2021.
LABOUR JURISDICTION
I Under the Constitution of India, Labour as a subject is in the
Concurrent List and, therefore, both the Central and the State
governments are competent to enact legislations subject to
certain matters being reserved for the Centre.
Office of Chief Labour Commissioner (Central) [CLC(C)]
I This Office is responsible for
I prevention, investigation and settlement of industrial disputes
in the central sphere;
I enforcement of awards and settlements;
I implementation of labour laws in industries;
I verification of membership of Unions affiliated to the Central
Organisations of workers;
I fixation and revision of dearness allowance component of
minimum wages under the Minimum Wages Act, 1948 in the
scheduled employments.
Directorate General Factory Advice Service & Labour
Institutes (DGFASLI): DGFASLI, Mumbai is an attached office
of the Ministry of Labour & Employment. It functions as a
technical arm of the Ministry in regard to matters concerned with
safety, health and welfare of workers in factories and ports. The
Central Labour Institute in Mumbai.
Labour Bureau: Labour Bureau established in 1920, is responsible
for collection, compilation and publication of labour statistics and
other information such as employment and unemployment, wages,
earnings, industrial relations, working conditions etc. It publishes
the CPI for industrial and agricultural / rural workers.
Welfare Commissioners: 17 offices of Welfare Commissioners are
responsible for providing welfare services to the workers employed
in mica, limestone and dolomite, iron ore, manganese, & chrome
ore mines and in the beedi and cinema industries.
Employees State Insurance Corporation (ESIC): The ESIC, an
autonomous body, is respons ible for implementation of the
Employees State Insurance Act 1948, which provides for medical
care and treatment to Insured Persons and their families.
Employees Provident Fund Organization (EPFO): It is
responsible for administration of the Employees Provident Funds
and Miscellaneous Provisions Act, 1952. The Schemes for
Provident Fund, Family Pension and Deposit Linked Insurance are
implemented by the Organisation for the benefit of workers covered
under the scheme. The Organisation is also responsible for
administration of Employees Pension Scheme, 1995.
V. V. Giri National Labour Institute (VVGNLI): V.V. Giri
National Labour Institute, Noida is a registered society, which
caters to the training and developmental needs of tripartite
constituents–Government, trade union Members and Employers. It
also undertakes action-oriented Research, Consultancy and
Advocacy on issues related to labour, welfare schemes of the
government for labour personnel management, industrial relations
etc.
Dattopant Thengadi National Board for Workers Education
(erstwhile CBWE): headquarters at Nagpur is a registered society
dealing with schemes for training of workers on trade unionism and
in bringing about consciousness among workers about their rights,
duties and responsibilities.
Central Government Industrial Tribunals- cum-Labour Courts
(CGITs): Twenty two Central Government Industrial Tribunal
(CGIT)-cum-Labour Courts have been set up under the provisions
of the Industrial Disputes Act, 1947 for adjudication of industrial
disputes in organizations for which the Central Government is the
appropriate Government.
Board of Arbitration, Joint Consultative Machinery (JCM)
Scheme: In 1966, the Government of India had introduced a
Scheme for Joint Consultative Machinery (JCM) and Compulsory
Arbitration for Central Government Employees for resolving
unresolved differences between the Government, as an employer,
and the general body of its employees in certain matters of
common concern.
Central Labour Service (CLS):CLS was constituted with effect
from 3rd February 1987 to ensure better industrial relations, labour
welfare and enforcement of labour laws.
Central Industrial Relations Machinery (CIRM), headed by the
Chief Labour Commissioner are entrusted with the task of
maintaining good Industrial relations in the Central sphere. The
officers under CIRM are responsible for enforcement of all
applicable labour laws in the establishments/ industries covered
under Central Sphere. These officers perform quasi-judicial
authority under the Minimum Wages Act, the Payment of Wages
Act, the Payment of Gratuiry Act, the Indutrial Dispute Act, 1947
etc.
Central Industrial Relations Machinery (CIRM)
I Chief Labour Commissioner’s (Central) Organisation, also
known as Central Industrial Relations Machinery (CIRM) is an
attached office of the Ministry of Labour & Employment. The
CIRM is headed by the Chief Labour Commissioner (Central).
It has been entrusted with the task of maintaining harmonious
Industrial Relations, Enforcement of Labour Laws and
Verification of CTUOs (Central Trade Union Organisations).
I Another important function of CIRM is enforcement of Labour
Laws in the establishments for which Central Government is
the Appropriate Government.
I To ensure transparency and accountability in the system, all
the inspections are conducted through web enabled Shram
Suvidha Portal. The inspection reports are uploaded on the
Shram Suvidha Portal within 48 hours, so as to enable
employers to make good the irregularities and deficiencies
noticed during inspections.
Technology Initiative for seamless handling of Industrial
Disputes:
I SAMADHAN (Software Application for Monitoring and
Disposal, Handling of Apprehended/Existing Industrial
Disputes) Portal for Industrial Dispute under Section 2-A and
2(k) of Industrial Disputes Act, 1947.
The primary objective of Industrial Disputes Act, 1947 (ID
Act) is to make provisions for the investigation and settlement
of Industrial Disputes (IDs) which are defined under section
2-A and 2(k) of the Industrial Disputes Act, 1947, by way of
mediation by the Conciliation Officer of the Appropriate
Government. The ID Act, 1947 has been subsumed in
Industrial Relations Code 2020.
The Trade Unions Act, 1926
I The Trade Unions Act, 1926 is a Central Act, but
administered by the State Governments.
I This Act provides for registration of Trade Unions of workers
and in certain respects, it defines the law relating to registered
Trade Unions.
I The Trade Unions Act, 1926 is subsumed in the Industrial
Relations Code 2020.
The Industrial Disputes Act, 1947
I The Industrial Disputes Act, 1947 provides for investigation
and settlement of industrial disputes.
I The main objectives of the Act are : promotion of measures
for securing and preserving amity and good relations between
the employer and workmen; investigation and settlement of
industrial disputes between employers and employers,
employers and workmen or workmen and workmen, prevention
of illegal strikes and lock-outs; relief to workmen in the matter
of lay-off and retrenchment; and collective bargaining.
Minimum Wages Act, 1948
I Under the Minimum Wages Act, 1948 (the Act) both the
Central and the State Governments are “ Appropriate
Governments ” for fixation/revision of minimum rates of
wages.
I The minimum rates of wages also include Special Allowance
i.e. Variable Dearness Allowance (VDA) linked to Consumer
Price Index Number.
The Payment of Wages Act, 1936
I The Payment of Wages Act, 1936 was enacted to regulate
payment of wages to workers employed in industries and to
ensure speedy and effective remedy to them against illegal
deductions and/or unjustified delay caused in paying wages.
I The Central Government has enhanced the wage ceiling from
Rs.18,000/- to Rs. 24,000/- per month w.e.f. 29.08.2017 for
applicability of the Act.
THE PAYMENT OF BONUS ACT, 1965
I payment of bonus to persons employed in certain
establishments, employing 20 or more persons, on the basis of
profits.
I The minimum bonus of 8.33% is to be paid by every industry.
The maximum bonus can be paid in any accounting year shall
not exceed 20% of the salary/wage of an employee.
Social Security Laws
I Administration of Social Security Acts: The provisions of the
Employee’s Compensation Act, 1923 are being administered
exclusively by the State Governments. Employees’ State
Insurance Act, 1948, The Payment of Gratuity Act, 1972, and
the Maternity Benefit Act, 1961 are administered by the both
Central and State Government. The Employees’ Provident
Funds and Miscellaneous Provisions Act, 1952 is administered
by the Government of India through the EPFO.
I The Employees’ State Insurance Act, 1948 applies to factories
employing 10 or more persons. The ESI Scheme is
administered by a statutory body called the Employees’ State
Insurance Corporation (ESIC). The rate of ESI Contribution is
4% of the monthly wages out of which the employer’s and the
employee’s share of contribution are 3.25% and 0.75%
respectively. The Employees’ State Insurance Scheme provides
comprehensive medical care.
I The Employees’ Provident Fund Organisation, an autonomous
body under the Ministry of Labour & Employement,
administers the Employees’ Provident Fund and Miscellaneous
Provisions Act, 1952 and the Schemes framed there under.
The Employees’ Provident Funds and Miscellaneous Provisions
Act, 1952 is a welfare legislation enacted for the purpose of
instituting provident funds, pension fund and deposit linked
insurance fund for employees working in factories and other
establishments.
I EMPLOYEES’ DEPOSIT LINKED INSURANCE SCHEME:
This Scheme is supported by a nominal contribution by the
employers. No contribution is payable by the Employee for
availing the Insurance cover. All the employees who are
members of the provident fund are members of this Scheme.
The main objective of EPFO behind this scheme was to
ensure that the family of members get financial assistance in
case of death of the member. There is no exclusion under this
insurance scheme. The insurance cover depends on the salary
drawn in the last 12 months of the employment before death.

I providing a minimum pension of Rs. 1,000/- per month for

member/ widow(er)/ disabled/ nominee/ dependent parent
pensioners. Rs. 750/- per month for orphan pensioners and
Rs. 250/- per month for children pensioners.
I PRADHAN MANTRI ROJGAR PROTSAHAN YOJANA
(PMRPY): launched on 9th of August, 2016. the Scheme
provided that Government of India will pay the Employee’s
Pension Scheme (EPS’95) contribution of 8.33% for all new
employees enrolling under the Employees’ provident Fund
Scheme,1952 (with EPFO) for the first three years of their
employment.
I The Employees’ Compensation Act, 1923, earlier known as
“Workmen’s Compensation Act” is an old but an important
enactment, as it introduced a kind of social security scheme
for the workers of this country. It enables an employee, and in
case of death of an employee, his dependents, to get, at the
cost of his employer, compensation for employment injury.
I THE MATERNITY BENEFIT ACT, 1961: The Maternity
Benefit Act,1961 regulates the employment of women in
establishments employing 10 or more persons for certain
period before and after birth and provides for maternity and
other benefits. It also provides for maternity leave and
payment of certain monetary benefits to women workers. As
per amendment of Section 5 of the Maternity Benefit
(Amendment) Act, 2017, maximum period for which a woman
can get paid maternity benefit is twenty-six weeks upto two
surviving children. The crèche facility has also been provided
by the Maternity Benefit (Amendment) Act, 2017, according
to which every establishment having fifty or more employees
shall have the facility of crèche.
I The Payment of Gratuity Act, 1972 provides for a scheme of
compulsory payment of gratuity to employees engaged
establishments on the termination of his employment after he
has rendered continuous service for not less than five years on
his superannuation, or on his retirement or resignation, or on
his death or disablement.
Labour Welfare
I Labour Welfare Organisation under the Ministry of Labour &
Employment administers Welfare Funds for the Welfare of (i)
Beedi, (ii) Cine, Iron Ore / Manganese Ore / Chrome Ore,
(iv) Limestone and Dolomite Mine Workers which were set up
under various Acts of Parliament.
I