MANGALORE UNIVERSITY

ASSIGNMENT ON
INDIAN BUSINESS ENVIRONMENT
SECTORAL COMPOSITION OF INDIAN ECONOMY

SUBMITTED BY:

MODULE-06

REG.NO-P05AZ22M015034-P05AZ22M015051

1ST YEAR MBA

MANGALORE UNIVERSITY

SUBMITTED TO:

MS.KIRTHI NAIR

FACULTY

DEPARTMENT OF BUSINESS ADMINISTRATION

MANGALORE UNIVERSITY

SUBMISSION DATE: 04 OCTOBER 2023

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INDEX

SL.NO PARTICULARS PAGE.NO

INTRODUCTION

01. PRIMARY, SECONDARY, TERTIARY,

QUATERNARY AND QUINARY SECTORS
02.
ISSUES IN AGRICULTURE SECTOR IN INDIA

03.
LAND REFORMS

04 GREEN REVOLUTION AND AGRICULTURE

POLICIES OF INDIA
05
INDUSTRIAL DEVELOPMENT

06
SMALL SCALE AND COTTAGE INDUSTRY

07
INDUSTRIAL POLICY

08 PUBLIC AND PRIVATE SECTOR IN INDIA AND

NEED OF STATE INTERVENTION
09
REDIFINING THE ROLE OF STATES

10
LPG MODEL OF DEVELOPMENT

11 NITI AAYOG, PUBLIC VS PRIVATE SECTOR

DEBATE
12 UNORGANIZED SECTOR AND INDIA’S
INFORMAL ECONOMY
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INTRODUCTION

CHAPTER NO. 06: SECTORAL COMPOSITION OF INDIAN ECONOMY

Primary, Secondary, Tertiary Sectors, Issues in
Agriculture sector in India, land reforms, Green Revolution and agriculture policies of India,
Industrial
development, small scale and cottage industries, Industrial Policy, Public sector in India,
Services sector
in India. Areas of Market Failure and Need for State Intervention, Redefining the Role of the
State,
Liberalization, Privatization and Globalization (LPG) Model of Development, NITI Analog,
Public
Versus Private Sector Debate, Unorganized Sector and India's Informal Economy.

WHAT WILL YOU GET TO LEARN:

Explore the challenges and innovations in the primary, secondary, and tertiary sectors,
ranging from agriculture and industrial development to the dynamic services sector. Uncover
the issues in agriculture, the impact of land reforms, and the transformative era of the Green
Revolution. Navigate the policies shaping industrial growth, the public sector's role, and the
ongoing debate between public and private enterprises. Delve into the complexities of market
failure, state intervention, and the redefined role of the state in economic affairs. Witness the
transformative wave of Liberalization, Privatization, and Globalization (LPG), guided by the
vision of NITI Aayog. Engage in the discourse on the unorganized sector and India's informal
economy, emphasizing the need for inclusive economic policies.
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01-PRIMARY, SECONDARY, TERTIARY SECTORS

Economic sectors of India

● Economic activities result in the production of goods and services while sectors are the
group of economic activities classified on the basis of some criteria.
● The Indian economy can be classified into various sectors on the basis of ownership,
working conditions and the nature of the activities.
● All economic activity was in the primary sector during early civilisation. After the surplus
production of food, people’s need for other products increased which led to the
development of the secondary sector.

To better make sense of how different types of work contribute to economic development and
trade, these jobs can be classified into one of five economic sectors. These sectors are the
1.Primary Sector
2.Secondary Sector
3. Tertiary Sector
4 Quaternary Sector
5 Quinary Sector

1. Primary Sector:
Work performed in the primary sector produces raw materials and agricultural goods. It
includes jobs in farming, mining, fishing, and forestry.
In Primary sector of economy, activities are undertaken by directly using natural
resources. Agriculture, Mining, Fishing, Forestry, Dairy etc. are some examples of this
sector.
It is called so because it forms the base for all other products. Since most of the natural
products we get are from agriculture, dairy, forestry, fishing, it is also called Agriculture
and allied sector.
People engaged in primary activities are called red-collar workers due to the outdoor
nature of their work.

2. Secondary sector:
It includes the industries where finished products are made from natural materials
produced in the primary sector. Industrial production, cotton fabric, sugar cane
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production etc. activities come under this sector. hence it’s the part of a country's economy
that manufactures goods, rather than
producing raw materials.
Since this sector is associated with different kinds of industries, it is also called
industrial
sector.
People engaged in secondary activities are called blue collar workers.
Examples of manufacturing sector:
Small workshops producing pots, artisan production. Mills producing textiles,
Factories producing steel, chemicals, plastic, car. Food production such as brewing plants,
and food processing &Oil refinery.

3. Tertiary sector
This sector’s activities help in the development of the primary and secondary sectors. By
itself, economic activities in tertiary sector do not produce a goods but they are an aid or
a support for the production.
Goods transported by trucks or trains, banking, insurance, finance etc. come under the
sector. It provides the value addition to a product same as secondary sector.
This sector jobs are called white collar jobs.

4. Quaternary sector
These are specialized tertiary activities in the ‘Knowledge Sector’ which demands a
separate classification.
The quaternary sector is the intellectual aspect of the economy. It is the process which
enables entrepreneurs to innovate and improve the quality of services offered in the
economy.
Personnel working in office buildings, elementary schools and university classrooms,
hospitals and doctors’ offices, theatres, accounting and brokerage firms all belong to
this
category of services. Like other tertiary functions, quaternary activities can also be
outsourced.

5. Quinary sector
The quinary sector is the part of the economy where the top-level decisions are
made. This includes the government which passes legislation. It also comprises the
top decision-makers in industry, commerce and also the education sector. These
are services that focus on the creation, re-arrangement and interpretation of new
and existing ideas; data interpretation and the use and evaluation of new
technologies. Profession under this category often referred as 'gold collar'
professions, they represent another subdivision of the tertiary sector representing
special and highly paid skills of senior business executives, government officials,
research scientists, financial and legal consultants, etc.
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02-ISSUES IN AGRICULTURE SECTOR IN INDIA

Agriculture is a major contributor to India’s economy and accounts for about 18 per cent of
the country’s GDP; it provides employment to nearly 50 per cent of India’s population.
The agricultural sector is a significant contributor to India's economy, employing millions of
people and providing food for the country's growing population. However, the sector faces
several challenges that hinder its growth and development.
Addressing these challenges is crucial for the sustainable growth of the agricultural sector
and the overall development of India's economy.

Some of the major issues are:

1. Lack of access to credit & finance: Small and marginal farmers often face
difficulties in accessing credit and financial services. Limited availability of
affordable credit restricts their ability to invest in modern farming equipment and
quality seeds and fertilizers, hampering their productivity.

2. Small landholdings: Average farmers are small landholders, leading to fragmented

and uneconomical farming practices. This makes it challenging for them to adopt
modern agricultural methods and technologies, resulting in lower productivity.

3. Outdated farming practices: A significant portion of Indian farmers still rely on

traditional and outdated farming methods. Limited access to information, lack of
awareness about modern techniques and resistance to change hinder the adoption of
advanced farming practices.

4. Water scarcity & irrigation: India’s agriculture is heavily dependent on monsoon

rain, making it vulnerable to droughts and inconsistent rainfall patterns. Access to
irrigation facilities and water management are crucial challenges, particularly in
regions with limited water resources.

5. Soil degradation & land erosion: Improper land use practices, excessive use of
chemical fertilizers and pesticides and inadequate soil conservation measures
contribute to soil degradation and erosion. This leads to reduced soil fertility and
increased vulnerability to pests and diseases, besides reducing agricultural
productivity.

6. Inadequate agricultural infrastructure: Insufficient storage and cold chain

facilities, inadequate rural roads and limited access to markets contribute to post-
harvest losses. These infrastructure gaps add to the cost of production and limit
farmers’ ability to fetch fair prices for their produce.

7. Market volatility & price fluctuations: Farmers in India often face price volatility
due to lack of effective market linkages, intermediaries and price information. This
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leaves them vulnerable to price exploitation and uncertain returns on their

investments.

8. Climate change & natural disasters: Increasingly unpredictable weather patterns,

climate change and occurrences of natural disasters—such as floods, cyclones and
droughts—pose significant challenges to the country’s agriculture industry. These
events can lead to crop losses, livestock mortality and increased vulnerability for
farmers.

9. Limited access to technology & research: Limited access to agricultural extension

services, modern technologies and scientific research hinders the adoption of
innovative practices. Farmers require better dissemination of knowledge, training and
access to affordable technology solutions tailored to their needs.

10. Lack of farmers’ empowerment: Farmers’ voices and representation in policy-

making processes are often inadequate. Restricted farmers’ empowerment and
involvement result d initiatives that may not address their specific challenges
effectively.

CONCLUSION:
The present challenges that plague Indian agriculture are limited knowledge and insufficient
infrastructure, especially in the rural areas. Problems related to lack of infrastructure, such as
irrigation, market and transport, add huge costs to farmers’ operations. In addition, there are
no proper delivery systems. There are several schemes to bring development to agriculture.
But there is no effective delivery mechanism that can improve productivity, reduce costs, or
increase price realization at the grassroots level. Moreover, without government support, the
issues only worsen. Thus, corporate farming could be a solution to the Indian agrarian sector,
but it needs serious consideration, innovations and better policies, so that neither the business
houses nor the farmers incur huge losses.
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03-LAND REFORMS

Pre Independence
 Under the British Raj, the farmers did not have the ownership of the lands they
cultivated, the landlordship of the land lied with the Zamindars, Jagirdars etc.
 Several important issues confronted the government and stood as a challenge in
front of independent India.
 Land was concentrated in the hands of a few and there was a proliferation of
intermediaries who had no vested interest in self-cultivation. Leasing out land was a
common practice.
 The tenancy contracts were expropriative in nature and tenant exploitation was
almost everywhere.
 Land records were in extremely bad shape giving rise to a mass of litigation.
 One problem of agriculture was that the land was fragmented into very small parts
l for commercial farming.
 It resulted in inefficient use of soil, capital, and labour in the form of boundary
lands and boundary disputes.
Post Independence
 A committee, under the Chairmanship of J. C. Kumarappan was appointed to
look into the problem of land. The Kumarappa Committee's report
recommended comprehensive agrarian reform measures.
 The Land Reforms of the independent India had four components:
1. The Abolition of the Intermediaries
2. Tenancy Reforms
3. Fixing Ceilings on Landholdings
4. Consolidation of Landholdings.
 These were taken in phases because of the need to establish a political will for
their wider acceptance of these reforms.
Abolition of the Intermediaries
Abolition of the zamindari system: The first important legislation was the abolition of the
zamindari system, which removed the layer of intermediaries who stood between the
cultivators and the state.
 The reform was relatively the most effective than the other reforms, for in most
areas it succeeded in taking away the superior rights of the zamindars over the land
and weakening their economic and political power.
 The reform was made to strengthen the actual landholders, the cultivators.
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Advantages: The abolition of intermediaries made almost 2 crore tenants the owners of the
land they cultivated.
 The abolition of intermediaries has led to the end of a parasite class. More lands
have been brought to government possession for distribution to landless farmers.
 A considerable area of cultivable waste land and private forests belonging to the
intermediaries has been vested in the State.
 The legal abolition brought the cultivators in direct contact with the government.
Disadvantages: However, zamindari abolition did not wipe out landlordism or the tenancy
or sharecropping systems, which continued in many areas. It only removed the top layer of
landlords in the multi-layered agrarian structure.
 It has led to large-scale eviction. Large-scale eviction, in turn, has given rise to
several problems – social, economic, administrative and legal.
Issues:
 While the states of J&K and West Bengal legalised the abolition, in other states,
intermediaries were allowed to retain possession of lands under their personal
cultivation without limit being set.
 Besides, in some states, the law applied only to tenant interests like sairati mahals
etc. and not to agricultural holdings. Therefore, many large intermediaries continued
to exist even after the formal abolition of zamindari.
 It led to large-scale eviction which in turn gave rise to several socio-economic and
administrative problems.
Tenancy Reforms
 After passing the Zamindari Abolition Acts, the next major problem was of
tenancy regulation.
 The rent paid by the tenants during the pre-independence period was exorbitant;
between 35% and 75% of gross produce throughout India.
 Tenancy reforms introduced to regulate rent, provide security of
tenure and confer ownership to tenants.
 With the enactment of legislation (early 1950s) for regulating the rent payable
by the cultivators, fair rent was fixed at 20% to 25% of the gross produce level
in all the states except Punjab, Haryana, Jammu and Kashmir, Tamil Nadu, and
some parts of Andhra Pradesh.
 The reform attempted either to outlaw tenancy altogether or to regulate rents to
give some security to the tenants.
 In West Bengal and Kerala, there was a radical restructuring of the agrarian
structure that gave land rights to the tenants.
Issues:
 In most of the states, these laws were never implemented very
effectively. Despite repeated emphasis in the plan documents, some
states could not pass legislation to confer rights of ownership to tenants.
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 Few states in India have completely abolished tenancy while others

states have given clearly spelt out rights to recognized tenants and
sharecroppers.
 Although the reforms reduced the areas under tenancy, they led to only a
small percentage of tenants acquiring ownership rights.

Ceilings on Landholdings
The third major category of land reform laws were the Land Ceiling Acts. In simpler
terms, the ceilings on landholdings referred to legally stipulating the maximum
size beyond which no individual farmer or farm household could hold any land. The
imposition of such a ceiling was to deter the concentration of land in the hands of a few.
 In 1942 the Kumarappan Committee recommended the maximum size of lands a
landlord can retain. It was three times the economic holding i.e. sufficient livelihood
for a family.
 By 1961-62, all the state governments had passed the land ceiling acts. But the
ceiling limits varied from state to state. To bring uniformity across states, a new land
ceiling policy was evolved in 1971.
 In 1972, national guidelines were issued with ceiling limits varying from region to
region, depending on the kind of land, its productivity, and other such factors.
 It was 10-18 acres for best land, 18-27 acres for second class land and for the rest
with 27-54 acres of land with a slightly higher limit in the hill and desert areas.
 With the help of these reforms, the state was supposed to identify and take
possession of surplus land (above the ceiling limit) held by each household, and
redistribute it to landless families and households in other specified categories, such
as SCs and STs.
 Issues: In most of the states these acts proved to be toothless. There were many
loopholes and other strategies through which most landowners were able to
escape from having their surplus land taken over by the state.
o While some very large estates were broken up, in most cases
landowners managed to divide the land among relatives and others,
including servants, in so-called ‘benami transfers’ – which
allowed them to keep control over the land.
o In some places, some rich farmers actually divorced their wives
(but continued to live with them) in order to avoid the provisions of
the Land Ceiling Act, which allowed a separate share for unmarried
women but not for wives.

Consolidation of Landholdings
Consolidation referred to reorganization/redistribution of fragmented lands into one plot.
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 The growing population and less work opportunities in non- agricultural sectors,
increased pressure on the land, leading to an increasing trend of fragmentation of
the landholdings.
 This fragmentation of land made the irrigation management tasks and personal
supervision of the land plots very difficult.
 This led to the introduction of landholdings consolidation.

 Under this act, If a farmer had a few plots of land in the village, those lands were
consolidated into one bigger piece of land which was done by either purchasing or
exchanging the land.
 Almost all states except Tamil Nadu, Kerala, Manipur, Nagaland, Tripura and parts
of Andhra Pradesh enacted laws for consolidation of Holdings.
 In Punjab and Haryana, there was compulsory consolidation of the lands, whereas in
other states law provided for consolidation on voluntary basis; if the majority of the
landowners agreed.
 Advantages: It prevented the endless subdivision and fragmentation of land
Holdings.
o It saved the time and labour of the farmers spent in irrigating and
cultivating lands at different places.
o The reform also brought down the cost of cultivation and reduced
litigation among farmers as well.
 Result: Due to lack of adequate political and administrative support the progress
made in terms of consolidation of holding was not very satisfactory except in
Punjab, Haryana and western Uttar Pradesh where the task of consolidation was
accomplished. However, in these states there was a need for re-consolidation
due to subsequent fragmentation of land under the population pressure.
 Need of re-consolidation: The average holding size in 1970-71 was 2.28
hectares (Ha), which has come down to 1.08 Ha in 2015-16.
 While Nagaland has the largest average farm size, Punjab and Haryana rank
second and third in the list respectively.
 The holdings are much smaller in densely populated states like Bihar, West
Bengal and Kerala.
 The multiple subdivisions across generations have reduced even the sub
divisions to a very small size.
Way Forward
 It has now been argued by the NITI Aayog and some sections of industry that
land leasing should be adopted on a large scale to enable landholders with
unviable holdings to lease out land for investment, thereby enabling greater
income and employment generation in rural areas.
 This cause would be facilitated by the consolidation of landholdings.
 Modern land reforms measures such as land record digitisation must be
accomplished at the earliest.
Conclusion
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The pace of implementation of land reform measures has been slow. The objective of social
justice has, however, been achieved to a considerable degree.Land reform has a great role in
the rural agrarian economy that is dominated by land and agriculture. New and innovative
land reform measures should be adopted with new vigour to eradicate rural poverty.

04-GREEN REVOLUTION IN INDIA

In the year 1965, the government of India launched the Green Revolution with the help
of a geneticist, now known as the father of the Green revolution (India) M.S. Swaminathan.
The movement of green revolution was a great success and changed the country's status from
a food-deficient economy to one of the world's leading agricultural nations. It started from
1967 and lasted till 1978.
The Green Revolution within India led to an increase in agricultural production,
especially in Haryana, Punjab, and Uttar Pradesh. Major milestones in this undertaking were
the development of high-yielding variety seeds of wheat and rust resistant strains of wheat.

Aspects of Green Revolution in India

 High Yielding Varieties (HYV)
 Mechanization of Agriculture
 Use of Chemical Fertilizers and Pesticides
 Irrigation

Green Revolution
The Green Revolution is referred to as the process of increasing agricultural production by
incorporating modern tools and techniques.
Green Revolution is associated with agricultural production. It is the period when
agriculture of the country was converted into an industrial system due to the adoption of
modern methods and techniques like the use of high yielding variety seeds, tractors, irrigation
facilities, pesticides, and fertilizers.
Until 1967, the government majorly concentrated on expanding the farming areas. But the
rapidly increasing population than the food production called for a drastic and immediate
action to increase yield which came in the form of Green Revolution.

The method of green revolution focused on three basic elements that are:
1. Using seeds with improved genetics (High Yielding Variety seeds).
2. Double cropping in the existing farmland and,
3. Continuing expansion of farming areas

Schemes under Green Revolution (India)

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Prime Minister Narendra Modi approved the Umbrella Scheme Green Revolution -
'Krishonnati Yojana' in the agriculture sector for the period of three years from 2017 to 2020.
The Umbrella scheme Green revolution- ‘Krishonnati Yojana’ comprises 11 Schemes
under it and all these schemes look to develop the agriculture and allied sector in a scientific
and holistic manner so as to increase the income of farmers by increasing productivity,
production, and better returns on produce, strengthening production infrastructure, reducing
cost of production and marketing of agriculture and allied produce.
The 11 schemes that are part of the Umbrella Schemes under Green revolution are:
1. MIDH - Mission for Integrated Development of Horticulture - It aims to promote the
comprehensive growth of horticulture sector, enhance the production of the sector, improve
nutritional security and increase income support to household farms.
2. NFSM - National Food Security Mission - This includes NMOOP - National Mission on
Oil Seeds and Oil Palm. The aim of this scheme is to increase the production of wheat pulses,
rice, coarse cereals and commercial crops, productivity enhancement and area expansion in a
suitable manner, enhancing farm level economy, restoring soil fertility and productivity at the
individual farm level. It further aims to reduce imports and increase the availability of
vegetable oils and edible oils in the country.
3. NMSA - National Mission for Sustainable Agriculture - the aim is to promote
sustainable agriculture practices that are best suitable to the specific agro-ecology focusing on
integrated farming, appropriate soil health management, and synergizing resource
conservation technology.
4. SMAE - Submission on Agriculture Extension - this scheme aims to strengthen the on-
going extension mechanism of State Governments, local bodies, etc. achieving food security
and socio-economic empowerment of farmers, to forge effective linkages and synergy
amongst various stake-holders, to institutionalise program planning and implementation
mechanism, support HRD interventions, promote pervasive and innovative use of electronic
and print media, interpersonal communication, and ICT tools, etc.
5. SMSP - Sub-Mission on Seeds and Planting Material - This aims to increase the
production of quality seed, to upgrade the quality of farm-saved seeds and increase SRR,
strengthen the seed multiplication chain and promote new methods and technologies in seed
production, processing, testing, etc., to strengthen and modernizing infrastructure for seed
production, storage, quality, and certification, etc.
6. SMAM - Sub-Mission on Agricultural Mechanisation - aims to increase the reach of
farm mechanisation to small and marginal farmers and to the regions where availability of
farm power is low, to promote ‘Custom Hiring Centres’ to offset the adverse economies of
scale arising due to small landholding and high cost of individual ownership, to create hubs
for hi-tech and highvalue farm equipment, to create awareness among stakeholders through
demonstration and capacity building activities, and to ensure performance testing and
certification at designated testing centres located all over the country.
7. SMPPQ - Sub Mission on Plant Protection and Plan Quarantine - the aim of this
scheme is to minimize loss to quality and yield of agricultural crops from insects, pests,
weeds, etc., to shield our agricultural bio-security from the incursions and spread of alien
14

species, to facilitate exports of Indian agricultural commodities to global markets, and to

promote good agricultural practices, particularly with respect to plant protection strategies
and strategies.
8. ISACES - Integrated Scheme on Agriculture Census, Economics and Statistics - this
aims to undertake the agriculture census, undertake research studies on agro-economic
problems of the country, study the cost of cultivation of principal crops, fund conferences,
workshops and seminars involving eminent agricultural scientists, economists, experts so as
to bring out papers to conduct short term studies, improve agricultural statistics methodology
and to create a hierarchical information system on crop condition and crop production from
sowing to harvest.
9. ISAC - Integrated Scheme on Agricultural Cooperation - aims to provide financial
assistance for improving the economic conditions of cooperatives, remove regional
imbalances, to speed up cooperative development in agricultural processing, storage,
marketing, computerization and weaker section programs; ensuring supply of quality yarn at
reasonable rates to the decentralized weavers and help cotton growers fetch remunerative
price for their produce through value addition.
10. ISAM - Integrated Scheme on Agricultural Marketing - this scheme aims to develop
agricultural marketing infrastructure; to promote innovative technologies and competitive
alternatives in agriculture marketing infrastructure; to provide infrastructure facilities for
grading, standardization and quality certification of agricultural produce; to establish a
nationwide marketing information network; to integrate markets through a common online
market platform to facilitate pan-India trade in agricultural commodities, etc.
11. NeGP-A - National e-Governance Plan - aims to bring farmer-centric & service-
oriented programs; to improve access of farmers to information and services throughout crop-
cycle and enhance reach and impact of extension services; to build upon, enhance and
integrate the existing ICT initiatives of Centre and States; to enhance efficiency and
effectiveness of programs through providing timely and relevant information to the farmers
for increasing their agriculture productivity.

Green Revolution – Features

1. Introduced High Yielding Variety seeds in Indian agriculture.
2. The HYV seeds were highly effective in regions that had rich irrigation facilities and were
more successful with the wheat crop. Therefore, Green Revolution at first focused on states
with better infrastructure such as Tamil Nadu and Punjab.
3. During the second phase, the high yielding variety seeds were given to other states and
crops other than wheat were also included into the plan.
4. The most important requirement for the high yielding variety seeds is proper irrigation.
Crops grown from HYV seeds need good amounts of water supply and farmers could not
depend on monsoon. Hence, Green Revolution has improved the irrigation systems around
farms in India.
5. Commercial crops and cash crops such as cotton, jute, oilseeds etc. were not a part of the
plan. Green revolution in India mainly emphasised on food grains such as wheat and rice.
15

6. To enhance farm productivity green revolution increased the availability and use of
fertilizers, weedicides and pesticides to reduce any damage or loss to the crops.
7. It also helped in promoting commercial farming in the country with the introduction of
machinery and technology like harvesters, drills, tractors, etc.

Impact of Green Revolution in India

1. Green Revolution has remarkably increased Agricultural Production. Food grains in India
saw a great rise in output. The biggest beneficiary of the revolution was the Wheat Grain.
2. Not just limited to agricultural output the revolution also increased per Acre yield. Green
Revolution increased the per hectare yield in case of wheat from 850 kg per hectare to an
incredible 2281 kg/hectare in its early stage.
3. with the introduction of the Green revolution India reached its way to self-sufficiency and
was less dependent on imports. The production in the country was sufficient to meet the
demand of rising population and to stock it for emergencies. Rather than depending on import
of food grains from other countries India started exporting its agricultural produce.
4. The introduction of the revolution inhibited a fear among the masses that commercial
farming would lead to unemployment and leave a lot of the labour force jobless. But the
result seen was totally different there was a rise in rural employment. The tertiary industries
such as transportation, irrigation, food processing, marketing etc. created employment
opportunities for the workforce.
5. The Green Revolution in India majorly benefited the farmers of the country. Farmers not
only survived but also prospered during the revolution their income saw a significant raise
which enabled them to shift from sustenance farming to commercial farming.

05-INDUSTRIAL DEVELOPMENT
Industrial Development or industrialization is the period of social and economic
change that transforms a human group from an agrarian society into an industrial society.
This involves an extensive reorganisation of an economy for the purpose of manufacturing.
Industrialization is associated with increase of polluting industries heavily dependent on
fossil fuels. With the increasing focus on sustainable development and green industrial policy
practices, industrialization increasingly includes technological leapfrogging, with direct
investment in more advanced, cleaner technologies.
The effect of industrialisation shown by rising income levels in the 19th century,
including gross national product at purchasing power parity per capita between 1750 and
1900 in 1990 U.S. dollars for the first World, including Western Europe, United States,
Canada and Japan, and Third World nations of Europe, Southern Asia, Africa, and Latin
America.
Industrialization also means the mechanization of traditionally manual economic sectors
such as agriculture, factories, refineries, mines, and agribusiness are all elements of
industrialisation.
16

The first transformation from an agricultural to an industrial economy is known as the

Industrial Revolution and took place from the mid-18th to early 19th century. It began in
Great Britain, spreading to Belgium, Switzerland, Germany, and France and eventually to
other areas in Europe and North America. Characteristics of this early industrialization were
technological progress, a shift from rural work to industrial labor, and financial investments
in new industrial structure. Later commentators have called this the First Industrial
Revolution.
The "Second Industrial Revolution" labels the later changes that came about in the mid-
19th century after the refinement of the steam engine, the invention of the internal
combustion engine, the harnessing of electricity and the construction of canals, railways and
electric-power lines. The invention of the assembly line gave this phase a boost. Coal mines,
steelworks, and textile factories replaced homes as the place of work.
By the end of the 20th century, East Asia had become one of the most recently
industrialized regions of the world. The BRICS states (Brazil, Russia, India, China and South
Africa) are undergoing the process of industrialization.
The industrial growth pattern in India can be divided into four phases as explained below
1. First Phase (1951-65)
Strong Industrial Base:
The first phase of industrial growth consists of the first three plan periods which had
built a strong industrial base in India. During this phase, huge investments were made in
major industries like iron and steel, heavy engineering and machine building industries. The
annual compound growth rate of industrial production during the first three plan periods
moved between 5.7 per cent to 9.0 percent.
The capital goods industries had registered its annual average compound growth rate
between 9.8 per cent to 19.6 per cent during this period. Again the annual rate of growth of
basic industries moved between 4.7 per cent to 12.1 per cent over the same period. Thus, a
strong industrial base was laid during the first phase covering the first three plan periods.
2. Second Phase (1965-80)
Deceleration and Retrogression:
The second phase of industrial growth covers the period of three Ad-hoc Annual Plans,
Fourth Plan and Fifth Plan. The annual compound growth rate in industrial production
declined from 9.0 per cent during the Third Plan to only 4.1 per cent covering the period of
1965 to 1976. In 1976-77, the annual rate of growth of industrial output was 6.1 per cent. In
1979-80, a negative annual growth rate 1.6 per cent was recorded in respect of industrial
outputs as the index of industrial production in this year (Base 1970 = 100) has declined to
148.2 as compared to 150.7 in 1978-79.
The industrial sector faced a structural retrogression during the second phase. The
capital goods industries registered its annual average growth rate of only 2.6 per cent during
the second phase Fifth Plan recorded the annual growth rate of 5.7 per cent which was far
below as compared to that of first three five year plans. For, basic industries, the annual
growth rate during the second phase was far below as compared to that of Third Plan. Thus
17

basic industries were engaged in the production of ferrous metal groups, construction
materials, mechanical engineering industries etc.
3. Third Phase (1981 to 1991)
Industrial Recovery in Eighties:
The third phase of industrial growth covers the period of eighties consisting of both
Sixth and Seventh Plan. This period of eighties experienced industrial recovery. During the
period 1981-85, the average annual rate of growth of industrial production was accelerated to
7.0 per cent which further increased to 8.6 per cent during 1985-90. In 1990-91 also, the
annual rate of industrial growth was registered at 9.0 per cent.
The growth rate for consumer durable goods increased to 16.9 percent in 1985-89. In
1981-90, there was a set back as the segment recorded only 1.7 per cent growth rate and then
the same rate again shot up to 14.8 per cent in 1990-91.
The basic goods industries maintained the annual average growth rate of 8.8 and 8.9 per
cent during 1980-85 and 1985-89 respectively. But gradually declined to 5.4 and 3.8 per cent
in 1989-90 and 1990-91 respectively. The capital goods industries recorded 6.3 per cent
annual rate of growth during 1980-85 which experienced increase in its growth rate of 13.0
per cent in 1985-89 and then significantly 24.0 percent in 1989-90. The growth rate of capital
goods was 17.4 per cent in 1990-91.
4. Fourth Phase (1991-92 to 1997-98):
Industrial Retrogression followed by an Upturn and Downturn Nineties
The fourth phase of industrial growth covers the early part of nineties, i.e., from 1991-92
to 1997-98. This short period experienced a sharp industrial retrogression followed by an
immediate upturn in the industrial growth of the country.
During 1991-92, the country had a bitter experience of negative growth rate of 0.10 per
cent as compared to that of 8.5 per cent in 1990-91. This is the clear evidence of sharp
industrial retrogression in the country.
But after that in 1995-96 the country experienced an industrial upturn trend as annual
growth rate during this year stood at 11.7 per cent, During the year 1996-97 industrial output
has increased by 7.1 per cent and further 8.6 per cent in 1997-98.
The industrial growth rates by use-based industrial classification again showed
downward trend from April to Feb. 1997 to 7.2 and 10.2 per cent in April to Feb. 1998. The
growth rate of consumer non- durables decreased to 4.2 per cent and 2.4 per cent during
April-Feb. 1996-97 and 1997-98 respectively. The growth rate of capital goods industry
declined to 7.2 per cent in 1996-97 and to 1.8 per cent in 1997-98. During the same period,
the general growth rate of industrial production declined from 7.7 per cent in 1996-97 to only
4.7 per cent in 1997-98.

Trends in Industrial Development in India

The future of industrialization in India is uncertain. However, recent trends suggest that
industrialization is picking up again. The government of India is taking steps to promote
18

industrialization, and the rise of start-ups and foreign investment is helping to drive
innovation and growth. If the government can continue to provide the necessary support,
industrialization can play a major role in driving economic growth in India.
Some of the recent trends of industrial devolution in India are:
Industrial corridors: The emergence of industrial corridors and clusters along the major
highways and railways, such as the Delhi-Mumbai Industrial Corridor, the Chennai-
Bangalore Industrial Corridor, and the Amritsar-Kolkata Industrial Corridor.
Special economic zones: The development of special economic zones (SEZs), export-
oriented units (EOUs), and industrial parks that offer tax incentives, infrastructure facilities,
and regulatory exemptions to attract domestic and foreign investors.
MSMEs: The promotion of micro, small and medium enterprises (MSMEs) that cater to the
local demand and supply chains, and provide low-cost and innovative solutions to various
sectors such as agriculture, textiles, food processing, leather, handicrafts, etc.
Technology: The adoption of new technologies such as artificial intelligence, the internet of
Things, robotics, cloud computing, etc., that enable digital transformation, automation, and
innovation in the industrial sector.
Skill: The implementation of various policies and schemes by the central and state
governments to support industrial development, such as Make in India, Startup India, Skill
India, Atmanirbhar Bharat, etc.

Challenges in Industrial Development in India

Here are some of the challenges that India faces in its quest to industrialize:
Infrastructure: India’s infrastructure is underdeveloped, which makes it difficult for
businesses to operate efficiently. The government needs to invest in roads, ports, power
plants, and other infrastructure in order to improve the business environment.
Skills: India’s workforce is not adequately skilled for the needs of the manufacturing sector.
The government needs to invest in education and training in order to create a skilled
workforce.
Regulations: India’s regulatory environment is complex and burdensome. The government
needs to simplify regulations and make it easier for businesses to comply with them.
Corruption: Corruption is a major problem in India. It can discourage investment and make
it difficult for businesses to operate. The government needs to take steps to fight corruption.

Source:
https://indiacsr.in/what-is-industrial-devolution-in-india-recent-trends
https://en.m.wikipedia.org/wiki/Industrialisation
https://www.yourarticlelibrary.com/industries/industrial-growth-pattern-in-india-4-
phases
19

06- SMALL SCALE INDUSTRIES:

Meaning:
Small Scale Industries (SSI) are those industries in which the manufacturing, production and
rendering of services are done on a small or micro scale. These industries make a one-time
investment in machinery, plant, and equipment, but it does not exceed Rs.10 crore and annual
turnover does not exceed Rs.50 crore.
Introduction:
Essentially the small-scale industries are generally comprised of those industries which
manufacture, produce and render services with the help of small machines and less
manpower. These enterprises must fall under the guidelines, set by the Government of India.
The SSI’s are the lifeline of the economy, especially in developing countries like India. These
industries are generally labour-intensive, and hence they play an important role in the
creation of employment. SSI’s are a crucial sector of the economy both from a financial and
social point of view, as they help with the per capita income and resource utilisation in the
economy.
Examples and Ideas of Small-Scale Industries:
 Bakeries
 School
 stationeries,
 Water bottles
 Leather belt
 Small toys
 Paper Bags
 Photography
 Beauty parlours
Characteristics of SSI:
 Ownership - SSI’s generally are under single ownership. So, it can either be a sole
proprietorship or sometimes a partnership.
 Management - Generally, both the management and the control is with the
owner/owners. Hence the owner is actively involved in the day-to-day activities of the
business.
 Labour Intensive - SSI’s dependence on technology is pretty limited. Hence, they tend
to use labour and manpower for their production activities.
20

 Flexibility - SSI’s are more adaptable to their changing business environment. So in

case of amendments or unexpected developments, they are flexible enough to adapt
and carry on, unlike large industries.
 Limited Reach - Small scale industries have a restricted zone of operations. Hence,
they can meet their local and regional demand.
 Resources utilization - They use local and readily available resources which helps the
economy fully utilize natural resources with minimum wastage.
Role in the Indian Economy:
 Employment - SSI’s are a major source of employment for developing countries like
India. Because of the limited technology and resource availability, they tend to use
labour and manpower for their production activities.
 Total Production - These enterprises account for almost 40% of the total production of
goods and services in India. They are one of the main reasons for the growth and
strengthening of the economy.
 Make in India - SSI’s are the best examples for the Make in India initiative. They
focus on the mission to manufacture in India and sell the products worldwide. This
also helps create more demands from all over the world.
 Export contribution - India’s export industry majorly relies on these small industries
for their growth and development. Nearly half of the goods that are exported from
India are manufactured or produced by these industries.
 Public Welfare -These industries have an opportunity to earn wealth and create
employment. SSI’s are also important for the social growth and development of our
country.
Objectives of SSI:
 To create more employment opportunities.
 To help develop the rural and less developed regions of the economy.
 To reduce regional imbalances.
 To ensure optimum utilisation of unexploited resources of the country.
 To improve the standard of living of people.
 To ensure equal distribution of income and wealth.
 To solve the unemployment problem.
 To attain self-reliance.
 To adopt the latest technology aimed at producing better quality products at lower
costs.
 Classification of Small-Scale Industries
Small-scale industries can be classified into the following categories:
1. Traditional small-scale industries: This category includes industries that have been around
for a long time and are typically family-owned and operated. Examples include food
processing, textiles, and metalworking.
2. Modern small-scale industries: This category includes industries that are newer and
typically use modern technology and equipment. Examples include computer hardware,
telecommunications, and pharmaceuticals.
21

3. Specialized small-scale industries: This category includes industries that are specialized
and typically produce a single type of product. Examples include aircraft, boats, and medical
equipment.

Cottage Industry
What Is a Cottage Industry?
A cottage industry is a small-scale, decentralized manufacturing business often operated
out of a home rather than a purpose-built facility. Cottage industries are defined by the
amount of investment required to start, as well as the number of people employed.
They often focus on the production of labour-intensive goods but face a significant
disadvantage when competing with factory-based manufacturers that mass -produce goods.
Characteristics of cottage industries:
1. Locally available materials are used.
2. Capital infested is small.
3. Most of the products are sold to the local market, but few are exported.
4. Skills are acquired informally.
5. Use of hands and simple and sometimes advanced tools.
6. Usually, involve art or skill possessed by a person to produce items that are in demand
in the neighbourhood.
7. Its labour intensive.
8. Very few items are made because the market for items is usually small.
Importance of Cottage Industries:
1. Increased employment opportunities provided by cottage industries ultimately reduce
poverty and inequalities.
2. This economic sector is one of the most crucial for balancing regional rural economic
growth and development.
3. Since women play a significant part in these businesses at the managerial and working
levels, the cottage industry is also regarded as vital for women’s empowerment.
4. In contrast to large units, these industries (handicrafts) are environmentally friendly,
energy-efficient, and have low emission levels.
5. Cottage industries make good use of local talent. Due to their rarity, several of these
old skills gain prominence.
6. Little cash is needed for the cottage industry.
22

7. Because most cottage industries are found in tiny towns and villages, there is less
strain on agriculture due to population growth. So they aid in diversifying the rural
economy.
8. If correctly utilized, these industries have strong export potential. These sectors’
historic, distinctive, and eco-friendly goods are in high demand worldwide.
Aims and Objectives:
1. To promote and protect the trade and find out the ways and means for the same.
2. To develop and maintain friendly relations amongst the members of the society and
all persons engaged in the trade & industry, handlooms, handicrafts, service sectors,
farming sectors
3. To collect and circulate statistics and other information’s relating to trade;
4. To arbitrate on dispute subsisting amongst the members of the trade and industry
5. To protect, support or oppose by lawful means Legislative and other measures
relating to cottage
6. To borrow or raise money for any of the objects of the society such manner and terms
as the Executive Committee may think fit
7. To arbitrate on dispute subsisting amongst the members of the trade and industry
8. To sell, manage lease, mortgage, dispose of and/or otherwise deal with all or any part
of the property of society.
Example of a Cottage Industry:
Competitive dancers, figure skaters, and other similar performers often wear original,
handmade costumes.
At the lowest levels of youth competition, parents might make costumes for their children.
As performers rise to higher levels of competition, however, the demand for costumes of
higher quality grows, creating opportunities for the most highly skilled costume designers to
fill those demands.
07- INDUSTRIAL POLICY

What is an Industrial Policy?

 Industrial Policy is a formal declaration undertaken by the Government that

outlines the government’s general policies for industries.
 It is characterized by actions and policies of the government which impact the
industrial development of a country.
 The Industrial Policy Resolution of 1948 outlined the broad policy roles of the state
in industrial development both as an entrepreneur and authority.

Objectives of Industrial Policy:

23

1. To maintain steady growth in productivity.

2. To create more employment opportunities.
3. Utilize the available human resources better
4. To accelerate the progress of the country through different means
5. To match the level of international standards and competitiveness

Various Industrial Policies Undertaken by The Government:

Industrial Policy Resolution of 1948

Industrial Policy Resolution of 1948 laid emphasis on a Mixed Economic Model and
defined the role of the State in industrial development both as an entrepreneur and
authority. It gave a four-fold classification of industries such as:

o Strategic Industries (Public Sector) consisted of industries where the Central

Government had a monopoly such as Arms and ammunition, Atomic energy,
etc.
o Basic/Key Industries (Public-cum-Private Sector), was to be established by
the Central Government and private sector enterprises were allowed to
participate. It included coal, iron & steel, aircraft manufacturing, ship-
building, manufacture, etc.
o Important Industries (Controlled Private Sector), were with the private
sector but had control of central and the state governments. It included heavy
chemicals, sugar, cotton textile, woolen, etc.

Industrial Policy Statement of 1956

Industrial Policy Statement of 1956 laid down the foundation for policies to be
followed in regard to industrial development till 1991 o It advocated increasing the
participation of the public sector, building a strong cooperative sector, and encouraging the
separation of ownership and management in private industries.

o It divided industries into three categories:

o Schedule A: It consisted of industries under the state's responsibilities such as

arms and ammunition, atomic energy, railways, etc.

o Schedule B: It consisted of industries open to both the private and public

sectors and were progressively State-owned.

o Schedule C- All the other industries not included in these two Schedules
constituted the third category which was left open for the private sector.

Industrial Policy Statement 1977

o Industrial Policy Statement 1977 focused on the effective promotion of cottage and
small industries that were mainly spread in rural areas and small towns.
24

o In this policy, the small sector was divided into three groups such as cottage and
household sector, tiny sector, and small scale industries.
o It advocated for decreasing the occurrence of labor unrest and encouraged the
worker’s participation in management from shop floor level to board level.

Industrial Policy of 1980

Industrial Policy of 1980 advocated for promoting the concept of economic federation,
increasing the efficiency of the public sector and reversing the trend of industrial production
of the past three years, and reaffirming its belief in the Monopolies and Restrictive Trade
Practices (MRTP) Act and the Foreign Exchange Regulation Act (FERA).

New Industrial Policy, 1991

The Government of India announced its new industrial policy 1991 on July 24, 1991,
with the goal of correcting the distortions and weaknesses in the country's industrial
structure that had developed over four decades, raising industrial efficiency to
international levels, and accelerating industrial growth. The economic reforms that
were started in the early 1990s were centred on the New Industrial Policy of 1991. The
new industrial policy served as the foundation for all subsequent reform initiatives such
as Liberalization, Privatization, and Globalization.

What is New Industrial Policy 1991?

 The industrial policy is a series of standards and measures implemented by the

government to track the development of industries and related sectors to promote
India’s economic growth and development.
 The New Industrial Policy, of 1991 had the main objective of providing facilities to
market forces and increasing efficiency.
 The bigger roles were played by:
o L – Liberalization (Reduction in Government Control)
o P – Privatization (Increasing the Private Sector's Role & Scope)
o G – Globalisation (Economic Integration between India and the rest of the
world)
 The government undertook it to take measures to improve the competitiveness and
capabilities of various industries.
 The government undertook various measures to boost the growth of industries such
as it allowed domestic firms to import better technology to improve efficiency and to
have access to better technology.
 The Foreign Direct Investment ceiling was increased from 40% to 51% in specific
sectors.

Need for New Industrial Policy in 1991

India was forced to implement a New Industrial Policy in 1991, including privatization,
liberalization, and globalization for the following reasons:

 Mounting Fiscal Deficit: As our planned economy developed, expected spending

constantly exceeded expected revenue, leading to a growing fiscal deficit. Compared
to 5% in 1981–1982, it climbed to 8.5% of GDP in 1991.
25

o The government has to undertake interest-bearing public borrowings to cover

this shortfall.
 Adverse Balance of Payment: A deficit in the balance of payments occurs when
foreign payments exceed foreign receipts. It increased from Rs. 2214 crores in India
in 1980–81 to Rs. 17367 crores in 1990–91.
o Thus, the government was forced to borrow money from outside to cover this
deficit.
 Gulf Crisis: The Gulf Crisis refers to the 1990–1991 Iran–Iraq war. The result was a
dramatic increase in petrol prices in the global market. Despite a dramatic decline in
exports to Gulf countries, import costs increased significantly.
o The status of the balance of payments became much more severe. The
government was obligated to announce the new industrial plan at this time.
 Fall in Foreign Reserves: Foreign exchange reserves briefly dipped to a level of
2400 crores in 1990–1991; at that time, there was just enough money to cover three
weeks' worth of imports.
o Due to the severity of the situation, Chandra Shekhar's government was forced
to mortgage its gold reserves to pay off the interest and international debts.
o India was compelled to implement a fresh set of policies to build up its foreign
exchange reserves.
 Rise in Prices: When the inflation rate increased from 6.7% to 16.7%, the situation
deteriorated significantly.
o From 1951 to 1991, the Government of India greatly enlarged the public
sector, yet the results were insignificant. So, moving it to the private sector
from the public sector was necessary.

Objectives of New Industrial Policy 1991

 Removal of regulations such as licenses and controls.

 Providing assistance to the small-scale sector.
 Increasing the competitive culture among industries to benefit the general public.
 Providing extra incentives to underserved areas and their residents.
 To keep up with the industrialized countries, industrial development must move
quickly.
 To free the economy from various government limitations.
 To allow the private sector to operate independently.
 To increase exports while liberalizing imports.
 to increase job opportunities
 Economic liberalization

Features of New Industrial Policy 1991

 Reduction in Government’s Monopoly: Government monopoly was reduced by

decreasing the number of industries reserved for the public sector from 17 (as per
1956 policy) to 8 industries such as arms and ammunition, atomic energy, coal,
mineral oil, mining of iron ore, manganese ore, gold, silver, mining of copper, lead,
etc.
 Abolition of Industrial Licensing: The Industrial Licensing Policy abolished the
industrial licensing given to all industries except for the 18 industries, which was
further reduced to 6 industries in 1999. These included drugs and pharmaceuticals,
hazardous chemicals, explosives such as gunpowder, detonating fuses, etc.
26

 Provision of Foreign Companies as a Major Stake: It allowed foreign companies to

have a majority stake in India. For example, in 47 high-priority industries, up to 51%
of FDI was allowed.
 Provision to Non-Residential Indians (NRIs): Non-Resident Indians (NRIs) were
allowed 100% equity investments on a non-repatriation basis in all activities except
the negative list.
 Internal Agreements on Foreign Technologies: Various international agreements
were made about foreign technologies. For example, permitting high-priority
industries up to a lump sum payment of Rs. 1 crore, with 5% royalty for domestic
sales and 8% for exports.
 Restructuring of Portfolio of Public Sector Investments: Restructuring the
portfolio of public sector investments, for example, the PSUs that were unlikely to be
turned around were to be referred to the Board for Industrial and Financial
Reconstruction (BIFR).
 Removal of Prior Approval from Central Government: To remove the
requirement of prior approval of the Central Government for the establishment of new
undertakings, expansion of undertakings, merger, amalgamation, etc MRTP act was to
be amended.
 Changes in the Standard for Small Units: The criteria for a tiny unit was changed
to a unit having an investment limit of Less than Rs. 5 Lakh.
 Establishment of National Renewal Fund: As per this policy, the government
announced the establishment of a National Renewal Fund (NRF) to ensure a social
safety net for labor.

Impact of New Industrial Policy 1991

Removal of Restrictions Regarding License, Permit, and Quota Raj: It removed

the restrictions experienced during the license, permit, and quota raj. It intended to
liberalize the economy by removing bureaucratic restrictions on industrial growth.
 Public Sector’s Role and Disinvestment: The role of the public sector was
decreased and two sectors were reserved for the public. The process of disinvestment
was started in PSUs.
 Entry of Multi-National Companies: By removing restrictions it enabled the entry
of multinational companies, privatization, removal of asset limits on MRTP
companies, liberal licensing policy, etc.
 Increment in Domestic and Foreign Investment: Domestic, as well as foreign
investment, increased in almost every sector of the economy.
 Increment in Exports and Related Activities: Increased efforts were undertaken to
increase exports such as Export Oriented Units (EOU), Export Processing Zones
(EPZ), Agri-Export Zones (AEZ), etc emerged.
 Establishment of a Separate Ministry: To better resolve the issues of MSMEs, in
2006, a new act and separate ministry were established.

08-PUBLIC AND PRIVATE SECTOR IN INDIA AND NEED OF STATE

INTERVENTION
SERVICE SECTOR IN INDIA
Role of Service Sector in Indian Economy
27

The economic development of any country is directly dependent on the advancement and
progress of the three sectors of the economy viz. primary sector, secondary sector, and
tertiary sector. The primary sector of an economy making direct use of the natural
resources that are involved in the production and extraction of raw materials from
agriculture, fishing, forestry, mining, dairy, etc. and The secondary sector also known as
the industrial sector is associated with the activities which involve the conversion of raw
material into usable products.
The majority of India’s population is engaged in the primary sector which in turn is the main
reason for underemployment in the country. Though in the last couple of years,
manufacturing has been a great focus not much growth has been seen in the secondary sector
(includes heavy manufacturing, light manufacturing, energy-producing, food processing, etc.)
due to lack of infrastructure. So, in order to quickly absorb this underemployed population,
there is a need to shift to the tertiary sector.
The Tertiary sector also known as the service sector involves a variety of things in its
umbrella. Some of which are health and welfare, tourism, leisure, and recreation activities as
well as retailing and sales of goods to the people. In the past six years, the service sector has
undergone a great evolution which in turn has given it the independent status of the
productive sector of the country. Moreover, this sector also provides a major impact on
foreign exchange and thus contributes greatly to the modern economic development of the
country.
Significance of the Service Sector
1. Gross value:
Gross Value Added (GVA) at current prices for the service sector is estimated at 96.54
lakh crore INR in 2020-21 and accounts for 53.89% of total India’s GVA of 179.15 lakh
crore Indian rupees. Thus, holds the highest share in the country’s Net National Product

2. Promotes industrialization:
The service sector provides various facilities such as transportation, banking, electricity,
repair, or communication in support of the distribution of the manufactured goods which
directly affects the development of an industry in a country. For example-transport
systems helps to carry labourer, raw material and finished goods to their destination,
communication networks are required to make market for the product and for the
industries to prosper, we require banking and electricity. Moreover, the feedback from the
marketplace, fast delivery as well as the ability to customize products are all dependent
on the service industry.

3. Growth of Economy:
According to World Bank data in the year 2017, India has become the 6th largest economy
with a GDP of 2.59 trillion USD, demoting France to the 7th position, allowing for the
growth of the service sector in the country.

4. Growth of Agriculture:
28

By providing network facilities, service sectors help in the development of agricultural

products such as helping in the transport of raw material and finished goods from one
place to another.

5. Increase in the productivity of the goods:

The service sector helps in providing appropriate technical knowledge/education to the
workers as well as provide them with proper medical facilities. Moreover, the service
sector also facilitates an organized network of communication and transport systems
which helps in increasing mobility and information about the workers. This results in an
increase in the productivity.

6. Provides Good Quality Life:

By providing better services in the field of education and health, banking and insurance as
well as communication and transportation, the service sector has helped in the increasing
the quality of life in the country and thus helping in raising the country’s human
development index (HDI).

7. Growth of market:
This sector provides various services catering to the needs of both primary and
secondary sectors and thus helps in providing a market for the finished goods as well as
raw materials or semi-finished goods for both i.e. agriculture and industries.

8. Increase in international trade:

India’s trade in services recorded substantial growth as the country became globally
competitive in ICT services which increased exports manyfold and led to an increase in
India’s trade surplus. Service exports have contributed to the inclusive economic
processes by increasing the amount of well-paid jobs and by reallocating labour to a high-
productivity sector.

9. Removes regional disparities:

The service sector has made it possible to connect every small town and village through a
well-organized system of communication and transport. Moreover, the expansion of
education, medical as well as banking services in various backward areas of the country
has helped in removing the regional imbalances and disparities throughout the nation.

Contribution of Service Sector in Indian Economy

The service sector is the largest recipient of FDI in India with an inflow of 83.14 billion USD
between April 2000 and June 2020. Some of the services in the umbrella of the service sector
are listed below:

1. Research and Development services:

In the Global Innovation Index of 2020, India ranks 48 among the top 50 countries. This
sector presents a significant opportunity for multinational corporations across the world
due to the highly-trained Indian manpower available at competitive costs and intellectual
29

capital available in the Indian market. For that reason, in recent years, several MNCs have
shifted or are shifting their research and development part to India. It helps those MNCs
to either develop new innovative products to serve the local market or help the parent
company to deliver products faster to the world markets. India’s expenditure in R&D is
targeted to be about 2% of the country’s total GDP by the year 2022.

2. Telecom services:
According to FY20 by TRAI, India has an average wireless data usage of about 11 GB
per month per subscriber which is expected to reach 18 GB by 2024. Thus, making India
one of the biggest consumers of data worldwide.

3. IT Enabled Services (ITES):

Owing to the socio-economic conditions of India and rapidly changing business, as well
as the proliferation of the internet, the Indian ITES industry is now day by day increasing
its area and has become a tough competitor for the world market. India’s success in
software and IT-enabled serviced exports has made it a major exporter of services with a
share in world service exports rising from 0.6% to 3.3% from the year 1990 to 2013.

4. Tourism services:
Due to historical heritage, variety in ecology, terrains, the rich culture, and places of
natural beauty spread across the country, the Indian tourism and hospitality industry has
emerged as one of the important services sectors in India. Thus, Tourism is a significant
source of foreign exchange for our country. During 2019, the total contribution of travel
& tourism to GDP was 6.8% of the total economy, and in the financial year 2020, the
tourism sector in India accounted for 8 percent of the total employment in the country. It
is expected that about 53 million jobs will be created in the Indian market by 2029.

Conclusion:

The service sector in India has the highest employment generation among all sectors. So
it has the potential for great growth and capability to provide highly productive jobs, thus
resulting in revenue generation. In order to overcome the problem of job creation, the
Skill India program aims to provide market-relevant skills to about 40 crores of people by
2022. It aims to do this mainly by adopting private sector initiatives in skill development
programs, and by providing them with the necessary funding. Similarly, the Make in
India program aims to boost the manufacturing sector in the country and thus, will cause a
multiplier effect in adding to the portfolio of the Service Sector. In these circumstances,
the Startup India initiative is a key enabler for both the manufacturing as well as the
service industry in India by offering to support innovative startups. Thus, we can say that
the service sector is going to play a major role in shaping the future of the country in the
coming years.
30

PUBLIC SECTOR IN INDIA:

The public sector in India comprises both Central Government and State Governments. The
Central Government includes ministries, departments, and public enterprises. The State
Governments include state-level ministries, departments, and public sector undertakings.

Roles played by Public Sector in Indian Economy:

Here we detail about the following nine important roles played by public sector in Indian
economy, i.e., (1) Generation of Income, (2) Capital Formation, (3) Employment, (4)
Infrastructure, (5) Strong Industrial Base, (6) Export Promotion and Import Substitution, (7)
Contribution to Central Exchequer, (8) Checking Concentration of Income and Wealth, and
(9) Removal of Regional Disparities.

1. Generation of Income:

Public sector in India has been playing a definite positive role in generating income in the
economy. The share of public sector in net domestic product (NDP) at current prices has
increased from 7.5 per cent in 1950-51 to 21.7 per cent in 2003-04. Again the share of
public sector enterprises only (excluding public administration and defence) in NDP was
also increased from 3.5 per cent in 1950-51 to 11.12 per cent in 2005-06.

2. Capital formation:

Public sector has been playing an important role in the gross domestic capital formation
of the country. The share of public sector in gross domestic capital formation has
increased from 3.5 per cent during the First Plan to 9.2 per cent during the Eighth Plan.
The comparative shares of public sector in the gross capital formation of the country also
recorded a change from 33.67 per cent during the First Plan to 50 per cent during the,
Sixth Plan and then declined to 21.9 per cent in 2005-06.

But the Public sector is not playing a significant role in respect of mobilization of savings.
The share of public sector in gross domestic savings increased from 1.7 per cent of GNP
during 1951-56 to only 3.6 per cent during 1980-85. During 1980s, the share of public
sector in gross domestic savings declined from 16.2 per cent in 1980-81 to 7.7 per cent in
1988-89.

In this connection Narottam Shah observed, “The failure of the public sector contributes
only 21 per cent of the nation’s savings; that also in part, through heavy taxation and
semi-fictitious profits of the Reserve Bank. The remaining 79 per cent of the nation’s
savings came from the private sector.” Again the share of public sector in gross domestic
savings increased from 4.78 per cent in 1990-91 to 6.61 per cent in 2005-06.
31

3. Employment:

Public sector is playing an important role in generating employment in the country.

Public sector employments are of two categories, i.e:
(a) Public sector employment in government administration, defence and other
government services and

(b) Employment in public sector economic enterprises of both Centre, State and Local
bodies. In 1971, the public sector offered employment opportunities to about 11
million persons but in 2003 their number rose to 18.6 million showing about 69 per
cent increase during this period.

Again in 2003, the public sector offered employment opportunities to 18.6 million
persons which was 69 per cent of the total employment generated in the country as
compared to 71 per cent employment generated in 1991. However, there is
considerable decline in the annual growth rate of employment in the public sector
from 1.53 per cent during 1983-1994 to 0.80 per cent during 1994- 2004Moreover,
about 69.0 per cent of the total employments are generated in the public sector.

Moreover, at the end of March 2004, about 51.7 per cent of the total employment (i.e.
about 96 lakh) generated in public sector is from Government administration,
community, social and personal services and the remaining 48.3 per cent (i.e., nearly
89.7 lakh) of the employment in public sector is generated by economic enterprises
run by the Centre, State and Local Governments. The maximum number of
employment is derived from transport, storage and communications (28.1 lakh). The
public sector manufacturing is the next industry which generated employment to the
extent of 11.1 lakh persons.

4. Infrastructure:

Without the development of infrastructural facilities, economic development is

impossible. Public sector investment on infrastructure sector like power, transportation,
communication, basic and heavy industries, irrigation, education and technical training
etc. has paved the way for agricultural and industrial development of the country leading
to the overall development of the economy as a whole. Private sector investments are also
depending on these infrastructural facilities developed by the public sector of the country.

5. Strong Industrial base:

Another important role of the public sector is that it has successfully build the strong
industrial base in the country. The industrial base of the economy is now considerably
strengthened with the development of public sector industries in various fields like—iron
and steel, coal, heavy engineering, heavy electrical machinery, petroleum and natural gas,
fertilizers, chemicals, drugs etc. The development of private sector industries is also
solely depending on these industries. Thus by developing a strong industrial base, the
32

public sector has developed a suitable base for rapid industrialization in the country.
Moreover, public sector has also been dominating in critical areas such as petroleum
products, coal, copper, lead, hydro and steam turbines etc.

6. Export Promotion and Import Substitution:

Public sector enterprises have been contributing a lot for the promotion of India’s exports.
The foreign exchange earning of the public enterprises rose from Rs. 35 crores in 1965-66
to Rs. 5,831 crores in 1984-85 and then to Rs. 34,893 crores in 2003- 04. Thus, the export
performance of the public sector enterprises in India is quite satisfactory.

The public sector enterprises which played an important role in this regard include—
Hindustan Steel Limited, Hindustan Machine Tools (HMT) Limited, Bharat Electronics
Ltd., State Trading Corporation (STC) and Metals and Minerals Trading Corporation.
Some public sector enterprises have shown creditable records in achieving import
substitution and thereby saved precious foreign exchange of the country. In this regard
mention may be made of Bharat Heavy Electricals Limited (BHEL), Bharat Electronics
Ltd., Indian Oil Corporations, Oil and Natural Gas Commission (ONGC). Hindustan
Antibiotics Ltd. (HAL) etc. which have paved a successful way tor import substitution in
the country.

7. Contribution in central exchange:

The public sector enterprises are contributing a good number of resources to the central
exchequer regularly in the form of dividend, excise duty, custom duty, corporate taxes
etc. During the Sixth Plan, the contribution of public enterprises to the central exchequer
was to the tune of Rs. 27,570 crores. Again, this contribution has increased from Rs.
7,610 crores in 1980-81 to Rs. 18,264 crores in 1989-90 and then to Rs. 85,445 crores in
2003-04. Out of this total contribution, the amount of dividend contributed only 2 to 3 per
cent of it.

8. Checking Concentration of Income and Wealth:

Expansion of public sector enterprises in India has been successfully checking the
concentration of economic power into the hands of a few and thus are redressing the
problem of inequalities of income and-wealth of the economy. Thus, the public sector can
reduce this problem of inequalities through diversion of profits for the welfare of the poor
people, undertaking measures for labour welfare and also by producing commodities for
mass consumption.

9. Removal of Regional Disparities:

From the very beginning industrial development in India was very much skewed towards
certain big port cities like Mumbai, Kolkata and Chennai. In order to remove regional
disparities, the public sector tried to disperse various units towards the backward states
33

like Bihar, Orissa, and Madhya Pradesh. Thus, considering all these foregoing aspects it
can be observed that in-spite of showing poor performance, the public sector is playing
dominant role in all-round development of the economy of the country.

AREAS OF MARKET FAILURE AND NEED FOR STATE INTERVENTIONS

WHAT IS MARKET FAILURE?

Market failure, in economics, is a situation defined by an inefficient distribution of goods and
services in the free market. In an ideally functioning market, the forces of supply and demand
balance each other out, with a change in one side of the equation leading to a change in price
that maintains the market's equilibrium. In a market failure, however, something interferes
with this balance.

When markets fail, the individual incentives for rational behaviour do not lead to rational
outcomes for the group. In other words, each individual makes the correct decision for
themselves, but those prove to be the wrong decisions for the group as a whole.

Causes of Market Failure:

There are many types of imbalances that can affect the equilibrium of the markets. The
following list provides an overview of some common causes of market failure.

Externalities: Externalities occur when the consumption of a good or service benefits or

harms a third party. Pollution resulting from the production of certain goods is an example of
a negative externality that can hurt individuals and communities. The collateral damage
caused by negative externalities may lead to market failure.
Information failure: When there is insufficient information available to certain participants
in the market, this can also be the source of market failure. If the buyer or seller in a
transaction lacks access to the information on which the price is based, they may be willing to
overpay or undercharge for a good or service, disrupting the market's equilibrium.
Market control: When one party has too much control over a market, this can also create
imbalanced pricing and lead to market failure.
In the case of a monopoly or oligopoly, a single seller or a small group of sellers can
manipulate pricing. In other situations, known as monopsony or oligopsony, it is the buyers
that have the advantage. In either case, the disrupted balance of supply and demand could
cause market failure.
34

Public goods: Public goods are another example of market failure because they defy the
tenets of supply and demand that drive the free markets. Public goods and services are
nonexcludable—once something like a street light is produced, it is accessible to everyone,
and the producer cannot limit consumption only to paying customers. Public goods are also
nonrival, as use by one individual does not limit consumption by others. Given these
characteristics, the private sector has little incentive to produce public goods, which leads to
market failure, and the government usually has to provide these goods or subsidize their
production.

Solution to Market Failure:

There are many potential solutions for market failure. These can take the form of private
market solutions, government-imposed solutions, or voluntary collective action solutions.
Private market solutions: In some instances, the solution to a market failure may emerge
within the private market itself. For example, asymmetrical information could be solved by
intermediaries or rating agencies such as Moody's and Standard & Poor's informing market
participants about securities risk. Underwriters Laboratories LLC performs the same task for
electronics. Negative externalities such as pollution may be solved with tort lawsuits that
increase opportunity costs for the polluter. Radio broadcasts elegantly solved the non-
excludable problem by packaging periodic paid advertisements with the free broadcast.
Government-imposed solutions: When the solution does not come from the market itself,
governments can enact legislation and take other measures as a response to a market failure.
For example, if businesses hire too few low-skilled workers after a minimum wage increase,
the government can create exceptions for less-skilled workers. Governments can also impose
taxes and subsidies as possible solutions. Subsidies can help encourage behavior that can
result in positive externalities. Meanwhile, taxation can help cut down negative behavior. For
example, placing a tax on tobacco can increase the cost of consumption, therefore making it
more expensive for people to smoke.
Collective action solutions: While the government may have the upper hand in developing
legislative, tax, or regulatory solutions, private collective action can also help solve the
market failure. Parties can privately agree to limit consumption and enforce rules among
themselves to overcome the market failure of the tragedy of the commons.
Consumers and producers can band together to form co-ops to provide services that otherwise
might be underprovided in a pure market, such as a utility co-op for electric service to rural
homes or a co-operatively held refrigerated storage facility for a group of dairy farmers to
chill their milk at an efficient scale.

09-REDEFINING THE ROLE OF THE STATE

For the purpose of redefining the role of the State in the Indian society, it would be relevant
to consider the structure of Indian economy and policy. It must be clarified at the very outset
35

that Keynesian perceptions of state intervention are not so relevant to a developing mixed
economy like India, because Indian society had in 2004-05 about 27.5 percent of it’s
population living below the poverty line. As such this big segment of the Indian society
comprising about 300 million persons is untouched by the market mechanism. The State, has
therefore, to play a positive role in employment generation for the poor and to promote their
social welfare. Soon after independence, there was a widespread belief that without
increasing the role of the state, it was not possible either to accelerate the process of growth
or to create an industrial base for sustained economic development of the country.
 The state has to play a positive role in providing education and health to the poor
as well as to have special programmes of employment generation, more especially
in the rural areas so that employment opportunities are enlarged for the poor and
underprivileged. Therefore, the promotional role of the State in providing rural
infrastructure and credit to the poor at low rates of interest can become an effective
instrument in poverty removal.

 The second role of the state is to provide economic infrastructure. The economic
infrastructure consists in the provision of roads and railways, hydro-electric works,
irrigation dams, provision of drinking water, etc. It has been observed that the private
sector is not keen to invest in infrastructure. Some attempts are being made to involve
the private sector in some areas of infrastructure as power generation, road
construction, building highways, and the telecommunications, but by and large, the
responsibility for infrastructure development rests with the same.

 The other form of the infrastructure: Social infrastructure is in the form of health
and education. Investment in education helps human beings to acquire human capital
formation. The provision of basic education to all has been accepted as the goals in all
the societies. Similarly, the provision of health facilities also requires considerable
investment which public sector must undertake so as to improve the health status of
the weaker sections of the society because it is not possible for the poor to pay for
expensive healthcare by the private sector. Both education and health have been
considered as important for human capital formation, thereby raising the level of
productivity.

 The third area which needs State intervention is the macro-economic management
of the economy. In this, the Government can intervene in a variety of ways, more
specially for such sections of the population which are not covered by the market
mechanism. The State has to intervene in a variety of ways to promote industries
where people can seek employment and earn a better living.

 In the Indian context, a number of other interventions such as providing financial

assistance to small-scale industries and to individuals to create employment in
the informal sector have also helped the process of growth and employment
generation. The priority sector loans, supported by better information about emerging
areas, can be a positive intervention that can become people-friendly.
36

 Another area which needs active state intervention is the reform of the public sector.
Many public sector enterprises have complained about absence of autonomy and
quick decision-making as the principal factor responsible for their poor performance.
The Government has intervened by signing MOU’s, but has not intervened honestly
and effectively. State intervention is needed in an honest manner.

IN ANY ECONOMIC SYSTEM, THE STATE CAN PLAY THREE KINDS OF

ROLES. THEY ARE:

1. As a producer of goods and services:

As a producer of goods and services, the state made an attempt in India in the
initial period of its development to create and expand the public sector through
public sector undertakings. It also went in for nationalisation of banks and
insurance, the commanding heights of the economy.

2. As a regulator of the system:

The system of quantitative restrictions resulted in corruption and acted as a
hindrance to enlarging productive capacities. The state as a regulator has a to
operate on the quality of economic performance by indicating the direction of
change. In fact, this is a market complementary role to direct investment in
socially desirable channels.

3. As a supplier of ‘public goods’ or ‘social goods’ like education, health,

drinking water, etc:
The third function of the state is to act as a supplier of ‘public goods’ or
‘social goods’, this is the role of a ‘welfare provider’. For instance, private
sector may not be interested in providing ‘drinking water’ at zero or very low
cost to the entire population but the necessity of doing so is highly justified on
social considerations. The state may undertake this role by initiating direct
investment in this area or may help panchayats in the rural areas by providing
financial assistance and leaving the question of operation and maintenance of
such projects to local bodies.

10-LPG MODEL OF DEVELOPMENT

LPG Model and reforms in India

After Independence in 1947 Indian government faced a significant problem to develop the
economy and solve the issues. Considering the difficulties pertaining at that time government
decided to follow LPG Model. The Growth Economics conditions of India at that time were
37

not very good. This was because it did not have proper resources for the development, not
regarding natural resources but financial and industrial development. At that time India
needed the path of economic planning and for that used ‘Five Year Plan’ concept of which
was taken from Russia and feet that it will provide a fast development like that of Russia,
under the view of the socialistic pattern society. India had practiced some restrictions ever
since the introduction of the first industrial policy resolution in 1948.
Liberalization is defined as making economics free to enter the market and establish their
venture in the country. Privatization is defined as when the control of economic is sifted
from public to a private hand. Globalization is described as the process by which regional
economies, societies, and cultures have become integrated through a global network of
communication, transportation, and trade.

Liberalization:
Soon after independence, the period was known as License Raj. As a result of the restriction
in the past, India’s performance in the global market has been very dismal; it never reached
even the 1% in the worldwide market. India has vast natural resources with high-efficiency
labour, but after all this, it was still contributing with 0.53% till 1992.
IMPACT BEFORE LIBERALIZATION
 The low annual growth rate of the economy of India before 1980, which stagnated around
3.5% from the 1950s to 1980s, while per capita income averaged 1.3%. At the same time,
Pakistan grew by 5%, Indonesia by 9%, Thailand by 9%, South Korea by 10% and in
Taiwan by 12%.
 Only four or five licenses would be given for steel, power, and communications. License
owners built up substantial powerful empires.
 A substantial public sector emerged. State-owned enterprises made significant losses.
 Infrastructure investment was weak because of the public sector monopoly.
 License Raj established the “irresponsible, self-perpetuating bureaucracy that still exists
throughout much of the country” and corruption flourished under this system.

After liberalization, India became the second world of development and became the 7th
largest economies. It contributed 1.3 trillion in the world’s GDP. Dr. Manmohan Singh, the
former finance minister, opened the way for a free economy in the country which led to the
significant development of the country

Privatization:
India is leading towards privatization from government raj. As a result, it led to the
development of country 500 faster than previous. Now India is in the situation of world
fastest developing economy and maybe chance that India will be at the top till 2050.

Globalization:
The term is sometimes used to refer specifically to economic globalization: the integration of
national economies into the international economy through trade, foreign direct investment,
38

capital flows, migration, and the spread of technology. However, globalization is usually
recognized as being driven by a combination of economic, technological, sociocultural,
political, and biological factors.

LPG Model of Development & LPG reforms

1. This has a very narrow focus since it mostly concentrates on the corporate sector which
accounts for only 10 percent of GDP.
2. The model bypasses agriculture and agro-based industries which are a significant source
of generation of employment for the masses. It did not delineate a concrete policy to
develop infrastructure. Financial and technological support, particularly the infrastructural
needs of agro-exports.
3. By permitting free entry of the multinational corporations in the consumer goods sector.
LPG model hit the interests of the small and medium sector engaged in the production of
consumer goods. There is a danger of labour displacement in the small industry if the
unbridled entry of MNC’s is continued.
4. By facilitating imports, the Government has opened the import window too wide.
Consequently, the benefits of rising exports are more than offset by the much higher rise
in imports leading to a more significant trade gap.
5. Finally, the model emphasizes a capital-intensive pattern of development, and there are
severe apprehensions about its employment-potential. It is being made out that it may
cause unemployment in the short run but will take care.

“Liberalization, Privatization and Globalization” (LPG Model & LPG Policy) approach
followed by Government of India
liberalization, privatization and globalization or LPG Model in the Indian context, is essential
to detail out the eighth five-year plan, since it was the inception of a host of LPG policy that
was instrumental in allowing India to unshackled its economy and engage in global trade and
commerce.

The period before liberalization in India

The annual growth rate of the economy of India before 1980 was low. It stagnated around
3.5% from the 1950s to 1980s, while per capita income averaged 1.3%. Only four or five
licenses would be given for steel, electrical power, and communications. License owners
built up substantial, powerful empires. A vast public sector emerged. State-owned enterprises
made large losses. Income Tax Department and Customs Department manned by IAS officers
became efficient in checking tax evasion. Infrastructure investment was weak because of the
public sector monopoly. Licence Raj established the “irresponsible, self-perpetuating
bureaucracy that still exists throughout much of the country” and corruption flourished under
this system.
The context of Five Year Plans in Liberalization Privatization and Globalization
The Eighth Five Year Plan (1992-1997) was formulated after a period of political instability
which gripped the country for two years after the completion of the Seventh Five Year Plan.
39

In 1991, the country faced a major foreign exchange crisis which made the economic position
of the country very vulnerable. As a result of this instability in the country, there were two
Annual Plans for 1992 and 1993. The eighth five-year plan measures such as privatization
and liberalization which were to have a far-reaching impact later were introduced during the
Eighth Five Year Plan. India also became a member of the World Trade Organisation (WTO)
during this Plan period.
Eighth five-year plan during LPG policy
The main aim of the Eighth Five Year Plan was –

 To modernize the industrial sector through modern technology & help economy grow.
 Opening up of the Indian economy to counter the foreign debt burden which was a
significant threat for the country.
 Taking significant initiatives to increase the rate of employment and reduce poverty.

During this plan focus was on implementing plans and policies which would help in attaining
objectives like the modernization of the industrial sector, increase the rate of employment in
the country, reduce poverty and improve self-reliance on domestic resources. Also, the
Eighth Five Year Plan also focused on human resource development based on the reasoning
that healthy and educated people could contribute more effectively to economic growth. Most
important, the Eighth Five Year Plan marked the beginning of privatization and liberalization
of the economy in the country.

Plan performance
 The target growth for the Eighth Five Year Plan was taken as 5.6 percent but by the end
of the Plan, India achieved an actual growth rate of 6.78 percent, higher than that of the
target.
 Increase in the rate of employment.
 Reduction in the poverty rate.
 The Gross Domestic Product (GDP) rate increased from 5.7 percent to 6.5 percent.
 The inflation rate rose from 6.7 percent to 8.7 percent.
 The rate of growth in the agriculture sector increased from 3 percent to 4.8 percent.

Post liberalization in India

The economic reforms lead to a certain amount of stability in the economy and high growth
rate. In the ninth five-year plan it was envisaged to have balanced development. For this, the
focus was on speedy industrialization, human development, full-scale employment, poverty
reduction, and self-reliance on domestic resources.
The main objectives directly related to liberalization and privatization as a continuation of the
previous plan period were:

 To generate adequate employment opportunities and promote poverty reduction.

 To stabilize the prices to accelerate the growth rate of the economy.
 To create a liberal market for an increase in private investments.

Other objectives served the purpose of human development. They were

40

 To ensure food and nutritional security.

 To provide for the necessary infrastructural facilities like education for all, safe drinking
water, primary health care, transport, energy.
 To check the growing population increase.
 To encourage social issues like women empowerment, conservation of certain benefits for
the Special Groups of the society.

Conclusion

The fruits of liberalization reached their peak in 2007 when India recorded its highest GDP
growth rate of 9%. With this economic reforms helped India became the second fastest
growing major economy in the world, next only to China. There has been a significant
debate, however, around liberalization as an inclusive economic growth strategy. Since 1992,
income inequality has deepened in India. Whereas consumption is among the poorest staying
stable while the wealthiest generate consumption growth.
For 2010, India was ranked 124th among 179 countries in Index of Economic Freedom
World Rankings. Hence, on the one hand, it witnessed high economic development,
infrastructure development, and urbanization and on the other hand had a widening cleft
between the rich and poor and class divide continues to plague the country. Social and human
development remains absurdly low leading to a profoundly fragmented nation.

11-NITI AAYOG

The NITI Aayog, short for National Institution for Transforming India, is a policy think tank
and government institution in India. It was established on January 1, 2015, to replace the
Planning Commission. NITI Aayog serves as a platform for cooperative federalism and
policy formulation, focusing on fostering sustainable and inclusive economic growth,
strategic thinking, and innovation. It works towards achieving development goals through
collaborative efforts with state governments, experts, industry stakeholders, and international
organizations.

NITI Aayog is developing itself as a state-of-the-art resource centre with the necessary
knowledge and skills that will enable it to act with speed, promote research and innovation,
provide strategic policy vision for the government, and deal with contingent issues. It is
supported by an attached office, Development Monitoring and Evaluation Organization
41

(DMEO), a flagship initiative, Atal Innovation Mission (AIM) and an autonomous body,
National Institute of Labour Economics Research and Development (NILERD).

NITI Aayog’s entire gamut of activities can be divided into four main heads:

1. Policy and Programme Framework

2. Cooperative Federalism
3. Monitoring and Evaluation
4. Think Tank, and Knowledge and Innovation Hub

NITI Aayog plays a vital role in shaping India’s development agenda, promoting reforms,
and facilitating the implementation of transformative policies across various sectors.

NITI Aayog Objectives

The objectives of NITI Aayog (National Institution for Transforming India) are as follows:
1 Foster Cooperative Federalism: NITI Aayog aims to promote cooperative federalism by
facilitating collaboration and constructive engagement between the central government and
state governments. It strives to ensure the active participation of states in the planning and
decision-making process, fostering a more inclusive and decentralized approach to
governance.
2 Policy Formulation and Implementation: NITI Aayog is responsible for formulating
policies and strategic plans to address key developmental challenges and opportunities in
various sectors. It conducts research, analysis, and consultations to develop innovative and
evidence-based policies, focusing on sustainable economic growth, social welfare, and
overall transformation.
3 Catalyze Reforms: NITI Aayog acts as a catalyst for reforms across sectors. It identifies
policy bottlenecks, recommends policy changes, and promotes initiatives to foster efficiency,
competitiveness, and productivity. The aim is to create an enabling environment for inclusive
and sustainable development, promoting entrepreneurship, innovation, and ease of doing
business.
42

4 Strengthen Monitoring and Evaluation: NITI Aayog focuses on monitoring and

evaluating the implementation of programs and policies, assessing their impact and
effectiveness. It adopts performance indicators, sets targets, and regularly tracks progress to
ensure accountability, transparency, and efficient utilization of resources.
5 Knowledge and Innovation Hub: NITI Aayog serves as a knowledge and innovation
hub, engaging with experts, think tanks, and research institutions to gather insights, expertise,
and best practices. It fosters collaboration, research partnerships, and knowledge-
sharing to drive evidence-based policymaking and leverage technology for
sustainable development.
6 International Engagement: NITI Aayog plays a vital role in fostering international
cooperation and engagement. It represents India in international forums, promotes dialogue
and collaboration with other countries, and leverages global best practices and experiences to
inform India’s development strategies.

NITI AAYOG FUNCTIONS

NITI Aayog (National Institution for Transforming India) performs a range of functions to
support India’s development agenda. Some of the key functions performed by NITI Aayog
are as follows:

1 Policy Formulation: NITI Aayog is responsible for formulating policies and strategic
plans to address developmental challenges and opportunities in various sectors. It conducts
research, analysis, and consultations to develop innovative and evidence-based policies.
2 Monitoring and Evaluation: NITI Aayog monitors and evaluates the implementation of
programs and policies, assessing their impact and effectiveness. It sets performance
indicators, tracks progress, and provides recommendations for improvements.
3 Inter-governmental Coordination: NITI Aayog fosters cooperative federalism by
facilitating collaboration and engagement between the central government and state
governments. It acts as a platform for dialogue, coordination, and sharing of best practices
among different levels of governance.
4 Promoting Reforms: NITI Aayog acts as a catalyst for reforms across sectors. It
identifies policy bottlenecks, recommends policy changes, and promotes initiatives to foster
efficiency, competitiveness, and productivity.
5 Research and Knowledge Sharing: NITI Aayog serves as a knowledge hub by
engaging with experts, think tanks, and research institutions. It conducts research, promotes
data-driven decision-making, and facilitates knowledge-sharing to inform policy formulation
and implementation.
43

6 Capacity Building: NITI Aayog focuses on capacity building by providing guidance,

technical assistance, and training to stakeholders at various levels. It aims to enhance the
capacity of government officials, institutions, and communities for effective implementation
of policies and programs.
7 International Engagement: NITI Aayog represents India in international forums,
promotes dialogue and collaboration with other countries, and leverages global best practices
and experiences to inform India’s development strategies. It facilitates international
cooperation and shares India’s experiences with other nations.
8 Innovation and Entrepreneurship: NITI Aayog promotes innovation, entrepreneurship,
and start-up ecosystem in India. It supports initiatives and policies to foster a culture of
innovation, technology adoption, and entrepreneurship, thereby driving economic growth and
job creation.

These functions collectively contribute to NITI Aayog’s role in shaping India’s development
agenda, fostering sustainable and inclusive growth, and facilitating effective governance
through evidence-based policymaking and collaborative approaches.

NITI AAYOG STRUCTURE

NITI Aayog has a hierarchical structure with different levels of authority and responsibility.
The key components of its structure are as follows
Hierarchical Structure. Details
Governing Council o Chaired by the Prime Minister of India.
o Includes Chief Ministers of all states and Union
Territories with legislatures, along with other
members.
o Provides overall guidance and direction to NITI
Aayog

Regional Council o Comprises Chief Ministers of states and Lieutenant

Governors of Union Territories.
o Facilitates cooperative federalism by addressing
specific regional issues and fostering collaboration

Full-Time Members o Appointed by the government.

o Responsible for policy formulation and coordination
of specific sectors.
o Lead various verticals or divisions within NITI
Aayog

Part-Time Members o Eminent individuals from various fields.

44

o Provide diverse perspectives and expertise on

specific subjects

Chief Executive Officer o Head of the administrative functions of NITI Aayog.

(CEO) o Oversees the day-to-day operations and
implementation of decisions

Experts and Professionals o Engaged by NITI Aayog based on specific

requirements.
o Provide specialized knowledge, research support,
and technical expertise

Verticals/Divisions o These divisions are responsible for handling specific

sectors or themes such as agriculture, health,
education, infrastructure, etc.
o Each division is headed by a Senior Adviser or
Director, along with a team of experts and
professionals

Support Staff o Administrative and support staff members who

assist in the smooth functioning of NITI Aayog

This hierarchical structure facilitates coordination, collaboration, and efficient functioning of

NITI Aayog, ensuring effective policy formulation, implementation, and monitoring to
achieve the institution’s objectives.

DIFFERENCE BETWEEN NITI AAYOG AND PLANNING COMMISSION

Organization:

 Planning Commission – Had deputy chairperson, a member secretary, and full-time

members. Secretaries or member secretaries appointed by the usual process.
 NITI Aayog – New posts of CEO of secretary rank, and Vice-Chairperson. Will also
have five full-time members and two part-time members. Four cabinet ministers will
serve as ex-officio members. CEO is appointed directly by Prime Minister.

Planning:
45

 Planning commission goes for top-down planning for government with public sector
resources.
 NITI ayog formulate national development strategy in a market economy integrated
with the globalized world.

Relation with states

 The planning commission was a central government institution and no representation

of state government. There was no structural mechanism for interaction with states.
 NITI ayog provides a partnership with state governments to promote co-operative
federalism. It provides a platform for structured and regular interaction with states.

Finance

 The role of Finance Commission was greatly reduced with the formation of Planning
Commission. Allocation of funds were decided by the Planning Commission.
 NITI ayog don’t any role in fund allocation. Finance ministry to decide the share of
taxes to states, fund allocation to CSS and Union assistance to the state plan.

Constitution and Reporting

 Planning Commission- The commission reported to National Development Council

that had State Chief Ministers and Lieutenant governors.
 Niti Aayog – Governing Council has State Chief Ministers and Lieutenant Governors.

Niti Aayog: Criticism

 Like planning commission, it’s also a non-constitutional body which is not

responsible to parliament.
 Dismantled planning commission without consulting the states.
 UTs are represented by Lieutenant Governors, not by chief ministers. This is against
the principles of federalism.
 Fund allocation to welfare schemes may get affected. For example, there is a 20 %
reduction in gender budgeting.

Conclusion

NITI Aayog will function in close cooperation, consultation and coordination with the
Ministries of the Central Government and State governments. While it will make
recommendations to the Central and State Governments, the responsibility for taking and
implementing decisions will rest with them. NITI Aayog will seek to facilitate and empower
the critical requirement of good governance – which is people-centric, participative,
collaborative, transparent and policy-driven. It will provide critical directional and strategic
input to the development process, focussing on deliverables and outcomes. This, along with
being as incubator and disseminator of fresh thought and ideas for development, will be the
core mission of NITI Aayog.
46

PUBLIC SECTOR AND PRIVATE SECTOR

Public Sector

The Public Sector consists of businesses that are owned and controlled by the government of
a country. The ownership and control of the central or state governments in these
organizations are either complete or partial. But it still holds a majority stake and makes
every single decision regarding running the entity. These organizations include government
agencies, state-owned enterprises, municipalities, local government authorities and other
public service institutions.

Some of them can be non-profit organizations while others participate in commercial

activities as well. It generally focuses on providing goods and services to the general public at
relatively cheaper rates than private companies. Its main aim is to ensure the welfare of the
general public within a country.

Private Sector

The Private Sector enterprises are owned, controlled and managed either by individuals or
business entities. It can be small-scale, medium-scale or even large-scale organizations.
These get formed to earn a profit from their business operations, and they can raise funding
from individuals, groups, and the general public.

The different entities within the private sector include sole proprietorship, partnership,
cooperative societies, companies and multinational corporations. They also focus on taking
care of the needs of their customers to survive in the long run. Ever since the introduction of
the New Economic Policy in 1991 by the Government of India, almost every industry in the
country has opened up to the private sector. It has led to a phenomenal increase in the size of
the Indian economy and its growth rates.

Differences between Public and Private Sector

The main differences between Public and Private Sectors are as follows:

Public Sector Private Sector

Definition
Public sector organizations are owned, Private sector organizations are owned, controlled
controlled and managed by the and managed by individuals, groups or business
government or other state-run bodies. entities.
Ownership
The ownership of the public sector units
The ownership of private sector units is by
can be by central, state or local
individuals or entities with zero interference from
government bodies, and this ownership
the government.
is either full or partial.
Motive
47

The main motive of public sector

The main motive of the private sector is to earn
organizations is to engage in activities
profits from their business operations.
that serve the general public.
Source of Capital
The capital for public sector
The capital for private sector entities comes either
undertakings comes from tax
from its owners or through loans, issuing shares and
collections, excise and other duties,
debentures, etc.
bonds, treasury bills etc.
Employment Benefits
Public sector units provide several Private sector units offer benefits like higher salary
employment benefits like job security, packages, better chances of promotion and
housing facilities, allowances and recognition, competitive environment and greater
retirement benefits. incentives in terms of bonus and other benefits.
48

Stability
Jobs within the private sector are not very secure
Jobs within the public sector are very
since non-performance can lead to sacking.
stable since the chances of getting sacked
Companies can also fire people in case of cost
due to non-performance are very low.
cutting or scaling down of operations.
Promotions
The criteria for promotion in the public The criteria for promotion in the private sector
sector units is generally based on the units is generally based on the merit and job
seniority of the employee. performance of the employee.
Areas
Some of the main areas that come under Some of the main areas that come under the
the public sector are police, military, private sector are information technology,
mining, manufacturing, healthcare, finance, fast moving consumer goods,
education, transport, banking, etc. construction, hospitality, pharmaceuticals, etc.

Conclusion

Any country needs both the public sector and the private sector to work at their full potential.
There are many differences between the two but a robust financial and economic system
must have an adequate mixture of companies belonging to both these sectors.

12-UNORGANISED SECTOR AND INDIA’S INFORMAL ECONOMY

In terms of employment share the unorganized sector employs 83% of the work force
and 17% in the organized sector. There are 92.4% informal workers (with no written contract,
paid leave and other benefits) in the economy. There are also 9.8% informal workers in the
organized sectors indicating the level of outsourcing.
49

The Indian economy is characterized by the existence of a vast majority of informal or

unorganized labor employment. As per a survey carried out by the National Sample Survey
Organization (NSSO) in 2009–10, the total employment in the country was of 46.5 crore
comprising around 2.8 crore in the organized and the remaining 43.7 crore workers in the
unorganized sector. Out of these workers in the unorganized sector, there are 24.6 crore
workers employed in agricultural sector, about 4.4 crore in construction work and remaining
in manufacturing and service.

Categories of unorganized labor force

The Ministry of Labor, Government of India, has categorized the unorganized labor force
under four groups depending on occupation, nature of employment, specially distressed
categories and service categories.

1. Under Terms of Occupation:

Small and marginal farmers, landless agricultural laborers, share croppers, fishermen, those
engaged in animal husbandry, beedi rolling, labelling and packing, building and construction
workers, leather workers, weavers, artisans, salt workers, workers in brick kilns and stone
quarries, workers in saw mills, oil mills, etc. come under this category.
2. Under Terms of Nature of Employment:
Attached agricultural laborers, bonded laborers, migrant workers, contract and casual laborers
come under this category.
3. Under Terms of Specially Distressed Category:
Toddy tappers, scavengers, carriers of head loads, drivers of animal driven vehicles, loaders
and unloaders come under this category.
4. Under Terms of Service Category:
Midwives, domestic workers, fishermen and women, barbers, vegetable and fruit vendors,
newspaper vendors, etc., belong to this category.
Welfare measures for the unorganized sector
The Ministry of Labor and Employment in order to ensure the welfare of workers in the
unorganized sector which, inter-alia, includes weavers, handloom workers, fishermen and
fisherwomen, toddy tappers, leather workers, plantation laborers, beedi workers, has enacted
the Unorganized Workers’ Social Security Act, 2008. The Act provides for a constitution of
the National Social Security Board which shall recommend the formulation of social security
schemes, viz. life and disability cover, health and maternity benefits, old age protection and
any other benefits as may be determined by the Government for the unorganized workers.
Accordingly, the Ministry has constituted a National Social Security Board.
50

What is the Scenario of Informal Sector Workers in India?

1. Social Category Analysis:
Over 94% of 27.69 crore informal sector workers registered on the e-Shram portal have a
monthly income of Rs 10,000 or below and over 74% of the enrolled workforce belongs to
Scheduled Castes (SC), Scheduled Tribes (ST) and Other Backward Classes (OBC).
 The proportion of the General Category workers is 25.56%.
 The data showed that 94.11% of the registered informal workers have a monthly
income of Rs 10,000 or below, while 4.36% have a monthly income between Rs
10,001 and Rs 15,000.

2. Age-wise Analysis:
 61.72% of the registered workers on the portal are of the age from 18 years to 40
years, while 22.12% are of the age from 40 years to 50 years.
 The proportion of the registered workers aged above 50 years is 13.23% while 2.93%
of workers are aged between 16 and 18 years.

3. Gender Wise Analysis:

 52.81% of registered workers are female and 47.19 % are male.

4. Top-5 States in Terms of Registration:

Uttar Pradesh, Bihar, West Bengal, Madhya Pradesh and Odisha.
5. Occupation Wise:
Agriculture is at the top with 52.11% of enrolments done by those related to the farm
sector followed by domestic and household workers at 9.93% and construction
workers at 9.13%.
What is the State of Informal Economy of India?
1. An Informal economy represents enterprises that are not registered, where
employers do not provide social security to employees.
 In many parts of the developing world, including India, informality has reduced at a
very sluggish pace, manifesting itself most visibly in urban squalor, poverty and
unemployment.
 Despite witnessing rapid economic growth over the last two decades, 90% of workers
in India have remained informally employed, producing about half of Gross Domestic
Product (GDP).

2. Official Periodic Labor Force Survey (PLFS) data shows that 75% of informal
workers are self-employed and casual wage workers with average earnings lower
than regular salaried workers.
 Combining the ILO’S widely agreed upon definition with India’s official
definition (of formal jobs as those providing at least one social security benefit —
such as EPF), the share of formal workers in India stood at only 9.7% (47.5
million).
51

What are the Challenges related to Informal Sector Workers?

1. Labor Related Challenges: On dividing the large number of work force

between the rural and the urban segment, although the large number is
employed in the rural sector, the bigger challenge is in the urban
workforce in the informal sector.
 Long working hours, low pay & difficult working conditions.
 Low job security, high turnover and low job satisfaction.
 Inadequate social security regulation.
 Difficulty in exercising rights.
 Child and forced labor and discrimination on basis of various factors.
 Vulnerable, low-paid and undervalued jobs.

2. Productivity: The informal sector basically comprises MSMEs and

household businesses which are not as big as firms like Reliance. They are
unable to take advantage of economies of scale.
3. Inability to Raise Tax Revenue: As the businesses of the informal
economy are not directly regulated, they usually avoid one or more taxes
by hiding incomes and expenses from the regulatory framework. This
poses a challenge for the government as a major chunk of the economy
remains out of the tax net.
4. Lack of Control and Surveillance: The informal sector remains
unmonitored by the government.
Further, no official statistics are available representing the true state of the
economy, which makes it difficult for the government to make policies
regarding the informal sector in particular and the whole economy in
general.
5 Low-quality Products: Although the informal sector employs more than
75% of the Indian population, the value-addition per employee is very low.
This means that a major portion of our human resource is under-utilized.
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