MANAGERIAL ECONOMICS AND INDIAN ECONOMIC POLICY

UNIT – V – BALANCE OF PAYMENT, AGRICULTURE, WORLD BANK & IMF

BALANCE OF TRADE Vs BALANCE OF PAYMENTS

Balance of Trade and Balance of Payments are two different concepts in the subject of
international trade.

Balance of Trade (BOT)

Balance of Trade (BOT) refers to the total value of a country’s exports of commodities and
total value of imports of commodities. Only export and import of commodities are included
in the statement of Balance of Trade of a country. Movements of goods (export and imports
of commodities) are also known as ‘visible trade’, because the movement of commodities
between countries can be seen by eyes and felt by hands and can be verified physically by
custom authorities of a country.

Favourable BOT

When the total value of commodity exports of a country exceeds the total value of
commodity imports of that country, it is said that the country has a ‘favourable’ balance of
trade.

Unfavourable BOT

If total value of commodity exports of a country is less than the total value of commodity
imports of that country, that country is said to have an ‘unfavourable’ balance of trade.

Balance of Payments (BOP)

The balance of payments (henceforth BOP) is a systematic record of the receipts and
payments from and to other countries arising out of all economic transactions during the
course of a year.

In the words of C. P. Kindleberger : “The balance of payments of a country is a systematic

record of all economic transactions between the residents of the reporting and the
residents of the foreign countries during a given period of time.” Here by ‘residents’ we
mean individuals, firms and government.

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When a payment is received from a foreign country, it is a credit transaction while a payment
to a foreign country is a debit transaction. The principal items shown on the credit side are
exports of goods and services, transfer receipts in the form of gift etc., from foreigners,
borrowing from abroad, foreign direct investment and official sale of reserve assets including
gold to foreign countries and international agencies.

The principal items on the debit side include imports of goods and services, transfer
payments to foreigners, lending to foreign countries, investments by residents in foreign
countries and official purchase of reserve assets or gold from foreign countries and
international agencies.

Balance of Payment (BOP) Account Chart

Credit (Receipts) – Debit (Payments) = Balance [Deficit (-) , Surplus (+)]

COMPONENTS OF BOPS

The credit and debit items are shown vertically in the BOP account of a country.
Horizontally, they are divided into three categories, i.e. a) The current account, b) The capital
account and c) The official settlements account or official reserve assets account.

a) The Current Account:

It includes all international trade transactions of goods and services, international service
transactions (i.e. tourism, transportation and royalty fees) and international unilateral
transfers (i.e. gifts and foreign aid).

Fig. 2: Components of Current Account

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b) The Capital Account: Financial transactions consisting of direct investment and
purchases of interest- bearing financial instruments, non- interest bearing demand deposits
and gold fall under the capital account.

Fig. 3: Components of Capital Account

c) The Official Reserve Assets Account: Official reserve transactions consist of movements
of international reserves by governments and official agencies to accommodate imbalances
arising from the current and capital accounts. The official reserve assets of a country include
its gold stock, holdings of its convertible foreign currencies and Special Drawing Rights
(SDRs) and its net position in the International Monetary Fund (IMF).

Balance of Payments Disequilibrium

The BoP is said to be balanced when the receipts (R) and payments (P) are just equal, i.e,

R / P =1.

Favourable BoP

When receipts exceed payments, the BoP is said to be favourable. That is,

R/P>1

Unfavourable BOP

When receipts are less than payments, the BoP is said to be unfavourable or adverse.That is

R/P<1

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TYPES BOP DISEQUILIBRIUM

i. Cyclical Disequilibrium: It occurs on account of trade cycles. Depending upon the

different phases of trade cycles like prosperity and depression, demand and other forces vary,
causing changes in the terms of trade as well as growth of trade and accordingly a surplus or
deficit will result in the balance of payments.

ii. Structural Disequilibrium: It emerges on account of structural changes occurring in

some sectors of the economy at home or abroad which may alter the demand or supply
relations of exports or imports or both. Suppose the foreign demand for India’s jute products
declines because of some substitutes, then the resources employed by India in the production
of jute goods will have to be shifted to some other commodities of export.

iii. Short-run Disequilibrium or Temporary Disequilibrium: A short-run disequilibrium

in a country’s balance of payments will be a temporary one, ‘lasting for a short period, which
may occur once in a while. When a country borrows or lends internationally, it will have
short-run disequilibrium in its balance of payments, as these loans are usually for a short
period or even if they are for a long duration, they are repayable later on; hence the position
will be automatically corrected and poses no serious problem.

iv. Long-run Disequilibrium or Secular Disequilibrium: The long-term disequilibrium

thus refers to a deep- rooted, persistent deficit or surplus in the balance of payments of a
country. It is secular disequilibrium emerging on account of the chronologically accumulated
short-term disequilibria — deficits or surpluses.

V. Technological Disequilibrium: Technological disequilibrium in the balance of payments

is caused by various technological changes. Technological changes involve inventions or
innovations of new goods or new techniques of production. These technological changes
affect the demand for goods and productive factors which in turn influence the various items
in the balance of payments.

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CAUSES OF DISEQUILIBRIUM IN BOP

(i) Economic Factors

(a) Imbalance between exports and imports,

(b) Large scale development expenditure which causes large imports,

(c) High domestic prices which lead to imports,

(d) Cyclical fluctuations (like recession or depression) in general business activity, (e) New
sources of supply and new substitutes.

(ii) Political Factors: Experience shows that political instability and disturbances cause large
capital outflows and hinder Inflows of foreign capital.

(iii) Social Factors: (a) Changes in fashions, tastes and preferences of the people bring
disequilibrium in BOP by influencing imports and exports; (b) High population growth in
poor countries adversely affects their BOP because it increases the needs of the countries for
imports and decreases their capacity to export.

Measures to Correct BOP Disequilibrium

(i) Export promotion: Exports should be encouraged by granting various bounties to

manufacturers and exporters. At the same time, imports should be discouraged by
undertaking import substitution and imposing reasonable tariffs.

(ii) Import: Restrictions and Import Substitution are other measures of correcting
disequilibrium.

(iii) Reducing inflation: Inflation (continuous rise in prices) discourages exports and
encourages imports. Therefore, government should check inflation and lower the prices in the
country.

(iv) Exchange control: Government should control foreign exchange by ordering all
exporters to surrender their foreign exchange to the central bank and then ration out among
licensed importers.

(v) Devaluation of domestic currency: It means fall in the external (exchange) value of
domestic currency in terms of a unit of foreign exchange which makes domestic goods
cheaper for the foreigners. Devaluation is done by a government order when a country has
adopted a fixed exchange rate system. Care should be taken that devaluation should not cause
rise in internal price level.

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(vi) Depreciation: Like devaluation, depreciation leads to fall in external purchasing power
of home currency. Depreciation occurs in a free market system wherein demand for foreign
exchange far exceeds the supply of foreign exchange in foreign exchange market of a
country.

USES OF BALANCE OF PAYMENT

 BOP of a country reveals its financial and economic status.

 BOP statement can be used as an indicator to determine whether the country’s

currency value is appreciating or depreciating.

 BOP statement helps the Government to decide on fiscal and trade policies.

 It provides important information to analyze and understand the economic dealings of

a country with other countries.

 By studying its BOP statement and its components closely, one would be able to
identify trends that may be beneficial or harmful to the economy of the county and
thus, then take appropriate measures.

INTRODUCTION TO AGRICULTURE IN INDIA

Agriculture in India is the means of livelihood of almost two-thirds of the workforce in the
country.

It employees nearly 50% of total population and 42% of total geographical area. It is
therefore considered to be the most important sector of India Economy.

PRODUCTION: Production is the process of combining units of inputs (natural, man-made

and human resources) to create output (goods and services) capable of satisfying human
needs and wants.
Production is the act of creating output, goods or services which have values and contributes
to the utility of individuals. This may include factors of production other than labour. The
factors of production are the inputs to the production process. The finished goods are the
output. The input determines the quality of the output product. Input is the starting point and
output is the end point of the production process, and such an input-output relationship is
called as the production function.
There are three basic factors of production: land, labour and capital. All three are required in
combination at a time to produce a commodity. In economics, production means creation or
an addition of utility. Factors of production are any commodities or services used to produce
goods or services. These factors are specifically referred to as primary factors. Energy and

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material are referred to as secondary factors. The primary factors facilitate production but
neither become part of the product nor become significantly transformed by the production
process. Human capital and entrepreneurship are also considered as factors of production.
PRODUCTIVITY: Productivity is the increase of output from each unit in the production
process. There are several ways of achieving productivity. These include the training of
workers and the introduction of machinery and equipment into the production process.
Productivity is the ratio of output to input in production. It is a measure of the efficiency of
production. It is related to the utilization or the use of resources to produce goods. It increases
the output. It is the increase of output from each unit in the production process. If inputs
remain the same and the production of output increases, then there is a rise in the level of
productivity. If the output rises in a greater proportion than the increase in the input, there is
still a proportionate rise in the level of productivity. However, if the output rises at a lower
rate than the input, then there will be a fall in the productivity, even though there is an
increase in production on the whole. Higher productivity results in a lower cost per unit of
output resulting in higher levels of profit for a company. Thus, it refers to efficient utilization
of resources. High productivity increases the economic well-being. It increases the income
and the standard of living of the people. It brings in money for the company.

Productivity has the following advantages:

 It emphasizes the efficient utilization of all the factors of production which are scarce
universally. It attempts to eliminate wastage.
 It facilitates the comparison of the performance of a company to its competitors or
related firms, in terms of aggregate results and of major components of performance.
 It enables the management to control the performance of the company by identifying
the comparative benefits arising out of the use of different inputs.

Differences between Production and Productivity

Production Productivity

Meaning It is defined as the act of It is defined as the rate at

manufacturing goods for which goods are produced.
their use or sale.

Use It is the actual process of It is the utilization of

conversion. resources to form goods.

Work done It is the amount of work done It is the amount of work one
or manufactured that is the gets for a certain spending
output. cost.

Measurement It is the measure of produced It is the measure of

goods efficiency.

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Yield of Major Food Crops in India Since 1951
Prior to Green revolution, the yield per hectare in India was low for all important crops. The
introduction of modern agricultural practices and HYV seeds; there was a jump in the
productivity of most food grains. The following table shows the per hectare yield of main
food crops since 1950-51:

Crop 1950-51 1964-65 2010-11

Rice 7.1 10.8 22.4
Wheat 6.6 9.1 29.4
Coarse Cereals 4.3 5.1 14.18
Pulses 4.0 5.2 6.9

Main Features of Indian Agriculture

(i) Source of livelihood: Agriculture is the main occupation. It provides employment to

nearly 61% persons of total population. It contributes around 18 – 20 % to national income.

(ii) Dependence on monsoon: Agriculture in India mainly depends on monsoon. If monsoon

is good, the production will be more and if monsoon is less than average then the crops fail.
Sometimes floods play havoc with our crops. As irrigation facilities are quite inadequate, the
agriculture depends on monsoon.

(iii) Labour intensive cultivation: Due is increase in population the pressure on land
holding increased. Land holdings get fragmentated and subdivided and become
uneconomical. Machinery and equipment can not be used on such farms.

(iv) Under employment: Due to inadequate irrigation facilities and uncertain rainfall, the
production of agriculture is less, farmers find work a few months in the year. Their capacity
of work cannot be properly utilised. In agriculture there is under employment as well as
disguised unemployment.

(v) Small size of holdings: Due to large scale sub-division and fragmentation of holdings,
land holding size is quite small. Average size of land holding was 2.3 hectares in India while
in Australia it was 1993 hectares and in USA it was 158 hectares.

(vi) Traditional methods of production: In India methods of production of agriculture

along with equipment are traditional. It is due is poverty and illiteracy of people. Traditional
technology is the main cause of low production.

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(vii) Low Agricultural production: Agricultural production is low in India. India produces
27 Qtls. wheat per hectare. France produces 71.2 Qtls per hectare and Britain 80 Qtls per
hectare. Average annual productivity of an agricultural labourer is 162 dollars in India, 973
dollars in Norway and 2408 dollars in USA.

(viii) Dominance of food crops: 75% of the cultivated area is under food crops like Wheat,
Rice and Bajra, while 25% of cultivated area is under commercial crops. This pattern is cause
of backward agriculture.

Role of Agriculture in Economic Development

1. Contribution to National Income: The lessons drawn from the economic history of many
advanced countries tell us that agricultural prosperity contributed considerably in fostering
economic advancement. It is correctly observed that, “The leading industrialized countries of
today were once predominantly agricultural while the developing economies still have the
dominance of agriculture and it largely contributes to the national income. In India, still 28%
of national income comes from this sector.

2. Source of Food Supply: Agriculture is the only major source of food supply as it is
providing regular supply of food to such a huge size of population of our country. It has been
estimated that about 60 per cent of household consumption is met by agricultural products.

3. Pre-Requisite for Raw Material: Agricultural advancement is necessary for improving

the supply of raw materials for the agro-based industries especially in developing countries.
The shortage of agricultural goods has its impact upon on industrial production and a
consequent increase in the general price level. It will impede the growth of the country’s
economy. The flour mills, rice shellers, oil & dal mills, bread, meat, milk products sugar
factories, wineries, jute mills, textile mills and numerous other industries are based on
agricultural products.

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4. Source of Livelihood: In India over two-thirds of our working population are engaged
directly on agriculture and also similarly depend for their livelihood. According to an
estimate, about 66 per cent of our working population is engaged in agriculture at present in
comparison to that of 2 to 3 per cent in U.K. and U.S.A., 6 per cent in France and 7 per cent
in Australia. Thus the employment pattern of our country is very much common to other
under-developed countries of the world.

5. Employment Opportunities for rural population: Agriculture sector provides

employment to nearly 58.4 per cent of the country’s workforce and is the single largest
private sector occupation particularly in rural area.

6. Provision of Surplus: The progress in agricultural sector provides surplus for increasing
the exports of agricultural products. In the earlier stages of development, an increase in the
exports earning is more desirable because of the greater strains on the foreign exchange
situation needed for the financing of imports of basic and essential capital goods.

7. Contribution to Capital Formation: Underdeveloped and developing countries need

huge amount of capital for its economic development. In the initial stages of economic
development, it is agriculture that constitutes a significant source of capital formation.

8. Helpful to Reduce Inequality: In a country which is predominantly agricultural and

overpopulated, there is greater inequality of income between the rural and urban areas of the
country. To reduce this inequality of income, it is necessary to accord higher priority to
agriculture. The prosperity of agriculture would raise the income of the majority of the rural
population and thus the disparity in income may be reduced to a certain extent.

9. Creation of Infrastructure: The development of agriculture requires roads, market yards,

storage, transportation railways, postal services and many others for an infrastructure creating
demand for industrial products and the development of commercial sector.

10. Source of Government Revenue: Agriculture is one of the major sources of revenue to
both the Central and State Governments of the country. The Government is getting a
substantial income from rising land revenue. Some other sectors like railway, roadways are
also deriving a good part of their income from the movement of agricultural goods.

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Major Agricultural Problems of India

1. Small and fragmented land-holdings: The seemingly abundance of net sown area of
141.2 million hectares and total cropped area of 189.7 million hectares (1999-2000) pales
into insignificance when we see that it is divided into economically unviable small and
scattered holdings.

2. Seeds: Seed is a critical and basic input for attaining higher crop yields and sustained
growth in agricultural production. Distribution of assured quality seed is as critical as the
production of such seeds. Unfortunately, good quality seeds are out of reach of the majority
of farmers, especially small and marginal farmers mainly because of exorbitant prices of
better seeds.

3. Manures, Fertilizers and Biocides: Indian soils have been used for growing crops over
thousands of years without caring much for replenishing. This has led to depletion and
exhaustion of soils resulting in their low productivity. The average yields of almost all the
crops are among t e lowest in the world. This is a serious problem which can be solved by
using more manures and fertilizers.

4. Irrigation: Although India is the second largest irrigated country of the world after China,
only one-third of the cropped area is under irrigation. Irrigation is the most important
agricultural input in a tropical monsoon country like India where rainfall is uncertain,
unreliable and erratic India cannot achieve sustained progress in agriculture unless and until
more than half of the cropped area is brought under assured irrigation.

5. Lack of mechanisation: In spite of the large scale mechanisation of agriculture in some

parts of the country, most of the agricultural operations in larger parts are carried on by
human hand using simple and conventional tools and implements like wooden plough, sickle,
etc.

6. Soil erosion: Large tracts of fertile land suffer from soil erosion by wind and water. This
area must be properly treated and restored to its original fertility.

7. Agricultural Marketing: Agricultural marketing still continues to be in a bad shape in

rural India. In the absence of sound marketing facilities, the farmers have to depend upon
local traders and middlemen for the disposal of their farm produce which is sold at throw-
away price.

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8. Inadequate storage facilities: Storage facilities in the rural areas are either totally absent
or grossly inadequate. Under such conditions the farmers are compelled to sell their produce
immediately after the harvest at the prevailing market prices which are bound to be low. Such
distress sale deprives the farmers of their legitimate income.

9. Inadequate transport: One of the main handicaps with Indian agriculture is the lack of
cheap and efficient means of transportation. Even at present there are lakhs of villages which
are not well connected with main roads or with market centres.

10. Scarcity of capital: Agriculture is an important industry and like all other industries it
also requires capital. The role of capital input is becoming more and more important with the
advancement of farm technology. Since the agriculturists’ capital is locked up in his lands
and stocks, he is obliged to borrow money for stimulating the tempo of agricultural
production.

NATIONAL AGRICULTURAL POLICY 2000

The first ever National Agriculture Policy was announced on 28th July, 2000. The formulation
of Agriculture Policy had been under consideration of the Government for the last few years
as a comprehensive National Agriculture Policy was absolutely essential to build on the
inherent strength of the agriculture and allied sectors to address the constraints and to make
optimal use of resources and opportunities emerging as a result of advancement in science
and technology and emerging of a new economic regime.

National Agriculture Policy seeks to actualize vast untapped growth potential of Indian
Agriculture, strengthen rural infrastructure to support faster agricultural development,
promote value addition, accelerate the growth of agro-business create employment in rural
areas, secure affair standard of living for the farmers and agricultural workers and their
families, discourage migration to urban areas and face the challenges arising out of economic
liberalization and globalization over the next two decades.

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NEW AGRICULTURAL STRATEGY

FEATURES OF NEW AGRICULTURAL STRATEGY

1. Consolidation of Land Holdings: Land ownership rights to the tillers and basic forward
outlook Punjab farmers were the basic reason for providing ground to the green revolution in
the northern India.

2. Improved Variety of Seeds: Agricultural revolution is primarily due to the miracle of

improved varieties of seeds which have increased yields per acre.

3. Greater Intensity of Cropping: The new agricultural strategy is not only concerned with
higher yield but also with greater intensity of cropping. Therefore, new crop rotations have
been made possible by developing short duration varieties of paddy, jowar, bajra and maize
which are suited to different agro-climatic conditions. In the same way, other crops like
barley, oilseed, potato and vegetables have also been considered for rotation.

4. Extension of Irrigation: In the areas, where new agricultural strategy is being applied,
irrigation facilities are speedily being expanded to assure the adequate water supply. During
the last 10-12 years, there has occurred a remarkable growth of tube-wells, pump-sets etc.

5. Modern Farm Machinery: Modern farm machinery like tractors, harvesters, pumping
sets, tube-well, etc. are being increasingly used and are replacing the bullocks. Being, time
saving, use of modern machinery in agriculture is conducive to multiple cropping. Because of
accuracy and timelines of use of inputs by machines, the costs have been reduced.

6. Role of Public Institutions: Several new public institutions like National Seeds
Corporation, Agro Industries Corporations, National Co-operative Development Corporation
etc. have been set up to promote services to the cultivators at door steps. Moreover, they have
been provided with sufficient funds to lend liberal loans to peasants to adopt latest farm
technology.

7. Package of Inputs: The main thrust of the new agricultural strategy is the application of
the package of improved practices. In other words, it aimed at making the cultivators to adopt
simultaneously all the elements needed for augmenting production. The main constituents of
the package practices are improved seed, fertilizers, plant protection measures and water use
etc.

8. Guaranteed Minimum Prices: The guaranteed minimum prices have been given due
recognition as an incentive to agricultural production. Support price policy for food-grains

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was adopted in 1964 throughout the country. In order to advice the govt. for suitable price
policies for agriculture, Agricultural Price Commission was set up in the subsequent years.
Similarly, Food Corporation of India was also set up to purchase food-grains.

9. Agricultural Research and Education: A number of measures have been adopted in this
direction of facilitate organisation and development of agricultural research. The Indian
Council of Agricultural Research was reorganised in 1965. Agricultural Universities have
been set up in most of the states which were conceived as combining the function of
education, research and extension.

10. Plant Protection Measures: As pests and diseases have been causing severe damage to
crops, plant protection has been considered another major component of new agricultural
strategy. This programme includes seeds treatment, intensive aerial and ground spraying
against insects, weed control and rodent control.

LAND REFORM

Meaning:

In a narrow sense, land reforms mean “the redistribution of property rights in land for the
benefit of small farmers and agricultural labourers”. In the broader sense, land reforms
include two types of institutional changes. One relates to agrarian relations and the other to
the size of the unit of cultivation.

A United Nations publication has defined land reforms as measures concerning the reform of
the land tenure only. All other measures are included in “agricultural reorganisation”.
According to Lipton, land reforms are only those reforms in land tenure which improve the
distribution of income among the persons affected by these measures.

Objectives:

Land reforms are agrarian reforms. These reforms are undertaken to attain some objectives in
the field of agriculture. The following are the major objectives of land reforms policy.

1. Increasing productivity: Increase in production constitutes the most important objective

of land reforms. In the Indian context land has been used as a ‘good’ in two ways, one as a
major source of making a living and the other as a source of making money. As a source of
living, it is essential that almost everyone should possess land. By a source of making money

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is meant a change in tenure in such a way that the resources are most efficiently utilized in
agriculture.

2. Ensuring Social Justice: So far as the Directive Principles of State Policy of our
Constitution is concerned, the property or resources of the community should be equally
distributed. Since land constitutes the main asset of the society, it should be distributed
equally. This would ensure social justice.

3. Attaining a planned growth: A self-sustaining planned growth can be attained through a

system of land reforms. Land reforms provide ownership rights to the cultivators. They come
in direct contact with the government. All plans and programmes made by the government
for the development of agriculture receive direct participation of the owner-peasants. Hence it
becomes easier for the planners to formulate and implement suitable policies for agrarian
reforms.

4. Providing incentives: If a farmer happens to be a farmer-in-tenancy, he has no incentive

to work hard in the field to increase productivity. This requires providing full guarantee to the
cultivator to get the full benefits from his labour and investment. The provisions of security
of tenancy, rent regulation and conferment of ownership provide a congenial atmosphere in
which the farmers feel sure of reaping the fruits of their labour.

5. Creating Employment Opportunities: An important objective of land reforms is to

create employment opportunities in the rural sector. Land reforms ultimately lead to
redistribution of land holdings. Small farm holdings are made because of such distribution of
the existing cultivable lands among large numbers of farmers. Experiments have
demonstrated that small holdings create more employment opportunities than large holdings
as per hectare basis.

Causes of failure of land reforms

1. Deficiency of Reliable Records: The absence of concurrent evaluation and reliable (up-to-
date) records is the biggest hurdle for the slow progress of land reforms. After forty five years
of land reforms, the reporting system is weak and irregular. There has been no systematic
review of progress at periodic intervals. No efforts are being made to make comprehensive
concurrent evaluation. Wrong records are maintained with deliberate mala-fide motives.
Therefore, it is not possible to identify obstacles in the way of implementation of land reform.

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2. Lack of Financial Support: Lack of financial support is still another hindrance in the way
of land reforms. No separate allocation of funds was made in the Five Year Plans for
financing land reforms. Many- states declined to include even expenditure of such essential
items like the preparation of survey, record in their plan budget. Thus, lack of adequate
budget support in any form is largely responsible for the poor results of its implementation.

3. Lack of Integrated Approach: Another reason for the failure of land reforms in India was
the lack of integrated approach such as abolition of intermediary tenures, tenancy reforms and
ceiling of holdings etc. They lack proper co-ordination in the programmes. It means that land
reform programmes has been viewed in isolation from the mainstream of economic
development programme.

4. Improper Implementation: The responsibility for the implementation of land reforms

rests with the revenue administration in almost all the states. To implement land reforms is
only one among its many functions. On the other hand, high priority was allotted for the
maintenance of public order collection of land revenue and other regulatory functions. Thus,
land reforms do not get required attention.

5. Legal Hurdles: Legal problems and constraints also stand in the way of implementation of
land reforms in the country. The Task Force has specifically stated that, “Whatever little
chance of success was there, has completely incorporated because of the loopholes in the
laws and protracted litigation.” The land reform laws were defective in many ways; some
loopholes were deliberately built in, while others were the results of poor drafting.

6. Lack of Pressure from Below: The Task Force of Planning Commission has observed
“except in few scattered and localized pockets, practically all over the country the poor
peasants and agricultural workers are passive, un-organized and non co-operative.” The
fundamental problem lies in the fact that the beneficiaries of land reforms do not constitute a
homogeneous social or economic group. In such circumstances, it is little wonder that there
has been no pressure from below for its effective implementation of land reforms.

7. Lack of Political Will: The Task Force was of the view that there was lack of political
will in the enactment of progressive measures of land reforms and their efficient
implementation. Efficient implementation requires far hard political decisions and effective
political support, direction and control. The Task Force has correctly pointed out “the task of
political will is amply demonstrated by the large gaps between policy and legislation and

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between law and implementation.” Thus, it is admitted fact that political will is not
forthcoming due to the existence of democratic political power structure of the country.

8. Indifferent Attitude of the Administration: In all the states, the whole responsibility for
the implementation or measures of land reforms is with the revenue administration. But it is a
sorry state of affair that the attitudes of the administrative staff is quite indifferent and even
their behaviour is cold. Besides the village functionaries like patwaries, Karamcharies,
Karnams, Sombogs etc. are largely under the influence of landlords. They have, in fact,
proved non-co-operative.

Remedial measures for land reforms in India

(i) Abolition of intermediaries: Abolition of zamindari and similar intermediary tenures

during 1950-55 essentially involved removal of intermediary levels or layers of various
amorphous and parasitic groups in land between the State and the actual cultivators.
However, such abolition of intermediaries involved compensation to the owners of land.

As a result of this measure, about 2.5 crore farmers were brought into direct relationship with
the State. This facilitated distribution of 61 lakh hectares of land to landless farmers.

(ii) Tenancy Reforms:

Tenancy legislations have taken three forms:

a) Regulation of rent,

b) Providing security of tenure, and

c) Conferring rights of ownership for tenants.

Rent payable to the landowners should not exceed one-fifth to one-fourth of the gross
produce of land. Tenancy Legislations have made it clear that in no case the tenants can be
evicted except only in the situation where landlords themselves want to resume
cultivation. Avery important aspect of land reform is the conferment of ownership rights to
tenants in respect of non-resumable land.

(iii) Ceiling on Landholdings: To reduce the existing disparities in the pattern of land-
ownership and make some land available for distribution to landless agricultural workers, the
Second Plan (1956-1961) recommended the imposition of ceilings on agricultural holdings.

(iv) Consolidation of Landholdings: Fragmented and subdivided landholdings as well as

small-sized holdings have made Indian agriculture un-remunerative. So consolidation of

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these lands is necessary to boost efficiency and economy in India’s agriculture. It has been
completed in the states of Punjab, Haryana and Uttar Pradesh.

Till December 2001, nearly, 163.3 lakh acres of land or 1 /3rd of the total cultivated area
have been consolidated.

GREEN REVOLUTION

Green Revolution Definition:

(i) a large increase in crop production in developing countries achieved by the use of artificial
fertilizers, pesticides, and high-yield crop varieties.

(ii) a dramatic rise in concern about the environment in industrialized countries.

Green Revolution in India

When the British left India in 1947, India continued to be haunted by memories of the Bengal
Famine. It was therefore natural that food security was one of the main items on free India's
agenda. This awareness led, on one hand, to the Green Revolution in India and, on the other,
legislative measures to ensure that businessmen would never again be able to hoard food for
reasons of profit.

It was mainly found by M.S. Swaminathan. This was part of the larger Green revolution
endeavor initiated by Norman Borlaug, which leveraged agricultural research and technology
to increase agricultural productivity in the developing world. The Green Revolution within
India commenced in 1958 that led to an increase in food grain production, especially in
Punjab, Haryana, and Uttar Pradesh. Major milestones in this undertaking were the
development of high-yielding varieties of wheat and rust resistant strains of wheat.

The Green Revolution, spreading over the period from1967/68 to 1977/78, changed India’s
status from a food-deficient country to one of the world's leading agricultural nations. Until
1967 the government largely concentrated on expanding the farming areas. But the
population was growing at a much faster rate than food production. This called for an
immediate and drastic action to increase yield. The action came in the form of the Green
Revolution. The term ‘Green Revolution’ is a general one that is applied to successful
agricultural experiments in many developing countries. India is one of the countries where it
was most successful.

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There were three basic elements in the method of the Green Revolution:

a) Continuing expansion of farming areas

b) Double-cropping in the existing farmland

c) Using seeds with improved genetics

The area of land under cultivation was being increased from 1947 itself. But this was not
enough to meet the rising demand. Though other methods were required, the expansion of
cultivable land also had to continue. So, the Green Revolution continued with this
quantitative expansion of farmlands.

Double cropping was a primary feature of the Green Revolution. Instead of one crop season
per year, the decision was made to have two crop seasons per year. The one-season- per-year
practice was based on the fact that there is only one rainy season annually. Water for the
second phase now came from huge irrigation projects. Dams were built and other simple
irrigation techniques were also adopted.

Using seeds with superior genetics was the scientific aspect of the Green Revolution. The
Indian Council for Agricultural Research (which was established by the British in 1929) was
reorganized in 1965 and then again in 1973. It developed new strains of high yield variety
seeds, mainly wheat and rice and also millet and corn.

The Green Revolution was a technology package comprising material components of

improved high yielding varieties of two staple cereals (rice and wheat), irrigation or
controlled water supply and improved moisture utilization, fertilizers, and pesticides, and
associated management skills.

Some of the important components of the green revolution in India:

i. High Yielding Varieties (HYV) of seeds.

ii. Irrigation - (a) surface and (b) ground.

iii. Use of fertilizers (chemical).

iv. Use of Insecticides and Pesticides.

v. Command Area Development (CAD).

vi. Consolidation of holdings.

vii. Land reforms.

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viii. Supply of agricultural credit.

ix. Rural electrification.

x. Rural Roads and Marketing.

xi. Farm Mechanisation.

xii. Agricultural Universities.

Benefits

Thanks to the new seeds, tens of millions of extra tonnes of grain a year are being harvested.
The Green Revolution resulted in a record grain output of 131 million tonnes in 1978/79.
This established India as one of the world's biggest agricultural producers. Yield per unit of
farmland improved by more than 30% between1947 (when India gained political
independence) and 1979. The crop area under high yielding varieties of wheat and rice grew
considerably during the Green Revolution.

The Green Revolution also created plenty of jobs not only for agricultural workers but also
industrial workers by the creation of related facilities such as factories and hydroelectric
power stations.

MAJOR ECONOMIC IMPACT OF GREEN REVOLUTION IN INDIA:

1. Increase in Agricultural Production: The introduction of Green Revolution in 1967-68

has resulted in phenomenal increase in the production of agricultural crops especially in food-
grains. From 1967 onwards, the Green Revolution aimed at bringing about a Grain
Revolution.

2. Prosperity of Farmers: With the increase in farm production the earnings of the farmers
also increased and they became prosperous. This has, especially, been the case with big
farmers having more than 10 hectares of land.

3. Reduction in import of food-grains: The main benefit of Green Revolution was the
increase in the production of food-grains, as a result of which there was a drastic reduction in
their imports. We are now self sufficient in food-grains and have sufficient stock in the
central pool. Sometimes we are in a position to export food-grains also.

4. Capitalistic Farming: Big farmers having more than 10 hectares of land have tended to
get the maximum benefit from Green Revolution technology by investing large amount of

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money in various inputs like HYV seeds, fertilizers, machines, etc. This has encouraged
capitalistic farming.

5. Ploughing back of profit: The introduction of Green Revolution helped the farmers in
raising their level of income. Wiser farmers ploughed back their surplus income for
improving agricultural productivity. This led to further improvement in agriculture.
According to a study conducted by Punjab Agriculture University, Ludhiana farmers plough
back about 55 per cent of their income for agricultural progress.

6. Industrial Growth: Green Revolution brought about large scale farm mechanisation
which created demand for different types of machines like tractors, harvestors, threshers,
combines, diesel engines, electric motors, pumping sets, etc. Besides, demand for chemical
fertilizers, pesticides, insecticides, weedicides, etc. also increased considerably.

7. Rural Employment: While on one hand, large scale unemployment was feared due to
mechanization of farming with the introduction of Green Revolution technology in India,
there was an appreciable increase in the demand for labour force due to multiple cropping
and use of fertilizers.

8. Change in the Attitude of Farmers: The Indian farmer had remained illiterate, backward
and traditional and had been using conventional methods of cultivation since the early times.
But Green Revolution has brought about a basic change in his attitude towards farming. The
way he has readily adopted the Green Revolution technology has exploded the myth that the
Indian farmer is basically tradition bound and does not use new methods and techniques.

SHORTCOMINGS OR WEAKNESSES OF GREEN REVOLUTION

Following are some of basic weaknesses of Green Revolution

(i) More inequality among farmers (Inter-personal inequalities): The new technology
requires a huge amount of investment which can be only, afforded by the big farmers. Hence,
these farmers are getting the absolute benefits of the green revolution and became
comparatively more rich than farmers. This increases inequality in rural India

(ii) Regional inequality: Benefits of the new technology remained concentrated in wheat
growing area since green revolution remained limited to wheat for a number of years. These
were thy regions of Punjab, Haryana and Western Uttar Pradesh. On account of the above
reasons new agricultural strategy has led to an increase in regional inequalities.

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(ii) The Question of Labour Absorption: There is a general consensus that the adoption of
new technology had reduced labour absorption in agriculture. The uneven regional growth
was mainly responsible for the low absorption of labour within agriculture. The growth of
output was also slow to generate adequate employment opportunities. The sudden rise in the
demand for labour in these areas induced mechanisation and labour-saving practices in
general.

(iv) Undesirable Social Consequences: Some micro level socio-economic studies of green
revolution areas have revealed certain undesirable social consequences of the green
revolution. Many large farmers have evicted tenants as they now find it more profitable to
cultivate land themselves.

(v) Health Hazards: The health hazards of the new technology can also not be lost sight of.
Increased mechanization that has accompanied the modernisation of farm technology in
green revolution areas carries with it the risk of incapitation due to accidents. The attitude of
the Government towards the problems of treatment and rehabilitation of victims of accidents
on farm machines is that of total ambivalence. Meagre compensation is provided to victims.

(vi) Change in Attitudes: A healthy contribution of green revolution is the change in the
attitudes of fanners in areas where the new agricultural strategy was practised. Increase in
productivity in these areas has enhanced the status of agriculture from a low level subsistence
activity to a money- making activity. The desire for better farming methods and better
standard of living is growing up.

AGRICULTURAL PRICE POLICY IN INDIA

The primary goal of Indian agricultural policy is to maintain a reasonable link between
agricultural grain prices and non-food grain prices, as well as between agricultural
commodities so that the terms of trade between the aforementioned areas of the economy do
not deteriorate dramatically.

Agricultural Price Policy in India has been developed by the government for agricultural
products to ensure that farmers receive fair prices to encourage or motivate them to spend
more on agriculture. Keeping in mind, the government announces Minimum Support Prices
(MSP) for major agricultural products every year. The government provides food grains to
the BPL families through the public distribution system. These prices are fixed after
consulting the Commission for Agricultural Costs and Prices (CACP).
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The initial price policy at the dawn of Independence was, to a large extent, based on the
plethora of controls exercised during the Second World War. It included rigid controls on the
movement of crops from one State to the other, procurement of food grains through a
compulsory levy on producers and millers, open market purchases, and rationing in
practically all the States. Following the recommendation of the Foodgrains Policy Committee
of 1947 for progressive decontrol, restrictions were relaxed. However, a food crisis appeared
in 1948, and food prices rose substantially. Accordingly, controls were introduced.

On the recommendations of the Foodgrains Enquiry Committee, 1957, calling for 'social
control over the wholesale trade in food grains' and its subsequent endorsement by the
National Development Council in November 1958, the Government of India experimented
with State trading in food grains in April 1959. According to this scheme, state trading was to
be confined to two main commodities - wheat and rice. However, the scheme ran into
difficulties since it was put into practice in a haphazard way without taking cognizance of
economic forces.' For instance, procurement prices for wheat were fixed at much lower levels
than those dictated by the forces of demand and supply.

The Commission of Agricultural Costs and Prices (CACP) while recommending prices
takes into account important factors, such as:

I. Cost of production

II. Changes in input prices

III. Input/output Price Parity

IV. Trends in market prices

V. Inter-crop Price Parity

VI. Demand and supply situation

VII. Effect on Industrial Cost Structure

VIII. Effect on the general price level

IX. Effect on the cost of living

X. International market price situation

XI. Parity between prices paid and prices received by farmers (Terms of Trade)

Advantages of Minimum Support Price (MSP):

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To secure the interests of the farmers as also the need of self-reliance, the government has
been announcing the minimum support price for 24 major crops. The main objectives f the
MSP are:

1. To prevent fall in the price in the situation of over production.

2. To protect the interests of the farmers by ensuring them a minimum price for their crops
in the situation of a price fall in the market.

3. To meet the domestic consumption requirement

4. To provide price stability in the agricultural product

5. To ensure a reasonable relationship between prices of agricultural commodities and

manufactured goods

6. To remove the price difference between two regions or the whole country.

7. To increase the production and exports of agricultural produce.

8. To provide raw materials to the different industries at reasonable prices in the whole
country.

Disadvantages of the Minimum Support Price:

1. To increase the income of the farmers, the poor of the country have to pay more. This
practice will create the problem to allocate inefficiency in the country.

2. Subsidizing farmers through higher product prices is an inefficient method because it

penalizes the consumer with higher prices. Also, it means large farmers will benefit the
most. They have received more than they need but small farmers are still struggling.

3. Farmers use fertilizers in huge quantities to increase their production but it creates
problems for those people who do not get benefits from this increment in production.

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FOOD PROBLEMS IN INDIA

India has been facing food problems since long period. During Second World War India
experienced a severe food crisis leading to a phenomenal increase in the prices of foodgrains.
Again in 1943, Bengal faced a serious Agriculture and its Development in India famine
where nearly 3.5 million people died out of starvation.

Factors Responsible for Food Problem in India:

(i) High Rate of Population Growth: The population of India is increasing at a very high
rate. The annual average growth rate of population in India has declined slightly from -2.5
per cent during the decade 1961-71 and 1971-81 to 2.1 percent in 1981-91 and then to 1.9 per
cent in 1991-2001.

The size of population has become more than double during the post-independence period
which has raised the aggregate demand for foodgrains significantly. Thus, this ever
increasing size of population is responsible for the persisting food problem in the country.

(ii) High Marginal Propensity to Consume: Due to acute poverty the marginal propensity
to consume of the people of India is very high. This is mainly due to high income elasticity of
demand for food articles. With the increase in money income, the demand for food articles of
average Indian is increasing rapidly leading to a huge pressure in the food market.

(iii) Inadequate Increase in the Production of Foodgrains: In the pre-green revolution

period, the production of foodgrains in India was totally inadequate. It is only due to adoption
of new agricultural strategy the production of foodgrains has reached the level of 233.9
million tonnes in 2008-09. But considering the high rate of growth of population to (2.5 per
cent per annum) this rate of increase in foodgrains production is totally inadequate.

Thus, the per capita net availability of foodgrains has failed to increase substantially as it has
increased marginally from 494.4 grams per day in 1965 to 509.9 grams per day in 1991.

(iv) Hoarding of Foodgrains: There is a continuous tendency on the part of traders in India
to hoard foodgrains and to accentuate the shortage of foodgrains in order to push up the
prices for reaping extraordinary profit. Thus, this speculation and hoarding has created
artificial crisis of foodgrains in the country.

(v) Increase in Farm Consumption: In India the farm consumption of foodgrains is

increasing with the increase in agricultural output. Thus, due to this increasing home
consumption the marketable surplus of foodgrains could not increase substantially.

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(vi) Corrupt Administrative Practices: To improve the food situation in the country, the
Government has imposed various measures like price controls, rationing, zoning, surprise
checks etc. But as the administrative machinery in India is totally corrupt, these measures
failed to provide any benefit to the general masses of the country.

FOOD POLICY OF GOVERNMENT OF INDIA

Food policy of Government of India Soon after independence, the government took the
problem of shortage of food grains seriously. Several important measures have been taken by
government to solve this problem. These measures may be enumerated as follows:

1. Increase in Production of Food grains by Green Revolution:

Agricultural development has been accorded top priority in almost all the Five Year Plans.
Several programmes have been launched to increase agricultural production and productivity
such as intensive farming, multi - crop programme, development of high yielding varieties of
seeds, intensive use of fertilizers. As a result of these efforts, production of food grains has
increased from 50.8 million tones in 1950-51 to 291.95 million tones in 2019-2020.

2. Import of Food grains : To meet the shortage of food grains, the government has been
importing food grains from time to time. 48 lakh tonnes of food grains were imported in 1951
which increased to 103 lakh tonnes in 1966. Since 1996, the imports have been almost nil.

3. Procurement of food grains: Government adopted the system of procurement of food

grains. Under the system, government procures food grains from market every year. For this
purpose, procurement prices or minimum support prices are announced by government every
year for all the important food grains and all the government purchases are made at these
prices. It helps in protecting farmers against the malpractices of traders and commission
agents.

4. Public Distribution of Food grains : Government adopted public distribution system to

ensure fair distribution of food grains at controlled prices. Under the system, fair price shops
are opened. Each such shop is envisaged to serve a population of about 2000. As of now
(2018-19), there were about 5.00 lakh fair price shops (Ration shops) in the country. These
shops supply rice, wheat, sugar, edible oils and kerosene to people in certain quantity at
controlled prices.

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5. Buffer Stock Scheme: Government started a scheme of maintaining buffer stock of
important food grains to ensure their regular supply throughout the year. Whenever there is a
rise in their prices, government releases them from buffer stock to stabilize prices. Buffer
stock operations are normal these days and they have become a normal part of the food policy
of Government of India.

Establishment of Specific Institutions: A number of specific institutions have been

established by government to promote agricultural production and productivity and to ensure
regular supply and fair distribution of food grains. Important institutions are: National Seeds
Corporation, Agro-industries Corporation, Agricultural Prices Commission, Food
Corporation of India, Fertilizer Corporation of India, etc.

Agricultural Research & Development: Government is taking serious steps to promote

agricultural research and development. A number of agricultural universities and Indian
Council of Agricultural Research (ICAR) have been established to undertake research
activities.

NATIONAL FOOD SECURITY ACT 2013

 The National Food Security Act, 2013 (NFSA 2013) converts into legal entitlements
for existing food security programmes of the Government of India.

 It includes the Midday Meal Scheme, Integrated Child Development Services scheme
and the Public Distribution System.

 The Midday Meal Scheme and the Integrated Child Development Services Scheme are
universal in nature whereas the PDS will reach about two-thirds of the population
(75% in rural areas and 50% in urban areas).

 Under the provisions of the bill, beneficiaries of the Public Distribution System (or,
PDS) are entitled to 5 kilograms (11 lb) per person per month of cereals at the
following prices:

 Rice at Rs. 3.00 /per kg

 Wheat at Rs. 2.00 per kg

 Coarse grains (millet) at Rs. 1.00 per kg.

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WORLD BANK

Founded in 1944 at the UN Monetary and Financial Conference (commonly known as the
Bretton Woods Conference), which was convened to establish a new, post-World War II
international economic system, the World Bank officially began operations in June 1946. Its
first loans were geared toward the postwar reconstruction of western Europe. Beginning in
the mid-1950s, it played a major role in financing investments in infrastructural projects in
developing countries, including roads, hydroelectric dams, water and sewage facilities,
maritime ports, and airports.

World Bank Group – Basics

The World Bank Group is an international partnership comprising 189 countries and five
constituent institutions that works towards eradicating poverty and creating prosperity.

The five development institutions under the World Bank Group are:

1. International Bank for Reconstruction and Development (IBRD)

2. International Development Association (IDA)

3. International Finance Corporation (IFC)

4. Multilateral Guarantee Agency (MIGA)

5. International Centre for the Settlement of Investment Disputes (ICSID)

Objectives of World Bank

1. To provide long-run capital to member countries for economic reconstruction and

development.

2. To induce long-run capital investment for assuring Balance of Payments (BoP) equilibrium
and balanced development of international trade.

3. To provide guarantee for loans granted to small and large units and other projects of
member countries.

4. To ensure the implementation of development projects so as to bring about a smooth

transference from a war-time to peace economy.

5. To promote capital investment in member countries by the following ways; (a) To provide
guarantee on private loans or capital investment. (b) If private capital is not available even

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after providing guarantee, then IBRD provides loans for productive activities on considerate
conditions.

Functions of World Bank:

1. World Bank provides various technical services to the member countries. For this purpose,
the Bank has established “The Economic Development Institute” and a Staff College in
Washington.

2. Bank can grant loans to a member country up to 20% of its share in the paid-up capital.

3. The quantities of loans, interest rate and terms and conditions are determined by the Bank
itself.

4. Generally, Bank grants loans for a particular project duly submitted to the Bank by the
member country.

5. The debtor nation has to repay either in reserve currencies or in the currency in which the
loan was sanctioned.

6. Bank also provides loan to private investors belonging to member countries on its own
guarantee, but for this loan private investors have to seek prior permission from those
counties where this amount will be collected.

Purposes of the World Bank

1. It wants to create an environment that is a pro-investment.

2. Also, it wants to improve the omic stability by reducing poverty.

3. So, it is working towards achieving sustainable growth.

4. Increasing the opportunities for jobs and business in member nations which are
underdeveloped.

5. Through investment, it plans to promote the socio-economic status of the society.

6. Also, it wants to ensure that the judicial and legal systems are developed and individual
rights are protected.

7. Strengthing the government of its member nations by promoting education.

8. Combating corruption and to ensure that there are adequate training opportunities and
research facilities.

9. It wants to provide loans with low-interest rates and interest-free credits.

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INTERNATIONAL MONETARY FUND

Origin of IMF:

The origin of the IMF goes back to the days of international chaos of the 1930s. During the
Second World War, plans for the construction of an international institution for the
establishment of monetary order were taken up.

At the Bretton Woods Conference held in July 1944, delegates from 44 non-communist
countries negotiated an agreement on the structure and operation of the international
monetary system.

The Articles of Agreement of the IMF provided the basis of the international monetary
system. The IMF com-menced financial operations on 1 March 1947, though it came into
official existence on 27 December 1945, when 29 countries signed its Articles of Agreement
(its charter). Today (May 2012), the IMF has near-global membership of 188 member
countries. Virtually, the entire world belongs to the IMF. India is one of the founder-
members of the Fund.

Objectives of IMF:

I. To promote international monetary coope-ration through a permanent institution which

provides the machinery for consolation and collaboration on international monetary
problems.

II. To facilitate the expansion and balanced growth of international trade, and to contribute
thereby to the promotion and maintenance of high levels of employment and real income and
to the development of the productive resources of all members as primary objective of
economic policy.

III. To promote exchange stability, to maintain orderly exchange arrangements among

members, and to avoid competitive exchange depreciation.

IV. To assist in the establishment of a multila-teral system of payments in respect of current

transactions between members and in the elimination of foreign exchange restrictions which
hamper the growth of world trade.

V. To give confidence to members by making the general resources of the Fund tempo-rarily
available to them under adequate safeguards, thus providing them with the opportunity to

30
correct maladjustments in their balance of payments, without resor-ting to measures
destructive of national or international prosperity.

VI. In accordance with the above, to shorten the duration and lessen the degree of
dis-equilibrium in the international balance of payments of members.

Functions of IMF:

Regulatory Function: The Fund functions as the guardian of a code of rules set by its
(AOA— Articles of Agreement).

Financial Function: It functions as an agency of providing resources to meet short term and
medium term BOP disequilibrium faced by the member countries.

Consultative Function: It functions as a centre for international cooperation and a source of

counsel and technical assistance to its members.

The main function of the IMF is to provide temporary financial support to its members so that
‘fundamental’ BOP disequilibrium can be corrected. However, such granting of credit is
subject to strict conditionality. The conditionality is a direct consequence of the IMF’s
surveillance function over the exchange rate policies or adjustment process of members.

Main elements of IMF

(i) Application of the principles of market economy;

(ii) Opening up of the economy by removing all barriers of trade; and

(iii) Prevention of deflation.

The Fund provides financial assistance. It includes credits and loans to member countries
with balance of payments problems to support policies of adjustment and reform. It makes its
financial resources available to member countries through a variety of financial facilities.

It also provides concessional assistance under its poverty reduction and growth facility and
debt relief initiatives. It provides fund to combat money- laundering and terrorism in view of
the attack on the World Trade Centre of the USA on 11 September 2001.

In addition, technical assistance is also given by the Fund. Technical assistance consists of
expertise and support provided by the IMF to its members in several broad areas : the design
and implementation of fiscal and monetary policy; institution-building, the handling and
accounting of transactions with the IMF; the collection and retirement of statistical data and
training of officials.

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Organisation and Management of the IMF:

Like many international organisations, the IMF is run by a Board of Governors, an

Exe-cutive Board and an international staff. Every member country delegates a representative
(usually heads of central banks or ministers of finance) to the Board of Governors—the top
link of the chain of command. It meets once a year and takes decision on fundamental matters
such as electing new members or changing quotas.

The Executive Board is entrusted to the management of day-to-day policy decisions. The
Board comprises 24 executive directors who supervise the implementation of policies set by
the member governments through the Board of Governors.

The IMF is headed by the Managing Director who is elected by the Executive Board for a 5
year term of office.

Rights and obligations, i.e., the balance of Powers in the Fund is determined by a system of
quotas. Quotas are decided by a vote of the Board of Governors. Quotas or subscriptions
roughly reflect the importance of members in the world economy. It is the quota on which
payment obligation, credit facilities, and voting rights of members are determined.

Financial Structure of the IMF:

(i) Subscription or quota of the member nations, and

(ii) Borrowings.

Each member country is required to subscribe an amount equivalent to its quota. It is the
quota on which payment obligations, credit facilities, and voting right of members are
determined. As soon as a country joins the Fund, it is assigned a quota which is expressed in
Special Drawing Rights (SDRs). At the time of formation of the IMF, the quota of each
member was made up of 25 p.c. in gold or 10 p.c. of its net official holdings of gold and US
dollars (whichever was less). Now this has been revised.

The capital subscriptions or quota is now made up of 25 p.c. of its quota in SDRs or widely
accepted currencies (such as the US dollar, euro, the yen or the pound sterling) instead of
gold and 75 p.c. in country’s own currency. The size of the Fund equals the sum of the
subscriptions of members. Total quotas at the end-August 2008 were SDR 217.4 billion
(about $341 billion).

The Fund is authorised to borrow in special circumstances if its own resources prove to be
insufficient. It sells gold to member countries to replenish currency holdings. It is entitled to

32
borrow even from international capital market. Though the Articles of Agreement permit the
Fund to borrow from the private capital market, till today no such use has been made by the
IMF.

Special Drawing Rights (SDRs):

The Special Drawing Rights (SDRs) as an international reserve asset or reserve money in the
international monetary system was established in 1969 with the objective of alleviating the
problem of international liquidity. The IMF has two accounts of operation—the General
Account and the Special Drawing Account.

***************

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