ECB 401

Indian Economic Experiences & Policies

Semester – IV

Characteristics of Indian Economy

Basic features and Problems of Indian Economy
Features of Indian Economy
(i) Low per capita income
(ii) Heavy population pressure
(iii) Dependence of population on agriculture
(iv) Poverty and Inequality income distribution
(v) Higher level of capital formation which is a positive feature
(vi) Planned economy
(i) Low per capita income
• India is known in the world as a country with low per capita income. Per
capita income is defined as the ratio of national income over population. It
gives the idea about the average earning of an Indian citizen in a year, even
though this may not reflect the actual earning of each individual. India’s per
capita income for the year 2012-2013 is estimated at 39,168.
• This comes to about 3,264 per month. If we compare India’s per capita income
with other countries of the world then it can be seen that India is well behind
many of them. For example, the per capita income of USA is 15 times more
that of India while China’s per capita income is more than three times of
India.
(ii) Heavy population pressure
• India is world’s second largest populated country after China. As per 2011
census India’s population stands at more than 121 crores. It increased at a
rate of 1.03 percent during 1990-2001. The main cause of fast rise in India’s
population is the sharp decline in death rate while the birth rate has not
decreased as fast. Death rate is defined as the number of people died per
thousand of population while birth rate is defined as the number of people
taking birth per thousand of population.
• In 2010, the birth rate was 22.1 persons per one thousand population while
the death rate was only 7.2 persons per one thousand population. In fact it is a
sign of development. Low death rate reflects better public health system. But
high birth rate is a problem because it directly pushes the growth of
population.
• After 1921, India’s population increased very fast because birth rate declined
very slowly while death rate declined very fast. From 49 in 1921 the birth rate
declined to 22.1 in 2010 while during the same time period, death rate
declined from 49 to 7.2. Hence the population growth was very rapid in India.
• Heavy population pressure has become a major source of worry for India. It
has put burden on the public exchequer to mobilize enough resources to
provide public education, health care, infrastructure etc.
(iii) Dependence on Agriculture
• Majority of India’s working population depend on agricultural activities to
pursue their livelihood. In 2011 about 58 percent of India’s working
population was engaged in agriculture. In spite of this, the contribution of
agriculture to India’s gross domestic product is a little over 17 percent.
 • A major concern of agriculture in India is that productivity in this sector is
very less.
• There is heavy population pressure on land to sustain huge number. Due to
population pressure on land the per capita availability of land area is very low
and not viable for extracting higher output. Two, since per capita land
availability is less, a majority of people are forced to become agricultural
labour working at low wages.
• Three, Indian agriculture suffers from lack of better technology and irrigation
facilities.
• Four, mostly people, who are not educated or not trained properly, are
engaged in agriculture. So it adds to low productivity in agriculture.
(iv) Poverty and inequality
• As per reports of government of India, in 2011-12 about 269.3 million people
in India were poor. This was about 22 percent of India’s population. A person
is termed poor if he/she is not able to consume the required amount of food to
get a minimum calorie value of 2400 in rural area and 2100 in urban area. For
this the person must earn the required amount of money as well to buy the
food items.
• The government has also estimated that the required amount of money is 816
in rural area and ` 1000 in urban area per head per month. This comes to
about ` 28 in rural area and ` 33 in urban area per head per day. This is called
poverty line. This implies that 269.9 million people of India were not able to
earn such little amount in 2011-12. In 2018, almost 8% of the world’s workers
and their families lived on less than US$1.90 per person per day (international
poverty line).
• Poverty goes with inequality in income and wealth distribution. Very few in
India posses materials and wealth while majority have control over no or very
little wealth in terms of land holding, house, fixed deposits, shares of
companies, savings etc.
• Only top 5 percent of households control about 38 percent of total wealth in
India while the bottom 60 percent of household has control over only 13
percent of the wealth. This indicates concentration of economic power in a
very few hand.
• Another issue linked to poverty is the problem of unemployment. One of the
most important reasons of poverty in India is that there is lack of job
opportunities for all the persons who are in the labour force of the country.
• Labour force comprises of the adult persons who are willing to work. If
adequate number of jobs are not created every year, the problem of
unemployment will grow.
• In India every year large number of people are added to the labour force due
to increase in population, increase in number of educated people, lack of
expansion of industrial and service sector at the required speed etc.
(v) Higher rate of capital formation or investment
• At the time of independence, one of the major problem of Indian economy was
deficiency in capital stock in the form of land and building, machinery and
equipment, saving etc.
• In order to continue the cycle of economic activities such as production and
consumption, a certain ratio of production must go towards saving and
investment.
 • However, the required ratio was never generated in the first four to five
decades after independence. The simple reason being higher consumption of
necessary items by the population of whom most happened to be poor and
lower middle income class.
• Collective household saving was very less due to this. Consumption of durable
items was also very less. But in recent years things have charged. Economists
have calculated that in order to support the growing population,
• India requires 14 percent of its GDP to be invested. It is encouraging to note
that the saving rate of India for the year 2011 stands at 31.7 percent. The ratio
of gross capital formation was 36.6 percent. This is possible because people
are now able to save in banks, consume durable goods and there has been
large scale investment taking place on public utilities and infrastructure.
(vi) Planned economy
• India is a planned economy. Its development process has been continuing
through five year plan since the first plan period during 1951-56. The
advantage of planning is very well known. Through planning the country sets
its priorities first and provides the financial estimates to achieve the same.
• Accordingly efforts are made to mobilise resources from various sources at
least cost. India has already completed eleven five year plan periods and the
twelfth plan is in progress. After every plan a review is made analysing the
achievements and short falls.
• Accordingly, things are rectified in the next plan. Today India is a growing
economy and recognised every where as a future economic power. The per
capita income of India is growing at a higher rate than before. India is seen as
a big market for various products. All these are possible due to planning in
India.
Basic Issues of the Indian Economy
Low Level of National Income and per Capita Income:
Economic growth of any country can be viewed from its level of national income and per
capita income. It is said that higher the level of national income, higher is the rate of eco-
nomic growth. India’s net national product (NNP) at factor cost in 1999-00—at current
prices—stood at Rs. 1,590,301 crores.
This amounts to saying that per capita income came to Rs. 16,047 per annum. Such low
per capita income implies that the standards of living of the vast majority of people are
miserably low. Even the basic necessities are beyond their means. Comparing India’s
per capita income with the other countries of the world, we find that India is one of the
poorest nations of the world.
In 2000-01, world’s one of the highest per capita income levels was attained by the
U.S.A. Its per capita income was equivalent to $34,260 dollars in 2000-01. India’s per
capita income at that time came to $460. It is true that national income figures of
different countries are not, strictly speaking comparable. Still India’s ranking in this re-
spect is at the bottom level. So India is as an underdeveloped (of less developed)
country.
Vast Inequality and Widespread Poverty:
Not only per capita income is low, but Indian economy is also marked by great
inequalities in the distribution of income and wealth. In a mixed capitalist economy,
inequalities are inevitable since the Constitution ensures ‘right to private property’. In
India, inequality is increasing overtime. The logical corollary of this inequality is mass
poverty. Nearly 60% of the total population share one-third of India’s national income
while only the rich 5% of the total population enjoys two-thirds of national income.
This inequality widens the problem of poverty. In 1951 -52, more than 50% of the total
population lived below the poverty line. Due to some economic progress the poverty
ratio has come down to about less than 37% in 2000. In short, Indian economy is still
threatened by the vicious circle of poverty. The failure to achieve a higher growth rate
has resulted in such a precarious situation. In fact, this is one of example of pitfalls
planning.
Predominance of Agriculture:
Less developed countries (LDCs) live mainly upon agriculture and extractive industries,
like mining, fisheries and forests. Although agriculture occupies a predominant position
in India, it is still backward. The predominance of agriculture is explained from the
view-point of sectoral composition of national income and occupational pattern. In
India, in 1951-52, 55.8% of GDP (at current price) came from agriculture and allied
activities or the so- called primary sector.
The contribution of industry and services were 15.2% and 29%, respectively. In 2000-
01, however, the contribution of the primary sector to GDP fell to about 26%. The
contributions of the secondary and tertiary sectors rose to 22% and 52%, respectively.
Thus, even after about 50 years of planning, agriculture alone contributes about one-
third of India’s national income. The occupational structure also tells a story of
predominance of the agricultural sector and the backwardness of the industrial sector.
In India, 64.2% of total population was engaged in agriculture and 70% people live on
the incomes from land in 2001.
Tremendous Population Pressure:
In LDCs, the rate of growth of population is very high. So far as the size of population is
concerned, India ranks second, next only to China. India’s population in 1999-00 about
102.7 crores. Since independence the growth rate of population in India was 2.2% per
annum, compared to less than 1% growth rate of population of developed countries?
According to World Bank, when the population of a country exceeds 2% per annum, the
country is said to be over-populated. High birth rate and low death rate are the two
causes of population explosion in India.
Massive Unemployment:
In LDCs, not only are natural resources under-utilised but also a massive wastage
occurs in manpower resources. Slow economic growth rate on the one hand and rapid
growth of population on the other hand has accentuated the problem of unemployment
in India.
Between July 1983 and April 1997, the number of unemployed in India increased from
5.9 million to 7 million while employment increased from 283.2 mn. to 416.4 mn. The
number of applicants on the live register of employment exchanges at the end of
December 1999 was 40.371 lakhs as against 36,300 lakhs in 1991 and 17,838 lakhs in
1981.
Not only this, Indian agriculture exhibits a considerable amount of underemployment
and disguised unemployment. In the urban areas also we find hidden unemployment. At
present, industrial sickness as also the exit policy of both private and public sector
enterprises are conjointly causing a sharp increase in the number of displaced workers.
It is somewhat tragic as well as paradoxical that despite huge investment made during
the plan period, unemployment problem has become more and more serious. This leads
to huge wastage of human resource.
Low Rate of Saving and Capital Formation:
As people in LDCs are poor their capacity to save is low. This results in a low rate of
capital formation. That is why development economists suggest that to break the
vicious circle of poverty it is necessary to push up the rate of investment. Since India is a
capital-poor country, capital per head is low. This scarcity of capital causes overall
backwardness of the Indian economy.
Other things remaining the same, nations that invest more in human and physical
capital tend to grow more rapidly than other countries having low rates of saving (and
capital formation).
No doubt capital investment is a significant factor in the process of transformation of an
economy—from an agrarian society to a highly industrialised nation. Investment plays
two distinct roles in the process of growth. Firstly, it enlarges an economy’s capacity to
produce goods and services and raise the productivity of resources. Secondly, it
increases, via multiplier effects, aggregate demand and national income. An increase in
national income raises the level of savings, thereby providing the finance for future
capital accumulation.
Vicious circle of poverty:
Some economists like Ragnar Nurkse argue that LDCs like India are caught in poverty
because they cannot generate sufficient savings to finance capital formation. They
believe that LDCs are caught in a vicious circle of underdevelopment.
Nurkse believed that a subsistence economy will remain as such because total output is
low, with little or no saving. Hence, after consumption takes place, there is no surplus
for capital accumulation without which there is little hope of increasing output.
The key to breaking the vicious circle is capital formation. If a country succeeds in
breaking out of the vicious circle, then the opposite effect can happen, in fact, a virtuous
circle; once the process of capital formation begins, output rises, and then income rises,
giving a larger surplus from which more savings can contribute towards investment and
capital accumulation.
Nations that manage to save and invest only a small portion of their income will be able
to grow slowly, if at all. Thus, according to Nurkse, the poverty of LDCs becomes self-
perpetuating poor societies are unable to save and invest. Since the rate of capital
formation is low, they are unable to eradicate their poverty.
The vicious circle of underdevelopment (poverty) refers to a pattern of low income and
low economic growth, which tends to perpetuate itself since the current consumption
demands of poor nations are low. In turn, the low investment rate retards future growth
of low income nations, causing poor nations like India to remain poor.
In 1950-51, net domestic savings stood at 5.5% of NDP. In 1999-00, it rose to 14.3% of
NDP.
This is still quite low by current standard. Net domestic capital formation increased
from 5.2% in 1950-51 to 15.5% in 1999-00.
Along with the low volume of physical capital, human capital formation is also low. As
per 1981 census, 43.6% of the total population at that time were illiterate. The literacy
rate has later (2001 census) gone up to about 65.4%. Illiteracy still acts as an
impediment to India’s economic development.
Use of Traditional Technology:
Due to illiteracy and lack of use of advanced or sophisticated technological institutions
we are forced to use primitive methods of technology whose productivity is low.
Though modern industrial sector employs advanced technology, village industries still
employ old and hackneyed methods—even in the age of modern science. This
technological dualism persists in LDCs like India. Truly speaking, low productivity of
Indian labour is explained in terms of low level of technology.
So the conclusion is that all the characteristics of LDCs are found in India. No doubt
during the planning era she has made progress in different directions. Still, considering
the needs of the country, it is inadequate. Indian economy is characterised by low per
capita income, widespread poverty, massive unemployment, gigantic rise in population,
and so on. So, India is an underdeveloped country. India is one of the poorest nations of
the world. Her position is worse compared to even some African countries!

Economic History of India

Introduction:
As India is going to be commemorating the 75th year of independence this year, it’s
relevant to look into the path the Indian economy has taken and how this journey has
helped India to reach its present state. The evolution of the Indian economy has seen its
share of ups and downs, economic crisis to double-digit growth and now eyeing
towards becoming a $ 5 trillion economy. The purpose of this discussion is to analyse
how much has India really achieved in the last 74 years in fulfilling the aspirations on
which it was founded.
State of the Economy at the Time of Independence:
• The ruthless exploitation under British colonial rule completely devastated
India’s economy. India’s population was subject to frequent famines, had one
of the world’s lowest life expectancies, suffered from pervasive malnutrition
and was largely illiterate. Cambridge historian Angus Maddison’s
work shows that India’s share of the world income went from 27% in 1700
AD (compared to Europe’s share of 23%) to 3% in 1950.
India’s economic model: the state’s primacy over individual enterprise
• Prime minister Jawaharlal Nehru’s development model envisaged a dominant
role of the state as an all-pervasive entrepreneur and financier of private
businesses. The Industrial Policy Resolution of 1948 proposed a mixed
economy. Earlier, the Bombay Plan, proposed by eight influential
industrialists including J.R.D Tata and G.D. Birla, envisaged a substantial
public sector with state interventions and regulations in order to protect
indigenous industries. The political leadership believed that since planning
was not possible in a market economy, the state and public sector would
inevitably play a leading role in economic progress.
India After Independence:
• After India got independence from colonial rule in 1947, the process of
rebuilding the economy started. India went for centralized planning. The Five-
Year Plans which successfully transformed the erstwhile USSR were made a
tool for development.
• The first five-year plan for the development of the Indian economy came into
implementation in Being largely an agrarian economy, investments were made
in the creation of irrigation facilities, construction of dams and laying
infrastructure. Due importance was given to the establishment of modern
industries, modern scientific and technological institutes, development of
space and nuclear programmes.
• However, despite all efforts on the economic front, the country did not develop
at a rapid pace largely due to lack of capital formation, cold war politics,
defence expenditure, rise in population and inadequate infrastructure.
 • From 1951 to 1979, the economy grew at an average rate of about 3.1 per cent
a year in constant prices, or at an annual rate of 1.0 percent per capita. During
this period, the industry grew at an average rate of 4.5 percent a year,
compared with an annual average of 3.0 percent for agriculture.
EVOLUTION OF INDIAN ECONOMY-AFTER INDEPENDENCE:
Five-Year Plans and setting up of Planning Commission
• Five-Year Plans (FYPs) were centralised economic and social growth
programs. Joseph Stalin, president of the erstwhile USSR, implemented the
first Five-Year Plan in the late 1920s. India too followed the socialist path but
here the planning was not as comprehensive since the country had both public
and private sectors. The planning in India was only about the public
sector. The first Five-Year Plan was launched in 1951. The idea was to plan
public spending for equitable growth rather than leaving expenditure to
the market forces.

The objective of India’s development strategy has been to establish a socialistic

pattern of society through economic growth with self-reliance, social justice and
alleviation of poverty. These objectives were to be achieved within a democratic
political framework using the mechanism of a mixed economy where both public and
private sectors co-exist. India initiated planning for national economic
development with the establishment of the Planning Commission.

• The aim of the First Five Year Plan (1951-56) was to raise domestic savings
for growth and to help the economy resurrect itself from colonial rule. It was
based on the Harrod-Domar model that sought to boost economic growth
through higher savings and investments. The plan was a success, with the
economy growing at an annualized 3.6%, beating the target of 2.1%.
• The real break with the past in planning came with the Second Five Year Plan
(Nehru-Mahalanobis Plan). The second five-year plan (1956-61) laid the
foundation for economic modernization to better serve India’s long-term
growth imperatives. The industrialization strategy articulated by Professor
Mahalanobis emphasized the development of heavy industries and envisaged
a dominant role for the public sector in the economy.
Beginning of Licence Raj:
• On one hand, the second five-year Plan and the Industrial Policy
Resolution 1956 (long considered the economic constitution of India) paved
the way for the development of the public sector and on the other hand,
it ushered in the licence Raj.
• The Industrial Policy Resolution 1956 set out the establishment of a
socialist pattern of society as the national objective. It also categorized
industries into three groups.
• Industries of basic and strategic importance were to be exclusively in the
public sector.
• Industries that were to be incrementally state-owned.
• Consumer industries, which was left for the private sector.
The private sector, however, was kept on a tight leash through a system of licences.
License Raj: It refers to regulations and accompanying bureaucracy that was required
to set up and run Indian businesses in India between 1951 and 1991. The Government
resorted to the licensing system so that it can maintain control over industries as
per the Industries Development and Regulation Act, 1951. Its objective was to
regulate the industrial sector, particularly the private sector in the desired direction as
per the objectives of the five-year plans.
Economic Troubles:
• In order to quickly industrialize the Indian economy, a large reallocation of
funds away from the farm sector was done. Agriculture outlay was nearly
halved to 14% in the second Plan. Food shortages worsened, and inflation
spiked.
• Imports of food grains depleted precious foreign exchange reserves.
Nehru’s policies are sometimes criticised on the question of excessive state
involvement in the economy. On 27th May 1964, Nehru died, but, despite
criticism then and in later years, he had cemented his legacy as a modernizer.
• Lal Bahadur Shastri succeeded him as prime minister on 9th June 1964. The
war with China had exposed India’s economic weakness. Chronic food
shortages and price rises convinced him that India needed to move away from
centralized planning and price controls. He renewed focus on agriculture,
accepted a larger role for private enterprise and foreign investment,
and trimmed the erstwhile Planning Commission’s role.
Green Revolution, a Shift towards Economic Revolution
• India was on the verge of famine during the 1960s and this drew the focus of
the then Prime Minister Lal Bahadur Shastri on food security. Food aid
imports from the US, on which the country was reliant, were beginning to
hit India’s foreign policy autonomy.
• This was the time when geneticist M.S. Swaminathan, along with Norman
Borlaug and other scientists, stepped in with high-yield variety seeds of
wheat, setting off what came to be known as the Green Revolution.
M.S. Swaminathan is also an advocate for moving India towards sustainable
development. He champions environmentally sustainable agriculture, sustainable food
security and the preservation of biodiversity. He calls this an “evergreen revolution”.
Co-operative movement: Operation Flood
• After the success of the Green Revolution, Shastri turned his attention to the
dairy sector, particularly the cooperative movement in Gujarat’s Anand, led by
another visionary Verghese Kurien.
• He helped Kaira District Co-operative Milk Producers’ Union Ltd expand its
work, ushering in the White Revolution. In the years that followed, the
government’s Operation Flood led to a rapid increase in milk production.
• Self-sufficiency in the dairy sector was achieved entirely through the
cooperative movement, which has spread to more than 12 million dairy
farmers across the country. We can see that, decades later, Amul, the brand
started by cooperative farmers in Anand, is still a market leader.
Annual Plans in place of the five-year plan:
• As India was dragged into war, it was not in a position to commit resources
over a longer period and this resulted in the suspension of five-year plans
for a brief period, drawing up annual plans between 1966 and 1969 instead.
 • The war with China, the below-par growth outcomes of the third Plan, and
the diversion of capital to finance the war with Pakistan had left the
economy severely weakened.
• The important monsoon rains had once again played truant during the 1966-
67 season, worsening food shortages and causing a sharp spike in inflation.
The constant need to import food grains or seek foreign aid also posed a
serious risk to India’s political economy.
Nationalisation of Banks:
• The 1960s was a decade that brought multiple economic and political
challenges for India.
• Two wars had caused hardships for the masses.
• The death of Nehru and Shastri in quick succession had caused political
instability.
• The 1960s also witnessed two droughts, leading to negative GDP growth
rates and double-digit inflation.
• Foreign exchange also declined in 1964-65.
• Rupee de-valuation had led to a general price rise.
The economic conditions led the government to devalue the Rupee from 4.76 per U.S.
dollar to Rs 7.50/$ in 1966. This was done to counter India’s significant balance of
payments crisis. The devaluation aimed to boost exports amid limited access to foreign
exchange. Instead, it accelerated inflation and drew wide criticism.
• In response, 14 private banks were nationalised on 20 July 1969. The main
aim of the move was to accelerate bank lending to agriculture at a time
when big businesses cornered large chunks of the credit flow.
The share of agriculture in credit was 2 percent in 1951 and remained unchanged in
1967. Whereas, the share of industry increased from 34 percent in 1951 to 64.3 percent
in 1967.
Positives (Nationalisation of Banks):
• Bank nationalization helped boost farm credit and lending to other
priority sectors.
• Financial savings jumped as banks were made to open branches in rural
areas.
Negatives (Nationalisation of Banks):
• Politically-influenced lending decisions led to crony capitalism.
• These banks competed to please their political bosses, instead of focusing on
project appraisals.
• As of March 2021, the total bad loans in the banking system amounted to Rs
8.35 lakh crore.
The strategy underlying the first three plans assumed that once the growth process
gets established, the institutional changes would ensure that benefits of growth trickle
down to the poor. But doubts were raised in the early seventies about the effectiveness
of the ‘trickle down’ approach and its ability to banish poverty.
Sixth five-year plan: Ending of Licence Raj
• The sixth five-year plan (1980-85), pledged to undertake a string of
measures aimed at boosting the economy’s competitiveness.
• This meant the removal of price controls, initiation of fiscal reforms, a
revamp of the public sector, reductions in import duties, and de-licensing of
the domestic industry, or in other words ending the Licence-Raj.
Problems of Inequity-UN Human Development Index: Work of Amartya Sen
 • Amartya Sen is known and feted internationally for his work on welfare
economics. His distinguished work has earned him the Nobel Prize in
Economic Sciences in 1998.
• He proved that gross national product was not enough to assess the standard
of living, a finding that led to the creation of the UN Human Development
Index, now the most authoritative source to compare welfare of countries.
Economic Policies during Rajiv Gandhi prime ministership:
• Rajiv Gandhi recognized the need for economic reform if India were to shed
its reliance on foreign aid and loans. He built up a team
comprising politician V.P. Singh, technocrat Sam Pitroda, and market
economist Montek Singh Ahluwalia.
• The 1985-86 budget lowered direct taxes for companies and raised
exemption limits for income tax. He is widely credited for ushering in the
information technology and telecom revolutions in the country.
India as an IT Hub:
• Around 1984 the IT industry saw some favourable changes when Rajiv Gandhi
became Prime Minister and brought about a change in the government’s
attitude towards the IT sector. His New Computer Policy (NCP-1984) offered
a package of reduced import tariffs on hardware and software. A reduction of
up to 60% was seen.
• Software exports finally got the recognition of as a “delicensed
industry”. This meant that exporters had now become eligible for bank
finance and the industry was unrestricted from license-permit raj. Foreign
companies now had the permission to set up autonomous, export-dedicated
units. A project was also set up to establish a chain of software parks to
provide infrastructure at costs lower than the market price. These policies
eventually made the Indian IT industry what it is today.
• The Indian education system became streamlined to create a world-class
IT workforce. The emphasis on the English language also adds to the
attraction. In addition, the prices offered by Indian IT firms for software
development and services are also very competitive.
Fiscal Deficit-Indian Economy:
• The high fiscal deficit has always been a critical feature of the Indian
economy—an outcome of the government spending more than its income.
Much of the government spending is on servicing interest cost of borrowings;
defence; pensions; subsidizing food, fertilizer and fuel consumption; and
schemes directed at housing, poverty, health and cleanliness.
• A large portion of the government’s capital remains locked up in its own
companies and holdings, which it is unable to sell. The Indian economy, thus,
continues to suffer from good capital chasing bad, and a lack of political
will to implement bold reforms.
Golden Moments that brought down the pillars of socialist India:
• The signs leading to India’s 1991 economic crisis, were long evident. The
country, for the first time, had to sell 20 tonnes of gold to investment bank
UBS on 30 May that year to secure a $240 million loan.
• It pledged gold three more times after that sale, shipping 46.8 million tonnes
of the yellow metal to secure $400 million in loans from the Bank of England
and Bank of Japan. All this gold was repurchased by December that year.
 • The Narasimha Rao-led government with Manmohan Singh as finance
minister took over on 21 June 1991 and launched a raft of economic reforms,
including the dismantling of the Licence Raj.
• Rupee de-valuation: On 1 July 1991, the Reserve Bank of India lowered the
value of the currency by 9%, and then by 11% just two days later. It was done
when the Indian economy was facing its worst crisis, and the country’s foreign
exchange reserves could pay for only three weeks of imports.
A devaluation is no longer a real option for governments and policymakers as exchange
rates are determined by markets. The currency value is now calibrated by the central
bank.
Redistributive economics-Manmohan Singh Government:
• Manmohan Singh’s government launched the Mahatma Gandhi National
Rural Employment Guarantee Scheme in February 2006 in the 200 most
backward districts, which was later expanded to cover all rural districts.
• The scheme aimed to enhance livelihood security by providing at least 100
days of guaranteed wage employment in a fiscal year to every rural
household whose adult members volunteer to do unskilled manual work.
• The 10 years tenure of then prime minister (Manmohan Singh) was also
a time of high growth (Double-digit growth was reported) and expansion
of the economy as loan rates softened.
Stock Market watchdogs:
• In April 1992, Indians were introduced to the term ‘stock market scam’ when
stockbroker ‘Big Bull’ Harshad Mehta was caught using the government bond
market to fund his purchases. It was a scam pegged at ₹4,025 crores and
accelerated the rise of the Securities and Exchange Board of India as it
exists today.
• This and subsequent scandals led regulators to tighten the screws, bring
more transparency, and use technology to eventually reform Indian markets.
Seeds of Disinvestments in Public Sectors:
• In the Union budget for 1999-2000, then finance minister Yashwant Sinha
took forward an idea he had seeded in his 1990-91 budget—disinvestment
in public sector enterprises and downsizing the government.
• Till date, the Atal Bihari Vajpayee government of which Sinha was a part
remains the only one to have carried out privatization of state-owned
companies in an upfront manner. Through the 1999-2000 budget, Sinha
also rationalized interest rates, stoked the housing boom, and triggered India’s
growth surge.
• Later the first United Progressive Alliance government (2004-2009) led
by Manmohan Singh had limited options to raise resources to manage the
ever-expanding social sector budget. Manmohan Singh resorted to selling 5%
to 20% stake in state-run companies through initial public offerings or
secondary issues. Now answerable to public shareholders, state-run firms
are focusing on improving corporate governance and becoming cost-
conscious.
DIPAM: The renaming and restructuring of the Department of Disinvestment were
announced in the 2016-17 budget speech. As a follow-up, the Dept of Disinvestment has
been renamed as the Department of Investment and Public Asset Management or
‘DIPAM’ but it continues to function under the Ministry of Finance. It is aimed
at Efficient management of the centre’s investments in equity including its
disinvestment in central public sector undertakings (CPSU).
The main objectives of disinvestment in India are:
1. To reduce the financial burden of the sick, loss-making PSUs on the
Government
2. To improve public finances
3. To introduce competition and market discipline
4. To fund growth, social sector welfare
5. To encourage a wider share of ownership
6. To depoliticize non-essential services
BSE’s Sensex- Reflection of state of Indian economy:
• The rise of the Indian economy is best reflected in BSE’s Sensex, the 30-share
benchmark index. The 30 component companies represent all sectors of the
economy. From 1,955.29 points in 1991, the year India ushered in economic
reforms, the Sensex touched an all-time high of 43 in October of 2021 with
expectations of big-ticket reforms from a government with a massive majority
driving the optimism.
India, a country so far obsessed with cash-driven gold and real estate, is slowly veering
towards investing in a formal and organized equity market.
Indian companies and overseas acquisition:
• After more than two decades of economic liberalization, the first decade of the
21st century reflected witnessing the unchained Indians.
• Much smaller Tata Steel acquired the UK-based company Corus for an eye-
popping $13.1 billion in 2007. The Aditya Birla Group’s Hindalco Industries
Ltd followed this up with a $6-billion buyout of Atlanta-based Novelis in 2007.
The next year, Tata Motors bought Jaguar-Land Rover for $2.3 billion. Bharti
Airtel bought out Zain Africa in 2010, coughing up $10.7 billion. It was an era
of multi-billion-dollar acquisitions.
2008 global financial crisis: Indian economy
• Almost double-digit growth rates recorded during the four years from 2004-
05 to 2007-08 were also a period when the global economy rode a crest,
growing an average 4%-plus in calendar years 2004 to 2007.
• Trade data since 2010 suggests that India does better than the
world when world exports in goods and services are rising.
• There are many reasons which it has led the world to believe that India
survived the global problem.
• Financial policies implemented in India after liberalization in 1991 played an
important role. In India we have a strictly regulated market by the active
participation of financial regulators like the Reserve Bank of India, Securities
and Exchange Board of India, Ministry of Finance, Ministry of Corporate
Affairs ensured that although Indian Markets have exposure to foreign
players but at the same time have the lesser vulnerability to global risks.
• Participatory Notes (P Notes) is one of the measures taken by the
Government of India (GOI) to control the Foreign Institutional Investment
(FII). During recession stock markets gets plummeted if foreign players pull
out their investments, P Notes is the key to checking that. Many such policies
had enabled GOI to run the Indian Market as a tight ship. Some of the major
Indian Banks were nationalized in 1969; it facilitated GOI in forcing certain
policies like high Cash to Reserve Ratio (CRR), stringent credit policy and
 regulation of lending rate. This control over banks has proven to be a boon to
India as the recession started in the U.S. due to the burst of the Sub Prime
Bubble; during this phase, to increase their profits, financial institutions
started lending to the borrowers having lesser credibility at higher rates. In
India, the above policies prevented Indian Banks from falling into this pitfall.
The end of Five-Year Plans: A Policy change
• Five-year Plan which is often considered as the Nehruvian-Socialist
economic approach ended with the 12th five-year plan in 2017. Within
eight months of taking over as Prime Minister on 25 May 2014, Narendra
Modi replaced the Planning Commission with NITI Aayog (NITI stood for
National Institute for Transforming India, in line with Modi’s penchant for
acronyms).
• The Planning Commission was a Soviet-style body that drew up five-year
plans for the country and played an advisory role in formulating the allocation
of central funds to each state. NITI Aayog now serves as the government’s
think tank, formulating medium- and long-term strategies and breaking them
into year-wise plans after consultation with the states.
Why they aren’t needed now?
• It is argued that for a country as diverse and big as India, centralised planning
could not work beyond a point due to its one-size-fits-all
approach. Moreover, since the Planning Commission used to be controlled
by the Central government, it often ended up as a tool to punish states ruled
by the opposition parties when it came to allocating funds.
• Due to the top-to-bottom approach in centralised planning, it was felt that
the states needed to have greater say in planning their expenditure.
The Planning Commission was seen to be imposing its diktats on
states who could have better known what and how much they needed.
• Niti Ayog:
• NITI (National Institution for Transforming India) Aayog is a policy think-tank
of the Government of India that replaced the Planning Commission on January
1, 2015. It aims at involving the states in the policy-making process to foster
economic growth & development. It strives to indulge in a ‘bottom-up’
approach to envisage ‘maximum governance, minimum government,
echoing the spirit of cooperative federalism. The Prime Minister of India is the
ex officio Chairman of NITI Aayog.
Introduction of the Insolvency and Bankruptcy Code, 2016 (IBC)
• Insolvency and Bankruptcy Code, 2016 is considered as one of the biggest
insolvency reforms in the economic history of India.
• This was enacted for reorganization and insolvency resolution of
corporate persons, partnership firms and individuals in a time-bound
manner for maximization of the value of assets of such persons.
• The code made it possible for lenders to oust errant promoters from a
company and hand it over to financially sound owners. The success of the IBC
is questionable, but it has created a sense of responsibility among promoters.
• However, there are still cases of promoters trying to retain control of their
companies through the back door and others like Nirav Modi, Vijay Mallya and
Mehul Choksi fleeing the country after defaulting on large loans.
Demonetisation (Overnight note-ban):
 • The announcement made by the Indian prime minister had as long-lasting and
wide-ranging an effect as the one made by Prime Minister Narendra Modi on
8th November 2016. In his address to the nation, he said ₹500 and ₹1,000
banknotes, amounting to 85% of the currency in circulation by value,
were no longer valid (invalid legal tender).
Positive impacts of demonetisation:
• Increase in tax collection
• Tackling black money
• Impacts on Terrorism, Naxalism, and Trafficking
• Increase in digital transactions
Goods and Services Tax (GST):
• Hailed as one of the biggest tax reforms of the country, the Goods and
Services Tax (GST) subsumes many indirect taxes which were imposed by
Centre and State such as excise, VAT, and service tax. It is levied on both
goods and services sold in the country.
• The Narendra Modi government has put improving ease of doing
business high on its agenda. As part of this, in July 2017, it implemented the
goods and services tax.
• India is now one of the few countries to have an indirect tax law that
unifies various central and state tax laws.
• Despite a lot of teething troubles and the increased compliance burden on
companies, particularly traders and small and medium enterprises, the new
system has removed tax barriers across states and created a single
common market, ensuring a free flow of goods without trucks being
halted at borders for payment of interstate levies.
Start-ups as a new business model:
• A large number of start-ups have surfaced across India as young
entrepreneurs want to experiment with ideas in digital payments, online
retail, on-demand delivery, education, software and more.
• The number of unicorns, or new businesses valued at over $1 billion, has
also risen every year. The rise of start-ups has created a new ecosystem of
the angel and venture funding, and incubators and accelerators—as well
as new patterns of consumption in society.
Make in India Initiative:
• The “Make in India” initiative is based on four pillars, which have been
identified to give a boost to entrepreneurship in India, not only in
manufacturing but also in other sectors.
• New Process
• New Infrastructure
• New Sectors
• New Mindset
• Make in India” had three stated objectives:
• To increase the manufacturing sector’s growth rate to 12-14% per annum;
• To create 100 million additional manufacturing jobs in the economy by 2022;
• To ensure that the manufacturing sector’s contribution to GDP is increased to
25% by 2022 (later revised to 2025).
• Make in India has the potential to make India a $5 trillion economy.
Important Achievements:
 7. Food Production: Achieving “self-sufficiency” in food grains has been
Independent India’s biggest achievement. From receiving food aid in the
1950s and 1960s to becoming a net exporter, India has seen a turnaround in
food production. The total food production, which stood at 54.92 million
tonnes in 1950, rose to 305.44 million tonnes in 2020-21.

Despite the Pandemic second wave, the estimated foodgrains production for the
agricultural year 2021-22 (July-June) is 1.71 per cent higher than 310.74 million tonnes
recorded in 2020-21 and the target set for the current year.
1. Foreign Direct Investment: In the pre-liberalised ‘license raj’ India,
foreign investment was limited if not non-existent. In 1948, the total
foreign investment in India stood at ₹ 256 crores. However, since the
1991 liberalisation, FDI has become the buzzword of India’s economic
story. In 2020-21, India received a record US$ 81.72 billion in Foreign
Direct Investment.Gross Domestic Product (GDP): India’s GDP stood at ₹
2.7 lakh crore at Independence. 74 years on, it has reached ₹ 135.13 lakh
crore. India is now the 6th largest economy in the world and is on its way to
becoming the third-largest by 2031, as per Bank of America. An unmissable
fact is that there has been a 10- fold increase in the GDP (at constant prices)
since the reform process began in 1991.
2. US dollar to Rupee: Contrary to a popular 2013 forward which had pegged
the US $1 to ₹ 1, a US dollar was equal to ₹ 3.30 in 1947. Notably, India’s rupee
was pegged to the UK Pound Sterling, not the US Dollar. In March 2022, US $1
is equal to ₹ 76.
3. Forex: India’s forex reserves (In foreign currencies and other assets like gold)
stood at a meagre ₹ 1,029 crores in 1950-51. In fact, India’s low forex reserves
played the catalytical role in kickstarting the economic reforms. With just $1.2
billion worth of forex reserves in 1991, India just had enough reserves to
finance 3 weeks of imports. Three decades since the reform process began,
India’s forex reserves now stand at $ 622 billion (March 2022) – the world’s
fourth-largest.
4. Indian Railways (route length): India already possessed one of the biggest
railway lines in the early years of Independence. In Independent India, the
Indian Railways has focused on unifying all rail gauges, electrification of
railway lines and connecting northeast India to the mainland. Moreover, the
railway line has expanded by over 14,000 kilometres, reaching 67,956
kilometres in route length by 2020.
5. Roadways (length): Roads have expanded exponentially in the last 75 years.
In 1950, as per government figures, India only had 0.4 million kilometres of
roadways, which has grown to 6.4 million kilometres in 2021. This is a 16-fold
rise in the total length of roadways, making India’s road network the second
largest in the world after the USA.
6. Access to electricity (rural areas): Providing rural India with access to
electricity has been one of the goals of India’s socio-economic policymaking.
According to the Ministry of Power, only 3,061 villages had access to
electricity in 1950. In 2018, the Indian government announced that all of
India’s villages – 5,97,464 in total – had been electrified.
A village is considered electrified if 10% of its homes and all public buildings are
connected to the grid. Still, millions are living without electricity.
Indian Economy: Future Prospectus
• India has emerged as the fastest-growing major economy in the world and
is expected to be one of the top three economic powers in the world over the
next 10-15 years, backed by its robust democracy and strong partnerships.
• India is 2nd fastest-growing major economy after China. It is projected that
by 2050, India’s economy will be the world’s second-largest, behind only to
China.
• Demand in the domestic market, as well as international market, is picking up,
which should help the Indian economy.
• India’s electronic exports are expected to reach US$ 300 billion by 2025-26
this will be nearly 40 times the FY2021-22 exports (till December 2021) of
US$ 67 billion.
• India is focusing on renewable sources to generate energy. It is planning
to achieve 40% of its energy from non-fossil sources by 2030, which is
currently 30% and have plans to increase its renewable energy capacity from
175 gigawatts (GW) by 2022.

India is expected to be the third-largest consumer economy as its consumption may

triple to US$ 4 trillion by 2025, owing to a shift in consumer behaviour and
expenditure pattern, according to a Boston Consulting Group (BCG) report. It is estimated
to surpass the USA to become the second-largest economy in terms of purchasing power
parity (PPP) by 2040 as per a report by PricewaterhouseCoopers.
Conclusion:
• India has not only shown greater resistance during financial crises but also
during the recent pandemic that disrupted the whole global economy. It is
one of the countries showing the fastest recovery too. This recovery of the
Indian economy during times of crisis has displayed its robustness. It has also
helped in further fine-tuning our economic policies and changing the vision of
various corporate.
• Once branded a “third world country”, a term for poor developing nation-
states which has now fallen into disuse, India is now among the biggest
economies of the world. There’s still a long way to go for India.

Change in Indian Economy Structure after Globalization

Introduction:
Globalization refers to the process of increased interconnectedness and integration of
economies and societies through cross-border flows of goods, services, capital, and
information. India, as a developing economy, experienced a significant transformation
in its economic structure following the liberalization and globalization reforms initiated
in the early 1990s. These reforms aimed to open up the Indian economy to international
trade, attract foreign investment, and leverage technological advancements. The impact
of globalization on the Indian economy has been far-reaching, bringing about notable
changes in various sectors.
Changes in GDP Composition:
One of the key effects of globalization on the Indian economy has been a shift in the
composition of GDP. The services sector, including industries such as information
technology (IT), business process outsourcing (BPO), finance, and telecommunications,
has witnessed remarkable growth. The services sector’s share in GDP has expanded
significantly, surpassing that of agriculture and industry. This shift has been driven by
the outsourcing of services by multinational corporations (MNCs) and the growth of
domestic service industries.
Sectoral Growth Patterns:
Globalization has led to significant changes in sectoral growth patterns. While
agriculture continues to employ a substantial portion of the Indian population, its
contribution to GDP has gradually declined. The industrial sector, encompassing
manufacturing and infrastructure, has seen both positive and negative impacts. On one
hand, increased foreign investment has spurred industrial growth, particularly in
sectors like automobiles, electronics, and textiles. On the other hand, certain industries,
such as small-scale enterprises, faced challenges due to competition from imported
goods. However, the services sector has emerged as the primary driver of economic
growth, propelled by globalization and technological advancements.
Employment Dynamics:
Globalization has had mixed effects on employment in the Indian economy. While the
services sector has created significant employment opportunities, particularly in IT and
BPO industries, the manufacturing sector has experienced job losses in certain
segments. The shift from labor-intensive industries to technology-driven sectors has led
to a polarization of employment opportunities, with a growing divide between skilled
and unskilled workers. The informal sector, comprising self-employed individuals and
small enterprises, continues to play a crucial role in employment generation.
Trade and Investment Flows:
Globalization has facilitated increased trade and investment flows in the Indian
economy. Trade liberalization measures, such as tariff reductions and the simplification
of trade procedures, have resulted in a surge in both exports and imports. India has
become an integral part of the global supply chain, with exports of goods and services
expanding significantly. Foreign direct investment (FDI) inflows have also increased,
particularly in sectors like telecommunications, retail, and manufacturing. The inflow of
FDI has not only brought in capital but has also contributed to technology transfer and
knowledge spillovers.
Challenges and Opportunities:
While globalization has brought several benefits, it has also posed challenges for the
Indian economy. The increased competition from foreign firms has put pressure on
domestic industries to enhance their competitiveness. The agriculture sector has faced
challenges due to import competition and price fluctuations. Income disparities and
regional inequalities have widened, creating social and economic imbalances.
Additionally, the vulnerability to global economic fluctuations and financial crises has
increased. However, globalization has also created opportunities for India, including
access to larger markets, technology inflows, and the potential for employment
generation.
Policy Measures:
The Indian government has implemented various policy measures to adapt to the
changing economic landscape driven by globalization. Reforms focused on trade
liberalization, foreign investment promotion, infrastructure development, and skill
enhancement have been initiated. The government has encouraged foreign investments
through liberalized FDI policies, tax incentives, and regulatory reforms. Efforts have
been made to improve infrastructure, particularly in sectors like transportation and
energy, to support economic activities. Skill development initiatives have been
undertaken to equip the workforce with the necessary competencies for the evolving
job market.
Future Prospects:
Looking ahead, the Indian economy is expected to continue its growth trajectory
influenced by globalization. The services sector is likely to remain a key driver of
economic expansion, supported by advancements in technology and digitalization.
Manufacturing is expected to undergo a transformation, leveraging emerging
technologies like automation, artificial intelligence, and robotics. The agriculture sector
requires attention to enhance productivity, improve market linkages, and address the
challenges of climate change. Strengthening social safety nets and promoting inclusive
growth will be crucial to address income disparities and socioeconomic inequalities.
Conclusion:
Globalization has significantly transformed the structure of the Indian economy. The
shift in GDP composition, sectoral growth patterns, employment dynamics, and trade
and investment flows reflects the profound impact of globalization. While challenges
exist, such as increased competition and inequalities, opportunities have also emerged,
including market access, technology transfer, and employment generation. The Indian
government’s policy measures aimed at adapting to the new economic landscape have
played a crucial role. Moving forward, sustained efforts to foster inclusive growth,
enhance competitiveness, and leverage technological advancements will be essential for
India’s continued integration into the global economy.
IMPACT OF GLOBALIZATION ON INDIAN SOCIETY
Globalization is a process of increasing interdependence, interconnectedness and
integration of economies and societies to such an extent that an event in one part of
the globe affects people in other parts of the world.
OR
Globalization is a process of interaction and integration among the people,
organizations, and governments of different nations, a process driven by
international trade and investment and aided by information technology.
EARLY TIME PERIOD
• India was not isolated from the world even two thousand years ago. We
know about the historical and famous Silk route, which centuries ago
connected India to the great civilizations, which existed
in China, Persia, Egypt and Rome.
• We also know that throughout India’s long past, people from different parts
came here, sometimes as traders, sometimes as conquerors, sometimes
as migrants in search of new lands and settled down here.
• In remote Indian villages often, people ‘recall’ a time when their ancestors
lived elsewhere, from where they came and settled down where they now
live.
• Though this exchange process is going on for time immemorial, this process
was termed as ‘globalization’ for the first time around the second half of
the 20th century.
• The adaptation of export-oriented development strategies and trade
liberalization was widespread.
 • The globalization of national policies, policy-making techniques,
implementation strategies of the national government is the result of
globalization itself.
• Globalization has some externalities associated with it and thus creates a set
of Global ‘bads’ – climatic change, global warming, depletion of the ozone
layer, etc.
•
•Social and cultural aspects
•Technology and communication
•Corporate world
•International trade, relations and economy
FACTORS THAT ARE AIDING GLOBALIZATION:
• Technology – Has reduced the speed of communication manifolds. The
phenomenon of social media in the recent world has made distance
insignificant.
• LPG Reforms: The 1991 reforms in India have led to greater economic
liberalisation which has in turn increased India’s interaction with the rest of
the world.
• Faster Transportation:Improved transport, making global travel easier. For
example, there has been a rapid growth in air-travel, enabling greater
movement of people and goods across the globe.
• Rise of WTO and multilateral organisations:The formation of WTO in 1994
led to reduction in tariffs and non-tariff barriers across the world. It also
led to the increase in the free trade agreements among various countries.
• Improved mobility of capital: there has been a general reduction in capital
barriers, making it easier for capital to flow between different economies.
This has increased the ability for firms to receive finance. It has
also increased the global interconnectedness of global financial markets.
• Rise of MNCs: Multinational corporations operating in different geographies
have led to a diffusion of best practices. MNCs source resources from around
the globe and sell their products in global markets leading to greater local
interaction.
• Above factors have helped in economic liberalization and globalization and
have facilitated the world in becoming a “global village”.
FACTORS CONTRIBUTING TO GLOBALISATION
Information and ● The move from telephonic communication to cable and satellite
communications digital communication have resulted in increasing information
technology (ICT) flows. ● Time-space compression – people in faraway places feel
closer together as they can communicate instantaneously.

Economic factors ● The global economy is Post Industrial – as a result it is

increasingly ‘weightless’ – products are much more likely to be
information based/electronic, such as computer software, films and
music or information services rather than actual tangible, physical
goods such as food, clothing or cars. ● The electronic economy
underpins globalisation – Banks, corporations, fund managers and
 individuals are able to shift huge funds across borders
instantaneously at the click of a mouse.

Political changes ● The collapse of Communism in the 1990s meant the end of the
divided ‘cold war’ world, and now these ex-communist countries are
themselves democracies and integrated into the global economy. ●
The growth of international and regional mechanisms of
government such as the United Nations and European Union –
governments of Nation States are increasingly restricted by
international directives and laws stemming from these international
bodies.

BENEFITS OF GLOBALIZATION IMPACTING INDIA

• Globalization helps to boost the long-run average growth rate of the
economy of the country through:
• Improvement in the allocative efficiency of resources;
• Increase in labor productivity
• Globalization attracts an entry of foreign capital along with foreign
updated technology which improves the quality of production.
• Globalization usually restructure production and trade pattern
favoring labor-intensive goods and labor-intensive techniques as well as the
expansion of trade in services
• Globalization enhances the efficiency of the banking insurance and financial
sectors with the opening up to those areas to foreign capital, foreign banks,
and insurance companies.
• Improved Standard of Living and Better Purchasing Power
• In a globalized scenario, domestic industries of the developing countries
become conscious about price reduction and quality improvement to their
products so as to face foreign competition.
CHALLENGES DUE TO GLOBALISATION
• Globalization 4.0 (which is driven by technology and the movement of
ideas, people, and goods) could, like preceding waves of globalization, have
mixed results e.g. even though many countries are globally connected but
the political crisis and global level conflict have also increased.
• Globalization has alerted the village and small-scale industries and sounded
death-knell to it as they cannot withstand the competition arising from
well-organized MNCs
• Globalization is also posing a threat to agriculture in developing and
underdeveloped countries of the world. As with the WTO trading provisions,
the agricultural commodities market of poor and developing countries will be
flooded with farm goods from countries at a rate much lower than that of
indigenous farm products leading to a death-blow to many farmers.
• Although globalization promotes the idea that technological change and
increase in productivity would lead to more jobs and higher wages but
during the last few years, such technological changes occurring in some
 developing countries have resulted in more loss of jobs than they have
created leading to a fall in employment growth rates.
• Globalization paves the way for a redistribution of economic power at the
world level leading to domination by economically powerful nations over the
poor nations.
• Globalization has also let loose the forces of “uncivil
society” and accelerated the transnational flows of terrorism, human and
drug trafficking, organized crime, piracy, and pandemic diseases (For
instance, Covid-19). The growth of these transnational networks threatens
state institutions and civil society in many countries.
• Human trafficking is among the darkest sides of globalization, turning
human beings into commodities bought and sold in the international
marketplace. Women and children are among the most exposed to it.
HOMOGENISATION VERSUS GLOCALISATION OF CULTURE
• A central contention is that all cultures will become similar, that is
homogeneous. Others argue that there is an increasing tendency
towards glocalization of culture.
• Ritzer (2004) has coined another word globalization that refers to what he
calls “growth imperatives(pushing) organizations and nations to expand
globally and to impose themselves on the local”.
• Glocalization It refers to the mixing of the global with the local. It is not
entirely spontaneous. Nor is it entirely delinked from the commercial
interests of globalisation.
• It is a strategy often adopted by foreign firms while dealing with local
traditions in order to enhance their marketability.
• In India, we find that all the foreign television channels like Star, MTV,
Channel V and Cartoon Network use Indian languages.
• Even McDonald sells only vegetarian and chicken products in India and
not its beef products, which are popular abroad. McDonald’s goes vegetarian
during the Navaratri festival.
• In the field of music, one can see the growth of popularity of ‘Bhangra pop’,
‘Indi pop’, fusion music and even remixes.
• Culture cannot be seen as an unchanging fixed entity that can either collapse
or remain the same when faced with social change. What is more likely even
today is that globalisation will lead to the creation of not just new local
traditions but global ones too.
• Global
• Local
•
• Food
• Marriage
• Festivals
• Movies
• French, German and Spanish
Homogenization of Culture
It is a process of increasing global interdependence and interconnectedness that lead
toward growing cultural standardization and uniformization.
• Family structure: Joint family has been adversely affected due to
globalization. There has been an increase in nuclear families. This can be
 clearly manifested in the increasing number of old age homes that are
present now.
• Food: due to opening up of food joints like McDonalds, KFC across the
country, there has been a homogenization of food available across the
country, but there has also been heterogenization in food. Old restaurants
are now replaced by Mc. Donalds. Fast food and Chinese dishes have
replaced juice corners and Parathas.
• Borrowing of money has become more acceptable now as compared to the
past. Taking loans is very common due to increasing access to financial
institutions
• In place of old cinema halls, multiplex theatres are coming up.
• Use of English has increased manifold in urban areas, this has led to
a homogenization in language across the country, but the rural areas have
been less affected by it.
• Value system – increasing homogeneity of world values like rationalization,
free market competition, commodification and democratic or human
rights and above all a global culture.
Glocalization of Culture
• Food: India has its unique cuisine, but the cuisines of foreign countries have
become more easily available, they are modified to suit the taste buds of
Indians (like Paneer Tikka Burger in McDonalds). This has led to a wide
variety of food being available, leading to heterogenization
• French, German and Spanish are taught to students right from school level
along with indigenous languages, this is an exemplification of hybridization of
culture.
• Movies: popularity of foreign movies has
increased, Hollywood, Chinese, French and Korean movies are quite
popular among the urban youth. Along with this, dubbing of these foreign
movies in local languages is testimony of increased glocalization.
• Festivals: celebrations of Valentines’ day, Friendship day are examples of
change in cultural values related to festival. However, along with these new
days, traditional festivals are celebrated with equal enthusiasm.
• Marriage: Importance of marriage is decreasing, there has been an increase
in divorce, increase in live-in relationships, and single parenting is
increasing. Marriage used to be considered as bonding of the souls; but
today marriage is becoming professional and contractual. However,
despite change in forms of marriage, it has not declined as an institution.
Indian society is subdivided in communities which enjoy ‘enormous cultural
autonomy’. This provides colossal cultural resilience to communities in India
to filter the effect of globalization through refectory and prismatic adaptation. That is
why India’s core values have never changed despite giving shelter to divergent
religions of the world and accommodating them within its civilization.
REVIVAL OF CULTURE
• Revival of Yoga in the country as well as in the international level. This can
be seen in the popularity of the ‘Art of Living’ course by Ravi Shankar, or
the celebration of International Yoga day across the world
• There has been a revival of ayurvedic medicines in the country as well as
outside it.
 • Due to increasing uncertainty by inter-linkage with the outside world, there
has been religious revivalism. This can be manifested in the use of religion
to attract voters, or mobilizing people on the basis of religion.
• Increasing demand for local handicraft products in global market: such as
Chikenkari or bandhani.
• Due to increasing global tourism, locals are making efforts to preserve their
diversity and revive their traditions.
We can see that the western culture is influencing the Indian culture, but it is not
replacing it, rather there is a mixture of both cultures.
SOCIO-ECONOMIC IMPACT OF GLOBALIZATION ON INDIA
In the age of rapid technical progression, many countries are unified and transformed
due to the process of globalization. Globalization has a huge impact on the cultural,
social, monetary, political, and communal life of countries.
Impact on Indian Economy
Globalization in India is generally taken as integrating the economy of the country
with the rest of the world.
Pros:
• The growth rate of the GDP of India has been on the increase from 5.6
percent during 1980- 90 to 4 percent shown by the union budget 2016-17.
• There is an international market for companies and for consumers, there
is a wider range of products to choose from.
• Increase the inflow of investments from developed countries to developing
countries, which can be used for economic reconstruction.
• The greater and faster flow of information between countries and greater
cultural interaction has helped to overcome cultural barriers.
• Many new companies were formed by Indian entrepreneurs across different
industrial segments in view of liberalized economic policies announced by the
Government.
• A large number of job opportunities increased in India.
• It helped in faster developments in telecommunication, roads, ports,
airports, Insurance, and other major sectors.
• It Increased FDI and FII.
• Benefits for consumers are lower prices of goods and a wide range of goods
available to choose from.
Cons:
• Globalization has generated problems like jobs and social insecurity. The
public sector provides jobs along with social as well as job security and other
benefits also.
• The agriculture sector is the backbone of the Indian economy. The above
50 percent of people are working in the agriculture sector. This sector has
been neglected by the government in the post-reform period and the
share of agriculture has decelerated continuously.
• Post reform period has witnessed a drastic increase in child labor because
due to LPG policy the role of public sector was reduced. Therefore, the
corporate is working for profit motive only.
• Process of Capital intensive from labor-intensive adopted global
technologies and automatic machinery. But this has resulted in the high
rate of unemployment in India which is becoming the biggest challenge for
Indian Economy and the Government today.
 • We may call globalization as a double-edged weapon that helped Indian
consumers to enjoy all high-Quality global brands. On another hand, it helped
the Government of India to tide over its serious foreign exchange problem,
even though temporarily by getting a loan from World Bank. But, it has been at
the cost of decontrol of the Indian Government over its economy and at the
cost of the local Industry.
Psychological Impact on Indian Society
• Stress and insecurity because of cut throat competition.
• Emergence and spread of fundamentalism.
• Self-selected culture:
• Here, people choose to form groups with like-minded persons who wish to
have an identity that is untainted by the global culture and its values. The
values of the global culture, which are based on individualism, free market
economics, and democracy and include freedom, of choice, individual
rights, openness to change, and tolerance of differences are part of
“western values.”
• Spread of emerging adulthood:
• The timing of transitions to adult roles such as work, marriage and
parenthood are occurring at later stages in most parts of the world as the
need for preparing for jobs in an economy that is highly technological and
information based is slowly extending from the late teens to the mid-twenties.
• Additionally, as the traditional hierarchies of authority weaken and break
down under the pressure of globalization, the youth are forced to develop
control over their own lives including marriage and parenthood.
• For young people in developing countries, emerging adulthood exists only for
the wealthier segment of society, mainly in urban areas, whereas the rural
poor have no emerging adulthood and may even have no adolescence
because they begin adult-like work at an early age and begin relatively early.
• Identity Confusion:
• The individuals from non-western cultures experience it as a response to
globalization. While people may adapt to changes and develop bicultural or
hybrid, multicultural identities, some may find it difficult to adapt to rapid
changes.
Impact on Agriculture
With a view to moving towards liberalizing the agricultural sector and promoting free
and fair trade, India, a member nation of the World Trade Organisation
(WTO) (WTO) signed the Uruguay Round Agreements on 1st January 1995.
The Agreement on Agriculture of the WTO was the first multilateral agreement,
meant to curb unfair practices in agricultural trade and set off the process of reforms in
the agricultural sector.
Positives of globalization on agriculture:
• Increase National Income – Receiving the international market for the
agricultural goods of India, there is an increase in farmer’s agricultural
product, new technology, new seeds, etc. helped to grow the agricultural
product.
• Introduced new water-saving practices in India such as drip irrigation
• With globalization, farmers were encouraged to shift from traditional crops
to export-oriented ‘cash crops’ such as cotton and tobacco but such crops
needed far more inputs in terms of fertilizers, pesticides, and water.
 • Increase in the export of agricultural goods – The prices of agricultural
goods are higher in the international market than in Indian markets. If the
developed countries reduced grants, they have to increase the prices. So, there
will be an increase in the export in the Indian market and if the prices grow,
there will be profit.
• Appropriate use of agricultural equipment, suited to the crops and the region
of cultivation, lead to efficient utilization of farm inputs, making farming
financially viable and profitable.
• Research collaboration with foreign countries and institutions has
increased.
• Globalization has encouraged the concrete of corporate and contract
farming which have helped farmers.
• The proliferation of food processing industries has improved farmers’
Negatives of globalization on agriculture:
• Small production field – In India 60% of the population depends on
agriculture. The pressure on agriculture is increasing because of
the increasing population. The possession of land is small and so the
production cost is higher. There is also the problem of standard etc. So, there
are unfavorable impact occurs on Indian agriculture.
• Cash crop demand increase farmer focus on these crops. But the demand and
price of these crops may fluctuate. This has major implications when farmers
deviate from food crops. This has issues for countries’ food security.
• More importantly, Globalisation has shifted the public discourse from
agriculture to industry. Globalization has indirectly led to industrial growth.
This needs land and resultantly increases in the displacement of farmers.
• Intellectual property rights: – Intellectual property rights cause unfavorable
impacts on Indian agriculture. Multinational companies can easily enter the
field of agriculture and it will be bad for the margin farmers.
• A forum like WTO pressurizing to tone down security net for the
agriculture sector
• Input cost for agriculture is also affected by global events. Tension in the
Eurasian region can cause fluctuation in the price of
• Prices in global markets able to impact local pricesg. the sugar industry
Impact on the Informal sector
• Globalization has resulted in the casualization of labor. Global competition
tends to encourage formal firms to shift formal wage workers to informal
employment arrangements without minimum wages, assured work, or
benefits.
• There has been a shift in the composition of the labour force in favor of
the skilled laborers, in general, and more significantly in the unorganized As
a natural consequence, labor productivity indicated faster improvement
both in organized and unorganized sectors
• Globalization tends to benefit large companies which can move quickly and
easily across borders but possess disadvantage to labor, especially lower-
skilled workers that cannot migrate easily or at all.
• As more and more men enter the informal economy, women tend to be
pushed to the lowest income end of the informal economy.
 • But globalization can also lead to new opportunities for those who work in
the informal economy in the form of new jobs for wageworkers or new
markets for the self-employed
Impact on family
• Since ancient times, the joint family system has been one of the chief
characteristics of the Indian social system in general and tribal social
structure in particular.
• Recently the joint family pattern throughout India has been showing a
declining tendency.
• The diversity in family forms has given way to the dominance of nuclear
families in globalized India.
• Globalization has led to large scale migration and urbanization since it
becomes difficult to maintain a joint family system because of the high cost of
living.
• Some argue that in the era of economic restructuring the institution of the
family is emerging as a much stronger institution than ever before; others
argue that family is becoming progressively weak due to globalization and
individualism is growing up.
• Family involvement in finding a groom/bride is reduced to nominal. Apart
from regular festivals, new occasions like ‘Valentine’s Day’, ‘Mother’s Day’,
Father’s Day’ is Weekend parties, kitty parties, visiting pubs and discos almost
became a very natural thing.
• The pattern of change in family dining is also worth observing. Having
dinner while watching Television or chatting on the computer became a very
common thing in most of the households.
• The proportion of dual-earning couples (DEC) is also substantially growing.
It has enormously altered the traditional and functional role of women,
family planning while distressing family dynamics and affecting children and
the elderly at home.
Impact on Marriage
Pros:
• Due to Globalisation, the concept of love marriages is increasing and elders
have started to accept and appreciate it in the same way.
• Inter caste and inter-religious marriages have become more common
• Parents are turning to the web to search for brides and grooms, they prefer
NRI for their westernized outlook, lifestyles, and higher disposable income.
Cons:
• The importance of marriage is decreasing, there has been an increase in
divorce, an increase in live-in relationships, and single parenting is
increasing.
• Marriage used to be considered as bonding of the souls, but today marriage is
becoming professional and contractual.
• Other issues like serial monogamy, live-in relationships are viewed against
the culture of India.
• However, despite the change in forms of marriage, it has not declined as an
institution.
Impact on Food and Festival
• Due to the opening up of food joints like McDonald’s, KFC across the
country, there has been a homogenization of food available across the
 country, but there has also been heterogenization in food. Old restaurants are
now replaced by McDonalds.
• Fast food and Chinese dishes have replaced juice corners and Parathas
• Celebrations of Valentines’ day, Friendship day are examples of changes
in cultural values related to the festival. However, along with these new days,
traditional festivals are celebrated with equal enthusiasm.
Globalization and Education
Education holds the key to India’s growth and socio-economic development. This has
assumed greater importance over the last decade with India positioning itself as a
knowledge economy in a fast globalizing world
PROS:
• Through cultural immersion, students who participate in global education
programs are able to gain a greater depth of knowledge about and
appreciation for new cultures. This often includes acquiring advanced
language skills
• It aims at enhancing the overall core values in terms of research and
technological advancements.
• By experiencing the differences and similarities between their host country
and their home country, the student will enhance their global perspectives
and obtain a greater awareness of global affairs, including political,
educational, societal, and economic issue.
• School facilities have also come under the scanner as there is a demand for
quality in available infrastructure that can aid in preparing a different class
of people who are ready for a global world.
• With the advent of globalization, the Indian higher education system has
made considerable progress in terms of capacity creation and
enrolment especially in the last decade yet it lags significantly in terms of
“global relevance and competitiveness”.
• Globalization promotes new tools and techniques such as E-learning,
Flexible learning, Distance Education Programs, and Overseas training.
• There are enormous effects observed in the educational sector due to
globalization such as the literacy rate become high and Foreign
Universities are collaborating with different Indian Universities.
CONS:
• Globalization has put extra pressure on the education system to create
‘winners’ who are ready to battle in the race for the survival of the fittest.
• It has led to the preparation of a curriculum that has to be internationally
acceptable.
• In the contemporary context, students are seen as customers as well as
partners in the process of learning.
• Commercial institutions offering specialized education have come up
everywhere. In view of globalization, many corporate universities, both
foreign and Indian, are encroaching upon government institutions.
• The growth of computers and other technologies enabled women with better
waged, flex timings, and the capacity to negotiate their role and status in-
home and at the corporate level.
• Globalization could erode our traditional values and ethos.
 • Education has become beyond the reach of poor students because of
globalization. Since the educational level by these agencies has been elevated,
the monetary requirements to become admitted and study has also spiraled.
Globalization and Caste System
The rise in globalization has brought changes to the caste system both in positive as
well as a negative way:
Pros:
• The rigid caste system is gradually giving its way to relaxed norms in the
form of inter-caste marriages, intermingling, and socializing.
• Due to globalization, there has been an expansion of economic
opportunities, education, and liberal thoughts, which has resulted in the
weakening of the caste system.
• The traditional division of labor was breaking down due to industrialization;
this was given a boost by globalization.
• The rise in professionalism, improvement in education, etc. have provided
employment opportunities and thus improving the conditions of the
vulnerable
Cons:
• However, despite changes, the caste system has shown immense resilience
and still continues to exist as one of the significant features of Indian
society.
• Due to a lack of skills, globalization has forced vulnerable caste towards
the informal sector doing menial jobs.
• Despite globalization practice of untouchability is still prevalent in India.
Globalization and Women in India
Globalization affects different groups of women in different places in different ways.
On the one hand, it may create new opportunities for women to be forerunners in
economic and social progress on the other it may take away job opportunities by
providing cheaper avenues in the form of assembly-line production or outsourcing.
Pros:
• Globalization has indeed promoted ideas and norms of equality for
women that have brought about awareness and acted as a catalyst in their
struggle for equitable rights and opportunities.
• Different non-profit organizations have been brought to India from around the
globe. These organizations have given women the skills they need to
advance, such as literacy and vocational skills.
• It has led to an increase in the independence of women, especially in urban
areas. This has been manifested through inter-caste marriages, single
mothers, live-in relationships
• The women in rural settings have been influenced by globalization through
media and through numerous intervention programs like non-profit
organizations, increasing the self-confidence of women and motivating
them to fight for their rights.
• Changes in the attitude of women-more acceptance of western clothes,
dating has become common in urban areas, increased use of
contraception in rural as well as urban areas.
• Trade openness and the diffusion of new information and communication
technologies have translated into more jobs and stronger connections to
markets for many women, increasing their access to economic opportunities.
 • Greater access to information has allowed many to learn about life and
mores in other parts, possibly affecting attitude and behaviors.
Cons:
•Though employment opportunities for women are increasing, they are
most crowded in low paying jobs, have less social security.
• Women are suffering in two-fold. As women in developing countries move into
the workforce, their domestic responsibilities are not alleviated. Women
work two full-time
• The exploitation of women in the workplace has emerged as a new issue
• Globalization has occurred with the persistence of the patriarchal
mindset of Indians, this has led to problems for women like the
commodification of women, the use of social media to harass women,
increase in violence against women.
• As consumers, women are increasingly facing a consumer culture which
reduces them to commodities and as producers, women are exposed to
work exploitation and occupational hazards
• Additionally, prostitution, abuse, and dowry related suicides are
increasing.
• Gender differences in education have limited Women’s access to new
employment opportunities. But because of lower education levels, female
producers experience more constraints in accessing international markets
than males.
• Women’s weaker property rights and limited access to productive inputs
also constrain their capacity to benefit from trade openness.
• Gender norms for mobility and women’s role in the economic sphere can
disproportionately affect Women’s access to technology.
Globalization and Youth
The majority of India’s population is young (India is witnessing demographic
dividend). The population growth among youth is one of the most critical factors in the
way India responds to globalization. Indian youth are fueling both positive and
negative perceptions given to globalization.
PROS:
• Present-day youth, with its more materialistic
ambitions and more globally informed opinions, are gradually abandoning
the austere ways and restricted traditional Indian markets.
• Youth demand a more cosmopolitan society that is a full-fledged member of
the global economy.
• Globalization has highlighted the importance of imparting education,
training, and requisite skills to young people for providing them a platform
to become successful participants in the labor
• The increased skillset contributes in the form of increased investment
attraction from all around the world.
• It has promoted a cross-fertilization of ideas, cultural values, and
aspirations; thus, it has helped to connect youth not only to the rest of the
world but also among each other.
• With more awareness, youth are being more vocal towards their rights.
Consequently, the government is ensuring more participation of people in
policymaking.
Cons:
 • The traditional Indian dress is declining, especially among urban youth, in
favor of new fashions from the west.
• Youth are not as close to their grandparents as were earlier generations and
spend less time with the older generation resulting in loss of wisdom handed
down from generation to generation.
• Lack of physical activity has made youth follow a sedentary lifestyle leading
to health disorders.
• Many young people especially in developing countries remain
marginalized from the global economy. They are incapable of accessing the
opportunities that globalization offer due to inadequate education, limited
skills, poverty or they cannot reach out to basic information and
communication, and the goods and services that have become available with
globalization.
ETHICAL CHALLENGES OF GLOBALIZATION PROCESS
• Rising inequality: While the advanced capitalist countries enjoy the benefits
of industrialization, the rest of the countries are forced to share the negative
consequences or externalities thrown up by industrial activities.
• Human rights issues: The bad work environments and low-wages involved in
the industry prevent workers from accessing even basic human rights.
• Others: The Dissolution of families and communities, rise in nuclear
families and increasing isolation of old-aged parents; privatization and
consequent rise in cost of health care, education and other social
services are some of the other issues associated with the process of
globalisation.
Way Forward
• The need of the hour is to design a blueprint from the ground up that can
capitalize on new opportunities while prioritizing sustainability and
inclusiveness more than ever before.
• Global and local institutions need to advance both universal and targeted
strategies to improve outcomes for everyone ensuring vulnerable population
is not left out.
• We should proactively build resilient local and regional systems that can
participate in the next wave of globalization, making sure regions have the
right mix of education, employment, and infrastructure to create and
sustain jobs locally.
GLOBALISATION AND POLITICAL CHANGES
• Political development which is accompanying globalization is the growth of
international and regional mechanisms for political collaboration.
• The European Union (EU), the Association of Southeast Asian Nations
(ASEAN), South Asian Regional Conference (SARC), and more recently South
Asian Federation of Trade Association (SAFTA) are just some of the examples
that indicate the greater role of regional associations.
• There has been the rise of International Governmental Organisations
(IGOs) and International Non-Governmental Organisations (INGOs).
• The concept of good governance has been strengthened due to increasing
Globalization.
• This has led to a policy change towards a rights-based approach to
governance.
 • The effects of globalization on democracy is not limited to a special scope.
Some thoughtful beliefs that, globalization affects all foundations of
democracy such as freedom of expression, freedom of belief and religion, civil
community, citizenship rights, confinement of state activity, legitimacy of
governors, freedom of the press, and etc.
GLOBALISATION AND CULTURE OF CONSUMPTION
Often when we speak of culture, we refer to dresses, music, dances, food. However,
culture as we know refers to a whole way of life. There are two uses of culture,
one culture of consumption and second is corporate culture.
Culture of consumption:
• Culture of consumption (of art, food, fashion, music, tourism) playing a
crucial role in the process of globalisation especially in shaping the
growth of cities. Till the 1970s the manufacturing industries used to play a
major role in the growth of cities.
• This is evident in the spurt in the growth of shopping malls, multiplex
cinema halls, amusement parks and ‘water world’ in every major city in
India.
• Most significantly advertisements and the media in general promote a
culture where spending is important. To be careful with, money is no
longer a virtue.
• Shopping is a past time actively encouraged. Successive successes
in fashion pageants like Miss Universe and Miss World have led to a
tremendous growth in industries in the fields of fashion, cosmetics and
health.
• Young girls dream of being an Aishwarya Rai or Sushmita Sen.
• Popular game shows like Kaun Banega Crorepati (KBC) actually made it
seem possible that your fortunes could turn over in a few games.
Corporate culture:
• It is a branch of management theory that seeks to increase productivity
and competitiveness through the creation of a unique organizational culture
involving all members of a firm.
• A dynamic corporate culture – involving company events, rituals and
traditions – is thought to enhance employee loyalty and promote group
solidarity.
• It also refers to the way of doing things, of promotion, and packaging
products.
• The spread of multinational companies and the opportunities opened up by
the IT revolution has created in the metropolitan cities in India a class of
upwardly mobile professionals working in software firms, multinational
banks, chartered accountancy firms, stock markets, travel, fashion designing,
entertainment, media and other allied fields.
• These high-flying professionals have highly stressful work schedules, get
exorbitant salaries and are the main clientele of the booming consumer
industry.
GLOBALISATION AND LABOUR
• Globalisation is perceived as a double-edged sword, because, on one hand, it
has created huge potential for business development across the world and
on the other; it has made both global and local markets more
competitive. It has given birth to a new “Global Economic Map”.
 • Globalisation is seen as a major driver of economic growth via international
trade in goods and services and capital flows through FDIs and portfolio
investments.
• From another perspective, it is feared that globalisation adversely affects
labour interests. In a globally competitive environment, the transnational
corporations are relentlessly engaged in squeezing every resource for
maximizing their economic returns. In that process, though the owners of
capital seem to have gained, the laborer’s have lost out.
• In spite of the presence of apex bodies like International Labour
Organization (ILO), WTO, failure to recognize trade unions, wage
disparity, violation of health and safety norms are recurrent in various
parts of the world.
• Advocates of human rights and labour movements argue that labour
conditions have been deteriorating continuously, mainly due to firms ‟attempt
to adjust to the competitive forces of a global economy”.
• The most vulnerable groups are temporary/contract labourers and the
workers having low or no skills.
Impact of Globalisation on Labour in India:
• After 1991 GoI changed its industrial policy and
accepted Liberalization, Privatization, Globalization (LPG) This policy
aims at opening the economy to the world, leading to completion of industrial
change.
• Globalisation has impacted the labour in positive and negative manner
in following way:
• The reforms propelled India’s GDP growth rate to nearly 7-8% from the
prevalent 2-3%. They have created a robust private sector and thus
employment for millions of Indians over the years.
• However, a substantial amount of these jobs have either remained
informal or have been lost with time.
• Opening up of the market and free flow of trade and low tariffs encouraged
flow of foreign goods lowering the employment opportunities of Indian
labourers.
• It has created avenues for women who want to participate in industry.
Women have entered the labour force in large numbers in countries that have
embraced liberal economic policies. Industrialization in the context of
globalisation is as much female-led as it is export-led. The overall economic
activity rate of women for the age group 20-54 increased drastically.
• But the informal sector where women were absorbed in large numbers along
with globalization offer very poor labor conditions. Such industries where
women were mostly engaged happened to be highly labour intensive,
service oriented and poorly paid.
• Liberalization of the economy has in some sectors caused loss of
employment without creation of new employment.
• The big corporate companies like TNCs and MNCs have evolved a vendor
system of subcontracting for their production. This results in job
insecurity of the labourer and worsening of labour welfare since there
is no checking system for their welfare.
• Globalization
• Privatization
 • Liberalization
GLOBALIZATION AND ENVIRONMENT
• The architects of globalization have ignored the social, biological and
physical constraints on their created system.
• Critics of globalization have noted that global free trade promotes the
social and economic conditions most likely to undermine its own
existence. The same can be said of the biological and physical limiting factors-
especially, in the short term, the dwindling supplies of cheap energy.
• The effects of Globalization on environment include, but are not limited to,
reduced genetic diversity in agriculture (loss of crop varieties and
livestock breeds), loss of wild species, spread of exotic species, pollution
of air, water and soil, accelerated climatic change, exhaustion of
resources, and social and spiritual disruption.
Ways in Which Globalization Affects Environment:
• An increase in the consumption of products, which has impacted the
ecological cycle. Increased consumption leads to an increase in the
production of goods, which in turn puts stress on the environment.
• Increase in the transportation of raw materials and food. This led to
an increase in the pollution levels in the environment. It has also led
to noise pollution and landscape intrusion.
• Ozone layer depletion and enhanced greenhouse effect pose additional
challenges.
• The industrial waste that is generated as a result of production has is
dumped in oceans. This has killed many underwater organisms and
has deposited many harmful chemicals in the ocean. Oil spills from oil
tankers threat pose threat to marine environment.
• Due to globalization and industrialization, various chemicals have been
thrown into the soil. This toxic waste has caused a lot of damage to plants
by interfering in their genetic makeup.
• It has put pressure on the available land resources.
• Globalization increases the vulnerability of ecosystems and societies, and
the least resilient ecosystems.
Ways in Which Environment Affects Globalization
• Natural resource scarcity or/and abundance are drivers of globalization, as
they incite supply and demand forces in global markets.
• The need for environmental amelioration can extract costs from
economy and siphon resources away from development goals.
• Environmental stress can trigger alternative technological paths, e.g.,
dematerialization, alternative energy, etc., which may not have otherwise
emerged.
• Environmental standards influence patterns of trade and
investment nationally and internationally.
The data for energy utilization per capita and CO2 emission after LPG reforms in
India are given
It is important to highlight that not only does globalization impact the environment,
but the environment impacts the pace, direction and quality of globalization. For
example: environmental resources provide the fuel for economic globalization.
Similarly, social and policy responses to global environmental challenges constrain and
influence the context in which globalization happens.
GLOBALIZATION AND MEDIA
• Entertainment industry in India has registered an explosive growth in the
last two decades making it one of the fastest growing industries in India.
Today, more than 400 active channels in the country today.
• Online content, Over the Top Platforms (OTP) and Social media seems to
be catching up with viewers across India.
• The most visible effect of globalization is wide spread communication
network.
Role of Television:
Positive · Television programmes are most informative and educative – like UGC
Aspects programmes, quiz programmes and also group discussion (E.g. RSTV) · It
satisfies our need to know what is going on in and around the world. ·
Television reveals dresses of different communities, food of people from
South India to North India and also the rituals and religious practices of
people from different corners of the country.’ · Television is the source of
entertainment to people of all categories. It provides company for the
lonely, aged, and housewives. It gives topics for conversation to the number
of the family staying at home.

Negative ● The criminal items and unfair bossism by anti – social elements of
Aspect society exercise the most adverse impact on children in particular and the
youth in general.
● It dehumanizes the views by naked exposure to sensuality, criminality,
militancy, unfairness and several other negative aspects of it.
● The sheer amount of time spent in watching TV by the children is often
too large. Thus They have a negative impact in terms of their studies,
socialization and participation in other entertainment activities.
● In our present-day society, with an increasing wave to crime and
violence we are beginning to look at the relationship between television
programmes and cultural values more clearly.

• Exchange of Talent: Globalisation has helped the film production companies

to share the international pool of talent.
• Role of the internet: Social networks like Facebook and LinkedIn bring
integrity and help people stay connected. It acts as a platform to the society
for better connectivity and hence being aware or updating themselves
regarding what is happening around them.
• Role of the Radio: It is one of the easiest and cheapest media sources. It is
easily available in most part of the country. The biggest advantage of the radio
as a means of media globalization is that it can be understood by even an
illiterate person and can cater to a larger number of people. Moreover, it has a
greater impact on the rural as they are able to connect to the radio easily.
Therefore, the importance of radio in the society is indispensable.
IMPACT OF GLOBALISATION ON TRIBAL COMMUNITIES
 Tribal people constitute 8.6% of the nation’s total population, over 104
•
million people according to the 2011 census.
• For the Tribal, globalization is associated with rising prices, loss of job
security, and lack of health
• In the name of up-gradation of the lifestyle of poor indigenous tribal people,
the market forces have created wealth for their interests at the cost of
livelihood and security of these tribes in the areas.
• Inadequate social and economic infrastructure in areas that have
insufficient resources for participation in mainstream development also has
been at the root of various “sub-national movements” such as the Jharkhand,
Uttarakhand, and Bodoland.
• In poverty-stricken tribal areas, large scale migration has revealed the
increasing movement of young women towards urban centers in search
of work. Their living conditions are unhygienic, the salary is poor and tribal
women are vulnerable to exploitation by unscrupulous agents.
• Tribals are being forcefully integrated into the society leading to them losing
their unique cultural features and their habitat threatened.
• Land Alienation of Tribals: Land is a very important component for tribal
development. It occupies their source of livelihood. But the globalization trend
has alienated Tribals from their mainstay.
• Displacement of Tribals: It is estimated that owing to the construction
of over 1500 major irrigation development projects since
independence, over 16 million people were displaced from their villages, of
which about 40 percent belong to the tribal populations.
GLOBALIZATION 4.0
• Globalization 4.0 is the latest stage of globalization which involves cutting-
edge new technologies like artificial intelligence, big
data analytics, machine learning that powers forward with the explosion of
information technology. These technologies shrink distances, open up
borders and minds and bring people all across the globe closer together.
• The development of advanced technologies like artificial intelligence (AI),
big data, nanotechnology, the internet of things (IoT), 3D printing and
autonomous vehicles all have the potential to significantly impact global
productivity.
EARLIER WAVES OF GLOBALIZATION

Globalization ○ It refers to the rapid growth in world trade, mainly during the nineteenth
1.0 century. ○ It was driven by innovations in transport and communications, including the
railways, steamships and the electric telegraph. ○ The subsequent reduction in the cost of
global transport enabled the separation of production and consumption across
international borders, making previously exotic products like tea, sugar and cotton readily
available and affordable in markets like the UK for the first time.

Globalization ○ It surged again after the Second World War – dubbed Globalisation 2.0. ○ It is driven
2.0 by greater international cooperation, the post-war period saw less protectionism and
a rapid growth in world trade, at least in western economies.
Globalization ○ The third wave of globalisation is thought to have started around 1990. ○
3.0 Further advances in technology, including the spread of the internet, made it easier for
different stages of production to be based in various locations across the globe, leading to
the emergence of modern supply chains. ○ This enabled firms to further cut the cost of
producing products and delivering services by moving their operations to cheaper
locations, known as offshoring.

Challenges of Globalization 4.0:

• Globalization 4.0’ could, like preceding waves of globalization, have mixed
results – economic growth and poverty alleviation on the one hand,
and political crises and greater income inequality on the other.
• For millennials, our economic opportunities are uncertain and we believe
we may not have the skills needed for the jobs of the future. If we are not
intentional in our preparation for Globalization 4.0, we risk exacerbating these
problems.
• The last wave of globalization in the 1990s lifted some countries out of
poverty. However, income inequality is increasing in those countries and in
large economies including the US.
• Other countries with low-cost labour are anticipating the benefits of the next
wave of globalization, but there is a risk of laying a foundation that
drives inequality for generations.
• Globalization 4.0 may increase income inequality even if it can create more
wealth.
Way Ahead:
• Innovate educational institutions and aggressively close the skills gap:
By 2022, at least 54% of employees globally will require re- and up-skilling.
Not only do we need to support people in getting the training they need for
jobs in the next five years, but we need to prepare young students with the
skills to adapt to the types of jobs we will need in the next 20 years.
• Focus on the most vulnerable populations: Negative effects of globalization
will have a disproportionate impact on some populations. Global and local
institutions need to advance both universal and targeted strategies to improve
outcomes for everyone.
• Stop climate change: Climate change is going to have a disproportionate
impact on vulnerable regions and populations. The challenges of Globalization
4.0 will be compounded if resources that could be put towards strengthening
local economies and education have to be diverted to mitigate the costs of
climate change.
• Build a movement focused on equity: Advancing the priorities above and
creating greater equity will require a more coordinated global movement than
exists today. Many businesses, NGOs, advocacy groups, academics and even
individuals have unprecedented global reach and ability to influence equitable
outcomes.
• Invest in strengthening local and regional economies: We should
proactively build resilient local and regional systems that can participate in
the next wave of globalization, making sure regions have the right mix of
education, employment and infrastructure to create and sustain jobs locally
DEGLOBALISATION
De-globalization is the process of reducing interdependence and integration
between nations around the world. It is characterized by decline in economic trade
and investment between countries, protectionism and unilateral withdrawal from
international organizations and agreements. This decline reflects that economies
become less integrated with the rest of the world economies.
Factors responsible:
• Tariff wars are one aspect of de-globalisation policies.
• Right wing ideology
• Outbreak and transboundary spread of diseases and pandemics – E.g.
COVID19
• Sub-prime crisis of 2008
• Stricter IPR regime, sanitary and phytosanitary measures.
• Emergence of Emerging Market Economies
• Inward looking mentality and attitude.
• Political rivalry – Russia and USA, USA and Iran, South Korea etc.
• Brexit is another facet that can cost countries too. Britain’s divorce with the
EU is estimated to cost companies on both sides $80 billion a year without a
trade deal.
• Trade: With global demand weak, and many nations erecting import barriers,
trade is slumping. Measured as a share of global gross domestic product, trade
doubled from 30 percent in 1973 to a high of 60 percent in 2008. But it
faltered during the crisis and has since dropped to 55 percent.
• The decrease in migration is another aspect. Despite the flood of refugees
into Europe, net migration from poor to rich countries decreased to 12 million
between 2011 and 2015, down by four million from the previous five years.
• Refugee crisis – climate induced and political factors E.g. Rohingya crisis.
• The flow of capital – mainly bank loans – is retreating even faster. Frozen by
the financial crisis and squeezed afterward by new regulations, capital flows
had decreased to just under 2 percent of G.D.P. from a peak of 16 percent in
2007.
Impact on Advanced Economies (AEs)
• Labour Market Loss: The major hurdle faced by the Advanced Economies is
the death of relatively low skilled sectors like textile and the support
economies that grew around it. The reabsorption of this displaced labour has
been slow and incomplete which is reflected in the share of wages to GDP that
dropped by 5% from 2000 to 2017.
• Technology: Advanced Economies have largely depended on technological
change for per capita income growth. There is deceleration in technological
change, during the last decade, partly due to low investment in innovation and
partly due to fading additional gains from the internet computer revolution.
• Consumer Credit: As a bid to keep spending alive, Advanced Economies
focused on the consumer credit in the early 2000s. This precipitated into the
Great Financial Crisis of 2008.
Impact on Emerging Markets (EMs)
• Trade: The increase in tariff barriers by the Advanced Economies have led to
the shrinking of exports in EMs which is destroying their job intensive
manufacturing sector.
• Migration: Advanced Economies are the hot destination of high skilled labour
from EMs. The increased protective measure by Advanced Economies for free
 movement of high skilled labour is threatening their productive growth and
job opportunities.
Impact on India:
• Social impact: It leads to a decrease in standards of living as it will impact
exports and economic growth impacting welfare of the poor, vulnerable
sections and their standard of life.
• Political impact: It would affect polity leading to instability in the political
framework of countries due to increase in prices and cost of living may lead to
civil Uprisings.
• Impact on technology: These tendencies limit technological advancement of
the world as whole and of developing countries in particular. The limited
knowledge sharing, lack of flow of technology to developing countries limit
advancement in science.
• Impact on women employment: It would impact women empowerment
efforts as it will impact women movements across the globe. The lack of
cooperation among nations will reduce opportunities for women across the
world.
Way Forward
• Promotion of new forms of international and regional integration that
preserve and allow the multiple dimensions of life to flourish.
• The culture of tolerance and understanding must be promoted which
provides space for positive dialogue.
• More and more Cooperation is needed for hours to make the world
economy more predictable, to mitigate vulnerabilities and to strengthen the
free trade system.
• More focus should be on creating organizations/coalition like
International Solar Alliance, Coalition for Disaster Resilient Infrastructure that
contribute to global sustainable development along with promoting
coordination among nations.
Emergence and Development of Planning Exercise in India
1. History of India’s Economic Plans:
Independence came to India with the partition of the country on 15 August 1947. In
1948, an Industrial Policy Statement was announced.
It suggested the setting up of a National Planning Commission and framing the policy of
a mixed economic system.
On 26 January 1950, the Constitution came into force. As a logical sequence, the
Planning Commission was set up on 15 March 1950 and the plan era started from 1
April 1951 with the launching of the First Five Year Plan (1951-56).
However, the idea of economic planning in India can be traced back to the pre-
independent days.
“The idea of economic planning gained currency in India during and after the years of
the Great Agricultural Depression (1929-33). The then Government of India was by and
large guided by a policy of leaving economic matters to individual industrialists and
traders.”
(i) 1934:
It is rather surprising that blueprints for India’s planning first came from an engineer-
administrator, M. Visvervaraya. He is regarded as the pioneer in talking about planning
in India as a mere economic exercise. His book ‘Planned Economy for India’ published in
1934 proposed a ten-year plan. He proposed capital investment of Rs. 1,000 crore and a
six-fold increase in industrial output per annum.
(ii) 1938:
In 1938, the Indian National Congress headed by Pandit J.L. Nehru appointed the
National Planning Committee (NPC) to prepare a plan for economic development. The
NPC was given the task of formulating a comprehensive scheme of national planning as
a means to solve the problems of poverty and unemployment, of national defence, and
of economic regeneration in general. However, with the declaration of the World War II
in September 1939 and putting leaders into prison, the NPC could not march ahead.
(iii) 1944:
The Bombay Plan, the People’s Plan and the Gandhian Plan: One of the most widely
discussed plan during the 1940s was the Bombay Plan prepared by the Indian capi-
talists. It was a plan for economic development under considerable amount of
government intervention.
It emphasised the industrial sector with an aim of trebling national income and
doubling of per capita income within a 15-year period. Under this plan, planning and
industrialisation were synonymous.
An alternative to the Bombay Plan was given by M. N. Roy in 1944. His plan came to be
known as People’s Plan. His idea of planning was borrowed from the Soviet type plan-
ning. In this plan, priorities were given to agriculture and small scale industries. This
plan favoured a socialist organisation of society.
In the light of the basic principles of Gandhian economics, S. N. Agarwal authored ‘The
Gandhian Plan’ in 1944 in which he put emphasis on the expansion of small unit pro-
duction and agriculture. Its fundamental feature was decentralisation of economic
structure with self-contained villages and cottage industries.
(iv) 1950 Planning Commission:
After independence, the Planning Commission was set up by the Government of India in
March 1950. The Commission was instructed to (a) make an assessment of the material
capital and human resources of the country, and formulate a plan for the most effective
and balanced utilisation of them; (b) determine priorities, define the stages for carrying
the plan and propose the allocation of resources for the due completion of each stage;
(c) identify the factors which tend to retard economic development; and (d) determine
the conditions which (in view of the then current socio-political conditions) should be
established for the execution of the plan.
The planning process was initiated in April 1951 when the First Five Year Plan was
launched. Since then ten five year plans have been completed and the Eleventh Plan is in
progress.
The Timing of These Eleven Plans are Given here in a Tabular Form:
2. Characteristics of Indian Plans:
There is a long history of the evolution of economic thinking and approach to planning
in India and, therefore, its features are changing with the change of the economy.
Structure and objectives of each and every country never remain uniform as well as
linear. One can also see a wide difference in the political viewpoint as well as political
approaches. Such differences lead to different approaches to planning varying from
country to country.
In other words, every country has its own peculiarities of economic planning, and India
is no exception to this. Further, such characteristics of Indian planning are not uniform.
It is to be noted here that the features relate to the initial situation that shape the future
of planning. Again, the objectives of planning are not static in the sense they need to be
changed according to the needs and opportunities of the country.
Indian history of planning can be divided into three periods: pre-independent, 1951-
1991 and 1991 onwards. We will, however, concentrate on planning of independent In-
dia down from 1951 till date. Now we will present some of the essential features of
Indian planning so as to understand the mechanics of planning both in a controlled and
planned economy, and planning in a market- friendly economy.
(i) Five Year Planning:
Though India’s plans are of a 5-year period, such planning is linked with a long term
view. Sino-India War (1962), Indo-Pak War (1965), and the unprecedented drought in
the mid-60s forced to adopt the approach of ‘plan holiday’ from the Fourth Five Year
Plan. Instead of a regular Five Year Plan, planning was discontinued through three ad
hoc Annual Plans during the period 1966-69.
Again, with the assumption of power by the Janata Government in 1977, rolling plan on
a year to year basis or the Sixth Plan had been formulated for the period 1978-83. In
1980, this rolling plan concept was discontinued by the Congress (I) Government much
ahead of the scheduled time and the Sixth Plan came into operation from 1980 and
continued till 1985. Because of unprecedented political crisis in New Delhi and frequent
changes of power, the Eighth Five Year Plan scheduled for the period 1990-95 could not
be launched.
The Eighth Five Year Plan was delayed by two years, though the years 1990-91 and
1991-92 had not been projected as ‘plan holiday’. The Eighth Five Year Plan came into
operation in 1992. Since then there has been no break from the five year planning
system.
(ii) Developmental Planning:
Indian planning is of the developmental variety. To build up a self-reliant economy,
overall economic development of the country received top priority. However, short
term problems like refugee rehabilitation, food crises, foreign exchange shortage also
got due attention from the planners.
(iii) Comprehensive Planning:
Indian planning is comprehensive in character in the sense that it not only undertakes
economic programmes but also puts emphasis on changes in institutional structures
and cultures. It emphasies both on the development of agriculture, industry, transport
and communications and physical infrastructures and social infrastructures such as
literacy, health, population control, environment, etc. Planning programmes are also
initiated for the development of lower castes and backward classes so that these people
are involved in the development processes.
(iv) Indicative Planning:
Indian planning before 1991 was of the nature of directive planning and averse to the
role of market mechanism. As far as resource allocation in the governmental sector was
concerned, the government did not rely on the market but gave directions so that
resources could be utilised by all the states efficiently. Private initiative and freedom
was allowed but not in an unhindered way. Private industrialists were encouraged for
making investments but, at the same time, they came under strong control and
regulation.
Thus, planning in India during 1951-91 was not strictly ‘planning by direction’ like the
socialist plan and not strictly ‘planning by inducement’ like capitalist planning.
This old system of Indian planning of the comprehensive nature was to be replaced by
an integrative approach that combines both planning and market mechanism. Thus, the
Indian planning became indicative in nature with the launching of the Eighth Five Year
Plan in 1992. As plans roll on, its indicative nature gets strengthened.
Under it, the role of the government becomes passive and the government sheds some
of its functions at the altar of the market principles. It is indicative planning as it merely
outlines the directions to which the country is expected to run as well as talks about the
means for achieving these aims.
To improve efficiency and productivity of the economy, reliance on market principles is
attached and planning mechanism then act as a pathfinder or a leader instead of putting
more emphasis on the long term goals of the country.
Thus, flexibility is one of the important hallmarks of indicative planning. Earlier, Indian
planning was also of indicative character. But the Eighth Plan had made it more so and
had redefined the role and functions of the Planning Commission.
(v) Democratic Planning:
Indian planning is democratic planning. The chief building block of laying down the
national plan is the Planning Commission. It is a decision-making body that formulates
five year plans and implement them in a democratic spirit and frame. Discussions are
held periodically between the people’s representatives, industrialists, chambers of
commerce, educationists, and many other bodies as well as the members of the
Planning Commission.
The National Development Council is there to make decisions relating to planning in
consultation with the Union and State Governments. In fact, the NDC is the apex body
for coordination of policies and plans of the Central and the State Governments.
After getting the stamp of approval from the NDC, the plan document is placed before
the Parliament for consideration. Though one finds some sort of centralise, planning
decisions Indian planning may be called a decentralised one, if not bottom-up planning.
(vi) Decentralised Planning or Planning from Below:
Being democratic planning, Indian planning is essentially a decentralised type of plan.
Until the Fourth Plan, planning at the national level was essentially macro planning. In
other words, there was very little or no provision for microplartning, i.e., planning from
below. While ‘macroplan’ provides a broad framework, a ‘microplan’ chalks out all the
details in and fixes priorities for different regions depending on their specific needs.
A macroplan cannot deal with the problems of the remotest regions of the country. A
macroplan does not involve people straightforward. However, for an allround growth of
every region—small or big—planning has to be decentralised in which local people,
local institutions and local governance are asked to participate. This is called ‘partici-
patory development’. Participation of the community is needed to deal with the local
problems, local resources, local priorities, etc. In this way, the concept of planning from
bottom-to-top rather than top-to-down is more popular in India.
(vii) Present Role of the Planning Commission:
The nature and content of the Eighth Plan (1992-97) was different from earlier plans
since this plan had been greatly influenced by the liberalised economic policies of the
government and the changing world situation. From a rather centralised planning
system, the country moved gradually towards indicative planning.
However, as market forces gathered strength as contrasted to planning, India’s Planning
Commission became somehow redundant. Earlier, the Planning Commission behaved
something like a ‘super-cabinet’ in propagating and implementing plan policies and
programmes.
Against the backdrop of embracing market philosophies, the Planning Commission
could no longer act as a policymaking body as it did earlier. The role of the Planning
Commission indeed needs to be diluted in the light of changes in the Indian scenario. In
other words, Planning Commission needs to be married to the market economy.
Most importantly, the present UPA government has been facing challenges from dif-
ferent quarters because of coalition politics. And the Planning Commission has been
reorienting itself to accommodate the compulsions of the coalition Government.
In view of this, Dr. M.S. Ahluwalia articulated relating to the role of the Planning Com-
mission that currently the two roles of the Planning Commission are more important.
First is the role of principles that needs to be changed regularly according to the
exigencies of the situation. Different ministries will play such roles in their policies and
principles.
Since no neutral standpoint could be maintained by the respective ministries, the
Planning Commission would then play a more bigger role in the realm of perspective or
long term planning. Secondly, market, in case of long term of planning, has very little
say. Herein lies the importance of the Planning Commission. Thus, the planning
methodology must change so as to reflect the new economic realities and the emerging
requirements.
It is, thus, obvious that the features of Indian planning are not static. The role of the
Planning Commission has changed to a different form. Above all, the above features of
Indian plans are just the reflection of the country’s socio-eco-politico philosophies and
viewpoints.
3. Objectives of Indian Plans:
In LDCs like India, the paramount objective of an economic plan is to bring into new
forms of productive capital, which will raise the overall productivity of the economy
and, thus, raise people’s income by providing them adequate employment opportunities
and, thereby, remove the twin problems of destitution and mass poverty.
In an underdeveloped country like India, these objectives may be broadly
grouped under:
1. A higher rate of growth than was being realised in the absence of the plan;
2. A greater degree of economic equality than was possible under free enterprise;
3. Full employment opportunities for the growing labour force of the country;
4. Economic self-reliance; and
5. Modernisation.
It is to be remembered that the above said objectives are long term objectives of India’s
Five Year Plans.
Now these objectives will be explained:
1. Economic Growth:
Of all the objectives, the objective of economic growth has received the strongest
priority in all the plans. Economic planning in India aims at bringing about a rapid
economic development in all sectors. The key sectors are agriculture, power, industry
and transport.
Through development of the economy, the country aims at increasing national and per
capita incomes. Thus, poverty will be removed and the standard of living will be
improved. National income in the First Plan increased by 18 p.c. against the targeted
growth rate of 11 p.c.
National income during the Second Plan period increased by 20 p.c. against the target of
21 p.c. On the other hand, per capita income grew at a rate of 2.1 p.c. per annum as
against the contemplated rate of growth of 3.3 p.c. The Third Plan sought to increase
national income by 5.6 p.c. per annum. But the progress card of the Third Plan showed
that national income increased by only 2.5 p.c. per annum. Per capita income during this
time failed to rise.
The Fourth Plan aimed at achieving the growth rate of national income and per capita
income by 5.7 p.c. per annum and 3 p.c. per annum, respectively. In reality, the actual
achievement of national income was merely 3.4 p.c., while per capita income rose by
only 1.1. p.c. The Fifth Plan proposed a growth rate of 3.5 p.c. per annum, but later
revised it to 4.37 p.c.
However, the economy now fared well and attained a growth rate of 5.2 p.c. per annum.
The Sixth Plan aimed at an annual growth rate of 5.2 p.c. Actually, this growth rate was
achieved. The Seventh Plan (1985-90) achieved an annual growth rate of 6 p.c. The
average growth rate during the Eighth Plan was better (6.8 p.c.) than the Seventh Plan.
This growth rate slipped down to 5.4 p.c. in the Ninth Plan against a contemplated
growth rate of 6.5 p.c. An ambitious target of 8 p.c. GDP growth rate has been achieved
in the Tenth Five Year Plan.
2. Economic Equality and Social Justice:
The twin aspects of social justice involves, on the one hand, the reduction in economic
inequalities and, on the other, the reduction of poverty.
A rise in national income with concentration of economic power in the hands of a few
people is not desirable. In India’s socio-political set-up, vast inequalities exist. Indian
plans aim at reducing such inequalities, so that the benefits of economic development
percolate down to the lower strata of the society.
The objective of removal of poverty got its clear-cut enunciation only in the Fifth Plan
for the first time. Due to the defective planning approach, income inequality widened
and poverty became rampant. The incidence of poverty was on the rise.
In view of this paradoxical development, the slogan of ‘Garibi Hatao’ was raised in the
Fifth Plan for the first time. It was estimated that approximately 30 per cent of the total
population was below the poverty line in 1974. In 1983-84, 44.5 p.c. of the total
population were below the poverty line. By 1993-94, it declined to 37.3 p.c. It has been
estimated that 28.3 p.c. of the population lived below the poverty line during 2004-
05—so far the latest estimate.
Though the poverty ratio declined over time, the number of poor people remained at
more than 260 million during 1999-2000 due to a countervailing growth in population.
3. Full Employment:
Removal of unemployment is considered another important objective of India’s Five
Year Plans. But, unfortunately, it never received the priority it deserved. In the Sixth
Plan (1978-83) of the Janata Government, employment was accorded a pride of place
for the first time. However, the Seventh Plan treated employment as a direct focal point
of policy. As a result, the employment generation programme in India received a rude
shock and the problem of unemployment is mounting up plan after plan.
4. Economic Self-Reliance:
Self-reliance, or for that matter, self-sufficiency, refers to the elimination of external
assistance. In other words, it means zero foreign aid. India is typically a dependent
economy. She is used to import huge food grains, fertilizers, raw materials and
industrial machinery and equipments. But this objective could not be concertised before
the launching of the Fourth Plan.
The basic aim of the Fifth Plan was the attainment of self-reliance. To achieve this goal,
the Fifth Plan aimed at increasing production of food grains, necessary consumption
goods and raw materials and the level of exports. While emphasising the increase in ex-
ports, the Plan emphasised the need for establishing import substitute industries as an
important facet of economic self-reliance.
In the new era dating from July 1991, the objective of self-reliance lost its the then
interpretation. No longer it refers to self-sufficiency in the present globalised
environment. Still then, it is an important component of India’s development policy.
5. Modernisation:
This objective is comparatively a newer one. This objective was categorically mentioned
for the first time in the Sixth Plan. Modernisation means such variety of structural and
institutional changes in the economic activities that can change the feudal and colonial
economy into a progressive and modern economy.
The important component of modernisation is the development of a diversified
economy that produces a variety of goods. This requires the setting up of a variety of
industries. It also refers to an advancement of technology. No doubt certain
technological advances have taken place in agriculture, energy, etc. But there is a real
danger of this objective in the present context.
The country now faces an alarmingly high unemployment problem and, hence, poverty.
But modernisation will definitely arrest the employment generation activities. Hence
the conflict between the objective of modernisation and the objectives of
unemployment and poverty eradication.
Besides these long term objectives, each Five Year Plan in India has some short term
objectives. For instance, the First Plan stressed agricultural development, control of
inflation and rehabilitation of refugees. The Second Plan aimed at rapid industrial
growth, specially basic and heavy industries. The Third Plan emphasised an expansion
of basic industries, but shifted to defence development.
4. Evaluation of Objectives:
The objectives of Indian planning are quite comprehensive and its scope is wide.
But it has various shortcomings:
(a) First, Indian Plans are ambitious. Most of the plan objectives remain unfulfilled.
Again, some of the objectives are not quantifiable, Furthermore, desired objectives
never match with the actual results. Actual results lay behind targets.
(b) Secondly, Indian plans suffer from inconsistency of the objectives that are set. For
instance, the objective of accumulation of capital is inconsistent with the objective of
reduction of income disparities.
(c) Finally, there are conflicts between objectives. Higher economic growth objective
may not commensurate with the employment generation objective. Rapid economic
growth requires the use of capital-intensive technology which is, by nature, labour-
displacing. Thus, any attempt to improve GDP growth rate is most likely to frustrate the
objective of removal of unemployment.
Despite these shortcomings of Indian planning, we must say that the objective of higher
economic growth is the most fundamental of all. Plan objectives must be spelt out as to
make them consistent with the country’s needs.

Planning Commission V/S NITI Ayog

On January 1, 2015, the Indian government formed the NITI Aayog (National
Institution for Transforming India), a policy think tank. A “15-year road map” and
a “7-year vision, strategy, and action plan” are among its initiatives. On March 15,
1950, the Planning Commission was founded, and on August 17, 2014, it was
dissolved. The Planning Commission was responsible for developing India’s Five-
Year Plans.

Difference between NITI Aayog and Planning Commission

Parameter NITI Aayog Planning Commission

Authority on Policy The NITI Aayog has neither the The Planning Commission
Making mandate nor the authority to had the authority to enforce
impose policies on states. The NITI policies on states as well as
Aayog is a think tank and advisory projects that it had
organization. approved.

Authority to allocate The NITI Aayog has not been The Planning Commission
funds granted the authority to allocate had the authority to
funds. The Finance Ministry has the distribute funding to state
power. governments and several
central government
ministries for a variety of
 national and state-level
programs and projects.

Role of State Government State governments plays a more Apart from attending
active role in NITI Aayog. meetings, state
governments did not have
much of a role to play. The
National Development
Council was the only body in
which the state government
had a say.

Part-Time Members Part-time members of the NITI There were no provisions in

Aayog are appointed based on th the Planning Commission’s
needs. charter for the appointment
of part-time members.

Membership of States Lieutenant Governors of Union Lieutenant Governors and

head of executive Territories and State Chief Ministers State Chief Ministers served
make up the NITI Aayog Governing on the National
Council. Development Council. The
National Development
Commission required the
Planning Commission to
provide a report.

Appointment of The Prime Minister appoints the Secretaries of the Planning

members CEO of NITI Aayog. CEO stands for Commission were
Chief Executive Officer. appointed using the
standard procedure.

Number of Full time The number of full-time members There were eight full-time
members on the NITI Aayog board could be members on the previous
lower than those on the Planning Planning Commission.
Commission.
 Organisational Structure New positions were formed within Full-time members, a
the NITI Aayog organisation member secretary and a
structure, including CEO and Vice- Deputy Chairperson made
Chairperson. The position of CEO is up the Planning
equivalent to that of a Secretary. Ex- Commission’s
officio members would be four organisational structure.
Cabinet members. Two part-time
members and five full-time
members make up the NITI Aayog.

Approach of policy The ultimate policy would bear fruit The Planning Commission
implementation at NITI Aayog following adequate developed policies first, and
consultations with state subsequently, state
governments throughout the policy governments were
formation stage. It follows a consulted on funding
bottom-up approach. allocations for programs
and projects. It follows a
top-down approach.

Constitutional/Statutory Because it is not named in the The Planning Commission,

status because Indian Constitution and was not which is now defunct, was
constituted by an Act of Parliament, an Executive Body.
NITI Aayog is likewise an Executive
Body. However, it can be turned into
a Statutory Body if necessary by
passing a statute in Parliament;
UIDAI is one example.

Conclusion
Though the NITI Aayog and the erstwhile Planning Commission has a wide
variety of differences between them their goal and objectives were similar. Both
the bodies worked towards national development and formulate plans for the
growth and development of India. Therefore, these institutions must be vested
with more powers to develop models of economic development suiting the
socio-economic needs of the country.

Evaluation of Five – Year Plans

At the time of the First Five-Year Plan (1951-56), India was faced with three problems –
influx of refugees, severe food shortage and mounting inflation. India had also to correct
the disequilibrium in the economy caused by the Second World War and the partition of
the country.
Accordingly, the First Plan emphasized, as its immediate objectives, the rehabilitation of
refugees, rapid agricultural development so as to achieve food self-sufficiency in the
shortest possible time and control of inflation. Simultaneously, the First Plan attempted
a process of all-around balanced development which could ensure a rising national
income and steady improvement in the living standards of the people over a period of
time (Datt and Sundharam, 2000).
The First Five-Year Plan prepared the way for achieving the socialistic pattern of society
– an economic and social order based upon the values of freedom and democracy
without class, caste and privilege in which there will be a substantial rise in
employment and production and largest measure of social justice attainable.
The importance of agricultural production was sought and therefore, out of total outlay
of Rs 1,493 crores in the first part of the five-year plan, Rs 191.69 crores and Rs 450.36
crores were allotted for agricultural and rural development, and irrigation and power
sector, respectively, together which constituted 43 per cent (12.8 + 30.2) of the total
outlay.
The economy has responded well to the stimulus of the first plan. Both agricultural and
industrial production has awarded substantial increases. Prices have attained a
reasonable level. The country’s accounts are virtually in balance. The important targets
prepared in the first plan have been realized, and some of them in fact, been exceeded.
Some seventeen million acres of land have been brought under irrigation in these five-
year plans, and the installed capacity for generation of power has been increased from
2.3 million KW to 3.4 million KW. Considerable progress has been done with the
rehabilitation of railways. A large number of industrial plants both in the public and
private sectors have gone into production.
Against this backdrop the principal objectives of the Second Five-Year Plan were to
secure a more rapid growth of the national economy and to increase the country’s
productive potential in a way that will make possible accelerated development in the
succeeding plan periods.
Unlike First Five-Year Plan, in the Second Five-Year Plan there was a clear enunciation
of a strategy of development by Indian planners. Prof P.C. Mahalanobis, the architect of
the Second Five-Year Plan was responsible for introducing a clear strategy of
development based on the Russian experience. This strategy emphasized investment in
heavy industry to achieve industrialization which was assumed to be the basic condition
for rapid economic development.
Nehru stated, “If we are to industrialize, it is of primary importance that we must have
the heavy industries which build machines” (Nehru, 1960). Further he said “There are
some who argue that we must not go in for heavy industry but for lighter ones. Of
course, we have to have lighter industries also but it is not possible to industrialize the
nation rapidly without concentrating on the basic industries which produce industrial
machines which are utilized in industrial development” (Government of India, 1961,
Problems in Third Plan: A Critical Miscellany).
According to the plan frame “In the long run the role of industrialization and the growth
of national economy would depend upon the increasing production of coal, electricity,
iron and steel, heavy machinery, heavy chemicals and heavy industries generally –
which would increase the capacity for capital formation. One important aim is to make
India independent as quickly as possible of foreign imports of producer goods as that
the accumulation of capital would not be hampered by difficulties in securing supplies
of essential producer goods from other countries. The heavy industry must, therefore,
be expanded with all possible speed” (Government of India, 1956, Second Five-Year
Plan – The Framework).
The Second Five-Year Plan (1956-61) was formulated with reference to the
following objectives:
(a) A sizable increase in national income so as to raise the level of living in the country;
(b) Rapid industrialization with particular emphasis on the development of basic and
heavy industries;
(c) A large expansion of employment opportunities; and
(d) Reduction of inequalities in income and wealth, and a more even distribution of
economic power (Government of India, 1956, Second Five-Year Plan).
The plan emphasized the socialistic pattern of society. It says “major decisions
regarding production, distribution and consumption and investment and in fact, the
entire pattern of socio-economic relationships must be made by agencies informed by
social purpose. The benefits of economic development must accrue more and more to
the relatively less privileged classes of society, and there should be a progressive
reduction of the concentration of income, wealth and economic power. The state has to
take on heavy responsibilities as the principal agency speaking for and acting on behalf
of the community as a whole. The public sector has to play its part within the
framework of the comprehensive plan accepted by the community”.
By the beginning of the Third Plan (1961-66) the Indian planners felt that the Indian
economy had entered the “take off stage” and that the first two plans had generated an
institutional structure needed for rapid economic development. Consequently, the Third
Plan set as its goal the establishment of a self-reliant and self-generating economy. But
the working of the Second Plan had also shown that the rate of growth of agricultural
production was the main limiting factor in India’s economic development.
The experience of the first two plans suggested that agriculture should be assigned top
priority. The Third Plan, therefore, gave top priority to agriculture but it also laid
adequate emphasis on the development of basic industries, which were vitally
necessary for rapid economic development of the country. However, between the
India’s conflict with China in 1962 and with Pakistan in 1965, the approach of the Third
Plan was later shifted from development to defence and development (Datt and
Sundharam, 2000).
In 1960-67, following a severe drought, national income registered only nominal
increase of 0.9 per cent. However, the record harvest of 1967-68, marking a significant
increase in agricultural output, was instrumental in raising national income by 9 per
cent in that year (Hantal, 1996).
The slow rate of growth in agricultural production not only depressed the rate of
growth of the economy but also led to an alarming dependence on imports food-grains
and other agricultural commodities. During the Third Plan, the country imported 25
million tones of food grains, 3.9 million bales of cotton and 1.5 million rates of jute.
Similarly, industrial production was also slowed down. The index of industrial
production (base 1960-100) increased by only 1.7 per cent in 1966-67 and there was
hardly any growth (0.3%) in 1967-68.
This sharp deceleration was accompanied by an increased in unutilized capacity in a
number of industries. Many factors constituted to it: decline in purchasing power
because of the setback on the agricultural front; stagnation in investment; shortage of
foreign exchange because of the need for abnormal high import of food-grains and raw
materials and for completion of number of projects started earlier.
As a result of several measures taken by the government – such as import liberalization
following devaluation, decontrol of certain commodities like steel, coal, paper, fertilizers
and commercial vehicles, delicensing of a number of industries, some increase in the
public sector demand for domestic manufactures and a rise in the export of engineering
goods; an all-round industrial economy began in January 1968 and resulted in increase
of 6.2 per cent in industrial production in 1968-69 (Government of India, 1969, Fourth
Five-Year Plan).
Hence, the process of liberalization policy in India began, though very slowly, during
this period (Hantal, 1996).
The original draft outline of the Fourth Plan prepared in 1966 under the stewardship of
Ashok Mehta had to be abandoned on account of the pressure exerted on the economy
by two years of drought, devaluation of rupee and the inflationary recession. Instead,
three Annual Plans (1966-69) euphemistically described as “Plan Holidays” were
implemented (Datt and Sundharam, 2000).
The Fourth Plan (1969-74) aimed at acceleration of the tempo of development in
conditions of stability and reduced uncertainties. It set before itself the two principal
objectives “growth with stability” and “progressive achievement of self-reliance”. It
aimed at average 5.5 per cent of growth in the national income and the provision of
national minimum for the weaker section of the community – the latter came to be
known as the objectives of “growth with justice” and “Garibi Hatao” (removal of
poverty).
It was proposed to introduce safeguards against the fluctuations of agricultural
production as well as the uncertainties of foreign aid in the period of the Fourth Plan. It
proposed to reduce the dependency of foreign aids. It was planned to do away with
concessional imports of food-grains under PL 480 by 1971.
In the process of development there was inevitably an increase in concentration of
economic power. The government has, therefore, formulated the new licensing policy to
control and regulate the concentration of economic power. While continuing with
efforts in intensive irrigated agriculture and basic modern industry, it proposed to pay
special attention to certain fields of productive activity particularly in agriculture and
related primarily production which had been relatively neglected.
It proposed to chart the course of industrial development so as to provide for future
technological advance and at the same time to bring about dispersal of industrial
activity and enterprise. The plan proposed detail action through regional and local
planning to help the very large numbers of the smaller and weaker producers and
increase immediate employment and future employment potential.
It suggested steps to even out supplies of food-grains and to stabilize prices through
buffer stocks and through operation by public agencies in certain sensitive trading
areas.
It looked to the monopoly legislation and appropriate fiscal policy to reduce
concentration of economic power. It expected that the nationalization of banking would
help in this and also contribute towards diffusion of enterprise and strengthening of
weak producing units. It proposed utilization of Panchayati Raj Institution (PRI) in local
planning and the gradual building up of an integrated cooperative structure for
establishing social and economic democracy particularly in the countryside.
It suggested reorganization of the management of public enterprises to achieve the twin
aims of a strong well-knit public sector and the autonomous operation of responsible
units. It emphasized the need for encouraging operation and decentralized decision-
making for the private sector – small and large, within this overall frame. Last but not
the least, it called for a more even distribution of benefits, a fuller life for an increasing
large number of people, and building up a strong integrated democratic nation (Hantal,
1996).
The Draft Fifth Five-Year Plan was formulated in terms of 1972-73 prices and in the
context of the economic situation obtaining in the first half of the fiscal year 1973-74.
Thereafter, two major developments took place. The inflationary pressure gathered
momentum till September 1974; and the balance of payment position worsened due to
the steep rise in the prices of imported oil and other materials (Government of India,
1973, Draft Fifth Five-Year Plan).
It was, therefore, designed mainly to control inflation and increase production
particularly in the key sectors. The plan outlay had to be kept at a modest level. Yet care
was taken to ensure adequate provisions for agriculture including irrigation and fertil-
izers, energy (power, coal and oil), ongoing payment in steel, non-ferrous metals and
certain basic consumer goods industries. Emphasis was on fuller utilization of the
unutilized capacities. The provision for social services was restrained but kept at a
reasonable level.
After having succeeded in containing inflationary tendencies and giving the economic
situation a promising turn, the objectives laid down in this plan were: removal of
poverty and achievement of self-reliance. The strategies related to growth in the three
leading sectors, viz., agriculture, energy and critical intermediates and the creation of
additional employment opportunities.
The 20-point Economic Programme announced by the Prime Minister on 1st July 1975;
the various constituents of the 20-point economic programme especially those which
require financial investment, have been identified. Priority has been accorded to the
implementation of the schemes falling under this programme (Government of India,
1973, Fifth Five-Year Plan).
The Fifth Plan also permitted foreign capital participation where the technological gap
could not be filled by indigenous technology. However, such participation was normally
not expected to exceed 40 per cent (Government of India, 1973, Draft Fifth Five-Year
Plan).
There were two Sixth Plans. The Janata Party’s Sixth Plan (1978-83) sought to reconcile
the objectives of higher production with those of greater employment so that people
living below the poverty line could benefit there from. The focus of the Janata’s Sixth
Five-Year Plan was enlargement of the employment potential in agriculture and allied
activities, encouragement to household and small industries producing consumer goods
for mass consumption and to raise the incomes of the lowest income classes through a
minimum needs programme.
When the Sixth Plan (1980-85) was introduced by the Congress, the planners rejected
the Janata approach and brought back Nehru model of growth by aiming at a direct
attack on the problem of poverty by creating conditions of an expanding economy.
The gradual process of liberal economic policy was followed in Sixth Five-Year Plan to
maintain growth with stability. It, therefore, called for flexible licensing policy for
private participation in the capital formation (Government of India, 1980, Sixth Five-
Year Plan). Though the key industries remained under the control of public sector, a
little openness gradually started in country.
The Sixth Plan policies stated attentions in following areas:
(a) Removing the disadvantages, which exports suffer because of restrictions on
imports.
(b) Removing obstacles to the expansion of capacity for exports.
(c) Streamlining the existing cash compensation and other schemes intended to remove
the disadvantages suffered by exports on account of taxation and physical controls
operating in the economy.
(d) Ensuring that government intervention in the foreign trade policies is such as not to
discriminate against exports and production for exports, there is a case for making
exporting marginally more profitable than import substitution, in view of the need to
diversify export trade which involves capturing new markets abroad and retaining
them; and
(e) Maintaining adequate links with technological development abroad so that our
export capability is not hurt by outdated technology.
The Seventh Five-Year Plan (1985-90) sought to emphasis policies and programmes
which would accelerate the growth in food-grains production, increase employment
opportunities, and raise productivity – all these three immediate objectives were
regarded as central to the achievement of long-term goals determined as far back as the
First Plan itself (Datt and Sundharam, 2000).
It the Seventh Plan the liberal economic policy was more encouraged. It says, “in
addition to the programme of public sector investment, the plan must contain a set of
policies designed to bring about the desired pattern of investment in the private sector.
Other policies lead supportive of the plan will be those which lead to efficiency and
economy in resource use in both the public and the private sector. Thus, the success of
the plan would depend among others on the choice of the Current Policy Framework”
(Government of India, 1985, Seventh Five-Year Plan: 68). The Seventh Plan stated that a
strenuous effort at non-planned expenditure control was required. Arguing that many
of the subsidies are not beneficial to the poor, it called that the subsidy burden must be
kept down to a reasonable level.
It justified the need of introducing the principle of ‘zero-based budgeting’ which
according to the plan could be applied to non-developmental expenditure as well as
developmental expenditure. This would make possible for redevelopment of personnel,
thereby cutting down new recruitment.
The Seventh Plan also argued that because of the development of economy and the
industrial structure which were becoming more and more diversified and complicated,
the licensing mechanism and other physical controls became more difficult to operate.
Hence, it considered it is necessary to reduce the regular and range of physical controls
and plan greater reliance on financial controls which would give signals but would not
involve inefficiency and delays.
The Sixth Five-Year Plan had noted:
“The Framework of Rules and Regulations relevant to the nascent stage of development
are not necessarily appropriate to the complex industrial structure which has since
been built up. Without sacrificing the basic principles of a planned economy, sufficient
flexibility would need to be built into the system to impart a sense of dynamism to take
advantage of the considerable technological and managerial capabilities that have been
developed over the years”.
During the Sixth Plan considerable liberalization was introduced in the rules and
operations relating to industrial and import licensing. The level of investment below
which licensing was not required was raised to Rs 5 crores. A sizable number of
commodities were placed on the Open General License (OGL). In the light of the
experience gained during the Sixth Plan, substantial changes in the licensing policy have
been introduced. Several important industries have been delicensed and broad-banding
has been introduced to impart flexibility in regard to choice of product by the
entrepreneurs.
It also called for liberalizing the import policy. It says: Quantitative import restrictions,
though no doubt effective, have also fostered a chronic disregard for productive
efficiency by creating a protected domestic market. And in the absence of equally secure
and commensurate incentives for sales abroad, they have discriminated against exports
in the same way as a generalized exports duty. As a consequence, a large number of
import products are replaced at a much higher domestic resource cost than would have
been involved in acquiring equivalent foreign exchange through exports.
In line with the Sixth Plan policy concerns, deliberate efforts were mounted to minimize
this bias against exports; and the policy package for exporters from Domestic Tariff
Area (DTA) consisting essentially import replenishment, duty drawbacks, cash
compensatory support (CCS), concessional credit and provision for domestic
intermediates was streamlined and liberalized. It also stated in subsequent para as
“Discrimination against exports can be avoided as has been done through the
establishing of Free Trade Zone (FTZ) or more per cent of Export Oriented Units (EOUs)
– a Foot Loose version of the former”.
Various programmes and schemes were also devised for social upliftment of the poor
sections, as per the various facets of the Indian Constitution.
Evaluation of Indian Planning and Development:
Reviewing the overall achievement of planning in India, Draft Five-Year Plan (1978-83)
under Janata regime stated: “It is a cause of legitimate national pride that over this
period a stagnant and dependent economy has been modernized and made more self-
reliant. Moderate rate of growth per capita income has been maintained despite the
growth of population” (Government of India, 1978, Draft Sixth Five-Year Plan,1978-83).
Among the major achievements of planning in India, increase in national and per capita
income progress in agriculture, development of infrastructure, progress in industry,
diversification of export and import, development of science and technology and
development of a huge educational system are some of the notable features.
The Net National Product (NNP) at 1980-81 prices in 1950-51 was Rs 40,450 crore
which increased to Rs 1, 86,450 crore in 1990-91 and further to Rs 2, 58,470 crore in
1996-97. Similarly, per capita NNP at 1980-81 prices increased from Rs 1,130 of 1950-
51 to Rs 2,220 in 1990-91 and further to Rs 2,760 in 1996-97. This increase, despite,
huge population increase over the period, is praiseworthy (Economic Survey, 1998-99).
During the period, the government had spent on an average 23 to 24 per cent of the plan
outlay in each of the five-year plans on the development of agriculture and allied
activities and irrigation. This expenditure was in addition to the private sector
investment on agriculture and minor irrigation.
As a result, food-grains production rose from 51 million tonnes of 1950-51 to 108
million tonnes in 1970-71 and further to 199 million tonnes in 1996-97. In other words,
during 1950s, despite relative smaller size of population we had shortage of food. But
now government is claiming for buffer stocks of food-grain.
Another achievement of great significance is the creation of economic infrastructure
which provides the base for the developmental programme and industrialization.
According to Janata’s Sixth Plan: “A large infrastructure has been built to sustain this
sub-continental economy: the network of irrigation storage works and canals, hydro
and thermal power generation regional power grids, a largely electrified and dieselized
railway system, national and state highways on which a rapidly growing road transport
fleet can operate and telecommunication system covering the most urban centres and
linking India with the world” (Government of India, 1978, Draft Sixth Five-Year Plan,
1978-83).
Similarly, achievements in the field of industrial development in the country are
appreciable, as the Janata’s Sixth Plan states: A major achievement has been the
diversification and expansion of India’s industrial capacity with the public sector
playing the leading role.
The country is self-sufficient in consumer goods and in basic commodities like steel and
cement, while the capacity of other industries like fertilizers is rapidly expanding. The
growth of capital goods production has been particularly impressive, and India can now
sustain the likely growth of most of her industries, whether textiles, food processing or
cement or chemicals, metallurgical industries, power and transport, by the domestic
production of capital goods needed with marginal imports (Government of India, 1978,
Draft Sixth Five-Year Plan, 1978-83).
Diversification of export and import, development of science and technology and
development of huge educational systems are other notable features of achievement of
Indian planning. Reviewing national achievements after 40 years of planning D.T.
Lakdawala wrote: “There has been some satisfaction with the economic progress made
by India on several fronts – the rate and diversity of economic growth, the increase in
savings and investment, the almost entire self-reliance realized in food-grains
production, the high transformation in the structure of industry, the capacity in training
highly skilled manpower so as to lead to an exportable surplus in certain lines, the
extension of normal and special banking facilities to hitherto unbanked areas and
sectors, the unprecedented expansion of state, quasi-state and cooperative institutions
in marketing and technical aid and guidance, etc. Some indicators of the quality of life
expectations of life at birth, death rate, infant mortality rate have also recorded a
welcome change” (Lakdawala 1988).
However, planning was gross failure in the other aspects of development, notably in
respect to social equality and development in the country. It has been observed that it
failed miserably in its goals of poverty eradication, providing employment, bridging
inequalities, education to all, land reform, self-reliance and balance regional devel-
opment and so on.
These problems are briefly discussed below:
Poverty:
India’s failure to eradicate poverty even after it achieved the independence attracted the
minds of the scholars very seriously in 1970s. Various scholars therefore, did important
studies on poverty (Dandekar and Rath, 1971; Minhas, 1970; Bardhan, 1973; Bardhan,
1970; Ahluwalia, 1978; Ojha, 1970; Vaidyanathan, 1974; Minhas, 1974). They found
huge percentage of India’s population living in the below poverty line. For eradication of
poverty, Indian government devised various schemes and programmes such as
Integrated Rural Development Programme (IRDP), National Rural Employment
Programme (NREP), Rural Landless Labour Employment Guarantee Programme
(RLEGP), etc.
In the mid-term appraisal of Sixth Plan, the Planning Commission has claimed that there
has been a decline in the incidence of poverty between 1977-78 and 1983-84. The
success on the front of poverty has been attributed to the above-mentioned
programmes, and made highly questionable assumption that the growths of per capita
income help benefit the poor. Hence, various scholars sharply reacted to such claim. Raj
Krishna asserts that the linking of the poverty ratio with per capita income is not
justified.
He also denounced the assumption of the Planning Commission that the expenditure on
rural development schemes and reduction of poverty are correlated (Krishna, 1983:
1975). Sundaram and Tendulkar also took exception to the claim of Planning
Commission and opined that there was utter casualness in their approach of the Mid-
Term Appraisal, which cannot be uncritically accepted without close scrutiny
(Sundaram and Tendulkar, 1983: 1928). Other scholars however, have refuted the
above criticisms (Rath 1985; Paul, 1984; Bagchee, 1987). According to Rath the IRDP
strategy” is largely misconceived. Only a small proportion could be helped; what is
equally true is that only a very small proportion can be helped in this manner.
Putting more burdens on this approach will discredit the line of attack; generate
wastage, corruption and ultimately cynism. In a multi-pronged attack on rural poverty
this approach surely has a legitimate place, but it cannot be the mainstay of such a
programme” (Rath, 1985). He favours a programme of creating wage employment on a
massive scale.
However, Hirway and Dantwala disagreed with Rath and advocated that in a
programme for poverty alleviation the role of self-employment should not be
undermined (Hirway, 1985; Dantwala, 1985). According to Hirway, self-employment is
a major force of employment in the rural areas and this fact must not be ignored in the
strategy of poverty alleviation (Hirway, 1985). Further, dependence on wage
employment alone to tackle the problem of poverty will lead to total dependence of the
poor on employers. It is also likely to accentuate the gap between the rich and the poor
by strengthening the asset base of the former (Dantwala, 1985).
Among other causes there are three important causes such as rapid population growth
(Mellor, 1986), concentration of wealth and inequality (Griffin 1979) and corruption
and non-implementation of programmes (Hantal, 1996) are the important factors
responsible for accentuating poverty. But for these, strong and careful policy and
implementation of such policy with letter and spirit is necessary, which so far is absent
in our country.
According to Kurien, the existing social structure is the main obstacle against poverty
alleviation. He asserts, “In some instances the structural elements can be so pervasive
that even the most carefully designed strategies may not only fail, but can turn out to be
counterproductive (Kurien, 1986). It has also been observed that anti-poverty policies
eventually help the rich and middle income groups more than they help poor (Adelman
and Robinson, 1978).
The number of people living below poverty is so massive that it cannot be agreed with
the viewpoint that poverty has been reduced or can be reduced with gradual approach,
but a radical move with target-based design is required. The soft policy of the Indian
Government, perhaps, is responsible for this massive number of people living under the
clutches of poverty (Myrdal, 1968). In the following Table 2.1 compilation of poverty
incidence by World Bank, Planning Commission, Minhas et al., Gaurav Datt and
Ravallion, and Planning Commission Expert Group Report (1993), is stated.
Datt and Ravallion have also shown the regional disparities of poverty in India.
According to them, largest numbers of people under below poverty line were in Bihar
(60.76%), followed by Orissa (55.16%), and West Bengal (54.37%).
Least numbers of people falling under this category were in Punjab (19.35%) followed
by J&K (19.56%) and Haryana (21.69%) (Datt and Ravallion, 1989: 37). Minhas
lamented that the rural poor despite being numerous failed to catch as much attention
as the urban poor (Minhas, 1971).
After taking the detail account of the rural poor, Bardhan has listed the following
mechanism whereby ‘trickle down’ effects were prevented since the mid-sixties:
(i) The adoption of labour-displacing machinery immiserized a section of wage
labourers;
(ii) The increased profitability of self-cultivation by large landlords led to eviction of
small tenants,
(iii) The increased dependence of agriculture on purchase inputs and privately managed
irrigation drove resourceless small farmers out of cultivation,
(iv) The emergence of the class of new rural rich after the green revolution caused a
shift in the demand pattern, away from local handicrafts and services and this led to the
impoverishment of the village artisan,
(v) Rapid agricultural growth in selected areas induced immigration of agricultural
labour from backward areas,
(vi) The increased use of pump sets by richer farmers has resulted in some areas, a drop
in water tables and as a result traditional lift irrigation technology used by poorer
farmers has become less effective. Further, the large farmer is no longer interested in
the maintenance of old irrigation channels and the small farmers alone are not in a
position to mobilize adequate resources for this purpose.
(vii) The new technology has brought about a decline in the participation of women in
the agricultural workforce and this has in most cases caused a decline in the earnings of
the relatively poor households.
(viii) The increased political bargaining power of the rural rich has resulted in higher
administered prices of food-grains while agricultural labourers have shown a tendency
to lag behind the price rise (Bardhan, 1986).
As already stated, the government has taken many measures to eradicate poverty but
none of those were really successful in its objective. The solution for eradicating poverty
according to the government and, of course, many politicians lies with providing
employment and raising the productivity of low level of employment.
The Approach Document to the Fifth Plan (1972) states: “Employment is the surest way
to enable the vast numbers, living below the poverty level to rise above it. Conventional
fiscal measures for redistribution of income cannot by themselves, make significant
impact on the problem” (Government of India, 1972, Towards an Approach to the Fifth
Plan, 1972).
Chakrabarty says: “The solution to the problem of rural poverty will require that small
farmers must also be given access to land-augmenting innovation along with a
programme of well-conceived public works. Both these make considerable demand on
available services and organizational capabilities as they cannot be merely directed
from above – many of the specific tasks will need to be done on a decentralized basis”
(Chakrabarty, 1987).
Suri and Gangadharan, however, say: “The institutional malady needs to be rectified to
completely eradicate poverty in the long-run. The effects of an initial unequal
distribution of income yielding assets has been cumulative, resulting in the continuance
and intensification of this skewness, that is, we find two interconnected vicious circles,
one of affluence and the other of poverty. Thus, any attempt to break the vicious circle
of poverty without tampering with the vicious circle of affluence will not affect the
cumulative process or halt the widening gap between the rich and the poor. It is in this
context that ‘Garibi Hatao’ (removal of poverty) is incomplete as a drive in the
eradication of poverty. In other words, it must be complemented with ‘Amiri Hatao’ –
removal of affluence”(Suri and Gangadharan, 1997).
Finally, it can be concluded, that the free-India’s economic policy too miserably failed
like that of British economy policy in tackling poverty. In this context writing of
Amartya Sen is worth mentioning. He said: “The poor is not an economic class, nor
convenient category to use for analyzing social and economic movements. Poverty is the
common outcome of a variety of disparate economic circumstances and a policy to
tackle poverty must, of necessity, go beyond the concept of poverty. The need for
discrimination is essential” (Sen, 1977). He further asserted, “It is not sufficient to know
how many poor people there are, but how exactly poor they are”.
Unemployment:
Poverty and unemployment are mostly interrelated. Because there is unemployment,
there is poverty or because there is poverty, there is unemployment. According to
Committee of Experts on Unemployment, total number of unemployed was 18.7 million
in 1973 which included 16.1 million from urban India (Bhagavati, 1973). Similarly,
according to CMIE report, the number of educated unemployment increased from 22.96
lakhs in 1971 to 224.34 lakhs in 1991 (CMIE, 1994).
Table 2.2 reveals the correlation between poverty and unemployment. As per the facts
of the table, nearly three-fourths of the unemployed belong to households with an
income level less than Rs 200 per month. All such families can be broadly classified as
living below the poverty live. Obviously, unemployment is widely spread in poor
families and as income levels improve the proportion of the unemployed to the total
unemployed declines.
Planning Commission has also stated ‘Usual Status’ of unemployment through 32nd
round and two sub-rounds of 38th round in the National Sample Survey Organization’s
study on Employment-Unemployment. On the basis of 32nd round, the unemployed
figures were 13.89 million, 13.25 million and 13.10 million for age groups 5+, 15+ and
15-59 respectively.
Figures of 32nd round have shown increased unemployment in 1985 in comparison to
1980. Hence, two quick 38th rounds were made to show lesser numbers of unemployed.
Because of this, it invited criticism from scholars. According to critics, Planning
Commission wished to mislead the people through statistical jugglery about the
dimension of the problem (Jha, 1986).
Scholars also criticized various employment generation programmes such as NREP,
RLEGP, TRYSEM, IRDP etc. The criticism was based on three points such as, about the
scheme itself, non-implementation, and wrong identifications. On the basis of the
NABARD surveys of IRDP, Rath concludes: “The NABARD (1984) surveys shows the
percentage of beneficiaries wrongly classified to be 42 per cent in Assam, 17.76 in
Haryana, 35 per cent in Punjab, 19 per cent in Madhya Pradesh, and 13 per cent in
Maharashtra. As against this, the survey showed 11 per cent misclassification in the
surveyed districts of Tamil Nadu and Karnataka, 7 per cent in Andhra Pradesh and
hardly one per cent or less in Orissa, Bihar and Uttar Pradesh. On the whole, however, it
would not be improper to suggest that at least 15 per cent of those identified poor and
helped under IRDP did not really belong to the category of the poor” (Rath, 1985).
Krishnan on the basis of his study in Kerala concludes: The majority of the beneficiaries
to the extent of 80 per cent (based on annual family income of less than Rs 3,500) and
63.25 per cent (based on monthly per capita income of less than Rs 76) were not eligible
for assistance under the programme. Targets are fixed without realistically
understanding the magnitude of poverty in a specific region resulting in benefits being
liberally passed on the well-off sections (Krishnan, 1984).
Similarly, Hirway, on the basis of a study of four selected villages in Gujarat concludes:
“Firstly, the non-poor households dominate among participants – about 55 to 75 per
cent of the participants are non-poor in the villages. And secondly, the non-participants
mainly belong to the lowest three deciles of consumption levels” (Hirway, 1984).
Ashok Rudra asserts that the government never had an employment policy. It also did
not set a target date “by when any able bodied person who wants to work and make an
honest living can be assured of a job that would offer him at least a minimum
subsistence” (Rudra, 1982). Making his observations, Tarlok Singh wrote in the mid-
seventies, “lags in employment and inadequacy of various policies and measures
adopted thus far are indications that the task of ensuring work for all has to be taken up
in a much more fundamental way than in the past “(Singh, 1974).
It has also been observed that the employment programmes were not sufficient enough
to enable the poor to increase his level of status because these are even non-sufficient
for basic subsistence of life. According to Jha, therefore, “the employment to be
generated must be gainful and if the wages earned are not to be a burden on the
community and, therefore, in the nature of dole or charity of goods and services
produced must have an effective demand for them out of their sale proceeds, reasonable
wages can be paid preferably but not necessarily in all cases – without raising prices”
(Jha, 1984).
According to Chaudhari, there is lack of compatibility between employment and output.
There is no serious concern in the formulation of the strategy for the compatibility of
the employment targets with various output and investment targets (Chaudhari, 1978).
Bharadwaj in his writings of unemployment in India, emphasized on growing rate of
urban unemployment in India (Bharadwaj, 1969: 109-26). Sometimes, the reason cited
for such growing urban unemployment, particularly educated unemployment, had been
excessive supply of educated youth. Supply has consistently moved ahead of demand so
that educated unemployment as a fraction of the stock of educated manpower has
remained relatively constant” (Blaug et al., 1969).
According to Blaug et al., however, the educated unemployment in itself is no proof of
overinvestment in education. Since it is caused by market imperfection, the appropriate
remedy, might, therefore, involve an active manpower policy designed to improve the
functioning of labour markets rather than a contraction of upper secondary and higher
education.
According to Myrdal, India’s educational policy does not aim at development of human
resources, rather it merely produces clerks and lower cadre executives for the
government and private concerns. With the expansion in the number of institutions
which impart this kind of education, increase in unemployment is inevitable.
It is so because education in arts, commerce and science will not ensure employment to
all those who have received it on account of its limited utility for productive purposes.
Myrdal considers all those who receive merely this kind of education not only as
inadequately educated but also wrongly educated (Myrdal, 1968).
Another reason mostly given for the growing unemployment in India is the backward
economy of India. It is therefore, assumed by the Planning Commission that the growth
of economy would generate employment and solves the crises of unemployment
problem in the country. However, it does not satisfy all economists.
Some of them argued that even the high growth had not generated employment, so it
would not be possible to see that in future the high growth of economy would resolve
the crises of unemployment in India (Brahmananda, 1978). For Lewis, often wrong
choice of technique that is instead of labour-intensive going for capital -intensive
technique is responsible for the rising trend of unemployment (Lewis, 1955: 356).
The possibility of an increase in unemployment is not completely ruled out in a rapidly
developing economy. In fact, there exists a real conflict between the objectives of
economic growth and employment in the early phase of development (Stewart and
Streeten, 1973). Hazari and Krishnamurthy have brought out the conflict between
growth and employment inherent in the Mahalanobis strategy which guided India’s
development efforts for about two decades (Hazari and Krishnamurthy, 1970).
Apart from general unemployment, various scholars have also brought out the hidden
or designed unemployment and underemployment in India, especially in rural agrarian
society and accused the non-sensible Indian economic policies for such miserable
situations (Sen, 1977; Mehra, 1966; Bhattacharjee, 1961; Rudra, 1973; Uppal, 1967).
Hence, it may be summed up that the planning in India could not provide employment
and forced the vast Indian poor into the clutches of poverty.
Inequality:
The income inequality in India is another social problem and policy failure of Indian
government. Lydall estimated income distribution for the year 1955-56 on the basis of
data obtained from income tax records and the NSS data on consumption expenditure.
According to his estimates India’s per capita income in 1955-56 was Rs 255 (at current
prices) per annum.
He estimated that income of about 72 per cent people whose incomes were above
national average accounted for 51 per cent of the national income while the poorest 25
per cent population had to remain contented with a mere 9.5 per cent of the national
income (Lydall, 1960). Other studies also supported the inequalities of income existent
in India (RBI, 1962; NCAER, 1962). Other studies conducted in 1960s revealed further
growth of inequalities in country (Ojha and Bhatt, 1974:163-66; NCAER, 1966;
Ranadive, 1973).
Pranab Bardhan compiled the above studies of income inequalities in his work. The
compilation of his work is shown in the following Table 2.3.

The perpetuation of inequality of income distribution and its further widening of gaps in
1970s and 1980s, have been reported from various studies (NCAER 1980; Bhalla and
Vashistha, 1988; Iyengar and Brahmananda, 1987; Tendulkar, 1987; Chelliah and Lai,
1981). In 1975-76, according to the World Bank report, lowest 20 per cent had 7 per
cent share of household income while 49.4 per cent of household income was shared by
highest 20 per people of nation (World Bank, 1988).
In term of assets distribution, especially in rural India, the inequality is much higher, in
fact it is against the ethos of the Indian Constitution. This is stated in the following Table
2.4.

The above table indicates how inequality of assets holding is manifested in rural India.
There is marginal improvement in the lowest 10 and topmost 10 categories, but the
inequality system in asset holding in the categories of lower 30 and top 30 is widening
very much.
Similar observation has been made by among others, sociologist A.R. Desai about rural
landholding system and found that approximately 20 per cent rural population held
more than 80 per cent of Indians cultivable land whereas 80 per cent of rural
population held only 20 per cent of land (Desai, 1987).
According to some scholars, usually in underdeveloped and developing countries,
inequality is more in comparison to developed nations in which inequality is in between
low and moderate. In socialist countries, however the gap is less (Chenery, 1974).
However, according to World Development Report 1994, inequality was more even in
advanced countries though it was Brazil who topped in the list of inequality distribution
of income followed by Mexico. Table 2.5 states distributions of income in selected
countries (percentage distribution

According to scholars like Kuznets, in the early stage of development the inequalities
show a tendency to grow (Kuznets, 1955). However, after several decades of Indian
planning and development, the inequality system, instead of getting narrowed, in fact, is
widening. Moreover, as per World Development Report, as stated in Table 2.5, the
developed nations like, UK, USA and Switzerland also could not reduce the inequality
system.
Perhaps, Ambedkar was right in saying that, for only sake of humanistic point of view,
no one is likely to give up the power and privileges he/she has been enjoying. Hence, it
is the state which should take appropriate decision with regard to reduction of
inequality.
Though Indian government has enunciated various programmes for reduction of
inequalities such as land reform, it has truly failed in its desired objectives – practical
implementation of such principles. Perhaps, one of the biggest reasons of perpetuation
of inequality especially in rural India is its failure of implementation of land reform in
letter and spirit. Various studies support this (Tendulkar, 1987; Chakrabarty, 1987;
Desai, 1987).
Bagchi has argued that tax structure in India is regressive and it has encouraged further
concentration of economic power (Bagchi, 1974: 462-65). Thus fiscal policy, according
to him, further widened the inequalities in country. By criticizing Indian economic
policy on income redistribution front, K.N. Raj stated: “Inequalities in income and
wealth are also greater now than they were at the beginning of this period of planned
development” (Raj, 1969). It is rightly pointed out by some scholars that in a society
with an unequal distribution of assets and power, growth of nation often failed to
redistribute income and to eradicate poverty (Streeten et al., 1982)
Paranjape argued that MRTP Act which controls and restricts objectationable trade
practices was rather inadequate and ineffective, yet the government, instead of making
it more tightening, further liberalized on one pretext or the other, thereby indirectly
supported to the perpetuation of inequalities in the country (Paranjape, 1983).
Similarly, poverty eradications and generation of employment programmes have been
rather ineffective tools to bridge the gap of inequality (Srinivasan, 1974: 379; Dantwala,
1973). Therefore, perhaps, Chaudhari rightly asserted that Indian plans had never made
any serious attempt to redistribute income and wealth (Chaudhari, 1971 and 1978).
In its objective of self-reliance also, the Indian plan failed miserably, for which it has
attracted larger number of criticism. The detailed discussion of this topic is not done
here. However, following statement of Ezekiel is worth mentioning.
According to him, “planning documents contain many examples of statements in which
after declaring self-reliance to be the objective in one sentence, the next and subsequent
sentences go on to show how it is proposed to achieve, self-sufficiency” (Ezekiel, 1992).
Imbalanced regional development is another instance of Indian Planner’s failure of
bringing the social equity. The imbalanced development has been highlighted through
various works of scholars (Lahiri, 1972; IEA, 1969, 1974; Chand and Puri, 1983).
As stated already, it is not only due to lack of proper planning, it is more so due to lack
of proper implementation of such programmes that India could not attain its basic
objectives, whether abolition of poverty, generation of employment, reduction of
inequalities or balanced regional development in the country.
Towards the end of 1980s the new global economic policy, after the 8th round of GATT
(known as Uruguay Round talk), started spreading worldwide. The new policy is known
as the liberalization policy. More recently, it is popularized as ‘globalization’.

National Income
Concepts & Trends
Concepts:
• National income is the total value of all the final goods and services produced
by a country in a certain year.
• The total amount of income accruing to a country from its economic activities
in a period of one year is known as the country’s national income.
• The national income of a country helps to know its progress. Hence, the higher
the national income, the greater is the country’s growth.
• It also includes the payments made to all the resources in the form of interest,
profits, rent, wages, etc.
National Income – Overview
As we see, the national income is the total amount of the income accruing to a country
from the economic activities in a year’s time. It includes payments like wages, interest,
profits, rent, etc. extended to all the resources. The progress of a country can be
determined by the growth of its national income.
From the modern point of view, the national income is defined as:
Net Output of Commodities and Services flowing during the year from the country’s
productive system in the hands of the ultimate consumers.
The national income is an uncertain term and is often used interchangeably with
national output, national dividend, national expenditure, etc.
Calculation of national income is helpful in the following ways:
• It shows a sector-specific growth trend
• It helps the government to bring effective reforms
• International Monetary Fund (IMF) considers GNP of India as National
Income
 • The Net National Product at Factor Cost (NNPFC) is considered as national
income
Measures of National Income
The measures or aggregates of national income are as follows:
• GDP (Gross Domestic Product)
• NDP (Net Domestic Product)
• GNP (Gross National Product)
• NNP (Net National Product)
Now let’s see each of the National Income measures individually along with their
respective formulae:
GDP Gross Domestic Product
• It is the total value of final goods and/ or services produced in the boundary of
a country in one financial year (01st April to 31st March)
• Production done by foreign nationals in an economy is calculated in GDP if it is
done within the geographical boundary.
• It is calculated at market price and is defined as GDP at market prices.
• Different elements of the GDP are:
• Wages and salaries
• Interest
• Rent
• Undistributed profits
• Depreciation
• Mixed-income
• Direct taxes
• Dividend
GDP = Consumption + Government Expenditure + Investment + Exports – Imports
Net Domestic Product (NDP)
• NPD is the value we get when depreciation is subtracted from the Gross
Domestic Product.
• Depreciation refers to the wear and tear occurring in the process of
production.
NDP = GDP – Depreciation
Gross National Product (GNP)
• It is the value of final goods and/ or services produced by the citizens of a
country within a financial year.
• GNP is calculated by adding the income from abroad in GDP and subtracting
the income going out of the economy from the GDP.
• It includes the net income arising in a country from Foreign Trade. Four main
elements of the GNP are:
• Consumer goods and services
• Gross private domestic income
• Income arising from abroad
• Goods produced or services rendered
GNP = GDP + (X-M), where X = Income from foreign and M = Income to Foreign
Net National Product (NNP)
• It is calculated by subtracting depreciation from the Gross National Product.
NNP = GNP – Depreciation
Difference between GDP and GNP of India
The national income is a macroeconomic-level variable that enables the determination
of the economic stability of a country. It represents the total income accrued to a
country from all of its economic activities in a given financial year.
The most favored way of calculating the national income comprises the GDP and GNP.
Let’s see the difference between GDP and GNP.
Gross Domestic Product (GDP) Gross National Product (GNP)

The value of goods and services The value of goods and services produced by the
produced within a country in a citizens of a country irrespective of the geographical
financial year. boundaries in a financial year.

It only measures domestic It only measures national production.

production.

GDP focuses on the production It focuses on the production obtained by the citizens
obtained domestically. living in different nations.

Measures the strength of the Measures the contribution of the residents to the
country’s economy. development of the economy.

Scale of operations is local. Scale of operations is international.

Goods and services produced Goods and services produced by the non-residents
outside the country are excluded. living in the country are excluded.

Types of Costs – Important Concepts to Remember

Factor Cost
• It is the total cost incurred during processes of production, eg. raw materials
costs, wages, rent, capital cost, etc.
Market Price
• Market Price is the price at which a product is sold in the market. It includes
the cost of production like wages, input prices, profits, rent, interest, etc.
• Market price also comprises the taxes imposed by the government and the
subsidies provided by the government for the producers.
Gross Value Added (GVA)
In this section, let us understand a few important formulae related to Gross Value
Added (GVA)
• GVA at basic prices = GVA at factor cost + (production taxes less production
subsidies)
• GDP at market prices = GVA at basic prices + Product taxes – Product
subsidies
• Basic Price = Factor cost + Production taxes – Production subsidy
• Market Price = Basic price + Product taxes – Production subsidy
• Market Price = Factor cost + Net indirect taxes (Net indirect taxes = indirect
taxes – subsidy)
Calculation of GDP
The Gross Domestic Product is calculated through Nominal GDP, Real GDP, and GDP
Deflator. Let us see about each of the methods of calculating GDP in detail as below:
Nominal GDP
• When the GDP is calculated at current prices is known as Nominal GDP.
• It is not inflation-adjusted.
Real GDP
• When GDP is calculated at the base year prices are known as Real GDP.
• It is Inflation adjusted
• Note: Present base year for GDP calculation is 2011-12
GDP Deflator
• GDP Deflator establishes the relationship between nominal and real GDP.
• It also shows the effect of inflation on the value of production.
GDP = Nominal GDP/ Real GDP x 100
Trends in National Income of India
A detail study of the trend of the national income in India over the last 40 years is very
much essential for attaining a clear understanding about the impact of planning on the
Indian economy. Both the national income and per capita income are first collected at
current prices and then at constant prices for eliminating the effect of any change of
price level during that period.
This trend in national income also reflects on the standard of living of the people of
India. Thus, the national income at current prices is influenced by both the increase in
production of goods and services and the rise in prices. In order to make the national
income figures comparable, these figures are deflated at constant prices just for
eliminating the effect of any change in the price level of the country. Let us now look
into the trends in the national income figures and per capita income figures of India
both at current prices and at constant prices obtained through C.S.O.’s new series with
1980-81 as base year.
The Table 2.1 (a) reveals estimates of national income and per capita income of last 46
years both at current prices and at 1980-81 prices. It can be seen that the national
income of India at 1980- 81 prices has increased from Rs. 40,454 crore in 1950-51 to Rs.
2,58.465 crore in 1996-97 registering a growth rate of 538.9 per cent during last 46
years.
Moreover, the national income in India at current prices has increased from Rs. 9,142
crore in 1950-51 to Rs. 10,93,962 crore in 1996-97 which shows a growth of 119 times
during this period of 46 years. Again the per capita income figure at constant prices
(1980-81) has increased from Rs. 1,127 in 1950-51 to Rs. 2.761 in 1996-97 registering a
growth rate of 144.9 per cent during these last 46 years. Further, the per capita income
of India at current prices has increased from Rs. 255 in 1950- 51 to Rs. 11,564 in 1996-
97 showing a growth of 45 times during the same period.

CSO’s Revised 1993-94 Based NNP Series:

The Central Statistical Organisation (CSO) has released the new 1993-94 based NNP
series. Let us now look into the trends in the national income figures and per capita
income figures of India both at current and constant price obtained through C.S.O’s new
series with 1993-94 as base years.
The Table 2.1 (b) reveals the estimates of new 1993-94 based net national product
(NNP) series of last 54 years both 1993-94 prices and at current prices. It is found that
the NNP of India at 1993-94 prices increased from Rs. 1,32,379 crore in 1950-51 to Rs.
6,14,386 crore in 1990-91, to Rs. 10,08,114 crore in 1999 2000 and then to Rs.
12,66,055 crore (Q) in 2003-04 registering a growth rates of 856.4 per cent during the
last 54 years.
Again, the national income (NNP) of India at current prices increased from Rs. 9,144
crore in 1950-51 to Rs. 4,50,280 crore in 1990-91, to Rs. 15,90,212 crore in 1999-2000
and then to Rs. 22,68,576 crore (Q) in 2003-04 registering a growth of 248 times during
the last 54 years.

Again the per capita income figure at constant (1993-94) prices increased from Rs.
3,687 in 1950-51 to Rs. 10,071 in 1999-2000 and then to Rs. 11,798 (Q) in 2003-04
registering a growth rate of 219.98 per cent during the last 54 years. Moreover, the per
capita income of India at current prices also increased from Rs. 255 in 1950-51 to Rs.
15,886 in 1999-2000 and then to Rs. 21,142 in 2003- 04 which shows a growth rate of
8,190.9 per cent during the last 54 years.

CSO’s Revised 1999-2000 Based NNP Series:

The Central Statistical Organisation (CSO) has released the new 1999-2000 based NNP
series. Let us now look into the trends in the national income figures and per capital
income figures of India both at current and constant prices obtained through CSO’s new
series with 1999-2000 as base year.
The table 2.1 (c) reveals the estimates of new 1999-2000 based net national product
(NNP) series of last 58 years since 1950-51 both at 1999-2000 prices and at current
prices. It is observed that NNP of India at 1999-2000 prices increased from Rs. 2.04,924
crore in 1950-51 to Rs. 15,89,672 crore in 1999-2000 and then to Rs. 27,59,004 crore
(Q) in 2007-08 registering a growth rate of 1246.3 per cent during the last 58 years.
Again the national income (NNP) of India at current prices increased from Rs. 9,152
crore in 1950-51 to Rs. 11,89,172 crore in 1999-2000 and then to Rs. 38,13,612 crore
(Q) in 2007-08 registering a growth rate of nearly 317 times during the last 58 years.
Again the per capita income figure at constant (1999-2000) prices increased from Rs.
5,708 in 1950-51 to Rs. 15,881 in 1999-2000 and then to Rs. 24,416 (Q) in 2007-08
registering a growth rate 327.7 per cent during the last 58 years.
Moreover, the per Capita income of India at current prices also increased from Rs. 225
in 1950-51 to Rs. 15,881 in 1999-2000 and then to Rs. 32,299 in 2007-08 registering a
growth rate of 12,566 per cent or an increase of 126 times during the last 58 years.
CSO’s Revised 2004-05 Based NNP Series:
The Central Statistical Organisation (CSO) has released the new 2004-05 based NNP
series. Let us now look into the trends in the national income figures and per capita
income figures of India both at current and constant prices obtained through CSO’s new
series with 2004-05 as base year.

The table 2.1 (d) reveals the estimates of new 2004-05 based net national product
(NNP) series of last 5 years since 2004-05 both at 2004-05 prices and at current prices.
It is observed that NNP of India at 2004-05 prices increased from Rs. 2.623,995 crore in
2004-05 to Rs. 3,672,192 crore in 2008-09(Q) registering a growth rate of 39.9 per cent
during the last 5 years. Again the national income (NNP) of India at current prices
increased from Rs. 2,623,995 crore in 2004-05 to Rs. 4,632.304 crore in 2008-09 (Q)
registering a growth rate of nearly 76.5 per cent during the last 5 years.
Again the per capita income figure at constant (2004-05) prices increased from Rs.
24,095 in 2004-05 to Rs. 31,821 in 2008-09 (Q) registering a growth rate of 32.06 per
cent during the last 5 years. Moreover, the per capita income at current prices also
increased from Rs. 24,095 in 2004-05 to Rs. 40,141 in 2008-09 registering growth rate
of 66.5 per cent during the last 5 years.
Trends of National Income and Per Capita Income during Different Periods of
Planning:
It would be better to look into the trends of national income and per capita income
during different Five Year Plans. The following table shows such trend.
The Table 2.1(e) reveals the growing trends in national income and per capita income
during different plan periods.
First Plan (1951-56):
During the First Plan period, the national income at constant (1980-81) prices has
increased from Rs. 41,443 crore in 1951-52 to Rs. 48,288 crore in 1955-56 showing an
annual average, growth rate of 3.6 per cent. Again the per capita income at 1980-81
prices has also increased from Rs. 1,135.4 in 1951-52 to Rs. 1,228.7 in 1955-56 showing
an average growth rate of only 1.7 per cent during the same plan period.
Second Plan (1956-61):
During the Second Plan period, the national income at constant (1980- 81) prices has
increased from Rs. 50,955 in 1956-57 to Rs. 58,602 crore in 1960-61 showing an annual
average growth rate of 3.9 per cent during the plan period. Moreover, the per capita
income at 1980- 81 prices has also reached the level from Rs. 1,270.7 in 1956-57 to Rs.
1,285.8 in 1960-61 showing an annual average growth rate of 1.9 per cent during the
plan period.
Third Plan (1961-66):
During the Third Plan, the net national product at constant (1980-81) prices has
increased from Rs. 60,168 crore in 1961-62 to Rs. 65,734 crore in 1965-66 showing an
annual average growth rate of only 2.3 per cent during the plan period. Again, the per
capita income at 1980-81 prices has also increased insignificantly from Rs. 1,355.1 in
1961-62 to Rs. 1,355.3 in 1965-66 showing an annual average growth rate of only 0.1
per cent during the plan period.
Fourth Plan (1969-74):
During the Fourth Plan, the national income at constant (1980-81) prices has increased
from Rs. 78,177 crore in 1969-70 to Rs. 86,010 crore in 1973-74 which revealed the
annual average growth rate of only 3.3 per cent during the plan period.
Again the per capita income at 1980-81 prices has also increased marginally from Rs.
1,478 in 1969-70 to Rs. 1,483 in 1973-74 showing an annual average growth of only 0.9
per cent during the same period.
Fifth Plan (1974-78):
During the Fifth Plan period, the net national product at constant (1980- 81) prices has
increased from Rs. 87,116 crore in 1974-75 to Rs. 1,03,670 crore in 1977-78 showing an
annual average growth rate 4.9 per cent during the plan period. Again the per capita
income at 1980-81 prices has also increased from Rs. 1,469 in 1974-75 to Rs. 1,635 in
1977-78 showing an annual average growth rate of 2.6 per cent during the plan period.
Sixth Plan (1980-85):
During the Sixth Plan period, the net national product at constant (1980- 81) prices has
increased from Rs. 1,10,685 crore in 1980-81 to Rs. 1,33,808 crore in 1984-85 showing
an annual average growth rate of 5.4 per cent during the plan period.
Similarly, the per capita income at 1980-81 prices has also increased from Rs. 1,630 in
1980-81 to Rs. 1,811 in 1984-85 showing an annual average growth of 3.2 per cent
during the plan period.
Seventh Plan (1985-90):
During the Seventh Plan period, the national income of India at constant (1980-81)
prices has increased from Rs. 1,39,025 crore in 1985-86 to Rs. 1,77,315 crore in 1989-
90 showing an annual average growth rate of 5.8 per cent during the plan period. Again
the per capita income at 1980-81 prices has also increased from Rs. 1,841 in 1985-86 to
Rs. 2,157 in 1989-90 showing an annual average growth rate of 3.6 per cent during the
plan period.
Eighth Plan (1992-97):
During the Eighth Plan period, the national income at constant (1980- 81) prices has
increased considerably from Rs. 1,95,602 crore in 1992-93 to Rs. 2,58,465 crore in
1996-97 showing an annual average growth of 6.8 per cent during the plan period.
Again the per capita income at 1980-81 prices, has also increased from Rs. 2,243 in
1992-93 to Rs. 2,761 in 1996-97 showing an annual average growth rate of 4.9 per cent
during the plan period.
Ninth Plan (1997-2002):
The Ninth Plan which has started from 1st April, 1997 continued till 31st March, 2002.
The draft of the Ninth Plan approved by the National Development Council (NDC) on
19th February, 1999 has projected a GDP growth rate of 6.5 per cent during the plan
period. But the achievement is estimated at 5.5 per cent during the plan period.
During the Ninth Plan period, the national income at constant prices (1993-94) has
increased considerably from Rs. 8,90,890 crore in 1997-98 to Rs. 11,15,157 crore in
2001-02, showing an annual average growth rate of 5.5 per cent during the plan period.
Again the per capita income at 1993- 94 prices has also increased from Rs. 9,243.6 in
1997-98 to Rs. 10,753.7 in 2001-02, showing an annual average growth rate of 3.6 per
cent during the plan period.
Tenth Plan (2002-2007):
The Tenth Plan which started in 1st April. 2002 continued till 31st March, 2007. The
draft of the Tenth Plan approved by NDC on 1st September, 2001 has set a target of
achieving growth rate of 8.0 per cent in GDP during the plan period.
During the Tenth Plan period, the national income at constant prices (1999-2000) has
increased considerably from Rs. 18,05,830 crore in 2002-03 to Rs. 25,30,494 crore in
2006-07, showing the annual growth rate of 3.9 per cent in the first year (2002-03) and
9.7 per cent in 2006-07.
Eleventh Plan (2007-2012):
The Eleventh plan which started in 1st April, 2007 and continue till 31st March 2012.
The draft of the Eleventh Plan approved by NDC on 9th December, 2006 has set a target
of achieving growth rate of 9.0 per cent of GDP during the plan period.
During the Eleventh Plan period, the national income at constant prices (2004-05) has
increased from Rs. 3,449,970 crore in 2007-08 to Rs. 3,672,192 crore in 2008-09 (Q),
showing the annual growth of rate of 6.4 per cent.

Output – Employment Relationship

The employment relationship in India is governed by a number of laws, including the
Industrial Disputes Act, 1947, the Minimum Wages Act, 1948, the Payment of Wages
Act, 1936, and the Employees Provident Fund and Miscellaneous Provisions Act, 1952.
These laws regulate issues such as wages, working hours, leave, and termination of
employment.
In addition to these laws, there are also a number of government regulations that
govern the employment relationship in India. These regulations cover issues such as
occupational safety and health, discrimination, and sexual harassment.
The employment relationship in India is also influenced by a number of cultural factors.
For example, in India, there is a strong emphasis on loyalty and commitment to the
employer. Employees are expected to work hard and to be dedicated to their jobs.
The employment relationship in India is also characterized by a high degree of
informality. Many employees work in the informal sector, where they are not covered
by the same laws and regulations as employees in the formal sector.
The employment relationship in India is a complex and ever-changing issue. The laws
and regulations that govern the employment relationship are constantly evolving, and
the cultural factors that influence the employment relationship are also changing. As a
result, it is difficult to provide a definitive answer to the question of what the
employment relationship in India looks like.
However, some general trends can be observed. The employment relationship in India
is becoming increasingly formal. More and more employees are working in the formal
sector, where they are covered by the same laws and regulations as employees in other
countries. This is due in part to the growth of the Indian economy and the increasing
demand for skilled workers.
The employment relationship in India is also becoming increasingly globalized. Indian
companies are increasingly hiring employees from other countries, and foreign
companies are increasingly setting up operations in India. This is leading to a more
diverse workforce in India, with employees from different cultures and backgrounds.
The employment relationship in India is also becoming increasingly competitive. The
Indian economy is growing rapidly, and there is a lot of competition for jobs. This is
leading to a situation where employees are demanding higher wages and better
benefits.
The employment relationship in India is a dynamic and ever-changing issue. The laws
and regulations that govern the employment relationship are constantly evolving, and
the cultural factors that influence the employment relationship are also changing. As a
result, it is difficult to provide a definitive answer to the question of what the
employment relationship in India looks like. However, some general trends can be
observed. The employment relationship in India is becoming increasingly formal,
increasingly globalized, and increasingly competitive.
Here is a graph that shows the number of people employed in India in the formal and
informal sectors from 2000 to 2019.

As you can see, the number of people employed in the formal sector has been growing
steadily, while the number of people employed in the informal sector has been
declining. This trend is likely to continue in the future, as the Indian economy continues
to grow and more and more jobs are created in the formal sector

As you can see, there are a variety of different types of employment relationships in
India. The most common type of employment relationship is the permanent
employment relationship. This is where the employee is hired for an indefinite period of
time and is entitled to a number of benefits, such as paid leave, medical insurance, and
retirement benefits.
Another common type of employment relationship is the temporary employment
relationship. This is where the employee is hired for a specific period of time, such as six
months or one year. Temporary employees are not entitled to the same benefits as
permanent employees.
There are also a number of other types of employment relationships in India, such as
contract employment, freelance employment, and self-employment. Each of these types
of employment relationships has its own advantages and disadvantages.
The employment relationship in India is a complex and ever-changing issue. The laws
and regulations that govern the employment relationship are constantly evolving, and
the cultural factors that influence the employment relationship are also changing. As a
result, it is difficult to provide a definitive answer to the question of what the
employment relationship in India looks like. However, some general trends can be
observed. The employment relationship in India is becoming increasingly formal,
increasingly globalized, and increasingly competitive.

Growth – Equity Relationship

Introduction:
The growth-equity relationship is a crucial aspect of economic development, exploring
the link between economic growth and the distribution of income, wealth, and
opportunities within a society. It examines how economic growth impacts various
dimensions of equity, such as income distribution, poverty levels, and socioeconomic
inequalities. This relationship has significant implications for policymakers as they
strive to foster sustainable and inclusive development. This paper aims to explore the
dynamics, theories, empirical evidence, and policy implications surrounding the
growth-equity relationship.
Defining Economic Growth and Equity:
Economic growth is commonly measured by the increase in real GDP, reflecting the
expansion of a nation’s productive capacity and output over time. It is driven by factors
such as investment, technological progress, and institutional factors. Equity, on the
other hand, refers to the fairness and just distribution of resources, opportunities, and
benefits within a society. It encompasses income distribution, poverty reduction, social
mobility, and reducing disparities across various socioeconomic groups.
Theoretical Perspectives:
Several theoretical frameworks provide insights into the growth-equity relationship.
The Kuznets Curve, proposed by Simon Kuznets, suggests an inverted U-shaped
relationship between income inequality and economic growth. According to this theory,
as economies develop, income inequality initially increases and then declines at higher
levels of economic development. The Lewis Model emphasizes the dualistic nature of
developing economies, with a traditional agricultural sector and a modern industrial
sector. Structural transformation and industrialization can contribute to reducing
inequality and poverty. The Human Capital Theory emphasizes the role of education,
skills, and human capital development in reducing inequality and promoting inclusive
growth. Institutional factors, such as governance and redistribution policies, also play a
crucial role in shaping the growth-equity relationship.
Empirical Evidence:
Empirical studies examining the growth-equity relationship provide mixed findings,
reflecting the complexity and contextual nature of the relationship. Cross-country
studies have analyzed the relationship between economic growth and income inequality
at the macro level. Some studies suggest a negative relationship, indicating that higher
economic growth is associated with lower income inequality, while others find a
positive or neutral relationship. Case studies examining country-specific experiences
highlight the importance of context-specific factors, such as historical, social, and
institutional factors, in shaping the growth-equity relationship.
Channels and Mechanisms:
The impact of economic growth on equity operates through various channels and
mechanisms. Labor market dynamics play a crucial role, as employment opportunities,
wages, and skill levels influence income distribution and poverty levels. Investments in
education and human capital development can enhance equality of opportunity and
promote upward mobility. Social protection programs and redistribution policies can
help mitigate inequalities and ensure a more equitable distribution of resources. Access
to financial services and capital can also play a role in reducing inequality and
promoting inclusive growth. Institutional factors, including good governance and
effective social policies, are essential in fostering an equitable growth environment.
Challenges and Trade-Offs:
The growth-equity relationship is not without challenges and trade-offs. Policymakers
face the dilemma of achieving both economic growth and equity objectives
simultaneously. Rapid economic growth may not necessarily lead to equitable
outcomes, and policies focused solely on income redistribution can hamper investment
and economic incentives. There is a need to strike a balance between promoting growth
and ensuring that its benefits are shared more inclusively. Additionally, addressing
deep-rooted structural inequalities and systemic barriers requires comprehensive
policy approaches.
Policy Implications:
The growth-equity relationship has significant policy implications. Governments need
to design and implement policies that foster inclusive growth, reduce poverty, and
address inequality. This includes investing in education and skills development,
implementing effective social protection programs, promoting financial inclusion,
improving governance and institutional frameworks, and adopting redistributive
policies. Policies should also aim to create an enabling environment for
entrepreneurship, innovation, and job creation, ensuring that the benefits of economic
growth are widely shared.
Conclusion:
The growth-equity relationship is a complex and multifaceted aspect of economic
development. While economic growth can contribute to reducing poverty and
inequality, its impact is contingent upon various factors, including institutional
frameworks, labor market dynamics, and policy interventions. Achieving equitable
growth requires a comprehensive and context-specific approach that addresses
structural inequalities and promotes inclusive development. Policymakers play a crucial
role in designing and implementing policies that foster sustainable and inclusive
growth, ensuring that the benefits of economic progress are shared more equitably
among all segments of society.

Employment Structure and its Elasticity

Employment Elasticity:
• Employment elasticity is a measure of the percentage change in
employment associated with a 1 percentage point change in economic
growth.
 • The employment elasticity indicates the ability of an economy to generate
employment opportunities for its population as per cent of its growth
(development) process.
o An employment elasticity of 1 implies that with every 1
percentage point growth in GDP, employment increases by 1%.
▪ An employment elasticity of 1 denotes that
employment grows at the same rate as economic
growth.
o Elasticity of 0 denotes that employment does not grow at all,
regardless of economic growth.
o Negative employment elasticity denotes that employment
shrinks as the economy grows. This is crucial as it is commonly
believed that economic growth alone will increase employment.
▪ The negative employment elasticity in
agriculture indicates movement of people out of
agriculture to other sectors where wage rates are higher.
▪ However, the negative employment elasticity in the
manufacturing sector was a cause of concern
particularly when the sector has shown positive growth
in output.
• Jobless growth means that the high growth in GDP did not accompany a
similar growth in employment, resulting in a low Employment Elasticity.
o For example, between 2004–05 to 2009–10, employment
elasticity of India was as low as 0.01, which implies that with
every 1 percentage point growth in GDP, employment increased by
just one basis point.
o Falling or low employment elasticity is partly the result of large-
scale substitution of labour with capital and automation.
• In India- the highest employment elasticity has been shown by
the Construction and utilities sector (which includes energy, water and
waste management). While the farm sector in India has shown negative
employment elasticity. This simply indicates that growth in the farm sector
is accompanied by reduction in farm employment as more and more people
leave this sector and go out for jobs in the non-farm sector.
Using data of ‘employment in public and organised private sectors’ published by the
Reserve Bank of India (RBI), we can calculate that in the decade
between 1980 and 1990, every one percentage point of GDP growth
(nominal)generated roughly two lakh new jobs in the formal sector. That is, if India’s
GDP grew by 14% every year in the 1980s, it can be said that it created roughly 28
lakh new formal jobs. In the subsequent decade from 1990 to 2000, every one
percentage point of GDP growth yielded roughly one lakh new formal sector jobs, half of
the previous decade. In the next decade between 2000 and 2010, one percentage point
of GDP growth generated only 52,000 new jobs. The RBI stopped publishing this data
from 2011-12, but one can safely infer using proxy data that in the 2010-2020 decade,
the number of new jobs generated for every percentage of GDP growth fell even further
Concepts of Poverty and Measurements
Introduction: Poverty is a widespread and persistent global challenge that has
significant social, economic, and political implications. It is a complex phenomenon that
encompasses various dimensions and can be understood and measured in different
ways.
Concepts of Poverty:
1. Absolute Poverty: Absolute poverty refers to a condition in which individuals
or households lack the basic necessities required for survival, such as food,
shelter, and clothing. This concept is often based on a poverty line, which
represents the minimum income or consumption level needed to meet these
basic needs.
2. Relative Poverty: Relative poverty defines poverty in relation to the overall
distribution of income or wealth within a society. It focuses on the extent to
which individuals or households fall below a certain percentage of the median
income or consumption level. Relative poverty captures the disparities and
inequalities within a society, highlighting the social and economic gaps
between different segments of the population.
3. Multidimensional Poverty: Multidimensional poverty recognizes that
poverty is not solely about income or consumption but also encompasses
various dimensions of deprivation. It takes into account factors such as
education, health, housing, access to clean water, sanitation, and social
exclusion. This concept provides a more comprehensive understanding of
poverty, capturing the complexities and interconnections among different
aspects of deprivation.
Measurements of Poverty:
1. Income-Based Measures: a) Poverty Line: The poverty line is a commonly
used measurement approach that sets a specific income threshold below
which individuals or households are considered poor. It serves as a
benchmark for identifying and monitoring poverty levels. b) Poverty
Headcount Ratio: The poverty headcount ratio measures the proportion of the
population living below the poverty line. It provides a snapshot of the
prevalence of poverty within a given population.
2. Consumption-Based Measures: a) Poverty Consumption Gap: The poverty
consumption gap measures the depth of poverty by calculating the average
shortfall in consumption of individuals or households below the poverty line.
b) Poverty Severity Index: The poverty severity index considers the intensity
of poverty by incorporating the consumption shortfall and the proportion of
the population living below the poverty line.
3. Multidimensional Measures: a) Human Development Index (HDI): The HDI
goes beyond income measures and incorporates indicators such as life
expectancy, education, and income to assess overall human development. It
provides a broader perspective on poverty, emphasizing the importance of
non-monetary dimensions. b) Multidimensional Poverty Index (MPI): The MPI
combines different indicators across education, health, and living standards to
measure the extent and intensity of poverty. It provides a holistic
understanding of poverty by capturing multiple deprivations simultaneously.
Challenges and Criticisms:
 1. Subjectivity: Poverty measurements involve subjective choices such as
selecting poverty lines and indicators, which can influence the results and
comparability across different regions and time periods.
2. Data Limitations: Poverty measurements rely on data availability and quality,
which can vary across countries and regions. Limited and unreliable data can
impact the accuracy and reliability of poverty estimates.
3. Dynamic Nature of Poverty: Poverty is a dynamic phenomenon influenced
by various factors, including economic fluctuations, social changes, and policy
interventions. Static measurements may not capture the complexity and
dynamics of poverty adequately.
Conclusion:
Understanding poverty requires a multidimensional approach that goes beyond income
measures. The concepts of absolute poverty, relative poverty, and multidimensional
poverty provide different lenses for analyzing and addressing poverty. Measurement
approaches such as income-based measures, consumption-based measures, and
multidimensional measures offer diverse perspectives on poverty levels and patterns.
Despite challenges and criticisms, poverty measurements serve as essential tools for
monitoring progress, formulating policies, and targeting interventions to alleviate
poverty and promote sustainable development. A comprehensive understanding of
poverty concepts and measurements is crucial for designing effective strategies and
policies to eradicate poverty and foster inclusive and equitable societies.

Inequality and Problem of Identification

Introduction: Inequality is a multifaceted and persistent challenge that confronts
societies globally. Within the Indian context, inequality manifests itself in various forms,
including income, wealth, education, healthcare, and social opportunities.
Understanding Inequality in India:
a) Income Inequality: Income inequality refers to the unequal distribution of income
among individuals or households. In India, income disparities are stark, with a
significant portion of the population residing below the poverty line while a small
percentage enjoys immense wealth.
b) Wealth Inequality: Wealth inequality encompasses the unequal distribution of
assets, property, and financial resources. In India, wealth disparities are substantial,
with a concentration of wealth among a privileged few.
c) Education Inequality: Education inequality refers to disparities in access to quality
education and educational outcomes. In India, disparities in educational opportunities
and outcomes persist, particularly along socioeconomic lines and across different
regions.
d) Healthcare Inequality: Healthcare inequality refers to disparities in access to
healthcare services and health outcomes. In India, access to quality healthcare remains
unequal, with marginalized populations facing significant challenges in obtaining
adequate medical care.
Causes of Inequality in India:
a) Historical Factors: Historical legacies, such as caste-based discrimination, gender
disparities, and colonial influences, have contributed to the perpetuation of inequality in
India.
b) Economic Factors: Economic factors, including unequal distribution of land and
resources, limited job opportunities, and uneven economic growth, play a significant
role in exacerbating inequality.
c) Social Factors: Social factors, such as social stratification, discrimination, and
unequal access to social and cultural opportunities, contribute to inequality in India.
d) Policy Factors: Policy choices, including taxation policies, social welfare programs,
and governance structures, can either mitigate or exacerbate inequality in society.
Consequences of Inequality in India:
a) Social Cohesion: Inequality can undermine social cohesion, leading to social unrest,
conflicts, and divisions within society.
b) Economic Growth: High levels of inequality can hinder economic growth and
development by limiting opportunities, reducing productivity, and hampering human
capital accumulation.
c) Poverty Traps: Inequality can perpetuate poverty traps, making it difficult for
individuals and communities to escape from the cycle of poverty.
d) Health and Education Outcomes: Inequality adversely affects health and education
outcomes, leading to disparities in access to quality healthcare and educational
opportunities.
Measurement of Inequality in India:
a) Gini Coefficient: The Gini coefficient is a widely used measure of income or wealth
inequality. It quantifies the extent of income or wealth concentration within a
population, with higher values indicating greater inequality.
b) Palma Ratio: The Palma ratio measures income inequality by comparing the share of
national income held by the top 10% of the population with the share held by the
bottom 40%.
c) Human Development Index (HDI): The HDI measures overall development by
incorporating indicators such as income, education, and health. It provides a broader
perspective on inequality by capturing multiple dimensions of well-being.
d) Multidimensional Poverty Index (MPI): The MPI captures poverty and inequality
by considering multiple deprivations, including education, health, and living standards.
Problem of Identification in India:
a) Data Challenges: Reliable and comprehensive data on inequality in India can be
scarce. Data collection methods, sample sizes, and measurement techniques may vary,
leading to inconsistencies and limitations in identifying and analyzing inequality.
b) Informal Economy: The large presence of the informal economy in India poses
challenges in accurately assessing income and wealth distribution, as a significant
portion of economic activities remains unaccounted for.
c) Caste and Social Identity: Identifying and measuring inequality based on caste and
social identity is complex, as these factors are deeply ingrained in Indian society and
may intersect with other forms of inequality.
d) Gender Inequality: Gender inequality adds another layer of complexity to the
identification of inequality, as women face unique challenges and disparities that may
not be adequately captured by existing measurements.
Addressing Inequality in India:
a) Policy Interventions: Effective policy interventions are crucial to addressing
inequality. This includes implementing progressive taxation systems, improving access
to quality education and healthcare, promoting inclusive growth, and reducing
disparities in income and wealth.
b) Social Welfare Programs: Well-designed and targeted social welfare programs can
help alleviate inequality by providing support to vulnerable populations and addressing
disparities in basic needs and opportunities.
c) Empowerment and Social Justice: Empowering marginalized communities,
promoting social justice, and ensuring equal rights and opportunities for all individuals
can contribute to reducing inequality in India.
d) Sustainable Development: Pursuing sustainable development goals that prioritize
social inclusion, equitable economic growth, and environmental sustainability can help
mitigate inequality in the long term.
Conclusion:
Inequality in India encompasses various dimensions and has far-reaching
consequences. Identifying and addressing inequality requires a multidimensional
approach that takes into account income, wealth, education, healthcare, and social
opportunities. While measurement techniques and data challenges pose difficulties, it is
essential to prioritize accurate and comprehensive data collection to inform evidence-
based policies and interventions. By adopting inclusive policies, promoting social
justice, and pursuing sustainable development, India can work towards a more
equitable and inclusive society, where opportunities and benefits are shared by all.

Inflation – trends, structure and causes

Trends
Introduction:
Inflation is a sustained increase in the general price level of goods and services in an
economy over time. It affects the purchasing power of individuals, investment decisions,
and overall economic stability. Understanding the trends of inflation in India is essential
for policymakers, businesses, and households to effectively manage their finances and
make informed economic decisions.
Historical Context:
India has experienced various phases of inflation throughout its economic history. In
the early decades after independence, India witnessed moderate inflation due to supply-
side constraints and the government’s emphasis on import substitution. However,
inflation surged in the 1970s and 1980s, primarily driven by external shocks, rising
global oil prices, and expansionary fiscal policies. In the 1990s and early 2000s,
economic reforms and liberalization measures helped contain inflation to some extent.
Since then, inflation trends have been influenced by a combination of global factors,
domestic policies, and supply-demand dynamics.
Factors Influencing Inflation in India:
a) Demand-Pull Factors: Demand-pull inflation occurs when aggregate demand
exceeds the available supply of goods and services. Factors such as robust consumer
spending, increased government expenditure, and easy credit availability can contribute
to demand-pull inflation in India.
1.
b) Cost-Push Factors: Cost-push inflation results from increased production costs, such
as rising wages, higher raw material prices, and energy costs. These factors can have a
significant impact on inflation in India, given its reliance on imports for commodities
like oil and industrial inputs.
c) Food and Agricultural Prices: India has a large agrarian economy, and fluctuations
in food and agricultural prices can have a significant impact on overall inflation. Factors
such as monsoon patterns, supply disruptions, and government policies related to
agricultural produce can influence food inflation.
d) Monetary Policy: The monetary policy decisions of the Reserve Bank of India (RBI)
play a crucial role in managing inflation. The RBI uses tools such as interest rates,
reserve requirements, and open market operations to control money supply and
influence inflationary pressures.
e) Exchange Rate Fluctuations: Changes in the value of the Indian rupee relative to
other currencies can impact import prices and inflation. A depreciation of the rupee can
lead to higher import costs, potentially fueling inflationary pressures.
Measurement of Inflation in India:
a) Wholesale Price Index (WPI): The WPI measures the average change in the prices
of a basket of goods at the wholesale level. It provides an indicator of inflationary
pressures in the production and distribution sectors of the economy.
b) Consumer Price Index (CPI): The CPI measures changes in the prices of a basket of
goods and services consumed by households. It is widely used as a measure of
consumer inflation and provides insights into the impact of price changes on
households’ purchasing power.
c) Core Inflation: Core inflation excludes volatile components such as food and energy
prices to provide a more accurate measure of underlying inflationary pressures. It helps
policymakers gauge the long-term trend of inflation.
Recent Trends in Inflation in India:
a) High Inflation Periods: In recent years, India has witnessed periods of high
inflation. From 2009 to 2014, inflation remained elevated, primarily driven by supply-
side constraints, rising global commodity prices, and expansionary fiscal policies.
Inflation peaked in 2013-2014, with WPI and CPI inflation reaching double-digit levels.
b) Moderation of Inflation: Inflation moderated in the subsequent years, supported by
tighter monetary policy measures, declining global commodity prices, and improved
agricultural production. The implementation of the Goods and Services Tax (GST) in
2017 also aimed to streamline indirect taxes and reduce inflationary pressures.
c) Recent Inflationary Pressures: In more recent years, India has faced intermittent
inflationary pressures due to factors such as rising oil prices, supply disruptions, and
volatile food prices. The COVID-19 pandemic and subsequent disruptions also had an
impact on inflation, with supply chain disruptions and demand fluctuations affecting
price dynamics.
Policy Responses to Manage Inflation:
a) Monetary Policy: The Reserve Bank of India (RBI) plays a vital role in managing
inflation through its monetary policy decisions. The RBI aims to maintain price stability
while supporting economic growth by adjusting key policy rates, such as the repo rate
and reverse repo rate, to influence borrowing costs and money supply.
b) Fiscal Policy: Fiscal measures, including taxation policies and government
expenditure, can influence inflationary pressures. Well-calibrated fiscal policies that
focus on controlling inflation and maintaining fiscal discipline are essential to managing
inflationary pressures effectively.
c) Supply-Side Interventions: Addressing supply-side constraints, particularly in
sectors such as agriculture and infrastructure, is crucial to controlling inflation.
Measures to improve agricultural productivity, enhance supply chains, and promote
competition can help mitigate inflationary pressures.
d) Structural Reforms: Structural reforms aimed at enhancing productivity, increasing
investment, and improving the business environment can contribute to long-term price
stability and mitigate inflationary pressures in India.
Conclusion:
Understanding the trends of inflation in India is essential for policymakers, businesses,
and households to navigate the economic landscape effectively. Historical context,
factors influencing inflation, measurement methodologies, and recent trends all provide
valuable insights into the dynamics of inflation in India. Policymakers must employ
appropriate measures, including monetary policy adjustments, fiscal discipline, supply-
side interventions, and structural reforms, to manage inflation and ensure price
stability, thereby fostering sustainable economic growth and protecting the purchasing
power of individuals and businesses.
Structure
Introduction:

Inflation is a significant macroeconomic concern that affects individuals, businesses,

and the overall economy. In India, understanding the structure of inflation is crucial for
formulating effective policies and strategies to manage its impact. This comprehensive
analysis explores the structure of inflation in India, examining its components,
underlying factors, and their implications.
Components of Inflation:
a) Core Inflation: Core inflation represents the persistent and underlying inflationary
pressures in the economy, excluding volatile components such as food and energy
prices. It provides insights into long-term inflation trends and helps policymakers gauge
the economy’s underlying inflationary forces.
b) Food Inflation: Food inflation refers to changes in food prices, which play a
significant role in overall inflation dynamics in India. It is influenced by factors such as
agricultural production, supply chain disruptions, weather conditions, and government
policies related to agricultural produce.
c) Fuel and Energy Inflation: Fuel and energy inflation reflects changes in prices of
petroleum products, electricity, and other sources of energy. Fluctuations in global oil
prices, supply disruptions, and government policies on fuel subsidies impact fuel and
energy inflation in India.
d) Non-Food Manufactured Products Inflation: This component captures changes in
prices of manufactured goods excluding food items. It reflects the impact of factors such
as input costs, demand conditions, exchange rate fluctuations, and government policies
on industrial production.
Factors Influencing Inflation in India:
a) Demand-Side Factors: Demand-pull inflation occurs when aggregate demand
exceeds the available supply of goods and services. Factors contributing to demand-side
inflation in India include robust consumer spending, government expenditure,
investment activity, and credit availability.
b) Supply-Side Factors: Cost-push inflation arises from increased production costs,
such as rising wages, input prices, and energy costs. Factors such as supply disruptions,
raw material prices, agricultural productivity, and international commodity prices
influence supply-side inflation in India.
c) Monetary Policy: The Reserve Bank of India (RBI) plays a crucial role in managing
inflation through its monetary policy decisions. Interest rate adjustments, liquidity
management, and other monetary policy tools are employed to control money supply
and influence inflationary pressures.
d) Government Policies: Government policies, including fiscal measures and
regulations, impact inflation in India. Taxation policies, subsidies, import duties, and
trade policies can influence the cost of production, supply chain efficiency, and overall
price levels.
Inflationary Trends in India:
a) Historical Inflation Trends: India has experienced varying inflation levels over the
years. In the past, periods of high inflation were observed, driven by factors such as
supply-side constraints, rising global commodity prices, and expansionary fiscal
policies. However, recent years have seen efforts to maintain price stability, resulting in
relatively lower inflation rates.
b) Moderation of Inflation: In recent years, India has witnessed a moderation of
inflation, attributed to several factors. These include tighter monetary policy measures,
declining global commodity prices, improved agricultural production, and the
implementation of economic reforms and policies aimed at containing inflationary
pressures.
c) Impact of External Factors: As an open economy, India is also affected by global
factors that influence inflation. Fluctuations in global oil prices, exchange rate
movements, and changes in international commodity markets can have spillover effects
on domestic inflation dynamics.
Policy Measures to Address Inflation:
a) Monetary Policy: The RBI adopts a proactive approach to managing inflation
through its monetary policy decisions. Adjustments in key policy rates, reserve
requirements, and liquidity management are employed to contain inflation and
maintain price stability.
b) Supply-Side Interventions: Enhancing productivity, improving supply chains, and
addressing infrastructure bottlenecks are vital for managing inflation in India. Measures
such as agricultural reforms, infrastructure development, and fostering competition
contribute to enhancing the supply-side dynamics and curbing inflationary pressures.
c) Fiscal Discipline: Sound fiscal policies, including prudent taxation measures,
government expenditure management, and fiscal deficit control, are essential to contain
inflationary pressures and maintain macroeconomic stability.
d) Structural Reforms: Implementing structural reforms to improve the business
environment, ease regulatory burdens, and enhance competitiveness can have a long-
term impact on inflation by promoting productivity and efficiency across sectors.
Conclusion:
Understanding the structure of inflation in India requires analyzing its components,
factors influencing it, and historical trends. Core inflation, food inflation, fuel and energy
inflation, and non-food manufactured products inflation are the key components that
shape India’s inflationary dynamics. Demand-side and supply-side factors, monetary
policy, and government policies play significant roles in influencing inflation. It is
essential for policymakers to adopt appropriate measures, including monetary policy
adjustments, supply-side interventions, fiscal discipline, and structural reforms, to
manage inflation and maintain price stability. By addressing inflation effectively, India
can create a conducive environment for sustainable economic growth and safeguard the
purchasing power of its citizens.
Causes
The causes of inflation are multidimensional. However, the principal cause is
the mismatch between the demand and supply which are influenced by multiple
factors. Some of the well-known causes are increased disposable income among the
people, supply chain bottlenecks, and an increase in the cost of production.
What is Inflation?
• Inflation is the rate at which the price of goods and services in a given
economy rises.
• Inflation occurs when prices rise as manufacturing expenses, such as raw
materials and wages, rise.
• Inflation can result from an increase in demand for products and services, as
people are ready to pay more for them.
• Let us consider we can buy 1 liter of milk for Rs. 50 at the current time.
Exactly 1 year before 1 liter of milk cost us Rs. 40.
• Here there is an increase of Rs. 10 per liter of milk or the purchasing power of
Rs.40 has reduced from buying 1 liter of milk to 800ml of milk in 1 year.
((50-40)/40)*100=25

• Therefore we can say that there is an inflation of 25% in milk

prices compared to last year.
Types of Inflation
Inflation can be divided into two types, they are demand-pull inflation and cost-push
inflation.
Demand-Pull Inflation:
• The major cause of demand-pull inflation is a rise in aggregate demand. The
increase in aggregate demand is primarily due to an increase in government
spending (Expansionary Fiscal Policy) or an increase in household and
business spending.
• For instance, if the government is spending money in a system with limited
resources, it can result in demand-pull inflation.
• Inflation that occurs due to expansionary monetary policy and fiscal
stimulus are examples of demand-pull inflation.
Cost-Push Inflation:
• There is a condition in an economy where inflation is fueled by increases in
the cost of producing goods and services, rather than by increases in
aggregate demand.
• Demand remains generally consistent even as supply falls due to global
policies, conflict, or natural disasters, gasoline prices rise. This results in cost-
push inflation.
• Inflation that occurs due to rising oil prices and increased raw materials
prices due to the breakdown of the supply chain during the COVID
Pandemic is an example of cost-push inflation.
Causes of Inflation
Demand-Pull Inflation
Various variables might cause an increase in aggregate demand. Some of them are:
• Increase in Government Spending (Fiscal Stimulus): This will increase the
money supply in the economy and will increase the aggregate demand and in
turn cause inflation. The ways in which the government can increase its
spending are:
o Schemes like Universal Basic Income (UBI), etc
 o Increased financial assistance under PM-KISAN
o Wages under the MGNREGA are increasing
• Population Pressure: Increase in population will increase the demand for
goods and services. This would in turn create inflation.
• Increase in Net exports: If the essential items are exported from the country
at an accelerated rate then the demand for these goods will increase in the
economy given their poor availability. This will in turn result in inflation.
o For instance, If Indian farmers export large quantities of
foodgrains, onions, and other items, demand will not be met,
resulting in demand-pull food inflation.
• Monetary Stimulus: When the central bank takes up monetary stimulus,
the money supply in the economy is increased causing inflation. The
other implications of the monetary stimulus also cause inflation by
o The availability of surplus money increases Household
consumption.
o If the RBI has adopted a low-cost money policy, lower-cost
credit will be available. As a result, people’s willingness to spend
rises resulting in inflation.
• Policy Decisions: Policy decisions that enable accessibility of funds to the
public and increased money supply will result in increased aggregate
demand.
o The seventh pay commission put additional money in the hands
of the public sector employees.
o Private investment is on the rise which is due to liberalized
FDI regulations that will, in turn, increase the money flow in the
economy.
o Increasing forex reserves increase the money supply in the
economy due to the RBI buying dollars.
Cost-Push Inflation
The fundamental cause of cost-push inflation is rising production costs. The following
reasons can cause production costs to rise.
• Employees salaries being raised: The increase in salaries of the employees
will have a bearing on the final cost of the product. Therefore increased cost of
production will result in cost-push inflation.
o Wages have grown as a result of the 7th pay commission.
o The management of a manufacturing firm is compelled by a labor
union to raise worker wages.
• Raw material prices increasing: Raw material cost is a very important
parameter in determining the cost of production of a product. Therefore any
increase in raw material prices causes inflation.
o A spike in crude oil prices (for a variety of causes) might increase
input costs.
o Floods, hunger, and other natural disasters reduce agricultural
output.
• Firms profit margins: A firm’s profit margin is added as a part of the cost of
production. Any increase in the profit margin of the firm will increase the
cost of the product and cause inflation.
 o When businesses opt to enhance their profit margin, the cost of
goods and services rises. It usually occurs when a single company
is the primary source of goods (monopoly)
• Import prices: If the raw and the production is dependent on imports then
any import price rise results in cost-push inflation.
o Increases in the price of imported inputs might lead to an increase
in the overall price of goods.
o Devaluation of currency increases the import costs.
• Increase in Indirect taxes: An increase in indirect taxes will cause inflation.
o After the introduction of GST, many products and services earlier
charged 12% of tax were brought into the 18% tax
bracket increasing their prices.
DEMAND-PULL INFLATION COST-PUSH INFLATION

Fiscal Stimulus Employees salaries being raised

Population Pressure Raw material prices increasing
Increase in Net Exports Firms profit margins
Monetary Stimulus Import prices
Policy Decisions Increase in indirect taxes
Measures to control inflation
• In the case of demand-pull inflation all the control measures revolve
around reducing the demand, this can be done by either reducing the money
supply or increasing prices by taxation.
• In the case of cost-push inflation, the control measures revolve
around increasing the supply to meet the demand in the market and
reducing the prices by providing subsidies and technological expertise.
• In all cases, the inflation control measures can be divided into Monetary
Measures, Fiscal Measures, and Administrative Measures.
Conclusion
Though the causes of inflation are many, they can be controlled by fiscal and monetary
measures. The RBI has inflation targeting as its primary objective. Though slight
inflation is desirable for the growth of the economy, uncontrolled inflation can do more
harm to the country rather than good.

Black Money in India

• Black money includes all funds earned through illegal activity and
otherwise legal income that is not recorded for tax purposes. Black
money proceeds are usually received in cash from underground economic
activity and, as such, are not taxed.
• There is no one definition for black money in economics. In layman’s
language, it is money that has been acquired through illegitimate means or
money which is unaccounted for, that is, for which tax is not paid to the
government.
• There have been several approximations regarding the extent of black money
economy also called as Parallel economy/ Gray Economy/ Shadow/
Underground Economy.
 • Some of the approximations suggest it to be as high as up to fifty to hundred
percent.
• While black money in India is decades old problem, it has become real threat
post liberalization.
• Indian estimate of black money in Swiss Bank is pegged at $1.4
trillion while Swiss estimate of money in their bank is pegged at $2 billion.
• Unlawful activities such as crime and corruption, non-compliance with
taxation requirements, complex procedural regulations, cultural and social
practices, globalization along with weak institutional, policy, legal and
implementation structures have further augmented the black money economy.
Parallel Economy:
• Parallel economy is the functioning of an illegal sector in the economy
whose purposes run in opposite to the objectives of official, sanctioned
or legitimate sector. The parallel economy has various aspects like political,
commercial, legal, industrial, social and ethical aspects.
• Incidence of black money gives rise to parallel economy. The term parallel
economy is also denoted as black economy, unaccounted economy, illegal
economy, subterranean economy or unsanctioned economy.
• A striking point about parallel economy is that it helps the type of economic
activities where undisclosed income remains hidden to the tax
authorities. Usually, perceptible consumption, real estate, investment in
foreign assets, criminal activities, corruptions etc are the typical spending
pattern in the parallel economy. Transactions are performed in an opaque
manner.
Generation of black money:
Illegitimate The illegal activities that can lead to black money generation
activities are: 1. Crime 2. Corruption 3. Non-compliance with tax
requirements 4. Complex procedural regulations 5. Money
laundering 6. Smuggling

Tax evasion This is where an entity wilfully does not pay taxes that are due to the
government.

Tax This is where an entity takes advantage of the existing loopholes in the
avoidance system and avoids paying taxes. This is not illegal though.

Sources of Black Money:

As discussed above the sources of black money are broadly of two categories
– illegitimate activity and tax evasion even if the activity is legitimate.
• Real estate: The prices of real estate are increasing over the years. High
stamp duty on real estate compels the builders to undervalue the transaction
cost. The builders take money in cash and generate high value black money.
• Gold smuggling: As government impose high custom duties on gold and high
prices of gold offers way to invest black money into gold.
• SHGs: Some Self-Help Groups (SHGs) and trusts do not provide proper
sources for their funds and donations received.
 • Corruption: Corruption in government and administration creates parallel
economy in the government itself. Growing consumerism, quest for material
status leading to more corruption and black money generation.
• Shell Companies: The government appointed task force has identified 2.25
lakh shell companies in India. These shell companies are mainly used to divert
black money.
• NGOs and trusts: NGOs receiving funds from foreign sources but they rarely
file their annual statement with government. The loopholes in the laws are
exploited by the NGOs and their fund raisers for mobilisation of black money.
• Informal Sector and Cash Economy: Cash transactions, large un-banked and
under-banked areas contribute to the large cash economy in India.
• Tax Havens: Tax havens are typically small countries/ jurisdictions, with low
or nil taxation for foreigners who decide to come and settle there. Strong
confidentiality or secrecy regarding wealth and accounts and allow opaque
existence.
• Hawala: It is an informal and cheap method of transferring money from one
place without using banks etc. It operates on codes and contacts and no
paperwork and disclosure is required.
• P-notes: P-notes do not require KYC fulfilment for the investment. The
anonymity in P-notes is fully exploited to invest black money in formal
economy.
Impact of black money on Economy:
• Due to parallel economy, neither government nor industries get actual
picture of investment sentiments. This creates market distortions.
• Black money means loss of tax revenue to the government. This reduces
government’s capacity to spend more on social infrastructure.
• Corruption in government projects and procurements creates low quality
infrastructure.
• As the RBI and government have no control over black money. This
makes difficult for RBI to effectively target inflation and government also
face problem while deciding fiscal policy.
• Black money is further driving up the prices of real estate.
• Black money generated from drugs and smuggling is being used to operate
terror networks. This threatens national security.
• Black money further increases the inequality and poverty.
• There is a distortion in investment in economy. With black money the
investment is made in high end and luxury goods.
• Forward trading of goods by cash rich speculators cause fluctuation in
prices due to hoarding.
• Black money leads to further corruption by creating a vicious cycle.
• Generating black money means that quality is compromised in public
sector projects where black money is used to manipulate tenders and offer
kickbacks.
Measure taken to curb black money generation and flow:
• Tax Reforms:
o Rationalization of income tax with greater tax base and lower taxes.
o Tax deduction at source in which the tax is deducted from the
payment itself by the payee.
• Institutional measures:
 • CBDT
• Enforcement Directorate
• Financial Intelligence Unit
• Central Board of Excise and Customs
• Central Economic Intelligence Bureau
• Directorate of Revenue Intelligence (DRI)
• NIA
• CBI
• Police authorities
• Voluntary Disclosure Schemes: The government allows reporting black
money generated through tax evasion in a given time frame, as government
has given in the Black Money Bill passed this year. During 2006-2012
government has reported nearly 26000 crore black money.
• Demonetisation: In 1978 and 2016 government demonetised high value
notes to tackle black money.
• Encouraging Cashless transactions: Recently government has taken many
initiatives like UPI, RuPay cards, Jan Dhan Accounts to promote digital
payments. Government is also incentivising digital payments.
• Legislative Framework:
o Prevention of Money Laundering Act, 2002
o Benami Transactions Prohibition Act, 1988
o Prevention of Corruption Act, 1988
o The Undisclosed Foreign Income and Assets (Imposition of Tax)
Bill, 2015
o Public Procurement Bill
o Lokpal and Lokayukta Act
• International Cooperation:
o Multilateral Convention on Mutual Administrative Assistance in Tax
Matters
o Financial Action Task Force
o United Nations Convention against Corruption
o At the G20’s London Summit of 2009 India played a major role in
developing international consensus for taking actions against tax
havens
o FATF
o United Nations Convention against Transnational Organised Crime.
o Egmont Group
o Transfer Pricing Agreement of G20.
Recent initiatives taken to tackle the menace of Unaccounted/Black Income:
• Legislative mechanisms:
• Enactment of Central & various state Goods & Service Taxes Act
• Enactment of the Black Money (Undisclosed Foreign Income and assets) and
Imposition of Tax Act, 2015
• Comprehensive amendment of the Prohibition of Benami Property
Transactions Act, 1988
• Fugitive Economic Offenders Act, 2018
• Section 10(38) of the Income Tax Act has been amended to prevent the
misuse of exemption by certain persons for declaring their unaccounted
income as exempt long-term capital gains by entering into sham transactions
 • In order to check creation of shell companies which are incorporated outside
but controlled from India, the concept of ‘Place of Effective Management’
(POEM) for determination of residence of a company incorporated in a
foreign jurisdiction, has been introduced in the Finance Act,2016
• Administrative mechanisms and Systems improvement:
• Expanding the ambit of TDS (tax deducted at source) provisions to track
more transaction.
• International Cooperative mechanisms:
• With a view to facilitate and enhance exchange of information under the Tax
Treaties, India is proactively engaging with the foreign Governments and has
signed Tax Treaty framework with 146 foreign jurisdictions. g. Foreign
Account Tax Compliance Act with the US.
• The Government of India has also joined the Multilateral Competent
Authority Agreement (MCAA) for Automatic Exchange of Information as per
Common Reporting Standards (CRS).
• India has amended its Double Taxation Avoidance Agreements with
Mauritius, Singapore and Cyprus to enable measures concerning prevention
of tax evasion and tax avoidance.
• General Anti Avoidance Rules (GAAR) have been implemented with a view
to tacking aggressive tax planning with the use of complicated structures
• Judicial Efforts:
• On the directions of the Supreme Court, the government in 2014 constituted
the Special Investigation Team (SIT) on black money. The SIT has so far
submitted seven reports to Hon’ble Supreme Court.
Need for the Estimation of Unaccounted/Black Income:
• The unaccounted economy reduces the size of potential state revenue.
• To formulate effective monetary, labour and fiscal policy, it is crucial to know
the level of precision in the estimates of key statistics of the economy,
such as, output, price-level and unemployment. Thus, it is crucial to
supplement official national accounts statistics with estimates of unaccounted
economic activity.
• Some unaccounted economy activities, i.e., illicit trade in narcotics and arms
trading, are hurtful not only for economy, but also hazardous for society.
• It can further lead to a vicious circle of an increase in the budget deficits
or tax rates.
Recommendations of the Committee Headed by Chairman, CBDT on Black Money:
• India must ensure transparent, time-bound & better regulated approvals
/ permits, single window delivery of services to the extent possible and
speedier judicial processes. The Electronic Delivery of Services Bill,
2011 that seeks to provide for electronic delivery of public services by the
government to all persons to
ensure transparency, efficiency, accountability, accessibility and reliabilit
y in delivery of such services has been tabled before the Parliament in
December, 2011.
• The fight against the monstrosity of black money has to be at ethical, socio-
economic and administrative levels. At the ethical level, we have to reinforce
value / moral education in the school curriculum and build good
character citizens, particularly highlighting the ills of tax evasion and black
money. At the socio-economic level, the thrust of public policy should be to
 discourage conspicuous & wasteful consumption / expenditure,
encourage savings, frugality and simplicity, and reduce the gap between
the rich and the poor.
• In order to ensure transparent and efficient allocation of natural and
man-made resources, oversight in the form of comprehensive regulations,
and ombudsman for grievance redressal, particularly for scarce resources – as
in land, minerals, forests, telecom, etc. – needs to be introduced and
implemented expeditiously.
• Social sector schemes involving huge public expenditure under various
programmes reportedly suffer from possible manipulations and
leakages. Direct transfers to the accounts of beneficiaries can provide a
solution, as it would prevent manipulations like bogus muster rolls, etc.
• There should be a dedicated training center for all law enforcement
agencies dealing with financial crimes and offences, as this requires
special skills.
• To reduce the element of black money in transactions relating to immovable
properties, provision for NOC should be introduced in the Income Tax law
with safeguards to reduce administrative complications and increased ease
of compliance, so that an appropriate and uniform data-base is also set up,
and a proper national-level regulation is put in place.
• The RBI could consider stricter implementation of KYC norms and limit
number of accounts that can be introduced by a single person, the number of
accounts that can be maintained in the same branch by any entity and alerts
about same address being used for opening accounts in different names.
• Government must consider ways to mitigate the manpower shortage
issues which are seriously hampering the functioning of various agencies
particularly the CBDT and CBEC.
• Effective battle against black money cannot be ensured unless the judicial
machinery to deal with it is specialized and the trial of offences is
expeditious and punishments exemplary. The legal support to various law
enforcement agencies should be enhanced. All financial offences should be
tried through fast track special courts.
What is Demonetization?
• It is a financial step where in a currency unit’s status as a legal tender is
declared invalid.
• This is usually done when old currencies are to be replaced with the news
ones.
Demonetisation followed a series of earlier efforts to curb illicit activities:
• Creation of the Special Investigative Team (SIT) in the 2014 budget;
• The Black Money and Imposition of Tax Act 2015;
• Benami Transactions Act 2016;
• Information exchange agreement with Switzerland;
• Changes in the tax treaties with Mauritius, Cyprus and Singapore; and
• The Income Disclosure Scheme.
The aim of the action was fourfold:
• To curb corruption;
• Counterfeiting;
• The use of high denomination notes for terrorist activities; and
 • Accumulation of “black money”, generated by income that has not been
declared to the tax authorities.
Implications of Demonetization:
• Parallel black economy would collapse. Of the Rs 17 lakh crore of total
currency in circulation in the country, black money is estimated at
mindboggling Rs 3 lakh crore.
• Counterfeit currency: Death blow to the counterfeit Indian currency
syndicate operating both inside and outside the country
• On security:
o Terror financing: Terror financing is sourced through counterfeit
currency and hawala transactions.
o Kashmir unrest: The four-month-long unrest in Kashmir valley is
on a backburner
• North-East insurgency and Maoists: Black money is the oxygen for Maoists
collected through donations, levy and extortions. The illicit money is used to
purchase arms and ammunition.
Way Forward: Black Money
The black money menace is still untamed and lot more needs to be done to tackle it.
Some of the strengthening steps that can be taken are:
• Appropriate legislative framework related to: Public Procurement,
Prevention of Bribery of foreign officials, citizens grievance redressal, whistle
blower protection, UID Adhar.
• Setting up and strengthening institutions dealing with illicit money:
Directorate of Criminal Investigation Cell for Exchange of Information, Income
Tax Overseas Units- ITOUs at Mauritius and Singapore have been very useful,
Strengthening the Foreign TAX, Tax Research and Investigation Division of the
CBDT.
• Developing systems for implementation: Integrated Taxpayer Data
Management System (ITDMS) and 360- degree profiling, Setting up of Cyber
Forensic Labs and Work Stations, implementation of Goods and Services Tax
and Direct Tax Code.
• Imparting skills to personnel for effective action: Both domestic and
international training pertaining to the concerned area. For instance, the
Financial Intelligence Unit-India makes proactive efforts to regularly upgrade
the skills of its employees by providing them opportunities for training on
anti-money laundering, terrorist financing, and related economic issues.
• Electoral Reforms: Elections are one of the biggest channel to utilize the
black money. Appropriate reforms to reduce money power in elections.

Sectoral Composition of Indian Economy

Agricultural Crisis & Policy Response
The people’s protest against Special Economic Zones in various parts of the country,
including at Nandigram in West Bengal, stagnation in agriculture, import of foodgrains,
widespread suicide of farmers—all these are systems of simmering discontent in the
agricultural sector. What is highlighted today in the national scene is the image of
“incredible India” and “shining India”. We hear often about India as a country with a
very high economic growth, a country with the highest numbers of billionaires in Asia,
and a country of world renowned information technology. But we do not hear enough
about the serious problems in agriculture. Those who govern us do not seem to be
concerned about this problem; probably they do not want to. But we cannot easily
ignore this problem any longer.
It was with the Structural Adjustment Programme (SAP) in 1991 that the policy of
globalisation was concretely introduced in India. Based on this policy and the directives
of the World Bank, International Monetary Fund and World Trade Organisation, the
Indian economy was substantially overhauled. The Export-Import policy was
liberalised; the import and customs duties of many products were drastically lowered
or totally dropped so that they could be imported without any restriction. The
government started reducing its investment in agriculture and the industrial sector
allowing the private sector to take over. The restructuring of the public distribution
system really affected the availability of foodgrains to the poor at subsidised rates. All
such measures had implications for the farm sector. This article analyses how the policy
of globalisation has affected agriculture in India.
Problems of Agrarian Sector and their Consequences
FIFTEEN years of economic liberalisation have adversely affected Indian agriculture.
The most prominent manifestation of this is in the drastic decline in the growth rate of
foodgrains. The rate of growth of agricultural output was gradually increasing in 1950-
1990, and it was more than the rate of growth of the population. In the 1980s the
agricultural output grew at about four per cent per annum. Thus India became self-
sufficient in food and started exporting wheat and rice. But during the 10-year period
after the start of liberalisation, the rate of growth declined to two per cent. According to
the Mid-term Appraisal of the Tenth Five Year Plan (2002-07), the rate of growth of the
GDP in agriculture and allied sectors was just one per cent per annum during the year
2002-05. As a result, per capita availability of foodgrains decreased; the growth rate of
population became higher than that of foodgrains, and India started to import
foodgrains at a much higher price than that in the domestic market.
Secondly, unemployment in the agricultural sector increased during the reform period
as agriculture was not profitable due to the fall in the price of farm products. As a result,
the number of people who are employed in the primary sector and the area under
cultivation decreased, which in turn caused a decline in rural employment. According to
the National Sample Survey, the annual rate of growth of the employment in the rural
areas was 2.07 per cent in 1987-1984, while it declined to a mere 0.66 per cent in 1993-
2000, which corresponds to the period of liberalisation. It is not only the farmers but
also the Dalits and tribals, who heavily depend on agriculture, became unemployed.
The suicide of farmers is the third fall-out of stagnation in agriculture. When agriculture
was not yielding remunerative income, the life of the farmers became very desperate.
Many of them committed suicide as a last resort. As revealed by Sharad Pawar, the
Union Agricultural Minister, in the Lok Sabha in 2004, over one lakh farmers committed
suicide in India after the economic reform started. According to the National Crime
Records Bureau, 17,060 farmers committed suicide in the country in 2006 with
Maharashtra having the highest number of (4453) suicide deaths. Punjab is the latest in
the list of States having farmers’ suicide. This is a record in the agricultural history of
India. It points to the acute nature of the problem which has affected the vast majority
of the population, and which has created a real crisis. But unfortunately, the
government and the people do not consider it a crisis; their lack of seriousness and
lukewarm response to the problem points to this reality.
Reasons for the Agrarian Crisis
THERE is a need for analysing the reasons for the crisis to see whether there is any
connection with globalisation and, if so, what measures could be adopted to face this
challenge.
1. Liberal Import of Agricultural Products
The main reason for the crash of prices of agricultural products, especially of cash crops,
in India was removal of all restrictions to import these products. As, for example, when
the Government of India reduced the import duty on tea and coffee from Sri Lanka and
Malaysia, their prices in the domestic market got reduced drastically. Thus cultivation of
such products became unprofitable and so their production was fully or partly stopped.
Since the removal of quantitative restrictions and lowering of import duties were
according to the restrictions of the World Trade Organisations (WTO), the crash in the
prices of agricultural products is directly related to the liberalisation policy of the
government.
2. Cutback in Agricultural Subsidies
In the post-reform period the government reduced different types of subsidies to
agriculture, and this has increased the production cost of cultivation. According to
Ramesh Chand, an economist, cutback in subsidy and control of fertilisers over the last
few years has adversely affected the agricultural sector. It has increased the input cost
and made agriculture less profitable. Since the decrease in subsidy to agriculture is part
of the regulations of the WTO, it is related to the policy of globalisation.
3. Lack of Easy and Low-cost Loan to Agriculture
After 1991 the lending pattern of commercial banks, including nationalised banks, to
agriculture drastically changed with the result that loan was not easily available and the
interest was not affordable. This has forced the farmers to rely on moneylenders and
thus pushed up the expenditure on agriculture. The National Commission for
Agriculture, headed by Dr M.S. Swaminathan, also pointed out that removal of the
lending facilities and concessions of banks during the post-reform period have
accelerated the crisis in agriculture. When the farmers were not able to pay back loan
with high interest, they fell into the debt trap. Studies show that most of the farmers’
suicides was due to the debt trap. It is part of the policy of privatisation that banks, even
nationalised banks, look for profit over their social responsibilities to the people.
4. Decline in Government Investment in the Agricultural Sector
Studies show that after the economic reforms started, the government’s expenditure
and investment in the agricultural sector have been drastically reduced. This is based on
the policy of minimum intervention by the government enunciated by the policy of
globalisation. The expenditure of the government in rural development, including
agriculture, irrigation, flood control, village industry, energy and transport, declined
from an average of 14.5 per cent in 1986-1990 to six per cent in 1995-2000. When the
economic reforms started, the annual rate of growth of irrigated land was 2.62 per cent;
later it got reduced to 0.5 per cent in the post-reform period. The consequences were
many. The rate of capital formation in agriculture came down, and the agricultural
growth rate was also reduced. This has affected the purchasing power of the rural
people and subsequently their standard of living.
5. Restructuring of the Public Distribution System (PDS)
As part of the neo-liberal policy, the government restructured the PDS by creating two
groups—Below Poverty Line (BPL) and Above Poverty Line (APL)—and continuously
increased the prices of foodgrains distributed through ration shops. As a result, even the
poor people did not buy the subsidised foodgrains and it got accumulated in godowns to
be spoiled or sold in the open market. As the in-take from PDS was less it has affected
the food security of the poor, especially in the rural areas, and this has indirectly
affected the market and the farmers.
6. Special Economic Zones
As part of the economic reforms, the system of taking over land by the government for
commercial and industrial purposes was introduced in the country. As per the Special
Economic Zones Act of 2005, the government has so far notified about 400 such zones
in the country. Very often it is fertile land which has been acquired. According to
Khasanoki, a writer, the government has acquired five million hectares of land for
purposes other than agriculture between 1991 and 2003. This is almost half of what
was acquired during the last 40 years. It was in the news that the government decided
to acquire 10,120 hectares of land near Mumbai (almost one-third area of Mumbai) for
the Reliance Company and reduced it to 5000 hectors due to public pressure. Since the
SEZ deprives the farmers of their land and livelihood, it is harmful to agriculture. In
order to promote export and industrial growth in line with globalisation the SEZ was
introduced in many countries.
Towards a Solution
THE agricultural crisis is affecting a majority of the people in India. The farmers who
produce food materials for the country are in deep distress. The marginalised people
like the Dalits and tribals, who depend on agriculture, are getting unemployed and
struggling for their livelihood. The ordinary people, especially the poor, have lost their
food security. The crisis in agriculture is a crisis of the country as a whole and so needs
urgent attention.
Some of the suggestions are being listed here.
1. Quantitative restrictions should be imposed on import of agricultural
products. Since the import policy was the major reason for the crash in
prices of many agricultural products, there should be restrictions on the
quantity and customs duty of such products. Necessary import duty and
quantitative restrictions should be imposed on imported goods to protect
our farmers who should be given priority to the discipline of the WTO.

2. Subsidy and concessions given to agriculture but removed in the post-

reform period should be restored. This is a must to make agriculture
remunerative. One of the main disputes in the Doha Round of talks at the
WTO is the high subsidy given by the United States and European Union
to their farmers in spite of the WTO regulation. India should assert its
right to give sufficient subsidy to its farmers to offset the rising cost of
cultivation and protect their livelihood.

3. Bank loans should be easily made available to the farmers, especially

since the input cost of agriculture has gone up. The government should
seriously think of restoring the low rate of interest to farmers given by
banks and other financial institutions as it had done before the reform
period. In fact, the M.S. Swaminathan Commission for Agriculture has
recommended a low rate of four per cent interest for the farmers.

4. The government should augment its investment and expenditure in the farm sector.
One reason for the agricultural stagnation is low government expenditure. Investment
in agriculture and its allied sectors, including irrigation, transport, communication and
farm research, should be drastically increased, and the government should aim at
integrated development of the rural areas. Effecting Implementation of National Rural
Employment Guarantee Scheme can also become a means of revival of the rural
economy.
5. There is a need for periodic revision of the procurement prices for farm produce
making those remunerative. This will help the farmers to meet the increasing expenses
for farm inputs and ensure at least remunerative income. According to the
Swaminathan Commission, unless agriculture is made a profitable enterprise, its
present crisis cannot be solved. The Commission has suggested 50 per cent more of the
total production cost as supportive price for foodgrains.

6. The government should revise the policy on Special Economic Zones as it goes
against the interest of farmers and the agricultural sector. It should not acquire
fertile agricultural land for SEZs. When it does take over land for essential public
utilities, it should give just compensation and initiate comprehensive
rehabilitation measures. The recommendations of the Swamina-than
Commission not to acquire land suitable for agriculture for non-agricultural
purposes, to give adequate compensation for the acquired land and to distribute
surplus land to the landless farmers should be seriously taken into account when
the policy of SEZs is reframed. Over and above the policy of SEZs, there is a need
for constitutional structures and mechanisms which will mandate the
government, both Central and States, to implement the policy of relief and
rehabilitation of people displaced due to SEZs and other developmental projects.

7. Bold steps should be taken to implement land reforms which were not
implemented in most States. Feudal structures and landlordism based on large
holdings of land by high caste and class people even now tend to keep a majority
of the people, especially Dalits and backward castes, in the rural areas under
their control and domination. Neo-liberal policies with privatisation will only
reinforce and strengthen these unjust and exploitative structures. Therefore,
there is a need for conscious efforts and positive steps from the government side
to implement land reforms. Surplus land acquired thus should be distributed to
the Dalit and adivasi farmers. According to Amartya Sen, the Nobel Laureate,
though the economic growth rate of India is impressive, India cannot play a
significant role in the global economic scenario unless it completes land reforms.

8. The rural economy, particularly agriculture, will be greatly benefit if

programmes meant for economically backward sections, including the Integrated
Child Development Schemes, mid-day meals for schoolchilden and the National
Rural Employment Guarantee Scheme, are effectively implemented. Food
security of the poor will be ensured if the public distribution system is efficiently
run. All these programmes will increase the purchasing power of the rural
people and indirectly help agriculture itself.

The agricultural sector in India is facing a crisis today. The globalisation process, which
started in the 1990s, is the main reason for this crisis. The solution of the problem is not
in a few “packages” but in drastic changes in the present economic policies related to
agriculture. For this, the government should be ready to take bold steps. Farmers,
agricultural labourers and people’s organisations in civil society should work
collectively to assist and persuade the government to make the necessary changes. It is
high time that the government and the people realised that India can become a real
“superpower” only when the vast majority of the people, especially the farmers in the
rural areas, become prosperous and are really empowered. The words of Dr M.S.
Swaminathan are relevant here: “In a country where 60 per cent of people depend on
agriculture for their livelihood, it is better to become an agricultural force based on food
security rather than a nuclear force.”

Trends in Agriculture Production and Productivity

Since the introduction of economic planning in India, agricultural development has been
receiving a special emphasis. It was only after 1965, i.e., from the mid-period of the
Third Plan, special emphasis was laid on the development of the agricultural sector.
Since then, a huge amount of fund was allocated for the development and
modernization of this agricultural sector every year.
All these initiatives have led to:
(a) A steady increase in areas under cultivation;
(b) A steady rise in agricultural productivity; and
(c) A rising trend in agricultural production.
Growth in Area:
In India the growth in gross area under all crops has increased from 122 million
hectares in 1949-50 to 151 million hectares in 1964-65 and then it increased to 168.4
million hectares in 2008- 09. Further, gross area under all food grains has increased
from 99 million hectares in 1949-50 to 118 million hectares in 1964-65 and then to
123.2 million hectares in 2008-09. Similarly, the gross area under all non-food-grains
has also increased from 23 million hectares in 1949-50 to 33 million hectares in 1964-
65 and then to 45.2 million hectares in 2008-09.
In India, out of the total cultivable area of 186 million hectares, the net sown area is
estimated at 143 million hectares. Moreover, the areas under cultivation of all crops
have increased by 0.25 per cent during the period 1980-81 to 1995-96 as compared to
0.51 per cent during 1967-68 to 1980-81. Again the area under food-grain cultivation
has decline by 0.32 per cent per annum between 1980-81 to 1995-96 as compared to an
increase in the area of the tune of 0.38 per cent between 1967-68 and 1980-81.
During the pre-green revolution period, i.e., during 1951-65 additional area including
marginal lands, fallow lands, waste lands and forest lands were brought under
cultivation. The annual rate of growth in area under crops during the period 1950-65
was quite substantial.
All crops: 1.6 per cent, Food grains: 1.4 per cent and Non-food grains: 2.5 per cent. But
in the post-green revolution period, i.e., during 1965-95, area under all crops could not
increase significantly and the annual growth rate in area was also quite minimum—All
crops: 0.3 per cent, Food-grains: 1.2 per cent and Non- food-grains: 0.7 per cent.
Agricultural Productivity:
By the term agricultural productivity we mean the varying relationship between the
agricultural output and one of the major inputs such as land. The most commonly used
term for representing agricultural productivity is the average yield per hectare of land.
After the introduction of modern agricultural technique along-with the adoption of
hybrid seeds, extension of irrigation facilities and application of intensive method of
cultivation in India, yield per hectare of all crops has recorded a steep rising trend.
Table 3.1 shows the trend in agricultural productivity in India, i.e., the average yield per
hectare.

The Table 3.1 reveals that in India the average yield per hectare for all food-grains has
recorded an increase from 5.5 quintals in 1949-50 to 7.6 quintals in 1964-65 and then
to 18.98 quintals in 2008- 09 showing an annual growth rate of 1.4 per cent during
1950-65 and 2.4 per cent during 1965-2007.
Moreover, the average yield per hectare in respect of rice and wheat which were 7.1
quintals and 6.6 quintals respectively in 1949-50 gradually increased to 10.8 quintals
and 9.1 quintals in 1964-65 showing an annual growth rate of 2.1 per cent and 1.3 per
cent in respect of rice and wheat respectively.
Again during the post-green revolution period (1965-2009), the average yield per
hectare in respect of rice and wheat has again increased to 21.86 quintals and 28.91
quintals respectively showing a considerable annual growth rate of 3.4 per cent in
respect of wheat and 2.3 per cent in respect of rice. But the annual growth rate of coarse
cereals increased by only 1.3 per cent and that of pulses of only 0.5 per cent during the
period 1967-2009. Moreover, the annual growth rate of yield per hectare of all crops
went up to 2.49 per cent during the period 1980-81 to 1993-94 as compared to that of
1.28 per cent during 1967-68 to 1980-81.
Among the non-food-grains, cotton and sugarcane achieved a modest growth rate of 2.0
per cent and 1.0 per cent respectively during 1950-65 and again to the extent of 2.4 per
cent and 1.2 per cent respectively during 1967-2009.
Moreover, potato has recorded a considerable increase in annual growth rate from 1.6
per cent during 1950-65 to 3.0 per cent during 1967-2009. Again, taking all crops
together, the annual average growth rate of all crops rose from 1.3 per cent during
1950-1965 to 1.9 per cent during 1967-2009. Thus the above data reveal that the green
revolution and the application of new bio-chemical technology have become very much
effective only in case of wheat and potato but proved ineffective in case of other crops.
Moreover, if we compare the average yield per hectare of various crops in India with
foreign countries then we find that India lags far behind the other developed countries
of the world. In 1990- 91, the annual average yield of rice per hectare was only 17.5
quintals in India as against 41 quintals in U.S.A., 61.9 quintals in Japan and 54 quintals in
China. Again, the annual average yield of wheat per hectare was only 22.7 quintals in
India as against 68 quintals in Germany, 61 quintals in France and 30 quintals in China.
Trends in Agricultural Production:
Agricultural production in India can be broadly classified into food crops and
commercial crops. In India the major food crops include rice, wheat, pulses, coarse
cereals etc. Similarly, the commercial crops or non-food crops include raw cotton, tea,
coffee, raw jute, sugarcane, oil seeds etc.
In India, total agricultural production has been increasing with the combined effect of
growth in total cultivated areas and increases in the average yield per hectare of the
various crops. Table 3.2 reveals the trend in total agricultural production in India since
independence.
The Table 3.2 reveals that total production of food grains had increased from 55 million
tonnes in 1949-50 to 89 million tonnes in 1964-65 and then increased to 176 million
tonnes in 1990-91. But in 1991-92, total production of food grains came down to 167
million tonnes mainly due to fall in the production of coarse cereals and in 1993-94, the
production was around 184 million tonnes.
In 2002- 03, total production of food grains has further decreased to 174.8 million
tonnes. As per advance estimates, total production of food grains has again increased to
233.9 million tonnes in 2008-09. Thus in the pre-green revolution period (1950-65) the
food grains production had experienced impressive annual growth rate of 3.2 per cent
and in the post-green revolution period (1967-2007), the same annual growth rate was
to the extent of 2.7 per cent.
The major cereals like rice and wheat recorded a high growth rate, i.e., 3.5 and 4.0 per
cent respectively during the first period (1950-65) and again to the extent of 2.2 and 5.0
per cent respectively during the second period (1967-2007). But the growth rate in
coarse cereals and pulses remained quite marginal.
Total production of rice and wheat have increased from 24 million tonnes and 6 million
tonnes in 1949-50 to 39 million tonnes and 12 million tonnes in 1964-65 and then to
99.2 million tonnes and 80.6 million tonnes respectively in 2008-09. In respect of non-
food grains the trends in production in respect of potato and sugarcane were quite
impressive and that of cotton and oilseeds were not up to the mark.
The table further shows that the new agricultural strategy could not bring a break-
through in agricultural output of the country excepting wheat and potato which
recorded about 4.8 per cent and 6.7 per cent annual growth rate respectively during the
post-green revolution period. The growth in output in respect of all other crops
remained low and that of coarse cereals and pulses were only marginal where the
annual growth rates were only 0.4 and 1.04 per cent respectively.
From the above analysis we can draw the following important observations:
(i) In the pre-green revolution period, the growth of output has mainly contributed by
the growth or expansion in area but in the post-green revolution period, improvement
in agricultural productivity arising from the adoption of modern technique has
contributed to growth in output.
(ii)In-spite of adopting modern technology, the growth rate in output, excepting wheat
could not maintain a steady level.
(iii)During the post-green revolution period the growth rate in output was
comparatively lower than the first annual growth rate in food grains was maintained at
the level of 2.7 per cent in the second period.
(iv) The growth rate in output of oil seeds, pulses and coarse food grains declined
substantially in the second period as the cultivation of these crops have been shifted to
inferior lands.
(v) Although agricultural production attained a substantial increase since independence
but these production trends have been subjected to continuous fluctuations mainly due
to variation of monsoons and other natural factors.

Evaluation of Land Reforms & Green Revolution

Introduction: Land reforms and the Green Revolution are two significant agricultural
initiatives that have had a profound impact on India’s agricultural sector.
I. Land Reforms in India: A Critical Evaluation
A. Objectives of Land Reforms
 1. Redistribution of Land: The primary objective of land reforms was to reduce
land inequalities by redistributing land among landless farmers and
marginalized communities.
2. Tenancy Reforms: Land reforms aimed to regulate tenancy relationships,
protect the rights of tenants, and promote equity in land ownership.
3. Consolidation of Land Holdings: The consolidation of fragmented land
holdings aimed to increase agricultural productivity, improve irrigation
facilities, and enhance the efficiency of land use.
B. Implementation and Challenges
1. Legislative Measures: Land reform policies were enacted through legislation
at the central and state levels, including the abolition of intermediaries,
imposition of land ceilings, and establishment of land tribunals.
2. Implementation Challenges: The implementation of land reforms faced
various challenges, including resistance from vested interests, lack of effective
implementation mechanisms, inadequate land records, and bureaucratic
inefficiencies.
C. Outcomes and Impact
1. Redistribution of Land: Land reforms led to the redistribution of land among
landless and marginalized farmers, providing them with access to productive
assets and improving their livelihoods.
2. Tenancy Reforms: Tenancy reforms aimed to protect the rights of tenants,
provide security of tenure, and ensure equitable distribution of benefits.
However, the effectiveness of tenancy reforms varied across states.
3. Consolidation of Land Holdings: Consolidation programs helped reduce
fragmentation, improve irrigation facilities, and enhance agricultural
productivity in certain regions. However, the impact was limited due to
inadequate implementation and resistance from landowners.
D. Challenges and Future Directions
1. Incomplete Implementation: Land reforms faced significant implementation
gaps, and many of the desired outcomes were not fully realized. Strengthening
implementation mechanisms, ensuring land records accuracy, and addressing
bureaucratic inefficiencies are crucial for effective land reforms.
2. Women’s Land Rights: Enhancing women’s land rights and addressing
gender disparities in land ownership should be a priority in future land
reform initiatives.
3. Sustainable Agriculture: Integrating sustainable agricultural practices,
promoting agroecology, and ensuring ecological sustainability should be
considered in land reform policies.
II. The Green Revolution in India: An Assessment
A. Objectives of the Green Revolution
1. Agricultural Productivity: The Green Revolution aimed to increase
agricultural productivity through the adoption of high-yielding varieties of
seeds, modern irrigation techniques, and the use of fertilizers and pesticides.
2. Food Security: By increasing agricultural production, the Green Revolution
aimed to ensure food self-sufficiency and address the challenge of food
security in India.
B. Implementation and Challenges
1. Technological Interventions: The introduction of high-yielding varieties,
mechanization, and irrigation infrastructure were key components of the
 Green Revolution. Public institutions and research organizations played a
crucial role in disseminating agricultural technologies.
2. Challenges Faced: The Green Revolution faced challenges such as regional
disparities in adoption, dependence on chemical inputs, environmental
degradation, and social implications such as income disparities and increased
debt for small farmers.
C. Outcomes and Impact
1. Increased Agricultural Production: The Green Revolution led to a
significant increase in agricultural production, particularly in regions where
the new technologies were adopted. It helped India achieve self-sufficiency in
food production and become a net exporter of agricultural commodities.
2. Income Disparities: The benefits of the Green Revolution were not equally
distributed, leading to income disparities between large and small farmers.
Small farmers faced challenges in accessing credit, technology, and resources,
exacerbating inequalities.
3. Environmental Implications: The heavy reliance on chemical inputs,
excessive groundwater extraction, and monocropping practices resulted in
environmental degradation, soil erosion, and water resource depletion.
D. Challenges and Future Directions
1. Sustainable Agriculture: Promoting sustainable agricultural practices,
reducing chemical inputs, and encouraging organic farming methods can
address the environmental challenges associated with the Green Revolution.
2. Inclusive Growth: Ensuring equitable access to resources, credit, and
technology for small and marginal farmers is crucial to reduce income
disparities and promote inclusive growth.
3. Diversification: Encouraging crop diversification, promoting agroforestry,
and supporting alternative farming systems can enhance the resilience of
Indian agriculture.
Conclusion:
Both land reforms and the Green Revolution have had significant implications for
India’s agricultural sector. While land reforms aimed to reduce inequalities and improve
land ownership patterns, the Green Revolution focused on increasing agricultural
productivity and food security. Evaluating their outcomes and challenges provides
insights into the need for comprehensive implementation, addressing social and
environmental concerns, and promoting inclusive growth. By learning from past
experiences and incorporating sustainable practices, India can build a resilient and
inclusive agricultural system that supports the well-being of farmers, ensures food
security, and preserves the environment.

Industrial Growth Pattern in India

1. First Phase (1951-65): Strong Industrial Base:
The first phase of industrial growth consists of the first three plan periods which had
build 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 of (—) 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 basic industries were engaged in the production of ferrous
metal groups, construction materials, mechanical engineering industries etc.
Causes of Deceleration and Retrogression:
The causes of deceleration and structural retrogression during the second phase
are;
(a) The wars of 1962, 1965 and 1971. During this period investment was made into
unproductive uses. Successive droughts of 1965-67 and 1971-73, and oil crisis of 1973
was also responsible for supply constraints.
(b) Considerable slackening of real investment;
(c) Unequal distribution of income in favour of the rich followed by stagnation in
demand for consumer goods;
(d) Unsatisfactory performance of the agricultural sector;
(e) Policy constraints and bureaucratic obstacles on industrial growth;
(f) Conflicts in the dominant coalition between proprietary classes, capitalist class and
the class representing rich agricultural farmers.
3. Third Phase: Industrial Recovery in Eighties (1981 to 1991):
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 per
cent 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.
Thus during this third phase, there is a clear shift in the pattern of industrialisation in
the country. Looking at the growth of different product group in the manufacturing
sector, chemicals, petrochemicals and allied industries recorded a faster rate as
compared to others. During this period, the production of chemicals and chemical
product industries, expanded at an annual average rate of 11.19 per cent as compared
to that of only 5.47 per cent in machine building sector.
Moreover, during this period, iron and steel, basic metal and alloys and metal products
recorded only 5.15 percent 4.94 per cent and 3.95 per cent. It shows a clear shift in the
growth pattern of the industrial sector during eighties (Third Phase) as compared to
two earlier phases.
Causes of Industrial Recovery:
The main factors which were responsible for the industrial recovery during
eighties are described as under:
(a) Introduction of new industrial policy and liberal fiscal period.
(b) Higher contribution of agricultural sector in some of the regions in the country
which helped in raising the demand for industrial inputs used for agricultural
production.
(c) Revival of investment in the infrastructure sectors and its effects in raising the
degree of efficiency of the industrial sector.
4. Fourth Phase: Industrial Retrogression followed by an Upturn and Downturn
Nineties (1991-92 to 1997-98):
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.
Causes of Industrial Slow down:
The factors responsible for industrial slow down in the fourth phase are
summarized as below:
(a) Decline in the growth of export to 4.6 per cent in the first eight months between
April and November 1997.
(b) The impact of the tight money policy followed in 1995-96 when the monetary
expansion was about 13.7 per cent;
(c) Significant build up industrial capacity in the first phase of liberalization;
(d) In some cases the rate of demand growth was overestimated.
Signs of Sustained Industrial Recovery in 1999-2000:
The acceleration of growth rates in various sectors of the economy underline the
significance of industrial recovery in the current year and cyclical downturn.
However, following are some of the major indicators of industrial recovery in
recent years:
(a) Overall industrial output of the country i.e. 6.2 per cent in April-December 1999 as
compared to that of only 3.7 per cent in April-December 1998.
(b) The position of electricity generation remained much better in 1999-2000.
(c) Manufacturing segment of industrial sector has grown by 6.7 per cent in April to
December 1998.
(d) As per use based classification, basic goods, intermediate goods and consumer
goods, are having higher growth in 1999- 2000.
(e) Non-metallic mineral products, machinery and equipment, wool, leather, paper and
basic chemicals are some of the industries growing at more than 10 percent during
1999-2000.
(f) Industries like electricity, crude oil, coal, steel and cement having a weight of 26.7
per cent in overall IIP, grew at 8.2 per cent in April-December 1999.
(g) Better corporate performance in 1999-2000 compared to previous year.
Industrial Slowdown since 2001:
In recent years, the country is experiencing a serious phase of industrial slowdown
during 2000-01 and in 2001- 02. The overall industrial growth during April- December
2001-02 at 2.3 per cent, is substantially lower than the 5.8 per cent achieved during the
corresponding period of 2000- 01. In fact, the growth rate of the industrial sector during
the first nine months of 2001-02 is considered as the lowest during the last ten years.
Industrial slowdown was recorded in all broad sectors such as manufacturing,
electricity and mining an all end use based groups such as capital goods, intermediate
goods, consumer goods both durables and non-durables. However, the reasons for
slowdown in industrial growth during this period is due to a number of structural and
cyclical factors.
The other reasons are explained below:
1. The adjustment process is industry in response to increased competition in the form
of Mergers and Acquisitions is taking longer time than expected.
2. Infrastructural bottlenecks and high costs.
3. Unreliable supply of services in transport, communications and power sector.
4. Low levels of productivity due to low economies of scale, out-dated technology and
restricted labour laws’.
5. Lower speculative demand for sectors like automobiles and real estate due to
expectation of lower prices and reduction of taxes and duties in the short term period.
6. High interest rates.

MSMEs
The MSME sector involves micro, small and medium Enterprises that are involved in
the production, manufacturing, and processing of goods and commodities. This
criterion was first introduced by the government of India through the Micro, Small &
Medium Enterprises Development (MSMED) Act, 2006.
What is the MSME Sector?
• The MSME sector forms the core of the Indian economy and has always acted
as the bulwark for the Indian economy, providing it strength and resilience to
tolerate global economic shocks and adversities.
• This sector’s contribution to the economy includes 6.11% of the
manufacturing GDP and 24.63% of the GDP from service activities as
well as 33.4% of India’s manufacturing output.
 • Throughout the country, it has around 63.4 million units. The MSME sector
constitutes around 45% of the overall exports from India and
provides employment to around 120 million persons.

Classification for the MSME Sector

Significance of MSME Sector in the Indian Economy

• Rural Development: This sector facilitates industrial development in rural
areas, use of local resources, mobilization of resources, increases the
exportability of products, etc.
• It caters to a wide range of services and is also engaged in the manufacturing
of over 6,000 products ranging from traditional to hi-tech items.
• GDP contribution: The Ministry of MSME has set a target to up its
contribution to GDP to 50% by 2025 if India wants to become a $5 trillion
economy.
• Employment: This sector provides employment opportunities for both self-
employment and wage-employment outside the agricultural sector.
 • It helps in the development of an equitable society through the creation
of non-farm livelihood at a low cost and balanced regional
development with gender and social balance.
• It has a significant impact in rural and other backward areas of the country,
for instance, khadi and village industries require low per capita investment
and employs a large number of women in rural areas.
• The employment potential can be estimated by the fact that they employ over
11 crore people but 55 percent of the employment happens in the urban
MSMEs.
Limitations of MSME Sector
• They face difficulty in accessing credit, for example, increased vulnerability to
predatory moneylenders leading to a cycle of debt.
• An increasing debt of MSMEs due to problems in getting loans and working
capital from banks and delays in receiving government payments.
• Financial institutions such as commercial banks, NBFCs, etc are able to
provide only 16 percent of the credit requirements.
• Lack of formalization of the sector, for example, 86% of the manufacturing
MSMEs operating in the country are unregistered.
• The use of traditional means, obsolete technology impacts the production
output.
• Decreased accessibility to trained labor, technical progress, and management
to support their growth.
Various Initiatives Undertaken by the Government for MSME Sector
• Udyami Mitra Portal was launched by SIDBI to improve the accessibility of
credit and provide handholding services to MSMEs.
• MSME Sambandh to monitor the implementation of the public procurement
from MSMEs by Central Public Sector Enterprises.
• MSME Samadhaan will empower Micro and Small entrepreneurs to directly
register their issues pertaining to delayed payments by Central
Ministries/Departments/CPSEs/State Governments.
• Digital MSME Scheme use of cloud computing where MSMEs could use the
internet to access common as well as tailor-made IT infrastructure
• Revamped Scheme of Fund for Regeneration Of Traditional Industries
(SFURTI) to organize traditional industries and artisans into clusters and
increase their competitiveness.
• A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship
(ASPIRE) to create new job opportunities and promote entrepreneurship
culture, etc.
• Micro & Small Enterprises Cluster Development Programme (MSE-
CDP) to adopt a cluster development approach for increasing the productivity
and competitiveness of MSMEs.
• Credit Linked Capital Subsidy Scheme (CLCSS) for upgrading technological
expertise of MSMEs.
Conclusion
MSME Sector contributes to the backbone of the Indian economy. It contributes to a
third of India’s GDP, 45% to manufacturing output, and 48% to exports and therefore
could impact manufacturing and export competitiveness. Therefore, due to its increased
contribution towards the employment potential, it needs to be ensured that adequate
institutional support is provided in this sector, failing which it could have a grave
impact on livelihoods.

Dualism and Labour Absorption

At present, the Indian economy is characterised by a dualistic economic structure where
a modern economy is existing along-with a primitive traditional economy. Dualism is
one of the important characteristics of an underdeveloped economy. Thus under
dualism, two sectors, i.e., modern or advanced sector and traditional or backward sector
exist and operate side by side.
Dualism may be broadly of two types, i.e., technological dualism and social dualism.
Technological Dualism, as Benjamin Higgins mentions it in his book‘Economic
Development’, indicates the applications of different production functions in the
advanced sector as well as in the traditional sector. Under this dualism, advanced sector
is capital-intensive and backward sector is labour-intensive.
Again Social Dualism, as mentioned by J.H. Boeke in his book ‘Economies and Economic
Policy of Dual Society’, indicates two different strata, i.e., upper strata and lower strata
in the society. Boeke’s social dualism indicates presence and conflict of an alien social
system with an indigenous social system of the country itself.
In India, social dualism and such consequent conflict is absent. But in Indian economic
structure, technological dualism prevails. In this type of dualism, “productive
employment opportunities are limited; not because of lack of effective demand,
but because of resources and technological restraints in the two sectors.”
In a less developed country like India, the economy is represented by traditional rural
sector characterised by peasant agriculture, small and cottage industries and
handicrafts which are largely adopting labour-intensive techniques of production.
On the other hand, the economy is also supporting an advanced modern sector
consisting of large-scale industries, like mining industries, iron and steel, plantations,
power plants etc. which are characterised by fixed technical coefficients, lower degree
of substitutability of factors and largely adopting capital-intensive techniques of
production.
Again India is facing a peculiar situation where the country is facing population
explosion resulting from increasing natural growth rate of population and slow growth
of employment opportunities in the industrial sector due to its fixed technical
coefficients.
Due to this low rate of absorption of labourers in the industrial sector, more and more
labourers are being engaged in the agricultural sector due to its variable technical
coefficients.
This increasing absorption of labour force in the agricultural sector has resulted in an
increase in the ratio of labour to both land and capital. Moreover, the increasing
absorption of labour has been resulting disguised unemployment in the agricultural
sector. Due to this excess labour supply, labour productivity, levels of technology, pace
of mechanisation remain low in agricultural sector.
Another peculiarity of technological dualism exists in the Indian labour market where
an artificially high wage rates prevail among the organised industrial labourers due to
increasing trade union activity and direct intervention by the government in the labour
market. Simultaneously, the level of wages in the unorganised rural sector remained
low.
Thus considering all these peculiarities, Indian economy can be considered as a dualistic
economy.

Service Sector and Leap Frog Jump in india

Introduction:
The service sector has emerged as a crucial driver of economic growth and development
in India. It encompasses a wide range of industries such as information technology,
telecommunications, banking, tourism, healthcare, and professional services.
The Service Sector in India:
a) Significance and Contribution: The service sector has become a dominant sector in
India’s economy, contributing significantly to GDP, employment, and exports. It has
surpassed the agriculture and manufacturing sectors in terms of its share in GDP and
has emerged as a key driver of economic growth.
b) Employment Generation: The service sector has been a major source of employment,
particularly for the burgeoning young workforce in India. It has provided job
opportunities across various skill levels, from high-skilled professionals in IT and
finance to low-skilled workers in hospitality and retail.
c) Foreign Exchange Earnings: The service sector has played a crucial role in generating
foreign exchange earnings through sectors such as IT services, business process
outsourcing (BPO), tourism, and medical tourism. These earnings contribute to India’s
current account balance and help finance imports and external obligations.
Leapfrogging in the Service Sector:
a) Concept of Leapfrogging: Leapfrogging refers to the phenomenon where developing
countries skip or bypass traditional stages of development and adopt advanced
technologies and practices directly. It allows countries to leverage technological
advancements and global best practices to achieve rapid progress.
b) Potential for the Indian Service Sector: The service sector in India has the potential to
leapfrog by leveraging digital technologies, innovation, and global connectivity. This can
enable India to overcome traditional constraints and achieve accelerated growth,
productivity gains, and competitiveness.
c) Opportunities for Leapfrogging: i) Digital Transformation: The digital revolution has
opened up avenues for India to leapfrog by embracing digital technologies and
innovation across service sectors. This includes areas such as e-commerce, digital
payments, fintech, telemedicine, and online education.
ii) Globalization and Outsourcing: India has been a global leader in IT and BPO services,
leveraging its skilled workforce and cost competitiveness. By enhancing capabilities in
emerging areas such as artificial intelligence, cloud computing, and data analytics, India
can consolidate its position and capture new outsourcing opportunities.
iii) Service Innovation and R&D: Encouraging service innovation and research and
development (R&D) can drive leapfrogging in sectors such as healthcare, education, and
financial services. This involves developing indigenous solutions, improving service
delivery models, and fostering collaboration between industry and academia.
Challenges and Policy Implications:
a) Infrastructure and Connectivity: Addressing gaps in physical infrastructure, digital
connectivity, and broadband penetration is crucial for facilitating the growth of the
service sector and enabling leapfrogging.
b) Skill Development and Human Capital: Enhancing the skillsets of the workforce to
meet the evolving demands of the service sector is essential. Investing in education,
vocational training, and continuous skill upgradation programs can ensure a skilled
workforce that is capable of driving innovation and productivity.
c) Regulatory Framework and Ease of Doing Business: Streamlining regulatory
processes, ensuring ease of doing business, and providing a conducive policy
environment are critical for attracting investments, promoting entrepreneurship, and
fostering innovation in the service sector.
d) Inclusive Growth and Social Impact: While the service sector has the potential to
drive economic growth, it is essential to ensure inclusive growth that benefits all
sections of society. Policies should focus on addressing income disparities, promoting
social inclusivity, and providing equal opportunities for marginalized groups.
Conclusion:
The service sector in India has emerged as a key driver of economic growth,
employment generation, and foreign exchange earnings. By embracing the concept of
leapfrogging and leveraging digital technologies, innovation, and globalization, India can
further enhance the contribution of its service sector to sustainable economic progress.
However, addressing infrastructure gaps, promoting skill development, fostering a
favorable regulatory environment, and ensuring inclusive growth are essential for
realizing the full potential of the service sector. With strategic policy interventions and
concerted efforts from all stakeholders, India can position itself as a global leader in
service excellence and drive its overall socio-economic development.

External Sector in India

India’s Foreign Trade
The mutual exchange of goods or services between international territories and borders
is known as foreign trade or international trade. In terms of delivery of buying and
selling transactions, foreign trade takes the shape of import and export. India’s total
foreign trade in FY 2020-2021 is USD 686 billion, out of which imports constitutes
USD 392 billion and imports constitutes USD 294 billion.
What is Foreign Trade?
• International trade in goods and services is the oldest and most prominent
type of international division of labour.
• Foreign trade is defined as the purchasing and selling of items beyond the
national borders of different countries. It’s also known as international trade
or external trade.
• The concept of trade refers to the purchase and sale transactions that enable
manufactured commodities and services to be provided to consumers.
• The concept of overseas trade is represented by these purchases and sales
transactions with foreign countries.
• For example, a country may be rich in iron and steel but deficient in
aluminium. As a result, it must source aluminium from countries that
have a surplus of metal.
• Not only that, but countries with excess production of particular commodities
find it advantageous to sell them to other countries and purchase items from
others in which they are deficient.
Characteristics of Foreign Trade
• Export from the originating country and an import to the receiving country is
a product that is transferred or sold from a party in one country to a party in
another.
 • In the balance of payments, imports and exports are accounted for in the
current account.
• Consumers and countries may be exposed to new markets and products as a
result of global trade.
• Food, clothing, spare parts, oil, jewellery, wine, stocks, currencies, and water
are just a few examples of products available on the international market.
• Tourism, banking, consultancy, and transportation are all examples of services
that are traded.
• The international trade system is influenced by advanced technology
(particularly transportation), globalisation, industrialization, outsourcing,
and multinational enterprises.
Foreign Trade In India
• In India, doing business in foreign countries is nothing new. Even in BC, India
was used to trading with other countries.
• The Periplus of the Erythraean Sea is a text on trade between countries,
including India, written by an unnamed sailor from Alexandria around AD
100.
• Europeans have been trading with the kings of India via the sea route since
1498. Spices including pepper, ginger, cinnamon, cardamom, nutmeg, mace,
and cloves were the most popular exports at the time.
• Between 1947 and 1991, India’s economy remained essentially closed.
Imports were subjected to high tariffs. FDI (foreign direct investment) was
restricted.
• Foreign trade, on the other hand, improved dramatically after
1991’s liberalisation.
Exports and Imports
• India now exports over 7500 commodities to approximately 190 countries
and buys approximately 6000 commodities from approximately 140 nations.
• Exports and imports aren’t limited to just commodities (merchandise).
• Service is another significant export/import component.
India's Foreign Trade Policy
• In line with the ‘Make in India,’ ‘Digital India,’ ‘Skill India,’ ‘Startup India,’
and ‘Ease of Doing Business‘ initiatives, the Foreign Trade Policy (2015-
20) was launched on April 1, 2015.
• It provides a framework for increasing exports of goods and services,
creating jobs, and increasing value addition in the country.
• The foreign trade policy statement outlines the market and product
strategy as well as the steps needed to promote trade, expand
infrastructure, and improve the entire trade ecosystem.
• It aims to help India respond to external problems while staying on top of
fast-changing international trading infrastructure and to make trade a
major contributor to the country’s economic growth and development.
Conclusion
International trade is therefore critical to a country’s economy, as it contributes
significantly to its Gross Domestic Product (GDP). Above all, it is in charge of enabling
both growth and economic development that is not limited to a single country. Taking
advantage of the possibilities of international trade has been easier thanks to the
advancement of new technologies, improved communication, and improved
infrastructure.
India’s Balance of Payment Since 1991
Balance of Payments Position in India:
The balance of payments position of the country reflects on its economic health. The
balance of payments of any country is a comprehensive and systematic accounts of all
the different transactions occurred between the residents of a country and the rest of
the world during a particular period of lime.
The balance of payments maintains detailed classified records of different types of
receipts against exports of goods, services and all the capital received by its residents on
the one hand and also of all the payments made by the residents against imports of
goods and services received along with the capital transferred to non-residents and
foreigners, on the other hand. Thus the balance of payments is much wider than the
balance of trade which refers to only merchandise exports and imports.
The balance of payments is broadly classified into:
(a) Current account and
(b) Capital account.
The current account includes: visible exports and import; invisible items relating to
receipts and payments for various services like banking, insurance, shipping, travel etc.
and other unilateral transfer of payments like donations, grants, taxes etc.
The capital accounts of balance of payments include all the current economic
transaction for the country’s international financial position resulting changes in the
foreign financial assets and liabilities. The capital transaction includes both private,
banking and official transactions.
The balance of payment account is maintained on the basis of double entry system of
book keeping. If a country faces deficits in the current account of its balance of payment
then such deficit is normally met either by liquidating its assets or through borrowing
from abroad. Thus a persistent deficit in the balance of payments of a country results in
a heavy debt burden on the economy.
The Balance of Payment Position of India on Current Account since Independence:
With the introduction of planning in India, the balance of payments position of the
country has been recording considerable changes with the continuous changes in its
imports and exports.
Balance of Payments (BOP) Position during the First Four Plans:
The balance of payments position during the First Plan period was quite satisfactory as
the country experienced a deficit in its current account only to the extent of Rs. 42.3
crore. In this period, the inflow of foreign capital was only Rs. 13.6 crore and the foreign
exchange reserve was about Rs. 127 crore.
During the Second Plan, the deficit in the balance of trade was to the tune of Rs. 2,339
crore and the surplus of invisibles and donations ultimately reduced the deficit in
balance of payment to Rs. 1,725 crore. This higher deficit in the balance of payment,
during the Second Plan was resulted from heavy imports of capital goods, huge imports
of food grains and raw materials and lesser expansion of exports and higher
maintenance imports.
During the Third Plan the country experienced a current account deficit in its BOP to the
extent of Rs. 1,941 crore which was financed by loans from foreign countries under
various schemes. During the Fourth Plan, the Government introduced both export
promotion and import substitution measures for wining out the deficits in the BOP.
Moreover, due to sudden increase in the invisibles accounts receipts to the extent of Rs.
1,680 crore in 1973-74, the plan ended with a surplus of Rs. 100 crore in its BOP.
BOP During the Fifth Plan:
During the Fifth Plan period, due to the applicability of two factors like hike in oil prices
arid increase in the value of exports due to promotional measures, although a surplus in
trade balance was attained in 1976-77 (Rs. 316 crore) but the plan experienced an
increasing trend in trade deficit to the extent of Rs. 3,179 crore. But due to higher entry
of net invisibles, the Fifth Plan ended with surplus of Rs. 3,082 crore.
BOP During the Sixth to Tenth Plan:
The balance of payments position has recorded a total change since 1979-80. India
started to record a heavy deficit in its balance of payments since 1979- 80. Table 7.6
shows the growing deficit in trade balance along with the growing deficit in its balance
of payments position during the Sixth to Tenth Plan.

Thus the table reveals that due to the mounting deficit in trade balance, i.e., from Rs.
5,967 crore in 1980-81 to Rs. 6,721 crore in 1984-85, India maintained a huge deficit in
its balance of payments to the extent of Rs. 11,384 crore during the Sixth Plan period.
Again due to a persistent growing deficit in trade balance the cumulative deficits in the
balance of payment during the Seventh Plan rose further to Rs. 38,313 crores, showing
the annual average deficit of Rs. 7,662 crore.
Again in 1990-91, total amount of deficits in the balance of payments was as high as Rs.
17,369 crore. But in 1999-2000 and 2000-2001, the total amount of deficits in the
balance of payments was Rs. 20,331 crore and Rs. 11,431 crore respectively. In 2001-
02, total surplus in BOP was Rs. 16,426 crore and the total surplus further increased to
Rs. 47,952 crore in 2003-04. In 2008-09, total deficit in BOP was Rs. (-) 1,31,614 crore.
This huge deficit in the balance of payments position during the entire Sixth, Seventh
and Eighth and Ninth Plan periods was the result of tremendous rate of growth of
imports accompanied by a poor rate of growth of exports. The trade deficits during
these four plans were so heavy that it could not be offset by the flow of funds under net
invisibles. The following table depicts a clear picture about the amount of deficits in the
balance of payments from the First Plan to the Ninth Plan.

Recovery in Balance of Payments Position in India since 1991-92, i.e., After Economic
Reforms:
The balance of payments position, which had reached a point of near collapse in June
1991, gradually stabilized during the course of 1991-92. In 1990-91, foreign currency
reserves had declined to $ 1.1 billion despite heavy borrowing from the IMF. In order to
restore international confidence, the Government negotiated a stand by arrangement
with the IMF in October 1991 for $ 2.3 billion over a 20 month period, a Structural
Adjustment Loan with the World Bank of $ 500 billion and a Hydrocarbon Sector Loan
with ADB for $ 250 million.
Along with this effort, the Government also launched the India Development Bonds
aimed at mobilizing NRI sources of funds. With the assurance of external support
through these efforts, the balance of payments position was gradually stabilized in
1991-92 and the foreign exchange reserves were restored to the level of $ 5.6 billion at
the end of March 1992.
Thus, the balance of payments position in India showed a steady improvement since
1991-92 with exports covering a larger proportion of imports than in the earlier years.
The export-import ratio has averaged nearly 90 per cent during 1991-92 to 1993-94
compared to an average of about 65 per cent for the preceding three years.

In 1994-95, this export-import ratio stood at 91.9 per cent. The current account deficit
has also declined, averaging about 0.7 per cent of GDP for these three years (1991-94),
compared to an average of about 2.6 per cent of GDP in the preceding three years.
In this connection, Economic Survey, 1995-96 observed, “The development in India’s
trade and payments over the past five years mark a noticeable structural change
towards a more stable and sustainable balance of payments. During the post-
liberalization period, there has been a sharp improvement in the coverage of import
payments through export earnings. The coverage ratio has averaged around 88 per cent
since 1992-93, compared with only 52.4 per cent at the beginning of the 1980’s and
about 70 per cent at the end of the 1980’s. There has also been a marked improvement
in the flow of invisible receipts. Together, these changes brought about a sharp
reduction in the ratio of the current account deficit to GDP from an unsustainable level
of 3.2 per cent in 1990-91 to 0.8 per cent in 1994-95.”

There has been a structural change in the capital account in terms of a sharp reduction
in debt creating flows and an increased recourse to non-debt creating foreign
investment flows. For example, debt creating flows, as a percentage of total capital flow
in the balance of payments, averaged as much as 97 per cent during the Seventh Plan
Period (1985-86 to 1989-90).
But the ratio declined very sharply to less than 18 per cent in 1994-95. This declining
trend is shared by all the major components of debts flows, namely external assistance,
commercial borrowing and non-resident deposits. This favourable shift, away from
recourse to debt creating flows for financing the current account deficit, has obvious
implications for moderating and reducing future debt service liabilities.

During the recent years, the balance of payments position of the country experienced a
mixed scenario. The year 2004-05 marked a significant departure in the structural
composition of India’s balance of payment (BOP), with the current account, after three
consecutive years of surplus, turning into a deficit. In a significant transformation, the
current account deficit, observed for 24 years since 1977-78, had started shrinking from
1999-2000.
The contraction gave way to a surplus in 2001-02, which continued until 2003-04.
However, from a surplus of US $14.1 billion in 2003-04, the current account turned into
a deficit of US $5.4 billion in 2004-05. This deficit was caused by a burgeoning excess of
merchandise imports over exports, which was left uncompensated by the net surplus in
invisibles.
Which the magnitude of deficit is one of the highest in recent times, it underscored the
rising investment demand in the economy. As a proportion of LSDPP, the turnaround in
the current account balance was from a surplus equivalent to 2.3 per cent in 2003-04 to
a deficit of 0.8 per cent in 2004-05.
The turn around in the current account during 2004-05 was accompanied by a
significant strengthening of more than 80 per cent in the capital account resulting in
continued reserve accretion. Compared with 2003-04, when loan inflows and turned
not net outflows, such inflows shot up rapidly during 2004-05 and bolstered the rise of
the capital account surplus with good support from robust foreign investment inflows.
Reserve accumulation during 2004-05, at around four-fifths of such accumulation
during 2003-04, maintained India’s status as one of the largest reserve holding
economies in the world.
Rise in Trade Deficit during 1995-96 and Thereafter:
India’s trade deficit during 1995-96 swelled to $ 4,538 billion—more than double of the
deficit of $ 2.027 billion in the previous financial year. The country’s exports during
1995-96 were estimated at $ 31,830 billion signifying growth of 21.38 per cent over the
exports during the previous fiscal year valued at $ 26,623 billion.
Against a target of 18 to 20 per cent growth rate for the year 1995- 96, the actual
achievement were considerably higher at 21.4 per cent in dollar terms. Import during
1995-96 were estimated at $ 36,369 billion against $ 28,251 billion during the previous
fiscal year reflecting a growth of 28.74 per cent. Thus the rise in the trade deficit during
1995-96 has been resulted mostly from the sudden spurt in imports, in spite of
attaining a considerable higher growth in exports.
1996-97:
The balance of payments position of India has been experiencing some changes in the
year 1996-97 as India’s exports went up by only 4.01 per cent and imports grew by 5.99
per cent during 1996-97 as compared to that of 21.58 per cent and 28.74 per cent
recorded respectively during 1995-96.
1998- 99:
The balance of payments (BOP) position of India has been gradually improving in recent
years. India’s BOP remained comfortable in 1998-99 partly due to anticipatory policy
action’s, such as issue of Resurgent India Bonds. The deficit in the current account of the
BOP in 1998-99 had declined to about 1.0 per cent of GDP as against 1.7per cent in
1995-96 and 1.4 per cent in 1997- 98, mainly reflecting sharp declines in POL and non-
customs imports.
Reflecting the trends in exports and imports, the deficit on the trade account of BOP in
1998-99 narrowed to US $ 13.25 billion from US $ 15.51 billion in 1997-98 or from 3.8
per cent of GDP in 1997-98 to 3.1 per cent of GDP in 1998-99.
1999- 2000:
India’s Balance of payments position in 1999-2000 remained comfortable. The current
account deficit in 1999-2000 was contained to 0.9 per cent of GDP, despite an
unfavourable international trade and financial backdrop including a near two-third like
in India’s oil import bill.
2000- 01:
India’s balance of payments (BOP) position in 2000-01 remained comfortable and the
external sector experienced a distinct improvement. There were, however, some
pressures on the BPO during the first half of the year on account of significant
hardening of international oil prices, the sharp downturn in international equity prices
and successive increases in interest rates in the United Suites and Europe; but the
situation cased with the mobilization of funds under the India Millennium Deposits,
which helped to revert the declining trend in reserves and enhanced confidence in the
strength of India’s external sector. As a result, the BOP situation experienced a turn
around 0.5 per cent of GDP from 1.1 per cent of GDP in 1999-2000.
2001- 02:
India’s balance Of payments in 2001-02 exhibited mixed developments. While exports,
on BOP basis, remained stagnant at previous year’s level, but imports declined by 2.8
per cent, thus resulting in a decline in merchandise trade deficit, as per cent of GDP,
from 3.1 per cent in 2000-01 to 2.6 per cent in 2001-02. Moreover, the current account
BPO turned into a surplus in 2001-02, after a gap of 24 years (last recorded in 1977-78).
2007-08 and 2008-09:
Both the year 2007-08 and 2008-09 were marked by adverse developments in the
external sector of the economy, reflecting impact of global financial crisis on the
emerging economies including India. India’s BOP exhibited considerable resilience
during fiscal 2008-09 despite one of the severest external shock.
The current account balance [(-) 2.4 per cent of GDP in 2008-09 vis-a-vis (—) 1.3 per
cent in 2007-08] remained well within sustainable limits and there was limited use of
foreign exchange reserves despite massive decline in net capital flows to US $ 7.2 billion
in 2008-09 as against US $ 106.6 billion in 2007-08. As a result, the total net capital
account of BOP as per cent of GDP stood at only 0.6 per cent in 2008-09 as compared to
that of 8.8 per cent in 2007-08.

Convertibility of Rupee
Convertibility of Rupee:
For the first time, the Union Budget for 1992-93 has made the Indian rupee partially
convertible. This was an inevitable move for the expeditious integration of Indian
economy with that of the world In order to face the serious current account deficit in
the balance of payments, the Government of India introduced the partial convertibility
of rupee from March 1. 1992.
Under this system, which remained in operation for a period of one year, 60 per cent of
the exchange earnings were convertible in rupees at market determined exchange rate
and the remaining 40 per cent earnings were convertible in rupees at the officially
determined exchange rate.
The entire foreign exchange requirement for meeting import obligations was required
to be purchased at market determined exchange rate, excepting a few specified imports
and imports on the government account.
The term convertibility of a currency indicates that it can be freely converted into any
other currency. Convertibility can also be identified as the removal of quantitative
restrictions on trade and payments on current account. Convertibility establishes a
system where the market place determine the rate of exchange through the free
interplay of demand and supply forces.
In India, hawala trade normally handle about 4 billion dollars a year. Until recently, this
was traceable to the increasing differential between official and hawala exchange rates.
This convertibility of rupee has bridged this gap and in check the hawala trade
effectively.
Current Account Convertibility:
Current account convertibility is the next phase for attaining full convertibility of rupee.
Current account convertibility relates to the removal of restrictions on payments
relating to the international exchange of goals, services and factor incomes, while
capital account convertibility refers to a similar liberalization of a country’s capital
transactions such as loans and investment, both short term and long term.
The International Monetary Fund (IMF) which works towards the establishment of
multilateral system of payments, requires member countries to move towards
restoration of current account convertibility, but permits them to restrict convertibility
for capital transactions.
Current account convertibility has been defined as the freedom to buy or sell
foreign exchange for the following international transactions:
(a) All payments due in connection with foreign trade, other current business, including
services and normal short term banking and credit facilities;
(b) Payments due as interest on loans and as net income from other investments;
(c) Payments of moderate amount of amortization of loans or for depreciation of direct
investment; and
(d) Moderate remittances for family living expenses.
Capital Account Convertibility:
The next and final step in this line is the convertibility of rupee on capital account. But
we must draw a sharp distinction between currency convertibility in the current and
capital accounts. Capital account convertibility refers to a liberalization of a country’s
capital transactions such as loans and investment, both short term and long term as well
as speculative capital flows.
When it comes to capital account convertibility, one has to be more prudent and be very
much sure about its capacity to launch such a system. If the country can build a large
stock of international reserves, then only this system could provide a bonus. Confidence
in the financial system and a steady macro-economic environment are very much
essential to the introduction of capital account convertibility of rupee in near future.
Capital account convertibility in India can be introduced in stages by gradually widening
access to resident Indians to external financial markets. In the light of historical
experience, the general view is that opening up of the capital account should occur late
in the sequencing of stabilization and structural reforms.
Capital account convertibility is likely to be sustainable only if it is supported by
credible macro- economic policies, listing reduction in fiscal deficit, moderation in
inflation and a flexible financial system which can adapt to changing situations as some
of the essential pre-conditions for capital account convertibility. Thus capital account
convertibility implies the right to transact in financial assets with foreign countries
without restrictions. Although the rupee is not fully convertible on the capital account,
convertibility exists in respect of certain constituent elements.
These are as follows:
(a) Capital account convertibility exists for foreign investors and Non-Resident Indians
(NRIs) for undertaking direct and portfolio investment in India.
(b) Indian investment abroad up to US $ 4 million is eligible for automatic approval by
the RBI subject to certain conditions.
(c) In September 1995, the RBI appointed a special committee to process all
applications involving Indian direct foreign investment abroad beyond US $ 4 million or
those not qualifying for fast track clearance.
But in the context of the need for attracting higher capital inflows into the country, it is
also important for the Government to introduce convertibility on capital account, as
foreign investors may enter confidently only when there is an assurance that the exit
doors will always remain open.
The Budget 2002-03 has adopted a cautious step towards Capital Account Convertibility
by allowing NRI to repatriate their Indian income. Considering the present condition
along with the comfortable foreign exchange reserve of the country at present, the
government is now favouring a make towards fuller capital account convertibility in the
context of changes in the last two decades. For the mean time on 18th March, 2006
Prime Minister Dr. Manmohan Singh asked the Finance Ministry and RBI to work out a
roadmap for fuller capital account convertibility based on current realities. Dr. Singh is
of the view that such roadmap for fuller capital account convertibility would attract
greater foreign investments into the country.
Thus it is expected that the Government of India and the RBI are going to announce a
roadmap soon for the attainment of fuller capital account convertibility of the country.
However, while taking decision for full convertibility of rupee, the Government should
take adequate care of its possible consequences.
In the mean time on 29th March, 2006, 160 renowned Indian economists asked the
government to desist from mowing towards full convertibility of rupee as it was
brought with dangerous consequences. They argued, “We urge the UPA government
from such an unnecessary and dangerous measure……. This (full float of rupee) would
expose Indian economy to extreme volatility”.
The statement made by about 160 leading economists from various institutions across
the country and signed by Prof. Prabhat Patnaik of JNU, Delhi also expressed
apprehension that to expose the country to unpredictable movements in capital flows
would create a potential for fragility and crisis and particularly when the stock market
is witnessing a speculative boom.
Tara-pore Committee’s Second Report on Capital Account Convertability (July 2006):
With the growing strength of balance of payments in the post-1991 period and with
external sector remaining robust and gaining strength every year and the relative
macro economic stability with high growth providing a conducive environment
relaxation of capital controls, RBI, in pursuance of the announcement the Prime
Minister constituted a committee on March 20, 2006 with Mr. S.S. Tarapore as its
chairman for setting out a roadways towards fuller capital account convertibility. The
committee submitted its Report to the RBI on July 31, 2006.
Keeping itself conscious of the risks involved in the movement towards fuller
convertibility of the Rupee as emanating from cross country experiences in this regard
the committee calibrated the liberalization road map to the specific contexts of
preparedness—namely, a strong macroeconomic framework, sound financial systems
and markets and prudential regulatory and supervisory architectures.
After making review of the existing capital controls, it detailed a broad five year time
frame for movement towards fuller convertibility in three phases: Phase-I (2006-07);
Phase II (2007-08 to, 2008-09) and Phase III (2009-10 to 2010-11).
The report recommended the meeting of certain indicators/targets as a concomitant to
the movement in: meeting FRBM targets; shifting from the present measures of fiscal
deficit to a measure of the Public Sector Borrowing Requirement (PSBR); segregating
government debt management and monetary policy operations through the setting up
of the office of Public Debt independent of the RBI; imparting greater autonomy and
transparency in the conduct of monetary policy; and slew of reforms in banking sector
including a single banking legislation and reduction in the share of Government/RBI in
the capital of public sector bank.
Keeping the current account deficit to GDP ratio under 3 per cent; and evolving
appropriate indicators of adequacy of reserves to cover not only import requirements,
but also liquidity risks associated with present types of capital flows, short-term debt
obligations and broader measures including solvency.
Thus, the committee recommended a three phase strategy for moving towards capital
account convertibility. Although, RBI has not been taken any final decision on
acceptance of the recommendations in totality but it has initiated measures on an on-
going basis beginning with the announcement in Us Mid-term Review of the Annual
Policy Statement for 2007-08.
Foreign Capital Route
Introduction
India has become one of the most favoured destinations of foreign investors in recent
years. Numerous factors are involved in the increased foreign investment such as: an
abundant supply of labour, business-friendly policies, rising number of the educated
middle class, etc. India attracted a total of $72.12 billion in Foreign Direct Investment
(hereinafter, FDI ) from April, 2020- January, 2021.
When foreign investors are looking to invest in India, they need to be aware of the
compliance needs which are related to the sectors in which the foreign investor is
looking to invest in. The need for approval from authorities for FDI varies from one
sector to the other. For example, FDI in the automobile sector does not need any prior
approval from the government authorities while such approval is needed for the retail
food products businesses. It is important for the foreign investors and legal
professionals equally to understand the different entry routes in India for investment by
a non-resident.
What is the entry route?
Entry routes refer to the different approval requirements which foreign investors need
to fulfil before investing in India. There are two routes through which a non-resident
can invest in India – automatic route and approval route. When a non-resident investor
invests through the automatic route they do not have to take any prior approval from
the government, whereas, through the government route, prior approval of the
government is necessary to be obtained before investing in India.
The automatic route
Below are the sectors which can enter through automatic route-
SECTOR FDI CONDITIONS
PERMITTED

Agricultural and 100% Non-scheduled air carriage services Helicopter

Animal Services/Seaplane Services requiring DGCA approval
Husbandry
Industry

E-commerce 100% 100 % FDI applicable only on the marketplace model of

e-commerce. Marketplace based model means providing
an electronic platform for the sellers and buyers to
interact.100 % FDI not applicable for inventory based
models of e-commerce. Inventory based model signifies a
business model where the e-commerce goods are stored
by the e-commerce entity and sold by them directly to
the customers.
 Cash & Carry 100%
Wholesale
business

Duty-Free Shops 100% Duty-Free shops would be referred to as the shops which
are established in the FDI in duty-free shops will be
subject to the Customs Act, 1962. The Duty-Free shop
will not be permitted to operate a retail business in any
domestic tariff area of the country

Textiles & 100%

Garments

Single Brand 100% The product should be under the umbrella of a single
Product Retail brand products should be sold in the other countries
Trading under the same brand.

Thermal Power 100 %

Petroleum 49 %
Refining

Broadcasting 100% This may include-TeleportsDTHCable Networks (Multi-

System Operators (MSOs) operating at the National or
State or District level and undertaking upgradation of
networks towards digitalization
and addressability); Mobile TV; Headend-in-the Sky
Broadcasting Service(HITS)Cable Networks (Other MSOs
not undertaking upgradation of networks towards
digitalization and addressability and Local Cable
Operators (LCOs).

Through the Automatic Route, though the investors do not have to take prior approval
of the government authorities or RBI , they have to abide by the sectoral regulations.
Government route
There are a few sectors in which foreign investment cannot take place without the prior
approval of the government authorities. According to the consolidated FDI policy,
approval for FDI will be required when:
1. An Indian company is being incorporated with investments from non
residents and is not owned by an Indian entity.
2. An Indian company is being incorporated with investments from non
residents and such company is not controlled by a resident of India.
3. A company which is currently owned or controlled by a resident is being
transferred to a non – resident by transfer of shares or fresh issue of shares to
 a non-resident entity pursuant to a scheme of merger, amalgamation ,
acquisition, etc.
4. A company, trust and partnership firm established outside India and owned
and controlled by non-resident Indians will be eligible for investment under
Schedule IV of the Foreign Exchange Management ( Non-debt Instruments)
Rules, 2019 and such instruments will also be deemed to be at par with
domestic investments.
The sectors which need the approval of the government are –
SECTOR FDI CONDITIONS
PERMITTED

Broadcasting Content Services 49% Applicable to FM Radio and subject to

conditions specified by the Ministry of
Information and Broadcasting.

Digital Media 26% Applicable to streaming of news and

current affairs through Digital Media.

Food Products Retail Trading 100 % The food products should be made or
produced in India.

Print Media (Publication/ printing of 100 % Subject to guidelines issued by the

scientific and technical Ministry of Information and
magazines/specialty journals/ Broadcasting.
periodicals and facsimile edition of
foreign newspapers)

Print Media (Publishing of 26% FDI is subject to the Guidelines for

newspaper, periodicals and Indian Publication of Indian editions of
editions of foreign magazines dealing foreign magazines dealing with news
with news and current affairs) and current affairs issued by the
Ministry of Information &
Broadcasting on 4.12.2008.

Steps involved in government route

Steps involved in taking approval of the government to enter through the government
route will be as follows-
1. The applicant should submit the proposal for foreign investment to the
Department of Promotion of Industries and Internal Trade.
2. After the application has been received by the Department of Promotion of
Industries and Internal Trade (DPIIT) , it will identify the concerned
administrative ministry/ department and transfer the application to the
concerned administrative ministry/ department within 2 days.
3. When the proposal is received it should be circulated by DPIIT to the Reserve
Bank of India for review of the compliance to the Foreign Exchange
 Management Act. In sectors which require security clearance for foreign
investments , the proposal needs to be sent to the Ministry of Home Affairs .All
proposals should be sent to the Department of Revenue and the Ministry of
External Affairs. These ministries can communicate any objections or reviews
directly to the concerned ministry.
4. If there are any specific issues in the proposal from the perspective of FDI
policy, it may be referred to the DPIIT for clarification. Therefore, consultation
with DPIIT will be based on circumstances and not regular and routine. The
specific issue of the proposal with regards to the FDI policy will be clarified
by the DPIIT within 15 days.
5. The Ministries or Departments whose consultations regarding the proposal
are preferred should publish the information relating to the proposal within 4
weeks of the online receipt of the proposal. If the comments of the consulted
ministries or authorities are not received within stipulated time , it would be
considered that they have no comments to offer . When a proposal is sent to
the Ministry of Home Affairs for security clearance it is supposed to send its
clarification or comments to the competent authority within 6 weeks from the
online receipt of such proposals. In cases where such proposals are not sent
back with clarification within the stipulated time MHA will have to
intimate the concerned administrative Ministry or Department about the time
frame within which it will be able to give its comments.
6. The concerned authority should examine the proposal and documents within
1 week and ask the applicant to furnish any additional documents , if
required. Such queries should be emailed to the applicant so as to avoid any
delay.
7. Once the proposal is received , the concerned authority should process the
application for decision and send the same to the applicant within 2 weeks.
8. All the recommendations of the FIPB on the FDI proposals above Rs 5000
crores should be first placed before the Cabinet Committee on economic
affairs (CCEA) for consideration . After approval has been received by the
CCEA, an approval letter should be issued by the concerned ministry within
one week.
9. If the application gets rejected or conditions in addition to the conditions laid
down in the FDI policy or sectoral regulations have been stipulated on the
approval of the proposal , the approval of DPIIT should compulsorily be
sought by the concerned ministry within 8 or 10 weeks from the receipt of the
proposal.
Prohibited sectors
Foreign Investments are not allowed in the following sectors through any route-
1. Lottery Business Including private or government lotteries, online lotteries,
etc.
2. Chit Funds- It is a type of rotating savings and agreement between different
persons to subscribe to a certain sum for a money specified period of time.
3. Nidhi Companies.
4. Trading in transferable development rights.
5. Real estate or construction of farm houses but prohibition on FDI in Real
estate business will not include construction of town shops, residential and
commercial infrastructure , roads and bridges and Real Estate Investments
 trusts which are registered and regulated by SEBI through the SEBI (REITs)
Regulations, 2014.
6. Manufacture of tobacco products and tobacco substitutes.
7. Sectors not open for private investments – atomic energy.
Conclusion
The Central Government’s dedication towards increasing the inflow of foreign
investment in India has been remarkable. Even through the approval route, the
government has made the process more streamlined and the decision on the proposal is
conveyed to the applicant quicker. Experts believe that the spike in FDI will continue in
India. “FDI in India is likely to pick up going ahead on the back of a strong rebound in
growth. Any pullback in FDI, I think, will only be temporary.” Frederic Neumann, co-
head of Asian economics research at HSBC.

MNCs & Impact of Globalization

Connecting a country’s economy with the economies of other countries under
conditions of open business and flow of capital, as well as the cross-border movement of
people. MNCs play a critical role in progressing the globalization process. The order to
achieve success in investments and commerce contributes to the connectivity of
different nations.
Globalization provides developed-country corporations with a competitive
advantage.Globalization benefits developing countries as well since they are more cost-
effective and so attract jobs. Increasing commodities and services, capital, and
technology are being transferred across nations. There is one more method for the
countries to be linked. This is achieved through international migration.
The three major forms of globalization are political, economic, and cultural
globalization. Through the cross-border movement of products, capital, and labor,
globalization has produced new employment and economic growth. However,
development and employment generation are not evenly distributed among businesses
or countries.
Multinational Corporations (MNCs)
An MNC is a multinational company that controls and operates production in more than
one country. Multinational Corporations or Multinational Companies are enterprises
that operate in more than one country other than their native country. Multinational
Corporations (MNCs) have a central head office in their home country and secondary
offices, facilities, factories, industries, and other assets in other nations.
Since these businesses operate on a global scale, they are sometimes referred to as
global enterprises. The main business controls and operates the operations on a global
scale. MNCs’ products and services are offered in several countries, demanding global
management. Multinational corporations may have a significant impact on local
economies and even the global economy, as well as play a significant part in
international relations and globalization. Superior technology, a worldwide
management and distribution system, and a vision of the world and goal are just a few
of this company’s characteristics.
Importance of multinational corporations in the globalization process
1. MNCs establish production offices and factories in areas with inexpensive
labor and other resources.
2. MNCs will sometimes set up manufacturing in cooperation with local
businesses from across the world. The local company benefits from such
 collaborative manufacturing in two ways. First, MNCs might contribute funds
for further expenditures in order to increase production speed. Second, MNCs
provide the most recent technology for expanding and improving output.
3. Several multinational corporations are so large that their wealth exceeds the
entire budgets of some underdeveloped countries. This is why they acquire
local businesses in order to expand output.
4. MNCs establish control over production by placing orders with small
businesses in emerging countries.
5. They operate as platforms for improved technological transmission.
6. They have given developing countries modern technology, manufacturing
processes, and increased skills.
7. They help in the transfer of capital from nations where it is plenty to those
where it is lacking.
8. They contribute to the expansion of knowledge and the development of
human resources.
9. MNCs not only market their products globally, but they also manufacture their
services and products internationally.
10. The manufacturing process is divided into little sections and shared globally.
11. It has resulted in bridge commercial and development convergence.
12. They contribute to the creation of large-scale job possibilities by establishing
branches and affiliates.
13. MNC activities have a positive impact on the host country’s balance of
payments account.

WTO & India

The full form of the WTO is the World Trade Organization, and its function is to control
and maintain trade across the world. Generally, this organisation makes the rules for
trading between countries. At present, 159 countries are members of the WTO. It
ensures that trade between the nations runs smoothly and peacefully and is profitable
for both countries.
Some important terms
1. Globalisation: It is the process of exchange of goods, services, human
resources, etc., between the world’s nations.
2. Economy: An economy is a set of interrelated production and exchange
activities.
3. Finance: It is a process of managing the funds or money for any expenditure.
4. Trade: Trade is a particular type of business that deals with the exchange of,
i.e., the buying and selling of goods and services, between peoples or
countries.
5. GDP: GDP stands for “Gross Domestic Product”. It is the value of the total
product produced or created in a country.
6. Currency: It is the mode of exchange of goods.
The WTO and its role
The World Trade Organization is an international organisation that was established on
1 January 1995 to help its members uplift their living standards, create employment,
and improve people’s lives by using trade. It forms the rules and regulations regarding
trading across the nations and ensures that the rules are correctly followed to avoid any
kind of harm and violence.
The primary role of the WTO is as follows:
• WTO trade agreement administration.
• Providing a trade negotiation forum.
• Resolving trade disputes.
• Monitoring national trade policies.
• Helping technical support and training to developing countries.
• It allows open communication between its members regarding trade.
Effect of the WTO on India
Trading is an excellent weapon for any developing country, and one who uses it rightly
wins prosperity and wealth for their country. India, as a developing nation, does the
same. India is an agricultural country, and most of its GDP depends upon agriculture, as
it exports agrarian products across the world. Trading can play a huge role in
developing any nation, if adequately used, because it also has harmful impacts. So, let’s
take a look at the good and bad impacts of the WTO on India.
Positive impacts of the WTO on India
India is a developing country and has a vast geographical area and population. That’s
why it needs more capital to feed its citizens. India is good in agriculture, as its
geographical condition is very good for crops, so they are self-sufficient in feeding their
people and exporting edible products, but some things are imported. So, it has a perfect
balance of imports and exports, and India, as one of the founding members of the WTO,
has a very positive impact on it. There are some points listed below that helped in the
development of India through the World Trade Organization:
• India’s export competitiveness has been improved by the WTO.
• The lower tariff has helped integrate with the global economy more efficiently.
• India’s growth and development have been pursued by transferring and
exchanging technology and ideas.
• There is a reduction in cost and time due to market access.
• The WTO helped better settle trade disputes in a well-defined and structured
manner.
Negative impacts of the WTO on India
Every positive impact carries a negative with it. Even after so many positive things, the
WTO has also harmed India in some ways, which are listed below:
• The TRIPs agreement went against the Indian Patents Act (1970).
• The introduction of product patents in India by MNCs caused a hike in drug
prices, which left no generic option for the poor.
• India and its research institutions have been negatively affected by the
extension of intellectual property rights to agriculture.
• The MFN (most favoured nations )clause proved detrimental to India’s
interests and provided grounds for the Chinese invasion of the Indian market
through dumping.
• India’s service sectors are backward compared to those in developed
countries.
Conclusion
The World Trade Organization is an international organisation that deals with the rules
and regulations of trading worldwide. Currently, it has a total of 159 countries,
including India. India has been the founding member of this organisation since 1995.
This organisation has helped many countries to develop with the help of trade. It also
helped India and still does toward making it a developed country. Trading has a
significant impact on any nation’s economy, and it is a part of globalisation. It also has
negative impacts, but they are overshadowed by the positive impacts. So, for India, the
WTO seems like a life-uplifting organisation.

Human Development Index and SDGs

Introduction
• The Human Development Index (HDI) was developed by two economists –
Prof. Mehbub Al Haque of Pakistan and Prof. Amartya Sen of India in 1990.
• Since 1993, HDI has been used by the United Nations Development
Programme (UNDP) each year to calculate the Human Development Index
(HDI) and publish it as a report which is known as Human Development
Report (HDR).
• The HDI was created to emphasize that people and their capabilities should be
the ultimate criteria for assessing the development of a country, not economic
growth alone.
HDI Indicators
• The HDI captures there dimensions which are long and healthy life,
knowledge/Education and a decent standard of living.
• The health dimension is assessed by life expectancy at birth, the education
dimension is measured by means of years of schooling for adults aged 25
years and more, and expected years of schooling for children of school
entering age. The standard of living dimension is measured by gross national
income per capita.
• The above mentioned dimensions are measured by the following indicators:
• Life Expectancy Index: Calculated from Life expectancy at birth.
• Education Index: Calculated from Mean years of schooling and Expected
years of schooling
• Income Index: Calculated from GNI per capita (PPP USD).

Categories of Human Development

• Human development is defined as the process of expansion of human
capabilities, a widening of choices, a fulfillment of human rights, an
enhancement of freedom and opportunities and improving their well-being.
• According to the United Nations, there are three essential choices for people
which are: leading a long and healthy life; acquiring
knowledge; and having access to the resources needed for a decent standard
of living.
• Countries fall into four broad human development categories based on HDI
index: Low human development, Medium human development, High Human
Development and Very High Human Development.
Human Development Index 2021-22
• India ranked 132 out of 191 countries in the United Nations Human
Development Index 2021-22.
• HDI 2021-22, finds the global decline in human development. Ninety percent
of countries have registered a reduction in their Human Development Index
(HDI) value in 2020 or 2021, reversing much of the progress toward the
Sustainable Development Goals.
Note
• The HDI simplifies and captures only part of what human development
entails. It does not reflect on inequalities, poverty, human security,
empowerment, etc.
• The 2010 Human Development Report came up for the first time with an
Inequality-adjusted Human Development Index (IHDI), which factors in
inequalities in the three basic dimensions of human development, which are
income, life expectancy and education.
Sustainable Development Goals
The Sustainable Development Goals (SDGs), also known as the Global Goals, are a set
of 17 interrelated goals that are meant to act as a common blueprint for peace and
prosperity for people and the planet today and into the future.

What exactly are Sustainable Development Goals?

What exactly are Sustainable Development Goals?
• Sustainable development is an approach that aims to achieve human
development objectives while allowing natural systems to support human
needs for essential ecosystem services and natural resources.
• Sustainable development was first defined in the Brundtland Commission in
its report Our Common Future in the year 1987.
• Sustainable development (SD) includes a concerted effort to create a future
for people and the planet that is inclusive, sustainable, and resilient.
What are Sustainable Development Goals (SDGs)?
• Sustainable Development Goals (SDGs) are the blueprints for achieving a
better, more sustainable future for everybody.
• In other words, the Sustainable Development Goals are a series of seventeen
pointer targets that all UN members have pledged to work on in order to
improve the country’s future.
• “Future We Want,” a documentary played at the Rio+20 meeting, proposed a
post-2015 development agenda.
• The Sustainable Development Goals (SDGs) are an intergovernmental
agreement that replaces the Millennium Development Goals as the post-
2015 development agenda.
• The Open Working Group on Sustainable Development Objectives of the
United Nations General Assembly set 17 goals with 169 targets and 304
indicators to be accomplished by 2030.
• The United Nations Sustainable Development Summit established a post-
negotiation agenda named “Transforming Our World: the 2030 Agenda for
Sustainable Development.”
• The Rio+20 summit (2012) in Rio de Janeiro produced the SDGs, which are
non-binding documents.
8 Targets of Millennium Development Goals The eight targets of the Millennium
Development Goals were as follows:
To make extreme poverty and hunger a thing of the past.
To make primary education universal
To advance gender equality and women’s empowerment
To lower the infant mortality rate
To improve the health of mothers
HIV/AIDS, malaria, and other diseases are being combated.
To ensure long-term environmental viability
Creating a global development partnership