B.COM II sem 201- INDIAN ECONOMY

INDIAN ECONOMY

B.Com 201

 

Unit I

S.No	Questions
1.	Differentiate between economic growth and economic development. What are the indicators and features of economic development?
2.	Discuss the various factors which influence the economic development of the less developed countries?
3.	Explain important obstacles in the economic growth of underdeveloped countries? Also discuss the measures to promote economic growth?
4.	Discuss the main characteristics of Indian Economy? Is India an under-developed economy?
5.	What are the causes, effects and solutions of problem of Poverty in India?
6.	What are the types and causes of unemployment in India? Suggest some solutions to remove the problem?
7.	What are the effects of unemployment on Indian society?
8.	What are the causes and effects of overpopulation in India? How can this problem be controlled?
9.	Explain the importance of exports and imports for a developing country like India?
10.	Examine the role of transport in economic development of a country. Also explain the important means of transportation in India?
11.	Explain the problem of inequality in India? Also suggest the measures to remove it?

Unit II

S.No	Questions
12.	Define national income. Bring out the difficulties involved in national income estimation in under-developed countries like India?
13.	Show by chart the relation between different concepts/ components of National Income/ Concepts of National Product?
14.	Discuss the various methods of calculating national income?
15.	Numericals based on national income

Unit III

S.No	Questions
16.	What is the importance of agriculture in Indian Economy?
17.	What are the causes of low agricultural productivity in India? How can it be improved?
18.	What do you understand by Green Revolution? What are its main features and causes of Green Revolution in India?
19.	What is the importance of land reforms in India? Explain the reasons for the slow progress of these reforms?
20.	Explain the importance of irrigation for Indian agriculture? What are the important means of irrigation in India?
21.	Explain the main features/objectives of Food policy of Government of India.
22.	Examine the role of Public Distribution System in India?

 

Unit IV

S.No	Questions
23.	Explain the role of industrialization in India’s economic growth?
24.	What is the importance of Large Scale Industries? Explain the industrial growth pattern in India (4 Phases) in detail?
25.	What is the role and importance of Small Scale Industry in India? Explain the major problems faced by these industries. Give some suggestions how these problems can be removed?
26.	What are the main features of New Economic Policy of India?
27.	What are the main long and short term objectives of India’s Five Year Plan? Also explain the major achievements and failures of planning?
28.	What do you know about NITI Aayog .Throw some light on how it functions?
29.	Explain important sources of industrial finance in India?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unit I

Q1. Differentiate between economic growth and economic development. What are the indicators and features of economic development?

Ans. Economic Growth

A country's economic growth is usually indicated by an increase in the country's gross domestic product (GDP). Generally speaking, GDP is an economic model that reflects the value of a country's output. Eg. In one calendar year, the berry exporting business added over one million dollars to India's GDP because that's the total value of the goods and services produced by the new berry exporting business. Since India's GDP increased, this means that India experienced economic growth.

It leads to:

(i) Increase in National Product:

Growth in the money value of goods and services are not sufficient for an economy. It simple increases the price of goods and services. In fact, growth is considered in physical terms. Thus, production of different goods and services must be increase in an economy.

(ii) Increase in Per capita output:

Under growth process, not only the total volume of production increases, but simultaneously total population will also increase. Thus, per capital output will also increase over time to maintain the same growth rate. It will help to solve the problem of physical output of goods and services per capita in any economy.

Economic Development

A country's economic development is usually indicated by an increase in citizens' quality of life. 'Quality of life' is often measured using the Human Development Index, which is an economic model that considers intrinsic personal factors not considered in economic growth, such as literacy rates, life expectancy and poverty rates.

While economic growth often leads to economic development, it's important to note that a country's GDP doesn't include intrinsic development factors, such as leisure time, environmental quality or freedom from oppression. Using the Human Development Index, factors like literacy rates and life expectancy generally imply a higher per capita income and therefore indicate economic development.

Eg. After the berry exporting business, many Indians found work through the new industry. Newly employed villagers relocated closer to the business, giving them better access to schools, healthcare and fresh water produced for the plant and surrounding areas. Besides earning a salary, the new work enabled them more leisure time and contributed to longer life spans. Thus, Indians experienced economic development through economic growth.

Economic Development: Features of Economic Development

According to Prof. Meier and Baldwin, “Economic Development is a process, whereby, economy’s real national income increases over a long period of time”.

Meaning:

This definition is simple as well as precise. It emphasizes three basic features of economic development:

(а) Economic development is a process means the operation of certain forces which brings continuous change in the economic system.

(b) The process results in the rise in ‘real national income’. It refers to the country’s total output of final goods and services mentioned not in money terms but in real terms (i.e. in terms of goods & services). Real national income refers to net national product corrected for price changes.

(c) Real Income must be sustained over a ‘long period of time’. Net National product must be sustained for long period and not for short period. A short period expansion which occurs within a business cycle is of secondary results. The important is the long run upward trend in real national income. It is called economic development.

Economic development is a much broder concept than economic growth. In simple sense,

Economic development = Economic Growth + Standard of Living.

Difference between Economic Growth and Economic Development

Economic Growth refers to the rise in the value of everything produced in the economy. Conversely, Economic Development is defined as the increase in the economic wealth of a country or a particular area, for the welfare of its residents.

Basis for Comparison	Economic Growth	Economic Development
Meaning	Economic growth is the positive change in the real output of the country in a particular span of time.	Economic development involves rise in the level of production in an economy along with the advancement of technology, improvement in living standard and so on.
Concept	Narrow	Broad
Scope	Increase in the GDP, Per Capita Income etc.	Improvement in life expectancy rate, infant mortality rate, literacy rate etc.
Term	Short term process	Long term process
Applicable to	Developed economies	Developing economies
How it can be measured	Upward movement in national income	Upward movement in real national income
What kind of changes is expected?	Quantitative changes	Qualitative and Quantitative changes
Type of process	Automatic	Manual
When it arises?	In a certain period of time	Continuous process

 

Conclusion

After the above discussion, we can say that economic development is a much bigger concept than economic growth. In other words, the economic development includes economic growth. As the former deals with various indicators to judge the progress in an economy as a whole, the latter uses only specific indicators like gross domestic product, individual income etc.

Indicators of Economic Development

Measurement of economic development and express in definite index is very difficult task in economics. So many opinions are found to indicate level of economic development of a nation. However, some common and popular indicators that used to measure development are discussed below:

Volume of Per Capita Income- Per Capita Income is first and most important indicators of economic development of a nation. It is commonly used by all nations in the world along with UN while measuring economic position of the nation. The PCI of least developed countries (LDCs) is less than $400. There are 49 countries LDCs across the globe.

Rise in Factor Productivity- Development means rise in production and productivity of factors of production. Productivity implies increased per unit of production of factors of production land, labour, capital and organization in terms of rent, wages, interest and profit.

Rise in Living Standard- Another indicator of development is living standard of common people which should go on rising to higher levels. The very objective of development is to provide better life to people. It refers to increase in average consumption level of individual and society.

Physical Quality of Life Index- Physical Quality of Life Index is a common indicator of development. It is computed from life expectancy at birth, infant mortality rate and literacy rate of a country. If people live longer and are literate, PQLI value will be high. It is measured in scale of 1 to 100.

Human Development Index- The Human Development Index as an indicator was introduced by UNDP in the World Human Development Report in 1990. Since then, it has been the most popular indicator of development. Its range of measurement is in between 0 to 1.

Poverty Alleviation and Inequality Reduction- As a nation develops, poverty must be reduced and the gap between the rich and poor must be narrowed down. Poverty limits opportunities of common people to uplift their life. It weakens their income earning capability. Their access to health, education and skill development is most essential to minimize poverty rate.

Other Categories

The other categories of World Bank indicators include indicators that translate less directly into terms of financial or monetary terms. They include "Education," "Environment," "Health," "Infrastructure" and "Labor."

Q2. Discuss the various factors which influence the economic development of the less developed countries?

Ans. Factors of Economic Development

There are various factors which are responsible for economic development in any country. These vary from country to country. Following are the important factors which influence the social structure of any country.

1. Natural Resources- Natural resources play an important role in the economic development of any country. If any country is rich in natural resources, it can improve its economic condition more rapidly. On the other hand in the under developed countries, there is a shortage of natural resources. It is one of the causes for their backwardness. Another problem is that poor countries are unable to utilize these resources properly.

2. Capital Accumulation- Capital accumulation means to increase the real assets in the economic development. In advanced countries the rate of saving and investment is high, so it increases the rate of employment and rate of development in these countries. While in the poor countries due to low per capita income, saving and investment is low, which causes low production and unemployment. Another problem is that capital is less productive in the underdeveloped countries as compared to the advanced countries.

3. Power Resources / Energy Resources- Energy resources like oil, gas, electricity, coal and nuclear energy play an important role in the economic development. The importance of these resources has been changing with the passage of time. Energy resources are very useful in increasing the production of various sectors like agriculture, industry and transport.

4. Human Resources- Human resource is an important factor for the economic development of any country. If birth rate of any country is high and the size of resources is limited it will be an obstacle in the way of development. On the other hand if country is under populated it is also not favorable for the economy. If the size of population is according to the size of natural resources, people are educated honest, efficient and skilled it will be helpful for economic development. The per capita income, rate of saving, rate of investment, rate of employment and rate of development will be high.

5. Education- Education plays very effective role in increasing the rate of development in the country. Today expenditure on education is considered an investment. In less developed countries the rate of literacy is very low which is the main cause of low production. Now the government of less developed countries has realized the importance of education and is allocating a sufficient amount every year for this sector. But unluckily our standard of education is not improving and rate of unemployment is increasing day by day due to many reasons. The Government of underdeveloped countries should take effective measures to promote the technical and professional education in the country.
6. Transport and Communication- According to modern economist transport and communication is a key to economic development. This sector of the country increases the internal and external trade and reduces the cost of production. It expands the market. Cheap and quick means of transportation and communication create the sense of brotherhood and unity among the people.
7. Technology - Technology means the use of latest inventions in the production of goods. Technology plays an important role in the economic development. The less developed countries are poor because there is a lack of technology and capital. There is also a lack of technical skill and we are using old methods of production. So our national product is very low. Now our government and masses has given more importance to the technology. Now in various sectors we are using the latest machines to improve our production.

8. Social and Cultural Factors- If the attitude of the people is positive towards development then they can made rapid progress. For the economic development it is the necessary that people should leave the useless customs and they start thinking about their economic conditions.
9. Administrative Factor- An effective, honest, strong administration can give big push to the economic development. Corrupt, dishonest and inefficient administration is an obstacle in the way of economic development.

10. Political Stability- Stable government can play effective role in increasing the rate of development in the country. It can introduce many reforms and can prepare the development plans. In less developed countries political instability has also reduced the rate of development in the country. The political unrest is one of the main causes of low rate of development in the underdeveloped countries.

11. Economic System- The economic system and the historical setting of a country also decide the development prospects to a great extent. There was a time when a country could have a laissez faire economy and yet face no difficulty in making economic progress. In today’s entirely different world situation, a country would find it difficult to grow along the England’s path of development.

12. Corruption:

Corruption is rampant in developing countries at various levels and it operates as a negative factor in their growth process. Until and unless these countries root-out corruption in their administrative system, it is most natural that the capitalists, traders and other powerful economic classes will continue to exploit national resources in their personal interests.

The regulatory system is also often misused and the licenses are not always granted on merit. The art of tax evasion has been perfected in the less developed countries by certain sections of the society and often taxes are evaded with the connivance of the government officials.

13. Desire to Develop:

Development activity is not a mechanical process. The pace of economic growth in any country depends to a great extent on people’s desire to develop. If in some country level of consciousness is low and the general mass of people has accepted poverty as its fate, then there will be little hope for development.

Q3. Explain important obstacles in the economic growth of underdeveloped countries? Also discuss the measures to promote economic growth?

Ans. Economic growth is inevitable for all the countries of the world but the process of economic growth is full of hindrances and complications. Obstacles in the path of economic growth and development may broadly be divided into five parts: (a) Economic problems, (b) Social problems, (c) Administrative problems, (d) International problems and (e) Technological problems.

(A)  Economic problems

1.      Lack of sound infrastructural facilities: Process of economic growth requires a sound base of infrastructural facilities such as transportation, communication, warehousing, banking etc. In most of the under-developed countries, there is lack of these facilities. Due to this reason, rate of economic growth in these countries is low.

2.      Inadequate capital base: Every programme and project of economic growth requires huge amount of capital. Due to lack of such heavy amount of capital, rate of economic growth remains low in under-developed countries.

3.      Limited and imperfect market: Market in under-developed countries is not very wide. Besides, there are many imperfections also such as lack of mobility of factors, lack of specialization, lack of perfect knowledge of market conditions etc. which hinder economic development.

4.      Vicious circle of poverty: Under-developed countries are confronted with vicious circle of poverty which causes a great hindrance in their economic growth.

(B)  Social problems

1.      Demographic problems: Under-developed countries face serious problems related with their population as under- rate of population growth is generally higher than the rate of economic growth, qualitative standard of people is very low, a large number of people remain unproductive.

2.      Qualitative aspects of population: Economic growth of under-developed countries is low not only due to the size of population but also due to the qualitative aspects of population such as low level of literacy, poor health, low efficiency and productivity.

3.      Social and religious traditions and customs: People in under-developed countries follow a series of social and religious traditions and customs and spend a considerable part of their time, money and energy on it which cause a great hindrance in the economic growth.

4.      Lack of competence and entrepreneurship: Process of economic growth requires a large team of skilled and trained workers, efficient managers and enthusiastic entrepreneurs but most of the under-developed countries lack it. Therefore, the rate of economic development remains low in these countries.

(C)  Administrative problems

1.      Lack of sound, efficient and honest administration

2.      Lack of political stability

3.      Poor law and order conditions

4.      Heavy expenditure on defence

5.      Corruption in government machinery

(D)  International problems

1.      Need foreign aid which is granted on political basis

2.      Dependence on foreign capital and technology

3.      Inelastic demand and supply of agricultural products

4.      Unfavourable balance of trade.

Q4. Discuss the main characteristics of Indian Economy? Is India an under-developed economy?

Ans. The important features of Indian economy are as follows:

1. Low per capita income:

Under developed economy is characterized by low per capital income. India per capital income is very low as compared to the advanced countries. For example the capital income of India was 460 dollar in 2000 whereas capita income of U.S.A in 2000 was 83 times than India. In India not only the per capita income is low but also the income is unequally distributed. This mal-distribution of income and wealth makes the problem of poverty in a critical situation and stands an obstacle in the process of economic progress

2. Heavy Population Pressure:

The Indian economy is facing the problem of population explosion. It is clearly evident from the total population of India which was 102.67 cores in 2001 census. It is the second highest populated country China being the first. All the under developed countries are characterized by high birth rate which stimulates the growth of population; the fast rate of growth of population necessitates a higher rate of economic growth to maintain the same standard of living. The failure to sustain the living standard makes the under developed countries poor.

3. Pre-dominance of Agriculture:

Occupational distribution of population in India clearly reflects the backwardness of the economy. One of the basis characteristics of an under developed economy is that agriculture contributes a very large portion in the national income and a very high proportion of working population is engaged in agriculture

4. Unemployment:

There is larger unemployed and under employment is another important feature of Indian economy. In under developed countries labor is an abundant factor. It is not possible to provide gainful employment the entire population. Lack of job opportunities and disguised unemployed is created in the agriculture field which leads to deficiency of capital formation.

5. Low Rate of Capital Formation:

In backward economics like India, the rate of capital formation is also low. Capital formation mainly depends on the ability and willingness of the people save since the per capita income is low and there is mal-distribution of income and wealth, the ability of the people to save is very low in under developed countries for which capital formation is very low .

6. Poor Technology:

The level of technology is a common factor in under developed economy. India economy also suffers from this typical feature of technological backwardness. The techniques applied in agriculture, industries, milling and other economic fields are primitive in nature.

7. Backward institutional and social frame work:

The social and institutional frame work in under developed countries like India is hopelessly backward, which is a strong obstacle to any change in the form of production. Moreover religious institutions such as caste system, joint family universal marriage affects the economic life of the people.

8. Under-utilization of resources:

India is a poor land. So our people remain economically backward for the proper utilization of resources of the country.

9. Price instability:

Price instability is also a basic feature of Indian economy. In almost all the under-developed countries like India there is continuous price instability. Shortage of essential commodities and gap between consumption aid productions increase the price persistently. Rising trend of price creates a problem to maintain standard of living of the common people.

Is India an Under-developed Country

There is living controversy on the question whether India is a developed country or a developing country or a backward country?

(A)  India as a developed country

1.      Planned economy: Soon after the independence, India adopted the path of planned economic development to solve the economic problems.

2.      Increasing role of Public sector: India stressed upon public sector to solve its socio-economic problems.

3.      Growth of heavy industries

4.      Development of infrastructural facilities: There is a wide network of infrastructural facilities such as communication, transportation, warehousing, banking etc.

5.      A move towards socialistic pattern of society: Government of India is engaged in achieving the object of social welfare. There is a wide network of education facilities, medical facilities, recreation facilities, insurance facilities etc. Inspite of this, government has launched a number of schemes for the welfare of poor and weaker sections of society.

(B)  India as a developing country

1.      Dominance of agriculture: India is an agricultural country. According to the World Development Report, 70% of working population is still engaged in agriculture. Agriculture contributes about 30% in national income.

2.       Low per capita income: National income and per capita income of India are very low in the context of rising population.

3.      Dominance of rural population: India is said to be a country of villages. According to 2011 census, 70% population of our country lives in rural areas.

4.      High birth rate and low death rate: The population problem of our country is further aggravated by high birth rate and low death rate.

5.      Low rate of savings and investments: Though there is substantial increase in the rate of savings, investments and capital formation during recent years, yet it is quite low in the context of rising population.

6.      Unemployment: An important feature of Indian economy is that there is vast unemployment, under-employment and disguised unemployment.

7.      Abundance of natural resources: There are vast natural resources in India. Water resources, forest resources, mineral resources are comparable with any country of the world. Most of the land is highly fertile and weather and climate are highly favourable.

8.      Under-exploitation of resources: A great unfortunate of India is that India is not capable in exploiting the resources. According to a rough estimate, nearly 40% of our resources remain unexploited.

9.      Low technological level: Though there is substantial improvement and advancement in the level of technology, yet it is quite low.

10.   Lack of entrepreneurial and promotional ability: Entrepreneurial and promotional ability available in the country is not sufficient to meet national requirements.

11.   Low level of efficiency and productivity: Though there is abundant manpower available in the country but the level of efficiency and productivity is very low.

12.   Other characteristics: Market imperfections, low standard of living, political instability, dominance of social and religious traditions and customs, lack of national feeling among people, political corruption, unequal distribution of income and wealth.

Thus, it may be concluded that India is a developing country. Congenial atmosphere for economic development has been created. Much has been done on the path of economic development. Much more is yet to be done.

Q5. What are the causes, effects and solutions of problem of Poverty in India?

Ans. Introduction: Poverty refers to a situation when people are deprived of basic necessities of life. It is often characterized by inadequacy of food, shelter and clothes. In other words, poverty refers to a state of deprivation where there is a lack of essential needs for subsistence.

India is one of the poorest countries in the world. Many Indian people do not get two meals a day. Poor people are the depressed and deprived class. They do not get proper nutrition and diet. Their conditions have not sufficiently improved even long after over 70 years of Independence.

Poverty in urban India: Just like most of the growing and developing countries, there has been continuous increase in urban population.

Poverty in rural India: It is said that rural India is the heart of India. In reality, the life of people living in rural areas is marked with severe poverty. Inspite of all the efforts, the condition of poor villagers is far from satisfactory.

Causes of poverty

The growing population inflates the problem of poor techniques used in Agriculture. Further, there is unequal distribution of wealth. As a result, the poor people are often exploited by the wealthy community. The most important causes of poverty in India are poor agriculture, growing population, gap between rich and poor, corruption and black money.

(i) Heavy pressure of population: Population has been rising in India at a rapid speed. This rise is mainly due to fall in death rate and more birth rate. India’s population was 84.63 crores in 1991 and became 102.87 crores in 2001. This pressure of population proves hindrance in the way of economic development.

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

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

(iv) Under-developed economy: The Indian economy is under developed due to low rate of growth. It is the main cause of poverty.

 (v) Increase in Price: The steep rise in prices has affected the poor badly. They have become more poor.

(vi) Lack of Skilled Labour: In India, unskilled labour is in abundant supply but skilled labour is less due to insufficient industrial education and training.

(vii) Deficiency of efficient Entrepreneurs: For industrial development, able and efficient entrepreneurs are needed. In India, there is shortage of efficient entrepreneurs. Less industrial development is a major cause of poverty.

(viii) Lack of proper Industrialization: Industrially, India is a backward state. 3% of total working population is engaged in industry. Important problems of industrial sector are- lack of dynamic entrepreneurship, lack of managerial and technical personnel, lack of adequate finance, irregular supply of power, problem of raw materials, problem of labour etc.

(ix) Outdated Social institutions: The social structure of our country is full of outdated traditions and customs like caste system, laws of inheritance and succession. These hamper the growth of economy.

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

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

(xii) Poor agriculture: India is mainly an agricultural country. About 70% people of our country depend on agriculture. But our agriculture is in a bad way. Farmers are poor and uneducated. They do not know the modern methods of farming. They do not get seeds and fertilizers in time. Thus, the yield is poor. Agriculture is not profitable today. We face the shortage of food. We have to import it. So, poor agriculture is one of the causes of India’s poverty.

(xiii) Gap between the rich and the poor: The widening gap between the rich and the poor is also responsible for India’s poverty. The rich are growing richer. The poor are growing poorer. This economic gap between the two must be reduced. Our social system should be changed. The poor people must get all help to reap the fruits of Independence.

(xiii) Corruption and black-money: Administrative set of our country is also not free and fair. The administrators and legislators do not want to help the poor.

Effects of poverty

1.      Illiteracy: Poor people constitutes greater share of illiterate population. Education becomes extremely difficult when people are deprived of basic necessities of life.

2.      Child Labor: In India, a large number of young boys and girls are engaged in child labour.

3.      Nutrition and diet: Poverty is the leading cause of insufficient diet and inadequate nutrition. The resources of poor people are very limited, and its effect can be seen in their diet.

4.      Poor living condition and Housing problems: They don’t get proper living conditions. They have to fight the hardship of poverty to secure food, clothes and shelter. A large number of poor families live in houses with one room only.

5.      Unemployment: Poor people move from villages to towns and form one town to another in search of employment/work. Since, they are mostly illiterate and un-skilled, there are very few employment opportunities open for them. Due to unemployment, many poor people are forced to live an unfulfilled life.

6.      Hygiene and sanitation: These people have little knowledge about hygiene and proper sanitation system. They are not aware of the harmful consequences of not maintaining proper hygiene. The government is taking initiatives to make available clean and safe water, and proper sanitation system to them.

7.      Feminization of poverty: Women are the worst victims of poverty. Poverty effects greater number of women than men. The total of poor women outnumbers the total population of poor men. The causes include low income, gender-inequality, etc. They are deprived of proper-diet, medicines and health treatment.

8.      Social tensions: Poverty is often characterized with income disparity and unequal distribution of national wealth between the rich and the poor. Concentration of wealth in the hands of few rich people leads to social disturbances and revolts. Fair or even distribution of wealth leads an overall improvement in general standard of living of people.

Solutions

We have to solve this problem of India’s poverty.

·        Farmers must get all facilities for irrigation.

·        They should be trained and educated.

·        Agriculture must be made profitable.

·        The ever-rising population should be checked.

·        Family planning schemes should be introduced.

·        More and more industries should be set up to meet the needs of our country.

·        Corruption must end. Our offices should work efficiently.

These are some of the ways by which our poverty can be removed.

Measures to Reduce Poverty in India

1. Accelerating Economic Growth: The first need is to accelerate the rate of economic growth because it is expected to create new job opportunities. Expansion of job opportunities will help in the removal of poverty.

2. Agricultural Growth and Poverty Alleviation: Agricultural growth has been recognized as an important factor that contributes to marked reduction in poverty. A study made by Montek Ahaluwalia, former member of Planning Commission, brought clearly that agricultural growth and poverty are inversely related; the higher agricultural growth leads to lower poverty ratio. Labour-intensive methods of agriculture should be adopted.

3. Speedy Development of Infrastructure: An important measure to generate employment opportunities for the poor and to raise their productivity is the speedy development of infrastructure. Since private sector is not attracted to make adequate investment in infrastructure, public investment needs to be stepped up for its development. Infrastructure development consists of building of roads, highways, ports, telecommunication, power and irrigation. They involve mainly construction work which is highly labour intensive.

4. Accelerating Human Resource Development: Besides physical infrastructure development, poverty can also be reduced through human resource development. Human resource development requires greater investment in educational facilities such as schools to promote literacy, technical training institutes and vocational colleges to import skills to the people.

This human resource development not only generates a good deal of employment opportunities but also raises productivity and income of the poor. Further, people equipped with skills, education and good health can easily get wage employment or self-employment with higher productivity.

5. Growth of Non-Farm Employment: For reduction of poverty growth of non-farm employ­ment in the rural areas is of special importance. Non-farm employment is created in marketing (i.e., petty trade), transportation, handicrafts, dairying, and forestry, processing of food and other agricultural products, repair workshops.

6. Direct Attack on Poverty- Special Employment Schemes for the Poor: The special employment scheme of rural public works which was launched by the Government in 5^th Five Year Plan constitutes a direct attack on poverty as it does not depend on the trickledown effect of economic growth on the poor. There are mainly two types of such special anti-poverty schemes launched by the Government from time to time.

First, there are several special schemes of providing wage employment to the poor. These include Jawahar Rozgar Yojana (JRY), now named as Jawahar Gram Samridhi Yojana after restructuring it.

The second special employment scheme is IRDP (Integrated Rural Development Scheme) under which self-employment of rural people is promoted by building their capacity in such activities as dairying, poultry, handicrafts, forestry. Similarly, a third such special employment scheme is TRYSEM (Training of Rural Youth for Self-Employment) under which rural youth are given training and equipped with skills so that they can start some self-employment activity.

Conclusion

Poverty is a national problem and it must be solved on a war footing. The government is taking a number of steps to mitigate poverty. Eradication of poverty would ensure a sustainable and inclusive growth of economy and society. We all should do everything possible and within our limits to help alleviate poverty from our country.

Q6. What are the types and causes of unemployment in India? Suggest some solutions to remove the problem?

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

The rate of unemployment varies over a wide range among the different states of India. When a person does not get a full time work, it is called under-employment. When the productivity and income of a person increase by changing his occupation, he is also known as under employed.

Types: Unemployment may be categorized as follows:

1.     Seasonal unemployment- When the nature of a trade or an industry is seasonal, most of the persons engaged in it, get work only for a certain period and remain unemployed for rest of the year. Such employment is known as seasonal employment. Workers of sugar mills, rice sellers, cotton ginning units and ice factories are included in seasonal unemployment.

2.     Structural unemployment- When the resources of a country are limited and due to this, the country is unable in providing jobs to all job seekers, it is called structural unemployment.

3.     Accidental unemployment- Some persons get jobs only in case of problems like flood, drought, earthquake, war etc. When the problem is over, they again become unemployed. Such unemployment is known as accidental unemployment.

4.     Technological unemployment- When some persons are thrown out of jobs because of the adoption of labour saving devices and mechanization, it is known as technological unemployment.

5.     Disguised unemployment- When the number of persons engaged in a particular work is more than required is known as disguised unemployment. This type of employment is commonly found in India in agriculture.

6.     Under-employment- When the persons do not get work according to their ability is called under-employment.

Causes / Reasons-

1. Theoretical education: This chronic unemployment is in some quarters attributed to the system of education prevailing in our country. Our education is too theoretical. It turns too many arts graduates and too few engineers. To make up for this deficiency Government has opened several technological institutes in different parts of India. However, this attempt, good as it is, will not solve the problem of unemployment.   Already there are more technically trained men than there is employment for them.

2. Lack of full employment in industries: In the industrial segment, there is the same lack of full employment. There are not many mills and factories and the number of men employed in them is not large. Even the mills and factories that we have do not work to their maximum capacity either for lack of requisite machinery or for lack of adequate supply of materials.

3. Rapid growth of polpulation: In our country, the population is increasing at a rapid rate. The fact is that no possible employment programme can provide complete employment in the country with such high rate of growth of population.

4. Downfall of handicrafts and small scale industries: An important reason of increasing unemployment is the downfall of handicrafts and small scale industries in our country. Every industry wants to adopt mechanization which, in turn, results unemployment.

5. Defective thinking: Our young people prefer to get services. They do not want to start their own business. It increases the number of job-seekers in the country.

Solution

1. Increase in national wealth through industrialization: The real remedy lies in an addition to the national wealth, in increased production of industrial goods. If there are more industries, there will be more avenues for employment, particularly for men and women with professional and technological training. Cottage and small scale industries should be developed because these industries offer vast employment opportunities.

2. Establishment of Vocational and Technical training institutes: The government should open technical and vocational colleges so that it may produce job oriented youth.

3. Development of agricultural-based industries: Agriculture based industries should be developed because these industries may solve the problem of seasonal unemployment.

4. Modernization of agriculture: Modernization and mechanization of agriculture should be done. Wastelands should be utilized.

6. Better facilities in rural areas: Government should try to provide all the possible facilities of accommodation, transportation, health, education, entertainment, communication etc in the rural areas. It may encourage people to settle in rural areas.

7. Self-employment should be encouraged: Government should take initiatives to encourage self-employment. Young entrepreneurs should be assisted with hassle free loans.

8. Establishment of training camps: More and more training centres should be opened in the country so that the workers may be trained to do their jobs.

9. Survey of national resources: India has vast natural resources but these resources are lying unutilized, undiscovered or under-utilised. Efforts should be made to discover these resources and to exploit them.

10. Network of employment exchanges: Large number of employment exchanges must be established throughout the country, both in rural and urban areas.

Conclusion

One of the most disturbing problems in India has been the mounting rate of unemployment, both in the rural and urban sectors. In case of rural sector, there has been both unemployment and under employment. In urban sector, there has been both educated and industrial unemployment. Unless unemployment problem is solved, the future of India cannot be bright. There will be no peace and prosperity in the country if jobless people do not get a proper channel. More attention should be given otherwise this problem can make jobless youths go to wrong direction.

Q7. What are the effects of unemployment on Indian society?

Ans. Effects of Unemployment

1. Loss of Human Resources: The problem of unemployment causes loss of human resources. Labour’s waste their maximum time in search of employment.

2. Increase in Poverty: Unemployment deprives a man of all sources of income. As a result he grows poor. Therefore, unemployment generates poverty.

3. Social Problems: Unemployment breeds many social problems comprising of dishonesty, gambling, bribery, theft etc. As a result of unemployment social security is jeopardized.

4. Political Instability: Unemployment gives birth to political instability in country. Unemployed persons can easily be enticed by antisocial elements. They lose all faith in democratic values and peaceful means. They consider that Government is worthless which fails to provide them work.

5. Exploitation of Labour: In the state of unemployment, labour are exploited to the maximum possible extent. Those labour who get work have to work under adverse condition of low wages. All this tells upon the efficiency of labour greatly influence the pattern of employment opportunities in the country. Being poor, a person does not make any gainful use of existing resources.

6. More Emphasis on Capital Intensive Techniques: In India, capital is scarce and labour is available in surplus quantity. Under these circumstances, the country should adopt labour intensive techniques of production. But it has been observed that not in industrial sector, also in agriculture sector; there is substantial increase of capital than labour. In the case of Western countries, where capital is in abundant supply, use of automatic machines and other sophisticated equipments are justified while in our country abundant labour, results in large number of unemployment.

7. Defective Education System: The education system in our country too has failed to respond to the existing inter-generation gap. It simply imparts general and literary education devoid of any practical content. India's education policy merely produces clerks and lower cadre executives for the government and private concerns. The open door policy at the secondary and university level has increased manifold unemployment among the educated that are fit only for white collar jobs.

8. Slow Growth of Tertiary Sector: The expansion of tertiary sector comprising commerce, trade transportation etc. is limited which could not provide employment even to the existing labour force, what to think about new entrants. As a result of this, there is a wide scale of unemployment among engineers, doctors, technically trained persons and other technocrats.

9. Decay of Cottage and Small Scale Industries: The traditional handicraft has a glorious past and was the main source of employment especially to the village crafts-men, artisans as well as non-agricultural workers. Unfortunately, most of rural traditional crafts have been ruined or faded partly due to the unfavorable policy of the foreign rulers and partly due to tuff competition from the machine made goods. Consequently, these laborers were out of job. Most of them turned as landless laborers.

10. Lack of Vocational Guidance and Training Facilities: As, already discussed, our education system is defective as it provides purely academic and bookish knowledge which is not job oriented.

The need of the hour is that there must be sufficient number of technical training institutions and other job oriented courses at village level. Most of the students in rural areas remain ignorant of possible venues of employment and choice of occupation.

11. Less Means for Self-Employment: Another hurdle in generation of more employment opportunities is that there are inappropriate means for self-employment in rural and semi-urban areas of the country. Like other developed countries, most of our engineers, technocrats and other well qualified persons do not possess ample means for self-employment. They go about in search of paid jobs.

Q8. What are the causes and effects of overpopulation in India? How can this problem be controlled?

Ans. Every nook and corner of India is a clear display of increasing population. Whether you are in a metro station, airport, railway station, road, highway, bus stop, hospital, shopping mall, market, temple, or even in a social/ religious gathering, we see all these places are overcrowded at any time of the day. This is a clear indication of overpopulation in the country.

According to the Indian census, carried out in 2011, the population of India was exactly 1,210,193,422, which means India has crossed the 1-billion mark. This is the second most populous country of the world after China and the various studies have projected that India will be world’s number-1 populous country, surpassing China, by 2025. Inspite of the fact that the population policies, family planning and welfare programmes undertaken by the Govt. of India have led to a continuous decrease in the fertility rate, yet the actual stabilisation of population can take place only by 2050.

Causes of Over Population

The two main common causes leading to over population in India are:

·        The birth rate is still higher than the death rate. We have been successful in declining the death rates but the same cannot be said for birth rates.

·        The fertility rate due to the population policies and other measures has been falling but even then it is much higher compared to other countries.

The above causes are interrelated to the various social issues in our country which are leading to over population.

·        Early Marriage and Universal Marriage System: Even though legally the marriageable age of a girl is 18 years, the concept of early marriage still prevails and getting married at a young age prolongs the child bearing age. Also, in India, marriage is a sacred obligation and a universal practice, where almost every woman is married at the reproductive age.

·        Poverty and Illiteracy: Another factor for the rapid growth of population is poverty. Impoverished families have this notion that more the number of members in the family, more will be the numbers to earn income. Some feel that more children are needed to look after them in their old age. Also hunger can be cause of death of their children and hence the need for more children. Strange but true, Indian still lags behind the use of contraceptives and birth control methods. Many of them are not willing to discuss or are totally unaware about them. Illiteracy is thus another cause of over population

·        Age old cultural norm: Sons are the bread earners of the families in India. This age old thought puts considerable pressure on the parents to produce children till a male child is born.

·        Illegal migration: Last but not the least, we cannot ignore the fact that illegal migration is continuously taking place from Bangladesh, Nepal leading to increased population density.

Effects of Over Population

Even after 70 years of independence, the scenario of our country is not good, due to over population. Some major impacts of high population are as follows:

·        Unemployment: Generating employment for a huge population in a country like India is very difficult. The number of illiterate persons increases every year. Unemployment rate is thus showing an increasing trend.

·        Manpower utilization: The number of jobless people is on the rise in India due to economic depression and slow business development and expansion activities.

·        Pressure on infrastructure: Development of infrastructural facilities is unfortunately not keeping pace with the growth of population. The result is lack of transportation, communication, housing, education, healthcare etc. There has been an increase in the number of slums, overcrowded houses, traffic congestion etc.

·        Resource utilization: Land areas, water resources, forests are over exploited. There is also scarcity of resources.

·        Decreased production and increased costs: Food production and distribution have not been able to catch up with the increasing population and hence the costs of production have increased. Inflation is the major consequence of over population.

·        Inequitable income distribution: In the face of an increasing population, there is an unequal distribution of income and inequalities within the country widen.

Steps to Control Population in India

The Government of India, politicians, policy makers should initiate a bold population policy so that the economic growth of the country can keep pace with the demands of a growing population. Major steps which have been already implemented but still need to be emphasized more to control population. Increasing the welfare and status of women and girls, spread of education, increasing awareness for the use of contraceptives and family planning methods, sex education, encouraging male sterilization and spacing births, free distribution of contraceptives and condoms among the poor, encouraging female empowerment, more health care centres for the poor, to name a few, can play a major role in controlling population.

India’s strengths in the global world in various fields cannot be ignored, whether in science & technology, medicine and health care, business and industry, military, communication, entertainment, literature and many more. Experts are hopeful that by increasing public awareness and enlisting strict population control norms by the Government will definitely lead the way for the country’s economic prosperity and control of population.

Effective Ways to Control Population-

Below are the most effective measures which can be employed to control population growth:

1)     Delayed Marriages:-The problem of child marriage is highly prominent in certain countries with high population like India, Pakistan or Bangladesh. A marriage at a tender age leads to a long span for giving birth. Also young age marriage devoid people of the education and awareness required to be sensitive towards and understand the consequences of raising too many children. A UN report has suggested that there would be a significant decline in world population if the legal for marriage is made 20 years.

2)     Medical Facilities:-One big drawback of developing countries is that of limited and highly centric medical facilities. Because of the high rural-urban divide in developing countries, availability of good hospitals and doctors is limited to urban centers thus resulting in high infant mortality rate in rural areas. Rural people, in order to ensure that at least some of their kids survive, give birth to more and more kids thus contributing to the population growth. If provided with optimum medical facilities population rate will almost certainly decline.

3)     Legislative Actions:-Not much result can be achieved from these if family planning and use of contraception remains optional instead of mandatory. Strict legal steps are required for child marriage, education, abolition of child labor and beggary and family planning to reap significant benefits from it. Proper enforcement of laws related to child labor, slavery and beggary will ensure that parents don’t sell their children or send them out to work thus forcing them to raise lesser number of kids.

4)     Providing Incentives:-Incentives have proved to be an efficient policy measure in combating most development issues including population. Providing a health, educational or even financial incentive can be a highly effective population measure. There are certain incentive policies like paying certain some of money to people with not more than two kids or free or discounted education for single child etc. which are in place in most developing countries facing population related challenges and has also proved to be a useful measure.

5)     Spread Awareness:-People need to be told and made to understand the consequences of having too many children. Government and non-government institutions can carry awareness campaigns informing people how they will be unable to provide good nutrition, education or medical facilities to their children if they have too many. Population is also a reason for illiteracy and diseases and malnutrition and the negative effects of it are required to be communicated to the general public to expand their reasoning and understanding.

6)     Women Empowerment:-In most developing countries, the women folks are not considered equivalent to men in terms of force and might. Such opinions are extremely common in Islamic countries and even India and Bangladesh. Gender discrimination is a major reason for population growth. People keep giving birth to kids in order to have more sons than daughters. Empowering woman with a say in matters concerning them like child birth and educating them to fight against discrimination will ensure a healthy and aware society.

7)     Eradicate Poverty:-Why most poor countries have highest population growth instead of rich ones. Poverty has a direct relation to the population growth. In developing countries of Asia and Africa, child labor, slave trading and human trafficking is highly prevalent. African countries for example still have maximum reporting of slave trading though trading of humans is legally banned everywhere in the world. People give birth to kids and sell them to rich people who in turn employ these kids in various laborious and unethical tasks. If not sell, these parents force their kids to beg or work at a very tender so as to earn some extra money for the family. These people believe that more kids mean more hands for begging and work and thus more money. Without concrete measures for growth and poverty eradication, other methods of population control may prove to be ineffective.

8)     Education:-Education forms the backbone of an individual and economy. Once educated people know and understand the harms which a high population growth rate possesses. Education, especially women education, can work wonders in controlling population. An educated man and woman can readily understand the benefits of a small family. Without sufficient education most measures like awareness campaigns and women empowerment will prove to be insufficient and pointless.

9)     Development:-Why the enormous population and the increasing rate of it is the biggest challenge faced by the developing nations of Africa and Asia while the same is a little or no threat in countries like America, Europe or Japan. Lack of Development implies high poverty, high illiteracy, high discrimination, lack of awareness, lack of medical facilities and thus in turn increased population growth. Any economy is termed developed is its population is non-discriminated and just. By reducing discrimination between gender and class and ensuring development of the whole population instead of a given segment of society would eliminate the challenge of population growth for once.

Q9. Explain the importance of exports and imports for a developing country like India?

Ans. Importance of imports

1.      Helpful in the expansion of production capacity: Imports help in the expansion of production capacity by making necessary raw materials and machinery available. It helps in diversifying and expanding production capacity also.

2.      Proper utilization of installed capacity: Import of a number of raw materials and intermediate goods is essential to make proper use of installed capacity.

3.      To get the advantage of technical advancement: Resources of every country are limited. No country can be self-reliant in the present time. Imports make it possible for a country to get the benefit of technical advancement achieved by other countries of the world.

4.      To meet the demand of consumer goods: No country of the world can produce all the goods and services requires by its people. To meet the requirements of people, imports are inevitable.

5.      Helpful in improving the standard of living: Imports help in improving the standard of living of the people of a country by making the goods produced in every country of the world available.

      Importance of exports

1.      To correct trade balances: A developing country has to import raw materials, machines, equipment and technology in large quantity. It causes unfavourable balance of trade for the country. The only way to correct trade imbalance for a developing country is to increase exports.

2.      To repay foreign debts: A developing country has to raise large amount of debts from foreign countries and international agencies. Exports help in the easy repayment of these debts.

3.      To sell surplus production: All the best efforts are made to increase production and productivity in all the spheres of economy. In the process of economic development, many new industries are established and existing production capacities are increased. As a result, production exceeds domestic demand. Exports help in the sale of such excess production.

4.      Success of development projects: A developing country concentrates on development through economic plans and programmes. A large number of capital goods are to be imported to implement these projects. Only the exports can pay for these imports.

Q10. Examine the role of transport in economic development of a country. Also explain the important means of transportation in India?

Ans. Importance of transport in economic development

Economic development is a complete process in itself. It includes the development of all the sectors of economy. Transportation is an important part of economy and a base of other economic activities. The importance of transport in the process of economic development can be explained as under:

1.      In agricultural sector: Development of transportation is a precondition for the development of agriculture. It is essential for carrying fertilizers, seeds, machinery, equipments and other inputs, essential for bringing agricultural products to markets, useful in the development of production and productivity of agriculture.

2.      In industrial sector: Development of transportation facilities and industrial development are synonyms to each other. It is essential for the movement of raw materials and other industrial inputs, for establishing plant and machinery, essential for the industrial development of remote and backward areas.

3.      In trading sector: Transportation opens new markets and widens existing markets which is a base of expansion of trading activities and is helpful in minimizing business fluctuations and controlling trade cycles.

4.      In social sector: Transportation transmits knowledge from one place to another. It promotes national integration. It widens the thinking and outlook of people. It takes them out of their conservative thinking. It is helpful in the development of social facilities like education, medical, accommodation etc. which is helpful in the improvement of standard of living of people.

Means of Transportation in India

It may broadly be divided into four parts.

a.      Road transport: It is the most important and most commonly used means of transportation in India. The roads in India can broadly be classified as National Highways, State Highways, District Roads, and Village Roads. Indian road system is one of the largest road systems in the world. There are different means of road transportation in India such as bullock carts, cycles and rickshaws, scooters, motorcycles, cars, vans, jeeps, buses, trucks etc.

Merits of Road Transport

·        Multi-purpose service

·        Less investment

·        Large employment generation

·        Convenient

·        Only means of transportation in hilly and remote areas

·        Helpful in the development of agriculture, industry and infrastructural facilities

b.     Railways: Indian railway system is one of the largest railway systems in the world. It is being run and managed in India as a government department. It is an organization wholly owned by the government.

Merits of Railway Transport

·        Helpful in the development of trade, industry and agriculture

·        Important means of conveyance and transportation

·        Helpful in the promotion of tourism

·        Helpful in the promotion of postal services

c.      Water transport: It is the oldest means of transportation in India. It has been used as a means of local, regional national and international transportation. There are two types of water transport in India- Inland water ways and Shipping transport.

Merits of Water transport

·        A convenient and safe means of transport

·        Minimum capital investment

·        Unlimited transport potential

·        Mother of international trade

·        Most suitable for heavy transport

d.     Air transport: Today, Air Transport has emerged as an important means of transportation in India. During a short span, it is getting more and more popular.

Merits of Air Transport

·        Fastest means of transportation

·        Helpful in the development of internal and international trade

·        Helpful in the time of floods and famines

·        Helpful in the development of tourism

Q11. Explain the problem of inequality in India? Also suggest the measures to remove it?

Ans. While the concept of poverty is rooted in the “lack of access” or “a low level of access” to food, nutrition, shelter, education and other services. Inequality is related to “unequal access” or “different degrees of access” of different individuals or groups of individuals to opportunities, services and benefits. Inequality is, thus, a more general concept than poverty.

There are three important types of inequality exist in India, namely inequality in income and consumption, inequality in assets and regional inequality. These three forms of inequality are interrelated and mutually reinforcing. The Government of India has been concerned about rising inequalities and uneven distribution of the benefits of growth. Accordingly, the thrust of the 11th Five-Year Plan (2007-12) was on inclusive growth.

Inequality in Income and Consumption

Consumer expenditure of households is a good proxy for income, at least in the lower classes. A study of inequalities in levels of consumption will by itself be useful in an economy where agriculture, the unorganised sector, payment of wages in kind and the non-monetised sector still play an important role. Such an analysis will be able to pinpoint attention on specific areas of concern in the consumption pyramid. Let us, therefore, turn to levels of inequality in consumption. The household consumer expenditure surveys of the NSSO provide the levels of consumption of expenditure in the population by Monthly Per capita Consumer Expenditure (MPCE) classes. The Average MPCE of the rural people in India is only Rs.1054 and in Urban it is Rs.1984.

Inequality in Assets

Incomes are derived from two main sources. Namely, assets like land, cattle, shares and labour etc. In India a few own a large chunk of income-earning assets therefore the distribution of assets is extremely unequal. The top 5 per cent of the households possess 38 per cent of the total assets and the bottom 60 per cent of households owning a mere 13 per cent. The disparity is more glaring in the urban areas where 60 per cent of the households at the bottom own just 10 per cent of the assets. Predictably, asset accumulation is minimal among the agricultural labour households in rural areas and casual labour households in urban areas. But the asset distribution is even more unequal in the urban than in the rural areas. At the one extreme there are highly rich households of industrial, commercial, financial, and real estate magnates and some ex-princes and political leaders. They own enormous assets and running for huge profits. On the other extreme there are slums, and pavement dwellers, unemployed and casual labourers, independent workers providing petty services etc. who generally hold negligible assets.

Regional Inequality

Third important type of inequality that India faces is the regional inequality. Some states are economically and socially advanced while others are backward. Even within each state some regions are more developed while others are primitive. The co-existence of relatively developed and economically depressed states and even regions within each state is known as regional inequality. The existence of regional inequality creates social, economic and political issues. The regional inequality is so prominent in India in the case of HDI Value, growth of the economy, poverty, unemployment, education, health, monthly per capita expenditure, rural- urban divide etc.

Causes of Inequality in India

1. Private ownership of means of production

2. Poverty of the people

3. Law of inheritance

4. Concentration of economic power in the hands of a few

5. Highly unequal asset distribution

6. Inadequate employment generation

7. Inadequate development of the economy

8. Differential regional growth

9. Inequalities in professional training

10. Low investment in social sectors

11. Use of capital intensive technique of production

12. Failure of implementation of land reforms

13. Tax evasion and of the richer sections of the community

14. Inflation

15. Privatization and globalization

Remedial measures

In order to find out the remedial measures for inequality it is better to solve first the real causes of it in the country. Any how the following are the some of the measures to solve inequality.

1. Reduction in the concentration of economic power

2. Development of backward areas

3. Better distribution of income and wealth

4. Land reforms

5. Creating more employment opportunities

6. Provide more social security measures

7. Control of black money

8. Progressive income tax

9. Control of monopolies and trade restriction practices

10. High taxes on luxuries

11. Change in inheritance law

12. Use of labour intensive technique of production

13. More investment in social sectors

14. Control of inflation

15. Population control

Unit II

Q12. Define national income. Bring out the difficulties involved in national income estimation in under-developed countries like India?

Ans. National Income is the money value of final flow of output of goods & services produced within an economy over a period of time, usually one year and net factor income earned from abroad.

National Income (NI) = NNP at Factor Cost

General Difficulties

(1)   Problems of Definition: What should we include in the National Income? Ideally we should include all goods and services produced in the course of the year, but there are some services which are not calculated in terms of money, e.g., services of housewives.

(2) Lack of Adequate Data: The lack of adequate statistical data makes the task of estimation of national income more acute and difficult.

(3) Non-availability of Reliable Information: The reason of illiteracy, most producers has no idea of the quantity and value of their output and do not follow the practice of keeping regular accounts.

(4) Choice of Method: The selection of method while calculating National Income is also an important task. The wrong method leads to poor results.

(5) Lack of Differentiation in Economic Functioning: In all the countries the occupational specialization is still incomplete so that there is a lack of differentiation in economic functioning. An individual may receive income partly from farm ownership and partly from manual work in industry in the slack season.

(6) Double Counting: Double counting is also an important problem while calculating national income. If the value of all goods and services totaled, the total will overtake the national output, because some goods are currently consumed being used in the making of others. The best way to avoid this error is to calculate only the value of those goods and services that enter into final consumption.

In under-developed countries like India, we face some special difficulties in estimating national income.

 (i) The first difficulty arises because of the prevalence of non-monetized transactions in under-developed countries like India, so that a considerable part of output does not come into the market at all. Agriculture still being in the nature of subsistence farming in these countries, a major part of output is consumed at the farm itself. The national income statistician, therefore, has to face the problem of finding a suitable measure for this part of output.

(ii) Because of illiteracy, most producers have no idea of the quantity and value of their output. They do not follow the practice of keeping regular accounts. This makes the task of getting reliable information from a large number of petty producers all the more difficult.

(iii) Because of under-development, occupational specialization is still incomplete so that there is a lack of differentiation in economic functioning. An individual may receive income partly from farm ownership, partly from manual work in industry in the slack season, etc.

(iv) It is not easy to calculate the value of inventories, i.e., raw materials, semi-finished and finished goods in the custody of the producers. Obviously, any miscalculation on this score will vitiate the estimates of the output of productive enterprises.

(v) The calculation of depreciation on capital consumption presents another formidable difficulty. There are no accepted standard rates of deprecia­tion applicable to the various categories of machines. Unless from the gross national income correct deductions are made for depreciation, the estimate of net national income is bound to go wrong.

(vi) The application of the expenditure method too is full of difficulties. It is difficult to estimate all personal as well as investment expenditure.

Q13. Show by chart the relation between different concepts/ components of National Income/ Concepts of National Product.

Ans. Relation between Different concepts of National Income

Gross domestic product at market price

= Market value of all final goods and services produced within the domestic territory. +Net factor Income from Abroad (NFIA)

= Gross domestic national product at market price

-Depreciation or consumption of fixed capital

= Net national product at market price

- Net factor Income from Abroad (NFIA)

= Net Domestic Product at Market Price

-Indirect Taxes

+Subsidies

= Net Domestic Product at Factor Cost or Domestic Income

+depreciation

=Gross Domestic Product at Factor Cost

+ Net factor Income from Abroad (NFIA)

=Gross National Product at Factor Cost

-Depreciation

=Net National Product at Factor Cost

-Property and entrepreneurial income of the government

-Saving of Non-departmental enterprise

- Net factor Income from Abroad (NFIA)

=Factor income from Net Domestic Product accruing to Private Sector

+interest rate on National debt

+Net current transfer payments from the government

+Net current transfer payments from Abroad

+ Net factor Income from Abroad (NFIA)

=Private Income-Corporate Scetor

-Saving of Corporation (Less Net retained earnings of foreign companies)

=Personal Income

-Direct Taxes

-Miscellaneous receipts of government administration departments i.e. fees, fines etc.

=Disposable Income

=Consumption +Saving

Q14. Discuss the various methods of calculating national income?

Ans. The three alternative methods used for measuring national income are as follows:

1. Value Added Method

2. Income Method

3. Expenditure Method.

Since factor incomes arise from the production of goods and services, and since incomes are spent on goods and services produced, three alternative methods of measuring national income are possible.

1. Value Added Method:

This is also called output method or production method. In this method the value added by each enterprise in the production goods and services is measured. Value added by an enterprise is obtained by deducting expenditure incurred on intermediate goods such as raw materials, unfinished goods (purchased from other firms from the value of output produced by an enterprise.

Value of output produced by an enterprise is equal to physical output (Q) produced multiplied by the market price (P), that is, P.Q. From the value added by each enterprise we subtract consumption of fixed capital (i.e., depreciation) to obtain net value added at market prices (NVA_MP).

However, for estimating national income (that is, Net National Product at factor cost (NNP_FC) we require to estimate net value added at factor cost (NVA_FC) by each enterprise in the economy. NVA_FC can be found out by deducting net indirect taxes (i. e. indirect taxes less subsidies provided by the Government).

Under this method, the economy is divided into different industrial sectors such as agriculture, fishing, mining, construction, manufacturing, trade and commerce, transport, communication and other services. Then, the net value added at factor cost (NVA_FC) by each productive enterprise as well as by each industry or sector is estimated.

It follows from above that in order to arrive at the net value added at factor cost by an enterprise we have to subtract the following from the value of output of an enterprise:

1. Intermediate consumption which is the value of goods such as raw materials, fuels purchased from other firms

2. Consumption of fixed capital (i.e., depreciation)

3. Net indirect taxes.

Summing up the net values added at factor cost (NVA_FC) by all productive enterprises of an industry or sector gives us the net value added at factor cost of each industry or sector. We then add up net values added at factor cost by all industries or sectors to get net domestic product at factor cost (NDP_FC). Lastly, to the net domestic product we add the net factor income from abroad to get net national product at factor cost (NNP_FC) which is also called national income. Thus,

NI or NNP_FC = NDP_FC + Net factor income from abroad

This method of calculating national income can be used where there exists a census of production for the year. In many countries, the data of production of only important industries are known. Hence this method is employed along with other methods to arrive at the national income. The one great advantage of this method is that it reveals the relative importance of the different sectors of the economy by showing their respective contributions to the national income.

Precautions:

The following precautions should be taken while measuring national income of a country through value added method:

1. Imputed rent values of self-occupied houses should be included in the value of output. Though these payments are not made to others, their values can be easily estimated from prevailing values in the market.

2. Sale and purchase of second-hand goods should not be included in measuring value of output of a year because their values were counted in the year of output of the year of their production. Of course, commission or brokerage earned in their sale and purchase has to be included because this is a new service rendered in the current year.

3. Value of production for self-consumption are be counted while measuring national income. In this method, the production for self-consumption should be valued at the prevailing market prices.

4. Value of services of housewives are not included because it is not easy to find out correctly the value of their services.

5. Value of intermediate goods must not be counted while measuring value added because this will amount to double counting.

2. Income Method:

This method approaches national income from distribution side. Thus, under this method, national income is obtained by summing up of the incomes of all individuals of a country. Individuals earn incomes by contributing their own services and the services of their property such as land and capital to the national production.

Therefore, national income is calculated by adding up the rent of land, wages and salaries of employees, interest on capital, profits of entrepreneurs (including undistributed corporate profits) and incomes of self-employed people. This method of estimating national income has the great advantage of indicating the distribution of national income among different income groups such as landlords, owners of capital, workers, entrepreneurs.

Measurement of national income through income method involves the following main steps:

1. Like the value added method, the first step in income method is also to identify the productive enterprises and then classify them into various industrial sectors such as agriculture, fishing, forestry, manufacturing, transport, trade and commerce, banking, etc.

2. The second step is to classify the factor payments. The factor payments are classified into the following groups:

i. Compensation of employees which includes wages and salaries, both in cash and kind, as well as employers’ contribution to social security schemes.

ii. Rent and also royalty, if any.

iii. Interest.

iv. Profits:

Profits are divided into three sub-groups:

(a) Dividends

(b) Undistributed profits

(c) Corporate income tax

iv. Mixed income of the self-employed:

In India as in other developing countries there is fifth category of factor income which is termed as mixed income of self-employed. In India a good number of people are engaged in household industries, in family farms and other unorganised enterprises. Because of self-employment nature of the business it is difficult to separate wages for the work done by the self-employed from the surplus or profits made by them. Therefore, the incomes earned by them are mix of wages, rent, interest and profit and are, therefore, called mixed income of the self-employed.

3. The third step is to measure factor payments. Income paid out by each enterprise can be estimated by gathering information about the number of units of each factor employed and the income paid out to each unit of every factor. Price paid out to each factor multiplied by the number of units of each factor employed would give us the factor’s income.

4. The adding up of factor payments by all enterprises belonging to an industrial sector would give us the incomes paid out to various factors by a particular industrial sector.

5. By summing up the incomes paid out by all industrial sectors we will obtain domestic factor income which is also called net domestic product at factor cost (NDP_FC).

6. Finally, by adding net factor income earned from abroad to domestic factor income or NDP_FC we get net national product at factor cost (NNP_FC) which is also called national income.

Precautions:

While estimating national income through income method the following precau­tions should be taken:

1. Transfer payments are not included in estimating national income through this method.

2. Imputed rent of self-occupied houses are included in national income as these houses provide services to those who occupy them and its value can be easily estimated from the market value data.

3. Illegal money such as hawala money, money earned through smuggling etc. are not included as they cannot be easily estimated.

4. Windfall gains such as prizes won, lotteries are also not included.

5. Corporate profit tax (that is, tax on income of the companies) should not be separately included as it has already been included as a part of profits.

6. Death duties, gift tax, wealth tax, tax on lotteries, etc., are paid from past savings or wealth and not from current income. Therefore, they should not be treated as a part of national income of a year.

7. The receipts from the sale of second-hand goods should not be treated as a part of national income. This is because the sale of second-hand goods does not create new flows goods and services in the current year.

8. Income equal to the value of production used for self-consumption should be estimated and included in the measure of national income.

3. Expenditure Method:

Expenditure method arrives at national income by adding up all expenditures made on goods and services during a year. Income can be spent either on consumer goods or capital goods. Again, expenditure can be made by private individuals and households or by government and business enterprises.

Further, people of foreign countries spend on the goods and services which a country exports to them. Similarly, people of a country spend on imports of goods and services from other countries. We add up the following types of expenditure by households, government and by productive enterprises to obtain national income.

1. Expenditure on consumer goods and services by individuals and households. This is called final private consumption expenditure, and is denoted by C.

2. Government’s expenditure on goods and services to satisfy collective wants. This is called government’s final consumption expenditure, and is denoted by G.

3. The expenditure by productive enterprises on capital goods and inventories or stocks. This is called gross domestic-capital formation, or gross domestic investment and is denoted by I or GDCF.

Gross domestic capital formation is divided into two parts:

(i) Gross fixed capital formation

(ii) Addition to the stocks or inventories of goods

4. The expenditure made by foreigners on goods and services of a country exported to other countries which arc called exports and are denoted by X We deduct from exports (X) the expenditure by people, enterprises and government of a country on imports (M) of goods and services from other countries. That is, we have to estimate net exports (that is, exports -imports) or (X—M) which is also denoted by NX.

Thus, we add up the above four types of expenditure to get final expenditure on gross domestic product at market prices (GDP_MP). Thus,

GDP_MP = Private final consumption expenditure + Government’s final consumption expenditure + Gross domestic capital formation + Exports — Imports or

GDP_MP = C+G + I+ (X — M)

= C + G + I + NX

On deducting consumption of fixed capital (i.e., depreciation) from gross domestic product at market prices (GDP_MP) we get net domestic product at market prices (NDP_MP).

In this method, we then subtract net indirect taxes (that is, indirect taxes – subsidies) to arrive at net domestic product at factor cost (NDP_FC),

Lastly, we add ‘net factor income from abroad’ to obtain net national product at factor cost (NNP_FC), which is called national income. Thus,

NNP_FC = GDP_MP – Consumption of Fixed capital – Net Indirect taxes + Net Factor Income from Abroad.

Precautions:

While estimating Gross Domestic Product through expenditure method or measur­ing final expenditure on Gross National Product, the following precautions should be taken:

1. Second-hand goods: The expenditure made on second-hand goods should not be included because this does not contribute to the current year production of goods and services.

2. Purchase of shares and bonds: Expenditure on purchase of old shares and bonds from other people and from business enterprises should not be included while estimating Gross Domestic Product through expenditure method. This is because bonds and shares are mere financial claims and do not represent expenditure on currently produced goods and services.

3. Expenditure on transfer payments by government such as unemployment benefits, old-age pension should also not be included because no goods or productive services are produced in exchange by the recipients of these payments.

4. Expenditure on intermediate goods such as fertilisers and seeds by the farmers and wool, cotton and yarn by manufacturers of garments should also be excluded. This is because we have to avoid double counting. Therefore, for estimating Gross Domestic Product we have to include only expenditure on final goods and services.

Q15. Numericals based on national income

Unit III

Q16. What is the importance of agriculture in Indian Economy?

Ans. During Independence there was extremely low productivity per hectare and per worker.

However, the previous trend of stagnant agriculture was completely changed due to the introduction of economic planning since 1950-51, and with special emphasis on agricultural development, particularly after 1962.

(i) A steady increase in the area under cultivation is noticed.

(ii) A substantial growth in the food crops is marked.

(iii) During the plan period there had been a constant increase in the yield per hectare.

Importance of Agriculture in Indian Economy:

Though industry has been playing an important role in Indian economy, still the contribution of agriculture in the development of Indian economy cannot be denied.

This can be mesasured and gauged by the following facts and figures:

1. Agricultural influence on national income: The contribution of agriculture during the first two decades towards the gross domestic product ranged between 48 and 60%. In the year 2001-2002, this contribution declined to only about 26%.

2. Agriculture plays vital role in generating employment: In India at least two-thirds of the working population earns their living through agricultural works. In India other sectors have failed generate much of employment opportunity the growing working populations.

3. Agriculture makes provision for food for the ever increasing population: Due to the excessive pressure of population labour surplus economies like India and rapid increase in the demand for food, food production increases at a fast rate. The existing levels of food consumption in these countries are very low and with a little increase in the capita income, the demand for food rise steeply (in other words it can be stated that the income elasticity of demand for food is very high in developing countries).

Therefore, unless agriculture is able to continuously increase it marketed surplus of food grains, a crisis is like to emerge. Many developing countries are passing through this phase and in a bid to ma the increasing food requirements agriculture has been developed.

4. Contribution to capital formation: There is general agreement on the necessity capital formation. Since agriculture happens be the largest industry in developing country like India, it can and must play an important role in pushing up the rate of capital formation. If it fails to do so, the whole process economic development will suffer a setback.

To extract surplus from agriculture the following policies are taken:

(i) Transfer of labour and capital from farm non-farm activities.

(ii) Taxation of agriculture should be in such a way that the burden on agriculture is greater than the government services provided to agriculture. Therefore, generation of surplus from agriculture will ultimately depend on increasing the agricultural productivity considerably.

5. Supply of raw material to agro-based industries: Agriculture supplies raw materials to various agro-based industries like sugar, jute, cotton textile and vanaspati industries. Food processing industries are similarly dependent on agriculture. Therefore the development of these industries entirely is dependent on agriculture.

6. Market for industrial products: Increase in rural purchasing power is very necessary for industrial development as two- thirds of Indian population live in villages. After green revolution the purchasing power of the large farmers increased due to their enhanced income and negligible tax burden.

7. Influence on internal and external trade and commerce: Indian agriculture plays a vital role in internal and external trade of the country. Internal trade in food-grains and other agricultural products helps in the expansion of service sector.

8. Contribution in government budget: Right from the First Five Year Plan agriculture is considered as the prime revenue collecting sector for the both central and state budgets. However, the governments earn huge revenue from agriculture and its allied activities like cattle rearing, animal husbandry, poultry farming, fishing etc. Indian railway along with the state transport system also earn handsome revenue as freight charges for agricultural products, both-semi finished and finished ones.

9. Need of labour force: A large number of skilled and unskilled labourers are required for the construction works and in other fields. This labour is supplied by Indian agriculture.

10. Greater competitive advantages: Indian agriculture has a cost advantage in several agricultural commodities in the export sector because of low labour costs and self- sufficiency in input supply.

Q17.What are the causes of low agricultural productivity in India? How can it be improved?

Ans. Agricultural productivity is the ratio of agricultural inputs and output. It indicates the efficiency with which the inputs have been utilized. It indicates how much production has been obtained from a given amount of inputs.

Causes of low agricultural productivity in India

Progress and prosperity of Indian economy depends to a large extent upon the progress and prosperity of agriculture. Government of India has given top priority to the development of agriculture and has adopted several measures for agricultural development but unfortunately, agricultural productivity in India is far behind the agricultural productivity of the world. Important causes of low productivity are as under:

1.      Over pressure of population: The very first reason of low productivity in Indian agriculture has been over-pressure of population on agriculture. About 60- 70% of our total working population still depends upon agriculture.

2.      Uncertain and uneven rain: Agriculture in India is dominated by nature. Most of the farmers in India depend upon rainfall which is highly uncertain and uneven.

3.      Insufficient irrigation facilities: Irrigation facilities are available on about 40%land area only. Agricultural production and productivity cannot be increased without proper irrigation facilities.

4.      Lack of improved seeds, fertilizers and pesticides etc.: For generations, Indian farmers have been poor, illiterate, ignorant and conservative. The result is that they either do not use or use very small quantity of modern inputs like improved seeds, fertilizers and pesticides etc.

5.      Out-dated implements: Indian agriculture is labour intensive. The farmers are not in a position to buy new and developed agricultural implements.

6.      Lack of adequate finance: It is one of the most challenging problems of Indian agriculture. Indian farmers are so poor that they cannot buy improved seeds, fertilizers, pesticides and agricultural implements.

7.      Lack of marketing facilities: Marketing structure for agricultural products in India is very defective. The traders cheat innocent farmers in many ways. The result is that the farmers do not get proper reward.

8.      Lack of adequate agricultural research: Facilities of agricultural research available in India are not sufficient. Moreover, the results of these facilities do not reach the common farmer.

9.      Fatalism, Ignorance and Illiteracy: Most of the Indian farmers believe in luck. Most of them are illiterate and ignorant. They do not want to adopt new technology.

10.   Lack of safety of crops: According to an estimate, about 30% of total food production of the country is lost every year due to weeds, insects and crop diseases but no particular attention has yet been given to this problem. It also affects agricultural productivity adversely.

11.   Nature of soil: All the lands are not uniform. Nature of soil in different parts of country is different. Some lands are more fertile while some lands are less fertile. Inadequacy of rainfall and non-availability of irrigation facilities affect agricultural productivity adversely. Further most of the farmers continue to take crops on their land without replenishing of lost fertility.

12.   Cropping pattern: Cropping pattern adopted by most of the farmers in India is based upon their seeds and estimates and not upon the suitability of their land. It also affects agricultural productivity adversely because the cropping pattern should be based upon the climatic conditions and fertility of soil.

Measures for improving agricultural productivity

1.      Land reforms programmes should be implemented effectively.

2.      Irrigation facilities should be improved and expanded.

3.      Distribution of africultural inputs such as seeds, fertilizers and insecticides etc. should be strengthened.

4.      Proper finance facilities should be made available to the farmers at reasonable rates.

5.      Problems and deficiencies of marketing system of agricultural products should be overcome.

6.      Massive educational programme should be launched to educate the farmers.

7.      Research and development facilities should be developed and expanded. Adequate arrangements should be made to popularize the results of these programmes amonf farmers.

8.      Due emphasis should be laid on the mechanization of agriculture.

9.      Cooperative farming should be encouraged.

10.   Crop insurance scheme should be expanded, intensified and popularized.

11.   Measures of soil conservation should be adopted.

12.   Rural industries and agro-based industries should be developed so that the pressure of population on agriculture may be minimized.

Q18. What do you understand by Green Revolution? What are its main features and causes of Ans. Green Revolution in India?

The introduction of high-yielding varieties of Indian seeds after 1965 and the increased use of fertilizers and irrigation are known collectively as the Indian Green Revolution. It provided the increase in production needed to make India self-sufficient in food grains.

The programme was started with the help of the United States based Rockefeller Foundation and was based on high-yielding varieties of wheat, rice and other grains that had been developed in Mexico and in the Philippines. Of the high yielding seeds, wheat produced the best results.

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

However, the term “Green Revolution” is applied to the period from 1967 to 1978. Between 1947 and 1967, efforts at achieving food self-sufficiency were not entirely successful. Efforts until 1967 largely concentrated on expanding the farming areas. But starvation deaths were still being reported in the newspapers.

The Basic Strategy of the Green Revolution:

The new policy towards agriculture which began in the mid- 1960s, was a departure from the earlier approach in a number of ways.

The main features are:

(a) The government policy was now oriented towards changing the technical conditions of production in agriculture rather than introducing land reforms and other changes in the property relations in the country side.

In so far as institutional changes were part of the policy, they were chiefly in the form of spread of State agricultural extension services in order to spread information and provide access to the new technology, establishment of Agricultural Price Commission (now known as Commission on Agricultural Costs and Prices (ACP) in 1965, establishment of Food Corporation of India (FCI) in the same year and efforts towards ensuring the availability of credit from institutional sources.

(b) The new technology consisted essentially of a package of inputs and practices i eluding seeds of high-yielding varieties, which responded very favorably to fertilizers, irrigation and pesticides.

(c) The emphasis was primarily on increasing the output of food grains (especially wheat and rice). Other crops such as sugarcane, oilseeds, pulses, coarse cereals, jute and cotton were not a part of this policy.

(d) Given the required assured water supply, the new technology was Introduced and employed successfully in areas having irrigation facilities. The strategy was therefore selective in approach. The focus was on selective new areas with assured irrigation water or rainfall for the effective application of this package.

This combined with the higher yield of new wheat seeds in India, led to a regional concentration of the new HYV technology in the irrigated wheat growing region of Northwest India. This region, comprising the states of Punjab, Haryana and West Uttar Pradesh became major success stories of the Green Revolution by early 1970s.

(e) The new strategy also focused on increasing marketed surplus of food grains through price support and procurement operations. It meant a focus on those group of farmers who could produce surplus for sale, over and above their own consumption. Essentially, these were the larger and richer farmers, who had both resources and access to market which encouraged them to adopt the high yield variety (HYV) package.

What are the main Causes of Green Revolution?

After re-organization of Punjab, technical revolution was introduced in agriculture. With the result of this the agricultural production increased tremendously. This rapid increase in agricultural production is called Green revolution. The large increase in agricultural production due to mechanized agriculture, use of High yielding variety of seeds, use of chemical fertilizers and plant protection by spraying pesticides, etc. is called Green Revolution.

Green revolution has two aspects:

(a) Rapid increase in agricultural production.

(b) Maintenance of high level of agricultural production.

Causes of Green Revolution

The following are the main causes of green revolution:

(i) Irrigation: Better irrigation facilities are responsible for green revolution. In 1965-66, 22 lakh hectares area had irrigation facility: while 76 lakh hectares area got this facility in year 2002-03. Tube well irrigation has rapidly increased.

(ii) Agricultural Machinery: In Punjab, the agriculture is mechanized. Tractors, harvesting combines, tube wells and pumping sets and threshers etc. are intensively used in Punjab. Punjab has largest number of tractors. In 1966, there were 10 thousand tractors, while in 2002-03, it increased to 3.54 lakhs.

(iii) Fertilizers: The use of chemical fertilizers has increased the production of food grains to large extent. In 1965-66 chemical fertilizers were used 97 thousand tonnes. In 2002-03, their use increased to 1441 thousand tonnes.

(iv) High Yielding Variety of Seeds (HYV): The use of HYV seeds have played major role in increasing agricultural production. For example, per hectare yield of wheat has increased from 1200 kgms to 4500 kgm. In case of rice the yield increased from 1000 kgms to 3500 kgms. So a HYV seed has increased the production tremendously.

(v) Plant Protection: There was no arrangement to protect the plants against disease in previous times. So crops were damaged on large scale. Now there are proper arrangements to protect the plants against diseases and pests. Pesticides are sprayed to protect the plants. Plant clinics are opened to provide expert advice to farmers against diseases.

(vi) Research: Punjab Agricultural University (PAU) Ludhiana has done a lot of research on agricultural problems. The university provided better quality seeds for wheat, rice, cotton, gram, maize, sugarcane and oilseeds. The university organizes Kisan Melas twice a year in order to provide knowledge of new agricultural techniques to farmers.

(vii) New Techniques: Punjab Agricultural University Ludhiana has been imparting training to farmers under Intensive Agriculture District programme (lADP). Under this programme, much attention is paid to crop rotation, chemical fertilizers, use of HYV seeds and water etc.

(viii) Marketing Facilities: Previously marketing facilities were inadequate. Farmers had to sell their produce in unregulated markets and got less price of their produce. Now the Govt. has provided marketing facilities to farmers. Now 144 Regulated markets have been set-up in Punjab. Farmers can now store their produce in warehouses and cold storages and can get remunerative price of their produce.

(ix) Multiple Cropping: Proper arrangement of irrigation and used HYV seeds enabled the farmers to grow more than one crop in a year. For example in wheat and rice rotation, Moong and sunflower can be sown in same field. Due to multiple cropping production of food grain has increased tremendously. In 2002-03, multiple cropping was done in an area of 3600 thousand hectares.

(x) Price Incentive: Rich harvest can bring down price. To avoid these prices of various agricultural products are fixed by ‘Agriculture Cost and Price Commission’ Govt. buys agriculture produce at minimum price fixed by commission through agencies like Food corporation of India, Markfed and Punsup etc. So farmers get minimum support price fixed by commission.

(xi) Govt. Efforts: Under five Year Plans, govt. has made many efforts for agricultural development. During Eighth Plan, Govt. has to spend Rs. 590 crore on agricultural development and Rs. 644 crore on irrigation.

(xii) Other Reforms: State Govt. has done a lot to develop the agricultural production. The scattered holdings of the farmers have been consolidated in one large holding. The Farmer can arrange for irrigation facilities on the large holding.

(xiii) Credit facilities: More credit facilities have been provided to farmers. In past money lenders provide credit to farmers at a very high rate. Now Agricultural Development Banks and Co-operative credit societies provide loan facilities to farmers. In 2003, these facilities increased to 605 crores. Cheap credit facilities enabled farmers to buy more HYV seeds, machines and chemical fertilizers.

(xiv) Land Reclamation: The Govt. has done efforts to make the uncultivable land to cultivable. The land development and Reclamation corporation was established to make the land cultivable. In 1990-91, 25,600 hectares of land made fit for agriculture. In 1996-97, 20,000 hectares land was reclaimed.

Major Economic Impact of Green Revolution in India

Like other developing countries, Green Revolution has influenced the economy and way of life in India to a great extent as is evident from the following points:

1. Increase in Agricultural Production: The introduction of Green Revolution in 1967-68 has resulted in phenomenal increase in the production of agricultural crops especially in food-grains. From 1967 onwards, the Green Revolution aimed at bringing about a Grain Revolution.

Among the food grains too, it is the wheat crop which drew maximum benefit from Green Revolution. The production of wheat increased by more than three times in1967-68 and 2003-04 while the overall increase in the production of cereals was only two times. On account of this reason, it is said that the Green Revolution in India is largely the Wheat Revolution.

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

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

The per capita net availability of food-grains has also increased from 395 grams per day in early 1950s to the level of 436 grams in 2003, this in spite of the rapid increase in population. In the words of Dantwala, Green Revolution has given a breathing time. As a result, there will be relief from anxiety of food shortage and the planners will concentrate more on Indian planning.

4. Capitalistic Farming: Big farmers having more than 10 hectares of land have tended to get the maximum benefit from Green Revolution technology by investing large amount of money in various inputs like HYV seeds, fertilizers, machines, etc. This has encouraged capitalistic farming.

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

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

Consequently, industries producing these items progressed by leaps and bounds. Moreover, several agricultural products are used as raw materials in various industries. These industries are known as agro based industries. Textile, sugar, vanaspati, etc. are some outstanding examples of agro based industries.

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

During the last few years, a large number of farm labour have migrated from Bihar and eastern Uttar Pradesh to Punjab where they find better opportunities of earning a livelihood.

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

Limitations of the Green Revolution:

In spite of several achievements, the green revolution has several defects:

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

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

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

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

Thus, a large number of tenants and share-croppers have lost their lands and have been forced to join the ranks of agricultural labourers. Wetlands have also attracted outsiders (non-agriculturists from nearby towns to invest capital in buying farms.

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

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

Q19. What is the importance of land reforms in India? Explain the reasons for the slow progress of these reforms?

Ans. Land reform is a popular slogan in developing countries of the world. By land reform is technically meant that land tenure reform. Land tenure reform is of two types; (1) land redistribution which leads to change in size of ownership and (2) tenancy reforms which leads to improvements in tenancy contracts. Land reform thus is more than redistribution of land either by breaking up large estates or by consolidation of holdings. It includes a number of measures to improve the relationship of the man who works on land such improved conditions of tenancy, provision of agricultural credit at reasonable rates, reduction in rent to the landlord, facilities for marketing agricultural products with emphasis on cooperatives. Briefly, land reform can be described as an integrated programme of measures designed to eliminate obstacles to economic and social development arising out of defects in the agrarian structure.

Objectives of land reform

(1) Social Objectives: From social point of view, it is essential that the tiller of the soil should have a fair treatment at the hands of the owners of land. The land reform should help in reducing disparity in wealth. It should eliminate exploitation, provide security to tenants. It should ensure the provision of equality of status and opportunity to different sections of the rural population. The different sections of the rural society should get a fair and reasonable reward for its labour and investment.

(2) Political objectives: Land reform is needed for achieving political stability in the country. If a country is continuously ruled by feudal lards (as in Pakistan), it increases political unrest and increases the chances of revolution. To avoid the revolution, and conflict among the landlords and the tenants, the earlier the land reform is carried out, the better it is in the interest of the country

(3) Economic objectives:

(i) Core of agricultural development. Land reform is the very core of agricultural development. It is through land reform that agriculture can be lifted out of stagnation.

(ii) Feudalism put to an end. With the help of land reforms the feudalism can be put to an end which is the main obstacle to economic development.

(iii) Helps in removing insecurity to tenants. The tenants are always at the mercy of landlords. The land reforms provide security to the tenants.

(iv) Permanent improvements. The tenancy reforms encourage the tenants to make permanent improvements such as leveling of land, drainage tube wells etc in their occupied land holding. This helps in the increase in production.

(v) Reduction in disparity. The abolition of landlordism not reduces disparities in wealth but also affords measures of opportunity to the landless tenants to make contribution to economic progress.

(vi) Emergence of peasant proprietor system. With the implementation of land reforms the peasant proprietorship system emerges which leads to efficient cultivation through mechanization.

(vii) Increase in government revenue. The land reforms encourage the tenants’ small holders of land to make permanents improvements in land. With the increase in agricultural produce the state is in a position to raise revenue from the land.

Summing up land reform is needed to achieve economic growth, fair income distribution and achieving political and economic stability.

What is land tenure?

Land tenure refers to the rights and patterns of control over land. Land tenure mean a system which (i) describes the ownership of land (ii) the conditions of occupancy on land and (iii) the manner and responsibility of payment of land revenue to the state.

The ownership of land, management and decisions regarding its use are of great importance and play a vital role in the economic and political stability of the country. Land rights determine social and political status as well as economic power of a large proportion of the population in developing countries.

Land tenure systems

There are three types of land tenures system. (a) Royotwari, (b)Mahalwari and (c) Zamindari

I-Royotwari Tenure: Royotwari system was introduced by the British Rulers in Bombay. Madras and Sindh, under this system, every registered holder of the land is recognized as its proprietor. He is made responsible to pay revenue direct to the government. He is given liberty to sublet his holding of land or transfer it by gift or mortgage. So long as he pays the fixed revenue to the government, he cannot be ejected from the land.

MERITS-

This system is now prevalent in the province of Sindh. The British Rulers introduced this system to give incentive to the cultivators who were much less in number compared to the availability of land at that time. The system had the merits that

(i) The cultivator was in direct relation with the government. There were no intermediaries.

(ii) The cultivator having the position of peasant proprietor made all possible improvements in land.

(iii) He worked long and late.

(iv) The system created a class which was loyal to the government and

(v) Helped in maintaining social and politically.

DEMERITS-

The Royotwari tenure was introduced by the British Rulers to create a loyal class which helped them in continuation of their rule in India.

(i) On account of sub-letting of the land by the occupiers, the number of landless labour is on the increase.

(ii) The size of land has become smaller. The improved techniques of cultivation cannot be used.

II-Mahalwari System: Mahal means village. This system was adopted by British Rulers in Agra, Oudh (India) and in the provinces of Punjab and NWFP now in Pakistan. In this system the individuals are the owners of small units of land. They are called peasant proprietors. The peasant proprietors mostly cultivate the land themselves with the help of their families. Under this system the land owners are jointly and individually libel for the payment of land revenue to the government. Generally the payment is made through the village numberdar who is given 5% of the total revenue collected by the state.

MERITS:

(i) The peasant proprietor system is helpful to efficient cultivation.

(ii) It has helped in creating a socially just, self-reliant and a stable peasantry

(iii) The magic of ownership has helped in raising production.

DEMERITS:

(i) The excessive pressure of population on land has led to the fragmentation of holdings.

(ii) The peasant proprietors living in cities have now given land on rent to tenants who pay rent either in cash or kind.

(iii) As the tenants enjoy no security, so they have no incentive for investing capital.

(iv) As the mechanized cultivation is not adopted on small units of holdings, the required agricultural progress is not being achieved.

II-Zamindari System: The British Rule created a loyal class by giving them vast areas of land on permanent basis. In the beginning these persons were made responsible for the payment of land revenue. Later on these collectors of land revenue were conferred proprietary rights.

Defects:

(i) The zamindari system has not proved beneficial for the society. (ii) The feudal lords exploited the rural masses for over a long period of time. (iii) The ejectments of tenants both. (i) Occupancy tenants and (ii) tenants at will were very common (iii) the tenants at will were the worst hit. Their poor belongings, utensils, cattle etc were set on fire or auctioned to realize arrears of rent. (iv) The zamindari system destroyed the very basis of agricultural prosperity. (v) The system has given rise to feudalism at the top and slavery at the bottom. (vi) The landlords have become the absentee parasites. The frequent enhancement of rents and constant fear ejectment stands in the way of agricultural progress.

In orders to eliminate inequalities in land holdings and al elements of exploitation, the Government of Pakistan introduced agrarian reforms from time to time. First Land Reforms were introduced in 1985, then in 1972, 1977. These reforms to some extent have decreased the land holdings of zamindars. The illegal ejectments of the tenants at will have been protected by law. The occupancy tenant, though small in number got the ownership of land.

Q20. Explain the importance of irrigation for Indian agriculture? What are the important means of irrigation in India?

Ans. Land can be improved by regulating the water supply: the soil aeration can be improved, bacterial activity stimulated, crop yields improved. Further, irrigation and draining can bring marginal lands, such as deserts and swamps, into agricultural use. If natural precipitation cannot meet the moisture requirements of plants, an artificial supply of water becomes necessary. This is irrigation.

Irrigation has certain advantages:

 (i) regular and reliable supply of water; (ii) supply of silt if irrigation is from river waters; (iii) year- round cultivation; (iv) reduction of soil salinity in deserts (but if water is allowed to evaporate from the fields, salinity will increase).

Irrigation brings about an increase in the gross cropped area by increasing the net sowing area in rainfall scarcity areas and by facilitating multiple cropping.

The normal monsoon is adequate only over one-third of the country; thus, irrigation becomes a necessity in the rest of the country. Even in the adequate rainfall areas, a late onset or an early withdrawal can prove disastrous for the crop. Then, irrigation is required for rabi (winter crop) especially wheat. Additional water is also required for most crops during the growth period to maximise yields. Thus, irrigation is essential to overcome spatial and temporal variations of rainfall.

Irrigation has the effect of increasing the yield by almost 100 per cent compared to unirrigated areas.

Irrigation stabilises yields in the face of uncertain rainfall. Also, because of increasing use of the costly inputs like fertilisers, seeds, pesticides, etc., which give optimum results only when adequate moisture level is maintained, failure to supply moisture during the growing period could imply wastage of valuable investment.

Irrigation works have been classified as major, medium and minor, depending on their cultivable command area.

1. Major Irrigation: Cultivable command area (CCA) more than 10,000 hectares.

2. Medium Irrigation: Culturable command area more than 2,000 hectares but less than 10,000 hectares.

3. Minor Irrigation: Culturable command area up to 2,000 hectares.

Whereas major and medium irrigation works are meant for tapping surface water (e.g., rivers), minor irrigation mainly involves ground water development, e.g., tube-wells, boring works, etc.

Q21. Explain the main features/objectives of Food policy of Government of India.

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

Increase in Production of Food grains:-Agricultural development has been accorded top priority in almost all the Five Year Plans. Several programmes have been launched to increase agricultural production and productivity such as intensive farming, multi – crop programme, development of high yielding varieties of seeds, intensive use of fertilizers. As a result of these efforts, production of foodgrains has increased from 50.8 million tonnes in 1950-51 to 192.4 million tonnes in 1997-98.

Import of Foodgrains:-To meet the shortage of foodgrains, the government has been importing food grains from time to time. 48 lakh tonnes of food grains were imported in 1951 which increased to 103 lakh tonnes in 1966. During 4 years 1991,1992,1995 and 1996, the imports have been almost nil.

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

Public Distribution of Food grains:-Government adopted public distribution system to ensure fair distribution of food grains at controlled prices. Under the system, fair price shops are opened. Each such shop is envisaged to serve a population of about 2000. As on 31^st March, 1998, there were about 4.50 lakh fair price shops (Ration shops) in the country. These shops supply rice, wheat, sugar, edible oils and kerosene to people in certain quantity at controlled prices. 

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

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

Agricultural Research & Development:-Government is taking serious steps to promote agricultural research and development. A number of agricultural universities and Indian Council of Agricultural Research (ICAR) have been established to undertake research activities.

 

Q22. Examine the role of Public Distribution System in India?

Ans. Ever Since the independence in 1947, one of the aims of Government of India has been to provide Food Security to all the citizens of India. Keeping this objective in mind, Public distribution system (PDS) was started by Ministry of Consumer Affairs, Food and Civil Supplies. 

MEANING OF PDS

PDS means distribution of essential commodities to larger section of the society, mostly vulnerable people, through a network of Fair Price Shops on a recurring basis. The essential commodities under PDS at present are wheat, rice, sugar and Kerosene. PDS is supplemental in nature and is not intended to make available the entire requirement of any of the commodities distributed under it to a household or a section of the society.

EVOLUTION OF PDS

• FCI was established in 1964 to handle the shortage of food grains clubbed with black marketing of the food grains by hoarders was a reason for the government to take some action for the containment of rise in food grains prices and ensured access of food to urban consumers.

• Till 1992, the PDS was untargeted and a general entitlement scheme for all consumers. Due to criticism & mismanagement allegations, in June 1992, the Revamped Public Distribution System (RPDS) was launched in 1775 blocks of the country, composed of tribal, hilly, drought prone and decertified areas.

• However, in 1997, the Targeted Public Distribution System (TPDS) was introduced with effect from June 1997.
  Today, with the network of around 5 Lakh fair price shops PDS is virtually world’s largest system of its kind.

In coverage and public expenditure, it is considered to be the most important food security network. However, the food grains supplied by the ration shops are not enough to meet the consumption needs of the poor or are of inferior quality. The PDS has been criticised for its urban bias and its failure to serve the poorer sections of the population effectively. The targeted PDS is costly and gives rise to much corruption in the process of extricating the poor from those who are less needy.

The central and state governments shared the responsibility of regulating the PDS. While the central government is responsible for procurement, storage, transportation, and bulk allocation of food grains, State governments hold the responsibility for distributing the same to the consumers through the established network of Fair Price Shops (FPSs). State governments are also responsible for operational responsibilities including allocation and identification of families below poverty line, issue of ration cards, supervision and monitoring the functioning of FPSs.

Functions
1)Procurement of Food Grains.
2)Identification of poor and needy.
3)Issue of ration cards to poor people.
4)Transportation of food grains to all Fair price shops.
5) Selling Food grains to all the needy people.

 LIMITATIONS OF PDS

• Regional Disparities – The main advantage of this system could be limited to the states of South India. According to a study, the purchases of food–grains by the public remained at 100% in Tamil Nadu, 96.4% in Andhra Pradesh, 95.8% in Karnataka and 82.65% in Kerala. In contrast, this average was remained only at 50% in northern India.

• Limited Benefits To Poor People – In the NSSO Surveys, it is found that the poor people could not connect to PDS. According to a study, only 1/3rd families in rural areas are actively involved in PDS. It is also found that only 25% of their total requirements are fulfilled through PDS. This means that they are dependent on the open market for the fulfillment of most of their needs.

There are no criteria of monitoring the high income group purchases more than low income purchases. The coverage and network of PDS does not ensure that the poorest or the poor is benefited. The PDS has been untargeted and proved to be regressive in some parts of the nations.

• Leaning Over To Urban Areas – In 1960s and 1970s, the system was limited to cities in India. Later, it was introduced in the villages. But the supply of essential commodities in rural areas is not enough. In a report of Planning Commission it was said that since 1991, nearly 75% of the Fair Price Shops (FPS) was expanded in rural areas, but the actual supply of food–grains through these shops remained below expectations.

• Failure Of FCI – The Food Corporation of India is responsible for the operations of PDS, but it is seen that the economic costs of FCI have been increasing constantly for several reasons. One of the main reasons is continuous increment in requisition prices. According to a study, FCI may have no control over its 80% of prices.

• Adverse Effects On The Open Market – According to some economists, FCI acquires large volume of food–grains and fails to distribute it on time, due to which the availability of the food–grains in the open market decreases. It raises the prices of the food–grains. Sometimes poor people have to buy food–grains from the open market. Thus it can be said that the operation of dual system of distribution is against poor.

• Leakage Problem – In a study conducted by TCS, it was reported that through PDS 31% portion of rice and 26% portion of wheat drops in the open market. In addition, another cause of leakage is the damages occurred during the process of transport, storage, distribution, etc.

• Inferior Quality Of Food–Grains – It has been found that sometimes the quality of food–grains distributed through PDS is not upto the mark and people do not show interest in buying them. Its main reasons are – the quality is not taken into consideration at the time of purchases, proper attention is paid during storage process, the dealers replace goods supplies received from the FCI with inferior stock, etc.

• Other Problems:

1. Issue of the bogus cards in large numbers which are used to procure the grains from the PDS and sell them in open market.
2.  Identification of poor by the states is not fool proof. A large number of poor and needy persons are left out and a lot of bogus cards are also issued.
3. Fair Price Shop owner gets bogus Ration cards and sell the food grains in the open market.
4. People do not get the entitled amount of food grains from the Fair price shop.
5. Diversion of Food grains by FPS owner and middle men.
6. Many time good quality food grains are replaced with poor quality cheap food grains.
7. PDS covers only few food grains like wheat and rice, it does not fulfil the requirement of complete nutrition.
8. Uneven distribution of Food generations, procurement and distribution. For example: north eastern states are very far from Punjab and Haryana, from where wheat is procured. To transport food grains from Punjab to far flung areas in North east will entail cost and time both.
9. The dealers have little profit so indulge in malpractices.

SUGGESTIONS TO IMPROVE PUBLIC DISTRIBUTION SYSTEM

To improve the current system of the PDS, the following suggestions are furnished for:

• PDS must be added to the Aadhaar Card Scheme. This will not only help in preparing a high–quality information database of beneficiaries, but also help to get rid of the problem of bogus ration cards.

• All the operations of FCI, from procurement of food–grains to delivery of food–grains to the Fair Price Shops, should be computerized. In addition, it should be made essential for Fair Price Shops that they upload the weekly details of food–grain distribution, availability of stocks, etc., on the departmental website.

• Food distribution centers should be operated by cooperative societies, consumer organizations, self–help groups, NGOs, etc. instead of individuals.

• Roaming ration cards should be issued for migrant labourers.

• The number of food distribution centers should be increased. Moreover, they should be opened for all days in a week.

• Consumers should be given an option to buy food–grains installments. In a study conducted by Planning Commission, it is found that 75.6% of BPL consumers have expressed a desire to implement this system.

• People should be allowed to make choices in food–grains as per their requirements.

• The storages of FCI should ensure stocks upto 6 months in advance.

• A committee, consisting of the members of Panchayati Raj institution, should be formed to monitor the operations of PDS.
• Vigilance squad should be strengthened to detect corruption, which is an added expenditure for taxpayers.
• Personnel-in-charge of the department should be chosen locally.
• Margin of profit should be increased for honest business, in which case the market system is more apt anyway.
• F.C.I. and other prominent agencies should provide quality food grains for distribution, which is a tall order for an agency that has no real incentive to do so.
• Frequent checks & raids should be conducted to eliminate bogus and duplicate cards, which is again an added expenditure and not full proof.
• The Civil Supplies Corporation should open more fair price shops in rural areas.
• The fair price dealers seldom display rate chart and quantity available in the block-boards in front of the shop. This should be enforced.

Unit IV

Q23. Explain the role of industrialization in India’s economic growth?

Ans. Role of Industrialization in India’s Economic Growth

Industrialization is the process of manufacturing consumer goods and capital goods and of building infrastructure in order to provide goods and services to both individuals and businesses. As such Industrialization plays a major role in the economic development of underdeveloped countries like India with vast manpower and varied resources. Let us discuss, in detail, the role of industrialization in the Indian economy.

1. Raising Income: The first important role is that industrial development provides a secure basis for a rapid growth of income. The empirical evidence suggests a close correspondence between the high level of income and industrial development. In the industrially developed countries, for example, the GNP per capita income is very high at around $ 28,000, whereas for the industrially backward countries it is very low at around $ 400 only.

2. Changing the Structure of the Economy: In order to develop the economy underdeveloped countries need structural change through industrialization. History shows that in the process of becoming developed economy the share of the industrial sector should rise and that of the agricultural sector decline. This is only possible through deliberate industrialization. As a result, the benefits of industrialization will ‘trickle down’ to the other sectors of the economy in the form of the development of agricultural and service sectors leading to the rise in employment, output and income.

3. Meeting High-Income Demands: Beyond certain limits, the demands of the people are usually for industrial products alone. After having met the needs of food, income of the people are spent mostly on manufactured goods. This means the income-elasticity of demand for the manufactured goods is high and that of agricultural products is low. To meet these demands and increase the economy’s output underdeveloped countries need industrialization.

4. Overcoming Deterioration in the Terms of Trade: Underdeveloped countries like India need industrialization to free themselves from the adverse effects of fluctuations in the prices of primary products and deterioration in their terms of trade. Such countries mainly export primary products and import manufactured goods. The prices of primary products have been falling or are stable whereas the prices of manufactured products have been rising. This led to deterioration in the terms of trade of the LDCs. For economic development such countries must shake off their dependence on primary products. They should adopt import substituting and export oriented industrialization.

5. Absorbing Surplus Labour (Employment Generation): Underdeveloped countries like India are characterized by surplus labour and rapidly growing population. To absorb all the surplus labour it is essential to industrialize the country rapidly. It is the establishment of industries alone that can generate employment opportunities on an accelerated rate.

6. Bringing Technological Progress: Research and Development is associated with the process of industrialization. The development of industries producing capital goods i.e., machines, equipment etc., enables a country to produce a variety of goods in large quantities and at low costs, make for technological progress and change in the outlook of the people. This results in bringing about an industrial civilization or environment for rapid progress which is necessary for any healthy economy.

7. Strengthening the Economy: Industrialization of the country can provide the necessary elements for strengthening the economy. In this regard the following points may be noted.

(a) Industrialization makes possible the production of goods like railways, dams, etc. which cannot be imported. These economic infrastructures are essential for the future growth of the economy.

(b) It is through the establishment of industries that one can impart elasticity to the system and overcome the historically given position of a primary producing country. Thus, with industrialization we can change the comparative advantage” of the country to suit its resources and potentialities of manpower.

(c) Through industrialization the requirements for the development of agriculture can be met. For example, improved farm-implements, chemical fertilizers, storage and transport facilities, etc., appropriate to our own conditions can be adequately provided only by our own industries.

(d) The industrial development imparts to an economy dynamic element in the form of rapid growth and a diversified economic structure which make it a progressive economy.

(e) Providing for Security: Industrialization is needed to provide for the country’s security. This consideration becomes all the more critical when some international crisis develops. In such situation, dependence of foreign sources for defence materials is a risky affair. It is only through industrial development in a big way that the national objective of self-reliance in defence materials can be achieved.

Q24. What is the importance of Large Scale Industries? Explain the industrial growth pattern in India (4 Phases) in detail.

Ans. Every country needs exploring of coal, iron and steel, exploring of oil and its purification, heavy machineries, heavy electrical equipments, heavy chemicals, ships and aero planes, industries of heavy and basic industries for its development. All these industries help to develop agriculture, transport, communication facilities and other industries. It means development of large scale industries is almost essential for the development of heavy and basic industries.

1.      Improvement in Productivity: In large scale industries work is distributed among the labourers according to their efficiency which improves the productivity. These industries also use huge modern capital which raises productivity and reduces cost per head. It enables the consumer to get commodities at a cheaper rate.

2.      Import Substitution: Capital goods and consumer goods which are imported from the foreign countries can be produced inside the country through large scale industries. Our country will depend upon foreign countries on heavy chemicals, heavy electricity, chemical fertilizers and other consumer goods, unless we develop large scale industries. Due to the development of large scale industries, all these commodities are produced inside the country and there is no need of import which is known as import substitution.

3.      Export Promotion: Large scale industries change the pattern of export. In the old days, we exported skin, tea, jute, jute products, spices of different types, and cotton clothes to foreign countries. Due to the development of large scale industries, we are now able to export engineering products, heavy electric products and other industrial products. It means large scale industries have changed the pattern of export and increased the quantity of export.Development of medium and large scale industries help to remove the problem of unemployment by creating wide range of unemployment by creating wide range of employment opportunities to unskilled, semi-skilled and skilled human resource.

4.      Proper utilization of resources: Medium and large scale industries are necessary for the scientific utilization of available natural resources such as forest resources, mineral resources, human resources and water resources.

5.      Sources of Government Revenue: These industries produce huge amount of goods, generally expensive one. They are exported to foreign land and Government earns tax, VAT, Sales tax, etc. which increases Government Revenue.

6.      Development of basic infrastructure: Medium and large scale industries cannot be operated without proper infrastructure. So, along with the development of industries, infrastructure of development also increases simultaneously.

7.      Development in agricultural sector: Modern tools and equipments are produced by medium and large scale industries. Implementation of modern tools in agricultural sector can be done. Finally, there will be development in the sector of agriculture.

The industrial growth pattern in India can be divided into four phases as explained below:

1. First Phase (1951-65): Strong Industrial Base:

The first phase of industrial growth consists of the first three plan periods which had built a strong industrial base in India. During this phase, huge investments were made in major industries like iron and steel, heavy engineering and machine building industries. The annual compound growth rate of industrial production during the first three plan periods moved between 5.7 per cent to 9.0 percent.

The capital goods industries had registered its annual average compound growth rate between 9.8 per cent to 19.6 per cent during this period. Again the annual rate of growth of basic industries moved between 4.7 per cent to 12.1 per cent over the same period. Thus, a strong industrial base was laid during the first phase covering the first three plan periods.

2. Second Phase (1965-80): Deceleration and Retrogression:

The second phase of industrial growth covers the period of three Ad-hoc Annual Plans, Fourth Plan and Fifth Plan. The 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 were 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.

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.

Thus during this third phase, there is a clear shift in the pattern of Industrialization 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.  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. 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 slowdown 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.

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 are 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.

Q25. What is the role and importance of Small Scale Industry in India? Explain the major problems faced by these Industries. Give some suggestions how these problems can be removed?

Ans. In a developing country like India, the role and importance of small-scale industries is very significant towards poverty eradication, employment generation, rural development and creating regional balance in promotion and growth of various development activities.

It is estimated that this sector has been contributing about 40% of the gross value of output produced in the manufacturing sector and the generation of employment by the small-scale sector is more than five times to that of the large-scale sector.

This clearly shows the importance of small-scale industries in the economic development of the country. The small-scale industry have been playing an important role in the growth process of Indian economy since independence in spite of stiff competition from the large sector and not very encouraging support from the government.

The following are some of the important role played by small- scale industries in India.

1. Employment generation: The basic problem that is confronting the Indian economy is increasing pressure of population on the land and the need to create massive employment opportunities. This problem is solved to larger extent by small-scale industries because small- scale industries are labour intensive in character. They generate huge number of employment opportunities. Employment generation by this sector has shown a phenomenal growth. It is a powerful tool of job creation.

2. Mobilisation of resources and entrepreneurial skill: Small-scale industries can mobilize a good amount of savings and entrepreneurial skill from rural and semi-urban areas remain untouched from the clutches of large industries and put them into productive use by investing in small-scale units. Small entrepreneurs also improve social welfare of a country by harnessing dormant, previously overlooked talent.

3. Equitable distribution of income: Small entrepreneurs stimulate a redistribution of wealth, income and political power within societies in ways that are economically positive and without being politically disruptive. Thus small-scale industries ensure equitable distribution of income and wealth in the Indian society which is largely characterized by more concentration of income and wealth in the organized section keeping unorganized sector undeveloped. This is mainly due to the fact that small industries are widespread as compared to large industries and are having large employment potential.

4. Regional dispersal of industries: There has been massive concentration of industries m a few large cities of different states of Indian union. People migrate from rural and semi urban areas to these highly developed centres in search of employment and sometimes to earn a better living which ultimately leads to many evil consequences of over-crowding, pollution, creation of slums, etc. This problem of Indian economy is better solved by small- scale industries which utilize local resources and brings about dispersion of industries in the various parts of the country thus promotes balanced regional development.

5. Provides opportunities for development of technology: Small-scale industries have tremendous capacity to generate or absorb innovations. They provide ample opportunities for the development of technology and technology in return, creates an environment conducive to the development of small units. The entrepreneurs of small units play a strategic role in commercialising new inventions and products. It also facilitates the transfer of technology from one to the other. As a result, the economy reaps the benefit of improved technology.

6. Indigenization: Small-scale industries make better use of indigenous organisational and management capabilities by drawing on a pool of entrepreneurial talent that is limited in the early stages of economic development. They provide productive outlets for the enterprising independent people. They also provide a seed bed for entrepreneurial talent and a testing round for new ventures.

7. Promotes exports: Small-scale industries have registered a phenomenal growth in export over the years. The value of exports of products of small-scale industries has increased to Rs. 393 crores in 1973-74 to Rs. 71, 244 crores in 2002-03. This contributes about 35% India's total export. Thus they help in increasing the country's foreign exchange reserves thereby reduces the pressure on country's balance of payment.

8. Supports the growth of large industries: The small-scale industries play an important role in assisting bigger industries and projects so that the planned activity of development work is timely attended. They support the growth of large industries by providing, components, accessories and semi finished goods required by them. In fact, small industries can breath vitality into the life of large industries.

9. Better industrial relations: Better industrial relations between the employer and employees helps in increasing the efficiency of employees and reducing the frequency of industrial disputes. The loss of production and man-days are comparatively less in small- scale industries. There is hardly any strikes and lock out in these industries due to good employee-employer relationship.

Of course, increase in number of units, production, employment and exports of small- scale industries over the years are considered essential for the economic growth and development of the country. It is encouraging to mention that the small-scale enterprises accounts for 35% of the gross value of the output in the manufacturing sector, about 80% of the total industrial employment and about 40% of total export of the country.

Major Problems faced by the Small Scale Industries of India:-

Small scale industries are not in a position to play their role effectively due to various constraints. The various constraints, the various problems faced by small scale industries are as under:

(1) Finance:

Finance is one of the most important problem confronting small scale industries Finance is the life blood of an organization and no organization can function proper у in the absence of adequate funds. The scarcity of capital and inadequate availability of credit facilities are the major causes of this problem.

Firstly, adequate funds are not available and secondly, entrepreneurs due to weak economic base, have lower credit worthiness. Neither they are having their own resources nor are others prepared to lend them. Entrepreneurs are forced to borrow money from money lenders at exorbitant rate of interest and this upsets all their calculations.

After nationalization, banks have started financing this sector. These enterprises are still struggling with the problem of inadequate availability of high cost funds. These enterprises are promoting various social objectives and in order to facilitate then working adequate credit on easier terms and conditions must be provided to them.

(2) Raw Material: Small scale industries normally tap local sources for meeting raw material requirements. These units have to face numerous problems like availability of inadequate quantity, poor quality and even supply of raw material is not on regular basis. All these factors adversely affect functioning of these units.

Large scale units, because of more resources, normally corner whatever raw material that is available in the open market. Small scale units are thus forced to purchase the same raw material from the open market at very high prices. It will lead to increase in the cost of production thereby making their functioning unviable.

(3) Idle Capacity: There is under- utilization of installed capacity to the extent of 40 to 50 percent in case of small scale industries. Various causes of this under-utilisation are shortage of raw material problem associated with funds and even availability of power. Small scale units are not fully equipped to overcome all these problems as is the case with the rivals in the large scale sector.

(4) Technology: Small scale entrepreneurs are not fully exposed to the latest technology. Moreover, they lack requisite resources to update or modernise their plant and machinery Due to obsolete methods of production, they are confronted with the problems of less production in inferior quality and that too at higher cost. They are in no position to compete with their better equipped rivals operating modem large scale units.

(5) Marketing: These small scale units are also exposed to marketing problems. They are not in a position to get first-hand information about the market i.e. about the competition, taste, liking, disliking of the consumers and prevalent fashion.

With the result they are not in a position to upgrade their products keeping in mind market requirements. They are producing less of inferior quality and that too at higher costs. Therefore, in competition with better equipped large scale units they are placed in a relatively disadvantageous position.

In order to safeguard the interests of small scale enterprises the Government of India has reserved certain items for exclusive production in the small scale sector. Various government agencies like Trade Fair Authority of India, State Trading Corporation and the National Small Industries Corporation are extending helping hand to small scale sector in selling its products both in the domestic and export markets.

(6) Infrastructure: Infrastructure aspects adversely affect the functioning of small scale units. There is inadequate availability of transportation, communication, power and other facilities in the backward areas. Entrepreneurs are faced with the problem of getting power connections and even when they are lucky enough to get these they are exposed to unscheduled long power cuts.

Inadequate and inappropriate transportation and communication network will make the working of various units all the more difficult. All these factors are going to adversely affect the quantity, quality and production schedule of the enterprises operating in these areas. Thus their operations will become uneconomical and unviable.

(7) Under Utilisation of Capacity: Most of the small-scale units are working below full potentials or there is gross underutilization of capacities. Large scale units are working for 24 hours a day i.e. in three shifts of 8 hours each and are thus making best possible use of their machinery and equipments.

On the other hand small scale units are making only 40 to 50 percent use of their installed capacities. Various reasons attributed to this gross under- utilisation of capacities are problems of finance, raw material, power and underdeveloped markets for their products.

(8) Project Planning: Another important problem faced by small scale entrepreneurs is poor project planning. These entrepreneurs do not attach much significance to viability studies i.e. both technical and economical and plunge into entrepreneurial activity out of mere enthusiasm and excitement.

They do not bother to study the demand aspect, marketing problems, and sources of raw materials and even availability of proper infrastructure before starting their enterprises. Project feasibility analysis covering all these aspects in addition to technical and financial viability of the projects, is not at all given due weight-age.

Inexperienced and incomplete documents which invariably results in delays in completing promotional formalities. Small entrepreneurs often submit unrealistic feasibility reports and incompetent entrepreneurs do not fully understand project details.

Moreover, due to limited financial resources they cannot afford to avail services of project consultants. This result is poor project planning and execution. There is both time interests of these small scale enterprises.

(9) Skilled Manpower: A small scale unit located in a remote backward area may not have problem with respect to unskilled workers, but skilled workers are not available there. The reason is Firstly, skilled workers may be reluctant to work in these areas and secondly, the enterprise may not afford to pay the wages and other facilities demanded by these workers.

Besides non-availability entrepreneurs are confronted with various other problems like absenteeism, high labour turnover indiscipline, strike etc. These labour related problems result in lower productivity, deterioration of quality, increase in wastages, and rise in other overhead costs and finally adverse impact on the profitability of these small scale units.

(10) Managerial: Managerial inadequacies pose another serious problem for small scale units. Modern business demands vision, knowledge, skill, aptitude and whole hearted devotion. Competence of the entrepreneur is vital for the success of any venture. An entrepreneur is a pivot around whom the entire enterprise revolves.

Many small scale units have turned sick due to lack of managerial competence on the part of entrepreneurs. The small scale entrepreneurs have to encounter numerous problems relating to overdependence on institutional agencies for funds and consultancy services, lack of credit-worthiness, education, training, lower profitability and host of marketing and other problems. The Government of India has initiated various schemes aimed at improving the overall functioning of these units.

Measures to Remove Difficulties faced by Small-Scale Industries in India

It will be noted that small scale industrial units experience serious handicaps by an inequitable allocation system for scarce raw materials, inadequate institutional finance, poor technical skill and managerial ability, and lack of marketing channels.

It is, therefore, essential to develop an overall approach to remove these difficulties and put the small-scale industrial sector on a sound path of development.

In this connection, the following measures may be suggested:

 (1) Equitable Allocation of Raw Materials, Imported Components and Equipment:

The small scale industrial units should be given adequate degree of priority in the allocation pattern of essential, but scarce, raw materials, imported components and equipment.

(2) Improvement in the Methods and Techniques of Production:

The small scale industrial units should be encouraged to replace their outmoded equipment with that incorporating an up-to-date technology, and facilities and incentives should be provided wherever required. The role of the Government in this respect is quite significant. Standardization of certain products should be ensured, the quality of products should be guaranteed, and malpractices like adulteration, misrepresentation, etc., need to be curbed drastically.

(3) Provision of Adequate Finance:

Promoter’s own capital in the small-scale industrial units is generally small and generation of internal resources small and slow. They depend, therefore, on the external sources of finance in a substantial measure.

This factor requires, therefore, a system of integrated credit whereby the long-term as well as short-term finance is made available in an adequate measure and at a rate of interest which these undertakings can bear.

(4) Marketing Assistance:

Marketing of their products at remunerative prices is the major problem of small-scale industrial units. There is, therefore, a clear case for government intervention with a view to reducing the disadvantages arising out of market imperfections. Market research, intelligence and information systems should be strengthened and the results made available to those units.

(5) Industrial Education and Training:

With full advantages of changing technique of production, dispensation of technical knowledge, both to the small-scale entrepreneurs as well as their workers, should form an essential element of the overall strategy. Provision of adequate facilities for industrial education and training, therefore cannot be over-emphasized.

(6) Demarcation of Spheres of Large-Scale and Small-Scale Industrial Units:

Once the role of small-scale industries in the national economy is recognized, it becomes imperative that a secured berth is provided to it. In this connection the guiding principle should be to clearly demarcate, as possible, the spheres of production for these units. It may be pointed out that all the measures suggested above should be viewed as a package and applied simultaneously.

Q26.What are the main features of New Economic Policy of India?

Ans. The main features of the new economic policy are stated below:

1. Liberalisation: The fundamental feature of the new economic policy is that it provides freedom to the entrepreneurs to establish any industry/trade/ business venture. The entrepreneurs are not required to get prior approval for any new venture. What they need is that they have to fulfill certain conditions to get into a line of one's choice.

A new company can now be floated with new issue of shares, debentures etc. In case the entrepreneurs require imported equipment, they are no longer required to approach the central authority for foreign exchange. The area of liberalization is (i) licensing business, (it) Foreign Investment (iii) Foreign Technology (iv) Estab­lishment, Merger, Amalgamation and taken over, and (v) Simple Exit policies.

2. Extension of Privatization: Another feature of the new economic policy is the extension in the scope of privatization. Now, the majority of economic activities will be conducted by the private sector. In the wave of privatization, out of 17 industries reserved for public sector, 11 industries have been given to the private sector.

Moreover, Govt. has also privatized the ownership of some public sector undertakings by the sale of capital of some selected enterprises to the private sector.

The field of privatization has further been extended by offering greater opportunities of investment to the foreign private investors. Economic Policy seeks to accord priority role to the private sector. Tendency to expand private sector is evident from the following facts:

(i) Number of industries reserved for public sector has been reduced from 17 to 6. Private sector can now set up its units in the field of iron and steel, energy, air transport, etc.

(ii) Till the end of 6th Plan, share of public sector in total investment continued to be greater than that of the private sector. It is intended to be reduced to 45% in the 8th Plan. Thus 8th Plan aims at raising the share of private sector investment to 55% of the total.

(iii) Shares of public enterprises are to be increasingly sold to the workers and general public, with a view to increasing the participation of private individuals.

(iv) A large part of industrial investment of the private sector to be financed by; National Industrial Finance Institutions. These institutions, while sanctioning loans for the new projects, used to exercise their right of 'Conversion' invariably. It implied the right of converting the loans into share capital by the Financial Institutions.

Thus, the private firms were always under the constant threat of conversion. According to the New Industrial Policy, the Financial Institutions will not insist on the conversion clause. With the expansion of privatization there is every possibility of increase in productivity and efficiency.

3. Globalization of Economy: The new economic policy has made the economy outwardly oriented. Now, its activities are to be governed both by domestic market as also the world market. It means unification of the domestic economy with the world economy. In fact, this has become possible by various policy initiatives taken by the Govt.

Moreover, elimination of licensing of a large number of import items has enabled the importers to import anywhere in the world. The reduction in custom duties on imports has also been done to bring them in line with the duties in other countries of the world.

In short, globalization means

(a) Reduction of trade barriers with a view to allowing free flow of goods to and from the country.

(b) Free flow of foreign capital in terms of investment i.e., direct and portfolio for ensuring conducive atmosphere.

(c) Free flow of technology, and

(d) Free movement of labour and manpower.

4. Market Friendly State: The role of the state is one that is confined to selected non-market areas and is largely to ensure a smooth functioning of the market economy. As compared to past, the ownership of some selected enterprises has been transferred to private sector. Its activities as owner of resources have been confined to two types of activities. One covers the activities which are badly needed for the operation of the economy and the other pertains to social services such as education, health, etc. However, more importantly, the state is to ensure a smooth functioning of the market. For this, the state has to ensure stability in the market through the use of macro economic policies. The state will also intervene in the market when it fails.

5. Modernization: New economic Policy accorded high priority to modern techniques. It aims at to augment the growth rate of sunrise industries. In order to import technical dynamics to Indian industry, the Govt. decided to clear all foreign collaborations. Private entrepreneurs will be free to settle the terms of such collaborations on their own behalf.

Moreover, Govt. has also been trying to stimulate private entrepreneurs to establish their own research and development centers by offering them various tax concessions. Efforts are also being made to revive and modernize the sick industrial units both within the public and private sectors.

6. New Public Sector Policy: Public sector attracted priority. In the words of Dr. Manmohan Singh, Finance Minister in Congress Govt. that this priority was given to the public enterprises in the hope that it will help to accumulate capital, industrialization, economic growth and removal of poverty.

But none of these objectives were achieved. Thus, new economic reforms are trying to shift the emphasis from public to the private sector.

Q27. What are the main long and short term objectives of India’s Five year Plan? Also explain the major achievements and failures of planning.

Ans. The following points highlight the five important long term objectives of India’s five year plans-

1. Economic Growth:

Of all the objectives, economic growth has received the strongest prior­ity in all the plans. This is because the Indian economy is caught in the vicious circle of poverty due to low per capita income and the consequent low rate of saving and capital formation.

This ob­jective seems to be totally justified, particularly in the context of economic stagnation during the two centuries of British rule.

Economic planning in India aims at bring­ing about a rapid economic development in all sectors. The key sectors are agriculture, industry, power and transport. Through rapid economic de­velopment the country aims at increasing national and per capita incomes. Thus poverty will be re­moved and the standard of living improved.

2. Economic Equity and Social Justice:

Two aspects of social justice involve the reduction of poverty and the reduction in the inequality in the distribution of income and wealth.

Growing concentration of economic power in the hands of a few people with rising national income is not desirable. In an otherwise capitalist framework, inequality in the distribution of in­come and wealth is inevitable. In India’s socio-political set-up, vast inequalities exist. Indian plans aim at reducing such inequalities so that the benefits of economic development spread to the poor. This point was not explicitly mentioned by the planners until the Fifth Plan (1973-78). The objective of removal of poverty got its clear-cut enunciation only in that Plan for the first time.

3. Full Employment:

The removal of un­employment is considered to be another impor­tant objective of India’s five year plans. But, un­fortunately, it never received the priority it de­served. In the Sixth plan (1978-83) the than Janata Government gave employment a place of pride for the first time.

However, the Seventh Plan (1985- 90) treated employment as a direct focal point of policy. As a result, the employment generation programme in India has received a rude shock and the number of people unemployed is mounting up plan after plan. The number of job-seekers in­creased from 34.24 lakhs as on December 1969 to 402 lakhs in December 1999.

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 importing a huge quantity of food-grains, fertiliser, raw materials and industrial machinery and equipment.

Obviously, India is always at a disadvantage so far as the terms of trade are concerned. This results in draining out precious foreign exchange reserves. Hence the necessity of economic self-reliance. But this ob­jective could not be realised before the launching of the Fourth Plan. The Fourth Plan (1967-73) aimed at the elimination of import of food-grains under P.L. 480 by 1971.

The basic aim of the Fifth Plan was the attainment of self-reliance. To achieve this goal the Fifth Plan aimed at an increasing pro­duction of food-grains, necessary consumption goods, raw materials and exports. While empha­sising the increase in exports, the Plan emphasised the need for establishing import-substitute indus­tries as an important factor of economic self-reliance.

No doubt India has made an important ad­vance in certain important directions. First due to the increase in output of food-grains, India has achieved near self-sufficiency in food. Secondly, with the establishment of basic as well as import- substitute industries, India dependence for machin­ery, plant and other capital equipment has dimin­ished considerably. Yet much remains to be achieved. India’s external debt obligations are on the rise. In other words, unlike other objectives, the goal of self-reliance still remains partly unful­filled.

5. Modernisation:

This new objective was categorically mentioned for the first time in the Sixth Plan. Modernisation means such a variety of structural and institutional changes in the eco­nomic activities that can change a feudal and co­lonial economy into a progressive and modern economy that produces various types of goods.

This requires the setting up of a wide variety of industries. It also refers to an advancement of tech­nology. No doubt certain technological advance­ments have taken place in agriculture, energy, etc. But there is a real danger of this objective in the present context. The country faces an alarming unemployment problem and, hence, poverty. But modernisation will definitely arrest the employ­ment generation activities. Hence, there is a con­flict between modernisation on the one hand and removal of unemployment and poverty on the other.

Short-term objectives:

Besides these long-term objectives, each five year plan in India has had some short-term objec­tives. For instance, the First Plan (1951-56) stressed agricultural development, control of inflation and rehabilitation of refugees. The Second Plan (1956- 61) aimed at rapid industrial growth—especially basic and heavy industries. The Third Plan (1961- 66) emphasised an expansion of basic industries but shifted to defence.

Summary: Five Year Plans in India

Plan	Notes
First Plan (1951 - 56)	It was based on Harrod-Domar Model.
	Community Development Program launched in 1952
	Focus on agriculture, price stability, power and transport
	It was a successful plan primarily because of good harvests in the last two years of the plan
Second Plan (1956 - 61) Target Growth: 4.5% Actual Growth: 4.27%	Also called Mahalanobis Plan named after the well known economist
	Focus - rapid industrialization
	Advocated huge imports through foreign loans.
	Shifted basic emphasis from agriculture to industry far too soon.
	During this plan, prices increased by 30%, against a decline of 13% during the First Plan
Third Plan (1961 - 66) |Target Growth: 5.6% Actual Growth: 2.84%	At its conception, it was felt that Indian economy has entered a take-off stage. Therefore, its aim was to make India a 'self-reliant' and 'self-generating' economy.
	Based on the experience of first two plans, agriculture was given top priority to support the exports and industry.
	Complete failure in reaching the targets due to unforeseen events - Chinese aggression (1962), Indo-Pak war (1965), severe drought 1965-66
Three Annual Plans (1966-69) Plan holiday for 3years.	Prevailing crisis in agriculture and serious food shortage necessitated the emphasis on agriculture during the Annual Plans
	During these plans a whole new agricultural strategy was implemented. It involving wide-spread distribution of high-yielding varieties of seeds, extensive use of fertilizers, exploitation of irrigation potential and soil conservation.
	During the Annual Plans, the economy absorbed the shocks generated during the Third Plan
	It paved the path for the planned growth ahead.
Fourth Plan (1969 - 74) Target Growth: 5.7% Actual Growth: 3.30%	Main emphasis was on growth rate of agriculture to enable other sectors to move forward
	First two years of the plan saw record production. The last three years did not measure up due to poor monsoon.
	Influx of Bangladeshi refugees before and after 1971 Indo-Pak war was an important issue
Fifth Plan (1974-79) Target Growth: 4.4% Actual Growth: 3.8	The fifth plan was prepared and launched by D.D. Dhar.
	It proposed to achieve two main objectives: 'removal of poverty' (Garibi Hatao) and 'attainment of self reliance'
	Promotion of high rate of growth, better distribution of income and significant growth in the domestic rate of savings were seen as key instruments
	The plan was terminated in 1978 (instead of 1979) when Janta Party Govt. rose to power.
Rolling Plan (1978 - 80)	There were 2 Sixth Plans. Janta Govt. put forward a plan for 1978-1983. However, the government lasted for only 2 years. Congress Govt. returned to power in 1980 and launched a different plan.
Sixth Plan (1980 - 85) Target Growth: 5.2% Actual Growth: 5.66%	Focus - Increase in national income, modernization of technology, ensuring continuous decrease in poverty and unemployment, population control through family planning, etc.
Seventh Plan (1985 - 90) Target Growth: 5.0% Actual Growth: 6.01%	Focus - rapid growth in food-grains production, increased employment opportunities and productivity within the framework of basic tenants of planning.
	The plan was very successful, the economy recorded 6% growth rate against the targeted 5%.
Eighth Plan (1992 - 97)	The eighth plan was postponed by two years because of political uncertainty at the Centre
	Worsening Balance of Payment position and inflation during 1990-91 were the key issues during the launch of the plan.
	The plan undertook drastic policy measures to combat the bad economic situation and to undertake an annual average growth of 5.6%
	Some of the main economic outcomes during eighth plan period were rapid economic growth, high growth of agriculture and allied sector, and manufacturing sector, growth in exports and imports, improvement in trade and current account deficit.
Ninth Plan (1997- 2002) Target Growth: 6.5% Actual Growth: 5.35%	It was developed in the context of four important dimensions: Quality of life, generation of productive employment, regional balance and self-reliance.
Tenth Plan (2002 - 2007)	Goals:
	To achieve 8% GDP growth rate
	Reduction of poverty ratio by 5 percentage points by 2007.
	Providing gainful high quality employment to the addition to the labour force over the tenth plan period.
	Universal access to primary education by 2007.
	Reduction in gender gaps in literacy and wage rates by atleast 50% by 2007.
	Reduction in decadal rate of population growth between 2001 and 2011 to 16.2%.
	Increase in literacy rate to 72% within the plan period and to 80% by 2012.
	Reduction of Infant Mortality Rate (IMR) to 45 per 1000 live births by 2007 and to 28 by 2012.
	Increase in forest and tree cover to 25% by 2007 and 33% by 2012.
	All villages to have sustained access to potable drinking water by 2012.
	Cleaning of all major polluted rivers by 2007 and other notified stretches by 2012.
Eleventh Plan (2007 - 2012)	Goals:
	Accelerate GDP growth from 8% to 10%. Increase agricultural GDP growth rate to 4% per year.
	Create 70 million new work opportunities and reduce educated unemployment to below 5%.
	Raise real wage rate of unskilled workers by 20 percent.
	Reduce dropout rates of children from elementary school from 52.2% in 2003-04 to 20% by 2011-12. Increase literacy rate for persons of age 7 years or above to 85%.
	Lower gender gap in literacy to 10 percentage point. Increase the percentage of each cohort going to higher education from the present 10% to 15%.
	Reduce infant mortality rate to 28 and maternal mortality ratio to 1 per 1000 live births
	Reduce Total Fertility Rate to 2.1
	Provide clean drinking water for all by 2009. Reduce malnutrition among children between 0-3 years to half its present level. Reduce anaemia among women and girls by 50%.
	Raise the sex ratio for age group 0-6 to 935 by 2011-12 and to 950 by 2016-17
	Ensure that at least 33 percent of the direct and indirect beneficiaries of all government schemes are women and girl children
	Ensure all-weather road connection to all habitation with population 1000 and above (500 in hilly and tribal areas) by 2009, and ensure coverage of all significant habitation by 2015
	Connect every village by telephone by November 2007 and provide broadband connectivity to all villages by 2012
	Increase forest and tree cover by 5 percentage points.
	Attain WHO standards of air quality in all major cities by 2011-12.
	Treat all urban waste water by 2011-12 to clean river waters.
	Increase energy efficiency by 20 percentage points by 2016-17.

Indian Economy under Five Year Plan Period: Achievements and Failure

Achievements of Planning:

1. A Higher Growth Rate:

Economic planning in India aims at bringing about a rapid economic development in all sectors.

That is to say, it aims at a higher growth rate. India’s macroeconomic performance has been only moderately good in terms of GDP growth rates.

The overall rate of growth stands at 4.8 per cent for the whole planning period (1950-2007) Compared with India’s own past (1900- 1920) when she was caught in a low level equilibrium trap, growth acceleration during the last 60 years has been impressive indeed.

2. Growth of Economic Infrastructure:

India’s performance in building up the necessary economic infrastructure is really praiseworthy. At the inception of economic planning, road kilometer was 4 lakh kms. India has now more than 3 million km of road network, making it one of the largest in the world.

Railway route length increased from 53,596 kms in 1951 to nearly 63,500 kms in 2005- 06. Today, the Indian railway system is the largest in Asia and the fourth largest in the world. Similarly, other modes of transport like shipping, civil aviation, etc., have also expanded phenomenally.

3. Development of Basic and Capital Goods Industries:

Another major area of success of Indian planning is the growth of basic and capital goods industries. With the adoption of the Mahalanobis Strategy of development during the Second Plan period, some basic and capital goods industries like iron and steel witnessed spectacular growth.

4. Higher Growth of Agriculture:

The most significant aspect of India’s Five Year Plans is that the overall rate of growth of food production has now exceeded the rate of growth of population. Though in the early years of planning, agricultural performance was miserable resulting in the emergence of food crisis.

But now, due to the impact of bio-chemical revolution in Indian agriculture, food crisis seems to be a thing of the past. She has attained self-sufficiency in food grains.

5. Savings and Investment:

The rise in the domestic savings rate from 10 p.c. of GDP at the initial stages of planning to around 19 p.c. in 1980-81 is definitely impressive. However, this rate increased to 34.8 p.c. by the end of March 2007. Similarly, India’s record in gross domestic capital formation rose from 20.3 p.c. in 1980-81 to 22.8 p.c. of GDP in 2001- 02. But it rose to 36 p.c. in 2006-07.

Major Failures of Planning:

Indian planning is yet to score good marks.

The major areas of failure of planning in India are:

1. Inadequate Growth Rate:

In quantitative terms, the growth rate of the Indian economy may be good but not satisfactory by any standards. Except the First and Sixth Five Year Plans, the actual growth rate remained below the targeted growth rates of GNP and per capita income.

Only in recent plans (both Ninth and Tenth plan), actual growth rate has exceeded the plan targets. In terms of per capita income, India is one of the poorest nations of the world even after more than 58 years of democratic planning.

2. Whither India’s Socialistic Society:

Indian planning aims at building up a ‘socialistic pattern of society’, in an otherwise capitalistic framework, through various socialistic measures. We have not yet made any significant progress towards the goal of attaining a socialistic pattern of society even after nearly 58 years of planning.

The concept of socialistic pattern of building a society has been altogether discarded when we introduced new economic policy measures in mid-1991. Instead, Indian economy very much moves on the capitalistic path.

3. Economic Inequality and Social Injustice:

The twin aspects of social justice involve 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 an otherwise capitalist framework, inequality in the distribution of income and wealth is inevitable. 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 group 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. It is now nearly 28 p.c. (2004-05).

4. Unemployment:

Removal of unemploy­ment is considered to be 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 or policy. As a result, the employment generation programme in India has received a rude shock and the problem of unemployment is mounting up plan after plan. The number of job-seekers increased from 363 lakh as on December 1991 to 406 lakhs as on June 2006. In the recent years, the trend is on the rise.

In view of this, it is jokingly said that “how many plans the country needs to make the whole country unemployed?” In view of these failures, Sukhamoy Chakraborty remarks that Indian plans may be good on paper, but are rarely good in implementation. So, the need of the hour is to formulate a correct economic policy as well as its implementation.

Q28. What do you know about NITI Aayog .Throw some light on how it functions?

Ans. NITI Aayog: Objectives and Composition 

The Government has replaced Planning Commission with a new institution named NITI Aayog (National Institution for Transforming India). Specific to the planning process, there is a need to separate as well as energize the distinct ‘process’ of governance from the ‘strategy’ of governance.

In the context of governance structures, the changed requirements of our country, point to the need for setting up an institution that serves as a Think Tank of the government – a directional and policy dynamo.  The proposed institution has to provide governments at the central and state levels with relevant strategic and technical advice across the spectrum of key elements of policy.  This includes matters of national and international import on the economic front, dissemination of best practices from within the country as well as from other nations, the infusion of new policy ideas and specific issue-based support.  The institution has to be able to respond to the changing and more integrated world that India is part of. 

An important evolutionary change from the past will be replacing a centre-to-state one-way flow of policy by a genuine and continuing partnership with the states.   The institution must have the necessary resources, knowledge, skills and, ability to act with speed to provide the strategic policy vision for the government as well as deal with contingent issues. 

The institution to give life to the aspirations is the NITI Aayog (National Institution for Transforming India).  This is being proposed after extensive consultation across the spectrum of stakeholders including inter alia state governments, domain experts and relevant institutions. 

The NITI Aayog will work towards the following objectives:

1. To evolve a shared vision of national development priorities, sectors and strategies with the active involvement of States in the light of national objectives.    The vision of the NITI Aayog will then provide a framework ‘national agenda’ for the Prime Minister and the Chief Ministers to provide impetus to.

2. To foster cooperative federalism through structured support initiatives and mechanisms with the States on a continuous basis, recognizing that strong States make a strong nation. 

3. To develop mechanisms to formulate credible plans at the village level and aggregate these progressively at higher levels of government.

4. To ensure, on areas that are specifically referred to it, that the interests of national security are incorporated in economic strategy and policy.

5. To pay special attention to the sections of our society that may be at risk of not benefitting adequately from economic progress. 

6. To design strategic and long term policy and programme frameworks and initiatives, and monitor their progress and their efficacy.  The lessons learnt through monitoring and feedback will be used for making innovative improvements, including necessary mid-course corrections.

7. To provide advice and encourage partnerships between key stakeholders and national and international like-minded Think Tanks, as well as educational and policy research institutions.

8. To create a knowledge, innovation and entrepreneurial support system through a collaborative community of national and international experts, practitioners and other partners.

9. To offer a platform for resolution of inter-sectoral and inter-departmental issues in order to accelerate the implementation of the development agenda.

10. To maintain a state-of-the-art Resource Centre, be a repository of research on good governance and best practices in sustainable and equitable development as well as help their dissemination to stake-holders.

11. To actively monitor and evaluate the implementation of programmes and initiatives, including the identification of the needed resources so as to strengthen the probability of success and scope of delivery.

12. To focus on technology upgradation and capacity building for implementation of programmes and initiatives.

13. To undertake other activities as may be necessary in order to further the execution of the national development agenda, and the objectives mentioned above.

The NITI Aayog will comprise the following (Composition)

1. Prime Minister of India as the Chairperson

2. Governing Council comprising the Chief Ministers of all the States and Lt. Governors of Union Territories

3. Regional Councils will be formed to address specific issues and contingencies impacting more than one state or a region.  These will be formed for a specified tenure.  The Regional Councils will be convened by the Prime Minister and will comprise of the Chief Ministers of States and Lt. Governors of Union Territories in the region.  These will be chaired by the  Chairperson of the NITI Aayog or his nominee.

4. Experts, specialists and practitioners with relevant domain knowledge as special invitees nominated by the Prime Minister

5. The full-time organizational framework will comprise of, in addition to the Prime Minister as the Chairperson:

·        Vice-Chairperson: To be appointed by the Prime Minister

·        Members: Full-time 

·        Part-time members: Maximum of 2 from leading universities research organizations and other relevant institutions in an ex-officio capacity.  Part time members will be on a rotational basis.

·        Ex Officio members: Maximum of 4 members of the Union Council of Ministers to be nominated by the Prime Minister. 

·        Chief Executive Officer: To be appointed by the Prime Minister for a fixed tenure, in the rank of Secretary to the Government of India.

·        Secretariat as deemed necessary.

Q29. Explain important sources of industrial finance in India?

Ans. Finance plays a vital role in all the economic activities. Industrial finance is a primary need of industrial activities. No industrial development is possible in the absence of availability of adequate finance. By industrial finance we mean the organization of various types of finance needed by industries for their activities connected with the production of goods and services. Production activities include construction of buildings, purchase of machines, their repair, purchase of raw materials, engagement of laborers etc. For the performance of these activities, three types of finances are needed such as long-term, medium-term and short-term.

Source of Industrial Finance

The sources of finance for large- scale industries are as follows:

1. Shares and Debentures: A large part of fixed investments comes from different types of shares such as ordinary, cumulative and non-cumulative preference shares. From time to time industrial companies get long-term finance through the issue of debentures. The buyers of these debentures are the creditors of companies. They get a fixed rate of interest on the money invested in debentures. For this reason debentures are safer investments.

2. Public Deposits: In some parts of the country (e.g. Bombay, Ahmedabad) a system of public deposits prevails. Under this system, people keep their money as deposit with these companies for a period of six months or a year. Depositors receive a fixed interest. They can demand the refund of money at any time. This money is used by the companies to meet their needs of working capital. But this source of finance is unreliable because depositors can seek refund at any time. With the growth of banking habits and increase in dealings with financial institutions, the importance of public deposits as a source of finance is slowly declining.

3. Loans from Banks: Commercial banks can and do provide funds for working capital. Loans are given against the guarantee of government securities with companies. Loans are advanced in the form of overdraft and cash.

4. Managing Agency System: Under this system an individual finance the initial stage of the establishment of industries and manage many activities of the company thus established. Very often, one managing agent controls more than one concern and uses funds of one concern to meet the needs of others under him.

In the past when there was great shortage of industrial finance, managing agents did render a valuable service for the promotion of industries within the country. In course of time, however, the system developed certain drawbacks, and in 1970 the Government abolished the system.

5. Indigenous Bankers: In spite of establishment of new financial institutions indigenous bankers have advanced financial help to a few large-scale industries both for fixed capital and working capital. But they mainly provide finance to small-scale industries. These bankers charge a very heavy rate of interest. To-day, the importance of this source is on the decline.

6. New Institutions for Industrial Finance: These institutions may be grouped under the broad heading of development banks. Established with the help of the Government to fill in the gaps in industrial finance and to promote the objectives of planning, these institutions cater to the needs of large and small industries. The new institutions supplying industrial finance are IFCI, SFC, IDBI, ICICI, NIDC, UTI and LIC etc.

Sources of Finance for Small Industries

Small industries need three types of finance—long-term finance for machinery, medium-term finance for repair and replacement of equipment and short-term finance for purchase of raw materials etc.

Moneylenders still an important source of finance for small-scale industries. In urban areas, small industries draw finance from indigenous bankers and corporate investment banks. Recently started by the Government, Industrial Corporation also provides finance to these industries. In addition, the state government also lends money under various State Assistance Acts.

Commercial banks too have become an important source of finance.

Realizing the limitations such as the urban orientation of commercial banks, the government established regional rural banks to meet the credit needs of rural cultivators, artisans and small traders, State Financial Corporations have been established to solve the financial difficulties of small-scale industries.

Specific financial institutions in India providing industrial finance

1.      Industrial Development Bank of India (IDBI): IDBI provides credit and other facilities for industrial development in the country. IDBI provides long term finance for Greenfield project, as also for modernization, expansion and diversification. It has structured various products such as equipment finance, asset credit and corporate loans in order to cater to the diverse needs of the corporate clients. IDBI is the apex institution in the area of long term industrial finance. It was established under the IDBI Act 1964 as a wholly owned subsidiary of RBI and started functioning on July 01, 1964. Under Public Financial Institutions Laws (Amendment) Act 1976, it was delinked from RBI. IDBI is engaged in direct financing of the industrial activities as well as in re-finance and re-discounting of bills against finance made available by commercial banks under their various schemes.

The objectives of this institution are to create a principal institution for long term finance, to coordinate the institutions working in this field for planned development of industrial sector, to provide technical and administrative support to the industries and to conduct research and development activities for the benefit of industrial sector.

It raises funds by way of market borrowing by way of bonds and deposits, borrowing from Govt. and RBI, borrowing abroad in foreign currency and lines of credit. Its functions include:

·        direct loans (rupee as well as foreign currency) to industrial undertakings as defined in the Act to finance their new projects, expansion, modernisation etc.

·        soft loans for various purposes including modernisation and under equipment finance scheme-underwriting and direct subscription to shares/debentures of the industrial companies.

·        sanction of foreign currency loans for import of equipment or capital goods.

·        short term working capital loans to the corporate for meeting their working capital requirements.

·        refinance to banks and other institutions against loans granted by them.

Of late, with the reforms in the financial sector, IDBI has taken steps to re-shape its role from a development finance institution to a commercial institution. It has floated its own bank IDBI Bank as also a Mutual Fund.

2.      Industrial Finance Corporation of India Ltd. (IFCI): IFCI’s operations principally comprise project finance, financial services and corporate advisory services. Through its subsidies /associate companies, IFCI provides custodial and investor services, rating and venture capital services. IFCI was established under IFCI Act 1948 during July 1948 as India’s first development bank. The main objective for which IFCI was established, are to make medium and long term credit available to the industrial undertakings and to assist them in creation of industrial facilities.

3.      Industrial Credit and Investment Corporation of India Limited (ICICI): It played a facilitating role in consolidation in various sectors of the Indian industry, by financing mergers and acquisition. The ICICI groups financing and banking operations, both wholesale and retail, have been integrated into a single company effective from May 2002.

4.      Industrial Investment Bank of India Limited (IIBI): It offers a variety of financial products such as project finance, short duration non-project asset backed financing and working capital, other short term loans to companies.

5.      Infrastructures Development Finance Company Limited (IDFC): It was incorporated in 1997, conceived as specialized institutions to facilitate the flow of private finance to commercially viable infrastructure projects through innovative products and processes. Energy, telecommunications, information technology, integrated transportation, urban infrastructure and food and agri-business infrastructure and constitute the current areas of operation measures for IDFC.

6.      Small Industries Development Bank of India (SIDBI): It offers refinance, bill re-discounting, lines of credit and resource support mechanism to route assistance to SSI sector through a work of banks and state level financial institutions. SIDBI also offers direct finance for meeting specific requirements of SSI sectors. SIDBI undertakes a wide range of promotional and developmental measures for rural poor.

7.      Industrial Reconstruction Bank of India (IRBI): It has main aim to revive sick industries and make them able to exist and compete in market by assistance.

8.      State financial corporation’s (SFCs): It provides loans to need industries. They also promote shares and debentures, if required they would provide guarantee for loans of third parties. Apart from these through foreign investments, IPOs, these industries also get financial assistance.

Apart from these industries also gather finances through IPOs, foreign investment.