Economics_RS Class 01

Introduction of the class(05:05 PM)

• Investment Models
• PL
• Economic reforms
• WTO
• Agriculture(food security)- PDS
• Food processing
• Land reforms
• e-Technology in agriculture
• Sources to be covered:
• Vision IAS printed material
• Class notes
• NITI Aayog report
• NCERT
• Economic survey
• Budget
• For prelims:
• Shankar Ganeshan book
• Textbook:
• selective reading of Mishra and Puri
Investment Models(05:24 PM)
• structure of the Topic:
• What is the investment?
• Savings and investment
• Investment led growth
• Investment-led growth model
• Harrod Domar Model
• Lewis Model
• Types of investment Model
• Factors
What is the investment? (05:30 PM)
• Investment is something that will lead to the capital formation or accumulation of capital goods.
• It is that part of the final output that comprises physical capital goods. (Gross investment)
• Investment in a country is not measured as money put into the business or any economic activity but it is basically that proportion of
final output which consist of capital goods.
• If the total output or production is 1000 rupees(800 rupees for consumption goods, 200 rupees for capital goods)
• Gross investment in the economy=200/1000.
• Now when the factory runs for a year then wear and tear happens in the factory which is also called depreciation.
• Depreciation is also defined as the consumption of physical capital.
• In the above example suppose there is wear and tear of rupees 100, this implies that to produce rupees 800 of consumption goods
and rupees 200 of capital goods, there is a loss of rupees 100 of capital goods in the economy that is a net production of capital
goods(investment in the economy is 200-100=100).
 • The term investment is different for economics and the rest of the world.
• Purchase of assets like stock, mutual funds, and insurance products are not investments for economists as they do not add to the net
wealth of the nation.
•

Net investment=gross investment-depreciation

• Rather they reflect a credit relationship between two parties.

• The financial asset of one party in the economy could be offset by the financial liability of another party.
• Thus, when we aggregate the wealth of all members of the economy, these assets and liabilities cancel and there is no creation of new
assets.
• On the expenditure side, the computation of national income, GDP is represented by
• GDP=C+I+G+(X-M)
• Investment is everything that remains after consumption, government spending, and net exports.
What is investment-led growth? (07:29 PM):
• Investment led growth relies on investment to create new capacity(capacity creation).
• This creates more employment and hence higher demand while simultaneously increasing production capacity.
• In investment-led growth, supply rises in tandem with higher demand.
• This leads to increased growth.
• Chinese experience of investment-led growth:
• Chinese introduction of capitalist market principles led to mass privatisation and opening up of their markets to foreign investment.
• Due to the availability of cheap labour, overseas firms started building factories in China to take advantage of cheap labour.
• Chinese development strategy increased their focus on larger cities like Shanghai and Beijing.
 • Investment-led growth model increased production but did not increase the consumption base proportionately which is a lack of
inclusiveness.
• China was successful in increasing GDP growth but failed to increase household income growth.
• The consumption to GDP ratio of China is lower than in India and the household savings rate is also not as high as in India.
• India's growth model was different from the investment export-oriented strategy of China:
• a. China has derived the predominant part of its growth from external sources both in terms of foreign investment and export
markets.
• India's growth is from internal sources.
• India's net export to GDP ratio has been significantly lower than that of China.
• b. India has a large trade deficit yet it has managed to grow at reasonably high rates.
• c. Domestic savings to investment gap in India has been kept at low levels and India has managed to finance a predominant part of its
capital formation from domestic savings.
• Factors that will determine the type of growth Model to be followed:
• Demographics of the country
• Strength of the manufacturing sector
• Openness of economy
• Trade balance and economic strength of the country
• Consumer behaviour
The topics to be discussed in the next class- Openness of economy, Trade balance and economic strength of the country, Consumer
behaviour
Economics_RS Class 02
Revision of the Previous class(05:02 PM)
Continuation of the Previous topic(05:05 PM)
• Factors that will determine the type of growth Model to be followed:
• Demographics of the country
• Strength of the manufacturing sector
• Openness of economy
• Trade balance and economic strength of the country
• Consumer behavior
Reasons for China's shift to consumption-led growth(05:33 PM)
• 1. Protectionist policies and move towards deglobalization.
• 2. Ageing population and change in demands.
• 3. Sub-Prime crisis and impact on the external trade of the country.
• 4. Lack of new markets for Chinese goods.
• 5. Changes in consumer attitude and technology.
• Reasons for India's shift to investment-led growth:
• 1. Huge Demographic Dividend
• 2. Aim of emerging as an industrialized country to handle industrialization 4.0.
• 3. To attract more foreign investment in the form of FDI(Foreign Direct Investment), and FII(Foreign Institutional Investment).
• Foreign Direct Investment:
• Foreign investment which is mainly focussing on setting up subsidiary firms, investing in greenfield projects, acquiring existing
companies, etc.
• FDI brings in technology and also leads to the creation of jobs.
 • Foreign Institutional Investment:
• It is the investment that generally moves into the Indian stock market.
• FIIs are volatile and they are regulated by an institution called SEBI.
• Note: FII investments above 10% in a particular company are treated as FDI.
• 4. Need for fiscal and social infrastructure development.
Feasibility of investment-led growth Model(06:12 PM)
• 1. Higher rates of inflation will reduce the propensity to save thereby affecting investment.
• 2. Challenges of twin Balance Sheet syndrome.
• Corporate's balance sheet affects Bank's balance sheet and vice-versa.
• 3. Infrastructure is a prerequisite for an investment-led growth model.
• Currently, the government has to focus simultaneously on infrastructure development along with ensuring welfare.
• 4. High Capital output ratios make investments inefficient.
• Thereby affecting the economic growth of the nation.
• 5. Savings-investment gap will increase during the pandemic making it even more difficult for the private player to channel
investment.
• 6. Increase in protectionism, and currency wars will demotivate India's exports.
• 7. Increase in the debt burden of the government will crowd out private investment.
• Depreciation of currency =Fall in value of a currency due to market fundamentals
• Rupee depreciation is with respect to a strong currency called Dollar.
• Depreciation of currency will make exports cheaper and imports costly.
• Note: Currency War:
 • Competitive devaluation of the currency to make exports cheaper.
Harrod- Domar Model(07:13 PM)
• It is the model of economic growth in development economics developed by Harrod in 1939 and Domar in 1946.
• The model focused on understanding economic instability by analyzing the dynamic nature of capital and investment.
• Major economic determinants like:
• Natural resources,
• Population,
• Technological Growth, etc
• constantly influence two important factors:
• 1. Rate of investment
• 2. Capital output ratio
• Economic growth=savingsX(1/COR)
• Capital Output ratio:
• It is the ratio of Capital to output.
• It measures how much capital is required per unit of output.
• So, If more capital is required per unit of output then the capital is less efficient.
• Hence COR measures the average efficiency of capital.
• COR=Capital/output.
• Higher COR is bad for the economy.
• If COR is (4/1), it means rupees one unit of output is produced from rupees four units of capital.
• Note: COR is lower for developed countries in comparison to developing nations.
 • Relevance of Harrod-Domar:
• 1. The model was devised for the developed countries to protect themselves from chronic unemployment.
• 2. The model focussed on accurate COR and high propensity to save which is generally absent in developing economies.
• More the investment in capita, more employment will be generated and thereby higher economic growth.
• 3. The Model believed in the virtuous cycle of increased savings transforming into increased investments which results in higher
capital stock causing higher economic growth.
• Limitations of the Model:
• It is difficult to increase the savings ratio in low-income countries.
• 2. A sound financial system is lacking in many emerging countries is increased family savings will not be channelized through the
banking systems.
• 3. Due to human capital deficiencies, assuming a constant capital-output ratio is difficult.
• 4. R&D required to enhance COR is frequently underfunded.
• 5. Borrowing from abroad to make up for a shortfall in funds leads to an increase in external debt.
• 6. A rise in capital spending is not always a pre-condition for economic growth and development.
The topic for the next class-Lewis model and planning
Economics_RS Class 03
Revision of the Previous class(05:02 PM)
• Q. Savings is one of the important factors for economic growth. What are the other things other than savings which can boost the
economic growth of a country?
• Q. Government's target of a 5 trillion dollar economy is possible through an investment-led growth model. Critically analyze the
feasibility of the investment-led growth model.
 • Q. Account for the failure of the manufacturing sector in achieving labour-intensive exports. Suggest measures for labour-intensive
rather than capital-intensive exports.
Lewis Model(05:11 PM)
• In 1954, sir Arthur Lewis published a paper entitled "economic development with unlimited supplies of labour".
• This model mainly postulates two sectors:
• a. Subsistence
• b. Modern
• This can also be termed agriculture and industry.
• Although Lewis meant a broader class of subsistence which included agricultural labour, urban poor, domestic servants, etc.
• Generally, the rural subsistence sector is characterised by zero marginal labour productivity which is surplus labour that can be
withdrawn from the agricultural sector without any loss of output hence this surplus when shifted to the industrial sector will
improve productivity.
• There is continuous labour migration from the traditional to the modern sector.
• Wages remain constant and low for longer periods of time and economic growth occurs as a rising share of profits gets re-invested.
• In the Lewis model eventually, the reservoir of cheap labour gets exhausted.
• Capital accumulation slows down and wages get determined by marginal productivity.
Relevance of Lewis Model for India(05:48 PM)
• Nehru's approach was based on Lewis Model.
• The basic idea was that India had agricultural labour with very low levels of productivity and this surplus labour when shifted to the
industrial sector.
• It increases marginal productivity.
 • If the industrial sector is promoted, it will generate profit and this profit when re-invested back into machines and tools, the capital
per worker will increase and this, in turn, will boost profits leading to capital formation at a faster rate.
• Thus, the basic understanding has been that industry is going to be the prime moving force which will put the Indian economy on a
growth trajectory.
Criticisms(05:52 PM)
• 1. Capitalists' profits may not be reinvested
• 2. Capitalists may focus on capital-intensive technology which may replace labour
• 3. Constant wage rate in manufacturing is questionable.
Mahalanobis Model(06:04 PM)
• During the second five-year Plan(1956-61), Mahalanobis focussed on industrialisation with a primary focus on heavy industries:
• 1. Capital goods
• 2. Basic industries
• PC Mahalanobis is an investment allocation model.
• Mahalanobis two sector theory focuses on consumer goods and capital goods.
• ICOR(Incremental Capital Output Ratio) is better for consumer goods.
• ICOR:
• It is defined as how much additional capital will be required to produce one additional unit of output.
• ICOR=Change in capital to GDP/change in output to GDP
• ICOR represents how efficiently the new additional capital is being used in a country to produce output.
• If ICOR of India=6 that means India requires rupees 6 value of extra capital goods to produce rupees 1 of additional output.
• Exponential growth is possible in capital goods.
 • Mahalanobis four sector model focuses on:
• 1. Agriculture and small-scale industries
• 2. Consumer goods
• 3. Capital goods
• 4. Services
• Why is the industry as Prime moving force?
• 1. More job creation
• 2. Faster growth
• 3. Services cannot be developed without industry
Economic Planning(06:30 PM)
• It refers to the allocation of resources in a comprehensive way to achieve the pre-determined objectives with optimal utilisation of
resources.
• In India, economic planning was adopted in 1951, in an economic system characterised by the co-existence of the public and private
sectors.
• For four decades, the Public sector was considered the engine of growth.
• However, with the beginning of the liberalisation process, the government started withdrawing from direct involvement in productive
activities and hence the private sector has now become the dominant sector and the public sector is nearly an adjunct to the former.
• Failure of market mechanism:
• 1. When India got independence in 1947, it was economically backward.
• Keen to develop rapidly in a short period, it was realised that relying entirely on market mechanisms will not bring inclusiveness.
• Therefore, India decided to rely on market mechanisms along with proper economic planning.
• 2. To ensure social justice:
 • /In a free enterprise economy, the benefits of economic growth rarely trickle down, hence in an underdeveloped country like India,
state intervention is required for poverty alleviation along with ensuring social justice.
• Reasons for failure of trickle-down:
• 1. Excessive focus on PSU-led growth model
• 2. Our growth process was capital intensive rather than labour intensive.
• 3. Excessive dependence on economic growth without having a direct focus on poverty alleviation till the fifth five-year plan.
• 4. Inefficiencies with respect to the implementation of government schemes.
• 5. Failure of centralised planning model in terms of achieving inclusiveness.
• 6. Stagnation of manufacturing sector leading to problems like disguised and seasonal unemployment.
• 7. Lack of financial inclusion and financial inclusion is a prerequisite for ensuring inclusive growth.
• 8. Ineffective mobilisation of resources.
• 3. Need to strike a changed equation with developed countries:
• India wanted to focus on self-reliance and it was decided that planned intervention by the state-regulated both trade and movement
of capital and thereby provided a developing country with an equation with the industrialised world which is less exploitative.
• 4. Mobilisation and allocation of resources:
• As India lacks resources, it has to be careful about the optimum utilisation of resources.
• Resources should be pushed into socially low-priority areas to make the growth egalitarian.
The topics to be discussed in the next class-Long Term goals of planning and types of planning
Economics_RS Class 04
Revision of the Previous class(05:04 PM)
Long-term Goals(05:32 PM)
• Challenges related to long-term goals of planning:
• Self Reliance:
• Why Self reliance:
• India was dependent on other countries with respect to food security(PL480), and foreign aid, importing capital goods and technology.
• Therefore, self-reliance was one of the most important objectives of India's five-year Plan.
• Currently, self-reliance is a partial success as India still depends on other countries with respect to oil, manufacturing technology, etc.
• India was successful in achieving self-reliance, especially with respect to food security,
• Less dependence on foreign aid and development of indigenous technology
• Elimination of poverty:
• 1. Failure of trickle-down theory
• 2. Economic growth was not inclusive
• 3. Poverty is a multi-dimensional concept handling issues like social exclusion, gender equality, political rights, access to education
and health care, and also ensuring social security.
• 4. No specific strategy till the fifth five-year Plan(Garibi hatao).
• Challenges in the removal of unemployment:
• 1. stagnation of the manufacturing sector
• 2. Stringent labour laws
• 3. Excessive concessions to MSMEs turning them into dwarfs(10 years of existence but less than 100 permanent jobs)
• 4. The government did not have a specific strategy in the five-year plans to handle unemployment.
• 5. Capital-intensive rather than labor-intensive growth.
• 6. Inefficient tax policies.
 • Cascading effect that is the tax on tax increases the cost of the product.
• Reduction in income inequalities:
• 1. Improper implementation of the government schemes
• 2. Excessive marketisation of basic services like primary health care and education
• 3. India was not ready enough to implement LPG in its true format.
• 4. Over emphasis on the industry over agriculture.
• 5. Failure of trickle down
Types of economic Planning(06:31 PM)
• Imperative Planning:
• It is also called authoritative Planning by direction or command.
• There is one central authority that decides all aspects of planning.
• Generally practiced in socialist economies.
• Indicative Planning:
• 1. It is also called inducement planning(flexible in nature).
• 2. Government acts as a facilitator to encourage the private sector's role in the economy(8th Five Year Plan) 1992-1997.
• 3. However, the government regulates the private sector to achieve specific targets.
• 4. Practised in the mixed economy which is more inclined towards the private sector.
Rolling Plan(08:01 PM)
• Under the Rolling plan every year, three new plans are prepared and acted upon:
• Plan for the current year which includes the annual budget
• A plan for a fixed number of years(3 to 5 years) is revised every year as per the requirement.
 • A Perspective plan for 10 to 15 to 20 years.
• It was introduced by Janata Government in 1978.
The topics to be discussed in the next class-Continuation of the topic planning in India
Economics_RS Class 05
Revision of the Previous class(05:02 PM)
Seventh Five year Plan(05:12 PM)
• The focus was laid on:
• Rapid growth in food grain production,
• Increased employment opportunities and
• Productivity within the framework of planning
• Long term fiscal policy started
• A 3 years the export-import policy was announced for the first time.
• The plan was also termed the Infrastructure Plan.
• The import Substitution strategy was given due importance and the economy began its journey towards gradual liberalisation.
• During this plan-
• Jawahar Rozgar Yojana was launched in 1989
• Operation Blackboard was launched in 1987
• Eight Five Year Plan:
• Policy of Liberalisation, Privatisation, and Globalisation (LPG) was undertaken.
• Structural reforms were adopted and the country’s economic growth model was reoriented.
• Plan based on the Rao-Manmohan Singh model of liberalistation.
 • Recasting of the planning model from imperative and directive (hard) to indicative (soft) planning.
• Some of the major outcomes of the plan were:
• Rapid overall economic growth
• High rate of growth in agriculture, manufacturing, and allied sectors
• Growth in imports and exports
• Improvement in trade and current account deficit
• However, social spending was neglected in this plan.
• During this plan-
• The employment Assurance Scheme was launched in 1993.
• Swarna Jayanti Shahari Rozgar YOjana was launched in 1997.
• Rashtriya Mahila Kosh (RMK) was established in 1993
• Midday Meal Scheme was launched in 1995.
Balance of Payment(06:00 PM)
• BoP of a country can be defined as a systematic statement of all economic transactions of the country with the rest of the world
during a specific period usually one year.
• Components of BoP:
• Economic transactions with the rest of the world are grouped under two different accounts:
• 1. Current account
• 2. Capital account
• Current account:
 • It shows the export and import of visible(also called merchandise or goods trade balance) and Invisibles(also called non-
merchandise).
• Invisibles include services, transfers, and income.
• If the current Account deficit increases, it may also lead to an increase in inflation, and also government may land up borrowing more
money(increase in fiscal deficit).
Perspective plan(06:19 PM)
• Planning for a long-term period(15-20 years) but not one plan for the whole period.
• It is implemented through five-year plans and annual plans.
• NITI Aayog has adopted this type of planning.
• Core plan:
• The planning authority requests the states to submit their projected revenue estimates.
• This helps to prevent states from diversion of funds from the priority sector.
Capital Account(06:44 PM)
• It gives a summary of the net flow of both public and private investment into an economy.
• Capital Account has two components:
• Investments and
• Borrowings
• Investments:
• FDI,
• FPI(FII also),
• NRI deposits,
 • ECB (long-term loans taken by corporates)
• External assistance(soft loans)
Ninth Five-year Plan(07:05 PM)
• It was developed in the context of four important dimensions:
• Quality of life
• Generation of productive employment
• Regional balance and
• Self-reliancePriority was also given to agriculture and rural development
• Swarnajayanti Gram Swarojgar Yojana (SGSY) launched in 1999 and Pradhan Mantri Gram Sadak Yojana (PMGSY) started in 2000
• Privatisation of public sector units was started in this plan while dis-investment began in the previous plan.
• During this plan-
• Antyodaya Anna Yojana was launched in 2000.
• Sarva Shiksha Abhiyan (SSA) was launched in 2001.
• Tenth FYP:
• The main objectives were:
• Reduction of:
• Poverty ratio by 5% points by the end of the plan period
• Gender gaps in literacy and wages by at least 50%
• Decadal rate of population growth between 2001 and 2011 to 16.2%
• Infant mortality rate to 45per 1000 births by 2007 and 28 per 1000 births by 2012
• Overall capital outflow
• Increase in:
• 8% GDP growth per year
• Literacy rates to 72% by 2007 and 80% by 2012
• Forest and tree cover to 25% by 2007 and 33% in 2012
• Domestic savings, foreign investment, and foreign exchange
• Universal access to primary education
• Eleventh FYP:
• Plan launched amidst emerging Global Financial Crisis (2008)
• The major highlights of the plan were:
• To increase
• Overall GDP growth from 8% to 10%
• Agriculture sector growth to 4%
• The real wage rate of unskilled workers by 20%
• Literacy rate for persons of age 7 years or above to 85%
• The sex ratio for age group 0-6 to 935 by 2011-12 and to 950 by 2016-17
• Forest coverage by 5% points
• Energy efficiency by 20% points within 2016-17
• To reduce
• Dropout rates of children from elementary school from 52.2% in 2003-04 to 20% by 2011-12
• The total fertility rate of 2.1%
• Infant mortality rate to 28
 • Malnutrition among children aged 0 to 3 years to half of its present level
• Anaemia among girls and women by 50
Second Generation Reforms(07:43 PM)
• As discussed in the handout
The topics to be discussed in the next class- NITI Aayog
Economics_RS Class 06
Revision of the Previous class(05:02 PM)
Achievements and criticism of the five-year plan(05:22 PM)
• Achievements:
• 1. Increase in economic growth, savings, and investment per capita income.
• 2. Progress in industry and industrial growth
• 3. Self-sufficiency in the basic and capital goods industry
• 4. Development in the field of science and technology
• 5. Diversification of industrial structure.
• 6. Development of economic infrastructure particularly in the field of transport, irrigation, and telecommunication.
• 7. Improvement in social indicators like IMR, literacy rate, etc.
• Criticism:
• Failure to eliminate poverty
• Failure to check the growth of black money
• Planning did not focus on handling unemployment specifically till the seventh five-year plan(lop-sided employment strategy)
• The concentration of economic power
 • Regional imbalances
• Centralised nature of planning that is plans were program-driven rather than demand-driven.
• Politicisation of planning process.
• Excessive emphasis on PSUs.
• Agriculture over shadowed by industry.
NITI Aayog(05:31 PM)
• The Planning Commission(PC) was replaced by NITI Aayog by the union government after the key announcement PM Narendra Modi
made on independence day which came into action on 1st Jan 2015.
• The PC was established on 15th march, 1950 which was set up with an intention of being an advisory institution with the main motive
of Five-year plans.
• NITI Aayog was set up on 1st Jan 2015 to provide directions in which the development process can take place.
• It was also deemed to be an advisory institution that can advise both central and state governments on important policy matters.
• The Chairperson of the committee is the Prime Minister, Governing Council consists of CMs of states and lieutenant Governors of UTs.
• Regional Councils are set up to address specific issues, it comprises of CMs of states and lieutenant Governors of UTs of the concerned
region.
• The whole staff of NITI Aayog is divided into two hubs:
• 1. knowledge and innovation hub:
• It has 12 to 14 verticals that deal with different sectors and builds NITI's think tank capabilities.
• Team India hub:
• It works as an interface between the central government and state government.
•
NITI Aayog Planning Commission

• NITI Aayog cannot

allocate funds. IT enjoyed the power to allocate
• These powers still funds to ministries and state
remains with the governments
finance ministry

• It has no power to
impose policy. • It used to impose
• It is essentially an policy on states
advisory body

State Governments play a

Decisions were more centralised
proactive role when it comes to
under Planning Commission.
NITI Aayog

It has provision for part-time No provision for part-time

members members

The bottom-up approach is

Top Down Approach is followed
followed

It has Governing Council with It reports to the NDC comprising

Chief ministers of states and of CMs and lieutenant Governors
 lieutenant Governors of UTs as
members

• Q. Critically evaluate the success of five-year plans in addressing planned economic development in India.
Structural reforms(05:58 PM)
• Foreign Exchange reform:
• The first important reform in the external sector was made in the foreign exchange market to resolve the BoP crisis.
• It included the devaluation of the rupee which also led to an inflow of foreign exchange.
• Deregulation of the industry:
• The regulatory mechanism in India was introduced in various ways.
• It refers to industrial licensing under which every entrepreneur had to get permission from the government to start a firm or close a
firm or decide the number of goods that could be produced.
• The private sector was not allowed in many industries and some goods were specifically reserved for small-scale industries.
• Industrial reforms removed many of these barriers.
• Industrial licensing was abolished for almost all product categories except a few(alcohol, hazardous chemicals, industrial explosives,
electronics, aerospace, drugs, etc).
• Many goods produced by small-scale industries have now been de reserved and the market is allowed to determine the prices.
• Tax reforms:
• These are concerned with reforms in Government taxation and public expenditure policies which are collectively known as fiscal
policy.
• Fiscal policy deals with revenues and expenditure of the government.
• Steps have been taken to minimise the cascading effect.
 • Since 1991 there has been a continuous reduction in the taxes on individual incomes as it was felt that high rates of income tax were
an important reason for tax evasion.
• Tax Evasion: Escaping from paying tax (illegal).
• Tax Avoidance: Companies use loopholes in the taxing system to avoid paying taxes.
• Tax avoidance is not illegal.
• Financial Sector Reforms:
• It includes financial institutions such as commercial banks, investment banks, and stock exchange operations.
• The major aim of financial sector reforms is to reduce the role of the RBI from being a regulator to a facilitator.
• Foreign institutional investors such as merchant bankers, mutual funds, and pension funds are now allowed to invest in the Indian
financial market.
• A bond is the debt instrument(bond holders=creditors).
• Share markets are regulated by SEBI.
• India was following a regime of Quantitative restrictions on imports through tight control over imports and by keeping the tariffs very
high.
• These policies reduce the efficiency and competitiveness of the manufacturing sector.
• Export duties have been removed to increase the competitive position of Indian goods in the international market.
World Trade Organisation(07:10 PM)
• Structure of the topic:
• Prebisch Singer Hypothesis
• History of WTO
• Principles of WTO
• Major agreements under WTO
• Ministerial Conferences
• Dispute Settlement Body
• Prebisch Singer Hypothesis(07:29 PM):
• The traditional theory of free trade proposed by Adam Smith stated that free trade should result in higher profits for all the nations
engaged that is it is virtually impossible for any nation to produce all their consumption requirements themselves at the least
possible cost.
• A particular country will find it profitable in producing commodities with a comparative advantage.
• It should export such commodities and import other commodities on the basis of economic principles.
• The developed countries often argue to promote free trade through organisations like WTO but the conclusions of the above theory
can change when we look at empirical evidence with respect to LDCs.
• For most LDCs, their comparative advantage lies in the production of agriculture and other primary products such as cotton, coffee,
sugar, etc.
• It has been empirically proved that income elasticity of demand is lower for these products in contrast income elasticity
for manufacturing goods is higher.
• The result of these two effects leads to a decline in the relative price of primary products and this decline does not lead to a significant
rise in demand.
• These two phenomena together make export earnings of LDCs highly unstable thus making free trade harmful for them.
• The above finding is popularly known as Prebisch Singer Hypothesis.
• This finding is the issue of conflict between developed and developing countries on aspects related to international trade.
• Apart from this, Developed countries are protecting their agricultural market by giving huge subsidies which are adversely affecting
developing countries markets.
• Evolution of WTO:
• The formation of the WTO can be traced back to the economic situation immediately after the second world war.
 • International economic cooperation was a necessity and to achieve this goal, a number of international organisations were formed
under Bretton Woods conference, 1944.
• Apart from the formation of World Bank and IMF , an organisation called ITO(International Trade Organisation) was also proposed to
tackle trade barriers and other issues related to trade.
• Although ITO was never formed due to a lack of consensus, another agreement called GATT(General Agreement of Trade and
Tariffs) was signed by 23 countries in Geneva.
• GATT came into existence on 1st Jan 1948 till the formation of WTO in 1995.
• GATT was the only multilateral agreement governing international trade.
• Totally, 8 multilateral trade negotiations(MTNs) were held under GATT.
• They tried MTNs to tackle some of the basic issues related to international trade like tariff and non-tariff barriers but within 40 years
of operation of GATT, its members felt that the system was inefficient to handle the problems of globalising world economy.
• These issues came to the forefront during the 8th MTNs of GATT in Uruguay.
• During the URUGUAY round, the talks took place on many new areas of the trading system like trade-in services, IPRs, etc.
• Apart from the emergence of these new issues, differences also arose among member countries on issues like agricultural subsidies,
etc.
• To tackle this deadlock, Sir Arthur Dunkle proposed the Dunkle draft on the basis of this draft an act was signed by 123 nations
including India on April 15th, 1994 at Marrakech.
• As a result of the Marrakech agreement, WTO came into existence on 1st Jan 1995 with its headquarters in Geneva.
• Currently, WTO comprises 164 members and the current head of WTO is NGOZI-OKONJO-IWEALA.
The topics for the nextclass-Continuation of the topic WTO
Economics_RS Class 07
WTO (In continuation) (05:08 PM)
Uruguay Rounds (1986-1994) (Transformation of GATT into WTO)
 • Agricultural subsidies: Development of AoA (Agreement on Agriculture)
• IPRs: Development of TRIPS (Trade Related Intellectual Property Rights)
• Investments: Development of TRIMS (Trade Related Investment Measures)
• New Issues: Related to services
IPRs (Intellectual Property Rights)
• It pertains to the protection of IPR and was negotiated during the Uruguay round.
• TRIPS came into existence as a result of intense lobbying from the US supported by other developed nations.
• Under TRIPS, the IPR owners are granted exclusive rights to a variety of intangible assets such as works of art, innovation etc. The
Justification given for such rights is the monopoly profit that acts as an incentive for R&D.
• Prior to the TRIPS agreement, IPR-related trade was governed by Paris Convention.
• Paris convention was fairly liberal in giving the national government the right to decide on the subject matter of the patents,
trademarks etc.
• The two important agreements under TRIPS are:
• The agreement to shift from the necessity of the process patents to product patents in the field of food, medicine, and chemicals i.e.
in the new regime the same product cannot be produced using a different process. If a product is patented, it is valid for a period of 20
years while in the case of copyrights, the protection is generally for 50 years and at times, even after the lifetime of the author.
• The scope of IPR is extended to cover patents, Geographical Indicators, Industrial designs, layout designs of Integrated Circuits and
also protection of undisclosed information.
• The obligation is applicable equally to all member nations. However, the developing counties were allotted extra time to implement
these changes to their national laws. The transition period for the developing countries expired on 01st Jan 2005 and hence the
regime of product patents has now been introduced into these countries.
• For LDCs, it is 2016 and is currently extended to 2023 with respect to certain aspects.
Patents Amendment Act, 2005: (06:04 PM)
 • India passed this Act with a focus on product patents for food, chemicals and drugs.
• India was required to introduce a product patent regime by the year 2005 (TRIPS)
• Prior to 1970, 80% of our pharma market was occupied by MNCs.
• 1970s Patent Act granted process patents i.e. India had permission to manufacture generic drugs beneficial not only for India but also
for other third world countries.
Highlights ofPatents Amendment Act, 2005
• Introduction of the provision for enabling the right of compulsory licensing and parallel imports to meet the public health crisis.
• The Discovery of a new form of a known substance does not qualify a product for a patent. Nor a mere discovery of a new use will
qualify the product for a patent.
• Product patent protection for pharma, food and chemicals.
Safeguards:
Compulsory Licensing:
• The government may issue compulsory licensing to a company for producing generic drugs when faced with a public health crisis.
Some amount of royalty or compensation is given to the patent holder. Examples include Nexavar.
Parallel Imports:
• These are drugs imported from other countries where they are sold at lower prices to meet a public health crisis. These imports are
allowed if there are no manufacturers in the country facing the public health crisis and the pharma company that holds patents is
reluctant to lower the prices of those drugs.
Way Forward:
• It is discussion and not confrontation because India needs foreign technology and investment.
Favouring India Stance:
• In India, patents are issued after due process and not arbitrarily. There are very few instances of using flexibilities. This clearly indicates
that India uses these safeguards seriously. In the recent past, despite strong recommendations from the health ministry. the
 government refused to give compulsory licenses for the production of the copy of Bristol Myer Squibb, a cancer drug known as
Desatinium in India. This clearly indicates that India didn't misutilise the safeguards for its vested interest.
Pricniples of WTO (06:19 PM)
• Trade Without Discrimination:
• Principle of National Treatment:
• It means treating foreign and local goods equally. This principle is also found in all 3 main WTO agreements ( Article 3 of GATT, Article
17 of GATS, Article 3 of TRIPS). National treatment only applies once a product, service or item of intellectual property has entered the
domestic market. Therefore, charging customs duty on imports is not a violation of the national treatment, even if locally produced
products are not charged an equivalent tax.
• Principle of Most Favoured Nation:
• In international economic relations and international politics, MFN is the status or level of treatment accorded by one state to another
in international trade.
• The term means the country which is the recipient of this treatment must nominally receive equal trade advantages as the most
favoured nation by the country granting such treatment. In a nutshell, MFN is a non-discriminatory trade policy as it ensures equal
trading among all WTO members.
• Exceptions: Regional Trade Blocs, Bilateral FTAs.
• Principle of Predictability of Trade Rules:
• The multilateral trading system is an attempt by the governments to make the business environment stable and predictable. In WTO,
when countries agreed to open their markets for foreign goods or services, they bind their commitments.
• Principle of Fair Competition:
• Though WTO is described as a free trade institution, the system allows tariffs in limited circumstances. It also allows other forms of
protection in spite of rules like non-discrimination.
• Fair competition aims to reduce dumping, predatory pricing, excessive non-tariff barriers and also issues related to rules of origin etc.
 • Free trade/ Improved market access:
• Lowering trade barriers is one of the most obvious means of encouraging trade. The barriers concerned include customs duties/ tariffs
and measures such as import bans or quotas (quantitative restriction) that restricts the quantity selectively. Free trade focuses on
converting non-tariff barriers into tariff barriers and reducing tariff barriers progressively.
GATS (General Agreement on Trade in Services) (07:42 PM)
• It is the first and only multilateral agreement that governs international services trade.
• It was negotiated as a part of the Uruguay round in response to the growing importance of services in global trade and the rise of the
services sector.
Purpose:
• To establish a credible and reliable system of international trade rules.
• It is also based on the principle of non-discrimination.
• To stimulate economic activity through guaranteed policy bindings and promote trade and development through progressive
liberalisation.
Modes of Services:
• It divides services into 4 categories: Cross-Border trade, international consumption, commercial presence and natural person's
presence.
• Mode 1:It includes the cross-border supply of services. It is where the commercial presence of a service provider is not required.
Examples include distance learning, BPO services etc.
• Mode 2: It includes the consumption abroad or services consumed abroad. Examples include tourism, education, medical treatment
etc.
• Mode 3: It includes the commercial presence of the service provider. Examples include hotels, banking etc.
• Mode 4:It includes the movement of natural persons. Examples include a foreign national who works as a consultant or employee in
another country delivering services such as a doctor, nurse, IT engineer etc.
 • Note: The developed countries are more inclined towards liberalising norms with respect to mode 2 and 3 services but restricting
services related to mode 4 and mode 1.
TRIMS (Trade Related Investment Measures) (07:54 PM)
• Dictation to be carried out in the next class.
The topic of the next class is the continuation of TRIMS and the WTO.
Economics_RS Class 08
TRIMS Agreement: (5:02 PM)
• During Uruguay Round, the US proposed an agreement not only focusing on investment but also on national treatment.
• The proposals were rejected by many developing countries, and the scope of TRIMS was thus restricted to four specific trade-related
investment measures.
• No Restriction on Local Content Requirements. That is, to use local inputs by the foreign investor.
• Trade balancing requirement: The foreign investor should not be forced w.r.t. Balancing trade, i.e. forcing the foreign investor to
produce for exports as a precondition to obtain imported goods as inputs.
• Export Restrictions: Not to export more than a specific proportion of local production.
• Forex Restrictions: The foreign player should have easy access to foreign exchange.
• Member states were given a transition period during which these notified TRIMS have to be implemented.
• For developed countries, this period was 2 years, and for developing countries and LDCs, it was 5 years and 7 years respectively.
• (Note: TRIMS covers aspects related to goods only).
Agreement On Agriculture: (5:31 PM)
• Signed by the end of the Uruguay Round, and it provides for a framework w.r.t. Long term reforms related to agricultural trade and
agricultural policy, so that market orientation for agriculture can increase gradually.
• The Agreement on Agriculture has 3 components under it:
 • Reduction in domestic subsidy.
• Reduction in export subsidy.
• Improved market access.
Reduction in Domestic Subsidy: (6:02 PM)
• The agreement mainly divides subsides into:
• Trade distorting and non-trade distorting subsidies, which were categorized under 3 different boxes:
• Amber Box:
• All trade-distorting subsidies are part of Amber Box.
• The total reduction commitment in Amber Box is expressed in terms of the total Aggregate Measure of Support (AMS), which
includes all support given for a specific product.
• This agreement stipulates the reduction of total AMS by 20% for developed countries over a period of 6 years.
• While the developing countries were required to reduce the total AMS by 13% over a period of 10 years.
• If a member nation wants to avoid reduction commitments under AMS, the total subsidy given under AMS must be less than 5% of the
total value of production for developed countries and 10% for developing countries.
• Such as level of subsidy is known as theDe Minimuslevel of subsidy.
• Green Box:
• The subsidy under Green Box is considered completely under non-trade distorting subsides, and hence it is excluded from reduction
commitment, this box mainly contains fixed payments to producers for environmental programs, rural infrastructure, protection of
plants and animals, etc. as long as these programs do not affect the current production level.
• Blue Box:
• It is an exception from the general rule that all subsidies linked to production should be kept at the De Minimus level.
 • It is related to production limiting agreements whose origin can be traced back to Uruguay Round negotiations between the EU and
US.
Reduction in Export Subsidies: (6:27 PM)
• Apart from domestic subsidies, developed countries also give export subsidies to enable their farmers to export their agricultural
products at lower prices, which makes the competition tougher for LDC farmers.
• The AOA required developed countries to reduce their export subsidies by at least 36% by value or by 21% by volume over a period of
6 years.
• For developing countries, the reduction commitment is 24% by value or 14% by volume over a period of 10 years.
Free Trade/Improved Market Access: (6:37 PM)
• Market access refers to the abolition of existing non-tariff barriers in agriculture and converting them into tariff barriers.
• Subsequently, it also requires progressive reduction of tariff barriers also.
• Developed Countries are required to reduce their tariff line by 36 percent in 6 years.
• And the corresponding reduction for developing countries is 24% for 10 years.
Structure of WTO: (7:03 PM)
Ministerial Conference:
• The highest decision-making body in WTO is the Ministerial Conference.
• It usually meets every 2 years.
• The Ministerial Conference can take decisions on all matters under any of the multilateral trade agreements.
• The first ministerial conference took place in 1996: Singapore Ministerial Conference.
General Council:
• It has representatives, usually, the ambassadors from all member governments, and has the authority to act on the behalf of the
Ministerial Conference.
 • The General Council also meets under different rules:
• As a dispute settlement unit.
• Trade Policy Review Body.
• General Council.
Dispute Settlement Body:
• The General Council convenes as the Dispute Settlement Body to deal with disputes between WTO members.
• Such disputes may arise with respect to any agreement contained in the final act of the Uruguay Round.
• The Dispute Settlement Body focuses on:
• Establishing Dispute Settlement Panels.
• Refer matters to arbitration.
• Adopt Panel/Appellate Body/Arbitration Reports.
• Maintain surveillance over the implementation of recommendations and rulings contained in such reports. And authorize the
suspension of concessions in the event of non-compliance with those recommendations and rulings.
Appellate Body: (7:20 PM)
• It was established in 1995 under Article 17 of the Understanding of Rules and Procedures governing the settlement of disputes.
• The Dispute Settlement Body should appoint persons to serve on the Appellate Body for a 4 years term.
• It is a standing body of 7 persons, that hears appeals from reports issued by the panels with respect to disputes brought by the WTO
members.
• The Appellate Body can uphold, modify or reverse the legal findings and conclusions of a panel.
• The Appellate Body report once adopted by the DSB must be accepted by the parties to the dispute.
• DSB is losing relevance as the multilateral nature of WTO is being diluted because of countries like the USA.
 • The US is also blocking the reappointment and also the new appointment of the judges in the dispute settlement system.
Trade Policy Review Body:
• The General Council meets as the Trade Policy Review Body to undertake trade policy reviews of members under the TPRB.
• And to consider the Director General’s regular reports on Trade Policy Development.
• The TPRB is open to all WTO members.
Singapore Conference 1996: (7:37 PM)
• Singapore Conference revolved around 4 issues, popularly known as Singapore issues.
• 1. Investment.
• 2. Competition policy.
• 3. Procurement.
• 4. Trade facilitation.
• The main reason given by developed countries for the introduction of the first 3 issues was the WTO principle of national treatment.
• They argued on the basis of this principle that foreign goods and investors should be given equal rights as locals, and the government
should be prevented from giving special preferences to local investors and firms.
• The first issue of investment was also discussed under the TRIMS agreement during Uruguay Round, it says that foreign investors
should be allowed to enter and establish businesses in member countries with minimum restrictions.
• The second issue of competition aims to give greater market access to developed countries.
• According to the third issue, i.e. government procurement, the government should not give special preferences to local companies for
the supply of goods and services, and also w.r.t. Granting concessions for implementing projects.
• The fourth issue states that the rules and procedures related to trade facilitation in developing countries should be the same as that in
developed nations, it ignores the differences between developed and developing countries.
 • Although the first 3 issues are derived from the WTO principle of national treatment, they have been criticized both in principle and
practice.
• Investment is generally not a trade issue and bringing it within the ambit of WTO can distort the trading system.
• Further, developing countries argue that, if the proposed agreements are implemented under WTO, they would find it increasingly
difficult to devise their own developmental policies and would no longer be allowed to support their domestic industries.
• In addition to the above, there was a green room mechanism, that was visible under Singapore Round.
Doha Round: (7:51 PM)
• Aspects related to agriculture were discussed.
• The issue of trade-distorting farm subsidies, import-sensitive items, etc. was discussed.
Topic for the next class:Doha Round, (Dictation).
Economics_RS Class 09
Economics Class 09 [17:01:00]
Doha Conference Round or Doha development agenda [17:04:00]
• Doha development agenda is the most important trade negotiation under WTO
• The main agreements under DDA included
• Agriculture - It has become the most important and controversial issue. Doha declaration called for strict implementation of the
agreement on agriculture. The US was opposed by developing counties to significantly reducing their domestic support for agriculture.
The US was insisting upon a reduction in tariffs and limiting the number of import-sensitive and special products that would be
exempted from tariffs cut
• Special product- These agro-products are of particular importance for farming for reasons of food security, rural development, etc
• Non- agricultural market access [NAMA]- these are products that are not covered under AoA and GATS, in practice, the NAMA
products include manufacturing goods, fuel, and fisheries. NAMA products are important as they account for almost 85% of the
 world's merchandise exports. DDA called for a reduction of tariffs and non-tariff barriers on these products by May 2003, but the
deadline was not followed
• Implementation issues- they are related to the effective implementation of all aspects discussed during the Uruguay round.
Developing countries claim that they had problems implementing agreements because of limited capacity. They also claim that they
have not realized certain benefits which were expected from the round
• TRIPS and Public Health- the issue involves a balance of interest between pharma companies of developed countries and public
health issues in developing nations. To tackle this problem a draft was prepared by The TRIPS council chairman which allowed the
government to issue compulsory licensing
• Special and differentiated treatment [S& D]- there remains a conflict between developed and developing nations on how S& D
provisions will be put into practice. While developing countries want to negotiate the developed countries wanted to steady them
further.
• India and Doha round- India backed SSM [special safeguard mechanisms] to protect its farmers from an influx of imports.
SSM[special safeguard mechanism]
• SSMs will allow Developing countries to temporarily decrease import duties on farm products so as to counter a sudden increase in
imports and price falls. This mechanism will empower developing countries to impose additional duties on farm products. When their
imports breached specified ceilings and prices.
• India wanted developed countries to cut their trade-distorting farm subsidies, especially with respect to agriculture. India needs a
long-term solution with respect to public stockholding. India also stated that GI IPR[Geographical indication intellectual property
rights] protection should not be confined to Wine and spirits but should be expanded to other products like Basmati rice.
• India advocated for limits on the use and misuse of biological and genetic resources as well as traditional knowledge. India advocated
duty-free and quota-free market access for LDC [least developing countries] exports.
Bali ministerial conference [17:39:00]
• Took place in 2013. It was the 9th ministerial conference
 • India expecting a permanent solution to public stockholding [Background - NFSA- 67% of the population was covered so we were
ready to cross the de-minimus level of the subsidy]. We got a temporary relief in the name of the Peace clause till 2017 [specifically
with respect to amber box subisdies]
• Trade facilitation agreement [TFA]- Easy custom clearances, single window clearance, everything has to be made online, reduce Red
Tapism, hierarchy was to be handled.
• Promoting LDC exports- India was also supporting duty-free and quota-free market access for LDC.
Nairobi Ministerial conference 2015 [17:50:00]
• It was the 10th Ministerial conference.
• Outcomes
• a). Special safeguard mechanism
• b). The emergence of new issues- Some developing countries were attempting to categorize nations such as India and China as
emerging economies instead of developing countries. Rich countries wanted to revitalize WTO by introducing new issues often called
emerging trade issues.
• 1). Labor and environmental standards
• 2). e-commerce
• 3). Competition and investment provisions
• 4). Transparency in government procurement
• 5). Environmental and sustainable goods are produced using clean and green energy.
• 6). Transparency in state-owned enterprises and designated monopolies
• 7). Supply chain management
• India's stand on new issues
• India has made it clear that it will not sign any binding agreements. The issues of labor and environment should be discussed under
concerned international bodies such as ILO, and UNFCCC.
 • India wanted developed countries to include human capital movement under the category of new issues
• India also wanted rich countries to drastically reduce their trade-distorting farm subsidy
• India wants on priority a permanent solution to the issue of public stockholding.
• India was also looking for Effective implementation of the package for LDCs including duty-free and quota-free market access
• Note- Developed countries accepted to remove export subsidies with respect to agriculture with immediate effect and developing
countries will do it by the year 2019 except for marketing and logistics subsidies which will be removed by 2023.
Buenos Aires ministerial conference [18:15:00]
• It was held in 2017. It ended up without any declaration because of a lack of consensus.
• Trump wanted to discuss the development issues
• Emergence of pressure groups. [discussion on the particular issue which was not related to trade]
• Fisheries-related subsidies- Preventing harmful fishery subsidy [signed in Geneva 2022]
• Women-related aspects
• Work on discussing the new issues raised in the Nairobi ministerial conference.
• India's stand- India said that the WTO platform should be used to discuss trade-related issues and not the other issues which can be
discussed on the multilateral platform
Geneva Ministerial conference 2022 [18:19:00]
• It was the 12th Ministerial conference
• Members committed to a well-functioning dispute settlement system accessible to all members by 2024
• 1). Agreement on global food security- Members agreed to a binding decision to exempt food purchases by the UN's World Food
Program for humanitarian purposes from any expert restriction due to COVID and War.
• 2). Agreement on COVID-19 vaccine production- WTO members agreed to temporarily waive intellectual property patents on COVID-
19 vaccines without the consent of the patent holder for 5 years. The current agreement is a milder version of the original proposal
 made by India and south-Africa in 2020, where they wanted a broader intellectual property waiver on vaccines, treatments, and
diagnostic tests
• 3). e-commerce transactions- India asked WTO to review the extension of the moratorium on customs duties on e-commerce
transactions which included digitally traded goods and services. All the member countries agreed to continue the moratorium until
the subsequent ministerial conference or March 31st, 2024 depending upon whichever comes first.
• 4). Curb harmful subsidies on illegal, unreported, and unregulated fishing for the next 4 years- India and other developing countries
were able to win some concessions in this agreement i.e small-scale artisanal and traditional farmers would not face any restrictions
under this agreement.
• Issues raised by India-
• a). Permanent solution with respect to Public stock holding
• 2). Reserving Special and differentiated treatment [S& D]
• 3). Another critical issue for India is that it is not allowed to export food grains from publically held stocks.
Agreement beneficial for LDC countries
• Agreement on Textiles- a case study of Bangladesh- It has revoked the earlier agreement of multi-fiber agreement- [in multi-fiber
agreement, developed countries were allowed to block the export of textiles by imposing the non-tariff barriers [Quantitaitve
restriction].
Agreement on sanitary and phytosanitary measures [19:03:00]
• The agreement on SPS provides guidelines for member countries to adopt measures related to food safety and plant & animal health
from various biosafety risks arising from trade. These risks are usually related to pests and diseases and may come from risks arising
from toxins and contaminants in food and feed
• While importing items members can adopt restrictive measures under the SPS agreement, Thus SPS provides bio-security measures
that are applied to protect human, animal, plant life, or health.
• WTO gives detailed guidelines for the enforcement of sanitary [human/animal life or health] and phytosanitary [Plant life/health]
measures that may affect trade. SPS allows countries to set their own standards but SPS regulations must be based on science.
 • They should be applied only to the extent necessary to protect Human, animal, or plant life/health. Measures under SPS should not be
arbitrary to protect one's trade. During COVID several countries imposed SPS on the import of agricultural goods and other items
fearing disease spread. To enhance transparency members should notify the measures under WTO.
• AS per WTO data, out of 175 notifications related to COVID, 40% were submitted under the WTO's agreement on technical barriers to
trade, and 25% were notified under the SPS agreement.
WTO in Brief [Summary]
Principles
• Most favored nation status + National treatment
Negatives/ Issues
• Prebisch–Singer's hypothesis -argues that the price of primary commodities declines relative to the price of manufactured goods over
the long term, which causes the terms of trade of primary-product-based economies to deteriorate.
• Challenges of reverse retaliation
• Dispute settlement body is losing relevance [USA blocking]
• Aspect of multilateral trade is violated due to the development of Pressure groups [Buenous Aires ministerial conference]
• Doha Development Agenda is not concluded yet
• Food security and Public stockholding are not solved yet
• Amber box subsidies are a major concern for the developing nation
• Green box subsidies are considered as not- trade distorting
• New issues are emerged [envirnment and Women] without concluding the Uruguay round
• WTO is not comfortable in Mode 4 but in Mode 3
• Investment should not be under the ambit of trade [Through TRIMS]
• No conclusion with respect to domestic subsidies
 • Extension of the moratorium on e-commerce
• Lot of pressure in terms of reducing the tariffs in NAMA
Positives
• S&D- special and differentiated treatment
• Agreement on textiles - benefitted LDC
• Consensus-based decision making
• Special Safeguard Mechanism- Nairobi
• Non-patenting COVID vaccines for 5 years
• Fisheries subsidies- India was given some exceptions [small farmers were not affected]
• Peace clause- temporary relief given to Developing countries
• Export subsidies were removed
• UN global food security program- the exception was given
Question:-Is WTO biased in favor of developed nations? or should WTO be replaced? ===> use the above points as fillers
Conclusion:-Multilateral institutions can be more inclusive for developing countries and LDCs
Food security [19:24:00]
• Running notes/Explanation
• Zaminadri system+Mahalwari + Ryotwari sysytem [colonial sysytem]
• 57% of the land was under the control of Zamindars, so we wanted to ensure social justice, Govt brought land reforms. The objective
was to abolish the Zamindari. The parasitic class i.e. Moneylenders gained importance. Agricultural marketing was another issue, so
the government wanted to bring some reforms [APMCs]. These were directly linked to Food Security and Poverty.
• Issues were evident in the APMCs [Bureaucratisation of APMCs]. In the 1960's we faced the issue of drought and hunger. For stability
in food security, FCI was institutionalized [1965]. Rice and wheat were the primary focus for maintaining the Buffer stock.
 • Bureau of agricultural cost and price was institutionalized- Deal with the MSP. The incentive to produce wheat and Rice.
• Also we focused on enhancing domestic productivity through the Green revolution - HYVs + Farm credit.
• Earlier we were filling the food stock with the PL 480, now technological revolution took place in the form of the Green revolution
• From "A country with a Begging Bowl" [importer of food grain] we became "India as a food basket of the world " i.e. We became
self-sufficient in food production.
• "Paradox of Plenty"- on one side we have overflown granaries [wastage of food] and on the other side we have poverty, hunger,
malnutrition problem
The cost incurred by FCI
• Running notes/ Explanation
• Farmer's food is going to FCI, Earlier FCI is used to pay the procurement cost, after 1999, FCI is now paying MSP to the farmers.
• From FCI the food goes to the state civil supplies department, and from there it goes to the fair price shops
• Total cost incurred by FCI = Economic cost==> procurement cost + distribution cost
• If MSP is increasing, the economic cost will increases, because the procurement cost is increasing.
• The price at which the central govt or FCI is supplying the grains to the state [Fair price shop] is called central issue price [CIP].
• CIP was not increased in line with the economic cost which means the gap between this was subsidized by the center in the form of
food subsidy.
• From the Fair price shop the grain is supplied to the BPL family. The price to BPL is half of the economic cost===> Subsidy to BPL
families
• To the APL family, the grains were given at full economic cost.
• TPDS [Targeted public distribution system 1997]==> Targeting BPL and APL families separately [criticised by Amartya Sen]
• Initially Food security was synonymous with the Availability of foods [we were dependent on the PL 480 scheme]. We were not
concerned with the Affordability of food. Today food security is about the Utility i.e Nutrition component [Addressing the
Malnourishment, ICDS scheme].
Food security in India [19:55:00]
• Concept of PDS
• PDS can be distinguished from private distribution in terms of control exercised by public authorities and the motive is predominantly
welfare rather than private gain.
• Broadly the system includes all the agencies that are involved from the procurement stage to the final delivery of goods to the
consumer. The agency involved in the process of procurement, transportation, storage, and distribution is the FCI [food corporation of
India]. At the state level, it is the state civil supplies department and fair price shops that are agencies involved in the provision of
PDS.
• Fair price shops [FPS] are the links in this process which are mostly owned by private individuals. Procurement of cereals is undertaken
by FCI on behalf of the central government. Some state government agencies also procure grains for the central pool as well as their
own account. Allocation to different states is made by the government and fair-price shops are not allowed to sell other than
government-supplied essential commodities. Specific quantities are allocated to each FPS depending upon the number of ration cards
attached to the FPS.
• The prices of these commodities are fixed by the government and the FPS dealer has to procure a license to run them.
The Topic for the next class:-Food security
Economics_RS Class 10
Evolution of PDS-5:03 PM
• Food security is not only about security but also deals with Availability, affordability, stability, and nutrition.
• The growth of PDS in India can be grouped into three time periods.
• Stage I- 1945-65:
• In the first period up to the mid-1960s, PDS was seen as a mere rationing system for the distribution of scarce commodities, and later
it was seen as a fare price system in comparison with private trade.
• Rice and wheat occupied a very high share in food grain distribution
• The need for extending PDS to rural areas was realized but not implemented.
• The operation of PDS was irregular and dependent on the import of PL-480 with little internal procurement.
• In effect, imports constituted a major proportion of the supply of PDS during this period.
• The procurement prices offered were not remunerative.
• Stage II- 1965-75
• By the mid-60s it was decided to look much beyond, the management of scarce supplies in a critical situation.
• Stoppage of PL-480 imports forced the government to procure grains internally in effect India took a quantum league in the direction
of providing a more sustainable institutional framework for food security.
• The setting up of FCI and the bureau of agricultural cost and prices in 1965 marked the beginning of the second phase.
• The food security system during this period evolved as an integral part of the development strategy to bring about a striking
technological change in selected food crops, especially rice and wheat.
• Stage III- 1975-Today:
• In the third phase, there was an increase in food grain production.
• The buffer stock accumulation also increased in the FCI and hence the initial emphasis on buffer stock maintenance shifted to an
increase in PDS supply.
• During the 5th and 6th, five-year plan the government focussed on plans like Gareebi Hatao (poverty alleviation) along with reducing
overstocking of food grains.
• The imports gradually decline and India became a net exporter by 1975.
• Till the late 70s, PDS was largely confined to the urban population and did not guarantee adequate food to rural poor in times of crisis.
• During the early 80s, some state governments extended the coverage of PDS to rural areas and also introduced a targeted grouping
approach ( Tamil Nadu, Andhra Pradesh, Gujarat, etc).
• The PDS which started to meet crisis situations was transformed into an instrument for efficient management of essential consumer
goods necessary for maintaining stable price consideration.
 • PDS has been designed and implemented by both the central and state governments.
• The central government mainly deals with buffer stock operations and controls the external and internal trade of food grains.
• The state government focuses on distribution and identification.
Discussion of Question: 5:44 PM
Challenges in implementation of PDS (explained on board) - 6:05 PM
• Leakage and corruption
• Inclusion & Exclusion errors
• Government burden (Fiscal burden)
• No appropriate grievance redressal system
• Lack of quality issues
• Challenges with respect to inefficiency in FCI
• Issues in procurement (open-ended for rice & wheat)
Terms with respect to PDS- 6:18 PM
• Food Corporation of India (FCI)- It was set up under the food corporation act 1964 in order to fulfill the following objective:
• 1. Distribution of food grains throughout the country for PDS.
• 2. Maintaining a satisfactory level of operational and buffer stock to ensure national food security.
• 3. Effective price support operation for safeguarding the interest of farmers
• Central issue price- Prices at which FCI and central government sell food grains for PDS to states.
• Generally, it will be set at half the economic cost incurred by FCI for BPL and at full economic cost for APL households.
• Economic cost comprises procurement cost and cost of distribution.
• Fair price shops (FRP)- Essential commodities like rice, wheat, sugar, iodized salt, and kerosene are being distributed to the targeted
cardholders as per eligibility and rates fixed by the government.
• Minimum support price (MSP)- MSP is recommended by Commission for agricultural cost and prices (CACP).
• It takes into account several factors like:
• 1. The cost of production
• 2. Changes in input cost
• 3. Input/Output price parity
• 4. Demand and supply
• 5. Other micro and macro level data to determine MSP for the season
• Benefits of MSP:
• Ensure stable income for farmers
• The stability of prices ensures the stability of supply for the next season as well
• It also protects farmers from money lenders.
• It acts as insurance against price volatility.
• It allows farmers to be able to use the higher returns to invest in mechanization
• Issues/problems
• Calculation issues- currently MSP is calculated using actual cost
• MSP=1.5XA2+FL
• A2= Actual cost
• FL= Imputed cost of the family about
• M.S Swaminathan and farmers want MSP to be calculated based on comprehensive cost (C2).
 • C2 included imputed rent on land and interest in the capital which makes the cost of production much higher than the level at which
CACP bases its recommendations.
• Only 6% of the farmers are benefitting from MSP (NSSO report).
• Exploitation by the middle man and agent defeats the purpose of MSP
• It leads to overproduction (cereal-centric production).
• MSP distorts the market because the government procurement agencies procure 70%-80% of rice and wheat forcing out private
players.
Challenges of PDS (Dictation) - 7:09 PM
• The TPDS currently suffers from a number of issues that makes it difficult to achieve the objective of food security:
• 1. A Large number of families living below the poverty line have not been enrolled.
• 2. Errors in the categorization of families that lead to BPL families getting APL cards and vice-versa (inclusion & exclusion errors).
• 3. Significant portion of benefits provided to the APL category under TPDS is not availed by the intended beneficiaries and instead
diverted out of the system.
• 4. Problems of Ghost beneficiaries increasing the Fiscal burden of the government.
• 5. Scale and quality issues of food grain.
• 6. Problems of grievance redressal.
• 7. Inefficiency of FCI.
• Reforms to improve the PDS system:
• 1. One nation one ration card or integrated management of PDS- Launched in all states and UTs to ensure nation-wise portability of
ration card holders under the National food security Act.
• Through this migratory ration card holders can receive their entitled food grains from any FPS in India.
• Automation of FPS- Through the installation of electronic point-of-sale devices ensuring end-to-end computerization.
 • Use of GPS technology- To track the movement of trucks carrying food grains from state depots to FPS
• Direct cash Transfer (DBT)- Where the subsidies are directly transferred to the bank account of the beneficiary.
• PDS and UID synergy- To enable distribution of food grains to beneficiaries after biometric authentication.
FCI reforms (Shanta Kumar Committee recommendations)- 7:22 PM
• Procurement:
• 1. No open-ended procurement
• 2. Appropriate quality check
• 3. Decentralised the procurement system
• 4. Popularising warehouse receipts
• Storage:
• Optimization of storage mechanism
• Use of silos instead of gunny bags
• Privatization with respect to building warehouses, cold storage facilities, etc.
• Transportation:
• Using containers instead of Gunny bags
• Mechanization
• VRS to permanent staff
• Distribution:
• NFSA should cover 40% of the population
• A direct cash transfer to the lady of the house
• Six months ration at once.
Criticisms of Committee: 7:43 PM
• WTO vs welfare:
• It was criticized that the committee recommendations are just to value the commitments under WTO and not to support the citizen.
• Bringing private players into the ecosystem will increase the cost for the final consumer.
• The opposition of trade unions.
• Using critical resources of forex for food security may not be appropriate.
• Committee recommendations are based on NSSO data which can be faulty.
Question-In efficient food management, overflowing godowns alongside issues of food security and the starving population seems to be a
paradox in the Indian system. Comment and provide suggestions to rectify it.
UPSC questions discussion- 7:53 PM
The topic for the next class-Land reforms
Economics_RS Class 11
Discussion of Previous year questions-5:03 PM
Question-
• Discuss the role of land reforms in agricultural development. Identify the factors that were responsible for the success of land reforms
in India.
• Establish the relationship between land reforms, agricultural productivity, and the elimination of poverty in the Indian economy.
Discuss the difficulty in designing and implementing agricultural-friendly land reforms.
Land reforms (overview)- 5:13 PM
• Abolition of Zamindarars/intermidiatries
• Tenancy reforms:
• 1. Regulation of rent
 • 2. Security of tenure
• 3. Ownership rights
• Reorganization of agriculture:
• 1. Land ceiling
• 2. Consolidation of land holding
• 3. Cooperative farming
• At the time there were three types of land tenure systems prevalent in the country Zamindari, Mahawari, and Ryotiwari.
• In all three systems, the usual practice adopted was to get the land cultivated by tenants.
• There are three types of tenants:
• Occupancy- They enjoyed permanent and heritable rights on land, they had the security of tenure, and could claim compensation
from the landlord for any improvement effected on land.
• Tenant at will- They did not have security and could be evicted from the land anytime.
• b- The position of the sub-tenant was similar to tenants at will with the only difference being that the sub-tenants were appointed by
the occupancy tenant.
Objectives of land reforms -5:41 PM
• Assure equality of status and opportunities to all sections of the rural population
• To eliminate all forms of exploitation and social justice within the agrarian system and to provide security to the tiller of the soil.
• Reducing rural poverty and abolishing intermediaries.
Measure taken by the government to achieve the objectives - 5:55 PM
• Abolition of intermediaries:
• Even before Independence, it was widely recognized that the main cause of stagnation in the economy was stagnation in the
agriculture sector.
• This could be largely attributed to explorative agrarian relations and the chief instrument of exploitation was the Zamindar promoted
and patronized by the alien government.
• Approximately 57% of the area of the country was under the Zamindari system on the eve of Independence.
• In some states, legislation was passed for the abolition of Zamindars before 1951 but in more states, it was implemented during the
period of the first five-year plan.
• The process of initiation and passage of the bill for Zamindari abolition has taken a very long time example UP zamindari abolition act
took four and half years to become law.
• Once the stage of legislation is completed new difficulties were realized during implementation.
• Zamindars were not willing to lay down their lands and turned to courts and the legal battle between zamindars and the state
government took an unduly long time.
• In spite of losing the battle, zamindars refuse to hand over land records and other documents.
• The biggest loophole in the legal system was the one pertaining to the permission to obtain land for personal cultivation (zamindars
could evict tenants for this purpose).
• Personal cultivation was loosely defined to include personal supervision by the zamindar or members of his family.
• The policy laid down in the first five-year plan was that the zamindar could assume land for personal cultivation up to a ceiling limit
and the tenant could acquire permanent and heritable rights only over and above the ceiling limit.
• Subsequent changes were brought in during the second five-year plan to refine the definition of personal cultivation by adding aspects
like:
• 1. Risk of cultivation
• 2. Labour
• 3. Personal supervision
• Though the official documents claim that the zamindari system has been completely abolished yet the fact is that it originated in a
different format.
 • They are now designated as big land owners and along with the rich peasantry, a new dominant class of rural capitalists has emerged.
• Despite the above observations, the government was largely successful in reducing the exploitation and oppression of tenants and
reforming the feudal rural structure of the country.
Tenancy reforms 6:15 PM
• They focussed on the following aspects:
• Regulations of rent:
• In the pre-independence period, the rent charged by the zamindars was exorbitant.
• The British government was only interested in the share and therefore it has given unlimited powers of suppression to the zamindars.
• It has been estimated that in Punjab as much as 80% of the product was extracted from the tenant in the form of rent.
• In Bombay, it was around 40-50%
• The first five-year plan stated that the maximum rent should be fixed at 1/4 or 1/5 of the total produce.
• Excepted states like Punjab, Haryana, Andhara Pradesh this limit was adhered to by most of the states, however, legislation fixing the
maximum limit of rent has often been violated because of the strong socio-economic and political hold of land owners in the rural
areas.
• This is partly due to the fact that in some of the areas sharecroppers are not aware of the legal provisions but more importantly
because of the fact they are economically and socially weaker they could not assert their rights.
• Even when the law provides for the security of tenure the tenants are not in the position to assert their rights as most of the leases are
oral and informal.
Security of tenure- 7:00 PM
• Legislations related to the security of tenure focussed on the following:
• 1. Ejectment of tenants should take place only in accordance with provisions of law.
• 2. Land may be resumed by the owners only for personal cultivation.
• 3. In the event of reassumption of land the tenant is assured of the minimum prescribed area
• The implementation of the law depends on the following:
• 1. Definition of the word tenant
• 2. Status of land records
• 3. Definition of the term personal cultivation
• The circumstances in which the land owners are allowed to resume tenanted land for cultivation
• In all the tenancy laws of the country persons who cultivate the land of others on payment of rent either in cash or kind or both are
treated as tenants, however, in some states like UP and West Bengal sharecroppers (who pay rent by division of produce) are not
regarded as tenants.
• Thus all laws aiming at protecting tenants do not help them.
• The rights of resumption combined with the flaws with the definition of personal cultivation have made tenants insecure.
• It was an account of this fact that the 4th five years plan recommended that all tenancy should be declared non-resumable and
permanent except in cases of land owners in Defense, suffering from a disability.
• Another serious problem is related to voluntary surrenders.
• Many landlords compel the tenants to give up the tenancy on their own accord and no law can help the tenants if they give up their
rights voluntarily.
• laws related to the security of tenure can be implemented effectively only if current and up-to-date land records are available.
• A person can claim himself to be a tenant only if his name appears as such in the land records.
• However, It has been observed that in many states either no records of tenancy exist or they are incomplete or outdated
• Ownership rights to the tenant:
• It has been repeatedly emphasized that ownership rights should be conferred on the tenant (five-year plan)
 • Some states have passed legislation to confer rights of ownership, however, on a whole, the process has been very unsatisfactory and
it was envisaged in the 6th five-year plan to confer ownership rights to all tenants by the year 1982.
• For a long time, many tenants did not exercise their rights due to reasons like:
• 1. Many tenants could not afford to pay the purchase price.
• 2. Many for unwilling to purchase the land reflecting the dominant controlling power of the land owners
Evaluation of land reforms: 7:27 PM
• 1. Snags in legislation:
• Definition of personal cultivation- It was highly unsatisfactory, nowhere did it mean what it should have actually meant i.e cultivation
by one personal labor.
• In most states personal supervision was taken to be part of personal cultivation i.e It would suffice if supervision is done by any
member of the landlord's family.
• 2. Transfer of land to family members- To escape the laws related to the land ceiling zamindars indulged in large-scale transfers of
land to their family members for quite some time there was no law in some states to prevent such transfers and in states in which
such laws existed the benevolent definition of personal cultivation provided sufficient scope for zamindars to break the law.
• 3. Definition of the words tenant was inadequate
• 4. Lack of political will- Radical laws like land reforms aimed at restructuring the entire property relations require a substantial
amount of courage and determination for implementation.
• In the context of socio-economic conditions prevailing in the rural areas of the country, no tangible progress can be expected in the
absence of a requisite political will.
• The lack of political will is clearly visible due to large gaps between policy and legislation and between law and its implementation.
• 5. Apathy of Bureaucracy
• 6. Improper updation of land records
 • 7. Inadequacy in land ceiling laws- The levels of ceilings among different states and within the different areas of the state differed
considerably, this created a lot of confusion and frequent dispute.
• Accordingly, a conference of state ministers was held in July 1972 to bring uniformity in ceiling laws, however considerable damage
has already been done and various types of transfers and other underhand dealing had left only small areas as surplus.
Reorganization of agriculture- 7:45 PM
The topic for the next class- Continuation of Reorganization of agriculture, Tenancy Act
Economics_RS Class 12
INTRODUCTION (5:06 PM)
• Overview of the previous class.
LAND CEILING (5:08 PM)
• The ceiling on agricultural holdings means the statutory absolute limit on the amount of land which an individual may hold.
• The imposition of a ceiling has two aspects:
• (1) Ceiling on a future acquisition.
• (2) Ceiling on existing holding
• The first five-year plan favored the former to avoid conflicts related to administration.
• The second Five-year plan recommended a ceiling on existing holdings.
• The plan proposed that the ceiling shall apply to all future acquisitions and all existing agricultural holdings held under personal
cultivation.
• The second plan also suggested the option of family holding as a criterion for the land ceiling.
• The second plan proposed exemptions for the following classes of firms:
• (1) Tea, coffee, and rubber plantations
• (2) Sugarcane farms operated by sugar factories
 • (3) Specialised farms engaged in cattle breeding, wool raising, dairying, etc.
• (4) Farms where heavy investment was already made.
• The second FYP also suggested measures related to preventing illegal transfers of land, compensation to be paid, and redistribution of
the acquired land.
• These guidelines laid down by the second plan were endorsed by subsequent plans as well.
• But these have not been implemented uniformly across all the states.
• To bring uniformity in different policies regarding the imposition of ceilings a conference of state ministers was held in July 1972 based
on which a new policy on the land ceiling was evolved.
• The main features of the policy are:
• (1) Fewer exemptions from ceilings.
• (2) Retrospective application of land ceiling rules for declaring Benami transactions null & void.
• (3) The change over to family rather than an individual as a unit for determining landholding
• Most of these laws were included in the IXth schedule of the constitution which insulated them beyond any challenge in the court of
law on grounds of infringement of Fundamental Rights.
• (4) Lowering of the ceiling to 18-22 acres of wetland and 54 acres of unirrigated land.
• According to the XIIth FYP document only around 3 million hectares have been declared surplus which is hardly 2% of the net sown
area of India.
• About 30% of this land has not been distributed due to litigation.
• Moreover, as correctly pointed out by the XIIth plan the balance of power in rural India is so heavily weighed against the landless and
the poor that implementing land ceiling laws became difficult.
• In certain states like Karnataka, the industry and large farmers are being exempted from ceiling laws without seeking permission from
GoI clearly indicating the problems in implementation.
BENEFITS OF LAND CEILING (5:56 PM)
 • (1) Social Justice
• It is socially unjust to allow a small number of people to hold a large part of the land and thereby subjugate the interests of the
millions of laborers to the interest of this handful of minorities.
• (2) Improving the position of the poor.
• According to FAO the redistribution of 5% of the land in India coupled with increased access to water could reduce rural poverty by
almost 30%.
• According to World Development Report for every 1% growth in agriculture it is 2-3 times more effective in reducing poverty in
comparison to non-agricultural sectors.
• (3) Employment creation
• According to some economists small farms are less capital-intensive and therefore can be considered efficient in a situation of
widespread unemployment and underemployment in a country.
• (4) Inculcating the spirit of cooperation
• It has been argued that once the surplus land is distributed the beneficiaries can form cooperatives to increase agricultural
productivity.
• It will enable the poor peasants to learn the techniques of joint cultivation on one hand and also enable them to realize the benefits of
large-scale farming.
NEGATIVES OF LAND CEILING (6:05 PM)
• (1) The economic efficiency of the farm is adversely affected.
• (2) Modern technology can not be used due to fragmented land holdings.
• (3) The growth of output and employment may also slow down in the long run due to the reduction of savings and investments as
small farmers consume a large proportion of their income in comparison to large farmers.
CAUSES OF FRAGMENTATION OF LAND HOLDINGS (6:08 PM)
• (1) Population pressure
 • (2) Laws of inheritance
• (3) Psychological attachment to land acts as a detrrence to consolidation
• (4) Breakdown of the joint family system
• (5) Farmer's indebtedness
DISADVANTAGES OF FRAGMENTATION (6:12 PM)
• (1) Wastage of land
• (2) Difficulties in modernisation
• (3) Disputes over boundaries
• (4) Disguised unemployment
• (5) Low productivity
WAY FORWARD (6:13 PM)
• (1) Consolidation of land holdings
• The process of consolidation is seen as a solution to reduce the fragmentation of land holdings.
• Consolidation is termed as a process of planned rearrangement and readjustment of land parcels to form larger holdings for the
benefit of the agrarian economy.
• Through legislation by states a standard area was fixed as the basis of consolidation.
• However, as per available data, only about 46% of the total cultivated land has been consolidated.
• This step of consolidation was successful in states like Haryana, Punjab, UP, etc.
• Currently 86% of the land holdings are less than 2 hectares making it difficult to increase productivity.
• (2) Cooperative Farming
• To reap the benefits of economies of scale Cooperative Framing provides an alternative to land consolidation.
• But, farmers could not be motivated in spite of various incentives and subsidies given to cooperative farms by the government.
• A report from Gadgil Committee on Cooperative Farming stated that only 1/3rd of these societies were successful.
REASONS FOR FAILURE OF COOPERATIVE FARMING (6:22 PM)
• (1) Societies were mainly formed by large farmers to receive certain benefits from the government.
• (2) Societies lack professional and management skills.
• (3) Corrupt practices
• (3) Land Ceiling Act
• Kindly refer to the handout for this.
• (4) Model Agricultural Land Leasing Act 2016
• (a) This act seeks to permit and facilitate the leasing of agricultural land to improve access to land by marginal and landless farmers.
• (b) It also provides for recognition of farmers cultivating on leased land to enable them to access loans through institutional credit.
• (c) Through this act the landlord can legally lease the land with mutual consent.
• (d) In order to resolve the dispute between the landlord and leaseholder the provision of the special land tribunal has been made in
the civil court.
• Challenges of the Land Leasing Act:
• (1) Absentee Landlordism
• The model Land Leasing Act will prevent the redistribution of land through ownership transfers as people living outside the area will
prefer leasing instead of selling.
• (2) Diversion of land from crop cultivation to commercial use
• (3) Lack of uniformity
• Since agriculture is a state subject it is difficult to implement due to the existence of multiple rules and regulations.
• (4) The exploitation of small and marginal farmers
 • The act doesn't specify the rent on leased land and the period of the lease and is rightly left to the concerned parties which could lead
to the exploitation of small and marginal farmers.
• (5) Food Security
• Leasing out land to activities other than agriculture might endanger the food security of the country in the long run.
• WAY FORWARD FOR LAND LEASING ACT (6:43 PM)
• (a) Proper awareness and education among the farmers about the benefits that land leasing can bring to their household income and
life.
• (b) Since most of the small and marginal farmers are dependent on cattle the grazing lands must not be leased out in the name of
fallow lands.
• (c) Farmer activists have strongly advocated that agricultural land must not be used for industrial purposes.
FOOD PROCESSING (6:09 PM)
•

FOOD PROCESSING (6:10 PM)

• Drivers of FPI:
• (1) Consumption pattern
• (2) Urban consumer demand
• (3) Nuclear family concept => Time= Money
• (4) Huge agricultural potential
• Challenges of FPI:
• (1) Marketing
• (2) Infrastructure
 • (3) Supply chain bottlenecks- Forward and backward
integration problems
• Vertical integration- Both forward and backward integration
is done by only one entity.
• (4) Low agricultural productivity
• (5) Agricultural credit for small food processing units is not
available.
• (6) Fragmented markets
• (7) Standardization of products
• Need to align Indian Food Safety Standards with
International standards
• (8) Price-sensitive consumers in India
• (9) Preference for fresh food
• (10) Awareness of processed food
• (11) Less expenditure on R&D
• (12) Less scientific temper

WHAT IS PROCESSED FOOD? (7:40 PM)

• It pertains to the following two processes:
• (1) Manufactured processes
• If any product of agriculture, animal husbandry, or fisheries is transformed through a process involving machines, employees, power,
etc. in such a way that its original physical properties undergo a change and if the transformed product is edible and has commercial
value then it is termed as processed food.
 • (2) Other value-added processes
• If there is significant value addition in terms of increased shelf life or ready for consumption, such produce also comes under
processed foods even if it doesn't undergo manufacturing processes.
• India is the second largest horticultural producer but loses approximately 13,000 crores every year on processed foods (Horticultural
Waste).
• The primary reason is the lack of cold storage facilities.
• The size of the food processing industry in India is estimated to reach over half a trillion dollars by 2025.
The industry can be broadly divided into 6 segments-
• (1) Fruits & Vegetables
• (2) Milk and its products
• (3) Meat & Poultry
• (4) Marine products
• (5) Grain processing
• (6) Consumer food including packaged food, aerated drinks, alcoholic beverages, etc.
• The GVA of the food processing sector was Rs. 2.24 lakh crores in 2019-20 contributing to 1.69% of the total GVA in the country.
• The GVA of the food processing sector is around 9.87% of GVA in manufacturing and 11.38% of GVA in agriculture, forestry, and
fishery, respectively.
DRIVERS OF THE FOOD PROCESSING SECTOR (7:50 PM)
• (1) Shift in consumption pattern
• (2) Health and value-seeking urban consumers looking for a nutritious and convenient solution in packaged food.
• For Example, skimmed milk, whole-wheat biscuits, low-cholesterol oil, etc.
• (3) Packaging has increased the shelf life of the packaged food
 • (4) Increase in per capita incomes
• (5) Consumers are able to compare the value offerings and choose the best option before buying.
• (6) Increase in nuclear families
• (7) Huge potential for the agricultural sector due to diverse climatic conditions.
POTENTIAL FOR FOOD PROCESSING (7:54 PM)
• (1) India is the world's second-largest producer of fruits and vegetables.
• But hardly 2% of the produce is processed.
• (2) Despite a large production base, the level of processing is low (<10%)
• (3) India's livestock population is the largest in the world where 50% of the world's buffaloes, and 20% of the cattle, but only about 1%
of the total meat production is converted to value-added products.
• (4) Rapid growth in organized retail acts as a catalyst for the food processing industry.
• (5) Deregulation and liberalization of the Indian economy driven by the central and state government.
EVOLUTION OF THE FOOD PROCESSING SECTOR IN INDIA (8:00 PM)
• To be dictated in the next class.
TOPIC FOR THE NEXT CLASS: CONTINUATION OF THE FOOD PROCESSING INDUSTRY
Economics_RS Class 13
Food Processing- 5:07 PM
• Evolution of Food processing in India:
• The food crisis in India during the 1960s forced the government to adopt the Green revolution which increased self-sufficiency in food
• Policies before 1960 were more focused on the industrial sector especially capital goods though 50% of India's GDP was contributed
by agriculture.
 • By the early 1960s GDP growth was only 3% against the expected 5% but population growth was 2.3% against the expected 1.4% thus
creating issues of food security in India.
• As India imported cereals with 28% of its export earnings
• Boosters between 1960 to 1990:
• Focus on agriculture.
• Introduction of Green revolution and institutionalization of periods.
• Land ceiling act 1972 to provide land to landless farmers.
• Restrictions on agricultural exports.
• Focus on food processing industries increased after 1991:
• 100% FDI in food processing industries.
• Export promotion incentives and other schemes to attract investment.
• The government has identified the food and agro-processing industry as one of the sunrise sectors that have a high potential for
domestic demand and export market.
• No industrial license is required to start the industry except for alcohol, beer, etc.
• Mega food parks and export zones were promoted which provide duty-free imports, and exemption to corporate taxes.
• Functions of Food processing:
• To make food sage micro-biologically and chemically (toxin removal).
• Functional benefits- Fortified food, and food supply to people suffering from critical illnesses.
Challenges in food processing- 5:38 PM
• More than 75% of the processing industry is operating in an unorganized sector.
• An unorganized sector cannot compete with MNCs due to issues like economies of scale, branding, advertising, etc.
• Indian companies are less price competitive in comparison to MNCs.
• A long supply chain leads to high wastage and high cost especially due to the seasonality and perishability of products.
• Improper backward and forward integration.
• Lack of export quality.
• Despite being an agrarian economy and one of the largest producers of fruits and vegetables it is unfortunate that the productivity of
crops is quite low related to international standards.
• The Indian public is price sensitive i.e higher income elasticity in relation to expenditure.
• Preference for fresh food.
• Agriculture-related issues- Fragmented land holdings, APMC issues, Low yield, etc.
• Challenges of infrastructure.
• The private sector is unwilling to invest in logistics.
• Credit-related issues.
• Problems related to manpower ie. lack of skilled manpower and entrepreneurship talent.
• Low-value addition in processing.
• Limited control over quality and safety.
• Low consumer awareness.
• Challenges of small-scale processing units- more into primary processing rather than complex
• Significance of food processing:
• Doubling farmer's income: With the rise in demand for agri-products, there will be an increase in the price paid to the farmers
thereby increasing farmers' income.
• Reduce food wastage: UN estimated that 40% of production is wasted similarly NITI Aayog estimated an annual post-harvest loss of
close to 90000 crores.
 • With proper focus on sorting and grading and diverting extra produce to FDI, this wastage can be reduced leading to better price
realization for farmers.
• Reduce malnutrition: Processed food when fortified with minerals and vitamins can reduce the nutritional gap in the population.
• Curbing food inflation: Processing increases the shelf life of the food thus keeping supplies in line with the demand thereby
controlling inflation.
Supply chain - 6:08 PM
• A supply chain is a network between suppliers (farmers) of raw materials, companies (food processors), and a distribution network to
market the finished products.
• The supply chain represents the steps it takes to get the product or service to the end consumer.
• Inputs:
• 1. They are farm input example national seed corporation limited
• 2. Production- farmers and cooperatives like AMUL.
• 3. Procurement and storage- warehouse, cold storage facilities, entities like FCI, etc.
• 4. Processing like grading, sorting, packaging, and other value addition.
• Sales and retailing- malls, cash and carry shops, etc.
• Backward & Forward linkages:
• Backward linkage- It means connectivity of FPIs with sources of raw material supplies example- The supply of raw materials like
potatoes to a chips manufacturer.
• Forward linkage- It means connectivity of FPIs with the markets through the distribution networks comprising of physical
infrastructure like road and rail networks etc.
• Significance of linkage:
• It ensures the timely delivery of food products to the consumer markets.
 • Enables farmers to grow products of appropriate quality.
• Ensure appropriate and remunerative returns to marginal and small farmers.
• Reduces food wastage, especially of perishable products like fruits, vegetables, dairy products, etc.
• The level playing field for all stakeholders enhances their competitive capacity.
• Helps in improving hygiene and food safety standards leading to greater acceptability of processed food domestically and
internationally.
• Challenges:
• High seasonality of raw material production.
• Poor infrastructure facilities.
• Sub-standards levels of the processing industry.
• A highly fragmented industry that is dominated by the unorganized sector.
• Inadequacy of information with farmers and small processors.
• Small and disperse marketable surplus due to fragmented holdings.
• Anomalies in domestic food laws in comparison to international food safety standards.
• Underdeveloped food testing network.
• The multiplicity of legislation leads to conflicts and administrative delays.
Policies and schemes (explained on board)- 6:29 PM
Policy initiatives and measures are taken by the government to support the food processing sector- 7:04 PM
• Food procession industries were included in the priority sector for bank lending in 1999.
• Automatic approval of foreign equity up to 100% except for alcoholic drinks.
• 0% duty on import of capital goods and raw materials for 100% export-oriented units.
• Union budget 2017-18 the government has set up a dairy processing infrastructure fund worth 8000 crores.
• Union budget 2016-17 proposed 100% FDI in the marketing of food products produced and manufactured in India.
• The food safety standards authority of India plans to invest around 482 crores to strengthen food testing infrastructure by upgrading
59 existing food testing labs and setting up 62 new mobile testing labs across the country.
• Setting up mega food parks in the state of Bihar, Maharashtra, Himachal, and Chhatisgarh.
• Government plans to set up 42 new mega food parks in the next four years.
• Mega Food parks:
• The scheme of the mega food park aims at providing a mechanism to link agricultural produce to the market by bringing together
farmers, processors, and retailers to ensure maximizing value addition, minimizing wastage, increasing farmers' income, and creating
employment opportunities, particularly in the sector.
• The scheme is aimed at providing model infrastructure facilities along the value chain from the farm gate to the market through
backward and forward linkages.
• The scheme is based on the hub-spoke model.
• It includes the creation of infrastructure for primary processing and storage near the farm in the form of primary processing centers
and collection centers.
• Collection center (CC): They work as a point of aggregation of produce from individual farmers, farmer groups, and SHGs.
• CC supplies raw materials to PPC.
• The CC is managed by local entrepreneurs and serves as farm level aggregation point for adjoining areas within a radius of 10 km.
• Primary processing center (PPC): Act as a link between the producers and processors for the supply of raw material to the central
processing center. they also work as primary work handling centers and some PPC have inhouse facilities for pulping, grading,
swapping
• CPC (central processing center): It is an industrial park in an area of around 50 acres and houses several processing units owned by
different business houses.
 • The park provides common facilities like electricity, water, cold storage facilities, warehousing, logistics, and backward integration
through CC and PPC.
• The scheme is demand-driven and would facilitate food processing units to meet environmental safety and social standards.
• Implementation and financial assistance:
• MFP projects are implemented by a special purpose vehicle which is a body of corporate registered under the companies act
• The financial assistance for MFP is provided in the form of grants and aid at 50% of the eligible project cost (general areas), and 75% of
the eligible cost in northeastern areas subject to a maximum of 50 crores per project.
• Benefits:
• Reduction enforces harvest losses.
• Additional income to farmers.
• Maintenance of the supply chain in a sustainable manner.
• Shifting the farmers to more market-driven and profitable farming activities.
• As per experts, it will directly employ around 10K people.
• Wastage across the food value chain will also be reduced and quality and hygiene will be improved.
• Challenges:
• Problems of land acquisition especially in small and hilly areas.
• Cooperatives are not integrated into food parks.
• CPC is not able to attract PPC and CC.
Other Initiatives - 7:32 PM
• A special food processing fund of Rs 2000 crore was set up with NABARD to provide affordable credit for investing in setting up MFP.
• As well as processing units in MFP.
 • PM Kisan Sampada Yojana has been launched for agro-marine processing and development of agro-marine clusters with 6000 crores
allocated for the period 2016-20.
• It is under the ministry of food processing.
• It is a comprehensive package that aims to create a model infrastructure with efficient supply chain management from the farm gate
to the retail outlet.
• Schemes to be implemented under this program:
• MFP scheme.
• Integrated cold chain and value addition infrastructure especially for horticulture.
• Infrastructure for agro-processing clusters.
• Food safety and quality assurance infrastructure.
• Human resources and institutions.
• Creation of backward and forward linkages.
• Under the budget 2018-19 PM Kisan Sampada allocation has been increased from 700 crores to 1400 crores.
• Setting up of fisheries and aqua-culture funds for the fisheries sector and animal husbandry infrastructure funds for financing
infrastructure requirements of the animal husbandry sector.
• The total corpus of both combined is Rs 10K crores.
• Launching of a centrally sponsored scheme PM formalization of micro food processing enterprises scheme, for providing financial,
technical, and business support for setting up of two lakh micro food processing enterprises across the country for five years. from
2021-2024-25.
• Based on one district one product approach with an outlay of 10K crores.
Financial Market (Explained on board)- 7:46 PM
Topic for next class- Continuation of topic Financial market
Economics_RS Class 14
Financial market (explained on board)- 5:05 PM
• Bonds- an instrument with a fixed interest rate
• Yield of bonds- earning of bond
• Operation twist- During COVID to impact the yield of the bonds.
Debt- 5:35 PM
• Short-term (money market)- Features
• Example Treasury bills- 91, 182, 364 bills
• Zero-coupon/Non-coupon
• Non-interest bearing
• Discounted securities
• Long-term (capital market) example G-secs- Features
• Debt & Equity
• Interest bearing
• Coupon rate
Financial market (Dictation)- 5:57 PM
• Money market: It caters to short-term borrowing requirements such as working capital.
• The money market deals with a financial instrument whose maturity is up to 1 year.
• Common money market instruments are treasury bills, cash management bills, call money, certificate of deposit, commercial paper,
commercial bill, etc.
• Treasury bills: These are discounted securities (non-coupon/zero coupon bonds).
 • These bills are issued by RBI on behalf of the central government.
• Generally, the state government does not issue t-bills.
• Buyers include RBI, commercial banks, NBFCs, LIC, UTI, and General insurance companies.
• There are three types of t-bills 91days, 182 days, and 364 days.
• Cash management bills: Introduced in 2010, it is a discounted security similar to t-bills with a tenure period of fewer than 91 days.
• Commercial bills- These are negotiable instruments drawn by the seller or buyer of goods on the value of goods delivered.
• Trade bills become commercial bills when they are accepted by commercial banks.
• The maximum allowed period is 90 days.
• These bills are first discounted by commercial banks and rediscounted by RBI.
• Commercial paper: Introduced in 1990.
• It is a short-term money market instrument issued as an unsecured promissory note and is privately placed.
• Companies, primary dealers, and financial institutions can issue CPs to meet their short-term fund requirements.
• They are issued in multiples of five lakh.
Break 6:45 PM-7:00 PM
Other instruments- 7:02 PM
• Certificate of Deposit (CD): issued by scheduled commercial banks and selected financial institutions that are permitted by RBI.
• The maturity period is more than 7 days and less than 1 year.
• Banks cannot provide loads against CDs.
• The minimum amount of CDs should be 1 lakh and multiples of 1 lakh. (updated to 5 lakh recently).
• Recent Amendments-
• All individual residents in India can invest in CDs.
 • RBI has increased the minimum denomination for CD to 5 lakh and multiples of 5 lakh.
• Currently, all Indian financial institutions, commercial banks, RRBs and SFBs are allowed to issue CDs.
• RBI does not allow the issuing bank to grant a loan against CDs.
• CDs can be issued in dematerialized form only.
• Share market:
• Types of shares
• Trading- insider trading
• QIPs- Qualified Institutional Placement
• Anchor investors- Invest in IPOs.
• FIIs- Foreign institutional investors registered with SEBI.
• P-notes- Issued by FIIs for investment in the Indian market
• Derivatives
Other concepts- 7:38 PM
• Insider trading
• Convertible and non-convertible debentures
• Chit funds- Legal, work on networking
• Ponzi schemes- Provide unrealistic profits, not legal
Financial instruments in capital markets- 7:54 PM
• Share: the capital of a company is divided into shares and each share forms a unit of ownership of a company and is offered for sale to
raise capital for the company.
• Can be divided into two broad categories:
 • 1. Equity shareholders- Give their holders the power to share the profit as well as voting rights in the annual general meetings of the
company.
• The holders have a share in the profit and also bear losses incurred by the company.
• 2. Preference share: They receive a fixed amount of dividend and they do not have voting rights.
• Preference shareholders are given a preference over the equity shareholders during the settlement of the company.
• Debentures: These are debt instruments with a fixed rate of interest and the debentures issued by the company are generally
unsecured.
• Debenture holders do not have voting rights, unlike equity shareholders.
• There are different types of debentures:
• 1. Convertible debenture
• 2. Non-convertible debentures
• Derivatives- It is a financial instrument whose value is derived from one or more underlying assets or securities.
• The underlying assets could be shares, bonds, currencies, or commodities like gold, silver, and sugar.
• A derivative itself is a contract between two or more parties and helps in protecting parties from price fluctuations and uncertainties.
• SEBI is the regulator of the Derivative market.
• Can either be traded over the counter(OTC) or at an exchange.
• Examples- forwards, futures, etc.
Topic for next class- Continuation of topic Financial market
Economics_RS Class 15
The class started at 1.03 PM
A brief overview of the previous class.
Financial markets: (at 1.07 PM)
Shares, Mutual Funds and ETFs: (at 1.08 PM)
• Shares:
• The risk is high.
• Return is high.
• SEBI is a regulatory body in the share market.
• Mutual Funds:
• The risk is less in comparison to shares.
• Return is less in comparison to shares.
• Exchange Trade Funds(ETFs):
• An exchange-traded fund (ETF) is a type of pooled investment security that operates much like a mutual fund.
• In other words, ETF is a basket of securities that trade on an exchange just like a stock does.
• Typically, ETFs will track a particular index, sector, commodity, or other assets, but unlike mutual funds, ETFs can be purchased or
sold on a stock exchange the same way that a regular stock can.
• An ETF can be structured to track anything from the price of an individual commodity to a large and diverse collection of securities.
Disinvestments: (at 1.20 PM)
• Disinvestment is the action of an organization or government selling or liquidating an asset or subsidiary.
• Absent the sale of an asset, disinvestment also refers to capital expenditure (CapEx) reductions, which can facilitate
the reallocation of resources to more productive areas within an organization or government-funded project.
• Whether disinvestment results in divestiture or the reduction of funding, the primary objective is to maximize the return on
investment (ROI) related to capital goods, labour, and infrastructure.
• Eg: Disinvestment of certain PSUs in India, etc.
Derivatives: (at 1.26 PM)
• A derivative is a security with a price that is dependent upon or derived from one or more underlying assets.
• The derivative itself is a contract between two or more parties based upon the asset or assets.
• Some common forms of derivates are:
• Forwards:
• It is an agreement or contract between the two parties to buy & sell a particular asset at a certain price and date.
• They are unregulated and are traded Over-The-Counter.
• They can be customized as per the needs of the parties involved.
• Futures:
• It is similar to "Forwards" but these are regulated & traded on the stock exchanges and the parties are under an obligation to perform
the contract.
• Options:
• It is a contract where the buyer has a right to buy/sell the underlying asset at a certain price (called a strike price) during a certain
period of time.
• There is no obligation on the buyer to perform the contract.
• Options are also traded on the stock exchange.
• Types of options include:
• Call option
• Put Option
• Swaps:
• Swaps are derivatives which are used to manage risks of various kinds.
 • These are generally used to manage interest rate risk and currency.
• It is a contract between two parties for the exchange of pre-agreed cash flows of two different financial instruments.
Terminologies: (1.45 PM)
• Private placement:
• Raising capital by selling shares to a select group of investors.
• Public Issue:
• Open for all.
• Right Issue:
• Raising capital from the existing shareholders of a company.
• Primary market:
• It deals with issuing shares directly by the company through IPO.
• Secondary market:
• Trading of securities of the listed companies.
• Hedge Fund:
• Investment Fund.
• Pools capital from accredited or institutional investors.
• Invests in a variety of assets.
• Venture capital:
• Financing is provided by firms & funds.
• Applicable to small, early-stage, emerging firms.
• Deemed to have high growth potential.
 • Angel investors:
• An affluent individual who provides capital for a business start-up.
• Alternative investment funds:
• Pooled in funds from Indian and foreign investors for real estate, hedge funds, and equity.
• Collective investment schemes:
• Pools funds from investors for investment in a particular asset.
• Real estate Investment trusts:
• Pool in money from investors and issue units in exchange.
• NOTE: Kindly refer to the relevant handouts given by Ram Sudhir sir.
SEBI: (at 2.00 PM)
• The Securities and Exchange Board of India (SEBI) was first established in 1988 as a non-statutory body for regulating the securities
market.
• It became an autonomous & statutory body in 1992 with the passing of the SEBI Act 1992 by the Indian Parliament.
Bonds & Debentures: (at 2.04 PM)
• Bonds:
• A bond is a debt security/instrument.
• The government uses bonds as a means to raise funds to meet its expenditure requirements which are generally capital in nature.
• For example, NHAI issues bonds frequently to fund infrastructure.
• Borrowers issue bonds to raise money from investors willing to lend them money for a certain amount of time.
• Bond Yield:
• The yield of a bond is an effective return that it earns.
• Bond prices are inversely related to the bond yield.
• Factors that affect bond prices & bond yields are interest rates, inflation, open market operations (OMOs) of RBI, the fiscal policy of a
government, and the yield from competitive instruments like bonds in the US.
• Negative Bond Yield:
• A negative bond yield is when an inventory receives less money at the maturity of the bond than the original purchase price of a
bond.
• They are generally issued by the central banks during times of stress & uncertainty as investors look to protect their capital from
significant erosion.
• Zero coupon bond:
• A coupon bond pays interest to the bondholder over the life of the bond and repays the principal at the time of maturity but a zero
coupon bond does not pay interest and face value of the bond received by the bond holders after it reaches maturity.
• Masala Bonds:
• Masala Bonds are rupee-denominated bonds issued in other countries outside India by Indian entities.
• Before the introduction of masala bonds, companies & financial institutions borrowed through issuing bonds in the oversees market
like the USA, the UK, Singapore, etc.
• This exposed the Indian borrowers to foreign currency exchange risk.
• Depreciation of rupees has led to increased cost of capital.
• Masala Bonds help in reducing this currency risk.
• The first Masala bond was issued by International Finance Corporation (IFC) in 2014 to fund infrastructure projects in India.
• Masala Bonds are debt instruments which help to raise money in local currency from foreign investors.
• Both the government and private entities can issue these bonds.
• Investors outside India who would like to invest in assets in India can subscribe to these bonds.
 • Any resident of that country can subscribe to these bonds which are members of the Financial Action Task Force (FATF).
• Indian entities or companies issue masala bonds outside India to raise money.
• The issue of these bonds is in Indian currency rather than local currency.
• Thus, if the rupee rate falls, the investor will bear the loss.
• Inflation-Indexed Bonds(IIBs):
• It provides a constant return irrespective of the level of inflation and protects the investors against macroeconomic risks.
• Initially, IIBs were issued in the name of capital-index bonds in 1997.
• The capital index bond provided inflation protection only to the principal and not to the interest payment.
• However, IIBs provide inflation protection to both principal & interest payments.
Other terms: (at 3.16 PM)
• Bear:
• An investor who believes that the market will go down.
• Bull:
• An investor who believes that the market will go up.
• Gilt:
• A bond issued by the government carries less risk.
• Market capitalization:
• Price per share multiplied by the total number of shares outstanding.
• Retail investor:
• Investor's subscription to securities is of value less than 2 lakh.
• Tobin tax:
 • A proposed tax on international financial transactions.
• Especially speculative currency exchange transactions.
• Blue chip:
• Most valuable shares of the company.
• External Commercial Borrowings(ECBs):
• Loans in India.
• Made by non-resident lenders.
• In foreign currency.
• To Indian borrowers.
• In other words, External Commercial Borrowings (ECB) refer to commercial loans (in the form of bank loans, buyers’ credit, suppliers’
credit, and securitised instruments like floating rate notes and fixed rate bonds) availed from non-resident lenders.
• Buy-back shares:
• A buy-back occurs when a company repurchases its own shares in the market, this results in the reduction of the total
number of shares of the company that are traded publicly increasing the earnings per share and the value of the share.
• NOTE: Kindly refer to the relevant handouts given by Ram Sudhir sir for different concepts/parts/topics.
FPI and FDI: (at 3.38 PM)
• Foreign Investment means any investment made by a person resident outside India on a repatriable basis in capital instruments of
an Indian company or to the capital of an LLP.
• FPI:
• Foreign Portfolio Investment (FPI) refers to an investment that is less than 10% of equity and the investor is only interested in the
financial assets than the functioning of the company.
 • Foreign Portfolio Investment is any investment made by a person resident outside India in capital instruments where such investment
is:
• (a) less than 10% of the post-issue paid-up equity capital on a fully diluted basis of a listed Indian company or
• (b) less than 10% of the paid-up value of each series of capital instruments of a listed Indian company.
• FDI:
• FDI is the investment through capital instruments by a person resident outside India in 10 per cent or more of the post-issue paid-up
equity capital on a fully diluted basis of a listed Indian company.
• NOTE: Kindly refer to the relevant handouts given by Ram Sudhir sir
Industry sector: (at 3.47 PM)
• Under the secondary sector of the economy.
• The first industrial policy after independence was the Industrial Policy of 1948.
• 1956: Government Regulations & License Raj.
• MRTP Act of 1969:
• The act was there to prohibit monopolistic and restrictive trade practices.
The topics for the next class: (Continuance of the industry sector in India, etc).
Economics_RS Class 16
A brief overview of the previous and today's class- 5:02 PM
Industry (Dictation)- 5:32 PM
• Industry accounts for around 28% of GVA at current prices in 2021-22 this is lower than the average share of 35% for most developing
countries.
• Indian industry experienced slow and poor productivity performance during the period 1950 to 1980.
• The policy regime had a strong preference for the public sector, extensive control over private investment, highly protective trade
policy and inflexible labor laws, and promotion of the small-scale sector and ensuring regional balance were additional objectives of
the industrial policy regime.
• The period after the mid-1960s witnessed an aggressive import substitution regime and the strengthening of domestic regulatory
structures.
• In 1991 in response to a major BOP crisis, India made a radical shift away from its long-standing policy of inward orientation and
subsequent reforms have policy regime significantly towards market orientation, deregulation, and liberalization.
• Industrial policy resolution 1948-
• It made clear that India is going to follow a mixed economy model.
• It classified industries into four broad categories:
• 1. Strategic industries (public sector)- It included three industries in which the central government had a monopoly.
• These included arms and ammunition, atomic energy, and rail transport.
• 2. Basic industries (public and +private sector)- Six industries i.e coal, iron and steel, aircraft manufacturing, shipbuilding,
manufacture of telephone and wireless apparatus, and mineral oil were designated as the basic industries.
• These industries were to be set up by the central government however existing private-sector enterprises were allowed to continue.
• 3. Important industry( controlled private sector)- It included 18 industries including chemicals, sugar, cotton, cement, paper, salt,
machine tools, tractors, etc.
• These industries continue to remain under the private sector however the central government in consultation with the state
government had general control over them.
• 4. Other industries (private and cooperative sector)- All other industries which were not included in the above-mentioned three
categories were left open to the private sector.
• Industrial policy resolution 1956-
• Parliament has accepted the socialist pattern of society as the basic aim of economic policy.
 • A second industrial policy resolution was adopted in 1956 and replaced in 1948.
• IPR divided industries into the following three categories:
• Schedule A- The industries that were the monopoly of the state or government.
• It included 17 industries, the private sector was allowed to operate in these industries if national interest so required.
• Schedule B- In this category of industry the state was allowed to establish new units but the private sector was not denied setting up
or expanding existing units, for example, chemical industries, fertilizer, rubber, aluminum, etc.
• Schedule C- The industries not mentioned in the above category formed part of schedule C.
• Supportive measures were suggested for the mutual existence of the public and private sector industry.
• There was also an adequate focus on small-scale and cottage industries.
• There was also a special emphasis on the reduction of regional disparities.
• Fiscal concessions were granted to open industries in backward regions.
• Public sector enterprises were given a greater role to develop these areas.
Discussed economic survey on board- 5:45 PM
Monopolies commission 1964- 6:19 PM
• The commission looked at the concentration of economic power in the area of industry.
• On the basis of the recommendations of the commission MRTP act, of 1969 was enacted.
• The commission sought to control the establishment and expansion of all industrial units that asset size over a particular limit.
• Industrial policy state 1973-
• It categorizes a list of the industry to be started by large business houses so that the competitive efforts of small industries were not
affected.
• The entry of competitive small entrepreneurship was encouraged in all industries.
 • Large industries were permitted to start operations in ruler and backward areas with a view of developing those areas and also
enabling the growth of all industries.
• Industrial policy statement 1977-
• Development of small-scale sectors which encourage self-employment.
• Restrictive approach towards large business houses.
• Expanding the role of the public sector.
• Industrial policy 1980-
• It focussed on the liberalization of industrial licensing.
• Effective management of the public sector.
• The policy statement provided liberalized measures with respect to licensing in terms of automatic approvals to increase the capacity
of existing units which are regulated under MRTP and FERA.
• Redefining small-scale industries (SSI) i. e the investment limit to define SSI was increased to boost the development of this sector.
• In the case of the tiny sector, the investment limit was raised to 1 lakh.
• For small-scale units, the investment limit was raised from Rs 10 lakh to 20 lakh and for ancillaries Rs 15 lakh to 25 lakh.
Assessment of Pre-1991 policy- 6:40 PM
• Rapid industrial growth in the company.
• A Diverse industrial structure with self-reliance on a large number of items.
• At the time of independence, the consumer goods industry accounted for half of the industrial production in contrast capital goods
production was less than 4%.
• By 1991 capital goods production has increased to almost 24%.
• However, it is argued that the industrial licensing system promoted inefficiency and resulted in a high-cost economy.
 • Due to discretionary powers, the system promoted corruption and restricted the entry of new enterprises which adversely affected
the competition.
Break- 6:44 PM- 7:02 PM
1991 Reforms- 7:12 PM
• Economic condition- High fiscal deficit, high inflation, etc.
• The government went to institutions like IMF
• Reforms: De-licensing, Disinvestment, Tax reforms, labor reforms, replaced FERA replaced by FEMA, came up with schemes like VRS,
closing/reviving loss-making PSUs.
New industrial policy (NIP) 1991-7:23 PM
• This policy was radical compared to other industrial policies.
• It emphasizes the need to promote further industrial development based on consolidating the gains already made and correcting the
distortions or weaknesses to achieve international competitiveness.
• The liberalized industrial policy aimed at rapid economic growth along with integration with the global economy.
• Objectives:
• International competitiveness- NIP emphasizes the need to develop indigenous capabilities and technologies which will help India
manufacture products according to global standards.
• None of the earlier industrial policies either explicitly or implicitly had made reference to international technology and manufacturing
capabilities in the context of domestic industrial development.
• Redefining the concept of self-reliance - Earlier India followed an ISI strategy of (import substitution industrialization) to achieve self-
reliance.
• Economic self-reliance meant indigenous development of production capabilities and production indigenously all industrial goods.
• It helped to build a vast base of capital goods, intermediate goods, and basic goods industries over a period of time.
• NIP redefined economic self-reliance i.e the ability to pay for imports through foreign exchange earnings through exports and not
necessarily depending upon the domestic industry.
• The important elements of NIP are as follows:
• Delicensing- The removal of licensing requirements for industries, domestic as well as foreign, commonly known as delicensing of
industries.
• Till the 1990s licensing was compulsory for almost every industry which was not reserved for the public sector.
• With progressive liberalization and deregulation of the economy, industrial licenses which are regulated under the 1956 policy are
required in very few cases.
• The objective of industrial delicensing is to enable business licenses to respond to changing external conditions.
• Entrepreneurs are free to make an investment decision based on their own commercial judgment which facilitates technological
dynamism and international competitiveness.
• Dereservation & Privatization through disinvestment- Reduction in the number of industries reserved for the public sector.
• Currently, only two industries Atomic energy & railway operations are reserved for the public sector.
• The policy emphasizes bringing down government equity in all non-strategic PSUs to 26% or lower.
• Restructure or revive potential PSUs and close down PSUs that cannot be revived and fully protect the interests of workers.
• Rationalization of manpower- A VRS scheme has been introduced in a number of PSUs to reduce the surplus manpower.
• Private equity participation- PSUs have been allowed to raise equity finance from the capital market.
• This has put additional pressure on PSUs to improve their performance.
• Disinvestment and privatization of existing PSUs mainly focus on corporate efficiency, financial performance, and competition among
PSUs.
• Amendment of MRTP act 1969- Since 1961 MRTP act has been restructured and pre-entry restrictions have been removed with
respect to expansion, mergers, acquisitions, and appointment of a board of directors.
• The MRTP act has been replaced by the competition act, the law aims at upholding competition in the Indian market.
• Currently, CCI controls competition in India.
• Liberalize foreign policy- It reformed foreign investment policy to attract foreign investment.
• FERA was repealed and replaced by FEMA.
• Investment and returns can be freely repatriated except where the approval is subject to specific conditions as specified in the sector-
specific policies.
• Focus on dilution of restriction on FDI, FII, etc.
• Dilution of protection to small-scale industries and emphasis on competitiveness- SSIs enjoyed a unique status due to their
diversified status across the country and thereby utilizing resources and skills.
• Due to their potential to generate large-scale employment, and alleviate poverty SSIs were a special preference in the Indian economy.
• Since 1991 the protection of SSIs has been diluted due to:
• Promoting competitiveness by addressing the basic concerns of the sector namely technology, finance, and marketing.
• The number of items reserved exclusively for small-scale industries manufacturing was gradually removed.
• Assessment of NIP:
• The policy has removed various barriers with respect to licensing, entry barriers for foreign investment, replacing FERA with FEMA,
and replacing MRTP with CCI to regulate anti-competitive behaviors.
• The policy also focussed on opening up of markets that were earlier reserved for SSI. However, the microeconomic reforms and
judicial reforms were slow
• Thereby reducing the efficiency of the policy
• Trade policy reforms made a radical break with the past by discontinuing the complex system of import licensing and making an open
commitment to lower the tariff rates on imports.
• In 2001 India also removed quantitative restrictions on consumer goods and agricultural goods thereby increasing competition within
the domestic market.
• In the 1990s the FDI rules with liberalized with an intention of improving access to foreign technology and world markets.
 • Many industries were deregulated and open to FDI, and boards like FIPB (which does not exist) have been set up to expedite
applications for foreign investment.
Topic for the next class- MSME, Banking
Economics_RS Class 17
Micro small and medium enterprise- [5:05 PM]
• Data related to MSME-
• Women ownership- 20% of all MSME businesses are owned by women.
• Share in exports around 45%.
• Employment- Around 100 million workers are employed in MSMEs.
• Rural base- 60% of MSMEs belong to ruler India.
• Share in GDP- 6.1 %.
• Significance-
• Employment transition- Key driver for the transition from agrarian to industrialized economy.
• Inclusive growth- Women's ownership, traditional craftsmen, and 60% of MSMEs belong to rural India ensuring inclusive growth.
• Building brand India- participation in the global market.
• Indigenous growth- This can help develop India's domestic strength and substitute foreign products.
• Strengthen the domestic supply chain- MSMEs create an environment where they act as ancillaries to larger industries and integrate
with the global supply chain.
• Value-added services- There is a clear opportunity in terms of global demand for value-added services and products.
• Social significance
• Social justice- It can give marginalized groups to participate in the economic growth of the nation eg. tribal handicrafts generate a flow
of revenue to underdeveloped tribal areas.
• Women empowerment
• Balance regional development- with almost even distribution of MSMEs across the length and breadth of India.
• MSME reduces work base migration-
• Reduces income inequality
• Rural development and tribal development
• Challenges-
• Poor insolvency process- Takes around 7.9 years according to the world bank.
• More than 90% of MSMEs operate in an unorganized sector.
• Inadequate branding, and lack of economies of scale.
• Anti-red-tapism
• Regulatory hurdles
• MSMEs require government permission and approval making it difficult for smaller entrepreneurs.
• Delay payments
• Low production capacity.
• Lack of access to credit.
• Increasing international competition.
• Non-availability of skilled labor.
• Lack of adequate infrastructure.
• Poor digital presence.
• MSMEs turning out to become doabs (10 years in existence but less than 100 permanent jobs).
• Automation and artificial intelligence.
 • Government initiatives-
• The government doubled the budgetary allocation
• Udyog aadhar memorandum- it replaces the filing of manual entrepreneur memorandum with the online facility for filing
entrepreneur memorandum.
• Labor reforms- Introduction of Shram suvidha portal to comply with labor laws.
• Credit-linked capital subsidy scheme.
• Focus on skill development.
• Wayforward-
• Implement UK Sinha committee recommendations- restructuring stressed loans through government-sponsored funds (10K crores),
Collateral free loans, focus on cluster manufacturing, and development of infrastructure.
• MSME and e-commerce can collaborate on various roles and supply links resulting in better supply chains.
• Promoting a culture of innovation and leveraging industrialization.
Banking (Need to be covered by Handouts)- [5:42 PM]
• Bank vs. NBFC
Non-performing Asset (NPA's)- [6:26 PM]
• The biggest threat the Indian banking system was facing between 2011-16 was the NPA.
• NPAs are loans lent by banks and financial institutions whose principal and interest are delayed beyond 90 days.
• In simple terms, any asset that seizes to provide returns to its investors for an extended period is referred to as NPA.
• Classification of NPA-
• Sub-standard asset- NPAs less than equal to 12 months.
• Doubtful asset- NPAs greater than 12 months.
 • Loss-making asset- when the banks have identified the loss but it has not been written off.
• Impact of NPAs-
• Negative impact on economic growth.
• NPAs can increase inflation.
• Credit lending to small-scale sectors will be affected.
• Indirect impact on inclusiveness.
• Slippage ratio- It indicates how standard assets are turning out to become NPAs.
Steps were taken by the government to curb NPA's (need to be covered from handouts)- [7:31 PM]
• S/25 scheme 2014
• Strategic debt restructuring
• Asset quality review 2015
• Scheme for sustainable structuring of stressed assets
• SARFAESI Act, 2002
• Asset reconstruction companies
• Bad banks
Topic for the next class- Continuation of the topic - Banking, Basel-III norms
Economics_RS Class 18
A brief overview of the previous class- 5:04 PM
Basel norms- 5:11 PM
• The Basel committee on banking supervision (BCBS) issues Basel norms for maintaining international standards with respect to
banking stability.
• Basel is a city in Switzerland and it is the headquarters of the Bureau of international settlements (BIS), which promotes the
corporation among the central banks with a common goal of financial stability and banking regulatory standards.
• The Basel accord refers to a set of agreements by the NCBS that primarily address risks related to banks and the financial system.
• The agreement's goal is to ensure that financial institutions should have sufficient capital to meet obligations and absorb expected
losses.
• The Basel accord has been accepted by India, in fact, RBI has imposed more stringent standards on a few parameters than the BCBS.
• Basel -I norms-
• BCBS introduced a capital measurement system called the Basel capital accord in 1988.
• It was also known as Basel-1 and was entirely concerned with credit risk.
• It established the capital and the risk-weighted structure for the banks in the form of a capital adequacy ratio.
• CAR is equal to total capital divided by risk-weighted assets.
• The required minimum capital was set at 8% of the risk-weighted asset.
• Risk-weighted assets- RWA refers to assets with varying risk-weighted profiles eg. an asset backed by collateral would be less risky
than a personal loan with no collateral security.
• Capital is divided into two categories tier-1 and tier-2 capital.
• Tier-1 is a bank score capital because it is a primary measure of a bank's financial strength.
• The majority of tier-1 capital is made of disclosed reserves (retained earnings) and common equity.
• Tier-2 capital is used as supplemental funding since it is less reliable, it consists of undisclosed reserves, preference shares, and
subordinate debt.
• In 1991 India adopted Basel -I guideline.
• Basel-II
• BCBS published Basel -II guidelines in June 2004 which were considered to be refined and reformed versions of the Basel-1 accord.
 • The guidelines were founded on three pillars.
• 1. Capital Adequacy requirements- Banks should keep adequate capital requirements of 8% of the risk-weighted asset.
• 2. Supervisory review- Banks were required to develop and implement better risk management techniques for monitoring and
managing all three types of risks (credit, operational, and market risks).
• 3. Market discipline- It requires strict disclosure requirements, ie banks must report their CAR, risk exposure, and other information to
the central bank on regular basis.
Basel -III- 6:05 PM
• In the wake of the Lehman collapse in 2008 and the financial crisis, BCBS decided to update and strengthen the accord.
• The guidelines were intended to promote a more resilient banking system focusing on four critical banning promotions i.e capital,
leverage, funding & liquidity.
• Base-III was focussing on better capital quality i.e higher loss-absorbing capacity.
• It also suggested additional capital conservation buffers and counter-cycle buffers.
• Capital conservation buffer (CCB)- Banks are required to hold a CCB of 2.5%. The focus of this buffer is to ensure that banks maintain a
cushion of capital that can be used to absorb losses.
• Countercyclical buffer- This buffer has been introduced with the objective of increasing capital requirements during good times and
decreasing the same during the crisis.
• The buffer will slow the banking activities when the economy overheats and will encourage lending during a crisis.
• The buffer will range from 0--2.5% consisting of common equity or other loss-absorbing capital.
• Leverage Ratio-The ratio of banks' core capital to the total consolidated assets.
• Funding & liquidity- Basel-III established two liquidity ratios- LCR & NSFR
• Liquidity coverage ratio- It requires banks to maintain a buffer sufficient to deal with cash outflows encountered in short-term
scenarios.
• The goal is to ensure that banks have enough liquidity to handle a 30-day stress scenario if it occurs.
 • Net stable funding ratio- It requires banks to fund their operations with stable sources of funding for a minimum period of 1 year &
above i,.e LCR assesses short-term resilience & NSFR we'll assess medium to long-term resilience.
MCLR- 7:02 PM
• The marginal cost of funds lending rate-It is the lowest rate of fund lending
• No bank is permitted to lend below this.
• It is determined by banks internally depending upon the loan repayment time.
• The rate varies from one bank to another.
• MCLR was introduced due to a lack of monetary transmission under the base rate system.
• Under MCLR as soon as the repo rate changes banks must adjust their interest rates.
• Banks will take into consideration several aspects like FD rates, current accounts, savings accounts, etc.
• In determining the cost of funds.
• Factors that impact MCLR-
• 1. The marginal cost of funds
• 2. CRR cost
• 3. Operating cost
• 4. Tenure premium- As the ensure increases i.e with a longer duration of loan its risk increases to cover this risk the bank charges an
amount from the borrowers.
• This amount is called the tenure premium.
• Banks generally publish their MCLR, concerning different maturities every month on a specific date, however, they may also consider
reviewing their MCLR quarterly for the first year after which they can go back to monthly reviews.
Difference between MCLR and base rate- 7:30 PM
• MCLR is an advanced version of the base rate.
 • The base rate uses the average cost of funds whereas MCLR uses marginal cost or incremental cost.
• While calculating base rate a minimum rate of return or profit margin is used whereas for MCLR banks is required to include tenure
premium into the calculation i.e banks charge a higher rate of interest for long-term loans.
• Shadow banking, differentiated banking, and Payment banks (need to be read from handouts).
Topic for next class- Insolvency Act
Economics_RS Class 19
Insolvency and Bankruptcy Code (IBC) - 5:04 PM
• IBC is a one-stop solution for resolving insolvencies which were formerly a time-consuming process.
• IBC tries to protect small investors' interests while also making the business process easier.
• IBC is India's Bankruptcy law which aims to unify the existing framework by establishing a single structure.
• Insolvency is a condition in which a debtor is not able to pay his debt and bankruptcy is a legal process that involves an involved
person or company that is unable to pay its debts.
• IBC establishes a faster insolvency procedure to assist creditors such as banks in recovering debts and avoiding bad loans which are a
major drag on the economy.
• The code establishes a legal structure focussing on a time-bound resolution and faster liquidation mechanism.
• The framework consists of the following elements:
• Adjudicating authority - They will start the resolution process, appoint an insolvency professional and also sign on the creditor's
ultimate judgment.
• NCLT is the deciding authority for corporations and the debt recovery tribunal handles individuals and partnership firms.
• Insolvency professionals- They will be in charge of the resolution procedure.
• They also handle debtors' assets and provide information to creditors.
• To help them make appropriate decisions.
 • Insolvency professional agency- Insolvency practitioners will be registered with a professional agency.
• A code of behavior will be enforced by these agencies.
• Information Utility center- They will maintain track of debts owed to creditors as well as repayment and debt defaults.
• Insolvency and bankruptcy boards- These will oversee insolvency experts and professional agencies.
• It is a regulatory authority for insolvency and bankruptcy proceedings.
• The goal of IBC is to address insolvencies within a prescribed time limit.
• The company is subject to 180 days moratorium which can be extended up to 270 days.
• The resolution time frame for start-ups and small businesses is 90 days which can be extended by another 45 days.
• Benefits of IBC-
• 1. Faster resolution
• 2. Prevents job losses
• 3. Reduces NPA
• 4. Greater debtor autonomy
• Challenges of IBC-
• Lack of resources and judicial intervention
• Greater emphasis on liquidation rather than revival
• Poor approval rate- According to the Insolvency and bankruptcy board of India NCLT approved just 15% of corporate insolvency cases
from 2016 to 2019.
Infrastructure- 5:39 PM
• Infrastructure is the set of basic physical systems of a business, region, or nation.
• Infrastructure is fundamental in the sustainable functionality of the very entity itself.
• These are basic facilities necessary for the proper functioning of an economy and society.
• Types Infrastructure-
• Social- It includes housing, health, education, etc.
• Economic- This refers to a set of fundamental structures which support the process of production and distribution in an economy eg.
transportation, power, etc.
• Soft - It refers to infrastructure that comprises institutions that help in maintaining the economy.
• They include the delivery of certain essential services to the population.
• Human capital usually forms the main component of this infrastructure eg. Healthcare systems, financial systems, education systems,
etc.
• Hard- It refers to the physical system that is necessary for running a nation eg. roads, highways, bridges, etc.
• The current state of India's infrastructure- the Indian infrastructure has been showing a growing trend.
• India has the plan to spend $1.4 Tn in infrastructure between 2019-2023.
• Road transport holds a dominant share of traffic in the transportation sector.
• It is estimated that the national highway Authority of India will generate about Rs 1 Lakh crores in revenue from tolls.
• The telecommunication sector is also booming in India as per the economic survey 2019-20, total mobile phone connections grew by
18.08% from 2014-15 to 2018-19.
• It is estimated that India will become the world's 3rd largest construction market.
• With COVID -19 pandemic suddenly things came to a halt and therefore government wants to refocus on ensuring a sustainable
growth rate with respect to the Indian infrastructure sector.
• Infrastructure financing (IF)-
• IF is a challenge in India, according to the 11th five-year plan 45% of the total infrastructure funding is coming from the government
budget, and 55% is managed through debt and equity sources.
 • Banks play an instrumental role in IF.
• Challenges in IF
• 1. The fiscal burden of the government is high.
• 2. Increase in funding gaps, especially after the 2008 subprime crisis (ECBs were affected).
• 3. Asset liability mismatch of banks.
• 4. The bond market is still not developed in India. (corporate bond market, municipal bond market).
• 5. Investment obligations on insurance and pension fund companies.
• 6. Legal and procedural issues.
The measure took by the government toward Infrasture financing- 7:03 PM
• PPP projects in infrastructure- government faces tight budgetary constraints in the rule-based fiscal policy framework.
• It was important to encourage the private sector to invest in infrastructure.
• Viability gap funding (VGF)- Introduced in 2006, where the central government provides 20% of the total capital cost concerning PPP
projects (total 40%, 20% government & 20% sponsoring agency).
• FDI in infrastructure development- To facilitate infrastructure financing 100% FDI is allowed under automatic route into sectors like
mining, power, SEZ, etc.
• Setting up of infrastructure debt fund- RBI & SEBI notify guidelines for setting up of IDFs in the form of NBFC and mutual fund
companies.
• The government has reduced withholding tax on interest payments from 20% to 5%.
• IDFs are expected to channel funds from insurance companies, pension fund companies, and other long-term sources into the
infrastructure sector.
• Liberalization and rationalization of ECBs.
• Introduction of credit default swaps to strengthen the banking sector.
Public-private partnership (PPP)- 7:20 PM
• Government typically has several objectives to perform like infrastructure development, welfare mechanism, timely delivery of
services, meeting public needs, and so on.
• PPPs have shown their potential as an important tool to meet these objectives and address infrastructure shortages,
• These projects provide new sources of capital for public infrastructure development by shifting the responsibility for arranging the
finances to the private sector.
• PPPs refer to a contractual agreement between a government agency and a private sector entity that allows for greater private
participation in the delivery of public infrastructure projects.
• PPP models for existing projects-
• Management or service contract-
• It's a contractual agreement for the management of part or whole public enterprise for example a specialized port terminal for
container handling by the private sector.
• A management contract allows private sector skills to be brought into service, design, and delivery however the public sector retains
the ownership of the facility.
• A private contractor is paid a fee to manage and operate and the payment is generally performances based.
• Usually, the contract period is short-term (3-5 years).
• Advantages-
• Less risk due to shorter duration.
• Least number of conflicts.
• Disadvantages
• Almost all risk is taken up by the public sector.
• Less incentive for a private player to invest.
 • Turn Key management project-
• It is a traditional public sector procurement model for infrastructure facilities.
• Generally, a private player is selected through a bidding process.
• A private player builds and designs the facility for a fixed fee which is one of the criteria for selecting the winning bid.
• The scale of investment by the private player is generally low and for a short-term period.
• Affermage/Lease-
• In this category of arrangement, the leaseholder is responsible for operating and maintaining the infrastructure facility that already
exists.
• Generally, the operator is not required to make any large investment except when this model is implemented with another model.
• The difference between affermage and lease is technical. Under the lease, the operator retains the revenue collected from the
customer and makes specified lease payments to the contracting authority.
• Under the affermage, the operator and the contracting authority share the revenue.
• Concession-
• In this form of PPP government grants specific rights to a private player to build and operate the facility for a fixed period.
• In concession, payments can take place both ways i.e the private player pays the government for concession rights and the
government pays the private payer for providing certain servcies.
• Usually, such payments by the government are necessary to make the projects commercially viable. eg. area concession, water
• The public sector's role shifts from being a service provider to regulating the price and quality of service.
Topic for next class- Continuation of the topic PPP
Economics Class 20
Revision of the previous class(05:08 PM)
Effect of inflation on government and taxpayer (05:20 PM)
 • Fiscal Drag:
• Most of economies have a progressive system of taxation which is the proportion of income that a person pays as taxes increases with
an increase in income.
• During inflation workers' negotiate for higher wages, which results in the firms passing on the increased cost to the economy.
• This pushes the prices up, hence leading to another round of demand for an increase in wages.
• This is called the Price- wage spiral.
• It may happen that workers despite receiving an increment equal to the rate of inflation, are still poorer in real terms.
• This is because with an increment they may be pushed into a higher tax bracket, and therefore pay a greater proportion of their
increment in taxes, rather than receiving it themselves.
• The government collects more taxes than it what it would normally have collected.
• The taxpayer ends up paying more taxes than what would be normally paid.
• This phenomenon is called fiscal drag.
• It acts as an automatic stabilizer.
• With a rise in prices, workers demand higher wages.
• With the increase in wages, they pay more proportion of their income as taxes, and hence they are relatively worse off than before
inflation.
• As a consequence they reduce their consumption, leading to a lowering of the total demand in the economy.
• This eventually leads to a cooling off of prices.
• Hence, the automatic stabiliser.
Controlling inflation(05:53 PM)
• The idea is to control prices by identifying the reason which has led to inflation.
• Supply-side reasons would need supply-side solutions which are resource-intensive and time-consuming.
 • Inflation affects the person/economy today that is in present.
• Supply-side reasons are expected to produce solutions in the long term only.
• Hence, most commonly inflation is addressed through demand-side reasons that is by controlling the demand for goods and services
in the economy.
• Even amongst the demand-side factors, the most effective and acceptable way is to increase the cost of money to discourage people
to spend it,
• Increasing the cost means lesser capability and willingness to borrow, and hence lesser expenditure.
• This reduces the aggregate demand and helps bring down the prices.
• The most effective way of increasing the cost of money is through the conduct of monetary policy.
Money supply and monetary policy(06:15 PM)
• Money is commonly defined as the medium of exchange.
• This means that it should be such that it can facilitate economic exchanges between people in general.
• For something to facilitate such exchanges it should have the following properties:
• 1. It should always be demanded:
• Any item to be used as a facilitator of exchanges should be such that the seller of the good always demands it.
• In earlier times, it was those goods that had an intrinsic value that is goods that were thought to possess desirability or utility all the
time.
• For example, gold.
• In modern times the value can also be by order of an authority.
• The authority having the power to enforce such an order is usually the monetary authority of the country, which is the
country's central bank. For example, RBI.
• The monetary authority issues currency which is also called fiat money- something which has value by order.
 • The currency is also called legal tender- It is something that cannot be refused as a means of repayment of debt.
• 2. To be used as a medium of exchange, the entity should be usable as a store of wealth that is it should be usable not just today but
also in the future if stored today.
• For this, it must be easily storable and should not lose value with time.
• 3. It should be an entity whose quality can be assured.
• For this, it must be such that it is non-counterfeitable and the authority responsible for creating/issuing must ensure of its quality
that is its value.
• 4. It should be such that it must be able to designate the value of a large number of goods and services.
• It must be divisible into smaller units to value low-value goods, or additive to value high-value goods.
• Further, it should be usable as a unit of account so that a record of total values bought and sold could be maintained.
Modern money- currency(07:08 PM)
• Money is not merely the currency notes that are printed by the central bank or any other authority.
• Money is introduced into the economy by the authority when it buys something from the economy and then it forces the seller to
accept the entity which it wants to use it as money.
• Modern money has evolved from gold (gold coins) to gold standard (gold-backed currency) to a modern multi-asset-backed currency.
• For most of history, gold was money.
• However, as the economy grew in size and a larger number of goods needed to be exchanged, gold became scares and hence was
unable to fulfill its role as money.
• Instead of gold, gold-backed promises were introduced to be as currency. Still, the number of promises, even if they could be issued in
lower denominations (such as 1 dollar = I gm of gold), proved to be a limitation as the transactions could not be carried out due to
gold scarcity.
• As a result, a new asset was required apart from gold which could be used to create money without compromising the trust of the
people in the currency that is the promises.
 • This new asset was the government bond. It is a promise by the government to return the money it has borrowed along with the
interest in the given time period. This promise is assumed to be inviolable.
• The authority to issue currency was separated from the government. Thus, modern central banks came into existence.
• The central banks would create money (that is the pieces of paper promising to be exchanged for a face value written on them),
against the assets that it would acquire.
• For example, the central bank would acquire gold and print and inject money into the economy against this acquired asset.
• Further, the government would print the government bonds which are its promises (inviolable), and the central bank would purchase
these government bonds using the currency that it prints.
• ***Modern Currency is thus a promise against another promise.
• The currency system is ultimately based on trust- trust in the RBI’s ability to fulfill its promise written on the currency note which is
based on the trust in the government’s promise written on the government bond.
The topics to be discussed in the next class-Continuation of the topic money and banking
Economics_RS Class 21
Dictation: Role of agriculture in the Indian economy- [5:05 PM]
• Indian agriculture has reached the stage of development and maturity much before the now advanced countries of the world.
• There was a proper balance between agriculture and industry and both flourished hand in hand till the mid-eighteenth century.
• The interference of the British and its deliberate policy which has devasted cottage industries and handicrafts has disturbed this
balance affecting the Indian economy.
• Britishers focussed on intermediaries like zamindars who directly exploited poor farmers.
• A substantial part of the produce was taken away by this parasitic class and the actual cultivator was left with mere subsistence
therefore Indian agriculture in the pre-independence period can be described as a subsistence occupation.
• It was only after the advent of planning and more precisely after the first green revolution that some farmers started adopting
agriculture on a commercial basis.
• Share of agriculture-
• At the time of WW-I agriculture contributed to around 2/3rd of National income, this was on account of the practical non-existence of
industrial development and infrastructure.
• However, after the initiation of planning the share of agriculture has persistently declined.
• Along with the development of industry and the tertiary sector.
• From 53.4% in 1951, it has almost reduced to 15.4% in 2015-16 (GVA at basic price) the share of agriculture in national income is often
considered an indicator of economic development.
• Normally developed economies are less dependent on agriculture compared to underdeveloped economies i.e as the country
progresses dependence on agriculture reduces.
• Largest employment-providing sector-
• In the 1970s around 65% to 75% of the working population was engaged in agriculture this reduce to almost 60% in the 1990s and
subsequently to 48.9% in 2011-12.
• With the rapid increase in population, the absolute number of people engaged in agriculture has become exceedingly large.
• The development of other sectors of the economy has not been sufficient to provide employment further increasing the pressure on
land.
• This has increased the problem of underemployment and disguised unemployment.
• The scenario is the same for most underdeveloped economies.
• Provision of food surplus to exploding population-
• The existing levels of food consumption in these countries are very low and with little increase in per capita income, the demand for
food rises exponentially i.e income elasticity of demand for food is higher in developing countries.
• Therefore unless agriculture increases its marketed surplus of food grains a crisis is likely to emerge.
• Providing raw materials to industry.
• Role of agriculture with respect to poverty reduction-
 • According to a World development report over the last 25 years in developing countries for every 1% growth in agriculture is at least 2
to 3 times more effective in reducing poverty than the same growth coming from the non-agricultural sector.
• The market for industrial products:-
• Since more than 2/3rd of developing countries' population live in rural areas increased rural purchasing power is a valuable stimulus
for industrial development.
• In India with the spread of the first green revolution income of large farmers increased whereas their tax liabilities are negligible.
• The corporate sector has identified the potential market in rural areas of India, especially after 1991.
• Importance in International trade:-
• For several years agro-based exports like cotton textiles, jute, and tea accounted for more than 50% of our export earnings.
• The development of agriculture in India is a pre-condition of sectoral diversification and economic development.
• A growing surplus of agricultural produce is needed to increase the supply of food and agricultural raw materials at non-inflationary
prices.
• Agriculture plays an important role in widening the domestic market for industrial goods, by increasing the purchasing power of the
rural sector, and facilitating inter-sectoral transfers of capital needed for infrastructure development.
• Also increasing forex earnings through agri-exports therefore agriculture has to be kept at the center of every reform agenda or
planning process to make a significant dent in poverty and malnutrition and to ensure long-term food security for the poor.
Dictation: Nature of Indian agriculture-[6:28 PM]
• 1. Rain-fed agriculture
• 2. Feudal relations are affecting the agrarian economy.
• 3. Issues of capital and rural indebtedness- Indebtedness is the common legacy of poor farmers during the pre-independence period.
• Money lenders were the only credit entities available for the farmers.
• After independence government developed cooperative credit institutions along with increasing participation of banks in proving rural
credit.
 • However small and marginal farmers are still dependent on moneylenders due to several reasons.
• The phrase 'once in debt always in debt' expresses the condition of these farmers.
• 4. Labor market dualism-Due to excessive pressure on land wages in the agricultural sector tend to be considerably lower in
comparison to the modern industrial sector.
• This leads to labor market dualism i.e large number of workers remain with traditional agriculture despite low wages.
• 5. Outdated farming techniques-with the advent of the first green revolution modern techniques of production was initiated in certain
selected regions of the country like Punjab, Haryana, western UP, etc.
• However many other areas of the country continue with outdated techniques leading to technological dualism.
• 6. Fluctuation and instability in crop output- Even today approximately 52% of the gross cropped area continues to depend on rainfall
and therefore monsoon plays a critical role in determining the level of agriculture production.
• 7. Diversities in the agricultural sector and the problem of generalization- India is a large country having substantial agricultural
diversities.
• Different regions exhibit different characteristics and therefore no one plan can be conceived for all agricultural regions of the country.
• Fragmented land holding (land reforms)
• 9. Competition from developed countries especially 1991.
• 10. Subsidies and investment into research and development
• 11. Infrastructure, middlemen, and issues of agricultural marketing.
• 12. Issues of agricultural credit.
Dictation: Agricultural market-[7:07 PM]
• Advanced agricultural marketing resulted in surplus production which changed the subsistence phase of Indian agriculture.
• Approximately 33% of the output of food grain, pulses, and cash crops like cotton, oil seeds, etc are marketed as they remain surplus
after meeting the consumption needs of the farmer.
• Increasing the efficiency of the marketing mechanism would result in the distribution of the products at lower prices to consumers
having a direct bearing on national income.
• An improved marketing system will stimulate the growth in the number of agro-based industries mainly in the field of processes.
• History of Agricultural marketing in India-
• For a long time, a traditional market system was existing in India.
• It was characterized by village sales of agricultural commodities, post-harvest immediate sales by farmers, etc.
• In 1928, the royal commission pointed out the problems of traditional marketing as high marketing costs, unauthorized deductions,
and the prevalence of various malpractices.
• This led to the demand of having regulated markets in India.
• Regulated markets- The regulated market aims at the elimination of unhealthy and unscrupulous practices, reducing market costs and
providing benefits to both producers as well sellers in the market.
• Post-independence most of the states enacted the agricultural produce market regulation act.
• It authorizes states to set up and regulate marketing practices in wholesale markets.
• The objective was to ensure that the farmers get a fair price for their produce.
• However regulated markets had the following drawbacks:
• 1. Under this regulation no exporter or processor could buy directly from the farmers so it discourages the processing and exporting of
agricultural products.
• 2. Under the act state could only set up the market thus preventing private payers from setting up markets and investing in marketing
infrastructure.
• 3. Formation of a cartel with links to caste and politics makes the system inefficient.
• 4. An increased number of middlemen formed a virtual barrier between the farmer and the consumer
• 5. The licensing of commission agents in the state-regulated markets has led to the monopoly of license traders acting as a major entry
barrier for new entrepreneurs.
• 6. The fragmentation of markets within the state hinders the free flow of agro commodities from one market area to another and
multiple handling of agri-produce and multiple levels of mandi charges end up escalating the prices for the consumers without
adequate benefits to the farmers.
• Solutions:
• Amendments in APMC Act - consequently the interministerial task force on agricultural marketing reforms 2002 recommended the
APMC, Act is amended to allow for direct marketing and establishment of the agricultural market by the private and cooperative
sectors to provide more efficient marketing and create an environment conducive to private investment.
• In response, the Ministry of Agriculture proposed the model act on agricultural marketing in consultation with the state governments
for adoption by states.
• It is within the powers of the state government to decide whether to make amendments or not.
• Model APMC Act-2003
• As per the act, the state is divided into several market areas each of which is administered by a separate agricultural produce
marketing committee that imposed its marketing regulation including fees.
• Producers and local authorities are permitted to apply for the establishment of new markets for agricultural produce in any area.
• Provision for contract farming, Allowing direct sales of farm produce.
• Single point levy of market fees on the sale of notified agricultural commodities in any market area.
• Separate provision is made for notification of special markets in any market area for specified agricultural commodities.
• It provides for the creation of marketing infrastructure from the revenue earned by the APMC.
• Provision made for resolving disputes in the private market.
• e-NAM
• It is an online trading platform for agricultural produce aiming to help farmers, traders, and buyers with online trading and get a better
price to smooth marketing mechanism.
• Need for e-NAM-
• Administration of agricultural marketing is carried out by the respective state.
• Each state has its own APMC act with varied provisions and every state is further divided into several market areas which are
separately administered by respective APMCs.
• This fragmentation of markets even at the state level hinders the free flow of Agri commodities between different markets.
• Multiple handling of Agri produce and multiple levels of mandi charges led to higher prices for the consumers without equivalent
benefits for the farmers.
• These challenges are addressed by e-NAM by creating a unified market through online trading platforms both at the state and the
national level.
• e-NAM mandates three changes in the agricultural marketing laws of the state:
• 1. Providing for electronic trading.
• 2. Providing a single trading license i.e valid in all mandis in a state.
• 3. Provide a single window levy of transaction fees.
• Salient features of e-NAM-
• The e-NAM portal will enable farmers to showcase their products through their nearby markets and facilitate traders from anywhere
to quote the price.
• e-NAM provides a single window service for all APMC-related aspects including commodity arrivals, quality, and prices, buy and sell
offers, and e-payment settlements directly into the farmer's account.
• Using the e-NAM service licenses for the traders, buyers, and commission agents can be obtained from the state-level authorities
without any pre-conditions of physical presence or premises in the market yard.
• Benefits of e-NAM
• Transparent online trading
• Real-time price discovery
• Better price realization for product
 • Reduce transaction costs for buyers
• Stable price and availability to consumers
• Payment and delivery guarantee
• Error-free reporting of transactions
Topic for the next class- Continuation of the topic Agriculture, answer writing, notes making
Economics_RS Class 22
New features of e-NAM-5:03 PM
• The two new features
• 1. warehouse based trading module in e-NAM software will enable trade from warehouses according to electronic negotiable receipt.
• 2. Farmers producer's organization trading module in e-NAM enables FPOs to trade their produce from their collection centers
without bringing the produce to APMC.
• These new features make it more convenient for farmers to sell their produce at the warehouse and collection center established by
the FPO.
• Universal basic income (merits and demerits) Explained on board (read from handouts).
Economic of Animal rearing- 5:31 PM
• Animal husbandry deals with the breeding of livestock like buffalo, pigs, horses, and sheep that are useful to humans.
• It includes poultry farming and fisheries, it includes dairy farm management, poultry farm management, bee-keeping, and fisheries.
• Benefits of animal husbandry:
• Contribution to GVA- it has an important place in the Indian economy, livestock contributes to around 5.2% of total agricultural GVA.
• Income security- Additional income from animal husbandry can help augment rural income, it also provides employment to about
8.8% of the population in India.
 • Employment to millions in rural India- For many, it is the only source of livelihood, about 20 million people depend on livestock for
their livelihood.
• Ensuring food security- The livestock provides food items such as milk, meat, and eggs for human consumption.
• Around 95 Billion eggs, and 177 million tonnes of milk.
• Transport - Pack animals like camel, horses, and donkeys and are extensively used to transport goods in different parts of the country.
• Nutrition- They serve as a vital portion of protein by improving human health and welfare.
• Cultural benefits and social security- Families especially landless to own animals are better placed.
• Benefits of allied activities-
• 1. Creation of multiple revenue sources
• 2. Helping the farmers during crop failure
• 3. Nutritional security for farmers- Reducing their day-to-day household expenses, would ensure more disposable income that can be
reinvested into farming activities.
• 4. Special focus on dry land areas- Small and medium farmers with fragmented land can benefit from poultry and other allied
activities.
• 5. Promote downstream industry and employment related to food processing.
• Answer Writing Practice (covered on the board)- 6:59 PM
• E-Technology (needs to be done from PPT)- 7:06 PM
• Notes making (explained on board).
The lectures of Ram Sudhir Sir concluded