Economy Module

New economic • Helps in escalating the performance

benchmarks of the industry in general .
Reforms-Liberalization, • Can initially have an undesirable impact
on the employees but gradually in the long
Privatization and term, shall prove beneficial for the growth
and prosperity of the employees .
Globalization, rationale • Privatized enterprises provide better and
and need for reforms prompt services to the customers and help
in improving the overall infrastructure of
the country.
Impacts of Privatization
DISADVANTAGES OF
Privatization in generic terms refers to the PRIVATIZATION
process of transfer of ownership, can be of Privatization in spite of the numerous
both permanent or long term lease in benefits it provides to the state owned
nature, of a once upon a time state-owned enterprises, there is the other side to it as
or public owned property to individuals or well. Here are the prominent disadvantages
groups that intend to utilize it for private of privatization:
benefits and run the entity with the aim of • Private sector focuses more on
profit maximization. profit maximization and less on social
ADVANTAGES OF PRIVATIZATION objectives unlike public sector that
Privatization indeed is beneficial for the initiates socially viable adjustments in case
growth and sustainability of the state- of emergencies and criticalities .
owned enterprises. • There is lack of transparency in private
• State owned enterprises usually are sector and stakeholders do not get the
outdone by the private enterprises complete information about the
competitively. When compared the latter functionality of the enterprise .
show better results in terms of revenues • Privatization has provided the
and efficiency and productivity. unnecessary support to the corruption and
Hence, privatization can provide the illegitimate ways of accomplishments of
necessary impetus to the underperforming licenses and business deals
PSUs . ADVANTAGES AND
• Privatization brings about radical DISADVANTAGES OF
structural changes providing momentum in PRIVATISATION IN INDIA
the competitive sectors .
• Privatization leads to adoption of the  Privatization loses the mission with
global best practices along with which the enterprise was
management and motivation of the best established and profit
human talent to foster maximization agenda encourages
sustainable competitive advantage and malpractices like production
improvised management of resources. of lower quality products, elevating
• Privatization has a positive impact on the hidden indirect costs, price
the financial health of the sector which escalation etc..
was previously state dominated by way of • Privatization results in high
reducing the deficits and debts . employee turnover and a lot of
• The net transfer to the State owned investment is required to train
Enterprises is lowered through the lesser-qualified staff and even
privatization .

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making the existing manpower of activities,decline in role of govt in key

PSU abreast with the latest industries, social and infrastructural sector.
business practices .
• There can be a conflict of interest 2- Privatization- Public offering of shares
amongst stakeholders and the and private sale of shares, entry of private
management of the buyer private sector in public sector and sale of govt
company and initial resistance to enterprises.
change can hamper the
performance of the enterprise . 3- FDI
• Privatization escalates price
inflation in general as privatized 4- International regulatory
enterprises do not enjoy bodies(WTO,IMF)
government subsidies after the deal
and the burden of this inflation 5- MNC‘s
effects common man
6- Infrastructural development

7- Expansion of information and

communication technology and birth of
information age.
Impacts of Globalisation:-
8- Outsourcing of services- ie BPO and
Definition of Globalization :- Its a Call Centres.
process(not an outcome) characterized by
increasing global Interconnections by 9- Trade related intellectual property
gradual removal of barriers to trade and rights(TRIPS)- product based patent rather
investment between nation and higher than process based.
economic efficiency through
competitiveness. Social effects:-

Various economic, political, social and  Withdrawal of National govt from

cultural effects of globalization are as social sectors ie declining share of
follows:- govt in public spending, reducing
social benefits for worker(social
Economic:- dumping,pension cuts,subsidies
reduction)
 Breaking down of national  Labor reforms and deteriorating
economic barriers Labor welfare:-
 International spread of Trade, o Labour Market
Financial and productive activities deregulation:-
 Growing power of transnational  Minimum wage
cooperation and International fixing
financial Institutions(WTO,  Employment
IMF)Through the process of:- security
 Modifying tax
1- Liberalization- relaxation of restrictions, regulation
reduction in role of state in economic

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 Relaxed standards  Globalization of National Policies-

of security Influenced by International
o Increased Mechanization agencies
demands skilled labour and  Reducing economic role of govt
thus loss of job for  Political lobbying
unskilled labour
o Loss of jobs for traditional
workers for example bihar
silk workers due to Positive effects of Globalization
imported Chinese- Korean
silk  Increased competition
 Feminism of Labour ie increased  Employment generation
women participation specially in  Investment and capital flow
soft industries  Foreign trade
 Trickle down theory of poverty  Spread of technical know how
reduction has limited success and  Spread of education
in agricultural nations poverty has  Legal and ethical effects
infect increased.  Improved status of women in the
 Unsustainable development society
practices such as:- excessive use of  Urbanization
fertilizers, irrigation, fish trawling  Agriculture:- greater
by mnc‘s(Protein flight efficiency,productivity, use of
),Exploitation of natural resources HYV seeds, Future contracts and
by MNC‘s. cooperative farming
 Migration and urbanization have  Higher standard of living
lead to problem of slums
 Commercialization of indigenous
knowledge:- patenting
 Rising inequality in wealth
concentration International financial
institutions IMF, World
Bank. WTO, their role
Cultural:-
and impact on Indian
 Increased pace of cultural
penetration economy
 Globalization of culture
 Development of hybrid culture World Bank
 Resurgence of cultural nationalism
ie shivsena opposing valentine day The International Bank for Reconstruction
and Development (IBRD), commonly
referred to as the World Bank, is an
international financial institution whose
Political:- purposes include assisting the
development of its member nation‘s
territories, promoting and supplementing

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private foreign investment and promoting Objectives:

long-range balance growth in international
trade. The following objectives are assigned by
the World Bank:
The World Bank was established in
December 1945 at the United Nations
Monetary and Financial Conference in
Bretton Woods, New Hampshire. It 1. To provide long-run capital to
opened for business in June 1946 and member countries for economic
helped in the reconstruction of nations reconstruction and development.
devastated by World War II. Since 1960s
the World Bank has shifted its focus from
the advanced industrialized nations to
developing third-world countries. 2. To induce long-run capital
investment for assuring Balance of
Organization and Structure: Payments (BoP) equilibrium and
balanced development of
The organization of the bank consists of international trade.
the Board of Governors, the Board of
Executive Directors and the Advisory
Committee, the Loan Committee and the
president and other staff members. All the 3. To provide guarantee for loans
powers of the bank are vested in the Board granted to small and large units and
of Governors which is the supreme policy other projects of member countries.
making body of the bank.

Capital Resources of World Bank:

4. To ensure the implementation of
The initial authorized capital of the World development projects so as to bring
Bank was $ 10,000 million, which was about a smooth transference from a
divided in 1 lakh shares of $ 1 lakh each. war-time to peace economy.
The authorized capital of the Bank has
been increased from time to time with the
approval of member [Link]
countries repay the share amount to the 5. To promote capital investment in
World Bank in the following ways: member countries by the following
ways;
1. 2% of allotted share are repaid in
gold, US dollar or Special Drawing
Rights (SDR).
2. Every member country is free to (a) To provide guarantee on private loans
repay 18% of its capital share in its or capital investment.
own currency.
3. The remaining 80% share
deposited by the member country
only on demand by the World (b) If private capital is not available even
Bank. after providing guarantee, then IBRD

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provides loans for productive activities on 4. Generally, Bank grants loans for a
considerate conditions. particular project duly submitted to
the Bank by the member country.

Functions:
5. The debtor nation has to repay
either in reserve currencies or in
the currency in which the loan was
World Bank is playing main role of sanctioned.
providing loans for development works to
member countries, especially to
underdeveloped countries. The World
Bank provides long-term loans for various 6. Bank also provides loan to private
development projects of 5 to 20 years investors belonging to member
duration. countries on its own guarantee, but
for this loan private investors have
to seek prior permission from those
counties where this amount will be
The main functions can be explained with collected.
the help of the following points:

International Monetary Fund(IMF)

1. World Bank provides various The major roles of the International

technical services to the member Monetary Fund are as follows:
countries. For this purpose, the
Bank has established ―The 1. To promote international monetary
Economic Development Institute‖ cooperation through a permanent
and a Staff College in Washington. institution which provides the
machinery for consultation and
collaboration on international
monetary problems.
2. Bank can grant loans to a member 2. To facilitate the expansion and
country up to 20% of its share in balanced growth of international
the paid-up capital. trade, and to contribute thereby to
the promotion and maintenance of
high levels of employment and real
income and to the development of
3. The quantities of loans, interest rate the productive resources of all
and terms and conditions are members as primary objectives of
determined by the Bank itself. economic policy.
3. To promote exchange stability, to
maintain orderly exchange
arrangements among members, and
to avoid competitive exchange
depreciation.

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 Economy Module

4. To assist in the establishment of a Functions:

multilateral system of payments in
respect of current transactions The main functions of WTO are
between members and in the discussed below:
elimination of foreign exchange
restrictions which hamper the 1. To implement rules and provisions
growth of world trade. related to trade policy review mechanism.
5. To give confidence to members by
making the general resources of the 2. To provide a platform to member
Fund temporarily available to them countries to decide future strategies related
under adequate safeguards, thus to trade and tariff.
providing them with opportunity to
correct maladjustments in their 3. To provide facilities for implementation,
balance of payments without administration and operation of
resorting to measures destructive of multilateral and bilateral agreements of the
national or international prosperity. world trade.
6. In accordance with the above, to
shorten the duration and lessen the 4. To administer the rules and processes
degree of disequilibrium in the related to dispute settlement.
international balances of payments
of members.―Articles of 5. To ensure the optimum use of world
Agreement: Article I—Purposes,‖ resources.
International Monetary Fund
6. To assist international organizations
World Trade Organization(WTO) such as, IMF and IBRD for establishing
coherence in Universal Economic Policy
The important objectives of WTO are: determination.

1. To improve the standard of living of

people in the member countries.

2. To ensure full employment and broad

increase in effective demand.

3. To enlarge production and trade of

goods.

4. To increase the trade of services. Financial and Banking

5. To ensure optimum utilization of world sector reforms,
resources.
economic reforms
6. To protect the environment.
The Banking System at the time of
7. To accept the concept of sustainable independence was largely urban oriented
development. and remained out of reach of rural
population. Commercial Banks mostly

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 Economy Module

confined their lending to trade, commerce o Financial Markets: removal

and industry and treated agriculture as a of structural bottlenecks,
non priority. Security- oriented lending introduction/diversification
was the order of the day. Banks did not of new players/instruments,
pay any attention to the farming free pricing of financial
community, the Agriculturist was forced to assets, relaxation of
borrow from money lenders, who charged quantitative restrictions,
exorbitant rates of interest and imposed better regulatory systems,
onerous [Link] overcome these introduction of new
issues, ‗Social Control measures‘ were technology, improvement in
initiated by then Prime Minister Smt. trading infrastructure,
Indira Gandhi in 1968 to help the Indian clearing and settlement
masses in poverty alleviation. practices and greater
transparency.
The main objective of the financial sector  Effects
reforms in India initiated in the early o The banking sector reform
1990s was to create an efficient, combines a comprehensive
competitive and stable financial sector that reorientation of
could then contribute in greater measure to competition, regulation and
stimulate growth. ownership in a non-
disruptive and cost-
 Situation before reforms effective manner.
o Financial markets were o FDI in the private sector
marked by administered banks is now allowed upto
interest rates, quantitative 74 pc
ceilings, statutory pre- o 100 pc FDI is allowed
emptions, captive market under the automatic route in
for government securities, NBFCs
excessive reliance on o Urban Cooperative Banks
central bank financing of suffer from various
fiscal deficit, pegged problems. Several
exchange rate and current structural, legislative and
and capital account regulatory measures have
restrictions. been initiated in recent
 Reforms years for UCBs with a view
o Phased reductions in to evolving a policy
statutory pre-emption like framework oriented towards
CRR and SLR revival and healthy growth
o Deregulation of interest of the sector.
rates on deposits and o Fin mkt: the price discovery
lending, except for a select in the primary market is
segment. more credible than before
o Diversification of and secondary markets have
ownership of banking acquired greater depth and
institutions: private liquidity.
shareholding in public o Number of steps (like
sector banks RTGS) for making the

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payment systems safe, The aim of the said committee was to

secure and efficient. recommend measures to restore the
financial health of Commercial Banks and
At present, financial regulation in India is make them function efficiently and
oriented towards product regulation, i.e. profitably.
each product is separately regulated. For
example, fixed deposits and other banking Recommendations of the Narasimham
products are regulated by the Reserve Committee
Bank of India (RBI), small savings
products by the Government of India  Autonomy in Banking
(GoI), mutual funds and equity markets by  Reform in the role of RBI
the Securities and Exchange Board of  Stronger banking system
India (SEBI), insurance by the Insurance  Non-performing assets
Regulatory Development Authority of  Capital adequacy and tightening of
India (IRDA) and the New Pension provisioning norms
Scheme (NPS) by the Pension Fund  Entry of foreign banks
Regulatory and Development Authority
(PFRDA).
Rural banking impact
The nationalisation of 14 major Banks on
19th July 1969 by then Prime Minister on rural credit:sources
Mrs. Indira Gandhi was done with the
following objectives and reasons :- and problems of rural
credit, institutional
 To serve a large social purpose and
to sub-serve national priorities credit,SHG, micro
 Rapid growth of agriculture, small
industries, exports, finance, NABARD,
 raising employment levels, e
 ncouragement of new
RRBs,
entrepreneurs and development of
backward areas. 68.84% of the population in India is rural
based and majority of them depends on
agriculture for a living. Enhanced and
stable growth of the agriculture sector is
important as it plays a vital role not only in
generating purchasing power among the
rural population by creating on-farm and
off-farm employment opportunities but
also through its contribution to price
stability and food [Link] share of
agriculture and allied sectors in Gross
Bank Credit was about 13 per cent despite
‗The Committee on Financial System‘ was rise in credit flow to agriculture in absolute
constituted by the Government of India, terms. The heavy dependency of farmers
under the Chairmanship of Mr M on moneylender is partly on account of
Narasimham, former Governor of RBI. denial or limited access to Bank services.

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 Economy Module

The Rural Finance Market comprises of: major portion of the total credit obtained
by the farmers.

Land Lords:Small farmers and tenants

rely on land lords for finance to meet out
their productive and unproductive
expenses. This source of finance has all the
defects associated with money lenders.
Interest rates are exorbitant. Often small
farmers are forced to sell out their lands to
these land lords and they become land
less labourers.

The enactment of the Cooperative Credit

(i) Organized or formal system; Societies Act 1904 was the first effort
made by the Government in the country to
(ii) Unorganized or informal segment. institutionalize agricultural credit by
promoting the cooperatives in a corporate
The Organized or formal segment consists [Link] India attained Independence in
of the Reserve Bank of India (RBI), August, 1947, cooperatives assumed a
National Bank for Agriculture and Rural great significance in poverty removal and
Development (NABARD), Public and faster socio-economic growth. With the
Private Sector Commercial Banks, advent of the planning process,
Regional Rural Banks (RRB), Land cooperatives became an integral part of the
Development Banks (LDB), State Five Year Plans. As a result, they emerged
Cooperative Banks (SCB), Central as a distinct segment in our national
Cooperative Banks (CCB), Primary [Link] the First Five Year Plan, it
Agricultural Cooperative Banks (PACB), was specifically stated that the success of
Central and States Governments, Life the Plan would be judged, among other
Insurance Corporations (LIC), Post Office things, by the extent it was implemented
Saving Banks, etc through cooperative organisations.

Main sources of Unorganized or informal State Cooperative Bank at the apex level in
segment are as follows:- each State, the Central Cooperative Bank
at the District level and Primary
Money Lenders: There are two types of Agricultural Credit Societies / Primary
money lenders in rural areas. a) Agricultural Cooperative Banks / Large
agricultural money lenders and b) Sized Agricultural Multi-Purpose Societies
professional money lender. Agricultural / Farmers Service Societies at the base
money lender's main occupation is farming level serves the structural development of
and money lending is secondary one. cooperative societies in India.
Professional money lender's main
profession is money lending. Although the The cooperatives have been operating in
reliance on money lender by rural poor various areas of the economy such as
declined over the years, the credit credit, production, processing, ,marketing,
disbursed by money lenders still forms a input distribution, housing, dairying and
textiles. In some of the areas of their

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 Economy Module

activities like dairying, urban banking and rural infrastructure; from preparing district
housing, sugar and handlooms, the level credit plans to guiding and
cooperatives have achieved success to an motivating the banking industry in
extent but there are larger areas where they achieving these targets; from supervising
have not been so successful. Cooperative Banks and Regional Rural
Banks (RRBs) to helping them develop
The failure of cooperatives in the country sound banking practices and onboarding
is mainly attributable to: dormant them to the CBS platform; from designing
membership and lack of active new development schemes to the
participation of members in the implementation of GoI‘s development
management of cooperatives. Mounting schemes; from training handicraft artisans
overdues in cooperative credit institution, to providing them a marketing platform for
lack of mobilisation of internal resources selling these articles.
and over-dependence on Government
assistance, lack of professional The Regional Rural Banks (RRBs) were
management. bureaucratic control and established in 1975 with the objective to
interference in the management, political create an alternative channel to
interference and over-politisation have 'cooperative credit structure' with a view to
proved harmful to their growth. ensure sufficient institutional credit for
Predominance of vested interests resulting rural and agriculture sector. The RRBs are
in non-percolation of benefits to a common integral segment of the Indian banking
member, particularly to the class of system with focus on serving the rural
persons for whom such cooperatives were areas. As on date 82 RRBs are functioning
basically formed, has also retarded the in the country.
development of cooperatives. These are
the areas which need to be attended to by RRBs are jointly owned by Government of
evolving suitable legislative and policy India, the State Government concerned and
support. the Sponsor Banks. The issued capital of
RRBs is subscribed by Central
National Bank for Agriculture and Rural Government, State Government and
Development (NABARD) was established sponsor banks in the proportion of 50%,
through an Act of Parliament in 1982. 15% and 35%, respectively.
NABARD was set up as an apex
Development Bank with a mandate for The functions of the RRB are as follows:
facilitating credit flow for agriculture, rural
industries and all other allied economic (1) Granting of loans and advances to
activities. small and marginal farmers and
agricultural labourers, whether
NABARD was established with an aim of individually or in groups, and to co-
building an empowered and financially operative societies, agricultural processing
inclusive rural India through specific goal societies, co-operative farming societies,
oriented departments which can be primarily for agricultural purposes or for
categorized broadly into three heads: agricultural operations and other related
Financial, Developmental and Supervision. purposes;
Through these initiatives we touch almost (2) Granting of loans and advances to
every aspect of rural economy. From artisans, small entrepreneurs and persons
providing refinance support to building of small means engaged in trade,

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 Economy Module

commerce and industry or other productive productive investments. Thus they help in
activities within its area of co-operation; the capital formation of a developing
and country.
(3) Accepting deposits.

Scheduled Commercial
Banks
2. Financing Industry:
[su_heading size="21"]Role of
Commercial Banks[/su_heading] The commercial banks finance the
industrial sector in a number of ways.
A Commercial bank is a type of financial They provide short-term, medium-term
institution that provides services such as and long-term loans to industry.
accepting deposits, making business loans,
and offering basic investment products 3. Financing Trade:

There is acute shortage of capital. People The commercial banks help in financing
lack initiative and enterprise. Means of both internal and external trade. The banks
transport are undeveloped. Industry is provide loans to retailers and wholesalers
depressed. The commercial banks help in to stock goods in which they deal. They
overcoming these obstacles and promoting also help in the movement of goods from
economic development. The role of a one place to another by providing all types
commercial bank in a developing country of facilities such as discounting and
is discussed as under. accepting bills of exchange, providing
overdraft facilities, issuing drafts, etc.
1. Mobilising Saving for Capital Moreover, they finance both exports and
Formation: imports of developing countries by
providing foreign exchange facilities to
The commercial banks help in mobilising importers and exporters of goods.
savings through network of branch
banking. People in developing countries 4. Financing Agriculture:
have low incomes but the banks induce
them to save by introducing variety of The commercial banks help the large
deposit schemes to suit the needs of agricultural sector in developing countries
individual depositors. They also mobilise in a number of ways. They provide loans
idle savings of the few rich. By mobilising to traders in agricultural commodities.
savings, the banks channelize them into They open a network of branches in rural

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 Economy Module

areas to provide agricultural credit. They graduates, and other technically trained
provide finance directly to agriculturists persons in establishing their own business.
for the marketing of their produce, for the Such loan facilities are being provided by
modernisation and mechanisation of their a number of commercial banks in India.
farms, for providing irrigation facilities, Thus the banks not only help inhuman
for developing land, etc. capital formation but also in increasing
entrepreneurial activities in developing
They also provide financial assistance for countries.
animal husbandry, dairy farming, sheep
breeding, poultry farming, pisciculture and 7. Help in Monetary Policy:
horticulture. The small and marginal
farmers and landless agricultural workers, The commercial banks help the economic
artisans and petty shopkeepers in rural development of a country by faithfully
areas are provided financial assistance following the monetary policy of the
through the regional rural banks in India. central bank. In fact, the central bank
These regional rural banks operate under a depends upon the commercial banks for
commercial bank. Thus the commercial the success of its policy of monetary
banks meet the credit requirements of all management in keeping with requirements
types of rural people. In India agricultural of a developing economy.
loans are kept in priority sector landing.

5. Financing Consumer Activities:

People in underdeveloped countries being

poor and having low incomes do not
possess sufficient financial resources to
buy durable consumer goods. The [su_heading size="21"]Issue of
commercial banks advance loans to NPA[/su_heading]
consumers for the purchase of such items
as houses, scooters, fans, refrigerators, etc. A non performing asset (NPA) is a loan or
In this way, they also help in raising the advance for which the principal or interest
standard of living of the people in payment remained overdue for a period of
developing countries by providing loans 90 [Link] to RBI, terms loans on
for consumptive activities and also which interest or installment of principal
increase the demand in the economy. remain overdue for a period of more than
90 days from the end of a particular
6. Financing Employment quarter is called a Non-performing Asset.
Generating Activities:
However, in terms of Agriculture / Farm
The commercial banks finance Loans; the NPA is defined as under:
employment generating activities in
developing countries. They provide loans  For short duration crop agriculture
for the education of young person‘s loans such as paddy, Jowar, Bajra
studying in engineering, medical and other etc. if the loan (installment /
vocational institutes of higher learning. interest) is not paid for 2 crop
They advance loans to young seasons , it would be termed as a
entrepreneurs, medical and engineering NPA.

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 Economy Module

 For Long Duration Crops, the disadvantaged and low-income segments

above would be 1 Crop season of society, in contrast to financial
from the due date. exclusion where those services are not
available or affordable.
The Securitization and Reconstruction of
Financial Assets and Enforcement of Government of India has launched an
Security Interest (SARFAESI) Act has innovative scheme of Jan Dhan Yojna for
provisions for the banks to take legal Financial Inclusion to provide the financial
recourse to recover their dues. When a services to millions out of the regulated
borrower makes any default in repayment banking sector.
and his account is classified as NPA; the
secured creditor has to issue notice to the
borrower giving him 60 days to pay his
dues. If the dues are not paid, the bank can
take possession of the assets and can also
give it on lease or sell it; as per provisions
of the SAFAESI Act.

Reselling of NPAs :- If a bad loan remains

NPA for at least two years, the bank can
also resale the same to the Asset
Reconstruction Companies such as Asset
Reconstruction Company (India)
(ARCIL). These sales are only on Cash
Basis and the purchasing bank/ company
would have to keep the accounts for at Various program‘s for financial inclusion
least 15 months before it sells to other are:-
bank. They purchase such loans on low
amounts and try to recover as much as  Swabhimaan Scheme:under the
possible from the defaulters. Their revenue Swabhimaan campaign, the Banks
is difference between the purchased were advised to provide
amount and recovered amount. appropriate banking facilities to
habitations having a population in
excess of 2000 (as per 2001
census) by March 2012.
 Extention of the banking
networkin unbanked areas,
 Expansion of Business
Correspondent Agent
(BCA)Network
 Direct Benefit Transfer(DBT)
and Direct Benefit Transfer for
Financial inclusion LPG (DBTL)
 RuPay, a new card payment
Financial inclusion or inclusive financing scheme has been conceived by
is the delivery of financial services at NPCI to offer a domestic, open-
affordable costs to sections of loop, multilateral card payment

Page 13
 Economy Module

system which will allow all Indian Monetary Fund) as ‗the growing economic
banks and financial Institutions in interdependence of countries worldwide
India to participate in electronic through increasing volume and variety of
payments. cross border transactions in goods and
 Pradhan Mantri Jan-Dhan Yojana services and of international capital flows
(PMJDY)was formally launched on and also through the more rapid and
28th August, 2014. The Yojana widespread diffusion of technology.‘
envisages universal access to
banking facilities with at least one India in 1991 introduced economic policy
basic banking account for every changes and integrated its economy to the
household, financial literacy, international economy. Globalisation in
access to credit, insurance and India arrived just before the end of the cold
pension. The beneficiaries would war. India introduced changes in industrial
get a RuPay Debit Card having and trade policies to improve its
inbuilt accident insurance cover of efficiency, productivity and
Rs.1.00 lakh. In addition there is a competitiveness of its economy. Besides, it
life insurance cover of Rs.30000/- also brought changes in industrial
to those people who opened their licensing, foreign collaborations,
bank accounts for the first time investment by NRIs, portfolio investment
between 15.08.2014 to 26.01.2015 by foreign institutional investment,
and meet other eligibility reduction in tariff rate and simplification
conditions of the Yojana. of export-import procedures, opening of
the IT-sector, reducing public expenditure
investment norms to attract inflow of
Globalization of Indian capital from both the domestic and foreign
enterprises in sectors like banking,
economy ; its positive insurance, retailing etc.
and negative impacts Positive Impacts of Globalization:
on different sectors,
 Gross Domestic Product of India
issues of FDI and FII in (GDP)
 Raising living standards,
India.  Alleviating poverty,
 Assuring food security,
Globalization essentially means integration  Generating buoyant market for
of the national economy with the world expansion of industry and services,
economy. It implies a free flow of and
information, ideas, technology, goods and  Making substantial contribution to
services, capital and even people across the national economic growth.
different countries and societies. It  There is an International market for
increases connectivity between different companies and for consumers there
markets in the form of trade, investments is a wider range of products to
and cultural exchanges. choose from.
 Increase in flow of investments
The concept of globalization has been from developed countries to
explained by the IMF (International

Page 14
 Economy Module

developing countries, which can be quantitatively or in broad sense we can say

used for economic reconstruction. in money equivalent.
 Greater and faster flow of
information between countries and So the factor of production depends on the
greater cultural interaction has following parameters.
helped to overcome cultural
barriers.  Land
 Technological development has  Labour
resulted in reverse brain drain in  Capital
developing countries.
For a country like India which is the
Negative Impacts of Globalization: second largest populous country in the
world, expected to become most populous
 The first negative aspect of by 2050 if population growth is continuing
globalization is that its gains are at the current pace, where labour is
not equally distributed, both available in abundance. Similarly, land is
between and within countries. The also available where more economic
benefits of globalization are also prosperity can be brought than the
badly skewed within countries, currently pursued economic activity. So
both developing and developed. after considering all these factors, capital
Income inequality is rising in many played a crucial role.
countries, particularly in the OECD
countries. Worse, job and income So to fulfill the aspirations of common
insecurity is increasing, particularly masses and general wellbeing of the
for \unskilled labor, although society various governments are
corporate restructuring has also competing against each other to attract the
meant job insecurity for foreign capital.
professionals.
 There is an underlying threat of This theory is particularly gained ground
multinational corporations with after the Latin American crises which
immense power ruling the globe. resulted in the Washington
 For smaller developing nations at consensus/Washington model. This is
the receiving end, it could further ascertained by East Asian miracle.
indirectly lead to a subtle form of India has also experienced the taste of after
colonization. economic reforms of 1991, which is better
known as LPG reforms. However from the
Role of Foreign Capital and Multinational experience of various countries various
companies in model of foreign capital and model have
emerged. It also requires some kind of
Industrial development of India reduction regulation and restraint.

The development of any society or country Why there is a need of foreign capital?
without economic development is a myth.
Economic development brings prosperity
which in turns is directly proportional to
the amount of goods and services produced Foreign capital is required because of
following reasons.

Page 15
 Economy Module

1. Inadequate domestic capital to fuel revenue and the locally raised taxes. By
the economic growth. taxing the profits of the foreign enterprises
the governments of developing countries
Foreign capital is perceived as a resource are able to mobilize funds for projects (like
of filling the gap of the capital scarce energy, infrastructure) that are badly
country. It helps in maintaining the foreign needed for economic development.
exchange, accelerating government
revenue, planning the investment 5. Foreign investment meets the gap
necessary to achieve development target. in management, entrepreneurship,
technology and skill.
For example ‗savings-investment‘ gap
These can be transferred to the host
To achieve a planned growth rate of 7 country through suitable training
percent per annum and the capital-output programmes and the processes. Further
ration of 3 percent, rate of saving should foreign companies bring with them
be 21 percent. For domestic mobilization sophisticated technological knowledge
of 16 percent, there will be a shortfall of 5 about production processes while
percent. Thus the foremost contribution of transferring modern machinery equipment
foreign capital to national development is to the capital-poor developing countries.
its role in filling the resource gap between
targeted investment and locally mobilized In fact, in this era of globalization, there is
savings. a general belief that foreign capital
transforms the productive structures of the
2. Stability of Foreign exchange. developing economics leading to high
rates of growth. Besides the above, foreign
Foreign capital is needed to fill the gap capital, by creating new productive assets,
between the targeted foreign exchange contributes to the generation of
requirements and those derived from net employment a prime need of a country like
export earnings plus net public foreign aid. India.
This is generally called the foreign
exchange or trade gap. Forms and types of foreign Capital

3. Reducing the Balance of Payment Foreign capital flow in a country can take
deficit. place either in the form of investment,
concessional assistance, foreign aid.
An inflow of private foreign capital helps
in removing deficit in the balance of 1. Foreign Investment includes
payments over time if the foreign-owned Foreign Direct Investment (FDI)
enterprise can generate a net positive flow and Foreign Portfolio Investment
of export earnings. (FPI) / Foreign Institutional
Investment (FII).
4. Helps in realizing the estimated tax
revenue of government FPI includes the amounts raised by Indian
corporate through Euro Equities, Global
The third gap that the foreign capital and Depository Receipts (GDR‘s), and
specifically, foreign investment helps to American Depository Receipts (ADR‘s).
fill is that between governmental tax

Page 16
 Economy Module

2. Non-Concessional Assistance they did not play much role in the Indian
mainly includes External economy where import-substitution
Commercial Borrowings (ECB‘s), development strategy was followed. Since
loans from governments of other 1991, with the adoption of industrial
countries/multilateral agencies on policy of liberalization, privatization
market terms and deposits obtained
from Non-Resident Indians (NRIs). And globalization role of private foreign
3. Concessional Assistance includes capital has been recognized as important
grants and loans obtained at low for rapid growth of the Indian economy.
rates of interest with long maturity So Multinational corporations have been
periods. Such assistance is allowed to operate in India subjected to
generally provided on a bilateral some regulations.
basis or through multilateral
agencies like the World Bank, Impact of Multinational countries on the
International Monetary Fund country and general population.
(IMF), and International
Development Association (IDA) 1. Promotion Foreign Investment:
etc.
In the recent years, external assistance to
Grants do not carry any obligation of developing countries has been declining.
repayment and are mostly made available This is because the donor developed
to meet some temporary crisis. Foreign countries have not been willing to part
Aid can also be received in terms of direct with a
supplies of agricultural commodities or
industrial raw materials to overcome larger proportion of their GDP as
temporary shortages in the economy. assistance to developing countries. MNCs
Foreign Aid may also be given in the form can bridge the gap between the
of technical assistance. requirements of foreign capital for
increasing foreign investment in India.
Role of Multinational Corporations in
the Indian Economy The liberalized foreign investment pursued
since 1991, allows MNCs to make
Prior to 1991 Multinational companies did investment in India subject to different
not play much role in the Indian economy. ceilings fixed for different industries or
In the pre-reform period the Indian projects. However, in some industries 100
economy was dominated by public per cent export-oriented units (EOUs) can
enterprises. be set up. It may be noted, like domestic
investment, foreign investment has also a
Earlier Industries and firms are regulated multiplier effect on income and
through Industrial Policy, 1956 put some employment in a country.
kind of restraint on private firms, as a
consequence of which they didn‘t able to For example, the effect of Suzuki firm‘s
expand beyond a limit. investment in Maruti Udyog
manufacturing cars is not confined to
While multinational companies played a income and employment for the workers
significant role in the promotion of growth and employees of Maruti Udyog but goes
and trade in South-East Asian countries

Page 17
 Economy Module

beyond that. Many workers are employed for raising productivity of working class
in dealer firms who sell Maruti cars. and enable us to start new productive
ventures requiring high technology.
Moreover, many intermediate goods are Whenever, multinational firms set up their
supplied by Indian suppliers to Maruti subsidiary production units or joint-
Udyog and for this many workers are venture units, they not only import new
employed by them to manufacture various equipment and machinery embodying new
parts and components used in Maruti cars. technology but also skills and technical
Thus their incomes also go up by know-how to use the new equipment and
investment by a Japanese multinational in machinery.
Maruti Udyog Limited in India.
As a result, the Indian workers and
2. Non-Debt Creating Capital inflows: engineers come to know of new superior
technology and the way to use it. In India,
In pre-reform period in India when foreign the corporate sector spends only few
direct investment by MNCs was resources on Research and Development
discouraged, we relied heavily on external (R&D). It is the giant multinational
commercial borrowing (ECB) which was
of debt-creating capital inflows. This corporate firms (MNCs) which spend a lot
raised the burden of external debt and debt on the development of new technologies
service payments reached an alarming can greatly benefit the developing
figure of our current account receipts. countries by transferring the new
technology developed by them. Therefore,
This created doubts about our ability to MNCs can play an important role in the
fulfill our debt obligations and there was a technological up-gradation of the Indian
flight of capital from economy.

India and this resulted in balance of 4. Promotion of Exports:

payments crisis in 1991. As direct foreign
investment by multinational corporations With globalization and producing products
represents non-debt creating capital efficiently and therefore with lower costs
inflows we can avoid the liability of debt- multinationals can play a significant role in
servicing payments. Moreover, the promoting exports of a country in which
advantage of investment by MNCs lies in they invest. For example, the rapid
the fact that servicing of non-debt capital expansion in China‘s exports in recent
begins only when the MNC firm reaches years is due to the large investment made
the stage of making profits to repatriate by multinationals in various fields of
Thus, MNCs can play an important role in Chinese industry.
reducing stress strains and on India‘s
balance of payments (BOP). Historically in India, multinationals made
large investment in plantations whose
3. Technology Transfer: products they exported. In recent years,
Vistara airlines made a large investment in
Another important role of multinational airline industries with a joint collaboration
corporations is that they with Tata Industries.
transfer sophisticated technology to
developing countries which are essential

Page 18
 Economy Module

BrahMos missile is a joint venture of sought, especially in areas of (a)

Govt. of India with Russia, which is being infrastructure, (b) high technology and (c)
sold to Vietnam, will bring income to exports, and (d) where domestic assets and
India. employment are created on a significant
scale
As a matter of fact until recently, when
giving permission to a multinational firm
for investment in India, Government Agricultural sector
granted the permission subject to the
condition that the concerned multinational reforms and its impact
company would export the product so as to
earn foreign exchange for India. on growth; issues of
subsidies and public
However, in case of Pepsi, a famous cold -
drink multinational company, while for investment on
getting a product license in 1961 to
produce Pepsi Cola in India it agreed to agriculture, reforms and
export a certain proportion of its product,
but later it expressed its inability to do so.
agrarian crisis ,
Instead, it ultimately agreed to export
things other than what it produced such as Indian Agriculture is the Mainstay of
tea. Indian [Link] independence,
undergone a change from being the sector
5. Investment in Infrastructure: contributing the highest share to the GDP
to one contributing the lowest
With a large command over financial [Link] is a state subject.
resources and their superior ability to raise
resources both globally and inside India it  GDP contribution (Agriculture and
is said that multinational corporations allied sector)
could invest in infrastructure such as o 5 pc in 1950-51
power projects, modernization of airports o 7 pc in 2008-09 and 14.6 pc
and posts, telecommunication. in 2009-10. It was 19 pc in
2004-05. (2004-05 prices)
The investment in infrastructure will give a o Agricultural GDP grew by
boost to industrial growth and help in 0.4 pc in 2009-10 and -0.1
creating income and employment in the pc in 2008-09.
India economy. The external economies  Employment
generated by investment in infrastructure o 9 pc in 1961
by MNCs will therefore crowd in o 9 pc in 1999-2000
investment by the indigenous private o 2 pc in 2008-09
sector and will therefore stimulate o 1999-2000: Number at
economic growth. 237.8 million
 GCF
In view of above, Make in India initiative, o Share in total GCF 2009-
skill India Initiative, current demographic 10: 7.7 pc (2004-05 prices)
scenario of India, foreign direct investment o GCF as % of agricultural
(FDI) will be encouraged and actively GDP: 2007-08 – 16.3,

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 Economy Module

2008-09(P) – 19.67, 2009-  Four main areas of land reforms in

10(QE) – 20.3 India
o GCF as % of total GDP: o Abolition of intermediaries
2007-08 – 2.69, 2008-09P – (zamindars)
3.09, 2009-10QE – 2.97 o Tenancy reforms
 Contributes to agricultural growth o Land ceilings
and industrial demand o Consolidation of disparate
 Contributed 10.59 pc of total land holdings
exports in 2009-10.  Economic arguments for land
 Due to the large number of reforms
workforce in this sector, the growth o Equity
of agriculture is a necessary o Small farms tend to be
condition for inclusive growth. more productive than large
 Food grains production farms
o Highest in 2008-09: 234. 47 o Owner cultivated plots of
mn t land tend to be more
o 2009-10: 218.11 mn t productive that those under
sharecropped tenancy
Agriculture and Industry  Abolition of zamindari was
successful while the other three
 Agriculture as areas of land reforms met with
o Supplier of wage goods to limited success
the industrial sector  Operation Bargha. Also, LR in
o Provider of raw materials Kerala
o Consumer of agricultural  Regional trends in LR
capital goods produced by  Effect of land reforms
industry o On tenants
 Stagnation in agriculture  Absentee
o Get data on CAGR landlordism
declined
Land Reforms  Tenancy declined.
In some cases,
 Great scarcity and uneven tenants were
distribution of land evacuated from the
 Focus of agricultural policies in the land.
initial years was on institutional  In some cases there
changes through land reforms was a drift of
 Two objectives of land reforms in tenants into landless
India  Where tenants had
o To remove the impediments not been evicted,
to agriculture that arise due tenancy was pushed
to the character of agrarian underground
structure in rural areas o On equity
o To reduce or eliminate the o On productivity
exploitation of o On agrarian power relations
tenants/small farmers  The National Commission on
Farmers has placed the unfinished

Page 20
 Economy Module

agenda in land reform first in its o Introduction of HYV seed

list of five factors central overcome of wheat from Mexico
an agrarian crisis created by CIMMYT
 Way forwards o Under the new agricultural
o Land reforms that make policy, the spread of HYVs
tenancy legal and give well was supported by public
defined rights to tenants, investments in fertilisers,
including women, are now power, irrigation and credit
necessary o Food grain production shot
up
 1966-67: 74 mt
 1971-72: 105 mt
o India became nearly self-
sufficient in food grains
o What led to the increased
production?
 Favourable pricing
policy led to
adequate incentives
 National research
system proceeded to
indigenise the new
Technology and Green Revolution seeds to tackle their
shortcomings
 In the early 60s India faced several  Availability of
crises inputs including
o It had to fight two wars: canal water,
Pakistan and China fertilisers, power
o Severe drought in 1965 and and credit
1966  Subsidies
o US was using PL-480 food  Role of credit began
supply as a means to twist to be important after
India‘s arms to meet US 1969
interests o 1973-1980
 This called for an overhaul of the  This phase saw
agricultural strategy and the need many challenges
to be self-sufficient in food  Consecutive
production droughts in 1972-73
 Three phases of green revolution  Oil shock
o 1966-1972  Production fell.
o 1973-1980 Imports began
o 1981-1990 again.
 1966-1972  Thereafter,
o C Subramaniam and MSS government
o 1965: Agricultural Prices increased fertiliser
Commission and Food subsidies
Corporation of India set up

Page 21
 Economy Module

 Groundwater agricultural trade

irrigation increased flows
in importance  The overvalued
 HYV technology rupee produced an
extended from anti-export
wheat to rice environment for
o 1981-1990 agriculture
 1986  High protection to
 Rice prod: industry produced
63.8 mt high industrial
(1964: 37) prices and adverse
 Wheat prod: terms of trade for
47 mt (1964: agriculture,
12 mt) reducing the relative
 Even when the profitability of the
‗worst drought of primary sector
the century‘ struck o What was the aim of
in 1987, food needs agricultural pricing in pre-
could be adequately reform era?
met due to buffer  Ensure inexpensive
stocks food for consumers
 HYV technology  Protect farmers‘
spread eastward to incomes from price
states like West fluctuations
Bengal and Bihar  Keep the balance of
 The impact of HYV payments in check
technology had o Agriculture in post-reform
started to plateau era
however  Impact: 1. Growth
 Input subsidies kept in PCI led to an
on increasing increase in food
 1991: Input subsidy demand and also
was 7.2 pc of diversification.
agricultural GDP Terms of trade
o What was the impact of between agricultural
highly regulated policies on and industrial prices
agriculture? improved in favour
 There were barriers of agriculture
on pricing,  Increased
movement and profitability has led
private trading of to increase in
agricultural produce private investments
 The external sector which are now
was burdened with double the public
various tariff and investment in
non-tariff barriers to agriculture.
 Growth rates

Page 22
 Economy Module

 1980s: 3 pc o Productivity: sharp decline

 1990s: (1995-2005). Healthy
 2000s: performance of cotton and
 Tenth Plan: maize though
2.47 pc (as
against 7.77 Major factors affecting growth potential
pc of overall
economic  Lack of long term policy
growth) perspective
 This has however o No long term strategy for
not translated into agricultural development
reduction of poverty o National Agricultural
 There has been an Policy was announced only
increase in both in the year 2000
urban and rural o Sectoral priority to industry
inequality from the second FYP
o Deceleration in agricultural o Weaknesses of policies
growth followed for agricultural
 Declined during 90s development
 Deceleration in the  Policies provided
growth of area, little incentives for
production and yield the farmers as the
 Food production of prices were
Rabi crops has off depressed and the
late equalled the sector was
Kharif crops. This disprotected vis a
has to an extent vis other sectors of
reduced the over the economy
dependence on  Inward-looking
monsoon and policies
imparted some  Excessive price
stability to based focus than
agricultural non-price factors
production like water,
 Area-wise, the infrastructure, R&D,
deceleration was extension services
more in case of the etc
Indo-Gangetic o Investment in Agriculture
region and Subsidies
o The instability in  There have been
agricultural growth is more cutbacks in
in states with high agricultural
percentage of rain-fed areas investment and
o Acreage: declining trend in extension, but not in
most crops during the subsidies
period 1995-96 to 2004-05  Agricultural subsidy
as pc of GDP:

Page 23
 Economy Module

 Public investment in  Irrigation

agriculture declined projects
from 4 pc of  <all three of
agriculture GDP in them are
1976-1980 to under Bharat
 Subsidies on Nirman
fertiliser, power and project>
irrigation have  Complimentarity
contributed to soil between public and
degradation private sector capital
 It is important to formation in
reduce subsidies and agricultural sector.
increase public Public sector can
investment in create infrastructure
crucial areas such as while the private
soil amelioration, investment is
watershed essential for short
development, term asset building
groundwater mainly in the areas
recharge, surface of mechanisation,
irrigation and other ground levelling,
infrastructure private irrigation etc
 Public Sector GCF o Lagging research and
in agriculture stood development efforts
at less than Rs 50 bn  After the green
at 1993-94 prices revolution, there has
 It is imperative to been no major
reduce these breakthrough in
subsidies for agricultural
stepping up public research. GM is a
investment in promising area but
agriculture its safety has not yet
 After 2003, the been conclusively
investments have established.
started to increase.  Poor productivity in
In 2006-07 public India compared to
sector GCF was 3.7 other countries and
pc of agricultural even compared to
GDP and total GCF world average
was 12.5 pc of  India, however, has
agricultural GDP the largest public
 Three areas should agricultural research
get priority in public establishment in the
investments world. ICAR and
 Rural roads agricultural
 Electricity universities

Page 24
 Economy Module

 India spends only o Rising soil degradation and

0.3 pc of over-exploitation of
agricultural GDP for groundwater
research as  Around 40 pc of
compared to 0.7 pc Indian‘s total
in other developing geographical area
countries and 2-3 pc are officially
in case of developed estimated as
countries. degraded
 There is hardly any  Soil health is
scope for expansion deteriorating in
of area. Hence, Punjab and Haryana
productivity must o Degradation of natural
increase to keep up resources
with the increasing o Subsidies vis-a-vis
demand. R&D has a investments and farm
lot of role to play support systems
here o Agriculture‘s terms of trade
 New varieties of and farm price volatility
seeds need to be  Ensure rapid
developed suited to development of
different regions of backward farm
the country linkages
 The research system o Summary: Need to correct
should be the policy bias against
responsive to the agriculture, make higher
changing needs and investments, develop new
circumstances varieties of seeds, conserve
o Technology generation and natural resources like land
dissemination and water and provide
 Fixed land. Hence incentives to the farmers to
technology adopt modernisation
 Focus on yield as
well as sustainable
use of land
 Focus should be on Some Issues in Indian Agriculture
specific
requirements of  Low public investment
each agro-climatic  Halt in the modernization of
region agriculture
 Ned to develop  Agricultural indebtedness
much stronger  Farmer suicides
linkages between  Agricultural imports and future
extension and markets
farmers
Subsidies

Page 25
 Economy Module

 Talk about bringing urea under the o National Horticulture

Nutrient Based Subsidy (NBS) Mission (2005-06)
system and decontrolling its prices o Integrated Scheme of
 Downsides Pulses, Oilseeds and Maize
o Fertilizer subsidy touched o Technology Mission for
almost 1 lakh crore in 2008- Integrated Development of
09 Horticulture in North-east
o Promotes overuse of and Himalayan States
fertiliser and thereby (2001-02)
catalysing soil degradation o National Mission for
o As a result, agricultural Sustainable Agriculture
production in the bread o National Mission on Micro
baskets of the country has Irrigation was launched in
stagnated, posing a threat to 2010 in addition to the
the food security of the earlier Micro Irrigation
country Scheme launched in 2006
o Drylands do not receive the o National Bamboo Mission
benefit of crores of subsidy  Avg growth of 2.03 pc against the
given in fertilizers Plan target of 4 pc per annum.
 For sustainable and inclusive
growth
o Must focus on the small and
Government Intitiatives marginal farmers as well as
female farmers
 Green Revolution o Group approach should be
 National Policy on Agriculture, adopted so that they can
2002 reap economies of scale
 National Policy for Farmers, 2007 o Bring technology to farmers
o Major policy provisions o Improving efficiency of
include provisions for asset investments
reforms, water use o Diversifying while also
efficiency, use of protecting food security
technology, inputs and concerns
services like soil health, o Fostering inclusiveness
good quality seeds, credit, through a group approach
support for women etc  Irrigation
o Focus on millets as well o Envisages creation of an
o additional potential of 16
mn ha
Agriculture during the 11th plan o Bharat Nirman aims to
bring an additional 1 crore
 Flagship schemes ha of land under irrigation
o Rashtriya Krishi Vikas by 2012
Yojana o Accelerated Irrigation
o National Food Security Benefits Programme still on
Mission
Irrigation

Page 26
 Economy Module

 45 pc of nearly 175 mn ha of  Coarse cereals: high nutrition, can

cropped area is irrigated be grown in dry areas, enhance
 Trends fertility of soil in rotation
o Nearly trebled from 24 mn  PDS should be reformed: coarse
ha in 1953-64 to 75 mn ha cereals should also be provided
in 1998-99 through PDS
o It accounts for the largest  Timely availability of credit at
part of total investments in affordable costs
the agricultural sector  Wider extension of insurance
o Importance of ground water facilities to the farm sector
as an irrigation source has  Water and irrigation infrastructure
also increased considerably  Drip irrigation
 Uneven access  Organic manures should be
o Inter-regional variance popularized and their commercial
o Inequality in access within production encouraged
the farming population  Educate farmers about technology
 Areas of concern and agricultural techniques
o Depletion of ground water 
o Environmental concerns
o Costs Food Security
 Steps to take
o Improving water use  Food security should also
efficiency incorporate nutritional security.
o Water governance This requires emphasising the
o Economic incentives for increase in production of pulses,
efficient use fruits, vegetables, poultry and
 Govt Schemes meat.
o Accelerated Irrigation  Interpreted broadly
Benefits Programme was  Includes nutritional security which
started during 1996-97. It particularly incorporates maternal
extends assistance for the health and infant health due to the
completion of incomplete involvement of the nutritional
irrigation schemes aspect
o  Also covers employment security
th
 In 11 FYP – refer previous (?)
section  Affordability, accessibility and
 availability
 Food security seeks to address all
Way Forward the three dimensions of hunger:
chronic, hidden and transient
 Second green revolution (?)  It also is the first step towards
 Relook at all the issues offering inclusive development
forward and backward linkages in
the agricultural production cycle Public Distribution System
 Focus on oilseeds, pulses and
coarse cereals  High procurement prices

Page 27
 Economy Module

Irrigation  Though private sector investment

has been increasing, it has not
 The total irrigation potential in the proved to be enough
country has increased from 81.1  Decreased public spending in
mn hectares in 1991-92 to 108.2 creation of supporting
mn hectares in March 2010. infrastructure in rural areas has
 1996-97: Accelerated Irrigation discouraged private investment in
Benefit Programme initiated this sector
 Reservoir Storage Capacity: 151.77  Some of the measures could be
billion cubic metres o Investment in general
service like R&D,
Agricultural Pricing education, marketing and
rural infrastructure
 To ensure o Increased investment in
o Remunerative prices to rainfed areas
growers o Private sector participation
o Encouraging higher o Increased investment for
investment and production sustainable development
o Safeguard the interest of
consumers by making sure
that adequate supplies are
available WTO and Agriculture
 It also seeks to evolve a balanced
and integrated price structure in the
perspective of the overall needs of
the economy  Uruguay Round multilateral trade
negotiations were concluded after 7
years of negotiation in December
1993
Investment in Agriculture  The WTO Agreement on
Agriculture was one of the main
 FAO estimates that global agreements which was negotiated
agricultural production needs to  Agreement on Agriculture contains
grow 70 pc by 2050 in order to provisions in three broad areas of
meet projected food demand agriculture
 Hence investment should grow by o Market Access
a whopping 50 pc o Domestic Support
 In India, public investment in o Export Subsidies
agriculture has witnessed a steady  Market Access
decline from the 6th FYP onwards o This is the most important
 Share of investment in agriculture aspect of the negotiation
has been between 8-10 pc because all countries
 Most of this has gone into current restrict market access while
expenditure in the form of only few have export
increased output and input subsidies and domestic
subsidies support

Page 28
 Economy Module

o This includes tariffication, specially important

tariff reduction and access for their food
opportunities security, livelihood
o Tariffication means that all security and rural
NTTBs should be development.
withdrawn (such as quotas,  Special Safeguard
minimum export prices etc) Mechanisms: is
o Adopts a single approach intended to provide
using a tiered formula contingent
o Single approach: everyone protection to poor
except LDCs have to farmers in
contribute by improving developing
market access for all countries from
products negative shocks to
o Sensitive products: All import prices or
countries can list some from surges in
sensitive products and are imports.
allowed flexibility in the [Safeguards are
way these products are contingency
treated, although even restrictions on
sensitive products have to imports taken
see ‗substantial temporarily to deal
improvements‘ in market with special
access. circumstances such
o Special and differential as a sudden surge in
treatment imports. AoA has
 Purpose: for rural special provisions
development, food on safeguards. In
security and agriculture
livelihood security safeguards, (unlike
 Specifically, special normal safeguards)
treatment is to be can be triggered
given to developing automatically when
countries in ‗all import volumes rise
elements of the above a certain level
negotiation', or if prices fall
including ‗lesser‘ below a certain
commitments in the level; and it is not
formula and long necessary to
implementation demonstrate that
period serious injury is
 Special products: being caused to the
developing domestic industry]
countries will be o AoA requires (from 1995)
given additional  36% average
flexibility for reduction by
products that are developed countries,

Page 29
 Economy Module

with a minimum per production

tariff line reduction levels or
of 15% over six prices. They
years also include
 24% average environment
reduction by al protection
developing and regional
countries with a development
minimum per tariff al
line reduction of programmes.
10% over ten years These
o Domestic Support subsidies are
(subsidies) therefore
 AoA structures allowed
domestic support without
into three categories limits
 Green Box  Amber Box
 Amber Box  All domestic
 Blue Box support
 Green Box measures
 Non (or considered
minimal) production
trade and trade fall
distorting into the
subsidies amber box
 They have to  These
be include
government measures to
funded and support
must not prices, or
involve price subsidies
support directly
 They tend to related to
be production
programmes quantities
that are not  These
targeted at supports are
particular subject to
products and limits which
include are allowed:
direct 5% of total
income production
supports for for
farmers that developed
are not countries,
related to 10% for
current

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 Economy Module

developing value) or
countries 21% (by
 Reduction volume)
commitment over the six
s are years
expressed in  For
terms of a developing
―Total countries the
Aggregate % cuts are
Measuremen 24% (by
t of Support‖ value) or
(Total AMS) 14% (by
 Blue Box volume)
 This is the over 10
―amber box years
with  India‘s commitment
conditions‖  As India was
– conditions maintaining
designed to QRs due to
reduce balance of
distortion payments
 Any support reasons
that would (which is a
normally be GATT
in the amber consistent
box, is measure), it
placed in the did not have
blue box if to undertake
the support any
also required commitment
farmers to s in regard to
limit market
production access
 At present  In India, exporters
there are no of agricultural
limits on commodities do not
spending on get any direct
blue box subsidy. Indirect
subsidies. subsidies are given
 Export subsidies
 Developed
countries are
required to
reduce their
export Food Processing
subsidy by
36% (by

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 Economy Module

 Food processing is a large sector observed that there has been a shift from
that covers activities such as carbohydrate staple to animal sources and
agriculture, horticulture, plantation, sugar. Going by this pattern, in future,
animal husbandry and fisheries there will be demand for prepared meals,
 Ministry of Food Processing snack foods and convenience foods and
indicated the following segments further on the demand would shift towards
within the Food Processing functional, organic and diet foods.
industry: Some of the key constraints identified
o Dairy, fruits and vegetable by the food processing industry include:
processing
o Grain processing  Poor infrastructure in terms of cold
o Meat and poultry storage, warehousing, etc
processing  Inadequate quality control and
o Fisheries testing infrastructure
o Consumer foods including  Inefficient supply chain and
packaged foods, beverages involvement of middlemen
and packaged drinking  High transportation and inventory
water carrying cost
 Industry is large and has grown  Affordability, cultural and regional
after 1991. However, of the preference of fresh food
country‘s total agriculture and food  High taxation
produce, only 2 per cent is  High packaging cost
processed.
 FP has 9% share in manufacturing In terms of policy support, the ministry
 Structure of food processing has taken the
o 42 pc: Unorganised following initiatives:
o 33 pc: SSI
o 25 pc: Organised  Formulation of the National Food
Processing Policy
 Complete de-licensing, excluding
for alcoholic beverages
Constraints & Drivers of Growth  Declared as priority sector for
Changing lifestyles, food habits, organized lending in 1999
food retail and urbanization are the key  100% FDI on automatic route
factors for processed foods in India, these  Excise duty waived on fruits and
are post-liberalization trends and they give vegetables processing from 2000 –
boost to the sector. 01
There has been a notable change in  Income tax holiday for fruits and
consumption pattern in India. Unlike vegetables processing from 2004 –
earlier, now the share and growth rates for 05
fruits, vegetables, meats and dairy have  Customs duty reduced on freezer
gone higher compared to cereals and van from 20% to 10% from 2005 –
pulses. Such a shift implies a need to 06
diversify the food production base to  Implementation of Fruit Products
match the changing consumption Order
preferences.  Implementation of Meat Food
Also in developed countries it has been Products Order

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 Enactment of FSS Bill 2005 and retailers together and link agricultural
 Food Safety and Standards Bill, production to the market so as to ensure
2005 maximization of value addition, minimize
 Mega Food Parks wastages and improve farmers' income.
The Mega Food Park would be a well-
Apart from these initiatives, the Centre defined agri/horticultural-processing zone
has requested state Governments to containing state of the art processing
undertake the following reforms: facilities with support infrastructure and
well established supply chain. The primary
 Amendment to the APMC Act objective of the proposed scheme is to
 Lowering of VAT rates facilitate establishment of integrated value
 Declaring the industry as seasonal chain, with processing at the core and
 Integrate the promotional structure supported by requisite forward and
backward linkages. It is envisaged that the
implementation of the projects would be
assisted by professional Project
Plan Schemes Management Agencies (PMA) from
concept to commissioning. In 11th Plan it
During the 10th Plan, the Ministry is planned to support establishment of
implemented Plan schemes for Technology thirty (30) Mega Food Parks in various
Upgradation/Modernization/Establishment parts of the country.
of Food Processing Industries,
Infrastructure Development, Human Vision 2015 on Food Processing
Resource Development, Quality Industries
Assurance, R&D and other promotional
activities. A vision, strategy and action plan has also
been finalized for giving boost to growth
In the 11th Plan, it has been proposed to of food processing sector. The objective is
continue assistance to the above schemes to increase level of processing of
with higher levels of assistance. In the perishable food from 6% to 20%, value
11th Plan, the Ministry proposes to launch addition from 20% to 35% and share in
a revamped Infrastructure Scheme under global food trade from 1.6% to 3%. The
which it will promote setting up of Mega level of processing for fruits and
Food Parks, cold chain infrastructure, vegetables is envisaged to increase from
value added centres and packaging centres. the present 2.2% to 10% and 15% in 2010
The Mega Food Park Scheme will provide and 2015 respectively. The Cabinet has
backward and forward linkages as well as approved the integrated strategy for
reliable and sustainable supply chain. The promotion of agri-business and vision,
emphasis will be on building strong strategy and action plan for the Food
linkages with agriculture and horticulture, Processing Sector, based on the
enhancing project implementation recommendations made by the Group of
capabilities, increased involvement of Ministers (GOM).
private sector investments and support for
creation of rural infrastructure to ensure a Integrated Food Law
steady supply of good quality
agri/horticulture produce. It will provide a An Integrated Food Law, i.e. Food Safety
mechanism to bring farmers, processors and Standards Act, 2006 was notified on

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 Economy Module

24.8.2006. The Act enables in removing  High requirement of working

multiplicity of food laws and regulatory capital.
agencies and provide single window to  Inadequately developed linkages
food processing sector. Ministry of Health between R&D labs and industry.
& Family Welfare has been designated as  Seasonality of raw material
the nodal Ministry for administration and
implementation of the Act. Opportunities

National Institute of Food Technology  Large crop and material base

Entrepreneurship & Management offering a vast potential for agro
(NIFTEM) processing activities
 Setting of SEZ/AEZ and food
The Ministry has set up a National parks for providing added incentive
Institute of Food technology to develop greenfield projects
Entrepreneurship & Management  Rising income levels and changing
(NIFTEM) at Kundli (Haryana). The consumption patterns
Institute will function as a knowledge  Favourable demographic profile
centre in food processing. Certificate of and changing lifestyles
Incorporation of NIFTEM as a section 25  Integration of development in
Company under the Companies act 1956 contemporary technologies such as
has been obtained. electronics, material science, bio-
technology etc. offer vast scope for
rapid improvement and progress
 Opening of global markets
SWOT Analysis of Food–Processing
Industry Threats
Strengths
 Affordability and cultural
 Abundant availability of raw preferences of fresh food
material  High inventory carrying cost
 Priority sector status for agro-  High taxation
processing given by the central  High packaging cost
Government
 Vast network of manufacturing
facilities all over the country
 Vast domestic market Subsidies

Weaknesses

 Low availability of adequate Fertilizer Policy: Urea is the only

infrastructural facilities fertilizer under statutory price
 Lack of adequate quality control control. Government of India has
and testing methods as per introduced nutrient based subsidy with
international standards effect from 1st April, 2010 in respect of
 Inefficient supply chain due to a phosphatic and potassic fertilizers. Under
large number of intermediaries the policy, subsidy is based on the nutrient
(N,P,K and S) content of the decontrolled

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P and K fertilizers. Price of Urea has been government controls, licence raj and red
increased by 10% while price of other carpetism and one which promises greater
subsidized fertilizers are being maintained prosperity for the Indian people.
around current levels. Additional subsidy
on micronutrients has been introduced on
Boron and Zinc, to begin with. In order to
promote the concept of balanced use of Main Objectives of the Industrial Policy of
fertilizers and to encourage use of the Government are –
micronutrients, several fertilizers fortifed
with Boron and Zinc have been  to maintain a sustained growth in
incorporated in the Fertilizer (Control) productivity;
Order, 1985.  to enhance gainful employment;
 to achieve optimal utilisation of
human resources;
 to attain international
competitiveness and
Industrial development  to transform India into a major
partner and player in the global
and Economic reforms arena.
in India : Major changes
Till 1970's:-
in industrial policy, its
• The Indian planners emphasized the role
impact on industrial of heavy industry in economic
growth development and sought to build up as
rapidly as possible the capital goods
sector.
The Indian Government had undertaken • The plans envisaged a leading role for
industrial policy reforms since 1980, but the public sector in this structural
the most radical reforms have occurred transformation of the economy.
since 1991, after the severe economic • Major investments in the private sector
crisis in fiscal year 1990-91. These were to be carried out, not by the test of
reforms mainly aim private profitability, but according to the
requirements of the overall national plan.
• The plans emphasized technological self-
reliance, and for much of the period, an
extreme inward orientation in the sense
that if anything could be produced in the
country, regardless of the cost, it should
not be imported.

at enhancing the efficiency and India‘s industrial policy of 1991 towards

international competitiveness in Indian liberalisation, deregulation, market
industry. India‘s industrial policy of 1991 orientation has been hailed as ushering in a
towards liberalisation, deregulation, new era of freedom from government
market orientation has been hailed as controls, licence raj and red carpetism and
ushering in a new era of freedom from one which promises greater prosperity for

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the Indian people. Industrial licensing was like unemployment, regional disparities,
liberalized or abolished. Moreover, the income inequalities and inflation.
Monopolies and Restricted Trade Practices [Link] the government of the country is
(MRTP) Act deregulated. The numbers of obliged to protect the interest of workers,
activities reserved for the public sector this policy would lay special emphasis to
enterprises (PSE) were also reduced. enhance the welfare and upgrade the
economic and social status of the worker.
Promotion of Foreign Direct Investment To ensure long-lasting and cordial
(FDI) forms an integral part of the relations between the workers and the
Industrial Policy. FDI helps in accelerating management, they (workers) would
economic growth by means of infusion of participate in the management decisions of
capital, technology and modern the enterprises.
management practices. Government has
put in place a liberal and transparent
foreign investment regime, wherein FDI, Problems of SMEs
upto 100%, is allowed, under the
automatic route, in most sectors/activities.
The FDI policy is announced through issue MSMEs not only play crucial role in
of Consolidated FDI Policy Circulars. providing large employment opportunities
at comparatively lower capital cost than
Merits of the New Industrial policy : large industries but also help in
industrialization of rural & backward
[Link] raise the level of industrial efficiency, areas, thereby, reducing regional
time consuming hurdles of regulations, imbalances, assuring more equitable
licenses and restrictions would either be distribution of national income and wealth.
done away with or made industry friendly. MSMEs are complementary to large
Inflow of FDI and foreign technology industries as ancillary units and this sector
transfers would be encouraged. contributes enormously to the socio-
[Link] to the supply of investible economic development of the country.
resources and technology would result in
increased industrial production and MSMEs faces a number of problems such
productivity. as:-
[Link] the abolition of licensing system in
most industries except 5, the wave of a) Absence of adequate and timely banking
liberalization would boost the finance.
entrepreneurial skills in the economy.
[Link]/de reservatioin of Industries for b) Limited capital and knowledge, non-
the public sector would boost availability of suitable technology.
professionalism in this secotr. Increased
autonomy would usher in dynamism for c) Low production capacity.
the betterment.
[Link]-1991 made a special mention about d) High cost of credit.
the role and importance of small scale
industries. The state would initiate e) Ineffective marketing strategy.
measures to promote and strengthen small,
tiny and village industries, which have f) Lack of skilled man power for
large potential to deal with the problems manufacturing, services, marketing etc.

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 Economy Module

g) Lack of access to global markets. viii) welfare of artisans and workers;

h) Constraints on modernization of ix) assistance for better access to domestic

expansion. and export markets and

i) Non availability of skilled labour at x) cluster-wise measures to promote

affordable cost capacity-building and empowerment of the
units and their collectives.
j) Follow up with various government
agencies to resolve problems due to lack of
man power and knowledge etc. Role of' Public Sector
enterprises in India's
industrialization in post
reforms period;
Disinvestment and
Privatisation of Public
Enterprises
The schemes/ programmes undertaken by Public sector has played an important role
the Government and its organizations seek in achieving industrial self reliance. Iron
to facilitate/provide: and steel, railway equipment, petroleum,
coal and fertilizer industries, have been
i) adequate flow of credit from financial developed in this sector. These industries
institutions/banks; were established in industrially backward
regions. During the seventh five year plan
ii) support for technology upgradation and an emphasis was laid on high technology,
modernization; high value addition and knowledge based
industries like electronics, advanced
iii) integrated infrastructural facilities; machine tools and telecommunications.

iv) modern testing facilities and quality After independence, systematic industrial
certification; planning under different five year plans
helped in establishing a large number of
v) access to modern management heavy and medium industries. The main
practices; thrust of the industrial policy was to
remove regional imbalances and to
vi) entrepreneurship development and skill introduce diversification of industries.
upgradation through appropriate training Indigenous capabilities were developed to
facilities; achieve self sufficiency. It is due to these
efforts that India has been able to develop
vii) support for product development, in the field of industry.
design intervention and packaging;

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The Industrial Policy Resolution 1956 understanding) system by which

classified industries into three categories managements are to be granted greater
with respect to the role played by the State autonomy but held accountable for
- specified results.

 The first category (Schedule A) Privatization transfer the ownership of

included industries whose future public enterprises to private capital,
development would be the opening of more industrial areas to private
exclusive responsibility of the State capital and enterprise. The main aim of
 The second (Schedule B) category privatisation is to make use of privately
included Enterprises whose owned resources for collective welfare of
initiatives of development would the people.
principally be driven by the State
but private participation would also Privatization in generic terms refers to the
be allowed to supplement the process of transfer of ownership, can be of
efforts of the State both permanent or long term lease in
 And, the third category included nature, of a once upon a time state-owned
the remaining industries, which or public owned property to individuals or
were left to the private sector groups that intend to utilize it for private
benefits and run the entity with the aim of
profit maximization.
ADVANTAGES OF PRIVATIZATION
Privatization indeed is beneficial for the
growth and sustainability of the state-
owned enterprises.
• State owned enterprises usually are
outdone by the private enterprises
competitively. When compared the latter
show better results in terms of revenues
After Reforms of 1991, the main focus and efficiency and productivity.
was: Hence, privatization can provide the
i) reduction in the number of industries necessary impetus to the underperforming
reserved for public sector from 17 to 8 PSUs .
(reduced still further to 3) and the • Privatization brings about radical
introduction of selective competition in the structural changes providing momentum in
reserved area; the competitive sectors .
ii) the disinvestment of shares of a select • Privatization leads to adoption of the
set of public enterprises in order to raise global best practices along with
resources and to encourage wider management and motivation of the best
iii) participation of general public and human talent to foster
workers in the ownership of public sector sustainable competitive advantage and
enterprises; improvised management of resources.
iv) the policy towards sick public • Privatization has a positive impact on
enterprises to be the same as that for the the financial health of the sector which
private sector; and was previously state dominated by way of
v) an improvement of performance reducing the deficits and debts .
through MoU (memorandum of • The net transfer to the State owned

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 Economy Module

Enterprises is lowered through abreast with the latest business practices .

privatization . • There can be a conflict of interest
• Helps in escalating the performance amongst stakeholders and the management
benchmarks of the industry in general . of the buyer private company and initial
• Can initially have an undesirable impact resistance to change can hamper the
on the employees but gradually in the long performance of the enterprise .
term, shall prove beneficial for the growth • Privatization escalates price inflation in
and prosperity of the employees . general as privatized enterprises do not
• Privatized enterprises provide better and enjoy government subsidies after the deal
prompt services to the customers and help and the burden of this inflation effects
in improving the overall infrastructure of common man.
the country.
Disinvestment of a percentage of
DISADVANTAGES OF shares owned by the Government in
PRIVATIZATION public undertakings emerged as a
Privatization in spite of the numerous
policy option in the wake of economic
benefits it provides to the state owned
enterprises, there is the other side to it as liberalisation and structural reforms
well. Here are the prominent disadvantages launched in 1991. Initially, it was not
of privatization: conceived as privatisation of existing
• Private sector focuses more on undertakings but as limited sales of
profit maximization and less on social equity with the objective of raising
objectives unlike public sector that some resources to reduce budgetary
initiates socially viable adjustments in case gaps and providing market discipline
of emergencies and criticalities .
to the performance of public
• There is lack of transparency in private
sector and stakeholders do not get the enterprises in general.
complete information about the
functionality of the enterprise .
• Privatization has provided the
unnecessary support to the corruption and
illegitimate ways of accomplishments of
licenses and business deals
ADVANTAGES AND
DISADVANTAGES OF
PRIVATISATION IN INDIA

• Privatization loses the mission with

which the enterprise was established and
profit maximization agenda encourages
malpractices like production of lower
quality products, elevating the
hidden indirect costs, price escalation etc.. National Income
• Privatization results in high employee
turnover and a lot of investment is required The study of National Income is
to train the lesser-qualified staff and even important because of the
making the existing manpower of PSU following reasons:

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 Economy Module

 To see the economic The National income measures the

development of the country. flow of goods and services in an
 To assess the developmental economy.
objectives.
 To know the contribution of the Note: The National income measured
various sectors to National only on flow and not on stock.
Income.

Internationally some countries are

wealthy, some countries are not The National income measures of net
wealthy and some countries are in- volume of goods and services produced
between. Under such circumstances, it in a country during a year. It also
would be difficult to evaluate the includes net earned foreign income.
performance of an economy. The National Income is counted
Performance of an economy is directly without duplication.
proportionate to the amount of goods
and services produced in an economy. The National income measures the
Measuring national income is also productive power of an economy
important to chalk out the future (flow).
course of the economy. It also broadly
indicates people‘s standard of living. The National wealth measures the
stock of commodities held by the
Income can be measured by Gross nationals of a country at a given point
National Product (GNP), Gross of time.
Domestic Product (GDP), Gross
National Income (GNI), Net National The National income estimates are in
Product (NNP) and Net National relation with the financial year.
Income (NNI).
In India the financial year begins on
In India the Central Statistical April 1 and ends on March 31.
Organization has been formulating
national income.

However some economists have felt BEFORE INDEPENDENCE

that GNP has a measure of national
income has limitation, since they No specific attempts were [Link]
exclude poverty, literacy, public health, 1st attempt was made by Dada Bhai
gender equity and other measures of Naoroji (Grand Old Man of India) in
human prosperity. the year 1868 in his book ‗Poverty and
Un British Rule in India‘.He estimated
Instead they formulated other that the per capita annual income as
measures of welfare like Human Rs. 20 per annum.
Development Index (HDI).
Other estimators William Digby in
the year 1899, Findlay Shirras in 1911,
1922 and in 1933, Shah and
NATIONAL INCOME: Khambatta in 1921, V K R V Rao

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 Economy Module

during 1925-29 and 1931-32 and R C GDP (Gross Domestic Product)

Desai during 1931-40.
NNP (Net National Product)
The above people estimated the
national income with the value of the NI (National Income)
output of the agriculture sector and
then added a certain percentage as the PI (Personal Income)
income of the non-agriculture
[Link] estimates suffered with DPI (Disposable Personal Income)
serious limitations.
Now let us try to understand the
meaning of each:

AFTER INDEPENDENCE:

In August 1949 the Government of GDP (GROSS DOMESTIC

India appointed the National Income PRODUCT):
Committee. Prof. P C Mahalanobis was
appointed as the chairman of the
National Income [Link] other
2 members of the committee were Prof The Gross Domestic Product is
D. R Gadgil and Prof V K R V [Link] the money value of all the goods
main job of the committee was to and services produced within the
compile estimates of National geographical boundaries of a
[Link] 1st report was submitted in country in a given period of time.
the year [Link] final report was
submitted in the year 1954. Note: the GDP is only within the
country.
This report is considered to be a
landmark in the history of India as this
is the first time that it provided a
comprehensive data of National GNP (Gross National Product):
Income for the whole India.

The government established the CSO

(Central Statistical Organization) for The GNP is the money value of the
further estimation of the National goods and services produced by a
[Link] CSO regularly publishes country in a given period of
the national income. time Plus Total money value of goods
and services produced by the nationals
outside the country Minus Incomes
received by the foreigners with in the
CONCEPT (THEORY) OF THE country.
NATIONAL INCOME:
Note: The GNP is calculated on the
GNP (Gross National Product) basis of market prices of produced

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goods, it also includes indirect taxes payments+Net interest paid by the

and subsidies if any. government.

The GNP is equal to GDP if the income

earned and received by the citizens of a
country within the boundaries of DPI (Disposable personal
foreign countries is equal to the Income):
income received by the foreigners
within the country. This is the Personal income minus
direct taxes.

DPI = PI – Direct taxes.

NNP (NET NATIONAL
PRODUCT):

This is GNP minus depreciation. HOW THE NATIONAL INCOME

IS MEASURED?
NNP = GNP – Depreciation

Note: Depreciation is the consumption

of capital stock There a 3 methods to calculate the
National [Link] methods are
given by Simon Kuznets.

NI (NATIONAL INCOME):  PM (Product Method) or

Product service method.
The National income is also called Net  IM (Income Method)
National Product at factor cost. Hence,  CM (Consumption Method) or
expenditure method.
NI = NNP minus (total indirect taxes +
Subsidies) In India the combination of Product
method and Income methods is used
Note: Both indirect taxes and subsidies for calculating the National Income.
are deducted from the NNP.

PRODUCT METHOD:
PI (PERSONAL INCOME):
NI = GDP – income earned in foreign
This is actual income obtained by the countries – Depreciation.
people after deducting various taxes.
In the Product method the GDP is
PI = National Income – (Corporate taken into [Link] income
taxes + payments made for social earned in foreign countries is deducted
security) +Government transfer from the [Link] this the
payments+Business transfer depreciation is subtracted.

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 Economy Module

 The PMEAC (Prime Minister‘s

Economic Advisory Council) in
INCOME METHOD: the ‗Economic Outlook‘ released
on August 1, 2011 lowered the
In this method the National Income is economic growth rate
calculated by projection from 9 percent to 8.2
[Link] PMEAC also
National Income = Total Rent Plus reduced the manufacturing
(+) Total wages Plus (+) Total Interest sector growth rate from 9
Plus (+) Total Profit. percent to 7 percent.
 The CSO has included the
The total net income of the people contributions of all the 3 sectors
working in different sectors and (Primary, secondary and
commercial sectors are taken into tertiary) in estimating the
consideration. National income.

Consumption Method: Difficulty in measuring National

Income
This method is not generally used for
calculating the National There are many difficulties in
[Link] to this method measuring national income of a
country accurately. The difficulties
 National Income =Total involved in national income
Consumption Plus Total Savings accounting are both conceptual and
statical in nature. Some of these
difficulties involved in the
measurement of national income are
MISCELLANEOUS: discussed below:

Non Monetary Transactions

 The per capita income in India The first problem in National Income
is calculated by CSO (Central accounting relates to the treatment of
Statistical Organization). non-monetary transactions such as the
services of housewives to the members
of the families. For example, if a man
employees a maid servant for
household work, payment to her will
appear as a positive item in the
 According the statistics released national income. But, if the man were
by the CSO in 2015, the per to marry to the maid servant, she
capita income in the country would performing the same job as
reached Rs. 88538/- per annum before but without any extra payments.
. This is according to the data on In this case, the national income will
current prices. decrease as her services performed
remains the same as before.

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 Economy Module

Problem of Double Counting Individual get pension, unemployment

allowance and interest on public loans,
Only final goods and services should but these payments creates difficulty in
be included in the national income the measurement of national income.
accounting. But, it is very difficult to These earnings are a part of individual
distinguish between final goods and income and they are also a part of
intermediate goods and services. An government expenditures.
intermediate goods and service used
for final consumption. The difference Capital Gains or Loss
between final goods and services and
intermediate goods and services When the market prices of capital
depends on the use of those goods and assets change the owners make capital
services so there are possibilities of gains or loss such gains or losses are
double counting. not included in national income.

The Underground Economy Price Changes

The underground economy consists of National income is the money value of

illegal and uncleared transactions goods and services. Money value
where the goods and services are depends on market price, which often
themselves illegal such as drugs, changes. The problem of changing
gambling, smuggling, and prostitution. prices is one of the major problems of
Since, these incomes are not included national income accounting. Due to
in the national income, the national price rises the value of national income
income seems to be less than the actual for particular year appends to increase
amount as they are not included in the even when the production is
accounting. decreasing.

Petty Production Wages and Salaries paid in Kind

There are large numbers of petty Additional payments made in kind

producers and it is difficult to include may not be included in national
their production in national income income. But, the facilities given in kind
because they do not maintain any are calculated as the supplements of
account. wages and salaries on the income side.

Public Services Illiteracy and Ignorance

Another problem is whether the public The main problem is whether to

services like general administration, include the income generated within
police, army services, should be the country or even generated abroad
included in national income or not. It in national income and which method
is very difficult to evaluate such should be used in the measurement of
services. national income.

Transfer Payments

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 Economy Module

Besides these, the following points are It has its worst impact on consumers.
also represents the difficulties in High prices of day-to-day goods make
national income accounting: it difficult for consumers to afford even
the basic commodities in life. This
 Second hand transactions; leaves them with no choice but to ask
 Environment damages; for higher incomes. Hence the
 Calculation of depreciation; government tries to keep inflation
 Inadequate and unreliable under control.
statistics; etc.
Inflation : Concept control of Contrary to its negative effects, a
moderate level of inflation
inflation : monetary, fiscal and characterizes a good economy. An
direct measures inflation rate of 2 or 3% is beneficial
for an economy as it encourages people
Inflation & Control Mechanism to buy more and borrow more, because
during times of lower inflation, the
Inflation is a sustained increase in the level of interest rate also remains low.
general price level of goods and Hence the government as well as the
services in an economy over a period of central bank always strive to achieve a
time. When the price level rises, each limited level of inflation.
unit of currency buys fewer goods and
[Link] is the percentage change in Various measures of Inflation are:-
the value of the Wholesale Price Index
(WPI) on a year-on year basis. It  GDP Deflator
effectively measures the change in the  Cost of Living Index
prices of a basket of goods and services  Producer Price Index(PPI)
in a year. In India, inflation is  Wholesale Price Index(WPI)
calculated by taking the WPI as base.  Consumer Price Index(CPI)

Formula for calculating Inflation= There are following types on Inflation

based on their causes:-
(WPI in month of current year-WPI in
same month of previous year)  Demand pull inflation
————————————————————  cost push inflation
————————– X 100  structural inflation
WPI in same month of previous year  speculation
 cartelization
Inflation occurs due to an imbalance  hoarding
between demand and supply of money,
changes in production and distribution Various control measures to curb
cost or increase in taxes on products. rising inflation are:-
When economy experiences inflation,
i.e. when the price level of goods and  Fiscal measures like reduction
services rises, the value of currency in indirect taxes
reduces. This means now each unit of  Dual pricing
currency buys fewer goods and  Monetary measures
services.

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 Economy Module

 Supply side measures like The government may raise both direct
importing the shortage goods to and indirect taxes to wipe out excess
meet the demand aggregate spending. Once a tax on
 Administrative measures to income and/or wealth is imposed,
curb hoarding, Cratelization. disposable income gets reduced. This
will greatly reduce private aggregate
Monetary Measures to curb rising spending.
inflation
The most important and commonly Direct control on prices and rationing
used method to control inflation is of scarce goods are the two such
monetary policy of the Central Bank. regulatory measures.
Most central banks use high interest
rates as the traditional way to fight or 1. Direct Controls on Prices:
prevent inflation.
Monetary measures used to control The purpose of price control is to fix an
inflation include: upper limit beyond which the price of
(i) Bank rate policy :-When the central particular commodity is not allowed
bank raises the bank rate, it is said to and to that extent inflation is
have adopted a dear money policy. The suppressed.
increase in bank rate increases the cost
of borrowing which reduces 2. Rationing:
commercial banks borrowing from the
central bank. Consequently, the flow of When the government fixes the quota
money from the commercial banks to of certain goods so that each person
the public gets reduced. Therefore, gets only a limited quantity of the
inflation is controlled to the extent it is goods, it is called rationing. Rationing
caused by the bank credit. becomes necessary when the essential
(ii) Cash reserve ratio :-the central consumer goods are relatively scarce.
bank raises the CRR which reduces the
lending capacity of the commercial The purpose of rationing is to divert
banks. Consequently, flow of money consumption from those goods whose
from commercial banks to public supply needs to be restricted for some
decreases. special reason, e.g., to make such
(iii) Open market operations:-Open commodities available to a large
market operations refer to sale and number of people.
purchase of government securities and
bonds by the central bank. To control
inflation, central bank sells the
government securities to the public
through the banks. This result in
transfer of a part of bank deposits to
central bank account and reduces
credit creation capacity of the
commercial banks.

Fiscal Measures to curb rising inflation

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 Economy Module

Demographic features : Work force In agriculture sector which is the main

contributor of employment, nearly 97
composition per cent of the employment is informal
in nature . But the share of agriculture
Overall, labour-force to population in total employment has decreased
ratio (in the age group 15 years and from 58.50 per cent in 2004-05 to
above) at 56 per cent is low in India 48.90 per cent in 2011-12 which is
compared to nearly 64 per cent for the indicative of the structural
rest of the world. The low participation transformation of the sector. In
in India is largely because the female manufacturing sector the increase in
labour force participation rate (LFPR) share of employment was accounted
is dismally low at 31 per cent, which is for by the organised sector which
amongst the lowest in the world and showed an increase in both formal and
the second lowest in South Asia after informal employment.
Pakistan. Demographic dividend with special
Census of 2011 clearly brings out the reference to census of 2011
fast decelerating rate of growth in
overall workforce, particularly that of Demographic dividend occurs when
females, between 2001 and 2011. But the proportion of working people in
the work participation rate has not the total population is high because
declined, if not increase, as the rate of this indicates that more people have
growth in workforce is not less than the potential to be productive and
that of population. Also contribute to growth of the
the incremental workforce especially [Link] increase in the working
the male is getting reduced to marginal age ratio can raise the rate of economic
workers category whereas the high growth, and hence confer a
concentration of female in the category ―demographic dividend.‖ People of
of marginal workers is slightly working age are on average more
reduced. Occupational distribution of productive than those outside this age
workforce shows that cultivators are group. Also, because workers save
declining such decline in agriculture is while dependents do not, a bulge in the
replaced by increasing agricultural working age ratio contributes to higher
labour. Growth of workforce in non- savings rates, increasing the domestic
agriculture is higher than that of resources available for productive
agriculture. Growth of female workers investment. In addition, the fertility
engaged in non-agriculture is higher decline that is the source of the
than their male counterparts. changed age structure may act directly
to induce greater female labor supply
and increase attention to primary
education and health .

At present, India is identified as

undergoing the demographic
transition. With a median age of 27.6
years and a dependency ratio of just a
little above 0.55, a ‗demographic
dividend‘ in India is currently

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 Economy Module

underway and if properly harnessed providing high quality reproductive

would bring India as a front runner in healthcare. In particular, the NPP-
the global economy. 2000 aims to address flaws in
healthcare infrastructure and to
India‘s working age population (15-64 achieve a total fertility rate of 2.1 births
years) is now in 2011 at 63.4% of the per woman by 2010. Main objectives of
total, as against just short of 60% in NPP-2000 are:-
2001. The numbers also show that the
‗dependency ratio‘ — the ratio of  Converge service delivery at
children (0-14) and the elderly (65- village level
100) to those in the working age — has  Empowering women for
shrunk further to 0.55. improved health and nutrition
needs for family welfare services
As fertility falls faster in urban areas,  Child health and survival
rural India is younger than urban  Meeting the unmet needs of the
India; while 51.73% of rural Indians under-served population groups
are under the age of 24, 45.9% of  Use of diverse health care
urban Indians are under 24. However providers
urban India still has a higher  Collaboration with and
proportion in the key 15-24 age group commitments from the non-
than rural India. government sector
National Population Policy  Mainstreaming Indian systems
of medicine and homeopathy
 Contraceptive technology and
India was the first nation to launched a
research on reproductive and
family planning programme in 1952.
child health (RCH)
Though the birth rate started
 Providing for the older
decreasing, it was accompanied by a
population x. Information
sharp decrease in death rate, leading to
education and communication
an overall increase in [Link]
early concept of population policy
Population Growth Rate in India has
covered both mortality and fertility
reduced substantially which is evident
and did not exclusively focus on
from the following:-
fertility. There was also a recognition
of the need to improve the quality of
life of the people by lowering the  The percentage decadal
growth rate of the country has
burden of disease or morbidity,
declined significantly from
promoting universal primary
21.5% for the period 1991-2001
education and eradicating illiteracy,
to 17.7% during 2001-2011.
exploitation and poverty.
 Total Fertility Rate (TFR) was
3.2 at the time when National
In 1976, the first National Population
Population Policy, 2000 was
Policy was formulated and tabled in
adopted and the same has
Parliament.
declined to 2.3 as per Sample
registration Survey (SRS) 2013
The intent of National Population
conducted by the Registrar
Policy-NPP-2000 is to eliminate
General of India.
unmet contraceptive needs by

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 Economy Module

Agriculture and Rural Economy : 2008-09(P) – 19.67,

2009-10(QE) – 20.3
Importance of agriculture in o GCF as % of total GDP:
national economy; agricultural 2007-08 – 2.69, 2008-
09P – 3.09, 2009-10QE
growth in India-production & – 2.97
productivity; causes of low  Contributes to agricultural
productivity and measures taken growth and industrial demand
 Contributed 10.59 pc of total
by government to improve exports in 2009-10.
agricultural production  Due to the large number of
workforce in this sector, the
growth of agriculture is a
Indian necessary condition for
inclusive growth.
Agriculture  Food grains production
o Highest in 2008-09: 234.
47 mn t
 Mainstay of Indian Economy o 2009-10: 218.11 mn t
 Since independence, undergone
a change from being the sector
contributing the highest share Agriculture and
to the GDP to one contributing Industry
the lowest share.
 Agriculture is a state subject.
 Agriculture as
 GDP contribution (Agriculture
o Supplier of wage goods to
and allied sector)
the industrial sector
o 5 pc in 1950-51
o Provider of raw materials
o 7 pc in 2008-09 and 14.6
o Consumer of agricultural
pc in 2009-10. It was 19
capital goods produced
pc in 2004-05. (2004-05
by industry
prices)
 Stagnation in agriculture
o Agricultural GDP grew by
o Get data on CAGR
0.4 pc in 2009-10 and -
0.1 pc in 2008-09.
 Employment Land Reforms
o 9 pc in 1961
o 9 pc in 1999-2000  Great scarcity and uneven
o 2 pc in 2008-09 distribution of land
o 1999-2000: Number at  Focus of agricultural policies in
237.8 million the initial years was on
 GCF institutional changes through
o Share in total GCF 2009- land reforms
10: 7.7 pc (2004-05  Two objectives of land reforms
prices) in India
o GCF as % of agricultural o To remove the
GDP: 2007-08 – 16.3, impediments to
agriculture that arise due

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to the character of  Where tenants

agrarian structure in had not been
rural areas evicted, tenancy
o To reduce or eliminate was pushed
the exploitation of underground
tenants/small farmers o On equity
 Four main areas of land reforms o On productivity
in India o On agrarian power
o Abolition of relations
intermediaries  The National Commission on
(zamindars) Farmers has placed the
o Tenancy reforms unfinished agenda in land
o Land ceilings reform first in its list of five
o Consolidation of factors central overcome an
disparate land holdings agrarian crisis
 Economic arguments for land  Way forwards
reforms o Land reforms that make
o Equity tenancy legal and give
o Small farms tend to be well defined rights to
more productive than tenants, including
large farms women, are now
o Owner cultivated plots of necessary
land tend to be more
productive that those
under sharecropped
tenancy
 Abolition of zamindari was Technology and Green
successful while the other three
areas of land reforms met with
Revolution
limited success
 Operation Bargha. Also, LR in  In the early 60s India faced
Kerala several crises
o It had to fight two wars:
 Regional trends in LR
 Effect of land reforms Pakistan and China
o Severe drought in 1965
o On tenants
 Absentee
and 1966
o US was using PL-480
landlordism
declined food supply as a means to
 Tenancy declined.
twist India‘s arms to
In some cases, meet US interests
tenants were  This called for an overhaul of
evacuated from the agricultural strategy and the
the land. need to be self-sufficient in food
 In some cases
production
there was a drift of  Three phases of green
tenants into revolution
o 1966-1972
landless
o 1973-1980

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 Economy Module

o 1981-1990  This phase saw

 1966-1972 many challenges
o C Subramaniam and  Consecutive
MSS droughts in 1972-
o 1965: Agricultural Prices 73
Commission and Food  Oil shock
Corporation of India set  Production fell.
up Imports began
o Introduction of HYV seed again.
of wheat from Mexico  Thereafter,
created by CIMMYT government
o Under the new increased fertiliser
agricultural policy, the subsidies
spread of HYVs was  Groundwater
supported by public irrigation
investments in fertilisers, increased
power, irrigation and in importance
credit  HYV technology
o Food grain production extended from
shot up wheat to rice
 1966-67: 74 mt o 1981-1990
 1971-72: 105 mt  1986
o India became nearly self-  Rice prod:
sufficient in food grains 63.8 mt
o What led to the increased (1964: 37)
production?  Wheat
 Favourable pricing prod: 47 mt
policy led to (1964: 12
adequate mt)
incentives  Even when the
 National research ‗worst drought of
system proceeded the century‘ struck
to indigenise the in 1987, food
new seeds to needs could be
tackle their adequately met
shortcomings due to buffer
 Availability of stocks
inputs including  HYV technology
canal water, spread eastward
fertilisers, power to states like West
and credit Bengal and Bihar
 Subsidies  The impact of
 Role of credit HYV technology
began to be had started to
important after plateau however
1969  Input subsidies
o 1973-1980 kept on increasing

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 Economy Module

 1991: Input o Agriculture in post-

subsidy was 7.2 pc reform era
of agricultural  Impact: 1. Growth
GDP in PCI led to an
o What was the impact of increase in food
highly regulated policies demand and also
on agriculture? diversification.
 There were Terms of trade
barriers on between
pricing, agricultural and
movement and industrial prices
private trading of improved in
agricultural favour of
produce agriculture
 The external  Increased
sector was profitability has
burdened with led to increase in
various tariff and private
non-tariff barriers investments which
to agricultural are now double
trade flows the public
 The overvalued investment in
rupee produced an agriculture.
anti-export  Growth rates
environment for  1980s: 3 pc
agriculture  1990s:
 High protection to  2000s:
industry produced  Tenth Plan:
high industrial 2.47 pc (as
prices and adverse against 7.77
terms of trade for pc of
agriculture, overall
reducing the economic
relative growth)
profitability of the  This has however
primary sector not translated into
o What was the aim of reduction of
agricultural pricing in poverty
pre-reform era?  There has been an
 Ensure increase in both
inexpensive food urban and rural
for consumers inequality
 Protect farmers‘ o Deceleration in
incomes from agricultural growth
price fluctuations  Declined during
 Keep the balance 90s
of payments in  Deceleration in
check the growth of area,

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 Economy Module

production and o Sectoral priority to

yield industry from the second
 Food production FYP
of Rabi crops has o Weaknesses of policies
off late equalled followed for agricultural
the Kharif crops. development
This has to an  Policies provided
extent reduced the little incentives for
over dependence the farmers as the
on monsoon and prices were
imparted some depressed and the
stability to sector was
agricultural disprotected vis a
production vis other sectors of
 Area-wise, the the economy
deceleration was  Inward-looking
more in case of the policies
Indo-Gangetic  Excessive price
region based focus than
o The instability in non-price factors
agricultural growth is like water,
more in states with high infrastructure,
percentage of rain-fed R&D, extension
areas services etc
o Acreage: declining trend o Investment in
in most crops during the Agriculture and
period 1995-96 to 2004- Subsidies
05  There have been
o Productivity: sharp cutbacks in
decline (1995-2005). agricultural
Healthy performance of investment and
cotton and maize though extension, but not
in subsidies
 Agricultural
Major factors subsidy as pc of
affecting growth GDP:
 Public investment
potential in agriculture
declined from 4 pc
 Lack of long term policy of agriculture GDP
perspective
in 1976-1980 to
o No long term strategy for
 Subsidies on
agricultural development
fertiliser, power
o National Agricultural
and irrigation
Policy was announced have contributed
only in the year 2000
to soil degradation
 It is important to
reduce subsidies

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 Economy Module

and increase  Complimentarity

public investment between public
in crucial areas and private sector
such as soil capital formation
amelioration, in agricultural
watershed sector. Public
development, sector can create
groundwater infrastructure
recharge, surface while the private
irrigation and investment is
other essential for short
infrastructure term asset
 Public Sector GCF building mainly in
in agriculture the areas of
stood at less than mechanisation,
Rs 50 bn at 1993- ground levelling,
94 prices private irrigation
 It is imperative to etc
reduce these o Lagging research and
subsidies for development efforts
stepping up public  After the green
investment in revolution, there
agriculture has been no major
 After 2003, the breakthrough in
investments have agricultural
started to research. GM is a
increase. promising area
In 2006-07 public but its safety has
sector GCF was not yet been
3.7 pc of conclusively
agricultural GDP established.
and total GCF was  Poor productivity
12.5 pc of in India compared
agricultural GDP to other countries
 Three areas and even
should get priority compared to
in public world average
investments  India, however,
 Rural roads has the largest
 Electricity public agricultural
 Irrigation research
projects establishment in
 <all three the world. ICAR
of them are and agricultural
under universities
Bharat  India spends only
Nirman 0.3 pc of
project> agricultural GDP

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 Economy Module

for research as o Rising soil degradation

compared to 0.7 and over-exploitation of
pc in other groundwater
developing  Around 40 pc of
countries and 2-3 Indian‘s total
pc in case of geographical area
developed are officially
countries. estimated as
 There is hardly degraded
any scope for  Soil health is
expansion of area. deteriorating in
Hence, Punjab and
productivity must Haryana
increase to keep o Degradation of natural
up with the resources
increasing o Subsidies vis-a-vis
demand. R&D has investments and farm
a lot of role to play support systems
here o Agriculture‘s terms of
 New varieties of trade and farm price
seeds need to be volatility
developed suited  Ensure rapid
to different development of
regions of the backward farm
country linkages
 The research o Summary: Need to
system should be correct the policy bias
responsive to the against agriculture, make
changing needs higher investments,
and circumstances develop new varieties of
o Technology generation seeds, conserve natural
and dissemination resources like land and
 Fixed land. Hence water and provide
technology incentives to the farmers
 Focus on yield as to adopt modernisation
well as sustainable
use of land
 Focus should be
on specific
requirements of
Some Issues in Indian
each agro-climatic Agriculture
region
 Ned to develop  Low public investment
much stronger  Halt in the modernization of
linkages between agriculture
extension and  Agricultural indebtedness
farmers  Farmer suicides

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 Economy Module

 Agricultural imports and future  National Policy on Agriculture,

markets 2002
 National Policy for Farmers,
2007
o Major policy provisions
include provisions for
asset reforms, water use
efficiency, use of
technology, inputs and
services like soil health,
good quality seeds,
credit, support for
women etc
o Focus on millets as well
o
Subsidies
Agriculture during
 Talk about bringing urea under the 11th plan
the Nutrient Based Subsidy
(NBS) system and decontrolling
 Flagship schemes
its prices
o Rashtriya Krishi Vikas
 Downsides
Yojana
o Fertilizer subsidy
o National Food Security
touched almost 1 lakh
Mission
crore in 2008-09
o National Horticulture
o Promotes overuse of
Mission (2005-06)
fertiliser and thereby
o Integrated Scheme of
catalysing soil
Pulses, Oilseeds and
degradation
Maize
o As a result, agricultural
o Technology Mission for
production in the bread
Integrated Development
baskets of the country
of Horticulture in North-
has stagnated, posing a
east and Himalayan
threat to the food
States (2001-02)
security of the country
o National Mission for
o Drylands do not receive
Sustainable Agriculture
the benefit of crores of
o National Mission on
subsidy given in
Micro Irrigation was
fertilizers
launched in 2010 in
addition to the earlier
Micro Irrigation Scheme
launched in 2006
o National Bamboo
Government Mission
Intitiatives  Avg growth of 2.03 pc against
the Plan target of 4 pc per
 Green Revolution annum.

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 Economy Module

 For sustainable and inclusive o Inter-regional variance

growth o Inequality in access
o Must focus on the small within the farming
and marginal farmers as population
well as female farmers  Areas of concern
o Group approach should o Depletion of ground
be adopted so that they water
can reap economies of o Environmental concerns
scale o Costs
o Bring technology to  Steps to take
farmers o Improving water use
o Improving efficiency of efficiency
investments o Water governance
o Diversifying while also o Economic incentives for
protecting food security efficient use
concerns  Govt Schemes
o Fostering inclusiveness o Accelerated Irrigation
through a group Benefits Programme was
approach started during 1996-97.
 Irrigation It extends assistance for
o Envisages creation of an the completion of
additional potential of 16 incomplete irrigation
mn ha schemes
o Bharat Nirman aims to o
bring an additional 1  In 11th FYP – refer previous
crore ha of land under section
irrigation by 2012 
o Accelerated Irrigation
Benefits Programme still Way Forward
on
 Second green revolution (?)
Irrigation  Relook at all the issues offering
forward and backward linkages
 45 pc of nearly 175 mn ha of in the agricultural production
cropped area is irrigated cycle
 Trends  Focus on oilseeds, pulses and
o Nearly trebled from 24 coarse cereals
mn ha in 1953-64 to 75  Coarse cereals: high nutrition,
mn ha in 1998-99 can be grown in dry areas,
o It accounts for the largest enhance fertility of soil in
part of total investments rotation
in the agricultural sector  PDS should be reformed: coarse
o Importance of ground cereals should also be provided
water as an irrigation through PDS
source has also increased  Timely availability of credit at
considerably affordable costs
 Uneven access

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 Economy Module

 Wider extension of insurance  The total irrigation potential in

facilities to the farm sector the country has increased from
 Water and irrigation 81.1 mn hectares in 1991-92 to
infrastructure 108.2 mn hectares in March
 Drip irrigation 2010.
 Organic manures should be  1996-97: Accelerated Irrigation
popularized and their Benefit Programme initiated
commercial production  Reservoir Storage Capacity:
encouraged 151.77 billion cubic metres
 Educate farmers about
technology and agricultural Agricultural Pricing
techniques
  To ensure
o Remunerative prices to
Food Security growers
o Encouraging higher
investment and
 Food security should also
production
incorporate nutritional security.
o Safeguard the interest of
This requires emphasising the
consumers by making
increase in production of pulses,
sure that adequate
fruits, vegetables, poultry and
supplies are available
meat.
 It also seeks to evolve a
 Interpreted broadly
balanced and integrated price
 Includes nutritional security
structure in the perspective of
which particularly incorporates
the overall needs of the
maternal health and infant
economy
health due to the involvement of
the nutritional aspect
 Also covers employment
security (?)
Investment in Agriculture
 Affordability, accessibility and
availability
 Food security seeks to address  FAO estimates that global
all the three dimensions of agricultural production needs to
hunger: chronic, hidden and grow 70 pc by 2050 in order to
transient meet projected food demand
 It also is the first step towards  Hence investment should grow
inclusive development by a whopping 50 pc
 In India, public investment in
agriculture has witnessed a
Public Distribution steady decline from the 6th FYP
System 
onwards
Share of investment in
agriculture has been between 8-
 High procurement prices
10 pc
 Most of this has gone into
Irrigation current expenditure in the form

Page 58
 Economy Module

of increased output and input

subsidies
 Though private sector
investment has been increasing,
it has not proved to be enough
 Decreased public spending in
creation of supporting
infrastructure in rural areas has
discouraged private investment
in this sector
 Some of the measures could be
o Investment in general
service like R&D,
education, marketing
and rural infrastructure
o Increased investment in
rainfed areas
o Private sector
participation
o Increased investment for
sustainable development

WTO and
Agriculture
 Uruguay Round multilateral trade negotiations were concluded after 7 years of
negotiation in December 1993
 The WTO Agreement on Agriculture was one of the main agreements which
was negotiated
 Agreement on Agriculture contains provisions in three broad areas of
agriculture
o Market Access
o Domestic Support
o Export Subsidies
 Market Access
o This is the most important aspect of the negotiation because all
countries restrict market access while only few have export subsidies
and domestic support
o This includes tariffication, tariff reduction and access opportunities

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 Economy Module

o Tariffication means that all NTTBs should be withdrawn (such as

quotas, minimum export prices etc)
o Adopts a single approach using a tiered formula
o Single approach: everyone except LDCs have to contribute by
improving market access for all products
o Sensitive products: All countries can list some sensitive products and
are allowed flexibility in the way these products are treated, although
even sensitive products have to see ‗substantial improvements‘ in
market access.
o Special and differential treatment
 Purpose: for rural development, food security and livelihood
security
 Specifically, special treatment is to be given to developing
countries in ‗all elements of the negotiation', including ‗lesser‘
commitments in the formula and long implementation period
 Special products: developing countries will be given additional
flexibility for products that are specially important for their food
security, livelihood security and rural development.
 Special Safeguard Mechanisms: is intended to provide
contingent protection to poor farmers in developing countries
from negative shocks to import prices or from surges in imports.
[Safeguards are contingency restrictions on imports taken
temporarily to deal with special circumstances such as a sudden
surge in imports. AoA has special provisions on safeguards. In
agriculture safeguards, (unlike normal safeguards) can be
triggered automatically when import volumes rise above a
certain level or if prices fall below a certain level; and it is not
necessary to demonstrate that serious injury is being caused to
the domestic industry]
o AoA requires (from 1995)
 36% average reduction by developed countries, with a minimum
per tariff line reduction of 15% over six years
 24% average reduction by developing countries with a minimum
per tariff line reduction of 10% over ten years
o Domestic Support (subsidies)
 AoA structures domestic support into three categories
 Green Box
 Amber Box
 Blue Box
 Green Box
 Non (or minimal) trade distorting subsidies
 They have to be government funded and must not involve
price support
 They tend to be programmes that are not targeted at
particular products and include direct income supports
for farmers that are not related to current production
levels or prices. They also include environmental

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protection and regional developmental programmes.

These subsidies are therefore allowed without limits
 Amber Box
 All domestic support measures considered production
and trade fall into the amber box
 These include measures to support prices, or subsidies
directly related to production quantities
 These supports are subject to limits which are allowed:
5% of total production for developed countries, 10% for
developing countries
 Reduction commitments are expressed in terms of a
―Total Aggregate Measurement of Support‖ (Total AMS)
 Blue Box
 This is the ―amber box with conditions‖ – conditions
designed to reduce distortion
 Any support that would normally be in the amber box, is
placed in the blue box if the support also required farmers
to limit production
 At present there are no limits on spending on blue box
subsidies.
 Export subsidies
 Developed countries are required to reduce their export
subsidy by 36% (by value) or 21% (by volume) over the six
years
 For developing countries the % cuts are 24% (by value) or
14% (by volume) over 10 years
 India‘s commitment
 As India was maintaining QRs due to balance of
payments reasons (which is a GATT consistent measure),
it did not have to undertake any commitments in regard
to market access
 In India, exporters of agricultural commodities do not get any
direct subsidy. Indirect subsidies are given
segments within the Food
Processing industry:
o Dairy, fruits and
vegetable processing
o Grain processing
o Meat and poultry
Food Processing processing
o Fisheries
 Food processing is a large sector o Consumer foods
that covers activities such as including packaged
agriculture, horticulture, foods, beverages and
plantation, animal husbandry packaged drinking water
and fisheries  Industry is large and has grown
 Ministry of Food Processing after 1991. However, of the
indicated the following country‘s total agriculture and

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food produce, only 2 per cent is  High transportation and

processed. inventory carrying cost
 FP has 9% share in  Affordability, cultural and
manufacturing regional preference of fresh
 Structure food
o 42 pc: Unorganised  High taxation
o 33 pc: SSI  High packaging cost
o 25 pc: Organised
In terms of policy support, the
ministry of food processing has
taken the following initiatives:
Constraints & Drivers of Growth
Changing lifestyles, food habits,  Formulation of the National
organized food retail and urbanization Food Processing Policy
are the key factors for processed foods  Complete de-licensing,
in India, these are post-liberalization excluding for alcoholic
trends and they give boost to the beverages
sector.  Declared as priority sector for
There has been a notable change in lending in 1999
consumption pattern in India. Unlike  100% FDI on automatic route
earlier, now the share and growth rates  Excise duty waived on fruits and
for fruits, vegetables, meats and dairy vegetables processing from
have gone higher compared to cereals 2000 – 01
and pulses. Such a shift implies a need  Income tax holiday for fruits
to diversify the food production base to and vegetables processing from
match the changing consumption 2004 – 05
preferences.  Customs duty reduced on
Also in developed countries it has been freezer van from 20% to 10%
observed that there has been a shift from 2005 – 06
from carbohydrate staple to animal  Implementation of Fruit
sources and sugar. Going by this Products Order
pattern, in future, there will be  Implementation of Meat Food
demand for prepared meals, snack Products Order
foods and convenience foods and  Enactment of FSS Bill 2005
further on the demand would shift  Food Safety and Standards Bill,
towards functional, organic and diet 2005
foods.  Mega Food Parks
Some of the key constraints
identified by the food processing Apart from these initiatives, the
industry include: Centre has requested state
Governments to undertake the
 Poor infrastructure in terms of following reforms:
cold storage, warehousing, etc
 Inadequate quality control and  Amendment to the APMC Act
testing infrastructure  Lowering of VAT rates
 Inefficient supply chain and  Declaring the industry as
involvement of middlemen seasonal

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 Integrate the promotional containing state of the art processing

structure facilities with support infrastructure
and well established supply chain. The
primary objective of the proposed
scheme is to facilitate establishment of
integrated value chain, with processing
Plan Schemes at the core and supported by requisite
forward and backward linkages. It is
During the 10th Plan, the Ministry envisaged that the implementation of
implemented Plan schemes for the projects would be assisted by
Technology professional Project Management
Upgradation/Modernization/Establish Agencies (PMA) from concept to
ment of Food Processing Industries, commissioning. In 11th Plan it is
Infrastructure Development, Human planned to support establishment of
Resource Development, Quality thirty (30) Mega Food Parks in
Assurance, R&D and other various parts of the country.
promotional activities.

In the 11th Plan, it has been proposed Vision 2015 on Food

to continue assistance to the above Processing Industries
schemes with higher levels of
assistance. In the 11th Plan, the
A vision, strategy and action plan has
Ministry proposes to launch a
also been finalized for giving boost to
revamped Infrastructure Scheme growth of food processing sector. The
under which it will promote setting up
objective is to increase level of
of Mega Food Parks, cold chain
processing of perishable food from 6%
infrastructure, value added centres and to 20%, value addition from 20% to
packaging centres. The Mega Food
35% and share in global food trade
Park Scheme will provide backward
from 1.6% to 3%. The level of
and forward linkages as well as reliable
processing for fruits and vegetables is
and sustainable supply chain. The
envisaged to increase from the present
emphasis will be on building strong 2.2% to 10% and 15% in 2010 and 2015
linkages with agriculture and
respectively. The Cabinet has approved
horticulture, enhancing project
the integrated strategy for promotion
implementation capabilities, increased of agri-business and vision, strategy
involvement of private sector
and action plan for the Food
investments and support for creation
Processing Sector, based on the
of rural infrastructure to ensure a
recommendations made by the Group
steady supply of good quality
of Ministers (GOM).
agri/horticulture produce. It will
provide a mechanism to bring farmers,
processors and retailers together and Integrated Food Law
link agricultural production to the
market so as to ensure maximization of An Integrated Food Law, i.e. Food
value addition, minimize wastages and Safety and Standards Act, 2006 was
improve farmers' income. The Mega notified on 24.8.2006. The Act enables
Food Park would be a well-defined in removing multiplicity of food laws
agri/horticultural-processing zone and regulatory agencies and provide

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single window to food processing  Inefficient supply chain due to a

sector. Ministry of Health & Family large number of intermediaries
Welfare has been designated as the  High requirement of working
nodal Ministry for administration and capital.
implementation of the Act.  Inadequately developed
linkages between R&D labs and
National Institute of industry.
 Seasonality of raw material
Food Technology
Entrepreneurship & Opportunities

Management  Large crop and material base

(NIFTEM) offering a vast potential for agro
processing activities
 Setting of SEZ/AEZ and food
The Ministry has set up a National
parks for providing added
Institute of Food technology
incentive to develop greenfield
Entrepreneurship & Management
projects
(NIFTEM) at Kundli (Haryana). The
 Rising income levels and
Institute will function as a knowledge
changing consumption patterns
centre in food processing. Certificate of
 Favourable demographic profile
Incorporation of NIFTEM as a section
and changing lifestyles
25 Company under the Companies act
 Integration of development in
1956 has been obtained.
contemporary technologies such
as electronics, material science,
bio-technology etc. offer vast
scope for rapid improvement
SWOT Analysis of Food– and progress
Processing Industry
 Opening of global markets
Strengths
Threats
 Abundant availability of raw
material
 Affordability and cultural
 Priority sector status for agro-
preferences of fresh food
processing given by the central
 High inventory carrying cost
Government
 High taxation
 Vast network of manufacturing
 High packaging cost
facilities all over the country
 Vast domestic market

Weaknesses Subsidies
 Low availability of adequate
infrastructural facilities
 Lack of adequate quality control
Fertilizer Policy: Urea is the only
and testing methods as per fertilizer under statutory price
international standards
control. Government of India has
introduced nutrient based subsidy with

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effect from 1st April, 2010 in respect of important pre-requisite for the rapid
phosphatic and potassic fertilizers. economic growth based on non-
Under the policy, subsidy is based on agricultural sectors? development in
the nutrient (N,P,K and S) content of India after the 1990s.
the decontrolled P and K fertilizers.
Price of Urea has been increased by Green Revolution is based on:-
10% while price of other subsidized
fertilizers are being maintained around (i) improved seeds of high yielding
current levels. Additional subsidy on varieties,
micronutrients has been introduced on (ii) adequate and assured supply of
Boron and Zinc, to begin with. In water for irrigation, and
order to promote the concept of (iii) increased and appropriate
balanced use of fertilizers and to application of chemical fertilizers for
encourage use of micronutrients, increasing agricultural production.
several fertilizers fortifed with Boron
and Zinc have been incorporated in the India has failed to extend the concept
Fertilizer (Control) Order, 1985. of high-yield value seeds to all crops or
all regions. In terms of crops, it remain
largely confined to foodgrains only, not
Green Revolution and its to all kinds of agricultural produce. In
regional terms, only Punjab and
impact on major crops of India Haryana states showed the best results
of the Green Revolution. The eastern
plains of the River Ganges in West
The Green Revolution was initiated in Bengal state also showed reasonably
the 1960‘s to address the issue of good results. But results were less
malnutrition in the developing world. impressive in other parts of India.
The technology of the Green Those states which were originally rich
Revolution involved bio-engineered derived the benefits of Green
seeds that worked in conjunction with Revolution, e.g., Punjab, Haryana and
chemical fertilizers and heavy Western U.P. As the benefits of new
irrigation to increase crop yields. technology concentrated mainly in
these areas, other Indian states could
Green Revolution was largely confined not match them.
in wheat crop and in northern India Ever Green Revolution and
such as Punjab, resulting in a limited
contribution to overall economic Rainbow revolution
development of the country. On the
contrary, the agricultural growth in the Evergreen Revolution was a term
1980s (the second wave of the Green coined by M.S. Swaminathan to
Revolution) involved almost all the indicate the development
crops including rice and covered the of technologies that can help in
whole country, it enabled to raise rural increasing productivity in perpetuity
income and alleviate rural poverty without causing an associated
substantially. Such a rise of rural India ecological [Link] also stated that to
as a "market? for non-agricultural achieve the goal of food security by
products and services was an ending hunger and to promote

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sustainable agriculture, it is important White Revolution, Blue Revolution,

that in the field of social protection as Yellow Revolution and Brown
well as the scientific measures needed Revolution. It was after these
for achieving food and nutrition revolutions, the Indian agriculture
security, we should move from the slowly shifted from traditional
green to an 'evergreen revolution' behaviour to scientific behaviour.
approach.

The Evergreen Revolution technologies

are based on a farming systems
approach and will also involve farmer
participatory breeding and knowledge
management. Nation‘s agricultural
research and technology development
system should be strengthened and
reoriented to play the pivotal role in
creating a science-based and
knowledge-led evergreen revolution. A
sustainable evergreen revolution
enhances the quality of life of farm
families and revitalizes rural
The various colors of the Rainbow
communities. Taking good care of both
Revolution indicate various farm
human and environmental resources is
practices such as Green Revolution
the heart of a sustainable agriculture
(Foodgrains), White Revolution (Milk),
Yellow Revolution (Oil seeds), Blue
Use of biotechnological tools in
Revolution (Fisheries); Golden
agriculture could make food crops high
Revolution (Fruits); Silver Revolution
yielding and more robust to biotic and
(Eggs), Round Revolution (Potato),
abiotic stresses. This could stabilize
Pink Revolution (Meat), Grey
and increase food supplies, which is
Revolution (Fertilizers) and so on.
important against the background of
increasing food demand, climate WTO and agriculture
change and land and water scarcity.
The World Trade Organization came
Nanotechnology can be used in into being in 1995 as the successor
agriculture in many ways. It can help organization to the General Agreement
in promoting soil fertility and balanced on Tariffs and Trade (GATT)
crop nutrition; effective weed control; established in the wake of the Second
enhancing seed emergence using World War. It is a multilateral
carbon nanotubes; delivery of framework (an agreement among
agriculture chemicals, field-sensing governments) for conduct of
systems to monitor the environmental international trade in goods and
stresses and crop conditions and services and also for protection of
improvement of plant traits against
environmental stresses and diseases.

Rainbow revolution concept is a

combination of Green Revolution,

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India has always demanded that

developed countries must bring down
their bound tariff rates, and suggested
the creation of a separate safeguard
mechanism, for food security in
developing countries. In fact, India
continued to emphasize on food
security as a prime Non Trade Concern
and wanted that any measures adopted
for its poverty alleviation programmes,
food security and other social
intellectual property rights, i.e.,
objectives, be exempt from any
patents, copyrights, trademarks, etc
reduction commitments, while it
and for discussion of trade related
demanded that developed countries
issues. The WTO has a set of
should cut back their domestic farm
multilateral agreements primarily on
support below the de-minimis levels.
the rights and obligations (of
governments) that prescribes for
governments in formulation of rules, Non-product specific subsidy is
procedures and practices related to calculated by taking into account
international trade. subsidies given for fertilizers, water,
seeds, credit and electricity. The ‗Green
Box‘ covers subsidies must not involve
Agriculture was originally kept outside
price support that is expected to cause
the purview of GATT till 1995.
minimal or no trade distortions.
However, Uruguay Round has
succeeded in bringing agriculture on Pricing of agricultural inputs
the main track of GATT and
agriculture trade is now firmly within
and outputs.
the multilateral trading system. All the
member countries of WTO are Agricultural prices cover prices of
committed to follow set of rules agricultural products (output prices)
embodied in WTO Agreement on and prices of requisites for agricultural
Agriculture which covers: production (input prices) at various
stages of marketing. The structure of
(i) Domestic support, Indian agricultural marketing system
consists of: Agricultural Co-operative
(ii) Market access i.e., tariffs, and Marketing Societies; Regulated
restrictions on imports and exports, Markets; Public Trading and Futures
and, Trading.

(iii) Export subsidies. The agreement- Commission for Agricultural Costs and
sought reduction in trade distorting Prices (CACP) while recommending
domestic policies like price the minimum support prices takes into
interventions and subsidies; reduction account all-important factors, which
in export subsidies; replacing are as follows:-
quantitative restrictions on trade with
tariffs and reduction in tariffs to i) Cost of Production
encourage more and freer trade.

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ii) Changes in Input Prices of demand for farm inputs and raw
materials, and the policy relating to the
iii) Input/Output Price Parity marketing of farm products and
inputs.
iv) Trends in Market Prices
It is a process which starts with a
v) Inter-crop Price Parity decision to produce a saleable farm
commodity, and it involves all the
vi) Demand and Supply Situation aspects of market structure or system,
both functional and institutional,
vii) Effect on Industrial Cost Structure based on technical and economic
considerations, and includes pre- and
viii) Effect on General Price Level post-harvest operations, assembling,
grading, storage, transportation and
ix) Effect on Cost of Living distribution.

x) International Market Price Situation Grading, standardization, packaging,

labelling, storage, transportation,
xi) Parity between Prices Paid and market intelligence, wholesaling,
Prices Received by farmers (Terms of retailing and modern tools of
Trade). marketing such as contract farming,
terminal markets, futures markets etc.
Agricultural price policy is basically are the various focus fields of
aimed at intervention in the Agricultural Marketing.
agricultural produce markets with a
view to influencing the level of Major Constraints of Present
fluctuations in prices and price-spread Agricultural Marketing System are as
from farm-gate to the retail level. The follows-
instruments of agricultural price policy
comprised mainly the  Indian Agricultural Markets
controls/restrictions of various forms, highly fragmented
imports of food grains and distribution  Insufficient Number of
of imported grains at below the market Agricultural Markets
prices.  Inadequate Marketing
Infrastructure
Agricultural Marketing  High Incidence of Market Fee/
Charges
Agricultural marketing is the study of  High Post—Harvest Wastages
all the activities, agencies and policies  Restrictions in Licensing
involved in the procurement of farm  Less Remuneration to the
inputs by the farmers and the Farmers and High
movement of agricultural products Intermediation Cost
from the farms to the consumers. The  Market Information Asymmetry
agricultural marketing system is a link  Inadequate Credit Facilities
between the farm and the non-farm
sectors. It includes the organization of
Industrial Economy: Policy
agricultural raw materials supply to Initiative & charges
processing industries, the assessment

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The Indian Government had Department of Industrial Policy &

undertaken industrial policy reforms Promotion is responsible for the
since 1980, but the most radical overall Industrial Policy.
reforms have occurred since 1991, after
the severe economic crisis in fiscal year Merits of the Industrial policy :
1990-91. These reforms mainly aimed
at enhancing the efficiency and [Link] raise the level of industrial
international competitiveness in efficiency, time consuming hurdles of
Indian industry. Growth in the regulations, licenses and restrictions
industrial sector is one of the vital would either be done away with or
figures that affect the Gross Domestic made industry friendly. Inflow of FDI
Product (GDP) in India. and foreign technology transfers would
be encouraged.
India‘s industrial policy of 1991 [Link] to the supply of investible
towards liberalisation, deregulation, resources and technology would result
market orientation has been hailed as in increased industrial production and
ushering in a new era of freedom from productivity.
government controls, licence raj and [Link] the abolition of licensing
red carpetism and one which promises system in most industries except 5, the
greater prosperity for the Indian wave of liberalization would boost the
people. entrepreneurial skills in the economy.
[Link]/de reservatioin of
Objectives of the Industrial Policy of Industries for the public sector would
the Government are – boost professionalism in this secotr.
Increased autonomy would usher in
 to maintain a sustained growth dynamism for the betterment.
in productivity; [Link]-1991 made a special mention
 to enhance gainful employment; about the role and importance of small
 to achieve optimal utilisation of scale industries. The state would
human resources; initiate measures to promote and
 to attain international strengthen small, tiny and village
competitiveness and industries, which have large potential
 to transform India into a major to deal with the problems like
partner and player in the global unemployment, regional disparities,
arena. income inequalities and inflation.
[Link] the government of the country is
Department of Industrial Policy & obliged to protect the interest of
Promotion is responsible for workers, this policy would lay special
formulation and implementation of emphasis to enhance the welfare and
promotional and developmental upgrade the economic and social status
measures for growth of the industrial of the worker. To ensure long-lasting
sector, keeping in view the national and cordial relations between the
priorities and socio-economic workers and the management, they
objectives. While individual (workers) would participate in the
Administrative Ministries look after management decisions of the
the production, distribution, enterprises.
development and planning aspects of
specific industries allocated to them,

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Historically, the prominence of fiscal

policy as a policy tool has waxed and
waned. Before 1930, an approach of
limited government, or laissez-faire,
prevailed. With the stock market crash
and the Great Depression,
policymakers pushed for governments
to play a more proactive role in the
economy. More recently, countries had
scaled back the size and function of
government—with markets taking on
an enhanced role in the allocation of
Public Finance goods and services—but when the
global financial crisis threatened
Public finance is the study of the role worldwide recession, many countries
of the government in the economy. It is returned to a more active fiscal policy.
the branch of economics which
assesses the government revenue and How does fiscal policy work?
government expenditure of the public
authorities and the adjustment of one When policymakers seek to influence
or the other to achieve desirable effects the economy, they have two main tools
and avoid undesirable ones. at their disposal—monetary policy and
fiscal policy. Central banks indirectly
It includes the study of :- target activity by influencing the
money supply through adjustments to
 Fiscal Policy interest rates, bank reserve
 Deficits and Deficit Financing requirements, and the purchase and
 Fiscal Consolidation sale of government securities and
 Public Debt- Internal and foreign exchange. Governments
External debt influence the economy by changing the
level and types of taxes, the extent and
Fiscal policy relates to raising and composition of spending, and the
expenditure of money in quantitative degree and form of borrowing.
and qualitative [Link] policy is
the use of government spending and Deficit financing, practice in which a
taxation to influence the economy. government spends more money than
Governments typically use fiscal policy it receives as revenue, the difference
to promote strong and sustainable being made up by borrowing or
growth and reduce poverty. The role minting new funds.
and objectives of fiscal policy gained
prominence during the recent global Fiscal consolidation is a term that is
economic crisis, when governments used to describe the creation of
stepped in to support financial strategies that are aimed at minimizing
systems, jump-start growth, and deficits while also curtailing the
mitigate the impact of the crisis on accumulation of more debt. The term
vulnerable groups. is most commonly employed when
referring to efforts of a local or
national government to lower the level

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of debt carried by the jurisdiction, but Indian Constitution, distributes

can also be applied to the efforts of legislative powers including taxation,
businesses or even households to between the Parliament and the State
reduce debt while simultaneously Legislature. Schedule VII enumerates
limiting the generation of new debt these subject matters with the use of
obligations. From this perspective, the three lists;
goal of fiscal consolidation in any
setting is to improve financial stability
by creating a more desirable financial
position.

The public debt is defined as how

much a country owes to lenders
outside of itself. These can include
individuals, businesses and even other
[Link] debt is the • List - I entailing the areas on which
accumulation of annual budget only the parliament is competent to
deficits. It‘s the result of years of makes laws, Taxes consist of direct tax
government leaders spending more or indirect tax, and may be paid in
than they take in via tax revenues. money or as its labour equivalent
(often but not always unpaid labour).
Public Revenue-
Principles and types of • List - II entailing the areas on which
only the state legislature can make
taxation; direct, indirect, laws, and
progressive and
proportional • List - III listing the areas on which
both the Parliament and the State
Legislature can make laws upon
India has a well developed taxation
structure. The tax system in India is concurrently.
mainly a three tier system which is
based between the Central, State Direct Taxes: They are imposed on a
Governments and the local person‘s income, wealth, expenditure,
government organizations. In most etc. Direct Taxes charge is on person
cases, these local bodies include the concern and burden is borne by person
local councils and the municipalities. on whom it is imposed. Example-
Income Tax.
According to the Constitution of India,
the government has the right to levy Indirect Taxes: They are imposed on
taxes on individuals and organizations. goods/ services. The Immediate
However, the constitution states that liability to pay is of the manufacturer/
no one has the right to levy or charge service provider/ seller but its burden
taxes except the authority of law. is transferred to the ultimate
Whatever tax is being charged has to consumers of such goods/ services.
be backed by the law passed by the The burden is
legislature or the parliament. Article
246 (SEVENTH SCHEDULE) of the

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as prevalent in the earlier Sales tax

laws.

The Value Added Tax aims to radically

reform the conventional system of
Sales Tax laws that was mingled with
the horrible effects of double taxation.
VAT is the most diversified and simple
as well as transparent indirect tax
system with inbuilt capacity to raise
more tax revenue without distorting
the existing tax structure and is yet
transferred not in form of taxes, but, as able to widen the tax base. VAT system
a part of the price of goods/ services. has the unique feature of preventing
Example- Excise Duty, Customs Duty, the scope of tax avoidance. VAT is
Service Tax, Value-Added Tax (VAT), more taxpayer-friendly than the
Central Sales Tax (CST). conventional Sales Tax system. It does
not exert any undue pressure of
Progressive tax is a tax in which the tax shouldering additional tax burden.
rate increases as the taxable amount
increases. The term "progressive" The main benefits of the VAT system
refers to the way the tax rate are as follows:-
progresses from low to high, with the
result that a taxpayer's average tax rate 1. VAT system mitigates cascading
is less than the person's marginal tax effect and economic distortions.
rate.
2. There is a greater fairness and
Proportional tax is a tax imposed so uniformity in this system.
that the tax rate is fixed, with no
change as the taxable base amount 3. There is a better tax compliance
increases or decreases. The amount of being less chances of tax evasion.
the tax is in proportion to the amount
subject to taxation. 4. There is complete transparency of
concept of VAT tax incidence in the sale of goods.

VAT is a multi-stage tax levied at each 5. VAT system is more simple than the
stage of the value addition chain, with present system of taxation as there
a provision to allow input tax credit would be no dispute regarding taxable
(ITC) on tax paid at an earlier stage, stage of sale and classification of goods
which can be appropriated against the taxable at a particular rate of tax and
VAT liability on subsequent sale. VAT there would be minimum requirement
is intended to tax every stage of sale of declaration forms.
where some value is added to raw Public Expenditure : Theories
materials, but taxpayers will receive
credit for tax already paid on of public expenditure; causes
procurement stages. Thus, VAT will be of growth of public
without the problem of double taxation

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expenditure and its impact on According to Adolph Wagner,

"Comprehensive comparisons of
economy; internal and different countries and different times
show that among progressive peoples
external borrowings. (societies), with which alone we are
concerned; an increase regularly takes
Public expenditure is spending made place in the activity of both the central
by the government of a country on government and local governments
collective needs and wants such as constantly undertake new functions,
pension, provision, infrastructure, etc. while they perform both old and new
Until the 19th century, public functions more efficiently and more
expenditure was limited as laissez faire completely. In this way economic
philosophies believed that money left needs of the people to an increasing
in private hands could bring better extent and in a more satisfactory
returns. fashion, are satisfied by the central and
local Governments."
In democracy, public expenditure is an
expression of people's will, managed Wagner explained his theory based on
through political parties and following bases:-
institutions. At the same time, public
expenditure is characterised by a high  During industrialization process,
degree of inertia and law-dependency, public sector activity will replace
which tempers the will of the current private sector activity. State
majority. functions like administrative and
protective functions will increase.
 Governments needed to provide
Main objective of Public expenditure is
cultural and welfare services like
to reduce the inequality of income. education, public health, old age
Expenditure on old age pensions, pension or retirement insurance,
unemployment relief, free education, food subsidy, natural disaster aid,
free mid-day meals etc. benefits the environmental protection
poorer classes of the community at the programs and other welfare
expense of the [Link] objectives functions.
are:-  Increased industrialization will
bring out technological change and
1. Provide social goods large firms that tend to
2. Remove unemployment monopolize. Governments will
have to offset these effects by
3. Increase Production providing social and merit goods
4. Exploitation and Development of through budgetary means.
Mineral Resources
5. Promote Price Stability Colin-Clark forwarded his view
6. Promote Balanced Growth through ―Public Finance and changes
7. Reduce Inequality of Income in the value of Money‖ about the
growth of public-expenditure.
Wagnar's law or "The Law of According to them the share of
Increasing State Activity" states that government sector exceed 25% of the
"as the economy develops over time, total economic activity in the economy,
the activities and functions of the inflation occurs even in the balanced
government increase".

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budget. In this connection his opinions (a) The early development stage where
are; considerable expenditure is required
on education and on the infrastructure
"When the government‘s share of the of the economy (also known as social
aggregate economic activities reaches overhead capital) and where private
the critical limit of 25% the community saving is inadequate to finance this
behavior pattern changes and people necessary expenditure (in this stage,
produces less since incentive are government expenditure must thus be
harmed by the fact that increasing a high proportion of total output);
proportions of additional income must
be paid in taxes under progressive tax (b) The phase of rapid growth in which
system." there are large increases in private
saving and public investment falls
Dalton‘s Principle of Maximum Social proportionately; and
Advantage – maximum satisfaction
should be yield by striking a balance (c) High income societies with
between public revenue and increased demand for private goods
expenditure by the government. which need complementary public
Economic welfare is achieved when investment (e.g. the motor car and
marginal utility of expenditure = urbanisation).
marginal disutility of taxation. He
explains this principle with reference In recent years government
to expenditure is increasing faster than
their ability to raise resources, because
 Maximum Social Benefit (MSB) now their activities are not so
 Maximum Social Sacrifice (MSS) restricted as only to maintain law and
order and protect the country against
Peacock and Wiseman analyze the external aggression. Therefore, when
process of growth of public expenditure exceeds revenue, a deficit
expenditure in terms of three different arises in the budget of the government.
but related concepts; displacement, This deficit can be bridged by raising
inspection and concentration effects. the revenue from taxation (by
By the empirical analysis of the data of increasing the existing rates or by
Britain on public expenditure, they imposing new taxes) or by borrowing
were able to establish the relative from the public. Both in developed and
growth of public sector expenditure in developing countries there are certain
that country occurred on ―step-like‖ limits beyond which the taxation rates
pattern rather than on ―continuous cannot be raised without adverse
growth‖ pattern. effects on the investment level or
production and consequently on the
Musgrave and Rostow's Development rate of economic growth. Further, it
Model suggested that the growth of taxes the rich and the poor alike which
public expenditure might be related to is not desirable for the welfare of any
the pattern of economic growth and community.
development in societies. Three stages
in the development process could be
distinguished:
Public Debt

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Public debt is the total financial BUDGETING

obligations incurred by the entire
public sector of a nation, including
guarantees and implicit debt. Public Budgeting
debt would include obligations
evidenced by a legal instrument issued Budgeting is the process of estimating
by the Central, State, Municipal, or the availability of resources and then
Local Government or Enterprises allocating them to various activities of
owned or controlled by the an organization according to a pre-
Government; and other entities determined priority. In most cases,
considered public or quasi public. approval of a budget also means the
approval to various spending units to
Internal debt refers to rupee- utilize the allocated resources.
denominated debt, consisting of Budgeting plays a criucial role in the
marketable securities (dated securities, socio-economic development of the
treasury bills) and non-marketable nation.
securities (14 days Intermediate
Treasury Bills, compensation and Budget is the annual statement of the
other bonds, securities issued to outlays and tax revenues of the
international financial institutions government of India together with the
etc.). laws and regulations that approve and
support those outlays and tax revenues
External debt refers to the debt raised . The budget has two purposes in
by the Union Government from non- general :
domestic sources, namely, multilateral 1. To finance the activities of the union
institutions like the International Bank government
for Reconstruction and Development 2. To achieve macroeconomic
(IBRD), International Development objectives.
Association (IDA), Asian Development
Bank (ADB) etc. or bilateral sources, The Budget contains the financial
i.e., directly from the foreign countries. statements of the government
embodying the estimated receipts and
Liabilities in the Public Account expenditure for one financial year,
(referred to as ‗other liabilities‘) ie. it is a proposal of how much money
include National Small Savings Fund is to be spent on what and how much
(NSSF), Provident Funds, Reserve of it will
Funds and deposits and special bonds be contributed by whom or raised from
issued to oil marketing companies, where during the coming year.
fertilizer companies and Food
Corporation of India. ‗Other liabilities‘ Different types of Budgeting
are not included in the public
[Link] liabilities reported in the Economists throughout the globe have
budget documents of the Central classified the budgets into different
Government have been adjusted so types based on the process and
that the outstanding debt truly reflects purpose of the budgets, which are as
the outcome of fiscal operations of the follows:-
Central Government.
1- The Line Item Budget

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line-item budgeting was introduced in achievement of the objectives. A

some countries in the late 19th Performance Budget gives an
centuary. Indeed line item budgeting indication of how the funds spent are
which is the most common form of expected to give outputs and ultimately
budgeting in a large number of the outcomes. However, performance
countries and suffers from several budgeting has a limitation – it is not
drawbacks was a major reform easy to arrive at standard unit costs
initiative then. The line item budget is especially in social programmes which
defined as ―the budget in which the require a multi-pronged approach.
individual financial statement items
are grouped by cost centers or 3- Zero-based Budgeting
departments .It shows the comparison
between the financial data for the The concept of zero-based budgeting
past accounting or budgeting periods was introduced in the 1970s. As the
and estimated figures for the current name suggests, every budgeting cycle
or a future period‖In a line-item starts from scratch. Unlike the earlier
system, expenditures for the budgeted systems where only incremental
period are listed according to objects of changes were made in the allocation,
expenditure, or ―line-items.‖ These line under zero-based budgeting every
items include detailed ceilings on the activity is evaluated each time a budget
amount a unit would spend on salaries, is made and only if it is established
travelling allowances, office expenses, that the activity is necessary, are funds
etc. The focus is on ensuring that the allocated to it. The basic purpose of
agencies Zero-based Budgeting is phasing out
or units do not exceed the ceilings of programmes/ activities which do
prescribed. A central authority or the not have relevance anymore. However,
Ministry of Finance keeps a watch on because of the efforts involved
the spending of various units to ensure in preparing a zero-based budget and
that the ceilings are not violated. The institutional resistance related to
line item budget approach is easy to personnel issues, no government
understand and implement. It also ever implemented a full zero-based
facilitates centralized control and budget, but in modified forms the
fixing of authority and responsibility of basic principles of ZBB are often used.
the spending units. Its major
disadvantage is that it does not provide 4- Programme Budgeting and
enough information to the top levels Performance Budgeting
about the activities and achievements
of individual units. Programme budgeting in the shape of
planning, programming and budgeting
2 – Performance Budgeting system (PPBS) was introduced in the
US Federal Government in the mid-
a performance budget reflects the 1960s. Its core themes had much in
goal/objectives of the organization and common with earlier strands of
spells out performance targets. These performance budgeting.
targets are sought to be achieved Programme budgeting aimed at a
through a strategy. Unit costs are system in which expenditure would be
associated with the strategy and planned and controlled by the
allocations are accordingly made for objective. The basic building block of

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the system was classification of (d) The budgeted and actual figures are
expenditure into programmes, which compared for studying the
meant objective-oriented classification performance of different cost centres.
so that programmes with common
objectives are considered together. (e) If actual performance is less than
It aimed at an integrated expenditure the budgeted norms, a remedial action
management system, in which is taken immediately.
systematic policy and expenditure
planning would be developed and The main objectives of budgetary
closely integrated with the budget. control are the follows:
Thus, it was too ambitious in scope.
Neither was adequate preparation time 1. To ensure planning for future by
given nor was a stage-by- setting up various budgets, the
stage approach adopted. Therefore, requirements and expected
this attempt to introduce PPBS in the performance of the enterprise
federal government in USA did are anticipated.
not succeed, although the concept of 2. To operate various cost centres
performance budgeting and and departments with efficiency
programme budgeting endured. and economy.
3. Elimination of wastes and
increase in profitability.
4. To anticipate capital
expenditure for future.
5. To centralise the control system.
Budgetary Control 6. Correction of deviations from
the established standards.
Budgetary control refers to how well 7. Fixation of responsibility of
managers utilize budgets to monitor various individuals in the
and control costs and operations in a organization.
given accounting period. In other
words, budgetary control is a process
for managers to set financial and
performance goals with budgets, Responsibility Accounting
compare the actual results, and adjust
performance, as it is needed. Responsibility accounting is an
underlying concept of accounting
Budgetary control involves performance measurement systems.
the following steps : The basic idea is that large diversified
organizations are difficult, if not
(a) The objects are set by preparing impossible to manage as a single
budgets. segment, thus they must be
decentralized or separated into
(b) The business is divided into various manageable parts.
responsibility centres for preparing
various budgets. These decentralized parts are divided
as : 1) revenue centers, 2) cost centers,
(c) The actual figures are recorded. 3) profit centers and 4) investment
centers.

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1. revenue center (a segment that Social accounting is concerned with

mainly generates revenue with the statistical classification of the
relatively little costs), activities of human beings and human
2. costs for a cost center (a institutions in ways which help us to
segment that generates costs, understand the operation of the
but no revenue), economy as a whole.
3. a measure of profitability for a
profit center (a segment that Social accounting is the process of
generates both revenue and communicating the social and
costs) and environmental effects of organizations‘
4. return on investment (ROI) for economic actions to particular interest
an investment center (a groups within society and to society at
segment such as a division of a large
company where the manager
controls the acquisition and The components of social
utilization of assets, as well as accounting are production,
revenue and costs). consumption, capital accumulation,
government transactions and
transactions with the rest of the world.

Advantages:- The uses of social accounting are as

follows:
1. It provides a way to manage an
organization that would (1) In Classifying Transactions
otherwise be unmanageable.
2. Assigning responsibility to (2) In Understanding Economic
lower level managers allows Structure
higher level managers to pursue
other activities such as long (3) In Understanding Different Sectors
term planning and policy and Flows
making.
3. It also provides a way to (4) In Clarifying Relations between
motivate lower level managers Concepts
and workers.
4. Managers and workers in an (7) In Explaining Movements in GNP
individualistic system tend to be
motivated by measurements (8) Provide a Picture of the Working of
that emphasize their individual Economy
performances.
(9) In Explaining Interdependence of
In India the budget is prepared from Different Sectors of the Economy
top to bottom approach and
responsible accounting would not only (10) In Estimating Effects of
improve the efficiency of Indian Government Policies
budgetary system but also will help in
performance analysis. (11) Helpful in Big Business
Organisations
Social Accounting

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(12) Useful for International Purposes  The difference between total

revenue and total expenditure
(13) Basis of Economic Models of the government is termed as
fiscal deficit. It is an indication
of the total borrowings needed
by the government and thus
Budgetary Deficit amounts to all the borrowings of
the government . While
Budgetary Deficit is the difference calculating the total revenue,
between all receipts and expenditure of borrowings are not included.
the government, both revenue and  The gross fiscal deficit (GFD) is
capital. This difference is met by the the excess of total expenditure
net addition of the treasury bills issued including loans net of recovery
by the RBI and drawing down of cash over revenue receipts (including
balances kept with the RBI. The external grants) and non-debt
budgetary deficit was called deficit capital receipts. The net fiscal
financing by the government of India. deficit is the gross fiscal deficit
This deficit adds to money supply in less net lending of the Central
the economy and, therefore, it can be a government.
major cause of inflationary rise in  Generally fiscal deficit takes
prices. place either due to revenue
deficit or a major hike in capital
Budgetary Deficit of central expenditure. Capital
government of India was Rs. 2,576 expenditure is incurred to
crores in 1980-81, it went up to Rs. create long-term assets such as
11,347 crores in 1990-91 to Rs. 13,184 factories, buildings and other
crores in 1996-97. development.
 A deficit is usually financed
The concept of budgetary deficit has through borrowing from either
lost its significance after the the central bank of the country
presentation of the 1997-98 Budget. In or raising money from capital
this budget, the practice of ad hoc markets by issuing different
treasury bills as source of finance for instruments like treasury bills
government was discontinued. Ad hoc and bonds.
treasury bills are issued by the
government and held only by the RBI.
They carry a low rate of interest and
fund monetized deficit. These bills Revenue Deficit
were replaced by ways and means
advance. Budgetary deficit has not  Revenue deficit is concerned
figured in union budgets since 1997- with the revenue expenditures
98. Since 1997-98, instead of and revenue receipts of the
budgetary deficit, Gross Fiscal Deficit government. It refers to excess
(GFD) became the key indicator. of revenue expenditure over
revenue receipts during the
given fiscal year.

Fiscal Deficit

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 Revenue Deficit = Revenue tends to influence other economic

Expenditure – Revenue variables.
Receipts
 Revenue deficit signifies that On a broad generalisation, excessive
government‘s own revenue is printing of money leads to inflation. If
insufficient to meet the the government borrows too much
expenditures on normal from abroad it leads to a debt crisis. If
functioning of government it draws down on its foreign exchange
departments and provisions for reserves, a balance of payments crisis
various services. may arise. Excessive domestic
 In India social expenditure like borrowing by the government may lead
MNREGA is a revenue to higher real interest rates and the
expenditure though a part of domestic private sector being unable to
Plan expenditure. access funds resulting in the „crowding
 Its targeted to be 2.9% of GPD out? of private investment.
in the year 2014-15, though the
fiscal revenue and budget Various instruments of Fiscal Policy
management act specifies it to are:-
be zero by 2008-09
Fiscal Policy : Concept and role  Reduction of Govt. Expenditure
 Increase in Taxation
of fiscal policy in achieving  Imposition of new Taxes
 Wage Control
employment, stability and  Rationing
economic development.  Public Debt
 Increase in savings
 Maintaining Surplus Budget
Fiscal policy is that part of
 Increase in Imports of Raw
Government policy which is concerned
materials
with raising revenues through taxation
 Decrease in Exports
and other means along with deciding
 Increase in Productivity
on the level and pattern of expenditure
 Provision of Subsidies
it operates through budget. However,
 Use of Latest Technology
generally the expenditure exceeds the
 Rational Industrial Policy
revenue income of the Government. In
order to meet this situation, the
Taxation policy of the government has
Government imposes new taxes or
witnessed major changes. In the last
increases rates of taxes, takes internal
ten years, there has been considerable
or external loans or resorts to deficit
growth in direct tax collection. The
financing by issuing fresh currency.
collection has increased from 33.8% in
1999-2000 to 55.5 % in 2008-09.
If the government spends more than it
GDP-tax ratio has also been improved
receives it runs a deficit. To meet the
from 2.97% in 1999-2000 to 16.6% in
additional expenditures, it needs to
2015-16. Direct tax collection has been
borrow from domestic or foreign
dramatically improved because of the
sources, draw upon its foreign
following initiatives taken by the
exchange reserves or print an
government; Moderate tax rates have
equivalent amount of money. This
been structured in order to eradicate

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vagueness in tax structures In order to cope with their ever-

Information technology has been expanding needs, the Central
implemented in income tax Government makes grants-in-aid to
departments in order to deliver the States. Grant- in-aid to States ,
services like e-filing of returns, through it Central Government
electronic tax collection reporting, exercises a strict control over the
issue of refunds etc. This measure has States because grants are granted
improved functional efficiency of the subject to certain conditions.
department; Tax administration has
been improved so that deterrence The Indian constitution provides for a
levels may be enhanced and better tax federal framework with powers divided
services may be provided. between the Centre and the states. The
Financial powers entrusted by the
The Fiscal Responsibility and Budget Constitution reflect a clear asymmetry
Management Act or the FRBM Act, between the taxation powers and the
2003 is an Act mandating Central functional responsibili-ties, with the
Government to ensure Centre being assigned taxes with
intergenerational equity in fiscal higher revenue potential and States
management and long term macro- being entrusted with more functional
economic stability. The Act also aims responsibilities. The Constitution
at prudential debt management provides, under Article 280, the
consistent with fiscal sustainability institutional mechanism of Finance
through- Commission and other enabling
provisions for the transfer of resources
 Limits on the Central from the Centre.
Government borrowings, debt
and deficits, The Role of the Finance Commission
 Greater transparency in fiscal under Indian Constitution are to make
operations of the Central recommendation to the President with
Government regard to following matters:
 Conducting fiscal policy in a a) To determine the scheme that
medium term framework and governs the matters relating to the
 Other matters connected distribution of net proceeds of taxes
therewith or incidental thereto which are in the divisible pool,
Centre-State fiscal between the Centre and

relationship,role of Finance
Commission; Financial aspects
of 73rd and 74th
Constitutional amendments.
States.
Under the Constitution the financial b) To make recommendations, to
resources of the State are very limited determine the principle that would
though they have to do many works of regulate or govern the revenues to the
social uplift under directive principles. States from the Central Revenue in the

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form of Grant in Aid to the needy bodies are extensively enhanced, there
States is no law to ensure a corresponding
c) This function of the Commission is assignment of funds to match the
included by the way of 73rd and 74 additional responsibilities.
Constitutional Amendment to
strengthen the financial Status of the The State Finance Commissions are
local bodies by providing the required to recommend financial
supplement to the resources of the support from the state and principles
Panchayats and Municipalities in the for determination of taxes, tolls and
States on the basis of the fees that could be assigned to or
recommendation of State Finance appropriated by the local bodies
Commission from the Consolidated
fund of the State. Article 243I of the Indian Constitution
d) The last function of the Commission prescribes that the Governor of a State
as provided by the Constitution under shall, as soon as may be within one
Article 280 3(d) is very vast any matter year from the commencement of the
relating to the Fiscal interest between Constitution (Seventy-third
the intergovernmental bodies can be Amendment) Act, 1992, and thereafter
referred to the Commission by the at the expiration of every fifth year,
President, These function or Terms of constitute a Finance Commission to
Reference, which broadly fixed by the review the financial position of the
Constitution itself; while at the same Panchayats and to make
time an element of flexibility is built recommendations to the Governor as
into these terms of reference under sub to
clause (d) of Article 280(3). Under this
Clause the President has a power to The principles which should govern
refer any matter to the Commission 'in
the interests of sound finance.

The 73rd and 74th Constitutional 1. The distribution between the

Amendment Acts, 1992, which gave State and the Panchayats of the
Constitutional status to panchayati raj net proceeds of the taxes,
institutions (PRIs) and urban local duties, tolls and fees leviable by
bodies (ULBs) respectively, in both the State, which may be divided
letter and spirit in order to bring about between them under this Part
greater decentralisation and increase and the allocation between the
the involvement of the community in Panchayats at all levels of their
planning and implementing schemes respective shares of such
and, thus, increase accountability. proceeds;
2. The determination of the taxes,
The Amendments left important duties, tolls and fees which may
matters such as implementation, be assigned as, or appropriated
service delivery (including local by, the Panchayats;
capacity building) and transfer of 3. The grants-in-aid to the
responsibilities and powers to rural Panchayats from the
local bodies at the discretion of the Consolidated Fund of the State;
state legislatures. Consequently, while
expenditure responsibilities of local

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Structure of Indian monetary  Issues and exchanges or

destroys currency and coins not
and banking system in India fit for circulation.
 Objective: to give the public
Indian Money Market and Banking adequate quantity of supplies of
system is regulated by Reserve Bank of currency notes and coins and in
[Link] Reserve Bank of India was good quality.
established on April 1, 1935 in
accordance with the provisions of the Developmental role
Reserve Bank of India Act, 1934.
 Performs a wide range of
Main Functions of RBI are as follows:- promotional functions to
support national objectives.
Monetary Authority:
Related Functions
 Formulates, implements and
monitors the monetary policy.  Banker to the Government:
 Objective: maintaining price performs merchant banking
stability while keeping in mind function for the central and the
the objective of growth. state governments; also acts as
their banker.
Regulator and supervisor of the  Banker to banks: maintains
financial system: banking accounts of all
scheduled banks.
 Prescribes broad parameters of
banking operations within A Commercial bank is a type of
which the country's banking financial institution that provides
and financial system functions. services such as accepting deposits,
 Objective: maintain public making business loans, and offering
confidence in the system, basic investment products
protect depositors' interest and
provide cost-effective banking There is acute shortage of capital.
services to the public. People lack initiative and enterprise.
Means of transport are undeveloped.
Manager of Foreign Exchange Industry is depressed. The commercial
banks help in overcoming these
 Manages the Foreign Exchange obstacles and promoting economic
Management Act, 1999. development. The role of a commercial
 Objective: to facilitate external bank in a developing country is
trade and payment and promote discussed as under.
orderly development and
maintenance of foreign 1. Mobilising Saving for
exchange market in India. Capital Formation:

Issuer of currency: The commercial banks help in

mobilising savings through network of
branch banking. People in developing
countries have low incomes but the

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banks induce them to save by their farms, for providing irrigation

introducing variety of deposit schemes facilities, for developing land, etc.
to suit the needs of individual
depositors. They also mobilise idle They also provide financial assistance
savings of the few rich. By mobilising for animal husbandry, dairy farming,
savings, the banks channelize them sheep breeding, poultry farming,
into productive investments. Thus they pisciculture and horticulture. The
help in the capital formation of a small and marginal farmers and
developing country. landless agricultural workers, artisans
and petty shopkeepers in rural areas
2. Financing Industry: are provided financial assistance
through the regional rural banks in
The commercial banks finance the India. These regional rural banks
industrial sector in a number of ways. operate under a commercial bank.
They provide short-term, medium- Thus the commercial banks meet the
term and long-term loans to industry. credit requirements of all types of rural
people. In India agricultural loans are
3. Financing Trade: kept in priority sector landing.

The commercial banks help in 5. Financing Consumer

financing both internal and external Activities:
trade. The banks provide loans to
retailers and wholesalers to stock People in underdeveloped countries
goods in which they deal. They also being poor and having low incomes do
help in the movement of goods from not possess sufficient financial
one place to another by providing all resources to buy durable consumer
types of facilities such as discounting goods. The commercial banks advance
and accepting bills of exchange, loans to consumers for the purchase of
providing overdraft facilities, issuing such items as houses, scooters, fans,
drafts, etc. Moreover, they finance refrigerators, etc. In this way, they also
both exports and imports of help in raising the standard of living of
developing countries by providing the people in developing countries by
foreign exchange facilities to importers providing loans for consumptive
and exporters of goods. activities and also increase the demand
in the economy.
4. Financing Agriculture:
6. Financing Employment
The commercial banks help the large Generating Activities:
agricultural sector in developing
countries in a number of ways. They The commercial banks finance
provide loans to traders in agricultural employment generating activities in
commodities. They open a network of developing countries. They provide
branches in rural areas to provide loans for the education of young
agricultural credit. They provide person‘s studying in engineering,
finance directly to agriculturists for the medical and other vocational institutes
marketing of their produce, for the of higher learning. They advance loans
modernisation and mechanisation of to young entrepreneurs, medical and
engineering graduates, and other

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technically trained persons in The current account records exports

establishing their own business. Such and imports in goods and services and
loan facilities are being provided by a transfer payments. When exports
number of commercial banks in India. exceed imports, there is a trade surplus
Thus the banks not only help inhuman and when imports exceed exports there
capital formation but also in increasing is a trade deficit.
entrepreneurial activities in developing
countries. Directorate General of Foreign Trade
(DGFT) organisation is an attached
7. Help in Monetary Policy: office of the Ministry of Commerce and
Industry and is headed by Director
The commercial banks help the General of Foreign Trade. Right from
economic development of a country by its inception till 1991, when
faithfully following the monetary liberalization in the economic policies
policy of the central bank. In fact, the of the Government took place, this
central bank depends upon the organization has been essentially
commercial banks for the success of its involved in the regulation and
policy of monetary management in promotion of foreign trade through
keeping with requirements of a regulation. Keeping in line with
developing economy. liberalization and globalization and the
Composition and direction of overall objective of increasing of
exports, DGFT has since been assigned
India's trade; Balance of the role of ―facilitator‖. The shift was
from prohibition and control of
payment problem imports/exports to promotion and
facilitation of exports/imports, keeping
Balance of Payments is a systematic in view the interests of the country.
record of all economic transactions
undertaken by residents of one country Foreign Trade Policy of India has
i.e. households, firms and the always focused on substantially
government with their counterparts in increasing the country's share of global
rest of the world. It consists of: merchandise trade. Accordingly the
Government of India has been taking
1. Current Account, various steps towards boosting its
trade with the rest of the world by
2. Capital Account and adopting policies and procedures
which would help to increase and
3. Reserve Account. facilitate both exports and imports
with the other countries of the world.
The Current Account covers
transactions in goods and services and India‘s exports declined by 1.3 per cent
transfers during the current period. and 15.5 per cent in 2014-15 and 2015-
Current Account = Value of Exports- 16 respectively. The trend of negative
Value of Imports + Net Transfers from growth was reversed somewhat during
Abroad = Net Exports + Net Transfers 2016-17 (April-December), with
from Abroad exports registering a growth of 0.7 per
cent to US$ 198.8 billion from US$
197.3 billion in 2015-16 (April-

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December). During 2016-17 objective because it enables

(AprilDecember) Petroleum, oil and increased living standards and
lubricants (POL) exports constituting helps create new jobs.
11.1 per cent of total exports.
Measurement of Economic Growth
India‘s exports to Europe, Africa,
America, Asia and CIS and Baltics Economic growth is measured by
declined in 2015-16. However, India‘s changes in the gross domestic product
exports to Europe, America and Asia (GDP). It measures a country's entire
increased by 2.6 per cent, 2.4 per cent economic output for the past year.
and 1.1 per cent respectively in 2016-17 That takes into account all goods and
, while exports to Africa declined by services that are produced in this
13.5 per cent. USA followed by UAE country for sale, whether they are sold
and Hong Kong were the top export domestically or sold overseas. It only
destinations. measures final production, so that the
parts manufactured to make a product
Value of imports declined from US$ are not counted. Exports are counted
448 billion in 2014-15 to US$ 381 because they are produced in this
billion in 2015-16, mainly on account country. Imports are subtracted from
of decline in crude oil [Link] three economic growth. Economic growth is
import destinations of India were measured quarterly measured using
China followed by UAE and USA in real GDP to compensate for the effects
2016-17. of inflation. Here's more on the GDP
growth rate and how you can calculate
India‘s trade deficit declined by 13.8 it.
per cent (vis-à-vis 2014- 15) to US$
118.7 billion. Furthermore, it declined Measurements of economic growth do
by 23.5 per cent to US$ 76.5 billion in not include unpaid services. They
2016-17 (April-December) as include the care of one's children,
compared to US$ 100.1 billion in the unpaid volunteer work, or illegal black-
corresponding period of previous year. market activities.

Determinants of Economic Growth

Meaning and Measurement
 Productivity.
of Economic Development  Intensity (hours worked)
 Demographic changes.
Economic Growth  Political institutions, property
rights, and rule of law.
 Economic growth means an  Capital.
increase in real GDP. This  New products and services.
increase in real GDP means  Growth phases and sector
there is an increase in the value shares.
of national output / national
expenditure. The Concept Of Economic
 Economic growth is an Development
important macro-economic

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 Economic development is the and development strategy not only in

process by which a nation the government at all levels, but also
improves the economic, among all other economic agents.
political, and social well-being NITI Aayog acts as the quintessential
of its people. platform of the Government of India to
bring States to act together in national
Differences between Economic Growth interest, and thereby fosters
and Economic Development Cooperative Federalism.

 Economic growth measures an At the core of NITI Aayog‘s creation

increase in Real GDP (real are two hubs – Team India Hub and
output). GDP is a measure of the Knowledge and Innovation Hub.
the national income / national The Team India Hub leads the
output and national engagement of states with the Central
expenditure. It basically government, while the Knowledge and
measures the total volume of Innovation Hub builds NITI‘s think-
goods and services produced in tank capabilities. These hubs reflect
an economy. the two key tasks of the Aayog.

Economic Development looks at a NITI Aayog is also developing itself as

wider range of statistics than just GDP a State of the Art Resource Centre,
per capita. Development is concerned with the necessary resources,
with how people are actually affected. knowledge and skills, that will enable it
It looks at their actual living standards to act with speed, promote research
and the freedom they have to enjoy a and innovation, provide strategic
good standard of living. policy vision for the government, and
deal with contingent issues.
Elements/ Factors Contributing to Characteristics of Under
Economic Development
Development
 Human Resource
 Natural Resources
 Capital Formation The term underdevelopment refers to
 Technological Development that state of an economy where levels
 Social and Political Factors of living of masses are extremely low
due to very low levels of per capita
Economic Planning for India income resulting from low levels of
productivity and high growth rates of
Economic planning refers to the population. Underdeveloped countries
initiation, control and regulation of are now known as ‗developing
economic activity by the state with a countries‘ signifying that such nations
view to achieve predetermined are capable of and are indeed making
objectives within a given time-interval. serious efforts to overcome their
problems of poverty and low income.
The principal function of planning,
especially in a federal system, is to  Lower per-capita income
evolve a shared vision of and  Low levels of human capital
commitment to the national objectives

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 High levels of poverty and The HDI was created to emphasize

under-nutrition that people and their capabilities
 Higher population growth rates should be the ultimate criteria for
 Predominance of agriculture assessing the development of a
and low levels of country, not economic growth alone.
industrialization The HDI can also be used to question
 Low level of urbanization but national policy choices, asking how
rapid rural-to-urban migration two countries with the same level of
 Dominance of informal sector GNI per capita can end up with
 Underdeveloped labor, different human development
financial, and other markets. outcomes. These contrasts can
 Low rate of saving stimulate debate about government
 Dependence on the Western policy priorities.
economies. The Human Development Index (HDI)
 Technological back is a summary measure of average
achievement in key dimensions of
Indicators of development: human development: a long and
HDI,India's HDI progress healthy life, being knowledgeable and
have a decent standard of living. The
HDI is the geometric mean of
Human development is a process of normalized indices for each of the
enlarging people‘s choices. The most following three dimensions:-
critical ones are to lead a long and
healthy life, to be educated and to a. A long and healthy life, as reflected
enjoy a decent standard of living. in life expectancy at birth.
Additional choices include political
freedom, guaranteed human rights and b. The acquisition of education and
[Link] development has knowledge, as reflected in the mean
to be development of the people, by the years of schooling (adjusted for out of
people, for the people. Human school children) and literacy rate (age
development is about creating an 7 years and above).
environment in which people can
develop their full potential and lead c. Th e standard of living and
productive, creative lives in accord command over resources, as reflected
with their needs and interests. in the monthly per capita expenditure
adjusted for inflation and inequality.
The first Human Development Report
was published in 1990,States human India‘s human development index
development as a process of enlarging (HDI) ranking for 2015 puts India
people‘s choices and enhancing their ranked as 131 out of 188 countries.
capabilities. The process concerns the Asia‘s third largest economy is among
creation of an enabling environment in a group of countries classed as
which people can develop their full ―medium‖ in the list, as opposed to
potential and live productive and ―low‖ in the 1990s, which is largely due
creative lives according with their to an increase in life expectancy and
needs, interests and own values. In this mean years of schooling in the past 25
sense, human development paradigm years.
promotes well-being in a society.

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The following are the reasons to keep Detailed analysis of the dimensions of
India at the bottom of human GEM are:-
development
GEM Dimension 1: ‗Political
(a) rapid increase in population Participation and Decision-making
Power‘ Indicators: i) % Share of
(b) large number of adult illiterates Parliamentary Seats (elected); ii) %
and low gross enrollment ratio Share of Seats in Legislature (elected);
iii) % Share of Seats in Zilla Parishads
(c) high drop- out rates (elected); iv) % Share of Seats in Gram
Panchayats (elected); v) % Candidates
(d) inadequate government in Electoral Process in National Parties
expenditure on education and health, in the Parliamentary election and vi) %
Electors Exercising the Right to Vote in
(e) large proportion of under weight the Parliamentary election.
children as well as under nourished
people GEM Dimension 2: ‗Economic
Participation and Decision-making
(f) very poor sanitation facilities and Power‘ Indicators: i) % Share of
low access to essential life saving officials in service in Indian
medicines. Administrative Service, Indian Police
Service and Indian Forest Service; and
ii) % Share of enrolment in medical
and engineering colleges.
Gender GEM Dimension 3: ‗Power over
Empowerment Economic Resources‘ Indicators: i) %
Female/Male with Operational Land
Measure (GEM) Holdings; ii) % Females/Males with
Bank Accounts in Scheduled
Gender Empowerment Measure Commercial Banks (with credit limit
(GEM) seeks to measure relative above Rs. 2 lakh); iii) Share of
female representation in economic and Female/Male Estimated Earned
political power. It considers gender Income Share per capita per annum.
gaps in political representation, in
professional and management Gender Development Index
positions in the economy, as well as
gender gaps in incomes .GEM is a (GDI)
measure of inequalities between men's
and women's opportunities in a The GDI measures gender gaps in
country. It gives indicators to explain human development achievements by
ways in which the inequalities are accounting for disparities between
associated with three components of women and men in three basic
development: education, employment dimensions of human development—
and political participation. The concept health, knowledge and living standards
of empowerment can be explored using the same component indicators
through three interrelated dimensions: as in the HDI. The GDI is the ratio of
agency, resources and achievements . the HDIs calculated separately for

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females and males using the same  Labour

methodology as in the HDI. It is a  Capital
direct measure of gender gap showing
the female HDI as a percentage of the
male HDI.

Gender equality has following

dimentions:- For a country like India which is the
second largest populous country in the
 Equal access to basic social world, expected to become most
services, including education populous by 2050 if population growth
and health. is continuing at the current pace,
 Equal opportunities for where labour is available in
participation in political and abundance. Similarly, land is also
economic decision-making. available where more economic
 Equal reward for equal work. prosperity can be brought than the
 Equal protection under the law. currently pursued economic activity.
 Elimination of discrimination So after considering all these factors,
by gender and violence against capital played a crucial role.
women.
 Equal rights of citizens in all
areas of life, both public - such
as the workplace - and private So to fulfill the aspirations of common
such as the home. masses and general wellbeing of the
Role of Foreign Capital society various governments are
competing against each other to attract
the foreign capital.

Role of Foreign Capital and

Multinational companies in

Industrial development of India

This theory is particularly gained

The development of any society or ground after the Latin American crises
country without economic which resulted in the Washington
development is a myth. Economic consensus/Washington model. This is
development brings prosperity which further ascertained by East Asian
in turns is directly proportional to the miracle. India has also experienced the
amount of goods and services taste of after economic reforms of 1991,
produced quantitatively or in broad which is better known as LPG reforms.
sense we can say in money equivalent. However from the experience of
various countries various model of
So the factor of production depends on foreign capital and model have
the following parameters. emerged. It also requires some kind of
reduction regulation and restraint.
 Land

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net export earnings plus net public

foreign aid. This is generally called the
Why there is a need of foreign foreign exchange or trade gap.
capital?
3. Reducing the Balance of
Payment deficit.

Foreign capital is required because of An inflow of private foreign capital

following reasons. helps in removing deficit in the
balance of payments over time if the
1. Inadequate domestic capital to foreign-owned enterprise can generate
fuel the economic growth. a net positive flow of export earnings.

Foreign capital is perceived as a 4. Helps in realizing the estimated

resource of filling the gap of the capital tax revenue of government
scarce country. It helps in maintaining
the foreign exchange, accelerating The third gap that the foreign capital
government revenue, planning the and specifically, foreign investment
investment necessary to achieve helps to fill is that between
development target. governmental tax revenue and the
locally raised taxes. By taxing the
For example ‗savings-investment‘ gap profits of the foreign enterprises the
governments of developing countries
To achieve a planned growth rate of 7 are able to mobilize funds for projects
percent per annum and the capital- (like energy, infrastructure) that are
output ration of 3 percent, rate of badly needed for economic
saving should be 21 percent. For development.
domestic mobilization of 16 percent,
there will be a shortfall of 5 percent. 5. Foreign investment meets the
Thus the foremost contribution of gap in management,
foreign capital to national entrepreneurship, technology
development is its role in filling the and skill.
resource gap between targeted
investment and locally mobilized These can be transferred to the host
savings. country through suitable training
programmes and the processes.
Further foreign companies bring with
them

2. Stability of Foreign exchange.

Foreign capital is needed to fill the gap

between the targeted foreign exchange sophisticated technological knowledge
requirements and those derived from about production processes while

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transferring modern machinery

equipment to the capital-poor
developing countries. 3. Concessional Assistance
includes grants and loans
In fact, in this era of globalization, obtained at low rates of interest
there is a general belief that foreign with long maturity periods.
capital transforms the productive Such assistance is generally
structures of the developing economics provided on a bilateral basis or
leading to high rates of growth. Besides through multilateral agencies
the above, foreign capital, by creating like the World Bank,
new productive assets, contributes to International Monetary Fund
the generation of employment a prime (IMF), and International
need of a country like India. Development Association (IDA)
etc.
Forms and types of foreign
Capital Grants do not carry any obligation of
repayment and are mostly made
Foreign capital flow in a country can available to meet some temporary
take place either in the form of crisis. Foreign Aid can also be received
investment, concessional assistance, in terms of direct supplies of
foreign aid. agricultural commodities or industrial
raw materials to overcome temporary
1. Foreign Investment includes shortages in the economy. Foreign Aid
Foreign Direct Investment may also be given in the form of
(FDI) and Foreign Portfolio technical assistance.
Investment (FPI) / Foreign
Institutional Investment (FII).

FPI includes the amounts raised by

Indian corporate through Euro
Equities, Global Depository Receipts
(GDR‘s), and American Depository
Receipts (ADR‘s).

2. Non-Concessional Assistance
mainly includes External
Commercial Borrowings
(ECB‘s), loans from
governments of other
countries/multilateral agencies
on market terms and deposits
obtained from Non-Resident
Indians (NRIs).

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Role of Multinational developed countries have not been

Corporations in the Indian willing to part with a
Economy

Prior to 1991 Multinational companies

did not play much role in the Indian larger proportion of their GDP as
economy. In the pre-reform period the assistance to developing countries.
Indian economy was dominated by MNCs can bridge the gap between the
public enterprises. requirements of foreign capital for
increasing foreign investment in India.
Earlier Industries and firms are
regulated through Industrial Policy, The liberalized foreign investment
1956 put some kind of restraint on pursued since 1991, allows MNCs to
private firms, as a consequence of make investment in India subject to
which they didn‘t able to expand different ceilings fixed for different
beyond a limit. industries or projects. However, in
some industries 100 per cent export-
While multinational companies played oriented units (EOUs) can be set up. It
a significant role in the promotion of may be noted, like domestic
growth and trade in South-East Asian investment, foreign investment has
countries they did not play much role also a multiplier effect on income and
in the Indian economy where import- employment in a country.
substitution development strategy was
followed. Since 1991, with the adoption For example, the effect of Suzuki firm‘s
of industrial policy of liberalization, investment in Maruti Udyog
privatization manufacturing cars is not confined to
income and employment for the
And globalization role of private workers and employees of Maruti
foreign capital has been recognized as Udyog but goes beyond that. Many
important for rapid growth of the workers are employed in dealer firms
Indian economy. So Multinational who sell Maruti cars.
corporations have been allowed to
operate in India subjected to some Moreover, many intermediate goods
regulations. are supplied by Indian suppliers to
Maruti Udyog and for this many
workers are employed by them to
manufacture various parts and
Impact of Multinational components used in Maruti cars. Thus
countries on the country and their incomes also go up by investment
general population. by a Japanese multinational in Maruti
Udyog Limited in India.
1. Promotion Foreign
Investment: 2. Non-Debt Creating Capital
inflows:
In the recent years, external assistance
to developing countries has been In pre-reform period in India when
declining. This is because the donor foreign direct investment by MNCs
was discouraged, we relied heavily on

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external commercial borrowing (ECB) skills and technical know-how to use

which was of debt-creating capital the new equipment and machinery.
inflows. This raised the burden of
external debt and debt service As a result, the Indian workers and
payments reached an alarming figure engineers come to know of new
of our current account receipts. superior technology and the way to use
it. In India, the corporate sector
spends only few resources on Research
and Development (R&D). It is the giant
multinational

This created doubts about our ability

to fulfill our debt obligations and there
was a flight of capital from

India and this resulted in balance of corporate firms (MNCs) which spend a
payments crisis in 1991. As direct lot on the development of new
foreign investment by multinational technologies can greatly benefit the
corporations represents non-debt developing countries by transferring
creating capital inflows we can avoid the new technology developed by
the liability of debt-servicing them. Therefore, MNCs can play an
payments. Moreover, the advantage of important role in the technological up-
investment by MNCs lies in the fact gradation of the Indian economy.
that servicing of non-debt capital
begins only when the MNC firm 4. Promotion of Exports:
reaches the stage of making profits to
repatriate Thus, MNCs can play an With globalization and producing
important role in reducing stress products efficiently and therefore with
strains and on India‘s balance of lower costs multinationals can play a
payments (BOP). significant role in promoting exports of
a country in which they invest. For
3. Technology Transfer: example, the rapid expansion in
China‘s exports in recent years is due
Another important role of to the large investment made by
multinational corporations is that they multinationals in various fields of
transfer sophisticated technology to Chinese industry.
developing countries which are
essential for raising productivity of Historically in India, multinationals
working class and enable us to start made large investment in plantations
new productive ventures requiring whose products they exported. In
high technology. Whenever, recent years, Vistara airlines made a
multinational firms set up their large investment in airline industries
subsidiary production units or joint- with a joint collaboration with Tata
venture units, they not only import Industries.
new equipment and machinery
embodying new technology but also

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BrahMos missile is a joint venture of the indigenous private sector and will
Govt. of India with Russia, which is therefore stimulate economic growth.
being sold to Vietnam, will bring
income to India. In view of above, Make in India
initiative, skill India Initiative, current
As a matter of fact until recently, when demographic scenario of India, foreign
giving permission to a multinational direct investment (FDI) will be
firm for investment in India, encouraged and actively sought,
Government granted the permission especially in areas of
subject to the condition that the
concerned multinational company (a) infrastructure,
would export the product so as to earn
foreign exchange for India. (b) high technology and

(c) exports, and

(d) where domestic assets and

employment are created on a
significant scale

However, in case of Pepsi, a famous

Sustainable development :
cold -drink multinational company, concept and indicators of
while for getting a product license in
1961 to produce Pepsi Cola in India it sustainable development
agreed to export a certain proportion
of its product, but later it expressed its
inability to do so. Instead, it ultimately Mahatma Gandhi‘s principle of
agreed to export things other than ―enoughness‖ in his saying ―the earth
what it produced such as tea. provides enough to satisfy every
persons need but not for every person‘s
greed‖ According to World
5. Investment in Infrastructure:
Commission on Environment and
Development, Our Common Future
With a large command over financial
(1987) , Sustainable development is
resources and their superior ability to
development that meets the needs of
raise resources both globally and
the present without compromising the
inside India it is said that
ability of future generations to meet
multinational corporations could
their own needs.
invest in infrastructure such as power
projects, modernization of airports and
It contains within it two key concepts:
posts, telecommunication.
 the concept of needs, in
The investment in infrastructure will
particular the essential needs of
give a boost to industrial growth and
the world's poor, to which
help in creating income and
overriding priority should be
employment in the India economy.
given; and
The external economies generated by
 the idea of limitations imposed
investment in infrastructure by MNCs
by the state of technology and
will therefore crowd in investment by

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social organization on the  The rate of exploitation of

environment's ability to meet renewable resources should not
present and future needs." exceed the regeneration rate.
 Waste emission should be kept
The newly revised The United Nations at or below assimilative capacity
Commission on Sustainable (waste absorptive capacity) of
Development (CSD) indicators contain the environment. For instance
a core set of 50 indicators. These core the absorptive capacity of the
indicators are part of a larger set of 96 environment for radioactive
indicators of sustainable development. radiation is zero, so strong
Major of them are as follows:- sustainability criteria suggests
that no radioactive substance
• Poverty should be disseminated to the
environment.
• Governance  The extraction of nonrenewable
resources should be consistent
• Health with the development of
renewable substitutes. This
• Education condition is in line with the
Hartwick‘s sustainability
• Demographics assumption.
 Conventional national account
• Natural hazards should incorporate the
depreciation of natural
• Atmosphere resources.
Economic, social and
• Land
environmental
• Oceans, seas and coasts
sustainability; concept of
• Freshwater
Green GDP; Strategy and
• Biodiversity
policy for sustainable
• Economic development development in India
• Global economic partnership
Economic, social and environmental
• Consumption and production sustainability
patterns
The United Nations General Assembly
To ensure sustainable development adopted the 2030 Agenda for
following pre conditions are to be Sustainable Development and 17
ensured:- Sustainable Development Goals
(SDGs) as a universal and
transformative development strategy.
The 2030 Agenda commits the global
community to ―achieving sustainable

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development in its three dimensions—  20% of the world consumes 80% of

economic, social and environmental— its resources
in a balanced and integrated manner‖.  According to UNDP, consumption
of goods and services in 1997 was
 Bruntland Report (1983) was the twice that in 1975 and six times
first publication and recognition of more than in 1950.
the term ‗Sustainable  An estimated 1 billion people still
Development‘ do not have the means to meet
o ―meeting the needs of the their basic needs.
present generation without  Inequalities are increasing. The
compromising the needs of assets of world‘s three richest men
the future generation‖ are greater than the combined
 Three pillars of sustainable national product of 48 poorest
development (Bruntland) countries.
o Care and respect for  Higher crime rates are associated
People, Planet and with wider income gaps
Prosperity (Commercial  Jobless growth.
Activities) <hence poverty  Under-nutrition is still a huge
alleviation, conservation problem among children
and business development>
o These three pillars are of Economic Growth and Sustainability
equal importance
 SD is about a value system. It is  Over-consumption has led to
not a scientific formula. depletion of resources
 Thinking beyond pure self-  Main environmental threats
gratification to awareness that o Depletion of resources
harm to one will eventually be o Global warming
harm to all. o Expansion of waste arising
 Interconnectedness and interd from production and
ependence of all things consumption
 All three pillars have equal o Population pressure
importance. Focus on only one of o Pollution
them will unbalance the whole o Loss of biodiversity and
 SD is a necessity, not a luxury that extinction of species.
we can afford to miss.  Green National Income Account
o Conventional national
Questioning Development <too income accounting does not
detailed; at times peripheral. Be capture the environmental
choosy> degradation due to
production and
consumption
 Current practices must change o This omission leads to
 Should shatter the ‗development‘ misrepresentation of
myth. Simply economic growth will improvements in social
not create more jobs and more welfare
wealth for all. o Since there is no market for
 Steady-state economics. Economic many environmental
growth is measured in terms of resources, it is difficult to
how much we produce and place monetary values on
consume, and what we destroy in them
the process need not be included in o Index of Sustainable
the calculations. Economic Welfare: adjusts

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the national income to the first of its kind and is

make an allowance for committed to promote SFM
defensive spending (i.e. by bringing all stakeholders
that incurred in cleaning up together
for pollution and other o Ministerial Conference on
forms of environmental Protection of Forests in
damage) Europe defined SFM as the
 Economic Sustainability attainment of balance
o Calls for reforms in the between society‘s
manner that we conduct increasing demands for
our economic activity forest products and
o Removing unfair trade benefits, and the
barriers and subsidies that preservation of forest
harm the environment health and diversity.
o Upholding the polluter pays o Forest managers must
principle assess and integrate a wide
o Tax not on labour but on array of sometimes
consumption <already conflicting factors to
there in the form of indirect produce sound forest plans
taxes> o Ecosystems
o Pricing products in terms of approach has been
value they have deducted adopted by the CBD. The
from the common natural CBD definition of
base Ecosystems Approach is
o Increase resource known as the Malawi
productivity Principles.
 Sustainable agriculture o Ecosystems Approach is a
o Use of practices and strategy of management of
methods to land, water and living
maintain/enhance the resources in a way that
economic viability of promotes conservation and
agricultural production, sustainable use in an
natural resource base, and equitable way. Focused on
other ecosystems which are use of scientific
influenced by agricultural methodologies for each
activities level of biological
o Minimizing the adverse organisation and their
impact on the natural interaction.
resources base o SFM was recognised by the
o Flexible farming systems to parties to CBD in 2004 to
manage the risks associated be a concrete means of
with climate and markets applying the Ecosystems
Approach to forest
Ecological Sustainability ecosystems
 Objectives of SFM
 Sustainable forest management o Maintain environmental
o ‗Forest Principle‘ adopted stability through
at the 1992 Rio Summit preservation of ecological
o In 2007, GA adopted the balance that has been
Non Legally Binding adversely affected due to
Instrument on All Types of the depletion of forest cover
Forests. The instrument is

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o Preserve the natural Forest Survey of

heritage of the country India, Dehradun;
o Improve productivity of Central institutions
forests like Indian Council
o Protecting through of Forestry
cooperation with local Research and
communities on the Education
principle of Joint Forest (Dehradun), IIFM
Management (Bhopal) etc shall be
 India involved
o One of the 12 mega  State Component:
biodiversity countries of the Forest dept of the
world concerned state/UT
o National Forest Policy
1988 emphasizes Social Sustainability
environmental stability and
maintenance of ecological  Fairness in the access to and
balance benefits from the Earth‘s resources
o Existing infrastructure for  Impact of poverty on
forest protection is environment/Environment and
inadequate poverty are related issues
o Surveys not carried out in  Diverting resources to non-
many areas. Question of productive areas
tribal rights  Health and SD
o Protect from forest fires o Environment and public
 Integrated Forest Protection health are inter-related
Scheme  Agenda 21 was adopted at the UN
o 10th FYP. In all States and Conference on Environment and
UTs Development (UNCED) [Earth
o Formed by merger of two Summit] in 1992
9th FYP schemes: ‗Forest o It also places particular
Fire Control and emphasis on the need to
Management‘ and ‗Bridging take health considerations
of Infrastructure Gaps in into account in planning for
the Forestry Sector in the SD
North Eastern Region and  Urbanisation
Sikkim‘  Need for holistic approach
o Components
 Infrastructure Water and SD
development:
survey and  Agriculture consumes nearly 70 pc
demarcation, of water consumption worldwide,
strengthening the industry -22 pc and household
infrastructure for activities – 8 pc [WDR, 2010]
Forest Protection  Geographical distribution of water:
Division just nine countries account for 60
 Forest fire control
pc of all available freshwater
and management supplies
o Implementing agencies
 Industrial use takes about 60 pc of
 Central Component: water in rich countries and 10 pc in
Forest Protection the rest.
Division, MoEF;  Suggestions

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o Use of sea water B. Clean up costs: The expenditure on

o Judicial use of freshwater restoration of the resources
o Development of salt- environment to reduce the damage
resistant crops already done by economic activity;
SD in a globalising world C. Depreciation of natural capital and
Loss in environmental resources;
 Globalisation is increasing the gap
between the rich and the poor
D. Maintenance Cost: Expenses for
 It has to be steered so that it serves
not only the commercial interests maintaining environmental resources;
but social needs of development
 Mechanisms to safeguard trade Major benefits of green growth are:-
and livelihoods, especially in
developing countries, must be Economic benefits
evolved and negotiated to make
globalisation an effective vehicle of 1. Increased GDP - production of green
SD goods and services
 Industrialised countries must
continue to assist the developing
countries as well as promote trade
2. Increased revenue from pricing
 Environment and social causes ecosystem services (or their reduction
must not be used selectively to prevented)
erect trade barriers against
developing countries 3. Economic diversification, i.e.
improved management of economic
Concept of Green GDP risks and reduced vulnerability

The green gross domestic product 4. Innovation, access and uptake of

(green GDP or GGDP) is an index of green technologies, i.e. improved
economic growth with the market confidence
environmental consequences of that
growth factored into a country's Environmental benefits
conventional GDP. Green GDP
monetizes the loss of biodiversity, and 5. Increased productivity and
accounts for costs caused by climate efficiency of natural resource use
change.
6. Natural capital used within
The Green GDP (GGDP) = Traditional ecological limits
GDP- Environmental /Ecological Cost
7. Reduced adverse environmental
Environmental/Ecological costs are impact and improved natural
consisting of the following hazard/risk management
components:
Social benefits
A. Defensive expenditure in the
environmental damage; 8. Increased livelihood opportunities,
income and/or quality of life, notably
of the poor

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9. Decent jobs that benefit poor people legislation regulations and policy
created and sustained instruments framed to fulfill obligation
under the agreements signed under the
10. Enhanced social, human and International Conferences, MEAs,
knowledge capital etc. They are:-

11. Reduced inequality INDIAN ENVIRONMENTAL

LEGISLATIONS
Strategy and policy for sustainable
development in India  The Environment (Protection) Act,
1986
In Mahatma Gandhi's opinion, in any  The Water (Prevention and Control
scheme of development, man should of Pollution) Act, i974,
as amended up to 1988
be at the centre. A long term view of
 The Water (Prevention and Control
development has to be taken, for we of Pollution) Cess Act 1977, as
owe our debt to prosperity as well. amended by Amendment Act, 1991
Man has to make a judicious use of  The Air (Prevention and Control of
natural resources. The ecological Pollution) Act, 1981, as amended
balance should not be by Amendment Act, 1987
[Link] Gandhi‘s principle  National Forest Policy, 1988
of ―enoughness‖ in his saying ―the  Forest (Conservation) Act, 1980
earth provides enough to satisfy every  The National Environment
persons need but not for every person‘s Tribunal Act, 1995
greed‖ is perhaps more relevant at  The Public Liability Insurance Act,
1991
present time than when it was said.
 Re-cycled Plastics Manufacture
The objective should not be to build and Usage Rules, 1999
the islands of prosperity in the ocean  Manufacture, Use, Import, Export
of poverty; but to raise the level of and Storage of Hazardous Micro-
standard of life and to combat poverty. Organisms
Gandhi believed in Sarvodaya and  Genetically Engineered Organisms
therefore the welfare of all was the or Cells rules, 1989
basis of his thinking; hence his  Hazardous Wastes (Management
community centred approach towards and Handling) Rules, 1989
sustainability emphasized on  Bio-Medical Waste (Management
'betterment of human life' and and Handling) Rules, 1998
 Municipal Solid Wastes
'ensuring fulfilment of basic needs of
(Management & Handling) Rules,
all human needs'. Welfare of the 2000
human beings being the ultimate goal  Noise Pollution (Regulation and
by avoiding all sorts of exploitations, Control) Rules, 2000
Gandhi felt that human dignity needs  Ozone Depleting Substances
to be established. (Regulation) Rules, 2000
 New Biodiversity Bill - 2000
Government of India has have  The Prevention and Control of
formulated legislation, regulations and Pollution (Uniform Consent
policy instruments to address matters Procedure) Rules, 1999
concerning cooperation for Sustainable
Development at sub-regional, regional Selected Policy initiatives taken
and International level. There are by the Ministry of Environment

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and Forests towards sustainable prosperity, both in monetary and non-

development monetary terms, fairly across
[Link] Plans after the
 National Environmental Action independence were based on the
Plan for Control of Pollution downward infiltration theory, which
 Urban Pollution failed to bring equitable growth to all
 Vehicular Pollution the sections of the Indian society.
 Environmental Epidemiological
Studies
Approach paper of 11th five year plan
 Environmental Management
System (EMS) talked about "Inclusive and more
 Uniform Consent Procedure faster growth" through bridging
 City Afforestation Programme for divides by including those in growth
Mitigating Pollution process who were excluded. Divide
 National Biodiversity Strategy and between above and Below Poverty
Action Plan (NBSAP) Line, between those with productive
 Biosafety Protocol jobs and those who are unemployed or
 Rules on the management of Lead grossly unemployed is at alarming
acid Batteries stage.
 Regional Development Strategy
based on Carrying Capacity
concept
 Development of Management
Tools for preventing
environmental degradation
 Establishment of Indian Centre for
Promotion of Cleaner Technologies
(ICPC)
 Water Quality Standards for
Sewage
 Technology for Sewage Treatment Liberalization and Privatization after
 Water Conservation through 1990's have brought the nation out of
recycling the hindu growth rate syndrome but
 Joint Forest Management the share of growth has not been
 National Forest Action Programme equitably distributed amongst
 National Forestry Research Plan
different sections of Indian Society.
Meaning of Inclusive
Various dimensions of Inclusive
growth and development growth are:-
policy and strategy during 1. economic
2. social
11th and 12th Five Year 3. financial
Plans. 4. environmental

Important issues that are needed to be

Inclusive Growth is economic growth addressed to achieve the inclusive
that creates opportunity for all growth are:-
segments of the population and
distributes the dividends of increased 1. Poverty

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2. Unemployment
3. Rural Infrastructure
launched for their
4. Financial Inclusion development by
5. Balanced regional development
6. Gender equality Central/State
7. Human Resource Development
(Health, Education, Skill Governments, including
Development)
8. Basic Human Resources like TSP, SC,ST and minorities
sanitation, drinking water,
housing etc. The founding fathers of our
Constitution desired to secure justice,
Government has launched several social, economic and political for all
programs and policies for Inclusive citizens. They realized that the
growth such as:- inequitable forces embedded in the
socio-economic system and also
1. MNREGA political organizations, had resulted in
2. Jan Dhan Yojna deprivation and disadvantages for the
3. Atal Pension Yojna poor and the weaker sections of the
4. Skill India Mission society. They, therefore, considered it
5. Deen Dayal Upadhyaya Gram necessary to provide specific
Jyoti Yojana safeguards in the Constitution for the
6. Pradhan Mantri Suraksha Bima Scheduled Castes and Scheduled
Yojana Tribes , who, due to tradition and a
7. Pradhan Mantri Jeevan Jyoti combination of circumstances, were
Bima Yojana the most deprived, weak and
8. Sukanya Samridhi Yojana vulnerable amongst the various
9. Pradhan Mantri Garib Kalyan sections of society . The various
Yojana safeguards and protective measures
10. Jan Aushadhi Yojana (JAY) sought to ensure for them all round
11. Nai Manzil Scheme for minority development and freedom from
students exploitation and social injustice so that
12. The Pradhan Mantri Awas they could form part of the
Yojana (PMAY) or Housing for mainstream of the society.
all by 2022
Development status and The Indian Constitution has provided
legal safeguards to ST and SC
Issues pertaining to socially communities and all its policies
regarding utilisation of resources,
and economically whether land, water or forests were
based on social equity rather than on
marginalised sections, like market economy. It is also worth
mentioning here that the constitution
STs, SCs, religious makers in the country also realized
these, so separate provisions were
minorities,backward castes made for the administration of the
and women; schemes

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tribal areas in the Fifth and the Sixth  Rajiv Gandhi National Creche
Schedule of the constitution. Scheme For the Children of
Working Mothers
Various programs for women and child  Ministry approves new projects
development are:- under Ujjawala Scheme and
continues existing projects
 Rashtriya Bal Kosh (National  SWADHAR Greh (A Scheme for
Childrens Fund) Women in Difficult
 Rajiv Gandhi Scheme for Circumstances)
Empowerment of Adolescent  Revision under IGMSY in
Girls (RGSEAG) Sabla Accordance with National Food
 Kishori Shakti Yojana Security Act, 2013 in XIIth Plan
 Integrated Child Protection  Support to Training and
Scheme (ICPS) Employment Programme for
 Integrated Child Development Women (STEP)
Services(ICDS)  NARI SHAKTI PURASKAR
 General Grant-in-Aid Scheme in  Awardees of Stree Shakti
the field of Women and Child Puruskar, 2014 & Awardees of
Development Nari Shakti Puruskar
 General Grant-in-aid (GIA)  Awardees of Rajya Mahila
Scheme for Assistance to Samman & Zila Mahila Samman
Voluntary Organisations in the  Archived Maternity Benefit
field of Women and Child Programme
Development  Mahila police Volunteers
 Nutrition Education and  Mahila E-Haat
Training though Community
Food & Nutrition Extension Various programs & schemes for
Units(CFNEUS) Scheduled Caste development are:-
 Gender Budgeting Scheme
 General Grant-in-Aid Scheme  NGOs Scheme Scheme of Grant
for innovative projects in Aid to Voluntary
 Family Counselling Centre Organisations working for
Scheme Scheduled Castes
 Dhanalakshmi  Scholarships Pre-Matric
 Grant-in-Aid for Research, Scholarship for SC (IX & X)
Publication and Monitoring  Pre-Matric Scholarships to the
 Beti Bachao Beti Padhao Children of those Engaged in
Scheme occupations involving cleaning
 One Stop Centre Scheme and prone to health hazards
 Women Helpline Scheme  Post-Matric Scholarship for SC
 UJJAWALA : A Comprehensive students
Scheme for Prevention of  Upggadation Of Merit Of SC
trafficking and Rescue, Students
Rehabilitation and Re-  Central Sector Scholarship of
integration of Victims of Top Class Education for SC
Trafficking and Commercial Students
Sexual Exploitation  National Overseas scholarship
 Working Women Hostel

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 National Fellowship for  Scheme of Centres of

Scheduled Caste Students Excellence.
 Hostels BABU JAGJIVAN RAM  Guidelines for the Scheme
CHHATRAWAS YOJANA "Institutional Support for
 Free Coaching Free Coaching Development and Marketing of
Scheme for SC and OBC Tribal Product"
Students  (A) Revised Guidelines for the
 Schemes for Economic Scheme MSP to MFP w.e.f.
Development Credit 31/10/2016
Enhancement Guarantee  (B) Guidelines for the Scheme
Scheme for the Scheduled MSP to MFP
Castes (SCs)  Vocational Training Centres in
 National Safai Karamcharis Tribal Areas
Finance and Development  Schemes of Strengthening
Corporation (NSKFDC) cation among Schled Tribes
 National Scheduled Castes Girls in a low literacy Districts
Finance and Development  Scheme of Development of
Corporation (NSFDC) Particularly Vulnerable Tribal
 Special Central Assistance to Groups (PTGs)
Scheduled Caste Sub Plan (SCA  Scheme of Grant in Aid to
to SCSP) Voluntary Organizations
 Scheme of Assistance to working for welfare of STs
Scheduled Castes Development  Eklavya Model Residential
Corporations (SCDCs) Schools (EMRS)
 Self Employment Scheme for  Grants under Article 275 (1) of
Rehabilitation of Manual the Constitution of India
Scavengers (SRMS)  Special Central Assistance to
 Venture Capital Fund For Tribal Sub Plan(SCA to TSP)
Scheduled Castes  Establishment of Ashram
 Schemes for Social Schools in Tribal SubPlan Areas
Empowerment Protection of  PREMATRIC SCHOLARSHIP
Civil Rights and Prevention of (Class IX and X)w.e.f.
Atrocities 01072012 { NEW}
 Pradhan Mantri Adarsh Gram  Centrally Sponsored Scheme of
Yojana (PMAGY) Hostels for ST boys and ST Girls
 Post Matric Scholarship (PMS)
Various programs & schemes for for ST students
Scheduled Tribe development are:-  Rajiv Gandhi National
Fellowship for ST Students
 Equity support to  National Overseas Scholarships
NSTFDC/STFDC for Schled Tribe Students
 DBT Scheme for Post Matric  Vocational Training Centres in
Scholarship, TOP Class cation, Tribal Areas
Rajiv Gandhi National  Upgradation of Merit of ST
Fellowship Students
 Research Training Operational  Top Class cation for ST Students
Guidelines for the
scheme"GrantsinAid to TRIs"

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Various programs & schemes for  Jiyo Parsi - Scheme for

Minority comunity development are:- Containing Population Decline
of Parsis in India
Scholarship Schemes
Waqf Management
 Maulana Azad National
Fellowship (MANF)  Scheme for Strengthening of
 Padho Pardesh - Scheme of State Waqf Boards
Interest Subsidy on Educational  Computerization of the records
Loans for Overseas Studies for of State Waqf Boards Scheme
the Students Belonging to the  Reasearch/ Studies, Monitoring
Minority Communities and Evaluation of Development
 Free Coaching and Allied Scheme Including Publicity
Scheme
 Nai Udaan - Support for Support to Institutions
Students for preparation of
Main Examination who clear  Corpus Fund to Maulana Azad
Prelims conducted by Education Foundation (MAEF)
UPSC/SSC, State Public Service  Equity to National Minorities
Commission (PSC) etc. Development and Finance
Corporation (NMDFC)
Economic Empowerment  Grant in Aid Scheme to State
Channelising Agencies of
 Skill Development National Minorities
 Seekho aur Kamao (Learn & Development & Finance
Earn) Corporation
 USTTAD (Upgrading the Skills
and Training in Traditional
Poverty and
Arts/ Crafts for Development) Unemployment:Measurem
 Nai Manzil
 Maulana Azad National ents and trends;
Academy for Skills(MANAS)
 Concessional credit through identification of BPL
National Minorities
Development and Finance families
Corporation (NMDFC)
The World Bank defines poverty in
Infrastructure Development absolute terms. The bank defines
extreme poverty as living on less than
 Multi-sectoral Development US$1.90 per day> (PPP), and
Programme (MsDP) moderate poverty as less than $3.10 a
day. Types of Poverty Absolute poverty
Special Needs measures poverty in relation to the
amount of money necessary to meet
 Nai Roshni - The Leadership basic needs such as food, clothing, and
Development of Minority shelter. The concept of absolute
Women poverty is not concerned with broader
 Hamari Dharohar

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quality of life issues or with the overall [Link] types of

level of inequality in society. Unemployment are as follows:-

The concept of absolute poverty is  Structural unemployment

based on absolute norms for living focuses on the structural
(measured in terms of consumption problems within an economy
expenditure) laid down according: to and inefficiencies in labor
specified minimum standard and all markets. Structural
such individuals or groups whose unemployment occurs when a
consumption expenditure is found to labor market is not able to
be below this standard are classified as provide jobs for everyone who is
poor. Under the relative concept of seeking employment.
poverty, a family (or an individual) is  Frictional unemployment is
deemed to be poor if its level of income when workers leave their old
or consumption expenditure falls jobs but haven't yet found new
below a predetermined level. ones. Most of the time workers
leave voluntarily, either because
Poverty in India is measured as the they need to move, or they've
head-count ratio of the population saved up enough money to
living below the official ‗poverty line‘, allow them to look for a better
which is calculated using the [Link] unemployment is
methodology prescribed by the Expert short-term and a natural part of
Group on Methodology for Estimation the job search process.
of Poverty appointed by the Planning  Cyclical unemployment is a type
Commission in order to arrive at a of unemployment that occurs
threshold consumption level of both when there is not enough
food and non-food items. The aggregate demand in the
methodology uses the Consumer economy to provide jobs for
Expenditure Surveys (CES) conducted everyone who wants to work. In
by the National Sample Survey Office an economy, demand for most
(NSSO) of India once every five years goods falls, less production is
to attain the poverty line; and, hence, needed, and less workers are
poverty figures in India are obtained needed.
once every five years. The Planning  Disguised unemployment exists
Commission‘s latest poverty line, using where part of the labor force is
methodology suggested by the either left without work or is
Tendulkar Committee in 2010, is working in a redundant manner
apparently defined as the spending of where worker productivity is
Rs. 27.20 per capita per day in rural essentially zero. It is
areas and Rs.33.40 per capita per day unemployment that does not
in urban areas. affect aggregate output.

Unemployment is a phenomenon that

Human Poverty Index (HPI),
occurs when a person who is actively Multi Dimensional Indian
searching for employment is unable to
find work. Unemployment is often poverty index
used as a measure of the health of the

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Human Poverty Index (HPI) The indicator P3, referred to the living
standard, is then obtained as an
The Human Poverty Index (HPI) was average of the three indicators, in this
first introduced into the Human way:
Development Report by the United
Nations Development Programme [(P31 + P32 + P33) / 3
(UNDP) in 1997 in an attempt to bring
together in a composite index the The global index HPI-1 is obtained by
different features of deprivation in the combining these three dimensions into
quality of life to arrive at an aggregate one single measure giving a greater
judgement on the extent of poverty in a weight to the most disadvantaged
community. situation.

There are two indices; the HPI – 1, The formula is:

which measures poverty in developing
countries, and the HPI-2, which HPI-1 = [(P13 + P23 + P33 ) / 3]1/3
measures poverty in OCED developed
economies. While HPI-2 is calculated as follows:-

Calculation of HPI-1 for Developing

countries:-The following three
dimensions are taken into account:

 deprivation of longevity,
measured as a percentage of the
individuals with a life
expectancy lower than 40 years
(P1).
 deprivation of knowledge,
expressed as a percentage of
illiterate adults (P2). Multi Dimensional Indian
 deprivation of decent living poverty index
standards (P3). This last
indicator is made up by the Poverty is a multi-dimensional issue
simple average of three basic and various experts/committees and
variables: institutions estimate poverty based on
o the percentage of the different perceptions/definitions.
population without However, Planning Commission is the
access to drinking water nodal agency in the Government of
(P31), India to estimate poverty in the
o the percentage of country. TheMultidimensional Poverty
population without Index (MPI) was developed in 2010 by
access to health services the Oxford Poverty & Human
(P32) and lastly, Development Initiative (OPHI) and the
o the percentage of United Nations Development
underweight children Programme. and uses different factors
aged less than five (P33). to determine poverty beyond income-

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based lists. It replaced the previous

Human Poverty Index. According to FAO Food Security is "a
situation in which all people at all
Various dimentions of MPI are:- times have access to adequate
Dimension quantities of safe and nutritious food
Indicators
to lead a healthy and active life".
 Child Mortality
Health
 Nutrition
This definition requires three basic
 conditions
Years to be met:
of schooling
Education
 School attendance
 1) adequacy,
Cooking fuel i.e. supplies from
 domestic
Toilet production, stocks and
 imports
Water are sufficient to meet the
Living Standards
 nation's needs,
Electricity
 Floor
 2) availability i.e. stability of supply
Assets
both spatially and temporally
throughout the year and
Life expectancy at birth: Number
of years a newborn infant could expect 3) access, i.e. the population has
to live if prevailing patterns of age- sufficient purchasing power to gain
specific mortality rates at the time of access to its food needs.
birth stay the same throughout the
infant‘s life. India is one of the few countries which
Expected years of have experimented with a broad
schooling: Number of years of spectrum of programmes for
schooling that a child of school improving food security. It has already
entrance age can expect to receive if made substantial progress in terms of
prevailing patterns of age-specific overcoming transient food insecurity
enrolment rates persist throughout the by giving priority to self-sufficiency in
child‘s life. foodgrains and through procurement
Mean years of schooling: Average and public distribution of foodgrains,
number of years of education received employment programmes, etc.
by people ages 25 and older, converted However, despite a significant
from education attainment levels using reduction in the incidence of poverty
official durations of each level. chronic food insecurity persists in a
Gross national income (GNI) per large proportion of India‘s population.
capita: Aggregate income of an
economy generated by its production The range of adverse events, including
and its ownership of factors of reduced freshwater availability and
production, less the incomes paid for more frequent extreme weather events,
the use of factors of production owned will considerably increase the risks for
by the rest of the world, converted to more efficient crop production and
international dollars using PPP rates, livestock management. Climate change
divided by midyear population. is also likely to affect soil quality by
Food scarcity depleting organic matter – a major
contributor to soil fertility. In extreme
cases, the degradation of the

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agricultural ecosystems could mean implementation of the seed- water-

desertification, resulting in a total loss fertilizer policy adopted by the
of the productive capacity of the land Government of India.
in question.
Food grain production increased four-
Food security is a multidimensional fold during 1950-51 and 2001-2002
concept covering even the micro level from 51 million tons to 212 million
household food security,energy intakes tones. The country is no longer
and indicators of malnutrition. exposed to real famines. But the
regional variation in the success of
Major components of food security Green Revolution which was chiefly
are:- limited to northern- Western states
has lead to the divide in the nation.
1. Production and Procurement Evergreen revoloution and Bringing
2. Storage green revolution to eastern India is the
3. Distribution need of the hour.

Indian Agriculture is rightly called as a Green revolution was focused on wheat

gamble with Monsoon, variability in and rice and thus the production of
food production and rising population pulses was stagnant.
creates food insecurity in the nation
and worst effected are the National Food Security Mission
downtrodden section of the society. comprising rice, wheat and pulses to
increase the production of rice by 10
While India has seen impressive million tons, wheat by 8 million tons
economic growth in recent years, the and pulses by 2 million tons by the end
country still struggles with widespread of the Eleventh Plan (2011-12). The
poverty and hunger. India‘s poor Mission is being continued during 12th
population amounts to more than 300 Five Year Plan with new targets of
million people, with almost 30 percent additional production of food grains of
of India‘s rural population living in 25 million tons of food grains
poverty. The good news is, poverty has comprising of 10 million tons rice, 8
been on the decline in recent years. million tons of wheat, 4 million tons of
According to official government of pulses and 3 million tons of coarse
India estimates, poverty declined from cereals by the end of 12th Five Year
37.2% in 2004-05 to 29.8% in 2009- Plan.
10. The National Food Security Mission
(NFSM) during the 12th Five Year Plan
Need for Self-Sufficiency: will have five components

India suffered two very severe (i) NFSM- Rice;

droughts in 1965 and 1966. Food Aid
to India was restricted to a monthly (ii) NFSM-Wheat;
basis by USA under the P.L. 480
programme. The Green Revolution (iii) NFSM-Pulses,
made a significant change in the scene.
India achieved self-sufficiency in food (iv) NFSM-Coarse cereals and
grains by the year 1976 through the

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(v) NFSM-Commercial Crops. issue of 35 Kg of food grains per

family per month for the population
Government through Public Below Poverty Line (BPL) at specially
Distribution System has tried to subsidized prices. The TPDS requires
counter the problem of food insecurity the states to Formulate and implement
by providing the food grains through :-
fair price shops.
1. foolproof arrangements for
The central Government through Food identification of poor,
Corporation of India has assumed the 2. Effective delivery of food grains
responsibilities to Fair Price Shops (FPSs)
of procurement,storage,transfer and
bulk allocation of food grains to state Its distribution in a transparent and
governments. accountable manner at the FPS level

The public distribution system (PDS)

Problems and issues of
has played an important role in storage,procurement
attaining higher levels of the
household food security and distribution,import and
completely eliminating the threats of
famines from the face of the country, it export: Government
will be in the fitness of things that its
evolution, working and efficacy are policies,schemes and
examined in some details.
programmes such as, PDS,
PDS was initiated as a deliberate social
policy of the government with the
ICDS and Mid-day Meal etc.
objectives of:
WHO Defines Food security to exists
1. i) Providing foodgrains and when all people, at all times, have
other essential items to physical, social and economic access to
vulnerable sections of the sufficient, safe and nutritious
society at resonable (subsidised) food which meets their dietary needs
prices; and food preferences for an active and
2. ii) to have a moderating healthy life.
influence on the open market
prices of cereals, the Food security has three interlinked
distribution of which constitutes contents such as :-
a fairly big share of the total
marketable surplus; and 1. Availability of food,
2. Access to food and
iii) to attempt socialisation in the 3. absorption of food.
matter of distribution of essential
commodities. Food security is a multidimensional
concept covering even the micro level
The focus of the Targeted Public household food security,energy intakes
Distribution System (TPDS) is on and indicators of malnutrition.
―poor in all areas‖ and TPDS involves

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exposed to real famines. But the

regional variation in the success of
Major components of food security Green Revolution which was chiefly
are:- limited to northern- Western states
has lead to the divide in the nation.
1. Production and Procurement Evergreen revoloution and Bringing
2. Storage green revolution to eastern India is the
3. Distribution need of the hour.

Indian Agriculture is rightly called as a Green revolution was focused on wheat

gamble with Monsoon, variability in and rice and thus the production of
food production and rising population pulses was stagnant.
creates food insecurity in the nation
and worst effected are the National Food Security Mission
downtrodden section of the society. comprising rice, wheat and pulses to
increase the production of rice by 10
While India has seen impressive million tons, wheat by 8 million tons
economic growth in recent years, the and pulses by 2 million tons by the end
country still struggles with widespread of the Eleventh Plan (2011-12). The
poverty and hunger. India‘s poor Mission is being continued during 12th
population amounts to more than 300 Five Year Plan with new targets of
million people, with almost 30 percent additional production of food grains of
of India‘s rural population living in 25 million tons of food grains
poverty. The good news is, poverty has comprising of 10 million tons rice, 8
been on the decline in recent years. million tons of wheat, 4 million tons of
According to official government of pulses and 3 million tons of coarse
India estimates, poverty declined from cereals by the end of 12th Five Year
37.2% in 2004-05 to 29.8% in 2009- Plan.
10. The National Food Security Mission
(NFSM) during the 12th Five Year Plan
Need for Self-Sufficiency: will have five components

India suffered two very severe (i) NFSM- Rice;

droughts in 1965 and 1966. Food Aid
to India was restricted to a monthly (ii) NFSM-Wheat;
basis by USA under the P.L. 480
programme. The Green Revolution (iii) NFSM-Pulses,
made a significant change in the scene.
India achieved self-sufficiency in food (iv) NFSM-Coarse cereals and
grains by the year 1976 through the
implementation of the seed- water- (v) NFSM-Commercial Crops.
fertilizer policy adopted by the
Government of India. Government through Public
Distribution System has tried to
Food grain production increased four- counter the problem of food insecurity
fold during 1950-51 and 2001-2002 by providing the food grains through
from 51 million tons to 212 million fair price shops.
tones. The country is no longer

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The central Government through Food

Corporation of India has assumed the
responsibilities The focus of the Targeted Public
of procurement,storage,transfer and Distribution System (TPDS) is on
bulk allocation of food grains to state ―poor in all areas‖ and TPDS involves
governments. issue of 35 Kg of food grains per
family per month for the population
The public distribution system (PDS) Below Poverty Line (BPL) at specially
has played an important role in subsidized prices. The TPDS requires
attaining higher levels of the the states to Formulate and implement
household food security and :-
completely eliminating the threats of
famines from the face of the country, it 1. foolproof arrangements for
will be in the fitness of things that its identification of poor,
evolution, working and efficacy are 2. Effective delivery of food grains
examined in some details. to Fair Price Shops (FPSs)
3. Its distribution in a transparent
and accountable manner at the
FPS level.

Problems and issues of storage

The food Corporation of India (FCI) is

the nodal agency for food storage in
India. It has insufficient number of
grain silos (modern storage facilities),
and covered godowns with adequate
storage capacities. Hence grains are
PDS was initiated as a deliberate social stored in outdoors under CAP storage
policy of the government with the (Cover and Plinth) across the country.
objectives of: This makes grains prone to rodents,
moisture, birds and pests. Unexpected
1. i) Providing foodgrains and rainstorms and weather makes matters
other essential items to [Link] year tonnes of food grains
vulnerable sections of the go waste because of inadequate storage
society at resonable (subsidised) and infrastructure facilities. The
prices; wastage of fruits and vegetables is even
2. ii) to have a moderating higher than grains. Therefore, food
influence on the open market logistic chain in India needs huge
prices of cereals, the investment in providing proper storage
distribution of which constitutes [Link] infrastructure is
a fairly big share of the total necessary for carrying over the
marketable surplus; and agriculturalproduce from production
periods to the rest of the year and
iii) to attempt socialisation in the toprevent distress sales. The
matter of distribution of essential warehousing capacity available in
commodities. India, in public, cooperative and
private sector is about 94.526 million

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MTs and as per Government‘s one of the world‘s largest and unique
estimates, additional 35 million MTs programmes for early childhood care
warehousing capacity is required and development. It is the foremost
during the 12th Five Year Plan period symbol of country‘s commitment to its
for the storage of all major crops. children and nursing mothers, as a
response to the challenge of providing
Traditional Indoor storage involves pre-school non-formal education on
grain containment in structures like one hand and breaking the vicious
Kanaja, Kothi, Sanduka and earthern cycle of malnutrition, morbidity,
pots. Kanaja is a grain storage reduced learning capacity and
container made out of bamboo. The mortality on the other. The
base is usually round and has a wide beneficiaries under the Scheme are
opening at the top. The height varies. children in the age group of 0-6 years,
The Kanaja is plastered with mud and pregnant women and lactating
cow dung mixture to prevent spillage mothers. Objectives of the Scheme are:
and pilferage of grains. The top is also
plastered with mud and cow dung  to improve the nutritional and
mixture or covered with paddy straw health status of children in the
or gunny bags. Wooden boxes, also age-group 0-6 years;
called as Sanduka, are used for storing  to lay the foundation for proper
pulses, seeds and smaller quantities of psychological, physical and
grains. These boxes have a storage social development of the child;
capacity of 3-12 quintals. In some  to reduce the incidence of
cases, partition is also made inside the mortality, morbidity,
box to store two to three types of malnutrition and school
grains. A big lid on the top with a small dropout;
opening enables taking out the grains.  to achieve effective co-
To protect the grains from moisture, ordination of policy and
the box is kept 12 inches above the implementation amongst the
ground level with the help of various departments to promote
stands/legs. The box has to be child development; and
regularly polished for its maintenance.  to enhance the capability of the
Kothi is used to store paddy and jowar. mother to look after the normal
health and nutritional needs of
Need of the hour is to strengthen the child through proper
traditional means of storage with nutrition and health education.
modern inputs and to provide cheaper
storage to farmers so as prevent Mid-day Meal
enormous storage losses.
The objectives of the mid day meal
scheme are:

ICDS  Improving the nutritional status

of children in classes I-V in
The Integrated Child Development Government, Local Body and
Services (ICDS) Scheme is one of the Government aided schools, and
flagship programmes of the EGS and AIE centres.
Government of India and represents

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 Encouraging poor children, individual. Education and awareness

belonging to disadvantaged are needed to utilise these services.
sections, to attend school more
regularly and help them India has malnutrition levels almost
concentrate on classroom the levels double those of many
activities. countries in Africa. This problem
 Providing nutritional support to needs a multi-disciplinary approach
children of primary stage in covering diet diversification including
drought affected areas during micro-nutrients, women‘s
summer vacation. empowerment, education, health, safe
Governmental policies for drinking water, sanitation, and
hygiene.
food and nutritional
India has government programmes
security such as TPDS including AAY, nutrition
programmes like mid-day meals, and
ICDS to improve food and nutrition
According to the 1996 World Food
security.
Summit, food security exists "when
every person has physical and
They are explained in the following
economic access at all times to healthy
post
and nutritious food in sufficient
quantity to cover the needs of their
The state-level mismatch between food
daily ration and food preferences, in
intake and nutritional status could be
order to live a healthy and active
attributed to the differences in
life." The nutritional dimension is an
education, health, availability of safe
integral part of the food security.
drinking water, environmental
Nutritionists argue that the energy
sanitation and personal hygiene which
intake is a poor measure of nutritional
intervene between the food intake and
status, which depends not only
nutritional [Link] Integrated Child
Development Scheme (ICDS), which
among other things focuses on
increasing the nutritional and health
status of children has been in
operation for over three decades.

There is a inter state-level variation

on the nutrient intake but also on non- between food intake and nutritional
nutrient food attributes, privately and status , which could be attributed to
publicly provided inputs and health the differences in education, health,
status. availability of safe drinking water,
environmental sanitation and personal
Nutrition Security implies physical, hygiene which intervene between the
economic and social access to balanced food intake and nutritional status. A
diet, clean drinking water, safe better environment would reduce food
environment, and health care wastage due to infections and diseases.
(preventive and curative) for every The better nutritional status at a
comparatively lower level of food

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consumption in Kerala and Tamil the world‘s population. Total foodgrain

Nadu could be due to the better health production is estimated at an all-time
care and nutritional interventions. high of 272 million tonnes in 2016-17,
8% higher than the 251.6 million
tonnes last year, and surpassing the
previous record of 265 million tonnes
in 2013-14.
Food and Nutritional Wheat production is estimated to rise
Security : Trends In Food by 4.7% to 96.6 million tonnes in 2016-
17 (compared to 92.3 million tonnes in
production and 2015-16),

consumption in India Production of pulses is likely to rise

35% from 16.4 million tonnes last year
to 22.1 million tonnes in 2016-17.
India is the third largest producer of
cereals, with only China and the USA
ahead of it. India occupies the first Production of rice, the most popular
position in milk production and is the staple, is estimated to increase by over
third largest producer of fish and 2 million tonnes, from 104.4 million
second largest producer of inland tonnes last year to 106.7 million tonnes
fisheries in the world. According to in 2016-17.
ministry of Agriculture ,India is likely
to produce a record 273.38 million As per 2nd Advance Estimates, the
tonnes of food grains 2016/17, slightly estimated production of major crops
higher than the previous estimate of during 2016-17 is as under:
271.98 million tonnes.

Economic growth is typically

accompanied by improvements in a Foodgrains – 271.98 million tonnes
country‘s food supply, both (record)
quantitative and qualitative, and a
gradual reduction in nutritional  Rice – 108.86 million tonnes
deficiencies. It also brings about (record)
changes in the production, processing,  Wheat – 96.64 million tonnes
distribution and marketing of food. (record)
Diets evolve over time and are  Coarse Cereals – 44.34 million
influenced by factors such as income, tonnes (record)
prices, individual preferences and  Maize – 26.15 million tonnes
beliefs, cultural traditions, as well as (record)
geographical, environmental, social  Pulses – 22.14 million tonnes
and economic factors. (record)
 Gram – 9.12 million tonnes
India faces a greater food challenge –  Tur – 4.23 million tonnes
having only 2.3 per cent share in (record)
world‘s total land area it has to ensure  Urad – 2.89 million tonnes
food security to about 17.5 per cent of (record)

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Oilseeds – 33.60 million tonnes actions and supervise the plan without
(record) interference by the central body.
Decentralized planning in the State
 Soyabean – 14.13 million operated mainly through the following
tonnes institutions and instruments; Grama
 Groundnut – 8.47 million Sabha (GS): People‘s participation in
tonnes decentralization was sought to be
 Castorseed – 1.74 million ensured mainly through meetings of
tonnes the GP ward level Grama Sabha,
chaired by the ward member.
Cotton – 32.51 million bales (of 170
kg each) There are following major dimensions
of decentralization:
Sugarcane – 309.98 million tonnes
(i) Financial:- the transfer of revenue,
Benefiting from the green revolution budgeting and expenditure authority
technologies introduced in 1965-66, to local elected bodies.
the per capita net availability of
foodgrains per annum in India (ii) Administrative:-the transfer of
increased from 144.1 kg per capita per functional responsibilities in various
year in 1951 to a peak of 186.2 kg per sectors as well as staff resources to the
capita per year in 1991. Post-1990s jurisdiction of elected local
though, there is a clear decline in the governments
per capita foodgrain availability which
has declined to 160.1 kg per capita per (iii) Political:- the transfer of policy
year in 2010. and legislative powers to local councils
that have been democratically elected
Since agricultural growth is limited, and establishment of mechanisms of
imports can help improve the country‘s accountability to local constituents
supply situation for a short term. But
for the long term, the country will need Panchayats are mentioned in Rig Veda,
to focus on productivity enhancement, which is believed to have been
through public investment in composed more than 1000 years
irrigation, research and efficient use of before Christ. The five members of the
water, plant nutrition and other Panchayat of the village were known as
inputs. Pancha Parameswar, or the five godly
persons. Kings were respectful towards
Decentralized Planning : them. The Panchayat distributed land,
Meaning and importance; collected revenue and settled disputes
in the village. However, the Panchayats
and decentralised planning; suffered a steady decline later under
feudal and Moghul rules. A new class
major initiatives in India of feudal chiefs called zamindars came
to function as a link between the king
and the people.
Decentralized Planning is a type of
planning where local organisations and
institutions formulate, adopt, execute Lord Ripon, who is regarded as the
father of local-self government in

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India. He attached importance to both  Zilla Panchayat:-Link vision to

administrative efficiency as well as own responsibility , resources ,
political education at the local level. decide goal & plan
 District Planning Committee
The 73rd and 74th Constitutional :Integration & Consolidation
Amendment Acts, 1992, which gave
Constitutional status to panchayati raj The Eleventh‘ Schedule of the
institutions (PRIs) and urban local Constitution has recommended 29
bodies (ULBs) respectively, in both subjects for devolution to Panchayats.
letter and spirit in order to bring about The most important rationale for
greater decentralisation and increase decentralized planning is direct
the involvement of the community in involvement of the people in
planning and implementing schemes addressing their own development. An
and, thus, increase accountability. intervention which has impact only at
the local level and can be organized
The Amendments left important locally is best left to the Panchayat to
matters such as implementation, organize the same.
service delivery (including local Planning Strategy :
capacity building) and transfer of
responsibilities and powers to rural Objectives and strategy of
local bodies at the discretion of the
state legislatures. Consequently, while Indian Five Year Plans
expenditure responsibilities of local
bodies are extensively enhanced, there
First Plan (1951 - 56) Target Growth :
is no law to ensure a corresponding
2.1 % Actual Growth 3.6 % It was
assignment of funds to match the
based on Harrod-Domar Model. Influx
additional responsibilities.
of refugees, severe food shortage &
mounting inflation confronted the
The District Planning Committee was
country at the onset of the first five
made under the Constitution (74th)
year Plan. The Plan Focussed on
Amendment Act, 1992. Accordingly,
agriculture, price stability, power and
there shall be a District Planning
transport It was a successful plan
Committee at the district level to
primarily because of good harvests in
consolidate the plans prepared by the
the last two years of the plan.
panchayats and municipalities and to
prepare a draft development plan for
Second Plan (1956 - 61) Target
the district as a whole.
Growth: 4.5% Actual Growth: 4.3%
Simple aggregative Harrod Domar
 Village/Ward Committee: Micro
Growth Model was again used for
visioning & planning – linking
overall projections and the strategy of
vision to individual/family
resource allocation to broad sectors as
 Gram Panchayat:Link vision to
agriculture & Industry was based on
own responsibility , resources ,
two & four sector Model prepared by
decide goal & plan
Prof. P C Mahalanobis. (Plan is also
 Intermediate Panchayat:Link
called Mahalanobis Plan). Second plan
vision to own responsibility ,
was conceived in an atmosphere of
resources , decide goal & plan
economic stability . It was felt

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agriculture could be accorded lower of high-yielding varieties of seeds,

priority. The Plan Focussed on rapid extensive use of fertilizers, exploitation
industrialization- heavy & basic of irrigation potential and soil
industries . Advocated huge imports conservation. During the Annual
through foreign loans. The Industrial Plans, the economy absorbed the
Policy 1956 was based on shocks generated during the Third
establishment of a socialistic pattern of Plan It paved the path for the planned
society as the goal of economic policy. growth ahead.
Acute shortage of forex led to pruning
of development targets , price rise was Fourth Plan (1969 - 74) Target Growth:
also seen ( about 30%) vis a vis decline 5.7% Actual Growth: 3.3% Refusal of
in the earlier Plan & the 2nd FYP was supply of essential equipments and
only moderately successful. raw materials from the allies during
Indo Pak war resulted in twin
Third Plan (1961 - 66) |Target Growth: objectives of ― growth with stability ―
5.6% Actual Growth: 2.8% At its and ―progressive achievement of self
conception, it was felt that Indian reliance ― for the Fourth Plan. Main
economy has entered a ―takeoff stage‖. emphasis was on growth rate of
Therefore, its aim was to make India a agriculture to enable other sectors to
'self-reliant' and 'self-generating' move forward . First two years of the
economy. Based on the experience of plan saw record production. The last
first two plans (agricultural production three years did not measure up due to
was seen as limiting factor in India‘s poor monsoon. Implementation of
economic development) , agriculture Family Planning Programmes were
was given top priority to support the amongst major targets of the Plan.
exports and industry. The Plan was Influx of Bangladeshi refugees before
thorough failure in reaching the targets and after 1971 Indo-Pak war was an
due to unforeseen events - Chinese important issue along with price
aggression (1962), Indo-Pak war situation deteriorating to crisis
(1965), severe drought 1965-66. Due to proportions and the plan is considered
conflicts the approach during the later as big failure.
phase was shifted from development to
defence & development. Fifth Plan (1974-79) Target Growth:
4.4% Actual Growth: 4.8% The final
Three Annual Plans (1966- 69) Draft of fifth plan was prepared and
euphemistically described as Plan launched by D.P. Dhar in the backdrop
holiday. Failure of Third Plan that of of economic crisis arising out of run-
the devaluation of rupee( to boost away inflation fuelled by hike in oil
exports) along with inflationary prices and failure of the Govt. takeover
recession led to postponement of of the wholesale trade in wheat. It
Fourth FYP. Three Annual Plans were proposed to achieve two main
introduced instead. Prevailing crisis in objectives: 'removal of poverty' (Garibi
agriculture and serious food shortage Hatao) and 'attainment of self reliance'
necessitated the emphasis on Promotion of high rate of growth,
agriculture during the Annual Plans. better distribution of income and
During these plans a whole new significant growth in the domestic rate
agricultural strategy was implemented. of savings were seen as key
It involving wide-spread distribution instruments Due to high inflation, cost

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calculations for the Plan proved to be employment opportunities & raising

completely wrong and the original productivity with focus on ‗food, work
public sector outlay had to be revised & productivity‘. The plan was very
upwards. After promulgation of successful as the economy recorded 6%
emergency in 1975, the emphasis growth rate against the targeted 5%
shifted to the implementation of Prime with the decade of 80‘s struggling out
Ministers 20 Point Programme. FYP of the‘ Hindu Rate of Growth‘.
was relegated to the background and
when Janta Party came to power in Eighth Plan The eighth plan was
1978, the Plan was terminated. Rolling postponed by two years because of
Plan (1978 - 80) There were 2 Sixth political uncertainty at the Centre
Plans. Janta Govt. put forward a plan (1992 - 97) Target Growth 5.6 % Actual
for 1978- 1983 emphasising on Growth 6.8% Worsening Balance of
employment, in contrast to Nehru Payment position, rising debt burden ,
Model which the Govt criticised for widening budget deficits, recession in
concentration of power, widening industry and inflation were the key
inequality & for mounting poverty . issues during the launch of the plan.
However, the government lasted for The plan undertook drastic policy
only 2 years. Congress Govt. returned measures to combat the bad economic
to power in 1980 and launched a situation and to undertake an annual
different plan aimed at directly average growth of 5.6% through
attacking on the problem of poverty by introduction of fiscal & economic
creating conditions of an expanding reforms including liberalisation under
economy. the Prime Minister ship of Shri P V
Narasimha Rao. Some of the main
Sixth Plan (1980 - 85) Target Growth: economic outcomes during eighth plan
5.2% Actual Growth: 5.7% The Plan period were rapid economic growth
focussed on Increase in national (highest annual growth rate so far –
income, modernization of technology, 6.8 %), high growth of agriculture and
ensuring continuous decrease in allied sector, and manufacturing
poverty and unemployment through sector, growth in exports and imports,
schemes for transferring improvement in trade and current
skills(TRYSEM) and seets(IRDP) and account deficit. High growth rate was
providing slack season employment achieved even though the share of
(NREP), controlling population public sector in total investment had
explosion etc. Broadly , the sixth Plan declined considerably to about 34 %.
could be taken as a success as most of
the target were realised even though Ninth Plan (1997- 2002) Target
during the last year (1984-85) many Growth: 6.5% Actual Growth: 5.4%
parts of the country faced severe The Plan prepared under United Front
famine conditions and agricultural Government focussed on ―Growth
output was less than the record output With Social Justice & Equality ― Ninth
of previous year. Plan aimed to depend predominantly
on the private sector – Indian as well
Seventh Plan (1985 - 90) Target as foreign (FDI) & State was envisaged
Growth: 5.0% Actual Growth: 6.0% to increasingly play the role of
The Plan aimed at accelerating food facilitator & increasingly involve itself
grain production, increasing with social sector viz education , health

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etc and infrastructure where private several dimensions like poverty,

sector participation was likely to be malnutrition, mortality, current daily
limited. It assigned priority to employment etc .
agriculture & rural development with a
view to generate adequate productive Twelfth Five Year Plan (2012-17): The
employment and eradicate poverty Twelfth Plan commenced at a time
when the global economy was going
Tenth Plan (2002 - 2007) Target through a second financial crisis,
Growth 8 % Actual Growth 7.6 % precipitated by the sovereign debt
Recognising that economic growth problems of the Eurozone which
cant be the only objective of national erupted in the last year of the Eleventh
plan, Tenth Plan had set ‗monitorable Plan. The crisis affected all countries
targets‘ for few key indicators (11) of including India. Our growth slowed
development besides 8 % growth down to 6.2 percent in 2011-12 and the
target. The targets included reduction deceleration continued into the first
in gender gaps in literacy and wage year of the Twelfth Plan, when the
rate, reduction in Infant & maternal economy is estimated to have grown by
mortality rates, improvement in only 5 percent . The Twelfth Plan
literacy, access to potable drinking therefore emphasizes that our first
water cleaning of major polluted priority must be to bring the economy
rivers, etc. Governance was considered back to rapid growth while ensuring
as factor of development & agriculture that the growth is both inclusive and
was declared as prime moving force of sustainable. The broad vision and
the economy. States role in planning aspirations which the Twelfth Plan
was to be increased with greater seeks to fulfil are reflected in the
involvement of Panchayati Raj subtitle: ‗Faster, Sustainable, and More
Institutions. State wise break up of Inclusive Growth‘. Inclusiveness is to
targets for growth and social be achieved through poverty reduction,
development sought to achieve promoting group equality and regional
balanced development of all states. balance, reducing inequality,
empowering people etc whereas
Eleventh Plan (2007 - 2012) Target sustainability includes ensuring
Growth 9 % Actual Growth 8% environmental sustainability
Eleventh Plan was aimed ―Towards ,development of human capital
Faster & More Inclusive Growth ―after through improved health, education,
UPA rode back to power on the plank skill development, nutrition,
of helping Aam Aadmi (common man). information technology etc and
India had emerged as one of the fastest development of institutional
growing economy by the end of the capabilities , infrastructure like power
Tenth Plan. The savings and telecommunication, roads, transport
investment rates had increased , etc ,
industrial sector had responded well to Functions and Role of NDC,
face competition in the global economy
and foreign investors were keen to Planning Commission
invest in India. But the growth was not
perceived as sufficiently inclusive for
many groups , specially SCs , STs & The principal function of planning,
minorities as borne out by data on especially in a federal system, is to

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evolve a shared vision of and a. Make an assessment of the

commitment to the national objectives material, capital and human
and development strategy not only in resources of the country,
the government at all levels, but also including technical personnel,
among all other economic agents. and investigate the possibilities
NITI Aayog acts as the quintessential of augmenting such of these
platform of the Government of India to resources as are found to be
bring States to act together in national deficient in relation to the
interest, and thereby fosters nation‘s requirement;
Cooperative Federalism. b. Formulate a Plan for the most
effective and balanced
At the core of NITI Aayog‘s creation utilisation of country's
are two hubs – Team India Hub and resources;
the Knowledge and Innovation Hub. c. On a determination of
The Team India Hub leads the priorities, define the stages in
engagement of states with the Central which the Plan should be
government, while the Knowledge and carried out and propose the
Innovation Hub builds NITI‘s think- allocation of resources for the
tank capabilities. These hubs reflect due completion of each stage;
the two key tasks of the Aayog. d. Indicate the factors which are
tending to retard economic
NITI Aayog is also developing itself as development, and determine
a State of the Art Resource Centre, the conditions which, in view of
with the necessary resources, the current social and political
knowledge and skills, that will enable it situation, should be established
to act with speed, promote research for the successful execution of
and innovation, provide strategic the Plan;
policy vision for the government, and e. Determine the nature of the
deal with contingent issues. machinery which will be
necessary for securing the
Planning Commission plays an successful implementation of
integrative role in the development of a each stage of the Plan in all its
holistic approach to the policy aspects;
formulation in critical areas of human f. Appraise from time to time the
and economic development. In the progress achieved in the
social sector, schemes which require execution of each stage of the
coordination and synthesis like rural Plan and recommend the
health, drinking water, rural energy adjustments of policy and
needs, literacy and environment measures that such appraisal
protection have yet to be subjected to may show to be necessary; and
coordinated policy formulation. It has g. Make such interim or ancillary
led to multiplicity of agencies. An recommendations as appear to
integrated approach can lead to better it to be appropriate either for
results at much lower costs. facilitating the discharge of the
duties assigned to it, or on a
Planning Commission has the consideration of prevailing
following functions : economic conditions, current
policies, measures and

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development programmes or on are necessary for achieving the

an examination of such specific aims and targets set out in the
problems as may be referred to National Plan.
it for advice by Central or State
Governments.

The National Development Council

comprises the Prime Minister, the
Union Cabinet Ministers, Chief
Ministers of all States or their
substitutes, representatives of the
Union Territories and the members of
the NITI Aayog.

National Development Council is an

extra-constitutional and non-statutory
body.

It has been set up with three

objectives:-

 to strengthen and mobilize the

effort and resources of the
nation in support of the Plan
 to promote common economic
policies in all vital spheres and
 to ensure the balanced and
rapid development of all parts
of the country.

Functions

The functions of the Council are:-

 to prescribe guidelines for the

formulation of the National
Plan, including the assessment
of resources for the Plan;
 to consider the National Plan as
formulated by the Planning
Commission;
 to consider important questions
of social and economic policy
affecting national development;
and
 to review the working of the
Plan from time to time and to
recommend such measures as

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