Theories of Development and Indian Economy PDF

BA 0303 Theories of Development and Indian Economy
Module 01 Economic Development and Growth :
1) Concept of Development, Economic Development and Economic Growth
Synopsis :
1) Introduction
2) Economic Growth
3) Features of Economic Growth
4) Economic Development
5) Difference between Economic Growth and Economic Development
6) Determinants/Factors affecting Economic Growth
(A) Economic Factors
(1) Natural Resources
(2) Human Resources Development
(3) Capital Formation
(4) Technological Progress
(5) Population Growth
(6) Social Overheads
(B) Non-Economic Factors
(1) Political Factors
(2) Social and Psychological Factors
(3) Education
(4) Desire for Material Betterment
7) Conclusion
________________________________________________________________________
1) Introduction :
Economics is all about making smart choices to cope with scarcity. The most fundamental
measurement used to evaluate the success in allocating the scarce resources is economic
growth. Individuals monitor their income and the changing value of their assets.
Businesses track their profits and their market share.
Nations monitor a variety of statistics to measure economic growth such as national

income, productivity etc. Moving beyond growth and productivity, some economists argue
Prepared by Prashant Gudde, BALLB- II 1..

that any assessment of the nation’s economy must also include measurements of
distribution, equity, per-capita income etc. Further, the country should also focus on other
needs of a society, like environmental justice or cultural preservation to sustain the
economic growth process and allows an overall human development in the economy
through creation of more opportunities in the sectors of education, healthcare, employment
and the conservation of the environment.
2) Economic Growth
The term economic growth is defined as the process whereby the country’s real national
and per capita income increases over a long period of time.
Economic growth can be expressed in terms of gross domestic product (GDP) and gross
national product (GNP), that helps in measuring the size of the economy. It lets us
compare in absolute and percentage change, i.e. how much an economy has progressed
since last year. It is an outcome of the increase in the quality and quantity of resources and
advancement of technology.
Economic Growth refers to the rise in the value of everything produced in the economy. It
implies the yearly increase in the country’s GDP or GNP, in percentage terms. It alludes to
considerable rise in per-capita national product, over a period, i.e. the growth rate of
increase in total output, must be greater than the population growth rate.
Economic Growth is often contrasted with Economic Development, which is defined as

the increase in the economic wealth of a country or a particular area, for the welfare of its
residents. The economic trend in a country as a whole, is the major component for its
business environment. An economy whose growth rate is high provides a promising
business prospect and thus builds business confidence.
3) Features of Economic Growth :

 Economic Growth implies a process of increase in National Income and Per-
Capita Income. The increase in Per-Capita income is the better measure of
Economic Growth since it reflects increase in the improvement of living standards
of masses.
 Economic Growth is measured by increase in real National Income and not

just the increase in money income or the nominal national income. In other
words the increase should be in terms of increase of output of goods and services,
and not due to a mere increase in the market prices of existing goods.
 Increase in Real Income should be Over a Long Period: The increase of real
national income and per-capita income should be sustained over a long period of
time. The short-run seasonal or temporary increases in income should not be
confused with economic growth.
 Increase in income should be based on Increase in Productive Capacity:

Increase in Income can be sustained only when this increase results from some

durable increase in productive capacity of the economy like modernization or use
of new technology in production, strengthening of infrastructure like transport
network, improved electricity generation etc.
4) Economic Development
Economic Development is defined as the process of increase volume of production along

with the improvement in technology, a rise in the level of living, institutional changes, etc.
In short, it is the progress in the socio-economic structure of the economy.
Economic development is defined as a sustained improvement in material well being of

society. Economic development is a wider concept than economic growth. Apart from
growth of national income, it includes changes – social, cultural, political as well as
economic which contribute to material progress. It contains changes in resource supplies,
in the rate of capital formation, in size and composition of population, in technology, skills
and efficiency, in institutional and organizational set-up. These changes fulfill the wider
objectives of ensuring more equitable income distribution, greater employment and
poverty alleviation. In short, economic development is a process consisting of a long chain
of inter-related changes in fundamental factors of supply and in the structure of demand,
leading to a rise in the net national product of a country in the long run.The economic
growth is a narrow term. It involves increase in output in quantitative terms but economic
development includes changes in qualitative terms such as social attitudes and customs
along with quantitative growth of output or national income. Economic development
without growth is almost inconceivable.
5) Differences Between Economic Growth and Economic Development :
The fundamental differences between economic growth and development are explained in
the points given below:
 Economic growth is the positive change in the real output of the country in a
particular span of time economy. Economic Development involves a rise in the
level of production in an economy along with the advancement of technology,
improvement in living standards and so on.
 Economic growth is one of the features of economic development.
 Economic growth is an automatic process. Unlike economic development, which

is the outcome of planned and result-oriented activities.
 Economic growth enables an increase in the indicators like GDP, per capita
income, etc. On the other hand, economic development enables improvement in
the life expectancy rate, infant mortality rate, literacy rate and poverty rates.
 Economic growth can be measured when there is a positive change in the national
income, whereas economic development can be seen when there is anincrease in
real national income.

 Economic growth is a short-term process which takes into account yearly growth
of the economy. But if we talk about economic development it is a long term
process.
 Economic Growth applies to developed economies to gauge the quality of life, but
as it is an essential condition for the development, it applies to developing
countries also. In contrast to, economic development applies to developing
countries to measure progress.
 Economic Growth results in quantitative changes, but economic development

brings both quantitative and qualitative changes.
 Economic growth can be measured in a particular period. As opposed to economic

development is a continuous process so that it can be seen in the long run.
6) Determinants/Factors affecting Economic Growth
The process of economic growth is a highly complex phenomenon and is influenced by

numerous and varied factors such as political, social and cultural factors. These factors are
as follows:
(A) Economic Factors
1. Natural Resources:
The principal factor affecting the development of an economy is the natural resources. The
natural resources include the land area and the quality of the soil, forest wealth, good river
system, minerals and oil resources, good climate, etc. For economic growth, the existence
of natural resources in abundance is essential. A country deficient in natural resources may
not be in a position to develop rapidly. However, the availability of rich natural resources
are a necessary condition for economic growth but not a sufficient one. In less developed
countries, natural resources are unutilized, underutilized or misutilised. This is one of the
reasons of their backwardness. On the other hand countries such as Japan, Singapore etc.
are not endowed with abundant natural resources but they are among the developed
nations of the world. These countries have shown committment towards preserving the
available resources, putting best efforts to manage the resources, minimizing waste of
resources etc.
2. Human Resources Development:
A good quality of population is very important in determining the level of economic

growth. So the investment in human capital in the form of educational and medical and
such other social schemes is very much desirable. Human resource development increases
the knowledge, the skills and the capabilities of the people that increase their productivity.
3. Capital Formation:
Capital formation is another important factor for development of an economy. Capital

formation is the process by which a community’s savings are channelised into investments
in capital goods such as plant, equipment and machinery that increases nation’s productive

capacity and worker’s efficiency thus ensuring a larger flow of goods and services in a
country. The process of capital formation implies that a community does not spend whole
of its income on goods for current consumption, but saves a part of it and uses it to
produce or acquire capital goods that greatly add to productive capacity of the nation.
4. Technological Progress:
Technological progress is a very important factor in determining the rate of economic

growth. Technological progress mainly implies the research into the use of new and better
methods of production or the improvement of the old methods. Sometimes technical
progress results in the availability of natural resources. But generally technological
progress results in increase in productivity. In other words, technological progress
increases the ability to make a more effective and fruitful use of natural and other
resources for increasing production. By the use of improved technology it is possible to
have greater output from the use of given resources or a given output can be obtained by
the use of a smaller quantity of resources. The technological progress improves an ability
to make a fuller use of the natural resources e.g. with the aid of power - driven farm
equipment a marked increase has been brought about in agricultural production. The USA,
UK, France, Japan and other advanced industrial nations have all acquired the industrial
strength from use of advanced technology. In fact economic development is facilitated
with the adoption of new techniques of production.
5. Population Growth:
Labor supply comes from population growth and it provides expanding market for goods
and services. Thus, more labor produces larger output which a wider market absorbs. In
this process, output, income and employment keep on rising and economic growth
improves. But the population growth should be normal. A galloping rise in population
retards economic progress. Population growth is desirable only in a under-populated
country. It is, however, unwarranted in an overpopulated country like India.
6. Social Overheads:
Another important determinant of economic growth is the provision of social overheads

like schools, colleges, technical institutions, medical colleges, hospitals and public health
facilities. Such facilities make the working population healthy, efficient and responsible.
Such people can well take their country economically forward.
(B) Non-Economic Factors
Non-Economic factors that include socio-economic, cultural, psychological and political

factors are also equally significant as are economic factors in economic development. We
discuss here some of the essential non economic factors which determine the economic
growth of an economy.
1. Political Factors:
Political stability and strong administration are essential and helpful in modern economic
growth. The stable, strong and efficient government, honest administration, transparent

policies and their efficient implementation develop confidence of investors and attracts
domestic as well as foreign capital that leads to faster economic development.
2. Social and Psychological Factors:
Social factors include social attitudes, social values and social institutions which change
with the expansion of education and transformation of culture from one society to the
other. The modern ideology, values, and attitudes bring new discoveries and innovations
and consequently to the rise of the new entrepreneurs. The outdated social customs
restricts occupational and geographical mobility and thus pose an obstacle to the economic
development.
3. Education:
It is now fairly recognized that education is the main vehicle of development. Greater
progress has been achieved in those countries, where education is wide spread. Education
plays an important role in human resource development, improves labor efficiency and
removes mental block to new ideas and knowledge thus contributes to economic
development.
4. Desire for Material Betterment:
The desire for material progress is a necessary precondition for economic development.
The societies that focus on self-satisfaction, self-denial, faith in fate etc. limit risk and
enterprise and thus keep the economy backward.
7) Conclusion
After the above discussion, we can say that economic development is a much bigger
concept than economic growth. In other words, the economic development includes
economic growth. As the former uses various indicators to judge the progress in an
economy as a whole, the latter uses only specific indicators like gross domestic product,
individual income etc.
2) Human Right Dimension in Economic Development and Economic Growth
Synopsis :
1) Introduction
2) Human Rights and Economic Growth
________________________________________________________________________
1) Introduction :
Human rights refer to the basic rights and freedoms to which all individuals are entitled
through the property of being human. Since the members of the UN negotiated the
Universal Declaration of Human Rights in 1948, the world has made great human rights
progress. But that progress is not easy to measure. The Universal Declaration has over 30
distinct human rights. Moreover, as Albert Einstein once warned "not everything that

counts can be counted." Policymakers, activists, and scholars do not agree on how to count
-e.g. whether they should measure progress (as evidenced by new laws) or outcomes (as in
educational outcomes).
2) Human Rights and Economic Growth :
In recent years, three developments have helped increase our understanding of the
relationship between human rights and development. First, Nobel prize winning economist
Amartya Sen established a scholarly bridge between economics and human rights. He
taught us that poverty, hunger, and a lack of education are conditions that restrict freedom
and therefore respect for human rights provides a platform for economic growth.
Influenced by Sen, the UNDP produced the Human Development Index which focuses on
state performance on capabilities. Second, in 2000, officials from 181 nations agreed to
collaborate to cut global poverty in half by 2015. They also agreed to set targets and
measure their progress towards achieving global human rights and development goals.
Thus, the Millennium Development Goals made the question of how to measure progress
more visible. Building on these insights, scholars and activists began to develop new
metrics. Some designers focused not only on human rights but also on measures of
governance and economic growth. For example, the Multidimensional Poverty Index
(MPI), published for the first time in the 2010 Report, redefined poverty as not simply the
absence of money, but the variety of deprivations with which poor households typically
contend. It can be deconstructed by region, ethnicity and other groupings as well as by
dimension (living standards, education and health). The Human Opportunity Index (HOI)
is a measure of society's progress in equitably providing opportunities for all children.
HOI takes into account how the personal "circumstances" for which a child cannot be held
accountable, like location or parental wealth, affect his/her probability of accessing basic
services that are necessary to succeed in life, like timely education, vaccination, safe water
or electricity. The index was first applied in the World Bank publication "Measuring
Inequality of Opportunities in Latin America and the Caribbean" in 2009 and has since
been used in a number of countries.
3) Features and Indicators of Economic Development
Synopsis :
1) Introduction
2) Features of Economic Development
3) Indicators of Economic Development
1) Gross Domestic Product
2) Rise in Factor Productivity
3) Life Expectancy
4) Rise in Living Standard

5) Physical Quality of Life Index
6) Human Development Index
7) Poverty Alleviation and Inequality Reduction
8) Agriculture
9) Cars and Telephones
________________________________________________________________________
1) Introduction :
The study of economic development is one of the latest and most enterprising branches of
economics. It came into lime light after the Great Depression and Second World War.
According to Prof. Meier and Baldwin, “Economic Development is a process, whereby,

economy’s real national income increases over a long period of time”.
Economic development is the term used in the context of the well-being of the economy of
a country; it is a very broad concept which covers not only economy growth but also a
wide range of parameters like the standard of living, literacy rate, mortality rate and many
other factors. Economic development is not limited to good roads, high rise building,
malls, five star hotels but it has many variables; in order to understand this concept let’s
look at some of the features of economic development –
2) Features of Economic Development :
 The topmost feature of the economic development is that it indicates general well-
being of the people of the country because if the country is economically
developed then automatically it leads to a better standard of living of the people of
the country. Although a gap will always be there where some people will benefit
more while others will benefit less but still overall there will be more prosperity in
the country than before.
 Another feature of the economic development is that there is a substantial

migration of people from rural areas to urban areas in search of better job
opportunities as well as for improved standard of living which sometimes may
lead to urbanization problem in metro cities and urban areas.
 Another feature of the economic development is that services and industry sector
command more share in GDP of the country than agriculture sector. This shift
happens due to government laying more emphasis on industry and service sector
by framing policies which promote companies and people working in both the
sectors which in turn leads to people and companies moving from agriculture to
industry and service sector.
 The whole focus of the government is on technology because new and innovative
technology helps in manufacturing the products at cheaper rates and also
automates many works which in turn leads to less human interference and more

automation. In short an economically developed nation uses more technology in
every field than developing or developed countries.
 Another important characteristic of economic development is that it leads to the

elimination of many age – old beliefs and superstitious because as the standard of
living of people improves they are exposed to technology like television and
internet and eventually they began to learn that science and technology are the
reality while all their superstition is a myth and useless.
 In economically developed countries there is a tendency of people to save less and

spend more besides almost entire population of the country is covered through
banks and financial institutions and also people use plastic money like credit
cards, debit cards, internet payment gateways to make payment instead of cash. In
short financial habits of developed countries are completely different from that of
people living in developing or under developed nations.
As one can see from the above that economic development is more extensive in nature and
that is the reason why countries strive to achieve economic development rather than
economic growth. However economic development does not mean that country has
become heaven because problems like corruption, recession, urbanization etc… happen in
developed countries also.
3) Indicators of Economic Development :
Economic development refers to the process by which a community, nation or region of

the world raises its living standards. Often, this involves transforming the area’s economy
from one based on agriculture to a modern industrial system. Economists, demographers,
sociologists and public policy makers rely on multiple indicators -- economic and social --
to gauge the pace of economic development.
1) Gross Domestic Product

Per Capita Income is first and most important indicators of economic development of
a nation. It is commonly used by all nations in the world along with UN while
measuring economic position of the nation. The PCI of Least Developed Countries
(LDCs) is less than $400. There are 49 countries LDCs across the globe.
The per capita gross domestic product will obtain by dividing the total value of goods
and services produced within a country or region by its total population. The
Development Economics Web Guide observes that per capita GDP figures often
illustrate large differences between modern industrial powers and developing nations.
The website also cautions that certain issues affect the indicator’s reliability. These
include issues related to measuring output in countries where some production, such
as subsistence farming, may go unmeasured, which underestimates overall GDP. In
addition, governments that collect the data use different collection methods and may
have an incentive to overvalue national output.

2) Rise in Factor Productivity
Development means rise in production and productivity of factors of production.
Productivity implies increased per unit of production of factors of production land,
labor, capital and organization in terms of rent, wages, interest and profit.
3) Life Expectancy
People residing in modern developed nations generally have longer lifespans,
measured in years, than those in poor, underdeveloped countries. As an example, the
Development Economics Web Guide contrasted life expectancies in the United
Kingdom, Ghana and Zambia. U.K. residents had a life expectancy averaging nearly
78 years, far ahead of Ghana’s 56.6 and Zambia’s 41. Factors affecting life
expectancy include poverty, adequate food supplies and disease. An increase in life
expectancy points to improved social and economic conditions.
4) Rise in Living Standard

Another indicator of development is living standard of common people which should
go on rising to higher levels. The very objective of development is to provide better
life to people. It refers to increase in average consumption level of individual and
society.
5) Physical Quality of Life Index

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

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

As a nation develops, poverty must be reduced and the gap between the rich and poor
must be narrowed down . Poverty limits opportunities of common people to uplift
their life. It weakens their income earning capability. Their access to health, education
and skill development is most essential to minimize poverty rate.
8) Agriculture
The economies of many underdeveloped nations depend heavily on agriculture. In
contrast, developed countries have high levels of industrial employment. BBC reports
that low levels of agricultural employment indicate higher economic development --
for example, only 2 percent of the British workforce work in agriculture, while
agriculture employs 72 percent of Vietnam’s workforce. A decline in agricultural
employment over time may indicate a region or nation undergoing a process of
development.

9) Cars and Telephones
Motor vehicles and telephones are necessary modes of transportation and
communication in developed economies. BBC reports that the numbers of cars and
telephones per 1,000 people provide helpful indicators of a country’s level of
development. An increase in the number of people who own such goods suggests
growing prosperity and a developing economy.
4) Vicious Cycle of Poverty
Synopsis :
1) Introduction
2) Demand side of Capital
3) Supply side of Capital
4) Main Points of Vicious Circle of Poverty
5) Causes of Poverty
6) Remedies for Poverty
________________________________________________________________________
1) Introduction :
The people in the less developed countries have low per capita income. Having low
income their rate of savings is low. When savings are small in a country, investment will
also be low. Low investment leads to low productivity. With low productivity level, the
income is bound to be low. People as such remain poor. In the way vicious circle of
poverty completes. Summing up, we can say that less developed countries are poor
because they do not have sufficient capital resources for investment. Capital has a central
position for economic development. A financially poor country is trapped in its own
poverty. A country can get rid off from poverty if its rate of capital formation increases
than the rate of population growth. So capital formation is the key to economic
development by demand and supply of capital.
2) Demand Side of Capital :
The production of the poor country is low. The low production causes low per capita
income and low purchasing power. The low purchasing power reduces the demand for
products. Due to low demand, market will be limited. The small size of market
discourages the investment. The low production reduces the productivity per worker.
When the out put per worker is low, the per capita income is bound to be low. So vicious
circle of poverty is complete on the demand side of capital formation.
On the demand side vicious circle of poverty operates in the following manner :

3) Supply Side of Capital :
In the developed countries due to low production, per capita income is low. The low level
of income means the capacity to save is low. The low level of savings leads to low
investment. The low rate of investment reduces the productivity per worker. It leads to low
per capita income. The vicious circle is thus complete on the supply side of capital
formation.
The vicious circle of supply can shown by the following diagram :
4) Main Points of Vicious Circle of Poverty :-
1. Poverty
2. Low production
3. Rapid population growth
4. Low per capita income
5. Low consumption
6. Limited market
7. Low savings
8. Lack of capital
9. Low investment
10. Low production
5) Causes of Poverty :
1. Lack of education:
Education is one which has enabled many people to overcome poverty. Hence you can see
almost all the nations in the world spend a lot on education. They provide even

scholarships to those from economically backward families. Because of education, there
was spread of scientific knowledge. Hence there was progress regarding the production of
automobiles, electronic gadgets which made huge profits to the manufacturers. There was
also rise in employment due to such growth in economic benefits. So on careful
observation, one can notice that poverty countries are those who lack sufficient education
among their population.
2. Lack of resources:
People or nations with some natural resources could eliminate poverty. Middle East
countries which are previously considered as desert countries are now some of the richest
nations. This is due to the availability of petroleum resources by which they could
generate massive income by exports. These countries are also afraid of the decline of oil
reserves. Even if the other means of energy generation for automobiles like hydrogen
technology arise,then these countries will witness poverty again. Even these countries
were able to control the world economic conditions. By increasing the petroleum prices,
the inflation of other countries which were dependent on oil import raised. But when the
human population grows, these resources can decline fast and lead to poverty. So poverty
is one of the important overpopulation problems.
3. International sanctions:
Many nations were affected by international sanctions due to the acts of their
governments. Countries like North Korea, Iraq, Russia suffered from international
sanctions or economically advanced countries like united states, European union, Japan
etc. When these sanctions are levied, these countries are exempt from benefits of foreign
investments and imports. Then the people in those countries had to suffer from hunger and
economic problems.
4. Invading:
Countries like England, France and other which invaded other countries in the name of
business and then used to loot them. Thus many countries which were economically well
off or had lot of natural resources had to suffer. Even you can notice that the Kohinoor
diamond and other valuable are not returned to by the British. Similarly, the Asian and
African countries were exploited for ivory, diamonds and other minerals by other nations.
This type of invading and loot always left the people of host countries under poverty. Even
nations like the united states of America had to work hard after being freed from colonial
rule for economic empowerment.
5. Internal riots and protests:
There are countries where lack of proper law and order contributes to poverty. This is
because there cannot be proper environment for business or work in places of no law and
order. Many countries in middle east, suffer from poverty due to communal violence,
terrorism etc.

For this the governments need to take firm steps to curb the violence. Or else the common
man cannot work to generate income.
6. Personal Reasons:
This is at the level of common man besides above causes. Lack of foresightedness, proper
friends etc, they remain poor. Some of them intentionally adopt to being poor.
Other way to see is these people do not believe in the concept that they can be happy if
they have more money. They instead feel that possessing money or trying to do so brings
in more problems which will divert them mentally in to materialistic life. Some religions
also prescribe abandonment of wealth as means to attain spiritual progress.
Checkdifferences between spirituality and religion for more idea.
Hence we can see many monks who have nothing but simple clothes to live. They stay
away from all the worldly pleasures which require money. In doing so, they tend to have
more peace of mind and focus more their spiritual progress.
7. Physical disability:
Many people get disabled due to accidents. Some of them get it from birth while others
become so in course of life. For those disabled, it is very tough to perform normal tasks.
They cannot perform well in the job or even make a better business man. So those with
physical disability would be unable to generate income and may remain poor. Also, being
disabled makes them feel inferior to other and hence, they cannot take steps to make more
wealth with confidence.
8. No family support:
Many people are rich in life due to the wealth obtained from their family members. A
person without proper family rarely lives rich life. Proper family support helps one take up
education and also right decisions in business or investments. If not family, one at least
needs good friends and well wishers to live a better and prosperous life.
9. Ill health:
If one develops ill health, then it would be difficult to perform their jobs. Even, they
cannot make plans to progress in life. In case they have made any plans still due to lack of
good health will be unable to execute them to the fullest potential and achieve success. So
one needs to take care of health to live better and perform well. This good health can be in
terms of both and physical and mental health. At least having physical illness would not
potentially hamper a persons financial progress. But having mental disorders like
depression, anxiety would hinder him drastically and may even run him into financial
losses. So better mental and physical health contributes to wealth.
6) Remedies for Poverty :

If any country per capita income is high, then the rate of capital formation will be high as
the factors affecting the demand for and supply of capital formation are favorable to
economic growth.

A country is poor and remains poor because its human and natural resources remain not
utilized. In the less developed countries people are mostly unskilled and technologically
backward. They are illiterate and lack the entrepreneurial ability. So the natural resources
are not used properly, out put remains low and poor country remains poor because it is
poor.
If the under developed countries adopt the following policies, they can remove the
obstacles and can break the vicious circle of poverty.
1. Proper Use of Natural Resources :

The developing countries can achieve rapid economic growth by making the efficient use
of natural resources. By proper use of resources we can increase the production and per
capita income of the country.
2. Self Reliance Policy :

The less developing countries should reduce their dependence on foreign aid. The heavy
reliance on foreign aid and its repeated suspension, delay and breach of agreements have
created multiple problems. The policy of self reliance should be followed for financing
development projects.
3. Encouragement of Private Sector :

The less developed countries should encourage the private sector to increase the rate of
investment in the country. The government has also given incentives to the private sector
to promote the rate of development in the country.
4. Increase in Savings :
The government of less developed countries should provide incentives to encourage the
rate of savings in the country. New and attractive savings schemes should be introduced.
5. Increase in Exports :
We should increase our exports to make our balance of payment favorable. We should
increase the exports of manufactured goods instead of primary commodities.
6. Reduction in Imports :
The developing countries should produce substitutes of imports in side the country to save
the foreign exchange. Import of luxuries should be curtailed.
7. Development of Agriculture :
To increase the per acre yield government should expand the credit facilities to the
farmers. Due to low yield of wheat it has imported many times to meet the needs of the
country.
8. Development of Industrial Sector :

Agriculture based industries should be established in the less developed countries. All the
raw material should be used in these industries, instead of exporting raw material on lower
rates.

9. Reduction in Employment :
The government should increase the job opportunities in the country. It will improve the
saving and purchasing power of the people. New projects should be started to increase the
rate of employment.
10. Balanced Growth Strategy :
The less developed countries should adopt the balance growth strategy to remove poverty.
Because investment in various sectors at the same time can provide market and a source of
a supply for another.
11. Introduction to Technology :
The developing countries can increase the rate of development by adopting suitable
advance technology in various sectors of the economy. But they should adopt the
technology according to their requirements.
12. Reduction in Population Growth :
In the less developed countries high birth rate is the main cause of low per capita income.
In India and Pakistan rate of population growth is high. effective measures should be taken
to reduce the population pressure.
13. Administrative Performs :
The professionally qualified persons should be appointed in the financial institutions and
in the planning sector. Corrupt and inefficient administration should be removed.
14. Denationalization :
All the poor countries should handed over the sick industries to the private sector. The
present government has also decided to sell the shares of public industries to private
sector. This policy will reduce the deficit of the budget.
15. Improve the Quality of Labour :

Poor countries should improve the quality of labour by providing the education and
technical skill to the labour. It will increase the efficiency of the people and the rate of
production.
16. Political Stability :
It is the basic requirement for the development of any country. All the poor countries
should prevail peace and political stability if they want to achieve development.
17. Stable Economic Policy :
The poor countries should adopt the stable economic policy. There should be no frequent
changes in the taxation and import export policy. Because it discourage the rate of
investment in the country.

18. Effective Planning :
The less developed countries can prepare the development plans to accelerate the rate of
development in the country.
The vicious circle of poverty is a result of the various vicious circles which were on the
sides of supply of and demand for capital. As a result capital formation remains low
productivity and low real incomes. Thus, the country is caught in vicious circles of poverty
which are mutually aggravating and it is very difficult to break them.
5) Determination of Poverty Line
Synopsis :
1) Introduction
2) Methodology for constructing the poverty line
4) Poverty line differs from one country to another, depending upon the idea of
poverty
________________________________________________________________________
1) Introduction :
Poverty line is the level of income to meet the minimum living conditions. Poverty line is
the amount of money needed for a person to meet his basic needs. It is defined as the
money value of the goods and services needed to provide basic welfare to an individual.
From the times immemorial society has been divided as rich and poor or powerful and
weak. Some have dominant access to resources while some are deprived of resources.
Situation is no different now. In democracy, government attempts to narrow this gap by
taking up task of redistribution of resources. But resources at disposal of any society are
limited and challenges are many. For effective redistribution and bringing lasting change,
it is essential that deserving beneficiaries of government’s help are identified. To identify
poor we need some benchmarks and person falling below this benchmark will be regarded
as poor. In India, initially most of the government support was universal, but in latter
periods they adopted targeted support which was meant only for deserving poor. This was
due to fiscal constraints and a move from socialism to market based economy as result of
LPG reforms. Major landmark in this was adoption of ‘Targeted Public distribution
System’ in 1990’s in which subsidized food was only meant for Below Poverty Line
people and determination of Poverty line became a big issue since then.
2) Methodology for constructing the poverty line
The poverty estimation methodology was revised many times with new expert group/task
force appointed by the Planning Commission to look into the matter. Each expert
group/task force has devised certain methodology in determining the poverty line.

For measuring poverty, a poverty line is set. The poverty line is the level of income needed
to meet the minimum standard of living. People who have an income less than this is
considered as below poverty line.
The concept about minimum consumption standards and consumption levels were
changed based upon recommendations of the various expert groups/task force. These
expert groups use the NSS (National Sample Survey) estimate the consumption pattern of
households from time to time. The NSS’s periodically makes extensive household surveys
on expenditure. Here, from the consumption basket of the people, the expert groups pick
up the most essential commodities. These commodities are placed under a poverty line
basket (PLB).
Minimum standard of living is thus expressed as the basket of goods and services
commonly used by the people. Based on this consumption pattern, the Expert Groups
estimate the minimum consumption levels (and the income needed to buy these) and the
income needed to obtain these goods and services in both rural and urban areas. This
income level acts as the poverty line.
3) Poverty line differs from one country to another, depending upon the idea of
poverty
Poverty line changes from one country to another. In developed countries, where there is
advanced standard of living and welfare concepts, poverty line is high as basic standard to
live include higher consumption requirements and accessibility to many goods and
services.
On the other hand, in many less developed countries, the basic requirements will be low
and contains mostly essential consumption items needed to sustain life. This means that
poverty line is set by the welfare standard in a particular society (economy).
Poverty is ‘relative’ and what poverty in the US or in an advanced West European country
may not be poverty in Bangladesh.

Module 02 Strategies of Economic Growth
1) An overview of Theories of Development
Synopsis :
1) Introduction
2) Definition
3) Theories of Development
(1) Classical Theory
(2) Neo-Classical Theory
(3) New Economic Growth Theories (Endogenous growth)
________________________________________________________________________
1) Introduction :
How is it that poverty and plenty co-exist? Theories of economic development have much
to say on this matter. This section starts with definitions and then dips briefly into the
history of the subject, introducing the three main themes of classical development
economics - dualism and structuralism, industrialization and trade, and the strategic role of
the state. It then contrasts such ‘grand theory’ more recent contributions to understanding
the micro-level foundations of economic development. Four sections then review theories
of economic development according to whether economies are relatively open or closed to
international trade, and actively managed by the state or reliant upon private activity. All
these theories are concerned primarily with explaining variation in long-term economic
growth. Three sections then critically explore the relationship between economic
development and (a) income distribution, poverty and well being (b) culture and
institutions (c) population growth.
The term ‘economic development’ refers to long-term changes in systems of production

and distribution of goods and services affecting human welfare. In contrast to ‘economic
growth’ it involves changes in the form as well as the scale of economic activity. In
common usage, development is usually assumed to be by definition a good thing.
Economies development is almost always fickle in its effects – some benefit at others’
expense, long-term gain may require short-term pain (and vice versa), and one person’s
indicator of progress may be another’s indicator of regress.
2) Definition :
Economic growth is the increase in the goods and services produced by an economy,
typically a nation, over a long period of time. It is measured as percentage increase in real
gross domestic product (GDP) which is gross domestic product (GDP) adjusted for
inflation. GDP is the market value of all final goods and services produced in an economy
or nation.

So how does a nation or economy continually increase the GDP such that the economic
growth trends upward? There are three main types of economic growth theories over time
that have all attempted to answer that exact question. The Classical, Neo- Classical, and
Modern Day theories will each be described.
2) Theories of Development :
1) Classical Theory :
The classical theory of economic growth was a combination of economic work done by
Adam Smith, David Ricardo, and Robert Malthus in the eighteenth and nineteenth
centuries. The theory states that every economy has a steady state GDP and any deviation
off of that steady state is temporary and will eventually return. This is based on the
concept that when there is a growth in GDP, population will increase. The increase in
population thus has an adverse effect on GDP due to the higher demand on limited
resources from a larger population. The GDP will eventually lower back to the steady
state. When GDP deviates below the steady state, population will decrease and thus lower
demand on the resources. In turn, the GDP will rise back to its steady state.
2) Neo-Classical Theory :
Next, we have Neo-Classical theory. Two economists, T.W. Swan and Robert Solow, made
important contributions to economic growth theory in developing what is now known as
the Solow-Swan growth model. The theory focuses on three factors that impact economic
growth: labor, capital, and technology, or more specifically, technological advances. The
output per worker (growth per unit of labor) increases with the output per capita (growth
per unit of capital) but at a decreasing rate. This is referred to as diminishing marginal
returns. Therefore, there will become a point at which labor and capital can be set to reach
an equilibrium state.
Since a nation can theoretically determine the amount of labor and capital necessary to
remain at that steady point, it is technological advances that really impact the economic
growth. The theory states that economic growth will not take place unless there are
technological advances, and those advances happen by chance. Once an advance has been
made, then labor and capital should be adjusted accordingly. It also suggests that if all
nations have access to the same technology, then the standard of living will all become
equal.
There were two major concerns with this era of theories. One is the conclusion that
continuous economic growth can only occur with technological advances, which happen
by chance and therefore cannot be modeled. Secondly, it relies on diminishing marginal
returns of capital and labor. However, there is no empirical or real-life evidence to
support this claim. Therefore the model is known for identifying technology as a factor in
growth but fails to ever substantially explain how.

3) New Economic Growth Theories (Endogenous growth)
Endogenous growth models, developed by Paul Romer and Robert Lucas placed greater
emphasis on the concept of human capital. How workers with greater knowledge,
education and training can help to increase rates of technological advancement.
They place greater importance on the need for governments to actively encourage
technological innovation. They argue in the free market classical view, firms may have no
incentive to invest in new technologies because they will struggle to benefit in competitive
markets. The model places emphasis on increasing both capital and labour productivity. It
states that increasing labour productivity does not have diminishing returns, but, may have
increasing returns.
2) Balanced and Unbalanced Growth
Synopsis :
1) Introduction
2) Balanced and Unbalanced Growth Theory
________________________________________________________________________
1) Introduction :
Balance growth occurs when output and the capital stock grow at the same rate. In
development economics, balanced growth refers to the simultaneous, coordinated
expansion of several sectors. The economists generally use the Ragnar Nurkse’s balanced
growth theory to explain it. The theory hypothesises that the government of any
underdeveloped country needs to make large investments in a number of industries
simultaneously. This will enlarge the market size, increase productivity, and provide an
incentive for the private sector to invest. Nurkse was in favour of attaining balanced
growth in both the industrial and agricultural sectors of the economy. He recognised that
the expansion and inter-sectoral balance between agriculture and manufacturing is
necessary so that each of these sectors provides a market for the products of the other and
in turn, supplies the necessary raw materials for the development and growth of the other.
2) Balanced and Unbalanced Growth Theory :
Both the theories are based on the theory of Big Push which advocates investment to break
the vicious circle of poverty. The balanced growth aims at the development of all sectors
simultaneously but unbalanced growth recommends that the investment should be made
only in leading sectors of the economy.
Underdeveloped countries have insufficient resources in men, material and money for
simultaneous investment in number of complementary industries. The investment made in
selected sectors leads to new investment opportunities. The aim is to keep alive rather than
to eliminate the disequilibrium by maintaining tensions and disproportions.

Balanced growth aims at harmony, consistency and equilibrium whereas unbalanced
growth suggests the creation of disharmony, inconsistency and disequilibrium. The
implementation of balanced growth requires huge amount of capital.
On the other hand, unbalanced growth requires less amount of capital, making investment
in only leading sectors. Balanced growth is long term strategy because the development of
all the sectors of economy is possible only in long run period. But the unbalanced growth
is a short term strategy as the development of few leading sectors is possible in short span
of period.
The doctrine of balanced growth and unbalanced growth have two common problems on
relating to role of state and the role of supply limitations and supply inelasticity’s. The
private enterprise is only incapable of taking investment decisions in underdeveloped
countries. Therefore, balanced growth presupposes planning. In unbalanced growth
strategy, the states play a pioneer role in encouraging SOC investments, there by creating
disequilibrium.
If the development starts via Investment in DPA, political pressures force the state to
undertake investment in SOC. The theory of balanced growth is mainly concerned with the
lack of demand and neglects the role of supply limitations.
This is not true as underdeveloped country lacks in supply of capital, skills, infrastructures
and other resources which are- inelastic in supply. Similarly, unbalanced growth doctrine
also neglects the role of supply limitations and supply in elasticity’s. Under such
situations, a judicious compromise has to be made between the benefits from balanced
growth and unbalanced growth.
There is no second opinion that the developing countries are wedded to democracy who
should try to control the twin evils of inflation and adverse balance of payments during the
course of pursuing any strategy of economic development. The need of the hour is that it
should be done to make the doctrine effective as a vehicle of economic development with
added strength and vigour.
In this context, Prof. Meier has rightly observed that, “From the discussion we may also
now recognize that the phrases balanced growth and unbalanced growth initially caught on
too readily, and that each approach has been overdrawn. After much reconsideration, each
approach has become so highly qualified that the controversy is essentially barren.
Instead of seeking to generalize either approach we should more appropriately look to the
conditions under which each can claim some validity. It may be concluded that while a
newly developing country should aim at balance in an investment criterion, this objective
will be attained only by initially following, in most case, a policy of unbalanced
investment.”

3) Big Push Theory
Synopsis :
1) Introduction
2) Types of indivisibilities and economies of scale
(1) Indivisibilities in Production Function
(2) Indivisibilities of Demand
(3) Indivisibility in Supply of Savings
3) Main Features of the Theory of Big Push
4) Criticism/Demerits
________________________________________________________________________
1) Introduction
The Big Push Theory has been presented by Rosenstein Rodan. The idea behind this
theory is this that a big push or a big and comprehensive investment package can be
helpful to bring economic development. In other words, a certain minimum amount of
resources must be devoted for developmental programs, if the success of programs is
required.
As some ground speed is required for the aircraft to airborne. In the same way, certain
critical amount of resources be allocated for development activities. This theory is of the
view that through 'Bit by Bit' allocation no economy can move on the path of economic
development, rather a specific amount of investment is considered something necessary
for economic development. Therefore, if so many mutually supporting industries which
depend upon each other are started the economies of scale will be reaped. Such external
economies which are attained through specific amount of investment will become helpful
for economic development.
2) Rosenstein Rodan has presented three types of indivisibilities and economies of scale.
They are as:
(1) Indivisibilities in Production Function
(2) Indivisibilities of Demand
(3) Indivisibility in Supply of Savings
(1) Indivisibilities in Production Function:
When so many industries are established the economies regarding factors of production,
goods, and techniques of production are accrued. Rosenstein Rodan gives more
importance to economies which arise due to the establishment of social overhead capital.
The infra-structure consists of means of transportation, communication and energy
resources. They all contribute to development indirectly. They last for a longer period of
time. The SOC can not be imported. To construct it a big amount of capital is required. For

some time, the excess capacity may grow in SOC, but they are very much must.
Accordingly, UDCs will have to spend 30% to 40% of investment on SOC. The SOC is
attached with the following indivisibilities:
(i) The SOC must be provided before Directly Productive Activities (DPA).
(ii) It is lumpy and it has a minimum durability.
(iii) It lasts for a longer period of time and it is irreversible.
These indivisibilities serve as big obstacle in the way of economic development of a UDC.
(2) Indivisibilities of Demand:
The complementarily with respect to demand requires that UDCs should establish such
industries which could support each other. To make investment in one project may be risky
because in UDCs the demand for goods and services is limited due to lower incomes. In
other words, the indivisibilities of demand require that at least a certain amount of
investment be made in so many industries which could mutually support each other. As a
result, the size of market will be extended in UDCs; or the problem of limited market will
come to an end in UDCs. It is shown with Fig.
Diagram/Figure:
Here D1 and MR1 are the average and marginal revenue curves of a firm when investment
is made in this single firm. This firm sells OQ1 quantity and charges OP1 price. Here it
faces losses equal to P1cab.
But if investment is made in so many industries the market will be extended. In this way,
the demand will increase as shown by D4 and corresponding marginal revenue curve is
MR4. Now the equilibrium takes place at E where OQ4 quantity is produced and OPb
price is charged. As a result, the industries are having profits equal to P4RST.
It means that the greater investment in so many industries nay convert the losses into
profits.

(3) Indivisibility in Supply of Savings:
The supply of savings also serves as an indivisibility. A specific amount of investment can
be made in the presence of specific savings But in case of UDCs because of lower
incomes the savings remain low. Therefore, when incomes increase due to increase in
investment the MPS must be greater than APS.
In the presence of these indivisibilities and non-existence of external economies only a Big
Push can take the economy out of dole drums of poverty. It means a specific amount of
investment is necessary to remove the obstacles in the way of economic development.
3) Main Features of the Theory of Big Push:
1. Massive Investment:
The theory of big push envisages massive investment at the very outset of the process of
growth. In its absence, the process of growth may not be self-sustaining.
2. Investment in Different Sectors:
The theory envisages the need for investment across different channels of growth so that
each channel sustains the growth of other by providing the necessary demand-base. Thus,
it leads towards the Balanced Growth of the system.
3. Planned Industrialization:
The theory stresses the need for planned industrialisation of under developed countries
where agriculture is the dominant sector which is backward and riddled with poverty. A
big-push to industrialisation is expected to place the system on sound footing, staving-off
the uncertainties of agricultural production.
4) Criticism/Demerits:
Rosenstein theory is better in the sense that it identified that market imperfections are the
big obstacles in the way of economic development. Therefore, a big amount of investment
will solve the problem of limited markets, rather depending upon market mechanism, and
such heavy amounts of investment will become helpful for economic growth. Despite this
merit, followings are the demerits of this theory.
(i) Negligible Economies in Export, and Import Substitute Sectors: The 'Big Push'
infrastructure may be justified on the ground of external economies. But, according to
Viner, the export sector and .import-substitute sectors are so backward in UDCs that they
hardly give rise to economies.
(ii) Negligible Economies from Cost Reducing Investment: The goods which are
concerned with public welfare hardly yield external economies. Moreover, the investment
which is aimed at reducing costs does not yield economies.
(iii) Neglecting Investment in Agricultural Sector: In this theory emphasis has been laid
upon making investment in infrastructure and industries. While it neglects the investment

to be made in agri. and its allied sectors. As the agricultural sector is the largest sector in
UDCs and it will be a mistake to ignore it.
(iv) Inflationary Pressure: From where the funds will come in UDCs to spend them on
SOC. If the funds are raised through foreign loans and by printing new notes they will
create inflation in the economy.
(v) Administrative and Institutional Difficulties: This theory stresses upon state
investment to remove deficiency of capital. But in case of UDCs the machinery is corrupt.
There exist a lot of problems in state machinery. The private and public sectors compete
with each other, rather supporting each other. Consequently, there will not be the balanced
growth in the economy.
(vi) It is Not a Historical Fact : The Big Push theory is a recipe for the UDCs, but it has
not been derived on the basis of historical experience. As Prof. Hagen says, "the Big Push
theory lacks the historical evidences and facts".
4) Relation between population Growth and Per Capita Income
Synopsis :
1) Introduction
2) Population Growth and Per Capita Income

________________________________________________________________________
1) Introduction :
The relationship between population growth and economic growth is controversial. The
relationship between population growth and growth of economic output has been studied
extensively. Many analysts believe that economic growth in high-income countries is
likely to be relatively slow in coming years in part because population growth in these
countries is predicted to slow considerably. Others argue that population growth has been
and will continue to be problematic as more people inevitably use more of the finite
resources available on earth, thereby reducing long-term potential growth. Population
growth affects many phenomena such as the age structure of a country’s population,
international migration, economic inequality, and the size of a country’s work force. These
factors both affect and are affected by overall economic growth. The purpose of this article
is to use long-term historical data and a review of both theoretical and empirical work on
the relationship among growth of population, total output and per capita output to assess
the implications of their evolution for economic inequality, international migration
policies, and general economic growth.
2) Population Growth and Per Capita Income :
If population growth and per capita GDP growth are completely independent, higher
population growth rates would clearly lead to higher economic growth rates. It would still
be true that, as noted by Piketty (2014), only the growth in per capita GDP would give rise

to improvements in economic well-being. On the other hand, if population growth affects
per capita output growth, higher population growth rates would contribute to either higher
or lower overall economic growth depending on the nature of its effects on per capita
GDP. For the world as a whole, over the period 1990 to 2015, the correlation between
population growth and real per capita GDP growth, based on World Bank data, was
−0.1849 suggesting that these two variables were uncorrelated during that period. Simple
correlation, of course, tells us very little about the actual relationship between these
variables. It turns out that economists have developed theoretical arguments supporting
both the idea that population growth slows growth in per capita output and the opposite
idea that population growth stimulates greater economic growth. Thomas Malthus
developed one of the earliest and best known theories showing that population growth has
a negative effect on well-being. He believed that population has a tendency to grow more
rapidly than food supplies so that population reductions through various types of misery
are always required to keep the number of people at a level consistent with the amount of
food available. The implication of Malthus’s model is that average incomes will always be
driven down by population growth to a level that is just adequate for the population’s
subsistence.
A major purpose of Malthus’s essay was to argue against the English Poor Laws. He
suggested that trying to increase the well-being of the poor was an exercise in futility as
higher incomes would lead to population increases that would drive incomes back down to
the subsistence level. This understanding represented an accurate image of the past but
missed the boat entirely for the future. From 1000 to 1820, average annual population
growth in England was about 0.29% while per capita GDP growth averaged 0.12% for an
overall average annual economic growth rate of 0.41% according to data from World
Economics (2016). With the Industrial Revolution, however, both income and population
growth began to increase as did the supplies of food. Growth in global agricultural output
has been faster than world population growth over the past two centuries (Peterson, 2009)
and real per capita GDP in England has increased more than 11-fold since 1820 ( The
Maddison Project, 2013). The fact that technological innovations have allowed incomes to
rise well above the subsistence levels familiar to Malthus does not mean, however, that the
question of how population growth affects growth in per capita output is resolved. It is still
possible that growth in output would have been greater if population growth rates had
been somewhat lower. In fact, population growth in the United Kingdom between 1820
and 2010 was moderately higher at 0.57% than was the case for the previous 820 years
while annual growth in per capita GDP was substantially more rapid at 1.28% after 1820.
Malthusian perspectives on the effects of population growth on social and economic well-
being were revived by Paul Ehrlich and others in the latter part of the 20th century when
population growth rates reached very high levels, primarily in low-income countries. The
concern of these writers was that world population would reach a level that would
overwhelm the capacity of the earth and its resources to generate the food and other goods
needed for human life. Many felt that both population growth and economic growth
needed to be scaled back or eliminated entirely to avoid an existential crisis. Other authors
argued that fears about population growth were overblown suggesting that population

growth would stimulate technological innovations that would allow food production to
keep up with the growing population or that larger populations would result in more brains
that could be applied to solving any resource problems that might arise. In 1980, Julian
Simon and Ehrlich made a famous bet on the future prices of five mineral commodities
over the following 10 years with Ehrlich predicting rising prices as the world population
exploded while Simon forecast the opposite as clever humans found ways to overcome
resource constraints. Simon won the bet as the commodity prices fell substantially while
the world added 800 million people to its population (Sabin, 2014). As population growth
rates have begun to fall in recent years, the possibility that food and natural resources will
be exhausted by a larger population seems to be less of a preoccupation than the more
likely danger that continued use of the earth’s resources at current rates will lead to climate
change and other environmental problems.
The neoclassical growth model pioneered by Solow also provides a theoretical explanation
for a negative relationship between population growth and growth in per capita output.
Models of this nature are often referred to as “exogenous” growth models because the two
variables that drive economic growth, savings (which lead to increases in the capital stock)
and population (which determines the amount of labor available), are introduced
exogenously. In these models, rapid population growth leads to smaller amounts of capital
per worker slowing economic growth. In addition, it is generally assumed that increasing
population combined with relatively static growth in the capital stock gives rise to
diminishing returns. Note that most theoretical economic growth models do not actually
use population as a factor in economic output. Instead, the size of the labor force (number
of workers often adjusted for the average hours worked by each worker) is the variable
that is combined with capital to generate GDP. In most cases, however, the population
growth rate appears to be taken as a measure of labor force growth although more
sophisticated models also take account of labor quality and the structure of the labor force.
For example, Mankiw, Romer, and Weil add human capital accumulation which enhances
the quality of the labor force to Solow’s model and find that empirical evidence is
consistent with the theoretical result that higher population growth rates lead to lower
steady-state economic growth while higher savings rates have the opposite effect.
Early empirical applications of the neoclassical growth model found that after accounting
for the effects of labor and capital in economic growth, there remained a large residual
thought to be associated with technological progress. Endogenous growth models were
developed to provide a better explanation of this residual by including representations of
research and development and altering some of the assumptions about diminishing returns
to capital as labor supply increases. An interesting result from early efforts to model
endogenous growth is that these models often suggest that there is a positive relationship
between population growth and per capita economic growth in contrast to the predictions
of the neoclassical growth models. Such an outcome is consistent with arguments
advanced by Simon who suggested that greater population growth would result in a larger
“stock of useful knowledge” which would, in turn, foster greater per capita economic
growth. Jones dentifies three types of endogenous growth models noting that early
versions resulted in the prediction that population growth would generate increased per

capita GDP growth claiming, in contrast to Simon, that this result is at odds with the
empirical evidence. The other types of endogenous growth models described by Jones also
predicted a positive relationship between population and per capita economic growth
although there have been several representations that allow for a negative correlation
between these variables. Most of these authors believe that empirical evidence does not
support the idea that population growth is positively correlated with per capita output
growth (Strulik, 2005).
Empirical work on the effects of population growth on economic growth in particular

countries has generated contradictory results. Sethy and Sahoo and Tumwebaze and Ijjo
find that population growth has a positive impact on per capita economic growth in India
and the Eastern and Southern Africa region. In contrast, Yao, Kinugasa, and Hamori and
Banerjee conclude that there is a negative relationship between population and per capita
GDP growth in China and Australia. Huang and Xie find that current population growth
has a negative effect on economic growth while lagged population growth has a positive
effect so that there is no long-term relationship between these variables. Such
contradictory findings have led several analysts to consider the possibility that the impact
of population growth on per capita output growth may not be uniform but, rather, varies
with particular circumstances. For example, Becker et al. suggest that population growth
in low-income, agricultural societies slows growth in per capita income due to diminishing
returns to the growing labor force making more intensive use of a fixed resource base
while a growing population in high-income, urban economies may give rise to greater
income growth as a result of increasing returns from greater specialization and growth in
investments in human capital. Bucci points to positive effects of population growth on
productivity due to greater specialization but suggests that larger populations give rise to
more complex production processes that offset these effects. Kelley and Schmidt and
Mierau and Turnovsky argue that population growth stemming from declining mortality
rates stimulates economic growth while population growth resulting from fertility
increases will tend to slow it. The reason for these contrasting effects is that declines in
mortality provide incentives for people to save more which stimulates growth while
increases in fertility have a negative impact on aggregate savings. In a meta-analysis of
studies of economic growth and population growth, Heady and Hodge found that declining
population growth rates in high-income countries slow economic growth while high
population growth rates in low-income countries lower their economic growth.
Several analysts have investigated the relationship between population and per capita
output growth by taking advantage of the natural experiment provided by the post-World
War II baby boom in the United States, Canada, Australia, and much of Western Europe.
Baby booms are characterized by relatively short periods of increased fertility which can
lead to greater population growth. In the United States, the U.S. Census Bureau counts the
baby boom as lasting from July 1, 1946 to July 1, 1964. During this period, the average
annual U.S. population growth rate was 1.70% which is higher than the average of 1.29%
for the 20th century as a whole. Per capita GDP growth for these years was 1.82%, about
the same as the average annual growth rate of 1.87% for the period 1946 to 2010. Yoo
develops three models to examine the impact of this increase in population growth on U.S.

economic growth. He finds that the large increase in the number of children slowed
growth as resources were transferred from more productive activities to education and
health care for this large cohort. Once the baby boom generation moved from the
dependency stage to the more productive phase of active workers and savers, standards of
living improved and even when the baby boomers exit the labor force, his models suggest
that the decline in savings will have little impact on economic well-being. Bloom and
Canning also show that there are positive impacts on economic growth as baby boom
cohorts join the labor force and save for retirement. Many of these authors emphasize the
importance of age structure for economic development. High population growth rates
mean that the average age of a population will be young and there will be high
dependency rates. Forty-three percent of the population in sub-Saharan Africa, where
population is growing 2.7% per year, is under the age of 15 while only 3% is over 65. In
Japan, where population growth is negative, 13% of the population is under age 15 with
26% over 65 (World Bank, 2017). As dependents, the large number of children in sub-
Saharan Africa will slow growth but once they enter the labor force, these countries can
expect to reap a “demographic dividend” that will enhance economic growth. This
dividend could be diminished if countries in sub-Saharan Africa do not complete the
demographic transition to lower population growth rates in coming years.
There appears to be some agreement in the literature that population growth and growth in
per capita output are not independent and the most likely nature of the relationship
between them seems to be that it depends very much on the particular circumstances,
notably the age structure of the population, in the various countries and regions. The aging
population in countries like Japan means that a relatively smaller cohort of working age
people will be called upon to support growing numbers of retirees slowing economic
growth unless there is a substantial rise in productivity and per capita output. A different
type of dependency problem exists in many African countries where relatively small
working-age populations are required to support the very large number of children who
have important educational and health needs. In the future, these children will enter the
labor force and economic growth should increase. Trajectories of population growth do not
tend to include large and dramatic turning points so it is unlikely that the population trends
in various parts of the world can be significantly altered in the short run by policy changes.
As a result, the effect of population growth on per capita economic growth will probably
remain highly country specific although population policies may have some longer-term
effects on population growth and age structure.
5) Concept of Sustainable Development – Sustainable Development Goals
Synopsis :
1) Concept of Sustainable Development
2) Sustainable Development Goals

________________________________________________________________________

1) Concept of Sustainable Development :
Sustainable development is development that meets the needs of the present without
compromising the ability of future generations to meet their own needs. Sustainable
development includes the protection of future economic growth and future development.
In other words, it means a better quality of life for everyone, now and for generations to
come. Sustainable development includes the protection of future economic growth and
future development. Growth is essential, but sustainable development requires it to be
different. It must become more concerned about the physical environment not only to
present generation, but to the future generation also. It means that the current consumption
cannot be financed for long by increasing economic debt and ecological imbalance which
future generation will pay. Sustainable development constantly seeks to achieve social and
economic progress in ways that will not exhaust the earth’s finite natural resources.
Sustainable development is a process of development in which economic and other

policies are designed to bring about development which is economically, socially and
ecologically sustainable. The concept thus is pro-people, pro-job and pro- nature. It gives
highest priority to poverty reduction, productive employment, social integration and
environmental regeneration. Today, the condition is such that we are devoid of some of the
natural resources as they have become extinct. Development has taken the world to a
higher level but with this the resources are being used more and more day by day to
support the development. So, at this point, only development won’t suffice as this will lead
to extinction of resources within a few decades. We need to throw light on the concept of
sustainable development. Here the development will be obvious but the only difference is
that we would be using the resources available right now without disturbing those which
are reserved for future use.
Thus, Sustainable development can be defined as a development where we fulfill the

needs of present day and we don’t compromise on the ability of the future generation to
fulfill their own needs. What is
Sustainable development? Defined
here in the report given below.
This whole world is one. Although we

have many continents and countries,
the development of each part of the
world should go hand in hand. Thus,
we should work as one single element
where all should work together towards
its success. When you look at it as a whole, then you will realize how pollution badly
affects the atmosphere in every country of today Many International Pacts are made which
help to unite on a global scale and solve various problems in a line. When we look at the
concept of Sustainable Development, we come to know that this idea is rooted back to
many generations. The problems we are facing today are very huge and dangerous. We
created them and we ourselves will have to solve them as soon as possible to avoid further
damage to our land.

Sustainable development makes the world a better place to thrive. It is the way to use the
natural system and other ecosystem services. Thus, we need to set a limit on the resources
we use so that the future generations can fulfill their needs too. We need to maintain the
stability and beauty of the nature and its elements. To put it in simple words, we should
maintain the productivity of resource, be it natural one or man made. For instance, if we
are cutting a tree to use its wood and other parts then we should plant at least one or more
than one sapling at the same time. This is the main concept of Sustainable Development.
Here we are using the resource but then making way for the future generations to use the
resources as well. Thus we must regenerate and maintain the natural reserves. In olden
days, sowing the seeds and then planting them was a regular practice of everyone. It is
because of their idea we are able to enjoy all the resources very well.
In 1980, the International Union for the Conservation of Nature came with a strategy
where many ideas about sustainable development were stated and this issue was of a
global priority. Then, in 1992, the UN Conference on Environment and Development
published an article called ‘the Earth Charter’. Here they explained in brief the making of
a just and sustainable world by the 21st century. It says that everyone who uses the natural
resource in any way is responsible for maintaining the balance in one way or the other. To
explain it in a crisp way, sustainable development also means that the growth and
development of the future depends on the present efforts to manage the resources and use
them in lesser quantities. We cannot leave this environment to live somewhere else. We
have to by any means live within these limits. So, sustainable development is also about
finding the perfect way to preserve the present as well as the future. We will have to
reduce the quantity of natural resources consumption without compromising on the
quality.
Sustainable Development can be categorized into many parts. First one is Sustainable
Ecology which throws light on the resource related to human health. The air we breathe in,
the food we consume and other such resources related to us directly should be conserved.
People should focus on the food, shelter and other such ecological elements for the sake of
sustainable development. Second one is Sustainable Agriculture, where the farmers look
out for nature-friendly ideas to produce crops and vegetables. They take care of the
animals used in farming and make sure that minimum loss is incurred by them. They take
care and use natural products so that soil, water and atmosphere are not adversely affected
by the after effects. This way they can pass on the farm and other such resources to the
next generation and thus help them indirectly. Third one is sustainable energy, which
means we should make use of those energy resources which does not lead to much
pollution and can be used for longer times. The best idea will be to use renewable energy
resource as much as we can. Solar energy is commonly used nowadays in public areas, for
street lights and other household use. This helps us to save the coal used to produce
electricity. Other than this, wind energy is also a huge help for sustainable development.
For e.g. in Texas we have the largest wind power station. Also recycling the waste material
is a definite idea of conservation. Home as well as offices can help the environment by
incorporating the habit of recycling the waste and using the recycled material. Even water

conservation is one good idea and critical issue too. We should make use of products that
make less use of water and conserve it wherever possible.
Talking about Environment sustainability, we must take extensive care to maintain the
diversity and productivity of the nature. Without nature, we might not get other natural
resources. Thus we need to engage ourselves in some activities which will help us
maintain the volume of natural resources in the nature. But this also depends on the needs
of the huge population. Due to increasing population, the balance in the nature is not
maintained. And nature cannot produce beyond its limit. Thus, this imbalance will always
prevail until the death rates equals to the birth rate or vice versa. Thus we need to control
birth rate because if it is not controlled then a time will come when all the resources will
come under the danger of extinction and this might lead to the extinction of humanity.
We must constantly work on this concept so that we can achieve a certain level of social
progress. Also, we need to achieve economical progress in such a way that the resources
are maintained intact. The idea of sustainable development should be implemented as soon
as possible as we are in the danger zone now. Little ignorance and we might find it very
difficult to maintain the balance in nature. The need is really urgent and real as we cannot
afford to disregard Mother Nature any more.
If we really want to concentrate on sustainable development then we need to curb the

outlet of poisonous gases emitted by small and heavy vehicles. The gases produced by
vehicles are almost one third of the total gases coming from various sources. A few cities
in the world have come up with ideas to curb this kind of pollution. They have encouraged
people to use cycles for longer distances and walk to the destinations nearby. They have
improved the quality of public transportation so that people don’t use their personal cars
everyday and cause more pollution. One more method can be drastically increasing the
rates of fuel so that people are compelled to use public transportation. We also need to
throw light on the current economic condition of people. It is very important to maintain a
good standard of living of the people so that even they can help in conserving the
resources. Education plays a very important role in sustainable growth of the world. This
is the only means by which we can achieve our goal.
The resources available to us may seem too much, but in reality they are just finite. On the
other hand, the world is growing at a very fast pace. Since we have a limited ecosystem,
we need to keep a watch on our needs and requirements. Our future generations may find
it too tough to sustain if we don’t start conserving from today itself. Hence, to improve the
quality of our life as well as of the coming generations, we need to implement the idea of
sustainable development. It is in our hands to do so. By education and awareness, make
sure our future is secure in our hands.
2) Sustainable Development Goals :
The Sustainable Development Goals (SDGs) are a collection of 17 global goals set by
the United Nations in 2015. "Global Goals for Sustainable Development" is another name
used. The goals are broad and somewhat interdependent, yet each has a separate list of
targets to achieve. Achieving all 169 targets would signal accomplishing all 17 goals. The

SDGs cover social and economic development issues including poverty, hunger, health,
education, climate change, gender equality, water, sanitation, energy, urbanization,
environment and social justice.
Goal 1 : End extreme poverty in all form by 2030 (No Poverty)
Yes, it’s an ambitious goal—but we believe it can be done. In 2000, the world committed
to halving the number of people living in extreme poverty by the year 2015 and we met
this goal. However, more than 800 million people around the world still live on less than
$1.25 a day—that’s about the equivalent of the entire population of Europe living in
extreme poverty. Now it’s time to build on what we learned and end poverty altogether.
Goal 2 : End hunger, achieve food security and improved nutrition and promote
sustainable agriculture (Zero Hunger)
In the past 20 years, hunger has dropped by almost half. Many countries that used to suffer
from famine and hunger can now meet the nutritional needs of their most vulnerable
people. It’s an incredible accomplishment. Now we can go further and end hunger and
malnutrition once and for all. That means doing things such as promoting sustainable
agriculture and supporting small farmers. It’s a tall order. But for the sake of the nearly 1
out of every 9 people on earth who go to bed hungry every night, we’ve got to try. Imagine
a world where everyone has access to sufficient and nutritious food all year round.
Together, we can make that a reality by 2030.
Goal 3 : Ensure healthy lives and promote well being for all at all ages (Good Health
and Well being)
We all know how important it is to be in good health. Our health affects everything from
how much we enjoy life to what work we can perform. That’s why there’s a Goal to make
sure everyone has health coverage and access to safe and effective medicines and
vaccines. In the 25 years before the SDGs, we made big strides—preventable child deaths
dropped by more than half, and maternal mortality went down by almost as much. And yet
some other numbers remain tragically high, like the fact that 6 million children die every
year before their fifth birthday, or that AIDS is the leading cause of death for adolescents
in sub-Saharan Africa. We have the means to turn that around and make good health more
than just a wish.
Goal 4 : Ensure inclusive and equitable quality eduction and promote lifelong
learning opportunities for all (Quality Education)
First, the bad news on education. Poverty, armed conflict and other emergencies keep
many, many kids around the world out of school. In fact, kids from the poorest households
are four times more likely to be out of school than those of the richest households. Now
for some good news. Since 2000, there has been enormous progress on the goal to provide
primary education to all children worldwide: the total enrolment rate in developing regions
has reached 91%. By measures in any school, that’s a good grade. Now, let’s get an even
better grade for all kids, and achieve the goal of universal primary and secondary
education, affordable vocational training, access to higher education and more.

Goal 5 : Achieve gender equality and empower all women and girls (Gender equality)
We can celebrate the great progress the world has made in becoming more prosperous and
fair. But there’s a shadow to the celebration. In just about every way, women and girls lag
behind. There are still gross inequalities in work and wages, lots of unpaid “women’s
work” such as child care and domestic work, and discrimination in public decision
making. But there are grounds for hope. More girls are in school now compared to in
2000. Most regions have reached gender parity in primary education. The percentage of
women getting paid for their work is on the rise. The Sustainable Development Goals aim
to build on these achievements to ensure that there is an end to discrimination against
women and girls everywhere.
Goal 6 : Ensure availability and sustainable management of water and sanitation for
all (Clean Water and Sanitation)
Everyone on earth should have access to safe and affordable drinking water. That’s the
goal for 2030. While many people take clean drinking water and sanitation for granted,
many others don’t. Water scarcity affects more than 40 percent of people around the world,
and that number is projected to go even higher as a result of climate change. If we
continue the path we’re on, by 2050 at least one in four people are likely to be affected by
recurring water shortages. But we can take a new path—more international cooperation,
protecting wetlands and rivers, sharing water-treatment technologies—that leads to
accomplishing this Goal.
Goal 7 : Ensure access to affordable, reliable, sustainable and modern energy for all
(affordable and clean energy)
Between 1990 and 2010, the number of people with access to electricity increased by 1.7
billion. That’s progress to be proud of. And yet as the world’s population continues to rise,
still more people will need cheap energy to light their homes and streets, use phones and
computers, and do their everyday business. How we get that energy is at issue; fossil fuels
and greenhouse gas emissions are making drastic changes in the climate, leading to big
problems on every continent. Instead, we can become more energy-efficient and invest in
clean energy sources such as solar and wind. That way we’ll meet electricity needs and
protect the environment. How’s that for a balancing act?
Goal 8 : Promote sustained, inclusive and sustainable economic growth, full and
productive employment and decent work for all (Decent work and economic growth)
An important part of economic growth is that people have jobs that pay enough to support
themselves and their families. The good news is that the middle class is growing
worldwide—almost tripling in size in developing countries in the last 25 years, to more
than a third of the population. But today, job growth is not keeping pace with the growing
labour force. Things don’t have to be that way. We can promote policies that encourage
entrepreneurship and job creation. We can eradicate forced labour, slavery and human
trafficking. And in the end we can achieve the goal of decent work for all women and men
by 2030.

Goal 9 : Build resilient infrastructure, promote inclusive and sustainable
industrialization and foster innovation (Industry, innovation and infrastructure)
Technological progress helps us address big global challenges such as creating jobs and
becoming more energy efficient. For example, the world is becoming ever more
interconnected and prosperous thanks to the Internet. The more connected we are, the
more we can all benefit from the wisdom and contributions of people everywhere on earth.
And yet four billion people have no way of getting on-line, the vast majority of them in
developing countries. The more we invest in innovation and infrastructure, the better off
we’ll all be. Bridging the digital divide, promoting sustainable industries, and investing in
scientific research and innovation are all important ways to facilitate sustainable
development.
Goal 10 : Reduce inequality within and among countries (Reduced inequalities)
It’s an old story: the rich get richer, and the poor get poorer. The divide has never been
starker. We can and must adopt policies that create opportunity for everyone, regardless of
who they are or where they come from. Income inequality is a global problem that
requires global solutions. That means improving the regulation of financial markets and
institutions, sending development aid where it is most needed and helping people migrate
safely so they can pursue opportunities. Together, we can now change the direction of the
old story of inequality.
Goal 11 : Make cities and human settlements inclusive, safe, resilient and sustainable
(Sustainable cities and communities)
If you’re like most people, you live in a city. More than half the world’s population now
lives in cities, and that figure will go to about two-thirds of humanity by the year 2050.
Cities are getting bigger. In 1990 there were ten “mega-cities” with 10 million inhabitants
or more. In 2014, there were 28 mega-cities, home to 453 million people. Incredible, huh?
A lot of people love cities; they’re centers of culture and business and life. The thing is,
they’re also often centers of extreme poverty. To make cities sustainable for all, we can
create good, affordable public housing. We can upgrade slum settlements. We can invest in
public transport, create green spaces, and get a broader range of people involved in urban
planning decisions. That way, we can keep the things we love about cities, and change the
things we don’t.
Goal 12 : Ensure sustainable consumption and production patterns (Responsible

consumption and production)
Some people use a lot of stuff, and some people use very little—in fact, a big share of the
world population is consuming too little to meet even their basic needs. Instead, we can
have a world where everybody gets what they need to survive and thrive. And we can
consume in a way that preserves our natural resources so that our children can enjoy them,
and their children and their children after that. The hard part is how to achieve that goal.
We can manage our natural resources more efficiently and dispose of toxic waste better.
Cut per capita food waste in half globally. Get businesses and consumers to reduce and

recycle waste. And help countries that have typically not consumed a lot to move towards
more responsible consumption patterns.
Goal 13 : Take urgent action to combat climate change and its impacts (Climate
action)
Every country in the world is seeing the drastic effects of climate change, some more than
others. On average, the annual losses just from earthquakes, tsunamis, tropical cyclones
and flooding count in the hundreds of billions of dollars. We can reduce the loss of life and
property by helping more vulnerable regions—such as land-locked countries and island
states—become more resilient. It is still possible, with the political will and technological
measures, to limit the increase in global mean temperature to two degrees Celsius above
pre-industrial levels—and thus avoid the worst effects of climate change. The Sustainable
Development Goals lay out a way for countries to work together to meet this urgent
challenge.
Goal 14 : Conserve and sustainably use the Oceans, Seas, and Marine resources for
sustainable development (Life below Water)
The oceans make human life possible. Their temperature, their chemistry, their
currents, their life forms. For one thing, more than 3 billion people depend on marine and
coastal diversity for their livelihoods. But today we are seeing nearly a third of the world’s
fish stocks overexploited. That’s not a sustainable way of life. Even people who live
nowhere near the ocean can’t live without it. Oceans absorb about 30 percent of the carbon
dioxide that humans produce; but we’re producing more carbon dioxide than ever before
and that makes the oceans more acidic—26% more, since the start of the industrial
revolution. Our trash doesn’t help either—13,000 pieces of plastic litter on every square
kilometer of ocean. Sounds bad, right? Don’t despair! The Sustainable Development Goals
indicate targets for managing and protecting life below water.
Goal 15 : Protect, restore and promote sustainable use of terrestrial ecosystems,

sustainably manage forests, combat desertification, and halt and reserve land
degradation and halt biodiversity loss (Life on Land)
Humans and other animals rely on other forms of life on land for food, clean air, clean
water, and as a means of combatting climate change. Plant life makes up 80% of the
human diet. Forests, which cover 30% of the Earth’s surface, help keep the air and water
clean and the Earth’s climate in balance. That’s not to mention they’re home to millions of
animal species. But the land and life on it are in trouble. Arable land is disappearing 30 to
35 times faster than it has historically. Deserts are spreading. Animal breeds are going
extinct. We can turn these trends around. Fortunately, the Sustainable Development Goals
aim to conserve and restore the use of terrestrial ecosystems such as forests, wetlands, dry
lands and mountains by 2030.
Goal 16 : Promote peaceful and inclusive societies for sustainable development,

provide access to justice for all and build effective, accountable and inclusive
institutions at all levels (Peace, justice and strong institutions)

How can a country develop—how can people eat and teach and learn and work and raise
families—without peace? And how can a country have peace without justice, without
human rights, without government based on the rule of law? Some parts of the world
enjoy relative peace and justice, and may come to take it for granted. Other parts seem to
be plagued by armed conflict, crime, torture and exploitation, all of which hinders their
development. The goal of peace and justice is one for all countries to strive towards. The
Sustainable Development Goals aim to reduce all forms of violence and propose that
governments and communities find lasting solutions to conflict and insecurity. That means
strengthening the rule of law, reducing the flow of illicit arms, and bringing developing
countries more into the center of institutions of global governance.
Goal 17 : Strengthen the means of implementation and revitalize the global

partnership for sustainable development (Partnership for the goals)
The Sustainable Development Goals are pretty big to-do list, don’t you think? In fact, it’s
so big, you may just want to throw your hands up in the air. “Forget it! Can’t be done!
Why even try!” But we’ve got a lot going for us. The world is more interconnected today
than ever before, thanks to the Internet, travel and global institutions. There’s a growing
consensus about the need to work together to stop climate change. And the Sustainable
Development Goals are no small matter either. 193 countries agreed on these goals. Pretty
incredible, isn’t it? 193 countries agreeing on anything? The final goal lays out a way for
nations to work together to achieve all the other Goals.
6) Concept of Human Development – Determination of HDI and PQLI
Synopsis :
1) Concept of Human Development
2) Objectives of Human Development
3) Components of Human Development
1) Equality
2) Sustainability
3) Productivity
4) Empowerment.
4) Determination of HDI
5) Measures/methods to determine HDI & PQLI
(A) Human Development Index (HDI)
(B) Quality Of Life Index (QLI)
(C) Physical Quality Of Life Index (PQLI)
________________________________________________________________________

1) Concept of Human Development:
According to the United Nation’s Development Programme (UNDP), human development
may be defined as “a process of enlarging people’s choices.” At all levels of development,
the three essential choices for people include to live a long and healthy life, to acquire
better knowledge and to have access to resources needed for a decent standard of living. If
these essential choices are not available, many other opportunities to improve the quality
of life will remain inaccessible.
Human development has two dimensions: acquiring human capabilities and the use of
these acquired capabilities for productive, leisure and other purposes. The benefits of
human development go far beyond the expansion of income and wealth accumulation
because people constitute the very essence of human development.
Human development is about much more than economic growth. The economic growth
focuses on the improvement of one option i.e. income or product while human
development focus on enlarging all human options including education, health, clean
environment and material well being. Thus, the options available for improving people’s
lives are influenced by the quality of economic growth in its wider sense, and the impact is
by no means confined to quantitative aspects of such growth. In other words, economic
growth needs to be seen as a means, albeit an important one, and not the ultimate goal, of
development. Income makes an important contribution to human well-being, broadly
conceived, if its benefits are translated into more fulfilled human lives. But the growth of
income is not an end in itself. It is the quality of growth, not its quantity alone, which is
crucial for human well-being. Thus, the concept of human development, is concerned
mainly with enabling people to enjoy a better life as the ultimate goal of human endeavor.
Highlights that this goal cannot be achieved solely through improvements in income or
material well-being.
As the 1996 Human Development Report put it, growth can be jobless, rather than job
creating; ruthless, rather than poverty-reducing; voiceless, rather than participatory;
rootless, rather than culturally enshrined; and futureless, rather than environment-friendly.
Economic growth which is jobless, ruthless, voiceless, rootless and futureless is not
conducive to human development. The lack of income or income poverty is only one
aspect of human impoverishment; deprivation can also occur in other areas– having a short
and unhealthy life, being illiterate or not allowed to participate, feeling personal insecurity,
etc. Human poverty is thus larger than income poverty.
2) Objectives of Human Development

In the traditional development economics, development meant growth of per capita real
income. Later on, a wider definition of development came to be assigned that focused on
distributional objectives. Economic development, in other words, came to be redefined in
terms of reduction or elimination of poverty and inequality.
These are, after all, ‘a goods-oriented’ view of development. True development has to be
‘people- centred’. When development is defined in terms of human welfare it means that

people are put first. This ‘people-oriented’ view of development is to be called human
development.
It is thus clear that per capita income does not stand as a true index of development of any
country. To overcome this problem and to understand the dynamics of development, the
United Nations Development Programme (UNDP) developed the concept of Human
Development Index (HDI) in the 1990s. This index brought in revolutionary changes not
only in development, but also in the policy environment in which the government was
assigned a major role instead of market forces.
Economic development now refers to expanding capabilities. According to Amartya Sen,

the basic objective of development is ‘the expansion of human capabilities’. The capability
of a person reflects the various combinations of ‘doings and beings’ that one can achieve.
It then reflects that the people are capable of doing or being. Capability thus describes a
person’s freedom to choose between different ways of living. For eg. Can people read and
write? Are foodstuffs distributed among people in a universal manner? Do poor students
get midday meal in schools? Do the poor children get adequately nourishing diets at
home?
No one would doubt that an illiterate poor person cannot have the same capabilities that a
rich literate one gets. Thus capability failure leads to poverty and deprivation. This
perspective of development, as enunciated by A. Sen, suggests why development
economists put greater emphasis on education and health.
There are many countries in the world which —despite high levels of per capita GDP
growth/ real income—experience high mortality rate, undernourishment rate, poor literacy,
and so on. This is a case called ‘growth without development’. M. P Todaro and S. C.
Smith assert: “Real income is essential, but to convert the characteristics of commodities
into functions…. surely requires health and education as well as income.” In other words,
income does not define peoples’ ‘well- being’ adequately.
Well-being, although a diverse notion, should consider health and education, in addition to
income. Sen’s intellectual insights and fundamental ideas induced UNDP to formulate
HDI as a comprehensive measure of development. It may be reiterated that the HDI as
used in the Human Development Reports to compare different countries in the world has
been designed as alternative to per capita GDP/GNP. Today, it is the most single
commonly used measure to evaluate development outcomes.
3) Components of Human Development:

The four essential pillars of human development are,
(1) Equality,
(2) Sustainability,
(3) Productivity, and
(4) Empowerment.

(1) Equality:
If development is viewed in terms of enhancing people’s basic capabilities, people must
enjoy equitable access to opportunities. Such may be called equality-related capabilities.
To ensure equality-related capabilities or access to opportunities what is essential is that
the societal institutional structure needs to be more favourable or progressive.
In other words, the unfavourable initial asset distribution, like land, can be made more
farmer-friendly through land reform and other redistributive measures. In addition, uneven
income distribution may be addressed through various tax-expenditure policies. Economic
or legislative- measures that interferes with market exchange may enable people to enlarge
their capabilities and, hence, well-being.
Further, to ensure basic equality, political opportunities need to be more equal. In the
absence of effective political organisation, disadvantaged groups are exploited by the
‘rich’ to further their own interests rather than social goals. However, participatory politics
gets a beating by the inequality in opportunities in having basic education.
It is to be added here that basic education serves as a catalyst of social change. Once the
access to such opportunity is opened up in an equitable way, women or religious
minorities or ethnic minorities would be able to remove socio-economic obstacles of
development. This then surely brings about a change in power relations and makes society
more equitable.
(2) Sustainability:
Another important facet of human development is that development should ‘keep going’,
should ‘last long’. The concept of sustainable development focuses on the need to
maintain the long term protective capacity of the biosphere. This then suggests that growth
cannot go on indefinitely; there are, of course, ‘limits to growth.’
Here we assume that environment is an essential factor of production. In 1987, the

Bruntland Commission Report (named after the then Prime Minister Go Harlem Bruntland
of Norway) defined sustainable development as ‘… development that meets the needs of
the present without compromising the ability of future generations to meet their basic
needs.’ This means that the term sustainability focuses on the desired balance between
future economic growth and environ-mental quality. To attain the goal of sustainable
development, what is of great importance is the attainment of the goal of both intra-
generation and inter-generation equality.
This kind of inequality includes the term ‘social well-being’ not only for the present
generation but also for the people who will be on the earth in the future. Any kind of
environmental decline is tantamount to violation of distributive justice of the
disadvantaged peoples. Social well-being thus, then, depends on environ-mental equality.
(3) Productivity
Another component of human development is productivity which requires investment in
people. This is commonly called investment in human capital. Investment in human capital
—in addition to physical capital—can add more productivity.

The improvement in the quality of human resources raises the productivity of existing
resources. Theodore W. Schultz—the Nobel Prize-winning economist—articulated its
importance: “The decisive factors of production in improving the welfare of poor
people are not space, energy, and crop land; the decisive factor is the improvement in
population quality.”Empirical evidence from many East Asian countries corroborate this
view.
(4) Empowerment
The empowerment of people—particularly women—is another component of human
development. In other words, genuine human development requires empowerment in all
aspects of life. Empowerment implies a political democracy in which people
themselves make the decisions about their lives. Under it, people enjoy greater political
and civil liberties and remain free from excessive controls and regulations. Empowerment
refers to decentralisation of power so that the benefits of governance are reaped by all
peoples.
It focuses on grassroots participation which promotes democracy by enfranchising the

disadvantaged groups. Unfortunately, benefits are cornered by the elites because of lack of
empowerment of people. Participation as a goal is a feature of ‘bottom-up’ development
strategy rather than ‘top-down’. Further, development policies and strategies male-
dominated. But the benefits of development are to be made ‘gender-sensitive’.
Discrimination against women in health and education is very costly from the viewpoint of
achieving development goals. Education of women can lead to a virtuous circle of lower
fertility, better care of children, more educational opportunity, and higher productivity.
Above all, as women’s education rises, women’s independence in making their own
choices also increase.
Anyway, decentralization and participation empower people, specially the women and the
poor. It then breaks the ‘deprivation trap’. Mahbub ul Haq asserts: “If people can exercise
their choices in the political, social and economic spheres, there is a good prospect
that growth will be strong, democratic, participatory and durable.”
4) Determination of HDI :
The combined effect of various components of human development is measured through
Human Development Index (HDI). The HDI contains four variables: life expectancy at
birth, to represent the dimension of a long, healthy life; adult literacy rate and combined
enrolment rate at the primary, secondary and tertiary levels to represent the knowledge
dimension; and real GDP per capita to serve as a proxy for the resources needed for a
decent standard of living. HDI thus looks not only at GDP growth rate but takes into
account education, health, gender inequality and income parameters to measure human
development of a country.
As per the latest available Human Development Report (HDR) 2013 published by the
United Nations Development Programme (UNDP), the HDI for India was 0.554 in 2012

ith an overall global ranking of 136 compared to 134 as per HDR 2012. India’s HDI has
risen by 1.7% annually since 1980.
5) Measures/methods to determine HDI & PQLI

(A) Human Development Index (HDI):
Considering quality of Life Index, the United Nations was the first to prepare and publish
Human Development Index in the year 1990.
Human Development Index studies the following three basic human aspects:
(i) Longevity (LEF):
Longevity means life expectancy at birth. It refers to the number of years a newly
born baby is expected to live. Life expectancy in India at present is 63 years.
(ii) Educational Attainment (EAI):

It means education attained by the people of the country on an average basis.
The constituents of educational attainment are expressed through the

following two variables:
(а) Adult literacy rate (ALR)
(b) Gross enrolment ratio (GER)
(a) Adult Literacy Rate (ALR):

The rate or the percentage of people aged 15 and above who can understand, read
and write a short and simple statement in their everyday life are known as literate.
It implies that every literate must be capable of reading and writing certain
sentences. If someone is able to sign but not capable of reading and writing simple
statement is not literate. Thus, capability of reading only or writing only does not
make a person literate. Literacy is the symbol of the quality of the people.
(b) Gross Enrolment Ratio (GER):

Gross Enrolment Ratio refers to the number of students enrolled at different levels
of education. It is the percentage of population of different age groups engaged in
educational pursuit. The education level consists of primary, secondary and
tertiary level. Basic elements of education are provided at primary level.
Secondary level education is studied at middle and secondary level. University

level education is studied under tertiary level. General enrolment ratio shows the
percentage population enrolled at primary, middle, secondary and university level.
The higher GER indicates higher quality of life. It will be the sincere effort of
every economy to increase general enrolment ratio as far as possible.
(iii) Real GDP Per Capita or Standard of Living (SLI):

It is considered as a measure of the standard of living of the people of a country. In
order to calculate human development index we are required to study and analyse
longevity, educational attainment and real GDP per capita.
(B) Quality Of Life Index (QLI):

Quality of life of the people is another index to measure the standard of living of the
people in an economy. It is influenced by national and per capita income of the people.
Many other factors like consumption, output, health, environment, education, freedom,
security, non-violence peaceful atmosphere etc. also influence human welfare directly or
indirectly. In other words, none of these factors alone determines the welfare of the people.
At the same time, we should note that National Income is not itself the single
representative factor of welfare.
It is as such necessary that all the determinants of welfare should be combined together to
measure the quality of life index. But it is not possible that every variable should be
accounted for because of conceptual and statistical difficulties. It is, therefore, said that an
index comprising of certain selected social factors be made to determine the quality of life
index. For example Human Development Index (HID) has been prepared under United
Nations Development Programme (UNDP).
In fact, they make an attempt to measure quality of life and we should make reference to it
towards the end. At the same time, we should remember that these indices were developed
in the international context. They were used for ranking different countries according to its
numerical value of achievement in descending order.
(C) Physical Quality Of Life Index (PQLI):

In 1979, D. Morris constructed a composite Physical Quality of Life Index (PQLI). He
found that most of the indicators were inputs to development process rather than result of
the development process. These indicators reflected that economically less developed
countries are simply underdeveloped versions of industrialized countries. He therefore,
combines three component indicators of Infant Mortality, Life Expectancy and Basic
Literacy to measure performance in meeting the basic needs of the people.
However, the choice of indicators are:
1. Life Expectancy Indicator (LEI)
2. Infant Mortality Indicator (IMI)
3. Basic Literacy Indicator (BLI)
PQLI = (LEI + IMI+ BLI)
These three indicators can be improved in a variety of ways. However, Prof. Morris used
Life Expectancy (LE) at birth as the indicator. Infant mortality implies deaths before age
one instead of life expectancy at birth. In case, the figure for life expectancy at age one

was not available, it could be worked out by using a formula which relates life expectancy
at birth, infant mortality and the proportion of children.

Module 03 Agrarian Economy in India
1) Features of Indian Agriculture

Synopsis :
1) Introduction
2) Features of Indian Agriculture
1) Subsistence Agriculture
2) Pressure of population
3) Importance of Animals
4) Dependent upon monsoons
5) Small land holdings
6) Variety of Crops
7) Predominance of food crops
8) Less importance to fodder crops
________________________________________________________________________
1) Introduction:
India is essentially an agricultural country where agriculture plays a pivotal role in
dominating the economic, social and cultural life of the people. So much so that even the
prospects of ruling political parties and governments depend upon the quantum of
agricultural productions and availability of cheap food grains for masses.
After independence in 1947, there has been progress in all fields of agricultural activities.
More land has been brought under irrigation, use of fertilizers and pesticides has increased
and high-yielding varieties have been introduced in many parts of India. The main features
are as under:
2) Features of Indian Agriculture :

1. Subsistence agriculture:
In general, the Indian farmer owns a small piece of land. He cultivates the land and grows
crops with the help of family members. He consumes almost the entire farm produce, with
little surplus to sell in the market.
2. Pressure of population:
Agriculture has to provide food for the rapidly increasing population and also employment
to a large section of landless labourers. The increasing trend of urbanization is
actually diverting the agricultural land to non-agricultural uses.
3. Importance of animals:
In India, practically all agricultural operations such as ploughing, irrigation, threshing and
transporting the agricultural products are done by the animals. Complete mechanization of
the Indian agricultural system is still a distant goal.

4. Dependent upon monsoons:
The Indian farmer depends mainly on the monsoons, which are uncertain, unreliable and
irregular. Even after 58 years of independence, only about 35 per cent of the total cropped
area is under perennial irrigation and the rest depends on the monsoons.
5. Small land holdings:

The national average size of the land holdings is only 1.7 hectares. It is uneconomical to
cultivate small farms and thus is a great hindrance to the progress of agriculture. Most of
the farmers in our country are not owners of the land they cultivate.
6. Variety of crops:
Due to highly suitable environmental conditions, the Indian farmers are able to grow a
large variety of tropical and temperate crops. It includes food crops and commercial
crops. The food crops score over all other crops for land under agriculture.
7. Predominance of food crops:

The production of food crops is the first priority of the farmers, as they have to provide
enough food for the rapidly increasing population of our country. About two-thirds of the
total land under agriculture is devoted to food crops in India.
8. Less importance to fodder crops:

India has the largest population of livestock in the world. Still the fodder crops are not
given due consideration in the cropping pattern. Thus, we have very poor quality of
domestic animals, when compared internationally.
2) Sub-division and Fragmentation of Land
Synopsis :
1) Introduction
2) Causes of Sub-Division and Fragmentation of Land
3) Problems of Sub-Division and Fragmentation of Agricultural Land
4) Remedial Measures to Tackle the Problem of Sub-Division and Fragmentation of
Agricultural Land.
________________________________________________________________________
1) Introduction
The term sub-division and fragmentation means, the land holdings are divided into small
pieces of agriculture lands scattered at any places. Fragmentation of land is widespread in
India and it is believed that fragmented nature of land holdings may play a major role in
explaining low levels of agricultural productivity.
However, a more immediate reason for the overall patterns of land fragmentation in rural
Indian the prevalence of the Zamindari system in many of the river valleys. The Zamindari

system was characterized by highly inequitable pattern of land holdings with very few
landowners holding onto most of the cultivatable land. To correct this inequitable pattern
of land holding, the Indian Constitution (enacted in 1949), granted powers to different
states to enact land redistribution measures. These efforts were supplemented in the early
1970s by the enactment of Land Ceiling Acts, which placed upper limits on land holdings
and required the surplus land to be redistributed among the landless. This process along
with the fragmentation through acts of succession from one generation to the next has
reduced size of land holdings and led to fragmentation of land holdings of farmers. As
noted earlier various laws designed to address the issue of fragmentation have met with
only limited success.
2) Causes of Sub-Division and Fragmentation of Land

With the growth of the size of families, the agricultural holdings in India are gradually
being sub-divided among the heirs on the death of the owner of the land. In this way
generation after generation the land is being subdivides and fragmented as well.
Under such a situation a member of the family gets one tiny plot at one place and another
tiny plot at another place leading to a peculiar problem of growing sub-division and
fragmentation of holding.
The following are some of the important causes of growing sub-division and
fragmentation of agricultural holding in India:
(i) Increasing Pressure of Population:

With the rapid growth of population, in the country, the pressure of population on land is
increasing. In view of near absence of the growth of alternative occupations, people started
to put much pressure on agriculture leading to continuous sub-division of land.
(ii) Laws of Inheritance:

In India, the laws of inheritance made provision for equal share of the ancestral property
among the children. Due to the application of this law there is a continuous split in the size
of farms with every new generation.
(iii) Fall of Joint Family System:

Under the system of joint family there was no need to sub-divide the size of agricultural
holding. But under the impact of growing industrialisation and urbanisation, the joint
family system is breaking up rapidly leading to a sub-division of agricultural holding in
the country.
(iv) Decline of Village Handicrafts and Industries:
Due to destruction of village handicrafts and industries, artisans were forced to discard
their ancestral occupations and started to depend on agriculture. This has added the
dimension of the problem.
(v) Rural Indebtedness:

High degree of rural indebtedness is another cause which is supplementing to this problem
of sub-division of holding. Unscrupulous village moneylenders are charging exorbitant

rate of interest and adopting unfair practices and in the process gradually grab the land of
the poor cultivators. In this way a part of a land is passing away into the hands of
moneylenders leading to increasing sub-divisions of land holding.
(vi) Psychological Attachment of Land:
Indians are very much psychologically attached to land and they are not mentally prepared
to accept payment in lieu of land. The type of mentality has raised the problem of sub-
division and fragmentation of agricultural holding.
(vii) Crop Sharing:
In India many big land owners lease out their land to tenants instead of cultivating their
own. In order to avoid trouble this big land owners deliberately divided the land among
the number of tenants and in this way avoid land reform laws. Thus, in this way a large
operational holding is deliberately reduced to a number of small uneconomic operational
holding.
3) Problems of Sub-Division and Fragmentation of Agricultural Land
Continuous sub-division and fragmentation of agricultural holding has been resulting in

series of problems. These are as follows:
(i) Adoption of Modernisation Process Difficult:
The growing sub-division and fragmentation of agricultural holding make the adoption of
modernized method in agricultural operation quite difficult. Application of new
technology, use of fertiliser and making provision for irrigation facilities will be difficult
in uneconomic holding.
(ii) Wastage of Land:

Due to sub-division of holding a good amount of land (about 3 to 5 per cent) is being
wasted for drawing boundaries and hedges between huge numbers of tiny plots. In Punjab
about 6 per cent of the land is wasted due to this reason. Moreover, due to sub-division the
plots become so small that it is quite uneconomic to cultivate such land.
(iii) Difficulties in Management:

Fragmentation of agricultural holding creates difficulties to the farmers to manage the
agricultural operation smoothly. A considerable wastage of time and resources is resulting
from transporting agricultural inputs to different fragmented lands.
(iv) Litigation:
Small and fragmented farms indulged into frequent boundary disputes. All these quarrels
over boundaries result in increasing volume of litigation in the rural areas.
(v) Low Productivity:

Due to continuous sub-division of holding, the size of land becomes so small that the
farmer cannot adopt new techniques of cultivation and instead of they depend on
traditional methods.

(vi) Disguised Unemployment:
Smaller size of holdings cannot provide full time job to all the members of farmer’s
family. Thus, in the absence of alternative occupations, disguised unemployment started to
occur in the rural areas.
4) Remedial Measures to Tackle the Problem of Sub-Division and Fragmentation of

Agricultural Land
Following are some of the important measures advocated for solving the problem of sub-
division and fragmentation of land:
(i) Economic Holding:
To tackle the problem of sub-division and fragmentation, economic holding are to be

created.
Creation of economic holding requires the following policy:
(a) Fixation of ceiling on land holding and distribute the surplus land to those farmers
having uneconomic holding;
(b) Inducing those farmers having tiny holding to give up their lands and shift them to
other occupations;
(c) To provide alternative occupations by developing agro-based industries in rural areas.
(ii) Consolidation of Holding:
Consolidation of agricultural holding is a solution to remedy the problem of scattered or

fragmented holding. Here consolidation of land indicates bringing the scattered small plots
of land into a compact block and then divide the compact block among the fanners in a
compact manner. In India consolidation was initiated are a voluntary basis and later on it
was made compulsory.
Majority of the states have already made sufficient provision for the implementation of
scheme for consolidation of holdings. But the progress of consolidation is not up to the
mark and again is not uniform among all states. In this connection the Sixth Plan
mentioned, It is estimated that by now nearly 45 million hectares of land, i.e., about one
fourth of the consolidate field has been consolidated all over the country.
However, the implementation has been extremely patchy and sporadic. Only in Punjab,
Haryana, and Western Uttar Pradesh, the work is complete. Even a beginning has not been
made in southern states and Rajasthan. In the Eastern States, some work began only in
Orissa and Bihar.
Again till 1992, about 61.10 million hectares of land had been consolidated and that
constitute nearly 45 per cent of the total cropped area in the country. Thus, the progress of
consolidation is not at all satisfactory. Whatever consolidation is achieved that is mostly

concentrated in the states like- Maharashtra, Uttar Pradesh, Punjab, Haryana, Madhya
Pradesh, Gujarat, Karnataka and Rajasthan.
(iii) Co-Operative Farming:
Co-operative farming can be considered as a permanent solution towards the problems of

sub-division and fragmentation of agricultural holdings in India. Through co-operative
fanning, the small and scattered farms can be consolidated in India.
3) Pattern of Land Holding in India
Synopsis :
1) Introduction
2) Types of Land Holdings
3) Size of Agricultural Holding in India
________________________________________________________________________
1) Introduction :
The term ‘agricultural holding’ indicates average size of agricultural land held by the
farmers in India. There are four different concepts of holding.
2) Types of Land Holdings
(a) Economic holding,
(b) Basic holding,
(c) Optimum holding, and
(d) Family holding.
Economic holding indicates that particular size of holding which will provide necessary
support to the peasant family. In this connection Keating observed that economic holding
is one “which allows a man the chance of producing sufficient to support himself and
his family in reasonable comfort after paying his necessary expenses.”
Considering the quality of soil and climatic condition and irrigation facilities, the size of
economic holding varies between different regions. Although Keating suggested 40-50
acres as the size of economic holding for South Bombay, but M.L. Darling suggested that
10-12 acres would be the size of economic holding in Punjab.
The basic holding is smaller than economic holding and it offers only subsistence living to
farmers. Optimum holding is defined by the Agrarian Committee as three times of
economic holding.

The family holding (introduced by Five Year Plan) implies an area which is equivalent to
either a plough unit or a unit of average family having a pair of bullocks. Land reforms
panel observed that a family holding should provide an annual income worth Rs. 1200 to
an average farmer family.
3) Size of Agricultural Holding in India:
In India, the size of agricultural holding is quite uneconomic, small and fragmented. N.J.
Kurien observed that the estimated average size of holding in India is expected to decline
from 1.5 hectares in 1990-91 to 1.3 hectares in 2000-01. The marginal holdings are
normally expected to be 59.7 per cent in 1990-91 which are expected to rise further to 62.1
per cent in 2000-01.
Table 7.5 shows the size and number of operational holding and area operated upon by
these various sizes.
\
Table 7Table 7.5 given above reveals that out of the total number of 97.8 million holding
in 1985-86, 58.1 per cent was of marginal category, and the remaining category of holding
include small category—18.3 per cent, semi-medium—13.6 per cent, medium—8.1 per
cent and large—2.0 per cent.
If we take those holding less than one hectare as uneconomic then the table shows that
about 58.1 per cent of holding can be considered as uneconomic and the remaining 41.9
per cent of the total holding are economic. The total area operated under uneconomic
holding was to the extent of 21, 6 million hectares) which was about 13.2 per cent of the
total area operated (163.9 million hectares).
The table further shows that the average size of holding in India is very small. In 1985-86
the average size was only 1.7 hectares. Due to continuous subdivision and fragmentation
of holdings, average area operated per holding has been declining gradually in the country.
In the mean time, a number of agricultural censuses of operational holdings have been
conducted in India during the period ranging from 1970-71 to 1990-91. In these censuses
operational holdings have been studied as distinct from ownership holdings. Table 7.6
shows the changes in number and area of operational holdings in India during the
aforesaid period.

Table 7.6 reveals that the total number of holdings in India has increased from 71 million
in 1970-71 to 106 in 1990-91 showing an increase of 48 per cent. But the total area of such
holdings has increased marginally from 162 million hectares in 1970-71 to 166 million
hectares in 1990-91.
Total number of marginal holdings has increased from 36 million in 1970-71 to 62 million
in 1990-91 (i.e. 58 per cent of the total holdings) and the area operated by this category
was 25 million hectares.
Total number of small holdings (ranging between 1 to 4 hectares) has also increased from
24 million in 1970-71 to 34 millions in 1990- 91 (i.e. 33 per cent of the total holdings) and
the total area operated by this category has also increased from 49 million hectares in
1970-71 to 67 million hectares in 1990-91, which was about 41 per cent of the total area.
Again the total number of medium holdings, in the range of 4 to 10 hectares has remained
the same at 8 millions both during 1970-71 and 1990-91 but in percentage of total
holdings the figure declined from 11 per cent in 1970-71 to 7 per cent in 1990-91.
Total area operated under this category of holding has declined from 48 million in 1970-71
to 45 million in 1990-91 and their share in percentage of total area has also declined from
30 per cent to 27 per cent during the same period.
Moreover, the total number of large holdings in the range 10 hectares and above has also
declined from 3 million in 1970-71 to 2 million in 1990-91 and their share in percentage to
total holdings has also declined from 4 per cent to 1 per cent during the same period.
Total area operated under this category has also declined substantially from 50 million
hectares in 1970-71 to 29 million hectares in 1990-91 and their share in percentage terms
has also declined from 31 per cent to 17 per cent during the same period.
Size of operational holdings has thus been declining year by year leading to increase in the
number of marginal and small holdings and fall in the number of medium and large
holdings. All these has resulted continuous sub-division and fragmentation of land
holdings in the country.

4) Agricultural Credit – Institutional and Non- Institutional Credit
Synopsis :
1) Introduction
2) Types of Agricultural Credit
(a) Short Term Credit
(b) Medium Term Credit
(c) Long Term Credit:
3) Sources of Agricultural Credit in India
(I) Institutional Sources
(i) Co-operative Credit Societies
(ii) Land Development Banks
(iii) Commercial Banks
(iv) Regional Rural Banks
(v) Government
(II) Non-Institutional Sources
(i) Moneylenders
(ii) Traders and Commission agents
(iii) Relatives
(iv) Landlords
4) Problems of Agricultural Credit in India
(i) Insufficiency
(ii) Inadequate Amount of Sanction
(iii) Lesser Attention of Poor Farmers:
(iv) Growing Overdues
(v) Inadequate Institutional Coverage
(vi) Red Tapism
5) Conclusion
________________________________________________________________________
1) Introduction :

Agricultural credit is considered as one of the most basic inputs for conducting all
agricultural development programmes. In India there is an immense need for proper
agricultural credit as Indian farmers are very poor. From the very beginning the prime
source of agricultural credit in India was moneylenders.
After independence the Government adopted the institutional credit approach through
various agencies like co-operatives, commercial banks, regional rural banks etc. to provide
adequate credit to farmers, at a cheaper rate of interest. Moreover, with growing
modernisation of agriculture during post-green revolution period the requirement of
agricultural credit has increased further in recent years.
2) Types of Agricultural Credit:
Considering the period and purpose of the credit requirement of the farmers of the country,
agricultural credit in India can be classified into three major types:
(a) Short Term Credit:
The Indian farmers require credit to meet their short term needs viz., purchasing seeds,
fertilisers, paying wages to hired workers etc. for a period of less than 15 months. Such
loans are generally repaid after harvest.
(b) Medium Term Credit:
This type of credit includes credit requirement of farmers for medium period ranging
between 15 months and 5 years and it is required for purchasing cattle, pumping sets, other
agricultural implements etc. Medium term credits are normally larger in size than short
term credit.
(c) Long Term Credit:
Farmers also require finance for a long period of more than 5 years just for the purpose of
buying additional land or for making any permanent improvement on land like sinking of
wells, reclamation of land, horticulture etc. Thus, the long term credit requires sufficient
time for the repayment of such loan.
3) Sources of Agricultural Credit in India:
In India, agricultural credit are being advanced by different sources. The short term and
medium term loan requirements of Indian farmers are mostly met by moneylenders, co-
operative credit societies and Government. But the long-term loan requirements of the
Indian farmers are also met by moneylenders, land development banks and the
Government.
Nowadays, the long term and short term credit needs of these institutions are also being
met by National Bank for Agricultural and Rural Development (NABARD).
Sources of agricultural credit can be broadly classified into institutional and non-
institutional sources. Non-Institutional sources include moneylenders, traders and

commission agents, relatives and landlords, but institutional sources include co-operatives,
commercial banks including the SBI Group, RBI and NABARD.
I. Institutional Sources:
The main motive of institutional credit is to assist the farmers in raising their agricultural
productivity and maximising their income. Institutional credit is also not exploitative in
character. The following are some of the important institutional sources of agricultural
credit in India.
(i) Co-operative Credit Societies:
The cheapest and the best source of rural credit in India is definitely the co-operative
finance. In India the active primary agricultural credit societies (PACS) cover nearly 86
per cent of the Indian villages and account for nearly 36 per cent of the total rural
population of the country. The share of co-operatives in the total agricultural credit
increased to nearly 40 per cent in 1996 as compared with only 3 per cent in 1951-52.
In 1993-94 nearly 88,000 primary agricultural credit societies (PACS) of India provided
Rs 6461 crore as short term and medium term loans to the farmers. In 2006-2007, the
same loan has increased to Rs 42,480 crore, which was financed by co-operative banks.
But these co-operatives have a long way to go. In some states like Bihar, West Bengal,
Orissa and Rajasthan the co-operative movement did not spread much of its net world.
Even in some places the working of the co-operatives had been wrecked hopelessly by
unscrupulous and dishonest members leading to large scale sufferings of huge number of
needy farmers.
(ii) Land Development Banks:
Land development banks are advancing long term co-operative credit for 15-20 years to
the farmers against the mortgage of their lands for its permanent improvement, purchasing
agricultural implements and for repaying old debts. The number of state land development
banks (SLDBs) increased from 5 in 1950-51 to 19 as on June 1986 which again consisted
of 2447 Primary Land Development Banks (PLDBs) branches.
The amount of loan sanctioned annually by these PLDB branches has increased from Rs 3
crore in 1950-51 to Rs. 2039 crore in 1993-94. But benefits from these land development
banks could not reach to small farmers and only the big landlords have been taking all
advantages out of it. At present there are 19 central and 733 primary LDBs. In 1997, these
banks advanced loan worth Rs 1,744 crore.
(iii) Commercial Banks:
In the initial period, the commercial banks of our country have played a marginal role in
advancing rural credit. In 1950-51, only 1 per cent of the agricultural credit was advanced
by the commercial banks. But after the nationalisation of commercial banks in 1969, the
commercial banks started to extend financial support both directly and indirectly and also
for both short and medium periods.

With the help of “village adoption scheme” and service area approach the commercial
banks started to meet the credit and other requirements of the farmers. They also
sponsored various regional rural banks for extending credit to small and marginal farmers
and rural artisans just to save them from the clutches of village moneylenders.
Till 1969, direct advances by the commercial banks were restricted to only Rs 44 crore.
But as on March 2007 the amount of loan has increased to Rs 1,40,382 crore. During
2006-2007 commercial banks along with Regional Rural Banks extended nearly 79.1 per
cent of the total institutional farm credit in our country.
Again in 1999-2000, disbursements of agricultural advances by public sector banks under

Special Agricultural Credit Plan (SACP) were Rs 19,755 crore.
Commercial banks are finding difficulty in advancing loans to the farmers particularly in
respect of lending techniques, security, recovery etc. and are expected to overcome these
gradually. But the commercial banks are not very much interested to advance loan to small
and marginal farmers and as on March 1997 their farm credit was restricted to only 13.5
per cent of total bank credit.
The share of commercial banks in total institutional credit to agriculture is almost 69.0 per
cent in 2006-2007.
(iv) Regional Rural Banks:
As per the recommendations of working Group on Rural Banks the Regional Rural Banks
(RRBs) were established in 1975 for supplementing the commercial banks and co-
operatives in supplying rural credit. Since 1975 these Regional Rural Banks are advancing
direct loans to small and marginal farmers, agricultural labourers and rural artisans etc. for
productive purposes.
Till June 1996, in total 196 RRBs have been lending annually nearly Rs 1500 crore to the
rural people and more than 90 per cent of these loans were also advanced to the weaker
section.
At the end of 1988 these RRBs jointly advanced loan to the extent of Rs, 2,804 crore
among 11 million persons lying below the poverty line. In 2006-2007, the RRBs have
disbursed agricultural credit amounting to Rs 20,435 crore which is just 10.05 per cent of
total institutional credit to agriculture.
(v) Government:
Another important source of agricultural credit is the Government of our country. These
loans are known as taccavi loans and are lend by the Government during emergency or
distress like famine, flood etc. The rate of interest charged against such loan is as low as 6
per cent.
The share of the Government in the total agricultural credit has increased from 3.1 per cent
in 1951-52 to 15.5 per cent in 1961-62 but then the share declined to only 5.0 per cent in
1996. During 1990-91, the state Governments had advanced nearly Rs 350 crore as short-

term loan to agriculture. But the taccavi loan failed to become very much popular due to
official red tapism and corruption.
II. Non-Institutional Sources:
(I) Moneylenders:
From the very beginning moneylenders have been advancing a major share of farm credit.
Moneylenders are of two different types:
(a) Professional moneylenders
(b) Agriculturist moneylenders.
These moneylenders were supplying a major portion of agricultural credit (69.7 per cent in
1951-52) and indulged into malpractice like manipulation of accounts and charged
exorbitant rate of interest on their loan- often 24 per cent and over.
Due to all these factors the share of moneylenders in total farm credit has declined sharply
from 69.7 per cent in 1951-52 to 36.1 per cent in 1971 and then to only 16.1 per cent in
1981 and then to 7.0 per cent in 1995-96.
(ii) Traders and Commission agents:
Traders and commission agents are also advancing loan to the agriculturist for productive
purposes before the maturity of crops and then force the farmers to sell their crops at very
low prices and charge heavy commission. This type of loans is mostly advanced for cash
crops.
The share of these traders in farm credit increased gradually from 5.5 per cent in 1951-52
to 8.8 per cent in 1961- 62 and then sharply declined to 5.0 per cent in 1996. Thus its
importance has been declining in recent years.
(iii) Relatives:
Cultivators are also normally borrowing fund from their own relatives in times of their
crisis both in terms of cash or kind. These loans are a kind of informal loans and carry no
interest and are normally returned after harvest.
The importance of this source of farm credit is also declining as its share of agricultural
credit has already declined from 14.2 per cent in 1951-52 to 8.7 per cent in 1981 and then
to 3.0 per cent in 1995-96.
(iv) Landlords:
In India, small as well as marginal farmers and tenants are also taking loan from the
landlords for meeting their financial requirements. This source has been following all the
ill-practices followed by money-lenders, traders etc.

Sometimes landless workers are even forced to work as a bonded labour. The share of this
source to rural credit has increased from 3.3 per cent in 1951-52 to 14.5 per cent in 1961-
62 and then sharply declined to 8.8 per cent in 1981 and then to 10.0 per cent in 1995-96.
Thus, the non-institutional sources of farm credit have been facing serious loopholes like
exorbitant rate of interest, loan for unproductive purposes, non-repayment of loan etc.
4) Problems of Agricultural Credit in India:
Since independence, the institutional agricultural credit structure in Indiia was very poor.
In the post-independence period, various attempts were made by the Government for
enriching the institutional agricultural credit structure of the country leading to continuous
growth in the base and sources of agricultural credit.
Both the co-operative sector, commercial banks and rural banks are trying simultaneously
for meeting credit requirements of the farmers. Even then, there are number of problems
faced by agricultural credit structure of the country which are standing on the path of
development of the agricultural sector.
The following are some of these problems:
(i) Insufficiency:
In spite of expansion of rural credit structure, the volume of rural credit in the country is
still insufficient as compared to its growing requirement arising out of increase in prices of
agricultural inputs.
(ii) Inadequate Amount of Sanction:
The amount of loan sanctioned to the farmers by the agencies is also very much
inadequate for meeting their different aspects of agricultural operations. Considering the
amount of loan sanctioned as inadequate and insignificant, the farmers often divert such
loan for unproductive purposes and thereby dilute the very purpose of such loan.
(iii) Lesser Attention of Poor Farmers:
Rural credit agencies and its schemes have failed to meet the needs of the small and
marginal farmers. Thus, lesser attention has been given on the credit needs of the needy
farmers whereas the comparatively well-to-do farmers are getting more attention from the
credit agencies for their better credit worthiness.
(iv) Growing Overdues:
The problem of over-dues in agricultural credit continues to be an area of concern. The

recovery of agricultural advances to various institutions is also not at all satisfactory. In
1997-98, the recovery of agricultural advances of commercial banks, co-operative banks
and regional rural banks were 63 per cent, 66 per cent and 57 per cent respectively.
Such growing over-dues have also been resulted from poor repaying capacity of farmers.
As a result of that, the credit agencies are becoming wary of granting loan to farmers.

(v) Inadequate Institutional Coverage:
In India, the institutional credit arrangement continues to be inadequate as compared to its

growing needs. The development of co-operative credit institutions like Primary
agricultural credit societies, land development banks, commercial banks and regional rural
banks, have failed to cover the entire rural farmers of the country.
(vi) Red Tapism:
Institutional agricultural-credit is subjected to red-tapism. Credit institutions are still

adopting cumbersome rules and formalities for advancing loan to farmers which ultimately
force the farmers to depend more on costly non-institutional sources of credit.
5) Conclusion :
From the above analysis it has been revealed that the extent of agricultural credit in India
is very much inadequate and the private non-institutional sources still remained very
important in supplying credit to the farmers. Further, the major problem of institutional
credit faced by lending institutions, particularly the co-operatives, is the unsatisfactory
huge level of over-dues ranging between 40 to 47 per cent.
This has resulted a bad health to the institutional credit and thus these lending institutions
will not be able to advance more credit for meeting the growing needs of our farmers. In-
spite of that, these institutional sources nowadays are advancing more than 60 per cent of
the required short term production ‘credit of the Indian farmers.
But the major portion of these credits is being appropriated by the 30 per cent of the
middle and affluent farmers of India. At the end of the Seventh Plan, co-operatives,
commercial Banks and RRBs extended credit facilities to the extent of Rs 14000 crore as
compared with only Rs 24 crore in 1960-61.
5) Issues of Agricultural Labours
Synopsis :
1) Introduction
2) Definition Of Agriculture Labour
3) Problems of Agricultural Labor in India
1) Excess Working Hours
2) Seasonal Employment
3) Low Wages
4) Agricultural Slavery
5) Indebtedness
6) Not United

7) Exploitation of Child and Women Laborers
8) Lower Social Status
9) Shortage of Other Jobs
10) Housing Problem
11) Unemployment due to mechanization
4) Solutions
1) Effective implementation of the minimum wage act
2) Development of agriculture- multi-cropping
3) Alternative employment of opportunities.
4) Self Help Groups (SHG)
5) Minimum Wages Act
6) Abolition of Bonded Labour
7) Provision of Housing Sites
8) Special schemes for providing employment
9) Special agencies for development. Special agencies
5) Conclusion
________________________________________________________________________
1) Introduction
With the advancement of knowledge, culture and civilization, the place, pattern, practices
and potentialities of agriculture, have been continually undergoing a process of
transformation. From a more primitive way of life and source of livelihood, it has come to
be realised as a commercialized activity and profitable business proposition and a vital
instrument of progress. In a rather fundamental sense agricultural progress is a pre-
requisite for industrial development. This is clearly the case in a closed economy, where
one of the most important pre-conditions of industrial expansion is the achievement of a
rate of increase in agricultural productivity which exceeds the concurrent rate of increase
in the demand for food. Rising agricultural productivity supports and sustains industrial
development in several important ways. First, it permits agriculture to release part of its
labour force for industrial employment while meting the increasing food needs of the non-
agricultural sector. Second, it raises agricultural incomes, thereby creating the rural
purchasing power needed to buy the new industrial goods and rural savings which may
then be mobilized, by direct or indirect means, to finance industrial development. Finally,
it enables agriculture to supply the major wage-good (food) of industrial workers at prices
favourable to the profitability of new industry.
In India the vital role of agriculture arises out of the position the agrarian sector occupies
in the overall economy of the country. Agriculture is the largest sector of economic
activity and has a crucial role to play in the country’s economic development by providing

food and raw materials, employment to a very large proportion of population, capital for
its own development and surpluses for national economic development. Thus, the
importance of agriculture despites rapid industrialization has not in any way diminished. It
has become necessary not only to achieve self-sufficiency in matters of food and
agriculture so as to throw up surpluses to be made available for investment in the other
sectors of economy as well. Agricultural labor is that person who works on another land,
does not participate in farm management and its maintenance, and receives money or a
portion of the harvest in consideration for his service. He neither has any rights regarding
the land, nor does he have to bear any risk regarding the farm. Briefly by agricultural labor
we mean’ such laborers who“earn their livelihood by working on agricultural farms.”
2) Definition Of Agriculture Labour:

Agriculture labour may be defined as labour who works in agriculture or allied activities
for the whole or part of the year in return for (in cash or kind or both) for full-time or part
time work. The agriculture labour has no risk in the cultivation and no risk of lease or
contract on land but merely works on another person’s land for wages.
3) Problems of Agricultural Labor in India :

The Indian laborer spends his days in dirt and mud. He produces food grains for us but
remains hungry himself. He feeds our cows but never gets anything but water. He fills our
stores with food grains, but begs his own ration for the whole year. He continuously chops
woods and fills water for those who have become rich on behalf of his labor. His condition
is heart wrenching and Piteous.
1) Excess Working Hours

The working hours of these laborer are not only irregular but also excessive. They have to
work since morning to late night. His working hours change with harvest, season and
work.
2) Seasonal Employment
The agricultural labor does not get work for the whole year. According to the Second
Agricultural Labor Investigation Society, a Seasonal labor gets an average of 197 days of
work in a year. Similarly, child labor gets 204 days and women get 141 days of
employment. Thus, their average annual income is very lower.
3) Low Wages
The wage level of agricultural labors very low as compared to that of industrial labor. It
has two reasons
 increase in landless laborers
 lack of non-agricultural areas of work in rural areas.
4) Agricultural Slavery
Majority of agricultural laborers are landless and of backward classes. Due to their lower
social status they are treated as animals. Big land owners make them work as slaves. They
are used as laborers and in return given minimum wages.

5) Indebtedness
Due to lower income, the indebtedness of agricultural farmers is increasing. They hesitate
in negotiating their wages with the land owners in the fear that their services would be
terminated. The laborers remain indebted even after working with the land owners for their
whole life.
6) Not United
Since the agricultural laborers are spread in millions of village all over the country they
lack unity. Thus, they are unable to negotiate their wages etc. with the land owners by
uniting themselves.
7) Exploitation of Child and Women Laborers
Due to lower income the children and women of agricultural laborers are also forced to
work for their livelihood. The child and women laborers are made to work more for
livelihood. Thus, exploitation of child labor and woman labor is a major problem in the
field of agriculture.
8) Lower Social Status
Most of the agricultural laborers are of backward classes who have been exploited since
centuries. Due to this reason also their social status is lower.
9) Shortage of Other Jobs
There is shortage of other jobs in villages. Thus, if the crop is destroyed by floods, famines
etc., it becomes difficult for the agricultural labor to survive.
10) Housing Problem
The landless laborers have no private house. They live in cottages, made on the useless
land of the landowners with their permission and in its return they have to work without
payment, for the landowners. When a number of people live under the same root, the
physical, social, moral and religious problem arises.
11) Unemployment due to mechanization
At the present times, due to increase in the use of machines, unemployment rate among the
illiterate agricultural farmers is increasing, which is a serious problem for them.
4) Solutions:
1) Effective implementation of the minimum wage act :- This would go a long way in
the development of quality work forces in agriculture in India.
2) Development of agriculture- multi-cropping:- for better utilization of land resources.
3) Alternative employment of opportunities.
4) Self Help Groups (SHG): The movement SHGs is primarily aimed at elevating the
status of economically weaker sections of the society. The main and prime requirement of

women and there families to fulfill their financial needs. The empowerment of women is a
multidimensional process, which enables the group of individuals to rely their identity and
powers in all the spheres of life. The journey of the women in the SHGs towards looking
their own needs, their solutions, social empowerment, understanding the problems of the
society. There are many good results of the SHG movement.
5) Minimum Wages Act: The Minimum Wages Act was passed as long back as in 1948
and since then the necessity of applying it to agriculture has been constantly felt. Means
the Act is not applicable to agricultural sector?
6) Abolition of Bonded Labour: Since Independence, attempts have been made to

abolish the evil of bonded labour because it is exploitative, inhuman and violative of all
norms of social justice. In the chapter on Fundamental Rights in the Constitution of India,
it has been stated that trading in humans and forcing them to do beggar is prohibited and
can invite punishment under the law.
7) Provision of housing sites: Laws have been passed in several States for providing
house sites in villages to agricultural workers.
8) Special schemes for providing employment: Rural Employment (CSRE), National

Rural Employment Jawahar Gram Samridhi Yojana (JGSY), and National Food for Work
Programme (NFWP), Mahatma Gandhi Rural Employment Guarantee Act, MGNREGA
9) Special agencies for development. Special agencies: Small Farmers Development

Agency (SFDA) and Marginal Farmers and Agricultural Labourers Development Agency
(MFAL) - were created in 1970-71 to solve the problems of Agriculture labour of the
country.
5) Conclusion:
In India the vital role of agriculture arises out of the position the agrarian sector occupies
in the overall economy of the country. Agriculture is the largest sector of economic
activity and has a crucial role to play in the country’s economic development by providing
food and raw materials, employment to a very large proportion of population, capital for
its own development and surpluses for national economic development. Thus, the
importance of agriculture despite rapid industrialization has not in any way diminished. As
we are aware that near about 53% population of India is engaged in agricultural activities.
But agriculture in India is still at mercy of monsoon. Here, the condition of the farmers
and agricultural labourers depend on the intensity of monsoon. If monsoon is good then
crop is good and vice-versa. Agriculture labour is counted in the category of unorganized
sector, so their income is not fixed. Hence they are living an insecure and underprivileged
life and with full uncertainty in their earnings. The agricultural labourers are one of the
most exploited and oppressed classes in rural hierarchy.

6) Contractual Farming
Synopsis :
1) Introduction
2) Objectives of the contract farming
3) Models of contract farming
1) Centralized Model (Out-grower Schemes)
2) Nucleus Estate Model
3) Multipartite Model
4) Informal model
5) Intermediary Model
4) Advantages of the contract farming
1) To the farmers
2) To the sponsors
5) Environmental impact of contract farming
6) Limitations of contract farming
________________________________________________________________________
1) Introduction :
Contract farming is the process of agricultural production carried out according to an

agreement between unequal parties, companies, government bodies or individual
entrepreneurs on one side and economically weaker farmers on the other which establishes
conditions for the production and marketing of farm products.
In this process, the farmer agrees to provide established quantities of a specific agricultural
product, meeting the quality standards and delivery schedule set by the purchaser. In turn,
the buyer commits to purchase the product, often at a pre-determined price. In some cases,
the buyer also commits to support production through supplying farm inputs, land
preparation, providing technical advice and arranging transport of produce to the buyer’s
premises.
Today, contract farming is emerging as a preferred mechanism through which agri-

businesses can directly engage with farmers. An expanding urban middle class and
increasing commercial investment in agricultural retailing and processing are creating
demand for more standardized, higher-quality agricultural produce. But underdeveloped
supply chains and small farm sizes make sourcing such produce difficult.
PepsiCo was one of the earliest promoters of the contract-farming model in India. In 1997,
it set up a tomato processing plant in Punjab, not a traditional tomato growing area, and
started tying up with local farmers to grow tomato varieties needed for ketchup.

Although PepsiCo has since exited tomato processing, it still works with 12,000 farmers,
primarily to procure potatoes for potato chips.
2) Objectives of the contract farming:
 To reduce the load on the central & state level procurement system.
 To increase private sector investment in agriculture.
 To bring about a market focus in terms of crop selection by Indian farmers.
 To generate a steady source of income at the individual farmer level.
 To promote processing & value addition.
 To generate gainful employment in rural communities, particularly for landless
agricultural labour.
 To flatten as far as possible, any seasonality associated with such employment.
 To reduce migration from rural to urban areas.
 To promote rural self-reliance in general by pooling locally available resources &
expertise to meet new challenges.
3) Models of contract farming :

1) Centralized Model (Out-grower Schemes):
Under this, contracting company provides necessary support to the farmers for production
of required crops; purchases the crop from the farmers, and then processes, packages and
markets the product by tightly controlling its quality. This type of farming is quite famous
in developing countries for high value crops such as tobacco, cotton, paprika, sugar cane,
banana, coffee, tea, cocoa or rubber etc. It may involve tens of thousands of farmers and
level of participation of the contracting company in production may vary.
2) Nucleus Estate Model:

Under this, company own and manages an estate plantation to ensure the limited guarantee
of required output. This type of contract farming is highly used for tree crops such as palm
oil etc. and also sometimes used in case of export of fresh vegetables.
3) Multipartite Model:
It is a common joint venture approach in between statutory bodies or state agencies and
private companies; those are jointly participating with farmers. Multipartite arrangements
may include different specialized organizations for purpose of credit provision,
production, management, processing, distribution or marketing etc. In Mexico, Kenya, and
West Africa, among other countries, governments have actively invested in contract
farming through joint ventures with the private sector.
4) Informal model:
It usually includes small entrepreneurs or companies who enter into informal contracts
with farmers on a seasonal basis which mainly includes crops like fresh vegetables,
watermelons or tropical fruits etc. Material inputs are mainly limited to fertilizers and
seeds. A common example of the informal model is where the sponsor, after purchasing

the crop, simply grades and packages it for resale to the retail trade such as supermarkets,
etc.
5) Intermediary Model:
Under this model, companies make formal sub-contracts with intermediaries (like agents,
farmer groups or NGOs) for production of crops. The intermediaries generally enter into
informal contracts with farmers to meet the obligations under formal contract with
companies. This is a common practice in South-East Asia region.
4) Advantages of the contract farming:
To the farmers:
 Easy to get credit from Bank under contractual agreements.
 It helps in skilling of farmers as farmer learn to use resources efficiently like fertilizer,
pesticides and get in touch with new technology in some cases.
 Farmers get opportunity for diversification of crops and learn about new crops that
have demand in market.
 Farmers' price risk is often reduced as many contracts specify prices in advance.
 Contract farming can open up new markets which would otherwise be unavailable to
small farmers.
To the sponsors:
 Uninterrupted & regular flow of raw material and that of high quality.
 Protection from fluctuation in market pricing.
 Long term planning made possible.
 Concept can be extended to other crops.
 Builds long term commitment.
 Dedicated supplier base.
 Generates goodwill for the organisation.
5) Environmental impact of contract farming:
 Contract farming leads to monocultures which lead to depletion of soil quality, and
effect of fertilizers and pesticides on natural resources, environment, humans and
animals.
 It lead to over-exploitation of groundwater, salination of soils, decline in soil fertility,
and pollution.
 The firms do not pay heed as the costs of such effects are externalized so far as the
firm is concerned.
 It is also argued that CF as part of the globalization process might lead to increasing
investments in developing countries which have low environmental standards and,
thus, the natural resource base might end up irreversibly depleted or damaged.

6) Limitations of contract farming:
 Contracting agreements are often verbal or informal in nature, and even written
contracts often do not provide the legal protection in India that may be observed other
countries.
 When growing new crops, farmers face the risks of both market failure and
production problems.
 Farmers investing in crops with a long growing period receive no income until the
crops bear fruit. For most small farmers such investments are impossible without
funding from a company, the government or a development bank. Even if such
funding is available it is unlikely to come as a gift and thus farmers become more
indebted than they would if following traditional farming practices, even though in
the long run they may be much better off.
 Farmers tied to a contract are unable to benefit from high prices on the open market.
 Most of the crops grown under contract arrangements are cash crops which give more
income to farmers but at the same time due to this profit motive food crops are being
neglected.
 The seeds of generally modified crops to tackle pests, diseases and to get maximum
output are sold by the MNCs. The seeds once used cannot be regenerated as is the
case of BT cotton.
 There are no standard legal procedures in resolving the disputes arising under contract
agreements.
 It leads to greater casualisation of labour as well as the greater use of female and child
labour.
Hence to overcome these limitations the Government should play the role of a facilitator
and not that of a regulator in developing and promoting a healthy system of farmer-
corporate relationship for mutual benefit. This will help in development of agriculture
sector in India.
7) Issues of Corporatisation of Farming
Synopsis :
1) Introduction
2) Corporate Farming
3) Effects of Corporatization of Agriculture
________________________________________________________________________
1) Introduction :
Corporatization means changing the structure of the government owned entity into the
legal entity with the structure as found in the public trade companies, as it defined by the
Investopedia. Corporatization is not the same as privatization.

Baker (2005) nicely explains what corporatization is while comparing it with the
privatization. ‘Privatization entails a change of ownership or handover of management,
from the public to private sector.
2) Corporate Farming :
Corporate farming refers to direct ownership or leasing in of farmland by business

organizations in order to produce for their captive processing requirements or for the open
market. When it is done for captive purposes, it is referred to as captive farming as well,
though most of the time, the two terms are interchangeably used.
India Corporate farming also adopted through National agriculture policy of Ministry of
agriculture and cooperation. Corporate are not allowed to purchase the land for the purely
for agriculture production but through various ways Indian states are allowing Corporate
to enter into farming. Many state (provincial) governments in India have attempted
liberalization of land laws, especially land ceiling laws. The states of Gujarat, Madhya
Pradesh, Karnataka, and Maharashtra have recently allowed agribusiness firms to buy and
operate large land holdings for R&D, and export oriented production purposes. And, even
states like Punjab are planning to raise the ceiling on holdings in order to encourage large-
scale farming for making farming a viable proposition in the state. The farmer
organizations and political parties representing larger farmers in Punjab are also lobbying
for the removal or relaxation of the Ceiling on Land Holdings Act in Punjab (Dhaliwal,
2005). Some of the corporate agencies in the state are asking for longer term lease (20-30
years) of farmers’ land for corporate farming. The states of Maharashtra and Gujarat have
also enacted laws to allow corporate farming on government wastelands by providing
large tracts of these lands to agribusiness companies on a long term lease. The
Chhattisgarh State Government is also making available about 20 lakh hectares of land for
jatropha (biofuel) cultivation. Under the scheme, an individual can lease up to 200
hectares of land at a price of Rs 100 per hectare, per year for the first five years. For
subsequent years, these rates could be increased. The State Government has already
formulated an action plan including the setting up of the Chhattisgarh Bio-Fuel
Development Authority, identifying Government-owned waste or fallow land as well as
constituting task forces in various districts (The Hindu Business Line, Sept. 2, 2005).
Earlier, the government of Andhra Pradesh had attempted corporate farming under a
project in Kuppam in Chittor district during 1997-2002 where the purpose was to test the
feasibility of large scale farming through contract farming on lands leased by agribusiness
company (BHC Agro India Private Limited - an Israeli consultancy firm).
7500 acres of farm land which has mango occupying 450 acres that makes it the largest
mango orchard in Asia. The farm was originally set up as an environmental protection
measure near its refinery. Now, it is being seen as a profitable venture in itself. The
company has invested Rs. 10 crore on the farm during the last 3-4 years and plans to have
such farms in other states like A.P., Maharashtra and Karnataka. The projects are expected
to take seven years for breakeven and give 30% return after that. More recently, it has been
allotted 625 acres of government owned panchayat and common land for its Rs. 5000

crore agribusiness project in the state of Punjab out of which 300 acres are prime
agricultural land. Some of this land (150 acres) is on a 30-year long lease and the rest is
bought by the company. It is undertaking export oriented corporate farming (50%) also
planning to sell the farm produce in domestic market through Reliance Retail outlets
3) Effects of Corporatization of Agriculture:
Knel Allen, Political writer having Ph.D. in Political Science from Harvard, beautifully
explains the inhumanity of corporatization structure while writing that the, “Human
beings, whom we only seem to be talking about when we say something is "privatized,"
have complex moralities and emotions with which we can empathize. No one, however,
can empathize with a corporation, which is not a human being (even if it is legally treated
as a "person"), cannot have emotions, and has only a very simple ethic calculated to
maximize profit. The simplicity of that ethic makes corporations into shallow and
unreliable tools, and sometimes treacherous masters, of representative democracy. Our
language should reflect what we are actually doing when we turn our government over to
them.”23 Historical experience shows that corporatization gives good output but it should
not be ignored that what it cost while giving good output. Many times what it cost to give
output is more than what is output itself. Under this part, ‘Effect of Corporatization’,
project will try to explore what corporatization of agriculture cost to the Indian
countryside. This part will also look how corporatization effected the agriculture
production. Does it really increase the agriculture production with the sustainability? This
part also examines its effect on the food prices and food availability.
Module 04 Industrial Economy in India :
1) Features of Indian Industry
Synopsis :
1) Introduction
2) Features of Indian Industry
1) Abolition of Industrial Licensing
2) Public Sector’s Role Diluted
3) Abolition of Phased Manufacturing Programmes
4) MRTP Act
5) Free Entry to Foreign Investment and Technology
6) Industrial Location Policy Liberalised
7) Removal of Mandatory Convertibility Clause
________________________________________________________________________

1) Introduction :
The government announced a New Industrial Policy on July 24, 1991. This new policy
deregulates the industrial economy in a substantial manner. The major objectives of the
new policy are to build on the gains already made, correct the distortions or weaknesses
that might have crept in, maintain a sustained growth in productivity and gainful
employment, and attain international competitiveness. In pursuit of these objectives, the
government announced a series of initiatives in the new industrial policy as outlined
below:
2) Features/Characteristics of Indian Industry :
1. Abolition of Industrial Licensing:

In a major move to liberalise the economy, the new industrial policy abolished all
industrial licensing irrespective of the level of in vestment except for certain industries
related to security and strategic concerns, and social reasons. Now there are only 6
industries for which licensing is compulsory as amended in February 1999. These are
alcohol, cigarettes, hazardous chemicals, drugs and pharmaceuticals, electronics,
aerospace and defense equipments, and industrial explosives.
2. Public Sector’s Role Diluted:

The number of industries reserved for the public sector since 1956 was seventeen. This
number has now been reduced to three. They are arms and ammunition and allied items of
defense equipment, atomic energy and rail transport.
3. Abolition of Phased Manufacturing Programmes:

Devaluation of currency and increasing FDI led government to liberalise local content
requirement for indigenous firms.
4. MRTP Act:
MRTP Act has been amended to remove the threshold limits of assets in respect of MRTP
companies and dominant undertakings. The new industrial policy also states that the
government will undertake review of the existing public enterprises in low technology,
small-scale and non-strategic areas. Sick units will be referred to the Board for Industrial
and Financial Reconstruction for advice about rehabilitation and reconstruction. For
enterprises remaining in the public sector it is stated that they will be provided a much
greater degree of management autonomy through the system of Memorandum of
Understanding (MOU).
5. Free Entry to Foreign Investment and Technology:

The Government is committed to promote increased flow of Foreign Direct Investment
(FDI) for better technology, modernisation, exports and for providing products and
services of international standards. Therefore, the policy of the Government has been
aimed at encouraging foreign investment particularly in core infrastructure sectors so as to
supplement national efforts.

6. Industrial Location Policy Liberalised:
The new industrial policy provides that in locations other than cities of more than 1
million populations, there will be no requirement of obtaining industrial approvals from
the centre, except for industries subject to compulsory licensing.
In cities with a population of more than 1 million, industries other than those of a non-
polluting nature will be located outside 25 kms of the periphery. Since there is 23 cities in
India with a population of more than 1 million each, the new industrial policy has
dispensed with government clearance for the location of projects except in the case of
these 23 cities.
7. Removal of Mandatory Convertibility Clause:

A large part of industrial investment in India is financed by loans from banks and financial
institutions. These institutions have followed a mandatory practice of including a
convertibility clause in their lending operations for new projects. This has provided them
an option of converting part of their loans into equity if felt necessary by their
management. The new industrial policy has provided that henceforth financial institutions
will not impose this mandatory convertibility clause.
2) Concept of SME, MSME, PSU and MNC
1) SME (Small and Medium Enterprises) :
Synopsis :
1) Introduction
2) Concept of SME in India
a) Manufacturing Enterprises
b) Service Enterprises
3) Need and Importance of SME
4) Contribution of SME towards Indian Economy
5) Conclusion
________________________________________________________________________
1) Introduction :
SME is the abbreviation for Small and Medium Enterprises. These enterprises can be
rightly called as the backbone of the GDP of India. The SME sector in India is growing at
an exceptionally fast rate due to which it is proving to be beneficial to the Indian
Economy.
The small and medium enterprises today constitute a very important segment of the Indian
economy. SMEs sector has emerged as a dynamic and vibrant sector of the economy. The

Indian economy is expected to grow by over 8 per cent per annum until 2020 and can
become the second largest in the world, ahead of the United States, by 2050, and the third
largest after China and the United States by 2032.
The good part is that it is employing close to 40 % of India’s workforce and contributing
45% to India’s manufacturing outputs, SMEs plays a critical-roll in generating millions of
jobs, especially at the low skill level. The country’s 1.3 million SMEs account for 40% of
India’s total exports. The bad thing is that SMEs in India due to their low scale and poor
adoption of technology, have very poor productivity.
2) Concept of SME in India :

The Micro, Small and Medium Enterprises Development (MSMED) Act 2006 facilitates
the development of the enterprises and enhance their competitiveness. The act provides
legal framework for “enterprise” which includes the manufacturing and service entities.
In accordance with the provisions of Micro, Small & Medium Enterprises Development
(MSMED) Act 2006, the Micro, Small & Medium Enterprises (MSME) are classified into
manufacturing enterprises and service enterprises:
(a) Manufacturing Enterprises are the enterprises engaged in the manufacture or

production of goods pertaining to any industry specified in the first schedule to the
Industries (Development and Regulation) Act, 1951 or employing plant and machinery in
the process of value addition to the final product having a distinct name or character or
use. The Manufacturing Enterprise are defined in terms of investment in Plant &
Machinery.
(b) Service Enterprises are the enterprises engaged in providing or rendering of services
and are defined in terms of investment in equipment.
The limit for investment in plant and machinery / equipment for manufacturing / service
enterprises, as notified on 29-09-2006 are as under :-
Manufacturing Sector
Enterprises Investment in plant machinery
Micro Enterprises Does not exceed 25 lakh rupees
Small Enterprises More than 25 lakh rupees but does not exceed 5 crore rupees
Medium Enterprises More than 5 crore rupees but does not exceed 10 crore rupees
Service Sector
Enterprises Investment in equipments
Micro Enterprises Does not exceed 10 lakh rupees:
Small Enterprises More than10 lakh rupees but does not exceed 2 crore rupees
Medium Enterprises More than 2 crore rupees but does not exceed 5 core rupees

The enterprises can take any form - proprietorship, company, cooperative, association of
persons, Hindu Undivided Family, partnership etc. Further, this definition is not restricted
by the number of persons employed by the firm nor the electricity consumed by the firm,
as was the case in the past or as is still practiced in some other countries.
3) Need and Importance of SME :
As globalization creates benefits through advanced technologies and expansion of

commerce, it also creates challenges for emerging small business enterprises to effectively
complete in dynamic environment. Entrepreneurship is the practice of starting new
organizations or boosting existing organizations. Many “high value” entrepreneurial
ventures seek venture capital or angle funding in order to raise capital to start the business.
Credit assistance to SMEs in India is included along with other national priorities. Such
funding assistances to priority sector consist of the credit facilities accorded to (i)
agriculture, (i) small scale industry including loans for setting up of industrial estates, (i)
small road and water transport operators, (iv) small business, (v) professional and self
employed persons, (vi) retail trade, (vi) state sponsored organizations for certain castes and
tribes.
The Small and Medium Enterprises (SMEs) sector contributes significantly to the
manufacturing output, employment and exports of the country. It is estimated that in terms
of value, the sector accounts for about 45 per cent of the manufacturing output and 40 per
cent of the total exports of the country. The sector is estimated to employ about 59 million
persons in over 26 million units throughout the country. Further, this sector has
consistently registered a higher growth rate than the rest of the industrial sector. There are
over 600 products ranging from traditional to high- tech items, which are being
manufactured by the MSMEs in India. It is well known that the SME sector provides the
maximum opportunities for both self-employment and jobs after agriculture sector.
4) Contribution of SME towards Indian Economy :

The SME sector accounted for more than 17 percent of the GDP in 2014 while
contributing to 45 percent of the nation’s industrial output and 40 percent of the total
exports. The SMEs in India ad over 1.3 million jobs per year. With the onset of e-
commerce, SMEs have achieved significant advantages such as increased revenues and
margins, improved market reach, aces to new markets, cost savings in marketing and
communication, customer acquisition and improved customer experience.
Currently, there are approximately 48 million SMEs operating in India and the sector
employs around 40 percent of the country’s labour. Indian SME’s sector currently
comprises of 1,157 industrial cluster and 6,00 micro-enterprise clusters. It is characterized
as highly fragmented and unorganized and is dispersed across vast geographies. A large
portion of the employment generated by SMEs is in the manufacturing and services
sectors which are growing at impressive rates of 18 percent and 34 percent year on year
respectively. SMEs contribution of 17 percent to India’s GDP is much lower when
compared to other major economies .It is expected to increase by 2 percent by year 2020.

Also, the number of new entrants in the SMEs sector is growing at an average 23 percent
in manufacturing and 31 percent in the services sector.
The Ministry of Micro, Small and Medium Enterprises (MSME), Government of India
(GoI) has adopted the cluster development approach as a key strategy for enhancing the
productivity and competitiveness as well as capacity building of Micro and Small
Enterprises (MSEs) and their collectives in the country. Clustering of units also enables
providers of various services to them, including banks and credit agencies, to provide their
services more economically, thus reducing costs and improving the availability of services
for these enterprises.
5) Conclusion
With increasing globalization and entry of multinationals, immense opportunities have
been created for outsourcing, sub-contracting and ancillarisation of the products
manufactured by corporate particularly in 64 core sectors like automobiles, engineering
and consumer electronics. A vibrant SME can derive maximum benefit of these
developments. By its less capital intensive and high labour absorption nature, SME will
make significant contributions to employment generation and also to rural
industrialization. This sector is ideally suited to build on the strengths of the traditional
skills and knowledge, by infusion of technologies, capital and innovative marketing
practices. This is the opportune time to set up projects in the small-scale sector. The
diversity in production systems and demand structures will ensure long term co- existence
of many layers of demand for consumer products / technologies / processes. There will be
flourishing and well grounded markets for the same product /process, differentiated by
quality, the value added and sophistication. This characteristic of the Indian economy will
allow complementary existence for various diverse types of units.
2) MSME (Micro, Small and Medium Enterprises) :
Synopsis :
1) Introduction
2) Definition and Concept of MSME

________________________________________________________________________
1) Introduction :
The MSME sector has emerged as a dynamic sector of the Indian economy over the last
five decades. MSMEs contribute enormously to the socio-economic development of the
country. MSME have a large share of jobs, production and exports. The primary
responsibility of promotion and development of MSMEs is of the State Governments.
However, the Government of India, supplements the efforts of the State Governments
through various initiatives.

Ministry of Agro and Rural Industries and Ministry of Small Scale Industries have been
merged into a single Ministry, namely, “MINISTRY OF MICRO, SMALL AND
MEDIUM ENTERPRISES” to direct and govern the establishment, registration and
functioning of MSMEs.
As per the report of Ministry of Micro Small and Medium Enterprises, Government of
India; MSME sector is serving numerous benefits towards the inclusive growth of Indian
economy. Major contribution of MSMEs is as follows:
1. It provides opportunities at comparatively lower cost;

2. It helps in industrialization of rural and backward areas;
3. Reduce Regional imbalances through the optimum utilization of their
resources;
4. More equitable distribution of national income and wealth;
5. Major partner in the process of inclusive growth.
2) Definition & Concept of MSME:
The Micro, Small and Medium Enterprises have been defined under MSME Act, 2006.
According to the Act, MSME have been broadly classified in two categories:
1. Enterprises engaged in the manufacturing and production of goods

pertaining to any industry;
2. Enterprises engaged in providing or rendering services.
The manufacturing enterprises have been further defined in terms of investment in plants
and machinery wherein the service enterprises have been defined in terms of their
investment in equipment.
The conceptual and legal framework for small scale and ancillary industrial undertakings
is derived from the Industries Development and Regulation Act, 1951. The Act provided
the necessary powers to the Central Government to amend the provisions of this act from
time to time so as to encourage small scale and ancillary undertakings. The Small and
Medium Enterprises Development Bill 2005 which was enacted in June 2006 was
renamed as “Micro, Small & Medium Enterprises Development Act, 2006” aims at
facilitating the promotion and development of small and medium enterprises. Various
notifications issued by the Central Government from time to time relating to increase in
slap rate of investments in plant & Machinery for manufacturing enterprises and
equipments in service enterprises provides a clear cut proof that the economy of our
country is striving towards achieving the economies of scale by increasing the volume of
production of goods. The Micro, Small and Medium Enterprise Development Act, 2006
(MSMEDA) extends the scope to accomplishes many long -standing goals of the
government and stakeholders in the MSME sector including the service sector.

Micro, Small and Medium Enterprises (MSME) contribute nearly 8 percent of the
country’s GDP, 45 percent of the manufacturing output and 40 percent of the exports. They
provide the largest share of employment after agriculture. They are the nurseries for
entrepreneurship and innovation. They are widely dispersed across the country and
produce a diverse range of products and services to meet the needs of the local markets,
the global market and the national and international value chains.
3) PSU (Public Sector Undertakings) :
Synopsis :
1) Concept of PSU
2) Evolution of Public Sector enterprises

________________________________________________________________________
1) Concept of PSU :
The term public sector undertaking or Enterprise refers to a Government Company.
“Government Company” is defined under Section 2 (45) of the Companies Act, 2013 as
Any company in which not less than fifty-one per cent of the paid-up share capital is held
by the Central Government, or by any State Government or Governments, or partly by the
Central Government and partly by one or more State Governments, and includes a
company which is a subsidiary company of such a Government company. The term is not
intended to mean a public company (where shares are freely transferable and has a
shareholder base of more than 200 people) though public sector enterprises are mostly
public companies.
Public Sector undertakings refer to commercial ventures of the Government where user
fees are charged for services rendered. The tariff/fees may be market based or subsidised.
They are usually fully owned and managed by the Government such as Railways, Posts,
Defence Undertakings, Banks etc. Public sector enterprises on the other hand refer to those
companies registered under the Companies Act, 1951,which are predominantly owned by
Government and which are managed by a Government appointed Chairman and Managing
Director. Government nominees represent the interests of the Government on the board of
Public sector enterprises. Public sector companies usually compete with private sector
enterprises in the domestic as well as international market.
Investment decisions of PSUs are passed by the respective boards and then appraised and
approved by the administrative ministry to which they are accountable (e.g. Shipping
Corporation of India is under the Department of Shipping in the Union Ministry of Surface
Transport) or the Public Investment Board under the Department of Expenditure, Union
Ministry of Finance and if the investment is beyond a certain threshold level or if a new
public sector company is being created, then the proposal has to be approved by Cabinet.
Central public sector enterprises are classified as “mahratnas” “mini-ratnas” and other

enterprises depending on their track record based on guidelines approved by the
Government from time to time.
Sub national governments also own and manage public sector undertakings and in most
cases they are loss making and require considerable budgetary support.
The audit of public sector undertakings is done by the Comptroller and Auditor General of
India while that of public sector enterprises is done first by Chartered Accountants and the
supplementary audit is done by the Comptroller and Auditor General of India.
2) Evolution of Public Sector enterprises

At the time of independence in 1947, Indian industry was ill-developed and required
considerable policy thrust. The Second Five year Plan (1956-61) and the Industrial Policy
Resolution of 1956 provided the framework for public sector undertakings/enterprises in
India, which were expected to play a substantial role in preventing the concentration of
economic power, reducing regional disparities and ensuring that planned development
serves the common good. A list of 17 industrial sectors was reserved for the public sector
in Schedule A of the 1956 Resolution and no new units in the private sector in these
categories would be permitted. Another list of industries was included in Schedule B
where the Government actively encouraged public ownership. The Union Government and
various sub-national governments made considerable investment on setting up and running
public sector undertakings/enterprises.
Initially, the public sector was confined to core and strategic industries such as irrigation
projects (e.g. the Damodar Valley Corporation), Fertilizers and Chemicals (e.g. Fertilizers
and Chemicals, Travancore Limited) Communication Infrastructure (e.g. Indian Telephone
Industries), Heavy Industries (e.g. Bhilai Steel Plant, Hindustan Machine Tools, Bharat
Heavy Electricals, Oil and Natural Gas Commission etc.). Subsequently, however, the
Government nationalized several banks (starting with nationalization of the Imperial Bank
of India which was renamed State Bank of India in 1955) and foreign companies (Jessop
& Co, Braithwaite & Co, Burn & Co.).Later Public Sector companies started
manufacturing consumer goods (e.g. Modern Foods, National Textile Corporation etc) and
providing consultancy, contracting, and transportation services.
The internal (profits) and extra-budgetary resources (borrowed funds) of public sector
undertakings are factored into the preparation of the Annual Financial Statement (Budget)
of the Government. However, poor productivity, poor project management, over-manning,
lack of continuous technological upgradation, and inadequate attention to R&D and
human resource development resulted in a large number of public enterprises showing a
very low rate of return on the capital invested and the need for budgetary support for day
to day running. Several of them accumulated huge losses and ran up huge debts which had
to be written off /settled from time to time by the Government.

Reviewing the role of the public sector, the Industrial Policy Resolution 1991 reduced the
number of industrial undertakings exclusively reduced to the public sector to just six areas
which included strategic industries like atomic energy, defence, coal, mineral oils etc. as
well as railway transport. Efforts were made to divest non strategic public sector industries
and to increase private participation in the equity of profitable public sector industries. At
the same time a Board for Reconstruction of Public Sector Enterprises has been set up to
suggest ways to turn around sick and loss making public sector enterprises.
4) MNC (A Multinational Corporation) :
Synopsis :
1) Introduction
2) Origin of MNCs
3) Growth of MNCs
4) Effects of MNCs
a) Competition
b) Transfer of Technology
5) Conclusion
________________________________________________________________________
1) Introduction :
A powerful influence on patterns of world trade and factor movements is the multinational
firm. A multinational corporation is a company with headquarters in one country or but
they operate in many countries.
Most U.S. and Japanese companies are multinationals- Ford, General Motors, IBM, Honda
and Mitsubishi. Nestle and Shell Oil are two examples of European multinational. The
post Second World War period saw the rapid growth of multinationals in Europe, America
and Japan.
2) Origin of MNCs:
Why do firms go abroad and build plants in foreign countries? There are various reason
for the growth of multinationals. Firstly, exporting may not be the best alternative because
of trade barriers, perishability, or a need to produce a product tailored to the local market.
No doubt, investing in a firm by purchasing stock or making loans appears to be an easy
solution.
But often the firm wants greater control over management, product quality, and patented
processes. Sometimes the only way to get access to needed local resources, especially raw
materials, is to build a local plant. However, trade barriers or the needs of the local

(foreign) market are much more common reasons for building foreign plants than the
attraction of cheap labour.
Of the top ten global enterprises, ranked by Fortune recently, six are American, one is
British, one is British/Dutch, one is Japanese and one is Italian.
3) Growth of MNCs:
As the world economy is opening up with a fall in regulatory barriers to foreign
investment, better transport and communications, freer capital movements, etc.,
international companies are finding it easier to invest where they choose to cheaply, and
with less risk.
Moreover, the developing countries no longer consider the presence of MNCs to be

synonymous with a loss of their sovereignty. It is now realized that MNCs are merely a
part of a much wider force that is integrating the world economy. Over the years, foreign
direct investment by MNCs in the developing countries has been steadily on the rise, from
as low as 19% of total flows in 1990, to 30% in 1994.
Whether this trend will last or not will depend chiefly on the liberalization policies of the
governments of the developing countries, who are responsible for allowing entry to the
MNC’s into their home economies, and who can re-impose the barriers if they so wish.
Liberalization as regards foreign investment would last as long as the governments of

these developing countries believe that it is beneficial for them. However, the biggest
danger lies in the excessive expectations of the liberalizing governments, as many of them
see foreign investment as a short-cut to prosperity, capital and technology transfer, and
skill enhancement. MNCs do bring in these assets to an extent, but these alone cannot
make up for all the short-comings of the host economy.
4) Effects of MNCs:
Multinationals are often accused by their critics of shifting competition in the countries in
which they locate, creating balance of payments problems, and leading to undue
concentration of economic and political power at home and abroad. Advocates argue that
they often increase competition, accelerate the transfer of financial capital and modern
technology and help promote free multi-lateral trade.
a) Competition:
In some cases, the multinational ‘shakes up’ sleepy domestic competitors, forcing
them to try harder when they can no longer hide behind a protective tariff wall.
One the other hand, multinationals often simply buy out local competitors or keep
local competition from developing. Sometimes multinationals increase
competition, and at other times they reduce it.

b) Transfer of Technology:
Multinationals speed up flows of technology between (among) countries. They use
processes and methods that the firm would not share with a competitor but will
make available to its own subsidiaries.
Less developed countries like India often argue that this transfer does not spill over to
other industries for maximum benefit. They also argue that multinationals, which are
generally from developed industrial countries, don’t try very hard to adapt technology to
the local mix of available resources.
5) Conclusion :
Probably the most serious concern is that small countries are at a disadvantage in dealing
with large multinationals. That giant firm may have an annual revenue much larger than
the small country’s GNP.
The multinational may be the largest employer, landowner, and taxpayer in a small
country. That can threaten the sovereignty of the host (capital-importing) country in
dealing with a firm that is larger and more powerful than the government.
Despite these problems, there are genuine benefits that can be derived from having
multinationals. They offer a way around trade barriers for a flow of resources and
technology, which has been very beneficial to the world economy. In most cases, they
promote the same free-trade goals of more output with less effort.
3) Controversy over land acquisition for Industry
Synopsis :
1) Introduction
2) Controversy over land acquisition for Industry
3) Conflicts over Forced Acquisition

________________________________________________________________________
1) Introduction :
Land is a critical asset in any society. Millions of people in India are dependent on land
and its resources for their livelihood. But they lacked ownership of land and had to work
as tenants or wage labourers on lands held by the zamindars. Preindustrial agricultural
societies have practised subsistence farming in which the output is bare minimum to
sustain the livelihood of farmers. Land acquisition legislation in India has been a subject
of public debate since Independence. Guided by the socialist pattern of economy, the
government initiated land reforms in India but could only partially achieve this objective
due to political stronghold of landed class in rural areas. Land was, however, acquired for
building dams, mines and infrastructure. Such developmental initiatives were justified as

steps being taken to achieve rapid economic development necessary for public welfare in
the longer run. Also, there was little resistance to land acquisition as the level of political
consciousness was low and there were few unorganised political organisations to channel
the voices.
In the post-liberalisation period, land acquisition legislations resulted from the thrust for
commercialisation and fast track industrial investments. The new model of growth based
on relentless competition implicit in a market economy created immense opportunities for
the expansion of private business. Pro-business governments found it imperative to make
prominent changes in the existing laws to smoothen the process of land acquisition. But,
such measures have faced challenges on public platforms. Resistance to land acquisition is
far more organised and powerful than what it was in the past.
2) Controversy over land acquisition for Industry :
Acquisition of land by government and corporates has lately drawn resistance in many
cases due to inadequate compensation and loss of livelihoods of the affected people, as
well as for involuntary displacement without proper rehabilitation. NC Saxena analyses
the issues related to land acquisition in respect of the new laws and its impact on
infrastructure and industry
Fast economic growth in the last two decades has increased demand for land from many
sources, such as infrastructure, industry, resource extraction (such as mining) and
urbanisation, including real estate. Even when many of these activities are funded
privately and driven by profit motive, they serve a social purpose, as employment
generation per unit of land is higher in non-agricultural uses than in agriculture. For
instance, a 4,000 MW thermal plant may displace about 250 households but would create
tens of thousands of new jobs by providing power to small industry and to tubewells that
would increase both gross cropped area and productivity.
At present the share of urban dwellers in total population of India is around 31 per cent,
but they occupy only 6 per cent of the total area of the country. Growth through
industrialisation and urbanisation would not only increase labour productivity but will also
reduce pressure on farm land by pulling people away from land to non-farming
occupations. However, land acquisition has emerged as the most important structural
constraint in India to the process of fast industrialisation and improvement in
infrastructure. Delays in procuring land leads to uncertainty and cost escalation and thus
affects development.
Acquisition of land by government has lately drawn resistance in many cases due to
inadequate compensation for the land and loss of livelihoods of the affected people, as
well as for involuntary displacement without proper rehabilitation. Moreover, the people
are not willing to give up their present dwelling and occupation of farming for a dark
future totally dependent on the vagaries of the market. The colonial land acquisition law of
1894 has been quite hostile to the interests of the landowners, as it attempts to make land

available to industry through government at a minimal price. So far the practice in most
states has been to coerce people to give up their land by using the legal powers of eminent
domain and in some cases even through the use of force.
The most criticised section of the colonial law is the Urgency Clause. The clause never
truly defines what constitutes an urgent need and leaves it to the discretion of the acquiring
authority. As a result, almost all acquisitions under the Act even for private real estate,
invoke the urgency clause. This results in the complete dispossession of the land without
even the token satisfaction of the processes listed under the Act.
Thus the model followed has been, ‘let some people lose out so that others (this includes
some enterprising poor too) may gain’. Unfortunately the losers tend to be the poorest with
little skills, often tribals, who are unable to negotiate with the market forces and cope with
the consequences of their forced expulsion from land and end up much worse off than
before acquisition. Some estimates suggest that at least 60 million people were displaced
between 1947 and 2004, amongst whom at least 40 per cent were tribals and 20 per cent
Scheduled Castes. Of those displaced, less than 18 per cent were resettled. This has turned
millions of independent producers into propertyless labourers, which could have been
avoided with imaginative land acquisition and rehabilitation policies.
2) Conflicts over Forced Acquisition

Before 1990, most land was acquired by government for large irrigation projects, public
sector enterprises and other explicit public purposes such as new townships of Chandigarh,
Gandhinagar, and Bhubaneswar and therefore the use of coercive legal powers carried at
least some credibility in the eyes of the public. In the last two decades however powers of
eminent domain have also been used for acquisition for private industry and real estate,
which is driven, not by the ‘noble cause of national development, but profit motive’.
Though such private enterprises contribute to direct and indirect employment generation,
people’s perception of these activities being in ‘public interest’ is generally negative, and
therefore they are less tolerant of being made to leave the area or accept unfair
compensation. Consequently, there has been growing protest and militancy leading to
tension, conflict and violence, besides litigation that increases uncertainty and costs
involved in delayed possession of land.
Low compensation is not the only cause for resistance. It is also because of trust deficit
that exists today between the government and, the peasantry, because the promises made
to them on earlier occasions for rehabilitation and settlement have not been fulfilled; and
the compensation amount has been uncertain and irregular. Thousands of families
displaced by various projects are still awaiting compensation payments. In a few cases,
those displaced in early 1970’s are yet to receive compensation. In many cases the true
beneficiaries are the absentee landlords and intermediaries, but not the poor peasantry.

4) Issues of Industrial Labour and Labour Legislation
Synopsis :
1) Introduction
2) Issues of Industrial Labour
1) Unbalanced Industrial Structure
2) Low Demand
3) Regional Concentration
4) Loss in Public Sector Industries
5) Industrial Sickness
6) Lack of Infrastructure
7) Improper Location Base
8) Lack of Capital
9) Shortage of Industrial Raw Material
10) Higher Cost of Production and Low Quality of Goods
11) License Policy
12) Lack of Institutional Organization
3) Labour Legislation
(1) Introduction
(2) History of Labour Legislation
(3) Purpose of Labour Legislation
(4) Principles of Labour Legislation
(a) Social Justice
(b) Social Equity
(c) International uniformity
(d) National Economy
4) Problems / Issues of Labour Legislation with the current Scenario
5) Impact of Various Reforms
a) Impact on labour
b) Impact on Industry
c) Impact on India
________________________________________________________________________

1) Introduction :
Industrial Labour refers to all those workers, who are employed in manufacturing units,
i.e., the workers employed in large scale, village & small scale industries are considered
industrial labour in general sense. Foregoing analysis shows that India has made sufficient
achievement in industrial development during the last five decades and has emerged as the
tenth largest industrialized country of the world. But considering the size of the country
this development is far from satisfactory.
There are many areas where despite requisite facilities industrial development is either
insufficient or completely absent. The pace of industrial progress has been very slow and
the growth has always lagged behind the target (except in 7th Five Year Plan). Despite
industrial progress self- sufficiency is a distant dream and import substitution a major
problem. Under utilization of existing capacity is another major problem which is due to
lack of power, raw material and demand.
Industry has developed elite oriented pattern. Concentration of economic power in the
hands of few, regional imbalances, sickness of industries, loss in public sector industries,
unsatisfactory labour relations, lack of capital and industrial raw materials, changing
policy of the government, and defective licensing policy are some of the problems which
are hindering the overall industrial development in the country. In following paragraphs an
attempt has been made to highlight some of these problems.
2) Issues of Industrial Labour :
1. Unbalanced Industrial Structure
Despite all efforts India has not been able to attain self sufficiency in respect of industrial
material. India is still dependent on foreign imports for transport equipments, machineries
(electrical and non-electrical), iron and steel, paper, chemicals and fertilisers, plastic
material etc. In the total industrial production consumer goods contribute 38 per cent. In
newly industrialised countries like Singapore, South Korea and Malaysia this percentage is
52, 29 and 28 respectively. This shows that import substitution is still a distant goal for the
country.
2. Low Demand
There is low demand for industrial products in the country due to low consumption level,
weak purchasing power and poor standard of living. The domestic market is chronically
underdeveloped through lack of enthusiasm generated by the middle and upper class
segment who do not wish to raise their standard and improve their living conditions.
3. Regional Concentration
In India most of the industries are located in few selected areas leaving out vast expanse of
the country devoid of industrial establishments. Most of the industries are located in and
around metropolitan cities like Mumbai, Kolkata, Delhi etc. Tables 18.1 and 18.11 present

uneven concentration of industries. While the states like Maharashtra, Gujarat, Tamil Nadu
etc are well ahead in industrial development others like Meghalaya, Manipur, Jammu and
Kashmir, Himachal Pradesh, Tripura, Orissa, Assam etc are far behind. This has not only
created regional imbalance and regional disparity but has encouraged fissiparous tendency
including unrest, violence and terrorism.
4. Loss in Public Sector Industries
Owing to focus on socialistic pattern of development investment under public sector

industries increased phenomenally during early five year plans. But due to defective policy
of the government characterised by redtops and inefficiency and strained labour-
management relations most of these public sector enterprises are running in loss. Every
year the government has to incur huge expenditure to cover up this loss and meet
obligations of paying wages to the employees.
This hardly leaves surplus money to go for new industrial ventures and launch schemes for
social development. To avoid this burden on exchequer the government is promoting
privatisation and disinvestment of shares of public sector undertakings. This goes against
the Peruvian model of development initiated during the fifties of the last century.
5. Industrial Sickness
In the private industrial sector a growing number of industrial units are becoming sick.
Widespread sickness has, indeed, become a major problem of this sector. The causal
factors for this sickness are: (i) deficient management, (ii) under-utilisation of capacity due
to shortage of raw materials, coal and power and transport, (iii) obsolete machinery,
equipment and production techniques, (iv) uneconomical scale of production, (v) faulty
choice of products and processes, (vi) difficulties in selling the products, (vii) diversion of
funds to new units under same ownership, and (viii) conflict between different interest
groups among the owners. As at the end of March 1999 there were 3, 09,013 sick/weak
units. A total of Rs. 19,464 crores of bank credit was locked up in these sick units.
Sometimes, the government takes over sick units which further worsen the problem.
In order to provide a focal point for the revival of sick units, the Industrial Reconstruction
Corporation was reconstituted in 1985 as the Industrial Reconstruction Bank. It is now the
principal agency for reconstruction and rehabilitation of sick units.
The Central Government set up in 1986 two Funds, the Textile Modernisation Fund (TMF)
and the Jute Modernisation Fund (JMF) to provide assistance on concessional terms to
healthy as well as sick units for modernisation. These two Funds are being administered
by the IDBI and the IFCI respectively. There is also a need for constant monitoring and
deterrent penalties to the parties responsible for sickness.
6. Lack of Infrastructure
An inadequate infrastructural facility is another major problem faced by the Indian

industries. Energy crisis has a great bearing on the industrial development and production.

Although the installed capacity of electricity increased from 66.08 million km in 1990-91
to 85.79 million km in 1996-97 but it is much short of the actual demand.
It leads to power cut and rostering which hampers the industrial production. Most of the
State Electricity Boards are running in loss and are in deplorable condition. Rail transport
is overburdened while road transport is plagued with many problems. Even national
highways in many places are in bad shape. Telecommunication facilities are mainly
confined to big cities.
7. Improper Location Base
Industrial locations, in several instances, were established without reference to cost-

effective points. Each state clamors for the establishment of major industries in the public
sector within its boundaries, and the location decisions are often politically motivated.
8. Lack of Capital
Indian industrial development is facing acute shortage of capital. The short-term and long-
term loans from international agencies like World Bank and Asian Development Bank etc
have done more harm to the economy than taking it out from the crisis. A lot of foreign
exchange is being utilised in the payment of these loans.
The situation becomes acute when fresh loans are taken to pay the installments of the old
loans. Due to liberalisation, the foreign exchange reserve position has improved in recent
years and flow of foreign capital has started in industrial sector. These foreign investors
also do not like to invest in such industries which require large capital, need long gestation
period and where recovery is slow or more risk is involved. Instead of depending on
foreign capital we have to place more reliance on indigenous capital with greater emphasis
on the development of priority industries.
9. Shortage of Industrial Raw Material
Indian Agricore, the major source of industrial raw material, is still dependent on the
monsoon. Natural calamities like drought, famine, flood etc badly affect agricultural
production as well the supply of industrial raw material. Failure of monsoon even affects
the purchasing power of the people and also the demand for industrial products. It
sometimes creates glut in the market and industrial plumpness. Cement industry is recently
facing such crisis.
Drought like situation even affects hydel generation, leading to energy crisis, more
pressure on railways to transport coal and on thermal power sector for higher output. This
leads to a chain of crises which have interlinking effect.
10. Higher Cost of Production and Low Quality of Goods
Indian industries mostly survive on home demands. These have been given a number of
concessions and even protection from foreign industries. Here most of the work is done by
hand on old and obsolete machines.

This increases the cost of production and brings down the quality of products produced.
Since these industries have virtual monopoly they hardly bother to improve their quality.
Public sector units, under direct control of the government, frequently increase the prices
which provide golden opportunity to private industrialists also to increase the prices. Our
industrial products are not able to make wide market abroad.
The low purchasing power of the people even reduces home demand. The situtation is
likely to change during globalisation when there is apprehension of wide spread closure of
these industries due to stiff competition offered by multinational companies. This is also
not good for the country and the Indian industries.
11. License Policy
The license policy approving the site, capacity, type and expansion of industries is a
typical example of excessive state interference and red tapes which hinder the industrial
development. Recently some examples of political vendetta have come to surface whereby
central government over delayed the approval of industries from such states where hostile
political party is in power. Ministers and influential political leaders are pressurising
industrialists to install industries in their electoral area so as to approve their licenses. With
the introduction of liberalisation policy many of the shortcomings of the license policy
have been removed.
12. Lack of Institutional Organization
A major development thrust during the Five Year Plans was toward the establishment of a
vigorous public sector developed hastily without the creation of a base of administrative
machinery capable of undertaking this enormous task. Preparatory work for such
tremendous institutional regorganization was poor. High performance was rarely insisted
on even after the construction of an administrative base. The result was non-achievement
of targets. During the Fourth, Fifth and Sixth Plans, achievement levels fell short of targets
by 15-18 per cent. This malady is still persisting even after liberalisation. There is no
clear-cut planning at state level to attract foreign capital and promote industrialisation.
Industrialization started in India roughly a century later than in the developed countries.
That is why, when it was in mature stage in the Western countries it was in infantile stage
in India. Hence, India had to perform dual task of promoting industrialisation as well as to
equip herself with latest technology in the field of electronics, nuclear science, space
research etc.
This slowed down the pace of industrial progress. Frequent change in the approach-
sometimes emphasis on rural industrialisation, sometimes on urban-nucleated
industrialisation or rural led employment-oriented strategy or creation of employment-
oriented agro-based industries-confuse the situation. Indian industrialisation has passed
through great odds. Besides being victim of 'economics of scarcity' it has been mauled by
political indecision, prejudices and confusion.

3) Labour Legislation :
(1) Introduction :
The term "labour legislation" or "labour laws" is used to denote that body of laws which
deal with employment and non-employment wages, working conditions, industrial
relations, social security and labour welfare of industrially employed persons. Any
enlightened state would intervene in the conduct of industry and impose statutory
obligations mostly on the employers and also, to a lesser degree, on the workers in order to
maintain industrial peace and good relations between management and workers and to
secure to the better working conditions a minimum wage, compensation in case of
accidents medical facilities provision for future etc.
The origin and growth of labour legislation may be ascribed mostly to the development of
organised industry where a large number of workers including women and children are
employed under conditions which tend to be detrimental to their health, safety and welfare
and against which they arc often unable to protect themselves.
(2) History of Labour Legislation :
Labour law arose due to the demands of workers for better conditions, the right to
organize, and the simultaneous demands of employers to restrict the powers of workers in
many organizations and to keep labour costs low.
The first annual conference (referred to as the International Labour Conference, or ILC)
began on 29th October 1919 in Washington DC and adopted the first six International
Labour Conventions, which dealt with hours of work in industry, unemployment,
maternity protection, night work for women, minimum age and night work for young
persons in industry.
(3) Purpose/Importance of Labour Legislation :
1. The individual workers are economically weak. They cannot bargain with the employers
for the protection of their rights and even for subsistence wages. As such legislation for
protection of labour against long hours of work, unhygienic conditions of work, low wages
and exploitation is needed.
2. The workers are exposed to certain risks in factories, mines and other establishments.
As such in order to make provision for their health, safety and welfare, legislation is
needed.
3. In order to increase the bargaining power of labour, legislation is necessary to

encourage the formation of trade unions.
4. In order to avoid industrial disputes which lead to strikes and lock-outs, labour
legislation is needed.

5. To protect children and women from taking to work under hazardous conditions and at
odd hours, laws are necessary.
6. Laws for providing compensation to workmen who die or are injured during and in the
course of employment are also needed. ,
7. Labour Legislation advances the interests of the working people and thus helps set up
the development of the national economy on a sound and self-reliant basis.
(4) Principles of Labour Legislation :
Labour Legislation is based on certain fundamental principles.
(a) Social Justice :
In an industrial set-up, social justice means an equitable distribution of profits and benefits
accruing from industry between industrialists and workers and affording protection to the
workers against harmful effect to their health, safety and morality. Mere compliance with
and enforcement of legal rights may be unfair and cause hardship to the workers as
workers-employer contracts are generally one-sided and directed by the employers. The
Workmen's Compensation Act, 1923 and the Minimum Wages Act, 1948, for example, are
attempts at securing social justice to the workers. The provisions of the Factories Act,
1948, fixing hours of work, overtime, leave privileges, welfare facilities and safe working
conditions are also directed towards the same end.
Social justice is the signature tune of the Constitution of India and this note is nowhere
more vibrant than in industrial jurisprudence The Preamble to our Constitution also lays
down the objective of establishing 'Justice—Social, Economic and Political'.
(b) Social equity :
Another principle on which Labour Legislation is based is social equity. Legislation based
on social justice fixes a definite standard for adoption for the future, taking into
consideration the events and circumstances of the past and the present. But with the
change of circumstances arid ideas there maybe a need for change in the law. This power
of changing the law is taken by the Government by making provisions for True-making
powers in the Acts in regard to certain specified matters. The rules may be modified or
amended by the Government to suit the changed situation. Such legislation is based on the
principle of social equity.
(c) International uniformity
International uniformity is another principle on which labour laws are based. The
important role played by the International Labour Organisation (in short, I.L.O.) in this
connection is praiseworthy. I.L.O. is an international agency which was founded in 1919
soon after the First World War.

The main aims of the I.L.O.
(i) to remove injustice, hardship and deprivation of large masses of toiling

people all over the world; and
(ii) to improve their living and working conditions and thus establish universal
and lasting peace based upon social justice.
I.L.O. is a tripartite organisation consisting of representative of Government, employers

and workers of the member countries. There is parity of representation as between
Government and non-Government welding together employers and workers in different
countries into independent organisations. By its tripartite character of association of
representatives of Government, employers and workers, it has produced a large number of
international Conventions and Recommendations covering unemployment, general
conditions of employment, wages, hours of work, weekly rest periods, holidays,
employment, of children, young persons and women, industrial health, safety, social
security, industrial relations and many other allied subjects.
(d) National economy

In enacting labour legislation, the general economic situation of the country has to be born
in mind lest the very objective of the legislation be defeated. The state of national
economy is an important factor in influencing labour legislation in the country.
4) Problems / Issues of Labour Legislation with the current Scenario
The problems around the Indian labour laws are mainly because of its age. The pre-
independence era laws are now being amended but the process is very slow. The need is so
because of the technological advances and changed working conditions. There are 44
central laws and more than 150 state laws on the subject. There are multiple laws on the
similar topic like 19 laws governing conditions of work and industrial relations and 14
laws on social security and labour welfare.
The main controversy is around the three acts: Industrial Disputes Act (1947), Contract
Labour(1970) and Trade Union Act(1926). Chapter V-b and section 9-A of The Industrial
Disputes Act says that if a company involves more than 100 people it must take approval
from the government for layoff of even single employee and if you quickly need to
redeploy the employees to meet certain time bound targets, you can’t do that. Also if the
board is going to change the wage and allowances, a 21 days before notice is must. In the
amended Trade Union Act, it is mentioned that while forming an union it is necessary to
have 25% of members not of the same organization which is absurd. And in the Contract
Labour Act the Supreme Court in its ruling has said that even for the work of ‘regular
nature’ the employer should term the worker as permanent employee.

5) Impact of Various Reforms
a) Impact on labour :
According to the new Factories Act a worker may work overtime for 100 hours in 3
months, which used to be 50 hours. The increase in overtime would result in the workers
being compelled to work for two or three shift in a day. The effect of this would be higher
unemployment. The amendments would also allow women to work in night shifts; they
can currently only do so only from 6 a.m. to 7 p.m. This will bring gender equality in the
labour sector.
b) Impact on Industry :
In the long term, these labour reforms lead to higher investments. More investments mean
more production and more jobs hence growth of the industry and more players in the
market.
c) Impact on India :
There is a positive change in manufacturing sector because of “Make in India” campaign.

Tata JLR will move its production facility of Land Rover to Pune, Airbus will manufacture
its products in India, Spice Group will manufacture its phones in India etc are a few
examples out of many portraying the fact that the impact of reforms on India is huge.
5) Capital – Sources of Domestic Capital and Foreign Capital
Synopsis :
(A) Domestic Capital :
1) Introduction
2) Source of Domestic Capital
1) Savings.
2) Consumption of fixed capital or depreciation.
3) Net capital transfer from the rest of the world.
4) Net borrowing from the rest of the world.
(B) Foreign Capital:
1) Introduction
2) Components of Foreign Capital in India
(a) Foreign Capital Investments
(i) Foreign Direct Investments (FDI)
(ii) Foreign Portfolio Investments (FPI)

* Significance of FDI vs. FPI
(b) Foreign Aid
(c) External Commercial Borrowings
3) Conclusion
________________________________________________________________________
(A) Domestic Capital :
1) Introduction :
Capital formation or accumulation of capital adds to the stock of an economy and thereby
raises its productive capacity. The rate at which capital is formed and its pattern
determines the growth and structure of capital stock. Both these aspects of capital have a
great bearing in the development of an economy. The capital refers to structures and
equipments. Structures include private residential houses, commercial and Govt, buildings.
Under equipments are included durable consumer goods, durable capital goods like plants
and machinery etc. and inventories such as stocks of raw material, finished and semi-
finished goods lying in stores for sale.
Gross domestic capital formation is the addition to the total capital stock of a country's
own territory during a given year. It is the difference between the production and
consumption account of an economy during a given year. This difference or surplus that
goes to add to its capital stock is called gross domestic capital formation. Gross domestic
capital formation includes gross addition to fixed capital formation and increase in stock
of inventories. Thus gross domestic capital formation determines the economic growth.
Other things being constant, the rate of economic growth directly depends on the rate of
capital formation. Gross rate of capital formation is the ratio between gross capital
formation and gross domestic product. Gross domestic capital formation = Sources of
financing gross domestic capital formation:-
Foreign capital plays a significant role for every national economy, regardless of its level
of development. For the developed countries it is necessary to support sustainable
development. For the developing countries, it is used to increase accumulation and rate of
investments to create conditions for more intensive economic growth. Capital flows
contribute in filling the resource gap in countries where domestic savings are inadequate to
finance investment. Capital inflows are necessary for macroeconomic stability as capital
inflows affect a wide range of macroeconomic variables such as exchange rates, interest
rates, foreign exchange reserves, domestic monetary conditions as well as saving and
investments.
2) Source of Domestic Capital :
There are various sources of financing gross domestic capital formation of an economy.
They are given below.

(1) Savings.
(2) Consumption of fixed capital or depreciation.
(3) Net capital transfer from the rest of the world.
(4) Net borrowing from the rest of the world.
(1) Savings:-
The significance of adequate saving needs no stressing. Saving is needed to finance capital
formation or investment so as to increase and maintain the productive capacity of the
country. Excess of current income over current expenditure is called capital formation.
Savings constitute the main sources of gross domestic capital formation. There are several
sources these are classified into three main sectors, namely the house hold sector, the
private corporate sector and the public sector.
The house hold sector is comprised of individuals, non-movement, non-corporate entities

in agriculture, trade and industry etc. The saving of this sector comes out of surplus after
meeting the consumption expenditure. A part of the saving of this sector takes on the form
of physical assets. The saving equivalent to the value of there physical- assets is included
in the saving of the house hold sector.
The private corporate sector includes the non-Govt. corporate sector. Private sector also
saves in the form of undistributed profit which is utilized to increase the productive
capacity of the producing units. Thus the contribution of private corporate sector to saving
consists of the "retained profits" arrived at after meeting all the expenses of the business
including payment of corporate tax.
The public sector consists of the Govt, and the Govt, departmental and non-departmental
under takings. The saving of this sector comes from the excess of current revenue over
current expenditure, and the profits of the undertakings. However, the contribution of
public sector to saving is not very encouraging. The contribution of household sector,
Private Sector and Public sector to the savings constitution 78.1%, 12.4% and 9.5%
respectively.
(2) Consumption of fixed Capital (Depreciation):-
In the production process, certain amount of fixed capital is used up. This is called
depreciation of fixed capital or consumption of fixed capital. In the production prices fixed
capital goods like machinery, buildings etc. get depreciated due to wear and tear.
Thus capital assets need repairing. The production will fall unless the depreciated capital is
replaced. In order to maintain same level of fixed capital and increasing productivity
annually there must be the provision to replace the worn-out machinery. The fund thus
created towards meeting depreciation constitutes another source of gross domestic capital
formation. The household, private corporate enterprises keep a part of their income in the
format depreciation fund. The Govt, sector is assumed to have nil consumption of fixed

capital. In order to arrive at net domestic capital formation, the source of depreciation fund
is excluded.
(3) Net Capital transfer from the rest of the world:-

Capital transfers refer to the payments which are made in cash or in kind for the purpose
of gross capital formation or other forms of accumulating or long term expenditure of the
recipient. These grants are provided out of the stock of wealth and savings of neither do
nor country. Capital transfer from the rest of the world refers to the follow of grants into
an economy from abroad. These grants are irregular.
Such capital transfers are primarily made to form physical assets. These capital transfers
are. In the form of economic aid, war damages, capital goods like machines and tools etc.
grants, to finance deficit in external trade. Through capital transfers underdeveloped
countries build up their national capital so as to boost up economic growth. A recipient
country in the process of capital transfer also extends help to other countries.
Thus the next capital transfer can be arrived at by deducting the total capital transfer paid
by a country to other countries from the total capital transfer it receives from -the rest of
the world. The net capital transfers from the rest of the world and considered as a source of
gross domestic capital formation.
(4) Net borrowing from the rest of world:-

Borrowing is a contractual transaction Govt borrows from the rest of the world to speed up
economic growth. Net borrowings refer to the excess of net foreign liabilities over net
acquision of financial assets. When our Govt, borrows from other countries or foreigners
invest in our country, our country incurs liability to that extent. When borrowing is
redeemed or foreigners withdraw their capital, our foreign liabilities decline. The
difference between the receipt and payment of flows constitutes net incurrence of foreign
liabilities.
As against the above, our country also given loans to other countries or our citizens invest
in other countries. This will help increase our financial assets our investment and giving
loan to other countries are called acquisition of financial assets abroad. When foreigners
repay our loans or we withdraw foreign investments, our financial assets decline. The
difference between the two flows is not acquisition of financial assets.
Thus the difference between net incurrence of foreign liabilities and net acquisition of
foreign financial assets is called set borrowing from the rest of the world. This excess
amount will go a long way to build up capital in our country.
(B) Foreign Capital :
1) Introduction :
Foreign capital has a key role in the economic development process of the country. It is a
source of modernization, income and employment generation in the economy. India’s

recent liberalization of its foreign investment regulations has generated strong interest by
foreign investors, turning India into one of the fastest growing destinations for global
investment inflows. Foreign firms are setting up joint ventures and wholly owned
enterprises in services such as computer software, telecommunications, financial services,
and tourism. The present chapter examines the recent trends and pattern of foreign capital
flows in India.
2) Components of Foreign Capital in India
Foreign capital refers to the capital flows from resident entity of one country to the
resident entity of another country. The resident entity may be an individual, corporate firm
or a Government. In India, there are three important components of foreign capital flows.
a) Foreign Capital Investments

b) Foreign Aid
c) External Commercial Borrowings
(a) Foreign Capital Investments:
Foreign capital investments refer to investments made by an entity which is not

the resident of the country. In India there are two components of foreign capital
Investments:
(i) Foreign Direct Investments (FDI)
(ii) Foreign Portfolio Investments (FPI)
(i) Foreign Direct Investments (FDI): FDI refers to the physical

investments made by foreign investors in the domestic country. The
physical investments refer to the direct investments into building,
machinery and equipments. Reserve bank of India (RBI) defines FDI as a
process whereby resident of one country (i.e. home country) acquires
ownership for the purpose of controlling production, distribution and
other activities of a firm in the another country.(i.e. the host country). It
reflects the lasting interest by the foreign direct investors in the entity or
enterprise of domestic economy. There exists a long-term relationship
between the foreign investor and the domestic enterprise. The foreign
direct investors generally exert a high degree of influence on the
management of the entity. The direct investor can be an individual, public
or private enterprises (referred to multinational corporations or MNCs)) or
Government. The management influence is exerted if foreign investor
holds significant shareholding or voting power in domestic entity. FDI can
be equity or debt investment.
(ii) Foreign Portfolio Investments (FPI): FPI refers to the short-term

investments by foreign entity in the financial markets. These are indirect
investments and include investment in tradable securities, such as shares,

bonds, debenture of the companies. Foreign Portfolio investors don’t exert
management control on the enterprise in which they invest. The important
objective of FPI is the appreciation of the capital investment regardless of
any long-term relationship with enterprise (IMF, Balance of Payment
Manual). These investments are made with short-term speculative gains.
There are three kinds of FPI in India:
a) Foreign Institutional Investment: These are the investments made by

foreign institutions like pension funds, foreign mutual funds etc. in the
financial markets.
b) Funds raised through Global Depository Receipts or American

Depository Receipts (GDRs/ADRs): GDRs and ADRs are instruments
which signify the purchase of share of Indian companies by foreign
investors or American investors respectively.
c) Off-shore funds: The schemes of mutual funds that are launched in the
foreign country.
* Foreign Direct Investments (FDI) vs. Foreign Portfolio Investment (FPI) :
The relative significance of two important components of foreign investments can

be summarized as follows:
(a) FDI accelerates growth process mainly due to superior technology transfers
and greater competition that generally accompany FDI. Domestic firms improve
R&D to sustain competition with foreign firms or multinational firms. FDI also
improves export competitiveness of the country. So, FDI has a positive spillover
effects on the economy. FPI enables the country to use huge pooled foreign funds
and directly doesn’t involve any kind of superior technology or managerial
transfers. Thus FPI has limited spillover effects than FDIs.
(b) FDI reflects seriousness and commitment on part of foreign investors since
FDI causes high initial set up cost and higher exit costs in terms of difficulty in
selling stake in the firm. Thus foreign direct investor stay invested for long-term
in the country and so help to improve growth prospects of the country. FPI is
guided by short-term gains and involves problems to exit the country. FPI tends
to be more volatile than direct investments. The sudden FPI outflows at the
time of domestic crisis may disrupt the development process of the country.
(c) Portfolio investors due to their short-term perspective may indulge into
speculative activities in the domestic financial market and may cause problems for
the domestic investors.
(d) FDIs are directly managed by foreign owners FPI on the other hand are
managed by “outside managers”. So FDI results into better asset management.

(e) The increased FDI flows give positive signal about the long-term prospects of
domestic economy and greater creditability of the country. A very substantial
amount of FPI of short-term nature depicts risk in the domestic economy.
(b) External Aid
External aid refers to the concessional foreign finance with flexible terms and conditions.
It may be in the form of long term concessional debt or grants (doesn’t involves any
repayment obligations). The tenure of the aid is generally very long. The important
sources of foreign aid in India are:
(i) Official Aid:
It is given by foreign governments or international official bodies such World

Bank, International Monetary Fund (IMF), Asian Development Bank (ADB) etc.
It can be:
(a) Bilateral Aid: Loans or grants under bilateral (i.e. between two countries)
agreement.
(b)Multilateral Aid: loans or grants extended by multilateral (i.e. more than two
countries) agencies e.g. Loans from IMF, World Bank etc.
Further, official aid (Bilateral or Multilateral) can be Government Aid (i.e. aid
that passes through government) or Non-Government Aid (i.e. aid received by
non-government bodies directly from bilateral or multilateral agencies).
(ii) Private Aid: It is the fund which is received from private individuals, firms or
institutions.
(c) External Commercial Borrowings (ECBs):
ECBs comprises of borrowings from international capital market on commercial terms. It

covers all medium/long term loans e.g. supplier’s credit, foreign currency convertible
bonds (FCCBs), e.g. India development bonds, resurgent India bond (RIBs) etc. The
interest rates on these borrowings are higher than foreign aid. The higher dependence on
these borrowings can cause financial burden on the economy.
3) Conclusion
Foreign capital helps to augment domestic resources of the economy and enables it to achieve
higher growth rates. It improves productive efficiency and technology up gradation in the host
country but it can also lead to inappropriate investment and consumption pattern. However, the
economic benefits from foreign capital don’t accrue automatically. There is a need to develop a
healthy enabling environment to reap the benefits. The recipient country should develop adequate
regulatory framework, good general educational and health condition for human resource and an
openness to trade and compete. This will equip the country to derive the benefits of foreign capital

Module 05 Other Areas of Indian Economy
1) Inflation – Trends in Prices and Money Supply
Synopsis :
1) Introduction
2) Money Supply and Inflation
________________________________________________________________________
1) Introduction :
In the economy, inflation and the money supply correlate with each other. The money
supply can be defined as notes and coins circulating outside the central bank. Inflation is a
sustained rise in prices, which is normally measured by using the Retail Price Index
otherwise known as the RPI. As money supply circulating around the economy increases
inflation and balance of payments in turn also increases, however, this has very little effect
on employment. The increase in money supply can be defined as the direct monetary
transmission mechanism, which means that an increase in money supply leads to people
spending the excess of their money supply over money demand. When people have more
disposable income to spend on luxury goods aggregate demand also increases. Therefore
businesses must increase the aggregate supply to give consumers what they want. If the
government wants to control and try to reduce inflation they would have to measure the
money supply and use the fiscal policy in order to reduce the amount of money circulating
around the economy. Inflation and the money supply effect consumer demand and
increasing costs on a business.
2) Money Supply and Inflation :
The monetary policy can also be used to target the level of inflation but mainly it can be
used to target the level of growth. It is designed to control the amount of money flowing
around the economy (the money supply). It is mainly used to tackle inflation and the
balance of payments problems. There are a number of methods that the government uses
to affect the money supply. Firstly raising interest rates may reduce the amount of
borrowing in the economy. As borrowing is made more expensive the amount of money
flowing around the economy is reduced as people would not be able to afford the
repayments. Interest rates also affect the value of the pound so the higher the interest rate I
the UK international and overseas investors will be attracted to put money into UK banks.
To do this they will buy pounds forcing up the value of Sterling. Secondly the government
can control the amount the credit financial institutions are allowed to give out. So the
government may set limits on the amount and the types of lending banks are allowed to
make
The money supply and inflation are positively related with each other. The increase in
money supply will lead to inflation and the decrease in it will result in the reduction on

inflation. The money supply is determined by money multiplier. The money multiplier is
again determined by required reserve ratio, currency ratio and the excess reserve ratio.
Furthermore other determinants of inflation includes inflationary expectations,
government sector borrowings, real demand, cost shocks, private sector borrowings,
import prices, government taxes, exchange rates and wages.
The most important theory of inflation is the Quantity Theory of Money. The equation for
this theory is MV = PT, where M is Money Supply, V is Velocity of Circulation, P is Price
level and T is Transactions or Output. In this equation monetarists assume that V and T are
fixed, in the long run, by real variables, such as the productive capacity of the economy,
there is a direct relationship between the growth of the money supply and inflation.
The mechanisms by which excess money might be translated into inflation are examined.
It is concluded that individuals can spend their excess money balances directly on goods
and services. Consequently this has a direct impact on inflation by raising aggregate
demand. Furthermore the increase in the demand for labour resulting from higher demands
for goods and services will cause a rise in money wages and unit labour costs.
Conclusively the more inelastic is aggregate supply in the economy, the greater the impact
on inflation.
On the other hand the increase in demand for goods and services may cause a rise in
imports. Resultantly this leakage from the domestic economy reduces the money supply; it
also increases the supply of money on the foreign exchange market thus applying
downward pressure on the exchange rate. This can cause imported inflation.
There is another theory regarding the Austrian view with which not much people are
familiar with. It says that inflation is always and everywhere simply an increase of the
money supply (i.e. units of currency or means of exchange), which in turn leads to a
higher nominal price level, as the real value of each monetary unit is eroded, loses
purchasing power and thus buys fewer assets and goods and services.
2) Black Money and Corruption – Reasons and Measures
Synopsis :
Black Money :
1) Introduction
2) What is Black Money
3) Reasons of Black Money in India
(1) Shortages during War
(2) Several Controls
(3) Faulty Taxation

(4) Large Public Expenditure
4) Measures to Curb Black Money in India
(1) Demonetization
(2) Voluntary Disclosure Scheme
(3) Raids
(4) Taxation Reforms
(5) Rewards and Awards
(6) Publicity
(7) Arousing Public Conscience
Corruption :
1) What is Corruption
2) Reasons of Corruption in India :
(1) Economic Insecurity
(2) High Rate of Income Tax
(3) Meagre Salary Being Paid to the Government Servants
(4) Emergence of New Sources of Wealth and Power
(5) The System of Democracy
(6) The Very Presence of Black Money
(7) Social and Economic Modernisation:
3) Measures for eradication of Corruption in India
(1) Give better salary in govt jobs
(2) Increase the number of workers
(3) Law to dismiss from service if found to be involved in corruption
(4) Keep transactions on-line and provide bill for every purchase
(5) Camera in most govt offices
(6) Speed up the work process in govt. institutes
(7) Make Media responsible and fix laws to be so
________________________________________________________________________
1) Introduction :
After the independence of our country, the serious problem of 'Black Money and
Corruption' has emerged. The black money is also called as parallel economy system. Due
to this parallel economic system obstacle has been created. The black money is created by

way of illegal practices and the control of Government is not desired by such people.
Therefore the ratio of black money is double than the legal money in our economic
system. The black money is evolved by means of hoarding and selling the commodities
more than the double rate, hiding income, non-crediting the stamp duty and registration
fees, tax evading and taking/giving of bribes etc. Such money is spent for enjoyment and
entertainment, errection of luxurious building, selling and purchasing of land, purchase of
gold and silver as such the black money is not utilized for production purposes. Therefore
the black money is a source of corruption. The black money and corruption are the two
sides of the same coin. The money which is earned by means of illegal method is
considered as black money. And the money earned by legal method but, hidden from
paying income tax or evade income tax, is also called black money.
2) What is Black Money :

Black money is the money earned but not shown in the accounts for the purpose of tax
evasion. Such money can be earned through legal, illegal and extra-legal means. For
example, most of the traders and businessmen never reveal their actual incomes, many
government doctors are making money by private practice even when they get non-
practising allowance or advocates charging much higher fee than shown in their account
books, and so forth.
3) Reasons of Black Money in India :

The evil of black money is big indeed with very bad consequences for the economy. It is,
therefore, necessary that we find out its causes, and discuss the steps taken by the
government to curb it. There are several factors that have led lo the emergence and the
spread of black money those are -
1. Shortages during War:

During the Second World War period, many in the Indian industry found the situation ripe
for black marketing. Supplies of industrial goods from the traditional suppliers of the West
were cut off. Huge profits were made in respect of goods that were in short supply. These
circumstances and the psychology formed the backdrop of what followed subsequently.
2. Several Controls:
The control regulation of the economy was of course desirable for planned use of scarce
resources. But the controls were excessive and inadequately implemented. ‘The result was
twofold. In the first place, there was corruption.
In the second place, these controls created shortages, which were often artificially created.
The prices paid received on these controlled goods were much above the official prices.
These excess prices, called ‘premia’ have swelled the black money.
3. Faulty Taxation:
Defects in the tax structure have also been responsible for the existence of black money to
a large extent. Till recently the lax on income and on wealth was very high to invite
evasion. The corporate tax rate too, was very high.

In these circumstances, the temptation gain from tax evasion was substantial. Even in the
case of indirect taxes, the situation is no better. The excise evasion is rampant in such
sectors as copper, cotton fabrics and plastics.
4. Large Public Expenditure:
A factor of considerable importance has been the large increase in public expenditure, as
pointed out in the Black Money Committee Report of the National Institute of Public
Finance and Policy. This factor started fuelling the phenomenon of black money after the
cautious budgetary position, prevalent during the early sixties, was given a go by.
Ostensibly, this was done to promote such good causes as removal of poverty,
subsidisation of the supplies for the needy, larger plans, etc. But the huge spending which
these entailed have neither been efficiently administered nor properly targeted. The result
has been large leakages into the stream of unaccounted income.
4) Measures to Curb Black Money in India :

The important remedial measures for controlling black money are given below:
1. Demonetization
Demonetization of currency of high value say Rs.1,000 could help to unearth the black
money to a large extent. However, in order to solve the problem arise on account of
demonetization, proper step should be taken. It is advocated for eroding a substantial part
of black liquidity on the presumption that black income held in cash will not be presented
for conversion.
In 1978, Government cancelled currency note of Rs.1,000 denomination. But again it

brought out the currency note of Rs.1,000 denomination for circulation. Demonetization
may succeed in reducing the quantum of black money but it cannot prevent the generation
of black money altogether.
2. Voluntary Disclosure Scheme
The Government may adopt the policy that those who voluntarily disclose their black
income of the past to the taxation authorities will not be punished and penalties may be
waived or minimized.
3. Raids
Income tax department’s powers have to be considerably enlarged and it should be

empowered to conduct raids on the premises and properties of the taxpayers or any other
individuals and can seize the unaccounted income and wealth and take necessary legal
actions against the tax evaders.
4. Taxation Reforms
India needs a rationalized tax structure. Prof. Kaldor, Wanchoo Committee and many
others including the authors of the NIPFP Report have recommended a reduction in

marginal tax rates, simplification of tax structure, taxation laws and improvements in tax
administration.
5. Rewards and Awards
In order to encourage the honest taxpayers and create a positive attitude in the minds of
the people towards the payment of tax, this can be adopted. The income tax department
has introduced a special award scheme for the first time in Tamil Nadu for the 1994-95
assessment year, to encourage and recognize prompt tax payers and also create greater
awareness in the minds of tax paying public.
It is called as “Good Taxpayers Award” Scheme. The various categories considered for
the awarded scheme are: public and private sector companies, firms (both business and
profession), individuals, and Hindu undivided families (both business and professions).
6. Publicity
In view of the deterrent effect, the nature of all persons in whose cases penalties have been
imposed for the concealment of income, wealth etc. should be published in the gazette as
well as in the press, giving details of their names, addresses and the amount of penalties
etc. If the assessee is a company or firm, the names of all the Directors of the Company
or Partners of the firm should be published.
7. Arousing Public Conscience
A special drive should be undertaken to arouse public conscience by enhancing the co-
operation of the leaders in various walks of life.
Corruption :
1) What is Corruption :
Corruption is like blood cancer. It has taken deep-roots in the country. Corruption in
Indian public life is “all pervasive” and that businessmen, bureaucrats, contractors,
industrialists, entrepreneurs, journalists, vice-chancellors, teachers, doctors, nurses and the
politicians all come under suspicion. As the time moves more and more people are being
swept by the move of corruption.
Corruption is a complex phenomenon and various factors and forces have conspired to
cause it and spread it everywhere.
2) Reasons of Corruption in India :
1. Economic Insecurity:
This is regarded as the most important cause of corruption. The poor people become
corrupt in the hope of becoming rich. The rich indulge in it for fear of losing what they
have. The rich have craving for luxurious goods and imported commodities, such as —

dresses, telephone receivers, calculators, cosmetics, transistors, air conditioners, T.V.s,
wrist watches, etc. This encourages smuggling on a massive scale.
2. High Rate of Income Tax :
Since tax rates are comparatively high in India even the honest people are often
tempted to escape from it by making false returns of their property and income. Many of
the officers in the Income Tax Department are also equally corrupt and they thrive on
bribery. Income tax officers, policemen, sales tax officers, excise inspectors and others
started minting money not only from the black marketers and tax evaders, but also from
innocent people who gave bribes in order to avoid suffering and humiliation at the hands
of these officials.
3. Meagre Salary Being Paid to the Government Servants:
Employees in some of the government departments are paid comparatively very less
salary. This situation is said to be the cause of corruption in administration. Clerks in the
court, peons and attenders in all government departments, police constables and such other
employees draw poor salary.
They expect tips and bribes even for doing their regular or routine duties. It has been
estimated that 60% to 70% of the officers are corrupt in one form or the other.
4. Emergence of New Sources of Wealth and Power:
The modern political economic setup provides a chance for the politicians in power to
make money through illegal means. As Lincoln Steffens has said, “the politicians took
bribes because business men gave them and businessmen gave them because they had to.”
This unholy understanding between the businessmen and the politicians always encourage
corruption.
5. The System of Democracy:
The present style of functioning of democracy in India, also contributes to corruption. All
parties, especially the ruling party spends crores of rupees on each election. This money
comes from the big businessmen, industrialists and such other rich men who have their
own vested interests in financing the elections.
They supply money to the party elections in the form of “black money.” This in turn, gives
them licence, a ‘moral’ justification for accumulating “number – two” money in different
forms.
6. The Very Presence of Black Money:
Existence of large amounts of unaccounted black money is one of the main sources of
corruption. “This money is obtained by various ways, namely, tax evasion, smuggling,
speculation in immovable property and shares and stocks, receiving fees and remuneration
partly or wholly in cash without showing them in the accounts, trading in licences and
permits, etc.”

7. Social and Economic Modernisation:
It is said that modernisation breeds corruption in industrial society, which “offers prizes
for doing evil; money, position, power”, besides bringing about attitudinal changes in the
system. New loyalties and new identifications emerge among individuals and groups. This
contributes to an increase in the incidence of corruption.
As Huntington said, “corruption in a modernising society is in part not so much the result
of deviance of behaviour from the accepted norms as it is the deviance of norms from the
established patterns of behaviour.” More than any other thing “the get-rich quick”
motivation inspires a large number of people both at the top and bottom of the society to
become corrupt.
All the factors mentioned above have generated a favourable atmosphere for corruption.
3) Measures for eradication of Corruption in India :
1. Give better salary in govt jobs:
Many employees in government positions receive low salary like clerks, office staff etc.
Hence they expect to make money by bribery. For this they try to delay the work for so
long that the client is fed up and opts for bribery for progress in the work. So low salary is
one of the reasons for corruption. To curb this their salaries should be raised periodically.
2. Increase the number of workers:
In many offices of the government sector, the work load has gone up drastically but the
recruitment of vacancies has declined. This gives an option for delaying the work by
officials and expect monetary or other benefits for faster completion.
3. Law to dismiss from service if found to be involved in corruption :
This seems a better option. For instance if you see cases where anti-corruption bureau
rides an officers home and finds disproportionate assets, the officer is suspended from
employment and taken for judicial trials. But after couple of years you will find them in
employment at same or even better positions. So this creates no fear among the officials
against corruption.
4. Keep transactions online and provide bill for every purchase:
Many of them do not pay taxes and escape This involves corruption. Making payments
online through bank accounts and provision of bills for every transaction involving money.
This is a better corruption watch.
In other words, public should opt for cashless transactions where possible. This will limits
the corruption related to money.
5. Camera in most govt offices:
In every ATM there are camera to keep a watch on the public taking their money. Then
why not government offices have cameras to have a watch on the employ performance.

Even there are many employees who openly take bribe in presence of common men. This
public bribery is due to confidence that public wants their work more than the amount they
are paying to them as bribes.
6. Speed up the work process in govt. institutes:
Most corporate offices are in full fledged running by 8-9 am. But the government offices
start by 10 to 11 am and wind up by 3.30 to 4 pm with a lunch break of one & half hour in
between. This indicates how much of commitment lies in the work and how fast the work
goes on. If there are mistakes in the work or delay in the work, civilians have to run
behind those workers to rectify or complete the work. In doing so they pay bribes to get
the work done. This makes the chances of corruption more or else work is not done. So
there should be accountability of daily work done in government works and targets to
complete the work on time basis. Or else instead of being public servants, they tend to act
as public bosses.
7. Make Media responsible and fix laws to be so:
There are many major scams and corruption events involving media. Though the media is
well aware of the corruption happening they stay silent due to their support for some
political parties or else their owners get some monetary benefits from the rulers. Even
there are many reporters who are aware of some scam or corruption, they stay silent
without revealing it to the press for having received monetary benefits to do so. If media
personnel are found to be guilty for not having exposed the scam or corruption
intentionally, they have to be prosecuted and their licenses be withdrawn.
3) Food Security – Problem of Hunger and malnutrition – PDS
Synopsis :
1) Introduction
2) Ending hunger as a global priority
3) The food and nutrition crisis expands and deepens
4) Science and technology for hunger and poverty reduction
________________________________________________________________________
1) Introduction :
Ending food insecurity, hunger and malnutrition is a pressing global ethical priority.
Despite differences in food production systems, cultural values and economic conditions,
hunger is not acceptable under any ethical principles. Yet, progress in combating hunger
and malnutrition in developing countries has been discouraging, even as overall global
prosperity has increased in past decades. A growing number of people are deprived of the
fundamental right to food, which is essential for all other rights as well as for human
existence itself. The food and nutrition crisis has deepened in recent years, as increased

food price volatility and global recession affected the poor. In a strategic agenda, it will be
necessary to promote pro-poor agricultural growth, reduce extreme market volatility and
expand social protection and child nutrition action.
2) Ending hunger as a global priority :
The current global architecture for governing food, nutrition and agriculture has not been
able to adequately address the challenges the system now faces and ensure progress
toward food security. Even when general ethical principles are understood and agreed
upon, actors in the system do not take needed actions since they lack the right incentives
for doing so. A comprehensive new approach, founded upon strong ethical principles and
right incentives, is needed to address persisting hunger and the rising challenges in the
agri-food system. To realize the potential of technology and economic policies in reducing
hunger and food insecurity, this approach should also give adequate attention to the role of
institutions, including religious institutions.
The attention of the Catholic Church to poverty reduction and related actions has a long
history. As stated in the Encyclical of Pope Leo XIII on capital and labor in 1891, the
desire of the Church is that the poor should rise above poverty and wretchedness, and
better their condition in life; and for this she makes a strong endeavor. Fighting hunger
seems to be one of the most obvious islands of consensus in world religions, and religious
institutions, such as the Catholic Church, have an important role to play in advancing food
security around the world. However, none of the global religious congregations can
effectively address the hunger problem alone, and synchronized actions are needed on this
issue.
Three different approaches have been developed for addressing food security and hunger.
The development approach draws on economic, technological, and institutional strategies
and innovations for hunger reduction. The charity approach emphasizes both private and
public giving to the people in need, and the role of religious institutions is very strong. The
rights-based approach focuses on prioritizing actions – including legal actions and
advocacy – that enhance basic human rights, such as access to adequate food. All three
approaches have an ethical base, and they all are intrinsically linked. Weaknesses in the
development approach to hunger reduction, for example, undermine the rights-based
approach in a way which cannot be easily compensated for by charitable actions.
Technological innovations in food and agriculture are cutting across these different
approaches for combating hunger. In the past, technological breakthroughs adopted on a
large scale have had high positive social pay-offs – they have been a critical component in
preventing Malthusian predictions of population growth outpacing agricultural production,
and in instigating the Green Revolution in Asia in the 1960s and 1970s. New high-impact
technologies such as biotechnology, biofortification and nanotechnology now offer further
opportunities for boosting agricultural productivity and enhancing food quality and
nutritional value. Science and technology alone, however, cannot eliminate hunger and
malnutrition, and the power of agricultural technology is strengthened through related
policies and institutions. At the same time, if agricultural innovations are blocked,
development is also blocked, and hunger and poverty will be perpetuated.

3) The food and nutrition crisis expands and deepens :
Global progress in combating malnutrition has been slow in past decades, with dramatic
differences among countries and regions. The 2008 Global Hunger Index (GHI) score fell
to 15.2 compared to 18.7 in 1990, indicating a slight improvement in the overall hunger
situation. (The GHI is a combined measure of three equally weighted components: (i) the
proportion of undernourished as a percentage of the population, (ii) the prevalence of
underweight in children under the age of five and (iii) the under-five mortality rate. The
2008 GHI is based on data until 2006 – the last year with data available at the time of
publication.) But the absolute number of undernourished people in developing countries
actually increased from 823 million in 1990 to 848 million in 2002–2005, and an
estimated one billion in 2009. Even before the food price crisis in 2007–2008 hit the poor,
roughly 160 million people were living in ultra poverty, on less than 50 cents a day. In a
worrying trend, the most severe deprivation is increasingly concentrated in Sub-Saharan
Africa, which has experienced a significant increase in the number of the ultra poor since
1990 and is currently home to three-quarters of the world’s ultra poor .
At their peaks in the second quarter of 2008, world prices of wheat and maize were three
times higher than at the beginning of 2003, and the price of rice was five times higher. In
response to high food prices, poor households had to limit their food consumption, shift to
even less-balanced diets, and spend less on other goods and services that are essential for
their health and welfare, such as clean water, sanitation, education and health care. Food
price hikes have also worsened micro nutrient deficiencies, with negative consequences
for people’s nutrition and health, such as impaired cognitive development, lower resistance
to disease and increased risks during childbirth for both mothers and children. Since
children’s nutrition is crucial for their physical and cognitive development and for their
productivity and earnings as adults, the health and economic consequences of insufficient
food and poor diets are lifelong – for the individuals as well as for society. A 2008 Lancet
article shows that men who benefited from a randomized nutrition intervention when they
were young children earned wages that were 50% higher than those of nonparticipants
three decades later. Thus, it must be assumed that even when a multiyear price shock ends,
the adverse consequences for the poor and food insecure continue for decades.
The global financial crisis and recession are now adding to the burden on the poor as
wages are lost, many small farmers find themselves unable to pay off their debts and
capital for agriculture is further limited. With food and general costs of living on the rise,
people in more than 60 countries turned to the streets in protest in 2007 and 2008. IFPRI
estimates that recession and reduced investment in agriculture could raise international
grain prices by 30% and push 16 million more children into malnutrition in 2020
compared with continued high economic growth and maintained investments . At a global
scale, the decline in investments leading to cuts in agricultural supply seems to be stronger
than the demand decline due to the recession. These trends might soon put again strong
upward pressure on food prices combined with increased price volatility.
The challenge of feeding the world has greatly increased. The recent hikes in food prices
are not exceptionally high from a historical perspective but they have greatly increased the

challenge of feeding the world’s growing population. Since the time of notoriously high
food prices in the 1870s, world population has increased more than five times reaching 6.7
billion today and it is expected to reach 9 billion by 2050. To overcome existing hunger,
feed an additional 2 billion people and accommodate rising demand from income growth,
food production would have to be doubled by 2050.
4) Science and technology for hunger and poverty reduction :
Existing land and water constraints, as well as further challenges for natural resources
such as climate change, make the task of doubling food production in the next four
decades additionally challenging. There is only about 12% or less of available arable land
which is not presently forested or subject to erosion and desertification. The area of land in
farm production could in principle be doubled, but only by massive destruction of forests
and loss of biodiversity and carbon sequestration capacity. The other consequence of
doubling food production this way is significant increases in the marginal costs of
investment, which would translate in increased food prices.
Numerous studies have shown that spending on agricultural research and development
(R&D) is among the most effective types of investment for promoting growth and
reducing poverty. For example, for every 1 million rupees spent on agricultural R&D in
India in the 1990s, 323 poor people were lifted above the poverty line. Plant-breeding
programs, in which the centers of the Consultative Group on International Agricultural
Research (CGIAR) play a leading role, have developed more than 8000 improved crop
varieties in the past 40 years.
The opportunities offered by agricultural science for the future are also wide. In an
assessment of the key technological innovations needed for advancement by 2020, 9 of the
16 technological innovations relate to agriculture and rural development, such as
genetically modified crops and rural wireless communications. Biofortification – the
breeding of new varieties of staple crops that are rich in micro nutrients – allows the poor
to receive the necessary amounts of vitamin A, zinc and iron via their regular staple-food
diets. Biofortification provides a means of reaching malnourished populations in relatively
remote rural areas and delivering naturally fortified foods to people with limited access to
commercially marketed fortified foods or supplements. New high-impact technologies
such as nanotechnology and its applications, might allow people to eat foods without
absorbing harmful allergens and cholesterol, and modify food taste and nutritional value.
For such technologies, however, research efforts should be devoted to carefully studying
both benefits and hazards early on in the application process.
Genetic modification has been successful in creating beneficial traits such as disease
resistance, higher nutritional value and increased yields – traits which can be difficult to
achieve through traditional breeding techniques. Biotechnology can increase small farmer
productivity and equity in poor communities threatened by extreme weather, crop pests
and different types of malnutrition. In addition, it can ameliorate environmental
degradation by developing high-yield varieties, which require less use of chemical
pesticides and do not require mechanical tilling. Since 1996, biotechnology has decreased

the environmental impact associated with herbicides, and insecticide use has significantly
reduced pesticide spraying. As a result, it has decreased the environmental impact
associated with herbicide and insecticide use on these crops. For consumers,
biotechnology can improve health outcomes and reduce food and health expenditures.
Even though genetically modified foods currently available on the international market
have passed risk assessments and are not likely to present risks for human health
opposition against genetically modified crops persists and has provoked wide attention and
debate. On the surface, it appears as if interest group activism against genetically modified
foods is motivated by precaution. However, a deeper look into the issue reveals that it is
predominantly an issue of preferences. Therefore, the constructive solution would not be
to enter into an exchange of dogmas, but an examination of the rationality of consumer
preferences and improved information for customers.
From an ethical standpoint, the risks of growing genetically modified crops should be
weighed against the risks of non adoption. Rejection of genetically modified crops leads to
negative externalities that hurt the poor. To sustainably save human lives without
biotechnology investments, two options exist: use more environmental capital and
undermine sustainability, and invest more in safety nets and direct social programs.
Both are very high-cost alternatives which are not sustainable. Despite the benefits and the
associated opportunity costs, agricultural growth in many developing countries continues
to be hampered by lack of appropriate agricultural technologies. While in 2008, about 12.3
million farmers in 15 developing countries were growing biotech crops these farmers still
represent a small fraction of those working on the 400 million small farms globally.
Dissemination of technology in agriculture requires much more upfront investment in the
foundations of effective technology utilization, such as rural education, infrastructure and
extension services.
However, public R&D investments have been stagnating since the mid-1990s, and the gap
between rich and poor nations in generating new technology remains. From 1992 to 2006,
funding for the CGIAR, which is a major contributor to agricultural innovation in
partnership with national research systems, increased by only 2% per year. The current
resources are hardly enough to work at the frontiers of new science, and the recent
financial crunch further constrains the availability of capital for agriculture science in the
developing world.
4) Issue of Employment – Skill Development, Make in India Programme
Synopsis :
1) Introduction
2) Problems with Skill Development Programmes
3) Challenges to Skill Development in India
________________________________________________________________________

1) Introduction :
Skill development refers to all the efforts to improve the effectiveness and contribution of
labor to the overall productivity as well as production, which lead the economy to a higher
trajectory. The skill development has been a hot topic in current times in our country.
Demographic dividend was indicated by the changing demographic profiles of India vis-à-
vis some other countries such as China. The changing demographic profile indicated that
India has a unique 20-25 years window of opportunity. This opportunity comes to us
because of increased ratio of young and working population, lesser dependency ration due
to declining birth rates and improvement in life expectancy. More working people means
more savings which, in turn, means more money for investments. As the number of
working people grows, it also reduces the dependency ratio, which is the proportion of
non-working population to the working.
The expansion of the talent based economy worldwide indicated that global economy is
witnessing an acute shortage of skilled manpower.
2) Problems with Skill Development Programmes :
 The UPA regime is known for tedious governance structures. The biggest problem
that occurred was of lack of coordination. Government was preoccupied with
financing and implementation lost track. The Employment Exchanges, NCVT
SCVT etc. were not utilized properly for training and information dissemination.
The skill development programmes were implemented by ministries, departments
and state governments. For example,
 In UPA regime, 20 different ministries handled 73 different skill

development schemes.
 There was not centralized curriculum or certification.
 NSDC was kept under the Finance Ministry. It had hardly succeeded in
coordination among various ministries and departments.
 Involvement of Industry and employers in the skill training structures (such as

ITIs) is almost nothing. They could not be brought forward to proactively
participate in the skill development. They were not brought forward because this
would entail larger autonomy to institutions.
 India has a fragmented vocational education system, managed by multiplicity of

bodies under the NCVT, DGET and the SCVTs. Lack of coordination among them
has resulted in ineffectiveness of any top down approach to skill development. The
quality of vocational institutes is also low.
 Funding of vocational education in India is restricted largely to government,

where little attention was paid to quality. Once an institution begins to receive
funding, subsequent funds are assured regardless of the institution’s performance.
Moreover, Education being a state subject, the implementation of any vocational;

education would be in the domain of respective state governments. While the
student fees in ITI’s/polytechnics go to the State treasuries, the institution itself
does nothing to cater to the market requirements.
 For now, far too much of young India learns on the job. It learns well but lacks the
stamp of authority, and languishes in low-paid jobs or in the informal sector.
 A large number of students with vocational education need to look for placement
in private organizations or for self employment. The condition of private industrial
employments and self employment are inferior in India in comparison to other
countries. Subsequently, only a smaller fraction of students (~5%) opt for
vocational education.
3) The Efforts under New Government : Separate Ministry
The incumbent NDA government has established a separate ministry for skill development. This
central ministry takes the core elements from various ministries and pools them under one
minister, Sarbananda Sonowal, and under one budget, which could be in the region of Rs 25,000
crore. In June 2014, the ministry had begun negotiations with two dozen ministries, however, most
of them had apparently objected to losing their turf. The current position is as follows:
 The 73 schemes remain (as of now) with the respective ministries and the skill
ministry to work as coordinator
 The new ministry will devise training curriculum in key sectors and issue
certificates to trained personnel.
 Three key agencies — National Skill Development Corporation, National Skill

Development Agency and National Skill Development Trust — which used to be
attached to the department of economic affairs under the ministry of finance are
now under the administrative control of new ministry.
Whether the government will continue to fund individual ministries for skill development
as it did earlier or, the new ministry finally gets a mandate of handling all skill
development work across sectors, thereby trimming work assigned to other ministries—
this question remains unanswered as of now.
3) Challenges to Skill Development in India :

By 2022, India will have the maximum number of working age population in the world. The
FICCI-KPMG Global Skills Report has noted that if properly skilled, they can contribute to
economic growth. But there are many challenges to skilling in India. Some of them are:
 Problem in Mobilization
Student mobilization to get trained has been a major concern due to the traditional mindset, low
willingness to migrate, low salaries at entry level.
 Issues in Employers’ Buy-In

The employer does not distinguish whether an employee has picked up skills on the job or he has
acquired them through formal training,
 Problems In Scalability
Scaling up aspirations to current jobs as well as getting the right kind of training partners and
effective stakeholder management are important.
 Mismatch between youth aspirations and jobs
Finding students to fill the classrooms and getting people to accept new kind of jobs have been
difficult,
 Ensuring Minimum Wages
At present, wages are linked with categorization of ‘skilled’, ‘semi-ski lied’ or ‘unskilled’, but
these have to be aligned with skill levels defined as per National Skill Qualification Framework
(NSQF) and recognition of higher level of skills in terms of minimum wages is noted.
5) Issue of Special Economic Zones
Synopsis :
1) Introduction
2) Issue of Labor
3) Land Acquisition
4) Environmental Issue
________________________________________________________________________
1) Introduction :
A Special Economic Zone (SEZ) is a geographically bound hub, where economic laws
related to export and import are more flexible and liberal as compared to the laws imposed
on other parts of the country. The story of Special Economic Zones came to Indian
scenario when SEZ Act was passed by the Indian Government in May 2005. The same
received Presidential nod on the 23rd of June, 2005. The then Prime Minister of India, Dr.
Manmohan Singh, said: “SEZs are here to stay” in his introduction speech. The bill came
into effect on 10th February 2006, bringing simplification of procedures in export and
import laws.
SEZs which were supposed to create employment, supply quality “make in India” goods
and services is criticized vehemently everywhere in regards to our Prime Minister
Narendra Modi’s roaring policy for failing in its purpose somehow. The question is ‘why’?
Let’s see a few points that have been indicated by many:
2) Issue of Labor:

Our parliament from the time of independence has enacted a number of legislations
concerning welfare of the labors and labor laws. But the SEZ Act leaves anybody under
the apprehension that it hardly gives any space for the welfare of the labors who are
involved in its development. The rights of the labor in SEZ units have been attacked under
Section 49(1) which categorically says that nothing contained in that section shall apply to
“any modifications of any Central government Act or any rules or regulations made there
under or any notification or order issued or direction given or scheme made there under so
far as such modification, rule, regulation, notification, order or direction or scheme relates
to the matters relating to trade unions, industrial and labor disputes, welfare of labor
including conditions of work, provident funds, employers’ liability, workmen’s
compensation, invalidity and old age pension and maternity benefits applicable in any
Special Economic Zones.” This is completely unacceptable. Many of the workers are
contract laborers supplied to the companies by recruiting agencies operating in the
villages, which are as far as 60kms from the main units. Females who are unmarried are
preferred in the age group of 18 to 30 years, even lesser sometimes, for better productivity
and efficiency. Short term contracts are made, so that they can be hired or fired at will.
Most do not even make more than 30-70 Rs per day. They are made to work 10-12 hours
without taking lunch or toilet break sometimes. Management keeps on increasing the work
quota, and if unable to finish that on time sometimes identity cards are snatched which
makes them unable to give attendance. Pregnant ladies are also not spared from these
torturous practices.
According to Padmini Swaminathan, director, Madras Institute of Development Studies,

“the women suffered from frequent headaches due to tension and intense concentration at
work, acute back pain, joint pains, swelling in the legs, severe abdominal pains, and
various types of allergies, skin ailments, and piles (the result of sitting in the same position
for hours on end)”. Respiratory disorders like asthma, pertinent cough and breathlessness
are seen to be persistent.
3) Land Acquisition:
India has ample land by the looks of it, however, initially when the plan was conceived it
was told that SEZs will be made on non-agricultural or so called semi-agricultural or
barren lands. Land is required for farming, land is required for shelter and domestic
purposes and land is again required for the economic development of the country in the
form of SEZ. But if a question comes as to which amongst these three is most competent
than the rest, then we all know the unanimous answer. The disharmony may arise when the
decision of the government regarding the same may not match with that of the involved
individuals.
Land grabbing policy by duping poor uneducated farmers have become the trend, by SEZ
makers and real estate giant developers. Moreover those who were promised to be given
jobs in the factories, and units, have only given minimal monetary compensation, as
running factories require skilled labors where most farmers are unskilled in factory dos
and don’ts. This has resulted in farmers committing suicides in a ratio like 10 farmers
every day.

4) Environmental Issue:
Industry has to use natural resources at a huge scale to provide and sustain its units.
However over utilization, reckless operation, no regards for maintaining ecological
balance etc. adversely affects the ecological balance in the concerned area. The SEZ units
by practice are exempted from Environmental Impact Analysis which is under taken by the
provision of the Environment (Protection) Act India. Moreover, the entrepreneurs want
more and more relaxation in the environmental norms, and issues which comes in their
way, and which the previous and present government is in the way of granting in the name
of economic growth of country.
Pollution, drinking water problem, sewerage issues, death in livestock due to dearth of
water and adequate fodder, skin diseases, and other health hazards is widely attributed to
the irrational construction of SEZ’s.
Indian SEZs have created over 840,000 jobs as of 2010-11, but still critics have pointed
out, that it has not the ones who gave up on their land and resources, and still live
inhuman, sorry life, denied worker rights, and what was once conceived to be shining
economic zones, totaling INR 2.2 Trillion in 2009-10, has eventually resulted in
exploitation zones for the poor.
6) Trends in Revenue and Expenditure of Central and State Government
Synopsis :
1) Introduction
2) Government Revenue
3) Revenue of the central government and revenue of the local governments
4) Government Expenditure
5) Categories of Government Expenditures
6) The Principles of Government Expenditure
7) Expenditure of the central government and expenditure of the local governments
________________________________________________________________________
1) Introduction :
Government revenue is money received by a government. It is an important tool of the

fiscal policy of the government and is the opposite factor of government spending.
Revenues earned by the government are received from sources such as taxes levied on the
incomes and wealth accumulation of individuals and corporations and on the goods and
services produced, exports and imports, non-taxable sources such as government-owned
corporations' incomes, central bank revenue and capital receipts in the form of external
loans and debts from international financial institutions. It is used to benefit the country.
Governments use revenue to better develop the country, to fix roads, build homes, fix

schools etc. The money that government collects pays for the services that is provided for
the people. The sources of finance used by the central government are mainly taxes paid
by the public.
2) Government Revenue :
It refers to the revenue of the government finance by means of participating in the
distribution of the social products, which is the financial resources for ensuring the
government to function. The contents of government revenue have been changed several
times. Now it includes the following main items :
(1) Various tax revenues, including value added tax, business tax, consumption tax, land
value added tax, tax on city maintenance and construction, resources tax, tax on use of
urban land, enterprise income tax, personal income tax, tariff, stamp tax on security
transactions, tax on purchase of motor vehicles, tax on agriculture and animal husbandry
and tax on occupancy of cultivated land, etc.
(2) Special revenues, including revenues from the fee on sewage treatment, fee on urban
water resources, fee for the compensation of mineral resources and extra-charges for
education, etc.
(3) Other revenues, including revenue from interest, revenue from the repayment of capital
construction loan, revenue from capital construction projects, and donations and grants.
(4) Subsidies for the losses of the state-owned enterprises. This is an item of negative
revenue, consisting of subsidies to industrial, commercial and grain purchasing and supply
enterprises.
3) Revenue of the central government and revenue of the local governments :
It refers to the revenue of the central government and that of the local governments as
defined by the decentralized taxation system starting from 1994. In accordance with this
system, the revenue of the central government includes tariff, consumption tax and value
added tax levied by the customs, consumption tax, income tax of the enterprises
subordinate to the central government, income taxes of the local banks, foreign-funded
banks and non-bank financial institutions, business tax and profits of railways, head
offices of banks, head office of insurance company , which are handed over to the
government in a centralized way, tax on city maintenance and construction, tax on
purchasing motor vehicles, tonnage tax of ships, 75% of the value added tax, 94% of the
tax on stock dealing (stamp tax), interest income tax in the personal income tax,
proportion of the personal income tax (other that interest income tax) to be shared by the
central government, and tax on ocean petroleum resources,. The revenue of the local
governments includes business tax, income tax of the enterprises subordinate to the local
government, proportion of the personal income tax (other that interest income tax) to be
shared by the central government, tax on the use of urban land, tax on the adjustment of
the investment in fixed assets, tax on town maintenance and construction, tax on real

estates, tax on the use of vehicles and ships, stamp tax, slaughter tax, tax on agriculture
and animal husbandry, tax on special agricultural products, tax on the occupancy of
cultivated land, contract tax, value-added tax on land, income from charges on use of
state-owned land, 25% of the value added tax, 6% of the tax on stock dealing (stamp tax)
and tax on resources other than the ocean petroleum resources.
4) Government Expenditure :
Government expenditure refers to the purchase of goods and services, which include
public consumption and public investment, and transfer payments consisting of income
transfers (pensions, social benefits) and capital transfer.
5) Categories of Government Expenditures :

Government expenditures can be classified into several categories. First, some outlays are
for direct government purchases of goods and services. Purchases of goods and services
include government expenditures on the services of individuals, such as those in the armed
forces, and on goods, such as food, medicine schools, hospitals, highways, and motor cars.
Many of the purchases the government makes are for goods and services that are provided
for all members of the society — including those who have not paid for then use.
When a good or service is provided for everyone and no one can be excluded from its use,
it is termed a public good. Flood control and national defence systems are examples of
public goods. When government provides a good or service that could be sold in a private
market, such as education or fire protection, it is providing a quasi-public good. The
provision of public and quasi-public goods is a widely recognised function of the
government.
A second category of government expenditure is transfer payments, which are payments

from the government for which nothing is received in return. Social security benefits,
compensation to unemployed people, benefits to senior citizens and pensions to retired
government employees and freedom fighters are all examples of transfer payment
programmes.
Interest paid on borrowed funds is another type of government expenditure. At times,

government units finance some of their activities through borrowing, and the interest on
those borrowed funds is an expense that the government unit must meet.
The government may also incur expenses for running or contributing to the operation of
various public enterprises such as toll roads, airports, and hospitals, or for providing
intergovernmental grants. These grants are given primarily by the Central Government to
State and Local Governments.

6) The Principles of Government Expenditure:
Public expenditure refers to the expenditure incurred by the Central Government. There
are different types of such expenditure. The usual distinction is between consumption
expenditure and investment expenditure. Another distinction is between revenue
expenditure and capital expenditure.
Public expenditure is likely to have beneficial effect on society, i.e., reduction of income
inequality, control of business cycles, and achievement of foil employment and so on.
7) Expenditure of the central government and expenditure of the local governments:
According to the different functions of the central government and local governments in
the economic and social activities, the rights of affairs administration are classified
between the central government and local governments; and the classification of the
expenditure between the central government and local governments are made on the basis
of the classification of the rights of affairs administration between them. The expenditure
of the central government includes the expenditure for national defence, expenditure for
armed police forces, the administrative expenses and various operating expenses at the
level of central government, expenditure for key projects and the expenditure of the
central government for adjusting the national economic structure, coordinating the
development among different regions and exercising the macro-economic regulation and
control. The expenditure of the local governments includes mainly the administrative
expenses and various operating expenses at the level of local governments, the expenditure
for capital construction and technological innovation with the funds raised by the local
government, expenditure for supporting rural production, expenditure for city maintenance
and construction and expenditure for price subsidies, etc.
*****

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BA 0303 Theories of Development and Indian Economy

Module 01 Economic Development and Growth :

1) Concept of Development, Economic Development and Economic Growth

Nations monitor a variety of statistics to measure economic growth such as national

Prepared by Prashant Gudde, BALLB- II 1..

Economic Growth is often contrasted with Economic Development, which is defined as

3) Features of Economic Growth :

 Economic Growth is measured by increase in real National Income and not

 Increase in income should be based on Increase in Productive Capacity:

Prepared by Prashant Gudde, BALLB- II 2..

Economic Development is defined as the process of increase volume of production along

Economic development is defined as a sustained improvement in material well being of

5) Differences Between Economic Growth and Economic Development :

 Economic growth is one of the features of economic development.

 Economic growth is an automatic process. Unlike economic development, which

Prepared by Prashant Gudde, BALLB- II 3..

 Economic Growth results in quantitative changes, but economic development

 Economic growth can be measured in a particular period. As opposed to economic

6) Determinants/Factors affecting Economic Growth

The process of economic growth is a highly complex phenomenon and is influenced by

(A) Economic Factors

2. Human Resources Development:

A good quality of population is very important in determining the level of economic

Capital formation is another important factor for development of an economy. Capital

Prepared by Prashant Gudde, BALLB- II 4..

Technological progress is a very important factor in determining the rate of economic

Another important determinant of economic growth is the provision of social overheads

(B) Non-Economic Factors

Non-Economic factors that include socio-economic, cultural, psychological and political

Prepared by Prashant Gudde, BALLB- II 5..

2. Social and Psychological Factors:

4. Desire for Material Betterment:

2) Human Right Dimension in Economic Development and Economic Growth

Prepared by Prashant Gudde, BALLB- II 6..

2) Human Rights and Economic Growth :

3) Features and Indicators of Economic Development

Prepared by Prashant Gudde, BALLB- II 7..

According to Prof. Meier and Baldwin, “Economic Development is a process, whereby,

2) Features of Economic Development :

 Another feature of the economic development is that there is a substantial

Prepared by Prashant Gudde, BALLB- II 8..

 Another important characteristic of economic development is that it leads to the

 In economically developed countries there is a tendency of people to save less and

3) Indicators of Economic Development :

Economic development refers to the process by which a community, nation or region of

1) Gross Domestic Product

Prepared by Prashant Gudde, BALLB- II 9..

4) Rise in Living Standard

5) Physical Quality of Life Index

6) Human Development Index

7) Poverty Alleviation and Inequality Reduction

Prepared by Prashant Gudde, BALLB- II 10..

4) Vicious Cycle of Poverty

2) Demand Side of Capital :

Prepared by Prashant Gudde, BALLB- II 11..

The vicious circle of supply can shown by the following diagram :

4) Main Points of Vicious Circle of Poverty :-

3. Rapid population growth