IMPORTANT CHALLENGES

BEFORE INDIAN ECONOMY

INTRODUCTION
India economy, the third largest economy in the
world, in terms of purchasing power, is going to
touch new heights in coming years. As predicted
by Goldman Sachs, the Global Investment Bank,
by 2035 India would be the third largest economy
of the world just after US and China. It will grow to
60% of size of the US economy. This booming
economy of today has to pass through many
phases before it can achieve the current
milestone of 9% GDP, But to achieve all that
success India has to face many hurdles. Here I
will show you challenges before Indian economy.

Challenges before Indian economy:

 Population explosion: This monster is eating up into
the success of India. According to 2001 census of
 India, population of India in 2001 was 1,028,610,328,
growing at a rate of 2.11% approx. Such a vast
population puts lots of stress on economic
infrastructure of the nation. Thus India has to control
its burgeoning population.
 Poverty: As per records of National Planning
Commission, 36% of the Indian population was living
Below Poverty Line in 1993-94. Though this figure
has decreased in recent times but some major steps
are needed to be taken to eliminate poverty from
India.
 Unemployment: The increasing population is
pressing hard on economic resources as well as job
opportunities. Indian government has started various
schemes such as Jawahar Rozgar Yojna, and Self
Employment Scheme for Educated Unemployed
Youth (SEEUY). But these are proving to be a drop
in an ocean.
 Rural urban divide: It is said that India lies in
villages, even today when there is lots of talk going
about migration to cities, 70% of the Indian
population still lives in villages. There is a very stark
difference in pace of rural and urban growth. Unless
there isn't a balanced development Indian economy
cannot grow.

These Challenges can be overcome by the

sustained and planned economic reforms.
These include:
 Maintaining fiscal discipline
 Orientation of public expenditure towards
sectors in which India is faring badly such as
health and education.
 Introduction of reforms in labour laws to
generate more employment opportunities for
the growing population of India.
 Reorganization of agricultural sector,
introduction of new technology, reducing
agriculture's dependence on monsoon by
developing means of irrigation.
 Introduction of financial reforms including
privatization of some public sector banks
Major Challenges before
Indian Economy
Post Independent India has major
challenges before it There are a number
of problems facing our country We are yet
to make satisfactory progress on many of
our problems While there are many
challenges and problems, let us focus
here on just THREE.

The three most important problems

facing our country are:
1-Poverty
2-Unemployment
3-Price Rise

Poverty
Poverty is a situation in which a person is unable to get
minimum basic needs of life - Roti, Kapda, Makan - Food,
Clothing and Shelter.There are many in India who do not
get enough food even once a day.We can see in our
neighborhood many children and even adults who are high
malnourished.They are the people who also do not have
decent clothes.You can see their houses in foot paths or in
slums.You can find young children employed in Dhabas,
Shops instead of going to school

Three questions arise in regard to poverty elimination.

They are:
How do we identify people who are poor? What are the
Yardsticks?
How many such poor people we have in India?
How are we going to remove this Poverty?
Who is Poor?

Measurement of Poverty
Those whose income is very low, they can be called poor.In
1999-2000, Government decided that those who earn below
the following limits are said to be living below the poverty
line.This poverty line was: Rs. 328 p.m. per capita in rural
 areas and Rs. 454 p.m. p.c. in urban areas.On this basis, India
has around 26 crores in rural and 26 crores in urban areas who
are below the poverty line [BPL] as per 1999-2000 statistics.
There is also another method to identify poverty
Those who have low nutrition levels can be said to be poor.The
minimum nutritional requirement per person is 2100 calories
per day in urban areas and 2400 calories in rural areas And
those who live below this calory level are poor people.
Who are these poor people?
Landless labourers
Agricultural labourers
Casual labourers
Seasonal labourers
Those employed in handicraft industries
Unemployed people

POVERTY LINE AND POVERTY IN INDIA

In 1999-2000, the poverty line in rural areas was fixed at

Rs.328 per capita per month and in urban areas it was
 Rs.454.The difference is because the essential goods in urban
areas are costlier than in rural areas.

-a quarter of the population in India is now living below poverty

line.

POVERTY AND OCCUPATION:

The poverty ridden families include the unemployed,the

landless,the agricultural and casual labourers, the tribals and
the disabled or the physically challenged.

-the casual workers, the unemployed daily wage earners,

domestic servants, rickshaw pullers, hotel and restaurant
workers are belonged to the urban poor.

CAUSES OF POVERTY
-during the British rule they discouraged the traditional
industries and textile industry.Millions suffered. Even after 50
years of Independence India, the large section of people
engaged in handicraft industries are in a poor condition.

-excessive dependency on agriculture leads to low levels of

income for the rural masses.They do not have enough land and
machinery, they are landless labourers and people without
work. Land reforms were not implemented properly in rural
areas.

-social factors like illiteracy, large size of family, law of

inheritance and caste system are responsible for poverty.

-poverty alleviation programmes have failed to make

considerable progress in removing poverty due to corruption
and inefficiency.

REMOVAL OF POVERTY:
 - govt has taken efforts to develop the heavy industries and green
revolution which would lead to rapid economic
development.Introduction of

Trickle down method:The benefit to a particular section of a

society would trickle down to other section across the country.

land reform methods: Such as zamindari system, security of

tenant farmers against eviction, fixation of rents, fixation of ceilings
on land holdings and distribution of surplus land among small and
landless farmers were undertaken by the govt.

-cottage and small scale industries were encouraged which

employ more people than machines.

Income distribution measures were introduced to reduce the gap

between the rich and the poor.(a)taxing the rich and the middle
classes (b)on the luxuary commodities .(c)reducing the prices on
essential goods to lower income group.

POVERTY ALLEVIATION PROGRAMMES (PAP)

Govt has adopted Poverty Alleviation Programme to bring down
the poverty level. Most of them aim at providing employment or
improvement of the asset-base of the poverty-ridden families.

SWARNAJAYANTI GRAM SWAROJGAR YOJANA (SGSY):

-to help the existing poor families to come above the poverty
line.

-this is a centrally sponsored scheme.

-families below poverty line are provoded with financial

assistance.

JAWAHAR GRAM SAMRIDHI YOJANA (JGSY):

-to generate employment for those men and women who do

not get sufficient days of employment in rural areas.

-creating community assets as social forestry, soil

conservation, minor irrigation projects and renovation of village
wells, rural roads, dispensaries, schools, panchayat ghars, bus
stands, etc.

-they target only families those are below poverty line.

PRIME MINISTER ROZGAR YOJANA(PMRY) AND

SWARNAJAYANTI SHAHARI ROJGAR YOJANA (SJSRY):
 -      Aimed at the welfare of the educated unemployed in urban
areas.

-     Self employment to the educated unemployed particulary in

urban areas.

-     The age group of 18 to 35 are expected to benefit.

-      Persons belonging to weaker sections are given priority.

OTHER PROGRAMMES IN RURAL AREAS:

-     Employment Assurance Scheme(EAS) and Pradhanmantri

Gramodaya Yojana(PMGY) were launched in 1999 and
2000 ’01.

-     Create wage employment for families below poverty line

-    Improving the quality of life of people in rural areas.

Unemployment
Unemployment is of different kinds
1. Pure unemployment - the person is willing to work but he could not find
gainful job
2. Under employment - the Person is a Post Graduate but is forced to take
up a menial job not befitting to his qualifications
3. Seasonal unemployment - agricultural workers get employment only in
the season
4. Cyclical unemployment - unemployment due to slackening of demands
for goods
5. Technical unemployment - staff reduction due to change in technology
6. Disguised unemployment - Less work and more people

MAGNITUDE OF UNEMPLOYMENT IN INDIA:

There are 2 ways by which the magnitude of unemployment is

measured in India.

-         first one is through conducting sample surveys and population

censuses.

Unemployment in rural areas have increased.

-         The second one is the information provided by employment

exchanges.

In 2001, about 420 lakh job-seekers were registered with employment

exchanges about 26% were women.

POPULATION GROWTH AND UNEMPLOYMENT:

- when the number of people increases in a country much faster
than the increase in employment opportunities, that situation may
lead to unemployment.

STRATEGIES TO REDUCE UNEMPLOYMENT

The govt has undertaken many special programmes to generate

employment opportunities. The major ones among them are:

RURAL WORKS PROGRAMME:

-        construction of civil works of permanent nature in rural areas.

INTEGRATED DRY LAND AGRICULTURAL

DEVELOPMENT:

-         permanent works like soil conservation, development of land and

water harnessing are undertaken.

NATIONAL RURAL EMPLOYMENT

PROGRAMME:
 -         to create community assets for strengthening rural infrastructure
like drinking water wells, community works, irrigation wells, rural
roads, schools etc.

The Rural Landless Employment Guarantee Programme aims at

generating gainful employment, creating productive assets in rural areas
and improving the overall quality of rural life.

SKILL DEVELOPMENT:

-         a skilled labour is one who has proper training and education to
work in a particular field.

-         Training and education increase the productivity of workers.

-         Educate and provide specialized training to the labour force

-         To ensure continous employment of labour

-         Able to absorb new technologies at work.

-         To compete with labour force of the other developed countries.

With a view to impart shills through training, the govt of India has taken
many steps.

-         The Central Board Of Workers Education (CBWE) formed in1958

is creating understanding and enthusiasm among workers.
-         There are around 4300 Industrial Training Institutes(ITI) to
produce specialized workers.

Problems associated with these steps are

-         restructuring and reorientation of ITI courses with the changing

system.

-         Industry-institute interaction continues to be weak.

-         Vocational system in schools has to be modified.

ENTREPRENEURIAL DEVELOPMENT:

Growth of employment involves

-         setting up of new businesses

-         expertise and organizing ability

-         training and implementing schemes which are necessary to

promote self-employment.

-         Low cost capital provided by the Govt to small enterprises and
self-employed persons to develop their entrepreneurial ability.

-         Giving technical and professional help in running the business.

-         Banks providing credit facilities at concessional rates.

-         All the above have helped in expansion of India’s industries and
business into newer domains and regions.

-         the rapid population growth has created an army of labour force.

-         Population on primary sector is already very high.

-         The responsibility of creating more jobs should be shared by both

secondary and tertiary sectors.

Measures to improve Employment

Why there is unemployment? Population growth is the main culprit.

The rate at which job opportunities grow in the country does not keep
pace with the rate of population growth. So, if unemployment is to be
reduced, one of the means to solve this is to control population
growth.
The other method is to improve the rate and growth of job
opportunities, which depends on better industrialisation and
improvement in tertiary sector.

Through various Yojanas, India is trying to improve job

opportunities through infrastructure Development and Community
Assets creation. One such is Rural Works Program. The others are
Integrated Dry Land Agricultural Development and National Rural
Employment Program.
We have already seen certin Yojanas under Poverty Alleviation
which also help eliminate unemployment.
Beyond the above Projects for Development, India is also
working to develop the skills of the educated Youth through various
Industrial Training Institutes where many job oriented vocational
courses are held upgrading the skills of youth and making them more
employable. Such vocational courses have also been introduced in
schools
In addition to the above, educated youth are given
enterpreneurial skills through Enterpreneurial Development
Programs.
Banks and other financial institutions also provide financial
assistance for developing one's own business.

PRICE RISE

We observe that over a period of time the costs of goods gradually

increase why? Such price rise are measured by an index.In India, there
 are two index numbers (a) Wholesale price index and consumer price
index and about 460 goods are included in the index.

-What is a price index: It is a tool to measure the price rise.

-         How it is measured? The average price of all the goods and services
are selected for the 1st year and considered as a base year and given an
index of 100. During the next year if the average price rises by 25% over
previous year then the price index for the 2nd year is 125 and so on

-         The consumer price index includes those items, which are consumed
generally by workers of all categories such as agricultural labourers,
industrial workers etc.

-         The consumer price includes goods such as food items, clothing and
other essentials.

CAUSES OF PRICE RISE

-         When people have more income on hand, the demand for goods and

services increase. If the supply of these goods and services are not

adequate there is a shortage and results in price increase of these goods

and services.

-         When the cost of production goes up because of increase in price of

raw materials.

-         Some people with an aim to make quick profit hoard the goods and
create an artificial demand and then they sell the goods at a higher price.
This is called hoarding and black marketing.

 
 
WHY REGULATION OF PRICES 
-         Generally moderate price rise is regarded good for an economy.

-         When the producers want to raise their standard of living, they will
demand higher price for their products. This will lead to an increase in the
cost of production and thereby price rise. Finally the consumers have to
pay higher price. If the benefit of increased price will go to the workers then
this is good for the economy.

-         Regulation is needed when traders make more profit and do not share
it with their workers by way of increased wages etc. Some times the
traders profit through the essential commodities such as milk, rice, wheat
etc. Here the Govt interferes to regulate the price rise.

STEPS TAKEN BY THE GOVT TO CONTROL PRICE RISE

-         Monetary measures: Whenever there is price rise Reserve Bank of India
reduces the money circulation in the economy. This reduces the tendency
of the consumer to spend, results in less demand for goods and thereby
lowers the price.

-         Fiscal Measures: By imposing high taxes on high- income groups and
many consumable goods. When people have less money then they will
spend less and this results in price decline.

-         Public Distribution system. By supply of essential goods such as rice,

wheat, oil etc and controlled rates through the PDS –Public Distribution
System to the poor people. These prices are less than the market prices.
The cost of price difference is borne by the Govt and is known as subsidy.
-         . Administered Price Mechanism; In order to prevent hoarding and to
provide basic essentials at reasonable price government fixes the price
and asks the traders to sell them at that rate fixed by govt. Law enacted to
this effect is the essential commodity act 1955.Those overriding the law
will be penalized. Subsidies under this measure is borne by the
government.Until recently petrol, diesel, LPG, cement were kept under
administrative price control , but now they are free from it. Essential drugs
and fertilizers still belong to Administrative Price Mechanism.

-         Government takes different measures to regulate the prices but

sometimes it becomes difficult like in the year 1998 the price of onions
rose to great extent that India was forced to import it.

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