404 Ib Ie&td Notes

Sinhgad Institute of Business
Administration & Computer

Application (SIBACA)
NOTES FOR
MBA - Semester: IV
(Specialization IB)
Course Code: 404IB
Type: Subject – Core
Course Title: Indian Economy and

Trade Dependencies
BY:
Dr. Bhati Rakesh Kumar
Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

Syllabus
Unit: 1 Introduction to Indian Economy : Alternative Development Strategies – Trends in
National Income, Growth and Structure since 1991 - New Industrial Policy 1991 – Recent changes
in Trade Policy - Competition Policy - Public Sector Reform - Privatization and Disinvestments –
Progress of Human Development in India
Unit: 2 Planning and Economic Development : Redefining the Role of the State – Human Capital
Formation in India – Problem of Foreign Aid – Economic Reforms and Reduction of Poverty –
Measures to Remove Regional Disparities
Unit: 3 Indian Industries : Review of Industrial Growth under 10th and 11th Five year plan -
Growth and present state of IT industry in India – Outsourcing, Nationalism and Globalization –
Small Sector Industrial Policy
Unit: 4 a) Foreign Trade: Trends of Exports and Imports of India – Composition of India’s
Foreign Trade - Direction of India’s Foreign Trade – Growth and Structure of India’s Foreign
Trade since 1991 – Balance of Payments since the New Economic Reforms of 1991.
b) Foreign Capital : Need for Foreign Capital – Foreign Investment Inflows – Role of Special
Economic Zones (SEZ)
Unit: 5 India in the Global Setting : India in Global Trade – Liberalization and Integration with
the Global Economy – Globalization Strategies – India’s Foreign Exchange Reserves –
Convertibility of the Rupee – WTO and India.

Unit: 1 Introduction to Indian Economy : Alternative Development Strategies – Trends in National
Income, Growth and Structure since 1991 - New Industrial Policy 1991 – Recent changes in Trade Policy
- Competition Policy - Public Sector Reform - Privatization and Disinvestments – Progress of Human
Development in India
Introduction to Indian Economy:-

 Low per capita income.
 Inequalities in income distribution.
 Predominance of agriculture. (More than 2/3rd of India’s working population is engaged in
agriculture. But in USA only 2% of the working population is engaged in agriculture.)
 Rapidly growing population with 1.2% annual change.
 Chronic unemployment (A person is considered employed if he / she works for 273 days of a
year for eight hours every day.)Unemployment in India is mainly structural in nature.
 Low rate of capital formation due to less saving rate.
 Dualistic Nature of Economy (features of a modern economy, as well as traditional).Mixed
Economy
 Follows Labour Intensive Techniques and activities.
India has emerged as the fastest growing major economy in the world as per the Central
Statistics Organisation (CSO) and International Monetary Fund (IMF) and it is expected to be one of
the top three economic powers of the world over the next 10-15 years, backed by its strong democracy
and partnerships. India’s GDP increased 7.1 per cent in 2016-17 and is expected to reach a growth rate
of 7 per cent by September 2018.
India is likely to be the third largest economy with a GDP size of $15 trillion by 2030.The
economy of India is currently the world’s fourth largest in terms of real GDP (purchasing power parity)
after the USA, China and Japan and the second fastest growing major economy in the world after
China.
Alternative Development Strategies –
In order to achieve the long-term and short-term objectives set in the each five year, specific
strategies are required. It involves allocation resources across different sectors of the economy in
tandem with the specified objectives. It involves selection choices like development of agricultural
sector or industrial sector, public sector or private sector involvement, closed economy or open
economy model. Indian planning strategies can be split into two phases: pre-1991 phase and post –
1991 phase.
Pre 1991 Phase or Pre-reform Phase
During pre – 1991 phase (1951 to 1990), India followed the strategy of planning with greater reliance
on the public sector along with a regulated private sector. Following strategies are followed during
1951-91 phase:
Heavy Reliance on Public Sector
 Greater reliance was placed on public sector compared to private sector. As private sector was
not able to invest in large amount for development of heavy industries, government turned
towards public sector for provision of essential and basic needs for the people. At the same time
private sector was not willing to provide the services in backward regions of the country.
Regulated Expansion of Private Sector
 Private sector was restricted to few areas of activities. New legislations were created for the
restriction for the restriction of private sector.
Development of Heavy Industries
 Government invested heavily in development of Heavy industry like iron industry.
Protection of Small Scale Industry
 Small scale industry was protected by means of establishment of boards for different small scale
industries and reserving few areas of production exclusively for the small scale industry.
Inward Looking Trade Strategy

 Domestic industry was protected from competition in the international market. Heavy import
duty was imposed to curb competitive imports, while domestic industries were encouraged to
produce domestic substitutes of essential imports.
Thrust on Savings and Investment
 Promotion of savings and investment was the undisputed objective of monetary and fiscal
policies of the government. Savings are induced through high rate of interest. Tax concessions
were to mobilise savings.
Restriction on Foreign Capital
 Several types of restrictions were imposed on foreign direct investment. To control and regulate
it, Foreign Exchange Regulation Act (FERA) was enforced.
Adherence to Centralised Planning
 State level plans were aligned in sync with the over all objectives and strategy of growth as
specified in Five Year Plans.
Post 1991 Phase (Post-reform Phase)

Strategy of planning in India witnessed a marked shift in the year 1991. Following are main changes
observed under NEP (new economic policy):
 Fiscal policy and monetary policy have been reoriented to facilitate the free play of market
forces.
 Foreign capital in the form of FDI (Foreign direct investment) and FII (Foreign Institutional
Investment) are encouraged.
 Import restrictions are restricted to the minimum, while export promotion has been accorded a
high priority.
 Competition rather than controls have become the fulcrum of growth process.
 Direct participation of the government is significantly tempered and confined only to strategic
industries such as atomic energy, minerals and railways.
 Partial convertibility of Indian Rupee.
The concept of Sustainable development is included as main feature of the strategy of planning in India.
Sustainable development refers to the development of present generation by taking into consideration of
the future generations.
Following are some notable reasons for change in economic policy:
1. Mounting Fiscal Deficit and revenue deficit: Fiscal deficit and revenue deficit of the country are
increased due to the policies followed before the 1990’s governments.
2. Balance of Payments (BoP) Crisis: Heavy dependence on imports resulted in a BoP crisis.
3. Gulf Crisis: On account of Iraq war in 1990-91, prices of petrol started increasing. Remittances
from gulf countries are also stopped.
4. Fall in Foreign Exchange Reserves: In 1990-91, India’s foreign exchange reserves lowered to
such a level that these were not enough even to pay for an import bill of 10 days.
5. Rise in Prices: In India prices happened to rise rapidly. Expansion in money supply was the
principal cause of inflationary pressures. In turn, this was related to deficit financing. Country
has experienced the situation of stagflation.
6. Dismal Performance of Public Sector Undertakings (PSUs):Public sector undertakings were
showed dismal performance.
On account of all these factors, the government shifted to New Economic Policy.
Three Principal Components of New Economic Policy
Liberalisation, Privatisation and Globalisation are the three principal components of New
Economic Policy. Liberalisation of the economy means freedom of the economy from restrictions of the
Government. Liberalisation was expected to break the deadlock of low investment by exposing the
economy to the forces of supply and demand. Privatisation refers to allowing private sector to enter in
those areas of production which were previously reserved for the public sector. Also, existing public
enterprises are either wholly or partially sold to private sector. It was considered to be the fittest option
to stave off problems of public sector enterprises. Globalisation means integrating domestic economy
with rest of the world under conditions of free flow of trade and factors of production across borders.

Globalisation results in flow of capital and technology from developed countries into the Indian
economy.
Trends in National Income, Growth and Structure since 1991
National income of India constitutes total amount of income earned by the whole nation of our
country and originated both within and outside its territory during a particular year. The National
Income Committee in its first report wrote, “A national income estimate measures the volume of
commodities and services turned out during a given period, without duplication.”
national income is not a stock but a flow. It measures the total productive power of the community
during given period. Further, the National Income Committee has rightly observed, “National income
statistics enable an overall view to be taken of the whole economy and of the relative positions and
inter-relations among its various parts”.
During the British period, several estimates of national income were made by Dadabhai Naoroji
(1868), Willium Digby (1899), Findlay Shirras (1911, 1922 and 1934), Shah and Khambatta (1921),
V.K.R.V. Rao (1925-29) and R.C. Desai (1931-40).
Among all these pre-independence estimates of national income in India, the estimates of
Naoroji, Findlay Shirras and Shaw and Khambatta have computed the value of the output raised by the
agricultural sector and then added some portion of the income earned by the non-agricultural sector. But
these estimates were having no scientific basis of its own.
After that Dr. V.K.R.V. Rao applied a combination of census of output and census of income
methods. While dividing the whole economy into two separate categories he included agriculture,
pastures, forests, fishing, hunting and mines in the first category and applied output method to derive
the value of output of these sectors.
The other activities like industry, trade, transport, administrative and public services, professions,
liberal arts and domestic services were included in second category and applied income method to
derive the amount of income raised from all these services.
He also added income from house property and other internal incomes along-with the total income
earned from abroad to these two sub-totals mentioned above. Just to derive the net aggregate income he
excluded those values of goods and services which we consumed in the process of production.
After independence, the Government of India appointed the National Income Committee in August,
1949 with Prof. P.C. Mahalnobis as its chairman and Prof. D.R. Gadgil and Dr. V.K.R.V. Rao as its two
members so as to compile a national income estimates rationally on scientific basis. The first report of
this committee was prepared in 1951.
In its report, the total national income of the year 1948-49 was estimated at Rs. 8,830 crore and the per
capita income of the year was calculated at Rs. 265 per annum. The committee continued its estimation
works for another three years and the final report was published in 1954.
The following are some of the important causes of slow growth of national income in India:
1. High Growth Rate of Population:
Rate of growth of population being an important determinant of economic growth, is also
responsible for slow growth of national income in India. Whatever increase in national income has been
taking place, all these are eaten away by the growing population. Thus high rate of growth of
population in India is retarding the growth process and is responsible for slow growth of national
income in India.
2. Excessive Dependence on Agriculture:
Indian economy is characterised by too much dependence on agriculture and thus it is primary
producing. The major share of national income that is usually coming from the agriculture, which is

contributing nearly 34 per cent of the total national income and engaged about 66 per cent of the total
working population of the country.
Such excessive dependence on agriculture prevents quick rise in the level of national income as well as
per capita income as the agriculture is not organised on commercial basis rather it is accepted as way of
life.
Excessive dependence on agriculture and low land-man ratio, inferior soils, poor ratio of capital
equipment, problems of land holding and tenures, tenancy rights etc. are also responsible for slow
growth of agricultural productivity which, in turn, is also responsible for slow growth of national
income.
1. Occupational Structure:
The peculiar occupational structure is also responsible for slow growth of national income in the
country. At present about 66 per cent of the working force are engaged in agriculture and allied
activities, 3 per cent in industry and mining and the remaining 31 per cent in the tertiary sector.
Moreover, prevalence of high degree of under-employment among the agricultural labourers and also
among the work force engaged in other sectors is also responsible for this slow growth of national
income.
4. Low Level of Technology and its Poor Adoption:
In India low level of technology is also mostly responsible for its slow growth of national income.
Moreover, whatever technology that has been developed in the country, is not properly utilised in its
production process leading to slow growth of national income in the country.
5. Poor Industrial Development:
Another important reason behind the slow growth of national income in India is the poor rate of
development of its industrial sector. The industrial sector in India has failed to maintain a consistent and
sustainable growth rate during the planned development period and more particularly in recent years.
Moreover, the development of basic industry is also lacking in the country. All these have resulted a
poor growth in the national income of the country.
6. Poor Development of Infrastructural Facilities:
In India, the infrastructural facilities viz., transport, communication, power, irrigation etc. have not yet
been developed satisfactorily as per its requirement throughout the country. This has been creating
major hurdles in the path of development of agriculture and industrial sector of the country leading to
poor growth of national income.
7. Poor Rate of Saving and Investment:
The rate of savings and investment in India is also quite poor as compared to that of developed
countries of the world. In recent times, i.e., in 2008-09, the rate of gross domestic savings was restricted
to 32.5 per cent of GDP and that of investment was 33.0 per cent of GDP in the same year. Such low
rate of saving and investment has resulted in a poor growth of national income in the country.
8. Socio-Political Conditions:
Socio-political conditions prevailing in the country is also not very much conducive towards rapid
development. Peculiar social institutions like caste system, joint family system, fatalism, illiteracy,
unstable political scenario etc. are all responsible for slow growth of national income in the country.
In the mean time, the Government has taken various steps to attain a higher rate of growth in its
national income by introducing various measures of economic reforms and structural measures. All
these measures have started to create some impact on raising growth of national income of the country.
Suggestions to Raise the Level and Growth Rate of National Income in India:
In order to raise the level and growth rate of National income in India, the following suggestions
are worth mentioning:
1. Development of Agricultural Sector:
As the agricultural sector is contributing the major portion of our national income, therefore, concrete
steps be taken for all round development of the agricultural sector throughout the country at the earliest.
New agricultural strategy be adopted widely throughout the country to raise its agricultural productivity
by adopting better HYV seeds, fertilizers, pesticides, belter tools and equipment’s and scientific rotation

of crops and other scientific methods of cultivation. Immediate steps be taken to enhance the coverage
of irrigation facilities along with reclamation of waste land.
2. Development of Industrial Sector:
In order to diversify the sectoral contribution of national income, industrial sector of the country should
be developed to a considerable extent. Accordingly the small, medium and large scale industries should
be developed simultaneously which will pave the way for attaining higher level of income and
employment.
3. Raising the Rate of Savings and Investment:
For raising the level of national income in the country, the rate of savings and investment should be
raised and maintained to a considerable extent. The capital output ratio should be brought down within
the manageable limit.
In this respect, the Ninth Plan document set its objectives to achieve 7 per cent rate of economic
growth, to enhance the rate of investment from 27 per cent to 28.3 per cent and to reduce the capital
output ratio from 4.2 per cent to about 4.0 per cent.
4. Development of Infrastructure:
In order to raise the level of national income to a considerable height, the infrastructural facilities of the
country should be adequately developed. These include transport and communication network, banking
and insurance facilities and better education and health facilities so as to improve the quality of human
capital.
5. Utilisation of Natural Resources:
In order to raise the size and rate of growth of national income in India, the country should try to utilize
the natural resources of the country in a most rational manner to the maximum extent.
6. Removal of Inequality:
The country should try to remove the inequality in the distribution of income and wealth by imposing
progressive rates of taxation, on the richer sections and also by redistribution of wealth through welfare
and poverty eradication programmes. Moreover, imposing higher rates of taxation on the richer sections
can also collect sufficient revenue for implementation of the plan.
7. Containing the Growth of Population:
As the higher rate of growth of population has been creating a negative impact on level of national
income and per capita income of the country, positive steps be taken to contain the growth rate of
population by adopting a rational population policy and also by popularising the family planning
programmes among the people in general.
8. Balanced Growth:
In order to attain a higher rate of economic growth, different sectors of the country should grow
simultaneously so as to attain an inter-sectoral balance in the country.
9. Higher Growth of Foreign Trade:
Foreign trade can also contribute positively towards the growth of national income in the country.
Therefore, positive steps be taken to attain a higher rate of growth in foreign trade of the country.
Higher volume of export can also pave the way for the import of improved and latest technologies
required for the development of country.
10. Economic Liberalisation:
In order to develop the different sectors of the country, the Government should liberalise the economy
to a considerable extent by removing the unnecessary hurdles and obstacles in the path of development.
This would improve the productivity of different productive sectors.
Under the liberalised regime, the entry of right kind of foreign capital and technical know-how will
become possible to a considerable extent leading to modernisation of industrial, infrastructural and
other sectors of the country. This economic liberalisation of the country in the right direction will
ultimately lead the economy towards attaining higher level of national income within reasonable time
frame.
Therefore, in order to raise the size and growth rate of national income of the country, a rigorous and
sincere attempt be made by both public and private sector to undertake developmental activities in a
most realistic path and also to liberalize and globalize the economy for the best interest of the nation as
a whole.

C. Major Features of National Income in India:
Trends and composition of national income estimates of India during post-independence period
shows the following major features:
1. Excessive Dependence on Agriculture:
One striking feature of India’s national income is that a considerable proportion, i.e., 27.8 per cent of
the national income is now being contributed by the agricultural sector. Naturally development of this
sector is very important considering its employment potential, marketable surplus and necessary
support to industry sector.
2. Poor Growth Rate of GDP and Per Capita Income:
Poor growth rate of GDP and per capita income is another important feature of national income of the
country. The annual average growth rate of GDP in India was 5.2 per cent during 1980-92 as compared
to 9.1 per cent for China and 5.7 per cent of Indonesia. Again the annual average growth rate of per
capita GNP in India was only 3.1 per cent during 1980-92 as compared to 7.6 per cent for China.
In 1994, the per capita income figure in Switzerland was nearly 119 times, in USA about 81 times, in
Japan about 105 times the per capita income in India. This low per capita income is also resulted from
lower growth rate of national income and higher growth rate of population. The growth rate of GDP at
constant price was 6.8 per cent in 2013-14.
3. Unequal Distribution and Poor Standard of Living:
The distribution of national income in India is most unequal. Human Development Report, 1994 shows
that in 1993, richest 20 per cent of total population shared 84.7 per cent of the total income and the
poorest 20 per cent of the total population shared only 1.4 per cent of the total income of the country.
Due to highly skewed pattern of distribution of income, the standard of living of the majority of
population of our country is very poor.
4. Growing Contribution of Tertiary Sector:
Another striking feature of India’s national income is that the contribution of tertiary sector has been
increasing continuously over the years, i.e. from 28.5 per cent of total national income in 1950-51 to
52.6 per cent in 2014-15.
5. Unequal Growth of Different Sectors:
In India different sectors are growing at unequal rates. During the period 1951-97, while the primary
sector has recorded a growth rate of 2.9 per cent but the secondary and tertiary sector recorded a growth
rate of 6.3 per cent and 7.1 per cent respectively and in 2013-14, the same growth rates were 3.9 per
cent, 4.4 per cent and 11.1 per cent respectively.
6. Regional Disparity:
Another striking feature of India’s national income is its regional disparity. Among all the states, only
six states of the country have recorded a higher per capita income over the national figure. Out of this
six states Punjab ranks highest and Bihar ranks lowest. In 2013-14, the per capita income of Bihar at the
bottom was Rs 31,229 as compared to that of Rs 92,638 of Punjab at the top, reflecting the ratio at 1:
2.96.
7. Urban and Rural Disparity:
Urban and rural disparity of income is another important feature of our national income. The All India
Rural Household Survey shows that the level of income in urban areas is just twice that of the rural
areas depicting a poor progress of rural economy.
8. Public and Private Sector:
Another important feature of India’s national income is that the major portion of it is generated by the
private sector (75.8 per cent) and the remaining 24.2 per cent of the national income is contributed by
the public sector.
Sectoral Contribution or Distribution of National Income by the Industrial Origin:
Sectoral contribution of national income depicts a clear picture about the composition or distribution of
national income by industrial origin. Thus it shows the contribution made by different sectors towards
the national income of the country.
In India, among the different sectors, the primary sector and more particularly agriculture still plays a
dominant role in contributing the major portion of the national income of the country. Table 3.3 shows
the changes in the sectoral contribution towards the national income of the country since 1950-51.

Table 3.3 shows the following trends:
1. Primary Sector:
The contribution of primary sector which is composed of agriculture, forestry, fishery and mining
gradually declined from 56.4 per cent of GDP in 1950-51 to 45.8 per cent in 1970-71 and then finally to
19.0 per cent in 2014-15. It is also interesting to look at the trend in the contribution of agriculture
which is contributing the major share (nearly above 90 per cent) to the primary sector.
Thus agriculture contributed about 48.6 per cent of GDP in 1950-51 and then its share however
declined to 39.7 per cent in 1970-71 and then to 29.5 per cent in 1990-91 and then finally to around
24.0 per cent in 1996-97.
The share of forestry has also considerably declined from 6.0 per cent in 1950-51 to nearly 1.4 per cent
in 1990-91. But the contribution of fishing and mining remained more or less stable varying between 1
to 2 per cent of GDP during this entire period of 60 years.
2. Secondary Sector:
The secondary sector which is composed of manufacturing industries, construction, electricity, gas and
water supply increased its share of GDP from 15.0 per cent in 1950-51 to 22.3 per cent in 1970-71 and
then to 28.4 per cent in 2014-15.
Among the major constituents of the secondary sector, the share of manufacturing industries to GDP
also increased from 11.4 per cent in 1950-51 to 15.1 per cent in 2012-13. But the share of construction
to GDP marginally improved from 3.3 per cent in 1950-51 to 5.0 per cent in 1980-81 and then slightly
declined to 4.3 per cent in 1996-97.
3. Tertiary Sector:
The share of tertiary sector which is constituted by trade, transport, storage, communications, banking,
insurance, real estate, community and personal services gradually increased from 28.5 per cent in 1950-
51 to 31.8 per cent in 1970-71 and then finally to 52.6 per cent in 2014-2015.
Among the major components of tertiary sector, the share of transport, communication and trade also
increased from 11.0 per cent in 1950-51 to 18.9 per cent in 2014-15. The share of community and
personal services to GDP marginally increased from 8.5 per cent in 1950-51 to 12.80 per cent in 2014-
15.
Thus due to the developmental strategy followed in economic planning of the country, structural
changes occur in the composition of its national income by industrial origin. With the rapid expansion
of manufacturing’ industries, the share of manufacturing sector recorded a sharp increase.
But the agriculture could not record a faster rate of growth. But the services sector has improved its
position and became the major contributor to the growth process attaining a faster and higher rate of
growth in the later stage. Thus growth scenario in India is termed as services-led growth.

Growth of GDP at Factor Cost:
Table 3.4 reveals that the annual average rate of growth of the primary sector which was 3.0 per cent
during 1950-51 to 1960-61, gradually declined to 1.5 per cent during 1970-71 to 1980-81 and then the
same rate increased to 3.6 per cent during 1980-81 to 1990-91.
Similarly, the annual average growth rate of agricultural output alone gradually declined from 3.3 per
cent during 1950-51 to 1960-61 to 1.7 per cent during 1970-71 to 1980-81 and then the same rate
increased to 3.9 per cent during 1980-81 to 1990-91.
Thus the agricultural sector did not experience any faster rate of growth. Again during the 40 year
period (1950- 51 to 1990-91), the average rates of growth of the primary sector as well as of the
agricultural sector were 2.6 per cent and 2.8 per cent respectively.
Again the process of transformation of the Indian economy from an agricultural economy to an
industrial economy has also remained slow.
The annual average growth rate of the secondary sector and the manufacturing industry which were 6.2
per cent and 6.0 per cent respectively during 1950-51 to 1960-61 gradually declined to 4.0 per cent each
during 1970-71 to 1980-81 and then it rose to 6.7 per cent and 7.2 per cent respectively during 1980-81
to 1990-91.
Again during the last 40 year period (1950-51 to 1990-91), the average rate of growth of both the
secondary sector and the manufacturing sector was 5.6 per cent only. Moreover, the annual average
growth rate of the tertiary sector gradually increased from 4.1 per cent during 1950-51 to 1960-61 to 6.6
per cent during 1980-81 to 1990-91.
During the 40 year period (1950-51 to 1990-91) the annual average growth rate of the tertiary sector
was 4.9 per cent and that of transport and communication and trade was 5.4 per cent and that of
banking, insurance and real estate was 4.4 per cent.
Moreover during 1990-91 to 2000-01 these rates of growth were 2.6 per cent in the primary sector, 6.0
per cent in the secondary sector and 7.9 per cent in the tertiary sector.
Again during 2000-01 to 2004-05, the rate of growth of agriculture, industry and tertiary sector were
2.4 per cent, 6.1 per cent and 8.1 per cent respectively. Again during 2012-13 to 2014-15, the rate of
growth for primary, secondary and tertiary sector was 2.06 per cent, 4.5 per cent and 9.2 per cent
respectively.

Thus with the growing industrialisation in the country, Indian economy has gradually transformed from
an agricultural one to an industrialised one. All this has resulted structural change in the composition of
the national income of the country.
Thus there is a special need for the enhancement of growth process both in agriculture and industry with
special emphasis on the development of agro-based industries in different parts of the country.
Service Led Growth:
The growth scenario in India shows that the services sector has become the most dominant in the later
part of its growth process. The share of services sector in GDP increased from 28.5 per cent in 1950-51
to 39.6 per cent in 1990-91 and then to 52.6 per cent in 2014-15 while the share of primary sector
declined from 56.4 per cent in 1950-51 to 33.4 per cent in 1990-91 and then to only 19.0 per cent in
2014-15.
During the Ninth Plan, in spite of slowdown in overall growth process, the services sector grew at a rate
of 7.9 per cent per annum as compared to that of 2.5 per cent and per annum as compared to that of 2.5
per cent and 4.3 per cent attained by agriculture and industry sector respectively.
Moreover, expansion of services sector accelerated further since 2002-03, propelled considerably by
high rates of growth attained by communications (especially telecom), business services (especially
information technology) and finance. Table 3.4(a) shows the excellent performance of services sector
since 1991.
Table 3.4(a) reveals that during the period 1991-97 services sector contributed about half (49.8 per cent)
of total growth of GDP. But in the subsequent five years, i.e. during 1996-2002, the contribution of
services sector to GDP growth increased significantly to 68.3 per cent and continued to grow at 60.4 per
cent over the next six years, i.e. during 2001-08.
Again, during 2008-14 periods, the contribution of services sector to GDP growth in India was as high
as 69.8 per cent as shown in the study made by Shankar Acharya. Sri Acharya also observed that “these
shares would “be even higher if the construction sub-sector were included under services instead
of industry”.
Thus the above analysis clearly, shows a ‘services-led’ pattern of economic growth attained by India in
the later part of its economic transformation realising a structural transformation of the economy.
Share of Government Sector in Net Domestic Product (NDP):
The share of government sector in the net domestic product of India has been gradually
increasing with the increasing participation of the government in various economic activities connected
with enlargement of administrative services and expansion of public sector.
The share of the government sector in net domestic product gradually increased from 7.6 per cent in
1950-51 to 10.7 per cent in 1960-61 and then again increased to 24.9 per cent in 19.87-88. This can be
seen from the Table 3.5.
Table 3.5 reveals that the share of government administration in NDP gradually increased from 5.5 per
cent in 1960-61 to 9.6 per cent in 2003-04. Again the share of non-departmental enterprises in NDP
substantially increased from 1.3 per cent in 1960-61 10 11.3 percent in 2003-04 although the share of
departmental enterprises in NDP slightly declined from 3.9 per cent in 1960-61 to 2.3 per cent in 2003-
04.

The factors which were responsible for increase in the share of non-departmental enterprises included
setting up of new industries, expansion of existing enterprises, nationalisation of banks, insurance
companies and coal mines and amalgamation of private electricity companies into state electricity
boards.
NEW INDUSTRIAL POLICY 1991
The year 1991 is an important landmark in the economic history of post-Independent India. The
country went through a severe economic crisis triggered by a serious Balance of Payments situation.
The crisis was converted into an opportunity to introduce some fundamental changes in the content and
approach to economic policy. The response to the crisis was to put in place a set of policies aimed at
stabilisation and structural reform. While the stabilisation policies were aimed at correcting the
weaknesses that had developed on the fiscal and the Balance of Payments fronts, the structural reforms
sought to remove the rigidities that had entered into the various segments of the Indian economy.
Former Prime Minister Manmohan Singh is considered to be the father of New Economic Policy of
India.
Main Objectives of New Economic Policy – 1991, July 24
The main objectives behind the launching of the New Economic policy (NEP) in 1991 by the union
Finance Minister Dr. Manmohan Singh are stated as follows:
1. The main objective was to plunge Indian economy in to the arena of ‘Globalization and to give it a
new thrust on market orientation.
2. The NEP intended to bring down the rate of inflation and to remove imbalances in payment.
3. It intended to move towards higher economic growth rate and to build sufficient foreign exchange
reserves.
4. It wanted to achieve economic stabilization and to convert the economic in to a market economy by
removing all kinds of unnecessary restrictions.
5. It wanted to permit the international flow of goods, services, capital, human resources and
technology, without many restrictions.
6. It wanted to increase the participation of private players in the all sectors of the economy. That is
why the reserved numbers of sectors for government were reduced to 3 as of now.
Father of new economic policy
Beginning with mid-1991, the govt. has made some radical changes in its policies bearing on trade,
foreign investment exchange rate, industry, fiscal discipline etc. The various elements, when put
together, constitute an economic policy which marks a big departure from what has gone before.
The thrust of the New Economic Policy has been towards creating a more competitive environment in
the economy as a means to improving the productivity and efficiency of the system. This was to be
achieved by removing the barriers to entry and the restrictions on the growth of firms.
Outcomes of the Industrial Policy 1991

 This policy made Licence, Permit and Quota Raj a thing of past. The process of liberalization is
continuing. The 1991 policy attempted to liberalise the economy by removing bureaucratic hurdles
in industrial growth.
 The role of public sector was limited. Only 2 sectors were finally left reserved for public sector.
This reduced burden on the government. A process of either transforming or selling off the sick
units started. The process of disinvestment in PSUs also started.
 The policy provided easier entry of multinational companies, privatisation, removal of asset limit on
MRTP companies, liberal licensing. All this resulted in increased competition, that led to lower
prices in many goods such as electronics prices. This brought domestic as well as foreign
investment in almost every sector opened to private sector.
 The policy was followed by special efforts to increase exports. Concepts like Export Oriented Units
(EOU), Export Processing Zones (EPZ), Agri-Export Zones (AEZ), Special Economic Zones (SEZ)
and lately National Investment and Manufacturing Zones(NIMZ) emerged. All these have
benefitted the export sector of the country.

 Gradually, a new act was passed for MSMEs in 2006 and a separate ministry was established to
look into the problems of MSMEs. Government tried to provide better access to services and
finance to MSMEs.
RECENT CHANGES IN TRADE POLICY
Although India has steadily opened up its economy, its tariffs continue to be high when
compared with other countries, and its investment norms are still restrictive. This leads some to see
India as a ‘rapid globaliser’ while others still see it as a ‘highly protectionist’ economy. India however
retains its right to protect when need arises. Agricultural tariffs average between 30-40 per cent, anti-
dumping measures have been liberally used to protect trade, and the country is among the few in the
world that continue to ban foreign investment in retail trade. Although this policy has been somewhat
relaxed recently, it remains considerably restrictive.
Nonetheless, in recent years, the government’s stand on trade and investment policy has displayed a
marked shift from protecting ‘producers’ to benefiting ‘consumers’.
Foreign Trade Policy 2015-2020 has been announced by Ministry of Commerce & Industry which
shall be effective from 1st Apr’15 to 31st Mar’20.
The glimpse of the same has been produced herein below:

1. Five different schemes (Focus Product Scheme, Market Linked Focus Product Scheme, Focus
Market Scheme, Agri Infrastructure Incentive Scrip, VKGUY) merged into single unconditional
scheme named as Merchandise Export from India Scheme (MEIS);
2. SFIS(Serve from India Scheme) has been replaced by Service Exports from India Scheme(SEIS) so
as to allow benefits to all services providers located in India, instead of Indian Service Providers. This
amendment has been made to abide by the recent verdict pronounced by Hon’ble Delhi High Court in
case of YUM RESTAURANTS(I) Pvt. Ltd. V. UOI & Ors.;
3. Scrips as well as goods under both the aforesaid schemes shall be fully transferable;
4. MEIS benefit shall be computed on basis of FOB value of exports, whereas benefit under SEIS shall
be based on Net foreign exchange earned;
5. Rates under SEIS shall be 3% and 5%, depending on nature of industry notified;
6. Import of capital goods under EPCG Authorisation Scheme shall not be eligible for exemption from
payment of anti-dumping duty, safeguard duty and transitional product specific safeguard duty;
7. Scrips under both the schemes can be used for the payment of customs duty, excise duty and service
act at the time of procurement;
8. Certificates by CA/CS/CWA, etc. shall be allowed to be uploaded electronically(digitally signed).
Problems
 India’s trade policy has a major limitation wherein it focuses on incentivising businesses after
exports have taken place. As a result the trade promotion incentives do not target emerging
firms to attain export competitiveness but reward already successful exporters to improve their
margins.
 The trade policy does not have provisions for interventions focussing on value-addition and
employment generation. This implies that the policy is not working on long term structural
measures but more towards short term result oriented measures which are not sustainable in the
long run.
 Trade promotion is still restricted to traditional trade fair type activities. No doubt that these
activities are important for promotion and business development, but a change of approach is
required in this age of growing internet and mobile technology which requires activities to be
more network oriented.
 Absence of institutions which can provide support for new product development and their
placement in the global market in a selfless manner. These institutions can be used for ancillary
activities such as development of prototypes, research and development etc.

 India’s trade policy also suffers from an archaic design. The trade policy and negotiations over
emphasis on tariffs which are not very important for market access gains. Trade today is guided
by various other factors such as technical and quality standards.
 India has not been successful in tapping the potential that the huge domestic markets and the
economies of scale offer to attract foreign direct investment and technology transfers. This is
observed based on trends which show that MNCs attracted by the size of the Indian consumer
base often do not expand operations in India.
 Investors have to face a combination of high transaction and input costs, supply-side constraints,
and infrastructure deficits which is a major obstacle in setting up and operations of industries.
As a result international investors also show reluctance in setting up and expanding business in
India.
COMPETITION POLICY
The NCP aims to achieve highest sustainable levels of economic growth, entrepreneurship,
employment, higher standards of living for citizens, protect economic rights for just, equitable,
inclusive and sustainable economic and social development, promote economic democracy, and support
good governance by restricting rent seeking practices.
The NCP will endeavour to:

i. preserve the competition process, to protect competition, and to encourage competition in
markets so as to optimise efficiency and maximise consumer welfare,
ii. promote, build and sustain a strong competition culture within the country through creating
awareness, imparting training and capacity building of stakeholders including public
officials, business, trade associations, consumer associations, civil society organisations etc.,
iii. encourage adherence to competition principles in policies, laws and procedures of the Central
Government, State Government and sub-State Authorities, with focus on greater reliance on
well-functioning markets,
iv. ensure competition in regulated sectors and to ensure institutional coherence for synergised
relationship between and among the sectoral regulators and/or the competition regulators
and prevent jurisdictional grid locks,
v. strive for a single national market as fragmented markets are impediments to competition and
growth, and
vi. ensure that consumers enjoy greater benefits in terms of wider choices and better quality of
goods and services at competitive prices.
Principles of Competition Policy
1. Effective prevention of anti-competitive conduct: The Competition Act, 2002 (Act) prohibits
anti-competitive agreements and combinations which have or are likely to have appreciable
adverse effect on competition. It also seeks to prohibit abuse of dominant position by an
enterprise. There should be effective control of anticompetitive conduct which causes or is
likely to cause appreciable adverse effect on competition in the markets within India.
2. Institutional separation between policy making, operations and regulation i.e. operations in
and regulation of a sector should be independent of the government branch which deals with
policy formulation in the sector and is accountable to the Legislature.
3. Fair market process: Market regulation procedures, whether by public authorities, regulatory
bodies or through self-regulatory mechanism, should be rule bound, transparent, fair and non-
discriminatory. Public interest tests are to be used to assess the desirability and proportionality
of policies and regulations, and these would be subject to regular independent review.
4. ‘Competitive neutrality’, such as adoption of policies which establish a ‘level playing field’
where government businesses compete with private sector and vice versa, etc.
5. Fair pricing and inclusionary behaviour, particularly of public utilities, which could be
imbued with monopolistic characteristics.
6. Third party access to ‘essential facilities’, i.e. requiring dominant infrastructure and
intellectual property right owners to grant access to third parties their essential infrastructure and

platforms (e.g., electricity, communications, gas pipe lines, railway tracks, ports, IT equipment
etc) on agreed reasonable and nondiscriminatory terms and conditions aligned with competition
principles.
7. Public policies and programmes to work towards promotion of competition in the market
place; i.e. all policies and laws should use the touchstone of competition in their formulation
and implementation.
8. National, regional and international co-operation in the field of competition policy
enforcement and advocacy.
Public Sector Reform –
The public sector policy followed by the government at present including disinvestment programmes
were launched after the New Industrial Policy of 1991. The New Industrial Policy, which acts as core
policy behind economic reforms, has brought extensive changes in the working of Public Sector
Undertakings (PSUs).
The changes made by the Industrial Policy 1991 on PSUs were several; starting from sectors where the
PSUs to be concentrated, removal of reservation for PSUs in most sectors, their restructuring by
adopting market oriented practices, selling of loss making PSUs, reduction of government ownership
through etc. The sum of these reform was that the PSUs are no more occupying the commanding
heights of the economy, rather they have to compete with the private sector on an equal footing.
First of all, the public sector policy of the 1991 industrial policy has identified strategic areas and non-
strategic areas for the public sector. The government decided to concentrate only on the strategic sector
by withdrawing the public sector from most of the non-strategic sectors. Adding efficiency and infusing
competitive business practices became the main solution to control the losses of the PSUs.
The following are the maim reform measures introduced for the PSUs as part of the 1991 industrial
policy.
1. The public sector will focus on strategic, high-tech and essential infrastructure areas.
2. PSUs which are chronically sick are to be considered for reconstruction
3. To encourage resource mobilization in PSUs, a part of the shareholding of PSUs will be given to the
mutual funds, financial institutions and general public and to the workers (often this is described as
disinvestment policy).
4. Board of PSUs will be made more professional and given more powers.
5. The PSU management will be given autonomy and for this the government will sign Memoranda of
Understanding with the PSU Boards.
Following are the main areas to be engaged by the Public Sector under the 1991 industrial Policy.
1. Essential infrastructure goods and services.
2. Exploration and exploitation of oil and mineral resources.
3. Technology developments and building of manufacturing capabilities in areas which are crucial
in the long term development of the economy and where private sector investment is inadequate.
4. Manufacture of products where strategic consideration predominate such as defense equipment.
The public sector policy and disinvestment of PSEs are derived from the Industrial Policy of 1991. It
has introduced a restructuring plan and changed role for PSEs.
Strategic and non-strategic areas for public sector
On 16th March 1999, the Government classified the Public Sector Enterprises into strategic and non-
strategic areas for the purpose of disinvestment. It was decided that the Strategic Public Sector
Enterprises would be those in the areas of:
 Arms and ammunitions and the allied items of defence equipment, defence air-crafts and
warships;
 Atomic energy (except in the areas related to the generation of nuclear power and applications
of radiation and radio-isotopes to agriculture, medicine and non-strategic industries);
 Railway transport.
All other Public Sector Enterprises were to be considered non-strategic. For the non-strategic Public
Sector Enterprises, it was decided that the reduction of Government stake to 26% would not be
automatic and the manner and pace of doing so would be worked out on a case-to-case basis. A decision

in regard to the percentage of disinvestment i.e., Government stake going down to less than 51% or to
26%, would be taken on the following considerations:
 Whether the industrial sector requires the presence of the public sector as a countervailing force
to prevent concentration of power in private hands, and
 Whether the industrial sector requires a proper regulatory mechanism to protect the consumer
interests before Public Sector Enterprises are privatised.
PRIVATIZATION AND DISINVESTMENTS
Privatisation
1. The privatization is the concept of private ownership leading to better use of resources and their
efficient allocation. The reason for adoption of privatisation around the globe has been the inability of
the Governments to raise high taxes, pursue deficit / inflationary financing and the development of
money markets and private entrepreneurship. The technology and W.T.O. commitments have made the
world a global village
The objectives for privatizing the CPSUs are:
1. Releasing the large amount of public resources locked up in non-strategic CPSUs, for redeployment
in areas that are much higher on social priority, such as, public health, family welfare, primary
education and social and essential infrastructure;
2. Stemming further outflow of scarce public resources for sustaining the unviable non-strategic
CPSUs.
3. Reducing the public debt that is threatening to assume unmanageable proportions,
4. Transferring the commercial risk, to which the tax-payers' money locked up in the public sector is
exposed, to the private sector wherever the private sector is willing and able to step in - the money that
is deployed in the CPSUs is the public money exposed to an entirely avoidable and needless risk.
5. Releasing other tangible and intangible resources, such as, large manpower locked up in managing
the CPSUs, and the time and energy, for redeployment in areas that are much higher on the social
priority but are short of such resources.
The Central Public Sector Undertakings (CPSUs) have played an important role in the development of
the Indian industry. At the time of independence, political independence without economic self-reliance
was presumed to be detrimental to the country’s sovereignty and autonomy in policy-making.
The Industrial policy Statemet of July, 1991 mentioned that “portfolio of public sector investment will
be reviewed with a view to focus the public sector on strategic, high-tech and essential infrastructure”
The six categories mentioned for disinvestment were;
a) CPSUs based on low technology.
b) Small scale CPSUs.
c) Non-strategic CPSUs.
d) Inefficient and unproductive CPSUs.
e) CPSUs having low or nil social consideration or public purpose.
f) Areas where the private sector has developed sufficient expertise and resources.
The objectives of disinvestment
The objectives of disinvestment / privatisation are broadly classified into:
1. Improving the efficiency of public enterprises;
2. Improving Government’s budgetary position through reduced financial support to enterprises,
additional resources through sale of ownership and increased tax revenue after the improvement in the
efficiency level of the firms;
3. Attracting private investment, both domestic and foreign and developing Indian capital markets;
4. Infusing competitive business environment;
5. Achieving political objectives through reducing the size and influence of public sector and wider
distribution of asset ownership.

A Disinvestment Commission was set up in 1996 to study in detail the functioning of CPSUs
and give advice to the Government on disinvestment in CPSUs. A Department of Disinvestment was
also created in 2000 to coordinate the disinvestment activities of various Government Ministries and
Departments.
PROGRESS OF HUMAN DEVELOPMENT IN INDIA
The 2016 Human Development Report (HDR) focuses on how human development can be
ensured for every one—now and in future. It starts with an account of the hopes and challenges of
today’s world, envisioning where humanity wants to go.
The Report also identifies the national policies and key strategies to ensure that will enable
every human being achieve at least basic human development and to sustain and protect the gains. And
it addresses the structural challenges of global institutions and presents options for reform.
This briefing note is organized into nine sections. The first section presents information on the
country coverage and methodology of the Statistical Annex of the 2016 HDR. The next eight sections
provide information about key indicators of human development including the Human Development
Index (HDI), the Inequality-adjusted Human Development Index (IHDI), the Gender Development
Index (GDI), the Gender Inequality Index (GII), and the Multidimensional Poverty Index (MPI). The
2016 HDR introduces two experimental dashboards – on life-course gender gap and on sustainable
development.
According to the UN Development Programme’s Human Development Report 2016, released
on Tuesday (March 21), India ranks 131 of 188 when it comes to the Human Development Index
(HDI). This puts it in the ‘medium’ category. The index is based on three dimensions: life expectancy at
birth, mean years of schooling and expected years of schooling, and gross national income per
capita.India’s HDI, at 0.624, makes it as the third SAARC country on the list, behind Sri Lanka and
Maldives (both of which fall in the ‘high’ HDI category).
Challenging inequalities
This year’s report focuses on the increasing inequalities globally, which has led to a stunting of
HDI growth. “This report uncovers a deeper story behind the statistics,” said Haoliang Xu, director of
the UNDP Regional Bureau for Asia and the Pacific, in a press statement. “Even in a region that has
made such remarkable progress, pockets of exclusion continue to prevent millions of people from
fulfilling their true potential.”
In all regions, women have a lower HDI than men, despite having higher life expectancy at birth.
Historically disadvantaged groups, such as Dalits and Adivasis in India, also have lower human
development indexes. South Asia is a prime example of this, according to the report. When the region’s
HDI is adjusted for inequality, its value falls from 0.621 to 0.449. For India specifically, this drop is
from 0.624 to 0.454 – a fall of 27.2%. The average drop in HDI when adjusted for inequality in the
South Asia region in 27.7%.
South Asia’s Gender Development Index (GDI) is also the lowest across regions. The GDI takes into
account the disparity between the HDI’s of men and women – the higher the disparity, the lower the
GDI. India’s GDI is 0.819, compared to the developing country average of 0.913.
Encouraging developments
Despite the high level of inequality across the globe, the report says that encouraging
developments can be seen in human development indicators across regions. A lot of this, they say, is
because of progressive policies that focus on giving people their rights.
The report commends India’s National Food Security Act, Mahatma Gandhi National Rural
Employment Guarantee Act and the Right to Education Act, saying they have been instrumental in
supporting the notion that development must be for everyone. It also praises the country’s affirmative
action reservation policy, which “has not remedied caste-based exclusions, but has had substantial
positive effects”.

Unit: 2 Planning and Economic Development : Redefining the Role of the State – Human Capital
Formation in India – Problem of Foreign Aid – Economic Reforms and Reduction of Poverty –Measures
to Remove Regional Disparities
PLANNING AND ECONOMIC DEVELOPMENT

Economic Planning is the making of major economic decisions. What and how is to be produced and to
whom it is to be allocated – by the conscious decision of a determinate authority, on the basis of a
comprehensive survey of the economic system as a whole.
In an economy like India, the basis socioeconomic problems like poverty, unemployment, stagnation in
agricultural and industrial production and inequality in the distribution of income and wealth can hardly
be solved within the framework of an unplanned economy planning is required to remove these basic
maladies.
We can identify the following characteristic features of economic planning:
 Fixation of definite socio-economic targets;
 Prudent efforts to achieve these targets within a given time period;
 Existence of a central planning authority;
 Complete knowledge about the economic resources of the country;
 Efficient utilization of limited resources to get maximum output and welfare.
The Planning Commission of India is of the opinion that, “Planning is essentially a way of organizing
and utilizing resources to get maximum advantage in terms of defined social ends. The two main-
constituents of the concept of planning are: (a) a system of ends to be pursued, and (b) knowledge of
available resources and their optimum allocation to achieve these ends. The availability of resources
conditions the ends to be effectively achieved.”
In India, comprehensive national planning is required to fulfil some broad social and economic
objectives. The followings are some principal reasons for planning in India:
(a) Rapid Economic Development: Before Independence, the long period of British rule and
exploitation had made India one of the poorest nations in the world. The main task before the national
government was to undertake some positive development measures to initiate a process of development,
which can be done .effectively only through the instrument of planning. The state planning mechanism
has been proved to be much superior to private market operations in bringing about it a quick transition
in the less-developed economics. The spectacular success of planning in some countries had inspired
the national leaders to adopt the path of planning for an accelerated development of the shattered
economy.
(b) Quick Improvement in the Standard of Living: The fundamental objective of planning is to bring
about a quick improvement in the standard of living of the people in the less-developed countries. In an
unplanned economy the country’s resources and materials cannot be employed for increasing the
people’s welfare as the private capitalists in such an economy direct their activities in increasing their
own profits. The path of planning has been chosen to promote a rapid rise in the standard of living of
the people by efficient exploitation of resources, increasing production of most goods, and offering
employment opportunities to the people.

(c) Removal of Poverty: Planning in India is necessary for the early removal of abject poverty of the
people. This can be effectively done through –
 Planned increase in the employment opportunities of the people,
 Planned production of mass consumption goods and their planned distribution among the
people,
 Fulfilment of minimum needs programme by providing essential facilities (e.g., housing, roads,
drinking water, public health, primary education, slum improvement, etc.), and,
 Planned increase in the consumption of the poorest section of the people.
(d) Rational Allocation and Efficient Utilization of Resources: India is rich in natural resources, but
these resources are not fully exploited to get maximum advantages. In the unplanned economy
resources tend to be engaged in the production of these goods and services which yield maximum
profits, as a result rational allocation of resources is not possible. An unplanned economy faces
frequently the problem of either shortages in some sectors or surpluses in others. But such misallocation
of resources can be rectified in a planned economy in which the planning authority determines the
pattern of the investment of resources. In fact, the development plans in the country are now utilized for
the rational allocation of investable resources.
(e) Increasing the Rate of Capital Formation: Planning can also raise the rate of capital formation in
the less-developed countries like India. The surpluses of public enterprises as found in the planned
economy can be utilized for investment and capital formation. In India, the governments have been
increasing the rate of capital formation through the planned investment in the construction of roads,
bridges, manufacturing of machineries and transport equipments etc.
(f) Reduction in Unequal Distribution of Income and Wealth: Income and wealth are not evenly
distributed in India as in other less-developed countries. In the absence of planning such inequality
tends to increase due to growing concentration of economic resources at the hands of a few capitalists.
Besides, the capitalists in the unplanned society increase their own profits by paying less to the
labourers and other suppliers of raw materials. Planning can reverse this trend through the proper
guidance and control of production, distribution, consumption and investment. The development works
can be so planned and so executed that the greater equality is established with the increase of income
and employment.
(g) Reduction of Unemployment and Increase in Employment Opportunities: The backwardness of
the different, sectors of the economy accounts for the presence of widespread unemployment, both open
and disguised, in the country. The rate of economic growth usually becomes low in the unplanned
society; as a result it becomes a difficult task to mitigate this serious problem without proper planning.
The government can, however, increase the employment opportunities by undertaking development
programs for the different sectors like agriculture, industries, social services, transport and
communications, etc. Besides, labor-intensive development projects and job-oriented programs can also
be undertaken to provide relief for the problem of unemployment.
The development plans in India have already given proper stress for increasing employment. The steps
have been taken to create both short-term and long-term employment opportunities in various sectors
like agriculture, industry, small and village industries, irrigation works, construction, etc.
(h) Reorganization of Foreign Trade: Economic planning in the less-developed countries can bring
about fundamental Changes in the foreign trade structure of such countries like India. The foreign trade
structure may be reoriented from primary producing economy to the industrialized economy. Through
proper controls of import and effective promotion of export of industrial goods the development plans
can reorganize the foreign trade structure. In India, the trade policy has been reoriented to realize some
cardinal objectives such as import control and substitution, export promotion and growth of economy.
Owing to such development the trade structure is no longer regarded as colonial as it was before
Independence.
(i) Regional Balanced Development: Economic planning in India can correct the regional imbalances
in development. Proper development programs may be taken for the all-round development of
backward areas, so that all the regions are sufficiently developed. More and more industries are to be set
up in the less-developed areas and the Plans should provide for dispersal of industries.
(j) Other Considerations: Indian economy requires planning for other purpose also such as the
removal of the shortages of essential goods, attainment of self- sufficiency in essential goods such as

food grains and key materials, economic self-reliance, establishment of social justice for increasing
economic facilities for weaker and neglected sections of the people etc.
The aforesaid discussion points to the supreme necessity of economic planning in India. It is now fully
realized that without planning the country would not be able to initiate a process of quick economic
growth.
Objectives of planning in India
In India, the First Five year plan began in the year 1951-52. Although the objectives of these plans were
different, we can identify some of the basic long-term and broad objectives of Indian planning. These
are:
(i) Raising the growth rate: The economic planning in India was to bring about rapid economic
growth through the growth in agriculture, industry, power, transport and communications and different
other sectors in our economy. Further, the growth in real national income was considered to be the basis
for an increase in per Capita real income and an improvement in the physical quality of life for, the
maximum number of people. The growth, in national output must be higher than the growth rate in
population for an increase in per capita output. Indian planners aimed at increasing national income and
per capita income on the assumption that the continuous growth in national income and per capita
income would remove the problem of poverty and raise the standard of living for the maximum people
of the country.
(ii) Raising the investment-income ratio: Growth in investment as a proportion of national income
was also one of the important long-term objectives of Indian five year plans.
(iii) Achieving self-reliance: This objective was considered to be an important objective for keeping
the growth activity free from political pressures of dominant capitalist countries of the world. India had
to import a huge quantity of food grains from abroad for a considerable period. Again, she had to
depend on foreign countries for the import of heavy machinery, transport equipment, machine tools,
electrical instruments, etc. This was required for the expansion of the industrial sector and for building,
a strong infrastructural base in India after independence. Hence, it was quite natural that the developed
capitalist countries, supplying food grains, machinery and capital to India, used to take full advantage of
their strong bargaining power, by imposing different conditions while extending such help. In many
cases, the domestic economic policies are also influenced by such conditions. Because of all these
reasons, a self-reliant economic growth became a major objective of economic planning in India,
particularly since the inception of the Third Five Year Plan.
(iv) Removing unemployment: Removal of unemployment and underemployment can be regarded as
a precondition for the elimination of poverty.
It was assumed by Planning Commission that an increase in investment would accompany not only an
increase in national output but also a rise in employment opportunities. This argument was put forward
by the Planning Commission quite explicitly during the Third Five Year Plan. The planning
commission however, believed that the removal of unemployment would lead to increase in GDP, on
the one hand and improve the standard of living of the people on the other.
(v) Reducing the incidence of poverty: Various plan documents have all along indicated that the
policy of the Government of India is to reduce the incidence of poverty. The problem of poverty has
been conceived as one of low productivity of a large section of the people. Hence, to remove these
handicaps of the poor and to integrate them in the growth process, alleviation of poverty became one of
the broad objectives of Indian planning. So, the long run objective was to free the economy from the
vicious circle of poverty which encircles the economy, not only with poor purchasing power, low
savings, low capital formation, low productivity and low level of national output, but also with a poor
physical quality of life.
(vi) Reducing income inequalities: Indian planners visualized the creation of a socialistic pattern of
society where each member of the society would get equal opportunities in the fields of education,
health, nutrition, occupation, etc. Hence, they felt the need for reducing income and wealth inequalities
in our society. These inequalities have their roots in the feudal system. Hence, reduction in income and
wealth necessitated the abolition of semi-feudal relations of production in Indian villages. Thus; the
objective was to abolish the ‘Zamindari’ system, impose ceilings on land-holdings and distribution of
surplus land among the landless in rural areas.

Income and wealth inequalities arising out of industrialization and growth were far more complex. The
Planning Commission felt the need for imposing some restrictive and fiscal measures e.g., by imposing
higher rates of direct taxes on high incomes, to tackle this problem. Further, to reduce the disparity
between urban and rural sectors, the Planning Commission suggested various measures to raise
agricultural productivity, development of agro-based industries, a fair price to farmers for their
products, etc.
The Planning Commission stated its policy towards income inequalities in the Fourth Plan
document. It emphasized economic growth with the hope that the poor will benefit from it and thus,
income inequalities would be reduced.
A part from these long-term objectives the Sixth plan of India recognized one more objective of
modernizing the production process. The implications of this modernization were to shift the sectoral
comparison of national income, diversification of productive activities and advancement of technology.
Modernization, as per the view of the Planning Commission, also implied introduction of modern
technology, both in industrial and agricultural activities. It also implied an emergence of new types of
banking, insurance and marketing institutions, which would facilitate the dynamics of growth process.
n overview of all plans implemented in India is given below. The first eight plans had their emphasis on
growing the public sector with massive investments in basic and heavy industries, but since the launch
of the Ninth Plan in 1997, attention has shifted towards making government a facilitator in growth.
Prime Minister Narendra Modi has announced abolition of Planning Commission on the Independence
Day. It is to be replaced by a more relevant institution. The planning body lost its relevance after LPG
reforms of 1990s. With the end of the licence raj, it functioned only as an advisory body without any
effective power.
Plan Objective/Features Assessment
First Five year Rehabilitation of refugees, rapid Targets and objectives more or less
Plan (1951- 56) agricultural development to achieve food achieved. With active role of state in all
self-sufficiency in the shortest possible economic sectors. Five Indian Institutes
time and control of inflation. of Technology (IITs) were started as
major technical institutions.
Second Five year Nehru-Mahalanobis model was adopted. Could not be implemented fully due to
Plan (1956-61) ‘Rapid industrialisation with particular shortage of foreign exchange. Targets
emphasis on the development of basic and had to be pruned. Yet, Hydroelectric
heavy industries’ Industrial Policy of power projects and five steel mills at
1956 accepted the establishment of a Bhilai, Durgapur, and Rourkela were
socialistic pattern of society as the goal of established.
economic policy.
Third Five year ‘establishment of a self-reliant and self- Failure. Wars and droughts.
Plan (1961-66) generating economy’ Yet, Panchayat elections were started.•
State electricity boards and state
secondary education boards were formed.
Annual Plan crisis in agriculture and serious food A new agricultural strategy was
( 1966-69) shortage required attention implemented. It involved distribution of
high-yielding varieties of seeds,
extensive use of fertilizers, exploitation
of irrigation potential and soil
conservation measures.
Fourth Five year ‘growth with stability’ and progressive Was ambitious. Big failure. Achieved
Plan (1969-74) achievement of self-reliance’ Garibi growth of 3.5 percent but was marred by
Hatao Target: 5.5 pc Inflation. The Indira Gandhi government
nationalized 14 major Indian banks and

the Green Revolution in India advanced
agriculture.
Fifth Five year ‘removal of poverty and attainment of High inflation. Was terminated by the
Plan (1974-79) self-reliance’ Janta govt. Yet, the Indian national
highway system was introduced for the
first time.
Sixth Five year ‘direct attack on the problem of poverty Most targets achieved. Growth: 5.5
Plan(1980-85) by creating conditions of an expanding pc.Family planning was also expanded in
economy’ order to prevent overpopulation.
Seventh Five year Emphasis on policies and programmes With growth rate of 6 pc, this plan was
Plan (1985-1990) that would accelerate the growth in proved successful in spite of severe
foodgrains production, increase drought conditions for first three years
employment opportunities and raise consecutively. This plan introduced
productivity programs like Jawahar Rozgar Yojana.
Annual Plans No plan due to political uncertainities It was the beginning of privatization and
(1989-91) liberalization in India.
Eighth Five year Rapid economic growth, high growth of Partly success. An average annual growth
Plan (1992-97) agriculture and allied sector, and rate of 6.78% against the target 5.6% was
manufacturing sector, growth in exports achieved.
and imports, improvement in trade and
current account deficit. to undertake an
annual average growth of 5.6%
Ninth Five year Quality of life, generation of productive It achieved a GDP growth rate of 5.4%,
Plan (1997-2002) employment, regional balance and self- lower than target. Yet, industrial growth
reliance. Growth with social justice and was 4.5% which was higher than targeted
equality. growth target 6.5% 3%. The service industry had a growth
rate of 7.8%. An average annual growth
rate of 6.7% was reached.
Tenth Five year To achieve 8% GDP growth rate, It was successful in reducing poverty
Plan (2002 – 2007) Reduction of poverty by 5 points and ratio by 5%, increasing forest cover to
increase the literacy rate in the country. 25%, increasing literacy rates to 75 %
and the economic growth of the country
over 8%.
Eleventh Five year Rapid and inclusive growth. India has recorded an average annual
Plan(2007 – 2012) Empowerment through education and skill economic growth rate of 8%, farm sector
development. Reduction of gender grew at an average rate of 3.7% as
inequality. Environmental sustainability. against 4% targeted. Industry grew with
To increase the growth rate in agriculture, annual average growth of 7.2% against
industry and services to 4%,10% and 9% 10% targeted.
resp. Provide clean drinking water for all
by 2009.
Twelfth Five year “Faster, sustainable and more inclusive

Plan(2012-2017) growth”. proposes a growth target of 8
percent. Raising agriculture output to 4
per cent. Manufacturing sector growth to
10 %
Target of adding over 88,000 MW of
power generation capacity.

REDEFINING THE ROLE OF THE STATE
In economy like India where there the 26% of the population is below poverty line and
untouched by the market mechanism. The state, has therefore to play a positive role in employment
generation for the poor and to promote their social welfare. According to Hanumant Rao ‘It is often said
that markets bypass the poor and the under privileged and that they cannot participate in the market-
driven development.
This is not an accurate statement. The poor and the under privileged are very much driven into
the market. The child labour and bonded labour are participating in the market but at very unequal and
unfavourable terms .... Therefore, it has rightly been said that the market can be good servant when it is
intelligently utilized but a bad master when it is allowed to have a free day.”
The Promotional role of the state in providing rural infrastructure and extend credit to the poor
at low rates interest can become an effective instrument in poverty removal. The second role of the state
is to provide infrastructure-economic as well as social infrastructure. The third area which needs state
intervention is macroeconomic management of the economy. In this the government can intervene in a
variety of ways, more especially for such sections of the population which are not covered by the
market mechanism.
The World Bank study “The East Asian Miracle” (1993) about eight highly performing
economies of Asia states: “In most of these economies, in one form or another, government intervened
– systematically and through multiple channels to faster development, and in some cases the
development of specific industries”.
Another area which needs state intervention is the reform of public sector. The government has
intervened by signing MOUs (Memorandums of Understandings) but has not intervened honestly and
effectively. The state has to act decisively in this regard and innovate measures to link wages with
productivity.
Because markets believe in the survival of the fittest state intervention should, therefore, be in
the favour of weaker sections of the society. In this context the role of state must change in favour of
unfittest. World Development Report (1999-2000) stated that, “Government play a vital role in
development, but there is no simple set of rules that tells them what to do.”
The question that is relevant is not to use the state on the market, but to use state and the market
and strike a balance, which fulfils the three objectives outlined by Keynes, “The political problem of
mankind is to combine three things: economic efficiency, social justice and individual liberty,” Both the
market and the state have to be harnessed in the fulfillment of these objectives
HUMAN CAPITAL FORMATION IN INDIA

The concept of human capital formation, source of human capital and its growth is revealed in the
chapter. It also deals with the relationship among human capital, economic growth and human
development.
Concepts and Sources of Human Capital Formation
Just as a country can turn physical resources like land into physical capital like factories, similarly it can
also turn human resources like students into engineers and doctors. There by increasing their
productivity and efficiency. So, human capital formation aims at converting human resources into
human assets.
Human Capital and Physical Capital
1. Human Capital
It refers to the stock of skill, ability, expertise, education and knowledge in a nation at a point of time.
2. Physical Capital
All inputs which are required for further production such as machine, tools and implements, factory
buildings, etc are called physical capital.

Human Capital Formation
It is the process of acquiring and increasing the number of people who* have the skills,
education and experience which are critical for the economic and political development of a country.
In other words, human capital formation is the process of adding to the stock of human capital over
time.
G.M. Meier defines human capital formation as, “human capital formation is the process of
acquiring and increasing the number of persons who have the skiff education and experience which are
essential for the economic and political development of a country”.
Sources of Human Capital Formation
Investment in education is considered as one of the most important sources of human capital
formation. There are several other sources as well. Investment in health, on-the-job training, migration
and information are the other sources of human capital formation.
These sources are discussed below

1. Expenditure on Education
The education expenditure is an important source of human capital formation as it is the most effective
way on enhancing and enlarging a productive workforce in the country.
Nations and individuals invest in education with the objective
(i) increasing their future income.
(ii) generating technical skills and creating^ manpower, well suited for improving labour productivity
and thus, sustaining rapid economic development.
(iii) tending to bring down birth rate which in turn, brings decline in population growth rate. It makes
more resources available per person.
(iv) education also results in social benefits since, it also spreads to others.
2. Expenditure on Health
Health is another important source of human capital formation. A sick labourer without access to
medical facilities is compelled to abstain from work and there in a loss of productivity. The various
forms of health expenditure are preventive medicine, curative medicine, social medicine, provision of
clean drinking water, etc.
3. On-the-job Training
Expenditure regarding on-the-job training is a source of human capital formation as the return of such
expenditure in the form of enhanced labour productivity is more than the cost of it.
Firms spend huge amounts on giving on-the-job training to their workers. It may be in different forms
like a worker may be trained in the firm itself or under the supervision of a skilled worker or can be sent
for off campus training.
The firms then insist that workers should work for atleast some time in die company so that they can
recover the benefits of the enhanced productivity owing to the training.
4. Migration
People sometimes migrate from one place to the other in search of better jobs that fetch them higher

salaries than what they may get in their native places. It includes migration of people from rural areas to
urban areas in India. Unemployment is the reason for the rural urban migration in India and technically
qualified people migrate from one country to another in order to get high salaries.
5. Expenditure on Information
People spent to acquire information relating to the labour market and other markets like education,
health, etc.
For example, people seek information regarding salaries and other facilities available in different labour
markets, so that they can choose the right job. Expenditure incurred for acquiring information regarding
labour markets and other markets like education and health have also becomes an important source of
human capital formation.
Problems of Human Capital Formation in India
The main problems of human capital formation in India are
(i) Rising Population Rapidly rising population adversely affects the quality of human capital in under
developed and developing countries like India. It reduces per head availability of existing facilities like
sanitation, employment, drainage, water system, housing, hospitals, education, food supply, nutrition,
roads, electricity, etc.
(ii) Brain Drain Migration of highly skilled labour termed as ‘brain drain. This slow down the process
of human capital formation in the domestic economy.
(iii) Inefficient of Manpower Planning There is inefficient manpower planning in less developed
countries where no efforts have been made either to raise the standard of education at different stages pr
to maintain the demand and supply of technical labour force. It is a sad reflection on the wastage of
human power and human skill.
(iv) Long-term Process The process of human development is a long-term policy because skill
formation takes time. The process which produces skilled manpower is thus, slow. This also lowers our
competitiveness in the international market of human capital.
(v) High Poverty Levels A large proportion of the population lives below poverty line and do not have
access to basic health and educational facilities. A large section of society cannot afford to get higher
education or expensive medical treatment for major disease.
PROBLEM OF FOREIGN AID

Considering the huge size of population and the degree of problem faced by the country, the
inflow of foreign aid at different times was quite considerable. During the First Plan, India received on
an average an external assistance to the extent of Rs 40 crore per annum and the same amount was
raised to Rs 573.3 crore per annum which was about 3.2 per cent of GDP.
Since then the country faced a bad situation and. started to depend more on foreign loan during
the three years of Annual Plans. During the Fourth Plan, there was a severe cut in aid from USA on
political ground and due to mounting debt servicing problem, the Government decided to allow the path
of self reliance since the Fourth Plan.
During the Sixth Plan, Rs 9,929 crore was envisage as an inflow of foreign aid. The Seventh
Plan envisaged a net inflow of foreign aid of Rs 18,000 crore from different sources. Table 16.6 shows
details about authorisation and utilisation of foreign aid to India.
The utilisation of foreign aid was quite less than authorisation. At the end of Fourth Plan, total
utilisation of foreign aid was Rs 11,922 crore as against the total authorisation of Rs 13,056 crore.
During the seventh plan the shortfall was quite higher as the total authorisation of Rs 44,971 crore, i.e.,
about 50.5 per cent.
Again in 1990-91, the amount of foreign aid authorized was to the extent of? 8,123 crore ($ 4.5
billion), against which the amount utilized was Rs 6,707 crore ($ 3.7 billion), i.e. about 82.5 per cent.
Again in 2013-14, the amount of foreign aid authorized was to the tune of? 54,513 crore ($ 9.02 billion)
against which the amount utilised was Rs 35,185 crore ($ 5.85 billion), i.e., about 64.5 per cent.
Forms of Foreign Aid:
The foreign aid received by India has been classified broadly into three forms:
(a) Loans, (b) grants and (c) PL 480/665 etc. assistance repayable in rupee or in convertible
currency. All these forms of foreign aids are urgently required in order to meet the deficiency in

resources required for financing developmental plans. Among these forms, loan has a problem of its
servicing if not utilised in a productive manner.
Grants has no problem as it is once for all payment having no repayment burden. PL 480/665
assistance had lesser problems as it was repayable in term of rupees. This type of assistance continued
till 1977-78. Table 16.7 shows the flow of all these forms of foreign aid received under different
periods.
Table 16.7 reveals that up to the end of Fourth Plan out of the total authorised foreign aid of Rs 13,056
crore, the shares of loan was Rs 9,665 crore (about 74 per cent) and the share of grants was Rs 753
crore (about 6 per cent) and the shares of assistance under PL 480/665 was Rs 2,638 crore (about 20 per
cent).
During the fifth plan out of total foreign aid of Rs 9,844 crore the respective shares of these
component were to the tune of Rs 7,913 crore, Rs 1,795 crore and a mere of ? 136 crores. During the
sixth plan the authorised amount of loans and grants were Rs 14,843 crores and a mere Rs 1,564 crore
making the total of Rs 16,407 crore.
Again during seventh plan the authorised amount of loan and grants were Rs 42,231 crore (93.9
per cent) and Rs 2,740 crore (6.1 per cent) making the total authorised foreign aid to Rs 44,971 crore.
Moreover, in 1990-91 out of the total authorised foreign aid of Rs 8,123 crore received by India, the
share of loan was Rs 7,601 crore and the share of grant was Rs 522 crore.
Again in 2013-2014 out of the total authorised foreign aid of Rs 54,513 crore received by India,
the share of loan was Rs 54,372 crore (99.7 per cent) and the share of grant was Rs 140 crores (0.3 per
cent). Moreover, in 2013-14, out of the total amount of foreign aid of Rs 35,185 crore utilised by India,
the share of loan was Rs 31,772 crore (90.3 per cent) and the share of grant was Rs 3,412 crore (9.7 per
cent).
Thus during this entire period of planning till 2013-2014 the total amount of authorised foreign
aid received by India was to the extent of Rs 7,15,300 crore out of which only 4,99,554 crore was
utilised. Again the share of authorised loan was Rs 6,62,570 crore (about 92.6 per cent), the share of
grant was Rs 49,955 crore (about 7.0 per cent) and the share of assistance under PL 480/665 was Rs
2,774 crore (0.4 per cent).
Again, total amount of foreign aid utilized in India till 2013-2014 was to the tune of Rs 4,99,554
crore out of which the loan utilised was Rs 4,49,033 crore (89.5 per cent), the share of grant utilised
was Rs 49,691 crore (9.9 per cent) and the share of PL 480/665 was Rs 2,820 crore (0.6 per cent).
All these aids were again made available either as tied aid (tied to a definite project) and untied aid.
About one third of the total external aid made available to India was in form of untied aid.
Impact of Foreign Aid:
Foreign aid is playing an important role in the economic development of the country by enlarging the
production capacity of the various sectors through additional supply of foreign exchange, transfer of
technology and supplementing saving.
Thus the foreign aid had been creating a favourable impact on the economy of the country on the
following lines:
Problems of Foreign Aid:
In-spite of creating a favourable impact on the development of the country, the foreign aid has also been
creating various types of problems in the country.
These problems are described below:
(1) Increasing volume of foreign aid has been resulting in political pressures on the economy from the
donor countries. Insistence of USA to accept Dunkel proposal is an example in this respect.
(2) Foreign aid has also been suffering from the problem of uncertainty and thus stands in the path of
perspective planning.
(3) The country is having lesser absorptive capacity of aid due to its lesser exportable potential.
(4) The foreign aid has been attached with a huge burden of external debt as the debt servicing burden
of the country has already reached serious proportion.
Suggestions:
Under such a situation, steps must be taken by the Government to attain flexibility approach for
ensuring optimum utilisation of aid. Thus Government should convince the donor country to extend
more of untied aid.

Moreover, to avoid uncertainty there should be long period regular commitments for aid. Again the
technological aid should be in the form of technology transfer for building indigenous technology base.
Economic Reforms and Reduction of Poverty

Poverty in India is a predominantly rural phenomenon. More than three quarters of poor people
in India live in rural areas. Also there is wide variation in poverty across different states. Moreover,
progress in reducing poverty is also very uneven across different regions.
Government of India adopted several poverty alleviation programmes to help the poor to
improve their economic, physical and social conditions. These programmes are directly targeted at the
poor and the benefits from them would accrue to the poor from the normal economic activities. The
programmes, which aimed at directly helping the poor instead of the entire population, are termed as
targeted poverty alleviation programme. The rationale for targeting the poor for development
programmes is that the benefits or social returns are higher for the population at the lower end of the
income distribution than at the upper end.
The existing major programmes for the poor in India can be roughly categorised into three: (i)
wage employment programme, (ii) credit-based self-employment programme, (iii) the public
distribution system and the nutrition programme. One of the impacts of opening up of the economy has
seen the resurgence of the importance of large metropolitan cities. Private investment, both foreign and
Indian have tend to be concentrated in and around these large cities. The local governments for
attracting these investments offered a range of incentives to private investors.
The large metropolitan cities are undergoing a facelift exercise as part of the city cleaning,
beautification and pollution control programmes. While the city spaces are being increasingly acquired
by the private commercial and service industry establishments the poorest, mainly the slum dwellers,
hawkers, destitute, street dwellers are being pushed out of the city to the peripheries. The city
peripheries are getting degenerated with low value employment, poor living condition, thus making lot
of the urban poor worse.
Opening-up in the developing economies was primarily visualised as a mechanism where trade
would function as ‘an engine of growth’ and the fruits of growth would ‘trickle down’ to the poor.
However, the results had been mixed, with many countries observing widening inequality in their
economies, contrary to the conventional trade theory prescriptions.
The internationalisation of trade has opened up vistas for globalisation of production creating
profound changes in the labour market, such as widening wage disparity, increasing contractualisation
of work, skill based segregation of work etc. As per the 1991 census 90% of the Indian workforce is in
the unorganised sector. There is hardly any legal backing, social spending, or any form of support to
this class of workers who are the poorest among all groups of workers.
They do not have any collective bargaining capacity with an institutional backing. For the vast
majority of them there is no fixed place of work, no fixed working hours, no regular wages, and no job
security. Thus they have become one of the most vulnerable to poverty. Globalisation is argued to be
‘informalising’ and ‘casualising’ the employment opportunities in the economy thus further expanding
the unorganised form of employment. It is seen that the economic reforms only vitiated this sector.
MEASURES TO REMOVE REGIONAL DISPARITIES
1. Resource Transfer and Backwardness:

While making necessary award, the Finance Commission in India has been giving due
weightage to backwardness of a state as an important criteria for resource transfer from the centre to the
states
The following table shows, the share of backward states and special category states in Plan outlay
and Central assistance:

Under the present system of federal fiscal transfer, the transfer of resources from the Centre to States
includes central assistance for State Plans, Non plan transfer as per the recommendations of the Finance
Commission, ad-hoc transfer, allocation of fund for centrally sponsored schemes, allocation of both
short-term and long-term credit from financial institutions etc.
Table 6.10 reveals that the share of backward states along with special category states in the
Plan outlay as well as in central assistance has been increasing steadily since the First Plan.
Accordingly, the share of these states in the total plan outlay had increased from 46 per cent in the First
Plan to 51 per cent in the Third Plan and then to 54 per cent in the Fifth Plan.
Again the share of these backward states as well as special category states in the Central assistance has
also increased from 48 per cent during the First Plan to 57 per cent during the Third Plan and then to 68
per cent during the Fourth Plan and finally to 69 per cent during the Fifth Plan.
However, the detail analysis of these resource transfers reveals that the per capita plan outlay of the
backward states like Bihar, U.P. and Assam remained all along lower than that of average per capita
plan outlay of all states together. Even during the Seventh Plan, the per capita plan outlay of Bihar, U.P.
and Assam stood at only Rs. 626, Rs. 803 and Rs. 850 respectively as compared to that of Rs. 1026 for
all states together.
In respect of per capita central assistance also the same condition persists. The average per
capita central assistance to Bihar and U.P. during the Fourth Plan was only Rs. 57 and Rs. 56
respectively as compared to that of Rs. 66 for Punjab and Rs. 63 for the country as a whole.
Thus the present Gadgil formula for the transfer of resources does not suit the requirements of the
backward states and therefore, the backward states are demanding to enhance the proportion of central
assistance allotted to special project from the existing 10 per cent under budget formula to 25 per cent
so as to attain balance in favour of backward states.
Again there are some peculiar difficulties to solve the problem of regional imbalance and
backwardness through resource transfers from centre to states. Again the resources so transferred are
not always utilized for the development of backward areas or districts of such backward states. Rather
there is a growing tendency to “divert fund intended for backward and difficult areas to more forward
areas and easier programmes.” Again the problem of backward areas in non-backward states remained
more or less unattended.
2. Special Area Development Programmes:
In order to develop hilly areas, tribal areas, drought- prone areas, specific plan schemes have
been designed with full central assistance. Besides, other schemes of rural development formulated for
the improvement of specific groups such as marginal farmers and agricultural labourers were
implemented in the backward regions.
An area based approach of ‘Tribal Sub-Plans’ (TSPs) is now being implemented for the development of
scheduled tribes located in the backward rural areas. The Tribal Sub-Plans are implemented through
194 Integrated Tribal Development Projects (ITDP) and 250 Modified Area Development Projects
(MADP).
In this manner, different special schemes for particular target group located in the backward
areas are being included for block level planning for attaining integrated rural development and
considerable employment opportunities. All these programmes include SFDA, MFAL, Drought Prone
Area Programme (DPAP), Crash Scheme for Rural Employment (CSRE) etc.

3. Incentives for Promoting Investment in Backward Regions:
In order to fight the problem of industrial backwardness of some backward regions and also to
promote private investment in backward regions, various fiscal and other incentives have been provided
by both the Centre, the States and other financial institution under public sector.
These incentives are as follows:
(a) Central Government Incentives:
In order to promote investment in the backward regions, the Government of India has been providing
different important incentives since 1970.
These incentives include:
(i) Income Tax Concession:
As per this concession scheme, new industrial units settled in backward areas and set up after
January 1971 are allowed a deduction to the extent of 20 per cent of their profits for the computation of
its assessable income. This concession was introduced in April 1974 and it was to be availed by an
industrial unit for a period of 10 years.
(ii) Tax Holiday:
In order to give stimulus to new industries in backward regions, the 1993-94 budget introduced
a system of tax holiday for new industrial units located in backward regions, i.e., in all states in the
North-eastern region, Jammu & Kashmir, Himachal Pradesh, Sikkim, Goa and the Union Territories of
Andaman and Nicobar Islands, Dadra and Nagar Haveli, Daman and Diu.
(iii) Central Investment Subsidy Scheme:
In 1970, the central government announced the scheme of central Investment subsidy which
made provision for outright subsidy at the flat rate of 10 per cent subject to a maximum limit of Rs. 5
lakh on fixed capital investment like land, factory buildings, plant and machinery. Subsequently, this
rate of subsidy was raised to 15 per cent and then to 25 per cent.
Since April 1983, the following pattern of central investment subsidy is being followed:
Category A areas (no industry districts and special regions): 25 per cent investment subsidy be
provided subject to a maximum limit of Rs. 25 lakh.
Category B areas: 15 per cent investment subsidy be provided subject to a maximum limit of Rs.
15 lakhs.
Category C areas: 10 per cent investment subsidy be provided to a maximum limit of Rs. 10
lakhs.
Again with effect from April 1984, the maximum limit of investment subsidy was raised to Rs.
50 lakhs to be fixed at the rate of 25 per cent in respect of electronic industry settled in hilly
districts in category A.
(iv) Transport Subsidy Scheme:
In July 1971, this transport subsidy scheme was introduced for those industrial units established
in hilly, inaccessible and remote areas of the country. Under this scheme, these aforesaid industrial units
were entitled to 50 per cent transport subsidy on the expenditure incurred particularly for movement of
raw materials and finished goods to and from certain selected rail heads to the location of these
industrial units. This scheme is applicable to remote and inaccessible areas of Jammu and Kashmir and
also in North-Eastern hill states.
(v) Promoting New Financial Institution in Backward Region:
In order to accelerate the pace of industrialization in backward areas the Government of India
has promoted new financial institutions specially for those areas. In the budget of 1995-96 the
government has announced the establishment of Regional Rural Development Bank (RRDB) for the
North-Eastern region.
Later on, this institution was inaugurated in 23rd February, 1996 in the name and style of North-Eastern
Development Finance Corporation Ltd. (NEDFC) as a catalyst for the industrial and infrastructural
development of North- Eastern Region. Moreover, the Government has established a new Rural
Infrastructural Development Fund (R1DF) within NABARD from April 1995 for the infrastructural
development of rural as well as backward areas.
(vi) Other Measures:

Moreover, the Central Government has been introducing some other measures for the
development of backward regions. Accordingly, since August 1972, the Central Government has been
giving priority to backward areas in respect of issuing industrial licenses.
The Central Government has again introduced a scheme for assisting the state governments to
undertake infrastructural development projects in those identified “no-industry district” to the extent of
one-third of the total cost of such development projects subject to a maximum limit of Rs. 2 crore.
With the help of this scheme the Central Government has been helping the state governments to
develop a good number of growth centres through the development of infrastructural facilities. The
Government has again granted liberal concessions to MRTP/FERA companies for setting up particular
types of industries located in backward areas.
(b) State Government Incentives:
In order to attract private sector investment in backward region, the State Governments have
also been offering incentives in different forms. These incentives include providing developed plots,
with electricity and water connections on a no profit no loss basis, exemption from payments of water
charges for some years, sales tax exemption, interest free loans, exemption from octroi duties,
exemption from payment of property taxes for initial years, providing subsidy on industrial housing
scheme, establishing industrial estates for setting up small industries etc. In recent years, more than 50
per cent of the loan sanctioned or advanced by the institutions like SFCs, SIDCO and SIICs under
concessional finance scheme, had gone to backward districts.
(c) Concessional Finance available from Major Financial Institutions:
In India, there are some important public sector financial institutions which are providing
concessional finance for setting up industrial project in the backward areas of the country. These
institutions include—Industrial Development Bank of India (IDBI), the Industrial Finance Corporation
of India (IFCI) and the Industrial Credit and Investment Corporation of India (ICICI).
These institutions are offering loan at concessional rate of interest and also at longer period
repayment facilities, participate in the risk capital or debenture issues, waiving of commitment charges
etc. Moreover, these institutions are preparing feasibility study of industrial projects to be located in
backward areas and they encourage the prospective entrepreneurs to implement such projects.
These institutions are also arranging entrepreneurial development programmes for providing
necessary training to small and medium prospective entrepreneurs. Moreover, these institutions are
setting up Technical Consultancy Organisations (TCOs) to provide technical consultancy services to
these prospective industrial units of backward areas at cheaper rates.
Unit: 3 Indian Industries : Review of Industrial Growth under 10th and 11th Five year plan - Growth
and present state of IT industry in India – Outsourcing, Nationalism and Globalization – Small Sector
Industrial Policy
Indian Industries : Review of Industrial Growth under 10th and 11th Five year plan
Tenth Five Year Plan: April 1, 2002 to March 31, 2007

The tenth plan was launched by Atal Bihari Vajpayee Government on December 21, 2002. This
plan was prepared in the background of high expectations arising from the better growth rate achieved
after the liberalization. Economy accelerated in the Tenth Plan period (2002–03 to 2006–07) to record
an average growth of 7.7%, the highest in any Plan period so far. National Income increased by 7.6%
and Per capita income by 6% per annum. Industrial production increased at the rate of 8.6% per year. In
the last year of the plan double digit growth was achieved. This led the Vajpayee government to call for
new election bit earlier than its scheduled time in 2004. The NDA asked vote in the name of “feel good
factor” but somehow, this did not work. Vajpayee was ousted from power and UPA-I government came
at the centre. The 61st report of the NSSO for 2004-05 recorded poverty to be 22% from the earlier
level of 26.1%. UPA government continued many of the NDA schemes. It launched Bharat Nirman to
upgrade rural infrastructure.

The Tenth Plan target of 10% industrial growth has not been met, but there was an acceleration
in the industrial growth rate during the Plan period and the target was exceeded in the terminal year.
The CAGR rose from 4.5% in the Ninth Five Year Plan to 8% in the Tenth Five Year Plan.
Manufacturing showed particular dynamism, the CAGR rising from 3.8% in the Ninth Five Year Plan
to 8.7% in the Tenth Five Year Plan. The annual growth rate of manufacturing rose consistently during
the period, registering 12.3% in 2006–07. For the first time in many years, industrial growth at 11%
equalled the growth rate in services, with manufacturing outstripping both
The rising demand in both domestic and external markets was a major contributory factor but
the impressive performance of manufacturing was due in no small measure to the cumulative effect of
industrial and fiscal policy changes carried out since the economic reforms of 1991–92. The
competitive environment created by the reduction of external barriers to trade finally started to bear
fruit. Against a CAGR of 6.3% in the Ninth Five Year Plan, exports of manufactures registered a
CAGR of more than 19% during the Tenth Five Year Plan
11th Five Year Plan

India entered the Eleventh Plan period with an impressive record of economic growth. Together with
10th plan progress, India emerged as one of the fastest growing economies in the world in the initial
years of 11th plan. India’s economic fundamentals have been improving in many dimensions, and this
is reflected in the fact that despite the slowdown in 2011–12,the growth rate of the economy averaged 8
per cent in the Eleventh Plan period. This was lower than the Plan target of 9 per cent, but it was better
than the achievement of 7.8 per cent in the Tenth Plan.
In order to achieve an average growth rate of 9% per annum in GDP during the Eleventh Plan, it
has been projected that, individually, industry and manufacturing will have to grow at an average
annual rate of 9.8%. However, if a number of issues are addressed as discussed below and particularly
the plans for improvement of infrastructure (power and transport) fructify in full measure, and the
recommended policies on mining (para 7.2.60) and construction (para 8.1.6) are implemented, a
substantially higher industrial growth rate can be achieved. The National Manufacturing
Competitiveness Council (NMCC) has, infact, suggested a growth rate of at least 12%– 14% per annum
for manufacturing.
ISSUES IN INDUSTRIAL GROWTH

1. World-class Infrastructure: Despite substantial progress, the quality of Industry 147
infrastructure remained many notches below world class at the end of the Tenth Five Year Plan.
Problems related to the availability and quality of electric power as well as roads, railways,
ports, and airports.
2. Taxation: Tax policy is a very important determinant of the investment climate. The rates of
direct taxes determine the structure of incentives to work, save, and invest, while the level and
structure of indirect taxes influences the aggregate demand and thus the scale of operations on
the one hand and relative prices of different goods and services on the other
3. DIRECT TAXES: The rate of Corporate Tax has been brought down to a level of 30%, which
with surcharge and cess amounts to a maximum marginal rate of 33.99%. However, analysis has
brought out two features of the direct taxation in the country arising from the regime of
exemptions.
4. INDIRECT TAXES: In indirect taxes great progress was made during the Tenth Five Year
Plan in reducing the cascading effect of indirect taxes by the adoption of State VAT by almost
all the States and UTs. However, the rates of indirect taxes in India remain among the highest in
the world. Most industrial products are subject to Central value-added tax (CENVAT) on the
manufactured value, at an average of 16% and a State VAT at a modal rate of 12.5% of retail

value (though there are a number of goods that are exempt from State VAT and some are subject
to lower rates of tax).
5. INVERTED DUTY STRUCTURE: The customs duty in India on non-agricultural products
has come down drastically since 1991–92, and during the past five years the peak duties (except
for a handful of products) have fallen from 30% to 10% ad valorem (as on 1 March 2007). The
vast majority of manufacturing industries have withstood increased competition from imports
arising from the lowering of customs duties. However, what is affecting them adversely is the
inverted duty structure arising from elimination or reduction of duty on value-added products,
while higher duties apply on the raw material and intermediate products. In some cases, inverted
duties are embedded in the Most-Favoured-Nation duties, as in the cases of Information
Technology (IT) products and books.
6. GOODS AND SERVICES TAX: Non-discretionary application of uniform taxes to all
economic activities is among the most important desiderata of a tax system. The introduction of
an integrated GST would go a long way in meeting this objective. The Report of the (Kelkar)
Task Force on Implementation of the Fiscal Responsibility and Budget Management Act 2003
recommended the introduction of the GST. The government has agreed to introduce the GST
and has set 2010 as the target year for its introduction. To prepare for this, it has also begun a
phased reduction of Central Sales Tax (CST) to zero by 2010. This is because CST, which is an
origin-based tax, is inconsistent with VAT, which are destination based—the two should not co-
exist.
7. SKILL DEVELOPMENT: A skill deficit in virtually all areas of manufacturing has emerged
as one of the major impediments to growth in manufacturing. All areas of manufacturing are
affected but the more dynamic areas such as pharmaceuticals, automobiles and auto parts,
textiles and clothing, leather and leather manufactures are affected more severely. And the
shortages are at all levels, from executives and designers at the top to the base level skilled
workers
8. Scarcity of Raw Materials: Scarcity of raw materials, feedstock, and fuels is another
impediment limiting the growth of some industries. Coal, natural gas, and forestry resources are
the main materials in short supply.
GROWTH AND PRESENT STATE OF IT INDUSTRY IN INDIA
The global sourcing market in India continues to grow at a higher pace compared to the IT-BPM
industry. The global IT & ITeS market (excluding hardware) reached US$ 1.2 trillion in 2016-17, while
the global sourcing market increased by 1.7 times to reach US$ 173-178 billion. India remained the
world’s top sourcing destination in 2016-17 with a share of 55 per cent. Indian IT & ITeS companies
have set up over 1,000 global delivery centres in over 200 cities around the world.
More importantly, the industry has led the economic transformation of the country and altered the
perception of India in the global economy. India's cost competitiveness in providing IT services, which
is approximately 3-4 times cheaper than the US, continues to be the mainstay of its Unique Selling
Proposition (USP) in the global sourcing market. However, India is also gaining prominence in terms of
intellectual capital with several global IT firms setting up their innovation centres in India.
The IT industry has also created significant demand in the Indian education sector, especially for
engineering and computer science. The Indian IT and ITeS industry is divided into four major segments
– IT services, Business Process Management (BPM), software products and engineering services, and
hardware.
India has come out on top with the highest proportion of digital talent in the country at 76 per cent
compared to the global average of 56 per cent!.
Market Size
The internet industry in India is likely to double to reach US$ 250 billion by 2020, growing to 7.5 per
cent of gross domestic product (GDP). The number of internet users in India is expected to reach 730
million by 2020, supported by fast adoption of digital technology, according to a report by National
Association of Software and Services Companies (NASSCOM).

Indian IT exports are projected to grow at 7-8 per cent in 2017-18, in addition to adding 130,000-
150,000 new jobs during the same period.
Indian IT and BPM industry is expected to grow to US$ 350 billion by 2025 and BPM is expected to
account for US$ 50-55 billion out of the total revenue.
E commerce market in India is set to grow at 30 per cent annually to hit US$ 200 billion gross
merchandise value by 2026@@.
Indian technology companies expect India's digital economy to have the potential to reach US$ 4
trillion by 2022, as against the Government of India's estimate of US$ 1 trillion.
Rise in mobile-phone penetration and decline in data costs will add 500 million new internet users in
India over the next five years creating opportunities for new businesses, as per private equity and
venture capital firm Omidyar Network.
Digital payment in India is expected to grow from 32 per cent in 2013-14 to 62 percent in 2017-18 in
terms of volume of transactions.
Employees from 12 Indian start-ups, such as Flipkart, Snapdeal, Makemytrip, Naukri, Ola, and others,
have gone on to form 700 start-ups on their own, thus expanding the Indian start-up ecosystem.! India
ranks third among global start-up ecosystems with more than 4,200 start-ups##.
Total spending on IT by banking and security firms in India is expected to grow 8.6 per cent year-on-
year to US$ 7.8 billion by 2017!!.
Personal Computer (PC) shipments from India grew 20.5 per cent y-o-y to reach 3.03 million during
July-September 2017. The growth was backed by strong consumer demand and special projects.
The public cloud services market in India is slated to grow 35.9 per cent to reach US$ 1.3 billion
according to IT consultancy, Gartner. Increased penetration of internet (including in rural areas) and
rapid emergence of e-commerce are the main drivers for continued growth of data centre co-location
and hosting market in India. The Indian Healthcare Information Technology (IT) market is valued at
US$ 1 billion currently and is expected to grow 1.5 times by 2020^^. India's business to business (B2B)
e-commerce market is expected to reach US$ 700 billion by 2020 whereas the business to consumer
(B2C) e-commerce market is expected to reach US$ 102 billion by 2020^^^.
Cross-border online shopping by Indians is expected to increase 85 per cent in 2017, and total online
spending is projected to rise 31 per cent to Rs 8.75 lakh crore (US$ 128 billion) by 2018!!!.
Investments/ Developments
Indian IT's core competencies and strengths have attracted significant investments from major
countries. The computer software and hardware sector in India attracted cumulative Foreign Direct
Investment (FDI) inflows US$ 27.72 billion from April 2000 to September 2017, according to data
released by the Department of Industrial Policy and Promotion (DIPP).
Leading Indian IT firms like Infosys, Wipro, TCS and Tech Mahindra, are diversifying their offerings
and showcasing leading ideas in blockchain, artificial intelligence to clients using innovation hubs,
research and development centres, in order to create differentiated offerings.
Some of the major developments in the Indian IT and ITeS sector are as follows:
 India ranked ninth out of the 14 countries in the latest report of the Korn Ferry Digital
Sustainability Index (DSI), outperforming countries such as China, Russia and Brazil.
 The flexi staffing market in the information technology (IT) sector in India stood at US$ 3.04
billion in FY 2016-17 and is estimated to grow at a Compound Annual Growth Rate (CAGR) of
14-16 per cent to reach US$ 5.3 billion by 2021@.
 Private Equity (PE) investments in India's IT & ITeS sector, in terms of deal value, increased 93
per cent year-on-year in Q2 2017 to reach US$ 2.7 billion
 Exports of software services from India increased 10.3 per cent year-on-year to reach US$ 97.1
billion in FY 2016-17, according to the Reserve Bank of India's (RBI) 'Survey on Computer
Software & Information Technology Enabled Services Exports: 2016-17'.
 Spending on artificial intelligence (AI) by Indian companies is expected to increase by 8-11 per
cent over the coming 18 months backed by rising influence of AI-based solutions across
verticals, as per a report by Intel.
 India plans to create wireless Technology 5G by the end of the year 2020 which will help India
in realising its most important goals of “Increasing the GDP rate”, “Creating Employment” and
“Digitizing the Economy”.

 The mobile wallet industry is expected to maintain its current pace of expansion and the value of
its transaction is expected to reach Rs 32 trillion (US$ 480 billion) by 2022, growing at a rate of
126 per cent.
Government Initiatives
Some of the major initiatives taken by the government to promote IT and ITeS sector in India are as
follows:
 The Government of India is going to explore new opportunities in various sectors such as
providing BPO service from home, digital healthcare and agriculture to achieve the target of
making India a US$ 1 trillion digital economy.
 The Government of Andhra Pradesh is targeting to attract investments worth US$ 2 billion and
create 100,000 jobs in the information technology (IT) sector in the state, stated Mr N
Chandrababu Naidu, Chief Minister, Andhra Pradesh.
 The Government of Telangana is targeting to provide broadband connection to every household
in the state by 2018, which is expected to lead to revolutionary changes in the education and
health sectors.
 Mr Manoj Sinha, Minister of Communications, Government of India, launched project
DARPAN - digital advancement of rural post office for a new India, for improving the quality
and adding value to services and achieving financial inclusion for the unbanked rural
population.
 Mr Ram Nath Kovind, President of India, has dedicated four projects, such as Andhra Pradesh
Fibregrid, Andhra Pradesh Surveillance Project, Drone Project and Free Space Optical
Communication (FSOC) to the people of Andhra Pradesh.
 The Government of India is planning to set wifi facility for around 5.5 lakh villages by March
2019 with an estimated investment of Rs 3,700 crore (US$ 555 million) and the government
expects to start broadband services with about 1,000 megabit per second (1 gbps) across 1 lakh
gram panchayats by the end of this year.
Road Ahead
India is the topmost offshoring destination for IT companies across the world. Having proven its
capabilities in delivering both on-shore and off-shore services to global clients, emerging technologies
now offer an entire new gamut of opportunities for top IT firms in India. US$ 150 billion Indian IT
industry’s export revenue to grow at 7-8% and domestic market revenue is projected to grow at 10-11
per cent in 2017-18.
Outsourcing, Nationalism and Globalization
Outsourcing occurs when a company retains another business to perform some of its work
activities. These companies are usually located in foreign countries with lower labor costs and a less
strict regulatory environment.
Advantages Of Outsourcing
Knowing the benefits of outsourcing will help you decide if this is something that could work
for your business. Here are three reasons to give this a try:
1. You Don’t Have To Hire More Employees
When you outsource, you can pay your help as a contractor. This allows you to avoid bringing an
employee into the company, which saves you money on everything from benefits to training.
2. Access To A Larger Talent Pool
When hiring an employee, you may only have access to a small, local talent pool. This often means you
have to compromise. Many companies have found that outsourcing gives them access to talent in other
parts of the world. If you need specialized help, it often makes sense to expand your search.
3. Lower Labor Cost
Every company has its own reason for doing this, with many chasing lower labor costs. You don’t want
to trade quality for price, but outsourcing often allows you to get the best of both worlds. By searching
a global talent pool, it’s easier to find the right talent at the right price.

Cons Of Outsourcing
Despite the many benefits of outsourcing, you don’t want to go down this path until you
compare these to the potential drawbacks:
1. Lack Of Control
Although you can provide direction in regard to what you need to accomplish, you give up some control
when you outsource.
There are many reasons for this, including the fact that you are often hiring a contractor instead of an
employee. And since the person is not working on-site, it can be difficult to maintain the level of
control you desire.
2. Communication Issues
This doesn’t always come into play, but it’s one of the biggest potential drawbacks. Here are several
questions to ask:
• What time zone does the person live in and how does this match up with your business hours?
• What is your preferred method of communication? Phone, email, instant messaging?
• Does the person have access to a reliable internet connection?
According to Cameron Herold, the founder of a COO training program, communication is essential to
success in the business world. Since a large number of U.S.-based employees report not being engaged
at work, communication remains a major problem. Will this get worse if you outsource?
3. Problems With Quality
Despite all the benefits of outsourcing, it is only a good thing if you’re receiving the quality you expect.
Anything less than this will be a disappointment.
This isn’t to say you can’t successfully outsource particular tasks, but you need to discuss the expected
quality upfront.
Impact On Company Culture
As a business owner, it’s easy to focus on the benefits of outsourcing, all without considering the
impact it can have on your company as a whole. If you plan on outsourcing, you need to take steps to
ensure that it doesn’t have a negative effect on company culture.
A positive work culture leads to a higher level of productivity, so you don’t want to do anything to
jeopardize this. Some of the ways outsourcing can negatively affect company culture include:
• Upset employees as they may feel they are being replaced
• Confuse employees who don’t understand why you are outsourcing particular tasks
• Add challenges to the daily workflow of the company
Outsourcing doesn’t always have a negative impact on company culture, but you need to protect against
this before you ever take a step in this direction. This typically means discussing your decision with any
employees who could be impacted.
There are many pros and cons of outsourcing, all of which you should carefully consider before
deciding for or against this strategy. With the ability to affect company culture, this isn’t something to
take lightly. Do you have any experience with outsourcing? Did it benefit your company, or result in
more harm than good?
GLOBALIZATION
A story in the Washington Post said “20 years ago globalization was pitched as a strategy that
would raise all boats in poor and rich countries alike. In the U.S. and Europe consumers would have
their pick of inexpensive items made by people thousands of miles away whose pay was much lower
than theirs. And in time trade barriers would drop to support even more multinationals expansion and
economic gains while geo political cooperation would flourish.”
There is no question that globalization has been a good thing for many developing countries who now
have access to our markets and can export cheap goods. Globalization has also been good for Multi-
national corporations and Wall Street. But globalization has not been good for working people (blue or
white collar) and has led to the continuing deindustrialization of America.
Globalization is a complicated issue. It is necessary to evaluate the pros and cons before drawing any
conclusions.

Pros
Supporters of globalization argue that it has the potential to make this world a better place to
live in and solve some of the deep-seated problems like unemployment and poverty.
1. Free trade is supposed to reduce barriers such as tariffs, value added taxes, subsidies, and other
barriers between nations. This is not true. There are still many barriers to free trade. The Washington
Post story says “the problem is that the big G20 countries added more than 1,200 restrictive export and
import measures since 2008
2. The proponents say globalization represents free trade which promotes global economic growth;
creates jobs, makes companies more competitive, and lowers prices for consumers.
3. Competition between countries is supposed to drive prices down. In many cases this is not working
because countries manipulate their currency to get a price advantage.
4. It also provides poor countries, through infusions of foreign capital and technology, with the chance
to develop economically and by spreading prosperity, creates the conditions in which democracy and
respect for human rights may flourish. This is an ethereal goal which hasn’t been achieved in most
countries
5. According to supporters globalization and democracy should go hand in hand. It should be pure
business with no colonialist designs.
6. There is now a worldwide market for companies and consumers who have access to products of
different countries. True
7. Gradually there is a world power that is being created instead of compartmentalized power sectors.
Politics is merging and decisions that are being taken are actually beneficial for people all over the
world. This is simply a romanticized view of what is actually happening. True
8. There is more influx of information between two countries, which do not have anything in common
between them. True
9. There is cultural intermingling and each country is learning more about other cultures. True
10. Since we share financial interests, corporations and governments are trying to sort out ecological
problems for each other. – True, they are talking more than trying.
11. Socially we have become more open and tolerant towards each other and people who live in the
other part of the world are not considered aliens. True in many cases.
12. Most people see speedy travel, mass communications and quick dissemination of information
through the Internet as benefits of globalization. True
13. Labor can move from country to country to market their skills. True, but this can cause problems
with the existing labor and downward pressure on wages.
14. Sharing technology with developing nations will help them progress. True for small countries but
stealing our technologies and IP have become a big problem with our larger competitors like China.
15. Transnational companies investing in installing plants in other countries provide employment for
the people in those countries often getting them out of poverty. True
16. Globalization has given countries the ability to agree to free trade agreements like NAFTA, South
Korea Korus, and The TPP. True but these agreements have cost the U.S. many jobs and always
increase our trade deficit
Cons
• The general complaint about globalization is that it has made the rich richer while making the non-rich
poorer. “It is wonderful for managers, owners and investors, but hell on workers and nature.”
• Globalization is supposed to be about free trade where all barriers are eliminated but there are still
many barriers. For instance161 countries have value added taxes (VATs) on imports which are as high
as 21.6% in Europe. The U.S. does not have VAT.
• The biggest problem for developed countries is that jobs are lost and transferred to lower cost
countries.” According to conservative estimates by Robert Scott of the Economic Policy Institute,
granting China most favored nation status drained away 3.2 million jobs, including 2.4 million
manufacturing jobs. He pegs the net losses due to our trade deficit with Japan ($78.3 billion in 2013) at
896,000 jobs, as well as an additional 682,900 jobs from the Mexico –U.S. trade-deficit run-up from
1994 through 2010.”

• Workers in developed countries like the US face pay-cut demands from employers who threaten to
export jobs. This has created a culture of fear for many middle class workers who have little leverage in
this global game
• Large multi-national corporations have the ability to exploit tax havens in other countries to avoid
paying taxes.
• Multinational corporations are accused of social injustice, unfair working conditions (including slave
labor wages, living and working conditions), as well as lack of concern for environment,
mismanagement of natural resources, and ecological damage.
• Multinational corporations, which were previously restricted to commercial activities, are increasingly
influencing political decisions. Many think there is a threat of corporations ruling the world because
they are gaining power, due to globalization.
• Building products overseas in countries like China puts our technologies at risk of being copied or
stolen, which is in fact happening rapidly
• The anti-globalists also claim that globalization is not working for the majority of the world. “During
the most recent period of rapid growth in global trade and investment, 1960 to 1998, inequality
worsened both internationally and within countries. The UN Development Program reports that the
richest 20 percent of the world's population consume 86 percent of the world's resources while the
poorest 80 percent consume just 14 percent. “
• Some experts think that globalization is also leading to the incursion of communicable diseases.
Deadly diseases like HIV/AIDS are being spread by travelers to the remotest corners of the globe.
• Globalization has led to exploitation of labor. Prisoners and child workers are used to work in
inhumane conditions. Safety standards are ignored to produce cheap goods. There is also an increase in
human trafficking.
• Social welfare schemes or “safety nets” are under great pressure in developed countries because of
deficits, job losses, and other economic ramifications of globalization.
Globalization is an economic tsunami that is sweeping the planet. We can’t stop it but there are many
things we can do to slow it down and make it more equitable.
What is missing?
Leadership – We need politicians who are willing to confront the cheaters. One of our biggest
problems is that 7 of our trading partners manipulate their currencies to gain unfair price advantage
which increases their exports and decreases their imports. This is illegal under WTO rules so there is a
sound legal basis to put some kind of tax on their exports until they quit cheating.
Balanced Trade – Most of our trading partners can balance their trade budgets and even run a
surplus. We have not made any effort to balance our trade budget and have run a deficit for more than
30 years resulting in an $11 trillion deficit. The trade deficit is the single biggest job killer in our
economy, particularly manufacturing jobs. We need the government to develop a plan to begin to
balance our trade deficit even though this is not a political priority in either party.
Trade Agreements – Both the NAFTA and the South Korean Korus trade agreements might have been
good for Wall Street and the multi-national corporations but they eliminated jobs in America and
expanded our trade deficit. The upcoming Trans Pacific Trade Agreement will do the same thing and
Congress should not fast track this bad agreement for a dozen reasons.
Enforcing the rules – China ignores trade rules and WTO laws with reckless abandon. Besides
currency manipulation they subsidize their state owned companies to target our markets, and provide
funding to their state owned companies that dump their products in America. They also steal our
technologies, sell counterfeit versions of our products, and impose tariffs and other barriers anytime
they want - as we do nothing to stop them. China does not deserve to be on our most favored nation list
and we need to tax their exports to us until they stop these illegal activities.
What is good for third world countries, like Kenya, or countries with tremendous growth, like
China, has not been good for American workers. Globalization is deindustrializing America as we
continue to outsource both manufacturing blue collar and white collar jobs. Supporters of globalization
have made the case that it is good because it has brought low priced imported goods, but they have not
matched the decline of wages in the middle class and will not offset the loss of many family wage jobs
Globalization is like being overwhelmed by a snow avalanche. You can’t stop it – you can only swim in
the snow and hope to stay on top. I would like to make the argument that the US should try a lot harder

to swim in the snow and stay on top. We can’t stop globalization but there are many policies and
strategies we can use to make it more equitable. We can enforce the trade laws, force the competition to
play by the same rules, and stop giving our competitors the tools (technology and R& D) to ultimately
win the global war.
Small Sector Industrial Policy
The Small Scale Industry Sector has emerged as India's engine of growth in the New
Millennium. By the end of March 2000, the SSI sector accounted for nearly 40 per cent of gross value
of output in the manufacturing sector and 35 per cent of total exports from the country. Through over
32 lakh units, the sector provided employment to about 18 million people.
The on going programme of Economic Reforms based upon the principle of liberalisation,
globalisation and privatisation and the changes at the international economic scene including the
emergence of World Trade Organisation (WTO), have brought certain schallenges and several new
opportunities before the SSI Sector. The most important challenge faced by the sector is that of growing
competition both globally and domestically. At the sametime sector has also been facing some
problems which relate to credit, infrastructure, technology, marketing, delayed payment hassels on
account of so many rules and regulations etc. In order to enable this sector to avail the opportunities and
play its role as an engine of growth, it is essential to address to these problems effectively and urgently.
With a view to provide more focused attention on the development of SSI, the Government of
India created a new Ministry of Small Scale Industries & Agro and Rural Industries in October 1999.
Immediately after the formation of the Ministry, a Mission for the Millennium giving a blue print for
small scale and village industries was announced. To carve out a road map for this sector in the New
Millennium, the Hon'ble Prime Minister constituted a Group of Ministers under the Chairmanship of
Shri L.K. Advani the Home Minister of India in June 2000. The background material for the
consideration of the Group of Ministers was provided by the Interim Report of the S.P. Gupta Study
Team constituted by the Planning Commission.
The Group of Ministers considered the recommendations and came out with a Comprehensive
Policy Package for the Small Scale and Tiny Sector which was announced by the Hon'ble Prime
Minister Shri Atal Bihari Vajpayee at first ever National Conference on the Small Scale Industries
organised by the Ministry of SSI & ARI at Vigyan Bhavan, New Delhi on 30th August 2000. (Copy of
Speech at Annexure-I). A copy of Speech of the Hon'ble Minister of State (Independent Charge) SSI &
ARI, Smt. Vasundhara Raje on the occasion of National Conference on Small Scale Industries is placed
at Annexure-II. While some components of the policy package were announced by the Hon'ble Prime
Minister on 30th August 2000, some others including the Tiny Sector Policy Package were announced
by the Ministry of SSI& ARI on 31st August 2000 in the meeting of the SSI Board.
SMALL SCALE SECTOR

2.0 Policy Support
2.1 The investment limit for the Tiny Sector will continue to be Rs. 25 lakhs. (Annexure-III)
2.2 The investment limit for the SSI sector will continue to be at Rs. 1 crore. (Annexure-IV)
2.3 The Ministry of SSI & ARI will bring out a specific list of hi-tech and export oriented industries
which would require the investment limit to be raised upto Rs. 5 crores to admit of suitable technology
upgradation and to enable them to maintain their competitive edge.
2.4 The Limited Partnership Act will be drafted quickly and got enacted. Attempt will be made to bring
the Bill before the next session of the Parliament.
3.0 Fiscal Support

3.1 To improve the competitiveness of Small Scale Sector, the exemption for excise duty limit raised
from Rs. 50 lakhs to Rs. 1 crore. (Annexure-V)
4.0 Credit Support
4.1 The composite loans limit raised from Rs. 10 lakhs to Rs.25 lakhs. (Annexure-VI)
4.2 The Small Scale Service and Business (Industry Related) Enterprises (SSSBEs) with a maximum
investment of Rs. 10 lakhs will qualify for priority lending. (Annexure-VII)
4.3 In the National Equity Fund Scheme, the project cost limit will be raised from Rs. 25 lakhs to Rs. 50
lakhs. The soft loan limit will be retained at 25 per cent of the project cost subject to a maximum of Rs.
10 lakhs per project. Assistance under the NEF will be provided at a service charge of 5 per cent per
annum. (Annexure-VIII)
4.4 The eligibility limit for coverage under the recently launched (August 2000) Credit Guarantee
Scheme has been revised to Rs.25 lakhs from the present limit of Rs. 10 lakhs. (Annexure-IX)
4.5 The Department of Economic Affairs will appoint a Task Force to suggest
revitalisation/restructuring of the State Finance Corporations. (Annexure-X)
4.6 The Nayak Committee's recommendations regarding provision of 20 per cent of the projected
turnover as working capital is being recommended to the financial institutions and banks. (Annexure-
XI)
5.0 Infrastructural Support
5.1 The Integrated Infrastructure Development (IID) Scheme will progressively cover all areas in the
country with 50 per cent reservation for rural areas. (Annexure-XII)
5.2 Regarding upgrading the Industrial Estates, which are languishing, the Ministry of SSI & ARI will
draw up a detailed scheme for the consideration of the Planning Commission.
5.3 A Plan Scheme for Cluster Development will be drawn up.
5.4 The funds available under the non-lapsable pool for the North-East will be used for Industrial
Infrastructure Development, setting up of incubation centres, for Cluster Development and for setting
up of IIDs in the North-East including Sikkim. (Annexure-XIII)
6.0 Technological Support and Quality Improvement

6.1 Capital Subsidy of 12 per cent for investment in technology in select sectors. An interministerial
Committee of Experts will be set up to define the scope of technology upgradation and sectorial
priorities. (Annexure-XIV)
6.2 To encourage Total Quality Management, the Scheme of granting Rs.75,000/- to each unit for
opting ISO-9000 Certification will continue for the next six years i.e. till the end of the 10th plan.
(Annexure-XV)
6.3 Setting up of incubation Centres in Sunrise Industries will be supported. (Annexure-XVI)
6.4 The TBSE set up by SIDBI will be strengthened so that it functions effectively as a Technology
Bank. It will be properly networked with NSIC, SIDO (SENET Programme) and APCTT.
6.5 SIDO, SIDBI and NSIC will jointly prepare a Compendium of available technologies for the R&D
institutions in India and abroad and circulate it among the industry associations for the dissemination of
the latest technology related information.
6.6 Commercial Banks are being requested to develop Schemes to encourage investment in technology
upgradation and harmonise the same with SIDBI.
6.7 One time Capital Grant of 50% will be given to Small Scale Associations which wish to develop
and operate Testing Laboratories, provided they are of international standard. (Annexure-XVII)
7.0 Marketing Support

7.1 SIDO will have a Market Development Assistance (MDA) Programme, similar to one obtaining in
the Ministry of Commerce & Industry. It will be a Plan Scheme.
7.2 The Vendor Development Programme, Buyer-Seller Meets and Exhibitions will take place more
often and at dispersed locations.
8.0 Streamlining Inspections/Rules and Regulations

8.1 To minimise harassment to Small Scale Sector a Group will be set up to recommend within 3
months, means of streamlining inspections. This will include repeal of laws and regulations applicable
to the sector that have since become redundant. (Annexure-XVIII)
8.2 Self-certification will be progressively encouraged in lieu of inspections, which should be
prescribed under the three following conditions:
i. l On receipt of specific complaint;
ii. l Selection of unit for sample check (Say 10 per cent of total units); and
iii. l For audit and safety purposes.
9.0 Entrepreneurship Development
9.1 Capacity building in the SSI sector, both for entrepreneurs as well as workers, will be given top
priority. The Ministry of SSI & ARI and Ministry of Labour will work out the strategy jointly.
10.0 Facilitating Prompt Payment

10.1 The Reserve Bank of India is being requested to appoint a Task Force to go into the question of
strengthening and popularising factoring services, without recourse to the SSI suppliers. The Task
Force shall give its report within six months of its constitution.
10.2 RBI is being requested to take up with the banks, the question of sub-allocating overall limits to
the large borrowers specifically for meeting the payment obligations in respect of purchases from the
SSIs, either on case basis or on bills basis. (Annexure-XIX)
11.0 Rehabilitation of sick units

11.1 RBI is being requested to draw up revised guidelines for the rehabilitation of currently sick but
potentially viable SSI units. Such guidelines should be detailed, transparent and non-discretionary.
(Annexure-XX)
12.0 Promoting Rural Industries

12.1 To support the Handloom Sector "Deendayal Hathkarga Protsahan Yojna" has been announced.
The scheme has a total financial implication of Rs. 447 crores and will provide comprehensive financial
and infrastructural support to weavers.
12.2 The Government is working out new comprehensive package to strengthen Khadi and Village
Industries that will further upgrade the skills of Khadi Workers. (Annexure-XXI)
13.0 Improving Data Base

13.1 A fresh Census of Small Scale Industries will be conducted covering inter-alia, the incidence of
sickness and its causes. (Annexure-XXII)
TINY SECTOR
14.0 Policy Support
14.1 The investment limit for the tiny sector will continue to be Rs. 25 lakhs.
14.2 Under the Prime Minister's Rozgar Yojna, which finances setting up of micro enterprises and
generates employment for the educated unemployed, the family income eligibility limit of Rs. 24,000
perannum being revised to Rs. 40,000 per annum. (Annexure-XXIII)
15.0 Credit Support

15.1 The Nayak Committee's recommendations regarding provision of 20 per cent of the projected
turnover as working capital is being recommended to the Financial Institutions and Banks. In respect of
Tiny units also 20 per cent of the projected annual turnover would qualify for working capital loan.
15.2 The National Small Industries Corporation will continue to give composite loans upto Rs. 25 lakhs
to the Tiny Sector and continue to charge one per cent concessional interest rate.
15.3 SIDBI will continue to give concessional rate of refinance to the tiny sector which is now at 10.5
per cent as compared to 12 per cent for the SSI sector. This policy will continue.

15.4 In the National Equity Fund Scheme, the project cost limit will be raised from Rs. 25 lakhs to Rs.
50 lakhs. The soft loan limit will be retained at 25 per cent of the project cost subject to a maximum of
Rs. 10 lakhs per project. Assistance under the NEF will be provided at a service charge of 5 per cent per
annum. Under the National Equity Fund Scheme, 30 per cent of the investment will be earmarked for
the Tiny Sector.
16.0 Infrastructure Support

16.1 The Integrated Infrastructure Development (IID) Scheme will progressively cover all areas in the
country with 50 per cent reservation for rural areas. Under this Scheme, 50 per cent of the plots will be
earmarked for the tiny sector (as against 40 per cent done earlier). (Annexure-VII)
16.2 Under the National Programme for Rural Industrialisation, cluster development is being taken up
by KVIC, SIDO, SIDBI and NABARD. The major beneficiaries of Cluster Development Programme
will be Tiny Sector Units. The sponsoring organisation for each cluster will provide for design
development, capacity building, technology intervention and consortium marketing. A Cluster
Development Fund will be created under the Plan.
17.0 Technological Support

17.1 Under the Scheme of Capital Subsidy of 12 per cent for investment in technology upgradation in
select sectors, preference will be given to the Tiny Sector.
18.0 Marketing Support

18.1 Preference will be given to the Tiny Sector while organising Buyer-Seller Meets, Vendor
Development Programmes and Exhibitions.
Government Policies for Development and Promotion of Small-Scale Industries in India
In India, Small-scale enterprises have been given an important place for both ideological and economic
reasons. It is well documented that the small scale industries have an important role in the development
of the country. It contributes almost 40% of the gross industrial value added in the Indian economy.
Government's approach and intention towards industries in general and SSIs in particular are revealed
in Industrial policy Resolutions. There are many Government Policies for development and promotion
of Small-Scale Industries in India. These are mentioned as below:
1. Industrial Policy Resolution (IPR) 1948

1. Industrial Policy Resolution (IPR) 1948: The IPR, 1948 acknowledged the importance of small-scale
industries in the overall industrial development of the country. It was well understood that small-scale
industries are mainly suited for the utilization of local resources and for creation of employment
opportunities. However, they have to face severe problems of raw materials, capital, skilled labour,
marketing since a long period of time (B.narayan, 1999). Therefore, government put more emphasis on
the IPR, 1948 so that these problems of small-scale enterprises should be solved by the Central
Government with the cooperation of the State Governments. It can be established that the main drive of
IPR 1948, as far as small-scale enterprises were concerned, was 'safeguard'. The IPR of 1948 indicated
that "Cottage and small scale industries have a very important role in the national economy. Offering as
they do scope for individual, village or cooperative enterprise, and means for the rehabilitation of
displaced persons. These industries are particularly suited for the better utilization of local resources
and for the achievement of the local self-sufficiency in respect of certain types of essential consumer
goods like food, cloth and agricultural implements" (Industrial Policy Resolution, 1948).

The IPR of 1948 revealed the emergence of a dualistic approach in government policy i.e. emphasis on
both traditional and modern small scale sector. This approach has continued to form the basis of
industrial policy towards the small scale sector ever since. The industrial Development and Regulation
Act, 1951 which was transmitted in order to provide the organizational support to IPR of 1948 provide
scope for a synchronized development of cottage and small scale industries within the general
framework of large scale development programmes.
2. Industrial Policy Resolution (IPR) 1956: This policy was first comprehensive statement on industrial
development of India. The 1956 policy continued to constitute the basic economic policy for a long
time. This fact has been confirmed in all the Five-Year Plans of India (B.narayan, 1999). According to
this Resolution, the objective of the social and economic policy in India was the establishment of a
socialistic pattern of civilization. It provided more powers to the governmental mechanism. It laid down
three categories of industries which are mentioned below:
I. Schedule A - Those industries which were to be an exclusive responsibility of the state.

II. Schedule B - Those which were to be progressively state-owned and in which the state would
generally set up new enterprises, but in which private enterprise would be expected only to supplement
the effort of the state.
III. Schedule C - All the remaining industries and their future development would, in general be left to
the initiative and enterprise of the private sector.
The main contribution of the IPR 1948 was that it set in the nature and pattern of industrial
development in the country. The post-IPR 1948 period was marked by substantial developments taken
place in the country. For example, planning has proceeded on an organised manner and the First Five
Year Plan 1951-56 had been completed. Industries (Development and Regulation) Act, 1951 was also
announced to legalise and control industries in the country. The parliament had also acknowledged 'the
socialist pattern of society' as the basic objective of social and economic policy during this period. It
was this background that the declaration of a new industrial policy resolution appeared essential. This
came in the form of IPR 1956. The IPR has aim to guarantee that decentralised sector acquires
sufficient vitality to self-supporting and its development is incorporated with that of large- scale
industry in the country.
Besides, the Small-Scale Industries Board (SSIB) established a working group in 1959 to scrutinize and
formulate a development plan for small-scale industries during the, Third Five Year Plan, 1961-66. In
the Third Five Year Plan period, specific developmental projects like 'Rural Industries Projects' and
'Industrial Estates Projects' were started to support the small-scale sector in the nation. The IPR 1956
for small-scale industries intended at 'Protection plus Development.' In a way, the IPR 1956 started the
modern SSI in India.
It was documented that in 1955, Planning Commission setup a Committee on village and small scale
industries popularly known as Karve Committee. The Committee suggested some important measures
like:
I. Reservation of certain items only for village and small scale industries.
II. Restriction of capacity expansion of large industry.
III. Management of supply of raw materials.
IV. A scheme of concessions and benefits to small producers.
The IPR of 1956 advocated the policy of protection as endorsed by Karve Committee to improve
economic feasibility and competitive power of small scale industries. This policy stated that "The State
has been following a policy of supporting cottage and village and small scale industries by restricting
the volume of production in the large scale sector by differential taxation or by direct subsidies. While
such measures will continue to be taken, whenever necessary, the aim of the State Policy is to ensure
that the decentralised sector acquires sufficient vitality to be self-supporting and its development is
integrated with that of large-scale industry. The State, therefore, concentrates on measures designed to
improve the competitive strength of the small scale producer. For this it is essential that the technique of

production should be constantly improved and the pace of transformation being regulated so as to avoid
as far as possible, technological unemployment. Lack of technical and financial assistance, of suitable
working accommodation and inadequacy of facilities for repair and maintenance are among the serious
handicaps of small scale producers. A start has been made with the establishment of industrial estates
and rural community workshops to make good to these deficiencies. The extension of rural
electrification, and the availability of power at prices, which the workers can afford, will also be of
considerable help. Many of the activities relating to small scale production will be greatly helped by the
organisation of industrial cooperatives. Such cooperatives should be encouraged in every way and the
State should give constant attention to the development of cottage and village and small scale industry"
(Industrial Policy Resolution, 1956). Main emphasis of this policy is to support to cottage, village and
small industries by differential taxation or direct grants in the form of financial assistance to improve
and modernize the techniques of production and competitive strength of SSIs.
3. Industrial Policy Resolution (IPR) 1977: This policy was announced by Janata Dal in 1977. During
the two decades after the IPR 1956, the economy countersigned uneven industrial development skewed
in favour of large and medium sector, on the one hand, and increase in joblessness, on the other. This
situation led to a transformed emphasis on industrial policy. This gave advent to IPR 1977. This policy
supported the development of small scale and cottage industries as a remedy to common problem of
unemployment and regional dissimilarities in industrial development (B.narayan, 1999). This policy
proclaimed that "The main thrust of the new Industrial Policy will be on effective promotion of cottage
and small industries widely dispersed in rural areas and small towns. It is the policy of the Government
that whatever can be produced by small and cottage industries must only be so produced" (Industrial
Policy Resolution, 1977).
The important attributes of the IPR were:

1. 504 items were reserved for exclusive production in the small-scale industries.
2. The concept of District Industries Centres (DICs) was introduced so that in each district a single
agency could meet all the requirements of SSIs under one roof.
3. Technological up gradation was emphasized in traditional sector. 4. Special marketing arrangements
through the provision of services, such as, product standardization, quality control, market survey, were
laid down.
The IPR 1977 grouped small sector into three broad categories:
1. Cottage and Household Industries which provide self-employment on a large scale.
2. Tiny sector incorporating investment in industrial units in plant and machinery up to Rs.one lakh and
situated in towns with a population of less than 50,000 according to 1971 Census.
3. Small-scale industries comprising of industrial units with an investment of up to Rs.10 lakhs and in
case of ancillary units with an investment up to Rs.15 lakhs. The measures suggested for the promotion
of small-scale and cottage industries included:
I. Reservation of 504 items for exclusive production in small-scale sector.
II. Proposal to set up in each district an agency called "District Industry Centre" (DIC) to serve as a
focal point of development for small-scale and cottage industries. The scheme of DIC was introduced in
May 1978. The main goal of setting up DICs was to promote under a single roof all the services and
support required by small and village businesspersons.
4. Industrial Policy Resolution (IPR) 1980: The Industrial Policy of 1980 marked a major breakthrough
in the policy of development of small scale industries in India. The Government of India accepted a
new Industrial Policy Resolution (IPR) on July 23, 1980. The IPR wanted to synchronise the
development in small scale industries with the large and medium scale industries. Industrially backward
districts were identified for faster growth of existing network of SSIs. The main purpose of IPR 1980
was defined as assisting an increase in industrial production through optimum utilization of installed
capacity and expansion of industries. This policy statement focused on the need for promoting
competition in domestic market, technological up gradation and modernization (Sangram Keshari
Mohanty, 2005).
As to the small sector, the resolution visualised following measures:

I. Increase in investment ceilings from Rs.1 lakh to Rs.2 lakhs in case of tiny units, from Rs.10 lakhs to
Rs.20 lakhs in case of small-scale units and from Rs.15 lakhs to Rs.25 lakhs in case of ancillaries.
II. Introduction of the concept of nucleus plants to replace the earlier scheme of the District Industry
Centres in each industrially backward district to promote the maximum small-scale industries there.
III. Promotion of village and rural industries to generate economic feasibility in the villages well
compatible with the environment.
IV. Reservation of items and marketing support for small industries was to continue.
V. Availability of credit to growing SSI units was continued.
VI. Buffer stocks of critical inputs were to continue.
VII. Agricultural base was to strengthen by providing preferential treatment to agro based industries.
VIII. An early warning system was to establish to avoid sickness and take appropriate remedial
measures.
Thus, the IPR 1980 reemphasised the spirit of the IPR 1956. The small-scale sector still continued the
best sector to create employment and self-employment based opportunities in the country.
5. Industrial Policy Resolution (IPR) 1990: The IPR 1990 was declared during June 1990. As to the
small-scale sector, the resolution continued to give significance to small-scale enterprises to serve the
objective of employment generation. This policy emphasized on the need of modernization and
technology up gradation to meet the objectives of employment generation and dispersal of industry in
rural areas, and to enhance the contribution of small scale industries to exports.
The important elements included in the resolution to increase the development of small-scale sector
were as follows:
I. The investment ceiling in plant and machinery for small-scale industries (fixed in 1985) was raised
from Rs.35 lakhs to Rs.60 lakhs and correspondingly, for ancillary units from Rs.45 lakhs to Rs.75
lakhs.
II. Investment ceiling for small units had been increased from Rs.2 lakhs to Rs.5 lakhs provided the unit
is located in an area having a population of 50,000 as per 1981 Census.
III. As many as 836 items were reserved for exclusive manufacture in small- scale sector.
IV. A new scheme of Central Investment Subsidy entirely for small-scale sector in rural and backward
areas capable of generating more employment at lower cost of capital had been mooted and
implemented.
IV. In order to improve the competitiveness of the products manufactured in the small-scale sector;
programmes of technology up gradation will be executed under the umbrella of an apex Technology
Development Centre in Small Industries Development Organisation (SIDO).
V. To guarantee both satisfactory and timely flow of credit services for the small- scale industries, a
new apex bank known as "Small Industries Development Bank of India (SIDBI)" was established in
1990.
VI. There is more emphasis on training of women and youth under Entrepreneurship Development
Programme (EDP) and to establish a special cell in SIDO for this purpose.
Other industrial policies: Industrial Policy Resolution of 1991: In the year of 1991, the Government
lunched "Structural Adjustment Programme" which has resulted in radical change in the policies
governing the different facets of Indian economy. In order to impart more vitality and growth to small
scale sector, the Government of India declared a separate policy statement for small, tiny and village
enterprises. The basic drive of this resolution was to make simpler regulations and procedures by
delicensing, deregulating, and decontrolling.
Important features of this policy are as under:

I. SSIs were exempted from licensing for all articles of manufacture.
II. The investment limit for tiny enterprises was raised to Rs.5 lakh irrespective of location.
III. Equity participation by other industrial undertakings was permitted up to a limit of 24 percent of
shareholding in SSIs.

IV. Factoring services were to launch to solve the problem of delayed payments to SSIs.
V. Priority was accorded to small and tiny units in allocation of indigenous and raw materials.
VI. Market promotion of products was highlighted through co-operatives, public institutions and other
marketing agencies and corporations.
Basically, the Industrial Policy Resolution of 1991 delineated developmental, deregulatory and de-
bureaucratic measures and underscored the need to shift from subsidized and cheap credit to a system
which would ensure acceptable flow of credit on timely and normative basis to the small scale industrial
sector.
Contemporary policy measures for small scale and cottage Industries:

1. Comprehensive Policy Package for small scale and tiny sector, 2000: This policy was declared by the
Government of India for the development and promotion of small scale and tiny sector which has major
objective to increase the competitiveness of the sector.
The main focus of the policy package was:
I. The exemption for excise duty limit raised from Rs.50 lakh to Rs.1 crore.
II. The limit of investment was increased in industry related service and business enterprises from Rs.5
lakh to Rs.10 lakh.
III. The coverage of ongoing Integrated Infrastructure Development (IID) was enhanced to cover all
areas in the country with 50 percent reservation for rural areas and 50 percent earmarking of plots for
tiny sector.
IV. The family income eligibility limit of Rs.24000 was enhanced to Rs.40000 per annum under the
Prime Minister Rozgar Yojana (PMRY).
V. The scheme of granting Rs.75000 to each small scale enterprise for obtaining ISO 9000 certification
was continued till the end of 10th plan.
2. Industrial Policy Packages for small scale industries, 2001-02: This policy underlines the following
measures:
I. The investment limit was enhanced from Rs.1 crore to Rs.5 crore for units in hosiery and hand tool
sub sectors.
II. The corpus fund set up under the Credit Guarantee Fund Scheme was increased from Rs.125 crore to
Rs.200 crore.
III. Credit Guarantee cover was provided against an aggregate credit of Rs.23 crore till December 2001.
IV. Fourteen items were de-reserved in June 2001 related to leather goods, shoes and toys.
V. Market Development Assistant Scheme was launched exclusively for SSI sector.
VI. Four UNIDO assisted projects were commissioned during the year under the Cluster Development
Programme.
3. Policy Package for small and medium enterprises, 2005-06:
In 2005-06, the Government declared a policy package for small and medium enterprises. The main
attributes of this policy package were:
I. The Ministry of Small Scale Industries has identified 180 items for de-reservation.
II. Small and Medium Enterprises were recognized in the services sector, and were treated at par with
SSIs in the manufacturing sector.
III. Insurance cover was extended to approximately 30,000 borrowers, identified as chief promoters in
the small scale sector.
VI. Emphasis was placed on Cluster Development model not only to promote manufacturing but also to
renew industrial towns and build new industrial townships. The model is currently being implemented,

in nine sectors including khadi and village industries, handlooms, handicrafts, textiles, agricultural
products and medicinal plants.
4. Enactment of Micro, Small and Medium Enterprises Development Act, 2006:

In May' 2006, the President has modified the Government of India (Allocation of Business) Rules,
1961; 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. As a result, the
Micro, Small and Medium enterprises Development (MSMED) Act was endorsed, which offers the first
ever legal framework for recognition of the concept 'enterprises' against 'industries' and integrating the
three tiers of these enterprises viz. micro, small and medium and clearly fixed the investment limits for
both manufacturing and service enterprises. It also provides for a statutory consultative tool at the
national level with wide representation of all sections of stakeholders, particularly the three classes of
enterprises.
5. North east industrial and investment promotion policy (NEIIPP), 2007: Due to backwardness of the
North Eastern region, the Government of India broadcasted a new industrial policy for the NER
including Sikkim. The policy termed as 'North East Industrial and Investment Promotion Policy
(NEIIPP), 2007'. Its major objective is to encourage investment in the industrial sector by announcing
fiscal and other incentives for the purpose of overall economic growth of this region. The policy with its
package of incentives is intended to encourage development of industries so that the region overcomes
its continuous backwardness. To summarize, Small scale and cottage industrial sector has developed
rapidly in several developing and industrialised economies of the world. In India, they have emerged as
a dynamic sector of Indian economy through their important contribution to GDP, industrial production
and export. The advancement of small scale industries has been one of the major objectives of
economic planning in India. The policies have undergone change from time to time. The six Industrial
Policy Resolutions and eleven Five Year Plans sustained a continuous flow of incentives, both
protective and promotional in nature, as an element of development strategy to meet socioeconomic
objectives such as employment generation, removal of poverty and regional disparities, and optimum
utilization of local resources.

Unit: 4 a) Foreign Trade: Trends of Exports and Imports of India – Composition of India’s Foreign
Trade - Direction of India’s Foreign Trade – Growth and Structure of India’s Foreign Trade since 1991
– Balance of Payments since the New Economic Reforms of 1991.
b) Foreign Capital : Need for Foreign Capital – Foreign Investment Inflows – Role of Special Economic
Zones (SEZ)
Foreign Trade: Trends of Exports and Imports of India
Since India’s liberalisation, its foreign trade has expanded multifold and seen significant
structural shifts in product as well as geographic composition. The easing of quantitative restrictions as
well as significant reduction in tariff levels across product lines has aided the growth of foreign trade in
the first two decades post liberalisation. In-fact, the share of foreign trade (both exports and imports) in
India’s GDP stood at over 43 percent during 2011-13 as against 13 -15 percent during early nineties.
However, over the last few years there has been a marked deceleration in India’s foreign trade,
both exports as well as imports, primarily on account of subdued global demand and dip in global
commodity prices. This article presents a detailed analysis of India’s foreign trade trends, assessing the
performance of key export commodities in current challenging global environment.
India’s exports have increased more than 17 times, from US$ 18.1 billion in 1990-91 to US$
309 billion in 2014-15, and India’s imports have increased 19 times, from US$ 23.5 billion in 1990-91
to US$ 447 billion in 2014-15. India’s share in global exports has moved up from mere 0.6 percent in
early nineties to 1.7 percent currently. Likewise, India’s share in global imports has increased from
around 0.6 percent during early nineties to 2.4 percent currently.
In the first decade of this period (1990-91 to 1999-2000), India’s exports grew at a CAGR of 8.1
percent and imports at 8.7 percent. The real surge was witnessed in the next decade (2000-01 to 2009-
10), when exports grew at 16.8 percent and imports at 21.5 percent annually. This trend continued until
2011-12, after which there has been a steady decline in trade owing to global slowdown. In 2014-15,
exports dipped by 1.8 percent while imports dipped by 0.4 percent.
For the first 11 months in financial year 2015-16, exports as well as imports have seen a sharp
decline. While exports are lower by 16.7 percent y-o-y, imports have declined by 14.8 percent y-o-y.
Exports during December 2017 have exhibited positive growth of 12.36 per cent in dollar terms
vis-à-vis December 2016. Exports have been on a positive trajectory since August 2016 to December
2017 with a dip of 1.1 per cent in the month of October 2017.
Exports during December 2017 valued at US $ 27030.27 million as compared to US $ 24056.48
million during December, 2016. In Rupee terms, exports were valued at Rs. 173648.73 crore as
compared to Rs. 163344.45 crore during December, 2016, registering a rise of 6.31 per cent.
During December 2017, Major commodity groups of export showing positive growth over the
corresponding month of last year are Engineering Goods (25.32%), Petroleum Products (25.15%),
Gems & Jewellery (2.38%), Organic & Inorganic Chemicals (31.36%), and Drugs & Pharmaceuticals
(6.95%).
Cumulative value of exports for the period April-December 2017-18 was US $ 223512.58
million (Rs 1441419.91 crore) as against US $ 199467.14 million (Rs 1338341.51 crore) registering a
positive growth of 12.05 per cent in Dollar terms and 7.70 per cent in Rupee terms over the same period
last year.

Non-petroleum and Non Gems & Jewellery exports in December 2017 were valued at US $
20186.36 million as against US $ 18013.78 million in December 2016, an increase of 12.06%. Non-
petroleum and Non Gems and Jewellery exports during April -December 2017-18 were valued at US $
163714.94 million as compared to US $ 144674.52 million for the corresponding period in 2016-17, an
increase of 13.16%.
Imports during December 2017 were valued at US $ 41910.46 million (Rs 269242.54 crore)
which was 21.12 per cent higher in Dollar terms and 14.59 per cent higher in Rupee terms over the level
of imports valued at US $ 34602.47 million (Rs. 234952.15 crore) in December, 2016. Cumulative
value of imports for the period April-December 2017-18 was US $ 338369.63 million (Rs. 2182289.84
crore) as against US $ 277899.32 million (Rs. 1865151.87 crore) registering a positive growth of 21.76
per cent in Dollar terms and 17.00 per cent in Rupee terms over the same period last year.
Major commodity groups of import showing high growth in December 2017 over the
corresponding month of last year are Petroleum, Crude & products (34.94%), Electronic goods (19.2%),
Pearls, precious & Semi-precious stones (93.98%), Gold (71.52%), and Machinery, electrical & non-
electrical (11.21%).
MERCHANDISE TRADE EXPORTS & IMPORTS: (US $ Million)

(PROVISIONAL)
DECEMBER APRIL-DECEMBER
EXPORTS (including re-exports)
2016-17 24056.48 199467.14
2017-18 27030.27 223512.58
%Growth 2017-18/ 2016-17 12.36 12.05
IMPORTS
2016-17 34602.47 277899.32
2017-18 41910.46 338369.63
%Growth 2017-18/ 2016-17 21.12 21.76
TRADE BALANCE
2016-17 -10545.99 -78432.18
2017-18 -14880.19 -114857.05
EXPORTS & IMPORTS: (Rs. Crore)
(PROVISIONAL)
DECEMBER APRIL-DECEMBER
EXPORTS(including re-exports)
2016-17 163344.45 1338341.51
2017-18 173648.73 1441419.91
%Growth 2017-18/ 2016-17 6.31 7.70
IMPORTS
2016-17 234952.15 1865151.87
2017-18 269242.54 2182289.84
%Growth 2017-18/ 2016-17 14.59 17.00
TRADE BALANCE
2016-17 -71607.71 -526810.35
2017-18 -95593.82 -740869.94
Source:
http://commerce.gov.in/writereaddata/UploadedFile/NTESCL_636516367654001855_PRESS_RELEASE_Dec_2017.pdf
COMPOSITION OF INDIA’S FOREIGN TRADE
Composition of foreign Indian foreign trade means major commodity or sectors in which India
is doing export and import. India is a very old participant in world trade. Its participation have been
promoted by the opening of Suez Canal and speedy development of the ship building industry
supplemented by the spread of industrial revolution in Europe and fast expansion of Indian railways.

Plantation Crops
Export of plantation crops during 2016-17 (April-October) (P), decreased by 0.43 per cent in US$ terms
compared to the corresponding period of the previous year. This is mainly due to contraction in natural
rubber by 89.04 per cent and tea exports by 1.02 per cent in 2016-17 (April-October) (P).
Agriculture and Allied Products
Agriculture and Allied Products as a group Rice-Basmati; Non-Basmati; other cereals; pulses; tobacco;
cashew; meat; fresh fruits & vegetables, etc. During 2016-17 (April-October) (P), export decreased to
US$ 13,420.44 million from US$ 14,047.20 million in the previous year registering a negative growth
of 4.46 per cent. This is mainly because, out of 40 commodities under this commodity group, only 14
registered a positive growth during the said period.
Marine Products
During 2016-17 (April-October) (P), export of marine products registered a positive growth of 19.44
per cent reaching a value of US$ 3,467.62 million from US$ 2,903.24 million in the corresponding
period of the previous year.
Ores and Minerals
During 2016-17 (April-October) (P), export of ores and minerals increased to US$ 1,412.08 million
from US$ 1,113.65 million in the corresponding period of the previous year registering a positive
growth of 26.80 per cent. This is mainly due to positive growth in iron ore exports by 629.59 per cent
and other crude & minerals by 21.14 per cent.
Leather and Leather Manufactures
Export of Leather and Leather Manufactures recorded a negative growth of 6.08 per cent during 2016-
17 (April-October) (P) as the value of exports decreased to US$ 3,157.38 million from US$ 3,361.63
million in the corresponding period of the previous year. All the commodities in this group have
reflected a negative growth.
Gems and Jewellery
Export of Gems and Jewellery increased to US$ 26,457.94 million in 2016-17 (April-October) (P) from
US$ 23,196.29 million in the corresponding period of the previous year registering a positive growth of
14.06 per cent, while export of gold and other precious metal jewellery decreased by 3.85 per cent and
20.95 per cent respectively. Pearl, precious, semiprecious stones, Silver and Gold & Other Precious
Metal Jewellery registered a positive growth of 16.15 per cent, 44.15 per cent and 20.90 per cent
respectively.
Sports Goods
During the period 2016-17 (April-October) (P), the export of Sports Goods decreased to US$ 144.74
million from US$ 147.60 million in the corresponding period of the previous year registering a negative
growth of 1.94 per cent.
Chemicals and Related Products
During the period 2016-17 (April-October) (P), the export of Chemicals and Related Products
decreased to US$ 18,740.56 million from US$ 18,877.83 million in the corresponding period of the
previous year registering a negative growth of 0.73 per cent. This is mainly due to negative growth in
exports of organic chemical by 6.62 per cent, Bulk Drugs, Drug Intermediates by 9.45 per cent and drug
formulations, biologicals by 0.50 per cent.
Plastic & Rubber Articles
During the period 2016-17 (April-October) (P), the export of Plastic & Rubber Articles decreased to
US$ 3,682.56 million from US$ 3,784.11 million in the corresponding period of the previous year
registering a negative growth of 2.68 per cent. All the commodities in this group have reflected a
negative growth.
Articles of Stone, Plaster, Cement Asbestos, Mica or similar materials, Ceramic products, Glass
and Glassware
During the period 2016-17 (April-October) (P), the export of goods in this category increased to US$
2,370.22 million from US$ 2,313.11 million in the corresponding period of the previous year
registering a positive growth of 2.47 per cent. While Granite, natural stone & product and Glass &
Glassware recorded a negative growth of 3.28 per cent and 8.39 per cent respectively. Cement, Clinker

& Asbestos Cement and Ceramics & Allied Products registered positive growth of 14.22 per cent and
18.10 per cent respectively.
Paper & Related products
During the period 2016-17 (April-October) (P), the export of Paper & Related products marginally
increased to US$ 1,421.64 million from US$ 1,419.38 million in the corresponding period of the
previous year registering a positive growth of 0.16 per cent. This is mainly because all commodities in
this group have shown a positive growth except other wood & wood products and pulp & waste paper.
Base Metals
During the period 2016-17 (April-October) (P), the export of Base Metals decreased to US$ 10,768.20
million from US$ 11,486.30 million in the corresponding period of the previous year registering a
negative growth of 6.25 per cent. Under this commodity group, 6 out of 9 commodities have registered
negative growth during the period.
Optical, Medical & Surgical Instruments
During the period 2016-17 (April-October) (P), export of Optical, Medical & Surgical Instruments
increased to US$ 1,061.22 million compared to US$ 939.29 million in the corresponding period of the
previous year registering a positive growth of 12.98 per cent. All commodities in this group have
registered positive growth.
Electronic Items
During the period 2016-17 (April-October) (P), export of Electronic Items increased to US$ 3,270.27
million from US$ 3,164.33 million in the corresponding period of the previous year registering positive
growth of 3.35 per cent. Computer Hardware, Peripherals and Consumer Electronics have declined by
28.06 per cent and 2.44 per cent respectively.
Machinery
Machinery export during the period 2016-17 (April-October) (P) stood at US$ 11,483.13 million
compared to US$ 10,956.88 million in the corresponding period of the previous year registering a
positive growth of 4.80 per cent. Under this commodity group, 8 out of 15 commodities have registered
positive growth during the period.
Office Equipments
During the period 2016-17 (April-October) (P), the export of Office Equipments increased to US$
63.84 million from US$ 53.30 million in the corresponding period of the previous year registering a
positive growth of 19.77 per cent.
Transport Equipments
During the period 2016-17 (April-October) (P), the export of Transport Equipments decreased to US$
12,818.00 million compared to US$ 12,997.18 million in the corresponding period of the previous year
registering a negative growth of 1.38 per cent. This is mainly because Aircraft, Spacecraft & Parts and
Two & Three Wheelers registered negative growth of 24.29 per cent and 12.12 per cent respectively.
Project Goods
During the period 2016-17 (April-October) (P), the export of Project Goods increased to US$ 17.64
million from US$ 11.37 million in the corresponding period of the previous year registering a positive
Textiles & Allied Products
During the period 2016-17 (April-October) (P), the export of Textiles & Allied Products was US$
19,593.95 million compared to US$ 20,640.11 million in the corresponding period of the previous year
registering a negative growth of 5.07 per cent. During the period, out of 25 commodities under this
group, 15 commodities have registered a negative growth.
Petroleum Crude & Products
Export of Petroleum Crude & Products decreased to US$ 17,596.95 million during 2016-17(April-
October) (P) as compared to US$ 19,487.67 million in the corresponding period of the previous year
registering a decline of 9.70 per cent.
IMPORT BY PRINCIPAL COMMODITIES

Disaggregated data on import by principal commodities, in Dollar terms; available for the period
April-October 2016-17 (P) as compared to April-October 2015-16 are given in Appendix-3.2. Import of
the top five commodities during the period April-October 2016-17 (P) registered a share of 38.76 per

cent mainly due to significant import of Petroleum Crude; Pearls, precious and semi-precious stones;
Gold; Petroleum Products; and Telecom Instruments.
Plantation Crops
Import of plantation crops during 2016-17 (April-October) (P) decreased by 7.87 per cent in US$ terms.
The value of import decreased from US$ 568.86 million in 2015-16 (April-October) to US$ 524.10
million in 2016-17 (April-October) (P). All the commodities in this group have reflected a negative
growth.
Agriculture and Allied Products
During 2016-17 (April-October) (P), import of Agriculture and Allied Products increased by 1.96 per
cent over the corresponding period of the previous year. The value of import increased from US$
11,954.27 million in 2015-16 (April-October) to US$ 12,188.54 million in 2016-17 (April-October) (P).
Out of 39 commodities under this group, 15 have registered negative growth during this period.
Marine Products
During 2016-17 (April-October) (P), import of marine products registered a growth of 28.41 per cent
reaching a value of US$ 56.70 million from US$ 44.16 million in the corresponding period of the
previous year.
Ores and Minerals
During 2016-17 (April-October) (P), import of Ores and Minerals decreased to US$ 10,604.28 million
from US$ 12,941.13 million in the corresponding period of the previous year registering a negative
growth of 18.06 per cent. All the commodities in this group have reflected a negative growth except
Mica and Processed Minerals which grew by 70.81 and 9.93 per cent respectively.
Leather and Leather Manufactures
Import of Leather and Leather Manufactures recorded a negative growth of 1.99 per cent during 2016-
17 (April-October) (P) as the value of import decreased to US$ 593.82 million from US$ 605.88
million in the corresponding period of the previous year. This is mainly due to fall in the growth rate of
each sub group of this category except Footwear of Leather and Saddler &Harness exhibiting positive
growth of 16.40 per cent and 56.28 per cent respectively.
Gems & Jewellery
During 2016-17 (April-October) (P), import of Gems & Jewellery stood at US$ 26,714.90 million as
negative growth of 21.07 per cent. All commodities in this group registered negative growth except
Pearl, Precious, Semi precious Stones registering a positive growth of 20.07 per cent.
Sports Goods
During the period 2016-17 (April-October) (P), import of Sports Goods increased to US$ 128.84
million from US$ 123.77 million in the corresponding period of the previous year registering a positive
Chemicals and Related Products
During the period 2016-17 (April-October) (P), the import of Chemicals and Related Products
decreased to US$ 20,364.55 million from US$ 23,812.29 million in the corresponding period of the
previous year registering a negative growth of 14.48 per cent. Out of 15 commodities under this group,
11 have registered negative growth during this period.
Plastic & Rubber Articles
During the period 2016-17 (April-October) (P), import of Plastic & Rubber Articles decreased to US$
registering a negative growth of 1.24 per cent. Imports of Other Rubber Product except Footwear &
Plastic Raw Materials decreased by 1.36 per cent and 4.08 per cent respectively.
Articles of Stone, Plaster, Cement Asbestos, Mica or similar materials, Ceramic products, Glass
and Glassware
During the period 2016-17 (April-October) (P), import of goods in this category decreased to US$
registering a negative growth of 8.77 per cent. Granite, Natural Stone & Product and Ceramics & Allied
Products decreased by 9.79 per cent and 34.08 per cent respectively.
Paper & Related products

During the period 2016-17 (April-October) (P), import of Paper & Related Products decreased to US$
registering a negative growth of 3.64 per cent. This is mainly due to negative growth registered by
Books, Publications and Printing by 30.17 per cent; other Wood and Wood Products by 20.97 percent.
Base Metals
During the period 2016-17 (April-October) (P), import of Base Metals decreased to US$ 12,424.74
million from US$ 15,048.24 million in the corresponding period of the previous year registering a
negative growth of 17.43 per cent. All commodities under this group have registered negative growth
except Lead & Products Made of Led and Zinc & Products Made of Zinc with growth of 9.99 per cent
and 71.72 per cent respectively.
Optical, Medical & Surgical Instruments

During the period 2016-17 (April-October) (P), import of Optical, Medical & Surgical Instruments was
US$ 2,476.30 million compared to US$ 2,384.69 million in the corresponding period of the previous
year registering a positive growth of 3.84 per cent. This is mainly due to positive growth of Medical &
Scientific Instrument by 5.95 per cent.
Electronic Items
During the period 2016-17 (April-October) (P), import of Electronic Items was US$ 22,827.63 million
negative growth of 2.65 per cent. Import of Computer Hardware, Peripherals; Electronics Instruments
and Telecom Instruments declined by 14.13 per cent, 2.64 per cent and 5.17 per cent respectively.
Machinery
During the period 2016-17 (April-October) (P), import of Machinery stood at US$ 18,581.51 million
compared to US$ 18,696.51million in the corresponding period of the previous year registering a
negative growth of 0.62 per cent. Import of Industrial Machinery for Dairy etc. and AC, Refrigeration
Machinery etc declined by 6.17 per cent and 6.67 per cent respectively.
Office Equipments
During the period 2016-17 (April-October) (P), import of Office Equipments decreased to US$ 46.33
million from US$ 79.83 million in the corresponding period of the previous year registering a negative
Transport Equipments
During the period 2016-17 (April-October) (P), import of Transport Equipments stood at US$ 7,671.27
million compared to US$ 8,243.83 million in the corresponding period of the previous year registering
a decline of 6.95 per cent. This is mainly due to fall in the imports of Aircraft, Spacecraft & Parts and
Auto Components/Parts with negative growth of 12.90 per cent and 9.81 per cent respectively.
Project Goods
Import of Project Goods decreased to US$ 1,157.88 million during 2016-17 (April-October) (P) as
compared to US$ 1,698.40 million in the corresponding period of the previous year showing a decline
of 31.83 per cent.
Textiles & Allied Products
During the period 2016-17 (April-October) (P), import of Textiles & Allied Products was US$ 3,485.83
million compared to US$ 3,284.61 million in the corresponding period of the previous year registering
a positive growth of 6.13 per cent. Out of 25 commodities under this category, 11 have registered
positive growth in imports during the period.
Petroleum Crude & Products
Import of Petroleum Crude & Products decreased to US$ 46,644.24 million during 2016-17 (April-
October) (P) as compared to US$ 55,139.40 million in the corresponding period of the previous year
registering a negative growth of 15.41 per cent. This is due to contraction in value of imports of
Petroleum Crude by 14.86 per cent and Petroleum products by 17.62 per cent during the period.
DIRECTION OF INDIA’S FOREIGN TRADE

Direction of foreign trade means the countries to which India exports its goods and the countries
from which it imports. Thus direction consists of destination of exports and sources of our imports.
Prior to our Independence when India was under British rule, much of our trade was done with Britain.
Therefore, UK used to hold the first position in India’s foreign trade. However, after
Independence, new trade relationships were established. Now USA has emerged as the most important
trading partner followed by Germany, Japan and UK. India is also making efforts to increase the
exports to other countries also the direction of India’s exports and imports.
Below is a list showcasing 15 of India’s top trading partners, countries that imported the most
Indian shipments by dollar value during 2016. Also shown is each import country’s percentage of total
Indian exports.
1. United States: US$42 billion (16.1% of total Indian exports)
2. United Arab Emirates: $30.7 billion (11.8%)
3. Hong Kong: $13.2 billion (5.1%)
4. China: $8.9 billion (3.4%)
5. United Kingdom: $8.6 billion (3.3%)
6. Singapore: $7.4 billion (2.8%)
7. Germany: $7.2 billion (2.7%)
8. Vietnam: $6 billion (2.3%)
9. Bangladesh: $5.7 billion (2.2%)
10. Belgium: $5.4 billion (2.1%)
11. Saudi Arabia: $5 billion (1.9%)
12. France: $4.9 billion (1.9%)
13. Netherlands: $4.9 billion (1.9%)
14. Nepal: $4.5 billion (1.7%)
15. Turkey: $4.5 billion (1.7%)
Three-fifths (60.8%) of Indian exports in 2016 were delivered to the above 15 trade partners.
Turkey increased its import purchases from India from 2009 to 2016 by 249.9%. In second place was
Nepal with a 240.9% gain in value. Vietnam boosted its imports from India up 224.9%, followed by a
160.3% improvement for Bangladesh and a 119.6% boost from United States-based importers.
Two top trade partners cut back on their imports from India, namely the Netherlands (down -24.7%)
and China (down -14.1%).
A country whose total value of all imported goods is higher than its value of all exports is said to
have a negative trade balance or deficit.
It would be unrealistic for any exporting nation to expect across-the-board positive trade
balances with all its importing partners. That export country doesn’t necessarily post a negative trade
balance with each individual partner with which it exchanges exports and imports. Overall, India
incurred a -$95.7 billion trade deficit for all products during 2016 up 6.7% from its -$89.6 billion deficit
in 2009.
In 2016, India incurred the highest trade deficits with the following countries:
1. China: -US$51.6 billion (country-specific trade deficit in 2016)
2. Switzerland: -$13.8 billion
3. Saudi Arabia: -$13.4 billion
4. Indonesia: -$9.1 billion
5. Iraq: -$9 billion
6. South Korea: -$8.7 billion
7. Qatar: -$6.7 billion
8. Japan: -$6 billion
9. Iran: -$5.8 billion
10. Australia: -$5.8 billion
Among India’s trading partners that cause the greatest negative trade balances, Indian deficits with
China (up 154.7%), Indonesia (up 97%) and South Korea (up 96.2%) grew at the fastest pace from
2009 to 2016.

These cashflow deficiencies clearly indicate India’s competitive disadvantages with the above
countries, but also represent key opportunities for India to develop country-specific strategies to
strengthen its overall position in international trade.
Net importer is a country whose total value of all imported goods is lower than its value of all
exports is said to have a positive trade balance or surplus.
In 2016, India incurred the highest trade surpluses with the following countries:
1. United States: US$21.6 billion (country-specific trade surplus in 2016)
2. United Arab Emirates: $11.4 billion
3. Hong Kong: $6.1 billion
4. Bangladesh: $5 billion
5. United Kingdom: $4.7 billion
6. Nepal: $4.1 billion
7. Sri Lanka: $3.5 billion
8. Turkey: $3.3 billion
9. Netherlands: $3.1 billion
10. Vietnam: $2.8 billion
Among India’s trading partners that cause the greatest positive trade balances, Indian surpluses with
United States (up 590.9%), Nepal (up 354.4%) and Hong Kong (up 226.7%) grew at the fastest pace
from 2009 to 2016.
These positive cashflow streams clearly indicate India’s competitive advantages with the above
countries, but also represent key opportunities for India to develop country-specific strategies to
optimize its overall position in international trade.
Major Destinations of India's Exports for (April-October) 2016-17 (P) in US$ terms
During the period 2016-17 (April-October) (P), the share of Asia comprising of East Asia,
ASEAN, West Asia, Other West Asia, North East Asia and South Asia accounted for 48.32 per cent of
India’s total exports. The share of America and Europe in India’s exports stood at 20.94 per cent and
19.39 per cent respectively of which EU countries (27) comprises 17.10 per cent. During the period,
USA (16.24 per cent) has been the most important export destination followed by UAE (11.96 per
cent), Hong Kong (5.27 per cent), U.K (3.29 per cent) and Singapore(3.09 per cent).
Asia accounted for 60.75 per cent of India’s total import during the period 2016-17 (April-
October) (P), followed by Europe (15.53 per cent) and America (11.72 per cent). Among individual
countries the share of China (16.73 per cent) stood highest followed by USA (5.62 per cent), UAE (5.59
per cent), Saudi Arabia (5.30 per cent) and Switzerland (3.80 per cent).
Growth and Structure of India’s Foreign Trade since 1991
In the post liberalization period i.e. post 1991, India followed export promotion strategy which
geared up export from 13970 US $ million in 1988-89 to 22238 US $ million in 1993-94 which is
around 59.18 percent growth following reforms. Many pro export policies were started after the
reforms. The liberalization of the Indian economy following the balance of payment crisis resulted in
major policy and exchange rate changes, which had a favourable impact on India’s trade. India’s export
performance since 1991 has fluctuated. The East Asian Crisis of 1997 had a serious impact on India’s
exports, which registered a negative growth of 2.33 percent in the same year. In 1997, for the first time
after liberalization, India’s exports registered a negative growth of 2.33 percent. The situation for India
worsened when its competitor countries (in ASEAN) devalued their currencies amidst the crisis, which
reduced the competitiveness of India’s exports in the international market for textile and electronics
commodities, where India directly competed with ASEAN exports in overseas markets.
In 2001-02, India faced another setback in its exports, at large, due to the semi-recession faced
by the US; one of India’s biggest trading partners. The slowdown of the US economy permeated to
other economies in the next major setback for India’s exports was the global crisis of 2008. The
collapse of large investment banks around the world coupled with high oil prices and rising inflation led
to a global recession. The next major setback for India’s exports was the global crisis of 2008. The

collapse of large investment banks around the world coupled with high oil prices and rising inflation led
to a global recession.
Even though the export sector plays a significant role in the domestic economy by contributing
close to 25 percent to India’s GDP (in 2009), its contribution to world exports continues to remain
minimal, at a mere 1.5 percent of world exports in 2009 (however, this share has improved since the
economic reforms of 1991). Between 1991 and 2009, India’s share in world exports rose from 0.56 to
1.52 percent. But overall, the economic reforms implemented in India did not have a significant impact
on India’s position in the world export market, unlike the reforms implemented in countries like China,
South Korea or Taiwan.
The share of agriculture has fallen more rapidly post trade liberalization, which may, in part be because
an important goal of agricultural policy was to achieve self sufficiency in agriculture and this limited
the scope of trade. In 2008-09 agricultural and allied products share had declined to around 9.59 percent
of exports whereas manufactured goods share have been around 68.89 percent of exports of which the
exports of gems and jewellery has been around 15.08 percent which shows that the diversification in
export products has risen rapidly following the reforms.
The Global recession only slightly jolted the continued upward growth in India’s export sector
with exports rising at a reasonable rate of 15.6 percent in 2008-09.The compound annual growth
rate(CAGR) for India’s merchandise exports for the five year period 2004-05 to 2008-09 increased to
22 percent from 14 percent of the preceding five year period. However in 2009-10 export growth was
negative at (-) 3.5 percent, partly reflecting the effect of global recession and partly the higher base
effect due to the lagged export data of 2008-09.Despite this negative growth, India’s ranking in the
leading exporters in merchandise trade which slipped marginally from 26th in 2007 to 27th in 2008
improved to 21st in 2009.
A drastic fall in the foreign exchange reserves to a level not enough to pay for three weeks of
imports bill, a fiscal deficit of nearly 9 percent of GDP and many other factors led to the reforms of
1991.In the post liberalization period i.e. post 1991 import growth picked up. The import to GDP ratio
has increased from an average of 7.7 percent for the 1980s to 10 percent in the 1990s as a result of
increasing import dependence of the Indian economy in the wake of trade liberalization and changing
patterns of development. During the period of 1991-2001 the average growth rate of India’s imports
was around 17.1 percent in dollar terms as a percent of GDP. The average weighted tariff rate has come
down from 87 percent to 20 percent from the same period. The non-tariff measures for most of the
commodities have also been phased from 1st April 2001. The process of trade liberalization is still not
completed. Given the fact that demand for many of the items of imports is price elastic, the future tariff
reductions may lead to higher imports. In particular, consumer goods imports may be highly sensitive to
liberalization.
Import licensing was abolished relatively early for capital goods and intermediates which
became freely importable in 1993, simultaneously with the switch to a flexible exchange rate regime.
Import licensing had been traditionally defended on the grounds that it was necessary to manage the
balance of payments, but the shift to a flexible exchange rate enabled the government to argue that any
balance of payments impact would be effectively dealt with through exchange rate flexibility.
Removing quantitative restrictions on imports of capital goods and intermediates was relatively easy,
because the number of domestic producers was small and Indian industry welcomed the move as
making it more competitive. Quantitative restrictions on imports of manufactured consumer goods and
agricultural products were finally removed on April 1, 2001, almost exactly ten years after the reforms
began, and that in part because of a ruling by a World Trade Organization dispute panel on a complaint
brought by the United States. . The government has announced that average tariffs will be reduced to
around 15 percent by 2004, but even if this is implemented, tariffs in India will be much higher than in
China which has committed to reduce weighted average duties to about 9 percent by 2005 as a
condition for admission to the World Trade Organization.
The composition of imports also underwent changes in this decade. The share of food and allied
products imports which fell to 2.1 per cent in 2008-09 from 3.3 per cent in 2000-01, increased to 3.7per
cent in 2009-10 and fell to 3.2 per cent in the first half of 2010-11 with slight fall in import shares of
edible oils and pulses. The share of fuel imports, however, remained at around 33 per cent. The most
notable change is the sudden rise in share of capital goods imports from 10.5 per cent in 2000-01 to

15.0 per cent in 2009-10 and again a fall to 13.1 per cent in the first half of 2010-11 due to the See-saw
movement in shares of imports of transport equipment. The share of gold and silver and electronic
goods in the import basket decreased in the first half of 2010-11 compared to 2008-09 and 2009-10.The
share of pearls, precious, and semi-precious stones saw a see-saw movement with negative growth in
2009-10 and very high growth (129 per cent) in the first half of 2010-11.
The country’s trade to GDP ratio hardly changed at all between 1980 and 1990; it remained
fixed at a little over 14 percent. Things have moved rapidly since then. Three years into the reforms, the
ratio was already above 18 percent in 1993-94. Contrary to what is generally believed this increase was
attributable more to an increase in exports than to increased imports. While both exports and imports
have grown faster than GDP, thereby pushing the trade-GDP ratio to 25.6 percent for the year 2003-04,
the overall growth in exports has outpaced the growth in imports.
The export to GDP ratio almost doubled from a little over 6 percent in 1990-91 to 14.7 percent
in 2003-04. The growth in the import to GDP ratio was more moderate, from 8 percent to 14 percent.
Imports exceeded exports in 1980 and in 1991, and they continue to do so in 2003-04, by almost 25
percent. But the difference between the two in proportionate terms has been coming down, rather than
going up. Indeed, it would be seem that the trade deficit over the period has increased over the years.
Balance of Payments since the New Economic Reforms of 1991

The economic reform of 1991 brought the global transition in India. The transition towards a
newer India, and a change in perspective of government towards the role of private players and markets
in the economy. The Balance of Payment crisis followed by pledging of Gold reserves, taking loan from
IMF and other structural adjustment programme (sponsored by IMF and World Bank) were the initial
steps towards the economic reforms that were launched. The BOP crisis was the result of decades of
imprudent economic policies that India followed. The institutional arrangements of the economy, pre
1991, were adequate then but were eventually deteriorating the fiscal situation of the country. The role
of fiscal policy in India’s history is significant. In 1991, India ran into an unsustainable deficit in
balance of payments. The country ran into large deficits for long time and as a result faced the balance
of payment crisis.
Though this crisis was a turning point but also an opportunity to make some fundamental
changes in approaching the economic policies of the country.
To combat the crisis, the government took various fiscal, monetary, trade, finance and industrial
measures. Since mid-1991, the Indian economy took a departure from the past policies prevailed post-
independence. Liberalisation, Privatisation and Globalisation are the words that strike the most listening
to the reforms that took place post crisis. India’s economy paved itself into a new regime through new
economic policy (NEP). It is necessary to know about the economic compulsion that lead to such crisis
which lead to these reforms.
In 1990-91, total amount of deficits in the balance of payments was as high as Rs 17,369 crore.
But in 1999-00 and 2000-2001, the total amount of deficits in the balance of payments was Rs 20,331
crore and Rs 11,431 crore respectively. In 2001-02, total surplus in BOP was Rs 16,426 crore and the
total surplus further increased to Rs 47,952 crore in 2003-04. In 2013-14, total current account deficit
(CAD) in BOP was Rs (-) 1,87,750 crore.
This huge deficit in the balance of payments position during the entire Sixth, Seventh, Eighth,
Ninth, Tenth and Eleventh Plan periods was the result of tremendous rate of growth of imports
accompanied by a poor rate of growth of exports. The trade deficits during these four plans were so
heavy that it could not be offset by the flow of funds under net invisibles.
India has been experiencing increase in current account deficit (CAD) in balance of payments
especially since 2011-12. With net exports declining, India’s balance of payments (BoP) has come
under pressure. The performance of balance of payments shows that in the first half (April to
September) of 2011-12, the CAD which stands at US $ 36.4 billion increased to US $ 39.0 billion in the
first half of 2012-13.
Thus the CAD as per cent of GDP which was 4.0 per cent in the first half 2011-12 gradually increased
to 4.6 per cent of GDP in the first half of 2012-13.

As per the data released by the Reserve Bank, the CAD, which is the difference between inflow and
outflow of foreign currency, widened from 5.4 per cent of GDP in Q2 (July-September) of 2012-13 to a
record high of 6.7 per cent of GDP in Q3, which is mainly driven by large trade deficit.
However, the CAD is likely to come down in the fourth quarter (Q4) of 2012-13, on the back of
improvement in exports in the last few months. As a result, the current account deficit is estimated at
around 5.0 per cent of GDP in 2012-13, which is just twice the comfort level.
Thus India’s current account deficit, the difference between inflow and outflow of foreign funds, which
had climbed to the record high of 6.7 per cent of the GDP in the mid-quarter of 2012-13 gradually
climbed down thereafter and shown some improvement on account of likely upturn in exports as a
result of announcement of various government measures.
Accordingly, the current account deficit (CAD) stood at $ 88.2 billion or 4.8 per cent of GDP in 2012-
13 as compared to $ 78.2 billion or 4.2 per cent of GDP in 2011-12. Thus the government proposes to
bring it down to US $ 70 billion or 3.8 per cent of GDP in 2013-14. But the trade deficit, coupled with a
slow recovery in net invisibles (income and services) led to widening by CAD to US $ 21.8 billion in
quarter 1 of 2013-14.
CAD had declined to 3.6 per cent in the January-March quarter of 2013-14.
Thus, the RBI data shows that the CAD which stood at 82.0 billion or 6.5 per cent of GDP in October-
December quarter of 2012-13 has narrowed down to $ 31.0 billion or 1.7 per cent of GDP in 2013- 14.
Accordingly, the Finance Ministry Observed that the CAD came down to US dollar 32 billion in 2013-
14 from an all time high of US $ 88.2 billion in 2012-13.
Thus, the trade deficit reduction which was a major component of CAD in its recession was largely due
to weaker currency, softer domestic demand and curls on gold imports. Apart from this, the tightening
measures of the RBI and the steps taken to attract deposits and other inflow of funds helped to restore
confidence among the investors in respect of revival of growth.
The main reason for large current account deficit is the higher quantum of trade deficit as exports
contracted over 4 per cent to US $ 266 billion during April-February 2012-13, while imports were up
by 0.3 per cent at US $ 448 billion. Higher volume of gold import and crude oil import along with slow-
down in exports are the main reasons, behind this higher current account deficit faced by the country in
recent years.
In order to reduce CAD, the government has taken steps to woo foreign institutional investors (FIIs)
and the response in this regard is highly appreciable. In recent days, several global funds and equity
investors have started making a beeline for investing in India’s highway sector, a move that will likely
to free up thousands of crores of rupees for Indian developers—the funds that were parked idly so long
in the absence of government decision favourable to such investment.
Overseas investors have pumped in more than Rs 1,400 crore ($ 254 million) in the first week of March
(2012-13) itself. Moreover, with the rising exports in recent months (February-April, 2013) we may
infer that the CAD would be falling down to a comfortable level.
Thus the improvement in exports is quite encouraging the modest recovery in exports in the last quarter
(Q4) of 2012-13 augers will for CAD, which has emerged as a tough policy challenge for the
government and crossed 6.7 per cent in the third quarter (Q3) of 2012-13.
Barclays report observed that India’s CAD is likely to witness a gradual improvement in the, next two
to three years and it is expected to come down to 3.9 per cent of the GDP in 2013-14. India’s current
account balance has weakened significantly since 2010-11 but an improvement is expected within next
two-three years at a gradual pace.
As per Barclays report, India’s CAD reached a record 4.9 per cent of GDP in 2012-13 (about US $ 90
billion) and on a conservative basis, it is likely to improve to 3.9 per cent of GDP (about US $ 9.
billion) in 2013-14.
Thus, the Indian Economy had to face the external shocks which got amplified on account of
confluence of weak external demand and relatively strong domestic demand with large dependence on
crude oil imports whose price levels remained elevated until the second-half of the current fiscal. These
shocks led to widening of the CAD in 2011-1-2 which continued through the first quarter of 2013-14.
With external financial sources remaining volatile, the less than adequate quantity and deteriorating
quality of financing resulted in a sharp depreciation of the rupee. The policy responses that were put in
place in 2013-14 helped the country to overcome the stress through reduction in the level of CAD and

this, along with ample financial, led to reserve accretion that helped build residence—a process that
continues through the current fiscal (2014-15).
In the first-half of 2014-15, India’s external-sector position was benign and comfortable.
Two important developments that took place were that:
(i) Lower trade deficit along with moderate growth in invisibles resulted in lower CAD and
(ii) There was a surge in capital inflows, enabled by higher portfolio investment, foreign direct
investment (FDI) and external commercial borrowings (ECB).
Second phase of economic reforms since 1991 and the export promotion strategy have created
considerable impact on the balance of payments position of the country. Accordingly serious efforts
were undertaken to raise the export-import cover. Side-by-side, imports were liberalised to bring
technological upgradation.
Moreover, non-debt creating inflows of capital like foreign direct investment as well as portfolio
investment were encouraged so as to replace debt-creating capital. balance of payments position of the
country has been experiencing some remarkable changes in the post-reform scenario as the coverage of
imports by export earnings has increased considerably from 51.8 per cent in 1980-81 to 86.7 per cent in
1991-92 and then the peak level at 90.5 per cent in 1993-94 and then finally to 88.2 per cent in 1996-97.
In this connection, the Economic Survey, 1994- 95 rightly observed, “The recent developments in
India’s external sector reflect a shift from a foreign exchange constrained control regime to a more
open, market driven and liberalised economy. This has been facilitated by the structural change in the
country’s balance of payments which has occurred during the last few years. The most notable feature
of this change has been the sharp increase in the coverage of imports by export earnings.”
Again the Economic Survey, 1995-96 observed, The development in India’s trade and payments over
the past five year’s mark a noticeable structural change towards a more stable and sustainable balance
of payments. During the post-liberalisation period, there has been a sharp improvement in the coverage
of import payments through export earnings.
The coverage ratio has averaged around 88 per cent since 1992-93, compared with only 52.4 per cent at
the beginning of the 1980s and about 70 per cent at the end of 1980s.
There has also been a marked improvement in the flow of invisible receipts. Together, these changes
brought about a sharp reduction in the ratio of the current account deficit to GDP, from an unsustainable
level of 3.2 per cent in 1990-91 to 0.8 per cent in 1994-95.
FOREIGN CAPITAL: NEED FOR FOREIGN CAPITAL
Everywhere in the world, including the developed countries, governments are vying with each other to
attract foreign capital. The belief that foreign capital plays a constructive role in a country’s economic
development, it has become even stronger since mid-1980.
The experience of South East Asian Countries (1986-1995) has especially confirmed this belief
and has led to a progressive reduction in regulations and restraints that could have inhibited the inflow
of foreign capital.
Need for Foreign Capital:
The need for foreign capital arises because of the following reasons. In most developing
countries like India, domestic capital is inadequate for the purpose of economic growth. Foreign capital
is typically seen as a way of filling in gaps between the domestically available supplies of savings,
foreign exchange, government revenue and the planned investment necessary to achieve developmental
targets. To give an example of this ‘savings-investment’ gap, let us suppose that planned rate of growth
output per annum is 7 percent and the capital-output ratio is 3 percent, then the rate of saving required is
21 percent.
If the saving that can be domestically mobilized is 16 percent, there is a shortfall or a savings
gap of 5 percent. Thus the foremost contribution of foreign capital to national development is its role in
filling the resource gap between targeted investment and locally mobilized savings. Foreign capital is
needed to fill the gap between the targeted foreign exchange requirements and those derived from net
export earnings plus net public foreign aid. This is generally called the foreign exchange or trade gap.

An inflow of private foreign capital helps in removing deficit in the balance of payments over
time if the foreign-owned enterprise can generate a net positive flow of export earnings.
The third gap that the foreign capital and specifically, foreign investment helps to fill is that between
governmental tax revenue and the locally raised taxes. By taxing the profits of the foreign enterprises
the governments of developing countries are able to mobilize funds for projects (like energy,
infrastructure) that are badly needed for economic development.
Foreign investment meets the gap in management, entrepreneurship, technology and skill. The
package of these much-needed resources is transferred to the local country through training
programmes and the process of learning by doing’. Further foreign companies bring with them
sophisticated technological knowledge about production processes while transferring modern
machinery equipment to the capital-poor developing countries.
In fact, in this era of globalization, there is a great belief that foreign capital transforms the productive
structures of the developing economics leading to high rates of growth. Besides the above, foreign
capital, by creating new productive assets, contributes to the generation of employment a prime need of
a country like India.
Forms of Foreign Capital:
Foreign Capital can be obtained in the form of foreign investment or non-concessional
assistance or concessional assistance.
1. Foreign Investment includes Foreign Direct Investment (FDI) and Foreign Portfolio Investment
(FPI). FPI includes the amounts raised by Indian corporate through Euro Equities, Global
Depository Receipts (GDR’s), and American Depository Receipts (ADR’s).
2. Non-Concessional Assistance mainly includes External Commercial Borrowings (ECB’s), loans
from governments of other countries/multilateral agencies on market terms and deposits
obtained from Non-Resident Indians (NRIs).
3. Concessional Assistance includes grants and loans obtained at low rates of interest with long
maturity periods. Such assistance is generally provided on a bilateral basis or through
multilateral agencies like the World Bank, International Monetary Fund (IMF), and
International Development Association (IDA) etc. Loans have to be repaid generally in terms of
foreign currency but in certain cases the donor may allow the recipient country to repay in terms
of its own currency.
Grants do not carry any obligation of repayment and are mostly made available to meet some temporary
crisis. Foreign Aid can also be received in terms of direct supplies of agricultural commodities or
industrial raw materials to overcome temporary shortages in the economy. Foreign Aid may also be
given in the form of technical assistance.
IMPORTANT OF FOREIGN CAPITAL IN UNDERDEVELOPED

1. Solution to the Problem of Capital Deficiency:
The underdeveloped countries are generally designated as ‘capital poor’ or ‘low-saving and low-
investing economies. The rate of domestic savings in these countries is highly inadequate to meet the
requirement of their economic development. Majority of people are living on the subsistence level.
Besides, it is not possible to increase the rate of domestic savings to any significant extent.
It is not possible for these countries to develop rapidly with their domestic resources alone. Foreign aid
can help to bridge the gap between the rate of domestic savings and required rate of investments if these
countries are to developed at a fairly rapid rate. A modest requirement of development it has been
correctly observed, will be to invest at least 10 percent of their national income in these countries. But
domestic saving is inadequate to meet the requirements of capital formation. Hence foreign aid capital
is indispensable for economically backward areas.
2. Technical Knowledge and Specialized Capital Equipment:
These countries are not only ‘capital poor’ but they are also backward in technology for rapid economic
development. They require trained personnel, technical know-how and expert opinion. They also need
modern machines and equipment’s. Foreign capital can help to solve the problem of technological
backwardness of these countries. Therefore, foreign capital is significant not only as a source of

additional savings but also as a supplier of modern technology and specialized capital equipment to
underdeveloped countries.
3. To Correct Adverse Balance of Payments:
Foreign aid is also crucial from the point of its favourable effect on the balance of payments of the
recipient country. These countries are generally involved in unfavorable balance of payments.
Economic development tends to affect the balance of payments adversely as the huge imports of capital
goods, technical know-how and raw materials are required to carry on the development programmes.
On the other side, the exports from these countries are sluggish because of high cost of production and
increased domestic consumption.
In this way underdeveloped countries suffer from a continuous pressure on their balance of payments.
Foreign capital can help to solve the foreign exchange crisis to a greater extent in these countries. Thus
according to Dr. D. Bright Singh, external assistance becomes unavoidable in mobilization of resources
in a country as it gives guarantee of releasing sufficient amount of foreign exchange to carry on the
development programmes.
4. Foreign Capital helps to maintain the Production Level:
Another significance is that aid imports can be of immense help in maintaining the level of industrial
production in less developed countries by providing essential raw materials, semi manufactured goods,
machines, tools and equipment’s. These countries are not in a position to import their requirements out
of their own foreign exchange earnings. As a result they have to resort to foreign borrowing in order to
maintain the level of production in the country.
5. Helpful in the Development of Economic and Social Overheads:
It is a hard fact that underdeveloped countries lack in the necessary infrastructure for development like
rails, roads, canals, power projects and other economic and social overheads. Since their development
requires a huge capital investment and a long gestation period, these countries are unable to undertake
these heavy projects with the aid of domestic resources. Foreign capital can be very helpful in the pace
of economic development. It leads to lay down the foundations of rapid economic development in these
countries.
6. To Break Vicious Circle of Poverty:
Foreign aid capital is useful to break the vicious circle of poverty and market imperfections. In the
opinion of Prof. Nurkse, “The use of foreign resources is one way of breaking the vicious circle of
poverty and low capital formation.
The flow of foreign capital and other resources will provide an increase in productivity fast enough to
out run population growth and thus launch a process of cumulative expansion, and will acquire a
sufficient portion of this capital in foreign exchange to permit importation of raw materials and
equipment needed for development, in addition to essential food stuffs”.
7. Rapid rate of Capital Formation:
As underdeveloped countries have slow rate of capital formation but with the aid of foreign capital, rate
of capital formation can easily be speeded up as this imported capital is employed in heavy capital
intensive industries such as machinery, steel and fertilizer etc.
8. Proper Use of Natural Resources and Risky Projects:
In underdeveloped countries capital is very shy and the private enterprise is reluctant to undertake risky
projects like the exploitation of untapped natural resources. Foreign capital covers up this deficiency by
opening new ventures and new areas of business activity. It goes into pioneering enterprises involving
all risks. Thus the investment of foreign capital results in opening up inaccessible areas and tapping up
of new and exploited natural resources in the country.
9. Helpful in Combating Inflation:
Underdeveloped countries generally suffer from inflationary pressure during the initial stage of their
development. Inflation in these countries is the outcome of the disequilibrium between demand and
supply. Public investment programme on a mass scale generates demand ahead of the supply of goods.
This in turn creates inflationary pressure in the economy. Foreign capital is helpful to minimize
inflationary pressure through import of food and other consumer goods. In either way, foreign capital
keeps inflationary pressures under control.
10. Tends to Increase Productivity, Income and Employment:

With the inflow of capital, the labour in the country is equipped with modern tools which in turn raise
its productivity. A rise in labour productivity results in higher real wages for the workers and cheaper
goods for the consumers. In general in this way foreign capital leads to setting up of new industries
which provide greater income and employment for its growing population
FOREIGN INVESTMENT INFLOWS
Apart from being a critical driver of economic growth, foreign direct investment (FDI) is a
major source of non-debt financial resource for the economic development of India. Foreign companies
invest in India to take advantage of relatively lower wages, special investment privileges such as tax
exemptions, etc. For a country where foreign investments are being made, it also means achieving
technical know-how and generating employment.
The Indian government’s favourable policy regime and robust business environment have ensured that
foreign capital keeps flowing into the country. The government has taken many initiatives in recent
years such as relaxing FDI norms across sectors such as defence, PSU oil refineries, telecom, power
exchanges, and stock exchanges, among others.
Market size
According to Department of Industrial Policy and Promotion (DIPP), the total FDI investments
in India during April-September 2017 stood at US$ 33.75 billion, indicating that government's effort to
improve ease of doing business and relaxation in FDI norms is yielding results.
Data for April-September 2017 indicates that the telecommunications sector attracted the highest FDI
equity inflow of US$ 6.08 billion, followed by computer software and hardware – US$ 3.05 billion and
services – US$ 2.92 billion. Most recently, the total FDI equity inflows for the month of September
2017 touched US$ 2.12 billion.
During April-September 2017, India received the maximum FDI equity inflows from Mauritius (US$
11.47 billion), followed by Singapore (US$ 5.29 billion), Netherlands (US$ 1.95 billion), USA (US$
1.33 billion), and Germany (US$ 934 million).
Indian impact investments may grow 25 per cent annually to US$ 40 billion from US$ 4 billion by
2025, as per Mr Anil Sinha, Global Impact Investing Network's (GIIN’s) advisor for South Asia.
Investments/ developments
India has become the fastest growing investment region for foreign investors in 2016, led by an
increase in investments in real estate and infrastructure sectors from Canada, according to a report by
KPMG.
Some of the recent significant FDI announcements are as follows:
 In September 2017, 15 Japanese companies including Moresco, Toyoda Gosei, Topre and
Murakami, signed memorandums of understanding (MoUs) with an intention to invest in the
state of Gujarat.
 Singapore's Temasek will acquire a 16 per cent stake worth Rs 1,000 crore (US$ 156.16 million)
in Bengaluru based private healthcare network Manipal Hospitals which runs a hospital chain of
around 5,000 beds.
 France-based energy firm, Engie SA and Dubai-based private equity (PE) firm Abraaj Group
have entered into a partnership for setting up a wind power platform in India.
 US-based footwear company, Skechers, is planning to add 400-500 more exclusive outlets in
India over the next five years and also to launch its apparel and accessories collection in India.
 The government has approved five Foreign Direct Investment (FDI) proposals from Oppo
Mobiles India, Louis Vuitton Malletier, Chumbak Design, Daniel Wellington AB and Actoserba
Active Wholesale Pvt Ltd, according to Department of Industrial Policy and Promotion (DIPP).
 Cumulative equity foreign direct investment (FDI) inflows in India increased 40 per cent to
reach US$ 114.4 billion between FY 2015-16 and FY 2016-17, as against US$ 81.8 billion
between FY 2011-12 and FY 2013-14.
 Walmart India Pvt Ltd, the Indian arm of the largest global retailer, is planning to set up 30 new
stores in India over the coming three years.
 US-based ecommerce giant, Amazon, has invested about US$ 1 billion in its Indian arm so far
in 2017, taking its total investment in its business in India to US$ 2.7 billion.

 Kathmandu based conglomerate, CG Group is looking to invest Rs 1,000 crore (US$ 155.97
million) in India by 2020 in its food and beverage business, stated Mr Varun Choudhary,
Executive Director, CG Corp Global.
 International Finance Corporation (IFC), the investment arm of the World Bank Group, is
planning to invest about US$ 6 billion through 2022 in several sustainable and renewable energy
programmes in India.
 Warburg Pincus, a Private Equity firm based in New York, has invested US$ 100 million in
CleanMax Solar, a rooftop solar development firm, which will be utilised to fund growth
opportunities outside India and to improve product offerings.
 Morganfield Group, a Malaysian restaurant and bar chain, is planning to enter India by
launching three of its brands, Morganfield’s, Mocktail Bar and Snackz It, by the end of 2017.
The company expects to open 250 outlets in India over the next five years.
 SAIC Motor Corporation is planning to enter India’s automobile market and begin operations in
2019 by setting up a fully-owned car manufacturing facility in India.
 Toronto-based Canada Pension Plan Investment Board (CPPIB) made investments worth Rs
9,120 crore (US$ 1.41 billion) in India during FY 2016-17, taking their total investment in India
to Rs 22,560 crore (US$ 3.50 billion).
 SoftBank is planning to invest its new US$ 100 billion technology fund in market leaders in
each market segment in India as it is seeks to begin its third round of investments.
 The Government's Make in India campaign has attracted investment across sectors from various
Chinese companies, as is evident from cumulative Foreign Direct Investment (FDI) inflows of
Rs 9,933.87 crore (US$ 1.54 billion) between 2014 and December 2016.
Government Initiatives
The Department of Industrial Policy and Promotion (DIPP) approved nine Foreign Direct
Investments (FDIs) worth Rs 5,000 crore (US$ 780.43 million), including Amazon India's Rs 3,500
crore (US$ 546.3 million) proposed investment.
In September 2017, the Government of India asked the states to focus on strengthening single window
clearance system for fast-tracking approval processes, in order to increase Japanese investments in
India.
The Ministry of Commerce and Industry, Government of India has eased the approval
mechanism for foreign direct investment (FDI) proposals by doing away with the approval of
Department of Revenue and mandating clearance of all proposals requiring approval within 10 weeks
after the receipt of application.
The Department of Economic Affairs, Government of India, closed three foreign direct
investment (FDI) proposals leading to a total foreign investment worth Rs 24.56 crore (US$ 3.80
million) in October 2017.
India and Japan have joined hands for infrastructure development in India's north-eastern states
and are also setting up an India-Japan Coordination Forum for Development of North East to undertake
strategic infrastructure projects in the northeast.
The Government of India is in talks with stakeholders to further ease foreign direct investment (FDI) in
defence under the automatic route to 51 per cent from the current 49 per cent, in order to give a boost to
the Make in India initiative and to generate employment.
The Central Board of Direct Taxes (CBDT) has exempted employee stock options (ESOPs),
foreign direct investment (FDI) and court-approved transactions from the long term capital gains
(LTCG) tax, under the Finance Act 2017.
The Union Cabinet has approved raising of bonds worth Rs 2,360 crore (US$ 365.63 million) by
the Indian Renewable Energy Development Agency (IREDA), which will be used in various renewable
energy projects in FY 2017-18.
The Government of India is likely to allow 100 per cent foreign direct investment (FDI) in cash
and ATM management companies, since they are not required to comply with the Private Securities
Agencies Regulations Act (PSARA).
The Government of India plans to scrap the Foreign Investment Promotion Board (FIPB), which
would enable the foreign investment proposals requiring government approval to be cleared by the
ministries concerned, and thereby improve the ease of doing business in the country.

ROLE OF SPECIAL ECONOMIC ZONES (SEZ)
Special economic zone or SEZ refers to a totally commercial area specially established for the
promotion foreign trade. A Special Economic Zone (SEZ) is a geographical region that has economic
laws more liberal than a country's typical economic laws. Usually the goal is flourishment in foreign
investment.[1] In other words SEZs are specifically delineated enclaves treated as foreign territory for
the purpose of industrial, service and trade operations, with relaxation in customs duties and a more
liberal regime in respect of other levies, foreign investments and other transactions.
These regions exists in many countries of the world and China perhaps the oldest to give reality
to this concept. Although they exist in several countries, their attributes vary. Typically they are regions
designated for economic development oriented toward inward FDI and exports fostered by special
policy incentives. The SEZs in India are the outcome of the present government’s industrial policy
which emphasizes deregulation of Indian industry and to allow the industries to flexibly respond to the
market forces. All undertakings other than the small scale industrial undertakings engaged in the
manufacture of items reserved for manufacture in the small scale sector are required to obtain an
industrial license and undertake an export obligation of 50% of the annual production. This condition of
licensing is, however, not applicable to those undertakings operating under 100% Export Oriented
Undertakings Scheme, the Export Processing Zone (EPZ) or the Special Economic Zone Schemes
(SEZs).
Wei Ge has defined special economic zones as “characterized in general terms as a geographic area
within the territory of a country where economic activities of certain kinds are promoted by a set of
policy instruments that are not generally applicable to the rest of the countries.”
Now the term Special Economy Zones (“SEZ”) covers a broad range of zones, such as free trade zones,
export-processing zones, industrial parks, economic and technology development zones, high-tech
zones, science and innovation parks, free ports, enterprise zones, and others.
The following are the main characteristics of Special Economic Zones (SEZ):
1. Geographically demarked area with physical security.
2. Administrated by single body/authority.
3. Enjoying financial and procedural benefits
4. Streamlined procedures
5. Having separate custom area
6. Governed by more liberal economic laws.
In recent times, buildings are being assigned as free zones, like those in Dubai.
Objectives of SEZs
SEZs are normally established with the aim of achieving one or more of the following objectives:
1. To enhance foreign investment, especially to attract foreign direct investment (FDI), thereby
increasing GDP.
2. Increase shares in Global Export (international Business).
3. As experimental laboratories for the application of new policies and approaches- China’s large-
scale SEZs are classic examples.
4. Generation of additional economic activity, or in support of wider economic reform strategy,
which reduces anti-export bias while keeping protective barriers intact. The SEZs of China, The
Republic of Korea, Mauritius, Taiwan, and China, follow this pattern.
5. Creation of employment opportunities and to serve as “pressure valves” to alleviate large-scale
unemployment. SEZ programs of Tunisia and the Dominican Republic are frequently cited as
examples of programs that have remained enclaves and have not catalyzed dramatic structural
economic change, but remained robust, job-creating programs.
6. In support of a wider economic reform strategy. In this view, SEZs are a simple tool permitting
a country to develop and diversify exports. Zones reduce anti-export bias while keeping
protective barriers intact. The SEZs of China, The Republic of Korea, Mauritius, Taiwan, and
China, follow this pattern.
7. Development of infrastructure facilities.

8. Exposure to technology and global market.
According Douglas Zhihua Zeng, SEZs confer two main types of benefits, which in part explain their
popularity- “static” economic benefits such as employment generation, export growth, government
revenues, and foreign exchange earnings; and the more “dynamic” economic benefits such as skills
upgrading, technology transfer and innovation, economic diversification, productivity enhancement of
local firms, etc.
BENEFITS AND INCENTIVES
In order to encourage participation in Special Economic Zones, companies have been provided with
certain benefits and incentives, including the following:
1. Tax benefits (Tax holidays, income tax exemptions etc.)
2. Liberal Labour Regulations.
3. Exemption from excise and customs duty on procurement of capital assets, consumable stores,
raw-materials from domestic market.
4. Exemption from sales tax, import duty, income tax, minimum alternative tax and dividend
distribution tax.
5. Streamlined procedures (online/single window).
6. Liberal approach in foreign direct investments.
7. Increased capital account convertibility.
8. Relaxed export regulation.
9. Profits could be repatriated fully.
10. Reimbursement of central sales tax paid on domestic purchases.
11. Non-applicability of related environmental laws.
Role of SEZs in International Business
One of the main objective of SEZ is to enhance exports, i.e. to have a prominent role in
international business. A main factor in determining the success of SEZ is growth in the exports made
by them. The purpose behind their establishment is to provide an internationally competitive
environment to increase export, by making available goods and services free of tax and duties supported
by convergent infrastructure.
In order to stimulate the exports, normally, related enactments were provisioned with the following:
1. Long-term and stable policy framework with minimum regulatory regime.
2. Expeditious and single window approval mechanism.
3. Import and export movements of goods are based on self-declaration.
4. No routine examination is made unless specific order from concerned authority.
5. Packages of incentives to attract foreign and domestic investments for promoting exports-led-
growth.
6. Exemption from custom duty on goods imported into the SEZ by the developers to carry out
their authorized operations.
7. Exemption from customs duty on goods exported from the SEZ by the developer or SEZ units.
8. Free Trade and Warehousing Zones, to create trade related infrastructure to facilitate import and
export of goods and services and to create world-class infrastructure for warehousing with all
amenities.
9. Freedom to carry out trade transaction in free currency.
10. “Deemed Export” Facilities in the SEZ.
With operational success, the role of the special economic zones has expanded from trade to
investment technology, Research and Development, service, and training. Free zones have become the
center of activity in modern economy. SEZs have played a significant role in economic enrichment of
developing countries, by improving international business. However, due to the economic slowdown
prevailing globally, the export businesses especially are at stake. Some of the countries are facing
turmoil and set back due to unstable SEZ business.

Unit: 5 India in the Global Setting : India in Global Trade – Liberalization and Integration with the
Global Economy – Globalization Strategies – India’s Foreign Exchange Reserves – Convertibility of
the Rupee – WTO and India.
India in the Global Setting : India in Global Trade
India’s performance in World trade based on the WTO database which provides the data calendar
year-wise is given as follows:
India's Trade Performance: Percentage Share in World Trade
India's Share India's Share
India's Share
in World in World
Years in World
Commercial Merchandise Plus
Merchandise Exports
Services Exports Services Exports
2011 1.7 3.2 1.9
2012 1.6 3.2 1.9
2013 1.7 3.1 2.0
2014 1.7 3.1 2.0
2015 1.6 3.3 2.0
Source: World Trade Organization
The Government has launched several schemes and measures to increase India’s share in global
trade, which are as follows:
(i) The Merchandise Exports from India Scheme (MEIS) was introduced in the Foreign Trade Policy
(FTP) 2015-20 on April 1, 2015 with 4914 tariff lines at 8 digit levels. The Government has
extended the market coverage to all countries in respect of 7914 tariff lines. The revenue forgone
under the scheme (MEIS) has increased from Rs. 22000 Crore to Rs. 23500 Crore per annum.
(ii) The Government launched Services Exports from India Scheme (SEIS) in the FTP 2015-2020.
The Scheme provided rewards to service providers of notified services who are providing service
from India.
(iii) The Government is implementing the Niryat Bandhu Scheme with an objective to reach out to the
new and potential exporters including exporters from Micro, Small & Medium Enterprises
(MSMEs) and mentor them through orientation programmes, counseling sessions, individual
facilitation, etc., on various aspects of foreign trade for being able to get into international trade and
boost exports from India.
(iv) By way of trade facilitation and enhancing the ease of doing business, Government reduced the
number of mandatory documents required for exports and imports to three each, which is
comparable with international benchmarks. The trade community can file applications online for
various trade related schemes. Online payment of application fees through Credit/Debit cards and
electronic funds transfer from 53 Banks has been put in place.
(v) Interest Equalization Scheme on pre & post shipment credit launched to provide cheaper credit to
exporters.
(vi) Further, the Government continues to provide the facility of access to duty free raw materials and
capital goods for exports through schemes like Advance Authorization, Duty Free Import
Authorization (DFIA), Export Promotion Capital Goods (EPCG) and drawback / refund of duties.
FEATURES OF FOREIGN TRADE OF INDIA
1. Negative or Unfavourable Trade:

India had to import various items like heavy machinery, agricultural implements, mineral oil and metals
on a large scale after Independence for economic growth.

But our exports could not keep pace with our imports which left us with negative or unfavourable trade.
2. Diversity in Exports:
Previously, India used to export its traditional commodities only which included tea, jute, cotton textile,
leather, etc. But great diversity has been observed in India’s export commodities during the last few
years. India now exports over 7,500 commodities. Since 1991, India has emerged as a major exporter of
computer software and that too to some of the advanced countries like the USA and Japan.
3. Worldwide Trade:
India had trade links with Britain and a few selected countries only before Independence. But now India
has trade links with almost all the regions of the world. India exports its goods to as many as 190
countries and imports from 140 countries.
4. Change in Imports:
Earlier we used to import food-grains and manufactured goods only. But now oil is the largest single
commodity imported by India. Both the imports as well as exports of pearls and precious stones have
increased considerably during the last few years. Our other important commodities of import are iron
and steel, fertilizers, edible oils and paper.
5. Maritime Trade:
About 95 per cent of our foreign trade is done through sea routes. Trade through land routes is possible
with neighbouring countries only. But unfortunately, all our neighbouring countries including China,
Nepal, and Myanmar are cut off from India by lofty mountain ranges which makes trade by land routes
rather difficult. We can have easy access through land routes with Pakistan only but the trade suffered
heavily due to political differences between the two countries.
6. Trade through a few Selected Ports Only:
We have only 12 major ports along the coast of India which handle about 90 per cent overseas trade of
India. Very small amount of foreign trade is handled by the remaining medium and small ports.
7. Insignificant Place of India in the World Overseas Trade:
Although India has about 16 per cent of the world’s population, her share in the world overseas trade is
less than one per cent. This shows the insignificant place of India in the world’s overseas trade. This is,
however, partly due to very large internal trade, vast dimensions of the country provide a solid base for
inter-state trade within the country. Europe is divided into a large number of smaller countries and the
international trade is quite high (trade counted twice, first time as exports and second times as imports).
8. State Trading:
Most of India’s overseas trade is done in public sector by state agencies and very little trade is done by
individuals.
Liberalization and Integration with the Global Economy
When a nation becomes liberalized, the economic effects can be profound for the country and
for investors. Economic liberalization refers to a country "opening up" to the rest of the world with
regards to trade, regulations, taxation and other areas that generally affect business in the country. As a
general rule, you can determine to what degree a country is liberalized economically by how easy it is
to invest and do business in the country. All developed (first world) countries have already gone
through this liberalization process, so the focus in this article is more on the developing and emerging
countries.
Removing Barriers to International Investing
Investing in emerging market countries can sometimes be an impossible task if the country
you're investing in has several barriers to entry. These barriers can include tax laws, foreign investment
restrictions, legal issues and accounting regulations, all of which make it difficult or impossible to gain
access to the country. The economic liberalization process begins by relaxing these barriers and
relinquishing some control over the direction of the economy to the private sector. This often involves
some form of deregulation and privatization of companies.
Unrestricted Flow of Capital
The primary goals of economic liberalization are the free flow of capital between nations and
the efficient allocation of resources and competitive advantages. This is usually done by reducing

protectionist policies such as tariffs, trade laws and other trade barriers. One of the main effects of this
increased flow of capital into the country is it makes it cheaper for companies to access capital from
investors. A lower cost of capital allows companies to undertake profitable projects they may not have
been able to with a higher cost of capital pre-liberalization, leading to higher growth rates.
We saw this type of growth scenario unfold in China in the late 1970s as the Chinese government set on
a path of significant economic reform. With a massive amount of resources (both human and natural),
they believed the country was not growing and prospering to its full potential. Thus, to try to spark
faster economic growth, China began major economic reforms that included encouraging private
ownership of businesses and property, relaxing international trade and foreign investment restrictions,
and relaxing state control over many aspects of the economy. Subsequently, over the next several
decades, China averaged a phenomenal real GDP growth rate of over 10%.
Stock Market Performance
In general, when a country becomes liberalized, stock market values also rise. Fund managers
and investors are always on the lookout for new opportunities for profit, so a whole country that
becomes available to be invested in tends to cause a surge of capital to flow in. The situation is similar
in nature to the anticipation and flow of money into an initial public offering (IPO). A private
company previously unavailable to investors that suddenly becomes available typically causes a similar
valuation and cash flow pattern. However, like an IPO, the initial enthusiasm also eventually dies down
and returns become more normal and more in line with fundamentals.
Political Risks Reduced
In addition, liberalization reduces the political risk to investors. For the government to continue
to attract more foreign investment, other areas beyond the ones mentioned earlier have to be
strengthened as well. These are areas that support and foster a willingness to do business in the country,
such as a strong legal foundation to settle disputes, fair and enforceable contract laws, property laws,
and others that allow businesses and investors to operate with confidence. Also, government
bureaucracy is a common target area to be streamlined and improved in the liberalization process. All
these changes together lower the political risk for investors, and this lower level of risk is also part of
the reason the stock market in the liberalized country rises once the barriers are gone.
Diversification for Investors
Investors can also benefit by being able to invest a portion of their portfolio into a diversifying
asset class. In general, the correlation between developed countries such as the United States and
undeveloped or emerging countries is relatively low. Although the overall risk of the emerging country
by itself may be higher than average, adding a low correlation asset to your portfolio can reduce your
portfolio's overall risk profile. However, a distinction should be made that although the correlation may
be low, when a country becomes liberalized, the correlation may actually rise over time. This happens
because the country becomes more integrated with the rest of the world and becomes more sensitive to
events that happen outside the country. A high degree of integration can also lead to increased
contagion risk, which is the risk that crises occurring in different countries cause crises in the domestic
country.
A prime example of this is the European Union (EU) and its unprecedented economic and
political union. The countries in the EU are so integrated with regard to monetary policy and laws that a
crisis in one country has a high probability of spreading to other countries. This is exactly what
happened in the financial crisis that started in 2008-2009. Weaker countries within the EU (such as
Greece) began to develop severe financial problems that quickly spread to other EU members. In this
instance, investing in several different EU member countries would not have provided much of a
diversification benefit as the high level of economic integration among the EU members had increased
correlations and contagion risks for the investor.
The Bottom Line
Economic liberalization is generally thought of as a beneficial and desirable process for
emerging and developing countries. The underlying goal is to have unrestricted capital flowing into and
out of the country to boost growth and efficiencies within the home country. The effects following
liberalization are what should interest investors as they can provide new opportunities for
diversification and profit.

GLOBALIZATION STRATEGIES
Globalization refers to the process of integration across societies and economies. The
phenomenon encompasses the flow of products, services, labor, finance, information, and ideas moving
across national borders. The frequency and intensity of the flows relate to the upward or downward
direction of globalization as a trend.
There is a popular notion that there has been an increase of globalization since the early 1980s.
However, a comparison of the period between 1870 and 1914 to the post-World War II era indicates a
greater degree of globalization in the earlier part of the century than the latter half. This is true in
regards to international trade growth and capital flows, as well as migration of people to America.
If a perspective starts after 1945—at the start of the Cold War—globalization is a growing trend
with a predominance of global economic integration that leads to greater interdependence among
nations. Between 1990 and 2001, total output of export and import of goods as a proportion of GDP
rose from 32.3 percent to 37.9 percent in developed countries and 33.8 percent to 48.9 percent for low-
to middle-income countries. From 1990 to 2003, international trade export rose by $3.4 to $7.3 trillion.
Hence, the general direction of globalization is growth that is unevenly distributed between wealthier
and poorer countries.
A primary economic rationale for globalization is reducing barriers to trade for the enrichment
of all societies. The greater good would be served by leveraging comparative advantages for production
and trade that are impeded by regulatory barriers between sovereignty entities. In other words, the
betterment of societies through free trade for everyone is possible as long as each one has the freedom
to produce with a comparative advantage and engage in exchanges with others.
This economic rationale for global integration depends on supporting factors to facilitate the
process. The factors include advances in transportation, communication, and technology to provide the
necessary conduits for global economic integration. While these factors are necessary, they are not
sufficient. Collaboration with political will through international relations is required to leverage the
potential of the supporting factors.
Multinationals such as Kia and Walmart must choose an international strategy to guide their
efforts in various countries. There are three main international strategies available: (1) multidomestic,
(2) global, and (3) transnational. Each strategy involves a different approach to trying to build
efficiency across nations and trying to be responsiveness to variation in customer preferences and
market conditions across nations.
Multidomestic Strategy
A firm using a multidomestic strategy sacrifices efficiency in favor of emphasizing
responsiveness to local requirements within each of its markets. Rather than trying to force all of its
American-made shows on viewers around the globe, MTV customizes the programming that is shown
on its channels within dozens of countries, including New Zealand, Portugal, Pakistan, and India.
Similarly, food company H. J. Heinz adapts its products to match local preferences. Because some
Indians will not eat garlic and onion, for example, Heinz offers them a version of its signature ketchup
that does not include these two ingredients.
Global Strategy
A firm using a global strategy sacrifices responsiveness to local requirements within each of its
markets in favor of emphasizing efficiency. This strategy is the complete opposite of a multidomestic
strategy. Some minor modifications to products and services may be made in various markets, but a
global strategy stresses the need to gain economies of scale by offering essentially the same products or
services in each market.

Microsoft, for example, offers the same software programs around the world but adjusts the
programs to match local languages. Similarly, consumer goods maker Procter & Gamble attempts to
gain efficiency by creating global brands whenever possible. Global strategies also can be very effective
for firms whose product or service is largely hidden from the customer’s view, such as silicon chip
maker Intel. For such firms, variance in local preferences is not very important.
Transnational Strategy
A firm using a transnational strategy seeks a middle ground between a multidomestic strategy
and a global strategy. Such a firm tries to balance the desire for efficiency with the need to adjust to
local preferences within various countries. For example, large fast-food chains such as McDonald’s and
Kentucky Fried Chicken (KFC) rely on the same brand names and the same core menu items around the
world. These firms make some concessions to local tastes too. In France, for example, wine can be
purchased at McDonald’s. This approach makes sense for McDonald’s because wine is a central
element of French diets.
INDIA’S FOREIGN EXCHANGE RESERVES

Foreign exchange reserves are the foreign currencies held by a country's central bank. They are
also called foreign currency reserves or foreign reserves. There are seven reasons why banks hold
reserves. The most important reason is to manage their currencies' values.
How Foreign Exchange Reserves Work
The country's exporters deposit foreign currency into their local banks. They transfer the currency to the
central bank.
Exporters are paid by their trading partners in U.S. dollars, or other currencies. The exporters exchange
them for the local currency. They use it to pay their workers and local suppliers.
The banks prefer to use the cash to buy sovereign debt because it pays a small interest rate. The most
popular are Treasury bills. That's because most foreign trade is done in the U.S. dollar. That's because
of its status as the world's global currency.
Banks are increasing their holdings of euro-denominated assets, such as high-quality corporate bonds.
That continued despite the eurozone crisis. They'll also hold gold and special drawing rights. A third
asset is any reserve balances they've deposited with the International Monetary Fund.
Purpose
Here are the seven ways central banks use foreign exchange reserves.
First, countries use their foreign exchange reserves to keep the value of their currencies at a fixed rate.
A good example is China, which pegs the value of its currency, the yuan, to the dollar. When China
stockpiles dollars, that raises its value when compared to the yuan. That makes Chinese exports cheaper
than American-made goods, increasing sales.
Second, those with a floating exchange rate system use reserves to keep their value of their
currency lower than the dollar.
They do this for the same reasons as those with fixed rate systems. Even though Japan's currency, the
yen, is a floating system, the Central Bank of Japan buys U.S. Treasuries to keep its value lower than
the dollar. Like China, this keeps Japan's exports relatively cheaper, boosting trade and economic
growth.
A third, and critical, function is to maintain liquidity in case of an economic crisis. For example,
a flood or volcano might temporarily suspend local exporters' ability to produce goods. That cuts off
their supply of foreign currency to pay for imports. In that case, the central bank can exchange its
foreign currency for their local currency, allowing them to pay for and receive the imports.
Similarly, foreign investors will get spooked if a country has a war, military coup, or other blow to
confidence. They withdraw their deposits from the country's banks, creating a severe shortage in foreign
currency. This pushes down the value of the local currency since fewer people want it. That makes
imports more expensive, creating inflation.
The central bank supplies foreign currency to keep markets steady. It also buys the local currency to
support its value and prevent inflation.This reassures foreign investors, who return to the economy.
A fourth reason is to provide confidence. The central bank assures foreign investors that it's
ready to take action to protect their investments. It will also prevent a sudden flight to safety and loss of

capital for the country. In that way, a strong position in foreign currency reserves can prevent economic
crises caused when an event triggers a flight to safety.
Fifth, reserves are always needed to make sure a country will meet its external obligations.
These include international payment obligations, including sovereign and commercial debts. They also
include financing of imports and the ability to absorb any unexpected capital movements.
Sixth, some countries use their reserves to fund sectors, such as infrastructure. China, for
instance, has used part of its forex reserves for recapitalizing some of its state-owned banks.
Seventh, most central banks want to boost returns without compromising safety. They know the
best way to do that is to diversify their portfolios. That's why they'll often hold gold and other safe,
interest-bearing investments.
According to Reserve Bank of India (RBI), India’s foreign exchange (Forex) reserves have scaled to
fresh record high of $409.366 billion as on December 29, 2017. The surge was due to massive spike in
foreign currency assets, which is key component of the reserves.
Forex Reserves
The forex are reserve assets held by a central bank in foreign currencies. It acts as buffer to be used in
challenging times and used to back liabilities on their own issued currency as well as to influence
monetary policy. Almost all countries in world, regardless of size of their economy, hold significant
foreign exchange reserves.
The components of India’s FOREX Reserves include Foreign currency assets (FCAs), Gold, Special
Drawing Rights (SDRs) and RBI’s Reserve position with International Monetary Fund (IMF). FCAs
constitute largest component of Indian Forex Reserves.
Key Facts
As on 29 December 2017, FCAs which form key component of reserves, rose by $4.42 billion from the
previous week to $385.103 billion. FCAs are maintained in major currencies like euro, US dollar,
pound sterling, Japanese yen etc. Movement in FCA occur mainly on account of purchase and sale of
foreign exchange by RBI, income arising out of deployment of Forex reserves, external aid receipts of
government and revaluation of assets.
During this period, Gold reserves remained stable at $20.716 billion. Special drawing rights (SDR)
from IMD rose by $8.9 million from the previous week to $1.511 billion. SDR is an international
reserve asset created by IMF and allocated to its members in proportion of their quota at IMF. The
Reserve Position in the IMF rose by $12.1 million to $2.035 billion.
CONVERTIBILITY OF THE RUPEE
Indian economy was under strict foreign exchange control system in the first four decades of planning.
As part of the liberalisation of the Indian economy the Government of India (GOI) started dismantling
the foreign exchange control system from 1991-92 onwards.
Partial Convertibility of the Rupee:
In 1991-92 the GOI adopted a dual exchange rate system under which the official rate of exchange was
controlled and the market rate (or the black-market rate) of exchange was free to move or fluctuate
according to forces of supply and demand.
All of India’s foreign exchange remittances—earned through export of goods or services or
through inward remittances—were allowed to be converted in the following manner:
1. 60% of the export earnings could be converted at the market determined rate; this amount could be
used freely for current account transactions and payments (i.e., for import of goods, for travel and for
remittances abroad).
2. The balance 40% of the earnings should be sold to RBI through authorised dealers at the official rate
of exchange; this amount of foreign exchange would be made available by RBI for financing preferred
imports, bulk imports, etc.
The system of dual exchange rate of the rupee enabled the exporters to convert (at least) 60% of their
export earnings at the market rate of exchange which was much higher than the official exchange rate.

The GOI expected that this would provide adequate incentive to exporters and increase foreign
exchange earnings.
Full Convertibility of the Rupee:
The existence of the dual exchange rate, however, hurts exporters and Indians working abroad who had
to surrender 40% of their earnings at the official rate which was lower than the market rate of exchange.
In order to remove this defect, the GOI announced full convertibility of the rupee on trade account. This
measure enabled Indian exporters and Indian workers abroad convert 100% of their foreign exchange
earnings at the market rates.
As the next step, the GOI announced the convertibility of the rupee on the current account, that is,
liberalise the access to foreign exchange for all current business transactions including travel, education,
medical expenses, etc. The basic objective of the GOI was to eliminate reliance upon illegal channels
for such legitimate transactions. Full current account convertibility of the Rupee is in operation since
the middle of 1990s.
This move was justified by India’s unprecedented success in the international sector, viz., spectacular
rise in forex reserves, increase in exports, stagnation of imports in dollar terms and improvements in
balance of payments on current account.
Meaning of Current Account Convertibility:
All current transactions of India with other countries—in respect of trade (merchandise), services such
as education, travel, medical expenses, etc. and ‘invisibles’ such as remittances—are fully met through
full convertibility of the Rupee into other currencies. The Rupee can be used to buy other currencies
and other countries can buy Indian rupee without limit.
Meaning of Capital Account Convertibility (CAC):
Under CAC any Indian or Indian company is free to convert Indian financial assets into foreign
financial assets and reconvert foreign financial assets into rupees at the prevailing market rate of
exchange. This means that CAC removes all the restrains on international flows on India’s capital
account.
Basic Difference between the Two Systems:
In case of current account convertibility, it is important to have a transaction involving payment or
receipt of one currency against another currency (in respect of importing and exporting of goods,
buying and selling of services, inward or outward remittances, etc.). In case of capital account
convertibility, a currency can be converted into any other currency even without any transaction.
Definition:
The RBI appointed in 1997 the Committee on Capital Account Convertibility with Mr. S. S. Tarapore
as its Chairperson. The Tarapore Committee defined CAC as “the freedom to convert local financial
assets into foreign financial assets and vice versa at market-determined rates of exchange.” CAC
would permit anyone to move freely from local currency into foreign currency and back.
Purpose:
The basic purpose of CAC is to woo foreign investors by sharing an easy market to move in and move
out and to send a strong message that Indian economy is strong and vibrant enough, and that India has
sufficient forex reserves to meet any flight of capital from the country—whatever may be its extent.
Benefits of CAC:
The potential benefits from the scheme are:
1. Availability of large funds to supplement domestic resources and thereby promote faster economic
growth.
2. Improved access to international financial markets and reduction of the cost of capital.
3. Incentive for Indians to acquire and hold international securities and assets.
4. Improvement (strengthening) of the financial system in the context of global competition.
Main Provisions Under the System of CAC:
(a) Indian companies would be allowed to issue foreign currency denominated bonds to local investors,
to invest in such bonds and deposits to issue Global Depository Receipts (GDRs) without RBI or GOI
approval and to go for external commercial borrowings subject to certain limits.
(b) Indian residents would be permitted to have foreign currency denominated deposits with banks in
India, to make transfers of financial capital to other countries within certain limits, and to take loans
from non-relatives and others up to a ceiling of $1 million.

(c) Indian banks would be permitted to borrow from overseas markets for short-term and long-term up
to certain limits, to invest in overseas money markets, to accept deposits and extend loans denominated
in foreign currency. Such facilities would also be available to non- bank financial institutions and
financial intermediaries like insurance companies, investment companies and mutual funds.
(d) All India financial institutions which fulfill certain regulatory and prudential requirements would be
allowed to participate in foreign exchange market along with banks which are the only Authorised
Dealers (ADs) now. At a later stage, certain select Non-Bank Financial Companies (NBFCs) would also
be permitted to act as Ads in foreign exchange markets.
(e) Banks and financial institutions would be permitted to operate in domestic and international
markets. They would be allowed to buy and sell gold freely and offer gold denominated deposits and
loans.
Preconditions for CAC:
According to the Tarapore Committee four preconditions have to be fulfilled to ensure full
currency convertibility:
(i) Reducing Fiscal Deficit:
Fiscal deficit should be reduced to 3.5% of GDP.
(ii) Reducing Public Debt:
The GOI should also set up a Consolidated Sinking Fund (CSF) to reduce its debt.
(iii) Fixing Inflation Target:
The GOI should fix the annual inflation target between 3% to 5%. This is called mandated inflation
target. The GOI should also give full freedom to the RBI to use monetary weapons to achieve the
inflation target.
(iv) Strengthening the Indian Financial Sector:
For this, four conditions are to be satisfied:
(a) Full deregulation of interest rates,
(b) Reduction of gross Non-Performing Assets (NPAs) to 5%,
(c) Reduction of average effective CRR to 3% and
(d) Liquidation of weak banks or their merger with other strong banks.
Apart from these, the Tarapore Committee also recommended that:
(a) The RBI should fix an exchange rate band of 5% around real effective exchange rate and should
intervene only when the Real Effective Exchange Rate (REER) is outside the band.
(b) The size of the current account deficit should be within manageable limits and the debt service ratio
should be gradually reduced from the present 25% to 20% of the export earnings.
(c) To meet import bill and to service external debt, forex reserves should be adequate and range
between $22 billion and $32 billion.
(d) The GOI should remove all restrictions on the movement of gold.
Dangers of CAC:
There are certain dangers associated with CAC:
(i) Contagion Effect:
The Asian financial crisis of 1997 makes it abundantly clear that financial crisis from one country may
be easily transmitted to other countries having convertible currencies. Any adverse development in
overseas market will affect India’s economy equally adversely—as was amply shown in the recent
world recession of 2008-09.
(ii) Speculation:
A convertible currency shows greater fluctuation than an inconvertible one and thus gives greater scope
for destabilising speculation. This creates uncertainty and reduces the volume of trade.
(iii) Outflow of Funds:
Indians will have a tendency to buy more assets abroad and India may become a debtor nation like the
USA since it may develop a tendency to spend beyond its means.
(iv) No Ceiling on External Debt:
Finally, there will be no ceiling on India’s external debt since the GOI—knowing well that rupee can
now be used for debt serving—will borrow without limits.
Conclusion:

On balance it seems full convertibility of the rupee—both on current account and capital account—is a
welcome measure. This is necessary to achieve closer integration of the Indian economy with the global
economy.
WTO and India.
World Trade Organization, as an institution was established in 1995. It replaced General

Agreement on Trade and Tariffs (GATT) which was in place since 1946. In pursuance of World War II,
western countries came out with their version of development, which is moored in promotion of free
trade and homogenization of world economy on western lines. This version claims that development
will take place only if there is seamless trade among all the countries and there are minimal tariff and
non- tariff barriers. That time along with two Bretton wood institutions – IMF and World Bank, an
International Trade Organization (ITO) was conceived. ITO was successfully negotiated and agreed
upon by almost all countries. It was supposed to work as a specialized arm of United Nation, towards
promotion of free trade. However, United States along with many other major countries failed to get
this treaty ratified in their respective legislatures and hence it became a dead letter.
Consequently, GATT became de-facto platform for issues related to international trade. It has to
its credit some major successes in reduction of tariffs (custom duty) among the member countries.
Measures against dumping of goods like imposition of Anti-Dumping Duty in victim countries, had
also been agreed upon. It was signed in Geneva by only 23 countries and by 1986, when Uruguay round
started (which was concluded in 1995 and led to creation of WTO in Marrakesh, Morocco), 123
countries were already its member. India has been member of GATT since 1948; hence it was party to
Uruguay Round and a founding member of WTO. China joined WTO only in 2001 and Russia had to
wait till 2012.
While WTO came in existence in 1995, GATT didn’t cease to exist. It continues as WTO’s umbrella
treaty for trade in goods.
There were certain limitations of GATT. Like –
1. It lacked institutional structure. GATT by itself was only the set of rules and multilateral
agreements.
2. It didn’t cover trade in services, Intellectual Property Rights etc. It’s main focus was on Textiles
and agriculture sector.
3. A strong Dispute Resolution Mechanism was absent.
4. By developing countries it was seen as a body meant for promoting interests of wests. This was
because Geneva Treaty of 1946, where GATT was signed had no representation from newly
independent states and socialist states.
5. Under GATT countries failed to curb quantitative restrictions on trade. (Non-Tariff barriers)
Accordingly WTO seeks to give more weightage to interests of global south in framing of multilateral
treaties. Here, a number of other aspects have been brought into, such as Intellectual property under
Trade related aspects of Intellectual Property (TRIPS), Services by General Agreement on Trade in
Service (GATS), Investments under Trade related Investment Measures (TRIMS).
India and the WTO
Indian was one of the 23 founding members of erstwhile GATT. India is also a leader of groups like G
33 and G 77 representing least developed countries. India in initial years due to its policies of import
substitution and protecting infant industry was never very active in negotiations.
India at the WTO meetings
Ministerial
Place Outcome India’s Role
conference
ITA agreement signed
1 Singapore Trade and investment, competition policy, Mere Presence.
government procurement and Trade facilitation
discussed.

2 Geneva Global e commerce agreement signed. Mere Presence
Negotiations failed as developed countries wanted Was vocal in protesting
3 Seattle to incorporate environment and labor related against developed
issues under WTO. countries.
A new round was launched and concerned of
developing countries related to TRIPS and Health
issues were listened. Market access issues were
also taken.
Mostly singled out in its
Members could not arrive at common viewpoint
protest. However made its
regarding Doha development agenda.
Countries came forward to create an atmosphere presence and position felt
for initiating multilateral negotiations once again. for the very first time.
It was considered vital if the four-year-old DDA Actively protested against
DOHA negotiations were to move forward sufficiently to EU-USA draft on
4
Cancun conclude the round in 2006. In this meeting, agriculture with other
5
Geneva countries agreed to phase out all their agricultural developing countries.
6
Hong export subsidies by the end of 2013, and terminate Played a constructive role
7
Kong any cotton export subsidies by the end of 2006. in the process.
8
Bali Further concessions to developing countries Vocal in protesting against
included an agreement to introduce duty-free, developed countries.
tariff-free access for goods from the Least India argued for settlement
Developed Countries, following the Everything of Food stockholding under
But Arms initiative of the European Union — but AMS. Has to settle with
with up to 3% of tariff lines exempted. Other Peace clause.
major issues were left for further negotiation to be
completed by the end of 2006
Famous for Trade facilitation agreement and
Peace clause
Source: Compiled from WTO website, Ministerial document and other sources.
Recent WTO negotiations and India
 Doha round of trade negotiations has been under way since 2001.
 The negotiations cover several areas such as agriculture, market access, Trips, dumping and
anti-dumping and trade facilitation.
 The conduct, conclusion and entry into force of the outcome of the negotiations are part of
‘Single undertaking’ that is nothing is agreed until everything is agreed.
 The Doha round has made very little progress. The subject of DDA featured in almost every
round of talks, but nothing substantive has come out.
 In October 2011, efforts were made by some of the developed countries to use the G 20 summit
to advance the agenda for eight ministerial conference scheduled to be held in Geneva in 2011.
 They wanted to set the stage for plurilateral agreements on selected issues in the WTO
negotiations rather than multilateral negotiations. Also, they wanted to introduce new issues for
negotiation, namely climate change, energy security and food security.
 These proposals are however strongly objected by various members including India.
 At the Geneva conference, during 15-17 December 2011, ministers adopted a number of
decisions on IPR, electronic commerce, small economies, LDC’S accession and trade policy
reviews.
 A number of members expressed strong reservations against PLURILATERAL approaches.
Members including India stressed that any different approaches in work ahead should conform
to the Doha mandate, respect the single undertaking and should be multilateral, transparent and
inclusive.

 Many members highlighted the importance of agriculture negotiations, trade facilitation, special
and differential treatment and NTMs.
 Developing countries, including India, China, Brazil and South Africa met on the sidelines of
the conference and issued a declaration emphasizing the development agenda.
India at the Bali Conference
 The Bali ministerial conferences of WTO ended in encompass.
 The two most important issues among many taken at Bali conference are agreement on trade
facilitation and public stockholding for food security purpose.
 The former relates to removing red tapes, reduction of administrative barriers to trade,
documentation and transparency, latter deals with the procurement and distribution by
government agencies for food security purpose.
 At the meeting, India maintained its stand that any agreement on trade facilitation must not be
taken until a permanent solution is granted for public stockholding issues for food security.
 Despite intense pressure from the USA, India refused to abide and has allowed the deadline of
TFA to pass.
 The important development during the conference was that India not being able to gather the
support of other Developing and LDCs countries despite the fact the LDCs have generally
backed the issue of food security.
 Only three countries Cuba, Bolivia and Venezuela backed India. This signifies that developing
countries are divided on the issue of Trade facilitation as it is most likely to benefit the
developing countries.

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Sinhgad Institute of Business

Administration & Computer

Course Title: Indian Economy and

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

Introduction to Indian Economy:-

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

Post 1991 Phase (Post-reform Phase)

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

Trends in National Income, Growth and Structure since 1991

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

Outcomes of the Industrial Policy 1991

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

The glimpse of the same has been produced herein below:

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

The NCP will endeavour to:

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

Public Sector Reform –

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

PRIVATIZATION AND DISINVESTMENTS

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

PROGRESS OF HUMAN DEVELOPMENT IN INDIA

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

PLANNING AND ECONOMIC DEVELOPMENT

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

Plan Objective/Features Assessment

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

Twelfth Five year “Faster, sustainable and more inclusive

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

HUMAN CAPITAL FORMATION IN INDIA

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

These sources are discussed below

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

PROBLEM OF FOREIGN AID

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

Economic Reforms and Reduction of Poverty

MEASURES TO REMOVE REGIONAL DISPARITIES

1. Resource Transfer and Backwardness:

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

Tenth Five Year Plan: April 1, 2002 to March 31, 2007

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

11th Five Year Plan

ISSUES IN INDUSTRIAL GROWTH

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)

GROWTH AND PRESENT STATE OF IT INDUSTRY IN INDIA

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)