UNIT 02 THEORIES OF

ECONOMIC GROWTH &

DEVELOPMENT

1)THE INNOVATION THEORY OF

TRADE CYCLE
The innovation theory of a trade cycle is propounded by J.A.
Schumpeter. He regards innovations as the originating cause of
trade cycles. The term “innovation” should not be confused with
inventions. Inventions, in ordinary parlance, are discoveries of
scientific novelties. Innovation is the application of such inventions
to actual production (i.e., exploiting them). 

It is innovations that are subject to cyclical fluctuations, not

inventions. Innovation, thus, in economics means the commercial
application of inventions like new techniques of production, new
methods of organisation, novel products, etc. 

Schumpeter regards trade cycles as the offspring of economic

progress in a capitalist society. Cyclical fluctuations are inherent in
the economic process of industrial production. When there are
internal changes taking place on account of innovation, the
development process begins. 

Schumpeter classifies innovation into five categories as

follows:
(i) Introduction of new type of goods. 
(ii) Introduction of new methods of production. 

(iii) Opening of new markets. 

(iv) Discovering of new sources of raw materials. 

(v) Change in the organisation of an industry, like the creation of a

monopoly, trust, or cartel or breaking up of a monopoly, cartel, etc. 

Innovation, however, does not arise spontaneously. It must be

actively promoted by some agency in the economic system. Such an
agent, according to Schumpeter, is an “entrepreneur”,
entrepreneurs are innovators. 

To carry cut his innovative function, the entrepreneur needs two

things. First, he must have the technical knowledge to produce new
products or new services. Second, since the introduction of
innovation presupposes the diversion of the means of production
from the existing to new channels, the entrepreneur must also
possess the power of disposal over the factors of production. 

The necessary command over the productive factor is provided by

the monetary factor in the form of credit. The entrepreneur secures
funds for his project not from saving out of his own income but
from the crediting bank system. 

Thus, money capital and bank credit play a significant role in the
Schumpeterian theory. According to Schumpeter, credit is
important only in so far as the innovation is concerned in the
context of a progressing economy, and only if the innovator requires
credit to carry on his function, i.e., innovative activity. In the
absence of innovation, in a circular flow of money economy, where
Say’s Law of Market operates in toto, no credit is required. 

The strategic factors in the Schumpeterian theory are:

(i) innovations  

(ii) entrepreneurs. 

Innovations brought about by entrepreneurs disturb the circular

flow of stationary economy, so the development is a dynamic,
discontinuous, cyclical process. 

Schumpeter attributes the swarm-like appearance of entrepreneurs

to the cyclical nature of economic progress. In his view, the cyclical
upswing starts when entrepreneurs start investing in the
commercial applications of their innovative ideas. 

This may start gradually when a few leading entrepreneurs with

drive come into the field But once these few innovators have
demonstrated the profitability of their ventures, others will imitate
and follow suit. With a few leaders smoothening the path, the
original innovators are soon followed by a swarm-like appearance of
entrepreneurial activity. 

Schumpeter assumes that innovating activity is helped by the

banking systems’ readiness to give credit. The “swarm-like”
appearance of entrepreneurial activity naturally raises the volume
of investment which in turn raises income, employment and output.
Thus, the prosperity phase gathers momentum and the economy
moves up, away from the neighbourhood of equilibrium. 
In short, the clustering of innovations creates a discontinuous
disturbance in the economy. It will lead to an overwhelming outflow
of new products when all these innovations are beginning to have
their full effect. When the market is flooded with new products,
their prices fall and profit margins decline. On the other hand, the
credit-financed innovations bid up the factor prices and so the costs
of production rise. 

New innovations will now cease. Hence prosperity will end and
recession begins. At this stage, credit deflation also ensues with the
persistent tendency of new firms to utilise the sales receipts of their
new products to repay their bank loans. This tends to put the old
firms in a difficult position of readjustment and adaptation. 

For, when credit deflation sets in, the flow of money stream into the
economy will slacken hence the demand for revenues of the old
firms, making their position still more awkward; so the recession is
aggravated further. Schumpeter describes this process as “auto-
deflation” implying thereby that commercial banks play only a
passive role in the process. 

The recession in the economic system is caused by the stoppage of

innovations and the slackening of entrepreneurial activity. He
stresses that innovations halt not because there is lack of
inventions, but because the economic environment is not favourable
for further innovation. 

When there is overproduction in the prosperity period, general

prices decline, reducing the profit margins. The disappearance of
profit margins of new investment makes innovations financially
unattractive. 

Further, during an economic crisis, expectations are dampened

under conditions of uncertainty. Since the clustering of innovations
in the prosperity period had led the economy to a very dis-
equilibrated state, all values and estimates in the system change
now. This makes the accurate planning of new investments
extremely difficult. So, the economic situation so developed acts as a
deterrent to the planning and formation of new enterprises. 

However, Schumpeter’s theory of trade cycles is imperfect. 

It suffers from many drawbacks such as: 

(i) His theory is highly institutional: it requires the existence of a
typical institutional framework of society for its validity. He
considers entrepreneurs as mere innovators. Further, he
overemphasises the role of the entrepreneur, thereby creating a very
strong personal element in the path of industrial progress. 

(ii) Schumpeter attributes trade cycles to the phenomenon of

innovations only. But, the trade cycle being a complex phenomenon
cannot be attributed to a single factor alone. 

(iii) Schumpeter unrealistically assumes that innovations are

financed solely by means of bank credit. They must be financed out
of voluntary savings. Moreover, major innovations generally require
long-term credit, whereas the banking system usually grants only
short-term loans.
2) Introduction to the Lewis Model: 
 Lewis published his model entitled: “Economic
Development with Unlimited Supplies of Labour” in
1954. In his model Lewis divides the economy in an
underdeveloped country in two sectors namely the Subsistence
sector and the capitalist sector. Subsistence is identified with
the agricultural sector of the economy while the capitalist
sector implies mainly the manufacturing sector of the
economy. 
 Capitalist sector also includes plantations and mining where
hired labour is employed for purposes of production. The
capitalist sector can either be private or public in nature.
Subsistence sector, that the agricultural sector is considered to
be labour intensive. It does not use reproducible capital. It
uses poor techniques of production and has very low
productivity. 
 According to Lewis a poor country’s economy can be thought
of as containing two sectors, a small “capitalist” sector and a
very large “traditional” (agricultural) sector.
 Employers in the capitalist sector hire people to make money.
Employers in the traditional sector, on the other hand, are not
profit maximizing and, therefore, hire too many people so that
their Lewis used his model to explain the pattern of growth in
countries in general. This is how he explained the inverted-U-
shaped growth according to a country’s per capita income.
 For very poor countries like Bangladesh, growth is slow
because the manufacturing sector is small or nonexistent, and
there is no large source of savings.
 For middle-income countries like Korea and Taiwan, growth is
high because the manufacturing sector is growing and pulling
labor out of agriculture, where it is underemployed.
 For high-income countries with a large manufacturing sector,
like the United States, growth is slower because the gains from
diverting labor out of agriculture are almost all exploited.
 Productivity p is very low. (The immediate question, of course,
is why employers in the traditional sector would do this, and
economists still debate Lewis’s reasons for thinking this.)
 Lewis argued on this basis that the way to spur development in
poor countries is to shift labor into manufacturing, where it is
more productive.
 The capitalists save out of their profits and use this Saving to
expand, which then adds to growth.
 Lewis assumed that workers in agriculture save nothing, so
that the only source of saving is the capitalists in
manufacturing.
 The Lewis model is built on the idea of a dual economy.
 For the “overpopulated” countries which are the focus of the
essay, Lewis argued that the central process of development
consists of moving a large mass of underemployed workers,
with low productivity ,out of a “subsistence” sector, where
living standards are necessarily low, into a modern “capitalist”
sector, where output per worker can be higher because it is
“fructified by capital”.
 In this framework, growth consists, in its simplest form, of
expanding the capitalist sector.
 This expansion requires an increase in savings, which can only
come from the capitalist sector or from external sources. As
capital flows into the economy, it is used to create jobs in the
modern sector, which in turn can always be filled by workers
from the subsistence sector.
 As these workers move, the savings rate of the economy rises,
and this in turn leads to a virtuous circle that steadily raises
the level of income per worker in the economy
 Lewis model with unlimited supply of labour that profits
constitute the main source of capital formation. The greater
 the share of profits in national income, the greater the rate of
savings and capital accumulation.
 Thus with the expansion of the modern or capitalist’s sector,
the rate of saving and investment as percentage of national
income will continuously rise. As a result, rate of capital
accumulation will also increase relatively to national income.
It is of course assumed that all profits or a greater part of the
profits is saved and automatically invested.

3)Assumptions of the Lewis Model:

(A) Surplus Labour in the Subsistence Sectors: 
The basic assumption of the model is that there exists surplus
labour in the subsistence sectors. It includes labour whose marginal
productivity is zero as well as that whose marginal productivity is
positive but is less than the institutional wage. This labour
comprises farmers, agricultural labourers, petty traders domestic
servants and women. 

The surplus labour in the agriculture sector acts as a source of

unlimited supply of labour for the manufacturing sector. By
unlimited supply of labour. Lewis means that the supply of labour is
perfectly elastic at a particular wages. This particular wage is
somewhat higher than the institutional wage which each worker in
the agricultural sector gets. 

Lewis calls it as institutional wage because every worker gets this

wage because of some institutional arrangements. This wages is
equal to an average share of each worker in the total output in the
subsistence sector. If market forces were allowed to operate in the
subsistence sector labourers with zero margin productivity or those
with a very low marginal productivity would not have received this
wage. 

(B) Importance of Saving:

Another important assumption that Lewis makes is about the
savings generated in the capitalist sector and in the subsistence
sector. The capitalist sector invests all its savings for its further
expansion. 

Those in the subsistence sector, on the other hand squander away

their savings, if any in purchase of jewellery & for construction of
temples etc. The propensity to save of the people in subsistence
sector is also lower when compared with that of those in the
capitalist sector. 

Lewis in fact so much fascinated by the higher propensity to save of

the capitalist sector that he even advocates a transfer of income
from the subsistence sector to the capitalist sector. He feels that
steps have to be taken to raise the rate of savings from 10% to 15% if
the development of the economy has to be smooth.

4) Dualistic Development Thesis:

•  Dualism isa concept widely discussed in development
economics.  
• It represents the existence and persistence of increasing
divergences between rich and poor nations and rich and poor
peoples on various levels.  
• One of the elements of dualism is that there is a coexistence of
wealthy, highly educated elites with masses of illiterate poor
people within the same country or city.  
• According to this theory, there is a coexistence of powerful and
wealthy industrialized nations with weak, impoverished
peasant societies in the international economy.
• This coexistence is chronic and not merely transitional. It is
not due to a temporary phenomenon, in which with the
capacity of time, the discrepancy between superior and
inferior elements would be eliminated.
5) The Solow Model of Economic
Growth
 Developed by MIT’s Robert Solow in the 1950s, is a good
example of this general approach.
 Solow’s purpose in developing the model was to deliberately
ignore some important aspects of macroeconomics, such as
 short-run fluctuations in employment and savings rates, in
order to develop a model that attempted to describe the long-
run evolution of the economy.
 The resulting paper (A Contribution to the Theory of
Economic Growth, QJE, 1956) remains highly influential even
today and, despite its relative simplicity, it conveys a number
of very useful insights about the dynamics of the growth
process.
 The Solow model is also worth teaching from a methodological
perspective because it provides a simple example of the type of
dynamic model that is commonly used in today’s more
advanced macroeconomic theory.
 The Solow growth model focuses on long-run economic
growth
 A key component of economic growth is saving and
investment. An increase in saving and investment raises the
capital stock and thus raises the full-employment national
income and product. The national income and product rises,
and the rate of growth of national income and product
increases.
 An interest of economic policymakers is how to increase
saving and investment. In the short run, higher saving and
investment raises the rate of growth of national income and
product.
 Solow analyzes how higher saving and investment affects long-
run economic growth.
 In the short run, higher saving and investment does increase
the rate of growth of national income and product in the short
run.
 According to the Solow growth model, in contrast, higher
saving and investment has no effect on the rate of growth in
the long run
 The more that people in an economy save of their income, the
greater the amount of investment. This leads to economic
growth and higher future living standards.
 When the population growth rate falls, more capital is
available for each person to use. This increases income per
person.
 When a firm uses a machine, it depreciates over time: that is,
it’s not in as good a condition at the end of the year as it was at
 the beginning. The slower that capital (remember machines
are capital) depreciates, the more capital exists per person and
the higher living standards are in an economy.
 All these effects, however, are temporary. As the economy
reaches its new ‘steady state’, it stops growing again. Thus
increasing savings, reducing the rate of population growth or
reducing the rate at which capital depreciates in an economy
only temporarily increases economic growth.
 The only means to increase long-run living standards in the
Solow model is through continual technological progress, so
economies need to get better at turning inputs (such as land,
labor and capital) into outputs (things that people want to
buy).
 Solow sets up a mathematical model of long-run economic
growth. He assumes full employment of capital and labor.
Given assumptions about population growth, saving,
technology, he works out what happens as time passes. The
Solow model is consistent with the stylized facts of economic
growth.

6) Applicability to Underdeveloped
Countries: Solow Model
• Unlike Harrodian model, Solow’s model also does not
apply to development’ problem of under-developed
countries. Most of the under-developed countries are
either in pre-take-off or ‘take-off condition and this model
does not analyse any policy formulation to meet the
problems of under-developed countries.
• But certain elements from the Solow model are still valid
and can be used to chalk out the problem of under-
development. The remarkable feature of Solow model is
that it provides deep insight into the nature and type of
expansion experienced by the two sectors of under-
developed countries.
• Solow retains the main features of Harrod-Domar model
like homogeneous capital, a proportional saving function
and a given growth rate in the labour forces.
 • By introducing the possibility of substitution between
labour and capital, he gives the growth process and
adjustability and gives more realistic touch.
• He considers a continuous production function in
analysing the process of growth.
• Prof. Solow demonstrates the steady-state growth paths.
• He successfully shunted aside all the difficulties and
rigidities of modern Keynesian income analysis.
• The long-run rate of growth is determined by an
expanding labour force and technical process.
7) Fei-Ranis (FR) Model of Dual
Economy
 The two economists John Fei and Gustav Ranis presented
their dual economy model. There was a flaw in Lewis
model that it did not pay enough attention to the
importance of agri. sector in promoting industrial growth.
But Fei-Ranis (FR) model of dual economy explains
how the increased productivity in agri. sector would
become helpful in promoting industrial sector. In this
respect, it presents three stages whereby a UDC moves
from stagnation to self-sustained economic growth. Thus,
this model is treated as an improvement over Lewis model
of unlimited supply of labor.
 Basic Thesis of the Model:
  
 This theory is concerned with a poor economy which has
following properties:
  
 (i) There is an abundance of labor in such UDC and
shortage of natural resources.
 (ii) The population growth rate is very high which results
in mass unemployment in the economy.
 (iv) There are certain non-agrarian sectors in the economy
where there is reduced use of capital.
 (v) There is a dynamic industrial sector in the economy.
  Thus the model suggests that:
 "Economic development would be taking place if
agricultural laborers are transferred to industrial sector
where their productivity will increase".
 Three major points are highlighted in the FR mode:
  
 (i) Growth of agri. is as important as the growth of
industry.
 (ii) There should be a balanced growth of agri and
industrial sectors.
 (iii) The rate of labor absorption must be higher than the
rate of population growth to get out of the "Malthusian
Nightmare".
 FR model argued that surplus can be generated by the
investment activities of the land lords and by the fiscal
measures of the govt.
 However, leakages could exist because of the cost of
transferring the labor from agri. sector to industrial sector
in the form of transport cost and building of schools and
hospitals, etc.
 Moreover, the transference may lead to increased per
capita consumption of agri. output, and a gap may also
emerge in case of rural wages and urban wages.
 Again, if the supply curve of- the labor is backward
bending, the peasants may reduce their work effort as
their incomes rise.

8) Big Push Theory by Rosenstein

Rodan
• The Big Push Theory has been presented by
Rosenstein Rodan. The idea behind this theory is this
that a big push or a big and comprehensive investment
package can be helpful to bring economic development. In
other words, a certain minimum amount of resources
 must be devoted for developmental programs, if the
success of programs is required.
• The basic principles of this theory are (1)massive
Investment (2)Investment in different sectors (3) Planned
Industrialization
• Prof. Rodan distinguishes three kinds of indivisibilities
and externalities with a view to specify the areas where big
push needs to be applied
 ( i) Indivisibilities in the production function, i.e., lumpiness
of capital, especially in the creation of social overhead capital.
(ii) Indivisibility of demand, i.e., complementarity of demand.
(iii) Indivisibility of savings, i.e., kink in the supply of savings.
 According to the 'big push' theory of economic
development, publicly coordinated investment
can break the underdevelopment trap by helping
economies overcome deficiencies in private
incentives that prevent firms from adopting
modern production techniques and achieving
scale economies.
 These scale economies, in turn, create demand
spillovers, increase market size, and theoretically
generate a self-sustaining growth path that allows
the economy to move to a Pareto preferred Nash
equilibrium where it is a mutual best response for
economic actors to choose large-scale
industrialization over agriculture and small-scale
production."

9) Big Push theory-Criticism

• the ground of external economies. But, according to Viner,
the export sector and .import-substitute sectors are so
backward in UDCs that they hardly give rise to economies.
•  
• (ii) Negligible Economies from Cost Reducing
Investment: The goods which are concerned with public
welfare hardly yield external economies. Moreover, the
 investment which is aimed at reducing costs does not yield
economies.
•  
• (iii) Neglecting Investment in Agri. Sector: In this
theory emphasis has been laid upon making investment in
infrastructure and industries. While it neglects the
investment to be made in agri. and its allied sectors. As the
agri. sector is the largest sector in UDCs and it will be a
mistake to ignore it.
•  
• (iv) Inflationary Pressure: From where the funds will
come in UDCs to spend them on SOC. If the funds are
raised through foreign loans and by printing new notes
they will create inflation in the economy.
•  
• (v) Administrative and Institutional
Difficulties: This theory stresses upon state investment
to remove deficiency of capital. But in case of UDCs the
machinery is corrupt. There exist a lot of problems in state
machinery. The private and public sectors compete with
each other, rather supporting each other. Consequently,
there will not be the balanced growth in the economy.
• (vi) It is Not a Historical Fact: The Big Push theory is
a recipe for the UDCs, but it has not been derived on the
basis of historical experience. As Prof. Hagen says, "the
Big Push theory lacks the historical evidences and facts".
• According to the World Bank, Poverty is pronounced
deprivation in well-being and comprises many
dimensions. It includes low incomes and the inability to
acquire the basic goods and services necessary for survival
with dignity.
• Poverty Line: The conventional approach to measuring
poverty is to specify a minimum expenditure (or income)
required to purchase a basket of goods and services
necessary to satisfy basic human needs and this minimum
expenditure is called the poverty line.
 • Poverty Line Basket: The basket of goods and services
necessary to satisfy basic human needs is the Poverty Line
Basket (PLB).
• Poverty Ratio: The proportion of the population below
the poverty line is called the poverty ratio or headcount
ratio (HCR).

UNIT 03 POVERTY, INEQUALITY

AND DEVELOPMENT

 POVERTY
 According to World Bank” Poverty is pronounced deprivation in
well-being and comprises many dimensions. It includes low
incomes and the inability to acquire the basic goods and
services necessary for survival with dignity”.
Poverty :A condition or state in which a person or a community lacks
the financial resources and essentials for a minimum standard of
living is known as Poverty. Poverty means that the income level from
employment is so low that basic human needs can't be met.
Causes of Poverty
Following are the main causes of poverty:-
1. Increase rate of rising population: In the last 45 years, the population
has increased at a whopping rate of 2.2% per annum. An average of
approx. 17 million people are added every year to the population which
raises the demand for consumption goods considerably.

2. Less productivity in agriculture: In agriculture, the productivity level is

very low due to subdivided and fragmented holdings, lack of capital,
use of traditional methods of cultivation, illiteracy etc. The very reason
for poverty in the country is this factor only.

3. Less utilization of resources: Underemployment and veiled

unemployment of human resources and less utilization of resources
have resulted in low production in the agricultural sector. This brought
a downfall in their standard of living.

4. A short rate of economic development: In India, the rate of economic

development is very low what is required for a good level. Therefore,
there persists a gap between the level of availability and requirements
of goods and services. The net result is poverty.

5. Increasing price rise: Poor is becoming poorer because of continuous

and steep price rise. It has benefited a few people in the society and the
persons in the lower-income groups find it difficult to get their
minimum needs.

6. Unemployment: One of the main causes of poverty is the continuous

expanding army of unemployed in our country. The job seeker is
increasing in number at a higher rate than the expansion in
employment opportunities.

7. Shortage of capital and able entrepreneurship: The much-required

capital and sustainable entrepreneurship play a very important role in
accelerating growth. But these are in short supply making it difficult to
increase production significantly.

8. Social factors: Our country’s social set-up is very much backward with
the rest of the world and not at all beneficial for faster development.
The caste system, inheritance law, rigid traditions and customs are
putting hindrances in the way of faster development and have
aggravated the problem of poverty.

9. Political factors: We all know that the East India Company started
lopsided development in India and had reduced our economy to a
colonial state. They exploited the natural resources to suit their
interests and weaken the industrial base of the Indian economy. Hence,
the planning was of immense failure to handle the problems of poverty
and unemployment.

10. Unequal distribution of income: If you simply increase the

production or do checking on population cannot help poverty in our
country. We need to understand that inequality in the distribution of
income and concentration of wealth should be checked. The
government can reduce inequality of income and check the
concentration of wealth by pursuing suitable monetary and price
policies.

11. The problem of distribution: The distribution channel should be

robust in order to remove poverty. Mass consumption of goods and
food grains etc. should be distributed first among the poor population.
The present public distribution system must be re-organised and
extended to rural and semi-urban areas of the country.

12. Regional poverty: India is divided by the inappropriate proportion of

poor in some states, like Nagaland, Orissa, Bihar, Nagaland, etc. is
greater than the other states. The administration should offer special
amenities and discounts to attract private capital investment to
backward regions. 

13. Provision for minimum requirements of the poor: The government

should take care of the minimum requirements, like drinking water,
primary medical care, and primary education etc. of the poor. 

 Poverty Head Count ratio

 The Poverty Head Count ratio measures the proportion of population
whose per capita income/ consumption expenditure is below the official
Poverty line or in simple terms is measures the total number of people
living below the poverty line.
 The number of people living below poverty line has decreased from 74.5
Million in the year 1993-94 to 52.8 Million in the year 2011-12.
 Head Count Ratio is a simpler measure. It is widely used and represents
the cut-off point below which people are considered as poor.
 Head Count ratio does not reflect the severity of poverty.

 Poverty Gap Ratio

 The Poverty Gap Ratio is the gap by which mean
consumption of the poor below poverty line falls short of
the poverty line. It is a ratio showing the average shortfall
of the total population from the poverty line.
 It indicates the depth of poverty; the more the PGR, the worse is
the condition of the poor. While the number of poor people
indicates spread of poverty, PGR indicates the depth.
 During 2004-05 to 2011-12, PGR also reduced in both rural and
urban areas. While the rural PGR declined from 9.64 in 2004-05 to
5.05 in 2011-12 in the urban areas, it declined from 6.08 to 2.70
during the same period. A nearly 50% decline in PGR both in rural
and urban areas during 2004-05 to 2011-12, reflects that the
conditions of poor have improved both in urban and rural areas.
 The poverty gap index can be interpreted as the average
percentage shortfall in income for the population, from the
poverty line
 A higher poverty gap index means that poverty is more severe.
 Poverty gap=Poverty line-Average consumption expenditure of
the poor/Poverty line
 in India we determine our poverty line on the basis of private
consumption expenditure for buying both food and non-food
items. Thus it is observed that in India, poverty line is the level of
private consumption expenditure which normally ensures a food
basket that would ensure the required amount of calories.
 Accordingly, the average caloric requirements for rural and urban
person are fixed at 2,400 and 2,100 calories respectively. Thus, the
required amount of calories would normally coincide with one of
the class- interval or will fall between two intervals.
 Planning Commission made another estimate of the poverty line
in March 2012 and that was announced in the Parliament on 6th
March, 2013. The poverty line at all India level for 2009-10 is
estimated at monthly per capita consumption expenditure (MPCE)
of Rs 673 (Rs 22.40 per day) for rural areas and Rs 860 (Rs 28.65
per day) for urban areas.The Planning Commission has updated
 this new poverty lines and poverty ratios for the year 2009-10 as
per the recommendations of the Tendulkar Committee using NSS
66th Round (2009-10) data from the Household Consumer
Expenditure Survey.
 Planning Commission made another estimate of poverty line in
July 2013 by following the Tendulkar methodology, As per this
latest estimate, the poverty line at all India level for 2011-12 is
estimated at monthly per capita consumption expenditure (MPCE)
of Rs 816 (Rs 27.20 per day) for rural areas and Rs 1,000 (Rs 33.33
per day) for urban areas.

2) Rangarajan Committee
• A panel headed by C Rangarajan has dismissed the Tendulkar Committee
report on estimating poverty and said that the number of poor in India
was much higher in 2011-12 at 29.5 per cent of the population, which
means that three out of 10 persons are poor.
• As per the report submitted by Rangarajan to Planning Minister Rao
Inderjit Singh earlier, persons spending below Rs 47 a day in cities would
be considered poor, much above the Rs 33-per-day mark suggested by
the Suresh Tendulkar Committee.
• As per the Rangarajan panel estimates, poverty stood at 38.2 per cent in
2009-10 and slided to 29.5 per cent in 2011-12.
• As per Rangarajan panel estimates, a person spending less than Rs 1,407
a month (Rs 47/day) would be considered poor in cities, as against the
Tendulkar Committee's suggestion of Rs 1,000 a month (Rs 33/day).
• In villages, those spending less than Rs 972 a month (Rs 32/day) would
be considered poor. This is much higher than Rs 816 a month (Rs
27/day) recommended by Tendulkar Committee.
• In absolute terms, the number of poor in India stood at 36.3 crore in
2011-12, down from 45.4 crore in 2009-10, as per the Rangarajan panel.
• Tendulkar Committee, however, had suggested that the number of poor
was 35.4 crore in 2009-10 and 26.9 crore in 2011-12.

• Poverty Line Calculation: Poverty estimation in India is now

carried out by NITI Aayog’s  task force through the calculation of poverty
line based on the data captured by the  National Sample Survey Office
under the Ministry of Statistics and Programme Implementation
(MOSPI).
• NITI Aayog as a policy think tank has replaced Planning Commission,
which was earlier responsible for calculating the poverty line in India.
• Consumption Versus Income Level: Poverty line estimation in India is
based on the consumption expenditure and not on the income levels
because of the following reasons:
Variation in Income: Income of self-employed people, daily wage laborers
etc. is highly variable both temporally and spatially, while consumption
pattern are comparatively much stable.
Additional Income: Even in the case of regular wage earners, there are
additional side incomes in many cases, which is difficult to take into
account.
Data Collection: In case of consumption based poverty line, sample based
surveys use a reference period (say 30 days) in which households are asked
about their consumption of last 30 days and is taken as the representative
of general consumption.

• Absolute Measurement of Poverty 

– Absolute Poverty: According to United Nations World Summit for
Economic Development, absolute poverty is a condition
characterized by severe deprivation of basic human needs,
including food, safe drinking water, sanitation facilities, health,
shelter, education and information. It depends not only on income
but also on access to social services.
– Poverty Threshold: The poverty threshold in absolute
measurement of poverty is set using the monetary value of the
basket of essential products (required for basic needs) and every
household whose income is less than this value will be classified as
poor.
– Limited Scope: Absolute measurements of poverty, used by the
World Bank and developing countries like India,rely on a poverty
line which remains constant across geographies and over time.
– Criticism: Absolute measurement of poverty overlooks
deprivation within countries or the higher cost of living in
developed countries.

• Relative Measurement of Poverty

– Relative Poverty: It is present when a household income is lower
than the median income in a particular country and is used mainly
by the developed countries.
Those who fall into the category of relative poverty are not
necessarily deprived of all basic needs, but may not experience
 the same standard of living as the majority of society or in other
words, they are relatively deprived.
– Poverty Threshold: In this method certain percentage
of economically bottom population is always considered below
the poverty line.
– Criticism: This approach, though, ignores the importance of the
absolute standard of living and assumes that relative income is all
that matters for welfare.

3) Amartya Sen’s Poverty Index

• The Sen poverty index is a composite poverty measure, which
combines incidence and intensity of poverty risk with the
distribution of income among those at risk of poverty. It is
defined as the at-risk-of poverty rate multiplied with the sum of
the at-risk-of poverty gap and the Gini coefficient among those
at risk of poverty weighted by 1 minus the at-risk-of poverty
gap: S = P * {( + (1-() * Gq}, where P=at-risk-of poverty rate,
(=atrisk-of poverty gap ratio and Gq=Gini coefficient of those at
risk of poverty.

4) Inequality
• The United Nations describes inequality as “the state of not
being equal, especially in status, rights and opportunities”.
• Inequality can be broadly classified in to:
– Economic inequality: Economic inequality is the unequal
distribution of income and opportunity between
individuals or different groups in society.
– Social inequality: It occurs when resources in a given
society are distributed unevenly based on norms of a
society that creates specific patterns along lines of socially
defined categories e.g. religion, kinship, prestige, race,
caste, ethnicity, gender etc. have different access to
 resources of power, prestige and wealth depending on
the norms of a society.
• Both these categories are deeply intertwined and inequality of
one type affects the inequality in another e.g. Social Inequality
due to gender have large impact on income of women. In
patriarchal societies large gender wage gap tends to exist.
• Dimensions of Inequality in India
• In India, following are distinctive forms of social inequality:
• Gender
• The Global Gender Gap Report, 2020, ranks India at 112 among
153 countries
• Four parameters for measuring gender inequality are economic
participation and opportunity, health and survival, educational
attainment and political empowerment.
• Gender wage gap is highest in India according International
Labor Organization women are paid 34% less than men.
• Women comprise over 42 per cent of the agricultural labour
force in the country, yet they own less than 2 percent of its
farm land according to the India Human Development Survey
(IHDS).

Global Gender Report 2020

• Globally, the average (population-weighted) distance
completed to gender parity is at 68.6%, which is an
improvement since the last edition. It will take 99.5 years to
achieve full parity between men and women at the current rate
of change.
• The largest gender disparity is in political empowerment. Only
25% of the 35,127 seats in parliaments around the world are
occupied by women, and only 21% of the 3,343 ministers are
women.
• Iceland has been the frontrunner on the Global Gender Gap
Index for 11 years in a row. It has closed almost 88% of its
gender gap, followed by Nordic neighbours Norway, Finland
and Sweden.
• Yemen is ranked the worst (153rd), while Iraq is 152nd and
Pakistan 151st.
• India- Specific Findings
• India has slipped to the 112th spot from its 108th position in the
last edition. India was ranked relatively higher at 98th place in
2006 Report.
– India has been ranked below countries like China (106th),
Sri Lanka (102nd), Nepal (101st), Brazil (92nd), Indonesia
(85th) and Bangladesh (50th).
• Performance on Four Indicators: India has improved to
18th place on political empowerment but it has slipped to
150th on health and survival, to 149th in terms of economic
participation and opportunity and to 112th place for educational
attainment.
• Economic
• Among the 153 countries studied, India is the only country
where the economic gender gap (0.354) is larger than the
political gender gap (0.411).
• India is among the countries with very low women
representation on company boards (13.8%), while it was even
worse in China (9.7%).
• On health and survival, four large countries -- Pakistan, India,
Vietnam and China -- fare badly with millions of women there
not getting the same access to health as men.
• World Economic Forum publishes Global Gender Gap Index
• The World Economic Forum is the International Organization
for Public-Private Cooperation.
• It was established in 1971 as a not-for-profit foundation and is
headquartered in Geneva, Switzerland. It is independent,
impartial and not tied to any special interests.
• The Forum strives in all its efforts to demonstrate
entrepreneurship in the global public interest while upholding
the highest standards of governance.
• Caste
• Caste is significant factor for determining access to resources
like education, income, health valued by individuals.
• India’s upper caste households earned nearly 47% more than
the national average annual household income, the top 10%
within these castes owned 60% of the wealth within the group
in 2012, as per the World Inequality Database
• Religion
• Religious identities are significant for an individual’s ability to
mobilize resources.
• Religious identities can cause prejudices which may lead to
economic exclusion and other forms of discrimination which
can impact jobs and livelihood opportunities.
• While minorities such as Christians, Parsis and Jains have a
larger share of income/consumption than their population
share, Muslim and Buddhist populations have significantly
lower access to economic resources.
• Ethnicity
• Tribal communities in India have been identified as ethnic
group on the basis of their unique culture, language, dialect,
geographical location, customs etc.
• The National Family Health Survey 2015-16 (NFHS-4) showed
that 45.9% of ST population were in the lowest wealth bracket
as compared to 26.6% of SC population, 18.3% of OBCs, 9.7% of
other castes.
• Economic Inequality
• The 2019 report by Oxfam, titled "Public good or Private
Wealth?" showed that India’s top 10% holds 77.4% of the total
national wealth, while the top 1% holds 51.53% of the wealth.
• The bottom 60% population holds only 4.8% of the national
wealth.
• 13.6 crore Indians, who make up the poorest 10% of the
country, have continued to remain in debt for the past 15
years.
 • The Gini coefficient of wealth in India in 2017 is at 0.83, which
puts India among the countries with highest inequality
countries.

5) Consequences of Inequalities
• Inequalities tend to produce social conflict among the social
groups e.g. caste groups like Jaats, Maratha, Patels are
demanding reservations but this demand is opposed by caste
groups already claiming the benefits of reservations, such clash
of interest due to perceived inequality tend to produce violent
conflicts between opposing caste groups.
• Inequalities among ethnic groups have led to various ethnic
movements demanding separate states or autonomous regions
or even outright secession from India. North East has been
rocked by numerous such ethnic movement e.g. by Nagas for
greater Nagalim etc.
• Religious inequality tends to generate feeling of exclusion
among religious minority groups. This reduces their
participation in mainstream, in India religious minorities have
large population their economic exclusion compromises the
GDP growth of nation as whole.
• Poor development indicators like IMR, MMR, low per capita
income, lower education and learning outcomes at schools,
high rate of population growth can be traced to existing socio-
economic inequalities.
• High economic inequality is detrimental to public healthcare
and education. Upper and Middle classes do not have vested
interest in well functioning public healthcare and education as
they have means to access private healthcare and education.
• Constitutional Provision
• Enforcement of Constitutional Guarantee of equality as
enshrined in fundamental rights. Articles 14, 15 and 16form
part of a scheme of the Constitutional Right to Equality. Article
 15 and 16 are incidents of guarantees of Equality, and gives
effect to Article 14.
• Promoting Civil Society
• Provide a greater voice to traditionally oppressed and
suppressed groups, including by enabling civil society groups
like unions and association with in these groups.
• Scheduled castes and Scheduled tribes should be motivated to
become entrepreneurs, schemes like Stand up India need to be
expanded to widen its reach by increasing funding.
• Women Empowerment
• For gender equality policies like affirmative action by reserving
seats in legislatures, increasing reservation at Local self
government both at Urban and village level to 50% in all states,
strict implementation of The Equal Remuneration act,1976 to
remove wage gap, making education curriculum gender
sensitive, raising awareness about women right, changing social
norms through schemes like Beti Bachao Beti Padhao etc.
• Inclusion of Religious Minorities
• Religious minority groups need special attention through
representation in government jobs, provision of institutional
credit, improvement of their education access, protection of
their human rights by empowering National commission for
Minority, strengthening rule of law etc.
• Progressive Taxes
• Additional public resources for public services by progressive
taxes on wealthy more and by increasing the effective taxation
on corporations, more importantly broadening the tax base
through better monitoring of financial transactions.
• Economic Policies
• By ensuring universal access to public funded high quality
services like Public health and education, social security
benefits, employment guarantee schemes; inequality can be
reduced to great extent.
• Employment Generation
 • The failure to grow manufacturing sectors like Textile, Clothing,
automobiles, consumer goods etc. is the important reason of
rising inequalities.
• The Labor-intensive manufacturing has the potential to absorb
millions of people who are leaving farming while service sector
tend to benefit majorly urban middle class.

6) Measuring Income Inequality

• Economists use various metrics for measuring income
inequality. Here, the most commonly used measures—the
Lorenz curve, the Gini coefficient, decile ratios, the Palma ratio,
and the Theil index
• The Lorenz curve is a commonly used metric that allows for the
quick and visual comparison of inequality across countries.
• The Gini coefficient uses information from the entire income
distribution and is independent of the size of a country’s
economy and population.
• Percentile ratios are easy to calculate and focus on a specific
region of the distribution.
• The Theil index can decompose inequality into within- and
between-group inequality.
• Inequality in a country has been measured by economists using
the Gini coefficient, which shows the share of total wealth or
income by population segment.
• A higher Gini coefficient indicates greater inequality, with high-
income individuals receiving much larger percentages of the
total income of the population.
• Critics of the Gini argue that it is an imperfect measure as it
ignores the informal economy, and that it flattens distortions in
the income distribution leading to non-intuitive interpretations.
• The Palma Ratio is another way to measure inequality that
better weights observed income distributions using a simple
and easy to understand ratio.
 • The distribution of Income in an economy is represented by
the Lorenz Curve and the degree of income inequality is
measured through the Gini Coefficient.
• One of the five major and common macroeconomic goals of a
government is the equitable (fair) distribution of income.
• The Lorenz Curve (the actual distribution of income curve), a
graphical distribution of wealth developed by Max Lorenzin
1906, shows the proportion of income earned by any given
percentage of the population. The line at the 45º angle shows
perfectly equal income distribution, while the other line shows
the actual distribution of income. The further away from the
diagonal, the more unequal the size of the distribution of
income.

7) Gini coefficient
• The Gini Coefficient, which is derived from the Lorenz Curve,
can be used as an indicator of economic development in a
country.
• The Gini Coefficient measures the degree of income equality in
a population.
• The Gini Coefficient can vary from 0 (perfect equality) to 1
(perfect inequality).
• A Gini Coefficient of zero means that everyone has the same
income, while a Coefficient of 1 represents a single individual
receiving all the income.
• A higher Gini index indicates greater inequality, with high
income individuals receiving much larger percentages of the
total income of the population.
• Global inequality as measured by the Gini index increased over
the 19th and 20th centuries, but has declined in more recent
years.
8) Types of Unemployment
1. Open Unemployment

Open unemployment is a situation where in a large section of the

labour force does not get a job that may yield them regular income.
This type of unemployment can be seen and counted in terms of the
number of unemployed persons. The labour force expands at a
faster rate than the growth rate of economy. Therefore all people do
not get jobs.

2. Disguised Unemployment

It is a situation in which more people are doing work than actually

required. Even if some are withdrawn, production does not suffer.
In other words it refers to a situation of employment with surplus
manpower in which some workers have zero marginal productivity.

So their removal will not affect the volume of total production.

Overcrowding in agriculture due to rapid growth of population and
lack of alternative job opportunities may be cited as the main
reasons for disguised unemployment in India.

3. Seasonal Unemployment

It is unemployment that occurs during certain seasons of the year.

In some industries and occupations like agriculture, holiday resorts,
ice factories etc., production activities take place only in some
seasons. So they offer employment for only a certain period of time
in a year. People engaged in such type of activities may remain
unemployed during the off-season.

4. Cyclical Unemployment

It is caused by trade cycles at regular intervals. Generally capitalist

economies are subject to trade cycles. The down swing in business
activities results in unemployment. Cyclical unemployment is
normally a shot-run phenomenon.

5. Structural Unemployment
This type of unemployment arises due to drastic changes in the
economic structure of a country. These changes may affect either
the supply of a factor or demand for a factor of production.
Structural employment is a natural outcome of economic
development and technological advancement and innovation that
are taking place rapidly all over the world in every sphere.

6. Frictional Unemployment

Frictional unemployment is caused due to improper adjustment

between supply of labour and demand for labour. This type of
unemployment is due to immobility of labour, lack of correct and
timely information, seasonal nature of work etc.

8) Measurement of Unemployment
( I ) Usual Status Approach:
This approach records only those persons as unemployed who had
no gainful work for a major time during the 365 days preceding the
date of survey and are seeking or are available for work. Thus, the
estimates of unemployment obtained on the basis of usual status
approach are expected to capture long-term open unemployment.

(ii) Weekly Status Approach:

In this approach current activity status relating to the week
preceding the date of survey is recorded and those persons are
classified as unemployed who did not have gainful work even for an
hour on any day in the preceding week and were seeking or were
available for work.

The persons who may be employed on usual status approach may

however become intermittently unemployed during some seasons
or parts of the year. Thus, unlike the usual status approach, weekly
status approach would capture not only open chronic
unemployment but also seasonal unemployment. Besides, this
approach provides weekly average rate of unemployment.

(iii) Daily Status Approach:

The weekly status approach records a person employed even if he
works only for an hour on any day of the whole week. It is thus clear
that the weekly status approach would tend to underestimate
unemployment in the economy because it does not appear to be
proper to treat all those who have been unemployed for the whole
week except an hour as employed. 
Indeed, the demand for labour in farming and non-fanning
households often fluctuates over a small period within a week.
Hence the need for the use of daily status approach to measure the
magnitude of unemployment and underemployment in India.

In the daily status approach current activity status of a person with

regard to whether employed or unemployed or outside labour force
is recorded for each day in reference week. Further, for estimating
employment and unemployment, half-day has been adopted as a
unit of measurement.

A person who works for 4 hours or more up to 8 hours on a day is

recorded as employed for the full day and one who works for an
hour or more but less than 4 hours on a day is recorded as employed
for half-day. Accordingly, persons having no gainful work even for
one hour on a day are described as unemployed for full day
provided that they are either seeking or are available for work.

Thus, the daily status approach would capture not only the
unemployed days of those persons who are usually unemployed but
also the unemployed days of those who are recorded as employed
on weekly status basis.

Hence daily status concept of unemployment is more inclusive than

those of usual status and weekly status approaches and would yield
an average number of unemployed person-days per day in the year
indicating the magnitude of both open unemployment and
underemployment. They are also referred to as person-years
unemployed so as to distinguish them from persons unemployed.

The estimates of unemployment on the basis of above three

approaches are presented in Table 12.1. It may be observed from
this table that according to NSS 1999-2000 round, 2.8 per cent of
labour force were unemployed on usual status basis and 4.4 per cent
of labour force were unemployed on weekly status basis and 7.3 per
cent of labour force on current daily status (CDS) basis.

In 2004-05 (60th Round) unemployment rate further increased. On

current weekly status basis, unemployment rate went up to 4.6 per
cent in the rural areas and 6.4 per cent in the urban areas and 3.08
for India as a whole. On current daily status basis, in 2004-05 rate
of unemployment rose to 8.2 per cent in rural areas and to 8.3 per
cent in the urban areas and 8.2 per cent in case of All India.

In absolute numbers, Planning Commission estimated

unemployment to be of the order of 35 million persons on current
daily status basis in April 2002 in the beginning of the ,10th Plan.
On the basis of 60th round, number of persons unemployed on the
current daily status basis rose to 34.7 millions in 2004-05 till 2004-
2005.

However, according to 66th round of National Sample Survey (NSS)

for the year 2009-2010, current daily status (CDS) unemployment
rate as per cent of labour declined to 6.8 in rural areas and to 5.8 in
urban areas giving us unemployment rate as 6.6% of labour force
for whole India.

However, in our view this is the result of special employment

guarantee scheme, MGNREGA, started in 2007-08 under which
people are employed in more construction activities for a short
period of time and does not represent the stable growth of
employment opportunities.
As compared to 1993-94, all rates of unemployment (usual status,
weekly status and daily status) increased in 2004-05. This clearly
shows that economic reforms initiated since 1991 led to the
worsening of unemployment situation in the Indian economy.

Note that, contrary to what could be expected, weekly status

unemployment is not much greater than that of the usual status
approach. This is for two reasons. First, a person to be identified as
unemployed on weekly status approach has to pass through a severe
test, namely, he did not work even for only an hour in the whole
reference week.

Now, in an economy where there is predominance of self-employed

households engaged in family-based enterprises, it is quite easy for
a person to have worked for an hour in a week even during the lean
periods of the year and therefore get registered as employed rather
than unemployed. Secondly, during the slack seasons of the year
some persons, mainly women, withdraw themselves from the
workforce.

Therefore, instead of being counted as unemployed, they are treated

as ‘outside labour force’, for they generally report as ‘not available
for work’. As a result, whereas weekly status employment estimates
are relatively greater than that of usual status, their unemployment
estimates are not much higher.

Further, it is noteworthy that both the usual and weekly status

approaches reveal a rather small magnitude of surplus labour. This
is because both these approaches measure open unemployment in
the country. However, in India with predominance of self-employed
households and absence of social security system to support the
people, they can hardly afford to remain absolutely unemployed.
The new hands that are added to the labour force every year as a
result of increasing population do not remain openly unemployed;
they share employment and work with others so that there is more
of underemployment and disguised unemployment rather than
open unemployment.

Thus, quite expectedly, the daily status approach which seeks to

capture both open unemployment and underemployment reveals
that quite a large magnitude of surplus labour exists in India.

It will be seen from Table 12.1 that around 9 per cent of labour force
were found unemployed in 2004 on daily status basis. It has been
estimated that the magnitude of daily status unemployment
increased to about 40 million person-years in April 2004.

However, even the daily status approach does not fully measure the
magnitude of surplus labour in the Indian economy. Evidently, this
also would have a tendency to under-record unemployment as it
considered a person working for only 4 hours (1/2 of the standard
day) as fully employed and a person who worked for an hour (1/8th
of the standard day) as employed for half-day. In fact, as an
alternative, hourly status approach measuring employment and
unemployment in terms of manhours would be probably more
appropriate.

Further, the daily status approach (or even the alternative hourly
approach), like the usual and weekly status approach, cannot fully
capture disguised unemployment of those persons whose intensity
of work and consequently productivity is very low even though they
are employed for a long time.

In India, as in other labour-surplus developing countries, people are

generally found to be working longer hours and larger number of
days than one is really required to do the given work by stretching
or spreading the work. Therefore, for the proper assessment of the
magnitude of surplus labour that currently exists in the Indian
economy, unemployment on the basis of daily/hourly status ought
to be supplemented by a measure of disguised unemployment based
on a norm of productivity or work intensity.
Despite the above limitations it is clear that daily status
unemployment is a relatively better measure of the magnitude of
surplus labour as it covers open unemployment as well as a good
amount of underemployment.

A good number of unemployment in a labour-surplus country such

as India manifests itself in the form of disguised unemployment,
especially in the agricultural sector. It is a common knowledge that
with minor changes in organisation and with the existing
techniques, our agriculture can be looked after by a much smaller
number of workers and they can be withdrawn from agriculture
without reduction of agricultural output if alternative employment
opportunities are available.

Since employment opportunities in the non-agricultural sector have

not been growing rapidly, the new entrants to the workforce are
compelled to remain in agriculture and perpetuate the phenomenon
of disguised unemployment which means that people are engaged
in occupations where their marginal productivity is zero (if not
negative) and that a shift to alternative occupations will improve
their marginal productivity and add to national income of the
country.

The basic solution to the problem of this sort is the faster rate of
capital formation so as to enlarge employment opportunities. For
this purpose, every possible encouragement should be given to
savings and their productive utilisation in increasing the rate of
investment.

In the developing countries investment incentives for the private

sector are very low and the Government can assist in the process of
capital formation directly as well as indirectly. Through a fiscal
policy which encourages savings and investment and an easy
monetary policy it can do much to encourage investors.

The Government itself can participate in the process of capital

formation by undertaking such development activities which do not
attract the private investors. Therefore, the Government has got to
assume a special role in speeding up the rate of economic
development.

The other line of attack has got to be on the rate of population

growth. If population grows at a rapid rate then, to maintain the
people even at their existing levels, large amounts of capital are
needed which could otherwise have been used to raise the amount
of capital available per man and hence to raise the living standards
at a faster rate.

Apart from accumulation of capital (i.e., machines, factory

buildings, tools and equipment), we should increase investment in
physical infrastructure such as roads, transport, ports, power,
highways, irrigation facilities to generate opportunities for
productive employment.

Further, by adopting suitable fiscal and monetary policies we should

discourage the use of capital-intensive techniques. Lastly, land
reforms initiated in the earlier periods of planning should be
effectively implemented to ensure access to land for agricultural
households.

Or
It considers the activity status of a person for each day of the
preceding seven days. The reference period here is a day. If a person
did not find work on a day or some days during the survey week,
he/she is regarded as unemployed. 

Normally if a person works for four hours or more during a day, he

or she is considered as employed for the whole day. The daily status
unemployment is considered to be a comprehensive measure of
unemployment.
9) Causes of Unemployment problem in
India
The important causes of Unemployment in India are as follows: 

1. Rapid growth of population and increase in labour force. 

2. Underdevelopment of the economy. 

3. Slow growth in the agricultural sector. 

4. Defective system of education. 

5. Absence of manpower planning. 

6. Degeneration of village industries. 

7. Inappropriate technology. 

8. Slow growth of industrial sector. 

9. Immobility of labour. 

10. Jobless growth

10) Measures to solve unemployment

problem in india
Rural Unemployment:
(1)Expanding volume of Rural works
(2)Modernisation of Agriculture
(3)Development of allied sector
(4)Development of Rural Non-farm activities
(5)Rural development schemes
(6)Decentralization 0f development
(7)Extension of social services
(8)Population control
(9)SHGs and Micro finance

Urban Unemployment:
(1) Rapid development of Industries
(2) Motivation for self-employment
(3) Development of urban informal sector
(4) Support of financial institutions
(5) Changing pattern of investment (on viable and productive)
(6) Conducive economic policies
(7) Growing participation of FDI

11) TRYSEM
Objectives of TRYSEM

• To provide rural youth (18-35 years) from families below the poverty line with training

and technical skills to enable them to take up self-employment in agriculture, industry,

services and business activities.

• Training is perceived not only in terms of provision of physical skills. But also change in

attitude, enhancement of motivation and skills in human relations etc., are also ought to

be imparted.

• Self-employment is defined as gainful employment on a full time basis which results in

income which is sufficient for the family of the youth cross the poverty line. Situation of

employment in which the means of production are owned, hired or taken on lease are

taken to be self-employment situations.

Features of TRYSEM

• TRYSEM became the “self employment for youth” component of IRDP and was

introduced in all the 5000 blocks in the country.

• An identified youth will be put through a period of training either in a training

institution or under a master crafts men.

• Duration of training is flexible depending upon types of courses.

• Trainers are given stipend and a tool kit.

• Successful trainee is eligible to receive a subsidiary/credit/income generating asset

under IRDP.

• At least 50 percent of the youth to be trained for self-employment either for secondary

or tertiary sector activity.

• Wage employment training was to be in the secondary and tertiary sectors.

• BDO selects the eligible youth belonging to the target group with the help of VLW’s.

• The identification of locations is done by the DRDA in consultation with district level

officers of different departments.

• DRDA prepares a resource inventory for training facilities like ITI’s polytechniques, KVI’s,

KVK’s, NYK’s etc.,

• DRDA is responsible for the implementation of TRYSEM.

Beneficiaries of TRYSEM

• Members of the poorest family first

• Priority should be given to members of SC's and ST’s.

• At least 1/ 3 of candidates should be women.

• Preference should be given to persons who have completed the 12 month course under

the national Adult Education programme.

Short coming of TRYSEM

• Implementation is generally uneven.

• Training lacked appropriate technology in the package provided.

• In the selection of trade, self-employment opportunities and financial viability were not

adequately assessed.

• Assistance in the provision of raw materials and marketing has been lacking.

• Every district did not have training centers of TRYSEM.

• In a large number of cases, the assistance provided to TRYSEM trainees from IRDP

projects had no link to the training they had received.

12) DWCRA
Objectives and Strategy of DWCRA:
The basic objective of DWCRA is to provide rural women with
productive income-generating assets and credit, and enhance their
skills. 

It also seeks to provide an effective organisational support structure

so that the women can receive assistance in the production of goods
and services more effectively. 

Role of DWCRA in Empowering Rural Women: 

The empowerment of women became necessary as they are almost
fifty percent of the population and are being discriminated at all
fronts. Women play a vital role in the social and economic
transformation of a country. 

Policies and programmes to improve the conditions of women’s

lives are being implemented by governments in various countries.
The most common interventions are those intended to increase
women’s income to provide women with the means to control their
own family and to increase levels of human capital investments in
females, so that the next generation of women will be better
equipped to contribute to the well being of their families and the
nation. 

The DWCRA scheme which was started in 1983 is now in operation

in 450 districts of the country with UNICEF assistance. During
1994-95, over 19000 groups, with 3.19 lakh women contingent were
formed. Further since its inception in 1987, the Support to Training
and Employment Programme for women (STEP) benefited more
than 2.50 lakh women. 
The programme seeks to train women for employment in the
traditional sectors of agriculture, animal husbandry, dairy,
handlooms and handicrafts. The Rashtriya Mahila Kosh (RMK) was
set up in 1993 to meet the credit needs of poor women particularly
in the un-organised sector. 

The self-employment programme of IRDP, TRYSEM, DWCRA,

Ganga Kalyana Yojana (GKY) and Million Well Scheme (MWS)
were all merged into a single self-employment programme called
the Swarna Jayanti Gram Swarojgar Yojana (SGSY) with effect from
April, 1999.

13) SGSY
• The SGSY was the major self-employment scheme to bring the
assisted rural poor families (swarozgaris) above the poverty line
by providing them income-generating 29 assets with the help
of bank credit and government subsidy.
• The scheme was introduced on the assumption that the rural
poor had competencies of producing valuable goods and
services, if they were given the right support and assistance by
the Government.
• The scheme was launched in April 1999, by restructuring the
erstwhile rural development programmes like IRDP and its
allied programmes, namely, TRYSEM, DWCRA, SITRA and GKY
besides MWS.
• The programme covered all aspects of self-employment such
as selection of key activities, planning of activity clusters,
organization of the poor into Self Help Groups (SHGs) having
10-15 members, and building their capacities through social
 mobilization, training and skill development, creation of
infrastructure, provision of technology and marketing support,
etc.
• The SGSY was implemented by the District Rural Development
Agencies (DRDAs) with the active involvement of Panchayati Raj
Institutions (PRIs), banks, State government and Non-
Government Organizations (NGOs).
14) Wage Employment Programmes
• Since 1960, a series of wage employment programmes for the
rural poor have been launched by the Government of India.
They are: .
• 1. Rural Manpower Programme (RMP) in 1960 -61
• 2. Rural Work Programme (RWP) 1970-71
• 3. Crash Scheme for Rural Employment (CRSE) in 1971-72
• 4. Pilot Intensive Rural Employment Programme (PIREP) in
1972
• 5. Small Farmers Development Agency programme (SFDA)
• 6. Food for Work Programme (FWP) in 1977
• 7. National Rural Employment Programme (NREP) in 1980
• 8. Rural Landless Employment Guarantee Programme (RLEGP)
in 1983
• 9. Employment Assurance Scheme (EAS) in 1993
• 10. Jawahar Rojgar Yojana (JRY) in 1993-94
• 11. Jawahar Gram Samriddi Yojana (JGSY) in 1999-2000
• 12. Sampoorna Grameen Rojgar Yojana (SGRY) in 2001-02
• 13. Mahatma Gandhi National Rural Employment Guarantee
Programme

15) JGSY
• The scheme was launched on 1st April 1999 and was designed
to improve the quality of life of the rural poor by providing
them additional employment. The primary objective of JGSY
was the creation of infrastructure and durable assets at the
village level so as to enable the rural poor to increase the
 opportunity for sustained employment. The secondary
objective was the generation of supplementary employment
for the unemployed poor in the rural areas.
• The village panchayats were the sole authority for preparation
of Annual Action Plan and its implementation, with the
approval of Gram Sabhas. For works/schemes costing more
than Rs. 50,000, after taking the approval of the Gram Sabhas,
the village panchayat should seek the technical/administrative
approval of appropriate authorities.
• District Rural Development Agencies (DRDAs)/Zilla Parishads
(ZPs) were responsible for overall guidance, coordination,
supervision, monitoring and periodical reporting.
• The programme was implemented as a centrally sponsored
scheme on cost-sharing basis between the Centre and the
States in the ratio of 75:25. DRDAs/Zila Parishads would
release the funds including State share directly to village
panchayats. In the case of Union Territories, the entire funds
under the scheme were provided by the Centre
• .The Panchayats were given the option to invest 15 per cent of
the fund allocated on maintenance of assets created under the
programme. It was compulsory that 22.5 per cent of the annual
allocation must be spent on beneficiary schemes for scheduled
castes/scheduled tribes and 3 per cent for the creation of
barrier-free infrastructure for the disabled. The wages under
the programme were either the minimum wages notified by
the States or the higher wages as fixed by the States through
the prescribed procedure.

16) MGNREGA
• The Mahatma Gandhi National Rural Employment Guarantee
Act (MGNREGA) passed by the Union Government in
September 2005 provides for the enhancement of livelihood
security of the households in rural areas of the country by
providing at least one hundred days of guaranteed wage
 employment in every financial year to every household whose
adult members volunteered to do unskilled manual work.
• More individuals too worked under MGNREGA in 2019-
20, with 7.86 crore employed at various sites across the
country. This is the highest since 2012-13, when 7.97 crore
individuals worked under this programme.
The disruption caused by the coronavirus lockdown, however,
may impact the final figure of the person days generated in
March 2020.
• The gram panchayats not recording any MGNREGA
expenditure has also declined. This shows that more and more
panchayats are using MGNREGA to provide unskilled work to
the unemployed.
• These new MGNREGA figures coincide with the sharp fall in
GDP growth rate to 4.8% in 2019-20, the lowest in a decade.
• The demand for works under MGNREGA is surging despite the
fact that wages have been flattening in recent years.
In 2019-20, average MGNREGA wage per day per person was Rs
182.09, barely Rs 3 higher than Rs 179.13 in 2018-19.
• The data also showed that 263.73 crore person days were
generated during 2019-20, slightly lower than 267.96 crore in
2018-19 but significantly higher than the total person days
generated during each financial year from 2012-13 to 2017-18.
• During 2019-20, the Centre released Rs 72,162.13 crore for the
MGNREGA, the highest ever amount, and substantially higher
than the Rs 62,125.07 crore released in 2018-19.

17) POVERTY & UNEMPLOYMENT

• Self employment
schemes(IRDP,TRYSEM,PMRY,DWACRA,SJGSY)
• Wage employment schemes (NREP,RLEGP,JRY,NRY, Mahatma
Gandhi national Rural Employment Program)
• Area specific programmes(SFDA,MFALDA,Tribal Area
development program,desert development program)
 • Raising the Rate of capital formation

UNIT 04 Unit-IV: The theory of

Demographic Transition

1) DEMOGRAPHIC TRANSITION
• The theory states about the changes in Birth Rates and deaths
rates of a country in connection with economic development
• The theory mentions four different stages
• Stage 1 of Demographic Transition: As per the theory of
demographic transition, a country is subjected to both high
birth and death rates at the first stage of an agrarian economy.
The birth rates are very high due to universal and early
 marriages, Religious sentiments,widespread prevalence of
illiteracy, traditional social beliefs and customs, absence of
knowledge about family planning techniques, attitudes towards
children for supplementing family income etc. At this stage,
death rates are also high due to insufficient diets and absence
of adequate medical and sanitation facilities. In this economy,
the rate of growth of population is not as high birth rate is
compensated by high death rate.
• Stage II of Demographic Transition: With the gradual
attainment of economic development, the living condition of
people started to improve due to better and regular diet, better
medical and sanitation facilities leading to fall in the death rate.
Regular food supply ,improved law and order situations,
medical innovations and achievement, development of
antibiotics, vaccines and introduction of immunisation
programmes have led to substantial reduction in the incidence
of disease and death. In this stage, the birth rates continues to
remain very high inspite of substantial fall in death rates
leading to accelerated growth of population.
• Stage III of demographic transition: With the gradual
attainment of economic development,the economy of the
country started to experience a change in its structure from a
purely agrarian to an industrialized one. At this stage, the
country will experience the fall in the birth rate,low death rate
and consequently a fall in the rate of growth of population.
• Stage IV of demographic Transition: The fourth stage of
demographic transition is characterised by a low birth rate and
a low death rate of population, leading to a stationary
population. It is therefore known as the stage of stationary
population where both the birth rate and death rate remain at
a low level leading to a very little growth in population. Due to
the attainment of economic development, standard of living of
the people reaches the high level during the fourth stage.
During this stage, a significant change in social outlook of the
people has taken place under the impact of
 urbanizaion,industrialization and high rate of literacy. Thus at
this stage, population becomes stationary at a low rate. For
example the rate of growth of population in various countries
stood at 0.1% in Germany,0.2% in UK and Italy,0.4% in Japan,
0.7 % in USA and 0.0% in Romania and Iceland.

2) Causes of High Rate of Growth of

Population in India
1) Biological factors
Biological factors are highly responsible for this present high rate of growth of
population in India. These biological factors include sharp fall in death rate, high birth
rate and the resultant accelerating natural growth r

 Sharp fall in death rate - In India the death rate has sharply fallen during
the first half of the twentieth century, i.e., from 42.6 per thousand in 1901-11
to 12.8 per thousand in 1951-61. Various factors are responsible for this sharp
fall in death rate.
The factors which have largely contributed to this sharp fall in the death rate include
removal of famines leading to eradication of starvation death, control of epidemics
arising through cholera and small pox, decline in the incidence of malaria and
tuberculosis and some other factors like improvement of public health measures like
drinking water supply, improved hygienic and sanitation facilities and the
improvement of medical and hospital facilities.

Thus all these factors had led to sudden and phenomenal fall in the death rate in
recent years, i.e., to 9.0 per thousand in 1996 and this is considered as the most
important factor for this high rate of growth of population in India.

 No substantial fall in the birth rate - During the first half of the present
century, the birth rate in India did not fall substantially. The birth rate in India
declined marginally for 49.2 per thousand in 1901-11 to 41.7 in 1951-61 and
then to 27.4 per thousand in 1996. Due to this maintenance of birth rate to
very high level, the rate of growth of population in India remained all along
high. Moreover, due to tropical climate, puberty of women in India starts at an
early age leading to a large number of births.
 Accelerating natural growth rate - The most important factor which is
responsible for the high rate of growth of population is its accelerating natural
 growth rate. This has resulted from the wide gap between the birth rate and
death rate of population in India, the factor which is against responsible for
this wide gap is the sudden and phenomenal fall in the death rate and no
substantial fall in the birth rate. Due to remarkable advance in medical
sciences along with the improvement and expansion of public health and
medical facilities, the death rate in India has come down from 27.4 per
thousand in 1951 to above 9.0 per thousand in 1996. All these had led to a
severe increase in the natural growth rate of population from 12.5 per
thousand in 1951 to 25.3 per thousand in 1971 and then slightly declined to
18.4 per thousand in 1996.

2) Economic factors
The birth rate of population in a country is very much influenced by the economic
factors. Economic factors such as, extent of poverty, occupational distribution of
population, the pace of urbanisation etc. have significant bearing on the birth rate
of population of the country.

 Poverty - overty coupled with other associated factors such as poor diet,
illiteracy, ill health etc. normally raise the birth rate at a high level in most of
the underdeveloped countries.

A group of economists argue that in most of the underdeveloped countries, poverty

is not resulted from population explosion rather the economic compulsions of
population explosion result high fertility among the population. It is been observed
that poor man always welcome further addition to his family for supplementing his
family income. This has led to high growth rate of population.

In India, the level of per capita income is very poor and about 26.1 per cent of the
total population is still living below the poverty line. Again the majority of the
population living above the poverty line is just living at the subsistence level and thus
they are denied of minimum nutrition and basic amenities of life. Under such a
situation, people become indifferent about the size of their family.

Children without getting an educational support start to help their parents in work and
raise their family earning and, therefore, prove to be assets to the family. Moreover,
there is a close positive correlation between the poverty and high fertility. Chronic
hunger makes sex important enough to compensate emotionally for the shrunken
nutritional appetite. Thus poverty is standing as a major hurdle against the adoption
of family planning programmes by the poorer sections of the country.
  Predominance of Agriculture - In India, the occupational structure of
the population has not changed much with the adoption of developmental
strategy continuing since last four decades. More than two-thirds of the
working population is still engaged in agriculture. In an agrarian society
children are never considered as an economic burden rather they are
supporting various agricultural activities during the peak period.About the
absorption of child labour, the Ministry of Labour in India observed that, “What
facilitates their absorption in the labour market is the shortage of labour in the
peak agricultural season in the local areas.”

Slow pace of Urbanization Social factors - The pace of urbanisation in

India is very slow. The proportion of urban population out of the total population was
only 27.8 per cent in 2001 as against 17.6 per cent in 1951. Urban population is
more conscious about the economic burden of a larger family size and urbanization
disintegrates the joint family system. Moreover, urbanisation is coupled with lot of
specific problems like housing problem, increased cost of living, and high cost of
upbringing of children.

All these factors induce an urban people to go for small family norm which reduces
the birth rate of population significantly. In India, due to poor rate of industrialization,
the pace of urbanization is very slow and thus it failed to create any impact on the
reduction of birth rate.

3) Social factors

 . Universality of Marriage: Marriage is almost universal in India as it is a

religious and social necessity of the country. Parents feel that it is their social
obligation to arrange marriage for the daughters. Thus presently in India,
about 76 per cent of the women of their reproductive age are married and by
attaining the age of 50 only 5 out of 1,000 Indian women remain unmarried.
Hence, this has resulted a very high birth rate.
 Practice of Early Marriage: Practice of early marriage is very much common
in various parts of the country and the average age of marriage is still around
18 years. Between the age of 15 to 20 years, more than 8 out of every 10 girls
got married in India. Thus the practice of empty marriage raises the span of
reproductivity. Some reduction of fertility would be possible if the average age
of marriage of Indian women can be raised to 25 or more.
 Illiteracy: In India, illiteracy is widespread as a significant portion of India
population and women in particular are still illiterate. The literacy rate among
the women in India is only 54.2 per cent as against 75.9 per cent among men
and the incidence of female illiteracy is comparatively much higher in
backward states. It has been observed by most of the economists that spread
of education alone can change the attitudes of the people towards marriages,
family, birth of a child etc. and help the people to shed irrational ideas and
religious superstitions.
There is an inverse correlation between the spread of education and fertility.
The findings of the Operations Research Group Survey show that birth rates
in general are lower and adoption of family planning norms become more
popular in those states where education is more widespread. Further, due to
lack of education, the response of rural population in respect of adoption of
family planning norms and use of contraceptives are not at all encouraging.

 Religious and Social Attitudes: Religious and social attitudes of the Indian

people induce to prefer large families. The idea to have sons and daughters
for performing religious rites and to earn religious merit is still very much
common in Indian society.
 Ignorance and Lack of Conscious Family Planning:  People of India are
very much ignorant about the biology of reproduction, need for birth control
and devices of birth control. In India, there is also lack of conscious family
planning along with lack of birth control devices, more particularly in the rural
areas. That is why the Family Planning Programme in India could not do
much headway in reducing the birth rate.

3)Remedies for Population Explosion