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1. INDIAN ECONOMY ON THE EVE OF INDEPENDENCE

2. INDIAN ECONOMY (1950-1990)

3. LINERALIZATION, PRIVATIZATION AND GLOBALIZATION: AN APPRAISAL

4. POVERTY

5. HUMAN CAPITAL FORMATION

6. RURAL DEVELOPMENT

7. EMPLOYMENT

8. INFLATION

9. INFRASTRUCTURE

10. ENVIRONMENT AND SUSTAINABLE DEVELOPMENT

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CHAPTER – 1

INDIAN ECONOMY ON THE EVE OF INDEPENDENCE

Agricultural sector

The stagnation in the agricultural sector was caused due to the following reasons:

1. Land settlement system

The most important reason for stagnation in agricultural sector was the introduction of Zamindari
system by colonial government. Under this system

a. Profits accruing out of agricultural sectors went to the Zamindars in the form of Lagaan.

b. The main interest of the zamindars was only to collect lagaan regardless of the economic condition of
the cultivator.

c. The Zamindars and the colonial government did nothing to improve the condition of agriculture.

2. Commercialization of agriculture

Commercialization of agriculture means production of crops for sale in the market rather than for self-
consumption. During the British rule, farmers were given higher price for producing cash crops like
cotton or jute, so that such crops could be used as raw material for British Industries. Thus British Rule
promoted shifting of crops from food crops to cash crops.

3. Low level of productivity

Low level of technology, lack of irrigation facilities, and negligible use of fertilizers resulted in low level of
productivity. The cultivators had neither the means nor any incentive to invest in agriculture.

The Zamindars had no roots in the villages, while the British rule spent little on agriculture, technical or
mass education. All this made it difficult to introduce modern technology, which caused a perpetually
low level of productivity.

4. Adverse Effects of partition

India’s agricultural production received a further set back due to the country’s partition at the time of
Independence. A sizeable portion of the undivided country’s highly irrigated and fertile land went to the
Pakistan.

Almost, the whole of jute producing area became part of East Pakistan i.e. Bangladesh. India`s Jute
goods Industry, which had enjoyed a world monopoly so far, suffered heavily for lack of raw material.

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Industrial sector

Like Agriculture, India could not develop a sound Industrial base under the British rule.The poor state of
Industrial sector during the British rule is illustrated in the following points:

1. De-Industrialization: Decline of handicraft Industry

British government systematically destroyed Indian handicraft industry and no modern industrial base
was allowed to come up. The primary motive of British rule behind the De-industrialization was two-
fold:

a. To get raw materials from India at cheap rates to be used by upcoming modern Industries in Britain.

b. To sell finished products of British Industries in Indian market at higher price.

The two fold policy of British Rule was enforced to ensure the maximum advantage of their home
country.

2. Adverse effects of decline of Handicraft Industries

Decline of handicraft industries adversely affected the Indian economy in the following ways:

a. High Level Of Unemployment

It resulted in mass level of unemployment on a mass scale. The displaced artisans were forced to take up
agriculture for their livelihood. This increased the burden of population on villages and over-crowding in
agriculture.

b. Import Of Finished Goods

The Indian made goods could not withstand the foreign competition of machine made cheap goods. It
encouraged the import of manufactured goods from Britain.

3. Lack of Capital goods Industries

Capital goods Industry refer to those industries which can produce machine tools, which are, in turn,
used for producing articles for current consumption.

During the British rule, there was hardly any capital goods industry to promote further industrialization
in India. British rulers did not pay any attention for their promotion as they always wanted Indians to be
dependent on Britain, for the supply of capital goods and heavy equipment.

4. Limited role of Public sector

The limited area of operation of the public sector was also a significant reason for drawback of the
industrial sector. The public sector remained confined only to the railways, power generation,
communications, ports and some other departmental undertakings.

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5. Low Contribution to Gross Domestic Product (GDP)

The growth rate of the new Industrial sector and its contribution to GDP remained very small.

Finally we can say that India remained backward in the industrial sector during the British rule.

Foreign Trade

India has been an important trading nation since ancient times. However, the restrictive policies
adopted by the colonial rule adversely affected the structure, composition and volume of India’s foreign
trade.

The state of India’s foreign trade during the British rule is discussed as under:

1. Monopoly control of British rule

British government maintained a monopoly control over India’s exports and imports. More than ½ of
India’s foreign trade was restricted to Britain while the rest was allowed with few other countries like
China, Ceylon i.e. Sri Lanka and Persia i.e. Iran. The opening of Suez Canal in 1869 served as a direct
route for the ships operating between India and Britain.

2. Exporter of Primary products and Importer of Finished goods

India became an exporter of primary products such as raw silk, cotton, wool, sugar, indigo, jute etc and
an importer of finished consumer goods like cotton, silk and woolen clothes and capital goods like light
machinery, produced in the British Industry.

3. Drain of Indian wealth during British rule

Under British rule, India became an exporter of primary products, and an importer of finished goods.
There was huge export surplus due to excess exports. However, export surplus was used:

a. To make payments for expenses incurred by an office set up by the colonial government in Britain.

b. To meet expenses on war fought by the British government.

c. To import invisible items.

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Demographic condition

Demographic condition during the British rule exhibited all features of a stagnant and backward Indian
economy.

 Ist official census : The first official census was conducted in the year 1881. Though suffering
from certain limitations, the census revealed unevenness in India’s population growth. From
1881 onwards, census operations were carried out after every ten years.
 1921, Year of Great Divide : before 1921, India was in the first stage of Demographic transition.
The second stage of transition began after 1921. So, the year 1921 is described as the year of
Great Divide.

The demographic condition during the British rule is described in the following points:

1. High birth rate and death rate

Birth rate refers to the number of children born per thousand in a year. Death rate refers to number of
people dying per thousand in a year. Bothe death rate and birth rate were very high at nearly 48 and 40
per thousand respectively.

2. Extremely low literacy rate

The overall literacy level was less than 16 per cent. Out of this, the female literacy level was at a
negligible low of about 7 per cent.

3. Poor health facilities

Public health facilities were either unavailable to large mass of population or, when available, were
highly inadequate. As a result, water and air-borne disease were widespread and took a huge toll on life.

4. High Infant mortality rate

Infant mortality rate refers to number of infants dying before reaching one year of age per 1000 live
births in a year. The infant mortality rate was quite alarming- about 218 per thousand, in contrast to the
infant mortality rate of 44 per thousand in 2011.

5. Low life expectancy

Life expectancy refers to the average number of years for which people are expected to live. It was very
low -32 years, in contrast to 65.5 years in 2011.

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6. Widespread poverty

There was no reliable data about the extent of poverty. But, there is no doubt that extensive poverty
prevailed in India during the colonial period. The overall standard of living of common people in India
was very low and there was widespread poverty in the country.

It can be concluded that British rule was the main reason to worsen the profile of India’s population.

Occupational structure

Occupational structure refers to distribution of working persons across different industries and sectors.
During the colonial period, the occupational structure of India showed little sign of change. The state of
occupational structure during the British rule can be summarized as under:

1. Predominance of Primary occupation

The agricultural sector accounted for the largest share of workforce with approximately 75%. The
manufacturing and service sectors accounted for the remaining 25%.

2. Regional variation

The states of Tamil Nadu, Andhra Pradesh, Kerala, Karnataka, Maharashtra and West Bengal witnessed a
decline in the dependence of workforce on the agricultural sector with a commensurate increase in the
manufacturing and service sector.

However, during the same time, there had been an increase in the share of workforce in agriculture in
states such as Orissa, Rajasthan and Punjab.

Infrastructure

The infrastructure facilities during the British rule was very poor. Some efforts were made to develop
basic infrastructure like Roads, Railways, Ports, Water transport, Posts and Telegraphs. But, the main
aim behind such infrastructural development was to serve colonial interest.

The state of infrastructure as inherited from the British rule is discussed below:

1. Roads

The colonial administration could not accomplish much on construction of roads due to scarcity of
funds. The roads that were built primarily served the interest of mobilizing the army and shifting the raw
material.

There always remained on acute shortage of all-weather roads to reach out to rural areas during the
rainy season. As a result, people living in these areas suffered badly during natural calamities and
famines.

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2. Railways

The most important contribution of the British rule was to introduce railways in Indi in 1850. The
railways affected the structure of the Indian economy in two important ways.

Railway enabled people to undertake long distance travel. It broke geographical and cultural barriers
and promoted national integration.

It enhanced commercialization of Indian agriculture, which adversely affected the comparative self-
sufficiency of the village economies in India.

It also promoted the foreign trade nut it benefitted the Britishers more than the Indians. The
construction of railways led to huge economic losses to the Indian economy.

3. Air and Water transport

British government took measures for developing the water and air transport. However, their
development was far from satisfactory.

Indian waterways proved to be uneconomical, as in the case of the Coast Canal on the Orissa coast. This
canal was built at a huge cost but it failed to compete with the railways and finally canal had to be
abandoned.

4. Communication

Posts and telegraphs were the most popular means of communication. The introduction of the
expensive system of electric telegraph in India served the purpose of maintaining law and order. The
postal services, despite having a useful public purpose, remained all through inadequate.

Reasons for Infrastructural Development

The basic objective of British Government to develop infrastructure was not to provide basic amenities
to the people, but to serve their own colonial interest.

1. The roads were built for mobilizing the army within India and for drawing out raw materials from the
country side to the nearest railway station or port and to send these to England or other lucrative
foreign destinations.

2. Railways were developed by the Britishers mainly for three reasons:

* To have effective control and administration over the vast Indian territory.

* To earn profits through foreign trade by linking railways with the major ports.

* To make profitable investment of British funds in India.

3. The system of Electric telegraph was introduced at a high cost to serve the purpose of maintaining
law and order.

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Positive contribution of British rule

British rule also had some positive effects on the Indian economy. They are discussed as under:

1. Self-sufficiency in food grain production

Commercialization of agriculture initiated by British government resulted in self-sufficiency in food grain

production.

2. Better means of transportation

Development of roads and railways provided cheap and rapid transport system and opened up new
opportunities of economic and social growth.

3. Check on famines

Roads and railways worked as a great check on the occurrence and impact of famines as food supplies
could be transported to the affected areas in case of droughts.

4. Shift to Monetary economy

British rule helped Indian economy to shift from barter system of exchange to monetary system of
exchange.

5. Effective administration setup

The British government had an efficient administration system which served as a ready reckoner for
Indian politicians.

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CHAPTER-2

INDIAN ECONOMY (1950-1990)

Central problems of an economy

The three major central problems of an economy are:

1. What to produce

It involves deciding the final combination of goods and services to be produced. It involves selection of
goods and services and the quantity of each that the economy should produce.

2. How to produce

It involves deciding the technique of production i.e. whether selected goods to be produced with more
labor and less capital or with more capital and less labor. An economy has to make a choice between
labor intensive or capital intensive approach.

3. For whom to produce

It involves deciding the distribution of output among people, i.e., it involves selection of the category of
people who will ultimately consume the goods.

Types of economic systems

1. Capitalist economy

A capitalist economy is the one in which the means of production are owned and operated by the
private sector. Production is done mainly for earning profits. So the central problems are solved through
the market forces of demand and supply.

Under Capitalist economy, the three central problems are solved in the following manner:

* What to produce: under this system, only those goods and services are produced that can be sold
profitably either in the domestic market or foreign market.

* How to produce: goods are produced using cheaper technique of production. In case of cheap labour,
labor oriented technique is followed and vice versa.

* For whom to produce: goods produced are distributed among people not on the basis of their needs
but on the basis of their income or purchasing power. This means that a sick person will be able to get
medicine only when he can afford to buy it, otherwise not, even if there is urgency.

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2. Socialist economy

A socialist economy is the one in which the means of production are owned, controlled and operated by
the government. Under socialist economy, the three central problems are solved in the following
manner:

 What to Produce: the government decides what o produce in accordance with the needs of
society in general.
 How to produce: the central planning authority i.e. the government itself decides how to
produce.
 For whom to produce: distribution under socialism depends upon what people need and not on
what they can afford to purchase. A socialist nation provides free health care to the citizens,
who need it.

3. Mixed economy

A mixed economic system refers to a system in which the public sector and the private sector are
allotted their respective roles for solving the central problems of the economy.

In mixed economy, the government and market together solve the three central problems of the
economy. The private sector provides whatever goods and services, it can produce well, and the
government provides essential goods and services, which the market fails to do so.

Goals of five year plans

1. Growth

The stagnation during the British rule forced the planners to make economic growth as the first and the
foremost objective of Indian plans. Growth refers to increase in the country’s capacity to produce the
output of goods and services within the country. Growth implies:

 Either a large stock of productive capital

 Or a larger size of supporting services like transport and banking
 Or an increase in the efficiency of productive capital and services.

A good indicator of economic growth, in the language of economics is steady increase in the Gross
domestic product. GDP refers to market value of all the final goods and services produced in the country
during a period of one year. Increase in GDP or availability of goods and services enables people to enjoy
a more rich and varied life.

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2. Modernization

Modernization includes:

a. Adoption of new technology

Modernization aims to increase the production of goods and services through the use of new
technology. For example, a farmer can increase the output on the farm by using new seed varieties
instead of using the old ones.

b. Change in social outlook

Modernization also requires change in social outlook, such as gender empowerment or providing equal
rights to women. A society will be more civilized and prosperous if it makes use of the talents of women
in the workplace.

3. Self-reliance

Self-reliance under Indian conditions means overcoming the need of external assistance. In other words,
it means to have development through domestic sources. To promote economic growth and
modernization, the five year plans stressed on the use of own resources, in order to reduce our
dependence on foreign countries.

The policy of self-reliance was considered a necessity because of two reasons:

 To reduce foreign dependence: As India is recently freed from foreign control, it is necessary to
reduce our dependence on foreign countries, especially for food. So, stress should be given to
attain self-reliance.
 To avoid foreign interference: It was feared that dependence on imported food supplies, foreign
technology and foreign capital may increase foreign interference in the policies of our country.

4. Equity

The objectives of growth, modernization, self-reliance, by themselves, may not improve the kind of life,
which people are living. It is important that benefits of economic prosperity are availed by all sections of
the economy. In addition to the objectives of growth, modernization and self-reliance, equity is also
important.

According to equity, every Indian should be able to meet his or her basic needs and inequality in the
distribution of wealth should be reduced. In short, equity aims to reduce the standard of living of all the
people and promote social justice.

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AGRICULTURAL DEVELOPMENT

The measures under taken to promote the growth in the agricultural sector can be classified as Land
Reforms and Green Revolution

Land reforms

Land reforms primarily refers to the change in ownership of landholdings. Land reforms measures have
been introduced by various underdeveloped and developing countries, for attaining a rational land
distribution pattern and viable farming structure.

1. Abolition of Intermediaries

Indian government took various steps to abolish intermediaries and to make tillers, the owners of land.
The idea behind this step was that ownership of land would give incentive to actual tillers to make
improvements. The abolition of intermediaries brought 200 lakhs tenants in to direct contact with the
government. The ownership rights granted to tenants gave them the incentive to increase output and
this contributed to growth in agriculture.

However, the goal of equity was not fully served by abolition of intermediaries because of the following
reasons:

* In some areas, the former Zamindars continued to own large areas of land by making use of some
loopholes in the legislation.

* In some cases, tenants were evicted and Zamindars claimed to be self-cultivators.

* Even after getting the ownership of land, the poorest of the agricultural laborers did not benefit from
the land reforms.

2. Land ceiling

Land ceiling refers to fixing the specified limit of land, which could be owned by an individual. Beyond
the specified limit, all lands belonging to a particular person would be taken over by the Government
and will be allotted to the landless cultivators and small farmers. The purpose of land ceiling was to
reduce the concentration of land ownership in few hands. Land ceilings helped to promote equity in the
agricultural sector.

However, the land ceiling legislation was challenged by the big landlords. They delayed its
implementation. The delay time was used by them to get the land registered in the name of close
relatives, thereby escaping from legislation.

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Green Revolution

Green revolution refers to the large increase in production of food grains due to use of high yielding
variety seeds (HYV). Green revolution is the spectacular advancement in the field of agriculture. Indian
economy experienced the success of Green revolution in two phases:

a. First phase (Mid 60s – Mid 70s)

The use of HYV seeds was restricted to more affluent states like Punjab, Andhra Pradesh, and Tamil
Nadu etc. Further the use of HYV seeds primarily benefitted the wheat growing regions only.

b. Second Phase (Mid 70s – Mid 80s)

The HYV technology spread to a larger number of states and benefitted more variety of crops.

HYV SEEDS: Main Reason for Agricultural Revolution

Agricultural revolution occurred primarily due to the miracle of new wonder seeds i.e. HYV seeds which
raised agricultural yield per acre to incredible heights.

 These seeds can be used in those places where there are adequate facilities of drainage and
water supply.
 As compared to other ordinary seeds, these seeds need heavy doses of chemical fertilizers to
get the largest possible production.
 So, to derive benefit form HYV seeds, Indian farmers need to have reliable irrigation facilities
and financial resources.

Effects

1. Attaining marketable surplus

Marketable surplus refers to that part of agricultural produce which is sold in the market by the farmers
after meeting their own consumption requirements.

2. Buffer stock of food grains

The green revolution enabled the government to procure sufficient amount of food grains to build a
stock which could be used in times of food shortage.

3. Benefit to Low-income groups

As large proportion of food grains was sold by the farmers in the market, their prices decline relative to
other items of consumption.

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Risk Involved Under Green Revolution

While the nation had immensely benefitted from the green revolution, the technology involved was not
free from risks.

1. Risk of pest attack

The HYV crops were more prone to attack by pests. So there was a risk that small farmers who adopted
this technology could lose everything in a pest attack. However, this risk was considerably reduced by
the services rendered by research institutes established by the government.

2. Risk of Increase in Income Inequalities:

There was a risk that costly inputs required under green revolution will increase the disparities between
small and big farmers since only the big farmers could afford the required inputs.

However, due to favorable steps taken by the govt, these fears did not come true. The govt provided
loans at a very low interest rate to small farmers so that they could also have access to the needed
inputs.

Subsidies to agriculture

Subsidy, in context of agriculture, means that the farmers get inputs at prices lower than the market
prices.

* During the initial phases of Green revolution, new technology was looked upon as being risky by the
farmers.

* So, it was necessary for the government to grant subsidies to provide an incentive for adoption of the
new HYV technology.

* However, with the passage of time there has been a debate over the huge amount of subsidies
granted by the government.

a. Favor of Subsidies

 The government should continue with agricultural subsidies as farming in India continues to be
risky business.
 Majority of the framers are very poor and they will not be able to afford the required inputs
without the subsidies.
 Eliminating subsidies will increase the income inequality between rich and poor farmers and will
violate the ultimate goal of equity.

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b. Against the subsidies

 After the wide acceptance of technology, subsidies should be phased out as their purpose has
been served.
 Subsidies do not benefit the poor and small farmers as benefits of substantial amount of subsidy
go to fertilizer Industry and prosperous farmers.
 Therefore, there is no case for continuing with subsidies as it does not benefit the target group
and it is a huge burden on the government’s finance.

Role of public sector in Industrial Development

There was a need for a leading role of the public sector due to the following reasons:

1. Shortage of capital with the private sector

Private entrepreneurs did not have the capital to undertake the investment in Industrial ventures,
required for the development of Indian economy. At the time of Independence, Tata’s and Birla’s were
the only well-known private entrepreneurs.

2. Lack of incentive for private sector

The Indian market was not big enough to encourage the private industrialists to undertake major
projects, even if they had capital to do so. Due to limited size of the market, there was low level of
demand for the industrial goods.

3. Objective of social welfare

The objective of social welfare and equity of the government could be achieved only through direct
participation of the state in the process of Industrialization.

Industrial Policy Resolution 1956

Industrial policy is a comprehensive package of policy measures which covers various issues connected
with different industrial enterprise of the country.

Classification

According to IPR 1956, the industries were classified in to three categories:

 Schedule A: The first category comprised industries which would be exclusively owned by the
state. In this category, 17 industries were included.
 Schedule B: In second category, 12 industries were placed which would be progressively state
owned. The state would take the initiative of setting up industries and private sector will
supplement efforts of the state.
 Schedule C: Third category consists of the remaining industries which were to be in the private
sector. The state would facilitate and encourage the development of all these industries.

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Licensing

An industrial license is a written permission from the government to an industrial unit to manufacturing
goods. The Industries Act, 1951, empowered the government, to issue license for:

 Setting up of new industries

 Expansion of existing ones
 Diversification of products

Small Scale Industry

A small scale industry is defined with reference to the maximum investment allowed on the assets of a
unit. This limit has changed from rupees Five lakhs in 1950 to present limit of Rupees One crores.

1. Employment generation

Small scale industries are more labor intensive i.e. they use more labor than the large scale industries
and therefore they generate more employment. After agriculture, small-scale industries provide
employment to the largest number of people in India.

2. Need for protection from big firms

Small-scale industries cannot compete with the big industrial firms. They can flourish only when they are
protected from the large firms. So various steps were taken by the government for their growth.

 Reservation of Products

Govt reserved production of number of products for the small-scale industry. The criterion for reserving
the products depended on the ability of these units to manufacture the goods.

 Various concessions

Small-scale industries were also given concessions, such as lower excise duty an bank loan at lower
interest rates.

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Import Substitution

Import substitution refers to a policy of replacement or substitution of imports by domestic production.

For example, instead of importing vehicles made in foreign country, domestic industries would be
encouraged to produce them in India itself.

The basic aim of the policy was to protect industries from foreign competition. The policy of import
substitution can serve two definite purpose:

 Saving of precious foreign exchange

 Achieving self-reliance

Government made use of two ways to protect goods produced in India from imports:

1. Tariffs

Tariffs refer to taxes levied on imported goods. The basic aim for imposing heavy duty on imported
goods was to make them more expensive and discourage their use.

2. Quotas

Quotas refer to fixing the maximum limit on the imports of a commodity by a domestic producer.

The tariff on imported goods and fixation of quotas helped in restricting the level of imports. As a result,
the domestic firms could expand without fear of competition from the foreign market.

Reasons

1. The policy of protection is based on the notion that industries of developing countries, like India, are
mot in a position to compete against the goods produced by more developed economies. With
protection, they will be able to compete in the due course of time.

2. Restriction on imports was necessary as there was a risk of drain of foreign exchange reserves on the
imports of luxury goods.

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CHAPTER-3

LIBERALIZATION, PRIVATIZATION AND GLOBALIZATION: AN APPRAISAL

Reasons for economic reforms

The economic condition of India in the year 1991 was very miserable. It was due to the cumulative
effects of number of reasons:

1. Poor performance of public sector

In the 40 years period, public sector was assigned an important role to work for the economic
development of India. However, except for few public enterprises, the overall performance was very
disappointing. Considering the huge losses incurred by a good number of public enterprises, the
government recognized the need for making necessary reforms.

2. Deficit in Balance of payments

Deficit in BOP arises when foreign payments for imports exceed foreign receipts from exports. Even
after imposing heavy tariffs and fixing quotas, there was a sharp rise in imports. On the other hand there
was slow growth of export trade due to low quality and high prices of Indian goods in the international
market.

3. Inflationary pressures

There was a consistent rise in general price level in the economy due to increase in money supply and
shortage of essential goods.

4. Fall in foreign exchange reserves

In 1991, foreign exchange reserves fell to the lowest level and it led to the foreign exchange crisis in the
country. Foreign exchange reserves declined to a level that was not adequate:

* To finance imports for more than two weeks

* To pay the interest that needs to be paid to international lenders.

5. Huge burden of debts

The expenditure of the government was much higher than revenue. As a result, government had to
borrow money from banks, public and from international financial institutions.

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6. Inefficient management

The origin of the financial crisis can be traced from the inefficient management of the Indian economy.
The government was not able to generate sufficient revenue from internal sources such as taxation,
running of public sector enterprise etc.

Government expenditure began to exceed its revenue by such large margins that it became
unsustainable. At times, the foreign exchange borrowed from other countries and international financial
institutions was spent on meeting the consumption needs.

THE NEW ECONOMIC POLICY

The new economic policy was announced in July, 1991. It consisted of wide range of economic reforms.
The main aim of the policy was to create a more competitive environment in the economy and remove
the barriers to entry and growth of firms.

The government initiated a variety of policies which fall under three heads:

1. Liberalization

2. Privatization

3. Globalization

The first two are policy strategies and the third one is the outcome of these strategies. LPG are
supporting pillars, on which the structure of new economic policy of our government has been standing
and implemented since 1991.

Liberalization
Liberalization means removal of entry and growth restrictions on the private sector. It involves de-
regulation and reduction of government controls and greater autonomy of private investment, to make
economy more competitive. Under this process, business is given free hand and is allowed to run on
commercial lines.

The purpose of liberalization was:

 To unlock the potential of the country by encouraging private sector and multinational
corporations to invest and expand and
 To introduce much more competition in to the economy and creating incentives for increasing
efficiency of operations.

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The economic reforms taken by the government of India under liberalization include the following:

1. Industrial sector reforms

The various measures under industrial policy reforms include:

a. Reduction in Industrial licensing

The new policy abolished industrial licensing for all the projects, except for a short list of industries like
liquor, defense equipment, industrial explosives etc. No license were needed (i) To set up new units and
(ii) Expand or diversify the existing lines of manufacture. However, license is required for certain
industries, related to the security and strategic considerations.

b. Decrease in role of public sector

One of the striking feature was the substantive reduction in the role of public sector in the future
industrial development of the country. The number of industries, exclusively reserved for public sector,
reduced from 17 to the following 3 industries namely defense equipment, atomic energy generation and
railway transport.

c. De-reservation under small scale industries

Many goods produced by small scale industries have now been DE reserved. The investment ceiling on
plant and machinery for small undertakings enhanced to Rs. One crores. In many industries, the market
was allowed to determine the prices through forces of demand and supply and not by the directives of
the government.

d. Monopolies and restrictive trade practices

With the introduction of liberalization and expansion schemes, the requirement for large companies, to
seek prior approval for expansion, establishment of new undertakings, merger, amalgamation etc. were
eliminated.

2. Financial sector reforms

The reforms introduced under financial sector are:

a. Change in the role of RBI

The role of RBI was reduced from regulator to facilitator of financial sector. As a result, financial sector
was allowed to take decisions on many matters, without consulting the RBI.

b. Origin of Private Banks

The reform policies led to the establishment of private sector banks, Indian as well as foreign. Indian
banks along with foreign banks increased the competition and benefitted the customers through lower
interest rates and better services.

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c. Increase in limit of Foreign Investments

The limit of foreign investment in banks was raised to around 51%. Foreign Institutional investors such
as merchant bankers, mutual funds and pension funds were not allowed to invest in Indian financial
markets.

d. Ease in expansion process

Banks were given freedom to set up new branches after fulfillment of certain conditions without the
approval of the RBI.

3. Tax Reforms

The major tax reforms made were

a. Reduction in taxes

Since 1991, there has been continuous reduction in income and corporate tax as high tax rates were an
important reason for tax evasion. New tax rates motivated savings and voluntary disclosures of
incomes.

b. Reforms in Indirect taxes

Considerable reforms have been made in Indirect taxes to facilitate establishment of common national
market for goods and commodities.

c. Simplification of process

In order to encourage better compliance on the part of taxpayers, many procedures have been
simplified.

4. Foreign Exchange Reforms

a. Devaluation of Rupee

Devaluation refers to reduction in the value of domestic currency by the government. To overcome
Balance of Payment crisis, the rupee was devalued against foreign currencies. This led to an increase in
the inflow of foreign exchange.

b. Market determination of Exchange reforms

The government allowed rupee value to be free from its control. As a result, market forces of demand
and supply determine the exchange rate value of the Indian rupee in terms of foreign currency.

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5. Trade and Investment policy reforms

The important trade and investment reforms include:

a. Removal of quantitative restrictions

Under the new economic policy, quantitative restrictions on imports and exports were greatly reduced.

b. Removal of export duties

Export duties were removed to increase the competitive position of Indian goods in the international
markets.

C. Reduction in import duties

Import duties were reduced to improve the position of domestic goods in the foreign markets.

d. Relaxing in Import licensing systems

The import licensing was abolished, except in case of hazardous and environmentally sensitive
industries. This encouraged domestic industries to import raw materials at better prices, which raised
their efficiency and made them more competitive.

Privatization
Privatization means transfer of ownership, management and control of public sector enterprise to the
entrepreneurs in the private sector. It implies greater role of the private sector in the economic activities
of the country.

Privatization can be done in two ways:

1. Transfer of ownership and management of public sector companies from the government to the
private sector.

2. Privatization of the public sector undertakings by selling off part of the equity of PSUs to the public.
This process is known as Disinvestment.

Favor of privatization

1. Reduction in budgetary deficit

PSUs were putting large burden on exchequer due to huge losses and growing subsidy payments.
Privatization reduces the financial burden of the government.

2. Competitive environment

Privatization abolishes the monopoly power of PSUs and helps in improving the competitive strength
and efficiency of these enterprises.

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3. Better managerial efficiency

Privatization is supported as a means of improving managerial efficiency as the management is not

subject to unwanted political pressure and interference.

4. Quick decision-making

The policy of privatization will be helpful in imparting greater flexibility in the decision-making process as
management would be free from any government intervention.

5. Promotes Consumer’s Sovereignty

The survival of private enterprises depends on satisfaction of the consumers. Privatization will lead to
caring of the consumer because of the need for creating and sustaining market. Hence, the quality of
service will improve.

6. Profit oriented decisions

Private sector works with the profit oriented approach. It infuses the commercial spirit in the
functioning of the enterprise and leads to an improvement in efficiency and performance of the
enterprise.

Against privatization

1. Social welfare neglected

The foremost argument against privatization policy is that private sector enterprises operate mainly with
the objective of profit maximization. Thus, this system does not guarantee the social welfare of the poor
people.

2. Lop-sided economic development

Private sector does not take interest in projects which are risky and have long gestation period with
lower profitability. It may adversely affect the growth of basic and heavy industries and infrastructure in
the country.

3. Concentration of economic power

Privatization can also result in the substitution of a public monopoly to a private monopoly, which may
lead to monopolistic exploitation by efficient private owners.

4. Rise in level of unemployment

Under privatization, there is always a fear of retrenchment and consequent unemployment.

Privatization in many public sector enterprises has led to voluntary retirement of many workers.

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Globalization
Globalization means integrating the national economy with the world economy through removal of
barriers on international trade and capital movements. It is the outcome of the policies of liberalization
and privatization. It involves creation of networks and activities transcending economic, social and
geographical boundaries. In short, globalization aims to create a borderless world.

Changes made by globalization in Indian economy

1. The new economic policy prepared a specified list of high technology and high investment priority
industries, in which automatic permission will be available for FDI up to 51 percent of foreign equity.

2. In respect of foreign technology agreements, automatic permission is provided in high priority

industries up to a sum of rupees 1 crores.

3. In order to make international adjustment of Indian currency, rupee was devalued in July 1991 by
nearly 20 percent.

4. To integrate Indian economy with the world, government made Indian rupee partially convertible.

5. A new five year export import policy was announced by the government to establish the framework
of globalization in India’s foreign trade.

6. In order to bring the Indian economy within the ambit of global competition, the government had
modified the customs duty to a considerable extent.

Favor of Globalization

 Greater access to global markets

 Advanced technology
 Better future prospects for large industries of developing countries to become important players
in the international markets.

Against Globalization

 Benefits of globalization accrue more to developed countries as they are able to expand their
markets in other countries.
 Globalization compromises the welfare and identity of people belonging to poor countries.
 Market-driven globalization increases the economic disparities among nation and people.

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Outsourcing
Outsourcing refers to the contracting out some of its activities to a third party which were earlier
performed by the organization.

 Outsourcing is one of the important outcomes of the globalization process

 It has intensified in recent times because of the growth of the fast modes of communication,
particularly information technology.
 India has become a favorable destination of outsourcing for most of the MNCs because of low
wage rates and availability of skilled manpower.
 With the help of modern telecommunication links, the text, voice and visual data in respect of
these services is digitized and transmitted in real time over continents and national boundaries.
 Some of the services outsourced to India include:
(i) Voice based business processes like BPO or Call Centers.
(ii) Record keeping
(iii) Accountancy
(iv) Banking Services
(v) Music Recording
(vi) Film Editing etc.

World Trade Organization

Prior to WTO, general agreements on Trade and Tariffs (GATT) were established as global trade
organization in 1948 with 23 countries. WTO was founded in 1995 as the successor organization to the
GATT.

Functions

1. To facilitate international trade through removal of tariff as well as non-tariff barriers.

2. To establish a rule based trading regime, in which nations cannot place arbitrary restrictions on trade.

3. To enlarge production and trade of services.

4. To ensure optimum utilization of world resources.

5. To protect the environment.

Important Definitions

1. Bilateral trade

Trade between two countries is known as bilateral trade.

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2. Multi-lateral trade

Trade between more than two countries is known as multi-lateral trade.

3. Tariff barriers

The barriers which are imposed on imports to make them relatively costly and to protect the domestic
production are known as tariff barriers.

4. Non-tariff barriers

The barriers which are imposed on the amount of imports and exports are known as Non-tariff barriers.

Arguments in favor of LPG

1. Increase in rate of Economic growth

The growth of GDP increased from 5.6% during 1980-91 to 6.1 % during 1992-2001. This shows that
there has been an increase in the overall GDP growth in the reform period.

2. Inflow of foreign Investment

The opening up of the economy has led to the rapid increase in foreign direct investment. The foreign
direct investment increased from about US $100 million in 1990-91 to US 150 $ billion in 2003-04.

3. Rise in Foreign exchange reserves

Foreign exchange reserves reached the level of $ 25,186 million at the end of March 1995 as compared
to only $ 3962 million in 1989-90. At present, India is the 6 th largest foreign exchange reserve holder in
the world.

4. Rise in exports

During the reform period, India experienced considerable increase in exports of auto parts, engineering
goods, It software and textiles.

5. Control on Inflation

Increase in production, tax reforms and other reforms helped in controlling the inflation. The annual
rate of inflation reduced from the peak level of 17% in 1991 to around 7.6% in 2012-13.

6. Increase in role of private sector

Abolition of licensing system and removal of restrictions on entry of the private sector, in areas earlier
reserved for the public sector, have enlarged the area of operation of the private sector.

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Arguments against LPG

1. Growing unemployment

Though the GDP growth rate has increased in the reform period, but such growth failed to generate
sufficient employment opportunities in the country.

2. Neglect of agriculture

The new economic policy has neglected the agricultural sector as compared to industry, trade and
service sector and resulted in:

 Reduction of Public investment

 Removal of subsidy
 Liberalization and reduction in import duties
 Shift towards cash crops

3. Low level of Industrial growth

Industrial growth recorded a slow down due to the following reasons:

 Cheaper imported goods

 Lack of infrastructure facilities
 Non-tariff barriers by developed countries

4. Ineffective Disinvestment policy

The government has always fixed a target for disinvestment of PSUs. However the disinvestment policy
of government was not successful due to following reasons:

 The assets of PSUs were under-valued and sold to the private sector.
 Moreover, such proceeds from disinvestment were used to compensate shortage of
government revenues rather than using it for the development of PSUs.

5. Ineffective tax policy

The tax reduction in the reform period was done to generate larger revenue and curb tax evasion. But it
does not result in increase in tax revenue for the government.

6. Spread of consumerism

The new policy has been encouraging a dangerous trend of consumerism by encouraging the production
of luxuries and items of superior consumption.

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CHAPTER – 4

POVERTY
Meaning of poverty

Poverty refers to a state in which an individual is unable to fulfill even the basic necessities of life. The
minimum requirements of life include food, clothing, housing, education and health facilities. In a
country, where a big mass of population is deprived of even minimum amenities of life for a very long
period, then such a country suffers from vicious circle of poverty.

Poor in Urban Areas

In urban areas, poor people include push cart vendors, street cobblers, rag pickers, beggars etc.

 They possess few assets.

 They reside in kutcha hutments with walls made of muds.
 The poorest of them do not even have such dwellings.
 The urban poor are largely the overflow of the rural poor who had migrated to urban areas.

Poor in Rural Areas

In Rural areas, poor people include landless agricultural labourers, cultivators with very small
landholdings, landless labourers engaged in a variety of non-agricultural jobs or tenant cultivators with
small landholdings.

 Many of the rural people are landless. Even if some of them possess land, it is only dry or waste
land.
 Many rural people do not get to have even two meals a day.

Characteristics

1. Hunger, starvation and malnutrition

Starvation and hunger are the basic problems of the poorest households. Malnutrition is alarmingly high
among the poor.

2. Poor health

They are generally physically weak due to ill health, disability or serious illness. Their children are less
likely to survive or be born healthy.

3. Limited economic opportunities

They have very limited economic opportunities due to lack of literacy and skills. So they face unstable
unemployment. They are not able to negotiate their legal wages from employers and are exploited.

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4. Debt trap

They borrow from money lenders, who charge high rates of interest, which push them in to chronic
indebtedness.

5. Gender inequalities

Gender inequality prevails within the family in regard to participation of gainful employment, education
and in decision-making. Poor women receive less care on their way to motherhood.

6. Bigger families

The poor families are bigger in size, which make their economic condition worse.

7. Lack of facilities of electricity and water

Mot poor households do not have access to electricity. Their primary cooking fuels is firewood and cow
dung cake. A large section of poor people do not even have access to safe drinking water.

Measures

There are two measures to determine the extent of poverty:

a. Relative poverty

Relative poverty refers to poverty of people, in comparison to other people, regions or nations. It helps
in understanding the relative positions of different segments of the population. It does not consider,
how poor the poor person is or whether he is deprived of the basic minimum requirements of life or
not. It only reflects the relative position of different segments of the population in the income hierarchy.

b. Absolute poverty

Absolute poverty refers to the total number of people living below poverty line. The concept of absolute
poverty is relevant for less developed countries like India, where there is abundance of poverty. It helps
to measure the number of poor people. It does not consider social factors that generate and are
responsible for poverty like illiteracy, ill health, lack of access to resources, discrimination of lack of civil
and political freedoms.

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POVERTY LINE

Meaning

Poverty line is a cut-off point on the line of distribution, which usually divides the population of the
country as poor and non-poor. People having income below the poverty line are considered as poor and
people above that line are considered to be non-poor. Poverty line tries to capture the socially
acceptable minimum living standards, which the society tries to fulfill.

Determination

In India, monthly per capita expenditure or MPCE method is used to determine the poverty line.
According to this method, monetary value of the minimum calorie intake is calculated.

1. Minimum calorie intake

The planning commission has defined poverty line on the basis of recommended nutritional
requirements of 2400 calories per person per day for rural areas and 2100 calories per person per day in
urban areas.

2. Monetary value of minimum calorie intake

According to the planning commission, the minimum monthly per capita consumption expenditure in
2011-12 is worked out to be Rs. 816 per person in rural areas and Rs. 1000 in urban areas.

3. Poverty line divides the poor from the non-poor

There are many kinds of poor; the absolute poor, the very poor and the poor. Similarly, there are various
kinds of non-poor; the middle class, the upper middle class, the rich, the very rich and the absolutely
rich.

Categories

1. Chronic poor

It includes people who are always poor and those who are usually poor.

2. Transient poor

They may be classified as churning poor and occasionally poor.

3. Non-poor

They are never poor.

Criticism of poverty line

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 The method groups all the poor together and does not differentiate between the very poor and
the other poor.
 In this mechanism, it is very difficult for the government to identify the poor, who need help the
most.
 There are many factors, other than income and assets, which are associated with poverty, like
accessibility to basic education, health care, drinking water etc. which have been ignored.
 This method does not consider social factors that generate and are responsible for poverty like
illiteracy, ill health, lack of access to resources, discrimination or lack of civil and political
freedoms.

CAUSES OF POVERTY

1. Population explosion

Rapid growth of population, particularly among the poor, is responsible for the poverty in the country. It
is obvious that when total National Income is thinly spread over a large number of people, the per capita
income is bound to be low.

2. Low level of economic development

The Indian economy is highly underdeveloped due to relative backwardness of agricultural and industrial
sectors. Due to widespread bottlenecks in infrastructural facilities and slow pace of development, nearly
25% of population is still living below the poverty line.

3. Poor state of agriculture

Agriculture in India has continued to be backward due to use of primitive methods of production and
fragmented small land holdings. As a result, labor and land productivity continued to be low in India.
Consequently, most of the farmers live in a state of poverty.

4. High Illiteracy rates

The weaker sections of the society have to take up low paid jobs due to lack of knowledge. The
scheduled caste and scheduled tribes are not able to participate in the emerging employment
opportunities in different sectors of the urban and rural economy due to lack of knowledge and skills.

5. High level of unemployment

The urban poor in India are largely the overflow of the rural poor who migrate to urban areas in search
of employment and a livelihood.

 Industrialization has not been able to absorb all these people.

 Most of the urban poor are either unemployed or temporarily employed as casual labourers.
 Such casual labourers are most vulnerable in society as they have limited skills, with no job
security, no assets and no surplus to sustain them.

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So, poverty is closely related to nature of unemployment.

6. High level of indebtedness

Unemployment or under-employment and the casual nature of work compel people to borrow money,
that too at higher interest rates. Such indebtedness is one of the significant factors of the poverty.

7. Inequalities of Income

The unequal distribution of income and assets has also led to the persistence poverty in India.

8. Inflation

The steep and continuous rise in prices, particularly of essential commodities like food grains, has added
to the miseries of the poor. Sharp rise in prices and negligible change in the monetary income has
decreased the purchasing power of low-income earners and resulted in lower standard of living.

MEASURES TO REMOVE POVERTY

1. Acceleration of economic growth

The first and foremost measure needed to eradicate poverty is accelerating the rate of economic
growth. Fast economic growth would automatically improve the economic condition of the people and
reduce the incidence of poverty.

2. Reducing inequalities of income

If the high growth rate is accompanied with increased inequalities of income, then fruits of economic
development will accrue only to the rich sections, whereas the poor will grow in numbers. Thus,
inequalities must be reduced, if development is to benefit the poor.

3. Population control

High growth rate of population especially among the poor people is one of the important factors
responsible for poverty. In order to remove poverty, it is very essential that population growth rate be
checked.

4. Agricultural development

Eradication of mass poverty in rural areas is possible only when due emphasis is given for agricultural
development as India’s large proportion of population depends on agricultural sector. So there is a
serious need to enhance the agricultural production and productivity.

5. More employment opportunities

Poverty can be eliminated by providing more employment opportunities, so that people are able to
meet their basic needs. For this purpose, labor intensive techniques should be promoted. Small scale
industries and construction activities should be encouraged in rural areas for generation of employment.

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6. Land reforms

By the imposition of land holdings and their effective implementation, a good amount of land can be
acquired, to be distributed among the landless laborers. On obtaining the land, the landless labor will be
able to employ themselves and will produce subsistence for themselves.

POVERTY ALLEVATION PROGRAMMES IN INDIA

1. Minimum needs programme

India was among the pioneers in the world to visualize that people’s living standard could be improved
through public expenditure on social consumption needs. This programme was expected to supplement
the consumption of the poor, create employment opportunities and bring improvements in health and
education. Three major programmes that aim at improving the food and nutritional status of the poor
are:

a. Public distribution system

b. Integrated child development scheme

c. Midday meal scheme

2. Rural employment generation programme

This programme was started by the government to create self-employment opportunities in the rural
areas and small towns. Under this programme, one could get financial assistance in the form of bank
loans to set up small industries.

3. Prime Minister’s Rozgar Yojana

Under this programme, the educated unemployed from low income families in rural and urban areas
were given financial help to set up any kind of enterprise that generates employment. PMRY attempted
to generate employment by setting up 7 lakh micro-enterprises.

4. Swarna Jayanti Shahri Rozgar Yojana

SJSRY mainly aims at creating employment opportunities for both self-employment and wage
employment in urban areas. This programme seeks to provide employment through encouraging the
setting up of self-employment ventures or provisions of wage employment.

5. Swarna Jayanti Gram Swarozgar Yojana

SGSY aims at promoting micro enterprise and to bring the assisted poor families above the poverty line
by organizing them in to self-help groups. People who wish to benefit from this scheme are encouraged
to form self-help groups.

6. Sampoorna Gramin Rozgar Yojana

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The scheme aims to provide additional and supplementary wage employment by undertaking labor
intensive work, thereby providing food security and increasing nutritional levels. Wages were paid as a
combination of food grains and cash. The scheme was open to all rural poor who need wage
employment and desire to do manual and unskilled work.

7. National food for work programme

This programme was launched in 2004 with the objective of intensifying the generation of
supplementary wage employment. NFFWP was initially implemented in 150 most backward districts of
the country, to provide additional resources apart from the resources available under SGRY. This
programme was incorporated in Mahatma Gandhi National rural employment Guarantee act
(MGNREGA) in 2005. It aims at providing the livelihood security of people in rural areas by guaranteeing
100 days of wage employment in a financial year to a rural household whose adult members volunteer
to do unskilled manual work.

CRITICAL EVALUATION OF POVERTY ALLEVATION PROGRAMME

1. Lack of Resources

As compared to the magnitude of poverty, the amount of resources allocated for these programmes is
not sufficient.

2. Unequal distribution of assets

Due to unequal distribution of land and other assets, the benefits from PAP have been appropriated by
the non-poor.

3. Improper implementation

These Programmes depend mainly on government and bank officials for their implementation. However,
corruption, lack of training, pressure from local leaders and non-participation of local level institutions
resulted in improper implementation of the programme.

4. Lack of infrastructure

There was lack of infrastructural facilities, such as schools, roads, power, telecom and IT services,
training institutions etc. in the poverty stricken areas.

5. Lack of active participation of poor people

High growth rate alone is insufficient to reduce poverty. In fact, there is a need for active participation of
the poor for effective implementation of PAP.

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CHAPTER – 5

HUMAN CAPITAL FORMATION

S. NO PHYSICAL CAPITAL HUMAN CAPITAL

1. Physical capital is tangible and can be easily It is intangible and cannot be sold in the
sold in the market. market.
2. It depreciates with the passage of time Depreciation in human capital can be reduced
by making continuous investments in education
and health.
3. It is more mobile between countries. It is less mobile between countries as compared
to physical capital.
4. It can be separated from its owner. It cannot be separated from the owner.
5. It is the outcome of conscious decision of It is partly a social process and partly a
owner and is mainly an economic and conscious decision of the processor of the
technical process. human capital.
6. It can be built through imports. It is done through conscious policy formations.

HUMAN CAPITAL FORMATION

Meaning

Human capital formation refers to development of abilities and skills among the population of the
country. It is the process of acquiring and increasing the number of persons, who have the skills,
education and experience. It is associated with investment in man and his development as creative nd
productive resources.

Sources

The different sources of human capital formation are as under:

1. Expenditure on education

Proper utility of manpower depends on the system of education and training of people. Labor skills of an
educated person are more than that of an uneducated person, which enables him to generate more
income than the uneducated person. Spending on education by an individual is similar to spending on
capital goods by companies.

Individuals invest in education to increase their future income and raise the living standard. Education
contributes to economic growth because

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* It confers higher earning capacity of the people.

* It gives better social standing and pride.

* It enables one to make better choices in life.

* It provides knowledge to understand the changes taking place in society.

* It also stimulates innovation

* It facilitates adoption of new technologies.

2. Expenditure on health

Health expenditure is a source of human capital formation as it directly increases the supply of healthy
labor force. Poor health and under nourishment adversely affect the quality of manpower. Adequate
food and proper nourishment to people, along with adequate health sanitation facilities leads to
qualitative improvements in human capital.

Therefore, expenditure on health is important to build and maintain productive labour force and to
improve the quality of life of the people in society. Forms of health expenditure are:

a. Preventive medicine known as vaccination.

b. Curative medicine i.e. medical intervention during illness.

c. Social medicine i.e. spread of health literacy.

d. Provision of clean drinking water.

e. Good sanitation facilities.

3. On-the-job training

Productivity of physical capital is enhanced with the improvement in human capital. Due to this reason,
many firms provide on-the-job training to their workers. Such training has the advantage that it can be
provided fast and without much cost. It increases the skill and efficiency of the workers and leads to
increase in production and productivity.

On the job training may take different forms

* Workers may be trained in the firm itself under the supervision of a skilled worker.

* Workers may be sent for Off-campus training.

After on-the-job training of employees, firms insist that that the workers should work for a specified
period of time, so that it can recover the benefits of the enhanced productivity owing to the training.

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4. Expenditure on migration

People migrate from one place to another in search of employment that fetches them higher salaries.
Unemployed people from rural areas migrate to urban areas in search of jobs. Technically qualified
persons like engineers, Doctors etc. migrate to other countries because of higher salaries that they may
get in such countries.

Migration in both these cases involves two kinds of costs:

* Cost of transportation from one place to another

* Higher cost of living in the migrated places.

It is a source of human capital formation because enhanced earnings in the migrated areas is more than
the increase in costs due to migration.

5. Expenditure on Information

Expenditure is incurred to acquire information relating to labor market and other markets. It involves
amount spent on seeking information about educational, their educational standards and cost of
education. Information is necessary to make decisions regarding investments in human capital as well as
for efficient utilization of the acquired human capital stock.

Importance

The importance of human capital formation will be clear from the following points:

1. Effective use of physical capital

The growth and productivity of physical capital depends upon human capital formation. The physical
capital can be created only by means of hard and intelligent work of human beings in the economy.
Hence, human skill and their efforts help in effective utilization of physical capital.

2. Higher productivity and production

Increase in productivity and quality production depends upon technical skill of the people, which can be
increased only by means of education, training and maintaining the health of the people. Investment in
human capital helps in acquiring new skills and also knowledge relating to management of resources,
technology and production.

3. Inventions, innovations and technological improvements

The human capital formation stimulates innovations and create ability to absorb new technologies.
Education provides knowledge to understand changes in society and scientific advancements, which
facilitates inventions and innovations. Similarly, the availability of educated labor force facilitates
adaptation to new technologies.

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4. Modernization of attitudes

The knowledgeable, skilled and physically fit people are powerful instruments of change in society.
Economic development of a country depends upon the minds of the people and their changing attitudes
towards creating a will for development. Investment In human capital formation helps in changing
outlook and promotes development of the economy.

5. Increased life expectancy

Formation of human capital raises life expectancy of the people. Health facilities and availability of
nutritive food enable persons to live a healthy and long life. This in turn adds to the quality of life.

6. Control of population growth

It has been observed that educated persons have smaller families as compared to illiterate families. So,
spread of education is necessary to control the population growth rate.

7. Improves Quality of life

The quality of population depends upon the level of education, health of a person and skill formation
acquired by the people. It not only makes people productive and creative, but also transform the lives of
the people. People start living and enjoying higher incomes and more satisfying life.

Problems

The various problems of human capital formation are:

1. Insufficient resources

The resources allocated to the formation of human capital have been much less than the resources
required. Due to this reason, the facilities for the formation of human capital have remained grossly
inadequate.

2. Serious inefficiencies

There is a lot of wastage of society’s resources as capabilities of educated people are either not made
use of or are underutilized. Massive illiteracy, non-education of many children, poor health facilities are
other inefficiencies, which have not been attended to adequately and properly.

3. Brain Drain

People migrate from one place to another in search of better job opportunities and handsome salaries.
It leads to loss of quality people like Doctors, engineers etc. who have high caliber and are rare in
developing country. The cost of such loss of quality human capital is very high..

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4. High growth of population

The continuous rise in population has adversely affected the quality of human capital. It reduces per
head availability of the facilities.

5. Several imbalances

A greater proportion of resources have been diverted towards higher education, which is meant for few
people as compared to primary and secondary education. Due to this reason, general productivity of the
economy has remained low.

6. Lack of proper manpower planning

There is an imbalance between the demand and supply of human resources of various categories,
especially in case of highly skilled personnel. The absence of such balancing has resulted in the wastage
of resources.

7. Weak Science and Technology

In respect of education, the performance is particularly unsatisfactory in the fields of science and
development of modern technology.

Relation between human capital and human development

The terms Human capital and Human development sound similar, but there isa clear distinction
between the two:

 Human capital considers education and health as a means to increase labor productivity
whereas human development considers education and health as integral to human well-being as
only when people have the ability to read and write and the ability to live a long and healthy life,
they will be able to make better choices which they value.
 Human capital treats human beings as a means to increase in productivity whereas human
development treats human beings as ends in themselves.

Therefore according to human development perspective, every individual has a right to get basic
education and basic health care, irrespective of their contribution to labor productivity.

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EDUCATIONAL SECTOR IN INDIA

Features

1. Elementary education

Elementary education i.e. primary and secondary education takes a major share of total education
expenditure. Share of higher or tertiary education is the least.

2. Tertiary education

On an average, government spends less on tertiary education. However, expenditure per student in
tertiary education is higher than that of elementary education. But, it doesn’t mean that financial
resources should be transferred from tertiary to elementary education. As we expand school education,
we need more teachers who are trained in the higher educational institutions. So, expenditure on all
levels of education should be increased.

3. Regional disparities

The per capita education expenditure differs considerably across states from as high as Rs. 3440 in
Lakshadweep to as low as Rs. 386 in Bihar. This leads to difference in educational opportunities and
attainment across states.

4. Inadequate expenditure on education

The expenditure on education is very less as compared to the desired level of education expenditure as
recommended by the various commissions. More than 40 years ago, the education commission had
recommended at least 6% of GDP should be spent on education. However, the current level expenditure
is little over 4% which is quite inadequate.

5. Provision of free and compulsory education

In December 2002, the Government of India, made free and compulsory education, a fundamental right
of all children in the group of 6-14 years. To achieve this aim, government needed an estimated
expenditure of around 1.37 crores over 10 years. In the union budget 2000-05, the Government of India
levied a 2% education cess on all union taxes. In addition to these, the government sanctioned a large
outlay for the promotion of higher education and new loan schemes for students to pursue higher
education.

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Achievements

1. Adult literacy rate

Adult literacy rate refers to the ratio of literate adult population to the total adult population in a
country. In case of males, the adult literacy rate increased from 61.9% in 1990 to 68.4% in 2000. In case
of females, the rate was just 37.9% in 1990, which increased to 45.4% in 2000, which is still far below
the satisfaction level.

2. Primary completion rate

It is the percentage of students completing the last year of primary school. In case of males, the primary
completion rate increased from 78% in 1990 to 85% in 2000. In case of females, the rate increased from
61% in 2000.

3. Youth literacy rate

It is the percentage of people aged 15-24 who can, with understanding, read and write a short, simple
statement on their everyday life. In case of males, rate increased from 76.6% in 1990 to 79.7% in 2000.
In case of females, the rate increased from 54.2% in 1990 to 64.8% in 2000.

Future prospects

1. Education for all: still a distant dream

The literacy rate for both adults as well as youths has increased. However, the absolute number of
illiterates is still as much as India’s population was at the time of Independence.

2. Gender equity: better than before

The difference in literacy rates between males and females are narrowing. It indicates a positive
development in gender equity. However, women education needs to be promoted to improve economic
independence and social status of women. Women education makes a favorable impact on fertility rate
and health care of women and children.

3. Higher education: a few takers

The Indian education pyramid is steep indicating lesser and lesser number of people reaching the higher
education level. Moreover, the level of unemployment among educated youth is highest. Therefore the
government needs to increase allocation for higher education and also improve the standard of higher
educations, so that students are imparted employable skills in such institutions.

Regulatory authority

 National Council of Educational Research and Training (NCERT)

 University Grants Commission (UGC)
 All India Council Of Technical Education (AICTE)

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CHAPTER – 6

RURAL DEVELOPMENT
Meaning

Rural development refers to continuous and comprehensive socio-economic process, attempting to

improve all aspects of rural life. Some of the areas, which are challenging and need fresh initiatives for
development in India include:

1. Development of human resource

The quality of human resource needs to be improved. It includes giving proper attention to literacy,
education and skill development. It also includes better health facilities for the physical growth.

2. Development of infrastructure

It involves improvement in electricity, irrigation, credit, marketing and transport facilities. Better
facilities for agriculture research and extension and information dissemination.

3. Land reforms

It includes the following objectives:

 Elimination of exploitation in land relations.

 Actualization of the goal of Land to the tiller.
 Improvement in socio-economic conditions of rural poor by widening their land base.
 Increasing agricultural productivity and production.

4. Alleviation of poverty

There is a serious need for taking serious steps for alleviation of poverty and bringing significant
improvement in living conditions of weaker sections.

5. Development of productive resources

Resources of each locality should be developed to enhance opportunities of employment particularly

other than farming.

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RURAL CREDIT

In agriculture, farmers are in strong need for credit due to long time gap between crop sowing and
realization of income. Farmers borrow from various sources to meet initial investments on seeds,
fertilizers, implements and other family expenses of marriage, death, religious ceremonies etc.

With growing modernization of agriculture during post-green revolution period, the requirement of
agricultural credit has also increased in the recent years. Broadly, there are two sources, from which the
farmers can raise loans:

1. Non-institutional sources

Non-institutional sources have been the traditional source of agricultural credit in India. The major non-
institutional sources are:

a. Moneylenders

From the very beginning, moneylenders have been advancing a major share of farm credit. The peasants
are exploited through exorbitant rates of interest. Quite frequently, their accounts are manipulated
without their knowledge.

b. Relatives

Cultivators borrow funds from their own relatives in times of crisis. These loans are a kind of informal
loans and carry no interest and are normally returned after harvest.

c. Traders and commission agents

They provide credit to the peasants on the mortgage of crops at high rates of interest, on a condition
that the crops will be sold to them at low prices.

d. Rich landlords

Small as well as marginal farmers and tenants, take loans from landlords, for meeting their financial
requirements. Landlords also charge high rates of interest on such loans and exploit the peasants,
particularly small farmers and tenants.

2. Institutional Sources

Some of the important institutional sources are as under:

a. Co-operative credit societies

The primary objective of the co-operatives is to liberate the Indian peasantry from the clutches of
moneylenders and to provide them credit at low rates of interest.

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b. Land development banks

They provide credit to the farmers against the mortgage of their lands. Loans are provided for
permanent improvement of land, purchasing agricultural implements and for paying old debts.

c. Commercial bank credit

Initially commercial bank played a marginal role in advancing rural credit. However, after nationalization
in 1969, they expanded their branches in rural areas and started directly financing the farmers.

d. Regional rural banks

They are opened up in those areas where there are no banking facilities. Their main objective is to
provide credit and other facilities especially to small and marginal farmers, agricultural laborers, artisans
and small entrepreneurs in rural areas.

e. The government

The loans provided by the governments are lent during emergency or distress like famines, floods etc.
the rate of interest charged against such loan is as low as 6%.

f. National Bank for Agricultural and Rural development (NABARD)

It is the apex bank which coordinates the functioning of different financial institutions, working for
expansion of rural credit.

 Its objective is to promote health and strength of credit institutions.

 Besides providing finance to credit institutions, NABARD also provides financial assistance to the
non-farm sector, to promote rural development and prosperity of backward rural areas.

g. Self-help groups (SHG)

SHG has emerged as the major micro finance programme in the country in recent years.

 Their focus is largely on those poor, who have no sustainable access to the formal banking
system.
 So, their target group comprise of small and marginal farmers, agricultural and non-agricultural
laborers, artisans etc.
 SHGs promote thrift in small proportions by a minimum contribution from each member.
 Form the pooled money; credit is given to the needy members at reasonable interest rates,
which is to be repaid in small instalments.
 By March 2012, more than 43 lakhs SHGs had reportedly been credit linked.

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Problems faced or critical appraisal

Some of the problems faced in rural banking are as under:

1. Insufficiency

The volume of rural credit in the country is still insufficient in comparison to its demand.

2. Inadequate coverage of Institutional sources

The institutional credit arrangement continues to be inadequate as they have failed to cover the entire
rural farmers of the country.

3. Inadequate amount of sanctions

The amount of loan sanctioned to the farmers is also inadequate. As a result, farmers often divert such
loans for unproductive purposes, which dilute the very purpose of such loan.

4. Less attention to poor or marginal farmers

Lesser attention has been given on the credit requirements of needy farmers. On the other hand, well-
to-do farmers are getting more attention due to better credit worthiness.

5. Growing over dues

The problem of over dues in agricultural credit continues to be an area of concern. The basic reason fro
growing over dues is the poor repaying capacity of farmers. As a result, credit agencies are becoming
cautious of granting loan to farmers.

AGRICULTURAL MARKETING SYSTEM

Meaning

Agricultural marketing is a process that involves assembling, storage, processing, transportation,

packaging, grading and distribution of different agricultural commodities across the country.

Problems

1. Manipulations by Big traders

Prior to Independence, farmers suffered from faulty weighing and manipulation of accounts while selling
their produce to traders.

2. Lack of market information

Farmers were often forced to sell at low prices due to lack of required information on price prevailing in
markets.

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3. Lack of storage facilities

They also did not have proper storage facilities to keep their produce for selling later at a better price.
Even today, more than 10% of goods produced in farms are wasted due to lack of storage.

4. Distress rale

Most of the Indian farmers are very poor and have no capacity to wait for better price of their produce.
As a result, they are forced for distress sale to the village moneylenders and traders.

5. Lack of grading

Indian farmers do not give importance to grading of their produce. They hesitate to separate the good
quality crops from bad ones. As a result, they fail to fetch a good price of their quality product.

Measures

After Independence, the Government of India adopted the following measures to improve the system of
agricultural marketing:

1. Regulated markets

Regulated markets have been organized with a view to protect the farmers from the malpractices of
sellers and brokers. This policy benefitted farmers as well as consumers. However, there is still a need to
develop about 27,000 rural periodic markets as regulated market place in order to realize the full
potential of rural markets.

2. Infrastructural Facilities

The government aims to provide physical infrastructure facilities like roads, railways, warehouses,
godowns, cold storages and processing units. The current infrastructure facilities are quite inadequate to
meet the growing demand and need to be imported.

3. Co-operative marketing

The aim of co-operative marketing is to realize fair price for farmer’s products. Under this, marketing
societies are formed by farmers to sell the output collectively and to take advantage of collective
bargaining, in order to obtain better price.

4. Minimum support price

To safeguard the interest of farmers, government fixes the minimum support price of 24 agricultural
products, like wheat, rice, maize, cotton, sugarcane, pulses etc. such a price may be regarded as an offer
price, at which the government is willing to buy any amount of grains from the farmers.

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5. Maintenance of Buffer stocks

The Food Corporation of India (FCI) purchases wheat and rice at the procurement price, to maintain
buffer stock. It is created in the years of surplus production and is used during shortages.

6. Public Distribution system (PDS)

The public distribution system in our country operates through a network of ration shops and fair price
shops. Fair price shops are offer essential commodities like wheat, rice, kerosene etc. at a price below
the market price, to the weaker sections of the society.

DIVERSIFICATION OF AGRICULTURAL ACTIVITIES

Agriculture plays a very important role in the economic development. However, the majority of rural
people work on land and there is greater risk in depending only on agriculture. The need for
diversification arises because:

(i) There is greater risk in depending exclusively on farming for livelihood.

(ii) To provide productive sustainable livelihood options to rural people.

Benefits

 To provide supplementary gainful employment

 To enable them to earn higher levels of income
 To enable rural people to overcome poverty and other troubles

Types

1. Diversification of Crop production

It involves a shift from single-cropping system to multi-cropping system. It involves a shift in cropping
pattern from food grains to cash crops. Basically main aim is to shift from subsistence farming to
commercial farming.

In India, agriculture is still dominated by subsistence farming and farmers give prime importance to the
cereals in the cropping system.

Multi cropping system reduces the dependence of farmers on one or two crops as they are engaged in
growing a wide variety of crops.

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2. Diversification of productive activities

As agriculture is already overcrowded, a major proportion of the increasing labor force needs to find
alternate employment opportunities in other non-farm sectors.

It would provide alternative avenues of sustainable livelihood and would raise the level of income. Non-
farm activities has several segments. Some segments of non-farm activities possess dynamic linkages
that permit healthy growth, while others are in subsistence low productivity propositions.

The dynamic sub-sectors include agro-processing industries, food processing industries, leather industry
and tourism etc. those sectors which have the potential but seriously lack infrastructural and other
support, include traditional household based industries like poultry, crafts, handlooms etc.

NON-FARM AREAS OF PRODUCTION

1. Animal Husbandry

Animal husbandry or livestock farming is that branch of agriculture, which is concerned with the
breeding, rearing and caring for farm animals. Under livestock farming, cattle, Goats, and fowls (duck.
Goose etc.) are the widely held species. India owns one of the largest livestock populations in the world.

It provides increased stability in income, food security, transport, fuel and nutrition for the family,
without disrupting other food producing activities. This sector provides alternate livelihood options to
over 70 million small and marginal farmers, including landless laborers. A significant number of women
also find employment in the livestock sector.

2. Dairying

Dairying is that branch of agriculture which involves breeding, raising and utilization of dairy animals for
the production of milk and the various dairy products processed from it. It is the business of producing,
storing and distributing milk and its products. The performance of Indian Dairy sector over the last three
decades has been quite impressive. Meat, eggs, wool and other by-products are also emerging as
important productive sectors for diversification.

**Operation Flood (White Revolution)

It was started by National Dairy Development Board in 1970 under the expert guidance of then
Chairman, Dr. Varghese Kurian. The objective of this programme was to create a nationwide milk grid.

Under this programme, all the farmers pool their milk produce according to different grade and same is
processed and marketed to urban centers through cooperatives. The farmers are assured of a fair price
and income. Gujarat state is held as a success story in the efficient implementation of milk cooperatives,
which has been followed by many states.

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3. Fisheries

Fisheries refer to occupation devoted to the catching, processing or selling of fish and other aquatic
animals. This sector plays an important role in socio-economic development of the country.

The water bodies are considered as mother or provider as they provide life-giving source to the fishing
community. Presently, fish production from inland sources contributes about 49% to the total fish
production and the balance 51% comes from the marine sector.

The total fish production accounts for 1.4% of the total GDP. Among states, Kerala, Gujarat,
Maharashtra and Tamil Nadu are the major producer of marine products. Even though women are not
involved in active fishing, still 60% of the workforce in export marketing and 40% in internal marketing
are women.

There is a need to increase credit facilities in the form of cooperatives and self-help groups for
fisherwomen to meet their working capital requirements for the marketing.

Some of the major problems faced by the communities include:

 Widespread under employment

 Low per capita earnings
 Absence of mobility of labour to other sectors
 High illiteracy rate and indebtedness

4. Horticulture

Horticulture refers to the science or art of cultivating fruits, vegetables, flowers, medicinal and aromatic
plants, spices and population crops. These crops play a vital role in providing food and nutrition, besides
addressing employment concerns.

India has adopted horticulture as it is blessed with a varying climate and soil conditions. It is an
important sector for potential diversification and value addition in agriculture. It is estimated that this
sector provides employment to around 19% of the total labour force.

The period of 1991-2003 is known as Golden Revolution because during this period, the planned
investment in horticulture became highly productive and the sector has emerged as a sustainable
livelihood option.

India has emerged as a world leader in producing a variety of fruits like cashew nuts, mangoes, bananas,
coconuts, and a number of spices. India is the second largest producer of both fruits and vegetables in
the world.

It has improved economic condition of many farmers and become a means of livelihood for many
unprivileged classes too. Flower harvesting, nursery maintenance hybrid seed production and tissue
culture are highly remunerative employment options for women in rural areas.

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5. Information Technology

Information technology refers to that branch of engineering that deals with the use of computers and
telecommunications to retrieve and store and transmit information. Information technology has
revolutionized many sectors in the Indian economy. There is broad agreement that it will play a critical
role in achieving a sustainable development and food security in the 21 st century.

Through appropriate information and software tools, government has been able to predict areas of food
insecurity and vulnerability, to prevent or reduce the likelihood of an emergency.

It has ushered in knowledge economy, which is thousand times more powerful than the industrial
revolution. It acts as a tool for releasing the creative potential and knowledge embedded in our people.
It has also potential of employment generation in rural areas.

SUSTAINABLE DEVELOPMENT AND ORGANIC FARMING

Meaning

Organic farming is the form of agriculture that relies on techniques such as crop rotation, green manure,
compost and biological pest control. This method avoids the use of synthetic chemical fertilizers and
genetically modified organisms.

It is the process of producing safe and healthy food, without leaving any adverse impact on the
environment. In short, organic farming is a whole system of farming that restores, maintains and
enhances the ecological balance.

Benefits

1. Economical Farming

Organic farming offers a means to substitute costlier agricultural inputs (such as HYV seeds, chemical
fertilizers, pesticides etc.) with locally produced cheaper organic inputs.

2. Generate income through exports

It generates income through international exports as demand for organically produced crops is on a rise.

3. Provides healthy food

It provides healthy food as organically produced food has more nutritional value than food grown
through chemical farming.

4. Source of employment

Organic farming generates more employment opportunities as it requires more labor inputs than
conventional farming.

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5. Safety of environment

The produce of organic farming is pesticide-free and is produced in an environmentally sustainable way.

Challenges

1. Less popular

Organic farming needs to be popularized by creating awareness and willingness on the part of farmers,
for adoption of new technology. There is a serious need for an appropriate agricultural policy to
promote organic farming.

2. Lack of infrastructure and marketing facilities

Organic farming faces problems of inadequate infrastructure and marketing facilities.

3. Low yield

Organic farming has a lesser yield in the initial years as compared to modern agricultural farming. As a
result, small and marginal farmers find difficult to adapt to large-scale production.

4. Shorter food life

Organically produced food has a shorter shelf life as compared to sprayed produce.

5. Limited choice of crops

The choice in the production of off-season crops is quite limited in organic farming.

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CHAPTER – 7

EMPLOYMENT
Definitions

1. Worker

A worker is an individual, who is involved in some economic activity, to earn a living.

2. Labor force

All persons who are working and though not working, are seeking and are available for work are deemed
to be in labor force. In other words, labor force is the total of employed and unemployed persons.

3. Labor force participation rate

The ratio of labor force to the total population of the country is known as labor force participation rate.

4. Workforce

The numbers of persons, who are actually employed at a particular time, are known as workforce.

5. Worker-population ratio

It is calculated by dividing the total numbers of workers in India by the population in India and
multiplying it by 100.

6. Casualization

The process of moving from self-employment and regular salaried people to casual wage work is known
as casualization of workforce.

7. Informalization

It refers to a situation whereby the proportion of workforce in the informal sector to total workforce
increases.

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EMPLOYMENT

Employment is an activity which enables a person to earn means of living. It refers to an arrangement,
by which a person earns income or means of livelihood.

Types

1. Self-employment

An arrangement, in which a worker uses his own resources to make a living, is known as self-
employment. Workers who own and operate an enterprise to earn their livelihood are known as self-
employed.

2. Wage employment

An arrangement, in which a worker sells his labor and earns wage in return is known as wage
employment. Under wage employment, worker is known as employee or hired worker and buyer of
labor is known as employer. It is of two types:

a. Casual workers

Workers who are casually engaged and in return gets remuneration for the work done are termed as
casual workers. These are not hired on permanent basis. It means they do not have regular income,
protection or regulation form government, job security and social benefits.

b. Regular workers

When a worker is engaged by someone or by an enterprise and is paid wages on a regular basis, then
such worker is known as regular salaried employee. These are hired on permanent basis and also get
social security benefits like pension fund, provident funds etc.

Sectors

1. Formal sector

All the public enterprises and private establishments which employ 10 or more hired workers are called
formal sector establishments. Workers in these establishments are known as formal sector workers.
They enjoy social security benefits and earn more than those in the informal sector. The government
protects them in various ways through its labor laws and they can also form trade unions to protect
their interests.

2. Informal sector

Informal sector includes all those private enterprises which hire less than 10 workers. Workers who
work in such enterprises are known as informal workers. They do not get regular income. They do not
have any protection or regulation from the government. Such workers have the risk of being dismissed
without any compensation.

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UNEMPLOYMENT

Meaning

Unemployment refers to a situation in which people are willing and able to work at the existing wage
rate, but do not get work.

Types

1. Disguised unemployment

It refers to a state in which more people are engaged in work than are really needed. For example, if
two workers are needed on a piece of land and five workers are engaged on the same job, then three
workers are disguised unemployed. It is the most predominant form of unemployment in the
agricultural sector of developing countries like India. The main problem of disguised unemployment is
that apparently all seem to be employed, but marginal productivity of the surplus labor is zero.

2. Seasonal unemployment

Unemployment that occurs at certain seasons of the year is known as seasonal unemployment. In India,
seasonal unemployment is predominantly associated with agriculture. In agriculture, work is seasonal
and there is no employment in the village for all the months in a year. The period of this type of
unemployment varies from state to state, depending upon the methods of farming.

3. Open unemployment

Open unemployment refers to that economic phenomenon in which persons are able and willing to
work at the prevailing wage rate, but fails to get work. It is so called because such unemployment can be
seen and counted in terms of the number of unemployed people.

4. Industrial unemployment

It refers to the unemployment among the illiterate, who wish to work in Industrial establishments. With
the increase in size of urban population and the migration of population from rural to urban industrial
areas, the industrial unemployment is gradually becoming acute.

5. Educated unemployment

Educated unemployment refers to the unemployment among the educated people. The rapid
expansion of general education in the country has increased the educated people in the country. It has
led to a peculiar educated unemployment problem in the country.

6. Frictional unemployment

Frictional unemployment refers to temporary unemployment, which exist during the period, wherein
workers leave one job and join some other. It arises due to labor market imperfections, such as lack of
market information about availability of jobs or lack of perfect mobility on the part of the workers.

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7. Structural unemployment

It refers to the unemployment, in which people remain unemployed due to mismatch between
unemployed persons and the demand for specific type of workers. It is associated with the structural
changes in the economy. The unemployed workers lack skill and training required by the developing
countries.

8. Cyclical unemployment

It is associated with the down-sowing and depression phases of business cycle. It is the most common
type of unemployment in the developed capitalist economies. A business cycle consists of alternating
periods of prosperity and depression.

Causes

1. Slow rate of economic growth

The actual growth rate always lies far below the rate targeted in the five decades of planning.
Employment opportunities created under the plans could not keep pace with the additions to the labor
force.

2. Population explosion

The rapid rate of population growth has been another cause of increasing unemployment in the country.
It has not been possible to generate many employment opportunities to absorb the large growing labor
force.

3. Underdeveloped agriculture

Heavy pressure of population on land and the primitive methods of agricultural operations are
responsible for massive rural unemployment and underemployment in the country.

4. Defective educational system

The prevailing education system in India is full of defects as it fails to make any provision for imparting
technical and vocational education. As a result, educated people are unable to meet the requirements of
the firm.

5. Slow growth of Industry

Due to shortage of capital and lack of modern and advanced technology, industrial sector could not gain
its momentum and could not generate sufficient employment opportunities in the country.

6. Low capital formation

Low rate of capital formation has hampered the growth potential in the agricultural and industrial
sectors. Consequently, job-creation capabilities of both the sectors have been affected adversely.

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Remedies

1. Accelerating growth rate of GDP

The aggregate employment problem can be solved through the process of accelerated growth. Growth
rate of GDP between 8% and 9% are needed over the next ten years, to achieve a significant
improvement in the employment situation.

2. Control of population growth

The rapid growth rate of population should be slowed down, so that the additional jobs created do not
fall short of new entrants to the labor market. Therefore, it is necessary to adopt an effective and
meaningful population control policy like family planning programmes.

3. Development of agricultural sector

Acceleration of agricultural growth is important to increase labor productivity and quality of

employment for large numbers of the existing labor force. There is a need for agricultural revolutions
though improved techniques, extension of irrigation facilities, reform of land laws, increase in public
investment etc.

4. Improvement in Infrastructure

The infrastructural facilities like health, education, irrigation, electricity, roads, etc. are critical for overall
development of the economy. Better infrastructural facilities enable agriculture and industry sector to
produce to their full capacity. This will generate more employment.

5. Special employment programmes

Special employment programmes, which aim at providing wage employment or self-employment

opportunities, should be implemented.

6. Creation of self-employment opportunities

Government should provide various facilities like financial assistance, training of skills, supply of inputs,
marketing of products etc. to generate more self-employment opportunities.

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CHAPTER-8

INFLATION

Meaning

Inflation refers to a situation of persistent and appreciable rise in the general price level of prices.

Features

1. It occurs due to rising prices.

2. There should be persistent rise in price level.

3. There should be appreciable or considerable rise in prices.

4. During inflation all cost and prices do not rise together and in the same proportion.

Types

1. Creeping or mild inflation

It occurs when the price level rises at a very slow rate i.e. less than 3% per annum.

2. Walking or trotting inflation

It occurs when the price level rises at an intermediate range of 3-6% per annum.

3. Running inflation

It occurs when the sustained rise in prices is over 8% and is generally around 10% per annum.

4. Galloping inflation

It occurs when the prices rise by double or triple digit inflation rates i.e. more than 10% but less than
1000%.

5. Hyperinflation inflation

It refers to a situation when the prices rise at an alarming high rate. The prices rise so fast that it
becomes very difficult to measure its magnitude.

Demand-pull inflation

Demand pull inflation occurs when the aggregate demand of goods and services exceeds the aggregate
supply of goods and services at the existing prices, i.e. when there is no excess demand for goods and
services. It is a phenomenon of “Too much money chases too few goods”.

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Cost-push Inflation

Cost push inflation occurs due to increase in cost of production without the corresponding increase in
the productivity. This type of inflation occurs due to the forces operating from the supplt side or the cost
side. So, it is also known as supply or cost theory of inflation.

Causes

1. High growth rate of population

In India, population is increasing at a very high rate and it is putting heavy pressure on the aggregate
demand and on the price level of the country.

2. Increase in public expenditure

Government expenditure has been steadily and continuously increasing over the years. Continuous
increase in the government expenditure puts large money incomes in the hands of general public as
expenditure of the government becomes income for the public.

3. Increase in the money supply

There has been persistent increase in the money supply, without any equivalent increase in the Gross
Domestic Product (GDP). It has increased the purchasing power of public, which in turn, raises the
demand for goods.

4. Deficit financing

It refers to printing of currency by RBI to meet deficit of money in the government budget. Printing of
new currency increases the money supply, which raises the aggregate demand for goods and services.

5. Growth of black money

Black money refers to that money which is acquired after evading taxes. Black money is generally used
for financing non-productive activities like investment in real estate, purchase of gold, hoarding and
black marketing of essential goods etc.

6. Increased taxation

With every budget, the government increases the amount of indirect taxes. It gives an opportunity to
the trading classes to raise the prices. Such taxes are responsible for pushing up the price level of the
country.

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Adverse Effects

1. Creates Business Uncertainty

Unless price rises are predictable, they introduce an element of uncertainty in to the economy.
Production is adversely affected on account of business uncertainty. Inflation discourages the
entrepreneurs from taking risks involved in production.

2. Effect on BOP

Inflation often leads to increased import and /or reduced export. This results in deficit in the balance of
payments, which in turn causes a drain on the foreign exchange reserves.

3. Rise in inequalities in income

During inflation, speculators and profiteers gain without any effort on their part. Thus, inflation gives
rise in disparities in the distribution of income and wealth.

4. Leads to hoarding and black marketing

During inflation, the traders hoard essential goods with aim of getting higher profits. The buyer also
hoards essential goods for the fear of paying higher prices in future. Thus inflation leads to growth of
black marketing.

5. Effects on saving and investment

Persistent rise in price level reduces the value of money, which reduces the purchasing power. It leads
to fall in fall in savings and investments.

6. Effect on weaker sections

The continuous rise in price adversely affects the consumption of the weaker sections of the population
as they are not compensated for the rise in prices.

Policies to control inflation

The measures which can be used to control inflation are as follows:

1. Monetary policy

Monetary policy is the policy of the central bank to control money supply and credit creation in the
economy. Following two instruments of monetary policy are used by RBI to control inflation:

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a. Quantitative Instruments

These instruments aim to influence the total volume of credit in circulation. Major instruments are:

i. Increase in Bank rate

The term bank rate refers to the rate at which central bank lends money to commercial banks as the
lender of last resort. During inflation, central bank increases the bank rate, which raises the cost of
borrowing from the central bank. It forces the commercial banks to increase their lending rates, which
discourages borrowers from taking loans. It reduces the availability of credit in the economy.

ii. Open Market Operations

Open market operation refers to sale and purchase of securities in the open market by central bank.
During inflation, central bank offers securities for sale. Sale of securities reduces the reserves of
commercial banks which in turn reduces the bank’s ability to create credit in the economy.

iii. Increase in Legal Reserve Ratio

Commercial banks are obliged to maintain legal reserves. There are two components of legal reserves:

 Cash reserve ratio

It is the minimum percentage of net demand and time liabilities to be kept by commercial banks with
the central banks.

 Statutory liquidity ratio

It refers to minimum percentage of net demand and time liabilities, which commercial banks are
required to maintain with themselves.

To correct inflation, the central bank increases CRR and SLR. It reduces the amount of effective cash
resources of commercial banks and limits their credit creating power.

b. Qualitative Instruments

These instruments aim to regulate the direction of credit. Major qualitative instruments are:

i. Increase in margin requirements

Margin requirements refer to difference between the market value of security offered and the amount
of loan. When the economy is suffering from inflation, central bank increases the margin, which restricts
the credit creating power of banks.

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ii. Moral suasion

This is a combination of persuasion and pressure that central bank applies on other banks in order to get
them act, in a manner, in line with its policy. It is exercised through discussions, letters, speeches and
hints to banks.

iii. Selective credit controls

It refers to a method in which the central bank gives directions to other banks to give or not to give
credit for certain purpose to particular sectors. During inflation, the central bank introduces rationing of
credit in order to prevent excessive flow of credit particularly for speculative purposes.

2. Fiscal policy

Fiscal policy refers to the policy of central government to control the situation of money supply in the
economy. It is also known as revenue and expenditure policy of the government.

1. Expenditure policy

To control the situation of inflation, government should reduce its expenditure to the maximum possible
extent. More emphasis should be placed to reduce expenditure on defense and unproductive works as
they rarely helps in growth of the country.

2. Revenue policy

During inflation, government increases the rates of taxes and even imposes some new taxes. It leads to
decrease in the level of aggregate expenditure in the economy and helps to control inflation.

3. Public borrowings

During inflation, government borrows money from the public to withdraw excess money held by them.
It helps to reduce the money supply in the economy and helps in controlling inflation.

4. Deficit financing

During inflation, government avoids deficit financing to prevent increase of money supply.

3. Other measures

There are certain other measures also, which can be undertaken to control inflation. These are as
follows:

1. Income policy

The primary objective of income policy is to ensure that wages, salaries and other incomes should
increase in tune with increase in productivity. The rise in income of any factor should be consistent with
the rise in productivity, in order to control inflation.

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2. Price control of essential items

Under price control policy, the government fixes the maximum price at which certain commodities could
be sold. Prices of essential goods need to be controlled in order to ensure their availability to all the
sections of the society.

3. Improvement in PDS

Price control policy needs to be accompanied by rationing. Under rationing, specified quantity of goods
is given to consumers at the controlled price through Public Distribution System (PDS).

4. Population control Measures

Effective population control measures will help a lot in reducing excess demand and controlling
population.

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CHAPTER-9

INFRASTRUCTURE

Meaning

Infrastructure refers to all such activities, services and facilities, which are needed to provide different
kinds of services in an economy. It provides supporting services in the main areas of industrial and
agricultural production, domestic and foreign trade and commerce.

Types

1. Economic infrastructure

It includes infrastructure associated with energy, transportation and communication. It is important to

promote economic activities i.e. production and trade of goods and services.

2. Social infrastructure

It includes infrastructure associated with education, health and housing. It consist of provision of all
those services which improve the quality of human resources.

Economic development is not a mere growth in Gross Domestic Product, but has its social dimensions
too. Therefore, both economic and social infrastructure projects have a strong bearing on the process of
economic development.

Importance

1. Facilitates functioning of an economy

The functioning of an economy depends on the existence of infrastructural facilities. Agriculture,

industry and service sectors depend heavily on infrastructural facilities for their growth.

2. Agricultural development

The development of modern agriculture depends on infrastructural facilities like roadways, railways and
shipping for speedy and large-scale transport of seeds, pesticides, fertilizers etc. There is also a need for
insurance and banking facilities, so that agriculture can operate on a large-scale.

3. Economic development

Development of infrastructure and economic development go hand in hand. Infrastructure contributes

to economic development of a country by increasing the productivity of the factors of production and
improving the quality of the factors of production and improving the quality of life of the people.

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4. Better quality of life

Improvement in water supply and sanitation has a large impact by reducing proneness to fall ill from
major waterborne diseases and reducing the severity of disease. The quality of transport and
communication infrastructure can affect access to health care.

5. Provide Employment

Many people get employment in infrastructural projects like construction and maintenance of roads,
railways, electricity plants etc. Many more people are able to find employment in industry and trade,
after development of strong infrastructure.

6. Facilitates outsourcing

A country with advanced infrastructure facilities is able to reap benefits from the outsourcing work.
India is emerging as a global destination for BPOs, KPOs, call centers etc. due to IT support system and
sound infrastructure.

STATE OF INFRASTRUCTURE IN INDIA

 Earlier the government has been solely responsible for developing he country’s infrastructure.
However, due to inadequacy of government’s investment in infrastructure. Private sector in
partnership with public sector, has started playing a very important role n the infrastructure
development.
 Despite so much technical progress in the world, rural women still uses bio-fuels such as crop
residues, dung and fuel wood to meet their energy requirements. About 90% of the rural
households uses bio-fuels for cooking.
 Rural people have to travel long distances to fetch fuel, water and other basic needs. As per
census 2001, only 56% of the rural households had electricity connection.
 Tap water availability is available to only 24% rural households and the remaining households
make use of water from open sources like well, tank, ponds etc.
 India invest only 5% of the GDP on infrastructure, which is far below that of China and
Indonesia. So, India needs to boost its infrastructural investment.
 Unless proper attention is paid to the development of infrastructure, it is likely to act as a severe
constraint on economic development.

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ENERGY
Meaning

Energy is an important input for most of the production processes and consumption activities. It plays a
very crucial role in the development of an economy.

 There exist a positive correlation between economic growth and demand for energy.
 In India, energy is used on a large-scale in agriculture and related areas, like production and
transportation of fertilizers, pesticides and farm-equipment.
 Energy is required in house for cooking, household lighting and heating.

Types

1. Commercial energy

Commercial energy refers to those sources of energy which command a price and the users have to pay
a price for them.

 For example, coal, petroleum and electricity.

 Commercial sources of energy are generally exhaustible.
 Commercial sources account for over 50% of the total energy sources consumed in India.

2. Non-commercial energy

Non-commercial energy consists of those sources of energy which generally do not command a price.

 For example, firewood, agricultural waste and dried dung etc.

 Non-commercial sources are generally renewable.
 These are generally available free of cost as they’re found in nature or forests.
 More than 60% of the Indian households depend on traditional sources of energy for meeting
their regular cooking and heating needs.

3. Conventional sources of energy

It refers to the sources of energy, which are in use since long and can be stored.

 For example, coal and oil.

 Such sources are non-renewable sources of energy.
 Even today, most of the industries of the world make use of coal and oil in the industries.
 Both commercial and non-commercial sources of energy are known as conventional sources of
energy.

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4. Non-conventional sources of energy

It refers to the sources of energy, which have come in to use recently.

 For example, solar energy, wind energy, geo-thermal energy, bio-gas and tidal power.
 Such sources are renewable sources of energy.
 Being a tropical country, India has almost unlimited potential for producing these types of
energy.

S. NO. COMMERCIAL ENERGY NON-COMMERCIAL ENERGY

1. These are generally exhaustible.
2. These have a market i.e. they
command a price.
3. These are generally used for
industrial and commercial purposes.
These are generally renewable.
These are generally free.
These are generally used for domestic and
consumption process.

S. NO. CONVENTIONAL SOURCES NON-CONVENTIONAL SOURCES

1. These are limited. These are abundant.
2. These are non-renewable. These are non-renewable.
3. They pollute the atmosphere. They are pollution free i.e. they are eco-
friendly.
4. They are expensive means of energy. These sources are cheaper.

Consumption Pattern

 Commercial energy consumption makes up about 65% of the total energy consumed in India.
 Non-commercial energy sources consisting of firewood, cow dung and agricultural waste,
accounts for over 30% of the total energy consumption.
 India depends on imports for crude and petroleum products, which is likely to grow to more
than 100% in the near future.

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POWER (ELECTRICITY)
Power or electricity is the most critical component of infrastructure, which is often identified with
progress in modern civilization.

 In order to attain economic development, power is required in every step.

 With the gradual development of various sectors of the economy, the demand of power is
increasing year after year.
 The growth rate of demand for power is generally higher than the GDP growth rate.

Sources

1. Thermal Power

When power is generated out of coal, oil or natural gas, it is termed as thermal power. It accounts for
71.28% of total power generation.

2. Hydro-electric Power

When power is generated from the waters of fast flowing rivers or high dams, it is termed as hydro-
electric power. It is cheapest among all the three sources.

3. Nuclear or Atomic power

When power is generated from the radioactive elements like uranium, thorium and plutonium, it is
termed as nuclear or atomic power.

Challenges

1. Inadequate electricity generation

India’s installed capacity to generate electricity is not sufficient to feed an annual economic growth of
7%. In order to meet the growing demand for electricity between 2000 and 2012, India needs to add 1,
00,000 MW of new capacity.

2. Under-utilization of installed capacity

The installed capacity is under-utilized as plants are not run properly. During excess demand, the
operational efficiency, of power projects is reflected by Plant Load factor. In India, the PLF is very poor
and inadequate attention is paid to improve it.

3. Poor performance of State electricity Boards

State electricity Boards, which distribute electricity, incur losses which exceed Rs. 500 billion. This is due
to transmission and distribution losses, wrong pricing of electricity and other operational efficiencies.

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4. Shortage of Inputs

Thermal power plants, which are the foundation of India’s power sector, are facing shortage of raw
materials and coal supplies.

5. Limited role of Private and foreign entrepreneurs

Private sector power generators and foreign investors are yet to play their role in a major way.

6. Lack of public co-operations

There is general public unrest due to high power tariffs and prolonged power cuts in different parts of
the country.

Measures

1. Improvement in PLF

The plant load factor is an important indicator of operational efficiency of thermal power plants.
Improvement in PLF will help better utilization of capacity of the plant.

2. Control of transmission and distribution losses

To solve the power crisis, transmission and distribution losses should be effectively controlled as they
adversely affect the financial health of power utilities.

3. Increase in productive Capacity

In India, there is under-utilization of production capacity of thermal power stations. Its productive
capacity should be increase to control the power crisis.

4. Promote the role of private sector

Although the private sector has made some progress, it is necessary to tap this sector to come forward
and produce power on a large scale.

5. Encourage use of renewable resources

With the large availability of biomass in India, there is significant potential for meeting energy needs,
particularly in rural and remote areas. Greater reliance on renewable energy resources offers enormous
economic, social and environmental benefits.

6. Development of hydro-potential

India is quite rich in Hydro power potential with an estimated hydro power potential of more than 1,
50,000 MW. However, only 21.14% of the potential has been developed till date.

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HEALTH
In the words of WHO,

“Health is a state of complete physical, mental and social well-being and not merely the absence of
disease.”

Three tier system

India’s health infrastructure and health care is made up of a three tier system.

1. Primary Health care

Primary health care includes:

 Education concerning prevailing health problems and methods of identifying, preventing and
controlling them.
 Promotion of food supply and proper nutrition and adequate supply of water and basic
sanitation.
 Maternal and child health care.
 Immunization against major infectious disease and injuries.
 Promotion of mental health and provision of essential drugs.

2. Secondary Health care

Hospitals which have better facilities for surgery, electro cardio gram (ECG), are called secondary health
care institutions. They provide primary health care and also provide better health care facilities.

3. Tertiary Health care

Hospitals which have advanced level equipment and medicines and undertake all the complicated
health problems, which could not be managed by primary and secondary hospitals, come under tertiary
health care.

Role of Private Sector

In recent times, the role of private sector, in providing health services, has considerably grown.

 More than 70% of the hospitals in India are run by the private sector.
 Private sector control nearly two-fifth of beds available in the hospitals.
 Nearly 60% of dispensaries are run by the private sector.
 Private sector provides healthcare to 80% of out-patients and 46% of in-patients.
 Many NRIs and industrial and pharmaceutical companies have set up super-specialty hospitals
to attract India’s rich and medical tourists.
 It plays a dominant role in medical education and training, medical technology and diagnostics,
manufacture and sale of pharmaceuticals, hospital construction etc.

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Indian System of Medicine (ISM)

India has its own well developed alternate system of health care, namely: AYUSH, consisting of six
systems – Ayurveda, Yoga, Unani, Siddha, Naturopathy and homeopathy.

 At present, there are 3,004 ISM hospitals, 23, 028 dispensaries and as many as 6, 11,431
registered practitioners in India.
 ISM has huge potential and can solve a large part of our health care problems.
 However, little efforts have been done to set up a framework to standardize education or to
promote research.

Rural-Urban Divide

 70% of India’s population live in rural areas, but only 20% of total hospitals and 50% of total
dispensaries are located in rural areas.
 There are only 0.36 hospitals for every one lakh people in rural areas, while urban areas have
3.6 hospitals for the same number of people.
 The PHCs are located in rural areas do not even offer X-ray or blood testing facilities, which
constitutes basic health care.
 In the rural areas, the percentage of people, who have no access to proper care, has risen from
15 in 1986 to 24 in 2003.
 Villagers have no access to any specialized medical care, like pediatrics, gynecology, anesthesia
and obstetrics.

Women health

 The child sex ratio declined from 945 in 1991 to 927 in 2001.
 Around 3 lakh girls below 15 years of age are not only married but have already borne children
at least once.
 More than 50% of married women between the age group of 15 and 49 have anemia and
nutritional anemia, caused by iron deficiency.
 Abortions are also a major cause of maternal morbidity and mortality in India.

HEALH: A BASIC HUMAN RIGHT

In order to provide basic healthcare to all, accessibility and affordability needs to be integrated in our
basic health infrastructure. The ultimate goal should be to help people move towards a better quality of
life.

 All citizens can get better health facilities if public health services are decentralized.
 Success in the long term battle against diseases depends upon education and efficient health
infrastructure. So. It is important to create awareness o health and hygiene and provide
efficient systems.

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 Telecom and IT sectors can play an important role in improving the health process in the
economy.
 The effectiveness of health care Programmes rests on primary healthcare. So, serious steps
should be taken to improve them.
 Private-public partnership can effectively ensure reliability, quality and affordability of both
drugs and medi-care.

Critical assessment

1. Inequitable distribution of health services

The existing health system suffers from inequitable distribution of institutions and manpower. About
70% of India’s population live in rural areas, but only 20% of total hospitals are located in rural areas.

2. Communicable diseases

Increasing attention is urgently needed for prevention of communicable diseases like AIDS (Acquired
Immune Deficiency Syndrome) and SARS (Severe Acute Respiratory Syndrome) through effective control
measures.

3. Poor sanitation facilities

Sanitation facilities are extremely poor in both rural and urban areas. About 30% of the houses in urban
areas do not have toilet facilities and the condition in rural areas is even worse.

4. Lack of manpower

Even though, India produces 12,000 medical graduates every year, still there is huge shortage of
manpower.

5. Malnutrition

Widespread malnutrition poses a major threat to the lives, especially in case of children.

6. Role of private sector

Public sector has not been so successful in providing adequate health structure. There is a need to
increase collaboration of public sector with private sector to meet health care needs of people.

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CHAPTER-10

ENVIRONMENT AND SUSTAINABLE DEVELOPMENT

ENVIRONMENT

Meaning

Environment is defined as total planetary inheritance and totality of all resources. it is the sum total of
all the external forces which surround us. It includes all the biotic and abiotic factors that influence each
other.

Functions

1. Provides resources for production

Environment provides renewable and non-renewable resources.

 Renewable resources are those which can be used without the possibility of the resource
becoming depleted or exhausted like trees, fishes etc.
 Non-renewable resources are those which get exhausted with extraction and use like fossil fuel.

The natural resources provided by environment are used as input for production.

2. Environment assimilates waste

The process of production and consumption activities generates a lot of wastage, which is absorbed by
the environment.

3. Environment sustains life

Some basic necessities of life like sun, soil, water and air are part of environment. So environment
sustains life by providing these essential elements.

4. It provides aesthetic services

Environment includes land, forests, water bodies, rainfall, air, atmosphere etc. People enjoy the scenic
beauty of these elements like that of hill stations. It helps in improving the quality of life.

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CARRYING CAPACITY

The environment is able to perform these functions without any interruption as long as demand on
these functions is within its carrying capacity.

Carrying capacity implies two things:

 Resource extraction should remain below the rate of resource generation.

 Generation of waste should remain within the absorption capacity of the environment.

If these two conditions are not fulfilled, then environment fails to perform its vital functions of life
sustenance and it leads to the situation of Environmental Crisis.

Reasons for environment crisis

1. The population explosion and advent of industrial revolution has increased demand for environmental
resources, but their supply is limited due to overuse and misuse.

2. The intensive and extensive extraction of both renewable and non-renewable resources have
exhausted some of the vital resources.

3. Extinction of many resources and continuous rise in population has also resulted in environment
crisis.

4. Due to affluent consumption and production standards of the developed world, the wastes generated
are beyond the absorptive capacity of the environment. Absorptive capacity means the ability of the
environment to absorb degradation.

5. The development process has polluted the atmosphere and wastes and there is decline in air and
water quality.

6. Global environment issues such as global warming and ozone depletion also contribute to the
increased financial commitments for the government.

GLOBAL WARMING

Meaning

Global warming is the observed and projected increase in the average temperature of earth’s
atmosphere and oceans. During the past century, the atmospheric temperature has risen by 1.1 0 f and
sea level has also risen several inches.

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Causes

 Burning of coal and petroleum products

 Deforestation, which increases the amount of carbon dioxide in the atmosphere
 Methane gas released in animal waste
 Increased cattle production, which contributes to deforestation, methane production and fossil
fuels.

Effects

 Ice is melting worldwide, especially at earth’s poles. It has led to a steep rise in sea level and
coastal flooding.
 Hurricane and other tropical storms are likely to become stronger.
 Increased incidence of tropical diseases like malaria, cholera, dengue, chikungunya etc. etc.
 There are thousands of species in danger of becoming extinct forever.

OZONE DEPLETION

Meaning

Ozone depletion refers to destruction of ozone in the ozone layer due to the presence of chlorine from
manmade chlorofluorocarbons (CFCs) and other forces.

Causes

The problem of ozone depletion is caused by high levels of chlorine and bromine compounds in the
stratosphere. The origin of these compounds is CFCs and aerosol propellants used in fire extinguishers.

Effects

 UV radiation seems to be responsible for skin cancer in human beings.

 UV radiation lowers production of phytoplankton, which affects other aquatic organisms.
 UV radiation can also influence the growth of terrestrial plants.

Montreal Protocol

 It is a historical treaty designed by the members of United Nations to protect the ozone layer by
phasing out CFC, which is supposed to be the main reason for ozone depletion.
 Under this protocol, all the signing members agreed to freeze the consumption and production
of CFC by the year 2013.
 India signed the protocol along with its London amendment on 17/09/1992.
 The Montreal Protocol has significantly reduced the burden of CFCs in the stratosphere and
helped in Ozone recovery.

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CHALLENGES TO INDIA’S ENVIRONMENT

1. Land degradation

Land degradation refers to a decline in the overall quality of soil, water or vegetation condition,
commonly used by human activities. It occurs through natural and man-made processes of wind erosion,
water erosion and water logging.

In India, land suffers from different types of degradation, mainly because of unstable use and
inappropriate management practices. Such kind of degradation leads to the loss of invaluable nutrients
and lower food grain production.

Causes

 Loss of vegetation due to deforestation

 Overgrazing
 Encroachment in to forests land
 Non-adoption of adequate and soil conservation measures
 Unsustainable fuel wood and fodder extraction
 Improper crop rotation
 Indiscriminate use of agro-chemicals such as fertilizers and pesticides
 Improper planning and management of irrigation systems
 Extraction of ground water in excess of the recharge capacity

2. Degradation of Forests or Deforestation

Deforestation involves the permanent destruction of indigenous forests and woodlands. It refers to
cutting, clearing and removal of rain forest, where land is thereafter converted to a non-forest use.

It is rising at such a rapid scale that it has totally disturbed the ecological balance of the country. There
are very serious and dangerous consequences of forest depletion, like chances of more floods, soil
erosion, heavy siltation of dams and change in climate.

3. Soil erosion

Soil erosion takes place when the surface soil is washed away through excessive rains and floods.
Deforestation is one of the major reasons for soil erosion. The quantity of nutrients lost due to erosion
each year ranges from 5.8 to 8.4 million tons

4. Biodiversity loss

Biodiversity is defined as the variability among living organisms from all sources, including terrestrial,
marine and other aquatic ecosystems and the ecological complexes of which they are part. Conservation
and sustainable use of biodiversity is fundamental to ecologically sustainable development.

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Biodiversity loss has serious economic and social cost for any country as many plant and animal species
are severely threatened by the destruction of their habitat and over-exploitation of resources. So there
is an immediate need for biodiversity conservation.

5. Air pollution

Air pollution is the presence of materials in air in such concentration, which are harmful to man and the
environment. In India, air pollution is widespread in urban areas where vehicles are the major
contributors, and in a few other areas, which have a high concentration of industries and thermal power
plants. India is one of the ten most industrialized nations of the world. However, this achievement
comes with unwanted and unanticipated consequences like unplanned urbanization, pollution and risk
of accidents.

Ways to control Air Pollution

 Promotion of public transport like use of Delhi Metro instead of private vehicles.
 Promotion of cleaner fuels in vehicles such as CNG instead of petrol and diesel.
 Use of cleaner fuels such as LPG in households to reduce indoor air pollution.
 Promotion of cleaner technologies, strengthening of emission standards, introducing economic
incentives, and compliance of monitoring and reporting system.

SUSTAINABLE DEVELOPMENT

Sustainable development is the development, which will allow all future generations to have a potential
average quality of life, that is, at least as high, which is being enjoyed by the current generation.

The basic aim of sustainable development is to ensure that present generation should leave stock of
quality of life for the next generation, which is no less than what we have inherited.

Strategies

1. Use of non-conventional sources of energy

India is hugely dependent on thermal and hydro power plants to meet its power needs. But, both these
sources have adverse environmental impacts. Non-conventional sources like wind power and solar rays
are cleaner and greener technologies, which can be effectively used to replace thermal and hydro-
power.

In areas with high speed of wind, wind mills can provide electricity without any adverse impact on the
environment. India is naturally endowed with a large quantity of solar energy in the form of sunlight.
Both the sources are totally free from pollution. Although their initial cost is high, but the benefits are
such that the high cost gets easily absorbed.

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2. Use of cleaner fuels

In Urban areas, use of compressed natural gas (CNG) is being prompted to be used as fuel. In Delhi, use
of CNG in public transport has significantly lowered air pollution.

In rural areas, households generally use wood, dung cake or other bio-mass as fuel. To overcome this
problem, use of LPG, and Gobar gas is being promoted as they are cleaner fuels and helps in reducing
household pollution to a large extent.

3. Establishment of mini-hydel plants

In mountainous regions, perpetual streams are found almost everywhere. These streams can be used to
generate electricity through mini-hydel plants. Such power plants are more or less environment friendly
and generate enough power to meet local demands. Moreover, large scale transmission towers and
cables are not required in such plants.

4. Traditional knowledge and practices

Traditionally, Indian people have been close to the environment. All practices related to agriculture
system, healthcare system, housing, transport etc. used to be environment friendly. The shift from the
traditional systems has caused large-scale damage to the environment and to our rural heritage.

The old systems are environment friendly, relatively free from side effects and do not involve large-scale
industrial and chemical processing.

5. Use of bio-compost

The use of chemical fertilizers to increase the agricultural production has not only adversely affected the
large areas of productive land but also contaminated the water bodies. Due to the use of chemical
fertilizers, demand for irrigation has been going up year after year.

With the rise in demand for organic food, farmers have again started using compost made from organic
waste of different types. In certain parts of the country, cattles are maintained only because they
produce dung, which is an important fertilizer and soil conditioner.

6. Control of Biopest

The advent of Green Revolution has increased the use of chemical fertilizers, which not only
contaminates food products, but also pollutes the water bodies. To meet this challenge, better methods
of pest control are promoted.

In addition, awareness is being created for use of various animals and birds (like snakes, Lizards, owls
and peacocks) as natural pest controllers. Mixed cropping and growing different crops in consecutive
years on the same land have also helped farmers.

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CHAPTER-11

Comparative Development Experiences of India and Its Neighbours

Q what were the similarities in developmental strategy of India, China and Pakistan?

Ans.

1. All the 3 nations have started towards the development path. When India and Pakistan became
Independent in 1947 the People’s Republic of China (PRC) was established in 1949.
2. All three countries started economic planning in similar ways. India announced its 1 st five year
plan in 1951, Pakistan announced its 1st five year plan now called medium term development
plan in 1956. China announced its 1 st five year plan in 1953.
3. India and Pakistan adopted similar strategies such as creating a large public sector and raising
public expenditure on social development.
4. Till the 8O’s all three countries had similar growth rates and per capita incomes.
5. All 3 countries introduce economic reforms China in 1978, Pak in 1988 and India in 1991.

Q what are the various measures by which countries are trying to strengthen their own domestic
economies?

Or

Why are regional and economic groupings formed?

Ans.

1. Nations were being primilarly trying to adopt various means by which domestic economies will
be strengthened hence they are forming regional and economic groupings like SAARC, European
Union (EU), ASEAN, G-8, G-20, BRICS etc.
2. Nations are eager to try and understand the development process of their neighbouring nations
as it allows them to better understand their own strengths and weakness with respect to their
neighbours.

CHINA

- PRC (Peoples Republic China) – 1949

- 1st FYP (1st Five Year Plan) – 1953
- GLF (Great Leap Forward) campaign – 1958
- PCR (Proletarian Cultural Revolution) – 1965
- Economic Reforms -1978
- Effect of Economic Reform

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China’s Development Path

Q Describe the path of Development initiatives taken by China for its economic development?

Ans.

1. Peoples Republic of China was formed in 1949 under 1 party rule where all critical sectors of the
economy, enterprises and land was owned and operated by the government. It started
economic planning in the year 1953 with the 1 st five year plan.
2. The Great Leap For ford Campion (GLF) aimed at industrializing China on a massive scale.
(a) People were encourage to set up industries in their backyards (small scale)
(b) In rural areas the commune system or collective farming was started under which
people cultivated land collectively.
(c) 1958, there were 26000 communes covering the entire form population.
(d) There was a severe drought in China killing about 30 million people.
(e) When Russia had border conflicts with China it withdrew its professionals who had
been sent to china to help in the industrialization process.
3. In 1965, Mao Zedong introduced the Great Proletarian Cultural Revolution (1966-1976) under
which students and professionals were sent to work and learn from the country side.
4. Economic Reforms of 1978, China introduced reforms in phases.
(a) In the initial phase,
 Reforms were initiated in agriculture foreign trade and investments.
 In agriculture commune lands were divided into small plots which were allocated (not
for ownership) to individual households.
 They were allowed to keep all income from land after paying Taxes.
(b) In the later phase reforms were introduced in Industrial Sector
 Private sector firms and village enterprises were allowed to produce goods.
 Enterprises owned by the government also known as SOE (State Owned Enterprises)
which we in India called Public Sector Enterprises where made to face competition.
(c) The reform process also involved dual pricing

This means fixing the price in 2 ways. Farmers and industrial units were required to buy and sell fixed
quantities of output based on prices fixed by the govt. and the vest were purchased and sold at market
prices.

(d) In order to attract foreign investments (SEZ’s) were set up.

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Q Describe the Developmental Path of Pakistan for its economic Development?

Ans.

1. Pakistan started its developmental path in 1947 when it gain independence and followed a
mixed economy model with co-existence of Public and Private sectors.
2. In the late 1950’s and 1960’s Pakistan introduced a variety of regulated policy frameworks for
import substitution Industrialization which combined tarrif protection for manufacturing of
consumer goods together with direct import controls on competing imports.
3. The introduction of Green Revolution led to mechanization and increase in Public Investments
In infrastructure in select areas, which finally led to a wise in the production of food grains.
4. In the 1970’s nationalization of capital goods industries took place.
5. Pakistan then shifted its policy orientation in the 1970’s and 1980’s when the major trust areas
were denationalization and encouragement of private sector.
6. Pakistan also received financial support from western nations and remittances from
continuously increasing outflow of emigrants to the Middle East. Govt. also offended incentives
to the private sector. All this created a conductive climate for new investments.
7. In 1988 reform were initiated in the Pakistan.

Q Mention the salient demographic indicators of China, Pakistan and India (comparison of demographic
indicators)?

Ans.

1. The population of Pakistan is 188 million is very small and is 1/10 th of China which is 1371 million
of India 1311 million in 2015. Hence China is the most popular among three.
2. Through China is the largest nation geographically and occupies largest area among the 3
nations. Its density is lowest, India 441 person per/square km, Pakistan 245 p/s km and China
146 p/s km.
3. The growth population has been the highest in Pakistan (2.1) followed by India (1.2) and the
least in China (0.5). The reason for the low population in china of one child worm in late 70s.

One child norm refers to the policy of Chinese govt. to allow families to have only 1 child in a family.

Effects:

i. It has resulted in a decline in growth of population.

ii. The dependency ratio on the working class has ↑ with a ↑ in the elderly population in
proportion to the young.
iii. It has also effected the labour force adversely which on the decline. Hence China has revoke this
policy in the recent years.
4. The sex ratio is low and bias against females in all the 3 countries due to the son preference
prevailing in all these countries. Pakistan 947/1000 (females/males), China (941/1000) and India
(929/1000).

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5. The fertility rate is also very low in china (1.6) and highest in Pakistan (3.6)
6. Urbanization is high in China and around 55% of Indians live in urban areas.

Comparison of Growth Rate of GDP

1. China has the second largest GDP (PPP) (Purchasing Power party) of $18.4 trillion whereas
India’s GDP (PPP) is $ 7.5 trillion and Pakistan’s GDP is $ 0.89 trillion, roughly about 12% of
India’s GDP. China was able to maintain near double-digit growth for more than a decade (1980-
90s).
2. In the 1980s Pakistan was ahead of India (in terms of annual growth of GDP at 6.3 % and India’s
was 5.7% (least). China was having double digit rate of growth at 10.3%.
3. In 2011-15 there was a decline in India’s and China’s growth rates whereas there was a drastic
decline for Pakistan at 4%. The reform process introduced in 1988 in Pakistan and the political
instability over the long period are reasons behind this trend.

Q why are there less no. of people employed in agriculture in china?

Ans.

1. China and Pakistan have more proportion of weapon people than India. In China due to the
topographic and climatic condition the area suitable for cultivation is relatively small (only 10%
is cultivable which almost 40% of India’s Cultivable land).
2. The govt. encouraged people to leave their fields and pursue other activities such as handicrafts,
commerce (trade) and transport.
3. China has greater urbanization than India and Pakistan.

Q compare and contrast India and China’s sectoral contribution of employment and GDP. What does it
indicate?

Ans. SECTORAL SHARE OF EMPLOYMENT AND GDP

1. Until the 1980, more than 80% of the people in China were dependent on farming. In 2013 with
28% of its workforce in agriculture the contribution of agriculture.
(a) To GDP in China was only 9%.
(b) In both India and Pak the contribution of agriculture to GDP was at 17% and 25%
respectively.
(c) The proportion of workforce in agriculture was more in India (50%). While in Pakistan
around 43% of the workforce is in agriculture.
2. (a) The sectoral share of GDP (output) and employment shows that the Industry and Services
sector contribute in terms of output with a lesser proportion of workforce.
(b) In China, manufacturing and services contribute to GDP are most @43% and 48%
respectively, whereas in India and Pakistan. It is the service sector which contributes the most to
GDP by more than 50% of GDP.

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3. In the normal course of development, countries 1 st shift their employment from agricultural to
manufacturing and then to services as in case of China but the proportion of workforce engaged
in manufacturing in India and Pakistan were low at 21% and 23% respectively.
4. (a) The contribution of Industries to GDP is at 30% in India and 21% in Pakistan. In these
countries the shift has been directly to the service sector.

(b) In both India and Pakistan the service sector has emerged as major employer and contributor to
GDP. Pakistan was faster in shifting its workforce to services sector than India and China.

3 MAIN CONCLUSIONS:
1. The growth of agricultural sector which employed the largest proportion of workforce initially in
all the three countries has declined considerably.
2. In the Industrial sector China has maintained a near double digit rate of growth whereas for
India and Pakistan. The growth rate has declined.
3. In case of service sector India and China were able to raise its rate of growth b/w 1980’s to 2015
while Pakistan stagnated with its service sector growth rate.

Thus, China’s growth is mainly contributed by manufacturing and services sectors and India’s growth
by services sector while Pakistan stagnated in all 3 sectors.

Human Development Indicators

Q Mention the various indicators of human development?

Or

Compare/Contrast the development of India, China and Pakistan with respect with respect to some key
Human Development Indicators?

Ans. Human Development Indicators are Income Indicators such as GDP, per capita, proportion of
population below the poverty line, mortality rate, literacy rate, life expectancy, access to limitation and
infant mortality rates.

Comparison

1. Pakistan is a head of India in reducing proportion of people below the poverty line and also in its
performance in sanitation but both have high maternal mortality rates. India 17% per lakh
births, China 27 per lakh births.
2. In China, the adult literacy is the highest (96.4%) followed by India 72.2 % while Pakistan has a
low of 54.6%.
3. All 3 countries report providing improved drinking water sources for most of its population.
4. India has the largest share of poor (proportion of people below 3% and per day) among the
three countries.

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5. Infant mortality rate is the highest in Pakistan (66/1000) the births followed by India (38/1000)
and least in China (9/1000).
6. Life expectancy in 2015 was highest in China 75.8 years in China followed by India 68.2 years in
India and Pakistan 66.2 years.

China concluding line

Therefore, China is moving ahead of India and Pakistan but these do not include liberty indicators.
Without these the human development indicators as incomplete.

Q define Liberty indicators. Give some examples of Liberty indicators.

Ans. Liberty indicators is a measure of the extent of democratic participation in social and political
decision making.

1. Extent of constitutional protection given to the Independence of Judiciary and the rule of law.
2. Extent of constitutional protection given to the rights of citizens.

Q Why did China introduce structural reforms in 1978. (Need for reforms in China)?

Ans.

1. China did not have no compulsion to introduce reforms as dictated by World Bank and IMF to
India and Pakistan.
2. The new leadership in China was not happy with the show pace of growth and lack of modern
section in Chinese economy under Maoist rule.
3. They felt that the Maoist vision of economic development based on decentralization, self-
sufficiency and not using foreign technology and capital had failed.
4. Despite extensive Land reforms collectivization, the Great leap forward and other initiatives the
per capita output in 1978 was still the same as the mid 50’s.

Effect of Reforms in China

 It was found that the establishment of infrastructure in areas of education and health, land
reforms. Distance of small enterprises and decentralized planning had helped positively in
improving the social and income indicators in the past reform period.
 Before the reforms they had already been massive extension of basic healthcare in rural areas
and through the commune system there was more equitable distribution of food grains.
 Since each reform measure was implements at a smaller level and then extended to a massive
scale. It enabled the government to access the economic social and political cost success or
failure.
 When reforms were made in agriculture by handling over plots to individuals for cultivation it
brought prosperity to a vast number of poor people which in twin created conditions for the
rapid growth in rural industries and built up a strong support base for more reforms.

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 China’s investment in infrastructure and SEZ’s (special economic zones) were also responsible
for the growth of the industrial sector and export promotion. The concept of a dual economy,
still it lead to growth of the industrial and extension sector (imports and exports).

Effect of Reforms in Pakistan

The reform process in Pakistan led to a worsening of all economic indicators compared to the 1980’s the
growth rate of GDP and its sectoral components have fallen in 1990’s.

Q Reemergence of Poverty in Pakistan.

Ans.

1. Though the data on international poverty is quite healthy for Pakistan and the proportion of
poor in 1960’s was more than 40% and had declined to 25% in 1980’s, it had started rising again
in the 1990’s.

Reason

The main reason for this is that the agricultural growth and food supply sitting were not based on
planned institutional processes of technical change but on good harvest. When there was a good
harvest the economy was in good condition but when it was not the economy showed stagnation
and negative trends.

2. In Pakistan most of the foreign exchange earnings came from remittances from the Pakistani
workers in the Middle East and the exports of highly volatile agricultural products. Also there
was a growing dependence on foreign loans and aid which often lead to dead trap.

However, during the last few years, Pakistan has recovered its economic growth and has registered
a GDP growth rate of 4.7% in 2016-17. Many macro, economic indicators are also beginning to show
positive and stable trends.

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STATISTICS

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CHAPTER -1

INTRODUCTION

Meaning of Economics

As a subject, Economics is not very old. However, there is no harmony on its definition. Different
economists have defined in its different ways, which has led to a lot of disputes and misconceptions.
Various definitions of economics developed during the course of history have been broadly divided into
four parts:

1. Wealth Definition by Adam Smith

2. Welfare Definition by Alfred Marshall
3. Scarcity Definition by Lionel Robbins

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4. Growth Oriented Definition by Samuelson

Wealth Definition

According to Adam Smith, ‘Economics is the science of wealth.’

 In the ordinary language, wealth means money.

 But in economics, the term ‘wealth’ has a special meaning. In Economics, wealth refers to those
goods which satisfy human wants.

Welfare Definition

According to Alfred Marshall, ‘Economics is a study of man in the ordinary business of life. It enquires
how he gets his income and how he uses it.’

 Thus, it is on the one side, the study of wealth and on the other and more important side, a part
of the study of man.

Scarcity Definition

According to Prof. Lionel Robbins, ‘Economics is the science which studies human behaviour as a
relationship between ends and scarce means which have alternative uses.’

a) Unlimited Wants: Man has unlimited wants or ends, i.e., they can never be fully satisfied. No
sooner a want is satisfied, a new want emerges.
b) Scarcity of Resources: Scarcity refers to the limitation of supply in relation to demand for a
commodity. Scarcity is universal and applies to all individuals, organizations and countries.
c) Alternative uses: Resources are not only scarce, but they can also be put to various uses. It
makes choice among resources more important.

According to Robbins, these fundamental characteristics are found everywhere, in all countries and at
all times. Economics deals with how the scarce resources of society would be allocated to the
satisfaction of different wants.

Growth Oriented Definition

According to Prof. Samuelson, Economics is the study of how man and society choose, with or without
the use of money, to employ scarce productive resources, which could have alternative uses, to produce
various commodities over time and distribute them for consumption now and in the future among
various people and groups of society.

Economic Activities

Economic activities refer to those activities, which are undertaken to earn a living. For example, worker
working in a factory, shopkeeper selling goods in his shop, doctor attending to patients in his clinic, etc.

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Economic activities are concerned with all those activities, which are concerned with the Production,
Consumption and Distribution of goods and services. Which are not available free.

1. Consumption

Consumption is an economic activity which deals with the use of goods and services for the satisfaction
of human wants.

2. Production

Production refers to all activities which are undertaken to produce goods and services for generation of
income and satisfying human wants.

3. Distribution

Distribution is that economic activity which studies how income generated is distributed among the
factors of production.

Non-Economic Activities

Activities which are not concerned with creation of money or wealth are known as Non-Economic
activities. For example, housewife cooking food for her family or a teacher is teaching his own son.

In non-economic activities, there is no expectation of any kind of monetary reward or benefit. They are
inspired by sentimental reasons and are preferred out of love, sympathy, sentiments, patriotism, etc.

Chapter-2

Meaning, Scope and Importance of Statistics

Statistics as Numerical Set of Data (Plural Sense)

In the plural sense, statistics refers to aggregates of facts, affected to a marked extent by multiplicity of
causes, numerically expressed, enumerated or estimated according to reasonable standards of accuracy,
collected is a systematic manner for predetermined purpose and placed in relation to each other.

1. Aggregates of Facts

Statistics are a number of facts. Single and isolated figures are not statistics as such figures cannot be
compared.

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2. Affected by multiplicity of causes

Numerical figures (data) are influenced by variety of factors. It is not an easy job to study the effects of
any one factor separately by ignoring other factors.

3. Statistics are numerically expressed

The statistical approach to a subject is numerical. So any facts, to be called statistics, must be
numerically or quantitatively expressed.

4. Statistics should be collected with reasonable standard of accuracy

In statistics, data is collected with reasonable standard of accuracy.

5. Statistics are collected for a pre-determined purpose

The purpose of collecting statistical data must be decided in advance, otherwise usefulness of the data
collected would be negligible.

6. Statistics are collected in a Systematic Manner

For accuracy or reliability of data, the figures should be collected in a systematic manner. If the figures
are collected in a haphazard manner, the reliability of such data will deteriorate.

7. Statistics should be placed in relation to each other

Collection of statistical data is generally done with the motive to compare.

Statistics as a Method (Singular Sense)

Statistics in singular sense may be defined as the collection, presentation, analysis and interpretation of
numerical data.

1. Collection of Data

It is the main and the first step in a statistical enquiry. The technique of collection of data depends upon
the objective of the study.

2. Organization of Data

After collection, the data is organized in a proper form which involves editing and classification.

3. Presentation of Data

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After classification, the data is presented in some suitable manner, in the form of text, table, diagram or
graph.

4. Analysis of Data

After presentation of data, analysis is done with the help of simple mathematical techniques.

5. Interpretation of Data

It is the last step in the statistical methodology.

 It involves statistical thinking, skill and experience, to derive meaning from analyzed data.
 The interpretation provides the final conclusions drawn from the analyzed data.

Functions of Statistics

1. To simplify complex facts

It is very difficult for an individual to understand and conclude from huge numerical data. Statistical
methods try to present the great mass of complex data into simple and understandable form.

2. To present facts in definite form

Quantitative facts can easily be believed and trusted in comparison to abstract and qualitative facts.
Statistics summarizes the generalized facts and presents them in a definite form.

3. To make comparison of facts

Comparison is one of the main functions of statistics as the absolute figures convey a less concrete
meaning. For comparison of data, various statistical methods like average, rates, percentages, ratio, etc.
are used.

4. To facilitate planning and policy formulation

On the basis of numerical data and their analysis, businessmen and administrators can plan future
activities and shape their policies.

5. To help in forecasting

As business is full of risks and uncertainties, correct forecasting is essential to reduce the uncertainties
of business. Statistical tools helps in making projections for future.

6. Formulation and Testing of Hypothesis

Statistics methods are extremely useful in formulating and testing hypothesis.

7. To enlarge individual knowledge and experience

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Statistics enable people to enlarge their horizon. It sharpens the faculty of rational thinking and
reasoning, and is helpful in propounding new theories and concepts.

Limitations of Statistics
1. Statistics does not study qualitative phenomena

Statistics can be applied in studying only those problems which can be stated and expressed
quantitative.

2. Statistics does not deal with individuals

Statistics deals only with aggregates of facts and no importance is attached to individual items.

3. Statistics can be Misused

Statistics can be misused by ignorant or wrongly motivated persons. Any person can misuse statistics
and draw any type of conclusion he likes.

4. Statistical results are true only on average

Statistics, as a science, is not as accurate as many other sciences are. Natural sciences are exact as their
results are universally true. However, statistical laws are not exact.

5. Statistical laws are not exact

As statistical laws are probabilistic in nature, inferences based on them are only approximate and not
exact like inferences based on mathematical or scientific laws.

6. Only Experts can make the Best Possible use of Statistics

The techniques of statistics are not so simple to be used by any layman. These techniques can only be
used by the experts as they are complicated in nature.

7. Statistical data should be uniform and homogenous

It is essential that data must be uniform and homogenous. Heterogeneous data are not comparable.

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Chapter-3

Collection of Data
Statistical Inquiry

By statistical inquiry, we mean an investigation on a topic by any agency wherein relevant quantitative
information is collected. So, t5he purpose of collection of data is to collect evidence for reaching a sound
and clear solution to a problem.

Important Terms

 Investigator: The person who conducts the statistical enquiry is known as Investigator.

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 Enumerators: The investigator needs the help of certain persons to collect the information,
known as Enumerators.
 Respondents: The persons, from whom the statistical information is collected, are known as
Respondents.
 Survey: Survey is a method of gathering information from individuals. The purpose of the survey
is to collect data to describe some characteristics like price, quality, usefulness, popularity,
honesty, etc.

Sources of Data

Broadly, there are two main sources of data: (a) Internal Sources; (b) External Sources

Internal Sources

In an organization, when the data is collected from its reports and records, it is known as internal
sources of data.

 For example, a company publishes its annual report on profit and loss, total sales, loans, wages,
etc.
 Data collected and compiled through internal sources is called internal data.

External Sources

External sources refer to the data collected from outside the organization.

 For example, if a Tour and Travels Company obtains information on ‘UP Tourism’ from Uttar
Pradesh Transport Corporation, it would be known as external sources of data.
 Data collected and compiled through external sources is called external data.
 External data can be collected from primary as well as secondary sources.

Primary Data

Primary data is the data which is originally collected by an investigator or agency for the first time for
some specific purpose.

 The source from which the primary data is collected is called the primary source.
 For example, Population census conducted by Government of India.

Secondary Data

The data which is not directly collected but rather obtained from the the published or unpublished
sources, is known as Secondary Data.

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 It is also known as Second Hand Data.

 These are not original data since the enumerators or investigators themselves do not collect
these data. They simply make use of the data collected by the others.

Difference between Primary Data and Secondary Data

Basis Primary Data Secondary Data

Originality Primary data are original because they
are collected by investigator himself.
Source Primary data are collected by some
agency or person by using the method
of data collection.
Time factor It requires longer time for data
collection.
Cost factor The collection of primary data requires
a considerable amount of money and
personals as whole plan of investigation
is initiated.
Reliability and Primary data is more reliable and
suitability suitable to the enquiry as the
investigator himself collects it.
Precautions There is no great need for precautions
which using primary data.
Organization Collection of primary data requires
Factor elaborate organization set up.
Secondary data are not original since
investigator makes use of the data
collected by other agencies.
Secondary data are already collected and
processed by some person or agency and
is ready for use.
It requires less time.
The collection of secondary data is
cheaper as it is taken from published or
unpublished material.
Secondary data is less reliable and less
suitable as someone else has collected
the data which may not serve the
purpose.
Secondary data should be used with
great care and caution.
There is no need for organizational set up
in case of secondary data.

Methods of Collecting Primary Data

Direct Personal Investigation

Under this method, the investigator collects data by having direct contact with the informant and
conducts on-the-spot enquiry.

Suitability

1. When detailed information has to be collected.

2. When area of investigation is limited.
3. When nature of enquiry is confidential.

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4. When maximum degree of accuracy is needed.

5. When importance given to originality.

Merits

1. Originality

The data collected is original in character.

2. Reliable and Accurate

This method facilitates collection of authentic and reliable information.

3. Flexibility

This method is fairly elastic as the investigator can vary the nature of questions and seek different kinds
of information according to the need of the situation.

Demerits

1. Not suitable for wide areas

This method is not suitable when the area of coverage is considerably wide or when many respondents
are to be conducted.

2. Expensive and time-consuming

This method is expensive and time-consuming, particularly when the field of investigation is large.

3. Personal Prejudice

The bias or prejudice of investigators can affect the accuracy of data to a large extent.

Indirect Oral Investigation

Under this method, the investigator approach third parties, who are in the possession of information
about the subject of enquiry.

Suitability

1. When concerned informants are unable to give information due to their ignorance or they are
not prepared to part with the information;
2. When the area of investigation is very large;
3. When secret or sensitive information is complex and needs expert’s opinion.

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Merits

1. Wide coverage

This method is suitable when the area of investigation is large.

2. Economical

It is economical in terms of time, money and manpower.

3. Free from Bias

This method is relatively free from personal prejudice as the information is collected from the persons
who are well aware of the situation.

Demerits

1. Indirect information

The result can be erroneous because information is obtained from other persons, not directly
connected.

2. Lack of Accuracy

As compared with direct personal observation, the degree of accuracy of the data is likely to be lower.

3. Partiality of Witness

The persons, providing the information, may be prejudiced or biased.

Information from Correspondents

Under this method, local agents or correspondents are appointed and trained to collect the information
from the respondents.

Suitability

1. When regular and continuous information is required.

2. When the area of investigation is very large.
3. When high degree of accuracy is not required.

Merits

1. Wide coverage

This method is useful in situations where the area of investigation is very large and periodic information
is to be collected from the distant places.

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2. Economy

It is very economical in terms of money and resources.

3. Continuity

It is very useful for collecting regular information.

Demerits

1. lack of Uniformity

The information supplied by different correspondents often lacks homogeneity, and hence, not
comparable.

2. Danger of Partiality

The personal bias of the correspondents may enter the reports and to that extent, the accuracy is
affected.

3. Lack of Accuracy of High Degree

This method cannot be used where high degree of accuracy is required.

Telephonic Interviews

Under this method, data is collected through an interview over the telephone with the interviewer.

Suitability

1. When the respondents have a telephone connection.

2. When the data is to be collected in shorter duration.

Merits

1. Wide coverage

This method is useful for conducting enquiry over a large area.

2. Economical

This method is cheaper as it requires less time, money and labour.

3. Clarify doubts

It is possible to assist the respondent by clarifying the questions.

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Demerits

1. Limited use

The disadvantage of this method is access to people. This method is not possible for people who do not
own telephones.

2. Visual feedback is not possible

Telephone interviews also obstruct visual reactions of the respondents, which becomes helpful in
o0btaining information on sensitive issues.

Mailed Questionnaire Method

Under this method, the investigator makes a questionnaire pertaining to the field of investigation and
sends it to the respondents, along with a covering letter, to collect information from them.

Suitability

1. When the field of investigation is very large.

2. When respondents are literate and are likely to co-operate with the investigation.

Merits

1. Wide coverage

This method is used for extensive enquiries covering very wide area. it is the only method to reach
remote areas.

2. Economy

This method is economical as it requires less time, money and labour.

3. Originality

The data are very much original because informants are directly involved in the collection of data.

Demerits

1. Limited scope

This method is applicable only where respondents are educated.

2. Less Accuracy and Precision

Under this method, the accuracy of data cannot be testified.

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3. Lack of Interest

Some informants may not care to fill up the questionnaire. When the number of such persons who have
not sent back the questionnaire is very large, it is impossible to draw correct conclusions.

Questionnaires filled by Enumerators

Under this method, the enumerator personally visits informants along with a questionnaire, asks
questions and note down their replies in the questionnaire in his own language.

Suitability

This method is most suitable where adequate finance and trained enumerators are available to cover a
wide field and some significance is attached to the accuracy of the results obtained.

Merits

1. Wide coverage

This technique of data collection can be used for collecting information from large number of people
coming from vast areas.

2. Accurate and reliable information

Since the investigator has a direct contact with the respondents, it is possible to get accurate and
reliable information.

3. Better Response

The presence of the enumerator may induce the respondents in giving the information. So, chances of
non-response (like in case of Mailed Questionnaire Method) are less.

Demerits

1. Costly Method

This method is very expensive as expenditure on training, remuneration and conveyance are to be borne
by the investigator or the agency collecting the data.

2. Time Consuming

This method is more time consuming as compared to other methods.

3. Partiality

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Inefficiency on the part of the enumerators coupled with personal bias may adversely affect the results
of the enquiry.

The following general principles should be followed while designing or drafting the questionnaire:

1. Covering Letter

A very polite covering letter should be sent to the respondents along with the questionnaire.

 It should be clearly explain in brief, the objectives and scope of the survey.
 It should ensure respondents about their secrecy.
 In case of mailed questionnaire method, a self-addressed stamped envelope should be
enclosed.
 To ensure quick and better and response, the respondents may also offered certain incentives.
2. Decision regarding Questions

To frame questionnaire or schedule, first of all, we have to take decision regarding various questions to
be incorporated.

The questions in the questionnaire may be broadly classified as follows:

1. Simple Alternative Questions

These questions may be answered between two alternatives such as yes or no, right or wrong, true or
false.

2. Multiple Choice Questions

In such questions, the possible answers are printed in the questionnaire and the respondent is supposed
to tick any one of them.

3. Specific Information Questions

The questionnaire should start from general questions and proceed to more specific ones.

4. Open Questions

These types of questions are to be answered by the respondent in his words. The questions should be
such that it is possible to answer them in few words.

Census Method

When a statistical investigation is conducted wherein, the data is collected from each and every element
of the population, it is known as census method.

Merits

1. Intensive study of population

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It provides intensive and in-depth information covering many facets of the problems.

2. High degree of accuracy and reliability

Since every item of the population is observed personally, it is possible to collect highly accurate and
reliable information.

3. Suitability of the method

This method is suitable when different items of the population are not homogeneous.

Demerits

1. Expensive

Since the data are obtained by observing every item of the population, it is very expensive method of
investigation.

2. Needs more time and manpower

Since a large volume of data is to be collected under census investigation, more time and manpower are
needed.

3. Inapplicability

Census method cannot be applied in case of infinite population.

Sampling Method

When only some representative items of a population are selected and data collected from these items
are used for the analysis, the method is known as sampling method.

Population

Population is defined as the aggregate of individual items, whether composed of people or things, which
are subjected to a statistical investigation.

Factors Affecting Size of Sample

1. Size of Population

In case of large size population, sample size would be bigger and vice-versa.

2. Degree of Accuracy Desired

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If greater degree of accuracy is desired, the size of sample should be larger.

3. Homogeneity or heterogeneity of the Population

In case, the population consists of homogeneous units, a small sample will serve the purpose.

4. Nature of the Study

In case of intensive and continuous study, a small sample is quite appropriate.

5. Respondents’ Nature

If it is seen that a large number of respondents will not cooperate, then a larger sample should be
selected.

Requisites of a Good Sample

1. Representative

The selected sample should be representative of the characteristics of the population.

2. Adequacy

To ensure that all the characteristics of a population are represented by the sample, the size must be
adequate.

3. Homogeneity

As far as possible, the population from which a sample should be done independently of each other.

4. Independence of selected sampling units

The selection of various items of the population in the sample should be done independently of each
other.

5. Matches with objective of investigation

To have correct picture of the problem under investigation, it is important to draw a sample keeping in
view the objective of investigation.

Merits

1. Reduced cost

It is more economical than the census technique as the task of collection and analysis of data is confined
only to a fraction of the population.

2. Greater speed

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In this method, only representative units are approached. Smaller volume of data saves time not only in
collecting the information, but also in the processing, editing and analyzing the data.

3. Greater accuracy

When sampling is conducted scientifically and carefully, it gives more accuracy as compared to the
census procedure.

4. Greater scope

There can be investigations where highly trained investigators or specialized equipment’s are needed to
collect the information.

5. Administrative convenience

In case of sampling, scale of operation remains at low level. So, planning, organization and supervision
can be conveniently managed, which leads to administrative convenience.

6. Scientific Approach

Sample investigation is more scientific than census investigation as it is possible to determine the extent
of reliability of its results.

7. Detailed Enquiry

Under sampling method, the number of units and the area of study are small. So it is possible to collect
detail and in-depth information about the population under study.

Demerits

1. Difficult to achieve cent percent accuracy

The conclusions of sampling method are based on the results of a sample taken from the whole
population.

2. Lack of Representativeness of the sample

The accuracy of conclusions of sampling method depends upon whether the sample is representative of
the characteristics of the population.

3. Bias in the selection of sample

If the investigator is biased, then he might select sample deliberately.

4. Lack of Specific or Specialized Knowledge

To be effective, sampling technique requires a particular level of specialized knowledge.

5. Not possible in case of heterogeneous population

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A population is said to be heterogeneous if its items or sampling units are not similar with regard to the
characteristics under investigation.

Difference between Census Method and Sampling Method

Basis Census Method Sampling Method

Nature of Enquiry Extensive enquiry is conducted as
each and every unit of the
population is studied.
Economy It requires large amount of money,
time and labour.
Suitability It is more suitable if population is
heterogeneous in nature.
Reliability and Results are quiet reliable and
Accuracy accurate under census method.
Nature of error In census method, the only error
that may arise in the collection of
data is error of bias.
Organization and It is very difficult to organize and
supervision supervise census method.
Limited enquiry is conducted as only few
units of the population are studied.
Relatively less money, time and labour is
required.
It is more suitable if population is
homogeneous in nature.
Under sampling method, results are less
reliable and accurate.
Sampling method gives rise to error of
sampling apart from error of bias.
Sampling method is comparatively easy to
organize and supervise.

Sampling Method

Random sampling method refers to a method in which every item in the universe has a known chance of
being chosen for the sample.

There are two methods under random sampling: (1) Simple Random Sampling; (2) Restricted Random
Sampling.

Simple Random Sampling (Unrestricted Random Sampling)

A simple random sample is one in which every item of the population has an equal chance of being
selected.

i. Lottery Method

This is the simplest method of selecting a random sample. Steps for conducting Lottery Method:

a) First of all, all items of the population are numbered or named on separate slips of paper of
identical size and shape.
b) These slips are then folded and placed in a bowl and mixed thoroughly.

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c) A blindfolded or unbiased person is asked to select a slip from the bowl. In these circumstances,
each slip has equal probability of being drawn.
ii. Use of Random Number Table

The Lottery Method becomes very inconvenient and time consuming in case of large size of population.
In such situations, random selection of the sample can be made by the use of random number tables.

Merits

1. No Personal Bias

Every item of the population has an equal chance of being selected.

2. Based on Probability

Due to random character of the sample, the rules of probability are applicable.

3. Accuracy can be assessed

The analyst can easily assess the accuracy of this estimate since it is possible to estimate the magnitude
of sampling errors in the results of the obtained from a random sample.

4. Increasingly Representative of the Population

As the size of a random sample increases, it becomes more and more representative of the population.

Demerits

1. Unsuitable for small sampling

If the sample is not sufficiently large, then it may not be representative of the population and thus, may
not reflect the true characteristics of the population.

2. Time consuming

The numbering of the population units and the preparation of the slips is quite time consuming and
uneconomical especially when population is large.

Restricted Random Sampling

The selection of simple random sample is appropriate when different items of the population are
homogeneous.

 However, in case of heterogeneous population, simple random sample may not be a true
representative of the population.

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 In such cases, it becomes necessary to select a random sample under certain restrictions. Such
samples are known as ‘Restricted Random Samples’.

(a) Stratified Random Sampling

In this method, the universe or the entire population is divided into a number of groups or ‘Strata’ and
then certain numbers of items are taken from each group at random.

 Its basic purpose is to ensure that all the characteristics of a heterogeneous population are
adequately represented in the sample.

Merits

1. More Representative

Since the population is first divided into various strata and then every group gets a representation in the
sample, a more representative sample is obtained.

2. Greater Precision

There is greater accuracy under this method as variability in each stratum is reduced to a considerable
extent under this method.

3. Administrative convenience

It ensures administrative convenience by dividing the population into certain homogeneous strata and
sub-strata.

4. Greater Geographical Concentration

The units from the different strata may be selected in such a way that all of them are localized in a
particular geographical area.

Demerits

1. Difficult to determine size of Strata

It needs proper determination of sample size of the different strata which involves a lot of difficulties.

2. Requires utmost care

Under this method, items from each stratum are selected at random.

3. More Expensive

The stratified samples are likely to be more widely distributed geographically.

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(b) Systematic Sampling

Under this method, out of the complete list of available population, the sample is selected by taking
every nth item from the list.

 For example, if a population contains 20,000 items and a sample of 40 items is to be taken, the
selection of every 50th item will give the required sample.

Merits

1. Simple and Convenient

The systematic sampling is more convenient to adopt as compared to the random sampling or the
stratified sampling methods.

2. Less Time Consuming

The time and work involved in sampling by this method are relatively less.

3. Satisfactory Results

When periodic features associated with the sampling interval are not there, the results obtained are
found to be satisfactory.

Demerits

1. Biased results in case of periodic features

The results of a systematic sample can be very misleading if there is periodicity in the data.

2. Possible only when complete list is available

This method can be used in those cases where a complete list of the population from which sample is to
be drawn is available.

3. Unsuitable in case of large population

It is not suitable for a large sized universe for that it will be very difficult to prepare the sampling frame.

(c) Cluster Sampling

Under this method, total population is divided into some recognizable sub-divisions, known as clusters
and then out of all the clusters, a given number of clusters are chosen at random and all the items
covered by the selected clusters are included in the sample.

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For example, suppose we are interested in obtaining the income status of households of rural areas of
Uttar Pradesh. If there are about 100 villages, then obtaining a list of all the households may be a
difficult task.

Under Cluster method, it is possible to divide these 100 villages into different clusters such that they are
homogeneous between themselves (like by including some villages which are economically weaker and
some with a sound economic background). If 15 clusters are formed in this manner, then out of these
clusters, we can select some clusters (say, two clusters) at random. All the households of villages
covered by these two clusters will form a cluster sample.

In this way, process of division and sub-division of clusters and selection of multistage samples are
carried out till the sample size is reduced to a reasonable extent.

Non-Random Sampling

Under non-random sampling method, the selection of a sample depends on the judgment of the
investigator rather than on chance.

Judgment Sampling

Under this method, the choice of sample items depends exclusively on the judgment of investigation.

 The selection is deliberate and is based on own idea of the investigator about the sample units.
 The chance of inclusion of some items in the sample is very high while that of others is very low.

Merits

1. Simple and easy

This method is simple and easy to adapt as it does not require complicated procedures to draw a
sample.

2. Proper Representation

This method enables the sample to be true representative of the population when the investigator has
full knowledge of the composition of the universe and is free from bias.

3. Avoid Irrelevant items

It prevents unnecessary and irrelevant items entering into the sample.

Demerits

1. Personal Prejudice

The personal prejudice or bias of the investigator may lead to a sample, which may not represent the
population.

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2. Error of judgment

The investigator should have the knowledge of the complete constitution of the population, which may
not be possible in many cases.

3. Not an objective method

It may be noted that even if a judgment sample is reasonably representative, there is no objective
method for determining the size or likelihood of sampling error.

Quota Sampling

Under this method, the items of the population are subdivided into various groups and then a quota is
fixed. But, within the given quota, the selection of sample units depends upon the personal judgment of
the investigator.

For example, in a survey of TV viewers, the interviewers may be told to interview 500 people living in a
certain area, and that, 55% of the interviewed are to be housewives, 30% should be school students,
10% should be employees, and 5% should be children. Within these quotas the interviewer is free to
select the people to be interviewed.

Merits

1. Reliable Results

If the investigators are skilled and experienced, it gives more reliable and dependable results.

2. Economical

The cost of preparing sample and field work is very low.

Demerits

1. Personal Prejudice

There is considerable risk that a biased sample may be selected according to the personal prejudice of
the investigator.

2. Not Possible to estimate Sample Error

It is not possible to estimate the sampling error and the degree of accuracy achieved.

Convenience Sampling

Under this method, while selecting the sample units, the investigator gives special attention to his
convenience.

Merits

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1. Economical

It is less expensive and less time consuming.

2. Easy Commands

The units of the sample are easily located and contacted by the investigators.

3. Suitable for Pilot Surveys

It is often used for making pilot studies in which questions are pre-tested and preliminary information is
obtained before finalizing the sample design.

Demerits

1. Lack of representation

The units of the sample selected under this method hardly represent the universe.

2. Personal Prejudice

Convenience samples are prone to bias by their nature.

3. Unsatisfactory Results

The results obtained under this method are found to be unsatisfactory and misleading.

Types of Statistical Errors

Statistical Errors can be broadly classified as:

a) Sampling and Non-Sampling Errors

b) Biased and Unbiased Errors

Sampling and Non-Sampling Errors

a) Sampling Error refers to the differences between the sample estimate and the actual value of a
characteristic of the population.
b) Non-Sampling Errors are errors that occur in acquiring, recording or5 tabulating statistical data.

Biased and Unbiased Errors

a) Biased Error

An error which arises on account of some bias or imbalance on the part of the investigator, informants
or instruments of counting, measurement or experiment is called biased error.

b) Unbiased Error

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An error which does not take place on account of any bias with anybody but for a chance or a principle is
called unbiased error. Such errors arise automatically without any motive.

Important Published Sources of Secondary Data

1. Official Publications of Central and State Governments

Government (both state and central) generally collects information regarding important economic
variables like national income, saving, investment, employment, etc., and publishes it after regular
interval.

2. Semi-Government Publications

Semi-Government organizations like municipalities, District Boards and others also publish reports in
respect of birth, death, education, sanitation and many other related fields.

3. Reports of Committees and Commissions

Central or State Government sometimes appoint committee and commission on matters of great
importance.

 They are required to enquire into specific issues and submit the report within stipulated time.
 These reports become the source of secondary data.
4. Publications of the Research Institute

Many Research Institutes are engaged in academic research work and provide important source of
secondary data.

 Some of the important Research Institutes are: Indian Council of Agricultural Research (ICAR),
Indian Stastical Institute (ISI), National Council of Educational Research and Training (NCERT),
etc.
5. International Publications

Certain International institutions publish reports from time to time regarding economic matters which
are of great significance.

6. Private Publications

Some commercial and research institutes publish reports regularly. They are like Institute of Economic
Growth, Stock Exchanges, National Council of Applied Economic Research, etc.

7. Publications of Trade

Some big trade associations like Institute of Chartered Accountants, Trade Unions, etc. publish data
collected through their statistical and research divisions.

8. Newspapers and Magazines

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Various newspapers as well as magazines also collect data in respect of many social and economic
aspects. Some of them are Economic Times, Financial Express, Outlook Money, Business Today, etc.

Precautions in the Use of Secondary Data

1. Reliability of the Data

The reliability of secondary data can be judged by the integrity and experience of the agency source of
information and method of data collection used.

2. Suitability for the Purpose

The investigator must ensure that the data are suitable for the purpose of enquiry. The suitability of the
data is determined by investigating the nature, scope, objectives, units and terms, homogeneity, time of
collection, etc. of the secondary data.

3. Census and sampling method

The investigator should also ascertain as to what method was used in collecting the data. Sampling
method may be biased depending upon the mode of selection of samples. All these be ascertained first
before making use of the secondary data.

4. Adequacy and Accuracy

It is necessary to use adequate data to avoid biases and prejudices leading to erroneous conclusions.

National Sample Survey Organization

National Sample Survey (NSS) was set up in 1950 on the recommendations of National Income
Committee, chaired by late Prof. P.C. Mahalanobis.

 The basic aim of setting up NSS was to fill up large gaps in statistical data for computation of
national income aggregates, especially in respect of unorganized/household sector of the
economy.

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 NSS was recognized as National Sample Survey Organization (NSSO) IN March 1970. NSSO is an
organization in the Ministry of Statistics and Programmed Implementation of the Government of
India. It is the largest organization in India, conducting regular socio-economic surveys.

Activities of NSSO

(NSSO) conducts the following activities:

1. Carries out multi-subject integrated socio-economic surveys;

2. Undertakes field work for the Annual Survey of Industries and follow-up surveys of Economic
Census;
3. Conducts sample checks on area enumeration and crop estimation surveys of State Statistical
agencies;
4. Prepares the urban frames useful in drawing of urban samples;
5. Collects price data from rural and urban sectors;
6. Conducts ad-hoc surveys and pilot enquiries for methodological studies.

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