Economic Infrastructure

BLOCK 2
DETERMINANTS OF GROWTH

59
Determinants of Growth
BLOCK 2 : DETERMINANTS OF GROWTH
You have learnt about Economic Development in Block 1 and this Block 2
discusses in detail about economic, social and human resource infrastructure,
their types and their role in economic development, present position of these
infrastructures in our country and government’s initiatives related to the
development of infrastructure in India are assessed. This block has three units.

Unit 4 deals with Economic Infrastructure. The unit begins with the concept of
infrastructure, the role of infrastructure sector in economic growth and vice-versa,
various types of infrastructure and difference between physical infrastructure and
social infrastructure are discussed, the present state of infrastructure sector in
India and government’s initiatives on infrastructure sector are assessed in the end.

Unit 5 deals with Social Infrastructure. The unit begins with the achievement
of the role of social infrastructure in economic growth and identifying the
constituents of the social infrastructure, the progress in various heads of social
infrastructure is discussed and in the end various issued and government’s
initiatives in various social infrastructure sectors are discussed.

Unit 6 deals with Human Resources Infrastructure. The unit begins with
human resource, its importance and various indicators, the role of human resource
in economic growth is discussed, factors that enhance human resources are
identified and explained, the present position of human resources in India and
the employment profile of the Indian economy are discussed in the end.

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 Economic Infrastructure
UNIT 4 ECONOMIC INFRASTRUCTURE
Structure
4.0 Objectives
4.1 Introduction
4.2 Importance of Infrastructure
4.3 Privatisation and Commercialisation of Infrastructure
4.4 Infrastructure Development in India
4.4.1 State-wise Distribution of Infrastructure

4.4.2 Suggestions for Infrastructure Development

4.5 Transport Sector in India

4.6 Telecommunications
4.7 Energy Resources
4.7.1 Sources of Commercial Energy

4.7.2 Sources of Non-Commercial Energy

4.8 Energy Problem in India

4.9 Let Us Sum Up
4.10 Key Words
4.11 Terminal Questions

4.0 OBJECTIVES
After studying this unit, you will be able to:
• Explain the concept of infrastructure;
• Appreciate the role of infrastructure sector in economic growth;
• Identify the various types of infrastructure;
• Distinguish between physical infrastructure and social infrastructure;
• Describe the present state of infrastructure sector in India; and
• Assess the government initiatives on infrastructure sector.

4.1 INTRODUCTION
Infrastructure refers to basic physical and structural facilities, which are essential
for an economy to function. There is no universally accepted definition of
infrastructure. In India, for example, different organisations include different
sectors or industries under the category of infrastructure. According to the National
Statistical Commission of India, infrastructure possess six characteristics: (i)
high sunk cost, (ii) natural monopoly, (iii) Non-tradability of output (produced
and sold at the same location), (iv) presence of economic “externalities”, (v)
non-rivalness in consumption (consumption by one user does not exclude others
from its consumption), and (vi) price exclusion (enjoyment of benefits could be
subject to payment of user charge).
We give a broad list of sectors which can be included in the infrastructure sector
in Table 4.1. 61
Determinants of Growth Table 4.1: List of Infrastructure Sub-Sectors

Category Infrastructure Sub-Sectors

Transport • Roads and bridges
• Ports
• Inlands waterways
• Airport
• Railway track, tunnels, viaducts, bridges1
• Urban public transport (except rolling stock in case of
urban road transport)
Energy • Electricity generation
• Electricity transmission
• Electricity distribution
• Oil pipelines
• Oil/gas/liquefied natural gas storage facility2
• Gas pipelines3
Water sanitation • Solid waste management
• Water supply pipelines
• Water treatment plats
• Sewage collection, treatment and disposal system
• Irrigation (dams, channels, embankments and so on)
• Storm-water drainage system
Communication • Telecommunication (fixed network)
• Telecommunication towers
Social and • Education institution (capital stock)
commercial • Hospitals (capital stock)
infrastructure • Three-star or higher category classified hotels located
outside cities with population of more than one
million
• Common infrastructure for industrial parks, Special
Economic Zones, tourism facilities and agriculture
markets
• Fertiliser (capital investment)
• Post-harvest storage infrastructure for agriculture and
horticultural produce including cold storage
• Terminal markets
• Soil-testing laboratories
• Cold chain

Infrastructure can be classified as (i) social infrastructure, and (ii) physical

infrastructure. Social infrastructure is concerned with the supply of such services
that meet the basic needs of a society. Examples of social infrastructure are
provision of health services, drinking water, sewerage and sanitation facilities,
electricity, education, etc. We will discuss about social infrastructure in Unit 5.
Physical infrastructure is directly concerned with the needs of such production
sectors as agriculture, industry, trade, etc. In physical infrastructure, we include
such services as power, irrigation, transport, communications, storage, etc. In
this Unit, you will learn the importance, privatisation and commerialisation
of infrastructure as well as infrastructural development in India. Transport,
Telecommunication and energy resouces will be further discueesd.
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 Economic Infrastructure
4.2 IMPORTANCE OF INFRASTRUCTURE
Infrastructure has a two-way relationship with economic growth. Infrastructure
promotes economic growth. Economic growth brings about changes in
infrastructure. Let us discuss these two aspects in detail.
Infrastructure Promotes Economic Growth
(i) Output of infrastructure sector such as power, water, transport, etc. are used
as inputs for production in the directly productive sectors (manufacturing,
agriculture, etc.). Therefore, shortage of infrastructure can result in sub-
optimal utilisation of production capacity of other sectors.
(ii) Infrastructure such as transport improves productivity significantly.
(iii) Infrastructure provides key to modern technology in practically all sectors.
(iv) A close association has been observed between infrastructure spending
and GDP growth. Studies have indicated that 1 per cent growth in the
infrastructure stock is associated with 1 per cent growth in per capita GDP.
(v) Generally around 6.5 per cent of the total value added is contributed by
infrastructure services in low income countries. This proportion increases
to 9 per cent in middle income countries and 11 per cent in high income
countries.
Economic Growth Promotes Infrastructure
Growth, in turn, makes demands on infrastructure. This can be illustrated with
the help of the relationship between GDP growth and demand for infrastructure,
as in Fig. 4.1.
Increases traffic
GDP growth
demand

Requires changes in
transport supply

If provided, catalyses GDP

growth, otherwise constricts it

Affects traffic demand

Fig. 4.1: Demand for Infrastructure

With increase in the level of per capital income in a country, there is a change in
the composition of infrastructure.
(a) In low income economies, basic infrastructure such as water and irrigation
are the most important.
(b) In middle income economies, demand for transport grows very fast.
(c) In high income economies, power and telecommunication occupy more
importance.
Due to such linkages between infrastructure and the rest of the economy,
efficiency, competitiveness and growth of the economy hinges upon the state of
the development of infrastructure sector.
63
Determinants of Growth Characteristics of Infrastructure
Earlier we mentioned that there are six characteristics of infrastructure. We
describe below some more characteristics of infrastructure.
The infrastructure sector has certain peculiarities that help us to distinguish this
sector from other sectors of the economy. Among these, the more important
distinguishing features can be identified as follows:
(i) Public Goods: Most of the physical infrastructure services have some
elements of public good in them. These services are available to the public;
the consumers may be charged for these services or the same may be supplied
free. But even when they are supplied against a price, it is not always possible
to exclude those consumers who choose not to pay for them.
(ii) Externalities: The social benefit of the infrastructure services far exceeds the
cost involved in their generation. This in turn creates problems in pricing
of these services. It is difficult to charge a price in order to recover the cost
fully.
(iii) Monopolies: Due to the inherent nature of infrastructure services, it is
difficult for more than one supplier to exist in one location. It thus creates
the possibility for monopolies and their regulation.
(iv) Public Sector Domination: The existence of externalities particularly in the
field of social welfare has resulted in a dominant position by public sector
in production and supply of infrastructure services.

4.3 PRIVATISATION AND COMMERCIALISATION

OF INFRASTRUCTURE
Private participation in infrastructure development depends upon its capability
to commercialise the infrastructure services.
Need for Privatisation and Commercialisation
The different factors that call for immediate privatisation and commercialisation
of infrastructure can be identified as follows:
(i) Massive Investment Needs: Infrastructure development requires massive
investments and it is not possible for the state to meet all the investment
needs.
(ii) Managerial Constraints in the Public Sector: While the infrastructure business
is becoming more complex, public sector has not been able to meet the
managerial challenges and as a result the supply could not grow at the desired
pace. The fiscal stringency has also created a demand for accountability
for public spending. Therefore, a demand has arisen for commercialisation
and greater privatisation of infrastructure sector in order to inject greater
efficiency.
(iii) Changes in Technology: The possibility of marginal pricing and exclusion
provides greater scope for commercialisation. Technological changes have
made it possible to unbundle the infrastructure service thereby introducing
the elements of competition. The use of new technology enables the charging
of the marginal user.
(iv) Globalisation: The availability, quality, cost and reliability of infrastructure
services are key factors in attracting foreign investment. Globalisation
64 has been aided significantly by advances in transport, telecommunication
 and storage technology. Such advances in infrastructure enable better Economic Infrastructure
management of logistics by combination of purchasing, production and
marketing function. Besides facilitating suppliers to respond to the consumer
demands promptly a significant cost saving is achieved in investment and
working capital.
Prerequisites for Private Investment
Entry of private capital in infrastructure sector is not merely a matter of simple
policy initiatives. A few other important and critical areas would have to be
identified and a suitable environment created.
(i) Commercialisation of Infrastructure: Infrastructure services should not be
treated as public goods. In this regard, the possibility of commercialisation
will depend on the ability to segregate payers and non-payers and prevention
of any incidence of ‘free riding’. Thus, the excludability is a key factor in
commercialisation.
(ii) Pricing Policy: The role of private sector is not restricted to that of provider
of funds. It has to play the role of efficient and accountable operator of the
facility. The issue of pricing of infrastructure services becomes critical here.
In this sphere the long track record of uneconomic pricing and prevalence
of subsidies will be major obstacles.
(iii) Demand Orientation of Services: The existing procedure of financing
infrastructure facilities is based on plan allocation and is mainly supply-
oriented. Insufficient stress on the existing and the anticipated demand has
resulted in deviations in different countries and consequently a large part
of such investments are not providing sufficient returns. Privatisation will
necessitate a demand-oriented approach.
(iv) The challenge for policy is to find appropriate market signals which indicate
the future trend of infrastructure demand and to coordinate the supply of
such facilities in such a manner that investment in infrastructure provides
appropriate returns.
(v) Allocation of Risk: Allocation of risk is of key importance in commercialisation
of infrastructure. The risk should be appropriately demarcated and allocated
to different stake¬holders. This is important for two reasons:
(a) There is a tendency among the private shareholders to shift the risk to
the government.
(b) There is also a tendency among the shareholders to shift the risk on
each other.
(vi) Direct Participation by the Government: While the existence of elements of
monopoly in infrastructure will necessitate regulation by the government,
constraints in financing and user charging will render the direct participation
by the government necessary. Therefore, a transparent framework
for promotion of synergistic firmness of public-private partnership in
infrastructure is required.
Lessons from Private Investment
Lessons so far have not been encouraging. Investments in the couple of fiscals
through 2012 backfired, leaving in their wake stalled projects and a mountain
of stressed assets. After a decade, private investment capacity is yet to recover
meaningfully.
65
Determinants of Growth Private investments in thermal generation are already in deep trouble with
stranded capacities, stressed loans and weak demand. While airports, ports and
power transmission have robust engagement models, new investment activity is
tepid. In railways, and urban infrastructure, private investments are negligible.
It’s down sharply at the state level as well.
National highways remain the only bright spot, where policy actions and the
de-risked hybrid annuity model (HAM) have revived projects. And the recent
toll-operate-transfer (TOT) auction is a good example of asset monetization and
crowding-in of private capital.
Private sector participation in infrastructure delivery helps deliver tangible
benefits, and there is anecdotal evidence to support this, even as the fiscal space
remains constrained. In highways, airports, ports and renewables, the private
sector’s role has been landscape altering. The private sector has also delivered
efficiently – both on project execution (where land and clearances have not been
a constraint) as well as operations.
However, history has taught us that public private participation (PPP) is no silver
bullet. Broad-basing private investment in infrastructure requires relentless
commitment and holistic efforts from both the Centre and the states.

4.4 INFRASTRUCTURE DEVELOPMENT IN INDIA

Development of infrastructure has always been given highest priority in our
growth programmes. Economic returns and not success in wresting concessions
should govern the relative share of investments in each economic activity; the
rule may be different for social actions.
Table 4.2: Relative Quality of Infrastructure in India
Indicator Best (score) China Rank/score India Rank/score
Road France (6.6) 54/4.4 85/3.4
Railways Switzerland (6.8) 21/4.6 24/4.4
Ports Singapore (6.8) 56/4.5 82/3.9
Air Transport Singapore (6.9) 72/4.6 67/4.7
Electricity Denmark (6.9) 49/5.5 112/3.1
Fixed lines Taiwan (70.8) 55/21. 113/2.9
Mobile subscription Hong Kong (190.2) 113/64 117/61.4
Overall Switzerland (6.7) 69/4.2 86/3.8

Table 4.2 provides the report’s scores for India (and the inevitable comparison
with China) for seven infrastructure indicators as well as an overall score. For
comparison purposes, the highest-scoring country on each indicator is listed.
For the first five indicators and the overall quality, scores are on a seven-point
scale, the higher the better; while for the two telecom indicators, they reflect the
numbers of connections per 100 people.
We can draw three pretty obvious messages from this picture. First, notwithstanding
pockets of success, our overall infrastructure strategy hasn’t delivered to the extent
necessary. One reason for this is that we have not approached “infrastructure” as a
fully integrated network. Two, the benefits of successful projects are significantly
diluted by their linkages on failed ones. The “weakest link” principle is essentially
why our overall infrastructure experience is so negative, despite some strategies
and projects being successful. Third, the cost of moving from the 80-100 rank
range to the 50-70 range is going to be enormous – the trillion dollar aspiration
66
of the 12th Five-Year Plan reflected this. But the money needs to be spent in a Economic Infrastructure
consistent way across sectors and, most importantly, over time, to get the best
value from it. It is a lot easier to move down the rankings than it is to move up.
4.4.1 State-wise Distribution of Infrastructure

Fig. 4.2: Typology of Development

India’s infrastructure sector has been troubled for quite some time now. The full
extent of the crisis is becoming apparent only now, with banks facing increasing
difficulties in recovering loans made to the sector. The non-performing assets
(NPA) crisis that Indian state-owned banks face today is in large measure the flip
side of the unravelling of the infrastructure boom of the past decade. State-wise
distribution of infrastructure can be seen from Fig. 4.2.
4.4.2  Suggestions for Infrastructure Development
It was around the Ninth Plan (1997-2002) that India seriously woke up to the
infrastructure challenge. With a slew of interventions, the key indicator of
infrastructure development, gross capital formation in infrastructure (GCFI) as
a percentage of gross domestic product (GDP), started a steady upward climb.
From 2002 onwards, the government aggressively pushed public-private
partnerships (PPPs) to generate infrastructure investments. The results exceeded
expectations. The share of private capital in infrastructure investments, which
67
Determinants of Growth stood at 22 per cent during the 10th Plan period (2002-07), moved up to 37 per
cent in the 11th Plan period (2007-12). The 12th plan (2012-17) optimistically
budgeted for 48 per cent.
Going forward, the challenges are manifold. We can lists down 12 priority
suggestions for revitalising the infrastructure agenda.
1. Reform the Railways: Three reports provide a clear reform agenda: the
Rakesh Mohan Committee (2002), the Kakodkar Committee on Railway
Safety (2012), and the Pitroda Expert Group for Modernisation of Indian
Railways (2012). The Rakesh Mohan Committee suggested that the Railways
must eventually be corporatised into the Indian Railways Corporation (IRC).
The government would need to set up an Indian Rail Regulatory Authority
(IRRA) to distance the IRC from the government. The IRC should be
governed by a reconstituted Indian Railways Executive Board (IREB). The
government of India should be in charge of only setting policy direction,
constituting the IRRA and the IREB.
2. Privatisation of Coal Mining: India boasts the world’s fifth-largest
coal reserves. Yet, we all are aware of the bottlenecks in supply and our
dependence on Coal India. Coal mining was nationalised in 1973. It now
needs to be denationalised with a sense of urgency.
3. Resurrect the river-linking plan: The government had set up a task
force in 2002 to resurrect the idea in the hope of creating another iconic
infrastructure initiative. The reasons were powerful. Increasing disposable
incomes would prompt voters to demand better water services and pay for
them; similar pressures in agricultural water demand would arise due to
diversification of Indian agriculture. Rising energy costs would make pump
irrigation increasingly unattractive. Rapid growth in urban agglomerations
would seriously strain their ground-water-dependent supply systems. The
phenomenon of simultaneous droughts and floods would be substantially
addressed, and inland water transport would be fostered.
4. Stop bidding out projects without sovereign clearances in place: Here
are two ways to bite the bullet. First, have the sponsoring government
authority set up a 100 per cent government-owned special purpose vehicle
(SPV) to implement the project. This SPV should secure all permissions and
clearances. Then the authority should bid out the SPV to the highest bidder.
Second, let all infrastructure PPP bids carry a special annexure listing all
of the permissions required, thereby delineating the responsibilities of the
sovereign sponsoring authority. Get babudom and its political leadership to
be publicly and monetarily accountable. Let them not merely bid out project
as bemused observers.
5. Form an infrastructure ministry: There are 12 ministries at the central level
that directly look after infrastructure. The rural development, environment,
industry and commerce, and heavy industries ministries raise the count to 16.
Adding the NITI Aayog, finance ministry, the Prime Minister’s Office and
the Cabinet Secretariat (Cabinet Committee on Infrastructure, the number
comes to 20).
And they are all co-ordinating with 29 states. It is about time such
“coordination” was institutio­nalised through a ministry for infrastructure.
6. Reshape IIFCL to catalyse long-term funds: The Interim Report of the
68 High-Level Committee on Financing Infrastructure (August, 2012), headed
 by Deepak Parekh, argued for a significant restructuring of the role of India Economic Infrastructure
Infrastructure Finance Company Ltd (IIFCL) from that of a normal lender
to one that provides guarantees for bonds and extends subordinated debt.
This would make HFCL a catalyst in channelling large long-term inflows
for infrastructure projects.
7. Independent regulatory authorities: The Planning Commission’s
draft legislation of 2006 recommends that regulators need to be directly
responsible to the legislature. Selection should not only be fair (Create a
“National Infrastructure but also “best in class”). India should consider opting
for multi-sectoral regulators for communications, electricity, fuels and gas,
and transport. This would eliminate proliferation of regulatory commissions,
help build capacity, promote consistency of approach and check costs. In the
case of states, a single regulatory commission for all infrastructure sectors
may be more productive and cost-effective.
8. Set up land bank corporation: Enactment of the Land Acquisition Act 2013
has given rise to apprehensions on adequate and timely availability of land for
development purposes. Energetic and visionary state land bank corporations
need to be created. They should be empowered under the clause of “public
purpose” to acquire large tracts of unused, unusable or waste land. They
should be sufficiently capitalised by state governments and have the power
to leverages more finance on the strength of their land-bank inventories.
They could also oversee resettlement and rehabili­tation obligations.
9. Push hydro-electricity: India has exploited only 24 per cent of its hydro
potential at an installed capacity of around 35,000 megawatts against an
“identified potential” of 148,701 Mw. A realistic target would be to try and
restore hydropower to at least an overall share of 20 per cent in India’s energy
basket by the end of the 2025. This would require an addition of 62,000 Mw
of hydro capacity over the next 5 years.
10. Implement the 74th Amendment for urban governance: The 74th
Amendment to the Constitution in 1992 sought to bring about a major
change in the functioning of urban local governments. Unfortunately, very
little additional empowerment of municipal bodies has happened.
11. Clean up electricity distribution: Distribution reform requires micro-
management of millions and millions of end-users with metering, billing,
collection, theft reduction, mafia control, and local area infrastructure
upgradation. This systemic micro overhaul across the length and breadth of
the country with attention to detail and a granular set of related activities
needs massive orchestration. Large-scale appointment of “distribution
franchisees in PPP mode” is the only practical solution.
12. Create a National infrastructure Partnership Commission: There is
an all-pervasive belief in the private sector that the manner in which risks
are currently shared between the government and private players in PPP
contracts is heavily skewed against the private sector. Where, then, is the
so-called “partnership”? Such a partnership should be carefully nurtured.
There is the Infrastructure Concessions Regulatory Commission in Nigeria,
the PPP Advisory Unit in Ghana, the PPP Centre in the Philippines and the
PPP Unit in South Africa. In the case of South Africa, for example, one of
the key functions of the PPP Unit is “contract renegotiations”.

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Determinants of Growth Self-Assessment Exercise A
1) Describe the importance of Infrastructure in an economy.
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2) Distinguish between ‘economic infrastructure and social Infrastructure.
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3) Explain how there is a two-way relationship between infrastructure and
economic growth.
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4.5 TRANSPORT SECTOR IN INDIA

Transport infrastructure in India has grown at an unprecedented rate since
economic liberalisation. At the highest ever pace of construction, we have built
more than 35,000 km of national highways in the last four and a half years. The
country had never before seen world-class expressways such as the Eastern
Peripheral Expressway and Western Peripheral Expressway or engineering
marvels such as the Dhola Sadiya Bridge and Chenani Nashri Tunnel. The
Bharatmala Pariyojana is unique and unprecedented in terms of its size and
design, as is the idea of developing ports as engines of growth under Sagarmala.
The development of 111 waterways for transport, with multinational companies
already carrying their cargo over the Ganga, is also a first ever, as are FASTags, the
promotion of alternative fuels such as ethanol, methanol, biofuels, and electricity,
as well as innovative modes of travel such as seaplanes and aeroboats.
An efficient transport infrastructure is the biggest enabler for growth. To that end,
it has been one of the foremost priorities of our government to build a transport
infrastructure that is indigenous and cost-effective, links the remotest corners
of the country, is optimally integrated across various modes and is safe and
environment friendly. A lack of good transport infrastructure has been a major
hindrance for growth in the country in the past and our focus has been on rectifying
this. Bharatmala and Sagarmala programmes are going to be game changers in this
regard. They will improve both penetration and efficiency of transport movement
on land and water, respectively. In the process, they will help connect places of
production with markets more efficiently, help reduce logistics costs, create jobs
and promote regionally balanced socioeconomic growth in the country.
Our road and sea transport networks are being developed for providing better,
seamless and more efficient access not just within the country, but also to our
neighbouring countries using an optimal mix of roads and waterways – whether
it is to Afghanistan and beyond through Chabahar, or Bangladesh, Myanmar and
Thailand through upcoming highways and waterways.
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Multi-Modal Integration Economic Infrastructure

From a transportation perspective, India has about 18 per cent of the world’s
population and only 2.5 per cent of its land area, but accommodates a fleet of
210 million motor vehicles as of now. This adds to the stress. It is imperative that
we adopt more efficient ways of moving people in our cities.
It is fast becoming necessary to persuade personal motor vehicle users to shift to
public transport to mitigate the negative impacts of road congestion, deteriorating
air quality and increasing carbon emissions.
Today’s public transport systems, which follow fixed routes and schedules, can’t
offer such conveniences. Innovative, multi-modal integration is vital to drive a
change. Different modes, when appropriately combined, could offer inclusive,
comfortable and frequent door-to-door services to commuters. In Bengaluru and
Hyderabad, an open innovation challenge – which invited ideas from technology
and service providers, mobility entrepreneurs and citizens to improve last-mile
connectivity to mass transit systems – yielded smart solutions that were cost-
effective, innovative and easy to integrate.
Second, cities need to increase the number of public transport vehicles significantly
to ensure safe, comfortable, frequent and crowd-free commutes to all. Third, it is
time for the government to widen the definition of public transport to include small
buses, vans and pooled vehicles that offer on-demand services. Ongoing studies
indicate that bus aggregator systems – a model that uses technology (mobile
apps) to allow passengers to book seats in buses operating on routes within city
limits, pay fares online and track location – have managed to pull people out of
their private vehicles and bring about a modal shift.
Smart solutions exist, but there are major barriers in achieving these. Improvements
and upgradation could be expensive unless alternative funding sources are
identified. Also, governance is highly fragmented with different modes being
managed by different entities which do not talk to each other. Finally, operators
are often reluctant to make their data public, thereby hampering the use of apps
to integrate systems.
A progressive and forward-looking approach can help us overcome such barriers.
In India, lead transport authorities could be set up to coordinate planning and
financing of public transport modes in an integrated manner. They should have
legal backing and the financial muscle to ensure that their plans are adhered
to. International models like the Transport for London, the Land Transport
Authority of Singapore and Translink in Vancouver, are worth replicating with
local adaptations. Operators should also be mandated to allow commuters access
to data to plan trips.
Three important developmental features of the transport sector in India can be
noted as follows:
(i) A rail dominant economy in the 1950s has become a decidedly road dominant
economy presently. Road transport now accounts for over 60 per cent of inter-
city freight traffic (tonne-km) and over 80 per cent of inter-city passenger
traffic (pass-km).
(ii) During the same period, Indian Railways shifted from being a freight
dominant operation to a passenger dominant operation.
(iii) The main links of the parallel and competing road and rail networks have
become saturated under the current technological and operational regime. 71
Determinants of Growth What India needs at present is holistic planning for its transport infrastructure that
should minimise energy use and emissions while maximising competitiveness
of domestic industry.

4.6 TELECOMMUNICATIONS
Few areas of India’s economy have enjoyed as sharp a pace of structural change
as that in the telecom sector. The rapid pace was the outcome of the New Telecom
Policy, 1999. It brought in vigorous competition among firms and technologies.
The drastic pace of structural change highlights the possibilities in other segments
of infrastructure for eliciting massive investment by the private sector, and for
benefitting the consumers through competition between old and new technologies.
The major features of the telecom sector can be identified as follows:
(i) The structure and composition of telecom growth have undergone a
substantial change in terms of mobile versus fixed phones and public versus
private participation.
(ii) In 1999, both mobile phones and private sector separately accounted for 5 per
cent of total number of phones. Presently, mobile phones account for a little
over 92 per cent of total phones and the private sector accounts for 78 per
cent of total phones. From basic telephony to Value Added Services (VAS)
several remarkable changes have happened that have resulted in not only
expanding the base of mobile users but also providing more user-friendly
services to consumers. Mobile phone has surpassed their primary role of
voice communications and have become more of an infotainment device for
mobile users.
(iii) Although India has a 1010 million strong telephone network, including
mobile phones, the tele-density (number of phones per hundred population)
at about 80 is much less than over 120 in the UK, the US, and Australia.
(iv) While tele-density lags behind the world, present trends suggest that catching
up is presently underway. For this, massive investments, including FDI, are
planned.
(v) India also lags behind the world to a considerable extent in the field of
broadband telecom.
(vi) The telecom market in India is a highly competitive market but is driven by
regulatory and other policy issues.
Telecom operators are no longer in control of their industry with companies
such as Apple, Google, and Samsung, emerging as the new leaders and start-ups
ranging from cloud communication companies to secure chat ones scorching the
telecom highway. In the Big Data value chain too, telecom companies merely
generate the data but have little control over its usage and much less over its
commercialization. Their future depends on services such as Internet TV, mobile
payments and cloud services. But all that, for India’s telecom giants, is coming
at a huge cost. This steep cost base set against the shallow curve of their revenue
base is a mortal threat to many.
For the technology sector the issues may be considered.
• Focus areas will include Artificial intelligence, Big Data, Block-chain, Fin-
tech, 5G, loT, Massive MIMO, Network augmentation, etc.
• 5G is the next generation of broadband connection that offers 20 times faster
72
 data transmission speed than the 4G network. The much-awaited network Economic Infrastructure
trial for 5G services in the country is slated to start from June 2019 for a
period of three months, with the auctions planned for October 2019.
• Artificial Intelligence will alter the networking landscape, network
infrastructure, and enhance traffic management, as telecom companies
harness the power of AI to process and analyse huge volumes of Big Data
for better customer experiences, improve operations, and increase revenue
through new products and services.
• With less than 25 per cent towers fiberised against the global standards of
70-80 per cent, fiber leasing in India is heading towards a $2.56 billion
market by FY2020. Fiberised towers are expected to increase from 90,000
to 330,000.
Adaption of new technologies necessitate that telecom providers continuously
realign their business strategies and restructure themselves. In order to gain
a competitive edge, they invest in network infrastructure and forge JVs with
leading media and content providers. Add to this the burden of fluctuations in the
import duties on telecom equipment; a high GST; spectrum charges; competitive
tariffs; arbitrary right-of-way charges taken by States for permits to lay fibre,
etc., and Indian telcom are currently saddled with a debt of around $60 billion.
This has resulted in private sector consolidation, with further consolidation being
undersirable.
Recently, RBI issued a directive to banks to closely monitor the stress in telecom
accounts, as around 80 per cent of the debt is held by domestic banks. While the
industry has welcome the move, the government needs to address the other issues
plaguing the sector as well. Legislation is urgently required from the centre to
ensure that States takes a lower right-of-way permission charge. There is also a
need to review the existing tariff structure and to reconsider the decision to revise
the interconnection charges to zero. Other measures requiring relief include debt
restructuring, cut in licence fee and spectrum charges, etc., and efficient release
of locked up GST input tax credit.

Self-Assessment Exercise B
1) Describe any three features of the transport infrastructure in India.
........................................................................................................................
........................................................................................................................
........................................................................................................................
2) State the principal weaknesses of the transport sector in India.
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........................................................................................................................
3) Examine the role of the communication infrastructure in the growth of the
Indian economy.
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Determinants of Growth
4.7 ENERGY RESOURCES
The need for energy in a developing economy can hardly be over-emphasised. It is
a basic input required to sustain economic growth and to provide basic amenities
of life to the entire population of a country. It is energy which is the dividing line
between a subsistence economy and a highly developed economy. In the affluent
United States, an average American consumes nearly 20 times as much energy
as an Indian does in our country. (Annual consumption of commercial energy in
per capita in India is estimated at 682 watts as against 14035 watts in the USA).
Empirically, it has been established that “inadequate supplies of energy can inhibit
development and that assurance of an adequate supply and mix of energy inputs
can be a great stimulus to development.”
India with installed capacity of 147.0 mn.kw, is the fifth largest producer of
electricity in the world, behind USA, China and Russia. Energy in India is
produced from different sources; these can be classified into two groups:
(i) Commercial sources – like thermal power, hydel power, power from oil, gas,
nuclear, etc.
(ii) Non-commercial sources – like firewood, dung-cakes, etc.
Of the two sets of sources, commercial sources occupy a more prominent
position. Thermal power accounts for about 81 per cent, hydro power for about
13 per cent, and nuclear for about 3 per cent. The bulk of the commercial energy
is consumed in the industrial sector followed by the transport and household
sectors whereas a large part of the energy requirement in the rural and domestic
sectors is met from non-commercial sources. It is expected that the relative
share of non-commercial energy will fall still further over the next decade. By
that time energy requirements of the economy would also multiply by two to six
times depending upon the rate of growth of the economy. Even if India achieves
only an annual average rate of growth of 5 per cent, the per capita consumption
of energy would multiply by about 2.5 times. It, therefore, becomes crucial to
identify the sources of commercial energy.
4.7.1 Sources of Commercial Energy
There are several sources of energy for an economy. We discus some of these
sources below.
a. Coal
The Ministry of Coal’s recently released Vision 2025 document estimates the
total amount of extractable coal in India to be about 52 billion tonnes. Without
improvements in coal technology and economics, the existing power plants and
the new plants added in the next 10-15 years might consume nearly all of the
extractable coal in the country over the course of their 30 to 40-year life span.
Coal is the largest naturally occurring source of commercial energy in India
and has been one of the principal sources of power production. Presently, coal-
based thermal power stations (including nuclear) contribute about 75.0 per cent
of the total power generation. The energy policy of the country provides that
to the extent practicable and economical, coal will be the principal source of
commercial energy. It is worth mentioning that the use of coal is on decline in
advanced economies, because it inflicts huge environmental costs.

74
 Economic Infrastructure

Fig. 4.3: Coal Energy

India’s coal reserves are mainly clustered around a belt extending over the
western part of West Bengal, Jharkhand, Orissa, north-eastern and central
Madhya Pradesh, the eastern fringe of Maharashtra and the northern extremity
of Andhra Pradesh. There are also some scattered deposits in Assam. The total
reserves of coal are estimated at 267 billion tonnes and proven reserves at 106
billion tonnes. Of these, about 27 per cent are of coking variety and 73 per cent
of non-coking variety. Because of the limited availability of coking coal, its use
is being limited to metallurgical purposes. The non-coking coal available in the
country is generally suitable for power generation.
The country has some lignite and tertiary coal deposits also. The total lignite
reserves are estimated at about 21,000 million tonnes; the reserves of tertiary
coal are estimated at about 900 million tonnes.
The coal sector is constrained by supply limitation, inadequate drilling capacity,
absence of a progressive regulatory framework, minimal private participation,
high turnaround time and long gestation periods in getting clearances for mining
projects. Available coal is of a low calorific value which enhances wastages and
adversely affects generation efficiency of power projects. Analysts estimate that
one tone of imported high-grade coal is equivalent to 1.56 tonnes of domestic
coal, which has high ash content.
There is a need to attract investments in making available dedicated cargo vessels
and modern and exclusive deep-sea coal terminals. In addition, the sector has
to embark on a phase of climate change related research and development and
incorporate clean technologies.
The long-term growth of the coal sector requires a confident and renewed mindset
in developing coal resources through decontrol of the coal sector, listing of Coal
India on the capital markets, establishment of an independent regulator and a
level playing competitive environment, which supplements the framework of the
holistic energy and infrastructure sector in India.
b. Oil (Petroleum)
The second half of the present century may well be called the oil age. In 1950, 75
Determinants of Growth the world oil consumption was only 650 million tonnes whereas by 1973 it had
increased to nearly 3,000 million tonnes. In 1973 there took place a sharp upward
revision of crude prices by the oil-producing countries (a large number of whom
organised themselves in the Organisation of Petroleum Exporting Countries or
OPEC in short. OPEC dominated the market by producing two-thirds of world
oil production and over 90 per cent of net exports. Presently, 11-member OPEC’s
share in oil production has come down to just over a quarter of global production;
their share in total world’s exports stands at about 55 per cent.) The demand for
crude oil being inelastic but persistently increasing, a rise in its prices blew up
what came to be known as an international oil crisis. India was no exception. Ever
since oil exploration work in India has been stepped up, an aggressive campaign
has been mounted to discover oil and gas in the on-shore as well as offshore areas.

Fig. 4.4: Country-wise Oil Reserve

Another recent development of concern for policy-makers is that the number
of crude oil futures and options contracts have increased manifold. These have
led to significant speculation in the oil market. With increased futures trading
and contracts, the control of crude pricing has moved from OPEC to banks and
markets that deal with futures trading and contracts.
Recent Initiatives
The dependence on imported crude has led to focussed attention on energy
security. The various strategies being pursued for achieving energy security
include the following:
(a) Increasing exploration efforts through the New Exploration Licensing Policy.
Product sharing contracts have been signed for 100 blocks.
(b) Exploring in new areas, especially in deep water and difficult frontier areas,
and also exploring in the deeper layers of the producing fields.
(c) Developing faster the newly discovered fields and stepping up the use of
new technologies for seismic surveys, work over, stimulation operations,
drilling of wells, etc. in producing areas.
(d) Improving the recovery factor from existing major fields by implementing
Enhanced Oil Recovery (EOR)/Improved Oil Recovery (IOR) schemes.
76 (e) Acquiring acreages abroad.
(f) Tapping alternative sources of energy such as Coal Bed Methane, Underground Economic Infrastructure
Coal Gasification and gas hydrates.
(g) Substituting fossil fuels in part by blending with hydrogen and biofuels like
ethanol and bio-diesel.
Other initiatives include: (i) creating a strategic reserve of 45 days (against 15-20
days of operational reserves), and (ii) taking oilfields on lease in countries like
Yemen, Sudan and Russia. The strategic reserve will be stored in non-porous
granite rocks on the west coast. The rocks will be blasted to create tanks that
will be below the water table.
c. Natural Gas
Natural gas has aptly been termed as the ‘Prince of Hydrocarbons’. It occurs
either as associated gas or free gas. Associated gas is produced from underground
reservoirs along with crude oil and the level of production depends entirely on
the level of crude oil production. Contrary to that, free gas, though occurring in
the underground reservoirs, is not associated with crude oil and can be produced
as required. It has the advantages of convenience and efficiency in use and is
environmentally benign.
Gas offers both technical and economic advantages, such as follows:
(i) elimination of expensive fuel stocking facilities in the station layout,
(ii) total absence of combustion wastes such as ash, slay and soot and apparatus
of plant for their removal, resulting in savings in operating and capital costs,
(iii) absence of pollutants,
(iv) more exact measurement of fuel use and finer control of excess combustion
air,
(v) combustion chamber boiler size and that of ancillary machinery, specially air
fans, can be reduced, for the same boiler rating compared with equivalent
coal fired boilers,
(vi) elimination of sulphur products and the resulting corrosion danger in boiler
terminal apparatus, and
(vii) capability of natural gas fired boilers to operate as load-modulating units
on electrical network.
Natural gas can be used for both domestic and industrial purposes. It finds
application in the power, fertiliser and petrochemical industries. While
government policy in the past has favoured the reservation of natural gas for
fertilisers, petrochemicals and other non-fuel uses, the picture on the supply side
and in terms of the potential demand for natural gas has changed substantially
in recent years.
d. Hydro Power
Hydro-electric power plays a major role in the field of power development in
the country. Its present contribution to the total electricity generation is about 15
per cent. Among others, there are at least five reasons why hydro-power should
be promoted.
• Peaking capacity: It is the best option to meet the peaking requirements of
the country’s demand. Gas, while eminently suitable for addressing peaking
demand, is constrained, as seen earlier.
77
Determinants of Growth • Carbon footprint: Hydro power provides an effective mitigant to counter the
high carbon footprint embedded in fossil fuel usage.
• Energy security: Nothing can take away the need to reduce the dependence
on sources outside the country.
• Multi-purpose benefits: Hydro projects can provide multi-purpose benefits
to the country with benefits accruing for both irrigation and flood control.
• Life-cycle: Economically, these plants are far more attractive on account
of their longevity and limited maintenance requirements. Bhakra Nangal
remains a shining example of this.
Limitations
(i) The regions possessing large hydro-power resources do not have enough
demand for power to warrant development of the hydro-power resources
on a large scale.
(ii) Storage hydro-power stations with large capacities have high initial capital
requirements.
(iii) Performance of the hydro-power stations has been seasonally variable.
However, notwithstanding these limitations, the country has a sizable
quantum of untapped hydro resources, and there is a considerable scope
for development of hydro projects. In view of the intrinsic advantages of
hydro resources, they warrant development to the maximum extent possible.
In areas where adequate hydel resources cannot be developed, thermal
generation will have to be resorted to.
India has also entered into civil nuclear cooperation agreements with Argentina,
Britain, Canada, France, Kazakhstan, Mongalia, Namibia, Russia and the US.
e. New Sources
A few new sources of energy are nuclear energy, gobar gas, solar energy, wind
power and geothermal energy.
(i) It was largely in response to Homi Bhabha’s assertion that “no power is more
expensive than no power” (i.e., power at any cost is better than no power),
nuclear power generation was initiated in India in year 1969. Since then,
India has acquired all the capabilities needed to pursue this vision, from basic
research, plant designs, equipment manufacture, heavy water manufacture,
fuel fabrication, plant construction, operation and control systems to fuel
reprocessing. The energy potential available from the nuclear fuels is much
more than that from the coal deposits. As a matter of fact there is no other
energy source that gives large amounts of power using a small amount of
fuel and space. While India is amongst the top 10 countries of the world in
terms of production of electricity by hydro, coal, oil and gas, it is nowhere
near the top 10 with respect to nuclear power generation. It generates only
4,000 MW from this source. For a large country like India, this is an anomaly
in need of correction. In view of this, India is building up six new nuclear
plants and plans to achieve capacity of 63,000 MW by 2030. (The latest plant
located at Kundankulam (Tamil Nadu) went in operation on September 13,
2012) amidst protests over safety issues).
(ii) Gobar gas plants were designed as early as 1962; but they acquired
significance only after 1974-75. Presently, there are more than 20.00 lakh
such plants in operation.
78
(iii) Solar energy is non-polluting, abundant, widespread and inexhaustible. It is Economic Infrastructure
increasingly being used for varied purposes, such as water heating, distillation
of water, timber seasoning, etc. Towards the end-2010, India launched the
National Solar Mission with the aim to source 20,000 MW of electricity by
2022.
(iv) Wind Energy farms do not require large investments, nor do they need heavy
operation and maintenance costs. The Global Wind Energy Councils report
places India at fifth position in wind power generation. Pilot projects are
also on to tap tidal energy and ocean energy.
4.7.2 Sources of Non-Commercial Energy
Sources of non-commercial energy include fuel-wood, agricultural waste and
animal dung. According to the Working Group on Energy Policy, the relative
proportion of the three sources is 65 per cent, 15 per cent and 20 per cent
respectively. About 82 per cent of non-commercial energy is used in the domestic
sector. For the rural households, non-commercial energy accounts for more than
80 per cent of the total energy consumption; for urban households the proportion
is about 51 per cent.

4.8 ENERGY PROBLEM IN INDIA

By ‘energy problem’ we mean the problem of providing fuels or energy in its
various forms at reasonable cost to those who need them, wherever they are. At
present, India faces an energy shortage of 6.7 per cent and a peak load shortage
of 2.3 per cent. Given the estimated elasticity coefficient at 0.95, an annual 9 per
cent growth in GDP would translate into 7.2 per cent annual growth in electricity.
In order to meet that demand, our power generation capacity would have to
increase more than six times by the year 2032.
That the overall energy scene is none-too-happy is evident from the reduced level
of self-sufficiency in oil, the yawning gap between power demand and supply,
the declining share of hydel power in total power generation, the increasing
dependence on coal imports and the insignificant commercialisation of non-
traditional sources of energy.
As of now, the major features of the energy problem in India are as follows:
The various energy sector policies are not consistent.
(i) Freight is equalised for oil products but not for coal. This leads to distortion
in choice of fuel and industrial location.
(ii) Even the equity principle is not followed in pricing.
(iii) There are serious distortions in the pricing of most fuels. Thus, bulk LPG
costs more than double the international price, naptha for fertilisers costs a
third less, high-speed diesel costs around a third more and kerosene costs half
the international price. Natural gas, too, is priced at below its international
price, leading to a higher demand.
Energy Policy
For a healthy development of the power sector, the following objectives have
to be met:
(i) Minimise investment costs to enable better utilisation of available financial
resources;
79
Determinants of Growth (ii) Minimise net outflow of resources, especially foreign exchange;
(iii) Minimise costs of energy production to bring about economies in power
supply and keep power tariff at affordable levels without having to resort
to heavy and unsustainable subsidisation;
(iv) Maximise security of power supply and insulate from external and
international events and catastrophe.
In pursuance of these objectives, the various measures taken by the State can
be divided in two parts, viz., (a) energy pricing measures, and (b) non-pricing
measures.
A. Energy Pricing
Policies adopted in India have generally aimed at the following:
(i) Meeting the maximum energy needs of low income consumers;
(ii) Encouraging the shift from oil products to domestically produced fuels;
(iii) Providing pricing subsidies to sectors such as agriculture and specific
industries where energy prices for consumers were held down in order to
provide enough margin between output price and the costs of inputs;
(iv) Permitting price stability and avoiding frequent and abrupt adjustments;
(v) Prices should be left to be determined by administrative fiat. This should
also promote rational use and conservation of energy.
The overall trend is towards greater efficiency in pricing and recent pricing
decisions have certainly passed on the burden of increased import prices fully
and, by and large, equitably to all categories of producers.
B. Non-Price Measures
Non-price measures instituted immediately after the first oil price shock relied
largely on allocation measures.
(i) The government concentrated immediately on substitution of heavy fuel oil
(furnace oil) by coal whenever this was technically feasible.
(ii) Efforts have also been made towards regulation and management of energy
demand, as also to improve the efficiency of energy use in different sectors
of the economy.
(iii) On the supply side, efforts have been intensified for larger production of
both crude oil and refined products, as also of alternative sources of energy,
both conventional and non-conventional.
(iv) The other important steps have been:
– Improving the existing utilisation of assets.
– Reducing the transmission losses.
– Add power generation through private sector.
– Low voltage equipment sales are largely to industrial sector and public
utilities in India. Growth of low voltage equipment industry is related to:
(a) level of investment in the power sector and availability of electricity
in India, and (b) level of investments and growth in the industrial sector
in India.

80
(v) In 2002, the Accelerated Power Development and Reform Programme was Economic Infrastructure
launched. It has since become the focal point of reforms in the distribution
segment.
(vi) Power Grid Corporation in early 2014 has completed the National Power Grid
Project. Under this project all the existing power grids have been joined to
form a national grid. This will be accessible from any point in the country.
It will shift excess power to power-deficit States.
(vii) In early-2004, India Power Fund (IPF) was launched with the aim to:
– facilitate expeditious financial closure of power projects.
– accelerate investment in power sector.
– promote competition in line with Electricity Act, 2003.
(viii) The government has unveiled a hydrogen economy plan that envisages a
million hydrogen-fuelled vehicles on India’s roads by 2020.
In February 2012, the government brought out action plan for power reform.
It lays emphasis on the following: (i) Distribution reform to be expedited with
active involvement of states, (ii) Cost variations due to fluctuations in fuel prices
to be passed through, (iii) Rating methodology of utilities to enable lenders to
decide, (iv) Distribution franchise on the line of Bhiwandi in Maharashtra to be
promoted across India.
The government has exempted since February 2012 the power sector companies
from going through the auction route for the allocation of coal blocks for captive
use. However, for users other than public sector companies, the competitive
bidding method would replace the current practice of allocating blocks for notified
capture use.
Non-Conventional Energy
While the strategies discussed may help us see through to meet our basic energy
needs in the short and medium term, it must be recognised that our hydrocarbon
reserves are not going to last indefinitely. In fact, at current rates of production,
our proven oil reserves may hardly last out for another 20 to 30 years, (and even
less if the rate of production is stepped up). Hence, it is imperative that along
with other countries, we will need to participate in developmental work on
commercialising non-conventional renewable sources of energy such as solar
energy, wind power, ocean, bio-mass, geo-thermal energy, etc. Power generation,
based on non-conventional energy sources, has limitations of capacity but has
their own utility for small ratings. Most of these plants are totally pollution-free.
Specialised organisational and management skills are not called for. Our country
is ideally situated to harness a large quantum of such energy sources provided
economically feasible solutions are evolved to technological problems currently
faced in exploiting these exhaustible sources.
Among all these sources, solar energy – a new source of power – is being seen
as source of future to lead the world to a low-carbon future and, thus, away from
the looming climate crisis. It has big objectives.
First, it has to become cheap so that it can achieve grid parity and compete
with the dinosaur in the market: coal and oil. This can only happen when its
deployment is greatly scaled up. Second, it has to reinvent green growth. This
is why solar energy has been “sold” as an alternative industry, which will add to
employment. It is the economy of the future. Third, it has to secure need of the
81
Determinants of Growth most energy-poor – in other words, this relatively expensive and certainly most
modern energy system should reach the poorest millions living in darkness. This
would mean cutting the cost of supply, building networks to distribute and doing
all that has not been done before. The Government has already initiated action
on this front. A threefold strategy has been pursued; these include:
(i) providing budgetary resources from the government for demonstration
projects;
(ii) extending institutional finance for commercially viable projects, with private
sector participation and external assistance;
Fourth, promoting private investment through fiscal incentives, tax holidays,
depreciation allowance, facilities for wheeling, power for the grid and
remunerative price for the power supplied to the grid.

Self-Assessment Exercise C
1) Mention the principal sources of energy in the Indian economy.
........................................................................................................................
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........................................................................................................................
2) Point out the principal sources of non-conventional energy in India.
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3) Bring out the principal features of energy problem in India.
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4.9 LET US SUM UP

India has been riding on fast growth rate for some time. The pandemic put Strong
brakes on this process. We are ready to push up the growth rates so That we
compensate for the lost time. In this endeavour infrastructure sector is poised to
play a critical role. Huge efforts are on way to ensure that growth process is not
hindered by inadquacies in the infrastructure sector.

4.10 KEY WORDS

Infrastructure: It refers to those services and structures that help in the growth
of directly productive activities like agriculture and industry.
Economic Infrastructure: It is directly related to the needs of production sectors.
Social Infrastructure. It is concerned with the supply of such services as meet
the basic needs of a society.
Public Goods: Two characteristics of public goods are important: (i) non-
excludability and (ii) non-rivalness. The consumption of public goods cannot be
restricted because of externalities and hence are available for use to everybody
82
without charge.
Externalities: Effects of a private action of society; effects may be positive or Economic Infrastructure
negative.
Monopoly: A market situation in which there is only a single producer of a good
or a service.
Commercialisation of Infrastructure: To treat infrastructure as private goods,
and to restrict their use to those persons who are able to and willing to pay for
these services.

4.11 TERMINAL QUESTIONS

1. What is meant by ‘infrastructure’? Highlight the characteristics of
infrastructure.
2. Distinguish between economic infrastructure and social infrastructure.
Discuss the role of infrastructure in the growth process of an economy.
3. Briefly describe the features of infrastructure. Should there be private
participation in development of infrastructure sector?
4. Highlight the shortcomings of the transport sector in India.
5. Recent growth in the telecommunications has opened up huge opportunities
for growth in the Indian economy. Discuss.
6. Distinguish between conventional and non-conventional sources of energy
in India.
7. Solar power is fast emerging as a source of energy. Discuss.

FURTHER READINGS
Dhingra, I. C., Resource Base of the Indian Economy, Manakin Press (New
Delhi, 2020)
Government of India: Economic Survey, Recent Issue.
Annual Reports of concerned Ministries of the Government of India

83
Determinants of Growth
UNIT 5 SOCIAL INFRASTRUCTURE
Structure
5.0 Objectives
5.1 Introduction
5.2 Achievements of the Education Sector
5.2.1 Tertiary Education
5.2.2 Primary Education

5.2.3 Human Capital Formation

5.3 Weaknesses of the Education Sector

5.4 Public Expenditure on Education
5.5 Educational Reforms in India
5.6 Health Sector in India
5.7 Issues in Healthcare
5.8 Government Initiatives in Healthcare
5.8.1 National Health Policy
5.8.2 Pro-active Healthcare

5.8.3 National Rural Health Mission

5.9 Let Us Sum Up

5.10 Key Words
5.11 Terminal Questions

5.0 OBJECTIVES
After going through this unit, you will be able to:
• Appreciate the role of social infrastructure in economic growth;
• Identify the constituents of the social infrastructure;
• Describe the progress in various heads of social infrastructure; and
• Identify major shortcomings and limitations of the various social infrastructure
sectors.

5.1 INTRODUCTION
In the process of economic growth the functions performed by economic
infrastructure (e.g., power, transport, communication, etc.) are complemented
by the functions performed by social infrastructure (e.g., schools, hospitals, art
and culture, etc.). Social infrastructure not only contributes to the production
of goods and services, it also contributes to social welfare. Thus, viewed from
the perspective of human development, social infrastructure deserves more
attention. You should note that maximisation of social welfare is the ultimate
objective of all activities, economic and non-economic. There is no dispute over
this approach to development. Rather the importance of social infrastructure is
further strengthened by the recent experiences in wake of Covid-19. Globally,
countries having strong social infrastructure have been able to cope with the
84 Covid-19 problem in a much better manner.
Education is the process of acquiring knowledge, skill, values and personal Social Infrastructure
development. It could be imparted through three channels, viz., formal, informal
and non-formal. Formal education refers to various levels of studies imparted in
schools, colleges, universities and other educational institutions. Such institutions
could be in the public sector or in the private sector. Non-formal education refers
to various structured educational programmes that take place outside the formal
education system. Informal education refers to the learning acquired at home, work
place, peer group, etc. Formal education comprises three segments: elementary
education, secondary education and higher education.
The healthcare system includes organisations, institutions and resources that
produce actions whose primary purpose is to improve health. Thus, it is a vast
network of hospitals, diagnostic centres, blood banks, healthcare professionals,
etc. Also, there are laws, policies, plans and strategies to provide health facilities
to people.
All along the recorded history, India has sought to build infrastructure with
sound foundations. Since independence these efforts have been further energised.
Notwithstanding the fact that the education and health sectors of India suffer
from limitations, we cannot ignore the fact that not many emerging economies
have reached such a level. In this Unit, you will learn achievements, weaknesses,
expenditure and reforms in India. Heath sector issues and initiatives in healthcare
will be further discussed in detail.

5.2 ACHIEVEMENTS OF THE EDUCATION

SECTOR
During the past six decades, there has been substantial expansion of the
educational sector in India. The education sector has the following positive
achievements to its credit:
(i) Accessibility to education has improved over time. Education is no more
elitist; it is somewhat ‘democratised’ with a large proportion of weaker
sections participating in education at all levels, including higher education.
(ii) There has been rapid growth in education sector in India over the years.
Indian education system is now colossal, teeming with almost 100 million
students and three million teachers, and costing billions of rupees each year.
This colossus is the result of conscious public policy in independent India.
Two basic features of this policy have been: (1) Access-based strategy, and
(2) Incentive-based strategy. The main focus of educational policy has been
to increase access to education at all levels. Now, almost everyone in rural
areas (over 93 per cent) lives within 1 km of a primary school. Similarly,
over 92 per cent of the population in rural areas have a middle school within
about 5 km and 82 per cent of the rural population now lives within 8 km.
of a high school. A district headquarter town without at least an arts college
is now rare. Colleges have proliferated at even faster rate than schools. As
of March 2022, there are 1027 universities in India, including 54 central
universities, 444 state universities, 126 deemed to be universities, and 403
private universities.
(iii) India has the second largest (next only to China) pool of educated and skilled
men and women in the world.
(iv) Universalisation of elementary education has been a goal of the Indian
government since commencement of the five year plans. It got a major 85
Determinants of Growth push in 1999 when the Sarva Shiksha Abhiyan (SSA) was implemented.
Another landmark is the 86th constitutional amendment which made right
to education a fundamental right for children in the age group of 6-14 years.
This constitutional amendment was followed by the enactment of the ‘Right
of Children to Free and Compulsory Education (RTE) Act, 2009’.
The gross enrolment ratio (GER) in higher education (i.e., the proportion of
graduates aged between 18 and 23 years entering college-level courses) at the
national level rose from 12.5 per cent in 2007-08 to 27.1 per cent in 2019-20.
The increase in GER implies a rise in the supply of skilled personnel in India.
This would somewhat remove the supply constraint of skilled labour faced by
the industrial and services sectors. There are a lot of companies ranging from
retailers to information technology enabled services (ITES) which are finding a
shortage of skilled and employable personnel in India.
5.2.1 Tertiary Education
The changing nature of work makes tertiary education more attractive in three
ways. First, rapid expansion of the IT and ITES sectors have increased the demand
for higher-order general cognitive skills such as complex problem-solving, critical
thinking, and advanced communication. Such skills are transferable across jobs.
Such skills can be acquired through tertiary education alone. The rising demand
for these skills has enhanced the wage premiums of graduates, while reducing
the demand for less educated workers. Second, tertiary education has increased
the demand for lifelong learning (e.g., open and distance learning). Workers are
expected to have multiple careers, not just multiple jobs over their lifetime. Third,
tertiary education – especially universities – has become more attractive in the
changing world of work by serving as a platform for innovation (hand-holding,
start-ups, patents, etc).
India’s tertiary education system is the second largest in the world, after China.
It is home to more than 35 million students and over 50, 000 institutions. The
most prestigious institutions within this system have global standing and are
responsible for making India a world leader in the high-tech sector. But for this
success to be taken to the next level, India’s tertiary education system needs
three sets of reforms.
First, it requires more flexibility between the general and technical tracks. Second,
Curriculum should focus more on building the skills. Third, Universities should
become centres of innovation. As part of the Start-up India initiative, seven new
research parks have been established in Indian Institute of Technology campuses
to promote innovation through incubation and collaboration between universities
and private sector firms. More initiatives like these are needed. The New Education
Policy, 2020 is expected to address these issues.
5.2.2 Primary Education
Certain skills are much in demand these days. Some of these skills are: (i)
complex problem-solving and analysis, (ii) social skills such as teamwork, and
(iii) relationship management. Reasoning and self-efficacy are also important,
particularly as they improve the adaptability of a person. In a survey of employers
of engineers in India, socio-behavioural skills were ranked at par or above
technical qualifications. Building these skills requires strong foundations at the
primary education level.
In fact, most of these traits are learnt by infants up to the age of 5-6. If children
86 miss out during this period in life, it is hard to catch up. These foundations can be
established through effective early childhood development programmes and basic Social Infrastructure
education. Investments in nutrition, health and stimulation in the first thousand
days of life build stronger brains.
As the World Development Report 2019 argues, India needs to focus more on the
quality of education it offers to its greatest asset – its citizens. In economics we
call it human capital formation. For most children, skill foundations are formed
through primary and secondary education. Yet, the acquisition of foundational
skills that one would expect to happen in schools is not occurring.
5.2.3 Human Capital Formation
Investment in education leads to human capital formation. When we invest in
education, it brings qualitative changes in labour – there is an improvement in
productivity of labour. Improvement in productivity leads to higher output. India
can prepare its people for the coming shifts in jobs, skills and market structures
through higher investments in education. Lack of investment in education
will leave the future generations, particularly the poorest segment, at a severe
disadvantage, amplifying inequalities that already exist. In the worst scenario,
inadequate investment on human capital may create instability in the economy.
A lot of investments in human capital have already begun in India and are likely
to have a positive impact in the coming years. The shift in the education sector
towards more competitive federalism and results-based financing is expected to
improve accountability and learning outcomes. India’s agreement to participate in
Programme for International Student assessment (PISA) is a major step forward in
its policy landscape. It will help rank India with global peers based on education
outcomes. India also needs to think about its current stock of adolescents and
working adults. Every year, 12 million youth enter the labour market in India. By
2030, the country will have 123 million 25- to 29-year-old citizens. And, bolstered
by social media, their aspirations will be high. For these young people, many of
whom did not graduate with a high-school diploma, adult learning programmes
and forms of tertiary education are the only remaining path to adequate skills
development. According to some estimates, only 24 per cent of the 18 to 37-year-
olds who dropped out of school before completing the primary level can read.

5.3 WEAKNESSES OF THE EDUCATION SECTOR

The education sector of the economy has demonstrated a number of weaknesses,
among which the more important are as follows:
1. Narrow Coverage: Tertiary education has a very narrow coverage of the
population. Only 2.5 per cent of the Indian population in the relevant age
group attend colleges and universities, compared with 66 per cent in the US
and Canada, 47 per cent in the OECD countries, 37.7 per cent in South Korea
and over 20 per cent in countries such as Cuba, Costa Rica and Venezuela.
Moreover, there is a very high dropout rate in India. Of 100 children entering
class I, only 60 make it to the end of primary school (class V). In contrast,
68 per cent of world’s children complete primary education. Further, less
than 3 per cent children complete class XII. The poor retention rate at the
primary level has been traced to the general neglect of the education sector.
There has been a significant improvement in retention rate during the past
few decades. The dropout ratio in primary schools has decreased sharply
from 70 per cent in 1950s to 40 per cent at present.

87
Determinants of Growth 2. Low Access to Education: Access to education has been highly skewed.
Some segments of society do not have access to quality education. A recent
World Bank study on the subject has established that 10 per cent of the best
educated Indians received 61 per cent of the total resources, as against 36 per
cent across Asia, reflecting a very high degree of inequality in the system.
The Gini coefficient for India (on a scale of 0 to 1 representing a progressive
inequity) is 0.66, against the regional average of 0.43.
3. High Cost of Education: The cost of education, particularly higher education,
has been relatively high. Unit cost, defined as the percentage of per capita
GNP spent on each pupil, ranges from 6 for primary education to 231 for
higher education. Though it is obvious that higher education would have
much larger unit costs, cross country comparisons show that India’s outlays
on higher education is much above the average. Spending on higher education
is 1.55 times the Asian average; whereas it is only 0.61 times for primary
education. An implication of the above is that given the overall adequacy
of funds invested in the education sector, expenditure on higher education
has left very little resources for primary and secondary education.
4. Low Quality Education: Notwithstanding the presence of regulatory bodies
such as UGC, AICTE, NCTE, etc., the quality of higher education in India
is fairly low. As per Quacquarelli Symonds (QS) World University Ranking
2022, only three institutions from India find a place in the top 200 universities
in the world. The low quality of education has more recently been confirmed
in an international test, PISA-2013 (Programme for International Student
Assessment, conducted by OECD annually to evaluate education systems
world-wide) in which India ranked second-last in a group of 73 countries,
beating only Kyrgyzstan.
The educational system suffers from what has been called ‘diploma disease’,
i.e., it does not aim at conveying knowledge and skills at all, but is more
concerned with certification. As such, its contribution to the growth of
human capital is minimal; it is unable to meet the emerging demand for
skilled professionals.
5. Gender Bias: Spread of education has been biased more towards boys than
girls. The dropout rate is higher in the case of girls compared to boys. Girls’
education is accorded lower priority in traditional households in India. Girls
are required to assist other women in the family in household work. Boys on
the other hand, are encouraged to study. Such traditional view however is fast
changing in India. The performance of girls in senior secondary education is
much better compared to that of boys. Even in higher education institutions,
there are more girls than boys in many educational programmes.

Check Your Progress A

1) Explain why capital formation in the education sector is important for India.
........................................................................................................................
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........................................................................................................................
2) What do you mean by quality education ?
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88 ........................................................................................................................
 ........................................................................................................................ Social Infrastructure

3) What are the main weaknesses of the educational system in India?

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5.4 PUBLIC EXPENDITURE ON EDUCATION

Spending on education as a share of the central government’s total budgeted
expenditure has been falling in recent years. Compared to 2013-14, when
education got 4.57 per cent of the total expenditure, there has been a steady
decline of 3.65 per cent in 2016-17 (see Fig. 5.1).

Fig. 5.1: Declining Trend of Government Spending on Education

Fig. 5.1 presents the government expenditure on education in recent years (as a
share of the GDP). We find that the percentage share has declined from 0.63 per
cent of the GDP in 2013-14 to 0.47 per cent in 2017-18.
Public spending on education is a must for ensuring availability of education for
all. While policymakers have been congratulating themselves for bringing almost
all the children aged 6-13 years to elementary school, little attention has been
paid to the fact that after this stage, it is downhill all the way. Gross enrolment
ratio (number of students in school at a particular stage as a percentage of all
children in the concerned age group) rapidly deteriorates after elementary school.
It declines to just 54 per cent by senior secondary level. In other words, roughly
half the children are out of school by the time they are senior school age. This
works out to about 35 million kids out of school.
In the case of higher education, the situation is much worse, with a gross enrolment
ratio of just 27.1 per cent for the 18-23 age group. This includes distance education
students. In most developed countries, the ratio is close to the 50 per cent mark.
In India, about 71 million youth are still out of the higher education system.
Gross enrolment ratio for scheduled castes and scheduled tribes are much lower,
implying a still higher dropout rate.

89
Determinants of Growth So the marginalized sections of society need to be reached out, especially in
remote areas. School infrastructure and teachers need to be provided for. NGOs
and corporate bodies cannot handle this.
The problem does not end here. Even after getting everybody into school and
college, there is a need for good and qualified teachers. In 2019-20 there were 265
million students in India and the number of teachers remained at 9.68 millions.
India needs to prepare teachers through well-equipped training colleges.
The Right to Education (RTE) Act, implemented since 2010, mandates certain
basic norms such as pupil-teacher ratio and physical infrastructure. One study has
shown that only about 10 per cent of the schools fulfill all the norms. Bringing
up the other schools to the RTE standard will demand enormous funds.

5.5 EDUCATIONAL REFORMS IN INDIA

India’s education system needs reforms. Two diverse trends are visible: Family
spending on education is rising while quality of education is deteriorating.
About 25 per cent students are dependent on private coaching. If adequate public
spending on education is not provided, it may adversely affect the quality of
education.
Over the past 70 years, a number of measures have been taken to reform the
education system in India. These reform measures can be put under three
groups, viz., (i) equality reforms (provision of equal educational opportunity to
all), (ii) quality reforms (improvement in education quality), and (iii) reforms
for administrative ease (simplification of procedure). A recent study on the
effectiveness of these reforms further classifies each of these into two categories
as class-oriented reforms and mass-oriented reforms, and reaches the following
inferences:
(i) The steps taken by the government to provide equal educational opportunities
for all has been less successful. At the primary and secondary levels, equal
opportunity in education is somewhat successful, while at the tertiary level
it is not. As there are inequalities in the society (in possession of wealth,
parental education and cultural factors), it is difficult to bring in equality in
mental development of all children. The government has continued with the
policy of reservation of seats in educational institutions for certain social
categories of students. Despite this, there are relatively less persons from
marginalised sections of society in managerial positions in the industrial and
services sectors.
(ii) In the case of a majority of the educational reforms the primary initiative was
taken by the government and the mass involvement was very much limited.
The target group (people) simply followed this initiative of the government.
(iii) The global approach to educational change seems to have received greater
attention by the policy-makers than the specific measures for educational
change meant for specific target groups. The global measures have an implicit
bias towards the socio-economically better-off sections of society, as major
benefits from such measures could be cornered by them.
(iv) Education in India has not taken advantage of the very things that the country
is now famous for in the world. The penetration of digital media in schools
is less than 5 per cent. There is an urgent need to figure out how this can be
done in a mission mode.
90
In short, educational reforms have not been successful in overcoming three major Social Infrastructure
problems so far as education sector is concerned: (i) smaller coverage, (ii) lower
quality, and (iii) higher inequality. Inequality in educational attainment is visible
at three levels: (i) The disparity across regions (see Unit 10) is increasing not
only in terms of per capita income but also in educational attainment. The poorer
states have not been able to allocate adequate funds for the education sector. There
are schools without proper building and adequate number of teachers. (ii) There
is wide disparity in educational attainment across social groups. Educational
attainment among persons from Scheduled Castes, Scheduled Tribes and Other
Backward Castes is low compared to General Castes. (iii) There is disparity across
gender also. Women have lower level of educational attainment compared to men.
Now that the demand for education is rising from across the class, caste and
community divide, the future education policy should be based on three principles,
viz., (i) expansion, (ii) inclusion, and (iii) excellence. These refer to access,
equity and quality, respectively. Expansion refers to opening up of the education
sector to all, so that all stakeholders are allowed to participate in the education
process. By equity is meant the capacity for all sections of society to pay so that
no community is left out and all are part of the mainstream. An equally important
aspect of building human capital is creating the capacity for innovation. Further,
it is the quality of education that matters and cannot be diluted. Based on these
principles, the four most important elements in future education policy should be:
(i) to make primary education not only available but also reached to and availed
of by all children, so that at least in the next generation, we have a more
educated, alive and alert population,
(ii) to focus on the education of women, and particularly girl child, by reaching
out to them,
(iii) to make education worthwhile, and relate it to the actual needs of the
population, in terms of suitability of the education imparted for employment,
for better skills, for a better understanding of health, education, environmental
and other relevant issues.
(iv) to make use of the opportunities offered by the latest advances in information
technology.
The New Education Policy, 2020 tries to eliminate some of the deficiencies of the
earlier education policy. It emphasises on vocationalisation of education – skills
to be imparted to all students starting with class six. The difference between arts
and science streams will be minimised in the sense that basic elements of both
arts and sciences will be taught to all students. Language is found to be major
hurdle for the students; therefore emphasis will be given on regional languages.
The benefits of technology will be harnessed to bring in accessibility, equality,
affordability and quality in education.

5.6 HEALTH SECTOR IN INDIA

Improvement in the health status of a population is instrumental for increasing
productivity and economic growth. Health condition in India has improved
considerably in recent decades. Generally, the improvements have been
accompanied by socio-economic progress. Life expectancy at birth is the most
reliable measure of health status of a country. It provides an index to the range
and intensity of health problems. Life expectancy at birth in India has increased
from 32 years (in 1951) to 70 years in 2022. Likewise, death rate in the country
91
Determinants of Growth has also recorded a steep fall. The death rate in India was 27.4 in 1951; it came
down to 22.8 in 1961; and further to 7.3 in 2019. Rise in life expectancy and
fall in death rate indicate that the health condition in India has considerably
improved over the years. The life expectancy at birth, however, is miserably low
compared to life expectancy found in other countries. In 2022, life expectancy in
Japan and Hong Kong is 85 years. In most developed countries life expectancy
is more than 80 years. Thus, health condition in India is still bad compared to
developed countries.
Vicious Cycle of Poor Health
In Fig. 5.2 we present the vicious circle of poor health. Poor health condition
leads to many complicacies. There are several causes and consequences of poor
health condition in developing countries such as India. There are several factors
such as poverty, lack of family planning, lack of healthcare, lack of education, etc.
that lead to poor health status. In the figure we have presented the impact of poor
health condition on women, particularly infant girl, young girl, teenagers, potential
mothers and breast-feeding mothers. It is vicious cycle because effects are cyclical.
A person does not have good health as a result of which her productivity is low.
As her productivity is low, she has low income, and she is poverty-ridden. As she
is poor, she cannot afford to nutritious food and healthcare. As she is deprived of
nutrition and healthcare, she has poor health condition. By looking at Fig. 5.2,
you analyse several situations with which we all are familiar.

Fig. 5.2: Vicious Cycle of Poor Health

Causes of Poor Health Condition
The important causes of poor health are as follows:
(i) High Birth Rate and Fast Growth of Population. A number of health problems
derive from high fertility rate in India. When a large number of people live in
poor households located in crowded, unsanitary surroundings, the possibility
of spreading communicable diseases is higher. Such living environment leads
to high mortality, especially among children (implies, high infant mortality
92 rate).
High infant mortality rate, in turn, induces families to have more children Social Infrastructure
so that they can assure themselves of a few surviving children. This pattern
adversely affects the health standards. Similarly, high population growth makes
it more difficult to provide adequate water supply, proper garbage disposal and
maintenance of sanitation in the community. It increases the cost of providing
healthcare facilities to all.
(ii) Malnutrition. Widespread malnutrition contributes to the incidence and
severity of health problems. It poses a major threat to the children and, in
extreme cases, threatens their lives. In addition, malnutrition creates serious
health problems by contributing to premature births and abnormally low
weight at birth. Malnutrition is also a major contributing factor in infectious
diseases. Malnutrition weakens immunity system of the body. The problem
of inadequate nutrition is compounded by rapid population growth. Large
family size and close spacing of births frequently preclude adequate food
and care for children.
(iii) Unsanitary Conditions for Housing. The contamination of food, water or
soil with human waste is a cause of a number of diseases. If water is not
safe for drinking, or is insufficient for personal hygiene and sewage disposal,
diseases will spread more easily. This reduces the health status of the country.
In addition to poor sanitation and water supply, a sizeable proportion of the
population live in sub-standard dwellings lacking in space, ventilation and
sunlight. Such conditions tend to increase the incidence of diseases.
Healthcare System in India
Over the past seven decades, India has built up a vast healthcare system. The
healthcare system consists of the following:
(i) Healthcare institutions: There are primary, secondary and tertiary healthcare
institutions, manned by medical and paramedical personnel. The primary
healthcare institutions provide the first level of contact between the
population and healthcare providers. These consist of primary health centres,
community health centres, sub-divisional hospitals, dispensaries run by
various government departments, medical infrastructure of PSUs and large
industries.
The secondary healthcare institutions consist of district hospitals and urban
hospitals. They take care of (1) patients referred to them by the primary
healthcare institutions and (ii) primary healthcare needs of the population
in the city in which they are located.
The tertiary healthcare hospitals are attached to medical colleges, both in
the public and the private sector.
(ii) Medical colleges and paraprofessional training institutions to train the needed
manpower and give the required academic input. Programme managers
managing ongoing programmes at central, state and district levels; and
(iii) Health management information system consisting of a two-way system of
data collection, collation, analysis and response.
Deficiencies of the Healthcare System
Despite the phenomenal expansion of the healthcare facilities at all levels (primary,
secondary and tertiary) there are a few deficiencies. One, communicable diseases
have become more difficult to combat because of development of insecticide
resistant strains of vectors, antibiotic resistant strains of bacteria and emergence of 93
Determinants of Growth HIV infection for which there is no therapy. Two, longevity and changing lifestyle
have resulted in the increasing prevalence of non-communicable diseases. Three,
malnutrition, micro-nutrient deficiencies and associated health problems coexist
with obesity and non-communicable diseases. Four, the existing healthcare system
suffers from inequitable distribution of institutions and manpower. Five, even
though the country produces every year about 20,000 doctors in modern system
of medicine and a similar number of practitioners and paramedical professionals
in Indian system of medicine, there is a hige shortage of healthcare professionals
in India.

5.7 ISSUES IN HEALTHCARE

Healthcare in India these days is under transition. This transition has four
dimensions as given below.
1. Demographic Transition. With declining mortality and fertility, the age
composition of population is fast changing. The percentage of older people
in the country is increasing. The age composition of the population for the
year 2020 is shown as follows in Table 5.1.
Table 5.1: Age Composition of India's Population in Year 2020
Age Group Percentage of total population
2002 2020
0-14 35 26.7 per cent
15-64 59 63.60 per cent
65 and above 6 8.80 per cent
We observe from Table 5.1 that:
• There would be a significant increase in working population (correspondingly,
number of dependents will fall). This is known as the window of demographic
opportunity. This will last for a quarter century.
• The proportion of older persons in total population will increase. Among the
increasing older population, many may be widows, without family support.
The demographic shift has implications for the way in which healthcare is
delivered and accessed.
2. Epidemiological Transition. We are encountering a “double burden of
disease”. A high proportion of the population continue to die from preventable
infections like diarrhoea, pneumonia, under-nutrition, childbirth related
complications, TB, malaria, and HIV/AIDS. Simultaneously, the growing
incidence of non-communicable, chronic conditions of ill-health like cardio-
vascular diseases, diabetes and cancer attributed to changing life-style is
stretching the capacity of the healthcare system.
3. Social Transition. There is, on the one hand a rising demand for high quality
healthcare, including a preference for multi-speciality hospitals even if these
entail higher costs. On the other hand there is unwillingness to discard myths
and misconceptions. For example, those factors contributing to adverse sex
selection.
4. Managerial Transition. We need to develop health financing systems that
will address the shift in disease burden, the increase in health costs, and
inefficiencies across healthcare management.
94
Responding to these issues and existing deficiencies in healthcare system, Social Infrastructure
a comprehensive national health policy has been formulated and is being
implemented.

5.8 GOVERNMENT INITIATIVES IN

HEALTHCARE
The government has taken several steps to improve the health status of people
in India
5.8.1 National Health Policy
The National Health Policy (NHP) was formulated in 1983. It articulated the
ambition of the country (i) to provide healthcare for all, and (ii) to achieve all-
round improvements in the health indicators of the population. The NHP provided
a comprehensive framework for planning, implementation, and monitoring of
health services to be achieved by 2000. The Ninth Five Year Plan recommended
a review of the National Health Policy in view of the following:
• Ongoing demographic transition
• Ongoing epidemiological transition (epidemiology is a branch of medical
science that deals with the incidence, distribution and control of disease in
a population)
• Expansion of healthcare infrastructure
• Changes in healthcare seeking behaviour
• Availability of new technologies for diagnosis and treatment
• Rising expectations of the population and escalating cost of healthcare.
A review of the policy resulted in formulation of the New Health Policy, 2002
(NHP 2002). The NHP 2002 focused on:
• Expanding and improving primary healthcare facilities;
• Organisational restructuring of the national public health systems to facilitate
more equitable access to the healthcare;
• Area specific programmes to meet the health needs of women, children,
elderly, tribals and socio-economically under-serviced sections;
• Programmes for the control of diseases like TB, Malaria, Blindness and HIV/
AIDS;
• Disaster management plan to cope with natural and man-made calamities;
and
• Macro-policy prescriptions for coordination between the government, the
private sector, NGOs and other institutions of civil society.
It was expected that with effective implementation of the policies and strategies
the country would achieve set goals and complete the health and demographic
transition within the set time frame.
5.8.2 Pro-active Healthcare
The latest National Health Policy (NHP) 2017 highlights the ‘Health for All’
approach to provide assured healthcare for all at an affordable cost. However,
there is scope to do much more under the NHP 2017. Ideally, the public health
policy needs to be focussed towards proactive healthcare, not reactive healthcare. 95
Determinants of Growth Besides, in the case of the government’s Ayushman Bharat scheme, the Pradhan
Mantri Jan Arogya Yojana (PM-JAY), the universal health insurance scheme,
has received considerable attention and resources than the health and wellness
centres (HWCs) component. This asymmetry needs to be suitably addressed for
the growth of healthcare in the future.
While public hospitals offer free health services, these facilities are understaffed,
poorly equipped, and located mainly in urban areas. It is a known fact that
accessible and affordable healthcare in the public sector can considerably reduce
the rise in dependence on private institutions. However, governmental facilities
leave no alternatives but to access private institutions and incurring high out-of-
pocket expenses in healthcare. Most health services are, therefore, provided by
private facilities, and 65 per cent of medical expenses in India are paid out of
pocket by patients.
A possible solution to address the issue could be to increase the adoption of health
insurance. In this regard, the government and private institutions both need to
work together. Adoption of digital insurance processing solutions integrated with
the healthcare ecosystem for faster turnaround time for insurance processes will
also motivate adoption of health insurance.
What primarily ails the healthcare system in India is that there has been a general
lack of focus on the vertical from the government. For years now, knee-jerk
reaction work is being witnessed towards the improvement of quality of service.
To sum it up, there is an urgency to make healthcare service and service providers
more transparent operationally. This will help ensure people and processes can
be made easily accountable to provide better healthcare services. It is only then
that the healthcare system can breathe a bit easier.
5.8.3 National Rural Health Mission
The Government has launched a National Rural Health Mission (NRHM) in 2005.
The Vision
• Effective healthcare for rural population, especially women and children,
throughout the country.
• Health Plan for each village through Village Health Committee of the
Panchayat.
• Special focus on 18 states.
• Effective integration of health with sanitation & hygiene, nutrition, and safe
drinking water.
• 24-hour functional hospital in each development block.
• Community health insurance for the poor.
The Goal
• Reduced Infant Mortality Rate (IMR).
• Reduced Maternal Mortality Ratio (MMR),
• Prevention and control of communicable and non-communicable diseases.
• Promotion of healthy lifestyle.
• Mainstream AYUSH (Ayurveda, Yoga-Naturopathy, Unani, Siddha zind
Homoeopathy).
96
• Promote healthcare at household level through female health activist (ARIA). Social Infrastructure

• Full coverage of immunisation and access to institutional delivery for the

mother.
Check Your Progress B
1 Write three causes of poor health care.
2 What do you mean by proactive health care ?
3 What do you mean by national rural health mission ?

5.9 LET US SUM UP

In this unit we reviewed the status of education and healthcare infrastructure in
India. There is no denying the fact that substantial progress has been made over
the years in both the sectors. However, the harsh reality that confronts us is that
in its present form the situation is dismal. Achievements in education and health
sectors are neither adequate nor efficient. A testing ground for both the sectors
was the pandemic of COVID-19. The health system was overwhelmed due the
rapid growth in the number of patients. The education system saw a major change,
where the pedagogy changed from classroom teaching to online education. The
COVID-19, however, has provided us an opportunity to re-examine our priorities
and strategies to rebuild our social infrastructure.

5.10 KEY WORDS

Human Capital: It refers to the labour force that is an essential input in production
of goods and services.
Human Capital Formation: It refers to improvement in the quality of labour
force so as to increase its efficiency.
Tangible Assets: Assets that have a physical shape, i.e., these can be seen,
touched and felt.
Intangible Assets: Assets that do not have any physical or material shape (e.g.,
ideas, knowledge, honesty, etc.)
Knowledge Economy: A state of economy in which knowledge and ideas
command big premium and are therefore lavishly rewarded.
Access-based Strategy: It refers to a policy that provides educational facilities
at door-steps of the people.
Incentive-based Strategy: It refers to a policy that is built to induce people to
get enrolled in educational institutions.
Diploma Disease: A person is not interested in acquiring knowledge and skills,
but is more concerned with certification.

5.11 TERMINAL QUESTIONS

1. Discuss the importance of education and health structure in the process of
economic growth.
2. Highlight the major achievements of the education sector in India.
3. Indian education sector suffers from serious ailments. Do you agree? Explain
fully.
97
Determinants of Growth 4. Briefly describe the state of healthcare system in India. Are we fully equipped
to meet emergent situation? Explain.

FURTHER READINGS
Ishwar C. Dhingra, The Indian Economy: Environment and Policy (Sultan Chand,
New Delhi, 2021).
Government of India, Economic Survey (various issues).

98
 Human Resources
UNIT 6 HUMAN RESOURCES Infrastructure

INFRASTRUCTURE
Structure
6.0 Objectives
6.1 Introduction
6.2 Importance of Human Resource Development
6.3 Indicators of Human Resource Development
6.4 Human Resource Development in India
6.5 Human Resource Development and Skill Formation
6.6 Labour Force and Work Force
6.7 Nature of Employment in India
6.8 Quality of Employment
6.9 Informalisation of Labour
6.10 Suggestions for Employment Generation Strategy
6.11 Let Us Sum Up
6.12 Key Words
6.13 Terminal Questions

6.0 OBJECTIVES
After going through this unit, you will be able to:
• Explain the concept of human resource;
• Describe the role of human resource in economic growth;
• Identify the factors that enhance human resources;
• Evaluate the present position of human resources in India; and
• Describe the employment profile of the Indian economy.

6.1 INTRODUCTION
Human capital is defined as the body of knowledge possessed by the population
and the capacity of the population to use such knowledge effectively. As you
know, human beings provide an important input to production of goods and
services, that is, labour. You should note that the purpose of economic growth is to
enhance the consumption. Moreover human beings are also the end of economic
growth. Every economic activity is undertaken to satisfy the needs of human
beings and improve their living standards. Economic activity generates work; it
creates employment opportunities, both for labour and other resources such as
capital. Labour and capital are complementary resources. But with increasing
automation of production techniques, capital is being increasingly substituted
for labour. Such substitution of capital for labour has made production process
capital-intensive, although it has raised productivity level and generated income
and output. There is a growing fear that the capital-intensive nature of production
process and automation of production activities will displace labour. Employment
99
Economic Development: of labour may suffer, thereby defeating the very purpose of economic growth. In
Concept and Measurement
the present Unit, we examine the employment situation in the Indian economy
highlighting the human resource development, skill formation, labour force and
nature of employment in India. The suggestions of employment strategy have
been further discussed.

6.2 IMPORTANCE OF HUMAN RESOURCE

DEVELOPMENT
In order to enhance knowledge and skill of human beings, there is a need for
investment in human beings. The importance of investment in human beings was
stressed during the 1960s. As a result, the concept of human capital formation
came to limelight. We observe a ‘two-way relationship’ between human capital
and economic growth. On the one hand, economic growth creates conditions for
better health and education facilities; these enhance human capital. On the other
hand, increase in human capital leads to higher productivity, as a result of which
there is acceleration in economic growth. Thus there is need for human resource
development (HRD) in an economy.

Fig. 6.1: Effect of Education on Earnings of Individuals

If a person undertakes studies, he/she is not available for work. Thus his/her
earning is zero during that time period (see Fig. 6.1). The other option before
an individual is to work. In this case he/she will start earning at a younger age,
but his/her skill level will be low. Thus we see that a person with lesser years
of schooling/ skill will have a lower level of income throughout. A person with
more years of schooling/ skill will start earning at a later stage, but his/her income
level will be higher throughout.
Functions of Human Resource Development
In emerging economies like India, HRD is to perform the following functions:
(i) The 21st century will promote people who respond to technology at the Speed
of Thought, as Bill Gates has said through the title of his recent book. It will
reject those who refuse to move fast enough.
(ii) There is a technological shift to knowledge-based, brain-power industries.
Brainpower industries do not have a natural home and can be located
anywhere. Smart countries are those who attempt to make themselves
attractive to the brainpower industry by educating their people and creating
100 the brainpower through educational institutions.
(iii) In the knowledge economy, the value of intangible assets is increasing Human Resources
Infrastructure
and value of tangible assets is decreasing. In order to have a cutting edge
in this area, the right kind of technology is not sufficient – rather a proper
organisational climate and the right people competencies become more
critical.
(iv) In recent years, knowledge creation and dissemination has increased
manifold. This in turn has led to the rapid spread of modern and efficient
production techniques which has resulted in the world economy becoming
more competitive. International trade increases the number of consumers
and producers participating in the market and hence increases the level
of competition. Thus, the knowledge revolution, together with increased
globalisation, presents significant opportunities for promoting economic
and social development.
(v) Technology is becoming more and more complex over time. In order to
operate it and carry out further improvement, there is a requirement of
advances in skills acquired by people individually and collectively.
(vi) All the well-known breakthroughs in physical technology would probably
have not even taken place if they were not preceded by relevant social
innovations. The latter fostered the birth of future advances in physical
technologies, and nursed them to maturity.
(vii) Higher education is believed to promote independence and initiative, both of
which are valuable intellectual resources for the generation and dissemination
of knowledge in society.
(viii) Empirical evidence in most countries, including India, establish significant
– positive relationship between proportion of people below poverty line
and the proportion of illiterate persons;
– negative relationship between female literacy and birth rate; and
– positive relationship between years of schooling and net increase in
agricultural production.
(ix) Poverty is both a cause and a consequence of deficiencies in human
development. With poverty alleviation at the top of the development agenda,
a serious assault on poverty will no doubt bring human beings into focus as
the major beneficiaries of development. Increased public spending on aspects
of human development is more likely to have a greater impact on poverty
reduction and, at the same time, in improving human development.
(x) Human Resource Development is required to modernise attitudes. A backward
social system and primitive attitudes and beliefs cannot go along with
economic development.
In short, HRD is an important condition for improving productivity and raising
the level of production which hold the key to economic development. Indeed,
the available empirical evidence testifies that poverty ceases to be a handicap
and becomes an advantage when a poor country builds up human capital and
then uses this cheap, skilled labour in conjunction with cheap global capital to
produce a world-beating combination.

6.3 INDICATORS OF HUMAN RESOURCE

DEVELOPMENT
The UNDP has developed a composite index of human development known as
the Human Development Index (HDI). The HDI is based on three indicators: 101
Economic Development: (i) longevity, as measured by life expectancy at birth;
Concept and Measurement
(ii) educational attainment, as measured by a combination of adult literacy (two-
thirds weight) and combined primary, secondary and tertiary enrolment ratios
(one-third weight);
(iii) standard of living, as measured by real GDP per capita (PPP $).
For the construction of the HDI, fixed minimum and maximum values have been
established for each of these indicators:
(i) Life expectancy at birth: 25 years and 85 years
(ii) Adult literacy: 0 per cent and 100 per cent
(iii) Combined enrolment ratio: 0 per cent and 100 per cent
(iv) Real GDP per capita (PPP $) : PPP $ 100 and PPP $ 40,000
For any component of the HDI, individual indices can be computed according
to the general formula:

Of the 187 countries for which the HDI was calculated in HDR 2017, we find
that 49 are in very high human development with HDI more than 0.90. Further,
53 countries are in the high human development category with HDI more than
0.8. There are 42 countries in the medium development category with HDI
between 0.5 and 0.8. There are 43 countries in the low HDI category. Let us see
what India has done for HRD and what problems she has been faced with in the
execution of the task.

6.4 HUMAN RESOURCE DEVELOPMENT IN

INDIA
The Constitution of India, in its various Articles, gives a prominent place to the
development of the human resources. The 93rd Amendment of the Constitution
makes education to all those between 6 and 14 years of age a Fundamental Right.
India could well be one of the fastest growing economies of the world. But for
the poor, matters have only turned worse.
Comprehensive information is available in India’s Human Development Report.
The major findings of the report can be briefly summarised as follows:
(i) The rural poor were better fed two decades ago.
(ii) The overall per capita intake of calories and protein has declined consistently
over the 20 years period from 1983 to 2004-05 according to NSS data. Calorie
intake per day in rural areas has declined from 2,221 to 2,047, a decline of
eight per cent.
(iii) Similarly the calorie intake in urban areas has declined by 3.3 percent from
2,080 in 1983 to 2020 in 2004-05.
(iv) Nearly half of India’s children under the age of three years are malnourished,
which is worse than the Sub-Saharan African region.
(v) There is not a single state whose hunger index is less than 9.9, suggesting
that all states have a serious to extremely alarming situation of hunger.

102 (vi) Not even half of our children are fully immunised.
(vii) The total expenditure on health (both public and private) stands at 4.1 per Human Resources
Infrastructure
cent of the GDP which is less than the African region’s expenditure on health.
(viii) Compared to 30 hospital beds per 10,000 people in China, India has only
nine.
(ix) Almost 50 per cent of households in India have no toilets.
The World Bank recently released its report on the Global Human Capital Index
rankings, where India currently ranks 115th out of 157 nations (China being 46th,
Indonesia 87th, Malaysia 55th). According to the index scores from the report, a
child born in India is likely to be only 44 per cent productive when (s)he grows
up, if (s)he receives education and adequate healthcare.
India, in relation to other developing economies, does poorly in its ability to
expand overall productivity with a rise in GDP per capita. The disproportional
relationship between the two axes remains connected with India’s dismal
performance in aspects such as infant mortality (with 96 per cent children born
today having the probability to survive till they are 5).
In addition to the Global Human Capital Index, another useful indicator for
monitoring India’s performance is the Global Innovation Index (GII). The GII
reflects the technological state of growth for around 180 economies, computing
the progress made in technological advancements at a national level, ranging
from intellectual property filing rates to mobile application creation, education
spending, and scientific and technical publications. India currently ranks 57th
(out of 180) in GII’s latest ranking released in 2018 (China was 17th, Israel was
11th, UAE was 38th).
The development of human resources requires adequate provision of health
services, water supply, education, housing, nutrition and family welfare facilities
which are essential determinants of the quality of life. The provision of one
without the other is bound to affect the life adversely hence the strategy of HRD
is to take an integrated view of these factors.

Check Your Progress A

1) Explain how there is a two-way relationship between human capital and
economic growth.
........................................................................................................................
........................................................................................................................
........................................................................................................................
2) Describe the importance of human capital for an economy.
........................................................................................................................
........................................................................................................................
........................................................................................................................
3) Define the concepts of tangible and intangible assets. Give some examples.
........................................................................................................................
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103
Economic Development:
Concept and Measurement 6.5 HUMAN RESOURCE DEVELOPMENT AND
SKILL FORMATION
Creating a skilled workforce for the future of work rests on the growing
demand for advanced cognitive skills, socio-behavioural skills, and adaptability.
Technological change makes it harder to anticipate which job-specific skills will
thrive and which will become obsolete in the near future. In the past, shifts in
skill requirements prompted by technological progress took centuries to manifest
themselves (Fig. 6.2). In the digital era, advances in technology have been much
faster.

Source: World Development Report, 2019

Fig. 6.2: Increase in Technology Diffusion over Time
Strong skill foundations are important for developing advanced cognitive skills,
socio-behavioural skills, and skills predictive of adaptability. For most children,
these skill foundations are formed through primary and secondary education.
Challenge of Skill-Gap in India
Before understanding the size of the challenge that India faces, it is important
to understand the concept of ‘skilling’. A good source in this regard is the 2018
report by the National Council of Applied Economic Research (NCAER) – aptly
titled ‘ No Time to Lose’.
This report explains that there are three types of skills. First, the cognitive skills,
which are the basic skills of literacy and numeracy, applied knowledge and
problem-solving aptitudes and higher cognitive skills such as experimentation,
reasoning and creativity. Second, there are the technical and vocational skills,
which refer to the physical and mental ability to perform specific tasks using tools
and methods in any occupation. Third, there are social and behavioural skills,
which include working, communicating, and listening to others.
Different levels of these three types of skills can be combined to further classify
skills into foundational, employability, and entrepreneurial skills (see Fig. 6.3).
104
 Human Resources
Infrastructure

Fig. 6.3: Types of Skills

According to the 2018 report by NCAER, India had about 468 million people in
its workforce. Around 92 per cent of them were in the informal sector. Around
31 per cent were illiterate, only 13 per cent had a primary education, and only 6
per cent were college graduates. Further, only about 2 per cent of the workforce
had formal vocational training, and only 9 per cent had non-formal, vocational
training. That report had also estimated that almost 1.25 million new workers (aged
15-29) were projected to join India’s workforce “every month” through 2022.
Another noteworthy observation in that report was that out of the more than 5
lakh final year bachelors students aged 18-29 who were surveyed, around 54 per
cent were found to be “unemployable”.
What is at stake?
If the skilling issue is not resolved, India risks forfeiting its so-called “demographic
dividend”. There is great opportunity for India to improve both its social and
economic outcomes if the higher number of workers are productively employed.
At precisely the year 2020, the proportion of those Indians who belong to the
working age (15 to 64 years of age) and those who are dependent will be 50-50.
Between 2020 and 2040, this proportion will turn even more favourable.
But whether this will turn into a demographic dividend or not will depend entirely
on how many of those in the working age bracket are working and becoming
prosperous. If they are not in well-paying jobs, the economy would not have the
resources to take care of itself since with each passing year, the proportion of
dependents will continue to rise after 2040. “To put it simply, to attain its rightful
place and realise its aspirations, India must become rich before it gets old,” states
the report succinctly.
But why is India stuck with low levels of skilling? Indians have excelled in
technical expertise at the global level–be it medicine or engineering. Then what
explains India’s domestic skilling paradox?
A big part of the trouble is the starting condition. Over 90 per cent of India’s
workforce is in the informal sector. According to researchers at the NCAER,
India is trapped in a vicious cycle: Greater workforce informality leads to lower
incentives to acquire new skills. Faced with inadequately skilled workers,
businesses often choose replacing labour with machinery. That is because “skilled
labour and technology are complementary, but unskilled labour and technology
are substitutes”. This, in turn, leads to still fewer formal jobs. Millions of Indians 105
Economic Development: who work in agriculture continue to subsist because they do not have the skills to
Concept and Measurement
take up industrial or services sector jobs even as these sectors themselves have
failed to create adequate job opportunities.
What can be done to break this cycle?
A distinct disadvantage with India’s approach towards skilling has been to ignore
the demands of the market. For the most part, skills have been provided in a top
down fashion. Thus, most skilling efforts focus almost solely on providing certain
skills but fail to “match” them with the needs of the market.
Experts argue that for skilling schemes to yield lasting results, even matching is
not enough. Given the way market demands fluctuate–for instance, look at how
the COVID-19 pandemic has upended supply chains–skilling efforts must try to
anticipate the needs of the market.

Self-assessment Exercise B
1) State the nature of relationship between the proportion of literates and the
proportion of persons living below poverty line.
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........................................................................................................................
........................................................................................................................
2) What do you mean by the statement that there is negative correlation
between female literacy and birth rate?
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........................................................................................................................
3) How does education modernise attitudes?
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........................................................................................................................
........................................................................................................................
4) What are the three components of HDI?
........................................................................................................................
........................................................................................................................
........................................................................................................................
5) What are the components of human resource development?
........................................................................................................................
........................................................................................................................
........................................................................................................................

6.6 LABOUR FORCE AND WORK FORCE

The total population of a country can be divided in two groups: (1) Labour force,
and (2) Out of the labour-force.
106
1. Labour Force: The labour force of an economy consists of those persons (i) Human Resources
Infrastructure
who are engaged in some economic activity and contribute to the generation
of national product, and (ii) those persons who are able and willing to work
but do not find any job that generates income.
(i) Work Force. The first of the above two is also called the work force. Work
force consists of workers. A worker is one who participates in any economic
activity. His or her services are utilised by the economy to produce some
goods or services. Thereby, he or she earns a living. These persons are
classified as employed.
(ii) Unemployed. The second component of the labour force consists of those
persons who are able and willing to work, but they fail to find any job
opportunity, i.e., the economy fails to make an effective use of their abilities
and capabilities in the generation of national product. These persons
constitute the unemployed.
2. Out-of-the-labour-force: Those persons outside the labour force constitute
the out of-the-labour force of the economy. These persons are generally not
able or not available for work. They do not contribute to the generation of
national product or income. It would be seen that it is the work force that
contributes to the generation of national product.
The relationship between (i) the population, (ii) the labour force, and (iii) the
work force may be revisited. A large population can supply a large labour force,
provided if a large proportion of the population is in the working age group (15
years to 60 years), and is physically and mentally fit.
A large labour force makes available larger resources in the economy. It depends
on the availability of complementary resources whether the labour force gets
productively employed or adds to the ranks of the unemployed. More the work
force, more generally, larger would be the size of national product and income.
Thus, it is the work force which represents the face of employment in an economy.
Measurement of Employment in India
Employment in an economy is measured by using different criteria; each gives
a different concept of employment. These are: (1) Usual Principal Status, (2)
Current Weekly Status, and (3) Current Daily Status.
(i) Usual Principal Status (UPS): In UPS, the reference period a year to describe
the activity status of a worker. A person is known to be employed if he or she
was engaged in an economic activity for a longer period of time (183 days
or more) in 365 days. Similarly, a person is said to be unemployed if that
person is available for work but is not engaged in any economic activity.
(ii) Current Weekly Status (CWS): In CWS, the reference period is a week to
describe the activity status of a worker. The CWS employment refers to those
persons who are employed for at least an hour during the reference week.
(iii) Current Daily Status (CDS): In CDS, the reference period is a day. It measures
the rate of utilisation of the labour force in terms of person days.

6.7 NATURE OF EMPLOYMENT IN INDIA

The nature of employment can be studied with reference to distribution of
work-force (i) by gender, (ii) by states, (iii) by urban and rural areas, (ii) by type
107
Economic Development: of activity (main and marginal workers), and (v) by occupation. Magnitude of
Concept and Measurement
employment in India can be measured with the help of a concept called Work
Participation Rate (WPR).
The WPR is defined as the percentage of total workforce to total population, i.e.,
Distribution of Work Force by Gender
The male participation rate at 51.90 per cent is much higher than the female
participation rate of 25.70 per cent. This is not surprising, given India's social
milieu. Even now, women, by and large, undertake productive work only under
economic compulsion and this is one reason why female participation rates
are higher for economically under-privileged communities such as peasants,
artisans and scheduled castes. However, as the Tenth Five Year document states,
increasing literacy and decreasing birth rates may result in more women seeking
economically productive work outside house.

Distribution of Work Force by States

Among the states, the WPR ranges from 30.88 in Punjab to 48.91 in Sikkim. If
the states and the Union Territories are considered together, the highest WPR
is observed in Dadra and Nagar Haveli (53.25) and the lowest in Lakshdweep
(26.43).
Distribution of Work Force by Urban and Rural Areas
The WPR is higher in the rural areas than the urban areas. The WPR in rural
areas is 42.0; in urban areas it is 32.2. This is true both of males and females, the
gap being considerably more in the case of females. In rural areas, WPR among
males is 52.43; in urban areas, it is 50.8. In rural areas, WPR among males is
urban areas, it is 11.5 only.
Distribution of Work Force by Main and Marginal Workers
Main workers are those who work for major part of the year (183 days or more).
Marginal workers are those who work for less than six months in a year. In 2001,
main workers constituted 30.5 per cent of total population. Marginal workers
constituted 8.7 per cent. Among males, 45.3 per cent are main workers and 6.6
per cent are marginal workers. Among females, main workers are 14.70 per cent
and marginal workers are 11 per cent.
Distribution of Work Force by Occupation
Distribution of work force by occupations is also known as the occupational
structure of population. For this purpose, different occupations are divided into
three categories, viz., (1) primary (agriculture and allied activities) sector, (2)
secondary (industry) sector, and (3) tertiary (services) sector.
In India, 60.4 per cent of the work force is engaged in agriculture, 23.8 per cent
in services, and only 15.8 per cent in industry. This type of occupational structure
in considered lopsided. There is heavy dependence on agriculture; about two-
thirds of the working population derives its subsistence from agriculture, non-
agricultural sector absorbing hardly one-third of the total working population.
108
This is mainly because of the fact that modern technology in India is supplied Human Resources
Infrastructure
mainly from the developed countries. It corresponds, by and large to their own
economic conditions and needs. This technology is essentially capital-intensive
and labour-saving. Its introduction tends to produce a much stronger effect on
production than on employment.

6.8 QUALITY OF EMPLOYMENT

Quality of employment in India, broadly speaking is low. The low quality of
employment can be seen in the low productivity. As per the latest available data,
in 1999-2000, the overall rate of unemployment in India was a low as 2.23 per
cent. The percentage of people living below the line of poverty was 26.1 per cent
This shows that of the total employed persons about 23.87 per cent fell under the
category of ‘working poor’.
Obviously, the major problems relate to that of the working poor as the
productivity of employment is very low. The low productivity of employment
is mainly because of low educational and skill levels of the workers. About 44.0
per cent of all workers in 1999-2000 were illiterate and another 22.7 per cent had
schooling only up to primary level.

6.9 INFORMALISATION OF LABOUR

By informalisation of labour we mean a situation in which an employee's services
can be terminated by the employer at the latter's will. There is no security of tenure,
terms of employment lack any legal validity Employment is more in the nature of
casual and irregular employment. The tendency towards informalisation of labour
increased after economic reforms during the 1990s. The growing informalisation
of labour can be proved with the help of following factors:
(i) Rising proportion of unorganised sector workers in total work force. Workers
in an economy are classified in two sectors: (1) organised sector workers, and
(2) unorganised sector workers. Organised sector is identified with modern
market economy, and unorganised sector with the traditional economy
Workers in the organised sector have better wages and salaries, job security,
reasonably decent working conditions and social protection against such
risks as sickness, injurie, sociability and death arising out of hazards and
accidents at work, separations and old age. Workers in the unorganised sector
lack security of job and have no protection against risks, have low earnings,
often lower than the statutory minimum wages and have no regularity.
Distribution of work force between organised and onorganised sectors in shows
the following facts: One, about 93 per cent of India’s ond workforce is engaged
in an unorganised sector. That leaves only 7 per cent in the organised sector. Even
this proportion has been coming down further in recent years. Two, the number
of workers engaged organised sector, already relatively very has been further
falling in post-reforms period as would be seen from Table 6.1.
Table 6.1: Number of Workers in the Organised Sector

Your (1) Public Sector (2) Private Sector (3) Total (2) + (3) = 4
1997 195.59 86.86 282.45
1998 194.18 87.48 281.66
1999 194.15 86.98 281.13
2000 193.14 86.46 279.60 109
Economic Development:
Concept and Measurement 2001 191.18 56.52 277.89
2002 187.73 84.32 272.06
2003 185.80 84.21 270.00
2014 180.07 84.82 264.58
2019 179.10 86.90 266.00
An increase in the share of unorganised sector employment obviously means an
overall deterioration in the quality of employment.
(ii) Increase in the Proportion of Casual Labour. Another measure of growing
informalisation of labour is an increase in the proportion of casual labour in
total work force.
For this purpose, we can classify the workers in three categories as (1) Self
employed, (ii) Regular salaried, and (iii) Casual.
The proportion of each category in India is shown in Table 6.2:
Table 6.2: Distribution of Workers by Nature of Employment (in per cent)

Nature of Employment
Year Self Employed Regular Salaried Casual Worker
1977-78 58.9 13.9 27.2
1987-88 57.4 13.9 28.7
1983-84 56.0 14.4 29.6
1993-94 54.8 13.2 32.0
2018-19 52.9 13.9 33.2
We observe from Table 6.2 that
a) A majority of workers still work as self employed. A large majority of them
are engaged in agriculture or in unorganised sector.
b) A smaller proportion of workers are employed as regular salaried. This class
of workers has regular jobs with security, relatively better earnings and social
security. But their proportion is stagnant.
c) The category of casual workers has steadily increased. This class of workers
suffers from low earnings, irregularity and uncertainty of work availability,
poor condition of work and lack of social protection and vulnerability to
risks and hazards.
Thus, increasing informalisation and casualisation of work force represents
declining quality of labour in India.
Factors Responsible for Informalisation of Labour
Informalisation of labour is a characteristic feature of market economies, which
is dominated by forces of competition. Following factors account for it:
Pressure to cut costs: Competition requires that each producer should
(i)
produce at minimum possible cost of production. In pursuit of lower cost of
production producers opt for improved technology. This technology provides
for increasing substitution of labour for capital. Therefore, employers prefer
to employ casual labour, so that they can be retrenched at will.
(ii) Rigid Labour Laws: Labour laws do not permit retrenchment of labour. In
110 the controlled protected economy of the past, the producers could afford extra
 labour and pass on the cost to the consumers. In the emerging competition Human Resources
Infrastructure
this luxury is no longer available to them. Therefore, they do not like to
employ regular workers.
(iii) Need for Upgradation of Skills: Technology is undergoing a dramatic fast
change. Every next round of technology demands more skills. It means that
skill-base of workers has to be upgraded. This again cuts back the regular
employment.
(iv) No scope for hidden costs: A regular permanent employee gets not only his
salary but also a number of other benefits accrue to him. These are hidden
costs to the employer. Competition requires that costs should be transparent.
And hence the need to dispense with regular workers.
(v) Demand-Supply Imbalance: The employers could easily take resort to
informalisation is also explained by obtaining demand-supply imbalance
in the labour market. Supply of labour far exceeds the demand for labour.
This is because of the fact that adequate employment opportunities could
not be created in our economy.
(vi) Shortcomings of Planning: A few shortcomings in our technique of planning
can be identified that have worked as constraints on employment expansion.
One, efforts to lay sufficient infrastructure in the country for balanced economic
development have been lacking.
Two, the plans could not stop the migration of the rural population into cities by
making rural areas more attractive and congenial by enabling them to earn a better
living off land and encouraging the development of growth centres around villages
Three, the plans could not encourage the use of labour-intensive techniques of
agriculture and industrial production.
Last, the plans also have not done well in the spheres of irrigation, wasteland
reclamation, soil conservation, and development of dairies, fisheries and poultry
farming, flood control, drainage, anti-water-logging, rural electrification and
other construction activities which, in turn, could have provided extensive
employment opportunities to all categories of workers including skilled and
unskilled personnel.
In short, in the wake of liberalisation, privatisation and globalisation, the
pressures on labour have increased. No doubt, economic reforms have opened
up new opportunities and markets for investments and entrepreneurship, but
unless growth is rapid enough and has high employment elasticity, labour is on
the losing side. Therefore, it is important to work out and implement a sound
employment generation strategy.

6.10 SUGGESTIONS FOR EMPLOYMENT

GENERATION STRATEGY
Suitable strategies should be formulated and implemented for generating more
employment both in rural and urban areas of the economy.
Suggestions to Promote Employment in Urban Areas
(a) Reform of the educational system to make it vocational at the school stage,
further give it a vocational bias at the undergraduate stage, and restrict
admissions to really highly qualified persons at the postgraduate stages. 111
Economic Development: (b) Deliberate promotion of low capital intensity in industrial production except
Concept and Measurement
in areas where technological considerations make it impossible to avoid high
capital intensity. Fiscal incentives and technological facilities will have to
be provided for encouraging low capital intensive methods of production
that will still be modern and viable in costs.
(c) The vast infrastructure of research and development that we have built up
in the public sector is now not being used for the promotion of intermediate
technology and low capital intensive choice of techniques. The present policy
must be changed and deliberate attempts should be made to identify and
develop techniques of production that can be undertaken with low capital-
intensity.
(d) In planning investment, whether in the private or public sector, long gestation
period should be avoided except where they are technologically inescapable.
Deliberate attempt should be made to promote investments that involve
a quick turnover of capital. This will ensure larger and more continuous
employment with a given volume of capital.
(e) In order to diminish the concentration of employment in the metropolitan
centres action will have to be taken to promote decentralisation and dispersal
of industrial activity. Mere policy declarations will not do; they have to be
accompanied by follow-up action.
(f) The new policy directives given to the nationalised banks to promote MSME
sector and encourage self-employment should be vigorously followed up.
Suggestions to Promote Employment in Rural Areas
In rural areas, economists are unanimous in their view that there is no other
remedy than a massive programme of investment in rural development. This also
requires upgradation of technology in production process in rural areas.
The measures for rural development can be listed as follows:
(i) Creation of local assets, particularly projects suitable for a quick increase in
agricultural production, such as small and medium irrigation and drainage
works, the construction of storage facilities and feeder roads and the
development of local transport;
(ii) Land development and settlement;
(iii) Expansion of animal husbandry and diversification of agricultural production;
(iv) Development of other productive activities such as forestry and fishing;
(v) Promotion of rural social activities such as education, housing and health
services;
(vi) Development of viable small-scale industries and handicrafts in rural areas,
such as the local processing of agricultural products and the manufacture of
simple consumer and producer goods needed in the areas;
(vii) Promotion and rapid spread of rural electrification;
As already noted, development by itself may not bring about employment. Some
measures will have to be taken to increase employment potential of development.
This will require a frontal attack on the low productivity and the low income
status of large mass of the rural population like the marginal farmers and small
112 farmers. This goal can be achieved by:
(a) land reforms with ceiling on holdings and redistribution of surplus land in Human Resources
Infrastructure
such a manner as to increase the number of owner-cultivated holdings,
(b) paying special and differential attention to the needs of marginal and small
farmers in terms of availability of credit, lower rates of interest and facilities
for obtaining easily technically-improved agricultural inputs, and
(c) concerted efforts to find viable and year round employment in the rural areas
by an appropriate policy of rural industrialisation.
Other Measures
Employment opportunities both in the rural and urban areas can also be
promoted by a large national programme of public works for the creation of the
national network of infrastructural facilities especially in terms of transport and
communications that can widen the Indian market, facilitate mobility of goods and
people, and create opportunities for new as well as increased economic activity
in both urban and rural areas. This type of programme may cause inflationary
consequences in the short run. To offset consequences, simultaneous attempts
need be made to increase the supply of basic wage-goods and services that will
enable the economy to meet the pressure of the increased purchasing power
resulting from the public works programmes.
Finally, and to top it all, we may mention that we would be fighting a losing
battle unless efforts are made, along with efforts to create new employment
opportunities, to check the demand for new jobs. This would require the adoption
of an effective and meaningful population control policy. As long as the rate of
population growth does not slow down so that it enables new jobs.

Self-assessment Exercise C
1) Distinguish between the concepts of labour force and workforce.
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2) Give a brief account of occupational structure in India.
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3) Analyse the problems associated with casualisation of labour in India.
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4) Suggest measures to improve employment situation in urban areas.
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Economic Development:
Concept and Measurement 6.11 LET US SUM UP
In this unit we observed that the HRD has emerged as the central point of policy
decisions globally. We have also detailed the components of the HRD as also the
indicators of HRD. These help us to measure and compare the level of HRD in
different economies. We have also reviewed the status of skill formation in India.
We also discussed the structure of employment in India and associated problems.

6.12 KEY WORDS

• Human Capital: It refers to knowledge, skill and experience of a person
which are used in the production process.
• Human Capital Formation: It refers to the process of adding to stock of
human capital. Through investment in education, training and health of
human being, there can be human capital formation.
• Knowledge Economy: It refers to an economy where production and
consumption processes are based on intellectual capital or human capital.

6.13 TERMINAL QUESTIONS

1. Explain the concept of human capital. What role does it play in an economy?
2. Give a brief account of the status of skill formation in India.
3. Assess the skill-gap condition in India. What measures do you suggest to
overcome these gaps?
4. What are the indicators of human resource development in India?

FURTHER READINGS
Dhingra, I. C., Indian Economic Development (Sultan Chand, New Delhi, 2020).
Government of India, Economic Survey, recent issue

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