Class 12 Indian Economic Development

Origin of British Rule :

 The foundation of British Empire was laid by the Battle
of Plassey, fought in 1757.
 After the revolution of 1857, the rule was transferred
from the East India Company to the British Crown.

Basic purpose of British rule/ Aim of Britishers :

 The main purpose of British rule in India was to use
Indian economy as a feeder economy for the
development of the British Economy. Finally, after 200
years, India gained independence on 15th August, 1947.
 Britishers took over raw materials and sold us their
finished goods.
Features of the Indian economy before the arrival of the Britishers
1) Prosperous Economy : India was self-reliant and
prosperous economy before the arrival of the Britishers.
2) Agrarian Economy : Agriculture was the main source of
livelihood and it engaged about 2/3rd of the total
population.
3) Well-known Handicraft Industries : India was well
known for its handicraft industries in the fields of
cotton and silk textiles, metal and precious stone
works, etc.
Britishers transformed the country into a supplier of raw materials and
a consumer of finished goods & industrial products from Britain.
 Economists who have made certain attempts for
National Income are :
 Some individual attempts to estimate National income &
per capita income were by Dada Bhai Naoroji; William
Digby; VKRV Rao; RC Desai and Findlay Shirras.

 The economists whose calculation was considered accurate

for the calculation of NY was Dr. VKRV Rao.
 Exploitation of Indian Economy under British Rule :
The Indian economy under British rule is subjected to colonial
exploitation, by the British government.

Colonial Exploitation

Agricultural Industrial Foreign

Sector Sector Sector
Colonial Exploitation of Agricultural Sector :
Agriculture was exploited and stagnant due to the following reasons :
Main Reasons for Stagnation in Agricultural Sector :
Land Settlement System
Commercialization of Agriculture
Low Level of Productivity
Scarcity of Investment
1) Land Settlement System
 Under this System, profits accruing out of the agricultural sector went to the zamindars in the form of ‘lagan’.
 Zamindars were declared as the owners of the soil and they had to pay a fixed amount to the government by way
of land revenue and they were free to extract as much as they wish from the tillers of the soil.
 On the other hand, Zamindars spent their revenue income on the luxury of life.
 In return, tillers get only some food or crops given by Zamindars from the land.
 2) Commercialization of Agriculture
 It means the production of crops for sale in the market rather than for self-consumption.
 Indian markets are subsistence markets but Britishers finish this subsistence system.
 Britishers forced farmers to produce cash crops (i.e. cotton, jute, indigo) rather
than food crops (i.e. wheat, pulses, etc.) which led farmers ultimately into debt.

3) Low Level of Productivity

 Our land is less productive due to :
a) Low level of technology
b) No irrigation facilities
c) No fertilizers /insecticides/ pesticides
 Cultivator had neither means nor any incentive to invest in agriculture.
 British rule spent little on agriculture, technical or mass education.

4) Scarcity of Investment
 India's agriculture was facing a scarcity of investment in terracing, flood control, and drainage.
 They neither had resources & technology nor had the incentive to invest in agriculture.
Colonial Exploitation
COLONIAL EXPLOITATION on Industrial
ON INDUSTRIAL SECTOR: Sector : The most popular industry is
handicraft industries but Britishers finished these industries by :
De-  Britishers systematically destroy the handicraft industry in two folds.
industrialization :  Take raw materials from India at cheaper rates and use them in modern
industries in Britain.
 Self-finished products of British Industries in Indian markets at higher prices.
 This two-fold policy led to the decline of Indian Industries.

 The British found Indians the best source of raw materials as well as best
markets for their industrial products.
Discriminatory
 As a result, a discriminatory tariff policy was pursued.
Tariff Policy :
 It includes :
a) Tariff-free export of raw material from India; and
b) Tariff-free import of British industrial products into India.
 As a consequence :
a) British products started gaining Indian markets and Indian handicrafts
products started closing their domestic as well as foreign market.
b) The decay of handicrafts was the result.
  The competition forced Indian craftsmen to shut down their Enterprises:
Competition from a) As the machine-made products from Britain were low-cost products and gave stiff
Machine-made competition to Indian handicrafts products.
goods : b) Also, machine-made products compete with Indian
handicraft products in precision and quality.

Low contribution to  Since industries have perished, there is no production of goods and services.
Gross Domestic  So the growth rate of the new industrial sector and its contribution to
Product (GDP) : the GDP remained very small.

a) High level of Unemployment :

Adverse Effects of  The decline of Indian handicrafts results in unemployment
decline of which forces artisans to take up agriculture.
Handicraft b) Import of finished goods :
industry :  Indian goods can't compete with the foreign competition of
machine-made cheap goods which encouraged import from Britain.

Lack of capital  The Capital Goods industry refers to those industries which can produce machine tools,
goods Industries : which are, in turn, used for producing articles for current consumption.

Limited role of the  The Public sector did nothing for the industrial sector.
Public Sector :  The Public sector remained confined only to railways, communication, power, ports, etc.
 Adverse Effects of Partition
 Partition created the serious problem of shortage of raw
material for the jute mills of Kolkata and
Shortage of Textile Mills of Mumbai and Ahmedabad.
Raw Material  The whole fertile land under jute production
went to East Pakistan (now Bangladesh).

 West Punjab and Sindh are the food granaries of

Food India, as a result, these areas went to Pakistan.
Problem  India had to face the problem of the food crisis.

Loss of  Partition had reduced the size of market which

Market was a severe blow to Indian Industries.
 India’s Foreign Trade during British Rule

Foreign
The state of India’s Foreign Trade
during British Rule is discussed as Trade
under :

State of India’s Foreign Trade during British Rule

Exporter of Primary The drain of Indian

Monopoly Control of
Products & Importer of Wealth during British
British Rule
Finished Goods Rule
1) Net Exporter of primary products and Importer of finished goods :
 Because of the colonial exploitation of the Indian economy, India became a
net exporter of primary raw materials of silk, cotton, wool, sugar, indigo, etc.
 On the other hand, it became a net importer of finished goods produced by
British industries which includes capital goods, woollen clothes, silk, etc.

2) Monopoly control of India's foreign trade :

 During British rule, the import and export of the country came under
the monopoly control of the British government.
 More than 50% of India's foreign trade was restricted to Britain
while the rest was allowed with countries like China.
 The opening of the Suez Canal in 1869 served as a direct route
for ships between India & Britain.
3) The Drain of Indian wealth during British rule :
 India became an exporter of raw materials and an importer of finished goods.
 Revenue earned from raw materials was used :
a) To meet expenses on the war fought by the government.
b) To import invisible items/ services like banking.
c) To make payments incurred by offices set up in Britain.
 Hence, the wealth has degraded/drained to a large extent during British Rule.
 Occupational Structure
It refers to the distribution of the working population across primary, secondary, and tertiary sectors of the economy :

Agriculture – The Principle Source of Occupation

 During the colonial period about 75% of the working population was engaged in agriculture.
 On the other hand, only 25% of the working population belonged to the manufacturing and service sectors

Regional Variation
 States like Tamil Nadu, Kerala, and Karnataka faced a decline in the workforce of the agriculture sector whereas an increase in
the manufacturing & service sectors.
 On the other hand, states such as Orissa, and Rajasthan faced an increase in the share of the workforce in agriculture.

Unbalanced Growth
 Growth is said to be balanced when all sectors of the economy are equally developed.
 However, in the case of India, secondary and tertiary sectors were in their infant stage of growth.
Hence the conclusion that the Indian economy at the time of independence was lopsided and backward.

Industry – An Insignificant Source of Occupation

 On the eve of independence, barely 9.0% of the working population in India was engaged in manufacturing
industries, mining, etc.
 Against it, 32% in the USA, 42% in England, and 39% in Japan are engaged in these activities. It further
proves how backward the Indian economy was at the time of independence.
 Infrastructure
Railways :
 The most important contribution of British rule was to introduce railways in India in 1850.
 Railways enabled people to undertake long-distance travel.
 Railways also promote foreign trade but it benefited Britishers more than Indians.

Air & Water transport :

 The British government took measures for developing water & air transport, however, this was far from satisfactory.
 The inland waterways proved uneconomical because :
a) Severe competition from foreign shipping companies.
b) Lack of support from the British rulers in India.

Roads :
 Roads were developed by Britishers to facilitate trade by roadways.
 Roads were built for mobilising the army and shifting raw materials.

Communication :
 Posts and telegraphs were the most popular means of communication.
 The introduction of an inexpensive system of the electric telegraph in India served the purpose
of maintaining law and order.
 Reasons for Infrastructural Development
1) Roads 2) Railways
 Roads were developed to  It was developed due to following reasons :
a) To transport finished goods from Britain
facilitate the transportation of to the interior of colonial India. The main
raw material and finished goods aim was to widen the size of the market
from different parts of the for British products in India.
b) To have effective control & administration
country to the ports. over vast Indian Territory.
 On the other hand, roads were c) To earn profits through foreign trade by
linking railways with major ports.
built for mobilizing the army for d) To make a profitable investment of
drawing out the raw material. British funds in India.

3) The system of Electric Telegraph was introduced at a high

cost to serve the purpose of maintaining law and order.
 Positive Contribution of British Rule on the Indian Economy
1) Self-sufficiency in food grains production :
 Forced commercialisation in Indian agriculture under British rule led to gradual changes in
the Outlook of farmers.
 The farmer started considering the market price of the product as an important
determinant of these production decisions.
2) Infrastructural development :
 The Development of railways and roadways opened up new opportunities for economic and social growth.
 It helped in the transportation of food to drought-hit areas and promoted cultural affinity among people.

3) Check on famines :
 Roads and railways worked as a great check on the occurrence and impact of natural
calamities as food supplies could be transported to the affected areas in case of droughts.
4) Shift to Monetary Exchange :
 British rule helped the Indian economy to shift from a barter system of exchange to a
monetary system of exchange.
 The growth of the monetary system facilitates the division of labour, specialisation,
and expansion of production.

5) Effective administrative setup :

 The British government in India left an efficient system of administration.
 This served as a readymade reference for our politicians and planners.
 State of Indian Economy on the Eve of Independence
1) Colonial Economy :
 British rule resulted in a huge drain of wealth from India with
the supply of raw materials from India.
 Encouraged commercialization to transform the Indian
Economy into a British colony.
2) Semi-feudal Economy :
 Introduction of a feudal system: led landlords to charge very
high rates of 'Lagaan' and were very cruel to the cultivators.
 Introduction of the Capitalist system: led to the creation of
two classes- capitalists and labourers.
3) Stagnant Economy :
 An economy that is growing at a very low rate.
 India was a stagnant economy mainly in the agriculture sector.
4) Backward Economy :
 The Indian economy was backward and underdeveloped due to :
a) Low level of productivity.
b) Traditional methods of agriculture.
c) Low per capita income
d) High birth and death rate.
e) Mass illiteracy.
5) Depleted (Depreciated Economy) :
 It refers to an economy where no arrangements have been made to
replace the physical assets, depreciated due to excessive use.
6) Amputated Economy :
 The British policy of 'divide and rule' always promoted discrimination
between various groups based on religion, caste, language, and culture.
7) Industrial Backwardness :
 There was a virtual lack of basic and heavy industries in the country.
 Production of machines was almost negligible.
 Small-scale and cottage industries were almost ruined.
 For the bulk of its capital goods requirement, the Indian industry was
dependent upon imports from Britain.
Demographic Profile of India
Demographic conditions during the British rule
exhibited all features of a stagnant and
backward Indian Economy :

1st official census: the first official census was

conducted in the year 1881. From 1881 onwards,
census operations were carried out every ten
years

1921 : year of the great divide: Before 1921,

India was in the first stage of a demographic
transition. The second stage began after 1921
o The demographic condition during the colonial rule is described in the following points :

High Birth Rate & Death Rate High Infant Mortality Rate
Demographic
Condition Low Life Expectancy
Extremely Low Literacy Rate
during
Colonial Rule Widespread Poverty
Poor Health Facilities

1) High birth rate and death rate :

 The birth rate refers to the number of children born per thousand in a
year.
 Death rate refers to the number of people dying per thousand persons
in a year.
 Both the birth rate and death rate were very high at nearly 48 and 40
per thousand respectively.
2) Poor health facilities :
 The level of public health facilities was very poor during British rule.
 There was a lack of proper housing, sanitation, and healthcare facilities.

3) High infant mortality rate :

 The infant mortality rate is the number of deaths per 1000 live births of children under one year of
age during a given year.
 The mortality rate was very high and particularly infant mortality rate was as high
as about 218 per thousand as compared to 33 per thousand in the year 2017.

4) Low Life expectancy :

 Life expectancy refers to the average number of years for which people are expected to live.
 Life expectancy was also very low at 32 years, in contrast to the present 69 years.

5) Low literacy rate :

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

6) Widespread Poverty :
 There was no reliable data about the extent of poverty. But, there is no doubt that extensive
poverty prevailed in India during the colonial period. The Overall standard of living of common
people in India was very low and there was widespread poverty in the country.
Important dates :
1 Battle of Plassey - 1757
2 Setting up of Tata Iron and Steel Company (TISCO) - 1907
3 Year of Great Divide - 1921
4 First Official Census - 1881
5 Suez Canal Opening - 1869
6 Introduction of Railways in India by the Britishers - 1850
Class 12 Indian Economic Development
 Economic System
Economic System refers to an arrangement by which
central problems of an economy are solved.

Main central problems

of an economy

What to How to For whom

produce produce to produce
 What to It involves deciding the final combination of goods
produce? and services to be produced, i.e., it involves the
selection of goods and services and the quantity of
each, that the economy should produce.

How to It involves deciding the technique of production, i.e.

produce? whether selected goods be produced with more
labour and less capital (known as Labour Intensive
Technique) or with more capital and less labour
(known as Capital Intensive Technique).
For whom It involves deciding the distribution of output
to produce? among people, i.e., it involves the selection of the
category of people who will ultimately consume the
goods.
 Different Types of Economic System

Types of Economic Systems

Mixed
Capitalist Socialist
Economy
Economy Economy (Both the Public and
(Means of production are (Means of production are Private Sector are allotted
owned, controlled, and owned, controlled, and respective roles for solving
operated by Private Sector) operated by Government) the Economy's Central
Problems)
 A Capitalist Economy is an economic system in which means of
Capitalist production are owned, controlled, and operated by the private
sector. Production is done mainly for earning profits. So, the
Economy central problems (what, how and for whom to produce) are solved
through the market forces of demand and supply.

Under Capitalist Economy, the three central problems are solved in the following manner :
1) What to Produce : Under this system, only those goods are produced that can be sold profitably either in the
domestic or in the foreign market.
2) How to Produce : Goods are produced using cheaper techniques of production. In case of cheap labour,
labour-intensive methods of production are used and in case of costly labour, capital-intensive methods of
production are used.
3) For whom to Produce : In a capitalist society, goods produced are distributed among
people not on the basis of their needs but on the basis of their income or purchasing power.

Features
a) There is private ownership of the means of production.
b) Means of production are used in a manner such that the profits are maximised.
c) The role of the government is largely confined to the maintenance of law & order
and defence of the country.
 Socialistic A Socialistic Economy is one in which the
Economy means of production are owned, controlled,
and operated by the government.
Under Socialist Economy, the three central problems are solved in the following manner :
1) What to Produce : In a socialist society, the government decides what to produce in accordance
with needs of the society.
2) How to Produce : The government decides how the goods are to be produced.
3) For whom to Produce : Distribution under socialism is supposed to be based on what people
need and not on what they can afford to purchase. A socialist nation provides free health care
to the citizens, who need it.

Features
a) Means of production are collectively owned by society as a whole or there is a
public ownership of the means of production.
b) Means of production are used in a manner such that social welfare is maximised.
c) There is the direct participation of the government in the process of production.
The role of the government is not merely confined to law & order and defence.
  A Mixed Economic system refers to a system in which the
Mixed public sector and the private sector are allotted their
Economy respective roles for solving the central problems of the
economy.
 In a Mixed Economy, the government and the market
together solve the 3 central problems - what to produce,
how to produce and for whom to produce.
 The private sector provides whatever goods and services,
it can produce well, and the government provides
essential goods and services, which the market fails to
do.

Features
a) Means of production are owned by private entrepreneurs as well as the government.
b) In the private sector, production decisions are governed by the principle of profit
maximisation, while in the public sector, social welfare had the upper hand.
c) Both private and public sectors play a significant role in the process of production.
 After the freedom, leaders of independent
India adopted the
India (like Jawaharlal Nehru) were confused
Mixed Economy
about the economic system, to be followed in
System because of
India. Some leaders were in favour of
the following
socialist economy and some were in favour of
reasons :
capitalist economy.

As a result, a mixed economy (with the best

features of both a socialist and capitalist
economy) was adopted by the Indian
economy. In this view, India would be a
socialist society, with a strong public sector,
but also with private property and
democracy.
Economic For the development of the Indian Economy, it was necessary for the
Government to ‘plan’ for the economy, known as Economic planning.

Planning Economic planning can be defined as making major economic decisions

(what, how, and for whom to produce) by the conscious decision of a
determinate authority, based on a comprehensive survey of the
economy as a whole

The Industrial Policy Resolution of 1948 and the Directive Principles of

the Indian Constitution assigned a leading role to the public sector.
Private sector was also encouraged to be part of the plan efforts

To make economic planning effective, the Government of India set up

the Planning Commission in 1950, with the Prime Minister as the
Chairman. The first chairman of the planning commission was Prof.
Mahalanobis.

The purpose of the commission was to carefully assess the human and
physical resources of the country and to prepare the plans for the
effective use of resources.

The Planning Commission fixed the planning period at five years, which
began the era of Five-Year Plans’.
Meaning of Plan
Plan is a document showing a detailed
scheme, program and strategy, worked out
in advance for fulfilling an objective.
Reason for Making Plans
Planning is done to achieve some
predetermined goals within a specified time
period. It involves detailed analysis of the
problems at hand and making conscious
decisions to solve them.
Plans & Period Focus of the plan or the principal objectives
1st Plan: April 1, 1951 -- i. Increase in agricultural production.
-- march 31, 1956 ii. Equitable distribution of production, income and wealth
2nd plan: April 1, 1956 - i. Increase in industrial production.
-- march 31, 1961 ii. Development of heavy industry.
i. Self-sufficiency in food grain production.
3rd plan: April 1, 1961 -
ii. Generation of employment opportunities.
-- March 31, 1966
iii. Reduction in inequality.
Three Annual plans/April 1, 1966 – March 31, 1969
4th plan: April 1, 1969 - i. Accelerating the process of growth.
-- March 31, 1974 ii. Price stability.
5th plan: April 1, 1974 -
Raising the living standards with a focus on weaker sections of society.
--- march 31, 1979
Annual Plan/April 1, 1979 ---- March 31, 1980
i. Removal of poverty
6th plan: April 1, 1980 -
ii. Reduction of inequality
-- march 31, 1985
iii. Development of infrastructure.
7th plan: April 1, 1985 --- i. Generation of employment opportunities
- March 31, 1990. ii. Increase in agricultural productivity.
Two Annual Plans/April 1, 1990 ---March 31, 1992
8th plan: April 1, 1992 --- i. Fuller utilization of manpower by the turn of the century.
March 31, 1997 ii. Universalization of elementary education.
iii. Strengthening of infrastructure
9th plan: April 1, 1997--- i. Agricultural and rural development
- March 31, 2002 ii. Growth with price stability
iii. Checking the growth of the population.
10th plan: April 1, 2002 - i. Improving the quality of life through better health and educational
--- March 31, 2007 facilities and improved levels of consumption.
ii. Reduction in inequality through inclusive growth.
11th Plan: April 1, 2007 - i. Multiple targets covering not only growth but also poverty reduction.
---March 31, 2012 ii. Improving the quality of education and public health services.
iii. The Strategy of the second green revolution.
iv. Generating high-quality of job.
v. Protection of the environment.
12th Plan: April 1, 2012 -- Faster, more sustainable , and more inclusive growth.
- march 31, 2017
 Features of Economic Policy Pursued under Planning 1950-1991

 Economic policy before 1991 indicated heavy reliance on the public sector.
Heavy Reliance  Thus, in Industrial Policy Resolution 1956, as many as 17 industries were reserved for the
on the Public public sector as against 12 industries earmarked for private sector.
Sector  It was realised that the objective of socialist pattern of society could be achieved only
through a comprehensive development of public sector enterprises.

 According to the Industrial (Development and Regulation) Act of 1948 new industry in
Regulated
the private sector could not be established without a licence and registration.
Development of  The regulated development of the private sector was to ensure that
the Private Sector there was no concentration of economic power in the private hands.

Protection of  Large-scale industry was regulated through several acts, particularly

Small-scale MRTP (Monopolistic and Restrictive Trade Practices Act).
 Small-scale industry, on the other hand, was offered protection from the competition-
Industry &
certain areas of production were exclusively reserved for the small-scale industries,
Regulation of particularly labour-intensive industries such as readymade garments, chemicals, etc.
Large-scale  Several boards (like Handloom board and Silk board) were established to promote the
Industry products of small-scale industries in the global market.
  Saving and investment were identified as the
Focus on Saving key determinants of economic growth.
and Investment  High-interest rates were offered to promote saving, while
investment was induced through subsidies and capital grants.

Protection from  Domestic industry was protected from foreign competition.

Foreign  High import duties and quantitative restrictions were levied on
Competition imports
 It implied the domestic production of goods that
Focus on Import were imported from abroad.
of Substitution  The basic idea was to save foreign exchange and
become self-sufficient.

 Foreign direct investment was controlled and regulated through

Restriction on the Foreign Exchange Regulation Act (FERA).
Foreign Capital  This was to minimise economic control of the domestic market by
foreign investors.
 The Various Points in Success / Achievement of Planning
1) Increase in National Income
An increase in national income indicates economic growth.
 During the period before planning, the national income of India increased at the rate of just 0.5
per cent per annum. The Indian economy was, therefore, a stagnant economy.
 The increase in national income during the Twelfth plan was 6.8 per cent against the target of 8
per cent. In 2018-19, the increase in national income is estimated to be 6.9 per cent.
Thus, during most plans, we failed to achieve the targeted rate of growth.

2) Increase in Per Capita Income

Over time, per capita income has recorded a significant rise :
 During the period before planning, the rate of increase in per capita income
had only been nominal.
 The twelfth plan estimated a growth rate of 5.5 per cent per annum. In 2017-18 and 2018-19, rate
of increase in per capita income was 5.7 per cent and 5.6 per cent per annum respectively.
 Increase in per capita income is a significant achievement as it implies greater availability of
goods and services per head of population of the country.
 3) Rise in Saving and Investment
 In 1950-51, the rate of saving was 9.5 per cent of national income.
 It increased to 31.3 per cent by the end of the eleventh plan (2011-12) and
was estimated to be 30.5 per cent in 2017-18.
We all know that saving and investment are the principal drivers of economic growth.

4) Growth and Diversification of Industry

 Five-year plans gave a big push to the basic and capital goods industries.
 In the eleventh plan, the industrial production growth rate was 7.2 per cent. It increased to 6.9
per cent in 2018 - 19.
 Consumer goods industries have substantially grown to achieve a level of self-sufficiency.

5) Employment
 Serious efforts have been made during plans to increase employment opportunities.
 During the eleventh plan, the unemployment rate came down from 8.3 per cent in 2004-05 to 5.6
per cent in 2011-12. It increased to 6.9 per cent in 2018-19.
 In the twelfth five-year plan, the government has fixed the target of creating 50 million
employment opportunities.
 Failures of Planning in India
Abject Poverty
 In India, 21.9 per cent of the population still lives below the poverty line.
 There are those people who are getting even the essentials of life.
 Nearly 50 per cent of those who are poor in the world are living in India.

High Rate of Inflation

 We have failed to tackle the inflationary spiral in the country because the high rate of inflation has tended to erode the real income of the
people.
 Also, the economic divide between haves and have-nots has tended to rise.
 The first plan is the only exception in which the price level slides down, in all other plans the prices recorded a steep rise.

Unemployment Crises
 While more and more opportunities for employment have been generated, the challenge of unemployment has not been subsided.
 At the end of the First Plan, 53 lakh persons were unemployed. This number rose to over 4 crores at the end of the eleventh plan.
 This is emerging to be a serious cause of social unrest, threatening the process of growth.

Inadequate Infrastructure
 Development of infrastructure (including power, roads, dams, bridges, schools, colleges, and hospitals) continues to be inadequate despite
67 years of planning.
 Consequently, actual growth has failed to match the targets of growth. Particularly, the shortage of power has been a serious constraint in
the overall process of growth and development.
 Different Goals of the Five-Year Plan

Four Basic Goals of Five-Year Plans

Modernization Equity
Growth
(Aims to Self – reliance (Aims to ensure
(Aims to increase
adoption of new (Aims to make that everyone
country’s
technology and the economy self- gets basic needs
capacity to
change in social reliant) and to reduce
produce goods)
outlook) inequalities)
 Growth
 Growth refers to the increase in the country's capacity to produce
the output of goods and services within the country. Growth implies :
a) Either a larger stock of productive capital;
b) Or a larger size of supporting services like transport and banking;
c) Or an increase in the efficiency of productive capital and services.
 A good indicator of economic growth, in the language of economics, is steady
increase in the Gross Domestic Product (GDP).
 GDP refers to market value of all the final goods and services produced in the
country during a period of one year. Increase in GDP or availability of goods and
services enables people to enjoy a more rich and varied life.
 The GDP of a country is derived from the different sectors (Agricultural sector,
Industrial sector and Service sector) of the economy.
 In some countries, growth in agriculture contributes more to the GDP growth,
while in some countries, growth in service sector contributes more to GDP growth.
 Modernization
Indian planners have always recognised the need
for modernisation of society to raise the standard of
living of people. Modernisation includes :
Adoption of New Technology : Modernisation aims to increase the
production of goods and services through the use of new technology.
For example, a farmer can increase the output on the farm by using
new seed varieties instead of using the old ones. Similarly, a factory
can increase output by using a new type of machine.
Change in social outlook : Modernisation also requires a change in
social outlook, such as gender empowerment or providing equal
rights to women. A society will be more civilised and prosperous if it
makes use of the talents of women in the work place.
 Self-reliance
The third major objective is to make the economy self-reliant.
 Self-reliance under Indian conditions means overcoming the need of external
assistance. In other words, it means to have development through domestic resources.
 To promote economic growth and modernisation, the five-year plans stressed on the
use of our own resources, in order to reduce our dependence on foreign countries.

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

a) To reduce Foreign Dependence : As India was recently freed from foreign control, it is necessary
to reduce our dependence on foreign countries, especially for food. So, stress should be given to
attain self-reliance.
b) To avoid Foreign Interference : It was feared that dependence on imported food supplies,
foreign technology and foreign capital may increase foreign interference in the policies of our
country.
  The objectives of growth, modernisation and
Equity self-reliance, by themselves, may not improve
the kind of life, which people are living.
 So, it is important to ensure that the benefits of
economic prosperity are availed by all sections
(rich as well as poor) of the economy.
 In addition to the objectives of growth,
modernisation and self-reliance, equity is also
important.
 According to Equity, every Indian should be
able to meet his or her basic needs (food, house,
education and health care) and inequality in
the distribution of wealth should be reduced.
 In short, Equity aims to raise the standard of
living of all people and promote social justice.
  The agriculture sector accounted for the
Agriculture largest share of the workforce with
approximately 70-75 percent. So,
agricultural development was focused
right from the First Five Year Plan.
 At the time of independence, the land
tenure system was characterised by
intermediaries (like zamindars) who
merely collected rent (lagaan) from the
actual tillers of the soil.
 The low productivity of the agricultural
sector forced India to import food from
the United States of America.
 Features of Agriculture
1) Low Productivity :
 The Indian agriculture sector was known for its low productivity. Lack of knowledge was
responsible for stagnation in this sector.
 Since the agricultural sector generates demand for the industrial sector, the backwardness
of agriculture implies slow growth of the industry.
2) Disguised Unemployment :
 Disguised unemployment is a situation of hidden unemployment. It occurs when the number of persons engaged on a piece of
land is much higher than what is actually needed. So, apparently all are employed. But,
in reality, many are unemployed. Even when some are withdrawn, total output will not fall.
3) High Dependency on Rainfall :
 The Indian economy is heavily dependent on agriculture and the livelihood of the Indian
farmer largely depends on the Monsoon rains.
 Good rainfall means good crops and bad rainfall means bad crops. Consequently, the growth process fails to be stable.
4) Subsistence Agriculture :
 It means the primary objective of the farmer is to secure subsistence for his family; it is not to earn profits.
 Subsistence agriculture fails to generate a surplus for investment. It leads to stagnation in agriculture.
5) Depreciated Technology :
 There were many obsolete technologies and harvesting machines. Harvesting was generally done manually and was very
tedious.
 The bulk of the farming population in India is extremely poor. Lack of modern inputs leads to low productivity and therefore,
backwardness.
6) Landlord Tenant Conflicts :
 Farmers were often part of a critical contract that bound them to their landlords. Landlords used to extract huge amounts of
interest from farmers and deprived them of their necessities.
 Little or no surplus is left with the tenants for re-investment. Accordingly, agriculture tends to stagnate.
 Importance of Agriculture in the Indian Economy
1) Contribution to GDP :
 Agriculture makes a significant contribution to the GDP in India.
 During the period of planning, contribution of agricultural sector to GDP has tended to decline over time, from as high
as 51 per cent in 1950-51 to 14.4 per cent in 2018-19.
 It often occurs owing to the relatively faster growth of secondary and tertiary sectors of the economy.
2) Source of employment :
 In India, agriculture is a significant source of employment.
 Over 50 percent of the working population in India is engaged in the agricultural sector
implying that agriculture is the principal source of subsistence for the people in India.
3) Supply of raw materials :
 Agriculture supplies industrial raw materials like cotton for the textile industry, seeds
for the oil industry, and sugarcane for the sugar mills.
 As a supplier of raw materials, the agricultural sector is of primary significance for the
growth of the industrial sector in the economy.
4) Source of demand for industrial goods :
 The agricultural sector is an important source of demand for industrial goods, particularly capital goods.
 Tractors and harvestor-machines are demanded exclusively by the agricultural sector. Thus, Agricultural prosperity
leads to industrial prosperity.
5) Contribution to international trade :
 Agriculture makes a significant contribution to India’s international trade. Thus, in 2018-19, share of agricultural
sector in total exports of the country stood at 11.76 percent.
 India exports tea, jute, cashew nuts, tobacco, coffee, and spices. Exports are a source of foreign exchange; which India
needs for the import of defence goods as well as crude oil.
 Problems Faced by Indian Agriculture
1) Lack of Permanent Means of Irrigation :
 Crop farming in India is heavily dependent on rainfall. Permanent means of irrigation are extremely deficient.
 Dependence on rainwater makes Indian agriculture extremely vulnerable, good rainfall brings good harvest, while droughts cause
a substantial loss of output.
2) Deficiency of Finance :
 For bulk of their financial needs, the small farmers depend upon non-institutional sources,
including 'mahajans', moneylenders and the landlords. They charge very high rate of interest.
 Lack of finance hinders the growth of Indian agriculture. The high cost of borrowing leads to the
vicious circle of poverty for the farmers.
3) Small and Scattered Holdings :
 Holdings in India are not only small but scattered as well. Smallholdings do not allow the use of modern technology.
 Scattered holdings increase the cost of management. This contributes to the backwardness of farming and the poverty of the
farmers.
4) Lack of Organised Marketing System :
 An agricultural marketing system is highly unorganised.
 They are obliged to sell their produce to the mahajans and money lenders (in the local markets) in return for the loans they raise
from these middlemen.
 At the level of marketing, the bulk of smallholders fails to get a remunerative price for their crops, because of the lack organised
marketing system.
5) Exploitative Agrarian Relations :
 Agrarian relations refer to the business relations between landlords and tenants.
 Having paid exorbitant rents to the absentee landlords, the tillers of the soil are left with a little surplus for further investment.
 Accordingly, land continues to be used as a source of subsistence (or as a means of livelihood) rather than a source of business
profits.
Agrarian
Reforms With a view to tackling the
problems of Indian
agriculture, the government
has taken a series of reform
measures since independence.
These reform measures are
popularly known as agrarian
reforms.
 Types of Agrarian Reforms
1) Technical Reforms/New Agricultural Strategy : Following steps have been taken
by the government to upgrade the level of technology in Indian agriculture.
a) Use of (High Yielding Variety) HYV Seeds :
 HYV seeds have replaced conventional varieties. HYV seeds (especially relating to wheat,
bajra, rice, maize, jowar, and cotton) have led to a substantial rise in crop productivity.
b) Use of Chemical Fertilizers :
 Chemical fertilizers are being increasingly used to enhance productivity. The use
of chemical fertilizers has considerably increased over time.
c) Use of Insecticides and Pesticides for Crop Protection :
 Steps have been initiated to protect crops against diseases and insects by using insecticides and pesticides.
 For plant protection, an integrated Pest Management Programme was adopted along with the adoption of
HYV technology.
d) Scientific farm Management Practices :
 Stress has been laid on scientific cultivation, as against conventional farming.
 Scientific methods of farming relate to :
i. Selection of crops and their quality.
ii. Preparation of soil
iii. Rotation of crops
iv. Selection of seeds
v. Use of fertilizers besides others.
2) Land reforms/Institutional Reforms : The action plan of the government for land
reforms includes the following steps :
a) Abolition of Intermediaries :
 Intermediaries (between the state and the actual tiller of the soil) popularly
known as zamindars have been abolished.
 Ownership rights have been conferred upon those who cultivate the soil.
b) Regulation of Rent :
 To put an end to excessive and illegal extortions from cultivators, rents have been fixed.
 Generally, these are not to exceed 1/3rd the value of the crop.
c) Consolidation of Holdings :
 To reduce fragmentation, steps have been initiated for the consolidation of holdings.
 Consolidation is the practice to allot land to the farmer in one place as a replacement for his
scattered holdings here and there. It saves the cost of cultivation.
d) Ceiling on Land Holdings :
 To promote equality in the distribution of land, a ceiling has been imposed on the holding size.
 The surplus land has been resumed by the government and redistributed among smallholders or
landless labourers.
e) Cooperative Farming :
 Cooperative farming is encouraged to enhance bargaining power of the small holders. Together
they can buy inputs at a lower price and sell their produce at a higher price.
3) General Reforms : General Reforms include the following Steps :
a) Expansion of Irrigation Facilities :
 To raise productivity in agriculture, irrigation facilities have been expanded. Several major and minor irrigation
projects have been launched across different parts of the country.
 Now, irrigation is covering about 45% of land under cultivation.
b) Provision of Credit :
 Cooperative societies have been set up to provide credit to farmers at a low rate of interest.
 Commercial banks have also been catering to the credit needs of the farmers.
 Regional Rural Banks have been established to further enhance credit facilities for farmers.
 The National Bank for Agriculture and Rural Development (NABARD) was established to institutionalise credit
facilities for farmers at the national level.
c) Regulated Markets and Cooperative Marketing Societies :
 Regulated markets have been established to offer remunerative prices to the farmers and protect them against
exploitation by the middlemen.
 These committees ensure timely payment to the farmers and also ensure that only specified weights and measures are
used to weigh and value the farmers' produce.
 Cooperative marketing societies have been established to enhance the bargaining power of the farmers in the
markets and Provision for storage of the crops is made by the societies on behalf of the member farmers.
d) Price Support Policy :
 Government assures a minimum support price (MSP) to the farmer for his produce to protect him against
uncertainties in the market.
 The government is committed to buy the surplus produce of the farmer at the minimum support price as and when
the market price is lower than that.
 Agriculture Policies (1950-90)

Role & Policies to Solve

Importance of Agricultural
Agriculture Main Features of Problems
Problems of • Technical Reforms
• Contribution to Indian Agriculture Indian Agriculture a) Use of HYV Seeds
GDP • Low Productivity b) Use of Chemical fertilizers
• Lack of Permanent c) Use of Insecticides &
• Contribution to • Disguised
means of Irrigation Pesticides for Crop
Source of Unemployment Protection
• Deficiency of d) Scientific farm Management
Employment • High Dependency Practices
Finance
• Contribution to on Rainfall • Land Reforms
• Small and Scattered
Supply of Raw • Subsistence a) Abolition of Intermediaries
Holdings b) Regulation of Rent
Material Agriculture c) Consolidation of Holdings
• Lack of Organized d) Ceiling on Land holdings
• Contribution to • Depreciated
Marketing System e) Cooperative Farming
Source of Demand Technology • General Reforms
• Exploitative
for the Industrial • Landlord Tenant a) Expansion of Irrigation
Agrarian Relations Facilities
Goods Conflicts b) Provision of Credit
c) Regulated Markets and
• Contribution to Cooperative marketing
International Trade societies
d) Price Support Policy
Green Revolution :
New Agriculture Green Revolution refers to the large increase in the
production of food grains due to the use of high-
Strategy yielding variety (HYV) seeds. The green revolution
is a spectacular advancement in the field of
agriculture.

The new agricultural strategy was adopted in

India during the Third Plan, i.e., during 1960’s.
The traditional agricultural practices followed in
India were gradually being replaced by modern
technology and agricultural practices. The aim of
this strategy was to raise agricultural production
and productivity in selected regions of the
country through the introduction of modern
inputs like fertilizers, credit, marketing facilities,
etc.
Indian Economy Experienced the Success of Green Revolution in 2 Phases

First Phase Second Phase

In the first phase (Mid 60s to In the second phase (Mid
Mid 70s), the use of HYV seeds 70s to Mid 80s), the HYV
was restricted to more technology spread to a
affluent states (like Punjab,
Andhra Pradesh, Tamil Nadu,
larger number of
etc.). Further, the use of HYV states and
seeds primarily benefited the benefited more
wheat growing regions only. variety of crops.
 Need for  At the time of independence, about 75% of
the country's population was dependent on
Green agriculture.
Revolution  India's agriculture vitally depends on the
monsoon and in the case of storage of
monsoon; the farmers had to face a lot of
troubles.
 Moreover, the productivity in the
agricultural sector was very low due to the
use of out-dated technology and the
absence of required infrastructure.
 As a result of the intensive and continued
efforts of many agricultural scientists, this
stagnation in agriculture was permanently
broken by the 'Green Revolution'.
 Effects of the Green Revolution
1) Attaining Marketable Surplus : Green Revolution resulted in Marketable
Surplus. Marketable surplus refers to that part of agricultural produce which is
sold in the market by the farmers after meeting their own consumption
requirement.
 Growth in agricultural output makes a difference to the economy only when
a large proportion of this increase is sold in the market.
 Fortunately, a good proportion of rice and wheat produced during the green
revolution period was sold by the farmers in the market.
2) Buffer Stock of Food Grains : The green revolution enabled
the government to procure a sufficient amount of food grains
to build a stock which could be used in times of food shortage.
3) Benefit to Low-Income Groups : As a large proportion of food grains was sold
by the farmers in the market, their prices declined relative to other items of
consumption. The low-income groups, who spend a large percentage of their
income on food, benefited from this decline in relative prices.
Risk involved Risk of Pest Attack : The HYV crops were
in Green more prone to attack by pests. So, there
Revolution was a risk that small farmers who
adopted this technology could lose
everything in a pest attack.

Risk of Increase in Income Inequalities :

There was a risk that costly inputs
required under the green revolution will
increase the disparities between small
and big farmers since only the big
farmers could afford the required
inputs.
 Limitations of Green Revolution
Limited Revolutionary rise in output (due to green revolution) is confined mainly to the
production of food grains (wheat and rice). There has been no similar rise in
Crops the production of pulses and commercial crops like jute, cotton, tea, etc.).

Un-even Spread of Green Revolution has not been uniform across all regions. In states like
Punjab, Haryana, Maharashtra and Tamil Nadu, it made a remarkable impact. But in
Spread Eastern UP, Bihar, Madhya Pradesh and Odisha, its impact was relatively insignificant.

Limited The bulk of the farming population in India consists of small and marginal farmers. The
Farming gains of Green Revolution have eluded these farmers. Because, HYV technology require
expensive inputs which are beyond the reach of marginal farmers.
Population

Thanks to Green Revolution, the economic divide - the gap between the rich and the
Economic poor farmer has substantially risen over time. Poverty is widespread and indebtedness
is extremely high. Loan waivers are frequently offered. Yet, suicides among the farmers
Divide is emerging to be a serious challenge.
 Industrial The developing countries (like India) can
progress only if they have a good industrial
Development sector. Industry provides employment, which is
more stable than the employment in
agriculture. Industrialisation promotes
modernisation and overall prosperity.

At the time of independence, the variety of

industries was very limited. The cotton textile
and jute industries were mostly developed in
India. There were only two well-managed iron
and steel firms: one in Jamshedpur and the
other in Kolkata. So, there was a strong need to
expand the industrial base with a variety of
industries.
 Features of Industrial Growth
 Public enterprises were to play a central role in the process of
industrialisation.
 The process of industrialisation focused on 'import substitution' implying
that the production of such goods was to be accorded at high priority which
was imported from the rest of the world. The idea was to achieve self-
reliance as well as to economise the use of the foreign exchange.
 As far as possible, domestic industry was to be protected from foreign
competition. Protection was to be offered through :
a) Heavy duty on imports, and
b) Fixation of import quotas. It was realised that protection
would foster the growth of the domestic industry.
 Large-scale industry was to be developed to build an
infrastructural base in the country.
 Effects of Industrialization
Positive Effects
 Economic growth got a big push. Industrial output recorded a significant rise. There
was about a 6 percent annual increase in output during the period 1950-1990.
 The growth of SSI made a substantial contribution to achieving the objectives of
growth with social justice.
 There was a marked diversification in the industrial sector. The then sunrise industry
(electronics in particular) marked its emergence in the domestic economy.
 Growth of large-scale industries (like Rourkela and Bhilai Steel Plants) projected an
infrastructural shift in the Indian economy.

Negative Effects
 Public sector monopolies gradually turned out to be a 'dead social weight'. Inefficiency,
corruption and leakage emerged as their principal characteristics.
 Lack of competition promoted domestic entrepreneurs to focus on monopoly control of
the market. Growth through competition and diversification was conveniently avoided.
 Saving foreign exchange through import substitution (rather than generating it through
an export promotion) proved to be an inefficient policy instrument.
There was a need for a leading role in the public sector due to the following reasons

1) Shortage of Capital with Private Sector : Private entrepreneurs did

not have the capital to undertake investment in industrial
ventures, required for the development of Indian economy.
2) Lack of Incentives for the Private Sector : The Indian market was
not big enough to encourage private industrialists to undertake
major projects, even if they had the capital to do so.
Due to the limited size of the market, there was a
low level of demand for industrial goods.
3) The Objective of Social Welfare : The objective of equity and social
welfare of the government could be achieved only through the
direct participation of the state in the process of industrialisation.
 Industrial  Industrial Policy Resolution of 1956 (IPR
Policy 1956) is a resolution adopted by the Indian
Resolution 1956 Parliament in April 1956.
 Industrial policy is a comprehensive package
of policy measures that cover various issues
connected with different industrial
enterprises of the country.
 After the industrial policy, in 1948, the
Indian economy had to face a series of
economic and political changes, which
necessitated the need for a fresh industrial
policy for the country. So, on 30th April 1956,
a second industrial policy resolution was
adopted in India.
 Classification of Industries
Classification of Industries as Per IPR, 1956

Schedule A Schedule B Schedule C

(Comprises of Industries (Comprises of 12 Industries, (Comprises of remaining
exclusively owned by the which would be Industries which were to be
State) progressively State-owned) in the private sector)

a) Schedule A : This first category compromised industries which would be exclusively owned
by the government state. In this schedule, 17 industries were included, like arms and
ammunition; atomic energy; heavy and core industries; aircraft; oil; railways; shipping; etc.
b) Schedule B : In this schedule, 12 industries were placed which would be progressively
state-owned. The state would take the initiative of setting up industries and the private
sector will supplement the efforts of the state.
c) Schedule C : This schedule consisted of the remaining industries which were to be in the
private sector. These industries were controlled by the state through a system of licenses,
enforced under the Industries (Development and Regulation) Act 1951.
 Industrial Licensing
An Industrial License is written permission from the
government, for an industrial unit to manufacture
goods.
The Industries (Development and Regulation) Act, 1951,
empowered the government, to issue licenses for :

Setting up of Expansion of Diversification

New Industries Existing Ones of Products
 According  No new industry was allowed
to Industrial unless a license is obtained from
Licensing the government.
 It was easier to obtain a license if
the industrial unit was established
in an economically backward area.
 The purpose of this policy was to
promote regional equality.
 Licenses were needed even if an
existing industry wants to expand
output or diversify production.
  In 1955, the Village and Small-scale
Small-scale Industries Committee (Karve
Industry Committee) recognised the
possibility of using small-scale
industries to promote rural
development.
 A 'small-scale industry is defined
with reference to the maximum
investment allowed on the assets of
a unit. This limit has changed from
rupees five lakh in 1950 to present
limit of rupees one crore.
 Important Points about Small-Scale Industries
 Small-scale industries are more labour intensive, i.e., they use more
labour than the large-scale industries and, therefore, they generate
Employment
more employment.
Generation  After agriculture, small-scale industries provide
employment to the largest number of people in India.

 Small-scale industries cannot compete with the big industrial firms.

They can flourish only when they are protected from the large firms. So,
Need for various steps were taken by the government for their growth.
 Reservation of Products : Government reserved production of a number
Protection of products for the small-scale industry. The criterion for reserving the
from Big products depends on the ability of these units to manufacture the
Firms goods.
 Various Concessions : Small-scale industries were also given concessions,
such as lower excise duty and bank loans at lower interest rates.
Foreign  Every country in the world exports
certain goods and imports certain others.
Trade Export and import of goods and services
across different countries is called
international or foreign trade.
 Foreign trade in India includes all
imports and exports to and from India.
India entered into planned development
era in 1950's and at that time 'Import
Substitution' was a major element of
India's Trade and Industrial Policy. In
1950, India's share in the total world
trade was 1.78%.
 Brief Composition of Foreign Trade
After independence, there has been a substantial change
in the composition of India’s foreign trade :
It happened owing to the facts that :
Decline in percentage
 India started using its farm products as raw materials for its domestic industry.
share of agricultural
 Substantial rise in India's population has raised the domestic consumption of farm
exports
products.

 Conventional items of India's exports include jute, tea, food grains, and minerals. These
Decline in percentage
items constituted the bulk of India’s exports at the time of independence.
share of conventional
 But with planned development programmes in place, domestic demand for
items
conventional items has tended to rise.

Increase in  The percentage share of manufactured goods in total exports has tended to rise.
percentage share of  Presently, Gems and precious metals, machinery and vehicles are the notable exports of
manufactured goods India.
 Inward Looking Strategy
 Import substitution refers to a policy of replacement or substitution of imports by
domestic production.
 The basic aim of the policy was to protect domestic industries
from foreign competition.
 The policy of Import substitution can serve 2 definite objectives :
a) Savings of precious foreign exchange; and
b) Achieving self-reliance
 By adopting an inward-looking trade strategy, the government preferred to
economise the use of foreign exchange (through import substitution) rather than
maximise the generation of foreign exchange (through an export promotion).
 Also, the government wanted to protect the domestic industry from international
competition.
 For example : Instead of importing vehicles made in a foreign country, domestic
industries would be encouraged to produce them in India itself.
 Impacts do an inward-looking strategy left on the domestic industry

Good Impacts Bad Impacts

1) Diversification of Industrial Growth : 1) Growth of Inefficient Public Monopolies :
 Modern industry was no longer confined to  Protection of public sector industry led to the
textile and jute. Industrial growth started growth of inefficient monopolies.
spreading across engineering goods and a wide  Telecommunication was a government
range of consumer goods. monopoly till about 1990. We all know that
 It is widely recognised that the electronic people had to wait for years and years just
industry would have failed to take root in the
for a telephone connection.
domestic economy, had the policy of
2) Lack of Competition :
'protection' not been pursued.
2) Investment Opportunities :
 Old users of cars still remember that
 Protection of SSI (small-scale industry) opened Ambassador and Fiat were the
new opportunities for investment for those who only two models produced by
did not have much capital. the domestic industry in India.
 New investment opportunities implied new  No doubt that the domestic car
opportunities for self-employment. It promoted industry flourished as a near-monopoly
growth with equity. owing to the policy of protection.
Protection from Imports through ‘Tariffs’ and ‘Quotas’ : The
government made use of two ways to protect goods produced
in India from imports :
Tariffs refers to taxes levied on imported goods. The basic aim
Tariffs for imposing a heavy duty on imported goods was to make
them more expensive and discourage their use.

Quotas refer to fixing the maximum limit on the imports

Quotas of a commodity by a domestic producer.

Reasons for Import Substitution

 The policy of protection is based on the fact that industries of developing countries like India are
not in a position to compete against the goods produced by more developed economies. With
protection, they will be able to compete in the due course of time.
 Restriction on import was necessary to overcome the fear of the drain of foreign exchange
reserves on the import of luxury goods
 Critical Appraisal of Industrial Development (1950 – 1990)
The achievements of India’s Industrial Sector during the First Seven Plans are impressive indeed :

 The proportion of GDP contributed by the industrial sector increased in the period
from 11.8 per cent in 1950-51 to 24.6 per cent in 1990-91. The rise in the industry’s
share of GDP is an important indicator of development.
 Indian industry was no longer restricted to cotton textiles and jute. It also included
engineering goods and a wide range of consumer goods. The industrial sector
became well diversified by 1990, largely due to the public sector.
 The promotion of small-scale industries gave opportunities to people with small
capital to get into business.
 Protection from foreign competition enabled the development of indigenous
industries in the areas of electronics and automobile sectors which otherwise could
not have developed.
 Licensing policy helped the government to monitor and control the industrial
production.
 Public sector made a remarkable contribution by creating a strong industrial
base, developing infrastructure and promoting development of backward areas.
 Conclusion
The progress of the Indian economy in the three sectors can be summarised as under :

 India became self-sufficient in food production,

In Agriculture thanks to the green revolution.
Sector  Land reforms resulted in the abolition of Zamindari system.

 The industries became far more diversified compared to the

In Industrial situation of independence. However, many economists became
Sector dissatisfied with the performance of public sector enterprises.

 Our policies were ‘inward oriented’ and so we failed to develop

In Trade a strong export sector. The domestic producers were protected
against foreign competition and this did not give them
Sector the incentive to improve the quality of the goods
that they produced.
Class 12 Indian Economic Development
  Economic reforms refer to a set of economic
Economic policies directed to accelerate the pace of
Reforms ‘growth and development’.
 In 1991, the government of India initiated a
series of economic reforms to pull the economy
out of the crises of 90’s. These reforms came to
be known as New Economic Policy (NEP).
Three broad components of the New Economic Policy are :
 The policy of Liberalisation (L) in place of Licensing (L) for the industries and trade.
 The policy of Privatisation (P) in place of Quotas (Q) for the industrialists, and
 The policy of Globalisation (G) in place of Permits (P) for exports and imports.

Thus, LPG was set to replace LQP in 1991.

 Reasons for Making Economic Reforms

Reasons for Economic Reforms

Poor Performance of the Public Sector

Deficit in the Balance of Payments

Inflationary Pressure
Fall in Foreign Exchange Reserves

Huge Burden of Debts

Inefficient Management
 Poor Performance of the Public Sector :
 In the 40 years period (1951-90), the public sector was assigned an important role to
work for the economic development of India. However, except for few public industries,
the overall performance was very disappointing.
 Due to huge losses incurred by a good number of the public sector enterprises, the
government recognised the need for making necessary reforms.

Deficit in Balance of Payments (BOP) :

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

Inflationary Pressure :
 There was a consistent rise in the general price level in the economy
due to increase in money supply and shortage of essential goods.
 Fall in Foreign Exchange Reserves :
 In 1991, foreign exchange reserves fell to the lowest level and it led to the foreign exchange crisis
in the country.
 Foreign exchange reserves declined to a level that was not adequate to finance imports for more
than two weeks and pay the interest that needs to be paid to international lenders.

Huge Burden of Debts :

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

Inefficient Management :
 The government was not able to generate sufficient revenue from internal
sources such as taxation, running of public sector enterprises, etc.
 Government expenditure began to exceed its revenue by such large margins
that it became unsustainable.
 Also, the foreign exchange borrowed from other countries and international financial
institutions was spent on meeting consumption needs.
 New Economic Policy
The New Economic Policy (NEP) was announced in July 1991.
It consisted of wide range of economic reforms. The main aim
of the policy was to create a more competitive environment in
the economy and remove the barriers to entry and growth of
firms.
 The New Economic Policy can be broadly classified into two kinds of measures :

Stabilisation Measures Structural Reforms Measures

They refer to short-term measures which aim at : They refer to long-term measures which aim at :
 Correcting weaknesses in the balance of  Improving the efficiency of the economy;
payments by maintaining sufficient and
foreign exchange reserves; and  Increasing international competitiveness
 Controlling inflation by keeping the rising by removing the rigidities in various
prices under control. segments of the Indian economy.
Elements of the New Economic Policy (NEP)

Elements of NEP
Liberalization Globalization
(Refers to the removal of Entry and
(Refers to integrating the National
Growth restrictions on the Private
Economy with World Economy)
Sector)

Privatization
(Refers to transfer of ownership,
management, and control of the
Public Sector to the Private Sector)
 Liberalisation Liberalisation of the economy means freedom of
the producing units from direct or physical
controls imposed by the government.

Following are some notable observations in this regard

 Before 1991, the government had imposed several types of controls on private enterprises in
the domestic economy.
 These includes industrial licensing systems, price control or financial control on goods, import
license, foreign exchange control, restrictions on investment by big business houses, etc.
 It was experienced by the government that several shortcomings had emerged in the
economy on account of these controls.
 These controls had given rise to corruption, undue delays, and inefficiency.
 The growth rate of GDP had fallen sharply and a high-cost economic system (rather than a
low-cost competitive economic system) came into being.

Note :
Economic Reforms (with liberalisation as its key component) were based on the assumption that
market forces would drive the economy toward the path of competitive growth and development.
 Purpose of
Liberalisation :  It was done to unlock the economic
potential of the country by
encouraging private sector and
multinational corporations to
invest and expand.

 To introduce much more

competition into the economy and
create incentives for increasing the
efficiency of operations.
Economic Reforms included in the Liberalisation
1) Industrial Sector Reforms :
Abolition of
Industrial Licensing

Freedom to Import Industrial Contraction of

Capital Goods Sector Public Sector
Reforms

Expansion of
De-reservation of
Production
Production Areas
Capacity
1) Abolition of Industrial Licensing :
 In July 1991, a new industrial policy was announced. It abolished the requirement
of licensing except for the following five industries :
a) Liquor,
b) Cigarette,
c) Defence equipments,
d) Industrial explosives, and
e) Dangerous chemicals.
2) Contraction of Public Sector :
 Under the new industrial policy, the number of industries reserved for the public sector was reduced from 17 to 8.
 In 2010-11, the number of these industries was reduced merely to two:
a) Atomic energy, and
b) Railways.
3) De-reservation of Production Areas :
 Many production areas which earlier were reserved for SSI (small-scale industries) were de-reserved. Forces of the
market were allowed to determine the allocation of resources.
4) Expansion of Production Capacity :
 Earlier production capacity was linked with licensing. Now, freedom from licensing implied freedom from capacity
constraints.
 What to produce and how much to produce was now a matter of the producer's choice depending on market
conditions.
5) Freedom to Import Capital Goods :
 Liberalisation also implied freedom for the industrialists to import capital goods to upgrade their technology.
 Permission was no longer required from the government to enter into international agreements for the import of
technology.
2) Financial Sector Reforms :
Change in Role Origin of
of RBI Financial Private Banks
Sector
Reforms

Increase in Limit Ease in

of Foreign Expansion
Investment Process
a) The financial sector includes :
i. Banking and non-banking financial institutions,
ii. Stock exchange market, and
iii. Foreign exchange market
b) In India, the financial sector is regulated and controlled by the RBI (Reserve Bank of India).
c) Liberalisation implied a substantial shift in the role of the RBI from ‘a regulator’ to ‘a
facilitator’ of the financial sector.
d) As a regulator, the RBI (before liberalisation) would fix the interest rate structure for
commercial banks. But as a facilitator (after liberalisation) the RBI would only facilitate
the free play of the market forces and leave it to the commercial banks to decide their
interest rate structure. Now, competition (rather than control) rules the decision-making
process.
e) Free play of the market forces has led to the emergence of private bankers - both domestic
as well as international – in the Indian banking industry.
f) Liberalisation has also allowed FII (Foreign Institutional Investors) to invest in Indian
Financial markets. (Examples of FII: merchant bankers, mutual funds, and pension funds.)
g) Consequent upon these changes, the financial sector in India has shown a multi-
dimensional growth and is playing a significant role in the growth and development of the
economy.
3) Fiscal Reforms :
a) Fiscal reforms relate to the revenue and expenditure of the government.
b) Tax reforms are the principal component of fiscal reforms.
c) Broadly, taxes are classified as :
i. Direct Taxes : These are those taxes, the burden of
which cannot be shifted to others. (Examples : Income tax,
Wealth tax). One who pays such a tax himself bears the burden of it.
ii. Indirect Taxes : (levied on goods and services) are those taxes, the burden
of which can be shifted onto others. Examples : GST (Goods and Services
Tax,) custom duty.
d) Before liberalisation, the tax structure in the country has been highly complex
and evasive. Fearing a heavy burden of taxation, people would often evade
taxes.
e) Now tax structure has been simplified and moderated. This has raised tax
compliance and therefore tax revenue for the government.
4) External Sector Reforms :
a) External sector reforms include :
i. Foreign exchange reforms, and
ii. Foreign trade policy reforms.
b) Foreign exchange reforms were initiated in 1991 with
the devaluation of the Indian rupee against foreign currencies.
c) Devaluation implies a fall in the value of the rupee vis-à-vis
(say) the US Dollar or British pound. Implying that a US Dollar
or British pound can be exchanged for more rupees than before. Or, implying that a US
dollar or British pound can buy more goods in the Indian market.
d) This increased the supply of foreign currency into the Indian economy by way of higher
exports of domestic goods and services.
e) Foreign Trade Policy underwent a substantial change in the wake of liberalisation.
f) Tariff restrictions have been considerably moderated, rather withdrawn for many items
of export and import.
g) Instead of policy of protection to the domestic industry, now there is the policy of
'survival of the fittest'.
h) Market competition has replaced the policy of quotas and tariffs.
Salient Features of
 Import quotas have been abolished.
Trade Policy after
Liberalisation :  Import licensing (except in the case of goods
that are not environment-friendly and
hazardous) has been abolished.
 There is a moderation/reduction of import duty
to enhance competitiveness in the domestic
market.
 Export duty has been withdrawn to enhance
the competitiveness of Indian goods in the
international market.
 Briefly, trade policy after liberalisation is to
facilitate the integration of the Indian market
with the global market to achieve growth
through competition rather than protection.
  Privatisation is the process of involving the
Privatisation private sector in the ownership or operation
of a state-owned enterprise.
 It implies the gradual withdrawal of
government ownership/management from
public sector enterprises.
It may happen in two ways
 Outright sale of government enterprises to private entrepreneurs or
 Withdrawal of the government ownership and management from the mixed enterprises (the
enterprises jointly owned and managed by the government and the private entrepreneurs).

Disinvestment :
 Disinvestment is a policy instrument to promote privatisation.
 It occurs when the government sells off its share capital of PSUs (public sector undertakings) to private investors.
 The argument in favour of disinvestment is the same as in the case of privatisation.
 It is taken as a remedial measure to improve production and managerial efficiency, as well as to facilitate
modernisation.
 Of course, disinvestment is also used as a means to manage fiscal deficit by the government.
 Need for Privatization
The need for privatisation was felt mainly because of the poor performance of PSUs
 It is beyond doubt that it was through the spread of PSUs that India could
diversify its industrial base between the period 1951-1991.
 It was on account of the spread of PSUs that the Indian economy
underwent a structural transformation: people started shifting from
agriculture to industry as their source of livelihood, and there was a
gradual increase in the percentage contribution of industry to GDP.
 Gradually, most public sector enterprises turned into a social deadweight
(or a social liability). Mounting losses of PSUs became unsustainable.
 Leakage, pilferage, inefficiency, and corruption had become so rampant
in PSUs that their privatisation was considered the only remedy.
 Accordingly, in 1991, the government decided to phase out public
enterprises by selling its equity to private entrepreneurs. Privatisation was
to replace public ownership of a large number of enterprises.
 Obvious Gains :
 Privatisation expects private enterprises to work in a competitive
environment – both domestic as well as international. Competition
induces Upgradation and modernisation. These are the essential conditions
of growth and development.
 Privatisation promotes the diversification of production. Unlike PSUs
private enterprises invariably generate high profits. These are used for
expansion and diversification of production.
 Privatisation promotes consumer sovereignty. The higher degree of
consumers' sovereignty implies wider choice and better quality of life

Imperative Losses :
 The socialistic pattern of the society (in which 'social interest' is accorded
top priority) is left to survive only as a theoretical possibility.
 Privatisation encourages the free play of market forces. But in the process,
goods are produced only for those who have the means to buy them.
 When prices rise (which is an obvious tendency in a system driven by the
free play of market forces), weaker sections of society suffer deprivation.
  Globalisation means integrating the economy of a
Globalisation country with the economies of other countries under
conditions of free flow of trade and capital across
borders.
 Globalisation may be defined as a process associated
with increasing openness, growing economic
interdependence and deepening economic
integration in the world economy.

Aim Of Globalisation
 It aims to create a borderless world and it is generally understood to mean
integration of the economy of the country with the world economy.
 It is a complex phenomenon. It is an outcome of the set of various policies that
aim to transform the world towards greater interdependence & integration.
 It involves creation of networks and activities transcending economic, social, and
geographical boundaries.
 Following are some important policy strategies that have influenced the process
of the globalisation of the Indian economy :
Increase in Equity Limit of Foreign Investment
 The equity limit of foreign capital investment has been raised from the initial 40 per cent. It now ranges between 51 to 100
per cent.
 Export trading houses have also been allowed foreign capital investment of up to 100 per cent.

Partial Convertibility
 Partial convertibility refers to the sale and purchase of foreign currency (for foreign transactions) at the market price.
 To achieve the objective of globalisation, partial convertibility of the Indian rupee has
been allowed for the following transactions :
a) Import and export of goods and services,
b) Payment of interest or dividend on investment,
c) Remittances to meet family expenses.

Reduction in Tariffs
 In order to encourage competitiveness, tariff barriers have been
withdrawn on most goods traded between India and the rest of the world.

Withdrawal of Quantitative Restrictions

 Since 2001, the quantitative restrictions on all import items have been totally
withdrawn. This is in conformity with India’s commitment to the WTO.
Changes made by globalisation of the Indian economy are :
The New Economic Policy prepared a specified list of high technology and high investment
priority industries, in which automatic permission will be available for foreign direct
investment up to 51 per cent of foreign equity.
Automatic permission is provided in high-priority industries up to a sum of rupees 1 crore and
no permission is now required for hiring foreign technicians or for testing indigenously
developed technology abroad.
Rupee was devalued in July 1991 by nearly 20 per cent to stimulate exports, discouraged
imports, and raised the influx of foreign capital.
To integrate the Indian economy with the world, the Union budget 1992-93 made Indian rupee
partially convertible, and then the rupee was made fully convertible in the 1993-94 budget.
A new five-year export-import policy (1992-97) was announced by the government and this
policy removed all restrictions and controls on external trade and allowed market forces to play
a greater role in respect of exports and imports.
To bring the Indian economy within the ambit of global competition, the peak rate of customs
duty has been reduced to a considerable extent i.e. from 250 per cent to 10 per cent in 2007-
2008 budget.
 Positive as well as Negative Traits of Globalisation
The process of globalisation through liberalisation and privatisation
policies, has produced positive as well as negative results, both for India
and other countries.
POSITIVES :
Globalisation resulted in :
 Greater access to global markets
 Advanced technology
 Better future prospects for large industries of developing countries to become
important players in the international arena.
 Gains from the sharing of ideas/ skills/ technologies across national borders.

NEGATIVES :
Globalisation has been criticised by some scholars because according to them :
 The benefits of globalisation accrue more to developed countries as they can expand their markets in
other countries.
 It comprises the welfare and identity of people belonging to poor countries.
 Market-driven globalisation increases the economic disparities among nations and people.
Outsourcing  This is an important outcome of the process of
globalisation.
 It refers to a system of hiring business services
from the outside world. These services include
call centres, transcription, clinical advice,
teaching/coaching, and the like.
 India is emerging as an important destination
for outsourcing particularly, BPO (business
processing outsourcing, also called call
centres). This is because of two important
reasons :
a) Availability of cheap labour in India, or
relatively low wage rate for skilled
workers, and
b) A revolutionary growth of the IT industry
in India.
WTO (World Trade
Prior to WTO, General Agreement on Trade and Tariff
Organization) (GATT) was established as global trade organisation,
in 1948 with 23 countries. GATT was set up to
administer all multilateral trade agreements by
providing equal opportunities to all countries in the
international market. WTO was founded in 1995 as the
successor organisation to the GATT.

The WTO agreements cover trade in goods as well as

services, to facilitate international trade.

At present, there are 164 member countries of WTO and

all the members are required to abide by laws and
policies (WTO) intends to supervise and frame under
WTO rules.

As an important member of WTO, India has been in the

forefront of framing fair rules, regulations and
advocating the interests of the developing world.
 Major functions of WTO
 To facilitate international trade through the removal of the tariff as well as non-tariff barriers.
 To establish a rule-based trading regime, in which nations cannot place arbitrary restrictions on trade.
 To enlarge production and trade of services.
 To ensure optimum utilisation of world resources.
 To protect the environment.

Some scholars are of the view that there is no use for a

Should India
developing country like India to be a member of WTO.
be a member
According to them :
of WTO?
 Major volume of international trade occurs among
developed nations.
 Developing countries are being cheated as they are
forced to open up their markets for developed
countries and are not allowed access to a market of
developed countries.
 Merits of LPG Policies
1) Vibrant Economy :
 The Indian economy has become a more vibrant economy. The overall level of economic activity has trended up
as indicated by GDP growth. Post LPG policies, the growth of GDP shot up to as high as 8 per cent per annum.
2) Stimulant to Industrial Production :
 LPG policies have worked as a great stimulant to industrial production in the Indian economy.
It is owing to these policies that the IT industry in India has achieved global recognition.
3) Consumer’s Sovereignty :
 Consumers' sovereignty has expanded over time as a large variety of goods and services
from diverse global markets are now within the easy reach of buyers.
 Producers are widely responding to the customers choice and preference.
4) A Substantial Increase in Foreign Exchange Reserves :
 Depletion of forex reserves was one of the compelling reasons for the government to shift to LPG policies.
 Thanks to these policies, the forex reserves of the country have now reached a comfortable level.
 A good amount of forex reserves enhances the economic confidence of global investors in the Indian markets.
5) The flow of Private Foreign Investment :
 This has been a matter of great relief to the government in view of facts that:
i. Domestic economy was not generating enough of surplus for reinvestment, and
ii. Indigenous technology was getting obsolete.
 It is significant to note that private foreign investment is often accompanied
with innovative techniques of production.
 Demerits of LPG Policies
1) Neglect of Agriculture :
 The slow growth of the agricultural sector must ultimately hinder the process of growth of the industrial sector as well. This is because :
i. The agricultural sector is an important source of raw material for the industrial sector.
ii. The agricultural sector is the principal source of labour supply to the industrial sector, and
iii. The agricultural sector is a significant source of demand for industrial products like tractors and thrashers.
2) Urban Concentration of Growth Process :
 LPG policies have resulted in the concentration of growth process in urban areas.
 All MNCs are focusing only on urban areas, where they find conducive infrastructural facilities. This has
further widened the ‘rural-urban gulf’.
 Rural-urban gulf implies economic dualism which deepens social dualism as well.
 Economic and social dualism are always a big threat to the process of growth and development.
3) Economic Colonialism :
 India suffered nearly 200 years of political colonialism during British rule.
 Now, while MNCs are expanding their economic control, we might suffer a sort of economic colonialism.
 Implying a situation where MNCs are exploiting the Indian markets to sell their products and in the process,
domestic producers are marginalised owing to their poor competitive strength.
4) Spread of Consumerism :
 The Spread of MNCs in the country as a consequence of LPG policies has resulted in a large-scale spread of consumerism.
 Indian society is adapting itself to the western culture of spending through borrowing.
 This may expand size of the market for the traders and the manufacturers but certainly enhances the vulnerability of the households as
consumers.
5) Cultural Erosion :
 Globalisation has also led to cultural erosion in Indian society. Following are some significant observations in this context:
 Economic prosperity has taken a lead over all other parameters of life.
 Everyone wants to be economically independent and well-off, regardless of his responsibility towards the family or society.
 Loyalty towards the family and loyalty towards the society which used to be the strongholds of the Indian social culture are being
discarded.
Following are Some of the Important Arguments advanced in Favour of Economic Reforms :
Increase in Rate of Economic Growth :
 The growth in GDP was 5.6% during 1980-91. During 2018-19, growth in GDP is estimated at 7.2%. The growth is mainly
driven by the growth in the service sector.
 The overall level of economic activity has trended up as indicated by GDP growth.
Inflow of Foreign Investment :
 The opening up of the economy has led to a rapid increase in foreign direct investment (FDI).
 Foreign investment (FDI and Foreign Institutional Investment) increased from about US $ 100 million
in 1990 to US $ 73.5 billion in 2014-15.
 The ‘Make in India’ initiative in September 2014, has further liberalised the FDI policy and due to
this FDI inflow in India increased by 48%.
Rise in Foreign Exchange Reserves :
 India is one of the largest foreign exchange reserve holders in the world.
 Foreign exchange reserves have increased from about US $ 6 billion in 1990-91 to about US $ 321 billion in 2014-15.
Rise in Exports :
 India experienced a considerable increase in exports of auto parts, engineering goods, IT software and textiles.
Control on Inflation :
 An increase in production, tax reforms and other reforms helped in controlling inflation.
 The annual rate of inflation reduced from a peak level of 17% in 1991 to around 5.48% in 2015-16 whereas normally it is 6.5%.
Increase in the Role of the Private Sector :
 The abolition of licensing system & removal of restrictions on the entry of the private sector, in areas earlier reserved for the
public sector, have enlarged the area of operation of the private sector.
 Following are some of the important arguments advanced in against of economic reforms :

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

 The new economic policy has neglected the agricultural sector as compared to the
industry, trade and services sector.
Neglect of  Removal of fertilizer subsidy increased the cost of production, which adversely affected
Agriculture the small and marginal farmers.
 Public investment in the agriculture sector, especially in infrastructure, has been
reduced in the reform period.

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

Low Level of 1) Cheaper imported Goods-
Industrial Growth  Due to globalisation, cheaper imports replaced the demand for domestic goods and
domestic manufacturers started facing competition from imports.
2) Lack of Infrastructure facilities
 Infrastructure facilities, including power supply, have remained inadequate due to a
lack of investment.
3) Non-tariff barriers by developed countries-
 All quota restrictions on exports of textiles and clothing have been removed from India.
 Although some developed countries, like USA have not removed their quota restrictions
of textiles from India.
  The government has always fixed a target for the disinvestment
Ineffective
of Public Sector Enterprises (PSEs).
Disinvestment
 The disinvestment policy of the government was not successful
Policy
because the assets of PSEs were undervalued & sold to the private
sector.
 Disinvestment was used to compensate shortage of government
revenues rather than using it for the development of PSEs &
building social infrastructure in the country.

 The new policy has been encouraging a dangerous trend of

Spread of
consumerism by encouraging the production of luxuries & items
Consumerism
of superior consumption.
 Growth has been concentrated only in some select areas in the
services sector, such as telecommunication, information
Unbalanced
technology, finance, entertainment and trade, rather than vital
Growth
sectors, which provide a livelihood to millions of people in the
country.
 GST (Goods & Service Tax)
 GST is a comprehensive indirect tax which has replaced many indirect taxes in India. The Goods and
service tax act was passed in Parliament on 29th March, 2017 & this act came into effect on 1st July,
2017.
 It is a comprehensive, multi-stage, destination-based tax that is levied on every value addition.
 It has been identified as one of the most important tax reforms post-independence.
 The Government of India implemented GST following the credo of ‘One Nation and One Tax’.
 It has replaced 17 Indirect taxes and 23 cesses of the centre and the states, thereby eliminating the
need for filing multiple returns & assessments.

1) Central Goods & Services Tax (CGST) : It is the GST levied on the
Types of Taxes
'Intra-state' supply of goods & services by the centre.
under GST
2) State Goods & Services Tax (SGST) : It is the GST levied on the 'Intra-
state' supply of goods & services by the state (including Union
Territories with legislature).
3) Integrated Goods and Service Tax (IGST) : It is the GST levied on the
'Inter-state' supply of goods or services and is collected by the centre.
IGST is equal to the sum total of CGST & SGST.
 Input Tax Credit under GST
An input tax credit means reducing the taxes paid on inputs from
taxes to be paid on output. When any supply of services or goods is
supplied to a taxable person, the GST charged is known as Input Tax.

1 Reduction in overall tax burden.

Benefits
2 No hidden taxes. of GST
3 Development of a harmonized national market for goods & services.

4 Higher disposable income in hand, education & essential needs.

5 Customers to have a wider choice.

6 Increased economic activity.

7 More employment opportunities.

 GST Council GST council is a constitutional body for making
recommendations to the union and state
government on issues related to Goods & Services
Tax.
1) Constitution : As per Article 279A of the amended constitution, the GST council which will be a joint
forum of centre and states, consists of :
a) Chairperson: Finance Minister
b) Vice Chairman: Chosen amongst ministers of State Government
c) Members: MoS (Finance) and all ministers of finance taxation of each state.

2) Quorum : 50% of the total number of members of the Goods and Services tax council shall constitute
a quorum at its meetings.

3) The majority required for taking decisions :

 Every decision of the GST council shall be taken at a meeting by a majority of not less than 75%
of the weighted votes of the members present & voting.
 Vote of the central government shall have a weightage of one-third of the total votes cast, and
 Votes of all State governments taken together shall have a weightage of two-thirds of the total
vote cast, in that meeting.
 Demonetisation

Demonetisation is the act of removing a currency unit from its status as Legal
Tender.

On the 8th of November, 2016, it was decided to demonetise high-value

currency notes of the denomination of Rs 500 and Rs 1,000 with immediate
effect, ceasing to be legal tender, except for a few specified purposes.

These notes accounted for almost 86% of the country’s cash supply.

The aim of demonetisation was to curb corruption, counterfeiting the use of

high denomination notes for illegal activities, and especially the
accumulation of ‘black money’ generated by income that has not been
declared to the tax authorities.
 Features of Demonetisation
Tax Administrative Measures :
 Demonetisation is viewed as a tax administration measure as cash holdings arising
from declared income were readily deposited in banks and exchanged for new notes.

Reduction in Tax Evasion :

 Demonetisation is also interpreted as a shift on the part of the government
indicating that tax evasion will no longer be tolerated or accepted.

Channelizing Savings into the Formal Financial System :

 Most of the cash deposited in the banking system is bound to be withdrawn.
 But, some of the new deposits scheme offered by the banks will continue to
provide a base loan, at lower interest rates.

Cash-less Economy :
 Demonetisation also aims to create a less-cash or cash-lite economy, i.e., channelling
more savings through the formal financial system and improving tax compliance.
Class 12 Indian Economic Development
 Human Capital
 Human Capital refers to the stock of „skill and expertise‟ of a nation at a point in time.
 It is the sum total of the skill and expertise of engineers, doctors, professors and workers of
all types who are engaged (or have the capacity and expertise to be engaged) in the
process of production.

Physical Capital
It includes all those inputs which are Raw Material Machines

required for further production, like

plant and machinery, factory,
building, raw materials etc. Plant & Machinery Building
The differences between Physical and Human Capital are :
Basis Physical Capital Human Capital
It is tangible & can be It is intangible and cannot be sold
Tangibility
easily sold in the market. in the market.
It depreciates with Although depreciation occurs with
continuous use, the ageing, but it can be reduced by
Depreciation
passage of time and making continuous investments in
expected obsolescence. education and health.
Although physical capital Human capital is less mobile
is completely mobile between countries as compared to
Mobility between countries, but its physical capital as movement is
mobility is restricted due restricted by nationality and
to trade barriers. culture.
Physical capital (like Human capital (like skills of a
Separability
machinery) can be person) cannot be separated from
from Owner separated from its owner. the owner.
 Human Capital Formation
It is the process of acquiring and increasing the number
of persons, who have the skills, education and experience.
It is associated with an investment in man and his
development as creative and productive resources.

Sources of Human Capital Formation

Expenditure on On-the-job
Migration
Education Training

Study
Expenditure on Expenditure on
Programmes for
Health Information
Adults
 Expenditure on Education :
 Expenditure on education is the most effective way of raising a productive workforce
in the country. It is, therefore, a very important determinant of human capital formation.
 Education enables an individual to make a good living throughout his life. His total earnings
during his life span would far exceed his initial expenditure on education.

 The monetary benefits of education (in terms of earnings of the educated person during his lifetime)
far exceed the cost of education.
 The difference between benefit and cost is an approximate market value of human capital formation.

Expenditure on Health :
 “A sound mind in a sound body” is an old saying. Expenditure on health makes a man more
efficient and, therefore, more productive. His contribution to the production process
tends to rise. He adds more to the GDP of the nation than a sick person.

On-the-Job Training :
 On-the-job training helps workers to sharpen their specialized skills.
It enables them to raise the level of their efficiency/productivity.
 Study Programmes for Adults :
 Other than formal education at the primary, secondary, and university levels,
the Government and NGOs organise study programmes for adults to make
them proficient in their work areas. This enhances their productivity, serving as
a source of human capital formation.

Migration :
 Migration contributes to human capital formation as it facilitates
utilisation of (otherwise) inactive skills of the people, or it facilitates
fuller/better utilisation of the skills.

Expenditure on Information :
 Information relating to job markets and educational institutions offering
specialised skills is an important determinant of skill formation. It enables
people to actualise their productive potential. Accordingly, expenditure on
information is another determinant of human capital formation.
 Comparison  Human Capital and Human Development are related
Between Human concepts, but certainly not identical.
Capital And Human  Human capital is a means to an end.
Development
 Human capital is a means in the sense that consists of
'skills' as used in the process of production. It consists of
'know-how', abilities, and expertise used as inputs in the
production activity. An increase in productivity
(referring to output per unit of input) is the end result.
Thus, we want to achieve higher and higher levels of
output through extensive and intensive application of
human capital.
 Human development is an end in itself. It refers to the
development of individuals as valuable personalities by
acquiring a good education and attaining good health.
Human development occurs when more and more
individuals in a society are educated, healthy, and skill-
oriented.
 Roles of Human Capital Formation
1) Change in Emotional and Material Environment of Growth : Human Capital formation
generates a change in the emotional and material environment of growth.
a) The emotional environment becomes conducive to growth as people
tend to acquire growth-oriented attitude and aspirations.
b) The material environment becomes helpful to growth as the society
now possesses higher number of skilled and trained workers to
implement the plans and programmes of economic growth.

2) Higher Productivity of Physical Capital : Human capital formation increases the productivity of
physical capital (referring to output per unit of capital). Specialised engineers and skilled
workers can certainly handle machines better than others. It enhances productivity and
accelerates the pace of growth.

3) Innovative Skills : Human Capital formation facilitates innovations, the

under-current of growth and development. Larger the number of skilled
and trained personnel, greater the possibilities of innovations in the area of
production and related activities. Innovation is the lifeline of growth, we all know.
4) Higher Rate of Participation and Equality : By enhancing the productive capacities of the
labour force, human capital formation induces greater employment.
This increases the rate of participation (percentage of labour force participating in the
process of production or simply the percentage of employment of the existing labour force).
a) Thus, there is a cause-and-effect relationship between human capital and economic
growth. human capital formation stimulates the process of economic growth.
b) Economic growth also impacts human capital formation. Growth implies an increase in
per capita real income (or an increase in per capita availability
of goods and services). Higher income facilitates higher investment
on education and skills implying human capital formation.
c) Thus, human capital formation prompts the process of growth,
and growth prompts the process of human capital formation.

Note :
Human Capital Formation (increase in the stock of human capital) →
Better/Efficient utilisation of physical capital → Increase in productivity (output
per unit of labour/capital) → Increase in GDP growth along with the higher rate
of participation/ employment → Higher level of income of the individuals and
households → Higher expenditure on education and health → Increase in the
stock of human capital (implying human capital formation).
 Major Problems Human Capital Formation Currently Facing in India

Problems of Human Capital Formation

Insufficient On-
Deficient Low
Rising the-Job
Brain Drain Manpower Academic
Population Training in
Planning Standards
Primary Sector
1) Rising Population
 The rapidly rising population adversely affects the quality of human capital. This is because it reduces the per-head availability
of the existing facilities relating to housing, sanitation, drainage, water-system, hospitals, education, power supply, etc.

2) Brain Drain
 Migration of persons (born, educated, and trained in India) to developed countries is a serious threat to the process of Human Capital
formation in the country.
 Those who decide to migrate are persons of high calibre such as scientists, administrators, executives, engineers, physicians, educationists, etc.
 This is described as the problem of brain drain. This slows down the process of human capital formation in the domestic economy.

3) Deficient Manpower Planning

 Not enough efforts have been made to maintain the demand-supply balance of the ever-rising labour force in the country.
 As a result, India is facing an explosive problem relating to graduate unemployment.
 It is a sad reflection on the wastage of human power and human skill.

4) Insufficient On-the-Job Training in the Primary Sector

 Migration of persons (born, educated, and trained in India) to developed countries is a serious threat to the process of Human Capital
formation in the country.
 Those who decide to migrate are persons of high calibre such as scientists, administrators, executives, engineers, physicians, educationists, etc.
 This is described as the problem of brain drain. This slows down the process of human capital formation in the domestic economy.

5) Low Academic Standards

 In our enthusiasm to spread higher education, we have been opening many universities, unmindful of their academic standards.
Consequently, we have a large army of half-baked graduates and post-graduates whose deficient skills only lowers the level of
efficiency/productivity.
 Education is an Essential Element of Human Resource Development
Education implies the process of teaching, training, and learning, (especially in schools or colleges). It improves knowledge and
develops skills.
1) Education and Literacy are not Identical Terms :
 Education is a much wider concept than literacy.
 Literacy just refers to the ability to read and write.
 Education, on the other hand, encompasses three parameters, viz., primary education,
secondary education, and tertiary or higher education.
 While all educated people are literate, all literate people are not necessarily educated.
2) Importance / Objectives of Education :
 Education produces responsible citizens.
 It develops science and technology.
 It facilitates the use of natural & human resources in all regions of the country.
 It expands the mental horizon of the people.
 It helps economic development through greater participation of the people in the process of growth and development.
 It promotes the cultural standards of the citizen.
 It develops a human personality.

3) Need for Govt. Intervention in Education & Health : The need for government intervention in
education & health arises primarily on account f the following facts :
 These sectors need huge investments with a very high fixed expenditure.
 It is difficult to expect private investors to invest in health and education unless they are
allowed to recover their huge costs through the high price of these services.
 People in poor countries like India cannot afford high prices for education and health.
 Growth of the Education Sector in India

Growth of the Education Sector in India

Secondary
Expansion of Vocationalisation Total
and Senior Rural
General of Secondary Literacy
Secondary Education
Education Education Campaign
Education

Technical,
Adult and
Elementary Higher Medical, and
Female
Education Education Agricultural
Education
Education
 Growth of Education Sector in India
Expansion  During the plans, the number of educational institutions providing
of General elementary education has increased roughly by five times and the
Education number of students has increased ten-fold.

 Elementary education covers students from class 1 to class 8

Elementary (primary and middle) in the age group of 6 to 14 years.
Education  The number of primary and middle schools has considerably increased.
 Social and economic poverty is the principal cause of educational backwardness.

Secondary and  In 1987-88, Navodaya Vidyalaya was established to impart modern

education of good standard to talented students of rural areas.
senior
These schools provide boarding facilities to the students.
Secondary  The central government has established Kendriya Vidyalaya
Education (Central Schools) for the benefit of the children of transferable employees.

 After independence, higher education has shown a convincing growth over time.
Higher  As many as 799 universities are providing higher education in the country.
Education  Of these, there are 44 central universities. Besides, there are
40 deemed to be universities.
  Under the plan, financial assistance is given to those schools that start the vocational course at the
Vocalisation of
higher secondary (+2) level.
Secondary
 Vocational courses have been introduced in the areas of agriculture,
Education trade and commerce, engineering, technology, health, and medicines.

 Since Independence, the number of institutions imparting technical and

professional education has increased significantly.
Technical, Medical,
 Many research centres have also been set up in the country, e.g., the Indian Institute of
and Agricultural
Technology, Agriculture Research Institute, Indian Statistical Institute, National Physical
Education Laboratory, National Chemical Laboratory, Institute of Economic Growth, etc.
 Many agricultural universities have also been set up in the country.

 Rural areas have also witnessed the wide expansion of education.

Rural
 National Rural Higher Education Council has been set up for this purpose.
Education
 Under this council, 14 rural educational institutions have been functioning.

 In order to eradicate illiteracy among adults, special arrangements have

Adult and Female been made for adult education.
Education  In order to provide technical education to women, many women polytechnics have also been
established. 'Women Education Council' is a significant step to promote education among women.

 National Literacy Mission was launched to render everybody literate in the country.
Total Literacy
 This programme has now been recast as „Saakshar Bharat‟ with a central focus on
Campaign
female education. The programme covers all those in the age group of 15 and above.
 Education Still a Challenging Proposition
Large  India harbours the largest number of illiterates in the world.
Presently, nearly 36 crore people are estimated to
Number of be illiterate. The number exceeds even the total
Illiterates population of most countries in the world.

 Education continues to be largely degree- oriented throwing

Inadequate
millions of educated youths down to the corridors of employment
Vocalisation exchanges. Vocationalisation of education is still a far cry.

 There is still a significant „gender bias‟ in offering opportunities for

Gender education to male and female children. The enrolment
Bias ratio is relatively low for female candidates and their
drop-out ratio is considerably high.
 Low Rural  There is a high degree of disparity in access to education. The
„access level‟ is considerably low for the rural population
Access Level compared to the urban population.

 There is a growing trend toward privatisation of education.

Privatisation Being very expensive, private education has tended to widen
the gulf between access levels for the rich and the poor.

Low  The government has failed to fulfil its commitment of

spending nearly 6 per cent of GDP on education: actual
Government
expenditure has been around 4 – 5 per cent only.
Expenditure This points to the gap between what is intended
on Education or desired and what is actually achieved.
Class 12 Indian Economic Development
 Rural Development
 Rural development means an 'action plan' for
the social and economic growth of rural areas.
 The action plan is to focus on the lingering
and emerging challenges in rural areas.

The principal lingering challenges are : Emerging challenges include basically :

a) Exploring options for

a) The challenge of rural credit,
sustainable livelihood, other
and
than farming, and
b) The challenge of rural
b) The challenge of organic
marketing.
farming.
 Rural Development

Social Economic
Development Development

Challenges of Rural Development

Lingering Emerging
Challenges Challenges

Rural Rural Sustainable Organic

Credit Marketing Livelihood Farming
 Agricultural Credit
Rural or agricultural credit means credit for farming.
Credit is the lifeline of farming activity in rural areas.
This is because of two reasons :
a) Most farming families in India are small and
marginal holders, producing just enough for
subsistence. They seldom generate a surplus for
further investment. The need for credit,
therefore, is unavoidable, and
b) The gestation lag between sowing and
harvesting of the crops is quite long. This
compounds the need for credit.
 Credit Needs of the Indian Farmer
The credit needs of the typical Indian farmer are broadly classified into three categories :

Credit Needs

Short Term Medium Term Long Term

Short-term Credit Middle-term Credit Long-term Credit
Short-term credit is required for the
Medium-term credit is required for Long-term credit is required for
purchase of inputs like seeds,
a) The purchase of machinery, a) The purchase of additional land or
fertilisers, pesticides, and insecticides,
b) Construction of fences, and b) For carrying out permanent
besides making payments for
c) Digging the wells. improvements on the existing land.
electricity bills.
These loans are raised generally for a Such loans are raised generally for a
The period of such loans ranges between 5
period ranging between 6 to 12 period ranging between 12 months to 5
to 20 years.
months. years.
 The credit requirement of the farmers may also be classified as productive and unproductive.
 The productive requirement of credit relates to production activity.
 The unproductive requirement of credit relates to consumption activity.
 Sources of Rural Credit

Sources of Rural
Credit :

Non – Institutional Institutional

Sources Sources

Of the two, non-institutional sources are conventional/traditional

sources, while institutional sources are modern/emerging sources.
1) Non-Institutional Sources :
 (i) Landlords, (ii) village traders, and (iii) moneylenders are the three important sources of
non-institutional rural credit in India.
 Traditionally, most credit needs of the farmers were met through these sources.
2) Institutional Sources :
 The institutional sources include (i) government, (ii) cooperatives, (iii) commercial banks, and (iv)
regional rural banks.
 Following is a brief description of some important institutional agencies offering rural credit in India :
a) Cooperative Credit Societies :
 Cooperative credit societies provide adequate credit to the
farmers at reasonable rate of interest.
 These societies also provide guidance in diverse agricultural
operations with a view to raising crop productivity.
 These societies are to ensure :
i. The timely and rapid flow of credit to the farmers.
ii. Elimination of the moneylenders as credit agencies.
iii. Spread credit facilities across all regions of the country.
iv. Provision of adequate credit in areas covered by special programmes of development.
b) State Bank of India and Other Commercial Banks :
 The government realised that rural credit needs could not be met by the cooperative credit
societies alone and that commercial banks should play an important role.
c) Regional Rural Banks (RRBs) and Land Development Banks :
 RRBs and Land Development Banks were set up to promote credit supplies, particularly in remote rural
areas and backward districts.
 These banks operate at the district level and are under obligation to focus on the credit needs of weaker
sections of the rural population.
d) National Bank for Agricultural and Rural Development (NABARD) :
 NABARD is an apex institution handling policy, planning, and operations in the field of rural credit and
related economic activities.
 Its main functions are as follows :
i. To serve as an apex funding agency for the institutions providing credit in rural areas.
ii. To take appropriate measures to improve the credit delivery system. The bank was to focus on the
restructuring of credit institutions and training of personnel.
iii. To coordinate the rural financing activities of all credit institutions and maintain liaison with the
Government of India, State Government, Reserve Bank, and other national level institutions
concerned with policy formulation.
iv. To undertake monitoring and evaluation of projects refinanced by it.
Multi-agency System
 The institutional structure of rural banking consists of :
a) Commercial Banks,
b) Regional Rural Banks (RRBs),
c) Cooperative Credit Societies, and
d) Land Development Banks.
 This institutional structure of rural banking is called a multi-agency system.
Rural Banking -
A Critical  Banking Credit or Institutional credit has
Evaluation invariably been tied to collateral (security or
guarantee of a property for the loans),
because of which large sections of small and
marginal holders are often left out.
 Owing to political populism, the government
has often shown laxity (lack of strictness) in
the recovery of loans. As a result, the default
rate has tended to swell/rise over time.
 Apart from commercial banks, most financial
institutions have failed to develop a culture
of thrift (saving for the future) among
farming families. Mobilisation of deposits has
remained rather subdued.
 Benefits of
Rural Credit
System

 The establishment of NABARD (as an apex body coordinating

activities of all financial institutions engaged in rural credit
programmes) has made a substantial difference in the institution of
rural credit. Rural financing has become much more organised than
ever before.

 It is not denying the fact that institutional credit has gone a long way
in liberating the farmers from the debt trap of Mahajans and
moneylenders. Also, it is no denying the fact that institutional credit
has promoted the commercialisation of agriculture.
 SHGs (Self Help Groups) and Micro Credit Programmes
 Self Help Groups (SHGs) and Micro Credit Programmes are emerging
phenomena in the context of rural credit.

 SHGs promote thrift (saving habit) among rural households.

 Small savings are mobilised by the SHGs and offered as a credit to its
different members, depending on their needs.

 Credit is offered without any security and at a moderate rate of interest.

 Presently, more than seven lakh SHGs are operating across different
rural areas.

 Credit provisions are known as Micro Credit Programme.

 These programmes are becoming popular among small borrowers owing

to their ‘informal credit delivery mechanism’ involving minimum legal
formalities.
 Agricultural Marketing
 After harvesting, the farmers need to assemble their produce on the farm, process it,
grade it, package it, and store it before it is finally brought to the market for sale.
 Agricultural marketing includes all these processes between harvesting and the final
sale of the produce by the farmers.

Thus, agricultural marketing may be defined as the process that involves :

Gathering the produce after harvesting,
Processing the produce (like separating the straw from the grains),
Grading the produce according to its quality,

Packaging the produce according to buyer’s preferences,

Storing the produce for future sale, and

Selling the produce when the price is lucrative.
Note :
 Agricultural marketing does not simply refer to the farmers’ act of bringing their produce to the market for sale.
 It includes all those activities/processes which help him in getting the best price for his produce.
 Among others, these processes include grading, packaging, and storage.
 Distress Sale
Distress sale refers to a situation when the farmers are
compelled to sell their produce immediately after the
harvest, no matter how low the market price is.
The compulsion to sell arises because :

The farmers need immediate cash to pay

off their debts, and

They lack storage facilities or the cost of

storage is very high.
Measures Initiated by the Government to Improve Marketing System
1) Regulated Markets :
 Regulated markets have been established where the sale and purchase of the produce is monitored
by the Market Committee including representatives of government, farmers, and traders.
 The market system is made transparent with a strict vigil on the use of proper scales and weights.
 The market committees ensure that the farmers get the appropriate price for their produce.

2) Cooperative Agricultural Marketing Societies :

 The government is encouraging the formation of Cooperative Agricultural Marketing Societies.
 As members of these societies, farmers find themselves better bargainers in the market and hence
getting a better price for their produce through a collective sale.

3) Provision of Warehousing Facilities :

 To avoid distress sales, the government is offering warehousing facilities to the farmers.
 Central and State warehousing corporations are the principal government
agencies offering storage space to the farmers.
 Storage helps the farmers to sell their produce at a time when the market
price is lucrative.
4) Subsidised Transport :
 Railways are offering subsidised transport facilities to the farmers to bring
their produce to the urban markets where often they get a better deal.

5) Dissemination of Information :
 Electronic media and print media are actively engaged in offering market related
information to farmers, particularly information related to price behaviour in the
market. This helps the farmers in deciding how much to sell and when to sell.

6) MSP Policy :
 MSP policy (minimum support price policy) is an important step initiated
by the government to improve the agricultural marketing system.
 MSP is an assurance to the farmers that their produce would
be purchased by the government at the specified price.
 The farmers are free to sell their produce at a price higher than MSP in the open market.
 Thus, the farmers are always assured of some minimum income from the sale of their
crop.
Cooperative
Marketing
 Cooperative Marketing is a significant
progressive step in the context of the
agricultural market system.
 Milk cooperatives in Gujarat are a
brilliant example of cooperative
marketing in rural India. These
cooperatives have not only changed
the social and economic fabric of the
economy of Gujarat but also have
played a key role in bringing about
White Revolution in the country.
Buffer Stocks
and PDS  MSP purchases from the farmers are kept
as buffer stocks by the government.
These stocks (of grains) are used,
primarily for Public Distribution System
(PDS), besides meeting urgent needs
during periods of low output and
scarcity.
 PDS implies the distribution of food
grains (and other essentials like sugar
and kerosene) through 'fair price shops'
at subsidised rates, so that the poorer
sections of society have easy access to
these things.
 Defects of
Agricultural
 Lack of transportation facilities. Marketing
 Forced sales.
 Numerous market changes.
 Lack of credit facilities.
 Lack of storage facilities.
 Presence of middlemen.
 Lack of standard weights & measures.
 Inadequate market information.
 Alternatives of
Agricultural Marketing  Emerging alternatives to agricultural marketing are a
are a Ray of Hope to ray of hope to the small and marginal farmers who
Small and Marginal have been silent sufferers at the hands of middlemen.
Farmers  Direct sale by the farmers to the consumers is one such
channel.
 The states of Punjab, Haryana, and Rajasthan are
launching this channel through 'Apni Mandi', 'Big
Bazaar’, the state of Andhra Pradesh is launching it
through ‘Rythu Bazaars’, and the state of Tamil Nadu
is launching it through ‘Uzhavar Sandies’.
 The direct sales contract with the farmers by national
and multinational companies (like Reliance Retails) is
another alternative channel of agricultural
marketing.
 This would not only help in the expansion of the
market for farm products, but also reduce 'price risk'
for the small and marginal holders.
 Agriculture Diversification
 Agricultural Diversification refers to the re-allocation of some of the farm's productive resources into new
activities or crops reducing market risk.
 It is useful because the price of all the crops may not drop at the same time.
 If one crop fetches low revenue, the other may fetch high.
 Thus, diversification helps stabilisation of farm income by lowering the market risk.

Diversification has two aspects :

Diversification

Diversification of Crop Production Diversification of Production Activity

 It implies the production of a diverse  It implies a shift from crop farming to other areas of
variety of crops rather than one specialised production activity/employment. It raises income as
well as stabilises it. Finding sustainable livelihood
crop.
away from crop farming becomes all the more
 It implies a shift from a single-cropping significant because the crop farming sector is
system to a multi-cropping system. overburdened.
 Emerging Challenges of Rural Development
1) Animal Husbandry : Animal Husbandry is that branch of agriculture, which is considered with the breeding,
rearing, and carrying of farm animals. It is also known as livestock farming.
 Under livestock farming, cattle, goats, and fowls (duck, goose, etc.) are the widely held species.
 India owns one of the largest livestock populations in the world.
 Livestock production provides increased stability in income, food security, transport,
fuel, and nutrition for the family, without disrupting other food producing activities.
 There are two problems related to the livestock sector too, i.e. :
a) Deficient veterinary care.
b) Low productivity due to backward know-how.
2) Fisheries :
 Fisheries refer to the occupation devoted to the catching, processing, or selling of fish and other aquatic
animals. The fisheries sector plays an important role in the socio-economic development of the country.
 The fishing community in India depends almost equally on inland sources & marine sources of fishing.
 Inland sources include rivers, ponds, lakes and streams, while marine sources include seas and oceans.
Together these sources are called water bodies which are regarded as a provider by the fishing community
but the fishing community is one of the backward communities in the country.
 A large share of fish worker families are poor. Some of the problems faced by
these communities include :
a) Widespread Underemployment,
b) Absence of mobility of labour to other sectors,
c) Low per capita earnings.
3) Horticulture :
 It is another alternative source of employment in rural areas. It is more like the diversification
of crop production rather than a source of employment different from crop farming.
 Horticulture crop includes fruits, vegetables and flowers besides several others.
 Presently, India is the second-largest producer of fruits and vegetables in the world. We are
emerging as a leading producer of mangoes, bananas, coconuts, cashew nuts and a variety of spices.
 Horticulture is emerging as an important means of sustainable living in rural areas.

4) Cottage & Household Industries :

 The cottage & household industry has been a traditional source of non-farm production activity in rural areas.
 Traditionally, this industry has been dominated by activities like spinning, weaving, dyeing and bleaching.
 However, with the growth of the urban textile industry, these activities have been hit hard in rural areas.
 During the recent past, some new household activities like soap manufacturing, doll making, mushroom
cultivation & bee-keeping have emerged as alternative sources of income generation.
 In many rural areas, these household activities are being promoted by Farm Women’s Groups, focusing on
income generation through the employment of women in productive activities at the household level.

5) Dairying : Dairying is that branch of agriculture which involves breeding, raising, and utilisation of dairy
animals for the production of milk and the various dairy products processed from it.
 Dairying is the business of producing, storing, and distributing milk and its products.
 The performance of the Indian dairy sector over the last three decades has been quite
impressive. Due to the successful implementation of operation flood. India ranks first in
the world in milk production. India’s milk production increased from 17 million tonnes in 1950-51 to 102.6 million
tonnes in 2006-07 and increased to 165.4 million tonnes in 2016-17 and to 198.4 million tonnes in 2019-20.
 TANWA
 Tamil Nadu Women in Agriculture (TANWA) is a project launched in Tamil Nadu with a
view to training women in diverse techniques of farming. This is expected to raise the
employment of women as well as their income through higher levels of productivity.
 Having acquired specialised skills through training, women are forming Farm
Women’s Groups. These groups function like SHGs and promote cottage and
household production activity using their own pool of funds.

Information Technology
 Information Technology (IT) refers to that branch of engineering that deals with the
use of computers and telecommunications to retrieve, store and transmit information.
 Information Technology has revolutionized many sectors of the Indian economy.
There is broad agreement that it will play a critical role in achieving
sustainable development and food security in the 21st century.
Important Points about Information Technology :
 Through appropriate information and software tools, the government has been able to predict areas of
food insecurity and vulnerability, to prevent or reduce the likelihood of an emergency.
 It also has a positive impact on the agriculture sector as it circulates information regarding emerging
technologies and their applications, prices, weather and soil conditions for growing different crops, etc.
 It acts as a tool for releasing the creative potential and knowledge embedded in the society. It also has
the potential for employment generation in rural areas.
 Operation  It is a system of Milk Cooperatives, launched in 1966.
Flood / White  The system requires the member farmers to pool their
Revolution production of milk for collective sale in the market.
 Pooling increases the quantum of sales and thereby
increases the bargaining power of the farmers.
 Pooling also makes grading and processing of the
product as economically viable prepositions. This raises
the market value of the product.
 Milk cooperatives in India have their epicentre in the
state of Gujarat.
 Over the last 30 years or so, these cooperatives have
recorded wonderful progress, significantly contributing
to the four-fold rise in the production of milk.
 It has proved to be an important non-farm area in
rural areas.
Organic
 Organic farming is a system of farming that
Farming relies upon the use of organic inputs for
cultivation.
 Animal manures and composts are the basic
organic inputs.
 It discards the use of chemical inputs, like
chemical fertilizers, insecticides, and pesticides.
 It needs to be noted that simply discarding the
use of chemical fertilizers is not organic farming.
 Rather, it is a system of farming that focuses on
maintaining soil health (rather than plant
health) so that farming becomes a long period
sustainable process along with an eco-friendly
environment.
 Benefits of Organic Farming
Discards the Use  Unlike conventional farming, organic farming does not
of Non-renewable use synthetic chemicals which are petroleum-based. We
Resources all know that petroleum is a non-renewable resource.

 Organic farming is environment-friendly. Chemical fertilizers, on

Environment - the other hand, pollute the groundwater by raising its nitrate
friendly content.
 Organic farming discards the use of chemical fertilizers.

 The use of animal manures and composts helps

sustains soil fertility.
Sustains Soil
Fertility
 Chemical fertilizers, on the other hand, erode soil fertility.
 Accordingly, organic farming is conducive to the sustainable
development of agriculture, while conventional farming is not.
  Organic farming offers healthier and tastier food compared with
Healthier &
conventional farming. Recent studies have found that organically
Tastier food grown food is more nutritious than food from chemical farming.

India has a Comparative Advantage :

 India has a comparative advantage in organic farming. Because organic
farming involves a labour-intensive process.
 The abundance of labour places India in a better position to specialise in organic farming.

 Organic farming offers an inexpensive farming technology to small and

Inexpensive marginal farmers who constitute the bulk of the farming population in
Technology India.
 Conventional technology is to be adopted as a
for Small
package including HYV seeds, fertilizers, pesticides,
and and insecticides, besides good irrigation facilities.
Marginal  Small and marginal farmers in India, in their
Farmers desperate bid to use this package, often slip into indebtedness.
 No such package of expensive inputs is required for organic farming.
 Challenges before Organic Farming
 Organic farming needs to be popularized by creating awareness
and willingness on the part of farmers, for the adoption of new
Less Popular
technology. There is a serious need for an appropriate
agriculture policy to promote organic farming.

Lack of Infrastructure  Organic farming faces problems of inadequate

& Marketing Facilities infrastructure and marketing facilities.

 Organic farming has a lesser yield in the initial years as compared

Low Yield to modern agricultural farming. As a result, small and marginal
farmers find it difficult to adapt to large-scale production.

 Organic produce has a shorter shelf life as

Shorter Food Life
compared to sprayed produce.

Limited Choice of  The choice in the production of off-season crops

Crops is quite limited in organic farming.
Farming, Soil Fertility
and Sustainable
Development :  Conventional farming (using chemical
fertilizers) erodes the fertility of the soil,
whereas organic farming (using animal
manures and composts) sustains fertility of soil.
 Organic farming nurtures soil as a resource for
future generations. Accordingly, it is not only
environment-friendly but also contributes to
sustainable development.
 Sustainable development is a process of
development which uses existing resources so
optimally that their availability for future
generations is not reduced. The process of
development is sustained over a long period of
time.
Class 12 Indian Economic Development
 Unemployment
 Unemployment refers to a
situation when people are willing
to work at the existing wage rate,
and are able to work, but are not
getting work.
 It should be noted with emphasis
that such people who are not
willing to work at the existing
wage rate are not considered
unemployed.
Worker
 A worker is an individual who is
engaged in some production
activity.
 A worker, or an individual
engaged in production activity,
contributes to GDP by rendering
his services.
 Some examples of workers are :
Farmers, managers, labourers,
doctors, barbers etc.
 Workers

Self – employed
Workers Hired Workers

Casual Regular
Workers Workers
 Self-employed These are those workers who are engaged in their own business
or own profession. Example : A farmer working on his farm, or an
workers entrepreneur working in his own factory.

Hired These are those workers who work for others; they render their services
to others and as a reward, get wages/salaries. Example : A proof-reader
Workers working in a publication house, or a teacher working in a school.

Hired workers may be further categorized as :

a) Casual Workers :
 Casual workers are the daily wagers. They are not hired by their employers on regular basis.
They are not given social security benefits, like provident fund, gratuity, or pension.
b) Regular Workers :
 These are on the permanent pay-roll of their employers. They are entitled to all social
security benefits including pension, gratuity, and provident fund.
c) It is often found that casual workers are unskilled workers, like a worker working at
construction site. A regular worker, on the other hand, is usually a skilled worker,
like an engineer working in a factory.
 Labour Supply, Labour Force & Work Force
1) Labour
 Supply-
Labor Supply
 Labour supply refers to the amount of labour that the
workers are willing to offer corresponding to a particular
wage rate. You may be able to work ten hours a day, but
willing to work only for six hours a day at a particular wage.
 Labour supply, thus, is measured in terms of man-hours of
work (or man-days, considering eight man-hours equal to
one man-day). It is always estimated in relation to wage rate.
2) Labour
 Labor Force
Force-
 Labour force refers to the number of workers
working or willing to work.
 It is not related to the wage rate.
Differences between Labour Supply & Labour Force are :
S. No. Labour Supply Labour force
It refers to the supply of labour
corresponding to different wage It refers to the number

1. rates. Supply of labour is

measured in terms of man-days
of work and is always related to
of persons working or
willing to work. It is not
related to the wage rate.
the wage rate.
Supply of labour can increase or Because it is measured in terms
decrease even when the number of the number of persons (not in
of workers remains constant. terms of person-days), the size
2. Because the supply of labour is
measured in terms of man-days
of the labour force increases or
decreases only when the number
or person-days : One person of persons working or willing to
refers to eight hours of work. work increases or decreases.
3) Workforce
 Workforce refers to the number of persons
actually working, and does not account for those
who are willing to work (but not working). Thus,
a) Work force = Labour Force – Number of persons not working
but are willing to work. This brings us to the estimation of
unemployment (number of persons unemployed), as under :
b) Number of Persons Unemployed = Labour Force – Work
Force.
𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐩𝐞𝐫𝐬𝐨𝐧𝐬 𝐮𝐧𝐞𝐦𝐩𝐥𝐨𝐲𝐞𝐝
c) Rate of Unemployment = × 100
𝐒𝐢𝐳𝐞 𝐨𝐟 𝐥𝐚𝐛𝐨𝐮𝐫 𝐟𝐨𝐫𝐜𝐞
𝐓𝐨𝐭𝐚𝐥 𝐖𝐨𝐫𝐤𝐟𝐨𝐫𝐜𝐞
d) Participation rate = × 100
𝐓𝐨𝐭𝐚𝐥 𝐩𝐨𝐩𝐮𝐥𝐚𝐭𝐢𝐨𝐧
Jobless
 Economic growth occurs when GDP rises. It implies
Growth increase in the level of output.
 Increase in the level of output is achieved in two
ways :
a) Through greater employment, and / or
b) Through better technology.
 In poor countries like India where there is
staggering unemployment, economic growth
becomes meaningful only when it is associated
with greater opportunities for employment so that
poverty is combated.
 Unfortunately, Indian economy is experiencing
GDP more through technology than the
employment of labour. It is a situation of jobless
growth.
Why are We Relying
More on Technology,
and Less on
Employment? Our growth process is being increasingly
hijacked by MNCs (Multinational
Companies). These companies specialise
in achieving high growth through
efficient technology rather than through
greater use of manpower.

The obvious result is that growth is

moving faster than the opportunities for
employment. By and large, it is a ‘Jobless
Growth’.
 Casualization
 Casualization of the workforce refers to a situation when the percentage of casually-hired
workers in the total workforce tends to rise over time.
 Our workforce is suffering an increasing incidence of casualization.
It happens because of the following reasons :
The bulk of self-employed workers is found in rural areas.
People work on their farms and fields, not because everybody is gainfully employed,
not because everybody is contributing to output, but simply because many of them
are not getting non-farm jobs even when they wish to migrate.
They are employed on their farms only for the namesake; in fact they are
disguisedly unemployed.
Taking a chance for opportunities, these marginal workers tend to migrate to urban
areas, and more often than not, they get employment only as casual workers, or as
daily wagers. This is the story of unskilled workers leading to casualisation of
employment.
 Even skilled workers in urban areas are to struggle for regular jobs. This is owing to massive unemployment
across all sectors of the economy.
 Informalisation
Employment may broadly be classified as :
Formal Sector Employment Informal Sector Employment
It refers to organised sector of the economy. It It refers to unorganised sector of the economy. It
includes all government departments, public includes all such private enterprises which hire less
enterprises, and private establishments which than 10 workers, besides farming and self-
hire 10 or more workers. Those working in the employment ventures. Those working in the
organised sector are called ‘Formal Workers’. unorganized sector are called ‘Informal Workers’.

From the viewpoint of employment status, the underlying difference between formal
and informal sectors (or between organised and unorganised sectors) is that :
 Workers in the formal sector are entitled to social security benefits (such as
provident fund, gratuity, pension, etc.) while workers in the informal sector are not.
 While economic interest of the workers in the formal sector is protected through various labour laws,
there are hardly any protective laws for the informal sector (other than Minimum Wages Act).
 To protect their economic interest, workers in the formal sector can form trade unions; no such unions
exist in the informal sector.
 Informal sector workers are highly vulnerable to uncertainties of the market. They are hired when the
market sentiments are good and are fired when there is an economic slowdown.
Sr. No. Formal Workers Informal Workers
Work in organised sector of Work in unorganised sector of the
1) the economy. economy.
Are entitled to social security
Are not entitled to social security
2) benefits (like provident
fund, gratuity, pension, etc.
benefits.

3) Can form trade unions. Cannot form trade unions.

Are protected by various Remain unprotected by labour laws,

4) labour laws against and are, therefore, highly vulnerable
uncertainties in the market. to uncertainties of the market.

 Informalisation of the workforce is defined as a situation where

the percentage of the workforce in the formal sector tends to
decline and that in the informal sector tends to rise.
 Market economy and Informalisation of workers, perhaps, are
strongly correlated to each other.
Rural and Urban Unemployment
Unemployment

Rural Urban

Disguised Seasonal Industrial Educated

 Rural Unemployment
Rural unemployment is dominated by disguised and
seasonal unemployment. The details are as under :
 It occurs when the number of workers engaged in a job is
Disguised much more than actually required to accomplish it.
Unemployment  If some of them are withdrawn from that job, total
production will not fall.
 Another kind of rural unemployment is seasonal
unemployment. It occurs simply because agriculture is a
Seasonal
seasonal occupation.
Unemployment  During off-season, often the farm workers are out of job.
They have no work to do.
 Urban Unemployment
In urban areas, unemployed people are often registered with employment exchanges :
 It includes those illiterate persons who are willing to work in industries, mining, transport,
trade and construction activities, etc.
Industrial  The principal causes of industrial unemployment are as under :
Unemployment a) Rapid Rise in Population Over Time : Rise in population leads to a rise in the supply
of labour.
b) Concentration of Industry in the Urban Areas : Owing to the concentration of
industry in the urban areas, there is a growing tendency among rural people to
migrate to urban areas in search of jobs. But, the industrial expansion has not been
so significant as to offer gainful employment to all the migrants.
 Industries in India are relying more on labour-saving western technology.

 In India, the problem of unemployment among the educated people is also quite grave.
Educated It is a problem spread across all parts of the country and poses a serious threat to social
Unemployment peace and harmony. Principal factors accounting for educated unemployment are :
a) On account of the expansion of educational institutions, viz., universities, colleges,
schools, the number of educated persons has substantially increased.
b) Education system in India is not job-oriented; it is largely degree-oriented.
Consequently, degree-holders often fail to find jobs.
 Increase in employment opportunities has significantly lagged behind the increase in the
size of the educated labour force.
 Common Types of Unemployment across Rural and Urban Areas
1) Open Unemployment : Open unemployment occurs when a worker is willing to work, and has the
necessary ability to work, yet he does not get work.
2) Structural Unemployment : Structural unemployment occurs due to structural changes in the economy.
Structural changes are broad of two types :
a) Changes in technology are a result of which old technocrats are no longer needed; they are rendered unemployed.
b) Change in the pattern of demand because of which certain industries are closed down and the workers are thrown out.
3) Underemployment : Underemployment is a situation in which a worker does not get a full-time job. He remains
unemployed for some months in a year or some hours every day.
Underemployment is of two kinds :
a) Visible Underemployment : In this case, people work lesser than the standard hours of work in a day. For example,
In India, a person normally works for 8 hours. If he finds a job only for 4 hours a day, he will be deemed as 'visible
underemployed'.
b) Invisible Underemployment : In this case, people work full time but the income is not proportionate to their abilities.
Thus, if an MA degree-holder has to work as a peon, he will be called an ‘invisible underemployed’.
4) Frictional Unemployment : It occurs due to imperfections in the mobility of labour across different occupations. One
wishes to move from one job to the other, but in the process of change may remain (or may even prefer to remain)
unemployed for sometime.
5) Cyclical Unemployment : It occurs owing to cyclical fluctuations in the economy. Phases of boom, recession, depression
and recovery are typical characteristics of a market economy.
Boom

Recovery
Recession
Depression

1) Boom relates to high level of economic activity and accordingly, a high degree of
employment.
2) Recession is a phase where there is a liquidity crunch in the economy (funds/loans are not
easily available), because of which there is a slowdown in production and a cut in
employment opportunities.
3) Depression is a phase when aggregate demand declines, triggering a cut in output and
employment.
4) Recovery is a phase when economic activity starts picking up: output start responding to
increase in aggregate demand (induced through several fiscal and monetary measures).
Employment opportunities begin to rise.
 Causes of Unemployment in India
Slow Economic Growth

Rapid Growth of Population

Agriculture – A Seasonal Occupation

Causes of Lack of Irrigation Facilities

Unemployment
in India Joint Family System

Decay of Cottage and Small Industries

Low Savings and Investment

Limited Mobility of Labour

1) Slow Economic Growth : Indian economy is underdeveloped and its rate of growth is very
slow. Slow growth rate fails to generate enough employment opportunities for the rising
labour force. Size of labour force is much more than the available employment opportunities.
2) Rapid Growth of Population : Constantly rising population has been a grave problem in
India. It is one of the principal factors contributing to unemployment.
3) Agriculture – A Seasonal Occupation : Agriculture is underdeveloped in India and so offers
seasonal employment.
4) Lack of Irrigation Facilities : Despite decades of planning, irrigation facilities continue to be
scant, covering only about 44 per cent of the agricultural area.
5) Joint Family System : It encourages disguised unemployment. In joint families, there is a high
tendency to survive on joint income without work.
6) Decay of Cottage and Small Industries : Decay of cottage and small industries during the
British regime has given a big blow to the potential for self-employment in India.
7) Low Savings and Investment : There is scarcity of capital and even the scarce capital has not
been optimally used to eradicate unemployment.

8) Limited Mobility of Labour : Mobility of labour in India is very low. Owing to a variety of
family as well as social constraints, people are reluctant (unwilling) to move to far-off areas
even when jobs are available there.
 Suggestions to Solve the Problem of Unemployment in India
Increase in Production :
 To increase employment, it is essential to increase production in the agriculture and industrial sectors. The
development of small and cottage industries should be encouraged.
 Foreign trade should be encouraged and the production of industries, minerals, and plantation should be
accelerated. Greater the production, greater is the demand for labour.

Increase in Productivity :
 Demand for labour is directly related to the productivity of labour. Higher
productivity generates higher profits and therefore, greater demand for labour.

High Rate of Capital Formation :

 The rate of capital formation in the country should be increased. Also, the investment must be directed to such
areas of production where employment potential is high.

Help to Self-employed Persons :

 Around 52.2 per cent of people in India are self-employed. Most of them are engaged in agriculture.
 Government should provide facilities like irrigation, better seeds, manure, implements,
credit, etc., to small and marginal farmers.
Educational Reforms :
 There is an urgent need for educational reforms in the country.
Only such students be admitted to colleges and universities
who intend to pursue their studies with some specific objectives.
Emphasis should be placed on vocational education.
Technique of Production :
 The technique of production should suit the needs and means of the country.
Labour-intensive technology must be encouraged in place of capital-intensive
technology. Quick-yielding industries should be given preference.
Cooperative Industries :
 Cooperative industries should be encouraged as far as possible.
Importance to Employment Programmes in Plans :
 Such programmes should be given greater importance in plans which are likely
to raise the level of employment.
 Some Government Policies and Programmes for Eradication of Unemployment
1) The government has taken many initiatives to generate acceptable employment, ensuring at least
minimal safety and job satisfaction. For example, Mahatma Gandhi National Rural Employment
Guarantee Act (MGNREGA), 2005.
2) MGNREGA aims at enhancing the livelihood security of people in rural areas by guaranteeing 100
days of wage employment in a financial year to a rural household whose adult members volunteer to
do unskilled manual work.
3) This scheme is one of the many measures, which the government has implemented to generate
employment for those who are in need of jobs in rural areas.
4) Since Independence, the Union and State Governments have played an important role in generating
employment or creating opportunities for employment generation. Their efforts can be broadly
categorised into two aspects:
5) Government provides ‘Direct Employment’ by employing people in various departments for
administrative purposes.
6) It also runs industries, hotels and transport companies and hence provides employment directly to
workers.
7) With increase in output of goods and services of government enterprises, private enterprises
providing raw material to government enterprises will also raise their output. As a result, the number
of employment opportunities in the economy will increase. This increase in employment is known as
'Indirect Employment' by the government.
 Employment Generation Programmes
Government has also implemented a number of "Employment
Generation Programmes", like National Rural Employment Guarantee
Act-2005, Prime Minister's Rozgar Yojana, Swarna Jayanti Shahri
Rozgar Yojana, etc.
 Government aims to alleviate poverty through such
employment generation programmes.

 All these programmes aim at providing employment,

services in primary health, education, rural shelter, etc.

 These programmes also aim to assist people in buying

number and low-cost masks income and employment
generating assets and construction of houses and
sanitation.
 Conclusions
There has been a change in the structure of workforce in India.
Service Sector - Emerging as a Prospective Employer : With the expansion of the service
sector, newly emerging jobs are found mostly in this sector.
Technological Advancement : Due to advent of high technology, now efficient small-scale
enterprises and individual enterprises work along with MNCs.
Outsourcing of Work : Outsourcing involves contracting out an activity to an outside
specialised agency (sometimes situated even in other countries), which undertakes complete
responsibility to handle it using its own manpower. For example, many companies have started
outsourcing sanitation and housekeeping functions, which were earlier performed by their in-house staff.
Work at Home : Due to changes in work methods, it has now become a common practice for many people to work
from their home. Internet has become an amazing mean for work at home opportunities.
More Employment in Informal Sector : The nature of employment has become more informal with only limited
availability of social security measures to the workers.
Growth in GDP, but not in Employment Opportunities : In the last two decades, there has been rapid growth in
the gross domestic product (GDP), but without simultaneous increase in employment opportunities. It has forced
the government to take up initiatives in generating employment opportunities particularly in the rural areas.
Class 12 Indian Economic Development
 Environment
Environment is defined as all those conditions and their effects
that influence human life. It is the sum total of surroundings
and the totality of resources that affect
our existence and the quality of our life.
There are physical (or abiotic) as well as living (or
biotic) elements of the environment.
Physical elements include land, water, air, soil,
climate, mountains, minerals, and all other resources
that nature has provided to us as a gift.
Living elements include all kinds of living creatures
like plants and animals which impact human life.
 Functions of Environment
1) Environment Offers Resources for Production : Environment includes physical
resources (minerals, wood, water, soil, and others) which are available to us as a
gift of nature.
Notes :
a) Renewable Resources :
 Renewable resources are those which can be replenished and are
not likely to be exhausted or depleted on use.
 E.g. : Water, Sunlight, Wood.
b) Non-Renewable Resources :
 Non-renewable resources are those which are likely to be exhausted or depleted on use. The
rate at which these resources re-emerge is far short of the rate at which these resources are
being exploited for use.
 E.g. : Minerals, and Fossil fuels.

2) Environment Assimilates Waste : Production & consumption activities generate

waste. This occurs mostly in the form of garbage and the environment absorbs it.
3) Environment Sustains Life : The environment includes sun, soil, water, and air
which are essential ingredients for the sustenance of human life. The absence of
these elements of the environment implies the end of life.

4) Environment Enhances Quality of Life : Surrounding includes

rivers, oceans, mountains, & deserts. Man enjoys these
surroundings, adding to the quality of his life.

Notes : Carrying Capacity of Environment and Environmental Crises.

 The carrying capacity of the environment refers to the situation when :
 The exploitation of resources does not exceed the regeneration of resources,
so that the resource endowment is not exhausted or depleted, and
 The generation of waste does not exceed the absorption capacity of the
environment, so the environment is not polluted.
 Environmental crises occur when the carrying capacity of the environment is
challenged (or exceeded) through excessive exploitation of natural resources
and/or through the excessive generation of wastes.
 Basic Problems Related to Environment
The two basic problems related to the environment :
a) The problem of pollution, and
b) The problem of excessive exploitation of natural
resources, or degradation of natural resources.

Problems

Pollution Excessive Exploitation of

Natural Resources

Degradation of
Air
Natural Resources

Water Global Warming

Noise Ozone Depletion

 Pollution
 Pollution refers to those activities of production & consumption which
challenge the purity of air and water and thereby pollute the
environment.
 It is a serious emerging challenge related to the process of growth,
particularly related to the process of industrialisation.

Pollution has mainly three forms

Air Water Noise

pollution pollution pollution
 Air Pollution
 Air carries oxygen which is an essential element of life. Pollution of
air implies pollution of an essential element of life.
 Air pollution occurs owing to the presence of pollutants in the air.
 Following factors contribute to Air Pollution are :
a) Smoke emitted by industries, particularly
those using coal as an energy.
b) Poisonous gases are emitted (particularly by
the plastic and leather industries) in the
process of chemical treatment of the materials.
c) The emission of gases by motor vehicles has risen
to a threatening level owing to an exponential
rise in the number of vehicles.
 Water Pollution
 Like air, water is also an essential element of human life and its
pollution is equally serious. Pollution of water relates to
contamination of water. The use of polluted/contaminated water
leads to the diseases like diarrhoea and hepatitis.
 The main causes of Water Pollution are :
a) Industrial waste (particularly of those using
chemicals as inputs) streaming into the rivers.
b) Domestic sewerage that flows into streams & rivers.
c) Agricultural run-off (mixed with pesticides &
insecticides) that runs into streams and rivers.
d) Thermal powerhouses discharge ash mixed with water.
 Noise Pollution
 Mechanisation has raised the levels of efficiency, but it has
equally raised the level of noise pollution.
 Excessive noise causes irritation and unnecessarily fatigues
the body and the mind. Accordingly, quality of life
deteriorates and efficiency is reduced. You may note the
following sources of Noise Pollution :
a) Sound produced by machines used
in industries.
b) Sound is produced by cars, trucks,
and other means of transport.
c) Sound produced by machines in construction works.
 Excessive Exploitation of Natural Resources
It is the second aspect of the environmental problem which relates to the
excessive exploitation of natural resources or degradation of resources.
Natural resources refer to forests, minerals, soil, etc. Natural resources
are also called natural capital.
The following observations may be noted in this regard :
To achieve economic growth, man needs natural capital along with
physical capital.

As a result of an increase in production, there is a depreciation of

both physical capital and natural capital.

Often, we make provisions for the replacement of physical capital.

But the depreciation or degradation of natural capital (in terms of
deforestation or degradation of land) is often ignored or poorly
addressed.
 Degradation of Natural Resources
Degradation of Natural Resources

Deforestation Degradation of Land

 Industrialisation is a boon as it offers a large variety of things to consume, enhancing the

quality of life.
 But it is a bane when it causes deforestation. This is how it happens :
a) Trees are felled to meet the growing demand for wood and other forest products by
Deforestation industries.
b) Industrialisation leads to urbanization & urbanization induces deforestation. More &
more forests are cleared for the development of townships.
c) Multi-purpose River Projects (like Damodar Valley Project or Bhakra Dam) are another
factor contributing to deforestation.

 Degradation of land means loss of fertility (or loss of productivity) of land which occurs due
to the following factors :
Degradation a) Soil erosion is caused by strong winds or floods. When we talk of soil erosion, we are
referring to a loss of the upper layer of the soil (also called topsoil) which contains major
of Land nutrients (such as nitrogen, phosphorus, and potassium) for the growth of plants.
b) Alkalinity and salinity of soil caused by Waterlogging.
 Causes of Environmental Degradation
 One of the main causes of environmental degradation is population explosion.
 The pressure of population on land has tremendously increased and consequently, land
Population Explosion has been ruthlessly exploited.
 Population explosion has caused substantial conversion of
forest land into industrial and residential buildings.

 A large section of the Indian population is absolutely poor.

Widespread Poverty  These people cut trees for fuel wood which they sell to earn their
livelihood. This causes a massive erosion of natural capital.

 Increasing urbanisation has caused pressure on housing & other civic amenities.
Increasing Urbanization  It has resulted in increasing demand for land and excessive exploitation of other
natural resources.

Increasing Use of Insecticides,

 Increasing use of chemical fertilizers, insecticides &
Pesticides & Chemical
pesticides has also added to environmental pollution.
Fertilizers

Multiplicity of Transport  The multiplicity of transport vehicles has substantially

Vehicles increased noise and air pollution.

 Rapid Industrialisation has also contributed to air, water, and noise pollution.
Rapid Industrialization
 Industrial smoke is a serious pollutant.
 Global Warming
Global warming is the observed and projected increase in the
average temperature of the earth's atmosphere and oceans.
Causes of Global Warming : Global warming is caused due to increase in greenhouse gas
concentrations, like water vapour, carbon dioxide, methane, and ozone in the atmosphere and
enhances global warming.
a) Burning of coal and petroleum products (sources of carbon dioxide, methane, nitrous oxide,
ozone).
b) Deforestation increases the amount of carbon dioxide in the atmosphere.
c) Increased cattle production, which contributes to deforestation, methane production, and
the use of fossil fuels.
Main Effects of Global Warming : Global warming adversely affects the earth :
a) Ice is melting worldwide, especially at the earth's poles. It has led to a
steep rise in sea levels and coastal flooding.
b) Hurricanes and other tropical storms are likely to become stronger.
c) Increased incidence of tropical diseases, like malaria, cholera, dengue, chikungunya, etc.
d) There are thousands of species (like polar bears) in danger of becoming extinct forever.
 Ozone Depletion
Ozone depletion refers to the destruction of ozone in
the ozone layer due to the presence of chlorine from
manmade chlorofluorocarbons (CFCs) and other forces.
Cause of Ozone Depletion : The problem of ozone depletion is caused by high levels
of chlorine and bromine compounds in the stratosphere.
a) CFC, which is used as cooling substances in AC and refrigerators; or
b) Aerosol propellants and Bromofluorocarbons (Halons) which are used in fire
extinguishers.
Main Effects of Ozone Depletion : As a result of the depletion of the ozone layer,
more ultraviolet (UV) radiation comes to earth and causes damage to living
organisms.
a) UV radiation seems to be responsible for skin cancer in human beings.
b) UV radiation can also influence the growth of terrestrial plants.
 Measures to Save the Environment
1) Social Awareness :
 There is an urgent need to spread social awareness about :
a) The dangers of Pollution, and
b) The way each individual can combat it.

2) Population Control :
 It is essential to check the rising population if the environment is to be protected.

3) Afforestation Campaign :
 Extensive afforestation campaigns should be launched to protect the environment.

4) Control over Industrial & Agricultural Pollution :

 It is essential for environmental protection that air & water pollution caused by Industrial development is
managed & controlled.
 To avoid agricultural pollution, the use of pesticides & chemical fertilizers should be restricted.

5) Water Management :
 River water should be kept clean & provisions be made to supply clean drinking water to the rural people.

6) Management of Solid Waste :

 Planned Management of Solid waste is very essential. It should be treated chemically.
 Rural garbage should be converted into compost.
 Reasons for Environmental Crisis
Population Explosion  The population explosion and the advent of the industrial revolution have increased
and the Advent of the the demand for environmental resources. Their supply is limited due to overuse and
Industrial Revolution misuse.
 The intensive and extensive extraction of both renewable and
Extensive Extraction of
non-renewable resources has exhausted some of the vital resources.
Renewable and Non-
renewable Resources  A huge amount of money is spent on technology and research to
explore new resources.
Extinction of Many  The extinction of many resources and the continuous rise in
Resources population has also resulted in an environmental crisis.
Affluent Consumption
 Due to the affluent consumption and production standards of the developed world,
and Production
Standards the wastes generated are beyond the absorptive capacity of the environment.

Air and Water  The development process has polluted the atmosphere and waters and there is a
Pollution due to the decline in air and water quality (70% of water in India is polluted).
Development Process  It has resulted in an increased incidence of respiratory and water-borne diseases.
 The expenditure on health is also rising.
Global Warming and
Ozone Depletion
 Global environmental issues such as global warming and ozone depletion
also contribute to the increased financial commitments of the government.
  It is that process of economic development that aims at raising
Sustainable the quality of life of both present as well as future generations,
without threatening natural endowment and the environment.
Development  "Sustainable development is a development that meets the needs
of the present generation without impairing/reducing the ability
of future generations to meet their own needs".
 The competitive process of growth and development has led to
environmental degradation and environmental pollution to an
alarming extent.
 It is only recently that environmental degradation and
environmental pollution have been recognised as emerging
challenges to the quality of life (of the present and future
generations).
 The concept of sustainable development is now being understood
and widely propagated.

Notes :
Sustainable development is a process that fulfills the needs of the present generation without challenging the
ability of future generations to fulfill their needs implying that the resources are not fully exploited, but
rationally utilised.
 Features of Sustainable Development
Sustained Rise in Real Per Capita Income and Economic Welfare
 There should be a sustained rise in real per capita income & economic welfare over time.

Rational Use of Natural Resources

 Sustainable development does not mean that natural resources should not be used at all.
 It simply means that natural resources be rationally used in a manner such that they are not
excessively exploited.

The Ability of Future Generations to Fulfil their Needs not be Impaired

 Sustainable development stresses the point that the ability of future generations to fulfil their
needs is not impaired in the wake of the competitive growth process.

Check on Pollution
 It discards (or does not approve of) those activities (related to growth) which induce
environmental pollution.
 Environmental pollution is to be viewed as an element of social cost.
 Strategies for Sustainable Development
1) Input Efficient Technology
 We are to devise such production technologies which are input efficient.
It means output is maximised. This will moderate the stress on resource
endowment per unit of input.

2) Use of Environment-friendly Sources of Energy

 LPG & CNG are cleaner fuels and environment-friendly.
 The use of these fuels must be encouraged in place of petrol & diesel which
emit a huge amount of carbon dioxide adding to the stock of Green House Gases.

3) Integrated Rural Development

 Integrated rural development must be given a high priority in
the programs of State planning.
 This will generate employment opportunities in rural areas,
restricting migration to urban areas.
 4) Convert Sunlight into Solar Energy & Solar Energy into Electricity

 India is endowed with abundant sunlight which is a rich source of energy.

 Sunlight is both environmentally friendly as well a non-exhaustible source of energy.
 Conversion of solar energy into electricity is no longer a distant dream,
though the technology is yet to become widely innovative.
 Solar energy (and its conversion into electricity) is an effective answer, not only to
the problem of economic growth but also to the problem of sustainable development.

5) Shift to Organic Farming

 The use of chemical fertilizers, insecticides & pesticides has raised crop yield.
But, it has damaged/lowered soil fertility.
 Implying loss of production capacity for future generations.
 It is high time that we switch over to organic farming which focuses on soil
health rather than the plant-health.

6) Manage the Wastes

 Rather than allowing industrial waste & household garbage to litter around or
flow into streams and rivers, we must systematically manage them.
 Household waste can be recycled into compost & used as manure for organic farming.
 4) Stringent Laws on the Disposal of Chemical Effluents
 India is a land where laws lack enforcement. Chemical effluents from the industrial units
are invariably driven into the streams and rivers, polluting water and endangering aquatic life.
 Such a serious violation of the laws must be checked in case growth and the environment is to go together.

5) Awareness to Conserve Natural Assets for Inter-Generational Equity

 Inter-generational equity means equal opportunities (to grow and prosper) for
the present and future generations.
 Indians are highly conscious of inter-generational equity at the micro-level. At the
family level, we do our best to preserve our assets for the benefit of future generations.
 But this awareness is negligible at the macro level (the national level). Seldom do we
think of conserving our natural wealth for future generations.

6) Public Means of Transport

 Public means of transport are to be rapid, comfortable & economical.
 Example : Metro in Delhi. Such means of transport must be extended to the suburban areas as well.
 This will cut the private vehicular traffic in and around the metro cities.
 Accordingly, environmental pollution (air and noise pollution in particular) will be curbed/reduced.
Class 12 Indian Economic Development
 Development
Path of India,
China & Pakistan  India and Pakistan got Independence in
1947 and the People’s Republic of China
was established in 1949.
 India’s first five-year plan was launched in
1951.
 China’s first five-year plan was launched
in 1953.
 Pakistan’s Five-year plan was launched in
1956.
 Till 1980 all the three countries adopted
similar strategies & similar growth rates.
 China
1) Commercial pape
1) Background :
 Established in 1949.
 Considered as the oldest civilization in the world.
 The Official Language is “Mandarin”.
 It was established under the “One Party Rule System” known as the communist system.
1) Commercial pape
2) Policies used to develop China :
a) GLF (1958) Great Leap Forward Campaign :
 Great Leap Forward was initiated by Mao with the main aim of transforming the
agrarian economy into a modern economy.
 People were encouraged to set up industries in their backyards.
 In 1958, there were 26000 communes, covering almost all the farm population.
 GLF campaign met with many problems. Also, a severe drought caused the death of about 30 million people.
 In rural areas, communes were started. Under the commune system, people collectively cultivated land.
b) The Great Proletarian Cultural Revolution (1965) :
 Mao introduced this revolution under which students and professionals were sent to work and learn from the
country side.
 However, when Russia had conflicts with China, it withdrew its professionals, who were sent to help China in the
industrialization process.
c) Industrial Reforms (1978) :
China introduced reforms in two phases :
i. In the first phase, reforms were initiated in :
 Agriculture
 Foreign trade
 Investments Sector
 In Agriculture commune lands were divided into smaller parts and allocated to
individuals who were allowed to keep all the income from land after paying taxes.
ii. In the later phase, reforms were Initiated in the Industrial sector :
 Private sector firms and village enterprises were allowed to produce goods.
 Also, enterprises owned by the Government were made to face competition.
d) The Dual Pricing Policy :
Under this reform, prices were fixed in two ways :
 Farmers and Industrial units were required to buy and sell fixed quantities
of inputs and outputs at prices fixed by the government.
 For all other transactions inputs and outputs were purchased and sold at market price.
e) Special Economic Zones (SEZ) :
 In order to attract foreign investors Special Economic Zones were set up.
 Pakistan
 Pakistan is officially known as the “Islamic Republic of Pakistan”.
 Pakistan gained independence on 14th August 1947.
 In 1947 a civil war occurred in East Pakistan resulting
in the Independence of Bangladesh.
 Pakistan was characterized by :
a) Slow Economic Growth
b) Military Rule
c) Political instability.
 Pakistan is the 6th most populous country in the
world and 1/3 population lives below Poverty line.
 It has the second-largest Muslim population in the world after Indonesia.
 National Language : Urdu.
 Official Language : English.
 Economic Reforms of Pakistan
1) Pakistan followed a mixed economic system i.e. coexistence
of public and private sector.
2) Green Revolution :
 In the field of Agriculture, the Green Revolution was introduced in 1960.
 Also, the increase in public investment in infrastructure led to a rise in the
production of food grains.
3) In the early 1970’s, the nationalization of capital goods industries takes place.
In the late 1970’s Government adopted the policy of Denationalization.
4) Financial Support during the Late 1970’s :
 During this period, Pakistan received financial support
from other countries like UK, and New Zealand etc.
 Remittances from emigrants to the middle east.
 In 1988 the reforms were initiated in the country.
 Comparison between India, China & Pakistan
Let us compare some demographic indicators of India, China
and Pakistan with the help of the table :
Estimated Annual
Density Fertility
Population Growth of Sex Ratio Urbanisation
Country (per sq. Rate
(in millions) Population (2017-18) (2017-18)
km) (2017-18)
(2017-18) (2017-18)
India 1,352 1.03 455 924 2.2 34
China 1,393 0.46 148 949 1.7 59
Pakistan 212 2.05 275 943 3.6 37

Note :
Density – Per sq. Km.
Sex Ratio – Percentage of females as compared to thousand males.
Fertility Rate – It is calculated as number of children born by a women in “Reproductive
Age” (15 – 45) age.
 Comparison of India, China and Pakistan with
Respect to GDP Growth
Annual Growth of Gross Domestic
Product in Percent (1980 – 2017)

Country 1980 – 90 2015 – 17

India 5.7 7.3
China 10.3 6.8
Pakistan 6.3 5.3
 Analysis
During 1980-90
 China was having double-digit growth.
 Pakistan’s growth rate was 6.3%.
 India was at the Bottom with a 5.7% growth rate.

During 2011 – 15
 There was a drastic (major) fall in China growth rate from 10.3% to 6.8%.
 Pakistan also met with a drastic fall in growth rate from 6.3% to 5.3%.
Political instability was the major reason.
 India’s growth rate increased from 5.7% to 7.3% because of better
implementation and efficient economic planning.
 Comparison of India, China and Pakistan with respect to the
Distribution of Workforce and the Parallel Contribution to GDP
and Employment (%) in (2018 – 19)

Sectoral Contribution of GDP and

Employment (%) in 2018-19
Contribution to GDP (%) Distribution of Workforce (%)
Sector
India China Pakistan India China Pakistan

Agriculture 16 7 24 43 26 41

Industry 30 41 19 25 28 24

Service 54 52 57 32 46 35

Total 100 100 100 100 100 100

 China
Distribution of Workforce
 Due to climatic conditions the suitable areas for
cultivation was only 10%.
Primary  Till 1980 almost 80% of the population was dependent
on farming as their sole source of livelihood.
Sector  Since then, the Government encouraged people to
leave their fields and opt (choice) for other activities
like Handicrafts, Commerce, Business and Transport.

Secondary  In China manufacturing sector (secondary sector)

Sector & and services Sector contributes the highest to GDP.
Tertiary  Also, GDP has been shifting employment and output from
Sector agriculture to manufacturing and then to services.
Conclusion
 In the last 2 decades (1 decade =
10 yrs.), the contribution of
agriculture sector to GDP has
declined.
 In the industrial sector china had
maintained a double-digit
growth rate.
 In the service sector china also
raised its growth rate.
 Comparison of India, China and Pakistan on the Basis of
Human Development Indicators :
Some Selected Indicators of Human Development, 2017-2019
Items India China Pakistan
Human Development Index (Value) 0.645 0.761 0.557
Rank (Based on HDI) 130 87 154
Life Expectancy at Birth (Years) 69.7 76.9 67.3
Mean years of Schooling (% aged 15 and above) 6.5 8.1 5.2
GDP per capita (PPP US$) 6,681 16,057 5,005
People Below Poverty Line (at $ 3.10 a day ppp) (%) (2011) 21.9 1.7 24.3
Infant Mortality Rate (per 1,000 live births) 29.9 7.4 57.2
Maternal Mortality Rate (per 1 lakh births) 133 29 140
Population using Improved Sanitation (%) 60 75 60
Population with Sustainable Access to Improved Water Source (%) 93 96 91
Percentage of Undernourished Children 37.9 8.1 37.6
 Comparison of Overall Performance
 Till 1970 all three countries maintained the same level of
development that is low development.
 The last three decades have taken these countries to different levels.

India Indian economy performed moderately, but the majority

of its people were still depend on agriculture.

There was an unequal distribution of Infrastructure

facilities across the country.

It is yet to raise the standard of living of more than one-

fourth of its population that lives below the poverty line.
Pakistan
Pakistan’s economy is performing in a slowdown
manner.

The main reasons were :

i. Political Instability
ii. Over-dependence on remittances
iii. Foreign aid (help).

Pakistan was hoping to improve the situation by

maintaining high GDP growth.

Pakistan was showing economic recovery indicated

by positive macroeconomic indicator.
China
For China Human Rights were major concerns because of
the lack of Political freedom.

However, in the last 3 decades China succeeded in raising

the level of growth with the alleviation of poverty.

China had used the “Market Mechanism” to create

additional social and economic opportunities.

By retaining collective ownership of land and allowing

individuals to cultivate lands, China has ensured social
security in rural areas.

Also, Public intervention in providing social infrastructure

brought positive results in human development indicators.
 Important Dates Relevant to this Chapter
Pakistan’s Independence 14th August, 1947
India’s Independence 15th August, 1947
Establishment of People’s Republic of China 1949
First Five-year Plan :
 India 1951
 China 1953
 Pakistan 1956
Great Leap Forward (GLF) campaign was initiated to modernize China’s economy. 1958
Great Proletarian Cultural Revolution introduced by Mao (Under this, students and
1965
professionals were sent to work and learn from the countryside.)
Nationalization of capital goods industries in Pakistan Early 1970’s
Civil war in East Pakistan resulted in independence of Bangladesh 1971
Reforms introduced :
 India 1991
 China 1978
 Pakistan 1988
Introduction of One Child Policy in China 1979
Abolition of One Child Policy in China 2015