NIOS Senior Secondary Economics Past Paper PDF

Senior Secondary Course ECONOMICS (318) 1 Course Coordinator Dr. Manish Chugh fo|k/kue~ loZ/kua iz/kkue~ N...

Senior Secondary Course ECONOMICS (318) 1 Course Coordinator Dr. Manish Chugh fo|k/kue~ loZ/kua iz/kkue~ NATIONAL INSTITUTE OF OPEN SCHOOLING (An Autonomous Institution under MHRD, Govt. of India) A-24-25, Institutional Area, Sector-62, NOIDA-201309 (U.P.) Website: www.nios.ac.in, Toll Free No. 18001809393 Printed on 60 GSM Paper with NIOS Watermark. © National Institute of Open Schooling May, 2015 (5,000 Copies) Published by the Secretary, National Institute of Open Schooling, A-24-25, Institutional Area, Sector-62, Noida and printed at M/s A-One offset Printers, 5/34, Kirti Nagar, Industrial Area, New Delhi. ADVISORY COMMITTEE Prof. C.B. Sharma Dr. Kuldeep Agarwal Dr. Rachna Bhatia Chairman Director (Academic) Assistant Director (Academic) NIOS, NOIDA (UP) NIOS, NOIDA (UP) NIOS, NOIDA (UP) CURRICULUM COMMITTEE Dr. O.P. Agarwal Sh. J. Khuntia Dr. Padma Suresh (Former Director of the Eco. Deptt.) Associate Professor (Economics) Associate Professor (Economics) NREC College, Meerut University School of Open Learning Sri Venkateshwara College Khurja (UP) Delhi University, Delhi Delhi University, Delhi Prof. Renu Jatana Sh. H.K. Gupta Sh. A.S. Garg Associate Professor, MLSU, Rtd.PGT, From NCT Rtd.Vice Principal, From NCT Udaipur (Rajasthan) New Delhi. New Delhi. Sh. Ramesh Chandra Dr.Manish Chugh Retd. Reader (Economics) Academic Officer (Economics), NCERT, Delhi. NIOS, NOIDA LESSON WRITERS Sh. J. Khuntia Dr. Anupama Rajput Ms.Sapna Chugh Associate Professor (Eco.), Associate Professor, PGT School of Open Learning, Janki Devi Memorial College S.V. Public School, Jaipur Univ. of Delhi Univ. of Delhi. Dr. Bhawna Rajput Sh. A.S. Garg Dr. Bharat Singh Associate Professor, Retd. Vice Principal Associate Professor, AditiMahavidyalay, RPVV, Gandhinagar, Delhi Satyawati Co-educational College, Univ. of Delhi.(M) 9868095363 Univ. of Delhi. (M) 9868540018 Sh. Hari Kishore Gupta Dr. Bharat Bhushan Dr. Manish Chugh Retd. PGT, Govt. Babu Ram School, Assistant Professor, Academic Officer Shadra, Delhi Shyamlal College, NIOS Univ. of Delhi. EDITORS Sh. J. Khuntia Prof. Renu Jatana Sh. A.S. Garg Associate Professor (Eco.), Associate Professor, Retd. Vice Principal School of Open Learning, MLSU, Udaipur (Rajasthan) RPVV, Gandhinagar, Delhi Univ. of Delhi. (M) 9868047023 Sh. Hari Kishore Gupta Retd. PGT, Govt. Babu Ram School, Shadra, Delhi COURSE COORDINATOR Dr. Manish Chugh Academic Officer (Economics) NIOS GRAPHIC ILLUSTRATORS Sri Krishna Graphics C-90, West Vinod Nagar Delhi-110092 &KDLUPDQ·V 0HVVDJH Dear learner, As the needs of the society in general, and some groups in particular, keep on changing with time, the methods and techniques required for fulfilling those aspirations also have to be modified accordingly. Education is an instrument of change. The right type of education at right time can bring about positivity in the outlook of society, attitudinal changes to face the new/fresh challenges and the courage to face difficult situations. This can be very effectively achieved by regular periodic curriculum renewal. A static curriculum does not serve any purpose, as it does not cater to the current needs and aspirations of the individual and society. For this purpose only, educationists from all over the country come together at regular intervals to deliberate on the issues of changes needed and required. As an outcome of such deliberations, the National Curriculum Framework (NCF 2005) came out, which spells out in detail the type of education desirable/needed at various levels of education – primary, elementary, secondary or senior secondary. Keeping this framework and other national and societal concerns in mind, we have currently revised the curriculum of Economics course at Senior Secondary level, as per the Common Core Curriculum provided by National Council of Educational Research and Training (NCERT) and the Council of Boards of School Education in India (COBSE) making it current and need based. Textual material production is an integral and essential part of all NIOS programmes offered through open and distance learning system. Therefore, we have taken special care to make the learning material user friendly, interesting and attractive for you. I would like to thank all the eminent persons involved in making this material interesting and relevant to your needs. I hope you will find it appealing and absorbing. On behalf of National Institute of Open Schooling, I wish you all a bright and successful future. Prof. C.B. Sharma Chairman, NIOS $1RWH)URPWKH'LUHFWRU Dear Learner, The Academic Department at the National Institute of Open Schooling tries to bring you new programmes every now and then in accordance with your needs and requirements. The Economics course at Senior Secondary level has now been revised as per the Common Core Curriculum developed by COBSE (Council of Boards of School Education) and NCERT (National Council for Educational Research and Training) making it current and need based. The National Curriculum Framework developed by the National Council for Educational Research and Training was kept as a reference point. Leading expertsin the subject of the country were involved and with their active involvement, study materials based on the new curriculum have been updated. Old, outdated information has been removed and new, relevant things have been added. I am happy to place this new revised study material in Senior Secondary Economics in your hand. I hope you will find the new material that is now in your hands interesting and exciting. Any suggestions for further improvement are welcome. Let me wish you all a happy and successful future. (Dr. Kuldeep Agarwal) Director (Academic) National Institute of Open Schooling $/HWWHUWR/HDUQHU Dear Learner I welcome you all to this Senior Secondary Course in Economics. It gives me immense pleasure that you have opted Economics as one of your subjects of study. The study of economics contributes to the development of systematic framework for analyzing, researching and writing about a wide array of financial and regional economic issues and also making sense of our complex environment. An earnest attempt has been made to revise this book as per Common Core Curriculum developed by COBSE (Council of Boards of School Education) and NCERT (National Council for Educational Research and Training) making it current and need based. The present curriculum in Economics has been distributed into two parts and eleven modules. Part I Consists of three modules, namely: Indian Economic Development, Current challenges before the Indian Economy and Economic growth and Economic Development. Similarly Part- II consists of eight modules, namely: Statistical Tools, Introduction to Economics, Consumer’s Behaviour, Producer’s Behaviour, Market and Price Determination, National Income Accounting, Theory of Income and Employment and money, Banking and Government Budget. Each module has been divided further into different lessons. All efforts have been made to give related illustrations and examples for your better understanding. You should go through all solved examples and try to solve all problems under “Check Your Progress” and “Terminal Exercise” independently given at the end of each lesson. If you face any difficulty, please do not hesitate to write to me. Your suggestions and doubts are most welcome. Wish you a bright future! Yours, Dr. Manish Chugh Academic Officer (Economics), NIOS [email protected] +RZWRXVHWKH6WXG\0DWHULDO Your learning material has been developed by a team of economics experts in open and distance learning. A consistent format has been developed for self-study. The following points will give you an idea on how to make best use of the print material. Title is an advance organisor and conveys an idea about the contents of the lesson. Reflect on it. Introduction highlights the contents of the lesson and correlates it with your prior knowledge as well as the natural phenomena in operation in our immediate environment. Read it thoroughly. Objectives relate the contents to your desired achievements after you have learnt the lesson. Remember these. Content of the lesson has been divided into sections and sub-sections depending on thematic unity of concepts. Read the text carefully and make notes on the side margin of the page. After completing each section, answer intext questions and solve numerical problems yourself. This will give you an opportunity to check your understanding. You should continue reading a section till such time that you gain mastery over it. At some places you will find some text in italics and bold. This indicates that it is important. You must learn them. Intext Questions are based on the concepts discussed in every section. Answer these questions yourself in the space given below the question and then check your answers with the model answers given at the end of the lesson. This will help you to judge your progress. If you are not satisfied with the quality and authenticity of your answers, turn the pages back and study the section again. What have you learnt is essentially summary of the learning points for quick recapitulation. You may like to add more points in this list. Terminal exercises in the form of short, long and numerical question will help you to develop a perspective of the subject, if you answer these meticulously. Discuss your responses with your peers or counsellors. Answers to intext questions : These will help you to know how correctly you have answered the intext questions. Audio: For understanding difficult or abstract concepts, audio programmes are available on certain content areas. You may listen to these on FM Gyanvani or may buy the CDs from Priced Publication Unit, NIOS Video: Video programmes on certain elements related to your subject have been made to clarify certain concepts. You may watch these at your study center or may purchase these CDs from Priced Publication Unit, NIOS. www These are few selected websites that you can access for extended learning. Studying at a distance requires self-motivation, self-discipline and self-regulation. Therefore you must develop regular study habit. Drawing a daily schedule will help you in this endeavour. You should earmark a well- ventilated and well-lighted space in your home for your study. &RXUVH 2YHUYLHZ Part I: [For Tutor Marked Assignment] Module-I: Indian Economic Development 1. Overview of Indian Economy 2. Economic Planning in India Module-II: Current Challenges before the Indian Economy 3. Economic Growth and Economic Development 4. The Problem of Unemployment, Poverty and Inequality Module-III: Introduction to Statistics 5. Meaning, Scope and its Need in Economics 6. Collection and Classification of Data 7. Presentation of Data Important Note: All contents of Part-I will be assessed/examined through Tutor Marked Assignment (TMA). TMA is compulsory and contains 20% marks as weightage. The marks/grades of TMA will be reflected in the mark sheet.  Part-II [For Public Examination] Module IV: Statistical Tools 8. Measures of Central Tendency 9. Measures of Dispersion 10. Correlation Analysis 11. Index Numbers Module V: Introduction to Economics 12. Introduction to the study of Economics 13. Central Problems of an Economy Module VI: Consumer’s Behaviour 14. Consumer’s Equilibrium 15. Demand 16. Price Elasticity of Demand Module VII: Producer’s Behaviour 17. Production Function 18. Cost of Production 19. Supply 20. Price Elasticity of Supply Module VIII: Market and Price Determination 21. Forms of Market 22. Price Determination Under Perfect Competition 23. Revenue and Profit Maximization of a Competitive Firm Module-IX: National Income Accounting 24. National Income and related Aggregates 25. National Income and its Measurement Module X: Theory of Income and Employment 26. Consumption, Saving and Investment 27. Theory of Income Determination Module XI: Money, Banking and Government Budget 28. Money and Banking 29. Government and the Budget Important Note: All Contentsof Part-2 will be assessed/examined through Public/ FinalExamination. Public Examination is compulsory and contains 80% marks as weightage.  Contents About Economy and Economics (i)-(iv) Module-I: Indian Economic Development 1. Overview of Indian Economy 1 2. Economic Planning in India 9 Module-II: Current Challenges before the Indian Economy 3. Economic Growth and Economic Development 27 4. The Problem of Unemployment, Poverty and Inequality 39 Module-III: Introduction to Statistics 5. Meaning, Scope and its Need in Economic 57 6. Collection and Classification of Data 68 7. Presentation of Data 84 Module IV: Statistical Tools 8. Measures of Central Tendency 109 9. Measures of Dispersion 146 10. Correlation Analysis 178 11. Index Numbers 204 Curriculum 221 Feedback form 231  ABOUT ECONOMY AND ECONOMICS ECONOMY AND ECONOMICS Our very existence depends on various Economic Activities that involves production, distribution, exchange and consumption of goods and services. The primary aim of the economic activity is the production of goods and services with a view to make them available to masses. “Human activities which are performed in exchange for money or money’s worth are called economic activities”. The environment that facilitates these activities is known as Economy. Living in society also means that we must know how to organize our lives in perfect manner. We must know to economise our precious time and scare resources. You must also learn how to manage time also because in present scenario time is money.Similarly, when we make budget for our home; we make the best use of the resources which are available to us. We can avoid many problems in this way. This way of Management of Household is called Economics but it is much more than making a Budget. A study of economics can describe all aspects of a country’s economy, such as how a country uses its resources, how much time labourers devote to work and leisure, the outcome of investing in industries or financial products, the effect of taxes on a population, and why businesses succeed or fail and many more. Thus, Economics is the branch of social science that deals in the study of making decisions in the presence of scarcity of resources in the economy particularly with regard to the human activities such as production, consumption, saving and investment. It is a complex social science subject that uses principles of mathematics, physics, statistics, politics, history, sociology, anthropology, psychology and philosophy etc.In the true sense, Economics is an inter-disciplinary subject which addresses both the positive (fact based) and normative (value based) issues. The term ‘Economics’ is derived from two Greek words OIKOS and NEMEIN, meaning the rule or law of the household. Economics therefore is concerned with not just how a nation allocates its resources to various uses but it ideals with the process by which the productive capacity of these resources can be further increased and with the factors which in the past have led to sharp fluctuations in the rate of utilization of resources. HOW DO WE DEFINE ECONOMICS? The Modern Science of Economics was born with the publication of Adam Smith’s “An Enquiry into the Nature and Causes of Wealth of the Nation -1776”.That is why, Adam Smith is known as the Father of Modern Economics. (i) Economics has been defined by various economists in different ways. This is because ‘economics is an unfinished science’. With the passage of time there has been significant development is theories of Economics. The various definitions of economics may be classified as under:- z Economics as the Science of wealth. z Economics as the Science of material well being. z Economics as the Science of choice making. z Economics as the Science of dynamic growth and development. Economics as the Science of Wealth. Adam Smith who is considered to be the father of economics wrote a book entitled’ “An Enquiry in to the Nature and Causes of the wealth of the Nations”, in 1776. Economics as the Science of Material Well Being Marshall shifted the emphasis of economics from wealth to welfare. He formulated the definition of economics strictly in accordance with his ideas of human welfare. His definition is as follows: ‘Economics is the study of mankind in the ordinary business of life. It examines that part of individual and social action which is most closely connected with the attainment and with the use of material requisites of well being. Economics as the Science of Choice Making or Scarcity definition Robbins wrote a famous book” “An Essay on the Nature and significance of Economic Science”, in 1932. He introduced the ‘Scarcity’ definition of economics in his book. “Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses. Economics as the Science of Dynamic Growth and Development Prof. Robbins has excluded from the purview of economics the problem of economic growth and has taken a more static view of an essentially dynamic problem. This inherent defect in Prof. Robbins definition has been sought to be removed by Prof. Samuelson’s definition. The definition is as follows: “Economics is the study of how men and society choose, with or without the use of money, to employ scarce productive resources which could have alternative uses, to produce various commodities over time and distribute them for consumption now and in the future amongst various people and groups of society.” (ii) ‘Political economy’ was the earlier name for the subject, but economists in the late 19th century suggested “economics” as a shorter term for “economic science” to establish itself as a separate discipline outside of political science and other social sciences. Economics has two main streams – Microeconomics and Macroeconomics. Through these two major fields, economics analyses how economies work and affect - market, business, government, people, and other parts of the society. Economic theories are based on extensive studies and analysis. INDIAN ECONOMISTS AND THEIR CONTRIBUTION The study of every discipline starts with the process of defining it and Economics is no exception to this. Economy is Economics at play in certain region. In Indian Economy, role of Indian Economists is known throughout the world for their contribution in the economic prosperity of the country. Indian Economists mainly deal with the various concepts of Economics. Though Economics today studies a wide spectrum of issues and topics but if we take an overall view, its essence has been very simple i.e. the betterment of human life on this beautiful planet earth. In making the lives of masses, the Economists have been devising a number of theories and propositions as to how an Economy may maximise its worth and potential. Since ancient times many masterpieces were produced by great Economists who were trying to improvise better ways of maximising the fruits of Economic activities. The study of Economics has a common goal to search for possible ways and alternatives for the betterment of human life. Apart from this, economists also contribute in formulating some broad rational theories to make a more balanced world. Some of the renowned Indian Economists are: z Chanakya (Kautilya): He was an Indian teacher, philosopher, and royal advisor. Originally, a professor of economics and political science at the ancient Takshashila University.Chanakya is traditionally identified as “Kautilya” or “Vishnu Gupta”, who authored the ancient political treatise called Arthashastra (Economics). z Mahavira: Economics in Jainism is influenced by the Mahavira and his principles and philosophies. His philosophies have been used to explain the economics behind it. He was the last of the 24 Tirthankars, who spread Jainism. z Shri DadaBhai Naroji: He is fondly called the Grand Old Man of India. He was a pioneer in the field of Economics. He prepared the first estimates of National Income in 1876. z Prof. V.K.R.V. Rao: He was a prominent Indian Economist, Politician, Professor & Educator. He was the first person to adopt scientific procedure in estimating National Income in 1931. (iii) z Prasant Chandra Mahalanobis: He was a renowned Indian Statistician and was instrumental in formulating India’s strategy for Industrialization in Second Five Year Plan (1956-61). z Jagdish Natwarlal Bhagwati: He is an India-born, naturalized American, economist. He is a professor of Economics and Law at Columbia University. Bhagwati is notable for his researches in International Trade and advocacy of Free Trade z Prof. Amartya Sen: He is a renowned Economist and social worker. He was awarded Nobel Prize for the welfare Economics in Market oriented Economics in 1998. CAREER VISTAS IN ECONOMICS Economics offers good number of career options in both public and private sector. Major opportunities exist in banking and finance sector. Economists also play important roles in international organisations like the World Bank, International Development Agency, Asian Development Bank, International Monetary Federation, United Nation’s Development Programme (UNDP) and many other agencies. Indian Institutions such as Planning Commission, Central Statistical Organisation (CSO), National Sample Survey Organisation (NSSO), National Council of Applied Economic Research (NCAER) and Institute of Applied Manpower Research (IAMR), Indian Statistical Institute (ISI), Institute of Economic Growth (IEG) and Central and State Universities offer good career opportunities in the field of research. The Indian Economics Service (IES)and Indian Statistical Service (ISS)conducted by the Union Public Service Commission (UPSC) is a popular civil service. Economic journalism is another career opportunity for students holding a degree in Economics and interest in journalism. Some of the specialisation areas under Economics Banking Economics, Environmental Economics, Industrial Economics, Rural Economics, Econometrics, Game Theory, Development Economics etc. (iv)  MODULE - I INDIAN ECONOMIC DEVELOPMENT 1. Overview of Indian Economy 2. Economic Planning in India NIOS Curriculum for Senior Secondary Course CURRICULUM OF SENIOR SECONDARY COURSE IN ECONOMICS (318) 1. RATIONALE Economics has become a very sought after subject in the field of Social Science. The knowledge of Economics is very important in pursuing various activities in everyday life such as production, consumption and investment. In Consumption, every individual wants to utilize his/her income in the best possible manner so as to get maximum satisfaction from the goods and services purchased. Similarly, as producer, the individual/firm/industry uses the resources to minimize cost and get maximum output/profit. At the economy level, everybody wants that there should be economic growth and development through higher income and employment. Study of economics is very useful to achieve these goals. At NIOS, students are introduced to the subject of Economics at Secondary stage. The level at this stage is elementary in nature. However, at the Sr. Secondary level, students will be exposed to more areas of economics. They are also expected to know the use of tables and graphs/statistical tools to understand and explain various concepts and theories of economics. Indian students can be trained in their field in the Indian context as well as in the context of globalization process going in today’s world. 2. OBJECTIVES The main objectives of learning Economics at Senior Secondary level are to enables the learners to: x To help the learners understand the structure, problems, working and recent changes in the Indian economy. x To help the learners understand principles, laws and concepts of Economics. x To help the learners understand national income analysis and methods used in calculating national income. x To develop positive attitudes for economic justice among the masses and socio-economic reconstruction of the country. x To develop skills among the learners the use of statistical tools to analyse, interpret and explain data and information. 3. COURSE STRUCTURE The present curriculum in Economics has been distributed into two parts and eleven modules. Part I Consists of three modules, namely: Indian Economic Development, Current challenges before the Indian Economy and Economic growth and Economic Development. Similarly Part-II consists of eight modules, namely: Statistical Tools, Introduction to Economics, Consumer’s Behaviour, Producer’s Behaviour, Market and Price Determination, National Income Accounting, Theory of Income and Employment and money, Banking and Government Budget. Each module has been divided further into different lessons. The number of lessons and suggested study time are as follows: ECONOMICS 221  NIOS Curriculum for Senior Secondary Course Part-1 Module/ Lesson No. of Lessons Study Time (in hours) Module-I: Indian Economic Development 02 35 1. Overview of Indian Economy 2. Economic Planning in India Module-II: Current challenges before the Indian Economy 02 35 3. Economic growth and Economic Development 4. The Problem of Unemployment, Poverty and Inequality Module III: Introduction to Statistics 03 50 5. Meaning, Scope and its Need in Economics 6. Collection and Classification of data 7. Presentation of Data Total 7 120 222 ECONOMICS NIOS Curriculum for Senior Secondary Course Part-2 Module/lesson No. of lessons Study time (in hours) Module-IV: Statistical tools 04 35 8. Measures of Central tendencies 9. Measures of Dispersion 10. Correlation Analysis 11. Index Numbers Module-V: Introduction to Economics 02 16 12. Introduction to the Study of Economics 13. Central Problems of an Economy Module-VI: Consumer’s Behaviour 03 25 14. Consumer’s equilibrium 15. Demand 16. Price Elasticity of Demand Module-VII: Producer’s Behaviour 04 40 17. Production Function 18. Cost of Production 19. Supply 20. Price Elasticity of Supply Module-VIII: Market and Price Determination 03 16 21. Forms of Market 22. Price Determination under Perfect Competition 23. Revenue and Profit Maximization of a Competitive Firm Module-IX: National Income Accounting 02 16 24. National Income and Related aggregates 25. National Income and its Measurement Module-X: Theory of Income an Employment 02 16 26. Consumption, Saving and Investment 27. Theory of Income Determination Module-XI: Money, Banking and Government Budget 02 16 28. Money and Banking 29. Government and the Budget Total 19 180 ECONOMICS 223  NIOS Curriculum for Senior Secondary Course 4. COURSE DESCRIPTION Part-1 Module 1: Indian Economic Development Approach: This module de is with the parameters of development and gives brief account of India’s economy on the eve of Independence. It also deals with the planning and economic development in India including its achievements and drawbacks. Lesson-1: Overview of Indian Economy Features of Indian Economy-National and Per capita Income, Status of the Social sector, State of agriculture, Industry and foreign trade. Lesson-2: Economic Planning in India Meaning of Economic Planning, need for planning, objectives of planning, strategies of economic planning, achievements and drawbacks of Five Year Plans in India, New Economic Policy 1991- Liberalization, Privatization & Globalization. Module 2: Current Challenges before the Indian Economy Approach: This module provides the knowledge about the current challenges before the India economy and focuses mainly on poverty, unemployment, population and human capital formation. Lesson 3: Economic Growth and Economic Development Meaning of Economic Growth and Economic Development. Difference between Economic Growth and Economic Development; Concept of Sustainable Economic Development; Concept of Human Development, Human Development Index, factors affecting economic growth, Common features of underdeveloped countries Lesson 4: The Problem of Unemployment, Poverty and Inequality Meaning, Types and measures of unemployment, Causes of unemployment in India, Concept of Poverty line and estimates of Poverty, Causes of Poverty in India, Poverty alleviation and employment generation programmes in India, Inequality in income and Regional Inequality. Module 3: Introduction to Statistics Approach: Statistical data are very useful in economics. This module will help learners to understand the meaning of data, methods of their collection, and their presentation. Lesson-5: Meaning, Scope and its Need in Economics Need and scope of statistics, Meaning, functions and importance of statistics in economics, limitations of statistics. 224 ECONOMICS NIOS Curriculum for Senior Secondary Course Lesson-6: Collection and Classification of Data Primary and secondary data, collection of primary data, sources of secondary data; organization of data into arrays and frequency distribution. Lesson-7: Presentation of data Tabulation, Bar diagrams and pie diagrams, Graphs - Line graph, histogram, Polygon and Ogive. Part-2 Module 4: Statistical Tools Approach: After collection of data, it becomes necessary to draw conclusion from them. Different statistical tools are used to analyse the data and draw conclusions. This module will enable the learners to understand the use of certain tools to analyse the data. Lesson-8: Measures of Central Tendencies Meaning of central tendency, computation of arithmetic mean, combined mean, weighted arithmetic mean, median, quartiles and mode. Lesson-9: Measures of Dispersion Meaning of dispersion, Measures and methods of computing dispersion, Range, quartile deviation mean deviation, standard deviation (Absolute and Relative measures), Lorenz curve. Lesson-10 Correlation Analysis Meaning, Scatter diagram, Karl Pearson’s coefficient of correlation, Spearman’s Rank correlation Lesson-11: Index Numbers Meaning, types, Construction of simple and weighted index numbers, Laspeyer’s, Paasche’s and Fischer’s wholesale price index, Consumer price index and index of industrial production, uses of index numbers. Module 5: Introduction to Economics Approach: This module will enable the learners to understand the meaning of micro- economics and its relationship with macroeconomics. In addition to this, it will also discuss about the problems which all economics have to face. Lesson-12: Introduction to the Study of Economics Meaning of Economics, Meaning of Microeconomics and Macroeconomics, relationship and distinction between the two, positive and normative economics. ECONOMICS 225  NIOS Curriculum for Senior Secondary Course Lesson-13: Central Problems of an Economy Meaning of economic problem, why Economic Problem arises, Central Problems, What to produce, How to produce and for Whom to produce; Concept of production possibility frontier, Opportunity Cost and marginal opportunity cost. Module 6: Consumer’s Behaviour Approach: This module will enable the learners to understand the concept of utility and indifference curves and how consumers get maximumm satisfaction from their purchases. Lesson-14: Consumer's Equilibrium Meaning of Utility, Marginal and Total utility, Law of Diminishing Marginal Utility, Consumer's Equilibrium based on utility analysis. Meaning of Indifference curve and budget line, consumer's equilibrium using indifference curve and budget line. Lesson-15: Demand Meaning, factors affecting demand, law of demand, Individual and market demand, demand schedule and demand curve movement along the demand curve and shift in demand curve. Lesson-16: Price Elasticity of Demand Meaning, Factors affecting price elasticity of demand. Methods of Calculating price elasticity of demand (a) Percentage method (b) Total expenditure method (c) Geometric method Simple numerical problems based on each method. Module 7: Producer’s Behaviour Approach: This module deals with the objectives of the producer, production function and different types of cost. Besides this, it will also deal with supply of a commodity and price elasticity of supply. Lesson-17: Production Function Meaning of production function, Production function in the Short Run-Law of Variable Proportion. Lesson-18: Cost of Production Meaning of Cost, Fixed and Variable cost, Explicit and Implicit cost, Monetary cost, Real cost, Private and Social costs, Short run costs. 226 ECONOMICS NIOS Curriculum for Senior Secondary Course Lesson-19: Supply Meaning, determinants of supply, law of supply, individual and market supply, supply schedule and supply curve, movement along the supply curve and shift in supply curve. Lesson 20: Price Elasticity of Supply Meaning, measurement of price elasticity of supply by (a) Percentage method (b) Geometric method Factors affecting price elasticity of supply Module 8: Market and Price Determination Approach: This module will enable the learners to understand the meaning of market, forms of market-Perfect competition, monopoly, monopolistic competition and oligopoly- their meaning and features. This module also helps the learners to understand the concept of revenue and profit maximization condition of a competitive firm. Beside this, this module also deal with the equilibrium price computation Lesson-21: Forms of Market Meaning of market, Different forms of market - Perfect competition, monopoly, monopolistic competition and oligopoly- their meaning and features Lesson-22. Price determination Under Perfect Competition Meaning of equilibrium price, Determination of equilibrium price, excess demand and excess supply; Effect of changes in demand and supply on equilibrium price and quantity; Simple applications of demand and supply analysis - ceiling price, floor price. Lesson-23: Revenue and Profit maximization of a Competitive Firm Concept of revenue - Total Revenue, Average Revenue Marginal Revenue. Various concepts of profit; profit; Maximizaiton of a competitive firm Total revenue and total cost approach, Marginal revenue and Marginal cost approach INTRODUCTION TO MACROECONOMICS Module-9: National Income Accounting Approach: National income is a central concept in economics. It provides a quantitative view of a country’s economic performance. This module will enable the learners to understand various concepts related to national income and different methods of its measurement. Lesson-24: National Income and Related Aggregates Meaning of income, four factors of production, factor incomes and non-factor incomes, final goods and intermediate goods, basic economic activities, closed and open economy, stock and flow, circular flow of income, concept of domestic territory and normal residents, value of output and value added, market price vs factor cost, domestic income vs national income, real & nominal GDP concept of depreciation. Concepts of GDP, NDP GNP & NNP (at market price and factor cost) ECONOMICS 227  NIOS Curriculum for Senior Secondary Course Lesson-25: National Income and its Measurement Methods of calculating national income-value added or product method, income method and expenditure method, private income, personal income and personal disposable income, national disposable income (gross and net), GDP and economic welfare. Module 10: Theory of Income and Employment Approach: This module will discuss about the determination of equilibrium level of income and employment. In addition to this it will also discuss about the problems of excess demand and deficient demand in the economy. Lesson-26: Consumption, Saving and Investment Consumption function, saving function and investment function, propensity to consume and save Lesson-27: Theory of Income Determination Concept of aggregate demand, Determination of Equilibrium level of Income, Increase in income through Multiplier Process; Excess demand and Deficiency in demand. Module 11: Money, Banking and Government Budget Approach: This module explains about meaning and functions of money, functions of Central Bank. This also explains how the monitory and fiscal policy are used to correct the situations of excess demand and deficient demand in the economy. Lesson-28: Money and Banking Barter system of exchange; Money- its meaning and functions, Supply of Money - currency held by the public and net demand deposits held by the commercial banks, Measures of Money Supply process of credit creation, Central bank-meaning, functions, Monetary Policy to control money supply. Lesson-29: Government and the Budget Meaning, Objectives, components, Revenue Receipts and Capital Receipts, Revenue expenditure and Capital expenditure, Measures of deficit (Revenue Deficit, Fiscal Deficit and Primary Deficit - their meaning and implications); Fiscal policy and its role. 5. SCHEME OF STUDY The course in Economics provides you with package of learning opportunities which comprise of: x Printed Self Learning Material (SLM) in two parts i.e. Part-1 and Part-2. x Supplementary Materials in the form of Audio and Video Programmes. 228 ECONOMICS NIOS Curriculum for Senior Secondary Course x Video tutorials in Economics available on the NIOS website (www.nios.ac.in) as well as YouTube. The links of these tutorials have been mentioned within the SLM in the concerned lesson. x 30 Personal Contact Programme (PCP) sessions at your study centre. Please contact your study centre for the PCP schedule x Apart from Face-to-Face Personal Contact Programme (PCP) at your study centre, live Personal Contact Programmes (PCPs) through audio streaming are webcast on Mukta Vidya Vani, which can be accessed through NIOS website (www.nios.ac.in). 6. SCHEME OF EVALUATION The learner will be assessed through Continuous and Comprehensive Evaluation (CCE) in the form of Tutor Marked Assignment (TMA) as well as Public Examination. The following table shows the details: Mode of Evaluation Syllabus/Contents Duration Weightage Tutor Marked Assignment All Contents under Self Paced 20% (TMA) SLM Part-1 Public/Final Examination All Contents under 3 Hours 80% SLM Part-2 ECONOMICS 229 Overview of Indian Economy MODULE - 1 Indian Economic Development 1 Notes OVERVIEW OF INDIAN ECONOMY Every economy in the world has its own characteristics or features by which it is known or identified. Economies are compared with each other on the basis of these features. India as a distinct nation came into existence on 15th August 1947, called the independence day of India which marked the end of British rule over India. After that, Independent India has completed 66 years of self rule on 15th August 2013. This period is long enough to evaluate the position and performance of the country to enable comparison with other countries in the world as well as evaluate its own progress over the years. With this view in mind the current lesson provides the features of Indian economy. OBJECTIVES After completing this lesson, you will be able to: z describe the characteristics or features of Indian economy; z explain the problems faced by Indian economy; z explain the role of agriculture in India; and z describe the growth of industry in India. 1.1 FEATURES OF INDIAN ECONOMY Let us now list the features of Indian economy as follows: (i) Low per capita income (ii) Heavy population pressure (iii) Dependence of population on agriculture ECONOMICS 1 MODULE - 1 Overview of Indian Economy Indian Economic Development (iv) Poverty and Inequality income distribution (v) Higher level of capital formation which is a positive feature (vi) Planned economy let us discuss these points one by one. (i) Low per capita income Notes India is known in the world as a country with low per capita income. Per capita income is defined as the ratio of national income over population. It gives the idea about the average earning of an Indian citizen in a year, even though this may not reflect the actual earning of each individual. India's per capita income for the year 2012-2013 is estimated at ` 39,168. This comes to about ` 3,264 per month. If we compare India's per capita income with other countries of the world then it can be seen that India is well behind many of them. For example, the per capita income of USA is 15 times more that of India while China's per capita income is more than three times of India. (ii) Heavy population pressure India is world's second largest populated country after China. As per 2011 census India's population stands at more than 121 crores. It increased at a rate of 1.03 percent during 1990-2001. The main cause of fast rise in India's population is the sharp decline in death rate while the birth rate has not decreased as fast. Death rate is defined as the number of people died per thousand of population while birth rate is defined as the number of people taking birth per thousand of population. In 2010, the birth rate was 22.1 persons per one thousand population while the death rate was only 7.2 persons per one thousand population. Low death rate is not a problem. In fact it is a sign of development. Low death rate reflects better public health system. But high birth rate is a problem because it directly pushes the growth of population. After 1921, India's population increased very fast because birth rate declined very slowly while death rate declined very fast. From 49 in 1921 the birth rate declined to 22.1 in 2010 while during the same time period, death rate declined from 49 to 7.2. Hence the population growth was very rapid in India. Heavy population pressure has become a major source of worry for India. It has put burden on the public exchequer to mobilize enough resources to provide public education, health care, infrastructure etc. (iii) Dependence on Agriculture Majority of India's working population depend on agricultural activities to pursue their livelihood. In 2011 about 58 percent of India's working population was 2 ECONOMICS Overview of Indian Economy MODULE - 1 Indian Economic engaged in agriculture. In spite of this, the contribution of agriculture to India’s Development gross domestic product is a little over 17 percent. A major concern of agriculture in India is that productivity in this sector is very less. There are many reasons for this. There is heavy population pressure on land to sustain huge number. Due to population pressure on land the per capita availability of land area is very low and not viable for extracting higher output. Two, since per capita land availability is less, a majority of people are forced to become agricultural labour working at low Notes wages. Three, Indian agriculture suffers from lack of better technology and irrigation facilities. Four, mostly people, who are not educated or not trained properly, are engaged in agriculture. So it adds to low productivity in agriculture. INTEXT QUESTIONS 1.1 Fill in the blanks 1. India's per capita income is................ of that of China? (a) twice (b) one third (c) same as (d) none of the above 2. USA's per capita income is................ of that of India? (a) 15 times (b) 10 times (c) less than (d) none of the above 3. As per 2011 census, India's population stands at (a) more than 100 crore (b) less than 100 crores (c) more than 121 crores (d) none of the above 4. India's Birth rate in 2010 was: (a) 20.2 (b) 21.2 (c) 22.1 (d) 23.2 5. India's death rate in 2010 was (a) 7.2 (b) 7.4 (c) 7.8 (d) 7.9 6. India's population growth was rapid because (a) death rate is more than birth rate (b) birth rate is more than death rate (c) birth rate is same as death rate (d) none of the above ECONOMICS 3 MODULE - 1 Overview of Indian Economy Indian Economic Development 7. In 2011,................ percent of India's working population was engaged in agriculture? (a) 70 (b) 80 (c) 68 (d) 58 8. Contribution of agriculture to India's national income in 2011 was around Notes (a) 10 percent (b) 20 percent (c) 17 percent (d) 25 percent (iv) Poverty and inequality Another very disheartening thing about India is that it has world’s largest number of poor people. As per reports of government of India, in 2011-12 about 269.3 million people in India were poor. This was about 22 percent of India's population. A person is termed poor if he/she is not able to consume the required amount of food to get a minimum calorie value of 2400 in rural area and 2100 in urban area. For this the person must earn the required amount of money as well to buy the food items. The government has also estimated that the required amount of money is ` 816 in rural area and ` 1000 in urban area per head per month. This comes to about ` 28 in rural area and ` 33 in urban area per head per day. This is called poverty line. This implies that 269.9 million people of India were not able to earn such little amount in 2011-12. Poverty goes with inequality in income and wealth distribution. Very few in India posses materials and wealth while majority have control over no or very little wealth in terms of land holding, house, fixed deposits, shares of companies, savings etc. Only top 5 percent of households control about 38 percent of total wealth in India while the bottom 60 percent of household has control over only 13 percent of the wealth. This indicates concentration of economic power in a very few hand. Another issue linked to poverty is the problem of unemployment. One of the most important reasons of poverty in India is that there is lack of job opportunities for all the persons who are in the labour force of the country. Labour force comprises of the adult persons who are willing to work. If adequate number of jobs are not created every year, the problem of unemployment will grow. In India every year large number of people are added to the labour force due to increase in population, increase in number of educated people, lack of expansion of industrial and service sector at the required speed etc. So far we discussed the negative features. There are certain positive features of Indian economy as well. They are discussed below. 4 ECONOMICS Overview of Indian Economy MODULE - 1 Indian Economic (v) Higher rate of capital formation or investment Development At the time of independence, one of the major problem of Indian economy was deficiency in capital stock in the form of land and building, machinery and equipment, saving etc. In order to continue the cycle of economic activities such as production and consumption, a certain ratio of production must go towards saving and investment. However, the required ratio was never generated in the first four to five decades after independence. The simple reason being higher consumption Notes of necessary items by the population of whom most happened to be poor and lower middle income class. Collective household saving was very less due to this. Consumption of durable items was also very less. But in recent years things have charged. Economists have calculated that in order to support the growing population, India requires 14 percent of its GDP to be invested. It is encouraging to note that the saving rate of India for the year 2011 stands at 31.7 percent. The ratio of gross capital formation was 36.6 percent. This is possible because people are now able to save in banks, consume durable goods and there has been large scale investment taking place on public utilities and infrastructure. (vi) Planned economy India is a planned economy. Its development process has been continuing through five year plan since the first plan period during 1951-56. The advantage of planning is very well known. Through planning the country sets its priorities first and provides the financial estimates to achieve the same. Accordingly efforts are made to mobilise resources from various sources at least cost. India has already completed eleven five year plan periods and the twelfth plan is in progress. After every plan a review is made analysing the achievements and short falls. Accordingly, things are rectified in the next plan. Today India is a growing economy and recognised every where as a future economic power. The per capita income of India is growing at a higher rate than before. India is seen as a big market for various products. All these are possible due to planning in India. 1.2 ROLE OF AGRICULTURE IN INDIA Agriculture is one of the most important sectors of Indian economy. It is the supplier of food and raw materials in the country. At the time of independence more than 70 per cent of India's population depended on agriculture to earn livelihood. Accordingly the share of agriculture in the national product/income was as high as 56.6 per cent in 1950-51. However with development of industries and service sector during the plan periods, the percentage of population depending on agriculture as well as the share of agriculture in the national product has come down. In 1960, the percentage of labour force engaged in agricultural activities was 74 which gradually came down over the years to 51 per cent in 2012. In 1960 the share of labour force in industry and service sectors stood at 11 and 15 percent ECONOMICS 5 MODULE - 1 Overview of Indian Economy Indian Economic Development respectively. But in 2012 these shares increased to 22.4 and 26.5 percent respectively. It has been observed in most of the economies that along with economic development shift in labour force from agriculture to industry and service sector takes place. Agriculture is the source of food supply. The production of food grains has increased from nearly 55 million tonnes in 1950-51 to 259 million tones in 2012- Notes 13. Because of the growth in food grain production, India's dependence on import of food grains has declined and almost become nil. Keeping in view the rapid growth in India's population, increase in food grain was a necessity which the country achieved significantly. Except for pulses, increase in food grains has been mode possible by increase in cereals and various cash crops. Agriculture is also a major source of foreign exchange earning through export. The share of agriculture in India's export in the year 2011-12 was 12.3 percent. The major items of export include tea, sugar, tobacco, spices, cotton, rice, fruits and vegetables etc. 1.3 GROWTH OF INDUSTRY IN INDIA Industry or the secondary sector of the economy is another important area of economic activity. After independence, the government of India emphasized the role of industrialization in the country's economic development in the long run. Accordingly, the blue print for industrial development was made through the Industrial Policy Resolution (IPR) in 1956. The 1956 policy emphasized on establishment of heavy industries with public sector taking the lead in this area. Adoption of heavy or basic industries strategy was justified on the ground that it will reduce the burden on agriculture, enable growth in the production of consumer goods industries as well as small industries that are helpful for employment generation and achieving self reliance. After the adoption of the IPR, 1956 there was tremendous growth in industrialization during the second and third plan periods i.e. 1956-61 and 1961-66. Public sector contributed maximum to this growth. But towards the end of 1960s, investment in industries was reduced which adversely affected its growth rate. In the 1980s, this trend was reversed and investment in industries was increased by making the infrastructure base such as power, coal, rail much stronger. In early 1990s it was found that the public sector undertakings were not performing upto expectation. There has been reports of mismanagement in these under takings resulting in loss. So in 1991 the government of Indian decided to encourage the role of private sector in industrial development, remove the rigid licence system which is known as liberalization and allow international players to compete in the domestic country as well as domestic players to explore foreign territories. The aim of taking all these steps was to strengthen the process of 6 ECONOMICS Overview of Indian Economy MODULE - 1 Indian Economic industrialization in the country. Such a model of industrial development is called Development Liberalization, Privatization and Globalization (LPG) model. After the adoption of this new policy in 1991, there has been phases of growth followed by slowdown in the industrial development process. In the early years of 1990s there was significant growth in industrialization due to increase in investment in infrastructure, reduction in excise duty, availability of finance etc. But towards the end of 1990s the growth rate slowed down due to stiff competition from Notes international companies, inadequate infrastructure support etc. However, in the beginning of the new millennium, between 2002-08 there was again some recovery due to increase in saving rate from 23.5 percent in 2001-2 to 37.4 percent in 2007- 08. Even the competition from the foreign companies helped during this phase as the domestic companies could create enough internal strength in term of quality control, finance and customer care etc. to withstand the competition. However after 2008-09 there was some slow down in industrial growth due to rise in petroleum price, interest rate and borrowings from abroad which has created lot of liabilities for the domestic companies. INTEXT QUESTIONS 1.2 1. What was share of agriculture in India's national income in 1950-51? 2. With economic development, labour force tend to shift from industry to agriculture. True or False 3. What was the share of agriculture in India's export in 2011-12? 4. Give the full form of LPG? 5. The industrial policy of 1956 emphasized on the strategy of (a) Light industries (b) small and medium industries (c) Heavy industries (d) none of the above WHAT HAVE YOU LEARNT In this lesson you have learnt that z India is a developing economy with the promise to grow in future. z India is currently among those countries whose per capita income is low. z India is suffering from heavy population pressure z A majority of india's populaiton is dependent on agriculture. z There is high absolute poverty in India ECONOMICS 7 MODULE - 1 Overview of Indian Economy Indian Economic Development z The gap between rich and poor is substantial in India z Some positive features of Indian economy are „ India's saving rate is high „ Five year plannning in India is running successfully Notes TERMINAL EXERCISE Short Answer Type Questions 1. Give one positive and two negative features of Indian Economy. 2. Give two reasons for low productivity in agriculture in India. 3. What is main cause of increase in population in India? 4. Why is India called planned economy? 5. Define poverty line in rural area. Long Answer Type Questions 1. India suffers from heavy population pressure. Explain. 2. Explain two positive features of Indian economy. 3. India's per capita income is low? Do you agree. Give reasons. 4. Describe India as agricultural country. 5. Briefly discuss the poverty and inequality situation in India. 6. Explain the role of agriculture in Indian economy. 7. Explain the growth of industrialization in India? ANSWERS TO INTEXT QUESTIONS 1.1 1. (b) 2. (a) 3. (c) 4. (c) 5. (a) 6. (b) 7. (d) 8. (c) 1.2 1. 56.5 percent 2. False 3. 12.3 percent 4. Liberalization, Privatization and Globalization 5. Heavy industries 8 ECONOMICS Economic Planning in India MODULE - 1 Indian Economic Development 2 Notes ECONOMIC PLANNING IN INDIA India is a vast country with multiple problems faced by its population. The British ruled the country for nearly two centuries and exploited its resources for their benefit leaving the country reeling under absolute poverty. When the British left India in 1947 there was nothing to be proud of or be happy except for the ‘freedom’. The problems were many before the Indian government. Besides mass poverty there was the problem of food shortage and inflation. Illiteracy, lack of health care, lack of infrastructure etc. were other serious problems facing the country. As a long term strategy. ‘Planning’ for economic development was the answer to solve these problems. OBJECTIVES After completing this lesson, you will be able to: z define “Planning’’; z explain the need for planning; z list out the objectives of planning; z describe the strategy of planning in India; z explain new economic policy; z point out the targets set by our planners in terms of various objectives of planning; z explain the achievements made with respect to the plan objectives; and z realise the short comings or unfulfilled part of the objectives. ECONOMICS 9 MODULE - 1 Economic Planning in India Indian Economic Development 2.1 MEANING OF ECONOMIC PLANNING Economic planning is a process which involves the following steps: (i) Preparing a list of the problems facing the economy. (ii) Rearranging the list on the basis of priority. The top priority issue which needs to be addressed immediately should be placed at number one and so on. Notes (iii) The next step is to identify the problems which are to be solved in the immediate short run and the other problems which are to be addressed over the long period. (iv) Fixing a target to achieve the desired goal. The target could be a specified time period within which the problem must be solved. If the problem is to be addressed over long run, then it must be made clear that how much of the problem be solved in the first period (say a year or six months) and so on. Secondly the target could be a certain quantity to be achieved. Say in case of production, the government can fix some target in terms of quantity. (v) Estimating the amount of resources needed for achieving the target. Resources include financial resource, human resource, physical resource etc. (vi) Mobilizing the resources is another important task. This means that the planners must know the sources of arranging the required resources. For example, in case of financing the plan, the planners must make the budget and spell out the different sources of finding. When the government makes plan, one of its major source of getting funds in the tax revenue. For a business person, one of the sources of finance is the loan from bank. When various sources of funds are available then the planner must also decide as to how much fund to be collected from each of these sources. Use of the human resource is another important task to execute the plan proposal. The planner must estimate the type of man power and the number of persons required to carry out the task. A proper estimate on this requirement should be given at the outset. Similarly proper estimate of physical resources should also be provided. Physical resources include office buildings, vehicles, furniture, stationeries etc. (vii) Once the resources are arranged, implementation and execution process starts in an organize manner to achieve the desired goal. To make sure that everything is running smoothly and to rectify mistakes if any or to modify the style of working to accommodate any change, periodic review must be done till the final achievement is realised. 2.2 ECONOMIC PLANNING IN INDIA India adopted a system of five yearly planning to address its various socio- economic problems. You have already been told about the problems of Indian 10 ECONOMICS Economic Planning in India MODULE - 1 Indian Economic economy at the time of its independence. To remind, these problems include mass Development poverty and inequality, low productivity in agriculture and storage of food grains, lack of industrial and infrastructural development etc. Since these are to be solved over the long period, Indian government adopted five year plan starting from first year plan in 1951 development. The idea was to make a list of important problems to be solved keeping in view the given resources and the capacity to arrange the resources. Then make a review after five years of what has been done and rectify Notes the mistakes accordingly in the next five year plan period and so on. Some of the great architects of Indian planning include Jawaharlal Nehru, P.C Mahalonobis, V.R Gadgil, V.K.R.V Rao. After becoming the first prime minister of independent India, Nehru established the Planning Commission in 1950. The major function of the Planning Commission was to formulate plans keeping in view the resources of the country and suggesting the best methods to utilize them effectively and in a balanced manner. Planning commission prepared the first five year plan (FYP) for the period 1951-1956. By 2014, India has already experienced more than sixty years of planning with eleventh five year plans being completed are twelfth FYP continuing. 2.3 OBJECTIVES OF PLANNING IN INDIA The various objectives of economic planning in India are drawn keeping in view its socio-economic problems. Accordingly the objectives as follows: 1. Economic growth 2. Increase in employment 3. Reduction in inequality of income 4. Reduction in poverty 5. Modernization of the economy 6. Ensuring social justice and equality. Let us discuss these objectives one by one. 1. Economic Growth : The objective of achieving economic growth implies that the real national income and per capita income must grow every year at a targeted rate. Real national income is the measure of national income at a given years price or at a constant price. Real per capita income is the average income of individuals in the economy. It is argued that in order to achieve higher standard of living for each individual /household and the society as a whole , both per capita income and national income must grow in real terms. Since income represents purchasing power, increase in income will enhance the purchasing power of people and the country. When purchasing power will ECONOMICS 11 MODULE - 1 Economic Planning in India Indian Economic Development increase then individuals can buy more goods and services to satisfy their wants. The country as a whole can pay for its purchases from abroad called import. Increase in real income also means that the output level or quantity of output is higher than before. Here output includes output in different sectors of the economy such as agricultural output, industrial output and services to satisfy the needs of India’s growing population increase in output every year Notes has to be achieved. To achieve higher rate of output the economy must increase its rate of investment to create infrastructure and capital stock. Infrastructure includes power projects, roads, railways, airports, ports, telecommunication network, buildings etc. Capital stock includes plant, machinery, banking and insurance etc. Investment in all these things is necessary to achieve economic growth in real income, hence the planners of the country set a target for growth in each five year plan keeping in view the growth of population and demand for goods and services etc. 2. Increase in Employment: Employment refers to engagement of the labour force in gainful economic activity such as production of goods and services. Income is generated through the production process where the production process involves employment of factors of production provided by the households. You know that factors of production include land, labour, capital and organization/entrepreneurship. These factors are owned by the households of the country. As factors are scarce resources and needed to produce goods and services, it is important for the government to create opportunities where in they can be properly used/utilized. The production capacity of an economy depends on the amount of the factor resources it possesses. The required amount of output can be generated if these factors of production get employment. The value of the output then can be distributed among the factors as their income in the form of wage for labour, rent to the owner of land and building, interest to the owner of capital and profit to the entrepreneur. If the country is not able to create employment opportunities to gainfully engage the factors of production, the required amount of output can not be produced and hence income can not be generated. Take the example of labour resources in the country. You know that the population of the country supplies labour force who are in the age group of 15 to 59 years. Every year due to increase in population the number of people in the labour force is also increasing. Most of them are also educated. If there is no enough scope to get employment then they will remain unemployed and unutilized. Infact the unemployment situation in India is very bad. Besides causing increase in consumption without corresponding increase in production, unemployment also is a cause of various social problems such as poverty and crime etc. So planners of the Indian economy put creation of employment as a major objective of five year plans. 12 ECONOMICS Economic Planning in India MODULE - 1 Indian Economic Development INTEXT QUESTIONS 2.1 1. Economic growth means (a) Increase in real national income (b) Removal of inequality (c) Increase in price level Notes (d) None of the above 2. National income can be increased by (a) Increase in population (b) Increase in the rate of investment (c) Increase in unemployment (d) Decrease in price level 3. Who are the owner of factors of production (a) Government (b) Rest of the world (c) Households (d) Firms and industries 4. Labour force comes from the population in the age group of (a) 4 to 14 (b) 60 to 75 (c) 10 to 15 (d) 15 to 59 3. Reduction in Inequality of Income : India is a country with diverse economic standard of its population. This means that in terms of income level, India lacks uniformity. A large section of India’s population belong to lower income group and termed as poor where as a few are very rich with very high level of income. Income disparity is a major concern of the social angle, women are the worst affected in terms of income standard irrespective of their caste or religion. Similarly the scheduled caste and scheduled tribe population belong to the marginalized section of Indian society as they are at the bottom of the pyramid of development. One of the major reasons of inequality in income is the unequal distribution of asset holding such as per capita land holding, possession movable and immovable property from inheritance etc. A majority of India’s population live in rural area and work in agriculture. But a few are big land lords and majority are marginal or small farmers and agricultural labourers. Agricultural labourers are so called because they do not have their own land ECONOMICS 13 MODULE - 1 Economic Planning in India Indian Economic Development to cultivate and move from one place to another in search of job on a daily or weekly wage basis. Their situation in worse because of their own illiterary and lack of scope to organize themselves. One to their low income they do not have anything to begin to their reset generation on the otherhand landlords enjoy higher returns to their property and due to existence of law of inheritance the property remains with their future generations. Hence, rich remains rich and poor remains poor in the country due to possession and lack of private property Notes respectively. India is badly affected due to this inequality. The poor people are not able to support the market due to lack of purchasing power where too much purchasing power with the rich has caused wasteful consumption to increase. Most of the social evils are created due to inequality. Hence, our planners aimed at reducing the inequality in income distribution through planning. 4. Reduction in Poverty : Another major objective of planning in India is “reduction In poverty”. At the time of independence more than fifty percent of India’s population was poor. By the year 2014, nearly 27 to 28 percent of India’s population is under poverty as per governments estimates. You will come to know about the manner in which poverty is estimated in India in the lesson on poverty and employment. For the time being let us confine our notion of poverty to the situation where in an individual is unable to satisfy his/her basic minimum needs of life. There are lot of people in the country who are not even getting a square meal a day. Lack of employment is a major cause of poverty. It is aggarated by unequal distribution of national wealth and income. Poverty is termed as a curse on human dignity and it has seriously tarnished the image of India in the world. Developed countries do not count India seriously due to its inability to remove poverty. It is proper planning to remove poverty completely from the country. 5. Modernisation of the Economy : India has been a country of continuous exploitation by foreign powers such as the Mughals who ruled for more than two hundred years and the British who also ruled the country for another two hundred years. The British in particular, left the country in dine poverty and underdevelopment when they handed over power to Indian government in 1947. Because of the historical reasons Indian economy could not rise from its traditional level of functioning. It remained an agrarian economy and industrially backward. There was no development in now technology and technological upgradation. Lack of modern technology is a major reason for Indian economy to suffer from low productivity in agriculture and lack of industrial development. At the time of independence and for many more years after that, the major contributor to India’s GDP because of underdeveloped industrial and service sector. Combined with his lack of better education and skill development of the population, the occupational structure has also remained biased towards agriculture. Hence, to reverse such trend it is necessary to change the structure 14 ECONOMICS Economic Planning in India MODULE - 1 Indian Economic of GDP of India by improving the quality of human resources and developing Development industries and service sector. This can be done by modernization of the economy. 6. Ensuring Social Justice and Equility : Indian planning also aimed at achieving a socialistic pattern of society. It can be achieved by ensuring its population social justice and equity. In fact all the objectives said above are necessary to achieve social justice. But the sufficient condition for sustaining Notes social justice and equitable distribution of income is to introduce reforms in various sectors by changing the age old systems which have perpetuated poverty and inequality and obstructed development of industrial and service sector or caused low productivity in agriculture. So the planners thought to introduce reforms in agriculture and economic policy so that they facilitate growth and equitable distribution of the benefits of development. INTEXT QUESTIONS 2.2 1. One of the reasons of inequality in income is a. Existence of private property b. Lack of equal distribution of wealth c. Both of the above d. None of the above 2. Which of the following sector used to have larger share in India’s GDP at the time of its independence a. Industry b. Agriculture c. Service d. None of the above 2.4 NEED FOR PLANNING A major part of the question about need for planning has been answered in the meaning of planning itself described above. There we said that planning involves various steps for effective implementation and execution. Infact the number of problems facing Indian economy is very high. Each problem is complex in nature and cannot be solved in a short period. Take the example of the problem of poverty. There is no method by which this problems can be solved immediately. The government must collect data to know the number of people affected by poverty and its nature. Collection of data itself is a very huge task keeping in view India’s vast geographical area and lack of accessibility to many areas. In a democracy , the government is duty bound to formulate policies after proper debate and discussions which takes time. Then mobilization of adequate resources and provision of ECONOMICS 15 MODULE - 1 Economic Planning in India Indian Economic Development resources to continue the programme over a long period are two most important things to solve the problem of poverty. Without proper planning it cannot be done. Planning is also necessary to avoid wasteful expenditure, minimize cost meet the target in time and optimal use of resource. 2.5 STRATEGY OF PLANNING Notes By strategy we mean the use of correct approach /method/formula for achieving the target under planning. In the first plan period of 1951-56, no specific strategy was adopted during this time the government of India gave more emphasis to agriculture keeping in view the fact that majority of India’s population depend on agriculture and there was the immediate issue of adequate food grain supply to address food shortage. The first five year plan was a great success as the targeted growth rate was achieved so India was in a position to adopt a long term strategy for planning in future. The development strategy was accordingly spelt out explicitly in the second plan period of 1956-61. The strategy was to give emphasis on – 1. Industrialization, 2. Within industrialization more emphasis on heavy industries. 2.6 JUSTIFICATION OF THE STRATEGY OF INDUSTRIALIZATION In order to address the problems related to poverty, unemployment, economic growth, self reliance etc. The Indian planners adopted the strategy of industrialization in the country in general and establishing heavy and basic industries in particular. The arguments offered in favour of industrialization and heavy industries strategy are as follows: 1. India’s population has been over depended on agriculture resulting in crowding of rural area, pressure on land, fragmentation of land holding, underemployment and unemployment with fixed amount of land available for cultivation, more population makes the amount of per capita availability of land very small or nil. This has resulted in inequality in distribution of land and ultimately affecting agricultural production badly. Industrialization is the only answer to shift the surplus labour engaged in agriculture to industries and release the pressure on land. 2. Industrial activities provide more job opportunities than agricultural activities. So industrialization will help getting employment for the jobless in the country. 3. Industrialization is necessary for the growth of agriculture itself. Industries use raw materials from agriculture and agriculture sector needs industrial equipment and machinery such as pump set, tractor, electricity etc. 4. Establishment of basic and heavy industries must be given priority. Examples 16 ECONOMICS Economic Planning in India MODULE - 1 Indian Economic of basic and heavy industries are iron and steel, aluminium, heavy chemicals, Development heavy electrical etc. These are capital goods industries. Every economy needs such type of industries because they procedure machinery and equipment needed to establish other industries which can produce consumer goods for the satisfaction of wants. So the heavy industries are the backbone of the economy. It should be noted that after the adoption of heavy industry strategy the government of India created public sector to establish and manage such Notes industries. Some of the examples are steel authority of India limited (SAIL), Bharat aluminium company (BALCO), Bharat heavy electrical limited (BHEL), National aluminium company (NALCO), etc. 5. Besides heavy and basic industries, Indian government has also given emphasis on developing the micro, small and medium industries. These industries are defined on the basis of investment limit and can be established by private individuals. The advantage of these industries include: promotion of self employment as well as generating employment furthers, use of local resources, reducing inequality of income as they can be owned by individuals etc. 2.7 NEW ECONOMIC POLICY As said above, the heavy industry strategy was implemented under the ownership and management of the public sector. The government made budgetary provisions for the public sector to create infrastructure and establish industries. The process went on for more than three decades. However, an evaluation of the performance of the public sector by the government itself found that barring a few, more than half of the public sector units have been running on losses. There was gross mismanagement and labour problems falling the public sector units. It was a major shock to the government to find all these short comings of public sector. The failure of the public sector on various fronts was seen as one of the major reasons for lack of all round development of the country in the area of industrialisation, removal of poverty and unemployment etc. Hence in 1991, the central government came out with a new economic policy resolution. The main feature of this policy are: (i) Liberalization (ii) Privatization (iii) Globalization The policy is also popularly called LPG model of development. Meaning of and Need for Liberalization Liberalization means withdrawal of controls and regulations by the government on establishment and running of industries in the country. Till 1991, all the public sector units were practically under the government even if they were called ECONOMICS 17 MODULE - 1 Economic Planning in India Indian Economic Development autonomous bodies. There were lot of interventions by the ministries of the government in functioning of the public sector. This resulted in politilization and fall in professionalism and inefficiency. In order to overcome this problem the government decided to stop political intervention in the running of the public sector units by signing a memorandum of understanding. According to this the management of public sector units will be given autonomy to function but they will also be accountable. Notes Another important feature of liberalization is to do away with the licensing system. Earlier it was mandatory for any private individual or organization to seek permission from the government to start any industrial activity. There was heavy rush and long queue before the window of the concerned government department to get a license. This system slowly gave rise to delays in getting license. Government officials started taking bribes to clear files. Such corrupt practices brought bad name to the government. So in 1991 government decided to abandon the licensing system and allowed the interested individuals to start their industrial activity without any permission. However, permission is still required only in case of strategic industries such as medicine, defence equipments etc. Meaning of and Need for Privatization Privatization implies opening of the door of industrial activities to the private sector which was exclusively reserved for public sector only except nuclear enemy and defence. Since basic and heavy industries were strictly under public sector there was no room for competition. The quality of product and services deteriorated due to lack of competition from other companies. As a result the consumers were the major looser because they did not get quality products and the delivery system and other services were also very poor. So the government decided to allow and encourage the entry of private sector in the areas earlier reserved for public sector only. As a result private sector entry was seen in tele communication, civil aviation etc. The government also decided to disinvest some of the public sector companies by selling part of their assets to public. Meaning of and Need for Globalization Globalization is a process in which attempts are made by the different countries in the world to allow free flow of goods and services, labour technology, investments etc. India is a member of world trade organization (WTO) which is the nodal agency to promote globalization. In 1991 industrial policy, India adopted soft attitude towards foreign companies to do their business in India in order to promote competition. It also committed itself to abolish or reduce tariff on import of commodities. On the otherhand, India also adopted policies to promote exports. The government also allowed foreign companies to hold 51 percent share or more 18 ECONOMICS Economic Planning in India MODULE - 1 Indian Economic in case of their collaboration with Indian companies so that they can function freely Development and as the owner. This will also facilitate transfer of latest technology into Indian territory. INTEXT QUESTIONS 2.3 Notes 1. Liberalization aims at retaining the licencing system. True or False 2. Privatization policy will help in enhancing competition in the market. True or False 3. Globalization aims at imposing tariff on imported goods. True or False 2.8 ACHIEVEMENTS OF ECONOMIC PLANNING Economic planning in India was started in 1951. As said earlier, there were certain objective of economic planning which include: achieving economic growth in terms of increase in real national and per capita income, increase in the level of employment, removal of inequality in the distribution of income removal of poverty, ensuring social and economic justice etc. By 2014, India has completed 63 years of planning and has entered into twelfth plan period. It is high time to know the achievements of planning keeping in view its objectives. Let us discuss them. 1. Achievements in Economic Growth Achieving economic growth was a major objectives of planning. To achieve growth it is necessary to achieve increase in national income and per capita income as well as increase in production of agricultural and industry sectors. A review of different plans shows that, the first five year plan was a success as it achieved a g