Unit 5&6 Notes PDF

Unit 5&6 Notes -​ At the time of India’s independence in 1947, the country’s economy was in a fragile state. British colonial rule had left India with a largely agrarian economy, underdeveloped infrastructure, and widespread poverty. Industrial growth was minimal, and the agricultu...

Unit 5&6 Notes -​ At the time of India’s independence in 1947, the country’s economy was in a fragile state. British colonial rule had left India with a largely agrarian economy, underdeveloped infrastructure, and widespread poverty. Industrial growth was minimal, and the agricultural sector was primarily dependent on subsistence farming. The country also faced severe economic disparities, with wealth concentrated in a few hands and many regions suffering from underdevelopment. Additionally, India’s economy was burdened with the aftermath of World War II, including food shortages, inflation, and a damaged industrial base. Overall, the country faced significant challenges in building a self-sustaining, modern economy. -​ Initially India's economic model was shaped by the vision of its leaders, particularly Jawaharlal Nehru, who had a socialist vision which supported a strong role of the state. But a strong class of Indian capitalists had also emerged from 1914 onwards , who came to play an important role in the development of the Indian economy. Hence, evolved the vision of a mixed economy, which emphasized self-reliance, industrialization, and the development of key sectors such as heavy industries, infrastructure, and agriculture. But the government took an active role in economic planning, promoting public sector enterprises, and implementing centralized planning through Five-Year Plans. The idea was to reduce dependence on foreign countries, modernize the economy, and uplift the rural population. While the focus was on state-led growth, the model also allowed for private enterprise, although with heavy regulation and control. The early economic approach aimed at reducing inequality and creating a self-sufficient, diversified economy. -​ RAMACHANDRA GUHA WRITES- -​ “A mature indigenous entrepreneurial class, which could serve as the agency for carrying out a substantial part of the post-independence planned development was an asset to India. Further, a high degree of concentration and consolidation had led, during the colonial period itself, to the emergence of large business conglomerates like the Birlas, Tatas, Singhanias, Dalmia-Jains, etc., with interests in different areas like trade, banking, transport, industry and so on” -​ -​ “multi-pronged strategy of economic development based on self-reliance; rapid industrialisation based on import-substitution including of capital goods industries; prevention of imperialist or foreign capital domination; land reforms involving abolition of zamindari, tenancy reforms, introduction of cooperatives, especially service cooperatives, for marketing, credit, etc; growth to be attempted along with equity, i.e., the growth model was to be reformist with a welfare, pro-poor orientation; positive discrimination or reservation, for a period, in favour of the most oppressed in Indian society, the Scheduled Castes and Tribes; the state to play a central role in  promoting economic development, including through direct state participation in the production process, i.e., through the public sector, and so on” -​ -​ 1960’s and 70’s was the most vulnerable time for the Indian economy—with high inflation, a very low foreign exchange balance, food stocks so low as to threaten famine conditions in some areas, calling for large imports, and nearly half the imports having to be met through foreign aid—that the US, the most important donor at that time, decided to suspend its aid in response to the Indo-Pak war (1965) and refused to renew the PL-480 (wheat loan) agreement on a long-term basis. -​ Concerted efforts were made after the mid-sixties to, inter alia, improve the balance of payments situation, create food security, introduce anti-poverty measures and reduce dependence on imports for critical inputs like oil. These enabled India to weather the impact of the droughts, war and the oil-shocks without getting into a debt crisis and a recessionary spin as happened in the case of a number of developing countries, especially in Latin America in the eighties, and without serious famine conditions, let alone the huge number of famine deaths that occurred in Communist China in the late fifties. -​ On the food front the situation improved rapidly. The adoption of the Green Revolution strategy of introducing a package of high yield variety (HYV) seeds, fertilisers and other inputs in a concentrated manner to some suitable select areas paid immediate dividends in creating food security and poverty reduction -​ India did reasonably well till the mid-sixties, basing herself on an inward-oriented, import-substitution based strategy. However, she failed to respond adequately to the new opportunities thrown up by the changing world situation despite the availability of the East Asian experience. In fact, since the crisis of the mid-sixties, she got pushed by immediate circumstances to take a tighter ‘protectionist’ and inward-looking tum in the late sixties and early seventies instead of taking advantage of the globalization process. -​ India was thus unable to use the opportunities provided by the changed world situation to rapidly industrialize and transform its economy, increase income levels and drastically reduce poverty levels, as did many of the East Asian countries. -​ While on the one hand the Indian economy in the eighties seemed to be doing quite well, on the other hand there were certain long-term structural weaknesses building up which were to add up to a major crisis by 1991 when the country was on the verge of defaulting. It is this crisis which brought home to the country the immediate necessity of bringing about structural adjustment and economic reform. -​ Broadly, there were three sets of problems which had gathered strength in the Indian economy over time and which needed urgent reform. The first set of problems related to the emergence of structural features that bred inefficiency. The import-substitution-industrialisation (ISI) strategy based on heavy protection to indigenous industries was, as we saw earlier, very effective in deepening and widening India’s industrial base and giving the economy a lot of freedom from foreign dependence. However, over time, the excessive protection through import restrictions started leading to inefficiency and technological backwardness in Indian industry. This situation was further accentuated by the so-called ‘licence-quota’ Raj, i.e., a whole plethora of rules, regulations and restrictions which stifled entrepreneurship and innovation. -​ Second , The large public sector in India, which controlled ‘the commanding heights’ of the economy, also began to emerge as a major source of inefficiency. The early emphasis on the public sector was critical to India’s industrial development. It is the public sector which entered the core areas, diversified India’s industrial structure, particularly with regard to capital goods and heavy industry, and reduced India’s dependence on foreign capital, foreign equipment and technology. However, over time, the political and bureaucratic pressure on the public sector undertakings gradually led to most of them running at a loss. They were overstaffed, often headed by politicians who had to be given sinecures, became victims of irresponsible trade unionism and were unable to exercise virtually any efficiency accountability on their employees. -​ The third set of problems which overtook the Indian economy was primarily the result of certain political imperatives, and which was related to the manner in which the Indian state structure and democratic framework evolved. More and more sections emerged which made strong, articulate demands on state resources. Governments, however, were increasingly unable either to meet these demands fully or diffuse the clamour for them, This resulted in the gradual abandoning of fiscal prudence from about the mid-seventies. -​ The gradual erosion of fiscal prudence was reflected in government expenditure rising consistently, mainly because of the proliferation of subsidies and grants, salary increases with no relationship to efficiency or output, overstaffing and other ‘populist’ measures such as massive loan waivers. -​ $4.1 billion in 1989-90, and in the next year they fell drastically by nearly half to $2.24 billion in 1990-91, enough only for one month’s import cover. The Iraqi invasion of Kuwait in August 1990, leading to an increase in oil prices and a fall in Indian exports to  the Middle East or Gulf region, partly contributed to this alarming foreign exchange situation. -​ By July 1991 foreign exchange reserves were down to a mere two weeks import cover despite loans from the IMF. The country was at the edge of default. This is the situation (June 1991) in which the minority Congress government of Narasimha Rao took over power and with Manmohan Singh as finance minister attempted one of the most important economic reforms since independence. -​ The long-term constraints that were building up over a few decades and debilitating the Indian economy combined with certain more recent and immediate factors led to a massive fiscal and balance of payments crisis that climaxed in 1991. The crisis pushed India into initiating a process of economic reform and structural adjustment Impact of Structural Adjustment on the Social Sector in India Structural adjustment refers to the series of economic reforms and policy changes that India undertook in the early 1990s, primarily in response to a balance of payments crisis. The reforms were guided by the International Monetary Fund (IMF) and the World Bank, which provided financial assistance contingent on the implementation of these policies. The structural adjustment programs (SAPs) focused on liberalizing the economy through measures like trade liberalization, reducing government intervention, privatization of state-owned enterprises, fiscal austerity, and deregulation. While the economic reforms led to significant growth in several sectors of the economy, the impact on the social sector — encompassing health, education, poverty alleviation, and welfare — was mixed and often controversial. Below is an analysis of how structural adjustment affected various aspects of India's social sector: -​ Reduction in Public Health Spending: One of the primary components of the structural adjustment programs was fiscal austerity, which often resulted in cuts to public spending. This severely impacted social services like healthcare, especially for the poor and rural populations. As a result, there was reduced government expenditure on public health infrastructure, making healthcare services less accessible. -​ Privatization and Commercialization of Healthcare: The reforms encouraged the privatization of health services, leading to a greater reliance on the private sector for healthcare provision. This shift created disparities in healthcare access, as private healthcare became increasingly expensive and out of reach for many low-income groups. -​ Decreased Government Funding: Structural adjustments led to a reduction in public expenditure on education, especially in rural areas, where the impact was most severe. Cuts in government budgets for schools and universities led to deteriorating infrastructure, lower teacher salaries, and a lack of resources for students. -​ Privatization of Education: There was a shift towards privatization and commercialization in the education sector. As a result, private schools, colleges, and universities became more prevalent, which often led to inequalities in access to quality education. The growing emphasis on private education left the poorer sections of society at a disadvantage, as they could not afford high tuition fees. -​ Increased Disparities in Educational Access: While enrollment rates improved, quality education remained elusive for large sections of the population, particularly those from marginalized communities, due to lack of investment in public education. -​ Rising Inequality: While the overall economy grew, inequality increased in India during the period of structural adjustment. The rich, especially in urban areas, benefited disproportionately from the economic liberalization, while large sections of rural and marginalized communities did not experience the same level of growth. Poverty reduction slowed down, and the gap between rich and poor widened. -​ Reduction in Welfare Programs: The structural adjustment programs often led to cutbacks in social welfare schemes, which directly affected the most vulnerable populations, including the elderly, children, and those living in poverty. The reduction of state-funded welfare schemes meant less support for families struggling to meet basic needs. -​ Gender Disparities in Access to Services: The cuts in public expenditure in education, health, and welfare disproportionately affected women and children. These groups, often the most marginalized, were unable to access basic services, and the growing reliance on private providers in these sectors further limited their access to affordable services. -​ Worsening of Gender Inequality: Economic liberalization often led to more informal and unregulated employment opportunities for women, which were poorly paid and lacked job security. The feminization of poverty became more prominent, as women in the informal economy faced exploitation and insecurity. POVERTY IN INDIA -​ Poverty in India remains a significant challenge despite the country's rapid economic growth in recent decades. A large proportion of the population continues to live below the poverty line, facing limited access to basic necessities like food, shelter, education, and healthcare. Despite various measures aimed at reducing poverty, India continues to struggle with high poverty rates, especially in rural areas and among marginalized communities. -​ Poverty in India is a complex, multi-dimensional issue with deep-rooted historical, structural, and socio-economic causes. The major factors contributing to poverty include: Economic Factors ​ Agrarian Economy: A significant portion of India's population is still dependent on agriculture, where productivity is low, and incomes are volatile due to factors like erratic monsoons, poor irrigation, and outdated farming practices. The majority of the rural population remains trapped in poverty. ​ Unemployment and Underemployment: India's labor market faces high levels of unemployment, especially among the youth, and underemployment, with millions of workers in the informal sector with low wages, no job security, and poor working conditions. Social Factors ​ Inequality: Income inequality in India is high, with wealth being concentrated among the top few. According to the Oxfam report 2022, India’s top 1% holds 22% of the national income, while the bottom 50% share just 13%. This widening disparity leaves a large section of the population trapped in poverty. ​ Poor Health and Education: Lack of access to quality education, healthcare, and nutrition contributes to a cycle of poverty. Poor health  limits productivity, and low education levels restrict employment opportunities. India ranks 131st out of 189 countries in the Human Development Index (HDI), reflecting these challenges. ​ Caste and Gender Inequality: Discriminatory practices based on caste and gender persist, with marginalized groups, particularly Scheduled Castes (SCs), Scheduled Tribes (STs), and women, facing significant socio-economic disadvantages, limiting their access to resources and opportunities. Environmental Factors ​ Climate Change: India is highly vulnerable to the impacts of climate change, including floods, droughts, and extreme temperatures. This has adversely affected agriculture and food security, pushing many into poverty. Rural farmers, who are heavily reliant on agriculture, are particularly at risk. STEPS TAKEN BY THE GOVERNMENT National Rural Employment Guarantee Act (MGNREGA): Launched in 2005, MGNREGA provides a legal guarantee for 100 days of wage employment to rural households, targeting poverty alleviation and rural development. The program has helped millions of families by providing a source of income and infrastructure development in rural areas. Public Distribution System (PDS): The PDS aims to provide subsidized food grains (wheat, rice, sugar) to low-income families. The introduction of the National Food Security Act (NFSA) in 2013 expanded the PDS to cover 67% of the population, helping to address food insecurity and poverty.  Pradhan Mantri Jan Dhan Yojana (PMJDY): This financial inclusion initiative launched in 2014 aims to open bank accounts for the unbanked population, enabling them to access savings, credit, and insurance services, thus helping reduce poverty. Direct Benefit Transfers (DBT): The government has also implemented DBT schemes to provide subsidies directly to beneficiaries, reducing leakage and increasing the effectiveness of welfare programs. This includes subsidies for cooking gas (LPG), fertilizer, and scholarships. Atal Pension Yojana (APY): Aimed at providing pension benefits to low-income workers in the informal sector, the APY targets ensuring economic security in old age. Challenges and the Road Ahead ​ Inequality: While poverty has decreased, inequality has grown, with wealth being concentrated at the top. The government needs to focus on more inclusive growth. ​ Implementation Issues: Despite ambitious policies, implementation and targeting of welfare programs remain problematic, with inefficiencies, corruption, and leakage in some programs. ​ Agricultural Distress: Continued focus on modernizing agriculture, improving irrigation, and providing adequate support to farmers is essential to combat rural poverty. ​ Job Creation: India's economy needs to create more jobs, especially in the manufacturing and services sectors, to absorb the growing working-age population and reduce unemployment and underemployment.