Indian Economic Development (1947-1990) PDF

ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] INDEX Unit-1: Development Experience (1947-90) & Economic Reforms Since 1991 [12 Marks] 1. Indian Economy on The Eve of Independence [02-08] 2. Indian Economy (1950-1990)...

ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] INDEX Unit-1: Development Experience (1947-90) & Economic Reforms Since 1991 [12 Marks] 1. Indian Economy on The Eve of Independence [02-08] 2. Indian Economy (1950-1990) [09-17] 3. Liberalization, Privatization and Globalization [18-24] Unit-2: Current Challenges Facing Indian Economy [20 Marks] 4. Human Capital Formation [25-30] 5. Rural Development [31-39] 6. Employment: Growth, Informalization and Other Issues [40-46] 7. Environment And Sustainable Development [47-53] Unit-3: Development Experience of India: A Comparison With Neighbours [08 Marks] 8. Comparative Development Experiences of India and Its Neighbours [54-59] 1|Page  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] CHAPTER – 1 INDIAN ECONOMY ON THE EVE OF INDEPENDENCE Origin of British Rule The foundation of British Empire in India was laid by Battle of Plassey, fought in 1757. Basic Purpose of British Rule → The main purpose of the British Rule in India was → to use Indian economy as feeder economy → for the development of British economy. Meaning of Colonial Rule → Colonial rule refers to a system of political and social relations between two countries, → of which one is the ruler and the other is its colony. Before the advent of British Rule, Indian economy was characterized by following features: Prosperous Economy Agrarian Economy Well Known Handicrafts Industries Low level of National Income and Per Capital Income The economic condition of a nation can be judged with the data of national income and per capita income. → However, no sincere attempt was made by the British Government to estimate India’s national and per capita income. → Some individual attempts were made by the experts like Dadabhai Naoroji, William Digby, Findlay Shirras, V.K.R.V Rao and R.C. Desai. But all these estimates produced conflicting and inconsistent results. → However, estimates of Dr. Rao on national income and per capita incomes were considered very significant. → Most of the studies revealed that country’s growth of aggregate real output during the first half of the twentieth century was less than 2 % and only 0.5 % growth in per capita output per year. 2|Page  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] AGRICULTURAL SECTOR → During the pre-British period, the condition of Indian agricultural was not at all satisfactory. → Nearly 85% of the country’s population lived mostly in villages and derived livelihood, directly or indirectly from agriculture. → Even with this large proportion of population engaged in agriculture, the country was not self- sufficient in food and raw materials for industry. Main reasons for Stagnation in Agricultural Sector 1. Land Settlement System: The most important reason for stagnation in agricultural sector was the introduction of Zamindari System by the colonial government. → Under this system profit accruing out of agricultural sector went to the zamindars in the form of ‘Lagaan’. → The main interest of the zamindars was only to collect Lagaan regardless of the economic condition of the cultivator. → The dates for depositing specified sums of lagaan to British Government were also fixed, failing which the Zamindars were to lose their rights. → The zamindars and colonial government did nothing to improve the condition of agriculture. 2. Commercialization of Agriculture: means production of crops for sale in the market rather than for self-consumption. → During the British rule, farmers were given higher price for producing cash crops, like cotton or jute. → However, this did not improve the economic condition of farmers because instead of producing food crops, they were producing cash crops which were to be ultimately used by the British Industries. → Thus, British Rule promoted shifting of crops from food crops to cash crops. 3. Low Level of Productivity: Low levels of technology, lack of irrigation facilities and negligible use of fertilizers resulted in low level of productivity. Adverse Effects of Partition India’s agriculture production received a further set back due to the country’s partition at the time of independence. → A sizeable portion of the undivided country’s highly irrigated and fertile land went to Pakistan. → Almost, the whole of jute producing area became part of East Pakistan (now Bangladesh). → India’s jute goods industry, which had enjoyed a world monopoly so far, suffered heavily for lack of raw material. 3|Page  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] INDUSTRIAL SECTOR India’s Industrial sector was in poor state during the British Rule. 1. De-industrialization- Decline of Handicraft Industry: → British Government systematically destroyed Indian handicraft industries to satisfy two motives: a) To get raw materials from India at cheap rates to be used by upcoming modern industries in Britain; b) To sell finished products of British industries in Indian market at higher prices. 2. Adverse effects of decline of Handicraft Industry: → The decline of Indian handicrafts resulted in: a) Heavy Unemployment; and b) Increase in import of finished goods from Britain. 3. Lack of Capital Good Industries: → During British rule, there was hardly any capital goods industry and British rulers did not pay any attention for their promotion. 4. Low contribution to Gross Domestic Product (GDP): → The growth rate of the new industrial sector and its contribution to the GDP remained very small. 5. Limited Role of Public Sector: → The public sector remained confined only to the railways, power generation, communications, ports and some other departmental undertakings. FOREIGN TRADE State of India’s Foreign Trade during British Rule 1. Exporter of Primary Products and Importer of Finished Goods: → India became an exporter of primary products such as raw silk, cotton, sugar, jute etc. and an importer of finished consumer goods like woolen clothes and capital goods like light machinery, produced in the British Industries. 2. Monopoly Control of British Rule: → British Governments maintained a monopoly control over India’s exports and imports. → More than ½ of India’s foreign trade was restricted to Britain while the rest was allowed with few other countries like China, Sri Lanka and Iran. → The opening of the Suez Canal in 1869 served as a direct route for the ships operating between India and Britain. 3. Drain of India’s Wealth During British Rule: → There were huge exports surplus due to excess exports. However, export surplus was used: a) To make payments for expenses incurred by an office set by the colonial government in Britain. b) To meet expenses on war fought by the British Government. c) To improve invisible items. 4|Page  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] Trade through the Suez Canal → The opening of Suez Canal in 1869 reduced the cost of transportation and made access to the Indian market easier. → The canal provided a direct route for ships operating between Britain and India and avoided the need to sail around Africa. → Strategically and economically, it is one of the most important waterways in the world. DEMOGRAPHIC CONDITION → 1st Official Census: 1881. 1 → 921: Year of the Great Divide. Demographic Condition during the Colonial Rule: 1. High Birth Rate and Death Rate: → Birth Rate 48 per 1000, Death Rate 40 per 1000. 2. Extremely Low Literacy Rate: → The overall literacy rate was less than 16 percent. → Out of this, the female literacy level was at a negligible low of about 7 percent. 3. Poor Health Facilities: → Public health facilities were either unavailable to large mass of population or, when available, were highly inadequate. → As a result, water and air borne diseases were widespread and took a huge toll on life. 4. High Infant Mortality Rate: → 218 per 1,000 44 → per 1,000 in 2011. 5. Low Life Expectancy: → Life expectancy was also very low 44 years, in contrast to the present 68 years. 6. Widespread Poverty: → The overall standard of living of common people in India was very low and there was widespread poverty in the country. OCCUPATIONAL STRUCTURE → Occupational structure refers to distribution of working persons across primary, secondary and tertiary sector of the economy. → During the colonial period, the occupational structure of India showed little sign of change. 1. Predominance of Primary Sector i.e., Agriculture Sector. 2. Regional Variation: → The states of Tamil Nadu, Andhra Pradesh, Kerala, Maharashtra and West Bengal witnessed a decline in dependence of workforce on the agriculture sector with a commensurate increase in the manufacturing and service sector. → However, during the same time, there had been an increase in the share of workforce in agriculture in states such as Orissa, Rajasthan and Punjab. 5|Page  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] INFRASTRUCTURE → Infrastructure refers to all such activities, services and facilities, which are needed to provide different kinds of services in an economy. → The state of infrastructure as inherited from the British Rule is discussed below: 1. Roads: → The British rulers could not accomplish much on construction of roads. → The roads that were built, primarily served the interests of mobilizing army and shifting raw materials. 2. Railways: → The most important contribution of British rule was to introduce railways in 1850. → Railways enabled people to undertake long distance travel and it enhanced commercialization of Indian agriculture. 3. Air and Water Transport: → The measures taken for developing water and air transport were far from satisfactory. 4. Communication: → Introduction of electric telegraph served the purpose of maintaining law and order. → The postal services remained inadequate. Positive Contributions of British Rule 1. Self-sufficiency in food grain production → Commercialization of agriculture initiated by British Government → resulted in self-sufficiency in food grain production. 2. Better means of transportation → Development of roads and railways provided cheap and rapid transport system → and opened up new opportunities of economic and social growth. 3. Check on famines → Roads and railways worked as a great check on the occurrence and impact of famines as food supplies could be transported to the affected areas in case of droughts. 4. Shift to Monetary Economy → British rule helped Indian economy to shift from barter system to monetary system of exchange. 5. Effective Administrative setup → The British Government had an efficient administration system, → Which served as a ready reckoner for Indian politicians. 6|Page  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] State of Indian Economy on the Eve of Independence 1. Colonial Economy → In India, colonial exploitation is a long history and British rule, → which, resulted in huge drain of wealth from India. 2. Semi-feudal Economy → By the close of British period, there were two aspects of Indian Economy: → a) Introduction of Feudal System; b) Introduction of Capitalist System. 3. Stagnant Economy → India’s economy was a stagnant economy as country’s growth of aggregate real output during the first half of 20th century was less than 2%. 4. Backward Economy → Indian economy was backward and underdeveloped due to many reasons, like → low level of productivity, traditional method of agriculture etc. 5. Depleted Economy → It refers to an economy, where no arrangement has been made → to replace the physical assets, depreciated due to excessive use. 6. Amputated Economy → The British policy of ‘divide and rule’ always promoted discrimination → between various groups on the basis of religion, caste, language and culture. Important Dates Battle of Plassey 1757 Introduction of Zamindari System 1793 Railways 1850 First Railway Bridge linking Bombay with Thane 1853 Suez Canal 1869 First Official Census 1881 Setting up TISCO 1907 Year of Great Divide 1921 India’s Independence 1947 7|Page ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] 8|Page  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] CHAPTER – 2 INDIAN ECONOMY (1950 -1990) Introduction → On the eve of independence, Indian economy was completely underdeveloped. → Now, it was necessary to reconstruct the backward and stagnant economy into developed economy. → Therefore, the most important task before the Government of India was to decide the type of ‘Economic System’, which would be most suitable for India. Economic System refers to an arrangement by which central problems of an economy are solved. Central Problems of an Economy 1. What to Produce? 2. How to Produce? 3. For whom to Produce? Types of Economic System 1. Capitalist Economy: → Means of production are owned, controlled and operated by Private Sector. 2. Socialist Economy: → Means of production are owned, controlled and operated by Government. 3. Mixed Economy: → Both Public and Private Sector are allotted respective roles for solving Economy’s Central Problems. ECONOMIC PLANNING → For the development of Indian Economy, it was necessary for the Government to ‘Plan’ for the economy, known as Economic Planning. → Economic planning refers to a system under which a central authority → sets a set of targets and specifies a set of programmes and policies → to achieve those targets with in the specified period of time. → To make economic planning effective, the Government of India set up Planning Commission in 1950, with the Prime Minister as the Chairman. → The Planning Commission fixed the planning period at five years, which began the era of ‘Five Year Plans.’ Planning Commission is no more in existence. On 1st January, 2015 Planning Commission replaced by newly formed NITI Aayog. GOALS OF FIVE-YEAR PLANS The five-year plans have been concerned with removal of economic backwardness of the country and to make India a developed economy. 9|Page  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] → The first five-year plan was launched by our first Prime Minister, Pandit Jawahar Lal Nehru in the parliament, starting from 1st April,1951 and ending on 31st March,1956. → The basic Goals of five-year plans are: a) Growth b) Modernization c) Self-reliance d) Equity. a) Growth → Growth refers to increase in the country’s capacity to produce the output of goods and services within the country. → Growth implies: → Either a larger stock of productive capital; → Or, larger size of supporting services like transport and banking; → Or, an increase in the efficiency of productive capital and services. → A good indicator of economic growth, is steady increase in the GDP. b) Modernization → Modernization includes: a) Adoption of New Technology: → Modernization aims to increase the production of goods and services through use of new technology. → For example, a farmer can increase the output on the farm by using new seeds variety instead of using old ones. b) Change in social Outlook: → Modernization also requires change in social outlook, → such as gender empowerment or providing equal rights to women. c) Self-reliance → Self-reliance means development through domestic resources. → To promote economic growth and modernization, the five-year plan stressed on the use of own resources, in order to reduce our dependence on foreign countries. → The policy of self-reliance was necessity because of two reasons: 1. To reduce foreign dependence 2. To avoid foreign interference. d) Equity → According to Equity, every Indian should be able to meet his or her basic needs and inequality in the distribution of wealth should be reduced. → So, it is important to ensure that benefits of economic prosperity are availed by all sections (rich as well as poor) of the economy. → To achieve the objective of growth, modernization and self-reliance equity is also important. 10 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] AGRICULTURE Agricultural development was focused from the First Five-Year Plan. Features or Problems of Agriculture Low Productivity Disguised Unemployment High dependency on Rainfall Subsistence Farming Outdated Technology Small Land Holdings Policies for Growth of Agriculture 1. Land Reforms → Land reforms primarily refers to change in the ownership of Landholdings. → Land reforms were needed to achieve the objective of equity in agriculture. → It includes a) abolition of intermediaries & b) land ceiling. Abolition of intermediaries → Indian Government took various steps to abolish intermediaries and to make tillers, the owners of land. → The abolition of intermediaries brought 200 lakh tenants into direct contact with the government. → The ownership rights granted to tenants gave them the incentive to increase output and this contributed to growth in agriculture. However, the goal of equity was not fully served by abolition of intermediaries because of the following reasons: a) In some areas, the former zamindars continued to own large areas of land by making use of some loopholes in the legislation; b) In some cases, tenants were evicted and zamindars claimed to be self-cultivators; c) Even after getting the ownership of land, the poorest of the agriculture labourers did not benefit from land reforms. Land Ceiling → Land ceiling refers to fixing the specified limit of land, which could be owned by an individual. → Beyond the specified limit, all lands belonging to a particular person would be taken over by the Government and will be allotted to the landless cultivators and small farmers. → The purpose of land ceiling was to reduce the concentration of land ownership in few hands. → Land ceiling helped to promote equity in the agriculture sector. However, the land ceiling legislation was challenged by the big landlords. → They delayed its implementation. → This delay time by used by them to get the land registered in the name of close relatives, thereby escaping from the legislation. Conclusion: Land reforms were successful in Kerala and West Bengal because governments of these states were committed to the policy of land reforms. 11 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] 2. Green Revolution → At the time of independence, about 75 % of the country’s population was dependent on agriculture. → Green revolution refers to the large increase in production of food grains due to use of high yielding variety (HYV) or miracle seeds especially for wheat and rice. → Green Revolution is the spectacular advancement in the field of agriculture. HYV Seeds: Main Reason for Agricultural Revolution → These seeds can be used in those places where there are adequate facilities for drainage and water supply. → As compared to ordinary seeds, these seeds need heavy doses of chemical fertilizers (4 to 10 times more fertilizers) to get the largest possible production. → So, to derive benefit from HYV seeds, Indian farmers need to have: a) Reliable irrigation facilities; and b) Financial resources ( to purchase fertilizers and pesticides) Indian Economy experienced the success of Green Revolution in 2 phases: 1. In first phase (Mid-60s to Mid-70s), → the use of HYV seeds was restricted to more affluent states like Punjab, Andhra Pradesh Tamil Nadu, etc. → Further, the use of HYV seeds primarily benefitted the wheat growing regions only. 2. In the second phase (Mid-70s to Mid-80s), → The HYV technology spread to larger number of states and benefitted more variety of crops. Important Effects of Green Revolution 1) Attaining Marketable Surplus → Green Revolution resulted in ‘Marketable Surplus’. → Marketable surplus refers to that part of agricultural produce which is sold in the market by the farmers after meeting their own consumption requirements. 2) Buffer Stock of Food Grains → The green revolution enabled the government to procure sufficient amount of food grains to build a stock which could be used in times of food shortage. 3) Benefit to low-income groups → The price of food grains declined relative to other items of consumption. → The low-income groups, who spend a large percentage of their income on food, benefited from this decline in relative prices. 12 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] Risks involved under Green Revolution 1. Risk of Pest Attack → The HYV crops were more prone to attack by pests. 2. Risk of Increase in Income Inequalities → There was a risk that costly inputs required under green revolution will increase the disparities between small and big farmers. → Since only the big farmers could afford the required inputs. Favourable steps by Government to Overcome the Risks: Government provided loans at low interest rate to small farmers so that they could buy needed inputs. As a result, the green revolution benefited the small as well as rich farmers. Economist in Favour of Subsidies: → Government should continue with agriculture subsidies because: a) Farming in India continues to be a risky business. b) Majority of farmers are very poor and are unable to afford required inputs without subsidies. c) Eliminating subsidies will increase income inequalities. Economist Against the Subsidies: → According to some economist, there is no case for continuing with subsidies → as it does not benefit the target group and it is a huge burden on the government’s finances. Critical Appraisal of Agricultural Development (1950-1990) → ‘Land Reform’ measures and ‘Green Revolution’ helped in enhancing agricultural production and productivity. → India became self-sufficient in food production due to Green Revolution. → Land Reforms resulted in abolition of zamindari system. → Proportion of GDP contributed by agriculture declined significantly, but not the population depending on it. 13 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] INDUSTRIAL DEVELOPMENT 1. The developing countries (like India) can progress only if they have a good industrial sector. 2. Industry provides employment, which is more stable than the employment in agriculture. 3. Industrialization promotes modernization and overall prosperity. 4. Due to this reason, Five-Year Plans stressed a lot on the industrial development. 5. At the time of independence, the variety of industries was very limited. 6. The cotton textile and jute industries were mostly developed in India. 7. There were only two well-managed iron and steel firms: one in Jamshedpur and the other in Kolkata. 8. So, there was a strong need to expand the industrial base with a variety of industries. Role of Public Sector in Industrial Development There was a need of leading role of Public Sector due to the following reasons: 1. Shortage of Capital with Private Sector → At the time of independence, Indian industrialists did not have the capital to undertake investment in industrial ventures required for the development of our economy. 2. Lack of incentive for Private Sector → The Indian market was not big enough to encourage private industrialists to undertake major projects, even if they had capital to do so. 3. Objective of Social Welfare → The objective of equity and social welfare of the Government could be achieved only through direct participation of the state in the process of industrialization. Industrial Policy Resolution 1956 Industrial Policy is a comprehensive package of policy which covers various issues connected with different industrial enterprises of the country. On 30th April, 1956 a second Industrial Policy Resolution was adopted in India. Classification of Industries as per Industrial Policy Resolution, 1956 1) Schedule A: This category comprised of 17 industries which would be exclusively owned by the state. Example: arms and ammunitions, atomic energy, aircraft, oil, railway, shipping etc. 2) Schedule B: In this schedule, 12 industries were placed, which would be progressively state owned. Example: aluminum, other mining industries, machine tools, fertilizers, etc. 3) Schedule C: This schedule consisted remaining industries which were to be in the private sector. 14 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] Industrial Licensing → An industrial license is a written permission from the government, to an industrial unit to manufacture goods. → The industries (Development and Regulation) Act, 1951 empowered the government to issue license for: a) Setting up of New Industries; b) Expansion of existing ones; and c) Diversification of products. According to Industrial Licensing, → no new industry was allowed unless a license is obtained from the government. → It was easier to obtain license if the industrial unit was established in an economically backward area. → Licensed was needed even if an existing industry wants to expands output or diversification of products. Small-Scale Industry (SSI) → In 1955, the Village and Small-scale Industries Committee (Karve Committee) recognized the possibility of using small-scale industries to promote rural development. → A ‘small-scale industry’ is defined with reference to the maximum investment allowed on the assets of a unit. → At present the maximum investment allowed is rupees one crore. Important Points about Small-Scale Industries 1. Employment Generation: → Small-scale industries are more labour intensive, i.e., they use more labour than the large-scale industries and, therefore, they generate more employment. → After agriculture, small-scale industries provide employment to the largest number of people in India. 2. Need for Protection from Big Firms: → Small-scale industries cannot compete with big industrial firms. So, a) Government reserved production of number of products for them. b) They were also given concessions. 15 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] Foreign Trade → Foreign trade in India includes all imports and exports to and from India. → In order to be self-reliant in vital sectors, India has followed the strategy of replacing many imports by domestic production. 1. Import substitution Refers to a policy of replacement or substitution of imports by domestic production. This policy can serve 2 definite objectives: a) Savings of precious foreign exchange; and b) Achieving self-reliance. 2. Protection from imports made through ‘Tariffs’ and ‘Quotas’. → Tariffs refer to taxes levied on imported goods. The aim was to make them expensive and discourage their use. → Quota refers to non-tariff barrier imposed on the quantity of imports and exports. Reason for import substitution 1. To enable them to compete against the goods produced by more developed economies. 2. To prevent drain of foreign exchange reserves on the import of luxury goods. Critical Appraisal of Industrial Development (1950 – 1990) 1. The proportion of GDP increased from 11.8% to 24.6%. 2. Industrial sector became well diversified by 1990, largely due to the public sector. 3. Promotion of small-scale industries gave opportunities to people with small capital to get into business. 4. Protection from foreign competition through Import Substitution enabled development of indigenous industries. 5. Licensing Policy helped the government t monitor and control the Industrial production. 6. Public sector made a remarkable contribution by creating a strong industrial base, development infrastructure and promoting development of backward areas. Important Dates Relevant to this Chapter First Industrial Policy Resolution 1948 Planning Commission 1950 Launch of First Five Year Plan 1951 Industrial Development and Regulation Act 1951 Kare Committee or village and Small-Scale Industries Committee constituted 1955 st Duration of First Five Year Plan 1 April,1951 to 31st March,1956 Second Industrial Policy Resolution 30th April, 1956 First Phase of Green Revolution 1966 New Economic Policy 1991 Planning Commission replaced by NITI Aayog 2015 16 | P a g e ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] 17 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] CHAPTER – 3 LIBERLISATION, PRIVATISATION AND GLOBLISATION Introduction Since independence, India followed the mixed economic system, by combining the advantages of the market economic system with those planned economic system. But, in reality the public sector dominated the control and regulation of our economy and private sector was ignored. There was a huge investment in public sector and very low investment in the private sector. The dominance of public sector for about 4 decades led to establishment of various rules and laws, which hampered the process of growth and development. Reason for Economic Reforms 1. Poor Performance of Public Sector 2. Deficit in Balance of Payment 3. Inflationary Pressures 4. Fall in Foreign Exchange Reserves 5. Huge Burden of Debts 6. Inefficient Management Crisis of 1991 Forced India for Financial help from IMF and World Bank → To manage the economic crisis of 1991, Indian Government approached for loan from: → International Bank for Reconstruction and Development (IBRD), popularly known as World Bank; and → International Monetary Fund (IMF) (to avail short-term loans to solve Balance of Payments problem). India availed $7 billion loan from these agencies as loan For availing the loan, these international agencies expected India to liberalize and open up the economy by: a) Removing restrictions on the private sector; b) Reducing the role of government in many areas; and c) Removing trade restrictions. India Agreed to the conditions of World Bank and IMF and announced the New Economic Policy. 18 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] THE NEW ECONOMIC POLICY → The New Economic Policy (NEP) was announced in July,1991. → It consisted of wide range of Economic Reforms. → The main aim of NEP was to create a more competitive environment in the economy and remove the barriers to entry and growth of firms. The NEP can be broadly classified into two kinds of measures: 1. Stabilization Measures: They refer to short term measured which aim at a) Correcting weakness of the BOP by maintaining sufficient foreign exchange reserves; and b) Controlling inflation by keeping the rising prices under control. 2. Structural Reforms measures: They refer to long term measures which aim at: a) Improving the efficiency of the economy; and b) Increasing international competitiveness by removing the rigidities in various segments of the Indian Economy. MAIN POLICIES OF NEW ECONOMIC POLICY 1. Liberalization 2. Privatization 3. Globalization LIBERALIZATION → Means removal of entry and growth restrictions on the private sector. → Liberalization involves deregulation and reduction of government controls and greater autonomy of private investment, to make economy more competitive. → The purpose of liberalization was: a) To unlock the economic potential of the country by encouraging private sector and multinational corporations to invest and expand; and b) To introduce much more competition into the economy and creating incentives for increasing efficiency of operations, The economic reforms taken by the Government under liberalization include the following: 1. Industrial sector reforms 2. Financial sector reforms 3. Tax reforms 4. Foreign exchange reforms 5. Trade and investment policy reforms. Industrial Sector Reforms 1. Reduction in Industrial Licensing → In July 1991, a new industrial policy was announced. → It abolished the requirement of licensing except for the following five industries: a) liquor, b) cigarette, c) defense equipment, d) industrial explosives, and e) dangerous chemicals. 2. Decrease in role of Public Sector → Under the new industrial policy, number of industries reserved for public sector was reduced from 17 to 8. → In 2010-11, the number of these industries was reduced merely to two: a) Atomic Energy, and b) Railways. 19 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] 3. De-reservation under small-scale industries → Many production areas which earlier were reserved for SSI (Small Scale Industries) were de- reserved. 4. Freedom to Import Capital Goods → Liberalization also implied freedom for the industrialists to import capital goods with a view to upgrading technology. Financial sector reforms 1. Change in the role of RBI → The role of RBI was reduced from regulator to facilitator of financial sector. → As a result, financial sector was allowed to take decisions on many matters, without consulting the RBI. 2. Origin of Private Banks → The reform policies led to the establishment of private sector banks, Indian as well as foreign. Example: Indian banks like ICICI and foreign banks like HSBC. 3. Increase in limit of Foreign Investment → The limit of foreign investments in banks was raised to around 51%. 4. Ease in Expansion Process → The banks were given freedom to set up new branches (after fulfillment of certain conditions) without the approval of the RBI. Tax Reforms → Tax reforms refer to reforms in government’s taxation and public expenditure policies, → which are collectively known as its ‘fiscal policy’. 1. Reduction in taxes 2. Reforms in indirect taxes 3. Simplification of process Foreign Exchange Reforms 1. Devaluation of rupee → To overcome Balance of Payments crisis, the rupee was devalued against foreign currencies. → This led to an increase in the inflow of foreign exchange. 2. Market determination of exchange rate → The government allowed rupee value to be free from its control. Trade And Investment Policy Reforms 1. Removal of Quantitative Restrictions on Imports and Exports 2. Removal of Export Duties 3. Reduction in Imports Duties 4. Relaxation in Import Licensing System 20 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] PRIVATIZATION → Privatization means transfer of ownership, management and control of public sector enterprises to the entrepreneurs in the private sector. → Privatization can be done in two ways: 1. Transfer of ownership and management of public sector companies from the government to the Private Sector; 2. Privatization of the public sector undertakings (PSU) by selling off part of the equity of PSUs to the public. This process is known as disinvestment. Purpose of privatization was mainly to improve financial discipline and facilitate modernization. It was also believed that private capital and managerial capabilities will help in improving performance of the PSUs. GLOBALIZATION → means integrating the national economy with the world economy → trough removal of barriers on international trade and capital movements. Changes made by the Globalization of the Indian Economy 1. The New Economic Policy prepared a specified list of high technology and high investment priority industries, in which automatic permission will be available for foreign direct investment up to 51 percent of foreign equity. 2. In respect of foreign technology agreement, automatic permission is provided in high priority industry upto a sum of rupees 1 crore. No permission is now required for hiring foreign technicians or for testing indigenously developed technology abroad. 3. In order to make international adjustment of Indian currency, rupee was devalued in July 1991 by nearly 20 percent. It stimulated exports, discouraged imports and raised the influx of foreign capital. 4. To integrate Indian economy with world, the Union Budget 1992-1993 made Indian rupee partially convertible and then the rupee was made fully convertible kin 1993-94 budget. 5. A new five-year export-import policy (1992-1997) was announced by the Government. The policy removed all restrictions and controls on the external trade. 6. The peak rate of customs duty has been reduced from 250 per cent to 10 per cent in 2007-2008 budget. 21 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] POSITIVE AND NEGATIVE TRAITS OF GLOBALIZATION In Favour of Globalization a) Greater access to global markets; b) Advanced technology; c) Better future prospects for large industries of developing countries to become important players in the international arena. d) Better prospects for skilled people across the globe to increase their earnings by utilizing their skills. Against Globalization Globalization has been criticized by some scholars because according to them: a) Benefits of globalization accrue more to developed countries as they are able to expand their markets in other countries. b) Globalization compromises the welfare and identity of people belonging to poor countries. c) As a result of globalization, MNCs have gained strong position in the developing countries, due to which domestic companies are forced to face stiff competition. OUTSOURCING → Outsourcing refers to contracting out some of its activities to a third party which were earlier performed by the organization. → For example, many companies have started outsourcing security service to outside agencies on a contractual basis. India has become a favorable destination of outsourcing for most of the MNCs because of: a) Availability of skilled manpower b) Favorable Government Policies c) Low Wage Rate and availability of cheap labour in India for skilled work. d) Considerable growth of Indian IT industry WORLD TRADE ORGANIZATION (WTO) → Prior to WTO, General Agreement on Trade and Tariff (GATT) was established as global trade organization, in 1948 with 23 countries. → GATT was set up to administer all multilateral trade agreements by providing equal opportunities to all countries in the international market. → WTO was formed in 1995 as the successor organization to the GATT. Some Major Functions of WTO 1. To facilitate international trade through removal of tariff as well as non-tariff barriers; 2. To establish a rule-based trading regime, in which nations cannot place arbitrary restrictions on trade; 3. To encourage production and trade of services; 4. To ensure optimum utilization of world resources; and 5. To protect the environment. 22 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] Should India be a member of WTO According to some scholars, India should not be a member of WTO because: a. Major volume of international trade occurs among the developed nations; and b. Developing countries are being cheated as they are forced to open up their markets for developed countries and are not allowed access to markets of developed countries. Bilateral Trade refers to trade between two countries. Multi-lateral trade refers to trade between more than two countries. Tariff Barriers refers to barriers which are imposed on imports to make them relatively costly and to protect the domestic production. Non-Tariff Barriers refers to barriers which are imposed on the number of imports and exports. Argument in Favour of Economic Reforms Criticism of Economic Reforms 1) Increase in rate of economic growth 1) Growing Unemployment 2) Inflow of Foreign investment 2) Neglect of Agriculture 3) Rise in Foreign Exchange Reserves 3) Low level of Industrial Growth 4) Rise in Exports 4) Ineffective Disinvestment Policy 5) Control in Inflation 5) Ineffective Tax Policy 6) Increase in the role of Private Sector 6) Spread of consumerism 7) Unbalanced Growth Important Dates Relevant to this Chapter Establishment Of GATT 1948 Economic Crisis in India 1948 New Economic Policy or Economic Reforms 1991 World Trade Organization (WTO) Was Founded 1995 Removal Of Quantitative Restrictions on Imports of Manufactured Goods April, 2001 Make In India Initiative September,2014 Demonetization 8th November, 2016 Goods And Services Tax Act 29th March, 2017 Goods And Services Act Came into Effect 1st July, 2017 23 | P a g e ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] 24 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] CHAPTER –4 HUMAN CAPITAL FORMATION CONCEPT OF HUMAN CAPITAL AND HUMAN CAPITAL FORMATION → Human Capital refers to the stock of ‘skill and expertise’ of a nation at a point of time. → It is the sum total of skill and expertise of engineers, doctors, professors, and workers of all types who are engaged in the process of production. → Human capital formation is the process of adding to stock of human capital over time. “Human Capital Formation is the process of acquiring and increasing the number of persons who have the skill, education and experience which are essential for the economic and political development of a country.” --- G.M Meier Human Capital is different from Physical Capital and Financial Capital Physical Capital includes all those inputs which are required for further production, like plant and machinery, factory, buildings, raw materials, etc. Financial Capital refers to paper claims against physical capital. DETERMINANTS/SOURCES OF HUMAN CAPITAL FORMATION 1. Expenditure on Education → It is the most effective way of raising a productive workforce in the country. → Therefore, it is a very important determinant of human capital formation. 2. Expenditure on health → “A sound mind in a sound body” is an old saying. → Expenditure on health makes a man more efficient and more productive. → His contribution to the production process tends to rise. → He adds more to the GDP of the nation than a sick person. 3. On-the-Job- Training → On-the-job-training helps workers to sharpen their specialized skills. → It enables them to raise the level of their efficiency. 4. Expenditure on Migration → People migrate from one place to another in search of jobs that fetch them higher salaries. → It is a source of human capital formation as enhanced earnings in the migrated place is more than the increase in costs due to migration. 5. Expenditure on Information → Information relating to job markets and educational institutions offering specialized skills is an important determinant of skill formation. → It enables people to actualize their productive potential. 25 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] IMPORTANCE OF HUMAN CAPITAL FORMATION 1. Effective use of Physical Capital → The growth and productivity of physical capital depends extensively on the human capital formation. → The physical capital can be created only be means of hard and intelligent work of human beings in the economy. 2. Higher Productivity and Production → Human capital formation raises the productivity and production as knowledgeable and skilled worker makes better use of the resources. 3. Inventions, Innovations and Technological Improvement → The human capital formation stimulates innovations and creates ability to absorb new technologies. → Education provides knowledge to understand changes in society and scientific advancements, which facilitates inventions and innovations. 4. Increases Life Expectancy → Health facilities and availability of nutritive food enable people to live a healthy and long life. 5. Improves Quality of Life → The quality of population depends upon the level of education, health of a person and skill formation acquired by the people. Human capital transforms the lives of the people. PROBLEMS OF HUMAN CAPITAL FORMATION 1. Insufficient Resources → The resources allocated to the formation of human capital have been much less than the resources required. → Due to this reason, the facilities for the formation of human capital have remained grossly inadequate. 2. High Growth of Population → The continuous rise in population has adversely affected the quality of human capital. → It reduces per head availability of the facilities. 3. Brain Drain → People migrate from one place to other in search of better job opportunities and handsome salaries. → It leads to the loss of quality people like doctors, engineers, chartered accountants etc. who have high caliber and are rare in a developing country. → The cost of such loss of quality human capital is very high. 4. Weak Science and Technology → In respect of education, the performance is particularly unsatisfactory in the fields of science and development of modern technology. 5. Lack of Proper Manpower Planning → There is imbalance between the demand and supply of human resources of various categories, especially in case of highly skilled personnel. → The absence of such balancing has resulted in the wastage of resources. 26 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] HUMAN CAPITAL AND HUMAN DEVELOPMENT → Human Capital considers education and health as a means to increase labour productivity. → Human capital is a narrow concept as it treats human beings as a means to increase in productivity. → Any investment in education and health is unproductive if it does not enhance output of goods and services. → Human Development, education and health are integral to human well-being → because only when people have the ability to read and write and the ability to lead a long and healthy life, → they will be able to make other choices which they value. → It is a broader concept as it considers human beings as end in themselves. → According to human development, human welfare should be increased through investments in education and health even if such investments do not result in higher labour productivity. HUMAN CAPITAL FORMATION IN INDIA: GREAT PROSPECTS We have already learnt that human capital formation is the outcome of investments in education, health, on-the-job training, migration and information. Out of all these elements, education and health are very important sources of human capital formation. → We know that ours is a federal country with a union government, state governments and local governments. → The constitution of India mentions the functions to be carried out by each level of government. → Accordingly, expenditure on both education and health are to be carried out simultaneously by all three tiers of the government. → Education and health care services create both private and social benefits. → As a result, both private and public institutions exist in the education and health service markets. Need for Government Intervention → The expenditure on education and health assumes great importance on the formation of human capital. So, it is very important that such expenditure provides positive results. → To ensure favorable benefits, Government intervention is important because of following reasons. 1. The expenditure on education and health make substantial long-term impact and they cannot be easily reversed. 2. Individual consumers of these services do not have complete information about the quality of services and their costs. 3. The providers of education and health services may acquire monopoly power and may get involved in exploitation. So, the role of the government is important to ensure that the private providers of these services adhere to the standards stipulated by the government and charge the correct price. 27 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] REGULATORY AUTHORITY IN EDUCATION → NCERT – NATIONAL COUNCIL OF EDUCATION RESEARCH AND TRAINING → UGC – UNIVERSITY GRANTS COMMISSION → AICTE – ALL INDIA COUNCIL OF TECHNICAL EDUCATION These organization regulate the education sector. IN HEALTH → ICMR – INDIAN COUNCIL FOR MEDICAL RESEARCH regulate the health sector. EDUCATIONAL SECTOR IN INDIA Growth in Government Expenditure The expenditure by the government on education is expressed in two ways: 1. As a percentage of total government expenditure → During 1952-2014, it increased from 7.92 to 15.7. 2. As a percentage of Gross Domestic Product (GDP) → During 1952-2014, it increased from 0.64 to 4.13. Important points about Government Expenditure ▪ Government spends more on Elementary Education → Elementary education takes a major share of total education expenditure. → Share of higher or tertiary education is the least. ▪ Expenditure on Tertiary Education is important → On an average government spends less on tertiary education. However, expenditure per student in tertiary education is higher than that of elementary education. ▪ Difference in education opportunities across states → In 2014-15, the per capita expenditure differs considerably across states from as high as ₹ 34,651 in Himachal Pradesh to as low as ₹ 4,088 in Bihar. → This leads to differences in educational opportunities and attainments across states. Inadequate Expenditure on Education More than 40 years ago, the Education Commission 1964-66 had recommended that at least 6% of GDP should be spent on education. However, the current level expenditure is little over 4%, which is quite inadequate. 28 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] Provision of Free and Compulsory Education The Tapas Majumdar Committee, appointed by Indian Government in 1998, estimated an expenditure of around Rs.1.37 lakh crore over 10 years (1998-99 to 2000-07) to bring all Indian children in the age group of 6-14 years under the purview of school education. → In 2009, the Government of India enacted the Right to Education Act to make free education a fundamental right of all children in the age group of 6-14 years. → Government of India has also started levying a 2% ‘education cess’ on all union taxes. The revenues from education cess have been earmarked for spending on elementary education. EDUCATIONAL ACHIEVEMENTS IN INDIA PARTICULARS 1990 2000 2015 ADULT LITERACY RATE (% of people aged 15 plus) MALE 61.9 68.4 81 FEMALE 37.9 45.4 63 PRIMARY COMPLETION RATE (% of relevant age group) MALE 78 85 94 FEMALE 61 69 99 YOUTH LITERACY RATE (% of people aged 15 + to 24) MALE 76.6 79.7 92 FEMALE 54.2 64.8 87 FUTURE PROSPECTS IN EDUCATIONAL SECTOR Education for All: Still a Distant Dream → The literacy rate for both adults as well as youth have increased. → However, the absolute illiterates are still as much as India’s population was at the time of independence. In 1950, it was noted in the Directives of the Constitution that the government should provide free and compulsory education for all children up to age of 14 years. Had we done this, we would have achieved 100% literacy by now. Gender Equity: Better than Before The difference in literacy rates between males and females are narrowing. It indicates a positive development in gender equity. However, women education needs to be promoted: → To improve economic independence and social status of women; and → Women education makes a favorable impact on fertility rate and health care of women and children. Important Dates Education Commission recommendation to spend at least 6% of GDP on education 1964-66 Tapas Majumdar Committee appointed by Indian Government 1998 ‘Right to Education Act’ 2009 India was declared a ‘Polio Free’ country by WHO 27th March, 2014 29 | P a g e ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] 30 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] CHAPTER-5 RURAL DEVELOPMENT Introduction → In India, majority of the poor people live in rural areas, → Where they do not have access to the basic necessities of life. → Around 22% of our total population still lives below the poverty line. Meaning of Rural Development → Rural development refers to continuous and comprehensive socio-economic process, → attempting to improve all aspects of rural life. Process of Rural Development Rural development aims at comprehensive change and improvement of rural life in all aspects. Some of the areas, which are challenging and need fresh initiatives for development in India include: 1. Development of Human Resources → The quality of human resources needs to be improved through following measures: → Proper attention to literacy (specifically for female literacy), education and skill development; and → Better and more affordable Health facilities for the physical growth and sanitation facilities at workplaces and homes. 2. Development of Infrastructure → it involves improvement in electricity, irrigation, credit, marketing and transport facilities. → Better facilities for agriculture research and extension and information dissemination. 3. Land reforms It includes the following objectives: → Elimination of exploitation in land relations; → Actualization of the goal of ‘land to the tiller’; → Improvement of socio-economic conditions of rural poor by widening their land base; → Increasing agricultural productivity and production. Agricultural productivity refers to output per hectare of land. 4. Alleviation of Poverty → As stated earlier, around 22% of total population is still below the poverty line. → So, there is a serious need for taking serious steps for alleviation of poverty and bringing significant improvement in living conditions of weaker sections. 5. Development of the productive resources → Of each locality to enhance opportunities of employment (particularly other than farming). 31 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] RURAL CREDIT → Growth of rural economy depends of timely infusion of capital, → To realize higher productivity in agriculture and non-agriculture sectors. → In agriculture, farmers are in strong need for credit due to long time gap between crop sowing and realization of income. SOURCES OF RURAL CREDIT → With growing modernization of agriculture during post-green revolution period, → The requirement of agriculture credit has also increased in the recent years. → Broadly, there are two sources, from which the farmers can raise loans: a) Non-Institutional Sources b) Institutional Sources Non-Institutional Sources 1. Moneylenders → From the very beginning, moneylenders have been advancing a major share of farm credit. The peasants are exploited through very high rates of interest. → Quite frequently, their accounts are manipulated without their knowledge. 2. Relatives → Cultivators borrow funds from their own relatives in times of crisis. → There loans are a kind of informal loans and carry no interest and are normally returned after harvest. 3. Traders and Commission Agents → They provide credit to the peasants on the mortgage of crops at high rates of interest, on a condition, that the crops will be sold to them at low prices. 4. Rich Landlords → Small as well as marginal farmers and tenants, take loans from landlords, for meeting their financial requirements. → Landlords also charge high rates of interest on such loans and exploit peasants, particularly small farmers and tenants. Institutional Sources 1. Co-operative Credit → The primary objective of the co-operative is to liberate the Indian peasantry from the clutches of money lenders and to provide them credit at low rates of interest. 2. Land development Banks → They provide credit to the farmers against the mortgage of their lands. → Loans are provided for permanent improvement of land, purchasing agricultural implements and for directly financing the farmers. 3. Commercial Bank Credit → Initially, commercial banks played a marginal role in advancing rural credit. → However, after nationalization in 1969, they expanded their branches in rural areas and started directly financing the farmers. 32 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] 4. Regional Rural Banks → They are opened up in those areas where there are no banking facilities. → Their main objective is to provide credit and other facilities, especially to small and marginal farmers, agricultural labourers, artisans, and small entrepreneurs in rural areas. 5. The Government → The loans provided by the government are known as taccavi loans and are lent during emergency or distress, like famines, floods, etc. The rate of interest charged against such loan is as low as 6%. 6. NABARD → It is the Apex Bank which coordinates the functioning of different financial institutions, working for expansion of rural credit. Its objective is to promote health and strength of credit institutions. → Besides providing finance to credit institutions, NABARD also provides financial assistance to the non-farm-sector, to promote integrated rural development and prosperity of backward rural areas. 7. Self-Help Group (SHG) Bank Linkages Programme for Micro Finance: → SHG has emerged as the major finance programme in the country in recent years. Their focus is largely on those rural poor, who have no sustainable access to the formal banking system. → So, their target groups comprise of small and marginal farmers, agricultural and non-agricultural labourers, artisans, etc. → By March 2012, more than forty-three lakh SHGs had reportedly have been credit linked. Problem Faced in Rural Banking 1. Insufficiency → The volume of credit in the country is still insufficient in comparison to its demand. 2. Inadequate Coverage of Institutional Sources → the institutional credit arrangements continue to be inadequate as they have failed to cover the entire rural farmers of the country. 3. Inadequate Amount of Sanction → The amount of loan sanctioned to the farmers is also inadequate. → As a result, farmers often divert such loans for unproductive purposes, which dilute the very purpose of such loan. 4. Less Attention to Poor or Marginal Farmers → Lesser attention has been given on the credit requirements of needy farmers. → Due to lack of collateral, such needy farmers are generally rejected credit from banks and other institutional sources. → On the other hand, well-to-do farmers are getting more attention due to better credit worthiness. 5. Growing Overdues → The problem of overdue in agricultural credit continues to be an area of concern. → The basic reason for growing overdue is the poor repaying capacity of farmers. As a result, credit agencies are becoming cautious of granting loan to farmers. 33 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] AGRICULTURAL MARKETING → is a process that involves assembling, storage, processing, transportation, packaging, grading and distribution → of different agricultural commodities across the country. Problems Faced by Farmers 1. Manipulations by Big Traders → Prior to independence, farmers suffered from faulty weighing and manipulation of accounts while selling their produce to traders. 2. Lack of Market Information → Farmers were often forced to sell at low prices due to lack of required information on prices prevailing in the markets. 3. Lack of Storage Facilities → They also did not have proper storage facilities to keep back their produce for selling later at a better price. → Even today, more than 10% of goods produced in farms are wasted due to lack of storage. Measures to Improve Agricultural Marketing 1. Regulated Markets → Regulated markets have been organized with a view to protect the farmers from malpractices of sellers and brokers. 2. Infrastructural Facilities → Government aims to provide physical infrastructure facilities like roads, railways, warehouses, godowns, cold storages and processing units. 3. Cooperative Marketing → The aim is to realise fair price for farmers’ products. 4. Different Policy Instrument → In order to protect the farmers, government initiated following policies: a) Minimum Support Prices (MSP): To safeguard farmers’ interest. Government fixes MSP of various agricultural products. b) Maintenance of Buffer Stock: Buffer stock is created in the years of surplus production and is used during shortages. c) Public Distribution System (PDS): it operates through a network of ration shops and fair price shops. Fair price shops offer essential commodities like wheat, rice, kerosene, etc. at a price below the market price, to the weaker sections of the society. Diversification of Agricultural Activities Reason for Diversification → Agricultural plays a very important role in the economic development. → However, the vast majority of rural people work on land and there is greater risk in depending only on agriculture. → The need for diversification process arises because: a) There is a greater risk in depending exclusively on farming for livelihood; and b) To provide productive sustainable livelihood options to rural people. 34 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] Benefits for Diversification 1. To provide supplementary gainful employment; 2. To enable them to earn higher levels of income; and 3. To enable rural people to overcome poverty and other troubles. Types of Diversification 1. Diversification of Crop Production (Change in Cropping Pattern) 2. Diversification of Productive Activities (shift of workforce from agriculture to other allied activities and non-agriculture sectors). NON-FARM AREAS OF DEVELOPMENT 1) ANIMAL HUSBANDRY is that branch of agriculture, which is concerned with the breeding, rearing and caring for farm animals. → Under livestock farming, cattles, goats and fowls (duck, goose, etc.) are the widely held species. → India owns one of the largest livestock populations in the world. → A significant number of women also find employment in the livestock sector. → In India, poultry accounts for the largest share of 58% followed by others. 2) DAIRYING is that branch of agriculture which involves breeding, raising and utilization of dairy animals for the production of milk and the various dairy products processed from it. → Dairying is the business of producing, storing and distributing milk and its products. → The performance of the Indian dairy sector over the last three decades has been quite impressive. → Due to the successful implementation of ‘Operation Flood’, India ranks first in the world in milk production. → India’s milk production increased from 17 million tonnes in 1950-51 to 102.6 million tonnes in 2006-07 and increased to 165.4 million tonnes in 2016-17. Operation Flood or White Revolution → was started by NDDB in 1970 under the expert guidance of then chairman, Dr. Verghese Kurien. → The objective of this programme was to create a nationwide mild grid. → The movement for massive rise in the milk production in India is termed as White Revolution. → Under the operation flood system, all the farmers pool their milk produce according to different grades and same is processed and marketed t urban centres through cooperatives. The farmers are assured of a fair price and income. → Gujarat state is held as a success story in the efficient implementation of milk cooperatives, which has been followed by many states. 35 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] 3) FISHERIES refer to the occupation devoted to the catching, processing or selling of fish and other aquatic animals. → Fisheries sector plays an important role in the socio-economic development of the country. → Important points about fisheries a) Fishing community regards water body as ‘mother’ → The water bodies are considered as ‘mother’ or ‘provider’ as they provide life-giving source to the fishing community. b) Volume of Fish Production → Inland sources contribution about 64% to the total fish production and the balance 36 % comes from marine sector (sea and oceans). c) Share of Fishing in GDP → Total fish production accounts 0.8% of total GDP. In India, West Bengal, Andhra Pradesh, Kerala, Gujrat, Maharashtra and Tamil Nadu are major fish producing states. d) Women Participation in Fishing → Even though women are not involved in active fishing, still, 60% of the workforce in export marketing and 40% in international marketing are women. e) Problems faced in Fishing → Widespread Underemployment; → Low Per capita earnings; → Absence of mobility of labour to other sectors; → High Illiteracy rate and indebtedness. 4) HORTICULTURE refer to the science or art of cultivating fruits, vegetables, tuber crops, flowers, medicinal and aromatic plants, spices and plantation crops. → Important points about Horticulture a) Contribution → Horticulture sector contributes nearly one-third of the value of agriculture output and 6% of Gross domestic Product of India. b) Share in World’s Production → India is the second largest producer of both fruits and vegetables in the world. c) Improvement in economic condition → Horticulture has improved economic condition of many farmers and has become a means of improving livelihood for many underprivileged classes too. d) Great Scope for Women Employment → Flower harvesting, nursery maintenance, hybrid seed production and tissue culture, propagation of fruits and flowers and food processing are highly remunerative employment options for women in rural areas. e) Golden Revolution → Golden Revolution refers to the period in which there was a tremendous rise in the production of horticulture products like fruits, vegetables etc. → The period between 1991 to 2003 is known as the period of Golden Revolution in India. 36 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] 5) INFORMATION TECHNOLOGY refer to that branch of engineering that deals with the use of computers and telecommunications to retrieve and store and transmit information. Important Points about Information Technology → Through appropriate information and software tools, government has been able to predict areas of food insecurity and vulnerability, to prevent or reduce the likelihood of an emergency. → It also has a positive impact on the agriculture sector as it circulates information regarding emerging technologies and its applications, prices, weather and soil conditions for growing different crops, etc. → It acts as a tool for releasing the creative potential and knowledge embedded in the society. It also has potential of employment generation in rural areas. The aim for increasing the role of information technology is to make every village a knowledge center, where it provides a sustainable option of employment and livelihood. ORGANIC FARMING → Organic farming is the form of agriculture that relies on the techniques such as crop rotation, green manure, compost and biological pest control. Benefits of Organic Farming 1. Economical farming → Organic farming offers a means to substitute agricultural input (such as HYV seeds, chemical fertilizers, pesticides etc.) with locally produced cheaper organic inputs. 2. Generates income through exports → It generates income through international exports as demand for organically grown crops is on a rise. 3. Provides Healthy Food → It provides healthy food as organically grown food has more nutritional value than food grown through chemical farming. 4. Source of Employment → Organic farming generates more employments opportunities as it requires more labour input than conventional farming. → Due this reason, India has comparative advantage in organic farming because of abundance of labour. 5. Safety of Environment → The produce of organic farming is pesticide-free and is produced in an environmentally sustainable way. 6. Sustains Soil Fertility → Organic farming improves soil fertility through the application of organic matter inputs in the form of animal manures, compost and farmyard manure. → On the other hand, conventional farming makes use of chemical fertilizers, which erode soil fertility. 37 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] Challenges before Organic Farming 1. Less Popular → Organic farming needs to be popularized by creating awareness and willingness on the part of farmers, for adoption of new technology. → There is a serious need for an appropriate agriculture policy to promote organic farming. 2. Lack of infrastructure and marketing facilities → Organic farming faces problems of inadequate agriculture policy to promote organic farming. 3. Low Yield → Organic farming has a lesser yield in the initial years as compared to modern agricultural farming. As a result, small and marginal farmers find difficult to adapt to large-scale production. 4. Shorter food Life → Organic produce has a shorter shelf life as compared to sprayed produce. 5. Limited Choice of Crops → The choice in production of off-season crops is quite limited in organic farming. Evaluation of Rural Development 1. Stress on Diversification → There is need to make rural areas more vibrant through diversification into dairying, poultry, fisheries, vegetables and fruits. 2. Rural and Urban Linkage → Efforts should be made to link up the rural production centres with the urban and foreign markets to realise higher returns on the investment for the products. 3. Better Facilities → Proper efforts should be made to develop: → Infrastructure elements like credit and marketing; → State agricultural departments; → Farmer-friendly agricultural policies; → Constant appraisal and dialogue between farmers groups. 4. More emphasis on Sustainable Development → There is need to invent or produce alternate sets of eco-friendly technologies that lead to sustainable development in different circumstances. Important Dates Relevant to This Chapter Nationalization of Banks 1969 Operation Flood or White Revolution started by National Dairy 1970 Development Board (NDDB) under the guidance of Dr. Verghese Kurien to create a nationwide milk grid. National Bank for Agriculture and Rural Development 12 t h July,1982 (NABARD) Period of Golden Revolution 1991 to 2003 38 | P a g e ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] 39 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] CHAPTER –6 EMPLOYMENT: GROWTH, INFORMALISATION AND OTHER ISSUES MEANING OF WORKER → A worker is an individual, → who is involved in some economic activity, → to earn a living. Example of Workers: Farmers, Managers, Labourers, Doctors, Professors etc. Who all are included in “Workers”? → It is generally believed people who are paid by employers are workers. → However, this is not true. Workers includes self-employed persons like shopkeepers, barbers, cobblers etc. It also includes those people who remains temporarily absent from work due to illness, injuries or other physical disability, bad weather, festivals, social or religious functions or some other reasons It also includes those peoples who helped the workers. LABOUR FORCE → All persons, who are working and though not working, → are seeking and available for work, → are deemed to be in the labour force. Labour Force = Person Working + Person seeking and/ or available for work Children below 15 years and old persons above 60 years are excluded from labour force. LABOUR FORCE PARTICIPATION RATE [LFPR] → The ratio of labour force to total population is called LFPR. → It is used to analyzing the employment situation of a country. WORK FORCE → The number of persons, → who are actually employed at a particular time are known as work force. Unemployed People = Labour Force − Work Force WORKER-POPULATION RATIO It refers to the ratio of total number of workers to the total population. 𝑻𝒐𝒕𝒂𝒍 𝑵𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝑾𝒐𝒓𝒌𝒆𝒓𝒔 Worker Population Ratio = 𝑻𝒐𝒕𝒂𝒍 𝑷𝒐𝒑𝒖𝒍𝒂𝒕𝒊𝒐𝒏 40 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] Worker Population Ratio in India (2017-18) WORKER POPULATION RATIO SEX RURAL URBAN TOTAL Men 51.7 53.0 52.1 WOMEN 17.5 14.2 16.5 35.0 33.9 34.7 With the help of data given in table, the following conclusions are drawn: For every 100 persons 34.7 % are workers in India Higher proportion of Rural People Employment Opportunities Higher Proportion of Male Workers More women workers in rural areas Underestimation of women workers. MEANING OF EMPLOYMENT → It is an activity which enables a person to earn means of living. EMPLOYMENT Self-Employment Wage Employment An arrangement in which workers uses his An arrangement in which a worker sells his labour own resources to earn living. to earn living. Ex: Shopkeeper, Traders etc. Ex: School Teachers, Office Employees etc. Regular Workers (Regular Salaried Employee) When a worker is engaged by someone or by an enterprise and is paid wages on regular basis, then such worker is known as regular salaried employee. Casual Workers Workers who are casually engaged and, in return, get remuneration for the work done, are termed as casual workers. Employment Distribution (2017-18) Nature of Employment Per cent Self-Employed 52.2 Regular Workers 22.8 Casual Workers 25.0 Total 100.0 41 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] Distribution of Employment in Different Sectors Generally, we divide all economic activities into following 8 different industrial divisions PRIMARY 1. Agriculture 2. Mining and Quarrying SECONDARY 3. Manufacturing 4. Electricity, Gas & Water 5. Construction Supply TERTIARY 6. Trade 7. Transport and Storage 8. Services Distribution of Employment in Different Sectors (2017-18) (IN%) 1. Primary source is the main source of employment (44.6%), for majority of workers in India. 2. secondary source provides employment to only (24.4%), for majority of workers in India. 3. 31% of workers are engaged in the service sector. Industrial Category Place of Residence Sex Total Rural Urban Male Female Primary Sector 59.8 6.6 40.7 57.1 44.6 Secondary Sector 20.4 34.3 26.5 17.7 24.4 Tertiary Sector 19.8 59.1 32.8 25.2 31.0 Total 100.0 100.0 100.0 100.0 100.0 JOBLESS GROWTH → refers to a situation when the economy is able to produce more goods and services. → without a proportionate increase in employment opportunities → i.e., economy tends to rise without any increase in the level of employment CASUALIZATION OF WORKFORCE → The process of movement from self-employment to regular salaried employment to casual wage work is known as casualization of workforce. Reasons for Increasing Casualization 1. Self-employed small or marginal farmers are becoming casual workers due to low scope of earnings in agricultural activities. 2. Slow growth of employment in the organized sectors is also a reason for workers taking up casual jobs. 42 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] INFORMALIZATION OF WORKFORCE → refers to a situation whereby the proportion of workforce in the informal sector to total workforce increases. FORMAL SECTOR (ORGANISED SECTOR) INFORMAL SECTOR (UNORGANISED SECTOR) → All the public enterprises and private → Informal sector includes all those private establishments which employ enterprises → 10 or more workers are called formal sector → which hire less than 10 workers. establishments. → Formal sector workers enjoy social security’s → Informal Sector workers do not get regular benefits. income. → Government protects them in various ways → They do not have any protection or through its labour laws. regulation from the govt. → Provides work to just 6% of the total → In India over 94% employment is found in the workforce. unorganized sector. Distribution of workforce in Formal and Informal Sector, 2011-12 Category Number of Workers (in millions) Male Female Total Formal Sector 24 6 30 Informal Sector 310 133 443 MEANING OF UNEMPLOYMENT → refers to a situation in which people are willing to work and are able to work at the existing wage rate, but do not get work. Sources Of Unemployment Data 1. Report of Census of India 2. National Sample Survey Organization (NSSO) 3. Directorate General of Employment &Training TYPES OF UNEMPLOYMENT IN INDIA DISGUISED UNEMPLOYMENT SEASONAL UNEMPLOYMENT OPEN UNEMPLOYMENT refers to a situation where refers to unemployment that refers to unemployment in more people are engaged in occurs at certain seasons of the which persons are able and work than are really needed. year. willing to work at prevailing wage rate, but fail to get work. 43 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] Causes Of Unemployment: 1. Slow rate of economic growth → The actual growth rate always lies far below the rate targeted in five decades of planning. → Employment opportunities created under the plans could not keep pace with the additions to the labour force. 2. Population explosion → The rapid growth of population has been another cause of increasing unemployment in the country. → It has not been possible to generate so many employment opportunities to absorb the large growing labour force. 3. Slow Growth of Industries → Due to shortage of capital and lack of modern and advanced technology, industrial sector could not gain its momentum and could not generate sufficient employment opportunities in the country. 4. Decline of Cottage and Small –scale Industries → A number of traditional village and cottage industries have declined over the years due to change in the demand preferences and emergence of more efficient modern industries. → As a result, a large number of people have become unemployed. 5. Defective Educational System → the prevailing education system in India is full of defects. → The large number of engineering, management and other educational institutes provide numerous engineers, MBAs, etc. → But due to lack of technical and vocational training, such educated people are unable to meet the requirements of the firm and remain unemployed. 6. Underdeveloped Agriculture → Heavy pressure of population on land and the primitive methods of agricultural operations are responsible for massive rural unemployment and underemployment in the country. Remedial Measures for Unemployment 1. Accelerating growth rate of GDP. → The aggregate employment problem can be solved through the process of accelerated growth. → Growth rates of GDP between 8% and 9% are needed over next ten years, to achieve a significant improvement in the unemployment situation. 2. Control of population growth → The rapid growth rate of population should be slowed down, so that the additional jobs created do not fall short of new entrants to the labour market. → Therefore, it is necessary to adopt an effective and meaningful population control policy, like family planning programmes. 3. Encouragement to Small- Scale Industry (SSI) → The small-scale sector needs to be encouraged through multiple initiatives like liberal finance, technical training, supply if raw material, infrastructural facilities, and marketing of their products. 44 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] 4. Improvement in Infrastructure → The infrastructure facilities like health, education, irrigation, electricity, roads, etc. are crucial for overall development of the economy. → Better infrastructural facilities enable agriculture and industry sector to produce to their full capacity. This will generate more employment. 5. Creation of Self-employment opportunities → Government should provide various facilities like financial assistance, training of skills, supply of inputs, marketing of products, etc. to generate more self-employment opportunities. 6. Special Employment Programs → Special employment programs, which aim at providing wage employment or self-employment opportunities, should be implemented. GOVERNMENT POLICIES AND EMPLOYMENT GENERATION Government’s efforts can be broadly categorized into two aspects: Direct Employment: By employing people in various departments for administrative purposes. Indirect Employment: With increase in output of goods and services of a government enterprises, the number of employment opportunities in the economy will increase. CONCLUSIONS There has been a change in the structure of workforce in India. Services Sector-Emerging as a prospective employer. Technological Advancement Outsourcing of Work Work at Home More employment in Informal Sector Growth in GDP, but not in employment opportunities. 45 | P a g e ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] 46 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] CHAPTER-7 ENVIRONMENT AND SUSTAINABLE DEVELOPMENT INTRODUCTION → Since independence, India has launched a number of economic plans, to attain the economic development at quicker pace. → However, the economic development that we have achieved so far has come at a very heavy price- at the cost of environment quality. MEANING OF ENVIRONMENT → Refers to total planetary inheritance and the totality of all resources. Biotic Elements Abiotic Elements [include all living elements like [include non-living elements like birds, plants, forests etc.] air, water, land etc.] FUNCTION OF THE ENVIRONMENT 1. Provides resources for Production: Renewable and Non-Renewable 2. Environment assimilates Waste: Wastage is absorbed by environment 3. Environment sustains Life: Some basic necessities of life (Sun, Soil, Water, and air) are part of environment. Environment sustains life by providing this. 4. It provides aesthetic services: Environment includes land, forest, water bodies, rainfall, atmosphere etc. People enjoy the scenic beauty of these elements help in improving quality of life. REASONS FOR ENVIRONMENTAL CRISIS 1. Population Explosion and advent of industrial revolution. 2. Extensive extraction of renewable and non-renewable resources. 3. Extinction of Many Resources. 4. Affluent consumption and Production Standards. 5. Air and water pollution due to development process. 6. Global Warming and Ozone depletion. 47 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] Opportunity costs of negative environmental impact are high: Increased Financial commitments of the government due to global warming and rise in expenditure of health due to decline in air and water quality shows that opportunity costs of negative environmental impacts are high. Reversal of Supply –Demand relationship: Reasons for Environmental Degradation → In the past, Demand was less than Supply. → Presently, Demand is more than Supply. GLOBAL WARMING → Is the observed and projected increase in the average temperature of earth’s atmosphere and oceans. Causes of Global Warming Burning of coal and petroleum products. Deforestation Methane gas released in animal waste Increased cattle production. Main effects of Global Warming 1. Melting Ice → Ice is melting worldwide. It has led to steep rise in sea level and coastal flooding. 2. Natural Disasters: → Hurricanes and other tropical storms are likely to become stronger. 3. Effect on Seasons: → Global Warming has led to shift in cycle of seasons summers are getting unusual longer than winters. OZONE DEPLETION → Refers to destruction of ozone in the ozone layer due to presence of chlorine from manmade chlorofluorocarbons (CFCs) and other forces. Causes of Ozone Depletion 1) CFC which is used as cooling substances in AC and refrigerators; 2) Aerosol propellants and Bromoflurocarbons (halons), used in fire extinguishers. Main Effects of Ozone Depletion UV radiation seems to be responsible for skin cancer in human beings. UV radiation can also influence the growth of terrestrial plants. MONTREAL PROTOCOL → Is a historical treaty designed by the members of United Nations to protect the ozone layer by phasing out CFC, which is supposed to be main reason for ozone depletion, → Under the Montreal Protocol, all the signing members agreed to freeze the consumption and production of CFC by the year 2013. 48 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] STATE OF INDIA’S ENVIRONMENT → The black soil of the Deccan Plateau particularly suitable for cultivation of cotton, leading to concentration of textile industries in this region. → The Indo – Gangetic Plains spread from the Arabian Sea to the Bay of Bengal are one of the most fertile, intensively cultivated and densely populated regions in the world. → India’s Forests, provide green cover for majority of its population and natural covers for its wildlife. → Large deposits of iron-ore, coal and natural gas are found in the country. India alone accounts for nearly 20% of the world’s total iron-ore reserves. Challenges To India’s Environment 1) Land Degradation → Refers to decline in the overall quality of soil, water or vegetation conditions, commonly caused by human activities. CAUSES OF LAND DEGRADATION 1. Loss of vegetation due to deforestation. 2. Improper crop rotation. 3. Indiscriminate use of agro-chemicals such as Fertilizers and Pesticides. 4. Extraction of ground water in excess of the recharge capacity. 5. Poverty of the agriculture –dependent people. 2) Deforestation → Involves the permanent destruction of indigenous forests and woodlands. It refers to cutting, clearing and removal of rain forests, where land is thereafter converted to non-forest use. 3) Soil Erosion → Soil erosion takes place when the surface soils washed away through excessive rains and floods. → Deforestation is one of the major reasons for soil erosion. 4) Biodiversity Loss → Biodiversity is a term used to describe the enormous variety of life on earth. → It refers to every living thing, including plants, bacteria, animals and humans. 49 | P a g e  ACCOUNTS VALA – MOHIT TRIVEDI [CONTACT NO. 701-1122-701] 5) Water Pollution → When toxic substances enter rivers, streams and other bodies and get dissolved or lie suspended in water, it leads to water pollution. → Water pollution degrades the quality of water and has led to death of several animals and posed a serious threat to human life. 6) Air Pollution → Air Pollution is the presence of pollutants like smoke, dust, particles etc.in air in such concentration, which are harmful to man and the environment. Some ways to Control Air a) Promotion of Public Transport like use of Delhi metro instead of private vehicles. b) Promo