Chapter- 1: Indian Economy on the Eve of Independence

The sole purpose of the British colonial rule in India was to reduce the country to being a feeder economy for Great Britain’s own rapidly expanding modern industrial base.

Low level of economic development under the colonial rule

• Before the advent of the British rule- India had an independent economy
• India was particularly well known for its handicraft industries in the fields of cotton and silk textiles, metal and precious stone works etc.
• Textile Industry in Bengal
• The economic policies pursued by the colonial government in India  à concerned more with the protection and promotion of the economic interests of their home country
• Colonial government never made any sincere attempt to estimate India’s national and per capita income
• Country’s growth of aggregate real output during the first half of 20^th century was less than 2%

Agricultural Sector

• Approx. 85% population--- Villages--- Agriculture
• Agricultural productivity- low
• Stagnation- because of the various systems of land settlement that were introduced by the colonial government
• Zamindari system- Bengal- the profit accruing out of the agriculture sector went to the zamindars instead of the cultivators; dates for depositing specified sums of revenue were fixed
• Production of cash crops

Industrial Sector

Motive of the colonial government

1. To reduce India to the status of a mere exporter of important raw materials for the upcoming modern industries in Britain
2. To turn India into a sprawling market for the finished products of those industries

Second half of 19^th century- setting up of cotton and jute mills

• Cotton mills- Maharashtra and Gujarat
• Jute mills- dominated by foreigners were mainly concentrated in Bengal
• 1907- Tata Iron and Steel Company (TISCO)
• Rare capital goods industry
• limited area of operation of the public sector

Foreign Trade

• India exporter of primary products such as raw silk, cotton, wool, sugar, indigo, jute etc. and
• An importer of finished consumer goods like cotton, silk and woollen clothes and capital goods like light machinery produced in the factories of Britain.
• Important characteristic of India’s foreign trade- generation of a large export surplus

Demographic Condition

• Before 1921, India was in the first stage of demographic transition.
• The second stage of transition began after 1921.
• The overall literacy level was less than 16%
• overall mortality rate was very high
• Life expectancy was also very low—44 years in contrast to the present 66 years

Occupational Structure

1. Agriculture- 70-75% workforce
2. Manufacturing- 10%
3. Services- 15-20%

Infrastructure

• Under the colonial regime, basic infrastructure such as railways, ports, water transport, posts and telegraphs did develop.
• However, the real motive behind this development was not to provide basic amenities to the people but to sub serve various colonial interests.
• British introduced the railways in India in 1850
• It fostered commercialisation of Indian agriculture
• Inland waterways- Uneconomical
• Introduction of the expensive system of electric telegraph in India

Chapter- 2:  Indian Economy 1950-1990

• 1948- ‘Industrial Policy Resolution’
• 1950- Planning Commission
• Chairman- Prime Minister

The Goals of Five-Year Plans

The goals of the five year plans are: growth, modernisation, self-reliance and equity

Mahalanobis: the Architect of Indian Planning

Mahalanobis established the Indian Statistical Institute (ISI) in Calcutta and started a journal, Sankhya, which still serves as a respected forum for statisticians to discuss their ideas

Agriculture

• The policy makers of independent India had to address these issues which they did through land reforms and promoting the use of ‘High Yielding Variety’ (HYV) seeds which ushered in a revolution in Indian agriculture.
• The low productivity of the agricultural sector forced India to import food from the United States of America (U.S.A.).
• Equity in agriculture called for land reforms which primarily refer to change in the ownership of landholdings.
• Land ceiling was another policy to promote equity in the agricultural sector.
• This means fixing the maximum size of land which could be owned by an individual.
• The purpose of land ceiling was to reduce the concentration of land ownership in a few hands.

The Green Revolution

• Productivity in the agricultural sector was very low because of the use of old technology and the absence of required infrastructure for the vast majority of farmers.
• Increase in production of food grains resulting from the use of high yielding variety (HYV) seeds especially for wheat and rice.
• 1^st phase (approximately mid 1960s up tomid-1970s)- Punjab, Andhra Pradesh and Tamil Nadu benefited
• 2^nd phase (mid-1970s to mid-1980s)- HYV technology spread to a larger number of states and benefited more variety of crops.

Drawbacks of green revolution

• Increase the disparities between small and big farmers
• HYV crops were also more prone to attack by pests

Green revolution would have favoured the rich farmers only if the state did not play an extensive role in ensuring that the small farmer also gains from the new technology.

Industry and Trade

Five-year plans place a lot of emphasis on industrial development.

Public and Private Sectors in Indian Industrial Development

• 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;
• Nor was the market big enough to encourage industrialists to undertake major projects even if they had the capital to do so.

Industrial Policy Resolution 1956
(IPR 1956)

Formed the basis of the senond FYP.

This resolution classified industries into three categories.

1. 1^st category- industries which would be exclusively owned by the state;
2. 2^nd category consisted of industries in which the private sector could supplement the efforts of the state sector, with the state taking the sole responsibility for starting new units;
3. 3^rd category consisted of the remaining industries which were to be in the private sector

Small-Scale Industry

In 1955, Karve Committee noted the possibility of using small-scale industries for promoting rural development.

Trade Policy - Import Substitution

• The industrial policy that we adopted was closely related to the trade policy.
• In 1^st 7 plans, trade was characterised by what is commonly called an inward looking trade strategy.
• Technically, this strategy is called import substitution.
• Protection from imports took two forms: tariffs and quotas.

Effect of Policies on Industrial Development

• The proportion of GDP contributed by the industrial sector increased in the period from 11.8 per cent in 1950-51 to 24.6 per cent in 1990-91
• Protection from foreign competition enabled the development of indigenous industries in the areas of electronics and automobile sectors
• The need to obtain a license to start an industry was misused by industrial houses; a big industrialist would get a license not for starting a new firm but to prevent competitors from starting new firms.

Unit-II: Economic Reforms Since 1991

Chapter- 3: Liberalization, Privatization and Globalization - An Appraisal

• In 1991, India--- economic crisis relating to its external debt — the government was not able to make repayments on its borrowings from abroad; foreign exchange reserves
• When expenditure is more than income, the government borrows to finance the deficit from banks and also from people within the country and from international financial institutions
• India agreed to the conditionalities of World Bank and IMF and announced the New Economic Policy (NEP).
• This set of policies can broadly be classified into two groups: the stabilisation measures and the structural reform measures.
• Stabilisation measures are short-term measures, intended to correct some of the weaknesses that have developed in the balance of payments and to bring inflation under control.

Liberalization

• Introduced to put an end to these restrictions and open up various sectors of the economy
• Measures were introduced in 1980s in areas of industrial licensing, export-import policy, technology up gradation, fiscal policy and foreign investment, reform policies initiated in 1991

Deregulation of Industrial Sector

1. Industrial licensing under which every entrepreneur had to get permission from government officials to start a firm, close a firm or to decide the amount of goods that could be produced
2. Private sector was not allowed in many industries
3. Some goods could be produced only in small scale industries and
4. Controls on price fixation and distribution of selected industrial products.

Financial Sector Reforms

• The reform policies led to the establishment of private sector banks, Indian as well as foreign.
• Foreign investment limit in banks was raised to around 50 per cent.
• Those banks which fulfil certain conditions have been given freedom to set up new branches without the approval of the RBI and rationalise their existing branch networks.
• Foreign Institutional Investors (FII) such as merchant bankers, mutual funds and pension funds are now allowed to invest in Indian financial markets

There are two types of taxes: direct and indirect-

Foreign Exchange Reforms

1991- to resolve the balance of payments crisis, the rupee was devalued against foreign currencies

Trade and Investment Policy Reforms

• Liberalisation of trade and investment regime was initiated to increase international competitiveness of industrial production and also foreign investments and technology into the economy.
• The aim was also to promote the efficiency of the local industries and the adoption of modern technologies.

The trade policy reforms aimed at

1. Dismantling of quantitative restrictions on imports and exports
2. Reduction of tariff rates and
3. Removal of licensing procedures for imports

• Import licensing was abolished except in case of hazardous and environmentally sensitive industries.
• Export duties have been removed to increase the competitive position of Indian goods in the international markets.

Privatization

Government companies are converted into private companies in two ways:

1. By withdrawal of the government from ownership and management of public sector companies and or
2. By outright sale of public sector companies.

Privatisation of the public sector enterprises by selling off part of the equity of PSEs to the public is known as disinvestment.

Globalization

• It involves creation of networks and activities transcending economic, social and geographical boundaries
• With the help of modern telecommunication links including the Internet, the text, voice and visual data in respect of these services is digitised and transmitted in real time over continents and national boundaries.
• The low wage rates and availability of skilled manpower in India have made it a destination for global outsourcing in the post-reform period.

World Trade Organisation (WTO)

• Established in 1995
• Successor organization to the General Agreement on Trade and Tariff (GATT)
• The WTO agreements cover trade in goods as well as services to facilitate international trade (bilateral and multilateral) through removal of tariff as well as non-tariff barriers and providing greater market access to all member countries.
• India has kept its commitments towards liberalisation of trade, made in the WTO, by removing quantitative restrictions on imports and reducing tariff rates.

Indian Economy During Reforms - An Assessment

• During the reform period, the growth of agriculture has declined.
• While the industrial sectors reported fluctuation, the growth of service sector has gone up.
• The Twelfth Plan (2012-2017) envisages the GDP growth rate at 9 or 9.5%
• Foreign direct investment(FDI) and foreign institutional investment(FII) increased

Reforms in Agriculture

• Public investment in agriculture sector especially in infrastructure, which includes irrigation, power, roads, market linkages and research and extension (which played a crucial role in the Green Revolution), has fallen in the reform period.
• Further, the removal of fertiliser subsidy has led to increase in the cost of production, which has severely affected the small and marginal farmers.

Results

1. Reduction in import duties on agricultural products
2. Lifting of quantitative restrictions on agricultural products;

Reforms in Industry

• Cheaper imports replaced the demand for domestic goods.
• The infrastructure facilities, including power supply, have remained inadequate due to lack of investment.
• Disinvestment was used to offset the shortage of government revenues rather than using it for the development of PSEs and building social infrastructure in the country

Reforms and Fiscal Policies

• The tax reductions in the reform period, aimed at yielding larger revenue and to curb tax evasion, have not resulted in increase in tax revenue for the government
• In order to attract foreign investment, tax incentives were provided to foreign investors which further reduced the scope for raising tax revenues. (Negative impact on developmental and welfare expenditures)

Unit-III: Current Challenges Facing the Indian Economy

Chapter- 4: Poverty

How are poor people identified?

In pre-independent India, Dadabhai Naoroji was the first to discuss the concept of a Poverty Line.

• 1962---Planning Commission formed a Study Group
• 1979--- Task Force on Projections of Minimum Needs and Effective Consumption Demand
• 1989 and 2005--- Expert Groups

Categorising Poverty

The Poverty Line

• Based on this, in 2009-10, the poverty line was defined for rural areas as consumption worth Rs 673 per person a month and for urban areas it was Rs 860
• Though the government uses Monthly Per Capita Expenditure (MPCE) as proxy for income of households to identify the poor
• The existing mechanism for determining the Poverty Line also does not take into consideration social factors that trigger and perpetuate poverty such as illiteracy, ill health, lack of access to resources, discrimination or lack of civil and political freedoms.
• Amartya Sen, noted Nobel Laureate, has developed an index known as Sen Index.

The Number of Poor in India

• When the number of poor is estimated as the proportion of people below the poverty line, it is known as ‘Head Count Ratio’.
• The official data on poverty is made available to the public by the Planning Commission.
• It is estimated on the basis of consumption expenditure data collected by the National Sample Survey Organisation (NSSO).

What causes poverty?

Poverty can be caused as a result of 

• Social, economic and political inequality 
• Social exclusion 
• Unemployment
• Indebtedness
• Unequal distribution of wealth

Poverty is explained by general, economy-wide problems, such as

• Low capital formation
• Lack of infrastructure
• Lack of demand 
• Pressure of population
• Lack of social/ welfare nets
• Industrialisation has not been able to absorb all these people.
• The urban poor are either unemployed or intermittently employed as casual labourers.
• Casual labourers are among the most vulnerable in society as they have no job security, no assets, limited skills, sparse opportunities and no surplus to sustain them.
• The unequal distribution of income and assets has also led to the persistence of poverty in India.
• All this has created two distinct groups in society: those who posses the means of production and earn good incomes and those who have only their labour to trade for survival.

Policies and Programmes towards poverty alleviation

• 1^st FYP (1951-56)- the urge to bring economic and social change under present conditions comes from the fact of poverty and inequalities in income, wealth and opportunity
• 2^nd FYP (1956-61)- the benefits of economic development must accrue more and more to the relatively less privileged classes of society
• Provide minimum basic amenities to the people.
• Rapid industrial development and transformation of agriculture through green revolution in select regions would benefit the underdeveloped regions and the more backward sections of the community
• The Green Revolution exacerbated the disparities regionally and between large and small farmers
• Most poverty alleviation programmes implemented are based on the perspective of the Five Year Plans

1. Rural Employment Generation Programme (REGP),
2. Prime Minister’s Rozgar Yojana (PMRY) and
3. Swarna Jayanti Shahari Rozgar Yojana (SJSRY)
4. Swarnajayanti Gram Swarozgar Yojana (SGSY)

Other programmes later on

1. Public Distribution System
2. Integrated Child Development Scheme and Midday Meal
3. Pradhan Mantri Gram Sadak Yojana
4. Pradhan Mantri Gramodaya Yojana
5. Valmiki Ambedkar Awas Yojana
6. National Social Assistance Programme

Mahatma Gandhi National Rural Employment Guarantee Act

• August 2005
• To provide guaranteed wage employment to every rural household whose adult volunteer is to do unskilled manual work for a minimum of 100 days in a year

Chapter- 5: Human Capital Formation in India

Just as a country can turn physical resources like land into physical capital like factories, similarly, it can also turn human resources like students into human capital like engineers and doctors.

In other words, we need good human capital to produce other human capital

Education Sector in India

Education for All — Still a Distant Dream

• 1950---- Constitution of India was passed---- Directive Principles of the Constitution---- government should provide free and compulsory education for all children up to the age of 14 years within 10 years from the commencement of the Constitution
• Gender Equity — Better than Before--- differences in literacy rates between males and females are narrowing
• Higher Education---- government should increase allocation for higher education and also improve the standard of higher education institutions

Chapter- 6: Rural Development

Challenges of Rural India

• Development of human resources including – literacy, more specifically, female literacy, education and skill development – health, addressing both sanitation and public health
• Land reforms
• Development of the productive resources of each locality
• Infrastructure development like electricity, irrigation, credit, marketing, transport facilities including construction of village roads and feeder roads to nearby highways, facilities for agriculture research and extension, and information dissemination
• Special measures for alleviation of poverty and bringing about significant improvement in the living conditions of the weaker sections of the population emphasising access to productive employment opportunities

Agricultural Market System

Agricultural marketing is a process that involves the assembling, storage, processing, transportation, packaging, grading and distribution of different agricultural commodities across the country.

Measures to improve the marketing aspect:

1. Regulation of markets to create orderly and transparent marketing conditions
2. Provision of physical infrastructure facilities
3. Cooperative marketing, in realising fair prices for farmers’ products

The policy instruments like

1. Assurance of minimum support prices (MSP) for agricultural products
2. Maintenance of buffer stocks of wheat and rice by Food Corporation of India and
3. Distribution of food grains and sugar through PDS

Emerging Alternate Marketing Channels

• Apni Mandi (Punjab, Haryana and Rajasthan);
• Hadaspar Mandi (Pune);
• Rythu Bazars (vegetable and fruit markets in Andhra Pradesh and Telangana) and
• Uzhavar Sandies (farmers markets in Tamil Nadu).

Tamil Nadu Women in Agriculture (TANWA)

• Tamil Nadu to train women I latest agricultural techniques.
• It induces women to actively participate in raising agricultural productivity and family income.

Animal Husbandry

Horticulture

• Contributes nearly 1/3^rd of the value of agriculture output and 6% of GDP
• India --- world leader in producing a variety of fruits like mangoes, bananas, coconuts, cashew nuts and a number of spices
• 2^nd largest producer of fruits and vegetables
• Enhancing its role requires investment in infrastructure like electricity, cold storage systems, marketing linkages, small-scale processing units and technology improvement and dissemination.

Sustainable Development and Organic Farming

Chapter- 7: Employment Growth, Information and Other Issue

Workers and Employment

• All those who are engaged in economic activities, in whatever capacity — high or low, are workers
• While estimating the number of workers, all those who are engaged in economic activities are included as employed.
• 70 per cent of the workers--- men and the rest are women (men and women include child labourers in respective sexes).
• Women workers--- 1/3^rd of the rural workforce

Self-Employed and Hired Workers

Employment in Firms, Factories and Offices

Growth and Changing Structure of Employment

Informalization and Indian Work Force

Unemployment

There are three sources of data on

1. Unemployment: Reports of Census of India,
2. National Sample Survey Organisation’s Reports of Employment
3. Unemployment Situation and Directorate General of Employment and Training Data of Registration with Employment Exchanges.

Government and Employment Generation

• National Rural Employment Guarantee Act, 2005--- 100 days of guaranteed wage employment to all rural households who volunteer to do unskilled manual work
• Employment generation programmes- aim at providing not only employment but also services in areas such as primary health, primary education, rural drinking water, nutrition, assistance for people to buy income and employment generating assets, development of community assets by generating wage employment, construction of houses and sanitation, assistance for constructing houses, laying of rural roads, development of wastelands/ degraded lands.

Chapter- 8: Infrastructure

Relevance of Infrastructure

• Infrastructure contributes to economic development of a country both by increasing the productivity of the factors of production and improving the quality of life of its people.
• Improvements in water supply and sanitation have a large impact by reducing morbidity (meaning proneness to fall ill) from major waterborne diseases and reducing the severity of disease when it occurs.
• Air pollution and safety hazards connected to transportation also affect morbidity, particularly in densely populated areas.

The State of Infrastructure in India

Energy

Sources of Energy

• There are commercial and non-commercial sources of energy.
• Commercial sources are coal, petroleum and electricity as they are bought and sold.
• Non-commercial sources of energy are firewood, agricultural waste and dried dung.

Non-conventional Sources of Energy

• Both commercial and non-commercial sources of energy are known as conventional sources of energy.
• There are three other sources of energy which are commonly termed as non-conventional sources — solar energy, wind energy and tidal power.

Some Challenges in the Power Sector

• India’s installed capacity to generate electricity is not sufficient to feed an annual economic growth of 7-8 per cent.
• State Electricity Boards (SEBs), which distribute electricity, incur losses which exceed Rs 500 billion. This is due to transmission and distribution losses, wrong pricing of electricity and other inefficiencies
• Private sector power generators are yet to play their role in a major way; same is the case with foreign investors
• There is general public unrest due to high power tariffs and prolonged power cuts in different parts of the country
• Thermal power plants which are the mainstay of India’s power sector are facing shortage of raw material and coal supplies.

Health

• Health infrastructure includes hospitals, doctors, nurses and other para-medical professionals, beds, equipment required in hospitals and a well-developed pharmaceutical industry.
• The Union Government evolves broad policies and plans through the Central Council of Health and Family Welfare.
• It collects information and renders financial and technical assistance to state governments, union territories and other bodies for implementation of important health programmes in the country.

Indian Systems of Medicine (ISM)

It includes six systems—Ayurveda, Yoga, Unani, Siddha, Naturopathy and Homeopathy (AYUSH).

Indicators of Health and Health Infrastructure

1. infant mortality and maternal mortality rates,
2. life expectancy and nutrition levels,
3. Incidence of communicable and non- communicable diseases.

Urban-Rural and Poor-Rich Divide

• Though 70 per cent of India’s population lives in rural areas, only one-fifth of its hospitals (including private hospitals) are located in rural areas.
• The PHCs located in rural areas do not offer even X-ray or blood testing facilities which, for a city dweller, constitutes basic healthcare.
• Villagers have no access to any specialised medical care like paediatrics, gynaecology, anaesthesia and obstetrics.

Women’s Health

• The deterioration in the child sex ratio in the country from 927 in 2001 to 914, as revealed by the census of 2011
• More than 50 per cent of married women between the age group of 15 and 49 have anaemia and nutritional anaemia caused by iron deficiency, which has contributed to 19 per cent of maternal deaths.
• Abortions are also a major cause of maternal morbidity and mortality in India.

Chapter- 9: Environment & Sustainable Development

Functions of the Environment

• Supplies resources
• It assimilates waste
• It sustains life by providing genetic and biodiversity and
• It also provides aesthetic services like scenery etc.

Some of the factors responsible for land degradation are

1. Loss of vegetation occurring due to deforestation
2. Unsustainable fuel wood and fodder extraction
3. Shifting cultivation
4. Encroachment into forest lands
5. Forest fires and over grazing
6. Non-adoption of adequate soil conservation measures
7. Improper crop rotation
8. Indiscriminate use of agro-chemicals such as fertilisers and pesticides
9. Improper planning and management of irrigation systems
10. Extraction of ground water in the competing uses of land for forestry, agriculture, pastures, human settlements and industries exert an enormous pressure on the country’s finite land resources.

Sustainabe Development

Strategies for Sustainable Development

1. Use of Non-conventional Sources of Energy
2. LPG, Gobar Gas in Rural Areas
3. CNG in Urban Areas
4. Wind Power: In areas where speed of wind is usually high, wind mills can provide electricity without any adverse impact on the environment.
5. Solar Power through Photovoltaic Cells
6. Mini-hydel Plants
7. Traditional Knowledge and Practices
8. Bio- composting
9. Biopest Control
10. Promotion of natural resources, conservation, preserving regenerativecapacity of ecological system and avoiding the imposition of environmentalrisks on future generations would lead to sustainable development

Unit-IV: Development Experiences of India: A Comparison with Neighbours

Chapter- 10: Comparative Development Experience of India and Its Neighbours Developmental Path - A Snapshot View

• India- 1^st FYP- 1951-56
• Pakistan- 1^st FYP- Medium Term Development Plan- 1956
• China- 1^st FYP- 1953
• China is ahead of India and Pakistan on many human development indicators.
• However these improvements were attributed not to the reform process but the strategies that China adopted in the pre-reform period.

Gross Domestic Product and Sectors

Indicators of Human Development