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Note:Answer all the questions.
Q. 1.“At present stage ofeconomic development,India’s workforce holdsthekeyto launcha sustainedattackonpoverty”
A state of lack of access to the basic needs of income, food, shelter, education, health services, safe drinking water and
sanitation that help an individual lead a decent, normal and effective existence is called poverty. It may be noted that the list of
basic and other needs may vary from society to society. Moreover, the way we understand “lack of access” is may also differ.
For this purpose, the incidence of poverty or the number who are poor and the related quantitative indices of poverty or
deprivation and measures of human development need to be calculated.
Poverty measurement is required to formulate policies for its eradication and for measuring poverty is targeting. It helps
many international agencies to easily target the extremely poor region for intervention and also helps the government to
evaluate the policies and programmes specifically implemented to eradicate poverty.
Income Indicators of Poverty: Poverty line services as a cut-off line for separating the poor from the non-poor if the
distribution of population with per capita expenditure below the level defined by the poverty line is counted as poor of India.
(a) Head Count Ratio: We call the proportion of the poor to the total population as the poverty ratio (PR) or the head count
ratio (HCR).PR or HCR is defined as:
No. of people BPL/Total Population × 100
The measurement of poverty or the poverty ratio or the head count ratio, is simply the proportion of the number of people
below the poverty line in the population. However, this ratio does not make any distinction within the broad category of the poor
on the basis of their actual levels of consumption and deprivation. As a result, the poverty ratio fails to capture. The depth and
severity of poverty in an adequate manner. Therefore, a measure developed for this purpose is the Poverty Gap (PG) index with
the help of the PG index. We can calculate the total shortfall of consumption below the poverty line, per capita of the total
population. It may be expressed as a percentage of the poverty line, where to take note of the shortfall in average consumption
of the poor from the poverty line as well as the inequality in the consumption among the poor, we use the sen index.
(b)Poverty GapIndexandSquaredPoverty Index(PGI&SPI)
The poverty Gap (Gi) is the poverty line (z) less actual income (yi) for poor individuals; the gap is considered to be zero for
Poverty Gap =
Where, Z = Poverty Line
Xp is the average consumption expenditure of the poor.
Squared Poverty Index (SPI) is a weighted sum of poverty gaps (as a proportion of the poverty line), where the weights are
the proportionate poverty gaps themselves; a poverty gap of (say) 40% of the poverty line is given a weight of 40 %. The
difference between PGI and SGI is the poverty gap index they are weighted equally while in SGI they are weighted unequally.
ASSIGNMENT SOLUTIONSGUIDE (2015-2016)
Indian Economic Policy
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(c) Sen Index: It is measured by using the formula:
Sen Index =
Where, M/N is head count ratio, R is Poverty gap ratio, and GP is Gini coefficient of consumption expenditure among the
Income and Non-Income Indicators of Poverty: Poverty Ratios (PR) and measures related to PR do not provide a complete
picture of the extent of deprivation or, alternatively the state of well being of the population. They provide only a composite
picture of people whose per capita consumption expenditure is below the level of per capita consumption expenditure
corresponding to the basket of commodities constituting the desired minimum and do not say anything about several other
factors that shape living standards. Scholars have tried to capture these aspects in alternative measures of poverty.
(a) The Human Development Index (HDI) and The Human Poverty Index (HPI): Since 1990, the UNDP prepares human
development reports (HDRs) and making estimates of the human development index (HDI) for different countries. In the HDI are
included three most critical and socially useful choices, viz. to have access to the resources needed for a decent level of living
the choice to lead a long and healthy life and the choice to acquire knowledge. HDR also presents estimates of Human Poverty
Index (HPI) since (HPI) is a measure of deprivation, it makes use of the following for the three areas of choices: adult illiteracy
rate, proportion of population not expected to survive beyond 40 years, and percentage of population without sustainable
access to an improved water source. It also takes into account the percentage of children aged 5 or below who are underweight
for their age group, the percentage of births unattended by trained health personnel and the percentage of women aged 15 years
and above who are illiterate in the total population of the country.
covered by HDI is only about three-fifths of those of men as shown by UNDP HDR 2003 estimates GDI 2001 for India as 57.4%
and India rank with reference to this index as 103 out of 175 countries. At the same time, the attainment of women in human
development dimensions covered to estimates of GEI, women were generally better off in southern India in their northern
(c) Capability Poverty Measure (CPM): NHDR 2001 provides the basic data required for making estimates somewhat similar
to the estimates of CPM the extent of inadequate physical growth among women and children is alarming. The most important
measure in the measurement of poverty is the poverty ratio. Moreover, there are attempts to capture the extent of deprivation
that the poor suffer in the matter of access to food, safe drinking water, sanitation, medical attention, shelter, education and
health and nutrition to ensure longevity. In addiction to these, the third set of measurements consists of those that measures
levels of human development in the population. The fourth set is based on the lack of the capability to attain a specified minimum
desirable standard of living for the individual.
Q. 2. “Indian economic environment has undergone dramatic changes with a shift in development strategy”. Comment.
Indian economy took its path towards development with first Five Year Plan (FYP) on April1, 1951. It mainly aimed at
bringing stability in the economy caused by partition. Second FYP aimed mainly to provide large scale and strategic industry so
that productive capacity of the economy can be enhanced. New policies came after 1990 with the introduction of NEP which
brought about privatization, liberalization and globalization. Growth rate increased from 3.5% in 1975 to 5.5% during 1975-1990
to 6.5% in 1990s to further 7% during 2005-12. It brought changes in structural composition of the economy.
Composition of Gross Domestic Product
Structural composition refers to relative share of three sectors in GDP of an economy. In underdeveloped economy, primary
sector dominates in GDP, as economy grows share of first secondary and then tertiary sector increases. Question arises why is
It is so because income elasticity of primary products is less than one while income elasticity of industrial goods and
services is more than one. On the supply side, agriculture is mainly dependent on a fixed factor, land; on which law of
diminishing returns applies. Therefore, industry in which all factors can be varied goes on expanding and same applies to service
In Indian economy, over the period, the share of primary sector has fallen by 40%. Share of secondary and tertiary sector
have increased. During 1980’s, when all the three sectors were growing, secondary sector was growing at the highest rate
thereafter tertiary sector was growing at the highest rate. We cannot deny the growth momentum generated by tertiary sector
after 1990’s. Service sector has become the growth driver of Indian economy. It is contributing almost 2/3 of GDP. In India,
secondary sector has not grown fast enough to enable to transfer growing labour force. Uneducated, unskilled, landless masses
of rural sector have continued to struggle in primary sector and those shifted to urban areas have joined urban sector’s slum
area. It shows the connection between low growth rate of secondary sector and increasing levels of poverty and unemployment.
Causes of Rapid Increase in Tertiary Sector
The following factors are responsible for rapid increase in tertiary sector.
(a) Advent of IT and knowledge economy has enhanced the growth of high productivity in this sector.
(b) Development demand better infrastructure and it is provided by service sector. Therefore, with development, it has
(c) Public services have also grown as the state has emerged as welfare state. They are paying attention on improving
social and economic infrastructure.
(d) Operation of demonstration effect due to growing mobility which is caused by expanding foreign trade, tourism,
cultural and educational tours is also responsible.
(e) Urbanization has also led to rise in demand for infrastructure services. Many new goods and services have added to
consumption basket due to urbanization.
(f) Tourism has increased in India. It has, in turn, promoted all other types of services.
(g) In manufacturing many services like accounting, legal, advertisement, marketing and finance are required. It has also
increased importance of tertiary sector.
(h) International favourable environment also opened up many possibilities for service sector.
Prospects and Opportunities
There are domestic as well as international factors behind growth of service sector in Indian economy.
Some of the important domestic factors responsible for growth of service sector are as follows:
(a) With increase in real per capita GDP, demand for goods increases faster than other sectors which in turn reinforce GDP
(b) Intermediate consumption in service sector has multiplier effects.
(c) All other sectors use service sector and therefore, expansion in these sectors automatically increase service sector.
(d) With economic growth many new services have emerged like communication, IT, advertising, public relations, etc.
(e) Efficient delivery of services increases the productivity of both labour and capital in the economy as a whole. Service
sector is a catalyst for growth.
Some of the important international factors responsible for growth of service sector are as follows:
(a)Rapid expansion of knowledge based services;
(b)Progress in IT leading to increase in R & D, inventory management, accounting, personnel management etc.
(c)Cost of communication is falling and hence, is no more affecting cost structure of the product.
(d)It is possible for a country like India to provide value added services without waiting to ‘catch up’ in technology of
production of sophisticated equipment of products.
(e)The aging of population in the developed country has an implication that service in developing countries will grow in
future as well.
(a) It calls for a need to introduce policy initiatives in this sector to ensure competition and efficiency for sustainable
(b) With increase in productivity in other two sectors, employment will shift from these sectors to service sector.
(c) It will mean that service sector can constitute a vast tax-base potential which needs to be realized.
Many challenges are there for service sector. It is lacking in clear cut policies. Liberalization has not occurred in many
services. Economic and social position of workers in service sector is going down steadily. It would imply economic stagnation
and consequent social tension. The workers in this sector will make use of their numerical strength to get proper wages and
Need for an Integrated Policy
We need to introduce a coherent integrated service policy for service sector. Consequently, the depth and pace of reforms lack
uniformity in all service sectors. We need to follow liberalization in this sector in phases. Social policies are needed to avoid
unemployment and social unrest. It will go a long way in sustaining the dynamist of service-led growth.
Q. 3. Examine the rate and pattern of industrial growth during the last two decades. What suggestions would you like to
make towardsrapid industrial growth?
India entered the phase of industrialization since British rule and has been fastest industrializing third world country. India’s
industrial performance and manufacturing export performance has been highest in the world.
Due to the objective of self-reliance India’s industrial sector was adversely affected. We can examine our industrial growth
under two broad heads, viz.,
(i) Dimensions of Industrial Growth, and (ii) Pattern of Industrialization.
Dimensions in Industrial Growth
We can divide growth period into two categories, viz. (a) Pre-reforms period, and (b) Post-reforms period. This can further
be divided into eight sub-groups.
Early Growth Phase: Till 1965-66: Industrial growth was rapid during Second Plan and the Third Plan. The Second Plan
introduced an industrial revolution in basic industrial muscle. It was mainly because of:
(i) Emphasis on industrialization in economic policies,
(ii) Industrial growth as a supreme objective in the industrial policy and planning,
(iii) The substantial investments made and the capacities created in industrial sector,
(iv) Unusual combination of domestic saving and inflows or resources from abroad.
Slow Down Phase: Decade of 1970’s: Industrial growth slowed down after the Third Plan and economy witnessed a steady
decline in per capita domestic availability of key wage goods and an increase in absolute poverty. Growth of basic and capital
goods industries was slower than industrial output. High growing industries were elite-oriented consumption goods sector.
Causes of Slow Growth of Industries: (i) Shocks in the economy: (a) periodic shocks that the economy had received in the
form of wars in 1965 and 1971,
(b) the oil crisis in 1973, and (c) the droughts in 1965 and 1966. (ii) Other economists asserted that the crisis in industrial
growth is rooted in the path of development that India has adopted (iii) Slow growth of agricultural incomes (iv) Slowdown in
public investment after the mid-1960s (v) Poor management of the infrastructure sectors, and a high cost industrial structure in
Revival During the 1980’s
With the onset of the 1980s, Industrial growth rate moved due to following reasons:
(i) Liberalisation of industrial policy.
(ii) Public investment in Indian industry had been at a much higher level during the 1980s.
(iii) Noticeable improvement in the investment made by the private corporate manufacturing sector.
(iv) ‘Liberal fiscal regime’ in which many of the standard precepts of traditional public finance were abandoned the most
significant being maintenance of high budgetary deficits year after year and resorting to massive borrowing.
(v) A decline in the inter-sectoral terms of trade in favour of non-agriculture.
(vi) The State’s role in industrial growth improved indirectly.
Quality of Growth: Quantity of growth is not as important as quality of the growth.
The structural distortion at this micro level continued in the 1980s too, but it reduced at the macro level. Growth rates of
value added were higher in the 1980s than 1970s.
Slowdown: Towards the end of 1980s, however, the growth rate of industrial production slowed down due to lower rate of
growth in capital expenditure; shortage of raw materials and other inputs; infrastructural difficulties, and obsolete machinery
and technology and resulting high costs.
Recession during 1991-94
During 1991-92, and subsequently in 1992-93, there was a downfall in industrial production due to following factors:
(a) Import compression, rise in the cost of imports and devaluation of the rupee and the tight monetary policy were the
factors in supply side.
(b) An inflationary pressure, reduction in public expenditure, and strict fiscal discipline were the factors on demand side.
Revival and Subsequent Slowdown 1994-2002
The slowdown in the rate of industrial growth during 1991-94 turned out due to stabilization measures initiated by the
government for the macro-economic adjustment of the economy. Following factors were responsible for the change in trend:
(i) Increased government expenditure/public investment;
(ii) Reduction in excise and customs duty;
(iii) Growth in export volumes since 1993-94;
(iv) Stability in the growth of agricultural output;
(v) Decreased SLR increased funds with banks.
Industrial revival generated excitement among industry and government, so much. However, such optimism was not well-
founded. The rate of growth slowed down during 1996-97 and continued to fall subsequently during 1997-2002 due to: (a)
demand constraints, (b) supply constraints, and (c) structural and cyclical factors.
Real investment in industry which had risen fast until 1995-96 stagnated thereafter due to political instability, rising fiscal
deficits after 1996-97 and the loss of momentum in economic reforms. Besides, there has been a contraction in the funds flow into
the rural areas in the form of special employment programmes in the 1990s unlike in the 1980s.
Due to growing inequalities in the distribution of income, and reduced employment growth as well as deterioration in the
quality of employment, there was narrowing of purchasing power in the hands of the vast masses of urban population.
‘Huge hanging investment’ was another demand constraint. Hanging investment refers to the gap between approved and
actual FDI. Given the fear of competition from foreign investors, the domestic investors kept away or postponed their investments
from such sectors where FDI was already approved or was anticipated to come.
Major supply constrains were as follows: (i) The limited infrastructure became worse over time, (ii) The low quantity and
quality of rural infrastructure (iii) The decline in fiscal discipline in the populous states of the Gangetic plains (iv) The Asian
crisis of 1997-98, the economic sanctions of 1998-99, increase in international oil prices during 1999-2001, and the American
declaration of war against terrorism made the inter-national economic environment less supportive.
Structural and Cyclical Factors
Indian industry took longer time to adjust; High costs and inadequate and unreliable supply of services in transport,
communications and the power sector; Low levels of productivity in the industry; Lower speculative demand for sectors like
automobiles and real estate due to expectation of lower prices and reduction of taxes and duties in the short and medium-term
and High real interest rates were structural factors.
Cyclical factors included: Business cycles affecting demand of some cyclical industries like cement, automobiles and steel
and there is no pent-up demand for consumer durables.
Revival and Strong Growth 2002-08
In 2004-05, and 2005-06 the manufacturing sector grew at 9.1 per cent, 12.5 per cent during 2006-07 and 9.0 per cent during
2007-08. It was because of rise in the savings rate from 23.5 per cent in 2000-01 to 37.7 per cent in 2007-08. The total exports ratio
increased from 16.9 per cent in 2000-01 to 33.2 per cent in 2007-08. The bank assets/GDP ratio rose from 48 per cent in 2000-01 to
80 per cent in 2005-06 on the back of a surge in bank credit.
Other factors included modernization of the capital stock, reduction/rationalization of import tariffs and other taxes, higher
FDI inflows, greater competitive pressures, increased investment in ICT, and greater financial deepening also contributed to
productivity gains in the industry. These services also increased the industrial growth rate due to interconnectivity among
Slowdown 2008-09 Onwards
The slowdown in manufacturing over successive quarters started from the first quarter of 2007-08 followed by negative in
the fourth quarter. Growth of the mining sector declined over successive quarters. It was due to: (i) Rising prices of crude oil and
other commodities, (ii) higher interest rates (iii) Over dependence on external capital (iv) decline in non-financial institutions,
the private sector resource mobilization (v) shrinkage in demand for exports (vi) decline in the construction and real estate (vii)
All above factors reduced the growth of profits of the manufacturing sector.
National Accounts Statistics (NAS) data as well as the Index of Industrial Production (IIP) show that there was industrial
growth @ 7.7 per cent in this period. The manufacturing sector has grown at the rate of 8.9 per cent in 2009-10.
Growth in automobiles, rubber and plastic products, wool and silk textiles, wood products, chemicals and miscellaneous
manufacturing was strong; growth in non-metallic mineral products was modest; growth in paper, leather, food and jute textiles
was nil; and a slump in beverages and tobacco products in 2009-10. It was due to:
(i) Improvement in the cost structure of manufacturing companies,
(ii) Growth in the production of capital goods,
(iii) Favourable base effect and mild inflation in manufacturing articles, in 2010-11 once again recession came due to
(a) Financial crisis in Euro zone reduced demand for India’s exports,
(b) USA also failed to create demand,
(c) The macro-economic policies led to increasing fiscal deficits, widening current account deficits, and higher rates of
Prospects for Revival
Following factors make the industrial outlook in the medium-term bright for India.
(a) (i) Tendencies by some trading partners to indulge in dumping into the Indian market.
(ii) Increased demand due to increase in growth rates; (iii) Potential for innovation due to education, training and expenditure
on R & D. (iv) Strong entrepreneurial abilities of India (v) Improvements in the infrastructural constraints and (vi) The continuing
inflow of FDI.
Q. 4.Do you agreethatthe existing institutional structurein India have notled to good governanceoutcome? Give reasons
in support of your answer.
It is argued by the economists that monetary policy is more effective in controlling inflation and stabilizing output because
Fiscal policy has lost its significance due to concern over persistently large budget deficits, and political system cannot make tax
and spending decisions in a timely way to achieve desirable stabilization outcomes.
The effectiveness of monetary policy essentially depends on the institutional framework available for transmitting impulses
released by the central bank. The interrelationship between money, output and prices lies at the core of monetary theory.
Transmission channels are neither static nor uniform over time. These channels need to undergo changes possibly making the
earlier channels relatively less effective compared to the new ones. It includes the various channels through which the policy
operates like quantum channel, credit rate channel such as interest rate channel, exchange rate channel and asset prices channel.
Implications of Fiscal Policy
Implications of Fiscal policy are wide-ranging. Taxes can influence the choices of both business and labour. It influences
resource allocation. Fiscal policies do affect business men, labour, consumers, and traders and therefore, they need to understand
what effect a change in fiscal policy is likely to have onAD,AS, Price levels etc. The ratio of government expenditure to GDP has
increased in most countries which cannot be financed by ordinary sources of revenue. It is forcing them to borrow. If a country
borrows, its interest burden increases. Any change in fiscal policy affects many communities which makes it not economic but
political. Fiscal policy does not operate in isolation. It has to be coordinated with overall policy environment of the economy.
Q. 5. What do you mean by fiscal imbalance? Critically examine the various steps taken by the Central Government to
correct this situation.
Ans. Fiscal imbalance takes place due to excess of government expenditure over revenue. To overcome the deficit government
resort to borrowings. This further aggravats the situation of debt servicing.
Therefore, there is a need to correct and overcome the fiscal imbalance.
The fiscal imbalance can be corrreted by adopting following two methods:
Reducing Government Expenditure. Raising proper financial resources (funds) for productive purposes.
Suggested ways by which government’s expenditure can be reduced are:
1. Reduction in Interest Burden: Over the years, there has been considerable increase in Government borrowings. As a
result, the interest payment of the Government has increased considerably. The interest payment has been the single major
component of revenue expenditure of both the state and central government. For instance, the interest payment of the central
government of India has increased from Rs. 21,500 crores in 1990-91 to Rs. 1,39,823 crores in 2005-06, which works out as 33%
of the total revenue expenditure. Therefore, there is a need to reduce government borrowings so as to reduce interest burden,
which in turn would reduce Government expediture.
2. Reducing Subsidies: The government of India has been providing subsidies on a number of items such as food,
subsidies on a number of items, such as food, fertilizers, education, interest to priority section, and so on. Because of the
massive amount of subsidies, the government expediture has increased over the years. Therefore, there in need to reduce
3. Reduction in Government Overheads: The public sectors and government departments are subject to high overheads.
There is often overstaffing due to poor manpower planning.Also, there are huge overheads in respect of maintence of machines,
consumption of easily reduced. Therefore, there is a need to reduce overheads, wherever possible, in order to reduce Government
4. Closure of Sick Units: The government needs to close down the sick public sectors or disinvest them. Closing down
non-viable sick units would enable the government to save their valuable resources which otherwise would have been used for
such sick units. Disinvestment would generate additional revenue to the government. In India, the disinvestment the process of
was started in 1991-92. However, the process of disinvestment is very slow in India due to political compulsion.
B. Raise Government Funds ?
Suggested ways by which government’s funds can be raised are:
1. Collection of user charges: The government should take adequate measures to collect user charges from the consumer
in respect of public utilities like water supply, electricity, irrigation, transport, etc., The user charges are subsidized in case of
2. Improvement in Performance of PSU: Due to poor perfomance of PSUs, the government loses to poor performance of
PSUs, the government loses a good amount of revenue by way of dividends. Therfore, the government should make every effort
to improve efficiency and performance of Public Sector Units (PSUs), which in turn would enable the government to obtain more
funds for productive expenditure.
3. Proper Mobilization of Tax Resources: In India there is a good deal of tax evasion both of direct and indirect taxes.
The tax evasion is due to the following reasons.
High tax rates,
Too many formalities and documentation work
Inefficient and corrupt tax administration therefore, the government should make proper efforts to simplify the tax
procedues, and at the same efforts to simplify the tax procedures and at the same time take approprate measures to reduce tax
4. Market oriented development: Market oriented development will stimulate deamnd and encourage growth. Incentives
are given through the fisacal policy to encourage the private sector investments. The areas of operation of public sector
enterprices have been reduced. This will reduce governments borrowing and its dependence on household savings.
New Fiscal Policy of India?
In view of the economic liberalization in the recent years, certain themes have been emphasized in the New Fiscal Policy of
India. They are:
Simplification of tax structure and laws.
Reasonable direct taxes and better administration.
Stable tax policy environment.
Weightage to resources allocation and equity consequences of taxation.
More reliance on fiscal and financial instrument in managing the economy.
Better links between fiscal and monetary policy.
Strengthening methods of expenditure control.
Final Conslusion: The Fiscal measures adopted by the Government of India would reduce the inflation, reduce the deficit
in balance of payments and promote growth and generate employment. The effects of the new fiscal policy are likely to be
favourable to the Indian economy.
Q. 6. Do you think that planning in India has been successful? Give reasons in support of your answer.
There were following four major components of the Nehru-Mahalanobis strategy:
1. A comprehensive programme of import-substituting industrialization was needed to bring economy out of economic
2. A conscious bias towards heavy industries;
3. The state to play a leading role in a ‘mixed’ economy with a private sector;
4. The programme is to be carried out in a framework of five-year/annual plans.
First of all, there was a need for separate domains of operation for the state (public) sector and the private sector. We used
reservation to serve this purpose. According to the IPR 1956, the public sector was to cover defence production, atomic energy
and railways, the core industries of coal, iron and steel, shipbuilding, communications, heavy machinery and heavy electrical.
There was list of items reserved for SSIs. Industrial licensing covered regulation of entry into particular industries, licensing
covered capacity, production level, product mix and import of technology and capital goods. Hence it involved a plethora of
This era continued from 1956 to 1990. The policy was not unmixed blessing. It gave pains as well gains to Indian economy.
(a) Real national income (at 1948-49 prices) grew at an average of four per cent per annum during 1950-90.
(b) The economy builtup production and technological competencies and manpower and skills in a host of industrial lines.
(c) The size of the public sector, measured as its share in Gross Domestic Product (GDP), rose from ten per cent in the early
1960’s to 24 per cent in the early 1990’s.
(d) A solid foundation for industrial development was laid during this period. Many basic and capital goods industries were
(e) The private sector achieved a significant growth and diversification in intermediate and consumer goods industries.
This would not have been possible without the foundation laid by the public sector.
There were significant fluctuations in growth year to year or plan to plan.
Many unexpected ‘shocks’attacked the economy induced by weather, wars, internal emergencyand international developments.
There were specific constraints on economic growth that which were well known to planners. Four major constraints were food,
savings, foreign exchange and demand. We needed a policy framework beyond controls and licensing, institutional changes and
political mobilization to correct them.
Food: Agrowing population needed more food but small holdings, traditional technologies of farm production and poor rural
infrastructure made food grain output inelastic to demand. It resulted in general inflation. To handle the situation, India introduced
land reforms and in terms of abolition of intermediaries and legal protection of tenants. Secondly, Green Revolution technology
was introduced to increase the food production via HYV seeds, irrigation facilities and chemical fertilizer. It succeeded in Punjab,
Western Uttar Pradesh and deltaic regions it made India self-sufficient in food grains but created regional and social inequalities,
land degradation due to intensive cropping and decline of water tables in several regions.
Savings: Low rate of saving in the economy and limited possibility of foreign investment created budget deficits. Due to long
gestations periods of industrial projects, this led to high rates of price inflation.
Shortage of foreign exchange: Shortage of foreign exchange resources acted as a constraint in importing critical capital
equipment. Indian exports were not cost competitive in the international markets. It created an endemic pressure on account of
Demand: India has a potentially huge home market due to size of her population, but without purchasing power. Therefore,
it could not solve problems of poverty and unemployment.
Planning had not delivered on expansion of productive employment unskilled labour. Indira Gandhi gave a slogan Garibi
Hatao (Banish Poverty). It took a turn towards various poverty alleviation programmes without reorienting industrialization for
growth of productive employment and hence till date 26% of our population is below poverty line.
The past record shows an economy which has gained in strength and structural maturity in many dimensions. It has certainly
emerged from the pattern of sluggish growth evident up to the mid-seventies, to a much better performance subsequently,
especially in the most recent years. A growth rate of 5 per cent is now definitely sustainable and could even be bettered in future
if the considerable unutilized potential built up form past investment in the economy is effectively exploited. There is considerable
scope for reaping such benefits both in agriculture and in industry, with present levels of the rate of investment or modest
improvements therein. The policy initiatives being taken in the industrial sector will help to bring about this outcome.
Management of the balance of payments will remain an important problem especially if the objective is to achieve a balance
which can finance the sort of growth in imports that is needed to sustain technological modernization in increasing numbers of
sectors of the economy. This points to the extreme importance of exports in the years on the industrial front and the changes made
in policies towards exporters should help to strengthen India's export capability.
A major factor which will help stimulate virtuous cycles in the Indian economy in future is the expected slowdown in the rate
of growth of population, with population growing at over 2 per cent per year. Much of the growth in production in the past has
been absorbed by rising population. However, the prospect of a decline in the rate of growth in population is now at hand.
Although fertility levels are declining, the age composition is such that the child-bearing population is expected to increase, and
this will affect declining fertility foe some time. Nevertheless, the rate of growth of population is likely to slow down from 2.2 per
cent expect a faster deceleration.
The combined effect of a modest acceleration in economic growth and a gradual decline in population growth would put the
economy on a much faster pace of per capita income growth than experienced in the past.
Q. 7. Evaluate the Export – Import Policy 2009-14.
On August 6, 2009, the long-term exim policy for the period 2009-14 was announced. It was formulated to correct an
unprecedented contraction in exports, tax refunds for exporters, lower transaction costs, and better infrastructure and to
increase export of more Indian goods and services to new markets in Latin America, Oceania and Africa.
The short-term objective: to reverse the declining trend of exports and to provide additional support to those sectors which
have been badly hit by recession in the developed world; to bring country back to a high export growth path of around 25 per
cent per annum; to double exports of goods and services by 2014:
l To double India’s share in global trade by 2020.
l Making India a globally-oriented vibrant economy.
l Providing access to essential raw materials, intermediates, equipments etc.
l Increasing the technological strength and efficiency of Indian economy.
l Making cheap consumer products available in the market.
Twenty six new markets have been added under Focus Market Scheme. The incentive available under Focus Market
Scheme (FMS) has been increased from 2.5 per cent to 3 per cent. Market Linked Focus Product Scheme (MLFPS) has been
expanded to many more products.
Export obligation on import of spares, moulds under the EPCG Scheme has been reduced to 50 per cent of the normal
specific export obligation. Additional Duty Credit scrips shall be given to status holders @1 percent Scrips of the FOB value of
past exports which can be transferred to status holders. The transfer can be made only to status holders.
Duty Entitlement Passbook (DEPB) Scheme shall also include factoring of custom duty component on fuel. Income Tax
exemption to 100 percent EOUs and to STPI units IT Act has been extended for the financial year 2010-11 in Budget 2009-10.
EOUS have been allowed to sell products manufactured by them in DTA up to a limit of 90 per cent. EOUs will be allowed to
procure finished goods for consolidation, subject to certain safeguards. EOUs will be allowed credit facility for the component
of SAD and Education Cess on DTA sale.
A minimum 15 per cent value addition on imported inputs under Advance Authorization Scheme has been prescribed.
Payment of customs duty for exports obligation has been allowed by way of debit of Duty Credit scrips. Import of restricted
items will be allowed against transferred DFIAs.
Number of samples/pieces has been increased from the existing 15 to 50. No fee shall now be charged for grant of incentives
under Chapter 3. Maximum fee is being reduced to Rs. 100,000 from Rs. 1,50,000 and Rs. 50,000 from the existing Rs. 75,000 for
other 18 authorizations.
Positive Features: 1. The Foreign Trade Policy’s three pillars are: improvement in export-related infrastructure, lowering of
transaction cost and providing full relief on all indirect taxed and levies. It recognizes the vulnerability of employment-oriented
and sensitive sectors.
2. The incentives in focus product scheme have been increased from 1.25 per cent to 2 per cent. The 26 new markets that
have been added to the focus market scheme that would enable our exporters to get the benefits under the schemes
which were hitherto denied to them. It has given special thrust to the employment-oriented sectors in the fields of
textiles, leather and handicrafts.
3. Incentives for technological upgradation such as zero duty EPCG benefit, and
4. 1 per cent additional duty credit for status holders for many important sectors will help in stepping up India’s
Negative Features: 1. Lower non-oil imports means there is decrease in the domestic investment.
2. Some of India’s export promotion schemes such as DEPB scheme are not compatible with the WTO rules and will be
3. Market-linked focus product scheme covered only garments, made-ups, knitted fabrics and synthetic textile fabrics.
Hence, increasing number of countries is of no use.
4. The FTP is silent on the steps India will take if WTO’s expectation of 9% fall in foreign trade proves true. There is no
reason why the FTP should not attempt measures to shore up India’s exports.
5. The efficacy of the policy of incentivizing import of capital goods with Actual User Condition, by providing additional
duty credit scrips at the rate of 1 per cent of FOB value of export to status holders in specified sectors is doubtful, as
most of the status holders are merchant exporters. Therefore, they will not be able to meet the requirement of the Actual
6. At present, core problem is that there is no demand for our export products because of global recession. FTP has not
done any efforts to increase demand for exports.
7. We can reduce the prices of our products if our logistics costs come down from current 13 per cent to 8 per cent.
Ans. The labour force is the actual number of people available for work. The labor force of a country includes both, the
employed and the unemployed. The workforce is the labour pool in employment. It does not include unemployed people. The
National Sample Survey Organization (NSSO), since its inception in 1950, does the measurement of employment/unemployment
The National Sample Survey Organization (NSSO) provides three different estimates of employment and unemployment
based on different approaches/reference periods used to classify an individual’s activity status. These are the:
l Usual status approach with a reference period of 365 days preceding the date of survey.
l Current weekly status approach with a reference period of seven days preceding the date of survey.
l Current daily status approach with each day of the seven days preceding date of survey as the reference period.
There are certain criteria on the basis of which we can check quality of employment such as productivity of employment
proportion of workers engaged in regular and casual labour and proportion of workers in organized and unorganized workers.
Productivity of Employment: only the status of being employed does not by itself necessarily ensure a decent level of living
in India. In 1999-2000, of the total employment persons about 23.87% are the working poor this means that the major problem
relates to that of the working poor as the productivity of employment is very low. Low educational and skill levels of the workers
are main causes of the low productivity of employment.
Proportion of workers in organized and unorganized workers: If the share of unorganized employment increases it means
an overall deterioration in the quality of employment. The quality of employment can be considered low if the size of unorganized
sector is larger than the organized sector was only about 7% of the total employment in 1999-2000 and over the years the share of
the organized sector employment has been shrinking. We may note that manufacturing construction, trade and transport are
sectors where there is large concentration of unorganized workers. The share of the unorganized sector employment which was
estimated to be around 93% before 1997 should have gone up and may further increase over the coming years as there was an
increase in the absolute numbers. Many studies at micro level show that flexibility in the labour market increased after the
introduction of economic reforms in the country. Despite the existence of restrictive labour laws, the firms have been able to
retrench a large number of permanent workers while many units were closed leading to unemployment of thousands of workers
during the reform period.
Proportion of Workers Engaged in Regularand Causal Labour:At present, lowearning, poor condition of work and lack of
social protection and vulnerability to the risks and hazards and irregularity and uncertainty of work availability such problems in
the economy has been felt due to the increase in the casualization of the workforce. This is also a dimension of deterioration in the
quality of employment. those in regular wage paid or salaried jobs continue to constitute around 14% of all workers for over two
decades from1977-78 to 1999-2000, thecategoryof casual employment has steadily increased from27% in 1977-78 to 32% in 1993-
1994 and rose further to 33% in 1999-2000.
Bhaduri has categorized policy approaches for promoting employment in a growing economy into three: (a) Extensive
growth strategy for using surplus labour; (b) inter-sectoral transfer of labour through sectoral gap in labour productivity; and (c)
change in rate and composition of industrialization.
The conventional approach emphasizes role of sectoral transformation of workforce and suggests creating employment in
non-agriculture sector. Undoubtedly, sectoral transformation in a country like India is fairly justified, but the strategy often fails.
When there are limited options for labour intensive industrial sector in a high growth economy. In such a situation tightening
of the agriculture (rural) labour market becomes important, where the central thrust is on productivity enhancement rather than on
expansion of employment opportunities in rural economies. Ironically, we are relying on labour substituting techniques of
A trajectory driven mainly by high-productivity and high value-agriculture may face problems due to weather related
uncertainties, shrinking natural resource base and the problems of small and marginal farmers. Moreover, high productivity-high
value agriculture would invariable demand intensive use of chemical inputs and irrigation.
Hence, a third policy option is suggested i.e. altering the pace and composition of industrial growth and creating greater
space for agriculture as a traditional reservoir of labour for industrialization, and as a sector with greater flexibility of absorb
The central thrust here is that it will not shift labour to other sectors but will increase their productivity in agriculture itself.
The Green Growth perspective may increase the potential of the primary sector to absorb productive labour further by reversing
the process of factor substitution. Therefore, we need to follow a balanced approach in employment, output and technology.