1.

An
Introduction ......................................................................
...... 1-17

INTRODUCTION ......................................................................
.................................................. 1
DIVISION OF ECONOMICS
FOCUS .............................................................................
............... 2

GDP/GNP ...........................................................................
......................................................... 4

HDI ...............................................................................
........................................................... 10

HPI ...............................................................................
............................................................ 10

GPI ...............................................................................
............................................................ 10

GNH ...............................................................................
.......................................................... 11

2. Sectors of the Indian

Economy .................................................... 18-26

SECTORS OF ECONOMIC
ACTIVITIES ........................................................................
............ 18
COMPARING THE THREE
SECTORS ...........................................................................
............. 19
PRIMARY, SECONDARY AND TERTIARY SECTORS IN
INDIA ................................................ 21
DIVISION OF SECTORS AS ORGANISED AND
UNORGANISED .............................................. 24
SECTORS IN TERMS OF OWNERSHIP: PUBLIC AND PRIVATE
SECTORS ............................... 25

3. Economy
Planning .......................................................................27-
47

PLANNED
ECONOMY ...........................................................................
................................... 27
HISTORY OF
PLANNING ..........................................................................
................................ 29

4 . Indias Economic Interaction with the

World ...............................48-55

DEVELOPMENTAL PATH A SNAPSHOT

VIEW ..................................................................... 48
 DEMOGRAPHIC
INDICATORS ........................................................................
........................ 50
GROSS DOMESTIC PRODUCT AND
SECTORS. ....................................................................... 50

INDICATORS OF HUMAN
DEVELOPMENT .......................................................................
...... 52
DEVELOPMENT STRATEGIES- AN
APPRAISAL ...................................................................... 52

CONCLUSION ........................................................................
.................................................. 54

5.
Liberalization ....................................................................
........... 55-66

PRIVATIZATION .....................................................................
................................................. 58

GLOBALIZATION .....................................................................
............................................... 58
WHO ARE THE
POOR? .............................................................................
............................... 60
HOW ARE POOR PEOPLE
IDENTIFIED? .......................................................................
............ 60
WHAT CAUSES
POVERTY? ..........................................................................
........................... 62
POVERTY ALLEVIATION PROGRAMMES - A CRITICAL
ASSESSMENT .................................. 65

----------------------- Page 4-----------------------

6. Human Capital And Human Development ...................................

67-74

HUMAN CAPITAL FORMATION

IN INDIA: GREAT
PROSPECTS .........................................................................
....................... 67
EDUCATION SECTOR IN
INDIA .............................................................................
................. 68
FUTURE
PROSPECTS .........................................................................
...................................... 70

INTRODUCTION ......................................................................
................................................ 70
WHAT IS RURAL
DEVELOPMENT? ......................................................................
.................. 71
 AGRICULTURAL MARKET
SYSTEM ............................................................................
........... 71
SUSTAINABLE DEVELOPMENT AND ORGANIC
FARMING .................................................... 73

CONCLUSION ........................................................................
.................................................. 74

7. Growth and Changing Structure of Employment .........................

75-84

INFORMALISATION OF INDIAN
WORKFORCE ..................................................................... 76

UNEMPLOYMENT ......................................................................
............................................. 77
GOVERNMENT AND EMPLOYMENT
GENERATION ............................................................... 78

CONCLUSION ........................................................................
.................................................. 78
WHAT IS
INFRASTRUCTURE? ...................................................................
............................. 79
RELEVANCE OF
INFRASTRUCTURE ...................................................................
.................... 79
THE STATE OF INFORASTRUCTURE IN
INDIA ....................................................................... 80

ENERGY ............................................................................
....................................................... 80
SUSTAINABLE
DEVELOPMENT .......................................................................
....................... 81
STRATEGIES FOR SUSTAINABLE
DEVELOPMENT ................................................................ 82

8. Stock Markets in
India ............................................................... 85-116

STOCK MARKETS
(SPECIALLY IN INDIAN
CONTEXT) .........................................................................
............... 85
TAX COLLECTIONS 2011-
12 ................................................................................
................... 102

Multiple Choice
Questions ....................................................... 117-136

----------------------- Page 5-----------------------

1
An Introduction
 INTRODUCTION into the Nature and Causes
of the Wealth of
Nations (generally known
as The Wealth of
Economics as a word comes from the
Nations) defines economics
as The science
Greek: oikos means family, household, or of wealth. Smith offered
another definition,
estate, and nomos stands for custom, law
Th e Science rel atin g
to th e laws of
etc . Thu s, hou seh old man agemen t or
production, distribution
and exchange.
m an age-men t of scarce resources is the
essential meaning of economics. Economics Definitions in terms
of wealth emphasize
encompasses production, distribution, trade production and consumption,
and do not deal
an d consumption of goods an d services. with the economic
activities of those not
Economic logic is applied to any problem that significantly involved in
these two processes,
involves choice under scarcity. for example, children and
old people. The
belief is that non-
productive activity is a cost
Initially, economics focused on wealth
on society. It meant that
man was relegated
and later welfare. Still later, in recent years,
to the secondary position
and wealth was
it has given sufficient attention to the study
placed above life.
of trade offs- giving up one to gain another.
Th e f ocu s on tradeoffs arises from the Th us arose th e
shift in the focu s to
traditional assumption that resources are welf are economics study
of man an d of
scarce an d th at it is n ecessary to choose hu man welf are, n ot
of mon ey al on e.
between competing alternatives. Choosing Economics involves social
action connected
one b en efit implies f orgoin g an other with the attainment of human
well being.

altern ative the opportunity c ost (cost of

foregoing an Opportunity). Types of Economics

Adam Smith, generally regarded as the Economics is usually

divided into two
Father of Economics, author of An Inquiry main branches:

----------------------- Page 6-----------------------

Microeconomics which examines the behavior of a firm or

consumer or household y

m
economic behavior of individual actors such depends upon the
state of the national and o

o
as consumers, businesses, households etc. to global economy.
c

E
understand how decisions are made in the

a
face of scarcity and what effects they have. Mesoeconomics
i

n
Macroeconomics, which studies the
I
M esoecon
omics stu dies the
economy as a whole an d its features like
T
intermediate level of
economic organization R
n ati on al inc ome, empl oyment ,poverty, in b etween th e
micro an d the m acro E
balance of payments and inflation.
C
economics like
institutional arrangements etc. N

The two are lin ked cl osely as the

f

i
DIVISION OF ECONOMICS FOCUS
G

Division of Economics Focus

Production/output in individual industries
and businesses and
 consumer and behaviour
How much steel
Microeconomics
How much office space
How many cars
Consumer behaviour
National production/output
Gross domestic product
Employment
Macroeconomics
Poverty
Inflation
BOP

There are broadly the following approaches in the mainstream economics. The
basis of
all the streams is the same: resources are scarce while wants are unlimited (often
mentioned
as the economic problem).

Keynesian theory of Macro Economics (some are still

undergoing the recession) due
to 2008 finan cial
crisis, the relev an ce of
Keynesian macroeconomics based on the
theories of twen tieth -cen tury British Keynes is growing.

economist John Maynard Keynes. It says that The

intervention by State is only when
the state can stimulate economic growth and the economic cycle
turns down and growth
restore stability in the economy through slows down or is
negative. In normal times,
expansionary policies. For example- through it is the market
that drives growth through
the force of supply
and demand.
m assive programme of spen din g on
infrastructure when the demand is low and In dian
govern men t stepped up
growth is negative. expenditure with
three fiscal stimuli since
December 2008 to
revive grow th . With
In th e recessi on ary ph ase th at the
growth spurting, the
gradual and calibrated
economies of the western world in particular exit from the stimulus
was begun in the 2010-
and rest of the world in general, went through 11 Union Budget.
2

----------------------- Page 7-----------------------

n The theories of Keynesian economics Structural Change

o
i
t were first presented in The General Theory
c Structural
change of an economy refers
u
d of Employment, Interest and Money (1936).
o to a lon g-term w
i despread ch ange of a
r
t
n fundamental
structure, rather than microscale
I Neo-liberalism
n or short-term ch
an ge . For example a
A Neo-liberalism refers to advocacy of subsistence economy
is transformed into a
policies su ch as in dividu al liberty, free manu facturing ec
onomy, or a regul ated
m arkets, an d free trade . N eo-lib eralism mixed economy is
liberalized. An insulated
proposes that human well being can best be and protectionist
economy becomes open and
adv an ced by lib eratin g in divi du al globalized. A current
structural change in the
entrepreneurial freedoms and skills within an world economy is
globalization.
institutional framework characterized by
strong private property rights, free markets Green Economics
and free trade.
Green ec on
omics f ocu ses on and
Socialist theory of Economics supports the
harmonious interaction between
humans and nature and
attempts to reconcile
In distinction to the above, there is the
the two.
school of socialist economics based on public
(State) ownership of means of production to Economic Growth and
its Measument
achieve greater equality and give the workers Methods
greater control of the means of production.
It establishes fully centrally planned economy Economic growth
is the change- increase
which is also called comman d economy - or decrease, in th
e v alu e of goods and
economy is at the comman d of the State. services produced by
an economy. If it is
Private ownership of assets is not allowed. positive, it means
an increase in the output
For example, erstwhile USSR, Cuba etc. and the income of
a country. It is generally
shown as the increase
in percentage terms of
Development Economics real gross domestic
product (GDP adjusted
to inflation) or
real GDP.
Development economics is a branch of
economics which deals with economic aspects Measuring Growth
of the development process, mainly in low-
 income countries. Measures of
national income and output
are used in
economics to estimate the value
Its focus is not only promoting economic of goods an d serv
ices produc ed in an
grow th an d structural ch ange but also econ omy . They use
a system of nati onal
improving the well being of the population accounts or national
accounting. Some of the
as a whole through health and education and c omm on measures
are Gross Nati on al
workplace Con ditions, whether through Product (GNP) and
Gross Domestic Product
pub lic or private ch ann els . The m ost (GDP).
promin en t con temporary dev el opment
economists are Nobel laureates Amartya Sen National Income
Accounting
and Joseph Stiglitz.
3 National income
accounting refers to a

----------------------- Page 8-----------------------

set of rules and techniques that are used to Relationship

between market price and y

m
measure the national income of a country. factor cost.
o

o
GDP is defined as the total market value GNP at factor cost
= GNP at market price c

E
of all final goods an d services produced - indirect taxes +
subsidies n

a
within the country in a given period of time-
i
GDP at factor cost
= GDP at market price d

n
usually a calendar year or financial year.
I
- indirect taxes +
subsidies

T
GDP can be real or nominal. Nominal
R
GDP refers to the current year production of Factor Costs
E
C
final goods and services valued at current
N
Factor costs are
the actual production

f
year prices. Real GDP refers to the current c osts at wh ich goods
an d serv ices are o

t
year production of goods and service valued
s
produced by the firms
and industries in an i
all b ase year prices . Base year prices are
G
economy. They are really
the costs of all the
Constant prices. factors of production
such as land, labour,

In estimating GDP, only final marketable capital, energy, raw

materials like steel etc.
goods and services are considered. Only their that are used to produce
& given quantity of
values are added up and they pertain to a output in an economy.
They are also called
given period. When it is compared to the base factor gate costs
(farm gate, firm gate and
year figure, the growth levels are Seen. f actory gate) sinc e
all the c osts th at are
incurred to produce a
given quantity of goods
To explain further, gains from resale are
and services take place
behind the factory
excluded but the services provided by the
gate i.e. within the
walls of the firms, plants
agen ts are c ounted . Simil arly, tran sfer
etc in an economy.
payments (pensions, scholarships etc) are
excluded as there is income received but no Transfer Payments
good or servi ce produc ed in return.
However, not all goods an d services from Transfer payment
refers to payments
productive activi ties enter in to m arket made by government to
individuals for which
transactions. Hence, imputations are made there no economic
activity is produced in
f or these n on -m arketed b ut productive return by these
individuals . Examples of
activities: for example, imputed rental for transfer are
scholarship, pension.

owner-occupied housing.

GDP/GNP
Market Price and Factor Cost
Three Approaches
M arket price refers to th e actu al
transacted price and it includes indirect taxes- There are th ree
differen t w ays of
custom duty, excise duty, sales tax, service tax calculating GDP. The
expenditure approach
etc. adds consumption,
investment, government
Factor cost refers to the actual cost of the expenditure and net
exports (exports minus
V ari ou s f actors of production inc ludes imports).
gov ern ment gran ts an d sub sidies b ut it On the other hand,
the income approach
excludes indirect taxes. adds what factors earn:
wages, profits, rents
etc.
4

----------------------- Page 9-----------------------

n Output approach adds the market value GDP

o
i
t of final goods and services .
c GDP considers
only marketed goods. If
u
d The three methods must yield the same
o a cleaner is
hired, their pay is included in
r
t results because the total expen ditures on
n GDP. If one does
the work himself, it does
I
n goods and services must by definition be not add to the GDP.
Thus much of the work
A equal to the value of the goods and services done by women at
home- taking care of the
produced (GNP) which must be equal to the children, aged;
chores etc which is called
total inc ome paid to th e factors th at care economy is
outside the GDP.
produced these goods and services.
Gross means
depreciation (wear and
In reality, th ere w ill be min or tear of machinery in
their use) of capital stock
differences in the results obtained from the is n ot subtracted
. If depreci ati on is
various methods due to changes in inventory subtracted, it
becomes net domestic product.
levels. This is because goods in inventory
Calculating
the real GDP grow th -
have been produced (and therefore included
inflation adjusted
GDP growth- allows us to
 in GDP), but not yet sold. Similar timing
determin e if
producti on increased or
issues can also cause a slight discrepancy
decreased,
regardless of changes in the -
between the value of goods produced (GDP)
infl ati on an d
purch asin g pow er of the
and the payments to the factors that produced
currency.
the goods, particularly if inputs are purchased
on credit. Differences between
GDP and GNP

Final Goods The two are

related. The difference is
that GNP includes net
foreign income. GNP
Final goods are goods th at are
adds n et f orei
gn inv estmen t in come
ultimately consumed rather than used in the
compared to GDP. GDP
shows how much is
production of another good. For example, a
produ ced with in
the b oun daries of the
car sold to a Consumer is a final good; the
components such as tyres sold to the car country b y b oth
the citizens an d the
manufacturer are not; they are intermediate foreigners. It is
the market value of all the
goods used to make the final goods. The same output produced in
the territory of a nation
tyres, if sold to a consumer, would be a final in on e year . GDP
focuses on where the
goods. Only final goods are included when output is produced
rather than who produced
measuring national income. If intermediate it. GDP measures
all domestic production,
goods were included too, this would lead to disregarding
the producin g en tities
double counting; for example, the value of nationalities.
tyres would be counted once when they are In contrast,
GNP is a measure of the
sold to the car manufacturer, and again when v alu e of the
output produc ed b y the
the car is sold to the consumer. nationals of a
country- both with in the

Only new ly produc ed goods are geographical

boundaries and outside. That is,
counted. Transactions in existing goods, such all the output that
the Indian citizens produce
as secon d-han d cars, are not included, as in a given year -
both within India and all
these do not involve the production of new other countries.
5 goods.
----------------------- Page 10-----------------------

For example, th ere are In di an and business abroad, the

GDP and GNP were y

m
foreign firms operating in India. Together essentially the same
thing. o

o
wh at they produce w ith in th e In di an
c

E
geography is the GDP of India. The profits Net National Product
n

a
of f oreign firms earned with in In dia are
i
In the production
process a country uses d

n
included in Indias GDP, but not in Indias
I
machines an d equipment.
When there is
GNP.
T
depreciation, we have to
repair or replace the R
In other words, income is counted as machinery. The expenses
incurred for this are E

C
part of GNP according to who owns the called the depreciation
expen diture. Net N

factors of production rather than where the

f
National Product is
calculated by deducting o

t
production takes place. For example, in the depreciation expense
from gross national s

i
c ase of a Germ an- own ed c ar f actory product.
G
operating in the US, the profits from the
factory would be counted as part of German NNP = GNP - Depreciation
GNP rather than US GNP because the capital N ati onal Inc ome
is c alcul ated by
used in production (the factory, machinery, deducting indirect taxes
from Net National
etc .) is German owned. The wages of the Product an d adding
subsidies . N ational
American workers would be part of US GDP, Income (NI) is the NNP
at factor cost.
while the wages of any German workers on
NI = NNP - Indirect
Taxes + Subsidies
the site would be part of German GNP.

GDP is essen ti ally ab out where Per Capita Income

production takes place. GNP is about who
produces. If it is an open economy with great Per Capita Income
is per capita GDP:
levels of foreign investment (FD1) and lesser GDP divided by mid year
population of the
levels of outbound FDI, its GDP is likely to corresponding year.

be larger than GNP. The growth of

GDP at constant price
If it is an open economy but more of its shows an annual real
growth.

nationals tend to move economic activity The real GDP per

capita of an economy
abroad or earn more from investing abroad is often used as an
indicator of the average
compared with non-nationals doing business stan dard of living of
in dividuals in that
and earning incomes within its borders, its country, and economic
growth is therefore
GNP will be larger than GDP. often seen as
indicating an increase in the
average standard of
living.
If it is a closed economy where nobody
leaves its shores, nob ody invests abroad, Aims of Economic Growth
nobody comes in and nobody invests in the
country, its GDP will be equal to GNP. The following aims
can be attributed to
the study of economic
growth:
J apan u sed to b el on g in the l ast
category. Until the mid-1990s, the difference When growth is
quantified , we can
between Japans GDP and GNP amounted to understand
whether it is adequate or
less than one percentage point of GDP. With n ot f or th
e given goals of the
only limited numb ers of people doing economy.

----------------------- Page 11-----------------------

n We can understand its potential and considerable

portion of transactions Occurs
o
i
t accordingly set targets. in form ally an d
th ey are c alled as non-
c
u
d We can adjust growth rates for their monetized economy-
the b arter economy.
o
r
t sustainability. The presence of
such non-monetary economy
n
I We can prevent inflation or deflation in dev el oping
countries keeps the GDP
n
A to some exten t if w e see the estimates at lower
level than the actual.
perf ormanc e of th e econ omy in iii. Growing
Service Sector
quantitative terms.
In recent
years, the service sector is
We can balance the contributions of
growing faster
than that of the agricultural
the three sectors of the economy and and industrial
sectors. Many new services like
steer th e directi on of grow th business process
outsourcing (BPO) have
towards national goals- away from come up. However,
value addition in legal
agriculture to manufacturing as in the consultancy, health
services, financial and
case of India in recent years. business services
and the service sector as a
Target appropri ate lev els of whole is not based
on accurate reporting and
employment creation an d poverty hence
underestimated in national income
alleviation.
measures.
Forec ast tax rev enu es f or iv. Household
Services
governmental objectives.
The national
income accounts do not
Corporates can plan their business
investments. include the care
economy- domestic work
an d housekeeping.
Most of such valuable
Problems for Calculating National Income work rendered by
our women at home does
not enter our
national accounting.
The measurement of national income
v. Social Services
 encounters many problems. The problem of
double-counting. Though there are some It i gn
ores v olun tary an d charitable
corrective measures, it is difficult to eliminate work as it is
unpaid.
double-counting altogether. And there are vi. Environmental
Cost
many such problems and the following are National
income estimation does not
some of them.
account for the
environmental costs incurred
i. Black Money in the production
of goods. For example, the

Illegal activities like smuggling and land and water

degradation accompanying
unreported incomes due to tax evasion and the Green
revolution in India. Similarly, the
corruption are outside the GDP estimates. climate change
that is caused by the use of
Thus, parallel economy poses a serious hurdle fossil fuels.
However, in recent years, green
to accurate GDP estimates. GDP does not GDP is b ein
g calcul ated where the
take into account the parallel economy as the environmental costs
are deducted from the
trans acti ons of b l ack m on ey are n ot GDP value and the
Green GDP is arrived at.
registered. GDP deflator
ii. Non-Monetization GDP Defl
ator is a c ompreh en sive

In m ost of th e rural ec on omy, measure of

inflation, implicitly derived from
7

----------------------- Page 12-----------------------

national accounts data as a ratio of GDP at figure, it made a

mistake while applying the y

m
current prices to constant prices. While it deflator- for the GDP
by output figure, it o

o
encompasses the entire spectrum of economic used one price index
and for the GDP by c

E
activities including services, it is available on expenditure number, it
used another. It led

a
a quarterly basis with a lag of two months to huge discrepancy.
i

n
since 1996 . Th eref ore, n ation al in come
I

aggregates extensively use WPI for deflating Business Cycles

T

R
nominal price estimates to derive real price Alternating
periods of expansion and E

C
estimates. decline in economic
activity is called business N

The f ormula u sed to c alculate the

f
cycle . That is, the
ups an d downs of the o

t
deflator is: economy. There are four
stages in the business s

i
GDP deflator = (Nominal GDP / Real cycle: expansion,
growth, slowdown and G

GDP) X 100 recession . Recession

may not follow every
Dividing the nominal GDP by the GDP time. When recession
takes place, it may not
deflator and multiplying it by 100 would then be of the same
intensity every times . For
give the figure for real GDP, hence deflating example, the 2008 global
financial meltdown
the nominal GDP into a real measure. is the deepest since the
WW2 and is called the
Great Recession . If
recession deepens, it is
A price deflator of 200 means that the
called depression and
occurred only once in
current-year price of this computing power
the last century in
I930s . All econ omies
is twice its base-year price - price inflation.
experience economic
cycles. Explaining and
A price deflator of 50 means that the current-
 preventing these
fluctuations is one of the
year price is half the base year price - price main focuses of
macroeconomics.
deflation.

Unlike some price in dexes, the GDP Benefits and

deflator is not based on a fixed basket of Side Effects of Economic
Growth
goods an d serv ices . It c ov ers th e wh ole i. The first
benefit of economic growth
economy. is wealth
creation. It helps create j obs

Specifically, for GDP, the basket in and increase

incomes.
each year is the set of all goods that were ii. It ensures an
increase in the standard
produced domestically, weigh ted by the of living,
even if it is n ot ev enly
market value of the total consumption of each distributed.
good. Therefore, new expenditure patterns iii. Government has
more tax revenues:
are allowed to show up in the deflator as fiscal
dividen d. Economic growth
people respon d to changin g prices . The boosts tax
revenues and provides the
advantage of this approach is that the GDP govern ment
with extra money to
deflator reflects up to date expen diture fin anc e
spen din g proj ects . For
patterns. example, the
flagship programmes of
The CSO uses the price indices to reach the government
like the MGNREGA
the base year figure from the current year are a direct
result of the tax buoyancy
one. In September 2010, for the first quarterly of growth It
sets up th e positive
spiral:
8

----------------------- Page 13-----------------------

n iv. risin g dem an d enc ourages in

wealth takes place- whether by
o
i
t investment in new capital machinery civilian
demand or war.
c
u wh ich helps accelerate economic
d GDP
does n ot measure the
o
r grow th an d create m ore
t
sustainability of growth. A country
n
I employment. may
achieve a temporarily high GDP

n
A Economic growth can also have a self- by over-
exploiting natural resources.
defeating effect: Advantages

i. violate the principles of fairness and The major

advantages to using GDP per
equity thus setting off social conflicts. capita as an
indicator of standard of living are
ii. Envi ron men tal costs are an other that it is
measured frequently, widely and
disadvantage. c ons isten tly .
Frequ en tly in that most
countries provide
information on GDP on a
Measure Of Real Progress FOR GDP
quarterly basis,
which allows a user to spot
Ans. Economic growth is gen erally trends more
quickly. Widely in that some
taken as the measure of advancement in the measure of GDP is
available for practically
standard of living of the country. Countries every country in
the world, which allows
w ith hi gh er GNP often sc ore h igh ly on crude comparisons
between the standard of
measures of welfare, such as life expectancy. living in different
countries. And consistently
H ow ev er, th ere are limitati on s to the in that the
technical definitions used within
usefulness of GNP as a measure of welfare: GDP are rel ativ
ely c onsisten t b etween
GDP does not value intangibles like countries, and so
there can be confidence that
leisure, quality of life etc. Quality of the same thing
is being measured in each
life is determin ed by many oth er country.
things than economic goods. Disadvantages
The impact of economic activity on The maj or
disadvantage of using GDP
the environment may be harmful- as an indicator of
standard of living is that it
pollution , clim ate ch an ge, is n ot, strictly
speaking, a measure of
un su stainable growth , ecologic al standard of living.
For instance, in an extreme
refugees, life style diseases etc.
example, a country
which exported 100 per
It only gives average figures that cent of its
production would still have a high
h ide stratific ati on . Ec on omic
GDP, but a very
poor standard of living.
inequality is not revealed by GDP
figures The argument
in favour of using GDP is
not that it is a
good indicator of standard of
Condition of poor is not indicated
For example, Indian economy grew living, but rather
that (all other things being
at 8.9% in the first half of 2010-2011 equal) standard
of living tends to increase
but the food inflation was over 14% when GDP per capita
increases. This makes
an d on a h i gh b ase c au sing GDP a proxy for
standard of living, rather
immiserization of the lower classes. than a direct
measure of it.

Gender disparities are not indicated. Because of

the limitations in the GDP
It does not matter how the increase concept, other
measures of welfare such as the
9 Human Development
Index (HDI), Index of

----------------------- Page 14-----------------------

Sustain ab le Econ omic Welf are (ISEW), sec on dary,

an d terti ary gross y

m
Genu ine Progress In dicator (GPI) and en rolment rati
o (with on e-th ird o

o
Sustainable National Income (SN1), Gross weight).
c

E
National Happiness (GNH), Green GDP, A decen t stan
dard of livin g, as

a
n atural resource acc oun ting h av e been measured by
gross, domestic product i

n
suggested. (GDP) per capita
at purchasing power I

They are proposed in an attempt to give parity (PPP) in

US Dollars. T

R
a more complete picture of the level of well- Each year, UN
member states are listed E

C
being an d the positi on with reference to and ranked according to
these measures. N

natural resource depletion, but there is no In dia is ran ked

at 134 am on g 182 f

t
consensus as to which is a better measure than countries on the Human
Development Index s

i
GDP. Some of the above defy quantification. of th e Un ited N
ations Dev el opment G
GDP still remains by far the most often-used Programme (UNDP) that was
released in late
measure. 2010. The HDI goes beyond
a nations gross
domestic product (GDP)
to measure the
Other Measures Used as general well-being of
people under a host of
Alternative to GDP parameters, such as
poverty levels, literacy

Some economists have attempted to and gender-related

issues.

create a replacements for GDP which attempt

to address many of the ab ove criticisms
HPI

regarding GDP. Other nations such as Bhutan An alternative

measure, focusing on the
have advocated gross national happiness as amount of poverty in a
country, is the Human
a standard of living, claiming itself as the Poverty Index. The Human
Poverty Index is
worlds happiest nation. an indication of the
standard of living in a

country, developed by
the United Nations.
HDI
Indicators used
are:
The UN Human Development In dex Lifespan
(HDI) is a stan dard means of measuring functional
literacy skills
wellbeing. The index was developed in 1990 Long-term
unemployment
by the Pakistani economist Mahbub ul Haq,
 Rel ative pov
erty (pov erty w ith
and has been used since 1993 by the United reference to
the average per capita
Nations Devel opmen t Programme in its income).
annual report.

The HDI measures th e av erage

GPI
achievements in a country in three b asic
The Genuine
Progress Indicator (GPI) is
dimensions of human development:
a concept in green
economics and welfare
A long and healthy life, as measured ec on omics th at has
been su ggested as a
by life expectancy at birth. repl acement metric f or
gross domestic
Kn ow ledge, as measured b y the produ ct (GDP ) as a
metric of econ omic
adult literacy rate (with two-thirds grow th . Unlike GDP
it is cl aimed by its 0
weight) and the combined primary,
1

----------------------- Page 15-----------------------

n advoc ates to m ore reli ab ly distin guish when material and

spiritual development
o
i
t uneconomic growth - almost all advocates of occur side b y
side to c omplemen t and
c
u
d a GDP would accept that some economic reinforce each
other. The four dimensions of
o
r
t growth is very harmful. GNH are the
promotion of equitable and
n
I A GPI is an attempt to measure whether sustainable socio-
economic development,
n
A or n ot a country s grow th , in creased preserv ation an d
prom oti on of cultural
production of goods, and expanding services v alu es, c
onservati on of th e n atural
have actually resulted in the improvement of environment, an d
establishment of good
the welfare (or well-being) of the people in governance.

the country.
Natural Resources
Accounting

Green GDP N atural

resources are essen ti al f or

Green Gross Domestic Product (Green production and

consumption, maintenance of
GDP) is an index of economic growth with the life-support
systems, as w ell as h aving
environmental consequences of that growth intrinsic v
alue in existence for
factored in. From the final value of goods and intergenerational
and other reasons. It can be
services produced, the cost of ecological argued that natural
capital should be treated
degradation is deducted to arrive at Green in a similar
manner to manmade capital in
GDP. acc ountin g term
s, so th at th e ab ility to
generate income in
the future is sustained by
In 2004, Wen J i ab ao, th e Ch in ese
using the stock of
natural capital judiciously.
premier, announced that the green GDP index
By failing to
account reductions in the stock
would replace the Chinese GDP index. But
of natural
resources, standard measures of
the effort was dropped in 2007 as it was seen
national income
do not represent economic
that the c onventional growth rates were
grow th genuin
ely . Soil, w ater and
decelerating.
b iodiversity are
th e th ree b asic natural
GNH resources.

N ati onal
Bi odiv ersity Action Pl an
Gross National Happiness (GNH) is an published by
Government of India, Ministry
attempt to define quality of life in m ore of Environment and
Forests in 2008 highlights
holistic and psychological terms than Gross as an action point
the valuation of goods and
National Product. services provided
by biodiversity . M ore

The term was coined by Bhutans former specifically, the

Action Plan states : to assign
King J igme Singye Wangchuck in 1972 to appropriate market
value to the goods and
in dicate h is commitment to b uil din g an services provided
by various ecosystems and
economy that would serve Bhutans unique strive to
incorporate these costs into national
culture based on Buddhist spiritual values. accounting.
While conventional development models In the
Nagoya (Japan) meet in 2010 on
stress ec on omic grow th as the ultim ate biodiversity
protection, India declared that
objective, the concept of GNH is based on the it will adopt
natural resource accounting from
premise that true development takes place 2012.
1
1

----------------------- Page 16-----------------------

In the October 2010 UN biodiversity the force that combines

the individual self y

m
summit, it was said that the link between interest in to a
collectiv e social interest. o

o
economic policy, natural capital and human However, as we have seen
in the melt down c

E
w ellbein g shoul d be un derstood. Th ere of the western economies
since 2008 and as

a
should be global partnership is to mainstream Nobel laueate Joseph
Stiglitz commented, i

n
natural resources accounting into economic invisible hand may not
exist. I

plann in g . In dia, Col omb i a an d M exico There are a

variety of critics of market T

R
accepted it. This will plug deficiencies in as an organizing
principle of an economy. E

C
traditional accounting systems. As mentioned These critics range
from those who rej ect N

above, Indias national biodiversity action m arkets en tirely, in

f avor of a pl ann ed f

o
plan has already incorporated some of these
t
ec on omy, such as
that advocated by s

i
concepts. communism to those who
wish to see them G

regulated to various
degrees. One prominent
Laissez-faire Doctrine
practic al objection is
the environmental
Ans. A market economy is an economic pollution generated.
Another is the claim that
system in which goods an d serv ices are through the creation of
monopolies, markets
traded, with the price being determined by sow the seeds of their
own destruction.
demand and supply.
Social Market
Laissez-faire is a French phrase meaning
let do, let go, let pass. Its proponents make Some proponents of
market economies
arguments against government interference believe that government
should intervene to
with economy and trade. It is synonymous prevent market failure
while preserving the
with free market economics. It is generally general character of a
market economy.
un derstood to b e a doctrine opposing It seeks an
alternative economic system
econ omic-in terv en ti on ism by the state other th an socialism
an d l aissez-f aire
beyond the extent which is perceived to be economy, combining
private enterprise with
necessary to maintain peace and property measures of th e state
to estab lish fair
rights. competition, low infl
ation, low levels of

A market econ omy h as n o cen tral unemployment, good

working conditions,
c oordinator guidin g its operation , yet and social welfare.
th eoretic ally self-organizati on emerges
amidst the complex interplay of supply and Co-relation between
deman d. Supporters of a market economy Market Economy and
Poverty

generally hold that the pursuit of self- interest Free market econ
omists argu e th at
is actually in the best interest of society. planned economies an d
Welfare will not
Adam Smith says: solve poverty problems
but only make them

By pursuin g his own in terest (an worse . They believe

that the only way to
individual) frequently promotes that of the solve poverty is by
creating new wealth. They
society more effectually than when he really believe that this is
most efficiently achieved
intends to promote it. (Wealth of Nation). through low levels of
government regulation
Adam Smith calls it the invisible hand- and interference, free
trade, and tax reform 2

----------------------- Page 17-----------------------

n and reduction . Open economy, competition have disoriented

the economies with huge
o
i
t an d innov ati on gen erate grow th and human and economic
cost.
c
u
d employment. Government
failure is the public sector
o
r
t Advoc ates of the third w ay -s oci al analogy to market
failure and occurs when
n
I market solutions to poverty- believe that government does
not efficiently allocate
n
A there is a legitimate role the government can goods and/or
resources consumers. Just as
play in fighting poverty. They believe this w ith market f
ailures, th ere are m any
can be achieved through the creation of social differen t kin ds
of gov ern ment f ailures.
safety n ets su ch as social security and Inefficient use
of resources, wastage and
workers compensation. retarded
econ omic grow th du e to
government
monopolies and regulation are
Most modern in dustrialized nations
the results of
government failure. Often, the
today are not typically representative of performance of the
public sector in India is
Laissez-faire prin ciples, as th ey usu ally cited to exemplify
government failure.
involve significant amounts of government
interven tion in the econ omy . Th is Structural
Composition of the Economy
intervention includes minimum wages to
The three-
sector hypoth esis is an
in crease the stan dard of livin g, anti-
economic theory
which divides economies
 monopoly regulation to prevent monopolies,
into three sectors
of activity: extraction of raw
progressive income taxes, welfare programs
m ateri als
(primary), m anuf acturing
to provide a safety net for those without the
(secondary), and
services (tertiary).
capacity to find work, disability assistance,
subsidy programs f or b u sin esses and According to
the theory the main focus
agricultural products to stabilize prices - of an econ omys
activity shifts from the
protect j obs within a country, government primary, through
the secondary and finally
ownership of some industry, regulation of to the tertiary
sector. The increase in quality
market. competition to ensure fair standards of life, soci al
security, b lossomin g of
and practices to protect the consumer and edu cati on an d
culture an d avoidance of
worker, and economic trade barriers in the unemployment with
reduction of poverty are
form of protective tariffs - quotas on imports the effects of
such transition.

- or internal regulation favoring domestic Countries

with a low per capita income
industry. are in an early
state of development; the main
part of their
national income is achieved
Differencies Between through production
in the primary sector.
Market Failure and Government Failure
Countries in a
m ore adv an ced state of
The inability of an unregulated market devel opmen t, w
ith a medium nati on al
to achieve allocative efficiency is known as income, generate
their income mostly in the
market failure . The main types of market sec on dary
sector . In hi gh ly dev el oped
failure are : m on opoly, steep inequ ality, countries with a
high income, the tertiary
pollution etc. The western economic recession sector dominates
the total output of the
since 2008 is the result of market failure economy.

3 where excessive speculation and borrowings Th e prim

ary sector of the economy
1

----------------------- Page 18-----------------------

involves changing natural resources into The tertiary

sector of economy (also y
m
primary products. Most products from this known as the service
sector) is defined by o

o
sector are considered raw materials for other exclusion of the two
other sectors. Services c

E
industries. Maj or businesses in this sector are defin ed in c onv
en ti on al econ omic

a
include agriculture, fishing, forestry and all literature as
intangible or invisible goods. i

n
mining and quarrying industries. The tertiary sector of
economy involves the I

Primary in dustry is a larger sector in provision of services to

businesses as well as T

R
developing countries; for instance, animal final consumers.
E

C
husbandry is more common in Africa than in Serv ices may
involve-the transport, N

Japan. distribution and sale of

goods from producer f

t
to a consumer as may
happen in wholesaling s
The secondary sector of the economy
i
includes those economic sectors that create a and retailing, or may
involve the provision G
finished, usable product: manufacturing and of a service, such as
or entertainment. The
construction. service sector
consists of the soft parts of
the economy such as
insurance, government,
 This sector generally takes the output of
tourism, banking,
retail, education, and social
the primary sector and manufactures finished
services. Examples of
service may include
goods or where they are suitable for use by
retail, insurance, and
government. -
oth er b u sin esses, f or export, or sale to
domestic consumers. The quaternary
sector of the economy
is an extension of the
three-sector hypothesis.
This sector is often divided into light
It princ ipally c
oncerns the intellectual
industry and heavy industry.
services: information
generation, information
Light in dustry is usually less capital sharin g, c onsu
ltation an d research and
intensive than heavy industry, and is more development. It is
sometimes incorporated
consumer-oriented than business-oriented
into the tertiary sector
but many argue that
(i .e., m ost li gh t in du stry products are intellectual services
are distinct enough to
produ ced for en d users rath er th an as
warrant a separate
sector.
intermediates for use by other - industries).
The quaternary
sector can be seen-as the
Examples of light in dustries include the
manufacture of clothes, shoes, furniture and sector in which
companies invest in order to
ensure further
expansion . Research will be
household items (e.g. consumer electronics).
directed in to cutting
costs, tapping in to
Heavy industry means products which markets, producing
innovative ideas, new
are either heavy in weight or in the processes produ cti on meth ods
an d meth ods of
leading to their production . Examples are m anu facture, amon gst
others . To m any
heavy machinery, big factories, chemical in du stries, su ch as
th e ph arm aceutic al
plants, production of construction equipment in dustry, the sector
is the most valuable
such as cranes and bulldozers. Alternatively, because it creates
future branded products
heavy industry projects can be generalized as which the company
will profit from. This
more capital intensive or as requiring greater sector evolves in well
developed countries
or more advanced resources, facilities or
and requires a highly
educated workforce.
management.
The quinary
sector of the economy is the 4

----------------------- Page 19-----------------------

n sector suggested by some economists as NICs are

countries whose economies
o
i
t c omprisin g h ealth , edu cati on , culture, have not yet
reached first world status but
c
u
d research, police, fire servi ce, an d oth er have, in a
macroeconomic sense, outpaced
o
r
t government industries not intended to make their dev el opin
g counterparts An oth er
n
I a profit. The quinary sector also includes characterization
of NICs is that of nations
n
A domestic activities such as those performed undergoing rapid
economic growth. Incipient
by stay-at-home parents or homemakers. or ongoing
industrialization is an important
These activi ties are not measured by in dicator of a
NIC . In many NICs, social
monetary amounts but make a considerable upheav al c an
occur as prim arily rural,
contribution to the economy. agriculture
populations migrate to the cities,
where the growth of
manufacturing concerns
Developing Country and factories can
draw many thousands of

laborers.
A developing country is a country that
has not reached the Western-style standards NICs usually
share some other common
of democratic governmen ts, free market features,
including:
economies, industrialization, social programs, A
switch from agriculture to
an d h um an ri ghts gu aran tees f or their
industrial economies, especially in
citizens. the
manufacturing sector.
Countries w ith m ore adv an ced An
inc reasin gly open- m arket
economies than other developing nations, but economy,
allowing free trade with
which have not yet fully demonstrated the other
nations in the world.
signs of a developed country, are grouped Emerging
MNCs
un der th e term n ew ly in du stri alized Stron g
capital inv estmen t from
countries. foreign
countries.

Developed Country High-income Economy

Devel opmen t en tails a m odem A High-

income economy is defined by
infrastru cture (b oth physic al and the World Bank as a
country with a GDP per
institutional), an d a move away from low capita of $11,456
or more . While the term
value added sectors such as agriculture and high income may
be used interchangeably
n atural resource extracti on . Dev el oped with First World
and developed country,
c oun tries, in comparison , usu ally have the technical
definitions of these terms differ.
economic systems based on economic growth The term first
world commonly refers to
in the secondary, tertiary and quaternary th ose prosperou s
c oun tries th at align ed
sectors and high standards of living. themselves with the
U.S. and NATO during
the cold war.
Several institutions, such as
Newly Industralized Country International
Monetary Fun d (IMF) take
factors other than
high per capita income into
The category of newly industrialized
acc ount when cl
assifyin g countries as
c ountry (NIC) is a soci oecon omic
dev el oped Of
advan ced econ omies
classification applied to several Countries
5 around the world. Acc ordin g to th
e Un ited N ati ons, for
1

----------------------- Page 20-----------------------

example, some high income countries may also servi ces an d

th e percen tage of y

m
be developing countries. The GCC (Persian populati on
displ aced-b y natural o

n
o
Gulf States) Countries, for ex ample, are disasters).
c

E
classified as developing high income countries The classification
currently applies to 48

a
Th us, a h i gh inc ome Coun try m ay be countries.
i

n
classified as either developed or developing.
I

Indias Initiatives for

Green Acounting T
Th e term dev el oped c ountry, or
R
advan ced country, is u sed to categorize India aims to
factor the use of natural E

C
countries that have achieved a high level of resources in its
economic growth estimates N

industrialization in which the tertiary and

f
by 2015 as we seek to
underscore the actions o

t
quaternary sectors of in dustry dominate. it is taking to fight
global warming. s

i
Countries not fitting this definition may
G
Government said
the country would
referred to as developing countries. seek to make green
accounting part of

This level of economic development government policy on

economic growth.
usually translates into a high income per The alternative
GDP (Gross Domestic
capita and a high Human Development Index Product) estim ates
acc ount f or the
(HDI) rating. Countries with h igh gross consumption of natural
resources as well.
domestic product (GDP) per capita often fit This would help find
out how much of a
the ab ov e descripti on of a devel oped natural resource is
being consumed in the
economy. However, anomalies exist when- course of economic
growth, how much being
determining developed status by the factor degraded and how much
being replenished.
GDP per capita alone.
It is expected
that in future more and
Least Development Countries more economists are
likely to focus their time
an d en ergies upon
soci al investment
Ans. Least Developed Countries (LDCs accounting or green
accounting ... so that
or Fourth World countries) are countries GDP really bec omes
not gross domestic
which acc ording to th e Un ited N ations product but green
domestic product.
exh ib it the l ow est in dic ators of Green gross
domestic product, then or
socioeconomic development, with the lowest green GDP as outlined
ab ove, measures
Human Development In dex ratings of all ec on omic grow th wh
ile factoring in the
countries in the world. A country is classified environmental
consequences, or externalities
as a Least Developed Country if it meets (how th ose outside
a tran saction are
three criteria based on: affected), of th
at grow th . Th ere are
low-income (three-year average GDP methodologic al c onc
erns how do we
per capita of less than US $750, which monetize the loss of
biodiversity? How can
must exceed $900 to leave the list) we measure the economic
impacts of climate
human resource weakness (based on change due to green
house gas emissions?
in dic ators of n utriti on , health, While th e green GDP
h as pot yet b een
educ ation an d adult literacy) perfected as a measure
of environmental
economic vulnerability (b ased on costs, many countries
are working to strike
a b alance betw een -
green GDP an d the
instability, of agricultural production,
original GDP.
6
instability of exports of goods and
1

----------------------- Page 21-----------------------

n Sarkozys Initiatives for GDP Alternative to show that more

production doesn t
o
i
t necessarily
correspond with greater well-
c The Commission on the measurement of
u
d being.
o economic performance and social progress
r
t Were living
in one of those epochs
n was set up at the beginning of 2008 on French
I
n governments initiative. where certitudes have
vanished.., we have to
A reinvent, to
reconstruct everything, Sarkozy
Increasing concerns have been raised
sin ce a long time ab out the adequacy of said. The central
issue is [to pick] the way
of development, the
model of society, the
current measures of economic performance,
civilization we want
to live in.
in particular those based on GDP figures.
Moreover, there are broader concerns, about Stiglitz
explained: The big question
the relevance of these figures as measures of concerns whether GDP
provides a good
societal well-being, as well as measures of measure of living
standards. In many cases,
ec on omic, envi ron mental, an d soci al GDP statistics seem
to su ggest-th at-the
sustainability. econ omy is doin g
far better than most
citizens own
perceptions . Moreover, the
Reflecting these concerns, the former
focus on GDP
creates conflicts : political
President Sarkozy has decided to create this
leaders are told to
maximise it, but citizens
Commission, to look at the entire range of
issues, Its aim is to identify the limits of GDP also dem an d that
attenti on b e pai d to
enhancing security,
reducing air, water, and
as an indicator of economic performance and
noise pollution, and
so forth all of which
soci al progress, to c on sider additi on al
might lower GDP
growth. The fact that GDP
information required for the production of a
may be a poor measure
of well-being, or, even
 more relevant picture etc: The Commission is
of market activity,
has, of course, long been
chaired b y Professor J oseph E . Stiglitz.
recognized. But
changes in society and the
Amartya Sen an d Bin a Agarwal are also
economy may have
heightened the problems,
associated with it. The commission gave its
at the same time that
advances in economics
report in 2009.
and statistical
techniques may have provided
The Stiglitz report recommen ds that
opportunities to
improve our metrics.
economic indicators should stress well-being
instead of production, and for non-market India GDP Base Year is
changed
activities, such as domestic and charity work,
to be taken into account, In dexes should The Government
changed the base year
integrate complex realities, such as crime, the for calculating
national income to 2004-05 as
environment and the efficiency of the health agains t 1999-2000
earlier . Th e Cen tral
system, as well as income inequality . The Statistical
Organisation (CSO ) made the
report brings examples, such as traffic jams, changes in early 2010.

7
1

----------------------- Page 22-----------------------

a
i

i
2
G
Sectors of the Indian Economy

n ec onomy is best resources. Take, for

example, the cultivation
understood when we of son. It takes place
within a crop season. For
study its components the growth of the Cotton
plant, we depend
Aor sectors . Sectoral mainly, but not entirely,
on natural factors
classification c an be like rain fall, sunshin
e an d clim ate . The
done on the basis of several criteria. Here product of this activity,
Cotton, is a natural
three types of classifications are discussed: product. Similarly, in the
case of an activity
primary / secondary / tertiary, organised / like dairy. we are
dependent on the biological
unorgan ised; an d pub lic / private . It is process of the animals
and availability of
important to emphasise the changing roles of fodder etc. The product
here, milk, also is a
sectors. This can be highlighted further by natural product Similarly,
minerals and ores
drawing attention of the students to the rapid are also natural products.
When we produce
growth of service sector. While elaborating a good by exploiting
natural resources, it is
the ideas provided in the chapter, the students an activi ty of th e
primary sector . Why
m ay n eed to b e f amiliarised with a few primary? This is because
it forms the base for
fundamental concepts such as Gross Domestic all other products that we
subsequently make.
Product, Employment etc. Another important Since most of the natural
products we get are
issue to be highlighted is about the problems from agriculture, dairy,
fishing, forestry, this
caused by the changes in the roles of sectors. sector is also called
agriculture and related
sector.
SECTORS OF ECONOMIC ACTIVITIES The secondary
sector covers activities in

Th ere are many activi ties th at are which natural products

are changed into
un dertaken b y directly u sin g natural other forms through
manufacturing that we 8
associate with industrial
activity. It is the next 1

----------------------- Page 23-----------------------

y step after primary . Th e product is n ot barbers, cobblers,

lawyers, and people to do
m
o produced by nature but has to be made and administrative and
accounting works . In
n
o recent times,
certain new services based on
c therefore some process of manufacturing is
E
essen ti al . Th is c ould b e in a f actory, a information
technology such as internet cafe,
n
a ATM booths, call
centres, software companies
i workshop or at home. For example, using
d
n etc have become
important.
I cotton fibre from the plant, we spin yarn and

e w eav e cl oth . Usin g su garc an e as a raw

h
t
COMPARING THE
THREE SECTORS
f material, we make sugar or gur. We convert
o

s soil into bricks and use bricks to make houses

 r The various
production activities in the
o
t an d buildings. Since this sector gradually
c primary, sec on
dary an d tertiary sectors
e
S became associated with the different kinds of produce a very
large number of goods and
industries that came up, it is also called as services. Also, the
three sectors have a large
industrial sector. nu mb er of people
w orkin g in th em to
After primary and secondary, there is a produce these goods
and services. The next
third category of activities that falls under step, therefore, is
to see how much goods and
terti ary sector an d is differen t from the services are
produced and how many people
above two. These are activities that help in work in each
sector. In an economy there
c ould b e on e or
m ore sectors wh ich are
th e devel opmen t of th e primary and
dominant in terms
of total production and
secon dary sectors . Th ese activities, by
empl oymen t, wh
ile oth er sectors are
themselves, do not produce a good but they
relatively small in
size. How do we count the
are an aid or a support for the production
various goods an d
services and know the
process. total production in
each sector?

For example, goods that are produced With so many

thousands of goods and
in the primary or secondary sector would services produced,
you might think this is an
need to be transported by trucks or trains impossible task!
and then sold in wholesale and retail shops.
To get around
this problem, economists
At times, it may be necessary to store these
suggest that the
values of goods and services
in godowns . We also may need to talk to should be used
rather than adding up the
oth ers ov er telephon e or sen d letters actual numbers. For
example, if 10,000 kgs of
(communication) or b orrow money from wheat is sold at Rs
8 per kg, the value of wheat
banks (banking) to help production and trade. will be Rs 80,000.
The value of 5000 coconuts
Transport storage communication banking, at Rs 10 per piece
will be Rs 50,000. Similarly,
 trade are some examples of tertiary activities the value of goods
and services in the three
Since activities generate services rather than sectors are
calculated, and then added up.
goods the tertiary sector is also called the N ot ev ery
good (or serv ice) th at is
service sector.
produced and sold
needs to be counted. It
Servi ce sector also inclu des some makes sense only to
include the final goods
essential services that may not directly help and services. Take,
for instance, a farmer who
in the production of goods. For example, we sells wheat to a
flour mill for Rs 8 per kg. The
require teachers, doctors, an d those who mill grinds the
wheat and sells the flour to a
9 provide personal services such as washermen, biscuit company for
Rs 10 per kg. The biscuit
1

----------------------- Page 24-----------------------

company uses the flour and things such as Historical Change in

Sectors y

m
sugar and oil to make four packets of biscuits.
o
Generally, it has
been noted from the n

o
It sells biscuits in the market to the consumers
c
histories of many, now
developed, countries E
for Rs 60 (Rs 15 per packet). Biscuits are the

that at initial stages of

development, primary n

a
final goods, i .e., goods th at reach the
i
sector was the m ost
importan t sector of d

n
consumers.
I
economic activity.

T
Why are only final goods and services As the methods of
farming changed and R
counted? In contrast to final goods, goods
E
 agriculture sector b
egan to prosper, it C
such as wheat and the wheat flour in this
N
produced much more food
than before. Many f
ex ample are in termedi ate goods.
o
people could now take
up other activities. t
Intermediate goods are used up in producing
s
There w ere in creasin
g nu mber of craft i
final goods and services. The value of final
G
persons an d traders .
Buying an d selling
goods already includes the value of all the
activities increased
many times.
intermediate goods that are used in making
the final good. Hence, the value of Rs 60 for Besides, there
were also transporters,
the biscuits (final good) already includes the administrators, army
etc. However, at this
value of flour (Rs 10). Similarly, the value of stage, m ost of the
goods produ ced w ere
all other intermediate goods would have been natural products from the
primary sector and
included. To count the value of the flour and most people w ere also
employed in th is
wheat separately is therefore not correct sector. Over a long time
(more than hundred
because then we would be counting the value years), and especially
because new methods
of the same things a number of times. First of manufacturing were
introduced, factories
as wheat, then as flour and finally as biscuits. came up and started
expanding. Those people
who had earlier worked on
farms now began
The value of final goods and services
to work in factories in
large numbers.
produced in each sector during a particular
year provides the total production of the People began to
use many more goods
sector f or th at year . An d th e sum of that were produced in
factories at cheap rates.
production in the three sectors gives what is Secondary sector
gradually became the most
called the Gross Domestic Product (GDP) of importan t in
total producti on and
a country. It is the value of all final goods and employment. Hence, over
time, a shift had
services produced within a country during a taken place.

particular year. GDP shows h ow big the This means that

the importance of the
economy is. sectors had changed. In
the past 100 years,
In In di a, th e m ammoth task of there has been a further
shift from secondary
measuring GDP is undertaken by a central to tertiary sector in
developed countries. The
government ministry. This Ministry, with the service sector has become
the most important
help of various government departments of in terms of total
production . Most of the
all the Indian states and union territories, working people are
also employed in the
collects information relating to total volume service sector. This
is the general pattern
observed in developed
countries.
of goods and services and their prices and
then estimates the GDP.

----------------------- Page 25-----------------------

y PRIMARY, SECONDARY AND However, you

must remember that not
m
o all of the service
sector is growing equally
n TERTIARY SECTORS IN INDIA
o
c well. Service
sector in India employs many
E Rising Importance of the Tertiary Sector
n different kinds of
people. At one end there
a in Production Over the thirty years between
i are a limited number
of services that employ
d
n 1973 and 2003, while production in all the
I highly skilled and
educated workers. At the
e three sectors has increased, it has increased
h other end, there
are a very large number of
t the most in the tertiary sector. As a result, in

f workers engaged in
services such as small
o the year 2003, the tertiary sector has emerged
s shopkeepers, repair
person s, transport
r as th e largest producin g sector in In dia
o
t persons, etc. These
people barely manage to
 c replacing the primary sector. Why is the
e
S earn a living an
d yet they perform these
tertiary sector becoming so important in
India? There could be several reasons. services because no
alternative opportunities
for work are
available to them. Hence, only
First, in any country several services
a part of this
sector is growing in importance.
such as hospitals, educational institutions,
You shall read
more about this in the next
post and telegraph services, police stations,
section.
c ourts, vi ll age admin istrativ e offices,
municipal corporations, defence, transport, A remarkable
fact about India is that
b an ks, in surance compan ies, etc . are while there has been
a change in the share of
required. These can be considered as basic the three sectors
in GDP, a similar shift has
services. not taken place in
employment. The primary
In a developing country the government sector continues to
be the largest employer
has to take responsibility for the provision of even in the year
2000.

these services. Second, the development of Why didnt a

similar shift out of primary
agriculture an d in du stry leads to the sector happen in
case of employment? It is
development of services such as transport, because not enough
jobs were created in the
trade, storage an d th e like, as w e have secondary and
tertiary sectors. Even though
already seen. Greater the development of the industrial output or
the production of goods
primary and secondary sectors, more would went up by eight
times during the period,
be the demand for such services. employment in the
industry went up by only
Third, as income levels rise, certain 2.5 times. The same
applies to tertiary sector
sections of people start demanding many as well. While
production in the service sector
m ore servi ces like eating out, tourism, rose by 11 times,
employment in the service
shopping, private hospitals, private schools, sector rose less
than three times.

professional training etc. You can see this As a result,

m ore th an h alf of the
change quite sharply in cities, especially in big workers in the
country are working in the
cities . Fourth, over the past decade or so, prim ary sector, m
ain ly in agriculture,
certain new services such as those based on producing only a
quarter of the GDP . in
information and communication technology contrast to this,
the secondary and tertiary
have become important and essential. The sectors produce
three-fourth of the produce
production of these services has been rising whereas th ey
employ less than h alf the
1 rapidly. people. Does this
mean that the workers in
2

----------------------- Page 26-----------------------

agriculture are not producing as much as they provide them with proper
work elsewhere, y

m
could? agricultural production
will not suffer. The o

o
What it means is that there are more incomes of the people
who take up other c

E
work would increase the
total family income.
people in agriculture than is necessary. So,
n

i
ev en if you m ove a few people out, This
underemployment can also happen d

n
production will not be affected. In other in oth er sectors .
For example there are I

T
words, workers in agricultural sector are thousands of casual
workers in the service R
underemployed. For instance, take the case sector in urban areas
who search for daily E

C
of a small farmer, Laxmi , owning about two employment. They are
employed as painters, N

hectares of unirrigated land dependent only plumbers, repair persons

and others doing f

o
t
on rain and growing crops like j owar and odd j obs . Many of
them don t fin d work s

i
arhar. All five members of her family work everyday. Similarly, we
see other people of G
in the plot throughout the year. Why? They the service sector on the
street pushing a cart
have nowhere else to go for work. You will or selling something
where they may spend
see that everyone is working, none remains the whole day but earn
very little. They are
idle, but in actual fact their labour effort gets doing this work because
they do not have
divided. Each one is doing some work but no better opportunities.
one is fully employed.
This is the situ ati on of How to Create More
Employment?

un derempl oyment, wh ere people are From the above

discussion, we can see
apparently working but all of them are made th at there c on tinu
es to b e cons iderab le
to work less than their potential. This kind underemployment in
agriculture. There are
of underemployment is hidden in contrast to also people who are not
employed at all. In
someone who does not have a j ob an d is what ways can one
increase employment for
clearly visible as unemployed. Hence, it is also people? Let us look at
some of them.
called disguised unemploy-ment. Take the case of
Laxmi with her two-

Now, supposing a landlord, Sukhram, h ectare pl ot of un-

irrigated l an d . The
comes and hires one or two members of the government can spend some
money or banks
family to work on his land. Laxmis family is can provide a loan, to
construct a well for her
now able to earn some extra income through family to irrigate the
land. Laxmi will then be
wages. Since you do not need five people to able to irrigate her
land and take a second
look after that small plot, two people moving crop, wheat, during the
rabi season. Let us
out does not affect production on their farm. suppose that on e
hectare of wheat c an
In the above example, two people may move provide employment to
two people for 50
to work in a factory. Once again the earnings days (including sowing,
watering, fertilizer
of the family would increase and they would application and
harvesting). So, two more
also continue to produce as much from their members of the family
can be employed in
land. her own field. Now
suppose a new dam is
There are lakhs of farmers like Laxmi in constructed and canals
are dug to irrigate
India. This means that even if we remove a many such farms. This
could lead to a lot of
lot of people from agricultural sector and empl oymen t
generati on w ithin the 2

----------------------- Page 27-----------------------

y agricultural sector itself reducing the problem forest areas, we

can start honey collection
m
o of underemployment. centres where
farmers can come and sell wild
n
o
c Now, suppose Laxmi and other farmers honey. It is also
possible to set up industries
E
n produc e mu ch m ore than bef ore. Th ey that process
vegetab les an d agricultural
a
i would also need to sell some of this. For this produ ce like
potato, sw eet potato, rice,
d
n
I they m ay be required to tran sport th eir wheat, tomato,
fruits, which can be sold in
e outside m
arkets . This will provide
h products to a nearby town. If the government
t

f invests some money in transportation and employment in

industries located in semi-
o

s storage of crops, or makes better rural roads rural areas and

not necessarily in large urban
r
o
t so that mini-trucks reach everywhere several centres.
c
e
S farmers like Laxmi, who now have access to Do you
know that in In dia there are
water, can continue to grow and sell these about 200 million
children in the school-going
crops. This activity can provide productive age group? Out of
this, only about two-thirds
employment to not j u st farmers b ut also are attending
schools. The rest are not they
others such as those in services like transport may be at home
or many of them may be
 or trade. working as child
labourers. If these children
Laxmis need is not confined to water are to attend
schools, we will require more
alone. To cultivate the land, she also needs buildings, more
teachers and other staff. A
seeds, fertilisers, agricultural equipments and study conducted
by the Planning Commission
pumpsets to draw water. Being a poor farmer, estimates that
nearly 20 lakh j obs can be
she cannot afford many of these. So she will created in th e
edu cati on sector al on e.
have to borrow money from moneylenders Similarly, if
we are to improve the health
and pay a high rate of interest. If the local situ ati on , w
e n eed m any m ore doctors,
bank gives her credit at a reasonable rate of nurses, health
workers etc. to work in rural
interest, she will be able to buy all these in areas. These
are some ways by which j obs
time and cultivate her land. This means that would be created
and we would also be able
along with water, we also need to provide to address th
e importan t aspects of
cheap agricultural credit to the farmers for development.

farming to improve. Every

state or region has potential for
Another way by which we can tackle increasing the
income and employment for
this problem is to i dentify, prom ote and people in that
area. It could be tourism, or
locate industries and services in semi-rural regional craft
industry, or new services like
areas where a large number of people may be IT . Some of
these w ould require proper
empl oyed . For ins tanc e, suppose m any planning and
support from the government.
farmers decide to grow arhar and chickpea For example, the
same study by the Planning
(pulse crops). Setting up a dal mill to procure Commission says
that if tourism as a sector
and process these and sell in the cities is one is improv ed,
every year w e can give
such example. Opening a cold storage could additional
employment to more than 35 lakh
give an opportunity for farmers to store their people.

products like potatoes and onions and sell W e mu st

realise that some of the
3 them when the price is good. In villages near suggestions
discussed above would take a
2

----------------------- Page 28-----------------------

long time to implement. For the short-term, security of employment.

They are expected y
m
we need some quick measures. Recognising to work only a fixed
number of hours. If they o

o
this, the central government in India recently work more, they have to
be paid overtime by c

E
made a law implementing the Right to Work the employer They also
get several other

a
in 200 districts of India. It is called National benefits from the
employers. What are these i

n
Rural Empl oyment Gu aran tee Act 2005 benefits? They get paid
leave, payment during I

{NREGA 2005). Under NREGA 2005, all those holidays, provident fund,
gratuity etc. They T

R
who are able to, an d are in need of, work are supposed to get
medical benefits an d, E

C
h av e been gu aran teed 100 days of under the laws, the
factory manager facilities N

employment in a year by the government. he like drinking w ater

an d a safe working f

gov ernmen t f ails in its duty to prov ide envi ron ment . Wh en
th ey retire, th ese t

i
employment, it will give unemployment workers get pensions as
well. G
allowances to the people. The types of work In c on trast,
Kam al works in the
that would in future help to increase the unorganised sector. The
unorgariised sector
production from land will be given preference is characterised by small
and scattered units
under the Act. which are largely
outside the control of the

government. There are

rules and regulations
DIVISION OF SECTORS AS but these are not
followed. Jobs here are low-
ORGANISED AND UNORGANISED paid an d often n ot
regular . Th ere is no
provision of overtime,
paid leave, holidays,
Let u s ex amin e an oth er w ay of
leave due to sickness
etc. Employment is not
classifying activities in the economy. This
secure. People can be
asked to leave without
looks at the way people are employed. What
any reason. When there is
less work, such as
are their conditions of work? Are there any
during some seasons,
some people may be
rules and regulations that are followed as
asked to leave . A
lot also depends on the
regards their employment Kanta works in the
whims of the employer.
This sector includes
organised sector. Organised sector covers
a large number of people
who are employed
those enterprises or places of work where the
on their own doing small
jobs such as selling
term s of empl oymen t are regul ar and
on the street or doing
repair work. Similarly,
therefore, people have assured work. They
f armers w ork on th
eir own an d hire
are registered by the government and have
labourers as and when
they require.
to follow its rules and regulations which are
given in various laws such as the Factories Act, How to Protect
Minimum Wages Act, Payment of Gratuity Workers in the
Unorganised Sector?
Act, Shops and Establishments Act etc. It is
called organised because it has some formal The organised
sector offers jobs that are
processes an d procedures . Some of these the most sought-after.
But the employment
people may not be employed by anyone but opportunities in the
organised sector have
may work on their own but they too have to b een expan din g v ery
sl ow ly . It is also
register themselves with the government and c omm on to fin d m
any organ ised sector
follow the rules and regulations. enterprises in the
unorganised sector. They
adopt such strategies
to evade taxes and
Workers in the organised sector enjoy
4
refuse to follow laws
that protect labourers. 2

----------------------- Page 29-----------------------

y As a result, a large number of workers are support to the

unorganised sector workers is
m
o forced to enter the unorganised sector j obs, thus necessary for
both economic and social
n
o
c which pay a very low salary. They are often development.
E
exploited and not paid a fair wage . Their
n
a
i earnings are low and not regular. These jobs SECTORS IN
TERMS OF OWNERSHIP:
d
n
I are not secure and have no other benefits. PUBLIC AND
PRIVATE SECTORS

e
h Since the 1990s, it is also common to see
t Another way
of classifying economic
f a large number of workers losing their jobs
o
activities into
sectors could be on the basis of
s in the organised sector. These workers are
r
o who owns assets
and is responsible for the
t forced to take up j obs in the unorganised
c
e delivery of
services. In the public sector, the
S sector with low earnings. Hence, besides the
government owns
most of the assets and
need for more work, there is also a need for
provides all the
services. In the private sector,
protection and support of the workers in the
ownership of
assets and delivery of services
unorganised sector.
is in the han
ds of private in dividuals or
In th e rural areas, the un organised companies .
Railways or post office is an
sector m ostly comprises of lan dless example of th e
public sector wh ereas
agricultural labourers, small and marginal companies like
Tata Iron and Steel Company
farmers, sharecroppers and artisans (such as Limited (TISCO)
or Reli ance In du stries
w eav ers, bl acksmiths , c arpen ters and Limited (RIL)
are privately owned.
goldsmith s) . Nearly 80 per cent of rural
Activities
in th e private sector are
households in India are in small and marginal
guided by the
motive to earn profits. To get
farmer category. These farmers need to be
such services we
have to pay money to these
supported through adequate f acility f or
individuals and
companies. The purpose of
timely delivery of seeds, agricultural inputs,
the public sector
is not just to earn profits.
credit, storage f acilities an d m arketing
Governments raise
money through taxes and
outlets.
other ways to meet
expenses on the services
In the urban areas, unorganised sector rendered by it.
Modern day governments
comprises mainly of workers in small-scale spend on a whole
range of activities. What
industry, casual workers in construction, are these
activities? Why do governments
trade and transport etc., and those who work
spend on such
activities? Lets find out.
as street v en dors, h ead l oad workers,
garment makers, rag pickers etc. Small-scale There are
several things needed by the
industry also needs governments support for society as a
whole but which the private
procuring raw material an d marketing of sector will not
provide at a reasonable cost.
output. The casual workers in both rural and Why? Some of
these need spending large
urban areas need to be protected. sums of money,
which is beyond the capacity
We also find that majority of workers of the private
sector. Also, collecting money
from scheduled castes, tribes and backward from thousan ds
of people who use these
c ommunities fin d them selves in the facilities is not
easy. Even if they do provide
unorgan ised sector . Besi des getting the these things
they would charge a high rate
irregular and low paid work, these workers for their use.
Examples are construction of
5 roads, br i
dges, railw ays, h arbours,
2 also face social discrimination. Protection and

----------------------- Page 30-----------------------

generating electricity, providing irrigation There are a

large number of activities y

m
through dams etc. Thus, governments have which are the primary
responsibility of the o

o
to un dertake such h eavy spen din g and government. The
government must spend on c

E
ensure that these facilities are available for these . Provid in g
health an d educ ati on

a
everyone. There are some activities, which facilities for all is
one example . Running i

n
the government has to support. The private proper schools an d
provid in g qu ality I
sector may not continue their production or education, particularly
elementary education, T

R
business unless government encourages it. is the duty of the
government. Indias size of E

C
For example, selling electricity at the cost of illiterate population is
one of the largest in the N

generati on m ay pu sh up th e costs of world.

f

produ cti on of in dustries . M any units,

t
Similarly, we
know that nearly half of s

i
especially small-scale units, might have to In dias children are
malnourished an d a G
shut down . Government here steps in by quarter of them are
critically ill. The infant
producing and supplying electricity at rates mortality rate of
Orissa (87) or M adhya
wh ich th ese in du stries c an aff ord. Pradesh (85) is h i
gh er th an th at of the
Government has to bear part of the cost. poorest regions of
the world such as the

Similarly, the government in India buys African countries.

Government also needs to
wheat and rice from farmers at a fair price. pay atten ti on
to aspects of h um an
This it stores in its god owns and sells at a developmen t such as
availability of safe
lower price to consumers through ration drinking water, housing
facilities for the poor
shops. The government has to bear some of and food and nutrition,
It is also the duty of
the c ost . In th is w ay, th e govern ment the government to
take care of the poorest
supports both farmers and consumers. an d most ignored
regions of the country
through increased
spending in such areas.

----------------------- Page 31-----------------------

n
o
i
t
a
z
i
l
a
r
e
b
i
L

3
Economy Planning

PLANNED ECONOMY Market economy

Planned economy is one in which the In a market

economy, it is the opposite-
state owns (partly or wholly) and directs the state has a minimal
role in the management
 economy. While such a role is assumed by the of the economy-
production, consumption
State in almost every economy, in planned and distribution
decisions are predominantly
economies, it is pronounced: for example in left to the market.
State plays certain role in
communist and socialist countries- former redistribution. State is
called the laissez faire
USSR and China till the 1970s. In such a case state h ere . It is
a Fren ch phrase literally
a pl anned ec on omy is referred to as meaning Let do.

comman d economy or centrally planned

Indicative plan
economy or command and control economy.
In c omm an d ec on omies, state does the Indicative plan is
one where there is a
following mixed economy with State
and market playing
Con trol all m aj or sectors of the significant roles to
achieve targets for growth
economy that they together set.
It is operated under a
Legislate on their use and about the pl ann ed ec on omy
b ut n ot c ommand
distribution of income economy.

State decides on wh at should be

Difference between
produ ced an d how much; sold at
Planned Economy &
Command Economy
what price
Private property is not allowed Th e differenc e
b etween pl ann ed
economy and command
economy is that in
7 the former there may be
mixed economy and
2

----------------------- Page 32-----------------------

while in the latter Government owns and The In dian

N ati on al Con gress y

m
regulates economy to near monopolistic limit. established a National
Planning Committee o

o
Command economies were set up in under the chairmanship of
Jawaharlal Nehru. c

E
It (1938) stated the
objective of planning for
China and USSR, mainly for rapid economic
n

a
development was to
ensure an adequate i
growth and social and economic justice but
d

n
have been dismantled in the last two decades standard of living for
the masses, in other I
words, to-get rid of the
appalling poverty of T
as they do not create wealth sustainably and
R
are n ot c on du cive f or inn ov ation and the people. It
advocated heavy industries E

C
efficiency. Cuba and North Korea are still th at w ere essenti al
b oth to b uild oth er N

command economies. in dustries, an d for

In dian self- defence; f

h eavy in dustries had

to b e in pub lic t

i
An overview of ownership, f or b oth
redistrib utive and G
History of Economic Planning in India security purposes;
redistribution of land away
In dia being devastated economically from the big landlords
would eliminate rural
after more than two centuries of colonial poverty.

exploitation resulting in chronic poverty. During the 1940s,

the Indian Federation
Eradication of poverty was the driving force of Labour published its
Peoples Plan by MN
for the formulation of various models of Roy that stressed on
employment and wage
growth before Independence. goods. SN Agarwala,
follower of Mahatma
In 1944 leadin g b u sin essmen and G an dh i pub lished G
an dh i an Plan th at
industrialists (including Sir Purshotamdas emphasized on
decentralization; agricultural
Thakurdas, JRD Tata, GD Birla and others) dev el opment;
empl oyment; cottage
put f orw ard A Pl an of Ec on omic industries etc.
Development for India -popularly known as
the Bomb ay Pl an . It saw In dias future Main Goals of Indian
Planning

progress based on further expansion of the After In depen

denc e in 1947, In dia
textile an d con sumer in dustries already launch ed the fiv e
year pl ans f or rapid
flourishing in cities like Bomb ay and growth.
Ahmedab ad. It saw an important role the
State in post-Independent India: to provide Planning has the
following long term goals
infrastructure, invest in basic industries like
steel, an d protect In dian in dustry from Growth
foreign competition. Modernization
Visionary engineer Sir Mokshagundam Self-reliance
and
Visvesvarayya pointed to the success of Japan Social justice
and insisted that industries and trade do not Economic growth is
the increase in value
grow of themselves, but have to be willed, of the goods and
services produced by an
planned and systematically developed in economy. It is
conventionally measured as the
his book titled Planned Economy for India percent rate of increase
in real gross domestic
(1934) Expert economists and businessmen product, or real GDP-
real means adjusted to
w ere to do th e pl ann ing . Th e goal w as inflation . Grow th
measures quantitative
poverty eradication through growth. increase in goods and
services. 8

----------------------- Page 33-----------------------

g Economic development refers to growth urban, man-woman;

caste divide and inter-
n
i
n that includes redistributive aspects and social regional divides
are reduced.
n
a
l justice. GDP shows growth and not welfare While the
above four are the long term
P
y an d hu man dev elopmen t aspects like goals of the
planning process, each five year
m educ ati on , access to b asic amen ities, plan has specific
objectives and priorities.
o
n
o environmental quality, freedom, or social
c
E justice. Economic growth is necessary for
HISTORY OF PLANNING
 development but not sufficient.

Growth is expected to spread to all First Plan (1951-

56)
sections and regions; raise resources for the
Government to spend on socio-economic Th e First
Pl an stressed m ore on
priorities etc. It takes a long time for growth agriculture, in
view of large scale import of
to trickle down to all people and regions. food grains and
inflationary pressures on the
Therefore, State plans-for an expeditious economy . Other
areas of emphasis were
process of inclusive growth. power and
transport. The annual average
M odern ization is improv emen t in grow th rate
durin g th e First Pl an w as
technology. It is driven by innovation and estimated as 3.61%
as against a target of 2.1%.
inv estmen t in R & D. Educ ati on is the Renowned
economist KN Raj, who died in
foun dation of m odern iz ati on . The more 2010 was one of
the main architects of Indias
modernized the economy, the greater the first five-year
plan.
value created by it.
Second Plan (1956-
61)
Self-reli ance mean s relyin g on the
resources of the country and not depending With
agricultural targets of previous
on oth er c ountries an d th e MNCs f or pl an ach ieved,
m aj or stress w as on the
investment and growth. India embarked on establishment of
heavy industries. Rate of
the goal partly due to the colonial experience investment was
targeted to increase from 7%
an d partly du e to th e goal of orien ting to 11%. The
Plan achiev ed a m ore th an
grow th to dev el opmen t an d pov erty targeted growth
rate of 4.32%. This Plan
eradication . Nehru-Mahalanobis model of envisaged to give
a big push to the economy
growth that closed In dian econ omy and so that it
enters the take off stage It was
relied on basic industries is the main plank for based on Nehru-
Mahalanobis model self-
self-reliance. reliance and
basic-industry driven growth.

The term self-reliance should not be

confused with self-sufficiency the former Third Plan (1961-
66)

means depending on resources of the country It tried

to b al an ce in du stry and
and avoid dependence on external flows; the agriculture. The
aim of Third Plan was to
latter means that the country has all the
 establish a self
sustaining economy. For the
resources it needs. No country can be self-
sufficient. first lime, India
resorted to borrowing from
IMF, Rupee was
also devalued for the first
Soci al j u stice means inclu sive and time in 1966.
Indias conflict with Pakistan and
equitable growth where inequalities are not repeated droughts
also contributed in the
9 steep and benefits of growth reach all- rural- failure of this
Plan.
2

----------------------- Page 34-----------------------

Annual Plans Seventh Plan (1985-90)

y

o
As th e Th ird Pl an experienced This Plan stressed
on rapid growth in n

o
difficulties on the external front (war with f ood- grains producti on
an d increase in c

China in 1962 and Pakistan in 1965); and the employment opportunities.

The growth rate n

i
economic troubles mounted on the domestic of 5.81% achieved in this
Plan was more than d

I
front- in fl ation, floods, forex crisis- the th e targeted one.
Th e pl an saw the

T
Fourth Plan could not be started from 1966. b eginn in gs of lib
eralizati on of In di an R
There were three annual plans till 1969. This
E
economy.
C
period is called plan holiday that is when five The 8th Plan could
not start in 1990 due N
year plans are not implemented. The Annual
f
o
to economic crisis and
political instability.

t
Plans were: 1966-67, 1967-68 and 1968-69.
s
There were two annual
plans- plan holiday. i

G
Fourth Plan (1969-74)
Eighth Plan (1992-1997)

The main objective of this Plan was This Plan was

formulated keeping in
growth with stability. The Plan laid special view the process of
economic reforms and
emphasis on improving the condition of the restru cturin g of th e
economy . Th e main
un der-privileged an d weaker secti ons emphasis of this Plan were

th rou gh provi sion of educ ati on and

to stabilize
the adverse b alance of
employment. Reducing the fluctuations in
payment scenario
sustainably
agricultural production was also a point of
improvement in
trade and current
emphasis of this Plan . The Plan aimed at a
account deficit
target growth of 5.7% and the achievement
against this was 3.2 1%. human
development as main focus of
planning.
Fifth Plan (1974-79) It was indicative
plan for the first time.
The Plan was formulated
in a way so as to
Th e main obj ectiv e of the Plan w as m anage th e transition
from a cen trally
Grow th f or Social J u stice. Th e targeted planned economy to
market led economy.
growth rate was 4.4% and we achieved 4.8%. The targeted annual
average rate of growth
It was cut short by the Janata Party that came of the economy during
Eighth Plan was 5.6%.
to power in 1977. Against this, we achieved
an average annual

growth of 6.5%.
Sixth Plan (1980-1985)
The Plan was based
on Rao-Manmohan
Removal of poverty was the foremost Singh model of
liberalization.
objective of Sixth Plan.
Anoth er area of emph asis was Ninth Five Year Plan
(1997-2002)

infrastructure, which was to be strengthened The salient

features of the Ninth Five
f or dev el opment of b oth in du stry and Year Plan are a target
annual average growth
agriculture. The achieved growth rate of rate of 6.5 per cent
for the economy as a
5.7% was more than the targeted one. whole, and a growth rate
of 3.9 per cent for

Direct attack on poverty was the main agriculture sector,

among others. The key

0
stress of the Plan. strategies envisaged to
realise this target rest 3

----------------------- Page 35-----------------------

g on attaining a high investment rate of 28.2 per Function of

Planning Commission
n
i
n cent of GDP at market prices. The domestic
n Th e Pl
ann ing Commi ssi on w as
a
l saving rate, which determines the sustainable constituted in
March, 1950 by a Resolution of
P
level of investment, is targeted at 26.1 per cent
y the Government
of India, and works under
m of the GDP. Care has been taken to ensure
o the overall
guid ance of the N ati onal
n
o achievement of a sustainable growth path in Dev el opment
Council . Th e Pl anning
c
E terms of external indebtedness as well as fiscal Commission
consults the Central Ministries
stability. Rate of growth achieved was 5.4% and the State
Governments while formulating
Five Year Plans
and Annual Plans and also
Tenth Plan ov ersees
their implementation . The

Growth Performance in the Five Year Commission also

functions as an advisory
Plans (per cent per annum). body at the apex
level.
Th e 1950
resoluti on settin g up the
Target Actual
 Planning
Commission outlined its functions
First Plan (1951-56) 2.1 3.6 1 as to:

Second Plan (1956-61) 4.5 4.32 Make an

assessment of the material,
Third Plan (1961-66) 5.6 2.38 capital
and human resources of the
c
ounts, inc ludin g technic al
Fourth Plan (1969-74) 5.7 3.2 1
personn
el, an d inv estigate the
Fifth Plan (1974-79) 4.4 4.80
possibilities of augmenting such of
Sixth Plan (1980-85) 5.2 5.69 these
resources as are found to be
Eighth Plan (1992-97) 5.0 6.7
deficient in relation to the nations
Ninth Plan (1997-2002) 6.5 5.35
requirement;
Formul
ate a Pl an f or th e m ost
Tenth Plan (2002-2007) 8% 7.8%

effective and balanced utilisation of

Eleventh Plan (2007-12) 8.1 (revised 2010)

countrys resources;
The economy is expected to expand by On a
determinati on of priorities,

9% per cent hi 2010-l1 having achieved 8.9% define

the stages in which the Plan
real growth in the first half of 2010-2011. it should
be carried out and propose
may rise to 10 per cent in the terminal year the
allocation of resources for the due
of the 11th Plan. Government set an average
completion of each stage;
annual growth target of 9 per cent for the 11th In dic
ate th e f actors which are-
Plan beginning with 8.5 per cent in the first ten din
g to retard ec on omic
year and closing with 10 per cent in 2011-12. dev
elopmen t, an d determine the
The MTA documen t said th e ec onomy con
diti ons wh ich, in v iew of the
exceeded expectations in 2007-08, with a current
social and political situation,
growth rate of 9 per cent, but the momentum should
b e estab lished f or the
was interrupted in 2008-09 because of the
successful execution of the Plan;
global financial crisis. Following the global
Determin e th e n ature of the
meltdown, the growth rate slipped to 6.7 per
machinery which will be necessary
cent in 2008-09 from over 9 per cent in the for
securing the successful implemen-
1 preceding three years. In the year 2009-10, the tation
of each stage of the Plan in all
3 growth rate was 7.6%. its
aspects;

----------------------- Page 36-----------------------

Appraise from time to time the Each Division is headed by

a Senior Officer y

m
progress achieved in the execution of designated as Pr. Adviser
/ Adviser / Addl. o

o
each stage of th e Pl an and Adviser/Jt. Secretary/Jt.
Adviser. c

E
recommend the adjustments of policy

a
an d measures that such appraisal Planning Commission
Divisions i

d
may show to be necessary; and
n

I
Th e v ari ou s
Divisi on s in the
M ake su ch in terim or anc ill ary
T
Commission fall
un der two br oad R
recommendations as appear to it to categories:
E
be appropriate either for facilitating
C
Gen eral
Divisi ons wh ich are N
the discharge of the duties assigned

concerned with
aspects of the entire f

o
to it, or on a c ons iderati on of

t
economy; and
s
prev ailin g ec on omic c on diti ons,
i
Subj ect
Divisi ons wh ich are G
curren t policies, measures and
dev el opmen t programmes or an concerned with
specified fields of
examination of such specific problems development.
as may be referred to it for advice by The General
Divisions functioning in
Central or State Governments. the Planning Commission
are:

Development
Policy Division,
Organisational Structure of Financial
Resources Division,
Planning Commission
International
Economics Division,
The Prime Minister is the ex officio Labour,
Employment and Manpower
Ch airm an of the Plann in g Commission. Division,
Deputy Chairperson enj oys the rank of a Perspective
Planning Division,
cabinet minister. A member of the Planning Plan Coordination
Division,
Commission enjoys the rank of a Minister of Project Appraisal
and Management
State in the Union Government. Cabinet
Division,
Ministers with certain important portfolios Socio-Economic
Research Unit,
act as part-time members.
State Plan
Division, including Multi
The Deputy Chairman and the full time Lev el Pl ann
ing, Border Area
M emb ers of th e Pl ann in g Commi ssi on Development
Programme, Hill Area
function as a composite body in the matter of Dev el opment an
d N orth Eastern
detailed plan formulation . They provide Region (NER),
and
advice and guidance to the subject Divisions Statistics and
Surveys Division,
of the Commission in the various exercises Monitoring Cell
undertaken for the formulation of Approach The Subject
Divisions are:
to the Five Year Plans an d Annual Plans.
Agriculture
Division,
Their expert guidance is also available to the
Backward Classes
Division,
subj ect Divi sions f or m on itorin g and
Communic ati on
& Inf orm ati on
evaluating the Plan programmes, projects and
Division,
schemes.
Education
Division,
The Planning Commission functions
Environment and
Forests Division,
through several-technical subject Divisions.
2

----------------------- Page 37-----------------------

g Health & Family Welfare Division, It is true

that the quantitative aspects of
n
i
n H ou sin g, Urban Dev el opmen t & planning in terms of
control over economy are
n
a
l Water Supply Division, being selectively
phased out and the nature
P
Industry & Minerals Division, of pl ann in g
process is un dergoing a
y
m Irri gati on & Comm an d Area qualitative change.
Planning is important for
o
n th e f oll ow in g
reasons in th e era of
o Development Division,
c
E Power & Energy Division (including liberalization

Rural Energy, N on-Conventi on al In a federal

democracy like ours, the
Energy Sources and Energy Policy principal task of
planning is to evolv e a
Cell) shared vision among
not only the federal
Rural Development Division, units but also among
other economic agents
Science & Technology Division, so that the
efforts of all the actors become
Social Welfare & Nutrition Division, convergent towards
the national priorities,
Transport Division, the role of planning
is to develop a common
Village & Small Industries Division, policy stance for
center and states. Also, the
and task of federal
policy coordination is central
Western Ghats Secretariat. to Indian Planning.
For example, the need to
The Programme Evalu ation invite foreign
investment in infrastructure
Organisation undertakes evaluation studies areas like power
need cen ter state
to assess th e impact of selected Pl an coordination as the
necessary legislation and
Programmes / Schemes in order to provide administrative
changes involve both.

u seful feedb ack to pl anners and While the

growth process can be made
implementing agencies. the responsibility
of the corporate sector to
The Commission is a corner-stone of our a greater
degree, its directi on and
federal structure, a think-tan k; h elps to distribution are
to be steered by planned
balance the priorities and expenditures of the pub lic in terv
en ti on so th at regi onal
Ministries of the Union Government throws imbalances are
reduced and socio economic
up ideas on policies f or structural and inequities are set
right. For example, directing
perspective changes; and is a reservoir of the growth of the
large industry into the
research . backward areas and
technology intensive
areas to realize
national goals.
Relevance of Planning in India The nature of
instruments available to

There has been a national debate about planners in the

implementation has changed.
th e relev ance of plann ing in th e era of Quantitative
Controls have yielded place to
liberalization where the state controls and qualitative ones
.The planning process has to
regulations are dismantled to a great extent focus on the need
for planning for policy.

and market forces are given larger role. The Planning at

the grass roots level that is
investment of the government for the five participatory is
very crucial for- improving
year plans is also on decline. The trend began the delivery
systems and proper use of the
in the 7th pl an an d strengthens in to the resources. The role
of the government is thus
3 Eleventh Plan. to facilitate
participatory planning.
3

----------------------- Page 38-----------------------

Environmental priorities are a maj or Plann in g

Commissi on plays an y

m
concern of planning integrative role in
evolving a national plan in o

o
Planning is necessary for the sectors like critical areas of hu m
an an d econ omic c

E
development. In the
social sector, Planning
energy, communication, transport and so on
n

a
Commission helps in
schemes which require i
as private sector needs to be guided into the
d

n
national plan. coordination and synergy
like rural health, I
drinking water, rural
energy needs, literacy T
In th e era of gl ob alizati on where
R
and environment
protection. E
corporates are not expected to plan beyond
C
the growth of a particular unit, the role of When planning in a
vast federal country N

like India involves

multiplicity of agencies, a f
safeguarding national interest is that of
o

t
high powered body like
the PC can help in s
planning by the State. For example, being
i
ev olution of an in
tegrated approach f or G
subjected to various discriminative trade
practices by EU, USA and so on, the Indian better results at much
lower costs.

farmers, manufacturers and exporters have to In our

transitional economy Planning
fight sophisticated b attles in the WTO for Commi ssi on attempts
to pl aya systems
which the legal services and information and change role and provide
consultancy within
b uildin g up b argain in g power are best the G ov ernmen t f or
devel opin g b etter
provided by the State. systems. It has to ensure
smooth management
Thus, planning continues to be relevant of the change and help
in creating a culture
and ever more so for the following reasons of high productivity and
efficiency in the
Government
Federal c ooperati on and
coordination In order to
spread th e gain s of
Equitable growth experienc e m ore
w idely, Plann ing
Environment friendly development Commi ssi on also plays
an inf orm ation
dissemination role.
Defending national interest in the age
of globalization With the emergence
of severe constraints
Inter-sectoral balance in growth on av ail able bu
dgetary resources, the
resource allocation
system between the States
Changing role of Planning Commission and Ministries of the
Central Government is
From a h ighly cen tralized plann ing under strain . This
requires the Planning
system, the In dian economy is gradually Commi ssi on to pl ay
a mediatory and
moving onwards indicative planning where facilitating role,
keeping in view the best
interest of all
concerned.
hard planning is no longer undertaken. The
role of the Planning Commission accordingly Do you think that
Planning of India
Emerged as the System
Reform
changes. The Commission concerns itself with
Commission?
the building of a long term strategic Vision
of the future an d decide on priorities of There has been a
significant change in
nation . It works out sectoral targets and the role of the PC since
its inception in 1950.
provi des prom oti onal stimulu s to the In the beginning,
Planning Commission was
economy to grow in the desired direction. all powerful and had
the final say and the
veto over every aspect
related to growth 4

----------------------- Page 39-----------------------

g an d socio-economic development- of the Planning Commission

has few direct powers
 n
i
n functioning of the Union Ministries and the of execution in any
case and must rely on the
n
a
l State Governments. The manner of raising power of
persuasion to sell its ideas to the
P
and utilising resources; specific allocations to Centre and states.
y
m particular schemes and programmes, location In
terestingly en ou gh, the New role
o
n
o of enterprises, expansion and reduction of sought for the
Planning Commission seems to
c
E capacities, application of technologies; sources be very similar
to the role played by the
of supplies, modalities of implementation, N ati onal
Advisory Council, wh ich also
priorities, phasing, pricing, targets and time- generates ideas
within, coordinates with
frames, n ature of the ins trumen talities, NGOs and civil
society an d then tries to
qualifications and strength of personnel of persuade the
government to act. NACs
organisations, staff emoluments etc. focus so far has
been social sectors whereas

Since 1991, India adopted the indicative a systems reforms

commission can take on a
pl anning m odel, aw ay from th e kin d of broader gambit of
issues, including public
centralised planning on the Soviet model finances, infra-
structure and so on.
envisaged by J aw ah arl al N ehru . N ow The
governments move to revamp and
Ministries and Departments, as well as the gradu ally
transform the Plann ing
corporate entities in the private sector, enjoy Commi ssi on
in to a System Ref orms
a lot of functional, financial and operational Commission is a
major step that can make the
autonomy. instituti on m ore
relevan t to a m arket

In the era of liberalisation, the economic economy. The idea

is to metamorphose the
players should properly be left to decide for plan panel from
a reactive agency into a
themselves what they consider to be the strategic thinking
group, which maps out
appropriate courses of action on the various risks and
opportunities by focusing on issues.
issues coming up before them, whether they The shrinking
role of the government in
relate to policies, schemes or investments. mobilising and
controlling investments has

The government intends to convert the pushed the

Planning Commission to focus
Planning Commission into a think-tank to more on issues
related to enforcing fiscal
generate original ideas in the very broad disciplin e in
th e cen tral an d state
dom ain of ec onomic policy f or the gov ernmen ts, inc
ludin g in th e v arious
government to then act on. It will also be the ministries,
departments and public sector
government agency responsible for acting as enterprises.
an interface with other independent think- According to
Arun Maira, PC member,
tanks an d NGOs . The PM would like the the Planning
Commission will gradually
commission to engage more directly with the tran sf orm itself
into a Systems Ref orms
polity, presumably with various ministries Commi ssi on f or
resolvin g th e systemic
in the Central and state governments, and be problems of the
21st Century over the next
able to persuade them to implement certain two-three years as
desired by Prime Minister
i deas or pl ans gen erated b y the Manmohan Singh. It
will restructure itself to
governments own think tank. That isnt serve three
essential functions: build a larger
5 radically different from its existing role the network aroun d
its members with th ink
3

----------------------- Page 40-----------------------

tanks and opinion makers, produce thought b y th e NDC . In f

act, with out th e NDC y

m
papers at a faster pace and communicate more approving, the Five Year
Plan does not come o

o
lucidly with polity. into effect.
c

The CMP of the UPA

Government (2004) n

a
National
i
says that NDC will meet at
least three times d
Development Council & its Functions
n

I
in a year and in different
state capitals. It will

T
The National Development Council is be developed as an
effective instrument of R
not a Constitutional body nor a statutory cooperative federalism.
E

C
body (not set up by an Act of the Parliament).
N

Union Cabinet set up the NDC in 1952 with Mixed Economy

f

t
the following functions:
s
A mixed economy
combining features of i

G
To prescrib e guidelin es f or the both capitalist market
economies and socialist
formulation of the national plan. c omm an d ec on omies .
Thus , th ere is a
To c ons ider th e n ati onal pl ans regulated private sector
(the regulations have
f ormul ated b y th e Pl ann ing decreased since
liberalisation) and a public
Commission. sector c on trolled
almost en tirely b y the
To assess the resources for the plan government. The public
sector generally
an d recommen d a strategy f or covers areas which are
deemed too important
mobilizing the resources. or n ot profitable
enough f or th e private
To consider important questions of Sector.
soci o- econ omic policy affecting
development of the nation. Financial Resources for
the Five year Plans
To review the progress of the five The resources for
the Plan come from
year plan mid-course an d suggest
measures for achieving the original Central budget
targets. State Budgets
NDC is headed by the Prime Minister of PSEs
India and comprising of all Union Cabinet Domestic private
sector and
Ministers, Chief Ministers of all the States and FDI
Administrators of Un ion Territories and Resources of the
Centre consist of both
M emb ers of th e Pl annin g Commission. b udgetary resources inc
lu din g external
Ministers of State with independent charge assistance routed through
the budget and the
are also invited to the deliberations of the Internal & Extra Budgetary
Resources (IEBR)
Council.
of Central Public Sector
Enterprises (CPSEs).
The Nation al Dev elopment Council The quantum of budgetary
resources if the
(NDC) has a special role in our federal polity. Centre which is av ail
ab le f or provi ding
It is the apex body for decision making and overall b udgetary
support to th e plan is
deliberations on development matters. It has divid ed into tw o
parts viz, b udgetary
the explicit mandate to study and approve the support for Central
Plan (including U .Ts
Approach Plan to the Five year Plans and the without Legislature) and
central Assistance
Five Year Plan documents . The mid-term f or States Pl ans
(inc lu ding U .Ts with
reviews of the Five year Plans are considered Legislature) . A part
of the b udgetary 6

----------------------- Page 41-----------------------

g resources allocated as budgetary support for India has

emerged as a back-office of
n
i
n th e Central Pl an is u sed f or provi ding the world arid
its prowess in software is
n
a
l necessary support to CPSEs. growing.
P
y GBS is the amount from the central In dia
ranks fourteenth worldwide in
m
o Budget that goes to fund the plan investments factory output.
n
o during the plan period.
c In dia
ranks fifteen th w orl dw i de in
E
services output.
Achievements of Planning
There has
been considerable expansion
In the last about 60 years since India of h i gh er
edu cati on . At the time -of
 became a Republic, the National Income has Independence there
were 20 universities and
increased many times. Today, In dia is the 591 colleges, while
today, there are almost 500
third largest economy in Asia with about $1.4 universities and
21,000 colleges . Literacy
trillion GDP after China and Japan is the 11th levels are 75%
(2011).
largest economy in the world. India is the
fourth largest in the world as measured by Indicative Planning

purchasing power parity (PPP), with a gross

Indicative
planning was adopted since
domestic product (GDP) of about $4 trillion-
8th five year plan
(1992-97). It is characterized
USA, China, Japan, India.
by an economy
where the private sector is
In the face of glob al recession, In dia given a substantial
role. State would turn its
posted 6.7% rate of growth in 2008-09 and role into a
facilitator from that of a controller
7.6% in 2009- 10 an d is the secon d fastest and regulator.
growing major economy after China. The first
It was
decided that trade and industry
half of 2010-11 saw the growth rate at 8.9%.
w ould b e
inc reasingly freed from
Poverty dropped to about 20% of the government control
an d that planning in
population- the criterion used is monthly In dia should bec
ome m ore an d more
consumption of goods valued less than Rs. indicative and
supportive in nature. In other
211.30 per capita for rural areas and Rs. 454.11 words, the
remodeling of economic growth
f or urb an areas (2006) Social in dicators necessitated
recasting the planning model
improved though there is a long way to go- from imperative
an d directive (hard) to
IMR, MMR, literacy, disease eradication etc. in dic ative
(soft) pl ann in g. Sinc e the
The in dustrial infrastructure is relatively Government did not
contribute the majority
strong cement, steel, fertilizers, chemicals, of the financial
resources, it had to indicate
etc Agricultural grow th is also gaining the policy
direction to the corporate sector
momentum with food grains production at an d encourage
them to contribute to plan
233 mt in 2010. targets. Government
should create the right

Forex reserves are $292.8 b (J anuary policy climate-

predictable, irreversible and
2012) which is a dramatic turnaround from tran sparent to
help th e c orporate sector
1991 when we had a billion dollars. c on trib ute
resources for th e pl an fisc al,
M ore than 1.7 lakh MW of pow er monetary, forex and
other dimensions.

capacity is installed by the end of 2010. In dic ative

plannin g is to assist the
7
3 priv ate sector w
ith inf orm ati on th at is

----------------------- Page 42-----------------------

essen tial for its operati ons regarding Rolling Plan

y

m
priorities an d pl an targets . Here, the
o
It was adopted
in India in 1962, in the n

o
Government an d the corporate sector are
c
aftermath of Ch in
ese attack on In di a. E
more or less equal partners and together are

Professor Gunnar Myrdal

(author of famous n

a
responsib le f or the acc omplishmen t of
i
b ook Asian Drama)
recommended it for d

n
planning goals. Government, unlike earlier, developing Countries
in his book Indian I
contributes less than 50% of the financial
T
Economic Planning in
Its Broader Setting. R
resources. Government proved the right-type
E
of policies and creates the right type of milieu In this type,
every year three new plans C

N
for the private sector-including the foreign are made and
implemented annual plan that f

o
includes annual budget;
five year plan that is
sector to contribute to the results.
t

s
chan ged every year
in respons e to the i
In dic ative pl ann ing giv es the
G
economic demands; and
perspective plan for
G ov ernmen t an opportunity to giv e the
10 or 15 years into
which the other two plans
private sector encouragement to achieve
are dov etailed annu
ally . Rollin g pl an
grow th in areas where th e c ountry h as
becomes necessary in
circumstances that are
inherent stren gths . It is known to have fluid.
brought Japan results in shifting towards
microelectronics In France, too indicative Financial Planning
planning was in vogue.
Here, physical
targets are set in line with
Planning Commission would work on the available financial
resources. Mobilization
building a long-term strategic vision of the
and setting
expenditure pattern of financial
future . The c onc entrati on w ould b e on
resources is the focus
in this type of planning.
an ticipatin g future tren ds an d ev olving
strategies f or c ompetitive in tern ati onal Physical planning
standards.
Here, the output
targets are prioritized
Planning will largely be indicative and
w ith in ter- sect
oral b alance . H av in g set
the pub lic sector w ould b e gradu ally
output targets, the
finances are raised.
w ith drawn from areas wh ere no pub lic
purpose is served by its presence. The new Nehru-Mahalanobis
approach to development will be based on a Model of Economic
Growth
re-examination and re-orientation of the role
of the government This point is particularly In dian ec on
omy at th e time of
stressed in the development strategy of the In depen dence
was ch aracterize d by
Tenth Five Year Plan (2002-2007). depen denc e on
exports of prim ary
commodities, negli
gible in dustri al b ase;
In dic ative pl annin g w as n ot
unproductive
agriculture etc.
contemplated at the beginning of fifties as
there was hardly any corporate sector in Th us, th e
turn in g poin t in In dias
India and Government shouldered almost the planning strategy came
with the second five-
en tire respons ib ility of soci o- ec on omic year (1956-61) plan .
The model adopted for
planning. the plan is known as
the Nehru Mahalanobis
strategy of development
as it articulated by 8

----------------------- Page 43-----------------------

g J awah ar Lal N ehru s vi sion an d P .C. up th e rate

of grow th of in du stri al
n
i
n Mahalanobis was its chief arch itect. The production, the
strategy paid off . Rate of
n
a
l central idea underlying this strategies well- grow th of
overall in dustrial producti on
P
y c onv eyed b y recalling the f oll owing picked up. The
strategy laid the foundation
m statemen t from th e pl an documen t . If for a well-
diversified in dustrial structure
o
n within a reasonably
short period and this was
o industrialization is to be rapid enough, the
c
E c ountry must aim at dev el opin g b asic a major
achievement. It gave the base for self-
in du stries an d in du stries wh ich m ake reliance.
machines to make the machines needed for However, the
strategy is criticized for
further development. the imbalances
between the growth of the

The Mahalanobis model of growth is heavy industry

sector and other spheres like
based on the predominance of the basic goods agriculture an d
consumer goods etc that
(capital goods or investment goods are goods resulted. It is
further criticized as it relied on
that are used to make further goods; the trickle down
effect- benefits of growth will
goods that make up the industrial market like flow to all
sections in course of time. This
machines, tools, factories, etc). It is based on approach to
eradication of poverty is slow
the premise that it would attract all round and incremental.
It is believed that frontal
investment an d result in a higher rate of attack on poverty
is required.
growth of output. That will develop small The
criticism is one sided as in the given
scale an d anc ill ary in du stry to b oost context, the
Mahalanobis model was connect
employment generation, poverty alleviation, for growth and
self-reliance.
exports etc. The emphasis was on expanding
the productive ability of the system, through Rao-Man Mohan Singh
Model of Growth
forging strong industrial linkages, as rapidly
Ans. The
launching of economic reforms
as possible.
by the
government, in 1991 is driven by the
Other elements of the model are
Rao-Manmohan model
- Mr. Narasimha Rao,
Import substituti on: Protective the PM in 1991 and
Finance Minister Dr. Man
barriers against foreign competition Mohan Singh. Its
essence is contained in the
to en able In dian c ompan ies to New In du strial
Policy 1991 an d exten ds
dev el op domestic ally produc ed beyond it too. The
model has the following
alternatives for imported goods and contents.
to reduce Indias reliance on foreign Reorient
the role of State in economic
capital.

management. State should refocus on

A sizeable public sector active in vital soci al
an d inf rastructural
areas of th e ec on omy inc lu ding
development, primarily.
atomic energy and rail transport.

Dismantle, selectively controls and
A vibrant small-scale sector driving permits
in order to permit private
c onsu mer goods produ cti on f or sector to
invest liberally.
dispersed and equitable growth and
Open up
the economy an d create
producing entrepreneurs.
c
ompetiti on f or PSEs- f or b etter
9 In terms of the core objective of stepping
productivity and profitability.
3

----------------------- Page 44-----------------------

External sector liberalization in order The deep crisis in

1991 could not be solved y
m
to integrate In dian economy with by superficial solutions.
Therefore, structural o

o
the global economy to benefit from reforms were taken up.
c

E
th e resource inf l ows and

It was realized
that by closing economy n

a
competition.
i
to global influences, the
country was missing d

n
Its success is seen in the more than 6.5% on technology
developments and also gains I
average annual rate of growth of economy
T
from global trade. India
needed exports, FDI R
durin g th e 8th Pl an (1992- 1997) . Forex an d FII f or stab
ility on th e b alanc e of E
reserves accumulated leaving the BOP crisis
C
payments front and higher
growth rates for N

in history, taming of inflation, and the foreign

f
social development.
Worldwide, countries o

flows- FDI and FII increased.

t
were embracing market
model of growth, for s

i
example China, with
proven results. So, India G
Economic Reforms in India
could make the historic
shift from centralized
Since July 1991, India has been taking up planning to market-based
model of growth.
economic reforms, to achieve higher rates of What are the targeted
areas of reforms?
economic growth so that socio-economic
 Ref orm s m
ain ly targeted the
prob lem s like un empl oymen t, pov erty, following
areas:
shortage of essential goods an d services,
Dismantling
the licence raj so that
regional economic imbalances and so on can
private sector
and government were
be successfully solved. The force behind the on a level
playing field
reforms is
Drive pub
lic sector tow ards
Indian economy reached a level of sustainable
profitability and global
growth and strength to benefit from pl ay b
y dereserv ati on;
an open market economy. disinvestment;
professionalization of
Private sector in India had come of management etc.

age and was willing and capable of Fiscal reforms

for stabile economic
playing a major role. growth.
Indian economy needed to integrate Banking sector
is deregulated and
w ith th e w orld w ith all the made to conform
to stringent reforms
advan tages like c apital fl ows, for higher
competitive strength and
technology, higher level of exports, performance
globally.
state of art stock markets, In di an
Mov e towards
free fl oat of rupee
corporates can raise finances abroad an d relax
ati on of c ontrols on
and so on.
c onvertib
ility; aggressive export
The country under the leadership of Dr. promotion; FDI
and FII inflows etc.
Manmohan Singh, Union Finance minister Ref orms w
ere pri oritized and
(1991-1996 and Prime Minister since 2004) sequenced in such a way
as to make them
converted the economic crisis caused by , su stainab le an d ren
der furth er ref orms
domestic cumulative problems of economy, feasib le. For ex
ample, first generati on
political instability an d gulf crisis-into an reforms involved
essentially non-legislative
opportunity to initiate and institutionalise government initiatives-
reduce SLR and CRR 0
economic reforms to open up the economy.
4
----------------------- Page 45-----------------------

g for the banking sector. Disinvestment of the In dian c

orporates hav e acquired
n
i
n PSEs. Deregulation of the rupee gradually global
majors like Jaguar and Anglo-
n
a Dutch steel
maker Corus; Bharati
l and later make exchange rate of the rupee
P
m arket-driven an d so on . Th e second b ou gh t
Zain s Afric an telec om
y
m generati on ref orm s inv olve legisl ative operations
(2010).
o
n
o reforms an d touch a wider section of the
c Second Generation
Reforms
E society- labour reforms; GST, FDI expansion
(In Indian Context)
etc. The former prepares the economy for the
latter. Having begun
with the reforms in all
the ab ove sectors
an d seen the economy
Positive Impact of Reforms in India benefit from them,
the secon d generation
reforms were
initiated by the end of 1990s.
The ref orms gained c onsens us and
The reason for
calling the latter set of reforms
showed positive results as can be seen below.
SGR is that they
followed the initial reforms
Rates of growth went up which laid the
foundation for the reform
BOP crisis has been solved in the first
process to deepen. It
is a matter of sequencing
few years and today the country has in line w ith
pri oritizati on ; ec on omic
ab out $300b f orex reserv es (2011
preparation;
consensus-building and so on. In
January) fact, unless the
success in material and human
Services sector (tertiary sector) has term s of th e
in itial ref orm s was
grown in importanc e an d today demonstrated, the
next round of difficult
contributes almost 57% of GDP (2010)
reforms would not be
possible.
 emerging as a glob al player-India
being the global back office. In 2001, the
Economic Advisory Council
of the Prime Minister
advised on the second
Exports have performed well and
have recovered han dsomely even generation reforms-
labour law flexibility,
wh ile the w orld c on tin ues to be pens i on ref orms
b ased on empl oyee
trapped in near recession conditions. contribution and
the pension funds being
It acc oun tin g f or m any j ob s and deployed in the
stock market; value added
quality Indian products tax and GST;
liberalized FDI including FDI in
Resilience of the economy in the face retail etc.

of Great Recession which is still not Second

generation reforms are difficult
resolved as they are directly
involved with the daily
Consumer choice has increased lives of people like
Tax-GDP ratio is at 11% of GDP (20l0) User charges
need to be rationalized
Nature of external debt has changed to m ake
these utilities v iable b ut
and the short term component is less there are
bound to be protests
In dian compan ies are listed on Man power
rationalization in banks
N asdaq an d N ew York Stock an d PSUs
th rou gh V RS f aced
Exch an ge an d raised b illi ons of resistance.
dollars for investment Labour law
flexibility will make TUs
FIIs and FDI has picked up. agitate.
1
4

----------------------- Page 46-----------------------

Interest rate cut, for example, for Special plans

for disadv antaged/ y

m
small savings will mean less returns backward regions
o

o
for the middle class etc.
c
Agriculture and Rural
Development E
Agroreforms may mean small and
n

a
marginal farmers resistance. Target at
least 4 % grow th f or i

n
However, unless the SGRs are carried agriculture. Cereals
are on target for 1.5 to I
out, investment and growth will suffer with 2% growth. We should
concentrate more on T

R
long term adverse consequences for poverty other foods, and on
animal husbandry and E

C
alleviation and employment generation . As fisheries where feasible
N

the long term benefits of the reforms are

f
Lan d an d w
ater are th e critic al o

bound to show in terms of higher growth

t
constraints. Technology
must focus on land s

i
rates an d more social welfare, consensus productivity and water
use efficiency. G
needs to be built for successful legislation and
Farmers n eed
b etter fun cti oning
implementation of SGRs.
markets for both outputs
and inputs. Also,
Main Objective of 12th Five Year Plan better rural
infrastructure, including storage
and food processing
The tw elfth plan h as th e f oll ow ing States must act
to modi1 APMC Act/
objectives:
Rules (exclude
horticulture), modernize land
Basic obj ective: Faster, M ore records and enable
properly recorded land
inclusive, and Sustainable growth lease markets.
is 10% growth feasible? Realistically,
RKVY h as h elped
c onvergen ce and
ev en 9% w ill n eed stron g policy
innovation an d gives
State governments
action. Could aim at 9.0 to 9.5 percent
flexibility. Must be
expanded in Twelfth Plan
En ergy, Water an d Envi ron ment
present maj or sectoral challenges. MGNREGS should be
redesigned to
Can w e address th em w ith out increase contribution
to land productivity
sacrificing growth? and rain-fed
agriculture. Similarly, FRA has
Can we fin d resources to create a potential to improve
forest economies and
world class infrastructure? tribal societies. But
convergence with NRLM
For growth to be more inclusive we required for enduring
rural livelihoods
need: Water

Better performance in agriculture Revisit Indias

water balance estimates
Faster creation of j obs, especially in basin-wise. Must map all
aquifers over next
manufacturing five years to facilitate
aquifer management
Stronger efforts at health, education plans
and skill development AIBP is not
achieving its objectives. It
Improve effectiveness of must be restructured to
incentivise irrigation
programmes directly aimed at the reform and efficiency of
resource use. Setting
poor of Water Regulatory
Authority must be a
Speci al programmes f or soci ally precondition. Strong case
for higher priority
vulnerable groups to watershed management
2

----------------------- Page 47-----------------------

g Separation of electricity feeders f or industrial policy

making
n
i
n agriculture can improve quality of power Industry (2)
n
a
l availability
P Some sectors
should be given special
y Proportion of water recycled by urban attention because
they contribute most to our
m
o In dia and in dustry to be raised to protect objectives eg:
n
o w ater lev els, an d improv e surface and
 c Create large
employment: textiles and
E groundwater quality
garments, leather
and footwear; gems and
Rational water use may Need jewelry; food
processing industries Deepen

N ew Groun dwater Law reflecting technological

capabilities: Machine tools; IT
Public Tru st Doctrine N ew W ater hardware and
electronics.
Framework Law (as in the EU) Provid e
strategic security telec om

Need to evolve political c onsensus. equipment;

aerospace; shipping; defence
Perhaps discuss in a special NDC equipmen t
Capital equipmen t f or
Need National Water Commission to in frastructure
growth : Heavy electric al
monitor compliance with conditionalities equipment; Heavy
transport an d earth-
imposed in th e inv estment clearan ce of moving equipment.

important projects Sectors w

ith glob al c ompetitive
Industry (1) advantage:
automotive; pharmaceuticals and
medical equipment
MSMEs : innovation,
Manufacturing performance is weak.
employment and
enterprise generation
Need to grow at 11-12% per year to create 2
million additional jobs per year. Growth in Sectoral
plans are being prepared for
11th Plan is in 8% ballpark each of the ab ov
e w ith involvemen t of
in dustry
association s an d the concerned
Indian industry must develop greater
Ministries
domestic valu e additi on an d m ore
technological depth to c ater to grow ing Education and Skill
Development
domestic demands and improve trade balance
Mu st aim
at univ ersalisati on of
Tune-up FDI and trade policies to attract
secondary education
by 2017
quality investment in critical areas
Must aim at
raising the Gross Enrolment
Improv e b u sin ess regul atory
Rati o (GER) in
Hi gh er Edu cati on to 20
framew ork : c ost of doin g b u sin ess ,
 percent by 2017 and
25 percent by 2022.
transparency incentives for R&D, innovation
etc. Must focus on
quality of education (11th
Plan emphasis was on
quantity). Must invest
Land and infrastructure constraints are
in faculty
development and teachers training
a maj or prob lem . States sh oul d dev el op
Must aim at
significant reduction in
special in du stri al z on es w ith good
social, gender and
regional gaps in education.
connectivity and infrastructure Targets to be set
for this purpose

Clu sters n eed to b e supported to Major

curriculum reforms in vocational/
enhance productivity of MSMEs skill development to
ensure employability in

3 Better consultation and co-ordination in response to changing

market needs
4

----------------------- Page 48-----------------------

Development and operationalisation of Power Sector Issues

y

m
PPP models in School and Higher Education
o
We must set a
target of 100,000 MW n

o
in accordance with the needs of a fast growing
c
capacity in
12th Plan (against likely E
economy achiev emen t
of 50,000 MW in n

a
Research an d inn ovati on in h i gh er Eleventh Plan)
i

n
education must be encouraged with cross- Coal av ailab
ility w ill b e a maj or I
linkages between institutions and industry constraint
T
R
Health Long term
health of power sector E

C
Better health is not only about curative seriously
undermined (losses 70,000 N

crore per year)

. AT &C losses are f
c are, but ab out b etter prev enti on Clean
o

coming down, but

too slowly. State t
drin kin g water, san itati on an d b etter
s

i
nutrition, childcare, etc . Convergence of governments must
push distribution G
schemes across Ministries is needed reform
Expenditure on health by Centre and Hydro-power
development seriously
States to increase from 1.3% of GDP to at least hindered by
forest and environment
2.0%, and perhaps 2.5% of GDP by end of clearance
procedures . Himal ayan
12th Plan States complain
strongly
Electricity
tariffs not being revised to
Desperate shortage of medic al
reflect rising
costs . Regulators are
personn el . N eed targeted approach to
b ein g held b
ack from all ow ing
increase seats in medical colleges, nursing
justified tariff
increases
c olleges an d oth er licens ed h ealth
professionals . Improve quality of NRHM Open access
is n ot b eing
services vs. quantity of NRHM infrastructure. operationalised

Structured involvement of PRIs/CSOs can

Energy (2)
help
Coal Production
Role of PPP in secondary and tertiary
healthcare must be expanded On optimistic
assumption about Coal
Health in surance cov er should be India production,
we will need to
expanded to all disadvantaged groups import 250
million tonnes in 2017-18
 Focus on women an d children; ICDS Mu st pl an
f or c orrespon ding
expansion of rail
and port capacity
needs to be revamped
Coal In dia mu
st b ec ome a c oal
Energy (1) supplier an d n
ot j u st a min ing
company. Should
plan to import coal
Commerci al en ergy dem an d will to meet coal
demands. This requires
increase at 7% p.a. if GDP grows at 9%. This blending of
imported and domestic
will require a major supply side response and coal as supplied
by Coal India
also demand management Environment and
forest clearances of

Energy pricin g is a m aj or issue. coal mining

projects, including few
Petroleum and Coal prices are significantly private sector
captive projects, will
below world prices an d world prices are be critical. GoM
is examining this
unlikely to soften.
4

----------------------- Page 49-----------------------

g Petroleum and Natural Gas High Speed

Rail link between Delhi-
n
i
n N eed furth er expans i on of n ew Mumb ai an
d Delhi-Kolkata in the
n
a Twelfth
Five Year Plan
l NELP b l ocks . Stab le an d clearer
P
y production sharing contracts will Use more
PPP in railways and state
m inc en tivise expl orati on and h i ghw ays
to c omplement
o
n gov ern men
t inv estmen t . Capital
o encourage investment
c
E Pipeline network for transportation intensive
transport projects should
of natural gas an d LNG is limited. rely on
private investment to release
Need quick expansion resources
for other priorities
 Complete
the linkages between the
Energy (3) ports and
the existing road and rail
Other Energy Sources network.
Need to deepen existing
ports .
Inc rease b ulk /con tain er
Nuclear pow er programme must capacity.
continue with necessary safety review Ensu re su
fficien t prov isi on f or
Sol ar Missi on is seri ou sly un der m ainten an
ce of th e already-built
fun ded . Is b iddin g su fficien tly roads
competitive? Invest in
unified tolling and better
Need longer term energy solution for safety on
highways
cooking in rural areas. Expand LPG Improv e
b u s servi ces/pub lic
network (with cash subsidy for the transport in
smaller cities, towns and
deserving, not subsidised prices). districts.
Also use off grid solar and bio-mass
Metros in
urban areas through PPPs
energy wherever
feasible
Wind power development, including
off shore win d power, needs to be Managing Urbanisation

encouraged
Indias
urban population is expected
Demand Side Management to increase
from 400 million in 2011
to about 600
million or more by 2030
Expansion in supply will need to be
Critical
challenges are basic urb an
supported by demand side management
servi ces
especi ally f or th e poor:
Rational energy pricing will help. Energy water,
sewerage, sanitation, solid
stan dards for hi gh en ergy c onsu ming w aste
man agemen t, affordab le
in du stry, electric al appli ances, en ergy housing,
public transport
efficient buildings or enhanced use of electric! Inv estmen t
required in urban
hybrid vehicles
infrastructure is estimated at 60 lakh
crore over
the next 20 years
Transport Infrastructure We need to
develop and propagate
 Railw ays We stern an d Eastern inn ov ative
w ays of mun icipal
Dedicated Freight Corridors (DFC) financing,
through Public-Private
must be completed by the end of the Partnerships
(PPPs)
5 Twelfth Plan Land
management strategies key for
4

----------------------- Page 50-----------------------

good urban development as well as Issues for Special Category

States y

m
fin anc ing urban inf rastructure
o
Large numb er
of G overn ment n

o
development
c
employees means
very limited scope E
Need training and capacity building

for States own

resources for the Plan n

a
for urban planning and urban services
i
Private Sector
investment relatively d

n
management; for corporators and
I
subdued
implies greater role for
municipal officials
T
public investment
R
Ref orm of J NNRUM for th e n ext
E
Infrastructure
gaps lead to higher C
phase, and convergence with RAY c ost of
goods an d servi ces: N
for an integrated approach
f
Accelerated
efforts are required to o
t
develop
infrastructure s
Resource Allocation Priorities in 12th Plan
i

G
High proportion
of forest cover and
Health and Education received less m ountain ec
o-system s b ec ome
th an proj ected in Eleven th Pl an. constraints on
rapid development.
Allocations for these sectors will have Forest clearances
are difficult to get
to be increased in 12th Plan and States have
to pay NAV . They
Health , Educ ati on an d Skill demand monetary
compensation for
Dev el opmen t togeth er in the providing ec o
servi ces to the
Centres Plan will have to be increased nation
by at least 1.2 percent point of GDP States share for
Centrally Sponsored
Infrastructure, including irrigation Schemes is not
uniform
an d watershed m anagement and North Eastern States
contribute only 10%
urban infrastructure, will n eed share for most CSS
additional 0 .7 percentage point of
States such as J&K,
HP and Uttarakhand
GDP over the next 5 years
have to contribute normal
state share under
Since Centres GBS will rise by only
many CSS
1.3 percentage points over 5 years, all
oth er sectors w ill h av e a sl ow er
Governance and Empowerment
growth in allocations
Must reduce the number of Centrally Citizen feedb ack
rev eals gen eral
Sponsored Schemes (CSS) to a few dissatisfaction
with state of public
maj or schemes. For the rest, create servi ce
delivery . Total Qu ality
n ew flexi-fun d wh ich all ow Management needs
to be introduced
Ministries to experiment in other CSS at all levels .
Deliv ery an d policy
areas functions need
to be separated in
Government
Ministries
Use of PPP mu st b e enc ouraged,
including in the social sector, i .e. Social
Mobilisation : People should be
health and education. Efforts on this active agents
of ch ange. Flagship
front need to be intensified programmes need to
provide human
an d financial
resources for social
Distinction between plan and non-
plan being reviewed by Rangarajan mobilisation,
capacity building and
Committee information
sharing

----------------------- Page 51-----------------------

g Professi on ally m an aged deliv ery exchange of

information and best
n
i
n organisations are needed with clear practices
n
a man dates an d acc ountability . We
l
Institutional mechanisms for conflict
P
need much better mechanisms for resolution,
particularly for land and
y
m c onv ergenc e of govern ment water.
o
n departments on systemic issues
o
c Devolution can be effective only if Increase
bulk/container capacity
E
th e auton omy of PRIs /ULBs is Ensu re su
fficien t prov isi on f or
increased and their human resource m ainten an
ce of th e already-built
capabilities improved. How can the roads
Centre help? Invest in
unified tolling and better
Mechanisms need to be created at all safety on
highways
levels to understan d the needs of
Improv e
b u s servi ces/pub lic
vulnerable sections of the society and transport in
smaller cities, towns and
inform policy-makers districts.
Di agn ostics of Failure and Metros in
urban areas through PPPs
Mainstreaming of Success: horizontal wherever
feasible
lin kages n eed to b e created f or

7
4

----------------------- Page 52-----------------------

i
4 India s Economic
G
Interaction with the World

ati on s h ave b een activities in the region

impinge on overall
prim arily tryin g to h um an dev el opmen t
in a shared
adopt various means environment.
Nwhich will strengthen Here we w
ill compare the
th eir own domestic developmental strategies in
pursued by India
economies. To this effect, they are forming an d th e l argest tw o
of its n ei ghb oring
regional and global economic groupings such economies Pakistan and
China. It has to be
as the SAARC, European Union, ASEAN, remembered, however, that
apart from the
G-20 etc . In additi on , th ere is also an similarities in their
physical endowment,
increasing eagerness on the parts of various there is little in wedded
to a secular and
n ati on s to try an d un derstan d, the deeply liberal
constitution for over half a
developmental processes pursued by their cen tury, an d th e auth
oritarian militarist
neighb oring nations as it allows them to political power structure
of Pakistan or the
better comprehend their own strengths and command economy of China
that has only
weaknesses vis--vis their neighbors. In the recently started movin g
towards a more
unfolding process of glob alization, this is liberal restructuring.

particul arly cons idered essen ti al by

DEVELOPMENTAL PATH

developing countries as they face competition

A SNAPSHOT
VIEW
not only form developed nations but also
amongst themselves in the relatively limited India, Pakistan and
china have many
economic space enjoyed by the developing similarities in their
developmental strategies?
world. Besides an understanding of the other All the three nations
have started towards
econ omies in our nei ghb orhood is also their developmental path
at the same time.

8
required as all maj or c ommon economic Wh ile In dia an d
P akistan b ecome 4

----------------------- Page 53-----------------------

d in depen dent n ati ons in 194 7, People s Cultural

Revolution (1966-76) under which
l
 r
o Republic of China was established in 1949. In students and
professional were sent to work
W
a speech at that time, Jawaharlal Nehru had learn form the
countryside.
e
h
t said, these new and revolutionary changes The present-
day fast industrial growth
h in China and India, even though they differ
t in China can be
traced beck to the reforms
i
w in content, symbolize the new spirit of the
introduced in
1978. China introduced reforms
n
o Asia an d n ew v itality wh ich is fin ding
i in phases. In the
initial phase, reforms were
t
c expression in the countries in Asia.
a initiated in
agriculture, foreign trade and
r
e
t All th e th ree countries h ad started investment sector.
In the initial phase, reforms
n
I
c planning their development strategies in were initiated
in divided into small plots
i similar ways. While India announced its first which were
allocated (for use not ownership)
m
o
n five Year Plan for1951-56, Pakistan announced to individual
households. They were allowed
o
c its first five year plan, called. The Medium to keep all income
from the land after paying
E

s Term Plan, in 1956 China announced its five stipulated taxes.

In the later phase reforms
a
i
d Year Plan in 1953 till current planning in India were initiated in
the industrial sector. Private
n
I is based on Tenth Five Year Plan (2002-07). sector firms, in
general, and township and

India and Pakistan adopted similar strategies village

enterprises, i .e. those enterprises
such as creating a large public sector and which were owned
and operated by local
raising pub lic expen diture on social collectives, in
particular, were allowed to
development. Till the 1980s, all the three produce good. At
this stage, enterprises
countries had similar growth rates and per owned by
government (know as State Owned
capita. Enterprises-SOEs),
which we, in India, call
Chin a: After th e establishmen t of public sector
enterprises, were made to face
Peoples Republic of china under one party c ompetiti on .
Th e ref orm process also
rule, all the critical sector of the economy, involved pricing.
This means fixing the prices
enterprises and lands owned and operated in two ways,
formers and industrial units
b y in divi du als w ere b rou ght un der were required to
buy and sell fixed quantities
govern men t c on trol . Th e Great Leap of inputs and
outputs on the basis of prices
Forw ard (GLF) campai gn ed to set up fixed by the
government and the rest were
industries in their backyards. In rule areas, purchased and sold
at market prices. Over the
c ommunes were started . Un der the year, as
production increased, the proportion
Commun e system, people collectively of good or
inputs transacted in the market
cultivated lan ds . 1958, there were 26,000 was also
increased. In order to attract foreign
communes c ov ering almost all the farm investors, special
economic zones were set up.

population. Pakist an :
While l ooking at vari ous
GLF c ampai gn met w ith many economic policies
that Pakistan adopted, you
problems. A severe drought caused havoc in will notice many
similarities with In dia.
China killing about 30 million people. When Pakistan also
follows the mixed economy
Russia had conflicts with China, it withdrew model with co-
existence of public and private
its professional who had earlier been sent to sectors . In
late1950s an d 1960s . Pakistan
help in the industrialisation process. In 1965, introduced a v
ariety of regulated policy
9
4 m ao introduc ed th e Great Proletarian framew ork
(f or import sub stituti on

----------------------- Page 54-----------------------

industrialization). The policy combined tariff They also state this

measure let to decline in y

m
protection for manufacturing of consumer the sex ratio, the
proportion of females per o
n

o
goods togeth er w ith direct import and 1000 males.
c

E
in crease on c ompetin g imports . The

Scholars cite son

preference prevailing n

a
in troducti on of Green Rev olution led to
i
in all these countries as
the reason. In recent d

n
mechanization an d increase in competing time, the resultant
arrests in the growth of I
import. The infrastructure in select areas,
T
population also have
other implication. For R
which finally led to a rice in the increase in instance, after a few
decades, in China there E

C
the production of food grains. This changed will be more elderly
people in proportion to N

the agrarian structure dramatically. In the young people This will

force China to take f

1970s, n ation alizati on of c apital goods

t
Steps to provide social
security measures with s

i
in du stries took place areas w ere fewer workers.
G
denationalization an d encouragement to
The fertility rate
is also low in China and
private Sector. During this period, Pakistan
very high in Pakistan
Urbanization is high
also received financial support form western
both Pakistan and China
with India having 28
nations and remittances form continuously
per cent of people
living in urban areas.
in creasin g outfl ow of emi gran ts to the
middle-east.
GROSS DOMESTIC
PRODUCT AND
This helped the country in stimulating
SECTORS.
economic growth The then government also
offered incentives to the private sector. All One of the much
talked issues around
this created a conducive climate for new the world about China is
its growth of Gross
investments. In 1988, reforms were initiated Domestic Product Ch ina
has the second
in the country. largest GDP (PPP) of
$7.2 trillion whereas
In di as GDP (PPP) is
$3 .3 trilli on and
DEMOGRAPHIC INDICATORS Pakistans GDP is roughly
about 10 per cent
of Indias GDP.
If we look at the global population, out
of every six persons living in this world, one Country 1980
- 90 1990 - 2003
is an In dia and another Chinese we shall India
5.7 5.8
compare some demographic indicators of China
10.3 9.7
India, China and Pakistan The population of Pakistan
6.3 3.6
Pakistan is very small an d acc ounts f or
roughly about one-tenth of China or India. Growth of Gross
Domestic Products (%),
1980 - 2003
Though China is the largest nation
among the three, its density is the lowest When many
developed countries were
though geographically it occupies the largest finding it difficult to
maintain a growth rate
area. Population growth as being highest in of even 5 per cent, China
was able to maintain
P akistan , f oll ow ed by In dia an d China. near double- digit growth
for more than two
Sch ol ars poin t out th e on e- child norm decades. Also notice that
in the 1980s Pakistan
introduced in China in the late 1970s as the was ahead of India, China
was having double
maj or reason for low population growth. digit growth and India
was at the bottom. In 0

----------------------- Page 55-----------------------

d the 1990s, there is a marginal decline in India In the

normal course of development,
l
r
o and China`s growth rates whereas Pakistan countries first
shift their employment and
W
met with drastic decline at 3.6 cent. Some output form
agriculture to manufacturing and
e
h
t schol ars h old th e ref orm processes then to service.
This is what is happening in
h introduced in 1988 in Pakistan and political china. The
proportion of workforce engaged
t
i
w instability as the reason behind this trend. in manufacturing
in India and Pakistan were

n
o low at 16 and
18 per cent respectively. The
i First, look at how people engaged in
t
c contribution of
industries to GPD is also just
a differen t sectors c on trib ute to Gross
r
e equal to or
marginally higher than the output
t Domestic Product. China and Pakistan have
n
I form agriculture.
In India and Pakistan, the
more proportion of urban people than India.
c
i In China, due to topographic and climatic shift is taking
place directly to the service
m
o sector.
n conditions, the area suitable for cultivation is
o
c relatively small only about 10 per cent of its Thus, in
both India and Pakistan, the
E

s total land area. The total cultivable area in service sector is

emerging as a maj or player
a
i
d Chain accounts for 40 per cent of the cultivable of development.
It contributes more to GPD
n
I area in India. Until the 1980s, more than 80 an d, at the
same time, emerging as a

per cen t of the people in Ch ina w ere prospectiv e

empl oyer . If w e l ook at the
dependent on farming as their sole source of proportion of
workforce in the 1980s, India
livelihood . Since th en , th e govern ment an d P akistan
w as f aster in sh iftin g its
encouraged people to leave their field and workforce to
service sector respectively. In
 pursue other activities such as handicrafts, 2000, it has
reached the level of 24, 19 and 37
commerce and transport. In 2000, with 54 per per cent
respectively.
cent of its workforce engaged I agriculture, In the
last tow decades, the growth of
its contribution to GPD in china is 115 per cent. agriculture
sector, which employs the largest

In b oth In di a an d P akistan , the proportion of w

orkforce in all the three
contribution of agriculture to GPD is the countries, has
declined. In the in dustrial
same, at 23 per cent, but the proportion of sector, china has
maintained a double digit
workforce that works in this sector is more growth rate
whereas for India and Pakistan
in India. In Pakistan, ab out 49 per cent of grow th rate
has declined. In the case of
people work in agriculture whereas in India service sector,
India has been able to raise its
it is 60 per cent. rate of growth
in the 1990s while china and
The sectoral sh are of output and Pakistan has
shows deceleration in all the
employment also shows that in all the three three sectors.

economies, the industry and service sectors Country 19 80

90 199 0 20 02 /03
h av e less proportion of w orkf orce b ut
Agriculture Industry Service AgricultureIndustryService
contribute more in terms of output. In china, India 3 .1
7 .4 6 .9 2 .7 6 .6 7 .9
manufacturing contributes the highest to GPD China 5 .9
10 .8 13 .5 3 .9 11 .8 8 .8
at 53 per cent whereas in India and Pakistan, Pakistan 4
7 .7 6 .8 3 .7 3 .9 4 .3
it is the service sector, which contributes the Trades in
Output Growth in Different Sectors, 1980-
highest. In b oth these countries, services
2 0 03
1 sector accounts for more than 50 per cent of
5 GPD.

----------------------- Page 56-----------------------

INDICA TORS OF HUMAN DEVELOPMENT Some Select

y

m
Indicators of Human
Development, 2003 o

n
If we compare the indices given in the
o

c
table you will find that china is moving ahead In dealing with
or making judgments on E

of India and Pakistan. This is true for many such question, however,
we should also note n

i
indicators - income indicator such as GPD per a problem with using
the human development d

I
capita, or proportion of population below indicators given above
with conviction. This

T
poverty line or health indicators such as occurs b ec au se th
ese are all extremely R
mortality rates, access to sanitation, literacy, importan t in dicators
: b ut these are n ot E

C
life expectancy or malnourishment. Pakistan sufficient. Along with
these, we also need N

f
is ahead of India in reducing proportion of what may be called
liberty indicators. One o

t
people below the poverty line and also its such indicator has
actually been added as a s

i
performance in education, sanitation and measure of the
exten t of dem ocratic G
access to water is better than In dia. But participati on in
soci ally an d politic ally
neither of these tow countries have been able decision mankind but
it has not been given
to save women from maternal mortality. In any extra weight.
china, for one lakh births, only 50 women die
Some obvious
liberty indicators like
whereas in India and Pakistan, more than 500
measures of the
exten t of c onstitution al
women die. Surprisingly India and Pakistan
protection given to
rights of citizens or the
are ahead of china in providing improved
water sources. You will notice that for the extent of
constitutional protection of the
proportion of people below the international independence of the
judiciary and the rule of
poverty rate of $1 a day, b oth china and law have not even been
introduced so far.
Pakistan are in similar position whereas the Without including these
(and perhaps some
proportion is almost two times higher for m ore) an d
givin g th em ov erriding
India. importance in the list,
the construction of a
human development index
may be said to be
Items India China Pakistan
incomplete and its
usefulness limited.
Human Development 0 .602 0 .755 0 .527
Index (Value 127 7 1 .6 135 DE VELOPMENT S
TRATEGIES- AN
Rank
Life expectancy at 63 .3 9 0 .9 63 .0
APPRAISAL
birth (Years)
Adult literacy rate 6 1 .0 5,003 4 8 .7 It is common
to fin d developmental
(8 aged 15 and above) strategies of country
as a model to other for
GDP per capita
(PPP US$) 2,892 16 .6 2,097 lessons and guidance
for their own develop-
People below poverty line 34 .7 8 5 13 .4 ment. It is
particularly evident after the
Infant Mortality Rate 6 3 3 0 8 1 introduction of the
reform process indifferent
Maternal Mortality Rate 540 5 6 5 00
Population with sustain- parts of the world.
In order to learn from
able access to improved economic performance
of our neighboring
sanitation (8) 3 0 44 54 c ountries, it is
necessary to h av e an
Population with sustain-
able access to an impro- understanding of the
roots of their successes
ved water source (8) 8 6 7 7 9 0 and failures. It is
also necessary to distinguish
Population undernouri- between, and contrast,
the different of their
shed (8 of total) 2 1 1 1 2 0 strategies. Though
different countries go 2

----------------------- Page 57-----------------------

d though their development phases differently, political c osts

of success or f ailure . For
l
r
 o let us take the ignition of reforms as a point in stan ce, wh en
ref orm s were m ade in
W
of reference . We know that reforms were agriculture, as
pointed out earlier by handing
e
h
t initiated in China in 1978, Pakistan in 1988 and over pl ots of
l an d to in divid uals f or

h In dia in 1991. Let us b riefly assess th eir cultivation, it

brought prosperity to a vast
t
i
w achievements and failures in pre and post number of poor
people. It created conditions

n
o reform periods. for the
subsequent phenomenal growth in
i
t
c rural industries
and built up a strong support
a Why did China introduce structural
r
e base for more
reforms. Scholars quote many
t reforms in 1978? China did not have any
n
I such examples on
how reform measures let
compulsion to introduce reforms as dictated
c
i b y th e World Ban k an d Internati on al to rapid growth
in China.
m
o
n Monetary Fund to India and Pakistan . The Thou gh th
e data on in tern ati onal
o
c new leadership at that time in China was not poverty line for
Pakistan is quite healthy,
E

s happy with the slow pace of growth and lack scholars using
the official data of Pakistan
a
i
d of modernization in the Chinese economy indicate rising
poverty there. The proportion
n
I under the Maoist rule. They felt that Maoist of poor in 1960s
was more than 40 per cent

vision of economic development based on which declined

to 25 per cent in 1980s and
decen tralizati on , self-su fficiency and started rising
again in 1960s. The reasons for
 shunning of foreign technology, goods and the slow-down of
growth and re-emergence
capital has failed. Despite extensive land of poverty in
Pakistans economy, as scholars
reforms, collectivization, the Great Leap put it. Are (i)
agricultural growth and food
Forward and other initiatives, the per capita supply situ ation
were b ase n ot on an
grain output in 1978 was the same as it was instituonalised
process of technical change but
in the mid- 1950s. on good harvest.
When there was a good
It w as f oun d that establishmen t of harvest, the
economy was in good condition,
infrastructure in the areas of education and when it was
not, the economic in dicators
h ealth , l an d ref orms, l on g existenc e of showed stagnation
or negative trends you
decentralized planning and existence of small will recall that
India had to borrow from the
enterprises h ad h elped positively in IMF and World
Bank to set right its balance
improving the social and income indicators in of payment
crisis : foreign exchange is an
th e post ref orm peri od . Before the essential
component for any country and it is
introduction of reform, there had already important to know
how it can be earned. If a
b een m assive exten si on of b asic h ealth c oun try is ab
le to b uil d up its f orei gn
services in rural areas. Though the commune exchange earnings
by sustainable export of
system, there w as m ore equitable manufactured
goods, it need not worry. In
distribution of food grains. Experts also point Pakistan most
foreign exchange earnings came
out th at each reform; measure was first from remittances
from Pakistani workers in
implemented at a smaller level an d then the Middle-east
and the export of highly
extended on a massive scale. The experi- volatile
agricultural products: there was also
mentation under decentralized government growing dependence
on foreign loans on the
enabled to assess the economic, social and one hand and
increasing difficulty in paying
3 back the loans
on the other.
5

----------------------- Page 58-----------------------

However, as stated in the One Year the opinion that

political instability, over- y

m
Performance of the (Pakistan) Government dependence on
remittances and foreign aid o
n

o
for the year August 2004-2005, the Pakistan al on g with v ol
atile perf ormanc e of c

E
economy has been witnessing GDP growth at agriculture sector are
the reasons for the

a
about 8 percent for three consecutive years = slowdown of the
Pakistan economy. Yet, in i

n
(2002-2005). All the three sectors, agriculture, the recent past, it
is hoping to improve the I
manufacturing and service, have contributed situation by maintaining
high rates of GDP T

R
to this trend. Besides facing high rates of grow th . It is also
a great ch allenge for E

C
in fl ation an d rapi d priv atisation , the Pakistan to recover
from the devastating N

government is increasing the expenditure on earthquake in 2005,

which took the lives of f

various areas that can reduce poverty. nearly 75,000 people

and also resulted in t

i
enormous loss to
property. In china, the lack G
CONCLUSION of political freedom and
its implications for
human rights are major
concerns; yet, in the
What are we learn in g from the
last three decades, it
used the market system
developmental experiences of our neighbors?
without losing
political commitment and
India, China and Pakistan have traveled more
succeeded in raising the
level of growth along
than five decades of development path with
with alleviation of
poverty. Unlike India and
varied results. Till the late 1970s, all of them
Pakistan, which are
attempting to privatize
were main taining th e same lev el of l ow
their public sector
enterprises, China has
development. The last three decades have u sed th e market
mech anism to create
taken these countries to different levels.
additi on al
social an d ec on omic
In dia, w ith dem ocratic in stituti ons,
opportun ities . By
retain in g c ollective
performed moderately, but a maj ority of its
ownership of land and
allowing individuals
people still depen ds on agriculture.
to cultivate lands,
China has ensured social
Infrastructure is lacking in many parts of the
security in rural areas.
Public intervention in
country. It is yet to raise the level of living of
providing social
infrastructure even prior to
more than one-fourth of its population that
reforms has brought
about positive results in
lives below the poverty line. Scholars are of
human development
indication in China.

----------------------- Page 59-----------------------

g
n
i
n
n
a
l
P

y
m
o
n
o
c
E

Liberalization

ules and laws which were of goods that could

be produced (ii) private
aimed at regulating the sector was not
allowed in manyindustries
economic activities became (iii) some goods
could be produced only in
m aj or hin dranc es in small scale
industries and (iv) controls on
R
growth and development. price fixation an d
distribution of selected
Liberalization was introduced to put an end industrial products.
to these restrictions an d open up various The reform
policies introduced in and
sectors of th e ec on omy . Thou gh a few after 1991
remov ed m any of th ese
liberalization measures were introduced in restrictions.
Industrial licensing was abolished
1980s in areas of industrial licensing, export- for almost all but
product categories alcohol,
import policy, technology up gradation, fiscal cigarettes, hazardous
chemicals industrial
policy an d f orei gn investmen t, reform explosives,
electronics, aerospace and drugs
p olicies in itiated in 1991 w ere m ore an d pharmaceuticals
. The only industries
comprehensive. Let us study some important which are now
reserved for the public sector
areas such as the industrial sector, financial are defen ce
equipmen ts, atomic en ergy
sector, tax reforms, foreign exchange markets gen eration an d
railway transport. M any
an d trade an d investment sectors which goods produced by
small scale in dustries
received greater attention in and after 1991. h av e now been
dereserved . In many

Deregulation of in dustrial Sector: In industries, the

market has been allowed to
India, regulatory mechanisms were enforced determin e th e
prices . Fin anci al Sector
in various ways (i) industrial licensing under Reforms: Financial
sector includes financial
wh ich ev ery en trepren eur h ad to get in stituti ons such
as c ommerci al b anks,
5 permission from government officials to start investment banks,
stock exchange operations
5 a firm, close a firm or to decide the amount and foreign
exchange market.

----------------------- Page 60-----------------------

The financial sector in India is controlled were also given the

same status. y

m
by the Reserve Bank of India (RBI). You may
o
Many of these
profitable PSUs were n

o
b e aw are th at all th e b an ks an d oth er
c
originally formed during
the 1950s and 1960s E
financial institutions in India are controlled

when self-reliance was an

important element n

a
through various norms and regulations of the
i
of public policy. They
were set up with the d
RBI. The RBI decides the amount of money
n
intention of providing
infrastructure and I
that the banks can keep with themselves, fixes
T
direct employment to
the public so th at R
interest rates, nature of lending to various
E
quality end-product
reaches the masses at a
sectors etc. One of the major aims of financial
C
sector reforms is to reduce the role of RBI nominal cost and the
companies themselves N
were made accountable
to all stakeholders. f
from regulator to facilitator of financi al
o

t
The granting of navaratna
status resulted in s
sector. This means that the financial sector
i
b etter perf orm anc e
of th ese c ompanies. G
may be allowed to take decisions on many
matters without consulting the RBI. Scholars state that
instead of facilitating
navaratnas in their
expansion and enabling
Navaratnas and public Enterprise Policies th em to b ecome
gl ob al pl ayers, the
government partly
privatized them through
In 1996, in order to improve efficiency,
disinvestment. Of late,
the government has
infuse professionalism and enable them to
decided to retain the
navaratnas in the public
compete more effectively in the liberalized
sector and enable them to
expand themselves
global environment, the government chose
nine PSUs and declared them as navaratnas. in the global markets
and raise resources by
themselves from
financial markets.
They were given greater managerial and
operational autonomy, in taking various Th e reform
policies led to the
decisions to run the company efficiently and establishment of private
sector banks, Indian
thu s inc rease th eir profits . Greater as well as foreign.
Foreign investment limit
operati on al, fin anci al an d m anageri al in banks was raised to
around 50 per cent.
autonomy had also been granted to 97 other Those banks which
fulfill certain conditions
profit-making enterprises referred to as mini have b een given
freedom to set up new
ratnas. branches without the
approval of the RBI and
rationalize their
existing branch networks.
The first set of navaratna companies
Though banks have been
given permission to
included Indian Oil Corporation Ltd (IOC),
generate resources from
India and abroad,
Bharat Petroleum Corporation Ltd (BPCL),
certain aspects have
been retained with the
Hin du stan Petroleum Corporati on Ltd
RBI to safeguard the
interests of the account-
(HPCL), Oil and Natural Gas Corporation
holders and the nation.
Foreign Institutional
Ltd (ONGC), Steel Authority of India Ltd
Investors (FII) such
as merchant bankers,
(SAIL), Indian Petrochemicals Corporation
mutual funds and
pension funds are now
Ltd. (IPCL), Bharat Heavy Electricals Ltd
allowed to invest in
Indian financial markets.
(BHEL), N ati on al Therm al P ow er
Corporation (NTPC) an d Videsh Sanchar Tax Reforms: Tax
reforms are concerned
Nigam Ltd (VSNL). Later, two more PSUs- with the reforms in
governments taxation
Gas Authority of India Limited (GAIL) and and public expenditure
policies which are
Mahanagar Telephone Nigam Ltd (MTNL)- collectively known as its
fiscal policy. There 6

----------------------- Page 61-----------------------

n are two types of taxes: direct and indirect. In order to

protect domestic industries.
o
i
t Direct taxes consist of taxes on incomes of India was following a
regime of quantitative
a
z
i individuals as well as profits of business of restrictions on
imports. This was encouraged
l
a
r enterprises . Sin ce 1991, there has b een a through tight
control over imports and by
e
b
i c on tinu ou s reduction in the taxes on keeping the tariffs
very high . These policies
L
individual incomes as it was felt that high rates reduced efficiency
and competitiveness which
of income tax were an important reason for led to slow growth
of the manufacturing
tax evasion. It is now widely accepted that sector.
moderate rates of income tax en courage The trade
policy reforms aimed at (i)
savings and voluntary disclosure of income. dismantling of
quantitative restrictions on
The rate of corporation tax, which was very imports and exports
(ii) reduction of tariff
high earlier, has been gradually reduced. rates and (iii)
removal of licensing procedures
Efforts have also been made to reform the for imports. Import
licensing was abolished
indirect taxes, taxes levied on commodities, except in
case of h azardou s and
in order to facilitate the establishment of a envi ron mentally
sens itive in dustries.
comm on n ation al m arket for goods and Qu an titative
restricti ons on imports of
commodities. Another component of reforms m anu f actured
c onsu mer goods and
in this area is simplification . In order to agricultural
products w ere also fully
encourage better compliance on the part of removed from April
2001. Export duties have
taxpayers procedures have been simplified been removed to
increase the competitive
 and the rates also substantially lowered. position of Indian
goods in the international

Foreign Exchange Reforms : The first markets.

important reform in the external sector was
made in the foreign exchange market. In 1991, Global Footprint!
as an immedi ate measure to resolve the
Owing to
globalization, you might find
balance of payments crisis, the rupee was
many In dian
companies expan ding their
devalued against foreign currencies. This led
wings to many other
countries. In 2000, Tata
to an inc rease in th e infl ow of f orei gn
exchange . It also set th e ton e to free the Tea surprised the
world by acquiring the UK
determination of rupee value in the foreign based Tetley, the
inventor of the tea bag, for
exchange market from government control. Rs. 1,870 croer.

N ow , more often than not, m arkets In the year

2004. Tata steel bought the
determin e exchan ge rates b ased on the Singapore based Nat
steel for Rs. 1,245 crorer
demand and supply of foreign exchange. and Tata Motors
completed the buyout of
Trade and Investment Policy Reforms: Daewoos heavy
commercial vehicle unit in
Liberalizati on of trade an d investment South Korea for Rs
448 crore. Now VSNL is
regime was initiated to increase international acquiring Tycos
undersea cable network for
competitiveness of industrial production and Rs. 572 crore, which
will control over 60,000
also foreign investment and technology into km un dersea cable
network across three
the economy. The aim was also to promote continents. The
Tatas also plan to invest Rs.
the efficiency of the local industries and the 8,800 croer in
fertilizer, steel an d power
7 adoption of modern technologies. plants in Bangladesh.

----------------------- Page 62-----------------------

PRIVATIZATION geograph ical b oun

daries . Gl ob aliz ation y

m
attempts to establish
links in such a way that o

n
It implies shedding of the ownership or
o
the happenings in India
can be influenced by c
m an agemen t of a gov ernmen t owned
E
events happening miles
away. It is turning the

n
enterprise. Government companies can be
a
world into one whole or
creating a borderless i

d
converted into private companies in two
n
world.
I
ways (i) by withdrawal of the government
T
Outsourcin g:
This is on e of the R
from ownership and management of public
E
sector companies and or (ii) by outright sale important outcomes of
th e glob aliz ation C
process . In
outsourcing, a company hires N
of public sector companies.

regular service from

external sources, mostly f

Priv atization of the pub lic sector

t
from other countries,
which was previously s

i
undertaking by selling off part of the equity provid ed internally or
from w ith in the G
of PSUs to th e public is kn own as country (like legal
advice, computer service,
disinvestment . Th e purpose of th e sale, advertisement, security-
each provided by
according to the government, was mainly to respective departments of
the company). As
improve financial discipline and facilitate a form of economic
activity, outsourcing has
modernization . It was also envisaged that intensified, in recent
times, because of the
private capital and managerial capabilities growth of fast modes
of communication,
could be effectively utilized to improve the particul arly the grow
th of Inf orm ati on
performance of the PSUs. The government Technology (IT). Many
of the services such
envisaged that privatization could provide as voice-based business
processes (popularly
strong impetus to the inflow of FDI. known as BPO or c all
cen tres), record

The government has also made attempts keeping, accountancy,

banking services, music
to improve the efficiency of PSUs by giving recording, film
editing, book transcription,
th em auton omy in takin g m anageri al clinical advice or
even teaching are being
decisions. For instance, some PSUs have been outsourced b y c
ompanies in devel oped
granted special status as navaratnas and mini countries to India. With
the help of modern
ratnas. telec ommunic ati on lin
ks inclu din g the
Internet, the text,
voice and visual data in
GLOBALIZA TION respect of these
services is digitized and
transmitted in real time
over continents and
Gl ob alization is th e outcome of the
national boundaries .
Most multinational
policies of liberalization and privatization.
corporations, and even
small companies, are
Alth ou gh glob alization is gen erally
outsourcing their
services to In dia where
un derstood to mean in tegrati on of the
they can be availed at
a cheaper cost with
economy of the c ountry with th e world
reasonable degree of
skill and accuracy. The
economy, it is a complex phenomenon. It is
low wage rates and
availability of skilled
an outcome of the set of various policies that
m anpower in In
dia h av e m ade it a
are aimed at transforming the world towards
destination for glob al
outsourcing in the
greater interdependence and integration. It
involved creation of networks and activities post-reform period.

trans cen din g ec on omic, soci al and World Trade

Organization (WTO): The

8
WTO was founded in 1995
as the successor 5

----------------------- Page 63-----------------------

 n organization to the General Agreement on India being a
member of the WTO, as a major
o
i
t Trade and Tariff GATT was established in volume of
international trade occurs among
a
z
i 1948 with 23 countries as the global trade the developed
nations . They also say that
l
a
r organization to administer all multilateral while developed
countries file complaints
e
b
i trade agreemen ts b y providing equ al over agricultural
subsidies given in their
L
opportunities to all countries in the countries,
developing countries feel cheated
international market for trading purposes. as they are
forced to open up their markets
WTO is expected to establish a rule b ased for developed
countries but are not allowed
trading regime in which nations cannot place access to the
markets of developed countries.
arbitrary restrictions on trade. In addition, it Providing
minimum basic needs to the
purposes is also to enlarge production and people and
reduction of poverty have been
trade of serv ices, to ens ure optimum the maj or aims
of in dependent India. The
utilization of world resources and to protect pattern of
development that the successive
the environment. five year plans
envisaged laid emphasis on

The WTO agreements cover trade in the upliftment

of the poorest of the poor
goods as w ell as servi ces to f acilitate (Antyodaya),
integrating the poor into the
international trade (bilateral and multilateral) m ains tream an d
achieving a min imum
through removal of tariff as well as non-tariff standard of living
for all.
barriers and providing greater market access While
addressin g th e Cons titu ent
to all member countries. Assembly in 1947,
Jawaharlal Nehru had said,

As an important member of WTO, India This achievement

(Independence) is but a
has been in the forefront of framing fair global step, an opening
of opportunity, to the great
rules, regul ati on s an d safegu ards and triumphs and
achievements that await us
advocating the interests of the developing the ending of
poverty an d ignorance and
 world. disease and
inequality of opportunity.

India has kept its commitments towards Poverty is

not only a challenge for India,
liberalization of trade, made in the WTO, by as more than
one fifth of the worlds poor
removing quantitative restrictions on imports live in India
alone; but also for the world,
and reducing tariff rates. where more than
260 million people are not
Gwoth of GDP and able to meet
their basic needs. Poverty has
Major Sectors (in %) many faces, which
have been changing from
place to place and
across time, and has been
Sector 1980-91 1992-2001 2002-07
described in many
ways.
(Tenth
Pl an Most often,
poverty is a situation that
Proj ected) people want to
escape. So poverty is a call to
action- for the
poor and the wealthy alike-a
Agriculture 3 .6 3 .3 4 .0
call to change
the world so that many more
Industry 7 .1 6 .5 9 .5
may have enough
to eat, adequate shelter,
Services 6 .7 8 .2 9 .1
access to
education and health, protection
GDP 5 .6 6 .4 8 .0
from violence, and
a voice in what happens
9 Some scholars question the usefulness of in their
communities.
5

----------------------- Page 64-----------------------

WHO ARE THE POOR? women receive less c

are on their way to y

m
motherhood. Their children
are less likely to o

n
You woul d hav e noticed that in all
o
survive or be born
healthy. c
localities and neighbourhoods, both in rural
E
n
and urban areas, there are some of us who
a
What is Poverty?
i

d
are poor and some who are rich. Their lives
n

I
Two scholars,
Shaheen Rafi Khan and
are examples of the two extremes. There are
T
also people who belong to the many stages Damian Killen, put the
conditions of the poor R
in a nutshell: Poverty
is hunger. Poverty is E
in b etw een . Push cart v en dors, street
C
being sick and not being
able to see a doctor. N
cobblers, women who string flowers, rag

f
Poverty is not being able
to go to school and o
pickers, ven dors an d beggars are some
t
not knowing how to
read. Poverty is not s
examples of poor and vulnerable groups in
i
having a j ob . Poverty
is fear for the future, G
urban areas.
having food once in a
day. Poverty is losing
They possess few assets. They reside in
a child to illness,
brought about by unclear
kutcha hutments with wall made of baked
water. Poverty is
powerlessness, lack of
mud and roofs made of grass, thatch, bamboo
represen-tation and
freedom.
and wood. The poorest of them do not even
have such dwellings. In rural areas many of Scholars identify
the poor on the basis
them are l an dless . Even if some of them of their occupation and
ownership of assets.
possess land, it is only dry or waste land. They state that the
rural poor work mainly
Many do not get to have even two meals a as landless agricultural
labourers, cultivators
day . Starvation an d hun ger are th e key w ith v ery sm all l an
dh oldin gs, lan dless
features of the poorest households. The poor labourers who are
engaged in a variety of
lack basic literacy and skills and hence have non-agricultural jobs and
tenant cultivators
very limited economic opportunities. Poor with small land holdings.

people also f ace uns tab le employmen t. The urban poor are
largely the overflow
Malnutrition is alarmingly high among the of the rural poor who had
migrated to urban
poor. Ill health, disability or serious illness areas in search of
alternative employment and
makes them physically weak. They borrow livelihood, labourers who
do a variety of
from money lenders who charge high rates casual jobs and the self-
employed who sell a
of in terest th at lead them in to chron ic variety of things on
roadsides are engaged
indebtedness. The poor are hghly vulnerable. in various activities.
They are not able to negotiate their legal
wages from employers an d are exploited. HOW ARE POOR PEOPLE
IDENTIFIED?

Most poor households have no access to

If In dia is to
solve th e prob lem of
electricity . Their primary cooking fuel is
poverty, it has to find
viable and sustainable
firewood and cow dung cake. A large section
strategies to address-the
causes of poverty
of poor people do not even have access to
and design schemes to
help the poor out of
safe drinking water. There is evidence of their situation. However,
for these schemes
extreme gender inequality in the participation
to be implemented, the
government needs to
of gainful employment, education and in
be able to identify who
the poor are. For this
decision-making within the family . Poor
0
there is need to develop
a scale to measure 6

----------------------- Page 65-----------------------

n poverty, an d the factors that make up the middle class, the

upper middle class the rich,
o
i
t criteria for this measurement or mechanism the very rich and
the absolutely rich. Think
a
z
i need to be carefully chosen. of this as a line
or continuum from the very
l
a
r In pre-in depen dent In dia, Dadabhai poor to the
absolutely rich with the poverty
e
b
i Naoroji was the first to discuss the concept line dividing the
poor from the non-poor.
L
of a Poverty Line. He used the menu for a Categorizing
Poverty: There are many
prisoner and used appropriate prevailing ways to categories
poverty. In one such way
prices to arrive at what may be called jail cost people who are always
poor and those who
of living. However, only adults stay in j ail are usually poor but
who may sometimes have
whereas, in an actu al society, th ere are a little more.
children too. He, therefore, appropriately
Money
(example: casual workers) are
adjusted this cost of living to arrive at the
poverty line. For this adjustment, he assumed grouped together
as the chron ic poor.
th at one-third popul ation cons isted of Another group are
the churning poor who
children and half of them consumed very regul arly m ov e
in an d out of pov erty
little while the other half consumed half of (ex ample: sm all
f armers an d seasonal
the adult diet. This is how he arrived at the workers) and the
occasionally poor who are
factor of three-fourths; (1/6) (Nil) + (1/6) rich most of the time
but may sometimes have
(Half) + (2 /3) (Full ) = (3 /4) (Full ) . The a patch of b ad
luck . They are called the
weighted average of consumption of the three transient poor. And
then there are those who
segments gives the average poverty line, are never poor and
they are the non-poor.
which comes out to be three-fourth of the The Poverty
Line: Now let us examine
adult jail cost of living. how to determine the
poverty line. There are

In post-independent India, there have many ways of

measuring poverty. One way
b een sev eral attempts to w ork out a is to determine it by
the monetary value (per
mechanism to identify the number of poor in capita expenditure)
of the minimum calorie
th e c oun try . For instan ce, in 1962, the intake that was
estimated at 2,400 calories for
Planning Commission formed a Study Group. a rural person and
2,100 for a person in the
In 1979, another body called the Task Force urban area. Based
on this, in 1999-2000, the
on Proj ections of Min imum N eeds and poverty line was
defined for rural areas as
Effective Consumption Demand was formed. consumption worth
Rs . 328 per person a
month and for urban
areas it was Rs. 454.
In 1989, an Expert Group was constituted
for the same purpose. Though the
government uses Monthly
Besides these bodies, many individual Per Capita
Expenditure (MPCE) as proxy for
economists have also attempted to develop income of households
to identify the poor.

such a mech an ism . For th e purpose of Scholars state

that a major problem with
defining poverty we divide people into two this mechanism is
that it groups all the poor
categories; the poor and the non-poor and the together and does not
differentiate between
poverty line separates the two. However, the very poor and the
other poor. Though this
there are many kinds of poor; the absolutely mechanism takes
consumption expenditure
poor, the very poor and the poor. Similarly on food and a few
select items as proxy for
1 there are various kin ds of n on-poor; the income, economists
question its basis. This
6

----------------------- Page 66-----------------------

mechanism is helpful in identifying the poor in stan ce, Am artya

Sen , n oted N ob al y

m
as a group to b e taken c are of b y the Laureate, has developed
in index known as o

o
government, but it w ould be difficult to Sen In dex . There are
other tools such as c

E
identify who among the poor need help the Poverty Gap In dex an
d Squared Poverty

n
Gap.
a
most.
i

d
n
There are m any f actors, oth er than
I
WHAT CAUSES
POVERTY? T
income and assets, which are associated with
R
poverty; for instance, the accessibility to basic P ov erty is
expl ained b y in dividual E

C
education, health care, drinking water and circumstances and/or
characteristics of poor N

sanitation. The mechanism for determining

f
people. Some examples
are (i) low levels of o

t
the Pov erty Line also does not take into education and skills
(ii) infirmity, ill health, s

i
consideration social factors that trigger and sickness (iii)
discrimination . These can be G
perpetu ate poverty su ch as illiteracy, ill caused as a result of (i)
social, economic and
h ealth, l ack of access to resources, political inequality
(ii) social exclusion (iii)
discrimination or lack of civil and political unemployment (iv)
indebtedness (v) unequal
freedoms . The aim of poverty alleviation distribution of wealth.
Aggregate poverty is
schemes should be to improve human lives by just the sum of
individual poverty. Poverty
expanding the range of things that a person is also explained by
general, economy-wide
could be and could do, such as to be healthy problems, such as (i) low
capital formation (ii)
an d well-nourished, to be knowledgeable lack of infrastructure
(iii) lack of demand (iv)
and participate in the life of a community. pressure of population
(v) lack of social/
From this point of view, development is about welfare nets.
removing the obstacles to the things that a We kn ow th e
British rule in In di a.
person can do in life, such as illiteracy, ill Although the final impact
of the British rule
health, lack of access to resources, or lack of on In dian living stan
dards is still being
civil and political freedoms. debated, there is no
doubt that there was a

Though the government claims that substantial negative

impact on the Indian
higher rate of growth, increase in agricultural economy and standard of
living of the people.
production, providing employment in rural There was substantial de-
industrialization in
areas an d ec on omic ref orm packages In dia un der the
British rule . Imports of
introduced in the 1990s have resulted in a
manufactured cotton cloth
from Lancashire in
decline in poverty levels, economists raise England displaced much
local production,
doubts the governments claim. They point
and India reverted to
being an exporter of
out that the way the data are collected, items
cotton yarn, not cloth.
that are included in the consumption basket,
meth odol ogy f oll owed to estim ate the As over 70 per
cent of In dians were
poverty line and the number of poor and engaged in agriculture
throughout the British
manipulated to arrive at the reduced figures Raj period, the impact
on that sector was
of the number of poor in India. more important on
living stan dards than
Due to various limitations in the official anythin g else. British
policies involved
estim ati on of pov erty, schol ars h ave sharply raising rural
taxes that en ab led
attempted to find alternative methods. For merchants and
moneylenders to become large 2

----------------------- Page 67-----------------------

n landowners. Under the British, India began rains. Their

survival depends on subsistence
o
i
t to export food grains an d, as a result, as crops and sometimes
on livestock. With the
a
z
i many as 26 million people died in famines rapid growth of
population an d without
l
a
r between 1875 and 1900. alternative sources
of employment, the per-
e
b
i Britians main goals from the Raj were head availability
of land for cultivation has
L
to provide a market for British exports, to steadily declined
leading to fragmentation of
h av e In di a service its debt paymen ts to land holdings. The
income from these small
Britain, and for India to provide manpower land holdings is
not sufficient to meet the
for the British imperial armies. familys basic
requirements.

The British Raj impoverished millions of The scheduled

castes an d scheduled
people in India. Our natural resources were trib es are n ot
ab le to participate in the
plundered, our industries worked to produce emergin g employmen
t opportun ities in
goods at low prices for the British and our differen t sectors
of th e urban an d rural
food grains were exported. Many died due economy as they do
not have the necessary
to famine and hunger. In 1857-58, anger at the knowledge and skills
to do so.

overthrow of many local leaders, extremely The urban poor

in India are largely the
high taxes imposed on peasants, and other overflow of the
rural poor who migrate to
resentments boiled over in a revolt against urban areas n
search of employment and a
British rule by the sepoys, Indian troops livelihood.
Industrialization has not been able
c omm an ded b y th e British . Even today to absorb all these
people. Most of the urban
agriculture is the principal means of livelihood poor are either
unemployed or intermittently
and land is the primary asset of rural people; empl oyed as c asu
al l ab ourers . Casual
own ersh ip of lan d is an important labourers are among
the most vulnerable in
determinant of material well-being and those society as they have
no job security, no assets,
who own some land have a better chance to limited skills,
sparse opportunities and no
improv e th eir living c on diti on s . Since surplus to sustain
them.
in depen dence, th e gov ern men t has P overty is,
th eref ore, also cl osely
attempted to redistribute land and has taken rel ated to n
ature of empl oyment.
land from those who have large amounts to Unemployment or
under employment and
distribute it to those who do not have any the casual and
intermittent nature of work in
land, but work on the land as wage labourers. b oth rural an d
urban areas that compels
However, this move was successful only to a in debtedness, in
turn, reinforces poverty.
limited extent as large sections of agricultural Indebtedness is one
of the significant factors
workers were not able to farm the small of poverty.
holdings that they now possessed as they did
A steep rise
in the price of food grains
not have either money (assets) or skills to
and other
essential goods, at Work a rate
m ake th e l an d produ ctive an d the l and
higher than the
price of luxury goods, further
holdings were too small to be viable.
intensifies the
hardship and deprivation of
A large section of the rural poor in India l ow er inc ome
groups . Th e un equal
are the small farmers. The land that they have distribution of
income and assets has also led
3 is, in general, less fertile and dependent on to the persistence
of poverty in India.
6

----------------------- Page 68-----------------------

All this has created two distinct groups that the benefits of
economic growth have not y

m
in society: those who possess the means of trickled down to the
poor. o

o
production and earn good incomes and those While l ookin g
f or altern atives to c

E
who h av e only th eir l ab our to trade for

specifically address the

poor, policy makers n

a
survival. Over the years, the gap between the
i
started thin kin g
th at inc omes and d

n
rich an d the poor in In di a has widen ed. employment for the poor
could be raised I
Poverty is a multi-dimensional challenge for
T
through the creation
of incremental assets R
India that needs to be addressed on a war and by means of work
generation. This could E

C
footing. be achieved specific
alleviation programmes. N

f
 This second
approach has been initiated o
Towards Poverty Alleviation
t

s
from the Third Five Year
Plan (1961-66) and i
The Indian Constitution and five year progressively enlarged
since then. One of the G

pl an s state soci al j ustice as th e prim ary noted programmes

initiated in the 1970s was
objective of the developmental strategies of Food for Work.
the government. To quote the First Year Plan The programmes
th at are b eing
(1951-56), the urge to bring economic and implemen ted n ow
are b ased on the
social change under present conditions comes perspective of the Tenth
Five Year Plan (2002-
from the fact of poverty and inequalities in 2007) Expan din g
self- empl oyment
inc ome, w ealth an d opportun ity. The programmes an d
w age empl oyment
Second Five Year Plan (1956-61) also pointed programmes are being
considered as the
out th at th e ben efits of ec on omic
major ways of addressing
poverty. Examples
development must accrue more and more to of self-empl oyment
programs are Rural
the rel ativ ely less privileged cl asses of Employment Generation
Programme (REGP).
society . One c an fin d, in all policy Prime Ministers Rozgar
Yojana (PMRY) and
documents, emphasis being laid on poverty Swarn a J ayan ti Sh ah
ari Rozgar Yoj ana
alleviation and that various strategies need (SJSRY). The first
programme aims at creating
to be adopted by the government for the self-employment
opportunities in rural areas
same. an d small towns . The
Khadi an d Village

This was the major focus of planning in Industries Commission is

implementing it.
the 1950s and early 1960s. It was felt that rapid Under this programme, one
can get financial
industrial development and transformation assistance in the form of
bank loans to set up
of agriculture through green revolution in small industries. The
educated unemployed
select regi on s w ould ben efit the from low income families
in rural and urban
un derdev el oped regi ons an d th e more areas can get financial
help to set up any kind
b ackw ard secti ons of th e c ommunity. of enterprise that
generates employment
Population growth has resulted in a very low un der PMRY . SJ SRY m
ainly at creating
grow th in per c apita inc omes . Th e gap empl oymen t opportun
ities- b oth self-
between poor and rich has actually widened. employment and wage
employment-in urban
The Green Rev olution ex acerbated the areas.
disparities regionally and between large and Earlier, un
der self-employmen t,
small farmers. There was unwillingness and financial assistance was
given to families or 4
inability to redistribute land. Economics state
6

----------------------- Page 69-----------------------

n individuals. Since the 1990s, this approach has employment

opportunities, the poor will not
o
i
t b een chan ged . Now those wh o w ish to be able to buy for
themselves all the essential
a
z
i b en efit from th ese programmes are goods an d serv
ices . Th ey h ave to be
l
a
r encouraged to form self-help groups. Initially supplemented up to at
least certain minimum
e
b
i they are encouraged to save some money and stan dards by soci
al c on sumpti on and
L
lend among themselves as small loans. Later, investment in the
form of essenti al food
through banks, the government provides grains, education,
health, nutrition, drinking
partial financial assistance to SHGs which w ater, h ou sin g,
c ommunic ations and
then decided whom the loan is to be given electricity.
to f or self- empl oymen t activi ties. Three maj or
programmes that aim at
Sw arn aj ayanti Gram Sw aroz gar Yoj ana improving the food and
nutritional status of
(SGSY) is one such programme. the poor are Public
Distribution System,

Th e govern men t h as a v ariety of Integrated Child

Development Scheme and
programmes to generate wage employment Midday Meal Scheme.
Pradhan Mantri Gram
for the poor unskilled people living in rural Sadak Yoj ana,
Pradhan Mantri Gramodaya
areas. Some of them are National Food for Yojana, Valmiki
Ambedkar Awas Yojana are
Work Programme (NFWP) and Sampoorna also attempts in the
same direction. It may be
Grameen Rosgar Yoj ana (SGRY). In August essen ti al to
briefly state th at In dia h as
2005, the Parliament has passed a new Act to achiev ed
satisfactory progress in many
provide guaranteed wage employment to aspects.
every household whose adult volunteer is to The government
also has a variety of
do unskilled manual work for a minimum of other social security
programmes to help a
100 days in a year. This Act is known as few specific
groups . Nati on al Social
National Rural Employment Guarantee Act- Assistanc e
Programme is one such
2005. Under this Act all those among the poor programme in
itiated b y th e cen tral
who are ready to work at the minimum wage government. Under this
programme, elderly
c an report for w ork in areas wh ere this people who do not have
anyone to take care
programme is implemented. of th em c are
given pensi on to su stain

The third approach to addressing themselves. Poor

women who are destitute
poverty is to provi de min imum b asic an d widows are
also covered under this
amenities to the people. India was among the scheme.
pioneers in the world to envisage that through
public expenditure on social consumption POVERTY ALLEVIA TION
PROGRAMMES -
needs-provision of food grains at subsidized A CRITICAL
ASSESSMENT
rates, education, health, water supply and
sanitation-peoples living standard could be Efforts at
poverty alleviation have borne
fruit in that
for th e first time since
improved. Programmes under this approach
are expected to supplement the consumption in depen dence, the
percentage of absolute
of the poor, create employment opportunities poor in some states
is now well below the
and bring about improvements in health and n ati on al average.
Despite a v ariety of
education. One can trace this approach from approaches,
programmes an d scheme to
5 alleviate poverty;
hunger, malnourishment,
6 the Fifth Five Year Plan, even with expanded

----------------------- Page 70-----------------------

illiteracy and lack of basic amenities continue involvement in the

growth process. This is y

m
to be a common feature in many parts of possible th rough a
process of social o

n
o
India. Though the policy towards poverty mobilization,
encouragement poor people to c

E
allevi ation has ev olved in a progressive participate and get
them empowered. This n

a
manner, over the last five and a half decades, w ill also h elp
create employment i

n
it h as n ot un dergon e any radical opportunities which may
lead to increase in I

transform ation . You can fin d ch an ge in levels of income, skill

development, health T

R
n omencl ature, in tegrati on mul ati ons of an d literacy.
Moreover, it is necessary to E

C
programmes. identify poverty
stricken areas and provide N

However, none resulted in any radical infrastructure such as

schools, roads, power, f

change in the ownership of assets, process of telecom, IT services,

training institutions etc. t

i
producti on an d improv emen t of b asic We have travelled
ab out six decades G
amen ities to the needy . Schol ars, wh ile since independence. The
objective of all our
assessing these programmes, state three policies had been stated
as promoting rapid
maj or areas of concern which prevent their and balanced economic
development with
successful implementation . Due to unequal equality and social
justice. Poverty alleviation
distribution of land and other assets, the has always been accepted
as one of Indias
b en efits from direct pov erty allevi ation m ain ch allen ges b y
th e policy m akers,
programmes have been appropriated by the
 regardless of wh ich
gov ernmen t was in
non-poor. Compared to the magnitude of
power. The absolute
number of poor in the
poverty, the amount of resources allocated
country has gone down and
some states have
f or th ese programmes is n ot su fficien t.
Moreover, these programmes depend mainly less proportion of poor
than even the national
on government and bank officials for their av erage . Yet, critics
poin t out th at even
implementation . Since such officials are ill though vast resources
have been allocated
motivated, inadequately trained, corruption and spent, we are still
far from reaching the
prone an d vulnerable to pressure from a goal. There is
improvement in terms of per
v ariety of l ocal elites, th e resources are capita income and average
standard of living,
inefficiently used and wasted. There is also some progress towards
the basic needs has
non-participation of local level institutions in b een m ade. But wh en
c ompared to the
programme implementation. progress made by many
other countries, our
Government policies have also failed to perf orm an ce h as n
ot b een impressive.
address the vast maj ority of v uln erable Moreover, the fruits
of develop-ment have
people who are living on or just above the not reached all
sections of the population.
poverty line. It also reveals that high growth Some sections of people,
some sectors of the
alone is not sufficient to reduce poverty. economy some regions
of the country can
Without the active participation of the poor, compete even with
developed countries in
successful implemen-tation of any programme terms of social and
economic development,
is not possible . Poverty can effectively be yet, there are many
others who have not been
eradic ated on ly wh en th e poor start ab le to come out of
the viciou s circle of
c ontributing to grow th b y th eir active poverty.

----------------------- Page 71-----------------------

n
o
i
t
a
 z
i
l
a
r
e
b
i
L

6
Human Capital And Human Development

he two terms sound similar get basic education

and basic health care, that
b ut there is a clear is, every individual
has a right to be literate
distinction between them. and lead a healthy
life.
THum an dev el opmen t is HUMAN CAPITAL
FORMATION
b ased on the i dea th at
education and health are integral to human IN INDIA:
GREA T PROSPECTS
wellbeing because only when people have the
ability to read and write and the ability to In this section
we are going to analyse
lead a long and healthy life, they will be able human capital
formation in India. We have
already learnt that
human capital formation
to make other choices which they value.
is the outcome of
investments in education,
Human capital treats human beings as a means
health, on-the-j ob
training, migration and
to an gad en d bein g th e inc rease in information of these
education and health are
productivity. In this view, any investment in
very important
sources of human capital
education and health is unproductive if it does formation . We know
that ours is a federal
not enhance output of goods and services. In country with a un
ion gov ern men t, state
the human development perspective human gov ernmen ts an
d l oc al gov ern men ts
beings are ends themselves. Human welfare (Municipal
Corporations, Municipalities and
should be increased through investments in Village Panchayats) .
The Constitution of
education and health even if such investments India mentions the
functions to be carried out
do not result in higher labour productivity. by each level of
government. Accordingly,
Therefore, basic education and basic health expenditures on both
education and health
are important in themselves, irrespective of are to be carried out
simultaneously by all the
their contri-bution to labour productivity. In three tiers of the
government.
7
6 such a view, every individual has a right to

----------------------- Page 72-----------------------

Do you kn ow who takes c ar& of regulate the health

sector. In a developing y

m
education and health in India? Before we take country like ours, with a
large section of the o

o
up the analysis of the education sector in population living below
the poverty line, c

E
In dia, w e w ill l ook into th e need f or many of us cannot
afford to access basic

n
educ ati on an d h
ealth care f acilities. a
government intervention in education and
i

d
Moreover, a substantial
section of our people n
h ealth sectors . W e do un derstan d th at
I

education and health care services create both cannot afford to reach
super specialty health T
care an d higher
education . Furthermore, R
private and social benefits and this reason for
E
when b asic educ ation
an d health care is C
th e existence of b oth private an d public
N
considered as a right
of the citizens, then it
in stitution s in the edu cation an d h ealth
f
is essen ti al that
the gov ernmen t sh ould o
service markets. Expenditures on education
t

s
provide education and
health services free of i
and health make substantial long-term impact
G
cost for the deserving
citizens and those from
and they cannot be easily reversed; hence,
the soci ally oppressed
classes . Both, the
government interv ention essential . For union an d state
governments, have been
instance, once a child is admitted to a school stepping up expenditures
in the education
or health care centre where the required sector over the years
in order to fulfil the
services are not provided, before the decision objective of attaining
cent per cent literacy
is taken to shift th e ch il d to an oth er an d c ons i derably
inc rease th e av erage
institution, substantial amount of damage educational attainment
of Indians.
would have been done.
Moreover, in dividual consumers of EDUCATION SECTOR
IN INDIA
th ese serv ices do n ot h av e complete
Growth in
Government Expenditure on
information about the quality of services and
Educ ation : Th is
expen diture b y the
their costs. In this situation, the providers of
government is expressed
in two ways (i) as a
educ ati on an d h ealth serv ices ac quire
percentage of total
government expenditure
m onopoly pow er an d are inv olved in
(ii) as a percentage of
Gross Domestic Product
exploitation. The role of government in this
(GDP).
situ ation is to en sure th at th e private
provi des of th ese services adhere to the The percentage
of educ ation
standards stipulated by the government and expenditure of total
government expenditure
charge the correct price. indicates the importance
of education in the
scheme of things before
the government. The
In India, the ministries of education at
percentage of education
expenditure of GDP
the union an d state level, departments of
expresses how much of
our income is being
education an d various organisations like
National Council of Educational Research and committed to the
development of education
Train ing (NCERT), University Gran ts in the country. During
1952-2002, education
Commission (UGC) and All India Council of expen diture as
percen tage of total
Technical Education (AICTE) regulate the government expenditure
increased from 7.92
education sector. Similarly, the ministries of to 13.17 and as
percentage of GDP increased
health at the union and state level, depart- from 0.64 to 4.02.
Throughout this period the
ments of health and various organisations like increase in education
expenditure has not
Indian Council for Medical Research (ICMR) been uniform and there
has been irregular 8

----------------------- Page 73-----------------------

t rise and fall. To this if we include the private over 10 years

(1998-99 to 2006-07) to bring all
n
e expenditure incurred by individuals and by India children in
the age group of 6-14 years
m
p
o philanthropic institutions, the total education un der the purv
iew of sch ool edu cation.
l
e Compare to this
desired level of education
v expenditure should be much higher.
e
D Elementary education takes a maj or expenditure of
around 6 per cent of GDP, the
n current level of
a little over 4 per cent has
a share of total education expenditure and the
m been quite
inadequate. In principle, a goal of
u sh are of the hi gh er / tertiary edu cati on
H (institutions of higher learning like colleges, 6 per cent needs
to be reachedthis has been
d accepted as a must
for the coming years.
n polytechnics and universities) is the least.
A
Though, on an av erage, th e gov ernment In th e
Un ion Bu dget 2000- 05, the
l
a Government of In
dia levied a 2 per cent
t spen ds less on terti ary educ ation,
i
p edu cati on cess
on all union taxes . The
a expen diture per stu den t in tertiary
C education is higher than that of elementary. government
estimated to get a revenue of rs.
n
 a This does not mean that financial resources 4,000-5,000 crore
and the entire amount was
m
u should be transferred from tertiary education earm arked f or
spen din g on elemen tary
H
to elemen tary educati on . As we expand educ ation .
In addition to this, the
school education, we need more teachers government
sanctioned a large outlay for the
who are trained in the higher educational promotion of
higher education and new loan
institutions; therefore, expen diture on all sch emes f or
stu dents to pursu e h i gh er
levels of education should be increased. education.

The per capita education expenditure Education

Achievement s in India:
differs considerably across states from as Generally,
educational achievements in a
high as Rs. 34440 in Lakshadweep to as low c oun try are in
dic ated in term s of adult
as Rs. 386 in Bihar. This leads to differences literacy level,
primary education completion
in educational opportunities and attainments rate and youth
literacy rate. These statistics
across states . One c an un derstan d the for the years
1990 and 2000 are given.
inadequcy of the expenditure on education if
Education
Achievements in India
w e compare it w ith the desired lev el of
education expenditure as recommended by Sl.No.
Particulars 19 90 2 0 00
the various commissions. More than 40 years
1. Adult
Literacy Rate
ago, the Education Commission (1964-66) had
(percent of people
recommended that at least 6 percent of GDP aged
15 +)
b e spen t on educ ati on so as to m ake a 1.1
Male 6 1 .9 68 .4
1.2
Female 3 7 .9 4 5 .4
noticeable rate of growth in educati onal
2. Primary
completion
achievements.
rate
(percent of
In December 2002, the Government of
relevant age
group)
India,through the 86th Amendment of the 2 .1
Male 7 8 8 5
Cons titution of In dia, m ade free and 2 .2
Female 6 1 6 9
compulsory education a fundamental right of 3. Youth
literacy rate
all children in the age group of 6-14 years. The
(percent of people
aged
Tapas Majumdar Committee, appointed by 15 + to
24)
the Government of India in 1998, estimated 3 .1
Male 76 .6 79 .7
9 an expenditure of around Rs. 1.37 lakh crore 3 .2
Female 54 .2 64 .8
6

----------------------- Page 74-----------------------

FUTURE PROSPECTS allocation f or higher

education an d also y

m
improve the standard
of higher education o

n
Education for All Still a Distant
o
institutions, so that
students are imparted c
Dream: Though literacy rates for both
E
employable skills in such
institutions.

n
adults as well as youth have increased, still
a
The economic an
d social benefits of i

d
the absolute number of illiterates in India is
n
h um an c apital f
ormati on an d h um an I
as much as Indias population was at the time
T
development are well
known. The union and R
of in depen denc e . In 1950, wh en the state gov ern men ts in
In dia h ave b een E
Con stitution of In di a was passed by the
C
earmarking substantial
financial outlays for N
Constituent Assembly, it was noted in the

development of education
and health sectors. f

o
Directiv es of th e Cons titution th at the
 The spread of education
and health services t

s
govern men t should prov ide free and across different sectors
of society should be i

G
compulsory education for all children up to en sured so as to
simultan eou sly attain
the age of 14 years within 10 years from the economic growth and
equity. India has a rich
commencement of the Constitution. Had we
stock of scientific and
technical manpower in
achieved this, we would have cent per cent the world. The need of
the hour is to better
literacy by now. it qualitatively and
provide such conditions

Gender Equity Better than Before: so that they are utilised

in our own Country.
The differences in literacy rates between
males and females are narrowing signifying
INTRODUCTION
a positive development in gender equity; still
the need to promote education for women in We know that
studied how pov erty
India is imminent for various reasons such as was a major challenge
facing India. We also
improving economic independence and social came to know that the
majority of the poor
status of women and also because women live in rural areas
where they do not have
education makes a favourable impact on access to the basic
necessities of life.

fertility rate and health care of women and Agriculture is

th e m aj or source of
children. Therefore, we cannot be complacent liv elih ood in the
rural sector . Mahatma
about the upward movement in the literacy Gandhi once said that
the real progress of
rates and we have miles to go in achieving India did not mean
simply the growth and
cent per cent adult literacy. expansion of in
dustrial urban centres but
Higher Education a Few Takers: The mainly the development of
the villages. This
Indian education pyramid is steep indicating idea of village
development being at the
lesser and lesser number of people reaching centre of the overall
development of the
the higher education level . Moreover, the nation is relevant even
today. Why is this so?
level of unemployment among educated Why should we attach
such significance to
youth is th e hi gh est . data, in 2000, the rural development when we
see around us
un empl oyment rate of educ ated youth fast growing cities with
large industries and
(Secondary Education and above) was 7.1 per modern information
technology hubs? It is
cent and unemployment of people with up to b ec au se m ore th an
tw o-th ird of In dias
primary education was only 1.2 per cent. population depends on
agriculture that is not
Therefore, the government should increase productive enough to
provide for them; one- 0

----------------------- Page 75-----------------------

t third of rural India still lives in abject poverty. cereals, vegetables

and fruits. They also need
n
e
m That is the reason why w e have to see a to be given
opportunities to diversify into
p
o developed rural India if our nation has to various non-farm
productive activities such
l
e
v realise real progress. as food processing.
Giving them better and
e
D m ore aff ordab le
access to h ealthc are,

n WHA T IS RURAL DE VELOPMENT?

a sanitation
facilities at workplaces and homes
m
u and education for
all would also need to be
H Rural development is a comprehensive
given top pri
ority f or rapid rural
d term. It essential focuses on action for the
n development. It was
observed earlier that
A development of areas that are lagging behind
l although the share
of agriculture sectors
a in the overall development of the village
t contribution to
GDP was on a decline, the
i
p econ omy . Some of th e areas wh ich are
a population dependent
on this sector did not
C challenging and need fresh initiatives for
n show any
significant change. Further, after
a development in India include.
 m the initiation of
reforms, the growth rate of
u Development of human resources agriculture sector
decelerated to 2.3 per cent
H
including per annum during the
1990s, which was lower
literacy, more specifically, female th an the earlier
years . Scholars i dentify
literacy, educ ati on an d skill decline in public
investment since 1991 as the
development major reason for
this. They also argue that
health, addressing b oth sanitation inadequate
infrastructure, lack of alternate
and public health employment
opportunities in the industry or
Land reforms service sector,
increasing casualisation of
Dev el opmen t of th e productive empl oymen t etc .
furth er impede rural
resources of each locality development. The
impact of this phenomenon
Inf rastructure dev el opmen t like c an b e seen
from th e grow in g distress
electricity, irrigation, credit, mar- witnessed among
farmers across different
keting, transport facilities including parts of India.
Against this background, we
constructi on of v illage roads and will critically
look at some of the crucial
feeder roads to nearby highways, aspects of rural
In dia like credit and
facilities for agriculture research and m arketin g
system s, agricultural
extens ion , an d inf orm ati on diversification and
the role of organic farming
dissemination
in promoting
sustainable development.
Special measures for alleviation of
pov erty an d br in ging ab out AGRICULTURAL
MARKET S YSTEM
significant improvement in the living
conditions of the weaker sections of Vegetables and
fruits that we consume
the population emphasizing access to daily come from
differen t parts of the
productive empl oyment country? The
mechanism through which
opportunities. these goods reach
different places depends
All this means that farming communities on th e m arket
ch ann els . Agricultural
have to be provided with various means that marketing is a
process that involv es the
1 help them increase the productivity of grains, assemblin g,
storage, processing,
7
----------------------- Page 76-----------------------

transportati on packagin g gradin g and setback durin g th e

recen t past du e to y

m
distributi on of differen t agricultural inadequate coverage of
farmer members, lack o

o
commodities across country. of appropriate link
between marketing and c

E
Prior to independence, farmers, while processing c ooperatives
an d inefficient n

a
financial management. The
fourth element is i
selling their produce to traders, suffered
d

n
from faulty weighing and manipulation of the policy instruments
like (i) assurance of I
accounts . Farmers who did not have the minimum support prices
(M SP ) f or 24 T

R
required information on prices prevailing in agricultural products
(ii) maintenance of E

C
markets were often forced to sell at l ow bu ffer stocks of
wheat an d rice b y Food N

prices. They also did not have proper storage Corporation of India and
(iii) distribution of f

food grains and sugar

through PDS These t
facilities to keep back their produce for selling
s

i
later at a better price. Do you know that even in strumen ts are aimed
at protecting the G
today, m ore than 10 per cen t of goods in come of th e
farmers an d provi ding
produced in farms are wasted due to lack of foodgrains at a
subsidised rate to the poor.
storage? Therefore, state intervention became However, despite
government intervention,
necessary to regulate the activities of the priv ate trade (b y m
on eylen ders, rural
private traders. politic al elites, b i
g merch an ts an d rich
Let us discuss four such measures that farmers) predominates
agricultural markets.
Th e qu an tity of
agricultural produ cts,
were initiated to improve the marketing
handled by the
government agencies and
aspect. The first step w as regul ati on of
consumer cooperatives,
constitutes only 10
markets to create orderly and transparent
per cent while the
rest is handled by the
marketing con ditions . By an d large, this
private sector.
policy b en efited f armers as w ell as
consumers. However, there is still a need to Agricultural
marketing has come a long
develop about 27,000 rural periodic markets way with the intervention
of the government
as regulated market places to realise the full in v ariou s f
orm s . The rapid
potential of rural markets. Second component commercialisation of
agriculture in the era of
globalisation offers
tremendous opportunities
is provisi on of physic al in frastructure
for value addition of
agro-based products
facilities like roads, railways, warehouses,
throu gh processing an
d this needs to be
godowns, cold storages and processing units.
en couraged apart from
awareness and
The current infrastructure facilities are train in g of the
farmers to improv e their
quite in adequ ate to meet, h e grow ing marketing ability.
deman d an d n eed to be improved. Emerging
Alt ern at e Mark et ing
Cooperative marketing, in realising fair Channels: It has been
realised that if farmers
prices for farmers' products is the third aspect directly sell their
produce to consumers, it
of government initiative The success of milk increases their share in
the price paid by the
cooperatives in transforming the social and consumers. Some examples
of these channels
economic landscape of Gujarat and some other are Apni Mandi (Punjab,
Haryana, Rajasthan);
parts of the country is testimony to the role H adaspar M an di (Pun
e); Ryth u Bazars
of cooperatives. (vegetab le an d fruit
market in An dh ra

However cooperatives have received a Pradesh) an d Uzhavar

San dies (farmers 2

----------------------- Page 77-----------------------

t markets in Tamil Nadu). Further, several crops is on a

rise. Studies across countries
n
e
m national and multinational fast food chains have shown that
organically grown food has
p
o are increasingly entering into contracts/ m ore nutriti onal
valu e th an chemical,
l
e
v alliances with farmers to encourage them to farmin g thus
providing us with h ealthy
e
D cultivate farm products (vegetables, fruits, foods. Since organic
farming requires labour

n
a etc.) of the desired quality by providing them input than
conventional farming, India will
m
u with not only seeds and other inputs but also fin d organ ic
f arming an attractive
H
assured procurement of the produce at pre- proposition. Finally,
the produce is pesticide-
d
n decided prices. Such arrangements will help free and produced
in an environmentally
A
l in reducing the price risks of farmers and sustainable way.
a
t would also expan d the markets for farm
i
p
a products. Every Village a
Knowledge Centre
C

n S. Swaminathan
Research Foundation,
a SUSTAINABLE DEVELOPMENT
m an institution
located in Chennai Tamil Nadu,
u
H AND ORGANIC FARMING with support from
Sri Ratan Tata Trust,

Mumbai, has
established the Jamshedji Tata
 In recen t years, aw aren ess of the
harmful effect of chemical-based fertilisers N ati on al V irtu
al Academy f or Rural
Prosperity . The
Academy envi saged to
and pesticides on our health is on a rise.
iden tify a milli
on grassroot know ledge
Conventional agriculture relies heavily on
workers who will be
enlisted as Fellows of
chemical fertilizers and toxic pesticides etc.,
which enter the food supply, penetrate the the Academy. The
programme provides an
in fo-kiosk (PC w
ith In tern et an d v ideo
wate sources, harm the livestock, deplete the
conferencing
facility, scanner, photocopier,
soil an d dev astate n atural ec o-systems.
etc.) at a low cost
and trains the kiosk owner;
Efforts in evolving technologies which are
the owner then
provides different services
eco-frien dly are essential for sustainable
and tries to earn
a reasonable income. The
development and one such technology which
Government of India
has decided to join the
is eco-friendly is organic farming. In short,
alliance by
providing financial support of Rs
organic agriculture is a whole system of
100 crore.
f arming that restores, m ain tains and
enhances the ecological balance. There is an Popularising
organic farming requires
increasing for organically grown food to awareness and
willingness on the part of
enhance food safety throughout the world. f armers to
adapt to n ew techn ol ogy.
Inadequate
infrastructure and the problem of
Benefits of Organic Farming: Organic
marketing the
products are maj or concerns
agriculture offers a means to sub stitute
which need to be
addressed apart from an
costlier agricultural inputs (such as HYV
appropriate
agriculture policy to promote
seeds, chemical fertilisers, pesticides etc. with
organic farming.
It has been observed that
locally produced organic inputs that are
the yields from
organic farming are less than
cheaper and thereby generate good returns
modern agricultural
farming in the initial
on investmen t. Organic agriculture also
generates incomes through international years.

3 exports as the demand for organically grown Therefore,

small and marginal farmers
7

----------------------- Page 78-----------------------

may find it difficult to adapt to large scale development in

different circumstances. y

m
production. Organic produce may also have From these, each rural
community can choose o

o
more blemishes and a shorter shelf life than whatever will suit its
purpose. c

E
sprayed produc e . M oreov er choice in

First of all,
then, we need to learn from, n

a
production of off season crops quite limited
i
an d also try out wh
en f oun d relev an t, d

n
in organic farming. Nevertheless, organic practices from th e av
ail able set of b est I
farming helps in sustainable development of
T
practice illustrations
(which means success R
agriculture and India has a clear advantage stories of rural
development experiments that E

C
in producin g organic products for b oth have already been
carried out in similar N

domestic and international markets. con ditions in

different parts of In dia), to f

o
t
speed up this process of
learning by doing. s

i
CONCLUSION
G
Organically
It is clear that until and unless some
Produced Cotton in
Maharashtra
spectacular changes occur, the rural sector
might continue to remain backward. There is In 1995, when
(an NO) first suggested
a greater need today to make rural areas more that cotton, of chemical
pesticides, could be
vibrant through diversification into dairying, grown organically the
then Director of the
poultry, fisheries, vegetables and fruits and Central In stitute for
Cotton Research,
linking up the rural production centres with Nagpur, famously
remarked, Do you want
the urb an and foreign (export) markets to India to go naked? At
present, as many as
realise higher returns on the investments for 130 farmers have
committed 1,200 hectares of
th e products . Moreov er, in frastructure l an d to grow c otton
organ ically on the
elements like credit and marketing, farmer- In tern ati onal
Federati on of Organ ic
friendly agricultural policies and a constant Agriculture M ovement s
stan dards . The
appraisal an d dialogue between farmers produce was later
tested by the German
groups and state agricultural departments are Accredited Agency,
AGRECO, and found to
essential to realise the full potential of the be of high quality .
Kisan Mehta feels that
sector. ab out 78 per cen t
of In di an farmers are
To day we c ann ot l ook at the marginal farmers owning
about less than 0.8
environment and rural development as two hectare but accounting
for 20 per cent of
distinct subjects. There is need to invent or Indias cultivable
land. Therefore, organic
agriculture is more
profitable in terms of
procure alternate sets of ec ofrien dly
techn ol ogies th at lead to su stain ab le money and soil
conservation in the long run.

----------------------- Page 79-----------------------

t
n
e
m
p
o
l
e
v
e
D

n
a
m
u
H

d
n
A

l
a
t
i
p
a
C Growth and Changing
n 7
a
m
u Structure of Employment
H

ere we will look at two an d servi ces .

Sch ol ars refer to this
d e v e l o p m e n t a l phenomenon as
jobless growth.
in dicators-growth of We have
seen how employment has
Hemployment and GDP. grown in
comparison to GDP . Now it is
Fifty years of planned necessary to know
how the growth pattern
development have been aimed at expansion of employment and
GDP affected different
of the economy through increase in national sections of
workforce. From this we will also
product and employment. b e ab le to un
derstan d what types of

During th e period 1960-2000, Gross employment are

generated in our country.
Domestic Product (GDP ) of In dia grew Distribution
of workforce by industrial
positively an d w as h i gher th an the sectors shows
substantial shift from work to
 employment growth . However, there was non-farm work.
always fluctuation in the growth of GDP.
In 1972-
73, ab out 74 per cen t of
During this period, employment grew at a
workforce was
engaged in primary sector
stable rate of about 2 per cent.
and in 1999-2000,
this proportion has declined
In the late 1990s: employment growth to 60 per cent.
Secondary and service sectors
started declining and reached the level of are showing
promising future for the Indian
growth that India had in the early stages of workforce. You may
notice that the shares of
planning. During these years, we also find a these sectors have
increased from 11 to 16 per
widening gap between the growth of GDP cent and 15 to
24 per cent respectively.
and employment. His means that in the Indian The
distrib ution of w orkf orce in
economy, without generating employment, different status
indicates that over the last
5 we have been able to produce more goods
7 three decades
(1972-2000), people have moved

----------------------- Page 80-----------------------

from self-employment and regular salaried referred to as

organized and unorganized y

m
employment to casual wage work. Yet self- sectors. All the public
sector establishments o

o
empl oymen t c ontin ues to b e th e m aj or and those private sector
establishments which c

E
employment prov ider. Sch olars call this employ 10 hired workers
or more are called

a
process of moving from self-employment and formal sector
establishments and those who i

n
regular salaried employment to casual wage work in such
establishments are formal sector I
work as casualisation of workforce. This workers. All other
enterprises and workers T

R
makes the workers highly vulnerable. w orking in th ose en
terprises form the E

C
in form al sector. Thu
s, inf orm al sector N

INFORMALISATION OF INDIAN includes millions of

farmers, agricultural f

WORKFORCE labourers, owners of

small enterprises and t

i
people working in those
enterprises as also G
One of the objectives of development the self-employed who do
not have any hired
planning in India, since Indias independence, workers.
has been to provide decent livelihood to its
Those who are
working in the formal
people . It h as b een envisaged th at the
sector enjoy social
security benefits. They earn
in du stri alization strategy w ould b ring
m ore th an th ose in
th e in form al sector.
surplus workers from agriculture to industry
Developmental planning
envisaged that as
with better standard of living as in developed
the economy grows, more
and more workers
countries. We have seen in the preceding
would become-formal
sector workers and the
section, that even after 55 years of planned
proporti on of w
orkers en gaged in the
development, three-fifth of India workforce
informal sector would
dwindle. But what has
depends on farming as the major source of
happened in India? 93
per cent are in the
livelihood.
informal sector. Out
of 28 million formal
Economics argue that, over the years, sector workers, only 4.8
million, that is, only
th e qu ality of employmen t has been 17 per cent
(4.8/28x100) are women . In the
deteriorating. Even after working for more informal sector, male
workers account for 69
than 10-20 years, why do some workers not per cent of the
workforce.
get m atern ity ben efit, provident fun d,
Since the late
1970s, many developing
gratuity and pension? Why does a person
countries, including
In dia, started paying
working in the private sector get a lower
attention to
enterprises and workers in the
salary as compared to another person doing
informal sector do not
get regular income;
the same work but in the public sector?
they do not have any
protection or regulation
A small section of Indian workforce is
from the government.
Workers are dismissed
getting regular income. The government, without any
compensation. Technology used
through its lab our laws, protects them in in th e in form al
sector en terprises in
various ways. This section of the workforce outdated. Of late, owing
to the efforts of the
forms trade unions, bargains with employers International Labour
Organization (ILO), the
for better wages an d other social security In di an gov ern men
t h as initi ated the
measures. Who are they? To know this we modernization of
informal sector enterprises
cl assify w orkf orce in to tw o c ategories: and provision of social
security measures to
workers in formal sectors, which are also
6
informal sector workers.
7

----------------------- Page 81-----------------------

t UNEMPLOYMENT call unemployment

prevailing in Indian farms
n
e
m as disguised
unemploymen t . Wh at is
y It might have seen people looking for
o disguised
unemployment? Suppose a farmer
l
p j obs in new spapers . Some look f or a j ob has four acres of
land and he actually needs
m
E through friends and relatives. In many cities, only two workers
and himself to carry out
f
o you might find people standing in some select various operations on
his farm in a year, but
e areas looking for people to employ them for
r if he employs five
workers an d his family
u
t thats work.
c members such as his
wife and children, this
u
r
t Some go to factories an d offices and situ ation is
known as disguised
S
g give their bio-data and ask whether there is unemployment. One
study conducted in the
n
i any vacancy in their factory and office. Many
g l ate 1950s show
ed ab out one third of
n
a in the rural areas do not go out and ask for a agriculture workers
in India as disguisedly
h
C j ob but stay home when there is no work. unemployment in
India.
d
n Some go to employment exch an ges and
a W e h av e n
oticed th at many people
h register themselves for vacancies notified
t migrate to an urban
area, pick up a job and
w th rou gh empl oymen t exchan ges . NSSO
o stay there for
some time, but come back to
r
G defines unemployment as a situation in which th eir home
villages as soon as the rainy
all those who, owning to lack of work, are not season begins . Why
do they do so? This is
w orking b ut eith er seek w ork th rough because work in
agriculture is seasonal; there
empl oyment exchanges, in termediaries, are no empl oyment
opportunities in the
friends or relatives or by making applications village for all
months in the year. When there
to prospective employers or express their is no work to do on
farms, men go to urban
willingness or availability for work under the areas an d l ook
f or j obs . Th is kin d of
prev ailin g c on dition of w ork and unemploymen t is
known as season al
remuneration. There are a variety of ways by unemployment. This is
also a common form
which an unemployed person is identified. of unemployment
prevailing in India.
Economists define unemployed person as one
Thou gh w e
h av e w itn essed sl ow
who in not able to get employment of even
growth of
employment, scholars says that in
one hour in half a day.
In dia, people
cannot remain completely
Th ere are th ree sources of data on
unemployed for very
long becau se th eir
unemployment: Repots of Census of India, because their
desperate economic condition
Nati on al Sample Survey Organizati on s would not allow
them to be so. You will
Reports of Employment and Unemployment rather find them
being forced to accept j obs
Situ ati on an d Directorate Gen eral of
that nobody else
would do, unpleasant or
Empl oymen t an d Trainin g Data of even dangerous jobs
in unclean, unhealthy
Registration with Employment Exchanges. surroundings.
Through they provide different estimates of
The gov
ernmen t h as taken many
unemployment, they do provide us with the
in iti atives to
gen erate acceptab le
attributes of the unemployed and variety of
employment, ensuring
at least minimal safety
unemployment prevailing in our country.
an d j ob
satisfaction , th rou gh v arious
Do w e h av e differen t types of measures.
7
7 unemploy-ment in our economy? Economists

----------------------- Page 82-----------------------

GOVERNMENT AND Many programmes that

the government y

m
implements, aimed at
alleviating poverty, are o
EMPLOYMENT GENERA TION
n

o
through employment
generation . They are c

E
 Recently the government passed an Act also known as employment
generation pro-

n
in Parliament known as the National Rural
a
grammes.
i

d
Employment Guarantee Act 2005. It promises
n
All these programmes
aim at providing I
100 days of guaranteed wage employment to
T
all adult members of rural households who not only employment but
also services in areas R
such as primary health,
primary education, E
volunteer to do unskilled manual work.
C
rural shelter, rural
drinking water, nutrition, N
The families, which are living below

assistance for people

to buy income and f

o
pov erty line, w ill b e c overed un der the
t
employment generating
assets, develop-ment s
scheme. Th is scheme is one of the many
i
of community assets by
generating wage G
measures that the government implements to
generate employment for those who are in employment, construction
of houses and
need of jobs in rural areas. sanitation, assistance for
constructing houses,
laying of rural roads,
development of waste-
Since independence, the Union and state
lands /degrade lands.
governments have played an important role
in generatin g employmen t or creating
CONCLUSION
opportunities for employment generation.
Their efforts can be broadly categorised into There has been a
change in the structure
two direct and indirect. In the first category, of workforce in India.
Newly emerging jobs
gov ernmen t empl oys people in vari ous are found mostly in
the service sector. The
departments for administrative purposes. It expan si on of th e
service sector an d the
also runs industries, hotels an d transport advent of high
technology now frequently
companies and hence provides employment permit a highly
competitive existence for
directly to workers. efficient small scale
and often individual
When output of goods and services from enterprises or specialist
workers side by side
govern men t en terprises inc reases, th en with the multinationals.
Outsourcing of work
private enterprises that supply materials to is becoming a common
practice. It means that
government enterprises will also raise their a big firm finds it
profitable to close down
output and hence increase the number of some of its speci alist
departments (f or
employment opportunities in the economy. example, legal or computer
programming or
For example, when a government owned customer service sections)
and hand over a
steel company increases its output, it will large number of small
piecemeal jobs to very
result in direct increase in that government small enterprises or
specialist individuals,
company. Simultaneously, private companies, sometimes situated even
in other countries.
which supply inputs to the government steel The traditional notion of
the modern factory
company and purchase steel from it, will also or office, as a result,
has been altering in such
increase their output and thus employment. a manner that for many the
home is becoming
This is the indirect generation of employment the workplace. All of this
change has not gone
opportu-nities in the economy. in f avour of the in
div idu al worker. The
nature of empl oyment h
as become more 8

----------------------- Page 83-----------------------

t informal with only limited availabity of social trade and

commerce. These services include
n
e
m security measures to the workers. Moreover, roads, railways,
ports, airports, dams, power
y
o in the last two decade, there has been rapid stati ons ,
oil an d gas pipelin es,
l
p
m growth in the gross domestic product, but telecommunication
facilities, the countrys
E
f w ith out simultan eou s inc rease in educational
system including schools and
 o employment opportunities. This has forced colleges, health
system including hospitals,
e
r th e governmen t to take up initi atives in sanitary system
including clean drinking
u
t
c generatin g employment opportunities water facilities
an d the monetary system
u
r
t particularly in the rural areas. including banks,
insurance and other financial
S

g institutions.
Some of there facilities have a
n
i Introduction
g direct impact on
the working of the system
n
a of production
while others give in direct
h Some states in In dia are performing
C
d much better th an oth ers in certain area? support by
building the social sector of the
n
a Punj ab, Haryan a an d Himachal Pradesh economy.

h Some divide
infrastructure into two
t prosper in a agriculture and horticulture?
w
o Maharashtra and Gujrat industrially more c ategories
econ omics an d social.
r
G adv an ce th an others ? Keral a, popularly In frastructure
associ ated with en ergy,
known as Gods own country, has excelled transportati on
an d c ommunic ation are
in literacy, health care and sanitation and also included in the
former category whereas
attracts tourists in such large numbers? Why th ose rel ated
to educ ation , h ealth and
does Karnatakas information technology housing are
included in the latter.
industry attract world attention?
RELEVANCE OF
INFRASTRUCTURE
It is all because these states have better
infrastructure in the areas they excel than
Infrastructure is the support system on
other states of In di a. Some h av e b etter which depends
the efficient working of a
irri gati on f acilities . Others h av e b etter m odern in du
stri al ec onomy . M odern
transportation facilities, or are located near agriculture also
largely depen ds on it for
ports which makes raw materials required for speedy an d
large-scale transport of seeds,
various m anufacturin g in dustries easily pesticides,
fertilisers an d the produce by
accessible. Cities like Bangalore in Karnataka making use of
modern roadways, railways
attract m any multin ation al c ompan ies and shipping
facilities. Modern agriculture
because the provide world-class communi- also has to depend
on insurance and banking
cation facilities. All these support structures, facilities because
of its need to operate on a
which facilitate development of a country, very large scale.

constitute its infrastructure. How then does

Infrastructure contributes to economic

infrastructure facilitate development?
development of a
country both by increasing
WHAT IS INFRASTRUCTURE? the productivity
of the factors of production
and improving the
quality of life of its people.
Infrastructure provi des supporting Inadequate
infrastructure can have multiple
services in the main areas of industrial and adverse effects
on health . Improvements in
9 agricultural production, domestic and foreign water supply an
d sanitation have a large
7

----------------------- Page 84-----------------------

impact b y reducing morbi dity (mean ing Which shows the state of
some infrastructure y

m
proneness to fall ill) from major waterborne in In di a in c
omparison to a few oth er o

o
diseases and reducing the severity of disease countries. Though it
is widely understood c

E
when it occurs. In addition to the obvious that inf rastructure is
th e f oun dati on of

a
linkage between water and sanitation and development, India is
yet to wake up to the i

d
n
h ealth, the quality of transport and call. India invests only
5 per cent of its GDP I
communication infrastructure can affect on infrastructure, which
is far below that of T

R
access to health care. Air pollution and safety China and Indonesia.
E

C
hazards connected to transportation also Some economists
have projected that N

affect morb idity, particularly in den sely India will become the
third biggest economy f

populated areas.
t
in the world a few
decades from now . For s

i
that to happen, India
will have to boost its G
THE S TATE OF INFRASTRUCTURE IN INDIA infrastructure
investment. In any country, as

Traditionally the government has been the inc ome rises,

th e c ompositi on of
solely respon sib le f or devel opin g the in frastructure
requiremen ts ch anges
countrys infrastructure . But it was found significantly. For low-
income countries, basic
th at the gov ernmen t s inv estmen t in infrastru cture servi
ces like irri gati on,
infrastructure was inadequate . Today, the transport and power are
more important. As
economies mature and
most of their b asic
private sector by itself an d also in j oint
partnership with the public sector, has started consumption demands are
met, the share of
playing a v ery importan t role in agriculture in the
economy shrinks and more
infrastructure development. service related
infrastructure is required. This
is why the share of power
and telecommuni-
A maj ority of our people live in rural
cation infrastructure is
greater in high-income
areas. Despite so much technical progress in countries.
the world, rural women are still using bio-
fuels such as crop residues, dung and fuel Thus development
of infrastructure and
wood to meet their energy requirement. They economic development go
han d in hand.
walk long distances to fetch fuel, water and Agriculture depends, to a
considerable extent,
other basic needs. The census 2001 shows that on the adequate expansion
and development
in rural India only 56 per cent households of irrigation
facilities. In dustrial progress
have an electricity connection and 43 per cent depends on the
development of power and
still use kerosene. About 90 per cent of the electricity gen
erati on, transport and
rural house holds use bio-fuels for cooking. communic ation . Obvi
ou sly, if proper
Tap water availability is limited to only 24 per attention is not paid
to the development of
cent rural households. About 76 per cent of infrastructure, it is
likely to act as a severe
the popul ati on drin ks w ater from open constraint on economic
development.

sources such as wells, tanks, ponds, lakes,

ENERGY
rivers, canals, etc. Another study conducted
by the National Sample Survey Organization Why do we need
energy? In what forms
n oted th at b y 1996, access to improv ed is it available? Energy
is critical aspect of the
sanitation in rural areas was only six per cent. development process of
a nation . It is, of 0

----------------------- Page 85-----------------------

t course, essential for industries. Now it is used the envi ron

ment w ill destroy the
n
e
m on a large scale in agriculture and related environment that
sustains life forms. What is
y
o areas like production and transportation of n eeded is su
stain able dev elopmen t:
l
p
m fertilizers, pesticides and farm equipment. It devel opmen t th at
w ill all ow all future
E
f is required in houses and cooking, household gen erati on s to
have a poten ti al av erage
o li gh ting an d h eating . Can you th in k of quality of life
that is at least as high as that
e
r producing a commodity or service without which is bein g
enj oyed b y th e current
 u
t
c using energy? gen erati on . Th e
c oncept of su stain ab le,
u
r
t Sources of Energy: There are commercial development was
emphasized by the United
S

g an d n on- commercial sources of en ergy. Nations Conference

on Environment and
n
i
g Commercial sources are coal, petroleum and Development (UNCED),
which defined it as:
n
a Development that
meets the need of the
h electricity as they are bought and sold. The
C
account for over 50 per cent of all energy present generation
without compromising the
d
n ability of the
future generation to meet their
a sources consumed in India. Non-commercial

h sources of energy are firewood, agricultural own needs.

t
w
o w aste an d dried dun g . Th ese are n on- Read the
definition again . You will
r
G commercial as they are foun d in nature/ notice that the
term need and the phrase
forests.While commercial sources of energy future generation
in the definition are the
are generally exhaustible (with the exception catch phrases. The
use of the concept need
of hydropower), non-commercial sources are in the definition
is linked to distribution of
generally renewable. More than 60 per cent resources. The
seminal report-Our Common
of Indian households depend on traditional Future-th at gav e
th e ab ov e defin iti on
sources of energy for meeting their regular expl ain ed su
stain ab le dev el opmen t as
cooking and heating needs. meeting the basic
needs of all and extending
Non-conventional Sources of Energy: to all th e
opportunity to satisfy their
Both commercial and noncommercial sources aspirations for a
better life. Meeting the
of energy are known as conventional sources needs of all
requires redistributing resources
of energy . There are tree other sources of and is hence a
moral issue. Edward Barbier
energy which are commonly termed as non- defin ed
sustainable development as one
conventional sources solar energy, wind which is directly
concerned with increasing
energy an d tidal power. Being a tropical the material
standard of living of the poor at
country, India has almost unlimited potential th e grass root
lev el th is c an be
for producing all three types of energy if quantitatively
measured in terms of increased
some appropriate cost effective technologies income, real
income, education services,
that are already available are used. Even health care,
sanitation, water supply etc. In
cheaper technologies can be developed. more specific
terms, and secure livelihoods
that min imize
resource depletion,
SUSTAINABLE DEVELOPMENT environmen tal
degradati on , cultural
disruption and
social instability. Sustainable
Environmen t an d ec onomy are development is, in
this sense, a development
interdependent and need each other. Hence, that meets the basic
needs of all, particularly
1 development that ignores its repercussions on the poor maj ority,
for employment, food,
8

----------------------- Page 86-----------------------

energy, water, housing, and ensures growth Energy : In dia, as

you kn ow, is hu gely y

m
of agriculture, manufacturing, power and depen dent on therm al
an d hydro power o

o
services to these needs. plants to meet its power
needs. Both of these c

E
h ave adv erse envi
ronmen tal impacts.
The Brun dtl an d Commi ssi on
n

a
Thermal power plants
emit large quantities i
emph asises on protectin g th e future
d
of carbon dioxide which
is a green house gas. n
generation. This is in line with the argument
I
 It also produces fly
ash which, if not used T
of the environmentalists who emphasise that
R
properly, can cause
pollution of water bodies, E
we ha a moral obligation to hand over the
land and other components
of environment. C
pl an t earth in good order to th e future Hydroelectric projects
inundate forests and N
generation; that is, the present generation
f
interfere with the
natural flow of water in o

t
should bequeath a better environment to the
s
catchment areas and the
river basins. Wind i
future generation. At least we should leave
G
power and solar rays
are good examples of
to the next generation a stock of quality of c onv enti onal but
cleaner an d greener
life assets n o less than wh at w e have technologies which can be
effectively used to
inherited. replace thermal and
hydro-power.

The present generation should promote LPG, G ob ar G

as in Rural Areas:
development that enhances the natural and Hou seholds in rural
areas generally use
b uilt envi ron men t in w ays th at are wood, dung cake or
other biomass as fuel.
c ompatible w ith (i ) limiting th e hu man This practice has several
adverse implications
population to a level within the carrying like deforestation,
reduction in green cover,
capacity of the environment. The carrying wastage of cattle dung
and air pollution. To
capacity of the environment is like a plimsoll rectify the situation,
subsidized LPG is being
line of the ship which is its load limit mark. provided. In addition,
gobar gas plants are
In the absence of the plimsoll line for the b eing prov ided th rou
gh easy l oan s and
economy, human scale grows beyond the subsidy. As t a large
petroleum gas (LPG) is
carrying capacity of the earth and deviates con cern ed, it is a
clean fuel it redu ces
from su stain able dev elopmen t (ii) households pollution to a
large extent. Also,
techn ological progress should be input energy wastage is
minimized. For the gobar
efficien t an d not input c on suming (iii) gas plant to function,
cattle dung is fed to the
renewable resources should be extracted on plant and gas is
produced which is used as
a sustainable basis, that is, rate of extraction fuel while the slurry
which is left over is a
should not exceed rate of regeneration (iv) v ery good organ ic
fertiliser an d soil
f or n on-renew able resources rate of conditioner.
depletion should n ot exceed the rate of CNG in Urban Areas:
In Delhi, the use
creati on of renew al sub stitutes an d (v) of Compressed Natural Gas
(CNG) as fuel in
inefficiencies arising from pollution should public transport system
has significantly
be corrected.
lowered air pollution and
the air has become
cleaner in the last few
years. Wind Power: In
S TRATEGIES FOR
areas where speech of
wind is usually high,
SUSTAINABLE DEVELOPMENT wind mills can provide
electricity without

Use of Non-conventional Sources of any adverse impact on the

environment. Wind 2

----------------------- Page 87-----------------------

t turbines move with the wind and electricity controller. If we

look back at our agriculture
n
e
m is generated. No doubt, the initial cost of system, healthcare
system, housing, transport
y
o high. But the benefits are such that the high etc ., we fin d
that all practices have been
l
p
m cost gets easily absorbed. environment
friendly. Only recently have we
E
f Solar Power through Photovoltaic Cells: drifted away from
the traditional system and
o In dia is naturally en dowed with a large caused large scale
damage to the environment
e
r and also our rural
heritage. Now, it is time
u qu an tity of solar en ergy in th e f orm of
t
c to go back. One apt
example is in healthcare.
u sunlight. We use it in different ways. For
r
t example, we dry our clothes, grains, other India is very much
privileged to have about
S

g agricultural products as well as various items 15,000 species of

plants which have medicinal
n
i
g made for daily use. We also use sunlight to properties. About
8,000 of these are in regular
n
a use in various
systems of treatment including
h warm ourselves in winter. Plants use sola
C
energy to perform photosynthesis. Now, with the folk tradition.
With the sudden onslaught
d
n of the western
system of treatment, we were
a the help of photovoltaic cells, solar energy can

h be converted into electricity. These cells use ignoring out

traditi onal systems such as
t
w Ayurveda, Unani,
Tibetan and folk systems.
o special kind of materials to capture solar
r
G energy and then converted the energy into These healthcare
systems are in great demand
electricity . Th is techn ology is extremely again for treating
chromic health problems.
useful for remote areas and for places where Now a days every
cosmetic produce hair oil,
supply of power through grid or power lines toothpaste, body
lotion, face cream and what
is either not possible or proves very costly. not is herbal in
composition. Not only are
This techni qu e is also totally free from these products
environment friendly, they
pollution. are relatively
free from side effects and do
not involve large-
scale industrial and chemical
Mini-hydel Pl an ts : In m oun tainous
processing.
regi ons, stream s can be f oun d alm ost
ev erywh ere. A large percen tage of su ch Biocomposting:
In our quest to increase
streams are perennial. Mini-hydel plants use agricultural during
the last five decades or so,
the energy of such streams to move small w e alm ost totally
neglected th e u se of
turbines generate electricity which can be compost and
completely switched over to
used locally. Such power plants are more or chemical
fertilizers. The result is that large
less environment-friendly as they do not tracts of productive
land have been adversely
change the land use pattern in areas where affected, water b
odies including ground
they are located; they generate enough power water system have
suffered due to chemical
to meet local demands. This means that they contamination and
demand for irrigation has
can also do away with the need for large scale been going up year
after year.

transmission towers and cables and avoid Farmers, in

large numbers all over the
transmission loss. country, have again
started using compost
Traditional Knowledge and Practice: made from organic
wastes of different types.
Traditionally, Indian people have been close In certain parts
of the country, cattle are
to their environment. They have been more maintained only
because they produce dung
a component of the environment and not its which is an
important fertiliser an d soil
3
8

----------------------- Page 88-----------------------

conditioner.Earthworms can convent organic upon rats, mice an d

various other pests. y

m
matter into compost faster than the normal Simil arly, l arge
varieties of b irds, for o

o
composting process . This process is now ex ample, owls an d
peacocks, prey upon c

E
b ein g widely u sed . In directly, the civic vermin and pests.
including insects. Lizards

a
authorities are benefited too as they have to are also important in
this regard. We need to i

n
dispose reduced quantity of waste. know their value save
them. Sustainable I

development has become

a. catch phrase T
 Biopest Control : With the advent of
R
green revolution, the entire country entered today . It is, in
deed, a paradi gm shift in E

C
into a frenzy to use more chemical pesticides development thinking.
Though it has been N

for higher yield .soon, the adverse impacts interpreted in a number

of ways, adherence f

to this path ensures

lasting development and t
b egan to sh ow ; f ood produ cts were
s

i
contaminated; soil water b odies an d even non declining welfare
for all. G

ground water were polluted with pesticides.

Conclusion
Even milk, meat and fishes were found to be
contaminated. To meet this challenge, efforts Economic
development, which aimed at
are on to bring in better methods of pest in creasing the produ
ction of goods and
control. One such step is the use of pesticides servi ces to meet the
n eeds of a rising
b ased on plant products . Neem trees are population, puts
greater pressure on the
proving to be quite useful. Several types of envi ron ment . In
the initi al stages of
pest controlling chemicals have been isolated development, the demand
for environmental
from neem and these are being used. Mixed resources was less than
that of supply. Now
cropping an d growing different crops in the world is faced with
increased demand for
consecutive years on the same land have also environmental resources
but their supply is
helped farmers. limited du e to
ov eru se an d mi suse.
In addition, awareness is spreading Sustainable aims at
promoting the kind of
about various animals and birds which help development that
minimizes environmental
in controlling pests. For example, snakes are problems and meets the
needs of the present
one of the prime groups of animals which prey generation without
composing the ability of
future generation to meet
their won needs.
4

----------------------- Page 89-----------------------

t
n
e
m
y
o
l
p
m
E

f
o

e
r
u
t
c
u
r
t
S

g
n
i
g
n
a
h
C
8
d
n
a
Stock Markets in
India
h
t
w
o
r
G

S TOCK MARKE TS an investor and

does the work of arranging
(SPECIALLY IN INDIAN CONTEX T) the transfer of
stock from a seller to a buyer.

A stock exchange is an organization Importance of

Stock Exchanges
 which provides a platform for trading shares-
For
efficient working of the economy
either physical or virtual. The origin of the
and for
the smooth functioning of the
stock, market dates b ack to the year 1494,

corporate form of organization, the

when the Amsterdam Stock Exchange was stock
exch an ge is an essen ti al
first set up. In a stock exchange, investors
institution.
through stock brokers buy and sell shares in
an
efficient medium for raising long
a wide range of listed companies. A given term
resources for business
company may list in one or more exchanges
Help
raise savings from the general
b y meetin g an d m aintainin g th e listing
public
by the way of issue of equity
requirements of the stock exchange. debt
capital

In financial terminology, stock is the attract

foreign currency
capital raised by a corporation, through the exercise
discipline on companies and
issuance an d sale of shares . In c omm on make
them profitable
parlance, however, stocks and shares are used
investment in backward regions for
interchangeably. A shareholder is any person j ob
generation
or organization which owns one or more another
vehicle for investors savings
shares issued by a corporation. The aggregate
value of a corporation s issued shares, at Stock Exchanges in
India
current m arket prices, is its m arket
5 The first
company that issued shares
8 capitalization. Stock broker buys and sells for

----------------------- Page 90-----------------------

was the VOC or Dutch East India Company 17. Patna

y

m
in . the early 17th century (1602). Since then 18. Karipur
o

o
we have come a long way. With over 25m 19. Bhubaneshwar
c

E
shareh olders today, In dia has th e th ird 20. Calcutta
n

a
largest investor base in the world after the
i
21. Guwahati
d

n
USA and Japan . Over 9,000 companies are
I
BSE

listed on the stock exchanges, which are

T
The Bombay Stock
Exchange, or (BSE) R
servi ced b y approximately 7,500
E
is the oldest stock
exchange in Asia located C
stockbrokers. The Indian capital market is
N
at Dalal Street in
Mumbai, India. Established
sign ific ant in term s of the degree of
f

o
in the year 1875, it
is the largest securities
developmen t, volume of trading an d its
t

s
exchange in India with
more than 6,000 listed i
tremendous growth potential.
G
Indian companies. BSE is
also the fifth largest
Stock exchanges provide an organised
exch ange in the
w orld w ith m arket
market for transactions in securities and other
capitalization of US $1.6
trillion (2011). About
securities. There are 24 stock exchanges in the
5000 companies are
listed on the BSE.
country, 21 of them being regional ones with
allocated areas. Three other are set up in the Overall performance
of BSE is measured
reforms era, viz. National Stock Exchange using the BSE SENSEX or
the BSE 30 index.
(NSE), the Over the Counter Exchange India This in dex is
composed of 30 BSE stocks.
Limited (OTCEI) and Inter-connected Stock These stocks are
selected from specified
Exchange of India Limited (1SE) Important group shares on the b
asis of market cap,
Stock Exchanges in India are Bombay Stock liqui dity, depth,
tradin g frequ ency and
Exchange, popularly kn own as BSE and in du stry represen
tati on . BSE 3D w as
National Stock Exchange located in Bombay. introduced in 1986. Apart
from BSE 30, there
Stock Exchanges in India are various other
indices used in the BSE:
1. Ludhiana Some of these include BSE
100, BSE 200, BSE
2. New Delhi 500, BSE PSU, BSE
MIDCAP. BSE SMLCAP
etc.
3. Jaipur
4. Meerut One of the
unique features inside the
5. Ahmedabad BSE includes the
automatic online trading
system known as
6. Rajkot
7. Indore BOLT that ensures
an efficient and
8. Vadodara transparent market for
trading in equity, debt
instruments and
derivatives. BSE contributes
9. Bombay
phen omen ally to the
overall econ omic
10. Pune
development and capital
markets in India.
11. Hyderabad
In 2005, th e
statu s of th e exch ange
12. Mangalore
changed from an
Association of Persons
13. Bangalore
(AoP) to a full fledged
corporation under the
14. Emakulam
BSE (Corporatization
and Demutualization)
15. Coimbatore
Scheme, 2005 and its
name was changed to
16. Madras
6
The Bombay Stock
Exchange Limited. 8
----------------------- Page 91-----------------------

a Classification of companies listed in BSE

i
d
n
I Group Classification
n
i Companies with large capital base, large shareholder base, and good
growth record with regular
s A
t dividends & greater volumes in secondary market.
e
k
r B 1 Relatively liquid scrips with good management & satisfactory growth
prospects & volumes
a
M F Segment for Non-convertible debentures

k G Central and State Government Securities

c
o
t It comprises of companies not complying with clauses of the listing
agreement and are not
S Z
redressing the grievances of the investor.

Sensex Exch ange (N SE)

in In dia. In 1992 the
Government of
India authorized IDBI for
Sensex or Sensitive Index is a value-
establishing this
exchange. The National
weighted index composed of 30 companies
Stock Exchange
of India was promoted by
with the base 1978- 1979 = 100. It consists of
leadin g Financ
ial Ins titutions an d w as
the 30 largest and most actively traded blue
inc orporated in
1992. In 1993, it w as
chip stocks, representative of various sectors,
recogn ize d as
a stock exch ange. N SE
on the Bombay Stock Exchange. Inclusion of
commenced
operations in 1994. It is located
the company is b asic ally on the b asis of
in Mumbai, the
financial capital of India.
market capitalization . The 30 companies in
the index are revised periodically- some are Following
financial institutions were the
replaced by others and new sectors may find promoters of
National Stock Exchange:

representation as the economy evolves. The In du

strial Dev el opmen t Ban k of
Sensex is generally regarded a mirror or India
(IDBI).
barometer of the Indian stock markets and In
dustrial Finance Corporation of
economy. India
(IFCI).
Demutualization In dustri
al credit an d Inv estment

corporation of India (ICICI).

Demutualization is when management
Life
Insurance Corporation of India
and ownership are separated. Ownership is
(LIC).
divested from the brokers and the company
General
Insurance Corporation of
b ecomes a pub lic c ompany . All stock
India
(GIC).
exchanges are to be demutualised according
to th e G ov ern men t l aw m ade in 2004. SBI
Capital Markets Limited.
Demutualization, thus means that ownership, Stock
Holding Corporation of India
Limited.
management and trading rights are separated
in a stock exchange.
Infrastructure Leasing and Financial
services
Limited.
National Stock Exchange of India
The Stan
dard & Poor s CRISIL NSE
The National Stock Exchange of India In dex 50 or
S&P CNX Nifty - Nifty 50 or
(NSE), is on e of th e largest an d most simply Nifty is
the leading index for large
advanced stock exchanges in India. In the companies on the
National Stock Exchange of
year 1991 Pherw an i Committee India. The Nifty
is a well diversified 50 stock
7
8 recommen ded to establish National Stock

----------------------- Page 92-----------------------

in dex acc oun ting f or 2 1 sectors of the SEBI

y

m
economy.
o
The c apital m
arkets in In di a are n

o
 The CNX Nifty Junior is an index for regulated by the
Securities an d Exchange c

companies on the National Stock Exchange of Board of India. (SEBI)

It was established in n

i
In dia. It consists of 50 companies on the 1988 and given a
statutory basis in 1992 on d

n
National Stock Exchange of India. It has the the basis of the
Parliamentary Act- SEBI Act I

T
second tier of stocks in terms of market cap 1992 to regulate and
develop capital market. R
and dont make it into Nifty. SEBI regul ates th e
workin g of stock E

C
exchanges and
intermediaries such as stock N

The Inter-Connected
f
b rokers an d merchan t
b ankers, acc ords o

Stock Exchange of India Limited (ISE)

t

s
approval for mutual fun
ds, an d registers i

G
The Inter-Connected Stock Exchange of Foreign Institutional
Investors who wish to
India Limited (ISE) is being promoted by trade in Indian scrips.
Section 11(1) of the
regional stock exchanges to set up a new SEBI Act says that it
shall be the duty of the
national level stock exchange. The ISE would Board to protect the
interests of investors in
provide a national market in addition to the securities.
tradin g f acility at th e regi on al stock SEBI promotes
investors education and
exchanges. train in g of
intermediaries of securities

markets. It prohibits
fraudulent and unfair
Indonext
trade practices relating
to securities markets,
BSE, Federati on of In dian Stock an d in ter tradin g in
securities, with the
Exchanges and regional stock exchanges have imposition of monetary
penalties, on erring
prom oted In donext . Th e regi on al stock m arket intermediaries .
It also regulates
exchanges that are part of Indonext include substantial acquisition of
shares and takeover
Madras Stock Exchange, Bangalore Stock of companies and
calling for information
Exchange, Interconnected Stock Exchanges of from, carrying out
inspection, con ducting
In di a, Lu dhi an a Stock Exch an ge and inquiries and audits of
the stock exchanges
V adodara Stock Exch an ge. In donext is an d in termediaries an
d self regul atory
envisaged to bring liquidity and attention to organizations in the
securities market.
stocks that are listed on RSEs.
SEBI has its head
office in Mumbai and
Over the Counter its three region al
offices in N ew Delhi,
Exchange of India (OTCEI) Calcutta and Chennai.
SEBIs powers were
enhanced in 2002 -
The OTC Exchange of India (OTCEI)
strengthen the SEBS board,
enlarge it to nine
incorporated un der the provisions of the
from six and appoint three
full-time directors;
Compan ies Act 1956, is a public limited
given enhanced powers to
conduct search
c ompany . It allow s listin g of small and and seizure etc.
medium sized compan ies . OTCEI is
prom oted by the Unit Tru st of In dia, SEBI and the Reforms
Industrial Development Bank of India, the
Industrial Finance Corporation of India and Th e Stock Exch
an ge Seam of 1992
others and is a recognised stock exchange. (Harshad Mehta) and the
scam in 2000 (Ketan 8

----------------------- Page 93-----------------------

a P arekh) led to v ari ous measures by the anchor investors would

have to adhere to a
i
d
n Government to protect the interests of the lock-in period of one
month from the date of
I
 n small investors. SEBI introduced reforms like the share allotment.
i

s improved transparency, computerisation,

t
e Capital Market Reforms

k en actmen t against ins i der tradin g,

r
a
M restrictions on forward trading, introduction Since 1991 wh
en th e G overn ment
k of T + 2 system of settlemen t etc . The launched economic
reforms, the following
c
o restriction an d elimination of forward or
t measures were taken.
S
Contango trading, referred to in India as
SEBI given
statutory status- that is
Badla is a bold step to check speculation and Act of
Parliament
manipulation of the market. Some more steps
Electronic
trade
taken by SEBI to strengthen markets are:
Rollin g
settlemen t to reduce
SEBI reconstituted governing boards speculation
of the stock exchanges, introduced
FIIs are
permitted since 1992
capital adequacy norms for brokers,
and makes rules for making client/ setting up
of clearing houses
broker relationship more transparent settlemen t
gu aran tee fun ds at all
SEBI enforces corporate disclosures. stock
exchanges
Enforces ban on insider trading c ompulsory
dem ateri aliz ation of
share
certificates so as to remove
Protects retail investors
prob lem s
associ ated w ith paper
SEBI is empowered to register and trading;
and speed up the transfer
regulate mutual funds.
clause 49 of
the listing agreement for
introducing a code of conduct for all
corporate
governance
credit rating agencies operating in restrictions
on PNs
India.
 Primary Market
Clause 49 of the listing agreement
that SEBI introduced mandates that The primary
market is that part of the
all listed companies should have half capital markets that
deals with the issuance
th e Directors on th e Board as of new securities
directly by the company to
Independent Directors. the investors.
Companies, governments or
public sector
institutions can obtain funding
Sebi makes new rules 2009 through the sale of a
new stock or bond issue.

The Securities and Exchange Board of IPO

India (SEBI) approved the anchor investor In the case of
a new stock issue, this sale
c oncept un der wh ich an inv estor c an is called an initial
public offering (IPO).
subscribe to up to 30 percent of the quota for FPO (Follow on Public
offer)
institutional investors in an initial public
offering. Un der the new rules, an anchor If the
company already issued shares
investor would pay 25 percent of the total and is going to the
market again with a new
issue, it is called
Follow on Public Offer
investment at the time of applying for the
initial public offering, and the balance within (FPO).
9
8 two days of the closure of the issue. Such

----------------------- Page 94-----------------------

Secondary Market Buyback of Shares

y

o
The secondary market is the financial Buy back of
shares is the process of a n

o
market for trading of securities that have corporation s repurch
ase of stock it h as c

already b een issu ed in an in iti al pub lic issued. In the case of

stocks, this reduces the n

i
offering. Once a newly issued stock is listed number of shares
outstanding, giving each d

I
on a stock exchan ge, inv estors and remaining shareholder a
larger percentage

T
speculators can trade on the exchange as there ownership of the
company. This is usually R
are buyers and sellers. c ons i dered a si gn
th at th e c ompanys E

C
management is optimistic
about the future N

Types of shares
f
and believes that the
current share price is o

s
Th ere are essenti ally tw o types of undervalued. The company
also should have i

G
shares: common stock and preferred stock. reserves to do so.

Preferred stock is generally issued to

Reasons for buybacks
include
b an ks b y th e compan ies th ou gh retail
investors are also eligible for them. They are putting unused
cash to use
preferred for the following reasons. raising
earnings per share
In terms of dividen d paymen t, reducing the
number of shareholders
generally, they are given dividends to reduce the
cost for servicing them,
even if the common stock holders are etc.
not. Shares bought back
need to be cancelled
When the company is to be closed, and thus the total
equity shrinks and the
preference stock holders are given shareholders benefit.
Buyback price is more
money first from the proceeds of the than the market prices.
Companies can buy
sale of the assets of the companies. back with the reserves
but can not borrow to
They m ay h av e enh anc ed voting buyback. It is allowed in
India since 1998.
righ ts such as th e ab ility to v eto Rolling Settlement
mergers or acquisitions or the right
of first refusal when new shares are A Rolling
Settlements is a mechanism of
settling trades. In
Rolling Settlements, trades
issu ed (i .e. th e h older of the
preferred stock can buy as much as done on a single day
are settled separately
they want before the stock is offered from the trades of
another day on the basis
to others). of Trade day + 2 days
(T+2). Such petting of
Derivatives trades is done only for
the day. As such, in
Rolling Settlement,
settlement is carried out
Derivative is a financial instrument. It
on a daily basis. Since
trades done on a given
derives from an underlying asset- securities, day can not be bunched
with those of another
debt instruments, commodities etc. The price day. Thus, speculation is
drastically reduced.
of the derivative is directly dependent upon
Commodity Exchanges
th e valu e of th e un derlying asset in the
presen t an d th e proj ected future tren ds. Commodity exchanges
are institutions
Futures and options are the two classes of wh ich prov ide a pl
atf orm for trading in
derivates. comm odity futures j
ust as h ow stock 0

----------------------- Page 95-----------------------

a markets provide space-for trading in equities consists of 2-4

members.
i
d
n and their derivatives. They thus play a critical It monitors and
disciplines the working
I

n role in price discovery where several buyers of the exchanges. It

recognizes an exchange
i

s and sellers interact and determine the most

t or can withdraw such
recognition. It collects
e
k efficien t price f or th e product . In di an an d whenev er the
Commission thinks it
r
a
M c omm odity exchan ges offer tradin g in necessary publishes
information regarding
c omm odity futures in a n umb er of
k the trading conditions
in respect of goods.
c
o c omm odities . Presently, th e regul ator,
t It makes
inspection of the accounts and
S
Forward Markets Commission allows futures
oth er documen ts
of any recogn ized
trading in over 120 commodities. There are
association or
registered association or any
two types of commodity exchanges in the member of such
association whenever it
country: national level and regional. There
considerers it
necessary.
are five national exchanges:
Forw ard
Contracts (Regul ation)
National Commodity & Derivatives Amendment Bill, 2010
was introduced in the
Exchange Limited (NCDEX) Multi Parliament. It seeks
to make FMC into a Sebi-
Comm odity Exch an ge of In dia
like regulator that
is independent.
Limited (MCX)
Forw ard M
arkets Commission is at
National Multi-Commodity Exchange
of India Limited (NMCEIL) present is part of the
department of consumer
ACE Derivatives an d Commodity aff airs . FMC w ill
giv en more teeth to
Exchange regul ate exch an
ges an d all m arket
Indian Commodity Exchange (ICEX) participants.

The unique features of national level In addition, the

bill proposes to increase
commodity exchanges are: the monetary penalty
for contravention of the
legal provision to
up to Rs 25 lakh from a
They are demutualized,
meagre Rs 1,000 at
present.
They provide- online platforms or
Mutual Fund
screen based trading
They allow trading in a number of Mutual fund a
financial intermediary
commodities an d are hence multi- th at m ops up m on
ey, from a group of
 commodity exchanges. investors, to invest
in capital market so as to
They are national level exchanges which generate returns for
the investors. Mutual
f acilitate tradin g from anywh ere in the fund does it for a
fees, There are two types
country. of MFs.

FMC (Forward Market Commission) Open-ended or

open mutual funds issue
Forward Markets Commission (FMC) shares (units) to the
investors directly at any
headquartered at Mumbai is a regulatory time. The price of
share is based on the funds
authority, which is overseen by the Ministry net asset value.
Open funds have no time
of Consumer Affairs and Public Distribution, duration, and can be
purchased or redeemed
Govt. of India. It is a statutory body set up at any time on demand,
but not on the stock
market.
in 1953 un der th e Forw ard Con tracts
1 (Regulation) Act, 1952. The Commission An open fun d
issu es an d redeems
9

----------------------- Page 96-----------------------

shares on demand, whenever investors put the 5,000 mark. Besides

buying equities from y

m
money into the fund or take it out. the market, have
participated in Qualified o

o
It is a collective investment scheme Institutional Placements
(QIPS), directly from c

E
the promoters requiring,
huge capital.
issued by a fund. Only a fixed number of
n

i
shares are issued in an initial public offering SEBI prescribes
norms to register FIIs d

n
which may be called New Fund offering and also to regulate FIT
investments. I

T
(NFO). They trade on an exchange. Share The FIIs total
investments in domestic R
prices are determined not by the total net markets amount to $60
billion since India E

C
asset value (NAV), but by investor demand. allowed them to invest
here in 1992. N

f
Once the offering closes, new shares are
o
Reason s f or
FIIs h avin g In di a as a

s
rarely issued. They can be traded only on the favorite destination
i

G
secondary market (stock exchanges). Shares
growing economy

are not normally redeemable until the fund

corporate
profits are high
liquidates. On the other hand, an open-end
government
policies are encouraging
fund where the fund company creates new
shares and can redeem existing shares. compared to
other countries, India
has brighter
prospects
The total value of all the securities in the
FII investment is
referred to as hot,
fund divided by the number of shares in the
money for the reason
that it can leave the
fund is called the net asset value.
country at the same speed
at which it comes
in.
Foreign institutional investors (FIIs)
Global Depository Receipts
(GDR)
Forei gn in stituti on al inv estors are
organizations which invest huge sums of Indian companies
are allowed to raise
money in financial assets - debt and shares- equity capital in the
international market
of c ompan ies an d in other countries- a throu gh the issu e of
Gl ob al Depository
country different from the one where they Receipt (GDRs) GDRs are
design ated in
 dollars euro.
are inc orporated . Th ey in clu de b anks,
insurance companies retirement or pension The proceeds of the
GDRS can be used
funds hedge funds and mutual funds. for financing capital
goods imports, capital
Foreign individuals are not allowed to expenditure including
domestic purchase/
participate on their own but go through FIIs. installation of plant,
equipment and building
an d investment in
software development,
FIIs are allowed to 1veSt in the primary
prepayment or sch eduled
repayment of
an d sec on dary c apital m arkets in In dia
earlier external b orrow
ings, an d equity
through the portfolio investment scheme investment in JVs in
India.
(PIS). The ceiling for overall investment for
GDRs are listed
on Lon don SE or
His varies from company to company.
Luxemb ourg or elsewhere
. They are also
His called hot money invested in Indian called euro issues.
equities an d debt ab out $30 b illi on in
ADRs
2010.The number of registered FIIs is 1,660
and that of registered sub-accounts is above American depository
receipts are like

2
sh ares . They are
issued to US retail and 9

----------------------- Page 97-----------------------

a institutional investors. They are entitled like registering with

the regulator going upto
i
d
n the shares to bonus, stock split and dividend. over about 1750
(2011).
I

n They are listed either on Nasdaq or NYSE. The SEBI

action aims at ensuring that the
i

s
t Like GDRS, they help raise equity capital quality of flows
into stock m arkets and
e
k in forex for various benefits like expansion, Indian forex market
is clean.
r
a
M acquisition etc. Hedge Fund

k
c ADR route is taken as n on -USA A hedge fun d
is an investment fund
o
t companies are not allowed to list on the US
S open to only a
limited range of investors.
stock exchanges by issuing shares. They are mostly
unregul ated . Th e term-

Simil arly w ith In di an Depository hedge funds, is used

to distinguish them from
Receipts (IDRS) as an d wh en they are regulated investment
funds such as mutual
allowed. funds an d pension
funds, an d insurance
Participatory Notes companies. Hedge
funds are not allowed into
India as they do
not disclose data required
Participatory notes are instruments used
by the SEBI.
for making investments in the stock markets.
In India, foreign institutional investors (FIIs) Clearing House

use these instruments for facilitating the An organ

isati on which registers,
participation of overseas funds like hedge monitors, matches and
guarantees the trades
funds and others who are not registered with of its memb ers
an d carries out th e fin al
the SEBI and thus are not directly eligible for settlement of all
futures transactions. The
investing in Indian stocks. National Securities
Clearing Corporation is
Any entity investing in participatory the clearing house
for the NSE.
notes is not required to register with SEBI Equity
(Securities arid - Exchange Board of India), Common stock
and preferred stock that
whereas all FIIs have to compulsorily get is, shares issued by
the company. Also, funds
registered. Participatory notes are popular provided to a
business by the sale of stock.
b ec au se they prov ide a h i gh degree of Share
anonymity, which enables large hedge funds
to c arry out th eir operations w ithout is a
certificate representing ownership
disclosing their identity and the source of of the company
that issued it. Shares can
funds. KYC (know your customer norms are yield dividends and
entitle the holder to vote
not applied here). at general
meetings. The company may be
listed on a stock
exchange. Shares are also
Since the source of funds is not revealed,
 known as stock or
equity.
the PNs are potentially unsafe. Therefore,
Bond?
SEBI in 2007 October imposed certain
conditions like limits on the PNs that a single A debt
instrument issued for a period
FII can issue etc. SEBI wants the PN holders of more than one
year with the purpose of
to register with the SEBI and invest directly raising capital by
borrowing.
as In dia is a long term growth story. Sebi Debenture
3 policy paid off with th e n umb er of FIIs Debt not
secured by a specific asset of
9

----------------------- Page 98-----------------------

th e c orporati on, b ut issu ed agains t the Midcap Company

y

m
issuers general credit- that is, it is unsecured
o
Generally,
companies with a market n

o
debt. Investment earns an interest for the capitalization that is
very high are called large c

E
debenture holder. The following are various

caps and the next one

below is mid cap and n

a
types of debentures
i
the bottom one is small
cap companies. Limits d

n
c onv ertib le deb en tures c an be are not statutorily laid
down and vary from I

T
converted into equity at a future date institution to
institution. R
Non-convertible debentures will not Small Investor
E

C
be converted
N
An s. Market
regul ator SEBI set the
f
Partly convertible debentures will
o
investment limit for
retail investors in an

t
h av e some part c onv erted in to
s
initial share sale offer
to Rs 2 lakh. This will i
shares.
G
Bear & Bull cut the numerous
applications investors
sometimes make in the
name of relatives to
Bear is an investor who believes that get more shares.
market will go down.
Bull is an investor who believes that the Primary Dealers

market will go up- optimistic The Reserve Bank

of India introduced

A sustained period of falling stock prices a system of Prim ary

Dealers (PDs) in
u su ally preceding or acc ompan ied b y a government securities
market in 1995 with the
period of poor economic performance known objective to strengthen
the infrastructure in
as a recession. the government securities
market in order to
A stock market that is characterized by make it vibrant, liquid
and broad-based. The
rising prices over a long period of time. The foll owing can be the
PD: sub sidiaries of
scheduled commercial
banks and all India
time span is not precise, but it represents a
period of investor optimism, lower interest financ ial ins
titutions an d en gaged
predominantly in
securities business and in
rates and economic growth. The opposite of
a bear market. particular the government
securities market;
or c ompan ies inc
orporated un der the
Gilt
Compan ies Act,
1956 an d en gaged
Gilt is a bond issued by the government. predominantly in
securities business and in
It is issued by the Central Bank of a country particular the government
securities market;
on b eh alf of the gov ernmen t. In In di a, The company should have
net owned funds
Reserve Bank of India issues the treasury bills ofRs.50 crore.
or guts. Gilt Edged Market is the market for
government securities. Market Depth

Blue Chip Share It is a

dimension of market liquidity

Blue chip shares are the shares of the an d it refers to the

ability of a market to
c ompanies th at are th e m ost v alu able. h an dle l arge trade
v olumes w ith out a
Companies that are profit making; usually significant impact on
prices.
divi den d paying an d are liquid in the Liquidity is the
ease to find a trading
market- that is there is almost always in partner for a given
order. 4
demand on the market.
9

----------------------- Page 99-----------------------

a Market depth means the following: The E should be looked at

against those of similar
i
d
n fracti on of th e ov erall m arket th at is companies, an d
against that of the stock
I

n participating in the markets up or down market as a whole,

since different industries
i

s move. The greater the depth, the more the and even different
company are characterized
t
e
k companies that are participating. by markedly different
P/Es. In general, fast-
r
a
M Trading volumes means the number of growing technology
companies have high P/
k shares traded. Es, since the stock
price is taking account of
c
o anticipated grow th
as w ell as current
t
S
Negotiated Dealing System earnings. A high P/E
is often a reflection of
high expectations
for a stock.
Negotiated Dealing System (NDS) is an
electronic platform for facilitating dealing in EPS
Government Securities and Money Market
Instruments. The porti on
of a company s profit
Short Selling alloc ated to each
outstan din g sh are of
common stock. The
amount is computed by
The sale of a security m ade b y an divi ding n et
earnings by the n umber of
investor who does not own the security; The outstanding shares
of common stock. For
short sale is made in expectation of a decline example, a
corporation that earned Rs 10
in the price of a security, which would allow million last year
and has 10 million shares
the investor to then purchase the shares at a outstanding would
report earnings per share
lower price in order to deliver the securities of Rs. 1.
earlier sold short. In short sale, shares are
Insider Trading
borrowed at a -fees/price and returned when
the sell-buy operation is completed. Naked trading occurs
wh en any one w ith
short selling, or naked shorting, is the practice information related
to strategic and price-
of short-selling a financial instrument without influencing
information purchases or sells
first borrowing the security or ensuring that stocks so as to make
speculative profits.
th e security c an b e b orrow ed, as is Depository
conventionally done in a short sale. It is A depository
h olds securities (like
banned. sh ares, debentures,
b on ds, Govern ment
Securities, units
etc.) of investors in electronic
Market Capitalization form. Besides holding
securities, a depository

Price per share multiplied by the total also provides

services related to transactions
n umb er of shares outstan din g; also the in securities .
Benefits of a depository are
markets total valuation of a public company. reduction in
paperwork involved in transfer
of securities;
reduction in transaction cost.
PIE Ratio

Also known as the P/E multiple, this is National Securities

the latest closing price divided by earnings Depository Limited
(NSDL)

per share EPS. P/E is perhaps the single most In the

depository system, securities are
widely used factor in assessing whether a held in depository
accounts, which is more or
5 stock is overvalued or cheap. A companys P/ less similar to h
olding fun ds in b ank
9

----------------------- Page 100-----------------------

accounts. Transfer of ownership of securities Americ an Dow
J on es In du stri al y

m
is done through simple account transfers. The Average and S&P
500 Index o

o
enactment of Depositories Act in; 1996 paved British FTSE
100: It is a share index c

E
the way for establishment of NDL, the first - of the 100
most highly capitalised

a
depository in India. companies listed
on the London Stock i

n
Exchange. The
index began in 1984 I
N SDL offers f acilities like

with a base
level of l000.The index is T
dematerialization i.e., converting physical
R
share certific ates to electron ic f orm; maintained by
the FTSE Group, an E
in depen den t
c ompany wh ich C
dematerialization i.e., conversion of securities
N
originated as a
joint venture between
in demat form into physical certificates etc.
f

o
the Financial
Times and the London

s
Stock Exchange.
i
Nasdaq
G
- French CAC 40

N asdaq stan ds for th e Nati on al - German DAX

Association of Securities Dealers Automated
- Japanese
Nikkei 225
Quotation System . Unlike the New York
- Indian Sensex
and Nifty
Stock Exchange where trades take place on
- Australian
All Ordinaries
an exchange, Nasdaq is an electronic stock
- Hong Kong
Hang Seng Index
market that uses a computerized system to
provid e br okers an d dealers w ith price - South Koreas
Kospi.
quotes. It is an electronic stock market- first - Straits
Times In dex (STI) of
in the world- run by the National Association Singapore
of Securities Dealers . Many of the stocks - Bovespa index

traded through Nasdaq are in the technology - RTS Index

(RTSI) is an index of 50
sector. Russian
stocks that trade on the
RTS Stock
Exchange in Moscow.
Dow Jones Index - SSE
(Shenzhen Stock Exchange)
Composite
Index-China
The New York Stock Exchange (NYSE)
index, which reflects the movement of the - SSE
(Shanghai Stock Exchange)
composite
index-China
worlds first stock market, It is composed of
th e 32 m ost traded stocks of the NYSE. Ethical Investing
Currently there are three Dow Jones Indices:
The Dow Jones Industrial Average (DJ 1A). A notable
specialised index type is those
The Dow Jones Transport Average (DJTA) for ethical investing
indexes that include only
an d finally DJ UA (Dow J on es Utility those companies
satisfying ecological or
Average). soci al criteria, e
.g . th ose of Dow J ones
Sustainability Index.

Important indices in the world

Ponzi Scheme of Pyramid
Scheme
Market index is a number to indicate the
A Pon zi scheme
is a frau dulent
average movement of prices of a securities
market. It usually tracks select stocks. investment operation
that pays high returns
to investors and promises
higher returns to 6
9

----------------------- Page 101-----------------------

a those wh o j oin th e scheme l ater . The IDR

i
d
n payments are done from inv estors own
I Indian
Depository Receipts are issued

n m on ey or mon ey paid b y subsequent

i by a non-Indian
company to Indian investors

s investors rather than from any actual profit

t for its listing on
Indian stock exchanges. It is
e
k earned because it is not possible to earn such
r like ADR.
a
M high returns on any investment. The system Recommendation of
Bimal Jalan Committee
k is destined to collapse because the earnings,
c constituted by SEBI in
Jan. 2010.
o if any, are less than the payments . The
t
S SEBI, in
January 2010, had .appointed a
scheme is named after Charles Ponzi, who
became notorious for using the technique committee un der Dr.
Bimal J alan (former
after emigrating from Italy to the United Governor of the
Reserve Bank of In dia) to
States in 1903. study an d rec ommen
d ch an ges on the
ownership an d
governance of the Market
Decoupling Infrastructure
Institutions (MIIs) like stock
exch anges,
depositaries an d clearing
It means that a nations economy may
corporations.
have an autonomous logic and need not be
The committee,
on November 22, 2010,
entirely dependent on the global economy.
For example, if the w orld goes in to a ha submitted its
report. The report makes
recession, all counties need not. India, for some particularly
strong recommendations
example grew at 6.7% (2008-09) while the including not
allowing such entities to get
USA an d th e w est w ere con tractin g. listed on stock
exchanges.
 Reflecting th e economic realities, equity The Report
examines the nature of these
markets also perform autonomously after a institutions and
emphasizes on the systemic
point, it is called decoupling- that is, isolation importance of these
MIIs for the economy.
from the rest. The report views these
MIIs as producers of
China is more integrated with the world public good for
society, which are essentially
as its ec on omy is driven by exports. the price signals
produced by a transparent
and efficient market
mechanism.
However, even China is decoupled as it has
a lot of domestic consumption driving its The Report says
that it is not possible to
growth. sever the regulatory
role of the Mils from
their m ore obvi ou
s role of servin g as
Clause 49 providers of
infrastructure of the market and
goes on to describe
the characteristics and
Clause 49 of the Listing Agreement to functions of these
Mils emphasizing the
the Indian stock exchange came into effect in following
characteristics of such institutions:
2005.
1. In general
MIIs are in the nature of
It h as b een f ormul ated f or the public
utilities.
improvement of corporate governance in all 2. All of
th em are v ested w ith
listed companies as it mandates that there regulatory
responsibilities, in varying
should be certain independent directors on degrees.
the Board of a Company. 3. They have
systemic importance to the
7
9 economy.

----------------------- Page 102-----------------------

In the ab ove b ackground, the Report be excluded

immediately. National Stock y

m
highlights the conflict in the regulatory role Exchange S&P CNX Shariah
Index and Dow o

o
of these MIIs with their economic interests. Jones Islamic India
Index are other Shariah c
E
benchmarks that are
tracked by investors,
The Committee suggests the raising of
n

a
Shariah-b ased equity
investments do not i
entry level barriers for the new exchanges.
d

n
Only financial institutions and banks with a allow investors to invest
in heavily indebted. I

T
net worth of Rs. 1,000 crore could become Asi as oldest
stock exch ange, the R
anchor investors. Bombay Stock Exchange
(BSE); launched its E

C
There will be a cap on the profits that Shariah index in December
2010. The index, N

structured in partn
ersh ip w ith Ta qw aa f
the MFI shareholders can enjoy and on the
o

t
Advisory Shariah
Investment Solutions has 50 s
remun eration of top executives of the
i
stocks selected from the
BSE-500 bracket. G
exchange. Trading and clearing members will
be ineligible to serve on the boards and the Infrastructure,
capital goods, IT, telecom
number of public interest directors should be and pharmaceuticals
shares will form a large
at least equ al to th ose represen tin g the chunk of the BSE Tasis
Shariah-50 Index, as
shareholders . No stock exchange will be the new index is
known . But no stock will
allowed to list, a recommendation that should have more than an 8%
weightage. The stock
put an end to a long-standing controversy screening has been done
by Taqwaa Advisory
over conflict of interest. Stock exchanges and (Tasis) sch ol ar b
oard, an d th e in dex
other Mils will have to fulfil the disclosures construction, by BSE.
and corporate governance requirements of The new index will
attract investments
the listing agreement applicable to public from Arab and European
countries where
companies. Clearly, The Jalan Committee has Shariah funds are
already popular.
taken note of the fact that stock exchanges Takeover Code 2011
will continue to have regulatory functions.
The bar has to be kept high to admit only Securities
Exchange Board of In dia -
genuine players. Indias capital markets
regulator announced
Shariah Index changes to revamp
takeover code. While the
formal takeover code has
been in place since
Shari ah , th e reli gi ou s l aw of the 1997, SEBI constituted a
Takeover Regulation
followers of Islam, has strictures regarding Advisory Committee
(Achutan Committee) in
finance and commercial activities permitted 2009 to review the
existing norms and make
for believers. Arab investors only invest in a them m ore relevan t
for th e presen t day
portfolio of clean stocks. They do not invest scenario.
in stocks of companies dealing in alcohol,
To start with, the
trigger point for open
conventional financial services (banking and
offer is increased from
is per cent level to 25
in suran ce), en tertain men t (cinemas and
per cent and the open
offer size, after the 25
hotels), tob acco, pork meat, defence and
per cent trigger is
reached , is enhanced from
weapons. the current 20 per cent
to 26 per cent.

Th e in dex will b e reb alanced every

If an acquirer
acquires at least 25 per
quarter though stocks that do not comply (at
cent stake in a company,
then he has to come 8
some point of time) with Shariah statutes will
9

----------------------- Page 103-----------------------

a out with minimum 26 per cent open offer. This This volatility in
dex is computed by NSE
i
d
n will result in making an acquirer ending up based on the order
book of NIFTY Options.
I

n with controlling 51 per cent stake in the For this, the best
bid-ask quotes of near and
i

s target company. Thus, the cost of acquisitions next-month NIFTY

options, contracts which
t
e
k goes up substantially. are traded on the
F&O segment of NSE are
r
a
M A Non-compete fee to be paid to the used . In dia VIX
in dic ates the inv estor s
k promoter is removed. It helps the smaller perception of the
markets volatility in the
c
o near term i.e. it
depicts the expected market
t investors as all shares are equally priced and
S
the promoter is not treated unequally. The volatility over the
next 30 calen dar days.
reason for removal is that there is no need for Hi gher th e In dia
VIX values, h igh er the
additional price be given to a promoter by an expected volatility
and vice-versa.

acquirer over and above the fixed price paid Volatility

Index (VIX) is a key measure
to the ordinary shareholder arrived at after of m arket
expectati ons of n ear term
the valuation. v ol atility . As w
e un derstan d, v ol atility
With th e new take ov er c ode, on ly implies instability.
Thus when the markets
serious buyers can bid for a take over as 51% are highly
volatile, market ten ds to move
stake is required. steeply up or
down and during this time
volatility index
tends to rise. Volatility index
Seb i s n ew takeov er c ode may put
declin es when th
e m arkets b ecome less
corporate groups with promoter holdings
volatile. VIX is
sometimes also referred to as
below 30 per cent at risk of losing majority.
the Fear Index
because as the volatility index
In Infosys Technologies, promoters hold just
(VIX) rises, one
should become fearful or
about 16 per cent, but then it can attempt a
careful as the
markets can move steeply into
figh t b ack draw in g stren gth from its
any direction .
Worldwide, VIX has become
 phenomenal reserves of over $3 billion . As
an in dicator of
how market practitioners
per the new takeover code, an acquirer can
think ab out
volatility . Investors use it to
buildup 25 per cent stake in Infy from the
gauge the market
volatility and make their
market, then make an open offer for 26 per
investment
decisions.
cent to take a majority 51 per cent control.
VIX was first
introduced by the Chicago
VIX (Volatility index) Board of Options
Exchange (CBOE) as the
volatility index for
the US markets in 1993 and
M arket V olatility In dex . An in dex
it was based on S&P
100 Index option prices.
designed to track market volatility as an
indepen dent entity. The Market Volatility DOLLEX-30
Index is calculated based on option activity
.an d is u sed as an in dicator of investor The Stock
Exchange, Mumbai launched
sen timen t, w ith h igh valu es implying DOLLEX-30 to
track the performance of
pessimism and low values implying optimism. SENSEX shares b
Dollar terms.

In dia VIX is In dias volatility In dex Like SEN

SEX, the b ase-year
which is a key measure of m arket forDOLLEX-30 has
been fixed as 1978-79 and
expectati ons of n ear-term V v olatility b ase value at 100
points . While SENSEX
9 conveyed by NIFTY stock index option prices. reflects the growth
from market value of
9

----------------------- Page 104-----------------------

constituent stocks over the base period in of an in dividual or

a company. The word y

m
rupee terms, a need was felt to desi gn a direct is used to
denote the fact that the o

o
yardstick by which these growth values are burden of tax falls
on the individual or the c

E
measured in dollar terms . Such an index company paying the
tax an d c an n ot be

a
would reflect, in one value, the changes in passed on to anyb
ody else. For example, i

n
b oth th e stock prices an d th e f orei gn income tax, corporate
tax, wealth tax etc. An I

exchange variation. indirect tax is

levied on manufacturing and T

R
Foreign investors would find this index sale of goods or
services. It is called indirect E

C
to be v ery useful as it would help th em because the real
burden of such a tax is not N

measure their real returns after providing for borne by the individual
or firm paying it but f

is passed on to the
consumer. Excise duty, t
exchange rate fluctuations . The dollex is
s

i
calculated daily at the en d of the trading customs duty, sales
tax etc. G

session taking into consideration that days Funds provided by

taxation are used by
Re/$ rate. governments to carry
out the functions such
Futures as:

Futures are financial instruments based military

defense
on physical underlying (commodity, equities enforcement
of law and order
etc .) . A futures contract is an agreement
redistribution of wealth
between two parties to buy or sell an asset economic
infrastructure roads,
at a certain time in the future for a certain ports etc
price. social
welfare
 Futures are part of a class of securities social
infrastructure like education,
called derivatives, so named because such health etc
securities derive their value from the worth social
security measures like pensions
of an underlying investment. Futures are f or th e
elderly, un empl oyment
different from forwards as the former are benefits

traded on exchange while the later may be

Taxation System in
India
merely a si gn ed c on tract betw een two
parties. India has a well
developed tux structure.
Options are a class of futures where the Being a federal
country, the authority to levy
buyer or seller has the option whether to buy taxes is divi ded
betw een th e cen tral
or not put option is the right but not the government and the
state governments. The
obligation to sell. Call option is right but not central government
levies direct taxes such as
the obligation to buy. personal income tax
and corporate tax, and
in direct taxes like
customs duties, excise
Taxation System In India: Concepts &
duties and central
sales tax (CST) . CST is
Policies
assigned to the States
in which it is collected.
Tax
(Art.269). The states
have the constitutional
Tax is a payment compulsorily collected power to levy sales
tax apart from various
from individuals or firms by government. A other local taxes
like entry tax, octroi, etc.
direct tax is levied on the income or profits
0
Tax ation
has alw ays played an 0

----------------------- Page 105-----------------------

a important role in th e formulation of the Tax revenue as

a percentage of GDP
i
d
n governments economic policy . Taxation decreased initially,
after reforms began in
I
n policy in a developing country like India can 1991 as rates came
down an d grow th of
i
 s play an important part to raise resources for economy was not very
robust. Compliance
t
e growth, to bring in reduction in inequalities,
k also did not increase
proportionate to rate
r
a to direct growth in b ackward regions, to reduction. Since the
Tenth Plan period, there
M
k reduce consumption of luxury goods, to direct has been a consistent
rise in tax collections but
c investment into small scale sector, to promote
o it dipped due to global
financial crisis of post-
t
S savings etc . In the wake of the economic
2008 period. The share
of direct taxes in the
reforms, the tax structure and procedures
Centres gross tax
receipts is estimated at
have been rationalised and simplified. Since
56.3% in 2011- 12 .
Centres gross tax-GDP
1991, the tax system in India has undergone
substantial rationalization reduced rates and ratio is being
projected at 10.5% in 2011-12.
slabs and better administration. Further, by widening
the service tax net, the
revenue collections
from service tax for 2011-
Some of the changes are:
12 have been pegged at
Rs 82,000 crore with
Broadening the tax base to include no increase in rates,
up from Rs 71,309 crore
servi ces, frin ge b en efits, stock in 2010-11.
market transactions etc.
Measures for
Broadening Tax Base,
Redu ction in customs an d excise Strengthening
Compliance and Simplification
duties . Peak customs rate is today Rates and
slabs are rationalized
10%.
service tax on
more than 100 items at
Lowering of corporate tax rates to
12%
30%.
adoption of
VAT by almost all the
Rationalizing the personal income tax
states
rates and slabs starting- from 1997
GST
introduction
dream budget
 Tax to be
deducted at source on
Sales tax reforms at the State level as
various items
like interest on bank
a prelimin ary step tow ards th eir
deposits;
dividend distribution etc
integration into GST.
introduction of VAT from 2005 at the Qu otin g of
perm an en t acc ount
state level; GST is expected to be number made
compulsory for many
introduced in 2013. transactions
so more people can be
brought into
tax net.
Simplifying income-tax return filing
procedures . For ex ample, Saral, fringe benefit
tax
Towards better taxpayer services, in securities
transactions tax
2011- 12, th e J T departmen t h as Oth er
measures su ggested are:
introduced simple and user friendly minimizing exemptions
and concessions;
SAHAJ (Form) for individual salary drastic simplification
of laws and procedures;
tax-payers; SUGAM for small tax- building a proper
information system and
payers av ailin g presumptive tax c omputerizati on of
tax return s, an d a
scheme . (For presumptive tax, see thorough revamping
and modernization of
1 ahead). th e admin istrative
an d enf orcement
0 machinery.
1

----------------------- Page 106-----------------------

TAX COLLECTIONS 2011- 12 for 201 1- 12 un dersc

ored the governance y

m
initi atives taken
th rou gh inf orm ati on o

n
As can be seen from the table above,
o
technology including
online preparation and c
Government of In dias tax receipts were
E
e-filing of income-tax
returns, Electronic

n
about Rs.932440 crores of which direct taxes
a
Clearing Services (ECS)
facility for crediting i

d
make up 56.3%. It helps government spend
n
of refun ds directly
in taxpayers b ank I
more on social projects.
T
accounts; and electronic
filing of tax deduction R
The reasons for the tax collections being at source (TDS)
documents. Also a category E
so healthy are: of taxpayers was
notified who need not file C

economy is growing at a robust pace- a return of income as

their income tax liability f

expected to grow at about 8.5% in the has been discharged at

source. t

i
current fiscal
G
incomes of individuals have gone up Indirect Taxes

lower tax rates help compliance Reduction in

excise duties was a key
procedures are simple an d citizen- component of the
fiscal stimulus package
frien dly b ase has been widened a announced in the wake of
the global financial
driv e h as been moun ted to b ring and economic crisis
and its impact on the
more people to pay income tax with economy. With the
economy rebounding in
proper investigation. 2009-10 and 2010-11
and healthy growth in
indirect taxes in 2010-
11 the budget for 2011-
Direct Tax 12 had the option of
rollback of the excise

As a proportion of gross tax revenue, duty cuts. But this

was eschewed for two
direct taxes have been accounting for over a reasons: to see
improved business margins,
half of the total since 2007-08. Given the incentivize higher
investment rates and to
f acilitate in trodu
ction of th e goods and
composition earlier in the decade, which had
services tax (GST).
While holding the peak
a large share of indirect taxes, this indicated
non-agricultural custom
duty rates at 10 per
rob u st levels of grow th in direct taxes,
cen t, th e Bu dge f
or 2011- 12 sou gh t to
particul arly c orporati on tax . How ever, rationalize three
rates of 2 per cent, 2.5 per
growth in corporation tax was moderate in cent, and 3 per cent a
the middle level of 2.5
2008- 09 an d 2009- 10 ow ing to demand per cent.
slowdown on account of the impact of global
crisis. At 22.4 per cent, growth in corporation Cost of Direct Tax
Collection
tax rebounded in 2010-11. Growth in personal
Buoyant economic
growth along with
income tax fell appreciably in 2008-09 to 3.3
higher tax compliance
have led to a desirable
per cent and rebounded in 2009-10 to reach decline in the cost of
direct tax collections as
15 .4 per cen t . With grow th in 2010- 11
a proportion of total
direct tax collections: all-
marginally lower at 13.7 per cent, overall time low of 0.54 per
cent in 2007-08.That is,
growth in direct taxes in 2010-11 was at 19.5 the income-tax
department spends 54 paise
per cent. It was budgeted at about the same for every Rs 100
direct tax collected by it,
level in BE 2011-12 with a growth of 20.2 per which is among the
lowest in the world. The
cent envisaged in corporation tax and 18.2 income tax department
has a tax base of 3.5 2
per cent in personal income tax. The Budget
0
crore assesses.
1

----------------------- Page 107-----------------------

a Income-tax slabs and rates service

providers should share the
i
d
n tax burden
with others-industry
I 10 per cent rate on a slab extending up

n as th e sh
are of in du stry in GDP
i to Rs 5 lakh. Likewise, the 20 per cent rate will

s decreases
wh ile th at of servi ces
t now apply on income slabs beyond Rs 5 lakh
e
k expands,
the tax base shrinks unless
r and up to Rs. 10 lakh. The maximum marginal
a services
are taxed.
M rate of 30 per cent on an income slab of above
k f ailure
to tax servi ces distorts
c Rs 10 lakh.
o c onsu mer
ch oices, en couraging
t
S spending on
services at the expense
Service Tax
of goods
and savings.
Service tax was first imposed in 1994. as most of
the services that are likely
Today the rate is 12% and a 3% education to bec ome
tax ab le are positiv ely
cess is additionally imposed. More than 100 correlated
with expenditure of high
services are being taxed. Tax analysts said that income
households, subjecting them
widening the service tax net is the first step to taxation
will improve equity.
before rolling out a comprehensive GST.
Indias service tax collection for the Financial Service Tax and Indian
Constitution

Year 2010-11 was estimated at Rs 69,400 crore In th e Sev

en th Schedule to the
and for 201 1-12, it is expected to increase to Constitution, un der
Article 246, the item
Rs 82,000 crore as per the Union Bu dget relating to taxes
on servi ces w as n ot
projections. specifically mentioned
in any entry either in

Major services that are currently taxed the Union List or in

the State List.
include telephone, insurance, br okerage, However, Entry
97 of the Union List
banking and financial services, courier, port empowers Parliament to
make laws in respect
services, etc. Some of the minor activities on of any other matter
not enumerated in List
which service tax has been recently imposed II (State List) or
List III (Concurrent List),
include beauty parlours, pan dals or tent including any tax not
mentioned in either of
house services, dry cleaning, cable operators, those lists. Since
taxes on services is not
etc. there in any of the
lists, service tax was levied

Telephone services yield the maximum by the Central

Government in exercise of the
amount. powers under Entry 97
of the Union List.

The service sector has emerged as an The 88th

amendment to the Constitution
important area of economic activity. Reasons (2004) amen ded
Article 270 (m ade it
for taxing services divisible) and
inserted in the Union List (List
Its share in th e c ountry s Gross I) entry No. 92C
taxes on services.
Domestic Product (GDP) h as The amen dment
to the Constitution
increased from about 28% in 1951, to places services tax
formally under the Union
55% (2011). List, This will pave
the way for the Centre to
Taxing services is important to raise levy and collect the
tax.
resources and increasing the tax-GDP The amendment
becomes redundant
3 ratio
0 with the introduction
of GST in 2011 where
1

----------------------- Page 108-----------------------

the services will be jointly taxed by Centre produ cts competitiv e

an d, ab ove all, y

m
and States. benefiting the end
consumers o

o
GST? Evaluate its pros & cons? The cen tral an
d state gov ern men ts c

Goods and Services Tax is a multi-point moved closer to

ushering in a nationwide n

i
sales tax with set off for tax paid on purchases goods and services tax
on April 1, 2011, a d
n
of inputs. There is no cascading (tax on tax) reform intended to cut
business costs and I

T
effect as th ere is deducti on or credit b oost gov ern men t
rev enu e. Th e ref orm R
would eliminate multiple
indirect taxes levied E
mechanism for taxes paid for the inputs. The
C
tax is levied on the value added an d on by states and the central
government, leading N

to a reduction in the
average tax burden on f
consumption only. Total burden of the tax is
o

t
companies and a rise in
the countrys tax-to- s
exclusively borne by the domestic consumer.
i
GDP ratio.
G
Exports are not subject to GST.
In the Union Budget for the year 2006- The GST is an
indirect tax that would
2007, Finance Minister proposed that India replace existing levies
such as excise duty,
should move towards national level Goods service tax, and value-
added tax (VAT).Both
an d Serv ices Tax that should b e shared the states and the
central government would
between the Centre and the States. World impose th e tax on
almost all goods and
over, goods and services are integrated and services produced in
In dia or imported.
taxed as a comprehensive domestic indirect Exports would not be
subject to GST. For the
taxation system b ased on value addition. first two years of
operation, the proposal is
They attract the same rate of tax. That is the for two rates both at
the federal and state
foundation of a GST. The basis of GST is value levels, converging to a
single rate in the third
addition. year. Producers would
receive credits for tax
paid earlier, which would
eliminate multiple
The goods an d service tax (GST) is
taxation on the same
product or service.
proposed to be a comprehensive indirect tax
Direct taxes, such as
income tax, corporate tax
levy on manufacture and sale of goods as well
 and capital gains tax
would not be affected.
as services at a national level. Integration of
goods and services taxation would give India Eliminating a
multiplicity of existing
a world class tax system and improve tax in direct taxes w ould
simplify th e tax
collections. It would end the long standing structure, broaden the
tax base, and create a
distorti ons of differenti al treatments of common market across
states and centrally
m anuf acturin g an d service sector . The administered districts.

introduction of goods and services tax will In creased

compli an ce an d few er
lead to the abolition of taxes such as octroi, exemptions to GST would
lift Indias federal
Central sales tax, State level sales tax, entry tax-to GDP ratio from
the 11.8 percent it
tax, etc and eliminate the cascading effects tax currently estimates for
the financial year
on tax. 2012/13. At the same time
GST would lower
It is aimed at f orgin g a c omm on the average tax burden
for companies that
domestic market, removing multiplicity of now pay cascading
taxes on top of taxes
taxes, eliminating the cascading effect of tax through the production
process.

4
on tax, m akin g th e prices of th e In dian By lowering
business costs it would 0

----------------------- Page 109-----------------------

a boost economic growth and increase exports, in crease the lax

collection s due to more
i
d
n proponents argue, and bring India in line - efficien t c
ollection , expan ded b ase,
I

n with practices in many developed economies. transparency and

increased compliance.
i

s
t Reducing production costs would make Implementation
of a comprehensive
e
k exporters more competitive. GST would lift
Indias economy of over $1
r
a
M The GST may usher in the possibility of trilli on b y b etw
een 0.9 percen t an d 1.7

k percent, according
to a report by the New
c a collective gain for in du stry, trade,
o
t agriculture and common consumers as well Delhi-based economic
think tank the National
S
as for the central government and the state Council of Applied
Ec onomic Research.
governments for reasons cited above. Exports would rise by
between 3.2 percent
an d 6 .3 percent,
wh ile imports w ould
For the first year: 10 percent of CGST of
increase 2.4 percent
to 4.7 percent, the study
Centre and 10% of SGST of states for goods
found.
and 6 percent each for essential items 8% each
for services. Thus, it is dual rate. Also, goods Constitutional
Amendment for GST
and services are taxed separately initially.
Constitution (One
Hundred and Fifteenth
The higher rate would come down to 9
Amendment), Bill, 2011
(GST Bill)
percent in the second year, and the two rates
would converge at 8 percent in the third year. Cons titution
(One Hun dred and
Fifteenth Amendment),
Bill, 2011 (OST Bill)
Yes . Goods deemed necessary or of
was introduced in
th e Parliament in the
basic importance would be taxed at a lower
budget session in
March 2011, deals with
rate. The, government will review the various
GST. The Bill seeks
to introduce Goods and
lists of exempted goods to align them at the
federal and state levels. Services Tax (GST)
and the GST Council. As
per the existing
structure of indirect taxation,
Alcoh ol, petroleum an d electricity the Parliament has the
power to make laws
would not come under GST.
on th e m an uf
acture ofgoods an d the
GOI will compensate states for potential provision of services
(Union List) while the
lost revenue and central government has State Legislatures
have the power to make
assured states th at if needed, it w ould laws on the sale and
purchase of goods within
 increase a 50,000 crore -rupee ($10.6 billion) their respectiv e
states (State List) . The
fund that the 13th Finance Parliament has
retained the exclusivity to
Commi ssi on recommen ded as an make laws pertaining
to sale of goods in the
incentive for the states to buy into GST. course of inter-
state trade or commerce.

The legislation to make constitutional

Definition of
amendments needs to be finalised and the
Goods and Services
Article 366
mechanism for administering the tax needs to
be created. The government also needs to set The above
Article which defines Goods
up the technology infrastructure to manage and Services Tax to
mean, any tax on supply
the tax- TAGUP. of goods or services
of both except taxes on
The GST is in itially inten ded to be the supply of:
5
0 revenue-neutral but is eventually expected to Petroleum
Crude;
1

----------------------- Page 110-----------------------

High Speed Diesel Counc il w ith in

sixty days from the y

m
Petrol Commencement of the GST
Act. o

o
Natural Gas
c

E
Membership of the GST
Council
Aviation - Turbine Fuel; and
n

i
Alc oh olic Li qu or f or hu m an The Union Finance
Minster would be the d

I
consumption. Chairperson, the Union
Minister of State for
T
Revenue shall be one of
the members, the R
Seventh Schedule
E
Financ e Minister or any
other min ister C
The Union Government has the exclusive nominated by each State
Government shall be N

f
power to levy excise duty on the manufacture th e memb ers of th e
GST Coun cil . The o

t
Members of the GST Council
shall decide on s
or production of the following
i
Petroleum Crude the Vice-Chairperson of the
GST G

High Speed diesel Council for such

period as decided by
Petrol the members.

Natural Gas
Functions of the GST
Council
Aviation Turbine Fuel
Tobacco and Tobacco Products The GST Council while
being guided by
The State Governments shall have the the need for a harmonized
structure goods
power to levy tax on the sale (other than in and services tax and for
the development of
the course of inter-state trade or commerce) a harmonised national
market for goods and
of petroleum crude, high speed diesel, petrol, services shall make
recommendations to the
n atural gas, avi ation turbin e fu el and Union and the States on:
alcoholic liquor for human consumption. In Taxes, cesses and
surcharges levied
Article 249 The Parliament has been vested by the Union and
the States and local
with the power to make laws pertaining to b odies wh ich m
ay b e sub sumed
GST on behalf of the state Legislature in within the GST
circumstances of national interest. The power Exemptions from GST
for such goods
to make such laws would be pursuant to a and services
resolution passed by the Council of States Threshold limit
of turnover below
supported by not less th an a two-thirds
which GST may be
exempted
majority of the members present and voting.
The GST rates
Power of Parliament to make laws on subjects
in State List in the case of Emergency Any other matter
relating to GST
Article 250. Every decision of the
GST Council taken
The Parliament has been vested with the at a meeting shall be with
the consensus of
all the members present
at the meeting.
power to makes laws pertaining to GST on
behalf of the State Legislature when there is GST Dispute
a proclamation of Emergency. Settlement Authority
Article 279B

GST Council Article 279A The Parliament, by

law, will provide for
the creation of a Goods
and Services Tax
The President shall constitute a GST
6
Dispute Settlement Authority
(DSA) which 0

----------------------- Page 111-----------------------

a shall adjudicate any dispute or complaint The position

of states is rejected on
i
d
n referred to the DSA by the State Government the other
points for the following
I

n or the Union G overn ment arisin g out of reasons

i

s deviation from any recommendation of the centre is

all surrendering and sharing
t
e
k GST Council which results in the loss of its powers
regarding service tax
r
a
M rev en ue to th e State Govern ment of the and union
excise duties
k Union Government or affects the harmonized states are
free to tax sin goods like
c
o structure of the GST. li qu or
an d also th e petroleum
t
S
The DSA shall consist of three members products
namely, the Chairperson, who has been a It is said that
like VAT, GST would also
Supreme Court Judge or the Chief Justice of increase the revenue
of the states as they will
a High Court, appointed by the President, have powers to impose
tax on services, which
recommended by the Chief Justice of India; are growing at a rapid
pace. However, in case
the remaining members shall be persons who of Contentious federal
issues on GST.
shall hav e expertise in the field of l aw, GST rates, the
division of taxing powers
economics or public affairs appointed by the b etw een th e
Centre an d th e states,
President recommended by the GST Council. compensation amount;
exemptions and on
Th e DSA sh all pass suitable orders certain design
elements of the GST.
including interim orders G oods an d
Services Tax (GST):
Only the Supreme Court shall exercise Challenges for
implementation.
jurisdiction over such adjudication or dispute The GST is a
necessary condition for a
or complaint. common market to
exists, this permits free
an d unimpeded
movement of goods and
Fiscal Autonomy Issues services across a
federation, thus encouraging

Cons titution al amen dmen ts are efficient regional

specialization.

required to enable the Centre and the states Such

harmonization will significantly
to impose tax on the same base of goods and reduce the vertical
imbalance between the
services. Currently, the states cannot impose Centre and the states
by enhancing the tax
tax on services. They also can not impose tax base of the states. It
is going to be the biggest
on manufacturing of goods. Centre cannot ever tax reform in
India.
levy tax sales tax. Challenges to
address:

States feel that their fiscal autonomy is In tegrati

on of a l arge numb er of
being eroded for the following reasons: Central &
State Taxes

they are surrendering the power to multiplicity

of taxes and tax rates to
sales tax be unified
they can not change rates according federal
distribution of powers to levy
to their fiscal needs and collect
taxes
all states can not have the same rates n ecessary
c ons tituti on al
centre may not compensate the states amendments.
7 fully
Rationalisation of thresh olds and
0
1 exemption
limits.

----------------------- Page 112-----------------------

Stan dardisati on of system s and Network, New Pension

Scheme, National y

m
procedures. Treasury Management
Agency, Expenditure o

o
broad based computerizations across Information Network,
Goods and Service c

E
the Nation. Tax, are in different
stages of roll out. To look

a
Dispute settlement procedure and in to variou s technol
ogical an d systemic i

n
machinery. issues, Finance
Minister announced in the I

Training of tax administrators and Union Budget 2010-1l to

set up a Technology T

R
assessee. Advisory Group for
Unique Projects under E

C
Protecting and balancing the present the Chairmanship of Shri
Nandan Nilekani. N

and future revenues of the Centre It has been set up in

mid-2010. f

and the States. Tax Reforms in India

t

i
Safeguarding the interests of less
G
Since the beginning
of the last decade as
developed States with lower revenue a part of the economic
reforms programme,
potential.
the taxation system in
the country has been
Taxin g of Alcoh ol, tob acc o, subjected to consistent
and comprehensive
petroleum products which are out of reform. The need for
the tax reforms arises
the GST regime. from the fact that

GST and Fiscal Federalism tax resources

must maximised
international
competitiveness must
Being the largest in direct tax reform
be imparted to
the Indian economy
requiring the centre and the states to adjust
transaction
costs must be reduced -
their constitutional taxing powers, GST has
opened up fiscal federal challenges like never th e h i gh- c
ost n ature of In dian
economy needs
to be corrected so
before. There is mutual surrender of powers
that
to a uniform national taxation system where
both gain. But there are apprehensions of loss compliance
increases
of fiscal autonomy b y states an d central equity improves
dominance as mentioned above. investment
flows
On the direct tax
front, the reforms are
The Constitutional changes proposed
an d b ein g deb ated by the Empow ered the following:

Committee of State Finance Ministers are Reducti on an d

ration alizati on of
likely to bring the federal units together for rates- there
are only three rates of
a new and innovative system of fiscal federal income tax
today with the highest
rate at 30%
sharing and cooperation
Simplification
of procedures
Technology Advisory Group for Unique Strengthening
of administration
Projects (TAGUP) Widening of the
tax base to include

An effective tax administration and more tax payers

in the tax net
financial governance system calls for creation Exempti ons are
gradu ally b eing
of IT projects which are reliable, secure and withdrawn
efficient. IT projects like Tax Information MAT was
introduced for the zero 8

----------------------- Page 113-----------------------

a tax companies of rates, legal

complexities, classification
i
d
n The Direct Tax Code of 2010 is meant disputes, litigation
etc.
I

n to replace the outdated Income Tax If these

exemptions are rationalized,
i

s Code of 1961.
t they can help the
government spend more on
e
k social and
infrastructure and help reduce the
r
a Indirect Taxes
M fiscal deficit.

k Reduction in the peak tariff rates-

c
o G-20 and Bank Tax
t 10% is the peak customs duty today
S
wh ich w as m ore th an a 90%
Group of 20 saw
the European countries
reduction since 1991.
like Germany and
France propose a ban tax
The number of slabs has come down
on their
transactions so that fund could be
drastically mobilised in order
to bail out future b ank
There is a progressive change from failures. The idea is
to avoid taxing ordinary
specific duty to advalorem tax
 people. India along
with Brazil an d other
VAT is introduced
c ountries opposed
it on the f oll owing
GST is being rolled out by 2011 grounds
Extension of service tax to more than
Regulation
is the remedy
1.00 items at 10% rate
Banks can
pay the tax and not shed
Tax expenditure their
reckless behavior
It may in
fact induce them to be more
Tax expen diture refers to rev enue reckless as
th ere is a ready fund
f orgone as a result of exemptions and available
and bailout is guaranteed.
concessions (personal, corporate, indirect India has a
well regulated banking
tax). It was introduced for the first time in system and
so did not suffer the same
2006-07 Union Budget. The revenue foregone f ate as
th e b an ks in dev el oped
due to tax incentives in 2010-11 is estimated ec on
omies . Th e prob lems of the
at Rs 5,60,276 crore. Such exemptions have advanced
countries should not be
b een j u stified f or prom otin g b al anced imposed on
others
regional growth, dispersal of in dustries, b an ks, as
priv ate entities, would
neutralisation of disadvantages on account of simply push
the added costs onto
location, and incentives to priority sectors, consumers.
including infrastructure . These should be Tax Havens
subject to a sunset clause, as tax exemptions
A tax haven
is a country or territory
often create pressure groups f or their
where certain taxes
are levied at a low rate
perpetuation.
or not at all.
Individuals and/or corporate
While some may be justified as they en tities c an fin d
it attractive to move
enhance investment and generate more taxes th em selves to
areas with reduced or n il
for the government, others are not. taxation levels. This
creates a situation of tax

Such exemptions and concessions can competition among

governments. Different
distort resource all ocati on an d stunt jurisdictions tend to
be havens for different
9 productivity. They also result in a multiplicity
0 types of taxes, and
for different categories of
1

----------------------- Page 114-----------------------

people an d /or c ompanies . For ex ample, incomes on which tax

is imposed. When y

m
income tax, wealth tax or corporate tax etc. ec on omists speak of
th e tax b ase b eing o

o
The important features of a tax haven b roaden ed, they
mean a wi der ran ge of c

E
arte: goods, services,
income, etc. has been made n

a
subject to a tax. In
the case of income tax, the i
nil or nominal taxes;
d

n
tax b ase is taxable
income. Some kin ds of I
l ack of effective exch ange of tax

income are excluded

from the definition of T
inf orm ati on w ith f orei gn tax
R
taxable income, such as
savings. For sales tax, E
authorities, that is, personal finance
C
information is not shared with other the tax base is the
value/volume of items that N

are subj ect to tax;

essen ti al goods, for f
countries
o

example, are not part

of the tax base. t

s
no requirement for a substan tive
i
G
local presence; and Tax rate
self-prom oti on as an offsh ore
financial center. It indicates how
much tax is due from
Switzerlan d, Singapore, the Cayman each source. Some
tax systems have high
Islands, Monaco, Luxembourg an d Hong rates b ut h av e a
narrow b ase all owing
Kong are among 45 territories blacklisted by generous deduction of
business expenses.
the Organisation for Economic Co-operation Other tax systems have
a wide base with few
an d Devel opmen t an d th reatened with exemptions and lower
rates.
punitive financial retaliation for their banking
Tax Shelters
secrecy.

Tax Incidence Any technique

which allows on e to
legally reduce or
avoid tax liabilities. It is a
It sh ows the entity on whom tax us way in which the
taxpayer can invest his
imposed. It is different from the tax burden income in a particular
kind of investment that
as shown below, if government increases tax gives tax concessions.
on petrol, oil companies may absorb it, if Difference
between tax avoidance and
competition is intense or they may pass it on
tax evasion: There are
provisions in the law
to private m otorists . Tax in cidence here
that allow one to save
and invest in a manner
refers is on companies and the burden may
be on the consumer. that leads to reduction
in taxable income, if
these provisions are
used for the benefit, it
Tax Burden is called tax
avoidance. It is lawful to take all
available tax
deductions.
It means those who actually pay taxes
from whom tax is collected. Depending on Tax evasion, on
the other han d, is a
the market forces involved, a tax can be punishable offence.
Tax evasion typically
absorbed by the seller or by the buyer (in the inv olves failin g
to report in come, or
form of higher prices), or by a third party like improperly claiming
deductions that are not
sellers employees in the form of lower wages. authorized.

Tax Base Hidden taxes

0
 Hi dden taxes
are taxes th at are 1
The v alu e of goods, servi ces and
1

----------------------- Page 115-----------------------

a concealed in the price of articles that one Negative Income Tax

i
d
n buys. Hidden taxes are also referred to as
I Subsidy is a
negative income tax. It is a

n implicit taxes. The most well-known form of

i taxation system where
income subsidies are

s the hidden tax is the indirect tax. Examples

t given to persons or
families that are below
e
k of hidden taxes are import duties.
r the poverty line.
The government will send
a
M Differentiate between Proportional, financial aid to a
person who files an income
k progressive and regressive tax?
c tax return reporting
an income below a certain
o
t An important feature of tax systems is level.
S
whether they are proportional tax (the tax as
a percentage of income is constant over all Octroi
income levels), progressive tax (the tax as a Entry 52 of the
State List, VII Schedule,
percentage of income rises as income rises), which specifies tax
on the entry of goods into
or regressive tax (the tax as a percentage of a local area is
the octroi. Octroi has been a
income falls as income rises). Progressive main source of
revenue for most of the urban
taxes reduce the tax incidence on people with local bodies in
India. It is criticized for the fact
smaller incomes, as they shift the incidence that it is an
obsolete method of tax collection
disproportionately to those w ith hi gh er and involves stoppage
of vehicles at the check
incomes. posts outside th
e city limits, th ereby
obstructing a free
flow of vehicular traffic;
Ad Valorem waste of business
hours; loss of fuel etc.

A Latin term meaning according to

Tax Buoyancy
 worth, referring to taxes levied on the basis
of value. Taxes on real estate and personal It refers to
the percentage change in tax
property are ad valorem. Luxury goods are revenue with the
growth of national income.
taxed higher even if they weigh the same or That is grow th b
ased inc rease in tax
number the same as ordinary goods. collections.

Compound duties are a combination of

Tax Elasticity
value and other factors based on which tax
is imposed. Tax
elasticity is defin ed as the
percentage change in
tax revenue in response
Excise Duty to the change in tax
rate and the extension of

Excise duty is a tax on manufacture and coverage. Buoyancy,

on the other hand is the
is levied on the manufacture of goods within response to economic
growth when the base
the country. increases but there
is no change in the rate.

Customs Duty Tax Stability

When goods are imported or exported, It means no

frequ en t ch an ges and
customs duty is imposed and collected by the continuity of
policy in a predictable and
Uni on Govern men t. Peak cu stom s duty transparent manner.
Although revenue from
1 today is 10%. differen t taxes
varies from year to year,
1 revenue stability is
desirable because it makes
1

----------------------- Page 116-----------------------

it easier for a government to build a credible one acquires foreign

exchange, an d again y

m
spending and borrowing plan for the year when one sells the
foreign exchange. o

o
ahead. Taxes whose revenue is relatively The south east
Asian currency crisis c

E
stable contribute to overall revenue stability.

(1997) is attributed
to the dynamics of hot n

a
Market players also can plan better.
i
money (portfolio
investments or FII flows). d

n
Pigovian Tax Tobin tax can be
imposed only if all the I

T
The Pigovian tax is imposed on bodies countries accept the
proposition. Otherwise, R

E
that have a negative externality. For example, FIIs can go to
countries where the tax is not C
pollution . Externality means impact of one imposed.
N

f
person s acti ons on th e well being of an MAT
o

s
outsider (bystan der or th ird party) . For
i
Normally, a
company is liable to pay tax G
example, the seller and consumer of cigarettes
on the income computed in
accordance with
together will harm the third person with
the provisions of the
Income Tax Act, but the
pollution. Example of negative externality is
profit and loss
account of the company is
exhaust fumes from automobiles. Positive
prepared as per
provisions of the Companies
externality refers to a good effect on the third
Act. There were large
number of companies
party. For example, restoration of historic
who show book profits as
per their profit and
buildings, research into new technologies.
loss account (according
to the Companies Act)
Carbon tax is one example in the context of
but do not pay any tax by
showing no taxable
th e n eed to disc ourage fossil fuels and
income as per provisions
of the Income Tax
encourage renewable sources due to climate
act. Although the
companies show b ook
change threat.
profits and may even
declare dividends to the
Tobin Tax?
shareholders, they do not
pay any income tax.
J ames Tobin, economist, proposed a These companies
are popularly known
w orldwide tax on all foreign exch an ge as Zero Tax companies. In
order to bring such
transactions- when foreign capital enters a companies under the
income tax act net, MAT
country and when it leaves. The aim is to was introduced in 1996.
They are required to
check specul ativ e fl ow s . Lon g term
pay MAT at 18.5% (2011-
12).
investment generally FDI, will not suffer
as it does not invest for speculative (short Book profit is
Profit which is notional
term ) reasons like FIIs. m ade b ut n ot yet
realized throu gh a
transaction, such a
stock which has risen in
Tobin Justified the tax on two Grounds value but is still
being held. It is also called
unrealized gain or
unrealized profit or paper
First, it would reduce exchange rate
gain or paper profit.
v ol atility an d improv e m acroecon omic
Presumptive Tax
performance.
Second, the tax could bring in revenue Presumptive Tax
the Estimated Income
to support f or devel opmen t efforts or Method of assessment for
certain categories
exchange rate stabilization. of businesses is
prevalent in several countries.
Presumptive taxation
involves the use of
The defining characteristic of a Tobin
2
indirect means to
ascertain tax liability, which 1
tax is that the tax is levied twice- once when
1

----------------------- Page 117-----------------------

a differ from th e usual rules b ased on the payments including

interest, salaries paid to
i
d
n taxpayers accounts. The term presumptive is employees
professional fee, payments to
I

n u sed to in dic ate that th ere is a legal contractors etc. It

is the same as TDS.
i

s presumption that the taxpayers income is no

t
e Capital Gains Tax
k less than th e am ount resultin g from
r
a
M application of the indirect method. It is the
tax on the gains made from

k The reason for the presumptive tax is buying and selling

assets like land, shares etc.
c
o
t that in a number of businesses the assesses do
S If the gain is
made in the assets held for
not maintain books of accounts or the books
over three year
(one year for shares), it is
of accounts maintained are irregular and
called long term
capital gain and taxed. For
incomplete.
shares, there is no
long term capital gains tax.
It was introduced in India in the early For short term
capital gains (less than one
nineties for traders but was withdrawn as the
year), it is 15%
for shares.
success rate was low.
Laffer Curve Wealth Tax

Developed by Arthur Laffer, this curve When income

accumulates into wealth,
shows the relationship between tax rates and it gets taxed after a
point. Wealth tax is levied
tax revenue collected by governments. only in respect of
specified non-productive

The Laffer curve has been debated in the assets such as

residential houses, urban land,
country since 1997-1998 Budget reduced rates jewellery, bullion,
motor cars etc.
an d slabs in the income tax regime in the
country. Securities
Transaction Tax

Introduced in
the Union Budget 2004-
Inverted Duty Structure
2005, it is a tax
on th evalu e of all the
Higher import duty on the raw materials transactions of
purchase of securities that take
than on th e fin ish ed product are called place in a recognised
stock exchange of India.
inverted duty structure .It puts the domestic It is meant to make
up revenue loss from the
manufacturers at, a disadvantage making abolition of long
term capital gains tax.
them uncompetitive. For instance, compact
fluorescent lamps (CFLs), where the import Transfer Pricing
duty on raw materials for manufacturing
CFLs is 9.7 per cent more than on finished Transfer
pricing involves charging for
bulbs . This skewed duty structure makes goods supplied to
th e sub sidi ary . The
domestic CFL manufacturers uncompetitive. international norm in
this regard is the arms
length principle
which means that when two
Dividend Distribution tax related parties deal
in goods and services,
pricing must be
don e obj ectively and
Companies giving dividend have to pay
tax on the amount distributed as dividend. commercially. If the
principle is not followed,
it means losses
for the govern men t. For
Withholding tax example, an MNC has
a subsidiary in India
3 and elsewhere. The
corporate tax rates are
1 It means withholding of tax from certain
1 high in India.
Therefore, the price of goods

----------------------- Page 118-----------------------

sold by the MNC to the two subsidiaries in Direct Taxes Code Bill,
2010 y

m
the two countries is shown differently higher
o
The direct
taxation of the income of n

o
in India and less in the other country. In that individuals companies
and other entities is c

E
case, Indian subsidiary shows less profit or

governed by the Income

Tax Act, 1961. The n

a
more losses and tax liability (corporate tax)
i
Direct Taxes Code seeks
to consolidate the d

n
is less.
I
law relating to direct
taxes . The Bill will

T
Thus, transfer pricing is generally done replace the Income Tax
Act, 1961, and the R
in a way as to show high profit in countries Wealth Tax Act, 1957.
The Bill widens tax E

C
where the corporate tax rate is low and low sl ab s, an d l ow ers
corporate tax rates . It N

profits /l osses wh ere the rate is h igh. remov es a numb er of

exemptions and f

t
Therefore, transfer pricing norms existing grandfathers some
others. s

i
today need to be rationalise the tax revenues
G
The Bill
replaces the Income Tax Act,
th at are due to th e govern men t are n ot 1961 and the Wealth Tax
Act, 1957.
eroded. Tax evasion and money laundering The Bill widens
income tax slabs for
has to be checked by tightening the transfer individuals income
between Rs 2 lakh to Rs
pricing regime.
5 lakh will be taxed at
10%, between Rs 5 lakh
and Rs 10 lakh at 20%,
and that over Rs 10
Rupee Comes Like This
lakh at 30%.
Th e m aj or pan of the government s Compan ies w ill
b e taxed at 30% of
revenu e c omes from b orrow ings. business income. Foreign
companies shall pay
Consequen tly, th e bi ggest chun k of an additional branch
profits tax of 15%, Non
expenditure is on interest payments. profit organisations are
taxed at 15%.
 Out of ev ery rupee th at en ters the The Bill removes
several tax deductions
govern men t s c offers, 29 paise is from currently allowed for
companies, but retains
borrowings and other debt, with corporation m ost dedu cti ons
current avail ab le to
tax contributing 22 paise an d income tax individuals.
another 12 paise.
The Bill removes
the distinction between
Of the remaining, customs and excise short term and long term
capital gains for all
duties account for 10 paise each, with another assets except
securities listed on stock
10 paise coming from non- tax rev enu e. exchanges.
Service taxes amount to six paise, while non- The w ealth tax
exemption Limit is
debt capital receipts contribute one paise. increased from Rs 15
lakh to Rs 1 crore.

Define Cess
The Bill in
troduc es Gen eral Anti
The term cess is generally used to mean Avoidance Rules to allow
tax authorities to
a tax. It is an additional levy on a tax. It is classify any arrangement
as one entered into
differen t from surcharge as the l atter is for evading taxes.
gen eral while th e f ormer is specific. MAT is at 20% of
book profits
Collections from the latter can be used for any
purpose while cess collections can be used for Key Issues and Analysis
designated ends only- education cess etc. A Draft Direct
Taxes Code, 2009 that 4

----------------------- Page 119-----------------------

a was published for public feedback had the Tax

Administration and Appellate
i
d
n intent of simplifying tax legislati on and Authorities
I

n widening the tax base. The Bill reverses some Under the
Act, the apex authority for
i

s of the provisions of that Draft Code. tax admin

istrati on is the Central
t
e
k Tax exemptions for individuals have Board of
Direct Taxes (CBDT).
 r
a
M been retained while most exemptions for The Bill
introduces a general anti-
k c orporates remov ed. The tax rates f or avoidance
rule. (GAAR), which aims
c
o to plug
loopholes in the law which
t in dividuals have been lowered. The taxes
S h elp tax
payers reduc e th eir tax
paid by corporates will form a greater part
of the governments revenue than earlier. li ab
ility . Th e Commi ssi on er of
Inc ome
Tax c an declare any
The Bill may increase the burden of arran gemen
t b y a tax payer as
c omplianc e in tw o w ays . There are no
impermissible, if in his judgement,
guidelines to indicate in what situations the its main
purpose was to have obtained
Gen eral Anti Av oi danc e Rules will be a tax
benefit.
implemented. Additionally, the Bill requires
inc ome from different units of the same India-Mauritius Tax
Treaty
b u sin ess to c ompute th eir tax liab ility In di a an d
Mauritiu s have a double
separately.
taxation avoidance
treaty (DTAA) under
The Bill retains th e Divi dend which companies of
one country investing in
Distribution Tax and the Security Transaction the other country
are not taxed. It is well-
Tax. These taxes are levied at a uniform rate intentioned but is
being abused. India has
irrespectiv e of the am oun t of income or b een seekin g to
tax c apital gains on
profit, an d go agains t th e prin ciple of companies making
profit in India. Mauritius
progressive taxation of individuals. has agreed to
negotiate and revise the existing

The Bill seeks to tax foreign companies Double Tax ation Av

oidan ce Agreement
if their place of effective management is in (DTAA) with India.
India at any time of the year. It is unclear-as M ore than
40% of total f orei gn
to wh at w ould cons titute effective investmen ts to
In dia origin ate from
management of a foreign company in India. Mauritius .
Authorities here suspect most

Bill makes a number of broad changes these investments

are nothing but treaty
to the way income is taxed under the Income shopping to avoid
paying tax. Capital gains
Tax Act, 1961, These include: is exempted from tax
in Mauritius, and under
Person al incom e Wi dening of the DTAA, a
Mauritian company cannot be
income tax slabs and the removal of taxed in India. The
government has en under
some exemptions; pressure to act
against tax havens, especially
Business and corporate income after the civil
society slammed it for its failure
Removal or grandfathering (phasing to tackle the
issue of black money and tax
out) of most exemptions. evasion. India has
been insisting on taxing all
Tax administration Wider powers gains made by a
Mauritian company here.
5 to prev en t tax ev asi on, an d an India has DTAAs
with 79 countries and
1 increase in certain penalties. is in the process
of negotiating more such
1

----------------------- Page 120-----------------------

agreemen ts to br oaden th e inf orm ati on finance ministry has been

negotiating fresh y

m
sharing mechanism. To give more teeth to its tax treaties with countries
with which has no o

o
tax laws and bring tax evaders to book, the su ch arrangement an d
revising existing c

E
Government has devised a Tax Information treaties where liberal
clauses are replaced

a
Exchange Agreement (TIEA) which is being with more stringent
reporting mechanism to i

n
negotiated with 22 identified tax havens. The avoid any round tripping.
I

R
E

----------------------- Page 121-----------------------

s
n
o
i
t
s
e
u
Q

e
c
i
o
h
C

e
l
p
i
t
l
u
M

Multiple Choice Questions

 1. Self-sufficiency in food, in the true sense (a) SAPTA
(b) APEC
of freedom from hunger, has not been (c) EC
(d) CIS
achieved in India in spite of a more than 3. A consumer
is said to be in equilibrium, if
three-fold rise in foodgrains production (a) he is
able to fulfill his need with a given
over 1950 to 1990. Which of the following level
of income
are the reasons for it? (b) he is
able to live in full comfort with a
A. the green revolution has been restricted given
level of income
to small pockets of the country. (c) he c
an fulfill his needs with out
B. the cost of food is too high compared to
consumption of certain items
the earnings of the poor (d) he is
able to locate new sources of
C. too much emphasis is laid on wheat income
and paddy compared to the coarse 4. A country
is said to be in a debt trap if
grains. (a) it has
to abide by the conditionalities
D. the gains of the green revolution have imposed
by the International Monetary
largely accrued to the cash crop rather Fund
than food crops. (b) it
has to b orr ow to m ake inter est
(a) A, B, and C
payments on outstanding loans
(b) A, B, and D (c) it
has been refused loans or aid by
(c) A, C, and D (d) B, C, and D
creditors abroad
2. They are fantastically diverse. They speak (d) the
World Bank charges a very high
hundreds of languages and dialects. They rate of
interest on outstanding as well
comprise scores of ethnic groups. They as new
loans
include highly industrialized economics 5. A
redistribution of income in a country can
and up-and-coming economies. They span be best
brought about through
half the surface of the earth and tyre home (a)
progressive taxation combined with
to two-fifths of the worlds population.
progressive expenditure
7 The group of countries referred to here (b)
progressive taxation combined with
1 belongs to:
regressive expenditure
1

----------------------- Page 122-----------------------

 (c) regressive taxation combined with (a) A, B,
C, D (b) B, A, C, D y
regressive expenditure (c) C, B,
A, D (d) C, A, B, D m

o
11. Bank Rate implies
the rate of interest n
(d) regressive taxation combined with
o

c
progressive expenditure (a) paid by the
Reserve Bank of India on E
6. A rise in SENSEX means the deposits
of commercial banks. n

a
(a) a rise in prices of shar es of all (b) char ged b
y b anks on loan s and i

d
advances
n
companies registered with Bombay
I

Stock Exchange (c) payable on

bonds T
(b) a rise in price of sh ar es of all (d) at which
the Reserve Bank of India R

E
companies registered with National discounts the
Bills of Exchange C
Stock Exchange 12. Capital Account
Convertibility of the N

(c) an overall rise in prices of shares of Indian Rupee

implies f

group of companies registered with (a) that the

In dian Rup ee c an be t

s
Bombay Stock Exchange exchanged by
the authorized dealers i

G
(d)a rise in prices of shar es of all for travel
companies belonging to a group of (b) that the
In dian Rup ee c an be
companies registered with Bombay exchanged for
any major currency for
 Stock Exchange the purpose
of trade in goods and
7. A zero rate of inflation obtains necessarily services
in a year where the annual rate of inflation (c) that the
In dian Rup ee c an be
(a) in every week of the year is zero exchanged for
any major currency for
(b) is failing in every week of the year the purpose
of trading financial assets
(c) is both falling and rising in a year (d) none of the
above
(d) is constant in every week of the year 13. Consider the
following.
8. With reference to the Wholesale Price Index A. Industrial
Finance Corporation of India
(WPI) consider the following statements: B. Industrial
Cr edit an d Inv estment
1. the new WPI series with base 1993 to Corporation
of India
1994 = 100 became effective from April C. Industrial
Development Bank of India
1998. D. Unit Trust of
India
2. in the new WPI series, the weight for The correct
sequence in which the
primary articles has gone down by 10 above were
established is
per cent points (a) A, B,
C, and D
3. the weight for electricity has increased (b) A, C,
B, and D
in the new WPI series (c) D, C, B
and A
(d) A, D,
C, and B
Which of these statements are correct?
14. Consider the
following.
(a) 1, 2, and 3 (b) 2 and 3
(c) 1 and 3 (d) I and 2 A. Market
borrowing
9. Agricultural income tax is assigned to the B. Treasury
bills
State Government by C. Special
securities issued to RBI
(a) the Finance Commission Which of
these is/are component(s) of
internal
debt?
(b) the National Development Council
(a) A only
(b) A and B
(c) the Inter-state Council
(c) B only
(d) A, B, and C
(d) the Constitution of India
15. Consider the
following.
10. Arrange the following states in descending A. Currency with
the public
order with respect to urban population. B. Demand
deposits with banks
Choose your answer from the following C. Time deposits
with banks
codes. Which of
these are included in Board
A. Tamil Nadu B. Uttar Pradesh Money (M3) in
India?
C. Maharashtra D. West Bengal (a) A and B
(b) A and C 8

1
(c) Band C
(d) A, B, and C 1

----------------------- Page 123-----------------------

s 16. C on sider the follow in g financial

Distribution System (TPDS), wheat and
n
o institutions of India: rice are
issued by the Government of
i
t
s A. Industrial Finance Corporation of India India at
uniform Central issue prices to
e
u (IFCI) the
States/Union Territories.
Q
B. Industrial Cr edit an d Inv estment Which of
the statements given above
e
c is/are
correct?
i Corporation of India (ICICI)
o (a) A
and B (b) B only
h C. Industrial Development Bank of India
C (IDBI) (c) A
and C (d) C only
e 20. Consider the
following statements.
l D. National Bank of Agriculture and
p
i A. Reserve
Bank of India was nationalized
t Rural Development (NABARD)
l
u The correct chronological sequence of on 26
January 1950.
M the establishment of these institutions B. The b
orrowin g programme of the
is
Government of India is handled by the
(a) A, B, C, D (b) B, C, D, A
Department of Expenditure, Ministry of
(c) C, D, A, B (d) D, A, B, C Finance.
 17. Consider the following organizations: Which of
the statements given above
A. International Bank for Reconstruction is/are
correct?
and Development (a) A
only (b) B only
B. International Finance Corporation (c)
Both A and B(d) neither A nor B
C. International Fund for Agricultural 21. Consider the
following statements.
Development A. The Oil
Pool Account of Government of
D. International Monetary Fund India was
dismantled with effect from
Which of these are agencies of the 1, April
2002
United Nations? B. Sub
sidies on PD S ker osene and
(a) A and B (b) Band C dome stic
LPG ar e b orne by
(c) C and D (d) A, B, C, and D
Consolidated Fund of India
18. Consider the following statements. C. An expert
committee headed by Dr R.A.
Most internationals agencies which fund Mashelkar
to formulate a national auto
development programmes in India on fuel
policy recommended that Bharat
inter-government bilateral agreements State-II
Emission Norms should be
mainly provide: applied
throughout the country by 1
A. Technical assistance April
2004.
B. Soft loans which are required to be paid Which of
the statements given above
back with interest are
correct?
C. Grants, not required to be paid back (a) A
and B (b) B and C
(c) A
and C (d) A, B, and C
D. Food assistance to alleviate poverty
(a) B and D are correct 22. Consider the
following statements.
(b) 1, 2, and C are correct The
objectives of the National Renewal
(c) A, B, and D are correct Fund set
up in February 1992 were
(d) C and D are correct A. to give
training and counselling for
19. Consider the following statements workers
affected by retrenchment or
A. Regar din g the pr ocur ement of VRS.
foodgr ain s, Gov ernment of In dia B.
redeployment of workers
follows a procurement target rather Which of
these st atements is /are
th an an open-ended pr ocurement correct?
 policy. (a)
neither A nor B(b) both A and B
B. Gov ernment of In dia ann ounces (c) A
only (d) B only
minimum support prices only for 23. Consider the
following statements.
cereals A. The loans
disbursed to farmers under
9 C. For distribution under Targeted Public Kisan
Credit Card Scheme are covered
1
1

----------------------- Page 124-----------------------

under Rashtiya Krishi Bema Yojna of otherwise

may not find employment y

m
Life Insurance Corporation of India avenues
elsewhere o

n
B. The Kisan Credit Card holders are Which of
the ab ove statements are o

c
provided personal accident insurance correct?
E

of Rs 50, 000 for accidental death and (a) A and D

(b) A and B n

a
Rs 25,000 for permanent disability (c) B and C
(d) C and D i

d
27. Consider the
following statements. n
Which of the statements given above
I

is/are correct? A. The Wo rld

Intellectual Pr op erty T
(a) A only (b) B only Organization
(WIPO) is a specialized R

E
(c) both A and B(d) Neither A nor agency of
United Nations System of C
B Organization
N

24. Consider the following statements. B. WIPO has its

headquarters at Rome f
o
A. there is persistent investment over time C. The Trade
Related A sp ect s of t

s
only in select locals Intellectual
Property Rights (TRIPS) i

G
B. some areas are agro-climatically less Agreement is
binding on all WTO
conducive to development members
C. some areas continue to face little or no D. Least
developed country members of
agrarian tran sform ation an d the WTO are not
required to apply the
consequent lack of social and economic provisions
of TRIPS agreement for a
opportunities period of 20
years from the general date
D. some areas have faced continuous of
application of the agreement.
political instability Which of
these statements are correct?
Which of the ab ove statements are (a) A, B,
C, and D(b) B, C, and D
correct? (c) A, C,
and D (d) A and C
(a) A, B, and C (b) A, B, and D 28. Consider the
following statements.
(c) A, C, and D (d) B, C, and D A. India ranks
first in the world in fruit
25. Consider the following statements. production.
A. National Thermal Power Corporation B. India ranks
second in the world in the
has diversified into hydropower sector export of
tobacco.
B. Power Grid Corporation of India has Which of
these st atements is /are
diversified in telecom sector correct?
Which of the statements given above (a) Only A
(b) Only B
is/are correct? (c) both A
and B(d) neither A nor B
(a) A only (b) B only 29. Consider the
following statements.
(c) both A and B(d) neither A nor B The price
of any curr ency in
26. Consider the following statements. international
market is decided by the
Small-scale industries are in most cases, A. World Bank
not as efficient and competitive as the B. demand for
goods/services provided
large-scale ones. Y et the government by the
country concerned
pr ov ides preferential treatment and C. stab ility
of the government of the
reservations in a range of products to the concerned
country
small firms because small-scale industries D. economic
potential of the country in
A. provide higher employment on a per question of
these statements
unit capital development basis (a) A, B,
C, and D are correct
B. prom ote a r egion al disp er sion of (b) B and C
are correct
industries and economic activities (c) C and D
are correct
(d) A and D
are correct
C. have performed better in export on
30. Consider the
following statements.
manufactured products than the large
scale ones A. The National
Housing Bank, the apex
institution
of housing finance in India, 0
D. provide jobs to low-skill workers, who
2

----------------------- Page 125-----------------------

s w as set up as a wholly-owned (a)

Band D (b) A and C
n
o subsidiary of the Reserve Bank of India. (c) C
and D (d) A, B, and C
i
t
s B. The Small Industries Development 34. Consider the
following statements.
e
u Bank of India was established as a A. Damodar
Valley Corporation is the first
Q
whollyowned sub sidiary of the
multipurpose river valley proj ect of
e
c Industrial Development Bank of India.
independent India
i
o Which of the statements given above B. Damodar
Valley Corporation includes
h
C is/are correct? thermal
and gas power stations

e Which
of the statements given above
l (a) A only (b) B only
p
i (c) both A and B is/are
correct?
t
l (d) neither A nor B (a) A
only (b) B only
u
M 31. Consider the following statements. (c)
both A and B(d) neither A nor B
Full convertibility of the rupee may 35. Consider the
following statements: India
mean continues to
be dependent on imports to
A. its free float with other international meet the
requirement of oilseeds in the
currencies country
because
B. its direct exchange with any other A. farmers
prefer to grow foodgrains with
internation al currency at any highly
remunerative support prices
prescribed place inside and outside the B. most of
the cultivation of oilseed crops
country
continues to be dependent on rainfall
C. it acts just like any other international C. oils
from the seeds to tree origin and
currency rice
bran have remained unexploited
Which of these statements are correct? D. it is
far cheaper to import oilseeds than
(a) A and B to
cultivate the oilseed crops
(b) A and C Which
of the statements given above
(c) B and C (d) A, B, and C are
correct?
32. Consider the following statements. (a) A
and B
The Indian Rupee is fully convertible (b) A,
B, and C
A. in respect of current account of balance (c) C
and D (d) A, B, C, and D
of payment 36. Consider the
following taxes.
B. in respect of capital account of balance A.
Corporation tax B. Customs duty
of payment C. Wealth
tax D. Excise duty
C. into gold Which of
these is/are indirect taxes?
Which of these st atements is /are (a) A
only (b) Band D
correct? (c) A
and C (d) B and C
(a) A alone (b) B alone 37.
Convertibility of the rupee implies
(c) A and B (d) A, B, and C (a) being
able to convert rupee notes into
33. Consider the following statements about gold
the European Union. (b)
allowing the value of the rupee to be
 A. The Eur op ean Union wa s kn own fixed by
market forces
earlier as the European Community (c) freely
permitting the conversation of
B. The Single European Act (1986) and the rupee
of other maj or currencies and
Maastricht Treaty were milestones in its vice
versa
formation (d)
developing an international market for
C. Citizens of European Union countries
currencies in India
enjoy dual citizenship 38. Corporation
tax
D. Switzerlan d is a memb er of the (a) is
levied an d appropriated by the
European Union States
Which of the ab ove statements are (b) is
levied by the Union and collected
1 correct? and
appropriated by the States
2
1

----------------------- Page 126-----------------------

(c) is levied by the Union and shared by compulsory

pre-shipment inspection of y

m
the Union and the States various
exportable commodities o

n
(d) is levied by the Union and belongs to it Which of
these st atements is /are o

c
exclusively correct?
E

39. Debenture holders of a company are its (a) A only

(b) A and B n

a
(a) shareholders (b) creditors (c) B and
C (d) C only i

d
44. Euro dollars are:
n
(c) debtors (d) directors
I
40. Devaluation of a currency means (a) a currency
issued b y Eur opean T
(a) reduction in the value of a currency Monetary
Union R
E
vis-a-vis major internationally traded (b) special
currency issued by federal C
currencies government
of USA to be issued only in N

(b) permitting the currency to seek its Europe

f

worth in the international market (c) US dollars

circulating in Europe t

s
(c) fixing the value of the currency in (d) European
currencies exchanged for the i

G
conjunction with the movement in the US dollar in
US
value of a basket of predetermined 45. Fiscal deficit in
the Union Budget means
currencies (a) the sum of
budgetary deficit and net
(d) fixin g the v alue of a currency in increase in
internal an d ext ern al
multilateral consultation with the IMF, borrowings
the World Bank, and maj or trading (b) the differ
ence b etween current
partners expenditure
and current revenue
41. Economic liberalization in India started (c) the sum of
monetized deficit and
with budgetary
deficit
(a) sub st antial chan ges in in dustrial (d) net increase
in Union Governments
licensing policy borrowings
from the Reserve Bank of
(b) the convertibility of Indian rupee India
(c) doing away with procedural formalities 46. Five-Year Plan in
India is finally approved
for foreign direct investment by
(d) significant reduction in tax rates (a) Union
Cabinet
42. Economic survey in India is published (b) President
on the advice of Prime
officially, every year by the Minster
(a) Reserve Bank of India (c) Planning
Commission
(b) Planning Commission of India (d) National
Development Council
(c) Ministry of Finance, Government of 47. From the balance
sheet of a company, it is
India possible to
(d) Ministry of Industries, Government of (a) judge the
extent of profitability of the
India company
43. W ith r efer ence t o the Publi c Sect or (b) assess the
profitability and size of the
Un dert akin gs in In dia, con sider the company
following statement: (c) determine
the size and composition of
A. Miner als and M etals Tr ading the asset
s an d liabil ities of the
Corporation of India Limited is the company
largest non-oil importer of the country (d) determine the
market share, debts, and
B. Project and Equipment Corporation of assets of
the company
India Limited is under the Ministry of 48. Gilt-edged market
means
Industry (a) bullion
market
C. One of the objectives of Export Credit (b) market of
government securities
Guarantee Corporation of India Limited (c) market of
guns
is t o enforc e quality c ontr ol and (d) market of
pure metals 2

----------------------- Page 127-----------------------

s 49. Glob al c apit al-flows t o developing 54. In India,

the first bank of limited liability
n
o countries increased significantly during
i managed by
Indians and founded in 1881
t
s the nineties. In view of the East Asian was
e
u financial crisis an d L atin Americ an (a)
Hindustan Commercial Bank
Q
e experience, which type of inflow is good for (b) Oudh
Commercial Bank
c
i the host country? (c) Punjab
National Bank
o
h (a) Commercial loans (d) Punjab
and Sind Bank
C
e (b) Foreign Direct Investment 55. In the last
one decade, which one among
l (c) Foreign Portfolio Investment the
following sectors has attracted the
p
i
t (d) External Commercial Borrowings highest
foreign direct investment inflows
l
u
M 50. In an open economy, the national income into India?

(Y) of the economy is: (a)

chemicals other than fertilizers
(C, I, G, X, M stand for Consumption, (b)
services sector
Investment, Government Expenditure, total (c) food
processing
export, and total imports, respectively). (d)
telecommunication
(a) Y = C + I + G + X 56. In the
year 200 1, the Prime Minister
(b) Y = C + I + G X + M announced a
5-year excise duty holiday for
(c) Y = C + I + G(X M) (d) industries
in
Y = C + I G + X M (a)
cyclone-prone coastal Andhra Pradesh
51. In India the public sector is the most (b) border
states of northeast
dominant in (c)
earthquake-ravaged Kutch district
(a) steel production (d)
recently formed states of Chhattisgarh
(b) or ganized term-en ding fin ancial and
Jharkhand
institution 57. In which
one of the follow ing crops
(c) transport
international trade is low in the context of
(d) commercial banking total
produce?
52. In India, inflation is measured by the (a) rice
(b) coffee
(a) Wholesale Price Index number (c) rubber

(b) Consumers Price Index for urban non- (d) wheat

manual workers 58. Match List
I with List II and select the
(c) Consumers Price Index for agricultural correct
answer.
workers List I
List II
(d) National Income Deflation
(Committees) (Chaired by)
53. In India, rural incomes are generally lower A.
Disinvestment 1. Rajah of shares in
than the urb an incomes, which of the public
sector Chelliah
following reasons account for this?
enterprises
A. A large number of farmers are illiterate B.
Industrial 2. Onkar
and know little ab out scientific
sickenss Goswami
C. Tax
reforms 3. R N Malhotra
agriculture
B. Prices of primary products are lower D. Reforms
in 4. C Rangarajan

insurance sector
than those of manufactured products Codes:
C. Investment in agriculture has been low A B
C D
when c omp ared t o inv estment in
(a) 1 4
2 3
industry
Codes: (b) 4 2
1 3
(c) 4 1
2 3
(a) A, B, and C
(d) 1 3
4 2
(b) A and B
59. Match List
I with List II and select the
(c) A and C
3 correct
answer:
2 (d) B and C
1

----------------------- Page 128-----------------------

List I List II Economic

y
(Commodities (Country of Research
m

o
C. Indira Gandhi
3. World Institute of n
exported destination)
o
Development
Development c
from India)
E
Research
Report
A. Iron ore 1. Russia
n
D. World Bank
4. Human a
B. Leather 2. USA goods
i

Development d

n
C. Tea 3. Japan
I
Report
D. Cotton 4. UK fabrics Codes:
T
5. Canada A B C
D R

E
Codes: (a) 4 1 2
3 C
A B C D (b) 4 2 1
3 N

(a) 5 1 2 3 (c) 2 3 4
1 f

(b) 3 1 4 2 (d) 2 1 4
3 t

s
(c) 1 5 4 3 62. Match List I with
List II and select the i

G
(d) 3 4 1 2 correct answer
using the codes given
60. Match List I with List II and select the below.
correct answer using the codes given List I
List II
below. A. WTO
1. provides loans to
List I List II
address short-
A. Fiscal 1. excess of total
term balance of
deficit expenditure
payment
over total receipts
problems
B. Budget 2. excess of B. IDA
2. multilateral trade
deficit revenue

negotiation body
expenditure over C. IMF
3. sanction of soft
revenue receipts
loans
C. Revenue 3. excess of total
deficit expenditure over D. IBRD
4. f a c i l i t a t i n g
total receipts less lending
and borrowing for
borrowings
r e c o n s t r u c t i on
 D. Primary 4. excess of total and
development
deficit expenditure over Codes:
total Receipts less A B C
D
borrowings and (a) 2 3 4
1
interest payments (b) 2 3 1
4
Codes: (c) 3 2 4
1
A B C D (d) 3 2 1
4
(a) 3 1 2 4 63. Match List-I with
List-II and select the
(b) 4 3 2 1 correct answer
using the codes given
(c) 1 3 2 4 below.
(d) 3 1 4 2 List-I
List-II
61. Match List I with List II and select the
A. Boom
1. business activity
correct answer using the codes given at
high level with
below.
List I List II
i n c r e a s i n g
A. Development 1. UN India income,
output and
Programme Human
employment at
Development
macro
Report B. Recession
2. gradual fall of
B. National 2. India
inc ome output
Council of Development and
employment with

4
Applied Report
business activity 2

----------------------- Page 129-----------------------

s in low gear (c) Net

Domestic Product at market price
n
o C. Depression 3. un p r e ce d en t ed (d) Net
Domestic Product at factor cost
i
t
s level of under 68. Nobel Prize
in Economics for the year 1997
e
 u employment and was awarded
for contribution in the area
Q unemployment,
of
e drastic fall in
c
i (a)
International Economics
o income, output
h (b)
Financial Economics
C and employment (c) Public
Economics
e D. Recovery 4. steady rise in the
l (d)
Development Economics
p general level of
i
t 69. One of the
reasons for Indias occupational
l prices, income,
u structure
remaining more or less the same
M output, and
employment over the
years has been that
Codes: (a)
investment pattern has been directed
A B C D towards
capital intensive industries
(a) 1 2 3 4 (b)
productivity in agriculture has been
(b) 1 2 4 3 high
enough to induce people to stay
(c) 2 1 4 3 with
agriculture
(d) 2 1 3 4 (c)
Ceiling on land holdings have enabled
64. Match the following pairs and choose the more
people to own land and hence
answer from the codes below. their
preference to stay with agriculture
Plans Year (d) People
are largely unaware of the
(1) First A. 1956 to 1961
signific ance of tr ansition fr om
(2) Second B. 1980 to 1985
agriculture to industry for economic
(3) Third C. 1961 to 1966
development
(4) Fourth D. 1985 to 1990 70. Persons
below the poverty line in India are
(5) Fifth E. 1951 to 1956 classified
as such based on whether
(6) Sixth F. 1974 to 1979 (a) they
are entitled to a minimum
(7) Seventh G. 1969 to 1974
prescribed food basket
(8) Eighth H. 1992 to 1997 (b) they
get work for a prescribed minimum
Codes: number
of days in a year
(a) 1-E, 2-A, 3-C, 4-G, 5-F, 6-B, 7-D, 8-H (c) they
belong to agricultural labourer
(b) 1-A, 2-B, 3-C, 4-D, 5-E, 6-P, 7-G, 8-H
household and the scheduled caste/
(c) 1-A, 2-C, 3-E, 4-G, 5-H, 6-F, 7-D, 8-B tribe
social group
(d) 1-H, 2-G, 3-F, 4-E, 5-D, 6-C, 7-B, 8-A (d) their
daily w ages fall b elow the
65. Most Favoured Nations (MFN) clause
prescribed minimum wages
under GATT implies 71. Arrange put
the main sources of revenue of
(a) most favour to some countries the
Central Government in ascending
(b) most favour to all countries order of
importance.
(c) no favour to any country A. Income
tax
(d) no favour to some countries B.
Corporate tax
66. National Agricultural Insurance Scheme C. Customs
D. Excise duties
replacing Comprehensive Crop Insurance Choose
your answer from the following
Scheme was introduced in the year codes.
(a) 1997 (a)
A, B, C, D (b) C, B, D, A
(c)
D, C, A, B (d) D, C, B, A
(b) 1998
(c) 1999 (d) 2000 72. Resurgent
India Bonds were issued in US
67. National Income is the dollar,
Pound Sterling, and
(a) Net National Product at market price (a)
Japanese Yen (b) Deutsche Mark
5 (b) Net National Product at factor cost (c) Euro
(d) French Franc
2
1

----------------------- Page 130-----------------------

73. The schemes of Urban Micro-Enterprises, replaced by

a command hierarchy, y

m
Urban Wage Employment and Housing, while in
the c ase of in dic ative o

n
and Shelter Upgradation are part of planning, it
is looked upon as a way to o

c
(a) Integrated Rural Dev elopment improve the
functioning of market E

Programme system.
n

a
(b) in the case
of indicative planning there i
(b) Nehru Rozgar Yojana
d

n
(c) Jawahar Rozgar Yojana is no need
to nationalize any industry I
(d) Prime Ministers Rozgar Yojana (c) in the
case of imperative planning all T
74. Since 1980, the share of the tertiary sector in economic
activities belong to public R

E
the total GDP of India has sector,
while in the other type they C
(a) shown an increasing trend belong to
the private sector N
(d) it is
easier t o achiev e t arget s in f
(b) shown a decreasing trend
o

imperative
type of planning t
(c) remained constant
s

i
(d) been fluctuating 81. The c oncept
of j oint sect or implies G
75. Some time back, the Government of India, cooperation
between
decided t o delicen se white goods (a) publi c
sect or an d private sector
industry, white goods include industries
(a) stainless steel and aluminium utensils (b) State Gov
ernment an d Central
(b) milk and milk products Government
enterprises
(c) items purch ased for c on spicuous (c) domestic and
foreign industries
consumption (d) none of
these
(d) soap s, deter gents an d other mass 82. The currency
of the European Monetary
consumption goods Union is
76. The accounting year of the Reserve Bank of (a) Dollar
(b) Euro
India is (c) Guilder
(d) Mark
 (a) April-March (b) July-June 83. The current
price index (b ase 1960) is
(c) October-September nearly 330.This
means that
(d) January-December (a) all items
cost 3-3 times more than what
77. The average rate of domestic savings they did in
1960
(gross) for the Indian economy is currently (b) the prices
of certain selected items have
estimated to be in the range of gone up to
3-3 times
(a) 15 to 20 per cent (b) 20 to 25 per cent (c) weighted
mean of prices of certain
(c) 25 to 30 per cent (d) 30 to 35 per cent items has
increased 3-3 times
78. The average rate of domestic savings (d) gold price
has gone up 3-3 times
84. The difference
between a bank and a non-
(gross) for the Indian economy is currently
estimated to be in the range of banking
financial institution (NBF) is that
(a) 15 to 20 per cent (b) 20 to 25 per cent (a) a b ank
inter acts dir ectly with
customers
while an NBFI interacts
(c) 15 to 30 per cent (d) 30 to 35 per cent
79. The b anks are required to maintain a with banks
and governments
certain ratio between their cash in hand (b) a b ank
in dulges in a numb er of
and total assets. This is called activities
relating to finance with a
range of
customers, while an NBFI is
(a) SBR (Statutory Bank Ratio)
mainly
concerned with the term loan
(b) SLR (Statutory Liquid Ratio)
needs of
large enterprises
(c) CBR (Central Bank Reserve)
(c) a bank
deals with both internal and
(d) CLR (Central Liquid Reserve)
international customers while an NBFI
80. The basic difference between imperative
is mainly
concerned with the finances
and indicative planning is that
of foreign
companies
(a) in the case of the imperative planning (d) a banks
main interest is to help in 6
the market mech anism is entirely
2

1
----------------------- Page 131-----------------------

s business transactions and savings/ (d) the

L ar ge Sc ale Multi-purpose
n
o investment activities while an NBFIs
Adivasis Programme, DCCB, IFFCO
i
t
s main interest is in the stabilization of and
commercial banks
e
u the currency 90. The
following table shows the percentage
Q
85. The earlier name of WTO was
distribution of revenue expenditure of
e
c (a) UNCTAD (b) GATT
i Government
of India in 1989-1990 and
o
h (c) UNIDO (d) OECD 1994-1995:

C
86. The earnings of India from diamond export
Expenditure Head (Per cent to total)
e
l is quite high. Which one of the following Years
Defence Interest Sub- Grants Others
p
i
Pay sidies to States
t factors has contributed to it?
l
ments /UTs
u (a) pre-indepen dence stock-pilin g of
M 1989-1990 15 .1
27.7 16 .3 13 .6 27.4
diamonds in the country which are
1994-1995 13 .6
38 .7 8.0 16.7 23 .0
now exported
(b) large pr oduction of in dustrial Based
on this table, it can be said that
diamonds in the country the
Indian economy is in poor shape
(c) expertise available for cutting and b
ecause the Centr al Government
polishing of imported diamonds which
continues to be under pressure to:
are then exported (a)
reduce expenditure on defence
(d) as in the past, India produces huge (b) sp en
d m or e and more on interest
quantity of gem diamonds which are
payments
exported (c)
reduce expenditure on subsidies3
87. The Employment A ssur ance Scheme (d) spend
more and more as grants-in-aid
envisages financial assistance to rural to
State Government/Union Territories
areas for guaranteeing employment to at 91. The
growth rate of per capita income at
least current
prices is higher than that of per
(a) 50 per cent of the men and women capita
income at constant prices, because
seeking jobs in rural areas the latter
takes into account the rate of
(b) 50 per cent of the men seeking jobs in (a)
growth of population
the rural areas (b)
increase in price level
(c) one man and one women in a rural (c) growth
of money supply
family living below the poverty line (d)
increase in the wage rate
(d) one p erson in a rural lan dless 92. The gr ow
th r ate of which one of the
household living below the poverty following
sectors has very low employment
line
elasticity?
88. The Employment Guarantee Scheme, a (a)
manufacturing (b) construction
rural work programme, was first started in (c)
financial services (d) mixed farming
(a) West Bengal (b) Punjab 93. The latest
regional economic bloc to be
(c) Kerala (d) Maharashtra formed is
89. The farmers are provided credit from a (a) ASEAN
(b) COMECON
number of sources for their short- and long- (c) APEC
(d) NAFTA
term needs. The main sources of credit to 94. The main
function of the IMF is to
the farmers include (a)
manage international deposits from
(a) the Primary Agricultural Co-operative banks
Societies, commercials banks, RRBs (b) help
to solve b alance of payments
and private money lenders
problems of member countries
(b) the NABARD, RBI, commercial banks (c) act
as a private sector lending arm of
and private money lenders the
World Bank
(c) the District Central Cooperative Banks (d)
finance investment loan s to
7 (DCCBs), the lead banks, IRDP and JRY
development countries
2
1

----------------------- Page 132-----------------------

 95. The main reason for low growth rate in population
control and welfare y

m
India, in spite of high rate of savings and (d) the nations
priorities have shifted o

n
capital formation is away from
industrial development to o

c
(a) high birth rate rural
development E

(b) low level of foreign aid 101. The prices at

which the government n

i
(c) low capital/output ratio purchases
foodgrains for maintaining the d

n
(d) high capital/output ratio public
distribution system and for building I
96. The Minimum Alternative Tax (MAT) was up buffer-stock
is known as (2001) T

R
introduced in the Budget of the Government (a) minimum
support prices E
of India for the year (1997) (b) procurement
prices C
(a) 1991 to 92 (b) 1992 to 93 (c) issue prices
(d) ceiling prices N

f
(c) 1995 to 96 (d) 1996 to 97 102. The sum of
which of the following o

t
97. The m ost appr opriate measur e of a constitutes Broad
Money in India? s

i
countrys economic growth is its A. currency with
the public G
(a) Gross Domestic Product B. demand
deposits with banks
(b) Net Domestic Product C. time deposits
with banks
(c) Net National Product D. other
deposits with RBI
(d) Per Capita Real Income Codes:
98. The Narasimham Committee for financial (a) A and B
(b) A, B, and C
Sector Reforms has suggested reduction in (c) A, B, C, and
D (d) A, B, and D
(a) SLR and CRR 103. The supply-side
economics lays greater
(b) SLT, CRR, an d Priority Sect or emphasis on the
point of view of
Financing (a) producer
(b) global economy
(c) SLT and financing to capital goods (c) consumer
(d) middle-man
sector 104. The Swarn a Ja
yanti Sh ah ari Rozgar
(d) CRR, Priority Sector financing, and Yojana which came
into operation from 1
Financing to capital goods sector December 1997
aims to provide gainful
99. The new series of Wholesale Price Index employment to the
urban unemployed or
(WPI) released by the Government of India underemployed
poor but does not include:
is with reference to the base prices of (a) Nehru Rozgar
Yojana
(a) 1981 to 1982 (b) 1990 to 1991 (b) Urban Rozgar
Yojana
(c) 1993 to 1994 (d) 1994 to 1995 (c) Prime
Ministers Integrated Urban
100. The planning process in the industrial Poverty
Eradication Programme
sector in India has assumed a relatively (d) Prime
Ministers Rozgar Yojana
less important position in the nineties as 105. The term National
Income represents
compared to that in the earlier period. (a) gross
national product at market prices
Which one of the following is not true in minus
depreciations
this regard? (b) gross
national product at market prices
(a) w ith the adv ent of lib er alization, minus
depreciation plus net factor
industrial investments/development income from
abroad
have largely been placed within the (c) gross
national product at market prices
domain of private and multinational minus
depreciation and indirect taxes
sectors plus
subsidies
(b) with markets assuming a central place, (d) gross
national product at market prices
the role of central planning in many minus net
factor income from abroad
sectors has been rendered redundant 106. There was no
independent development of
(c) the focus of planning has shifted to industries in
India during British rule
sect or s like human resource because of the
dev elopment, infr astructure, (a) absence of
heavy industries 8

----------------------- Page 133-----------------------

s (b) scarcity of foreign capital Codes:

n
o (c) scarcity of natural resources (a) A, B,
C, and D (b) B, C, and D
i
t
s (d) preference of the rich to invest in land (c) A and
D (d) A and B
e
u 107. To know whether the rich are getting richer 112. Which of
the following are the objectives of
Q
and the poor getting poorer, it is necessary the
Commission for Agricultural Costs and
e
c
i to compare Prices
(CACP) ?
o
h (a) the wholesale price index over different A. To
stabilize agricultural prices
C
periods of time for different regions B. To
ensure meaningful real income
e
l (b) the distrib ution of inc ome of an levels
to the farmers
p
i
t identical set of income recipients in C. To
protect the interest of the consumers
l
u different period of time by
providing essential agricultural
M
(c) the distribution of income of different c omm
odities at r eason ab le r ates
sets of income recipients at a point of through
public distribution system.
time D. To
ensure m aximum price for the
(d) the availability of foodgrains among farmer
two sets of people, one rich and the (a) A, B,
and C (b) A, B, and D
other poor, over different period of time (c) A, C,
and D (d) B, C, and D
108. To prevent recurrence of scams in Indian 113. Which of
the follow in g c ommittees
Capital Market, the Government of India examined
and suggested financial sector
has assigned regulatory powers to reforms?
 (a) SEBI (b) RBI (a) Abid
Hussain Committee
(c) SBI (d) ICICI (b)
Bhagwati Committee
109. Tourism industry in India is quite small (c)
Chelliah Committee
compared to many other countries in terms (d)
Narasimham Committee
of Indias potential and size. Which one of 114. Which
of the follow in g is n ot a
the following statements is correct in this
recommendation of the task force on direct
regard? taxes under
the chairmanship of Dr Vijay
(a) Distances in India are too far apart and Lkelkar in
the year 2002?
its luxury hotels are too expensive for (a)
abolition of Wealth Tax
Western tourists? (b)
increase in the exemption limit of
(b) For most of the months India is too hot
personal income to Rs 1.20 lakh for
for Western tourists to feel comfortable widows
(c) Most of the picturesque resorts in India (c)
elimination of standard deduction
such as in the northeast and Kashmir (d)
exemption from tax on dividends and
are, for all practical purposes, out of capital
gains from the listed equity
bounds 115. Which of
the following is true regarding the
(d) In India, the infrastructure required for Jawaharlal
Rozgar Yojana (JRY)?
attracting tourists is inadequate (a) it
was launched during the Prime
110. Variable reserve rates and Open Market
Ministership of Indira Gandhi
Operations are instruments of (b) it
aims at creating one million j obs
(a) Fiscal Policy (b) Monetary Policy
annually
(c) Budgetary Policy (d) Trade Policy (c) the
target group of JRY are the urban
111. Which of the following are the main causes poor
living below the poverty line
of slow rate of growth of per capita income (d) under
the scheme 30 per cent of the
in India?
employment general is reserved for
A. High capital-output ratio women
B. High rate of growth of population 116. Which of
the follow in g is w r ongly
C. High rate of capital formation matched?
9 D. High level of fiscal, deficits (a)
National Institute of Animal Genetics-
2
1 Karnal

----------------------- Page 134-----------------------

 (b) Indian Institute of Sugarcane Research- C. in the field
of textiles, it reiterates the y

m
Lucknow operations
of the multifibre agreement o

n
(c) Central Institute of Coastal Engineering D. the pr op
osals hav e alr eady been o

c
for Fisheries-Bangalore accepted by
the Parliament E

(d) Centr al Duck Br eedin g Farm - Choose your

answer from the following n

a
Chikmagalur codes.
i

d
(a) A only
n
117. Which of the following pairs are correctly
I
matched: (b) A and
B only T

A. Dow Jones : New York (c) A, B,

and D only R
(d) C and
D only E
B. Hang-Seng : Seoul
C
C. FTSE-100 : London 121. Which of the
following statements are N
Codes: correct
according to the figures of the 1991 f

o
(a) A, B, and C (b) B and C census?
t

s
(c) A and B (d) A and C A. the m aj
or pr oportion of rur al i

G
118. Which of the following pairs is incorrect? population
belongs to the category of
Plan Emphasis marginal
workers
(a) I agriculture and B. marginal
workers form the minimum
rural development pr op ortion
in the p opulation of
(b) II expansion of basic Chandigarh
and heavy C. 6 .23 p er
cent of the c ountry s
industries population
are non-workers
(c) III self-sufficiency in D. maximum
percentage of nonworkers
food and expansion are in Dadra
and Nagar Haveli
of basic industries Choose your
answer from the following
codes.
like steel
(a) A and
B (b) B and C
(d) IV political growth of
(c) A, B,
and C (d) A, B, C, and D
the country
122. Which of the
following statements correctly
119. Which of the following statements about
expresses the
difference between preference
indirect taxes in India is/are true?
shares and
equity shares?
A. yield from indirect taxes is much more
than that from direct taxes (a) equity
shareholders have no voting
B. indirect taxes have grown faster than right but
preference shareholders have
direct taxes, since independence voting
rights
C. indirect taxes are ultimately paid for by (b) preference
shareholders have no voting
persons who do not actually pay the rights but
equity shareholders have
taxes to the government voting
rights
D. increase in indirect taxes is a welcome (c) preference
shareholders have no right
feature in a developing country to profit
whereas equity shareholders
Choose your answer from the following have a right
to profit
codes. (d) preference
shareholders get exemption
(a) A, B, and D from taxes
while equity shareholders
(b) A and B do not get
any exemption
(c) B only (d) A, B, and C 123. Which of the
following statements is
120. Which of the following statements about correct?
the Dunkel draft is/are correct? (a) when n
ational inc ome incr eases,
A. it is mandatory for the Government of national
consumption increases in
India to accept all its proposals in all lesser
proportion
the sectors (b) when n
ational inc ome incr eases,
B. in the field of agriculture, the main national
consumption increases in
proposal is to cut agricultural subsidies greater
proportion 0

----------------------- Page 135-----------------------

s (c) when n ational inc ome incr eases, Codes:

n
o national consumption increases in the (a) A and B
(b) A and C
i
t
s same proportion (c) B and D
(d) A, B, C, and D
e
u (d) none of the above 128. Which one
among the following countries
Q
124. Which of the follow in g st atements has the
lowest GDP per capita?
e
c r egar din g wheat production is /are
i (a) China
(b) India
o
h incorrect? (c)
Indonesia (d) Sri Lanka
C
A. maximum area under wheat is in Uttar 129. Which one
of the following committees
e
l Pradesh recommended
the abolition of reservation
p
i
t B. m aximum pr oduction is in U tt ar of item s
for the small scale sector in
l
u Pradesh industry?
M
C. highest productivity is from Haryana (a) Abid
Hussain Committee
Choose your answer from the following (b)
Narasimhan Committee
Codes: (c) Nayak
Committee
(a) A and C (b) A only (d) Rakesh
Mohan Committee
(c) A and B (d) B only 130. Which one
of the following Five Year
125. Which of the following were the aims Plans
recognized human development as
behind the setting up of the World Trade the core of
all development efforts?
Organization (WTO)? (a) The
third Five-Year Plan
A. promotion of free trade and resource (b) The
fifth Five-Year Plan
flows across countries (c) The
sixth Five-Year Plan
B. protection of intellectual property rights (d) The
eighth Five-Year Plan
C. managing b alanced trade between 131. Which one of
the following governmental
different countries steps has
proved relatively effective in
D. promotion of trade between the former controlling
the double digit rate of inflation
East Bloc countries and the Western in the
Indian economy during recent years?
world (a)
enhanced rate of production of all
Codes: consumer
goods
(a) A, B, C, and D (b) A and B (b)
streamlined public distribution system
(c) B and C (d) A and D (c)
pursuing an export-oriented strategy
126. Which of the following were the priority (d) c ont
ainin g b udget ary deficit and
objectives of the Eighth Plan?
unproductive expenditure
A. univ er salization of elementary 132. Which one
of the following is correct
education regarding
stabilization and structural
B. grow th an d diver sific ation of adjustment
as two components of the new
agriculture economic
policy adaptation in India?
C. containment of population growth (a)
Stabilization is a gradual, multi-step
D. gradual privatization of most public process
while structural adjustment is
sector undertakings a quick
adaptation process
Choose your answer from the following (b)
Structural adj ustment is a gradual
codes.
multi-
step process while stabilization is
(a) A, B, D (b) B, C, D
(c) A, C, D (d) A, B, C a quick
adaptation process
(c)
Stabilization and structural adjustment
127. Which of the following comes under non-
are
very similar and complimentary
plan expenditure?

policies. It is difficult to
A. subsidies B. interest payments
separate
one from the other
C. defence expenditure
(d)
Stabilization mainly deals with a set of
D. m aintenance expen ditur e for the
policies
which are to be implemented
1 infrastructure created in the previous
3 by the
Central Government while
1 plans

----------------------- Page 136-----------------------

structural adj ustment is to be set in w orld supplies

the maximum of our y

m
motion by the State Governments. imported
commodities (in term of rupee o

n
133. Which one of the follow in g is n ot a value)?
o

c
instrument of selective credit control in (a) Africa
(b) America E

India? (c) Asia and

Oceania n

i
(a) regulation of consumer credit (d) Europe
d

n
(b) rationing of credit 139. Which one of
the followin g set s of I
(c) margin requirements economics
strongly favoured a market T

R
(d) variable cost reserve ratios economy?
E
134. Which one of the following is the largest (a) Adam Smith,
Keynes, Hicks C
mutual fund organization in India? (b) Adam Smith,
Marx, Strumlin N
f
(a) SBI Mutual Fund (c) Adam Smith,
Hayek, Friedman o

t
(b) GIC Mutual Fund (d) Adam Smith,
Ricardo, J. K.Galbraith s

i
(c) Ind Bank Mutual Fund 140. Which one of
the following statements is G
(d) Unit Trust of India correct with
reference to FEMA in India?
135. Which one of the following is the objective (a) The Foreign
Exchange Regulation Act
of National Renewal Fund? (FERA ) wa
s r eplaced b y For eign
(a) to safeguard the interest of workers Exchange
Management Act (FEMA)in
who may be affected by technological the year
2001.
upgradation of industry or closure of (b) FERA was
given a sunset clause of one
sick units year till
3 1 M ay 20 02 t o en able
(b) t o develop the c ore sect or of the Enforcement
Directorate to complete
economy the
investigation of pending issues
(c) for the development of infrastructure (c) Under
FEMA, violation of foreign
such as ener gy, tr an sp ort, exch ange
rule h as ceased to b e a
communications, and irrigation criminal
offence
(d) for human resource development such (d) A s p er
the new disp en sation,
as full liter acy, employment, Enforcement
Directorate can arrest and
population control, household; and prosecute
the people for the violation of
drinking water foreign
exchange rules.
136. Which one of the following modes of 141. Which one of
the following statements is
privatization is the most comprehensive not correct?
and complete? (a) Under the
Targeted Public Distribution
(a) introduction of private capital in public System, the
families below Poverty Line
sector are provided
50 kg of foodgrains per
(b) contracting out management of public month per
family at subsidized price
enterprises to the private sector (b) Under
Annapurna Scheme, indigent
(c) tr an sferring owner ship and senior
citizens of 65 years of age or
management to the workers above
eligible for National Old Age
(d) tr an sferring owner ship and Pension but
not getting pension can get
management to the private sector 10 kg of
foodgrains per person per
137. Which one of the follow in g pair s is month free
of cost
correctly matched? (c) Ministry
of Social J ustice and
(a) Rationing-Fiscal control Empowerment
has a scheme in which
(b) Cash Reserve Ratio-Selective Credit indigent p
eopl e liv ing in w elfare
Control institutions
like orphanages are given
(c) Licensing-Comprehensive Control 15 kg of
foodgrains per person per
(d) Import Quota-Physical Control month of BPL
rates
138. Which one of the following regions of the (d) Ministry
of Human Resource 2

3
Development
gives financial support to 1

----------------------- Page 137-----------------------

s mid-day meal scheme for the benefit of kg

foodgrains per below poverty line
n
o Class I to V students in government or family
per month, at less than half the
i
t
s government- aided school
economic cost
e
u 142. Which one of the following statements is Which
of these statements are correct?
Q
not correct? (a) A
and B (b) A and C
e
c (c) B
and C (d) A, B, and C
i (a) India is the second largest producer of
o 147. With
reference to the Indian economy
h nitrogenous fertilizers in the world
C (b) India is the ninth largest steel consider
the following activities.
e
l producing country in the world A.
Agriculture, Forestry, and Fishing
p
i B.
Manufacturing
t (c) India is the second largest producer of
l
u silk in the world C. Trade,
Hotels, Tr an sp ort, and
M (d) India ranks third in the world in coal
Communicaition
production D.
Financing, Insurance, Real Estate, and
143. Dinar/New Dinar is the currency of:
Business Services.
(a) Sudan (b) Yugoslavia The
decr easin g ord er of the
(c) UAE (d) Tunisia
contribution of these sectors to the
144. Which one of the following statements Gross
Domestic Product (GDP) at factor
regarding the levying, collecting, and cost at
constant price (2000 to 2001) is
distribution of Income Tax is correct? (a)
C, A, B, D (b) A, C, D, B
(a) The Union lev ies, c ollect s, and (c)
C, D, A, B
distributes the proceeds of income tax (d)
A, C, B, D
between itself and the states. 148. With
reference to the Indian Public /
(b) The Union levies, collects, and keeps all Finance,
consider the following statements.
the proceeds of income tax itself A.
external liabilities reported in the
(c) The Union levies and collects the tax Union
Budget are based on historical
but all the proceeds are distributed
exchange rates
among the states
(d) Only the surcharge levied on income B. the
continued high borrowing has kept
tax is shared between the Union and the r
eal interest rates high in the
the states economy

145. Which one of the follow ing types of C. the

upward trend in the ratio of Fiscal
borrowings from the IMF has the softest Deficit
to GDP in recent years has an
servicing conditions? adverse
effect on private investments
(a) Second tranche loan D.
interest payments is the single largest
(b) SAF (c) ESAF
component of the non-plan revenue
(d) Oil facility
expenditure of the Union Government
146. With reference to the governments welfare Which
of these statements are correct?
schemes, c on sider the following (a) A, B,
and C (b) A and D
statements. (c) B, C,
and D (d) A, B, C, and D
Directions (149-
174): Assertion A and the other
A. Under the Antyodaya Anna Yoj ana, labelled as Reason
R: You are to examine these
the foodgrains are available to the
two statements
carefully and decide if the
poorest of the poor families at Rs 2 Assertion (A) and
Reason (R) are individually true
solidus kg for wheat and Rs 3 solidus and if so,
whether the Reason is a corr ect
kg of rice. explanation of the
Assertion. Select your
B. Under the National Old Age Pension answers to these
items using the codes given
Scheme, the old and destitute are below:
pr ov ided Rs 75 Solidus m onth as Codes:
Central Pension, in addition to the (a) Both
A and R are true and R is the
amount pr ov ided b y m ost State correct
explanation of A.
3 Governments. (b) Both A
and R are true but R is not a
3 C. Government of India has allocated 25 correct
explanation of A.
1

----------------------- Page 138-----------------------

(c) A is true but R is false revolutionized

the whole industrial system y

m
(d) A is false but R is true. in England in
the eighteenth century. o

n
149. A ssertion (A) : The United St ates of Reason (R):
Industrial Revolution brought o

c
America has threatened to ask the World the class
conflict to an end. E

Trade Or ganization (WTO) t o apply 159. Assertion (A):

Death rate was quite high n

i
sanctions against the developing countries prior to 1921.
d

n
for the non-observance of ILO conventions. Reason (R):
There were frequent famines I
Reason (R): The United States of America and epidemics
prior to 1921. The available T
R
itself has adopted and implemented these medical
facilities and health services were E
ILO conventions.
C
very poor.
N
150. Assertion (A) : India does not export 160. Assertion (A):
Indian economy is referred f
natural rubber. to as a mixed
economy o

t
Reason (R): About 97 per cent of Indias
s
Reason (R):
Indian government recognizes i
demand for natural rubber is met from the relative
importance of both public as G
domestic production. well as
private sectors in the process of
151. Assertion (A): For the first time, India had economic
development.
no trade deficit in the year 2002 to 2003. 161. Assertion (A):
The population of India has
Reason (R): For the first time, Indias increased
rapidly since 1921.
exports crossed worth $50 billion in the Reason (R): In
India the birth rate has
year 2002 to 2003 declined more
rapidly than the death rate
152. Assertion (A): Estimation of national since 1921.
income constitutes sale of shares. 162. Assertion (A):
In Australia cattle rearing is
Reason (R): Sale of shares is a type of done more for
meat than for milk.
financial transaction. Reason (R):
Australians are traditionally
153. Assertion (A): Indias share in world trade non-vegetarians.

has declined over the period 1950 to 1951 163. Assertion (A):
The rate of growth of Indias
to 1990 to 1991. exports has
shown an appreciable increase
Reason (R): C omp osition of In dia s after 1991.
exports/imports has not changed over the Reason (R): The
government of India has
period 1950 to 1951 to 1990 to 1991. resorted to
devaluation.
154. Assertion (A): Disguised unemployment is 164. Assertion (A):
There was an increase in
a common feature of Indian agriculture. industrial
production during 1999 to 2000.
Reason (R): India has been relatively slow Reason (R): The
period witnessed a stable
in adopting farm mechanization. exchange rate
and improved business
155. Assertion (A): The EXIM policy is liberal, sentiments.
market-oriented, and favours global trade. 165. Assertion (A):
Indias software exports
Reason (R): GATT has played a significant increased at an
average growth rate of 50
role in the liberalization of the economy. per cent since
1995 to 1996.
156. Assertion (A): Land reforms in India have Reason (R):
Indian software companies
been successfully implemented. w ere c ost
effectiv e an d m aint ained
Reason (R): Government has been international
quality.
providing fertilizer at subsidized rates. 166. Deficit
financing implies
157. Assertion (A): Disguised unemployment is (a) printing
new currency notes
generally observed in Indian agricultural (b) replacing
new currency with worn out
sector. currency
Reason (R): More and more people in I (c) public
expenditure in excess of public
rural areas are becoming literate. revenue

4
158. Assertion (A): In dustrial Rev olution (d) public
revenue in excess of public 3

1
expenditure

----------------------- Page 139-----------------------

s 167. D eficit fin ancin g me ans that the (a)

occupancy right is transferable
n
o Government borrows money from the (b) the
tenants cannot be evicted at the
i
t
s (a) RBI (b) local bodies will of
the landlord
e
u (c) big businessman (d) IMF (c) the
rent that the tenants have to pay is
Q
168. Devaluation of currency leads to fixed
e
c (d)
occupancy rights are inheritable
i (a) fall in domestic prices
o
h (b) increase in domestic prices 176. Which of
the following measures may be
C
(c) no impact on domestic prices recommended
for strengthening the co-
e
l (d) erratic fluctuations in domestic prices operative
movement?
p
i
t 169. Economic inequality leads to (a)
multipurp ose societies sh ould be
l
u (a) class conflicts (b) exploitation formed
M
(c) moral degradation (d) all the above (b) loans
should be given for productive
170. The basic objective of planning in India is
purposes
(a) increasing employment opportunities (c) local
savings should be tapped
(b) expansion of key industries (d) all the
above
(c) increase in agricultural output 177. A
favourable balance of trade means
(d) all of the above (a) an
excess of merchandise exports and
171. The best solution for overcoming the evil other
current credit over merchandise
effects of small and uneconomic holdings imports
and other current debits
is (b) an
excess of merchandise exports over
(a) co-operative farming
merchandise imports
(b) using capital intensive technology (c) an
excess of the value of total imports
(c) rapid industrialization over
the value of total exports
(d) urbanisation of rural population (d) all the
above
172. The main feature of tenancy reform may be 178. According
to the new dispensation for
said to be insurance
businesses in India
(a) reduction of rent (a) the
insurance sector has been opened
(b) security of tenure up to
Indian private inverstors only
(c) c omp en sation for p erm anent (b) all b
anks may enter the insur ance
improvements
business
(d) all of the above (c) it is
m an dat ory for insur ance
173. The main features of cooperative j oint c omp
anies t o inv est inthe
farming may be said to be
infrastructure and social sectors
(a) p oolin g of lan d b y memb er s, b ut (d) NBPCs
are not allowed to enter the
retaining individual ownership
insurance sector
(b) operating the pooled land as a single 179. Amon g
the socio-econ omic fact ors
unit for cultivation responsible
for the high birth rate in India
(c) payment to members for the work done we may
include
on the farm (a) large-
scale poverty
(d) all of the above (b) high
mortality rate of children of poor
174. The main justification for levying income parents

tax is (c)
prevalence of child marriage
(a) to check profiteering (d) adverse
sex ratio
(b) t o c ollect r evenue for in dustrial Choose
your answer from the following
development codes.
(c) to unearth black money (a) A and
B
(d) to reduce economic inequalities (b) A, B
and D
175. Which of the following is not a feature of (c) B, C
and D (d) A, B and C
5 occupancy tenants ? 180. Arrange in
descending order of densities of
3
1 population
(1991 Census figures)

----------------------- Page 140-----------------------

I. Delhi II. Chandigarh (b)

allowing the value of the rupee to the y

m
III. Kerala IV. West Bengal fixed
by market forces o

n
(a) I, II, IV and III (b) I, II, III and IV (c) freely
permitting the conversion of o

c
(c) III, IV, I and II (d) I, III, IV and II rupee
to other maj or currencies and E

181. By package programme we mean vice

versa n

a
(a) packing of all agricultural produce in (d)
developing an international market for i

n
big containers for marketing wholesale.
currencies in India I

(b) packing of all agricultural produce in 184. Corporation

tax T
small containers for marketing retail (a) is
levied by the Central government R

E
(c) using together all agricultural input for and
appropriated by it C
raising production (b) is
levied by the State gov ernment N

(d) using all input and output in the form

separately f

of packets (c) is
levied by the Central government t

i
182. By economic drain we mean and
shared by the centre and the states G
(a) pumping in of the foreign resources in (d) is
levied by the Central government
the Indian economy and
appropriated by the states
(b) use of natural resources to promote 185. Deficit
financing leads to inflation in
economic growth general, but
it can be checked if
(c) squeeze of India by the Britishers in the (a) gov
ernment exp en ditur e leads to
form of various types of payments
increase in the aggregate supply in
(d) none of the above ratio
of aggregate demand
183. Convertibility of the rupee implies (b) only
aggregate demand is increased
(a) being able to convert rupee notes into (c) all the
expenditure is denoted national
gold debt
payment only
(d) all the
above

ANSWERS

1. (a) 2. (b) 3. (a) 4. (b) 5. (a) 6. (c) 7.

(c) 8. (cb 9. (d) 10. (a)
11. (d) 12. (c) 13. (b) 14. (d) 15. (d) 16. (a) 17.
(d) 18. (b) 19. (d) 20. (d)
21. (a) 22. (c) 23. (b) 24. (A) 25. (c) 26. (d) 27.
(d) 28. (c) 29. (b) 30. (c)
31. (a) 32. (a) 33. (d) 34. (c) 35. (d) 36. (b) 37.
(c) 38. (d) 39. (b) 40. (a)
41. (a) 42. (c) 43. (a) 44. (a) 45. (a) 46. (d) 47.
(c) 48. (b) 49. (b) 50. (c)
51. (c) 52. (a) 53. (a) 54. (b) 55. (d) 56. (c) 57.
(a) 58. (b) 59. (b) 60. (a)
61. (a) 62. (b) 63. (a) 64. (b) 65. (d) 66. (c) 67.
(b) 68. (b) 69. (a) 70. (a)
71. (b) 72. (b) 73. (b) 74. (a) 75. (c) 76. (a) 77.
(d) 78. (c) 79. (b) 80. (a)
81. (a) 82. (b) 83. (c) 84. (b) 85. (b) 86. (c) 87.
(c) 88. (d) 89. (a) 90. (b)
91. (b) 92. (c) 93. (d) 94. (b) 95. (d) 96. (d) 97.
(d) 98. (a) 99. (c) 100. (d)
101. (b) 102. (d) 103. (a) 104. (a) 105. (c) 106. (d) 107.
(b) 108. (a) 109. (d) 110. (b)
111. (d) 112. (a) 113. (d) 114. (b) 115. (d) 116. (c) 117.
(d) 118. (d) 119. (a) 120. (d)
121. (a) 122. (c) 123. (a) 124. (d) 125. (b) 126. (d) 127.
(d) 128. (b) 129. (a) 130. (d)
131. (d) 132. (a) 133. (d) 134. (d) 135. (a) 136. (d) 137.
(d) 138. (d) 139. (c) 140. (c)
141. (a) 142. (a) 143. (a) 144. (a) 145. (c) 146. (d) 147.
(d) 148. (c) 149. (a) 150. (b)
151. (d) 152. (d) 153. (c) 154. (b) 155. (b) 156. (d) 157.
(b) 158. (c) 159. (a) 160. (a)
161. (c) 162. (b) 163. (a) 164. (a) 165. (a) 166. (c) 167.
(a) 168. (b) 169. (a) 170. (a)
171. (a) 172. (a) 173. (c) 174. (d) 175. (a) 176. (d) 177.
(c) 178. (d) 179. (a) 180. (a)
181. (c) 182. (c) 183. (c) 184. (d) 185. (d) 186. (a) 187.
(b) 188. (d) 189. (c) 190. (b) 6

3
191. (b) 192. (d) 193. (a) 194. (c) 195. (d) 196. (c) 187.
(d) 198. (d) 199. (d) 200. (a) 1

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