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Economic planning and policies

BBA (505)
Sumer 2016-2017

Sachin chaudnary (BBA 5)

Q1) briefly explain any three type of theory of economic development
and also elaborate the features of developing economy.
Ans) 1) The ‘wealth of nations’ theory : Adam smith has been
recognized as the leading expounder of economic thought. Adam
smith’s option can be prominently seen in the works published by
David Ricardo and Karl Max in the 19th century , and by john
maynard Kenynes and Milton Friedman in 20th century. The wealth
of nations, which is a series of five books, sought to determine the
nature and cause of a nation’s prosperity. Smith observed increasing
division of labour as the main cause of prosperity. Smith was very
much opposed to mercantilism-the practice of artificially
maintaining a trade surplus on the erroneous belief that doing so
increased wealth. Adam smith was of the opinion that government
plays a vital role in promoting a nation’s prosperity
2) Theory of comparative advantage : The brilliant British economist
David Ricardo was one of the most important figures sought out for
the development of economic theory. He articulated and formulated
the ‘classical’ system of political economy. His thoughts dominated
the economic world throughout the 19th century and his legacy
continues till today. Ricardo’s most famous work is his principles of
political economy and taxation. In 1817, David Ricardo published
this book, in which he presented the law of comparative advantage .
This is one of the most important and still unchallenged laws of
economics with many practical applications
3) The theory of population : Thomas Malthus’s social and economic
ideas focused on his theory of population . Thomas was of the view
that population increases at a faster rate as compared to the
production of food. As a result the number of people in society will
be constantly pressing and creating liability on the names of
physical subsistence. The acceptance of Malthus’s ideas in Smith’s
doctrine resulted in the incorporation of the most outstanding
features of the classical system of economics
Features of developing economy :
Dominance of agriculture sector : Agriculture is the major source of
income in undeveloped and developing economies . Such economies
are also, therefore known as agrarian economies. A large section of
the population earns a living by tiling the land.
Small and large scale of production: Both the private and public
sectors exist in the economy side by side. Goods are produced on
large scale and on small scale as well as by public and private
Production for self consumption : A large amount of goods and
services produced are consumed by producers themselves. Self
utilization of resources is also one feature that is prominent in such
economies. Majority of farmers grow crops for their own
Illiteracy : Another important feature of a developing economy is the
huge gap between he educated and uneducated. Illiteracy is
widespread in such economies. Efforts are continually being made
to eradicate illiteracy, and yet illiteracy and unskilled labour are
widely dominant.
Underutilization of resources: No doubt god has gifted developing
economies with significant amounts of natural resources and large
number of labour forces. But the unfortunate part is that due to lack
of technical knowledge, natural resources are not discovered or fully
utilized . Similarly labour force is either unemployed or
Q2) Explain the role of public sector in India.
Ans) Share of public sector in employment : There are two important
categories of public sector employment : a) Government
administration and defense and other government services like
health, education, research and various activities to promote
economic development; and (b) public sector proper i.e, economic
enterprises owned by the central, state and local government.
Share of public sector in government: From 1960 onwards, the share
of the public sector in GDP has shown a steady improvement.
Measured at current prices, public sector accounted for 7.5 percent
of GDP in 1950-51, Its share in 1993-94 had risen to 23.6 percent.
Share of public sector in saving and capital formation : Gross
Domestic capital formation has increased from 10.7 percent of GNP
during the first plan of 24.6 percent during the eighth plan.
Infrastructure development by the public sector : Rapid
industrialization of a backward but a developing country like India
depends upon the infrastructure of creation or economic overheads
such as transportation, communication, power development, basic
and key industries, etc.. Unless the infrastructure is created, it is not
possible for other industries to come into existence or to develop
fast enough.
Role of export promotion : Most of the public sector enterprises have
been started keeping in mind the requirements of the Indian
economy in the fields of production or distribution. However some
public enterprises have done much to promote India’s exports. The
state trading corporation and the minerals and metals trading
corporation have done a wonderful job of export promotion in all
parts of the world.
Role of public sector in import substitution: Some public sector
enterprises were started specifically to produce goods which were
formerly imported and thus to save foreign exchange. The entry of
Hindustan Antibiotics Ltd. And the Indian Drugs and
Pharmaceuticals Ltd(IDPL) in the manufacture of drugs and
pharmaceuticals so as to remove the monopolistic stranglehold of
foreign concerns in this field helped India save foreign exchange
used for importing his firms.
Role of public sector in raising internal resources : The generation of
internal resources by the public sector has assumed greater
importance because, in addition to financing their own planned
expansion and development, they are also expected to generate
surplus for financing the need of other priority sectors.
Q3 Explain in detail liberalization, privatization and globalization
model of development with the help of examples.
Ans) The LPG model of development was bought out in 1991. The
model pioneered by the then finance minister Dr. Manmohan Singh
with a huge impact and it proposed to lay focus on liberalization,
privatization and globalization(LPG). Several major changes at the
domestic level were introduced
I. Areas up till now reserved for the public sector were opened to
private sector. The government intended to transfer the loss-
making units to the private sector, but it failed because there
were no tankers for them. Instead, the government started
disinvestment of the highly profit making PSUs and the
proceeds were used to reduce fiscal deficits. Thus, due to
various social constraints the government could not carry
forward its programme of privatization, though it did succeed
in liberalizing the economy for the private sector- both
domestic and foreign
II. By permitting the private sector to set up industrial units
without taking a license, the government removed certain
shackles which were holding back or delaying the process of
private investment.
III. By abolishing the threshold limit of assets in respect to MRTP
companies and dominant undertakings, the government freed
the business houses to undertake investment without any
ceiling being prescribed by the MRTP commission. Obviously,
considerations of promoting growth were more dominant with
the government and such issues as consideration of economic
power were assigned a back seat
IV. With a view to facilitate direct foreign investment, the
government decided to grant approval for foreign direct
investment upto 51 percent in high priority areas. The
government could also consider proposals involving more than
51 percent equity, but such proposals would require prior
clearance of the government.
V. Chronically sick public sector enterprises were referred to the
board of industrial and financial reconstruction for the
formulation of revival/rehabilitation schemes. A social security
mechanism was introduced to protect the interest of workers
likely to be affected by such rehabilitation packages.
VI. To improve the performance of public sector enterprises ,
greater autonomy was given to PSU managements and the
boards of public sector companies were made more
VII. The economy was opened to other countries to encourage
more exports . To facilitate the import of foreign capital and
technology and other allied imports, reduction in import duties
and other barriers were bought about.
Q4) Explain the significance of agriculture in the national economy.
Ans) 1) Contribution of agriculture to the national income :
1950-51 56.5
1970-71 45.9
1990-91 34.0
2000-01 24.7
2005-06 19.55
2007-08 17.8
2008-09 15.7
2009-10 14.7
2010-11 14.5
2011-12 13.9
Figures provided by the central statistical organization reveal that in
1950-1951, the share of agriculture in GDP was around 55 percent.
As the process of industrialization and economic growth gathered
momentum under the five year plans with manufacturing and
service sectors growing rapidly and agricultural sector limping
along, the percentage share of agriculture in GDP declined and
reached a level of 13.9 percent in 2011-12
2) Indian agriculture and representation of employment in the
country :

College New students Graduating Change

Total population of India 110 103 +7
Total working population 223 214 +9
Percentage of cultivators 197 120 +77
Percentage of agricultural labourers 134 121 +13

Data provided by the census of India reveals that in absolute terms,

agriculture provided employment to 98 million persons in 1951; the
number of people working on land increased to 235 million in 2001.
3) Significance of agriculture in industrial development : Raw
material required for the manufacturing process is supplied by
Indian agriculture. Industries such as cotton, jute textile, sugar, flour
mills, vanaspati and plantations directly depend on agriculture.
Numerous industries depend on agriculture in an indirect manner.
Several small-scale and cottage industries such as handloom
weaving, oil crushing and rice husking among others procure their
raw materials from agriculture.
4) Position of agriculture in the field of international trade :
Agriculture also plays a major role in the growth and development
of India’s trade. Agricultural products like tea ,sugar, oilseeds,
tobacco and species among others, constitute the major articles of
exports of India. Largely agricultural goods exported accounted for
50 percent of our exports, and goods manufactured with
agricultural content constituted an additional 20 percent or so.
Together this came to be 70 per cent of India’s export in 1950-1951.
But the diversification of exports ,more especially after the
introduction of agricultural exports which were 18.5 percent in
1990-91 rose to 20.3 percent in 1996-97
Q5) Give an overview of services sector in India.
Ans) Tourism : Tourism accounts for 6-7 percent of global
employment and 5 percent of global income as per the united
nations world tourism organization., tourism highlights 2012
edition . As per tourism satellite account data 2009-10, the
contribution of tourism to India’s GDP was 6.8 per cent and its total
contribution to total employment generation was 10.2 per cent. As
per the twelfth five year plan approach paper, India’s travel and
tourism sector is estimated to create 78 jobs per million rupees of
investment as compared to 45 jobs per million rupees in the
manufacturing sector
a) Shipping : Shipping plays an important role in merchandise
trade. As on 31st January 2013, India had a fleet strength of
1158 ships with GT of 10.45 million, with the public-sector
shipping corporation of India having he largest share of
32.60 percent. In 2011, with a world share of 28.7 per cent, it
topped the list of ship scrapping nations.
b) Port services: Port services are closely connected to shipping
services and merchandise trade. The total capacity of Indian
ports has reached approximately 1245.3 million tones as on
31st march 2012. During 2011-12 total traffic handled a all
ports was 911.7 million tonnes, and grew by 3 percent over
the previous year
Real estate services and housing : Real estate and dwelling has a
share of 5.9 percent in India’s GDP and a growth of 7.2 percent
in 2011-12 . The growth of the real estate services in particular
has been impressive consistently at over 25 percent since 2005-
6 with 26.3 percent growth in 2011-12. The eleventh five year
plan estimated housing requirement of 24.7 million units in
urban areas of which 99 percent was in the economically
weaker sections/lower income group segment.
Communication services : some communication related services
a) Telecom and related services : Telecom services in India
have made a mark with second largest telephone network
in the world, after only china. Teledensity, which is an
important indicator of telecom penetration, increased from
18.22 percent in march 2007 to 73.34 percent as on 31 st
December 2012, with urban teledensity at 149.55 per cent
and rural at 39.90 per cent
b) Postal services : Postal services, A traditional mode of
communications all over the world, have also been a
popular mode in India, especially rural India . Department
of posts has he largest postal network in the world with
1,54,822 post offices in the country as on 31st march 2012.
Of these 1,39,086 in rural areas and 15,736 in Urban. The
department of posts has launched ‘project arrow’ as a
quality improvement initiative to transform India port into
vibrant and responsive organization.
Q6) Write short notes on:
a) Foreign direct investment
b) Communication systems in India
Ans ) Latest terms of trade development with respect to important
areas like auto components, apparels, chemicals, pharmaceuticals,
jewellery, etc.. from the basis for FDI in India although it is rigid FDI
policies made for an important obstacle in this context. Recently, a
more liberalized FDI policy of India allowed upto 100 percent FDI
stake in different ventures which includes he real-estate sector as
well. Some of he industrial policy reforms are removal of
restrictions on development providing easy access to foreign
technology and FDI and fulfilling industrial licensing requirements.
Many changes were approved on the FDI policy to eliminate he
restrictions imposed in most of the sectors. Restrictions will be
reduced in different sectors like civil aviation, construction
development, industrial parks , commodity exchanges, petroleum
and natural gas etc…
Communication systems India: The communication system consists
of posts, telegraphs, internet communications and
telecommunications systems, broadcasting, television and
information services. Communication system plays a vital role in
conveying necessary information to the various component of a
market, bringing close coordination between the buyers and sellers
and thus enhancing the growth of the economy.
Postal system in India: The postal network in India is largest in the
whole world. The long-term objective of the department of postal
services of the government of India is to locate a post office within
three kilometers of every village.
Internet-based communication: Internet is a network of computer
systems all over the world connected to each other through a
standard TCP/IP. Internet is being used by billions of users all over
the world and has thousands of useful application. Besides acting as
a vast storehouse of information on all topics, he main use of
internet is as a form of communication medium. People use internet
to send e-mails, accessing social networking websites,shop online
and much more.
Telecommunications: The telecommunication network in India is the
second largest in the world , in terms of total number of telephone
users. It has one of the lowest call charges globally, thanks to the
mammoth telephone networks and the cutthroat rivalry among
them. It has the world’s third largest internet user base of more than
137 million users as of June 2012.