Colonial Rule

It refers to the system between 2 countries under with one country being the ruler and another
being the colony and the ruling country determines the economic policies of the colony.
In India, the colonial rule stayed for around 200 years (1757-1947) under which the
Britishers exploited the Indian Country and form the economic policies in India.
History :- 1. Babur 2. Humayun 3. Akbar 4. Jahangir 5. Shahjahan 6. Aurangzeb 7. Bahadur Shah Jafar (600 around Years)
Stagnant economy
Stagnant economy refers to the economy which is stuck or very low at its path of development.
Features of Indian economy before colonial Rule
• Agriculture was the main source of employment and livelihood for the people of our
country around 85% economies derived their livelihood directly or indirectly from
agriculture.
• The farmer raised only those crops which he needed for his own use and shared the same
with the village artisan who supplied him with simple manufacture that he needed for his
domestic consumption.
• India enjoyed extensive trade both within the country and with other countries of Asia and
Europe.
• India was famous for its handicraft industries all over the globe
• India was an independent, self-reliant and prosperous country.
:: Did you know ::
Before colonization India was known as golden bird (popularly known as ‘Sone ki chidia”
 Agricultural sector at the eve of independence
The characteristics of agricultural sector at the eve of independence

1. Zamindari system (land tenure system):- Under this system, ownership right of the land was
transferred from farmers to zamindars, i.e zamindars were the nominal head of the land who collects
the revenue from the farmers (in the form of lagan) and deposit it to the colonial government.

2. Commercialization of Agriculture:- It refers to the production of crops for sale rather than for self-
consumption. Farmers were given higher prices for production of cash crops (like cotton, jute, indigo)
so that they can use them as raw material for British industries. High level of prices forced the farmers
to produce cash crops rather than food crops.

3. Low level productivity:- Productivity refers to the output per hectare of land. During colonial period
the productivity of Indian agriculture was very low.

Reasons of which are as follows:- Dependency In 1947

• Lack of irrigation facility. 1. Primary sector (Agricultural) -72%
2. Secondary sector - a. Industry 10%
• Low level of technology. b. Services 18%
• Negligible use of fertilizers.

4. High degree of uncertainty:- During the colonial period, the main source of irrigation was rainfall
which results in high level of uncertainty i.e. good rainfall implied good output whereas poor rainfall will
results in low level of output.
 Industrial sector on the eve of independence
1. Decline of handicraft industries:- During colonial rule, the Britishers
systematically destroyed the Indian handicraft industries and forced the people to
indulge into agriculture sector. The basis motive of British rule behind this de-
industrialization was 2-fold.
• To convert India into a supplier of raw material for the industries of Britain.
• To develop India as a market of British manufactured goods.

2. Discriminatory tariff policy:- The British is Indian government followed.

• Free trade or unrestricted entry of British goods.
• Tariff free export of raw material from India to Britain.
• Heavy duty was placed on the export of Indian handicraft products, due to
which the Indian handicraft industry started losing its pride and place.

3. Competition from machine made products:- The pride of Indian handicraft

industries stated to decline, when it faced the competition from machine made
products. As they are of low cost and easily available. India craftsmen are far
behind the speed of machines and hence the only alternative available for them is
to shut down their enterprises.
4. Lack of capital goods industries:- Capital goods industry refers to those
industries which are capable of producing machine tools. During colonial period
there was no capital goods industry. Britishers didn’t pay any attention in
promoting or supporting these industries as they want India to be a supplier of raw
materials only.

5. Change in pattern of demand:- The impact of British culture started to arise in

the public, as a results a new class emerged in India which was keen to adopt the
western lifestyle. This changed the pattern of demand against the Indian products.

6. Negative effects of Railways:- Although introduction of Railways was one of the

positive impact of colonial period but at that time, Railways proved to be a terror
for Indian industries. Britshers used railways for their benefits only as a result, Size
of market of low-cost British product started to expand whereas high-cost
handmade products began to shrink. Foreign trade

Since ancient period, India has been an important trading nation, India was well
know exporter of finished goods like silk, fine cotton, textiles, ivory work,
handicrafts, Precious stones etc. But the discriminatory trade and tariff policies of
Britishers brought it to end.
 The condition of foreign
trade
1. Exporter of primary products and importer of finished goods:- During colonial rule,
India became the exporter of raw materials (such as raw silk, cotton, indigo, jute etc.)
which are of low cost and became the importer of finished goods (such as capital goods,
woolen clothes, silk clothes and other machine made products) which are of high cost.
Due to this the economic condition of our economy started to decline.

2. Monopoly Control on Trade by Britishers:- During colonial period the British

Government maintained a monopoly control over Indian trade policies.
• Majority of trade was restricted to Britain (more than ½) while the rest was
followed with some other countries only (such as china, Srilanka (Ceylon) and Iran
(Persia).
• Opening of Suez Canal in 1869 provides a direct route for ships operating between
Britain and India.
• Tariff free import and export between India and Britain whereas heavy duty was
placed on the export of Indian handicraft products (which increase their price in
the market).
3. Economic Exploitation:- Due to the exporter of raw material, India has a huge
exporter, and surplus. But the amount of export surplus does not given any push to
Indian economy. as the amount of surplus is used by the government in non-
developing activities, such as.
▪ To meet the expenses of war fought by the British government.
▪ To make payment of office setup of colonial government.
▪ To make trade of invisible items. Like Services.
Demographic Condition
Demographic refers to the study of various aspects of population, such as age, sex
education level, income level, marital status, birth rate, death rate etc.

1. High birth rate and death rate:-

• Birth rate refers to the number of children born per thousand in a year.
• Death rate refers to the number of people dying per thousand persons in a year.
• During colonial period both birth rate and death rate are very high ratio. (nearly 48 &
40).

2. Low literacy rate:- During colonial period the overall literacy rate of the economy
was less than 16 percent. Moreover the female literacy rate was about 7 percent.
3. High Infant mortality rate:- Infant mortality rate refers to the number of infants
dying before the age of 1 year per thousand live births annually. The IMR during
colonial period was about 218 per thousand (before 1921.)

4. Poor Health facilities:- Public health facilities were neither available nor when
available were higher inadequate. Due to which, water and air-borne were
widespread and took a huge toll on life.

5. Low life expectancy:- It refers the average number of years for which a person is
expected to live. Due to poor health facilities, the life expectancy during colonial
rule was as low 32 years. Whereas as per the latest WHO date published in 2018,
the current overall life expectancy of India is 68.8 years.

6. High level of poverty:- During colonial period, India faced the condition of
extensive poverty, per capital consumption was very low. The overall standard of
living of common people of India was very low.
 Occupational Structure

It refers to the distribution of working persons across different industries

and sectors.

1. Predominance of Agriculture:
As colonial government aims at making India as an exporter of raw
material, as a result about 72.7% of working population was engaged in
agriculture. As the income generation rate of agriculture sector is very
low, this predominance reflects backwardness of the economy.

2. Unbalanced growth:
Growth of an economy is said to be balanced when all the sectors are
equally developed. But in case of Indian economy, only primary sector is
the main source of employment, whereas secondary and tertiary sector
were in their infant stage of growth.
 Infrastructure
It refers to the basis physical and organizational structure and facilities (Buildings, Roads,
Powers supplies etc.) needed for the operation of an economy.
The condition of infrastructure was explained here

1. Railways:- One of the biggest contributions of colonial rule was the introduction of
railways in India in 1850. It helps to remove geographical and cultural barriers in the
economy. Although the benefits of railways was mostly restricted to Britishers during
colonial period but it also helps in developing the Indian economy post-colonial period.

2. Roads:- The construction of roads during colonial rule was very limited (due to scarcity
of funds). The road that were built, primarily served the interests of mobilizing the army
and Shifting of raw materials so that they can be transported to Britain via ports.

3. Air and water transport:- The colonial government took various measures for developing
the ports and air transport. But the development was far from satisfactory measures of
development.

4. Communications:- During a colonial period, Posts and telegraphs were the most popular
means of communication. The system of electric telegraph was introduced at a high cost to
serve the purpose of maintaining law and order. Despite serving a useful public purpose,
the postal service remained all through inadequate.
 Positive contribution of British rule

As every coin has 2 sides, similarly the colonial rule had some leads some positive impacts
on our economy which are as follows:

1. Introduction of railways:- The first and the most efficient contribution was the
introduction of railways in India. Britishers introduced railways so that they can transport
their products and the raw materials easily from one place to another but in post colonial
period railways turned out to be the key factor of the economy.

2. Commercialization of agriculture:- Under pre-colonial period, farmers grow crops just to

sustain themselves and other people of the village. But forced commercialization of
agriculture under colonial rule brings new opportunities for farmers in the market.

3. Monetary system of exchange:- Barter system of exchange who no longer effective in

the economy. Britishers brings a new system of exchange popularly known as monetary
system of exchange. (Introduction of money)

4. Effective system of administration:- The colonial government in India left a legacy of an

efficient of administration, which serve to be a readymade reference for our economic and
political planners.
 Planning commission

Indian government with the Prime Minister as a chairman formed the planning
commission (which is now known as Niti Aayog) on March 1950 and adopted five
years plans for the development of the country.

Economic problem -The reasons due to which a country faces economic

problems are as follows:-
1. Unlimited Wants (Unlimited Ends)
2. Limited Resources (Scarce Resources)
3. Alternative Use

The above 3 reasons creates different Economic Problem in an economy which are
as follows:-

What to produce How to produce For whom to produce

1. Personal Distribution
1. Consumer Goods 1. Labour Intensive Technique
2. Functional
2. Producer Goods 2. Capital Intensive Technique
Distribution
 Types of Economy

1. Market Economy:- It is a type of economy in which the total allocation

of resources is made by private capitalist or businessman for producing
goods and services. As they are basically guided for making profit.

2. Mixed economy:- It is a type of economy in which both the private and

public sector are participating in productive activities. The allocation of
resources is made by the government for removing the central problem of
economy with the help of private sector.

3. Central Planned Economy :- It is a type of economy in which the total

allocation of resources is made by central government of the country. The
government is basically guided for solving the central problem of the
economy. Hence it promotes social welfare with minimum cost.
 Economic Planning
According to planning commission of India, “Economic planning refers to the
utilization of country’s resources in different development activities in accordance
to the national priorities”.
Goals of Planning of India

The planning commission of India has adopted Five year plans strategy for the
development of the economy. India launches its first five year plan on 1 st April
1951 for the period 1951-56. Since then we have completed 12 five year plans
(recent 5 year plan was in operation from 1st April 2012 for the period of
2012-2017.)
The planning commission decided 2 types of goals

Long term goals (More than 20 Years) Short term goals (Need of Specific Purpose)
 Long term goals Main objectives of Five Year Plans
1. Economic Growth:- During colonial period Indian economy was stagnant in nature so the first and
foremost objective of economic planning is economic growth. Economic growth refers to the increase
in productive capacity of the economy. The basis criteria of measuring economic growth is the change
in level of GDP (Gross Domestic Product)

2. Modernization:- It refers to both adoption of modern technology in the process of growth and also
to put forth changes in social outlook and ancient meaningless rituals. For example- Girls are not
allowed to take education, child marriage etc.

3. Full employment:- It doesn’t refer to zero unemployment, but it refers to a situation when all those
who are able and willing to work at the market wage rate get work. The objective of full employment
is to make participate in the process of grown of the economy.

4. Equity or Equitable Distribution:- The concept of economic growth means nothing if the benefits of
growth restricted to helpful of people in the Society. It is important to ensure that the benefits of
economic growth should reach the poor sections of society also, so that it will reduce the unequal
distribution of income and wealth.

5. Self-reliance:- It refers to more and more dependence on domestic goods rather than importing
from rest of the world.
Short term goal - They are those objectives which vary from plan to plan according to the need and
requirements of the economy.
 Five Yearly Plan
Plan and Period Focus of the plan or the principle objectives
st
1 Plan (1951-1956) ∙ Increase in agricultural production.
∙ Equitable distribution of production, income and wealth.
2 nd Plan (1956-1961) ∙ Increase in Industrial production.
∙ Development of heavy industry.
3 st Plan (1961-1966) ∙ Self-sufficiency in food grain production.
∙ Generation of employment opportunities.
Three Annual Plans (1966-1969)
4 th Plan (1969-1974) ∙ Accelerating the process of growth.
∙ Price stability.
5 th Plan (1974-1979) ∙ Raising the living standards with a focus on weaker section of the society.
Annual Plans (1979-1980)
6 th
Plan (1980-1985) ∙ Removal of poverty.
∙ Reduction of inequality.
∙ Development of infrastructure.
7 th Plan (1985-1990) ∙ Generation of employment opportunities.
∙ Increase in agricultural productivity.
Two Annual Plans (1990-1992)
8 th Plan (1992-1997) ∙ Fuller utilization of manpower by the turn of the century.
∙ Universalisation of elementary education.
∙ Strengthening of infrastructure.
9 th Plan (1997-2002) • Agricultural and rural development.
• Growth with price stability.
• Checking the growth of production
10 th Plan (2002-2007) ∙ Improving the quality of life through better health and educational facilities and improved levels of consumption.
∙ Reduction in inequality through inclusive growth.
11 th Plan (2007-2012) ∙ Multiple targets covering not only growth but also poverty reduction.
∙ Improving quality of education and public health services.
∙ Strategy of second green revolution.
∙ Generation high quality of job.
∙ Protection of environment.
12 th Plan (2012-2017) ∙ Faster, sustainable and more inclusive growth.
 Importance of Agriculture in Indian economy
India is an agricultural based economy; nearly 72% of working population is engaged in agriculture
(at the eve of employment). The importance of agriculture sector in Indian economy is as follows:-

1. Contribution of GDP:- Agriculture sector contributes a significant share in the GDP of the economy.
agriculture plays a dominant role in economy GDP. (18% in 2014-15) and (16.5% in 2019-2020.)

2. Supply of good grains:- India is one of those countries which is self-sufficient in good grains. Indian
agriculture sector is capable enough to meet almost the entire food requirements of the population.

3. Source of employment:-. According to the survey of 2013, nearly 47% of working population is
engaged in agriculture sector.

4. Supply of raw materials :- Besides food grains, production, agriculture sector also provides
industrial raw material like cotton for textile, seeds for oil, sugarcane for sugar mills.

5. Share of Exports :- Due to the prime exporter of raw material, agriculture sector plays an important
role as an earner of foreign exchange through export of commodities like tea, cotton, jute, coffee etc.

6. Source of revenue:- The Government generates revenue from agriculture sector through land
revenue and other taxes and the commodities produced.

7. Market for industrial sector:-Due to higher dependence of population on agriculture, the demand
for industrial products use in agriculture is also high. (Products like fertilizers, tractors, pesticides etc.)
 Problems of Indian agriculture
1. Lack of irrigation facility:- The first and foremost problem of Indian agriculture is the lack
of irrigation facility. Farming in India was heavily dependent on rainfall. The criteria of
rainfall decide the condition of crops, i.e. heavy rainfall means good harvest, whereas
drought causes loss in output.

2. Small and scattered holdings:- The backwardness of farming is mainly due to small
holding of lands. Small framers won’t be able to adopt modern technology which restricts
them from increasing their productivity.

3. Deficiency of institutional finance:- Institutional finance refers to the arrangement of

finance by registered banks or any other financial institutes. During that period, farmers are
dependent upon non institutional sources of finance (such as Zamindar, Moneylenders, and
Mahajans) for fulfilling their requirement of money. They charge very high rate of interest
from farmers.

4. Conventional outlook:- Despite innovative farming technique, Indian farmers still rely on
traditional method of farming.

5. Lack of organized marketing system:- Huge number of small farmers continues to sell
their output in the local market at reduced rates due to unorganized marketing system for
agriculture in the economy.
 Reforms in Indian Agriculture
A. Lands Reforms (Institutional reforms)

1. Abolition of intermediaries- The first and the most important action taken by the government
is the removal of intermediaries (Zamindars). This policy brought 200 lakh tenants into direct
contact with the government. Also, this ownership right gives them the incentive the increase
output (there is no Zamindar in between who takes their share of profit) and this contributed to
growth in agriculture.

2. Ceiling of land holding (land ceiling) - It refers to fixing the maximum amount of land, which
could be owned by the individual. In order to promote equity in the agriculture sector, the
government specified the maximum limit of land that any individual can hold. Any excess land
beyond that limit would be taken over by the government and will be allotted to the landless
cultivators and small farmers.

3. Consolidation of holdings:-It refers to a practice to allot land to the farmer at one place as
replacement for his scattered holdings here and there. Moreover, small and scattered land is
now converted into a big piece of land so that modern and innovative technology can be applied
which will increase the productivity.

4. Cooperative farming:- Joint farming by small cultivators by pooling their land and other
resources to enjoy the benefits of large scale farming is known as cooperative farming. Together
farmers can buy inputs at a lower price and sell their products at a higher cost.
 B. General Reforms
1. Expansion of irrigation facility:-In order to increase the productivity of agriculture,
the government of India specially focused on providing proper and permanent
irrigation facility. In 1951, approx. 17 % of land was under permanent means of
irrigation. According to World Bank, about 35% of total agricultural land in India
reliably irrigated in 2010.

2. Institutional credit:- Regional rural banks have been set up by the government of
India to fulfill the requirements of agricultural credit. A National Bank for Agriculture
and rural development (NABARD) has been set-up as an apex institution in the field of
rural credit in 1982.

3. Support policy:- According to this policy, the government assures a Minimum

support price (MSP) to the farmers for their excess output. The farmers are free to sell
their products in the market at prevailing rate, but in case the market rate is lower
than the MSP, then the government will purchase their output.

4. Regulated Markets and Co-Operative Marketing Societies:- A regulated market or

controlled market is a system where the government controls the forces of demand
and supply, such as who is allowed to enter and what prices may be charged.
 C. Green Revolution or Technical Reforms

Green revolution refers to sudden and spectacular increase in agriculture

productivity due to the use of high yielding variety of seeds. After
independence, although around 72% of population was engaged in
agriculture sector, but the level of productivity was very low. The
government initiated many technological measures, this continuous and
intensive efforts breaks the stagnancy in agriculture sector which was
regarded as green revolution.

It includes:-
1. Use of High yielding variety of seeds
2. Use of Chemical Fertilizers
3. Use of pesticides for crop protection
4. Scientific crop Rotation
5. Modernized means of cultivation
 Achievements of Green Revolution
1. Increase in production:-The basic and the fundamental achievement of green revolution is a
massive increase in production and productivity of food grains in the economy. It increases from 82
million tons in 1960-61 to 176 million tons in 1990-91.

2. Increase in national income :- The economic condition automatically increases with the increase in
production and level of productivity of food grains in the economy.

3. Increase in Marketable surplus:- It refers to the portion of agriculture production which is sold in
the market by the farmers after self consumption. Due to increase in the level of productivity, higher
amount of good grains can be produced on the same amount of land, due to which farmers can now
sell their food grains in the market even after self-consumption.

4. Benefit to low income groups:- Due to availability of large amount of food grains in the market,
their price declines as comparison to other items of consumption. The low income group who spend
large proportion of their income on food, benefited from this decline in relative price.

5. Change in farmers outlook:- Due to increase in production and productivity the outlook of farmers
towards agriculture is now changed. Farmers are no longer viewed as a source of subsistence, it is
considered as commercial venture as well.

6. Buffer stock of food grains:- The green revolution enabled the government to procure sufficient
amount of food grains to build a stock which could be used in times of food shortage in the market.
 Failure of green Revolution
1. Limited crops only:- Sudden rise in output due to green revolution mainly
restricted to the production of food grains only (wheat and rice). There is no such
increment in the production other crops like pulses, jute, cotton etc.

2. Uneven benefits:- The concept of using HYV seeds and modern technology
comes with the huge investment, whereas the majority of farmers in India are
small and marginal. The gains of green revolution mainly attracted towards big
farmers only. It ultimately leads to increase in income inequality between small and
big farmers.

3. Soil degradation:- Intensive use of Pesticides and chemical fertilizers has

negative effect on land. Production of wheat and rice requires huge amount of
water, fertilizers and pesticides which results in alarming rate of groundwater
depletion and soil degradation.

4. Uneven spread:- The concept of green revolution is not spread over the whole
country, only few states like Punjab, Haryana, Tamilnadu, and Maharashtra had
made a great impact. While the impact on other states was relatively insignificance.
 Industrial Reforms

In the context of growth and development of a country, industrial sector always

plays a dominant role. In the economy like India, the growth of industrial sector is
necessary for the economic and monetary prosperity of country.

Industrial sector provides

1. More stable source of employment

2. Promotes modernization
3. Increase national income
4. Boost the growth potential of an economy
5. Increases the amount of exports
6. Helps to modernize agriculture

At the time of independence, the industrial sector was in the immature stage, only
few industries represent the whole sector. So, the government of India decided to
put attention on the development of this sector.
 Role of Public/Government Sector in Industrial development
The development of industrial sector or the process of industrialization cannot be left over
solely in the hands of private entrepreneurs.

1. Lack of capital:- Handful of private industries won’t be able to arrange and invest capital
up to the limit which is required for the development of whole country. Hence the
involvement of government sector should be become mandatory for the process of
industrialization.

2. Lack of incentive:- At the time of independence, the market of India was not much big
enough to encourage private businessman to undertake huge investment. Moreover due to
limited size of market, the demand for industrial goods was also very low which restricts the
industrialist to earn more.

3. Social justice:- A private industrialist always aims at maximizing wealth, whereas in order
to grow the Industrial sector along the growth of economy the main objective is to provide
more and more employment opportunities rather than concentration of wealth in few
hands.

4. Development of infrastructure:- Due to huge investment and low profitability, private

sector does not undertake many infrastructural projects. So, it became mandatory for the
public sector to involve in the process of industrial development.
 Industrial Policy Revolution (1956)
According the industrial policy 1956, government of increases the role of public sector in the
industrial development of the economy. The main objective of this revolution is to accelerate
the growth of industrial sector and prevent the concentration of wealth and income in the hands
of few individual only.
Features of Industrial Policy Revolution (IPR) 1956
1. Three-Tier classification of industries
According to this, the industrial policy 1956 divides total industries into 3 categories
Schedule A- 17 industries - Complete control of public sector.
Schedule B- 12 industries - Those which could be established both as a private and public
sector enterprises. However the role of public sector is more dominant than of private sector.
Schedule C- Remaining industries, which are to be left open for private sector.

2. Introduction of industrial licensing:- It refers to a written permission from the government

for opening or for expanding an industrial unit. According to this policy, no new industry was
allowed to survive unless and until license is obtained from government. Moreover, license was
also needed if an existing industry wants to expand or diversify production.

3. Industrial concession:- Incentive like tax rebate and subsidized rate of power supply were
offered to private entrepreneurs for establishing industries in backward and rural areas of the
country. he basis motive behind this policy is to encourage equality in income.
 Small Scale Industries (SSI)
A small scale industry is presently defined as the one who investment does not exceed rupees 5
Crore. (Earlier it was rupees 5 lakhs in 1951).

Role of Small scale industries or characteristics of SSI

1. Labour incentive:- Small scale industries proved huge amount of employment in the economy
as the amount of labour in such industries are proportionately high as comparison to big
industries i.e. SSI are labour intensive, whereas big industries are capital (machines) incentive.

2. Promotes balanced regional growth:- These industries are locational friendly, unlike big
industries which are required to be set up near the raw material hub in order to reduce the cost
of transportation these industries can be easily set up at the door step of the owner.(due to
small requirements).

3. Promotes equity:-SSI requires less amount of investment as compared to big industries, which
does not concentrate the power of economy in few hands. Moreover any one can start a small
scale industry (low investment) which will bring equal distribution of income and wealth in the
economy.

4. Source of raw materials:- SSI are the source of raw materials for big industries, majority of big
industries get raw materials from them only. It builds the eco-system of flow of income in the
economy.
 Foreign trade policy
During colonial period India was the prime exporter of raw materials and the importer of
finished goods. But after independence, India’s foreign trade undergo with a massive
change.
In order to be self-sufficient, India has followed a policy of Import substitution which
is also known as inward looking trade strategy.
Import substitution

Import substitution refers to a policy of replacement of import by domestic production.

According to this policy, instead of importing goods from foreign country, domestic
industries are encouraged by giving different incentives to produce them in India.
Government of India uses 2 ways to protect domestic goods from imports
1. Tariff
It refers to the taxes levied on imported goods. The goods can be imported in India after
paying heavy amount of taxes on such goods; imposition of tax increases the price of such
goods which automatically reduces its demand in the market.

2. Quota
It refers to the government imposed trade restriction that limits the number or monetary
value.
 Economic Reforms
Economic Reforms are the long term dynamic combination of policies and
programmed for the speedy growth, efficiency in production and make a
competitive environment. Economic reforms were adopted by Indian government
in 1991. Factors responsible for economic
reform
1. Fall in foreign exchange reserve :- Due to the process of industrialization the
imports of the economy grew much faster than the amount of exports. Increase in
imports reduces the foreign exchange reserve of the economy.

2. Failure of Public Sector:- One of the most important factors which led to the
economic reform is the low rate of development of public sector undertakings. The
low rate of development causes massive poverty and unemployment in the
economy.

3. High Fiscal deficit :- Fiscal deficit refers to borrowing by the government on

account of the excess of its expenditure over revenue during a year. It was
estimated to be 5.4% of GDP in 1981-82 and increases to 8.4% of GDP in
1990-91.It represents the poor financial condition of the economy.
4. Deficit in Balance of payment :-Balance of payment refers to the statistical statement of receipt
and payment of a country with rest of the world in an accounting year. Due to slow growth of exports
and huge increment in imports the balance of payment of our economy remains in deficit. (Foreign
payments>Foreign receipts)

5. Rate of inflation also increases :- In order to eliminate the situation of crises from Indian Economy,
Prime Minister P.V. Narsimha Roa along with the finance minister Dr. Manmohan Singh introduced
the new economic policy in 1991. It includes a. Liberalization b. Privatization c. Globalization
Elements of New Economic Policy
Liberalization
The removal of entry and growth restrictions on private sector enterprises or the removal of trade
barriers is known as liberalization.
Before 1991, government imposed many restrictions on private enterprises which restricts them to
take risk or to get indulge in a big project.
According to the policy of 1991, the government tries to remove such barriers so that the private
sector of the economy shall grow.

In order to get liberalized, government introduced.

Industrial sector reform
Financial sector reform
Fiscal reform
Foreign exchange reform
Trade and investment policy reforms
 1. Industrial sector reforms

Under industrial sector, government provides liberalization in the following ways.

1. Reducing industrial licensing:- The new economic policy abolished the

requirement of licensing except for the following five industries, i.e. liquor,
cigarette, defence equipment, industrial explosive and dangerous chemicals.

2. Decreasing the role of public sector:- The number of industries reserved for
public sector is now reduced for 17 to 3 i.e. Defence equipment, Atomic Energy
generation and Railways.

3. Making MRTP act (Monopoly restrictive trade practice act, 1970) more liberal:-
Now big industrialist is no longer required to seek prior government approval for
expansion and establishment of new industries.

4. Freedom to import capital goods:- Indian industrialist will be free to import

machinery or raw material for rest of the world in order to expand and to
modernize their industries.
 2. Financial sector reforms

1. Establishment of private sector bank:- According to this policy private sector

will now be able to open up a bank in India as well as in rest of the world. The
basic purpose of adoption this policy is to increase competition which ultimately
leads to lower rate of interest and good quality of services.

2. Changing the role of Reserve Bank of India:- The role of RBI is now changed
from regulator to facilitator of financial sector. It means that the financial sector
can take decision on many matters without consulting from RBI.

3. Foreign investment limit:- In banks was increased up to 51 percent i.e. foreign

investors are allowed to invest in Indian financial markets.

4. Ease of expansion:- After fulfilling certain conditions, banks were given

freedom to set up new branches and rationalize existing branches without any
approval of RBI.
 3. Fiscal reforms or tax reforms

It refers to the reforms in government taxes and public expenditure policies.

Tax
It is the compulsory payment made by the citizen of a country to the government without
receiving any direct benefit in return. Taxes are of 2 types.

1. Direct tax:- They are those taxes that are imposed on property and income of an individual or a
company, and are paid directly by them to the government.
Example:- Income tax, Corporate tax, Wealth tax etc.

2. Indirect Tax :- They are those taxes which affects the income and property of individuals and
companies through their consumption expenditure. They are imposed on good and service
Example:- GST (Goods and Services tax), Excise duty etc.

1. Reduction in Direct tax :- The rate of direct tax is reduced so that it encourages the
citizen to promote saving and voluntary disclosure of income. The government also
regulates and reduces the rate of indirect tax, so that a common national market for goods
services can be established. The process of taxation is also simplified so that a common
man can easily understand and accept the structure.
 4. Foreign exchange reforms
It refers to the rate at which the currency of one country is exchanged with the
currency of other country.
Foreign exchange rate measures the number of units of one currency required to
exchange with one unit of other currency.
Example 1$ = 70 rupees.
The above rate means that 70 rupees are required to exchange with 1 dollar.
The foreign exchange reform was introduced in order to bring stability in import and
export and to stabilize the crises of balance of payment.
The reforms are

1. Devaluation of Rupees:- Devaluation refers to decrease in the value of domestic

currency by the government. In order to attract foreign investors and to increase the
amount of foreign exchange the government reduces the value of domestic currency.

2. Adopting flexible exchange rate system:- It refers to a system in which the exchange
rate is determined by the forces of demand and supply of different currencies in the
foreign exchange market. i.e. the currency which is in demand, has higher exchange
rate and the currency whose supply is more, is less valuable and hence it is exchanged
at a lower rate. The value of currency is allowed to fluctuate freely.
 5. Trade and investment reforms

Before 1991, heavy tariff and quota system was implemented by the
government to protect domestic industries. But this policies results in
reduction of efficiency and slow growth of the economy. So in order to
boost up the competition and to foreign investments, government of
India implemented trade and investment reforms which are as follows.

• Reduction in quota (up to maximum possible limit)

• Removal of Export duty
• Reduction in import duty
• Import licensing was abolished(removed)

Except in case of hazardous and environmentally sensitive industries.

 Privatization

The transfer of ownership right from public sector undertaking to private sector undertaking in known
as privatization.

Contraction of public sector :- According to this policy, the private sectors are no longer restricted to
entry in any industry (except atomic power, railways and defence.)
Government companies have been sold by the central government to private capitalist which
are incurring losses in 1991.
Privatization of public sector undertaking (PSU) by selling off part of equity to the public ( this
process is known as disinvestment).
The government has also attempt to improve the efficiency of few PSUs by giving them
additional power and freedom to enter joint venture, raise debts etc.
The government has listed 9 public sector undertaking with the name of ‘Navratna Companies.’
“NAVRATANAS”
1. INDIAN OIL
2. BHATRAT PETROLEUM
3. ONGE (OIL & NATURAL GAS CORPORATION)
4. SAIL (STEEL AUTHORITY OF INDIA LTD.
5. HINDUSTHAN PETROLEUM
6. BHEL (BHARAT HEAVY ELECTRICALS LIMITED)
7. IPCL (INDIAN PETRO CHEMICAL CORPORATION LTD.
8. VIDESH SANCHAR NIGAM LTD.
9. NTPC (NATIONAL THERMAL POWER CORPORATION) LTD.
 Globalization
The integration of domestic economy with world economy is known as globalization.
In other words, it may be defined as a process associated with increasing openness, growing
economic interdependence and deepening economic integration in the world economy.
Policies promoting globalization
1. Increase in limit of equity in foreign investment :- The equity limit which was 40% was now
upgraded to 51% and even higher. The concept of increasing the limit is to welcome foreign
investment and increase the flow of foreign exchange.

2. Reduction in tariff :- The amount of tax imposed on import of goods is also reduced up to the
maximum possible limit. So that international competition and technological up gradation can
be enjoyed.

3. Removal of quantitative restrictions:- The quota system was abolished by the government of
India to promote trade (up to the maximum limit). India being the member country of World
Trade Organization (WTO) since April 2001, totally removed the quantitative restrictions as
foreign trade.

4. Partial convertibility of rupees :- It refers to a system where in the country is allowed to

determine its own exchange rate in the international market on the basis of demand and supply
(without any direct official intervention) The convertibility of rupees attracts the foreign
investors to invest in India.
 Outsourcing

This is one of the most important outcomes of globalization. Under this, a

company hires regular service from external sources (mostly from other countries)
which were previously done internally. The low wage rates, availability of skilled
manpower and existence of special economic zones have made it a destination for
global outsourcing in the post reform period. The main service which are
outsources from India by developing countries are call centers, film editing,
music recording, record keeping etc.

Special economic zones (SEZs)

It is an economic zone which was established by the government of India for industrial
development.
In such zones various facilities were provided by the Government.
• Cheap raw materials
• Infrastructural facilities
• Five year tax free plan
• Flexibility in labour laws
 Achievements of New Economic policy 1991

1. Increase in rate of economic growth:- The Indian economy was no longer a

stagnant economy. The policy of 1991 pulls out the economy from stagnancy to a
developing country. The growth of GDP increases from 5.6% in 1990-91 to 7.6%
in 2015-16.

2. Rise in foreign exchange reserve:- Due to relaxation in tariff and increasing the
limit of foreign direct investment. (FDI)

▪ The foreign exchange reserve of the country increase from 3,362 million in
1990 to $ 25,186 million in 1995.
▪ Foreign investment also increases from $100 million in 1991 to 150 million in
1995.
▪ The rate of inflation also decreases from 17% in 1990 to 6.5% in 2001.
▪ Fiscal deficit of the economy is also reduced from 8.5% to less than 5%
▪ The deficits in balance of payment also come under control.
▪ Due to the removal of export duty, the exports of India started to increase.
 Demerits of New Economic policy 1991
• Neglected agriculture sector as the new economic policy has special emphasizes on
industrial and IT sector.

• Security of job has been decreased because entry of FDI and multinational companies.

• Small scale and cottage industries has declined because of increase in competition due
to globalization.

• The metropolitan cities are developed with lacking behind the development of rural
areas.

• The disinvestment policy was also not favorable for domestic investor.

• Leads to unbalanced growth between the sectors.

• Spread of consumerism. (the promotion of the interests of consumers)

• The new policy has been encouraging a dangerous trend of consumerism by

encouraging the production of luxuries and items of superior consumption.
 World Trade Organization (WTO)
Before WTO, GATT (General agreement of tariff and trade) was established in 1948 with
23 countries as the global trade organization to administer all international trade
agreements by providing equal opportunities to all the countries in international market
for trading purposes.
The WTO came into existence on 1st January 1995 as the successor organization to the
GATT.
The WTO is body incorporated for the purpose of making the whole world a village
where in goods and services can flow without any undue barriers.
The head quarter of WTO is located in Geneva (Switzerland). The WTO has 164
members and 23 observer governments. The current director-general of WTO is Roberto
Azevedo of Brazil (since 1 st September 2013)
Role /Functions of WTO
• To facilitates international trade
• To provide financial assistance to the member country in international trade.
• Always tries to remove the tariff barriers between the countries.
• Acts as a watch dog in international trade.
• Acts as a forum for trade negotiations
• To provide a platform to member countries to decide future strategies related to
trade and tariff.
• To administer the rules and processes related to dispute settlement.
 Poverty
Poverty refers to a situation in which an individual is unable to fulfill the basic
necessities of life.
In other words, it is the ability of an individual to fulfill the minimum
requirement of life like food, clothing, shelter, education and health facilities
etc.

Measures of poverty (Types of poverty):- Poverty is of 2 types.

1. Relative poverty: It refers to the poverty of people in comparison to other

people, regions or nations.
Example- Ramesh has lower income in comparison of Mukesh Ambani;
therefore we can say that Ramesh is relative poor than Mr. Mukesh Ambani.

2.Absolute poverty: It refers to the total number of people living below poverty
line.
In other words, Absolute poverty refers to a situation when the level of income
of an individual is too low that they cannot even meet their minimum
consumption requirements to maintain their health and work efficiency.
 Poverty line
It refers to a line which divides the population into 2 parts. i.e. poor and non-poor.
In other words, Poverty line is a cut-off point on the line of distribution, which usually divides the
population of a country as a poor and non-poor. Poverty line measures the number of people who
are regarded as poor.
Determination of poverty line
1. Minimum calories consumption:- The planning commission of India has defined poverty line on
the basis of nutritional requirement. i.e. people who are not getting 2400 calories as per person per
day in rural areas and 2100 calories in urban areas is considered to be living under poverty line .

2. Minimum consumption expenditure criteria:-Another criterion for determining the poverty line is
the Minimum consumption expenditure criteria. According to this, if a person won’t be able to make
the monthly expenditure of 816 Rupees (Around 32 Rupees per day) in rural areas and 1,407
Rupees (around 47 Rupees per day) in urban areas comes under poverty line.

Categorizing poverty
There are many ways to categorize poverty
• Chronic poor:- It includes such people who are always poor and those who are usually poor.
• Transient poor:- It includes people who regularly moves in and out of poverty line (like small
farmers) and those who are occasionally poor (seasonal workers)
• Non poor:- It includes people who are never comes under poverty line.
According to World Bank
If you are living on $ 1.90 a day or less, you’re living in extreme poverty
 Causes of Poverty
1. Rapid increase in population:- The population of our county is increasing at an
alarming rate. This increase in population reduces the availability of natural
resources per head and also decreases the per capital income which ultimately
leads to unemployment and poverty.

2. Low level of national output:- In comparison with the population growth the
net national product of the economy falls short. The rate of increase in
productivity is miserably low than the rate of increase in population. It
automatically leads to increase in poverty and reduction in standard of living.

3. Inflation:- One of the most important causes of poverty is the rise in general
price level. Sharp rise in rice and negligible change in level of income has
increased the purchasing power of low income group and results in lower
standard of living.

4. High level of migration from rural areas:- The crowd of rural areas migrated
towards the urban area in search of employment but the existing industries and
limited job opportunity won’t be able to absorb all of these people and hence this
migration leads to unemployment and poverty.
5. Unemployment:- An increasing rate of unemployment is another major cause of
poverty in the economy. The amount of job seekers is increasing at much higher
rate than that of employment opportunity.

6. Rural indebtedness:- Condition of unemployment and lack of available resources

compiles the people of rural areas to borrow money from unorganized sector at
higher rate of interest; this rural indebtedness is one of the most significant factors
of poverty in rural areas.

7. High Illiteracy rate:- All illiterate people won’t be able to participate in the
emerging employment opportunities in different sectors of the urban and rural
areas, as they do not have the necessary knowledge and skill to do so. This illiteracy
is one of the main causes of poverty in the country.
 Approaches by the government of India to remove poverty
1. Growth oriented approach:- This approach is based on the expectation that the
rapid increase in Gross domestic product and net capital income(economic
growth) would spread the benefits to at the sections of society and will
automatically reduces the amount of poverty from the economy.

2. Minimum needs programme:- It was introduced in fifth five year plan (1974-78),
to, provide certain basic minimum needs and improve the living standards of
people. It aims at social and economic development of the undeserved population.
It includes nutrition (via mid day meal scheme), rural water supply, rural
electrification, Elementary education and so on.

3. Poverty alleviation programme:- The government of India has introduced

variety of programs in order to remove poverty and to enhance the growth and
development of the economy.
For example- Prime Minister Rozgar Yojana (PMRY), Mahatma Gandhi National
rural Employment Guarantees Act. (MGNREGA) etc.
 Poverty Alleviation programme in India
1. Mahatma Gandhi National rural employment guarantee scheme (MGNREGA):- The National
rural employment guarantee Act (NREGA) was passed in 2005 and later on it was remained as
Mahatma Gandhi rural employment guarantee Act (MGNREGA) in 2006 in 200 identified districts
of the country.
Under this act, all those who are willing to work at the minimum wage rate offered, will get
employment for a period of minimum 100 days.

2. Food for work programme:- Popularly known as National food for work programme. It was
launched in 2004. It aims at providing more opportunities of wage employment and ensuring
certain minimum nutritional levels for the poor population of rural areas. The wages for work are
paid partly in food grains and partly in cash. It was 100% centrally sponsored scheme. This
programme was incorporated in Mahatma Gandhi rural employment guarantee Act (MGNREGA)
in 2005.

3. Swarna Jyanti Gram Swarozgar Yojana (SGSY):- (Providing employment to yourself) It was
introduced in April 1999. Under this yojana, a large number of small enterprises were established
in rural areas. It aims at promoting micro enterprises and to bring the assisted poor families above
the poverty line, by organizing them into self-held group (SHGs).

4. Self-help groups are small groups of poor people:- They help each other to solve their problems.
SHGs promote small savings among their members. The savings are kept with the bank the name of
the self help group. Later on this common fund is used to give small loans its members.
 5. Pradhan Mantri gram sadak yojana (PMGSY):- It was launched in December 2000. It aims at
improving road connectivity to all the eligible unconnected habitations in the rural areas by the end
of tenth five year plan (2002-2007). A total length of about 3,00,000 Km of road work has been
completed till November 2010.

6. Sampoorna Gramin Rozagar Yojana(SGRY):- Launched on 1 st September 2001 . Its main objectives
are to.
• Provide employment opportunities and food security
• Development of infrastructure
• Focus on development of regional, economic and social conditions
• Employment assurance scheme and Jawahar gram Sammridhi Yojana have been merged with
SGRY since April 2002. SGRY was merged with National rural employment guarantee scheme in
2006.

7. Swarna Jyanti Shahari Rozgar Yojana (SJSRY):- It was launched in 1 st December 1997 . It aims at
creating employment opportunities for both self-employed and wage employed in urban areas. It
was funded on the 75:25 basis between the Centre and the states.
It consists of 2 special schemes.
(a) Urban self-employment programme (USEP) (b) Urban wage employment programme (UWEP)
Other programme launched by the government
A. Swarn Jyanti gram swarozgar Yojana (SGSY) B. Jawahar gram sammridhi yojani C. Jan Dhan
Yojana National rural livelihood mission (NRLM) D. Prime Minister rozgar yojana E. Indra Awas
Yojana F. Pradhan Mantri gramodaya yojana.
 Human Capital Development in India

A. Physical Capital:- It includes all those inputs which are required in the process of
production, such as plant, raw materials, machinery, building etc.

B. Human Capital:- It refers to the knowledge, skill and efficiency of human beings in a
national at a point of time.

C. Human Capital formation:- It is the process of acquiring and increasing the number
of persons who have the skill, education and experience which are essential for the
economic and political development of the nation.
Sources of human capital formation

1. Investment/expenditure on education- The most important source of human capital

formation is to invest on the education system and training of people. Education
enables an individual to make good living throughout his life.
A good education system results in the overall development of the economy as
education generate technical skills and creates manpower which suites for improving
the total productivity of the economy.
2. Expenditure on health :- ‘Health is wealth’ is an old saying which directly signifies that a
health mind is much more effective and productive than a sick mind. Expenditure on
health makes an individual more productive and hence it contributes more in the GDP of
the nation.

3. On the job training:- It refers to the training of employees while they are performing a
job. The concept of on the job training increases the productivity of labour and sharpens
their skills as they work under professional guidance and with practical application.
Moreover, it enables the workers to adapt new technologies and hence creates human
capital.

4. Expenditure on information :- Information related to job markets and educational

institutes offering specialized skills is an important determinant of skill formation as it
enables the individuals to actualize their true potential.

5. Migration:- It refers to moving from one place to other. It contributes to human capital
formation as it enables the utilization of inactive skills of the peoples or it facilitates
better utilization of resources. People migrate from rural to urban areas in order to find
better earnings and good standard of living.
 Role of human capital formation in economic growth

1. Increases production :- Human capital formation focuses on building a productivity

environment by providing skills and education to the people of the country. The productivity of
the economy will automatically increases with increase in the level of education and skilled
workforce.

2. Raises life expectancy :- Human capital formation increases the life expectance of the people.
Better health facility and good food increases the life span of people and raises the quality of life.

3. Improves the quality of life:- People migrate for better earning and quality of life. The quality
of life depends upon the level of education, health care facilities, better working environment
and good quality food. Human capital formation increases the quality of life of the people of the
economy.

4. Increases participation and brings equality :- Here participation refers to the percentage of
labour force participating the process of production. Human capital formation leads to
enhancement of productive capacity of the labour which ultimately leads to greater
employment and equality in the distribution of income and wealth.

5. Innovative skills :- With the increase in the number of skilled and trained workers, the
possibilities of innovation also increase in the process of production. Innovation always plays a
key role in the path of development of the economy and generation of income.
 Problems facing in human capital formation

1. Rising population:- Increasing population reduced the per head availability of

existing resources and facilities such as hospital, education, employment, water
supply etc. The reduction in resources reduces the quality of life the people.

2. Brain drain:- Skilled and technically efficient people migrate from India to foreign
countries in search of better salaries and standard of life. This is a threat in the
process of human capital formation for the country as it slows down the pace of
development of the economy.

3. Insufficient man power planning:- One of the main causes of unemployment is

the deficit of proper man power planning. There is always a gap between demand
and supply of rising labour force in the country. Increase in the number of
employment opportunities is far behind the number of Available work force.
4. Inefficient education system:- Everything in the economy changes with the
changing environment except the education system of our economy. The education
system of our economy is around 100 years old. The number of universities
increases with the great pace lacking behind the quality of education.

5. Inefficient on the job in agriculture :- Indian is an agriculture based economy

and yet agriculture does not received much attention in the area of professional
skills. The concept of on the job training rarely applied in this sector which
ultimately results in traditional methods of farming and low level of productivity.

6. Inefficient resources:- The amount of resources allotted for the development of

human capital is very low as compared to actual amount of resources required.
Due to this the resources remains inadequate and insufficient for the formation of
human capital.
 Educational sector: An essential part of human capital formation

Education refers to the process of teaching, training and learning especially in

schools and colleges to improve knowledge and to develop skill. Basically
education is termed to be the most important part of human capital formation as
it enables the people to change their outlook, become more efficient and to
increase their productivity. In India the education sector has been developed since
independence.

1.Elementary education
• It covers the students from class 1 to class 8(6-14 years)
• The number of primary and middle school (up to class 8) has increased from
2.24 lakhs in 1950-51 to 11.92 lakhs in 2011-12
• Nearly 97% children receive elementary education.
• Government introduced various policies to strengthen elementary education
such as Sarva Siksha abhiyan, right to education, mid-day meal programme
and so on.
2. Secondary and senior secondary education
• It covers the students from class 9 to class 12( 14-19 years)
• The number of Secondary and senior secondary school has increased from 7.4
thousands in 1950-51 to 2.32 lakhs in 2011-12.
• The number of students also increases from 15 lakhs in 1950-51 to 482 lakhs in
2011-12. An important role is played by Navodaya schools and kendriya
vidhyalayas at central level.

3. Higher education
• The number of colleges (general) has increased from 578 in 1950-51 to 35,839
in 2011-12.
• The number of universities has also increased from 27 to 665.
• The number of students getting higher education is about 130 lakhs(2011-12.)
• The expenditure on education has also increased from 1.5% of GDP in 1950 to
3.1% in 2015-16.
 Important terms

1. Gross Enrollment ratio :- It refers to the number of students enrolled in school at

different grade levels (primary, middle and high school.)

2. Literacy rate :- It refers to the percentage of people above 7 years who can read, write
and understand any one language.
▪ The literacy rate of India is approx 74.4%.
▪ Most literate state is Kerala with 93.9% whereas the least literate state is Bihar with
63.8%

3. Human resource development :- It refers to the development of the set of individual that
makes up the workforce of an organization, business sector or economy.

In India
• Ministry of education at the center and state level, NCERT (National council of
educational research and training), UGC (University grant commission), AICTE (All
India Council of technical education) regulate the educational sector.
• Ministry of Health at the Union and the state level and ICMR (Indian Council of
Medical research)
 Rural Development
It is a continuous and comprehensive socio-economic process trying to improve all the
aspects of rural life.
In other words, Rural Development is a comprehensive term which essentially focuses on
action for the development of area which is lacking behind in the overall development of
village economy.

The overall development of rural economy comes under rural development such as.
• Development of human resources.
• Development of infrastructure.
• Land reforms
• Poverty Alleviation program etc.

Agriculture credit:- It refers to the credit for the farming. Due to involvement of long time
period and uneven distribution of land, credit becomes the lifeline of Indian agriculture.

Sources of Agricultural credit :- There exist 2 types of sources which provide agricultural
credit in rural areas.
1. Non institutional sources
2. Institutional sources
 Non institutional sources

It is the most common source of rural credit:- It includes

• Money lenders
• Zamindar
• Sahukar
• Relatives
• Traders

Merits of taking credit from Non Institutional sources

• No legal formalities are required

• Loan is provided anytime
• Ease in taking loan

Demerits of taking credit from Non Institutional sources

• High rate of interest

• Exploitation of farmers
• Farmers were forced to sell their products to the tenders at low price.
 Institutional sources
1. Co-operative credit societies:- They provide adequate credit to the farmers at reasonable
rate of interest. They also provide directions in agricultural operations to the farmers so that
they can increase their productivity.

2. Commercial banks :- It is an institution which performs the functions of accepting deposit,

granting loans and making investment, with the aim of earning profit.
Example:- SBI (State Bank of India),PNB (Punjab national Bank of India), Canara bank etc.

3. Regional rural Bank (RRB):- These banks are setup to promote credit facilities in rural and
backward areas of the country. They operate at district level and focus on the credit
requirements of weaker sections of the societies.

4. NABARD (National Bank for Agriculture and Rural Development):- It is an Apex bank in
agricultural and rural credit (established in 1982) the bank has been entrusted with the
matters concerning policy, planning and operations in the field of credit for agriculture and
other economic activities in rural areas of the country. The basis objective of this is to promote
the strength of agricultural credit in rural areas.

5. Self-help group (SHGs) :- Self Help Groups are small groups of poor people. They help each
other to solve their problems. SHGs promote small savings among their numbers. The savings
are kept with the bank with the name of the self help group.
 Agricultural marketing
Agriculture marketing is a process that includes assembling, storage, processing
transportation, packaging, grading and distribution of different agriculture commodities
across the country.
In other words, it includes the service involved in moving the agricultural products from
farm to the ultimate consumer. A good marketing system is essential to mobilize the
surplus agricultural products (food grains and raw materials) to feed urban populations and
industries.
Defects of agriculture marketing
• Lack of storage facility
• Lack of effective transportation in rural areas
• Lack of marketing information in farmers
• Lack of adequate finance
• Inadequate communication.
Measures taken for agriculture marketing
1. Regulated market :- It is a type of market which was established by the government of
India for transparency in buying and selling of agriculture commodities. The buying and
selling of commodities under this market is monitored by the committee which includes
the representatives of government, farmers and traders. It is established just for protecting
farmers from fraud by middlemen and to provide them adequate price for their
commodities.
 2. Co-operative agriculture marketing societies:- It refers to the type of marketing societies are
formed by the farmers to sell the output collectively and to take advantage of collective bargaining in
order to get better price for the crops.

3. Minimum support price (MSP) :- In order to give better price and to increase the incentive for
producing agriculture products the government of India gives minimum support price to the farmers
for their crops. It can be treated as the offer price by the government to the farmers for their crops.
The government purchases the products from the farmers at Minimum support price and stores it in
the godown of Food Corporation of India (FCI).

4. Subsidised transport :- In order to promote and strengthen agriculture in the economy, the
government introduced subsidized transport system for the farmers. Railway offer low rate transport
to the farmers for bringing their produce to the urban markets where they may get a better deal.

5. Public distribution system:- Concept of ration shops and fair prices shops operates the public
distribution system in the economy .Fair price shops offer essential commodities like Rice, Wheat,
Pulses, kerosene etc. at a lower price to the financially lower sections (below poverty line) of the
societies.

6. Standardization and grading :- Grading is the process of dividing the products into different lots
which have similar characteristics in shape, size, type, quality, performance etc. Products of different
qualities should be separate into groups and similar quality products are put into a grade. Grading and
quality controls helps the farmers to secure more prices for better Quality of products and to earn
more. Example- different grades of rice are Basmati, Arborio, brown, jasmine, white etc.
 Diversification of Agriculture activities
Due to huge amount of rise and sole dependence of rural areas on agriculture there exists a
need to diversify the agriculture activities.
Diversification refers to the shift from crop farming to other areas of production for employment;
it raises the level of income and reduces the heavy rise.
It has aspects
1. Diversification of crop production :- It refers to changing the single cropping system into multi-
cropping system. Earlier a single food grain was produced on a piece of land. The basic agenda of
diversifying this was to change the cropping from food grains to cash crops. Multi-crops referred
to production of more than 1 crop in a year. It decreases the dependence of farmers on one or 2
crops as they are now engaged in production of variety of crops.

2. Diversification of productive activities:- Due to overburden of crop farming sector, major

portion of the increasing workforce were given employment opportunities in non farming
sectors.

Non-framing primary sector includes.

▪ Animal husbandry (includes breeding, caring and rearing of farm animals like cattle’s goats,
duck etc.)
▪ Fisheries (includes catching, processing and selling of water animals)
▪ Horticulture (includes cultivation of fruits, vegetables flowers, medicinal plants etc.)
(The revolution connected to horticulture is known as golden revolution)
 Sustainable development and Organic farming
The development of our present generation without hampering the development of
future generation is known as Sustainable development.

Organic Farming:- It is a process of producing food naturally; under such farming the
use of chemical fertilizers and high yielding variety of seeds is totally prohibited. It is an
eco-friendly method of cultivation which brings Sustainable development in the
country.
In other words, it is a type of farming system in which the total farming restores,
maintain and enhance the balance of ecological system. This method of farming is very
popular across the globe, many countries produces around 10% of their food output
through organic farming.

Benefits of organic farming

• Eco-friendly system of production. (Due to involvement of fertilizers)
• It is a less expensive method because of use of traditional technique of production.
• Increases the level of income, as the demand for organic products is increasing
rapidly in international market.
• It provides healthier and tastier food.
• Provides more employment opportunities as it is labour intensive.
 Worker
It refers to an individual who is engaged in some productive activity to earn a living
Types of workers are broadly classified into 2 categories.

1. Self employed: It refers to the workers who are engaged in their own business or
enterprises.
In other words:- the worker who own and operate an enterprise is known as self-
employed worker.

2. Hired workers: It refers to the workers who are hired by others and are paid in the
form of wages or salary as a reward of their services.
Hired workers are of 2 types
1. Regular workers:- When a worker is engaged by an individual or an enterprise and is
paid wages on regular wages, then they are known as regular workers or regular
salaried employees. In India around 15% of total workforce is engaged as regular
worker
Example- Teachers, office employ, manager of an organization etc.

2. Casual workers (part time labour):- It refers to the workers who are not employed
on regular basis. They are casually engaged on a job and in return get entertained by
the remuneration for the work done. These employees do not get any job security and
 Labour force
It refers to the sum total of the persons who are willing and able to work at an
existing wage rate in an economy. Labour force includes both employed and
unemployed persons.

Labour force = Persons working + person available / seeking for work

Work force

It refers to the part of labour force who is actually engaged in one productive
activity.
In other words, work force refers to the number of persons who are actually
employed at a particular point of time in an economy.
 Labour supply
It refers to the amount of labour that workers are willing to work corresponding to a particular
wage rate.
In other words, the labour supply is the total hours that workers wish to work at the given wage-
rate.
Example- Wage rate - 500 rupees per day – worker is ready to work for 8 hours
Wage rate - 1000 rupees per day - workers is ready to work for 10 hours.

Jobless growth :- It refers to a situation where gross-domestic product of an economy grows

faster than the employment opportunities which results in unemployment.
In India, the economy is experiencing GDP growth more through technology than the
employment of labour.

Casualisation of employment :- Casualisation refers a situation when the percentage of casually

hired workers in the total workforce tends to rise over time. Even the skilled workers of urban
areas are to struggle for regular jobs due to massive unemployment in the country.
Unemployment reduces the bargaining power of workers whereas it increases the bargaining
power of employers.
 Informalisation of employment
Employment structure can be classified as
1. Formal sector employment
2. Informal sector employment

1. Formal sector
• It refers to the organized sector of the economy.
• It includes all public and private establishments which hire 10 or more workers.
• The workers of these sectors are entitled to social security benefits.(such as pension)
• The workers of these sectors are not protected by labour laws.
• The workers of these sectors are called as formal sector workers.

2. Informal sector workers

• It refers to the unorganized sector of the economy.
• It includes all such private establishment who hires less than 10 workers.
• The workers of these sectors do not entitled to any social security benefits.
• The workers of these sectors are not protected by labour laws.
• It provides employment to more than 90% of workforce.

In formalization:- refers to a situation when people tends to find employment more in

informal sector of the economy and less in formal sector of the economy it generally happens
as informal sector requires fewer amounts of qualifications and formalities to get the job.
 Unemployment
It refers to a condition of unemployment in which all those who are willing and able to work
at the existing wage rate doesn’t get work.
Types of unemployment

1. Disguised unemployment of hidden unemployment:- It refers to a situation wherein the

number of workers engaged in a job is much more than the number of people actually
required doing the same amount of job i.e. even if some people are withdrawn from the job,
the total product doesn’t fall.
Example- 4 persons are required to do the job of cultivation but there are 9 persons who
are performing the same job. It means that the productivity of extra 5 units of labour is zero.

2. Fictional unemployment (temporary unemployment) :- It refers to the unemployment

which exists during the period when workers leave one job and join the other i.e. when
people are moving or changing occupations.

3. Seasonal unemployment:- It refers to a situation in which people are unemployed during

few months (off season) of a year due to their seasonal work.
In other words, it is a type of unemployed which occurs at certain seasons of the year.
Example – industries where demand, production and employment are seasonal such as
tourism and leisure, farming etc.
4. Open unemployment or involuntary unemployment:- It refers to a condition of
unemployment in which all those who are willing and able to work at the existing wage rate
doesn’t get work. It is called open unemployment because it can be seen and counted in
terms of numbers to find the number of unemployment person in a country.

5. Structural unemployment :- It refers to the type of unemployment which is caused by a

mismatch between the skills that workers in the economy can offer and the skills
demanded by the employers. It is often brought by technology up gradation that makes a
job skill of many workers obsolete.
Example- decrease in demand of typewriter would leads to structural unemployment in the
typewriter industry.

6. Cyclical unemployment :- It refers to the type of unemployment which arises to business

cycle fluctuations, i.e. normal ups and downs of the economy. When the economy is at
boom period the cyclical unemployment is minimum whereas at the time of recession it is
maximum.

7. Educated unemployment :- It refers to a situation when an educated persons doesn’t

have the right job for him because of lack of employment opportunities in an economy, also
their qualification doesn’t match with the Job. Faulty education system, lack of employable
skills, preference of white collar jobs are some of the reasons responsible for this
unemployment.
 Causes of unemployment
1. Slow rate of economic growth :- Slow rate of economic growth in India is very low due to
which the economy is unable to generate adequate amount of employment opportunity for
the people of the economy. Moreover the rate of labour force is much higher than the rate
of employment opportunities.

2. Population explosion:- The constantly rise in population is one of main reason of

unemployment in India. India is treated to be a work force country, where majority of
population comes under workforce, due to this even after implementing various policies
and plans the rate of unemployment tends to rise.

3. Defective educational system:- The education system of the economy is around 100
years old, due to continuous change in the economic activities the system doesn’t fits the
present scenario. The education system in India is degree oriented and not job oriented;
due to this the educational unemployment increases.

4. Faulty planning :- The economic planning of our country is not primarily designed for
employment Generation. Five years plans are not efficient enough to absorb the increasing
rate of unemployment from the country. Moreover the plans could not be able to stop the
migration of rural population to urban areas.
5. Excessive use of foreign technology:- India is considered to be a Labour intensive
country, where the amount of available labour force is exceptionally high. Such country
should adopt labour intensive technique of production so that it can give employment
opportunities to maximum number of people but due to excessive use of foreign
technology, capital intensive technique of production is promoted which substitute
capital for labour.

6. Underdeveloped agriculture:- The agriculture sector in India is underdeveloped and

it provides only seasonal employment. The majority of people of the country relay on
agriculture for employment but the seasonal nature of agriculture does not provide to
stable job to the farmers for the complete year.

7. Decline of cottage and small industry:- After independence the number of small
industries has declined due to change in the pattern of demand and preferences of
general public. Emergence of large industries with latest modern and technology and
capital intensive technique of production has reduces the employment opportunities in
the economy and hence results in un-employment.

8. Low capital formation

9. Increase in labour force
 Remedial measures for unemployment

1. Accelerating growth rate of GDP:- In order to achieve the state of full

employment growth rate of the economy must rise. The growth rate of
economy must rise by 3-4% (5.6%-9%) in the coming years to absorb the
increasing unemployment.

2. Control over population :- The rate of population growth of the country

should be decreased so that the additional job opportunities don’t fall short
off for the large number of existing workforce. Programs like single child
norm, family planning should be introduced.

3. Encouragement of small scale industries :- In order to reduce the problem

of unemployment small scale and cottage industries must be encouraged by
the government in several ways such as tax free, liberally credit, subsidized
rate for raw materials etc.
4. Change in educational system:- The education system of the economy must be
reformed. A new model based on work and skill development must be included
along with the vocational studies. More emphases should be given on training and
development of an individual rather than degree oriented education.

5. Encouragement of self- employment:- Government must provide various

facilities to the public to generate more self employment. It includes facilities like
marketing, technical training, easy credit etc. Increase in the amount of self
employment reduces the burden of providing employment from the government.

6. Change in technique of production:- Basically there exist 2 types of techniques

of production
• Labour intensive technique (more labour and less machines)
• Capital intensive labour (more capital and less labour)
 infrastructure
It refers to all such activities, services and facilities that are needed to provide
different kinds of services in an economy. It provides supporting services to the main
areas of industry, agriculture production and trade and commerce. It includes service
like railways, roads, irrigation, public utility (electricity, communication, health,
energy etc.) and so on.
In other words, infrastructure refers to the support system of the economic and
social development of the economy.

Kinds of infrastructure:- Infrastructure is basically classified into 2 categories.

1. Economic infrastructure:- It includes such elements of infrastructure which are

essential for the development of the economy. It includes transportation,
communication, electricity, science and technology and financial distribution. It
promotes the economic activities of the country.

2. Socialist infrastructure:- It includes such services and provisions which improves

the quality of resources and the standard of living. It accelerates the process of
human development. It includes education, health, housing etc. A good social
infrastructure increases the productive capacity of an individual.
 Importance of infrastructure
1. Increase productivity:- The productivity of an economy directly depends upon the
infrastructure. A well-developed infrastructure always accelerates the production
capacity of the economy.
Example- Proper irrigation facilities improve the crop production.

2. Provides employment opportunities:- Development of infrastructure facilities

increases the employment opportunities in an economy.
Example- construction of road requires manpower and hence it creates employment
opportunities etc.

3. It facilitates the functioning of an economy:- In order to operate and work with full
efficiency, the economy needs well developed infrastructural facilities, such as proper
communication facilities, transportation facilities, electricity, banking etc.

4. Facilitates outsourcing:- A country with well-developed infrastructure facilities

always becomes a center of outsourcing work. From past few years, India is emerging
as a global destination of business process outsourcing; call centers etc, due to good
infrastructure.
5. Promotes economic growth:- The growth of an economy depends upon many
factors such as production capacity human capital formation, quality of life etc and in
order to promote and enhance the above factors, as well developed infrastructure
facilities are mandatory.

6. Improves quality of life:- Proper education, health care facilities and standard of
living comprises the quality of life, and the socialist infrastructure mainly focuses on
these sectors only. Increase in quality of life improves the ability of an individual to
work.

State of infrastructure in our country

• The state of infrastructure of the economy was very poor.

• We spend only 5% of our GDP on infrastructure whereas China spends 20%,
Indonesia 14% and Korea 7% of their GDP.
• Most of the household in rural areas (around 82%) uses bio fuel for cooking.
• In 2010, only 62% of rural household have electrification.
• The sanitation facility was only 6% in rural areas.
 Energy
One of the most important and key component economic infrastructures is energy. It
can be treated as a lifeline of production activity across all the sectors of the economy.
Sources of Energy

1. Commercial and non-commercial sources of energy

A. Commercial sources
▪ It is a type of source of energy which are formed in termed of price
▪ These goods are largely used for commercial purposes of the factories.
▪ They have a market of sale and purchase.
▪ It is non-renewable in nature.
▪ Example-coal, petroleum, electricity, natural gas etc.

B. Non-commercial sources.
▪ They are the sources of energy which are found as a gift from nature.
▪ They are renewable sources of energy.
▪ These are used for domestic and consumption purposes.
▪ Example- cow dung, firewood, animal waste etc.
2. Conventional and non-conventional sources of energy

A. Conventional sources
The energy which have a long history of their knowledge and use.
In other words, it refers to the sources of energy which we are using since long period of
time.
▪ It is limited in nature
▪ They are non-renewable.
▪ These sources of energy generally pollute the environment.
▪ These sources of energy are more expensive in nature.
▪ Example- Coal, Petroleum, Natural Gas etc.

B. Non-conventional sources
The sources of energy which comes into existence in the recent past.
In other words, it refers to the sources of energy which has been discovered just because of
modern technology (used just from past few years).
▪ They are unlimited in nature
▪ They are renewable in nature
▪ It generally does not pollutes the environment
▪ They are less expensive in nature
▪ Example- Solar energy, Wind energy, Tidal energy, Bio mass etc.
 Power/
electricity
One of the most critical and most important components of infrastructure which
directly signifies the modern civilization is electricity. With increase the prospectus
of development of the economy the demand of electricity also increasing day by
day. The rate of demand of power is far ahead than the growth rate of GDP.
Sources of power generation

There are basically 3 sources of generation of electricity.

1. Thermal Power:- The power is generated through coal, oil and natural gas.
Around 70% of total electricity is generated through thermal power.

2. Hydro and Wind Power:- The power is generated through wind mill or from the
waters of dams and fast flowing rivers. Around 28% of total electricity is generated
through thermal power.

3. Nuclear Power:- The power is generated through radio-active elements (such as

uranium) Around 2% of total electricity is generated through thermal power.
 Challenges in power sector
1. Transmission and distribution loss :- The first and foremost problem that is faced by the electricity
department is the transmission and distribution loss. The loss is electricity while flowing from one
place to another can be due to backward technology or due to loss by theft.

2. Insufficient installed capacity :- Although there exist massive production of electricity in the
economy but the production is yet not sufficient to meet the demand. This deficit supply may results
in power cuts, low voltage, excessive load on distribution and many other problems.

3. Under utilization of capacity :- One of the major drawbacks of power sector is the lack of proper
utilization of thermal power stations. Due to lack of proper technology the power plants are
underutilized. In 2016-17, India was just able to utilize 60% of the total capacity.

4. Shortage of raw materials:- Thermal power plant, which is the main source of Indian power sector,
is facing shortage of coat supplies and other raw materials due to which the power sector is inefficient.

5. Poor performance of State electricity boards:- The State electricity board which provides electricity
supply in the economy is running in huge losses, these boards lacks funds to make payment for the
electricity purchased by them. This shortage of fund may be due to distribution loss, theft of power,
free power in agriculture etc.

6. Lack of public cooperation / public unrest:- Due to heavy taxes and massive power cuts across the
different parts of the country, power sector lack the cooperation of general public.
 Measures to overcome challenges of power sector
1. Reduce transmission and distribution loss:- In order to meet the demand of
power, the first and most important task is to reduce the wastage of power. The
power which is waste during, transmission and distribution should be minimized; it
can be done, by improvement in technology, stop theft of power and so on.

2. Improvement plant load factor:- As stated earlier, the main deficit of power
sector is the under utilization of plants. So the main task of the power sector is to
make proper utilization of existing capacity of the power stations. It will help to
increase the power generation without increasing the number of plants.

3. Increase production capacity:- The installed capacity of the existing plants needs
to be increased, so that the supply of electricity across all the sectors of the
economy can match the desired amount of demand.
4. Increase the supply of inputs :- Thermal power plants in India (which
generally faces shortage of inputs) must receive regular supply of inputs
(Coal and other Raw Materials).This would insure fully utilization of existing
plant capacity.

5. Promote the use of CGL and LEDs :- Use of such appliances which
consume lesser amount of electricity must be promoted. CFL (Compact
Fluorescent light) and LEDs (Light emitting diodes) provides electrification
in the economy with low amount of consumption of energy and power.

6. Encourage FDI and privatization of power generation :- Private sector

must play a significant role in the generation of power in India. The
government must encourage the participation of private sector and foreign
direct investment (FDI) in power generation.
 Health
Health refers to the state of complete physical and mental well- being of an individual.
Good health does not mean absence of disease but it implies the increase in overall
efficiency of an individual. Increment in health results in better productivity of labour
which ultimately increase the productivity of the economy as a whole.

State of health infrastructure

• There has been a great expansion in Indian health sector after independence but
yet it quite below the satisfactory measure.
• Being the second most populated country in the world, the health sector of our
country lacks the connectivity across different areas of the economy.
• There is a massive gap between rural and urban areas in context of utilizing the
health care facilities.
• However from past few decades, the increase in development of health care sector
has pick up the pace.
• India has build up variety of health care facilities across different areas of the
country. At village level primary health centers have been set.
• The role of private sector in health infrastructure has also increased up to 70%.
 3 Tier Healthcare Systems
India adopted 3 tier healthcare systems in the economy.

1. Primary health care

• These centers provides basic health care facilities such as maternal and child health care,
immunization, educating the people (about identifying, preventing and controlling diseases) etc.
• These centers are generally managed by a single doctor, a nurse and few.
• These centers are generally set-up in villages and small towns.
• If patient is not been able to manage by these centers then they are referred to the secondary or
tertiary hospitals.

2. Secondary health care

• Hospitals having better facilities for surgery, X-ray, ECG are called secondary health care
institutions.
• Generally located in districts and big towns.
• Provides primary as well as secondary health care facilities.
• If a patient is not been able to manage by these centers then they are referred to the tertiary
hospitals.

3 . Tertiary health care

• Hospitals which have advanced level equipment and medicines and can undertake all the
complicated health problem which could not be managed by the primary or secondary hospitals
comes under tertiary health care institutions.
• Example- AIIMS (All India Institute of Medical Science) in Delhi.
 Development of health services in India
After independence the health services in India has increased in a remarkable
way. The increment can be easily seen by the following indictors of good health.

1. Decline in Death rate:- Death rate refers to the number of people dying per
thousand persons in a year. Death rate has decline from 27 per thousand in
1951 to 6.4 per thousand in 2016.

2. Rise in life expectancy:- The expectancy of life has increased from 32 in

1951 to 68.3 in 2016.

3. Decrease in infant mortality rate:- Infant mortality rate refers to the number
of infants dying before the age of 1 year per thousand live births annually.
Infant mortality rate has decrease from 146 in 1951 to 34 in 2016.

4. Control over deadly diseases:- Diseases like material, small pox and cholera
have come under control.
 Health as an emerging challenge
As we had studied earlier that the health sector of our economy is developing with great pace.
Yet, the health care in India is still a challenge for the government of the country due to
following reasons.

1 . Unequal distribution health care services:- The services of health care are not distributed
equally across the rural and urban areas of the economy. Most of the services are only found in
urban areas lacking behind the rural section of the society behind.

2. Increasing privatization of health services :- Although increment in the role of private sector in
health sector speed up the pace of treatment but also increases the cost of handling the patient.
Being a developing country majority of public prefers low cost treatment which can only be
provided by the government sector.

3. Poor sanitation level:- Sanitation refers to public health conditions related clean drinking
water and adequate treatment and disposal of human excreta and sewage. The level of
sanitation is very low in both rural and urban sectors of the economy. However, in past few
years the concept of swachh bharat abhiyan helps in increasing its level.

4. Poor management of government health centers :- The increase in role of private sector in
health sector is due to the quality difference between private and government hospitals. The
maintenance and upkeep of the government hospitals is very poor due to which the public is
compelled to depend upon the private hospitals.
 Environment
Environment refers to the total planetary inheritance and the totality of all the resource.
In other words, Environment includes all the biotic (living elements) and abiotic (non-living element
elements which influence each other.
Biotic elements – Living being- bird, plants, humans etc.
Abiotic element – Non-living elements – air, water land etc.

Functions of environment
1. Supplies resources :- Environment provides various resources such as wood, minerals, soil etc.
these resources are necessary for the process of production and they are available at free of cost in
the environment.

2. Environment assimilates waste :- Environment absorbs various waste generated in the process of
production by human being. Assimilation of the waste is necessary for the survival of life on planet
earth.

3. Sustains life :- It includes various ingredients which are necessary for the survival of human life. This
ingredient includes sun, water, soil and air.

4. Enhance the quality of life :- Environment includes land, forests, mountains, rivers etc. Man enjoys
these surroundings and the scenic beauty of these elements. Such elements help in improving the
quality of life.
 Carrying capacity of Environment

It refers to the capacity of environment under which it is able to perform

the above.

Functions without any interruption : The environment is able to perform

the functions till the demand for its resources lies under the carrying
capacity.
In other words, carrying capacity implies that resources extraction should
not go above the rate of resource generation of wastes should remain
within the absorption capacity of the environment.
Absorption capacity of environment

It refers to the ability of the environment to absorb degradation. (waste)

Environment crises
Increase in population and urbanization leads to heavy stress on
environment. Due to this various resources has already becomes extinct
while others are reducing day by day.
 Some of the reasons of environment crises
1. Increase in population:- One of the most important reasons of environment
crises is the increase in population of humans. Increased population demand for
an extra units of resource which creates more amount of pressure on the
environment.

2. Industrial revolution:- Increase in the amount of industries increases the

amount of consumption of natural resources as raw material and also increases
the amount of waste from these industries which ultimately result in environment
crises.

3. Extraction of resources:- Extensive and intensive extraction of both renewable

and non-renewable resources decreases the natural reserves of environmental
resources due to which some vital resources are at the point of extinction.

4. Affluent consumption:- It refers to the spending if money on the acquiring of

luxury goods and services to publicly display economic power of the income.
Increase in the trend of affluent consumption of developed countries increases the
amount of consumption which leads to a greater demand of resources.
 Pollution
It refers to adding a substance in the environment which has harmful or poisonous effect. In
other words, pollution refers to the introduction of harmful substance in air, water and land.

Basically pollution is of 4 types

1. Air pollution:- Caused by- Burning of fossil fuels, smoke by industries smoke by vehicles etc.
2. Water pollution:- Caused by- Dumping of chemical wastes of factories in rivers, Sewerage
that flows from rivers, throwing of plastics in ocean etc.
3. Noise pollution:- Caused by- sound of vehicles, aircraft noise, industrial noise, high volume
equipment etc.
4. Land pollution:- Caused by- Deforestation, Urbanization, industrialization etc.

Global warming
It refers to the gradual increase in the average temperature of earth atmosphere. It is caused by
the man made increase in the amount of greenhouse gases [CO2, CFCs (Chlorofluorocarbon),
methane etc.] in the atmosphere through the burning of fossil fuels and deforestation.
Effects of global
warming
• Rise in sea level due to melting of polar ice
• Increase in tropical storms
• Many species became endangered.
• Increase in the incidence of tropical diseases) (like malaria, dengue etc.)
 Ozone depletion

The ozone layer is a region of earth stratosphere (a layer of atmosphere)

that absorbs most of the sun ultraviolet radiation. It contains high
concentration of ozone in relation to the other parts of the atmosphere.
It protects the planet from direct contact of ultraviolet rays. Ozone
depletion refers to the destruction of ozone in the ozone layer due to
presence of high level of CFCs (Chlorofluorocarbons) and bromine
compounds in the atmosphere.

Effects of Ozone depletion

Depletion of ozone layer allows more ultraviolet radiation to come on

earth which causes various problems to living organism such as skin
cancer, eye cancer and damage of immune system, hampers the growth
of other living elements etc.
 Challenges of Indian Environment
The priority issues of India’s environment ate as follows.
• Deforestation or Degradation of land
• Land Degradation
• Soil erosion
• Biodiversity loss
• Air pollution
• Management of fresh water

1. Deforestation or Degradation of land

It refers to the removal of a forest or stand trees from land which is then converted into non-forest
use.
In other words , It refers to cutting, clearing and removal of rainforest where land us thereafter
converted to a non-forest use. One of the main priority issues of environment is deforestation.
Industries improves the quality of life by providing variety of goods and services but on the other
hand it disturbs the whole ecological system, as industrialization leads to Urbanization and
urbanization requires more amount of land which ultimately leads to deforestation. More and more
amount of forest is for the purpose of development of cities and towns
Chipko Movement /Chipko Andolen – hug the tree
The chipko Movement (in North) or appiko movement (in South) was a forest conservation
movement in India. It was begun in 1970. In early 1970s, when felling of trees by the authorities has
started in sirsi district, 160 men, women and children hugged the trees and forced the woodcutters to
leave.
2. Land Degradation:- It refers to the decrease/decline in the productive capacity of the
land.
In other words, it refers to a decline in the overall quality of soil, water and vegetation
condition commonly caused by human activities.

Factors responsible for land degradation

• Deforestation
• Forest fires
• Improper crop rotation
• Indeterminate use of fertilizers and pesticides
• Improper planning and irrigation systems
• Non adoption of adequate soil conservation measures

3. Soil Erosion :- It refers to the removal of upper layer of the soil which contains the
majority of nutrients which are essential for the growth of plant. Soil erosion is caused by
strong winds and floods. Plantation of more trees can stop the process of soil erosion as
trees holds the layer of soil and protects them from winds and floods.

4. Biodiversity loss :- Biodiversity refers to the variety of plant and animal life in world or in
a particular habitat. Biodiversity boosts ecosystem productivity wherein each species,
whether small or large plays an important role. Biodiversity loss refers to the extinction of
species (plant or animal) worldwide, and also the local loss of species in a certain habitat.
 Sustainable development
The development of our present generation without hampering the development of future generation is
known as Sustainable development.
The basic motive of sustainable development is to ensure that the present generation should give a quality
of life to the next generation, which is not less than what the present generation inherits.

Achieve sustainable development:- In order to achieve, sustainable development following things are to
be done.

1. Limiting population :- In order to make the consumption of resources under the carrying capacity of the
environment, the most important thing that is to be done is the control of growth rate of population.

2. Careful use of renewable resources :- Here, careful use refers to the peace of consumption in which the
extraction of resources shout not exceeds the regeneration.

3. Substitution of non-renewable resources :- In order to achieve sustainable development, non-

renewable resources must be substitute with renewable resources. Moreover the rate of depletion of non-
renewable resources must not exceeds the rate of creation of renewable resources.

4. Pollution control :- Here pollution does not only mean air pollution, it includes all type of pollution
(such as land, air, water, sound). In order to achieve sustainable development, the discharge of pollution
should be limited to the absorption capacity of the environment.

5. Input efficient technology:- There is a need of such production technology which is input efficient and
not input consuming i.e. more amount of production in same amount of resources input.
 Strategies for sustainable development
Here is the list of various strategies that can be adopted for sustainable development.

1. Use of cleaner fuels:- In place of smoke emitting fuels life coal and petroleum such
fuels are to be taken into consideration which does not produce pollution, for example-
Liquefied petroleum gas (LPG), compressed natural gas (CNG), Gobargas in rural areas
etc.

2. Use of non-conventional sources of energy:- The sources of energy which comes

into existence in the recent past are known as non-conventional sources of energy.
In other words, it refers to the sources of energy which has been discovered just
because of modern technology (used just from past few years).
For example- winds power, solar energy etc.
Use of such energy is beneficial for environment as well as for human beings as these
sources of energy are termed as green sources i.e. they does not pollute environment
and can also be treated as the substituted of conventional sources of energy.

3. Public means of transport:- In order to reduce the consumption of petrol and to

decrease the amount of air pollution public transport must be taken into consideration.
As it reduces the amount of traffic and consumption of petrol which reduces sound
and air pollution. For example- Metro in Delhi.
4. Traditional knowledge and practice:- India is considered to be a environment friendly country.
From ancient period the people of India are very close to the environment, our agriculture system,
transport, household have been environment friendly. While shifting from our tradition system to
the western system we ignore the pride and environment friendly culture of our country. There is a
need to develop Indian culture in the heart of Indian public.
Example- AYUSH (Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homeopathy) treatment of
India.

5. Organic farming :- It is a process of producing food naturally; under such farming the use of
chemical fertilizers and high yielding variety of seeds is totally prohibited.
Increase in the trend of organic farming reduces the use of chemical fertilizers and pesticides which
ultimately reduces the land degradation. Moreover, agriculture through natural process increases the
quality of food.

6. Management of waste :- In order to control water pollution, proper management of industrial and
household waste must be done. This waste should not enter into river and ponds and shall be
systematically managed. Wastage of household can be recycled into compost and used as manure for
organic farming.

7. Mini-hydel plants :-It refers to the plants which are used to generate electricity through the power
of flowing water. There are plenty of small rivers and streams in mountain regions, hydro power
plants must be installed in those areas through which electricity cam be generated. Moreover these
plants are environment friendly and are capable of meeting local demands.
 Inflation
Inflation refers to the sustained (continuous) increase in the general price level of
goods and services in an economy over a period of time. In other words, the process of
rise in prices and reduction in the purchasing power of money is known as inflation. It is
the annualized percentage change in the general price index over time.

1. Indicators of inflation :- Condition of inflation can be seen by the following indictors.

A. Index number of prices :- Increases in the index number of prices reflects the
condition of inflation in an economy.

B. Wholesale price index (WPI) :- WPI refers to the index that measures the changes in
the price of goods at wholesale market (before the retail level) Increase in WPI shows
the condition of inflation in the economy.

C. Consumer price index (CPI):- A consumer price index measures changes in the price
level of market basket of consumer goods and services purchased by household.

2. GDP deflator:- It measures the average level of prices of all the goods and services
that makes up GDP. The rate of inflation increases with increase in the value of GDP
deflator.
 Causes of inflation
1. Increase in population:-The rate of increase in population is far beyond the rate of
increase in supply of goods and services. Increasing population increases the level of
demand in the economy which ultimately increases the general price level and creates
the condition of inflation.

2. Deficit financing:- It refers to the printing of new notes of the reserve bank of India
to meet the deficit of government. Printing of new currency increases the level of
supply of money in the economy which ultimately reduces the purchasing power of the
currency and hence creates the condition of inflation.

3. Increase in government expenditure:- Increase in government expenditure increase

the amount of money in the hand of general public as the expenditure of government
means the income of general public. More money in the hand of general public leads to
increase in demand of goods and services in the economy and results in rise in price.

4. Rising in administrative prices:- An administrated price is the price of a good service

as dictated by the government and is not directed by the forces of demand and supply.
There are many important commodities for which the price level is set by the
government (Example-petrol, diesel, coal etc.). The government keeps on rising the
price of such commodities in order to recover the loss of public sector undertakings.
5. Ease in finance:- The easy availability of finance or credit in purchase of
consumer goods increases the demand for such goods which ultimately results
in increment of general price level and hence creates the condition of inflation.

6. Rising price of imports:- Increase in price of imports increases the pressure

of demand on domestic units which will increase the general price level in the
economy and hence creates the condition of inflation.

7. Increase in supply of money:- After independence the policies of

development of the country insist on increase in supply of the currency but the
rate of growth of the economy does not increases. This increase in supply leads
to the reduction in the purchasing power of the currency and hence creates the
condition of inflation.

8. Increase in black money :- Black money refers to any money on which tax is
not paid to the government. Black money is generally utilised for financing non-
productive activities like purchase of gold, investment in real estate etc. All
these give rise to inflation in the economy.
 Types of inflation
Inflation can be broadly classified into 2 types.

A. Demand pull inflation :- Also known as ‘excess-demand inflation’. This type of inflation arises
when the demand of goods and services exceed the available supply, i. e. excess demand. When
the demand of goods and services increase lacking behind the available supply then the prices
tends to increase.
Causes of demand pull inflation
1. Increase in public expenditure :- Increment in public expenditure results on employment
generation which ultimately increases the money supply and demand o goods and services and
hence price increase.

2. Increase in money supply :- Increase in money supply results in reduction in the purchasing
power of the currency which ultimately increase the general price level of goods and services
on the economy.

3. Increase in population :- Level of demand of goods and services increases with increase in the
number of consumers and when rate of increase in population is greater than the rate of
increase in supply the general price level rises.

4. Deficit financing (printing of new currency)

5. Increase in exports
6. Existence of black money
B. Cost push inflation
This type of inflation arises due to increase in the cost of production.
Example- Increase in prices of raw material, wages increment etc.
In other words , it is the inflation caused by an increase in prices of inputs
like labour raw material, wages etc. The increased price of factor of
production decreases the supply.
Causes of cost push inflation

1. Higher wage rate:- Increase in wage rate or higher amount of wage rate
increase the cost of labour per unit of output produced which ultimately
increases the total cost of production.

2. Higher profit margin :- In order to retain the profit margin firms increases
the price of the commodity as a response of increase in cost of production
which ultimately results in inflation.

3. Higher indirect taxes.

4. Reduction in availability of basic inputs.
 Effects of inflation

1. Decline of real income:- Real income refers to the income which signifies
the purchasing power of an individual. Due to inflation, the general price
level of the economy increases which ultimately reduces the purchase
power of the currency and hence reduces the real income.

2. Discourage savings :- Rise in prices reduces the availability of extra income

in the hand of general public. As they require more amount of money to
purchase the commodities for consumption and hence saving is discouraged.

3. Deficit in Balance of payment:- Increasing rate of inflation makes the

domestic goods most costly in comparison to foreign goods. This will leads
to increase in imports and fall in the exchange rate of domestic energy
(from 1$=68 rupees to 1$ = 70 rupees.)
4. Encourages hoarding and black marketing:- Hoarding refers to the
purchase of large quantities of commodities by an individual or a firm with
the aim to earn more amount of profit by selling it at higher prices. Due to
rise in price every entrepreneur holds huge amount of stocks of their
commodities which creates the condition of artificial scarcity in the market.

5. Increase in poverty:- Inflation increases the real gap between poor and
rich. Due to rise in price the cost of living increases which adversely affects
the weaker sections of the society and increases the rate of poverty in the
economy.

6. Nominal pay increases :-Inflation increase the cost of living, which forces
the firms to increases the pay scale of workers. This increase in nominal pay
scale increases the market supply of the currency whereas the real pay
(purchasing power) declines.
 Policies to control inflation
I. Monetary policies (policy by Reserve Bank of India)
In order to control the condition of inflation central Bank of India uses these 2 instruments.

A. Quantitative instruments
These instruments are used to influence the total volume of credit in an economy. Central Bank
tries to increase or decrease the amount of credit available in an economy.

Various quantitative instruments used by the central bank are as follows:-

1. Bank rate(discount rate policy):- The rate at which the central bank lends money to
commercial bank as the lender of last resort is known as bank rate. The bank rate is announced
by the central bank at regular intervals in order to response to the market conditions. During
inflation, the central bank increases the bank rate which increases the cost of borrowings from
central bank. It forces the commercial banks to increase their lending rates, which discourages
type borrowers from taking loan.

2. Open Market Operations (OMO) :- It refers to the buying and selling of government securities
by the central banks from/to the general public or commercial banks. RBI is authorized to sell or
purchase treasury bills and government securities. OMO directly affects the supply of money in
circulation and cash reserve held by the commercial banks. During inflation the central bank Sale
the securities to commercial banks which reduces their reserve which adversely affects the bank
ability to create credit and therefore decreases the money supply in the economy.
3. Legal Reserve Requirement (LRR) (variable reserve ratio method) :-
According to the policy of central bank, every commercial bank is obliged to maintain
reserves out of the total deposits received from the depositors. It is a fast track method
to control credit creating power of commercial banks. Commercial Banks are obliged to
maintain 2 types of reserves.

a. Cash Reserve Ratio (CRR) :-It refers to the minimum percentage of net demand and
time liabilities to be kept by commercial banks with Central Bank. Change in CRR
affects the ability of commercial banks to create credit. At the time of inflation the
central bank increases the CRR which reduces the reserves of commercial banks and
credit creating power of commercial banks.

b. Statutory Liquidity Ratio(SLR) :- It refers to the minimum percentage of net demand

and time liabilities to be kept by commercial banks with themselves. SLR is
maintained in the form to show the liquid assets (power of banks to meet its daily
requirement of cash withdrawal.) Change in SLR affects the freedom of commercial
banks to sell government securities or to borrow against them from cent bank.
During inflation, central bank increases the SLR which reduces the ability of banks to
give credit and hence the supply of money in the economy decreases.
B. Qualitative instruments
These instruments are used to regulate the direction of credit. Various instruments are used by the
Central banks are:-

1. Margin Requirement
It refers to the difference between market value of security offered for loan and the amount of loan
given against that security.
Example:-
Amount of building given as security for loan = 1,00,000
Loan given against the security = 80,000
Margin = 20,000 (1,00,000 - 80,000)
RBI may prescribe different margins for different sets of borrowers against the security of same
commodity. During inflation central bank increases the margin which discourages the borrowers from
taking loan and hence the money supply decreases.

2. Moral Suasion (Advise to discourage lending):- This is a combination of persuasion and pressure
that Central bank applied on other banks in order to get them act according to the policy of central
bank. At the time of inflation, central bank advises the commercial banks to not to advance credit for
non essential activities, in order to minimize the condition of inflation from the country.

3. Selective credit control (Introduce Credit Rationing):- It refers to a method in which the central
bank gives directions to other banks to give or not to give credit for certain purposes to particular
sectors. During inflation, the central bank introduces rationing of credit in order to prevent excessive
flow of credit form the economy and to reduce the demand.
 Fiscal Policy (Policy by government)
1. Decrease in government spending:- Government should reduce its
expenditure on infrastructural and Administrative activity (to control inflation)
to the maximum possible extent. More emphasis should be placed to reduce
expenditure on defence and unproductive activities as they rarely help in
growth of the country.

2. Increase in taxes:- At the time of inflation, the government should increase

the amount of indirect taxes in order to reduce the residue (extra) income of
the consumer.

3. Public borrowing:- Government should increase the amount of borrowing

from general public in the form of public deposits in order to withdraw excess
money held by them which will ultimately reduces the supply of money in the
economy.
 Other policies
1. Increase in production:- In order to meet the excess demand at the time of
inflation the government should focus on increase in productivity of the economy.
This could be done by introduction of latest technology, promoting production and
other means.

2. Increasing imports:- If the demand for goods and services is far excess from the
domestic production capacity then the government should go for imports of
certain basic and essential commodities, in order to minimize inflationary gap.

3. Price control:- In order to make essential commodities available for all the
sectors of the society, the government should fix the maximum limit of prices of
essential commodities. Such as wheat, rice, water, cooking oil etc.

4. Population planning:- The condition of inflation basically arises when the rate of
increase in demand is greater than the increase in supply of goods and services.
Effective population control measures will help in reducing the excess demand and
to control inflation.
 Introduction
In this chapter we will study about a comparative study between the 3 countries
(India, Pakistan and China) and look after the outcomes of their policies after
independence.
All the 3 countries started their path of development at the same time, India
and Pakistan got independence in 1947 whereas the republic of China (Commonly
known as China) was established in 1949.
All the 3 countries started their planning in similar ways. India has announced
its first five year plan in 1951, China in 1953 and Pakistan in 1956.
India and Pakistan has adopted mixed economy whereas China has adopted
‘Statism’ (Public sector is assigned a key role in all the 3 economies).

Statism refers to a political system in which the state has substantial centralized control over social
and economic affairs. (also known as Central Planned Economy)
 Development strategies
A. China
After the establishment of republic of China in 1949, China adopted these strategies to
proceed in the path of development.

1. Government control:- The first and most important decision which builds the
economy of China is to brought all the sector of the economy, enterprises and lands
owned and operated by the individuals under government control.

2. Great leap forward:- In 1958, leap forward campaign was launched by the
Government of China for the process of industrialization. This campaign aims at
modernizing the economy by rapid industrialization. Peoples were encouraged to set
up industries in the backward areas. The process of industrialization, aids to the growth
rate of the economy of China.

3. Great proletarian cultural revolution(by Mao tse tung):- In 1965, Mao Tse tung the
chairman of the communist part of China has introduced Great proletarian cultural
revolution (1966-76).
According to this revolution, students and professionals were sent to work and
learn from rural areas. This helps the people of China to understand the basic problem
of the economy and to help others in the path of development.
 4. Reforms in Phases:- The government of china has introduced reforms in 2
different phases.

a. In initial phase, reforms were initiated in agriculture, foreign trade and

investment sectors. It includes allocation of land to general public who were
allowed to keep all the income from the land after paying certain minimum
taxed.

b. In the later phase, reforms were initiated in industrial sector. Under this, private
firms and village enterprises are allowed to produce goods.

5. Dual pricing system:- According to this system, the farmers and the industrial
units are obliged to buy and sell fixed quantities of inputs and outputs at the price
fixed by the government and rest were sold and purchase at market price.

6. Special economic zones (SEZs):- In order to attract foreign investors, special

economic zones were set up. It refers to a region that has economic laws different
from countries economic laws.
Example - Cheap labour, lower rate of tax, subsidized rate of electricity etc. These
zones are set-up with the aim to increase foreign investment.
B. Pakistan
India and Pakistan both gets its independence in 1947, the pathway of development of Pakistan
after independence is as follows.

1. Mixed economy:- As like certain economy, Pakistan also adopted the concept of mixed economy
for the path of development. It is a type of economy in which both private and public sector are
participating in productive activities. The allocation of resources is made by the government for
removing the central problem of economy with the help of private sector. Since, Private sector is
guided for maximizing their profit.

2. Green revolution :- The green revolution was started in 1953 in Pakistan. Green revolution refers
to the sudden and spectacular increase the production of food grains. Increase in public investment
on the infrastructure and green revolution gives rise to the production of food grains in Pakistan.

3. Development polices :- After independence, Pakistan introduced various policies to protect the
domestic traders and to grow the economy. Pakistan introduced import substitution, tariff protecting
for manufacturing of consumer goods and so on.

4. Role of private sector:- After 1987, Pakistan realized that private sector plays an important role in
the development of any economy and hence in 1988 structural reforms were implemented. The
thrust areas were denationalized and encouragement to private sector.

5. Financial support:- Pakistan received financial support from western nations and remittances from
emigrants to the middle countries. It boosts the growth of the economy.
 Comparative study of India, Pakistan and
China
A. Demographic indicators:- (Relating to the structure of the population)

1. Population:- China is regarded as the country with highest population in the

world, India ranks at number 2 whereas Pakistan is far behind both of them.

2. Population growth rate:- Population growth rate is highest in Pakistan (2% per
year) followed by India (1.1% and China (0.6%.) China has the lowest population
growth rate among India and Pakistan due to the policy of single child norm (One
child policy) which was introduced in China in 1979.

3. Sex ratio:- It refers to the ration of males to female in a population.

In other words, Number of females over 100 males all of the 3 countries has low
sex ration which represents the son prevailing mentality of the economy. It is
estimated to be 940 in India, 950 in China and 952 in Pakistan.

4. Population density:- It refers to the number of people per unit of area, usually
quoted per square kilometer or square mile. Due to huge area and single child
norm the population density of China is very low (138 persons sq.km) in
comparison to India (358 persons per sq.km) and Pakistan (193 person per sq.m)
B. Gross Domestic product and sectors

The average growth rate of China is about 9.5% which was highest in all the 3 countries,
whereas the rate of growth in India is 5.8% and Pakistan is 4.1%.
Agriculture contributes 9% in gross domestic product in China with 37% of its
workforce engagement whereas in India agriculture contributes 19% with 56% of
population engagement and in Pakistan it is 21% with engagement of 45% of population.
After independence, china has been shifting employment and output from agriculture
to manufacturing and then to services. In India and Pakistan, the shift is taking place directly
to service sector.

C. Human Development indicators

1. Human development Index (HDI) – Higher is better :- It is a statistic composite index of

life expectancy, education as per capital income indicators, which are used to rank
countries into four tiers of human development. The HDI of China is 0.752 where as India
and Pakistan is estimated to be 0.64 & 0.562 respectively.

2. Infant mortality rate- lower is better:- Infant mortality rate refers to the number of
infants dying before the age of 1 year per thousand live births annually. The IMR is lowest in
china with 11.8 per thousand, followed by India with 37.8 per thousand and Pakistan with
50.4 per thousand.
3. Sanitation:- In context of sanitation, China has the best performance among all
with 76% of its population has access to improved sanitation compared with 39.6%
in India and 63.5 percent in Pakistan.

4. Undernourished population – lower is better:- An undernourished person is one

who consumes less than the required minimum amount of nutritious foods
necessary for health and development. The percentage of undernourished
population in China is 11% which is lower than India and Pakistan (both at 20%.)
By going through the above discussion we can conclude that China has performed
in much better way than the other 2 economies. It can be easily seen by growth
rate and other indicators.
After China the next economy which performed well the path of development
is India, as the majority of people still depend upon agriculture and its rate of
growth is increasing year after year. Moreover India has the maximum percentage
of workforce in population across the globe which helps the economy to grow at
much faster pace.
At last, Pakistan won’t be able to perform well after independence as the
economy is primarily depends upon remittance and foreign loans moreover
political instability also restricts its path of development.