BY ASHISH KUMAR 1

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BY ASHISH KUMAR 2
 SIMPLIFIED
BY
ASHISH KUMAR
(Renowned faculty of Social Science)
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BY ASHISH KUMAR 3
 CHAPTER-1 DEVELOPMENT

INTRODUCTION

• Idea of development or progress has always existed.

• People have aspirations and desires about how they want to live.
• People have ideas about what a country should be like.
• Development involves thinking about essential things that are required for a better life
for all, how people should live together, and achieving more equality.
• Development is a complex task.
• Answers to these questions can be found not just in economics but also in history and
political science.
• The way we live today is influenced by the past.
• Democratic political process is necessary for achieving hopes and possibilities in real
life.

WHAT DEVELOPMENT PROMISES — DIFFERENT PEOPLE, DIFFERENT

GOALS

Table 1.1 lists different persons and their aspirations about development or progress (V. Imp).

Key Points Description

Different Different persons or groups may seek different developmental goals.
Developmental It is because their situations, lifestyle, aspirations, desires, and status are very different
Goals from each other.
Two things are quite -One, different persons can have different developmental goals.
clear -Two, what may be development for one may not be development for the other. It may
even be destructive for the other.
Examples Conflicting developmental goals can arise when the interests or desires of one group or
individual oppose those of another.

-For example, a girl may desire equal freedom and opportunities as her brother, while
the brother may disagree with this.

-Similarly, industrialists seeking more electricity through additional dams may disrupt
the lives of displaced people and communities, who may prefer smaller check dams or
tanks to irrigate their land.

BY ASHISH KUMAR 4
Table 1.1

Category of Person Developmental Goals / Aspirations

Landless rural labourers - More days of work and better wages
- Local school is able to provide quality education for their children
- There is no social discrimination and they can become leaders
in the village

Prosperous farmers from - Assured a high family income through higher support prices for their crops and
Punjab through hardworking and cheap labourers;

-They should be able to settle their children abroad

Farmers who depend - Tubewells to be dug and canals to be made for irrigation of on rain for growing
only on rain crops
for growing crops - Higher support prices for crops
- Availability of hardworking and cheap labor
- Better education facilities for their children
A rural woman from a - Education of her children in English medium schools
land- - More earning from the land by giving it on rent
owning family
Urban unemployed youth - More opportunities for higher education
- A permanent white-collar job
- Having a self-owned home to live in

A boy from a rich urban - Should be allowed to decide his career or whether to go into
family business
- Pursue higher studies abroad
- Have his own car and house to live in
A girl from a rich urban - She gets as much freedom as her brother and is able to decide what she wants to
family do in life
- She is able to pursue her studies abroad
An Adivasi from - No social discrimination
Narmada valley - School education for children
- All year-round employment for self
- PDS ration shop in the village

BY ASHISH KUMAR 5
INCOME AND OTHER GOALS

• People desire regular work, better wages, and fair prices for their products.
• In addition to income, people also seek equal treatment, freedom, security, and respect
from others.
• Material goods are not the only things necessary for a good quality of life.
• Non-material things such as friendship, dignity, and security also play an important
role in our lives.
• For development, people look at a mix of goals, including income, dignity, respect,
and security.
• Example-Factors other than income, such as family facilities, working atmosphere,
and learning opportunities, are also important when considering a job.
• Women's engagement in paid work increases their dignity, but respect for women also
encourages more sharing of housework and acceptance of women working outside.
A safe environment enables women to take up jobs or run a business.

NATIONAL DEVELOPMENT

Key Points Description

Diverse notion - Individuals may have different notions of national development
based on their personal goals and aspirations.
Acknowledgment - It is important to acknowledge and consider the diversity of ideas
and opinions when discussing national development (Democratic).
Resolution - Conflicting notions of development may arise, and it is crucial to
address them and find a fair and just path for all.
Great benefit to greatest people - National development should benefit a large number of people
rather than a small group.
innovative, democratic & - When thinking about national development, we should consider
sustainable approach. whether there is a better way of doing things.
- Always be innovative, democratic & sustainable in approach.

BY ASHISH KUMAR 6
HOW TO COMPARE DIFFERENT COUNTRIES OR STATES?

Key Points Description

Notions of development differ between Development can mean different things, and countries may have
countries different notions of development.
- How a Country is Said to developed or underdeveloped?

Income is most important attribute for -For comparing countries, income is considered to be one of the
country comparison most important attributes.
- More income means more of all things that human beings need,
and greater income is considered to be one important goal.

Per capita income -The income of a country is the income of all the residents of the
country, but for comparison between countries, we use per capita
income.
- Per capita income is the total income of the country divided by its
total population.
- In World Development Reports, brought out by the World Bank,
this criterion is used in classifying countries.

Rich countries Countries with per capita income of US$ 49,300 per annum and
above in 2019, are called high income or rich countries.

Low-income countries Countries with per capita ncome of US$ 2500 or less are called
low-income countries.

India classified as low-middle-income India comes in the category of low-middle-income countries

because its per capita income in 2019 was just US$ 6700 per
annum.

Developed countries typically exclude The rich countries, excluding countries of the Middle East and
certain Middle Eastern and small nations certain other small countries, are generally called developed
countries.

LIMITATION OF AVERAGE INCOME

Key Points Description

Averages for comparison 'Averages' are useful for comparing countries, but they hide disparities between
them.
Limitation of average -Average income does not tell us the distribution of income among the people.
income - It is just a material criterion for the comparison.
- Per capita income is not a useful criterion at all to measure of human
development.
- Per capita income is not the only attribute to a good quality life.

BY ASHISH KUMAR 7
Key Points Description
-Good health, protection from infectious diseases, lowering of mortality rate,
literacy, etc. are essential for a good standard of living.
Example with countries A Consider two countries, A and B, each with five citizens. Refer NCERT
and B
Identical average income Both countries have the same average income, but the distribution differs.
Inequitable distribution in Country B has more poverty and one extremely wealthy citizen.
country B

INCOME AND OTHER CRITERIA

Key Points Description

Development factors -People have goals such as security, respect, equal treatment, freedom, in
beyond income addition to better income.

- Per capita income is only one measure of development but high per capita
income is not the only attribute to a good quality of life.

-Good health, protection from infectious diseases, lowering of mortality rate,

promotion of literacy, etc. are essential for a good standard of living.

- Per capita income is not a useful criterion at all to measure the human
development ranking of a state.

Per Capita Income Analyzing per capita income data of Haryana, Kerala, and Bihar for 2018–19,
Example Haryana has the highest per capita income, while Bihar ranks the lowest.
Per Capita Income If per capita income is the sole measure of development, Haryana is
as a Measure considered the most developed, and Bihar is the least developed.
Child Mortality Examining other data, Kerala has lower infant mortality rates compared to
Rates Haryana, despite differences in per capita income.
Concern for Parents Consider the emotional impact on parents when children die at a young age,
and Children highlighting the human aspect of development.
Education -In Bihar, nearly half of children aged 14-15 don't attend school beyond Class
Disparities 8, emphasizing educational disparities within states.

- Education disparities mean some children may lack the opportunity to

acquire basic reading skills.

BY ASHISH KUMAR 8
Indicator Description
Infant Mortality - IMR indicates the number of children that die before the age of one year as a
Rate (IMR) proportion of 1000 live children born in that particular year.
Literacy Rate - Literacy Rate measures the proportion of literate population in the 7-and-above
age group.
Net Attendance - Net Attendance Ratio is the total number of children of age group 14- and 15-
Ratio years attending school as a percentage of the total number of children in the
same age group.

HUMAN DEVELOPMENT REPORT

- Income alone is an inadequate measure of development.
- We need to consider other important criteria, such as health and education indicators.
- Health and education indicators alongside income are also important as a measure of
development.
- The Human Development Report is published by the United Nations Development Programme
(UNDP).
- UNDP compares countries based on the educational levels of the people, their health status,
and per capita income.

Body Mass Index

Key Points Description

Body Mass Index Used to find out whether a person is nourished, under-nourished or over weight.
BMI Formula BMI is calculated by dividing weight (kg) by the square of height (m).

BY ASHISH KUMAR 9
Key Points Description
Interpreting BMI BMI values can be compared to BMI-for-Age tables to determine whether an
individual is underweight, overweight, or within the normal range.

The "Human" in Human Development Report

-Human Development Report (HDI) has evolved, incorporating enhancements and new components
for measurement.

-Sri Lanka is ahead of India in every respect despite being a smaller country.

-Nepal and Bangladesh have lower per capita income than India, yet they have better life
expectancy.

-Human Development Report has suggested improvements and added new components to the
measurement of HDI.

-The importance of citizen's health and well-being is emphasized in measuring human development.

-The prefix "Human" in Human Development Report makes it clear that what is important in
development is what is happening to citizens of a country.

PUBLIC FACILITIES - Public facilities are the basic facilities like education, food, health,
electricity, sanitation, safe drinking water, shelter, security, etc., that are given collectively by
the Government.

IMPORTANCE:
• Public facilities are important as they ensure basic needs of the people get fulfilled in
an affordable way.
• Public facilities provide availability, accessibility, and affordability to all classes of
people.
• Examples of public facilities include Government schools, Government hospitals,
public transport services, etc.

Key Points Description

Why public -Money cannot purchase all the necessary goods and services for a good
facilities? quality of life.
-For instance, income cannot secure a pollution-free environment or ensure
access to unadulterated medicines unless one resides in a community where
these conditions exist.

BY ASHISH KUMAR 10
Key Points Description
-Income may not safeguard against infectious diseases unless the entire
community takes preventive measures.
- Collective provision of goods and services is often cheaper and more
effective than individual provision, such as security or education.
Influence of -Access to education and the ability to attend high school depend on
Government and government and societal efforts to provide suitable facilities.
Society on
Education -In areas where these provisions are insufficient, children, particularly girls,
may be unable to access education.
Factors Behind Low Kerala's low Infant Mortality Rate is attributed to the availability of
Infant Mortality fundamental health and educational facilities. States with effective Public
Rate in Kerala Distribution Systems (PDS) tend to have better health and nutritional
outcomes.

SUITABLE DEVELOPMENT-Suitable development means development of the present

generation by using the earth’s resources as well as the ability to meet the needs of future
generations also.

• The present type and level of development are not sustainable and have been warned
by scientists since the second half of the twentieth century.
• Renewable resources are replenished by nature but may be overused.
• While non-renewable resources will get exhausted after years of use.
• Environmental degradation consequences do not respect national or state boundaries.
• Sustainability of development is a new area of knowledge where scientists,
economists, philosophers, and other social scientists are working together.
• As members of society and individuals, we need to continually ask ourselves where
we want to go, what we wish to become, and what our goals are.
• Example- Example Ground water is a renewable resource but we are overusing it as
compare to it replenish time. Now people face water crisis due to its indiscriminate
use.
• Example- -Case of crude oil-The crude oil which is a non-renewable resource with
limited stock is depleting gradually. So, we need to use it wisely.

BY ASHISH KUMAR 11
 CHAPTER-2 SECTORS OF INDIAN ECONOMY

Sectors on the basis of economic activities

Economic Description
Sector
Primary - When we produce a good by exploiting natural resources.
Sector - Examples: Cultivation of cotton, dairy farming, mining of minerals and ores, forestry, and
fishing.
- The primary sector provides the base for other product manufacturing.
- Often referred to as the agriculture and related sector due to its reliance on natural products.
Secondary - Activities where natural products are transformed into other forms through manufacturing
Sector processes.
- Requires industrial activity to convert raw materials into finished goods.
- Also known as the industrial sector.
- Examples: Spinning yarn from cotton fiber, making sugar from sugarcane, producing bricks
from earth, and manufacturing goods in factories and workshops.
Tertiary - Activities that support the development of the primary and secondary sectors.
Sector - Do not directly produce goods but provide essential services.
- Examples: Transport, storage, communication, banking, wholesale and retail trade.
- Activities generate services and hence are part of the service sector.
- Includes services like education, healthcare, personal services, and information technology-
based services like internet cafes, call centers, and software companies

Economic activities, though, are grouped into three different categories, are
highly interdependence
Economic Activities Interdependence
Agriculture and Food Processing - Primary sector produces raw food materials.
- Secondary sector processes raw materials into food products.
- Tertiary sector handles distribution, transportation, wholesale, and retail.
Mining and Manufacturing - Primary sector extracts minerals and ores.
- Secondary sector uses raw materials for manufacturing products.
- Tertiary sector sells and services manufactured goods.
Fishing and Restaurants - Primary sector involves fishing for seafood.
- Secondary sector processes seafood into restaurant meals.
- Tertiary sector includes eateries and hospitality serving seafood dishes.
Clothing Industry - Primary sector cultivates natural fibers (cotton, wool, silk).
- Secondary sector turns fibers into fabrics and clothing items.
- Tertiary sector involves clothing retail.

BY ASHISH KUMAR 12
How do we count the various goods and services and know the total
production in each sector?
Keywords Description
Measurement of Goods Economists use values, not actual numbers, to measure goods and services. Example:
and Services 10,000 kgs of wheat sold at Rs 20 per kg equals Rs 2,00,000.
Caution: Counting Only final goods and services are counted in GDP calculation. Intermediate goods
Only Final Goods are not counted to avoids double-counting.

- Final goods are those that reach the consumers and are ready for consumption.
- Intermediate goods, which are used in the production of final goods.
-Example is important
Gross Domestic -GDP is the total value of all final goods and services produced within a country in a
Product (GDP) year.
-It indicates the size of the economy.
GDP Calculation in -The Indian government, through a central ministry, collects data from all states and
India union territories to estimate GDP based on the total volume and prices of goods and
services.

Historical Change in Sectors

Economic Historical Importance Transition Over Time
Sector
Primary - Initially the most important sector of - As farming methods changed and agriculture
Sector economic activity. prospered, more food was produced, allowing
people to engage in other activities.

- Crafts persons, traders, transporters,

administrators, and others emerged.

- Most goods were natural products, and many

were employed in this sector.
Secondary - Over time, factories were introduced, and - A shift occurred from primary to secondary sector
Sector manufacturing methods changed. as manufacturing became the primary contributor
to production and employment.
- Factories expanded, and agricultural
workers shifted to factory work.
Tertiary - In developed countries, there has been a - The service sector has become the most
Sector shift from the secondary to the tertiary important in terms of total production and
sector over the past 100 years. employment in developed countries.

BY ASHISH KUMAR 13
Rising Importance of the Tertiary Sector in Production
Shift in Production Reasons for Tertiary Sector Growth
-Over the 40-year period between 1973- Several factors contribute to the growing importance of the
74 and 2013-14, all three sectors tertiary sector in India:
experienced an increase in production.

-The tertiary sector saw the most

significant increase, surpassing the
primary sector in production by 2013-14.
1. Basic Services: Every country requires essential services like
healthcare, education, postal services, police, administrative
offices, transportation, banking, and insurance. Developing
nations rely on the government to provide these services.
2. Development of Agriculture and Industry: The growth of
agriculture and industry leads to increased demand for services
such as transportation, trade, and storage. As the primary and
secondary sectors develop, they generate greater demand for these
services.
3. Rising Income Levels: With increasing income, sections of the
population demand more services such as dining out, tourism,
shopping, private healthcare, private education, and professional
training, particularly noticeable in cities.
4. Information Technology Services: Over the past decade,
information and communication technology-based services have
gained importance, leading to rapid production growth. These
services are covered in Chapter 4.
5- LPG reforms

Uneven growth in the Indian service sector

Keywords Description
Service Sector Variation Uneven growth in the Indian service sector
Two different Categories of workers -Highly skilled workers (IT professionals, healthcare)
-Lower-paying jobs (shopkeepers, repair workers)
- Varied economic conditions and opportunities for both of them
Challenges and Advantages -Skilled workers enjoy better pay and career growth
-While lower-end workers face low wages and job insecurity

BY ASHISH KUMAR 14
Where are most of the people employed?
Keywords Description
Shift in Primary Sector Unlike the shift in GDP share, there hasn't been a significant shift in
Employment employment from the primary sector.
Discrepancy in Growth of -While industrial output and goods production increased significantly
Production vs. Employment (over 9 times), employment in the industry only grew around 3 times.
-The service sector production grew by 14 times, but service sector
employment rose only around 5 times.
Lack of Job Creation in Secondary The primary reason for this is the inadequate creation of jobs in the
and Tertiary Sectors secondary and tertiary sectors despite substantial growth in industrial
output and service sector production.
Underemployment in Agriculture The situation in the primary sector, specifically agriculture.

-Underemployment, common in agriculture, is often hidden and known

as disguised unemployment, where people appear to work but are not
fully utilized.

Example is very important- Laxmi

Underemployment in Urban -In urban areas, many casual workers in the service sector experience
Service Sector underemployment.

-They often struggle to find daily employment and may work as painters,
plumbers, repair persons, or odd job laborers.
Low-Income Jobs in the Service -Some people in the service sector work low-income jobs, like street
Sector vendors, due to limited employment opportunities, resulting in low
earnings despite long working hours.
Notable point Despite employing more than half of the workforce, the primary sector,
particularly agriculture, contributes only about one-sixth of the country's
GDP.

In contrast, the secondary and tertiary sectors, employing fewer people,

generate the majority of the GDP.

BY ASHISH KUMAR 15
How to Create More Employment?
Employment Generation Methods Description
Irrigation and Agricultural Expansion Providing irrigation facilities, like wells and canals, can lead to
increased agricultural production and employment, reducing
underemployment.
Transportation and Storage Investing in rural transportation, storage facilities, and better roads
can help farmers like Laxmi sell their products, creating jobs in
transportation and trade.
Accessible Credit Offering affordable agricultural credit can help farmers like Laxmi
purchase seeds, fertilizers, equipment, and pump sets, thereby
improving farming and employment prospects.
Promotion of small-scale Industries Identifying, promoting, and establishing industries and services in
semi-rural areas can generate employment.
-For example, setting up a dal mill, opening a cold storage,
starting or promoting honey collection, etc.
Expansion of Educational and Health -Expanding the education and health sectors, including building
Sectors more schools, hiring teachers and staff, and increasing healthcare
workers, can create significant job opportunities.

-A study conducted by the erstwhile Planning Commission (now

known as NITI Aayog) estimates that nearly 20 lakh jobs can be
created in the education sector alone
Boost Economic Potential in Every Every state or region has the potential to increase income and
Region employment through sectors like tourism, regional craft
industries, or new services such as IT.
By improving Tourism Sector -The tourism sector, if improved, can provide additional
employment to millions of people, contributing to regional
economic growth.

-Planning Commission says that if tourism as a sector is

improved, every year we can give additional employment to more
than 35 lakh people.
Govt Scheme- Mahatma Gandhi National -The Indian government enacted MGNREGA 2005 to provide 100
Rural Employment Guarantee Act days of guaranteed employment in rural areas to those in need of
(MGNREGA 2005)- Very imp work.

-In case of failure, unemployment allowances are provided.

- MGNREGA 2005 prioritizes work that contributes to increased

production from the land, supporting agriculture and rural
development.

BY ASHISH KUMAR 16
Division of sectors as organised and unorganised
Keywords Kanta (Organized Sector) Kamal (Unorganized Sector)
Work Hours 9:30 a.m. to 5:30 p.m. (Fixed) 7:30 a.m. to 8:00 p.m. (Long hours)
Salary Payment Monthly salary, regularly paid Daily wages, not paid for days not worked
Allowances Receives medical and other allowances No additional allowances
Leave Entitled to paid leave and paid holidays, No paid leave or holidays
provident fund, gratuity etc. They are supposed
to get medical benefits and, under the laws.
Employment Assured work, protected by formal employment Uncertain, can be asked to leave anytime
Security terms
Government They are registered by the government and have Often operates outside government
Regulations to follow its rules and regulations which are control
given in various laws such as the Factories Act,
Minimum Wages Act, Payment of Gratuity Act,
Shops and Establishments Act etc

How to Protect Workers in the Unorganised Sector?

Category Challenges and Needs
Organized Sector -Slow employment growth
-It is also common to find many organised sector enterprises in the
unorganised sector.
-They adopt such strategies to evade taxes and refuse to follow laws that
protect labourers.
-Forced entry into unorganized sector with low salaries.
-Exploitation, low wages, job insecurity, lack of benefits
Workers Losing Jobs Since the -Transition to unorganized sector
1990s (Impact of LPG reforms)
-Since the 1990s, it is also common to see a large number of workers losing
their jobs in the organised sector.

-These workers are forced to take up jobs in the unorganised sector with low
earnings.
-Rural Areas -Landless agricultural laborers, small/marginal farmers,
(Who are these vulnerable sharecroppers, artisans (weavers, blacksmiths, etc.)
people who need protection?) -Need for support in seeds, inputs, credit, storage, marketing

-Urban Areas -Small-scale industry workers, casual workers, street vendors,

head load workers, garment makers, rag pickers, etc.
-Small-scale industry support for raw materials and marketing
Scheduled Castes/Tribes -Besides getting the irregular and low paid work, these workers also face
social discrimination.
-Protection and support to the unorganised sector workers is thus necessary
for both economic and social development.

BY ASHISH KUMAR 17
 Sectors in terms of ownership: public and private sectors
Sector Ownership of Assets Delivery of Services Motive Funding Examples
Source
Public Government owns Government provides Not profit Taxes and Railways, post office
Sector most assets services driven other ways
Private Private Private Profit-driven User Tata Iron and Steel Company
Sector individuals/companies individuals/companies payments Limited (TISCO), Reliance
Industries Limited (RIL)

Why do governments spend on such activities?

Keywords Reasons for Government Spending Examples
1-Infrastructure - Private sector may not provide - Construction of roads, bridges, railways,
Development certain services reasonably. harbours.
- Large sums of money required.
- Generating electricity.
- Collecting money from users is
difficult. - Providing irrigation through dams.
- Private sector charges high rates.

2-Economic - There are some activities, which the government has to support.
Support -The private sector may not continue their production or business unless
government encourages it.
- For example, selling electricity at the cost of generation may push up the
costs of production of goods in many industries.
- Many units, especially small-scale units, might have to shut down.
Government here steps in by producing and supplying electricity at affordable
rates.
3-Food Security - Government intervention in food distribution.
-Government in India buys wheat and rice from farmers at a ‘fair price’.
-Stores in its godowns and sells at a lower price to consumers through ration
shops.
- Supporting farmers and consumers.

BY ASHISH KUMAR 18
Activities of public interest on which the government needs to focus on a
priority basis.
Education-The government must provide adequate education facilities in all rural and urban
areas. The government must necessarily focus on education for girls so that all girls are able to
acquire at east secondary level schooling. Running proper schools and providing quality
education, particularly elementary education, is the duty of the government.

Health and Nutrition-Basic health care facilities are a must for all. Establishment of
government hospitals, clinics and dispensaries, especially in rural areas, to provide subsidized
and unadulterated medicines to the poorer sections of society.

An effective Public Distribution System—proper functioning of ration shops and equitable

distribution of food grains is very essential.

Transportation-A well-developed public transport system to make it easy for general public to
commute.

Electricity-It is the duty of the government to provide electricity and water at reasonable rates to
the common man and prevent him from exploitation by private companies.

BY ASHISH KUMAR 19
 CHAPTER-3 MONEY & CREDIT
MONEY AS A MEDIUM OF EXCHANGE

Key Point Description

Use of Money in -Money is an integral part of our daily lives.
Everyday Life -Facilitating numerous transactions that we engage in regularly. Whether it's
buying groceries, paying bills, or making online purchases, money is involved.
Types of Transactions -Transactions involving money can be categorized into several types.
-Including the buying and selling of goods or the exchange of services.
-Agreements for future payments (promissory transactions).

Role of Money -Money act as medium of exchange.

-It simplifies transactions.
-A person holding money can easily exchange it for any commodity or service
that he or she might want.
-Thus, everyone prefers to receive payments in money and then exchange the
money for things that they want.
Example: Shoe -To illustrate the role of money, consider the example of a shoe manufacturer.
Manufacturer's Process -They first exchange the shoes they have produced for money. Then, they use the
money to purchase wheat or any other needed commodity.
Barter System & -In a barter system, where goods are directly exchanged without money.
Challenges
-Double coincidence of wants." This means, What a person desires to sell is
exactly what the other wishes to buy. Example is very important.
-Complex & time consuming.
- Difficult to find out monitory value.
Money as a Medium of Money eliminates the need for a double coincidence of wants in an economy.
Exchange It acts as an intermediary in transactions, allowing people to exchange goods and
services without having to find perfectly matching trade partners.

MODERN FORMS OF MONEY

Key Point Description

Before the introduction -Various objects were used as money before the introduction of coins, such as
of coins grains and cattle.
Metallic Coins Metallic coins made of gold, silver, and copper were widely used as money for an
extended period, continuing into the last century.
Modern Currency -Modern forms of money include paper notes and coins, which are not made of
precious metals.
-The modern currency is without any use of its own.
Why is it accepted as a 1- Government Authorization of Currency -Modern currency is accepted as a
medium of exchange? medium of exchange because it is authorized by the government.
2-In India, the Reserve Bank issues currency notes on behalf of the central
government.

BY ASHISH KUMAR 20
Key Point Description
3- Legal Tender- The law in India legalizes the use of the rupee as a medium of
payment that cannot be refused in settling transactions. Individuals cannot legally
refuse payment in rupees.
4- The rupee is widely accepted as a medium of exchange in India due to its
government authorization and legal tender status

Deposits with Banks

Key Point Description
Money Held as Bank -Another way people hold money is by keeping deposits with banks.
Deposits
-Individuals often don't need all their cash at once, so they deposit extra cash into
bank accounts.
Interest on Bank -Banks accept the deposits and also pay an amount as interest on the deposits.
Deposits & safety -In this way people’s money is safe with the banks and it earns an amount as interest.
-People also have the provision to withdraw the money as and when they require.
Demand Deposits and -Deposits that can be withdrawn on demand are called "demand deposits."
Their Features -These deposits share key features of money and they are widely accepted as a
means of payment.
Use of Cheques for -Demand deposits are used for payments through cheques.
Payments -A cheque is a paper instruction to the bank to transfer a specific amount from the
account of the payer to the payee.
Banks' Role in Banks play a crucial role in this process by accepting deposits and allowing
Facilitating payments through cheques. Without banks, demand deposits and cheque-based
Transactions transactions would not exist.

LOAN ACTIVITIES OF BANKS

Key Point Description
Use of Deposits by Banks -Banks use the deposits they receive from the public for various purposes.
-They keep only a small portion of deposits as cash, typically around 15% in
India, to cover withdrawals.
-The remaining deposits are utilized for extending loans.
Loans and Economic Banks use the majority of the deposited funds to provide loans for various
Activities economic activities.
Role of Banks in Loan -Banks act as intermediaries between depositors (those with surplus funds) and
Mediation borrowers (those in need of funds).
-They use deposits to meet the loan requirements of borrowers.
Bank’s Income Banks charge a higher interest rate on loans than what they offer on deposits. The
difference between what is charged from borrowers and what is paid to depositors
is their main source of income

BY ASHISH KUMAR 21
TWO DIFFERENT CREDIT SITUATIONS

Situation Description Outcome Role of Credit

Salim's Shoe Salim, a shoe manufacturer, Salim successfully In this case, Salim obtains
Manufacturing receives a large order and needs delivers the order, credit to meet the working
funds for production. makes a profit, and capital needs of production.
repays the loans.
He obtains loans from the leather - Credit supports production
supplier and a trader to purchase and leads to improved
raw materials and hire workers. earnings.
-Credit therefore plays a vital
and positive role in this
situation.

Swapna's Crop Swapna, a small farmer, takes a Swapna is caught in a -Credit leads to financial
Cultivation loan from a moneylender to cover debt trap, forced to hardship when crops fail,
cultivation expenses. sell part of her land to creating a debt trap.
pay off the debt.
Her crop fails, leaving her unable -Credit in this case pushes the
to repay the loan. borrower into a situation from
which recovery is very painful
Credit would be - Credit (loan) refers to an agreement in which the lender supplies the borrower with
useful or not money, goods or services in return for the promise of future payment.

-Credit plays a significant role in day-to-day transactions, supporting various economic

activities.

-Whether credit would be useful or not, therefore, depends on the risks in the situation and
whether there is some support, in case of loss.

BY ASHISH KUMAR 22
TERMS OF CREDIT
Key Point Description
Terms of Credit -The terms of credit encompass interest rates, collateral requirements,
documentation, and repayment methods.
-They vary widely depending on the specific credit arrangement and the parties
involved.
Interest Rate -Loan agreements specify an interest rate that the borrower must pay in addition to
repaying the principal amount borrowed.
-Interest is the cost of borrowing money.
Collateral (Security) -Lenders may require collateral as security against loans.
-Collateral is an asset owned by the borrower, such as land, buildings, vehicles,
livestock, or bank deposits, used to guarantee repayment.
Consequences of fails -If the borrower fails to repay the loan, the lender has the right to sell the collateral to
to repay. recover the outstanding amount.

-Common examples of collateral include land titles, bank deposits, and livestock.

Variety of Credit Arrangements

Example Description Interest Total Land
Rate Owned (in
acres)
Shyamal Shyamal borrows at 60% per annum (at a high interest rate of 60% per 1.5 acres
5% per month) from a village moneylender for cultivation. annum

Shyamal borrows at 36% per annum (at a lower interest rate 36% per 1.5 acres
of 3% per month.) from a village trader, who provides inputs annum
on credit and expects crop sales.

Arun (Bank Arun gets an 8.5% per annum bank loan for cultivation, 8.5% per 7 acres
Loan) planning to repay it from crop sales and cold storage. annum

Rama Rama, a landless laborer, relies on her employer for credit at 60% per Landless (No
(Landowner) 60% per annum, repaying through labor. annum land owned)

BY ASHISH KUMAR 23
Loans from Cooperatives

Cooperative Function Membership Funding Loans Provided

Source
Cooperative -Organizations where Diverse Member -Cooperatives often act as a source of
Societies members collaborate to pool membership deposits affordable credit for rural areas,
resources for mutual and loans complementing banks.
benefits.
-They accept member deposits,
-Various types of creating a fund pool. These deposits
cooperatives serve different serve as collateral for securing loans
needs, such as farmers', from banks, enabling cooperatives to
weavers', and industrial access larger credit amounts.
workers' cooperatives.
Krishak An example of a cooperative 2300 farmer Member -Krishak Cooperative uses the funds
Cooperative located near Sonpur. members deposits it obtains to provide various loans to
and bank its members.
It has approximately 2300 loans
farmer members. -Agricultural implements, cultivation,
trade, fishery, construction, and
various other expenses.

Formal sector credit in India

Aspect Description
Formal sources -These sources of credit are registered by the government and have to
follow its rules and regulations.
-RBI supervises the functioning of formal sources of credit.
-They generally charge lower rates of interest.
-Their main motive is social welfare. Example: Banks and cooperatives.

Informal sources - Small and scattered units largely outside government control.
- No organization to supervise credit activities.
- Charge much higher interest rates.
- Main motive is profit-making.
- Examples include moneylenders, traders, employees, relatives, and
friends, among others.

BY ASHISH KUMAR 24
Aspect Description
Impact of Informal (i)There is no organisation which supervises the credit activities of lenders
Lenders in the informal sector.
(ii) They can lend at whatever interest rate they choose.
Q- Banks and (iii) There is no one to stop them from using unfair means to get their
cooperatives need to lend money back.
more? (iv) Compared to the formal lenders, most of the informal lenders charge
a much higher interest rate on loans. So, the cost to the borrowers of
informal loans is much higher.
(v) Higher cost of borrowing means a larger part of the earnings of the
borrower is used to repay the loan.
(vi) The higher interest rate of borrowing can mean that the amount to be
repaid is greater than the income of the borrower.

-For above reasons, banks and cooperative societies need to lend

more.
Role of credit for -If credit is made available to the poor people at reasonable rates, they
development can improve their economic condition.
-They could grow crops, do business, set up small-scale industries etc. -
-This would lead to higher incomes and many people could then borrow
cheaply for a variety of needs.
-It helps in increasing economic activities of the country
- Thus, heap and affordable credit is crucial for the country’s
development.

RBI FUNCTION
-RBI supervises the Indian banks in the following manner:

-The commercial banks are required to maintain a minimum cash balance out of the deposits they
receive.
-The RBI monitors that the banks actually maintain the cash balance.
-The RBI sees that the banks give loan not just to profit-making businesses and traders but also to
small cultivators, small-scale industries, small borrowers, etc.
-Periodically, banks have to submit information to the RBI on how much they are lending, to whom,
at what interest rate, etc.

BY ASHISH KUMAR 25
Formal and Informal Credit: Who gets what?

Key Points Description

Urban and Rural -Graph 2 illustrates the distribution of credit sources among people in urban
Credit Distribution and rural areas.
-It divides the population into four groups based on their economic status.
-The data highlights the disparity in credit sources between the poor and the
rich.
High Informal -Poor households in urban areas rely significantly on informal sources, with
Credit for the Poor 85% of their loans originating from such channels.
-While, rich urban households obtain only 10% of their loans from informal
sources, relying heavily on formal credit.
Similar Pattern in -A similar pattern is observed in rural areas, where rich households secure
Rural Areas affordable credit from formal lenders while poor households pay higher costs
for borrowing from informal sources.
Need for Expanding - Thus, it is necessary that banks and cooperatives increase their lending
Formal Credit particularly in the rural areas, so that the dependence on informal sources of
credit reduces.
- Secondly, while formal sector loans need to expand, it is also necessary that
everyone receives these loans.

Reasons for Banks Not Giving Loans to Certain Borrowers

(i) Banks do not wish to give loans to the poor as they have no collateral. Bank loans require proper
documents and collateral, as security against loans.

(ii) The borrowers who have not paid any previous loans are defaulters, and banks might not be
willing to lend them again.

(iii) The banks might not be willing to lend those entrepreneurs who are going to invest in the
business with high risks.

BY ASHISH KUMAR 26
SELF-HELP GROUPS FOR THE POOR

Aspect Information
Problem Poor household’s dependent on informal sources of credit
Reasons for 1. Limited presence of banks in rural India
dependence 2. Difficulty in obtaining bank loans due to documentation and collateral requirements
3. Absence of collateral among the poor

Informal Sources -Moneylenders often provide loans without collateral

-Moneylenders charge very high interest rates
L-ack of transaction records and harassment of borrowers by moneylenders
New Approach: -Formation of Self-Help Groups (SHGs)
SHG -SHGs consist of 15-20 members who meet and save regularly
-After regular savings for a year or two, SHGs can avail loans from banks.
-Members can take small loans from the group.
-Loans have lower interest rates compared to moneylenders.
Decision Making -Group members make decisions about loans (purpose, amount, interest, repayment)
-Group is responsible for loan repayment
-Non-repayment is taken seriously by other members
Benefits of SHGs -Overcoming the lack of collateral
-Timely loans for various purposes such as Self-employment opportunities, land release,
working capital, assets, etc.
-Reasonable interest rates
-Building blocks for organizing rural poor
-Addressing social issues through group meetings

Grameen Bank Of Bangladesh

Key Points Description
Grameen Bank Grameen Bank was founded in 1970 by Prof. Muhammad Younus, a
Establishment Nobel Peace Prize winner in 2006, for his remarkable contributions.
Bank's Expansion Over The bank has significantly expanded its operations over the 42 years,
42 Years covering a vast area of Bangladesh from 1976 to 2017.

BY ASHISH KUMAR 27
Key Points Description
Growth and Reach Starting as a small project, the Grameen Bank's influence grew
substantially, reaching 40,000 villages and serving 6 million borrowers
across Bangladesh by 2005.
Focus on Women and the The majority of the bank's borrowers are women hailing from
Underprivileged economically disadvantaged sections of society.
Empowering Self- These impoverished women have initiated "self-employment" projects by
Employment obtaining credit from Grameen Bank, resulting in a positive impact on
their lives and the lives of their families.

BY ASHISH KUMAR 28
 CHAPTER- 4 GLOBALISATION AND THE INDIAN ECONOMY

Syllabus for 2023-24 for this chapter

Globalisation and The Indian Economy To be evaluated in the Board Examination:
• What is Globalization?
• Factors that have enabled Globalisation
Interdisciplinary project as part of multiple assessments (Internally assessed for 5 marks) •
Production across the countries
• Chinese toys in India
• World Trade Organisation
• The Struggle for a Fair Globalisation

MNC
Aspect Description
MNC A MNC is a company that owns or controls production in more than one nation
Definition
Production MNCs set up offices and factories for production in regions where they can get cheap labour
Strategy and other resources.

Profit This is done so that the cost of production is low and the MNCs can earn greater profits.

Foreign Investment made by MNCs is called foreign investment. Every investment is made with the
investment hope that the assets will earn profits for these companies.
Foreign trade The trade between two or more countries is known as Foreign trade. Foreign trade comprises
of exports and imports.

EXAMPLE- A large MNC, producing industrial equipment, designs its products in

research centres in the United States, and then has the components manufactured in China.
These are then shipped to Mexico and Eastern Europe where the products are assembled and
the finished products are sold all over the world. Meanwhile, the company’s customer care is
carried out through call centres located in India.

Aspect Description
A large MNC’s Operations Global production and distribution of industrial equipment
Design Location Product design in the United States
Component Manufacturing Components manufactured in China
Assembly Locations Products assembled in Mexico and Eastern Europe
Global Sales Finished products sold worldwide
Customer Care Customer care conducted through call centres in India

BY ASHISH KUMAR 29
WHAT IS GLOBALISATION?
Aspect of Globalization Description Examples
Definition of Globalization. Globalisation is this process of rapid - Ford Motors' manufacturing in
integration or interconnection between India, which exports cars and
countries. components globally.
Main drivers/ agents - MNCs investing in various parts of the word through foreign investment and
Result of greater foreign Foreign trade.
investment and greater -MNCs seeking cost-effective production locations.
foreign trade - Integration of production and markets across countries.
-Movement of goods, services, investments, and technology between
Impact
countries.

-Greater connectivity of production and markets worldwide.

-People moving for better income, jobs, or education.

-In the past few decades, however, there has not been much increase in the
movement of people between countries due to various restrictions.

FACTORS THAT HAVE ENABLED GLOBALISATION

Category Key Points
Role of Technology in - Rapid technological advancements have played a significant role in
Globalization stimulating the globalization process.
1-Transportation - Over the past fifty years, transportation technology has improved,
Technology enabling faster and cheaper long-distance goods delivery and in the
movement of people from one country to another in a short time.
-Example: Innovation in container transport has reduced port costs, sped
up exports, and lowered air transport expenses, facilitating increased
goods transportation.
2-Information and - Information and communication technology have also played a major
Communication role in globalisation. Ex- A news magazine published for London.
Technology (ICT)
- Many MNCs are service based companies therefore the transfer of
information is very vital to them.

-Computers, internet facilities, telegraph, telephones mobile phones,

Satellite communication, and fax are used to contact one another around
the world, to access information instantly, and to communicate from
remote areas.

BY ASHISH KUMAR 30
Liberalization

Aspect of Policy Key Points

Defination Removing barriers or restrictions set by the government is what is known as
liberalisation.
Liberalization of Foreign Trade -Indian government-initiated liberalization policies around 1991.
& Investment
-Aimed to promote competition and improve the performance of Indian
producers. Supported by international organizations.
Role of Taxes on Imports - Tax on imports is an example of trade barrier. It is called a barrier because
some restriction has been set up.

-Taxes on imports increase the cost of foreign goods, making them less
competitive.

-Governments can use trade barriers to increase or decrease (regulate)

foreign trade and to decide what kinds of goods and how much of each,
should come into the country.

-Example: A tax on Chinese toys in India

Purpose of Trade Barriers and -Trade barriers were used post-independence to protect domestic industries
Early Post-Independence from foreign competition. Only essential imports allowed such as machinery,
Policies fertilisers, petroleum etc.

-Note that all developed countries, during the early stages of development,
have given protection to domestic producers through a variety of means
Shift Towards Competition and Government opened markets to allow Indian producers to compete globally.
Definition of Liberalization Liberalization involves removing government barriers to trade, promoting a
more open and competitive market.

BY ASHISH KUMAR 31