Chapter 1:- Indian economy on the eve of Independence

Introduction:- Before the advent of British rule, Indian economy was flourishing.
Main source of livelihood:- Agriculture
India was well known for its Handicraft industries in the fields of cotton and silk textiles, metal and precious
stone works.
Colonial rule:- policies made by colonial government was such which focused on protection and promotion
of their own country rather than India.
Impact of policies:- transformed the country into supplier of raw material and consumer of finished goods.
Colonial government never made any attempt to estimate India‘s national income. Some economists such as
Dadabhai Naroji, William Digby, V.K.R.V.Rao and R.C Desai attempted the efforts to estimate national
income.
V.K.R.V.Rao’s estimation was considered as more significant.

A. Agriculture sector on the eve of independence:-

i. Low productivity:-
 Level of productivity was very low, therefore agriculture was in backward condition.
 Lack of technology and irrigational facilities resulted in low level of productivity.
 The British did not want to spend on technology. So farmers suffered from low productivity.
ii. Lack of means of irrigation:-
 British government did not take initiative to develop the means of irrigation.
 Agriculture continued to depend upon rainfall. It showed greater degree of vulnerability.
 Unpredictable rainfall led to fluctuations in agriculture output.
iii. A wedge between owners of soil and tillers of soil:-
 Owners of the soil were different from tillers of the soil.
 Tillers of the soil were those who worked on the land to grow crops where as owners of the soil were
those who had land from hereditary.
 Owners used to enjoy output but did not bear the cost involved in the process of agricultural
production.
 Tillers of soil were left with very less crops which were hardly enough for their survival.
iv. Small and fragmented land holdings:-
 At the time of independence due to subdivision, highly fertile land went to Pakistan due to partition.
 Subdivision of land made the task of management and supervision difficult.
 Efficiency and economy in agriculture could not be achieved.
Backwardness of Indian Agriculture:-
i. Land revenue system:-
 There were various systems of land settlement introduced by the colonial government.
 Zamindari system was implemented as a land settlement system.
 This system was first implemented in Bengal presidency area.
 The profit accruing out of agriculture sector went to zamindar in the form of rent instead of cultivators.
 They were free to collect as much rent they wanted.
 Those who were unable to pay, land was taken from them and they turned to landless labourers.
ii. Commercialization of agriculture:-
 Farmers were forced to do commercialized agriculture which means they were forced to grow cash
crops instead of food crops.
 These cash crops included cultivation of indigo which was required by the textile industry in Britain for
dying of textile.
 Now, for the purpose of food they needed cash to buy it from market.
iii. Impact of partition on agriculture:-
 India‘s agriculture was highly affected by partition at the time of independence, because most of the
fertile land went to Pakistan.
 It caused food crisis.
 iv. Low investment in agriculture:-
 There was very less investment in agriculture. British spent very little on technological improvements.
 Some farmers started growing commercial crops instead of food crops.
B. Industrial sector on the eve of Independence:-
The policy British government followed was the policy of systematic de-industrialization. It was two fold
policy that is decay in handicrafts and bleak growth of modern industry.
Decay of Handicrafts:-
i. Discriminatory tariff policy:-
 British required raw material for themselves as well as market for their final products. For this purpose
they target India.
 They used discriminatory tariff policy. This policy allowed free export of raw material from India and
free import of Britain made goods to India.
 They placed heavy export on Indian handicrafts.
 It led to decline of handicrafts both in domestic as well as in International markets.
ii. Competition from machine made products:-
 Machine made goods from Britain were low priced which gave competition to Indian handicrafts which
were costlier.
 Competition from Britain made goods declined the demand of handicrafts in India.
iii. New patterns of Demand:-
 Due to impact of British culture taste and preferences of people were shifting in favour of British
products in Indian markets.
 This led to fall in demand for Indian made goods which were mostly based on Indian handicrafts.
iv. Disappearance of princely courts:-
 Before the british rule, Indian handicrafts were supported by Indian emperors, princes, Nawabs etc.
which had given our handicrafts domestic and international recognition.
 Because of British rule, princely courts started disappearing and accordingly Indian handicrafts too
diasappeared.
v. Introduction of railways in India:-
 Advent of railways by British in India encouraged their trade all over the country.
 Size of the market of British goods increased at low rates. This reduced the market of Indian
handicrafts.
Bleak growth of modern industry:-
i. Lopsided growth of Industries:-
 During the second half of 19 century, modern industry began to start in India but progress was very
slow.
 The development was confined to cotton and jute textiles.
 Iron and steel industries started to set up and first company was set up in 1907.(TISCO)
ii. Lack of capital goods industries:-
 There were very less capital goods industries like machines, tools , equipments etc. to promote further
industrialization.
 Due to lack of capital goods industries, industrialization in India could not prosper.
iii. Lower contribution to GDP:-
 Due to slow progress of industries, its contribution to GDP was less.
 Level of overall production and income generation remained very low.
iv. Limited area of operation of public sector:-
 The public sector remained confined to railways, power generation, ports, communication etc.
 Participation of government was restricted to those areas only. They did not consider manufacturing
industries etc.
C. Foreign trade on the eve of independence:-
i. Net exporter of primary products and importer of finished goods:-
  India became an exporter of primary products such as raw material like silk, cotton, jute etc.
 An importer of finished consumer goods like cotton, silk and woollen clothes in Britain.
 The mixture of exports and imports of Indian economy made it backward.
ii. Monopoly control:-
 British maintained monopoly control over India‘s exports and imports.
 The opening of suez canal has made British control over India‘s foreign trade easy.
 More than 50% of India‘s trade was restricted to Britain, while the remaining was allowed with few
countries like China, Ceylon and Persia.
iii. Surplus trade:-
 India‘s foreign trade generated huge export surplus at high cost which led to drain of Indian wealth.
 Several essential commodities-food grains,cloths etc were rarely available in the domestic market.
 Surplus generated was used to complete the expenses of british government.
Suez canal opened in 1869 is an artificial waterway running from north to south across the
isthmus of suez in north-eastern Egypt. It reduced the cost of transportation and made access to
the Indian market Easier.

D. Demographic conditions:-
Various details about the population of India were first collected through a census in 1881. Such conditions
during British rule showed high death rate and high birth rate. This is a state of massive poverty.
Condition:-
i. High birth rate and Death rate:- Both these rates were high indicating poor health care and
backwardness of a country.
ii. Infant mortality rate:- It is number of infants dying before reaching one year of age. Higher of this
rate leads to poor health care. It was quite high-218 per thousand.
iii. Literacy rate:- No. of persons incapable to read and write. Overall was less than 16% and female
literacy rate was less then 7%. It indicates social backwardness.
iv. Life expectancy:-It shows average life of person which was very low -44 years.
Demographic transition:- It is the year of great divide in 1921. Before 1921, population growth
was not constant.
E. Occupational structure on the eve of independence:-
It refers to distribution of working population across primary, secondary and tertiary sectors.
 Primary sector:- Agriculture is the primary source of occupation. On the eve of independence about
72.7% of working population indulged in agriculture.
 Secondary sector:- Only 9% of working population in India indulged in industrial sector.
 Tertiary sector:- Trade and commerce includes in tertiary sector and it was on the path of
development.
Regional variations:-
 Agriculture sector was the major sector where total workforce was engaged but still there were
some regional variations.
 Workforce was more in Orissa and Punjab in agriculture sector as compared to Madras and
Bombay.
F. Infrastructure on the eve of independence:-
i. Roads:-
 Roads constructed in India during British rule. This was helpful in sending raw materials to the nearest
port.
 There was shortage of all- weather roads to which many people who lived in rural areas were adversely
affected during natural calamities.
ii. Railways:-
 The British introduced the railways in 1850.
  Indian people gained social benefits due to railways but there was huge economic loss to Indian
government.
iii. Air and water transport:-
 The British also developed inland trade and sea lanes which proved to be uneconomical as it involve
huge cost but failed to compete with railways.
iv. Communication:-
 British rule in India developed the modern system of communication.
 The first stamp was released in 1852 and first telegraph line was started in 1853.
 It was a very expensive system.
G. Positive impacts of British rule in India:-
i. Commercialization of agriculture:- Encouragement to commercialized agriculture proved boon for
India. Farming gradually became profitable by selling surplus produce.
ii. Development of Infrastructure:- Development of roads, railways, air and water transport was a very
good start by British. Communication services also brought new growth opportunities in the country.
iii. Check on famines:- Development of transportation helped in controlling the effects of famines. As
goods and services are supplied everywhere, it is required at the times of famines.
iv. Monetary system of exchange:- British rule helped in removing barter system due to its problems.
They introduced money as a medium of exchange.
v. Effective administration:- They followed effective and efficient administrative system which left
good work culture in India.
Sequence of events
Sequence Event Year
1 Introduction of railways 1850
2 First train 1853
3 First railway bridge 1854
4 Opening of Suez canal 1869
5 First census 1881
6 Tata Iron and Steel company 1907
7 Second stage of demographic transition 1921
 Chapter-2 Five year plans in India-Goals and Achievements.

Introduction:- On 15 August 1947, India woke up to a new dawn of freedom. The leaders of independent
India had to decide, among others things, the type of Economic system most suitable to our nation.
Five year Plan:- The central objective of planning in India is to initiate a process of development which will
raise the living standards and open up to the people new opportunities for a richer and more varied life.

A. Economic system:- It refers to the system which shows the central problem of an economy. It is a
system of production, resource allocation and distribution of goods and services within a society.
Types of system
Capitalism Socialism Mixed economy
1). This is the system where there 1). This is the system where 1). It is a system where
is no direct intervention of the government plays an active role government sector as well as
government. in an economy. private sector plays active role.
2). It is free economy where 2). Economic activities are 2). Law or various other
market forces of demand and regulated by government. important decisions are taken by
supply organise economic government and economic
activities. activities are conducted by
market forces.
3). MERITS:- It promote self 3). It promote social justice and 3). It enhances consumers choice
growth and economic growth. work to provide social equality. and their welfare.
4). DEMERITS:- It ignores poor 4). It lacks development activities 4). Lack of self interest in public
section of society because their and does not foster economic sector.
main motive is to earn profits. growth.
B. Economic planning:-

Plan:- A plan spells out how the resources of a nation should be put to use.
In India plans are of five years and are called five year plans.
In 1950, the planning commission was set up with the Prime Minister as its chairperson.
Mahalanobis:- Known as the architect of Indian planning.

 It is a system under which set of targets is defined by central authority of the country.
 It basically means utilization of resources in different development activities in accordance with national
priorities.
1.Long period goal of planning:-Plans in India were made for five years plan. First five year plan was
launched on April 1, 1951 ending March 31, 1956.
OBJECTIVES:-
a. Growth or increase in GDP:-
 Because of backward economy during British rule, during making of plans, government had to focus on
economic growth as its primary objective.
 Growth refers to increase in the country‘s capacity to produce the amount of goods and services within the
country.
 It refers to steady increase in the GDP.
 It is necessary to produce more goods and services if the people of India are to enjoy rich life.
 Innovative technology also enhances productivity or output per unit of inputs.
b. Full employment:-
 It is a situation when everyone who is able to work at existing wage rate is getting work.
 It implies that there should be higher rate of active participation of the working age group in economic
activities of the country in the process of growth.
 It is a common goal of five year plans and is directly related to economic growth of the country.
 It amounts to achieve growth with social justice.
c. Equitable distribution or Equity:-
 Along with growth it is important to ensure that economic development is shared by all citizens to promote
social justice.
 Benefits of growth should be provided to large sections of society, so that distribution of income becomes
equitable.
  Everyone should be able to meet his or her basic needs such as food, education, health etc. Inequality in the
distribution of wealth should be reduced.
d. Modernization:-
 During British rule, India was lacking in technical knowledge. They were not able to compete with Britain
goods.
 So, it was necessary to provide technical know-how and should be taken as goal.
 Adoption of technology is called modernization.
 It refers to those institutional changes in economic activities which make an economy progressive and
modern. For eg:- Green revolution.
 Modernization does not refer only to use of new technology but also to change in social outlook. Such as
women empowerment.
e. Self reliance:-
 It means dependence on domestically produced goods. This is another major objective which targets non-
interference by foreign countries.
 A nation can promote economic growth and modernization by using its own resources.
 The first seven year plans gave importance to self reliance which means avoiding import of those goods
which could be produced in India.
 This policy was considered necessary in order to reduce our dependence on foreign countries, especially
for food.
2.Short term goals:- It depends upon the current need of the country.
Plan 1 (1951-1956) Increase in agriculture production
Plan 2(1956-1961) Increase in industrial production
Plan 3(1961-1966) Self sufficiency in food grains
Plan 4(1969-1974) Focused on price stability
Plan 5(1974-1979) Alleviation of poverty
Plan 6(1980-1985) Alleviation of poverty
Plan 7(1985-1990) Employment opportunities
Plan 8(1992-1997) Full employment, universalization of education
Plan 9(1997-2002) Growth, price stability, and environmental
sustainability
Plan 10(2002-2007) Better quality of life
Plan 11(2007-2012) Poverty reduction, job creation
Plan 12(2012-2017) Inclusive growth
Agriculture
C. Agrarian reforms/Reforms in Indian agriculture:-
I. Institutional or Land Reforms:-
i. Abolition of intermediaries:-
 During British rule, Zamindari system was implemented which was the reason of backwardness in
agriculture.
 After independence, steps were taken to abolish intermediaries and make the tillers of the soil as the
owners of the soil.
 This has been done to stop the exploitation of cultivators by Zamindars.
ii. Regulation of rent:-
 Earlier intermediaries used to collect as much rent they want.
 To put an end to this exploitation, government has fixed the rent of cultivators.
 It should not exceed one third of crop value.
iii. Consolidation of holdings:-
 Consolidation process was undertaken by government to handle fragmented land.
 It is a process where farmers were allotted land at one place as a replacement of their scattered land.
 It saves cost of farming.
iv. Ceiling on land holdings:-
 It was another policy towards land reforms to promote equity in agriculture sector.
 This means fixing the maximum size of land which could be owned by an individual and beyond that
limit, the land would be taken over by the government.
  And the government would allot this land to landless cultivators and small farmers.
v. Cooperative farming:-
 This means farming done by more than one farmer on same land.
 It will encourage small farmers to do farming and earn profits.
 Together they can buy inputs at less price and sell their produce at higher rate.
II. General reforms:-
i. Irrigation facilities:-
 In order to increase the production, irrigation facilities have been provided to farmers to supply the
required quantity of water.
 At present irrigational facilities cover 45% of land under cultivation as compared to 15% in 1950.
 Due to construction of multipurpose projects and tubewells, larger areas have been covered.
ii. Provision of credit:-
 Cooperative credit societies and rural development banks have been established to meet the finance
requirements of the farmers.
 They provide funds at lower rate of interest. Commercial banks also meet the credit needs of farmers.
 NABARD was established to provide credit facilities to the farmers at the National level in 1982.
iii. Regulated markets and cooperative marketing scheme:-
 There have been regular markets being established in all parts of country.
 This was done to protect farmers from exploitation by the middlemen.
 Market committees were appointed by government which govern these markets and help farmers to get
remunerative price of their produce.
 Cooperative marketing societies have also been established which help farmers to value their produce and
also provide storage houses to keep their produce safely.
iv. Price support policy:-
 Government initiated a policy of minimum support price to encourage farmers to increase production.
 In this policy government fixes a price higher than the market price and if farmers are not able to sell
their entire production at increased price, then government buys this surplus at increased price.
 Government keeps this surplus in its buffer stock and uses it during the time of emergencies like flood,
earthquake, famines etc.
D. Green Revolution:-
The stagnation in Indian Agriculture was permanently broken by Green Revolution. This refers to
increase in production of food grains resulting from the use of High Yield Variety seeds especially
wheat and rice.

i. Use of HYV seeds:-

 High Yield Variety Seeds were adopted in India in 1966.
 It led to increase in production of food grains especially for wheat and rice. This strategy is known as
Green revolution.
 In 2015-2016. National Seed Corporation has distributed 304 lakh quintals of seeds among farmers in
different parts of country.
ii. Use of chemical fertilizers:-
 The use of HYV seeds required the use of fertilizers which contributed in enhancing the productivity.
 In 2015-16, 267.5 lakh tonnes of chemical fertilizers were used.
iii. Use of Insecticides and pesticides:-
 In order to protect the crops from diseases and insects, steps were taken by using insecticides and
pesticides.
 Integrated pest management programme was adopted for plant protection.
 This programme emphasized upon growth of healthy crops.
iv. Scientific farm management practices:-
 Various programmes were launched which promoted scientific way of cultivation instead of conventional
farming.
  They emphasized upon the use of fertilizers, crop rotation process, selection of seeds and their quality.
v. Mechanized means of cultivation:-
 Agriculture machines were introduced to cultivate the land.
 Credit facilities at less rate of interest were provided especially to small farmers. So that they can easily
afford these machines.
E. Achievements of agrarian reforms:- (Green Revolution)
i. Spurt in crop productivity:- The green revolution resulted in multiple rise in food production. It helped
in recovering the country from regular food shortages and end the stagnation period in Indian agriculture.
ii. Decrease in price of food grains:- The price of food grains declined relative to other items of
consumption. The low income groups who spend a large percentage of their income on food, benefited
from this decline in relative prices.
iii. Buffer stock:- The spread of green revolution technology enabled the government to procure sufficient
amount of food grains to build buffer stock which could be used in times of food shortage.
iv. Commercialization of Agriculture:- Agriculture became both subsistence farming and commercial
farming. Green revolution resulted in Marketable or marketable surplus. This is a sign of growth and
development.
v. Change in farmer’s outlook:- Now farmers have changed their view points. They do not consider
farming just to complete their basic needs rather it is considered as a commercial venture.
vi. Self – sufficiency in food grains:- The spread of green revolution technology enabled India to achieve
self-sufficiency in food grains. India no more was dependent on foreign countries in this regard.
F. Limitations of green revolution:-
i. Limited crops:- The effect of green revolution is confined to limited crops like wheat, rice, bazar, maize
etc. It has limited effect on commercial crops like tea, rubber, jute, etc.
ii. Un-even spread:- In the first phase of the Green revolution (approx. mid 1960 upto mid 1970), the use of
HYV seeds was restricted to states such as Punjab, Tamil Nadu, and Andhra Pradesh. Thus, there were
regional inequalities.
iii. Limited farming population:- Farming population consists of big and small farmers. Only big farmers
can afford HYV seeds, as it requires various other inputs which are beyond the reach of small farmers.
iv. Economic divide:- The farmers who could benefit from HYV seeds required reliable irrigation facilities
as well as the financial resources to purchase fertilizers and pesticides, which small farmers could not
afford. This increased the inequality between small and big farmers.
Role of government in ensuring that the green revolution benefitted small farmers as well.
1. The government provided loans at a low rate to small farmers.
2. The government also provided subsidized fertilizers so that small farmers could also have
access to the needed inputs.
G. Subsidies
Subsidies means the help given by government to small or marginal farmers.
Arguments against subsidies Arguments in favour of subsidies
1. Once the technology is found profitable and is 1. Any new technology is considered to be
widely adopted, subsidies should be eliminated risky. So subsidies encouraged the farmers
since their purpose has been served. to test new technology.
2. Subsidies are meant to benefit the farmer but a 2. The government should continue with
substantial amount of fertilizer subsidy also agriculture subsidy because farming in
benefits the fertilizer industry. India continues to be risky as it vitally
depends on the monsoon.
3. Among farmers the subsidy largely benefits the 3. Most farmers are very poor and they will
farmers in the more prosperous regions. So, not be able to afford the required input
there is no case for continuing with fertilizer without subsidies.
subsidies. It does not benefit the target group.
4. It is a huge burden on the government 4. Eliminating subsidies will increase the
finances. inequality between rich and poor farmers
and violate the goal of equity.
 Strategy of Industrial growth
H. Role of public sector in industrial development:-
i. Lack of capital:-
 Indian industrialists did not have the sufficient capital to undertake investment for the development of
industries.
 Because of lack of capital investments by the private entrepreneurs, government had to undertake capital
investment through public sector undertakings.
ii. Low inducement to invest:-
 The Indian market was not big enough to encourage industries to undertake major projects even if they
had the capital to do so.
 There was low level of aggregate demand because of limited size of market.
 There was no inducement to invest because of low profitability.
 So, public sector had initiated the process of industrialization.
iii. Growth with social justice:-
 The objective of socialistic pattern of society could be achieved only through direct participation of the
government in the process of industrialization.
 Because it requires investment that generates employment rather than investment to maximize profits.

I. IPR-1956 (Industrial policy Resolution)

i. Three fold classification of industries:-
 The first category (A) comprises of industries which could be owned by the government. This category
included 17 industries like atomic energy, arms and ammunitions, oil, railways etc.
 The second category (B) consisted of industries which could be established both by private and public
sector. Public sector will take sole responsibility for starting new units. It included 12 industries such as
fertilisers, machines etc.
 The third category (C) consists of remaining industries which were to be established by private sector.
ii. Industrial licensing:-
 Although there was a category of industries left to the private sector, the sector was kept under state
control through a system of licenses.
 This policy was used for promoting industrialization in backward regions, it was easy to obtain a license
if industrial unit was established in a backward area as compared to developed area.
iii. Industrial concessions:-
 Though the government had major control over industries, private enterpreneurs were offered various
industrial concessions.
 In addition, industrial units were given concessions such as tax benefits, electricity at lower rate etc.
 It was done to promote regional equality.
J. Development of SSI:-
In 1955, the village and small scale industries committee, also called the KARVE COMMITTEE,
noted the possibility of using small scale industries for promoting rural development.
 A small scale industry is defined with reference to the maximum investment allowed on the
assets of a unit. In 1950, a small scale industrial unit was one which invested a maximum of
5 lakhs while at present the maximum investment allowed is 1 crore.
Characteristics:-
i. Labour intensive:-
 Small scale industries are labour intensive, therefore it is employment friendly.
 It uses more labour than the large scale industries and they generate more employment.
 These industries are good for our economy which is ―capital deficient‖ and a ―labour surplus‖ economy.
ii. Equality oriented:-
 Small scale industries show locational flexibility as they can be established anywhere.
 It contributes to balanced regional growth.
iii. Equity oriented:-
 It requires small scale investment.
 It avoids concentration of economic power.
 These can utilize small funds more efficiently and generate revenues to their investors.
India’s Foreign Trade
International trade:- International trade means export and import of goods and services across the country.
Every country exports their surplus output and essential goods for another country in the form of imports.
K. Inward looking trade strategy:-
 It refers to the policy of having reliance on import substitution and protection of domestic industries
through import restrictions and import duties.
 Import substitution implies domestic production of the goods which the country has been importing.
 This strategy was adopted to:- Save foreign exchange and Achieve self- reliance.
 In this policy the government protected the domestic industries from foreign competition. Protection
from imports are in two forms:- Tariffs and Quotas.
 Tariffs are tax on imported goods, these make imported goods more expensive and thus discourage
imports.
 Quotas specify the quantity of goods which can be imported.
 Tariffs and quotas protect domestic firm from foreign competition.
L. Positive impact of Inward looking trade strategy:-
i. High rate of industrial growth with structural transformation:-
 The rise in Industry‘s share of GDP is an important indicator of development.
 GDP share of industrial sector increased from 12% in 1951 to 25% in 1991.
 It is a sign of economic growth with structural transformation.
ii. Diversification of Industrial growth:-
 The industrial sector became well diversified by 1990 due to public sector, as they were given high
priority in the process of industrialization.
 Because of inward looking trade strategy, industries were not confined to basic goods like jute etc rather
variety of goods were produced such as engineering goods.
 There is growth of sunrise industry. 1950-1990 was an era of electronic goods in the global market.
 All this could be possible only because of policy protection.
iii. Opportunities of Investment:-
 Promotion of small scale industries gave opportunities to those people who did not have the capital to
start large firms.
 It also used the potential resources which remained idle.
 It promoted growth with equity.
M. Bad Impact:-
i. Growth of inefficient public monopolies:-
 Public sector in the view of industrialization developed their monopoly control over market .
 An example of this is the provision of telecommunication service which was under government.
 Due to absence of competition, one had to wait for a long time to get a telephone communication.
ii. Indiscriminate spread of public sector enterprises:-
 Everything was under public sector and it did not give the opportunities of investment for the private
sector.
 Indiscriminate spread of public sector enterprises in producing such goods as bread and shoes implied
indiscriminate and irrational use of public resource.
iii. Economical unviable state enterprises:-
 Many public sector firms incurred huge losses but continued to function because it is difficult to close a
government undertaking.
 It causes drain of nation‘s resources.
N. Features of Economic Policy:-
 a. Heavy Reliance on Public sector:-
 Prior to 1991, there was huge dependence on the public sector. The greater importance was given to
public sector than private sector.
 During 1956, there were 17 industries reserved for public sector but only 12 for private sector.
b. Regulated development of Private sector:-
 The state or government held complete control over the private sector through a system of licenses.
 No new industry was allowed unless a license was obtained from the government.
 Under MRTP act, 1969, several restrictions were imposed on the expansion of industries.
c. Protection to small scale Industries:-
 Large scale industries were regularized through MRTP act, so it is necessary to protect small scale
industries.
 Small scale industries were given benefits such as lower tax rate and low interest rate on bank loans.
 Also several boards were established to promote the products of small scale industries in global market.
d. Development of Heavy industries:-
 Heavy industries which are of special significance should be developed on priority basis.
 Industries which have special significance are those which serve as ―universal intermediaries‖, like
electricity power generation and engineering goods industry.
e. Thrust on savings and Industries:-
 Savings as well as investment both are considered as an important tool for economic growth.
 Therefore, savings as well as investment should be promoted. Savings can be promoted by giving high
rate of interest.
 Investments can be promoted by giving them subsidies.
f. Focus on Import substitution:-
 There should be more focus on import substitution.
 It can be achieved by increasing domestic production which also helps domestic industries to be away
from foreign competition.
g. Centralized planning:-
 Programmes of growth and development at the state level should be controlled by central level.
 This objective can be achieved when there is overall strategy of five year plans made by centre as well as
state.
O. Drawbacks of Industrial and Trade policy:-
a. Inefficient functioning of public sector:-
 Many public sector firms suffered from huge losses but continued to function because it is difficult to
close a government undertaking even if it is a drain of nation‘s limited resources.
b. Excessive regulation of industries:-
 The excessive regulation of what came to be called the permit license raj prevented certain firms from
becoming more efficient.
 More time was spent by industrialists in trying to obtain a license.
c. No incentive for producers:-
 Due to restriction on imports, Indian consumers had to purchase whatever the Indian producers produced.
 The producers were aware that they had a captive market, so they had no incentive to improve quality of
goods.
P. Achievement of Goals of planning:-
a. Increase in national income:-
 At the time of independence, India was a stagnant economy. During British rule, national income of India
was at 0.5%
 During the period of planning, national income increased from 2.1% in 1956 to 5.9% in 1990.
 Although this is less than what was estimated, it has broken the circle of economic stagnation.
b. Increase in per capita income:-
 It refers to per capita availability of national income. Prior to independence, it was very minimum.
 Increase in per capita income is a good indicator to assess economic growth. It increased from 1.8% in
1956 to nearly 3.6% in 1990.
 This shows that domestic output has increased and hence raised the standard of living of people.
c. Rise in the rate of capital formation:-
 Capital formation is very essential to increase the level of investment and income in the country.
 It depends upon rate of savings. The country in order to increase capital formation should be able to
channelize savings in right directions.
 Rate of capital formation increased from 10% in 1956 to 39% in 1990.
 d. Institutional and technical change in agriculture:-
 Five year plans have contributed to development in agriculture. They introduced many things:- Abolition
of intermediaries, moderation of rent, Redistribution of land etc.
 These changes have not contributed much but it has changed the working environment of farmers.
 Technological change was also introduced by the way of green revolution. This increased agriculture
productivity.
e. Growth and diversification of Industry:-
 During this period, industrial base became strong, industrial sector started growing and became
diversified.
 Capital goods industries such as iron and steel industry showed growth over time. In consumer goods
industries, country has also become self -sufficient.
 During this period growth rate of industrial production has been around 17% per annum.
f. Economic infrastructure:-
 Means of transport and communication, irrigation facilities and power are the key elements of
infrastructure.
 A revolutionary growth of IT sector has earned India the global player in international market.
g. Employment:-
 Due to innovation, new policies, agriculture reforms and diversification of industries increased and the
country was able to increase employment opportunity too.
Q. Failures of planning:-
a. Increase in poverty:-
 The number of people who fail to get the basic necessities of life is increasing.
 The policies adopted by the government till 1990 were very rigid and were not able to generate more
employment opportunities and more income.
b. High rate of inflation:-
 Despite some progress shown by policies undertaken by the government till 1991, it was observed that
government could not control persistent rise in prices.
 Price level increased from nearly 6% in 1956 to 16.7% in 1990.
c. Unemployment crisis:-
 Though the initiative taken by the government did generate more employment opportunities
unemployment did not subside.
 The major cause of this problem was higher growth rate of population.
 The number of unemployed increased from 54 lakh to 85 lakh persons in the year 1990.
d. Deficient infrastructure:-
 Development of infrastructure continues to be inadequate. Actual growth of infrastructure was not as per
targeted growth.
 Shortage of power has been a serious constraint in the overall process of growth and development.
 Chapter-6 Economic Reforms since -1991

The government was not able to generate sufficient revenues from internal sources such as taxation.
The income from public sector undertakings was also not very high. In late 1980s, government
expenditure began to exceed its revenue by such large margins that meeting the expenditure through
borrowings became unsustainable. India was facing huge financial crisis.
India approached the World Bank and International Monetary fund and received $7 billion as loan to
manage crisis. India had to agree on some conditions in order to avail the loan.
So, World bank and IMF announced New Economic Policy in 1991.

A. Economic reforms:-
 It is a set of economic policy adopted by government to increase the pace of growth and development.
 In 1991, the government of India adopted New Economic policy.
 Its components are LIBERALISATION, PRIVATISATION & GLOBALISATION.
B. Need for economic reforms:-
i. Fiscal deficit:-
 Fiscal deficit is the difference between government expenditure and government revenue.
 Prior to 1991, fiscal deficit was very high because of expenditure in non-development areas and non-
plan expenditure.
 The income of public sector was not high to meet the expenditure.
ii. Adverse balance of payments:-
 Balance of payment crisis is balance of payment deficit which means imports are greater than exports.
 Before 1991, exports were less due to poor quality of domestic goods and imports were more despite of
heavy tariff duty and quotas.
 In the wake of these facts, NEP was the only alternative.
iii. Fall in foreign exchange reserves:-
 These are the reserves of foreign assets like foreign currencies, foreign securities.
 Foreign exchange reserves were reduced because of high imports. There was also not sufficient foreign
exchange to pay the interest to international money lenders.
 The situation became so serious that the government had to mortgage country‘s gold reserves with
World Bank.
iv. Inflationary spiral:-
 Inflation is consistent rise in general price level.
 Before 1991, prices of essential goods have increased.
 Because of inflation, economic crisis got worse. Therefore, the need of NEP arises.
v. Poor performance of PSUs:-
 Several thousand crore rupees was spent in the growth and development of PSU‘s in India.
 But they were not performing well, they incurred huge losses.
 Public sector continued to operate even in those areas which could be comfortably shifted to private
sector.
C. Elements of New Economic policy:-
I. Liberalization: - Liberalization of the economy means freedom given to producing units from the rules
imposed by the government.
Reforms under liberalization:-
1) Industrial sector reforms: - Government introduced industrial policy in 1991. Various measures were
taken such as:-
i. Abolition of Industrial licensing:-
 Earlier industrialists had to get permission from the government to set up their industry.
 As per NEP, Industrialist licensing was abolished except industries— alcohol, cigarettes, hazardous
chemicals, industrial explosives, electronics, aerospace and drugs and pharmaceuticals.
 ii. Contraction of public sector:-
 It was felt that government cannot control everything. So private sector was allowed to participate in
growth object of the country.
 The number of industries which were reserved for public sector was reduced from 17 to 3. These were
defence equipment, atomic energy and railway transports.
iii. De-reservation of production areas:-
 Prior to 1991, some goods could be produced only in small scale industries.
 Now many goods produced by SSI have been dereserved.
 Market forces were allowed for allocation of resources.
iv. Expansion of production capacity:-
 Earlier there was restriction on the production of goods.
 But with economic policy, freedom for licensing was given. It now depends upon producer how to
produce and what to produce.
v. Freedom to import capital goods:-
 Liberalization policy gave freedom to import capital goods and technology in order to develop strong
infrastructural base of the country.
2) Financial sector reforms:-
i. Role of RBI:-
 Earlier the role of RBI was of regulator. As regulator RBI used to fix interest rate structure.
 But with NEP, RBI‘s role was converted from regulator to facilitator. Now RBI has given freedom to
commercial banks to decide upon interest rates.
ii. Establishment of private sector banks:-
 Earlier more importance was given to public sector banks.
 However, reform policies led to the establishment of private sector banks, Indian as well as foreign,
which increased the size of competition and provided better services to customers.
iii. Foreign investment:-
 Foreign institutional investors such as merchant bankers, mutual funds and pension funds are now
allowed to invest in Indian Financial markets.
 Foreign investment increased to 50%.
iv. Setting up new branches:-
 Full freedom is given to commercial banks to set up new branches all over the country, if they fulfill
the conditions of RBI.
3) Fiscal reforms: - (These are the reforms related to tax structure.)
i. Reduction in Direct taxes:-
 With economic reforms, income tax rate has been reduced. This reduction tries to ensure that
individuals do not evade the tax.
ii. Reforms in Indirect taxes:-
 Reforms were made in Indirect taxes. Now a days GST has been launched which generates additional
tax revenue, increases tax compliance and reduces tax evasion.
iii. Simplified taxpaying procedure:-
 In order to avoid confusion, the taxpaying procedure has been simplified.
4) External sector reforms:-
i. Devaluation of rupee:-
 Devaluation refers to reduction in the value of domestic currency. This increases exports and reduces
imports which in turn increase the inflow of foreign exchange.
ii. Foreign trade policy:-
 Tariff on imports was reduced to enhance the domestic trade and achieve economic growth.
 Import licensing was abolished.
 Export duty has been withdrawn to promote competition.
II. Privatization:-
  It refers to transfer of ownership, management and control of government sector enterprises to the
private sector.
 It means greater role to the private sector and reduced role of public sector.
 It can be done by two ways:-
 By withdrawal of the government ownership and management of public sector companies.
 By sale of public sector companies.
 Privatization of the public sector undertakings by selling part of the equity of PSU‘s to the private
sector is known as disinvestment.
 The purpose of privatization is to improve financial discipline and facilitate modernization by
encouraging private sector to invest and participate in economic development with their administrative
efficiency.
 It was also envisaged that private capital and managerial capabilities could be effectively utilized to
improve the performance of PSU‘s.
 Need for privatization:-
 The industrial policy resolution stated the importance of public sector for growth and social justice.
 Employment was shifted from agriculture to Industries and Nine public sector enterprises known as
NAVRATANS were contributing to GDP.
 But other public sector industries were not managed properly and turned into losses.
 So, it was decided to sell out public sector shares to private entrepreneurs but keeping Navratans into
public sector.
i. Impact of privatization:-
Positive impact:-
 Improves efficiency of management: - Privatization focused on self-interest that is profit
maximization, which increases the efficiency of work. Entrepreneurs work with full commitment and
as a result, they achieve higher production.
 Competitiveness: - Privatization focused upon improving the performance by utilizing the capital and
managerial capabilities in an effective way. This encourages competition in domestic and international
market which induces modernization.
 Diversification of products: - In order to generate more profit, production process was diversified and
expanded.
 Consumer’s sovereignty: - Goods produced by industrialists was according to the choice of
consumers, which resulted in wider choice and better quality of life.
 Reduces deficit: - Privatization reduces the financial burden of government by earning sufficient
profits and support government by paying taxes.
Negative impact:-
 Neglect social interest:-Private sector functions mainly with the objective of profit maximization,
which ignores the social welfare of people.
 High priced goods: - Privatization works according to demand and supply forces. It will increase the
price and it became a major problem of inflation.
 Monopolistic control: - If privatization continued to spread like this then soon there will be monopoly
control of private sector which will hamper the objective of growth with social justice.
III. Globalization:-
 It is the outcome of policies of liberalization and privatization.
 It refers to free interaction among all the countries of the world in various fields like trade, technology,
loans investment, outsourcing etc.
Policies:-
i. Increase in equity limit of foreign investment:-
 The foreign equity limit has been raised from 40% to 51%.
 Approvals, sanctions and constraints on foreign investments have been relaxed after economic reforms.
 Foreign exchange management act has been enforced.
 ii. Partial convertibility:-
 Partial convertibility of the currency was allowed by the government.
 It refers to purchase and sale of foreign currencies at a price determined by the market. It was allowed
for import and export of goods and services, payment of interest etc.
iii. Long term trade policy:-
 A new five year trade policy was announced to establish the framework of trade with rest of the world.
 It removed almost all the restrictions on external trade.
 Open competition has been encouraged. All sorts of goods can be traded except for some goods which
are of strategic importance to the nation.
iv. Reduction in Tariffs:-
 In conformity with new economic policy, custom duties and tariffs imposed on imports and exports
have been gradually reduced.
 The ones, which are still prevailing, have been modified to encourage competitiveness and promote
international trade.
v. Withdrawal of quantitative restrictions:-
 Because of policies of WTO the restriction on imports has been abolished.
 It ensures that all member countries should be given equal opportunity to trade in international market.
OUTSOURCING: - A company hires regular services from external sources, mostly from other countries,
which was previously provided internally or from within the country.
The low wage rates and availability of skilled manpower in India have made it a destination for global
outsourcing in the post reform period.
WTO: - Founded in 1995 as the successor of GATT. The objectives of WTO are:-
 To enlarge production and trade of services.
 To ensure optimum utilization of resources.
 To protect the environment.
Advantages of Outsourcing:-
a) Employment: For a developing country like India, employment generation is an important objective
and outsourcing proves to be a boon for creating more employment opportunities. It leads to
generation of newer and higher paying jobs.
b) Exchange of technical know-how: Outsourcing enables the exchange of ideas and technical know-
how of sophisticated and advanced technology from developed to developing countries.
c) International worthiness: Outsourcing to India also enhances India‘s international worthiness
credibility. This increases the inflow of investment to India.
d) Encourages other sectors: Outsourcing not only benefits the service sector but also affects other
related sectors like industrial and agricultural sector through various backward and forward linkages.
e) Contributes to human capital formation: Outsourcing helps in the development and formation of
human capital by training, imparting them with advanced skills, thereby, increasing their future scope
and their suitability for high ranked jobs.
f) Better standard of living and eradication of poverty: By creating more and higher paying jobs,
outsourcing improves the standard and quality of living of the people in the developing countries. It
also helps in reducing poverty.
D. An appraisal of LPG policy:-
MERITS:-
i. Vibrant economy:-
 There has been an increase in overall growth rate of the country.
 In twelfth plan (2012-17) the GDP rate increased.
 In order to achieve such high growth rate, the agriculture sector, industrial sector and service sector has
to be involved.
ii. Stimulant to industrial production:-
 LPG policy has shown structural changes and it was a great stimulant to industrial production.
 Because of such policies many industries came up and they have gained global recognition.
iii. Check on fiscal deficit:-
  Fiscal deficit, which adversely affected the Indian economy prior to 1991, now started recovering after
the economic reforms.
 It reduced from 8.5% in 1991 to nearly 4% in 2015-2016.
iv. A check on inflation:-
 Prior to 1991, general price level was rising. Gulf crisis hit the Indian economy adversely and there was
continuous increase in the price level.
 Due to LPG policies, inflation is brought under control. The annual rate of inflation reduced from
nearly 16.7% to 5.7%.
v. Consumer’s sovereignty:-
 Now, consumers have ample of goods to make choice because of diverse global markets.
 Products are as per the taste and preference of consumers.
 Overall consumption expenditure has risen which implies increase in status of people.
vi. Rise in foreign exchange reserves:-
 Due to rise in exports, the amount of forex reserves has also increased which contributes in the growth
rate of country.
DEMERITS:-
i. Neglect of agriculture:-
 Reforms have not been able to benefit agriculture. It is because public investment in agriculture sector
like irrigation, power, roads etc. has been reduced in the reform period.
 There was more focus on production of cash crops instead of food crops.
ii. Urban concentration of economic growth:-
 The entire industries were set up in the urban areas which will increase gap between rural and urban
area.
 The industries are set up in urban areas because the infrastructural facilities are available there.
iii. Economic colonialism:-
 MNC‘s are being set up in the country, therefore it affects the domestic industries.
 Domestic industries are unable to compete with foreign companies.
iv. Spread of consumerism:-
 Because of competition and setup of Multinational companies consumers are adopting themselves into
western culture.
v. Lopsided growth process:-
 Growth process was incomplete as it did not focus upon all sectors of the economy.
 Industrialization is being given more importance and farming sector is being neglected.
 Production of cash crops has increased supply in foreign markets whereas domestic supply has been
reduced.
Demonetization:- New initiative was taken by the Government of India on 8 November 2016 to tackle the
problem of corruption, black money, terrorism and circulation of fake currency in the economy. Old
currency notes of 500 and 1000 were no longer legal tenders. New currency notes in the denomination of
500 and 2000 were launched.
Positive impact:-
 Improved tax compliance as large number of people was brought in the tax ambit.
 It is a demonstration of state‘s decision to put a curb on black money.
 Tax compliance will improve and corruption will decrease.

GST: - This law came into effect from 1 July 2017.

Aim:-
 To generate additional revenue for the government
 To reduce tax evasion.
 To create ‗one nation, one tax and one market‘.
Features:-
 It is a destination based consumption tax with facility of Input Tax Credit in the supply chain.
 There are 5 standard rates applied i.e.0%, 5%, 12%, 18% and 28%.
 It has amalgamated a large number of central and state taxes and cesses.
a. Strategic sale Minority sale
i. Strategic sale refers to the sale of 51% or more Minority Sale refers to the sale of less than 49%
stake of a PSU to the private sector who bids stake of a PSU to the private sector.
the highest.
ii. The ownership of PSU is handed over to the The ownership of PSU still remains with the
private sector. government as it holds 51% of stakes.

b. Bilateral trade Multilateral trade

i. It is a trade agreement between two Countries. It is a trade agreement among more than two
countries.
ii. This is an agreement that provides equal This is an agreement that provides equal
opportunities to both the countries. opportunities to all the member countries in the
international market.
c. Tariff barriers Non-Tariff barriers
i. It refers to the tax imposed on the imports by It refers to the restrictions other than taxes,
the country to protect its domestic industries. imposed on imports by the country.
ii. It includes custom duties, export import duties It includes quotes and licenses.
iii. It is imposed on the physical units (like per It is imposed on the quantity and quality of the
tonne) or on value of the goods imported. goods imported.

Effect of Reform on Industrial sector Effect of reform on Agriculture sector

-- Decreasing demand of industrial products:- (i) -- Fall in public investment in Agriculture:- In the
Cheaper imports have replaced the demand for reform period the investment by government
domestic goods. Domestic manufacturers are facing reduced especially in area of irrigation, power
competition from imports. (ii) The infrastructural roads etc.
facilities, including power supply, have remained -- Removal of fertilizer subsidy:- Removal of
inadequate due to lack of investment. subsidy on fertilizers has adverse effect on small
-- Non-access to developed country‘s markets:- A and marginal farmers because their cost of
developing country like India does not have access to production has increased.
developed country‘s markets due to high non-tariff -- Increased International competition:- Indian
barriers. farmers had to face increased international
competition because of reduction of import duties
on food grains, removal of minimum support price
etc.
-- Export oriented policy:- Prices of food grains
increased because of attraction of agricultural
products toward exports and because of this,
production of cash crops increased.
 Chapter-8 Human capital Formation
Just as a country can turn physical resources like land into physical capital like factories, similarly, it
can also turn human resources like students into human capital like engineers and doctors. Societies
need sufficient good human capital out of human resources.

A. Concept:-
 Human capital refers to the stock of skill and expertise if human beings in the country.
 Human capital formation implies the addition to the stock of abilities and skills among the population of
the country.
 It is basically acquiring and increasing the number of people who have skills and expertise which are
important for overall development of the country.
B. Sources of human capital formation:-
i. Expenditure on education:-
 Investment in education is considered as one of the main sources of human capital.
 Expenditure on education increases the efficiency and skill of human capital.
 Education enhances mental horizon of human resources and helps in generating profits in future.
 Individuals invest in education to increase their skills and efficiency resulting in higher earning capacity.
ii. Expenditure on health:-
 Health is considered to be an important input for the development of nation as much as it is important for
the development of an individual.
 It directly increases the physical and mental ability of human beings and produces healthy labour force.
 Healthy person adds more to GDP of the nation than a sick person.
iii. On-the job training:-
 This type of training is required to enhance skills and expertise of human capital in order to increase the
productivity of workers.
 This is the training given to the individual at the time when he performs his job by skilled workers.
 Expenditure done on this training programme will enhance the labour productivity.
 This may take different forms:- the workers may be trained in the firm itself under the supervision of
skilled labour.
iv.Expenditure on migration:-
 Migration means movement from one place to another.
 People move from one place to another in search of jobs where they can utilize their skill in an efficient
way.
 Expenditure done on migration is also considered as source of human capital formation as the earnings are
much higher than cost.
 Migration involves cost of transportation, higher cost of living etc.
v. Expenditure on information:-
 People spend to acquire information relating to market and educational institutions.
 The information is necessary to make decisions regarding investment in human capital as well as for
efficient utilization of resources.
C. Role of human capital formation:-
i. Higher productivity of physical capital:-
 Physical capital formation depends upon human capital formation.
 The physical capital can be utilised effectively only by skilled and intelligent work of human capital in the
economy.
 Thus, human capital formation raises productivity of physical capital which is desired for economic
growth.
ii. Innovative skills:-
 The human capital formation not only increases the productivity of human resources but also stimulates
innovation.
  Education provides knowledge to understand changes in society and scientific advancements thus
facilitating inventions & innovation.
 Large the number of skilled and trained personnel, greater the possibilities of innovation.
iii. Higher rate of participation and equality:-
 Higher rate of participation means increase in employment.
 Human capital formation has increased the productivity of individuals which increases employment
opportunities and also provides economic and social equality.
iv. Improvement in quality of life:-
 The quality of life improves due to quality education, health and skill formation acquired by the people.
 Human capital formation enables them to enjoy a higher standard of living, they are able to generate better
remuneration for them and for the nation.
v. Change in emotional and material environment of growth:-
 Change in emotional growth means change in attitude level of individual. Individual will become more
growth oriented.
 Change in material environment means now society as a whole can grow as there are more skilled people
or workers who will implement the plans & policies in an effective way.
D. Problems facing human capital formation:-
i. Rising population:-
 Continuous rise in population will adversely affect the quality of human capital.
 Benefits of economic growth relating to housing, hospitals, education etc. have reduced due to rising
population.
 Rapidly rising population lowers the capacity to possess skill and expertise required for economic growth.
ii.Brain-drain:-
 Loss of resources in terms of ―Brain-Drain‖ is a serious outcome of migration when educated and skilled
manpower moves to other countries to work.
 The countries like India cannot afford migration of persons of high calibre and possessing high quality
education who choose to render their services abroad.
iii. Deficient manpower planning:-
 In India, there exists imbalance between the demand and supply of human resources required for different
categories of work.
 Because of poor manpower planning there is wastage of scarce resources of the country.
iv. Insufficient training in primary sector:-
 Primary sector is the most important sector but proper training is not provided to them in order to utilize
the resources effectively.
 There are widespread inefficiencies in arranging on-the job training programmes.
v. Low academic standards:-
 Educational facilities in India have not developed as required for economic growth.
 There is mismatch between the requirement of skills and available academic standards.
 The result of this is that skills, training and expertise obtained by human capital is insufficient to meet the
desired standards of economic growth.
E. Reports on the Indian Economy:-
Two independent reports on the Indian Economy, in recent times, have identified that India would grow
faster due to its strength in human capital formation.
 Deutsche Bank, a German bank in its report on ‗Global Growth Centers‘ identified that India will emerge
as one among four major growth centres in the world by the year 2020.
 With reference to India it states, ―Between 2005 and 2020 we expect a 40% rise in the average years of
education in India.
 World Bank, in its recent report, ‗India and the knowledge Economy- Leveraging strengths and
opportunities‘, states that India should make a transition to the knowledge economy and if it uses its
 knowledge as much as Ireland does then the per capita income of India will increase from US$1000 IN
2002 to US$3000 in 2020.
 It further states that the Indian economy has all the key ingredients for making this transition such as, a
critical mass of skilled workers, a well-functioning democracy and diversified science and technology
infrastructure.
F. Government intervention in Education and health sectors:-
 Expenditure on education and health makes substantial long term impact and they cannot be easily
reversed; hence, government intervention is essential.
 The role of government is to ensure that the private providers of these services adhere to the standards
stipulated by the government and charge the correct price.
 In a developing country like India, with a large section of the population living below the poverty line,
many of us cannot afford to access basic education and health care facilities.
 Basic health care and education is a right of the citizens. So it is essential that the government should
provide education and health services free of cost for the deserving citizens and those from the socially
oppressed classes.
G. Growth of education sector in India:-
 During 1952-2014, education expenditure as percentage of total government expenditure increased from
7.92 to 15.7 and as percentage of GDP increased from 0.64 to 4.13.
 In 2009, the Government of India enacted the Right to Education Act to make free education a fundamental
right of all children in the age group of 6-14 years.
 Government of India has also started levying a 2 % ‗Education Cess’ on all Union taxes. The revenues
from education cess have been earmarked for spending on elementary education.
 In addition to this, the government sanctions a large outlay for the promotion of higher education and new
loan schemes for students to pursue higher education.
H. Educational achievements in India:-
S. no Particulars 1990 2000 2015
1. Adult literacy rate (%) of people aged above 15
Male 61.9 68.4 81
Female 37.9 45.4 63
2 Primary education completion rate
Male 78 85 94
Female 61 69 99
3 Youth literacy rate
Male 76.6 79.7 92
Female 54.2 64.8 87

I. Growth of Education sector in India:-

1. Expansion of General education:- During the plans, the number of educational institutions providing
elementary education has increased roughly by five times and number of students increased ten-fold. In
1951, hardly 18.33 % of the total population was literate. In 2011, the percentage of literates has increased
to 74.4%.
2. Elementary education:- Elementary education covers students from class 1 to class 8 in the age-group of
6-14 years. The number of primary and middle school has considerably increased. But low percentage of
admission of children in primary class points to educational backwardness in the country.
3. Secondary and senior secondary education:- Navodaya Vidyalayas were established to impart modern
education of good standard to talented students of rural areas. These schools provide boarding facilities to
the students. Central government has established Kendriya Vidayalaya for the benefit of the children of
transferable employees.
4. Higher education:- After independence, higher education has shown a convincing growth overtime. The
total number of colleges for general education in the country is 39071. Higher education includes general
education as well as technical, managerial, medical and other forms of professional education.
5. Vocationalisation of secondary education:- In February 1988, the Central government launched a plan to
introduce vocational subjects in the education system of the country. Vocational courses have been
introduced in the areas of agriculture, trade and commerce, engineering, technology, health and medicines.
6. Technical, Medical and Agricultural education:- The number of institutions giving technical and
professional education has been increased after independence. Many research centres have also been set up
in the country, eg:- IIT, Agriculture Research Institutes, Indian Statistical Institutes, National Physical
Laboratory, etc.
7. Rural education:- National Rural Higher Education council has been set up for the purpose of increasing
rural education. Under this scheme children of scheduled castes and scheduled tribes get free education in
all the states.
8. Adult and female education:- In order to eradicate illiteracy among the adults, special arrangements have
been made for adult education. National literacy mission was set up in 1998.
9. Total literacy campaign:- National literacy mission was launched to render everybody literate in the
country. This programme has now been recast as ‗Saakshar Bharat‘ with a central focus on female
education.
10. Right to Education:- in the year 2009, the Government of India has brought about an Act , called RTE. It
promises free and compulsory education to all. It makes education a matter of right to all children in the
age of 6-14 years.

s. no Committee Year Objectives

1 Education commission 1964 It had recommended that
at least 6% of GDP be
spent on education so as
to make a noticeable rate
of growth in educational
achievements.
2 The Tapas Majumdar 1998 It estimated an
Committee expenditure of 1.37 lakh
crore over 10 years
(1998-99 to 2006-07) to
bring all Indian children
in the age group of 6-14
years under the purview
of school education.
3 Right to Education Act 2009 It was enacted by the
Government of India to
make free education a
fundamental right of all
children in the age group
of 6-14 years.
 Chapter -9 Rural development
Agriculture is the major source of livelihood in the rural sector. Mahatma Gandhi once said that the
real progress of India did not mean simply the growth and expansion of industrial urban centres but
mainly the development of the villages. This idea of village development being at the centre of the overall
development of the nation is relevant even today.

A. Rural development:-
 It is the process which targets betterment of rural areas.
 It focuses on the action plan for the development of rural areas that are lagging behind in the overall
development of the country.
 The key issues in Rural Development:-
 Development of human resources
 Land reforms
 Infrastructure development
 Finance for land reforms and agriculture marketing
B. The challenges of rural development:-
1) The lingering challenges:-
a) The challenge of rural credit:-
 Rural credit refers to the credit for farmers in rural areas. Credit facility /loan contribute to the growth of
rural areas.
 The need for credit arises because poor farmers do not have surplus to invest in the improvement of
agriculture.
 There is time difference between sowing and harvesting of the crops. Farmers borrow in between sowing
and harvesting of the crops. Farmers borrow in between to meet their requirements.
Need for credit:-
i. Short term credit:-
 It is the credit required to meet short term needs.
 The period of this loan ranges between 6-12 months.
 It is required to buy seeds, tools, manures, fertilizers etc.
ii. Medium term credit:-
 It is credit required to meet medium term needs.
 The period of this loan ranges from 12 months- 5 years.
 It is required to buy machinery, fences, digging wells, constructing cattle sheds etc.
iii. Long term credit:-
 It is credit required to meet long term needs.
 The period of this loan ranges between 5-20 years.
 It is required to buy lands, heavy machines and equipments.
Sources of Rural credit:-
i. Non-institutional sources:-
 These are traditional sources of rural credit in India. These sources include money-lenders, landlords, and
traders.
 They charge very high rate of interest and thus exploit farmers.
 They acquire land on failure to pay back the loan.
 They force farmers to sell their crops to them at low prices.
ii. Institutional sources:-
a. Cooperative credit societies:-
 These societies advance credit to the farmers at reasonable rate of interest. These contribute nearly 30% of
the rural credit.
 These focus on the following objectives:-
 To free the farmers from the hands of money lenders.
 To advance credit at low rates of interest.
 To spread credit facilities all over the country.
 To ensure timely and continuous flow of credit to the rural areas.
b. RRBs and land development bank:-
 RRBs are regional rural banks and land development banks set up to promote credit facilities.
 The credit is granted against the mortgage of their lands.
 These banks provide credit for purchasing agricultural inputs, construction etc.
c. State bank of India and other commercial banks:-
 The state bank of India was set up in 1955 with a focus on rural credit.
 After the nationalization in 1969, commercial banks played a major role in advancing credit.
 Commercial banks directly help the farmers by expanding their branches in rural areas.
 It also indirectly helps the farmers through agents.
d. NABARD:-
 NABARD means National bank for agriculture and rural development. It was set up in 1982 as an apex
body to coordinate the activities of other financial institutions.
 It promotes the strength of the credit institutions in credit delivery system.
 It provides assistance to non-farms sector also and evaluates the projects financed by it.
 It coordinates the functioning of different financial institutions involved in advancing rural credit.
e. Self-Help groups
 Formal sources are not inadequate and not able to meet their requirements.
 It promote saving habits by contribution from each member.
 From the pooled money, credit is given to needy members to be repayable in small installments at
reasonable rate of interest.
 SHGs have helped in the empowerment of women. It is also known as micro-credit programme.
 For eg:- Kudumbashree is a women oriented community based self help group implemented in kerala in
1955.
Stage I: SHG provides a new opportunity for women to come together, meet regularly, discuss, debate and
exchange views on important common issues.
Stage II: The emerging financial power through their association with SHG contributes to increase
women‘s influence on household decision making .
Stage III: Women start assuming a larger role in their communities like community work, monitoring and
implementation of government programmes and schemes and participation in community meetings. They
are now seen as active participants in village community.
Stage IV: Women graduate from being participant in social and political platforms to a more empowered
role where they could successfully contest elections, and assume political power

Rural banking-A critical evaluation:-

 Banking credit facility is available by keeping something as collateral security because of this poor and
marginal farmers are left out.
 There is relaxed policy relating to recovery of loans and because of this sometimes bank may fall in
problem.
 Farming families fail to save money properly due to which deposit funds are less in commercial banks.
b) The challenge of agriculture marketing:-
 It is a process that involves the assembling, storage processing, transportation, packaging, grading and
distribution of different agricultural commodities across the country.
Measures initiated by government to improve marketing system:-
i. Regulated markets:-
 These were created to create transparent marketing conditions which will benefit farmers as well as
consumers.
 This measure protects the farmers from exploitation by the middlemen.
 The market committees ensure that the farmers get reasonable price of their produce.
  There is strict vigil on the use of proper scales and weighs.
ii. Cooperative agricultural marketing societies:-
 Under this system, farmers get together and form marketing societies to sell the produce collectively
and take benefit of collective bargaining to secure a better price of their products.
iii. Provision of warehousing facilities:-
 Government has provided storage facilities in the view to help farmers for storing the goods.
 This encourages the farmers to store their produce in the warehouse of central or state government and
sell their produce at a time when the price is attractive.

iv. Subsidized transport:-

 Railway authorities are providing subsidized tariff to the farmers, so that they can transport their
produce to urban areas.
v. Dissemination of information:-
 This refers to spread of market related information to the farmers through electronic media and print
media.
 It helps farmers in taking decisions as to what to produce, how much to produce, how much to sell,
when and where to sell etc.
 Spread of market information will help farmers getting fair price of their produce.
vi. Minimum support price:-
 It is an important step initiated by government to give assurance of MSP for agricultural products.
 The govt. fixes minimum support price to encourage the farmers to sell their produce.
 It is the assurance given by the government and farmers are free to sell their produce at price higher
than MSP.
C. Emerging alternate marketing channels for agricultural marketing:-
 It has been realized that if farmers directly sell their produce to consumers, it increases their incomes.
Some examples of these channels are:-
 Apni Mandi (Punjab, Haryana, Rajasthan)
 Hadaspur (Pune)
 Rythu Bazars ( vegetables and fruit markets in Andhra Pradesh and Telangana)
 Uzhavar Sandies (farmers market in Tamil nadu)
 Further, several national and multinational fast food chains are increasingly entering into
contracts/alliance with farmers to encourage them to cultivate farm products of the desired quality by
providing them with not only seeds and other inputs but also assured procurement of the produce at
pre-decided prices.
Benefits :-
 It will help in reducing the risks of farmers.
 It would also expand the markets for farm products.
 It would help in providing proper prices to farmers.
 It will help in protecting interest of consumers also.
D. Agriculture diversification:-
 Agricultural diversification is one of the essential components of economic growth. It is the stage
where traditional agriculture is transformed into a dynamic and commercial sector by shifting the
traditional agricultural product mix to high standard products, which has a high potential in stimulating
production rate. Here, agricultural diversification is supported by a change in technology or consumer
demand, trade or government policy, and by transportation, irrigation, and other developments of
infrastructure.
 It includes two aspects:- One relates to change in cropping pattern and other relates to a shift of
workforce from agriculture to other allied activities and non- agriculture sector.
 Why is agricultural diversification essential for sustainable livelihoods?
1. The need for diversification arises from the fact that there is greater risk in depending exclusively on
farming for livelihood.
2. Diversification towards new areas is necessary not only to reduce the risk from agriculture sector but
also to provide productive sustainable livelihood options to rural people.
3. Much of the agricultural employment activities are concentrated in the Kharif season. But during Rabi
season, in areas where there are inadequate irrigation facilities, it becomes difficult to find gainful
employment.
4. Therefore, expansion into other sectors is essential to provide supplementary gainful employment and
in realizing higher levels of income for rural people to overcome poverty.
i. Animal husbandry:-
 In India, the farming community uses the mixed crop livestock farming system-cattle, goats, fowl are the
widely held species.
 Livestock production provides increased stability in Income, food security, transport, fuel and nutrition for
the family without disrupting other food producing activities.
 In most areas, especially in rural areas livestock farming is combined with crop farming to earn additional
income.
 Livestock farming is more in Arid or Semi-arid areas where irrigation facilities are less.
 Out of all the livestock farming, poultry farm accounts for the largest sale.
 Government implemented a system namely ―operation flood‖ In this all the farmers can pool their production
of milk according to different quality. It can be transported to milk cooperatives at fair price.
 Gujarat state is held as a success story in the efficient implementation of milk cooperatives which have been
emulated by many states.
ii. Fisheries:-
 The fishing communities regard the water body as ‗mother‘ or ‗provider‘. The water bodies consisting of sea,
oceans, rivers, lakes etc. are the source of income for fishing community.
 Kerala, Maharashtra, Gujarat and Tamil Nadu are the major areas who depend upon fisheries for their
livelihood.
 Unemployment, low earnings, illiteracy and indebtedness are some of the major problems which are being
faced by fishing communities.
 There is need to increase credit facilities through cooperative and self-help groups for the fishing community.
 Fishery technology can be updated and made available to the fishing community.
 Problems related to over-fishing and pollution need to be regulated and controlled. Welfare programmes for
the fishing community have to be re-oriented in a manner which can provide long-term gains and sustenance
of livelihoods.
iii. Horticulture:-
 It is an important sector for diversification in agriculture. Horticulture crops include fruits, vegetables,
flowers, species etc.
 It provides food and nutrition as well as employment opportunities.
 India has emerged as a world leader producer in variety of goods line mangoes, bananas, coconut, cashewnut
and various other species.
 There has been rise in the income level of farmers involved in horticulture.
 Horticulture has given employment opportunities to the women in rural areas.
 The period of 1991, 2003 was the period of Golden revolution because during this period, the planned
investment in horticulture has increased the production.
 The area under cultivation in horticulture was more as compared to area under pulses which reduces the
supply of pulses and price increases for essential goods.
 Horticulture has emerged as a successful sustainable livelihood option. It contributes nearly one-third of the
value of agriculture output and 6 % of GDP of India.
iv. Cottage and household industries:-
 It is the traditional occupation in rural areas other than farming.
 It involves the activities like spinning, weaving, dyeing and bleaching.
 These industries get little bit affected when large scale industries related to textile were set up.
 Workers have started making other things such as soaps, dolls, bee-keeping etc. which resulted generation of
extra income.
 It has given employment opportunities to the women.
a) Organic farming and sustainable development:-
 Organic farming is the farming done by using organic inputs such as animal manures and compost for
cultivation.
 It reduces the use of chemical fertilizers, insecticides; pesticides etc. and provide food grains free from
chemicals and toxic pesticides.
 It focuses on improving soil fertility along with an eco-friendly environment.
―Organic farming is a system which avoids or largely excludes the use of synthetic inputs (such as fertilizers,
pesticides, hormones, feed additives etc) and to the maximum extent, feasible rely upon crop rotations, crop
residues, animal manures, off-farm organic waste, mineral grade rock additives and biological system of
nutrient mobilization and plant protection.

Why organic farming?

i. Discard the use of renewable resources:-
 Conventional farming relies heavily on chemical fertilsers and pesticides and these chemicals are synthetic
chemicals made from petroleum.
 Organic farming does not use such chemicals and hence avoid the usage of non- renewable resources.
ii. Environmental friendly:-
 The produce of organic farming is pesticide free as they discard the use of chemical fertilizers.
 These fertilizers pollute the groundwater and hence organic farming is eco-friendly.
iii. Sustains soil fertility:-
 Conventional farming such as fertilizers erode the soil fertility whereas organic farming sustains soil fertility.
 Soil fertility is increased by use of animal manures and compost.
iv. Healthier and tastier food:-
 Organically grown food has more nutritional value than food grown by chemical farming. So organic
farming provides us with healthy foods.
 Present day trends show that demand for organic food is rising as it is more nutritious.
v. Inexpensive:-
 Organic farming acts as substitute for conventional farming.
 It substitutes costlier agricultural inputs such as HYV seeds chemical fertilizers, pesticides etc. with organic
inputs.
 Organic inputs are cheaper than those fertilizers.
Problems and Limitations of organic farming:-
 The yields from organic farming are less than modern agricultural farming in the initial years. Therefore,
small and marginal farmers may find it difficult to adapt to large-scale production.
 Organic produce may also have more blemishes and a shorter shelf life than sprayed produce.
 Choice in production of off-season crops is quite limited in organic farming.
 Marketing of organically produced goods is another major problem.
(i) Shortage of Biomass:-
 Many experts and well informed farmers are not sure whether all the nutrients with the required quantities
can be made available by the organic materials.
 Even if this problem can be surmounted, they are of the view that the available organic matter is not simply
enough to meet the requirements.
(ii) Disparity of Supply and Demand:-
 Non-perishable grains can be grown anywhere and transported to any location but this is not the case with
fruits and vegetables.
 It should be produced locally for which there should be willing companies, aggregators and farmers around
that particular area from where the demand is coming.
 But generally, the demand comes from metros where there are no farmlands to produce organic fruits and
vegetables.
 Smart transport and dedicated channels of supply are the solutions to this disparity.
(iii) Time Indeed:-
 Organic farming requires greater interaction between a farmer and his crop for observation, timely
intervention and weed control for instance.
 It is inherently more labor intensive than chemical/mechanical agriculture so that, naturally, a single farmer
can produce more crops using industrial methods than he or she could by solely organic methods.
(iv) High MRP:-
 It is almost obvious that due to the extreme care taken to go along with organic farming, the results would be
kept at a high price.
 The items sold in the market are half the price of non-organic products.
 So, we can say that organic items are expensive and not every consumer is willing to pay the price for it.
(v)Lack of special infrastructure:-
 Most large organic farms still operate in an industrialized agriculture style, including industrial transportation
of the food from field to plate.
 Unfortunately, this involves the adoption of the same environmentally harmful practices as those of factory
farms which are however hidden under the cover of being organic.
 Class-XII Chapter-10 Employment Subject:-
Economics
People do variety of work. Some work on farms, in factories, banks, shops and many other workplaces; yet a
few others work at home. Work at home includes not only traditional work like weaving, lacemaking or
variety of handicrafts but also modern jobs like programming work in the IT industry.

A. Who is a worker?
 All those persons who are engaged in various economic activities, in whatever capacity - high or low, and
hence contribute to gross national product are workers.
 Even if some of them temporarily abstain from work due to illness, injury or other physical disability, bad weather,
festivals, social or religious functions, they are also workers.
 Workers also include all those who help the main workers in these activities.
 We generally think of only those who are paid by an employer for their work as workers. This is not so. Those
who are self-employed are also workers.
B. What is Employment?
 The nature of employment in India varies. Some get employment throughout the year; some others get
employed for only a few months in a year.
 Many workers do not get fair wages for their work.
 While estimating the number of workers, all those who are engaged in economic activities are in
employment.
C. Participation of people in employment:-
 During 2011-12, India had about a 473 million strong workforce.
 Since majority of our people reside in rural areas, the proportion of workforce residing in rural areas is
higher. The rural workers constitute about three-fourth of this 473 million.
 Men form the majority of workforce in India. About 70 % of the workers are men and the rest are women.
 Women workers account for one-third of the rural workforce whereas in urban areas, they are just one-fifth
of the workforce.
D. Workforce participation rate:-
 It is defined as the percentage of population that is actively contributing to the production of goods and
services of a country.
 It is calculated as:- x100
 It is an indicator which is used for analyzing the employment situation in the country.
 If the ratio is higher, it means that the engagement of people is greater.
 If the ratio of country is medium, or low, it means that a very high proportion of its population is not
involved directly in economic activities.
SEX WORKER POPULATION RATIO
TOTAL RURAL URBAN
MEN 54.4 54.3 54.6
WOMEN 21.9 24.8 14.7
TOTAL 38.6 39.9 35.5
 In rural areas more people participate in employment as compared to urban areas, because in rural areas
they have limited resources to earn income and moreover people do not go to school or college as their
economic condition does not allow them. So they have to join one or other work to support their families.
 Urban people have variety of employment opportunities. They look for that job which is suitable for them
as per their skills.
 More women participate in work in rural areas as compared to urban areas, because women working in
farm in rural areas are considered as a part of the workforce.
 Whereas on the other hand men are able to earn high income in urban areas, so families discourage female
members for taking up jobs.
 E. Unemployment
 Unemployment refers to a situation where people are willing to work at existing wage rate but they are not
getting work.
Worker and its types:-
 All those people who are engaged in economic activities according to their capacity are known as workers.
Types:-
i. Self-employed workers:-
 These are those workers who use their own resources such as land, labour, capital etc.
 They are engaged in their own business and profession.
 They are not employed by others whereas they provide job to themselves.
ii. Hired workers:-
 These are those workers who are employed by others and are paid wages or salaries in return.
 This is also known as wage employment.
 They receive salaries for rendering their services.
iii. Casual workers:-
 These are not hired on permanent/ regular basis by employers.
 These do not get social security benefits such as Pension, Gratuity etc.
 These are daily wagers. For eg:- Construction workers.
iv. Regular workers:-
 These are hired on permanent/regular basis by their employers.
 These get social security benefits such as Pension, Gratuity fund etc.
 They can form their own trade unions.
F. Distribution of workforce:-
1. Distribution of work in different sectors:-
i. Primary sector:-
 Primary sector includes sector which involves natural resources such as agriculture, forestry, mining etc.
 As per 2015-16, near about 46% workforce is employed in primary sector.
 A large workforce depends on primary activities to make a living. But the productivity and wage rate is less
which shows backwardness of primary sector.
ii. Secondary sector:-
 Secondary sector includes manufacturing, construction etc.
 Only 21.8% of workforce is employed in secondary sector which shows the industrial sector is unable to
generate employment opportunities.
iii. Tertiary sector:-
 It includes service sector that is trade, transport, storage etc.
 It provides 32% of employment opportunities which is more than industrial sector.
 It is a major source of employment for people in urban areas as against employment in rural areas.
Industrial Place of residence Sex Total
category
Rural Urban Men Women
Primary sector 64.1 6.7 43.6 62.8 48.9
Secondary 20.4 35.0 25.9 20.0 24.3
sector
Tertiary sector 15.5 58.3 30.5 17.2 26.8
Total 100 100 100 100 100

2. Distribution of employment by gender:-

i. Male workforce:-
 Male workforce engaged in primary sector is only 45%, in secondary sector -19% and tertiary sector-25%.
 Male workforce can migrate from one area to another area, therefore in tertiary sector employment is greater
as compared to secondary sector.
ii. Female workforce:-
 Female workforce engaged in primary sector is 57%, whereas in secondary sector -15% and tertiary sector
19%.
 More of the female workforce is engaged in primary sector because women are unwilling to migrate for
outside jobs.
 They prefer to work at their place in order to generate extra income for their family.
G. Growth and changing structure of Employment:-
1. There are two main developmental indicators to expand an economy:-
 Growth of employment
 Growth of gross domestic product:- India‘s
planned development have been aimed at
expansion of the economy through increase in
GDP and employment.
 During the period 1950-2010, GDP of India grew
positively and was higher than the employment
growth.
 There is a widening gap between the growth of
GDP and employment during 1951-2012.
 This means that, India is experiencing more GDP
through technology than the employment . It is a situation of jobless growth.
 Therefore, jobless growth is a situation when the economy is able to produce more goods and services
without increase in level of employment.
2. Informalisation of Indian workforce:-
It is the situation where percentage of workforce in the formal sector tends to decline and that in the
informal sector tends to rise.
It is classified into Formal sector and Informal sector.
i. Formal sector:-
 All the public or private sector establishments which employ 10 or more workers are called formal sector.
 These workers are entitled to social security benefits such as provident fund, gratuity etc.
 These workers form trade unions and have strong bargaining power, as their rights are protected by various
labour laws.
ii. Informal sector:-
 All the private sector organisations which hire less than 10 employees together comprise informal sector.
 These workers are not entitled to social security benefits such as provident fund, gratuity etc.
 These workers cannot form trade unions and have weak bargaining power as their rights are protected by
various labour laws.
 This sector includes millions of farmers, agricultural labour, owners of small enterprises etc.
H. Rural and Urban Unemployment:-
1. Rural unemployment:-Degree of unemployment is more in rural areas as compared to urban areas. More of
the workforce is engaged in primary sector. This sector leads to two types of unemployment:-
i. Disguised unemployment:-
 It is a type of hidden unemployment which arises in agriculture sector.
 It is a situation when more than actually required numbers of workers are engaged in work. If some of them
are withdrawn from the job, the total output will remain unaffected.
 When all those who apparently seem working in agriculture are not able to contribute individually to total
output, would be counted in disguised unemployment.
 Lack of job opportunities outside agriculture compel the people to work on their family farm which causes
unemployment.
 ii. Seasonal unemployment:-
 This is another common form of unemployment which prevails in rural areas. It occurs because agriculture is
seasonal in nature. The farmers are unemployed in off season.
 It depends upon the method of cultivation, if farmer cultivates only one crop in a year then he remain
unemployed for 6-7 months.
 This unemployment occurs in many other seasonal activities too, such as brick making, sugarcane crushing,
ice cream making etc.
2. Urban unemployment:-
i. Industrial unemployment:-
 It includes those persons who want to work in industries, mining, transport but they do not get the work.
 It refers to the unemployment which occurs because of modern industrial development which is based on
adopting capital intensive technology.
 There is rapid increase in population in India and the industrial sector has not expanded so much so as to
create job opportunities.
 There has been tendency of migration of people from rural areas to urban areas which further add to the
problem of industrial unemployment.
ii. Educated unemployment:-
 It is that unemployment wherein people have education or a degree but they are not able to get the job.
 There has been tremendous expansion of educational facilities at school, college and university level. This
has led to an increase in the number of educated people in the country.
 But this education is degree oriented not job-oriented. Hence an educated person fails to get employment.
 There is no correlation between the number of educated people and amount of job opportunities. Job
opportunities have not increased as much as the number of educated persons.
3. Other types of unemployment:-
i. Open unemployment:-
 It refers to the unemployment in which people are able and willing to work, but fail to get work.
 They have necessary skills and are ready to work at existing rate, but they do not get a job.
 Such workforce remains unemployed throughout and totally depends upon others.
ii. Structural unemployment:-
 It arises due to mismatch between demand of specified type of workers and unemployed persons.
 It exists because of structural changes in the economy.
 This may be due to change in technology because of which persons who are trained to work with old
technologies are no longer required and considered unemployed.
 This may also be due to change in demand because of which new changes in the methods of production are
required and the persons who cannot match the requirement are thrown out.
iii. Underemployment:-
 It is a situation when worker does not work for full time or even if he is working for full time, he is paid less
than what he should get.
 Underemployment may be visible in nature. In this situation, persons get employed for less than normal
work hours. For eg:- if a person works for 5 hours a day which is less than normal working hours that is 8
hours, then he is underemployed.
 Underemployment may also be invisible in nature. In this situation, persons are employed in full time work
but they are paid less.
iv. Frictional unemployment:-
 It is temporary phenomenon. It happens due to some temporary changes taking place in the work place.
 It occurs when workers leave one job and need some time to wind up the previous job. In this process they
are not working for some time, and hence will be called frictionally unemployed.
 This may also happen due to installation of new equipment etc.
v. Cyclical unemployment:-
  This problem occurs due to cyclical fluctuations in trade cycle that is boom, recession , depression and
recovery.
 During the phases of recession and depression that is when the level of income falls it causes further fall in
demand of goods and services. The nation would then find cyclical unemployment.
I. Causes of unemployment:-
i. Slow economic growth:-
 Slow growth rate of economy is an important factor that has led to unemployment.
 Slow growth rate is unable to generate enough of job opportunities to absorb the available labour force.
 The actual growth rate of economy is always less than the required growth rate and as a result it arises
unemployment.
ii. Rapid growth of population:-
 A high rate of population growth in India is responsible for the unemployment in the country.
 A high growth rate of population keeps adding more persons every year to the existing labour force who are
seeking employment.
 Increase in population is at faster rate than the increase in number of job opportunities.
iii. Agriculture-A seasonal occupation:-
 There is heavy pressure of population on agriculture which offers seasonal employment.
 Because of which farmers remain idle for 3-4 months in a year.
 Irrigation facilities are very poor due to which farmers are not able to undertake multicropping system.
iv. Joint family system:-
 In India, there is still joint family system which prevails both in rural and urban areas.
 In large families, many family members depend on the joint income of the family.
 It gives rise to disguised unemployment.
v. Decay of cottage and small industries:-
 Decay of handicraft industry during British time caused unemployment.
 Large scale industries have taken place of small scale industries but they failed to give employment
opportunities.
vi. Low savings and investment:-
 There is lack of investment in the country. Lack of investment implies low production of goods and services
as a result of which there are less employment opportunities.
 Lack of investment Less Income Less savings results in lack of job opportunities and effects
unemployment.
vii. Limited mobility of labour:-
 There is low level of mobility of labour in India.
 There are many reasons such as lack of awareness about job markets, family circumstances, language
problem which hinders mobility of workers for new jobs.
J. Economic and social Consequences:-
1.Economic consequences:-
 Non-utilization of man power:-As people are unemployed, manpower resources are not fully utilized which
result in wastage of resources.
 Loss of output:- As human resources are not utilized to the full, there will be loss of output and income to
the extent of unemployment.
 Low capital formation:- It is because of low level of income that people are not able to save and invest
sufficiently causing decline in capital formation.
 Low productivity:- Because of disguised unemployment or cyclical unemployment the productivity is less.
2. Social consequences:-
 Low quality of life:- Unemployment means a state of low quality of life as the person is not earning and is
not able to maintain dignified standard of living.
 Greater inequality:- Unemployment corresponds to inequality as some are working and earning and some
are not. It widens the gap between haves and have nots.
  Social unrest:- Unemployment adversely affects the peace in the society. Being in the state of suffering,
unemployed person may resort to theft, dacoit, deception etc.
K. Suggestion to solve the problem of Unemployment:-
i. Increase in production:-
 If employment has to be increased it is necessary to increase the output in different sectors that is
industrial, agriculture etc.
 Greater the production, greater is the demand for labour.
ii. High rate of capital formation:-
 Rate of capital formation has been increased by increasing level of investment and savings.
 When investment rate increases then production capacity also increases creating more employment
opportunities.
iii. Help to self - employed persons:-
 There should be encouragement to self-employed workers in rural areas and urban areas to set up their
work areas.
 In rural areas, government should provide short term, middle term or long term loans to farmers to buy
seeds, equipment, manure etc.
 In urban areas, there should be financial assistance given to set up their own enterprises.
iv. Educational reforms:-
 As the existing education system is more degree oriented, efforts should be made to make it job-oriented.
 The system should include vocational and technical education at all levels of education.
 There should be more institutions providing information about special programmes of training or
enhancing skills for educated unemployed.
v. Technique of production:-
 In order to increase the employment in the country, it is essential to change the technology.
 The technique of production should be employment friendly that is more importance must be given to
Labour intensive technique.
vi. Direct generation of employment opportunities by the government:-
 The government employs people in various departments for administrative purposes.
 It also runs industries, hotels and transport companies and hence, provides employment opportunities
directly to workers.
 CH-12 Environment and Sustainable Development

The economic development that we have achieved so far has come at a very high price- at the cost of
environmental quality. As we step into an era of globalization that promises higher economic growth, we
have to bear in mind the adverse consequences of the past development on our environment and
consciously choose a path of sustainable development.

A. Concept of environment:-
 Environment is the condition which influences human life.
 It includes living and non-living elements such as birds, animals, forest etc. and air, water, land etc.
 It includes all the biotic and abiotic factors that influence each other.
 Environment includes water, air and land and the inter-relationship which exists among and between water,
air, land and human beings and other creatures, plants, micro-organisms and property.
B. Significance of environment:-
i. Environment offers resources for production:-
 Environment supplies resources which are important for production.
 Resources include renewable and non- renewable resources such as-trees, plants, fossil fuels etc.
 These are natural resources and are used as inputs for producing goods and services.
ii. Environment sustains life:-
 It includes the basic element required for survival. For eg:- Air, water, soil, sun etc.
 Environment has that capacity which supports life.
 Absence of elements such as air, water etc. implies end of life.
iii. Environment assimilates (absorbs) waste:-
 During the production process lots of waste is generated.
 Generation of waste occurs in the form of garbage. Environment absorbs this waste created by the activities
of production and consumption.
 The wastes generated should be within the carrying capacity of the environment.
 Carrying capacity or absorptive capacity means the ability of the environment to absorb degradation.
iv. Environment enhances quality of life:-
 Environment includes all those elements which improve quality of human life. For eg:-land, seas, ocean
etc.
 All these elements make our surroundings beautiful and refreshing.
 Human being would cherish and enjoy these surroundings which will help in improving their quality of
life.
C. Current environmental crisis:-
Opportunity cost of negative environmental impacts is high.
 Many resources have become extinct and the wastes generated are beyond the absorptive capacity of the
environment.
 The industrial development has polluted and dried up rivers and other aquifers making water an economic
good.
 The intensive and extensive extraction of both renewable and non-renewable resources has exhausted some
of these vital resources and we are compelled to spend huge amounts on technology and research to explore
new resources.
 Added to these are the health costs of degraded environmental quality- decline in air and water quality has
resulted in increased incidence of respiratory and water-borne diseases. Hence the expenditure on health is
also rising.
 Global environment issues such as the global warming and ozone depletion also contribute to increased
financial commitments for the government.
D. Supply-demand reversal of environmental resources:-
 In the early days when civilization just began, or before this phenomenal increase in population, or before
countries took to industrialization, the demand for environmental resources and services was much less
than their supply.
 This meant that pollution was within the absorptive capacity of the environment and the rate of resource
extraction was less than the rate of regeneration of these resources.
 Hence environmental problems did not arise.
 But with the population explosion and with the advent of industrial revolution to meet the growing needs of
the expanding population, things changed.
 The result was that the demand for resources for both production and consumption went beyond the rate of
regeneration of the resources.
 The pressure on the absorptive capacity of the environment increased tremendously.
 This has resulted in a reversal of supply-demand relationship of environmental resources.
E. Challenges to India’s environment:-
 The threat to India‘s environment poses a dichotomy:-
o Threat of poverty-induced environmental degradation
o Threat of pollution from affluence and a rapidly growing industrial sector.
 The priority issues identified are:
1) Land degradation:-
 It refers to a decline in fertility of land and quality of the soil.
 It occurs because of soil erosion, unstable use and inappropriate management practices.
 Some other factors responsible for land degradation are:-
 Shifting cultivation.
 Forest fires and over grazing.
 Improper crop rotation etc.
 Unsustainable fuel wood and fodder extraction.
2) Soil erosion:-
 It means loss of upper layer of the soil which contains major nutrients for growth of plants.
 Excessive water logging on the top of soil reduces its fertility.
 Estimates of soil erosion show that soil is being eroded at a rate of 5.3 billion tonnes a year for the entire
country.
 According to the Government of India, the quantity of nutrients lost due to erosion each year ranges from
5.8 to 8.4 million tonnes.
3) Deforestation:-
 It is a continuous and regular decrease in forest area. Forest cover indicates the quality of land.
 It is because of cutting trees to meet the need of raw- materials for growing industrialization.
 Deforestation arises because of urbanization. More and more forests are cleared for development of towns.
 Multi-purpose river projects like (Bhakra dam) are another factor, contributing to deforestation.
 The consequences of deforestation are:-
 Negative effect on wild life and plant life.
 Deterioration in the quality of land resources.
 Harm to the natural environment of the country.
4) Pollution:-
It refers to those chemical substances which contaminate the environment.
The CPCB (Central Pollution Control Board) has identified seventeen categories of industries as
significantly polluting.
i. Air pollution:-
 Air pollution means presence of air pollutants in the air which are harmful to human beings, animals and
vegetation.
 The causes of increase in air pollution are rapid industrialization, urbanization, thermal power plants.
 Following factors contribute to air pollution:-
  Smoke emitted by the industries due to use of fossil fuels.
 Vehicular emissions due to the use of liquid fuels.
 Smoke emitted by consumption of energy in rural households.
 It causes various diseases like asthma, hypertension, respiratory problems etc.
ii. Water pollution:-
 Water pollution means presence of water pollutants in the water which contaminate or degrade the quality
of water.
 The cause of increasing water pollution is rapid industrialization, refineries etc.
 Major concern is rapid growth of industries like textiles, chemicals, refineries etc.
 Soil erosion, decay of organic matter mixed with pesticides and insecticides runs into streams and rivers
which contaminates water.
 Thus the major sources of water pollution are:-domestic sewage, industrial waste, agricultural waste etc.
 Water being very basic element of life, if polluted, creates health problems like hepatitis, diarrhoea etc.
iii. Noise pollution:-
 Noise pollution means discomfort and irritation caused by loud sound.
 Noise created by loudspeaker, vehicles, animals, machines cause noise pollution.
 Thus the major sources of noise pollution are:-
 Sound produced by heavy machines.
 Sound produced by automobiles.
 Sound produced by the industrial machines.
 Sound produced by household appliances like mixer-grinders, water boosters and washing machines.
F. Sustainable development:-
 It refers to the development strategy to meet the needs of present generation without compromising the
needs of future generations.
 It enables all generations to make best use of resources.
 Development that will allow all future generations to have a potential average quality of life that is at least
as high as that which is being enjoyed by the current generation.
 The Brundtland Commission emphasises on protecting the future generations.
 To achieve sustainable development, the following steps must be taken:-
 Limiting the human population to a level within carrying capacity of the environment.
 The carrying capacity of the environment is like a ‗plimsoll line‘ of the ship which is its load limit
mark.
 In the absence of plimsoll line for the economy, human activities grow beyond the carrying capacity
of the Earth and prevents sustainable development.
 Technological progress should be input efficient and not input consuming.
 Renewable resources should be extracted on a sustainable basis, that is, rate of extraction should not
exceed rate of regeneration.
 For non-renewable resources, rate of depletion should not exceed the rate of creation of renewable
substitutes.
 Inefficiencies arising from pollution should be corrected.
Strategies for sustainable development:-
i. Solar energy:-
 India is naturally endowed with a large quantity of solar energy in the form of sunlight.
 With the help of photovoltaic cells, solar energy can be converted into electricity.
 These cells use special kind of materials to capture solar energy and then convert the energy into
electricity.
 This technique is totally free from pollution.
 Sunlight is non-exhaustible source of energy which will solve economic problems and also achieve
sustainable development.
 ii. Wind power:-
 In areas where speed of wind is usually high, windmills can provide electricity without any adverse effect
on environment.
 Wind turbines move with wind and electricity is generated.
 No doubt, the initial cost is high.
 But the benefits are such that the high costs get easily absorbed.
iii. Mini-hydel plants:-
 In mountainous regions, streams can be found almost everywhere. A large percentage of such streams are
perennial.
 Mini-hydel plants use the energy of such streams to move small turbines.
 The turbines generate electricity which can be used locally.
 They generate enough power to meet local demands.
 They can also do away with the need for large scale transmission towers and cables and avoid transmission
loss.
iv. Organic farming:-
 Organic farming can be used as substitute to chemical fertilizers etc. then chemical fertilizer reduce soil
fertility and loss of production capacity of soil for future generations.
 Organic farming focuses on soil health and prevents water pollution.
 In certain parts of country, cattle is maintained only because it produces dung which is an important
fertilizer.
 Biopest control:- Several types of pest controlling chemicals have been isolated from neem and these are
being used.
v. LPG, Gobar Gas in rural areas:-
 Households in rural areas generally use wood, dung cake or other biomass as fuel.
 LPG is a clean fuel. It reduces household pollution to a large extent. Also, energy waste is minimized.
 In addition , gobar gas plants are being provided through easy loans and subsidy.
 For the gobar gas plant to function, cattle dung is fed to the plant and gas is produced which is used as fuel
while the slurry which is left over is a very good organic fertilizer and soil conditioner.
vi. Strict law on the disposal of chemical effluents:-
 There should be strict vigil on implementation of law made for chemical disposal.
 Strict actions should be taken against those who violate the law by disposing of chemical residuals in
water.
vii. Awareness to conserve natural resources:-
 Natural resources should be conserved for inter- generation equity. It means equal opportunities for present
and future generations.
 Awareness programmes will help in conserving natural resources.
 Ch-13 Development experience of India, Pakistan and China- A comparative study

India, China and Pakistan have similar physical endowments and are neigbouring countries with totally
different political systems. India has the largest democracy of the world whereas Pakistan has militarist
political power structure and China has the command economy.

A. Strategy of growth of India, Pakistan and China:-

 India, Pakistan and China have similarities in their development strategies.
 All the three nations started towards their developmental path at the same time.
 While India and Pakistan became independent nations in 1947, People‘s Republic of China was
established in 1949.
 All the three countries had started planning their development strategies in similar ways- while India
announced its first five year plan in 1951, Pakistan announced its first five year plan now called medium
term developmental plan in 1956. China announced its first five year plan in 1953.
 Indian and Pakistan adopted similar strategies, such as creating a large public sector and raising
expenditure on social development.
 Till the 1980‘s, all the three countries had similar growth rates and per capita incomes.
B. Growth story of China:-
 People‘s Republic of China was established and the country was regulated by government. All the
enterprises and land owned by individuals are brought under the control of government.
 The economy was agrarian, but the Great Leap Forward campaign was initiated in 1958 to foster
industrialization.
 It encouraged people to set up industries in their backyard.
 In rural areas, communes were started. Under the commune system, people collectively cultivated lands. In
1958 there were 26000 communes covering almost all the farm population.
GLF campaign met with many problems:-
 A severe drought caused havoc in China killing about 30 million people.
 When Russia had conflicts with China, it withdrew its professionals who had earlier been sent to
China to help in the industrialization process.

 In 1965, Mao introduced the Great Proletarian Cultural Revolution (1966-76) under which students and
professionals were sent to work and learn from country side.
 China‘s present rapid industrial growth can be traced back to its reforms in 1978.
 China introduced reforms in phases.
Initial phase Later phase
 Reforms were initiated in agriculture,  Reforms were initiated in industrial sector.
foreign trade and investment sectors.  Private sectors were allowed to produce goods.
 For example:- in agriculture , commune  At this stage enterprises owned by government
lands were divided into small plots, were allowed to face competition.
which were allocated to individual  The reform process also involved dual pricing.
households. Producers were supposed to sell fixed amount of
 They were allowed to keep all income quantity at fixed price decided by government
from the land after paying stipulated whereas rest of the quantities could be sold at
taxes. market price.
 SEZ were set up to attract foreign investors.

 However, in recent past, GDP growth in China has slowed down. some of the reasons are:-
 Demand of Chinese products has reduced in global economies.
 Chinese economy slowed down because of less domestic investment.
 Chinese people were migrating to other countries in search of skilled job opportunities.
 Environmental degradation was a concern in China because more industries were set up and were
causing serious challenge of sustainable development.
C. Growth story of Pakistan:-
 Pakistan adopted various economic policies similar to those adopted by India.
 Pakistan also followed mixed economy model with co-existence of public and private sectors.
 In the late 1950‘s and 1960‘s Pakistan introduced various policies. Such as tariff protection for
manufacturing of consumer goods together with direct import controls on competing imports.
 The introduction of Green Revolution changed the agrarian sector. It led to increase in public investments
in infrastructure which finally led to a rise in the production of food grains.
 In the 1970‘s nationalization of capital goods industries took place. Pakistan then shifted its policy and
introduced denationalization on encouragement of private sector.
 They received financial support from western countries and also financial support to private sector from
government.
 In 1988 Pakistan introduced economic reforms.
 In Pakistan the reform process led to worsening of all the economic situations.
The reasons for slow down of growth and reemergence of Poverty in Pakistan‘s economy are:-
 Agricultural growth and food supply situation were based not on an institutionalized process of
technical change but on good harvest. When there was a good harvest, the economy was in good
condition, when it was not, the economic indicators showed stagnation or negative trends.
 If a country is able to build up its foreign exchange earnings by sustainable export of manufactured
goods, it need not worry. In Pakistan, most foreign exchange earnings came from remittances from
Pakistani workers in the Middle-East and the exports of highly volatile agricultural products.
 There was also growing dependence on foreign loans on one hand and increasing difficulty in paying
back the loans on the other.

D. Economic Development Indicators of India, China and Pakistan:-

1. Salient Demographic Indicators of India, China and Pakistan:-
Select Demographic Indicators, 2015
Country Population Density Annual Sex ratio Fertility rate urbanisation
Growth of
population
India 1311 441 1.2 929 2.3 33
China 1371 146 0.5 941 1.6 56
Pakistan 188 245 2.1 947 3.7 39

 China has the highest population followed by India. If we look at the global population, out of every six
persons in the world one is Indian and another is Chinese. The population of Pakistan is very small
accounts for roughly about one-tenth of China or India.
 China is the largest nation and geographically occupies largest area but its population density is the lowest.
 The population growth is highest in Pakistan followed by India and China. Major reason for low population
growth in China was ‗One Child Policy‘ norm initiated in late 1970‘s.
 Sex ratio is low in all the three countries. Preference for sons, in all these countries is the reason for low
sex ratio.
 The fertility rate is also low in China and very high in Pakistan.
 Urbanization is high in China with India having 33% of its people living in urban areas.
2. GDP growth rate trends in India, China and Pakistan:-
Annual growth of GDP (in %), 1980-2017
Country 1980-90 2015-17
India 5.7 7.3
China 10.3 6.8
Pakistan 6.3 5.3

 China has the second largest GDP of $ 19.8 trillion whereas India and Pakistan‘s GDP is $8.07 and $0.97
trillion.
 When many countries were finding it difficult to maintain a growth rate of even 5%, China was able to
maintain near double digit growth rate for one decade.
 In the 1980‘s, Pakistan was ahead of India, China was having double-digit growth and India was at the
bottom.
 In 2011-15, there has been a decline in China‘s growth rates whereas, Pakistan met with drastic decline at
4%. Some scholars hold economic reforms in 1988 and political instability responsible behind the trend.
3. Sectoral contribution towards GDP in India, China and Pakistan
Sector India China Pakistan
Agriculture 17 9 25
Industry 30 43 21
Services 53 48 54
Total 100 100 100
 Share of agriculture sector:- In China, the contribution of agriculture to GDP was 9% in 2015-17, in India it
was 17% and in Pakistan, it was 25%.
 Share of Manufacturing and service sector:- In all three economies, the industry and service sectors
contribute more in terms of output. In China, manufacturing and service sectors contribute the highest to
GDP at 43% and 48% respectively whereas in India and Pakistan, it is the service sector which contributes
the highest by more than 50% of GDP. The contribution of Industries to GDP is at 30% in India and 21 %
in Pakistan.
4. Sectoral share of employment in India, China and Pakistan
Sector India China Pakistan
Agriculture 42.7 17.5 42
Industry 23.8 26.5 3.7
Services 33.5 56 54.3
Total 100 100 100
 In China, only 17.5% of the workforce was engaged in agriculture in 2015-17.
 But the proportion of workforce that works in this sector is more in India.
 In Pakistan, 42 % of people work in agriculture sector whereas in India it is 42.7%
 In all three countries workforce in Industry and Services sectors is less.
 In China, workforce in service sector is high as compared to India and Pakistan.
5. Development of India, China and Pakistan with respect to indicators of human development:-
Item India China Pakistan
HDI 0.64 0.75 0.56
Rank 130 86 150
Life expectancy 68.8 76.4 66.6
Years of schooling 6.4 7.8 8.6
GDP per capita 6427 15309 5035
BPL 60.4 23.5 46.4
Infant mortality rate 34.6 8.5 64.2
Maternal mortality rate 174 27 178
Improved sanitation 44.2 75 58.3
Improved water sources 94 96 91
Undernourished children 37.9 8.1 46.4
 China is moving ahead of India and Pakistan. Two indicators are there that is Income indicator and
Health indicator.
 Pakistan is ahead of India in reducing BPL and also in sanitation. India has largest share of poor among
three countries.
 Neither of these two countries-India and Pakistan have been able to save women from maternal
mortality.
Liberty indicator:- It represents the degree of social and political freedom to individual in a country.