MODULE 2

CORE STRUCTURE OF INDIAN ECONOMY

Economic Environment
• Economic Factors:
• Land
• Labor
• Capital
• Entrepreneurship
What is a claim and counterclaim?

• Claim: This is your position or viewpoint on an issue. Counterclaim:

This is what the opposing side is arguing about the issue.
NEW ECONOMIC POLICY (NEP)
• The New Economic Policy of 1991 was a significant turning point in
India's economic history. It was implemented on 24th July 1991 by
Government of India. It shifted from a closed and controlled economy
to an open and liberalized one.
New Economic Policy 1991?
• The Government of India introduced the New Economic Policy (NEP) in 1991 to
respond to a balance of payments crisis. The NEP is credited to former Prime
Minister Manmohan Singh as its architect. The NEP also emphasized implementing
structural reforms to boost economic efficiency. It sought to enhance international
competitiveness by removing rigidities across various economic sectors. The 1991
NEP was pivotal in reshaping India's economic landscape, ushering in significant
transformations. The economic policy 1991 aimed at achieving multiple goals within
India's economy. These objectives included:
• Accumulating foreign exchange reserves.
• Eliminating market restrictions.
• Facilitating global trade of goods, services, capital, human resources, and technology.
• Fueling economic growth
Objectives Of New Economic
Policy (NEP 1991)
• The goal of the NEP 1991 was to reduce inflation rates and build up
adequate foreign money reserves to increase its economic growth rate.
• The major aim is to plunge the Indian Economy into the ‘globalization’ arena
and provide it with a new direction in the market.
• It aimed at economic stabilisation and a market economy by eliminating
unnecessary regulations.
• It urged private actors in all areas of the economy to expand their
engagement. This is why the reserved government sector numbers have
decreased.
• Without limitations, it aimed to enable the worldwide movement of
products, services, capital, people resources, and technology.
Features of New Economic
Policy 1991
• Macroeconomic stabilisation and structural changes were part of the reform
programme.
• Structural reforms are medium and long-term programmes that address sector
adaptation and supply-side issues and bring vitality to the economy and
competitiveness.
• Macroeconomic stabilisation is a short-term macroeconomic crisis resolution
programme that regulates overall economic demand.
• It featured liberalised trade and investment policies that focused on exports,
industrial deregulation, disinvestment, public sector changes, and capital and
financial sector reforms.
• Focus areas of the NEP 1991 Economic Reforms were Liberalisation, Privatization,
and Globalisation.
Factors Lead to 1991 Economic
Reforms?
• Dismal PSU performance: This did not do well owing to political involvement and
became a major factor in government responsibility.
• Fall in the Reserves: India’s foreign currency reserve decreased in 1990-91 to a low ebb
and was insufficient to pay the import bill for 2 weeks.
• Price rise: The inflation rate grew from 6.7% to 16.7% as the money supply grew rapidly
and the country's economic condition worsened.
• Fiscal Deficit Rise: The government’s fiscal deficit has grown due to increased non-
development expenditures. The national debt and interest rose due to the increased
budget imbalance. Interest liability amounted to 36.4% of government total spending in
1991.
• Iraq Conflict: The Iraq war broke out between 1990 and 1991 and contributed to higher
oil prices. The Gulf nations’ flow of foreign money ceased, aggravating the issue further
Major Branches of New
Economic Policy, 1991
• India’s new economic policy, or the model of liberalisation,
privatisation, and globalisation, was unveiled on 24 July 1991. India’s
new economic policy reforms are mentioned as follows.
Liberalization
• Liberalisation is the process of making policies less restrictive of economic activity. It also
involves the lowering of tariffs or the removal of non-tariff barriers.
• Before 1991, the government put many restrictions on domestic private companies. Some of
these restrictions include the following:
• Industrial licensing system,
• Price control or financial control on goods,
• Import license,
• Foreign exchange control,
• Limits on major company investment, and so on.
• The term “liberalization of the economy” refers to liberating manufacturing units from
government-imposed restrictions.
• The government saw that many flaws had arisen in the economy due to these regulations.
• The NEP believed economic liberalisation to be a critical component. Rather than checks and
regulations, market forces were to be relied on more heavily.
Privatisation
• Privatization is the process of involving the private sector in owning or operating a
government-owned business.
• It aims to give the private sector a larger role while reducing the involvement of the
public sector.
• Disinvestment involves selling a part of the stock to the public to privatize public sector
businesses.
• To implement the privatization policy, the government took the following actions:
• Disinvestment of public sector companies, transferring them to the private sector.
• Establishment of the Industrial and Financial Reconstruction Board (BIFR). BIFR assists
financially struggling units in public sector businesses.
• Dilution of the government's stake. Ownership and management are transferred to the
private sector if they acquire more than 51% of the shares during disinvestment.
Globalization
• Globalisation refers to the integration of economies worldwide. The Indian government adopted a
globalization strategy in 1991. It involved the following steps:
• Import restrictions, such as licensing and tariffs, were relaxed.
• The Foreign Exchange Management Act (FEMA) replaced the Foreign Exchange Regulation Act
(FERA).
• The tariff structure was rationalized.
• Export duties were abolished.
• Globalization removed barriers, both physical and political, to economic operations. It transformed
the world into a global community.
• It led to increased connections and interdependence among nations in the global economy.
• India became a significant provider of outsourcing jobs. This is especially seen in areas like BPO and
banking services.
• India actively participated in the World Trade Organization (WTO) to promote international trade.
Make in India
• Make in India is a Government of India scheme launched by Prime
Minister Narendra Modi in 2014 intended to boost the domestic
manufacturing sector and also augment investment into the country.
Name of the Scheme Make in India

Date of Launching 25th Sept 2014

Launched by PM Narendra Modi

Government Ministry Ministry of Commerce and Industry

Make in India Website http://www.makeinindia.com/home/

27 Sectors of Make in India
• Manufacturing Sectors: 15 Sectors are covered under this sector
Aerospace and Defence Textile and Apparels Gems and Jewellery

Automotive and Auto Chemicals and Petro chemicals Shipping

Components

Pharmaceuticals and Medical Electronics System Design and Railways

Devices Manufacturing (ESDM)

Bio-Technology Leather & Footwear Construction

Capital Goods Food Processing New and Renewable Energy

Services Sectors:
• 12 sectors are under this category
Information Technology & Accounting and Finance Services Construction and Related
Information Technology enabled Engineering Services
Services (IT & ITeS)

Tourism and Hospitality Services Audio Visual Services Environmental Services

Medical Value Travel Legal Services Financial Services

Transport and Logistics Services Communication Services Education Services

Make in India Schemes
• Skill India
• Startup India
• Digital India
• Pradhan Mantri Jan Dhan Yojana (PMJDY)
• Smart Cities
• AMRUT
• Swachh Bharat Abhiyan
• Sagarmala
• International Solar Alliance (ISA)
• AGNII
Make in India – Objectives
• Raise in manufacturing sector growth to 12-14% per year.
• Create 100 million additional jobs in the manufacturing sector by 2022.
• Increase in the manufacturing sector’s share in the GDP to 25% by 2022.
• Creating required skill sets among the urban poor and the rural migrants
to foster inclusive growth.
• A rise in the domestic value addition and technological depth in the
manufacturing sector.
• Having an environmentally-sustainable growth.
• Augmenting the global competitiveness of the Indian manufacturing
sector.
Second Generation Reforms
• In India, the second generation reform started from 1996 to 2007.
During this period, 2 five year plans were included.
OBJECTIVES OF SECOND
GENERATION REFORMS
• Priority to agriculture & rural development with view to generating adequate productive employment and
eradication of poverty.
• Accelerating the growth rate of the economy with stable price.
• Ensuring food & nutritional security for all particularly the vulnerable section
• of society.
• Providing basic minimum service of safe drinking water, primary health care facilities, universal primary
education, shelter and connectivity to all in time – bound manner.
• Containing the growth rate of the population.
• Ensuring environmental sustainability of the developmental process through social mobilization &
participation of the people at all level.
• Empowerment of women and socially disadvantaged group(SC/ST/OBC/minorities) as agents of socio-
economic change and development.
• Promoting & developing people’ participatory institution like Panchayat raj institution, co-operative & self-
help group
• Strengthening effort to build lf reliance
Agriculture
• ts gross irrigated crop area of 82.6 million hectares (215.6 million
acres) is the largest in the world. India is among the top three global
producers of many crops, including wheat, rice, pulses, cotton,
peanuts, fruits and vegetables.
Role of Agriculture
1.Contribution in GDP

• Since the time of Independence, the agriculture sector

has been the major contributor to the country’s GDP. In
the financial year 1950-1951, agriculture and other
related activities had a share of 59% of the country’s
total GDP in that financial year. Although there is a
constant drop in the agriculture sector, it is still one of
the most crucial sectors in the Indian Economy.
2.Largest Employee Sector

• In India, the agriculture sector has more than half of the

total population of the country engaged, which makes it
the sector with the most number of employees in the
country. Comparing it with the developed nations, India
has about 54.6% of the total population in the
agriculture sector engaged, while in developed nations
such as the UK, USA, France, and Australia, only 2%-6%
of its total population is engaged in the agriculture
sector.
3.Source of Food

• India is the second-most populous country in the world.

And to feed such a huge population, there is always a
constant need for a supply of food. Therefore, there is a
need for agriculture and a need for less dependency on
the agriculture sector for the Economy
4.Relation between Agricultural
and Industrial sector
• For the continuous manufacturing of products, there is a
constant need for raw materials, and to fulfil this need,
most of the industries in the country collect this raw
material directly from the agricultural fields.
• In India, around half of the income generated in the
industrial sector comes from agricultural-based
industries. Therefore, in India, the industrial sector is
highly dependent on the agricultural sector.
5.Commercial Significance

• Indian Agriculture is important for the industrial sector

and trading purposes both internally and externally.
Agro-products such as tea, coffee, sugar, cashew nuts,
spices, etc., which are edible and textile products such
as jute, cotton, and others contribute 50% and 20%
respectively to the total export of the total country.
These add up to around 70% of the country’s total
export and help the country in earning foreign
exchange.
6.Contribution to the Government’s Revenue

• Agriculture is the most significant source of income for

the central and state governments. The government of
the country has substantial revenue from rising land
revenue. Also, the movement of agricultural goods
helps generate revenue for the Indian railways, which
helps the government in revenue generation
7.Economic Planning and
Agriculture
• India’s planning prospects are also heavily reliant on the agriculture
sector. A good harvest always offers momentum to the country’s
projected economic growth by improving the business climate for
the transportation system, manufacturing sectors, internal
commerce, and so on.
• A successful harvest also means that the government will have
enough money to cover its budgeted expenditures. Similarly, a bad
harvest causes a total depression in the country’s business, which
eventually leads to a collapse of economic planning. Thus, in a
country like India, the agricultural sector plays a critical role, and the
Indian economy’s prosperity is still heavily reliant on it. As a result of
the above study, it is clear that agricultural growth is a necessary
precondition for sectoral diversity and economic development.
Farm Output problems
• Instability:
• Agriculture in India is largely depends on monsoon. As a
result, production of food-grains fluctuates year after
year. A year of abun­dant output of cereals is often
followed by a year of acute shortage.
Cropping Pattern
• The crops that are grown in India are divided into two
broad catego­ries: food crops and non-food crops. While
the former comprise food-grains, sugarcane and other
beverages, the latter includes different kinds of fibres
and oilseeds.
Land Ownership
• Although the owner­ship of agricultural land in India is
fairly widely distributed, there is some degree of
concentration of land holding. Inequality in land
distribution is also due to the fact that there are
frequent changes in land ownership in India. It is
believed that large parcels of land in India are owned by
a- relatively small section of the rich farmers, landlords
and money-lenders, while the vast majority of farmers
own very little amount of land, or no land at all.
Sub-Division and Fragmentation
of Hold­ing
• Due to the growth of population and break­down of the
joint family system, there has occurred continuous sub-
division of agricultural land into smaller and smaller
plots. At times small farmers are forced to sell a portion
of their land to repay their debt. This creates further
sub-division of land
Land Tenure:
• The land tenure system of India is also far from perfect.
In the pre-independence period, most tenants suffered
from insecurity of tenancy. They could be evicted any
time. How­ever, various steps have been taken after
Independ­ence to provide security of tenancy.
Conditions of Agricultural
Labourers
• The conditions of most agricultural labourers in India are
far from satisfactory. There is also the problem of
surplus labour or disguised unemploy­ment. This pushes
the wage rates below the sub­sistence levels.
Irrigation
• Although India is the second largest irrigated country of
the world after China, only one-third of the cropped area
is under irrigation. Irrigation is the most important
agricultural input in a tropical monsoon country like
India where rainfall is uncertain, unreliable and erratic
India cannot achieve sustained progress in agriculture
unless and until more than half of the cropped area is
brought under assured irrigation.
Lack of mechanisation
• In spite of the large-scale mechanisation of agriculture
in some parts of the country, most of the agricultural
operations in larger parts are carried on by human hand
using simple and conventional tools and implements
like wooden plough, sickle, etc. Little or no use of
machines is made in ploughing, sowing, irrigating,
thinning and pruning, weeding, harvesting threshing
and transporting the crops.
Agricultural Marketing
• Agricultural marketing still continues to be in a bad
shape in rural India. In the absence of sound marketing
facilities, the farmers have to depend upon local traders
and middlemen for the disposal of their farm produce
which is sold at throw-away price.
Inadequate transport:
• One of the main handicaps with Indian agriculture is the
lack of cheap and efficient means of transportation.
Even at present there are lakhs of villages which are not
well connected with main roads or with market centres.
 Agenda for Action to
resolve problems for
Agriculture in India
Agenda
• Effective Implementation of land reforms
• Greater usage of Modern Technology
• Better Credit Facilities.
• Restructuring Cropping Patterns
• Development of Irrigation facilities
• Development of Research Institute
• Betterment of Warehousing and Distribution
• Population Control
Agricultural Policy
• Agricultural policy describes a set of laws relating to domestic
agriculture and imports of foreign agricultural products.

• Governments usually implement agricultural policies with the

goal of achieving a specific outcome in the domestic agricultural
product markets
Reasons of Agricultural Policy
• Poverty reduction
• Biosecurity
• Food security
• Food sovereignty
Objectives
• Raising the Productivity of Inputs
• Protecting the Interest of Underprivileged
Agriculturalists.
• Protecting the Interest of Poor Farmers
• Modernizing Agricultural Sector
• Checking Environmental Degradation
• Agricultural Research and Training
• Removing Bureaucratic Obstacles
The National Agricultural Policy
2000
• 1. Attaining a growth rate above 4.0 per cent per annum in the
agricultural sector;
• 2. Attaining a growth which is based on efficient use of resources and
also makes provision for conservation of our soil, water and bio-diversity;
• 3. Attainment of growth with equity, i.e., attaining a growth whose
impact would be widespread across regions and different classes of
farmers
• 4. Attaining a growth that is demand-driven and cater to the need of
domestic markets and ensuring maximization of benefit from exports of
agricultural products in the face of challenges from economic
liberalization and globalization;
• 5. Attaining a growth that is sustainable technologically, environmentally
and economically.
National Commission on Farmers
• The National Commission on Farmers (NCF) was
constituted on November 18, 2004 under the
chairmanship of Professor M.S. Swaminathan.
• The fifth and final report was submitted on October 4,
2006. The reports contain suggestions to achieve the
goal of "faster and more inclusive growth" as envisaged
in the Approach to 11th Five Year Plan..
National Commission on Farmers

• The National Commission on Farmers, chaired by Prof.

M. S. Swaminathan, submitted five reports through the
period December 2004 - October 2006

• The Final report was focused on causes of famer

distresses and the rise in farmer suicides, and
recommends addressing them through a holistic
national policy for farmers.
The NCF is mandated to make
suggestions on issues:
• Medium-term strategy for food and nutrition security in the country in
order to move towards the goal of universal food security over time;
• Enhancing productivity, profitability, and sustainability of the major
farming systems of the country;
• Policy reforms to substantially increase flow of rural credit to all farmers;
• Special programmes for dryland farming for farmers in the arid and
semi-arid regions, as well as for farmers in hilly and coastal areas;
• Enhancing the quality and cost competitiveness of farm commodities so
as to make them globally competitive;
• Protecting farmers from imports when international prices fall sharply;
• Empowering elected local bodies to effectively conserve and improve
the ecological foundations for sustainable agriculture;
Key Findings

• Causes for farmers' distress

• Land Reforms
• Irrigation
• Productivity of Agriculture
• Food Security
• Prevention of Farmers' Suicides
• Competitiveness of Farmers
Recommendations
 Distribute ceiling-surplus and waste lands;
 Prevent diversion of prime agricultural land and forest to corporate sector for non-
agricultural purposes.
 Ensure grazing rights and seasonal access to forests to tribals and pastoralists, and
access to common property resources.
 Establish a National Land Use Advisory Service, which would have the capacity to link
land use decisions with ecological meteorological and marketing factors on a location
and season specific basis.
 Set up a mechanism to regulate the sale of agricultural land, based on quantum of
land, nature of proposed use and category of buyer.
Service Sector
• Service is provided by Seller or Buyer in exchange of money.
• Finance
• Marketing
• Banking
• Insurance
• Healthcare
• Education
• Travel and Tourism
• Telecommunication
• Transport
Service Sectors Role in Indian
Economy
• Infrastructure services: Transport & communication services
• Business Services: Banking, advertising, consulting
• Trade Services: Retailing, repairing maintenance.
• Social Personal Services: Restaurants, Healthcare, Lodging, cleaning
• Public administration: Education, Electricity, water supply, health,
defence,law, public transportation etc
Financial Services( Banking
Services)
• Marketing MIX of Banking Services
• Products- different types of accounts, lockers, different loans, money
transfer facilities tec
• Pricing: It is determined by RBI and Indian Banking association
• Place: location of the bank
• Promotion: advertisement, publicity, hoardings, magzines etc.
Financial Services( Banking
Services)
• People: Employees and customers
• Process: Activities required to avail the banking services like cheque
clearing, transections etc.
• Physical evidences: Physical atmosphere like interior of the bank,
unioforms of the bank employees, the brouchuress, chequebooks, FD
forms Digital status board etc.
Healthcare Services:

• Product: Medical treatment, R & D Centres

• Price: Bills of treatment, surgery etc
• Place: Location and Corporates can offer their healthcare services y
private hospitals etc
• Promotion: Awareness among petients and relatives through different
camps
• People:patient, doctors,support staff.
• Process: all the administration process
• Physical evidence: Hospitals rooms, ambiance, beds, cairs etc