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CONTENTS

CHAPTER – 1: Indian economy on the eve of Independence 2-18

CHAPTER – 2: Indian Economy (1950-1990) 19-39

CHAPTER – 3: Liberalisation, Privatisation and Globalisation: An Appraisal 40-64

CHAPTER – 4: Poverty 65-82

CHAPTER – 5: Human Capital Formation in India 83-100

CHAPTER – 6: Rural Development 101-119

CHAPTER – 7: Employment Growth, Informalisation and Other Issues 120-140

CHAPTER – 8: Infrastructure 141-160

CHAPTER – 9: Environmental and Sustainable Development 161-174

CHAPTER – 10: Comparative Development Experiences of India 175-185

CBSE SAMPLE PAPER 186-197

SAMPLE PAPER -1 198-207

SAMPLE PAPER -2 208-218

SAMPLE PAPER -3 219-228

SAMPLE PAPER -4 229-242

SAMPLE PAPER -5 243-257

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CHAPTER - 1

INDIAN ECONOMY ON THE EVE OF INDEPENDENCE

Low level of economic development under the colonial rule

India had an independent economy before the advent of the British rule. Agriculture was the main
source of livelihood for most people, yet the country’s economy was also known for various
manufacturing activities. (India was well known for its handicraft industries in the field of cotton
and silk textiles, metal and precious stone works etc. These products enjoyed a worldwide market
because of the reputation of the fine quality of material used and the high standards of
craftsmanship).

Question 1: For which industries was India particularly well known during the British colonial
rule and why?

Focus of the economic policies pursued by the colonial government in India

(The economic policies pursued by the colonial government in India were concerned more with the
protection and promotion of the economic interests of their home country than with the development
of the Indian economy). (Such policies brought about a fundamental change in the structure of the
Indian economy by making it a supplier of raw materials and consumer of finished industrial
products from Britain). (The colonial government never made any sincere attempt to estimate
India’s national and per capital income). Some economists estimated India’s national income and per
capital income like Dadabhai Naoroji, William Digby, Findlay Shirras, V.K.V.R. Rao and R.C. Desai.
But their attempts yielded conflicting and inconsistent results. It was V.K.V.R. Rao Whose estimates
were considered significant. Most of the studies found that (the country’s growth rate of aggregate
real GDP during the first half of the twentieth century was only less than 2% per year and the per
capital GDP was about 0.5% per year)

Question 2: What was the focus of the economic policies pursued by the colonial government in
India? What were the impacts of these policies? (NCERT)

COLONIAL EXPLOITATION OF THE INDIAN ECONOMY UNDER THE BRITISH RULE

Indian economy under the British rule was subjected to colonial exploitation. It implied a targeted
exploitation of all sectors of the economy by the British Government. This is how it happened:

(1) Colonial Exploitation of Agricultural Sector or Agriculture sector under the British colonial
rule: Though in absolute terms, the agriculture sector experienced some growth due to the
expansion of the aggregate area under cultivation, However the productivity became low.
The agriculture sector continued to experience stagnation and deterioration despite the fact
that the largest section (nearly 85%) of Indian population depended on it for sustenance.

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Causes of India’s agricultural stagnation and low productivity

1. Land settlement system (Zamindari system)

(a) Zamindars were recognized as owners of the soil. They were to pay a fixed sum to the
government by way of land revenue, and were free to extract as much as they wished (or as much
as they could) from the tillers of the soil (farmers).

(b) (Under this system, profits accruing out of agriculture sector went to zamindars in the form of
‘lagaan’. The tillers of the soil (the actual cultivators) got bare minimum for survival. They were
left with no surplus for investment in agriculture).

(c) The zamindars, on the other hand, spent their revenue income on the luxuries of life. (Little or no
investment was made for the development of agriculture.

(d) The main interests of the zamindars was only to collect rent regardless of the economic
condition of the cultivators. This caused immense misery and social tension among the
cultivators)

(e) To a very large extent, the terms of the revenue settlement were also responsible for the
zamindars adopting such an attitude, e.g. dates for depositing specified sums of revenues were
fixed, failing which the zamindars were to lose their rights

(f) The zamindars and colonial government did nothing to improve the condition of agriculture

Question 3: How was Zamindari system responsible for the poor economic condition of the
cultivators?

Extra note: Zamindari system was introduced by Cornwallis in 1793 through permanent settlement
act. It was introduced in the province of Bengal, Bihar, Orissa and Varanasi this system is also
known as permanent settlement system

2. Lack of irrigation facilities and low levels of technology

Low levels of technology, lack of irrigation facilities and negligible use of fertilisers
were responsible for the plight of farmers and contributed to the dismal level of
agricultural productivity. The cultivator had neither the means nor any incentive to
invest in agriculture, zamindar and British ruler’s spent little on modern technology
which caused a perpetual low level of productivity

3. Commercialization of agriculture

Commercialization of agriculture refers to a shift from cultivation for self-consumption to

cultivation for the market. Following are some notable points in this context:

• Farmers were lured or forced to shift to commercial/cash crops like cotton, jute and
indigo, from the conventional subsistence crops (like rice and wheat). Reason: Indigo
was required by the textile industry in Britain for dyeing/bleaching of the textile and
cotton and jute were also used by British industries

• The farmers were either lured by high prices or forced to accept advance payments for
the cultivation of cash crops. It exposed the subsistence farmers to uncertainties of the
market.
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• While earlier they would grow grain for their family consumption, now they needed
cash to buy it from the market. But they would seldom have cash owing to their mounting
indebtedness.

4. Scarcity of investment

India’s agriculture was starved of investment in terracing, flood control, drainage and
desalination of soil. While a small section of farmers changed their cropping pattern from
food crops to commercial crops, a large section of tenants, small farmers and sharecroppers
neither had resources and technology nor had incentive to invest in agriculture

Question 4: What were the main causes of India’s agriculture stagnation during the
colonial period? All 4 points (NCERT)

(2) Colonial Exploitation of Industrial Sector or Industrial sector under the British rule: Prior
to the British rule, industrial sector in India was well known for its handicrafts. Indian
handicrafts enjoyed a world-wide reputation for their variety and quality. But these were
destroyed by the British government in two ways:

• Foreign demand for the Indian handicrafts was destroyed by way of heavy duty on
their exports.

• Domestic demand for the Indian handicrafts was destroyed by way of duty-free import
of the British goods in the Indian markets.

India could not develop a sound industrial base under the British rule because of following reasons:

1. Decline of handicraft industries: British government destroyed Indian handicraft

industries and no modern industrial base was allowed to come up. (The primary
motive of British rule behind the deindustrialization was two-fold:

(1) To get raw materials from India at cheap rates to be used by industries in
Britain

(2) To sell finished products of British industries in Indian market at higher

prices)

Question 5: What was the two-fold motive behind the systematic deindustrialization effected by
the British in pre-independent India? (NCERT)

2. Lack of capital goods Industry: Capital goods industry means industries which can
produce machine tools which are, in turn, used for producing articles for current
consumption. There was hardly any capital goods industry to help promote
industrialization in India. British government did not promote capital goods
industry since they wanted India to be dependent on Britain for the supply of
capital goods and heavy equipment's.

3. Low growth rate: The growth rate of the new industrial sector and its contribution to
the GDP (gross domestic product) remained very small

4. Adverse effects of Decline of handicraft industry: (Decline of handicraft industries

adversely affected the Indian economy in the following ways:
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(1) High level of unemployment: The decline of handicraft industries resulted in

massive unemployment. The displaced artisans were forced to take up
agriculture for their livelihood. This increased the burden of population on
villages and over- crowding in agriculture

(2) Import of finished goods: The Indian made goods could not withstand the
foreign competition of machine-made cheap goods. It encouraged the import of
manufactured goods from Britain)

Question 6: The traditional handicrafts industries were ruined under the British rule. Do you agree
with this view? Give reasons in support of your answer.

5. Limited area of operation of the public sector: Another significant drawback of the
new industrial sector was the very limited area of operation of the public sector. This
sector remained confined only to the railways, power generation, communications,
ports and some other departmental undertakings.

Question 7: Critically appraise some of the shortfalls of the industrial policy pursued by the
British colonial administration. All 5 points (NCERT)

(3) Colonial Exploitation of International Trade or India’s Foreign Trade During the British
colonial period: India’s international trade was exploited through discriminatory tariff
policy. It implied:

• Duty-free export of Indian raw material to fulfil the industrial needs in Britain.

• Duty-free import of British goods to expand demand for the British goods in the Indian
markets.

It was owing to discriminatory tariff policy that India became importer of finished goods
from Britain, and exporter of raw material to Britain. Briefly owing to its colonial
exploitation, the Indian economy became both stagnant as well as backward. Following are
the points which sums up the state of foreign trade during British rule

(a)Exporter of primary products and importer of finished goods: India became an exporter
of primary products such as raw silk, cotton, wool, sugar, indigo, jute etc. and an importer of
finished consumer goods like cotton, silk and woolen clothes and capital goods.

(b)Monopoly control of British rule: British Government maintained a monopoly control

over India’s exports and imports. More than half of India’s foreign trade was restricted to
Britain while the rest was allowed with few other countries like China, Ceylon (Sri Lanka),
and Persia (Iran).

(c)Drain of Indian wealth during British rule: (Under the British rule, India became an
exporter of primary products (raw material) and an importer of finished goods. There was
huge export surplus due to excess exports. However, export surplus was used:

a. To make payments for expenses incurred by an office set up by the colonial

government in Britain

b. To meet expenses on war fought by British government

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c. To import invisible items)

Question 8: What do you understand by the drain of Indian wealth during the colonial
period?(NCERT)

(4)DEMOGRAPHIC CONDITION: Demographic conditions during the British Rule exhibited all
features of a stagnant and backward Indian economy. The first official census was conducted in the
year 1881. Though suffering from certain limitations, the census revealed unevenness in India’s
population growth. From 1881 onwards, census operations were carried out after every ten years.
Before 1921, India was in the first stage of demographic transition. The second stage of transition
began after 1921. So, the year 1921 is describes as the year of the Great Divide. The demographic
condition during the colonial rule is described in the following points:

1. High Birth Rate and Death Rate: Birth Rate refers to number of children born per thousand
in a year. Death rate refers to number of people dying per thousand persons in a year. Both
birth rate and death rate were very high at nearly 48 and 40 per thousand respectively.

2. Extremely Low literacy rate: The overall literacy level was less than 16 percent. Out of this,
the female literacy level was at a negligible low of about 7 percent

3. Poor health facilities: Public health facilities were either unavailable to larger mass of
population or, when available, were highly inadequate. As a result, water and air born
diseases were widespread and took a huge toll on life

4. Low life expectancy: Life expectancy refers to the average period that a person may expect to
live. Life expectancy was very low, it was 44 years in contrast to the present 68 years

5. Widespread poverty: The overall standard of living of people in India was very low and
there was widespread poverty in the country, which worsened the profile of India’s
population of that time

6. High infant mortality rate: Infant mortality rate refers to the number of infants dying before
reaching one year of age per 1000 live births in a year. It was about 218 per thousand, in
contrast of 44 per thousand in year 2011 and 36.60 in the year 2019

Question 9: Give a quantitative appraisal of India’s demographic profile during the

colonial period

5.Occupational structure

The occupational structure means the distribution of working persons across different
industries and sectors like the agriculture sector, the manufacturing sector and the service sector.
The state of occupational structure during the British rule can be summarized as under:

1. Little sign of change: The agriculture sector accounted for the largest share of workforce,
which remained at a high of 70-75 percent while the manufacturing and the services sectors
accounted for the remaining share.

2. Growing regional variation: Parts of Madras Presidency (comprising of Tamil Nadu, Andhra
Pradesh, Kerala and Karnataka), Bombay and Bengal witnessed a decline in the dependence
of the workforce on the agriculture sector with a commensurate increase in the

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manufacturing and the service sectors. However, there had been an increase in the share of
workforce in agriculture in states such as Orissa, Rajasthan and Punjab

Question 10: Highlight the salient features of India’s pre-independence occupational

structure(NCERT)

6.Infrastructure: Some efforts were made by the colonial regime to improve infrastructure facilities in
India such as railways, ports, water transport, posts and telegraph but these were with selfish
motives. (The real objective of the British behind infrastructure development in India was to serve
various colonial interests, and not to provide basic amenities to the people

1. Roads: The colonial rule could not do much on constructions of roads. There always remained an
acute shortage of all-weather roads to reach out to the rural areas during the rainy season. As a
result, people living in these areas suffered badly during natural calamities and famines. The British
constructed modern roads in India which primarily served the purpose of:

¨ mobilizing the army within India

¨ drawing out raw materials from the countryside to the nearest railway station or the port to send
these to far away England or other foreign destinations.

Question 11: What objectives did the British intend to achieve through policies of infrastructure
development in India? Also write points 2 and 3 (NCERT)

2.Railways: The most important contribution of the British rule was to introduce railways in India in
1850. (The railways affected the structure of the Indian economy in two important ways:

¨ Railways enabled people to undertake long distance travel. It broke geographical and cultural
barriers and promoted national integration.

¨ It enhanced commercialization of Indian agriculture, which adversely affected the comparative

self-sufficiency of the village economies of India).

Question 12: How did the railways affect the structure of the Indian economy?

3.Developement of the inland trade and sea lanes: Along with the development of roads and
railways, the British also took measures for developing the inland trade and sea lanes. However these
measures were far from satisfactory:

¨ The inland waterways also proved uneconomical as in the case of the Coast Canal on the Orissa
Coast. Though it was built at a huge cost, yet it failed to compete with the railways, which had to
be ultimately abandoned

¨ The introduction of electric telegraph in India, which served the purpose of maintaining law and
order, was very expensive

¨ The postal services despite serving a useful public purpose, remained all through inadequate

FEATURES OF INDIAN ECONOMY ON THE EVE OF INDEPENDENCE

(1) Stagnant Economy: A stagnant economy is the one which shows little or no growth in
income. The growth of real output during the first half of 20th century was less than 2% and
growth in per capita output was only 0.5%. On account of this stagnation, bulk of Indian
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population lived in poverty and Standard of living of the people remained miserably low.
Epidemics and starvation were a recurring phenomenon.

(2) Backward Economy: Indian economy was a backward economy on the eve of independence.
Backward economy is the one in which per capita income is very low. In 1947-48, per capita
income in India was just Rs.230. The bulk of the population was very poor, without
sufficient food, clothing and shelter. Unemployment was rampant.

(3) Agricultural Backwardness: It is highlighted by the following facts:

• Nearly 72 per cent of the country’s working population was engaged in agriculture.
But, its contribution to GDP was only 50 per cent.

• Productivity was extremely low. Thus, per hectare output of wheat was only 660
kilograms, and of rice just 710 kilograms.

• Food grain production was barely enough for subsistence. In 1947-48, it was recorded to
be just 527 lakh tonnes.

(4) Industrial Backwardness: Here, following facts are of underlined significance:

• There was a virtual lack of the basic and heavy industries in the country.

• Production of machines was almost negligible.

• Small-scale and cottage industries were almost ruined.

• For the bulk of its capital-goods requirement, the Indian industry was dependent upon
imports from Britain.

(5) Rampant Poverty: Bulk of the population was very poor. People were not getting two square
meals a day. They lacked shelter and clothing. All this was owing to widespread
unemployment and massive illiteracy.

(6) Poor Infrastructure: Infrastructural development (including means of communication and

transport, generation of power! energy) was extremely low. In 1948, power generation
capacity was merely 2,100 MW, length of railway lines was 53,596 km, pucca roads had a
coverage of 155 thousand km only.

(7) Heavy Dependence on Imports: The country had to depend on imports for machinery and
other equipment's of production. Armed forces of the country also depended heavily on
foreign imports for most of the defence equipment’s. Besides, several consumer goods like
sewing machines, medicines, kerosene oil, bicycles, etc. used to be imported from abroad.

(8) Limited Urbanisation: At the time of independence, bulk of the population of India lived in
villages. In 1948, only 14 per cent of population lived in urban areas while 86 per cent lived in
rural areas. Rural population lacked opportunities outside agriculture. This compounded
their poverty

(9) Semi-feudal Economy: On the eve of independence, Indian economy was neither wholly
feudal nor a capitalist economy. It was a mixed economy or a semi-feudal economy. Such an

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economy had the mixture of feudalistic and capitalist modes of production. Feudalistic mode
of production leads to low productivity Low productivity leads to backwardness.

(10) Colonial Economy: Indian economy was a colony of British government. It implied
exploitation of the Indian economy for the benefit of the British economy. Following
observations highlight how Indian economy suffered at the hands of the British rulers:

• British government curbed domestic industry by imposing heavy taxes. This forced the
Indians to buy the British goods.

• Indian economy was used as a source of raw material for the British industries. Exports of
raw material were almost duty- free. Thus, natural resources in India were depleted for
the growth of the British industry.

• Atrocities were committed on the Indian artisans so as to force them to close their cottage
industries. This led to destruction of the Indian handicrafts.

Was there any Positive impact of the British Rule in India?

There were some positive effects. These are as under:

(1) Commercial Outlook of the Farmers: Forced commercialisation of agriculture under the British rule
exposed the subsistence farmers to uncertainties of the market. True, but it also led to a gradual
change in outlook of the farmers. The farmers started considering market price of the produce as an
important determinant of their production decisions.

(2) New Opportunities of Employment: Spread of railways and roadways opened up new opportunities
of economic and social growth.

(3) Control of Famines: Rapid means of transport facilitated rapid movement of food grain to the famine-
affected areas. Accordingly, famines were controlled.

(4) Monetary System of Exchange: There was a transition from barter system of exchange to monetary
system of exchange. Growth of monetary system of exchange facilitated division of labour,
specialisation, and large-scale production.

(5) Efficient System of Administration: The British government in India left a legacy of an efficient system
of administration. This served as a ready-reference for our politicians and planners

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APPLICATION

Multiple Choice Questions: Choose the Correct Answer

1. The Indian economy on the eve of the independence Was:

(a) developed (b) underdeveloped

(c) stagnant (d) (b) and (c)

2. Landholdings at the time of independence were:

(a) fragmented (b) large

(c) economic (d) none of these

3. Farming in which crops are produced to provide for the basic needs of the family is called

(a) stagnant agriculture (b) subsistence agriculture

(c) commercial agriculture (d) none of these

4. Decay of handicrafts was caused by

(a) British tariff policy (b) competition from man-made machines

(c) new patterns of demand (d) all of these

5. Suez Canal was opened in:

(a) 1867 (b) 1868

(c) 1869 (d) 1870

6. On the eve of independence, India was net exporter of:

(a) primary products (b) industrial products

(c) capital goods (d) agricultural goods

7. High infant mortality is a sign of:

(a) extreme poverty (b) poor healthcare

(c) both (a) and (b) (d) none of these

8. Gender–bias in the society on eve of independence was indicated by:

(a) mortality rate (b) literacy rate

(c) death rate (d) life expectancy

9. During colonial period, India’s demographic profile showed:

(a) high birth rate (b) high death rate

(c) high infant mortality (d) all of these

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10. On the eve of independence, bulk of the population was engaged in:

(a) agriculture sector (b) trade and commerce

(c) mining sector (d) industrial sector

11. The main reason for stagnation in agriculture sector during British rule was:

(a) Land settlement system. (b) De-industrialization

(c) Lack of technology (d) Commercialization of agriculture

12. The first official census was conducted in the year

(a) 1891 (b) 1921

(c) 1781 (d) 1881

13. The export surplus during the British rule was used:

(a) To make payments for expenses incurred by an office set up by colonial government in Britain

(b) To meet expenses on war fought by the British government

(c) To import visible items

(d) All of these

14. The foundation of British empire in India was laid by Battle of Plassey fought in

(a) 1757 (b) 1857

(c) 1763 (d) 1747

15. Which industry received the major set-back during the colonial rule?

(a) Cement (b) Handicraft

(c) Paper (d) Iron and steel

16. India’s jute industry suffered heavily due to ¾¾ after partition

(a) Lack of raw materials (b) Famines

(c) Earthquakes (d) None of these

17. British rule introduced railways in India in the year

(a) 1849 (b) 1850

(c) 1851 (d) 1852

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18. More than half of India’s foreign trad\]e was restricted to:

(a) China (b) Britain

(c) Korea (d) Sri Lanka

19. Decline of handicraft industries led to:

(a) Massive unemployment (b) Import of finished goods

(c) Both (a) and (b) (d) Neither (a) nor (b)

20. Which Industry was adversely affected due to partition

(a) Silk (b) Cotton

(c) Jute (d) Nylon

21. What was the main livelihood for most of the people during the colonial rule?

(a) Industries (b) Agriculture

(c) Both (a) and (b) (d) Neither (a) nor (b)

22. The opening of Suez canal served as a direct route for ships operating between:

(a) India and America (b) India and Sri Lanka

(c) India and Pakistan (d) India and Britain

23. Which year is described as a year of great divide?

(a) 1931 (b) 1921

(c) 1941 (d) 1911

24. ¾¾¾ was the most important infrastructure developed during the British rule.

(a) Airways (b) Railways

(c) Waterways (d) None of these

25. Occupational structure refers to

(a) Distribution of working force among the different occupations

(b) Nature of different occupations

(c) Size of working force in a country

(d) Number of people living in a country

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Answers

1.(d) 2.(a) 3.(b) 4.(d) 5. (c) 6. (a) 7. (c) 8. (b) 9. (d) 10.(a) 11. (a) 12.(d) 13.(d) 14.(a) 15. (b) 16.(a) 17. (b) 18. (b)

19.(c) 20.(c) 21. (b) 22. (d) 23. (b) 24. (b) 25. (a)

Read the following statements carefully Write True or False with a reason

1. Low level of productivity was the principal characteristic of Indian agriculture on the eve of
independence.

Ans. True. Productivity of wheat was nearly 4.9 times lower in 1947 compared with its level in 201617.
Productivity of rice was nearly 3.8 times lower in 1947 compared with its level in 2016-17.

2. Zamindari system of land revenue gave incentives to tillers of soil to increase their productivity.

Ans. False. Under zamindari system, tillers were reduced to the status of landless labourers who merely
got subsistence wages. As a result, tillers of the soil had no interest in improving the agriculture.

3. Commercialisation of agriculture led to perpetual indebtedness of farmers.

Ans. True. Due to commercialisation of agriculture, farmers needed to buy grains for family consumption.
This pushed them in debts.

4. Railways during the British rule in India promoted colonial exploitation of the Indian economy.

Ans. True. Railways promoted colonial exploitation of the Indian economy in two ways, as under:

(i) Railways facilitated the movement of raw material from their source of supply to the ports
for further transportation to England.

(ii) Railways led to expansion of the market for the British products in India.

5. The year 1921 was the year of Great Divide with regard to the growth of population in India.

Ans. True. The year 1921 was the year of Great Divide. Because, prior to 1921, population growth in India
was not consistent. It was only after 1921 that the population in India recorded a consistent rise.

6. Zamindari system brought stability to cultivation during the British rule in India.

Ans. False. The zamindari system during the British rule did not bring stability. Instead, it brought
instability to Indian cultivation. Because, this system led to frequent ejection of the tillers of the soil.
They lost their permanent rights of cultivation, and accordingly, lost permanent interest in cultivation.

7. The tillers of the soil could not leave agriculture even when they always exploited.

Ans. True. The tillers of the soil could not leave agriculture despite their continuous exploitation.

This was because of the lack of vocational avenues outside agriculture.

8. Under the British Raj, discriminatory tariff policy was pursued with a view to protecting the Indian
Industry.

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Ans. False, British pursued discriminatory tariff policy which I1owed tariff-free export of raw material from
India mid tariff-free import of British industrial products in India. This enabled the British industrial
products to capture Indian markets.

9. Surplus generated in trade was used to meet administrative expenses by the British government in
India.

Ans. True. Surplus generated in trade was used by British government to meet administrative expenses in
India which led to a huge drain of wealth.

10. Partition of the country had a negative impact on Indian agriculture.

Ans. True. India got 82 percent of population and 65 percent of food grain area. Rich food producing areas
of West Punjab and Sindh went to Pakistan which aggravated the crisis in the country.

11. India’s economy was poor and backward before the colonial rule

False. India’s economy was independent, self-reliant and prosperous before the colonial rule

12. Primary motive of de-industrialization by the British rule was to promote India’s economy

False. Their primary motive was to (a) To get raw materials from India at cheap rates (b) To sell
finished products of British industries in Indian market at higher prices

13. India was well known for its handicraft industries before the advent of British rule

True. Indian handicraft enjoyed worldwide reputation These products enjoyed a worldwide market
because of the reputation of the fine quality of material used and the high standards of craftsmanship.

14. Indian agriculture did not suffer due to Partition.

False: A sizeable portion of undivided country’s highly irrigated and fertile land went to
Pakistan and almost the whole of jute producing area became part of East Pakistan(now Bangladesh)
which had enjoyed a world monopoly, suffered heavily for lack of raw material

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QUESTIONS TO DO (1 mark)

Q1. When was India’s first official census operation undertaken? (NCERT)

Answer: India’s first official census operation was undertaken in 1881

Q2. Name some modern industries which were in operation in our country at the time of
independence (NCERT)

Answer: Cotton and jute textile industries, iron and steel industries, sugar, cement and paper
industry

Q3. Name some notable economists who estimated India’s per capital income during the colonial
period. (NCERT)

Answer: Dadabhai Nairoji, William Digby, Findlay Shirras, V.K.R.V Rao and R.C. Desai

Q4. Which is regarded as the defining year to mark the demographic transition from its first to the
second decisive stage? (NCERT)

Answer: 1921 is regarded as the defining year to mark the demographic transition from its first to the
second decisive stage

Q5. What was the sole purpose of the British colonial rule in India?

Answer: It was to reduce the country to being a raw material supplier for Britain’s rapidly expanding
modern industrial base

Q6. Which sector of the Indian economy accounted for the largest share of workforce during the
colonial period?

Answer: The agriculture sector accounted for the largest share of workforce, which usually remained
at a high of 70-75 percent.

Q7. What was the main livelihood source for most people during the colonial period?

Answer: Agriculture

Q8. Why is an understanding of the Indian economy before independence necessary?

Answer: The understanding of the Indian economy before independence is necessary to know and
appreciate the level of economic development achieved during the post-independence period

Q9. Name the area of operation of the public sector under the British colonial rule

Answer: Railways, power generation, communications, ports and some other departmental
undertakings

Q10. Define capital good industry

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Answer: Capital goods industries are those which produces machine tools which are in turn used for
producing articles for current consumption

Q11. What was the main cause of stagnation in agriculture during British rule?

Answer: It was mainly because of various system of land settlements that were introduced by the
colonial government, particularly the Zamindari system

Q12. In which part of the country was the Zamindari system introduced by the colonial government?

Answer: It was implemented in the Bengal presidency comprising parts of India’s present-day eastern
states

Q13. How did zamindari system of revenue settlement introduced by the colonial government cause
immense misery and social tension among the cultivators? And why did the Zamindars adopted such
an attitude?

Answer: The main interest of the Zamindars was only to collect rent regardless of the economic
condition of the cultivators which caused immense misery and social tension among the cultivator, to
a very large extent, the terms of the revenue settlement were also responsible for the zamindars
adopting such an attitude, e.g. dates for depositing specified sums of revenues were fixed, failing
which the zamindars were to lose their rights

Q14. “India’s economy under the British colonial rule remained fundamentally agrarian.” How?

Answer: About 85% of the country’s population derived livelihood directly or indirectly from
agriculture.

Q.15 Which restrictive policies pursued by the colonial government adversely affected the structure,
composition and volume of India’s foreign trade?

Answer: The restrictive policies of commodity production, trade and tariff pursued by the colonial
government adversely affected the structure, composition and volume of India’s foreign trade

Q16. Indicate the structure and composition of India’s foreign trade during the colonial period

Answer: India became an exporter of primary products such as raw silk, cotton, wool, sugar, indigo,
jute etc. and an importer of finished consumer goods like light machinery produced in the factories of
Britain

Q17. Indicate the direction of trade during the British rule

Answer: India’s foreign trade was restricted to Britain and with a few other countries like China,
Ceylon (Sri Lanka) and Persia (Iran)

Q18. Why did the export surplus not result in any flow of gold or silver into India?

Answer: As it was used to make payments for the expenses incurred by an office set up by the
colonial government in Britain, expenses on war, and the import of invisible items. All of these led to
the drain of Indian wealth

Q19. What was the two-way motive behind de-industrialization?

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Answer: (1) To get raw materials from India at cheap rates to be used by upcoming industries in
Britain. (2) To sell finished products of British Industries in Indian market at higher prices

Q20. Underscore some of the India’s most crucial economic challenges at the time of independence.

Answer: 1. Increasing dependence of population on agriculture

2 Traditional methods of cultivation

3 Inadequate industrialization

4 Widespread poverty

5 High level of unemployment and underemployment

6 High infant mortality rate, low life expectancy and literacy rate

7 Destruction of Indian handicrafts

Q21. What was the rate of growth of par capita output per year during the first half of the 20th
century?

Answer: 0.5%

Q22. Which Indian industry was adversely affected due to the partition?

Answer: Jute industry as most of the jute producing areas went to Pakistan

Q23. What do you mean by the commercialization of agriculture?

Answer: It means production of crops for sale in the market rather than for self-consumption

Q24. What was the main cause of food shortage in India after independence?

Answer: The main cause was that the food surplus areas of west Punjab and Sindh went to Pakistan

Q25. What was the effect of the decline of the handicraft industry in India?

Answer: It created massive unemployment and increased demand for Britain’s manufactured goods
in the domestic market.

Q26. Define colonialism.

Answer: It refers to a system of political and social relations between two countries, of which one is
ruler and the other is colony. The ruling country not only has the political control over the colony but
it also determines the economic policies of the dominated country.

Q27. What was the role of Suez Canal waterway in shaping India’s trade structure?

Answer: Suez Canal is an artificial waterway running from north to south across the Isthmus of Suez
in north-eastern Egypt. The opening of Suez Canal in 1869 reduced the cost of transportation and
made access to the Indian market easier. It provided a direct route for ships operating between Britain
and India and avoided the need to sail through Africa.

Q28. When was the first Railway Bridge build in India?

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Answer: It was build in 1854 linking Bombay with Thane

Q29. Who is considered as the pioneer of Indian aviation?

Answer: J.R.D. Tata

Q30. For which type of cotton textile Bengal was famous for?

Answer: Muslin. The finest variety of Muslin was called Malmal.

QUESTIONS TO DO (3 or 4 MARKS)

Q1. Underscore some of India’s most crucial economic challenges at the time of independence (Long)

Answer: India’s most crucial economic challenges at the time of independence were as follows:

(1) Low level of economic growth: The country’s growth rate of real GDP was less than 2
percent and growth rate of per capital output was only 0.5%

(2) Low agricultural productivity: The agricultural sector was already having surplus labor and
extremely low productivity

(3) Lack of sound industrial base: The industrial sector was crying for modernization,
diversification, capacity building and increased public investment.

(4) Foreign trade: Foreign trade was oriented to feed the industrialization boom or industrial
revolution in Britain

(5) Inadequate infrastructure: Infrastructure facilities, including the famed railway network,
needed upgradation, expansion and public orientation all of these were not adequate to meet
the needs of the economy.

Q2. The traditional handicraft industries were ruined under the British rule. Do you agree?

Answer. Yes, I agree with this view. British government systematically destroyed Indian handicraft
industries in order to serve their two-fold motive:

( 1) To get raw materials from India at cheap rates to be used by upcoming modern industries in
Britain.

( 2) To sell finished products of British industries in Indian markets at higher prices.

Colonial government enforced discriminatory tariff policy, and a heavy duty was imposed on the
export of Indian handicrafts at the same time it increased the import of cheap manufactured goods
from Britain. Thus the rule of British-India government led to the collapse of India’s world famous
handicraft industries without contributing, in any significant manner, to its replacement by a modern
industrial base. The establishment of a few manufacturing units was no substitute to the near
wholesale displacement of the country’s traditional handicraft industries.

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CHAPTER – 2

INDIAN ECONOMY (1950–1990)

THE GOALS OF FIVE YEARS PLANS

What is a Plan?

A plan spells out how the resources of a nation should be put to use. Plan is a document showing detailed
scheme, program and strategy, worked out in advance for fulfilling an objective. A plan should have some
clearly specified goals. It should have some general goals as well as specific objectives which are to be achieved
within a specified period of time. In India plans are of five years duration and are called five years plans (we
borrowed this from the former Soviet Union, the pioneer in national planning). Our plan documents not only
specify the objectives to be attained in the five years of a plan but also what is to be achieved over a period
of twenty years. This long-term plan is called 'perspective plan’. The five years plans are supposed to
provide the basis for the perspective plan. The five years plans have been concerned with the removal of
economic backwardness of the country and to make India a developed country. The first five years plan was
launched for a period starting from 1st April, 1951 and ending on 31st March, 1956.

Goals of planning in India

The common goals of the five years plans are: growth, Modernization, self–reliance and equity.

This does not mean that all the plans have given equal importance to all these goals. It will be unrealistic to
expect all the goals of a plan to be given equal importance in all the plans. Due to limited resources, a choice
has to be made in each plan about which of the goals is to be given primary importance. In fact, the goals may
actually be in conflict. For example, the goal of Modernization (i.e., introducing modem technology) may be in
conflict with the goal of increasing employment if the technology reduces the need for labour. Therefore, the
planners have to balance the goals, a very difficult job indeed. They have to ensure that, as far as possible, the
policies of the plans do not contradict these four goals.

1. Growth

Growth refers to increase in the country’s capacity to produce the output of goods and services within the
country.

Growth implies:

¨ a larger stock of productive capital, or

¨ a larger size of supporting services like transport and banking or

¨ an increase in the efficiency of productive capital and services.

• A good indicator of economic growth is steady increase in the Gross Domestic Product (GDP). The GDP is the
market value of all the final goods and services produced in the country during a year.

• It is necessary to produce more goods and services if the people of India are to enjoy a more rich and varied
life. The GDP of a country is derived from the different sectors of the economy, namely the agricultural sector,
the industrial sector and the service sector. The contribution made by each of these sectors makes up the
structural/sectoral composition of the economy.

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• As a country develops, it undergoes ‘structural change’. Usually, with development, the share of agriculture
declines and the share of industry becomes dominant. At higher levels of development, the service sector
contributes more to the GDP than the other two sectors. In India, the share of agriculture in the GDP was more
than 50 per cent—as we would expect for a poor country. But by 1990 the share of the service sector was
40.59 percent, more than that of agriculture or industry, like what we find in developed nations.

Sectoral contribution to GDP (in %),1950-91

Sector 1950–51 1990-91

Agriculture 59.0 34.9

Industry 13.0 24.6

Service 28.0 40.5

2. Modernization

Adoption of new technology in the production of goods and services to increase the output is called
modernization. For example, a factory can increase output by using new type of machine. However,
Modernization does not refer only to the use of new technology but also to changes in social outlook such as
the recognition that women should have the same rights as men. In a traditional society, women were
supposed to remain at home while men work. A modern society makes use of the talents of women in the
work place — in banks, factories schools etc. — and such a society is more prosperous.)

According to the draft outline of 6th plan (1980-1985) “The term modernization indicates a variety of
structural and institutional changes in the framework of economic activity”. Modernization implies

¨ Shift in sectoral composition of production and diversification of activities;

¨ An advancement of technology and institutional innovations.

So as to transform a feudal and a colonial economy into a modern and independent economy

QUESTION 1. Modernization refers to the use of new technology. Do you agree?

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3. Self-reliance

(A nation can promote economic growth and Modernization by using its own resources or by using resources
imported from other nations. The First seven five years plans gave Importance to self-reliance. Self–reliance
means avoiding imports of those goods which could be produced in India itself. In other words, it means
overcoming the need of external assistance and to have development through domestic sources.

This policy was considered necessary in order to reduce our dependence on foreign countries, especially for
food. It is understandable that people who were recently freed from foreign domination should give
importance to self-reliance. Further, it was Feared that dependence on imported food supplies, foreign
technology and foreign capital may make India’s sovereignty vulnerable to foreign interference in our
policies.)

QUESTION 2. Why was it necessary for a developing country like India to follow self-reliance as a planning
objective? (NCERT)

4. Equity

(Growth, modernization and self-reliance may not improve the people’s standard of living if majority of people
in the country are living in poverty. So, in addition to growth, modernization and self-reliance, equity is also
important. Equity means to ensure that the benefits of economic prosperity reach the poor sections as well
instead of being enjoyed only by the rich. Inequality in the distribution of wealth should be reduced. Every
Indian should be able to meet his or her basic needs such as food, a decent house, education and health care.
In short, Equity aims to raise the standard of living of all people and promote social justice.)

QUESTION 3. Explain growth with equity as a planning objective. (NCERT)

QUESTION 4. Explain briefly the common goals of the five-year plans in India(ANSWER. ALL four objectives)
or Explain the long term objectives of five year plans in India.

MAJOR POLICY INITIATIVES IN AGRICULTURE SECTOR

In the last chapter we saw that neither there was growth nor equity in agriculture sector during the colonial
rule. To overcome this, following steps were taken which can be broadly categorized as ‘Land reforms’ and ‘
Green revolution’

Land Reforms

At the time of independence, the land tenure system was characterized by intermediaries (also called as
zamindars, Jagirdars etc.) who merely collected rent from the actual tillers of the soil without contributing
towards improvements on the farm. The low productivity of the agricultural sector forced India to import food
from the United States of America (U.S.A.).Equity in agricultural sector called for land reforms. Land reforms
refer to change in the ownership of landholdings (i.e., to abolish intermediaries and to make the tillers the
owners of land) and fixing the maximum size of land which could be owned by an Individual (i.e., land
ceiling).

Types of land reforms implemented in the agriculture

1. The abolition of intermediaries: The abolition of intermediaries meant that some 200 Lakh tenants came
into direct contact with the government — they were thus freed from being exploited by the zamindars.

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2. The ownership of landholdings: The policy of ‘land to the tiller’ is based on the idea that the cultivators will
take more interest—they will have more incentive—in increasing output if they are the owners of the land.
This is because ownership of Land enables the tiller to make profit from the increased output. Tenants do not
have the incentive to make improvements on land since it is the landowner who would benefit more from
higher output.

3. Land ceiling: Land ceiling was another policy to promote equity in the agricultural sector. Land ceiling
means fixing the maximum size of land which could be owned by an individual. The purpose of land ceiling
was to reduce the concentration of land ownership in a few hands.)

QUESTION 5. Explain the types of Land reforms implemented in the agricultural sector.(NCERT)

Drawbacks of the land reforms

1. The goal of equity was not Fully served by abolition of intermediaries and the policy of land to the tiller’.

In some areas, the former zamindars continued to own large areas of land by making use of some loopholes in
the legislation. There were cases where tenants were evicted and the land owners claimed to be self-
cultivators (the actual tillers), claiming ownership of the land. Even when the tillers got ownership of land, the
poorest of the agricultural labourers (such as sharecroppers and landless labourers) did not benefit from land
reforms.

2. The land ceiling legislation also faced hurdles.

The big landlords challenged the legislation in the courts, delaying its implementation. They used this delay
to register their lands in the name of close relatives, thereby escaping from the legislation. The legislation also
had a lot of loopholes which were exploited by the big landholders to retain their land.

3 Land reforms were successful in Kerala and West Bengal because these state governments were committed
to the policy of “land to the tiller”. Unfortunately, other states did not have the same level of commitment and
vast inequality in landholding still continues.

QUESTION 6. Explain the drawbacks of Land reforms in India

Conclusion: Land reforms were successful in Kerala and West Bengal because these states governments were
committed to thy policy of land to the tiller. Unfortunately, other states did not have the same level of
commitment and vast inequality in landholding continues till today.

The Green Revolution

(The green revolution refers to the large increase in production of food grains resulting from the use of high
yielding variety (HYV) seeds especially for wheat and High Yielding Variety seeds (HYV seeds) are seeds of
better quality than normal quality seeds. The produce from these seed is more compared to the normal seeds.
However, the use of HYV seeds require the use of fertiliser and pesticide in the correct quantities as well as
regular supply of water. Also, the application of these inputs in correct proportions is vital.

Why was the Green Revolution implemented?

At independence, about 75 per cent of the country's population was dependent on agriculture. However,
productivity in the agricultural sector was very low because of the use of old technology and the absence of
required infrastructure for the vast majority of farmers. India’s agriculture vitally depends on the monsoon
and if the monsoon and if the farmers were in trouble unless they had access to irrigation facilities which

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very few had. The stagnation in agriculture during the colonial rule was permanently broken by the green
revolution. However, growth in agricultural output is not enough and does not make much of difference to the
economy as a whole if a large proportion of this increase is consumed by the farmers themselves instead of
being sold in the market. On the other hand, if a substantial amount of agricultural output is sold in the market
by the farmers, the higher output can make a difference to the economy. The portion of agricultural produce
which is sold in the market by the farmer is called marketed/marketable surplus.

Benefits of Green Revolution

1.Increase in marketed surplus: Marketable surplus refers to that part of agriculture produce which is sold
in the market by the farmers after meeting their own consumption requirement. A good proportion of rice
and wheat produced during the green revolution period (available as marketed surplus) was sold by the
farmers in the market. As a result, income of the farmers increased.

2. Decrease in price of food grains: The price of food grains declined relative in 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.

3. Buffer stocks: The spread of green revolution technology enabled the government to procure sufficient
amount of food grains to build buffer stock which could he used in times of food shortage.

4. Self-reliance: Indian agricultural productivity increased sufficiently to enable the country to be self-
sufficient in food grains. We no longer had to be at the mercy of America, or any other nation for meeting our
nation’s food requirements.)

QUESTION 7. What is green revolution? Why was it implemented and how did it benefit the
farmers?(NCERT)

Critical Evaluation of Green Revolution/Risks involved under green revolution

1. The farmers who could benefit from HYV seeds required reliable irrigation facilities as well as the financial
resources to purchase fertiliser and pesticide. which small farmers could not afford. Thus, green revolution
increased the inequalities between small and big farmers—since only the big farmers who could afford the
required inputs reaped the benefits of the green revolution.

2. In the first phase of the green revolution (approximately mid 1960s up-to mid 1970s), the use of HYV seeds
was restricted to the more affluent states such as Punjab, Andhra Pradesh and Tamil Nadu Further, the use of
HYV seeds primarily benefited the wheat growing regions only. (However, in the second phase of the green
revolution (mid-1970s to mid-1980s,), the HYV technology spread to a larger number of states and benefited
snore variety of crops.)

3. The HYV crops were also more prone to attack by pests and the small farmers who adopted this
technology could lose everything in a pest attack.

QUESTION 8. Give the criticisms against the green revolution.

Role of government in ensuring that the green revolution benefited small farmers as well

1. The government provided loans at a low interest rate to small farmers.

2. The government also provided subsidized fertilizers, so that small farmers could also have access to the
needed inputs.

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3. The risk of the small farmers being ruined when pests attack their crops was considerable reduced by the
services rendered by research institutes established by the government.

Thus, the green revolution would have favored the rich farmers only if the government did not play an
extensive role in ensuring that the small farmer also gains from the new technology.

Trends in the occupational structure of the Indian economy during 1950-1990

Economists have found that as a nation becomes more prosperous, the proportion of GDP contributed by
agriculture as well as the proportion of population working in the agriculture sector declines considerably.
However, in India, between 1950—51 and 1990–91. the proportion of GDP contributed by agriculture declined
significantly but not the population depending on it (as shown in pie–charts)

Occupational structure of the Indian economy

Sector Workforce (in %), 1950–51 Workforce (in %), 1990–91

Agriculture 72.1 66.8

Industry 10.7 12.7

Services 17.2 20.5

Despite the implementation of green revolution, more than 65% of the country’s population continued to be
employed in the agriculture sector till 1990-9 1. Why? The reason is that the industrial sector and the service
sector did not absorb the people working in the agricultural sector. (Many economists call this an important
failure of our policies followed during 1950-1990).

The Debate Over Subsidies to agriculture

Subsidy means that the farmers get inputs at prices lower than the market price.

¨ During the initial phases of green revolution, new technology was looked upon as being risky by the farmers

¨ So, it was necessary for the government to grant subsidies to provide an incentive of the new HYV
technologies

¨ However, with the passage of time, there has been a debate over the huge subsidy given by the government

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(Arguments against subsidies

1. Once the technology is found profitable and is widely adopted, subsidies should be eliminated since their
purpose has been served.

2. Subsidies are meant to benefit the farmers hut a substantial amount of fertiliser subsidy also benefits the
fertiliser industry

3. Among farmers, the subsidy largely benefits the Farmers in the more prosperous regions. So, there is no
case for continuing with fertiliser subsidies. It does not benefit the target group.

4. It is a huge burden on the government finances.

Arguments in favour of subsidies

1. Any new technology is considered as being risky by farmers. Subsidies were, therefore, needed to encourage
Farmers to test the new technology. In other words, it was necessary to use subsidies to provide an incentive
for adoption of new the HYV technology by farmers, especially the small farmers. Thus, the green revolution
benefited the small as well as rich farmers.

2. The government should continue with agricultural subsidies because farming in India continues to be a risky
business as it vitally depends on the monsoon.

3. Most farmers are very poor and they will not be able to afford the required inputs without subsidies.

4. Eliminating subsidies will increase the inequality between rich and poor farmers and violate the goal of
equity.

5. If subsidies are largely benefiting the fertiliser industry and big farmers, the correct policy is nor to abolish
subsidies but to take steps to ensure that only the poor farmers enjoy the benefits.)

QUESTION 9. While subsidies encourage farmers to use technology, they are a huge burden on government
finances, Discuss the usefulness of subsidies in the light of this fact(NCERT)

Critical Appraisal of agriculture Development (1950-1990)

Indian economy inherited stagnant and backward agricultural sector from the British rule. So, immediately
after the independence, Indian Government undertook various measures to improve the condition of
agriculture.

¨ The ‘Land Reform’ measures and ‘Green Revolution’ were the greatest achievements of the Indian
Government, in enhancing the agricultural production and productivity.

¨ The proportion of GDP between 1950-1990 contributed by agriculture declined significantly, but not the
population depending on it.

¨ Between 1950 and 1990, there had been substantial increase in agricultural productivity. As a result of
Green Revolution, India became self-sufficient in food production. Land Reforms resulted in abolition of
zamindari system

¨ Around 65% of the country’s population continued to be employed in agriculture, even till 1990. Agriculture
output could have been grown with much less people working in the sector but industrial and service sectors
were unable to absorb the extra people involved in agriculture.

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INDUSTRY AND TRADE (INDUSTRIAL DEVELOPMENT)

Five year plans place a lot of emphasis on industrial development.

At the time of independence, the variety of industries was very narrow — largely confined to cotton textiles
and jute. There were two well-managed iron and steel firms — one in Jamshedpur and the other in Kolkata
— but, obviously, we needed to expand the industrial base with a variety of industries if the economy was to
grow.

The five-years plans place a lot of emphasis on industrial development because of the following reasons;

1. Economists have found that poor nations can progress only if they have a good industrial sector.

2. Industry provides employment which is more stable than the employment in agriculture.

3. It promotes modernisation and overall prosperity.

QUESTION 10. The five year plans place a lot of emphasis on industrial development. Why?

Public sector was given a leading role in Indian Industrial Development

The policies of the private sector should have to be complimentary to those of the public sector, with the
public sector leading the way. The public sector was given a leading role in industrial development in India
because of the following reasons:

1. (Shortage of capital with private sector: At the time of independence. Indian industrialist did not have the
capital to undertake investment in industrial ventures required for the development of our economy. At the
time of independence, Tata’s and Birla’s were the only well-known private entrepreneurs. As a result,
government had to make industrial development through public sector undertakings (PSU’s).

2. Lack of incentive for private sector: The market was not big enough to encourage industrialists to
undertake major projects even if they had the capital to do so. Due to the limited size of the market, there was
low level of demand for the industrial goods.

3. Objective of social welfare: In addition, the decision to develop the Indian economy on socialist lines led to
the policy of the state controlling the commanding heights of the economy. This meant that the government
would have complete control of those industries that were vital for the economy.)

Question 11. Why was public sector given a leading role in industrial development during the planning
period? (NCERT)

Industrial Policy Resolution 1956 (IPR 1956)

Industrial policy is a comprehensive package of policy measures which covers various issues connected
with different industrial enterprises of the country

¨ Industrial policy is essential for devising various procedures, principles, rules and regulations for controlling
industrial enterprise of the country.

¨ After the industrial policy, 1948, Indian economy had to face a series of economic and political changes,
which necessitated the need for a fresh industrial policy for the country. So, on 30th April, 1956, a second
Industrial policy Resolution was adopted in India.

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In accordance with the goal of the stale controlling the commanding heights of the economy, the Industrial
Policy Resolution of 1956 was adopted. This resolution formed the basis of the Second Five Year Plan, the plan
which tried to build the basis for a socialist pattern of society.

Classification of industries under the Industrial Policy Resolution, 1956

(The Industrial Policy Resolution, 1956 classified industries into three categories:

1. Schedule A: The first category comprised industries which would be exclusively owned by the state. In
this schedule, 17 industries were included, like arms and ammunitions; atomic energy; heavy and core
industries; aircraft; oil; railways; shipping; etc.

2. Schedule B: In this schedule, 12 industries were placed which would be progressively state owned.
The state would take the initiative of setting up industries and private sector will supplement efforts
of the state. This schedule includes industries like aluminium, other mining industries, machines tools,
fertlisers etc.

3. Schedule C: The third category consisted of the remaining industries which were to be in the private
sector. These industries were controlled by state through a system of licenses, enforced under
industries development and regulation act 1951.)

Question 12. Give the classifications of industries under the industrial policy resolution, 1956.

Industrial licensing

An industrial license is a written permission from the government, to an industrial unit to manufacture
goods. Although there was a category of industries left to the private sector the private sector was kept under
state control through a system of licenses. No new industry was allowed unless a license was obtained from
the government. This policy was used for promoting industry in backward regions. It was easier to obtain a
license if the industrial unit was established in an economically backward area. In addition, such
units were given certain concessions such as tax benefits and electricity at a lower tariff. Thus, the purpose
of this policy was to promote regional equality.

Even an existing industry had to obtain a license for expanding output or for diversifying production. This
was meant to ensure that the quantity of goods produced was not more than what the economy required.
License to expand production was given only if the government was convinced that the economy required a
larger quantity of goods.

QUESTION 13. Why and how was the private sector regulated under the IPR 1956 (NCERT)?

Promotion of Small-Scale Industry (SSI) by the Government

In 1955, the Village and Small-Scale Industries Committee, also called the Karve Committee, not 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 unit. This
limit has changed over a period of time. In 1950, a small–scale industries unit was one which instead a
maximum of Rs.5 lakh while at present the maximum investment allowed is Rs.1 crore.

Why did the government promote small-scale industry?

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(The reason is that the small-scale industries are more labor intensive than the large–scale industries and
therefore, generate more employment.

How did the government promote and protect small-scale industry?

Small-scale industries cannot compete with the big industrial firms, for this purpose the production of a
number of products was reserved for the small-scale industry. The criterion of reservation was dependent on
the ability of these units to manufacture the goods. They were also given concessions such lower excise duty
and bank loans at loser interest rates.)

Q14. Why and how did the government promote small-scale industries for rural development in India?

Foreign Trade Policy: Import Substitution

Import Substitution Policy

(In order to be self- reliant in vital sectors, India has followed the strategy of replacing imports by domestic
production. In the first seven plans foreign trade was characterized by what is commonly called an inward-
looking trade strategy. Technically this strategy is called import substitution, which aimed at replacing or
substituting imports with domestic production. For example instead of importing vehicles made in a foreign
country, industries would be encouraged to produce them in India itself.

Protection of domestic industries from foreign competition

In import substitution policy the government protected the domestic industries from foreign competition.

Reason for protection from foreign competition

(The policy of protection is based on the notion that industries of developing countries are not in a position to
compete against the goods produced by more developed economies. It is assumed that If the domestic
industries are protected they will learn to compete in the course of time. Our planner also feared the
possibility of foreign exchange being spent on import of luxury goods if no restriction were placed on imports.)

Question 15. On what notion/assumption is the policy of protection of the domestic industries from foreign
competition based? Or Why was the import substitution policy adopted?

Protection from imports took two forms: tariffs and quotas.

Tariffs are a tax on imported goods; they make imported goods more expensive and discourage their use.

Quotas specify the quantity of goods which can be imported.

The effect of tariffs and quotas is that they restrict imports and, therefore, protect the domestic firms from
foreign competition.)

Question 16. Explain how import substitution can protect domestic industry.(whole)(NCERT)

Critical Evaluation of the Industrial and Trade Policies

Positive Effects

The achievements of India’s industrial sector during the first seven plans are impressive indeed. The
proportion of GDP contributed by the industrial sector increased in the period from 13 per in 1950—51 to 24.6
per cent in 1990-91. The rise in the industry’s share of GDP is an important indicator of development.
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1. Diversification of industrial sector: No longer was Indian industry restricted largely to cotton textiles and
jute. In Fact, the industrial sector became well diversified by 1990, largely due to the public sector.

2. Promotion of small-scale industries: the promotion of small-scale industries give opportunities to those
people who did not have the capital to start large firms to get into business.

3. Development of indigenous industries: Protection from foreign competition enabled the development of
indigenous industries in the areas of electronics and automobile sectors which otherwise could not have
developed.

Question 17. Explain the positive effects of industrial and trade policies on industrial development.

Drawbacks/Criticisms

1. Inefficient functioning of the public sector: One of the major drawbacks in the industrial sector was the
inefficient functioning of the public sector. Many public sector firms incurred huge losses but continued to
function because it is difficult to close government undertaking even if it is a drain on the nations limited
resources. Initially public sector was required in a big way, it is now widely held that state enterprises
continued to produce certain goods and services (often monopolising them) although this was no longer
required. For example, the provision of telecommunication service. This industry continued to be reserved for
the Public Sector even after it was realised that private sector firms could also provide it. Due to the absence
of competition, even till the late 1990s, one had to wait for a long time to get a telephone connection. In 2001
this firm was sold to the private sector. Similarly, even now only the public sector supplies national defense.
And even though the private sector can manage hotels well, yet. the government also runs hotels.

The government should get out of areas which the private sector can manage and the government
may concentrate its resources on important services which the private sector cannot provide. However, this
does not mean that private firms arc always profitable (indeed, quite a few of the public sector firms were
originally private firms which were on the verge of closure due to losses; they were then nationalised to
protect the jobs of the workers) our, a loss-making private firm will nor waste resources by being kept running
despite the losses. On the other hand, a few economists point out that the- public sector is not meant for
earning profits but to promote the welfare of the nation. The public sector firms should be evaluated on the
basis of the extent to which they contribute to the welfare of people and not on the profits they earn.

2.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 rime was spent by industrialists in trying to
obtain a license or lobby with the concerned ministries rather than on thinking about how to improve their
products. Moreover, the need to obtain a License to start an industry was misused by industrial houses; a big
industrialist would get a license not for starting a new firm but to prevent competitors from starting new firms.

3. No incentive for producers to improve the quality of products in the absence of foreign competition. Due
to restrictions on imports the Indian consumers had to purchase whatever the Indian producers produced.
The producer were aware that they had a captive market; so they had no incentive to improve the quality of
their goods. Why should they think of improving quality when they could sell low quality items at a high price?
Competition from imports forces our producers so b more efficient. However, some economists hold that we
should protect our producers from foreign competition as long as the rich nations continue to do so.

Owing to all these conflicts, economists called for a change in our policy. This, along with other problems, led
the government to introduce a new economic policy in 1991.

Q18. Give drawbacks of the industrial and trade policies.

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EXERCISE

Multiple Choice Questions: Choose the Correct Answer

1. In which year was India’s First Five Year Plan launched?

(a) 1951 (b) 1947

(c) 1940 (d) 1955

2. Which of the following bodies/institutions was engaged in the formulation of five year plans in India?

(a) Planning Commission (b) National Development Council

(c) Finance Ministry (d) Home Ministry

3. When was Planning Commission established?

(a) 1947 (b) 1948

(c) 1950 (d) 1951

4. Directive planning is pursued under:

(a) capitalist economy (b) socialist economy

(c) mixed economy (d) none of these

5. The period of the Second Five Year Plan was:

(a) 1950-1955 (b) 1951-1956

(c) 1952-1957 (d) 1956-1961

6. Which of the following objectives is not a general objective of five-year plans in India?

(a) Increase in national income (b) Increase in standard of living

(c) Economic stability (d) Improvement in the quality of education

7. An economy in which means of production are used in a manner such that social welfare is maximized
is called

(a) mixed economy (b) socialist economy

(c) capitalist economy (d) none of these

8. Which was the last Five-Year Plan in India?

(a) Eleventh Plan (b) Twelfth Plan

(c) Thirteenth Plan (d) Fourteenth Plan

9. After which Five Year Plan, there were three annual plans?

(a) Second Five Year Plan (b) Third Five Year Plan

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(c) Fourth Five Year Plan (d) Fifth Five Year Plan

10. Natural rate of unemployment is consistent with the situation of:

(a) full employment (b) underemployment

(c) over employment (d) structural unemployment

11. Owing to agrarian reforms, the contribution of agricultural sector to GDP has tended

(a) rise (b) fall

(c) main constant (d) none of these

12. What percentage of India's population depends on agriculture for their livelihood

(a) More than 35% (b) Between 40 – 50%

(c) Between 30 – 40% (d) Less than 30%

13. Agrarian reforms refer to

(a) technical reforms in agriculture (b) land reforms in agriculture

(c) both (a) and (b) (d) neither (a) nor (b)

14. Which of the following is the reason for the backwardness of agriculture in India ?

(a) Deficient irrigation (b) dependence on rainfall

(c) Backward technology (d) All of these

15. Consolidation of holdings refer to

(a) conversion of scattered into a unified holding (b) take over the small holdings by the government

(c) provision of inputs for higher output. (d) all of these

16. Price Support Policy focuses on

(a) low price of the farm output (b) high price of the farm output

(c) stability of income from farming (d) both (a) and (c)

17. Use of chemical fertilizers has led to

(a) rise in fallowing (b) fall in fallowing

(c) rise in gross under cultivation (d) both (b) and (c) (d)

18. ‘Abolition of intermediaries’ and ‘Land Ceiling’ are part of:

(a) Industrial reforms in India (b) External sector reforms in India

(c) Land reforms in India (d) banking reforms in India. (c)

19. Capitalist Economy is controlled and operated by:

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(a) Private sector (b) Mixed

(c) Socialist (d) None of these. (a)

20. India adopted which economic system?

(a) Capitalist (b) Mixed

(c) Socialist (d) None of these. (b)

21. To protect goods produced in India from imports, government made use of:

(a) Quotas (b) Tariffs

(c) Both (a) and (b) (d) None (c)

22. Which one of these is a central problem of an economy

(a) What to produce (b) How to produce

(c) For whom to produce (d) All of these. (d)

23. Schedule ------ comprise of industries which would exclusively be owned by the state

(a) A (b) B

(c) C (d) none of these (a)

24. In which year, India adopted High yielding varieties program for the first time

(a) 1977 (b) 1966

(c) 1986 (d) 1956 (b)

Answers

1. (a) 2. (a) 3. (c) 4. (a) 5. (d) 6. (d) 7. (b) 8. (b)

9. (b) 10. (a) 11(a) 12(a) 13(c) 14(d) 15(a) 16(d)

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Read the following statements carefully. Write True or False with a reason.

1. Growth leads to decline in percentage contribution of agriculture to GDP.

Ans. True. Demand for agricultural goods is not be income elastic as the demand for goods produced in the
secondary and tertiary sectors of the economy. As income of the people increases (following growth
of the economy), they tend to spend higher and higher percentage of it on non-agricultural goods.
Demand for non-agricultural goods expands faster than the demand for agricultural goods.
Accordingly, more and more of investment is attracted in the secondary and tertiary sectors of the
economy. This leads to faster growth of these sectors compared to agriculture. Accordingly, there is a
decline in percentage share of agriculture in GDP.

2. Land reforms are not related to technology and therefore do not contribute to increase in
productivity in agriculture.

Ans. It is true that the land reforms are not related to technology. But it is not true to state that these
reforms do not contribute to increase in productivity in agriculture. Land reforms (i) confer rights of
ownership on the tillers of the soil, (ii) focus on the regulation of rent, (iii) aim at consolidation of
holdings, and (iv) promote cooperative farming. These reforms prevent marginalisation of the tillers
of the soil and promote their interest in farming. Accordingly, their contribution in raising farm
productivity cannot be denied.

3. Ceiling on holding-size promotes ‘equity’.

Ans. Yes, it is true that ceiling on holding-size promotes equity’. Ceiling sets the maximum limit upto which
an individual farmer can hold land for cultivation. Once this limit is enforced, the government
resumes the surplus land of the big farmers. The surplus land is distributed among the landless
farmers or among the small and marginal holders of land (so that their holdings become economically
and technically viable). This promotes equity’.

4. Disguised unemployment is hidden unemployment and therefore is not a problem.

Ans. Disguised unemployment is hidden unemployment, of course. But it carries a serious economic
problem. The problem relates to ‘productivity’ in agriculture. Because of disguised unemployment,
marginal productivity of labour (productivity of an additional worker) tends to become zero. Add
another worker to farming where there is disguised unemployment. You will find that his contribution
to total output is zero. Likewise, if a worker is withdrawn from farming, total output will not fall.
Deeper the disguised unemployment, larger is the number of unproductive workers. Thus, disguised
unemployment is a sign of low productivity in agriculture.

5. Marginal farmers are subsistence farmers.

Ans. True, marginal farmers are subsistence farmers. Reason: The marginal farmers are so small farmers
that they avoid exposing themselves to market-risks. Accordingly, they focus on subsistence
farming—the farming which is not market-oriented, instead it is subsistence-oriented. Only those
crops are grown which are needed for self-consumption by the farming families (even when
commercial crops could yield good profit).

6. Unemployment has risen despite the fact that opportunities of employment have risen during the five
year plans.

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Ans. True. Unemployment has risen despite a rise in the opportunities of employment during the five year
plans. This is because the rate at which the work force has risen has been more than the rate at which
the additional work force was absorbed in jobs. The rise in work force is primarily related to a
substantial rise in population of the country, particularly after 1951.

7. Poverty has reduced, but the gulf between the rich and the poor has widened.

Ans. It is true that poverty has reduced, but the gulf between the rich and the poor has widened.
Reduction in poverty is explained primarily in terms of the fall in percentage of population below
poverty line. It is the reduction in absolute poverty. On the other hand, the widening gulf between the
rich and the poor is explained in terms of the distribution of income and wealth. The bulk of the
industrial wealth is being controlled by a handful of big industrialists like TATA , Ambani and Adani.
Likewise, the bulk of farming land in rural areas is owned by a small segment of big farmers.

8. Despite a significant rise in public investment (during five year plans), the GDP growth has continued
to be rather slow.

Ans. True. GDP growth has remained slow despite a significant rise in public investment during the fiveyear
plans in India. The primary reason is that the bulk of public investment has gone into such areas of
production where capital-output is very high. So that, output per unit of input has remained low.

9. Despite the fact that GDP has grown consistently during the five year plans, the challenge of inflation
almost never subsided.

Ans. True. Inflation remained a challenge during the five year plans (except the first plan), despite the fact
that GDP had consistently risen. This is primarily because of population explosion. Since 1951, rate of
population growth in India has been extremely alarming. This has led to an exponential rise in the
demand for farm products. Despite a significant rise in farm supplies the mismatch between demand
and supply (leading to excess demand) has never ceased to exist. Accordingly, the never-ending
problem of inflation.

10. Land ceiling refers to change in the ownership of landholdings

Ans. False. Land ceiling refers to fixing the specified limit of land, which could be owned by individual.

11. Green revolution enabled the government to maintain buffer stock of food grains.

Ans. True. Green Revolution raised agriculture yield per acre to incredible heights. It enabled the government
to procure sufficient amount of food grains to build a stock which could be used in times of food
shortage

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QUESTIONS TO DO (1 mark)

Q1. When was planning commission set up?

Ans. In 1950, the planning commission was set up with the prime minister as its chairperson

Q2. Define a plan (NCERT)

Ans. A plan spells out how the resources of a nation should be put to use.

Q3. Give the meaning of five-year plan.

Ans. In India plans are of five-year duration and are called fie year plans. The specify the objectives to be
attained in the five years of the plan.

Q4. Define perspective plans.

Ans. Our plan documents also specify the objectives to be achieved over a period of 20 years. This long term
plan is called perspective plan.

Q5. Why did India opt for planning? (NCERT)

Ans. After gaining independence, the next important step was to revive the poor, backward and stagnant
economy, inherited from the British rule. So, for the systematic and overall development of Indian
economy, India opted for planning

Q6. Why should plans have goals? (NCERT)

Ans. Planning is done to achieve some predetermined goals within a specified time period. Without goals, the
planners won’t be able to know which sector of the economy needs to be developed on the priority
basis. So, plans should have some goals

Q7. What are the goals of the five-year plans in India?

Ans. The goals of the five-year plans are growth, modernization, self- reliance and equity

Q8. Why a choice has to be made in each five-year plan about which of the goals is to be given primary
importance?

Ans. A choice has to be made in each five-year plan about which of the goals is to be given primary
importance because of limited resources.

Q9. How is economic growth of a country measured?

Ans. A good indicator of economic growth is steady increase in the Gross Domestic Product (GDP). The GDP is
the market value of all goods and services produced in the country during a year.

Q10. What is meant by structural composition of an economy?

Ans. The contribution made by each sector, namely the agriculture sector, the industrial sector and the service
sector makes up the structural composition of the economy.

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Q11. Match the following

1. Prime minister A. The money value of all the final goods and services

Produced in one year.

2. Gross domestic product B. Adoption of new technology

3. Modernisation C. Chairperson of the planning commission

4. Self-sufficiency D. Avoiding imports of those goods which can be produced

In India itself.

Ans. 1-c, 2-a, 3-b, 4-d

Q12. What do land reforms refer to?

Ans. Land reforms refer to change in the ownership of landholdings (i.e. to abolish intermediaries and to make
the tillers the owners of the land) and fixing the maximum size of land which could be owned by an individual
(i.e. land ceiling).

Q13. What do you mean by land ceiling? What was the purpose?

Ans. It means fixing the maximum size of land which could be owned by an individual. The purpose of land
ceiling was to reduce the concentration of land ownership in a few hands.

Q14. In which states were Land reforms successful and why?

Ans. Kerala and West Bengal because these state governments were committed to the policy of “land to the
tiller”.

Q15. Match the following

1. Quota A. Quantity of goods that can be imported

2. Land reforms B. Seeds that give large proportion of output

3. HYV seeds C. Improvements in the field of agriculture

4. Subsidy D. The monetary assistance given by government for production

Ans. 1-A, 2-C, 3-B, 4-D

Q16. Why, despite the implementation of green revolution, 65% of our population continued to be engaged in
the agriculture state till 1990? (NCERT)

Ans. The reason is that the industrial sector and the service sector did not absorb the people working in the
agriculture sector.

Q17. What are miracle seeds? (NCERT)

Ans. Miracle seeds refer to high yielding varieties (HYV) of seeds, which raised agricultural yield per acre to
incredible heights.

Q18. What is marketable surplus? (NCERT)

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Ans. The portion of agricultural produce, which is sold in the market by the farmers, after meeting their own
consumption requirement, is known as marketable surplus.

Q19. At the time of independence, the variety of industries was very narrow-largely confined to -----?

Ans. Cotton, textiles and jute

Q20. Why was the industrial policy resolution of 1956 adopted?

Ans. In accordance with the goal of the state controlling the commanding heights of the economy, the
Industrial Policy Resolution of 1956 was adopted

Q21. How was the private sector kept under state control?

Ans. The private sector was kept under state control through a system of licenses.

Q22. Define a ‘small scale industry’

Ans. 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 5,00,000 rupees while at
present the maximum investment allowed is 1crore rupees

Q23. What was the big question facing the policy makers at the time of independence?

Ans. What should be the role of the government and private sector in industrial development

Q24. In 1955, which committee noted the possibility of using small scale industries for promoting rural
development?

Ans. The Village and Small-scale Industries Committee, also called as Karve Committee

Q25. The production of a number of products was reserved for the small-scale industry. What was the criterion
of such reservation?

Ans. The criterion of reservation of the production for the small scale industries was the ability of these units
to manufacture the goods

Q26. What was the aim of the policy of import substitution?

Ans. To replace or substitute imports with domestic production and protection of the domestic industries
from foreign competition.

Q27. Name the two industries which were reserved for the public sector during 1950-90

Ans. Telecommunication services and National defense

Q28. In the first seven plans, foreign trade was characterized by what is commonly called an ---------.
Technically, this strategy is called ----------

Ans. Inward looking trade strategy and import substitution.

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QUESTIONS TO DO (3 or 4 marks)

Q1. What is sectoral composition of an economy? Is it necessary that the service sector should contribute
maximum to GDP of an economy? Comment. (NCERT)

Ans. Structural composition refers to contribution made by agricultural, industrial and service sector in the
gross domestic product of the country. No, it is not necessary that the service sector contributes maximum to
GDP of an economy. However, by 1990, the share of the service sector was the maximum at 40.59%. This
phenomenon of growing share of the service sector marked the beginning of globalization in the country.
Generally, at higher levels of development the service sector contributes more to the GDP as we find in
developed nations.

Q2. Does modernization as a planning create contradiction in the light of employment generation?
Explain.(NCERT)

Ans. Yes, the goal of modernization (Introducing modern technology) is in conflict with the goal of employment
generation if the technology reduces the need for labor. Therefore, the planners have to balance the goals.
They have to ensure that, as far as possible, the policies of the plans do not contradict the four goals.

Q3. During the colonial period there were neither growth nor equity in the agricultural sector. How did the
policy makers of independent India address these issues?

Ans. During the colonial rule there was neither growth nor equity in the agriculture sector. The policy makers
of independent India addressed these issues through land reforms and promoting the use of ‘High Yielding
Variety’ seeds which ushered in a green revolution in Indian agriculture (green revolution). These initiatives
helped India to become self-sufficient in food grains production.

Q4. Why was the ownership of landholdings considered necessary under land reforms in the agriculture
sector?

Ans. The ownership of landholdings was considered necessary under land reforms in the agriculture sector
because ownership of land would enable the tiller to make profits from the increased output.

Secondly, it would give incentives to the tillers to invest in making improvements.

Q5. Explain the statement that green revolution enabled the government to procure sufficient food grains to
build its stocks that could be used during times of shortages. (NCERT)

Ans. The use of modern technology and HYV seeds together formed the green revolution, which led to an
impressive rise in food grains production. The agriculture productivity increased considerably. This enabled the
government to procure sufficient food grains to build the buffer stock to be used in times of shortages due to
scanty rainfall, delayed monsoon, drought and other natural calamities.

Q6. Though public sector is very essential for industries, many public sector undertakings incur huge losses and
are a drain on the economy’s resources. Discuss the usefulness of public sector undertakings in the light of this
fact. (NCERT)

Ans. It is true that many public sector undertakings are incurring huge losses. However, they are still very
useful and crucial for the economy due to the following reasons

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1. To create strong industrial base. Public sector plays an important role in development of the
industries which require heavy investment and have long gestation period

2. To develop infrastructure

3. To promote development of backward areas

4. To generate development opportunities

5. To control and manage industries of strategic areas (like defence, atomic energy, etc.)

Moreover, public sector is not meant for earning profits but to promote the welfare of the nation. So,
they should be evaluated on the basis of their contribution to welfare of the people and not on the
profits they earn.

Q7. Differentiate between planning objectives and plan objectives

Ans. Planning objectives Plan objectives

1 . They are long term objectives to be achieved They are objectives to be achieved in short period

Over a long period

2 . They are broad goals which development plans These are planned with greater precision

Seek to achieve

3 . They are common to all goals They vary from plan to plan

4 . These aim at structural change They aim at quantitative changes

Q8 . Why is P.C. Mahalanobis known as the architect of Indian planning?

Ans. The second five-year plan, a landmark contribution to development planning in general, laid down the
basic ideas regarding gaols of Indian planning. This plan was based on the ideas of P.C. Mahalanobis. He is,
thus, regarded as the architect of Indian Planning.

Q9. Discuss the principal components of Industrial Policy Resolution, 1956.

Ans: The three principal components of IPR 1956 were:

• Three fold classification of industries-

( a) Industries exclusively owned by the state

( b) Industries in which private sector could supplement the efforts of state

( c) remaining industries were to be in the private sector

• Industrial licensing: An industrial license is a written permission from the government, to an industrial
unit to manufacture goods. This policy was used to promote industries in backward regions, i.e., to promote
regional equality. No new industry was allowed unless a license was obtained from the government.

• Private entrepreneurs were offered many incentive: Like tax relief, electricity at a lower tariff, etc., to
establish their industry in the backward regions of the country

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CHAPTER – 3

LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL

Why were Economic Reforms Introduced?

The government was not able to generate sufficient revenues from internal sources such as taxation. The
income from public sector undertakings (PSUs) was also not very high. (In fact, many PSUs were incurring
losses.) Even though the revenues were very low, the government had to spend more to meet challenges like
unemployment, poverty and population explosion.

The government was also spending a large share of its income on areas which do not provide immediate
returns such as the social sector and national defense. At times our foreign exchange borrowed from other
countries and international financial institutions, was spent on meeting consumption needs. In the late 1980s.
government expenditure began to exceed its revenue by such large margins that meeting the expenditure
through borrowings became unsustainable. Prices of many essential goods rose sharply. Imports grew at a
very high rate without matching growth of exports. Foreign exchange reserves declined to a level that was
not adequate to finance imports for more than two weeks. There was also not sufficient foreign exchange to
pay the interest that needs to be paid to international lenders, also no country or international funder was
willing to lend to India.

India approached the International Bank for Reconstruction and development (IRRD), popularly known as
World Bank and the International Monetary Fund (IMF) and received 7 billion dollars as loan to manage the
crisis. For availing the loan, these international agencies expected India to liberalise and open up the
economy by removing restrictions on the private sector reduce the role the government in many areas and
remove trade restriction between India and other countries. India agreed to the conditionalities of World
Bank and IMF and announced the New Economic Policy (NFP) in 1991. The NEP consisted of wide -ranging
economic reforms. The thrust of the policies was towards creating a more competitive environment in the
economy and removing the barriers to entry and growth of firms. The set of policies can broadly be classified
into two groups: the stabilisation measures and the structural reform measures.

Stabilisation measures are short-term measures, intended to correct the balance of payments position and
to bring inflation under control. In simple words, stabilisation measures aimed at maintaining sufficient
foreign exchange reserves and keeping the rising prices under control.

Structural reform policies are long-term measures, aimed at improving the efficiency of the economy and
increasing its international competitiveness by removing the rigidities in various segments of the Indian
economy. These include liberalization privatization and globalsation. Main components of new economic
policy

REASONS FOR ECONOMIC REFORMS

1. (Poor performance of public sector: In the 40 years (1951-90), public sector was assigned an
important role to work for the economic development of India. However, except for few public
enterprises, the overall performance was very disappointing. Considering the huge losses incurred by
a good number of public sector enterprises, the government recognized the need for making
necessary reforms.

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2. Inflationary Pressures: There was a consistent rise in the general price level in the economy due to
1
increase in money supply and shortage of essential goods.

3. Deficit in Balance of Payments (Bop): Deficit in BOP arises when payments to rest of the world
exceeds receipts from rest of the world. Even after imposing heavy tariffs and fixing quotas, there was
a sharp rise in imports. On the other hand, there was slow growth of exports due to low quality and
high prices of Indian goods in the international market.

4. Fall in foreign exchange reserves: In 1991, foreign exchange reserves fell to the lowest level and it led
to the foreign exchange crisis in the country. Foreign exchange reserves declined to a level that was
not adequate;

© To finance imports for more than two weeks

© To pay the interest to international lenders

5. Huge burden of debts: The expenditure of the government was much higher than revenue. As a
result, government had to borrow money from banks, public and from international financial
institutions.

6. Inefficient Management: The origin of the financial crisis can be traced from the inefficient
management of the Indian economy.

© The government was not able to generate sufficient revenue from international sources such as
taxation, running of public sector enterprises, etc.

© Government expenditure began to exceed its revenue by such large margins that became
unsustainable

© At times, the foreign exchange borrowed from other countries and international financial
institutions was spent on meeting consumption needs.)

7. High Fiscal Deficit: Fiscal deficit refers to borrowings by the government on account of the
excess of its expenditure over revenue during a year.

High fiscal deficit is bad because:

(i) It indicates poor financial health of the economy.

(ii) It triggers inflation which hinders the process of growth, and

(iii) It lowers faith of international institutions (like World Bank) in the government of the
country with regard to management of the economy.

Fiscal deficit was estimated to be 5.4 per cent of GDP in 1981-82, and it shot up to 8.4 per cent
of GDP in 1990-91. It almost led to 'debt trap’ for the government. NEP became essential to
restore fiscal discipline.

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Q1. Why were economic reforms introduced? (NCERT)

ELEMENTS OF NEP (NEW ECONOMIC POLICY)

Liberalisation, privatisation and globalisation are the three main elements of NEP

LIBERALISATION

Liberaliastion means removal of entry and growth restrictions on the private sector, In other words
liberalization means freeing the Indian business and industries from unnecessary controls and restrictions.

¨ Liberalisation involves deregulation and reduction of government controls and greater autonomy of private
sector, to make economy more competitive

¨ Under this process, business is given a free hand and is allowed to run on commercial lines

The purpose of liberalization was:

© To unlock the economic potential of the country by encouraging private sector and multinational
cooperation to invest and expand and

© To introduce much more competition into the economy and creating incentives for increasing efficiency of

Operations.

The economic reforms taken by the government under liberalization were as under

1.Industrial sector reforms

2.Financial sector reforms

3.Tax reforms

4. Foreign exchange reforms

5. Trade and investment policy reforms

1. (Industrial sector reforms

A. Reduction in industrial licensing: The new policy abolished industrial licensing for all the projects,
except for a short list of industries (like liquor, defence equipment's, industrial explosives, etc.)

© No licenses were needed to set up new units or expand the existing line of manufacture

© However, license is required for certain industries, related to security and strategic

Considerations

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B. Decrease in the role of public sector: One of the striking features was the reduction in the role of
public sector in the future industrial development of the country. The number of industries,
exclusively reserved for the public sector, reduced from 17 to 3 industries: (1) Defence equipment's
(2) Atomic energy generation (3) Railway Transport

C. De-reservation under small-sector industries: Many goods produced by small sector have been de-
reserved.

© The investment ceiling on plant and machinery for small undertakings enhanced to rupees one
crore

© In many industries, the market was allowed to determine the prices through forces of demand
and supply and not by government

D. Monopolies and restrictive trade practices (MRTP) Act: With the introduction of liberalization and
expansion schemes, the requirement of large companies, to seek prior approval for expansion,
establishment of new undertakings, merger, amalgamations, etc. were eliminated.)

Q2. Explain ‘Deregulation of Industrial sector’ as an economic reform

2.Financial Sector Reforms

(Financial sector includes financial institutions like commercial banks, investment banks, stock exchange
operations and foreign exchange market. The financial sector in India is controlled by the central bank. The
following reforms took place in financial sector

A. Change in role of RBI: The role of RBI was reduced from regulator to facilitator of financial sector. As
a result, financial sector was allowed to take decisions on many matters, without consulting the RBI

B. Origin of private banks: The reform policies led to the establishment of private sector banks, Indian
ae well as foreign. For example, Indian banks like ICICI and foreign banks like HSBC increased the
competition and benefitted the consumers through lower interest rate and better services.

C. Increase in limit of foreign investment: The limit of foreign investment in banks was raised to
around 51%. Foreign Institutional Investors (FII) such as merchant bankers, mutual funds and pension
funds were now allowed to invest in Indian financial markets

D. Ease in expansion process: Banks were given freedom to set up new branches (after fulfillment of
certain conditions) without the approval of RBI and rationalize their existing branch network)

Q3. Explain various financial sector reforms as a part of liberlisation.

3. Tax Reforms

(Tax reforms are concerned with the reforms in the government’s taxation and public expenditure policies
which are collectively known as its fiscal policy.

A. Reduction in taxes

Since 1991, there has been a continuous reduction in the taxes on individual incomes as it was felt that high
rates of income tax were an important reason for tax evasion. It is now widely accepted that moderate rates
of income tax encourage savings and voluntary disclosure of income. Similarly, the rate of corporation tax’,
which was very high earlier has been gradually reduced.
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B. Simplification

In order to encourage better compliance on the part of taxpayers many procedures have been simplified
and the rates have also been lowered substantially. Recently, the Parliament passed a law, Goods and
Services Tax Act 2016, to simplify and introduce a unified indirect tax system in India. This law came into effect
from July 2017. This is expected to generate additional revenue for the government, reduce tax evasion and
create ‘one nation, one tax and one market.

C. Reforms in indirect taxes: Considerable reform have been made in indirect taxes to facilitate
establishment of common national market for goods and commodities.)

Q4. Explain various tax reforms as a part of economic reforms in India

4. Foreign Exchange Reforms

(A. Devaluation of rupee

In 1991, as an immediate measure to resolve the balance of payments crisis, the rupee was devalued against
foreign currencies. Devaluation of rupee means deliberate increase in foreign exchange rate by the
government, making the domestic currency (rupee) cheaper. Devaluation led to an increase in exports and
thus, the inflow of foreign exchange.

B. Foreign exchange deregulation

It means freeing the determination of Foreign exchange rate from government control. Foreign exchange
rate means the price of one currency in terms of another. Now, more often, exchange rates are determined in
the foreign exchange market based on the demand and supply of Foreign exchange. However, RBI may
intervene to control high exchange rate fluctuations. )

Q5. Explain various foreign exchange reforms as a part of liberalisation

5. Trade and Investment Policy Reforms

(In order to protect domestic industries, India was following a regime of quantitative restrictions on imports.
This was encouraged through tight control over imports and by keeping the tariffs very high. These policies
reduced efficiency and competitiveness which Led to slow growth of the manufacturing sector. Objectives of
liberalsation of trade and investment regime were:

© To increase international competitiveness of industrial production

© To increase foreign investments and technology into the economy

© To promote the efficiency of local industries

The important trade and investment policy reforms include:

A. Removal of Quantitative restrictions on imports and exports: Under the new economic policy,
quantitative restrictions on imports and exports were greatly reduced. For, example quantitative
restrictions on imports of manufactured consumer goods and agricultural products were fully
removed from April 2001.

B. Removal of export duties: Export duties were removed to increase the competitiveness position of
Indian goods in the international markets.

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C. Reduction in import duties: Import duties were reduced to improve the position of domestic goods in
the foreign market.

D. Relaxation in import licensing system: The import licensing was abolished, except in case of
hazardous and environmentally sensitive industries, this encouraged domestic industries to import
raw materials at better prices, which raised their efficiency and made them more competitive.)

Q6. Explain trade and investment policy reforms as a part of liberalisation

PRIVATISATION

(Privatisation means giving greater role to the private sector in the nation building process and a reduced
role to the public sector. In other words, Privatisation means transfer of ownerships, management and
control of public sector enterprises to the entrepreneurs in the private sector, In, short Privatiation implies
shedding of the ownership or management of a government owned enterprise. Over the years, Indian
government has reduced its stake in several public enterprises, including IPCL, IBP, MARUTI Udyog, etc.
Government companies are converted into private companies in two ways (Privatisation can be done in two
ways)

(i) by withdrawal of the government from ownership and management of public sector undertaking (PSUs) and
or

(ii) by outright sale of PSUs)

Q7. Give the meaning of privatization. In what two ways government companies are converted into private
companies?

Privatisation of PSUs by selling off part of the equity of PSU to the public is known as disinvestment. The
purpose of disinvestment was mainly to improve financial discipline and facilitate modernization.

(Advantages of Privatisation and Disinvestment

1. It was envisaged that private capital and managerial capabilities could be effectively used to improve
the performance of the PSUs.

2. The government envisaged that privatization could provide strong impetus to the inflow of FDI.

Improving the efficiency of PSUs

The government has also made attempts to improve the efficiency of PSUs by giving them autonomy in taking
managerial decisions). For instance, some PSUs have been granted special status as Maharatnas Navratnas and
Miniratnas. The granting of status resulted in better performance of these companies. A few examples of PSUs
with their status are as follows:

Maharatnas: (a) Indian Oil Corporation Limited, and (b) Steel Authority of India Limited.

Navratnas : (a) Hindustan Aeronautics Limited, (b) Mahanagar Telephone Nigam Limited.

Miniratnas: (a) Bharat Sanchar Nigam Limited; (b) Airport Authority of India and (c) Indian Railway Catering
and Tourism Corporation Limited.

Q8. State the advantages of Privatization and Disinvestment.

Arguments in favour of Privatisation

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1. Reduction in budgetary deficit: Public sector enterprises were putting large burden on government
due to huge losses and subsidy. Privatisation reduces the financial burden of the government.

2. Profit oriented decisions: Private sector works with the profit-oriented approach. It infuses the
commercial spirit in the working of the enterprises and leads to an improvement in efficiency and
performance of the enterprise.

3. Competitive environment: Privatisation abolishes the monopoly position of public enterprises and
helps in improving the competitive strength and efficiency of these enterprises.

4. Better managerial efficiency: Privatisation is supported as a means of improving efficiency since the
management will not have any political pressure and interference.

5. Quick decision making: The policy of privatization will be helpful in providing greater flexibility in the
decision-making process as there will be no government intervention.

6. Promotes consumer’s sovereignty: The survival of the private sector depends on the profits and that
depends on consumer satisfaction with privatization only those goods and services will be offered
which are needed and desired by the consumers

Arguments against Privatisation

1. Lack of social welfare: Private sector enterprises mainly operates with the objective of profit
maximization. Thus, it doesn’t guarantee the social welfare of people in general specially the poor
people

2. Concentration of economic power: Privatisation can result in the substitution of public monopoly to
the private monopoly, which may result in monopolistic exploitation by private enterprises which
leads to dead weight losses in the market.

3. Lop-sided development: Private sector does not take interest in projects which have long gestation
period and low profitability. It may adversely affect the growth of basic and heavy industries and
infrastructure in the country

4. Rise in the level of unemployment: Under privatization, there is always a fear of retrenchment and
consequent unemployment. Privatisation in many public sector enterprises has led to voluntary
retirement of workers. In this way, the policy may lead to greater incidence of unemployment and
poverty in the country.

Globalisation

Globalisation means integrating the national economy with the world economy through removal of
barriers on international trade and capital movements. Globalisation is the outcome of the policies of
liberalisation and privatization.

© However, globalisation is a complex Phenomenon

© It is an Outcome of the set of various policies that are aimed a transforming the world towards greater
interdependence and integration.

© It involves creation of networks and activities transcending economic, social and geographical boundaries.

© It is turning the world into one whole or creating a borderless world.

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Positive effects of globalisation

1. Greater access to global markets

2. Advanced technology

3. Increased possibility of large industries of developing countries to become important players in the
international arena.

(Negative effects of globalisation

1. Globalisarion is a strategy of the developed countries to expand their markets in other countries. It has
compromised the welfare and identity of people belonging to poor countries.

2. Market-driven globalisation has widened the economic disparities among nations and people.

3. It his increased the income and quality of consumption of only high-income groups and the growth has been
concentrated only in some select areas in the services sector such a telecommunication, information
technology. Finance, entertainment, travel and hospitality services, real estate and trade, rather than vital
sectors such as agriculture and industry which provide employment to millions of people in the country.)

Q9. “Process of globalisation has produced only positive results for India and other countries.” comment

Changes made for the globalisation in Indian economy

1. The New Economic policy prepared a specified list of high technology and high investment priority
industries, in which automatic permission will be available for foreign direct investment up to 51
percent of foreign equity.

2. In respect of foreign technology agreements, automatic permission is provided in high priority

industry up-to a sum of rupees 1 crore. No permission is now required for hiring foreign technicians
or for testing indigenously developed technology abroad.

3. In order to make international adjustments of Indian currency, rupee was devalued in July 1991 by
nearly 20 percent. It stimulated exports, discouraged imports and raised the influx of foreign
capital.

4. To integrate Indian economy with world, the union budget 1992-93 made Indian rupee partially
convertible and then the rupee was made fully convertible in 1993-94 budget.

5. In order to bring the Indian economy within the ambit of global competition, the government has
modified the customs duty to a considerable extent. Accordingly, the peak rate of customs duty has
been reduced from 250 percent to 10 per cent in 2007-2008 budget.

6. A new five-year export-import policy (1992-97) was announced by the government to establish the
framework of globalization of India’s foreign trade. The policy removed all restrictions and controls
on the external trade and allowed market forces to play a greater role in respect of exports and
imports.

Outsourcing

Outsourcing refers to contracting out some of its activities to a third party which were earlier performed by
the organization.

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© Outsourcing is one of the important outcomes of the globalisation process.

© In outsourcing a company hires regular service form external source, mostly from other countries, which
was previously provided internally or from within the country (like legal advice, computer service,
advertisement securities etc.)

© As a form of economic activity, outsourcing has intensified, in recent times, because of the growth of fast
modes of communication, particularly the growth of information Technology (IT).

© Many of the services such as voice-based business processes (popularly known as BPO or call-centers),
record keeping, accountancy, banking services, music recording, film editing, book transcription, clinical advice
or even teaching are being outsourced by multinational companies to India, where they can be availed at a
cheaper cost with reasonable degree of skill and accuracy.

© The low wage rates and availability of skilled manpower in India have made it a destination for global
outsourcing in the post–reform period.

© With the help of modern telecommunication links including the Internet, the text, voice and visual data in
respect of these services is digitised and transmitted in real time over continents and national boundaries.

World Trade Organisation (WTO)

(The WTO was founded in 1995 as the successor organisation to the General Agreement on Trade and Tariff
(GATT). GATT was established in 1948 with 23 countries as the global trade organization to administer all
multilateral trade agreements by providing equal opportunities to all countries in the international market for
trading purposes.)

Purposes/Objectives/functions of WTO

1. To enlarge production and trade of services

2. To ensure optimum utilisation of world resources

3. To protect the environment.

4. To facilitate international trade (both bilateral and multi-lateral) through removal of tariffs as well as
non-tariff barriers.

5. To establish a rule-based trading regime, in which nations cannot put arbitrary restrictions on trade

(Role of WTO

WTO establishes a rule-based trading regime in which nations cannot place arbitrary restrictions on trade.

The WTO agreements cover trade in goods as well as services to facilitate international trade (bilateral and
multilateral) through removal of tariff as well as non-tariff barriers and providing greater market access to all
member countries.)

Q10. What is WTO? Explain its role

India as a member of WTO

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As an important member of WTO, India has been in the forefront of framing fair global rules, regulations and
safeguards and advocating the interests of the developing world. India has kept its commitments towards
liberalisation of trade by removing quantitative restrictions on imports and reducing tariff rates.

(Some scholars question the usefulness of India being a member of the WTO on the following grounds:

1. A major volume of international trade occurs among the developed nations only.

2. While developed countries me complaints over agricultural subsidies given in their countries developing
countries feel cheated as they are forced to open their markets for developed countries but are not allowed
access to the markets of developed countries because of high non-tariff barriers. For example, although all
quota restrictions on exports of textiles and clothing have been removed in India, USA has not removed their
quota restriction on import of textiles from India and China.)

Q11. Why do some scholars question the usefulness of India being a member of WTO?

PERFORMANCE OF THE INDIAN ECONOMY DURING ECONOMIC REFORMS

Growth of GDP and Major Sectors (in %)

Sector 1980–91 1992–2001 2002–07 2007–12 2012–13 2013–14 2014–15

Agriculture 3.6 3.3 2.3 3.2 1.5 4.2 –0.2

Industry 7.1 6.5 9.4 7.4 3.6 5 5.9

Services 6.7 8.2 7.8 10 8.1 7.8 10.3

Total 5.6 6.4 7.8 8.2 5.6 6.6 7.2

Effect on Growth and Employment

In economics, the growth of in economy is measured by the Gross Domestic Product (GDP). The growth of GDP
increased From 5.6 per cent during 1980-91 to 8.2 per cent during 2007-12.

Though the GDP growth rate has increased in the reform period, it has not generated sufficient employment
opportunities in the country.

Effect on Growth of Agriculture

During the reform period, the growth of agriculture has declined. The reasons are as follows:

1. Fall in public investment in agriculture sector

Public investment in agriculture sector especially in infrastructure, which includes irrigation, power, roads. etc.
has fallen in the reform period.

2. Removal of fertiliser subsidy

The removal of fertiliser subsidy has led to increase iii the cost of production, which has severely affected the
small and marginal farmers.

3. Increased international competition

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Agriculture sector has been experiencing a number of policy changes such as reduction in import duties on
agricultural products, removal of minimum support price and lifting of quantitative restrictions on agricultural
products. These have adversely Indian farmers as they now have to lace increased international competition.

4. Export-oriented policy strategies in agriculture

Because of export-oriented policy strategies in agriculture, there has been a shut from production for the
domestic market towards production for the export market focusing on cash traps in lieu of production of food
grains. This puts pressure on prices of food grains.

Effect on Industrial Growth

India is seen as a successful exporter of auto parts, engineering goods. IT software and textiles in the reform
period. However, industrial growth has also recorded a slowdown. The reason are as follows :

1. Decreasing demand of industrial products

Industrial sector growth has slowed down due to availability of cheaper import’, and lower investment

(a) Availability of cheaper imports: Gloabalisation has created conditions for the free movement of goods and
services from foreign countries Cheaper imports have replaced the demand for domestic goods. Domestic
manufacturers are facing competition from imports. Thus, globalisation adversely affected the local induct ties
and employment opportunities in developing countries including India.

(b) Lower investment: The infrastructure facilities, including power supply have remained inadequate due to
lack of investment.

2. Non-access to developed countries markets

A developing country like India still does not have the access to developed countries markets because of high
non—tariff barriers. For example, although all quota restrictions on exports oh textiles and clothing have been
removed in India. USA has not removed their quota restriction on import of textiles from India and China.

Effect on Growth in the Service Sector

While the industrial sector reported fluctuation the growth of the service sector has gone up. This indicates
that this growth is mainly driven by growth in the service sector. In 2014—15, service sector witnessed the
highest ever growth rate of 10.3 per cent.

Effect on Foreign Investment and Foreign Exchange Reserves.

The foreign investment, which includes foreign direct investment (FDI) and foreign institutional investment
(FII), has increased front about US $100 million in 1990-91 to US S 73.5 billion in 2014-15. There has been in
increase in the foreign exchange reserves from about US S 6 billion in 1990–91 to about US $321 billion in
2014-15. India is one of the largest foreign exchange resent holders in the world.

Disinvestment

Every year, the government fixes a target for disinvestment of PSUs. For instance, in 1991–92, it was targeted
to mobilize Rs.2500 crore through disinvestment. The government was able to mobilize Rs.3040 crore more
than the target. In 2014-15, the target was about Rs.56000 crore, whereas the achievement was about
Rs.34500 crore.

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AN APPRAISAL OF LPG POLICIES (ECONOMIC REFORMS)

Arguments in favour of Economic Reforms

1. (Increase in rate of economic growth: The growth in GDP was 5.6% during 1980-91. During 2018-19,
growth in GDP is estimated at 7.2% as compared to growth rate of 6.7% in 2017-18

© During the reform period, the growth of agriculture has declined and industrial sector reported
fluctuation, whereas, growth of service sector has gone up. This indicates that the growth is mainly
driven by the growth in the service sector.

© During 2012-15, there has been a setback in the growth rates of different sectors. Agriculture
recorded a high growth rate during 2013-14, but witnessed negative growth rate in the subsequent
year. Service sector witnessed the highest ever growth rate of 10.3% in 2014-15. The industrial sector
witnessed a steep decline during 2012-13, but began to show a positive growth thereafter.

2. Inflow of foreign investment: The opening up of the economy has led to the rapid increase in foreign
direct investment (FDI). The FDI and FII increased from about 100 million US dollars in 1990-91 to 73.5
billion US dollars in 2014-15

3. Rise in foreign exchange reserves: There has been an increase in the foreign exchange reserves from
about 6 billion US dollars in 1990-91 to about 321 billion US dollars in 2014-15.

4. Rise in exports: During the reform period, India experienced considerable increase in exports of auto
parts, engineering goods, IT software and textiles.

5. Control on Inflation: Increase in production, tax reforms and other reforms helped in controlling the
inflation. The annual rate of inflation reduced from the peak level of 17% in 1991 to around 5.48% in
2015-16

6. Increase in role of Private sector: Abolition of licensing system and removal of restrictions on entry of
the private sector, in areas earlier reserved for the public sector, have enlarged the area of operation
of the private sector.)

Q12. The process of globalisation through liberalization and privatization policies has produced
positive, as well as negative results both for India and other countries. State the positive results of
economic reforms in India.

Criticism of Economic Reforms

1. Growing Unemployment: Though the GDP growth has increased in the reform period, but such
growth failed to generate sufficient employment opportunities in the country.

2. (Neglect of agriculture: The new economic policy has neglected the agricultural sector as compared
to industry, trade and service sector.

a. Reduction of Public investment: Public investment in agriculture sector, especially in infrastructure,

which includes irrigation, power, roads, market linkages and research and extension has been
reduced in the reform period.

b. Removal of subsidy: Removal of fertilizer subsidy increased the cost of production which adversely
affected the small and marginal farmers.

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c. Increased International competition: This sector has been experiencing a number of policy changes
such as: (a) Reduction in import duties on agricultural products (b) Removal of minimum support
price (c) Lifting of quantitative restrictions on agricultural products. All these policies adversely
affected the Indian farmers they now have to face increased international competition.

d. Production for the export market: Due to Export-oriented policy strategies in agriculture, the
production shifted from food grains such as wheat and rice to cash crops for the export market. It led
to rise in the price of food grains.)

Q13. Economic reforms were widely criticized because it neglected agricultural sector. Do you agree?
Or Agriculture sector appears to be adversely affected by the reform process. Why? (NCERT)

3. Low level of industrial growth: (Industrial growth was also slow due to the following reasons

a. Cheaper imported goods: Due to globalization, there was a greater flow of goods and capital from
developed countries and as a result, domestic industries were exposed to imported goods. Cheaper
imports replaced the demand for domestic goods and domestic manufacturers started facing
competition from imports. For example, cheap Chinese goods pose a big threat to Indian
manufacturers.

b. Lack of infrastructure: The infrastructure facilities, including power supply and transportation
facilities have remained inadequate due to lack of investment.

c. Non-tariff Barriers by Developed countries: All quota restrictions on exports of textile and clothing
have been removed from India. But some developed countries like USA have not removed their quota
restrictions on import of textiles from India.)

Q14. Why has the industrial sector performed poorly in the reform period? (NCERT)

4. Ineffective disinvestment policy: The government has always fixed a target of disinvestment of public
sector enterprises. For example, in 2014-15, the target was 56000 crore rupees, whereas the
achievement was about 34500 crore rupees. Critics point out that the assets of PSUs have been
undervalued and sold to the private sector due to which there has been a substantial loss to the
government.

Moreover, the proceeds from disinvestment were used to offset the shortage of government
revenues rather than using it for the development of PSUs and building social infrastructure in the
country.

5. Ineffective Tax Policy: The tax reduction in the reform period was done to generate larger revenue
and to curb tax evasion. But, it did not result in increase in tax revenue for the government.

© Tariff reduction decreased the scope for raising revenue through custom duties.

© Tax incentives provided to foreign investors to attract foreign investment further reduced the
scope for raising tax revenues.

6. Unbalanced Growth: Growth has been concentrated only in some select areas in the service sector
such as telecommunication, information technology, finance, entertainment, travel and hospitality
services, real estate and trade, rather than vital sectors, such as agriculture and industry, which
provide livelihood to millions of people in the country.

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Questions to do (1 mark)

Q1. Name the two international organisations whom India approached for loan to manage the crisis.

Ans. (1) International Bank for reconstruction and Development (IBRD), popularly known as world bank and
(2) the International monetary fund( IMF)

Q2. Why were reforms introduced in India?

Ans. The economy was facing problems of declining foreign exchange reserves, growing imports without
matching rise in exports and high inflation. Thus, economic reforms were introduced in 1991 due to financial
crisis and pressure from international organisations like IMF and World Bank.

Q3. What was the thrust of the new economic policy?

Ans. The thrust was to create a more competitive environment in the economy and removing the barriers to
entry and growth of firms.

Q4. Name the areas in which a few liberalization measures were introduced in 1980s.

Ans. Export-import policy, technology upgradation, fiscal policy and foreign investment

Q5. Name the three industries which were reserved for the public sector even after liberalization.

Ans. Defense equipment, atomic energy generation and railway transport.

Q6. Industrial licensing was abolished for almost all products except a few categories. Enumerate them.

Ans. Industrial licensing was abolished for almost all products except alcohol, cigarettes, hazardous chemicals,
industrial explosives, electronics, aerospace and drugs and pharmaceuticals.

Q7. Why did RBI have to change its role from controller to facilitator of financial sector in India? (NCERT)

Ans. The RBI had to change its role from controller to facilitator of financial sector in India to allow banks to
take independent decisions on many matters without consulting and to allow the establishment of private
sector banks- both Indian as well as foreign banks

Q8. How is RBI controlling the commercial banks? (NCERT)

Ans. The RBI decides the Cash Reserve Ratio, Statutory Liquidity Ratio, Bank Rate etc.

Q9. What is fiscal policy?

Ans. The government’s taxation and public expenditure policies are collectively known as fiscal policy.

Q10. State the two type of taxes.

Ans. Direct taxes: Taxes on income of individuals and profits of enterprises

Indirect taxes: Taxes levied on commodities

Q11. Why did the parliament pass a law, Goods and services Tax act 2016?

Ans. To simplify and introduce a unified indirect tax system in India. This is expected to generate additional
revenue for the government, reduce tax evasion and create one nation one tax and one market.

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Q12. What do you understand by devaluation of rupee? (NCERT)

Ans. It means deliberate increase in foreign exchange rate by the government under fixed exchange rate
system, making the domestic currency cheaper.

Q13. Why was the liberalization of trade and investment regime initiated?

Ans. It was initiated to increase international competitiveness of industrial production and also foreign
investments and technology into the economy. The aim was also to promote the efficiency of local industries
and adoption of modern technologies.

Q14. Why are tariffs imposed? (NCERT)

Ans. Tariffs are imposed to restrict the imports by a country for providing protection to its domestic industries
from competition from foreign firms

Q15. What is the meaning of quantitative restrictions? (NCERT)

Ans. Quantitative restrictions are the limits imposed on the quantity of goods that are imported to restrict
imports and thus protect domestic industries from competition from cheaper and technologically advanced
goods manufactured by other nations.

Q16. What is disinvestment? What is the purpose of disinvestment?

Ans. Privatisation of the public sector enterprises by selling off part off part of the equity of public sector
enterprises to the public is known as disinvestment. The purpose of disinvestment was mainly to improve
financial discipline and facilitate modernization.

Q17. As a form of economic activity, outsourcing has intensified in recent times. State why.

Ans: As a form of economic activity, outsourcing has intensified, in recent times, because of the growth of fast
modes of communication, particularly the growth of Information Technology (IT)

Q18. List the activities which are outsourced by companies in developed countries to India.

Ans: Voice-based business processes (popularly known as BPO or call centers), record keeping, accountancy,
banking services, music recording, film editing, etc.

Q19. When and why was GATT established?

Ans. GATT was established in 1948 with 23 countries as the global trade organization to administer all
multilateral trade agreements by providing equal opportunities to all countries in the international market for
trading purposes.

Q20. How is the growth of an economy measured in economics?

Ans. In economics the growth of an economy is measured by Gross Domestic Product (GDP)

Q21. Name the two forms of foreign investment.

Ans. Foreign Direct investment (FDI) and foreign institutional investment (FII)

Q22. India is seen as a successful exporter of -------- in the reform period?

Ans. Auto parts, engineering goods, IT software and textiles.

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Q23. Why has the reform process been widely criticized by some economists?

Ans. The reform process has been widely criticized for not being able to address some of the basic problems
facing our economy especially in areas of employment, agriculture, industry, infrastructure development and
fiscal management.

Q24. Why has the industrial sector growth slowed down during reforms?

Ans. Industrial sector growth has slowed down due to availability of cheaper imports and lower investment

Q25. The growth rate of GDP increased from 5.6 percent during 1980-91 to 8.2 percent during 2007-12. This
growth is mainly driven by growth in which sector?

Ans. The growth of GDP is mainly driven by growth in the service sector.

Q26. How many countries are members of the WTO?

Ans. 164 countries are members of WTO

Q27. What is the most important function of RBI?

Ans. The most important function of RBI is to issue the currency and to undertake credit control measures in
the country.

Q28. When was the “New Economic Policy” announced?

Ans. July 1991

Q29. Out of loss making and profit-making PSUs, which should be privatized?

Ans. Loss making PSUs should be privatized and profit of profit-making PSUs should be used to modernize
them.

Q30. Why outsourcing is good for India?

Ans. Outsourcing is good for India as it provides employment to large number of unemployed people

Q31. Name any one industry, for which license is needed.

Ans. Industrial Explosives

Q32. Mention the advantages, which make India a favourite outsourcing destination.

Ans. Because in India work can be performed at a cheaper cost with reasonable degree of skill and accuracy

Q33. What are stablisation measures under the new economic policy?

Ans. Stablisation measures refers to short-term measures which aim at correcting weaknesses of the balance
of payments by maintaining sufficient foreign exchange reserves and controlling inflation by keeping the rising
prices under control.

Q34. What do you mean by “Structural Measures” under the new economic policy?

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Ans. Structural measures refer to long term measures which aim at improving the efficiency of the economy
and increasing international competitiveness by removing the rigidities in various segments of the Indian
economy.

Q35. Distinguish between Bilateral and Multi-lateral trade

Ans. The trade between more than two countries is known as multi-lateral trade, whereas, bilateral trade is
the trade between two countries.

Q36. Distinguish between Tariff and Non-tariff barrier

Ans. The barriers which are imposed on imports to make them relatively costly and to protect the domestic
production are known as tariff barriers. On the other hand, non-tariff barriers imposed on the amount of
imports and exports.

Q37. Out of Liberalisation, Privatisation and Globalisation, which term matches the best from the following
statements.

1. It involves deregulation and reduction of government controls and greater autonomy of private
investment

2. It means integration of economy of the country with the world economy

3. It implies greater role of private sector in the economic activities of the country

4. It aims to remove entry and growth restrictions on the private sector

5. It involves selling off part of the equity of public sector undertakings to the public

6. It aims to create a borderless world

Ans. 1.Liberlisation 2.Globalisation 3. Privatisation 4.Liberalisation 5. Privatisation 6. Globelisation

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QUESTIONS TO DO (LONG ANSWER)

Q1. Those public sector undertakings which are making profits should be privatized. Do you agree? (NCERT)

Ans. No, I do not agree with this view. Profit making Public Sector undertakings (PSUs) are the revenue
generators and government needs their profits to make them more competitive and efficient. However, if a
PSU is an inefficient and loss making unit than it may be privatized, provided such PSU is not meant to serve
welfare of general public. Privatisation of such important PSUs will lead to loss of welfare of people. Hence
only less important PSUs should be privatized and core PSUs should continue to be owned by the public sector.

Q2. Do you think the navratna policy of the government helps in improving the performance of public sector
undertakings in India? How? (NCERT)

Ans. Yes, the “Navaratna Policy” of the government has helped in improving the performance of public sector
undertakings in India. In order to infuse professionalism and enable public sector undertakings(PSUs) to
compete more effectively in the liberalized global environment, government chose nine PSUs (BHEL, BPCL,
SAIL, etc.) and declared them as ‘Navaratnas’.

© These PSUs were given greater managerial and operational autonomy in taking various decisions, to run
the company efficiently and to increase their profits

© The granting of Navratana status resulted in better performance of these companies.

© Encouraged by their better performance, government decided to retain the navaratnas in the public sector
and enable them to expand themselves in the global markets and raise resources by themselves from financial
markets.

So, it can be concluded that the navaratna policy of the government helped in improving the performance of
public sector undertakings in India.

Q3. Why it is necessary to become a member of WTO? (NCERT)

Ans. It is necessary to become a member of WTO because of the following reasons:

a. It provides equal opportunities to all countries in the international market for trading purposes.

b. It ensures optimum utilization of world resources.

c. The WTO agreements cover trade in goods as well services to facilitate international trade (bilateral
and multilateral) through removal of tariff as well as non-tariff barriers.

Q4. Do you think Outsourcing is good for India? Why are developed countries opposing it? (NCERT)

Ans. Yes, Outsourcing is good for India due to following reasons:

a. Employment: It provides employment to a large number of people in India

b. Exchange of technical know-how: Outsourcing enables the exchange of ideas and technical know-
how of sophisticated and advanced technology

c. Increased foreign investment: Successful execution of processes outsourced to India has increased
India’s international credibility and hence the inflow of foreign capital to India.

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d. Better standard of living: By creating more and higher paying jobs outsourcing improves the standard
and quality of living of the people

However, developed countries oppose outsourcing because

1. It leads to outflow of funds from the developed countries to India, which reduces income disparities
between the two countries

2. It reduces the employment generation and creates job insecurity bin the developed countries.

Q5. India has certain advantages which makes it a favorite outsourcing destination. What are these
advantages? (NCERT)

Ans. India has become a favorable destination of outsourcing for most of the MNCs because of following
reasons:

1. Easy Availability of Cheap Labor: The wage rates in India are comparatively lower than that of in the
developed countries. As a result, MNCs outsource their business in India.

2. Availability of skilled manpower: India has vast skilled manpower, which enhances the faith of MNCs.

3. Favorable government Policies: MNCs gets various types of lucrative offers from the Indian
government like tax holidays, low tax rates, etc.

4. International worthiness: India has a fair international worthiness and credibility.

Q6. What are the major factors responsible for the high growth of the service sector? (NCERT)

Ans. The service sector has shown a high growth rate due to following reasons:

1. Economic reforms: Liberalisation and various economic reforms initiated in 1991 reduced the various
restrictions on the movement of international finance. This led to huge inflow of foreign capital,
foreign direct investment and outsourcing to India. It led to the growth of service sector.

2. Rise in income: With rise in income people demand services such as travel and hospitality,
information technology etc. which can make their lives more comfortable.

3. Cheap and skilled manpower: Due to the availability of cheap and skilled manpower, India has
become favorite destination for outsourcing by the developed economies, which has led to the
growth service sector.

4. Better technology and growth of IT: The advancements and innovations in the IT sector contributed
to the growth of the service sector in India.

5. Globilisation: It has increased the demand for courier, shipping, travel and information services.

6. Better performance of some service sectors: There was rapid growth in select areas of the service
sector such as telecommunication, information technology. Finance, entertainment, travel and
hospitality services, real estate, medical tourism etc. These also contributed to the high growth of the
service sector.

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Q7. Why was there a need for privatization?

Ans. Need for privatisation was felt mainly because of poor performance of PSUs. Note the following
observations in this regard:

(i) The process of industrialisation was initiated during Second Five Year Plan assigning a key
role to PSUs.

(ii) The Industrial Policy Resolution (1956) clearly and categorically stated the significance of
PSUs in the process of growth and development.

(iii) It is beyond doubt that it was through the spread of PSUs that India could diversify its
industrial base between the period 1951-1991.

(iv) It was on account of the spread of PSUs that the Indian economy underwent a structural
transformation.: people started shifting from agriculture to industry as their source of
livelihood, and there was a gradual increase in the percentage contribution of industry to
GDP. PSUs gave us Navratnas (nine jewels of the Indian industry, besides a host of mini
ratnas).

(v) Gradually, most public sector enterprises turned into as social dead-weight (or a social
liability). Mounting losses of PSUs became unsustainable.

(vi) Leakage, pilferage, inefficiency and corruption had become so. rampant in PSUs that their
privatisation was considered as the only remedy.

(vii) Accordingly in 1991, the government decided to phase out public enterprises by selling its
equity to the private entrepreneurs. Privatisation was to replace public ownership of a large
number of enterprises.

(viii) However, in view of their efficient performance Navratnas were to be retained as public
sector enterprises. Indeed, the government decided to upgrade their functional freedom with
a view to enhancing their competitive strength.

Q8. What is meant by demonetisation? What is its impact on the money supply of the country?

Ans. Demonetisation w.r.t India, refers to the two largest denomination notes of Rs 500 and Rs 1,000 (
demonetised with immediate effect on 8 November 2016), ceasing to be legal tender except
for a few specific purpose.

The impact of demonetisation on the money supply of the country would be that it will
lead to money supply contraction in the form of cash. There had been restrictions placed on
cash withdrawls. There is a presumption that the higher the amount of cash in circulation, the
greater the amount of black money.

In this sense, to reduce the cash in an economy could have important long-term benefits in
terms of black money and corruption.

Q9. In your opinion why did the government resort to the measure of “demonetisation”?

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Ans. The government resorted to the measure of demonetisation to curb:

( a) Corruption

( b) Counterfeiting

( c) Terrorism

( d) The accumulation of black money generated by income not declared to the tax authorities.

Q10. What do you understand by GST? How good is a system of GST as compared to the old tax
system? State its categories.

Ans. GST is the “ single comprehensive indirect tax ” on supply of goods and services right from
manufacturer or service provider to the consumer. The system of GST as compared to the old
tax system.

• has simplified the multiplicity of taxes on goods and services.

• the laws, procedures and rates of taxes across the country are also now standardised.

• It has also facilitated the freedom of movement of goods and services.

• It has created a common market in the country.

The two categories of GST are CGST and SGST

Q11. How will Goods and Services Tax (GST) be a comprehensive indirect tax?

Ans. GST will be a comprehensive indirect tax on the manufacture, sale and consumption of goods
and services throughout India, to replace taxes levied at the central and state level. For
example, a car’s price varied among states because of different rates of taxes like value-added
tax, octroi and road tax. But, GST has removed all these and made India a single tax market.

Q12. How is Siricilla Tragedy linked to Power sector reforms?

Ans. Power sector reforms in many states of India brought about a steep rise in the power tariff,
because of the removal of the supply of electricity at the subsidised rates. This badly affected
the workers employed in small industries. Citing an example of power-loom textile industry
in Andhra Pradesh. As the wages in this industry were linked to the production of cloth,
power cut would definitely reduce the wages of the weavers. The outcome was that the
workers were hit hard twice ( tariff hike and the fall in wages). All this led to an acute crisis in
the livelihood of weavers, who now felt so dejected that 50 power loom weavers committed
suicide in town of Siricilla in Andhra Pradesh.

Q13. The single tax implemented from 1st July 2017 was likely to reduce prices of which kind of
products? Give example of any three items which are exempted from GST and why?

Ans. Goods and Services Tax (GST) which was implemented from 1st July 2017 is likely to reduce the
prices of essential goods like food items, fresh vegetables etc. The three items excluded from
GST are common salt, health services and educational services as these items are essential
items which are consumed by masses, so keeping the social welfare motive in mind, the
government has exempted them from GST.

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EXERCISE-1

Multiple Choice Questions: Choose the Correct Answer

1. Which of the following statements is incorrect?

(a) Industry is the epicentre of growth

(b) Industry is an important source of employment

(c) Industry imparts dynamism to the process of growth

(d) Income elasticity of demand is higher in case of agricultural goods than the industrial
goods

2. Public sector enterprises are driven largely by considerations of:

(a) profit (b) social welfare

(c) either (a) or (b) (d) none of these

3. Which of the following was an obstacle in the development of industries after independence?

(a) Lack of economic infrastructure (b) Lack of inducement to invest

(c) Lack of capital (d) All of these

4. Industrial Policy Resolution 1956 laid emphasis on the role of:

(a) public sector (b) private sector

(c) joint sector (d) none of these

5. Which of the following is a typical characteristic of small scale industry?

(a) SSI is labour-intensive (b) SSI shows locational flexibility

(c) SSI is capital-intensive (d) both (a) and (b)

6. Strategy of growth between the period 1951-90 focused on:

(a) import substitution (b) export promotion

(c) leading role of public sector enterprises

(d) both (a) and (c)

7. Investment limit for small scale industries is:

(a) Rs.1crore (b) Rs.2 crore

(c) Rs.3 crore (d) Rs.5 crore

8. The strategy of growth between 1951-90 gradually lost its significance owing to:

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(a) inefficiency of public sector enterprises

(b) inefficiency of private sector enterprises

(c) inefficiency of the government administrative departments

(d) all of these

ANSWERS

1. (d) 2. (b) 3. (d) 4. (a) 5. (d) 6. (d) 7. (d) 8. (a)

Read the following statements carefully. Write True or False with a reason.

1. Industrialisation leads to structural shift in the economy.

Ans. It is true that industrialisation leads to structural shift in the economy. The epic-entre of
growth shifts from agriculture to industry. This is because the spread of growth requires the
spread of demand. The demand potential is higher in case of industry (than agriculture).
Because industrial goods show higher income elasticity of demand than the agricultural
goods.

2. Growth of industry absorbs the surplus labour force of agriculture.

Ans. True. Because when productivity rises in agriculture (owing to better technology) labour
becomes surplus. Simultaneously when the industry is expanding the surplus labour (in
agriculture) migrates to the urban areas for the industrial jobs.

3. SSI promotes balanced regional growth.

Ans. True. Because 881 shows locational flexibility.

4. The policy of import substitution focuses on saving foreign exchange.

Ans. True. Because this policy requires that we domestically produce such goods which we are
importing from rest of the world.

5. SSI promotes equity

Ans. True. Because (i) SSIs are labour-intensive so that the growth process becomes inclusive and
(ii) SSIs need small investment so that the concentration of wealth is minimised.

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EXERCISE-2

Multiple Choice Questions: Choose the Correct Answer

1. Which of the following items was not exported prior to independence?

(a) Cotton textiles (b) Tea

(c) Jute (d) Engineering goods

2. Which of the following is India’s highest exporting category?

(a) Gems & Jewellery (b) Agricultural products

(c) Readymade garments (d) Coffee

3. Which of the following countries is the largest trading partner of India?

(a) US (b) UK

(c) UAE (d) China

4. India’s share in world export is:

(a) less than 1% (b) 1%

(c) 2% (d) greater than 2%

5. lndia’s share in world import is:

(a) less than l% (b) 1%

(c) 1.5% (d) greater than 2%

6. Types of goods and services we export and import is called:

(a) composition of trade (b) direction of trade

(c) balance of trade (d) none of these

7. The countries to which a country exports its goods and services and the countries from which
it imports is called:

(a) composition of trade (b) direction of trade

(c) balance of trade (d) none of these

8. A strategy to earn foreign exchange by Promoting domestic exports and making domestic
industry competitive in the international market is called:

(a) inward looking strategy (b) outward looking strategy

(c) import substitution strategy (d) none of these

9. A strategy to save foreign exchange by encouraging domestic production of such goods

which the country has been importing from rest of the world is called:

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(a) inward looking strategy (b) outward looking strategy

(c) export promotion strategy (d) none of these

ANSWERS

1. (d) 2.(a) 3.(c) 4. (c) 5. (d) 6. (a) 7. (b) 8. (b)

9. (a)

Read the following statements carefully. Write True or False with a reason.

1. International trade is based on the principle of comparative cost advantage.

Ans. True. Because a country specialises in the production of that commodity for which its cost of
production is less than that in most other countries of the world:

2. International trade yields gain only to the exporting trading partner

Ans. False. International trade yields gain both to the exporting as well as importing trading
partners. While exporters get market for their surplus output importers are able to get goods
cheaper than their cost of production in the domestic economy.

3. After independence, percentage rise in our exports has been significant, even when the
volume of exports continues to be low.

Ans. True. Percentage rise in exports has been significant because of the ‘Base Effect’. The volume
of exports during the base year (the year of comparison) has been extremely low.
Accordingly, even a small rise in the volume would mean a high percentage rise.

4. Inward looking strategy of growth led to monopolistic exploitation of the market.

Ans. True. Because, inward looking strategy offered protection to the domestic industry from
foreign competition. In the absence of competition, domestic industry started monopolistic
exploitation of the market.

5. Export promotion saves foreign exchange.

Ans. False. Export promotion earns foreign exchange through expansion of exports.

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CHAPTER 4

POVERTY

Poverty refers to a state in which an individual is unable to fulfill even the basic necessities of life. There are
two measures to determine the extent of poverty:

1. Relative poverty: It refers to poverty of people in comparison to other people, regions or nations. It
only reflects the relative position of different segments of the population in the income hierarchy. It does not
consider how poor the person is with respect to basic minimum requirements of life.

2. Absolute poverty: It refers to the number of people living below poverty line. In India poverty line is
used to measure absolute poverty. Absolute poverty refers to a situation when a person fails to reach a
minimum consumption level fixed by the poverty line.

Q1. Define poverty. Explain its measures

Who are Poor?

In all localities and neighbourhood, both in rural and urban areas, there are some people who are poor and
some who arc rich. Push–cart vendors, street cobblers, women who string flowers, rag pickers, vendors and
beggars are some examples of poor and vulnerable groups in urban areas.

The poor people possess few assets and reside in kutcha hutments with walls made of baked mud and roof
made of grass, thatch, bamboo and wood. The poorest of them do not even have such dwellings. In rural areas
many of them are landless. Even if some of them possess land, it is only dry or waste land.

(Many do not get to have even two meals a day. Starvation and hunger are the key features of the poorest
households. The poor lack basic literacy and skills and hence have very limited economic opportunities.

Poor people also Face unstable employment. Malnutrition is alarmingly high among the poor. Ill health,
disability or serious illness makes them physically weak. They borrow from moneylenders, who charge high
rates of interest that lead them into chronic indebtedness. The poor are highly vulnerable. They are not able to
negotiate their legal wages from employers and are exploited. Most poor households have no access to
electricity. Their primary cooking fuel is firewood and cow dung cake. A large section of poor people do not
even have access to safe drinking water. There is evidence of extreme gender inequality in the participation of
gainful employment, education and in decision–making within the Family. Poor women receive less care on
their way to motherhood. Their children are less likely to survive or be born healthy.) Economists identify the
poor on the basis of their occupation and ownership of assets.

Q2. Give some features of poverty

Rural poor

The rural poor are:

landless agricultural labourers

cultivators with very small landholdings

landless labourers who are engaged in a variety of non–agricultural jobs and

tenant cultivators with small land holdings.

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Urban poor

The urban poor are largely the overflow of the rural poor who had migrated to urban areas in search of
alternative employment and livelihood, labourers who do a variety of casual jobs and the self–employed who
sell a variety of things on roadsides and are engaged in various activities.

Q3. Differentiate between rural and urban poverty (NCERT)

How are Poor People Identified?

If India is to solve the problem of poverty, it has to find viable and sustainable strategies to address the causes
of poverty and design schemes to help the poor out of their situation. However, for these schemes to be
implemented, the government needs to be able to identify who the poor are. For this there is need to develop
a scale to measure poverty, and the factors that make up the criteria for this measurement need to be
carefully chosen. For the purpose of defining poverty, we divide people into two categories—the poor and
the non–poor. The poverty line separates the two. However, there are many kinds of poor— the absolutely
poor, the very poor and the poor. Similarly, there are various kinds of non–poor the middle class, the upper
middle class, the rich, the very rich and the absolutely rich. A line or continuum from the very poor to the
absolutely rich with the poverty line dividing the poor from the non–poor is shown below.

Categorising Poverty

The Chronic Poor The Transient Poor Non Poor

People who are: The transient poor are categorised as: Those people who are
never poor arc the
(i) always poor and (i) The churning poor who regularly move non
in and out of poverty (example, small
(ii) usually poor but who may farmers and seasonal workers) and poor.
sometimes have a little more money
(example: casual workers) are grouped (ii) The occasionally poor who are rich
together as the chronic poor. most of the time but may sometimes have
a patch of bad luck.

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Q4. Explain the different categories of poverty (ANS: table of comparison among three types above)

How to determine the Poverty Line?

(Poverty line is a cut-off point on the line of distribution, which usually divides the population of the country
as poor and non-poor. In India “Monthly per capita expenditure or MPCE” method is used to determine the
poverty line.

¨Minimum calorie intake: One way is to determine it by the monetary value (monthly per capita
expenditure) of the minimum calorie intake that was estimated at 2400 calories for a rural person and 2,100
for a person in the urban area.

¨ Monetary value of minimum calorie intake: Based on this, in 2011–12, the poverty line was defined for
rural areas as consumption worth Rs.8l6 per person a month and for urban areas it Rs.l,000. The government
uses Monthly Per Capita Expenditure (MPCE) as proxy for income of households to identify the poor. )

Q5. Define poverty line. How is it determined?

(Limitations of using Monthly Per Capita Expenditure (MPCE) as proxy for income. Though the government
uses Monthly Per Capita Expenditure (MPCE) as proxy for income of households to identify the poor this
mechanism does not satisfactorily identify the poor households in our country. The reasons are as follows:

1. This mechanism groups all the poor together and does not differentiate between the very poor and the
other poor.

2. Also this mechanism takes into account expenditure on food and a few select items only as proxy for
income. There are many factors, other than income and assets, which are associated with poverty; for
instance, the accessibility to basic education, health care, drinking water and sanitation. They need to be
considered to develop Poverty Line.

3. This mechanism is helpful in identifying the poor as a group to be taken care of by the government, but it
would be difficult to identify who among the poor need help the most.

4. This mechanism for determining the Poverty Line also does not take into consideration social factors that
trigger and perpetuate poverty such as illiteracy, ill health, lack of access to resources, discrimination or lack
of civil and political freedoms. The aim of poverty alleviation schemes should be to improve human lives by
removing the obstacles to the things that a person and do in life such as illiteracy, ill health, lack of access to
resources, or lack of civil and political freedoms.)

Q6. The government uses Monthly Per Capita Expenditure (MPCE) as proxy for income of households to
identify the poor. Does this mechanism satisfactorily identify the poor households in our country? Explain
giving reasons. OR Why calorie-based norm is not an adequate to identify the poor? (NCERT)

Is there any decrease in the poverty levels?

Government claims a decline in poverty levels but economists raise doubt about the government claim
.Government claims a decline in poverty levels on the basis of:

Higher rate of growth

Increase in agricultural production

Providing employment in rural areas

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Economic reform packages introduced in the 1900s

(Economists raise doubts about the government’s claim on the basis of:

The way the data are collected

Items that are included in the consumption basket

Methodology Followed to estimate the poverty line

The number of poor are manipulated to arrive at the reduced figures of the number of poor in India.

Alternative methods to estimate poverty

Due to various limitations in the official estimation of poverty, scholars have attempted to find alternative
methods. For instance, Amarya Sen, noted Nobel Laureate, has developed an index known as Sen Index. There
are other tools such as Poverty Gap Index and Squared Poverty Gap.)

Q7. Though the government claims that higher rate of growth, increase in agricultural production, providing
employment in rural areas and economic reform packages introduced in the 1990s have resulted in a decline
in poverty levels, economists raise doubts about the government claim. Why? What alternative methods
have been attempted by them

The Number of Poor in India

When the number of poor is estimated as the proportion of people below the poverty line, it is known as
‘Head Count Ratio’. The official data on poverty is made available to the public by the Planning Commission. It
estimated on the basis of consumption expenditure data collected by the National Sample Survey Organisation
(NSSO). The Chart given below shows the number of poor and their proportion to the population in India for
the years 1973–2012.

In 1973–74, more than 320 million people were below the poverty line, In 201 1–12, this number has come
down to about 270 million, In terms of proportion, in 1973–74, about 55 per cent of the total population was
below the poverty line. In 20fl–12, it has fallen to 22 per cent. In 1973–74, more than 80 per cent of the poor
resided in rural areas and this situation has not changed even in 2011–12. This means that more than three–
fourth of the poor in India still reside in villages. In the 1990s, the absolute number of poor in rural areas had
declined whereas the absolute number of poor in urban areas increased marginally.

The poverty ratio declined continuously for both urban and rural areas.

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The gap between the absolute number of poor in rural and urban areas got reduced.

The state level trends in poverty are shown in the Chart given below

The two lines in the chart indicate the national poverty level. The first line from below indicates Poverty level
during 2011–12 and the other line indicates the same for the year 1973–74. This means, the proportion of
poor in India during 1973–2012 has come down from 55 to 22 per cent. The six states — Tamil Nadu, Uttar
Pradesh, Bihar, Madhya Pradesh, West Bengal and Orissa – contained a large section of poor in 1973–74.
During 1973–2012, many Indian states reduced the poverty levels to a considerable extent. Yet, the poverty
levels in four states – Odisha, Madhya Pradesh, Bihar and Uttar Pradesh are still far above the national poverty
level. West Bengal and Tamil Nadu reduced poverty level much better than other states.

WHAT CAUSES POVERTY

Poverty can be caused as a result of (i) social, economic and political inequality (ii) social exclusion (iii)
unemployment (iv) indebtedness (v) unequal distribution of wealth.

Aggregate poverty is just the sum of individual poverty. Poverty is also explained by general. economy wides
problems. such as (i) low capital formation (ii) lack of infrastructure (iii) lack of demand (iv) pressure of
population (v) lack of social/welfare nets.

Causes of Poverty in India

1. Economic exploitation under the British Rule

The British Raj impoverished (To reduce to poverty) millions of people in India. Our natural resources were
plundered our industries worked to produce goods at low prices for the British and our food grains were
exported. Many died due to famine and hunger. Under the British Rule, India began to export food grains and,
as a result, as many as 26 million people died in famines between 1875 and 1900. Britain main goals from the
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Raj were to provide market for British exports, to have India service its debt payments to Britain and for India
to provided manpower for the British imperial armies.

2. Fragmentation of land holdings

A large section of the rural poor in India are the small farmers. The land that they have is, in general, less fertile
and dependent on rains. Their survival depends on subsistence crops and sometimes on livestock. With the
rapid growth of population and without alternative sources of employment, the per–head availability of land
for cultivation has steadily declined leading to fragmentation of land holdings. The income from these small
land holdings is not sufficient to meet the family’s basic requirement.

3. Unemployment

A large section of urban poor in India are largely the overflow oldie rural poor who migrate to urban areas in
search of employment and a livelihood. Indusirialization has not been able to absorb all these people. The
urban poor are either unemployed or intermittently employed as casual labourers. Casual labourers are among
the most vulnerable in society as they have no job security, no assets, limited skills, sparse opportunities and
no surplus to sustain them. Poverty is, therefore, closely related to nature of employment.

4. Indebtedness

Unemployment or under employment and the casual and intermittent nature of work in both rural and urban
areas compels indebtedness, which in turn, reinforces poverty Indebtedness is one of the significant factors of
poverty

5. Inflation

A steep rise in the price of food grains and other essential goods, at a rate higher than the price of luxury
goods, further intensifies the hardship and deprivation of Lower income groups.

6. Unequal distribution of wealth

The unequal distribution of income and assets has also led to the persistence of poverty in India. All this has
created two distinct groups in society, those who have the means of production and earn good incomes and
those who have only their labour to trade for survival. Over the years, the gap between the rich and the poor
in India has widened.

7. Population explosion: Rapid growth of population, particularly among the poor, is responsible for
the problem of poverty in the country. It is obvious that when total national income is thinly spread over a
large number of people, the per capita income is bound to be low.

8. Low level of economic development: The Indian economy is underdeveloped due to relative
backwardness of agriculture and industrial sectors. Due to widespread bottlenecks in infrastructural facilities
and slow pace of development, nearly 25% of population is still living below the poverty line.)

Q8. Explain the causes of poverty in India

POLICIES AND PROGRAMMES TOWARDS POVERTY ALLEVIATION

The Indian Constitution and five-year plans state social justice as the primary objective of the developmental
strategies of the government. To quote the First Five Year Plan (1951–56). “the urge to bring economic and
social change under present conditions comes from the fact that there is poverty and inequalities in income,

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wealth and opportunity". The Second Five Year Plan (1956—61) also pointed out that "the benefits of
economic development must occur more and more to the relatively less privileged classes of society". One can
find, in all policy documents, emphasis being laid on poverty alleviation and that various strategies need to be
adopted by the government fur the same.

Three–dimensional Approach to Poverty Alleviation

1. Growth–Oriented Approach

The first approach to poverty reduction is growth–oriented approach. It is based on the expectation that the
effects of economic growth — rapid increase in gross domestic product and per capita income would spread
to all sections of society and will trickle down to the poor sections also. This was the major focus of planning
in the 1950s and early 1960s. It was felt that rapid industrial development and transformation of agriculture
through green revolution in select regions would benefit the underdeveloped regions and the more backward
sections of the community.

Critical Evaluation

¨ The overall growth and growth of agriculture and industry have not been impressive.

¨ Population growth has resulted in a very low growth in per capita incomes.

¨ The gap between poor and rich has actually widened.

¨ The Green Revolution increased the disparities regionally and between large and small farmers.

¨ Economists state that the benefits of economic growth have not trickled down to the poor.

Q9. Explain the growth-oriented approach to tackle poverty in India. Has it been a success?

2. Poverty alleviation programmes/Employment generation programmes

While looking for alternatives to specifically address the poor policy makers started thinking that incomes and
employment for the poor could be raised through the creation of income earning assets and by means of
work generation. One of the noted programmes initiated in the 1970s was ‘Food for Work’ programme.
Expanding self–employment programmes and wage employment programmes are being considered as the
major ways of addressing poverty. The main programmes were:

(i) Rural Employment Generation Programme (REGP): This programme aims at creating self-employment
opportunities in rural areas. The Khadi and Village Industries Commission is implementing it. Under this
programme one can get Financial assistance in the form of bank loans to set up small industries,

(ii) Prime Minister’s Rozgar Yojana (PMRY): The educated unemployed from low–income families in rural and
urban areas can get financial help to set up any kind of enterprise that generates employment under PMRY.

¨ PMRY attempted to generate employment by setting up 7 lakh micro-enterprises during Eighth plan (1992-
97)

¨ by 2003-04, 3 million people got employment under the scheme.

(iii) Swarna Jayanti Shahari Rozgar Yojana (SJSRY): SJSRY mainly aims at creating employment opportunities—
both self–employment and wage employment—in urban areas.

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¨ This programme seeks to provide gainful employment through encouraging the setting up of self-
employment ventures or provision of wage employment.

¨ It is a centrally sponsored scheme, which is funded on 75:25 basis, between the center and state.

(iv) Mahatma Gandhi National Rural Employment Guarantee Act: In August 2005, the Parliament passed a
new Act, known as Mahatma Gandhi National Rural Employment Guarantee Act to provide guaranteed wage
employment to every rural household whose adult volunteer is to do unskilled manual work for a minimum of
100 days in a year. Under this Act all those among the poor who are ready to work at the minimum wage can
report for work in areas where this programme is implemented. In 2013–14, nearly Five crore households got
employment opportunities under this law.

(v) Swarnjayanti Gram Swarozgar Yojana (SGSY): Earlier, under self–employment programmes financial
assistance was given to families or individuals. Since the 1990s, this approach has been changed. Now those
who wish to benefit from these programmes are encouraged to form self–help groups (SHGs). Initially they are
encouraged to save some money and lend among themselves as small loans. Later, through banks, the
government provides partial financial assistance to SHGs which then decide whom the loan is to be given to for
self–employment activities. Swarnajayanti Gram Swarozgar Yojana (SGSY) is one such programme. This has
now been restructured as National Rural Livelihoods (NRLM). A similar programme called National Urban
Livelihoods Mission has also been in place for urban poor.

(vi) Sampoorna Grameen Rozgar Yojna (SGRY): This scheme aims to provide additional and supplementary
wage employment by undertaking labor intensive work, thereby providing food security and increasing
nutritional levels.

¨ Wages were paid as a combination of food grains and cash

¨ The scheme of SGRY is open to all rural poor who need wage employment and desire to do manual and
unskilled work in and around their village or habitat.

(A Critical Assessment of poverty alleviation programmes

Despite various strategies and programmes to alleviate poverty, hunger, malnourishment, illiteracy and lack of
basic amenities continue to be a common feature in many parts of India. The major areas of concern which
prevent the successful implementation of poverty alleviation programmes

1. Unequal distribution of land and other assets: Due to unequal distribution of land and other assets, the
benefits from direct poverty alleviation programmes have been appropriated by the non–poor.

2. Insufficient resources: Compared to the magnitude of poverty, the amount of resources allocated for these
programmes is not sufficient.

3. Inefficient use and wastage of resourccs: These programmes depend mainly on government and bank
officials for their implementation. Since such officials are ill motivated, inadequately trained and corruption
prone, the resources are inefficiently used and wasted. There is also non–participation of local level
institutions in programme implementation.

4. Lack of infrastructure: There was a lack of infrastructural facilities, such as schools, roads, power, telecom,
IT services, training institutions, etc in the poverty stricken areas.

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5. Lack of Active participation of poor people: High growth rate alone is not enough to reduce poverty. In fact
there is a need for active participation of the poor for effective implementation of poverty alleviation
programmes.)

Q10. “Poverty Alleviation Programmes initiated by the government were highly acclaimed”. Defend or
refute. Ans. Refute

3. Providing minimum basic amenities through public expenditure

The third approach to addressing poverty is to provide minimum basic amenities to the people through public
expenditure on social consumption needs — provision of food grains at subsidised rates, education, health,
water supply and sanitation. Programmes under this approach are expected to supplement the consumption
of the poor and create employment opportunities and bring about improvements in health and education.

One can trace this approach from the Fifth Five Year Plan, “even with expanded employment opportunities the
poor will not be able to buy for themselves all the essential goods and services. They have to be supplemented
up to at least certain minimum standards by social consumption and investment in the form of essential food
grains education, health, nutrition, drinking water, housing, communications and electricity.” Three major
programmes that aim at improving the food and nutritional status of the poor arc Public Distribution
System, Integrated Child Development Scheme and Midday Meal Scheme.

Pradhan Mantri Gram Sadak Yojana, Pradhan Mantri Gramodaya Yojana, Valmiki Ambedkar Awas Yojana
are also attempts in developing infrastructure and housing conditions. The government also has a variety of
other social security programmes to help a few specific groups. National Social Assistance Programme is one
such programme initiated by the central government. Under this programme, elderly people who do not
have anyone to take care of them are given pension to sustain themselves. Poor women who are destitute
and widows arc also covered under this scheme. The government has also introduced a few schemes to
provide health insurance to poor people.

In 2014, a scheme called Pradhan Mantri Jan–Dhan Yojana is available in which people in India are
encouraged to open bank accounts. Besides programme savings habit, this scheme intends to transfer all the
benefits of government schemes and subsidies to account holders directly. Each bank account holder is also
entitled to Rs.l lakh accident insurance and Rs. 30,000 life insurance cover.

A few measures to tackle the problem of poverty

1. Active participation of the poor: High growth alone is not sufficient to reduce poverty. Without the active
participation of the poor, successful implementation of any programme is not possible.

2. Social mobilisation: Poverty can effectively be eradicated only when the poor start contributing to growth
by their active involvement in the growth process. This is possible through a pro of social mobilisation,
encouraging poor people to participate and get them empowered. This will also help create employment
opportunities which may lead to increase in levels of income, skill development1 health and literacy.

3. Provision of infrastructure: Moreover, it is necessary to identify poverty stricken areas and provide
infrastructure such as schools, roads, power. telecom, IT services, training institutions etc.

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EXERCISE

A. Multiple Choice Questions: Choose the Correct Answer

1. Which of the following is prominent in the Indian economy?

(a) Relative poverty (b) Absolute poverty

(c) Both(a)and(b) (d) None of these

2. A cut-off point (in terms of per capita expenditure) dividing people as poor and non-poor
indicates the number of those who are:

(a) relatively poor (b) absolutely poor

(c) below the poverty line (d) both (b) and (c)

3. In India, absolute poverty is measured with reference to:

(a) poverty line (b) GDP

(c) per capita income (d) unemployment

4. Which of the following is a reason of poverty in India?

(a) Low rate of growth (b) Inflation

(c) Inadequacy of capital (d) All of these

5. Poverty continues to persist in India, because of:

(a) rising prices (b) rising population

(c) lack of opportunities of employment (d) all of these

6. The people who never move above the poverty line are called:

(a) chronic poor (b) non-poor

(c) both (a) and (b) (d) none of these

7. Rural poor includes:

(a) landless labourers only (b) marginal farmers only

(c) tenants at will only (d) all of these

8. MPCE stands for--------

(a) Monthly per capital expenditure (b) Minimum per capital expenditure

(c) maximum per capital expenditure (d) None of these

9. Who introduced the jail cost of living?

(a) Mahatma Gandhi (b) Dadabhai nairoji

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(c) Jawahar lal Nehru (d) None of these

10. Transient poor includes:

(a) Always poor (b) Churning poor

(c) Never poor (d) Usually poor

11. Which organization collects data on poverty in India?

(a) NSSO (b) SJSRY

(c) MGNREGA (d) None of these

12. SJSRY stands for:

(a) Swarna Jayanti Shahri Rozgar Yojna (b) Shahri Jeewan Sudhaar Rashtriya Yojna

(c) Sampoorna Jeewan shehari Rozgar Yojna (d) None of these

13 The earlier ‘work for programme’ has now been converted into:

(a) Intensive area development programme (b) Integrated rural development

programme

( c) Mahatma Gandhi National Rural employment Programme (d) Minimum Needs programme

14. ------- refers to poverty of people, in comparison to other people, regions or nations.

(a) Absolute poverty (b) Relative poverty

(c) Both (a) and (b) (d) Neither (a) nor (b)

15. In which year “National Food for Work Programme” was launched?

(a) 2008 (b) 1999

(c) 2004 (d) 2010

16. Which one of the following are categorized as “most poor”?

(a) Chronic poor (b) Occasionally poor

(c) Both (a) and (b) (d) Neither (a) nor (b)

17. Self-employment programmes include:

(a) Prime Minister Rozgar Yojna (b) Sampoorna Gramin Rojgar Yojna

(c) National Social Assistance Programme (d) National food for Work Programme

18. When was National social assistance programme launched?

(a) 15th August 1996 (b) 15th August 1998

(c) 15th August 1997 (d) 15th August 1995

19. The programme initiated by the government to improve food and nutritional level of poor was:
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(a) Public Distribution System (b) Integrated child development scheme

(c) Midday Meal scheme (d) All of these

ANSWERS

1. (c) 2. (d) 3. (a) 4. (d) 5. (d) 6. (a) 7. (d)

8 (a) 9 (b) 10 (b) 11 ((a) 12 (a) 13 (c) 14 (b) 15 (c) 16 (a) 17 (a) 18 (c) 19 (d)

Read the following statements carefully. Write True or False with a reason.

1. Mr. X is relatively richer than Mr. Y. But both can be absolutely poor

Ans. True. Because Mr. X may have higher income than Mr. Y. But, both X and Y may not have
enough income to buy the essentials of life. So that, both are absolutely poor

2. Inflation is the cause of poverty.

Ans. True. Because, inflation (price spiral) erodes real income of the people. Other things
remaining constant, price spiral may push the certain peop below the poverty line.

3. Capital formation is the key to eradicate the poverty in India.

Ans. True. Because:

• Lack of capital implies lack of production capacity.

• Low production capacity implies low opportunities of employment.

• Low level of employment implies high level of poverty

4. Progressive taxation helps reduce poverty

Ans. True. Because progressive taxation implies higher tax burden on the rich, and lower tax
burden on the poor It narrows down ‘economic divide’ between the rich and the poor.
Accordingly, relative poverty is reduced.

5. Poverty can reduce even when income of the poor does not rise.

Ans. True. Because, the poor can be offered essentials of life at subsidised prices. Example: Rice
and wheat are offered to the poor at a notional price of ‘3-4 per kg, to those who are
absolutely poor It enhances their quality of life. Accordingly poverty is reduced.

6. Eradication of poverty through GDP growth is a short period remedy to poverty in India.

Ans. False. Eradication of poverty through GDP growth is a long period remedy, not a short
period remedy. Because, GDP growth is a long-drawn process. Also, GDP growth helps
combat poverty only when it is accompanied with higher level of employment.

7. Migration lowers poverty.

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Ans. True. Because, people migrate to those areas which offer better opportunities of employment.
Getting employment or getting better employment leads to improvement in the quality of
life. It may help people shift above the poverty line.

8. Extent of poverty in rural areas is more as compared to urban areas

Ans. True: The proportion of poor people in 2009-10 in rural areas was nearly 34% as compared to

Just 21% in urban areas.

9. Population explosion is one of the basic reason for widespread poverty

Ans. True: Rapid growth of population, particularly among the poor, is responsible for poverty in

The country.

10 . The concept of relative poverty is used to measure total number of people living below
poverty Line.

Ans. False: The concept of Absolute Poverty is used to measure the total number of people living

Below the poverty line.

11 . Lower calorie intake has been fixed for rural areas because the rural worker has to do a
greater physical work as compared to urban worker.

Ans. False: higher calorie intake has been fixed for rural areas because the rural worker has to do
greater physical work as compared to urban worker.

12 . Jail cost of living is a recent concept.

Ans. False: In pre-Independence India, Dadabhai Naoroji used the menu for a prisoner and used
appropriate prevailing prices to arrive at ‘ jail cost of living’

13 . Relative poverty exists in every country.

Ans. True: Relative poverty refers to poverty of people in relation to other people, regions or nations.
It is an indicator of the contrast between the lives of the poor and the lives of those around them.
Since income is unequally distributed in almost all the countries, it can be said that relative poverty
exists in every country.

14 . Trickle-down effect is an imaginary and fallacious concept.

Ans. False: ‘ Trickle-down effect’ is an economic theory that says that the growth of GDP and per
capita income by allowing the rich to flourish, would eventually benefit lower income groups also
through increased economic activity and reduced unemployment. It was government’s approach to
poverty reduction. It was felt that rapid industrial development and transformation of agriculture
through green revolution would benefit the underdeveloped regions and the backward sections of the
community.

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Questions to do (1mark)

Q1. Name two measures to determine the extent of poverty:

Ans. The two measures to determine the extent of poverty are: (1) Relative Poverty; (2) Absolute poverty

Q2. Mention the drawback of concept of relative poverty.

Ans. Relative poverty reflects only the relative position of different segments of the population in the income
hierarchy. It does not consider how poor the poor person is or whether the is deprived of the basic minimum
requirements of life or not.

Q3. What is meant by absolute poverty?

Ans. It refers to the total number of people living below poverty line.

Q4. Which standard is used by the concept of absolute poverty to measure number of poors in India?

Ans. Poverty line.

Q5. What is the minimum calorie intake estimated for rural and urban areas?

Ans. The minimum calorie intake in rural areas is 2400 calories and in urban areas it is 2100 calories.

Q6. Why has higher calorie intake fixed for rural areas?

Ans. Higher calorie intake is fixed for rural areas because the rural worker has to do greater physical work as
compared to the urban worker.

Q7. The poverty has shifted from rural to urban areas. Why?

Ans. The poverty has shifted from rural areas to urban areas because of the migration of the rural people to
the urban areas in search of alternative employment and livelihood.

Q8. What is meant by head count ratio?

Ans. When the number of poor is estimated as the proportion of people below the poverty line, it is known as
‘Head count ratio’

Q9. Which organization collects data on poverty in India?

Ans. National Sample Survey Organisation (NSSO).

Q10. Name the programme initiated by the government to help the elderly people and poor and destitute
women.

Ans. National Social Assistance Programme (NSAP)

Q11. What percentage of population was below the poverty line in the year 2004-05?

Ans. 21.8 percent.

Q12. Name three programmes initiated by the government to improve the food and nutritional status of the
poor.

Ans. 1. Public Distribution system 2. Integrated child development scheme; and 3. Midday meal Schemes.
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Q22. Mention two wage employment programmed initiated by the government.

Ans. 1. Sampoorna Graameen swarozgar yojna 2. National food for work programme.

Q23. What is poverty? Give some examples of poor.

Ans. Poverty refers to a state in which an individual is unable to fulfill even the basic necessities of life.

Push-cart vendors, street cobblers, women who string flowers, rag pickers, vendors and beggars.

Q24. In post-independent India, there have been several attempts to work out a mechanism to identify the
number of poor in the country. Give some instances.

Ans. In 1962, the planning commission formed a study group. In 1979, another body called the ‘Task force on
projects of minimum needs Effective consumption Demand’ was formed. In 1989 and 2005, ‘Expert Groups’
were constituted for the same purpose.

Q25. On what basis do the economists identify the poor?

Ans. On the basis of their occupation and ownership of assets.

Q26. How are poor and non-poor classified?

Ans. There are many kinds of poor- the absolutely poor, the very poor and the poor. Similarly, there are
various kinds of non-poor- the middle class, the upper middle class, the rich, the very rich and the absolutely
rich.

Q27. Who makes available to the public the official data on poverty? Name the four states which are still far
above the national poverty level.

Ans. The official data on poverty is made available to the public by the planning commission(NITI Aayog). It is
estimated on the basis of consumption expenditure data collected by the National Sample Survey Organisation
(NSSO). Odisha, Madhya Pradesh, Bihar and Uttar Pradesh.

Q28. What is aggregate poverty/

Ans. It is the sum of individual poverty.

Q29. A large section of urban poor in India are largely the overflow of the rural poor who migrate to urban
areas. Why do the rural poor migrate to urban areas? Do they always find jobs there?

Ans. Rural people migrate to urban areas in search of employment and a livelihood. However, industrialization
has not been able to absorb all these people.

Q30. Poverty is explained by general, economy wide problems. Name such problems.

Ans. 1. Low capital formation 2. Lack of infrastructure 3. Lack of demand 4. Pressure of population

Q31. The Indian Constitution and five year plans state -------- as the primary objective of the developmental
strategies of the government

Ans Social Justice

Q32. In all policy documents, emphasis being laid on ---------- and that various strategies need to be adopted by
the government for the same
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Ans. Poverty alleviation

Q32. Most poverty alleviation programmes implemented are based on the perspective of the five-year plans.
Expanding-------- and -------------- are being considered as the major ways of addressing poverty.

Ans. Self-employment programmes, wage employment programmes

Q33. Suppose you are from a poor family and you wish to get help from the government to set up a petty
shop. Under which scheme will you apply for assistance and why? (NCERT)

Ans. Prime Minister Rozgar Yojna (PMRY) because the educated unemployed from low income families in rural
and urban areas can get financial help to set up any kind of enterprise that generates employment under
PMRY

QUESTIONS TO DO (LONG ANSWERS)

Q1. What programmes has the government adopted to help the elderly people and poor and destitute
women?(NCERT)

Ans. National Social Assistance Programme (NSAP) was initiated by the central government to help a few
specific groups. Under this programme, elderly people who do have anyone to take care of them are given
pension to sustain themselves. Poor women who are destitute and widows are also covered under the
scheme.

Q2. Illustrate the difference between rural and urban poverty. Is it correct to say that poverty has shifted from
rural to urban areas? Use the trends in poverty ratio to support your answer.

Ans. 1. In Urban Areas, Poor people include push cart vendors, street cobblers, rag pickers, beggars, etc. On
the other hand, in rural areas poor people include landless agricultural labourers, cultivators with very small
landholdings, tenant cultivators with small land holdings, etc

2. The urban poor are largely the overflow of the rural poor who had migrated to urban areas in search
of alternative employment and livelihood. However, rural people do not include people from urban areas. Yes,
it is correct to say that poverty has shifted from rural to urban areas. The number of poor people in rural areas
reduced from 261.3 million to 170.3 million from 1973-74 to 2004-05, whereas, the number of poor people in
urban areas has increased from 60 million to 68.2 million in the same period. So, the trends in the poverty in
India support the statement that poverty has shifted from rural to urban areas.

Q3. Suppose you are a resident of a village, suggest a few measures to tackle the problem of poverty. (NCERT)

Ans. Being a resident of a village, A would suggest the following measures to tackle the problem of poverty.

(a) Making people aware about self-employment and wage-employment programmes initiated by the
government.

(b) Motivating the people to acquire skills, information and knowledge.

(c) Generating employment opportunities for the identified poor.

(d)Encourage people to establish small scale and cottage industries.

(e)Upgradation of agricultural practices to raise productivity.

(f) Awareness about family planning in order to control population growth.

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(g)Development of infrastructure.

Q4. Is there any relationship between poverty and unemployment? Explain (NCERT)

Ans. Poverty is closely related to nature of employment. Unemployment or under unemployment and the
casual and intermittent nature of work in both rural and urban areas compels indebtedness, which in turn,
reinforces poverty.

Q5. The causes of poverty lie in the institutional and social factors that mark the life of the poor. Explain the
statement and state what causes poverty.

Ans. The poor are deprived of quality education and unable to acquire skills which fetch better incomes. Also
access to health care is denied to the poor. The main victims of caste, religious and other discriminatory
practices are poor. Poverty is caused by

1. Social, political and economic inequality.

2. Social exclusion
3. Unemployment
4. Indebtedness
5. Unequal distribution of wealth

Q6. How can creation of income earning assets address the problem of poverty? (NCERT)

Ans. The creation of income earning assets and work generation increases the incomes and employment for
the poor. One of the noted programmes initiated by the government in the 1970s was ‘Food for work’
programme.

Q7. “Poverty is multidimensional challenge for India that needs to be addressed on a war footing.” Comment.

Ans. In India poverty is caused due to many factors such as unemployment, inflation, unequal distribution of
wealth, etc. All of these are major economic challenges facing the Indian economy. Thus poverty is a multi-
dimensional challenge for India because reducing poverty implies reducing unemployment, controlling
fluctuations in price levels and reducing inequalities of income and assets also. Moreover with poverty under
control one can expect people to have good education, health and technical know-how which will help the
economy to grow.

Q8. The Three dimensional attack on poverty adopted by the government has not succeeded in poverty
alleviation in India. Comment.

Ans. The three dimensional approach of the government to poverty reduction has been under attack due to
following factors.

(a) Despite of various strategies adopted to alleviate hunger, malnourishment, illiteracy, lack of basic amenities
continue to be a common feature in many parts of India.

(b) Despite of the policy of poverty alleviation having evolved, no radical transformation has taken place

(c) This is on account of unequal distribution of land and other assets, the benefits from the poverty alleviation
programmes have been appropriated by the non-poor

(d) The amount of resources allocated for these programmes is very inadequate as compared to the
magnitude of poverty.

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(e) On account of corrupt government and bank officials there is inefficient use and wastage of available
resources.

(f) Lack of participation of local level institutions in the programmes implementation.

(g) Government policies, on the whole, have failed to address the problems of poor.

Q9. Why calorie based norm is not adequate to identify the poor?

Ans. The calorie based norm is not adequate to identify the poor, because there are other aspects of poverty
also like basic education, health care, access to clean drinking water and sanitation.

Q10. “ Though India has considerably increased its saving and investment rate since independence, yet this is
not adequate enough to give such a high rate of economic growth that is needed to eradicate poverty.” What
can be done to solve this problem?

Ans. More efforts should be made by the government to increase domestic savings and expand inflow of
foreign resources for further increasing the rate of investment in the country. Due to high growth of
population the efforts are neutralised. Keeping this in mind, the government should start new projects which
will help in providing more employment opportunities to the people. As a result, national income as well as per
capita income will increase. Thus the ultimate effect will be reduction in poverty.

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CHAPTER 5

HUMAN CAPITAL FORMATION

Meaning of Human Capital

Human capital refers to the stock of skill, ability, expertise, education and knowledge embodied in the
people. In short it refers to stock of skills and expertise of a nation at a given point of time. Thus, human
capital represents enhanced labour productivity, which is an acquired ability and an outcome of deliberate
investment decisions with an expectation that it will increase Future income sources.

Sources of Human Capital/Factors Contributing to Human Capital Formation

I. Investment in education

Investment in education is considered as one of the main sources of human capital. Labour skill of an educate
person is more than that of an uneducated person. Spending on education by individuals is similar to
spending on capital goods by companies with the objective of increasing future profits over a period of time.
Likewise, individuals invest in education with the objective of increasing their Future income.

Education contributes to economic growth because:

¨ Education confers higher earning capacity of people;

¨ It enables one to make better choices in life;

¨ It also stimulates innovations;

¨ It gives better social standing and pride;

¨ It provides knowledge to understand the changes taking place in society;

¨ It facilitates adaptation of new technologies.

2. Expenditure on health

Health is also considered as an important input for the development of a nation as much as it is important for
the development of an individual. Who can work better—a sick person or a person with sound health? A sick
labourer without access to medical facilities is compelled to abstain From work and there is loss of
productivity. Hence, expenditure on health is an important source of human capital formation. Adequate
food and proper nourishment to people, along with adequate health and sanitation facilities leads to
qualitative improvement in human capital. Various Forms of Health Expenditures are as follows:

Preventive medicine (vaccination)

Curative medicine (medical intervention during illness)

Social medicine (spread of health literacy)

Provision of clean drinking water

Good sanitation facilities

Health expenditure directly increases the supply of healthy labour force and thus a part of capital formation.

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3. Expenditure regarding on–the–job training

Firms spend on giving on–the–job training to their workers. This may take different Forms:

(i) The workers may be trained in the firm itself under the supervision of a skilled worker.

(ii) The workers may be sent far off–campus training.

In both these cases firms incur some expenses. Firms will, thus, insist that the workers should work for a
minimum specific period of time, after their on–the–Job training, during which it can recover the benefits of
the enhanced productivity owing to the training. Expenditure regarding on—the–job training is a source of
human capital formation as the return of such expenditure in the form of enhanced labour productivity is
more than the cost of it.

4. Expenditure on migration

People migrate in search of jobs that fetch them higher salaries than what they may get in their native
places. Unemployment is the reason for the rural—urban migration in India. Technically qualified persons,
like engineers and doctors, migrate to other countries because of higher salaries chat they may get in such
countries. Migration invokes cost of transport, higher cost of living in the migrated places and psychic costs
of living in a strange socio–cultural setup. The enhanced earnings in the new place outweigh the cost of
migration. Hence, expenditure on migration is also a source of human capital formation.

5. Expenditure incurred for acquiring information relating to the labour market and other markets

People spend to acquire information relating to the labour mark and other markets. For example, people
want to know the level of salaries associated with various types of jobs, whether the educational institutions
provide the right type of employable skills and at what cost, This information is necessary to make decisions
regarding investments in human capital as well as for efficient utilisation of the acquired human capital
stock. Expenditure incurred for acquiring information relating to the labour market and other markers is also
a source of human capital formation.

Q1. Define human capital. Explain its different sources or What factors contribute to human capital
formation? (NCERT) or

Discuss the following as a source of human capital formation: (NCERT)

1 . Health infrastructure

2 . Expenditure on migration

Ans. Discuss the points under sources of capital formation ( points 2 and 4) or

Education is considered to be an important input for the development of a nation. How? (NCERT)

Ans. First point of sources of capital formation

Human Capital and Human Development

S. No. Human Capital Human development

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Meaning Human capital considers education and Human development is based on the idea
health as a means to increase labour that education and health are integral to
productivity human well–being because only when
people have the ability to read and write and
the ability to lead a long and healthy life, they
will be able to make other choices which they
value.

End Human capital treats human beings as a In the human development perspective,
means to an end; the end being the increase human beings are ends in themselves.
in productivity. In this view any investment Human welfare should be increased through
in education and health is unproductive if it investments in education and health even if
does not enhance output of goods and such investment do not result in higher
services. labour productivity. In such a view, every
individual has a right to get basic education
and basic health care. That is even individual
has a right to be literate and lead a healthy
life.

Q.2 How is human development a broader term as compared to human capital? OR Bring out the
differences between human capital and human development (NCERT)

Physical and Human Capital

The concept of physical capital is the base for conceptualising human capital. It includes all those inputs
which are required for further production, like plant and machinery, factory, buildings, raw materials etc.
There are some similarities as well as differences between the two Forms of capital formation — physical
capital and human capital.

Differences between Physical and Human Capital

Basis Physical Capital Human Capital

Tangible/ Physical capital (such as machine) is tangible Human capital is intangible and is not sold in
and can be easily sold in the market like any the market. Only the services of the human
Intangible other commodity. capital are sold,

Owner The physical capital is separable from its Human capital is inseparable from its owner.
owner.

Mobility Physical capital is completely mobile Human capital is not perfectly mobile
across space between countries except for some artificial between countries as movement is
trade restrictions. restricted by nationality and culture.

Nature of Continuous use of physical capital leads to In the ease of human capital
depreciation depreciation. predation/deterioration takes place with
ageing but can be reduced, to a large extent,
through continuous investment in
education, health etc.

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Basis Physical Capital Human Capital

Nature of Physical capital creates only private benefit. Human capital benefits not only the owner
benefits That is, benefits from a capital good flow to but also the society in general. For example,
those who pay the price lot the product and an educated person can effectively
services produced by it. contribute to the socioeconomic progress of
a nation. Human capital creates both private
and social benefits.

Q3. Distinguish between Physical Capital and Human capital.

Relationship between Human Capital and Economic Growth

Economic growth means the increase in real national income of a country. Investment in human capital
contributes to economic growth.

¨ The contribution of the educated person to economic growth is more than that of an illiterate person.
Education provides knowledge to understand changes in society and scientific advancements, thus, facilitate
inventions and innovations. The availability of educated labour force facilitates adaptation to new
technologies.

¨ Similarly, if a healthy person could provide uninterrupted labour supply for a longer period of time, then
health is also an important factor for economic growth .

Thus both education and health, along with many other factors like on–the–job training, job market
information and migration increase an individual’s income generating capacity. This enhanced Productivity of
human beings or human capital contributes to economic growth.

Q4. How does investment in human capital contribute to growth? OR Trace the relationship between human
capital and economic growth (NCERT)

Empirical evidence to prove that increase in human capital causes economic growth is rather doubtful. This
may be because of measurement problems. For example, education measured in terms of years of schooling,
teacher–pupil ratio and enrolment ratios may not reflect the quality of education. Similarly, health services
measured in monetary terms, life expectancy and mortality rates may not reflect the true health status of the
people in a country. Using the indicators mentioned above, an analysis of improvement in education and
health sectors and growth in real per capita income in both developing and developed countries shows that
die human capital growth in developing countries has been faster but the growth of per capita real income
has not been that Fast. The reason is that higher income causes building of high level of human capital and vice
versa, that is, high level of human capital causes growth of income. Select Indicators of Development in
Education and Health Sectors

Particulars 1951 1981 1991 2001 2014–15

Real per Capita Income (in Rs.) 7,651 12,174 15,748 23,095 72,900

Crude Death Rate (per 1,000 population) 25.1 12.5 9.8 8.1 6.7

Infant Mortality Rate 146 110 80 63 37

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Life Expectancy at Birth (in Years)

Male 37.2 54.1 59.7 63.9 67

Female 36.2 54.7 60.9 66.9 70

Literacy Rate (%) 16.67 43.57 52.21 65.20 76

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.

1. Deutsche Bank, a German bank, in its report on ‘Global Growth Centres’ (published on 1.7.05) identified that
India will emerge as one among Four major growth centres in the world by the year 2020. It further states,
"Our empirical investigation supports the view that between capital is the most important factor of
production in today’s economies. Increases in human capital are crucial to achieving increases in GDP With
reference to India it States, “Between 2005 and 2020 we expect a 40 per cent rise in the average, years of
education in India, to just above 7 years..."

2. World Bank in its recent report, India and the Knowledge Economy— Leveraging Strength and
Opportunities’, states that India should make a transition to the knowledge economy and if it uses its
knowledge as much as Ireland does (it is judged that Ireland uses its knowledge economy very effectively),
then the per capita income of India will increase from a little over 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 a diversified science and technology
infrastructure. Thus, the two reports point out the fact that further human capital formation in India will move
its economy to a higher growth trajectory.

IMPORTANCE OF HUMAN CAPITAL FORMATION

1 . Effective use of Physical capital: The growth and productivity of physical capital depends extensively on the
human capital formation.

¨ The physical capital can be created by intelligent work of human beings in the economy

¨ Human skills and efforts help in effective utilization of physical capital.

2 . Higher output and productivity: Human capital formation raises the productivity and production as
knowledgeable and skilled worker makes better use of the resources.

¨ Increase in productivity and quality production depends on skills of the people which can be acquired by
means of education, training and maintaining the health of people.

¨ Investment in human capital helps in acquiring new skills and also knowledge relating to management of
resources, technology and production.

3 . Increased life expectancy: Human capital formation raises life expectancy of the people.

¨ Health facilities and availability of nutritive food enable people to live a healthy and long life

¨ Thus in turn it adds to the quality of life

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4 . Inventions, Innovations and technological improvement: The Human capital formation stimulates
innovations and creates ability to absorb new technologies.

¨ Education provides knowledge to understand changes in society and scientific advancements, which
facilitates inventions and innovations.

¨ Similarly, the availability of educated labour force facilitates adaptation to new technologies.

5 . Improves quality of life: The quality of people depends upon the level of education, health of a person and
skill formation acquired by the people.

¨ Human capital formation not only makes people more productive and creative but also transforms the lives
of the people

¨ People start living and enjoying higher incomes and more satisfying life.

6 . Control of population growth: It has been observed that educated persons have smaller families as
compared to illiterate families. So, spread of education is important to control population growth.

Q5 Why Human capital is considered important?

Problems of Human Capital formation

1 . Insufficient resources: The resources allocated to the formation of human capital have been much less than
the resources required. Due to this reason, the facilities for the formation of human capital have remained
grossly inadequate.

2 . Brain drain: People migrate from one place to another in search of better job opportunities and handsome
salaries. It leads to the loss of quality people like doctors, engineers, etc. Who have high capacity and are rare
in developing economy. The cost of such loss of quality human capital is very high.

3 .Population: The continuous rise in population has adversely affected the quality of human capital. It reduces
per head availability of the facilities.

4 . Inefficiencies: There is a lot of wastage of society’s resources as capabilities of educated people are either
not made use of ( like unemployment) or are underutilised (in case of underemployment). Massive illiteracy,
non-education of many children, poor health facilities are other inefficiencies, which have not been attended
to adequately and properly.

5 . Several imbalances: A greater proportion of resources have been diverted towards higher education, which
is meant for few people as compared to primary and secondary education. Due to this reason, general
productivity of the economy has remained low.

6 . Lack of proper manpower planning: There is an imbalance between the demand and supply of human
resources of various categories, especially in case of highly skilled personnel. The absence of such balancing
has resulted in the wastage of resources.

7 . Weak science and technology: In respect of education, the performance is particularly unsatisfactory in the
fields of science and development of modern technology.

8 .Insufficient On-the-Job Training in Primary Sector: Primary sector (agriculture in particular)is the backbone
of Indian economy. Unfortunately, it has not received due attention in the area of professional skills.
Two notable points are that. The traditional wisdom predominates the primary sector, and that on-
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the-job training programmes’ are highly scant, if not listless. Accordingly, there is a serious deficiency
of human capital formation in primary sector of the economy.

9. Low Academic Standards: In our enthusiasm to spread higher education, we have been opening many
universities, unmindful of their academic standards. Consequently, we have a large army of half-
baked graduates and post-graduates whose deficient skills only lowers the level of
efficiency/productivity.

STATE OF HUMAN CAPITAL FORMATION IN INDIA

Human capital formation is the outcome of investments in education, health, on–the–job training, migration
and information. Of these education and health are very important sources of human capital formation. We
know that ours is a federal country with a union government, state governments and Local governments
(Municipal Corporations, Municipalities and Village Panchayats). The Constitution of India mentions the
functions to be carried out by each level of government. Accordingly, expenditures on both education and
health are to be carried out simultaneously by all the three tiers of the government.

Need for government intervention in education and health sectors

Education and health care services create both private and social benefits and this is the reason for the
existence of both private and public institutions in the education and health service markets.

1 . Expenditures on education and health make substantial long–term impact and they cannot be easily
reversed; hence, government intervention is essential. For instance, once a child is admitted to a school or
health care centre where the required services are not provided, before the decision is taken to shift the child
to another institution, substantial amount of damage would have been done. Moreover, individual
consumers of these services do not have complete information about the quality of services and their costs.
In this situation, the providers of education and health services acquire monopoly power and are involved in
exploitation. The role of government in this situation is to ensure that the private providers of these services
adhere to the standards stipulated by the government and charge the correct price.

2 . In a developing country like ours, 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. Moreover, a substantial section
of our people cannot afford to reach super specialty health care and higher education. Basic education and
health care 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.

Q6. Argue in favour of the need for different forms of government intervention in education and health
care OR In your view, is it essential for the government to regulate the fee structure in education and
health care institutions? If so, Why? (NCERT)

Regulatory authority

In India, the ministries of education at the union and state level, departments of education and various
organisations like National Council of Educational Research and Training (NCERT), University Grant
Commission (UGC) and All India Council of Technical Education (AICTE) facilitate institution which come
under the education sector. Both, the union and state governments, have been Stepping up expenditures in
the education sector over the years in order to fulfil the objective of attaining cent per cent literacy.

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Similarly, the ministries of health at the union and state level, departments of health and various
organisations like Indian Council for Medical Research (ICMR) facilitate institutions which co under the
health sector.

Q7. How government organisations facilitate the functioning of schools and hospitals in India? (NCERT)

Growth in government expenditure on education in India

Government expenditure on education is expressed in two ways:

(i) As a percentage of total government expenditure: It indicates the importance of education in the scheme
of things before the government.

(ii) As a percentage of Gross Domestic Product (GDP): It expresses how much of our incomes is being
committed to the development of education in the country.

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 w 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 per cent ‘Education Cess’ on all Union tax. The
revenues from education cess has 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.

Educational Achievements in India

Generally, educational achievements in a country are indicated in terms of (i) adult literacy rate, (ii) primary
education completion rate and (iii) youth literacy rate. Educational Attainment in India

S. No. Particulars 1990 2000 2015

1. Adult Literacy Rate (% of people aged 15+)

1.1 Male 61.9 68.4 81

1.2 Female 37.9 45.4 63

2. Primary Education Completion Rate (% of relevant age group)

2.1 Male 78 85 94

2.2 Female 61 69 99

3. Youth Literacy Rate (% of people aged 15+ to 24)

3.1 Male 76.6 79.7 92

3.2 Female 54.2 64.8 87

Expenditure on different levels of education in India. Elementary education takes a major share of total
education expenditure and the share of the higher tertiary education (institutions of higher learning like
colleges, polytechnics and universities) is the least. Though, on an average, the government spends less on
tertiary education, ‘expenditure per student in tertiary education is higher than that of elementary. However,
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this does not mean that financial resources should be transferred from tertiary education to elementary
education. As we expand school education, we need more teachers who are trained in the higher educational
institutions. Therefore expenditure on all levels of education should be increased.

Regional differences in educational attainment in India

In 2014–15, the per capita public expenditure on elementary education differs considerably across states and
regions from as high as Rs.34.651 in Himachal Pradesh to as low as Rs.4088 in Bihar. This is due to economic,
political as well as social reasons. This leads to differences in educational opportunities and attainments across
states.

Inadequacy of the expenditure on education

One can understand the inadequacy of the expenditure on education if we compare it with the desired level of
education expenditure as recommended by the various commissions. About 50 years ago, the Education
Commission (1964—66) had recommended that at least 6 per cent of GOP be spent on education so as to
make a noticeable race of growth in educational achievements. Compared to this desired level of education
expenditures the current level of a little over 4 per cent has been quite inadequate. In principle1 a goal of 6 per
cent needs to be reached—this has been accepted as a must for the coming years.

Future Prospects of Education

1. Education for All — Still a Distant Dream

Though literacy rates For both — adults as well as youth — have increased, still the absolute number of
illiterates in India is as much as India’s population was at the time of independence. In 1950, when the
Constitution of India was passed by the Constituent Assembly, it was noted in the Directive Principles of the
Constitution that the government should provide free and compulsory education for all children up to the age
of 14 years within 10 years from the commencement of the Constitution. Had we achieved this, we would
have cent per cent literacy by now. Therefore, we cannot be complacent about the upward movement in the
literacy rates and we have miles to go in achieving cent per cent adult literacy.

2. Gender Equity — Better than Before

(The differences in literacy rates between males and females are narrowing signifying a positive development
in gender equity.

Still the need to promote education for women in India is imminent for various reasons such as:

(i) Improving economic independence and social status of women to save them from exploitation.

(ii) Women education makes a favourable impact on fertility rate and health care of women and children.)

Q8. Discuss the need for promoting women’s education in India. (NCERT)

3. Higher Education — a Few Takers

The Indian education pyramid is steep, indicating lesser and lesser number of people reaching the higher
education level. Moreover, the level of unemployment among educated youth is the highest. As per NSSO
data, in the year 2011–12, the rate 0f unemployment among youth males who studied graduation and above
in rural areas was 19 per cent while in urban areas it was 16 per cent. The most severely affected ones were
young rural female graduates as nearly 30 per cent of them are unemployed. In contrast to this, only about 3–

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6 per cent of primary level educated youth in rural and urban areas were unemployed. Therefore, the
government should increase expenditure on higher education and also improve the standard of higher
education institutions, so char students are imparted employable skills in such institutions.

Q9. Explain the future prospects related to education in India.(Ans. All 3 points)

EXERCISE

Multiple Choice Questions: Choose the Correct Answer

1. The stock of ‘skill and expertise’ of a nation at a point of time is known as:

(a) social infrastructure (b) human capital

(c) physical capital (d) none of these

2. Which of the following is the problem of human capital formation in India?

(a) Brain-drain (b) Low academic standards

(c) Rising population (d) All of these

3. The ability to read and write is known as:

(a) education (b) human capital

(c) literacy (d) human development

4. Which of the following organisations is engaged in designing text material up to the senior secondary
level?

(a) UGC (b) AICTE

(c) ICMR (d) NCERT

5. The responsibility of direction and control of higher education is with:

(a) Government of India (b) Department of Higher Education

(c) University Grants Commission (d) none of these

6. Who is responsible for the implementation of rules and regulations for technical education in the
country?

(a) National Council of Educational Research and Training (b) University Grants Commission

(c) All India Council of Technical Education (d) Indian Council for Medical Research

7. As per census 2011. the literacy rate in rural India is about:

(a) 74% (b) 85%

(c) 69% (d) 60%

8. Female literacy in India is:

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(a) 75% (b) 85%

(c) 70% (d) 66%

9. Overall literacy rate (census 2011) in India 5:

(a) 74% (b) 56%

(c) 65% (d) 60%

10. Human capital formation leads to:

(a) efficient utilisation of inputs. (b) increase in the stock of physical capital

(c) increase in GDP growth (d) both (a) and (c)

11. Which of the following is not an example of physical capital?

(a) Machinery (b) Building

(c) Raw material (d) Education and knowledge of people

12. ---------- five year plan recognised the importance of human capital.

(a) Seventh (b) Third

(c) Eight (d) Sixth

13. In India, which of the following organisations regulate the health sector?

(a) ICMR (b) UGC

(c) AICTE (d) None of these

14. The expenditure by the government on education is expressed as :

(a) Percentage of total government expenditure (b) Percentage of GDP

(c) Both (a) and (b) (d) Neither (a) nor (b)

15. In the year--------, Indian government made free and compulsory education for age group of 6-14 years

(a) 2001 (b) 2009

(c) 2003 (d) 2007

16. Which one of the following is an indicator of educational achievement in a country?

(a) Youth literacy rate (b) Adult literacy ratio

(c) Primary completion ratio (d) All of these

17. Which one of these is a reason for poor human capital formation in India?

(a) Brain Drain (b) Insufficient resources

(c) High growth of population (d) All of these

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18. Which of the following is not a source of Human capital formation?

(a) expenditure on infrastructure (b) Expenditure on education

(c) Expenditure on the job training (d) Expenditure on migration

19. What is the full form of ICMR?

(a) International council of medical research (b) Indian council of medical resources

(c) International Council of medical resources (d) Indian Council for medical research

20. Which one of the following is a major source of Human capital formation in India?

(a) Expenditure on education (b) Expenditure on infrastructure

(c) Expenditure on defence (d) None of these

ANSWERS

1. (b) 2. (d) 3. (c) 4. (d) 5. (c) 6. (c) 7. (c) 8. (d)

9. (a) 10. (d) 11(d) 15(b) 20(a)

12(a) 16(d) 17(d)
13(a) 14(c) 18(a) 19(d)

Read the following statements carefully. Write True or False with a reason.

1. ‘Skill India’ programme launched by the government is an attempt to increase human capital
formation.

Ans. True. Because ‘skill’ is an important element of human capital.

2. ‘Start-ups’ and ‘Skill India’ programmes are complementary to each other.

Ans. True. Because, one programme promotes the other- Thus:

(i)’Start-ups’ (new business ventures) helps utilisation of the idle entrepreneurial abilities of the
people. It, thus, promotes skill formation.

(ii) Skill formation (through higher education and training) helps the establishment of ‘start-ups’.

3. Higher salaries in developed countries are ultimately related to higher level of human capital in these
countries.

Ans. True. Because, salaries are related to productivity (higher productivity implies higher salaries) and
productivity is related to the level of human capital (higher level of human capital implies higher
productivity).

4. Benefits of education always exceed the cost of education.

Ans. True. Because, the benefits of education accrue throughout the service span of an individual (spread
over several years) while the cost of education is restricted only to the period of education (spread
over a few years).However, the underlying assumption behind this assertion is that after education,
an individual remain unemployed lifelong.
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5. Skill formation facilitates conversion of ‘economic growth’ into economic development.

Ans. True. Because, skill formation improves the rate of participation/employment in the process of
growth. Higher the rate of participation, faster is the conversion of growth into development (when
the fruits of growth are shared by larger percentage of population),

6. Education, not the vocationalisation of education is the core element of skill formation.

Ans. False. It is the vocationalisation of education (rather than mere education) which is the core element
of skill formation. Education may just be degree-oriented. Vocationalisation, on the other hand, is
skill-oriented.

7. Gender bias in India is a hindrance to the process of skill formation.

Ans. True. Because, gender bias (particularly in rural India) does not favour female education as much as
male education.

8. Human capital only benefits the owner not the society.

Ans. The given statement is refuted. Human Capital benefits not only the owner but also the society in
general. For example, an educated person can effectively take part in a democratic process and
contribute to the socio-economic progress of a nation. Similarly, a healthy person prevents spreading
of contagious diseases and epidemics by maintaining personal hygiene and sanitation.

9. Education contributes to economic growth.

Ans. Yes, education contributes to economic growth because

¨ Education confers higher earning capacity on people

¨ It gives better social standing and pride

¨ It enables one to make a better choices in life

¨ It stimulates innovations

¨ It provides knowledge to understand the changes taking place in society

10 . There is a downward trend in inequality world-wide with a rise in the average education levels.
Comment.

Ans. The given statement is correct. Labour skill of an educated person is more than that of an uneducated
person, which enables him to generate more income than the uneducated person. The higher income
earning capacity and greater acceptability of modern techniques raise the standard and quality of
living. As a result, the gap between the rich and poor is narrowing slowly. So, rise in average
education levels reduces the inequality of income worldwide.

11. Cause and effect relationship between Human capital and economic growth can be easily proved.

Ans. This statement is incorrect. Due to measurement problems, it is difficult to establish a relation of
cause and effect from the growth of human capital(education and health) to economic growth. For
example, education measured in terms of years of schooling, teacher pupil ratio and enrolment rates

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may not reflect the quality of education. Similarly, health services measured in monetary terms, life
expectancy and mortality rates may not reflect the true health status of the people in the country.

12 . There is no need to promote women education in India.

Ans. No this statement is wrong. Women education needs to be promoted because

¨ To improve economic independence and social status of women

¨ Women education makes a favourable impact on fertility rate and health care of women and
children

QUESTIONS TO DO ( 1 MARK)

Q1. What are the two major sources of human capital in a country? (NCERT)

Ans. (1) Investment in education (2) Investment in health

Q2. What are the indicators of educational achievement in a country? (NCERT)

Ans. The indicators of educational achievement in a country are (1) Adult Literacy Rate; (2) Youth Literacy Rate;
(3) Primary Completion Rate.

Q3. Why do we observe regional differences in educational attainment in India? (NCERT)

Ans. Regional differences in educational attainment in India can be due to: (1) Regional Inequality in Incomes;
and (2) Disparities in expenditure by government on development of educational facilities.

Q4. Mention two government organisations each that regulate the health and education sectors.

Ans. Regulatory Authority in Education: (1) Ministers of Education at the union and state level; (2) National
Council of Educational Research and Training (NCERT)

Regulatory authority in Health: (1) Ministries of Health at the union and state level; (2) Indian Council for
Medical Research (ICMR)

Q5. Discuss the need for promoting women education in India.

Ans. Women education needs to be promoted:

¨ To improve economic independence and social status of women; and

¨ Women education makes a favourable impact on fertility rate and health care of women and children.

Q6. In your view, is it essential for the government to regulate the fee structure in education and health care
institutions? If so, why?

Ans. Yes, it is essential for the government to regulate the fee structure in education and health care
institutions because:

(1) Individual consumers of these services do not have complete information about the quality of
services and their costs or fee structure.
(2) The providers of education and health services may acquire monopoly power and may get involved
in exploitation by charging excessive fees.

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So, the role of government is important to ensure that the private providers of these services
adhere to the standards stipulated by the government and charge the correct fees.

Q7. What is meant by physical capital?

Ans. Physical capital refers to all those inputs which are required for further production, like plant and
machinery, factory, buildings, raw materials, etc.

Q8. What is meant by Human Capital?

Ans. Human Capital refers to the stock of skill, ability, expertise, education and knowledge embodied in the
people.

Q9. Why do we need to invest in human capital?

Ans. We need to invest in human capital to make effective use of physical capital and to increase productive
capacity of the country.

Q10. What is meant by human capital formation?

Ans. Human capital formation implies the development of abilities and skills among the population of the
country.

Q11. How does expenditure on health act as a source of human capital formation?

Ans. Health expenditure is a source of human capital formation as it directly increases the supply of healthy
labour force.

Q12. Which are the various forms of health expenditures?

Ans. Preventive medicine, curative medicine, social medicine, provision of clean drinking water and good
sanitation are the various forms of health expenditures.

Q13. How is the on-the-job training a source of human capital formation?

Ans. On-the-job training is a source of human capital formation as it increases the skill and efficiency of the
workers and leads to an increase in production and productivity.

Q14. How expenditure on migration is a source of human capital formation?

Ans. Expenditure on migration is a source of human capital formation as enhanced earnings in the migrated
place is more than the increase in costs due to migration.

Q15. Why are workers required to work for a certain period after the on-the-job training?

Ans. Workers are required to work for a certain period after the on-the-job training so that the firm can
recover the benefits of the enhanced productivity owing to the training.

Q16. Why has India not been able to achieve 100% literacy rate ?

Ans. Because of the failure to provide free and compulsory education for all children up-to the age of 14 years

Q17. What do differences in male and female literacy rate indicate?

Ans. It indicates that education in India is gender biased.

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Q18. Which five year plan recognised the importance of human capital?

Ans. The seventh five year plan

Q19. Why do individuals invest in education?

Ans. Individuals invest in education because labour skill of an educated person is more than that of an
uneducated person, which enables to generate more income than an uneducated person.

Q20. Why do people spend money to acquire information? Or

Why is it necessary to incur expenditure for acquiring information relating to the labour market and other
markets?

Ans. People spend money to acquire information because information is necessary to make decisions
regarding investments in human capital as well as for efficient utilization of the acquired human capital stock.

Q21. How much educational cess was imposed by the government on all union taxes? Why?

Ans. 2 %. So that the revenues from education cess may be used for spending on elementary education.

Q22. Why have economists stressed the need for expanding educational opportunities in India?

Ans. Economists have stressed the need for expanding educational opportunities as it accelerates the
development process of the nation.

Q23. Spending on education by individuals is similar to spending on capital goods by companies. Explain.

Ans. Companies spend on capital goods with the objective of increasing future profits over a period of time.
Likewise, individuals invest in education with the objective of increasing their future income.

Q24. Why do technically qualified persons, like engineers and doctors, migrate to other countries?

Ans. Because of higher salaries that they might get in other countries.

Q25. Who contributes more to national income- a worker in a factory or a software professional?

Ans. A software professional because the labour skill of an educated person is more than that of an
uneducated person and that it generates more income as well.

Q26. What is the reason for the existence of both private and public institutions in the educational and health
service markets?

Ans. Education and health care services create both private and social benefits. This is the reason for the
existence of both private and public institutions in the education and health service markets.

Q27. How is government expenditure on education expressed?

Ans. Government expenditure on education is expressed in two ways: (1) as a percentage of total government
expenditure (2) as a percentage of Gross Domestic Product (GDP)

Q28. Why did the government of India enact the Right of Education Act in 2009?

Ans. In 2009, the government of India enacted the Right of education Act to make free education a
fundamental right of all children in the age group of 6-14 years.

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Q29. What % of GDP was recommended by the Education Commission (1964-66) to be spent on education and
why? Is the expenditure on different levels of education in India the same?

Ans. The education commission (1964-66) had recommended that at least 6 percent of GDP be spent on
education so as to make a noticeable rate of growth in educational achievements. No, elementary education
takes a major share of total education expenditure and the share of higher education ( institutions of higher
learning like colleges, polytechnics and universities) is the least.

Q30. Which is the most rich ingredient of human capital?

Ans. Scientific and technical manpower.

Q31. Why school dropout is a big problem in India?

Ans. School dropouts give way to child labour, which is a serious loss to human capital.

QUESTIONS TO DO ( 3 or 4 marks)

Q1. A skilled worker like software professional generates more income than an unskilled worker. Why?

Ans. A skilled worker generates more income than an unskilled worker mainly because the productivity of an
educated and skilled person is higher than an unskilled one.

A skilled worker also commands a higher earning, or a gainful employment. This is because they cannot be
substituted with another since it takes years to generate manpower since it takes years to generate manpower
which is skilled in a particular field. On the other hand, an unskilled worker like a rickshaw puller can be easily
substituted as such workers easily compromise on lesser earnings.

Q2. Why and how do firms give on-the-job training to their workers?

Ans. Firms give on-the-job training to enhance the productive skills of the workers. This enables them to
absorb new technologies and modern new ideas. It can be given in two ways:

(a) The workers may be trained in the firm itself under the assistance of a senior and experienced worker.

(b) The workers may be sent off the firms campus for the training.

Q3. Explain how India is a knowledge economy?

Ans. India is quickly emerging as a ‘ knowledge economy’. India’s software industry has been showing an
impressive record over the years. Information Technology (IT) is now being used by the entrepreneurs,
bureaucrats and politicians. Even in villages people are using e-mails and e-governance is projected as the way
of future. Undoubtedly the use of IT services in rural areas will stimulate human development in particular and
economic development at large.

Q4. Mention various indicators of human development .

Ans. (a) Proportion of population below poverty line (e) Education attainment

(b) Growth rate of population (f) Health status

(c) Urban population

(d) Life expectancy at birth

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Q5. What does government expenditure on education reveal?

Ans. The percentage of education expenditure of total government expenditure indicates the importance of
education in the objectives and policies of the government. The percentage of education expenditure of GDP
expresses how much of our income is being committed to the development of education in the country.

Q6. Give any three challenges facing Indian education system.

Ans. (a) The major challenge in the area of education is to bring all Indian children in the age group 6-14 years
under the purview of school education

(b) Per capita education expenditure differs across the states. This in turn leads to variation in educational
opportunities and attainments across the states. Further this is contrary to the purpose of regional equity.

(c) ‘ Education for all ‘ still seems to be distant dream. This is because of the fact that no doubt the literacy
rates have gone up relatively but the absolute numbers of illiterates in India are as much as India’s population
at the time of independence.

Q7. Why has the government of India levied a 2% education cess on all union taxes.

Ans. Recent efforts of the Government of India by way of a 2% education cess on all union taxes is a move
towards raising revenue for spending on elementary education. This is in tune with the RTE Act of 2009, which
focuses on making free education a fundamental right of all children.

Q8. ‘ The education pyramid is steep in India’. Comment.

Ans. Indeed the education system in India is steep. It implies that less number of people reach the ladder of
education at the top level (higher education).

(a) Educated unemployment is the highest, which indicates that there is something wrong with the education
at the higher level.

(b) It is not job-oriented in nature.

(c) The education being imparted is not augmenting employable skills. This in turn leads to frustration among
the youth, who thereby resort to anti-social activities. India cannot afford to waste its precious manpower
resources, which is a big asset to its future development and progress.

(d) It is high time that government restructures its education policy at the higher level and attunes it to what
is required in the job market.

(e) The cry of the day is to provide meaningful and qualitative education, which retains most of the talent
within the country, rather than leading to a ‘ Brain Drain ‘.

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CHAPTER – 6

RURAL DEVELOPMENT

Need for Rural Development

Rural Development refers to continuous and comprehensive socio-economic process, attempting to improve
all aspects of rural life. In other words Rural development is quite a comprehensive term but it essentially
means a plan of action for the development of rural areas which are lagging behind in socio-economic
development. Inadequate infrastructure, lack of alternate employment opportunities in the industry or service
sector, increasing casualisation of employment etc., impede rural development. The impact of this
phenomenon can be seen from the growing distress witnessed among farmers across different parts of India.

The Key Issues in Rural Development or process of rural development

Some of the areas which are challenging and need fresh initiatives for development in rural India include:

1 . Development of human resources: It includes

o literacy, more specifically, female literacy, education and skill development

o health, addressing both sanitation and public health
2. Land reforms: It involves elimination of exploitation in land relations, achievement of the goal of land
to tiller, increasing agricultural productivity and production and improvement in socio-economic conditions
of rural poor by widening their land base
3. Development of the productive resources of each locality: It will enhance employment opportunities
other than agriculture, which should work as a boost for rural development.
4. Infrastructure development: It involves electricity, irrigation, credit, marketing, transport facilities
including construction of village roads and feeder roads to nearby highways, facilities for agriculture
research and extension, and information dissemination
5. Special measures for alleviation of poverty: It involves bringing about significant improvement in the
living conditions of the weaker sections of the population emphasising access to productive employment
opportunities
All this means that people engaged in farm and non-farm activities in rural areas have to be provided with
various means that help them increase the productivity. They also need to be given opportunities to diversity
into various non-farm productive activities such as food processing. Enabling them better and more affordable
access to healthcare, sanitation facilities at workplaces and homes and education for all would also need to be
given top priority for rapid rural development.

Q1. What do you mean by rural development? Bring out the key issues in rural development. (NCERT)

CREDIT AND MARKETING IN RURAL AREAS

Importance of credit in rural development

1. Growth of rural economy depends primarily on infusion of capital, from time to time, to realize
higher productivity in agriculture and non-agriculture sectors.

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2. As the time gestation between crop sowing and realisation of income after production is quite
long, farmers borrow from various sources to meet their initial investment on seeds, fertilisers,
implements and other family expenses of marriage, death, religious ceremonies, etc.

Q2. Discuss the importance of credit in rural development.(NCERT)

Sources of rural credit in India

Non-Institutional Sources

Non institutional sources have been the traditional source of agriculture credit in India. The major sources
are as follows:

1 . Moneylenders: From the very beginning, moneylenders have been giving credit. The Peasants are
exploited through very high rates of interest quite frequently, their accounts are manipulated without their
knowledge.

2 . Relatives: Cultivators borrow funds from their own relatives in times of crisis. These loans are a kind of
informal loans and carry no interest and are normally returned after harvest.

3 . Traders and commission agents: They provide credit to the peasants on the mortgage of crops at high rates
of interest, on a condition, that the crops will be sold to them at low prices.

4 . Rich landlords: Small as well as marginal farmers and tenants take loans from landlords. Landlords also
charge high rates of interest on such loans and exploit small farmers and tenants.

Institutional sources

The institutional structure of rural banking today consists of a set of multi-agency institutions, namely,
commercial banks, regional rural banks (RRBs), cooperatives and land development banks. They are expected
to dispense adequate credit at cheaper rates. The government established the institutional sources with the
following objectives:

¨ To provide adequate credit to farmers at a cheaper interest rate

¨ To assist small and marginal farmers in raising their agricultural productivity and maximising their income.

Some of the major institutional sources are as follows:

1 . Co-operative credit: The primary objective of the co-operatives is to liberate the Indian peasantry from the
clutches of moneylenders and to provide them credit at low rates of interest.

2 . Land development Banks: They provide credit to farmers against the mortgage of their lands. Loans are
provided for improvement in land, purchasing agricultural implements and for repaying old debts.

3 . Commercial bank credit: After nationalisation in 1969 commercial banks expanded their branches in rural
areas and started directly financing the farmers.

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4 . Regional rural banks: They are opened in those areas where there are no banking facilities. Their main
objective is to provide credit and other facilities, especially to small marginal farmers, agricultural labourers,
artisans and small entrepreneurs in rural areas.

5 . The government: The loans provided by the government are known as taccavi loans and are lent during
emergency or distress, like famines, floods, etc. The rate of interest charge against such loan is as low as 6%

6 . National Bank for agricultural and rural development(NABARD): It is the apex bank which co-ordinates the
functioning of different financial institutions, working for expansion of rural credit.

¨ Its objective is to promote health and strength of credit institutions namely cooperatives, commercial banks
and regional rural banks.

¨ Besides providing finance to credit institutions, NABARD also provides financial assistance to the non-farm
sector, to promote integrated rural development and prosperity of backward rural areas.

7 . Self-help Group(SHG) bank linkages programme for micro finance: Recently, Self-Help Groups (SHG) have
emerged to fill the gap in the formal credit system. The formal credit delivery mechanism has not only proven
inadequate but has also not been fully integrated into the overall rural social and community development.
Since some kind of collateral is required, vast proportion of poor rural households were automatically out of
the credit network. By March end 2003, more than 7,00,000 SHGs had reportedly been credit linked.

• The SHGs promote thrift in small proportions by a minimum contribution from each member.
• From the pooled money, credit is given to the needy members to be repayable in small instalments at
reasonable interest rates.
• SHGs have helped in the empowerment of women.
Such credit provisions are generally referred to as micro-credit programmes.

Drawback/Criticism: It is alleged that the borrowings are mainly confined to consumption purposes rather
than productive investment.

Rural Banking System - a Critical Evaluation:

Role of Rural Banking System in the process of rural development in India

1. Rapid expansion of the rural banking system had a positive effect on rural farm and non-farm output,
income and employment, especially after the green revolution- it helped farmers to avail services and
credit facilities and a variety of loans for meeting their production needs.

2. We have now achieved food security which is reflected in the abundant buffer stocks of grains.

Criticisms/Drawbacks

1. Except commercial banks, other formal institutions have failed to develop a culture of deposit
mobilization – lending to worthwhile borrowers and effective loan recovery.

2. Agriculture loan default rates have been chronically high. It is alleged that farmers are deliberately
refusing to pay back loans.

Thus, the expansion and promotion of the rural banking sector has taken a backseat after reforms.

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Q3. Critically evaluate the role of rural banking system in the process of rural development in India. (NCERT)

Problems of rural banking

1 . Insufficiency: The volume of rural credit in the country is still insufficient in comparison to its demand.

2 . Less attention to poor farmers: Lesser attention has been given on the credit requirements of small
farmers. On the other hand well-to-do farmers are getting most of the benefit due to credit worthiness.

3 . Inadequate Coverage of institutional sources: The institutional credit arrangement continues to be

inadequate as they have failed to cover the entire rural farmers in the country.

4 . Inadequate amount of sanction: The amount of loan sanctioned to the farmers is also inadequate. As a
result, farmers often divert such loans for unproductive purposes, which dilute the very purpose of such loan

5 . Growing overdues: The problem of overdues in agricultural credit continues to be an area of concern.

¨ The main reason of overdues is the poor repaying capacity of farmers. As a result, credit agencies are
becoming cautious of granting loans to farmers.

¨ Agriculture loan default rates have been chronically high. It is alleged that farmers are deliberately refusing
to pay back loans. It is a threat to the smooth functioning of banking system and needs to be controlled.

Suggestions

1. Banks need to change their approach from just being lenders to building up relationship banking with
the borrowers.

2. Inculcating the habit of thrift and efficient utilisation of financial resources needs to be enhanced
among the farmers too.

AGRICULTURAL MARKET SYSTEM

Agricultural marketing is a process that involves the assembling storage processing, transportation,
packaging, grading and distribution of different agricultural commodities (food grains, vegetables and fruits)
across the county.

Obstacles that hinder the mechanism of agricultural marketing

1. Manipulations by Big traders: Prior to independence. farmers, while selling their produce to traders,
suffered from faulty weighing and manipulation of accounts.

2. Lack of Market Information: Farmers who did not have the required information on prices prevailing
in markets were often forced to sell at low prices.

3. Lack of Storage Facilities: They also did not have proper storage facilities to keep back their produce
for selling later are a better price. Even today% more than 10 per cent of goods produced in farms are
wasted due to lack of storage.

Therefore, state intervention became necessary to regulate the activities of the private traders. The need for
government intervention is imminent particularly when a large share of agricultural products, is handled by the
private sector. However, some scholars argue that commercialization of agriculture offers tremendous scope
for farmers to earn higher incomes provided the government intervention is restricted.
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Q4. Mention some obstacles that hinder the mechanism of agricultural marketing. (NCERT) Or

Why did the state intervention become necessary to regulate the activities of the private sector?

Measures initiated by the government to improve agricultural marketing

1. Regulation of markets

The first step was to create orderly and transparent marketing conditions. Regulated markets have been
organised with a view to protect the farmers from malpractices of sellers and brokers. By and large, this policy
benefited farmers as well as consumers.

Drawback: There is still a need to develop about 27,000 rural periodic markets as regulated market places to
realise the full potential of rural markets.

2. Provision of physical infrastructure

Second component is provision of physical infrastructure facilities like roads, railways, warehouses, godowns
, cold storages and processing units.

Drawback: The current infrastructure facilities are quite inadequate to meet the growing demand and need to
Regulated markers benefited farmers as well as consumers be improved.

3. Cooperative marketing

Cooperative marketing, in realising fair prices for farmers products, is the third aspect of government initiative.
Under this, marketing societies are formed by farmers to sell the output collectively and take advantage of
collecting bargaining, in order to obtain better prices. The success of milk cooperatives in transforming the
social and economic landscape of Gujarat and some other parts of the country is testimony to the role of
cooperatives.

Drawback : Cooperatives have received a setback during the recent past due to inadequate coverage of farmer
members, lack of appropriate link between marketing and processing cooperatives and inefficient financial
management.

4. Policy instruments

The fourth element is the policy instruments like:

(i) Assurance of minimum support prices (MSP) for agricultural products. To safeguard the interests of
farmers, government fixes the minimum support prices of agricultural products like wheat, rice , maize, cotton,
sugarcane, pulses, etc. Such a price may be regarded as an offer price, at which the government is willing to
buy from the farmers.

(ii) Maintenance of buffer stocks of wheat and rice by Food Corporation of India: The food corporation of
India (FCI) purchases wheat and rice at the procurement price, to maintain buffer stock. Buffer stock
is created in the years of surplus production and is used during shortages. It helps to ensure regularity
in supply and stability in prices.

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(iii) Public Distribution System (PDS): The public distribution system in our country operates through a
network of ration shops and fair price shops. Fair price shops offer essential commodities like wheat,
rice, kerosene, etc. at a price below the market price, to the weaker sections of the society.

These instruments are aimed at protecting the income of the farmers and providing food grains at a subsidized
rate to the poor.

Q5. Explain the various measures taken by the government to improve agricultural marketing. Do you think
these measures are sufficient? Discuss. (NCERT)

Emerging Alternate Marketing Channels for agricultural marketing

1. Farmers Market: It has been realised that if farmers directly sell their produce to consumers, it increases
their incomes. Some examples of these channels are:

• Apni Mandi (Punjab, Haryana and Rajasthan);

• Hadaspar Mandi (Pune);
• Rythu Bazars (vegetable and fruit markets in Andhra Pradesh and Telangana) and
• Uzhavar Sandies (farmers markets in Tamil Nadu).
2. Alliance with National and Multinational companies: Further, several national and multinational fast food
chains are increasingly entering into contracts/ alliances with farmers to encourage them to cultivate
farm products (vegetables, fruits, etc.) 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 of such arrangements:

(i) It will help in reducing the price risks of farmers.

(ii) It would also expand the markets for farm products.

Q6. What are the alternative channels available for agricultural marketing? Give some examples.(NCERT)

DIVERSIFICATION INTO PRODUCTIVE ACTIVITICS

Agricultural Diversification: Meaning and Significance

Agricultural diversification includes two aspects:

(i) one relates to change in cropping pattern and

(ii) the other relates to a shift of workforce from agriculture to other allied activities (livestock, poultry,
fisheries etc.) 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 provide productive sustainable livelihood options to rural people.

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3. Much of the agricultural employment activities

are concentrated in the Kharif season. But during
the Rabi season, in areas where there are
inadequate irrigation facilities, it becomes
difficult to find gainful employment. Therefore,
expansion into other sectors is essential to
provide supplementary gainful employment and
in realising higher levels of income for rural
people to overcome poverty.

Hence, there is a need to focus on allied activities, non-farm employment and other emerging alternatives of
livelihood.

Q7. Why is agricultural diversification essential for sustainable livelihoods?

Role of non-farm employment in promoting rural diversification

As agriculture is already overcrowded, a major proportion of the increasing labour force needs to find
alternate employment opportunities in other non-farm sectors.

Majority of rural women find employment in agriculture while men generally look for non-arm employment. In
recent times, women have also begun looking for non-Farm jobs.

Non-farm sectors have the following sub-sectors:

1. The dynamic sub-sectors that permit healthy growth: The dynamic sub-sectors include agro-
processing industries, food processing industries, leather industry, tourism, etc.

2. Other sectors are in subsistence, low productivity propositions: Those sectors which have the
potential but seriously lack infrastructure and other support include traditional home-based
industries like pottery, crafts, handlooms etc.

Q8. Explain the role of non-farm employment in promoting rural diversification.(NCERT)

Animal Husbandry

In India, the farming community uses the mixed crop–livestock farming system –cattle, goats, fowl are the
widely held species. Milk, meat, eggs, wool and other by-products are emerging as important productive
sectors for diversification.

• Livestock production provides increased stability in income, food security, transport, fuel and nutrition
for the family without disrupting other food-producing activities.
• Today, livestock sector alone provides alternate livelihood options to over 70 million small and marginal
farmers including landless labourers.
• A significant number of women also find employment in the livestock sector.
The pie-chart shows the distribution of livestock in India. Poultry accounts for the largest share which 98 per
cent. Other animals which include camels, asses, horses, ponies and mules account for only 1 per cent share.

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Measures to increase livestock productivity Poultry in India

India had about 300 million cattle, including 108 million buffaloes, in 2012. Though, in terms of numbers, our
livestock population is quite impressive but its productivity is quite low as compared co other countries.

1. It requires improved technology and promotion of good breeds of animals to enhance productivity

2. Improved veterinary care and credit facilities to small and marginal farmers and landless labourers
would enhance sustainable livelihood options through livestock production.

Performance of the Indian dairy sector

Milk production in the country has increased by more than 8 times between 1951-2014. This can be attributed
mainly to the successful implementation of "Operation Flood'.

• Operation Flood is a system whereby all the farmers can pool their milk produced according to different
grading (based on quality) and the same is processed and marketed to urban centres through
cooperatives. (Gujarat state is held as a success story in the efficient implementation of milk
cooperatives which has been emulated by many states.)
• In this system the farmers are assured of a fair price and income from the supply of milk to urban
markets.

Fisheries

• The fishing community regards the water body as 'mother or provider. The water bodies consisting of
sea, oceans, rivers, lakes, natural aquatic ponds, streams etc. are, therefore, an integral and life giving
source for the fishing community.
• In India, after progressive increase in budgetary allocations and introduction of new technologies in
fisheries and aquaculture, the development of fisheries has come a long way.
• Presently, fish production from inland sources contributes about 64 per cent to the total value of fish
production and the balance 36 per cent comes from the marine sector (sea and oceans).
• Even though women are not involved in active fishing, about 60 per cent of the workforce in export
marketing and 40 per cent in internal marketing are women.
• Today, total fish production accounts for 0.8 per cent of the total GDP.
• In India, West Bengal, Andhra Pradesh, Kerala, Gujarat, Maharashtra and Tamil Nadu are major fish
producing states.
• A large share of fish-worker families are poor. Rampant underemployment. low per capita earnings
absence of mobility of labour to other sectors and a high rate of illiteracy and indebtedness are some
of the major problems fishing community ace today.
• There is a need to increase credit facilities through cooperatives and SHGs for fisherwomen to meet
the working capital requirements for marketing
• 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.

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Horticulture

• Blessed with a varying climate and soil conditions, India has adopted growing of diverse horticultural
crops such as fruits, vegetables, tuber crops, flowers, medicinal and aromatic plants, spices and
plantation crops.
• These crops play a vital role in providing food and nutrition, besides addressing employment concerns.
• Horticulture has emerged as a successful sustainable livelihood option. It contributes nearly one-third
of the value of agriculture output and 6 per cent of GDP of India.
• India has emerged as a world leader in producing a variety of fruits like mangoes, bananas, coconuts,
Cashew nuts and a number of spices and is the second largest producer of fruits and vegetables.
• Economic condition of many farmers engaged in horticulture has improved and it has become a means
of improving livelihood for many unprivileged classes.
• Flower harvesting, nursery maintenance, hybrid seed production and tissue culture, propagation of
fruits and flowers and food processing are highly remunerative employment options for women rural
areas.

Requirements for enhancing the role of horticulture

1. Investment in infrastructure like electricity

2. Cold storage systems

3. Marketing linkages

4. Small-scale processing units

5. Technology improvement and dissemination

Role of Information Technology (IT) in achieving sustainable development and food security

Experiments with IT and its application to rural development are carried out in different parts of India.

1. Predicting areas of food insecurity: Governments can predict areas of food insecurity and
vulnerability using appropriate information and software tools so that action can be taken to prevent
or reduce the likelihood of an emergency.

2. Disseminate information: IT also has a positive impact on the agriculture sector as it can disseminate
information regarding emerging technologies and its applications, prices, weather and soil conditions
for growing different crops etc.

3. Releasing the creative potential and knowledges: IT can act as a tool for releasing the creative
potential and knowledge embedded in the society

4. Employment generation: IT also has potential of employment generation in rural areas.

Q9. ‘Information technology plays a very significant role in achieving sustainable development and food
security’. Comment (NCERT)

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SUSTAINABLE DEVELOPMENT AND ORGANIC FARMING

In recent years, awareness of the harmful effect of chemical-based fertilisers and pesticides on our health is on
a rise. Conventional agriculture relies heavily on chemical ferilisers and toxic pesticides etc., which enter the
food supply, penetrate the water sources, harm the livestock, deplete the soil and devastate natural eco-
systems. Efforts in evolving technologies which are eco-friendly are essential for sustainable development and
one such technology which is eco-friendly is organic farming.

Organic farming is an eco–friendly technique of growing crops which promotes sustainable development. It
is that form of agriculture that relies on techniques such as crop rotation, green manure, compost and
biological pest control. In other words, organic agriculture is whole system of farming that restore, maintains
and enhances the ecological balance. There is an increasing demand for organically grown food to enhance
food safety throughout the world.

Benefits of Organic Farming/ Organic Agriculture

1. Helps in sustainable development of agriculture: Organic farming helps in sustainable development

of agriculture as the Output is pesticide-tree and produced in an environmentally sustainable way.
India has a clear advantage in producing organic products for both domestic and international
markets.

2. Offers a means to substitute costlier agricultural inputs: Organic agriculture offers a means to
substitute costlier agricultural inputs (such as HYV seeds, chemical fertilisers, pesticides etc.) with
locally produced organic inputs that are cheaper and thereby generate good returns on investment.

3. Generates income through exports: Organic agriculture also generates income through exports as
the demand for organically grown crops is on rise.

4. More nutritional value: Organically grown food has more nutritional value than chemical farming
thus providing us with healthy foods.

5. Generates more employment : Organic agriculture generates more employment since organic
farming requires more labour input than conventional farming India will hind organic farming an
attractive proposition.

Q10. What is organic farming and how does it promote sustainable development? (NCERT)

Problems/Limitations of organic farming

1. 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.

2. Organic produce may also have more blemishes and a shorter shelf life than sprayed produce.

3. Choice in production of off-season crops is quite limited in organic farming.

4. Marketing of organically produced goods is another major problem.

Q11. Enlist some problems faced by farmers during the initial years of organic farming.

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Suggestions to promote organic farming

1. Creating awarerness and wilingness on the part of farmers to adapt to new technology

2. Provision of adequate infrastructure

3. Problem of marketing the products need to be addressed

4. Appropriate agriculture policy

EXERCISE

A. Multiple Choice Questions: Choose the Correct Answer

1. Which of the following is a non-institutional source of rural credit?

(a) Cooperative societies (b) Commercial banks

(c) Moneylenders (d) RRBs

2. Short period credit is needed for:

(a) maintenance of the existing land (b) purchase of new land

(c) purchase of seeds and manures (d) purchase of machinery

3. Distress sale by the farmers refers to;

(a) the sale of rotton crop. (b) the sale of crop through the commission agents

(c) the sale of crop at the minimum support price fixed by the government

(d) the sale of crop immediately after harvest owing to urgent cash needs of the farmers

4. Which of the following is an emerging challenge related to rural development in India?

(a) Provision of credit (b) Agricultural marketing

(c) Organic farming (d) Irrigation

5. Which of the following is not related to agricultural marketing?

(a) Storage (b) Preservation

(c) Processing (d) Use of chemical fertilisers

6. Which of the following is expected to improve the marketing system?

(a) Regulated markets (b) Improvement in transportation

(c) Minimum support price (d) All of these

7. MSP means:

(a) Minimum support price to the farmers (b) Maximum support price to the farmers

(c) Minimum price of the crop in the retail market (d) Maximum price for the farm inputs
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8. Government established the institutional sources of finance:

(a) To provide adequate credit to farmers at cheaper interest rate

(b) To assist small farmers in raising agricultural productivity and maximising their income

(c) Both (a) and (b) (d) Neither (a) nor (b)

9. The problems faced in rural banking are:

(a) Insufficient rural credit (b) Growing overdues

(c) Inadequate amount of sanctions (d) all of these

10. --------- is the apex body which coordinates the functioning of different financial institutions, working for
expansion of rural credit

(a) NABARD (b) Self-help groups

(c) Regional Rural banks (d) commercial banks

11. The scheme of “micro finance” is extended through:

(a) Self-help groups (b) Land development banks

(c) NABARD (d) Regional Rural Banks

12. Name the state which is held as a success story in the efficient implementation of milk cooperatives

(a) Maharashtra (b) Jammu and Kashmir

(c) Gujrat (d) Andhra Pradesh

13. Which one of the following is not a non-institutional source of credit?

(a) Money lenders (b) Relatives

(c) Traders and commission agents (d) Land development bank

14. Organic farming is beneficial because:

(a) It generates income through international exports (b) environment sustainable

(c) It provides healthy food (d) All of these

15. Why is minimum support price fixed by the government?

(a) For government own benefit (b) To safeguard the interest of farmers

(c) To safeguard the interests of consumers (d) None of these

ANSWERS

1. (c) 2. (c) 3. (d) 4. (c) 5.(d) 6.(d) 7.(a)

8 (c) 9(d) 10(a) 11(a) 12(c) 13( d) 14( d) 15(b

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Read the following statements carefully. Write True or False with a reason.

1. Fertilisers restore crop health, not the soil health.

Ans. True. Reason: Fertilisers are meant to raise crop productivity. On the other hand, continuous use of
fertilisers erodes fertility of the soil.

2. Subsistence farming reduces market risk.

Ans. True. Because; (i) Subsistence farming focuses on the production of those crops which are meant for
self-consumption by the farming families. The farmers do not have to buy these crops from the
market. Accordingly, the market risk is avoided. (ii) Unlike the production of commercial crops, the
production of subsistence crops does not involve market expectations. Accordingly, there are no
market risks.

3. It is easier to obtain institutional credit rather than non-institutional credit.

Ans. False. Because: (i) Institutional credit (like from banks) involves lots of banking formalities, while non-
institutional credit does not. (ii) Institutional credit is available only against collateral (tangible
security) while non-institutional credit is just a matter of faith between the borrower and the lender.

4. Lack of warehousing causes loss of revenue to the farmers.

Ans. True. Because, in the absence of warehousing, the farmers are compelled to sell their produce
immediately after harvesting it. It causes glut of supplies in the market, leading to a fall in crop price.
Accordingly, there is a loss of revenue to the farmers.

5. Cattle farming (rather than crop farming) is more popular in arid and semi-arid areas than in those
where rainfall is not deficient.

Ans. True. Reason: Arid and semi-arid areas are those where rainfall is highly deficient. Accordingly, crop
productivity in these areas becomes highly unpredictable and often remains low. Implying low income
from crop farming. With a view to supplementing farm income, the farmers in these areas resort to
cattle farming. In areas where rainfall is not deficient, crop yield is high. Accordingly, the farmers need
not resort to cattle farming as a supplementary source of income.

6. The period between 1991-2003 is called ‘ Golden revolution ‘ .

Ans. True: the period between 1991-2003 is called ‘ Green revolution ‘ because during this period the
named investment in horticulture became highly productive and the sector emerged as a sustainable
livelihood option.

7. There is no difference between the conventional farming and organic farming.

Ans. False: Under organic farming, the produce is pesticide free and produced in an environmentally
sustainable way, whereas in the conventional farming the produce is based on chemical based
fertilisers and toxic pesticides, which in turn deplete the soil and devastate natural eco-system.

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Questions to do (1Mark)

Q1. What do you mean by rural development?

Ans. Rural development is a continuous and comprehensive socio-economic process, attempting to improve all
aspects of rural life.

Q2. What is cooperative marketing?

Ans. Cooperative marketing refers to a system in which marketing societies are formed by farmers to sell the
output collectively and to take advantage of collecting bargaining .

Q3. What are the two aspects of diversification of activities?

Ans. (1) Diversification of crop production (2) Diversification of productive Activities

Q4. Which is the apex institution in rural financing?

Ans. National Bank for Agriculture and Rural development (NABARD) , established in 1982

Q5. What is organic farming?

Ans. Organic farming is a production system that sustains the health of soils, ecosystems and people. It relies
on ecological processes, biodiversity and cycles adapted to local conditions, rather than use of inputs
with adverse effects.

Q6. What is micro finance?

Ans. Micro finance is a credit scheme extended to the poor through self-help groups

Q7. Why have self-help groups been formed?

Ans. To promote thrift in small proportions by a minimum contribution from each member. From the pooled
money, credit is given to needy members to be repayable in small instalments at reasonable interest
rates.

Q8. What is operation flood?

Ans. Operation flood is a system, whereby all the farmers can pool their milk produce according to different
grading and the same is processed and marketed to urban areas through cooperatives.

Q9. Why do people seek employment in non-farm areas?

Ans. People seek employment in non-farm sectors as agriculture is already over-crowded and cannot offer
additional employment.

Q10. What is the main aim of co-operative marketing societies?

Ans. To realise fair price for farmers products.

Q11. Which states are major producers of marine products? What is the share of total fish production in GDP?

Ans. Kerala, Gujrat, Maharashtra and Tamil Nadu. 0.8 percent

Q12. Name the state, which has an efficient implementation of milk cooperatives.

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Ans. Gujrat

Q13. Why should we attach much significance to rural development when we see around us fast growing cities
with large industries and modern information technology hubs?

Ans. It is because more than two-third of India’s population depends on agriculture and one-third of rural India
still lives in poverty.

Q14. Why is rural development necessary?

Ans. Inadequate infrastructure, lack of alternate employment opportunities in the industry or service sector,
increasing casualisation of employment etc., impede rural development.

Q15. What does infrastructure development means in the context of rural development?

Ans. Infrastructural development like electricity, irrigation, credit, marketing, transport facilities including
construction of village roads and feeder roads to nearby highways, facilities for agriculture research
and extension, and information dissemination.

Q16. After the initiation of reforms, the growth rate of agriculture sector decelerated to about 3% per annum
during the 1991-2012. What is the major reason for this identified by economists?

Ans. Economists identify decline in public investment since 1991 as the major reason for this.

Q17. Growth of rural economy depends primarily on ---------- , from time to time to realise --------- in
agriculture and non-agriculture sectors.

Ans. Infusion of capital , higher productivity

Q18. Why do the farmers need to borrow from various sources?

Ans. As the time between crop sowing and realisation of income after production is quite long, farmers borrow
from various sources to meet their initial investment on seeds, fertilisers, implements and other
family expenses of marriage, death, religious ceremonies etc.

Q19. At the time of independence, how did the moneylenders and traders exploit small and marginal farmers?

Ans. By lending to them at high interest rates and by manipulating the accounts to keep them in a debt-trap.

Q20. How was the green revolution a harbinger of major changes in the rural credit system?

Ans. As it led to the diversification of the portfolio of rural credit towards production oriented lending.

Q21. State the composition of the institutional structure of rural banking today.

Ans. The institutional structure of rural banking today consists of a set of multi-agency institutions namely
commercial banks, regional rural banks, cooperatives and land development banks.

Q22. State the drawback of credit provisions through micro credit programmes.

Ans. It is alleged that the borrowings are mainly confined to consumption purposes.

Q23. What do you mean by agricultural marketing? (NCERT)

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Ans. It is a process that involves the assembling, storage, processing, transportation, packaging, grading and
distribution of different agricultural commodities (food grains, vegetables and fruits) across the
country.

Q24. Even today, more than 10% of goods produced in farms are wasted. Why?

Ans. Even today, more than 10% of goods produced in farms are wasted due to lack of storage.

Q25. Name the policy instruments to improve agricultural marketing.

Ans. (1) assurance of minimum support price (MSP) for agricultural products

(2)maintenance of buffer stocks of wheat and rice by Food cooperation of India

(3)distribution of food grains and sugar through Public distribution system (PDS)

Q26. What is the aim of the policy instruments to improve agricultural marketing?

Ans. These are aimed at protecting the income of the farmers and providing food grains at a subsidised rate to
the poor.

Q27. What is agricultural diversification?

Ans. Agricultural diversification includes two aspects- one relates to change in cropping pattern and the other
relates to a shift of workforce from agriculture to other allied activities ( livestock, poultry, fisheries
etc.) and non-agriculture sector.

Q28. Why does the need for rural diversification arise?

Ans. The need arises from the fact that there is a greater risk in depending exclusively on farming for livelihood

Q29. Milk production in the country has increased by more than ------ between 1951-2014. This can be
attributed mainly to the successful implementation of ----------

Ans. 8 times, Operation flood

Q30. The fishing community regards the water body as ‘mother’ or ‘provider’ . Explain why.

Ans. Because the water bodies ( sea, oceans, rivers, lakes, natural aquatic ponds, streams etc.) are an integral
and life giving source for the fishing community.

Q31. In India, the development of fisheries has come a long way. Explain how.

Ans. In India, after progressive increase in budgetary allocations and introduction of new technologies in
fisheries and aquaculture, the development of fisheries has come a long way.

Q32. Today, total fish production accounts for ------- of the total GDP.

Ans. 0.8%

Q33. Enumerate some of the major problems fishing community face today.

Ans. Rampant underemployment, low per capita earnings, absence of mobility of labour to other sectors and a
high rate of illiteracy and indebtedness are some of the major problems fishing community face
today.

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Q34. Blessed with a varying climate and soil conditions, India has adopted growing of diverse horticultural
crops. Name such crops.

Ans. Fruit, vegetables, tuber crops, flowers, medicinal and aromatic plants, spices and plantation crops.

Q35. Horticulture has emerged as a successful sustainable livelihood option. It contributes nearly ------- of the
value of agricultural output and --------- of GDP of India.

Ans. One-third, 6%

Q36. State the harmful effects of the conventional agriculture which relies heavily on chemical fertilisers and
toxic pesticides.

Ans. Conventional agriculture relies heavily on chemical fertilisers and toxic pesticides etc., which enter the
food supply, penetrate the water sources, harm the livestock, deplete the soil and devastate natural
eco-systems.

Q37. What are the major concerns which needs to be addressed apart from an appropriate agriculture policy
to promote organic farming?

Ans. Inadequate infrastructure and the problem of marketing

Q38. Why do small and marginal farmers find it difficult to adapt to organic farming?

Ans. Because the yields from organic farming are less than modern agricultural farming in the initial years.
Moreover, it requires the farmers to adapt to new technology.

LONG ANSWERS

Q1. Explain the role of micro credit in meeting credit requirements of the poor. (NCERT)

Ans. Micro-credit or self-help group (SHG) has emerged as the major micro finance programme in the country
in recent years. Micro credit has played an important role in meeting credit requirements of the poor
in the following ways:

1 . The focus is largely on those poor, who have no sustainable access to the formal banking system. So, their
target groups comprise of small and marginal farmers, agricultural and non-agricultural labourers, artisans, etc.

2 . SHGs promote thrift in small proportions by a minimum contribution from each member.

3 . From the pooled money, credit is given to the needy members at reasonable interest rates, which is to be
repaid in small instalments.

4 . Poor rural households do not have any kind of collateral required by formal credit institutions for providing
credit. Such collateral is not required by micro-credit institutions.

5 . By march 2003, more than seven lakh SHGs had reportedly been credit linked. Such credit provisions are
generally referred to as micro-credit programmes. SHGs have also helped in the empowerment of women.

Q2. Bring out the importance of animal husbandry, fisheries, and horticulture as a source of diversification.
(NCERT)

Ans. Animal Husbandry

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In India, the farming community uses the mixed crop–livestock farming system –cattle, goats, fowl are the
widely held species. Milk, meat, eggs, wool and other by-products are emerging as important productive
sectors for diversification.

• Livestock production provides increased stability in income, food security, transport, fuel and nutrition
for the family without disrupting other food-producing activities.
• Today, livestock sector alone provides alternate livelihood options to over 70 million small and marginal
farmers including landless labourers.
• A significant number of women also find employment in the livestock sector.
Fisheries
This sector plays an important role in socio-economic development of the country.
• West Bengal, Andhra Pradesh, Kerala, Gujarat, Maharashtra and Tamil Nadu are major fish producing
states
• A significant number of women also find employment in the fishing. 60% of the workforce in export
marketing and 40% in internal marketing are women.
• Fish production contributes 0.8% to India’s GDP
Horticulture
It is an important sector for potential diversification and value addition in agriculture. India has emerged as
a world leader in producing a variety of fruits, vegetables and a number of spices.
• Horticulture has improved economic condition of many farmers and has become a means of improving
livelihood for many unprivileged classes too.
• Flower harvesting, nursery maintenance, etc. are highly remunerative employment options for women in
rural areas.
Q3. Distinguish between ‘ Green Revolution and Golden Revolution’.
Ans. Green Revolution Golden Revolution
rd
The period of the 3 five year plan The period between 1991-2003 witnessed golden
(1962..onwards) witnessed green revolution.
revolution
It was a harbinger of major changes It focusses on adopting growing of diverse horticulture
In the credit system and focussed crops such as fruits, vegetables, tuber crops, flowers
On the two staple crops wheat and and medicinal plants, spices and plantation crops.
rice.
Q4. What do you know about the programme ‘ Kudumbshree ‘?
Ans. ‘ Kudumbshree ‘ programme focusses on the reduction of poverty of the women oriented community.
• It has been implemented in Kerala since 1995.
• It is a thrift and credit society which started in the form of small savings bank for the poor women.
• Its sole objective is to promote savings
• It was able to mobilise Rs 1 crore as thrift savings.
• Such societies have won accolades as the largest informal banks in Asia, w.r.t. participation rate and
the mobilisation of savings.

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Q5. How is agricultural diversification helpful for farmers? Explain.

Ans. Agricultural diversification is helpful for farmers in the sense that the big risk which they face in solely
depending upon farming for livelihood gets reduced. Diversification towards new areas is also necessary to
provide productive sustainable options to the livelihood of the rural masses. Diversification provides
supplementary and gainful employment during off season. Diversification in agriculture thereby enhances
the income level of rural people. Hence, it helps to overcome poverty.
Q6. Explain the project ‘ TANWA ‘.
Ans. Tamil Nadu Women in Agriculture (TANWA) refers to a project initiated in Tamil Nadu, mainly to train
women in latest agricultural techniques. It provides incentive to women to participate keenly in it, so as to
promote agricultural productivity along with raising their family income. Trained women successfully make
and sell vermi compost and earn income from it. Other farm Women’s Groups function like mini-banks
through a micro-credit system. With the accumulated savings women indulge in other income generating
activities like mushrooms cultivation, doll making etc.
Q7. Discuss how the use of Information Technology can help in rural development of India.
Ans. Use of IT in Indian agriculture:
• If farmers can plan their crop according to the need that is likely to generate in future then the gap
between the demand and supply can be bridged. Information technology assists in making database
available to such farmers with regard to the returns, the market is likely to generate by the time the crops
are ready. This would minimise the uncertainty of the farmers.
• The quality and quantity of crops can be increased manifold if the farmers are made aware of the
latest equipment's, technologies and resources. Internet is a user-friendly medium, which provides a
platform for easy exchange of information on a global level.
• Issues like weather forecast, crop treatment, fertilisers, pesticides, storage conditions etc. can be
well administered, if expert opinion is made available to the farmers.
• With the help of information technology, the crutches of middlemen can be done away with and the
farmers can get a clear vision about the market, latest technologies and hence channelise their potential
accordingly. This would make them self-sufficient and yield planned crops with a ready market.

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CHAPTER – 7

EMPLOYMENT GROWTH, INFORMATION AND OTHER ISSUES

WORKERS AND EMPLOYMENT-PARTICIPATION OF PEOPLE IN EMPLOYMENE

Gross Domestic Product (GDP) and Gross National Product (GNP)

The total money value of al final goods and services produced within the domestic territory of a country in a
given year is called its Gross Domestic Product (GDP) tor that year.

When we add Net Factor Income from Abroad (Factor income from abroad minus Factor income paid to
abroad) to GDP what we get is called the country's Gross National Product (GNP) for that year.

GNP = GDP + NFIA

Those activities which contribute to the gross national product are called economic activities.

Who is a worker?

A worker is an individual, who is involved in some economic activity, to earn a living. 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.

Who are all included in 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.

Nature of employment

The nature of employment in India is multi-faceted. 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 (or
included as employed)

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 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 per cent of the workers are men and the rest are
women (men and women include child labourers in respective sexes).
• Women workers account for one-third of the rural workforce whereas in urban areas, they are just one-fifth
of the workforce.

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Worker-Population Ratio

Worker-Population Ratio is defined as the proportion (percentage) of population that is actively contributing
to the production of goods and services of a country.

Worker-Population Ratio for India is calculated by dividing the total number of workers in India by the
population in India and multiply it by 100.

Worker-Population Ratio

Estimated number of workers/Total population*100

• Worker-population ratio is an indicator which is used for analysing the employment situation in the country.
• If the ratio is higher, it means that the engagement of people is greater.
• lf the ratio for a country is medium, or low, it means that a very high proportion of its population 1s not
involved directly, in economic activities.
The following Table shows the different levels of participation of people in economic activities. For every 100
persons, about 39 (by rounding oft 38.6) are workers in India.

Worker-Population Ratio in India, 2011-2012

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

Why is there difference between worker-population ratio in rural and urban areas?

In urban areas, the worker-population ratio is about 36 whereas in rural India, the ratio is about 40.

• People in rural areas have limited resources to earn a higher income and participate more in the
employment market Many do not go to schools, colleges and other training institutions. Even if some go,
they discontinue in the middle to join the workforce. People cannot stay at home as their economic
condition may not allow them to do so.
• On the other hand, in urban areas, a considerable section is able to study in various educational institutions.
Urban people have a variety of employment opportunities. They look for the appropriate job to suit their
qualifications and skills.

Why are women, in general, and urban women, in particular, not working?

Compared to males, less females are found to be working. The difference in participation rates is very large in
urban areas: for every l00 urban females, only about 15 are engaged in some economic activities.

In rural areas, for every 100 rural women about 25 participate in the employment market. Compared to urban
women, more rural women are found working because of the following reasons:

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1. It is common to find that where men are able to earn high incomes, families discourage female
members from taking up jobs.

2. Earnings of urban male workers are generally higher than rural males and so the urban families do not
want females to work.

3. Apart from this, many household activities in which urban women are engaged are not recognized as
productive work while women working on farms in the rural areas are considered a part of the
workforce it they are being paid wages in cash or in the form of food grains.

Q1. Compared to urban women, more rural women are found working. Why? (NCERT)

SELF EMPLOYED AND HIRED WORKERS

Different categories/status of workers

1. Self-employed

Workers who own and operate an enterprise to earn their livelihood are known as self-employed. For
example, a cement shop owner is self-employed. They account for 52 per cent of India’s workforce.

2. Casual wage labourers

Casual wage labourers are casually engaged in others' farms and, in return, get a remuneration for the work
done. For example, the construction workers are casual wage labourers. They account for 30 per cent of
India's workforce.

3. Regular salaried employees

When a worker is engaged by someone or an enterprise and paid his or her wages on a regular basis, they
are known as regular salaried employees. For example, workers like the civil engineer working in the
construction company. They account for 18 per cent of India's workforce.

Distribution of Employment (Status-wise)

Status of workers Percentage of Total

Workforce

Self-employed 52

Casual wage labourers 30

Regular salaried employees 18

Total 100

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Advantages of knowing the status with which a worker is placed in an enterprise

1. By knowing the status with which a worker is placed in an enterprise, it may be possible to know the
quality of employment in a country

2. It also enables us to know the attachment a worker has with his or her job and the authority she or he
has over the enterprise and over other co-workers.

Distribution of Employment by Gender

Status of Workers % of Male Workers % of Female Workers

Self-employed 51 56

Casual wage labourer 29 31

Regular salaried employees 20 13

Total 100 100

Self-employment is a major source of livelihood for both men and women as this category accounts for more
than 50 per cent of the workforce in both pre-charts. Casual wage work is the second major source for both
men and women. Men are engaged in regular salaried employment in greater proportion than women. They
form 20 per cent whereas women form only 15 per cent. One of the reasons could be skill requirement. Since
regular salaried jobs require skills and a higher level of literacy, women might not have been engaged to a
great extent.

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Distribution of Employment by Region

Status of Workers Urban Areas (%} Rural Areas (%)

Self-employed 43 56

Casual wage labourers 15 35

Regular salaried employees 42 9

Total 100 100

The self-employed and casual wage labourers are found more in rural areas than in urban areas. In rural areas,
since majority of those depending on farming own plots of land and cultivate independently the share of self-
employed is greater. In urban areas, both self-employment and regular wage salaried jobs are greater. The
nature of work in urban areas is different. Obviously everyone cannot run factories, shops and offices of
various types. Moreover, enterprises in urban areas require workers on a regular basis.

EMPLOYMENT IN FIRMS, FACTORIES AND OFFICES

Distribution of Workforce by Industrial Sectors

In the course of economic development of a country labour flows from agriculture and other related activities
to industry and services. In this process, workers migrate from rural to urban areas. Eventually, at a much later
stage the industrial sector begins to lose its share of total employment as the service sector enters a period of
rapid expansion. This shit can be understood by looking at the distribution of workers by industry.

Generally, we divide all economic activities into eight different industrial divisions. They are

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(i) Agriculture

(ii) Mining and Quarrying

(iii) Manufacturing

(iv) Electricity, Gas and Water Supply

(v) Construction

(vi) Trade

(vii) Transport and Storage

(vii) Services

For simplicity all the working persons engaged in these divisions can be clubbed into three major sectors
primary sector, secondary sector and tertiary sector.

Distribution of Workforce by Industry 2011-2012

Industrial Category Place of Residence Sex Total

Rural Urban Men Women

Primary Sector 64.1 6.7 43.6 62.8 48.9

Secondary Sector 20.4 35.0 25.9 20.0 24.3

Tertiary/ Service Sector 15.5 58.3 30.5 17.2 20.8

Total 100 100 100 100 100

1. Primary sector

It includes Agriculture. Primary sector is the main source of employment for majority of workers in India.
About 49% of workers are engaged in the primary sector.

• About 64% of the workforce in rural India depends on agriculture, forestry and fishing
• Agriculture is not a major source of employment in urban areas where people are mainly engaged in the
service sector
• In rural areas, though both men and women workers are concentrated in the primary sector, women
workers concentration is very high there. About 63% of the female workforce is employed in the primary
sector whereas less than half of males work in that sector. Men get opportunities in both secondary and
service sectors.

2. Secondary sector

It includes (i) Mining and Quarying (ii) Manufacturing (iii) Electricity, Gas and Water Supply (iv) Construction.

Secondary sector provides employment to only about 24% of workforce in India.

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• The secondary sector gives employment to about 35% of urban workforce.

• About 20% of rural workers are working in manufacturing industries, construction and other industrial
activities.

3. Tertiary/Service sector

It includes (i) Trade (ii) Transport and Storage (iii) Services.

About 27% of workers are in the service sector.

• About 60% of urban workers are in he service sector.

• Service sector provides employment to only about l6% of rural workers.

GROWTH AND CHANGING STRUCTURE OF EMPLOYMENT

Indicators of Economic Development

There are two developmental indicators:

(i) Growth of employment and

(ii) Growth of Gross Domestic Product (GDP).

India's planned development have been aimed at expansion of the economy through increase in GDP and
employment.

During the period 1950-2010, Gross Domestic Product (GDP) of India grew positively and was higher than the
employment growth. During this period. employment grew at the rate of not more than 2 per cent. However,
there was always fluctuation in the growth of GDP. There is a widening gap between the growth of GDP and
employment during 1951-2012. This means that in the Indian economy without generating employment, we
have been able to produce more goods and services. Scholars refer to this phenomenon as jobless growth.

How the growth pattern of employment and GDP affected different sections of workforce? A major section
of population lives in rural areas and is dependent on agriculture as their main livelihood. Developmental

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strategies in India have aimed at reducing the proportion of people depending on agriculture. Distribution of
workforce by industrial sectors shows substantial shift from farm work to non-farm work

Trends in Employment Pattern (Sector-wise) during 1972-2012 (in %)

Sector 1972-73 1983 1993–94 199–2000 2011-2012

Primary 74.5 68.6 64 60.4 48.9

Secondary 10.9 11.5 16 15.8 24.3

Services 14.8 16.9 20 23.8 26.8

Total 100 100 100 100 100

Trends in Employment Pattern (Status-wise) during 1972-2012 (in %)

Status 1972-73 1983 1993-94 1999-2000 2011-2012

Self-employed 61.4 57.3 54.6 52.6 52.0

Regular Salaried Employees 15.4 13.8 13.6 14.6 18.0

Casual Wage Labourers 23.2 28.9 31.8 32.8 30.0

Total 100 100 100 100 100

• In 1972-73, about 74 per cent of workforce was engaged in primary sector and in 2011-12, this proportion
has declined to about 50 per cent.
• Secondary and service sectors are showing promising future for the Indian workforce as shares of these
sectors have increased from 11 to 24 per cent and 15 to 27 per cent, respectively during 1972-2012.
• distribution of workforce in different status indicates that over the last four decades (1972-2012), people
have moved from self-employment and regular salaried employment to casual wage work. Yet self–
employment continues to be the major employment provider.
The process of moving from self–employment and regular salaried employment to casual wage work is called
casualiation of workforce. This makes the workers highly vulnerable.

INFORMALISATION OF INDIAN WORKFORCE

Workers in Formal and Informal Sectors

We classify workforce into two categories-workers in formal and informal sectors, which are also referred to as
organised and unorganised sectors.

Formal Sector (or Organised Sector):All the public sector establishments and those private sector
establishments which employ 10 hired workers or more are called formal sector establishments and those who
work in such establishments are formal sector workers.

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• The workers in the formal sector get regular income. They also enjoy social security benefits such as
maternity benefit, provident fund, gratuity and pension. They earn more than those in the informal sector.
• The government, through its labour laws, enable them to protect their rights in various ways.
• The formal sector workers form trade unions, bargain with employers for better wages and other social
security measures.

Informal Sector (or Unorganised Sector)

All other enterprises and workers working in other than the following form the informal sector.

• Public sector establishments and

• Private sector establishments which employ 10 hired workers or more form the informal sector.

Informal sector includes:

• Millions of farmers and agricultural labourers

• Owners of small enterprises and people working in those enterprises
• The self-employed people who do not have any hired workers.
• All non-farm casual wage labourers who work for more than one employer such as construction workers
and headload workers.

Quality of employment has been deteriorating over the years.

One of the objectives of development planning in India, since India's independence, has been to provide
decent livelihood to its people. It has been envisaged that the industrialisation strategy would bring surplus
workers from agriculture to industry with better standard of living as in developed countries. However, over
the years, the quality of employment has been deteriorating.

• Even after working for more than 10-20 years, workers in the informal sector do nor get maternity benefit,
provident fund, gratuity and pension.
• A person working in the private sector get a lower salary as compared to another person doing the same
work but in the public sector.
• Developmental planning envisaged that as the economy grows, more and more workers would become
formal sector workers and the proportion of workers engaged in the informal sector would decrease. But
this has not happened in India, as shown in the following table.

Distribution of workforce in formal and informal sectors

Sector No. of workers (in million) % of workforce

Formal 30 6.3

Informal 443 93.7

Total 473 100

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There are about 473 million workers in the country. Out this, there are about only 30 million workers in the
formal sector. Therefore, the percentage of people employed in the formal sectors in the country is about only
6 per cent (30/473 ´ 100). Thus, the rest 94 per cent are in the informal sector.

Out of 30 million formal sector workers, only 6 million, that is, only about 21 per cent

(6/3 ´ x100) are women. In the informal sector, male workers account for 69 per cent of the workforce.

Since the late 1970s, India started paying attention to enterprises and workers in thee informal sector.

This is due to the following reasons:

(i) Employment in the formal sector is not growing.

The percentage of people employed in the formal sectors in the country 1s about only per cent of the
total workforce of the country.

(ii) Workers and enterprises in the informal sector do not get regular income.

(iii) They do not have any protection or regulation from the government.

(iv) Workers are dismissed without any compensation.

(v) Technology used in the informal sector enterprises is outdated. They also do not maintain any
accounts.

Of late, owing to the efforts of the International Labour Organisation (ILO), the Indian government has
initiated the modernisation of informal sector enterprises and provision of social security measures to informal
sector workers.

UNEMPLOYMENT: GENERATION OF EMPLOYMENT BY GOVERNMENT

Meaning and Types of Unemployment

Economists define unemployed person as one who is not able to get employment of even one hour in half a
day. Unemployment refers to a situation in which people are willing and able to work at the existing wage
rate, but do not get work.

National Sample Survey Organisation (NSSO) defines unemployment as – "a situation in which all those who,
owing to lack of work, are not working but either seek work through employment exchanges, intermediaries,
friends or relatives or by making applications to prospective employers or express their willingness or
availability for work under the prevailing condition of work and remunerations.

Different types of unemployment prevailing in India

1. Disguised unemployment

Disguised unemployment or hidden unemployment is a kind of unemployment where some people seem to be
employed but are actually not. It refers to a state in which more people are engaged in work than are really
needed. Suppose a farmer has four acres of land and he actually needs only two workers and himself to carry
out various operations on his farm in a year, but it he employs five workers and his family members such as his

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wife and children, this situation is known as disguised unemployment. About one-third of agriculture workers
in India as disguisedly unemployed.

2. Seasonal unemployment

Unemployment that occurs at certain seasons of the year is known as seasonal unemployment.

Many people migrate to an urban area, pick up a job and stay there for some time, and then come back to
their home villages. This is because work in agriculture is seasonal; there are no employment opportunities in
the village for all months in the year. When there is no work to do on farms, people go to urban areas and look
for jobs his kind of unemployment is known as seasonal unemployment.

3. Open Unemployment

Open unemployment refers to that economic phenomenon in which persons are able and willing to work at
the prevailing wage rate but fail to get work. It is called open unemployment because such unemployment
can be seen and counted in terms of the number of unemployed people. In many cities, we find people
standing in some select areas looking for people to employ them for that day's work. Some go to factories and
offices and give their bio-data and ask whether there is any vacancy in their factory or office. Many in the rural
areas go to employment exchanges and register themselves for vacancies notified through employment
exchanges. Scholars say that in India, people cannot remain completely unemployed for very long because
their desperate economic condition would not allow them to be so. They are forced to accept jobs that nobody
else would do, unpleasant or even dangerous jobs in unclean, or unhealthy surroundings.

Sources of data on unemployment

There are three sources of data on unemployment:

(i) Reports of Census of India

(ii) National Sample Survey Organisation's Reports of Employment and Unemployment Situation

(iii) Directorate General of Employment and Training Data of Registration with Employment Exchanges.

Drawback/Criticism

Though they provide different estimates of unemployment, they do not provide us with the attributes of the
unemployed and the variety of unemployment prevailing in our country.

Causes of unemployment

1 . Slow rate of Economic Growth: The actual growth rate always lies far below the rate targeted in the five
decades of planning. Employment opportunities created under the plans could not keep pace with the
additions to the labour force.

2 . Population Explosion: The rapid rate of population growth has been another cause of increasing
unemployment in the country. It has not been possible to generate so many employment opportunities to
absorb the large growing labour force.

3 . Defective education system: The prevailing education system in India is full of defects as it fails provide
technical and vocational education. As a result educated people are unable to meet the requirements of the
firm.
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4 . Slow growth of industry: Due to shortage of capital and lack of modern and advanced technology,
industrial sector could not gain its momentum and could not generate sufficient employment opportunities in
the country.

5 . Underdeveloped Agriculture: Heavy pressure of population on land and the primitive methods of
agricultural operations are responsible for massive rural unemployment and underemployment in the country.

6 . Inadequate Employment Planning: Low priority has been given to employment objective in the plans.
There has been complete absence of any legal provision to implement employment generating schemes.

REMEDIAL MEASURES FOR UNEMPLOYMENT

1 . Accelerating growth rate of GDP: The aggregate employment problem can be solved through the process
of accelerated growth. Growth rates of GDP between 8% and 9% are needed over the next few years, to
achieve a significant improvement in the employment situation.

2 . Control of population growth: The rapid growth rate of population should be slowed down, so that the
additional jobs created do not fall short of new entrants to the labour market. Therefore, it is necessary to
adopt an effective and meaningful population control policy, like family planning programmes.

3 . Development of agriculture sector: Acceleration of agricultural growth is important to increase labour

productivity and quality of employment for large numbers of the existing labour force. There is a need for
agricultural revolution through improved techniques, extension of irrigation facilities, reform of land laws,
increase in public investment, etc.

4 . Encouragement of small-scale enterprises: The small sector needs to be encouraged through multiple
initiatives like liberal finance, technical training, supply of raw material, infrastructural facilities and marketing
of their products.

5 . Special employment programs: Special employment programs, which aim at providing wage employment
or self -employment opportunities, should be implemented.

6 . Reform of educational system: The present system of educational system should be made more vocational
and work-oriented. Educational facilities should be more diversified and a sustained programme of training is
necessary, to develop skills among the educated unemployed through special training or apprenticeship
courses

Government and Employment Generation

The Central and State governments take many initiatives and generate employment to facilitate a decent living
for low income families through various measures. For example, Mahatma Gandhi National Rural Employment
Guarantee Act, 2005 promises 100 days of guaranteed wage employment to all rural households who
volunteer to do unskilled manual work. This scheme has been implemented by the government to generate
employment for those who are in need of jobs in rural areas.

Direct and Indirect Generation of Employment Opportunities by the Government

Since Independence, the Union and State governments have played an important role in generating
employment or creating opportunities for employment generation. Their efforts can be broadly categorised
into two – direct and indirect.

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1. 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 directly to
workers.
For example, dam construction work is a direct way of employment generation by the government.

2. Indirect generation of employment opportunities by the government

When the output of goods and services from government enterprises increases, then private enterprises which
receive raw materials from government enterprises will also raise their output and hence increase the number
of employment opportunities in the economy. For example, when a government owned steel company
increases its output, It will result in direct increase in employment in that government company.
Simultaneously, private companies, which purchase steel from it, will also increase their output and thus
employment. This is the indirect generation of employment opportunities by the government initiatives in the
economy.

Employment Generation Programmes Initiated by the Government

Many programmes that the governments implement, aimed at alleviating poverty, are through employment
generation. They are also known as employment generation programmes. For example:

• Rural Employment Generation Programme (REGP)

• Prime Minister's Rojgar Yojana (PMRY)
• Swarna Jayanti Shahari Rozgar Yojana (SJSRY)
All these programmes aim at providing not only employment but also services in areas such as:

(i) Primary health (ii) Primary education

(iii) Rural drinking water (iv) Nutrition

(v) Assistance for people to buy income and employment generating asses

(vi) Development of community assets by generating wage employment

(vii) Construction of houses and sanitation, assistance for constructing houses

(viii) Laying of rural roads. (ix) Development of wastelands/degraded lands

CONCLUSION

• Newly emerging jobs are found mostly in the service sector. The expansion of the service sector and the
advent of high technology now frequently permit a highly competitive existence for efficient small scale and
often individual enterprises or specialist workers side by side with the multinationals.
• Outsourcing of work becoming common practice. It means that a big firm finds it profitable to dose down
some of its specialist departments (for example, legal or computer programming or customer service
sections) and hand over a large number of small piecemeal jobs to very small enterprises or specialist
individuals, sometimes situated even in other countries.

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• The traditional notion of the modern factory or office, as a result, has been altering in such a manner that
for many the home is becoming the workplace. All of this change has not gone in favour of the individual
worker.
• The nature of employment has become more informal with only limited availability of social security
measures to the workers.
• In the last two decades, there has been rapid growth in the gross domestic product, but without
simultaneous increase in employment opportunities. This has forced the government to take up initiatives
in generating employment opportunities particularly in the rural areas.
EXERCISE

A. Multiple Choice Questions: Choose the Correct Answer

1. Number of persons unemployed = Labour Force -

(a) Supply of labour (b) Workforce

(c) Total population (d) Participation Rate

2. Less employment of females in comparison to males is an indication of:

(a) economic backwardness (b) social backwardness

(c) both (a) and (b) (d) none of these

3. Unemployment leads to which of the following:

(a) loss of manpower (b) loss of output

(c) decline in capital formation (d) all of these

4. Which type of unemployment is found in agricultural sector?

(a) Disguised unemployment (b) Structural unemployment

(c) Industrial unemployment (d) Educated unemployment

5. Unemployment arising from economic fluctuations is called:

(a) frictional unemployment (b) disguised unemployment

(c) cyclical unemployment (d) urban unemployment

6. The number of people who are able to work and willing to work at the existing wage rate is known as:

(a) labour force (b) workforce

(c) labour supply (d) participation rate

7. Percentage of population participating in production activity is called:

(a) labour force (b) workforce

(c) labour supply (d) participation rate

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8. Most of the disguised unemployed persons in India are found in :

(a) Agriculture (b) Industry

(c) Trade (d) Transport

9. The number of persons, who are actually employed at a particular time are known as:

(a) Labour force (b) Work force

(c) Both (a) and (b) (d) Neither (a) nor (b)

10. The process of moving from self -employment and regular salaried employment to casual wage work is
known as:

(a) Information of work force (b) Casualisation of work force

(c) Both (a) and (b) (d) Neither (a) nor (b)

11. Unemployment refers to people:

(a) Who are not willing to work (b) Who are willing but do not get work

(c) Who leave their jobs in search of better ones (d) Who have been dismissed from jobs

12. The major causes of unemployment in India can be classified as :

(a) Under Development (b) Rapid population growth

(c) Defective planning (d) All of these

13. Unemployed people is calculated as :

(a) Labour force- Work force (b) Labour force +Work force

(c) Work force- Labour force (d) None of these

14. Seasonal unemployment occurs mainly in --------------

(a) Private sector industry (b) Public sector industry

(c) Agriculture (d) Banks

15. An arrangement in which a worker uses his own resources to make a living, is known as:

(a) Wage-employment (b) Regular employment

(c) Casual-employment (d) Self-employment

16. Disguised unemployment refers to ;

(a) Persons with no jobs (b) More persons employed for a job which lass can accomplish

(c) Unemployment among woman (d) People who are not willing to work

17. The ratio of labour force to total population is termed as:

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(a) Labour force participation force rate (b) Work force

(c) Both (a) and (b) (d) Neither (a) nor (b)

18. ----------- are hired on a permanent basis and also get social security benefits.

(a) Casual workers (b) Self-employed workers

(c) Regular workers (d) None of these

19. Out of these, which of the following is a worker?

(a) Beggar (b) Gambler

(c) Cobbler (d) smuggler

20. Unemployment that occurs at certain seasons of the year is known as:

(a) Seasonal unemployment (b) Open unemployment

(c) Hidden Unemployment (d) None of these

ANSWERS

1. (b) 2.(c) 3.(d) 4.(a) 5.(c) 6.(a) 7.(d)

8 (a) 9 (b) 10(b) 11(b) 12(d) 13(a) 14 (c) 15(d) 16 (b) 17(a) 18 (c) 19(c) 20(a)

Read the following statements carefully. Write True or False with a reason.

1. Urban unemployment is a spillover of rural unemployment.

Ans. True. Reason: Owing to the lack of opportunities of employment, people in the rural areas are
compelled to migrate to the urban areas in search of livelihood. This compounds the problem of
urban unemployment.

2. Poverty leads to low wages.

Ans. True. Reason: Poverty (particularly in rural areas) compels the people (particularly the. female
workers) to accept ‘low-wage jobs’. The compulsion arises on account of these facts: (i) the female
workers (owing to their illiteracy and social constraints) are averse to migrate to the urban areas for
better jobs, and (ii) poverty is a compelling force for the woman in rural areas to supplement their
family income even when they are to accept low-wage jobs.

3. Disguised unemployment lowers efficiency/productivity.

Ans. True. This is absolutely true that disguised unemployment lowers efficiency/productivity.

As a matter of fact, disguised unemployment is defined as a situation when marginal productivity of

labour is zero or negative.

4. Unemployment is a loss of potential output.

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Ans. True. Because, unemployment implies inability to use the existing manpower GDP level would
definitely be much higher if all those who are able to work and willing to work are actually engaged in
work.

5. Primary sector is an important source of labour supply to the secondary and tertiary sectors of the
economy

Ans. It is true that the primary sector is an important source of labour supply to the secondary and tertiary
sectors of the economy. Reason: When productivity rises in agriculture (owing to the use of
innovative technology), less labour is needed to produce a given level of output. Thus, labour is
displaced in the primary sector It is this labour which migrates to the urban areas, finding jobs in the
secondary and tertiary sectors.

6. Unemployment and poverty are reflections of each other

Ans. True. Because, unemployed people do not earn wages or salaries. Thus, poverty is the obvious
consequence of unemployment.

7. Economic activity means production activity

Ans. False. There is a difference between production activity and economic activity It is like this: economic
activity relates to the use of scarce resources. It includes: (i) production activity (ii) consumption
activity (iii) activity of investment, and (iv) activity of exchange. Thus, production activity is only an
element of economic activity In other words, while all production activities are economic activities, all
economic activities are not production activities.

8. Are the following workers: a beggar, a thief, a smuggler, a gambler?

Ans. No, they are not workers because they are not doing any productivity activity.

9. Compared to urban women, more rural women are found working. Comment

Ans. More rural women are found working because of their poor economic condition as compared to urban
women.

10. Compared to the 1970s, there has hardly been any change in the distribution of workforce across
various industries. Comment.

Ans. The given statement is correct. As India is an agrarian economy, majority of its population depend on
the agriculture sector to earn livelihood. Although, the developemental strategies in India have aimed
at the reduction of population dependent on agriculture, yet there has not been any significant
reduction.

• In 1972-73, about 74.3% of workforce was engaged in primary sector, which declined to 48.9% in
20011-12

• On the other hand, shares of secondary and service sectors increased from 10.9% to 24.3% and
from 14.8% to 26.8% respectively.

11. Regular salaried employees are more in urban areas than in rural areas. comment.

Ans. Regular salaried employees are more in urban areas because urban people have a variety of
employment opportunities due to their educational attainments and skills. Moreover, the nature of
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work is different in urban areas and enterprises require workers on a regular basis. On the other
hand, only 7% of rural people are engaged as regular salaried employees due to illiteracy and lack of
skills.

12. There are less women found in regular salaried employment. Comment.

Ans. Lesser women are found in regular salaried employment because of illiteracy and lack of skills.
Regular salaried jobs require skills and higher level of literacy, which is more common in case of men.

QUESTIONS TO DO (1MARK)

Q1. Why do people work?

Ans. People work for earning a living which helps them and their families to survive

Q2. Give the meaning of workforce.

Ans. The number of persons who are actually employed at a particular time are known as work force

Q3. What is meant by labour force participation rate?

Ans. The ratio of labour force to total population is called labour force participation rate

Q4. What is meant by informalisation of workforce?

Ans. It refers to a situation whereby the proportion of the workforce in the informal sector to total workforce
increases.

Q5. Define jobless growth.

Ans. It refers to a situation when the economy is able to produce more goods and services without a
proportionate increase in employment opportunities.

Q6. What is meant by casualisation of workers?

Ans. The process of moving from self-employment and regular salaried employment to casual wage work is
known as casualisation of workforce.

Q7. Men are found in greater proportion than women in regular salaried employment. Why? (NCERT)

Ans. One of the reasons could be skill requirement. Since regular salaried jobs require skills and a higher level
of literacy, women might not have been engaged to a great extent.

Q8. What do you mean by formal sector establishments?

Ans. All the public enterprises and private establishments, which employ 10 or more hired workers, are called
formal sector establishments.

Q8. Who are formal sector workers?

Ans. Workers who work in formal sector establishments are known as formal workers.

Q9. What is meant by informal sector?

Ans. It includes all those private enterprises which hire less than 10 workers.

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Q10. What is meant by ‘ factory work’?

Ans. Earlier ‘ factory work’ meant working in factories located in cities whereas now technology has enabled
people to produce those factory-based goods at home in villages.

Q11. Who is a worker ? (NCERT)

Ans. 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.

Q12. Define worker-population ratio. (NCERT)

Ans. Worker-population ratio is defined as the proportion of population that is actively contributing to the
production of goods and services of a country. In short it is the percentage of total population
engaged in work

Q13. Are the following workers- a beggar, a thief, a smuggler, a gambler? Why? (NCERT)

Ans. A beggar, a thief, a smuggler and a gambler are not considered as workers as they do not work or engage
in any productive economic activity which may contribute to GNP of the country.

Q14. State the advantage of knowing the status with which a worker is placed in an enterprise.

Ans. By knowing the status with which a worker is placed in an enterprise, it may be possible to know the
quality of employment in a country. It also enables us to know the attachment a worker has with his
or her job and the authority she or he has over the enterprise and over other co-workers.

Q15. Who is a casual wage labourer? (NCERT)

Ans. Casual wage labourers are casually engaged in other farms and, in return, get a remuneration for the
work done. For example, the construction workers ae casual wage labourers.

Q16. Mark (a), (b) and (c) against self-employed, regular salaried employees and casual wage labourers
respectively:

1 . Owner of a saloon

2 . Worker in a rice mill who is paid on a daily basis but employed regularly

3 . Cashier in State Bank of India

4 . Typist working in a state government office on a daily wage basis but paid monthly

5 . Owner of a cold drinks shop

6 . Nurse in a private hospital who gets monthly salary and has been working regularly for the past 5 years.

Ans. 1(a) 2(b) 3(b) 4(c) 5(a) 6(b)

Q17. Meena is a housewife. Besides taking care of household chores, she works in the cloth shop which is
owned and operated by her husband. Can she be considered as a worker? Why? (NCERT)

Ans. Activities for the household done by women are not recognised as productive work and hence Meena
cannot be considered as a worker here.

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Q18. find the odd man out (1) rickshaw puller who works under a rickshaw owner (2) Mason (3) mechanic shop
worker (4) shoeshine boy (NCERT)

Ans. Shoeshine boy is a self-employed whereas all others are hired workers

Q19. In the course of economic development of a country, labour flows from ------ and other related activities
to industry and -------. In this process, workers migrate from -------to -------- areas.

Ans. Agriculture , services, rural , urban

Q20. All economic activities are divided into eight different industrial divisions. Name them.

Ans. Agriculture, mining and Quarrying, manufacturing, Electricity, Gas and water supply, Construction, Trade,
Transport and storage and Services

Q21. Which divisions are included in the secondary sector?

Ans It includes Mining and Quarrying; Manufacturing; Electricity, Gas and water Supply; and Construction.

Q22. Which divisions are included in the tertiary sector/

Ans. It includes Trade; Transport and Storage; and Services

Q23. The newly emerging jobs are found mostly in the ------- sector. (NCERT)

Ans. Service

Q24. Name the two developmental indicators.

Ans. Growth of employment and GDP

Q25. During the period 1950-2010, employment grew at the rate of not more than---------

Ans. 2%

Q26. There is a widening gap between the growth of GDP and employment during 1951-2012. What does this
mean?

Ans. Jobless growth

Q27. How will you know whether a worker is working in the informal sector ? (NCERT)

Ans. All those who are working in enterprises other than the public sector establishments which employ 10 or
more hired workers are called informal sector workers.

Q28. Victor is able to get work only for 2 hours in a day. Rest of the day the is looking for work. Is the
unemployed? What kind of jobs could persons like victor be doing? (NCERT)

Ans. No, victor is not unemployed because the is able to get work for two hours in a day. Economists define
unemployed person as one who is not able to get employment of even one hour in half a day.

Q29. Raj is going to school. When the is not in school, you will find him working in his farm. Can you consider
him as a worker?

Ans. Yes, a person is considered as a worker if he contributes to GDP by rendering his productive activities.

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Q30. Meena is a housewife. Besides taking care of household chores, she works in the cloth shop which is
owned and operated by her husband. Can she be considered as a worker?

Ans. A person is considered as a worker if he/she contributes to GDP by rendering his/her productive activities.
As Meena works in her husband’s shop she should be considered as a worker. However, in India, such women
workers are neither counted as workers nor they are paid for such work.

QUESTIONS TO DO ( LONG)

Q1. ‘The nature of unemployment in India is multifaceted.’ Elaborate.

Ans. The above statement is correct.

• This is mainly because of the variation in the duration of employment. There are some people who are
employed throughout the years, whereas there are others who are employed for only a few months and some
get work for only few days in a year.

• We have rural workers and urban workers. In India a majority of the workers live in rural areas, so their
proportion to the workforce is higher than their urban counterparts. The rural workers constituted about ¾ of
the total workforce of 460 million in 2004-05

• Another noticeable feature is that 70% of the workers are men and the rest are women.

• Women workers are 1/3 of the rural workforce and they are 1/5th of the rural workforce in the urban
areas.

• Many workers do not get fair wages or payment for the work rendered by them i.e., they are underpaid
and thereby exploited by their employers.

Q2. “ Though India has witnessed slow growth of employment, yet people cannot remain completely
unemployed for very long time in India.” Explain.

Ans. In, India people cannot remain unemployed for very long time because their desperate economic
condition does not allow them to be so. They accept jobs that nobody else would do, unpleasant or even
dangerous jobs in unclean, unhealthy surroundings.

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CHAPTER – 8

INFRASTRUCTURE

INFRASTRUCTURE: MEANING AND RELEVANCE

Meaning of Infrastructure

Infrastructure refers to the supporting services in the main areas of industrial and agricultural production,
domestic and foreign trade and commerce. In other words infrastructure refers to all such activities, services
and facilities, which are needed to provide different kinds of services in an economy. These services include:

• Roads
• Railways
• Ports
• Airports
• Dams
• Power stations
• Oil and gas pipelines
• Telecommunication facilities
• The country's educational system including schools and colleges
• Health system including hospitals
• Sanitary system including clean drinking water facilities
• The monetary system including banks, insurance and other financial institutions.

Classification of Infrastructure

Infrastructure can be divided into two categories–economic and social.

Economic Infrastructure. Infrastructure associated with energy transportation and communication are
included in the economic infrastructure.

Social Infrastructure. Infrastructure related to education, health and housing are included in the social
infrastructure.

Relationship between Economic and Social Infrastructure

Both economic and social infrastructure are interdependent. For example, the quality of transport and
communication (economic infrastructure) can affect access to health care (social infrastructure). Similarly, air
pollution and safety hazards connected to transportation also affect morbidity (meaning proneness to fall ill),
particularly in densely populated areas.

Q1. Define infrastructure. Explain the two categories into which infrastructure is divided. How are both
interdependent? (NCERT)

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Relevance/Role/Importance of Infrastructure

1. Boosts production: Infrastructure facilities such as roads, railways, ports, airports,

telecommunication, etc. boost production. Some of these facilities have a direct impact on production
of goods and services while others give indirect support by building the social sector of the economy.

2. Basis of modem industrial economy: Infrastructure is the support system on which depends the
efficient working of a modern industrial economy.

3. Basis of modern agriculture: Modern agriculture also largely depends on sound infrastructure for
speedy and large-scale transport of seeds, pesticides, fertilisers and the produce using modern
roadways, railways and shipping facilities. In recent times, agriculture also depends on insurance and
banking facilities because of its need to operate on a very large scale.

4. Contributes to economic development: Infrastructure contributes to economic development of a

country both by increasing the productivity of the factors of production and improving the quality of
life of its people. Development of infrastructure and economic development go hand in hand.

• Agriculture depends, to a considerable extent, on the adequate expansion and development of irrigation
facilities.
• Industrial progress depends on the development of power and electricity generation, transport and
communications.
Obviously, if proper attention is nor paid to the development of infrastructure, it is likely to act as a severe
constraint on economic development.

5. Affects access to health care: The quality of transport and communication can affect access to
health care. Inadequate infrastructure can have multiple adverse effects on health. Improvements in water
supply and sanitation have a large impact by reducing morbidity from major waterborne diseases and reducing
the severity of disease when it occurs.

6. Provides Employment: Infrastructure helps in generating employment. Many people get

employment in infrastructural projects like construction and maintenance of roads, railways, electricity plants,
etc. Many more people are able to find employment in industry and trade, after the development of strong
infrastructure.

7. Facilitates Outsourcing: A country with advanced infrastructure facilities, is able to reap benefits
from the outsourcing work. India is emerging as a global destination for BPO’s, KPO’s, call centres, etc. due to
IT support system and sound infrastructure.

Q2. Explain the relevance of infrastructure in an economy by giving any four points. (NCERT)

THE STATE OF INFRASTRUCTURE IN INDIA

Public Private Partnership in Infrastructure Development

Traditionally, the government has been solely responsible for developing the country's infrastructure. But it
was found that the governments investment in infrastructure was inadequate. Therefore, today the private
sector by itself and also in joint partnership with the public sector (called Public Private Partnership), has
started playing a very important role in infrastructure development.

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Relationship between National Income and Composition of Infrastructure

In any country, as the income rises, the composition of infrastructure requirements changes significantly.

• For low-income countries, basic infrastructure services, like irrigation, transport and power, are more
important.
• economies develop and most of their basic consumption demands are met, the share of agriculture in the
economy shrinks and more service-related infrastructure s required. This is why, the share of power and
telecommunication infrastructure is greater in high-income countries.
The table below shows the state of some infrastructure in India in comparison to a few other countries.

Some Infrastructure in India and other Countries

Country Investment in Access to Access to Mobile Power

Infrastructure as a Improved Improved Subscribers/100 Generation
% GDP Water Source Sanitation (%) People (billion kwh)
(%)

(2014) (2015) (2015) (2015) (2016)

China 46 96 77 93 6015

India 34 94 40 79 1423

Pakistan 15 91 64 70 105

Indonesia 35 87 61 132 249

Though infrastructure is the foundation of development, India invests only 34 per cent of its GDP on
infrastructure, which is far below that of China. Some economists have projected that India will become the
third biggest economy in the world a few decades from now. For that to happen, India will have to boost its
infrastructure investment.

State of Rural Infrastructure in India

• Despite so much technical progress in the world, rural women are still using bio-fuels such as crop
residues, dung and fuel wood to meet their energy requirement. They walk long distances to fetch fuel,
water and other basic needs.
• The census 2001 shows that in rural India only 56 per cent households have an electricity connection
and 45 per cent still use kerosene.
• About 90 per cent of the rural households use bio-fuels for cooking.
Tap water availability is limited to only 24 per cent rural households.

About 76 per cent of the population drinks water from open sources such as wells, tanks, ponds,
lakes, rivers, canals, etc.

• Access to improved sanitation in rural areas was only 20 per cent.

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ENERGY AS A CRITICAL COMPONENT OF INFRASTRUCTURE

Significance of Energy

Why do we need energy ?

Energy is a critical aspect of the development process of a nation.

1. It is essential for industries.

2. Now it is used on a large scale in agriculture and related areas like production and transportation of
fertilisers, pesticides and farm equipment.

3. It is required in houses for cooking, household Fuel wood is the major source of energy lighting and
heating.

Sources of Energy

Traditional/Conventional Sources of Energy

Both commercial and non-commercial sources of energy are known as conventional sources or energy.

More than 60 per cent of Indian households depend on traditional sources of energy for meeting their regular
cooking and heating needs.

S.No. Commercial sources Non-commercial sources

1. Commercial sources of energy are coal, Non-commercial sources of energy are firewood.,
petroleum and electricity as they are bought agricultural waste and dried dung.
and sold.

2. Commercial sources are generally These are non-commercial as they are found in
exhaustible (with the exception of nature/forests. Non-commercial sources are
hydropower). generally renewable.

Q3. What is the significance of energy? Differentiate between commercial and non-commercial sources of
energy. (NCERT)

Non-conventional Sources of Energy

Non-conventional sources of energy can be of great support to meet shortage of energy. There are three other
sources of energy which are commonly termed as non-conventional sources – solar energy, wind energy and
tidal power. Being a tropical country, India has almost unlimited potential for producing all three types of
energy it some appropriate cost effective technologies that are already available are used. Even cheaper
technologies can be developed.

Consumption Pattern of Commercial Energy

With the rapid pace of economic growth, there has been a corresponding increase in the use of energy.
However, there is a big gap between consumer demand and supply of electricity in India.
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• In India, commercial energy consumption makes up about 4 per cent of the total energy consumed in India.
(This includes coal wish he largest share of 54 per cent, followed by oil at 32 per cent, natural gas at 10 per
cent and hydro energy at 2 per cent.
• Non-commercial energy sources consisting of firewood, cow dung and agricultural wastes account for over
26 per cent of the total energy consumption.
The critical feature of India's energy sector, and its linkages to the economy, is the import dependence on
crude and petroleum products, which is likely to grow rapidly in the near future.

Trends in Sectoral Share of Commercial

Energy Consumption (in %)

Sector 1953-54 1990-91 2011-15

Household 10 12 23

Agriculture 01 08 18

Industries 40 45 44

Transport 44 22 2

Others 5 13 13

Total 100 100 100

The transport sector was the largest consumer of commercial energy in 1953-54. However, there has been
continuous fall in the share of the transport sector while the
shares of the household, agriculture and industrial sector have
been increasing

Q4. How has the consumption pattern of energy changed over

the years? (NCERT)

Power/Electricity

• The most visible form of energy, which is often identified with

progress in modern civilisation, is power, commonly called
electricity. It is a critical component of infrastructure that
determines the economic development of a country.
• The growth rate of demand for power is generally higher than
the GDP growth rate. Studies point out that in order to have
8 per cent GDP' growth per annum, power supply needs to
grow around 12 per cent annually.

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Different Sources of Electricity Generated in India

• In India, in 2016, thermal sources accounted for 67 per cent of the power generation capacity.
• Hydel power accounted for 14 per cent.
• Nuclear energy accounts for only 2 per cent of the total energy consumption, against a global average of 13
per cent. This is far too low.
Nuclear (or Atomic) energy is an important source of electric power as it is cheaper. Hence, some economies
suggest to generate more electricity through atomic sources and yet a few others object about this, from the
viewpoint of environment and sustainable development.

India's energy policy encourages two energy sources – hydel and winds – as they do not rely on fossil fuel and,
hence, avoid carbon emissions. Yet, this has not resulted in faster growth of electricity produced from these
two sources,

Some Challenges in the Power Sector

Electricity generated by various power stations is not consumed entirely by ultimate consumers. A par is
consumed by power station auxiliaries. Also, while transmitting power a portion is lost in transmission. What
we get in our houses, offices and factories is the net availability. The power sector is facing a number of
problems at generation, transmission and distribution levels.

Some of the challenges that India's power sector faces today are:

1. Low installed capacity and its under-utilisation: India's installed capacity to generate electricity is
not sufficient to fed an annual economic growth of 7-8 per cent. In order to meet the growing demand for
electricity, India's commercial energy supply needs to grow at about 7 per cent. At present, India is able to add
only 20.000 MW a year.

2. Underutilisation of installed capacity: Even the installed capacity is under-utilised because plans are
not run properly. During excess demand, the operational efficiency of power projects is reflected by ‘Plant
Load Factor’ (PLF). In India, the PLF is very poor and inadequate attention is paid to improve it.

3. Losses incurred by State Electricity Boards: State Electricity Boards (SEB$), which distribute
electricity, incur losses which exceed 500 billion. This is due to:

• transmission and distribution lasses,

• wrong pricing of electricity, and
• other inefficiencies
Some scholars also say that distribution of electricity to farmers is the main reason for the losses.
Electricity is also stolen in different areas which also adds to the woes of SEB’s

4. Less role of private sector: Private sector power generators do not yet play their role in a major way.
Same is the case with foreign investors.

5. General public unrest: There is general public unrest due to high power tariffs and prolonged power
cuts in different parts of the country.

6. Shortage of raw material and coal supplies: Thermal power plants, which are the mainstay of India's
power sector are facing shortage of raw material and coal supplies. Thus, continued economic

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development and population growth are driving the demand for energy faster than what India is
producing currently.

Q5. What problems are being faced by the power sector in India?

Privatisation of the power sector

Instead of investing in the power sector by adding to the installed capacity, the government has gone for
privatisation of the power sector, and particularly, distribution, and allowed much higher prices for electricity
that have impacted certain sectors very badly.

Power Distribution: The Case of Delhi

Since Independence, power management in the national capital has changed hands four times.

The Delhi State Electricity Board (DSEB) was set up in 1951.

This was succeeded by the Delhi Electric Supply Undertaking (DESU) in 1958.

The Delhi Vidyut Board (DVB) came into existence as SEB in February 1997,

Now, the distribution of electricity vests with two leading Private sector companies:

(i) Reliance Energy Limited (BSES Rajdhani Power Limited and BSES Yamuna Power Limited)

(ii) Tata Power Limited (NDPL).

They supply electricity to approximately 46 lakh customers in Delhi. The tariff structure and other regulatory
issues are monitored by the Delhi Electricity Regulatory Commission (DERC).

1hough it was expected that there will be greater improvement in power distribution and the consumers will
benefit in a major way, experience shows unsatisfactory results.

Some suggestions to ensure additional supply of electricity

• More public investment

• Better research and development efforts
• Exploration
• Technological innovation
• Use of renewable energy sources

HEALTH INFRASTRUCTURE OF INDIA

As per WHO, ‘ Health is a state of complete physical, mental and social well-being and not merely the
absence of disease or infirmity.’

Health is not only absence of disease but also the ability to realise one's potential. It is a yardstick of ones well-
being. Health is the holistic process related to the overall growth and development of the nation is the
responsibility of the government to ensure the right to healthy living.

Generally scholars assess people’s health by taking into account indicators like:

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• Infant mortality and maternal mortality rates

• Life expectancy and nutrition levels, and
• Incidence of communicable and non–communicable diseases.

Health Infrastructure

• Health infrastructure includes hospitals, doctors, nurses and other para-medical professionals, beds,
equipment required in hospitals and a well-developed pharmaceutical industry.
• Development of health infrastructure ensures a country o healthy manpower for the production of goods
and services.
• Mere presence of health infrastructure is not sufficient to have healthy people. he same should be
accessible to all people. Since the initial stages of planned development, policy-makers envisaged that no
individual should fail to secure medical care, curative and preventive, because of the inability to pay for it.

State of Health Infrastructure in India

Public Health Infrastructure in India, 1951-2015

Item 1951 1981 2000 2014-15

Hospitals (Govt.) 2,694 6,805 15,888 19.653

Beds (Govt.) 1,17,000 5,04,538 7, 19,861 7,54,724

Dispensaries 6,600 16.745 23,065 26,325

PHCs 725 9,115 22,842 25,308

Sub-co-centres – 84.736 1,37.311 53.655

CHCs – 761 3,043 5,396

• The government has the constitutional obligation to guide and regulate all health-related issues, such as
medical education, adulteration of food, drugs and poisons, medical profession, vital statistics, mental
deficiency and lunacy.
• The Union Government evolves broad health policies and plans through the Central Council of Health and
Family Welfare. It collects information and renders financial and technical assistance to State governments,
Union territories and other bodies for the implementation of important health programmes in the country.
• Over the years, India has built a vast health infrastructure and manpower at different levels. At the village
level, a variety of hospitals, technically known as Primary Health Centres (PHCs), have been set up by the
government.
• India also has a large number of hospitals run by voluntary agencies and the private sector. These hospitals
are manned by professionals and para-medical professionals trained in medical, pharmacy and nursing
colleges.
• Since Independence, there has been a significant expansion in the physical provision of health services.
During 1951-2013, the number of government hospitals and dispensaries increased from 9,300 to 44,000

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and hospital beds from 1.2 to 6.3 lakh. Also, nursing personnel increased from 0.18 to 23.44 lakh and
allopathic doctors from 0.62 to 9.2 lakh.
• The expansion of health infrastructure has resulted in the eradication of smallpox, guinea worms and the
near eradication of polio and leprosy.

Private Sector Health Infrastructure

• More than 70 per cent of the hospitals in India are run by the private sector. They control nearly two-fifth
of the beds available in the hospitals. Nearly 60 per cent of dispensaries are run by the same private sector.
They provide healthcare for 80 per cent of out-patients and 46 per cent of in-patients.
• In recent times, private sector has been playing a dominant role in medical education and training, medical
technology and diagnostics, manufacture and sale of pharmaceuticals, hospital construction and the
provision of medical services.
• In 2001-02, there were more than 13 lakh medical enterprises employing 22 lakh people; more than 80 per
cent of them are single person owned, and operated by one person occasionally employing a hired worker.
• Scholars point out that the private sector in India has grown independently without any major regulation.
Some private practitioners are not even registered doctors and are known as quacks.
• Since the 1990s, owing to liberalisation measures, many non-resident Indians and industrial and
pharmaceutical companies have set up state-of–the-art super-specialty hospitals to attract India's rich and
medical tourists.
Indian Systems of Medicine (ISM)

• It includes six systems-Ayurveda, Yoga, Unani, Siddha, Naturopathy and Homeopathy.

• At present, there are 3,167 ISM hospitals, 26,000 dispensaries and as many as 7 lakh registered practitioners
in India. But little has been done to set up a framework to standardise education or to promote research.
• ISMs have huge potential and can solve a large part of our healthcare problems because they are effective,
safe and inexpensive.

Indicators of Health and Health

Infrastructure -A Critical Appraisal

The expenditure on health sector is as 4.7 per cent of the total GDP This is very low as compared to other
countries, both developed and developing.

One study points out that India has about 17 per cent of the world's population bur it bears a frightening 20
per cent of the global burden of diseases (GBD).

GBD is an indicator used by experts to gauge the number of people dying prematurely due to a particular
disease, as well as, the number of years spent by them in a state of disability owing to the disease.

Indicators of Health in India in comparison with other Countries, 2014-2015

Indicatory India China USA Sri Lanka

Infant Mortality Rate/1,000 live births 38 9 6 8

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Under-5 mortality 1,000 live-births 48 11 7 10

Birth by skilled attendants (% of total) 74 100 99 99

Infants immunised (DTP) (%) 87 99 95 99

Health expenditure as % of GDP 4.7 5.6 17 3.5

Government health spending to total government spending (%) 5 10.4 21.3 11.2

Out of pocket expenditure as a % of private expenditure on health 89 72 21.4 95

• In India, more than half of GBD is accounted for by communicable diseases such as diarrhoea, malaria and
tuberculosis. Every year around five lakh children die of water-borne diseases. The danger of AIDS is also
looming large.
• Malnutrition and inadequate supply of vaccines lead to the death of 2.2 million children every year.
• At present, less than 20 per cent of the population utilises public health facilities. Only 38 per cent of the
PHCs have the required number of doctors and only 30 per cent of the PHCs have sufficient stock of
medicines.

Urban-Rural and Poor-Rich Divide

People living in rural areas do not have sufficient medical infrastructure, which has led to differences in the
health status of people. In rural areas, the percentage of people who have no access to proper healthcare
facilities has increased over the last few years. Villagers have no access to any specialized medical care, like
paediatrics, gynaecology, anaesthesia and obstetrics.

• Though 70 per cent of India's population lives in rural areas, only one-fifth of is hospitals including Private
hospitals) arc located in rural areas.
• Rural India has only about half the number of dispensaries.
• Out of about 6.3 lakh beds in government hospitals, roughly 30 per cent are available in rural areas.
• As far as hospitals are concerned, there are only 0.36 hospitals for every one lakh people in Rural areas,
while urban areas have 3.6 hospitals for the same number of people.
• The PHCs located in rural areas do not even offer X-ray or blood testing facilities, which for a city dweller,
constitutes basic healthcare.
• States, like Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh, are relatively lagging behind in healthcare
facilities.
• Even though 380 recognised medical colleges produce about 44,000 medical graduates every year, the
shortage of doctors in rural areas persists. While one-fifth of these doctor graduates leave the country for
better monetary prospects, many others opt for private hospitals, which are mostly located in urban areas.
• The poorest 20 per cent of Indians living in both urban and rural areas spend 12 per cent of their income on
healthcare, while the rich spend only 2 per cent.
What happens when the poor fall sick? Many have to sell their land or even pledge their children to afford
treatment. Since government-run hospitals do not provide sufficient facilities, the poor are driven to private
hospitals, which make them indebted forever, else they opt to die.

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Women's Health

Women suffer many disadvantages as compared to men in the areas of education, participation in economic
activities and healthcare.

• The deterioration in the child sex ratio in the country from 927 in 2001 to 914 in 2011 points to the growing
incidence of female foeticide
• Close to 3,00,000 girls aged below 15 years are not only married but have already borne children at least
once.
• More than 50 per cent of married women in the age group of 15–49 years have anaemia and nutritional
anaemia caused by iron deficiency, which has contributed to 19 per cent of maternal deaths.
• Abortions are also a major cause of maternal morbidity and mortality in India.
Q6. How has women’s health become a matter of great concern?

Suggestions to improve the effectiveness of health care programmes

1. Decentralisation of public health services: Health is a vital public good and a basic human right. Al
citizens can get better health activities it public health services are decentralised.

2. Sound health infrastructure: Success in the long-term battle against diseases depends on education
and efficient health infrastructure. It is, therefore, critical to create awareness on health and hygiene
and provide efficient systems. The role of telecom and TT' sectors cannot be neglected in this process.

3. Primary healthcare: The effectiveness of healthcare programmes also rests on primary healthcare.
The ultimate goal should be to help people move towards a better quality of life.

4. Reducing the gap between urban and rural healthcare : There is a sharp divide between urban and
rural healthcare in India. It we continue to ignore this deepening divide, we run the risk of
destabilising the socio-economic fabric of our country.

5. Accessibility and affordability of basic healthcare to all: In order to provide basic healthcare to all,
accessibility and affordability need to be integrated in our basic health infrastructure.

Q7. How can we increase the effectiveness of health care programmes?

CONCLUSION

Infrastructure, both economic and social, is essential for the development of a country. As a support system, it
directly influences all economic activities by increasing the productivity of the factors of production and
improving the quality of life. In the last seven decades of Independence, India has made considerable progress
in building infrastructure, nevertheless, its distribution is uneven.

Many parts of rural India are yet to get go0d roads, telecommunication facilties, electricity, schools and
hospitals. As India moves towards modernization, the increase in demand for quality infrastructure, keeping in
view their environmental impact, will have to be addressed. The reform policies by providing various
concessions and incentives, aim at attracting the private sector, in general, and foreign investors, in particular.
While assessing the two infrastructure energy and health, it is clear that there is scope for equal access to
infrastructure for all.

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Multiple Choice Questions: Choose the Correct Answer

1. Which of the following is considered as social infrastructure?

(a) Transport (b) Education

(c) Communication (d) Energy

2. Which of the following is not a type of commercial energy?

(a) Firewood (b) Natural gas

(c) Coal (d) Electricity

3. Which of the following is considered as non-conventional energy?

(a) Solar energy (b) Wind energy

(c) Biomass (d) All of these

4. Infrastructure facilitates:

(a) outsourcing (b) industrial linkages

(c) investment (d) all of these

5. Which of the following is an essential indicator of good health?

(a) Low death rate (b) High expectancy of life

(c) Low infant mortality rate (d) All of these

6. Health infrastructure in India is biased against:

(a) the rich (b) the poor

(c) both (a) and (b) (d) none of these

7. Global Burden of Disease (GBD) as an indicator is used to assess:

(a) the quantity of life (number of years) lived by the people

(b) the quality of (disease free) life lived by the people

(c) both the quantity and quality of life lived by the people (d) none of these

8. Electricity generated from radioactive elements is called:

(a) Thermal power (b) Hydro-electric Power

(c) Atomic power (d) Tidal Power

9. Which of the following is a part of three-tier system of health infrastructure?

(a) Primary Health care (b) Secondary Health Care

(c) Tertiary health care (d) All of these

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10. Which of these is a renewable resource of energy?

(a) Solar Energy (b) Wind Energy

(c) Both (a) and (b) (d) Neither (a) nor (b)

11. Which sector has the largest share in total consumption of commercial energy?

(a) Agricultural sector (b) Transport sector

(c) Industrial sector (d) Household

12. India’s Energy policy encourages the following two energy sources:

(a) Hydel and thermal power (b) Wind and thermal power

(c) Hydel and wind (d) Thermal and Nuclear power

13. Which of the following is not a measure to meet power crisis?

(a) Improvement in Plant load factor (b) control of transmission and distribution losses

(c) Increase in production capacity (d) Encourage use of non-renewable sources

14. Which primary source of energy has the largest share in the commercial energy consumption?

(a) Oil (b) Natural Gas

(c) Hydro Energy (d) Coal

15. ISM stands for:

(a) Indian System of Medical (b) Indian Systems of medicine

(c) Indian system of Mediclaim (d) None of these

16. How does infrastructure contribute to economic development of a country?

(a) By increasing the productivity of factors of production (b) By improving the quality of life

(c) Both (a) and (b) (d) None of these

17. Power generated from water is called:

(a) Thermal power (b) Hydro-electric power

(c) Atomic power (d) Tidal Power

18. From which of the following sources of generation, we get the largest amount of power?

(a) Thermal Power (b) Hydro-electric Power

(c) Atomic Power (d) Tidal Power

19. ----------refers to sources of energy which have come into use recently.

(a) Conventional (b) Non-conventional

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(c) Both (a) and (b) (d) Neither (a) nor (b)

20. Which of the following is not a non-conventional source of energy?

(a) Thermal Power (b) Wind Energy

(c) Tidal Power (d) Geo-thermal energy

ANSWERS

1. (b) 2. (a) 3. (d) 4. (d) 5. (d) 6. (b) 7. (c)

8 (c) 9(d) 10 (c) 11(c) 12(c) 13 (d) 14 (d) 15(b) 16 (c) 17 (b) 18(a) 19(b) 20(a)

Read the following statements carefully. Write True or False with a reason.

1. Infrastructure generates linkages in production.

Ans. True. Reason: Provision of infrastructural facilities at one place (like SEZ—special economic zone)
induces investment across several areas of production which are linked to each other. A car
manufacturing unit at one place (owing to infrastructural facilities like of transport, communication
and banking) would certainly attract investment in inter-linked areas of production activities (like
manufacturing of nuts and bolts and other inputs needed for the production of cars).

2. Infrastructural facilities raises productivity in tertiary sector of the economy.

Ans. True. Reason: Infrastructural facilities include rapid and efficient means of transport and
communication. Such facilities are essential ingredients in the provision of such services as of
education, health, banking and insurance (the core components of tertiary sector).

3. Non-conventional sources of energy are more environment-friendly than the conventional sources.

Ans. True. Non-conventional sources of energy include solar energy, wind energy and biomass. All of these
sources are non-polluting, and are therefore, environment-friendly. Conventional sources, on the
other hand, include coal and petroleum, the use of which leads to air pollution. These are not
environment-friendly.

4. GDP growth is related to the generation of electricity in the economy.

Ans. True. Because, electricity is the core element of energy used across all sectors of the economy. Higher
the generation of electricity, higher would be the GDP growth. Thus, generation of electricity is much
higher in developed countries compared to the less developed countries.

5. Decline in death rate is a pointer to the growth of social infrastructure in the economy.

Ans. True. Because, growth of social infrastructure leads to improved healthcare facilities. In turn,
improved healthcare facilities lead to a fall in death rate.

6. Privatisation of healthcare is a hurdle in the provision of healthcare facilities across rural areas of the
country.

Ans. True. Reason: Private sector provides healthcare for profit. People in the rural areas are relatively
poor and cannot afford expensive medical care. Accordingly, most medicare facilities (in the private
sector) are confined to the urban areas.
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7. Use of non-commercial energy leads to environmental degradation.

Ans. True. Reason: Firewood is the key component of non-commercial energy. People in the rural areas
obtain firewood largely by way of tree-felling. It leads to environmental degradation.

8. ‘ Only Economic Infrastructure is crucial for development of the economy ‘. Defend or refute

Ans. False. Economic and Social infrastructure together helps in the overall development of the economy.

• Economic infrastructure improves productivity levels in productive sectors such as agriculture and industry,
by providing support services such as energy, transport, communication, etc.

• Social infrastructure improves human productivity and efficiency through facilities of education, health,
housing etc.

Hence they both complement each other

9 . Development of infrastructural facilities help to reduce unemployment in the economy. Comment

Ans. The given statement is correct. Infrastructure helps in generating employment. Many people get
employment in infrastructural projects like construction and maintenance of roads, railways, electricity plants,
etc. Many more people are able to find employment in industry and trade, after the development of strong
infrastructure.

10 . Inspite of being renewable resources of energy and cost effective, non-conventional sources of energy are
not generally used in industries. Do you agree?

Ans. Yes, I agree with the given statement. A lot of problems are faced in harnessing non-conventional sources
of energy and storing them, besides the problems of heavy cost in their installation and management. As a
result, they are not generally used in industries.

11. Infrastructure contributes to the economic development of a country. Do you agree?

Ans. This statement is correct. Development of infrastructure and economic development go hand in hand.

• Agriculture depends on the adequate expansion and development of irrigation facilities.

• Industrial progress depends on the development of power and electricity generation, transport and
communication.

Infrastructure contributes to economic development of a country both by increasing the productivity of

factors of production and improving the quality of life of its people.

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QUESTIONS TO DO (1 MARK)

Q1. Why is social infrastructure important for the economy?

Ans. Social infrastructure is important for the economy because it improves human productivity and efficiency
through facilities of education, health, housing, etc.

Q2. Why economic infrastructure is important?

Ans. Economic infrastructure is important as it improves productivity levels in productive sectors such as
agriculture and industry, by providing support services such as energy, transport, communication, etc.

Q3. Give the meaning of conventional sources of energy.

Ans. The sources of energy which are in use since long and can be stored.

Q4. What is the meaning of non-conventional sources of energy?

Ans. The sources of energy which have come into use only recently are termed as non-conventional sources of
energy.

Q5. What are the indicators of health status of a country?

Ans. The health status is usually measured in terms of life expectancy at birth, infant mortality rate, birth rate,
death rate, along with the incidence of communicable and non-communicable diseases.

Q6. Give the meaning of commercial sources of energy.

Ans. It refers to those sources of energy which command a price and the users have to pay a price for them.

Q7. What is meant by non-commercial energy?

Ans. It consists of those sources of energy which generally do not command a price.

Q8. Name some examples of commercial and non-commercial sources of energy. (NCERT)

Ans. Commercial sources: Coal, Petroleum and Electricity

Non-commercial sources: Firewood, Agriculture waste and dried dung.

Q9. What accounts for the largest part of our electricity generation?

Ans. Thermal Power.

Q10. What is morbidity?

Ans. It means proneness to fall ill.

Q11. Why do State Electricity Boards suffer losses?

Ans. Due to transmission and distribution losses, theft of electricity, wrong pricing and other inefficiencies.

Q12. Why non-conventional sources of energy are less used in the industries?

Ans. Because a lot of problems are faced in harnessing them and storing them, besides the problems of heavy
cost and management.
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Q13. Name two sources of renewable energy.

Ans. Solar Energy and Wind Energy.

Q14. What types of fuels are used by rural women in India to meet their energy requirements?

Ans. Rural women use bio-fuels such as crop residues, dung and fuel wood to meet their energy requirements.

Q15. Which two sources of energy are encouraged by India’s energy policies?

Ans. Hydel and Wind.

Q16. Which sector has the largest share in total consumption of commercial energy.

Ans. Industrial sector.

Q17. All the support structures, which facilitate development of a country, constitute its ------------

Ans. Infrastructure

Q18. Why are some states in India performing much better than others in certain areas?

Ans. It is because these states have better infrastructure in the areas they excel than other states of India.
Some have better irrigation facilities, better transportation facilities, etc.

Q19. Define infrastructure. (NCERT)

Ans. It refers to the supporting services in the main areas of industrial and agricultural production, domestic
and foreign trade and commerce.

Q20. Infrastructure contributes to economic development of a country. How?

Ans. By increasing the productivity of the factors of production and improving the quality of life of its people

Q21. Infrastructure provides supporting services in the main areas of industrial and foreign trade and
commerce. List those supporting services.

Ans. Roads, Railways, Ports, Airports, Dams, Power stations, Oil and gas pipelines, Telecommunication facilities,
The country's educational system including schools and colleges, Health system including hospitals, Sanitary
system including clean drinking water facilities, The monetary system including banks, insurance and other
financial institutions.
Q22. How does agriculture depend on infrastructure facilities in recent times?

Ans. In recent times, agriculture also depends on insurance and banking facilities because of its need to
operate on a very large scale.

Q23. Why has public Private partnership started playing an important role in infrastructure development?

Ans. It was found that the government’s investment in infrastructure was inadequate. Therefore, PPP has
started playing a very important role in infrastructural development.

Q24. Though infrastructure is the foundation of development, India invests only-------- of its GDP on
infrastructure, which is far below that of ---------

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Ans. 34 percent, china

Q25. In any country, as the income rises, the composition of infrastructure requirements changes largely.
How?

Ans. In any country, as the income rises, the composition of infrastructure requirements changes significantly.

• For low-income countries, basic infrastructure services, like irrigation, transport and power, are more
important.
• economies develop and most of their basic consumption demands are met, the share of agriculture in the
economy shrinks and more service-related infrastructure is required. This is why, the share of power and
telecommunication infrastructure is greater in high-income countries.
Q26. Why is share of power and telecommunication infrastructure is greater in high-income countries?

Ans. Because as economies develop and most of their basic consumption demands are met, the share of
agriculture in the economy shrinks and more service related infrastructure such as power and
telecommunication is required.

Q27. Why are coal, petroleum and electricity called commercial sources of energy?

Ans. Because these are bought and sold

Q28. Why are firewood, agricultural waste and dried dung called non-commercial sources of energy?

Ans. Because these are non-commercial as they are found in nature/forests.

Q29. State the relationship between economic growth and the use of energy

Ans. With the rapid rate of economic growth, there has been a corresponding increase in the use of energy

Q30. What is the critical feature of India’s energy sector and its linkages to the economy?

Ans. The import dependence on crude and petroleum products, which is likely to grow rapidly in near future.

Q31. Which is the most visible form of energy, that is often identified with progress in modern civilisation?

Ans. Power/electricity

Q32. The growth rate of demand for power is generally higher than the GDP growth rate. How?

Ans. Studies point out that in order to have 8% growth rate per annum, power supply needs to grow around
12% annually

Q33. Why do some economists suggest to generate more electricity through atomic sources and why few
others object this?

Ans. Atomic energy is an important source for electricity as it is cheaper. Yet, a few economists object about
this, from the viewpoint of environment and sustainable development.

Q34. Why two energy sources is encouraged by India’s energy policy and why?

Ans. Hydel and wind as these do not rely on fossil fuel and hence avoid carbon emissions.

Q35. Why is the electricity generated by various power stations not consumed entirely by ultimate consumers?
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Ans. Because a part is consumed by power station auxiliaries. Also, while transmitting power, a portion is lost
in transmission.

Q36. Give some suggestions to ensure additional supply of electricity.

Ans. More public investment, better research and development efforts, technological innovations, use of
renewable energy sources.

Q37. What are the three basic sources of generating power? (NCERT)

Ans. Thermal sources like Coal, hydel and wind power, nuclear power or atomic energy.

Q38. How are the rates of consumption of energy and economic growth connected? (NCERT)

Ans. With the rapid rate of economic growth, there has been a corresponding increase in the use of energy

Q39. What are the main characteristics of health of the people of our country? (NCERT)

Ans. Infant mortality and maternal mortality rates, life expectancy and nutritional levels, and the incidence of
communicable and non-communicable diseases.

Q40. What is health infrastructure?

Ans. Health infrastructure includes hospitals, doctors, nurses and other para medical professionals, beds,
equipment required in hospitals and a well-developed pharmaceutical industry.

Q41. What does development of health infrastructure ensure?

Ans. It ensures a country of healthy manpower for the production of goods and services.

Q42. Since the initial stages of planned development what did the policy makers envisage?

Ans. Since the initial stages of planned development, policy-makers envisaged that no individual should fail to
secure medical care, curative and preventive, because of the inability to pay for it.

Q43. The government has the constitutional obligation to guide and regulate all health related issues. Name
such health related issues.

Ans. Medical education, adulteration of food, drugs and poisons, medical profession, vital statistics, mental
deficiency and lunacy.

Q44. How did the union government evolve broad health policies and plans?

Ans. The union government evolves broad policies and plans through the Central Council of Health and family
Welfare. It collects information and renders financial and technical assistance to state governments, Union
territories and other bodies for the implementation of important health programmes in the country.

Q45. What do you mean by quacks?

Ans. The private sector in India has grown independently without any major regulation. Some private
practitioners are not even registered doctors and are known as quacks.

Q46. Recently, foreigners are coming to India for surgeries, liver transplants and cosmetic care why?

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Ans. Because our health services combine the latest medical technologies with qualified professionals and are
cheaper for foreigners as compared to cost of similar healthcare services in their own countries.

Q47. Name the six systems of Indian medicine? (NCERT)

Ans. Ayurveda, Yoga, Unani, Siddha, Naturopathy and Homeopathy

Q48. What is global burden of disease? (NCERT)

Ans. Global burden of diseases (GBD) is an indicator used by experts to gauge the number of people dying
prematurely due to a particular disease, as well as, the number of years spent by them in a state of ‘ disability’
owing to the disease.

Q49. What happens when the poor fall sick?

Ans. Many have to sell their land or even pledge their children to afford treatment. Since government run
hospitals do not provide sufficient facilities, the poor are driven to private hospitals, which make them
indebted forever, else they opt to die.

Q50. How has women’s health become a matter of great concern?

Ans. Because they suffer many disadvantages as compared to men.

• The child sex ratio declined from 945 in 1991 to 927 in 2001. It indicates growing incidence of female
foeticide in the country.

• Around 3 lakh girls below 15 years of age are not only married but have already borne children at least once.

• More than 50% of married women between the age group of 15 and 49 have anaemia and nutritional
anaemia, caused by iron deficiency, which has contributed to 19% of maternal deaths.

• Abortions are also a major cause of maternal morbidity and mortality in India.

Q51. State the reforms which have been initiated recently to meet the energy crisis in India.

Ans. Improvement in Plant Load Factor

Control of transmission and Distributional Losses

Promote role of Private Sector

Use of renewable sources

Other Measures

Q52. State the measures to increase the effectiveness of health care programmes.

Ans. Accessibility and affordability

Decentralised public health services

To create awareness on health and hygiene

Use of private-Public Partnership

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CHAPTER – 9

ENVIRONMENT AND SUSTAINABLE DEVELOPMENT

FUNCTIONS AND ROLE OF ENVIRONMENT

Environment is defined as the total planetary inheritance and the totality of all resources. It includes all the
biotic and abiotic factors that influence each other.

Biotic elements of the environment: A living elements the birds, animals and plants, forests, fisheries etc.-are
biotic elements.

Abiotic elements of the environment: Abiotic elements include air, water, land etc. Rocks and sunlight are all
examples of abiotic elements of the environment.

Functions of the Environment

The environment performs four vital functions

1 . Provides resources for production: Resources here include both renewable and non-renewable
resources.

• Renewable resources are those which can be used without the possibility of the resource becoming
depleted or exhausted. That is a continuous supply of the resource remains available. Examples of
renewable resources are the trees in the forests and the fishes in the ocean.

• Non-renewable resources arc chose which get exhausted with extraction and use, for example fossil fuel.

The natural resources provided by environment are used as inputs for production.

2 . Environment assimilates waste: The process of production and consumption activities generates a lot
of wastage, which is absorbed by the environment.

3 . Environment sustains life by providing genetic and bio diversity: Some basic necessities of life ( sun,
soil, water and air) are part of environment. So, environment sustains life by providing these essential
elements.

4 . Environment provides aesthetic services like scenery etc: Environment includes land , forests, water
bodies, rainfall, air, atmosphere, etc. People enjoy the scenic beauty of these elements ( like that of hill
stations). Such elements help in improving quality of life.

The environment is able to perform these functions without any interruption as long as the demand on these
functions is within its carrying capacity. This implies that the resource extraction is not above the rate of
regeneration of the resource and the wastes generated are within the assimilating capacity of the
environment.

Q1. What are the functions of the environment? (NCERT)

What happens when the rate of resource extraction, exceeds that of their regeneration?

The environment fails to perform its third and vital function of life sustenance and this results in an
environmental crisis. This is the situation today all over the world.
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Current Environmental Crisis and its reasons

The rising population of the developing countries and the affluent consumption and production standards of
the developed world have placed a huge stress on the environment in terms of its first two functions.

• Many resources have become extinct and the wastes generated are beyond the absorptive capacity of the
environment. Absorptive capacity means the ability of the environment to absorb degradation. The result-
we are today at the threshold of environmental crisis.
• 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
(seventy per cent of water in India is polluted) have resulted in increased incidence of respiratory and water-
borne diseases. Hence the expenditure on health is also rising.
• Global environmental issues such as global warming and ozone depletion also contribute to increased
financial commitments for the government.
• Extinction of many resources and continuous rise in population has also resulted in environmental crisis.
Thus, it is clear that the opportunity costs of negative environmental impacts are high.

Q2. Account for the current environmental crisis or Is environmental crisis a recent phenomenon?(NCERT)

Supply-demand reversal of environmental resources/reasons for Environment Degradation

In the early days when civilisation just began, or before this phenomenal increase in population, and before
countries took to industrialisation, 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 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 ate 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. That is, we are now faced with increased demand for
environmental resources and services but their supply is limited due to overuse and misuse. Hence, the
environmental issues of waste generation and pollution have become critical today.

Q3. Explain the supply-demand reversal of environmental resources. (NCERT)

STATE OF INDIA'S ENVIRONMENT

India has abundant natural resources

India has abundant natural resources in terms of rich quality of soil, hundreds of rivers and tributaries, lush
green forests, plenty of mineral deposits beneath the land surface, vast stretch of the Indian Ocean, ranges of
mountains, etc.

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• The black soil of the Deccan Plateau is particularly suitable for cultivation of cotton, leading to concentration
of textile industries in this region.
• The Indo-Gangetic plains – spread from the Arabian Sea to the Bay of Bengal- are one of the most fertile,
intensively cultivated and densely populated regions in the world.
• India's forests, though unevenly distributed, provide green cover for a majority of its population and natural
cover for its wildlife.
• Large deposits of iron-ore, coal and natural gas are found in the country. India alone account for nearly 20
per cent of the world's total iron-ore reserves.
• Bauxite, Copper, chromate, diamonds, gold, lead, lignite, manganese, Zinc, uranium, etc. a also available in
different parts of the country
Q4. India has substantial/abundant natural resources-substantiate the statement.(NCERT)

The most pressing environmental concerns of India/ Challenges to India's environment

The developmental activities in India have resulted in pressure on its natural resources, besides creating
impacts on human health and well-being

The threat to India's environment poses a dichotomy:

(i) Threat of poverty-induced environmental degradation

(ii) Threat of pollution from affluence and a rapidly growing industrial sector

Air pollution, water contamination, soil erosion, deforestation and wildlife extinction are some of the most
pressing environmental concerns of India.

The priority issues identified are:

1. Land degradation

Land degradation refers to decline in the overall quality of soil, water or vegetation condition, commonly
caused by human activities. Land in India suffers from varying degrees and types of degradation stemming
mainly from unstable use and inappropriate management practices. It occurs through natural and man-made
processes of wind erosion, water erosion and water logging. Such kind of degradation leads to the loss of
invaluable nutrients and lower food grain production. Poor land use practices are responsible for the rapid
land degradation in India. Some of the factors/causes responsible for land degradation are:

• Loss of vegetation occurring due to deforestation

• Unsustainable fuel wood and fodder extraction
• Shifting cultivation
• Encroachment into forest lands
• Forest fires and over grazing
• Non-adoption of adequate soil conservation measures
• Improper crop rotation
• Indiscriminate use of agro-chemicals such as fertilisers and pesticides
• Improper planning and management of irrigation systems

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• Extraction of ground water in excess of the recharge capacity

• Open access resource
• Poverty of the agriculture-dependent people
Q5. Identify any six factors contributing to land degradation in India (NCERT)

2. Biodiversity loss:

Biodiversity is defined as the variability among living organisms from all sources, including terrestrial,
marine and other aquatic ecosystems and the ecological complexes of which they are a part.

* Conservation and sustainable use of bio-diversity is fundamental to ecologically sustainable

development.

* Bio-diversity loss has serious economic and social costs for any country as many plant and animal
species are severely threatened by the destruction of their habitat and over exploitation of resources.

• India supports approximately 17 per cent of the world's human and 20 per cent of livestock population on
a mere 2.7 per cent of the worlds geographical area.
• The high density of population and livestock and the competing uses of land for forestry agriculture, human
settlements and industries exert an enormous pressure on the country's finite land resources.
• The per capita forest land in the country is only 0.08 hectare against the requirement of 0.47 hectare to
meet basic needs.

3. Soil erosion: Soil erosion takes place when the surface soil is washed away through excessive
rains and floods. Deforestation is one of the major reason of soil erosion.

• Estimates of soil erosion show that soil is being eroded at a rate of 5.3 billion tonnes a year for the entire
country as a result of which the country loses 0.8 million tonnes of nitrogen, 1.8 million tonnes of
phosphorus and 26.3 million tonnes of potassium every year.
• 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.

4. Air pollution: Air pollution is the presence of materials in air in such concentration , which are
harmful to man and the environment.

• In India, air pollution is widespread in urban areas where vehicles are the major contributors and in a few
other areas which have a high concentration of industries and thermal power plants.
• Vehicular emissions are of particular concern since these are ground level sources and, thus, have the
maximum impact on the general population.
• The number of motor vehicles has increased from about 3 lakh in 1951 to 67 crores in 2003. In 2003,
personal transport vehicles (two-wheeled vehicles and cars only) constituted about 80 per cent of the total
number of registered vehicles thus contributing significantly to total air pollution load.

5 . Deforestation: Deforestation involves the permanent destruction of indigenous forests and woodlands.
It refers to cutting, clearing and removal of rainforest, where land is thereafter converted to a non-forest use

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• The per capita forestland in the country is only 0.08 hectare against the requirement of 0.47 hectare to meet
basic needs.
• There are serious consequences of forest depletion, like chances of more floods, soil erosion, heavy siltation
of dams and change in climate.
Q6. Highlight any four serious adverse adverse environmental consequences of development in India.(NCERT)
India is one of the ten most industrialised nations of the word. But this status has brought with it unwanted
and unanticipated consequences such as unplanned urbanisation , pollution and the risk of accidents.

The CPCB (Central Pollution Control Board) has identified seventeen categories of industries (large and
medium scale) as significantly polluting.

The various measures adopted by the Ministry of Environment and the central and state pollution control
boards may not yield reward unless we consciously adopt a path of sustainable development.

The concern for future generations alone can make development last forever. Development to enhance our
current living styles, without concern for posterity, will deplete resources and degrade environment at a pace
that is bound to result in both environmental and economic crisis.

STEPS AND STRATEGIES TO ATAIN SUSTAINABLE DEVELOPMENT

Meaning of Sustainable Development

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. Though the government, through various
measures, attempts to safeguard the environment, it is also necessary to adopt a path of sustainable
development.

• The basic aim of sustainable development is to ensure that present generation should leave stock of quality
of life for the next generation, which should not less than what we have inherited.

• Environmentalists have used the term ‘sustainability’ in an attempt to clarify the desired balance between
economic growth on one hand and environmental preservation on the other.

• A developmental path is sustainable if the stock of overall capital assets remains same or rises over a period
of time

• United Nations Conference on Environment and Development (UNCED) 1980 has defined sustainable
development as follows:

Sustainable development is the development that meets the need of the present generation without
compromising she ability of the future generation to meet their own needs.

The use of the concept 'needs' in the above definition is linked to distribution of resources. The seminal report-
Our Common Future-that gave the above definition explained sustainable development as meeting the basic
needs of all and extending to all the opportunity to satisfy their aspirations for a better life. Meeting the needs
of all requires redistributing resources and is hence a moral issue.

Edward Barbier defined sustainable development as follows

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Sustainable development is one which is directly concerned with increasing the material standard of living of
the poor at the grass root level. This can be quantitatively measured in terms of increased income, real
income, educational services, health care, sanitation, water supply etc. In more specific terms, Sustainable
development aims at decreasing the absolute poverty of the poor by providing lasting and secure livelihoods
that minimise resource depletion, environmental degradation, cultural disruption and social instability. In this
sense. Sustainable development is a development that meets the basic needs of all, particularly the poor
majority for employment, food, energy, wale, rousing and ensures growth of agriculture, manufacturing power
and services to meet these needs.

Steps to Attain Sustainable Development

The Brundtland Commission emphasises on protecting the future generation. This is in line with the argument
of the environmentalists who emphasise that we have a moral obligation to hand over the planet earth in
good order to the future generation; that is, the present generation should bequeath a better environment to
the future generation. At least we should leave to the next generation a stock of quality of life assets no less
than what we have inherited.

The present generation can promote sustainable development through:

• conservation and promotion of natural resources,

• preservation of the regenerative capacity of the worlds natural ecological system and
• avoiding the imposition of added costs or risks on future generations.
According to Herman Daly, a leading environmental economist, to achieve sustainable development, the
following steps must be taken:

(i) Limiting the human population to a level within the carrying capacity of the environment. The Carying
capacity of the environment is like a plimsoll line of the ship which is its load limit mark. In the
absence of the plimsoll line for the economy, human scale grows beyond the carrying capacity of the
earth and deviates from sustainable development.

(ii) Technological progress should be input efficient and not input consuming

(iii) Renewable resources should be extracted on a sustainable basis, that is, rate of extraction should not
exceed rate of regeneration.

(iv) For non-renewable resources, rate of depletion should not exceed the rate of creation of renewable
substitutes.

(v) Inefficiencies arising from pollution should be corrected

Q7. Outline the steps involved in attaining sustainable development on India.(NCERT)

Strategies for Sustainable Development

1. Use of Non-conventional Sources of Energy

India is hugely dependent on thermal and hydro power plants to meet its power needs. Both of these have
adverse environmental impacts, as given below

• Thermal power plants emit large quantities of carbon dioxide which is a green-house gas.

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• It also produces fly ash which, if nor used properly, can cause pollution of water bodies, land and other
components of the environment.
• Hydroelectric projects inundate forests and interfere with the natural flow of water in catchments areas
and the river basins.
Wind power and solar rays are cleaner and greener energy sources bur are not yet been explored on a large
scale due to lack of technological devices.

2. LPG, Gobar Gas in Rural Areas

Households in rural areas generally use wood, dung cake or other biomass as fuel. This practice has several
adverse implications like: deforestation, reduction in green cover, wastage of cattle dung and air pollution. To
rectify the situation, subsidised Liquefied Petroleum Gas (LPG) is being provided. It is a clean fuel – it reduces
household pollution to a large extent. Also, energy wastage is minimised. In addition, gobar gas plants are
being provided through easy loans and subsidy. For the gobar gas plant to function, cattle dung 1s fed co the
plant and gas is produced which is used as fuel while the slurry which is left over is a very good organic
fertiliser and soil conditioner.

3. CNG in Urban Areas

In urban areas, use of Compressed Natural Gas is being promoted to be used as fuel. In Delhi, the use of
Compressed Natural Gas (CNG) as fuel in public transport system has significantly lowered air pollution and the
air has become cleaner in the last few years.

4. Wind Power

In areas where speed of wind is usually high, wind mills can provide electricity without any adverse impact on
the environment. Wind turbines move with the wind and electricity is generated. No doubt, the initial cost is
high. Bur the benefits are such that the high cost gets easily absorbed.

5. Solar Power through Photovoltaic Cells

India is naturally endowed with a large quantity of solar energy in the form of sunlight. We use it in different
ways. For Example, we dry our clothes, grains, other agricultural products as well as various items made for
daily use. We also use sunlight to warm ourselves in winter. Plants use solar energy to perform photosynthesis.

Now, 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.

Benefits:

(i) This technology is extremely useful for remote areas and for places where supply of power through
grid or power lines is either not possible or proves very costly.

(ii) This technique is also totally free from pollution.

6. Mini-hydel Plants

In mountainous regions, streams can be round 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.

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Benefits:

(i) Such power plants are more or less environment-friendly as they do not change the land use pattern
in areas where they are located.

(ii) They generate enough power to meet local demands.

(iii) They can also do away with the need for large scale transmission towers and cables and avoid
transmission loss.

7. Traditional Knowledge and Practices

If we look back at our agriculture system, healthcare system, housing, transport etc, we find that all practices
have been environment friendly. Only recently have we drifted away from the traditional systems and caused
large scale damage to the environment and also our rural heritage. Now, it is time to go back.

One apt example is in healthcare. India is very much privileged to have about 15,000 species of plants which
have medicinal properties. About 8,000 of these are in regular use in various systems of treatment. With the
sudden onslaught of the western system of treatment, we were ignoring our traditional systems such as
Ayurveda, Unani, Tibetan and folk systems. These healthcare systems are in great demand again for treating
chronic health problems. Now-a-days every cosmetic produce-hair oil, toothpaste, body lotion, face cream and
what not is herbal in composition.

Benefits:

(i) These products environment friendly.

(ii) They are relatively free from side effects.

(iii) They do not involve large-scale industrial and chemical processing

8. Biocomposting

In our quest to increase agricultural production during the last five decades or so, we almost totally neglected
the use of compost and completely switched over to chemical fertilisers. The result is that large tracts of
productive land have been adversely affected, water bodies including ground water system have suffered due
to chemical contamination and demand for irrigation has been going up year after year. Farmers, in large
numbers all over the country, have again started using compost made from organic wastes of different types.
In certain parts of the country, cattle are maintained only because they produce dung which is an important
fertiliser and soil conditioner. Earthworms can convert organic matter into compost faster than the normal
composting process. This process is now being widely used. Indirectly, the civic authorities are benefited too as
they have to dispose reduced quantity of waste.

9. Biopest Control

With the advent of green revolution, the entire country entered into a frenzy to use more and more chemical
pesticides for higher yield. Soon, the adverse impacts began to show; food products were contaminated, sot,
water bodies and even ground water were polluted with pesticides. Even milk, meat and fishes were found to
be contaminated.

To meet this challenge, efforts are on to bring in better methods of pest control. For example, neem trees are
proving to be quite useful. Several types of pest controlling chemicals have been isolated from neem and these
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are being used. Mixed cropping and growing different crops in consecutive years on the same land have also
helped farmers. In addition, awareness is spreading about various animals and birds which help in controlling
pests.

For example, snakes are one of the prime group of animals which prey upon rats, mice and various other pests.
Similarly, large varieties of birds, for example, owls and peacocks, prey upon vermin and pests. If these are
allowed to dwell around the agricultural areas, they can clear large varieties of pests including insects. Lizards
are also important in this regard. We need to know their value and save them.

Q8. Describe any four strategies for sustainable development.(NCERT)

Global Warming

Global warming is the observed and projected increase in the average temperature of earth’s atmosphere
and oceans. During the past century, the atmospheric temperature has risen by 1.1°F (0.6°C) and sea level has
increased several inches.

Causes

• Burning of coal and petroleum products (sources of carbon dioxide, methane, nitrous oxide, ozone);

• Deforestation, which increases the amount of carbon dioxide in the atmosphere

• Methane gas released in animal waste; and

• Increased cattle production, which contributes to deforestation, methane production and use of fossil fuels

The atmospheric concentrations of carbon dioxide and methane (CH4) have increased by 41% and 160%
respectively above pre industrial levels since 1750.

Effects of global warming

Global Warming adversely affects the earth:

• Ice is melting worldwide, especially at the earth’s poles. It has led to steep rise in sea level and coastal
flooding

• Hurricanes and other tropical storms are likely to become stronger

• There are thousands of species ( like polar bears) in danger of becoming extinct forever

• Increased incidence of tropical diseases, like malaria, cholera, dengue, chikungunya etc.

Ozone Depletion

Ozone depletion refers to destruction of ozone in the ozone layer due to the presence of chlorine from
manmade chlorofluorocarbons (CFCs) and other forces.

Causes

• CFC, which is used as cooling substances in AC and refrigerators;

• Aerosol propellants and Bromofluorocarbons (halons), which is used in fire extinguishers

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Effects

• UV radiation seems to be responsible for skin cancer in human beings.

• UV radiation lowers production of phytoplankton, which affects other aquatic organisms.

• UV radiation can also influence the growth of terrestrial plants.

Montreal Protocol

As ozone layer prevents most harmful wavelengths of ultraviolet light from passing through the earth’s
atmosphere, its depletion has led to worldwide concern and resulted into “ Montreal Protocol”.

• Montreal Protocol is a historical treaty designed by the members of United Nations to protect the ozone
layer by phasing out CFC, which is supposed to be main reason for ozone depletion.

• Under the Montreal Protocol, all the signing members agreed to freeze the consumption and production of
CFC by the year 2013.

• India signed the Montreal Protocol along with its London Amendment on 17.09.1992

• The Montreal Protocol has significantly reduced the burden of CFCs in the stratosphere and helped in ozone
recovery.

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MCQs

1 . Which of the following is an important function of environment?

(a) To provide resources for production (b) To provide aesthetic services

(c) To assimilate waste (d) All of these

2 . ----------- is the main reason for soil erosion.

(a) Ozone depletion (b) Air pollution

(c) Deforestation (d) None of these

3 . Which of the following are biotic elements: 1. Birds 2. Water 3. Land 4. Forests

(a) 1 and 2 (b) 1 and 3

(c) 1 and 4 (d) 2 and 3

4 . The government set up the Central Pollution Control Board to control:

(a) Air pollution (b) Noise pollution

(c) Deforestation (d) Soil Erosion

5 . Sustainable development can be achieved by:

(a) Restricting use of renewable resources (b) Controlling the growth of population

(c) Controlling pollution (d) All of these

6 . --------is the observed and projected increase in the average temperature of earths atmosphere and oceans.

(a) Global Warming (b) Biodiversity Loss

(c) Ozone depletion (d) Deforestation

7 . Which one of the following is a measure to control air pollution in vehicles?

(a) Promotion of CNG instead of petrol (b) Promotion of public transport

(c) Strengthening of emission standards (d) all of these

8 . Out of the following, which one causes “ Ozone Depletion” ?

(a) Land degradation (b) High levels of chlorine and bromine compounds in the stratosphere

(c) Increase in greenhouse gas concentrations (d) Deforestation

9 . ------takes place when the surface soil is washed away through excessive rains and floods.

(a) Land Degradation (b) Soil Erosion

(c) Biodiversity Loss (d) Deforestation

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10 . Which one of the following is a cause of land degradation?

(a) Loss of vegetation due to deforestation (b) Overgrazing

(c) Encroachment into forest lands (d) All of these

Ans. 1(d) 2(c) 3(c) 4(a) 5(d) 6(a) 7(d) 8(b) 9(b) 10(d)

QUESTIONS TO DO ( 1MARK)

Q1. What is meant by environment? (NCERT)

Ans. Environment is defined as the total planetary inheritance and the totality of all resources. It includes all
the biotic and abiotic factors that influence each other.

Q2. What happens when the rate of resource extraction, exceeds that of their regeneration? (NCERT)

Ans. The environment fails to perform its vital function of life sustenance and this results in an environmental
crisis.

Q3. State the difference between biotic and abiotic elements of the environment.

Ans. All living elements—the birds, animals and plants, forests, fisheries etc. are biotic elements. On the other
hand abiotic elements include air, water, land etc. Rocks and sunlight are also the examples of abiotic
elements of environment.

Q4. Distinguish between renewable and non-renewable resources.

Ans. Renewable sources are those which can be used without the possibility of the resource becoming
depleted or exhausted, e.g. trees in the forests and the fishes in the ocean. Non-renewable resources, on the
other hand, are those which get exhausted with extraction and use, e.g. fossil fuel.

Q5. Classify the following into renewable and non-renewable resources (1) trees (2) fish (3) petrol (4) coal (5)
iron-ore (6) water (NCERT)

Ans. 1.renewable 2. Renewable 3. Non-renewable 4. Non-renewable 5. Non-renewable 6. renewable

Q6. What do you mean by ‘ absorptive capacity’ ?

Ans. It means the ability of the environment to absorb degradation.

Q7. Two major environmental issues facing the world today are ------ and -------- (NCERT)

Ans. Global warming and Ozone Depletion

Q8. State any four pressing environmental concerns of India. (NCERT)

Ans. Air pollution, water contamination, soil erosion, and deforestation.

Q9. The threat to India’s environment poses a dichotomy. Name these.

Ans. Threat of poverty-induced environmental degradation and threat of pollution from affluence and a rapidly
growing industrial sector.

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Q10. India is one of the 10 most industrialised nations of the world. But this status has brought with it
unwanted and unanticipated consequences. State the consequences.

Ans. Unplanned urbanisation, pollution and the risk of accidents.

Q11. The CPCB ( Central Pollution Control Board ) has identified --------categories of industries as polluting
significantly ( Large and medium scale)

Ans. Seventeen

Q12. What is sustainable development? (NCERT)

Ans. It refers to the development that meets the need of the present generation without compromising the
ability of the future generation to meet their own needs.

Q13. Give the definition of sustainable development as given by the seminal report---Our common future.

Ans. It refers to meeting the basic needs of all and extending to all the opportunity to satisfy their aspirations
for a better life.

Q14. How did Edward Barbier define sustainable development?

Ans. Sustainable development is one which is directly concerned with increasing the material standard of living
of the poor at the grass root level. This can be quantitatively measured in terms of increased income, real
income, educational services, health care, sanitation, water supply etc.

Q15. What does ‘ plimsoll line’ refers to in the context of sustainable development?

Ans. The carrying capacity of the environment is like a ‘ plimsoll line ’ of the ship which is its load limit mark. In
the absence of the plimsoll line for the economy, human scale grows beyond the carrying capacity of the earth
and deviates from sustainable development.

Q16. Households in rural areas generally use wood, dung cake or other biomass as fuel. This practice has
several adverse implications. Enumerate such implications.

Ans. Deforestation, reduction in green cover, Wastage of cattle dung, Air pollution

Q17. In Delhi, the use of ------- as fuel in public transport system has significantly lowered air pollution and the
air has become cleaner in the last few years.

Ans. Compressed Natural Gas (CNG)

Q18. How the opportunity costs of negative environmental impact are high?

Ans. Increased financial commitments of the government due to global warming and ozone depletion and rise
in expenditure on health due to decline in air and water quality shows that opportunity costs of negative
environmental impacts are high.

Q19. Why have some resources become extinct?

Ans. Some resources have become extinct because their extraction has been above the rates of regeneration.

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QUESTIONS TO DO (LONG)

Q1. Give two instances of:

(a) Overuse of environmental resources

(b) Misuse of environmental resources (NCERT)

Ans. Examples of overuse of environmental resources:

(1) Soil degradation due to improper crop rotation and crop shifting

(2) Drying up of rivers due to overuse of water from them through dams and reservoirs.

Examples of misuse of environmental resources:

(1) Excess use of electricity leads to depletion of resources like coal and water from which electricity is
generated.

(2) Excess use of petrol and diesel in vehicles

Q2. India’s environmental problems pose a dichotomy- they are poverty induced and at the same time due to
affluence in living standards-is it true? (NCERT)

Ans. Yes, this is true that India’s environmental problems pose a dichotomy-they are poverty induced and, at
the same time due to affluence in living standards. Widespread poverty has led to deforestation in India as the
poor people in the rural areas are compelled to cut trees for earning their livelihood and for use as fuel.

Similarly, growing demand for natural resources due to affluence in living standards in the urban areas is also
equally responsible for the present environment degradation.

Q3. Explain the relevance of inter-generational equity in the definition of sustainable development.(NCERT)

Ans. we have a moral obligation to hand over the planet earth in good order to the future generation; that is,
the present generation should bequeath a better environment to the future generation. At least we should
leave to the next generation a stock of quality of life assets no less than what we have inherited.

It does not mean hindering the existing pace of economic growth, but refers to a judicious use of resources
in such a way that pace of economic growth sustains with inter-generational equity.

Q4. On 7th December, 2017, the following news was printed in The Times of India. “ Delhi’s air quality turns
hazardous”. What possible steps can be taken to control the air pollution/

Ans. 1 . Promotion of public transport like use of Delhi Metro instead of private vehicles.

2 . Promotion of cleaner fuels in vehicles, like use of CNG instead of petrol and diesel.

3 . Use of cleaner fuels such as LPG in households to reduce indoor air pollution.

4 . Promotion of cleaner technologies, strengthening of emission standards, introducing economic

incentives and strengthening of the monitoring and reporting system.

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CHAPTER – 10

COMPARATIVE DEVELOPMENT EXPENDITURE EXPERIENCES OF INDIA AND ITS NEIGHBOURS

INDIA, CHINA AND PAKISTAN HAVE SIMILARITIES IN THEIR DEVELOPMENTAL 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 the Medium
Term Development Plan in 1956. China announced its First Five Year Plan in 1953.
• India and Pakistan adopted similar strategies, such as creating a large public sector and raising public
expenditure on social development.
• Till the 1980s, all the three countries had similar growth rates and per capita incomes.

Historical Path of Development Policies in China

After the establishment of People's Republic of China under one party rule, all critical sectors of the economy,
enterprises and lands owned and operated by individuals were brought under government control.

1 . The Great Leap Forward (GLF) campaign initiated in 1958 aimed at industrialising the country on a
massive scale. People were encouraged to set up industries in their backyards. In rural areas, communes were
started. Under the Commune system, people collectively cultivated lands. In 1958, there were 26,000
communes covering almost all the farm population.

GLF campaign met with many problems:

(i) A severe drought caused havoc in China killing about 30 million people.

(ii) When Russia had conflicts with China, it withdrew its professionals who had earlier been sent to China
to help in the industrialisation process.

2. Great Proletarian Cultural Revolution: In 1965, Mao introduced the Great Proletarian cultural
Revolution (1966-76) under which students and professionals were sent to work and learn from the
countryside.

3. Reforms introduced in china: China's present rapid industrial growth can be traced back to its
reforms in 1978. China introduced reforms in phases

Initial phase: Reforms were initiated in agriculture, foreign trade and investment sectors. For example, in
agriculture, commune lands were divided into small plots, which were allocated (for use not ownership) to
individual households. They were allowed to keep all income from the land after paying stipulated taxes.

Later phase: Reforms were initiated in the industrial sector.

• Private sector firms, in general, and township and village enterprises (these enterprises which were owned
and operated by local collectives), in particular, were allowed to produce goods.
• At this stage, enterprises owned by government (known as State Owned Enterprises-SOEs), which we, in
India, call public sector enterprises, were made to ace competition.

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4 . Dual Pricing in the reforms process: The reform process also involved dual pricing This means fixing
the prices in two ways farmers and industrial units were required to buy and sell fixed quantities of inputs
and outputs on the basis of prices fixed by the government and the rest were purchased and sold at market
prices.
5. Special Economic Zone: Over the years, as production increased, the proportion of goods or inputs
transacted in the market also increased. In order to attract foreign investors, Special Economic Zones (SEZ) were
set up.

Path of Developmental Initiatives taken by Pakistan for its Economic Development

Pakistan adopted various economic policies similar to those adopted by India.

1 . Mixed Economy: Pakistan also follows the mixed economy model with co-existence of public and private
sectors.
2. Introduction of various policies: In the late 1950s and 1960s, Pakistan introduced a variety of regulated
policy framework (for import substitution-based industrialisation). The policy combined tariff protection for
manufacturing of consumer goods together with direct import controls on competing imports.
3. Green Revolution: The introduction of Green Revolution led to mechanisation and increase in public
investment in infrastructure in select areas, which finally led to a rise in the production of foodgrains. This
changed the agrarian structure dramatically.
4. Importance to role of public sector in Early 1970’s and private sector in late 70’s: In the 1970s,
nationalisation of capital goods industries took place. Pakistan then shifted its policy orientation in the late 1970s
and 1980s when the major thrust areas were denationalisation and encouragement or private sector. The
government at that time also offered incentives to the private sector. All this created a conducive climate for
new investments.
5 . Financial support: Pakistan also received financial support from western nations and remittances from
continuously increasing outflow of emigrants to the Middle-cast. This helped the country in stimulating
economic growth.
The government at that time also offered incentives to the private sector. All this created a conducive climate
for new investments.
6. Reforms: In 1988, economic reforms were initiated in the country.

ECONOMIC DEVELOPMENT INDICATORS OF INDIA, CHINA AND PAKISTAN

Salient Demographic Indicators of India, China and Pakistan

Country Estimated Density Annual Sex Ratio Fertility Urbanisation

Population (in (per sq. Growth of Rate
million) km) 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

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• China has the highest population closely followed by India. If we look at the global population, out of
every six persons Irving in this world, one is an Indian and another a Chinese. The population of Pakistan is very
small and accounts for roughly about one-tenth of China or India.
• Though China is the largest nation and geographically occupies the largest area among the three
nations, but growth rate of population in china is lowest as a result its density is the lowest.
• The population growth is the highest in Pakistan, followed by India and China.
Scholars point out the 'one child norm introduced in China in the late 1970s as the major reason for
low population growth.

• One child norm also led to a decline in the sex ratio (the proportion of females per 1000 males). The
sex ratio is low and biased against females in all three countries. "Preference for son' prevailing in all
these countries is the reason for low sex ratio. In recent times, all three countries are adopting various
measures to improve the situation. One child norm and the resultant arrest in the growth of population
also have other implications. For instance, after a few decades, in China, there will be more elderly
people in proportion to young people. This led China to allow couples to have two children.
• The fertility rate is also low in China and very high in Pakistan. Fertility rate is calculated as the number
of children borne by a women in the reproductive age ( 15-45 years). Since the introduction of the one-child
policy, the fertility rate in China has fallen from over 3 births per women in 1980 to approximately 1.6 births.
Fertility rate is the highest in Pakistan at 3.7 births per woman and India comes second with 2.3 births per
woman.
• Urbanisation is highest in China (56%) with India having 33 per cent of is people living in urban areas.
On the other hand in Pakistan 39%people live in urban areas.

GDP Growth Rate Trends in India, China and Pakistan

Annual Growth of GDP (in %), 1980-2015

Country 1980-90 2011–2015

India 5.7 6.7

China 10.3 7.9

Pakistan 6.3 4.0

• China has the second largest GDP of $19.8 trillion. India's GDP is 8.07 trillion (about 40 per cent of
Chinas GDP). Pakistan's GDP is $0.94 trillion (about 12 per cent of India’s GDP). When many countries
were finding it difficult to maintain a growth rate of even 5 per cent, China was able to maintain near
double-digit growth rate for one decade.
• In the 1980s, 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 Chinas growth rates, whereas, Pakistan met with drastic decline
at 4 per cent. Some scholars hold the reform processes introduced in 1988 in Pakistan and political
instability over a long period as reasons behind this trend.

Sectoral Contribution towards GDP in India, China and Pakistan(%) 2014-15

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Sector India China Pakistan

Agriculture 17 9 25

Industry 30 43 21

Services 53 48 54

Total 100 100 100

Share of Agricultural Sector

In China, the contribution of agriculture to GDP was 9 per cent in 2014-15, in India it was 17 per cent and in
Pakistan, it was 25 per cent.

In China

• Due to topographic and climatic conditions, the area suitable for cultivation is just 10% of its total land area.
Till 1980 more than 80% of its population was dependent on farming.

• Since then, the government encouraged people to leave their fields and pursue other activities, such as
handicrafts, commerce and transport. As a result, proportion of workforce engaged in agriculture reduced to
28% in 2014-15, with contribution to GDP at 9%

In India

• The contribution of agriculture to GDP was 17%. The proportion of workforce engaged in agriculture was 50

In Pakistan

• The contribution of agriculture to GDP was same at 25%, but proportion of workforce engaged in agriculture
was 43% as compared to 50% of India.

Share of Manufacturing and Service Sectors

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 per cent, respectively whereas
in India and Pakistan, it is the service Sector which contributes the highest by more than 50 per cent of GDP.
The contribution of industries to GDP is at 30 per cent in India and 21 per cent in Pakistan.

Sectoral Share of Employment in India, China and Pakistan in 2014-15

Sector India China Pakistan

Agriculture 50 28 43

Industry 21 29 23

Services 29 43 34

Total 100 100 100

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• In China, only 28 per cent of the workforce were engaged in agriculture in 2014-15. But the proportion of
workforce that works in this sector is more in India. In Pakistan, about 43 per cent of people work in
agriculture, whereas, in India, it is 50 per cent.
• In all the three economic, the industry and service sectors have less proportion of workforce. The proportion
of workforce engaged in manufacturing in India and Pakistan were low at 21 and 23 per cent respectively.
Development of India, China and Pakistan with respect to Indicators of Human Development

Some Selected Indicators of Human Development, 2016

Item India China Pakistan

Human Development Index (Value) 0.624 0.738 0.550

Rank (based on HDI) 131 91 148

Life Expectancy at Birth (years) 68.3 76 66.4

Mean years of Schooling (% aged 15 and above) 6.3 7.6 5.1

GDP per capita (PPP US) 6092 14,400 4866

People Below Poverty Line (at 53.10 a day ppp) (%) (2011) 37 32 44

Infant Mortality Rate (per 1000 live births) 38 966

Maternal Mortality Rate (per 1 lakh births) 174 27 178

Population using Improved Sanitation (%) 40 77 64

Population with Sustainable Access to Improved Water Source (%) 94 96 91

Percentage of Undernourished Children 39 9 45

• China is moving ahead of India and Pakistan. This is true for many indicators of human development
(i) Income indicators such as GDP per capita, Proportion of population below poverty line.

(ii) Heath indicators such as mortality rates, access to sanitation, adult literacy rate, life
expectancy, malnourishment.

• Pakistan is ahead of India in reducing proportion of people below the poverty line and also its
performance in sanitation. For the proportion of people below the international poverty rate of 35.10
a day, India has the largest share of poor among the three countries.
• Neither of these two countries-India and Pakistan-have been able to save women from maternal
mortality.
• In China, for one lakh births, only 27 women die whereas in India and Pakistan, about 178 and 174
women die respectively.

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Liberty Indicators

The human development indicators given above are all extremely important indicators; but these are not
sufficient. Along with these, we also need what may be called "liberty indicators. Liberty indicators are those
indicators which represent the degree of social and political freedom to individuals in a country.

Examples:

(i) A measure of the extent of democratic participation in social and political decision-making.

(ii) A measure of the extent of Constitutional protection given to rights of citizens

(iii) A measure of the extent of constitutional protection of the Independence of the Judiciary and the
Rule of Law.

Without including these (and perhaps some more) and giving them overriding importance in the list, the
construction of a human development index may be said to be incomplete and its usefulness limited.

DEVELOPMENT STRATEGIES: AN APPRAISAL

It is common to find developmental strategies of a country as a model to others for lessons and guidance for
their own development. It is particularly evident after the introduction of the reform process in different parts
of the world. In order to learn from economic performance of our neighbouring countries, it is necessary to
have an understanding of the roots of their successes and failures. It is also necessary to distinguish between,
and contrast, the different phases of their strategies.

Development Strategies of China

Why did China introduce structural reforms in 1978

China did not have any compulsion to introduce reforms as dictated by the World Bank and International
Monetary Fund to India. The new leadership at that time in China was not happy with the slow pace of growth
and lack of modernisation in the Chinese economy under the Maoist rule. They felt that Maoist vision of
economic development based on decentralisation, self-sufficiency and shunning of foreign technology, goods
and capital had failed. Despite extensive land reforms collectivisation, the Great Leap Forward and other
indicatives, the per capita grain output in 1978 was the same as it was in the mid-1950s.

Various factors that led to the rapid growth in economic development in China

• Establishment of infrastructure in the areas of education and health, land reforms, long existence of
decentralised planning and existence of small enterprises helped positively in improving the social and
income indicators in the post reform period.
• Through the commune system, there was more equitable distribution of food grains.
• Each reform measure was first implemented at a smaller level and then extended on a massive scale.
• The experimentation under decentralised government enabled to assess the economic, social and
political costs of success or failure. For instance, when reforms were made in agriculture by handing
over plots of land to individuals for cultivation, it brought prosperity to a vast number of poor people.
It created conditions for the subsequent phenomenal growth in rural industries and built up a strong
support base for more reforms.

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Reasons for the slow growth and re-emergence of poverty in Pakistan

In Pakistan the reform process led to worsening of all the economic indicators. Though the data on
international poverty line for Pakistan is quite healthy, scholars using the official data of Pakistan indicate
rising poverty there. The proportion of poor in 1960s was more than 40 per cent which declined to 25 per cent
in 1980s and started rising again in 1990s.

The reasons for the slow-down of growth and re-emergence of poverty in Pakistanis economy are:

(i) Agricultural growth and food supply situation were based not on an institutionalised 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.

(ii) 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-cast and the exports of highly volatile agricultural products.

(iii) There was also growing dependence on foreign loans on the one hand and increasing difficulty in
paying back the loans on the other.

However, during the last few years, Pakistan has recovered its economic growth and has been sustaining. In
2015-16, the Annual Plan 2016-17 reports that, the GLDP registered a growth of 4.7 per cent, highest when
compared to the previous eight years. While agriculture recorded growth rate far from satisfactory level,
industrial and service sectors grew at 6.8 and 5.7 per cent respectively. Many macroeconomic indicators also
began to show stable and positive trends

CONCLUSION

During the reforms, India performed moderately, but a majority of its people still depend on agriculture.
Infrastructure is lacking in many parts of the country. It is yet to raise the level of living of more than one-
fourth of its population that lives below the poverty line.

Scholars are of the opinion that political instability, over-dependence on remittances and foreign aid along
with volatile performance of agriculture sector are the reasons for the slowdown of the Pakistan economy.
Yet, last three years, many macroeconomic indicators began showing positive and higher growth rates
reflecting the economic recovery.

In China, the lack of political freedom and its implications for human rights are major concerns; yet, in the last
three decades, it used the market system without losing political commitment and succeeded in raising the
level of growth along with alleviation of poverty Unlike India and Pakistan, which are attempting to privatise
their public sector enterprises, China has used the market mechanism to 'create additional social and
economic opportunities. By retaining collective ownership of land and allowing individuals to cultivate lands,
China has ensured social security in rural areas. Public intervention in providing social infrastructure even prior
to reforms has brought about positive results in human development indicators in China.

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MCQs

1. India, Pakistan and------ have many similarities in their development strategies.

(a) Nepal (b) China

(c) Sri-lanka (d) Bangladesh

2. Which type of economic system is followed in China?

(a) Mixed Economy (b) Socialist Economy

(c) Capitalist Economy (d) None of these

3. Which sector of the economy contributes the highest to India’s GDP?

(a) Service (b) Agriculture

(c) Industry (d) None of these

4. Which one of the following is an indicator of human development?

(a) Life Expectancy at Birth (b) Maternal Mortality Rate

(c) Infant Mortality Rate (d) All of these

5. --------programme was started in china with the aim of industrialisation

(a) Great Leap Forward (b) Great Proletarian Cultural Revolution

(c) One Child Policy (d) None of these

6. -------has the largest life expectancy at birth.

(a) India (b) China

(c) Pakistan (d) Both (a) and (b)

7. Great Leap Forward was initiated in:

(a) Pakistan (b) India

(c) China (d) Both (a) and (b)

8 . Rank India, Pakistan and china in terms of better value of human development index.

(a) Pak, China, India (b) Pak, India, China

(c) China, Pakistan, India (d) China, India. Pak

9. When were reforms introduced in china?

(a) 1979 (b) 1977

(c) 1978 (d) 1969

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10. In which year, a program named ‘ The great Leap Forward’ Campaign was initiated by Mao to
modernise China’s economy?

(a) 1957 (b) 1958

(c) 1959 (d) 1968

11 . Which of the following two countries have adopted the Mixed Economic system?

(a) India and China (b) India and Pakistan

(c) China and Pakistan (d) None of these

1(b) 2(b) 3(a) 4(d) 5(a) 6(b) 7(c) 8(d) 9(c) 10(b) 11(b)

Questions to do (1 mark)

Q1. Out of India, China and Pakistan, which country has the highest workforce engaged in agriculture?

Ans. India has the highest workforce engaged in agriculture.

Q2. When were reforms introduced in all three economies?

Ans. In India 1991, In China 1978 and in Pakistan 1988.

Q3. Name the programme started in China with the aim of industrialisation.

Ans. Great Leap Forward.

Q4. Which sector contributes the highest to China’s GDP?

Ans. Service sector

Q5. Name any to indicators of human development.

Ans. Human Development Index and Life Expectance at birth

Q6. What was the major reason for the low population growth in China?

Ans. Introduction of one child policy.

Q7. Between India and China, which country has higher value of human development Index?

Ans. China.

Q8. What is commune system of Farming?

Ans. Under this people cultivate lands collectively.

Q9. In which country, Great Proletarian Cultural Revolution was introduced?

Ans. China

Q10. What infant mortality rate?

Ans. It refers to the number of infants dying before reaching one year of age per 1000 live births in a year.

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Q11. Which country has the highest life expectancy-India, China or Pakistan?

Ans. China has the highest life expectancy of 76 years.

Q12. Out of India, china and Pakistan which country has the largest contribution of the service sector to GDP?

Ans. Pakistan

Q13. Why were special economic zones set up in china?

Ans. Special economic zones were set up in china to attract foreign investors.

Q14. Identify the two areas of human development, where Pakistan has topped.

Ans. 1. Percentage of population with sustainable access to an improved water source.

2 Percentage of population with sustainable access to improved sanitation

Q15. Which type of economic system is followed in Pakistan?

Ans. Mixed economic system?

Q16. The government at that time also offered incentives to the private sector. All this created a conducive
climate for new investments.
Q17. With the unfolding of the globalisation process, developing economies are keen to understand the
developemental processes pursued by their neighbours. Why?
Ans. This is essential for developing countries as they face competition from developed nations as also amongst
themselves. Besides, an understanding of the other economies in our neighbourhood is also required as all major
common economic activities in the region impinge on overall human development in a shared environment.
Q18. India, Pakistan and China have similar physical endowments but totally different political systems. Explain
how.
Ans. India has the largest democracy of the world which is wedded to a secular and deeply liberal constitution.
Pakistan has militarist political power structure and china has the command economy. Recently, Pakistan started
moving towards a democratic system and china towards more liberal economic restructuring.
Q19. There is also an increasing eagerness on the parts of various nations to try and understand the
developemental processes pursued by their neighbouring nations. Why?
Ans. Since it allows them to better comprehend their own strengths and weaknesses vis-à-vis their neighbours.
Q20. Why are regional and economic groupings formed? (NCERT)
Ans. To strengthen their own economies
Q21. What are the various means by which countries are trying to strengthen their own domestic
economies?(NCERT)
Ans. Nations are forming regional and global economic groupings such as the SAARC EUROPEAN UNION, ASEAN,
G-8, G-20, BRICS etc.
Q22. What similar strategies have India and Pakistan followed for their respective developmental paths?(NCERT)
Ans. Such as creating a large public sector and raising public expenditure on social development.
Q23. Give the meaning of ‘township and village enterprises’.
Ans. Which are owned and operated by locals collectively ( Popular in China)
Q24. Give the meaning of state owned enterprises.
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Ans. In China, enterprises owned by government are known as State Owned Enterprises (SOEs), which we, in
India, call public sector enterprises.
Q25. What is dual pricing?
Ans. In China the reform process involved dual pricing which means fixing the prices in two ways---farmers and
industrial units were required to buy and sell fixed quantities of inputs and outputs on the basis of prices fixed
by the government and the rest were purchased and sold at market prices.
Q26. What is the important implication of one child norm in china?(NCERT)
Ans. It leads to arrest in the growth of population
Q27. The sex ratio is low and biased against females in all three countries why?
Ans. ‘ Preference for son ’prevailing in all three countries is the main reason
Q28. In china, only about 10% of its total land area is suitable for cultivation why?
Ans In China due to topographic and climatic conditions, the area suitable for cultivation is relatively small.
Q29. Why it is necessary to have an understanding of the roots of successes and failures of economic reforms
policies of neighbouring countries?
Ans. In order to learn from economic performance of our neighbouring countries, it is necessary to have an
understanding of the roots of their success and failures. It is also necessary to distinguish between, and contrast,
the different phases of their strategies.
Q30. What are the reasons for the slowdown of the Pakistan economy?
Ans. Political instability, over-dependence on remittances and foreign aid along with volatile performance of
agriculture sector are the reasons for the slowdown of the Pakistan economy.
Q31. What factors helped China positively improving the social and income indicators in the post reform period?
Ans. Establishment of infrastructure in the areas of education and health, land reforms, long existence of
decentralised planning and existence of small enterprsises.

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Blue Print

Section-A Macro Economics

4
Unit name 1 mark 3 Marks 6 marks Total
Marks
National Income 1(R) 1(U) 1(A) 10
Money and Banking 1(U),1(A) 1(U) 6
Income determination 1(R), 1(U), 1(E) 1(A), 1(U) 12
Government Budget 1(U), 1(E) 1(R) 6
Balance of Payment 1(A), 1(E) 1(E) 6
Section A 10*1=10 2*3=6 3*4=12 2*6=12 40
Section- B Indian Economic Development
1(R),
Development Experience and Economic Reforms 1(R), 1(U), 1(A), 1(E) 12
1(U)
Current Challenges facing Indian Economy 1(R), 1(U), 1(A), 1(E) 1(U), 1(A) 1(R), 1(E) 22
Development Experience of India 1(U), 1(E) 1(A) 6
40
Section B 10*1=10 2*3=6 3*4=12 2*6=12

Total 20*1=20 4*3=12 6*4=24 4*6=24

80

Creative Answer Type Questions: Q.No. – 29, 32, 34 Change in Questions:

Marks Category 2018-19 2019-20 Changes

1 mark 8 20 Increased by 12
3 marks 4 4 No change
4 marks 6 6 No change
6 marks 6 4 Decreased by 2
Total Questions 24 34

Time allowed: 3 hours

General instructions:

SAMPLE QUESTION PAPER (2019-20) ECONOMICS (030)

Maximum Marks: 80

All the questions in both the sections are compulsory. Marks for questions are
i.
indicated against each question.
Question number 1 - 10 and 18 - 27 are very short-answer questions carrying 1 mark
ii.
each. They are required to be answered in one word or one sentence each.
Question number 11 - 12 and 28 - 29 are short-answer questions caring 3 marks each.
iii.
Answers to them should not normally exceed 60-80 words each.
Question number 13 - 15 and 30 - 32 are also short-answer questions carrying 4 marks
iv.
each. Answers to them should not normally exceed 80-100 words each.

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Question number 16 - 17 and 33 - 34 are long answer questions carrying 6 marks each.
v.
Answers to them should not normally exceed 100-150 words each.
Answer should be brief and to the point and the above word limit be adhered to as far
vi.
as possible.

SECTION - A (Macro Economics)

1 Value of multiplier ---------(Increases/decreases/unchanged) with increase in CRR 1

2 Define an intermediate good 1

3 APC can never be -------

( a) positive (b) zero

( c) More the one (d) less than one 1

4 Name any two quantitative tools to control credit creation in the economy. OR

What are demand deposits? 1

5 The monetary policy generally targets to ensure-------

( a) price stability in the economy (b) employment generation in the country.

c) stable foreign relations (d) greater tax collections for the government. 1

6 In an economy, break-even point and equilibrium point lie at the same level of income, if ex-ante
investments are----------- 1

7 State whether the given statement is true or false:

‘Managed Floating Exchange Rate is decided by market forces but remains within a specific range as decided
by central bank’. 1

8 The formula to calculate Primary deficit is .................

(Fill up the blank with correct answer) 1

9 From the set of statements given in Column I and Column II, choose the correct pair of statements: Column
I Column II

a) Export of software to France (i) Debit side of current account

b) Import of Machinery from China (ii) Capital Account of Balance of Payments

c) Remittances to relative staying abroad (iii) Debit side of Current Account of BOP

d) Investment by Apple phones firm in India (iv) Credit side of Current Account of BOP 1

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10 Government expenditure on Mid-Day Meal scheme running in government (state run) schools is a type of
.............................. expenditure in government budget. (Fill up the blank with correct answer)
1

11 “India's GDP is expected to expand 7.5% in 2019-20: World Bank”

- The Economic Times.

Does the given statement mean that welfare of people of India increase at the same

rate? Comment with reason. 3

12 Calculate the value of Marginal Propensity to Consume (MPC), if in an economy, autonomous consumption
is ₹ 500 crores, ex-ante investments are ₹ 4000crores and equilibrium level of Income of the economy is ₹
18,000 crores.

Or

Suppose in a hypothetical economy, the savings increase by ₹ 20 crores when national income increases by ₹
100 crores. Compute the additional investments needed to attain an increase in national income by ₹ 6,000
crores? 3

13 Discuss any one of the following functions of a central bank:

a) As government’s bank b) Open market operations. 4

14 “Foreign Institutional Investors (FIIs) remained net seller in the Indian capital

The Economic Times.

State and discuss the likely effects of the given statement on foreign exchange rate with reference to India
economy
Or

‘Many large Multinational Corporations (MNCs) have recently shifted their investments from China and have
started their production in India, thereby boosting the Make in India plans of the Government’. Presuming
other factors constant, discuss the effects of the given statement on foreign exchange rate with reference to
Indian economy 4

15 Elaborate the objective of ‘reallocation of resources’ in the government budget. 4

16 a) ‘Real Gross Domestic Product is a better indicator of economic growth than Nominal Gross Domestic
Product’.
Do you agree with the given statement? Support your answer with a suitable numerical example.
4

b) Calculate ‘Depreciation on Capital Asset’ from the following data

Capital value of the asset 1000

Estimated life of the asset 20 years

Scrap value nil 2

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Or

a) ‘Circular flow of income in a two sector economy is based on the axiom that one’s expenditure is other’s
income’.
Do you agree with the given statement? Support your answer with valid reasons. 3

b) Calculate compensation of employees from the following data:

profit after tax 20

Interest 45

GDP MP 200

GST 10

Consumption of fixed capital 50

Rent 25

Corporate Tax 5 3

17 ‘An economy is operating at under-employment level of income’. What is meant by the given statement?
Discuss one fiscal measure and one monetary measure to tackle the situation.
6

SECTION-B (Indian Economic Development)

18 Name any two taxes which were subsumed in Goods and Services Tax (GST). 1

19 State weather the following statement is true or false:

‘The latest demonetization of currency was undertaken by the Government of India on November 8, 2016’.
1

20 Identify the correct sequence of alternatives given in Column II by matching them with respective terms in
Column I:

Column – I Column – II
A. Land Ceiling i. Increase in production of food grain using high yielding variety seeds
B. Landreforms ii. Portion of agricultural produce sold in the market
C. Green Revolution iii. Fixing the maximum limit of land holding for an individual.
D. MarketedSurplus iv. Change in the ownership of land (land to tillers)

21 Agriculture marketing does not comprise of ....................

(Choose the correct alternative)

a) Transportation of the produce to the market place for sale.

b) Grading of the produce according to the quality.

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c) Storage of the produce for sale in future.

d) Credit taken to meet expenditure on agriculture. 1

22 Under ...........................type of unemployment, marginal product gained by employing one additional unit
of labour is zero.

(Fill up the blank with correct answer) Or

.............................. an indicator which is used for analyzing the employment situation of a country.

(Fill up the blank with correct answer) 1

23 In 1955, Karve committee was constituted for aiming the....................

(Fill up the blank with correct answer) 1

24 Identify the correct sequence of alternatives given in Column II by matching them with respective terms in
Column I

Column – I Column -II

A. Study Group formed by Planning Commission for Poverty i. 2005
B. ‘Task Force on Projections of the Minimum Needs and Effective Consumption Demand’ ii. 1962
C. Mahatma Gandhi National Rural Employment Guarantee Act iii. 2014

D. Jan Dhan Yojana

iv. 1979

Choose the correct alternative:

1. a) ii , iii , iv , i
2. b) iii , ii , i, iv
3. c) i , ii , iii , iv
4. d) ii , iv , i, iii 1

25 Solar energy can be converted into electricity with the help of ................................... (Photovoltaic
cell/Lithium cells). (Fill up the blank with correct alternative) 1

26 Arrange the following events of China in chronological order and choose the correct alternative:

i. Great Proletarian Cultural Revolution

ii. Great Leap Forward campaign
iii. Introduction of Economic Reforms
iv. First five year plan

Choose the correct alternative:

1. a) ii, iv, iii, i

2. b) iv, ii, i, iii
3. c) ii, iv, i, iii
4. d) iv, i, ii, iii 1
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27 Introduction of Economic Reform in Pakistan took place in...............

(Choose the correct alternative)

a) 1978 b) 1980 c)1988 d) 1991 1

28 “Recently Indians have drifted away from the traditional knowledge and practices and caused large scale
damage to environment”. Explain how, adopting the traditional practices can be helpful in achieving the
objective of sustainable development? Or

‘Power sector in India has major issues with its installed capacity’. Discuss the given statement.
3

29 ‘Education Commission 1964-66 had recommended that at least 6 per cent of GDP must be spent on
education’. How far India has been able to achieve the said goal? 3

30 ‘The opening up of the Indian Economy has led to a rapid increase in Foreign Direct Investments and
Foreign Exchange Reserves of the country’. Defend or refute the given statement.
3

31 Define the following terms

a) Disinvestment b) Import Substitution. OR Define the following terms

a) Outsourcing b) Quota 4

32 Answer the following questions on the basis of the following data:

a) Comment upon the population growth rates among the three countries. 3
b) Which country has most skewed in sex ratio? 1 Source: World
Development Indicators, 2015, www.worldbank.org

Estimated Population
Country Annual Growth of Population (in %) Sex Ratio
(in million)
India 1311 1.2 929
China 1371 0.5 941

Pakistan 188 2.1

947

33 “Rural Economic development is essential for Indian Economic development”. Do you agree with the given
statement? Support your answer with valid reasons. 6

34 ‘In spite of the increase in public health expenditure Indian Health System is an ailing system in itself’.
Defend the statement citing any three major problems of Health sector in India. Or

Study the following chart showing the Growth of Employment and Gross Domestic Product

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and analyse the trend of the two variables from 1990-2012.

Marking Scheme SECTION - A (Macro Economics)

1 Decreases

2 An intermediate good refers to that good which is purchased during the year by a firm from another for the
purpose of further production/resale.

3 (b) Zero

4 i) CRR, ii) SLR, iii) Bank Rate, iv) Repo rate, v) Reverse repo rate (any two) Or

Demand deposits are the deposits which can be withdrawn on demand by the depositors from banks.

5 (a) price stability in the economy.

6 Zero
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7 True

8 Primary Deficit = Fiscal Deficit - Interest Payments

9 (c) Remittances to relative staying abroad - (iii) Debit side of current Account of Balance of Payments

10 Revenue

11 Generally it is considered that an increase in the Gross Domestic Product (GDP) of any economy (India in
this case) ensures increase in welfare of the people of the country. However, this may not always be correct.
Some of the prime reasons

( a) unequal distribution and composition of GDP,

(b) non-monetary transactions in the economy which are not accounted for in GDP, and
(c) occurrence of externalities in the economy (both positive and negative).

12 We know that consumption function is:

At equilibrium level of Income in the economy Y = C + I Given, Autonomous Consumption ( C) = ₹ 500 crores
and Ex-ante Investments (I) = ₹ 4000 crores
18,000 = 500 + MPC(18,000) + 4,000
MPC =0.75

Or

MPS = Change in savings/change in income = 0.20

Investment Multiplier (K) = 1/MPS= 5

Investment Multiplier (K) = Change in income/change in investment

5 = 6000/change in investment

Increase in investment by ₹ 1200 crores is required to attain additional income of ₹ 6000 crores

13 Central Bank as government’s bank - The Central Bank acts as a banker to both central as well as state
governments. The Central Bank accepts receipts and makes payments for the government and carries out
exchange, remittance and other banking operations. It advances credit/loan to the government to meet its
requirements in case of crisis. It also acts as an agent to buy and sell government securities & advises the
government on various financial matters.

Or
Open Market Operations by Central Bank - Open Market Operations refers to buying and selling of government
securities (bonds) by the Central Bank from/to the general public. It is an important step which may be
undertaken to control money supply in the economy. The Central Bank may sell government securities to reduce
the money supply in the hands of general public and vice-versa.

14 Selling of securities by Foreign Institutional Investors (FII’s) in Indian capital market will lead to fall in the
supply of foreign currency in the economy. This situation might lead to excess demand of foreign currency at
the prevailing foreign exchange rate. As a result, a new equilibrium rate of foreign exchange will be determined
which will be higher than the prevailing foreign exchange rate, leading to depreciation of domestic currency.
Investments by large multinational corporations (MNCs) in India will ensure greater inflow of foreign
exchange, leading to an increase in the supply of foreign currency. This situation may result into excess supply
of foreign currency in the economy at the prevailing foreign exchange rate. As a result, a new equilibrium rate

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of foreign exchange will be determined which will be lower than the prevailing foreign exchange rate, leading to
appreciation of domestic currency.

15 Reallocation of resources - Government through its budgetary policies tries to reallocate resources to ensure
fulfillment of various socio-economic objectives. The government may influence the allocation of resources
through:

(a) Taxation policy - Heavy taxes may be imposed on harmful products to discourage their production and
subsidies may be provided on the production of socially useful products to encourage their production.

b) Government may directly undertake production of certain goods and services in the areas where private
sector may not be willing to participate in production activities.

16 (a) The given statement is correct. Real Gross Domestic Product (GDP) is a better indicator of economic
growth than Nominal Gross Domestic Product (GDP) as it is not affected by changes in general price level.

Numerical Example:

Goods price of current year price of base year Qty of current year(Q1) NGDP RGDP

A 20 10 100 2000 1000

B 10 5 200 2000 1000

C 30 20 50 1500 1000

∑P1Q1 =5,500 ∑P0Q1= 3000 In the above

example the difference between Real GDP (∑P0Q1) and Nominal GDP (∑P1Q1) is 5,500-3,000 = ₹2,500. This
is only the monetary difference as the quantity sold in the market remains unchanged and the variation in the
value of GDP is merely due to the change in the prices in the economy.

(B) Depreciation on capital asset= Cost of asset-Scrap value/Estimated life

= 1000-0/20

= 50 crores

16 (a) Yes, the given statement is correct. In a two sector economy, the firms produce goods and services and
make factors payments to the households. The factor income earned by the households will be used to buy the
goods and services which would be equal to income of firms. The aggregate consumption expenditure by the
households in the economy is equal to the aggregate expenditure on goods and services produced by the firms in
the economy (Income of the producers).

b) Compensation of Employees = (iii) – (v) – (iv) – (vi+ii+i+vii) = 200 – 50 -10 – (25+45+20+5)

= ₹45 crores.

17. An economy is said to be operating at under employment equilibrium level, if the planned aggregate
expenditure falls short of available output in the economy, corresponding to the full employment level. It results
into excess of output available over the anticipated aggregate demand at full employment level. To tackle such
a situation the aggregate demand has to be increased up to the level that the stocks can be cleared.

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Following measures may be taken for the same:

i) Decrease in taxes: The government under its fiscal policy may decrease the rate of taxes (both direct and
indirect taxes). This will ensure greater purchasing power in the hands of general public. This will help to
increase aggregate demand and remove the deflationary gap.

ii) Increase in money supply: Central bank through its expansionary monetary policy can increase the
money supply in the economy. Central bank can use tools like bank rate, cash reserve ratio, repo and
reverse repo rates etc. to ensure greater money in the hands of general public which would in turn 2
increase the aggregate demand in the economy and be helpful in reducing/removing the deflationary
gap.
SECTION-B (Indian Economic Development)
1⁄2+
18 Value added tax, service tax, excise duty, sales tax. (any two correct alternatives)
1⁄2
19 True 1
20 b) iii , iv, i , ii 1
21 d) Credit taken to meet agriculture expenditure. 1
Disguised

22 Or 1

Work force participation rate

23 Development of small scale industries 1
24 d) ii , iv , i, iii 1
25 Photovoltaic cell 1
26 b) iv, ii, i, iii 1
27 c)1988 1
The given statement is quite appropriate. Indian traditional practices were environment friendly and
worked as complementary to the system and not its controller. The traditional agriculture system,
healthcare system, housing, transport etc. were intrinsically environment friendly. The traditional
practices used natural products and processes which are more or less free from side effects. For
example by adopting medicinal plants/products we can conserve the resources and achieve the
objective of sustainable development.
3
Or
28
3
The given statement states about the insufficiency of the installed capacity of production of power in
India. If the Indian economy wants to touch the GDP growth rate between 7-8% it must target to
produce electricity with a growth rate of 7% which is not possible with the present production capacity
in the power sector. Thus, we need to work in two directions to improve installed capacity: i. increased
investments (by both public and private players) in the power generation sector.

ii. better utilization of the present infrastructure.

Investment in education system in India has been a woeful failure. The fact of the matter is that, in
1952 we were spending a meager 0.6% of our GDP on education that rose to only 4% in 2014. This has
fallen well short of 6% target as proposed by the Education Commission, 1964. Moreover, throughout
29 this period the increase in education expenditure has not been uniform and there has been irregular rise 3
and fall. This shows the apathy of the government towards investment in the education system. One can
imagine, if the recommended 6% p.a. of the GDP would have been spent properly the present education
system would have reached unforeseen heights.

The given statement is true to its character. The foreign investments, both Foreign Direct Investment (FDI) 2
30 and Foreign Institutional Investment (FII), have increased from about US $100 million in 1990-91 to US $
74 billion recently. This has changed the status of India from a ‘begging bowl’ in 1990’s to a ‘self- 2
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dependent’ economy in the present ages. Due to the opening up of the Indian Economy, she has become
one of the largest foreign exchange reserve holders in the world. India been able to register an increase in
the foreign exchange reserves from about US $ 6 billion in 1990-91 to about US $ 321 billion in 2014-15.
a) Disinvestment: Privatisation of the public sector enterprises (PSEs) by selling off a part/whole of the
equity to the general public or any private sector player is known as disinvestment.

(b) Outsourcing; Hiring of regular service from external sources, mostly from foreign countries, which was 2
previously provided internally or from within the country is known as outsourcing.
2
31 OR
2
(a) Import Substitution: The policy aimed at replacing or substituting imports with domestic production by
protecting the domestic industries from foreign competition is known as Import Substitution. 2

(b)Quota: Quantitative restrictions on imports for the protection of the domestic firms from foreign
competition. Under this quantity of goods which can be imported is specified by the state.
a) The given data shows that the annual growth rate of population is maximum in Pakistan standing at
2.1%, whereas; the same stands at a meager 0.5% in case of China (might be a direct result of the One
Child Policy adopted). The annual population growth rate of India is in the danger zone of more than 1% 3
32 p.a. India will be overtaking China as the most populous country in the world in near future.
1
b) Amongst the three countries stated above, India has most skewed data sex ratio (929 female per 1000
male). This is one of the major concerns for the demographers in India.
Mahatma Gandhi had always maintained that the real growth of India lies in the growth of villages. The
rd
importance of rural development in India lies in the fact that 2/3 of the population still (directly or
rd
indirectly) depends on agriculture and around 1/3 of the rural population still lives in abject poverty.
33 Some of the prime areas for the development of the rural India may be quoted as follows: 2

· Infrastructure development – is the key to any development process. Basic infrastructure requirement
like electricity, irrigation, credit availability, transport facilities, construction of village roads and feeder
roads to nearby highways, etc. are the area which still need attention of the government so as to gain
commanding heights.
· Alleviation of poverty - poverty in rural India is an area that should be

taken up as a mission for improvement in the living conditions of particularly those living at the bottom of
pyramid. This problem may be tackled by emphasizing on greater access to productive employment
opportunities.

· Development of Human Capital – Rural human capital must be developed by taking sincere steps in the
direction of education and health.

34 The health system in India has undoubtedly improved over the years but the pace of improvement has been
unreasonably slow and truly we carry an unhealthy system. Following may be the most important concerns
ailing Indian health system:

• Low public expenditure: In India the health expenditure as a percentage of GDP is abysmally low as
compared to some of the major developing countries. It stood around 4.7% of the total GDP in the year 2014-15

• Urban Rural divide: people living in rural India do not have sufficient medical infrastructure. Nearly 70% of
the population lives in rural areas which have only 20% of the total hospitals of the country.

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• Women and child health issues: More than 50% of married women in the age group of 15-49 years have iron
deficiency, which has contributed to maternal deaths. Infant mortality rate per 1000 live births in India is 34.
Malnutrition and inadequate supply of vaccines lead to the death of millions of children every year. OR

The period between 1990 to 2012 had been a significant one. Introduction of Economic Reforms in India has
changed everything in India. Variables shown in the given graph show that GDP growth rate has taken an
upwards tread over the years whereas the situation of Employment growth rate has seen major fluctuations
while going down in overall trend. GDP growth rate has increased from a meager 3.4% in 1991 to 7.8% in 2012.
However the employment growth rate has shown declining trends from 1.5% in 1991 to 1.12% in 2012.
Between the period 1999-2005 the employment generation rate was at peak since independence i.e. 2.28% p.a.
with the corresponding GDP growth rate standing at a decent 6.1% p.a. The gap between the two variables is
maximum between the period 2005-10 when the employment growth rate hit the lowest in history of
Independent India i.e. 0.28%. In the same period the GDP growth rate had hit the highest level since
independence to the tune of 8.7% p.a. Indian economy has witnessed the peculiar phenomena of ‘jobless
growth’ over all these years. Learning from the situation government had put in serious efforts on employment
front and brought it to a level of 1.12% p.a. between the period 2010-12. In all the period between 1990-2012
has been a real roller coaster ride for the India economy on the two front of GDP and Employment Growth rate.

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SAMPLE PAPER-1

1. What is meant be 'floating exchange rate?

Ans. The exchange rate determined by the market forces of demand and supply of foreign exchange is
called the "floating exchange rate".

2. Money supply consists of:

(a) Currency held by the public

(b) Net demand deposits held by commercial banks

(c) Currency held by the public +Net demand deposits with the banks

(d) None of the above

Ans. (c)

3. Which of the following is a stock variable?

(a) Wealth (b) Income

(e) Savings (d) Capital formation

Ans. (a)

4. If MPC is given as 1, how much is MPS?

(a) 1 (b) 0

(c) ¥ (d) None of the above

Ans. (b)

5. The part of Legal Reserve Ratio (LRR) kept by the banks with themselves is called ...............
(a) Statutory Liquidity Ratio (SLR) (b) Cash Reserve Ratio (CRR)

(c) Reverse Repo Rate (RRR) (d) None of the above

Ans. (a)

6. ............... exchange rate is officially declared by the government.

Ans. Fixed

7. Give the meaning of ex–ante savings.

Ans. Savings intended to be done during the year are known as ex–ante savings.

8. Fiscal deficit equals:

(a) Primary deficit minus interest payments

(b) Primary deficit plus interest payments

(c)Total budgetary expenditure minus total budgetary receipts

(d) None of these

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Ans. (b)

9. Which of the following is a capital receipt in the government budget?

(a) Income tax (b) Interest receipt

(c) Sale of shares of a Public Sector Undertaking (PSU) to X Limited (Private company)

(d)Dividends from a Public Sector Undertaking (PSU)

Or

State any two examples of non–tax revenue.

Ans. (c)

Or

The two examples of non–tax revenue are interest and dividends.

10. A Company located in India receives a loan from a company situated abroad. How is this transaction
recorded in India's Balance of Payments Account?
(a) Credit side of current account (b) Debit side of current account

(c) Credit side of capital account (d) Debit side of capital account

Ans. (c)

11. Giving reason state how are the following treated in the estimation of national income.
(a) Expenditure by the government on providing free educational services

(b) Expenditure on purchasing a machine installed in a production unit

Ans. (a) Expenditure by the government on providing free educational services is included in the
estimation of national income because it is a final expenditure.

(b) Expenditure on purchasing a machine installed in a production unit is included in the

estimation of national income because it is an investment expenditure which is a part of the
final expenditure.

12. State any three sources of demand for foreign exchange.

Or

Which of the following transaction item is a debit/credit in the current account of the Balance of
Payments Account? Give reasons for your answer.

(a) Lending to the rest of the world

(b) Gift from foreigners

Ans. The three sources of demand for foreign exchange are

(a) Foreign exchange is demanded for importing goods and services from other countries.

(b) Foreign exchange is demanded for making investment abroad.

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(c) Foreign exchange is demanded for making interest payments on loans taken from abroad.

Or

(a) Lending to the rest of the world (R.O.W) is a debit item in the capital account and not in the current
account of the Balance of Payments.

(b) Gift from foreigners is treated as a private transfer and it is a credit item in the current account of
Balance of Payments. This is so because it represents an inflow into the domestic country.

13. How does the Central Bank control credit creation by commercial banks through 'Open Market
Expatiations'. Explain.
Or

Explain the "banker's bank" function of the Central Bank.

Ans. The buying and selling of securities like bonds etc. by the Central Bank in the open market to the
public is known as 'open market operations'.

In order to control credit creation by the commercial banks, the Central Bank will sell the securities to
the public and the money supply in the economy can be reduced. The buyers of these securities make
payment by cheaques. As a result, the deposits with the commercial banks as decrease as the buyers
of these securities are account holders with these banks. This will, in turn, directly reduce the capacity
to credit creation of the commercial banks. Thus, the borrowings from the banks decrease, ultimately
leading to a decrease in the demand for goods and services and thereby, controlling inflation or
excess demand.

Or

The Central Bank acts as a banker to commercial banks in various ways. Some of them are:

(a) It provides financial assistance to banks by discounting their bills and by giving loans and advances
against approved securities.

(b) The commercial banks are required to maintain a certain percentage of deposits with the Central
Bank. The sole aim of these reserves is to enable the Central Bank to provide financial assistance in
times of financial emergency.

(c) It supervises, regulates and controls activities of commercial banks.

(d) it provides the commercial banks is centralised clearing and remittance facility

14. (a) Distinguish between ex–ante measure and ex–post measure of a variable. Which out of the
two forms the basis of the theory of national income determination?
(b) National Income increases by Rs.2,000 crore due to an additional investment of 400
crore. Calculate the value of investment multiplier.

Ans.

(a) 'Ex–ante' variable is the planned or expected value of a variable whereas 'ex–post' variable is the
actual or realised value of the variable.

It is the ex–ante variables which are the basis of the theory of income determination.
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DY
(b) Multiplier (k) =
DI

2,000
k= =5
400
15. The government under Uijawala Yojana, is providing free LPG kitchen gas connections to the families
living below the poverty line. What objective the government is trying to fulfill through the government
budget and how? Explain.
Ans. The government under Ujjawala Yojana, is providing free LPG kitchen gas connections to the families
living below the poverty line.

• Through this yojana, the government is trying to reduce the gap between the rich and the poor
• The government sells LPG gas at a higher rate to those who can afford it. Revenue thus collected is used
to provide LPG Connection free of cost and also at subsidised rates to the families living below the
poverty line.
• This effort undertaken by the government reduces the disposable income of the rich and increases that
of the poor thereby reducing the gap between the rich and poor.
16. From the given data, calculate:
(a) Gross National Product at Market Price

(b) Net Domestic Product at Factor Cost

(Rs. in crores)

300

(i) Indirect tax 4,000

(ii) Sales 400

(iii) Opening stock 200

(iv) Closing stock 60

(v) Net factor income to abroad 40

(vi) Subsidies 100

(vii) Consumption of fixed capital 100

(viii) Intermediate costs 2,000

Ans.

(a) GNPMP = NDPFC + (vii) + (i) – (vi) – (v)

= 1,440 + 100 + 300 – 40 – 60

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= Rs.1,740 crores

Alternate method:

GNPMP = (ii) + (iv) – (ii) – (viii) – (v)

= 4,000 + 200 – 400 – 2,000 – 60

= Rs.1,740 crores

(b) NDP at Factor Cost = (i) + (iv – iii) – (viii) – (vii) – (i) + (vi)

= 4,000 + (200 – 400) – 2,000 – 100 – 300 + 40

= 4000 – 200 – 2,000 – 100 – 300 + 40

= Rs.1,440 crores

17. (a) Why is the AD curve also called C + I curve?

(b) Explain the determination of national income through aggregate demand an aggregate
supply forces. Use diagram.

Or

(a) Explain the concept of "Excess Demand" with the help of a diagram.

(b) Explain the role of bank rate in reducing excess demand in the economy

Ans.

(a) AD curve is also called 'C + l' curve because it gives the value of final
demand in an economy. which is nothing but a sum of final
consumption demand (C) and investment demand (I) Thus. AD =
C +I

(b) Equilibrium level of income is determined at that point when

aggregate demand is equal to aggregate supply.

Aggregate Demand represents the total expenditure on final goods

and services in an economy. It consists of Consumption expenditure
(C) and Investment expenditure (I). Thus, AD = C + I

Aggregate supply refers to the total production of final goods and services in an economy. In other
words, it refers to the country's National Product or 4

National Income. Thus. AS = Y.

The equilibrium level of income is determined at a point where AD = AS.

In the diagram, AD and AS curves intersect each other at point E, which is the point of equilibrium at which the
national income is determined. Thus. the equilibrium level of income is OY.

Or

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(a) The situation of excess demand exists when Aggregate Demand (AD) exceeds Aggregate Supply (AS)
at the level of full employment.

When at the full employment level of income, AD is greater than AS, a situation of inflationary gap
emerges, which is conceptually denoted by "Excess Demand". It leads to inflation in the economy. We
can explain this with the help of the diagram given.

• Point X in the given diagram denotes the point of equilibrium, because of the intersection of the AD
curve with the 45° line.
• OQ denotes equilibrium income.
• OF denotes full employment income.
• Since income is same as aggregate supply, BF denotes Aggregate Supply 45° (AS) at full employment.
• AF denotes Aggregate Demand (AD) at the full employment since AF > BF by the distance 'AB' denoting
inflationary gap/excess demand at the full employment level of income
(b) During the situation of excess demand, the Central Bank should raise its bank rate.

• As a result, the commercial banks will be compelled to raise their lending rate.
• On account of this, the demand for loans, to meet investment and consumption needs is likely to fall.
This will thereby reduce the excess demand in the economy.
18. Which of the following is not a source of human capital formation?
(a) Education (b) Saving

(c) Health (d) Information

Ans. (b)

19. National Food for Work Programme was launched in ...............

Ans. February 2001

20. Electricity generated from water is known as ...............

Ans. Hydel Power

21. Name the movement started by National Literacy Mission.

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Ans. The movement started by National Literacy Misson is "Education for all"

22. ASEAN stands for ...............

Ans. Association of South–East Asian Nations

23. Which of the following industries were adversely affected due to partition?
(a) Jute industries (b) Textile industries

(c) Both (a) and (b) (d) Neither (a) nor (b)

Ans. (c)

24. What was the motive behind the deindustrialisation by the colonial government in India?
Or

What is a plan?

Ans. To get raw materials from India at cheap rate.

Or

A plan is a document showing detailed scheme progranmme and strategy, worked out in advance for
fulfilling an objective.

25. Give one reason for comparing the development strategies pursued by two neighbouring countries.
Ans. To understand their own weaknesses and strengths of their neighbours.

26. Which of the following organisations functions as an apex organisation to provide quality school
education?
(a) AICTE (c) NCERT

(c) VGC (d) Ministry of Education

Ans. (b)

27. The first comprehensive wage employment programme introduced in India was:
(a) National Rural Employment Programme

(6) Mahatma Gandhi National Rural Employment Guarantee Scheme

(c) Prime Minister's Employment Generation Programme

(d) None of the above

Ans. (a)

28. In developed economies like the USA, salaries are higher than in developing economies like India.
Evaluate using your knowledge of relationship between human capital formation and economic
development.
Ans. In developed countries labour productivity is much higher than in the developing countries because of
intensive training and skill formation, use of modern technology, capital inputs and better

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infrastructure. Thus, the per canita income in developed countries is higher than in developing
countries.

Ans. (b)

29. Explain why urban poverty in India has been a spillover of rural poverty. Suggest any one measure to
reduce rural poverty in our country.
Or

Briefly explain the need for different forms of government intervention in education and health
sector.

Ans. Yes, urban poverty is a spillover of rural poverty to a large extent. In India widespread poverty in rural
areas compels. People to move to urban areas in search of jobs as most of the industries are
concentrated in cities. Besides, skilled people in the rural areas do not find suitable employment
opportunities. Also the agricultural activities being seasonal in nature, people move to urban areas.

Creation of alternative non–agricultural employment opportunities can help in reducing rural poverty
in small scale industry.

Or

There is a need for different forms of government intervention in education and health sectors.

(a)control the private sector and regulate them so that they follow the standard norms fixed
by the government

(b)control the private sector for overpricing of the basic services like education and health

(c)control difference in health and education sector as more funds can be allocated by the
government in poor and backward areas.

30. Discuss the dual pricing policy in the reform process of China.
Or

What is the condition of liberty indicators in India as compared to China and Pakistan?

Ans. Dual pricing policy means fixing the prices in two ways, i.e.,

(a) Farmers and industrial units were required to buy and sell fixed quantities of inputs and
outputs on the basis of prices fixed by the government.

(b) For other transactions, the inputs and outputs were purchased and sold at market price.

Or

HDI rating of India is low as compared with China. partly because HDI does not include parameters of
liberties off life, like political liberty of participating in state administration and social liberty of
freedom of speech, and related human rights. If these indicators are also included in the construction
of HDI, India's ranking is likely to considerably improve, as these parameters are placed fairly high in
India, compared with China and Pakistan.

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31. How will goods and service tax be a comprehensive indirect tax? Explain. How is the GST going to be
administered ?
Ans. GST will be a comprehensive indirect tax on the manufacture, sale and consumption of goods and
services throughout India, to replace taxes levied at the central and state level.

For example, a car's price varied among states because of different rates of taxes like value added tax,
octrai and road tax. But, GST has removed all these ad made India a single tax market.

It is the goods and services tax headed by the Union Finance Minister and represented by the State
Finance Minister who decide the rates as per the proposed GST law.

32. Explain the obstacles faced by the farmers in marketing their produce.
Ans. The obstacles faced by the farmers in marketing their products are:

(a) Long chain of intermediaries between the cultivators and the ultimate consumers
resulting in low income for the farmers

(b) Inadequate infrastructure leading to wastage and pilferage of the agricultural products.

(c) Absence of access to the markets due to inadequate transport facilities and carriages etc.
forces the farmers to sell their output in the village itself at lower prices.

(d) Lack of regulated markets exposes the cultivators to a number of malpractices and lower
returns.

33. Explain inefficient management and deficit in BOP as reasons of economic reform.
Ans. Inefficient management is famed for the origin of financial crises. The movement was not able to
generate sufficient revenue from Internal sources such as taxation, running of public sector
enterprises etc.

• Government expenditure began to exceeds its revenue.

• Foreign exchange borrowed from other countries and international financial institutions was spend
on consumption goods
Deficit in BOP arises when payment for imports exceed foreign receipts from exports. There was slow
growth of exports due to low quality and high prices of Indian goods in international market.

34. Bring out clearly the need for diversification in Indian agriculture. In this context, discuss the importance
of agro–processing industries.
Or

Briefly explain the three dimensional attack on poverty adopted by the government

Ans. Diversification in agricultural sector is required to:

• reduce the risks in agricultural sector.

• provide productive sustainable livelihood

• provide gainful employment.

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Agro–processing industries are those Industries that involve further refining and processing of
agricultural output, e.g juices, pickles, jam manufacturing, etc.

The importance of agro–processing industries is as follows:

(a) They provide huge employment generation potential.

(b) They create agricultural linkages.

(c) They reduce agricultural wastage. (any three)

(d) They are a source of supplementary income.

Or

The movement's approach to poverty reduction has three dimensions:

(a) Growth ordered approach. This approach was initiated from the First Five Year Plan. This approach is
based on an expectation that effects of economic growth (rapid increase in GDP and per capita
income) would spread to all sections of the society and will trickle down to the poor section also. It
was felt that rapid industrial development and transformation of agriculture through green revolution
in select regions, would benefit the underdeveloped regions and more backward sections of the
community.

(b) Poverty alleviation programmes. This second approach has been initiated from the Third Five Year
Plan and progressively enlarged since then. The government has introduced a variety of programmes
for reduction of poverty

(c) Minimum needs programme. This approach has been initiated form the Fifth Five year plan. It aims
to provide minimum basic amenities to the poor. Programmes under this approach are expected to
supplement the consumption of the poor, create employment opportunities and bring improvements
in health and education. The three major programmes that aim at improving the food and nutritional
status of poor are:

(i) Public Distribution System

(ii) Integrated Child Development Scheme

(iii) Mid–day Meal Scheme

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SAMPLE PAPER – 2

1. What is bank money?

Ans. Bank money refers to the demand deposits created by the commercial banks.

2. Other things remaining the same, when foreign currency appreciates, the effect on the national income
of the economy is likely to:
(a) Increase (b) Decrease

(c) Cannot be determined (d) No effect

Ans. (a)

3. If Savings are Rs.2,000 at the income level of Rs.10,000, then APS will be equal to:
(a) 0.8 (b) 0.5

(c) 0.2 (d) 0.6

Or

If the value of MPS is 0.25, calculate the value of multiplier.

Ans. (c)

Or

Given MPS = 0.25 and k = ?

1 1
! k= = =4
MPS 0.25
Multiplier (k) = 4

4. When is Net Domestic Product equal to Net National Product?

Ans. When net factor income from abroad is zero NDP = NNP.

5. Which out of the following is an indirect tax?

(a) Gift Tax (b) Wealth Tax

(c) Profit Tax (d) Goods and Services Tax

Ans. (d)

6. When Balance of Trade shows a deficit of Rs.2,500 crores and the value of imports of goods is Rs.4,500
crores, the value of exports will be ...............
Ans. Rs. 2,000 crores

7. Out of the following which value can be greater than one?

(a) MPC (b) MPS

(c) APC (d) APS

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Ans. (c)

8. Which government body has finalised a four–tier GST tax structure?

Ans. Goods and Services Tax Council (GST Council)

9. If Legal Reserve Ratio (LRR) is 0.1, the value of deposit multiplier is:
(a) 10 (b) 1

(c) Zero (d) 20

Ans. (a)

10. Depreciation of domestic currency will lead to an ............... in exports.

Ans. Increase

11. Suppose a ban is imposed on consumption of liquor in the country. Examine its effect on Gross Domestic
Product and Welfare.
Or

How do the negative externalities affect the welfare of the people? Explain by taking an example.

Ans. The ban imposed on consumption of liquor in the country will certainly bring down the consumption
of liquor.

(a) Since the production of liquor is counted in Gross Domestic Product. now it will lead to a fall in GDP.
This is because a fall in the consumption of liquor leads to a fall in its production to.

(b) Fall in the consumption of liquor will definitely improve the health of the people both physical and
mental). This is turn will lead to a rise in the welfare of the society.

This step of the government will go a long way to improve the well being of the liquor addict and also
his family at large.

Or

Negative externalities refer to those activities which harm others. For example, factory waste being
driven into the river causes water pollution and thereby environmental degradation, which in turn
causes a loss of (social) welfare. But the impact of these externalities is not accounted for in the
estimation of GDP, as an index of welfare. So, they act as a major limitation of GDP, as an index of
welfare.

12. Distinguish between the fixed exchange rate and the floating exchange rate.
Ans.

• If the government decides the conversion rate between currencies, it is known as 'fixed exchange
rate', whereas if the market forces (demand and supply of foreign currency) determine the conversion
rate, it is called market exchange rate or flexible/floating exchange rate.

• Fixed Exchange Rate does not vary with the changes in demand and supply of foreign currency, as the
government only has the power to change it, whereas flexible exchange rate varies with changes in
demand and supply of foreign exchange.

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13. How has the introduction of plastic money enhanced the convenience of both the depositor and the
bank? Explain.
Or

Explain the process of credit creation by commercial banks with the help of a numerical example.

Ans. The introduction of the plastic money (in the form of the debit/credit card) has definitely enhanced
the convenience of both the depositor and the bank. This is keeping in view, the doing away with the
burden of carrying money in bulky form (i.e., currency notes). It not only adds weight on the person
but also the risk involved in carrying huge amount of cash on person. So the portability factor along
with the convenience involved, has led to popularity of plastic money over the bank money. This
earlier practise of the depositor/holder of cheque being physically present in the transaction with the
bank has been done away with. The handy form of latest money–plastic money, is Indeed a
convenient form of money used for transactions.

Or

The process of money creation can be explained with the help of the following numerical example.

Suppose the initial deposit in banks Rs.100 and the LRR is 20%. Further suppose that banks keep only
the minims required, i.e., Rs.20 as cash reserve. So now they are free to lend the remainder Rs.80.
Suppose they lend Rs.80, for this, they open deposit accounts in the names of the borrowers.

puted through the bank, the money spent by the borrowers comes bacl

Now, as all the transactions are route through the bank, the money spend by the borrowers comes
back into the bank, into the deposit accounts of those who have received this payment. This increases
demand deposits in the bank by Rs.80, which is 80% of the initial deposit. This deposit of Rs.80 has
resulted on account or loan given by the bank. In this case the bank is responsible for money creation
with this round, increase in total deposits is now
Rs.180 (100 + 80).

This Way, the deposits go on increasing round after round, but each time 80% of the last round deposit. At the
same time, cash reserve go on increasing each time, 80% of the last cash reserve. The deposit creation comes
to end when total cash reserves become equal to the initial deposit (i.e., Rs.100 in the given case) the total
deposit creation comes to Rs.500, i.e. five times the initial deposit as proven by the following schedule.

Deposit/Credit Creation by Commercial Banks

Round Deposits Loans Cash Reserves (LRR = 0.2)

Initial 100 80 20

I 80 64 16

II 64 51.20 12.80

… … … …

Total 500 466 100

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14. Derive saving and investment approach from the aggregate demand and aggregate supply approach
for determination of equilibrium level of national income.
Ans. For determination of the equilibrium level of National Income

Aggregate demand = Aggregate supply

AD = AS

where AD (C + I) = AS (C + S)

Now recasting the above equations

AD = AS

C+I=C+S

I=S

or S=I

15. India is suffering from the problem of inequalities in the distribution of income and wealth. How can
budget be used as an instrument to solve this problem?
Ans. India has been suffering from the problems of inequalities in the distribution of income and wealth.
The government can use the instrument of "budget' to solve this problem by taking the following
steps.

• By providing essential items of foodgrains almost free to the famılies living below the poverty line,
Government tries to reduce the gap between the rich and the poor. It is a step towards the reduction
in inequalities in income.

• Government taxes the rich and spends the revenue thus raised on the poor.

• By taxing the richer section, government reduces the disposable income of the rich and increases the
disposable income of the poor so as to make them 'better off.

16. From the following information, calculate:

(a) Net National Product at Factor Cost

(b) Gross Domestic Product at Market Price

(Rs. in crores)

(i) Dividends 100

(ii) Compensation of employees 1,200

(iii) Net indirect tax 140

(iv) Rent 200

(v) Social security contributions by the employers 80

(vi) Corporate profit tax 60

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(vii) Consumption of fixed capital 120

(viii) Net factor income to abroad 40

(ix) Retained earnings of private corporate sector 50

(x) Interest 300

(xi) Net current transfers to rest of the world ) 20

Ans.

(a) NNP at factor cost = (ii) + (i) + (iv) + (vi) + (ix) + (x) – (viii)

= 1,200 + 100 + 200 + 60 + 50 + 300 – 40

= Rs.1,870 crores

(b) GDP at market price

= NNPFc + (vii) + (ii) – (vii)

= 1,870 + 120 + 140 – (–40)

= Rs.2,170 crores

17. Draw a hypothetical propensity to consume curve and from it derive the propensity to save curve.
Explain the steps involved.
Or

Explain the 'Consumption function' with the help of a schedule and a diagram.

Ans. The steps involved in the derivation of the saving curve (Propensity to save curve from the
consumption curve (Propensity to consume curved) are:

• We can find savings at different levels of income by taking the vertical distance between the
consumption curve (CC) and the 45° line

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• At point B in the diagram, income and consumption expenditure are equal

Y = C, i.e., savings are zero

• To the left of point B, CC curve is higher than the 45° line. This implies savings are negative (or
Dissaving) to the left of point B, in the diagram.

• To the right of point B, CC curve is lower than the 45° line, implies C< Y and savings are positive.

• By plotting the distance between the CC curve and 45° line at different levels of income just below
the upper part we can derive the saving curve SS. Since the CC curve is a straight line, the derived
savings curve ® SS, must also be a straight line. For this we are required to locate only 2 points.

(a) Plot a perpendicular from point B on the consumption curve, intersecting the OX axis, at point D,
which must be on the OX axis, because savings is zero when Y = C.

(b) Plot OS on the lower part of OY axis as equal to OC on the Y–axis on the upper part. This gives us point
S, from where the saving curve will stat.

• Joining points S and D and extending the straight line upwards we derive the straight line savings
curve – 'SDS'

Or

Consumption function shows the relationship between consumption and income.

C = f(Y)

This equation states that there is a direct relation between consumption and the level of income. As the level
of income increases, consumption also increases but the increase in consumption is less than the increase in
income.

The concept of consumption function can be further explained by the following consumption schedule and
curve

Income Consumption (Rs. crores)

0 50

100 100

200 150

300 200

400 250

500 300

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The above table and diagram show that as the income increases, consumption also increases but the increase
in consumption is less than increase in income.

18. ............... are the people who regularly move in and out of poverty.
Ans. Churning poor

19. Define Special Economic Zone.

Or

Name the programme started in China with the aim of industrialisation.

Ans. Special Economic Zone is a geographical region that has economic laws different from a country's
typical economic laws. Usually the goal is to increase foreign investment.

Or

Great Leap Forward (CLF)

20. Gender bias is a hindrance in the process of skill formation. (True/False)

Ans. True

21. The various types of goods and services we export and import are known as
(a) Direction of trade (b) Balance of trade

(c) Composition of trade (d) one of these

Ans. (c)

22. The most widespread contamination of water occurs from industrial water. (True/False)
Ans. True

23. Which infrastructure is essential for the development of a country?

(a) Social (b) Economic

(c) Health (d) Both (a) and (b)

Ans. (d)

24. Define ozone depletion.

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Ans. Ozone depletion refers to the phenomenon of reduction in the amount of ozone n the stratosphere.

25. What is commune system of farming?

Ans. Commune system of farming is a system of collective farming.

26. In India, education sector is regulated by:

(a) NCERT (b) UGC and AICTE

(c) Ministry of Education (d) All of the above

Ans. (d)

27. What was the idea behind abolition of intermediaries?

Ans. The aim of abolition of intermediaries (zamindars) was to make direct link between the government
and the real Cultivators so that the cultivators can get maximum profit.

28. What are the benefits before India for becoming a cashless economy?
Ans. The benefits of a cashless economy are:

(a) It will enhance our current banking system. There will be increased access to credit for people who do
not fall in any banking network.

(b) It will help in widening the bracket of tax payers. All the transactions are monitored and traced back
to a given individual. It will be difficult to evade tax then.

(c) The risk of counterfeit currency is minimised as the circulation of notes is reduced.

(d) It will facilitate faster transfer of money to places across India. Making and receiving payments will be
sale, convenient and hassle free.

(any three)

29. Subsidies put a huge burden on the government finances but are necessary for poor and marginal
farmers' Explain.
Or

Explain the meaning of Green Revolution and evaluate its contribution in improving agricultural sector
in India.

Ans. The government should continue with agricultural subsidies as:

(a) Farming in India continues to be a risky business.

(b) Majority of the farmers are very poor and will not be able to afford the required inputs without
subsidies

(c) Eliminating subsidies still increase the income inequality between rich and poor farmers and violate
the ultimate goal of equity.

Or

Green Revolution implies use of better quality inputs like high yielding variety of seeds, modern
machines and tools use of chemical fertilisers and pesticides to increase agricultural productivity
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Green Revolution has helped in:

(a) Increasing the agricultural productivity

(b) Increasing the farmer's incomes through greater marketable surplus resulting in
commercialization.

(c) Attaining self–sufficiency in food grains and reduced dependences on imports.

(any two)

30. Mention the industrial reforms introduced by the Indian government under the New Economic Policy
to enhance country's industrial competitiveness.
Ans. The steps which have been undertaken in India under the New Economic Policy to enhance industrial
competitiveness are

(a) Deregulation of industries–creating one window for licensing

(b) Dereservation of products under government sector

(c) Removal of quantitative restrictions on imports and exports

(d) Freedom to import capital goods by industries to upgrade their technology

31. Explain the challenges faced by the power sector in India.

Or

Explain the relationship between human capital and economic growth.

Ans. The challenges faced by the power sector in India are:

(a) India's installed capacity to generate electricity is not sufficient to feed an annual
economic growth of 7 to 8 percent. Even the installed capacity is underutilised, because
plants are not running properly.

(b) State Electricity Boards incur losses. This is due to transmission and distribution losses,
wrong pricing of electricity and other inefficiencies.

(c) This is general public unrest due to high power tariffs and power cuts.

(d) Shortage of raw material in thermal power plants

(e) Lack of technology to use renewable sources of power generation

(any four)

Or

Human capital stimulates the process of economic growth. However, economic growth also impacts
human capital formation.

Growth implies increase in per capita income. Higher income facilitates higher investment on
education and skills implying human capital formation. Thus, human capital formation prompts the
process of growth and growth prompts the process of human capital formation.

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32. The infrastructural reforms introduced by China proved to be successful while Pakistan lagged far
behind. Do you agree? Give reasons in support of your answer.
Ans. Yes, I agree that introduction of infrastructural reforms in a phased manner in China created a
favourable environment for its industries and helped to set up a strong support base for further
reforms as

• Establishment of infrastructure in education, transport and health accelerated economic growth.

• Commune system led to equitable distribution of food grains.

• Decentralized planning enables to assess and effectively implement the reforms.

• Promoted small enterprises. (any two)

While China progressed by leaps and bounds, Pakistan lagged because of

• Lack of adequate and uniforms reforms.

• Ineffective implementation of reforms.

• Low rate of savings and investment.

• Growing dependence on other countries. (any two)

33. Explain any three benefits of Organic Farming and problems faced by farmers during organic farming.
Ans. The three benefits of organic farming are:

(a) It offers a means to substitute costlier agricultural inputs (such as HYV ads. chemical
fertilisers etc.) with locally produced organic inputs that are cheaper.

(b) It generates income through exports as the demand for organically growth crops high.

(c) Organically grown food has more nutritional value than chemical farming.

(d) Since organic farming requires more labour input than environmental farming, it will
generate more employment. (any three)

The problems faced by farmers during the initial years of organic farming are

(a) Inadequate infrastructure.

(b) The yields from organic farming are less than modern agricultural farming in the initial years

(c) Organic produce may also have more blemishes and a shorter shelf life than sprayed produce

(d) Choice in production of off–season crops is quite limited in organic farming.

(any three)

34. (a) What is worker population ratio? Why is it calculated? (any three)
(b) In India, male workers constitute a higher percentage than female workers. Explain why is it
so ?

Or

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'Information technology plays a very significant role in achieving sustainable development and food
security'. Justify giving any four reasons in support of Your answer.

Ans.

(a) Worker population ratio refers to the population of workforce in total population. It can be expressed
as

Workforce / Total Population .100

Worker population ratio is calculated to find out the percentage of population that is actively engaged
in the production of goods and services.

(b) In India male workers constitute a higher percentage of total workers as compared to that of female
workers because of the following reasons:

• Lower education or skills among the women

• Social structure which discourages females to take up jobs outside homes. • Gender
inequality at workplace.

• Limited avenues of work available to the females. (any two)

Or

Information technology plays a very significant role in achieving sustainable development and food
security as

(a) Government can predict areas of food insecurity and vulnerability using appropriate information and
software tools so that action can be taken to prevent or reduce the likelihood of an emergency.

(b) It also has a positive impact on the agriculture sector as it can disseminate information regarding
emerging technologies and its applications, prices, weather and soil conditions for growing different
crops etc.

(c) It can act as a tool for releasing the creative potential and knowledge embedded in the society

(d) It also has potential of employment generation in rural areas.

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SAMPLE PAPER – 3

1. Direct tax is called direct because it is collected directly from the:

(a) Producers of the good produced (b) Sellers of the good sold

(c) Buyers of the good (d) Income–earners

Ans. (d)

2. When during the year, the autonomous inflow of foreign exchange is more than the autonomous
outflow we have ............... in Balance of Payments Account.
Ans. Surplus

3. The rate at which Central bank advances long–term loans to commercial banks is called ...............
Ans. Bank rate

4. Which out of the following is a revenue expenditure:

(a) Purchase of shares

(b) Loans advanced

(c) Subsidies

(d) Expenditure on acquisition of land

Ans. (c)

5. Give the meaning of autonomous consumption.

Or

What do you mean by Consumption function?

Ans. Autonomous consumption refers to the amount of consumption expenditure, when income is zero.

Or

The relationship between consumption and income is called consumption function or propensity to
consume. Symbolically C = f(Y)

6. Which of the following is a visible item and which is an invisible item?

(a) Export of jute product (b) Software service expert

Ans. (a) Visible item

(b) Invisible item

7. Which of the following item will not be included while calculating national income by the income
method ?
(a) Wages and Salaries (b) Royalty

(c) Scholarship (d) Profit

Ans. (c)
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8. What are Open Market Operations'?

Ans. OMOs refer to the buyıng and selling of government securities by the Central bank from to the public.

9. Define the current account of Balance of Payments

Ans. Current account of Balance of Payments records sources and uses of foreign exchange on account of
flow of goods and services, transfers and incomes from and to abroad.

10. If MPC =1, the value of multiplier is:

(a) 0 (b) 1

(c) Between 0 and 1 (d) Infinity

Ans. (d)

11. Explain how 'non–monetary exchanges' are a limitation in taking Gross Domestic Product as an index
of welfare.
Or

Giving reasons explain how should the following be treated in the estimation of national income.

(a) Payment of corporate tax by a firm

(b) Purchase of machinery by a factory–owner for own–use

Ans. Non–monetary exchanges refer to the goods and services produced in the economy hut are not
exchanged through money. For example, the domestic services rendered by the housewives or family
members to each other.

Non–Monetary exchanges refer to those activities like the domestic services rendered by housewives,
which are not evaluated in monetary terms i.e., are not paid for. The exchanges which take place in
the informal sector without the help of money are called 'barter exchanges'. In developing countries,
in the remote areas these kind of exchanges are visible, but their value is not accounted for in the
GDP of these countries. This leads to underestimation of GDP. So exclusion of 'non–monetary
exchanges' is a serious limitation in taking GDP as an index of welfare.

Or

(a) Payment of corporate tax by a firm should not be included in the estimation of national income
because it is a transfer payment.

(b) Purchase of machinery by a factory–owner for own–use should be included in the estimation of
national income as it leads to capital formation investment, which in turn is used for further
production income.

12. Give the meaning of "foreign exchange' and foreign exchange rate'.
Ans. Foreign exchange comprises of all currencies other than the domestic currency of a given country like
dollar, pound yen, etc.

The rate at which one currency exchanges for the other currency in the international money market is
called 'Foreign Exchange Rate'.

13. State whether the following statements are true or false. Give reasons for your answer.
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(a) Break–even point is determined at a point, where C = Y.

(b) The vaue of Average Propensity to Save can never be greater than 1.

Ans.

(a) True, as at break–even point C = Y, i.e., savings are zero because Y = C + S, and when Y = C, it implies
that savings are zero. Graphically, it is determined at the point of intersection of the CC curve with the
45° line.

(b) True, as the value of APS can never be greater than 1, in fact it can never be equal to 1, as APC + APS =
1.

If APS = 1 then APC is zero which is not possible, since some minimum level of consumption
expenditure is always required for survival. So, value of APS can be zero or negative but never greater
than I as stated.

14. What has been the aim of demonetisation ?

Or

Why do we say that commercial banks create money, while we also say that the Central Bank has the
sole right to issue currency? Explain.

Ans. Demonetisation aimed at signalling a regime change. It emphasised the government's determination
to penalise illicit activities and the associated wealth.

The aim of demonetisation has been fourfold.

(a) To curb corruption

(b) To curb counterfeiting

(c) To curb the use of high denomination notes for terrorist activities

(d) To curb the accumulation of black money generated by income that has not been declared to the tax
authorities.

Or

Money supply has two components, i.e., Currency and Demand Deposits with commercial banks.
Currency is issued by the Central Bank while deposits are created by commercial banks by lending
money to the people. Commercial banks create money by advancing loans from its deposits.

Total money created by commercial banks

1
= , Initial reserves where LRR is legal reserve ratio.
LRR
In this way, commercial banks also create money. Commercial banks led mainly to investors. When
commercial banks lend money investment increases, which stimulates production.

15. Explain the implication of fiscal deficit upon the economy

Ans. Fiscal deficit reflects total borrowings of the government during the financial year.

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Fiscal deficit = Total Budgetary Expenditure – Total Budgetary Receipts (excluding borrowings)

• High fiscal deficit implies greater borrowings by the government. Fiscal deficit should not be allowed
to rise unabated (not beyond 3% of GDP).

• High fiscal deficit denotes fiscal indiscipline. It is a situation when GDPs growth is low, unemployment
is high and revenue is low. As a result, the economy witnesses stagnation and economic slowdown.

16. Complete the following table: MPS Multiplier Value

MPC MPS Multiplier Value

0.90 – –

0.80 – –

– 0.25 –

– 0.40 –

– – 2

– – 1

Or

The savings function of an economy is S = –200 + 0.25Y. The economy is in equilibrium when income is
equal to Rs.2,000. Calculate:

(a) Investment expenditure at equilibrium level of income.

(b) Autonomous consumption.

(c) Investment multiplier.

Ans.

MPC MPS Multiplier value

0.90 0.10 10

0.80 0.20 5

0.75 0.25 4

0.60 0.40 2.5

0.50 0.50 2

0 1.0 1

Or

S = –200 + 0.25 Y (given) and Y is equal to Rs.2.000

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(a) Investment Expenditure (I) at equilibrium of income

Substituting to value of Y in the savings function, we get

S = –200 + 0.25 ´ 2000 = –200 + 500 = 300

S = 300

as at the equilibrium level S = I

I = Rs.300

(b) When Y = 0, saving = –200

Thus autonomous consumption = Rs.200

1 1
(c) k= = =4
MPS 0.25
17. (a) On the basis of the following information about an economy having only two firms A and B
find out the Gross Domestic Product at Factor Cost:
(R in crores)

(i) Opening stock of Firm A 150

(ii) Opening stock of Firm B 270

(iii) Sales by Firm A 600

(iv) Sales by Firm B 1,200

(v) Purchases from Firm B by Firm A 240

(vi) Purchases from Firm A by firm B 360

(vii) Closing stock of Firm A 120

(viii) Closing stock of Firm B 210

(ix) Indirect taxes by both Firms A and B 180

(b) If the Real Gross Domestic Product is Rs.250 crores and the Price Index (base = 100) is
120, calculate the Nominal Gross Domestic Product.

Ans. (a) GDPFC/GVAFC

= Sales + Change in stock – Intermediate consumption Indirect taxes

= {(ii) + (iv)} + [(vi) – (i))] + [(vii) – (i)] – (v) – (vi) – (ix)

= [600 + 1,200] + [120 – 150] + [210 – 270] – 240 – 360 – 180

= 1,800 + (–30) + (–60) – 240 – 360 – 180

= Rs.930 crores
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Note: Formula in the first line denotes Sales of both firms A and B, change in stock of both firms A and R and
intermediate consumption of both firms A and B.

No min al GDP
(b) Price Index = ´ 100
Pr ice Index

Nominal GD
250 = ´ 100
120

250 ´ 120
\ Nominal GDP = = Rs.300crores
100
18. Trade agreements between two countries is a trade agreement.
Ans. Bilateral

19. Which of the following is the apex institution in the field of agricultural marketing?
(a) NABARD (b) FCI

(e) NAFED (d) None of the above

Ans. (a)

20. SAARC stands for

Ans. South Asean Association for Regional Corporation

21. Which of the following are the area (s) of corporation of the public sector under the British colonia rule?
(a) Railways (b) Power generation

(c) Communications (d) All of these

Ans. (d)

22. Define Head Count Ratio'.

Ans. When the number of poor is estimated as the proportion of people below the poverty line, it is known
as Head Count Ratio.

23. What was the main objective of the British Policy of infrastructural development in India?
Ans. The main objective of the British Policy of infrastructural development in India was:

(a) To facilitate colonial administration through movement of army and officials.

(b) To mobilise exports of raw material from India and import of finished goods to India.
(any one)

24. The agency that procures food-grains from the farmers is ...............
Ans. Food Corporation of India

25. What happen when the rate of resource extraction exceeds that of their regeneration?
Ans. Environment fails to perform its vital function of life sustenance and it leads to the situation of
environmental crisis.

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26. Why have some resources become extinct ?

Or

Which five e year plan recognised the importance of human capital?

Ans. Some resources have become extinct because their extraction has been above the rate of generation.

Or

Seventh Five Year Plan

27. The revolution introduced by Mao in 1965 is ...............

Ans. Great Proletarian Cultural Revolution (GPCR)

28. Give any three aims of demonetisation.

Or

Why was Mahatma Gandhi National Rural Employment Guarantee Act implemented by the
government in 2005 ?

Ans. The three aims of demonetisation are

(a) To curb corruption

(b) To curb counterfeiting

(c) To curb the use of high denomination notes for terrorist activities

Or

Mahatma Gandhi National Rural Employment Guarantee Act. 2005 promises 100 days of guaranteed
wage employment to all rural households who volunteer to do unskilled manual work. This scheme
has been implemented by the government to generate employment for those who are in need of jobs
in rural areas.

29. Do you think that in the last 50 years, employment generated in the country is commensurate with the
growth of GDP in India? How?
Ans. No, because during the period 1950–2010, GDP of India grew positively and was higher than the
employment growth. During this period, employment grew at the rate of not more than 2 percent.
However, there was always fluctuation in the growth of GDP. There has been a widening gap between
the grow of GDP and employment during this period. That means that in the Indian economy, without
generating employment, we have been able to produce more goods and services. Scholars refers to
this phenomenon as jobless growth

30. What is the important implication of the one child norm in China
Ans. The important implication of one child norm is that it has reduced the growth rate of provided a
better health service for women and has reduced the risk of death and injury associated with
pregnancy.

However, this policy has some other implication also. For instance, after a few decades. there will be
more elderly people in proportion to young people in China. This will force China to take steps to
provide social security measures with fewer workers.
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31. What is organic farming? Mention any three advantages of organic farming in India.
Ans. Organic farming is a eco–friendly technology, which is a whole system of farming that restores.
maintains and enhances the ecological balance. Some of its merits are:

• It is a means to replace the expensive agricultural inputs with the cheaper locally produced
organic inputs.

• Organic inputs bring about rich returns on investment

• Organic farming also generates large income by way of exports, as the organic crops are
much more in demand today.

• Organic food possesses more nutritional value than chemical farming, so it is more healthy in
nature.

• Organic food is pesticide–free and produced in an environmentally sustainable manner seat

promotes sustainable development. (any three)

32. Explain the salient features of trade policy after liberalisation.

Or

State one achievement of India in the field of self–reliance. What are the principal dimensions of
social justice?

Ans. The salient features of trade policy after liberalisation are:

(a) Dismantling of quantitative restrictions on imports and exports

(b) Reduction in tariff rates

(c) Removal of licensing procedures for imports. Imports licensing was abolished except in case of
hazardous and environmentally sensitive industries.

(d) Export duties have been removed to increase the competitive position of Indian goods in the
international market.

Or

An achievement of India in the field of self–reliance is that it is now almost self–sufficient in food.

The three main principal dimensions of social justice are:

(a) To improve standard of living of weaker sections of the population

(b) To reduce income inequalities

(c) To reduce regional or state inequalities

33. Differentiate between:

(a) Biotic and Abiotic

(b) Renew able resources and non–renew able resources

Or
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What is the state of rural infrastructure in India ? Explain.

Ans.

(a) All living elements. i.e.. birds. animals and plants. forests, fisheries etc. are biotic elements. On the
other hand, abiotic elements include air, water, land ete. Rocks and sunlight are all the example of
abiotic elements of the environment.

(b) Renewable resources are those which can be used without the possibility of the resource becoming
depleted or exhausted. e.g. trees n the forests and the fishes in the ocean Non-renewable resources,
on the other hand are those which get exhausted with extraction and use. e.g. fossil fuel

Or

The state of rural infrastructure in India is as follows

(a) Despite so much technical progress in the world rural women are still using bio-fuels such as crop
residues, dung and fuel wood to meet their energy requirement. They walk long distance to fetch
fuel, water and other basic needs.

(b) The census 2001 shows that in rural India only 46 per cent households have an electricity connection
and 43 percent still use kerosene.

(c) About 90 percent of the rural households use bio-fuels for cooking. Tap water availability is limited to
only 24 percent rural households. About 76 percent of the population drinks water from open sources
such as wells, tanks, ponds, lakes, rivers, canals. etc.

(d) Access to improved sanitation in rural areas was only 20 percent.

34. Explain the major challenges to India's environment.

Ans. The major challenges to India's environment are:

(a) Land degradation. Land in India suffers from varying degrees and types of degradation stemming
mainly from unstable use and inappropriate management practices. Some of the factors responsible
for land degradation are:

• Loss of vegetation occurring due to deforestation

• Encroachment into forest lands.

• Forest fires and over grazing, etc.

(b) Biodiversity loss. India supports approximately 17 per cent of the world's human and 20 per cent of
livestock population on a mere 2.5 per cent of the world's geographical area.

(c) Soil erosion. 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.

(d) Air pollution with special reference to vehicular pollution in urban cities. In India, air pollution is
widespread in urban areas where vehicles are the major contributors.

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SAMPLE PAPER – 4

PART A : INTRODUCTORY MACROECONOMICS

1. If the marginal propensity of save is less than the marginal propensity to consume, the value of
multiplier will be
(a) greater than 2 (b) less than 2

(c) equal to 2 (d) equal to 5

Ans. (a) greater than 2

2. Goods purchased for the following purpose would be called final goods: (choose the correct alternative)
(a) For satisfaction of wants (b) For investment in firm

(c) Both (a) and (b) (d) None of the above

Ans. (c) Both (a) and (b)

3. Khanak Textiles is an Indian company located in Chennai, India. It invests in Hopkins Ltd. located in USA.
This transaction will be recorded in India's balance of payments account on ...............
(a) credit side of current account (b) credit side of capital account

(c) debit side of capital account (d) debit side of current account

Ans. (c) debit side of capital account

4. What will be the value of money multiplier if the legal reserve requirements are 20% ?
(a) 2 (b) 3

(c) 4 (d) 5

Ans. (d) 5

5. Fill in the blank

............... means the total quantity of money in circulation in the economy at a given point of time.
(Credit money; Money supply)

Ans. Money supply

6. ............... is a revenue receipt of the government. (choose the correct alternative)

(a) Funds raised by the movement by issuing National Saving Certificates.

(b) Sale of 40% shares of a public sector undertaking to a private enterprise

(c) Profits of LIC, a public enterprise

(d) Amount borrowed from Japan for construction of Bullet Train.

Ans. (c) Profits of LIC, a public enterprise

7. Identify which of the following statements is true.

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(a) Fiscal deficit is difference between planned revenue expenditure and planned revenue
receipts.

(b) Fiscal deficit is difference between total planned expenditure and total planned receipts.

(c) Primary deficit is the difference between total planned receipt and interest payments

(d) Fiscal deficit is the sum of primary deficit and interest payment.

Ans. (d) Fiscal deficit is the sum of primary deficit and interest payment.

8. Balance of trade is equal to. ...............

(a) Exports Imports (b) Exports + Imports

(c) Both (a) and (b) (d) None of the above

Ans. (a) Exports – Imports

9. When planned investment is more than planned savings, there will be following situation:
(a) Aggregate demand < Aggregate supply

(b) Aggregate demand = Aggregate supply

(c) Aggregate demand > Aggregate supply

(d) None of these

Ans. (c) Aggregate demand > Aggregate supply

10. If a country has deficient demand, it will lead to ...............

(a) Full employment equilibrium (b) Under employment equilibrium

(c) Over full employment equilibrium (d) None of these

Ans. (c) Over full employment equilibrium

11. Estimate the value of Aggregate Demand in an economy if:

Autonomous Investment (I) = 100 crore.

Marginal Propensity to Save = 0.2

Level of Income (Y) = 4,000 crores

Autonomous Consumption Expenditure (c) = 50 crore

Ans. Aggregate Demand

= C + I = [C + b{Y] + I

C = 50 crore

b or MPC = 1 – MPS = 1 – 0.2 = 0.8

Aggregate Demand = [50 + 0.8(4000)) + 100 = 50 + 3200+ 100 = 3,350

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Or

12. In an economy C = 200 + 0.5 Y is the consumption where C is the consumption expenditure and
investment is 400 crores. Is the economy in a state of equilibrium at an income level 1500 crores ?
Justify.
Ans. At the equilibrium level

Y=C+I

Y = (200 + 0.5) + 400

Y – 0.5Y = 200 + 400

0.5 Y = 600

Y = 1200

On the basis of consumption function given in the question, equilibrium level of income comes to
1,200 crores. Therefore, the economy will not be in equilibrium at 1500 crores.

13. Discuss briefly the circular flow of income in a two sector economy with the help of a suitable diagram.
Ans. Circular flow of income may be defined as the pictorial illustration of interdependence between the
major sectors of economic activity.

Circular flow of income involves following two basic principles:

(i) The seller (or producer) receives the same amount as is spent by the buyer (or consumer).

(ii) Goods and services flow in one direction and money payments to acquire them. flow in
the return direction.

Incomes are first generated in production units due to the joint efforts of factor owners from
households. These incomes are distributed to the factor owners who in turn spend the income on
purchasing goods and services produced in production units. This makes the circular flow of income
complete.

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14. Elaborate "economic growth" as objective of government budget.

Ans. One of the objectives of government budget is to ensure economic growth of the economy. Economic
growth implies a sustainable increase in real GDP of an economy i.e. an increase in volume of goods
and services produced in the economy. The government budget may be used as an effective tool for
economic growth in the following ways:

(i) The government can use its taxation policy to mobilise resources for investment. The
government provides tax rebates and other incentives for productive activities. The
government can also give subsidies to encourage production in some sectors.

(ii) The budget of the government may have a liberal expenditure policy for infrastructure to
introduce economic growth in the economy.

(iii) The budget of the government may participate in the economy by establishing its own
establishments in the public sector.

15. How the following tools can be used for credit control by the central bank in an economy ?
(a) Open market operations y

(b) Margin requirements.

Ans.

(a) Open market operations: Open market operations means policy of central bank to sell and buy
government securities in the market. Open market operations affect the volume of cash–reserves
with the commercial banks and thus, the overall availability of credit. Sale of government securities of
central bank to commercial banks reduces the cash reserves with the banks resulting in decline of
credit. Purchase of securities by the central bank increases the cash reserves with the commercial
banks and. thus credit

(b) Margin requirements : Margin requirement is one method of qualitative credit control. A margin
means the difference between the amount of loan and market value of the security offered by the
borrower against the loan. By changing the margin requirements. the central bank can alter the
anount of loans made against securities by the banks. A rise in margin requirements reduces the
volume of credit used by the traders while a fall in the margin requirement results in expansion in the
borrowing power of the security and of traders.

Or

Explain the role of Reserve Bank of India as the "lender of last resort".

Ans. Lender of last resort means when the commercial banks have no other sources to procure loan, the
central bank lends to them after rediscounting its bills of exchange and securities. This situation
sometimes arises when the commercial banks have to meet extra demand of their customers for
ready cash. They cannot supply according to demand and fall back upon the central bank. The central
bank as the lender of the last resort comes to their rescue.

The advantages of this function are as follows

(i) Commercial banks can carry reserves.

(ii) An emergency can easily be faced because of easy economic aid from the central bank.
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(iii) Important requirements of trade and industry can be met.

(iv) The central bank gets a chance to control credit creation.

16. What is meant by Current Account Deficit (CAD) and Current Account Surplus (CAS) ? State their
significance.
Ans. Current account deficit means a situation that arises when the receipts on current account are less
than the payments on current account. Thus, Current Account Deficit

= Payments on Current Account – Receipts on Current Account

Current Account deficit arises when value of exports of goods and services is less than the value of
imports of goods and services.

Current account deficit signifies that the country is borrower from the rest of the world.

Current Account surplus means a situation that arises when the receipts on Current Account is more
than the payments on Current Account. Thus, Current Account Surplus

= Receipts on Current Account – Payments on Current Account

Current Account surplus arises when the value of exports of goods and services is more than the value
of imports of goods and services. Current Account surplus signifies that the country is a lender to the
rest of the world.

17. (a) State any two precautions that must be taken into consideration while estimating national
income.
(b) In an economy, following transactions took place. Calculate value of output and value
added by

(i) Firm A sold to Firm B goods of 80 crore; to firm C Rs.50 crore; to household Rs.30
crore and goods of value of Rs.10 crore remains unsold.

(ii) Firm B sold to firm C goods of Rs.70 crore; to firm D Rs.40 crore; goods of
value Rs.30 crore were exported and goods of value of Rs.5 crore was sold to the
government.

Ans.

(a) Following are the precautions that must be taken while estimating national income by value added
method :

(i) Double counting – Value added equals value of output less intermediate cost. There is a
possibility that instead of counting value added one may count value of output. You can
verify by taking some imaginary numerical example that counting only values of output will
lead to counting the same output more than once. This will lead to overestimation of
national income. There are two alternative ways of avoiding double counting: (a) count only
value added and (b) count only the value of final products

(ii) Second–hand goods – Sale of second–hand goods should not be included in the national
income because it does not represent current year's production. However. any

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brokerage or commission paid to facilitate the sale of second–hand goods is a part of

national income.

(iii) Production for self–consumption– Production for self–consumption should be included

in the national income because such production is a part of current year's production.
Hence, imputed rent of owner occupied building is a part of national income.

(b) Value added by firm B = Value of Output by firm B – Purchases by firm B

= 145 – 80 = Rs.65 crores

Working Notes

(i) Value of output by firm B

= Sales of firm B to Firm C + Sales of Firm B to Firm D

+ Sales of firm B to Government + Exports

= 70 + 40 + 30 + 5 = Rs.145 crores

(ii) Purchases by firm B

= Sales of firm A to Firm B = Rs. 80

Or

18. Differentiate between National Income at current prices and National Income at constant prices. Which
of the two reflects the growth of economy and
why ?
Ans. When national product is estimated on the basis of prices prevailing in the current year, it is called
national income at current prices. When national product is estimated on the basis of some fixed
prices i.e., prices prevailing in the base year, it is called national income at constant prices. For
example, assume 2016 as the base year, output of tea is 2,000 tonnes in 2018 as well as in 2017. But,
the prices are Rs.1,000 and Rs.1,500 per ton respectively in 2017 and 2018. The national income in
2018 at current prices will be 30,00,000
(2,000 ´ 1,500), while national income at constant prices will be 20,00,000 (2,000 ´ 1,000). Thus,

National income at constant prices

= (National income at current prices/Price index of current year)

´ Price index of base year.

National income at constant prices reflects the growth of an economy because it shows real increase
i.e, increase in quantity of national output over a period of time. National income at current prices
becomes inflated due to increase in prices and does not reflect the true growth of national income.

19. How an initial increase in investment affects the level of final income of the economy ? Show its working
with a suitable numerical example.
Ans. Initial increase in investment increases the final income of the economy by virtue of investment
multiplier.

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Investment multiplier means the rate of change in national income due to change in investment.
Thus,

Multiplier = Change in National Income/Change in Investment

Multiplier depends on the value of Marginal Propensity to Consume (MPC).

Marginal propensity to consume is the proportion of income that is consumed out of additional
income. When there is increase in investment, there will be increase in the income of some persons
who will again spend it on consumption goods which will again become the income of producers of
consumption goods.

Higher marginal propensity to consume means higher consumption which induces producers to
produce more resulting in increase in national income. Thus, investment multiplier is positively
related to marginal propensity to consume.

Multiplier coefficient is obtained by follow ing formula :

1
K=
1 - MPC
Let us take an example. Suppose, if an additional investment of I000 crore, is made by government for
a bullet train project in a country, this extra investment will generate an extra income of 100 crore, as
expenditure of one is income for another. Also. it is assumed that Marginal Propensity to Consume of
the country is 0.8.

An additional investment of 1000 crores (Dl) made by government will generate an extra income of
1000 crores in first round. If MPC of this country is 0.8. the nationals who are receiving this additional
income will spend 80% portion of this additional income, i.e., 800 crores which in return becomes
additional income during third round. Similarly, in third round 640 crores of income is generated.

Consumption expenditure in every round will be 0.8 times of additional income received from
previous round.

Round Increase in Increase in Income Increase in Increase in Saving

Investment (D l) (D Y) (Crore) Consumption (Crore)

(Crore) (D C) (Crore) (D S = DY – DC)

(D Y ´ 0.8)

1st 1,000 1000 800 (1000x0.8) 200

2nd – 800 640 (800x 0.8) 160

3rd – 640 512 (640 x 0.80) 128

4th – 512 409.6 (512x0.8) 102.4

– – – – –

Total 1000 5,000 4,000 1,000

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1
Investment multiplier = =5
1 - 0.8
Increase in Income = 1,000 ´ 5 = 5,000

Thus, additional investment of 1,000 crores leads to increase of 5,000 crores in income.

Or

Explain national income equilibrium through aggregate demand and aggregate supply. Use diagram,
Also explain the changes that take place in an economy when the economy is not in equilibrium.

Ans. Equilibrium level of national income means that level of national ncome where the aggregate demand
is equal to tne aggregate supply. If aggregate demand is less than aggregate supply, there will be a
tendency of decrease in production and national income. Similarly, if the aggregate demand is more
than the aggregate supply there will be a tendency of increase in production and national income. We
can illustrate view point with the help of adjoining diagram. .

In the diagram equilibrium of national income is at point E where equilibrium income is OY.

When the economy is not in equilibrium, there may be either of the following situation.

(i) Excess Demand (AD > AS) – When aggregate demand is more than aggregate supply, will lead to fall
in inventories with the producers. The producers will produce more to reach the desired level of
inventories. This will raise aggregate supply till it becomes equal to aggregate demand.

(ii) Deficient Demand (AD < AS) – When aggregate demand is less than aggregate supply. it will lead to
build–up of inventories of unsold goods with the producers. The producers will cut back the
production to reduce the unsold inventories to the desired level. This will continue until aggregate
demand and aggregate supply are equal.

PART B : INDIAN ECONOMIC DEVELOPMENT

20. What was the purpose of British rule in India ?

(a) To reduce the country to be a feeder economy to promote British interests.

(b) To develop basic industries in India.

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(c) To develop agriculture in India.

(d) To develop infrastructure in India.

Ans. (a) To reduce the country to be a feeder economy to promote British interests.

21. MGNREGA offers guaranteed employment for ...............

(a) One year (b) 30 days

(c) 100 days (d) 180 days

Ans. (c) 100 days

22. Fill in the blank:

"..............." is a system in which a central planning authority seeks to utilise country's resources for
developmental activities. (Capitalism; Economic planning)

Ans. Economic planning (1)

23. During British rule, more than half of India's foreign trade was restricted to ...............
(a) Britain (b) China

(c) USA (d) Japan

Ans. (a) Britain

24. One child policy was introduced in ...............

(a) India (b) Pakistan

(c) China (d) China and Pakistan

Ans. (c) China

25. Mixed economic system has been followed in ...............

(a) Pakistan (b) India

(c) China (d) India and Pakistan

Ans. (d) India and Pakistan

26. Which of the following is an example of economic infrastrueture ?

(a) Housing (b) Communication

(c) Education (d) Health

Ans. (b) Communication.

27. Fill in the blank:

............... rate refers to the annual number of deaths per 1000 people. (Birth; Mortality)

Ans. Mortality

28. Which of the following is a casual worker?

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(a) Cashier in Mother Dairy (b) Tution Teacher

(c) Cobbler (d) Construction worker

Ans. (d) Construction worker

29. Which of the following sources are encouraged by Indian government's energy policy?
(a) Wind and hydel (b) Thermal and hydel

(c) Thermal and nuclear (d) Thermal and wind

Ans. (a) Wind and hydel

30. Write any three measures to remove the poverty.

Ans. Following are the measures to remove the poverty

(i) To speed up the pace of economic growth – Economic growth creates more and more employment
opportunities and income for the people.

(ii) To reduce inequality of income – The government should take measures to reduce inequality of
income and wealth by taxing the rich and taking welfare measures for the poor.

(iii) To reduce rate of population – Efforts should be made to reduce growth rate of population.

Or

It is not possible to eradicate poverty completely." Do you agree ?

Ans. We do not agree that it is not possible to eradicate poverty completely. In the world as a whole there
are plenty of resources to produce food but still there is hunger. Poverty in the present day world is
more of a question of ill–distribution. It is possible to eradicate poverty completely by complete re–
distribution of existing resources and incomes.

31. Why did India opt for economic planning as a means for economic development ?
Ans. India opted for economic planning as a means for economic development due to following reasons:

(i) Limited resources – The resources in India for economic development were limited and it was
essential to utilise them in an effective manner for growth.

(ii) Balanced regional development – Economic planning was needed to develop the regions of the
country which were backward economically. It was necessary for removal of regional disparities.

(iii) Social justice – Economic planning was necessary to ensure social justice in the economy in such a
way that inequality of income and wealth between rich and poor is reduced.

32. Give reasons for slow growth and re–emergence of poverty in Pakistan.
Ans. Following are the reasons for the slow growth and re–emergence of poverty in Pakistan:

(i) Slow rate of growth of agriculture – There was decline in the growth rate of agriculture sector which
employs the largest proportion of workforce.

(ii) Dependence on foreign loans – Pakistan was highly dependent on foreign loans which resulted in the
problem of repayment of loans and its interest.

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(iii) High rate of inflation – There was a consistent rise in the general price level in the economy due to
increase in money supply and shortage of essential goods.

(iv) Political instability – There was a political instability in the country which affected the process or
economic development.

33. Explain any four obstacles that hinder the mechanism of agricultural marketing .
Ans. Following are the obstacles that hinder the mechanism of agricultural marketing:

(i) Inadequate storage facilities – In India, there are inadequate facilities for storing agricultural
products. As a result, farmers have to sell their goods at the earliest. Further, a sizeable portion of
products is destroyed by climate, pests etc.

(ii) Absence of adequate and cheap transport – In India. there is lack of adequate and economical
transport facilities to bring agricultural produce to markets. As a result, farmers do not get fair prices
for their produce.

(iii) Intermediaries – There is a large number of intermediaries between farmer and the consumer.

These intermediaries partake commissions as well as exploit the farmers through various unfair
practices.

(iv) Market information – There is a lack of market information e.g. information regarding prevailing level
of prices of agricultural commodities. As a result. farmers are forced to sell their produce at low
prices.

(v) Forced sale – In India, farmers do not have good holding capacity and are forced to sell their produce
at the prevailing prices.

(vi) Grading and standardisation – Indian famers do not take advantage of grading and standardisation.

As a result of this, farmers do not get good price for their produce.

34. What is sustainable development ? Suggest any three strategies for sustainable development.
Ans. Sustainable development is a development strategy that fulfis the needs of present generation
without compromising with the ability of the future generation to meet their own needs.

Sustainable development can be achieved by following strategies

(i) Use of non–conventional sources of energy – Non–conventional sources like wind power and solar
power should be used to replace thermal and hydropower. Use of LPG and gobar gas should be
encouraged. The use of CNG should be encouraged in place of petrol and diesel.

(ii) Organic farming – Farmers should be encouraged to adopt organic farming so that use of chemical
fertilisers, insecticides and pesticides should be minimised.

(iii) Recycling of waste – Efforts should be made to recycle the industrial as well as household wastes.
Household wastes may be recycled into compost and used as a manure.

(iv) Integrated rural development – There should be all round development of villages to reduce the
migration of people from rural areas to urban areas. There should be provision of all amenities of life
in the rural areas.

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(v) Stringent laws – There should be stringent laws relating to treatment and disposal of sewage, trade
effluents and gaseous emissions.

(vi) Public awareness – There should be a widespread national awareness to save environment and
natural assets. People should be made aware of the adverse effects of the pollution.

Or

What is meant by degradation of forests ? What are its causes ?

Ans. Degradation of forests means decline in the density of trees due to gradual loss.

Following are the causes of degradation of forests

(i) Rural unemployment and poverty – Due to unemployment and poverty poor households in rural and
tribal areas have started over exploitation of forests for self–consumption and livelihood. People
collect Wood, timber, tendu leaves, medicinal plants etc. for income.

(ii) Population growth – Rapid growth of population has resulted in the rise of demand of forest products
such as timber, wood pulp, medicinal plants etc. Forests are being converted into agricultural 1and,
industry and housing.

(iii) Over grazing – Forests are being used for grazing the cattle which has resulted in the considerable
damage to the trees.

(iv) Demand for fuelwood – Households living near forests collect Fuelwood by cutting down trees

.This causes loss of forest cover.

35. Explain any four challenges faced by Indian health sector.

Ans. Following are the four challenges faced by Indian health sector

(i) Unequal distribution of services – There is unequal distribution of healthcare services across rural
and urban areas of the country. Most of the healthcare services are confined to the urban areas and
people rural areas have to rush to urban areas to avail specialised health services.

(ii) Communicable diseases – There are a number of communicable diseases like AIDS, HIV, SARS,
Dengue, bird flue etc., which are posing threat to the society. A large number of people die every year
due to these diseases.

(iii) Privatisation – The government has failed to provide adequate health services. There is substantial
mismatch between the need and availability of health services provided by the government. Health
services are mushrooming in the private sector. Private health services are not regulated resulting in
expensive health services. Health care is beyond the reach of the millions.

(iv) Poor upkeep and maintenance – The government health care centres suffer from poor upkeep and
maintenance of building, machines and tools. As a result., there is a quality difference between
private and government healthcare centres.

Or

Explain the principal role of human capital formation in accelerating rate of economic growth.

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Ans. Following points highlight the role of human capital formation in accelerating rate of economic
growth:

(i) Change in environment – Human capital formation results in a change in emotional and material
environment of growth. As a result of human capital formation, people tend to acquire growth–
oriented attitude and aspirations and the society now possesses high number of skilled and trained
workers to implement the plans of economic growth.

(ii) Higher productivity – Human capital formation raises the productivity as skilled workers make better
use of machines and resources. Education and health of the people increases the productivity and
production.

(iii) Innovations – Human capital formation facilitates the use and growth of innovative skills. Education
provides knowledge which facilitates greater possibilities of innovation in the area of production
activities.

(iv) Higher rate of participation – Human capital formation increases productive capacities of the labour
force which results in greater employment opportunities. This increases the rate of participation. This
accelerates the process of economic growth.

(v) Increase in life expectancy – Health facilities, education and availability of nutritive food enable
people to live a long life and improves quality of life.

(vi) Control of population growth – It has been proved by various studies that educated and healthy
persons prefer smaller families. The knowledgeable, skilled and physically tit people are powerful
instrument to control the growth of population.

36. State the factors responsible for adopting economic reforms in India in 1991.
Ans. Following were the factors responsible for adopting economic reforms in 1991

(i) Inflationary pressures – The inflationary pressure was quite high due to excessive government
expenditure. The rate of inflation was about 16.7% in August 1991. The high rate of inflation affected
the domestic and foreign demand of Indian products.

(ii) Fiscal imbalance – The fiscal situation had worsened during 1980–1991 due to growing burden non–
developmental expenditure. Fiscal deficit was 5.4% of GDP in 1981–82 which shot up to 8.4% in 1990
– 1991.

(iii) Problem of balance of payments – India's foreign exchange reserves dropped down to about which
was not enough to pay for an import bill of even 10 days. The situation became so serious that the
government had to mortgage country's gold reserves with the World Bank to discharge its obligation.

(iv) Slow economic growth –There was slow and unsatisfactory economic growth under four decades of
regulated development process. The average growth rate was 3.5%. The main reasons were excessive
government controls, loss making public enterprises, defective tax structure etc.

Or

Explain negative impacts of liberalisation and globalisation on business and industry in India.

Ans. Following are the negative impacts of liberalisation and globalisation on business and industry in India

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(i) Decline in public sector – Public sector is losing markets and their capacity utilisation has declined.
Decline of public sector is undermining the country's technological base.

(ii) Change in industrial structure – Industrial structure of the country has changed in favour of products
and services demanded by rich sections of the society.

(iii) Closure of small units – Hundreds and thousands of tiny and small scale units throughout the country
have been forced to close down in face of the growing competition from the MNCS.

(iv) Loss to domestic industry – Faced with the strong winds of international competition, domestic
industry has lost its feet.

(v) Increasing competition – As a result of changes in the rules of industrial licensing and entry of foreign
firms, competition for Indian firms has increased especially in service industries like
telecommunications airlines, banking, insurance, etc.

(vi) Destabilisation of protected environment – Indian markets are getting destabilised as Indian
companies are facing challenges from massive entry of MNC's. Even some of the companies finding
difficulty in survival. Indian companies are facing takeover threat and subordinate position in joint
ventures.

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SAMPLE PAPER-5

PART A :INTRODUCTORY MACROECONOMICS

1. Which of the following is a flow variable ?

(a) Wealth (b) Population

(c) Water in river (d) Water in a tank

Ans. (c) Water in river

2. Fill in the blank:

A ............... is a compulsory payment by the people to the government without expectation of any
direct return or benefits to the payer. (Fine; Tax)

Ans. Tax

3. Suppose in a hypothetical economy, the income rises from Rs.5,000 crores to Rs.6,000 crores. As a
result, the consumption expenditure rises from Rs.4,000 crores to Rs.4,600 crores. Marginal propensity
to consume in such a case would be ............... (Choose the correct alternative)
(a) 0.8 (b) 04

(c) 0.2 (d) 0.6

Ans. (d) 0.6

4. Fill in the blank:

............... deficit represents borrowing requirements of the government. (Revenue; Fiscal)

Ans. Fiscal

5. In India, money is supplied by ...............

(a)Banks (b) Government

(c) Both (a) and (b) (d) None of these

Ans. (c) Both (a) and (b

6. Which of following can be more than one (unity)?

(a) Marginal propensity to consume (b) Average propensity to consume

(c) Average propensity to save (d) Marginal propensity to save

Ans. (b) Average propensity to consume

7. Which bank deposit account carries maximum rate of interest?

(a) Fixed deposit (b) Savings deposit

(c) Current deposit (d) Recurring deposit

Ans. (a) Fixed deposit

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8. Which of the following is not a feature of balance of payment?

(a) It is related to a specified period.

(b) It is maintained on double entry system.

(c) It does not record capital ransfers.

(d) It is self balanced.

Ans. (c) It does not record capital iransfers.

9. What will he the value of investment multiplier if whole of its additional income is saved?
(a) 0 (b) Intinity

(c) 0.1 (d) 1

Ans. (d) 1

10. A deliberate raising of price of foreign currency in terms of domestic currency by the government is
called ...............
(a) Appreciation (b) Devaluation

(c) Depreciation (d) None of the above

Ans. (b) Devaluation

11. Define the problem of double counting in the computation of national income. State any two
approaches to correct the problem of double counting.
Ans. Double counting means counting the same output more than once while measuring national income
through production method. Double counting leads to over estimation of the value of goods. Therefore, it is
desirable and necessary to avoid double counting.

Following are two alternative methods of avoiding double counting:

(i) We should count only value added by each production unit. We should find out the value added at
each stage of production by various enterprises.

(ii) We should count only value of final products. It means that value of goods and services going into
final consumption and capital formation should be calculated.

For example, when wheat is sold by a farmer to flour mil, lour is sold by the flour mill to baker, the bread is
sold by a baker to shopkeeper and the shopkeeper sells the bread to the consumer. Now the value of wheat is
counted four times, the value of the services of the flour mill three times and the value of the services of baker
two times. Therefore, it is necessary to count only value added by each producer i.e., farmer, flour mill, baker
and shopkeeper. Alternatively, we should count value of bread only.

Or

"Gross Domestic Product (GDP) does not give us a clear indication of economic welfare of a country."
Defend or refute the given statement with valid reason.

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Ans. GDP does not give us a clear indication of economic welfare of a country due to following reasons

(i) Distribution of GDP – There will be no change in economic welfare if the distribution of GDP is not
equitable. A large fraction of the increase in income may be concentrated in a very small percentage
or society. GDP does not tell us much about the living standards of average person in a country.

(ii) Non–monetary exchanges – Many activities in an economy are not evaluated in monetary terms.
Hence, a number of transactions are not counted in the GDP of a developing country, and there is
under estimation of GDP.

(iii) Externalities – Externalities refer to those benefits or harms accruing to another for which they are
not paid or penalised. Externalities may be positive or negative. For example, increase in GDP may be
at the cost of considerable pains and sacrifices in the form of environmental pollution. As a result,
increase in GDP may mean less economic welfare. If increase in GDP has been brought about by
making workers work in bad working conditions increase in GDP will not raise the level of economic
welfare works in bad working condition increase in GDP will not raise the level of economic welfare.

(iv) Composition of GDP – If the GDP of a country consists of a larger quantity of investment goods
and/or war materials, economic welfare may be very low.

(v) Rate of population growth – If the per capita availability of goods and services increase economic
welfare will be higher. It is possible only when rate of population growth is lower than the grown
GDP. If the rate of population growth is higher than the rate of growth of GDP, economic welfare will
be less.

(vi) Leisure – If the growth in GDP is at the cost of leisure of people. economic welfare will be lower. If
increase in GDP is brought about by making workers work longer hours. increase in GDP will not raise
the level of welfare.

12. If in an economy:
Change in initial Investment (Dl) = 500 crores

Marginal Propensity to Save (MPS) = 0.2

Find the values of the following:

(a) Investment multiplier (k)

(b) Change in final income (DY)

1
Ans. Investment Multiplier (k) =
1 - MPC

1 1
= = =5
MPC 0.2
(b) Change in final income 2,500 crore

= Change in initial investment ´ muliplier = 500 x 5 = 2,500 crore.

13. How are capital receipts different from revenue receipts ? Discuss briefly.
Ans. Distinction between revenue receipts and capital receipts:
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Basis of Revenue Capital

distinction receipts receipts

(i) Nature Revenue receipts are the receipts of Capital receipts are the receipts of no–recurring
recurring nature nature.

(ii) Contents Revenue receipts include tax and non–tax Capital receipts include non tax receipts.
receipts

(iii) Purpose Its purpose is to meet regular expenses. Its purpose is to create liability or to reduce
financial assets.

(iv) Its examples are income tax, licence fee Is examples are loan from public and foreign
Examples etc. debt

14. Elaborate any two instruments of credit control as exercised by the Reserve Bank of India.
Ans. Following are the methods of credit control used by central bank

(i) Bank rate policy – Bank rate is the minimum rate at which commercial banks rediscount its eligible
securities or borrow from the central bank. Bank rate is raised to discourage frequent borrowings and
vice–versa. As the commercial banks are required to pay more for the financial accommodation,
commercial banks can only be expected to lend at higher rates of interest.

(ii) Open market operations – Open market operations consist of buying and selling government
securities in the market by the central bank. When central bank sells government securities to
commercial banks, these banks lose equivalent amount of cash reserves. This reduces the availability
of credit. Similarly, if central bank purchases government securities from commercial banks, liquid
position of commercial banks improves and availability of credit is more.

Or

What role does credit multiplier play in determining the credit creation power of the banking system
? Use a numerical illustration to explain.

Ans. Credit multiplier refers to the process of creation of credit by the commercial banks with the help of
initial deposits made by the public and legal reserve ratio. Legal reserve ratio is sum of cash reserve ratio and
statutory liquidity ratio.

1
Credit Multiplier =
Legal Reserve Ratio

Total credit created by banking system

= Initial Deposit ´ Credit Multiplier.

Also, higher the credit multiplier, higher will be the total credit created and vice–versa.

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Let us take an example. Suppose initial deposits in banks is Rs.2,000 and legal reserve ratio is 20%. Here credit
1
multiplier will be % =5
20
Accordingly, total credit creation = 2000 ´ 5 = Rs.10,000.

Whereas, suppose initial deposit is Rs.2,000 and legal reserve ratio is 50 %. Here credit multiplier will be 1/50%
= 2.

Accordingly, total credit creation = 2,000 ´ 2 = Rs.4,000

Hence, with the same initial deposit, total credit creation decreases with an increase in the value of credit
multiplier.

15. "Indian Rupee (Rs.) plunged to all time low Rs.74.48 against the US Dollar ($)
– The Economic Times

In the light of the above report, discuss the impact of the situation on Indian imports and exports.

Ans. When Indian Rupee (Rs.) falls in terms of the US Dollar, there is depreciation of Indian rupee.

As a result of depreciation of domestic currency, imports Will become costlier and, hence, imports will be
discouraged because Indian importer will have to pay more for the imports.

As a result of depreciation of domestic currency, domestic goods become cheaper in foreign (US) markets. This
results in increase in exports to foreign country.

16. Given a consumption curve, outline tne steps require to De taken in deriving a saving curve from it. Use
diagram.
Ans. The process of deriving saving curve may be described as under:

(i) CC is a straight line consumption curve.

(ii) Now we shall draw income curve from the point of origin which is 45° angled curve

Income (Y) = Consumption (C) + Saving (S)

(iii) At zero level of income, there is an autonomous consumption of OC. The corresponding saving at this
income level is (–)OC. The saving curve starts at (–)C.

(iv) At the income level OB, where the 45° reference line intersects the consumption a C = Y. At this
income level, saving is equal to zero. Thus, we get point B on the X–axis of the saving curve

(v) By connecting (–)C and B, we get the saving curve.

Following diagram shows the derivation of saving curve from straight line consumption curve.

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Or

Explain the meaning of under–employment equilibrium. Explain two measures by which full–
employment equilibrium can be reached.

Ans. Equilibrium level of income and employment is established where aggregate demand and aggregate
supply are equal to each other. But, equilibrium need not be at full employment. There may be under
employment equilibrium representing the existence of deficient demand or deflationary gap. Under
employment equilibrium arises when the current aggregate demand is lesser than full employment level of
income.

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In the above diagram, E is the equilibrium point at full employment level. But the current aggregate demand is
lesser than full employment level of income. Hence, the current equilibrium level is at point E1.

We can suggest following two measures by which full employment equilibrium can be reached

(i) Increase in government expenditure – We shall first consider the fiscal policy measures to increase
aggregate demand. This may be done by either increasing the level of government expenditure or by
reducing the amount of taxes. We will consider only increase in government expenditure. If the
government expenditure is increased by an amount equal to the deflationary gap, it will restore the
economy to the full–employment equilibrium.

(ii) Increase in availability of credit – The problem of deficient demand can also be solved by taking
resort to monetary policy measures. The aim of the monetary policy measure Is to cause an increase
in the investment expenditure by firms. This may be done by increasing the availability of credit.

More credit can be made available by taking recourse to the various instruments of credit regulations
as under

(a) Decrease in bank rate to make credit cheaper.

(b) Decrease in legal reserve ratio to allow the commercial banks to create more credit.

(c) Purchase of government securities from commercial banks by central banks to allow the
commercial banks to create more credit.

(d) Reduction in margin requirements to create more credit.

17. Given the following data, find the missing value of Government. Final Consumption Expenditure' and
'Mixed Income of Self–Employed'.

S.No. & Particulars Amount (R in crores)

(i) National Income 71,000

(ii) Gross Domestic Capital Formation 10,000

(iii) Government Final Consumption Expenditure ?

(iv) Mixed Income of Self–Employed ?

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(v) Net Factor Income from Abroad 1,000

(vi) Net Indirect Taxes 2,000

(vii) Profits 1,200

(viii) Wages and Salaries 15,000

(ix) Net Exports 5,000

(x) Private Final Consumption Expenditure 40,000

(xi) Consumption of Fixed Capital 3,000

(xii) Operating Surplus 30,000

Ans.

(i) Government Final Consumption Expenditure

= National Income – Private Final Consumption Expenditure

– Gross Domestic Capital Formation

– Net Exports – Net Factor Income from Abroad

+ Net Indirect Taxes +Consumption of Fixed Capital

= 71,000 – 40,000 – 10,000 – 5,000 – 1,000 + 2,000 + 3,000

= 76,000 – 56,000 = 20,000 crores

(ii) Mixed Income of Self–Employed

= National Income Net Factor Income from Abroad – Wages and Salaries

–Operating Surplus

= 71,000 – 1,000 – 15,000 – 30,000

= 71,000 – 46,000 = 25,000 crores

Or

Calculate (a) Operating Surplus, and (b) Domestic Income

(Rs. in crores)

(i) Compensation of employees 2,000

(ii) Rent and interest 800

(iii) Indirect taxes 120

(iv) Corporation tax 460

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(Rs. in crores)

(v) Consumption of fixed capital 100

(vi) Subsidies 20

(vii) Dividend 940

(viii) Undistributed profits 300

(ix) Net factor income to abroad 150

(x) Mixed income 200

Ans.

(a) Operating Surplus

= Rent and interest + Corporation tax + Dividend + Undistributed profits

= 800 + 460 + 940 + 300 = 2,500 crores

(b) Domestic Income

= Operating surplus + Compensation of employees + Mixed income

= 2,500 + 2,000 + 200 = 4,700 crores.

PARTB: INDIAN ECONOMIC DEVELOPMENT

18. Name the primary item of imports made by India during British rule.
(a) Raw silk (b) Cotton

(c) Sugar (d) Capital goods

Ans. (d) Capital goods.

19. Which industry was ruined under the British rule ?

(a) Cotton textile (b) Handicraft

(c) Iron and Steel (d) Jute

Ans. (b) Handicraft.

20. Which of the following is not a feature of privatisation?

(a) Denationalisation

(b) Disinvestment

(c) Import liberalisation

(d) Restrictions on expansion of public sector

Ans. (c) Import liberalisation.

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21. Disguised unemployment refers to

(a) persons with no jobs.

(b) more persons employed for a job which less can accomplish.

(c) unemployment among women.

(d) people who are not willing to work.

Ans. (b) more persons employed for a job which less can accomplish.

22. In which country, communes were started ?

(a) India (b) Pakistan

(c) China (d) China and Pakistan

Ans. (c) China

23. In which year Pakistan introduced its first five year plan ?
(a) 1951 (b) 1953

(c) 1956 (d) 1957

Ans. (c) 1956

24. Under which scheme of government, fair price shops have been opened to distribute essential
commodities at cheaper prices?
(a) Public Distribution System (b) Mid–day meal scheme

(c) Prime Minister's Rozgar Yojana (d) None of the above

Ans. (a) Public Distribution System

25. Which organisation collects data on poverty in India?

(a) Niti Ayog

(b) National Sample Survey Organisation

(c) Ministry of Finance

(d) None of the above.

Ans. (b) National Sample Survey Organisation (NSSO) (1)

26. Which sector is the largest consumer of commercial energy?

(a) Agricultural sector (b) Industrial sector

(c) Transport sector (d) Household sector

Ans. (b) Industrial sector

27. Fill in the blank

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"............... rate of maternal deaths due to child bearing by the number of live births. (Infant mortality;
Maternal mortality)

Ans. Maternal mortality

28. Mention the main objectives of economic reforms introduced in India in 1991.
Ans. Following are the main objectives of economic reforms:

(i) Reduction in fiscal deficit – On the eve of economic reforms, the fiscal deficit of the government was
very high. The objective of economic reforms was to reduce large sized fiscal deficit to ensure relative
price stability.

(ii) Role of public sector – On the eve of economic reforms, public sector undertakings were running in
losses. Another objective of economic reforms was to open up a larger part of the economy for the
private sector and to reduce the role of public sector

(iii) Inflow of capital and technology – It was realised during the planning period that economic growth
was slow due to shortage of resources. Economic reforms aimed to encourage inflow of foreign
capital and technology.

Or

State the trade reforms included in the policy of liberalisation under economic reforms.

Ans. Following were the changes made in the trade policy under economic reforms:

(i) Removal of restrictions – Prior to 1991, India followed a protectionist policy marked by quantitative
restrictions. Under economic reforms, quantitative restrictions on imports and exports have been
removed.

(ii) Reduction in tariff rates – Prior to 1991, India had a policy of high tariffs on imports and exports. This
reduced efficiency and competitiveness of Indian industries. Indian government reduced tariff rates
on exports and imports. on

(iii) Simplification – The government of India introduced simple procedures relation to exports and
imports. Many formalities have been abolished.

29. Describe any three causes of poor health in India.

Ans. Following are three causes of poor health in India:

(i) High birth rate and rapid growth of population – It has Created a number of health risks. Population
growth has made it difficult to provide safe or sufficient water supply, garbage disposal and sanitation
for the community.

(ii) Malnutrition – Wide spread malnutrition has contributed to the number of health problems including
infectious diseases among children.

(iii) Unsanitary conditions and housing – A large number of people live in poor households located in
crowded and unsanitary surroundings. People face the problem of contaminated food, water and soil,
insufficient personal hygiene and sewage disposal. A sizeable population lives in sub–standard
dwellings lacking in space, ventilation and sunlight.

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30. In India, unemployment is found mostly in the form of under–employment, seasonal unemployment
and disguised unemployment. You have been asked to lay down employment policy. What should be
the main elements of employment policy in the present context ?
Ans. I would keep following elements in the employment policy:

(i) Employment planning – Priority should be given to employment objective in the government plans,
There should be legal support to implement employment generating schemes. The employment
policy should emphasise on both fuller and more productive employment.

(ii) Emphasis on self–employment – Employment policy should give more emphasis on self–
employment. For this purpose, the government should provide various facilities like financial
assistance, training of skills, supply of inputs, marketing of products etc.

(iii) Opportunities for women – Measures should be taken to increase employment opportunities for the
women. Employers should be induced to offer increased employment opportunities for women.

(iv) Cottage industries – Cottage and small scale industries are labour intensive. Village and cottage
industries should be encouraged to reduce unemployment.

(v) Educational reforms – There should be an effective reform of the educational system. More and more
emphasis should be laid on vocational and technical knowledge.

(vi) Infrastructure – The infrastructural facilities like health, education, irrigation. roads. electricity etc.
will generate employment.

31. What are the common successes shared by India and Pakistan?
Ans. Following are the common successes shared by India and Pakistan:

(i) Rise in GDP – There has been a substantial rise in GDP per capita in India and Pakistan in spite of
inflation and political instability. Both the countries have succeeded in more than doubling their per
capita incomes.

(ii) Poverty – The incidence of poverty has also been reduced significantly.

(iii) Self–sufficiency – Both the countries have achieved self–sufficiency in the production of food in spite
of adverse weather conditions.

(iv) Modernisation – The use of modern technology is improving in both the countries. This is a key
characteristic of a progressive economy.

32. What is organic farming ? What are its benefits?

Ans. Organic farming is the system of agriculture which avoids the use of synthetic chemical inputs and
relies on organic and environment friendly inputs.

Following are the benefits of organic farming

(i) Economical – Organic farming is cheaper than conventional farming because organic farming requires
locally produced organic inputs which are cheaper.

(ii) Returns – Organic farming generates good returns because demand for organic food is increasing
continuously. There is a heavy demand for organically produced food items.

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(iii) Healthy food – Organic farming provides food which has more nutritional value than food grown
through conventional farming.

(iv) Employment – Organic farming is labour–intensive and generates more employment opportunities as
organic farming requires more labour input than conventional farming.

(v) Environment – Organic farming is an environment friendly system of farming which results in
pesticide and chemical free produce.

Or

Explain the role of non–farm employment in promoting rural diversification.

Ans. The role of non–farm employment in promoting rural diversification may be described as, under:

(i) Livelihood – If there is no non–farm employment, farmers would depend exclusively on farming.
Non–farm employment provides various livelihood options to people.

(ii) Seasonal employment – During the Rabi season of farming, a large number of farmers do not find
employment due to inadequate irrigation facilities. Non–farm employment keeps farmers employed
during period of seasonal unemployment.

(iii) Alternate employment – Non–farm employment provides alternate opportunities which will shift
workforce from agriculture to other activities.

(iv) Industrialisation – Many non–form activities provide input to the large scale industries particularly
food–processing industry, leather industry etc.

33. Distinguish between planning objectives and plan objectives. State the planning objectives in India.
Ans. Planning objectives may be defined as the objectives which are long–term objectives and do not differ
from plan to plan. On the other hand, plan objectives may he declined as the objectives which are
specifically related to a plan and may differ from plan to plan.

Following are the planning objectives in India

(i) Increase in national income – The first objective of planning in India has been to increase national
income by improving agriculture and industrial output.

(ii) Increase in employment – Another objective of plans has been to create more and more employment
opportunities.

(iii) Social justice – One of the objectives of planning is to promote social and economic justice through
removal of poverty and regional disparities and special assistance to weaker sections.

(iv) Stable growth – Another objective of planning is to ensure stable growth by removing fluctuations in
the price–level, wage–rate etc.

(v) Modernisation – Another objective of plans has been the modenisation of the economy by adopting
the latest equipment and technology.

Or

Examine the failures of economic planning in India.

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Ans. Following are the failures of economic planning in India :

(i) Poor growth rate – The trend indicates that on annual growth rate of 5% investment, lesser return in
the form of 3.69% growth rate of national income was obtained. There was high saving but low
income.

Incremental capital – output ratio is high. Most of the time, growth targets were not achieved due to
paucity of resources and faulty implementation of plans.

(ii) Abject poverty – Economic planning failed to provide a national minimum level of living. Five Year
Plans did not make any improvement in removal of poverty.

(iii) High rate of inflation – Planning failed to check price rise in India. Rise in prices adversely affected the
poor and fixed income people.

(iv) Unemployment – Economic planning failed to achieve the objective of full employment due to use of
capital intensive technology.

(v) Inferior development of infrastructure – Economic planning failed to develop high quality
infrastructure in the country. India lacked in power generation, transportation, quality roads, quality
railway tracks, airways etc.

(vi) Inequality of income and wealth – The main objective of Five Year Plans had been equality in the
distribution of wealth and income. During the planning period, inequality further increased.

34. Describe the ways to check environmental problems.

Ans. Following are the ways to check environmental problems

(i) Education and publicity – People are being made aware of the adverse effects of the pollution. Today
students are taught about various aspects of environment. The government advertises regularly in
newspapers, television and radio to make people aware.

(ii) Environmental laws – Various laws have been passed to protect our environment. For example,
Wildlife Act and various directives of Supreme Court such as banning the use of loudspeaker.

(iii) Governmental effort – Government spends a lot of money to clean environment. The sewage
treatment plants of municipal bodies clean and treat dirty water. The collection of garbage and
sweeping of roads in urban areas are funded by the municipalities. Regenerative activities like
planting of trees and reforestation by various civic bodies are the investments for which the
government is committed. Further research on environment, spreading of information on
environmental problems, prevention of diseases and provision of clean drinking water are some other
aspects of government's participation in its efforts to protect the environment.

(iv) Taxes and subsidies – The government imposes tax on certain goods and services that pollute our
environment. A tax discourages people to pollute environment. One example of such a tax would be
the pollution charges imposed on motor vehicles. On the other hand, a subsidy provided by the
government encourages people to use environment friendly products. A subsidy by the government
on solar cooker reduces its price and makes it affordable to poor people.

(v) Recycling – It is a process by which a used resource can be reused several times. For example paper,
iron, glass etc. Recycling makes it possible to reuse a resource several times. It helps to economise on
scarce natural resources
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(vi) Substitution – Substitution means the use of an alternative resource that is abundant instead of a
natural resource that is scarce. CNG, LPG and ethanol replace petrol and diesel.

Or

What is meant by sustainable development ? State the features of sustainable development.

Ans. Sustainable development may be defined as a development that meets the needs of the present
generation without compromising with the ability of the future generation to meet their own needs.

Following are the features of sustainable development

(i) Sustainable development does not limit development. There should be a sustained rise in per capita
income.

(ii) No increase in pollution should be the objective of all economic activities. Sustainable development
does not approve of those activities, which in order to maintain existing high standard of living, are
detrimental to environment.

(iii) Sustainable development ensures no reduction in the quality of life of future generations. It means
that there is no reduction in the ability of future generations to meet their own needs.

(iv) Sustainable development does not prevent the use of natural resources. Sustainable development
simply requires that natural resources should be efficiently used.

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