Chapter – 1 Economics

The Story of Village Palampur

• Main Production Activities: Farming is the main production activity in the village Palampur.
Most of the people are dependent on farming for their livelihood. Non-farming activities such
as dairy, small-scale manufacturing (e.g. activities of weavers and potters, etc.), transport,
etc., are carried out on a limited scale.

• Factors of Production (Or Requirements for Production of Goods and Services): Land,
labour and capital are the basic requirements for production of goods and services which are
popularly known as factors of production. Land includes all free gifts of nature, e.g., soil,
water, forests, minerals, etc. Labour means human effort which of course includes physical as
well as mental labour. Physical capital is the third requirement for production. Physical
capital includes fixed capital (e.g. tools, machines, building, etc.) and raw materials such as
seeds for the farmer, yarn for the weaver.

• Important Changes in Farm Activities: Land area under cultivation is virtually fixed.
However, some wastelands in India had been converted into cultivable land after 1960.

Over the years, there have been important changes in the way of farming, which have allowed
the farmers to produce more crops from the same amount of land.

These changes include:

(a) Multiple cropping farming

(b) Use of modern farming methods.

Due to these changes (in the late 1960s) productivity of land has increased substantially
which is known as Green Revolution. Farmers of Punjab, Haryana and western Uttar
Pradesh were the first to try out the modern farming methods in India.

• Labour: After land, labour is the next basic factor of production. Small farmers provide their
own labour, whereas medium and large farmers make use of hired labour to work on their
fields.
• Capital: After land and labour, capital is another basic factor of production. All categories of
farmers (e.g. small, medium and large) require capital. Small farmers borrow from large
farmers or the village moneylenders or the traders who supply them various inputs for
cultivation.

Modern farming requires a great deal of capital.

• Sale of Surplus Farm Products: Farmers produce crops on their lands by using the three
factors of production, viz. land, labour and capital. They retain a part of produce for self-
consumption and sell the surplus in the nearby market. That part of farm produce which is
sold in the market is called marketable surplus. Small farmers have little surplus output. It is
the medium and large farmers only who have substantial surplus produce for selling in the
market.

• Non-farm activities: Out of every 100 workers in the rural areas in India, only 24 are
engaged in non-farm activities. There is a variety of non-farm activities in the villages. Dairy,
small scale manufacturing, transport, etc., fall under this category.
 Chapter-2 Economics
People as Resource

• Human beings perform many activities which can be grouped into economic and non-
economic.
Economic Activities: Economic activities refer to those activities of man which are
undertaken for a monetary gain or to satisfy his/her wants. The activities of workers,
farmers, shopkeepers, manufacturers, doctors, lawyers, taxi drivers, etc. fall under this
category.
Non-Economic Activities: Non-economic activities are ones that are not undertaken for any
monetary gain. These are also called unpaid activities, e.g., Puja-paath, housekeeping, helping
the poor or disabled, etc.
• Classification of Economic Activities. Various economic activities can be classified into three
main sectors, that is primary sector, secondary sector and tertiary sector. The primary sector
includes activities like agriculture, forestry, animal husbandry, fishing, poultry, farming and
mining. In this sector, goods are produced by exploiting nature. In the secondary sector,
manufacturing (small and large) and construction activities are included. The tertiary sector
(also called service sector) provides various types of services like transport, education,
banking, insurance, health, tourism, etc.
• Market Activities and Non-Market Activities. Economic activities, i.e. production of goods
and services can be classified into market activities and non-market activities. Market
activities are performed for remuneration. Non-market activities are the activities carried
out for self-consumption.
• Activities of Women. Women generally look after domestic affairs like cooking of food,
washing of clothes, cleaning of utensils, housekeeping and looking after children.
• Human Capital: Human capital is the stock of skill and productive knowledge embodied
in human beings. Population (human beings) become human capital when it is provided
with better education, training and health care facilities.
• People as a Resource: People as resource is a way of referring to a country’s workforce
in terms of their existing skills and abilities.
• Human Capital Formation: When the existing human resource is further developed by
spending on making the workforce more educated and healthy, it is called human capital
formation.
• Quality of Population: The quality of population depends upon the literacy rate, life
expectancy and skills formation acquired by the people of the country.
• Role of Education: Education is the most important component of human resource
development.
In view of its contribution towards the growth of the society, government expenditure on
education as a percentage of GDP rose from 0.64% in 1951-52 to 3.98% in 2002-03.
However, our national goal is 6% of GDP.
• Health: Health is another very important component of human resource development.
Efficiency of workers largely depends on their health.
There has been considerable improvement in the country’s health standard. For instance,
the life expectancy at the time of birth in India rose from 37.2 years in 1951 to 63.9 years
in 2001. Similarly, infant mortality rate has come down from 147 to 70 during the same
time period.
• Unemployment: Unemployment is said to exist when people who are willing to work at
the prevailing wage rates cannot find jobs. When we talk of unemployed people, we refer
to those in the age group of 15-59 years. Children below 15 years of age and the old
people above 60 are not considered while counting the number of unemployed.
• Nature of Unemployment in India: Seasonal unemployment occurs when people fail to
get work during some months of the year (that is, during off-season). Farm laborers
usually face this kind of problem. Disguised unemployment is another kind of
unemployment found in rural areas. Such kind of problem arises due to excessive
pressure of population on agriculture. Disguised unemployment refers to a situation
wherein the number of workers in a job is more than actually required to do the job. The
extra number of workers are disguisedly unemployed.
• Consequences of Unemployment:
(i) Unemployment leads to wastage of manpower resource.
(ii) Unemployment tends to increase the economic overload that is dependence of the
unemployed on the working population.
(iii) Unemployment may lead to increase in social unrest and tension.
 Chapter-3 Economics
Poverty as a Challenge

In our daily life we come across many poor people such as landless labourers in villages, people
living in jhuggis, daily wage workers at construction sites, child labourers in dhabas, rickshaw-
pullers, domestic servants, cobblers, beggars, etc.

• Poverty: Usually the levels of income and consumption are used to define poverty. In India,
poverty has been defined as a situation in which a person fails to earn income sufficient to
buy him bare means of subsistence.
• Other Indicators of Poverty: Now poverty is looked through other indicators like illiteracy
level, lack of access to health care, lack of job opportunities, lack of access to safe drinking
water, sanitation, etc. Nowadays, the concept of social exclusion is becoming very common in
the analysis of poverty.
• Estimates of Poverty: The incidence of poverty in India was around 55 per cent in 1973
which declined to 36 per cent in 1993 and further to 26 per cent in 2000.
Social groups which are most vulnerable to poverty are Scheduled Caste and Scheduled Tribe
households.
• Inequality of Incomes within a Family: In poor families, old people, women and female
children are denied equal access to family’s available resources. They are the poorest of the
poor.
• Inter-State Disparities: The proportion of poor people is not the same in every state. In 20
states and union territories the poverty ratio is less than the national average. Orissa and
Bihar are the poorest states of India with poverty ratios of 47 per cent and 43 per cent
respectively. Lowest incidence of poverty is found in Jammu and Kashmir with poverty ratio
of just 3.5 per cent.
• Global Poverty Scenario: There has been substantial decline in global poverty. However, it
is marked with great regional differences. Poverty has declined more in China and South-East
Asian countries.
• Causes of Poverty: There are a number of causes for the widespread poverty in India. These
are:
(i) Rapid growth of population, particularly among the poor is considered a major cause of
Indian poverty.
(ii) Our agricultural sector has failed to generate much employment opportunities for the
farm labourers. Similarly, our industries could not provide much job for the job seekers.
(iii) One of the major causes of poverty is the unequal distribution of land and other
resources. Various land reform measures introduced after Independence could not
improve the life of millions of rural poor because of their poor implementation.
(iv) Social factors: People in India, including the very poor, spend a lot of money on social
occasions like marriages, festivals, etc. Poor people hardly have any savings; they are,
 thus forced to borrow. Unable to pay because of poverty, they became victims of
indebtedness. Joint family system has prevented people from doing hard work.
• Steps taken by the Government for Poverty Alleviation: Our government’s strategy to
poverty reduction has been twofold. One, promotion of economic growth and, two, targeted
poverty alleviation programmes.
Poverty Alleviation Programmes: To address the poor, a need for targeted anti-poverty
programmes was strongly felt.
Some of them are given below:
Prime Minister Rojgar Yojana (PMRY): The aim of this programme (which was
started in 1993) was to create self-employment opportunities for educated
unemployed youth in rural areas and small towns.
Rural Employment Generation Programme (REGP): REGP was launched in 1995 to
create self-employment opportunities in rural areas.
Swarna Jayanti Gram Swarojgar Yojana (SGSY): SGSY was started in 1999. The
programme aims at bringing the assisted poor families above the poverty line.
Pradhan Mantri Gramodaya Yojana (PMGY) was launched in 2000.
Antyodaya Anna Yojana (AAY) for ‘the poorest of poors’ and elders.
National Food for Work Programme (NFWP) was launched in 2004.
National Rural Employment Guarantee Act (NREGA) was passed in September
2005. The Act provides 100-days assured employment every year to every rural
household in 200 districts.
• The Challenges Ahead: Though poverty has declined in India, poverty reduction remains
India’s most compelling challenge. We will have to do something special to fight against wide
regional disparities. We must broaden the definition of poverty from ‘a minimum subsistence
level of living to a reasonable level of living’. Bigger challenges before us are: providing
health care, education and job security for all the achieving gender equality.
 Chapter-4 Economics
Food Security in India

Food security means availability, accessibility and affordability of food to all people at all times.
• FOOD SECURITY: The poorest section of the society remains food insecure all the times.
People above poverty line might also feel food insecure in times of natural calamity like
earthquake, drought, flood, tsunami, etc.
FOOD-INSECURE: In rural areas, the worst affected people are: landless and small farmers,
traditional artisans (weavers, potters, blacksmith etc.) providers of services (e.g. barbers,
washermen etc), petty self-employed workers and destitute. In the urban areas, persons
employed in ill-paid occupations and casual labourers are food insecure.
Large proportion of pregnant and nursing mothers and children under the age of 5 years
constitute an important segment of the food insecure population.
• Hunger: Hunger has chronic and seasonal dimensions. Poor people suffer from chronic
hunger and are food insecure all the times. Seasonal hunger is caused by the seasonal nature
of agricultural activities in rural areas. In urban areas, seasonal hunger occurs because of the
casual type of work. Thus, seasonal hunger exists when people are unable to get work
for the whole year.
• Need for self-sufficiency in food grains. Our government since Independence realised the
need to attain self-sufficiency in food grains because India experienced acute shortage of
food grains after partition of the country in 1947. The need for self-sufficiency arises from
the following:
(a) to feed rising population
(b) to fight against droughts, floods, cyclone, etc.
(c) to reduce import of food grains
(d) to control prices of food grains.
• Food Security System in India: Since the advent of the Green Revolution in the 1960s the
country has avoided famine, even during adverse weather conditions. India has become self-
sufficient in food grains during the last 30 years because of the variety of crops grown all
over the country. Also, we have developed a food security system.
• Buffer Stock: Buffer stock is the stock of food grains (wheat and rice) procured by the
government through the Food Corporation of India (FCI). The FCI purchases wheat and rice
for the government from the farmers of surplus states at pre-announced prices. This price is
called ‘minimum support price’.
• Public Distribution System (PDS): PDS refers to a system through which the food procured
by the FCI is distributed among the poor through government regulated ration shops. The
consumers are issued ration cards.
• Kinds of Ration Cards. There are three kinds of ration cards:
(a) Antyodaya cards for the poorest of the poor,
(b) BPL cards for those below poverty line and,
 (c) APL cards for those above poverty line.
• Three Important Food Intervention Programmes:
In the wake of high incidence of poverty levels in mid-1970s, three important food
intervention programmes were introduced:
(a) Public Distribution System (in existence earlier)
(b) Integrated Child Development Services (ICDS) in 1975
(c) Food for work in 1977-78.
In 2000, two special schemes were launched viz. Antyodaya Anna Yojana (AAY) and the
Annapurna scheme (APS) with special target groups of the poorest of the poor and indigent
senior citizens, respectively.
• Excessive Food Stocks: In July 2002, the stock of wheat and rice with FCI was 63 million
tonnes which was much more than the minimum buffer norms of 24.3 million tonnes. The
stock reduced thereafter but always remained higher than the buffer norms.
• Paradox of Excess Stocks and Starvation: In fact, India has experienced a paradoxical
situation in recent years. While the granaries (godowns) of the government are overflowing
with excess stocks of food, we also find people without food. The main reason for this
unfortunate situation is that many poor families do not have enough money or income to buy
food.