Indian Economy - Overview

India has the twelfth largest economy in the world. Among the third world countries, India has

proved itself to be one the best players in the world economy. The economic condition of India

has improved immensely over the last few decades. Recently many policies have been reformed

and some implemented in order to help the progress and development of the Indian economy

scene. At the moment, the economy of India has been progressing at the massive pace.

Every Economy in the world stands on four basic pillars. Indian being one of the largest

Economies of the world too stands on these pillars. These are GDP, Inflation, Forex Reserves

and Current Account Deficit. Topping all these comes the External Debt which is often used to

stabilize the down going markets. Indian economy is the fourth largest in the world, with a GDP

of $3.63 trillion at PPP, and tenth largest in the world with a $691.9 billion at 2004 USD

exchange rates and has a real GDP growth rate of 6.2% at PPP.

While the Gross Domestic Production tells about the total development in terms of total

production in various sectors in a year, the inflation in co relation with the deflation tells about

the market indices. The Forex Reserves counts on the Foreign trade and the currency earned in it

while the Current Account Deficit makes for the total amount which is lacking to meet the

requirements. All these are so adjusted that they make for the total profit or the growth of the

economy. When all these four work in perfect synchronization, the net result is the growth of

Economy or GDP. India too works on these to make a better Economy.

Some of the Key factors in the growth of the Indian Economy are the broad spectrum industries,

stable parliamentary democracy, independent judiciary, global mindset of corporate sector and

lobbying for globalization. With the changing perspective, today the Indian Economy is more

strong, it has new players both local and forgien, the buyers market has increased with more

competition, there is liberalized trade facilitating integration with WTO. All these have put the

Indian Economy on a global perspective. With liberalized financial markets and emphasis on

prudential norms the dynamic nature of Indian Economy is seeing new heights.

But despite of all this growth the Indian Economy is curtailed by creaking infrastructure,

cumbersome judiciary system, dilapidated roads, severe shortage of electricity, lesser number of

schools, lower education, caste system and reservation system. These are some of the common

factors which inhibit the growth of the Indian Economy. Whatever is being written on papers is

not materializing and even if it is being done in some sectors, the growth is slow that the work

being done is equal to no work.

Indian Economy beginning from the Indus Valley Civilization to the Mayura age has a reached a

point where Oligarchy has become more prominent. The democracy is losing its point

somewhere and the growth of Indian Economy is showing its good results only in some sectors.

UNEMPLOYMENT PROBLEM IN INDIA-

Unemployment is another major problem of Rural India. Since India is basically a country of

villages, therefore unemployment is a serious evil of Rural Society. Because 80 percent India's

total population live in villages and unemployment problem in India is basically rural by nature.

Unemployment is a state of worklessness for a man who is fit for work.

When a person is failed to get any job and unable to found the means of livelihood, we call him

an unemployed person. Thus, unemployment means lack of absence of employment. In other

word unemployment is largely concerned with those persons who constitute the labor force of

the country, who are able bodied and willing to work, but they are gainfully employed.

Unemployment, therefore, is the lack of earning or idleness on the part of a person who is able to

work.

Definition of Unemployment:

Different persons have been defined unemployment in different ways. The important definitions

of unemployment are as follows:

According to Gillin and Gillin “unemployment is a condition in which a person able and willing

to work normally, dependent upon his earning to provide the necessities of life for himself and

family in unable to obtain gainful employment:

Karl Pibrain defines “unemployment is a condition of the labour market in which the supply of

labour power is greater than the number of available openings.”

In the words of Fairchild “unemployment is forced and involuntary separation from

remunerative work on the part of the normal wages and normal conditions.”

Sergeant Florence says “unemployment has been defined as the idleness of persons able to

work.”

Types of Unemployment:

As unemployment is a universal problem and is found in every country more or less, therefore, it

is categorised into a number of types. The chief among them are stated below:

1) Structural unemployment:

Basically India's unemployment is structural in nature. It is associated with the inadequacy of

productive capacity to create enough jobs for all those able and willing to work. In India not only

the productive capacity much below the needed quantity, it is also found increasing at a slow

rate. As against this, addition to labour force is being made at a first rate on account of the

rapidly growing population. Thus, while new productive jobs are on the increase, the rate of

increasing being low the absolute number of unemployed persons is rising from year to year.

2) Disguised unemployment:

Disguised unemployment implies that many workers are engaged in productive work. For

example, in Indian villages, where most of unemployment exists in this form, people are found to

be apparently engaged in agricultural works. But such employment is mostly a work sharing

device i.e., the existing work is shared by the large number of workers. In such a situation, even

if many workers are withdrawn, the same work will continue to be done by fewer people.

It follows that all the workers arte not needed to maintain the existing level of production. The

contribution of such workers to production is nothing. It is found that the very large numbers of

workers on Indian farms actually hinder agricultural works and thereby reduce production.

3) Cyclical unemployment:

Cyclical unemployment in caused by the trade or business cycles. It results from the profits and

loss and fluctuations in the deficiency of effective demand production is slowed down and there

is a general state of depression which causes unemployment periods of cyclical unemployment is

longer and it generally affects all industries to a greater or smaller extent.

4) Seasonal unemployment:

Seasonal unemployment occurs at certain seasons of the year. It is a widespread phenomenon of

Indian villages basically associated with agriculture. Since agricultural work depends upon

Nature, therefore, in a certain period of the year there is heavy work, while in the rest, the work

is lean. For example, in the sowing and harvesting period, the agriculturists may to engage

themselves day and night.

But the period between the post harvest and pre sowing is almost workless, rendering many

without work. Thus, seasonal unemployment is largely visible after the end of agricultural works.

5) Underemployment:

Underemployment usually refers to that state in which the self employed working people are not

working according to their capacity. For example, a diploma holder in engineering, if for wants

of an appropriate job, start any business may be said to be underemployed. Apparently, he may

be deemed as working and earning in a productive activity and in this sense contributing

something to production. But in reality he is not working to his capability, or to his full capacity.

He is, therefore, not full employed. This type of unemployment is mostly visible in urban areas.

6) Open Unemployment:

Open unemployment is a condition in which people have no work to do. They are able to work

and are also willing to work but there is no work for them. They are found partly in villages, but

very largely in cities. Most of them come form villages in search of jobs, many originate in cities

themselves. Such employment can be seen and counted in terms of the number of such persons.

Hence it is called upon unemployment. Open unemployment is to be distinguished from

disguised unemployment and underemployment in that while in the case of former

unemployment workers are totally idle, but in the latter two types of unemployment they appear

to be working and do not seem to be away their time.

7) Voluntary Unemployment:

Voluntary unemployment occurs when a working persons willingly withdraws himself from

work. This type of unemployment may be caused due to a number of reasons. For example, one

may quarrel with the employer and resign or one may have permanent source of unearned

income, absentee workers, and strikers and so on. In voluntary unemployment, a person is out of

job of his own desire. She does not work on the prevalent or prescribed wages. Either he wants

higher wages or does not want to work at all.

8) Involuntary unemployment:

Involuntary unemployment occurs when at a particular time the number of worker is more than

the number of jobs. Obviously this state of affairs arises because of the insufficiency or non

availability of work. It is customary to characterise involuntary unemployment, not voluntary as

unemployment proper.

Causes of Unemployment -

There are various factors responsible for this situation. The factors, because of which there is

unemployment the rural areas, may be studied under the following heads:

1) Excessive increase in population or population explosion:

In India the population is crossing all bounds. It is accepted that within 20 years or so the

population of this country shall have doubled. At this rate of increase in population, no country

can guarantee full employment to its hands. This is truer of the rural areas where avenues of

employment are limited. Programmes of family planning attempts to restrict the increase in

population have so far not yielded the desired results. This does not work well for the country.

2) Limited land and great pressure on land:

India has a limited area of agricultural land. Attempt is being made to break the barren land and

bring greater area under the orbit of the agriculture. In spite of it the rapid increase in population

has so far failed all the attempts of the Govt. To provide proper agricultural land to all those

persons who do not have land. Apart from this there is greater pressure on the land. In rural areas

most of the people depend on land for their livelihood. This creates the situation of

unemployment for a large number of persons in the rural areas.

3) Seasonal nature of agriculture:

Agriculture in India is a seasonal affair. It keeps the people engaged only for a few months. After

sometime the farmer have nothing to do. There is a season for sowing and harvesting. After that

the farmers have no job. During this period they remain unemployed and without job. This has

adverse effect on the earning of the people and the standard of living. What is needed is that for

this period, the agriculturalists should be provided with some job. This would help them to earn

more and employ their free time in a gainful manner.

4) Lack of subsidiary and other village industries:

We have just now seen that for at least 4 to 5 months in a year village people remain

unemployed. Their standard of living can improve only when they employed this period in a

gainful manner. Such a thing can happen when cottage industries and other industries pertaining

to agriculture are set up in the village. So far this thing has succeeded on the other hand, the

village and cottage industries have deteriorated and so large number of people still remains

unemployed.

5) Too much dependence on nature:

Agriculture in India depends too much on nature particularly for irrigation. If there is lack of

such at the proper moment, the crop gets a setback. If there is inclement weather at the time of

harvesting, the agriculture again gets a setback. All these factors create problems of

unemployment.

6) Undeveloped and traditional methods of agriculture:

In India, agriculture is carried out through traditional methods. These methods are undeveloped.

They require a good deal of time and large number of hands, yet the yield is not enough as to

feed a large family and also provide for their other necessities. This has an adverse effect on

agricultural employment position.

7) Lack of education and ignorance about scientific and modern means of agriculture:

Agricultural people are not educated. Due to lack of education, they are not able to utilise their

energy in proper manner. Apart from it they are not able to know about the scientific and modern

methods of agriculture. This makes their task cumbersome and time consuming. This has also an

adverse effect on employment position which requires rethinking and reconsideration.

8) Lack of adequate means of irrigation:

We have just now seen that agriculture in India very much depends on nature. There are no

adequate means of irrigation. Whatever means existing are hardly sufficient to provide water to

all the fields. Because of dearth of irrigation facilities the agricultural yield is not at all sufficient

to help the agriculturist to live respectably. It also has an adverse effect on employment position

which in its turn has an adverse effect on the standard of living.

9) Small holdings and fragmentation of land:

Agriculture in India is disorganised. We have already talked about the dearth of irrigation

facilities, too much of dependence on nature and other factors. The holdings are small and they

are scattered and fragmented. Because of these drawbacks, the agricultural product is not at all

sufficient for the people who depend who depend on it. Apart from it the agricultural out put is

not commensurate with the labour that is spent on it. This has an adverse effect on the

employment position. It also adds to the poverty of the village.

How to solve Unemployment Problem in India-

We now discuss the following measures that can help us in eradicating the unemployment

problem from rural India:

1) Development of Agricultural method:

In rural society, agriculture is the only source of employment of the people. If the method of

agriculture has to be modernised and improved, the unemployment problem has to be eradicated.

For this several steps should be taken into consideration.

Firstly, holding should be consolidated and made economic. Secondly, methods of agriculture

should be improved and as far as possible the farms should be freed from dependence on Nature.

Thirdly, system of crops should be planned scientifically and developed sufficiently. If more

crops earned it would provide more employment facilities to the rural people. Finally, modern

agricultural equipments, good seeds, fertilisers, proper agricultural suggestion and so on should

be provided to the rural farmers.

Thus if the agricultural system has to be improved in the above direction, it can afford sufficient

employment facilities to the rural people throughout the year.

2) Proper arrangement of irrigation:

A major cause of agricultural unemployment in Rural India is the dependence of cultivation on

the rains. Since agriculture is seasonal and depends very much on the rains, therefore, only in a

particular season of the year the village people are engaged in agricultural work and in the rest of

the year they remain unemployed. Besides, if rains fail, the agricultural work is hindered and it

brings about a good deal of unemployment problem among the rural farmers.

Thus, for the eradication of unemployment the methods of irrigation should be made more

modern. In rural areas proper arrangements of irrigation should be made through minor and

major projects. As a consequence, the rural people are able to do agricultural work throughout

the year by using water in their lands.

3) Increasing the Cultivable land:

Now-a-days, due to the rapid population growth, there is heavy pressure on land in rural areas.

The cultivable land is not sufficient to provide food as well as employment facilities to all the

people. Therefore, it is essential to increase cultivable land in the rural areas.

In this context, barren land should be made fertile by scientific methods. Much sandy, rocky and

grass lands can be converted into cultivable lands by applying modern scientific techniques. As a

result rural people are much engaged in agricultural work and this would remove unemployment

problem in rural areas.

4) Reconstruction of Cottage Industries:

For the removing of unemployment problem in Rural Society, the various new cottage industries

should be established and the old are also reconstructed. In order to provide employment

opportunities to the landless people in the village, it is essential that various cottage industries

should also develop.

The cottage industries like dairy farming, poultry farming, furniture making, basket making, bee

keeping, weaving, tailoring, match stick making and so on afford large employment facilities to

the rural people and help in eradication unemployment problem from Rural India to a

considerable extent.

5) Development of transport and Communication:

In order to create the employment atmosphere in rural areas, it is essential on the part of the

Govt. To develop the means of transport and communication to a large extent. It is true that

unemployment problem can minimise only when the transport and communication systems are

developed properly in rural areas. Because, the educated rural people who are not interested in

agricultural work have to engage themselves in different occupations relating to business through

transport. Besides, the development of communication helps the surplus population of Rural

Society to move different places in search of employment.

Meaning of Poverty

Poverty is the state of one who lacks a certain amount of material possessions or money. Poverty

is relative to, and is the antonym of, wealth. Poverty is pronounced deprivation in well-being,

and comprises many dimensions. It includes low incomes and the inability to acquire the basic

goods and services necessary for survival with dignity. Poverty also encompasses low levels of

health and education, poor access to clean water and sanitation, inadequate physical security,

lack of voice, and insufficient capacity and opportunity to better one’s life.

Absolute poverty or destitution refers to the one who lacks basic human needs, which commonly

includes clean and fresh water, nutrition, health care, education, clothing and shelter. About 1.7

billion people are estimated to live in absolute poverty today. Relative poverty refers to lacking

a usual or socially acceptable level of resources or income as compared with others within a

society or country.

Causes of Poverty in India –

1 Rapidly Rising Population:

The population during the last 45 years has increased at the rate of 2.2% per annum. On average

17 million people are added every year to its population which raises the demand for

consumption goods considerably.

2. Low Productivity in Agriculture:

The level of productivity in agriculture is low due to subdivided and fragmented holdings, lack

of capital, use of traditional methods of cultivation, illiteracy etc. This is the main cause of

poverty in the country.

3. Under Utilized Resources:

The existence of under employment and disguised unemployment of human resources and under

utilization of resources has resulted in low production in agricultural sector. This brought a down

fall in their standard of living.

4. Low Rate of Economic Development:

The rate of economic development in India has been below the required level. Therefore, there

persists a gap between level of availability and requirements of goods and services. The net

result is poverty.

6. Price Rise:

The continuous and steep price rise has added to the miseries of poor. It has benefited a few

people in the society and the persons in lower income group find it difficult to get their minimum

needs.

7. Unemployment:

The continuously expanding army of unemployed is another cause of poverty. The job seeker is

increasing in number at a higher rate than the expansion in employment opportunities.

8. Shortage of Capital and Able Entrepreneurship:

Capital and able entrepreneurship have important role in accelerating the growth. But these are in

short supply making it difficult to increase production significantly.

9. Social Factors:

The social set up is still backward and is not conducive to faster development. Laws of

inheritance, caste system, traditions and customs are putting hindrances in the way of faster

development and have aggravate" the problem of poverty.

10. Political Factors:

The Britishers started lopsided development in India and reduced Indian economy to a colonial

state. They exploited the natural resources to suit their interests and weaken the industrial base of

Indian economy. In independent India, the development plans have been guided by political

interests. Hence, the planning a failure to tackle the problems of poverty and unemployment

1. Hierarchy of reasons for poverty in India:

Poor people are so, because they do not participate in economic process. Unemployment,

underemployment and inability to 'competitively' participate in production process are some

symptoms. Indifference to participate manifests as 'indifference' to take advantage of

government facilities and encouragement. They should be encouraged to participate in

economic processes and to train themselves to upgrade skills.

2. Exploitation of labour in abundant market, also due to lack of 'competitive' production in

industries the inefficiency getting passed on as low wages.

3. Lack of adequacy in 'social safety net' to address their problems like industrial downturn

leading to unemployment, lack of adequate 'health cover' and insurance. Instead of

unemployment 'doles' as in western countries, there should be 'unemployment insurance' for

those who have a record of proven and 'good' employment.

3. Civil society is a great employer, irrespective of governments. Larger the society, larger are the

needs, more the specialised services and goods. These being in unorganised sector, 'assurance'

of steady income and gainful employment is shaky. This needs to be addressed and 'society'

(government) should step in to encourage societal self-help in ventures and enterprise.

4. In India cottage industries & handicrafts are encouraged by offering governmental props.

Handloom textiles is the biggest employer. As productivity is very low in the absence of

technological inputs in a mistaken belief to preserve the purity of cottage products leaves a big

gap between these and assembly line produced competition. Strategies should be evolved to

make cottage industries 'competitive'.

5. Agriculture is becoming increasing less lucrative. farmers remain in the back-waters while their

product is making middlemen prosperous. The way out seems to be selective (or partial)

intervention by government in marketing.

6. On the other hand, the high-end financial markets and policies that have an adverse impact on

'poverty alleviation' (but taking care to curb unproductive expenditure) needs to be monitored

and controlled, even if it affects indices like GDP & its growth marginally. Now is the time India

with its 'booming' economy can do it. It is an opportunity.

7. Particularly, 'inflation' beyond a certain level should be curbed, as it affects poor people

strongly. In her history since Independence this has been pursued somewhat meticulously at

times. But now with the trend towards 'globalisation' & 'privatisation' the tendency to approach

'free' market and accent on monetary economics might bring more people BPL (below poverty

line

Features of Indian Economy Indian Economy-Underdeveloped:

On the eve of independence, Indian economy was underdeveloped economy. As an

underdeveloped economy, Indian economy had the following features:

1. Low per capita income:

Under developed economy is characterized by low per capital income. India per capital income

is very low as compared to the advanced countries. For example the capital income of India was

460 dollar, in 2000. Where as their capita income of U.S.A in 2000 was 83 times than India. This

trend of difference of per capita income between under developed and advanced countries is

gradually increasing in present times. India not only the per capita income is low but also the

income is unequally distributed. This mal-distribution of income and wealth makes the problem

of poverty in ore critical and acute and stands an obstacle in the process of economic progress

2. Heavy Population Pressure:

The Indian economy is facing the problem population explosion. It is clearly evident from the

total population of India which was 102.67 cores in 2001 census. It is the second highest

populated country China being the first. India’s population has reached 110 cores. All the under

developed countries are characterized by high birth rate which stimulates the growth of

population; the fast rate of growth of population necessitates a higher rate of economic growth to

maintain the same standard of living. The failure to sustain the living standard makes the poor

and under developed countries poor and under developed.

3. Pre-dominance of Agriculture:

Occupational distribution of population in India clearly reflects the backwardness of the

economy. One of the basis characteristics of an under developed economy is that agriculture

contributes a very large portion in the national income and a very high proportion of working

population is engaged in agriculture

4. Unemployment:

There is larger unemployed and under employment is another important feature of Indian

economy. In under developed countries labor is an abundant factor. It is not possible to provide

gainful employment the entire population. Lack of job opportunities disguised unemployed is

created’ in the agriculture fields. There deficiency of capital formation.

5. Low Rate of Capital Formation:

In backward economics like India, the rate of capital formation is also low. capital formation

mainly depends on the ability and willingness of the people save since the per capita income is

low and there is mal-distribution of income and wealth the ability of the people to save is very

low in under developed countries for which capital formation is very low .

6. Poor Technology:

The lever of technology is a common factor in under developed economy. India economy also

suffers from this typical feature of technological backwardness. The techniques applied in

agriculture industries milling and other economic fields are primitive in nature.

7. Back ward Institutional and social frame work:

The social and institutional frame work in under developed countries like India is hopelessly

backward, which is a strong obstacle to any change in the form of production. Moreover

religious institutions such as caste system, joint family universal marriage affects the economic

life of the people.

8. Under utilization of Resources:

India is a poor land. So our people remain economically backwards for the lack of utilization of

resources of the country.

9. Price instability:

Price instability is also a basis feature of Indian economy. In almost all the underdeveloped

countries like India there is continuous price instability. Shortage of essential commodities and

gap between consumption aid productions increase the price persistently. Rising trend of price

creates a problem to maintain standard of living of the common people.1

10. Low Per Capita Income:

Underdeveloped economies have low per capita income. India has no exception to it. In 1947-48,

per capita income was Rs. 230. People were poor. They were not getting fair square meals a day.

They had no shelter and clothing. Most of the people were unemployed.

11. Poor Infrastructure:

On the eve of independence infrastructural development which comprised of communication and

transport and electricity etc. was very poor. In 1948, power generation capacity was nearly 2100

MW; length of railway lines was 53,596 Kms.

12 Dependence on Imports:

The country had to heavily depend on imports. Armed forces of the country also depended on

foreign imports. Moreover, several consumer goods like sewing machines, medicines, oil,

bicycles etc. were imported from abroad.

13.Illiteracy:

Illiteracy was both cause and effect of poverty. Due to illiteracy, people were unable to use new

techniques in agriculture and industry. They were unable to organize trade and commerce on

modern lines. In 1948, rate of illiteracy was 18%. Thus 82% of the population was illiterate.

14. Low Development of Industries:

There was very little development of industries. Large industries used to produce consumer

goods. Basic and key industries were very less in number. In 1947, cement production was 26

lakh tonnes, of sugar 10 lakh tonnes and that of cloth just 421 crore meter.

15. Stagnant Economy:

During the British period, Indian economy remained almost stagnant. There was very slow

growth of economy. This was clear from the fact that for almost a century, the average annual

growth rate of per capita income in India was not more than 0.5%.

The high growth rate of population tended to make it difficult to maintain even the proposed

growth rate. In fact poverty was widespread and about 40% people were living below poverty

line. The causes of stagnation and backwardness are laissez faire, commercialization of

agriculture, neglect of irrigation, destruction of cottage and handicraft and economic drainage

and discriminatory tariff policy.

16. Semi-Feudal Economy:

During the British rule, Indian economy had a mixed mode of production. Feudalism was more

prominent than other modes of production. A substantial developed capitalistic sector had

emerged. Handicraftsmen had lost their independent status and were engaged in a simple

commodity production. Bonded labour force was prevalent in agriculture. Primitive social

organizations existed in areas inhabited by the tribals.

17. Depreciated Economy:

On the eve of Independence Indian economy was depreciated. In every economy, extensive use

of factors of production, inevitably leads to their wear and tear. If no arrangements are made to

replace the depreciated factors then the stock of gross capital declines. This results into the fall in

production capacity. Such an economy is called depreciated economy. After World War II Indian

economy also turned into depreciated economy. During World War II India had supplied large

quantity of goods to Britishers. India was paid for it in terms of sterling. But due to lack of real

capital, its production capacity declined.

18. Capital Deficiency:

Deficiency of capital is another basic characteristic of Indian economy. In case of physical

capital, its total stock is not adequate for equipping well to the entire labour force and full

utilization of natural resources. Similarly, human capital is far from satisfaction. The major

reasons of low level of capital formation in India were (i) low inducement to invest and (ii) low

propensity and capacity to save.

19. Famines:

In the pre-British period famines had been occurring. These famines showed an unbridled

increase in the 18th and 19th centuries. Between 1765-1858 the country experienced 12 famines

and 4 scarcities. Similarly, between 1860-1908, 20 famines spread their wings. In 1943 Bengal

famine shook the foundation of the country. William Digby estimated that during 1854-1901,

28.8 million persons died due to famines. In the famine of 1899-1900 2.5 million persons died of

starvation.

20. Lack of Social Overhead Capital:

Social Overhead Capital comprises of such industries which help in the growth of other

industries. Social overhead capital or infrastructure as it is now called, includes such industries

like railways and other means of transport, electricity and other sources of energy,

communication, banking etc. Unfortunately not much attention was paid to this during the

British rule and consequently the development of industries in India remained slow and tardy.

21. Widespread Unemployment:

Unemployment in India is a direct outcome of rapidly increasing population. More people need

more jobs but the underdeveloped economy of India cannot accommodate them. This naturally

leads to widespread unemployment. Thus unemployment becomes an all round problem in the

country.

22. Income Disparities:

The gap between wealth and poverty is exceedingly wide in India. A handful of rich persons get

a relatively large share of the total income while the large mass of poor population gets a

relatively small portion of it. Inequalities of income distribution are to be observed both in the

rural and urban sectors of the economy. Inequalities of income are to be seen in the form of

unequal distribution of land in the agricultural sector and concentration of economic power in

non-agricultural sector.

23. Absence of Enterprise and Initiative:

In India, enterprise and initiative are inhibited by the social system which denies opportunities

for creative faculties. The force of custom, the rigidity of status, absence of intellectual curiosity

and distrust of new ideas, combine to create an atmosphere inimical to enterprise,

experimentation and innovation. Whatever little entrepreneurship exists tends to become

monopolistic and quasi-monopolistic.

Indian Economy as Planned Economy-

The following are some of the main features of a planned economy:

1. Existence of a Central Planning Authority. All countries launching on economic planning

have at the top of economic affairs a Planning Commission or a Central Planning Authority, a

Planning Commission in India. Planning has no meaning unless it is centrally planned.Planning

by individual industries or organization will simply constitute plans and no planning.

2. Laying Down Objectives. Planning to be fruitful must keep steadily in view certain broad

objectives which have to be realized. In the absence of such objectives planning will be merely a

leap in the dark. Planning is not a policy of drift and the economic endeavor under planning has

not to be haphazard.

3. Fixed targets- Allied with the laying down of the objectives is the fixing of targets. The

objectives indicate the directions in which the economy is to move and targets are fixed for the

realization of those objectives. Targets are fixed for each industry and for each sector of major

industries, transport, and communication, for imports and exports, and also in the field of

education and public health. Fixing of targets enables the Planning Commission to determine the

success or failure of each component part of the economy.

3.  Controls- A planned economy has of necessity to be subjected to a variety of controls. The

working of a free market economy has to be modified and controlled in the interest of overall

planned development. Thus, in a planned economy we have price controls, control on the

distribution of essential goods and scarce raw materials, through fair price shops, co-operative

stores, import control, export control, exchange control, control of capital issues, licensing of

factories, etc. Laissez-faire is dead and gone in all planned economies and extensive State control

takes its place.

5. Co-ordination. Economic planning has to be comprehensive and not isolated and piecemeal.

All economic efforts aiming at accelerated economic development must be properly coordinated.

Without co-ordination a country will land itself into chaos and economic mess.

6. Growing Public Sector. Another important feature of a planned economy is the vital role

played by the public sector and its growing importance. Private sector cannot be expected to sink

capital in enterprises in which the return is long-delayed and is uncertain. The State as the

custodian of national interest must step in where private enterprise is shy and is found wanting.

The public sector really provides the essential framework for spreading out the planned

economic activity

Economic System:

Capitalism-private ownership by means of production, individual decision making & use of

market to carry out decisions of individual participants & facilitate the flow of goods & services

in markets. (Free enterprise eco.) Two types-

1) Old Laissez fair Capitalism- no govt. intervention.

2) Modern – Regulated or Mixed Capitalism- substantial intervention Pure Capital System- free

enterprise, consumers have complete freedom, choice of occupation, freedom to save &

invest, competition, absence of a control plan, limited role of govt.

Modern Capitalism- regulated by govt.

Drawbacks – sufficient investments will not take place, large portion goes to well to do,

concentration of income & wealth, large firms are likely to gain.

Socialism - production controlled by state or owned by state, govt. ownership/control, central

authority (U.S.S.R. & China), restriction on consumption & occupation, fixation of wages &

price, distribution of income, corruption, Red Tapeism

Communism – no civil liberties, restriction on consumers, central planning authority commands,

private enterprise not allowed, nations talent not fully used, lack incentives against hard work,

absence of freedom of choice of occupation.

Mixed Economy - private & public both operations under govt. regulations greater importance to

individual decision making, market determined prices & a guide to resource allocation. Govt.

becomes mediator in eco. disputes & tries to guide economy through imposing restrictions

How Indian Financial System works:

1. Two parts of Indian Financial System

a) Indian Money Market

b) Indian Capital Market

2. The major contributors of capital market

a) Individual savers

b) Corporate savings

c) Banks

d) Insurance Companies

e) Specialized Financing agencies

f) Government

3. The function of the Indian Financial system

a) Promotion of Capital Formation

b) Mobilisation of Savings

4. Two broad Categories into which scheduled banks are divided

a) Commercial Banks

b) Cooperative Banks

Economic Aspect of Indian Planning:

It deals with a systematic coordinated effort on the part of the political authority to improve the

effectiveness of economy of the country. Planning Commission set up in 1950.

The Objectives of Planning in India aim at achieving higher rate of economic growth and

Reduction of economic inequalities

Achieving full employment

Attaining economic self reliance

Modernisation of various sectors

Redressing imbalances in the economy

Fundamental objective of the economic planning of our country i.e.:

To accelerate the pace of economic growth

To provide social justice to the general masses

Steps in planning-

1) Objectives-reference point for keeping the efforts of the country on proper lines, pre

requisites to determine effective policies, procedures, methods, strategies & rules, represent

political ideology & general thinking of society. These include per capita income, economic

growth, ensuring stability & some other objective broken down into departmental &

individual objectives where plans are developed throughout country.

2) Targets of production, consumption, & distribution as per timing

3) Securing participation of all departments & subordinates

4) The use of strategy – how available resources will be used.

5) Techniques of planning-

a) Democratic planning- subordinate

b) Planning by direction- do not tell elements of future planning but straight way give

instruction to take actions in to various sector.

The Planning Commission- established in 1950, Pt Nehru was 1st chairman. 8 members-P.M.

(chairman), 4 full time members (including Dy. C. man.) minister of planning, finance, defense.

Functions- making real assessment of resources & their possible Augmentation, Form plan,

Determine priorities, implementation, identify factor of retarding eco. Growth, determining plan

machinery, making periodic assessment of progress, recommending necessary changes. Finally

making auxiliary recommendations.

National Development Council- 6th August 1952, members, P.M., all C.M.s members of

planning commission

Functions – periodical review of national plan, consider important questions affecting national

development, recommending various measures to achieve N. plan, final decision regarding

allocation of central assistance for planning in different states, approves the draft plan prepared

by planning commission.

Salient Features of India’s 5 year plan- democratic, decentralized planning, regulatory

mechanism, existence of central plan & state plan. Public sector & private sector plan, periodic

plan. Main objectives

a) Attainment of higher rate of economic growth

b) Reduction of eco. inequalities

c) Achieve full employment

d) Attaining eco. self alliance

e) Modernisation of various sector

f) Redressing the imbalances in the economy

Unchanging priorities- industry, power & ag. With minor modifications. Balanced regional

development, perspective planning on basic issues or problems. Programme implementation &

evaluation, short falls in target redressing.

First five-year plan had mainly two objectives

a) To correct the disequilibrium in the economy

b) To initiate the process of all round balanced development

Second five year plan

a) A sizeable increase in the national income to raise the level of living in the

country.

b) Rapid industrialization

c) Large expansion of employment opportunities

d) Reduction of inequalities in income and wealth

Third five year plan

a) To secure an increase in the national income

b) To achieve self sufficiency in food grains

Fourth, fifth, sixth, seventh, eight and ninth five year plan

Purpose of each and every plan was

a) Growth and stability

b) Self sufficiency, self reliance

c) Progressive reduction in Poverty and Unemployment

d) Improve quality of life

e) Generation of adequate employment

f) Strengthening of infrastructure

Growth performance in the 5 year plan

Plan Target Actual

1 1951-56 2.1 3.60

2 56-61 4.5 4.21

3 61-66 5.6 2.72

4 69-74 5.7 2.04

5 74-79 4.4 4.83

6 80-85 5.2 5.54

7 85-90 5.0 6.02

8 92-97 5.6 6.68

9 97-02 6.5 5.35

Sectoral Policy Issue pursuit of a strategy for achieving 8 percent growths in the tenth plan.

a) Agriculture and land Management

The policy approach has been to secure increased production through subsidies inputs

such as power, water and fertiliser.

b) Poverty alleviation Programmers

Tenth plan suggested that some special programmes should be transformed into

micro-finance programme to be run by the banks and other financial institutions with

no subsidy.

Grass roots women’s groups should be empowered and encouraged to implement

selected poverty alleviation schemes.

c) Some more important Sectoral Policy issues in the following sectors were made.

Public distribution system and good security

Forests

Industrial policy

Labor policy

Science and Technology

Social infrastructure

Current 10th plan 2002-07-

1) Reduction of poverty ratio by 5% point by 2007 10 % in next plan.11% of the population

130 million people B.P.L in 2012

2) Providing gainful & high quality employment at least to addition to the labour force over the

10th period

3) All children in school by 2003 , all children to complete 5years of schooling by2007

4) Reduction in gender gaps in literacy & cuage rates by atleast 50% by 2007

5) Reduction in decadal rate of population growth between 2001 & 2011 to 16.2%

6) Increase in literacy rates to 75% within this plan

7) Reduction of Infant mortality rate to 45 per 1000live birth by 2007 & to 28 by 2012

8) Reduction of Maternal Mortality rate to 2 per 1000 live birth by 2007 & to 1 by 2012

9) Increase in tree & forest & tree corner to 25% by 2007 & 33 % by 2012

10) All citizens to have sustained access to portable drinking water in 7th in plan period.

11) Cleaning of all major polluted river by 2007 & other notified streets by 2012

Strategy for Equity & social Justice- agriculture development must be viewed as core element

of plan. Employment potential sectors-agriculture, construction, tourism, transport, SSI, retailing,

I.T. & communication need to be promoted through supporting policies. Special programmes at

special target groups will continue in 10th plan

Measures to reduce idle capital stock- full emphasis to be placed on completion of on going

projects & upgradation of existing capital assets before starting new projects.

- Rapid privatisation of public sector enterprises particularly those, which are working well

below capacity.

- Legal & procedural changes for facilitating quick transfer of assets, including such measures

as repeal of sick industrial companies act (SICA), introduction of bankruptcy law,

Recent grow of Indian Economy (% per annum)

8th 9th

Agriculture 4.69 2.06

Manufacturing 7.58 4.51

Services 7.54 7.78

Total 6.68 5.35

Macro parameters for 10th plan (2002-07) in%

9th 10th Post plan

1. Domestic 23.31 26.84 33.01

2. Current account

deficit

0.91 1.57 3.13

3. Investment rate 24.23 28.41 36.14

4. Incremental

capital output ratio

(ICOR)

4.53 3.58 3.84

5.GDP growth 5.35 7.93 9.40

6. Export growth

rate

6.91 12.38

Import growth rate 9.80 17.13

ICOR is commonly measured as the ratio of investment rate to growth ratio of investment rate to

growth rate for a particular period. The long term net ICOR have been estimated taking into a/c

the legislature of investment the average capital output ratio & the description of capital stocks.

Sectoral Growth Rates & ICORS.

Sectors 8th plan 9TH plan 10nth plan

G.R.% ICOR G.R.% ICOR G.R.% ICOR

Agriculture &

allied

Activities

4.69 1.59 2.06 4.05 3.97 1.99

Mining

&Quarrying

3.59 10.74 3.81 5.44 4.30 7.99

Manufacturin

g

9.77 6.67 3.68 18.37 9.82 7.77

Electrical gas

&water

supply

5.50 18.00 6.46 15.43 7.99 14.97

Construction 3.56 1.74 6.82 1.00 8.34 0.99

Trade 9.06 0.54 5.86 1.09 9.44 0.91

Rail transport 1.95 27.94 4.70 9.87 5.40 14.66

Other

transport

8.42 4.41 5.63 6.09 7.54 5.37

Communicati

on

14.31 7.25 17.41 5.28 15.00 8.33

Financial

services

10.21 2.23 8.93 1.35 11.69 1.56

Public

Admn.

3.91 7.82 9.21 4.09 6.43 5.45

Other

services

6.22 4.19 8.19 3.70 9.26 3.53

Total GDP

share

6.54 3.43 5.35 4.53 7.93 3.58

- Excise revenue is going down so govt. has to expand its tax bare to service sector

- Govt. has to review its credit system for industrialisation

- Some micro credit system should be introduced for those who can` t get loan from banks

- Improving tax base, removal of tax exemptions, harmonisation of tax rates by adopting an

integrated VAT regime.

- Reducing subsidy by raising user changes of department services

- Reduce staffing & no pension self finance

- Enacting a “ Fiscal responsibility & Budget Mgt. Bill” under which borrowings shall be

restricted

- Coastal disaster policy

-

During the 10th plan a number of time bound programmes will be taken up.

1) Operation of National Resource Mgt. System through application of remote sensing

technology in development programme

2) Technology development for future generation launch INSAT satellites in geosynchronous

transfer orbit.

3) Development of all weather remote sensing technology by way of Radar Imaging Satellites

4) Technology demonstration for water desalination for sea water & fresh water into fresh

portable water

5) development of technically feasible, economically viable & eco- friendly technologies

6) Genomics research for peptic uleer, T.B., damage to kidney & heart & the games responsible

for diabities.

7) Development of vaccines against rabies, cholera, HIV/AIDS, T.B., Japanese encephalitis,

malaria

8) Food & nutrition security through enhancement of crop productivity

9) Development of pollution control & devices for air, water & solid waste.

10) Development of eco friendly leather processing technologies

11) Technologies for bamboo products & to generate good employment opportunities

12) Encourage R&D in pharmaceutical area. Drug & pharmaceutical research & development

support fund is also proposed to be set up.

Infrastructure –

1) Nuclear Power program for electric generation a 40 M.W. Fast Breedor Test Reactor has

been set up at Kalpakkam. Bhabha Atomic Research Center, Mumbai, is developing an

advanced heavy water reactor of 235 M.W.

2) Creating a strategic crude oil storage facility

3) Improving railway freight services

4) Construction of expressways & gateway ports.

Eleventh Five Year Plan (2007-12)

Objectives and Challenges: -Making the growth rate as 7.2 percent for the entire Tenth Plan period

was an achievement in itself even though we were not able to achieve the target growth of 8 percent

during the same period, but still it was the highest growth rate achieved in any plan period. This

performance reflected in the strength of our economy and the dynamism of the private sector in many

areas. But this growth has not been inclusive in nature. Agriculture lost its growth momentum, jobs in

organized sector have not increased, percentage of population below poverty line declining at a modest

pace, and many people still lack access to basic services. But despite the problems the commoners have

tried to cope with their livelihood issues.

The Vision of the Eleventh Plan: -The eleventh plan must aim at putting the economy on a sustainable

growth trajectory with a growth rate of approximately 10 percent by the end of the plan period. It will

create productive employment at a faster pace then before and target robust agriculture growth at 4

percent per year. The key elements of the strategy for inclusive growth must be an all-out effort to

provide the mass of our people the access to basic facilities such as health, education, clean drinking

water, and so on.

The private sector, including farming, micro small and medium enterprises (MSMEs), and the corporate

sector, has a critical role to play in achieving the objective of faster and more inclusive growth. This

sector accounts for 76 percent of the total investment in the economy and an even larger share in the

employment and output. To stimulate private investment, policy-induced constraints and excessive

transaction costs need to be removed. To increase the number of successful entrepreneurs, a competitive

environment must be created that encourages new entrants and provides enough finance for efficient

enterprises to expand. Even while encouraging the private sector growth, the eleventh plan must also

ensure a substantial increase in the allocation of public resources for the plan programmes in critical

areas.

Programmes designed to achieve specific objectives often fail to do so even though substantial

expenditure is incurred on them. It is, therefore, necessary to focus on outcomes rather than outlays,

including a disaggregated level to examine their impact on different groups and genders.

The Strengths of our Economy: -

Domestic savings rates have been rising and have reached 29.1 percent in 2004-05.

Inflation has been moderate despite the sharp hike in international oil prices.

As of August, 2006 our FOREX reserves were at $165.3 billion which now are $ 281.861 billion.

The combined Fiscal deficit of Central and State governments is higher than what it should be,

but has been falling and the budget Estimates for 2006-07 suggested that they come down to 7

percent.

Macro Economic Indicators

Heads Ninth Plan Tenth Plan

(1997-98 to 2001-02) (2002-03 to 2006-07)

GDP Growth (%) of which 5.5 7.2

Agriculture 2.0 1.7

Industry 4.6 8.3

Services 8.1 9.0

Gross Domestic Savings

(% of GDP, at market prices)

23.1 28.2

Gross Domestic Investment

(% of GDP, at market prices)

23.8 27.5

Current Account Balance

(% of GDP, at market price)

-0.7 0.7

Combined Fiscal Deficit of States and Centre

(% of GDP, at market price)

8.8 8.4

Foreign Exchange Reserves(US $ bn) 54.2 165.3

Rate of Inflation (based on WPI) 4.9 4.8

Notes: -

1. The growth rate for 2006-07 is as projected by Economic Advisory Council to the PM

2. Gross savings rate, gross investment rates and the current account balances are expressed in

current prices and are averages for the plan. For the Tenth plan, these are the averages of the first

three years, i.e. for the years 2002-03 to 2004-05

3. Combined fiscal deficit is the average of the plan, for the Tenth plan, it is the average of the first

four years of the plan i.e. 2002-03 to 2005-06

4. Foreign exchange reserves are as on March 29, 2002 for the Ninth plan and March 31, 2006 for

the Tenth plan.

5. The rate of inflation for the Tenth Plan is the average up to January 2006.

As a result of economic reforms implemented by successive governments over the past decade and a

half, our economy has matured in several important aspects. It is now much more integrated with world

economy and has benefited from this integration in many ways. It is important to realize, however, that

we can reap this demographic dividend only if we invest in human resource development and skill

formation in a massive way, and create productive employment for our relatively young, working

population.

Some Major Challenges: -

Agricultural Crisis: -Regaining Agricultural Dynamism: -One of the major challenge of the Eleventh

five year plan will be to reverse the deceleration in agricultural growth from 3.2 percent observed

between 1980 and 1996-97 to a trend average of 2 percent subsequently. It is vital to increase

agricultural incomes as this sector still employs nearly 60 percent of our labour force. A measure of self-

sufficiency is also critical for ensuring food security.

Changing Employment Patterns: -The inadequacy of widely dispersed and sustainable off-farm

productive employment opportunities is a basic cause of most divides and disparities. Growth without

jobs can neither be inclusive nor can it bridge divides.

Providing essential Public services to the poor: -Education is the critical factor that empowers

participation in the growth process, but our performance has been less than satisfactory, both overall as

well as in bridging gender and other divides. A major institutional challenge is that where service

providers exist, the quality of delivery is poor and those responsible for delivering the services cannot be

held accountable.

Increasing Manufacturing Competitiveness: -A major constraint in achieving faster growth in

manufacturing that needs immediate attention is the inadequacy of our physical infrastructure. Our

roads, railways, ports, airports, communication and, above all, power supply, are not comparable to the

standards prevalent in our competitor countries.

Developing Human Resources: -To continue our competitive advantage and ensure a continuous

supply of quality manpower, we need large investments in public sector institutions of higher learning.

Vocational training institutes need to be substantially expanded not only in terms of the people they train

but also in the number of different skills and trades for meeting the industry requirements, as well as

creating opportunities for self-employment.

Protecting the Environment: -The threat of climate change poses a real challenge to future

generations. Our development strategy, therefore, has to be sensitive to these concerns and should

ensure that threats and trade-offs are appropriately evaluated.

Improving rehabilitation and resettlement Practices: -To give the displaced people, especially

women, their due rights, it is necessary to frame a transparent set of policy rules that address

compensation, proper resettlement, and rehabilitation, and also give project affected people a permanent

stake in project benefits. Moreover, these rules need to be given a legal format in terms of the rights of

the displaced.

Improving governance: -Much more needs to be done by both the centre and the states to lessen the

discretionary power of government, ensure greater transparency and accountability and create awareness

among citizens.

Disparities and Divides: -Even as we address the specific challenges listed earlier, we must deal with

the perception that development has failed to bridge the divides that affect our country and may even

have sharpened some of them.

Status of some Socio Economic Indicators: -

Heads Average/All

India

Best state Worst State

Around Recent Recent Recent

1990 Year Year Year

Per capita Net National Product (Rs. Per

person at 1993-94 prices)

7321 11799 16679 3557

Consumption Poverty

Head Count Ratio (%)

36.0 27.8 5.2 46.5

Literacy (Age 7+) Male 64.1 75.3 94.2 59.7

Literacy (Age 7+) Female 39.3 53.7 87.7 33.1

Attending Elementary Schools (4-6 years) 55.3 71.1 103.1 55.8

Child Sex Ratio (0-6 years old) 945 927 975 793

(Females/1000 Males)

IMR (2003) (Per 1000 live births) 80 60 11 83

MMR (1997) (Per 1000 live births) 4

Undernourished Children: (1998-99)

Weight for age 47.0 20.6 55.7

Height for age 45.5 18.1 55.5

Weight for Height 15.5 4.8 24.3

Notes: -

1. For the years 1990-91 and 2003-04

2. The poverty estimates given are for 1993-94 and the latest estimates are based on the NSS 2004-

05 Survey, which is comparable with 1993-94

3. Calculated from the information based on Census 1991 and 2001

4. Based on SRS

5. Percentage below 2 standard deviation from the mean of an international reference population

Regional backwardness is another important issue. Differences across the states have always been a

cause of concern but there exists imbalances within the states as well. Backward districts of otherwise

well-performing states present a dismal picture of intra-state imbalance and neglect.

Objectives and targets : -

The Eleventh plan must, therefore, not only set targets for the rate of growth of GDP, but must also set

monitorable targets for other dimensions of performance, reflecting the inclusiveness of this growth. A

feasible objective is to accelerate from 8 percent growth at the end of the Tenth Plan to 10 percent by the

end of Eleventh Plan, yielding an average GDP growth rate of about 9 percent in the Eleventh Plan.

The basic objective of the Eleventh Plan must be to extend access to essential public services, such as,

health, education, clean drinking water, sanitation, and so on, to those who are deprived of them. The

Eleventh plan must ensure a substantial improvement in health indicators, such as maternal mortality,

infant mortality, total fertility rate, and malnutrition, particularly among children, and set monitorable

targets for these areas.

The eleventh plan must also pay special attention to gender equity and help create and enabling

environment for the social, economic and political empowerment of women. Protection of the

environment is extremely important for our well being, but it is even more so for future generations who

will bear the brunt of environmental degradation. The eleventh plan must aim at significant

improvements in this area.

Policies for more faster and More inclusive growth: -

Investment Requirements: - An average growth rate of 9 percent over the Eleventh plan period will

require an increase in domestic investment rates from 27.8 percent in the Tenth Plan to 35.1 percent in

the Eleventh Plan. It is particularly important to take steps to encourage entrepreneurship and expansion

among small and medium enterprises. State governments have a major role to play in this context by

improving the investment climate.

Public Investment and the Plan Size: - The Plan size will need to make provision for the addition to

the public investment, financed through budgets of the Central and the State Governments and also the

planned expansion in public services, much of which is not investment but revenue expenditure.

Policies towards Agriculture: - The objective of doubling the growth rate of agricultural GDP to 4

percent per annum is critical to ensure the inclusiveness of growth. This, however, poses major policy

challenges in the immediate future.

Promoting access to health Education: -Achieving the Eleventh plan target for health and education

requires a greatly expanded role for the state in these areas. This is because access to essential public

services, such as health, education, clean drinking water, and sanitation is not an automatic outcome of

rising incomes.

Developing Infrastructure: -The deficiencies in our roads, ports, railways, airports, electric power

system, and also various types of urban infrastructure must be overcome during the Eleventh plan period

if the industrial sector is to achieve the targeted growth of 10 percent.

Rural Infrastructure: -The development of rural infrastructure is crucial for ensuring inclusiveness and

for giving a new deal to rural areas. The Bharat Nirman Programme had made a good start in the Tenth

plan and will continue into the Eleventh plan.

Special Focus on Weaker Sections: -The eleventh plan must pay special attention to the needs and

requirements of SCs, STs, minorities, and other excluded groups to bring them at par with the rest of the

society.

Liberalisation and Planning: -India’s adoption of liberalisation came after more than six months of

negotiations with the World Bank, starting from January 1991. However, the series of reforms that were

initiated in the country did not evolve through discussion or dialogue in any forum within India. There is

no doubt that package of reforms were a conditionality imposed by the World Bank and IMF as the basis

for giving financial assistance to India to tide over the FOREX crisis. As such, the social consequences

of the reforms were not taken into consideration before their implementation. The structural adjustment

policy (SAP) of the Indian government and terms of liberalisation and deregularisation, and privatization

pose more threats than opportunities for the agriculture-based development which forms the focus of the

plans.

The efficiency of planning also comes to be seriously questioned in view of the kind of laissez fairism

that liberalisation entails. Notwithstanding its noble projections, planning in India is up against a new

adversary in liberalisation.

Monitorable Socio-Economic targets of Eleventh Plan

Income and Poverty: -

1. Create 70 mn new work opportunities.

2. Reduce educated unemployment to below 5%

3. Raise real wage rate of unskilled workers by 20%

4. Reduce the headcount ratio of consumption poverty by 10 percentage points.

Education: -

1. Reduce dropout rates of children from elementary school from 52.2 % in 2003-04 to 20% by

2011-12

2. Increase literacy rate for people age of seven years or more to 85%

3. Lower gender gap in literacy to 10 percentage points

4. Increase the percentage of each cohort going to higher education from the present 10 % to 15%

by the end of the Eleventh plan.

Health Plan: -

1. Reduce total fertility rate to 2.1

2. Provide clean drinking water for all by 2009 and ensure that there are no slip backs by the end of

the eleventh plan.

3. Reduce malnutrition among children of age group 0-3 to half its present value.

4. Reduce anaemia among women and girls by 50% by the end of Eleventh Plan.

Women and Children

1. Raise the sex ratio for age group 0-6 to 935 by 2011-12 and to 950 by 2016-17

2. Ensure that at least 33 percent of the direct and indirect beneficiaries of all government schemes

are women and girl children

3. Ensure that all children enjoy a safe childhood, without any compulsion to work

Infrastructure

1. Ensure electricity connection to all villages and BPL households by 2009 and round-the-clock

power.

2. Ensure all-weather road connection to all habitation with population 1000 and above (500 in

hilly and tribal areas) by 2009, and ensure coverage of all significant habitation by 2015

3. Connect every village by telephone by November 2007 and provide broadband connectivity to

all villages by 2012

4. Provide homestead sites to all by 2012 and step up the pace of house construction for rural poor

to cover all the poor by 2016-17

Environment

1. Increase forest and tree cover by 5 percentage points.

2. Attain WHO standards of air quality in all major cities by 2011-12.

3. Treat all urban waste water by 2011-12 to clean river waters.

4. Increase energy efficiency by 20 percentage points by 2016-17.

POPULATION POLICYIndia, being a developing country, has had to face several economic and political challenges.

One of the most important problems is the population explosion. According to

Geography.com.sg, “India's population hit 1 billion in May 2000, increasing the urgency for the

country to moderate its population growth.” Some of the reasons for this population explosion

are poverty, better medical facilities, and immigration from the neighboring countries of

Bangladesh and Nepal. The population density of India in 1996 was about 287 persons per

square kilometer (Encyclopedia Britannica, Internet). Several solutions to decrease the rate of

population increase have been tried by the government, some successful, some unsuccessful.

Although the rate of increase has decreased, the rate has not reached the satisfactory level

yet.The population in India continues to increase at an alarming rate. The effects of this

population increase are evident in the increasing poverty, unemployment, air and water pollution,

and shortage of food, health resources and educational resources.

EFFECTS OF POPULATION EXPLOSION:

The current rate of population growth in India is 1.58% and the total fertility rate is 3.11

(AskJeeves.com, Internet).Although the total fertility rate has decreased, due to the increase in

the total number of women between the ages of 15 and 44 (reproductive ages), the total number

of births has increased. This has lead to the current enormous population size of approximately 1

billion. This has greatly hampered the development of the Indian economy. The amount of

resources that could have been available to one person a few years ago now need to be shared

between two people, which is not sufficient for either of them. The population increase has lead

to air and water pollution, unemployment, poverty, lack of educational resources, and even

malnourished women and children.

1. Air Pollution:

The technological development of India has lead not only to medical advancements, but also

to an increase in the number of factories. That has lead to air and water pollution. More energy

needs to be produced to power these factories. When fossil fuels - the world's major source of

energy - are burnt, gases are added to the atmosphere. Many cities in India have crossed the

limits of suspended particulate matter, sulfur dioxide, and other pollutants due to vehicular and

industrial emissions. As the population grows, more and more forests are cleared. The two most

common reasons for deforestation are to make houses for increased number of people to live in,

and to use wood as a fuel in the industries. As a result, the trees that help us in reducing the air

pollution through the process of photosynthesis are not able to do so any more..

2. Water Pollution:

Air pollution is not the only environmental damage being done by the increasing population.

Nowadays water pollution is also one of the increasing problems due to the population

explosion. Water is considered the essence of life. There is no life without water. One might

think that 70% of the earth is covered with water, so, why worry about the water problem? In

fact, 3 sides of the Indian subcontinent is surrounded by water. And there are several rivers,

lakes, and other sources of water within the country as well. However the fact is that less than 3

percent of that water we see can be used for human consumption and industrial uses.

3. Unemployment and Illiteracy:

Suppose we forget about the environment, and only worry about ourselves. Nonetheless, with

the increasing population, even that is not possible because with the increasing number of

people, we have to share our resources with even more people. Resources of all types are limited,

even employment, especially in India. Such unemployment and underemployment leads to

corruption and exploitation of people by the richer classes of the society. This lack of resources

further leads to lack of educational resources. Due to the unavailability of resources, parents

cannot afford to educate their children to higher levels. Some parents simply cannot afford to

teach their children further, and in some families, children need to work along with their parents

in order to bring food to the table.

4. Food Resources

Resources are always limited. And in a developing and highly populous country like India,

resources are even scarcer. Population explosion results in the shortage of even the most basic

resources like food.

5. Depletion of natural resources

Especially fossil fuels

Increased levels of air pollution, water pollution, soil contamination and noise pollution.

Once a country has industrialized and become wealthy, a combination of government

regulation and technological innovation causes pollution to decline substantially, even as the

population continues to grow.

6. .Illegal (and legal) immigration

to the developed world on an unprecedented scale, creating an unprecedented demographic

and political problem in Europe and the United States. Even the controlled and legal

migration of talented and well-educated people from the Third World to the developed world

denudes it of its limited skill base.Mass species extinctions. from reduced habitat in tropical

forests due to slash-and-burn techniques that sometimes are practiced by shifting cultivators,

especially in countries with rapidly expanding rural populations; present extinction rates may

be as high as 140,000 species lost per year. The IUCN Red List lists a total of 698 animal

species having gone extinct during recorded human history.

7. High infant and child mortality

High rates of infant mortaltity are caused by poverty. Rich countries with high population

densities have low rates of infant mortality.

8. Increased incidence of hemorrhagic fevers and other infectious diseases from crowding,

lack of adequate sanitation and clean potable water, and scarcity of available medical

resources

.

9. Starvation, malnutrition] or poor diet with ill health and diet-deficiency diseases (e.g.

rickets). Famine is aggravated by poverty. Rich countries with high population densities do

not have famine.

10. Poverty coupled with inflation in some regions and a resulting low level of capital

formation. Poverty and inflation are aggravated by bad government and bad economic

policies. Many countries with high population densities have eliminated absolute poverty and

keep their inflation rates very low.

11. Unhygienic living

Unhygienic living conditions for many based upon water resource depletion, discharge of

raw sewage and solid waste disposal

12. Elevated crime rate due to drug cartels and increased theft by people stealing resources to

survive.

13. Conflict over scarce resources and crowding, leading to increased levels of warfare

14. Over-utilization of infrastructure, such as mass transit, highways, and public health

systems

CAUSES FOR AN INCREASE IN BIRTH RATE

To understand the true nature of India's population problem we must examine the causes of rapid

growth of population.

1. Early and Universal Marriage:

The practice of marriage is both a religious and social ceremony which is the potent reason of the

rapid increase in population of India.

About 80 per cent girls are married during the most fertile period of 15 to 20 years of age. But, in

sharp contrast to this early reproduction age in our country, the percentage of unmarried girl,

aged 30 in U.K. and 41 in U.S.A., is very high. Furthermore, by the age of 50 only 5 out of 1000

Indian women remain unmarried.

2. Joint Family System:

Joint family system is still prevalent in the large part of the country which supports to population

growth. Despite the fact, joint family system has started disintegrating in big cities; even then it

still is the common feature.

The joint family system induces young couples to have more children though they may not be in

a position to support them. Thus, joint family system, to a greater extent, is responsible to

increase population especially in rural areas of the country.

3. Widespread Poverty:

Another factor responsible for rapid growth of population is the widespread poverty. In; India

per capita income is very low as compared to other advanced countries.

Nearly 32 per cent of population is below the poverty line. Eva those who are not below the

poverty line are denied nutritious food and other amenities of life. Therefore, poverty is the main

factor which is responsible against the acceptability of family planning programme properly by

the poorer people.

4. Religious and Social Superstitions:

According to Hindu ideology, it is considered one's dharma to have children. In any case, they

must have a son because certain religious duties will be performed only by him and none else.

Similarly, they should also have a daughter as the giving of a daughter in marriage is also an act

high religious spirit.

In this way, such irrational attitudes are based on wrong religion and social norms laid down by

man. The birth of child is considered to be a gift of god. On account of these religious and social

superstitions there is no check on raised; population.

5. Lack of Education:

Education can go a long way to change the attitude of the people towards family, marriage and

the birth of a child. As a mass of population! Uneducated and illiterate, they cannot take keen

interest in scientific education. As a result, they will remain backward and follow old religious

superstitions.

Education, this is a way to enlighten them and raise their standard of living. In India, only 56.34

percent population is literate according to the census of 2001.

6. Pre dominance of Agriculture:

India is an agricultural country and 67 per cent of population directly or indirectly is dependent

on agriculture. This has not, much changed since 1901. In an agricultural economy, children find

work easily on farms especially during the time of harvesting and sowing seasons.

Thus, such economies has bigger families while in industrially advanced society, people prefer

small families on economic grounds. Thus agricultural economies are generally backward over-

populated and faced with the problem of disguised unemployment.

7. Low Standard of Living:

As majority of people are illiterate and backward thus their standard of living is low as compared

to their counter partners who are well educated and advanced. In backward areas, people are not

in a position to educate wards.

As soon as they are able to earn something they are married. Besides, they have no other way of

recreation and they consider it a mean of entertainment. As a consequence, there is rapid increase

in population. ,

8. Decline in Mortality Rate:

The wide gap between the birth and death rate has considerably resulted in population explosion

in the country. The death rate has declined dramatically due to control over many dreadful

diseases.

They are plague, malaria, snip pox and tuberculosis. Fortunately, these chronic diseases are no

longer a threat to the villagers. The growing awareness and facilities for sanitation and

cleanliness has helped; reduce the incidence of mortality to a larger extent.

9. Control of Famines and Floods:

During the early years of 19th century, India witnessed countless famines and floods in the

country. The Bengal Famine of 1943 had toll of lakhs. But, now these type of famines are the

talk of past only. Moreover, increased network of transportation and cooperation among different

nations has reduced impact.

During seventies and eighties some minor changes of drought occurred in the country. But in

brief, any improvement in material well-being means a reduction mortality rates.

10. Slow Process of Urbanisation:

In India, the pace of industrialization is very slow which further slows down the process of

urbanization in the country. As a result it failed to generate social forces as they are useful to

bring down the birth rate.

INDIA BIRTH RATE CONTROL PROGRAM-

1. The central government must set up a coordinator for all high growth states. The

coordinator must be appointed by the central government, but will work with state

government. District coordinators too must be appointed to prepare action plans and

continuously monitor the situation, make modifications, share ideas, success stories and

research success stories in India and abroad.

2. Monetary incentive

Monetary incentive must be given by both Central and State Governments and there must be

a uniform central policy

A hypothetical scheme would be as follows

3. Incentives for the girl child

Special incentives for the education of the girl child, for higher education etc. This is

being implemented by individual state governments but there is no central government

policy

4. Multimedia campaign to spread awareness and explain why population control is

important to the county and the region, besides the family. The importance of family

planning to the region, to the country and to natural resources must also be explained and

we have for too long vacillated between inaction and coercion

5. Catch them young: To explain the benefits. Incorporate Family planning awareness in

the SSA

6. Make family planning material available through fair price and ration shops in all

villages

7. Roping in leading personalities like film actors and religious leaders to spread the

message of family planning

8. Special package for senior citizens in NREGS. This is very important to rein in

population growth

9. Special package to corporates and other individuals who wish to contribute to family

planning initiatives

10. To encourage adult literacy programs particularly female literacy

INFLATION

Inflation is commonly understood as a situation of substantial and rapid general increase

in the level of prices and consequent deterioration in the value of money over a period of

time. The behavior of general prices is measured through price indices.

The trend of price indices reveals the course of inflation or deflation in the economy.

Generally, the wholesale price index (WPI) numbers are used to measure inflation. The

common feature of inflation is a price rise, the degree of which may be measured by price

indices. CPI or cost of living index number can be adopted in measuring the rate of

inflation.

Recognising the ambiguities our words contain, we will define inflation simply as a

persistent and appreciable rise in general level of prices.

Inflation occurs when the general level of prices and costs is rising.

Causes of Inflation

Increase in Public Expenditure: -Public expenditure may be in excess of public revenue.

This might have been made possible through public borrowings from banks or through

deficit financing, which implies an increase in money supply.

Increase in Investment: -There may be an increase in autonomous investment in firms,

which is in excess of current savings in the economy. Hence the flow of total expenditure

tends to rise, causing an excess monetary demand, leading to an upward pressure on

prices.

Increasing exports and surplus Balance of Payments: -An increasing surplus in the

balance of payments also lead to an excess demand. The increasing exports also lead to

inflationary impact because there is a generation of money income in the home economy

due to export earnings but simultaneously there is a reduction in the domestic supply of

goods because products are exported.

Diversification of Goods: -Diversion of resources from die-consumption-goods sector

either to the capital-good sector or the military sector will lead to an inflationary

pressure because while the generation of income and expenditure continues, the current

flow of the real output decreases on account of high gestation period involved in these

sectors.

Effects of Inflation

Inflation has direct socio-economic consequences. As such inflation has been taken to be

a serious social and economic problem.

Economic effects of inflation: -It is of three types: -

Effects on Production: -Keynes has suggested that a creeping inflation, or mild

inflation etc has a favorable effect on inflation when there is underutilised or

underemployed resources in the existing economy. But since the prices are rising

as the supply is not matching the demand because of underutilisation this leads to

Business men making more investments and increasing employment, output and

income increase. The tempo of economic activity increases but there is a limit to

it i.e. full employment ceiling. But the benefit effect of inflation is possible only

when inflation does not take place at too fats a rate.

The disastrous effects of Inflation in an economic system may be stated briefly as

follows: -

Maladjustments: -Inflation leads to maladjustments in production and

disrupts the working of price system which is ruinous to the entire system,

Hindrance to capital accumulation: - Capital accumulation is hindered by

uncontrolled inflation, and the savings potentiality of the community also

declines due to the diminishing purchasing power of money.

Speculation:-Due to inflation uncertainty arises in the economic system

and it leads to speculation and on making quick profits rather than on

genuine productive activityas a result.

Hoarding and Black Marketing

Distortion of Production Pattern: -Inflation changes pattern of production.

Resources are diverted from essential items to non-essential items as rich

people make their demand for luxury goods in the economy and focus on

production of essential commodities is disturbed

Creation of Sellers Market: -Sellers have command on prices because of

excessive demand in the market. Anything can be sold in such a market.

Distortions in resources allocation investments are turned towards

unproductive assets like housing, real estate, inventories, gold etc. Such

diversification of savings tend to inhibit future tendencies to grow.

Disincentive effect due to Income-tax Bracket creep

Distributional Effects: - Inflation redistributes income because prices of all factors do not

rise in the same proportion. Sine the effect of inflation on the income of different classes

of earners varies, there are serious social consequences.

Debtors and Creditors: -Generally debtors gain and creditors lose during inflation.

Debtor gains because he is repaying loan when purchasing power of money is less

then when it was borrowed. Creditor loses because he receives, in effect less in

goods and services than he would have received in times of low prices. Borrowers

who borrowed funds prior to inflation stand to gain by inflation and creditors who

lent funds lose.

Business Community: -Businesses and entrepreneurs welcome inflation as they

stand to profit by raising prices. They find that the value of then inventories and

stock of goods is rising in monetary terms. Prices are rising faster than costs of

production thereby increasing the margins hugely.

Fixed Income Groups: -Inflation hits wage earners and salaried people very hard. Since

the wages do not rise at he same rate and the same times as the general price level, the

cost of living index raises, and the real income of wage earner decreases.

Investors: -Who invest in debentures and fixed interest bearing securities etc. lose during

inflation. However investors in equities benefit because more dividend is yielded on

account of high profits made by joint-stock companies during inflation.

Farmers: -Usually gain during inflation, because they can get better prices for harvest

during inflation.

Effects on Consumption and Welfare: - Inflation implies an erosion of the consumer’s

value of money. It is a form of taxation.

In short, inflation is unfair on the distribution side of economic activity.

Other Economic Effects: -

Deterioration in savings:- as it reduces real worth of savings in the long run.

Distortion in Budget and vicious circle: -Budgetary spending for public spending

proves to be inadequate, due to rising costs caused by inflation. A vicious cycle is

developed. Deficit financing leads to inflation.

Disturbance in Planning: -Plan programmes and allocation of resources may be

greatly disturbed due to resource constraints caused by a continuous inflation and

rising factor costs.

Lowering of International competitiveness: -If inflation is higher in a country than

in other countries, its international competitiveness in foreign market is

weakened.

Distortion of exchange rate: -A high rate of inflation in a country, when

compared to rates in other countries, would lead to decrease in external value of

the currency, that is, lowering of its exchange rate in terms of foreign currencies

or key currencies such as dollar.

Irrationality of consumption: - Inflation enhances money incomes of many.

People fanatically crave for new models and new things, which is facilitated by

the consumer credit given by banks.

Measures of Inflation

Prices as Measure of inflation: - The WPI which is available on a weekly basis, continues

to be the most popular measure of headline inflation in India. There are, however, four

Consumer price index that are specific groups to customers.

WPI-General Trends: - All three major components of WPI viz, primary articles-fuel,

power light, and lubricants and manufactured products showed a decelerating in the

annual inflation during 2007-08.

The primary articles were the major drivers of inflation in 2006-07 and were also the

major contributors to the decline in inflation in Inflation in 2007-08

Wholesale prices-Primary articles: -The value of index of the food articles , however,

continued to shoe an upward trend till September 2007 and a decline thereafter in the

current FY so far, food articles with an inflation of 2.7 percent contributed 13.1 percent to

overall inflation. The y-o-y inflation in the primary articles was the highest in April 2007.

However there was a significant deceleration sincle July 2007.

Wholesale Prices-Fuel and Power: - Stable prices of petroleum products also exerted a

significant neutralising influence on the overall inflation.

Wholesale prices-Manufactured Products: -In the case of manufactured prodcuts, the

increase in prices was generally moderate. The y-o-y inflation in january 19, 2008

continued to show deceleration for many product groups within the manufacturing sector.

It has been observed generally, that for most of the products the inflation is usually high

in the first and second quarter of the year.

WPI –Essential Commodities: - About 30 commodities within the WPI have been

identified as essential commodities e.g. cereals, pulses, vegetables, dairy etc. Nearly 16 of

these 30 commodities are primary articles, 12 are manufactured products, and 2 belong to

fuel and power group.

Essential Commodities-Retail Prices: - The Department of Consumer Affairs monitors

the prices of 16 essential commodities at selected centres throughout the country.

CPI and other Price Indicators: - The commodity composition of the CPIs significantly

differ from the WPI and also across the other group specific CPIs. Because of a different

commodity composition and weights assigned to various commodities and services in the

CPIs inflation measured in terms of CPIs and WPI differ significantly over the months.

Real Estate/ Housing Price Index: -Rapid urbanisation and high economic growth

experienced by the urban centres in the last few years has resulted in an upsurge in

property values.

The authentic data on the real; estate sector in the country, that is, development of a

credible database on a market driven price trends, and price index of market segments

have, therefore, emerged as crucial elements of market development and for enhancing

the efficiency of market process.

Regional Imbalances

It means in simple terms that some states are economically advanced while some are

economically backward.

Indicators of regional imbalance: -

Net State Domestic Product as an indicator of regional imbalance:- In 1980-81 out

of total net domestic income of Rs. 110340 crore of whole country, the nine

forward states contributed 55 percent while six backward states contributed 39

percent. The planning process by helping the backward regions, made an effort to

reduce regional disparities, but the force of liberalisation and globalisation

strengthened investment in forward states much more than in backward states.

Trends in Investment and Financial assistance: -70 percent of total assistance was

received by forward states. More than two-third (69.2 %) investment proposals

concentrated in forward states, then big financial institutions like LIC, GIC, IDBI,

ICICI, UTI, GIC, IRBI and SIDBI etc disbursed 67.5 percent of total assistance to

forward states only. The reforms process favoured the forwards states in terms of

approval of investment proposals as well as financial assistance

Infrastructure Disparities: -Consumption of power per capita is an indicator of

level of energy consumption. The reform process which strengthened the market

forces within the country, coupled with globalisation, favoured the forward states

and neglected the backward states.

Regional Inequality: -There was a considerable amount of gap between the richest

and poorest states of the country. In 2002-03 the per capita NSDP of Punjab the

richest state was about 4.7 times that of the poorest state of Bihar.

Causes of Economic Backwardness and Regional Imbalances

Historically the existence of backward regions started from the British rule in India. The

British helped the development of only those areas which possessed facilities for

prosperous manufacturing and trading activities.

In the developing countries, the developed regions are generally confined to urban

centres and urban areas. This is mainly because physical geography controls the

economic growth in a greater degree in developing countries and in developed countries.

New investment, more so, in the private sector ahs a tendency to concentrate in an

already well-developed area, thus, reaping the benefit of external economies.

Nature of Development During planning Era; -Since 1951, the considerable investments

have been concentrated at a few places like Mumbai, Ahmedabad, Delhi, Kanpur,

Kolkata, bengaluru and so on, on “efficiency criteria”.

The government did make an attempt towards decentralization and development of

backward regions through public sector investment programmes in areas such as

Rourkela, Bhilai, Barauni etc and so on. But as the ancillary industries did not come up

fast enough, these areas have continued to remain backward despite the heavy investment

by the centre.

Industrial Policy:

Purpose of Industrial Policy: To achieve a socialistic pattern of society.a) By Preventing undue concentration of economic power b) By Achieving Industrial Developmentc) By Achieving economic growthd) By Reducing disparities in regional development e) By Developing heavy and capital goods industry f) By Providing opportunities for gainful employmentg) By Achieving faster economic growth and a self sustained economyh) By Achieving poverty i) By Protecting and developing a healthy small scale sector j) By updating technology and modernisation of industry

Outbreak of the world war brought on end to the policy of hostility. Forcing Government to a more Progressive policy. Forming Industrial Commission with the purpose of examining and reporting the possibilities of further Industrial Development.

The various policy resolutions made by the government for the development of Industries.

1. Industrial Policy Resolution of 1948a) Purpose was aimed at laying the foundation for India’s economic and industrial

development through such an economy which was guided by the desire for establishing a strong industrial base in India.

b) Deciding how the major interest that off ownership and effective control should always be in Indian hands.

2. Industrial Policy Resolution of 1956a) Concept of mixed economy was reognised as the basis for the national economic policy

designed in the year 1956.b) Purpose of the second Industrial Policy Resolution was to speed up the process of

industrialisation in India. c) Providing information to the users that this resolution remained the magna carte for Indian

Industry till 1991.3. Purpose of introducing a new policy statement in 1973 declaring that the state would be directly responsible for the future development of Industries.

a) Emphasis on all foreign investment proposals which were screened with new policy statement 1973

a) Special reference to technological expertise b) Export Possibilitiesc) Lastly overall effect on the balance of payment position

4. The most valuable decision relating to Industrial development through a) Industrial Policy Statement 1977b) Industrial Policy Statement 1980c) New Industrial Policy 1991

Industrial commission was setup in 1991 to report the possibilities of further Industrial Development.

The commission recommendations:a) Improved Department Organisation b) Improving Technical training and education c) Improving conditions in factories and industriesd) Providing Technical aid financial and to industries

New Industrial Policy- in operation since July 24, 1991

Objectives –1) To unshackle the Indian Economy from bureaucrats it control2) To build on gains already experienced & to correct distortion in the system3) To introduce liberalization with a view to integrate Indian economy, with world economy4) To abolish restrictions on direct foreign investment5) To free the domestic entrepreneurs from the restrictions of MRTP Act.6) To maintain a sustained growth in productivity & employment7) To achieve international competitiveness8) To utilize fully & indigenous capabilities of entrepreneurs9) To assign right areas for the public sector undertakings10) To foster R & D effort for indigenous technology11) Ensure welfare of workers & also provide facilities to enable them to deal with new technologies

12) Pursue the goal of self reliance against import

Evaluation of the New Industrial Policy:

a) Liberalisation process started in 1973 and was carried forward in 1985, 1988 and 1990.b) License raj gave way to an open economy.

c) Formidable number of MRTP and FERA restrictions were liberalised. 2. Foreign Investmenta) In order to invite foreign industries in high priority industries requiring large investments &

advanced technology, it has been decided to provide automatic approval for Direct Foreign Industries up to 51% foreign equity in such industries. The majority ownership will enable foreigners to control the working of the enterprises in which they invest.

b) Apart from F.D.I. the govt. will also encourage Foreign trading companies to assist Indian experts in export activities.

c) Beside this to get an access to world markets & also to attract F.I. & advanced technology, the govt. is to appoint a special board to negotiate with the world` s largest manufacturing & marketing firms

1) Foreign technology- automatic approval for technological agreements related to high priority industries, similar facilities are available for other industries also if such agreements do not require the expenditure of free foreign exchangeNo prior clearance will be required for the rising of foreign technicians & foreign testing of indigenously developed technologies.

2) Public sector policy- only 6 industries—defence products, atomic energy. Coal & Lignite, mineral oils, railway transport, mineral related to atomic energy. Raise the strength of those units included in list of reserved industry in priority group of those earning profits, industries earning higher profit – higher degree of mgt. autonomy. Private sector participation will be invited. Sick units- Board of industrial finance & reconstruction BIFR. Disinvest the equity shares of selected public units for bringing market discipline in their performance.

3) MRTP Act- removed, focuses on tackling the undesirable monopolic activities. Companies with assets of Rs.100 crore now can go for expansion, establishment of new undertakings, merges etc.

Strengthen the MRTP commission to stop mal practices in

monopolistic Investigation against complaints

4) Liberalisation of location policy- ensures decentralization of industrial activities. No industrial approval from center in location other than cities of more than 1 million-population except subject to compulsory license will be located outside 25Km away periphery.Agro based industries near the farming areas. Small & rural industries in small towns or villages.

5) Abolition of phased manufacturing programmes6) Convertibility clause- 5 crores investment through banks so 20% convert of their loans into

equity. It is abolished.

Policy for the small-scale sector- raised investment limit 2 to 5 lacs. In plant & machinery limit 60 lacs, export oriented 75 lacs, simplification of regulations, inclusion of industry related services & business enterprises irrespective their locations as small scale industries, single window loan scheme up to 20 lacs, special monetary agency for credit needs. A technological development cell, an export development centre, greater incentives to

handloom & handicraft, equity participation from medium & large industries. Integrated infrastructure development scheme marketing through cooperative/ public sector institutions, other specialized agency/ professionals. Suitable legislation for prompt payment ensures to small scale.

Foreign Exchange Management Act

FERA 1973 which applies to all citizens:

Its main objectives which consolidates and amends the law regulating certain payments, dealings in foreign exchange and securities

FERA was changed to FEMA

The reasons of changing FERA to FEMAa) Acute Shortage of Foreign Exchange

b) Under FERA foreign exchange law violators were treated as criminals and dealt with sternly

c) Problems faced by FERA with initiated economic reforms

FEMA 1999 laid emphasis on exchange regulation and exchange control Act consolidates and amends:

a) Law relating to foreign exchange b) Facilitating external trade and payments c) Promoting the development of foreign exchange market in India

Major provisions of FEMA bill for replace of FERA in August 1998

1) Main objective of FEMA is to facilitate external trade & payments to promote orderly development & maintenance of foreign exchange market in India.

2) Act shall extend to whole of India & it shall also apply to all branches, offices & agencies outside India own or controlled by a person resident in India.

3) No person shall deal in or transfer any foreign exchange or foreign security to any person not being an authorized person except as otherwise provided in the act.

4) No person resident in India shall acquire, hold, own, possess or transfer any foreign exchange, foreign security, or any immovable property situated outside India, except as otherwise provided in the act.

5) Any person may sell or draw foreign exchange to or from an authorized person in a current a/c transaction, subject to any restrictions that may be imposed by central govt.

6) The RBI may in consultation with the central govt. specify any class or classes of capital a/c transactions, which are permissible, & the limit up to which foreign exchange shall be admissible for such transactions.

7) The RBI will be empowered, subject to certain conditions to prohibit, restrict or regulate the following-

A. Transfer or issue of any foreign security by a person resident in India.B. Transfer or issue of any security by a person resident outside in India.C. Transfer of issue of any security or foreign security by any branch, office or agency in

India of a person resident outside India.D. Any borrowing or lending in foreign exchange in whatever form or by whatever name

calledE. Any borrowing or lending in Rs. In whatever form or by whatever name called between a

person resident in India & a person resident outside India.F. Deposits between persons resident in India & persons resident outside India.G. Export, import or holding of currency or currency notesH. Transfer of immovable property outside India, other than a lease not exceeding 5 years

by a person resident in IndiaI. Acquisition or transfer of immovable property in India, other than a lease not exceeding 5

years by a person resident outside IndiaJ. Giving of a guarantee or security in respect of any debt, obligate on or other liability

incurredK. By a person resident in India & owed to a person resident outside India or L. By a person resident outside India.8) Any person resident outside India may hold, own, transfer or invest in Indian currency,

security, or any immovable property situated outside India powered the currency, security or property was resident required, owned or held by such person when he was resident in India or inherited from a person when he was resident in India

9) The RBI may regulate, restrict or prohibit establishment in India of a branch, office or other place of business by a person resident outside India for any business or related activity.

10) Every exporter of goods shall furnish to the RBI all details regarding the export as specified by the RBI

11) For ensuring that the proper & timely payment in respect of the export is received, the RBI may direct any exporter to comply with such requirements as it deemed fit.

12) Where any amount of foreign exchange has acquired or is due to any person resident in India he shall take all the reasonable steps to realise & repatriate to India the foreign exchange within the time & manner specified by the RBI, save certain exceptions.

13) For enforcement of the regulations & for dealing with cases of violation of the provision of the act, there shall be adjudicating authorities and an Appellate tribunal for foreign exchange to hear appeals against the orders of the Adjudicating authorities.