Saksham Katyal Classes

Indian Economy
Development

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 Contents
CHAPTER 1: INDIAN ECONOMY ON THE EVE OF INDEPENDENCE…………………………………………………………………………………………… 1

CHAPTER 2 : INDIAN ECONOMY 1950-1990…………………………………………………………………………………………………………………………………….. 5

CHAPTER 3 : LIBERALISATION, PRIVATISATION AND GLOBALISATION : AN APPRAISAL…………………………………………. 11

CHAPTER 4 : POVERTY……………………………………………………………………………………………………………………………………………………………………………… 17

CHAPTER 5 : HUMAN CAPITAL FORMATION IN INDIA……………………………………………………………………………………………………………… 24

CHAPTER 6 : RURAL DEVELOPMENT…………………………………………………………………………………………………………………………………………………… 30

CHAPTER 7 : EMPLOYMENT: GROWTH, INFORMALISATION AND OTHER ISSUES…………………………………………………………. 36

CHAPTER 8 : INFRASTRUCTURE…………………………………………………………………………………………………………………………………………………………. 41

CHAPTER 9 : ENVIRONMENT AND SUSTAINABLE DEVELOPMENT……………………………………………………………………………………….. 48

CHAPTER 10 : COMPARATIVE DEVELOPMENT EXPERIENCES OF 181 INDIA AND ITS NEIGHBOURS………………………… 52

 1.1 INTRODUCTION 4. Focus of the economic policies pursued 2. Despite being the occupation of such a
by the colonial government in India: large population, the agricultural sector
1. The structure of India’s present-day The economic policies pursued by the colonial continued to experience stagnation and, not
infrequently, unusual deterioration.
Ch-1 Indian Economy on the Eve of Independence

economy is not just of current making; government in India were concerned more with
2. It has its roots steeped in history, the protection and promotion of the economic
particularly in the period when India was under interests of their home country than with the Main causes of India’s agricultural
British rule which lasted for almost two development of the Indian economy. stagnation during the colonial period:
centuries before India finally won its
independence on 15 August 1947. Impacts of these policies: Fundamental 1. Land Settlement System:
3. The sole purpose of the British colonial rule change in the structure of the Indian economy. a. Under the Zamindari system which was
in India was to reduce the country to being a 1. Transforming the country into supplier of implemented in the then Bengal Presidency,
raw material supplier for Great Britain’s own raw materials the profit accruing out of the agriculture
rapidly expanding modern industrial base. 2. Consumer of finished industrial products sector went to the zamindars instead of the
from Britain. cultivators.
1.2 LOW LEVEL OF ECONOMIC b. The main interest of the zamindars was only
5. The colonial government never made any to collect rent regardless of the economic
DEVELOPMENT UNDER THE
sincere attempt to estimate India’s national condition of the cultivators; this caused
COLONIAL RULE
and per capita income. immense misery and social tension.
Some individual attempts which were made by c. The terms of the revenue settlement were
1. India had an independent economy before
Dadabhai Naoroji, William Digby, Findlay also responsible as dates for depositing
the arrival of the British rule.
Shirras, V.K.R.V. Rao and R.C. Desai. V.K.R.V. specified sums of revenue were fixed, failing
2. Agriculture was the main source of
Rao estimation was significant. which the zamindars were to lose their rights.
livelihood for most people.
3. India was particularly well known for its
6. The country‘s growth of aggregate real 2. Commercialisation of Agriculture:
handicraft industries in the fields of cotton
output during the first half of the twentieth Instead of producing food crops, now they
and silk textiles, metal and precious stone
century was less than 2% coupled with a were producing cash crops which were to be
works etc. because of the fine quality of
meager ½% growth in per capita output per ultimately used by British industries back
material used and the high standards of
year. home.
craftsmanship seen in all imports from India.

1.3 AGRICULTURAL SECTOR 3. Lack of Resources:

Additional Point:
India’s agriculture was starved of investment
‘Daccai Muslin’ of Bengal had gained worldwide
1. About 85% of the country’s population lived in terracing, flood-control, drainage and
fame as an exquisite type of cotton textile.
mostly in villages and derived livelihood directly desalinisation of soil. A large section of
The finest variety was called malmal. It was
or indirectly from agriculture. tenants, small farmers and sharecroppers
also known as as malmal shahi or malmal khas
neither had resources and technology nor had
implying that it was worn by, or fit for, the
incentive to invest in agriculture.
royalty.
1
Low levels of technology, lack of irrigation of cotton and jute textile mills. 1.5 FOREIGN TRADE
facilities and negligible use of fertilisers
contributed to the dismal level of agricultural 5. The cotton textile mills, mainly dominated by 1. The restrictive policies of commodity
productivity. Indians, were located in the western parts of production, trade and tariff pursued by the
the country, namely, Maharashtra and Gujarat. colonial government adversely affected the
1.4 INDUSTRIAL SECTOR 6. The jute mills dominated by the foreigners structure, composition and volume of India’s
were mainly concentrated in Bengal. foreign trade.
1. India could not develop a sound industrial
base under the colonial rule. Even as the 7. The iron and steel industries began coming up 2. India became an exporter of primary products
country’s world famous handicraft industries in the beginning of the 20th century. The Tata such as raw silk, cotton, wool, sugar, indigo, jute
declined, no corresponding modern industrial Iron and Steel Company (TISCO) was etc. and an importer of finished consumer goods
base was allowed to come up to take pride of incorporated in 1907. like cotton, silk and woollen clothes and capital
place so long enjoyed by the former. 8. A few other industries in the fields of sugar, goods like light machinery produced in the
cement, paper etc. came up after the Second factories of Britain.
2. Policy of Systematically Deindustrialising World War.
India: There were two motives: 3. Britain maintained a monopoly control over
a. To reduce India to the status of a mere 9. There was no substitute to the near wholesale India’s exports and imports.
exporter of important raw materials for the displacement of the country’s traditional More than half of India’s foreign trade was
upcoming modern industries in Britain. handicraft industries. restricted to Britain while the rest was allowed
b.To turn India into a sprawling market for the 10. The growth rate of the new industrial sector with a few other countries like China, Ceylon (Sri
finished products of those industries so that and its contribution to the Gross Domestic Lanka) and Persia (Iran).
their continued expansion could be ensured to Product (GDP) remained very small. The opening of the Suez Canal in 1869 further
the maximum advantage of their home country intensified British control over India’s foreign
- Britain. 11. The new industrial sector was the very trade as it reduces the cost of transportation.
limited area of operation of the public sector.
3. Decline of the indigenous handicraft This sector remained confined only to the 4. India’s foreign trade throughout the colonial
industries created not only massive railways, power generation, communications, period was generating large export surplus.
unemployment but also created a new demand ports and some other departmental But it came at a huge cost to the country’s
of locally made goods. This demand was met by undertakings. economy. Several essential commodities - food
the increasing imports of cheap manufactured grains, clothes, kerosene etc. - were scarcely
goods from Britain. Capital Goods Industry: It means industries available in the domestic market. Also, export
which can produce machine tools which are, in surplus did not result in any flow of gold or silver
4. During the second half of the 19th century, turn, used for producing articles for current into India.
modern industry began to take root in India but consumption.
its progress remained very slow. This
development was confined to the setting up
2
Factors which led to the drain of Indian 3. The overall mortality rate was very high. 1. Under the colonial regime, basic
wealth: The infant mortality rate was quite alarming— infrastructure such as railways, ports, water
1. Make payments for the expenses incurred about 218 per 1000 in contrast to the present transport, posts and telegraphs did develop.
by an office set up by the colonial infant mortality rate of 40 per 1000. However, the real motive behind this
government in Britain. 4. Life expectancy was also very low—44 years in development was not to provide basic amenities
2. Expenses on war, again fought by the contrast to the present 68 years. to the people but to sub serve various colonial
British government. 5. Extensive poverty prevailed in India during the interests.
3. The import of invisible items. colonial period which contributed to the worsening
profile of India’s population of the time. 2. The roads that were built primarily served
1.6 DEMOGRAPHIC CONDITION the purposes of mobilising the army within India
1.7 OCCUPATIONAL STRUCTURE and drawing out raw materials from the
countryside to the nearest railway station or the
1. Various details about the population of
Occupational Structure: It means distribution port to send these far away England or other
British India were first collected through a
of working persons across different industries lucrative foreign destinations.
census in 1881. It revealed the unevenness in
India’s population growth. and sectors.
There always remained an acute shortage of all-
2. Every ten years such census operations Agricultural Sector: 70-75 %
weather roads to reach out to the rural areas
were carried out. Before 1921, India was in Manufacturing Sector: 10%
during the rainy season. Naturally, therefore,
the first stage of demographic transition. Service Sector: 15-20%
people mostly living in these areas suffered
The second stage of transition began after
grievously during natural calamities and famines.
1921. However, neither the total population Regional Variation:
of India nor the rate of population growth at
3. The British introduced the railways in India in
this stage was very high. 1. Parts of the then Madras Presidency
1850 and it is considered as one of their most
(comprising areas of the present-day states of
important contributions.
Social Development Indicators: Tamil Nadu, Andhra Pradesh, Kerala and
Karnataka), Bombay and Bengal witnessed a
The railways affected the structure of the
1. The overall literacy level was less than 16 decline in the dependence of the workforce on
Indian economy in two important ways.
%. Out of this, the female literacy level was the agricultural sector with a commensurate
On the one hand it enabled people to undertake
at a negligible low of about 7%. increase in the manufacturing and the services
long distance travel and thereby break
2. Public health facilities were either sectors.
geographical and cultural barriers.
unavailable to large chunks of population or, 2. There had been an increase in the share of
On the other hand, it fostered
when available, were highly inadequate. workforce in agriculture during the same time in
commercialisation of Indian agriculture which
Consequently, water and air-borne diseases states such as Orissa, Rajasthan and Punjab.
adversely affected the self-sufficiency of the
were rampant and took a huge toll on life.
village economies in India.
1.8 INFRASTRUCTURE

3
The volume of India’s exports undoubtedly
expanded but its benefits rarely accrued to
the Indian people.
The social benefits, which the Indian people
gained owing to the introduction of the
railways, were thus outweighed by the
country’s huge economic loss.

4. The colonial dispensation also took measures

for developing the inland trade and sea lanes.
However, these measures were far from
satisfactory. The inland waterways, at times,
also proved uneconomical as in the case of the
Coast Canal on the Orissa coast.

Though the canal was built at a huge cost to

the government exchequer, yet, it failed to
compete with the railways, which soon
traversed the region running parallel to the
canal, and had to be ultimately abandoned.

5. The introduction of the expensive system

of electric telegraph in India, similarly, served
the purpose of maintaining law and order. The
postal services, on the other hand, despite
serving a useful public purpose, remained all
through inadequate.

4
 2.1 INTRODUCTION The ‘Industrial Policy Resolution’ of 1948 and 3. A good indicator of economic growth, in the
the Directive Principles of the Indian language of economics, is steady increase in
On 15 August 1947, India woke to a new dawn Constitution reflected this outlook. the Gross Domestic Product (GDP). The GDP is
of freedom. The leaders of independent In 1950, the Planning Commission was set up the market value of all the goods and services
India had to decide among other things, the with the Prime Minister as its Chairperson. produced in the country during a year.
type of economic system most suitable for
our nation, a system which would promote the 2.2 THE GOALS OF FIVE YEAR 4. The GDP of a country is derived from the
welfare of all rather than a few. PLANS different sectors of the economy, namely the
Plan: A plan spells out how the resources of a agricultural sector, the industrial sector and
Types of Economic Systems nation should be put to use. It should have the service sector. The contribution made by
some general goals as well as specific each of these sectors makes up the structural
Socialist Economy: It is an economic system objectives which are to be achieved within a composition of the economy.
in which all economic decisions are taken by specified period of time.
government according to the needs of the B. Modernisation:
Ch-2 Indian Economy 1950-1990

society. A plan should have some clearly specified goals. 1. Adoption of new technology is called
Capitalist Economy: It is an economic system This does not mean that all the plans have modernisation.
in which all the economics decisions taken by given equal importance to all these goals. Due
the market forces of demand and supply. to limited resources, a choice has to be made 2. Modernisation does not refer only to the
Mixed Economy: It is an economic system in in each plan about which of the goals is to be use of new technology but also to changes in
which both public and private sector exist given primary importance. social outlook such as the recognition that
side by side. The market will provide women should have the same rights as men.
whatever goods and services it can produce Note: Perspective plan is a long term plan
well, and the government will provide 3. A modern society makes use of the talents
which specifies what is to be achieved over a
essential goods and services which the of women in the work place - in banks,
period of twenty years.
market fails to do. factories, schools etc. and such a society in
most occasions is also prosperous.
The goals of the five year plans are:
Jawaharlal Nehru and many other leaders A. Growth:
decided to choose Mixed Economy. C. Self-reliance:
1. It refers to increase in the country’s
capacity to produce the output of goods and
India would be a socialist society with a 1. A nation can promote economic growth and
services within the country.
strong public sector but also with private modernisation by using its own resources or by
property and democracy; the government using resources imported from other nations.
2. It implies either a larger stock of
would plan for the economy with the private productive capital, or a larger size of
sector being encouraged to be part of the 2. Self-reliance means avoiding imports of
supporting services like transport and banking,
plan effort. those goods which could be produced in India
or an increase in the efficiency of productive
itself.
capital and services.
5
3. It was feared that dependence on imported A. Land Reforms: a. In some areas the former zamindars continued
food supplies, foreign technology and foreign to own large areas of land by making use of some
capital may make India’s sovereignty Need for Land Reforms: At the time of loopholes in the legislation;
vulnerable to foreign interference in our independence, the land tenure system was b. There were cases where tenants were evicted
policies. characterised by intermediaries (variously and the landowners claimed to be self-cultivators
called zamindars, jagirdars etc.) who merely (the actual tillers), claiming ownership of the land;
D. Equity: collected rent from the actual tillers of the and
1. A country can have high growth, the most soil without contributing towards c. Even when the tillers got ownership of land, the
modern technology developed in the country improvements on the farm. The low poorest of the agricultural labourers (such as
itself, and also have most of its people living in productivity of the agricultural sector forced sharecroppers and landless labourers) did not
poverty. India to import food from the USA. benefit from land reforms.
So, in addition to growth, modernisation and
self-reliance, equity is also important. Types of Land Reforms: 2. Land ceiling was another policy to promote
equity in the agricultural sector. This means fixing
2. It is important to ensure that the benefits 1. Equity in agriculture called for land reforms the maximum size of land which could be owned by
of economic prosperity reach the poor which primarily refer to change in the an individual.
sections as well instead of being enjoyed only ownership of landholdings. Just after The purpose of land ceiling was to reduce the
by the rich. independence, steps were taken to abolish concentration of land ownership in a few hands.
intermediaries and to make the tillers the
3. Every Indian should be able to meet his or owners of land. Positive Effect: Land reforms were successful in
her basic needs such as food, a decent house, The idea behind this move was that ownership Kerala and West Bengal because these states had
education and health care and inequality in the of land would give incentives to the tillers to governments committed to the policy of land to
distribution of wealth should be reduced. invest in making improvements provided the tiller.
sufficient capital was made available to them.
2.3 AGRICULTURE Problems/Limitation: The land ceiling legislation
Positive Effect: also faced hurdles.
a. The abolition of intermediaries meant that a. The big landlords challenged the legislation in
During the colonial rule there was neither
some 200 lakh tenants came into direct the courts, delaying its implementation.
growth nor equity in the agricultural sector.
contact with the government — they were thus b. They used this delay to register their lands in
freed from being exploited by the zamindars. the name of close relatives, thereby escaping
The policy makers of independent India had to
b. The ownership conferred on tenants gave from the legislation.
address these issues which they did through:
them the incentive to increase output and this c. The legislation also had a lot of loopholes which
1. Land reforms and
contributed to growth in agriculture. were exploited by the big landholders to retain
2. Promoting the use of ‘High Yielding Variety’
their land.
(HYV) seeds which ushered in a revolution in
Problems/Limitation: The goal of equity was d. Unfortunately other states did not have the
Indian agriculture.
not fully served by abolition of intermediaries. same level of commitment and vast inequality in
landholding continues to this day.
6
B. The Green Revolution: 1st phase of the green revolution (mid 1960s 1. A good proportion of the rice and wheat
upto mid 1970s): The use of HYV seeds was produced during the green revolution period
Need for Green Revolution: restricted to the more affluent states such as (available as marketed surplus) was sold by the
1. At independence, about 75 % of the Punjab, Andhra Pradesh and Tamil Nadu. farmers in the market. As a result, the price of
country’s population was dependent on Further, the use of HYV seeds primarily food grains declined relative to other items of
agriculture. benefited the wheat growing regions only. consumption.
2. Productivity in the agricultural sector was
very low because of the use of old technology 2nd phase of the green revolution 2. The low income groups, who spend a large
and the absence of required infrastructure for (mid-1970s to mid-1980s): The HYV percentage of their income on food, benefited
the vast majority of farmers. technology spread to a larger number of states from this decline in relative prices.
3. India’s agriculture vitally depends on the and benefited more variety of crops.
monsoon and if the monsoon fell short the The spread of green revolution technology 3. The green revolution enabled the government
farmers were in trouble unless they had access enabled India to achieve self-sufficiency in to procure sufficient amount of food grains to
to irrigation facilities which very few had. food grains; we no longer had to be at the build a stock which could be used in times of
mercy of America, or any other nation, for food shortage.
The stagnation in agriculture during the meeting our nation’s food requirements.
colonial rule was permanently broken by the Risks under Green Revolution: While the
green revolution. Growth in agricultural output is important but it nation had immensely benefited from the green
is not enough. revolution, the technology involved was not free
Green Revolution refers to the large increase from risks.
in production of food grains resulting from the If a large proportion of this increase is 1. It would increase the disparities between
use of high yielding variety (HYV) seeds consumed by the farmers themselves instead of small and big farmers - since only the big
especially for wheat and rice. being sold in the market, the higher output will farmers could afford the required inputs,
not make much of a difference to the economy thereby reaping most of the benefits of the
The use of these seeds required the use of as a whole. green revolution.
fertiliser and pesticide in the correct
quantities as well as regular supply of water; If a substantial amount of agricultural produce 2. The HYV crops were also more prone to
the application of these inputs in correct is sold in the market by the farmers, the higher attack by pests and the small farmers who
proportions is vital. output can make a difference to the economy. adopted this technology could lose everything in
a pest attack.
The farmers who could benefit from HYV Marketed Surplus: The portion of agricultural
seeds required reliable irrigation facilities as produce which is sold in the market by the Government’s role in reducing risks:
well as the financial resources to purchase farmers is called marketed surplus. 1. The government provided loans at a low
fertiliser and pesticide. interest rate to small farmers and subsidised
Benefits of Green Revolution: fertilisers so that small farmers could also have
access to the needed inputs.
7
Since the small farmers could obtain the Therefore, it is argued that there is no case 3. The proportion of GDP contributed by
required inputs, the output on small farms for continuing with fertiliser subsidies; it does agriculture as well as the proportion of
equalled the output on large farms in the not benefit the target group and it is a huge population working in the sector declines
course of time. As a result, the green burden on the government’s finances. considerably. In India, between 1950 and 1990,
revolution benefited the small as well as rich the proportion of GDP contributed by
farmers. agriculture declined significantly but not the
In Favour of Subsidies: population depending on it (67.5 per cent in
2. The risk of the small farmers being ruined 1. Some believe that the government should 1950 to 64.9 per cent by 1990).
when pests attack their crops was considerably continue with agricultural subsidies because
reduced by the services rendered by research farming in India continues to be a risky Why was such a large proportion of the
institutes established by the government. business. population engaged in agriculture although
2. Most farmers are very poor and they will agricultural output could have grown with
not be able to afford the required inputs much less people working in the sector?
C. The Debate Over Subsidies:
without subsidies. The answer is that the industrial sector and
3. Eliminating subsidies will increase the the service sector did not absorb the people
It was necessary to use subsidies to provide an
inequality between rich and poor farmers and working in the agricultural sector. Many
incentive for adoption of the new HYV
violate the goal of equity. economists call this an important failure of our
technology by farmers in general and small
farmers in particular. policies followed during 1950-1990
These experts argue that if subsidies are
Any new technology will be looked upon as
largely benefiting the fertiliser industry and 2.4 INDUSTRY AND TRADE
being risky by farmers. Subsidies were,
big farmers, the correct policy is not to
therefore, needed to encourage farmers to
abolish subsidies but to take steps to ensure Industry provides employment which is more
test the new technology.
that only the poor farmers enjoy the benefits. stable than the employment in agriculture; it
promotes modernisation and overall prosperity.
Against Subsidies:
1. Some economists believe that once the Critical Appraisal: A. Public and Private Sectors in Indian
technology is found profitable and is widely
Industrial Development:
adopted, subsidies be phased out since their 1. By the late 1960s, Indian agricultural
purpose has been served. productivity had increased sufficiently to Why government had to play an extensive role
enable the country to be self-sufficient in in promoting the industrial sector?
2. Further, subsidies are meant to benefit the food grains.
farmers but a substantial amount of fertiliser
1. At the time of independence, Indian
subsidy also benefits the fertiliser industry; 2. On the negative side, 65 % of the country’s industrialists did not have the capital to
and among farmers, the subsidy largely population continued to be employed in undertake investment in industrial ventures
benefits the farmers in the more prosperous agriculture even as late as 1990. required for the development of our economy;
regions.

8
2. Nor was the market big enough to encourage Industrial Licensing: Although there was a This limit has changed over a period of time. In
industrialists to undertake major projects category of industries left to the private 1950 a small-scale industrial unit was one which
even if they had the capital to do so. sector, the sector was kept under state invested a maximum of rupees five lakh; at
control through a system of licenses. present the maximum investment allowed is
In addition, the decision to develop the Indian rupees one crore.
economy on socialist lines led to the policy of 1. No new industry was allowed unless a license
the state controlling the commanding heights was obtained from the government. Employment Generation: Small-scale industries
of the economy, as the Second Five Year plan are more ‘labour intensive’ i.e., they use more
put it. 2. It was easier to obtain a license if the labour than the large-scale industries and,
This meant that the state would have complete industrial unit was established in an therefore, generate more employment.
control of those industries that were vital for economically backward area. In addition, such
the economy. The policies of the private sector units were given certain concessions such as Steps taken by government to promote SSIs:
would have to be complimentary to those of tax benefits and electricity at a lower tariff.
the public sector, with the public sector The purpose of this policy was to promote 1. Protection from Big Industries: But these
leading the way. regional equality. industries cannot compete with the big
industrial firms; it is obvious that development
B. Industrial Policy Resolution 1956 (IPR 3. Even an existing industry had to obtain a of small-scale industry requires them to be
1956): license for expanding output or for diversifying shielded from the large firms. For this purpose,
This resolution formed the basis of the production (producing a new variety of goods). the production of a number of products was
Second Five Year Plan, the plan which tried to This was meant to ensure that the quantity of reserved for the small-scale industry; the
build the basis for a socialist pattern of goods produced was not more than what the criterion of reservation being the ability of
society. economy required. License to expand these units to manufacture the goods.
production was given only if the government
Classification of IPR 1956: was convinced that the economy required a 2. Benefits/Concessions: They were also given
larger quantity of goods. concessions such as lower excise duty and bank
This resolution classified industries into three loans at lower interest rates.
categories. C. Small-Scale Industry:
1. Industries which would be exclusively owned In 1955, the Village and Small-Scale Industries 2.5 TRADE POLICY: IMPORT
by the state (Schedule A) Committee, also called the Karve Committee, SUBSTITUTION
2. Industries in which the private sector could noted the possibility of using small-scale
supplement the efforts of the state sector, industries for promoting rural development. The industrial policy that we adopted was
with the state taking the sole responsibility closely related to the trade policy.
for starting new units (Schedule B); A ‘small-scale industry’ is defined with
In the first seven plans, trade was
3. Remaining industries which were to be in the reference to the maximum investment
characterised by what is commonly called an
private sector (Schedule C). allowed on the assets of a unit.
inward looking trade strategy.
9
This strategy is called import substitution. Effect of Policies on Industrial Development: This does not mean that private firms are
This policy aimed at replacing or substituting always profitable (indeed, quite a few of the
imports with domestic production. For 1. The proportion of GDP contributed by the public sector firms were originally private
example, instead of importing vehicles made in industrial sector increased in the period from firms which were on the verge of closure due
a foreign country, industries would be 11.8 % in 1950-51 to 24.6 % in 1990-91. to losses; they were then nationalised to
encouraged to produce them in India itself. The rise in the industry’s share of GDP is an protect the jobs of the workers). However, a
important indicator of development. The 6% loss-making private firm will not waste
In this policy the government protected the annual growth rate of the industrial sector resources by being kept running despite the
domestic industries from foreign competition. during the period is commendable. losses.
Protection from imports took two forms: 2. No longer was Indian industry restricted
1. Tariffs are a tax on imported goods; they largely to cotton textiles and jute; in fact, the Licensing Policy:
make imported goods more expensive and industrial sector became well diversified by 1. The need to obtain a license to start an
discourage their use. 1990, largely due to the public sector. industry was misused by industrial houses; a
2. Quotas specify the quantity of goods big industrialist would get a license not for
which can be imported. 3. The promotion of small-scale industries gave starting a new firm but to prevent competitors
opportunities to those people who did not have from starting new firms.
The effect of tariffs and quotas is that they the capital to start large firms to get into 2. The excessive regulation of what came to be
restrict imports and, therefore, protect the business. called the permit license raj prevented certain
domestic firms from foreign competition. 4. Protection from foreign competition enabled firms from becoming more efficient.
the development of indigenous industries in the 3. More time was spent by industrialists in
Why Import Substitution or Reasons to areas of electronics and automobile sectors trying to obtain a license or lobby with the
protect domestic industries: which otherwise could not have developed. concerned ministries rather than on thinking
about how to improve their products.
1. Industries of developing countries are not 5. State enterprises continued to produce
in a position to compete against the goods certain goods and services (often monopolising Criticism on Protection from foreign
produced by more developed economies. them) although this was no longer required. competition:
6. After four decades of Planned development
2. It is assumed that if the domestic of Indian Economy no distinction was made 1. Due to restrictions on imports, the Indian
industries are protected they will learn to between (i) what the public sector alone can do consumers had to purchase whatever the
compete in the course of time. and (ii) what the private sector can also do. Indian producers produced.
2. The producers were aware that they had a
3. The possibility of foreign exchange being Many public sector firms incurred huge losses captive market; so they had no incentive to
spent on import of luxury goods if no but continued to function because it is difficult improve the quality of their goods.
restrictions were placed on imports. There to close a government undertaking even if it is a 3. Competition from imports forces our
was not any serious thought given to promote drain on the nation’s limited resources. producers to be more efficient.
exports until the mid-1980s.
10
 3.1 INTRODUCTION 4. The continued spending on development India approached the International Bank for
programmes of the government did not Reconstruction and Development (IBRD),
Why were reforms introduced in India? generate additional revenue. popularly known as World Bank and the
Ch-3 Liberalisation, Privatisation and Globalisation

5. The government was not able to generate International Monetary Fund (IMF), and
1. Variety of rules and laws, which were sufficiently from internal sources such as received $7 billion as loan to manage the crisis.
aimed at controlling and regulating the taxation.
economy, ended up instead in hampering the 6. Government was spending a large share of Conditions by World Bank and IMF:
process of growth and development. its income on areas which do not provide 1. Liberalise and open up the economy by
2. In 1991, India met with an economic immediate returns such as the social sector removing restrictions on the private sector.
crisis relating to its external debt — the and defence, there was a need to utilise the 2. Reduce the role of the government in many
government was not able to make rest of its revenue in a highly efficient areas.
repayments on its borrowings from abroad. manner. 3. Remove trade restrictions between India
3. Foreign exchange reserves, which we 7. The income from public sector undertakings and other countries.
generally maintain to import petrol and was also not very high to meet the growing
other important items, dropped to levels expenditure. India agreed to the conditions and announced
that were not sufficient for even a 8. Foreign exchange, borrowed from other the New Economic Policy (NEP).
fortnight. countries and international financial The thrust of the policies was towards
4. Rising prices of essential goods. institutions, was spent on meeting consumption creating a more competitive environment in the
needs. economy and removing the barriers to entry
9. In the late 1980s, government expenditure and growth of firms.
began to exceed its revenue by such large
3.2 BACKGROUND
margins that meeting the expenditure through New Economic Policies can broadly be
borrowings became unsustainable. classified into two groups:
1. Financial crisis can be traced from the
10. Prices of many essential goods rose sharply.
inefficient management of the Indian
11. Imports grew at a very high rate without A. Stabilisation measures are short-term
economy in the 1980s.
matching growth of exports. measures intended to correct some of the
2. When expenditure is more than income,
12. Foreign exchange reserves declined to a weaknesses that have developed in the balance
the government borrows to finance the
: An Appraisal

level that was not adequate to finance imports of payments and to bring inflation under
deficit from banks and also from people
for more than two weeks. control.
within the country and from international
13. No country or international funder was B. Structural reform measures are long-term
financial institutions.
willing to lend to India. There was also not measures, aimed at improving the efficiency of
3. Development policies required that even
sufficient foreign exchange to pay the the economy and increasing its international
though the revenues were very low, the
interest that needs to be paid to international competitiveness by removing the rigidities in
government had to overshoot its revenue to
lenders. various segments of the Indian economy.
meet challenges like unemployment, poverty
14. Not sufficient attention was given to boost
and population explosion.
exports to pay for the growing imports.
11
3.3 LIBERALISATION (iii) Many goods produced by small-scale Tax Reforms:
industries have now been deserved. Tax reforms are concerned with the reforms in
Liberalisation was introduced to put an end to (iv) In many industries, the market has been the government’s taxation and public expenditure
these restrictions and open various sectors of allowed to determine the prices. policies, which are collectively known as its fiscal
the economy. policy.
Since reform policies initiated in 1991 were B. Financial Sector Reforms:
more comprehensive, few liberalisation There are two types of taxes: direct and indirect.
measures were introduced in 1980s in areas of 1. Financial sector includes financial
industrial licensing, export-import policy, institutions, such as commercial banks, Direct taxes consist of taxes on incomes of
technology upgradation, fiscal policy and investment banks, stock exchange operations individuals, as well as, profits of business
foreign investment, and foreign exchange market. enterprises.
2. The financial sector in India is regulated by There has been a continuous reduction in the
A. Deregulation of Industrial Sector: the Reserve Bank of India (RBI). taxes on individual incomes as it was felt that high
Regulatory mechanisms were enforced in 3. The RBI decides the amount of money that rates of income tax were an important reason for
various ways: the banks can keep with themselves, fixes tax evasion.
(i) Industrial licensing under which every interest rates, nature of lending to various The rate of corporation tax, which was very high
entrepreneur had to get permission from sectors, etc. earlier, has been gradually reduced.
government officials to start a firm, close a
firm or decide the amount of goods that could After 1991 Indirect taxes are taxes levied on commodities, in
be produced 1. To reduce the role of RBI from regulator to order to facilitate the establishment of a common
(ii) Private sector was not allowed in many facilitator of financial sector. This means that national market for goods and commodities.
industries the financial sector may be allowed to take
(iii) Some goods could be produced only in decisions on many matters without consulting In order to encourage better compliance on the
small-scale industries, the RBI. part of taxpayers many procedures have been
(iv) Controls on price fixation and distribution 2. Establishment of private sector banks, simplified and the rates also substantially lowered.
of selected industrial products. Indian as well as foreign. Foreign investment
limit in banks was raised to around 50 per The Parliament passed a law, Goods and Services
After 1991 cent. Tax Act 2016, to simplify and introduce a unified
(i) Industrial licensing was abolished for 3. Banks which fulfil certain conditions have indirect tax system in India in July 2017.
almost all but product categories - alcohol, been given freedom to set up new branches This is expected to generate additional revenue
cigarettes, hazardous chemicals, industrial without the approval of the RBI and for the government, reduce tax evasion and
explosives, electronics, aerospace and drugs rationalise their existing branch networks. create ‘one nation, one tax and one market’.
and pharmaceuticals. 4. Foreign Institutional Investors (FII), such
(ii) The only 3 industries which are now as merchant bankers, mutual funds and pension
reserved for the public sector are a part of funds, are now allowed to invest in Indian
defence equipment, atomic energy generation financial markets.
and railway transport. 12
Foreign Exchange Reforms: Import licensing was abolished except in case The government has also made attempts to
of hazardous and environmentally sensitive improve the efficiency of PSUs by giving them
1. In 1991, as an immediate measure to resolve industries. autonomy in taking managerial decisions. For
the balance of payments crisis, the rupee was Quantitative restrictions on imports of instance, some PSUs have been granted special
devalued against foreign currencies. manufactured consumer goods and agricultural status as
2. This led to an increase in the inflow of products were also fully removed from April Maharatnas - IOCL, SAIL
foreign exchange. 2001. Navratnas - HAL, MTNL
3. Free the determination of rupee value in the Export duties have been removed to increase Miniratnas – BSNL, AAI, IRCTC Ltd.
foreign exchange market from government the competitive position of Indian goods in the
control. international markets.
4. Markets determine exchange rates based on
3.5 GLOBALISATION
the demand and supply of foreign exchange. 3.4 PRIVATISATION
1. It means integration of the economy of the
Trade and Investment Policy Reforms: It means shedding of the ownership or country with the world economy.
management of a government owned enterprise. 2. It involves creation of networks and activities
1. Liberalisation of trade and investment Government companies are converted into transcending economic, social and geographical
regime was initiated to increase international private companies in two ways boundaries.
competitiveness of industrial production and (i) By withdrawal of the government from 3. It is turning the world into one whole or
also foreign investments and technology into ownership and management of public sector creating a borderless world.
the economy. companies: or 4. Globalisation attempts to establish links in
2. The aim was also to promote the efficiency (ii) By outright sale of public sector companies. such a way that the happenings in India can be
of local industries and adoption of modern
influenced by events happening miles away.
technologies. Disinvestment: Privatisation of the public
sector enterprises by selling off part of the Outsourcing: It is one of the important
In order to protect domestic industries, India equity of PSEs to the public. outcomes of the globalisation process.
was following a regime of quantitative
restrictions on imports. Reasons/Objectives of Privatisation: In outsourcing, a company hires regular service
from external sources, mostly from other
The trade policy reforms aimed at
1. Improve financial discipline and facilitate countries, which was previously provided
(i) Dismantling of quantitative restrictions on
modernisation. internally or from within the country.
imports and exports
2. Private capital and managerial capabilities Eg: legal advice, computer service,
(ii) Reduction of tariff rates.
could be effectively utilised to improve the advertisement, security.
(iii) Removal of licensing procedures for
performance of the PSUs.
imports.
3. Privatisation could encourage the inflow of
FDI.
13
Outsourcing has intensified, in recent times, international market for trading purposes. 3.6 INDIAN ECONOMY DURING
because of the growth of fast modes of 2. WTO is expected to establish a rule- REFORMS: AN ASSESSMENT
communication, particularly the growth of based trading regime in which nations cannot
Information Technology (IT). place arbitrary restrictions on trade.
1. The post–1991 India witnessed a rapid growth
3. It also enlarges production and trade of
in GDP on a continual basis for two decades.
Which kinds of services are being outsourced services, to ensure optimum utilisation of
2. The growth of GDP increased from 5.6%
by companies in developed countries to India? world resources and to protect the
during 1980–91 to 7.2% during 20014–15
Voice-based business processes (popularly environment.
3. During the reform period, the growth of
known as BPO or call centres), record keeping, 4. The WTO agreements also removes tariff
agriculture has declined. While the industrial
accountancy, banking services, music recording, as well as non-tariff barriers and providing
sector reported fluctuation, the growth of the
film editing, book transcription, clinical advice greater international market access to all
service sector has gone up.
or even teaching. member countries to trade in their goods
4. During 2012-15, there has been a setback in
and services.
the growth rates of different sectors
With the help of modern telecommunication
witnessed post–1991.
links including the Internet, the text, voice and Role of India in WTO:
5. While agriculture recorded a high growth
visual data in respect of these services is 1. India has been in the forefront of
rate during 2013–14, this sector witnessed
digitised and transmitted in real time over framing fair global rules, regulations and
negative growth in the subsequent year. While
continents and national boundaries. safeguards and advocating the interests of
the service sector continued to witness a high
the developing world.
level of growth.
India has certain advantages which makes 2. India has kept its commitments towards
it a favourite outsourcing destination. liberalisation of trade, made in the WTO, by
Globalisation has led to a rapid increase in
1. Low Wage Rate. removing quantitative restrictions on
foreign direct investment and foreign exchange
2. Availability of skilled manpower. imports and reducing tariff rates.
reserves. The foreign investment, which
3. Reasonable degree of skill and accuracy. includes FDI and FII, has increased from about
4. Availability of Infrastructure. Additional Points:
US $100 million in 1990-91 to US $ 36 billion in
Some scholars question the usefulness of
2016-17.
World Trade Organisation (WTO): India being a member of the WTO as a
There has been an increase in the foreign
major volume of international trade occurs
exchange reserves from about US $ 6 billion in
WTO was founded in 1995 as the successor among the developed nations. They also say
1990-91 to about US $ 321 billion in 2014-15.
organisation to the General Agreement on Trade that while developed countries file
India is one of the largest foreign exchange
and Tariff (GATT) which was established in complaints over agricultural subsidies given
reserve holders in the world.
1948 with 23 countries. in their countries, developing countries feel
cheated as they are forced to open their
India is seen as a successful exporter of auto
1. Purpose of WTO is to administer all markets for developed countries but are not parts, engineering goods, IT software and textiles
multilateral trade agreements by providing equal allowed access to the markets of developed in the reform period. Rising prices have also been
opportunities to all countries in the countries. kept under control.
14
 Reforms in Industry:

1. Industrial growth has also recorded a

slowdown. This is because of decreasing demand
of industrial products due to various reasons
such as cheaper imports, inadequate investment
in infrastructure etc.
2. In a globalised world, developing countries
are compelled to open up their economies to
greater flow of goods and capital from
developed countries and rendering their
The reform process has been widely criticised 3. The removal of fertiliser subsidy has led industries vulnerable to imported goods.
for not being able to address some of the to increase in the cost of production, which 3. Cheaper imports have, thus, replaced the
basic problems facing our economy especially in has severely affected the small and marginal demand for domestic goods. Domestic
areas of employment, agriculture, industry, farmers. manufacturers are facing competition from
infrastructure development and fiscal imports.
management. 4. There are no. of policy changes such as 4. The infrastructure facilities, including power
reduction in import duties on agricultural supply, have remained inadequate due to lack of
Growth & Employment: Though the products, removal of minimum support price investment.
GDP growth rate has increased in the reform and lifting of quantitative restrictions on 5. Globalisation is creating conditions for the
period, but growth has not generated agricultural products; these have adversely free movement of goods and services from
sufficient employment opportunities in the affected Indian farmers as they now have to foreign countries that adversely affect the
country. face increased international competition. local industries and employment opportunities in
developing countries.
Reforms in Agriculture: 5. Moreover, because of export oriented 6. Moreover, a developing country like India still
policy strategies in agriculture, there has does not have the access to developed
1. Reforms have not been able to benefit been a shift from production for the countries’ markets because of high non-tariff
agriculture, where the growth rate has been domestic market towards production for the barriers.
decelerating. export market focusing on cash crops in lieu 7. For example, although all quota restrictions
2. Public investment in agriculture sector of production of food grains. This puts on exports of textiles and clothing have been
especially in infrastructure, which includes pressure on prices of food grains. removed in India, USA has not removed their
irrigation, power, roads, market linkages and quota restriction on import of textiles from
research and extension, has fallen in the India and China.
reform period.
15
Disinvestment: This has a negative impact on developmental 3.8 CONCEPT OF GST:
1. Every year, the government fixes a target and welfare expenditures.
for disinvestment of PSEs. Gods and Services Tax (GST) is an Indirect
2. For instance, in 1991-92, it was targeted to 3.7 CONCEPT OF Tax (or Consumption Tax) imposed in India on
mobilise Rs 2500 crore through DEMONETISATION: the supply of goods and services. The tax came
disinvestment. The government was able to into effect from July 1, 2017.
mobilise Rs 3,040 crore more than the target.
On 8 November 2016, the Government of
In 2017–18, the target was about Rs 1,00,000 The single GST subsumed several taxes and
India announced the demonetization of
crore, whereas, the achievement was about Rs levies, which included central excise
all ₹500 and ₹1,000 banknotes of the Mahatma
1,00,057 crore. duty, services tax, additional customs
Gandhi Series. It also announced the issuance
3. The assets of PSEs have been undervalued duty, surcharges, state-level value added
of new ₹500 and ₹2,000 banknotes in
and sold to the private sector. This means tax and Octroi.
exchange for the demonetised banknotes.
that there has been a substantial loss to the
government. India adopted a dual GST model, meaning
Meaning: Demonetisation is defined as an
4. The proceeds from disinvestment were that taxation is administered by both the
economic policy or the process through which
used to offset the shortage of government Union and state governments.
the central government cancels the legal
revenues rather than using it for the
tender status of a currency unit in circulation.
development of PSEs and building social Transactions made within a single state are
After demonetisation, that currency unit
infrastructure in the country.
cannot be used as money. levied under Central GST (CGST) by Central
Government and State GST (SGST) by State
Reforms and Fiscal Policies:
Objectives of/ Reasons behind governments.
1. Economic reforms have placed limits on the
growth of public expenditure, especially in Demonetisation:
For inter-state transactions and imported
social sectors.
goods or services, an Integrated GST (IGST)
2. The tax reductions in the reform period, 1. To tackle black money in the economy.
is levied by the Central Government.
aimed at yielding larger revenue and curb tax 2. To lower the cash circulation in the country
evasion, have not resulted in increase in tax which is directly related to corruption in our
country. Objectives of GST:
revenue for the government.
3. Also, the reform policies, involving tariff 3. To eliminate fake currency which have been
used by terror groups to fund terrorism in 1. To simplify the tax regime.
reduction, have curtailed the scope for raising
India. 2. To bring uniformity in tax compliance and
revenue through custom duties.
tax rates.
4. In order to attract foreign investment, tax
3. To harmonise tax base and administrative
incentives were provided to foreign investors
procedure across India.
which further reduced the scope for raising
4. Ensure availability of Input Tax Credit.
tax revenues.

16
 4.1 INTRODUCTION 2. They reside in kutcha hutments with walls 15. Poor women receive less care on their way
made of baked mud and roofs made of grass, to motherhood. Their children are less likely
While addressing the Constituent Assembly in thatch, bamboo and wood. to survive or be born healthy.
1947, Jawaharlal Nehru had said, “This 3. The poorest of them do not even have such
achievement (Independence) is but a step, an dwellings.
opening of opportunity, to the great triumphs Economists identify the poor on the basis of
and achievements that await us… the ending of 4. In rural areas many of them are landless. their occupation and of assets.
poverty and ignorance and disease and Even if some of them possess land, it is only dry
inequality of opportunity”. or waste land. Rural poor work mainly as landless agricultural
5. Many do not get to have even two meals a labourers, cultivators with very small
Poverty is not only a challenge for India, as day. Starvation and hunger are the key landholdings, or landless labourers, who are
more than one-fifth of the world‟s poor live in features of the poorest households. engaged in a variety of non-agricultural jobs
India alone; but also for the world, where about 6. The poor lack basic literacy and skills and and tenant cultivators with small land holdings.
300 million people are not able to meet their hence have very limited economic opportunities.
basic needs. The Urban poor are largely the overflow of
7. Poor people also face unstable employment. the rural poor who had migrated to urban
Poverty can be defined as “the inability to 8. Malnutrition is alarmingly high among the areas in search of alternative employment and
attain a minimum standard of living or basic poor. Ill health, disability or serious illness livelihood, labourers who do a variety of casual
necessities of life such as food, shelter, makes them physically weak. jobs and the self-employed who sell a variety
clothing, education, etc.” 9. The poor are highly vulnerable. They are not of things on roadsides and are engaged in
able to negotiate their legal wages from various activities.
Types of Poverty: employers and are exploited.
1. Absolute Poverty is the complete lack of 4.3 HOW ARE POOR PEOPLE
the means necessary to meet basic personal 10. They borrow from moneylenders, who IDENTIFIED?
needs such as food, shelter and clothing. charge high rates of interest that lead them
into chronic indebtedness.
In pre-independent India, Dadabhai Naoroji
Ch-4 Poverty

2. Relative Poverty occurs when a person 11. Most poor households have no access to
was the first to discuss the concept of a
cannot meet a minimum standard of living electricity.
Poverty Line. He used the menu for a prisoner
standard, compared to others in the same time 12. Their primary cooking fuel is firewood and
and used appropriate prevailing prices to
and place. cow dung cake.
arrive at what may be called „jail cost of
living‟.
4.2 WHO ARE THE POOR? 13. A large section of poor people do not even
have access to safe drinking water.
However, only adults stay in jail whereas, in an
Characteristics of Poor: 14. Extreme gender inequality in the
actual society, there are children too. He,
1. The poor people possess few assets. participation of gainful employment, education
therefore, appropriately adjusted this cost of
and in decision-making within the family.
living to arrive at the poverty line.
17
He assumed that 1/3rd population consisted of
children and half of them consumed very little
while the other half consumed half of the
adult diet. This is how he arrived at the
factor of three-fourths;
(1/6)(Nil) + (1/6)(Half) + (2/3)(Full) = (3/4)
(Full).
The weighted average of consumption of the
three segments gives the average poverty line,
which comes out to be three-fourth of the
adult jail cost of living.
Similarly, there are various kinds of non-poor;
In post-independent India, to identify poor: the middle class, the upper middle class, the 2. Occasionally Poor who are rich most of the
In 1962, the Planning Commission formed a rich, the very rich and the absolutely rich. time but may sometimes have a patch of bad
Study Group. luck.
In 1979, another body called the „Task Force Categorising Poverty: (Chart 4.2)
on Projections of Minimum Needs and C. Non-Poor: There are those who are never
Effective Consumption Demand‟ was formed. A. Chronic Poor: poor.
In 1989 and 2005, „Expert Groups‟ were
constituted to identify the number of poor in 1. Always Poor as they always remains below The Poverty Line: There are many ways of
the country. poverty line. measuring poverty.
Many other individual economists also 2. Usually Poor but who may sometimes have a 1. The monetary value (per capita expenditure)
attempted. little more money (example: casual workers). of the minimum calorie intake that was
estimated at 2,400 calories for a rural person
We divide people into two categories; the poor B. Transient Poor: and 2,100 for a person in the urban area.
and the non-poor and the poverty line
separates the two. (Chart 4.1) 1. Churning Poor who regularly move in and out Based on this, in 2011-12, the poverty line was
However, there are many kinds of poor; the of poverty (example: small farmers and defined for rural areas as consumption worth Rs
absolutely poor, the very poor and the poor. seasonal workers). 816 per person a month and for urban areas it
was Rs 1,000.

(Government uses Monthly Per Capita

Expenditure (MPCE) as proxy for income of
households to identify the poor.)

18
Why calorie & expenditure based norm is But economists raise doubts about the 1. Trends in Poverty in India, 1973–2012 (in millions)
not adequate to identify the poor? government‟s claim. They point out that the way
the data are collected, items that are included Year 1973-74 2011-12
1. It groups all the poor together and does in the consumption basket, methodology Rural Poor 265 220
not differentiate between the very poor and followed to estimate the poverty line and the Urban Poor 55 50
the other poor. numbers of poor are manipulated to arrive at Total 320 270
2. This mechanism is helpful in identifying the reduced figures of the number of poor in
the poor as a group to be taken care of by India. 2. In terms of proportion, in 1973-74, about 55 %
the government, but it would be difficult to of the total population was below the poverty line.
identify who among the poor need help the The aim of poverty alleviation schemes should In 2011-12, it has fallen to 22 %.
most. be to improve human lives by expanding the
3. There are many factors, other than range of things that a person could be and 3. In 1973-74, more than 80 % of the poor
income and assets, which are associated with could do, such as to be healthy and well- resided in rural areas and this situation has not
poverty; for instance, the accessibility to nourished, to be knowledgeable and participate changed even in 2011-12. This means that more
basic education, health care, drinking water in the life of a community, Development is than three-fourth of the poor in India still reside
and sanitation. about removing the obstacles to the things in villages.
4. It does not take into consideration social that a person can do in life, such as illiteracy, ill
factors that trigger and perpetuate poverty health, lack of access to resources, or lack of 4. In the 1990s, the absolute number of poor in
such as illiteracy, ill health, lack of access to civil and political freedoms. rural areas had declined whereas the number of
resources, discrimination or lack of civil and their urban counterparts increased marginally.
political freedoms. 5. The poverty ratio declined continuously for
4.4 THE NUMBER OF POOR IN
both urban and rural areas.
INDIA
Due to various limitations in the official 6. The gap between the absolute number of poor
estimation of poverty, scholars have in rural and urban areas got reduced whereas in
Head Count Ratio: When the number of poor the case of ratio the gap has remained the same
attempted to find alternative methods. For
is estimated as the proportion of people below until 1999-2000 and has widened in 2011-12.
instance, Amartya Sen, noted Nobel
the poverty line, it is known as „Head Count
Laureate, has developed an index known as
Ratio‟.
Sen Index. There are other tools such as
Poverty Gap Index and Squared Poverty Gap.
Note: The official data on poverty is made
available to the public by the Planning
Additional Points: The government claims
Commission. It is estimated on the basis of
that higher rate of growth, increase in
consumption expenditure data collected by the
agricultural production, providing
National Sample Survey Organisation (NSSO).
employment in rural areas and economic
reform packages introduced in the 1990s
have resulted in a decline in poverty levels.
19
 Poverty is also explained by general, economy-
wide problems, such as
(i) low capital formation
(ii) lack of infrastructure
(iii) lack of demand
(iv) pressure of population
(v) lack of social/ welfare nets.

Major Causes of Poverty:

1. Colonial Exploitation by Britishers:

There was substantial de-industrialisation in
India under the British rule. Imports of
manufactured cotton cloth from Lancashire in
England displaced much local production, and
India reverted to being an exporter of cotton
The state level trends in poverty are shown in 4.5 WHAT CAUSES POVERTY? yarn, not cloth.
Chart 4.4.
The two lines in the chart indicate the national The causes of poverty lie in the institutional
British policies involved sharply raising rural
poverty level. The first line from below and social factors that mark the life of the
taxes that enabled merchants and
indicates poverty level during 2011-12 and the poor.
moneylenders to become large landowners.
other line indicates the same for the year The poor are deprived of quality education
Under the British, India began to export food
1973-74. and unable to acquire skills which fetch
grains and, as a result, as many as 26 million
The proportion of poor in India during 1973- better incomes. Also access to health care is
people died in famines between 1875 and 1900.
2012 has come down from 55 to 22%. denied to the poor.
Six states - Tamil Nadu, Uttar Pradesh, Bihar, The main victims of caste, religious and other
Britain‟s main goals from the Raj were to
Madhya Pradesh, West Bengal and Orissa - discriminatory practices are poor.
provide a market for British exports, to have
contained a large section of poor in 1973-74. These can be caused as a result of:
India service its debt payments to Britain, and
(i) social, economic and political inequality
for India to provide manpower for the British
During 1973-2012, many Indian states reduced (ii) social exclusion
imperial armies.
the poverty levels to a considerable extent. (iii) unemployment
Yet, the poverty levels in four states - Odisha, (iv) indebtedness
Our natural resources were plundered, our
Madhya Pradesh, Bihar and Uttar Pradesh are (v) unequal distribution of wealth.
industries worked to produce goods at low
still far above the national poverty level.
prices for the British and our food grains were
Aggregate poverty is just the sum of
exported.
individual poverty.
20
2. Dependency on Agriculture: Even today 6. Rise in Population: With the rapid growth 11. High level of Indebtedness: Unemployment
agriculture is the principal means of livelihood of population and without alternative sources or under employment and the casual and
and land is the primary asset of rural people; of employment, the per-head availability of land intermittent nature of work in both rural and
ownership of land is an important determinant for cultivation has steadily declined leading to urban areas that compels indebtedness, in turn,
of material well-being and those who own some fragmentation of land holdings. The income reinforces poverty. Indebtedness is one of the
land have a better chance to improve their from these small land holdings is not sufficient significant factors of poverty.
living conditions. to meet the family‟s basic requirements.

3. Failure to implement land reforms: The 7. Lack of education: Most members of SC and 12. Inflation: A steep rise in the price of food
government has attempted to redistribute land ST are not able to participate in the emerging grains and other essential goods, at a rate
and has taken land from those who have large employment opportunities in different sectors higher than the price of luxury goods, further
amounts to distribute it to those who do not of the urban and rural economy as they do not intensifies the hardship and deprivation of
have any land, but work on the land as wage have the necessary knowledge and skills to do lower income groups.
labourers. so.
However, this move was successful only to a All this has created two distinct groups in
limited extent as large sections of agricultural 8. Migration: A large section of urban poor in society:
workers were not able to farm the small India are largely the overflow of the rural poor 1. Those who possess the means of production
holdings that they now possessed as they did who migrate to urban areas in search of and earn good incomes and
not have either money (assets) or skills to employment and a livelihood. Industrialisation 2. Those who have only their labour to trade for
make the land productive and the land holdings has not been able to absorb all these people. survival.
were too small to be viable. Also most of the
Indian states failed to implement land 9. Lack of Employment Opportunities: The The gap between the rich and the poor in India
redistribution policies. urban poor are either unemployed or has widened.
intermittently employed as casual labourers.
4. Lack of resources: A large section of the Casual labourers are among the most vulnerable 4.6 POLICIES AND PROGRAMMES
rural poor in India are the small farmers. The in society as they have no job security, no TOWARDS POVERTY ALLEVIATION
land that they have is, in general, less fertile assets, limited skills, sparse opportunities and
and dependent on rains. Their survival depends no surplus to sustain them.
The Indian Constitution and five year plans
on subsistence crops and sometimes on
state social justice as the primary objective of
livestock. Poverty is, therefore, also closely related to
the developmental strategies of the
5. Natural Calamities: Farmers committing nature of employment.
government.
suicide due to their inability to pay back the
loans that they have taken for cultivation and 10. The unequal distribution of income and
other needs as their crops have failed due to assets has also led to the persistence of
drought or other natural calamities. poverty in India.

21
The government’s approach to poverty 2. Poverty Alleviation Programmes(1961 Earlier, under self-employment programmes,
reduction was of three dimensions. onwards): financial assistance was given to families or
This second approach has been initiated from individuals. Since the 1990s, this approach has
1. Growth Oriented Approach. the Third Five Year Plan (1961-66) and been changed. Now those who wish to benefit
2. Poverty Alleviation Programmes. progressively enlarged since then. from these programmes are encouraged to form
3. Addressing poverty is to provide minimum It was thought that incomes and employment self-help groups.
basic amenities to the people. for the poor could be raised through the
creation of additional assets and by means of Initially they are encouraged to save some
1. Growth Oriented Approach (1950-1960): work generation. money and lend among themselves as small loans.
One of the noted programmes initiated in the Later, the government provides partial financial
1. It is based on the expectation that the 1970s was Food for Work. assistance to SHGs which then decide whom the
effects of economic growth would spread to loan is to be given to for self-employment
all sections of society and will trickle down to Major ways of addressing poverty: activities.
the poor sections also (Example of economic 1. Self-employment programmes
growth- rapid increase in gross domestic 2. Wage employment programmes Swarnajayanti Gram Swarozgar Yojana
product and per capita income ). (SGSY) is one such programme. This has now
2. It was felt that rapid industrial Examples of self-employment programmes: been restructured as National Rural Livelihoods
development and transformation of Mission (NRLM). A similar programme called
1. Rural Employment Generation Programme National Urban Livelihoods Mission has also
agriculture through green revolution in select
(REGP): It aims at creating self-employment been in place for urban poor.
regions would benefit the underdeveloped
opportunities. The Khadi and Village Industries
regions and the more backward sections of
Commission is implementing it. Under this Examples of wage-employment programmes:
the community.
programme, one can get financial assistance in
the form of bank loans to set up small In August 2005, the Parliament passed a new
Conclusion:
industries. Act to provide guaranteed wage employment to
1. The overall growth and growth of
agriculture and industry have not been every rural household whose adult volunteer is
2. Prime Minister’s Rozgar Yojana (PMRY): to do unskilled manual work for a minimum of
impressive. Population growth has resulted in
The educated unemployed from low-income 100 days in a year. This Act is known as
a very low growth in per capita incomes. The
families in rural and urban areas can get Mahatma Gandhi National Rural Employment
gap between poor and rich has actually
financial help to set up any kind of enterprise Guarantee Act. Under this Act all those among
widened.
that generates employment under PMRY. the poor who are ready to work at the minimum
wage can report for work in areas where this
2. The Green Revolution exacerbated the
3. Swarna Jayanti Shahari Rozgar Yojana programme is implemented. In 2013-14, nearly
disparities regionally and between large and
(SJSRY): It aims at creating employment 5 cr households got employment opportunities
small farmers. There was unwillingness and
opportunities—both self-employment and wage under this law.
inability to redistribute land.
employment—in urban areas.
. 22
3. Addressing poverty is to provide minimum 3. Schemes to provide health insurance to 5. Government policies have also failed to
basic amenities to the people: poor people: From 2014, a scheme called address the vast majority of vulnerable people
Pradhan Mantri Jan-Dhan Yojana is available in who are living on or just above the poverty line.
This approach can be trace from the Fifth Five which people are encouraged to open bank
Year Plan accounts. This will promote savings habit, it also Major areas of concern which prevent their
1. India was among the pioneers in the world to intends to transfer all the benefits of successful implementation:
think that through public expenditure on social government schemes & subsidies to account 1. Due to unequal distribution of land and other
consumption needs (provision of food grains at holders directly. Each account holder is also assets, the benefits from direct poverty
subsidised rates, education, health, water supply entitled to Rs. 1 lakh accident insurance & Rs. alleviation programmes have been appropriated
and sanitation) people‟s living standard could be 30,000 life insurance cover. by the non-poor.
improved. 2. Compared to the magnitude of poverty, the
2. Programmes under this approach are 4.7 POVERTY ALLEVIATION amount of resources allocated for these
expected to supplement the consumption of the PROGRAMMES — A CRITICAL programmes is not sufficient.
poor, create employment opportunities and bring 3. Moreover, these programmes depend mainly
ASSESSMENT
about improvements in health and education. on government and bank officials for their
3. Three major programmes that aim at implementation. Since such officials are ill
1. The percentage of absolute poor in some motivated, inadequately trained, corruption
improving the food and nutritional status of the
states is now well below the national average. prone and vulnerable to pressure from a variety
poor are
2. Despite various strategies to alleviate of local elites, the resources are inefficiently
a. Public Distribution System,
poverty, hunger, malnourishment, illiteracy and used and wasted.
b. Integrated Child Development Scheme and
lack of basic amenities continue to be a common 4. There is also non-participation of local level
c. Midday Meal Scheme.
feature in many parts of India. institutions in programme implementation.
Other Policies and Programmes:
3. The policy towards poverty alleviation has Poverty can effectively be eradicated only when
1. For developing infrastructure and housing
evolved in a progressive manner, over the last the poor start contributing to growth by their
conditions following were launched:
five and a half decades; it has not undergone active involvement in the growth process. This is
a. Pradhan Mantri Gram Sadak Yojana,
any radical transformation. There is mainly possible through a process of social
b. Pradhan Mantri Gramodaya Yojana,
change in nomenclature, integration or mobilisation, encouraging poor people to
c. Valmiki Ambedkar Awas Yojana
mutations of programmes. However, none participate and get them empowered. This will
2. Social Security Programmes:
resulted in any radical change in the ownership also help create employment opportunities which
National Social Assistance Programme is one
of assets, process of production and may lead to increase in levels of income, skill
such programme initiated by the central
improvement of basic amenities to the needy. development, health and literacy. Moreover, it is
government. Under this programme, elderly
people who do not have anyone to take care of necessary to identify poverty stricken areas
4. It also reveals that high growth alone is not and provide infrastructure such as schools,
them are given pension to sustain themselves.
sufficient to reduce poverty. roads, power, telecom, IT services, training
Poor women who are destitute and widows are
also covered under this scheme. institutions etc.
23
 5.1 INTRODUCTION Physical Capital: It refers to all tools, sanitation are the various forms of health
machines, computers and other equipments that expenditures.
We know that the labour skill of an educated are needed for the production of goods and
person is more than that of an uneducated services. Health expenditure directly increases the
person and hence the former is able to supply of healthy labour force and is, thus, a
generate more income than the latter and his Human Capital: It refers to the skills, source of human capital formation.
contribution to economic growth is, knowledge, education, expertise and ability of
consequently, more. an individual or population of a nation. 3. Expenditure on On the Job Training:
Firms spend on giving on-the job training to
Role of Education in economic development 5.3 SOURCES OF HUMAN CAPITAL their workers. This may take different forms:
of a nation; 1. The workers may be trained in the firm
Ch-5 Human Capital formation in India

itself under the supervision of a skilled

1. Expenditure on Education:
Education is sought not only as it confers worker;
a. Investment in education is considered as one
higher earning capacity on people but also for 2. The workers may be sent for off-campus
of the main sources of human capital.
its other highly valued benefits: training.
b. Spending on education by individuals is
a. it gives one a better social standing and
similar to spending on capital goods by
pride; In both these cases firms incur some
companies with the objective of increasing
b. it enables one to make better choices in life; expenses. Firms will, thus, insist that the
future profits over a period of time.
c. it provides knowledge to understand the workers should work for a specific period of
c. Individuals invest in education with the
changes taking place in society; time, after their on-the-job training, during
objective of increasing their future income.
d. it also stimulates innovations. which it can recover the benefits of the
Moreover, the availability of educated labour 2. Expenditure on Health: Health is also enhanced productivity owing to the training.
force facilitates adaptation of new considered as an important input for the
technologies. development of a nation as much as it is Expenditure regarding on-the-job training is a
important for the development of an individual. source of human capital formation as the
Economists have stressed the need for return of such expenditure in the form of
expanding educational opportunities in a nation A sick labourer without access to medical enhanced labour productivity is more than the
as it accelerates the development process. facilities is compelled to abstain from work and cost of it.
there is loss of productivity.
5.2 WHAT IS HUMAN CAPITAL? 4. Expenditure on Migration: a. People
Types of Heath Expenditure migrate in search of jobs that fetch them
Just as a country can turn physical resources Preventive Medicine (vaccination), higher salaries than what they may get in
like land into physical capital like factories, Curative Medicine (medical intervention during their native places.
similarly, it can also turn human resources like illness),
students into human capital like engineers and Social Medicine (spread of health literacy) and b. Unemployment is the reason for the rural-
doctors. Provision of clean drinking water and good urban migration in India.
24
c. Technically qualified persons, like engineers Note: The concept of physical capital is the Due to measurement problems, it is difficult to
and doctors, migrate to other countries base for conceptualising human capital. prove that increase in human capital causes
because of higher salaries that they may get economic growth.
in such countries. Human Capital and Economic Growth:
For example:
d. Migration in both these cases involves cost Economic growth means the increase in real 1. Education measured in terms of years of
of transport, higher cost of living in the national income of a country. schooling, teacher-pupil ratio and enrolment
migrated places and psychic costs of living in a rates may not reflect the quality of education.
strange sociocultural setup. The enhanced The contribution of the educated person to 2. Health services measured in monetary terms,
earnings in the new place outweigh the costs economic growth is more than that of an life expectancy and mortality rates may not
of migration. illiterate person. If a healthy person could reflect the true health status of the people in a
provide uninterrupted labour supply for a country.
Hence, expenditure on migration is also a longer period of time, then health is also an
source of human capital formation. important factor for economic growth. Thus, The human capital growth in developing countries
both education and health, along with many has been faster but the growth of per capita
5. Expenditure on Information: People spend other factors like on-the-job training, job real income has not been that fast.
to acquire information relating to the labour market information and migration, increase an
market and other markets like education and individual‘s income generating capacity. The cause and effect relationship between
health. human capital and economic growth flows in
For example, 1. This enhanced productivity of human beings either directions:
a. people want to know the level of salaries or human capital contributes substantially not a. Higher income causes building of high level of
associated with various types of jobs, only towards increasing labour productivity but human capital and
b. whether the educational institutions provide also stimulates innovations and creates ability b. High level of human capital causes growth of
the right type of employable skills and at what to absorb new technologies. income.
cost.
2. Education provides knowledge to understand India recognised the importance of human
This information is necessary to make changes in society and scientific capital in economic growth long ago. The Seventh
decisions regarding investments in human advancements, thus, facilitate inventions and Five Year Plan says, ―Human resources
capital as well as for efficient utilisation of innovations. development (read human capital) has necessarily
the acquired human capital stock. to be assigned a key role in any development
3. Similarly, the availability of educated labour strategy, particularly in a country with a large
Expenditure incurred for acquiring force facilitates adaptation to new population. Trained and educated on sound lines,
information relating to the labour market and technologies. a large population can itself become an asset in
other markets is also a source of human accelerating economic growth and in ensuring
capital formation. social change in desired directions.‖

25
It is difficult to establish a relation of cause 1. Deutsche Bank, a German bank, in its report 2. World Bank, in its recent report, ‗India and the
and effect from the growth of human capital on ‗Global Growth Centres‘ (published on 1.7.05) Knowledge Economy — Leveraging Strengths and
(education and health) to economic growth identified that India will emerge as one among Opportunities‘, states that:
but we can see in Table 5.1 that these four major growth centres in the world by the
sectors have grown simultaneously. year 2020. India should make a transition to the knowledge
economy and if it uses its knowledge as much as
Growth in each sector probably has It further states, ―Our empirical investigation Ireland does (it is judged that Ireland uses its
reinforced the growth of every other supports the view that human capital is the knowledge economy very effectively), the per
sector. most important factor of production in today‘s capita income of India will increase from a little
economies. Increases in human capital are over US $1000 in 2002 to US $ 3000 in 2020.
Reports by Deutsche Bank and World crucial to achieving increases in GDP.‖
Bank: It further states that the Indian economy has all
With reference to India it states, ―Between the key ingredients for making this transition,
Two independent reports on the Indian 2005 and 2020 we expect a 40 per cent rise in such as, a critical mass of skilled workers, a well-
economy, in recent times, have identified the average years of education in India, to just functioning democracy and a diversified science
that India would grow faster due to its above 7 years...‖ and technology infrastructure.
strength in human capital formation.
Thus the two reports point out the fact that
further human capital formation in India will move
its economy to a higher growth trajectory.

5.5 STATE OF HUMAN CAPITAL

FORMATION IN INDIA

India is a federal country with a union

government, state governments and local
governments (Municipal Corporations,
Municipalities and Village Panchayats). The
Constitution of India mentions the functions to be
carried out by each level of government.
Accordingly, expenditures on both education and
health are to be carried out simultaneously by all
the three tiers of the government.

26
Need for government intervention in 2. The ministries of health at the union and 5.4 HUMAN CAPITAL AND HUMAN
education and health sectors. state level, departments of health and various DEVELOPMENT
Education & Health Care services create both organisations like Indian Council for Medical
private & social benefits& this is the reason for Research (ICMR) facilitate institutions which
Human Capital Human Development
the existence of both private & public come under the health sector.
Human capital Human development is
institutions in the education & health service
considers education based on the idea that
markets. Need for Education & Health Care:
and health as a education and health are
means to increase integral to human well-
1. Expenditures on education and health make 1. In a developing country, a large section of
labour productivity. being because only when
substantial long-term impact and they cannot the population is living below the poverty line,
people have the ability
be easily reversed. cannot afford to access basic education and
to read and write and
2. Individual consumers of these services do health care facilities.
the ability to lead a long
not have complete information about the 2. A substantial section of people cannot
and healthy life, they
quality of services and their costs. afford to reach super specialty health care
will be able to make
3. The providers of education and health and higher education.
other choices which
services acquire monopoly power and are
they value.
involved in exploitation. Furthermore, when basic education and health
Human capital treats In the human
care is considered as a right of the citizens,
human beings as a development
The role of government in this situation is to then it is essential that the government should
means to an end; the perspective, human
ensure that the private providers of these provide education and health services free of
end being the beings are ends in
services adhere to the standards stipulated by cost for the deserving citizens and those from
increase in themselves.
the government and charge the correct price. the socially oppressed classes.
productivity.
Government organisations facilitate the Both, the union and state governments, have Any investment in Human welfare should
functioning of schools and hospitals in been stepping up expenditures in the education education and health be increased through
India: sector over the years in order to fulfil the is unproductive if it investments in education
objective of attaining 100% literacy and does not enhance and health even if such
1. The ministries of education at the union and considerably increase the average educational output of goods and investments do not
state level, departments of education and attainment of Indians. services. result in higher labour
various organisations like National Council of productivity.
Educational Research and Training (NCERT),
University Grants Commission (UGC) and All In such a view, every individual has a right to
India Council of Technical Education (AICTE) get basic education and basic health care, that
facilitate institutions which come under the is, every individual has a right to be literate
education sector. and lead a healthy life.

27
5.6 EDUCATION SECTOR IN INDIA 3. On an average, the government spends less on Steps taken by Government to promote
tertiary education; ‗expenditure per student‘ in education:
Growth in Government Expenditure on tertiary education is higher than that of 1. In 2009, the Government of India enacted
elementary. This does not mean that financial the Right of Education Act to make free
Education
resources should be transferred from tertiary education a fundamental right of all children
Expenditure by the government on education is
education to elementary education. We need more in the age group of 6-14 years.
expressed in two ways:
teachers who are trained in the higher
(i) As a percentage of ‘total government
educational institutions; hence, expenditure on all 2. Government of India has also started
expenditure: It indicates the importance of
levels of education should be increased. levying a 2 % ‗education cess‘ on all Union
education in the scheme of things before the
taxes. The revenues from education cess has
government.
4. In 2014-15, the per capita public expenditure been earmarked for spending on elementary
During 1952-2014, education expenditure as
on elementary education differs considerably education.
percentage of total government expenditure
across states from as high as Rs 34,651 in
increased from 7.92 to 15.7.
Himachal Pradesh to as low as Rs 4088 in Bihar. 3. The government sanctions a large outlay
(ii) As a percentage of Gross Domestic
This leads to differences in educational for the promotion of higher education and
Product (GDP): It expresses how much of our
opportunities and attainments across states. new loan schemes for students to pursue
income is being committed to the development
higher education.
of education in the country.
Inadequate Expenditure: The Education
During 1952-2014, education expenditure as
Commission (1964–66) had recommended that at Educational Achievements in India:
percentage of GDP increased from 0.64 to
least 6 % of GDP be spent on education so as to Educational achievements in a country are
4.13.
make a noticeable rate of growth in educational indicated in terms of:
Throughout this period the increase in
achievements. 1. Adult literacy Level.
education expenditure has not been uniform
2. Primary Education Completion Rate.
and there has been irregular rise and fall.
Compared to this desired level of education 3. Youth Literacy Rate.
expenditure of around 6 % of GDP, the current
Important points relating to Government’s
level of a little over 4 % has been quite 5.7 FUTURE PROSPECTS
Expenditure on Education:
inadequate.
Education for All — Still a Distant
1. Elementary education takes a major share of
Free and Compulsory Education: The Tapas Dream: Though literacy rates for both —
total education expenditure.
Majumdar Committee, appointed by the adults as well as youth — have increased, still
Government of India in 1998, estimated an the absolute number of illiterates in India is
2. The share of the higher/tertiary education
expenditure of around Rs 1.37 lakh crore over 10 as much as India‘s population was at the time
(institutions of higher learning like colleges,
years (1998-99 to 2006-07) to bring all Indian of independence.
polytechnics and universities) is the least.
children in the age group of 6-14 years under the
purview of school education.

28
In 1950, when the Constitution of India was 3. As per NSSO data, in the year 2011-12, Difference between Physical capital &
passed by the Constituent Assembly, it was the rate of unemployment among youth males Human Capital:
noted in the Directive Principles of the who studied graduation and above in rural
Constitution that the government should areas was 19 %. Their urban counterparts had Basis Physical Human Capital
provide free and compulsory education for all relatively less level of unemployment at 16 %. Capital
children up to the age of 14 years within 10 Meaning It refers to It refers to the
years from the commencement of the 4. The most severely affected ones were all tools, skills,
Constitution. young rural female graduates as nearly 30 % machines, knowledge,
of them are unemployed. computers education,
Had we achieved this, we would have 100% and other expertise and
literacy by now. 5. Only about 3-6 % of primary level educated equipments ability of an
youth in rural and urban areas were that are individual or
Gender Equity — Better than Before: unemployed. needed for population of a
The differences in literacy rates between the nation
males and females are narrowing signifying a Therefore, the government should increase production of
positive development in gender equity. allocation for higher education and also goods and
improve the standard of higher education services.
Reasons to promote education for women institutions, so that students are imparted
1. Improves economic independence. employable skills in such institutions. Nature Tangible Intangible
2. Improve social status of women. Formation Economic & Social Process
3. Women education makes a favourable Technical &Conscious
impact on fertility rate and health care of Process decision of
women and children. owner.
Therefore, we cannot be complacent about Tradability It can be Only services of
the upward movement in the literacy rates traded in human capital
and we have miles to go in achieving cent per market. can be sold.
cent adult literacy. Separability It is It is not
separable separable from
Higher Education — a Few Takers: from its its owner.
1. The Indian education pyramid is steep, owner.
indicating lesser and lesser number of people Restriction Occurs due to Occurs out of
reaching the higher education level. on Mobility trade nationality &
barriers. culture
2. The level of unemployment among educated Nature of Constant use. Ageing
youth is the highest. Depreciation

29
 6.1 INTRODUCTION education and skill development. Background:
b. health, addressing both sanitation and public Although the share of agriculture sector’s
The majority of the poor live in rural areas health. contribution to GDP was on a decline, the
where they do not have access to the basic population dependent on this sector did not
necessities of life. Agriculture is the major 2. Land reforms show any significant change.
source of livelihood in the rural sector.
3. Development of the productive resources of Further, after the initiation of reforms, the
Mahatma Gandhi once said that the real each locality growth rate of agriculture sector decelerated
progress of India did not mean simply the to about 3 % p.a. during the 1991-2012, which
growth and expansion of industrial urban 4. Infrastructure development like electricity, was lower than the earlier years.
centres but mainly the development of the irrigation, credit, marketing, transport
villages. facilities including construction of village roads Scholars identify decline in public investment
and feeder roads to nearby highways, facilities since 1991 as the major reason for this. They
Why Rural Development? for agriculture research and extension, and also argue that inadequate infrastructure,
1. It is because more than two-third of India’s information dissemination lack of alternate employment opportunities in
population depends on agriculture that is yet to the industry or service sector, increasing
become productive enough to provide for them; 5. Special measures for alleviation of poverty casualisation of employment etc., further
2. One-third of rural India still lives in extreme and bringing about significant improvement in impede rural development.
the living conditions of the weaker sections of
Ch-6 Rural Development

poverty.
the population emphasising access to productive The impact of this phenomenon can be seen
That is the reason why we have to see a employment opportunities from the growing distress witnessed among
developed rural India if our nation has to farmers across different parts of India.
realise real progress. All this means that people engaged in farm and During 2007-12, agriculture output has grown
non-farm activities in rural areas have to be at 3.2 %.
6.2 WHAT IS RURAL DEVELOPMENT? provided with various means that help them
increase the productivity. They also need to be 6.3 CREDIT AND MARKETING IN
Rural development is a comprehensive term. It given opportunities to diversify into various RURAL AREAS
essentially focuses on action for the non-farms productive activities such as food
development of areas that are lagging behind in processing.
Importance of credit in rural
the overall development of the village economy. development:
Enabling them better and more affordable
Challenges or key issues in Rural access to healthcare, sanitation facilities at
1. Growth of rural economy depends primarily
Development workplaces and homes and education for all
on infusion of capital, from time to time, to
would also need to be given top priority for
realise higher productivity in agriculture and
1. Development of human resources including rapid rural development.
non-agriculture sectors.
a. literacy, more specifically, female literacy,
30
2. As the time gestation between crop sowing They are expected to dispense adequate Rural Banking — a Critical Appraisal:
and realisation of income after production is credit at cheaper rates.
quite long, farmers borrow from various Benefits:
sources to meet their initial investment on Role of micro-credit in meeting credit
seeds, fertilisers, implements and other family requirements of the poor: 1. Rapid expansion of the banking system had a
expenses of marriage, death, religious positive effect on rural farm and non-farm output,
ceremonies etc. 1. Self-Help Groups (henceforth SHGs) have income and employment.
emerged to fill the gap in the formal credit 2. It helped farmers to avail services and credit
3. Moneylenders and traders exploited small system because the formal credit delivery facilities and a variety of loans for meeting their
and marginal farmers and landless labourers mechanism has not only proven inadequate but production needs.
by lending to them on high interest rates and has also not been fully integrated into the 3. Famines became events of the past; food
by manipulating the accounts to keep them in a overall rural social and community security which is reflected in the abundant buffer
debt-trap. development. stocks of grains.

A major change occurred after 1969 when 2. Since some kind of collateral is required, Limitations:
India adopted social banking and multiagency vast proportion of poor rural households were 1. With the possible exception of the commercial
approach to adequately meet the needs of automatically out of the credit network. They banks, other formal institutions have failed to
rural credit. provide credit without collateral. develop a culture of deposit mobilisation — lending
to worthwhile borrowers and effective loan
The National Bank for Agriculture and Rural 3. The SHGs promote thrift in small recovery.
Development (NABARD) was set up in 1982 as proportions by a minimum contribution from 2. Agriculture loan default rates have been
an apex body to coordinate the activities of all each member. chronically high. It is alleged that farmers are
institutions involved in the rural financing deliberately refusing to pay back loans.
system. 4. From the pooled money, credit is given to 3. The expansion and promotion of the rural
the needy members to be repayable in small banking sector has taken a backseat after
The Green Revolution was a harbinger of instalments at reasonable interest rates. reforms.
major changes in the credit system as it led to
the diversification of the portfolio of rural 5. SHGs have helped in the empowerment of Suggestions to Improve:
credit towards production oriented lending. women. 1. it is suggested that banks need to change their
approach from just being lenders to building up
Institutional structure of Rural Banking: 6. By March end 2003, more than seven lakh relationship banking with the borrowers.
Today consists of a set of multi-agency SHGs had reportedly been credit linked. 2. Inculcating the habit of thrift (not to spend too
institutions, namely, much money) and efficient utilisation of financial
a. Commercial Banks, Such credit provisions are generally referred resources needs to be enhanced among the
b. Regional Rural Banks (RRBs), to as micro-credit programmes. farmers too.
c. Cooperatives and Land Development Banks.
31
6.4 AGRICULTURAL MARKET 3. Cooperative marketing, in realising fair 4. Despite government intervention, private trade
SYSTEM prices for farmers’ products, is the third (by moneylenders, rural political elites, big
aspect of government initiative. The success of merchants and rich farmers) predominates
Agricultural Marketing: It is a process that milk cooperatives in transforming the economic agricultural markets. The need for government
involves the assembling, storage, processing, landscape of Gujarat and some other parts of intervention is imminent particularly when a large
transportation, packaging, grading and the country is testimony to the role of share of agricultural products, is handled by the
distribution of different agricultural cooperatives. private sector.
commodities across the country.
4. The policy instruments like Emerging Alternate Marketing Channels:
Need for Agricultural Marketing: (i) Assurance of minimum support prices (MSP)
for agricultural products 1. Direct Selling: If farmers directly sell their
1. Prior to independence, farmers, while (ii) Maintenance of buffer stocks of wheat and produce to consumers, it increases their incomes.
selling their produce to traders, suffered rice by Food Corporation of India and Some examples of these channels are
from faulty weighing and manipulation of (iii) Distribution of food grains and sugar a.Apni Mandi (Punjab, Haryana and Rajasthan);
accounts. through PDS. b. Hadaspar Mandi (Pune);
2. Farmers who did not have the required These instruments are aimed at protecting the c. Rythu Bazars (vegetable and fruit markets in
information on prices prevailing in markets income of the farmers and providing food Andhra Pradesh and Telangana) and
were often forced to sell at low prices. grains at a subsidised rate to the poor. d. Uzhavar Sandies (farmers markets in Tamil
3. They also did not have proper storage Nadu).
facilities to keep back their produce for Limitations of measures taken by the
selling later at a better price. More than 10 government to improve Agricultural 2. Indirect Selling: Several national and
% of goods produced in farms are wasted Marketing: multinational fast food chains are increasingly
due to lack of storage. 1. There is still a need to develop about 27,000 entering into contracts/ alliances with farmers to
rural periodic markets as regulated market encourage them to cultivate farm products
Steps taken by the government in places to realise the full potential of rural (vegetables, fruits, etc.) of the desired quality by
developing rural markets: markets. providing them with not only seeds and other
inputs but also assured procurement of the
1. Regulation of markets to create orderly 2. The current infrastructure facilities are produce at predecided prices.
and transparent marketing conditions. By and quite inadequate to meet the growing demand
large, this policy benefited farmers as well and need to be improved. It is argued that such arrangements will help in
as consumers. reducing the price risks of farmers and would also
3. Cooperatives have received a setback during expand the markets for farm products.
2. Provision of physical infrastructure the recent past due to inadequate coverage of
facilities like roads, railways, warehouses, farmer members, lack of appropriate link
godowns, cold storages and processing units. between marketing and processing cooperatives
and inefficient financial management.
32
6.5 DIVERSIFICATION INTO 4. As agriculture is already overcrowded, a 2. Livestock sector alone provides alternate
PRODUCTIVE ACTIVITIES major proportion of the increasing labour livelihood options to over 70 million small and
force needs to find alternate employment marginal farmers including landless labourers. A
opportunities in other non-farm sectors. significant number of women also find
Diversification includes two aspects -
employment in the livestock sector.
1. Change in cropping pattern
Non-farm economy has several segments in it;
2. Shift of workforce from agriculture to other
some possess dynamic linkages that permit
allied activities (livestock, poultry, fisheries
healthy growth while others are in
etc.) and non-agriculture sector.
subsistence, low productivity propositions.

Need for Diversification:

The dynamic sub-sectors include agro-
processing industries, food processing
1. There is greater risk in depending exclusively
industries, leather industry, tourism, etc.
on farming for livelihood. It not only to reduce
the risk from agriculture sector but also to
Those sectors which have the potential but
provide productive sustainable livelihood
seriously lack infrastructure and other
options to rural people.
support include traditional home-based Chart 6.1 shows the distribution of livestock in
industries like pottery, crafts, handlooms etc. India. Poultry accounts for the largest share
2. Much of the agricultural employment
activities are concentrated in the Kharif with 58 % followed by others. Other animals
Majority of rural women find employment in which include camels, asses, horses, ponies and
season. But during the Rabi season, in areas
agriculture while men generally look for non- mules are in the lowest rung.
where there are inadequate irrigation facilities,
farm employment.
it becomes difficult to find gainful employment.
India had about 300 million cattle, including
A. Animal Husbandry: 108 million buffaloes, in 2012.
3. Expansion into other sectors is essential to
In India, the farming community uses the
provide supplementary gainful employment and
mixed crop-livestock farming system - cattle, Benefits:
in realising higher levels of income for rural
goats, fowl are the widely held species. 1. Performance of the Indian dairy sector over
people to overcome poverty and other
tribulations. the last three decades has been quite
Importance of Animal Husbandry: impressive.
Hence, there is a need to focus on allied
1. Livestock production provides increased 2. Milk production in the country has increased
activities, non-farm employment and other
stability in income, food security, transport, by more than eight times between 1951-2014.
emerging alternatives of livelihood, though
fuel and nutrition for the family without This can be attributed mainly to the successful
there are many other options available for
disrupting other food-producing activities. implementation of ‘Operation Flood’.
providing sustainable livelihoods in rural areas.

33
Operation Flood: It is a system whereby all Importance of Fisheries: 2. Economic condition of many farmers engaged
the farmers can pool their milk produced 1. Today total fish production accounts for in horticulture has improved and it has become
according to different grading (based on 0.8 % of the total GDP. a means of improving livelihood for many
quality) and the same is processed and unprivileged classes.
marketed to urban centres through 2. About 60 % of the workforce in export
cooperatives. marketing and 40 % in internal marketing are 3. Flower harvesting, nursery maintenance,
women. hybrid seed production and tissue culture,
In this system the farmers are assured of a propagation of fruits and flowers and food
fair price and income from the supply of milk Major problems fishing community: processing are highly remunerative employment
to urban markets. 1. A large share of fish worker families are options for women in rural areas.
poor.
3. Meat, eggs, wool and other by-products are 2. Rampant underemployment. Horticulture sector contributes nearly one-
also emerging as important productive sectors 3. Low per capita earnings. third of the value of agriculture output and
for diversification. 4. Absence of mobility of labour to other 6%ofGDP of India.
sectors.
B. Fisheries: 5. High rate of illiteracy. India has emerged as a world leader in
6. Indebtedness. producing a variety of fruits like mangoes,
The fishing community regards the water body bananas, coconuts, cashew nuts and a number of
as ‘mother’ or ‘provider’. The water bodies There is a need to increase credit facilities spices and is the second largest producer of
consisting of sea, oceans, rivers, lakes, natural through cooperatives and SHGs for fruits and vegetables.
aquatic ponds, streams etc. are, therefore, an fisherwomen to meet the working capital
integral and life-giving source for the fishing requirements for marketing. Conclusion:
community.
C. Horticulture: 1. Though, in terms of numbers, our livestock
Fish production from inland sources population is quite impressive but its
contributes about 64 % to the total value of Blessed with a varying climate and soil productivity is quite low as compared to other
fish production and the balance 36 % comes conditions, India has adopted growing of countries.
from the marine sector (sea and oceans). diverse horticultural crops such as fruits, It requires improved technology and promotion
vegetables, tuber crops, flowers, medicinal and of good breeds of animals to enhance
Note: In India, West Bengal, Andhra Pradesh, aromatic plants, spices and plantation crops. productivity.
Kerala, Gujarat, Maharashtra and Tamil Nadu Improved veterinary care and credit facilities
are major fish producing states. Importance of Horticulture: to small and marginal farmers and landless
1. These crops play a vital role in providing food labourers would enhance sustainable livelihood
and nutrition, besides addressing employment options through livestock production.
concerns.

34
2. In fisheries problems related to over- fishing 6.6 SUSTAINABLE DEVELOPMENT 4. Organically grown food has more nutritional
and pollution need to be regulated and controlled. AND ORGANIC FARMING value than chemical farming thus providing us
Welfare programmes for the fishing community with healthy foods.
have to be reoriented in a manner which can Conventional agriculture relies heavily on
provide long-term gains and sustenance of chemical fertilisers and toxic pesticides etc., 5. Organic farming requires more labour input
livelihoods. which enter the food supply, penetrate the than conventional farming; India will find
water sources, harm the livestock, deplete the organic farming an attractive proposition.
3. Horticulture has emerged as a successful soil and devastate natural eco-systems.
sustainable livelihood option and needs to be Limitations/Challenges of Organic Farming:
encouraged significantly. Enhancing its role Efforts in evolving technologies which are eco-
requires investment in infrastructure like friendly are essential for sustainable 1. Popularising organic farming requires
electricity, cold storage systems, marketing development and one such technology which is awareness and willingness on the part of
linkages, small-scale processing units and eco-friendly is organic farming. farmers to adapt to new technology.
technology improvement and dissemination.
Organic Agriculture is a whole system of 2. Inadequate infrastructure and the problem
D. Other Alternate Livelihood Options: farming that restores, maintains and enhances of marketing the products are major concerns
the ecological balance. which need to be addressed apart from an
IT can play a critical role in achieving sustainable appropriate agriculture policy to promote
development and food security in the twenty-first There is an increasing demand for organically organic farming.
century. grown food to enhance food safety throughout
1. Governments can predict areas of food the world 3. Yields from organic farming are less than
insecurity and vulnerability using appropriate modern agricultural farming in the initial
information and software tools so that action can Benefits of Organic Farming: years. Therefore, small and marginal farmers
be taken to prevent or reduce the likelihood of an 1. Organic agriculture offers a means to may find it difficult to adapt to large scale
emergency. substitute costlier agricultural inputs (such as production.
2. It also has a positive impact on the agriculture HYV seeds, chemical fertilisers, pesticides
sector as it can disseminate information regarding etc.) with locally produced organic inputs that 4. Organic produce may also have more
emerging technologies and its applications, prices, are cheaper and thereby generate good blemishes and a shorter shelf life than
weather and soil conditions for growing different returns on investment. sprayed produce.
crops etc.
3. Though IT is, by itself, no catalyst of change 2. Organic agriculture also generates income 5. Choice in production of off-season crops is
but it can act as a tool for releasing the creative through exports as the demand for organically quite limited in organic farming.
potential and knowledge embedded in the society. grown crops is on a rise.
4. It also has potential of employment generation in 3. The produce is pesticide-free and produced 6. Organic farming helps in sustainable
rural areas. in an environmentally sustainable way. development of agriculture.

35
 7.1 INTRODUCTION GDP: The total money value of all such goods 7.3 PARTICIPATION OF PEOPLE IN
and services produced in a country in a year is EMPLOYMENT
Why do people work? called its gross domestic product for that year.
1. People work for ‘earning’ a living. GNP: GDP + Earning from Foreign Transactions
Worker-Population Ratio is an indicator
2. Being employed in work gives people a sense which is used for analysing the employment
of self-worth and enables them to relate Who is a Worker?
situation in the country.
themselves meaningfully with others. 1. All those who are engaged in economic
This ratio is useful in knowing the proportion
3. They also have a sense of accomplishment activities, in whatever capacity — high or low,
of population that is actively contributing to
Ch-7 Employment: Growth, Informalisation

when they work to meet the requirements of are workers.

the production of goods and services of a
those who are dependent on them. 2. If some of them temporarily abstain from
country.
4. By working they are contributing to national work due to illness, injury or other physical
Higher Ratio = Higher Participation
income and hence, the development of the disability, bad weather, festivals, social or
Lower Ratio = Lower Participation
country by engaging in various economic religious functions, they are also workers.
= Total Number of Workers x 100
activities. 3. Workers also include all those who help the
Population
main workers in these activities. Population is defined as the total number of
Note: Mahatma Gandhi insisted upon education 4. Those who are self-employed are also
people who reside in a particular locality at a
and training through a variety of works workers.
particular point of time.
including craft.
Note: While estimating the number of Why Worker-Population Ratio is higher in
Why studying about working people is workers, all those who are engaged in economic rural area than in urban area?
important? activities are included as employed. 1. People in rural areas have limited
1. It gives us insights into the quality and resources to earn a higher income and
nature of employment in our country and helps During 2011-12, India had about a 473 million participate more in the employment market.
in understanding and planning our human strong workforce. 2. In rural areas, many do not go to schools,
resources. colleges and other training institutions. Even
and Other Issues

2. It helps us to analyse the contribution made Particulars Rural Urban if some go, they discontinue in the middle to
by different industries and sectors towards Total 3/4th 1/4th join the workforce
national income. Men 2/3rd 4/5th 3. In rural areas, people cannot stay at home
3. It also helps us to address many social issues Women 1/3rd 1/5th as their economic condition may not allow
such as exploitation of marginalised sections of them to do so.
the society, child labour etc. Women carry out works like cooking, fetching 4. In urban areas, many people are able to
water and fuel wood and participate in farm study in various educational institutions.
7.2 WORKERS AND EMPLOYMENT labour. They are not paid wages in cash or in They have a variety of employment
the form of grains; at times they are not paid opportunities. They look for the appropriate
Economic Activities: Those activities which at all. For this reason, these women are not job to suit their qualifications and skills.
contribute to the gross national product are categorised as workers.
called economic activities. 36
 One of the reasons could be skill requirement.
Since regular salaried jobs require skills and a
higher level of literacy, women might not have
been engaged to a great extent.

Why are women, in general and urban

women, in particular, not working?
1. Where men are able to earn high incomes,
families discourage female members from
taking up jobs.
2. Many activities for the household engaged
in by women are not recognised as productive
7.5 EMPLOYMENT IN FIRMS,
work.
3. Narrow definition of work leads to non- FACTORIES AND OFFICES
recognition of women’s work and, therefore, to Self-employed and casual wage labourers
All economic activities are divided into eight
the underestimation of the number of women are found more in rural areas than in urban
different industrial divisions. For simplicity, all
workers in the country. areas?
the working persons engaged in these divisions
OR
can be clubbed into three major sectors.
7.4 SELF-EMPLOYED AND HIRED In urban areas, self-employment and
WORKERS regular wage salaried jobs are greater than Primary Secondary Tertiary
in rural areas? Sector Sector Sector
1. Workers who own and operate an enterprise (i) (i) Mining & (i)Transport
to earn their livelihood are known as Self- 1. In Rural Areas, since majority of those Agriculture Quarrying & Storage
Employed. depending on farming own plots of land and (ii) (ii)Trade
2. Casual Wage Labourers are those who gets cultivate independently, the share of self- Manufacturing
remuneration for the work done. employed is greater. (iii) Electricity, (iii) Services
3. When a worker is engaged by someone or an Gas & Water
enterprise and paid his or her wages on a 2. The nature of work in urban areas is Supply
regular basis, they are known as Regular different. Everyone cannot run factories, shops (iv) Construction
Salaried Employees. and offices of various types. Moreover
enterprises in urban areas require workers on a
Why are fewer women found in regular regular basis.
salaried employment?
37
Table:
1. Primary sector is the main source of employment for
majority of workers in India. Secondary sector provides
employment to only about 24 % of workforce. About 27
% of workers are in the service sector.

2. About 64 % of the workforce in rural India depends

on agriculture, forestry and fishing. About 20 % of rural
workers are working in manufacturing industries,
construction and other industrial activities. Service
sector provides employment to only about 16 % of rural
workers.

3. Agriculture is not a major source of employment in

urban areas where people are mainly engaged in the
service sector. About 60 % of urban workers are in the
service sector. The secondary sector gives employment
to about 35 % of urban workforce.

4. About 63 % of the female workforce is employed in

the primary sector whereas less than half of males work
in that sector. Men get opportunities in both secondary
and service sectors.

7.6 GROWTH AND CHANGING STRUCTURE

OF EMPLOYMENT

Two Developmental indicators: Growth of Employment

and GDP.

During the period 1950–2010, Gross Domestic Product

(GDP) of India grew positively and was higher than the
employment growth. However, there was always
fluctuation in the growth of GDP. During this period,
employment grew at the rate of not more than 2%.
38
 7.7 INFORMALISATION OF There are about 473 million workers in the
INDIAN WORKFORCE country.

Formal Informal
Why does a person working in the private
Male 24 310
sector get a lower salary as compared to
another person doing the same work but in Female 6 133
the public sector? Total 30 443
% (Approx) 6% 94%
The government, through its labour laws,
enable them to protect their rights in
various ways. This section of the workforce Is it necessary to generate employment in
forms trade unions, bargains with employers the formal sector rather than in the
for better wages and other social security informal sector? Why?
measures. 1. Workers and enterprises in the informal
sector do not get regular income.
In the late 1990s: employment growth started 2. They do not have any protection or
We classify workforce into two categories:
declining and reached the level of growth that India regulation from the government.
workers in formal and informal sectors,
had in the early stages of planning. 3. Workers are dismissed without any
which are also referred to as organised and
compensation.
unorganised sectors.
Jobless Growth is a phenomenon which means that the 4. Technology used in the informal sector
GDP of the country is rising but without generating enterprises is out-dated.
1. All the public sector establishments and
employment. 5. They also do not maintain any accounts.
those private sector establishments which
6. Workers of this sector live in slums and
employ 10 hired workers or more are called
Casualisation of workforce is the process of moving formal sector establishments and those who are squatters.
from self-employment and regular salaried employment work in such establishments are formal
to casual wage work. Owing to the efforts of the International
sector workers.
Labour Organisation (ILO), the Indian
2. All other enterprises and workers working
Distribution of workforce by industrial sectors government has initiated the modernisation of
in those enterprises form the informal
shows substantial shift from farm work to non-farm informal sector enterprises and provision of
sector.
work. social security measures to informal sector
workers.
Note: The information relating to
1. About 74% of workforce was engaged in primary
employment in the formal sector is collected
sector has declined to about 50%.
by the Union Ministry of Labour through
2. Secondary sector have increased from 11% to 24%.
employment exchanges located in different
3. Service sector have increased from 15% to 27%.
parts of the country.
39
7.8 UNEMPLOYMENT 7.9 GOVERNMENT AND
EMPLOYMENT GENERATION
NSSO defines Unemployment as a situation in
which all those who, owing to lack of work, are Mahatma Gandhi National Rural Employment Guarantee
not working but either seek work through Act 2005. It promises 100 days of guaranteed wage
employment exchanges, intermediaries, friends employment to all rural households who volunteer to do
or relatives or by making applications to unskilled manual work. This scheme is one of the many
prospective employers or express their measures the government has implemented to generate
willingness or availability for work under the employment for those who are in need of jobs in rural
prevailing condition of work and remunerations. areas.

Types of unemployment in our economy Government’s role in generating employment:

1. Direct Employment: The government employs people
Open Unemployment: Willing to work + Ability in various departments for administrative purposes. It
to work + Not getting work also runs industries, hotels and transport companies, and
Disguised Unemployment: Employing more hence, provides employment directly to workers.
than required, no additional output. 2. Indirect Employment: When the output of goods and
Seasonal Unemployment: Not able to find job services from government enterprises increases, then
in a particular season. private enterprises which receive raw materials from
government enterprises will also raise their output and
There are three sources of data on hence increase the number of employment opportunities
unemployment: in the economy.

1. Reports of Census of India, Employment generation programmes:

2. National Sample Survey Organisation’s All these programmes aim at providing not only
Reports of Employment and Unemployment employment but also services in areas such as primary
Situation and health, primary education, rural drinking water, nutrition,
3. Directorate General of Employment and assistance for people to buy income and employment
Training Data of Registration with Employment generating assets, development of community assets by
Exchanges. generating wage employment, construction of houses and
sanitation, assistance for constructing houses, laying of
rural roads, development of wastelands/ degraded lands.

40
 8.1 INTRODUCTION drinking water facilities and the monetary 4. Inadequate infrastructure can have
system including banks, insurance and other multiple adverse effects on health.
Why some states in India are financial institutions.
5. Improvements in water supply and
performing much better than others in
3. Some of these facilities have a direct impact sanitation have a large impact by reducing
certain areas?
on production of goods and services while morbidity (meaning proneness to fall ill) from
others give indirect support by building the major waterborne diseases and reducing the
It is all because these states have better
social sector of the economy. severity of disease when it occurs.
infrastructure in the areas they excel than
other states of India.
Infrastructure is divided into two 6. The quality of transport and communication
Some have better irrigation facilities.
categories: infrastructure can affect access to health
Others have better transportation
care. Air pollution and safety hazards
facilities, or are located near ports which
1. Economic Infrastructure: It comprises of connected to transportation also affect
make raw materials required for various
energy, transportation and communication. morbidity, particularly in densely populated
manufacturing industries easily accessible.
2. Social Infrastructure: It comprises of areas.
Cities like Bengaluru in Karnataka attract
education, health and housing sector.
many multinational companies because they
provide world-class communication facilities. 8.4 THE STATE OF
8.3 RELEVANCE OF INFRASTRUCTURE IN INDIA
All these support structures, which INFRASTRUCTURE
facilitate development of a country, 1. Traditionally, the government has been
1. Infrastructure is the support system on
constitute its infrastructure. solely responsible for developing the
Ch-8 Infrastructure

which depends the efficient working of a

infrastructure. But it was found that the
modern industrial economy.
8.2 WHAT IS INFRASTRUCTURE? government’s investment in infrastructure was
inadequate.
2. Agriculture also depends on it for speedy and
1. Infrastructure provides supporting large-scale transport of seeds, pesticides,
services in the main areas of industrial and 2. Today, the private sector by itself and also
fertilisers and the produce using modern
agricultural production, domestic and in joint partnership with the public sector has
roadways, railways and shipping facilities.
foreign trade and commerce. started playing a very important role in
Agriculture also depends on insurance and
infrastructure development.
banking facilities because of its need to
2. These services include roads, railways, operate on a very large scale.
ports, airports, dams, power stations, oil and 3. A majority of our people live in rural areas.
gas pipelines, telecommunication facilities, Rural women are still using bio-fuels such as
3. Infrastructure contributes to economic
the country’s educational system including crop residues, dung and fuel wood to meet
development of a country both by increasing
schools and colleges, health system including their energy requirement. They walk long
the productivity of the factors of production
hospitals, sanitary system including clean distances to fetch fuel, water and other basic
and improving the quality of life of its people.
needs.
41
 Development of infrastructure and economic
development go hand in hand:

1. Agriculture depends, to a considerable

extent, on the adequate expansion and
development of irrigation facilities.
2. Industrial progress depends on the
development of power and electricity generation,
transport and communications.

If proper attention is not paid to the

development of infrastructure, it is likely to act
as a severe constraint on economic development.

4. The census 2001 shows that in rural India 2. Some economists have projected that India
only 56 % households have an electricity will become the third biggest economy in the 8.5 ENERGY
connection and 43% still use kerosene. About world a few decades from now. For that to
90 %of the rural households use bio-fuels for happen, India will have to boost its Energy is a critical aspect of the development
cooking. infrastructure investment. process of a nation.
It is essential for industries.
5. Tap water availability is limited to only 24 % 3. In any country, as the income rises, the It is used on a large scale in agriculture and
rural households. About 76 %of the population composition of infrastructure requirements related areas like production and transportation
drinks water from open sources such as wells, changes significantly. of fertilisers, pesticides and farm equipment.
tanks, ponds, lakes, rivers, canals, etc. It is required in houses for cooking, household
4. For low-income countries, basic lighting and heating.
6. Access to improved sanitation in rural areas infrastructure services, like irrigation,
was only 20 %. transport and power, are more important. Sources of Energy:

State of some infrastructure in India in 5. As economies mature and most of their There are commercial and non-commercial
comparison to a few other countries: basic consumption demands are met, the share sources of energy.
of agriculture in the economy shrinks and more Commercial sources are coal, petroleum and
1. Infrastructure is the foundation of service-related infrastructure is required. electricity as they are bought and sold.
development but India invests only 34 % of its This is why, the share of power and These sources of energy are generally
GDP on infrastructure, which is far below that telecommunication infrastructure is greater in exhaustible (with the exception of hydropower).
of China and Indonesia. high-income countries.

42
 The sectorial pattern of consumption
of commercial energy:

1. The transport sector was the largest consumer of

commercial energy in 1953-54. However, there has
been continuous fall in the share of the transport
sector.
2. The shares of the household, agriculture and
industrial sector have been increasing.
3. The share of oil and gas is the highest among all
commercial energy consumption.
4. With the rapid rate of economic growth, there has
Non-commercial sources of energy are types of energy if some appropriate cost
been a corresponding increase in the use of energy.
firewood, agricultural waste and dried dung. effective technologies that are already
These are non-commercial as they are found available are used. Even cheaper
Power/Electricity:
in nature/forests. technologies can be developed.
These sources are generally renewable.
1. It is a critical component of infrastructure that
Consumption Pattern of Commercial
determines the economic development of a country.
Both commercial and non-commercial sources Energy:
of energy are known as conventional sources
2. The growth rate of demand for power is generally
of energy. Out of the total energy consumed in India:
higher than the GDP growth rate.
In order to have 8 % GDP growth p.a., power supply
More than 60 %of Indian households depend Commercial Energy Consumption - 74%.
needs to grow around 12 % annually.
on traditional sources of energy for meeting This includes coal 54%, Oil 32%, Natural
their regular cooking and heating needs. gas 10% and Hydro Energy 2%.
3. In India, in 2016, thermal sources accounted for
67 % of the power generation capacity. Hydel power
Non-conventional Sources of Non-commercial Energy Consumption – 26%.
accounted for 14 %, while nuclear power accounted
Energy: These sources includes firewood, cow dung
for only 2 %. New & Renewable sources accounted
and agricultural wastes.
for 17%.
There are three other sources of energy
which are commonly termed as non- The critical feature of India’s energy
4. India’s energy policy encourages two energy
conventional sources — solar energy, wind sector, and its linkages to the economy, is
sources — hydel and wind — as they do not rely on
energy and tidal power. the import dependence on crude and
fossil fuel and, hence, avoid carbon emissions.
petroleum products, which is likely to grow
Being a tropical country, India has almost rapidly in the near future.
unlimited potential for producing all three
43
5. Atomic energy is an important source of (iv) There is general public unrest due to high 5. Health infrastructure includes hospitals,
electric power, it has economic advantages. At power tariffs and prolonged power cuts in doctors, nurses and other para-medical
present, nuclear energy accounts for only 2 % different parts of the country, and professionals, beds, equipment required in
of the total energy consumption, against a hospitals and a well-developed pharmaceutical
global average of 13 %. (v) Thermal power plants, which are the industry.
mainstay of India’s power sector, are facing 6. It is also true that mere presence of health
Some Challenges in the Power Sector: shortage of raw material and coal supplies. infrastructure is not sufficient to have healthy
people. The same should be accessible to all
Electricity generated by various power stations Thus, continued economic development and people.
is not consumed entirely by ultimate consumers; population growth are driving the demand for 7. Since, the initial stages of planned
A part is consumed by power station auxiliaries. energy faster than what India is producing development, policy-makers envisaged that no
Also, while transmitting power, a portion is lost currently. individual should fail to secure medical care,
in transmission. What we get in our houses, More public investment, better research and curative and preventive, because of the
offices and factories is the net availability. development efforts, exploration, inability to pay for it.
technological innovation and use of renewable
Challenges in India’s power sector: energy sources can ensure additional supply State of Health Infrastructure:
of electricity.
(i) India’s installed capacity to generate 1. The government has the constitutional
electricity is not sufficient to feed an annual 8.6 HEALTH obligation to guide and regulate all health-
economic growth of 7-8 %. related issues, such as medical education,
1. Health is not only absence of disease but adulteration of food, drugs and poisons, medical
(ii) State Electricity Boards (SEBs), which also the ability to realise one’s potential. It is profession, vital statistics, mental deficiency
distribute electricity, incur losses which a yardstick of one’s well-being. and lunacy.
exceed ₹ 500 billion. This is due to 2. Health is the holistic process related to
transmission and distribution losses, wrong the overall growth and development of the 2. The Union Government evolves broad policies
pricing of electricity and other inefficiencies. nation. and plans through the Central Council of Health
3. Scholars assess people’s health by taking and Family Welfare.
Distribution of electricity to farmers is the into account indicators like infant mortality
main reason for the losses; electricity is also and maternal mortality rates, life expectancy 3. It collects information and renders financial
stolen in different areas which also adds to the and nutrition levels, along with the incidence and technical assistance to State governments,
woes of SEBs of communicable and non-communicable Union Territories and other bodies for the
diseases. implementation of important health
(iii) private sector power generators are yet to 4. Development of health infrastructure programmes in the country.
play their role in a major way; same is the case ensures a country of healthy manpower for
with foreign investors the production of goods and services.

44
 8. The expansion of health infrastructure has Indian Systems of Medicine (ISM):
resulted in the eradication of smallpox, guinea
worms and the near eradication of polio and 1. It includes six systems - Ayurveda, Yoga,
leprosy. Unani, Siddha, Naturopathy and Homeopathy
(AYUSH).
Private Sector Health Infrastructure: 2. At present, there are 3,943 AYUSH
hospitals and 27,700 dispensaries and as many
1. More than 70 % of the hospitals in India are as 7.4 lakh registered practitioners in India.
run by the private sector. They control nearly 3. But little has been done to set up a
two-fifth of the beds available in the hospitals. framework to standardise education or to
2. Nearly 60 % of dispensaries are run by the promote research.
same private sector. 4. ISMs have huge potential and can solve a
3. They provide healthcare for 80 % of out- large part of our healthcare problems because
patients and 46 % of in-patients. they are effective, safe and inexpensive.
4. At the village level, a variety of hospitals,
technically known as Primary Health Centres 4. Private sector has been playing a dominant
Indicators of Health and Health
(PHCs), have been set up by the government. role in medical education and training, medical
Infrastructure - A Critical Appraisal:
technology and diagnostics, manufacture and
5. India also has a large number of hospitals sale of pharmaceuticals, hospital construction There is greater scope for the role of
run by voluntary agencies and the private and the provision of medical services. government in the health sector. For instance,
sector. These hospitals are manned by 5. In 2001-02, there were more than 13 lakh the table shows expenditure on health sector as
professionals and para-medical professionals medical enterprises employing 22 lakh people; 4.7 % of the total GDP. This is abysmally low as
trained in medical, pharmacy and nursing more than 80 % of them are single person compared to other countries, both developed
colleges. owned, and operated by one person occasionally and developing.
employing a hired worker.
6. Since Independence, there has been a India has about 17 per cent of the world’s
significant expansion in the physical provision 6. Private sector in India has grown population but it bears a frightening 20 % of
of health services. independently without any major regulation; the global burden of diseases (GBD).
some private practitioners are not even
7. During 1951–2017, the number of registered doctors and are known as quacks. GBD is an indicator used by experts to gauge
government hospitals and dispensaries 7. Since the 1990s, owing to liberalisation the number of people dying prematurely due to
together increased from 9,300 to 51,300 and measures, many non-resident Indians and a particular disease, as well as, the number of
hospital beds from 1.2 to 7.1 lakh. Also, nursing industrial and pharmaceutical companies have years spent by them in a state of ‘disability’
personnel increased from 0.18 to 28.8 lakh and set up state-of-the-art super-specialty owing to the disease.
allopathic doctors from 0.62 to 10.4 lakhs. hospitals to attract India’s rich and medical
tourists.
45
 5. The PHCs located in rural areas do not even
offer X-ray or blood testing facilities, which
for a city dweller constitutes basic healthcare.

6. States, like Bihar, Madhya Pradesh,

Rajasthan and Uttar Pradesh, are relatively
lagging behind in healthcare facilities.

7. In rural areas, the percentage of people who

have no access to proper healthcare facilities
has increased over the last few years.

8. Villagers have no access to any specialised

medical care, like paediatrics, gynaecology,
anaesthesia and obstetrics.

9. Even though 380 recognised medical colleges

Urban-Rural and Poor-Rich Divide: produce about 44,000 medical graduates every
In India, more than half of GBD is accounted year, the shortage of doctors in rural areas
for by communicable diseases such as 1. Though 70 % of India’s population lives in persists. While 1/5th of these doctor graduates
diarrhoea, malaria and tuberculosis. Every rural areas, only 1/5th of its hospitals leave the country for better monetary
year around five lakh children die of water- (including private hospitals) are located in prospects, many others opt for private
borne diseases. The danger of AIDS is also rural areas. hospitals, which are mostly located in urban
looming large. areas.
2. Rural India has only about half the number
Malnutrition and inadequate supply of vaccines of dispensaries. 10. The poorest 20 % of Indians living in both
lead to the death of 2.2 million children every urban and rural areas spend 12 % of their
year. 3. Out of about 6.3 lakhs beds in government income on healthcare, while the rich spend only
hospitals, roughly 30 %are available in rural 2 %.
At present, less than 20 per cent of the areas.
population utilises public health facilities. 11. Many have to sell their land or even pledge
4. Rural areas do not have sufficient medical their children to afford treatment. Since
Only 38 per cent of the PHCs have the infrastructure. There are only 0.36 hospitals government-run hospitals do not provide
required number of doctors and only 30 % of for every one lakh people in rural areas, while sufficient facilities, the poor are driven to
the PHCs have sufficient stock of medicines. urban areas have 3.6 hospitals for the same private hospitals, which make them indebted
number of people. forever, else they opt to die.
46
Women’s Health: 2. Success in the long-term battle against
diseases depends on education and efficient
How has women’s health become a matter health infrastructure. It is, therefore, critical
of great concern? to create awareness on health and hygiene and
provide efficient systems.
1. Women constitute about half of the total
population in India. They suffer many 3. The role of telecom and IT sectors cannot be
disadvantages as compared to men in the areas neglected in this process.
of education, participation in economic activities
and healthcare. 4. The effectiveness of healthcare programmes
also rests on primary healthcare. The ultimate
2. The deterioration in the child sex ratio in the goal should be to help people move towards a
country from 927 in 2001 to 914 in 2011 points better quality of life.
to the growing incidence of female foeticide.
5. There is a sharp divide between urban and
3. Close to 3,00,000 girls aged below 15 years rural healthcare in India. If we continue to
are not only married but have already borne ignore this deepening divide, we run the risk of
children at least once. destabilising the socioeconomic fabric of our
country.
4. More than 50 % of married women in the age
group of 15–49 years have anaemia and 6. In order to provide basic healthcare to all,
nutritional anaemia caused by iron deficiency, accessibility and affordability need to be
which has contributed to 19 % of maternal integrated in our basic health infrastructure.
deaths.

5. Abortions are also a major cause of maternal

morbidity and mortality in India.

How can we increase the effectiveness of

health care programmes?

1. Health is a vital public good and a basic human

right. All citizens can get better health
facilities if public health services are
decentralised.

47
 9.1 INTRODUCTION Non-renewable resources, on the other 2. The intensive and extensive extraction of both
hand, are those which get exhausted with renewable and non-renewable resources has
The economic development that we have extraction and use. Examples fossil fuel etc. exhausted some of these vital resources and we are
achieved so far has come at a very heavy compelled to spend huge amounts on technology and
price - at the cost of environmental quality. Carrying Capacity: It implies that the research to explore new resources.
Ch-9 Environment and Sustainable Development

resource extraction is not above the rate 3. The health costs of degraded environmental
of regeneration of the resource and the quality are also rising as decline in air and water
9.2 ENVIRONMENT -
wastes generated are within the quality have resulted in increased incidence of
DEFINITION AND FUNCTIONS
assimilating capacity of the environment. respiratory and water-borne diseases.
4. Global environmental issues such as global
Environment is defined as the total What happens when the rate of resource warming and ozone depletion also contribute to
planetary inheritance and the totality of all extraction exceeds that of their increased financial commitments for the
resources. It includes all the biotic and regeneration? government.
abiotic factors that influence each other. The environment fails to perform its third
and vital function of life sustenance and Is environmental crisis a recent phenomenon?
Biotic elements include all living elements this result in an environmental crisis.
such as birds, animals and plants, forests,
1. When civilisation just began, or before huge
fisheries etc.
Environmental Crisis Issues: increase in population & before industrialisation, the
Abiotic elements include all non-living
1. Rising population of the developing demand for environmental resources and services
elements such as air, water, land etc.
countries. was much less than their supply. Pollution was within
2. The affluent consumption and production the absorptive capacity of the environment & the
Functions of the Environment: standards of the developed countries. rate of extraction was less than the rate of
1. It supplies resources both renewable 3. Many resources have become extinct and regeneration of these resources. Hence
and non-renewable resources. the wastes generated are beyond the environmental problems did not arise.
2. It assimilates waste. absorptive capacity of the environment.
3. It sustains life by providing genetic and
2. With population explosion and the advent of
bio diversity.
Absorptive Capacity means the ability of industrial revolution to meet the growing needs of
4. It also provides aesthetic services like
the environment to absorb degradation. the expanding population, demand for resources for
scenery etc.
both production and consumption went beyond the
Opportunity Costs of Negative rate of regeneration of the resources. The pressure
Renewable resources are those which can
Environmental Impacts: on the absorptive capacity of the environment
be used without the possibility of the
increased tremendously. Increased demand for
resource becoming depleted or exhausted.
1.The past development has polluted and environmental resources and services but their
That is, a continuous supply of the resource
dried up rivers and other aquifers making supply is limited due to overuse and misuse. Hence
remains available. Examples trees, fishes
water an economic good. the environmental issues of waste generation and
etc.
pollution have become critical today.
48
9.3 STATE OF INDIA’S Threat of poverty-induced environmental 2. The per capita forest land in the country is
ENVIRONMENT degradation and, at the same time, threat of only 0.08 hectare against the requirement of
pollution from affluence and a rapidly growing 0.47 hectare to meet basic needs, resulting in
industrial sector. an excess felling of about 15 million cubic metre
India has abundant natural resources
forests over the permissible limit.
1. India has rich quality of soil, hundreds of
Air pollution, water contamination, soil erosion,
rivers and tributaries, lush green forests,
deforestation and wildlife extinction are some 3. Soil Erosion rate: 5.3 billion tonnes
plenty of mineral deposits beneath the land
of the most pressing environmental concerns of Nitrogen Loss: 0.8 million tonnes
surface, vast stretch of the Indian Ocean,
India. Phosphorus Loss: 1.8 million tonnes
ranges of mountains, etc.
The priority issues identified are Potassium Loss: 26.3 million tonnes
2. The black soil of the Deccan Plateau is
According to the Government of India, the
particularly suitable for cultivation of cotton,
1. Land Degradation quantity of nutrients lost due to erosion each
leading to concentration of textile industries
Factors responsible for land degradation are: year ranges from 5.8 to 8.4 million tonnes.
in this region.
(i) Loss of vegetation occurring due to
deforestation 3. Air Pollution
3. The Indo-Gangetic plains - spread from the
(ii) Unsustainable fuel wood and fodder Pollution from vehicles, industries and power
Arabian Sea to the Bay of Bengal - are one of
extraction (iii) shifting cultivation plants are major sources of air pollution.
the most fertile, intensively cultivated and
(iv) Encroachment into forest lands 1. Since vehicular emissions are ground level
densely populated regions in the world.
(v) forest fires and over grazing sources and, thus, have the maximum impact on
4. India’s forests, though unevenly
(vi) Non-adoption of adequate soil conservation the general population. The number of motor
distributed, provide green cover for a
measures (vii) Improper crop rotation vehicles has increased from about 3 lakh in 1951
majority of its population and natural cover
(viii) indiscriminate use of agro-chemicals such to 67 cr in 2003. In 2003, personal transport
for its wildlife.
as fertilisers and pesticides vehicles constituted about 80 per cent of the
(ix) improper planning and management of total number of registered vehicles thus
5. Large deposits of iron-ore, coal and natural
irrigation systems contributing significantly to total air pollution
gas are found in the country. India alone
(x) Extraction of ground water in excess of the load.
accounts for nearly 20 per cent of the world’s
recharge capacity (xi) Open access resources 2. India is one of the ten most industrialised
total iron-ore reserves.
(xii) Poverty of the agriculture-dependent nations of the world. The CPCB (Central Pollution
6. Bauxite, copper, chromate, diamonds, gold,
people. Control Board) has identified seventeen
lead, lignite, manganese, zinc, uranium, etc. are
categories of industries (large and medium
also available in different parts of the
2. Biodiversity Loss scale) as significantly polluting.
country.
1. The high density of population and livestock
The developmental activities in India have and the competing uses of land for forestry, 4. Management of Fresh Water
resulted in pressure on its finite natural agriculture, pastures, human settlements and
resources, besides creating impacts on human industries exert an enormous pressure on the 5. Solid Waste Management
health and well-being. country’s finite land resources.
49
9.4. SUSTAINABLE DEVELOPMENT Sustainable development is a development that 9.5 STRATEGIES FOR SUSTAINABLE
meets the basic needs of all, particularly the poor DEVELOPMENT
The concept of sustainable development was majority, for employment, food, energy, water,
emphasised by the United Nations housing, and ensures growth of agriculture,
1. Use of Non-conventional Sources of
Conference on Environment and Development manufacturing, power and services to meet these
Energy:
(UNCED), which defined it as: ‘Development needs.
Adverse environmental impacts Of Thermal and
that meets the need of the present Hydro Power Plants.
generation without compromising the ability The Brundtland Commission emphasises on
1. Thermal power plants emit large quantities of
of the future generation to meet their own protecting the future generation. The present
carbon dioxide which is a greenhouse gas. It also
needs’. generation should bequeath a better environment
produces fly ash which, if not used properly, can
to the future generation. At least we should leave
cause pollution of water bodies, land and other
The seminal report - Our Common Future - to the next generation a stock of ‘quality of life’
components of the environment.
that gave the above definition explained assets no less than what we have inherited.
2. Hydroelectric projects inundate forests and
sustainable development as ‘meeting the The present generation can promote development
interfere with the natural flow of water in
basic needs of all and extending to all the that enhances the natural and built environment in
catchment areas and the river basins.
opportunity to satisfy their aspirations for a ways that are compatible with
better life’. Meeting the needs of all (i) Conservation of natural assets
Strategy: Wind power and solar rays are good
requires redistributing resources and is (ii) Preservation of the regenerative capacity of
examples of conventional but cleaner and
hence a moral issue. the world’s natural ecological system
greener energy sources but are not yet been
(iii) Avoiding the imposition of added costs or
explored on a large scale due to lack of
Edward Barbier defined sustainable risks on future generations.
technological devices.
development as one which is directly
According to Herman Daly, Measures to achieve
concerned with increasing the material 2. LPG, Gobar Gas in Rural Areas:
sustainable development:
standard of living of the poor at the grass Households in rural areas generally use wood,
(i) Limiting the human population to a level within
root level — this can be quantitatively dung cake or other biomass as fuel.
the carrying capacity of the environment.
measured in terms of increased income, real Adverse implications: Deforestation, reduction
(ii) Technological progress should be input
income, educational services, health care, in green cover, wastage of cattle dung and air
efficient and not input consuming
sanitation, water supply etc. pollution.
(iii) Renewable resources should be extracted on a
sustainable basis, that is, rate of extraction
Sustainable development aims at decreasing Strategy:
should not exceed rate of regeneration
the absolute poverty of the poor by 1. To rectify the situation, subsidised LPG is
(iv) For non-renewable resources rate of
providing lasting and secure livelihoods that being provided. Since it is a clean fuel — it
depletion should not exceed the rate of creation
minimise resource depletion, environmental reduces household pollution to a large extent.
of renewable substitutes
degradation, cultural disruption and social Also, energy wastage is minimised.
(v) Inefficiencies arising from pollution should be
instability.
corrected.
50
2. Gobar gas plants are being provided through 4. This technique is free from pollution. 8. Biocomposting: In order to increase
easy loans and subsidy. For the gobar gas plant 5. India is also leading an Interational body agricultural production we have started using
to function, cattle dung is fed to the plant and called International Solar Alliance (ISA). chemical fertilisers which are adversely
gas is produced which is used as fuel while the affecting land, water bodies’ ground water
slurry which is left over is a very good organic 6. Mini-hydel Plants: system etc. and demand for irrigation has
fertiliser and soil conditioner. 1. Mini-hydel plants use the energy of such been going up year after year.
streams to move small turbines. The turbines
3. CNG in Urban Areas: The use of generate electricity which can be used locally. 1. Farmers have again started using compost
Compressed Natural Gas as fuel in public 2. Such power plants are environment-friendly made from organic wastes of different types.
transport system has significantly lowered air as they do not change the land use pattern in 2. Cattle are maintained only because they
pollution and the air has become cleaner in the areas where they are located; they generate produce dung which is an important fertiliser
last few years. enough power to meet local demands. and soil conditioner.
3. This means that they can also do away with 3. Earthworms can convert organic matter
4. Wind Power: the need for large scale transmission towers into compost faster than the normal
1. In areas where speed of wind is usually high, and cables and avoid transmission loss. composting process. Indirectly, the civic
wind mills can provide electricity without any authorities are benefited too as they have to
adverse impact on the environment. 7. Traditional Knowledge and Practices: dispose reduced quantity of waste.
2. Wind turbines move with the wind and 1. India is very much privileged to have about
electricity is generated. 15,000 species of plants which have medicinal 9. Biopest Control: With the advent of green
3. The initial cost is high. But the benefits are properties. About 8,000 of these are in regular revolution, the country entered into using
such that the high cost gets easily absorbed. use in various systems of treatment including chemical pesticides for higher output which
the folk tradition. had adverse impacts food products soil, water
5. Solar Power through Photovoltaic Cells: bodies and even ground water milk, meat and
1. India is naturally endowed with a large 2. Due to western system of treatment, we fishes.
quantity of solar energy in the form of were ignoring our traditional systems such as
sunlight. Ayurveda, Unani, Tibetan and folk systems. To meet this challenge, better methods of
2. With the help of photovoltaic cells, solar These healthcare systems are in great demand pest control should be used.
energy can be converted into electricity. again for treating chronic health problems. 1. One such step is the use of pesticides
These cells use special kind of materials to based on plant products like Neem.
capture solar energy and then convert the 3. Now a day every cosmetic produce — hair oil, 2. Mixed cropping and growing different
energy into electricity. toothpaste, body lotion, face cream and what crops in consecutive years on the same land.
3. It is extremely useful for remote areas and not — is herbal in composition. Not only are 3. Various animals and birds which help in
for places where supply of power through grid these products environment friendly, they are controlling pests like Snakes Owls, Peacocks,
or power lines is either not possible or proves relatively free from side effects and do not and Lizards etc.
very costly. involve large-scale industrial and chemical
processing.
51
 10.1 INTRODUCTION 1. India and Pakistan became independent there were 26,000 communes covering almost
nations in 1947; People’s Republic of China was all the farm population.
established in 1949. 5. GLF campaign met with many problems. A
Various nations have been primarily
2. India announced its first Five Year Plan for severe drought caused havoc in China killing
trying to adopt various means which will
1951–56, Pakistan announced its first five about 30 million people.
strengthen their own domestic economies.
Ch-10 Comparative Development Experiences of

year plan (Medium Term Development Plan) in 6. When Russia had conflicts with China, it
These are as follows:
1956. China announced its First Five Year Plan withdrew its professionals who had earlier
in 1953. been sent to China to help in the
1. They are forming regional and global
3. Since 2013, Pakistan is working on the industrialisation process.
economic groupings such as the SAARC,
basis of 11th Five Year Development Plan 7. In 1965, Mao Zedong introduced the Great
European Union, ASEAN, G-8, G-20, BRICS
(2013–18), whereas, China is now working on Proletarian Cultural Revolution (1966–76)
etc.
13th Five Year Plan (2016–20). Until March under which students and professionals were
2. Various nations are trying to understand
2017, India has been following Five Year Plan sent to work and learn from the countryside.
the developmental processes pursued by
based development model.
their neighbouring nations as it allows them
4. India and Pakistan adopted similar Reforms in China:
to better comprehend their own strengths
strategies, such as creating a large public
and weaknesses vis-à-vis their neighbours.
sector and raising public expenditure on social 1. China introduced reforms in1978 in phases.
3. Nations have also adopted the process of
development.
globalisation to provide international
5. Till the 1980s, all the three countries had In the initial phase, reforms were initiated in
market for their domestic producers and
similar growth rates and per capita incomes. agriculture, foreign trade and investment
attract foreign investments.
India and its Neighbours

4. Understanding of the other economies in sectors. In agriculture, for instance,

neighbourhood is also required as all major China: commune lands were divided into small plots,
common economic activities in the region which were allocated (for use not ownership),
impinge on overall human development in a 1. After the establishment of People’s to individual households. They were allowed to
shared environment. Republic of China under one party rule, all keep all income from the land after paying
critical sectors of the economy, enterprises stipulated taxes.
and lands owned and operated by individuals
10.2 DEVELOPMENTAL PATH - A In the later phase, reforms were initiated in
were brought under government control.
SNAPSHOT VIEW the industrial sector. Private sector firms, in
2. The Great Leap Forward (GLF) campaign
initiated in 1958 aimed at industrialising the general, and township and village enterprises,
India, Pakistan and China have many country on a massive scale. i.e., those enterprises which were owned and
similarities in their developmental 3. People were encouraged to set up operated by local collectives, in particular,
strategies. All the three nations have industries in their backyards. In rural areas, were allowed to produce goods. At this stage,
started towards their developmental path communes were started. enterprises owned by government (known as
at the same time. 4. Under the Commune system, people State Owned Enterprises—SOEs), were made
collectively cultivated lands. In 1958, to face competition.
52
2. The reform process also involved dual
pricing. This means fixing the prices in two Country Estimated Annual Density Sex Fertility Urbanisation
ways; farmers and industrial units were Population Growth of (per sq. Ratio Rate (2015)
required to buy and sell fixed quantities of (in million) Population km) (2015) (2015)
inputs and outputs on the basis of prices fixed (2015) (2015)
by the government and the rest were India 1311 1.2 441 929 2.3 33
purchased and sold at market prices. China 1371 0.5 146 941 1.6 56
Pakistan 188 2.1 245 947 3.7 39
3. In order to attract foreign investors,
special economic zones were set up.
5. Pakistan also received financial support 4. The sex ratio is low and biased against
from western nations and remittances from females in all three countries. Scholars cite son
Pakistan:
continuously increasing outflow of emigrants preference prevailing in all these countries as
to the Middle-east. This helped the country in the reason.
1. Pakistan follows the mixed economy model
stimulating economic growth. 5. The fertility rate is also low in China and
with co-existence of public and private
6. Government also offered incentives to the very high in Pakistan.
sectors.
private sector. All this created a favourable 6. Urbanisation is high in China with India
2. In the late 1950s and 1960s, Pakistan
climate for new investments. having 33 per cent of its people living in urban
introduced a variety of regulated policy
7. In 1988, reforms were initiated in the areas.
framework (for import substitution-based
country.
industrialisation). The policy combined tariff
protection for manufacturing of consumer
Implications of One Child Norm:
goods together with direct import controls on
10.3 DEMOGRAPHIC INDICATORS
competing imports. 1. Low population growth.
3. The introduction of Green Revolution led to 1. Out of every six persons living in this world, 2. Decline in the sex ratio, the proportion of
mechanisation and increase in public one is an Indian and another Chinese. The females per 1000 males.
investment in infrastructure in select areas, population of Pakistan is very small and 3. After a few decades, in China, there will be
which finally led to a rise in the production of accounts for roughly about one-tenth of China more elderly people in proportion to young
food grains. This changed the agrarian or India. people.
structure dramatically. 2. Though China is the largest nation and
4. In the 1970s, nationalisation of capital geographically occupies the largest area among This led China to allow couples to have two
goods industries took place. Pakistan then the three nations, its density is the lowest. children.
shifted its policy orientation in the late 1970s 3. Scholars point out the one child norm
and 1980s when the major thrust areas were introduced in China in the late 1970s as the
denationalisation and encouragement of major reason for low population growth.
private sector.

53
10.4 GROSS DOMESTIC PRODUCT
AND SECTORS

China has the second largest GDP (PPP) of

$19.8 trillion, whereas, India’s GDP (PPP) is
$8.07 trillion and Pakistan’s GDP is $ 0.94
trillion, roughly about 12 per cent of India’s
GDP. India’s GDP is about 40 per cent of
China’s GDP.

Annual Growth of Gross Domestic

Product (%), 1980–2017
Country 1980–90 2015–2017
India 5.7 7.3 1. In China, due to topographic and climatic 5. In China manufacturing and service sectors
China 10.3 6.8 conditions, the area suitable for cultivation is contribute the highest to GDP at 43 and 48 %,
Pakistan 6.3 5.3 relatively small — only about 10 % of its total respectively whereas in India and Pakistan, it is
land area. The total cultivable area in China the service sector which contributes the highest
1. China was able to maintain near double-digit accounts for 40 % of the cultivable area in by more than 50 % of GDP.
growth for one decade. India. In the normal course of development, countries
2. In the 1980s, Pakistan was ahead of India: 2. Until the 1980s, more than 80 % of the first shift their employment and output from
China was having double-digit growth and India people in China were dependent on farming as agriculture to manufacturing and then to
was at the bottom. their sole source of livelihood. Since then, the services.
3. In 2015–17, there has been a decline in government encouraged people to leave their
Pakistan and China’s growth rates, whereas, fields and pursue other activities such as 6. The proportion of workforce engaged in
India met with moderate increase in growth handicrafts, commerce and transport. manufacturing in India and Pakistan were low at
rates. 24 and 27 % respectively. The contribution of
3. In 2015–17, with 18 %of its workforce industries to GDP is at 30% in India and 21 % in
Reasons behind the declining growth rate engaged in agriculture, its contribution to the Pakistan. In these countries, the shift is taking
in Pakistan: GDP in China is 9 %. place directly to the service sector.
1. Reform processes introduced in Pakistan. 4. In both India and Pakistan, the contribution
2. Political instability over a long period. of agriculture to GDP was 17 and 25 %t, 7. Service sector contributes more to GDP & at
respectively, but the proportion of workforce the same time, emerges as a prospective
Sectorial contribution to the Gross that works in this sector is more in India. In employer. In the 1980s, India, China & Pakistan
Domestic Product: Pakistan, about 42 % of people work in employed 17, 12 and 27 % of its workforce in the
agriculture, whereas, in India, it is 43 %. service sector respectively. In 2015, it has
reached the level of 34, 56 and 54 %. 54
Output Growth in Different Sectors:

1. In the last four decades, the growth of

agriculture sector, which employs the largest
proportion of workforce in all the three
countries, has declined.

2. In the industrial sector, China has maintained

a near double-digit growth rate whereas for
India and Pakistan growth rate has declined.

3. In case of service sector, China was able to

raise its rate of growth during 1980–2015, while
India and Pakistan stagnated with its service
sector growth.
Item India China Pakistan
Human Development Index (Value) 0.640 0.752 0.562
4. China’s growth is mainly contributed by the
Rank (based on HDI) 130 86 150
manufacturing and service sectors and India’s
Life Expectancy at Birth (years) 68.8 76.4 66.6
growth by the service sector. During this
Mean years of Schooling (% aged 15 and above) 6.4 7.8 8.6
period, Pakistan has shown deceleration in all
three sectors. GDP per capita (PPP US$) 6,427 15,309 5,035
People Below Poverty Line (at $3.20 a day ppp) (%) (2011) 60.4 23.5 46.4
Infant Mortality Rate (per 1000 live births) 34.6 8.5 64.2
10.5 INDICATORS OF HUMAN
Maternal Mortality Rate (per 1 lakh births) 174 27 178
DEVELOPMENT
Population using Improved Sanitation (%) 44.2 75 58.3
Population with Sustainable Access to improved Water Source (%) 94 96 91
1. China is moving ahead of India and Pakistan.
Percentage of Undernourished Children 37.9 8.1 46.4
This is true for many indicators - income
indicator such as GDP per capita, or proportion Some Selected Indicators of Human Development, 2016–2017
of population below poverty line or health
indicators such as mortality rates, access to 3. In China, for one lakh births, only 27 women 5. For the proportion of people below the
sanitation, literacy, life expectancy or die whereas in India and Pakistan, about 178 international poverty rate of $ 3.20 a day,
malnourishment. and 174 women die respectively. India has the largest share of poor among the
2. Pakistan is ahead of India in proportion of three countries.
people below the poverty line and also its 4. All the three countries report providing
performance in sanitation. improved drinking water sources for most of its
population.
55
These are all extremely important indicators; Forward and other initiatives, the per capita Pakistan:
but these are not sufficient. Along with these, grain output in 1978 was the same as it was in 1. The reform process has led to worsening of all
we also need what may be called ‘liberty the mid-1950s. the economic indicators. As compared to 1980s,
indicators’. the growth rate of GDP and its sectorial
China initiated to implement economic reforms constituents have fallen in the 1990s.
Types of Liberty Indicators: in 1978 without any compulsion by World Bank 2. The proportion of poor in 1960s was more
1. The extent of democratic participation in & IMF. than 40 per cent which declined to 25 per cent
social and political decision-making. in 1980s and started rising again in 1990s.
2. The extent of Constitutional protection How reform measures led to rapid growth
given to rights of citizens. in China? The reasons for the slow-down of growth
3. The extent of constitutional protection of and re-emergence of poverty in Pakistan’s
the Independence of the Judiciary and the 1. Infrastructure in the areas of education and economy:
Rule of Law. health, land reforms, long existence of 1. Agricultural growth and food supply situation
decentralised planning and existence of small were based not on an institutionalised process
Without including these (and perhaps some enterprises had helped positively in improving of technical change but on good harvest. When
more) and giving them overriding importance the social and income indicators in the post there was a good harvest, the economy was in
in the list, the construction of a human reform period. good condition, when it was not, the economic
development index may be said to be 2. Before reforms, there had already been indicators showed stagnation or negative trends.
incomplete and its usefulness limited. massive extension of basic health services in 2. In Pakistan most foreign exchange earnings
rural areas. came from remittances from Pakistani workers
10.6 DEVELOPMENT STRATEGIES - 3. Through the commune system, there was in the Middle-east and the exports of highly
AN APPRAISAL more equitable distribution of food grains. volatile agricultural products.
4. Reform measures was first implemented at a 3. Growing dependence on foreign loans on the
In order to learn from economic performance smaller level & then extended on a massive one hand and increasing difficulty in paying back
of our neighbouring countries, it is necessary scale. the loans on the other.
to have an understanding of the roots of their 5. The experimentation under decentralised
successes and failures. government enabled to assess the economic, During the last few years, Pakistan has
social and political costs of success or failure. recovered its economic growth and has been
6. When reforms were made in agriculture, as sustaining. In 2015-16, the Annual Plan 2016-17
China:
pointed out earlier by handing over plots were reports that, the GDP registered a growth of
The new leadership at that time in China felt
handed over to individuals for cultivation, it 4.7 %, highest when compared to the previous 8
that Maoist vision of economic development
brought prosperity to a vast number of poor years. While agriculture recorded growth rate
based on decentralisation, self-sufficiency
people. It created conditions for the far from satisfactory level, industrial and
and shunning of foreign technology, goods and
subsequent phenomenal growth in rural service sectors grew at 6.8 and 5.7 %
capital had failed. Despite extensive land
industries and built up a strong support base respectively.
reforms, collectivisation, the Great Leap
for more reforms.
56