CHAPTER-VI

Select Aspects of Indian Economy

Population
Population in India
Population of India means the total number of people living in India. Population is very essential for the growth of country. Advantages of having a large size of population: 1. It provides work force to produce 2. It provides market for the products produced 3. It may promote innovative ideas 4. It may promote division of labour and specialization Disadvantages of having a large size of population 1. There may not be adequate jobs to absorb all additional people 2. They put pressure on means of subsistence 3. They put pressure on social overheads (hospitals, school, roads etc.,) 4. They may result in increased consumption and reduced savings and capital formation 5. They may increase dependency Growing population is an asset or a liability for the economy depends upon economy to economy. Demographic Trends in India 1. Size of Population: The Indias population is growing since 1901 and Indias present population is above 100 Crores Year Population Year Population (in crores) (in crores) 1901 23.84 2008 116.10 1911 25.21 2011 119.25 1921 25.13 2016 126.89 1951 36.11 2026 139.98 1991 84.33 2001 102.70 1. Indias population rank is second in the world after China. 2. Indias has only about 2.4% of the words area and 1.2% of the Worlds income but India accommodates about 16.7% (nearly 17%) of the worlds population. 3. Every sixth person in the world is an Indian. (Nearly seventh) 4. The annual addition to Indias population is almost equal to the total population of Australia 2. Rate of Growth: Following table shows the rate of growth of population in India. It shows growth rate of population per decade and per annum. Growth of population Decade Growth rate per decade (per cent) per annum) 1901-1911 05.74 00.56 1911-1921 (-) 00.31 -00.03 1981-1991 23.86 02.22 1991-2001 21.34 01.93 1. Since 1921, population has started increasing. In fact, year 1921 is known as Year of Great Divide for Indias population 2. Form the decade 1971-81 to till date, the growth rate has come down to 1.93% in 1991-2001.

General Economics

6.1

Select aspects of Indian economy.

3. Birth rate and Death rate: Birth rate refers to number of birth per thousand of population. Similarly, death rate refers to number of deaths per thousand of population Crude Birth and Death Rate Year Birth Rate Death Rate 1951 39.9 27.4 1991 29.5 9.8 2001 25.4 8.4 2005 23.8 7.6 2006 24.0 7.5 2007 25.0 8.0 2011 22.7 8.1 Over the years, birth rate in India has fallen and death rate has also fallen. 4. Density of Population: Density of population refers to the number of persons per square kilometer. It has increased since 1951, in India at present average it is 324 persons per square kilometer Year 1961 1991 2001 Density of population 142 274 324

Density of population is not same for all the states. Kerala, West Bengal, Bihar and U.P. have density higher than the average density, Andhra Pradesh, Himachal Pradesh, Gujarat, Madhya Pradesh, Maharashtra, Karnataka, Orissa, Rajasthan, Sikkim etc., have lower density than the average density. Delhi has density of more than 9000. 5. Sex ratio: Sex ratio refers to the number of females per 1000 males. The following table gives sexratio since Independence. Sex Ratio (females per 1000 males) Census year 1951 1991 2001 Sex Ratio 946 927 933

1. Sex ratio is most favorable to women in the State of Kerala only it is 945 in 2001. 2. Kerala is the state which provides better Status to women as compared to other States.

3. A number of reasons are ascribed for a high ratio of males to females. These (are): (a) Neglect of female child (b) High death rate among females (c) Under reporting of female births.
6. Life expectancy at birth: Life expectancy refers to the mean expectation of life at birth. The following Table shows life expectancy at birth both for males and females. Life expectancy at Birth (in years) Period Male Female Overall average 1951 32.5 31.7 32.1 1991 59.0 59.7 59.3 2001 62.3 65.3 63.8 Life expectancy has improved over the years 7. Literacy ratio: Literacy ratio refers to number of literates as a percentage of total population. Literacy ratio in general and among males and females is shown below:

General Economics

6.2

Select aspects of Indian economy.

Period 1951 1991 2001

Literacy ratio Male Female 16.7 25.0 52.21 64.1 65.38 75.85

Over all average 7.9 39.3 54.16

Above table shows that in 2001, 76% of males and 54% of females were literate giving an overall literacy rate of 65%. The highest literacy ratio is 90% in Kerala and less than 50% is in Bihar. The Eighth Plan aimed at complete eradication of illiteracy among people in the age group of 15 to 35 years by the end of the plan. Causes of the Rapid Growth of Population Population generally increases because of 1. High Birth rate 2) Relatively lower death rate

and

3) Immigration

Causes of high birth rate: 1. Predominance of Agriculture: - India is predominantly agrarian economy. In an agrarian economy, children are considered assets and not burdens as they help in agricultural fields. 2. Slow Urbanization: The process of urbanization is slow in India and it has failed to generate social forces, which force people to have small families. 3. High incidence of poverty: There is high incidence of poverty in India. Poor people tend to have large families as they consider every child as an earning hand. 4. Compulsory Marriage: Marriage is both a religious and social necessity in India. Presently in India by the age of 50 only 5 out of 1,000 Indian women remains unmarried. More marriages mean more population. 5. Early marriage: Not only marriages are almost compulsory, they take place at quite young age in India, which provides more time for women to give birth to children. 6. Religious beliefs and superstitions: Most Indian on account of their religious and social superstitions desire to have more children having no regard to their economic conditions. Every child is considered as Gift of God. 7. Joint Family system: Joint family system in India also encourages people to have large families. 8. Illiteracy: Lack of education among people especially among women causes people to have irrational attitudes and hence big families. Causes of all in the death rate: 1. Control over Famines: - Famines, which were wide spread before independence, have not occurred on a large scale since Independence. 2. Control over epidemics: Cholera and small pox often resulted in epidemics before independence. Now small pox is completely eradicated and cholera is very much under control. Similarly there has been decline in the incidence of malaria and tuberculosis. These have resulted in reducing the death rate. 3. Others factors: Others factors which have reduced the death rate are: (a) Spread of education (b) Expanded medical facilities (c) Improved supply of potable water (d) Improvement in the nutritional level Growth of Population in India and Its Effects on Economic Development Theory of Demographic Transition says that every country passes through 3 stages 1. In the first stage, both birth rate and death rate are very high. 2. In the second stage, birth rates come down slightly but death rate comes down very heavily. This stage is also called the stage of population explosion as population increases at a very high rate during this stage. India is passing through the second stage of demographic transition. 3. In the third stage, in the theory of demographic in the last stage birth rate falls and death rate also falls. The net result is population grows at a very modest rate. General Economics

6.3

Select aspects of Indian economy.

How growth of population has affected economic growth in India? 1. Growth of National Income: National Income rose by 16 times but on account of increase in population by 2 times, the per capita income rose by 4.5 times during the planning period. The average annual growth was 4.4% but the per capital income was only 2.2%. 2. Food supply: The total production of food grains increased from 51 million tonnes in 1951 to 205 million tonnes in 2006-07, but population has increased from 361 million to 1112 million. Consequently, per capita food grains increased from 395 grams to 422 grams. 3. Unproductive consumers: in India, 63% of the population (working) is in the age group 15-64 and 37% of the population (non-working) is under 15 or above 64 years. Increase in the population of children and old person, which leads to higher burden of unproductive consumers on total production. 4. Problem of Unemployment: The increase in backlog of unemployment in each successive plan shows how growth in population has led to increase in unemployed persons. Backlog of unemployment was estimated to be 34 million in FYP 9. 5. Capital Formation: Growth is a function of capital accumulation. In a country like India where the rate of population growth continues to be high, much development would not materialize. This is because a fast growth in a population of a country reduces its capacity to save and invest which in turn affect its productive capacity and incomes. 6. Ecological Degradation: A rapid growing population in India has somewhat upset the ecological balance. There is a gradual shrinkage of area covered by forests, removal of forests; high concentration of population and inadequate Infrastructural facilities is the cause of serious ecological degradation. Government Measures for Solving the Population Problem In a developing country like India, population growth is not controlled property. A full-fledged department of family planning was created in 1966. Various contraceptive methods were offered and the acceptors had the freedom to choose any of the methods offered. This has been known as cafeteria approach. Under the Fifth Plan, A new National Population Policy replaced earlier Population Policy of the government. Under the policy the marriageable age was raised to 18 years and 21 years for girls and boys respectively, monetary incentives were offered for voluntary sterilization and family planning was made a mass movement by involving various community groups like Zillah Parishad, Panchayat Samitis, Co-operative Societies and trade unions at the grass roots levels. National Population Policy, 2000 (NPP-2000) 1. Address the unmet needs for basic reproductive and child health services, supplies and infrastructure 2. Make school education free and compulsory up to the age of 14. 3. Reduced infant mortality rate (IMR) to below 30 per 1000 live births. 4. Reduce maternal mortality ratio (MMR) to below 100 per 1,00,000 live births 5. Promote delayed marriage for girls, not earlier than age 18 6. Achieve 80% institutional deliveries and 100 per cent deliveries by trained persons 7. Achieve 100 per cent registration of marriage, pregnancy, births and deaths 8. Integrate Indian System of Medicine (ISM) in the provision of reproductive and child health services, and in reaching out to households. 9. Promote vigorously the small family norms to achieve replacement levels of TFR 10. Bring about convergence in implementation of related social sector programs so that family welfare becomes a people centered program.

Tenth plan Targets: The Tenth Plan targeted

1. A reduction in IMR to 45 per 1000 by 2007 and 28 per 1000 by 2012, 2. A reduction in MMR to 2 per 1000 live births by 2007 and 1 per 1000 live births by 2012 3. A reduction in decadal growth rate of the population between 2001-2011 to 16.2 percent.

General Economics

6.4

Select aspects of Indian economy.

POVERTY
Absolute Poverty and Relative Poverty Absolute poverty: - When poverty is taken in absolute terms, it is absolute poverty. The concept of absolute poverty is relevant for the less-developed countries. In India we use the concept of absolute poverty for measuring poverty. Relative poverty: When poverty is taken in relative terms and is related to the distribution of income or consumption expenditure, it is relative poverty. The concept of relative poverty is more relevant for the developed countries. Gini co-efficient are often used for measuring poverty in relative sense. Poverty in India Poverty Line: As per Planning Commission of India, a person is below the poverty line if his daily consumption of calories is less than 2400 in rural areas and 2100 in urban areas. As per the new definition one who earns less than Rs.225 per month in rural area and Rs.265 per month in urban area will be below the poverty line. The latest National Sample Survey Organisation (NSSO) 2004-05 shows that the percentage of people living below poverty line has reduced to 22% in 2004-05. The tenth plan target in 19.3% by 2007 and 21% by 2012. Causes of Poverty: Various causes of poverty can be classified under economic, political and social heads. 1. Economic Causes: Majority of population depends upon Agriculture and the income of agricultural workers is substantially below average due to small size of land holdings, inadequate irrigation facilities, lack of enough financial resources needed for investment for ensuring development and raising productivity. 2. Political and Social Causes: Political vested interests are also responsible for widespread poverty in the economy. 3. Other Causes: Other factor such as family size and family composition, high growth of population and high rate of unemployment, poor levels of education and skills, lack of motivation and will to get out of poverty. Government Programmes for Poverty Alleviation The plan strategies for poverty alleviation and raising the average standard of living can be broadly divided into three phases as follows: 1. 1st Phase: In the first phase, the prime emphasis was on growth. It was expected that growth through improvement in infrastructure and heavy industries would take care of the problem of unemployment and poverty. 2. 2nd Phase: In the second phase, several specific programmes for poverty alleviation and employment and poverty. 3. 3rd Phase: In the third and final (present) phase, emphasis shifted to growth and poverty alleviation as two complementary actions. The various recent programmes for poverty alleviation are as follows. 1. Pradhan Mantri Gram Sadak Yojana (PMGSY): The PMGSY was launched in December, 2000 Its aim is to provide road connectivity through good, all weather roads to 1.60 lakhs unconnected villages with a population of 500 person or more by the end of the Tenth plan. Upto December, 2005 a total length of 82,718 km of road works had been completed. 2. Indira Awas Yojana (IAY): This is a major scheme for construction of houses to be given to the poor, free of cost. Upto January 2006, about 138 lakhs houses had been constructed/upgraded. 3. Swaran Jayanti Gram Swarozgar Yojana (SGSY): This was introduced in April, 1999 as result of restructuring and combining the Integrated Rural Development Programme (IRDP) and allied programmes and Million Wells Scheme (MWS). It is the only self employment programme for the rural poor. General Economics

6.5

Select aspects of Indian economy.

4. Sampoorna Grameen Rojgar Yojana (SGRY): This programme was launched in 2001. This programme aims at (i) providing wage employment in rural areas (ii) food security (iii) creation of durable community, social and economic assets. The earlier programmes of the Employment Assurance Scheme (EAS) and Jawahar Gram Sammridhi Yojana (JGSY) have been merged with this programme since April 2002. 5. National Food for Work Programme (NFFWP): This programme was launched in November 2004 in 150 most backward districts of the country. The objective was to intensify the generation of supplementary wage employment. The National Rural Employment Guarantee Act was notified in September 2005 and the scheme was launched in February 2006. The on-going programmes of Sampoorna Grameen Rozgar Yojana (SGRY) and National Food for Work Programme (NFFWP) would be submerged in it. Till January 2007, 3.47 crore job cards have been issued and 1.47 crore household have been provided employment. 6. The Swarna Jayanti Shahari Rozgar Yojana (SJSRY): It came into operation from December97. Earlier urban poverty alleviation programmes viz., Nehru Rozgar Yojana (NRY), Urban Basic Services Programmes (UBSP) and Prime Ministers Integrated Urban Poverty Eradication Programme (PMIUPEP) were submerged in it. The scheme aims to provide gainful employment to the urban unemployed or underemployed poor. 0.98 lakh in 2006-07 and 53 lakh till December 2006 number of urban poor assisted for setting up microgroup enterprises. 7. DPAP, DDP and IWDP: Drought Prone Area Programme (DPAP) was launched in 1973-974 to tackle the special problems faced by drought prone areas. Desert Development Programme (DDP) was launched in 1977-78 to mitigate the adverse effects of desertification. Integrated Wastelands Development Programme (IWDP) has been under implementation since 1989-90 for the development of wastelands/degraded lands. 8. Valmiki Ambedkar Awas Yojana (VAMBAY): VAMBAY was launched in 2001. It facilitates the constructions and up gradation of dwelling units for the slum dwellers it also provides a healthy and enabling urban environment through community

UNEMPLOYMENT
Every sixth person in the world is an Indian and every third poor person in the world is also an India. It has been observed that with the increase in the number of unemployed persons poverty expands. Removal of unemployment has been given serious consideration only after Fifth Plan. Meaning and Types of Unemployment A Person Who Is not gainfully employed in any productive activity is called unemployed. The important forms of unemployment are: 1. Voluntary unemployment: When a person is unemployed because he is not willing to work at the existing wage rate is called voluntary unemployment. And there are some people who get a continuous flow of income from their property or other sources. 2. Frictional Unemployment: Frictional unemployment may arise when some workers are temporarily out of work while changing jobs. It may also result when the work is suspended due to strikes or lockouts.

General Economics

6.6

Select aspects of Indian economy.

3. Casual unemployment: Where workers are employed on a day-to-day basis or on short-term contracts, there are chances of casual unemployment. 4. Seasonal unemployment: There are some industries and occupations such as agriculture in which production activities are seasonal in nature. People engaged in such type of work or activities may remain unemployed during the off-season. 5. Structural Unemployment: Due to structural changes in the economy, structural unemployment may result. It is caused by a decline in demand for production in a particular industry. Most of the unemployment in India is structural unemployment. 6. Technological unemployment: Some workers tend to be replaced by machines due to the introduction of new machinery, improvement in methods of production, labour saving devices, etc., 7. Cyclical unemployment: Trade cycles-especially recessionary and depressionary phases cause cyclical unemployment in developed countries. 8. Chronic unemployment: When unemployment tends to be along-term features of a country it is called chronic unemployment. Underdeveloped countries suffer from chronic unemployment. 9. Disguised unemployment: A situation of employment in which a person is apparently employed but his contribution to the production is almost nil and is called disguised unemployment. In disguised unemployment marginal productivity of workers is zero. It is a common phenomenon in agriculture sector. Nature of unemployment in India: Most of the unemployment in India is definitely structural. In India, we can classify employment as rural unemployment and urban unemployment. Urban unemployment is mainly of industrial unemployment and educated unemployment type. Rural unemployment is seasonal and disguised in nature. It is estimated that over one-third of Indias work force is disguisedly unemployed. Causes of Unemployment Poverty in India The various causes responsible for widespread unemployment in India are as follows: 1. Growth without adequate employment opportunities: As economy grows usually employment also grows. But in India, most of the time, the economic growth has been inadequate and adequate number of jobs could not be created. 2. Growing population: Population has increased at a very fast pace since Independence but jobs have failed to keep pace with the population. 3. Inappropriate technology: India is a labour surplus and capital scarce economy. Under such circumstances, labour-intensive industries should have been given preference. But not only in industry but also in agriculture, producers are increasingly substituting capital for labour. 4. Inappropriate education system: The education provided in India has not much practical utility. The students receiving such education are failing to get appropriate jobs. Extent of Unemployment in India Backlog of unemployment: The backlog of unemployment at the beginning of the FYP-1 was 3.3 million to which were added 9.0 million new entrants during this period. The Plan provided additional employment to 7.0 million, thus leaving a backlog of 5.3 million at the beginning of the FYP-2. (3.3 +9-12.3 7 = 5.3 backlog). Backlog of unemployment was estimated to be 35 million in FYP-9. The total number of persons requiring employment would be 70 million over the period 19972002. The Tenth Plan aims at creating 50 million jobs during the plan. Before understanding the incident of unemployment, it is better to understand the meaning of labour force, work force and unemployment rate. Labour Force Participation Rate (LFPR): Includes both employed and unemployed labours. The LFPR is defined as the number of persons in the labour force per 1000 persons.

General Economics

6.7

Select aspects of Indian economy.

Work Force participation Rate (WFPR): Work Force refers to that part of labour, which is employed. The WPR is defined as the number of persons/person-days employed per 1000 person days. Unemployed rate means Person Unemployed (PU), defined as the number of persons unemployed per 1000 persons in the labour-force. LFPR = WFPR + PU Measurement of Unemployment: There are three main measures of employment and unemployment. 1. Usual persons Status (UPS): Usual Person Status (UPS) measure estimates the number of persons who may be said to be chronically unemployed. 2. Current Weekly Status (CWS): The reference period here is a week. According to this estimate a person is said to be employed for the week even if he is employed only for a day during that week. 3. Current Daily Status (CDS): The reference period here is a day. It counts every half-days activity status of the respondent over the week.

The following table shows that the LFPR, WFPR and PU in 2004 in India.
All India LFPR (2004) (Number of persons per thousand population) WFPR + PU = LFPR UPS 411 9 420 CWS 370 20 390 CDS 330 33 363
UPS.

PU/LFPR 2.14 5.12 9.09

The above table shows that in the year 2004, unemployment rates (PU/LFPR) is CDS > CWS > As per the latest survey of National Sample Survey Organization (NSSO), 2004 following are the salient features of the trend of unemployment rates in the country.
1. The unemployment rate went up between 1993-94 to 2004. 2. similarly unemployment rate for males increased from 72 per thousand persons or 7.2% in 199394 to 93 per thousand persons or 8.0% in 2004 in rural areas and from 73 per thousand persons or 7.3% to 75 per thousand persons or 7.5% in urban areas 3. Furthermore, unemployment rates on the basis of CDS were much higher than those on the basis of UPS. (CDS>CWS>US). Usual status measure generally gives the lowest estimate of unemployment especially for poor economy. 4. In 2004, rural unemployment rates for males were higher than urban employment rates. 5. The Approach Paper to the Mid-Term Appraisal (MTA) of the Eleventh Plan, targets generation of additional employment in service and manufacturing sectors.

INFRASTRUCTURE CHALLENGES
Infrastructure plays an important role in the economic development of an economy. In this section, we will discuss five important Infrastructural services viz., energy, transport, communication, education and health. Energy 1. Energy is an important input for most of the production processes and consumption activities. 2. At present, 23% of the energy consumed is obtained from non-commercial sources. 3. Major users of the commercial energy are industry (50%), transport (22%), household (12%), agriculture (9%) and commercial establishment (1%). 1. Electricity: Electricity or power is the most important source of commercial energy. 1. There are 5 major sources of electricity (1) water (2) coal (3) oil (4) gas and (5) radioactive elements like uranium, thorium and plutonium. 2. Electricity generated from Water is known as Hydro-electricity. 3. Electricity generated from Coal, Oil and Gas (COG) is called Thermal Electricity.

General Economics

6.8

Select aspects of Indian economy.

4. Electricity generated from Radio-active elements is called Atomic energy. 5. Present capacity, is 62% in the thermal sector, 22.5% in the hydro and 2.5% is in the nuclear and rest is in the other sectors. 6. In terms of generation of power, thermals contribution is maximum i.e., 72.5%, hydro 14.5% and nuclear 2.5% and others are contributing 10.5%. 7. The central government, state governments and private sector all work together in the generation of power. The Central Government operates through National Thermal Power Corporation (NTPC) National Hydroelectric Power Corporation (NHPC) and Nuclear Power Corporation of India Limited INPCIL). 8. State governments have their State Electricity Boards (SEBs). There also exist Central Electricity Authority and Central Electric Regulatory Commission. 2. Difficulties and Problems relating to energy 1. Demand and supply imbalances in commercial fuels: Over the planning period, demand for commercial fuels has increased at a modest rate of 5.5% per annum, and non availability of the desired level of coal has hampered the growth of thermal generation. 2. Oil prices and inflationary pressure: The Organisation of Petroleum Exporting Countries (OPEC) has increased the prices more than 4 times. Rising oil prices has led to rising general prices in India. 3. Growing oil imports bill: Since 1973, Indias oil imports bill has increased substantially. Petroleum, oil and lubricants (POL) constitute around 33% of our import bill. It increased to Rs. 1,94,640 crores in 2005-06. The oil import bill is also responsible to a great extent for the existing large balance of trade gap. 4. Transmission and distribution (T&D) losses: One of the major problems faced by the power companies are T & D losses. The T & D losses of power companies are very high in many of the SEB (State Electricity Board) systems. National average of this loss is around 23 percent while in many states it is more. 5. Sick SEBs: Many SEBs have become financially sick due to almost free supply of power to agriculture, operational inefficiencies, high cost structure and lower power tariffs and large overdues. 6. Operational inefficiency: Plant Load Factor (PLF) measures the operation efficiency of a thermal plant. PLF varies across the regions. PLF is lowest in North Eastern region (16.4%) and highest in southern region (80%). PLF was 68% in SEBs, 81% in central sector and PLF is highest (88%) in the private sector in 2006. 7. Inadequate electrification: till date, nearly 14% of villages are not electrified. 3. Recent steps taken to meet the above problem 1. Electricity Act was passed in 2003 and Electricity. Amendment Bills 2005 was passed in 2005. 2. To improve generation of power, Ministry of Power has launched the Partnership in excellence programme. 3. Government is encouraging private sector investment in power. 4. In 2002, power sector was privatized in Delhi. 5. An All India Power Grid also called National Grid to be developed in year 2012. 6. Rajiv Gandhi Grameen Vidhyutikaran programme was started in 2005. Transportation Important means of transport are railways, roads, water and air transport. 1. Railways: 1. Indian Railways, Asias largest and worlds, second largest rail network. 2. There are two main segments of railways freight and passenger. 3. The total route length of railways was 63.5 thousand kilometers in 2008-09. Out of which 17.5 thousand kilometers were electrified.

General Economics

6.9

Select aspects of Indian economy.

4. Problems of railways are technology is very old, financial crunch, unremunerative lines, overcrowding and poor passenger services. 2. Road: 1. The Indian road network is the second largest in the world. 2. In 2007-2008, the total road length had increased to 3.34 million kms. 3. The National Highways (NH) now encompasses a road length of 66,754 kms (2% of all roads). They carry more than 40% of the total road traffic. 4. The rural roads network connects around 65 percent all weather roads. 5. Problems of road transport are road length is inadequate, number of areas to be linked with roads, large tracts of rural roads is mud roads and poorly maintained. 6. Most of the State Road Transport Corporations are running on heavy losses. (In Delhi DTC also). 3. Water transport: It can be divided into 1. Inland water transport: It includes natural modes as navigable rivers and artificial modes such as canals. 2. Shipping: Shipping can again be divided into coastal shipping and overseas shipping. Indias overseas shipping tonnage has 17th rank in the world. Gross Registered Tonnage (GRT) fell down from 0.31 million in 1961 to 0.25 million in 1980. The 12 major ports carry about three-fourth of the total traffic and of the major12 ports Vishakhapatnam is the top traffic handler. 4. Air Transport: 1. The first operation domestic air services are provided by Indian Airlines Ltd., (IAL) 2. Domestic air services are also provided by private airlines like Sahara, Jet Airways, Kingfisher, Spice Jet etc., 3. Pawan Hans Helicopters Ltd. provides helicopter support service. 4. Air India Ltd. and a lot of foreign airlines provide international air services. 5. Airport Authority of India manages 92 airports, including five internationals airports at Delhi, Mumbai, Kolkata, Chennai and Thiruvananthapuram. 6. The Department of Civil Aviation, Government of India, is responsible for regulatory cum developmental aspect. 7. Domestic and international traffic growth is the second highest in the world next to China. Communication The important means of communications are the postal services, telephone services, tele printers, radio and televisions etc. 1. Postal Services: 1. Today Indias postal network is the largest in the world. 2. We have more than 1.55 lakhs post offices and out of which around 1.4 lakhs are in the rural areas. 3. On an average, one post office serves 6623 persons and 21.16 sq.km area. 4. Automatic mail processing centers (AMPC) have been set up at Mumbai and Chennai for faster processing of mails. Two more AMPCs are being set up in Kolkata and Delhi. 5. E-post services were started in 2001 in some states. 6. Logistics Posts, Retail Post Services are other new service, which are now being provided. 2. Telecommunications: 1. Indias telephone network is one of the largest in the world. 2. There are 35.65 phones per hundred populations. (35.65%)

General Economics

6.10

Select aspects of Indian economy.

3.

4. 5. 6. 7. 8.

India had 413.85 million. Connections (basic and mobile) as on December 31, 2005, and 5.6 lakh villages were connected using a village public telephone (VPT). In the rural areas more than 2 lakhs public call offices (PCOs) and 14.18 million phones have been provided. Upto December 2006, there were about 150 million subscribers of cellular mobile telephone services. Internet connection 4.2 million in 2007 and broad band connections 25.6 in 2007. The two PSUs in the telecom sector Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL). There has been significant growth in the Internet connections and broadband subscribers. Telecom Regulatory Authority of India (TRAI) is regulatory authority for telecom in India. National Internet Exchange of India (NIXI) has been set up to ensure that Internet traffic originated and destined for India is routed within India.

Health For good health, two things are essential: (a) Balanced and nutritional diet and (b) Medical care. 1. The general health standard in India is quite low. This is quite inevitable as nearly 1/4 th of the population lives below the poverty line. 2. Over the years, there has been a fall in the incidence of certain diseases like Malaria, polio, T.B. and leprosy. But there are also a rise in the incidence of certain diseases like AIDS, blindness, cancer etc., Education 1. In New Population Policy (NPP-2000) stress on imparting that education should be free for children below 14 years of age. 2. The National Policy on Education (NPE) was made in 1986 and further modified in 1992. It emphasizes 3 aspects in respect of elementary education: (a) NPE had set a goal of expenditure on education at 6% of the GDP (b) Gross Enrolment Ratio (GER) has increased progressively from 32.1 in 1950-51 to 94.23 in 2004-05. (c) The Sarav Shiksha Abhiyan (SSA) was launched in 2001-02. 3. National Programme for Education of Girls at Elementary Level (NPEGEL) is an important component of SSA. This programme concentrates on education of girl child. 4. Another important component of SSA is the Education Guarantee Scheme + Alternative and Innovative Education (EGS+AIE). 5. There are seven national institutions on technology known as Indian Institute of Technology (IIT).These provides courses in engineering and technology. 6. There are six Indian Institutes of Management (IIM).which are centers of excellence in management education. 7. For adult education, the National Literacy Mission (NLM) was launched in 1998. Problems of Indias Education system - There are 1. Unplanned expansion of higher education 2. Inadequate number of institutions 3. Low standard of education 4. Large number of unemployed educated people 5. Large scale migration of educated people to the developed western countries. 6. Lack of infrastructure in many rural schools absence of rooms, boards, teachers etc., 7. Neglect of primary education Suggestions for improving the education system 1. Restrictions should be introduced on higher education 2. Education should be made job-oriented. 3. Expansion of education should be carefully planned since it is costly 4. In rural areas emphasis should be on agriculture and vocational education.

General Economics

6.11

Select aspects of Indian economy.

5. Technical education should be properly planned. 6. Efforts should be made to stop brain drain i.e., highly educated people going abroad in search of jobs. 7. The standard of education should be raised.

INFLATION
Meaning and Types of Inflation Inflation refers to a persistent upward movement in the general price level. It results in a decline of the purchasing power. A small dose of inflation at the rate of less than 5% is beneficial for the economy. Inflation can broadly be of the following types: 1. Demand pull inflation: When more money chases relatively less quantity of goods and services and the excess of demand relative to supply, purchase up the prices of goods and services. Such inflation, as a result of increased money expenditure, is called demand-pull inflation. 2. Cost-Push inflation: Cost-push inflation refers to situation where prices persistently rise because of increment in factor costs like wages, rent, interest and profits. Cost-push inflation is much more difficult to control than a demand-pull inflation. This is because cost push inflation is not susceptible to direct control. 3. Stagflation: The combination phenomenon of demand pull and cost-push inflation is called stagflation. Stagnation refers to a situation where low rate of growth (in deflation), combines with the rise in general price level (in inflation). Meaning of Deflation It is just opposite of inflation: It is a state when the prices are falling and the purchasing power of money is increasing. Causes of Inflation in India A general price rise can take place either as a result of rise in aggregate demand (AD) or a fall in aggregate supply (AS) or both, or say AD>AS. 1. Increase in public expenditure: Public expenditure has risen from 18.6% of NNP in 1961 to 35% in 2006-07. Approximately 45% of the government expenditure in India is on non-developmental activities like defense and maintenance of law and order. At the same time, it must be noted that due to their unproductive nature, expenditure on these activities results in inflationary price rise. 2. Deficit financing (printing of new currency): When the government tries to meet the gap of public expenditure and public revenue through borrowing from the banks or printing of new currency, it is called deficit financing. A large dose of deficit financing creates slow growth in economy and turns out to be inflationary. 3. Erratic agricultural growth: The Indian agriculture largely depends on monsoons and thus crop failures due to drought have been regular feature of agriculture in this country. In the years of scarcity of food grains not only price of food articles increases but the general price level also rises. 4. Agricultural price policy of the Government: The government has been pursuing a policy of price support to the agriculturists to promote the productivity in agriculture. This policy benefited farmers in India but this has been a major contributory factor to the inflationary price rise in the country. 5. Inadequate rise in Industrial production: Performance of the industrial sector were inadequate, particularly in the period 1965 to 1985, has been rather disappointing. Over the 20 years period, industrial production increased at a modest rate of 4.7% per annum. The industrial sector registered slow growth of 6% per annum. 6. Upward revision of administered prices: There are a number of commodities and services like bus services, railway, and defence are produced in the pubic sector. The government keeps on

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Select aspects of Indian economy.

raising prices to cover the loses arising due to inefficiency and unimaginative planning. This policy results in cost-push inflation. 7. Other factors: Besides the above factors, the following have also contributed to inflationary trends of price in India. 1. Large scale tax evasion and avoidance 2. Increasing reliance on indirect taxes sales tax 3. Black marketing and hoarding of essential commodities 4. Unused capacity in industries 5. High capital output ratio 6. Shortage of essential raw materials 7. Low surplus from public sector undertakings 8. Infrastructural bottleneck and rising prices of imports. Measures to Check Inflation Inflation can be controlled with the following measures 1. Monetary Measures: Monetary measures means measures regarding money and credit. Monetary measures are taken by the RBI, and it includes: 1. Control the money supply 2. Control of credit It includes (a) Quantitative measures 1. Sale securities in open market 2. Increase in Bank Rate 3. Increase in Cash Reserve Ratio 4. Increase in Statutory Liquidity Ratio (b) Qualitative measures (Selective Credit Control) Increase in margin requirements 1. Consumer credit regulation 2. Rationing of credit 3. Moral suasion 4. Direct Action 2. Fiscal measures: Means measures regarding government revenue and govt. expenditure and it includes (a) The progressive income tax system should be introduced (b) Control over public expenditure should be done (c) Introduction of new types of taxes should be introduced (d) Improving profits of public sector units (PSU) etc., 3. Control over Investment: Increase in investment leads to large increase in income and expenditure and the demand for both the consumer and capital goods goes up speedily, as it increases the inflationary tendencies. 4. Other Measures: In the mother measures, short-term measures can be in regard to public distribution system (PDS) by ration card through fail price shops (FPSs). The long term measures will require acceleration in economic growth. Price Trends in India 1. During the fifties, the average decades rate of inflation was very low at 1.7%. 2. The maximum inflation at 13.9% was recorded for the year 1966-67. 3. The years 1990 and 1991 witnessed a very high inflation rate of more than 12%. 4. Now inflation rate is controlled i.e., 4.7% during 2005-06.

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Select aspects of Indian economy.

Meaning of budget:
Budget is the statement which shows the revenue and expenses of the government for the coming financial year. It is a financial statement showing the sources of revenue and application of funds in the next financial year. It is a plan of action of the government. Budget can surplus or deficit budget. Types of Government Budget 1. Surplus Budget 2. Balanced Budget 3. Deficit Budget 1. Surplus Budget: Excess of estimated revenue of the year over the anticipated expenditure is known as budget a and family budget surplus budget is preferable, but in case of government surplus budget is not favored, because it shows that the government instead of spending for the welfare of the people is busy in earning income and amassing wealth, As such these days government budgets are not surplus budget. Modern governments have assumed so much social, economic and political responsibilities that surplus budget of government is virtually impossible. Implication of surplus Budget: Surplus Budget is a situation in which estimated revenue of the year exceeds the anticipated expenditure, the following are the implications. 1. Surplus budget indicates the financial soundness of the government. 2. Surplus budget has a negative implication, in terms of the welfare of the society. This means that government is busy in making wealth from the resources but it is not expanding for the benefit of poor section of the society. 3. This budget is possible in an extreme form of capitalist society which is not existent in the modern world as most of the governments spend significant of amount on social welfare. a. Balanced Budget: Balanced Budget is a situation, in which estimated revenue of the government during the year is equal to its anticipated expenditure. Balanced Budget is always preferable for individuals and family. Most of the classical economists favored balanced budget, which was based on the golden policy of live within means the policy of balanced budget was also favored, because minimum interface from the government was desired in the economic activities. The policy of balanced budget was reviewed in the great depression of 1930s. When it was realized that the government can play an effective role in the recovery of the economy by its fiscal and monetary policies, It was also argued that if government expenditure exceeds its revenue it will generate additional demand which will accelerate the pace of economic growth. As such the policy of surplus budget was almost abandoned by all governments. Implication of Balanced Budget: In the case of balanced Budget the total expenditure remains equal to the total income. In other words, balanced budget is a situation in which estimated revenue of the government during the year is equal to the anticipated expenditure. The following are the implications of balanced budget. 1. Balanced budget indicates the minimum interference of the government in economic activities of the country. The markets are least regulated and demand and supply work on the basis of market situation. 2. In the case of blanch budget monetary and fiscal policy cannot be implemented as there is always a balance between revenue and expenditure. 3. Balanced budget indicates stable and stagnant economy where in growth initiatives cannot be taken due to defensive policy of the government. Deficit Budget: Deficit Budget is an economic situation, wherein estimated government expenditure exceeds the anticipated revenue. After the great depression of 1930s surplus and balanced budgets were

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Select aspects of Indian economy.

abandoned by the governments, because it referred to discouraging the economy from growth. In order to overcome the shocking impact of the great depression, it was felt that the policy of deliberate excessive expenditure by the government over its revenue (deficit budget) should be preferred as a measure to set the economy on the path of economic recovery. It was argued that how can the government spend more than its revenue. The remedy of this economic problem was found in the government spend more than its revenue. The remedy of this economic problem was found in the government spend more than its revenue. The remedy of this economic problem was found in the deficit financing, which was termed as financing of deliberately created gap between public revenue and public expenditure or budgetary deficit. In order to incur heavy expenditure, the government must generate sufficient revenue. Now, let us discuss the generation or revenue by the government. Implication of Deficit Budget: Deficit budget is an economic situation, wherein estimated government expenditure exceeds the anticipate revenue. The following are the implications of deficit budget: 1. Deficit budget results in deficit financing the government. Deficit financing means the addition flow of money in the economy to fun d the excess expenditure of the government. 2. Deficit budget leads to an inflationary situation in the economy due to excess supply of money in the market which is chasing less quantity of goods and services. 3. This budget is a growth as well as welfare driven budget. Growth is achieved through normal level of inflation (price rise) in the economy. Welfare is achieved though government expenditure on health, education and utility services. Balancing Between Government Receipts and Expenditure:: We have discussed the sources of government revenue and expenditure. When we match the estimated revenue of the government with its anticipated expenditure, we may find the following possibilities. 1. Either estimated revenue may be equal to estimated expenditure- known as Balanced Budget. 2. Estimated revenue may not be equal to estimated expenditure-known as Budgetary gap. The Budgetary gap is classified as under: Classification of Budgetary Gap 1. Budgetary Surplus 2. Budgetary Deficit Budgetary Surplus: It s a situation where the estimated revenue of the government exceeds its anticipated expenditure, Due to governments active involvement in the economic activities of the country budgetary surplus are practically non-existing. Budgetary Deficit: Budgetary Deficit is a situation, wherein the estimated expenditure of the government exceeds its anticipated revenue. These days every government is not only actively involved in the economic activities but practically participates and governs the economic activities of the country. A responsible government will not accord full freedom to private sector to do whatever they like. Noninterference of the government in the economic activities will lead to haphazard unbalanced growth of the economy. Private sector works in its private interest. It cannot build sound economic and social infrastructure for the rapid and stable economic growth. It is, therefore, necessary that the governments should not only direct economic activities but practically interfere and perform economic activities. All the governments have assumed these responsibilities. Ours is a socialist welfare state. We have democratic form of government, so we have adopted planned developmental economy. The balanced development democratic form government, so we have adopted planned developmental economy. The balanced development of every region and sector needs that the government must frame effective plans and incur sufficient expenditure, excessive expenditure over revenue shows budgetary deficit. General Economics

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Select aspects of Indian economy.

Implications of Budgetary Deficit: Budgetary deficit is the policy of estimation of excessive expenditure by the government over its revenue deliberately. It is preferred as compared to surplus and balanced budget because it increases demand of commodities. Additional purchasing power generated by the deficit financing of the budgetary deficit works as a measure to set the economy on the part of economic recovery. Mild budgetary deficit is always preferable, because it accelerates the pace of economic growth smoothly. Too much budgetary deficit creates inflationary pressure on the economy resulting in the decline of the purchasing power of money. In other words, it makes commodities dealer inflicting unbearable burden on middle income group and general masses. Budgetary deficit works as accelerator to the growth of the economy, whereas surplus and balanced budgetary lead to stagnation of the economy. Planned budgetary deficit proposes measures of deficit financing which activates demand, production employment and overall activities in the economy.

Types of Budgetary Deficit

Budgetary Deficit: 1. Revenue Deficit 2. Fiscal Deficit 3. Primary Deficit Revenue Deficit: Excess of estimated government expenditure over its receipts during the year on revenue account is termed as Revenue Deficit. The government receives revenue both on revenue account and capital account. At the same time expenses are also incurred on both revenue account and capital account. The excess of revenue expenses incurred on revenue received on revenue account is known as Revenue Deficit. In other words, revenue deficit refers to excess of revenue expenditure over revenue receipts. Revenue deficit indicates the indebtedness in the current budget on account of total revenue receipts of government and the expenses proposed in the Budget. Revenue deficit is calculated from total revenue expenditure and total revenue receipts. It can be calculated as under: Revenue = Total Revenue - Total Revenue Deficit Expenditure Receipts Significance of Revenue Deficit: Revenue deficit signifies that revenue receipts fall short or revenue expenditure. It also signifies that the government has to make up this deficit from capital receipts. i.e. through borrowing or sale of asset. Revenue deficit can be made up though borrowing or disposal of assets. Measures to Contain Revenue Deficit: There are two major factors which drive revenue deficit in the economy 1. Total Revenue Expenditures 2. Total Revenue Receipts In order to contain revenue deficit the government can either increase the total revenue receipt or decrease the total revenue expenditure. Revenue receipts can be increased when government takes up productive activities which have potential of making goods profits. On the other hand, the revenue expenditure can be decreased by taking remedial measures such as elimination of waste expenditure and better controlled of day to day routine expenditure. Fiscal Deficit: The excess of all estimated government expenditure during the year over the anticipated government receipts of the year both on revenue and capital account except borrowings is termed as fiscal deficit. The total resources gap created by the excess of expenditures over the total revenue generated by tax and non-tax revenue and capital receipts excluding borrowing is termed as Fiscal deficit. It can also be presented as under: General Economics

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Select aspects of Indian economy.

Fiscal Deficit=Total Budget expenditure - Revenue receipts - Capital receipts (excluding borrowings)

Significance of Fiscal Deficit: The significance of fiscal deficit is that it determines total borrowing requirements of the government. It also shows the dependence of the government on borrowings to meet its budget deficits. Fiscal; deficit is always injurious to the economy and leads to financial unsoundness. Fiscal deficit increase the liability of the government Repayment of loan together with interest further increases deficit. Payment of interest increases revenue deficit. The situation leads to more borrowings and more repayments of interest. Consequently the economy is caught in the vicious circle of borrowings. Measures to Contain Fiscal Deficit Fiscal deficit indicates excess government borrowing to meet budgetary deficit of the government In order to contain fiscal deficit following steps can be taken: 1. The government should try to avoid borrowings on capital accounts which will help the fiscal deficit. Borrowings affect both fiscal as well as revenue deficit due to the repayment of principle and interest component of the borrowing. 2. Government should try to increase its tax collection which will increase the revenue receipt to contain the fiscal deficit. Primary Deficit Primary deficit is fiscal deficit less interest payments. It can also be presented as under: Primary Deficit= Fiscal Deficit - Interest payments Significance Primary deficit indicates borrowings requirements of the government to meet fiscal deficit excluding interest payments. Measures to Contain Primary Deficit Primary deficit is miserly driven by interest payments out of the fiscal deficit. In order to contain primary deficit government should try to be less dependent on borrowings. Less borrowing will result in lesser payment of interest and hence better primary deficit situation. 1. Expenditure (Revenue and capital) Particulars 1 2 Revenue Receipts Capital receipts of which (a) Loan recoveries + other receipts (b) Borrowings & other liabilities Total Receipts (1+2) Revenue expenditure Capital expenditure Total expenditure (4+5) Budgetary Deficit (3-6) 2 (b) Add: Borrowing and other liabilities Fiscal deficit [1 + 2(a) 6 = 7 + 2(b)] 1990-91 Rs. (Cr) 54950 39010 5710 33300 93960 73510 31800 105310 11350 33300 44650 2004-05 2006-07 2007-08 2008-09 2009-10 Rs. (Cr) 351200 163144 12000 151144 514344 115982 67832 514344 Nil 151144 151144

3 4 5 6 7 8

Trends in Indias Budget and Fiscal Deficits 1. The government now taps 91 days treasury bills from the market and shows it as part of the capital receipts under the heading borrowings and other liabilities. 2. To restore fiscal discipline, the Fiscal Responsibility and Budget Management Act ( FRBM-act) was passed in 2003.

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Select aspects of Indian economy.

Deficits as a percentage of GDP:

deficit 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Fiscal 5.9 4.5 4.0 4.1 3.4 3.2 Primary 1.1 0.0 0.0 0.4 - 0.2 - 0.2 Revenue 4.4 3.6 2.5 2.6 1.9 1.5 Debt When government borrows money to finance the budgetary deficit it is called government debt. In order words, government has mostly relied on borrowings, giving rise to what is called government debt. The concept of deficit and debt are closely related. Deficit can be thought of as a flow which adds to the stock of debt. If the government borrow continuously then it leads to the accumulation of debt and the government have to pay more and more by interest these interest payment themselves contribute to the debt.

BALANCE OF PAYMENTS
Meaning Of Balance Of Payments and Balance Of Trade. The Balance Of Payments: (BOP) is a systematic record of all economic transactions between one country and rest of the world in a year. It includes 1. Balance of Current Accounts It includes 1. Balance of trade (BOT) 2. Balance of services 3. Balance of unrequited transfers 2. Balance of capital account Balance Of Trade Balance of Trade is the difference value of export goods and value of import goods. It may be of three types or BOT = X M 1. Equilibrium balance of trade if Export= Import 2. Deficit balance of trade if Export < import 3. Surplus balance of trade if Export > import Balance of Current Account: It includes 1. Balance of trade: It is difference between exports and imports of goods, which are visible. 2. Balance of services Balance of services records all the services exported and imported by a country in a year, which are invisible. The services transactions includes transportation, banking, insurance, tourism, travel services, interest, profits, dividends and royalties received and paid from and to the foreigners. Balance of services may be of three types like zero, positive or negative. 3. Balance of unrequited transfers: It includes all gifts, donations, grants and reparation, receipts and payments to foreign countries. Balance of Payment on capital account: It deals with borrowings or lending of the country. It includes private direct investments, private portfolio investments and government loans to foreign governments. It deals with borrowings or lending of the country. Balance of Payments: Overall balance of payments is the sum of balance of current account and balance of capital account. Types Balance of payments may be of three types (a) Favorable BOP (b)Unfavorable BOP (c)Equilibrium BOP The balance of payments must always balance in an accounting sense. This is because for any surplus show due from other countries and any deficit show due to other countries three must be a corresponding debit (or credit) entry by the settlement account. A country could be having a surplus in balance of trade and a deficit in balance of payments simultaneously.

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Select aspects of Indian economy.

Trends in Balance Of Payments of India While analyzing Indias balance of payments situation we find that: 1. A country, like India, which is on the path of development generally, experiences a deficit in balance of payments situation. 2. Over the period of planning Indias balance of payments has generally remained unfavorable. 3. During the fifth plan, it experienced surplus in the balance of payment. EXTERNAL DEBT External assistance to India has been in two forms 1. Grants Grants do not involve any repayment obligation. It includes gift and donation etc 10% of external assistance is in form of grants 2. Loans Loan carry an obligation to pay interest and repay the principal. About 90% of the external assistance received by India has been in the forms of loan. These loans from different sources like World Bank, IMF, International Development Association, U.S.A., U.K. etc., The share of Concessional debt in the total external debt of India has reduced from 75% in 1980-81 to 33.3% at present. Debt service payments (i.e. returning of principal and interest) as a percentage of current receipts were high. Particulars 2004-05 2005-06 2006-07 2007-08 2008-09 Long term 504274 528840 625111 Short term 77528 87287 114988 Total external debt 581802 616127 740099 Concessional debt to 18.5 17.2 17.9 Total debt Debt service ratio 30.9 28.6 23.3

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Select aspects of Indian economy.