INDIAN ECONOMY

BY,

SHRI SAPTARSHI NAG, WBCS (EXE)

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CREDIT AVAILABILITY FOR AGRICULTURE IN INDIA

Availability of credit has been the main hindrance in development of agriculture in India.
The banking system is still hesitant on various grounds to purvey credit to the small and
marginal farmers. Less availability of credits makes it difficult to adopt modern
techniques which in turn render agriculture unremunerative and land unprofitable.
Despite government policy of financial inclusion, most of the farmers in India are still
deprived of adequate and timely availability of credit.

Though there has been instruction to the domestic banks to reserve 40% of the Net Bank
Credit for the priority sector lending and 18% out of that amount for agriculture by RBI,
banks over the years have failed in achieving the target. The Rural Infrastructure
Development Fund was set up in 1996 to solve the credit availability crisis. The
Commercial Banks make contributions to the fund for failing to achieve their target for
Priority Sector Lending. The Kisan Credit Card scheme launched in 1998-99 however
was a laudable effort by the government to make credit available at farmers' doorstep.
The scheme facilitated short term loan availability for seasonal agricultural operations
and other agricultural inputs. In addition to that Personal Accident Insurance of Rs
50,000/ against annual premium of just Rs 15/ is being offered along with the cards. So
far the performance of Cooperative banks has been commendable in issuing credit cards
whereas commercial banks lag behind their targets. The performance of the Regional
Rural Banks has been below par. Update of land records and sensitization of bank staff
through training programmes are needed to add to the spread of the scheme.

However there were crying needs for loans for investment and working capital
requirements for the farmers. To take care of the need Swarojgar Credit Card Scheme
was launched in 2003.It must be noted that Non-Institutional credits which accounted for
more than 90% after the independence have decreased considerably in the past 50 years
and presently accounts for little more than 30% of the total agricultural credits.
Moreover, till the liberalization of economy started, cooperative banks were leading in
credit delivery. But past one and a half decades has seen drastic change of the scenario
with the commercial banks now leading in credit delivery by handsome margin. Another
aspect of credit delivery in India is the dominance of short term credit over long term
ones. Present short term credits account for more than 65% of the total credits. The
accessibility to institutional credits is much higher in Southern India than rest parts of
India and Tamil Nadu leads the way.

CONVERTIBILITY OF INDIAN RUPEE

Convertibility refers to the freedom to convert one currency to any other internationally
accepted currencies. It is of two types-Current Account Convertibility and Capital

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Account Convertibility. Capital Account Convertibility refers to the freedom in
converting financial assets of one country to the financial assets of another and vice versa
in the market determined rates. In other words it refers to the flexibility in converting
currencies of one country to another one for acquisition of capital assets abroad and vice
versa. On the other hand current account convertibility refers to the flexibility in
exchanging currencies of one nation to another for other purposes like trade, interest
payment, amortization, family expenses etc.

After the economic liberalization process started in India in 1991, a Liberalized Exchange
Rate Mechanism was introduced in 1992.This allowed partial convertibility of Indian
rupee, thus introducing dual exchange rate. After that full convertibility on trade account
started from 1993.It was followed by Full convertibility on current account from
1994.However after the Mexico crisis in early 1990s or the mammoth East Asia Crisis
where there was sudden flow of capital internationally debilitating the economies of the
involved nations, India was reluctant to adopt capital account convertibility.

However the Tarapore committee, appointed in 1997, recommended phased

implementation of capital account convertibility with certain prerequisites like fiscal
deficit to be 3.5% of GDP,CRR to be brought down to 3%, gross NPA of public sector
banks to be 5% of the total assets, inflation rate to be around 3.5%.The committee was
reappointed almost a decade later and submitted almost the same recommendations with
some modifications.

It must be remembered that the movement towards fuller CAC should be a process and
not an event. Macroeconomic stability is a must before achieving full CAC. Any ad hoc
arrangement from the fixed regime maintained for a long period of time might disturb the
foreign exchange market and disrupt the economic progress.

NATIONAL AGRICULTURAL INSURANCE SCHEME

Salient features

Introduced in:1999-2000 replacing the Comprehensive Crop Insurance Scheme which

was in operation since 1985

Implementing Authority: General Insurance Corporation on behalf of Ministry of

Agriculture

Beneficiaries: All farmers including sharecroppers and tenants

Covered crops: All

Objective: To insure every farmers against loss of food crops, To help stabilize farm
incomes, particularly in disaster years, To encourage the farmers to adopt progressive
farming practices, high value in-puts and higher technology in agriculture.

Special feature: 50% subsidy on premium for small and marginal farmers. This subsidy is

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shared equally by Central and state/UT governments. The scheme has an area based
approach. For loanee farmers it is compulsory while for non-loanee farmers it will be
optional

Premium rates: 2.5-3.5% during kharif and 1.5-2% during ravi seasons

MEGA FOOD PARK SCHEME

The Mega Food Park Scheme, initiated by the Centre, aims to encourage public-private
partnership in creating rural infrastructure in food processing sector. The scheme,
approved by the Cabinet Committee on Economic Affairs in September 2008, envisages
setting up 10 mega foods parks in India i.e. Chittoor (Andhra Pradesh), Dharmapuri
(Tamil Nadu), Mandya (Karnataka), Pune-Satara region (Maharashtra), Jangipur (West
Bengal), Guwahati (northeast), Rae Bareilly (Uttar Pradesh), Ranchi (Jharkhand),
Hardwar (Uttarakhand) and Ludhiana-Jalandhar region (Punjab).The scheme is under the
Ministry of Food Processing Industries. The government will divide the stipulated Rs 500
Cr among the ten food parks.

For instance, Unity Infraprojects Ltd, Mumbai, is developing the mega food park near
Jalandhar at a cost of around Rs 360 crore. The facility will be established on around 100
acres and will consist of 30-35 food processing units. Western Agri Food Park
established in Satara is Western India's first food park and based on 75 acres of land.

Such food parks will help in

Reducing post harvest losses
Maintenance of the supply chain in sustainable manner
Value Addition
Additional income generation for the farmers
Shifting the farmers to more market driven and profitable farming activities.

PRIORITIES OF INDIAN ECONOMY AMIDST GLOBAL CRISIS

Crisis is a window of opportunities. India proved that with sheer brilliance after the Gulf
Crisis in 1990 and started economic reforms which for the next decade or so put Indian
economy into a commanding position. The present global financial crisis is of no
difference. It has provided us two alternatives-to shine or to perish. It is how well we
handle the crisis, will set the fortune of our economy for the coming years or so and will
provide the world an answer to the doubt whether or not India truly has the potentials to
become a global superpower in future.

The present task ahead of India is to undertake economic reforms considering twin

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objectives of our economy from the present shock and avoiding further financial turmoil.
The means to do so may be summed up as below
Moving to Inflation targeted monetary policy so that external influences on inflation can
be minimized
Ensuring timely and adequate availability of credit for the priority sectors so as to ensure
square growth of the economy.
Moving to a full capital account convertibility to bring back the sense of competition in
the financial sector
Establishing a strong regulatory architecture so as to protect the irregularities in the
financial market.
Restructuring the banking industry to make it competitive in the global scenario
We must understand inaction is no solution to the problem. We must not be jubilant as
the impacts of the recession to our economy have not been as hard as to the developed
nations' economies. Rather we must seek opportunities in danger and work harder for
financial sector reforms and come up with flying colors while the developing nations
continue do some firefighting to save themselves from th wrath of global recession.

GLOBALIZATION ON HIGHER EDUCATION IN INDIA

The ramifications of globalization in India have been uneven. Education, as a service

industry, is a part of the globalization process under the umbrella of General Agreement
on Trade in Services (GATS).Thus it is of now wonder that like in any other sector;
globalization has bred inequality and dependence in the education system of the nation,
especially higher education. Thus while a section of the population has benefited from
globalization in their academic pursuits, the under privileged section has struggled to
receive proper higher education due to excessive corporatization of education ,increasing
fees and unavailability of opportunities in the lower strata of the society.

That globalization has opened newer vistas of higher education, can not be denied. It has
given the Indians opportunities to get higher education in foreign countries, though
unfortunately till now India has not been an attractive hub of education for the foreign
students despite having much potential to be so. Today India on an average spends $ 5
billion annually to send students abroad to get higher education. Sadly enough, most of
them hardly come back to their motherland and instead opt for serving in an alien nation.

Globalization has created a market based educational system in India. Thus there has
been incredible growth of the number of technical colleges and universities providing
technical education especially in fields like IT, Computer Science, electronics,
architecture. As the job market in these sectors is flourishing, students after getting mere
Bachelors degree hardly opt for higher education. Thus India over the years has produced
some brilliant technicians but hardly any excellent educationist or a genius teacher.
Moreover, as the cost of receiving such technical education is sky high, poor students
have been out of the competition to receive higher education. Moreover, the declining
value of the civil society is evidence in itself that higher education has imparted technical

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skills but failed to impregnate values among the students.

Moreover, lack of higher educational opportunities in the rural areas confirms that the
interest of the corporate world is limited only in the shining cities, not in the rural India
where ironically more than 70 % of the population lives. As a result rural-urban divide
has been more prominent, there has been migration of students from rural to urban areas
in search of educational opportunities, creating more socio-economic imbalance.

In the end , it must be said that while globalization has been of tremendous benefit for the
upper strata of the society in their academic pursuits, the benefits have not percolated
down the social strata to educate each layer of the society. While corporatization of
education should not be discouraged, the government should have more control in the
sphere of education, so that the people irrespective of their social class can reap the
benefits of higher education and can be a part of making India a better nation to live in.

GLOBALIZATION AND GROWING INEQUALITY

SANDESH G.NAYAK

World is going through its gravest economic downturn since the great economic
downturn of 1930's. The ILO report says that the root of this crisis lies in 1990's
economic reforms. Through these reforms, the world economic order took a turn and
headed for different direction and is the main reason for contemporary economic
inequality, social security concerns and labor relations.
Recent report of ILO clearly highlights the growing inequality among different section of
workers and decrease in the unemployment after the globalization. - Main reason is due
to the extinction of many domestic industries which are affected by the global factors.
Although the 1990s economic reforms were accompanied by “substantial economic
development across most regions" there were variation in labor market performance
between and within the countries. Moreover, increase in employment also occurred,
alongside a redistribution of income “away from labor".
Statistics indicated the share of wages in National Income declined over the past 2
decades. This means that workers gained very less from the economic growth. The rich
poor gap also widened. Nearly two thirds of the countries experienced an increase in
income inequalities. Yet another finding is that this rich poor gap is doing so at increased
pace.
Financial Globalization has not lived up to its promises. Another problem that it has
eroded the Bargaining power of employees and contributed to decline in wage share over
and above any effect resulting from trade integration or sectoral change. The continuing
economic slowdown coupled with rising food prices will accentuate the income
inequality and affect the employment opportunities of low income group..
Although in line with the economic thinking since the advent of globalization, the report
argues that income inequalities could be a good thing as it rewards work quality, talent,
and innovation. It strikes a serious note of caution that “there are instances where income

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inequality reaches excessive levels, in that it represents a danger to social stability while
also going against economic efficiency considerations.”

JOBLESS GROWTH IN INDIA- SOLUTIONS ARE PLENTY

By Anubhav Srivastava

Though India has maintained a GDP growth of more than 8 per cent for past few years, a
vast section of its populace, particularly in the rural areas, still remains jobless. There is
thus an urgent need to evolve a model of development that ensures employment growth
along with GDP growth. If we look at the Indian scenario, we find that nearly 60 per cent
of the workforce is engaged in agriculture and about 12 per cent in manufacturing. Hence
government must find ways and means to stimulate growth in these two sectors in order
to meet the growing demand of jobs.

To promote agriculture, the government should put irrigation and watershed development
high in the list of priorities. Irrigation is vital to the growth of agriculture. It has a
cascading effect on all the other activities related to agriculture. Developed irrigation
facilities makes farmers less dependent on monsoon and at the same time helps them in
increasing the per hectare agricultural production. Efficient irrigation facilities encourage
the farmers to opt for high yielding varieties (HVY) and also increases fertilizer
consumption. Dams built on rivers help in bringing more and more wasteland under
agriculture. This increase in agricultural land, apart from increasing production of food
crops, simultaneously increases the production of fodder. This in turn encourages people
in the villages to purchase more livestock. Similarly government must encourage setting
up of secondary and tertiary sector industries related to agriculture in the rural areas itself
so that migration of people to bigger cities in search of jobs can be checked.

On the manufacturing front, the government must promote small-scale industries (SSI).
This can be done by imparting vocational training to the people in the rural Areas and
providing them micro-credits. To make these small industries competitive vis-à-vis the
bigger companies, people in the villages should be promoted to form cooperative bodies.
Previously, the government had dereserved some of the small scale sector products and
the small industries manufacturing those products failed to compete with the bigger,
highly mechanized industries. Many of the people, who had been involved in
manufacturing those products and hence had skill-set pertaining to only that particular
economic activity, for example cloth weaving, were forced to work as manual laborers.
The skills they had acquired were hence rendered useless. Government can even think of
once again reserving the manufacturing of certain products to the small scale sector in
order to boost employment.

Apart from the above two measures, expansion of social service network can also be
taken up by the government in its efforts to boost job creation. There are several areas
where there is tremendous scope for expansion and improvement like education and
public sector. There is an ever increasing need of primary and secondary schools and also
hospitals and dispensaries. Besides a boost to the rural sector infrastructure too helps in

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generating more jobs. For example, if roads are constructed in any area, it not only
increases the value of the nearby land but also promotes economic activities like Dhabas
(eating joints) and vehicle repair shops along it.

Emergence of a ''green economy'' is now clearly visible and efforts to tackle climate
change could result in millions of ''green jobs'' in India and other countries, says a UN
sponsored report. India could generate 900,000 jobs by 2025 in biomass gasification of
which 300,000 would be in the manufacturing of stoves and 600,000 in the fuel supply
chain and other areas.

GLOBALIZATION AND CLIMATE CHANGE

By definition, climate change is a global issue. The composition of the atmosphere which
surrounds the planet is altering as a result of the emissions of tonnes of polluting gases
(called greenhouse gases - GHGs) from industry, transportation, agriculture and
consumer practices. With this thickening blanket of gases, the atmosphere is gradually
warming. The entire planet will be affected by the climatic changes and impacts which
are predicted e.g. increased droughts and floods, rising sea-levels, more extreme
temperatures, etc.
The willingness of countries around the world to cooperate in the negotiation of treaties
to address this global problem is a positive example of globalization - or perhaps this is
better referred to as internationalism. Intensive discussions over an 18-month period
before the 1992 Rio Earth Summit led to the adoption of the UN Framework Convention
on Climate Change. Negotiations have continued subsequently to develop another
agreement for more specific emission reduction targets for industrialized countries.
There are many environmental impacts of economic globalization: transnational
corporations moving operations to developing countries to avoid the stricter
environmental regulations of their home country; free trade agreements which restrict the
capacity of national governments to adopt environmental legislation; destruction of
southern rain forests to provide exotic timber for northern consumers and to create
pasture land for beef for northern hamburgers, oil spills in the seas and oceans destroying
oceanic environment because of increasing number of business treaties and increasing
shipping are to name a few.
The climate change issue illustrates how inter-related the world is both in terms of the
causes of the problem and the options for addressing it.

GOODS AND SERVICES TAX-CONSTRAINTS AND SOLUTIONS

Goods & Services tax is proposed to phase out Central Sales Tax by April 2010 and
Indian states and political parties have reached fair amount of consensus on the issues
related to the new tax regime. However careful analysis reveals that the route to the new
tax regime may not be an easy one.
Firstly, all the states understand that they will gain from the new tax structures and there

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remain not much ideological problems with its implementation. But the problem is, none
of the states will continue to be that much enthusiastic if they suffer revenue losses while
phasing out the CST. The empowered committee of the state finance ministers has
suggested that the states should be compensated for five years for the revenue losses
incurred. However, they are apprehensive about the possibility of full scale compensation
because of their claimed bitter experience in this regard earlier. Therefore it is essential to
prepare a comprehensive policy for the compensation of the states for the revenue losses,
taking into account past experiences.
Moreover, the states are also apprehensive about encroachment upon their fiscal
autonomy, i.e, their power to levy taxes. However, the apprehension can be assuaged
with the fact that the states will now have the power to levy service taxes hitherto a
monopoly of the Central Government.
Under-preparedness of the administrative machinery and the juvenile IT structure might
pose a threat to the successful implementation of the new tax structure. The state tax
collecting officials who have so far collected only tax on goods will now be given the
responsibility to collect taxes on services as well and for that they need thorough training
which may take some time. This problem can be sorted out if the Center continues to
collect taxes on behalf of the states and give the revenue to the states for the initial 2-3
years till the time the state officials are thoroughly trained. The Tax information
exchange system has to scaled up with better IT facilities and educated IT professionals
thoroughly educated on the tax structure of the country. The format of the challans for tax
payment need to be redesigned and the government may need to allot new unique number
under the GST system for better administration of the tax.
Problems are plenty and time is limited. The time frame given for the implementation of
the GST is nearing the deadline. It is therefore suggested to delay the process a bit so that
both the center and the states have enough time to get accustomed to the new tax
structures. A little delay is always better than a premature roll out.

DECOUPLING THEORY-REALITY CHECK

Decoupling theory, as the name suggests, decouples emerging world markets from US
markets. The followers of this theory believe that “because of the strong GDP growth of
many developing countries, especially of China and India, their markets will chug along
even at the time of US After the first symptoms of recession of US stock and other
financial markets, many investing firms and funds changed their focus to emerging
markets of Europe and Asia. Decoupling theory is postulated in this context for assisting
the firms to reap from these emerging markets, but the validity of this theory is arguable.
The theory was pretty right till the end of last year, but things have changed considerably
in this year. recession.”
Now with the US slowdown spreading across the globe coupled with a declining
dollar, advocates of the decoupling theory are debunking their claims. Most
Asian markets are now on big recession after the crash of Dow John’s. Indian,
Chinese and Hong Kong markets fell considerably in the recent past. In the
globalized world no country can remain isolated and hence developments

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taking place in one part of the world have their repercussions on the other part
of the world and capital markets are no exception. The Indian capital market is
also showing bearish trends with banking stocks moving down in recent times.
After the first symptoms of recession of US stock and other financial markets,
many investing firms and funds changed their focus to emerging markets of
Europe and Asia. Decoupling theory is postulated in this context for assisting
the firms to reap from these emerging markets, but the validity of this theory
is arguable.
The major drawback of Decoupling theory is that it does not consider the
multiple economic relationships and globalization trends. Although the trades
among Asian countries grown tremendously, the major trading partner for all
major Asian countries is still United States and any recession in its economy
will lead to recession in all these countries, although the effect may vary. The
coupling thus still exists and the same can be said about the near future as
well.
Courtesy:1>Dr Salma Rizvi,MBA,PhD,Lecturer(Finance)Amity Business
School
2>Amarendra Chowdhury,MBA,Phd,Consultant,Citi-India

UNORGANISED WORKERS' SOCIAL SECURITY BILL

Unorganized workers' Social Security Bill which has recently been passed by the
Parliament is an evidence of the government's concern for unorganized workers who
constitute a massive 94% of the total work force in the country and contribute to more
than 60% of the GDP of India. According to the officials, the scheme will cover 34 crore
workers in the next five century including agricultural workers and migrant laborers. This
is being seen as one of the most important steps to alleviate the poverty of the workers in
India.
Under this scheme each worker will be identified and registered and will be given a
unique social security number and a social security card. All of them will be offered a
number of social security benefits like health, life and disability insurance, old age
pension, group accident scheme, maternity benefits etc. Registration of workers will be
through the Worker Facilitation center which will work through various worker
facilitation agencies. Each worker will pay a nominal sum and will obtain an unique
social security card and number. The entire scheme will work through Central Social
Security Authority.
The Scheme promises to ameliorate the age old pangs of the unorganized workers who
even sixty years after independence continue to be oppressed by socio-economic forces.
Only time will tell whether it remains a paper tiger or becomes the Savior of the workers.

CREDIT RATING

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Credit rating refers to the Credit worthiness of an Individual, Corporation or even of a
Country. It is calculated on the basis of credit history, present assets and liabilities. A
poor credit rating indicates higher chances of defaulting.
The individual credit rating is important for the banks to estimate the repayment capacity
of its borrowers and the individual credit score takes into account the total amount of
credit, credit spending pattern, amount of credit used, savings pattern, debt, interest rates
etc. Accordingly a three digit credit score is prepared by rating agencies like Fair Isaac
Corporation.
Corporate Credit rating is important for potential investors in bonds and debt securities. It
is also known as bond rating. Agencies like Moody's, Standard's & Poor's, Fitch Ratings
are involved in assigning such credit ratings. Corporate credit ratings are indicated by
AAA,AA,A,BBB,BB,B and so on. Any rating below BBB indicates poor credit health of
the corporation.
Sovereign credit rating takes into account the investment environment of a country and it
includes the political environment as well. Investment friendly government policies
ensure better credit rating of the country. Presently countries like Luxemburg, Norway,
Switzerland have very high credit rating.
Apart from the already mentioned credit rating agencies Equifax, CallCredit, Experian,
TransUnion are some of the credit rating giants. In India Credit Information Bureau of
India Ltd is an individual credit rating agency. CRISIL, ICRA, Credit Registration Office
etc engage in corporate credit ratings.
India's credit rating is presently facing growing pressure because of the widening fiscal
deficit and the country's increasing dependence on foreign capital inflow. The newly
elected government, which won a second five-year term last in May, is planning to
borrow a record Rs.363,000 crore ($76 billion) this fiscal. This move is expected to
widen the budget deficit to 5.5 percent of the gross domestic products. However due to
India's positive credit history the pressure may just last for a temporary period.

SLUMS IN INDIA-AN OVERVIEW

A slum, as defined by the United Nations agency UN-HABITAT, is a run-down area of a

city characterized by substandard housing and squalor and lacking in tenure security.
According to the United Nations, one billion people worldwide live in slums and will
likely grow to 2 billion by 2030.The characteristics associated with slums vary from
place to place. Slums are usually characterized by urban decay, high rates of poverty, and

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unemployment. They are commonly seen as "breeding grounds" for social problems such
as crime, drug addiction, alcoholism, high rates of mental illness, and suicide. In many
poor countries they exhibit high rates of disease due to unsanitary conditions,
malnutrition, and lack of basic health care.
For the first time in 2001 Census data was collected for slums. Slum data was collected
for cities/towns having 50,000 population or more based on 1991 census. It is unfortunate
that the number of people living in slums in India, Asia's fourth largest economy, has
more than doubled in the past two decades, the government said on Thursday. According
to this population of slums all over India is 40,297,341 (40 million) from the 607
cities/towns reporting slums. This comes to ~4% of total Indian population (assuming
Indian population of 1000 million). More interestingly it comes to ~22% of the total
population of these cities (178,393,941).This means that almost quarter of Indian cities
live in slums. And sadly 5,531,062 (5 million) of this population are young children (0-6
age group). The numbers for the richest state in India, Maharashtra are even worse.
Almost 32% of the state's population live in slums. And > 5 million (5,823,510 to be
precise) are in the financial capital of India, Mumbai. About 49% of Mumbai's population
live in slums.
It is vicious cycle of population growth, opportunities in the cities (leading to migration
to the cities), poverty with low incomes, tendency to be closer to work hence occupying
any land in the vicinity etc. The key reason out of all is the slow economic progress.
After independence in 1947, commercial and industrial activity needed cheap labor in the
cities. Plentiful was available in the rural area. They were encouraged to come to cities
and work. People, who migrated to the cities and found work, brought their cousins and
rest of the families to the cities. Unable to find housing and afford it, they decided to
build their shelter closer to work. First, one shelter was built, then two and then two
thousand and then ten thousand and on and on.
Poverty, slums and urban squat are not going to go away in next 20 to 25 years. Reversal
of this phenomenon will begin after sufficient economic progress had been made. Eight
percent GDP growths is a good sign. With quadrupled GDP in 25 years, there is a good
chance that the new and upcoming generation may stay away from slum dwelling. It may
take another 25 years before the slums are vacated.

EFFECTS OF LIBERALIZATION ON PRODUCTION AND EMPLOYMENT

Liberalization of Indian economy has yielded many positive results. But considering the
overall socio economic impact of liberalization in Indian context the scenario is still not
something to cheer about.
It was widely believed that a liberal economy will eventually lead to better production
and more employment generation, the two most important features of any successful
economy. Although India has not fared badly in the first category, employment
generation fore the targeted section is still not satisfactory.
Considering production of goods, today Indian markets are full of white goods, i.e, goods

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required and used by the upper strata of the society and produced by multinational
companies, refrigerators, washing machines, inverters, air conditioning machines are to
name a few. This has resulted in the growth of consumer culture with international
companies dominating the market because of their high brand value, large expenditure on
product development and marketing strategies. The domestic companies in the face of
tough competition are losing the battle and are on the verge of extinction. Thus, though
India boasts of having high mobile density, producing the cheapest car in the world,
farmers still commit suicide in the countryside, more than 20% of the population still live
below the poverty level. It would be, therefore, not wrong to say that the benefits of
liberalization have not percolated down the social strata to enrich the poorer section of
the country.
Considering employment generation, liberalization has created more white collared jobs
ignoring the needs of the poor, rural people. More and more call centers are being
opened, state of the art, sophisticated IT offices are being built. But beneficiaries? The
privileged, educated sections of the society. But the miserable plight of the unskilled
workers, poor farmers, daily wage earners is still the same. It seems the growth rate of
Indian economy has not done justice to the weaker section of the society.
Therefore care has to be taken to ensure a balanced development so that domestic
companies can also flourish along with their multinational counterparts, economic
development results in social growth and the young Indians are free from the menace of
unemployment.
NOTE: THIS ARTICLE CAN BE USED FOR ANSWERING QUESTIONS LIKE
"GLOBALISATION ON POVERTY ALLEVIATION IN INDIA".

ROLE OF EXTERNAL ASSISTANCE IN INDIAN ECONOMY

The Indian economy today is no longer reliant on external assistance for the financing of
its plan outlays or for gross capital formation. The change is evident from the changing
pattern of external assistance. The reliance on food aid has been done away with and the
economy has matured sufficiently to move away from the compulsions of accepting tied
aid. External assistance today plays more of a supportive role in financing major
infrastructure projects, social sector projects and in building up the institutional capacity.
Accordingly, the policy on external assistance has been recast to affirm this changing role
of external assistance and to emphasize the reform orientation in India’s economic policy.
One of the major challenges before the policymakers has been the rising burden of debt
service charges. This has been largely attributable to the comparatively harder terms of
external aid, both in terms of interest rates and maturity periods. Efforts to tackle this
problem were made through measures like
a) reducing dependence on external assistance gradually, and
b) shifting the focus towards obtaining loans and credits of longer maturities and with
lower interest charges.
The structure of external assistance in India appears to be skewed in favor of a few states.
Central sector/multi state sector projects and seven or eight prosperous states account for
nearly 90% of the disbursements. On the other hand, disbursements to states like Bihar

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and the north eastern and special category states are negligible. States like Andhra
Pradesh, West Bengal and Gujarat continue to remain the major absorbers of external
assistance. These issues need attention.
External assistance is composed of loans and grants. However, most of the assistance in
the
initial periods of planning was in the form of interest-bearing loans, while only a fraction
was in the form of outright grants. Loans accounted for 90% of the aid receipts during the
first ten Five Year Plans, while only the remaining 10% were grants.
Government of India now does not accept aid in areas where it has substantial control.
Bilateral aid is accepted only from the G-8 countries, the Russian Federation and the EC.
State Governments cannot access external aid directly either through bilateral or
multilateral
sources. This remains the mandate of the central government.
External assistance made available by various multilateral and bilateral agencies to India
comprises of loans and grants. The World Bank extends assistance through its
concessional lending window, the IDA, and market based lending through the IBRD. The
assistance from the Asian Development Bank (ADB) is also market based. These form
the principal sources of multilateral external assistance to India. The significant bilateral
sources offering external assistance include Japan, Russia, Germany and United
Kingdom. Japan is the largest bilateral donor to India. At present UK is the largest
external bilateral development partner in terms of grants.
The sector-wise disbursement figures indicate that right up to the mid 1990s,
infrastructure
remained the focus of external assistance. With the turn of the century, priorities have
shifted
towards the social sectors like health and education. This shift is largely in consonance
with the
commitments to fulfill the MDGs that commit nations to raise the poor out of poverty and
hunger, get every child into school, empower women, reduce child mortality, improve
maternal health, combat HIV/AIDS, malaria, and other diseases, and ensure
environmental sustainability.

Impact of globalization on state system and its institutions

Globalization removes boundaries among the states for economic and socio-cultural
unification of the world. In the wake of globalization a new concept of global governance
is replacing the age old closed and confined single state governance.
The state system has gone through significant changes in the globalized economy. States
are opening their economies. To get benefits of barrier less trade cooperative
governments, trade groups, economic blocs are being developed. Bilateral and
multilateral agreements, free trade agreements are taking place among several nations.
Today the state system is broadly being dictated by the norms of organizations like WTO
and IMF. Even states have to limit their sovereign decisions due to pressure from such
international forums. The states are giving up administered price mechanism to make

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way for market determined prices.
Even the state institutions have to change their structure and organization to get
themselves acquainted with the process. Insurance, banks, education, finance, agriculture,
PSUs, FDI policy all are being modified to accustomed to the changing world to become
more competitive and more qualitative.
Thus in today's world the state system and its institutions are largely being dictated by
market forces and shedding off the age old sovereign prejudices to get the most of the
new trends.
For reference you can visit
http://www.allacademic.com//meta/p_mla_apa_research_citation/0/7/2/2/5/pages72251/p
72251-1.php
http://unpan1.un.org/intradoc/groups/public/documents/nispacee/unpan005068.pdf

DUMPING AND INDIA (30 MARKS, 250 WORDS)

Dumping is the process of selling goods to foreign market at very low prices. When
production exceeds the demand and there is a chance of falling prices even lower than the
stipulated levels, the country opts for selling the product to other countries at thrown
away price. This saves losses of the producers but causes losses in the country where the
products are being exported.
To restrict such dumping, countries tend to put quantitative restrictions upon dumping.
But due to WTO norms such restrictions are prohibited. Thereby countries look for new
devices to restrict dumping.
India has adopted various preventive measures allowed under WTO rules to restrict
dumping.Giving subsidy to the farmers to reduce their production cost and improve
quality of goods, imposing countervailing duties and additional charges are some of the
measures taken by India in this regard. The Ministry of Commerce has established
"Directorate of Anti Dumping" to tackle issues of dumping.
Main threats of dumping in India is in the spheres of agricultural produces and
manufactures that are allotted to the small scale industries. However, measures taken
against dumping renders the domestic economy more competitive due to technological
upgradation,better value addition and cheaper products.

SHORT NOTES PART 1

1>Merit goods: The concept of a merit goods was introduced by Richard Musgrave
(1957, 1959) and it denotes a commodity which is judged that an individual or society
should have on the basis of some concept of need, rather than ability and willingness to
pay. Examples include the provision of food stamps to support nutrition, the delivery of
health services to improve quality of life and reduce morbidity, subsidized housing and
arguably education. A merit good can be defined as a good which would be under-
consumed (and under-produced) in the free market economy
2>Cheap Money: The money which is available at lower interest rates, softer terms and

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easy conditions. Cheap money causes inflation in an economy.
3>Countervailing Duty: It is the duty against dumping and aimed at increasing the
prices of the products being dumped so as to protect the interest of the domestic
industries and farmers.
4>Hot Money:The money which is highly volatile and flees from one country to another
swiftly to take advantage of better short term interest rates.
5>Trickle Down Theory: The basis of the theory emphasizes on heavy industries and it
is assumed that the benefits of such industries will trickle downwards and will eventually
benefit the consumer goods industries
6>Engel's law: This suggests that the lower income group spends larger part of their
income on food and other similar items and with increase in income proportion of
expenditure over such items decreases.
7>Stagflation: It is a state of the economy where economic activity continues to slow
down but wages and prices continue to rise. The term is a blend of stagflation and
inflation.
8>Ad Valorem Tax: A tax that is specified as a percentage of value. Sales, income, and
property taxes are three of the more popular ad valorem taxes devised by government.
The total ad valorem tax paid increases with the value of what's being taxed.
9>Administered price:It is the price fixed by the government to keep control over rise
or fall of prices of particular commodities so that the vulnerable groups do not suffer.
10>Cash Reserve Ratio: Every scheduled bank has to keep a percentage of total assets
and deposits as deposits with the RBI.Presently it is 5% in India.

SHORT NOTES PART 2

• Measurement of HDI for life expectancy:

HDI (le)= Real age - Minimum age

------------------------------
Maximum age- Minimum age Max age=85, Minimum age=25

• Medical Tourism: By providing modern and skilled solutions and facilities at

cheap rate and higher care for health problems India is trying to attract patients for
better treatment.This is known as medical tourism.

• Copy left:It is a group of licenses. Applied to software, art or other copyright

works. Enables person to use, modify or redistribute any copy of works.

• RCI: Rehabilitation Council of India. It arranges for the rehabilitation of the

people displaced after various development projects. It was et up as a registered
society in 1986.

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• Contagion is the cross-border spread of financial shocks. Such international
spillover means that economic or financial troubles that originate in one nation
can affect others.
• Absolute advantage refers to the ability of an economic unit (a country, for
example) to produce more of any given goods at a lower cost of production than
another economic unit. It is a relative term and is calculated through comparisons
with other economic units. Absolute advantage is used to compare the productive
efficiencies between different countries.
• Amortization can be referred as a process of paying off of certain amount of debt
in regular installments over a certain period of time. Amortization in business is
referred to a process of decreasing capital expenses over a definite period of time.
This type of deduction is usually accounted over the property life. To be more
specific, this method of accounting is used to compute expenditure of the value of
intangible assets, like a patent or a copyright.
• Kleptocracy is when a government increases wealth and political power of
bureaucrats and ruling class at common people's cost. Kleptocracy can also be
named as cleptocracy or kleptarchy. Kleptocracy arises in such cases where a
government is inefficient and not working properly for welfare of people.
Kleptocracy can be also referred as a kind of despotism or some other form of
domineering and favoritism that prevails in any government rule.
• Crony literally means a longtime friend. Crony capitalism refers to a capitalist
market structure, where business men and ruling government share a close
relationship. Businessmen form lobbies to extract favoritism from ruling party.
Favoritism accrues in form of government grants, tax breaks and various financial
incentives. It is argued that political parties and business enterprises form a kind a
symbiotic relationship to stay in power via creation of networks. Both parties reap
positive gains from cooperation.
• A duopoly is a market condition in which two companies producing a similar
type of product have control over the market. This is similar to monopolies in
which only one company controls the market and oligopolies in which multiple
companies are allowed to trade in the market. The most popular example of
duopoly is between Visa and Mastercard who exercise a major control over the
electronic payment processing market in the world. Pepsi and Coca-cola are the
two major shareholders in the soft drinks market. Airbus and Boeing are
duopolies in the commercial jet aircraft market.
• Future value, often expressed as FV is a financial term, which describes how
much a given amount of money will be worth after interest has accrued. Future
value is referred to as the expected value of present sum of money in future.
Future value is a measurement that tells the amount of money that can be received
for any present investment in future. Future value of any investment depends
mainly on two things the number of compounding periods and interest rates.
• D-Mark or Deutsche Mark (DM) was Germany's official currency until euro
became currency of choice in 1999.D-Mark was replaced by euro in circulation
from that year. However, Deutsche Mark was accepted as legal payment of
purchases made inside Germany until February 28, 2002.

17
• BANANA is an acronym for Build Absolutely Nothing Anywhere Near
Anything (or Anyone). The term is most often used to criticize the ongoing
opposition of certain interest groups to land development. The term is commonly
used within the context of planning in the United Kingdom.
• Stealth Tax is a term used for a tax levied in such a way that is largely
unnoticed, or not recognized as a tax. Ex: Use of National Lottery by the British
Government. Inflation is regarded as a form of stealth tax.
• Politburo, from German Politbüro, short for Political Bureau, is the executive
committee for a number of communist political parties.
• Pigskin politics is a political epithet used to describe or dismiss a person's
pavlovian attachment to a political persuasion or party, given that
party's/persuasion's past influence within the person's region. The term is usually
used within the context of a person's attachment to a region or state whereby the
person holds a specific set of beliefs and ideas as a result of having lived there.
• Putty Putty Capital: The capital which can be transformed into durable goods
and then can be brought back to flexible capital again.

Amortization: The running down or payment of a loan by installments. An

example is a repayment mortgage on a house, which is amortized by making
monthly payments that over a pre-agreed period of time

Autarky: The idea that a country should be self-sufficient and not take part in
international trade. The experience of countries that have pursued this Utopian
ideal by substituting domestic production for imports is an unhappy one.

Backwardation: When a commodity is valued more highly in a spot market (that

is, when it is for delivery today) than in a futures market (for delivery at some
point in the future).

Economic Cannibalism:Firms are reluctant to produce new articles in place of an

already existing one which is doing good in market as that would cannibalize
business or eat one's own business.

Catch Up Effect: In any period, the economies of countries that start off poor
generally grow faster than the economies of countries that start off rich. As a
result, the NATIONAL INCOME of poor countries usually catches up with the
national income of rich countries. New technology may even allow
DEVELOPING COUNTRIES to leap-frog over industrialized countries with
older technology. This, at least, is the traditional economic theory. In recent years,
there has been considerable debate about the extent and speed of convergence in
reality.

Complimentary goods: Goods without which some other goods can not function.
Example-a computer can not run without software.

Crony Capitalism: Economic nepotism. Form of corruption. Giving financial

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benefits to near and dear ones.

CAPM: Capital Asset Pricing Model. Valuing assets to calculate capital. Needed
for safe investment.

Gearing: A company's debt expressed as a percentage of its equity. Also known

as leverage.

Gini Coefficient: An inequality indicator. The Gini coefficient measures the

inequality of income distribution within a country. It varies from zero, which
indicates perfect equality, with every household earning exactly the same, to one,
which implies absolute inequality, with a single household earning a country's
entire income. Latin America is the world's most unequal region, with a Gini
coefficient of around 0.5; in rich countries the figure is closer to 0.3.

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