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Chapter 8
Human capital formation in India
Introduction
Skill is valued, because it contributes to the process of production by raising the level of efficiency
or the level of productivity.
According to G.M. Meier Human Capital Formation is the process of acquiring and increasing
the number of person who have the skill, education and experience which are essential for the
economic and political development of a country.
It refers to the stock of Skill and expertise of a nation at a time.
All Educated people are literate but all literate people are not necessarily educated.
1. Expansion of General Education: In 1951, only 16% were literate while in 2011, it is 74%
literacy rate in India.
2. Elementary Education (Primary and Middle class upto 8th) : It consist age group of 6-14
years children. In 1950-51, their number was 2023 lakh and in 2011-12 it increased to 11.92
lakh. Bihar, Rajasthan, UP and Arunachal Pradesh are the most backward states in India.
In 1951 gross enrolment ratio was 43%, presently it is found to be more than 100%.
3. Secondary and Senior Secondary Education : In 1950-51 it was 7.4 thousand while in 2011-
12 it was 15 lakh. Presently, 565 Navodaya Vidyalaya schools are functioning and many
Kendriya Vidyala are functioning for the benefit of the children of transferable employees.
1951 2011
Literacy Rate 16% 74.04
Female Literacy rate 65.46
Male Literacy Rate 82.14
Literacy Rate in Rural area 68.9
Rural female literacy 58.8
Urban female literacy 79.7
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It is encouraging to note that nearly 96.5 % children are now the school goers. But still a Survey
by the Child Rights and You finds that many children drop out from the school or dont take
admission due to lack of transfer documentation, birth certificate etc. Following points makes
education a challenging task:
1. Large number of Illiterates: Presently 36% are illiterate and this is a huge ratio.
2. Inadequate Vocationalisation: People are degree-oriented. Thus, there is lackness of
vocationalization of education.
3. Gender Bias: The enrolment ratio is low among the females as compared to males. So
Gender Bias creates a challenge
4. Low Rural Access Level: For rural people, education is still beyond the expectation as
compared to urban people.
5. Privatisation: Being very expensive, Private education has widen the gulf between access
level for the rich and the poor.
6. Low Government Expenditure on Education: The amound spended by Government on
education is less than required amound.
Conclusion of the chapter: Since 1951, there is remarkable growth in education sector in India
but still the growth is not satisfactory as compared to other countries as well as being a second
most populated country there is need to develop our education system more. Instead of degree-
oriented, there is a need to vocationalise our education system as well as to provide quality
education for growth and development of the nation.
Chapter 9
Rural Development
Introduction
Althgough Noticeable changes have occurred in the Indian Economy since independence. Still,
we cannot be called as developed nation when more than 20% population is living in abject
poverty, also due to massive unemployment, higher suicide rate among farmers, polluted water,
high rate of illiteracy etc. Reason: Growth is not sufficient in rural areas due to all these issues.
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Rural development means an action plan for the social and economic growth of the rural area,
focusing on emerging challenges in rural areas.
Credit need of the Indian farmers are classified into three categories:
I. Short Term Credit: for purchase of inputs like seeds, fertilisers,pesticides, payments of
electricity bill etc. Duration is 6-12 months of this borrowing.
II. Medium-term Credit: for purchase of machinery, construction fences, digging the well
etc. Credit duration is 12 months to 5 years.
III. Long term Credit: for purchase of land. Duration is 5-20 years.
Sources of Rural Credit
A) Non-Institutional Sources: Landlords, village traders and moneylenders are the three
important sources. In 1951, around 93% of the total borrowing of the farmers were
accounting these sources only.
B) Institutional Sources: Including Government, Cooperatives, Commerical banks and the
Regional Rural Banks. In 1951, they accounted only 7% of the credit needs of the
farmers but now it increased by 66%.
I. Cooperative credit societies: Cooperative credit contributes nearly 15% in rural credit.
It has following objectives:
To ensure rapidly flow of credit
Eliminate the moneylenders
To spread credit facilities across all regions
Adequate credit support.
II. State bank of India and other Commercial Banks: SBI was set up in 1955.
Commecial Banks contribute 75% in rural credit.
III. Regional Rural Banks (RRB) and Land Development Bank: It is established to
provide credit to weaker section and backward areas people. These banks operates at
the district level.
IV. NABARD : It has following functions:
Apex banking institution in the field of rural credit
To improve the credit delivery system
To coordinate rural functioning activities
Monitoring and evaluation of projects.
RBI focuses on :
Rural Banking has been expanded since nationalisation of banks (1969). It is not denying that
institutional credit has gone a long way in liberating the farmers from the debt trap of mahajans
and moneylenders, it has promoted commercialisation of agriculture. But it is also true that many
commercial banks have failed to develop a culture of thrift among the farming families.
Agriculture marketing includes all stages between harvesting to final sale of the produce by the
farmers such as processing, grading, packaging and storing it. It helps him getting best price for
his produce.
At the time of independence, the farmers were obliged to sell their crop to the moneylenders,no
matters how low the market price is. This situation knows as Distress Sale. Farmers holding
capacity was Zero on their produce.
1. Regulated Market: The govt. has established regulated market yards, where farmers can
come to sale their produce on fair prices.. It also offer storage facility to them where they
can store their produce.
2. Cooperative Agricultural Marketing Societies : Govt. is encouraging cooperative
agriculture Marketing Socieities where they can find themselves better bargainers. Such
as Milk Cooperative in Gujrat, which has a key role in bringing White Revolution.
3. Provision of Warehousing Facilities: It provides Storage facility to the farmers.
4. Subdised Transport: Railway provides this facility to bring their produce in urban areas.
5. Dissemination of Information: Electronic Media and print media are engaged to
provide information related to market
6. MSP policy (Minimum Support Price Policy) : MSP is an assurance to the farmers that
their produce would be purchased by the govt. at the specied price.
Direct sale by the farmers to the consumers is one such channel active in Punjab, Haryana and
Rajasthan through Apni Mandi, Big Bazar. Direct Sale Contract with MNCs (Reliance) is
another channel. These companies offers advance payment to the farmers for supplying their
produce at pre-determined rates.
Agriculture diversification refers to the re-allocation of some of farms productive resources into
new activities. Diversification has two aspects:
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B) Organic Farming and Sustainable Development: It is a system which relies upon the use
of organic inputs of cultivation. Animal manures and compost are the major organic inputs.
The major focus is on maintaining soil health for long period sustainable process with eco-
friendly environment.
1. Discards the use of non-renewable resources: It doesnt not use synthetic chemicals
which are petroleum based.
2. Environment-friendly : Organic farming discards the use of chemical fertilizers such as
Nitrate.
3. Sustains soil fertility: Organic farming nurtures soils as a resource for future generation
and sustainable development while conventional farming erodes fertility of soil.
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4. Healthier and Tastier food: Organicaly food is more nutritious than the food from
chemical farming.
5. Inexpensive technology for the small and marginal farmers: No expensive package is
required for organic farming such as HYV seeds, fertilizers, pesticides etc.
Conclusion: It cannot be denied that organic farming is not cost efficient but it is in high
demand. Thus, organic farming must be given preference over conventional farming.
Golden Revolution: series of research, development and technology transfer initiatives
increasing production of horticulture crops and honey.
Information Technology (IT) as an option of livelihood in rural areas: IT is known as
knowledge economy where 10 lakh rural people are using info-kiosks. It is
equipped with computers, scanners, printer and photocopiers. It is helpful to video
conferencing, e-mailing and transfer of documents.
Chapter 11
Inflation
Introduction
Inflation refers to a situation of increase in the general price level over a period of time. It can
be arised due to many reasons including a rise in the price of inputs, rate of interest, cost of
investment or fall in demand or income of the people.
1. Indicators of Inflation
3. Causes of Inflation
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I. Increase in Money Supply: Since 2nd five year plan, supply of money has increased more than
GDP, consequently prices also increasing.
II. Deficit Financing: Deficit financing refers to the policy of printing more notes. Budgetary deficit
also has rised.
III. Rise in Population: Due to high population rate, demand for primary goods also has increased.
While their output is not sufficient. Thus, prices increased.
IV. Periodic Fall in Production: Because of Failure of monsoon many times in between 1965 to 92,
production of foodgrains was dissatisfactory. Production also were insufficient due to shortage of
raw material, transport, machines and equipments etc. Thus, inflation arised.
V. Increase in Wages: If wages increases, prices increases, also rises cost of production. As a result,
inflation arises.
VI. Administered Prices:Due to hike in Administered prices, prices of railway freight, postal charges
and petrol also increases.
VII. Inflation across the Borders: Since 1980, crude oil prices also has risen up. Prices of all
imported raw material also has increased.
VIII. Hike in Indirect Taxes: hike in Sales tax, excise duty and custom duty also has gave birth of
inflation.
IX. Credit Expansion: Easy avalilability of credit for the purchase of consumer goods has causes
rise in demand, consequently price level has tended to scale up.
X. Black Money: There is huge stock of unaccounted money in India which is lavishly spent. Thus,
inflation has increased.
Cost push inflation: it occurs when price level tends to rise owing to
the rising cost of production. Rise in cost of production may be related
to expensive inputs.
Demand Pull Inflation: occurs when price level tends to rise owing
to the pressure of demand in the economy.
4. Effects of Inflation / Problems related to Inflation
1. Inflation Hinders the process of growth: Inflation in cost of raw material, cost of production,
cost of wages hinders the process of growth.
2. Adverse effect on the people with fixed income: Quality of life suffers of those who have fixed
income.
3. Increase in the cost of projects: Cost of projects tends to rise due to rise in projects, which
makes difficult to achieve pre-determined targets.
4. Adverse impact on Balance of payments (BOP) : Export increases and import decreases.
5. Wage-Price spiral: Real and money wages declined due to inflation
6. Inequality: Inflation gives birth to inequality in the distribution of income and wealth. Wage
earners suffers from problems.
7. Economic Stagnation: inflation lowers purchasing power of the people. Size of the market tends
to shrink.
8. Impact on FDI : Inflation threatens the flow of Foreign direct investment (FD).
9. Speculation and Hoarding: Traders make speculative investment on inventory stocks,
Accordingly current supplies are reduced.
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b) Monetary Policy: By which the Govt. controls the supply of money and the rate of interest in the
economy. It has 2 instruments:
Supply of Money: To control the inflation, RBI puts a check on the supply of money in India.
Rate of Interest: To check inflation, RBI raises the bank Rate.It causes a rise in market rate of
interest. Accordingly, demand for loans is reduced and reduces level of expenditure also.
Supply of Credit:
Increase in CRR (cash reserve ratio)
Sale of Govt. Securities
A rise in margin for loans
Credit rationing
Principal Measure:
Publich Expenditure: To control the demand of goods and services, it is checked by the govt.
Public Debt : Allowed to rise through public borrowing. It reduces purchasing power of the
people and inflation controlled.
Taxes: If taxes will be taken from the people, rest of the amount of income will be reduced and
it will restrict their purchasing power.
Budget Policy: It is a policy by which govt. expenditure is decreased while the revenue is
increased.
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Chapter 10
Introduction: Unemployment is a major reason behind poverty. It is a stigma to the society and
barrier for the development of a nation. A nation cannot be developed without the participation
of the workforce in the process of economic growth. This chapter forcuses on the basic problems
of the enemployment and steps taken by the govt. for generating employment in the country.
activity Production
activity
All production activities are economic activity but all economic activities are not production
activity.
Types of Workers
People working in their own business like A person who is working on salary basis in
a farmer working in his own farm, or an some other organization.
entrepreneur in his own factory
workers are willing to offer working or willing to work. working and does not
corresponding to a It is not related to wage rate. account for those who are
particular wage rate. willing to work.
Suppose you can do work for WF= LF - No. of persons
10 hours but you are willing not working but are willing
to work only for 6 hours. to work
Can increase or decrease Can increase or decrease
even when the number of only when the no. of
workers remains constant. persons actually working or
willing to work increases or
decreases.
Rate of Unemployment:
Participation Rate:
a. Housewives are not deemed as workers because they are paid for it
and it is difficult to ascertain market value of their services as
housewives.
b. Women working in farms in rural areas and working in joint family
business in urban areas are not considered as workers.
4. Self-employed and Hired workers in India
a) In urban areas: 37.9 % are Self employed and 62.1% are hired because in urban areas most
of the people look for jobs in office and facroties.
In Rural areas: 45.7% are self employed and 54.3% hired because in rural areas family
farms are the most attractive means of employment.
51 2014
Primary 46.9% 60.8 8.2 45 57.3 72.72 46.9
Sector
Secondar 22.2% 19.2 30.4 19.1 14.9 10.02 22.2
y Sector
Tertiary 30.9% 20 61.4 25.3 18.9 17.26 30.9
Sector
Others 10.6 9.6
6. Jobless Growth : Jobless growth is a situation when the level of output in the economy tends
to rise owing to innovate technology without any perceptivble rise in the level of employment.
If economic growth is driven only by innovative technology, it fails to improve the level of
employment in the economy. Such a growth is called Jobless Growth
MNCs are achieving high growth through efficient use of technology rather than
through greater use of manpower. Thus, growth is moving faster than the job
opportunities, so it is a Jobless Growth
7. Casualisation and Informalisation of Workforce
Casualisation : a situation when the percentage of casually-hired workers in the total workforce
tends to rise over time.
Informalisation: a situation where percentage of workforce in the formal sector tends to decline
and that in the informal sector tends to rise.
Employment
Who is Unemployed?
According to Prof. Pigou A man is unemployed only when he is both without a job or not
employed and also desires to be employed
Unemployment in India
Youth Unemployment : Between the age group of 15-29 years. This exists in
both rural and urban areas. It is more among the educated (than uneducated
persons)
1. Open Unemployment : Wherein although the worker is willing to work, he has ability to
work yet he does not get work and he remain unemployed and dependent on other earning
members of the family.
2. Structural Unemployment
a) Change in technology : old technocrats are no longer needed.
b) Change in the pattern of demand: Certain industries are closed down and the workers
are thrown out.
3. Underemployment: In which a worker doesnot get a full time job.He remain unemployed
for few month or few hours everyday. It has 2 types:
a) Visible Underemployment: People work lesser than the standard hours of work in a day.
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b) Invisible Underemployment : He works full time, but his income is not appropriate
according to his abilities. Eg. If an MA degree holder has to work as a peon.
4. Frictional Unemployment: Due to mobility across different occupation. Eg. A married lady
may decide to remain out of job for a couple of weeks or months.
5. Cyclical Unemployment : It occure due to cyclical fluctuation in economy like Boom,
Recession, Depression and Recovery.
1. Slow Economic Growth: Slow Economy growth fails to generate sufficient no. of job
opportunities.
2. Rapid Growth of population: Size of population is more than no. of jobs.
3. Agriculture- A seasonal Occupation : It is seasonal in nature and does not provide stable
jobs.
4. Lack of Irrigation Facilities: For irrigation, Mono-cropping (Only 1 crop per year)
becomes compulsion. As a result it creates unemployment.
5. Joint Family System : High tendency to survive on joint income without work.
6. Decay to cottage and small industries: Emergence of large industry in place of small
industry has failed to yield employment opportuni ities.
7. Low savings and Investment : There is scarcity of capital, as a result investment also
remains low and employment doesnot rises.
8. Mobility of labour: People doesnot want to leave their residence due to jobs at other place,
it creates unemployment
Economic Consequences
1. Non-utilisation of Manpower: Manpower resources of the country are not utilised and
sheer wastage for the society.
2. Loss of output: Unemployed persons make no contribution to output even they have
potential.
3. Low capital Formation: Unemployed people do not earn anything thus, rate of capital
remains low.
4. Low productivity: Unemployed persons do not give productivity, it is the reason behind
low rate of growth.
Social Consequences
Chapter 12
Infrastructure
1. Introduction
There are certain things such as power/energy/transport and communication, school, colleges
besides hospitals and nursing homes which serve as the foundation of economic growth and
social development of a country. Sum total of these thing make up Infrastructure
2. Concept of Infrstructure
It refers to such core elements of economic and social change which serve as a support
system to production activity in the economy.
Economic Infrstructure: all such elements of economic change which serve as a support
system to the process of economic growth such as power/transport and communication.
Social Infrstructure
Ir refers to core elements of social change which serve as a support system to the process of
social growth such as schools, college, hospitals and nursing homes.
Complement: When economic and social infrastrucute are put together that the process of
growth and development would become a dynamic process.
Health is a state of complete physical, mental and social well-being. Good health enhances the
quality of life. Good health implies the following:
i. Increase in overall efficient to handle difficult tasks
ii. Increase in productivity of labour
iii. Increase in mental abilities
Development of health services after independence: Following are the key points to this fact
1. Decline in death rate: 27.4% per thousand in 1951, 7.6% per thousand in 2015.
2. Reduction in infant mortality rate: 146/ thousand in 1951 to 40/thousand in 2013.
3. Rise in expectancy of life: 50 years in 1951 to 68 years in 2013.
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4. Control over deadly diseases: Like Malaria, tuberculosis(TB) and smallpox are under
control.
5. Reduction in child mortality rate: 57/ thousand in 1951 to 15.2/thousand in 2009.
No. of hospitals are increased as 35000 at present. No. of Doctors has increased from 62000 to
816629.
Poor sanitation level: It is extremely poor in urband and rural areas both.
Sanitation infrastructure has two function : a) To make clean surroundings b)
To arouse awareness of sanitation among the people.
It is found that around 30% of the houses have no toilet facilities in the urban areas.
India has six recognised systems of medicine such as Ayurveda, Yoga, Unani, Sidha,
Naturopathy and Homeopathy (AYUSH). As on April 1, 2010, there are 3277 ISM
hospitals, 24829 dispensaries, 62649 beds, 495 under graduate colleges and 106
post graduate colleges in India.