T9-NCERT-XI-Indian Economic development

Chapter 1

Capital goods industry means industries which can produce machine tools which are, in turn, used for producing articles for current consumption. 

FOREIGN TRADE 

India has been an important trading nation since ancient times. But the restrictive policies of commodity production, trade and tariff pursued by the colonial government adversely affected the structure, composition and volume of India’s foreign trade. Consequently, India became an exporter of primary products such as raw silk, cotton, wool, sugar, indigo, jute etc. and an importer of finished consumer goods like cotton, silk and woollen clothes and capital goods like light machinery produced in the factories of Britain. 

Trade Through the Suez Canal 

Suez Canal is an artificial waterway running from north to south across the Isthmus of Suez in north-eastern Egypt. It connects Port Said on the Mediterranean Sea with the Gulf of Suez, an arm of the Red Sea. The canal provides a direct trade route for ships operating between European or American ports and ports located in South Asia, East Africa and Oceania by doing away with the need to sail around Africa. Strategically and economically, it is one of the most important waterways in the world. Its opening in 1869 reduced the cost of transportation and made access to the Indian market easier. 

INFRASTRUCTURE 

Under the colonial regime, basic infrastructure such as railways, ports, water transport, posts and 

telegraphs did develop. However, the real motive behind this development was not to provide basic amenities to the people but to subserve various colonial interests. 

The British introduced the railways in India in 1850 and it is considered as one of their most important contributions. The railways affected the structure of the Indian economy in two important ways. On the one hand it enabled people to undertake long distance travel and thereby break geographical and cultural barriers while, on the other hand, it fostered commercialisation of Indian agriculture which adversely affected the self-sufficiency of the village economies in India. The volume of India’s ex p o r t s u n d o u b t ed l y expanded but its benefits rarely accrued to the Indian people. 

The social benefits, which the Indian people gained owing to the introduction of the railways, were thus outweighed by the country’s huge economic loss. 

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

An understanding of the economy before independence is necessary to know and appreciate the level of development achieved during the post- independence period. 

The rule of the British-India government led to the collapse of India’s world famous handicraft industries without contributing, in any significant manner, to its replacement by a modern industrial base. 

Lack of adequate public health facilities, occurrence of frequent natural calamities and famines pauperised the hapless Indian people and resulted in engendering high mortality rates. 

Chapter 2

Indian Economy 1950-1990 

The Central objective of Planning in India... is to initiate a process of development which will raise the living standards and open out to the people new opportunities for a richer and more varied life. 

First five Year Plan

Every society has to answer three questions 

What goods and services should be produced in the country? 

How should the goods and services be produced? Should producers use more human labour or more capital (machines) for producing things? 

How should the goods and services be distributed among people? 

One answer to these questions is to depend on the market forces of supply and demand. In a market economy, also called capitalism, only those consumer goods will be produced that are in demand, i.e., goods that can be sold profitably either in the domestic or in the foreign markets.

In a capitalist society the goods produced are distributed among people not on the basis of what people need but on the basis of Purchasing Power—the ability to buy goods and services. That is, one has to have the money in the pocket to buy it. Low cost housing for the poor is much needed but will not count as demand in the market sense because the poor do not have the purchasing power to back the demand. As a result this commodity will not be produced and supplied as per market forces. Such a society did not appeal to Jawaharlal 

A socialist society answers the three questions in a totally different manner. In a socialist society the government decides what goods are to be produced in accordance with the needs of society. It is assumed that the government knows what is good for the people of the country and so the desires of individual consumers are not given much importance. The government decides how goods are to be produced and how they should be distributed. In principle, distribution under socialism is supposed to be based on what people need and not on what they can afford to purchase. Unlike under capitalism, for example, a socialist nation provides free health care to all its citizens. Strictly, a socialist society has no private property since everything is owned by the state. In Cuba and China, for example, most of the economic activities are governed by the socialistic principles. 

Most economies are mixed economies, i.e. the government and the market together answer the three questions of what to produce, how to produce and how to distribute what is produced. In a mixed economy, the market will provide whatever goods and services it can produce well, and the government will provide essential goods and services which the market fails to do.

What is a Plan? 

A plan spells out how the resources of a nation should be put to use. It should have some general goals as well as specific objectives which are to be achieved within a specified period of time; in India plans are of five years duration and are called five year plans (we borrowed this from the former Soviet Union, the pioneer in national planning. 

Our five year plans do not spell out how much of each and every good and service is to be produced. This is neither possible nor necessary (the former Soviet Union tried to do this and failed). It is enough if the plan is specific about the sectors where it plays a commanding role, for instance, power generation and irrigation, while leaving the rest to the market. 

Gross Domestic Product (GDP). The GDP is the market value of all the goods and services produced in the country during a year.

A factory can increase output by using a new type of machine. Adoption of new technology is called modernisation. However, modernisation does not refer only to the use of new technology but also to changes in social outlook such as the recognition that women should have the same rights as men. 

Self-reliance: A nation can promote economic growth and modernisation by using its own resources or by using resources imported from other nations. The first seven five year plans gave importance to self-reliance which means avoiding imports of those goods which could be produced in India itself. This policy was considered a necessity in order to reduce our dependence on foreign countries, especially for food. It is understandable that people who were recently freed from foreign domination should give importance to self-reliance. Further, it was feared that dependence on imported food supplies, foreign technology and foreign capital may make India’s sovereignty vulnerable to foreign interference in our policies. 

Equity: Now growth, modernisation and self-reliance, by themselves, may not improve the kind of life which people are living. A country can have high growth, the most modern technology developed in the country itself, and also have most of its people living in poverty. It is important to ensure that the benefits of economic prosperity reach the poor sections as well instead of being enjoyed only by the rich. So, in addition to growth, modernisation and self-reliance, equity is also important. Every Indian should be able to meet his or her basic needs such as food , a decent house education and health care and inequality in the distribution of wealth should be reduced. 

During the colonial rule there was neither growth nor equity in the agricultural sector. The policy makers of independent India had to address these issues which they did through land reforms and promoting the use of ‘High Yielding Variety’ (HYV) seeds which ushered in a revolution in Indian agriculture. 

Land Ceiling was another policy to promote equity in the agricultural sector. This means fixing the maximum size of land which could be owned by an individual. The purpose of land ceiling was to reduce the concentration of land ownership in a few hands. 

The land ceiling legislation also faced hurdles. The big landlords challenged the legislation in the courts, delaying its implementation. They used this delay to register their lands in the name of close relatives, thereby escaping from the legislation. The legislation also had a lot of loopholes which were exploited by the big landholders to retain their land. Land reforms were successful in Kerala and West Bengal because these states had governments committed to the policy of land to the tiller. Unfortunately other states did not have the same level of commitment and vast inequality in landholding continues to this day. 

The Green Revolution: At independence, about 75 per cent of the country’s population was dependent on agriculture. 

The stagnation in agriculture during the colonial rule was permanently broken by the green revolution. This refers to the large increase in production of food grains resulting from the use of high yielding variety (HYV) seeds especially for wheat and rice. The use of these seeds required the use of fertiliser and pesticide in the correct quantities as well as regular supply of water; the application of these inputs in correct proportions is vital. 

In the first phase of the green revolution (approximately mid 1960s upto mid 1970s), the use of HYV seeds was restricted to the more affluent states such as Punjab, Andhra Pradesh and Tamil Nadu. 

Further, the use of HYV seeds primarily benefited the wheat- growing regions only. 

In the second phase of the green revolution (mid-1970s to mid-1980s), the HYV technology spread to a larger number of states and benefited more variety of crops. The spread of green revolution technology enabled India to achieve self-sufficiency in food grains; we no longer had to be at the mercy of America, or any other nation, for meeting our nation’s food requirements. 

While the nation had immensely benefited from the green revolution, the technology involved was not free from risks. One such risk was the possibility that it would increase the disparities between small and big farmers—since only the big farmers could afford the required inputs, thereby reaping most of the benefits of the green revolution. Moreover, the HYV crops were also more prone to attack by pests and the small farmers who adopted this technology could lose everything in a pest attack. 

On the negative side, some 65 per cent of the country’s population continued to be employed in agriculture even as late as 1990. 

INDUSTRY AND TRADE 

Economists have found that poor nations can progress only if they have a good industrial sector. Industry provides employment which is more stable than the employment in agriculture; it promotes modernisation and overall prosperity. It is for this reason that the five year plans place a lot of emphasis on industrial development. 

Industrial Policy Resolution 1956 (IPR 1956): In accordance with the goal of the state controlling the commanding heights of the economy, the Industrial Policy Resolution of 1956 was adopted. This resolution formed the basis of the Second Five Year Plan, the plan which tried to build the basis for a socialist pattern of society. This resolution classified industries into three categories. The first category comprised industries which would be exclusively owned by the state; the second category consisted of industries in which the private sector could supplement the efforts of the state sector, with the state taking the sole responsibility for starting new units; the third category consisted of the remaining industries which were to be in the private sector. 

Although there was a category of industries left to the private sector, the sector was kept under state control through a system of licenses. No new industry was allowed unless a license was obtained from the government. This policy was used for promoting industry in backward regions; it was easier to obtain a license if the industrial unit was established in an economically backward area. In addition, such units were given certain concessions such as tax benefits and electricity at a lower tariff. The purpose of this policy was to promote regional equality. 

Even an existing industry had to obtain a license for expanding output or for diversifying production (producing a new variety of goods). This was meant to ensure that the quantity of goods produced was not more than what the economy required. License to expand production was given only if the government was convinced that the economy required a larger quantity of goods. 

Small-Scale Industry: In 1955, the Village and Small-Scale Industries Committee, also called the Karve Committee, noted the possibility of using small-scale industries for promoting rural development.at present the maximum investment allowed is rupees one crore. 

The policy of protection is based on the notion that industries of developing countries are not in a position to compete against the goods produced by more developed economies. It is assumed that if the domestic industries are protected they will learn to compete in the course of time. Our planners also feared the possibility of foreign exchange being spent on import of luxury goods if no restrictions were placed on imports. Nor was any serious thought given to promote exports until the mid-1980s. 

The point is that after four decades of Planned development of Indian Economy no distinction was made between (i) what the public sector alone can do and (ii) what the private sector can also do. For example, even now only the public sector supplies national defence. And even though the private sector can manage hotels well, yet, the government also runs hotels. This has led some scholars to argue that the state should get out of areas which the private sector can manage and the government may concentrate its resources on important services which the private sector cannot provide. 

The need to obtain a license to start an industry was misused by industrial houses; a big industrialist would get a license not for starting a new firm but to prevent competitors from starting new firms. 

The excessive regulation of what came to be called the permit license raj prevented certain firms from becoming more efficient. 

The protection from foreign competition is also being criticised on the ground that it continued even after it proved to do more harm than good. Due to restrictions on imports, the Indian consumers had to purchase whatever the Indian producers produced. The producers were aware that they had a captive market; so they had no incentive to improve the quality of their goods. 

Chapter 3

Economic reforms since 1991

In 1991, a crisis in the balance of payments led to the introduction of economic reforms in the country. 

LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL 

Since independence, India followed the mixed economy framework by combining the advantages of the capitalist economic system with those of the socialist economic system. Some scholars argue that, over the years, this policy resulted in the establishment of a variety of rules and laws, which were aimed at controlling and regulating the economy, ended up instead in hampering the process of growth and development. Others state that India, which started its developmental path from near stagnation, has since been able to achieve growth in savings, developed a diversified industrial sector which produces a variety of goods and has experienced sustained expansion of agricultural output which has ensured food security. 

In 1991, India met with an economic crisis relating to its external debt — the government was not able to make repayments on its borrowings from abroad; foreign exchange reserves, which we generally maintain to import petrol and other important items, dropped to levels that were not sufficient for even a fortnight. The crisis was further compounded by rising prices of essential goods. All these led the government to introduce a new set of policy measures which changed the direction of our developmental strategies. 

The origin of the financial crisis can be traced from the inefficient management of the Indian economy in the 1980s. We know that for implementing various policies and its general administration, the government generates funds from various sources such as taxation, running of public sector enterprises etc. When expenditure is more than income, the government borrows to finance the deficit from banks and also from people within the country and from international financial institutions. When we import goods like petroleum, we pay in dollars which we earn from our exports. 

Development policies required that even though the revenues were very low, the government had to overshoot its revenue to meet problems like unemployment, poverty and population explosion. The continued spending on development programmes of the government did not generate additional revenue. Moreover, the government was not able to 

generate sufficiently from internal sources such as taxation. When the government was spending a large share of its income on areas which do not provide immediate returns such as the social sector and defence, there was a need to utilise the rest of its revenue in a highly efficient manner. The income from public sector undertakings was also not very high to meet the growing expenditure. At times, our foreign exchange, borrowed from other countries and international financial institutions, was spent on meeting consumption needs. Neither was an attempt made to reduce such profligate spending nor sufficient attention was given to boost exports to pay for the growing imports. 

In the late 1980s, government expenditure began to exceed its revenue by such large margins that meeting the expenditure through borrowings became unsustainable. Prices of many essential goods rose sharply. Imports grew at a very high rate without matching growth of exports. As pointed out earlier, foreign exchange reserves declined to a level that was not adequate to finance imports for more than two weeks. There was also not sufficient foreign exchange to pay the interest that needs to be paid to international lenders. Also no country or international funder was willing to lend to India. 

India approached the International Bank for Reconstruction and Development (IBRD), popularly known as World Bank and the International Monetary Fund (IMF), and received $7 billion as loan to manage the crisis. For availing the loan, these international agencies expected India to liberalise and open up the economy by removing restrictions on the private sector, reduce the role of the government in many areas and remove trade restrictions between India and other countries. 

India agreed to the conditionalities of World Bank and IMF and announced the New Economic Policy (NEP). The NEP consisted of wide ranging economic reforms. The thrust of the policies was towards creating a more competitive environment in the economy and removing the barriers to entry and growth of firms. This set of policies can broadly be classified into two groups: the stabilisation measures and the structural reform measures. Stabilisation measures are short- term measures, intended to correct some of the weaknesses that have developed in the balance of payments and to bring inflation under control. In simple words, this means that there was a need to maintain sufficient foreign exchange reserves and keep the rising prices under control. On the other hand, structural reform policies are long-term measures, aimed at improving the efficiency of the economy and increasing its international competitiveness by removing the rigidities in various segments of the Indian economy. The government initiated a variety of policies which fall under three heads viz. liberalisation, privatisation and globalisation. 

LIBERALISATION 

Deregulation of Industrial Sector: In India, regulatory mechanisms were enforced in various ways (i) industrial licensing under which every entrepreneur had to get permission from government officials to start a firm, close a firm or to decide the amount of goods that could be produced (ii) private sector was not allowed in many industries (iii) some goods could be produced only in small scale industries and (iv) controls on price fixation and distribution of selected industrial products. The reform policies introduced in and after 1991 removed many of these restrictions. Industrial licensing was abolished for almost all but product categories — alcohol, cigarettes, hazardous chemicals, industrial explosives, electronics, aerospace and drugs and pharmaceuticals. The only industries which are now reserved for the public sector are defence equipments, atomic energy generation and railway transport. Many goods produced by small scale industries have now been dereserved. In many industries, the market has been allowed to determine the prices. 

Financial Sector Reforms: 

One of the major aims of financial sector reforms is to reduce the role of RBI from regulator to facilitator of financial sector. This means that the financial sector may be allowed to take decisions on many matters without consulting the RBI. 

The reform policies led to the establishment of private sector banks, Indian as well as foreign. Foreign investment limit in banks was raised to around 50 per cent. 

Foreign Institutional Investors (FII) such as merchant bankers, mutual funds and pension funds are now allowed to invest in Indian financial markets. 

Tax Reforms: Tax reforms are concerned with the reforms in government’s taxation and public expenditure policies which are collectively known as its fiscal policy. There are two types of taxes: direct and indirect. Direct taxes consist of taxes on incomes of individuals as well as profits of business enterprises. Since 1991, there has been a continuous reduction in the taxes on individual incomes as it was felt that high rates of income tax were an important reason for tax evasion. It is now widely accepted that moderate rates of income tax encourage savings and voluntary disclosure of income. The rate of corporation tax, which was very high earlier, has been gradually reduced. 

Foreign Exchange Reforms: The first important reform in the external sector was made in the foreign exchange market. In 1991, as an immediate measure to resolve the balance of payments crisis, the rupee was devalued against foreign currencies. This led to an increase in the inflow of foreign exchange. It also set the tone to free the determination of rupee value in the foreign exchange market from government control. Now, more often than not, markets determine exchange rates based on the demand and supply of foreign exchange. 

Trade and Investment Policy Reforms: Liberalisation of trade and investment regime was initiated to increase international competitiveness of industrial production and also foreign investments and technology into the economy. The aim was also to promote the efficiency of the local industries and the adoption of modern technologies. 

In order to protect domestic industries, India was following a regime of quantitative restrictions on imports. This was encouraged through tight control over imports and by keeping the tariffs very high. These policies reduced efficiency and competitiveness which led to slow growth of the manufacturing sector. The trade policy reforms aimed at (i) dismantling of quantitative restrictions on imports and exports (ii) reduction of tariff rates and (iii) removal of licensing procedures for imports. Import licensing was abolished except in case of hazardous and environmentally sensitive industries. Quantitative restrictions on imports of manufactured consumer goods and agricultural products were also fully removed from April 2001. Export duties have been removed to increase the competitive position of Indian goods in the international markets. 

PRIVATISATION 

It implies shedding of the ownership or management of a government owned enterprise. Government companies are converted into private companies in two ways (i) by withdrawal of the government from ownership and management of public sector companies and or (ii) by outright sale of public sector companies. 

Privatisation of the public sector undertakings by selling off part of the equity of PSUs to the public is known as disinvestment. The purpose of the sale, according to the government, was mainly to improve financial discipline and facilitate modernisation. The government envisaged that privatisation could provide strong impetus to the inflow of FDI. 

The government has also made attempts to improve the efficiency of PSUs by giving them autonomy in taking managerial decisions. For instance, some PSUs have been granted special status as maharatnas, navratnas and miniratnas.

Maharatnas, navratnas and miniratnas.

In order to improve efficiency, infuse professionalism and enable them to compete more effectively in the liberalised global environment, the government identifies PSUs and declare them as maharatnas, navratnas and miniratnas. They were given greater managerial and operational autonomy, in taking various decisions to run the company efficiently and thus increase their profits. Greater operational, financial and managerial autonomy has also been granted to profit-making enterprises referred to as miniratnas. 

In 2011, about 90 public enterprises were designated with different status. A few examples of public enterprises with their status are as follows: (i) Maharatnas – (a) Indian Oil Corporation Limited, and (b) Steel Authority of India Limited, (ii) Navratnas – (a) Bharat Heavy Electricals Limited, (b) Mahanagar Telephone Nigam Limited; and (iii) Miniratnas – (a) Bharat Sanchar Nigam Limited; (b) Airport Authority of India and (c) Indian Railway Catering and Tourism Corporation Limited. 

Many of these profitable PSUs were originally formed during the 1950s and 1960s when self-reliance was an important element of public policy. 

Globalisation

Globalisation attempts to establish links in such a way that the happenings in India can be influenced by events happening miles away. It is turning the world into one whole or creating a borderless world. 

Outsourcing: This is one of the important outcomes of the globalisation process. 

In outsourcing, a company hires regular service from external sources, mostly from other countries, which was previously provided internally or from within the country (like legal advice, computer service, advertisement, security — each provided by respective departments of the company). As a form of economic activity, outsourcing has intensified, in recent times, because of the growth of fast modes of communication, particularly the growth of Information Technology (IT). Many of the services such as voice-based business processes (popularly known as BPO or call centres), record keeping, accountancy, banking services, music recording, film editing, book transcription, clinical advice or even teaching are being outsourced by companies in developed countries to India. 

Global Footprint! 

Owing to globalisation, you might find many Indian companies expanding their wings to many other countries. In 2000, Tata Tea surprised the world by acquiring the UK based Tetley, the inventor of the tea bag, for Rs 1,870 crore. In the year 2004, Tata steel bought the Singapore-based Nat steel for Rs 1,245 crore and Tata Motors completed the buyout of Daewoo’s heavy commercial vehicle unit in South Korea for Rs 448 crore. Now VSNL is acquiring Tyco’s undersea cable network for Rs 572 crore, which will control over 60,000 km undersea cable network across three continents. The Tatas also plan to invest Rs 8,800 crore in fertiliser, steel and power plants in Bangladesh. 

Source: Business Today, 22 May 2005. 

World Trade Organisation (WTO): 

The WTO was founded in 1995 as the successor organisation to the General Agreement on Trade and Tariff (GATT). 

GATT was established in 1948 with 23 countries as the global trade organisation to administer all multilateral trade agreements by providing equal opportunities to all countries in the international market for trading purposes. WTO is expected to establish a rule- based trading regime in which nations cannot place arbitrary restrictions on trade. In addition, its purpose is also to enlarge production and trade of services, to ensure optimum utilisation of world resources and to protect the environment. The WTO agreements cover trade in goods as well as services to facilitate international trade (bilateral and multilateral) through removal of tariff as well as non-tariff barriers and providing greater market access to all member countries. 

India has kept its commitments towards liberalisation of trade, made in the WTO, by removing quantitative restrictions on imports and reducing tariff rates. 

INDIAN ECONOMY DURING REFORMS: AN ASSESSMENT 

The growth of GDP increased from 5.6 per cent during 1980-91 to 8.2 per cent during 2007-1012. During the reform period, the growth of agriculture has declined. While the industrial sectors reported fluctuation, the growth of service sector has gone up. 

This indicates that the growth is mainly driven by the growth in the service sector. The Twelfth Plan (2012-2017) envisages the GDP growth rate at 9 or 9.5 per cent. In order to achieve such a high growth rate, the agriculture, industrial and service sectors have to grow at the rates of 4 to 4.2, 9.6 to 10.9 and 10 percentage points, respectively. However, some scholars raise apprehensions over the projection of such high rates of growth as unsustainable. 

The opening up of the economy has led to rapid increase in foreign direct investment and foreign exchange reserves. The foreign investment, which includes foreign direct investment(FDI) and foreign institutional investment(FII), has increased from about US $ 100 million in 1990-91 to US $ 400 billion in 2010-11. There has been an increase in the foreign exchange reserves from about US $ 6 billion in 1990-91 to about US $ 400 billion in 2011-12. India is one of the largest foreign exchange reserve holders in the world. 

India is seen as a successful exporter of auto parts, engineering goods, IT software and textiles in the 

reform period. Rising prices have also been kept under control. 

On the other hand, the reform process has been widely criticised for not being able to address some of the basic problems facing our economy especially in the areas of employment, agriculture, industry, infrastructure development and fiscal management. 

Growth and Employment: Though the GDP growth rate has increased in the reform period, scholars point out that the reform-led growth has not generated sufficient employment opportunities in the country. 

Reforms in Agriculture: Reforms have not been able to benefit agriculture, where the growth rate has been decelerating. 

Public investment in agriculture sector especially in infrastructure, which includes irrigation, power, roads, market linkages and research and extension (which played a crucial role in the Green Revolution), has been reduced in the reform period. Further, the removal of fertiliser subsidy has led to increase in the cost of production, which has severely affected the small and marginal farmers. This sector has been experiencing a number of policy changes such as reduction in import duties on agricultural products, removal of minimum support price and lifting of quantitative restrictions on agricultural products; these have adversely affected Indian farmers as they now have to face increased international competition. 

Moreover, because of export- oriented policy strategies in agriculture, there has been a shift from production for the domestic market towards production for the export market focusing on cash crops in lieu of production of food grains. This puts pressure on prices of food grains. 

Reforms in Industry: 

Industrial growth has also recorded a slowdown. 

Moreover, a developing country like India still does not have the access to developed countries’ markets because of high non-tariff barriers. For example, although all quota restrictions on exports of textiles and clothing have been removed in India, U.S.A. has not removed their quota restriction on import of textiles from India and China. 

Disinvestment: Every year, the government fixes a target for disinvestment of PSUs. For instance, in 1991-92, it was targeted to mobilise Rs 2,500 crore through disinvestment. 

Critics point out that the assets of PSUs have been undervalued and sold to the private sector. This means that there has been a substantial loss to the government. 

Moreover, the proceeds from disinvestment were used to offset the shortage of government revenues rather than using it for the development of PSUs and building social infrastructure in the country. 

Reforms and Fiscal Policies: 

Economic reforms have placed limits on the growth of public expenditure especially in social sectors. The tax reductions in the reform period, aimed at yielding larger revenue and to curb tax evasion, have not resulted in 

increase in tax revenue for the government. Also, the reform policies involving tariff reduction have curtailed the scope for raising revenue through customs duties. In order to attract foreign investment, tax incentives were provided to foreign investors which further reduced the scope for raising tax revenues. This has a negative impact on developmental and welfare expenditures. 

CONCLUSION 

The process of globalisation through liberalisation and privatisation policies has produced positive as well as negative results both for India and other countries. Some scholars argue that globalisation should be seen as an opportunity in terms of greater access to global markets, high technology and increased possibility of large industries of developing countries to become important players in the international arena. 

On the contrary, the critics argue that globalisation is a strategy of the developed countries to expand their markets in other countries. According to them, it has compromised the welfare and identity of people belonging to poor countries. It has further been pointed out that market-driven globalisation has widened the economic disparities among nations and people. 

Viewed from the Indian context, some studies have stated that the crisis that erupted in the early 1990s was basically an outcome of the deep-rooted inequalities in Indian society and the economic reform 

policies initiated as a response to the crisis by the government, with externally advised policy package, further aggravated the inequalities. Further, it has increased the income and quality of consumption of only high-income groups and the growth has been concentrated only in some select areas in the services sector such as telecommunication, information technology, finance, entertainment, travel and hospitality services, real estate and trade, rather than vital sectors such as agriculture and industry which provide livelihoods to millions of people in the country. 

 In the domestic economy, major reforms were undertaken in the industrial and financial sectors. Major external sector reforms included foreign exchange deregulations and import liberalisation. 

 Reforms have not benefited the agriculture sector. There has also been a 

decline in public investment in this sector. 

 Industrial sector growth has slowed down due to availability of cheaper imports and lower investment. 

Chapter 4

CURRENT CHALLENGES FACING THE INDIAN ECONOMY 

Some of the most challenging issues facing India today are poverty, development of rural India and building infrastructure. We are a billion-strong country today and our human capital is the biggest asset; it needs investment in health and education. We also need to understand the concept of employment and the need for creating more employment in our country. We will also look at the implications of development on our environment and call for sustainable development. 

No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable 

Adam Smith

Providing minimum basic needs to the people and reduction of poverty have been the major aims of independent India. 

While addressing the Constituent Assembly in 1947, Jawaharlal Nehru had said, “This achievement (Independence) is but a step, an opening of opportunity, to the great triumphs and achievements that await us...the ending of poverty and ignorance and disease and inequality of opportunity.” 

However we need to know where we stand today. Poverty is not only a challenge for India, as more than one- fifth of the world’s poor live in India alone; but also for the world, where about 300 million people are not able to meet their basic needs. 

To know what helps to reduce poverty, what works and what does not, what changes over time, poverty has to be defined, measured and studied — and even experienced. As poverty has many dimensions, it has to be looked at through a variety of indicators — levels of income and consumption, social indicators, and indicators of vulnerability to risks and of socio/political access. 

Many do not get to have even two meals a day. Starvation and hunger are the key features of the poorest households. The poor lack basic literacy and skills and hence have very limited economic opportunities. Poor people also face unstable employment. 

Malnutrition is alarmingly high among the poor. Ill health, disability or serious illness makes them 

physically weak. They borrow from money lenders who charge high rates of interest that lead them into chronic indebtedness. The poor are highly vulnerable. They are not able to negotiate their legal
wages from employers and are exploited. Most poor households have no access to electricity.
Their primary cooking fuel is firewood and cow dung cake. A large section of poor people
do not even have access to safe drinking water. There is evidence of extreme gender inequality in the participation of gainful employment, education and in decision-making within the family. Poor women receive less care on their way to motherhood. Their children are less likely to survive or be born healthy. 

The urban poor are largely the overflow of the rural poor who had migrated to urban areas in search of alternative employment and livelihood, labourers who do a variety of casual jobs and the self-emloyed who sell a variety of things on roadsides and are engaged in various activities. 

Scholars identify the poor on the basis of their occupation and ownership of assets. 

HOW ARE POOR PEOPLE IDENTIFIED? 

If India is to solve the problem of poverty, it has to find viable and sustainable strategies to address the causes of poverty and design schemes to help the poor out of their situation. However, for these schemes to be implemented, the government needs to be able to identify who the poor are. For this there is need to develop a scale to measure poverty, and the factors that make up the criteria for this measurement or mechanism need to be carefully chosen. 

In pre-independent India, Dadabhai Naoroji was the first to discuss the concept of a Poverty Line. 

In post-independent India, there have been several attempts to work out a mechanism to identify the number of poor in the country. For instance, in 1962, the Planning Commission formed a Study Group. In 1979, another body called the ‘Task Force on Projections of Minimum Needs and Effective Consumption Demand’ was formed. In 1989 and 2005, ‘Expert Groups’ were constituted for the same purpose. 

Besides Planning Commission, many individual economists have also attempted to develop such a mechanism. 

For the purpose of defining poverty we divide people into two categories; the poor and the non-poor and the poverty line separates the two. However, there are many kinds of poor; the absolutely poor, the very poor and the poor. Similarly there are various kinds of non-poor; the middle class, the upper middle class, the rich, the very rich and the absolutely rich. Think of this as a line or continuum from the very poor to the absolutely rich with the poverty line dividing the poor from the non- poor. 

Categorising Poverty: There are many ways to categorise poverty. In one such way people who are always poor and those who are usually poor but who may sometimes have a little more money (example: casual workers) are grouped together as the chronic poor. Another group are the churning poor who regularly move in and out of 

poverty (example: small farmers and seasonal workers) and the occasionally poor who are rich most of the time but may sometimes have a patch of bad luck. They are called the transient poor. And then there are those who are never poor and they are the non-poor. 

Development is about removing the obstacles to the things that a person can do in life, such as illiteracy, ill health, lack of access to resources, or lack of civil and political freedoms. 

Though the government claims that higher rate of growth, increase in agricultural production, providing employment in rural areas and economic reform packages introduced in the 1990s have resulted in a decline in poverty levels, economists raise doubts about the government’s claim. They point out that the way the data are collected, items that are included in the consumption basket, methodology followed to estimate the poverty line and the number of poor are manipulated to arrive at the reduced figures of the number of poor in India. 

Due to various limitations in the official estimation of poverty, scholars have attempted to find alternative methods. For instance, Amartya Sen, noted Nobel Laureate, has developed an index known as Sen Index. There are other tools such as Poverty Gap Index and Squared Poverty Gap. 

THE NUMBER OF POOR IN INDIA 

When the number of poor is estimated as the proportion of people below the poverty line, it is known as ‘Head Count Ratio’. 

The official data on poverty is made available to the public by the Planning Commission. It is 

estimated on the basis of consumption expenditure data collected by the National Sample Survey Organisation (NSSO). Chart 4.3 shows the number of poor and their proportion to the population in India for the years 1973- 2010. In 1973-74, more than 320 million people were below the poverty line. In 2004-05, this number has come down to about 300 million. 

In terms of proportion, in 1973-74, about 55 per cent of the total population was below the poverty line. In 2009-10, it has fallen to 30 per cent. In 1973-74, more than 80 per cent of the poor resided in rural areas and in 2009-10, this has come down. This means that more than three- fourth of the poor in India still reside in villages. Why do you think this is the case? 

Though Bihar also reduced its share of poor, compared to other states, its success is marginal. If we look at Tamil Nadu, it reduced its people below the poverty line from 55 per cent to 17 per cent during 1973-2010. During this period, West Bengal has been just as successful as the proportion of people living below poverty line decreased from 63 per cent to about 27 per cent. 

WHAT CAUSES POVERTY? 

The causes of poverty lie in the institutional and social factors that mark the life of the poor. The poor are deprived of quality education and unable to acquire skills which fetch better incomes. Also access to health care is denied to the poor. The main victims of caste, religious and other discriminatory practices are poor. These can be caused as a result of 

(i) social, economic and political inequality 

(ii) social exclusion 

(iii) unemployment 

(iv) indebtedness 

(v) unequal distribution of wealth. Aggregate poverty is just the sum of individual poverty. 

About the British rule in India,although the final impact of the British rule on Indian living standards is still being debated, there is no doubt that there was a substantial negative impact on the Indian economy and standard of living of the people. There was substantial de-industrialisation in India under the British rule. Imports of manufactured cotton cloth from Lancashire in England displaced much local production, and India reverted to being an exporter of cotton yarn, not cloth. 

As over 70 per cent of Indians were engaged in agriculture throughout the British Raj period, the impact on that sector was more important on living standards than anything else. British policies involved sharply raising rural taxes that enabled merchants and moneylenders to become large landowners. Under the British, India began to export food grains and, as a result, as many as 26 million people died in famines between 1875 and 1900. 

Britain’s main goals from the Raj were to provide a market for British exports, to have India service its 

debt payments to Britain, and for India to provide manpower for the British imperial armies. 

The British Raj impoverished millions of people in India. Our natural resources were plundered, our industries worked to produce goods at low prices for the British and our food grains were exported.

Since independence, the government has attempted to redistribute land and has taken land from those who have large amounts to distribute it to those who do not have any land, but work on the land as wage labourers. However, this move was successful only to a limited extent as large sections of agricultural workers were not able to farm the small holdings that they now possessed as they did not have either money (assets) or skills to make the land productive and the land holding were too small

to be viable. Also most of the Indian states failed to implement land redistribution policies. 

With the rapid growth of population and without alternative sources of employment, the per-head availability of land for cultivation has steadily declined leading to fragmentation of land holdings. The income from these small land holdings is not sufficient to meet the family’s basic requirements. 

Over the years, the gap between the rich and the poor in India has widened. Poverty is a multi-dimensional challenge for India that needs to be addressed on a war footing. 

POLICIES AND PROGRAMMES TOWARDS POVERTY ALLEVIATION 

The Indian Constitution and five year plans state social justice as the primary objective of the developmental strategies of the government. To quote the First Five Year Plan (1951-56), “the urge to bring economic and social change under present conditions comes from the fact of poverty and inequalities in income, wealth and opportunity”. The Second Five Year Plan (1956-61) also pointed out that “the benefits of economic development must accrue more and more to the relatively less privileged classes of society”. One can find, in all policy documents, emphasis being laid on poverty alleviation and that various strategies need to be adopted by the government for the same. 

The government’s approach to poverty reduction was of three dimensions. The first one is growth- oriented approach. It is based on the expectation that the effects of economic growth — rapid increase in gross domestic product and per capita income — would spread to all sections of society and will trickle down to the poor sections also. This was the major focus of planning in the 1950s and early 1960s. It was felt that rapid industrial development and transformation of agriculture through green revolution in select regions would benefit the underdeveloped regions and the more backward sections of the community. 

Population growth has resulted in a very low growth in per capita incomes. The gap between poor and rich has actually widened. The Green Revolution exacerbated the disparities regionally and between large and small farmers. There was unwillingness and inability to redistribute land. Economists state that the benefits of economic growth have not trickled down to the poor. 

While looking for alternatives to specifically address the poor, policy makers started thinking that incomes and employment for the poor could be raised through the creation of additional assets and by means of work generation. This could be achieved through specific 

This second approach has been initiated from the Third Five Year Plan (1961-66) and progressively enlarged since then. One of the noted programmes initiated in the 1970s was Food for Work. 

Most poverty alleviation programmes implemented are based on the perspective of the Five Year Plans. Expanding self-employment programmes and wage employment programmes are being considered as the major ways of addressing poverty. 

Examples of self-employment programmes are Rural Employment Generation Programme (REGP), Prime Minister’s Rozgar Yojana (PMRY) and Swarna Jayanti Shahari Rozgar Yojana (SJSRY). 

The first programme aims at creating self-employment opportunities in urban areas. The Khadi and Village Industries Commission is implementing it. Under this programme, one can get financial assistance in the form of bank loans to set up small industries. The educated unemployed from low-income families in rural and urban areas can get financial help to set up any kind of enterprise that generates employment under PMRY. SJSRY mainly aims at creating employment opportunities — both self- employment and wage employment — in urban areas. 

Earlier, under self-employment programmes, financial assistance was given to families or individuals. Since the 1990s, this approach has been changed. Now those who wish to benefit from these programmes are encouraged to form self-help groups. Initially they are encouraged to save some money and lend among themselves as small loans. Later, through banks, the government provides partial financial assistance to SHGs which then decide whom the loan is to be given to for self- employment activities. Swarnajayanti Gram Swarozgar Yojana (SGSY) is one such programme. This has now been restructured as National Rural Livelihoods Mission (NRLM). 

The government has a variety of programmes to generate wage employment for the poor unskilled people living in rural areas. Some of them are National Food for Work Programme (NFWP) and Sampoorna Grameen Rozgar Yojana (SGRY). In August 2005, the Parliament passed a new Act to provide guaranteed wage employment to every household whose adult volunteer is to do unskilled manual work for a minimum of 100 days in a year. This Act is known as Mahatma Gandhi National Rural Employment Guarantee Act. Under this Act all those among the poor who are ready to work at the minimum wage can report for work in areas where this programme is implemented. In 2012- 13, 4.4 crore households have been provided employment. 

The third approach to addressing poverty is to provide minimum basic amenities to the people. India was among the pioneers in the world to envisage that through public expenditure on social consumption needs — provision of food grains at subsidised rates, education, health, water supply and sanitation—people’s living standard could be improved. 

One can trace this approach from the Fifth Five Year Plan, “even with expanded employment opportunities, the poor will not be able to buy for themselves all the essential goods and services. They have to be supplemented up to at least certain minimum standards by social consumption and investment in the form of essential food grains, education, health, nutrition, drinking water, housing, communications and electricity.” Three major programmes that aim at improving the food and nutritional status of the poor are Public Distribution System, Integrated Child Development Scheme and Midday Meal Scheme. Pradhan Mantri Gram Sadak Yojana, Pradhan Mantri Gramodaya Yojana, Valmiki Ambedkar Awas Yojana are also attempts in the same direction. It may be essential to briefly state that India has achieved satisfactory progress in many aspects. 

The government also has a variety of other social security programmes to help a few specific groups. National Social Assistance Programme is one such programme initiated by the central government. Under this programme, elderly people who do not have anyone to take care of them are given pension to sustain themselves. Poor women who are destitute and widows are also covered under this scheme. The government has also introduced a few schemes to provide health insurance to poor people. 

Compared to the magnitude of poverty, the amount of resources allocated for these programmes is not sufficient. Moreover, these programmes depend mainly on government and bank officials for their implementation. Since such officials are ill motivated, inadequately trained, corruption prone and vulnerable to pressure from a variety of local elites, the resources are inefficiently used and wasted. There is also non-participation of local level institutions in programme implementation. 

Poverty can effectively be eradicated only when the poor start contributing to growth by their active involvement in the growth process. This is possible through a process of social mobilisation, encouraging poor people to participate and get them empowered. This will also help create employment opportunities which may lead to increase in levels of income, skill development, health and literacy. Moreover, it is necessary to identify poverty stricken areas and provide infrastructure such as schools, roads, power, telecom, IT services, training institutions etc. 

CONCLUSION 

We have travelled about six decades since independence. The objective of all our policies had been stated as promoting rapid and balanced economic development with equality and social justice. Poverty alleviation has always been accepted as one of India’s main challenges by the policy makers, regardless of which government was in power. The absolute number of poor in the country has gone down and some states have less proportion of poor than even the national average. Yet, critics point out that even though vast resources have been allocated and spent, we are still far from reaching the goal. 

There is improvement in terms of per capita income and average standard of living; some progress towards meeting the basic needs has been made. But when compared to the progress made by many other countries, our performance has not been impressive. Moreover, the fruits of development have not reached all 

sections of the population. Some sections of people, some sectors of the economy, some regions of the country can compete even with developed countries in terms of social and economic development, yet, there are many others who have not been able to come out of the vicious circle of poverty. 

Reducing poverty has been one of the major objectives of India’s developmental strategies. 

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RSBY was launched in early 2008 and was initially designed to target only the Below Poverty Line (BPL) households, but has been expanded to cover other defined categories of unorganised workers.

Details of the Scheme

The Centre’s Rashtriya Swasthya Bima Yojana (RSBY) is being restructured to include 100 million below poverty line (BPL) people and increase cover for hospitalisation and health expenses from the Rs 30,000 to Rs 1 lakh.

At present, the beneficiaries pay a token sum of Rs 30 to register and are issued a biometric smart card that entitles them to inpatient care of up to Rs 30,000 per family per year at empanelled hospitals.

Since 1st April, 2015, the Scheme Rashtriya Swasthya Bima Yojana (RSBY) has been transferred to Ministry of Health & Family Welfare on “as is where is” basis. Ministry of Health & Family Welfare is administering and implementing the scheme through a decentralized implementation structure at the State level.

Government – By paying only a maximum sum up to Rs. 750/- per family per year, the Government is able to provide access to quality health care to the below poverty line population. It will also lead to a healthy competition between public and private providers which in turn will improve the functioning of the public health care providers.

Who is the beneficiary

The beneficiary is any Below Poverty Line (BPL) family, whose information is included in the district BPL list prepared by the State government and the family falling into any of the above defined (point number 1) eleven categories are eligible. The eligible family needs to come to the enrolment station, and the identity of the household head needs to be confirmed by the authorized Government official.

http://www.rsby.gov.in/about_rsby.aspx

Secondary healthcare involves patients being referred to specialists in better hospitals. Tertiary care is consultative care usually provided to a patient on reference from primary or secondary medical centres for special investigation and treatment

Free medical check-ups once every three years for middle aged and elderly at risk of heart diseases and diabetes will also be provided under the revamped RSBY.

The government-run healthcare suffers from a lack of hygiene; the rich avoid the government hospitals and go to private hospitals. With the advent of privatized healthcare, this situation has changed. India now has medical tourism for people from other countries while its own poor find high-quality healthcare either inaccessible or unaffordable.

The current Indian government is planning to unveil a national universal healthcare system called the National Health Assurance Mission, which will provide all Indian citizens with insurance coverage for serious illnesses, and free drugs and diagnostic treatments.

The ration card is either A-4 size folded paper card or chip-embedded smart card. It bears photograph of head of the family (HoF). It is issued one per family by the state government. It has three categories – extreme poverty level (Antyodaya), below poverty line (BPL) and above poverty line (APL).

Antyodaya Anna Yojana (AAY) is an Indian government sponsored scheme for ten million of the poorest families. It was launched by NDA government on 25 December 2000. It is on the look out for the 'poorest of the poor' by providing them 35 kilograms of rice and wheat at Rs.3 & Rs.2 per kg respectively.

In India, ration cards are voluntary; they are needed to obtain subsidized food and fuel.

Karnataka state only accepts online ration card applications under the e-governance initiative.

Subsidized LPG is linked with the Aadhaar Number and delivery is made at market rate. The subsidy amount is credited as DBT to the eligible beneficiary. Leakage and diversions of subsidized commodities provide no benefit to middlemen and retail corruption comes to a halt.

Chapter 5

HUMAN CAPITAL FORMATION IN INDIA 

• the need for government spending on education and health
  

Think of one factor that has made a great difference in the evolution of mankind. Perhaps it is man’s capacity to store and transmit knowledge which he has been doing through conversation, through songs and through elaborate lectures. But man soon found out that we need a good deal of training and skill to do things efficiently. We know that the labour skill of an educated person is more than that of an uneducated person and hence the former is able to generate more income than the latter and his contribution to economic growth is, consequently, more. 

Education is sought not only as it confers higher earning capacity on people but also for its other highly valued benefits: it gives one a better social standing and pride; it enables one to make better choices in life; it provides knowledge to understand the changes taking place in society; it also stimulates innovations. Moreover, the availability of educated labour force facilitates adaptation of new technologies. Economists have stressed the need for expanding educational opportunities in a nation as it accelerates the development process. 

We need good human capital to produce other human capital (say, doctors, engineers...). This means that we need investment in human capital to produce more human capital out of human resources. 

Like education, health is also considered as an important input for the development of a nation as much as it is important for the development of an individual. 

Who can work better—a sick person or a person with sound health? A sick labourer without access to medical facilities is compelled to abstain from work and there is loss of productivity. Hence, expenditure on health is an important source of human capital formation. 

Preventive medicine (vaccination), curative medicine (medical intervention during illness), social medicine (spread of health literacy) and provision of clean drinking water and good sanitation 

are the various forms of health expenditures. Health expenditure directly increases the supply of healthy labour force and is, thus, a source of human capital formation. 

Human capital is not sold in the market; only the services of the human capital are sold and, hence, there arises the necessity of the owner of the human capital to be present in the place of production. The physical capital is separable from its owner, whereas, human capital is inseparable from its owner. 

Human capital benefits not only the owner but also the society in general. This is called external benefit. An educated person can effectively take part in a democratic process and contribute to the socio-economic progress of a nation. A healthy person, by maintaining personal hygiene and sanitation, stops the spread of contagious diseases and epidemics. Human capital creates both private and social benefits, whereas physical capital creates only private benefit. 

India recognised the importance of human capital in economic growth long ago. The Seventh Five Year Plan says, “Human resources development (read human capital) has necessarily to be assigned a key role in any development strategy, particularly in a country with a large population. Trained and educated on sound lines, a large population can itself become an asset in accelerating economic growth and in ensuring social change in desired directions.” 

World Bank, in its recent report, ‘India and the Knowledge Economy — Leveraging Strengths and Opportunities’, states that India should make a transition to the knowledge economy and if it uses its knowledge as much as Ireland does (it is judged that Ireland uses its knowledge economy very effectively), then the per capita income of India will increase from a little over US $1000 in 

 2002 to US $ 3000 in 2020. It further states that the Indian economy has all the key ingredients for making this transition, such as, a critical mass of skilled workers, a well-functioning democracy and a diversified science and technology infrastructure. Thus the two reports point out the fact that further human capital formation in India will move its economy to a higher growth trajectory. 

HUMAN CAPITAL AND HUMAN DEVELOPMENT 

The two terms sound similar but there is a clear distinction between them. Human capital considers education and health as a means to increase labour productivity. Human development is based on the idea that education and health are integral to human well-being because only when people have the ability to read and write and the ability to lead a long and healthy life, they will be able to make other choices which they value. Human capital treats human beings as a means to an end; the end being the increase in productivity. In this view, any investment in education and health is unproductive if it does not enhance output of goods and services. In the human development perspective, human beings are ends in themselves. Human welfare should be increased through investments in education and health even if such investments do not result in higher labour productivity. Therefore, basic education and basic health are important in themselves, irrespective of their contribution to labour productivity. In such a view, 

every individual has a right to get basic education and basic health care, that is, every individual has a right to be literate and lead a healthy life. 

Human capital formation is the outcome of investments in education, health, on-the-job training, migration and information. 

In India, the ministries of education at the union and state level, departments of education and various organisations like National Council of Educational Research and Training (NCERT), University Grants Commission (UGC) and All India Council of Technical Education (AICTE) facilitate institutions which come under the education sector. Similarly, the ministries of health at the union and state level, departments of health and various organisations like Indian Council for Medical Research (ICMR) facilitate institutions which come under the health sector. 

During 1952-2012, education expenditure as percentage of total government expenditure increased from 7.92 to 11.7 and as percentage of GDP increased from 0.64 to 3.31. 

In 2009-10, the per capita education expenditure differs considerably across states from as high as Rs 12,500 in Himachal Pradesh to as low as Rs 2200 in Punjab. This leads to differences in educational opportunities and attainments across states. 

More than 40 years ago, the Education Commission (1964–66) had recommended that at least 6 per cent of GDP be spent on education so as to so as to make a noticeable rate of growth in educational achievements. The Tapas Majumdar Committee, appointed by the Government of India in 1998, estimated an expenditure of around Rs 1.37 lakh crore over 10 years (1998-99 to 2006-07) to bring all Indian children in the age group of 6-14 years under the purview of school education. Compared to this desired level of education expenditure of around 6 per cent of GDP, the current level of a little over 4%

has been quite inadequate. In principle, a goal of 6 percent needs to be reached—this has been accepted as a must for the coming years. In 2009, the Government of India enacted the Right of Education Act to make free education a fundamental right of all children in the age group of 6-14 years. 

Recently, Government of India has started levying a 2 per cent ‘education cess’ on all Union taxes. The revenues from education cess has been earmarked for spending on elementary education. In addition to this, the government sanctions a large outlay for the promotion of higher education and new loan schemes for students to pursue higher education. 

In 1950, when the Constitution of India was passed by the Constituent Assembly, it was noted in the Directive Principles of the Constitution that the government should provide free and compulsory education for all children up to the age of 14 years within 10 years from the commencement of the Constitution. Had we achieved this, we would have cent per cent literacy by now. 

Gender Equity — Better than Before: The differences in literacy rates between males and females are narrowing signifying a positive development in gender equity; still the need to promote education for women in India is imminent for various reasons such as improving economic independence and social status of women and also because women education makes a favourable impact on fertility rate and health care of women and children. Therefore, we cannot be complacent about the upward movement in the literacy rates and we have miles to go in achieving cent per cent adult literacy. 

Higher Education — a Few Takers: 

The Indian education pyramid is steep, indicating lesser and lesser number of people reaching the higher education level. Moreover, the level of unemployment among educated youth is the highest. As per NSSO data, in the year 2007-08, the rate of unemployment among youth with education up to secondary level and above was 18.1 per cent whereas the rate of unemployment for youth with education up to primary level was only 11.6 per cent. Therefore, the government should increase allocation for higher education and also improve the standard of higher education institutions, so that students are imparted employable skills in such institutions. When compared to less educated, a large proportion of educated persons are unemployed. 

India has a rich stock of scientific and technical manpower in the world. The need of the hour is to better it qualitatively and provide such conditions so that they are utilised in our own country. 

Investments in education convert human beings into human capital; human capital represents enhanced labour productivity, which is an acquired ability and an outcome of deliberate investment decisions with an expectation that it will increase future income sources. 

Chapter 6

Rural Development

• appreciate how crucial the development of rural areas is for India’s overall development 
• understand the critical role of credit and marketing systems in rural development 
• learn about the importance of diversification of productive activities to sustain livelihoods 
• understand the significance of organic farming in sustainable development.
  

Agriculture is the major source of livelihood in the rural sector. Mahatma Gandhi once said that the real progress of India did not mean simply the growth and expansion of industrial urban centres but mainly the development of the villages. This idea of village development being at the centre of the overall development of the nation is relevant even today. Why is this so? Why should we attach such significance to rural development when we see around us fast growing cities with large industries and modern information technology hubs? It is because more than two-third of India’s population depends on agriculture that is yet to become productive enough to provide for them; one-third of rural India still lives in abject poverty. That is the reason why we have to see a developed rural India if our nation has to realise real progress. What, then, does rural development imply? 

People engaged in farm and non-farm activities in rural areas have to be provided with various means that help them increase the productivity. They also need to be given opportunities to diversify into various non-farm productive activities such as food processing. Enabling them better and more affordable access to healthcare, sanitation facilities at workplaces and homes and education for all would also need to be given top priority for rapid rural development. 

During 2007- 12, agriculture output has grown at 3.2 per cent. Against this background, we will critically look at some of the crucial aspects of rural India like credit and marketing systems, agricultural diversification and the role of organic farming in promoting sustainable development. 

The Poor Women’s Bank 

‘Kudumbashree’ is a women-oriented community-based poverty reduction programme being implemented in Kerala. In 1995, a thrift and credit society was started as a small savings bank for poor women with the objective to encourage savings. The thrift and credit society mobilised Rs 1 crore as thrift savings. These societies have been acclaimed as the largest informal banks in Asia in terms of participation and savings mobilised. 

6.3 CREDIT AND MARKETING IN RURAL AREAS 

Credit: A major change occurred after 1969 when India adopted social banking and multi- agency approach to adequately meet the needs of rural credit. Later, the National Bank for Agriculture and Rural Development (NABARD) was set up in 1982 as an apex body to coordinate the activities of all institutions involved in the rural financing system. The Green Revolution was a harbinger of major changes in the credit system as it led to the diversification of the portfolio of rural credit towards production- oriented lending. 

The institutional structure of rural banking today consists of a set of multi-agency institutions, namely, commercial banks, regional rural banks (RRBs), cooperatives and land development banks. They are expected to dispense adequate credit at cheaper rates. Recently, Self-Help Groups (henceforth SHGs) have emerged to fill 

the gap in the formal credit system because the formal credit delivery mechanism has not only proven inadequate but has also not been fully integrated into the overall rural social and community development. Since some kind of collateral is required, vast proportion of poor rural households were automatically out of the credit network. The SHGs promote thrift in small proportions by a minimum contribution from each member. From the pooled money, credit is given to the needy members to be repayable in small instalments at reasonable interest rates. By March end 2003, more than seven lakh SHGs had reportedly been credit linked. Such credit provisions are generally referred to as micro-credit programmes. SHGs have helped in the empowerment of women. It is alleged that the borrowings are mainly confined to consumption purposes. Why are borrowers not spending for productive purposes? 

Rural Banking — a Critical Appraisal: Rapid expansion of the banking system had a positive effect on rural farm and non-farm output, income and employment, especially after the green revolution — it helped farmers to avail services and credit facilities and a variety of loans for meeting their production needs. Famines became events of the past; we have now achieved food security which is reflected in the abundant buffer stocks of grains. However, all is not well with our banking system. 

With the possible exception of the commercial banks, other formal institutions have failed to develop a culture of deposit mobilisation — lending to worthwhile borrowers and effective loan recovery. Agriculture loan default rates have been chronically high. Why farmers failed to pay back loans? It is alleged that farmers are deliberately refusing to pay back loans. What could be the reasons? 

Thus, the expansion and promotion of the rural banking sector has taken a backseat after reforms. To improve the situation, it is suggested that banks need to change their approach from just being lenders to building up relationship banking with the borrowers. Inculcating the habit of thrift and efficient utilisation of financial resources needs to be enhanced among the farmers too. 

6.4 AGRICULTURAL MARKET SYSTEM 

Agricultural marketing is a process that involves the assembling, storage, processing, transportation, packaging, grading and distribution of different agricultural commodities across the country. 

Let us discuss four such measures that were initiated to improve the marketing aspect. 

The first step was regulation of markets to create orderly and transparent marketing conditions. By and large, this policy benefited farmers as well as consumers. However, there is still a need to develop about 27,000 rural periodic markets as regulated market places to realise the full potential of rural markets. 

Second component is provision of physical infrastructure facilities like roads, railways, warehouses, godowns, cold storages and processing units. The current infrastructure facilities are quite inadequate to meet the growing demand and need to be improved. 

Cooperative marketing, in realising fair prices for farmers’ products, is the third aspect of government initiative. The success of milk cooperatives in transforming the social and economic landscape of Gujarat and some other parts of the country is testimony to the role of cooperatives. However cooperatives have received a setback during the recent past due to inadequate coverage of farmer members, lack of appropriate link between marketing and processing cooperatives and inefficient financial management. 

The fourth element is the policy instruments like (i) assurance of minimum support prices (MSP) for agricultural products (ii) maintenance of buffer stocks of wheat and rice by Food Corporation of India and (iii) distribution of food grains and sugar through PDS. These instruments are aimed at protecting the income of the farmers and providing foodgrains at a subsidised rate to the poor. However, despite government intervention, private trade (by moneylenders, rural political elites, big merchants and rich farmers) predominates agricultural markets. The need for government intervention is imminent particularly when a large share of agricultural products, is handled by the private sector. 

Agricultural marketing has come a long way with the intervention of the government in various forms. Some scholars argue that commercialisation of agriculture offers tremendous scope for farmers to earn higher incomes provided the government intervention is restricted. What do you think about this view? 

Emerging Alternate Marketing Channels: It has been realised that if farmers directly sell their produce to consumers, it increases their incomes. 

Further, several national and multinational fast food chains are increasingly entering into contracts/ alliances with farmers to encourage them to cultivate farm products (vegetables, fruits, etc.) of the desired quality by providing them with not only seeds and other inputs but also assured procurement of the produce at pre- decided prices. It is argued that such arrangements will help in reducing the price risks of farmers and would also expand the markets for farm products. 

DIVERSIFICATION INTO PRODUCTIVE ACTIVITIES 

Diversification includes two aspects - one relates to change in cropping pattern and the other relates to a shift of workforce from agriculture to other allied activities (livestock, poultry, fisheries etc.) and non-agriculture sector. The need for diversification arises from the fact that there is greater risk in depending exclusively on farming for livelihood. Diversification towards new areas is necessary not only to reduce the risk from agriculture sector but also to provide productive sustainable livelihood options to rural people. 

Tamil Nadu Women in Agriculture (TANWA) 

Tamil Nadu Women in Agriculture (TANWA) is a project initiated in Tamil Nadu to train women in latest agricultural techniques. It induces women to actively participate in raising agricultural productivity and family income. At a Farm Women’s Group in Thiruchirapalli, run by Anthoniammal, trained women are successfully making and selling vermicompost and earning money from this venture. Many other Farm Women’s Groups are creating savings in their group by functioning like mini banks through a micro-credit system. With the accumulated savings, they promote small-scale household activities like mushroom cultivation, soap manufacture, doll making or other income- generating activities. 

The dynamic sub-sectors include agro-processing industries, food processing industries, leather industry, tourism, etc. Those sectors which have the potential but seriously lack infrastructure and other support include traditional home-based industries like pottery, crafts, handlooms etc. Majority of rural women find employment in agriculture while men generally 

look for non-farm employment. In recent times, women have also begun looking for non-farm jobs.

Animal Husbandry: In India, the farming community uses the mixed crop-livestock farming system — cattle, goats, fowl are the widely held species. Livestock 

production provides increased stability in income, food security, transport, fuel and nutrition for the family without disrupting other food-producing activities. Today, livestock sector alone provides alternate livelihood options to over 70 million small and marginal farmers including landless labourers. A significant number of women also find employment in the livestock sector. 

India had about 304 million cattle, including 105 million buffaloes, in 2007. Performance of the Indian dairy sector over the last three decades has been quite impressive. Milk production in the country has increased by more than five times between 1960-2012. This can be attributed mainly to the successful implementation of ‘Operation Flood’. It is a system whereby all the farmers can pool their milk produced according to different grading (based on quality) and the same is processed and marketed to urban centres through cooperatives. In this system the farmers are assured of a fair price and income from the supply of milk to urban markets. As pointed out earlier Gujarat state is held as a success story in the efficient implementation of milk cooperatives which has been emulated by many states. Meat, eggs, wool and other by- products are also emerging as important productive sectors for diversification. 

Fisheries:The water bodies consisting of sea, oceans, rivers, lakes, natural aquatic ponds, streams etc. are, therefore, an integral and life-giving source for the fishing community. In India, after progressive increase in budgetary allocations and introduction of new technologies in fisheries and aquaculture, the development of fisheries has come a long way. Presently, fish production from inland sources contributes about 61 per cent to the total fish production and the balance 39 per cent comes from the marine sector (sea and oceans). Today total fish production accounts for 0.7 per cent of the total GDP. Among states, Kerala, Gujarat, Maharashtra and Tamil Nadu are the major producers of marine products. A large share of fishworker families are poor. Rampant underemployment, low per capita earnings, absence of mobility of labour to other sectors and a high rate of illiteracy and indebtedness are some of the major problems fishing community face today. Even though women are not involved in active fishing, about 60 per cent of the workforce in export marketing and 40 per cent in internal marketing are women. There is a need to increase credit facilities through cooperatives and SHGs for fisherwomen to meet the working capital requirements for marketing. 

Horticulture: Blessed with a varying climate and soil conditions, India has adopted growing of diverse horti- cultural crops such as fruits, vegetables, tuber crops, flowers, medicinal and aromatic plants, spices and plantation crops. These crops play a vital role in providing food and nutrition, besides addressing employment concerns. The period between 1991-2003 is also called an effort to heralding a ‘Golden Revolution’ because during this period, the planned investment in horticulture became highly productive and the sector emerged as a sustainable livelihood option. India has emerged as a world leader in producing a variety of fruits like mangoes, bananas, coconuts, cashew nuts and a number of spices and is the second largest producer of fruits and vegetables. Economic condition of many farmers engaged in horticulture has improved and it has become a means of improving livelihood for many unprivileged classes. Flower harvesting, nursery maintenance, hybrid seed production and tissue culture, propagation of fruits and flowers and food processing are highly remunerative employment options for women in rural areas. 

 Poultry has the largest share of total livestock in India

Women in rural households take up bee- keeping as an entrepreneurial activity 

Though, in terms of numbers, our livestock population is quite impressive but its productivity is quite low as compared to other countries. It requires 

improved technology and promotion of good breeds of animals to enhance productivity. Improved veterinary care and credit facilities to small and marginal farmers and landless labourers would enhance sustainable livelihood options through livestock production. Production of fisheries has already increased substantially. However problems related to over- fishing and pollution need to be regulated and controlled. 

Though IT is, by itself, no catalyst of change but it can act as a tool for releasing the creative potential and knowledge embedded in the society. It also has potential of employment generation in rural areas. Experiments with IT and its application to rural development are carried out in different parts of India 

Every Village — a Knowledge Centre 

M.S. Swaminathan Research Foundation, an institution located in Chennai, Tamil Nadu, with support from Sri Ratan Tata Trust, Mumbai, has established the Jamshedji Tata National Virtual Academy for Rural Prosperity. The Academy envisaged to identify a million grassroot knowledge workers who will be enlisted as Fellows of the Academy. The programme provides an info-kiosk (PC with Internet and video conferencing facility, scanner, photocopier, etc.) at a low cost and trains the kiosk owner; the owner then provides different services and tries to earn a reasonable income. The Government of India has decided to join the alliance by providing financial support of Rs 100 crore. 

6.6 SUSTAINABLE DEVELOPMENT AND ORGANIC FARMING 

In recent years, awareness of the harmful effect of chemical-based fertilisers and pesticides on our health is on a rise. Conventional agriculture relies heavily on chemical fertilisers and toxic pesticides etc., which enter the food supply, penetrate the water sources, harm the livestock, deplete the soil and devastate natural eco-systems. Efforts in evolving technologies which are eco-friendly are essential for sustainable development and one such technology which is eco-friendly is organic farming. 

Organic agriculture also generates income through exports as the demand for organically grown crops 

is on a rise. Studies across countries have shown that organically grown food has more nutritional value than chemical farming thus providing us with healthy foods. Since organic farming requires more labour input than conventional farming, India will find organic farming an attractive proposition. Finally, the produce is pesticide-free and produced in an environmentally sustainable way. 

Organically Produced Cotton in Maharashtra 

In 1995, when Kisan Mehta of Prakruti (an NGO) first suggested that cotton, the biggest user of chemical pesticides, could be grown organically, the then Director of the Central Institute for Cotton Research, Nagpur, famously remarked, “Do you want India to go naked?” At present, as many as 130 farmers have committed 1,200 hectares of land to grow cotton organically on the International Federation of Organic Agriculture Movement’s standards. The produce was later tested by the German Accredited Agency, AGRECO, and found to be of high quality. Kisan Mehta feels that about 78 per cent of Indian farmers are marginal farmers owning about less than 0.8 hectare but accounting for 20 per cent of India’s cultivable land. For such farmers, organic agriculture is more profitable in terms of money and soil conservation in the long run. 

It has been observed that the yields from organic farming are less than modern agricultural farming in the initial years. Therefore, small and marginal farmers may find it difficult to adapt to large- scale production. Organic produce may also have more blemishes and a shorter shelf life than sprayed produce. Nevertheless, organic farming helps in sustainable development of agriculture and India has a clear advantage in producing organic products for both domestic and international markets. 

There is a greater need today to make rural areas more vibrant through diversification into dairying, poultry, fisheries, vegetables and fruits and linking up the rural production centres with the urban and foreign (export) markets to realise higher returns on the investments for the products. Moreover, infrastructure elements like credit and marketing, farmer- friendly agricultural policies and a constant appraisal and dialogue between farmers’ groups and state agricultural departments are essential to realise the full potential of the sector. 

Rural development is quite a comprehensive term but it essentially means a plan of action for the development of rural areas which are lagging behind in socio-economic development. 

There is a need for improving the quantity and quality of infrastructure in rural areas such as banking, marketing, storage, transport and communications etc. to realise its true potential. 

Diversification towards new areas such as livestock, fisheries and other non-agricultural activities is necessary not only to reduce the risk from agriculture sector but also to provide productive sustainable livelihood options to our rural people. 

The importance of organic farming as an environmentally sustainable production process is on a rise and needs to be promoted. 

Chapter 7

EMPLOYMENT : GROWTH, INFORMALISATION AND OTHER ISSUES 

Why do people work? Work plays an important role in our lives as individuals and as members of society. People work for ‘earning’ a living. Some people get, or have, money by inheriting it, not working for it. This does not completely satisfy anybody. Being employed in work gives us a sense of self-worth and enables us to relate ourselves meaningfully with others. Every working person is actively contributing to national income and hence, the development of the country by engaging in various economic activities — that is the real meaning of ‘earning’ a living. We do not work only for ourselves, we also have a sense of accomplishment when we work to meet the requirements of those who are dependent on us. Having recognised the importance of work, Mahatma Gandhi insisted upon education and training through a variety of works including craft. 

Studying about working people gives us insights into the quality and nature of employment in our country and helps in understanding and planning our human resources. It helps us to analyse the contribution made by different industries and sectors towards national income. It also helps us to address many social issues such as exploitation of marginalised sections of the society, child labour etc. 

While estimating the number of workers, all those who are engaged in economic activities are included as employed. 

You might be interested in knowing the number of people actively engaged in various economic activities. During 2004- 2005, India had about a 460 million strong workforce. Since majority of our people reside in rural areas, the proportion of workforce residing there is higher. The rural workers constitute about three-fourth of this 460 million. Men form the majority of workforce in India. About 70 per cent of the workers are men and the rest are women (men and women include child labourers in respective sexes). Women workers account for one-third of the rural workforce whereas in urban areas, they are just one-fifth of the workforce. Women carry out works like cooking, fetching water and fuelwood and participate in farm labour. They are not paid wages in cash or in the form of grains; at times they are not paid at all. For this reason, these women are not categorised as workers. Economists have argued that these women should also be called workers. 

In 2011, India had about 487 million workers compared to China's 795 million and United States' 154 million.

Compared to females, more males are found to be working. The difference in participation rates is very large in urban areas: for every 100 urban females, only about 14 are engaged in some economic activities. In rural areas, for every 100 rural women about 26 participate in the employment market. Why are women, in general, and urban women, in particular, not working? It is common to find
that where men are able to earn high incomes, families discourage female members from taking up jobs. 

About half the workforce in India belongs to self-employed category. The construction workers are known as casual wage labourers; they account for 34 per cent of India’s workforce. Such labourers are casually engaged in others’ farms and, in return, get a remuneration for the work done. Workers like the civil engineer working in the construction company account for 16 per cent of India’s workforce. When a worker is engaged by someone or an enterprise and paid his or her wages on a regular basis, they are known as regular salaried employees. 

You will notice that the self- employed and casual wage labourers are found more in rural areas than in 

urban areas. In the latter, both self- employed and regular wage salaried jobs are greater. 

EMPLOYMENT IN FIRMS, FACTORIES AND OFFICES 

In the course of economic development of a country, labour flows from agriculture and other related activities to industry and services.

Sixty years of planned development have been aimed at expansion of the economy through increase in national output and employment.

During the period 1950–2010, Gross Domestic Product (GDP) of India grew positively and was higher than the employment growth. However, there was always fluctuation in the growth of GDP. During this period, employment grew at the rate of not more than 2 per cent. 

Chart 7.3 also points at another disheartening development in the late 1990s: employment growth started declining and reached the level of growth that India had in the early stages of planning. During these years, we also find a widening gap between the growth of GDP and employment. This means that in the Indian economy, without generating employment, we have been able to produce more goods 

and services. Scholars refer to this phenomenon as jobless growth.

In 1972-73, about 74 per cent of workforce was engaged in primary sector and in 2009-10, this proportion has declined to 53 per cent. Secondary and service sectors are showing promising future for the Indian workforce. You may notice that the shares of these sectors have increased from 11 to 16 per cent and 22 to 25 per cent, respectively. 

Do you know that maintaining employment growth at 2 per cent for a country like India is not an easy thing? Why? 

What will happen if there is no additional employment generated in the economy even though we are able to produce goods and services in the economy? How could jobless growth happen? 

One of the objectives of development planning in India, since India’s independence, has been to provide decent livelihood to its people. 

It has been envisaged that the industrialisation strategy would bring surplus workers from agriculture to industry with better standard of living as in developed countries. We have seen in the preceding section, that even after 55 years of planned development, more than half of the Indian workforce depends on farming as the major source of livelihood. 

Economists argue that, over the years, the quality of employment has been deteriorating. Even after working for more than 10-20 years, why do some workers not get maternity benefit, provident fund, gratuity and pension? Why does a person working in the private sector get a lower salary as compared to another person doing the same work but in the public sector? 

You may find that a small section of Indian workforce is getting regular income. The government, through its labour laws, enable them to protect their rights in various ways. This section of the workforce forms trade unions, bargains with employers for better wages and other social security measures. Who are they? To know this we classify workforce into two categories: workers in formal and informal sectors, which are also referred to as organised and unorganised sectors. All the public sector establishments and those private sector establishments which employ 10 hired workers or more are called formal sector establishments and those who work in such establishments are formal sector workers. All other enterprises and workers working in those enterprises form the informal sector. Thus, informal sector includes millions of farmers, agricultural labourers, owners of small enterprises and people working in those enterprises as also the self-employed who do not have any hired workers. It also includes all non-farm casual wage labourers who work for more than one employer such as construction workers and headload workers. 

Those who are working in the formal sector enjoy social security benefits.They earn more than those in the informal sector. Developmental planning envisaged that as the economy grows, more and more workers would become formal sector workers and the proportion of workers engaged in the informal sector would dwindle. But what has happened in India? Look at the following 

chart which gives the distribution of workforce in formal and informal sectors. 

Formal Sector Employment 

The information relating to employment in the formal sector is collected by the Union Ministry of Labour through employment exchanges located in different parts of the country. Do you know who is the major employer in the formal sector in India? In 2010, out of about 29 million formal sector workers, about 18 million workers were employed by the public sector. Here also men form the majority, as women constitute only about one-sixth of the formal sector workforce. Economists point out that the reform process initiated in the early 1990s resulted in a decline in the number of workers employed in the formal sector. What do you think? 

There are about 487 million workers in the country. There are about 29 million workers in the formal sector. Can you estimate the percentage of people employed in the formal sectors in

the country? About seven per cent (29/460×100)! Thus, the rest 93 per cent are in the informal sector. Out of 29 million formal sector workers, only 6 million, that is, only about 21 per cent (29/6×100) are women. In the informal sector, male workers account for 69 per cent of the workforce. 

Of late, owing to the efforts of the International Labour Organisation (ILO), the Indian government has initiated the modernisation of informal sector enterprises and provision of social security measures to informal sectors.

Informalisation in Ahmedabad 

In the early 1980s, textile mills all over the country began to close down. In some
places, such as Mumbai, the mills closed rapidly. In Ahmedabad, the process of
closure was long drawn out and spread over 10 years.
Over this period, approximately over 80,000 permanent workers and over 50,000 non-permanent workers lost their jobs and were driven to the informal sector. The city experienced an economic recession and public disturbances, especially communal riots. A whole class of workers was thrown back from the middle class into the informal sector, into poverty. There was widespread alcoholism and suicides, children were withdrawn from school and sent to work. 

Economists define unemployed person as one who is not able to get employment of even one hour in half a day. 

There are three sources of data on unemployment : Reports of Census of India, National Sample Survey Organisation’s Reports of Employment and Unemployment Situation and 

Directorate General of Employment and Training Data of Registration with Employment Exchanges. Though they provide different estimates of unemployment, they do provide us with the attributes of the unemployed and the variety of unemployment prevailing in our country. 

Do we have different types of unemployment in our economy? The situation described called

open unemployment. Economists call unemployment prevailing in Indian farms as disguised unemployment. 

Many programmes that the governments implement, aimed at alleviating poverty, are through employment generation. They are also known as employment generation programmes. All these programmes aim at providing not only employment but also services in areas such as primary health, primary education, rural drinking water, nutrition, assistance for people to buy income and employment generating assets, development of community assets by generating wage employment, construction of houses and sanitation, assistance for constructing houses, laying of rural roads, development of wastelands/ degraded lands. 

7.10 CONCLUSION 

There has been a change in the structure of workforce in India. Newly 

emerging jobs are found mostly in the service sector. 

In the last two decades, there has been rapid growth in the gross domestic product, but without simultaneous increase in employment opportunities. This has forced the government to take up initiatives in generating employment opportunities particularly in the rural areas. 

About two-fifth of the total population in the country is engaged in various economic activities. 

Through various schemes and policies, the government takes initiatives to generate employment directly and indirectly. 

Chapter 8

INFRASTRUCTURE 

• understand the main challenges India faces in the areas of social and economic infrastructure 
• know the role of infrastructure in economic development 
• understand the role of energy as a critical component of infrastructure 
• understand the problems and prospects of the energy and health sectors 
• understand the health infrastructure of India.
  

Have you ever thought of why some states in India are performing much better than others in certain areas? Why do Punjab, Haryana and Himachal Pradesh prosper in agriculture and horticulture? Why are Maharashtra and Gujarat industrially more advanced than others? How come Kerala, popularly known as ‘God’s own country’, has excelled in literacy, health care and sanitation and also attracts tourists in such large numbers? Why does Karnataka’s information technology industry attracts world attention? 

It is all because these states have better infrastructure in the areas they excel than other states of India. Some have better irrigation facilities. Others have better transportation facilities, or are located near ports which makes raw materials required for various 

manufacturing industries easily accessible. Cities like Bengaluru in Karnataka attract many multinational companies because they provide world-class communication facilities. All these support structures, which facilitate development of a country, constitute its infrastructure.

8.2 WHAT IS INFRASTRUCTURE? 

Infrastructure provides supporting services in the main areas of industrial and agricultural production, domestic and foreign trade and commerce. These services include roads, railways, ports, airports, dams, power stations, oil and gas pipelines, telecommunication facilities, the country’s educational system including schools and colleges, health system including hospitals, sanitary system including clean 

drinking water facilities and the monetary system including banks, insurance and other financial institu- tions. Some of these facilities have a direct impact on production of goods and services while others give indirect support by building the social sector of the economy. 

Some divide infrastructure into two categories — economic and social. Infrastructure associated with energy, transportation and communication are included in the former category whereas those related to education, health and housing are included in the latter. 

RELEVANCE OF INFRASTRUCTURE 

Infrastructure is the support system on which depends the efficient working of a modern industrial economy. 

Infrastructure contributes to economic development of a country both by increasing the productivity of the factors of production and improving the quality of life of its people. Inadequate infrastructure can have multiple adverse effects on health. Improvements in water supply and sanitation have a large impact by reducing morbidity (meaning proneness to fall ill) from major waterborne diseases and reducing the severity of disease when it occurs. 

THE STATE OF INFRASTRUCTURE IN INDIA 

Traditionally, the government has been solely responsible for developing the country’s infrastructure. But it was found that the government’s investment in infrastructure was inadequate. Today, the private sector by itself and also in joint partnership with the public sector, has started playing a very important role in infrastructure development 

Though it is widely understood that infrastructure is the foundation of development, India is yet to wake up to the call. India invests only 5 per cent of its GDP on infrastructure, which is far below that of China and Indonesia. 

For low-income countries, basic infrastructure services like irrigation, transport and power are more important. As economies mature and most of their basic consumption demands are met, the share of agriculture in the economy shrinks and more service related infrastructure is required. This is why the share of power and telecommunication infrastructure is greater in high-income countries. 

Thus, development of infrastructure and economic development go hand in hand. Agriculture depends, to a considerable extent, on the adequate expansion and development of irrigation facilities. Industrial progress depends on the development of power and electricity generation, transport and communications. Obviously, if proper attention is not paid to the development of infrastructure, it is likely to act as a severe constraint on economic development. 

ENERGY

Energy is a critical aspect of the development process of a nation. It is, of course,
essential for industries.Now it is used on a large scale in agriculture and related areas like production and transportation of fertilisers, pesticides and farm equipment. It is required in houses for cooking, household lighting and heating. 

Sources of Energy: There are commercial and non-commercial sources of energy. 

Commercial sources are coal, petroleum and electricity as they are bought and sold. 

Non-commercial sources of energy are firewood, agricultural waste and dried dung. These are non- 

commercial as they are found in nature/forests. 

More than 60 per cent of Indian households depend on traditional sources of energy for meeting their regular cooking and heating needs. 

Non-conventional Sources of Energy: Both commercial and non-commercial sources of energy are known as conventional sources of energy.
There are three other sources of energy which are commonly termed as non-conventional sources — solar energy, wind energy and tidal power. Being
a tropical country, India has almost unlimited potential for producing all three types of
energy if some appropriate cost effective technologies that are already available are used. Even cheaper technologies can be developed. 

Consumption Pattern of Commercial Energy: In India, commercial energy consumption makes up about 74 per cent of the total energy consumed in India. This includes coal with the largest share of 54 per cent, followed by oil at 33 per cent, natural gas at 9 per cent and hydro energy at 3 per cent. Non-commercial energy sources consisting of firewood, cow dung and agricultural wastes account for over 26 per cent of the total energy consumption. The critical feature of India’s energy sector, and its linkages to the economy, is the import dependence on crude and petroleum products, which is likely to grow rapidly in the near future. 

The transport sector was the largest consumer of commercial energy in 1953-54. However, there has been continuous fall in the share of the transport sector while the shares of the household, agriculture and industrial sector have been increasing. 

Power/Electricity

The growth rate of demand for power is generally higher than the GDP growth rate. Studies point that in order to have 8 per cent GDP growth per annum, power supply needs to grow around 12 per cent annually. 

In India, in 2011-12, thermal sources accounted for 68 per cent of the power generation capacity. Hydel and wind power accounted for 18 per cent while nuclear power 

accounted only for 2 per cent (global average 13 %). 

India’s energy policy encourages two energy sources— hydel and wind —as they do not rely on fossil fuel and, hence, avoid carbon emissions. 

Some Challenges in the Power Sector: Electricity generated by various power stations is not consumed entirely by ultimate consumers; a part is consumed by power station auxiliaries. Also, while transmitting power, a portion is lost in transmission. What we get in our houses, offices and factories is the net availability. 

Some of the challenges that India’s power sector faces today are (i) India’s installed capacity to generate electricity is not sufficient to feed an annual economic growth of 7-8 per cent. In order to meet the growing demand for electricity, India’s commercial energy supply needs to grow at about 7 per cent. At present, India is able to add only 20,000 MW a year. Even the installed capacity is under -utilised because plants are not run properly (ii) State Electricity Boards (SEBs), which distribute electricity, incur losses which exceed Rs 500 billion. This is due to transmission and

distribution losses, wrong pricing of electricity and other inefficiencies. Some scholars also say that distribution of electricity to farmers is the main reason for the losses; electricity is also stolen in different areas which also adds to the woes of SEBs (iii) private sector power generators are yet to play their role in a major way; same is the case with foreign investors (iv) there is general public unrest due to high power tariffs 

and prolonged power cuts in different parts of the country (v) thermal power plants which are the mainstay of India’s power sector are facing shortage of raw material and coal supplies. 

Thus, continued economic development and population growth are driving the demand for energy faster than what India is producing currently. More public investment, better research and development efforts, exploration, technological innovation and use of renewable energy sources can ensure additional supply of electricity. Instead of investing in the power sector by adding to installed capacity, the government has gone for privatisation of the power sector and particularly the distribution (see Box 8.2) and allowed 

much higher prices of electricity that have impacted certain sectors very badly (see Box 3.3). Do you think it is a right policy? 

According to the Bureau of Energy Efficiency (BEE), CFLs consume 80 per cent less power as compared to ordinary bulbs. As put by a CFL manufacturer, Indo-Asian, replacement of one million 100-watt bulbs with 20 watt CFLs can save 80 megawatt in power generation. This amounts to saving Rs 400 crore. 

HEALTH 

Health is not only absence of disease but also the ability to realise one’s potential. 

Generally scholars assess people’s health by taking into account indicators like infant mortality and maternal mortality rates, life expectancy and nutrition levels, along with the incidence of communicable and non- communicable diseases. 

In recent times, scholars argue that people are entitled to health care facilities. It is the responsibility of the government to 

ensure the right to healthy living. Health infrastructure includes hospitals, doctors, nurses and other para-medical professionals, beds, equipment required in hospitals and a well-developed pharmaceutical industry. It is also true 

State of Health Infrastructure: The government has the constitutional obligation to guide and regulate all health related issues such as medical education, adulteration of food, drugs and poisons, medical profession, vital statistics, mental deficiency and lunacy. The Union Government evolves broad policies and plans through the Central Council of Health and Family Welfare. It collects information and renders financial and technical assistance to state governments, union territories and other bodies for implementation of important health programmes in the country. 

Private Sector Health Infrastructure: 

In recent times, while the public health sector has not been so successful in delivering the goods , private sector has grown by leaps and bounds. More than 70 per cent of the hospitals in India are run by the private sector. They control nearly two-fifth of beds available in the hospitals. Nearly 60 per cent of dispensaries are run by the same private sector. They provide healthcare for 80 per cent of out- patients and 46 per cent of in-patients. 

In 2001-02, there were more than 13 lakh medical enterprises employing 22 lakh people; more than 80 per cent of them are single person owned, and operated by one 

person occasionally employing a hired worker. Scholars point out that the private sector in India has grown independently without any major regulation; some private practitioners are not even registered doctors and are known as quacks. 

Since the 1990s, owing to liberalisation measures, many non- resident Indians and industrial and pharmaceutical companies have set up state-of-the-art super-specialty hospitals to attract India’s rich and medical tourists 

In October 2015, India's medical tourism sector was estimated to be worth US$3 billion. It is projected to grow to $7–8 billion by 2020.

Health System in India 

India’s health infrastructure and health care is made up of a three-tier system —primary, secondary and tertiary. Primary health care includes education concerning prevailing health problems and methods of identifying, preventing and controlling them; promotion of food supply and proper nutrition and adequate supply of water and basic sanitation; maternal and child health care; immunisation against major infectious diseases and injuries; promotion of mental health and provision of essential drugs. 

Auxiliary Nursing Midwife (ANM) is the first person who provides primary healthcare in rural areas. In order to provide primary health care, hospitals have been set up in villages and small towns which are generally manned by a single doctor, a nurse and a limited quantity of medicines. They are known as
Primary Health Centres (PHC), Community Health Centres (CHC) and sub-centres. 

When the condition of a patient is not managed by PHCs, they are referred to secondary or tertiary hospitals. Hospitals which have better facilities for surgery, X-ray, Electro Cardio Gram (ECG) are called secondary health care institutions. They function both as primary health care provider and also provide better healthcare facilities. They are mostly located in district headquarters and in big towns. 

All those hospitals which have advanced level equipment and medicines and undertake all the complicated health problems, which could not be managed by primary and secondary hospitals, come under the tertiary sector. The tertiary sector also includes many premier institutes which not only impart quality medical education and conduct research but also provide specialised health care. Some of them are — All India Institute of Medical Science, New Delhi; Post Graduate Institute, Chandigarh; Jawaharlal Institute of Postgraduate Medical Education and Research, Pondicherry; National Institute of Mental Health and Neuro Sciences, Bangalore and All India Institute of Hygiene and Public Health, Kolkata. 

Community and Non-Profit Organisations in Healthcare 

One of the important aspects of a good healthcare system is community participation. It functions with the idea that the people can be trained and involved in primary healthcare system. This method is already being used in some parts of our country. SEWA in Ahmedabad and ACCORD in Nilgiris could be the examples of some such NGOs working in India. Trade unions have built alternative health care services for their members and also to give low-cost health care to people from nearby villages. The most well-known and pioneering initiative in this regard has been Shahid Hospital, built in 1983 and sustained by the workers of CMSS (Chhattisgarh Mines Shramik Sangh) in Durg, Madhya Pradesh. A few attempts have also been made by rural organisations to build alternative healthcare initiatives. One example is in Thane, Maharashtra, where in the context of a tribal people’s organisation, Kashtakari Sangathan, trains women health workers at the village level to treat simple illnesses at minimal cost. 

Indian Systems of Medicine (ISM): 

It includes six systems — Ayurveda, Yoga, Unani, Siddha, Naturopathy and Homeopathy (AYUSH). At present there are 3,529 ISM hospitals, 24,943 dispensaries and as many as 6.5 lakh registered practitioners in India. But little has been done to set up a framework to standardise education or to promote research. ISM has huge potential and can solve a large part of our health care problems because they are effective, safe and inexpensive. 

Scholars argue that there is greater scope for the role of government in the health sector. For instance,  expenditure on health sector as 4.2 per cent of total GDP. This is abysmally low as compared to other countries, both developed and developing. 

India is a low-middle income country as per the World Bank classification. In fact, the growth in expenditure on total healthcare in India has been decreased from what it was a decade ago (from 4.3 per cent to 4.05 per cent)

In a talk at Harvard School of Public Health (HSPH) in 2012, it was noted that India spent about $40 per person annually on health care where as the United States spent $8,500. The entire GDP of India was $1.6 trillion then while the US health care spending alone was $2.6 trillion.

The problem essentially lies with government hospitals and their infrastructure. While there are many universal health care schemes being run by the Central and the State Governments in India and the government hospitals offer treatment and essential drugs free of charge, the fact that the government sector is understaffed, under financed and that these hospitals maintain very poor standards of hygiene forces many people to visit private medical practitioners and hospitals.

Besides the lack of overall healthcare infrastructure, the second most important influence on India’s healthcare industry is its lack of a medically insured population and high out-of-pocket expenditure.

Out of Pocket expenses figures by World Bank for India stand much higher at 86 per cent for the year 2012.

The NDA Government did plan to bring about a 'complete transformation' of the health sector and even worked on the blueprint of the world's largest universal health insurance programme, partially inspired by US President Barack Obama's grand insurance-for-all project which is popularly known as ‘Obamacare’.

India has about 17 per cent of the world’s population but it bears a frightening 20 per cent of the global burden of diseases (GBD). GBD is an indicator used by experts to gauge the number of people dying prematurely due to a particular disease as well as the number of years spent by them in a state of ‘disability’ owing to the disease. 

In India, more than half of GBD is accounted for by communicable diseases such as diarrhoea, malaria and tuberculosis. Every year around five lakh children die of water-borne diseases. The danger of AIDS is also looming large. Malnutrition and inadequate supply of vaccines lead to the death of 2.2 million children every year. 

At present, less than 20 per cent of the population utilises public health facilities. One study has pointed out that only 38 per cent of the PHCs have the required number of doctors and only 30 per cent of the PHCs have sufficient stock of medicines. 

Urban-Rural and Poor-Rich Divide: 

Though 70 per cent of India’s population lives in rural areas, only one-fifth of its hospitals are located in rural areas. Rural India has only about half the number of dispensaries. Out of about 7 lakh beds, roughly 11 per cent are available in rural areas. Thus, people living in rural areas do not have sufficient medical infrastructure. This has led to differences in the health status of people. As far as hospitals are concerned, there are only 0.36 hospitals for every one lakh people in rural areas while urban areas have 3.6 hospitals for the same number of people. 

Villagers have no access to any specialised medical care like paediatrics, gynaecology, anaesthesia and obstetrics. Even though 315 recognised medical colleges produce 

30,000 medical graduates every year, the shortage of doctors in rural areas persists. While one-fifth of these doctor graduates leave the country for better monetary prospects, many others opt for private hospitals which are mostly located in urban areas. 

The poorest 20 per cent of Indians living in both urban and rural areas spend 12 per cent of their income on healthcare while the rich spend only 2 per cent. What happens when the poor fall sick? Many have to sell their land or even pledge their children to afford treatment. Since government-run hospitals do not provide sufficient facilities, the poor are driven to private hospitals which makes them indebted forever. Or else they opt to die. 

Women’s Health: Women constitute about half the total population in India. They suffer many disadvantages as compared to men in the areas of education, participation in economic activities and health care. The deterioration in the child sex ratio in the country from 927 in 2001 to 914, as revealed by the census of 2011, points to the growing incidence of female foeticide in the country. 

More than 50 per cent of married women between the age group of 15 and 49 have anaemia and nutritional anaemia caused by iron deficiency, which has contributed to 19 per cent of maternal deaths. Abortions are also a major cause of maternal morbidity and mortality in India. 

All citizens can get better health facilities if public health services are decentralised. Success in the long-term battle against diseases depends on education and efficient health infrastructure. It is, therefore, critical to create awareness on health and hygiene and provide efficient systems. The role of telecom and IT sectors cannot be neglected in this process. The effectiveness of healthcare programmes also rests on primary healthcare. The ultimate goal should be to help people move towards a better quality of life. 

There is a sharp divide between the urban and rural healthcare in India. If we continue to ignore this deepening divide, we run the risk of destabilising the socio- economic fabric of our country. In order to provide basic healthcare to all, accessibility and affordability need to be integrated in our basic health infrastructure.

In the last six decades of independence, India has made considerable progress in building infrastructure, nevertheless, its distribution is uneven. Many parts of rural India are yet to get good roads, telecommunication facilities, electricity, schools and hospitals. 

Chapter 9

ENVIRONMENT AND SUSTAINABLE DEVELOPMENT 

The economic development that we have achieved so far has come at a very heavy price—at the cost of environmental quality 

The black soil of the Deccan Plateau is particularly suitable for cultivation of cotton, leading to concentration of textile industries in this region. The Indo-Gangetic plains — spread from the Arabian Sea to the Bay of Bengal — are one of the most fertile, intensively cultivated and densely populated regions in the world. India’s forests, though unevenly distributed, provide green cover for a majority of its population and natural cover for its wildlife. Large deposits of iron-ore, coal and natural gas are found in the country. India alone accounts for nearly 20 per cent of the world’s total iron-ore reserves. Bauxite, copper, chromate, diamonds, gold, lead, lignite, manganese, zinc, uranium, etc. are also available in different parts of the country. 

Chipko Movement, which aimed at protecting forests in the Himalayas. In Karnataka, a similar movement took a different name, ‘Appiko’, which means to hug. 

Some of the factors responsible for land degradation are 

(i) loss of vegetation occurring due to deforestation 

(ii) unsustainable fuel wood and fodder extraction 

(iii) shifting cultivation 

(iv) encroachment into forest lands 

(v) forest fires and over grazing 

(vi) non-adoption of adequate soil conservation measures 

(vii) improper crop rotation 

(viii) indiscriminate use of agro-chemicals such as fertilisers and pesticides 

(ix) improper planning and management of irrigation systems 

(x) extraction of ground water in excess of the recharge capacity 

(xi) open access resource and 

(xii) poverty of the agriculture-dependent people. 

India supports approximately 17 per cent of the world’s human and 20 per cent of livestock population on a mere 2.5 per cent of the world’s geographical area. 

Estimates of soil erosion show that soil is being eroded at a rate of 5.3 billion tonnes a year for the entire 

country as a result of which the country loses 0.8 million tonnes of nitrogen, 1.8 million tonnes of phosphorus and 26.3 million tonnes of potassium every year. According to the Government of India, the quantity of nutrients lost due to erosion each year ranges from 5.8 to 8.4 million tonnes. 

Pollution Control Boards 

In order to address two major environmental concerns in India, viz. water and air pollution, the government set up the Central Pollution Control Board (CPCB) in 1974. This was followed by states establishing their own state level boards to address all the environmental concerns. They investigate, collect and disseminate information relating to water, air and land pollution, lay down standards for sewage/trade effluent and emissions. These boards provide technical assistance to governments in promoting cleanliness of streams and wells by prevention, control and abatement of water pollution, and improve the quality of air and to prevent, control or abate air pollution in the country. 

The pollution control boards collect, collate and disseminate technical and statistical data relating to water pollution. They monitor the quality of water in 125 rivers (including the tributaries), wells, lakes, creeks, ponds, tanks, drains and canals. 

Vehicular emissions are of particular concern since these are ground level sources and, thus, have the maximum impact on the general population. The number of motor vehicles has increased from about 3 lakh in 1951 to 67 crores in 2003. 

India is one of the ten most industrialised nations of the world. But this status has brought with it unwanted and unanticipated consequences such as unplanned urbanisation, pollution and the risk of accidents. The CPCB (Central Pollution Control Board) has identified seventeen categories of industries (large and medium scale) as significantly polluting. 

SUSTAINABLE DEVELOPMENT 

Environment and economy are interdependent and need each other. Hence, development that ignores its repercussions on the environment will destroy the environment that sustains life forms. What is needed is sustainable development: development that will 

allow all future generations to have a potential average quality of life that is at least as high as that which is being enjoyed by the current generation. The concept of sustainable development was emphasised by the United Nations Conference on Environment and Development (UNCED), which defined it as: ‘Development that meets the need of the present generation without compromising the ability of the future generation to meet their own needs’. 

The Brundtland Commission emphasises on protecting the future generation. This is in line with the argument of the environmentalists who emphasise that we have a moral obligation to hand over the planet earth in good order to the future generation; that is, the present generation should bequeath a better environment to the future generation. At least we should leave to the next generation a stock of ‘quality of life’ assets no less than what we have inherited. 

According to Herman Daly, a leading environmental economist, to achieve sustainable development, the following needs to be done (i) limiting the human population to a level within the carrying capacity of the environment. The carrying capacity of the environment is like a ‘plimsoll line’ of the ship which is its load limit mark. In the absence of the plimsoll line for the economy, human scale grows beyond the carrying capacity of the earth and deviates from sustainable development (ii) technological progress should be input efficient and not input consuming (iii) renewable resources should be extracted on a sustainable basis, that is, rate of extraction should not exceed rate of regeneration (iv) for non-renewable resources rate of depletion should not exceed the rate of creation of renewable substitutes and (v) inefficiencies arising from pollution should be corrected. 

STRATEGIES FOR SUSTAINABLE DEVELOPMENT 

Use of Non-conventional Sources of Energy: India, as you know, is hugely dependent on thermal and hydro power plants to meet its power needs. Both of these have adverse environmental impacts. Thermal power plants emit large quantities of carbon dioxide which is a green house gas. It also produces fly ash which, if not used properly, can cause pollution of water bodies, land and other components of the environment. Hydroelectric projects inundate forests and interfere with the natural flow of water in catchment areas and the river basins. Wind power and solar rays are good examples of conventional but cleaner and greener energy sources but are not yet been explored on a large scale due to lack of technological devices. 

As far as liquefied petroleum gas (LPG) is concerned, it is a clean fuel — it reduces household pollution to a large extent. Also, energy wastage is minimised. For the gobar gas plant to function, cattle dung is fed to the plant and gas is produced which is used as fuel while the slurry which is left over is a very good organic fertiliser and soil conditioner. 

CNG in Urban Areas: In Delhi, the use of Compressed Natural Gas (CNG) as fuel in public transport system has significantly lowered air pollution and the air has become cleaner in the last few years. 

Wind Power :No doubt, the initial cost is high. But the benefits are such that the high cost gets easily absorbed. 

Solar Power through Photovoltaic Cells: 

These cells use special kind of materials to capture solar energy and then convert the energy into electricity. This technology is extremely useful for remote areas and for places where supply of power through grid or power lines is either not possible or proves very costly. This technique is also totally free from pollution. 

Mini-hydel Plants: In mountainous regions, streams can be found almost everywhere. A large percentage of such streams are perennial. Mini-hydel plants use the energy of such streams to move small turbines. The turbines generate electricity which can be used locally. Such power plants are more or less environment-friendly as they do not change the land use pattern in areas where they are located; they generate enough power to meet local demands. This means that they can also do away with the need for large scale transmission towers and cables and avoid transmission loss. 

Now, it is time to go back. One apt example is in healthcare. India is very much privileged to have about 15,000 species of plants which have medicinal properties. About 8,000 of these are in regular use in various systems of treatment including the folk tradition 

With the sudden onslaught of the western system of treatment, we were ignoring our traditional systems such as Ayurveda, Unani, Tibetan and folk systems. These healthcare systems are in great demand again for treating chronic health problems. Now a days every cosmetic produce — hair oil, toothpaste, body lotion, face cream and what not — is herbal in composition. Not only are these products environment friendly, they are relatively free from side effects and do not involve large-scale industrial and chemical processing. 

Chapter 10

DEVELOPMENT EXPERIENCES OF INDIA: A COMPARISON WITH NEIGHBOURS 

Geography has made us neighbours. History has made us friends. Economics has made us partners, and necessity has made us allies. Those whom God has so joined together, let no man put asunder. 

J.F.Kennedy

Over the last two decades or so, the economic transformation that is taking place in different countries across the world, partly because of the process of globalisation, has both short as well as long-term implications for each country, including India. Nations have been primarily trying to adopt various means which will strengthen their own domestic economies. To this effect, they are forming regional and global economic groupings such as the SAARC, European Union, ASEAN, G-8, G-20, BRICS etc. In addition, there is also an increasing eagerness on the parts of various nations to try and understand the developmental processes pursued by their neighbouring nations as it allows them to better comprehend their own strengths and weaknesses vis-à-vis their neighbours. In the unfolding process of globalisation, this is particularly considered essential by developing countries as they face competition not only from developed nations but also amongst themselves in the relatively limited economic space enjoyed by the developing world. 

While India and Pakistan became independent nations in 1947, People’s Republic of China was established in 1949. 

While India announced its first Five Year Plan for 1951-56, Pakistan announced its first five year plan, now called the Medium Term Development Plan, in 1956. China announced its First Five Year Plan in 1953. Till 1998, Pakistan had eight five year plans whereas China’s tenth five year period was 2001-06. The current planning in India is based on Eleventh Five Year Plan (2007-12). India and Pakistan adopted similar strategies such as creating a large public sector and raising public expenditure on social development. Till the 1980s, all the three countries had similar growth rates and per capita incomes. 

China: After the establishment of People’s Republic of China under one- party rule, all the critical sectors of the economy, enterprises and lands owned and operated by individuals were brought under government control. The Great Leap Forward (GLF) 

campaign initiated in 1958 aimed at industrialising the country on a massive scale. People were encouraged to set up industries in their backyards. In rural areas, communes were started. Under the Commune system, people collectively cultivated lands. In 1958, there were 26,000 communes covering almost all the farm population. 

GLF campaign met with many problems. A severe drought caused havoc in China killing about 30 million people. When Russia had conflicts with China, it withdrew its professionals who had earlier been sent to China to help in the industrialisation process. In 1965, Mao introduced the Great Proletarian Cultural Revolution (1966-76) under which students and professionals were sent to work and learn from the countryside. 

The present-day fast industrial growth in China can be traced back to the reforms introduced in 1978. China introduced reforms in phases. In the initial phase, reforms were initiated in agriculture, foreign trade and investment sectors. In agriculture, for instance, commune lands were divided into small plots which were allocated (for use not ownership) to individual households. They were allowed to keep all income from the land after paying stipulated taxes. In the later phase, reforms were initiated in the industrial sector. Private sector firms, in general, and township and village enterprises, i.e. those enterprises which were owned and operated by local collectives, in particular, were allowed to produce 

goods. At this stage, enterprises owned by government (known as State Owned Enterprises—SOEs), which we, in India, call public sector enterprises, were made to face competition. The reform process also involved dual pricing. This means fixing the prices in two ways; farmers and industrial units were required to buy and sell fixed quantities of inputs and outputs on the basis of prices fixed by the government and the rest were purchased and sold at market prices. Over the years, as production increased, the proportion of goods or inputs transacted in the market also increased. In order to attract foreign investors, special economic zones were set up. 

Pakistan: While looking at various economic policies that Pakistan adopted, you will notice many similarities with India. Pakistan also follows the mixed economy model with co-existance of public and private sectors. In the late 1950s and 1960s, Pakistan introduced a variety of regulated policy framework (for import substitution industrialisation). The policy combined tariff protection for manufacturing of consumer goods together with direct import controls on competing imports. The introduction of Green Revolution led to mechanisation and increase in public investment in infrastructure in select areas, which finally led to a rise in the production of foodgrains. This changed the agrarian structure dramatically. In the 1970s, nationalisation of capital goods industries took place. Pakistan then shifted its policy orientation in the late 1970s and 1980s when the major thrust areas were denationalisation and encouragement to private sector. During this period, Pakistan also received financial support from western nations and remittances from continuously increasing outflow of emigrants to the Middle-east. This helped the country in stimulating economic growth. The then government also offered incentives to the private sector. All this created a conducive climate for new investments. In 1988, reforms were initiated in the country. 

Scholars point out the one- child norm introduced in China in the late 1970s as the major reason for low population growth. They also state that this measure led to a decline in the sex ratio, the proportion of females per 1000 males. However, from the table, you will notice that the sex ratio is low and biased against females in all the three countries. Scholars cite son- preference prevailing in all these countries as the reason. In recent times, all the three countries are adopting various measures to improve the situation. One-child norm and the resultant arrest in the growth of population also have other implications. For instance, after a few decades, in China, there will be more elderly people in proportion to young people. This will force China to take steps to provide social security measures with fewer workers. 

GROSS DOMESTIC PRODUCT AND 

SECTORS 

One of the much-talked issues around the world about China is its growth of Gross Domestic Product. China has the second largest GDP (PPP) of $11 trillion whereas India’s GDP (PPP) is $4.1 trillion and Pakistan’s GDP is $0.45 trillion, roughly about 10 per cent of India’s GDP. 

China and Pakistan have more proportion of urban people than India. In China, 

due to topographic and climatic conditions, the area suitable for cultivation is relatively small — only about 10 per cent of its total land area. The total cultivable area in China accounts for 40 per cent of the cultivable area in India. Until the 1980s, more than 80 per cent of the people in China were dependent on farming as their sole source of livelihood. Since then, the government encouraged people to leave their fields and pursue other activities such as handicrafts, commerce and transport. In 2008, with 40 per cent of its workforce engaged in agriculture, its 

contribution to GDP in China is 10 per cent . 

In both India and Pakistan, the contribution of agriculture to GDP were at 19 and 21 per cent, respectively, but the proportion of workforce that works in this sector is more in India. In Pakistan, about 45 per cent of people work in agriculture whereas in India it is 56 per cent. The sectoral share of output and employment also shows that in all the three economies, the industry and service sectors have less proportion of workforce but contribute more in terms of output. In China, manufacturing contributes the highest to GDP at 47 per cent whereas in India and Pakistan, it is the service sector which contributes the highest. In both these countries, service sector accounts for more than 50 per cent of GDP. 

In India and Pakistan, the shift is taking place directly to the service sector. 

China’s growth is mainly contributed by the manufacturing sector and India’s growth by service sector. 

10.6 DEVELOPMENT STRATEGIES — AN APPRAISAL 

It is common to find developmental strategies of a country as a model to others for lessons and guidance for their own development 

We know that reforms were initiated in China in 1978, Pakistan in 1988 and India in 1991. 

Why did China introduce structural reforms in 1978? China did not have any compulsion to introduce reforms as dictated by the World Bank and International Monetary Fund to India and Pakistan. The new leadership at that time in China was not happy with the slow pace of growth and lack of modernisation in the Chinese economy under the Maoist rule. They felt that Maoist vision of economic development based on decentralisation, self sufficiency and shunning of foreign technology, goods and capital had failed. Despite extensive land reforms, collectivisation, the Great Leap Forward and other initiatives, the per capita grain output in 1978 was the same as it was in the mid-1950s. 

It was found that establishment of infrastructure in the areas of education and health, land reforms, long existence of decentralised planning and existence of small enterprises had helped positively in improving the social and income indicators in the post reform period. Before the introduction of reforms, there had already been massive extension of basic health services in rural areas. Through the commune system, there was more equitable distribution of food grains. Experts also point out that each reform measure was first implemented at a smaller level and then extended on a massive scale. The experimentation under decentralised government enabled to assess the economic, social and political costs of success or failure. For instance, when reforms were made in agriculture, as pointed out earlier by handing over plots of land to individuals for cultivation, it brought prosperity to a vast number of poor people. It created conditions for the subsequent phenomenal growth in rural industries and built up a strong support base for more reforms. Scholars quote many such examples on how reform measures led to rapid growth in China. 

Scholars argue that in Pakistan the reform process led to worsening of all the economic indicators. We have seen in an earlier section that compared to 1980s, the growth rate of GDP and its sectoral constituents have fallen in the 1990s. 

Though the data on international poverty line for Pakistan is quite healthy, scholars using the official data of Pakistan indicate rising poverty there. The proportion of poor in 1960s was more than 40 per cent which declined to 25 per cent in 1980s and started rising again in 1990s. The reasons for the slow-down of growth and re-emergence of poverty in Pakistan’s economy, as scholars put it, are agricultural growth and food supply situation were based not on an institutionalised process of technical change but on good harvest. When there was a good harvest, the economy was in good condition, when it was not, the economic indicators showed stagnation or negative trends. 

While India has perfromed relatively well vis-a-vis other developing countries (including its Asian neighbours) in terms of economic growth, India’s human development indicators are among the worst in the world. Where India went wrong - why did we not take care of our human resources? 

You will recall that India had to borrow from the IMF and World Bank to set right its balance of payments crisis; foreign exchange is an essential component for any country and it is important to know how it can be earned. If a country is able to build up its foreign exchange earnings by sustainable export of manufactured goods, it need not worry. In Pakistan most foreign exchange earnings came from remittances from Pakistani workers in the Middle-east and the exports of highly volatile agricultural products; there was also growing dependence on foreign loans on the one hand and increasing difficulty in paying back the loans on the other. 

In China, the lack of political freedom and its implications for human rights are major concerns; yet, in the last three decades, it used the ‘market system without losing political commitment’ and succeeded in raising the level of growth alongwith alleviation of poverty. 

Unlike India and Pakistan, which are attempting to privatise their public sector enterprises, China has used the market mechanism to ‘create additional social and economic opportunities’. By retaining collective ownership of land and allowing individuals to cultivate lands, China has ensured social security in rural areas. Public intervention in providing social infrastructure even prior to reforms has brought about positive results in human development indicators in China. 

China is ahead of India and Pakistan on many human development indicators. However these improvements were attributed not to the reform process but the strategies that China adopted in the pre-reform period. 

While assessing the developmental indicators, one also has to consider the liberty indicators.