CBSE Class 11 Economics Indian Economy At The Time Of Independence Notes Set 04

Indian Economy on the Eve of Independence

Some notable economists estimated National and Per Capita income of India like Dada Bhai Nao roji , William Digby, Findlay Shiras, R.C Desai, V.K.R.V Rao.

Work and estimates of V.K.R.V Rao was significant.

Causes of Stagnation in Agriculture sector.

1. Zamindari system of revenue settlement- Zamindar were appointed , profit taken in the form of lagaan( irrespective of economic condition of cultivators).

2. Commercialization of agriculture : production of crops for sale in the market rather than for self-consumption. Paid high price for cash crops.

3. Lack of irrigation facilities and low technology.

4. Lack of resources.( no investment in agriculture).

1.3. Low growth of industrial sector.(Causes of Low growth of industrial sector)

• 1. De industrialization : Primary motive of British rule behind the de-industrialization was twofold.
  • i.Exporter of raw material :to get raw materials from India at cheap rates for industries in Britain.
  • ii. Importer of finished goods : to sell finished products of British industries in India at Higher price .(India as market)
• 2 . Adverse effects of decline of handicraft industries
  • High level of unemployment
  • Import of finished goods
• 3. lack of capital goods industries : industries which can produce machine tools which are are in turn used for producing articles for current consumption
• 4. Limited public sector: Railways, power generation, communication, port and some other departmental taking undertakings.

1. Foreign trade

1. Composition of foreign trade :

A. Exports : Exporter of raw material ( primary products ) such as cotton, wool, silk, sugar indigo jute for industries in Britain.

B. Imports : Importer of finished goods such as cotton & woollen clothes , capital goods like machinery produced in Britain.

2. Volume of trade : India produced export surplus. But this export surplus was used to pay for the expense of official set up of Britain in India, administration , import of invisibles & war expenses of Britain.

1. DEMOGRAPHIC CONDITION

• Demographic condition shows India as backward and stagnant economy
• 1st official census- 1881 ( after every ten years).
• ‘Year of great divide’ – 1921 ( second stage of transition/population explosion).
• Demographic features :
  1. High birth rate and death rate
  2. Low literacy rate : overall literacy 16% & female literacy 7%.
  3. High infant mortality rate
  4. Low life expectancy : It was 44 years very low.
  5. Poor health facilities : water and air borne disease

1. INFRASTRUCTURE

• Poor infrastructure
• 1. Poor condition of roads.
• 2. Railways : Introduced in 1850. Positive Impact of raiways are
  • a. National integration
  • b. Commercialisation of agriculture
• 3.Communication : (Telegraph & post.) telegraph was expensive used by Britishers for maintaining law & order. Post was public utility but was inadequate

Opening of Suez Canal in 1869

Occupational structure

1. SECTOR WISE DIVISION OF WORKFORCE:

Primary sector(Agriculture) - 75% of workforce
Secondary sector( Manufacturing) - 10% of workforce
Tertiary sector(Service) - 15% of workforce

State of Indian economy(on eve of independence.)

1. COLONIAL ECONOMY

2. BACKWARD ECONOMY: a) depend largely upon agriculture sector. traditional and primitive methods of farming. overcrowding in primary sector.(b) Very few large industries.(c) Small service sector.(d) high birth rate and death rate.(e) high illiteracy.

3. STAGNANT ECONOMY: a) negligible increase in per capita income 0.5%.(b) low increase in GDP 2%.

4. LOPSIDED ECONOMY: The British developed only those industries which would help them grow. Handicraft , cottage , SSI were neglected. only few Large-Scale Industries were developed. Agriculture was neglected. lack of seeds fertilizers and irrigation facilities. forced to grow cash crops.

POSITIVE CONTRIBUTIONS OF BRITISH RULE.

a. India became self-sufficient in food grain production.

b. Introduction of railways.

c. Shift to Monetary economy.

d. Efficient administration system.

e. Check on famines.

INDIAN ECONOMY 1950-90

1. Economic Planning:
Planning Commission in India was established in 1950. In 2015, it has been replaced by ‘NITI Aayog’.

2. Types of Economies

• Capitalist Economy is the one in which there is a private ownership of the means of production. Maximization of profit is the principal objective.
• Socialist Economy is the one in which there is a social (collective/public) ownership of the means of production. Maximization of social welfare is the principal objective.
• Mixed Economy is the one in which means of production are owned by the private entrepreneurs as well as the government.

3. Goals of Planning

• GDP Growth: It implies an increase in the flow of goods and services in the economy. When the increase in the flow of goods and services is consistent over a long period of time, it is called 'economic growth. Thus, GDP growth leads to economic growth.
• Full Employment: Full employment refers to a situation when all the people who are able to work and willing to work at the market wage rate are getting work.. It implies that:
  • a) more and more people should participate in the process of growth, and
  • b) benefits of growth must be shared across wider sections of the society.
  It amounts to achieving 'growth with social justice.
• Equitable Distribution or Equity: Growth serves virtually no purpose in a society where rich tend to become richer and the poor continue to struggle even for the essential of life. Benefits of growth must spread across all sections of the society, so that the distribution of income becomes equitable.

  Equitable distribution of income implies social equality and this is one of the principal objectives or goals of planning in India.

• Modernization- It refers to updating and adoption of modern technology in the process of growth.

  Output can be increased by using innovative technology. IT revolution has redefined the concept of domestic production through BOP (business outsourcing process). Green Revolution in Indian agriculture is a well-known example of how technology can bring about revolutionary changes in output.

  Modernization in the context of goals, refers to modernization of social outlook. It includes issues like empowerment of women so that (like men) they also participate in the process of production and contribute to the process of economic and social prosperity

• Self-sufficiency: Self-sufficiency means dependence on domestically produced goods, particularly food grains. This goal was accorded a high priority during the first seven plans.

Features, Problems and Policies of Agriculture

1. Problems/ Features of Indian Agriculture
(i)High dependence on rainfall (ii) inadequate finance, (iii) Low productivity due to backward technology (iv) Small land holdings, (v)Lack of organised marketing system.

2. Agrarian Reforms in Indian Agriculture
(2A) Technical reforms :(i) Use of HYV seeds, (ii) Use of chemical fertilizers, (iii) Use of insecticides and pesticides(iv) Scientific farm management practices, (v) use of machines in farming.

(2B) Land Reforms include (i) Abolition of intermediaries, (ii) Regulation of rent, (iii) Consolidation of holding,(ceiling on land holdings) (iv) Cooperative farming.

3. Green Revolution in Indian Agriculture:
It refers to a significant increase in farm output during mid 60's, supported by:
(i) a substantial rise in crop productivity, and
(ii) a significant rise in gross area under cultivation,
It was caused primarily by HYV technology, supported with chemical fertilizers, insecticides and pesticides.

Achievements of green revolution.
(i) increase in crop productivity, (ii) increase in marketable surplus (iii) Buffer stock (iv) Self-sufficiency in food grain production.

6. India needs yet another Green Revolution: This is because, gains of Green Revolution of mid 60's have started shrinking, and because a mismatch between supply and demand of farm products is once again emerging to be a serious challenge.

Industry

1. Industrial policy of 1956(industrial Constitution of India)

1. Classification of Industries - This policy classified industries into three categories.

•  Schedule A : included 17 industries which would be exclusively owned by the state, i.e, Public Sector.
•  Schedule B :included 12 industries in which the private sector could supplement the effort of the state. But the state takes the sole responsibility for starting new units.
•  Schedule C : consisted of the remaining industries which were to be in the private sector, i.e. Open for all public or private sector

2.Industrial Licensing - Private sector was kept under state control through a system of licensing. No new industry was allowed unless was obtained from the government.

3. Development of small scale industries.

Role of Small Scale Industries (1955 KARVE COMMITTEE)

1. Labor intensive technique.
2. Self- employment
3. Less capital intensive.
4. Low import, i.e. Import substitution
5. Export promotion
6. Equal distribution of income

Problems of Small Scale Industries.

1. Problems of finance.
2. Shortage of raw material
3. Difficulties in marketing
4. Outdated machines and equipment
5. Underutilized export potential

Trade policy : Import Substitution

Inward Looking Trade Strategy ( Import substitution)

Inward Looking Trade Strategy refers to the policy of import substitution and protection to the domestic industry through import restrictions and import duties. Outward looking trade strategy refers to the policy of ‘export promotion' through competitive production environment in the domestic economy.

Government adopted following ways to reduce Import

1. High Tariffs on import
2. Fixing Quotas

Reasons for adopting Inward Looking Trade Strategy(Import substitution)
#To protect domestic industries from international competition
#To save foreign exchange reserves.

ECONOMIC REFORMS SINCE 1991

1. NEED (REASONS) FOR NEP OR ECONOMIC REFORMS
Need for NEP or economic reforms was felt owing to the following reasons:
A. High Fiscal Deficit.
B. BOP Crises
C. Fall in Foreign Exchange Reserves
D. Inflationary Spiral (Rise in Prices)
E. Poor Performance of PSUs (Public Sector Undertakings)

2 . ELEMENTS OF NEP (NEW ECONOMIC POLICY)
Liberalization, privatization and globalization are the three main elements of NEP.

3. Liberalization
Liberalization implies freedom of private enterprises from controls imposed by the government.

Measures of Liberalization

Industrial reforms
(1) Abolition of industrial licensing,(ii) Contraction of public sector,(iii) De-reservation of production areas, (iv) Expansion of production capacity,(v) freedom to import capital goods.

Fiscal Reforms (tax reforms)
These refer to increasing the revenue of the government and lowering the expenditure in a way that it causes no adverse effect on production and economic welfare.

a. Simplification of process

b. Reduction in rates of taxes

c. Reforms in indirect taxes, Goods and services tax (GST) (01,July 2017)

Types of GST:
(i) SGST (ii) CGST (iii) IGST

Financial sector Reforms
These refer to the reforms in country’s monetary and banking policies.
Reforms under finance sector are :

a. Establishment of private banks

b. Increase in foreign investment in banks

c. Change in role of RBI

DEMONETISATION (8 November 2016)
The Government of India, made an announcement on November 8, 2016 with profound implications for the Indian economy. The two largest denomination notes, 500 and 1,000, were 'demonetized' with immediate effect.

Meaning of Demonetization
Demonetization is a process of stripping a currency unit of its status as a legal tender. In simple words, when the Government demonetized the 500 and 1000 rupees notes, they were no longer valid as legal currency.

Reasons why Government demonetize 500 and 1000 notes in 2016/Benefits of demonetization:
The Government made many claims with respect to the objectives and outcomes of the demonetization scheme in 2016. These were :

•  It will plug financing to terrorists
•  It will help unearth black money
•  The unearthed black money will also expand the fiscal space of the government
•  4 It will help reduce interest rates in the banking system .

4. Privatization
It implies partial or full ownership and management of public sector enterprises by the Private sector.

Measures of privatization
(I) Outright sale of the government enterprises to the private entrepreneurs
(ii) Withdrawal of the government ownership and management.

Disinvestment
Disinvestment is a policy instrument to promote privatization occurs where the government sells off its share capital of PSUs (public sector undertakings)to the private investors.

5. Globalization
Economic reforms aim at integration the Indian economy with the global economy. As a result, there will be unrestricted flow of goods and services, technology and expertise between India and rest of world.

Outsourcing
It refers to a system of hiring business services from the outside world India is emerging as an important destination of outsourcing particularly, BPO(business process outsourcing, also called call. Centers).This is because of two important reasons:
(I) Availability of cheap labour in India, or relatively low wage rate for the skilled workers, and
(ii) A revolutionary growth of IT industry in India.

WORLD TRADE ORGANISATION (WTO, founded in 1995)
It replaced GATT (1948)

7. Positive impact of the LPG Policies
(i) Increase to industrial production
(ii) Reduce fiscal deficit
(iii) Reduce inflation
(iv) Increase in foreign exchange reserves.

8. Negative impact of the LPG Policies
(i) Neglect of agriculture,
(ii) Urban concentration of growth process
(iii) Spread of consumerism,
(iv) Lopsided growth process,

Poverty

Poverty means a situation in which a person is unable to meet the basic needs of his life (food, clothing, housing, education and health) One fifth of the world's poor lives in India.

Relative Poverty (Comparative Poverty) -
The country or class of people who have a low standard of living are considered to be relatively poor relative to those who live at a higher level.

Absolute poverty
Absolute poverty refers to the total number of people living below the poverty line who are unable to meet even their basic needs and are kept below the poverty line.

Poverty line (poverty line)
The people of a region are divided into poor and non-poor by the poverty line. If Rs. 1500 per person (per month) is taken as the threshold point then below Rs. 1500 is poor and the one spending more than Rs. 1500 is called non-poor.

--- Poverty line is the cutoff point which divides the population of the country into poor and non-poor. The poverty line is determined on the basis of the required calorie intake and monthly per capita expenditure.

CRITICISMS OF POVERT LINE(MPCE)
a. Difficult to identify poor
b. Difficult to differentiate between very poor and other poor.
c. Excludes factors like illiteracy, illness, political freedom.

Dada ji Bhai Nairoji considered the concept of poverty line on the basis of jail cost of living.

- The poverty line is determined on the basis of the required calorie intake and per capita monthly expenditure.

- Planning Commission defined 2400 calories per person for rural areas and 2100 calories per person per day for urban areas based on nutritional requirement.

Categories of poverty

1. Chronic poor - It also includes individuals who are always and usually poor.
2. Transient poor - The person who regularly goes above or below the poverty line. It includes occasionally poor like small farmers.
3. Non-poor - They are never poor.

1973-74 ----- 54.9% below poverty line
2011-12 ----- 22% below poverty line
70% of India's poor live in UP, Bihar, Madhya Pradesh, West Bengal and Orissa

Reasons of poverty,

1. De Industrial policy of British rule
2. Agriculture - Most people depend on agriculture and low level of agriculture
3. population explosion
4. Low level of economic development
5. High Illiteracy Rate
6. High level of unemployment- lack of employment in all three sectors of the economy
7. High Level of Debt Poverty
8. Inequalities in income
9. Inflation

Measures to remove poverty (poverty)

1. Increase in economic prosperity
2. Reduction of income inequality
3. Population Control
4. Agricultural Development
5. More employment opportunities
6. Land Reforms

Measures to alleviate poverty by Government
1 – Growth oriented approach
2 -Poverty alleviation program

• a-- Swarna Jayanti Gram Swarozgar Yojana (SGSY)
• b-- Swarna Jayanti Shehri Rozgar Yojana
• c-- Sampoorna Gramin Rozgar yojana SGRY
• d-- Prime Minister Rozgar Yojana (PMRY)
• e-- Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA.)

3 - Providing minimum basic facilities

• a-- Public distribution system
• b-- Integrated Child Development Scheme
• c-- Mid-Day Meal Scheme

National Social Assistance Program. NSAP
Launched on 15 august 1995. Under this elder people and poor women (helpless and widows) are given pensions.

REGP Rural Employment Generation Program,
Under this, any poor person can start his employment by getting financial assistance in the form of bank loan for setting up small industry businesses in rural areas and small towns

.PMRY Prime Minister Employment Generation Program,
Financial assistance was provided to the educated unemployed of low income families to get employment which was part of this program.

MGNREGA
Under this Act all those who are willing and able to work are offered work for a minimum period of 100 days in a financial year.

National food for Work programme -
The National Food for work Program, popularly called the Food for Work Grain, was launched in 2004. It was 100% financed by central government. Later in 2005 incorporated in MGNREGA.

Critical review of Poverty Alleviation programs:

Positive Effects:-
1 - Absolute number of poor decreased
2- Per capita income and average standard of living improved

NEGATIVE EFFECTS:-
1-lack of resources
2- Inequality in distribution of assets
3-Poverty alleviation programs not implemented properly
4-Lack of Infrastructure

Employment and Unemployment

Labour force (labour force)
All such people who are over 14 years of age, who are able and also willing to work are included in labour force.
- Total labour force of India in 2011-12 = 473 million
Three quarters of it is rural and 70% are male.

Workers - All those who are engaged in economic activities are called workers.
- People away from labour for a short time (due to illness, injury, bad weather, festivals etc.) are also called workers.
Workforce = Labour force – unemployed people

Worker population ratio = \( \left( \frac{\text{number of workers}}{\text{total population}} \right) \times 100 \)

Number of workers = \( \frac{(\text{Worker population ratio} \times \text{total population})}{100} \)

Participation in employment of population (gender wise)- In rural and urban areas of India, participation is higher for men than women. Reasons are (i) Men easily migrate to work place (ii) Females are discouraged by family members (iii) More job opportunities for men in all sectors.

But in rural sectors women participation in workforce is higher than urban areas because(i) they help in farm with family members and (ii) poverty.

Types of workers

Self-employed –Shop Owner, owner of his own enterprise, shopkeeper of chickens, Doctor's own clinic, tailor etc. who do their work on their own are called self employed workers. 52% of workforce belong to this category.

Casual workers - Who sometimes get employment such as construction workers, ice cream sellers whose income is not fixed. 30% of people in India fall into this category

Regular salaried employees - 18% of people in India fall into this category. Police, Army, Government employees, people working in any company who get regular salary, they fall in this category.

Why regular salaried people are lower in rural area than in urban areas.
a. More employment opportunities in urban areas.
b. Infrastructure in urban areas are more developed.
c. Educational differences.

Informalisation of work force
It refers to a situation when proportion of workforce in the informal sector to total workforce increases.

1-Formal or organized sector
1.Organized sectors follow all labor laws made by the government.
2 -Establishments of all government sectors along with Private sector employing 10 or more employees.
3-They get the benefits of economic and social security

2-Informal or unorganized sector
(a) Farmers, agricultural laborers, laborers, self employed etc. come under this category.
(b) It includes All private enterprises with less than 10 employees
(c) They don’t get the benefits of economic and social security.
(d) They do not follow all labor laws made by government.

Unemployment--
The section of the labor force that is willing and able to work at the prevailing wage rate but does not get job.

Sources of unemployment data in India--
1-Census
2-NSSO (from National Sample Survey Office) once in 5 years
3-Unemployment registration data

Open unemployment --- The unemployment that is visible directly in urban areas. People are willing and able to work but don’t get work at prevailing wage rate.

Disguised Unemployment - Unemployment that is not directly visible is often found in the agricultural sector. More people are engaged in a work than actually needed.

Seasonal unemployment --- This unemployment is according to the weather cycle, it is also found in the agricultural sector.

What can the government do to generate employment in the country

1. May appoint in government departments
2. Can make schemes like MNREGA
3. Increase in production can generate new employment opportunities
4. Can provide financial assistance to private entrepreneurs to come forward and work

Suggestions to remove/ reduce poverty
a. Development of agriculture sector
b. Development of small scale industries
c. Employment generation programme
d. Increase GDP
e. Reforms in education.

Human capital formation

Human capital
This refers to the stock of skills and abilities available at a time point in an economy.

Human capital formation
It is a process by which the ability, skills, education, and experience of the people of a country are increased in the long run.

Physical capital--
The capital of any country which is clearly visible such as land, machines, cars, factories, etc. is called physical capital, it can be easily moved from here to there and over time its price decreases.

Human capital
Qualified citizens, doctors, engineers, teachers, lawyers, etc. of any country are the human capital of that country. Any country can improve its human capital by investing in education and health.

Sources of human capital formation
1-Investment in education
2- Investment in health
3-expenditure on information
4-migration
5-On-the-job training

1. Benefits of investing in education
1-Educated person earns more income than uneducated person
2- Educated person contributes more to economic development
3-Educated person provides better social prestige and pride
4-More knowledgeable to understand the changes happening in the society
5-Innovations

2. Benefits from Health Investment
1-A healthy person works more efficiently than an unhealthy person.
2- Investment in health directly increases healthy labour supply
3-Vaccination can prevent many diseases
4-If the right care facilities are provided during the illness, then the health will recover quickly and the productivity of the country will increase.
5 -If everyone gets clean water to drink, then people will be healthy

3-On the job training
On the job training programs are organized to increase the work efficiency of the workers

Campus Training --- If trained at the workplace under the supervision of a skilled worker, it is called campus training (where a skilled worker gives training at the same place where a person works).

External Training --- + If a person who works in a firm in Delhi is sent to Japan for some time period on behalf of the firm for training, then it will be called external Training.

4 - Migration – People who leave their place and prefer to go out and work, it is called migration.

5-Expenditure on information --- We spend on information for creation in human capital so that we can make human capital formation easier by getting important information on time or ahead of time. It includes expenditure on information related to education and health.

Role of human capital in economic prosperity(economic growth)
1 - Efficiency increases the level of productivity
2-Positive change in attitude and behaviour
3-Research and technical improvements
4- High standard of living

Difference between human capital and human development
Human capital
* This refers to the stock of skills and abilities available at a time point in an economy.
* To increase labor productivity in education and health are important
*Human capital is a part of human development
Human development
• It refers to holistic development of human capital.
• Education and health are integral part of human development.
• It is a broader term.

What is the status of human capital formation in India

Role of Government in human capital formation
The need for government intervention in education and health--
1 - More is spent on education and health and its effect also lasts longer and therefore government intervention is necessary.
2-Government intervention is necessary as the private sector can exploit the public
3-Education and health are considered basic rights but a large part of the population of India is unable to access specific health services and higher education, hence it is necessary that the government provides affordable education and health services for all citizens.

Problems in Human capital formation in India ---
1-Insufficient resource allocation
2-Reduction in management of human resources
3-Increasing Population
4-Lack of proper manpower scheme
5-Inefficiency in training during work in primary sector
6-Inadequate development of health services