Economic Class 11 NCERT

1. Indian economy on eve of independence
1. Sole purpose of the British colonial rule in India was to reduce the country to being a raw material supplier for Great Britain’s own rapidly expanding modern industrial base. Bef re advent of British rule, India was particularly well known for its handicraft industries in the fields of cotton and silk textiles, metal and precious stone works etc.
2. Among the notable estimators of India's GDP and per capita income to gauge British exploitation, Dadabhai Naoroji, V.K.R.V. Rao are people whose estimates during the colonial period was considered very significant. Country’s growth of aggregate re output during the first half of the 20th century was less than 2% coupled with a meagre 1/2% growth in per capita output per year.
3. Agriculture sector - India’s economy under the ritish colonial rule remained fundamentally agrarian — about 5% of the country’s population lived mostly in villages and derived livelihood directly or indirectly from agriculture
1. Continued to experience stagnation and, frequently, unusual deterioration. Agricultural productivity became low though, in absolute terms, the sector experienced some growth due to the expansion of the aggregate area under cultivation.
2. Despite some progress made in irrigation, India's ™ agriculture was starved of investment in terracing, flood-control, drainage and desalinization of soil. While a small section of farmers changed their cropping pattern from food crops to commercial crops, a large section of tenants, small farmers and sharecroppers neither had resources and technology nor had incentive to invest in agriculture
4. Industrial sector - India could not develop a sound industrial base under the colonial rule. Even as the country’s world famous handicraft industries declined, corresponding modern industrial base was allowed to come up to take pride of place so long enjoyed by the former
1. Policy of systematically deindustrializing India - aim was two-fold. First, to reduce India to the status of a mere exporter of important raw materials for the upcoming modern industries in Britain. Second, to turn India into a sprawling market for the finished products from Britain.
2. During the second half of the 19th century, modern industry began to take root in India but its progress remained very slow. Initially, this development was confined to the setting up of cotton and jute textile mills. The cotton textile mills, mainly dominated by Indians, were located in the western parts of the country, namely, Maharashtra and Gujarat, while the jute mills dominated by the foreigners were mainly concentrated in Bengal. Subsequently, the iron and steel industries began coming up in the beginning of the 20th century.
3. Hardly any capital goods industry to help promote further industrialization in India. Capital goods industry means industries which can produce machine tools which are, in turn, used for producing articles for current consumption
5. Foreign Trade - 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.
1. 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 woolen clothes and capital goods like light machinery produced in the factories of Britain. For all practical purposes, Britain maintained a monopoly control over India’s exports and imports. Export surplus did not result in any flow of gold or silver into India. Rather, this was used to make payments for the expenses incurred by offices set up by the colonial government in Britain, expenses on war, again fought by the British government, and the import of invisible items, all of which led to the drain of Indian wealth.
2. Demographics - various social development indicators were also not quite encouraging.
1. Overall literacy level was less than 16%. Out of this, the female literacy level was at a negligible low of about 7%. Public health facilities were either unavailable to large chunks of population or, when available, were highly inadequate
2. Infant mortality rate was quite alarming—about 218 per thousand. Life expectancy was also very low—44 years.
3. Infra - 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 sub serve various colonial interests.
4. Summary - By the time India won its independence, the impact of the two-century long British colonial rule was already showing on all aspects of the Indian economy.
1. Agricultural sector was already saddled with surplus labor and extremely low productivity.
2. Industrial sector was crying for modernization, diversification, capacity building and increased public investment.
3. Foreign trade was oriented to feed the Industrial Revolution in Britain. Infrastructure facilities, including the famed railway network, needed upgradation, expansion and public orientation.
4. Prevalence of rampant poverty and unemployment required welfare orientation of public economic policy
3. Planning
1. Intermediaries such as zamindars, jagirdars at merely collected rent from the actual tillers of the soil without contributing towards improvements on the farm. The low productivity of the agricultural sector forced India to import food from abroad. Equity in agriculture called for land reforms which primarily refer to change in the ownership of landholdings (land to the tiller).
2. 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.
1. Abolition of intermediaries meant that some 200 lakh tenants came into direct contact with the government — they were thus freed from being exploited by the zamindars. The ownership conferred on tenants gave them the incentive to increase output and this contributed to growth in agriculture
2. Poorest of the agricultural labourers (such as sharecroppers and landless labourers) did not benefit from land reforms
3. Green Revolution - 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.
1. Government provided loans at a low interest rate to small farmers and subsidized fertilizers so that small farmers could also have access to the needed inputs. Since the small farmers could obtain the required inputs, the output on small farms equaled the output on large farms in the course of time. As a result, the green revolution benefited the small as well as rich farmers.
4. Debate over subsidies - One view is that once the new technology has been widely adopted, subsidies should be phased out. Moreover big chunk of fertilizer subsidies are cornered by big farmers and industry. Counter view is that small farmers still need the support as agriculture is risky business in India and take steps to ensure that only the poor farmers enjoy the benefits
5. Between 1950 and 1990, proportion of GDP contributed by agriculture declined significantly but not population depending on it (67% in 1950 to 65% by 1990).
1. Industrial sector and the service sector did not absorb the people working in the agricultural sector. Many economists call this an important failure of our policies followed during 1950-1990
6. 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.
1. This resolution classified industries into 3 categories.
1. exclusively owned by the state;
2. 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;
3. remaining industries which were to be in the private sector
7. Small-Scale Industry:
1. 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.
2. Production of a number of products was reserved for the small-scale industry; the criterion of reservation being the ability of these units to manufacture the goods
8. Trade was characterized by what is commonly called import substitution.
1. This policy aimed at replacing or substituting imports with domestic production. Protection from imports took two forms: tariffs and quotas.
2. Tariffs are a tax on imported goods; they make imported goods more expensive and discourage their use. Quotas specify the quantity of goods which can be imported
9. Effect of Policies on Industrial Development:
1. State enterprises continued to produce certain goods and services (often monopolizing them) although this was no longer required. Many public sector firms incurred huge losses but continued to function
2. The excessive regulation of what came to be called permit license raj prevented certain firms from becoming more efficient. More time was spent by industrialists in trying to obtain a license or lobby concerned ministries
3. 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
4. LPG Reforms
1. Origin of the financial crisis can be traced from the inefficient management of the Indian economy in the 1980s. Development policies required that even though the revenues were very low, the government had to overshoot its revenue to meet challenges like unemployment, poverty and population explosion
2. In the late 1980s, government expenditure began to exceed its revenue by such large margins that meeting the expenditure through borrowings became unsustainable.
1. Prices of many essential goods rose sharply. Imports grew at a very high rate without matching growth of exports
2. 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.
3. 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 liberalize 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.
3. India agreed to the conditionality and announced the New Economic Policy (NEP). 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 stabilization measures and the structural reform measures
1. 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.
4. Liberalization - Though a few measures were introduced in 1980s in areas of industrial licensing, export-import policy, technology upgradation, fiscal policy and foreign investment, reform policies initiated in 1991 were more comprehensive.
1. Deregulation of Industrial Sector - Industrial licensing was abolished for almost all but product categories â € alcohol, cigarettes, hazardous chemicals, industrial explosives, electronics, aerospace and drugs and pharmaceuticals. The only industries which are now reserved for the public sector are atomic energy generation and railway transport.
2. Financial Sector Reforms - 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%. Those banks which fulfil certain conditions have been given freedom to set up new branches without the approval of the RBI and rationalize their existing branch networks
3. Tax Reforms - concerned with the reforms in government’s taxation and public expenditure policies which a collectively known as its fiscal policy. Since 1991, there has been a continuous reduction in the taxes on individual and corporate incomes as it was felt that high rates of income tax were an important reason for tax evasion
4. Foreign Exchange Reforms - rupee was devalued against foreign currencies. This led to an increase in the inflow of foreign exchange. Move to market determined exchange rates based on the demand and supply of foreign exchange.
5. Trade and Investment Policy Reforms - liberalization of trade and investment regime was initiated to increase international competitiveness of industrial production and also foreign investments and technology into the economy. (i) dismantling of quantitative restrictions on imports and exports (ii) reduction of tariff rates and (iii) removal of licensing procedures for imports
5. Privatization - Privatization of the public sector enterprises by selling off part of the equity of PSEs to the public is known as disinvestment. The purpose of the sale, according to the government, was mainly to improve financial discipline and facilitate modernization
6. Globalization - outcome of the set of various policies that are aimed at transforming the world towards greater interdependence and integration.
1. Outsourcing is one of the important outcomes of the globalization process.
2. Setting up of WTO in this period
7. Reforms in Agriculture - have not been able to benefit agriculture, where the growth rate has been decelerating
1. 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
8. 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.
5. Poverty
1. Providing minimum basic needs to the people and reduction of poverty have been the major aims of independent India.
2. The pattern of development that the successive five year plans envisaged laid emphasis on the upliftment of the poorest of the poor (Antyodaya), integrating the poor into the mainstream and achieving a minimum standard of living for all
1. Starvation and hunger are the key features of the poorest households.
2. The poor lack basic literacy and skills and hence have very limited economic opportunities.
3. Poor people also face unstable employment. Malnutrition is alarmingly high among the poor.
3. 
4. When the number of poor is estimated as the proportion of people below the poverty line, it is known as ‘Head Count atio's (22% in 2011)
5. Causes of poverty lie in the institutional and social factors that mark the life of the poor.
1. 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.
2. Poverty is also explained by general, economy-wide problems, such as
1. low capital formation
2. lack of infrastructure
3. lack of demand
4. pressure of population
5. lack of social/ welfare nets
6. A large section of the rural poor in India are the small farmers. The land that they have is, in general, less fertile and dependent on rains.
1. Their survival depends on subsistence crops and sometimes on livestock.
2. 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.
7. A large section of urban poor in India are largely the overflow of the rural poor who migrate to urban areas in search of employment and a livelihood.
1. Industrialization has not been able to absorb all these people. The urban poor are either unemployed or intermittently employed as casual laborers. Casual laborers are among the most vulnerable in society as they have no job security, no assets, limited skills, sparse opportunities and no surplus to sustain them
8. Indian Constitution and five year plans state social justice as the primary objective of the developmental strategies of the government.
1. government’s app oach 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
2. 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 poverty alleviation programs.
3. third approach to addressing poverty is to provide minimum basic amenities to the people.
1. India was among the pioneers in the world to envisage that through public expenditure on social consumption needs provision of food grains at subsidized rates, education, health, water supply and sanitation—people’s living standard could be imp ed.
9. Due to unequal distribution of land and other assets, the benefits from direct poverty alleviation programs have been appropriated by the non-poor.
1. Government policies have also failed to address the vast majority of vulnerable people who are living on or just above the poverty line. It also reveals that high growth alone is not sufficient to reduce poverty.
2. Without the active participation of the poor, successful implementation of any programmed is not possible
6. Human Capital Formation
1. Societies need sufficient human capital in the first place ”i the form of competent people who have themselves been educated and trained as professors and other professionals
2. Sources of Human Capital
1. Investment in education is considered as one of the main sources of human capital.
2. Investments in health, on- the job training, migration and information are the other sources of human capital formation. They increase income generating capacity of an individual and thus a nation.
3. The concept of physical capital is the base for conceptualizing human capital.
3. Human capital considers education and health as a means to increase labor 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.
4. Expenditure by the government is expressed in two ways (i) as a percentage of ‘total government expenditure’ (ii) percentage of Gross Domestic Product (GDP)
1. India's overall allocation to this important sector in the last decade has hovered between 3.5-4% of total expenditure. In 2017, the figure was 3.7%. This needs to grow, particularly when you compare India's spends on education is the lowest among peers.
2. Elementary education takes a major share of total education expenditure and the share of the higher/tertiary education is the least
5. Education for All — Still a Distant Dream. Thou literacy rates for both — adults as well as youth — have incr ed, still the absolute number of illiterates in India is as much as India’s population was at the time of independence.
1. 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 favorable impact on fertility rate and health care of women and children.
7. Rural Development
1. Mahatma Gandhi once said that the real progress of India did not mean simply the growth and expansion of industrial urban centers but mainly the development of the villages.
2. This idea of village development being at the center of the overall development of the nation is relevant even today
1. 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;
2. 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 realize real progress.
3. Essentially focuses on action for the development of areas that are lagging behind in the overall development of the village economy. Decline in public investment since 1991, Inadequate infrastructure, lack of alternate employment opportunities in the industry or service sector, increasing casualization of employment etc., further impede rural development
4. Credit: Growth of rural economy depends primarily on infusion of capital, from time to time, to realize higher productivity in agriculture and non-agriculture sectors. // ‘Kudumbashree’ is a women-orie ted community-based poverty reduction programmed being implemented in Kerala
1. A major change occurred after 1969 when India adopted social banking and multiagency approach to adequately meet the needs of rural credit
2. 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.
3. NABARD was set up in 1982 as an apex body to coordinate the activities of all institutions involved in the rural financing system
4. 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
5. Rural Banking - Rapid expansion of the banking system had a positive effect on rural farm and non-farm output, income and employment. Famines became events of the past
6. Failed to develop a culture of deposit mobilization - lending to worthwhile borrowers and effective loan recovery. Agriculture loan default rates have been chronically high
5. Agriculture Market System - Prior to independence, farmers, while selling their produce to traders, suffered from faulty weighing and manipulation of accounts.
1. Farmers who did not have the required information on prices prevailing in markets were often forced to sell at low prices.
2. They also did not have proper storage facilities to keep back their produce for selling later at a better price.
1. 1st step was regulation of markets to create orderly and transparent marketing conditions. By and large, this policy benefited farmers as well as consumers
2. 2nd component is provision of physical infrastructure facilities like roads, railways, warehouses, godowns, cold storages and processing units.
3. 3rd cooperative marketing, in realizing fair prices for farmers’ products 4th element is the policy instruments like
1. assurance of minimum support prices (MSP) for agricultural products
2. maint enance of buffer stocks of wheat and rice by Food Corporation of India and
3. distribution of food grains and sugar through PDS.
6. If farmers directly sell their produce to consumers, it increases their incomes. E.g. Apni Mandi (Punjab, Haryana and Rajasthan); Hadaspar Mandi (Pune); Rythu Bazars (vegetable and fruit markets in Andhra Pradesh and Telangana) and Uzhavar Sandies (farmers markets in Tamil Nadu)
1. National and multinational fast food chains are increasingly entering into contracts/ alliances with farmers to encourage them to cultivate farm products (vegetables, fruits) of the desired quality
7. ‘Operation Flood ™ - 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 centers through cooperatives.
8. Presently, fish production from inland sources contributes about 64% total value of fish production and the balance 36% from the marine sector (sea and oceans). Today total fish production accounts for 0.8% of total GDP.
9. Horticulture sector contributes nearly 1/3 of the value of agriculture output and 6% GDP to India. 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 2nd largest producer of fruits and vegetables
10. Organic agriculture offers a means to substitute costlier agricultural inputs (such as HYV seeds, chemical fertilizers, pesticides etc.) with locally produced organic inputs that are cheaper and thereby generate good returns on investment
1. Since organic farming requires more labor 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
2. 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 largescale production.
11. Greater need today to make rural areas more vibrant through diversification into dairying, poultry, fisheries, vegetables and fruits and linking up the rural production centers with the urban and foreign (export) markets to realize 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’ g oups and state agricultural departments are essential to realize the full potential of the sector
8. Employment
1. 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 ‘ea ng’ living. Mahatma Gandhi insisted upon education and training through a variety of works including craft
2. Women workers account for 1/3 of rural workforce whereas in urban areas, they are just 1/5 of workforce. Worker-population ratio is an indicator which is used for analyzing the employment situation in the country. It is higher in rural areas (why?)
3. About 52% workforce in India belongs to self-employed category. Casual wage laborers account for 30% of India’s workfor e. Regular salaried employed people are 18%. Agriculture - 49%, Manufacturing - 24%, Services - 27%
4. 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 - phenomenon as jobless growth. Process of moving from self-employment and regular salaried employment to casual wage work as casualization of workforce.
5. All the public sector establishments and those private sector establishments which employ 10 hired workers or more are called formal sector establishments
6. 3 sources of data on unemployment : Census of India, National Sample Survey Organization and Directorate General of Employment and Training Data. A comparison of unemployment rates in India and OECD countries shows that it has always been much lower in India, around 3.5% (now at 7% Feb-18) against OECD’s 6.1%
1. National Rural Employment Guarantee Act 2005. It promises 100 days of guaranteed wage employment to all rural households who volunteer to do unskilled manual work.
9. Infrastructure
1. Infrastructure is the support system on which depends the efficient working of a modern industrial economy, contributes to economic and social development of a country both by increasing the productivity of the factors of production and improving the quality of life of its people.
1. E.g. 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
2. 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
3. Energy is a critical aspect of the development process of a nation.
1. Commercial and non-commercial sources of energy. Commercial sources are coal, petroleum and electricity as they are bought and sold.
2. Non-commercial sources of energy are firewood, agricultural waste and dried dung, accounting for over 26% of the total energy consumption
4. Some of the challenges that India’s power secto faces today are
1. India’s installe capacity to generate electricity is not sufficient to feed an annual economic growth of 7-8 per cent.
2. State Electricity Boards (SEBs), which distribute electricity, incur losses which exceed Rs 500 billion
3. private sector power generators are yet to play their role in a major way
4. there is general public unrest due to high power tariffs
5. thermal power plants which are the mainstay of India’s power se tor are facing shortage of raw material and coal supplies.
5. Health is not only absence of disease but also the ability to realize one’s potential. Scholars assess people’s health by taking in account indicators like infant mortality and maternal mortality rates, life expectancy and nutrition levels, along with the incidence of communicable and non-communicable diseases
1. Since independence, there has been a significant expansion in the physical provision of health services. During 1951-2013, the number of government hospitals and dispensaries increased from 9,300 to 44,000 and hospital beds from 1.2 to 6.3 lakh.
2. Expansion of health infrastructure has resulted in the eradication of smallpox, guinea worms and the near eradication of polio and leprosy
3. More than 70% of the hospitals in India are run by the private sector. They control nearly 40% of beds available in the hospitals.
4. Private sector in India has grown independently without any major regulation; some private practitioners are not even registered doctors and are known as quacks
6. Indian Systems of Medicine (ISM) includes six systems — Ayurveda, Yoga, Unani, Siddha, Naturopathy and Homeopathy (AYUSH).
1. At present there are 3167 ISM hospitals, 26,000 dispensaries and as many as 7 lakh registered practitioners in India.
2. ISM has huge potential and can solve a large part of our health care problems because they are effective, safe and inexpensive
7. India has about 17% of the world's population but it bears 20% of the global burden of diseases (GBD).
1. 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.<
2. More than half of GBD is accounted for by communicable diseases such as diarrhea, malaria and tuberculosis.
8. Women suffer many disadvantages as compared to men in the areas of education, participation in economic activities and health care.
1. More than 50% of married women between the age group of 15 and 49% have anemia and nutritional anemia caused by iron deficiency, which has contributed to 19% of maternal deaths. Abortions are also a major cause of maternal morbidity and mortality in India.
10. Environment & Sustainable Development
1. Economic development that we have achieved so far has come at a very heavy price —at t e cost of environmental quality.
2. Environment is defined as the total planetary inheritance and the totality of all resources