404 ib Indian Economy and Trade Dependencies notes

Dr. Bhati Rakesh (Indian Economy and Trade Dependencies)
Sinhgad Institute of Business
Administration & Computer
Application (SIBACA)
NOTES FOR
MBA - Semester: IV
(Specialization IB)
Course Code: 404IB
Type: Subject – Core
Course Title: Indian Economy and
Trade Dependencies
BY:
Dr. Bhati Rakesh Kumar

Syllabus
Unit: 1 Introduction to Indian Economy : Alternative Development Strategies – Trends in
National Income, Growth and Structure since 1991 - New Industrial Policy 1991 – Recent changes
in Trade Policy - Competition Policy - Public Sector Reform - Privatization and Disinvestments –
Progress of Human Development in India
Unit: 2 Planning and Economic Development : Redefining the Role of the State – Human Capital
Formation in India – Problem of Foreign Aid – Economic Reforms and Reduction of Poverty –
Measures to Remove Regional Disparities
Unit: 3 Indian Industries : Review of Industrial Growth under 10th and 11th Five year plan -
Growth and present state of IT industry in India – Outsourcing, Nationalism and Globalization –
Small Sector Industrial Policy
Unit: 4 a) Foreign Trade: Trends of Exports and Imports of India – Composition of India’s
Foreign Trade - Direction of India’s Foreign Trade – Growth and Structure of India’s Foreign
Trade since 1991 – Balance of Payments since the New Economic Reforms of 1991.
b) Foreign Capital : Need for Foreign Capital – Foreign Investment Inflows – Role of Special
Economic Zones (SEZ)
Unit: 5 India in the Global Setting : India in Global Trade – Liberalization and Integration with
the Global Economy – Globalization Strategies – India’s Foreign Exchange Reserves –
Convertibility of the Rupee – WTO and India.

Unit: 1 Introduction to Indian Economy : Alternative Development Strategies – Trends in National
Income, Growth and Structure since 1991 - New Industrial Policy 1991 – Recent changes in Trade Policy
- Competition Policy - Public Sector Reform - Privatization and Disinvestments – Progress of Human
Development in India
Introduction to Indian Economy:-
 Low per capita income.
 Inequalities in income distribution.
 Predominance of agriculture. (More than 2/3rd of India’s working population is engaged in
agriculture. But in USA only 2% of the working population is engaged in agriculture.)
 Rapidly growing population with 1.2% annual change.
 Chronic unemployment (A person is considered employed if he / she works for 273 days of a
year for eight hours every day.)Unemployment in India is mainly structural in nature.
 Low rate of capital formation due to less saving rate.
 Dualistic Nature of Economy (features of a modern economy, as well as traditional).Mixed
Economy
 Follows Labour Intensive Techniques and activities.
India has emerged as the fastest growing major economy in the world as per the Central
Statistics Organisation (CSO) and International Monetary Fund (IMF) and it is expected to be one of
the top three economic powers of the world over the next 10-15 years, backed by its strong democracy
and partnerships. India’s GDP increased 7.1 per cent in 2016-17 and is expected to reach a growth rate
of 7 per cent by September 2018.
India is likely to be the third largest economy with a GDP size of $15 trillion by 2030.The
economy of India is currently the world’s fourth largest in terms of real GDP (purchasing power parity)
after the USA, China and Japan and the second fastest growing major economy in the world after
China.
Alternative Development Strategies –
In order to achieve the long-term and short-term objectives set in the each five year, specific
strategies are required. It involves allocation resources across different sectors of the economy in
tandem with the specified objectives. It involves selection choices like development of agricultural
sector or industrial sector, public sector or private sector involvement, closed economy or open
economy model. Indian planning strategies can be split into two phases: pre-1991 phase and post –
1991 phase.
Pre 1991 Phase or Pre-reform Phase
During pre – 1991 phase (1951 to 1990), India followed the strategy of planning with greater reliance
on the public sector along with a regulated private sector. Following strategies are followed during
1951-91 phase:
Heavy Reliance on Public Sector
 Greater reliance was placed on public sector compared to private sector. As private sector was
not able to invest in large amount for development of heavy industries, government turned
towards public sector for provision of essential and basic needs for the people. At the same time
private sector was not willing to provide the services in backward regions of the country.
Regulated Expansion of Private Sector
 Private sector was restricted to few areas of activities. New legislations were created for the
restriction for the restriction of private sector.
Development of Heavy Industries
 Government invested heavily in development of Heavy industry like iron industry.
Protection of Small Scale Industry
 Small scale industry was protected by means of establishment of boards for different small scale
industries and reserving few areas of production exclusively for the small scale industry.
Inward Looking Trade Strategy

 Domestic industry was protected from competition in the international market. Heavy import
duty was imposed to curb competitive imports, while domestic industries were encouraged to
produce domestic substitutes of essential imports.
Thrust on Savings and Investment
 Promotion of savings and investment was the undisputed objective of monetary and fiscal
policies of the government. Savings are induced through high rate of interest. Tax concessions
were to mobilise savings.
Restriction on Foreign Capital
 Several types of restrictions were imposed on foreign direct investment. To control and regulate
it, Foreign Exchange Regulation Act (FERA) was enforced.
Adherence to Centralised Planning
 State level plans were aligned in sync with the over all objectives and strategy of growth as
specified in Five Year Plans.
Post 1991 Phase (Post-reform Phase)
Strategy of planning in India witnessed a marked shift in the year 1991. Following are main changes
observed under NEP (new economic policy):
 Fiscal policy and monetary policy have been reoriented to facilitate the free play of market
forces.
 Foreign capital in the form of FDI (Foreign direct investment) and FII (Foreign Institutional
Investment) are encouraged.
 Import restrictions are restricted to the minimum, while export promotion has been accorded a
high priority.
 Competition rather than controls have become the fulcrum of growth process.
 Direct participation of the government is significantly tempered and confined only to strategic
industries such as atomic energy, minerals and railways.
 Partial convertibility of Indian Rupee.
The concept of Sustainable development is included as main feature of the strategy of planning in India.
Sustainable development refers to the development of present generation by taking into consideration of
the future generations.
Following are some notable reasons for change in economic policy:
1. Mounting Fiscal Deficit and revenue deficit: Fiscal deficit and revenue deficit of the country are
increased due to the policies followed before the 1990’s governments.
2. Balance of Payments (BoP) Crisis: Heavy dependence on imports resulted in a BoP crisis.
3. Gulf Crisis: On account of Iraq war in 1990-91, prices of petrol started increasing. Remittances
from gulf countries are also stopped.
4. Fall in Foreign Exchange Reserves: In 1990-91, India’s foreign exchange reserves lowered to
such a level that these were not enough even to pay for an import bill of 10 days.
5. Rise in Prices: In India prices happened to rise rapidly. Expansion in money supply was the
principal cause of inflationary pressures. In turn, this was related to deficit financing. Country
has experienced the situation of stagflation.
6. Dismal Performance of Public Sector Undertakings (PSUs):Public sector undertakings were
showed dismal performance.
On account of all these factors, the government shifted to New Economic Policy.
Three Principal Components of New Economic Policy
Liberalisation, Privatisation and Globalisation are the three principal components of New
Economic Policy. Liberalisation of the economy means freedom of the economy from restrictions of the
Government. Liberalisation was expected to break the deadlock of low investment by exposing the
economy to the forces of supply and demand. Privatisation refers to allowing private sector to enter in
those areas of production which were previously reserved for the public sector. Also, existing public
enterprises are either wholly or partially sold to private sector. It was considered to be the fittest option
to stave off problems of public sector enterprises. Globalisation means integrating domestic economy
with rest of the world under conditions of free flow of trade and factors of production across borders.

Globalisation results in flow of capital and technology from developed countries into the Indian
economy.
Trends in National Income, Growth and Structure since 1991
National income of India constitutes total amount of income earned by the whole nation of our
country and originated both within and outside its territory during a particular year. The National
Income Committee in its first report wrote, “A national income estimate measures the volume of
commodities and services turned out during a given period, without duplication.”
national income is not a stock but a flow. It measures the total productive power of the community
during given period. Further, the National Income Committee has rightly observed, “National income
statistics enable an overall view to be taken of the whole economy and of the relative positions and
inter-relations among its various parts”.
During the British period, several estimates of national income were made by Dadabhai Naoroji
(1868), Willium Digby (1899), Findlay Shirras (1911, 1922 and 1934), Shah and Khambatta (1921),
V.K.R.V. Rao (1925-29) and R.C. Desai (1931-40).
Among all these pre-independence estimates of national income in India, the estimates of
Naoroji, Findlay Shirras and Shaw and Khambatta have computed the value of the output raised by the
agricultural sector and then added some portion of the income earned by the non-agricultural sector. But
these estimates were having no scientific basis of its own.
After that Dr. V.K.R.V. Rao applied a combination of census of output and census of income
methods. While dividing the whole economy into two separate categories he included agriculture,
pastures, forests, fishing, hunting and mines in the first category and applied output method to derive
the value of output of these sectors.
The other activities like industry, trade, transport, administrative and public services, professions,
liberal arts and domestic services were included in second category and applied income method to
derive the amount of income raised from all these services.
He also added income from house property and other internal incomes along-with the total income
earned from abroad to these two sub-totals mentioned above. Just to derive the net aggregate income he
excluded those values of goods and services which we consumed in the process of production.
After independence, the Government of India appointed the National Income Committee in August,
1949 with Prof. P.C. Mahalnobis as its chairman and Prof. D.R. Gadgil and Dr. V.K.R.V. Rao as its two
members so as to compile a national income estimates rationally on scientific basis. The first report of
this committee was prepared in 1951.
In its report, the total national income of the year 1948-49 was estimated at Rs. 8,830 crore and the per
capita income of the year was calculated at Rs. 265 per annum. The committee continued its estimation
works for another three years and the final report was published in 1954.
The following are some of the important causes of slow growth of national income in India:
1. High Growth Rate of Population:
Rate of growth of population being an important determinant of economic growth, is also
responsible for slow growth of national income in India. Whatever increase in national income has been
taking place, all these are eaten away by the growing population. Thus high rate of growth of
population in India is retarding the growth process and is responsible for slow growth of national
income in India.
2. Excessive Dependence on Agriculture:
Indian economy is characterised by too much dependence on agriculture and thus it is primary
producing. The major share of national income that is usually coming from the agriculture, which is

contributing nearly 34 per cent of the total national income and engaged about 66 per cent of the total
working population of the country.
Such excessive dependence on agriculture prevents quick rise in the level of national income as well as
per capita income as the agriculture is not organised on commercial basis rather it is accepted as way of
life.
Excessive dependence on agriculture and low land-man ratio, inferior soils, poor ratio of capital
equipment, problems of land holding and tenures, tenancy rights etc. are also responsible for slow
growth of agricultural productivity which, in turn, is also responsible for slow growth of national
income.
1. Occupational Structure:
The peculiar occupational structure is also responsible for slow growth of national income in the
country. At present about 66 per cent of the working force are engaged in agriculture and allied
activities, 3 per cent in industry and mining and the remaining 31 per cent in the tertiary sector.
Moreover, prevalence of high degree of under-employment among the agricultural labourers and also
among the work force engaged in other sectors is also responsible for this slow growth of national
income.
4. Low Level of Technology and its Poor Adoption:
In India low level of technology is also mostly responsible for its slow growth of national income.
Moreover, whatever technology that has been developed in the country, is not properly utilised in its
production process leading to slow growth of national income in the country.
5. Poor Industrial Development:
Another important reason behind the slow growth of national income in India is the poor rate of
development of its industrial sector. The industrial sector in India has failed to maintain a consistent and
sustainable growth rate during the planned development period and more particularly in recent years.
Moreover, the development of basic industry is also lacking in the country. All these have resulted a
poor growth in the national income of the country.
6. Poor Development of Infrastructural Facilities:
In India, the infrastructural facilities viz., transport, communication, power, irrigation etc. have not yet
been developed satisfactorily as per its requirement throughout the country. This has been creating
major hurdles in the path of development of agriculture and industrial sector of the country leading to
poor growth of national income.
7. Poor Rate of Saving and Investment:
The rate of savings and investment in India is also quite poor as compared to that of developed
countries of the world. In recent times, i.e., in 2008-09, the rate of gross domestic savings was restricted
to 32.5 per cent of GDP and that of investment was 33.0 per cent of GDP in the same year. Such low
rate of saving and investment has resulted in a poor growth of national income in the country.
8. Socio-Political Conditions:
Socio-political conditions prevailing in the country is also not very much conducive towards rapid
development. Peculiar social institutions like caste system, joint family system, fatalism, illiteracy,
unstable political scenario etc. are all responsible for slow growth of national income in the country.
In the mean time, the Government has taken various steps to attain a higher rate of growth in its
national income by introducing various measures of economic reforms and structural measures. All
these measures have started to create some impact on raising growth of national income of the country.
Suggestions to Raise the Level and Growth Rate of National Income in India:
In order to raise the level and growth rate of National income in India, the following suggestions
are worth mentioning:
1. Development of Agricultural Sector:
As the agricultural sector is contributing the major portion of our national income, therefore, concrete
steps be taken for all round development of the agricultural sector throughout the country at the earliest.
New agricultural strategy be adopted widely throughout the country to raise its agricultural productivity
by adopting better HYV seeds, fertilizers, pesticides, belter tools and equipment’s and scientific rotation

of crops and other scientific methods of cultivation. Immediate steps be taken to enhance the coverage
of irrigation facilities along with reclamation of waste land.
2. Development of Industrial Sector:
In order to diversify the sectoral contribution of national income, industrial sector of the country should
be developed to a considerable extent. Accordingly the small, medium and large scale industries should
be developed simultaneously which will pave the way for attaining higher level of income and
employment.
3. Raising the Rate of Savings and Investment:
For raising the level of national income in the country, the rate of savings and investment should be
raised and maintained to a considerable extent. The capital output ratio should be brought down within
the manageable limit.
In this respect, the Ninth Plan document set its objectives to achieve 7 per cent rate of economic
growth, to enhance the rate of investment from 27 per cent to 28.3 per cent and to reduce the capital
output ratio from 4.2 per cent to about 4.0 per cent.
4. Development of Infrastructure:
In order to raise the level of national income to a considerable height, the infrastructural facilities of the
country should be adequately developed. These include transport and communication network, banking
and insurance facilities and better education and health facilities so as to improve the quality of human
capital.
5. Utilisation of Natural Resources:
In order to raise the size and rate of growth of national income in India, the country should try to utilize
the natural resources of the country in a most rational manner to the maximum extent.
6. Removal of Inequality:
The country should try to remove the inequality in the distribution of income and wealth by imposing
progressive rates of taxation, on the richer sections and also by redistribution of wealth through welfare
and poverty eradication programmes. Moreover, imposing higher rates of taxation on the richer sections
can also collect sufficient revenue for implementation of the plan.
7. Containing the Growth of Population:
As the higher rate of growth of population has been creating a negative impact on level of national
income and per capita income of the country, positive steps be taken to contain the growth rate of
population by adopting a rational population policy and also by popularising the family planning
programmes among the people in general.
8. Balanced Growth:
In order to attain a higher rate of economic growth, different sectors of the country should grow
simultaneously so as to attain an inter-sectoral balance in the country.
9. Higher Growth of Foreign Trade:
Foreign trade can also contribute positively towards the growth of national income in the country.
Therefore, positive steps be taken to attain a higher rate of growth in foreign trade of the country.
Higher volume of export can also pave the way for the import of improved and latest technologies
required for the development of country.
10. Economic Liberalisation:
In order to develop the different sectors of the country, the Government should liberalise the economy
to a considerable extent by removing the unnecessary hurdles and obstacles in the path of development.
This would improve the productivity of different productive sectors.
Under the liberalised regime, the entry of right kind of foreign capital and technical know-how will
become possible to a considerable extent leading to modernisation of industrial, infrastructural and
other sectors of the country. This economic liberalisation of the country in the right direction will
ultimately lead the economy towards attaining higher level of national income within reasonable time
frame.
Therefore, in order to raise the size and growth rate of national income of the country, a rigorous and
sincere attempt be made by both public and private sector to undertake developmental activities in a
most realistic path and also to liberalize and globalize the economy for the best interest of the nation as
a whole.

C. Major Features of National Income in India:
Trends and composition of national income estimates of India during post-independence period
shows the following major features:
1. Excessive Dependence on Agriculture:
One striking feature of India’s national income is that a considerable proportion, i.e., 27.8 per cent of
the national income is now being contributed by the agricultural sector. Naturally development of this
sector is very important considering its employment potential, marketable surplus and necessary
support to industry sector.
2. Poor Growth Rate of GDP and Per Capita Income:
Poor growth rate of GDP and per capita income is another important feature of national income of the
country. The annual average growth rate of GDP in India was 5.2 per cent during 1980-92 as compared
to 9.1 per cent for China and 5.7 per cent of Indonesia. Again the annual average growth rate of per
capita GNP in India was only 3.1 per cent during 1980-92 as compared to 7.6 per cent for China.
In 1994, the per capita income figure in Switzerland was nearly 119 times, in USA about 81 times, in
Japan about 105 times the per capita income in India. This low per capita income is also resulted from
lower growth rate of national income and higher growth rate of population. The growth rate of GDP at
constant price was 6.8 per cent in 2013-14.
3. Unequal Distribution and Poor Standard of Living:
The distribution of national income in India is most unequal. Human Development Report, 1994 shows
that in 1993, richest 20 per cent of total population shared 84.7 per cent of the total income and the
poorest 20 per cent of the total population shared only 1.4 per cent of the total income of the country.
Due to highly skewed pattern of distribution of income, the standard of living of the majority of
population of our country is very poor.
4. Growing Contribution of Tertiary Sector:
Another striking feature of India’s national income is that the contribution of tertiary sector has been
increasing continuously over the years, i.e. from 28.5 per cent of total national income in 1950-51 to
52.6 per cent in 2014-15.
5. Unequal Growth of Different Sectors:
In India different sectors are growing at unequal rates. During the period 1951-97, while the primary
sector has recorded a growth rate of 2.9 per cent but the secondary and tertiary sector recorded a growth
rate of 6.3 per cent and 7.1 per cent respectively and in 2013-14, the same growth rates were 3.9 per
cent, 4.4 per cent and 11.1 per cent respectively.
6. Regional Disparity:
Another striking feature of India’s national income is its regional disparity. Among all the states, only
six states of the country have recorded a higher per capita income over the national figure. Out of this
six states Punjab ranks highest and Bihar ranks lowest. In 2013-14, the per capita income of Bihar at the
bottom was Rs 31,229 as compared to that of Rs 92,638 of Punjab at the top, reflecting the ratio at 1:
2.96.
7. Urban and Rural Disparity:
Urban and rural disparity of income is another important feature of our national income. The All India
Rural Household Survey shows that the level of income in urban areas is just twice that of the rural
areas depicting a poor progress of rural economy.
8. Public and Private Sector:
Another important feature of India’s national income is that the major portion of it is generated by the
private sector (75.8 per cent) and the remaining 24.2 per cent of the national income is contributed by
the public sector.
Sectoral Contribution or Distribution of National Income by the Industrial Origin:
Sectoral contribution of national income depicts a clear picture about the composition or distribution of
national income by industrial origin. Thus it shows the contribution made by different sectors towards
the national income of the country.
In India, among the different sectors, the primary sector and more particularly agriculture still plays a
dominant role in contributing the major portion of the national income of the country. Table 3.3 shows
the changes in the sectoral contribution towards the national income of the country since 1950-51.

Table 3.3 shows the following trends:
1. Primary Sector:
The contribution of primary sector which is composed of agriculture, forestry, fishery and mining
gradually declined from 56.4 per cent of GDP in 1950-51 to 45.8 per cent in 1970-71 and then finally to
19.0 per cent in 2014-15. It is also interesting to look at the trend in the contribution of agriculture
which is contributing the major share (nearly above 90 per cent) to the primary sector.
Thus agriculture contributed about 48.6 per cent of GDP in 1950-51 and then its share however
declined to 39.7 per cent in 1970-71 and then to 29.5 per cent in 1990-91 and then finally to around
24.0 per cent in 1996-97.
The share of forestry has also considerably declined from 6.0 per cent in 1950-51 to nearly 1.4 per cent
in 1990-91. But the contribution of fishing and mining remained more or less stable varying between 1
to 2 per cent of GDP during this entire period of 60 years.
2. Secondary Sector:
The secondary sector which is composed of manufacturing industries, construction, electricity, gas and
water supply increased its share of GDP from 15.0 per cent in 1950-51 to 22.3 per cent in 1970-71 and
then to 28.4 per cent in 2014-15.
Among the major constituents of the secondary sector, the share of manufacturing industries to GDP
also increased from 11.4 per cent in 1950-51 to 15.1 per cent in 2012-13. But the share of construction
to GDP marginally improved from 3.3 per cent in 1950-51 to 5.0 per cent in 1980-81 and then slightly
declined to 4.3 per cent in 1996-97.
3. Tertiary Sector:
The share of tertiary sector which is constituted by trade, transport, storage, communications, banking,
insurance, real estate, community and personal services gradually increased from 28.5 per cent in 1950-
51 to 31.8 per cent in 1970-71 and then finally to 52.6 per cent in 2014-2015.
Among the major components of tertiary sector, the share of transport, communication and trade also
increased from 11.0 per cent in 1950-51 to 18.9 per cent in 2014-15. The share of community and
personal services to GDP marginally increased from 8.5 per cent in 1950-51 to 12.80 per cent in 2014-
15.
Thus due to the developmental strategy followed in economic planning of the country, structural
changes occur in the composition of its national income by industrial origin. With the rapid expansion
of manufacturing’ industries, the share of manufacturing sector recorded a sharp increase.
But the agriculture could not record a faster rate of growth. But the services sector has improved its
position and became the major contributor to the growth process attaining a faster and higher rate of
growth in the later stage. Thus growth scenario in India is termed as services-led growth.

Growth of GDP at Factor Cost:
Table 3.4 reveals that the annual average rate of growth of the primary sector which was 3.0 per cent
during 1950-51 to 1960-61, gradually declined to 1.5 per cent during 1970-71 to 1980-81 and then the
same rate increased to 3.6 per cent during 1980-81 to 1990-91.
Similarly, the annual average growth rate of agricultural output alone gradually declined from 3.3 per
cent during 1950-51 to 1960-61 to 1.7 per cent during 1970-71 to 1980-81 and then the same rate
increased to 3.9 per cent during 1980-81 to 1990-91.
Thus the agricultural sector did not experience any faster rate of growth. Again during the 40 year
period (1950- 51 to 1990-91), the average rates of growth of the primary sector as well as of the
agricultural sector were 2.6 per cent and 2.8 per cent respectively.
Again the process of transformation of the Indian economy from an agricultural economy to an
industrial economy has also remained slow.
The annual average growth rate of the secondary sector and the manufacturing industry which were 6.2
per cent and 6.0 per cent respectively during 1950-51 to 1960-61 gradually declined to 4.0 per cent each
during 1970-71 to 1980-81 and then it rose to 6.7 per cent and 7.2 per cent respectively during 1980-81
to 1990-91.
Again during the last 40 year period (1950-51 to 1990-91), the average rate of growth of both the
secondary sector and the manufacturing sector was 5.6 per cent only. Moreover, the annual average
growth rate of the tertiary sector gradually increased from 4.1 per cent during 1950-51 to 1960-61 to 6.6
per cent during 1980-81 to 1990-91.
During the 40 year period (1950-51 to 1990-91) the annual average growth rate of the tertiary sector
was 4.9 per cent and that of transport and communication and trade was 5.4 per cent and that of
banking, insurance and real estate was 4.4 per cent.
Moreover during 1990-91 to 2000-01 these rates of growth were 2.6 per cent in the primary sector, 6.0
per cent in the secondary sector and 7.9 per cent in the tertiary sector.
Again during 2000-01 to 2004-05, the rate of growth of agriculture, industry and tertiary sector were
2.4 per cent, 6.1 per cent and 8.1 per cent respectively. Again during 2012-13 to 2014-15, the rate of
growth for primary, secondary and tertiary sector was 2.06 per cent, 4.5 per cent and 9.2 per cent
respectively.

Thus with the growing industrialisation in the country, Indian economy has gradually transformed from
an agricultural one to an industrialised one. All this has resulted structural change in the composition of
the national income of the country.
Thus there is a special need for the enhancement of growth process both in agriculture and industry with
special emphasis on the development of agro-based industries in different parts of the country.
Service Led Growth:
The growth scenario in India shows that the services sector has become the most dominant in the later
part of its growth process. The share of services sector in GDP increased from 28.5 per cent in 1950-51
to 39.6 per cent in 1990-91 and then to 52.6 per cent in 2014-15 while the share of primary sector
declined from 56.4 per cent in 1950-51 to 33.4 per cent in 1990-91 and then to only 19.0 per cent in
2014-15.
During the Ninth Plan, in spite of slowdown in overall growth process, the services sector grew at a rate
of 7.9 per cent per annum as compared to that of 2.5 per cent and per annum as compared to that of 2.5
per cent and 4.3 per cent attained by agriculture and industry sector respectively.
Moreover, expansion of services sector accelerated further since 2002-03, propelled considerably by
high rates of growth attained by communications (especially telecom), business services (especially
information technology) and finance. Table 3.4(a) shows the excellent performance of services sector
since 1991.
Table 3.4(a) reveals that during the period 1991-97 services sector contributed about half (49.8 per cent)
of total growth of GDP. But in the subsequent five years, i.e. during 1996-2002, the contribution of
services sector to GDP growth increased significantly to 68.3 per cent and continued to grow at 60.4 per
cent over the next six years, i.e. during 2001-08.
Again, during 2008-14 periods, the contribution of services sector to GDP growth in India was as high
as 69.8 per cent as shown in the study made by Shankar Acharya. Sri Acharya also observed that “these
shares would “be even higher if the construction sub-sector were included under services instead
of industry”.
Thus the above analysis clearly, shows a ‘services-led’ pattern of economic growth attained by India in
the later part of its economic transformation realising a structural transformation of the economy.
Share of Government Sector in Net Domestic Product (NDP):
The share of government sector in the net domestic product of India has been gradually
increasing with the increasing participation of the government in various economic activities connected
with enlargement of administrative services and expansion of public sector.
The share of the government sector in net domestic product gradually increased from 7.6 per cent in
1950-51 to 10.7 per cent in 1960-61 and then again increased to 24.9 per cent in 19.87-88. This can be
seen from the Table 3.5.
Table 3.5 reveals that the share of government administration in NDP gradually increased from 5.5 per
cent in 1960-61 to 9.6 per cent in 2003-04. Again the share of non-departmental enterprises in NDP
substantially increased from 1.3 per cent in 1960-61 10 11.3 percent in 2003-04 although the share of
departmental enterprises in NDP slightly declined from 3.9 per cent in 1960-61 to 2.3 per cent in 2003-
04.

The factors which were responsible for increase in the share of non-departmental enterprises included
setting up of new industries, expansion of existing enterprises, nationalisation of banks, insurance
companies and coal mines and amalgamation of private electricity companies into state electricity
boards.
NEW INDUSTRIAL POLICY 1991
The year 1991 is an important landmark in the economic history of post-Independent India. The
country went through a severe economic crisis triggered by a serious Balance of Payments situation.
The crisis was converted into an opportunity to introduce some fundamental changes in the content and
approach to economic policy. The response to the crisis was to put in place a set of policies aimed at
stabilisation and structural reform. While the stabilisation policies were aimed at correcting the
weaknesses that had developed on the fiscal and the Balance of Payments fronts, the structural reforms
sought to remove the rigidities that had entered into the various segments of the Indian economy.
Former Prime Minister Manmohan Singh is considered to be the father of New Economic Policy of
India.
Main Objectives of New Economic Policy – 1991, July 24
The main objectives behind the launching of the New Economic policy (NEP) in 1991 by the union
Finance Minister Dr. Manmohan Singh are stated as follows:
1. The main objective was to plunge Indian economy in to the arena of ‘Globalization and to give it a
new thrust on market orientation.
2. The NEP intended to bring down the rate of inflation and to remove imbalances in payment.
3. It intended to move towards higher economic growth rate and to build sufficient foreign exchange
reserves.
4. It wanted to achieve economic stabilization and to convert the economic in to a market economy by
removing all kinds of unnecessary restrictions.
5. It wanted to permit the international flow of goods, services, capital, human resources and
technology, without many restrictions.
6. It wanted to increase the participation of private players in the all sectors of the economy. That is
why the reserved numbers of sectors for government were reduced to 3 as of now.
Father of new economic policy
Beginning with mid-1991, the govt. has made some radical changes in its policies bearing on trade,
foreign investment exchange rate, industry, fiscal discipline etc. The various elements, when put
together, constitute an economic policy which marks a big departure from what has gone before.
The thrust of the New Economic Policy has been towards creating a more competitive environment in
the economy as a means to improving the productivity and efficiency of the system. This was to be
achieved by removing the barriers to entry and the restrictions on the growth of firms.
Outcomes of the Industrial Policy 1991
 This policy made Licence, Permit and Quota Raj a thing of past. The process of liberalization is
continuing. The 1991 policy attempted to liberalise the economy by removing bureaucratic hurdles
in industrial growth.
 The role of public sector was limited. Only 2 sectors were finally left reserved for public sector.
This reduced burden on the government. A process of either transforming or selling off the sick
units started. The process of disinvestment in PSUs also started.
 The policy provided easier entry of multinational companies, privatisation, removal of asset limit on
MRTP companies, liberal licensing. All this resulted in increased competition, that led to lower
prices in many goods such as electronics prices. This brought domestic as well as foreign
investment in almost every sector opened to private sector.
 The policy was followed by special efforts to increase exports. Concepts like Export Oriented Units
(EOU), Export Processing Zones (EPZ), Agri-Export Zones (AEZ), Special Economic Zones (SEZ)
and lately National Investment and Manufacturing Zones(NIMZ) emerged. All these have
benefitted the export sector of the country.

 Gradually, a new act was passed for MSMEs in 2006 and a separate ministry was established to
look into the problems of MSMEs. Government tried to provide better access to services and
finance to MSMEs.
RECENT CHANGES IN TRADE POLICY
Although India has steadily opened up its economy, its tariffs continue to be high when
compared with other countries, and its investment norms are still restrictive. This leads some to see
India as a ‘rapid globaliser’ while others still see it as a ‘highly protectionist’ economy. India however
retains its right to protect when need arises. Agricultural tariffs average between 30-40 per cent, anti-
dumping measures have been liberally used to protect trade, and the country is among the few in the
world that continue to ban foreign investment in retail trade. Although this policy has been somewhat
relaxed recently, it remains considerably restrictive.
Nonetheless, in recent years, the government’s stand on trade and investment policy has displayed a
marked shift from protecting ‘producers’ to benefiting ‘consumers’.
Foreign Trade Policy 2015-2020 has been announced by Ministry of Commerce & Industry which
shall be effective from 1st Apr’15 to 31st Mar’20.
The glimpse of the same has been produced herein below:
1. Five different schemes (Focus Product Scheme, Market Linked Focus Product Scheme, Focus
Market Scheme, Agri Infrastructure Incentive Scrip, VKGUY) merged into single unconditional
scheme named as Merchandise Export from India Scheme (MEIS);
2. SFIS(Serve from India Scheme) has been replaced by Service Exports from India Scheme(SEIS) so
as to allow benefits to all services providers located in India, instead of Indian Service Providers. This
amendment has been made to abide by the recent verdict pronounced by Hon’ble Delhi High Court in
case of YUM RESTAURANTS(I) Pvt. Ltd. V. UOI & Ors.;
3. Scrips as well as goods under both the aforesaid schemes shall be fully transferable;
4. MEIS benefit shall be computed on basis of FOB value of exports, whereas benefit under SEIS shall
be based on Net foreign exchange earned;
5. Rates under SEIS shall be 3% and 5%, depending on nature of industry notified;
6. Import of capital goods under EPCG Authorisation Scheme shall not be eligible for exemption from
payment of anti-dumping duty, safeguard duty and transitional product specific safeguard duty;
7. Scrips under both the schemes can be used for the payment of customs duty, excise duty and service
act at the time of procurement;
8. Certificates by CA/CS/CWA, etc. shall be allowed to be uploaded electronically(digitally signed).
Problems
 India’s trade policy has a major limitation wherein it focuses on incentivising businesses after
exports have taken place. As a result the trade promotion incentives do not target emerging
firms to attain export competitiveness but reward already successful exporters to improve their
margins.
 The trade policy does not have provisions for interventions focussing on value-addition and
employment generation. This implies that the policy is not working on long term structural
measures but more towards short term result oriented measures which are not sustainable in the
long run.
 Trade promotion is still restricted to traditional trade fair type activities. No doubt that these
activities are important for promotion and business development, but a change of approach is
required in this age of growing internet and mobile technology which requires activities to be
more network oriented.
 Absence of institutions which can provide support for new product development and their
placement in the global market in a selfless manner. These institutions can be used for ancillary
activities such as development of prototypes, research and development etc.

 India’s trade policy also suffers from an archaic design. The trade policy and negotiations over
emphasis on tariffs which are not very important for market access gains. Trade today is guided
by various other factors such as technical and quality standards.
 India has not been successful in tapping the potential that the huge domestic markets and the
economies of scale offer to attract foreign direct investment and technology transfers. This is
observed based on trends which show that MNCs attracted by the size of the Indian consumer
base often do not expand operations in India.
 Investors have to face a combination of high transaction and input costs, supply-side constraints,
and infrastructure deficits which is a major obstacle in setting up and operations of industries.
As a result international investors also show reluctance in setting up and expanding business in
India.
COMPETITION POLICY
The NCP aims to achieve highest sustainable levels of economic growth, entrepreneurship,
employment, higher standards of living for citizens, protect economic rights for just, equitable,
inclusive and sustainable economic and social development, promote economic democracy, and support
good governance by restricting rent seeking practices.
The NCP will endeavour to:
i. preserve the competition process, to protect competition, and to encourage competition in
markets so as to optimise efficiency and maximise consumer welfare,
ii. promote, build and sustain a strong competition culture within the country through creating
awareness, imparting training and capacity building of stakeholders including public
officials, business, trade associations, consumer associations, civil society organisations etc.,
iii. encourage adherence to competition principles in policies, laws and procedures of the Central
Government, State Government and sub-State Authorities, with focus on greater reliance on
well-functioning markets,
iv. ensure competition in regulated sectors and to ensure institutional coherence for synergised
relationship between and among the sectoral regulators and/or the competition regulators
and prevent jurisdictional grid locks,
v. strive for a single national market as fragmented markets are impediments to competition and
growth, and
vi. ensure that consumers enjoy greater benefits in terms of wider choices and better quality of
goods and services at competitive prices.
Principles of Competition Policy
1. Effective prevention of anti-competitive conduct: The Competition Act, 2002 (Act) prohibits
anti-competitive agreements and combinations which have or are likely to have appreciable
adverse effect on competition. It also seeks to prohibit abuse of dominant position by an
enterprise. There should be effective control of anticompetitive conduct which causes or is
likely to cause appreciable adverse effect on competition in the markets within India.
2. Institutional separation between policy making, operations and regulation i.e. operations in
and regulation of a sector should be independent of the government branch which deals with
policy formulation in the sector and is accountable to the Legislature.
3. Fair market process: Market regulation procedures, whether by public authorities, regulatory
bodies or through self-regulatory mechanism, should be rule bound, transparent, fair and non-
discriminatory. Public interest tests are to be used to assess the desirability and proportionality
of policies and regulations, and these would be subject to regular independent review.
4. ‘Competitive neutrality’, such as adoption of policies which establish a ‘level playing field’
where government businesses compete with private sector and vice versa, etc.
5. Fair pricing and inclusionary behaviour, particularly of public utilities, which could be
imbued with monopolistic characteristics.
6. Third party access to ‘essential facilities’, i.e. requiring dominant infrastructure and
intellectual property right owners to grant access to third parties their essential infrastructure and

platforms (e.g., electricity, communications, gas pipe lines, railway tracks, ports, IT equipment
etc) on agreed reasonable and nondiscriminatory terms and conditions aligned with competition
principles.
7. Public policies and programmes to work towards promotion of competition in the market
place; i.e. all policies and laws should use the touchstone of competition in their formulation
and implementation.
8. National, regional and international co-operation in the field of competition policy
enforcement and advocacy.
Public Sector Reform –
The public sector policy followed by the government at present including disinvestment programmes
were launched after the New Industrial Policy of 1991. The New Industrial Policy, which acts as core
policy behind economic reforms, has brought extensive changes in the working of Public Sector
Undertakings (PSUs).
The changes made by the Industrial Policy 1991 on PSUs were several; starting from sectors where the
PSUs to be concentrated, removal of reservation for PSUs in most sectors, their restructuring by
adopting market oriented practices, selling of loss making PSUs, reduction of government ownership
through etc. The sum of these reform was that the PSUs are no more occupying the commanding
heights of the economy, rather they have to compete with the private sector on an equal footing.
First of all, the public sector policy of the 1991 industrial policy has identified strategic areas and non-
strategic areas for the public sector. The government decided to concentrate only on the strategic sector
by withdrawing the public sector from most of the non-strategic sectors. Adding efficiency and infusing
competitive business practices became the main solution to control the losses of the PSUs.
The following are the maim reform measures introduced for the PSUs as part of the 1991 industrial
policy.
1. The public sector will focus on strategic, high-tech and essential infrastructure areas.
2. PSUs which are chronically sick are to be considered for reconstruction
3. To encourage resource mobilization in PSUs, a part of the shareholding of PSUs will be given to the
mutual funds, financial institutions and general public and to the workers (often this is described as
disinvestment policy).
4. Board of PSUs will be made more professional and given more powers.
5. The PSU management will be given autonomy and for this the government will sign Memoranda of
Understanding with the PSU Boards.
Following are the main areas to be engaged by the Public Sector under the 1991 industrial Policy.
1. Essential infrastructure goods and services.
2. Exploration and exploitation of oil and mineral resources.
3. Technology developments and building of manufacturing capabilities in areas which are crucial
in the long term development of the economy and where private sector investment is inadequate.
4. Manufacture of products where strategic consideration predominate such as defense equipment.
The public sector policy and disinvestment of PSEs are derived from the Industrial Policy of 1991. It
has introduced a restructuring plan and changed role for PSEs.
Strategic and non-strategic areas for public sector
On 16th March 1999, the Government classified the Public Sector Enterprises into strategic and non-
strategic areas for the purpose of disinvestment. It was decided that the Strategic Public Sector
Enterprises would be those in the areas of:
 Arms and ammunitions and the allied items of defence equipment, defence air-crafts and
warships;
 Atomic energy (except in the areas related to the generation of nuclear power and applications
of radiation and radio-isotopes to agriculture, medicine and non-strategic industries);
 Railway transport.
All other Public Sector Enterprises were to be considered non-strategic. For the non-strategic Public
Sector Enterprises, it was decided that the reduction of Government stake to 26% would not be
automatic and the manner and pace of doing so would be worked out on a case-to-case basis. A decision

in regard to the percentage of disinvestment i.e., Government stake going down to less than 51% or to
26%, would be taken on the following considerations:
 Whether the industrial sector requires the presence of the public sector as a countervailing force
to prevent concentration of power in private hands, and
 Whether the industrial sector requires a proper regulatory mechanism to protect the consumer
interests before Public Sector Enterprises are privatised.
PRIVATIZATION AND DISINVESTMENTS
Privatisation
1. The privatization is the concept of private ownership leading to better use of resources and their
efficient allocation. The reason for adoption of privatisation around the globe has been the inability of
the Governments to raise high taxes, pursue deficit / inflationary financing and the development of
money markets and private entrepreneurship. The technology and W.T.O. commitments have made the
world a global village
The objectives for privatizing the CPSUs are:
1. Releasing the large amount of public resources locked up in non-strategic CPSUs, for redeployment
in areas that are much higher on social priority, such as, public health, family welfare, primary
education and social and essential infrastructure;
2. Stemming further outflow of scarce public resources for sustaining the unviable non-strategic
CPSUs.
3. Reducing the public debt that is threatening to assume unmanageable proportions,
4. Transferring the commercial risk, to which the tax-payers' money locked up in the public sector is
exposed, to the private sector wherever the private sector is willing and able to step in - the money that
is deployed in the CPSUs is the public money exposed to an entirely avoidable and needless risk.
5. Releasing other tangible and intangible resources, such as, large manpower locked up in managing
the CPSUs, and the time and energy, for redeployment in areas that are much higher on the social
priority but are short of such resources.
The Central Public Sector Undertakings (CPSUs) have played an important role in the development of
the Indian industry. At the time of independence, political independence without economic self-reliance
was presumed to be detrimental to the country’s sovereignty and autonomy in policy-making.
The Industrial policy Statemet of July, 1991 mentioned that “portfolio of public sector investment will
be reviewed with a view to focus the public sector on strategic, high-tech and essential infrastructure”
The six categories mentioned for disinvestment were;
a) CPSUs based on low technology.
b) Small scale CPSUs.
c) Non-strategic CPSUs.
d) Inefficient and unproductive CPSUs.
e) CPSUs having low or nil social consideration or public purpose.
f) Areas where the private sector has developed sufficient expertise and resources.
The objectives of disinvestment
The objectives of disinvestment / privatisation are broadly classified into:
1. Improving the efficiency of public enterprises;
2. Improving Government’s budgetary position through reduced financial support to enterprises,
additional resources through sale of ownership and increased tax revenue after the improvement in the
efficiency level of the firms;
3. Attracting private investment, both domestic and foreign and developing Indian capital markets;
4. Infusing competitive business environment;
5. Achieving political objectives through reducing the size and influence of public sector and wider
distribution of asset ownership.

A Disinvestment Commission was set up in 1996 to study in detail the functioning of CPSUs
and give advice to the Government on disinvestment in CPSUs. A Department of Disinvestment was
also created in 2000 to coordinate the disinvestment activities of various Government Ministries and
Departments.
PROGRESS OF HUMAN DEVELOPMENT IN INDIA
The 2016 Human Development Report (HDR) focuses on how human development can be
ensured for every one—now and in future. It starts with an account of the hopes and challenges of
today’s world, envisioning where humanity wants to go.
The Report also identifies the national policies and key strategies to ensure that will enable
every human being achieve at least basic human development and to sustain and protect the gains. And
it addresses the structural challenges of global institutions and presents options for reform.
This briefing note is organized into nine sections. The first section presents information on the
country coverage and methodology of the Statistical Annex of the 2016 HDR. The next eight sections
provide information about key indicators of human development including the Human Development
Index (HDI), the Inequality-adjusted Human Development Index (IHDI), the Gender Development
Index (GDI), the Gender Inequality Index (GII), and the Multidimensional Poverty Index (MPI). The
2016 HDR introduces two experimental dashboards – on life-course gender gap and on sustainable
development.
According to the UN Development Programme’s Human Development Report 2016, released
on Tuesday (March 21), India ranks 131 of 188 when it comes to the Human Development Index
(HDI). This puts it in the ‘medium’ category. The index is based on three dimensions: life expectancy at
birth, mean years of schooling and expected years of schooling, and gross national income per
capita.India’s HDI, at 0.624, makes it as the third SAARC country on the list, behind Sri Lanka and
Maldives (both of which fall in the ‘high’ HDI category).
Challenging inequalities
This year’s report focuses on the increasing inequalities globally, which has led to a stunting of
HDI growth. “This report uncovers a deeper story behind the statistics,” said Haoliang Xu, director of
the UNDP Regional Bureau for Asia and the Pacific, in a press statement. “Even in a region that has
made such remarkable progress, pockets of exclusion continue to prevent millions of people from
fulfilling their true potential.”
In all regions, women have a lower HDI than men, despite having higher life expectancy at birth.
Historically disadvantaged groups, such as Dalits and Adivasis in India, also have lower human
development indexes. South Asia is a prime example of this, according to the report. When the region’s
HDI is adjusted for inequality, its value falls from 0.621 to 0.449. For India specifically, this drop is
from 0.624 to 0.454 – a fall of 27.2%. The average drop in HDI when adjusted for inequality in the
South Asia region in 27.7%.
South Asia’s Gender Development Index (GDI) is also the lowest across regions. The GDI takes into
account the disparity between the HDI’s of men and women – the higher the disparity, the lower the
GDI. India’s GDI is 0.819, compared to the developing country average of 0.913.
Encouraging developments
Despite the high level of inequality across the globe, the report says that encouraging
developments can be seen in human development indicators across regions. A lot of this, they say, is
because of progressive policies that focus on giving people their rights.
The report commends India’s National Food Security Act, Mahatma Gandhi National Rural
Employment Guarantee Act and the Right to Education Act, saying they have been instrumental in
supporting the notion that development must be for everyone. It also praises the country’s affirmative
action reservation policy, which “has not remedied caste-based exclusions, but has had substantial
positive effects”.

Unit: 2 Planning and Economic Development : Redefining the Role of the State – Human Capital
Formation in India – Problem of Foreign Aid – Economic Reforms and Reduction of Poverty –Measures
to Remove Regional Disparities
PLANNING AND ECONOMIC DEVELOPMENT
Economic Planning is the making of major economic decisions. What and how is to be produced and to
whom it is to be allocated – by the conscious decision of a determinate authority, on the basis of a
comprehensive survey of the economic system as a whole.
In an economy like India, the basis socioeconomic problems like poverty, unemployment, stagnation in
agricultural and industrial production and inequality in the distribution of income and wealth can hardly
be solved within the framework of an unplanned economy planning is required to remove these basic
maladies.
We can identify the following characteristic features of economic planning:
 Fixation of definite socio-economic targets;
 Prudent efforts to achieve these targets within a given time period;
 Existence of a central planning authority;
 Complete knowledge about the economic resources of the country;
 Efficient utilization of limited resources to get maximum output and welfare.
The Planning Commission of India is of the opinion that, “Planning is essentially a way of organizing
and utilizing resources to get maximum advantage in terms of defined social ends. The two main-
constituents of the concept of planning are: (a) a system of ends to be pursued, and (b) knowledge of
available resources and their optimum allocation to achieve these ends. The availability of resources
conditions the ends to be effectively achieved.”
In India, comprehensive national planning is required to fulfil some broad social and economic
objectives. The followings are some principal reasons for planning in India:
(a) Rapid Economic Development: Before Independence, the long period of British rule and
exploitation had made India one of the poorest nations in the world. The main task before the national
government was to undertake some positive development measures to initiate a process of development,
which can be done .effectively only through the instrument of planning. The state planning mechanism
has been proved to be much superior to private market operations in bringing about it a quick transition
in the less-developed economics. The spectacular success of planning in some countries had inspired
the national leaders to adopt the path of planning for an accelerated development of the shattered
economy.
(b) Quick Improvement in the Standard of Living: The fundamental objective of planning is to bring
about a quick improvement in the standard of living of the people in the less-developed countries. In an
unplanned economy the country’s resources and materials cannot be employed for increasing the
people’s welfare as the private capitalists in such an economy direct their activities in increasing their
own profits. The path of planning has been chosen to promote a rapid rise in the standard of living of
the people by efficient exploitation of resources, increasing production of most goods, and offering
employment opportunities to the people.

(c) Removal of Poverty: Planning in India is necessary for the early removal of abject poverty of the
people. This can be effectively done through –
 Planned increase in the employment opportunities of the people,
 Planned production of mass consumption goods and their planned distribution among the
people,
 Fulfilment of minimum needs programme by providing essential facilities (e.g., housing, roads,
drinking water, public health, primary education, slum improvement, etc.), and,
 Planned increase in the consumption of the poorest section of the people.
(d) Rational Allocation and Efficient Utilization of Resources: India is rich in natural resources, but
these resources are not fully exploited to get maximum advantages. In the unplanned economy
resources tend to be engaged in the production of these goods and services which yield maximum
profits, as a result rational allocation of resources is not possible. An unplanned economy faces
frequently the problem of either shortages in some sectors or surpluses in others. But such misallocation
of resources can be rectified in a planned economy in which the planning authority determines the
pattern of the investment of resources. In fact, the development plans in the country are now utilized for
the rational allocation of investable resources.
(e) Increasing the Rate of Capital Formation: Planning can also raise the rate of capital formation in
the less-developed countries like India. The surpluses of public enterprises as found in the planned
economy can be utilized for investment and capital formation. In India, the governments have been
increasing the rate of capital formation through the planned investment in the construction of roads,
bridges, manufacturing of machineries and transport equipments etc.
(f) Reduction in Unequal Distribution of Income and Wealth: Income and wealth are not evenly
distributed in India as in other less-developed countries. In the absence of planning such inequality
tends to increase due to growing concentration of economic resources at the hands of a few capitalists.
Besides, the capitalists in the unplanned society increase their own profits by paying less to the
labourers and other suppliers of raw materials. Planning can reverse this trend through the proper
guidance and control of production, distribution, consumption and investment. The development works
can be so planned and so executed that the greater equality is established with the increase of income
and employment.
(g) Reduction of Unemployment and Increase in Employment Opportunities: The backwardness of
the different, sectors of the economy accounts for the presence of widespread unemployment, both open
and disguised, in the country. The rate of economic growth usually becomes low in the unplanned
society; as a result it becomes a difficult task to mitigate this serious problem without proper planning.
The government can, however, increase the employment opportunities by undertaking development
programs for the different sectors like agriculture, industries, social services, transport and
communications, etc. Besides, labor-intensive development projects and job-oriented programs can also
be undertaken to provide relief for the problem of unemployment.
The development plans in India have already given proper stress for increasing employment. The steps
have been taken to create both short-term and long-term employment opportunities in various sectors
like agriculture, industry, small and village industries, irrigation works, construction, etc.
(h) Reorganization of Foreign Trade: Economic planning in the less-developed countries can bring
about fundamental Changes in the foreign trade structure of such countries like India. The foreign trade
structure may be reoriented from primary producing economy to the industrialized economy. Through
proper controls of import and effective promotion of export of industrial goods the development plans
can reorganize the foreign trade structure. In India, the trade policy has been reoriented to realize some
cardinal objectives such as import control and substitution, export promotion and growth of economy.
Owing to such development the trade structure is no longer regarded as colonial as it was before
Independence.
(i) Regional Balanced Development: Economic planning in India can correct the regional imbalances
in development. Proper development programs may be taken for the all-round development of
backward areas, so that all the regions are sufficiently developed. More and more industries are to be set
up in the less-developed areas and the Plans should provide for dispersal of industries.
(j) Other Considerations: Indian economy requires planning for other purpose also such as the
removal of the shortages of essential goods, attainment of self- sufficiency in essential goods such as

food grains and key materials, economic self-reliance, establishment of social justice for increasing
economic facilities for weaker and neglected sections of the people etc.
The aforesaid discussion points to the supreme necessity of economic planning in India. It is now fully
realized that without planning the country would not be able to initiate a process of quick economic
growth.
Objectives of planning in India
In India, the First Five year plan began in the year 1951-52. Although the objectives of these plans were
different, we can identify some of the basic long-term and broad objectives of Indian planning. These
are:
(i) Raising the growth rate: The economic planning in India was to bring about rapid economic
growth through the growth in agriculture, industry, power, transport and communications and different
other sectors in our economy. Further, the growth in real national income was considered to be the basis
for an increase in per Capita real income and an improvement in the physical quality of life for, the
maximum number of people. The growth, in national output must be higher than the growth rate in
population for an increase in per capita output. Indian planners aimed at increasing national income and
per capita income on the assumption that the continuous growth in national income and per capita
income would remove the problem of poverty and raise the standard of living for the maximum people
of the country.
(ii) Raising the investment-income ratio: Growth in investment as a proportion of national income
was also one of the important long-term objectives of Indian five year plans.
(iii) Achieving self-reliance: This objective was considered to be an important objective for keeping
the growth activity free from political pressures of dominant capitalist countries of the world. India had
to import a huge quantity of food grains from abroad for a considerable period. Again, she had to
depend on foreign countries for the import of heavy machinery, transport equipment, machine tools,
electrical instruments, etc. This was required for the expansion of the industrial sector and for building,
a strong infrastructural base in India after independence. Hence, it was quite natural that the developed
capitalist countries, supplying food grains, machinery and capital to India, used to take full advantage of
their strong bargaining power, by imposing different conditions while extending such help. In many
cases, the domestic economic policies are also influenced by such conditions. Because of all these
reasons, a self-reliant economic growth became a major objective of economic planning in India,
particularly since the inception of the Third Five Year Plan.
(iv) Removing unemployment: Removal of unemployment and underemployment can be regarded as
a precondition for the elimination of poverty.
It was assumed by Planning Commission that an increase in investment would accompany not only an
increase in national output but also a rise in employment opportunities. This argument was put forward
by the Planning Commission quite explicitly during the Third Five Year Plan. The planning
commission however, believed that the removal of unemployment would lead to increase in GDP, on
the one hand and improve the standard of living of the people on the other.
(v) Reducing the incidence of poverty: Various plan documents have all along indicated that the
policy of the Government of India is to reduce the incidence of poverty. The problem of poverty has
been conceived as one of low productivity of a large section of the people. Hence, to remove these
handicaps of the poor and to integrate them in the growth process, alleviation of poverty became one of
the broad objectives of Indian planning. So, the long run objective was to free the economy from the
vicious circle of poverty which encircles the economy, not only with poor purchasing power, low
savings, low capital formation, low productivity and low level of national output, but also with a poor
physical quality of life.
(vi) Reducing income inequalities: Indian planners visualized the creation of a socialistic pattern of
society where each member of the society would get equal opportunities in the fields of education,
health, nutrition, occupation, etc. Hence, they felt the need for reducing income and wealth inequalities
in our society. These inequalities have their roots in the feudal system. Hence, reduction in income and
wealth necessitated the abolition of semi-feudal relations of production in Indian villages. Thus; the
objective was to abolish the ‘Zamindari’ system, impose ceilings on land-holdings and distribution of
surplus land among the landless in rural areas.

Income and wealth inequalities arising out of industrialization and growth were far more complex. The
Planning Commission felt the need for imposing some restrictive and fiscal measures e.g., by imposing
higher rates of direct taxes on high incomes, to tackle this problem. Further, to reduce the disparity
between urban and rural sectors, the Planning Commission suggested various measures to raise
agricultural productivity, development of agro-based industries, a fair price to farmers for their
products, etc.
The Planning Commission stated its policy towards income inequalities in the Fourth Plan
document. It emphasized economic growth with the hope that the poor will benefit from it and thus,
income inequalities would be reduced.
A part from these long-term objectives the Sixth plan of India recognized one more objective of
modernizing the production process. The implications of this modernization were to shift the sectoral
comparison of national income, diversification of productive activities and advancement of technology.
Modernization, as per the view of the Planning Commission, also implied introduction of modern
technology, both in industrial and agricultural activities. It also implied an emergence of new types of
banking, insurance and marketing institutions, which would facilitate the dynamics of growth process.
n overview of all plans implemented in India is given below. The first eight plans had their emphasis on
growing the public sector with massive investments in basic and heavy industries, but since the launch
of the Ninth Plan in 1997, attention has shifted towards making government a facilitator in growth.
Prime Minister Narendra Modi has announced abolition of Planning Commission on the Independence
Day. It is to be replaced by a more relevant institution. The planning body lost its relevance after LPG
reforms of 1990s. With the end of the licence raj, it functioned only as an advisory body without any
effective power.
Plan Objective/Features Assessment
First Five year
Plan (1951- 56)
Rehabilitation of refugees, rapid
agricultural development to achieve food
self-sufficiency in the shortest possible
time and control of inflation.
Targets and objectives more or less
achieved. With active role of state in all
economic sectors. Five Indian Institutes
of Technology (IITs) were started as
major technical institutions.
Second Five year
Plan (1956-61)
Nehru-Mahalanobis model was adopted.
‘Rapid industrialisation with particular
emphasis on the development of basic and
heavy industries’ Industrial Policy of
1956 accepted the establishment of a
socialistic pattern of society as the goal of
economic policy.
Could not be implemented fully due to
shortage of foreign exchange. Targets
had to be pruned. Yet, Hydroelectric
power projects and five steel mills at
Bhilai, Durgapur, and Rourkela were
established.
Third Five year
Plan (1961-66)
‘establishment of a self-reliant and self-
generating economy’
Failure. Wars and droughts.
Yet, Panchayat elections were started.•
State electricity boards and state
secondary education boards were formed.
Annual Plan
( 1966-69)
crisis in agriculture and serious food
shortage required attention
A new agricultural strategy was
implemented. It involved distribution of
high-yielding varieties of seeds,
extensive use of fertilizers, exploitation
of irrigation potential and soil
conservation measures.
Fourth Five year
Plan (1969-74)
‘growth with stability’ and progressive
achievement of self-reliance’ Garibi
Hatao Target: 5.5 pc
Was ambitious. Big failure. Achieved
growth of 3.5 percent but was marred by
Inflation. The Indira Gandhi government
nationalized 14 major Indian banks and

the Green Revolution in India advanced
agriculture.
Fifth Five year
Plan (1974-79)
‘removal of poverty and attainment of
self-reliance’
High inflation. Was terminated by the
Janta govt. Yet, the Indian national
highway system was introduced for the
first time.
Sixth Five year
Plan(1980-85)
‘direct attack on the problem of poverty
by creating conditions of an expanding
economy’
Most targets achieved. Growth: 5.5
pc.Family planning was also expanded in
order to prevent overpopulation.
Seventh Five year
Plan (1985-1990)
Emphasis on policies and programmes
that would accelerate the growth in
foodgrains production, increase
employment opportunities and raise
productivity
With growth rate of 6 pc, this plan was
proved successful in spite of severe
drought conditions for first three years
consecutively. This plan introduced
programs like Jawahar Rozgar Yojana.
Annual Plans
(1989-91)
No plan due to political uncertainities It was the beginning of privatization and
liberalization in India.
Eighth Five year
Plan (1992-97)
Rapid economic growth, high growth of
agriculture and allied sector, and
manufacturing sector, growth in exports
and imports, improvement in trade and
current account deficit. to undertake an
annual average growth of 5.6%
Partly success. An average annual growth
rate of 6.78% against the target 5.6% was
achieved.
Ninth Five year
Plan (1997-2002)
Quality of life, generation of productive
employment, regional balance and self-
reliance. Growth with social justice and
equality. growth target 6.5%
It achieved a GDP growth rate of 5.4%,
lower than target. Yet, industrial growth
was 4.5% which was higher than targeted
3%. The service industry had a growth
rate of 7.8%. An average annual growth
rate of 6.7% was reached.
Tenth Five year
Plan (2002 – 2007)
To achieve 8% GDP growth rate,
Reduction of poverty by 5 points and
increase the literacy rate in the country.
It was successful in reducing poverty
ratio by 5%, increasing forest cover to
25%, increasing literacy rates to 75 %
and the economic growth of the country
over 8%.
Eleventh Five year
Plan(2007 – 2012)
Rapid and inclusive growth.
Empowerment through education and skill
development. Reduction of gender
inequality. Environmental sustainability.
To increase the growth rate in agriculture,
industry and services to 4%,10% and 9%
resp. Provide clean drinking water for all
by 2009.
India has recorded an average annual
economic growth rate of 8%, farm sector
grew at an average rate of 3.7% as
against 4% targeted. Industry grew with
annual average growth of 7.2% against
10% targeted.
Twelfth Five year
Plan(2012-2017)
“Faster, sustainable and more inclusive
growth”. proposes a growth target of 8
percent. Raising agriculture output to 4
per cent. Manufacturing sector growth to
10 %
Target of adding over 88,000 MW of
power generation capacity.

REDEFINING THE ROLE OF THE STATE
In economy like India where there the 26% of the population is below poverty line and
untouched by the market mechanism. The state, has therefore to play a positive role in employment
generation for the poor and to promote their social welfare. According to Hanumant Rao ‘It is often said
that markets bypass the poor and the under privileged and that they cannot participate in the market-
driven development.
This is not an accurate statement. The poor and the under privileged are very much driven into
the market. The child labour and bonded labour are participating in the market but at very unequal and
unfavourable terms .... Therefore, it has rightly been said that the market can be good servant when it is
intelligently utilized but a bad master when it is allowed to have a free day.”
The Promotional role of the state in providing rural infrastructure and extend credit to the poor
at low rates interest can become an effective instrument in poverty removal. The second role of the state
is to provide infrastructure-economic as well as social infrastructure. The third area which needs state
intervention is macroeconomic management of the economy. In this the government can intervene in a
variety of ways, more especially for such sections of the population which are not covered by the
market mechanism.
The World Bank study “The East Asian Miracle” (1993) about eight highly performing
economies of Asia states: “In most of these economies, in one form or another, government intervened
– systematically and through multiple channels to faster development, and in some cases the
development of specific industries”.
Another area which needs state intervention is the reform of public sector. The government has
intervened by signing MOUs (Memorandums of Understandings) but has not intervened honestly and
effectively. The state has to act decisively in this regard and innovate measures to link wages with
productivity.
Because markets believe in the survival of the fittest state intervention should, therefore, be in
the favour of weaker sections of the society. In this context the role of state must change in favour of
unfittest. World Development Report (1999-2000) stated that, “Government play a vital role in
development, but there is no simple set of rules that tells them what to do.”
The question that is relevant is not to use the state on the market, but to use state and the market
and strike a balance, which fulfils the three objectives outlined by Keynes, “The political problem of
mankind is to combine three things: economic efficiency, social justice and individual liberty,” Both the
market and the state have to be harnessed in the fulfillment of these objectives
HUMAN CAPITAL FORMATION IN INDIA
The concept of human capital formation, source of human capital and its growth is revealed in the
chapter. It also deals with the relationship among human capital, economic growth and human
development.
Concepts and Sources of Human Capital Formation
Just as a country can turn physical resources like land into physical capital like factories, similarly it can
also turn human resources like students into engineers and doctors. There by increasing their
productivity and efficiency. So, human capital formation aims at converting human resources into
human assets.
Human Capital and Physical Capital
1. Human Capital
It refers to the stock of skill, ability, expertise, education and knowledge in a nation at a point of time.
2. Physical Capital
All inputs which are required for further production such as machine, tools and implements, factory
buildings, etc are called physical capital.

Human Capital Formation
It is the process of acquiring and increasing the number of people who* have the skills,
education and experience which are critical for the economic and political development of a country.
In other words, human capital formation is the process of adding to the stock of human capital over
time.
G.M. Meier defines human capital formation as, “human capital formation is the process of
acquiring and increasing the number of persons who have the skiff education and experience which are
essential for the economic and political development of a country”.
Sources of Human Capital Formation
Investment in education is considered as one of the most important sources of human capital
formation. There are several other sources as well. Investment in health, on-the-job training, migration
and information are the other sources of human capital formation.
These sources are discussed below
1. Expenditure on Education
The education expenditure is an important source of human capital formation as it is the most effective
way on enhancing and enlarging a productive workforce in the country.
Nations and individuals invest in education with the objective
(i) increasing their future income.
(ii) generating technical skills and creating^ manpower, well suited for improving labour productivity
and thus, sustaining rapid economic development.
(iii) tending to bring down birth rate which in turn, brings decline in population growth rate. It makes
more resources available per person.
(iv) education also results in social benefits since, it also spreads to others.
2. Expenditure on Health
Health is another important source of human capital formation. A sick labourer without access to
medical facilities is compelled to abstain from work and there in a loss of productivity. The various
forms of health expenditure are preventive medicine, curative medicine, social medicine, provision of
clean drinking water, etc.
3. On-the-job Training
Expenditure regarding on-the-job training is a source of human capital formation as the return of such
expenditure in the form of enhanced labour productivity is more than the cost of it.
Firms spend huge amounts on giving on-the-job training to their workers. It may be in different forms
like a worker may be trained in the firm itself or under the supervision of a skilled worker or can be sent
for off campus training.
The firms then insist that workers should work for atleast some time in die company so that they can
recover the benefits of the enhanced productivity owing to the training.
4. Migration
People sometimes migrate from one place to the other in search of better jobs that fetch them higher

salaries than what they may get in their native places. It includes migration of people from rural areas to
urban areas in India. Unemployment is the reason for the rural urban migration in India and technically
qualified people migrate from one country to another in order to get high salaries.
5. Expenditure on Information
People spent to acquire information relating to the labour market and other markets like education,
health, etc.
For example, people seek information regarding salaries and other facilities available in different labour
markets, so that they can choose the right job. Expenditure incurred for acquiring information regarding
labour markets and other markets like education and health have also becomes an important source of
human capital formation.
Problems of Human Capital Formation in India
The main problems of human capital formation in India are
(i) Rising Population Rapidly rising population adversely affects the quality of human capital in under
developed and developing countries like India. It reduces per head availability of existing facilities like
sanitation, employment, drainage, water system, housing, hospitals, education, food supply, nutrition,
roads, electricity, etc.
(ii) Brain Drain Migration of highly skilled labour termed as ‘brain drain. This slow down the process
of human capital formation in the domestic economy.
(iii) Inefficient of Manpower Planning There is inefficient manpower planning in less developed
countries where no efforts have been made either to raise the standard of education at different stages pr
to maintain the demand and supply of technical labour force. It is a sad reflection on the wastage of
human power and human skill.
(iv) Long-term Process The process of human development is a long-term policy because skill
formation takes time. The process which produces skilled manpower is thus, slow. This also lowers our
competitiveness in the international market of human capital.
(v) High Poverty Levels A large proportion of the population lives below poverty line and do not have
access to basic health and educational facilities. A large section of society cannot afford to get higher
education or expensive medical treatment for major disease.
PROBLEM OF FOREIGN AID
Considering the huge size of population and the degree of problem faced by the country, the
inflow of foreign aid at different times was quite considerable. During the First Plan, India received on
an average an external assistance to the extent of Rs 40 crore per annum and the same amount was
raised to Rs 573.3 crore per annum which was about 3.2 per cent of GDP.
Since then the country faced a bad situation and. started to depend more on foreign loan during
the three years of Annual Plans. During the Fourth Plan, there was a severe cut in aid from USA on
political ground and due to mounting debt servicing problem, the Government decided to allow the path
of self reliance since the Fourth Plan.
During the Sixth Plan, Rs 9,929 crore was envisage as an inflow of foreign aid. The Seventh
Plan envisaged a net inflow of foreign aid of Rs 18,000 crore from different sources. Table 16.6 shows
details about authorisation and utilisation of foreign aid to India.
The utilisation of foreign aid was quite less than authorisation. At the end of Fourth Plan, total
utilisation of foreign aid was Rs 11,922 crore as against the total authorisation of Rs 13,056 crore.
During the seventh plan the shortfall was quite higher as the total authorisation of Rs 44,971 crore, i.e.,
about 50.5 per cent.
Again in 1990-91, the amount of foreign aid authorized was to the extent of? 8,123 crore ($ 4.5
billion), against which the amount utilized was Rs 6,707 crore ($ 3.7 billion), i.e. about 82.5 per cent.
Again in 2013-14, the amount of foreign aid authorized was to the tune of? 54,513 crore ($ 9.02 billion)
against which the amount utilised was Rs 35,185 crore ($ 5.85 billion), i.e., about 64.5 per cent.
Forms of Foreign Aid:
The foreign aid received by India has been classified broadly into three forms:
(a) Loans, (b) grants and (c) PL 480/665 etc. assistance repayable in rupee or in convertible
currency. All these forms of foreign aids are urgently required in order to meet the deficiency in

resources required for financing developmental plans. Among these forms, loan has a problem of its
servicing if not utilised in a productive manner.
Grants has no problem as it is once for all payment having no repayment burden. PL 480/665
assistance had lesser problems as it was repayable in term of rupees. This type of assistance continued
till 1977-78. Table 16.7 shows the flow of all these forms of foreign aid received under different
periods.
Table 16.7 reveals that up to the end of Fourth Plan out of the total authorised foreign aid of Rs 13,056
crore, the shares of loan was Rs 9,665 crore (about 74 per cent) and the share of grants was Rs 753
crore (about 6 per cent) and the shares of assistance under PL 480/665 was Rs 2,638 crore (about 20 per
cent).
During the fifth plan out of total foreign aid of Rs 9,844 crore the respective shares of these
component were to the tune of Rs 7,913 crore, Rs 1,795 crore and a mere of ? 136 crores. During the
sixth plan the authorised amount of loans and grants were Rs 14,843 crores and a mere Rs 1,564 crore
making the total of Rs 16,407 crore.
Again during seventh plan the authorised amount of loan and grants were Rs 42,231 crore (93.9
per cent) and Rs 2,740 crore (6.1 per cent) making the total authorised foreign aid to Rs 44,971 crore.
Moreover, in 1990-91 out of the total authorised foreign aid of Rs 8,123 crore received by India, the
share of loan was Rs 7,601 crore and the share of grant was Rs 522 crore.
Again in 2013-2014 out of the total authorised foreign aid of Rs 54,513 crore received by India,
the share of loan was Rs 54,372 crore (99.7 per cent) and the share of grant was Rs 140 crores (0.3 per
cent). Moreover, in 2013-14, out of the total amount of foreign aid of Rs 35,185 crore utilised by India,
the share of loan was Rs 31,772 crore (90.3 per cent) and the share of grant was Rs 3,412 crore (9.7 per
cent).
Thus during this entire period of planning till 2013-2014 the total amount of authorised foreign
aid received by India was to the extent of Rs 7,15,300 crore out of which only 4,99,554 crore was
utilised. Again the share of authorised loan was Rs 6,62,570 crore (about 92.6 per cent), the share of
grant was Rs 49,955 crore (about 7.0 per cent) and the share of assistance under PL 480/665 was Rs
2,774 crore (0.4 per cent).
Again, total amount of foreign aid utilized in India till 2013-2014 was to the tune of Rs 4,99,554
crore out of which the loan utilised was Rs 4,49,033 crore (89.5 per cent), the share of grant utilised
was Rs 49,691 crore (9.9 per cent) and the share of PL 480/665 was Rs 2,820 crore (0.6 per cent).
All these aids were again made available either as tied aid (tied to a definite project) and untied aid.
About one third of the total external aid made available to India was in form of untied aid.
Impact of Foreign Aid:
Foreign aid is playing an important role in the economic development of the country by enlarging the
production capacity of the various sectors through additional supply of foreign exchange, transfer of
technology and supplementing saving.
Thus the foreign aid had been creating a favourable impact on the economy of the country on the
following lines:
Problems of Foreign Aid:
In-spite of creating a favourable impact on the development of the country, the foreign aid has also been
creating various types of problems in the country.
These problems are described below:
(1) Increasing volume of foreign aid has been resulting in political pressures on the economy from the
donor countries. Insistence of USA to accept Dunkel proposal is an example in this respect.
(2) Foreign aid has also been suffering from the problem of uncertainty and thus stands in the path of
perspective planning.
(3) The country is having lesser absorptive capacity of aid due to its lesser exportable potential.
(4) The foreign aid has been attached with a huge burden of external debt as the debt servicing burden
of the country has already reached serious proportion.
Suggestions:
Under such a situation, steps must be taken by the Government to attain flexibility approach for
ensuring optimum utilisation of aid. Thus Government should convince the donor country to extend
more of untied aid.

Moreover, to avoid uncertainty there should be long period regular commitments for aid. Again the
technological aid should be in the form of technology transfer for building indigenous technology base.
Economic Reforms and Reduction of Poverty
Poverty in India is a predominantly rural phenomenon. More than three quarters of poor people
in India live in rural areas. Also there is wide variation in poverty across different states. Moreover,
progress in reducing poverty is also very uneven across different regions.
Government of India adopted several poverty alleviation programmes to help the poor to
improve their economic, physical and social conditions. These programmes are directly targeted at the
poor and the benefits from them would accrue to the poor from the normal economic activities. The
programmes, which aimed at directly helping the poor instead of the entire population, are termed as
targeted poverty alleviation programme. The rationale for targeting the poor for development
programmes is that the benefits or social returns are higher for the population at the lower end of the
income distribution than at the upper end.
The existing major programmes for the poor in India can be roughly categorised into three: (i)
wage employment programme, (ii) credit-based self-employment programme, (iii) the public
distribution system and the nutrition programme. One of the impacts of opening up of the economy has
seen the resurgence of the importance of large metropolitan cities. Private investment, both foreign and
Indian have tend to be concentrated in and around these large cities. The local governments for
attracting these investments offered a range of incentives to private investors.
The large metropolitan cities are undergoing a facelift exercise as part of the city cleaning,
beautification and pollution control programmes. While the city spaces are being increasingly acquired
by the private commercial and service industry establishments the poorest, mainly the slum dwellers,
hawkers, destitute, street dwellers are being pushed out of the city to the peripheries. The city
peripheries are getting degenerated with low value employment, poor living condition, thus making lot
of the urban poor worse.
Opening-up in the developing economies was primarily visualised as a mechanism where trade
would function as ‘an engine of growth’ and the fruits of growth would ‘trickle down’ to the poor.
However, the results had been mixed, with many countries observing widening inequality in their
economies, contrary to the conventional trade theory prescriptions.
The internationalisation of trade has opened up vistas for globalisation of production creating
profound changes in the labour market, such as widening wage disparity, increasing contractualisation
of work, skill based segregation of work etc. As per the 1991 census 90% of the Indian workforce is in
the unorganised sector. There is hardly any legal backing, social spending, or any form of support to
this class of workers who are the poorest among all groups of workers.
They do not have any collective bargaining capacity with an institutional backing. For the vast
majority of them there is no fixed place of work, no fixed working hours, no regular wages, and no job
security. Thus they have become one of the most vulnerable to poverty. Globalisation is argued to be
‘informalising’ and ‘casualising’ the employment opportunities in the economy thus further expanding
the unorganised form of employment. It is seen that the economic reforms only vitiated this sector.
MEASURES TO REMOVE REGIONAL DISPARITIES
1. Resource Transfer and Backwardness:
While making necessary award, the Finance Commission in India has been giving due
weightage to backwardness of a state as an important criteria for resource transfer from the centre to the
states
The following table shows, the share of backward states and special category states in Plan outlay
and Central assistance:

Under the present system of federal fiscal transfer, the transfer of resources from the Centre to States
includes central assistance for State Plans, Non plan transfer as per the recommendations of the Finance
Commission, ad-hoc transfer, allocation of fund for centrally sponsored schemes, allocation of both
short-term and long-term credit from financial institutions etc.
Table 6.10 reveals that the share of backward states along with special category states in the
Plan outlay as well as in central assistance has been increasing steadily since the First Plan.
Accordingly, the share of these states in the total plan outlay had increased from 46 per cent in the First
Plan to 51 per cent in the Third Plan and then to 54 per cent in the Fifth Plan.
Again the share of these backward states as well as special category states in the Central assistance has
also increased from 48 per cent during the First Plan to 57 per cent during the Third Plan and then to 68
per cent during the Fourth Plan and finally to 69 per cent during the Fifth Plan.
However, the detail analysis of these resource transfers reveals that the per capita plan outlay of the
backward states like Bihar, U.P. and Assam remained all along lower than that of average per capita
plan outlay of all states together. Even during the Seventh Plan, the per capita plan outlay of Bihar, U.P.
and Assam stood at only Rs. 626, Rs. 803 and Rs. 850 respectively as compared to that of Rs. 1026 for
all states together.
In respect of per capita central assistance also the same condition persists. The average per
capita central assistance to Bihar and U.P. during the Fourth Plan was only Rs. 57 and Rs. 56
respectively as compared to that of Rs. 66 for Punjab and Rs. 63 for the country as a whole.
Thus the present Gadgil formula for the transfer of resources does not suit the requirements of the
backward states and therefore, the backward states are demanding to enhance the proportion of central
assistance allotted to special project from the existing 10 per cent under budget formula to 25 per cent
so as to attain balance in favour of backward states.
Again there are some peculiar difficulties to solve the problem of regional imbalance and
backwardness through resource transfers from centre to states. Again the resources so transferred are
not always utilized for the development of backward areas or districts of such backward states. Rather
there is a growing tendency to “divert fund intended for backward and difficult areas to more forward
areas and easier programmes.” Again the problem of backward areas in non-backward states remained
more or less unattended.
2. Special Area Development Programmes:
In order to develop hilly areas, tribal areas, drought- prone areas, specific plan schemes have
been designed with full central assistance. Besides, other schemes of rural development formulated for
the improvement of specific groups such as marginal farmers and agricultural labourers were
implemented in the backward regions.
An area based approach of ‘Tribal Sub-Plans’ (TSPs) is now being implemented for the development of
scheduled tribes located in the backward rural areas. The Tribal Sub-Plans are implemented through
194 Integrated Tribal Development Projects (ITDP) and 250 Modified Area Development Projects
(MADP).
In this manner, different special schemes for particular target group located in the backward
areas are being included for block level planning for attaining integrated rural development and
considerable employment opportunities. All these programmes include SFDA, MFAL, Drought Prone
Area Programme (DPAP), Crash Scheme for Rural Employment (CSRE) etc.

404 ib Indian Economy and Trade Dependencies notes

404 ib Indian Economy and Trade Dependencies notes

Recomendados

Recomendados

Más contenido relacionado

La actualidad más candente

La actualidad más candente (20)

Similar a 404 ib Indian Economy and Trade Dependencies notes

Similar a 404 ib Indian Economy and Trade Dependencies notes (20)

Más de ASM's IBMR- Chinchwad

Más de ASM's IBMR- Chinchwad (20)

Último

Último (20)

404 ib Indian Economy and Trade Dependencies notes