Indian Economy - Block - 1

GEC S6 01 (M/P)
Exam. Code: ECP6A/ECM6A
Indian Economy
SEMESTER - VI
ECONOMICS
BLOCK - 1
KRISHNA KANTA HANDIQUI STATE OPEN UNIVERSITY

Subject Experts
Professor Madhurjya Prasad Bezbaruah, Dept. of Economics, Gauhati University

Professor Nissar Ahmed Barua, Dept. of Economics, Gauhati University
Dr.Gautam Mazumdar, Dept. of Economics, Cotton University
Course Co-ordinator : Bhaskar Sarmah, Ph.D., KKHSOU
SLM Preparation Team
UNITS CONTRIBUTORS
1, 4 Swabera Islam(Retd.), K. C. Das Commerce College
2 Dr. Ratul Mahanta, Gauhati University
3 Dr. Bidisha Mahanta Hazarika, Doomdooma College
5, 6 Dr. Prodip Adhyapok(Retd.), Cotton College
7 Surabi Dutta, Women's College, Tinsukia
Editorial Team
Content : Professor K. Alam, Former Professor, Gauhati University
Bhaskar Sarmah, (Units, 3 & 7)
Language : Professor Robin Goswami, (Units, 1, 2, 4 - 6) Former Sr.
Academic Consultant, KKHSOU.
Structure, Format & Graphics: Bhaskar Sarmah, Ph.D. KKHSOU

January, 2020
ISBN :
This Self Learning Material (SLM) of the Krishna Kanta Handiqui State Open University is
made available under a Creative Commons Attribution-Non Commercial-Share Alike 4.0 License
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Printed and published by Registrar on behalf of the Krishna Kanta Handiqui State Open
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Headquarters: Patgaon, Rani Gate, Guwahati-781017

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The University acknowledges with thanks the financial support provided by
the Distance Education Bureau, UGC for preparation of this material.
CONTENTS
Page No.
UNIT 1: Indian Economy: Its Basic Characteristics, Development and GrowthNOMICS7-31
Indian Economy in the Pre-independence Period: Agricultural Sector, Industrial
Sector, Foreign Trade, Demographic Condition & Occupational Structure,
Infrastructure; Indian Economy: Characteristics and Emerging Issues:
Characteristics of India as a Developing Economy, Emerging Issues facing
the Indian Economy; Trend in National Income: Growth and Its Composition:
Trend of Growth in National Income, Composition of National Income
UNIT 2: Population and Human Resources ECONOMICS 32-50
The Theory of Demographic Transition; Size and Growth of Population in India;
Characteristics of the Indian Population; Indicators of Human Development
UNIT 3: Infrastructure in the Indian EconomyECONOMICS 51-70
Energy and Power Infrastructure: Coal, Oil and Natural Gas, Biomass and
Charcoal, Wind, Nuclear and Solar Energy, Electricity; Transport System: Rail
Transport, Road Transport, Air Transport, Water Transport; Communication
System: Postal Service, Telecommunication, Radio and Television, Internet;
Urban Infrastructure in India; Smart Cities Mission; Industrial Corridor
UNIT 4: Indian AgricultureCONOMICS 71-91
Role of Agriculture in Indian Economy; Trends in Agricultural Production and
Productivity: Growth of Agriculture since 1951, Present Status of Productivity
of Indian Agriculture; Factors Influencing Productivity; The New Agricultural
Strategy: Green Revolution in India; Impact of Green Revolution: Achievements
of the New Agricultural Strategy, Weaknesses of the New Agricultural Strategy
UNIT 5: Land ReformsONOMICS 92-105
System of Land Tenure at the Time of Independence; Land Reform Measures
in India: Objectives and Strategies; Critical Appraisal of Land Reform Measures
in India
UNIT 6: Agricultural Finance and Agricultural MarketingNOMICS 106-129
Need for Agricultural Finance; Sources of Agricultural Finance: Role of Co-
operatives and Commercial Banks, Role of Regional Rural Banks (RRBs) and
NABARD; Agricultural Marketing: Concept and Limitations; Role of Government
in promoting Agricultural Marketing
UNIT 7: Food Security and Public Distribution System in IndiaOMICS 130-147
Meaning of Food Security: Prevalance of Malnutrition and Hunger, Dimensions
of Food Security; Public Distribution System (PDS); Food Security Act, 2013;
Impact of PDS on Poverty: Food Subsidy under PDS, Incentive to the Farmers
through Minimum Support Price; Limitations of PDS; Suggestive Measures
COURSE INTRODUCTION
This is first course of the sixth semester of BA programme in Economics of this University. This
course shall be helpful for gaining an insight into the problems, issues and policy framework of
the Indian Economy. After going through this Course, you will be able to discuss the different
socio-economic problems of our society in the changing context of the economy.
BLOCK INTRODUCTION
The first block of the Course on Indian Economy consists of seven units. The first unit discusses
about the nature of the Indian economy and India's national income, its trend, size and composition.
The second unit discusses the national income of India. After going through this unit, you will be
able to acquire a fair knowledge about. The second unit deliberates on population and human
resources in the context of the Indian economy. The third unit of the course deliberates on
infrastructure. Here, the status of different infrastructural areas, viz., energy and power, transport,
communication and urban infrastructure have been discussed. The recent initiative like Smart
Cities has also been discussed. The next three units of the block, i.e., units 4 to 6 discussed
some of the issues of the agricultural sector of the Indian economy. These three units will be
helpful in getting insights into the role of agriculture in Indian economy, its nature and the trend of
its production and productivity. Apart from this, you will also be able to find out the factors that
influence the productivity of Indian agriculture. The adoption of new agriculture, most popularly
known as the 'Green Revolution' has also been discussed. Again, the context of land reform
measures in India, its overall assessment has also been outlined. In addition to these, important
issues relating to agricultural finance and agricultural marketing has also been discussed. The
seventh unit of the block discusses food security. In this unit, the concept of food security, salient
features of Food Security Act 2013 the public distribution systems and its impact on poverty as
well as the problems of the PDS have been discussed.
While going through a unit, you will notice some along-side boxes, which have been included to
help you know some of the difficult, unseen terms. Some "ACTIVITY' (s) have been included to
help you apply your own thoughts. Again, we have included some relevant concepts in "LET US
KNOW" along with the text. And, at the end of each section, you will get "CHECK YOUR
PROGRESS" questions. These have been designed to self-check your progress of study. It will
be better if you solve the problems put in these boxes immediately after you go through the
sections of the units and then match your answers with "ANSWERS TO CHECK YOUR
PROGRESS" given at the end of each unit.
UNIT 1: INDIAN ECONOMY: ITS BASIC
CHARACTERISTICS, DEVELOPMENT
AND GROWTH
UNIT STRUCTURE
1.1 Learning Objectives
1.2 Introduction
1.3 Indian Economy in the Pre-independence Period
1.3.1 Agricultural Sector
1.3.2 Industrial Sector
1.3.3 Foreign Trade
1.3.4 Demographic Condition & Occupational Structure
1.3.5 Infrastructure
1.4 Indian Economy: Characteristics and Emerging Issues
1.4.1 Characteristics of India as a Developing Economy
1.4.2 Emerging Issues facing the Indian Economy
1.5 Trend in National Income: Growth and Its Composition
1.5.1 Trend of Growth in National Income
1.5.2 Composition of National Income
1.6 Let Us Sum Up
1.7 Further Reading
1.8 Answers to Check Your Progress
1.9 Model Questions
1.1 LEARNING OBJECTIVES
After going through this unit, you will be able to:

 be familiar with the state of the Indian economy in 1947, the year of
India’s Independence
 describe the factors that led to the underdevelopment and stagnation
of the Indian economy
 become familiar with the different sectors of the Indian economy
 discuss the characteristics of India as a developing economy
Indian Economy 7
Unit 1 Indian Economy Its Basic Characteristics, Development and Growth
 trace the emerging issues that the Indian economy faces today
 discuss the trend of growth and composition of national income in
India.
1.2 INTRODUCTION
The primary objective of this unit is to make you familiar with the
basic features of the Indian economy, in the aftermath of Independence as
well as in the present context. It is equally important to know something
about the country’s economic past to understand its present state and future
prospects. So, let us first look at the state of India’s economy prior to the
country’s independence.
The structure of the Indian economy today is not just of current
making; it has its roots steeped in history, particularly in the period when
India was under the British rule which lasted for almost two centuries before
India finally won its independence on 15 August 1947. The sole purpose of
the British colonial rule in India was to reduce the country to turn it into a
feeder economy for Great Britain’s own rapidly expanding modern industrial
base. An understanding of the exploitative nature of this relationship is
essential for any assessment of the kind and level of development which
the Indian economy has been able to attain over the last six decades.
1.3 INDIAN ECONOMY IN THE PRE-INDEPENDENCE

PERIOD
India had an independent economy before the advent of the British

rule. Though agriculture was the main source of livelihood for most people,
yet, the country’s economy was characterised by various kinds of
manufacturing activities. India was particularly well known for her handicraft
industries in the fields of cotton and silk textiles, metal and precious stone
works etc. These products enjoyed a worldwide reputation of the fine quality
of material used and the high standards of craftsmanship. The economic
policies pursued by the colonial government in India were more concerned
with the protection and promotion of the economic interests of their home
8 Indian Economy
Indian Economy Its Basic Characteristics, Development and Growth Unit 1
economy than with the development of the Indian economy. Such policies
brought about a fundamental change in the structure of the Indian economy
— transforming the country into a net supplier of raw materials to the British
economy and consumer of finished industrial products from Britain.
Obviously, the colonial government never made any sincere attempt
to estimate India’s national and per capita income. Some individual attempts
which were made to measure such incomes yielded conflicting and
inconsistent results. Among the notable estimators — Dadabhai Naoroji,
William Digby, Findlay Shirras, V.K.R.V. Rao and R.C. Desai — it was Rao
whose estimates of the national and per capita incomes during the colonial
period were considered very significant. However, most studies did find
that the growth of the aggregate country’s real output during the first half of
the twentieth century was less than two per cent coupled with a meagre
half per cent growth in per capita output per year.
1.3.1 Agricultural Sector
India’s economy under the British colonial rule remained

fundamentally agrarian — about 85 per cent of the country’s
population lived mostly in villages and derived livelihood directly or
indirectly from agriculture. However, despite being the occupation
of such a large population, the agricultural sector continued to
experience stagnation and, not infrequently, unusual deterioration.
Agricultural productivity became incrementally low, though in
absolute terms, the sector experienced some growth due to the
expansion of the aggregate area under cultivation. This stagnation
in the agricultural sector was caused mainly because of the various
systems of land settlement that were introduced by the colonial
government. Under the zamindari system which was implemented
in the then Bengal Presidency comprising parts of India’s present-
day eastern states, the profit accruing out of the agriculture sector
went to the zamindars instead of the cultivators. However, a
considerable number of zamindars, and not just the colonial
Indian Economy 9
government, did nothing to improve the condition of agriculture. The
main interest of the zamindars was only to collect rent regardless
of the economic condition of the cultivators; this caused immense
misery and social tension among the latter. To a very great extent,
the terms of the revenue settlement were also responsible for the
zamindars adopting such an attitude; dates for depositing specified
sums of revenue were fixed, failing which the zamindars were to
lose their rights. Besides this, low levels of technology, lack of
irrigation facilities and negligible use of fertilisers, all added up to
aggravate the plight of the farmers and contributed to the dismal
level of agricultural productivity. There was, of course, some
evidence of a relatively higher yield of cash crops in certain areas of
the country due to commercialization of agriculture. But this could
hardly help farmers in improving their economic condition as, instead
of producing food crops, now they were producing cash crops which
were to be ultimately used by British industries back home. India’s
agricultural production received a further setback due to the
country’s partition at the time of independence. A sizeable portion of
the undivided country’s highly irrigated and fertile land went to
Pakistan; this had an adverse impact upon India’s output from the
agriculture sector. Particularly affected was India’s jute industry since
almost the whole of the jute producing area became part of East
Pakistan (now Bangladesh). India’s jute goods industry (in which
the country had enjoyed a world monopoly so far), thus, suffered
heavily for lack of raw material.
1.3.2 Industrial Sector
As in the case of agriculture, so also in manufacturing, India could

not develop a sound industrial base under the colonial rule. Even as
the country’s world famous handicraft industries declined, no
corresponding modern industrial base was allowed to come. The
primary motive of the colonial government behind this policy of
10 Indian Economy
systematically deindustrialising India was two-fold. The intention
was, first, to reduce India to the status of a mere exporter of important
raw materials for the upcoming modern industries in Britain and,
second, to turn India into a sprawling market for the finished products
of those industries so that their continued expansion could be
ensured to the maximum advantage of their home country — Britain.
In the unfolding economic scenario, the decline of the indigenous
handicraft industries created not only massive unemployment in
India but also a new demand in the Indian consumer market, which
was now deprived of the supply of locally made goods. This demand
was profitably met by the increasing imports of cheap manufactured
goods from Britain. During the second half of the nineteenth century,
modern industry began to take root in India but its progress remained
very slow. Initially, this development was confined to the setting up
of cotton and jute textile mills. The cotton textile mills, mainly
dominated by Indians, were located in the western parts of the
country, namely, Maharashtra and Gujarat, while the jute mills
dominated by the foreigners were mainly concentrated in Bengal.
Subsequently, the iron and steel industries began coming up in the
beginning of the twentieth century. The Tata Iron and Steel Company
(TISCO) was incorporated in 1907. A few other industries in the
fields of sugar, cement, paper etc. came up after the Second World
War. However, there was hardly any capital goods industry to help
promote further industrialisation in India. The establishment of a few
manufacturing units here and there was no substitute to the near
wholesale displacement of the country’s traditional handicraft
industries. Furthermore, the growth rate of the new industrial sector
and its contribution to the Gross Domestic Product (GDP) remained
very small. Another significant drawback of the new industrial sector
was the very limited area of operation of the public sector. This sector
remained confined only to the railways, power generation,
communications, ports and some other departmental undertakings.
Indian Economy 11
1.3.3 Foreign Trade
India has been an important trading nation since ancient times. But
the restrictive policies of commodity production, trade and tariff
pursued by the colonial government adversely affected the structure,
composition and volume of India’s foreign trade. Consequently, India
became an exporter of primary products such as raw silk, cotton,
wool, sugar, indigo, jute etc. and an importer of finished consumer
goods like cotton, silk and woollen clothes and capital goods like
light machinery produced in the factories of Britain. For all practical
purposes, Britain maintained a monopoly control over India’s exports
and imports. As a result, more than half of India’s foreign trade was
restricted to Britain while the rest was allowed with a few other
countries like China, Ceylon (Sri Lanka) and Persia (Iran). The
opening of the Suez Canal further intensified British control over
India’s foreign trade. The most important characteristic of India’s
foreign trade throughout the colonial period was the generation of a
large export surplus. But this surplus came at a huge cost to the
country’s economy. Several essential commodities—food grains,
clothes, kerosene etc. — became conspicuous by their acute
scarcity in the domestic market. Furthermore, this export surplus
did not result in any flow of gold or silver into India. Rather, this was
used to make payments for the expenses incurred by an office set
up by the colonial government in Britain, expenses on war, again
fought by the British government, and the import of invisible items,
all of which led to the drain of Indian wealth.
CHECK YOUR PROGRESS
Q 1: State whether True (T) or False (F)

(a) India’s economy under the British colonial
rule remained fundamentally agrarian. (T/F)
(b) V.K.R.V. Rao’s estimation of the national and per capita incomes
during the colonial period were considered very significant. (T/F)
12 Indian Economy
Q 2: When was TISCO formed? What is the full form of TISCO.
.......................................................................................................
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Q 3: Why did the colonial government try to de-industrialise the Indian
economy? (Answer in about 60 words)
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1.3.4 Demographic Condition & Occupational Structure
Demographic Condition : Various details about the population of

British India were first collected through a census in 1881. Though
suffering from certain limitations, it revealed the unevenness in
India’s population growth. Subsequently, every ten years such
census operations were carried out. Before 1921, India was in the
first stage of demographic transition. The second stage of transition
began after 1921. However, neither the total population of India nor
the rate of population growth at this stage was very high. The various
social development indicators were also not quite encouraging. The
overall literacy level was less than 16 per cent. Out of this, the female
literacy level was at a negligible low of about seven per cent. Public
health facilities were either unavailable to large chunks of population
or, when available, were highly inadequate. Consequently, water and
air-borne diseases were rampant and took a huge toll on life. No
wonder, the overall mortality rate was very high and in that,
particularly, the infant mortality rate was quite alarming—about 218
per thousand in contrast to the present infant mortality rate of 30.15
per thousand. Life expectancy was also very low—32 years in
contrast to the present 67 years and 9 months. In the absence of
reliable data, it is difficult to specify the extent of poverty at that time
Indian Economy 13
but there is no doubt that extensive poverty prevailed in India during
the colonial period which contributed to the worsening profile of
India’s population of the time.
Occupational Structure : During the colonial period, the
occupational structure of India, i.e., distribution of working persons
across different industries and sectors, showed little sign of change.
The agricultural sector accounted for the largest share of workforce,
which usually remained at a high of 70-75 per cent while the
manufacturing and the services sectors accounted for only 10 and
15-20 per cent respectively. Another striking aspect was the growing
regional variation. Parts of the then Madras Presidency (comprising
areas of the present-day states of Tamil Nadu, Andhra Pradesh,
Kerala and Karnataka), Maharashtra and West Bengal witnessed a
decline in the dependence of the workforce on the agricultural sector
with a commensurate increase in the manufacturing and the services
sectors. However, there was an increase in the share of workforce
in agriculture during the same time in states such as Orissa,
Rajasthan and Punjab.
1.3.5 Infrastructure
Roads constructed in India prior to the advent of the British rule

were not fit for modern transport. The colonial administration also
could not accomplish much on this front due to a paucity of funds.
The roads that were built primarily served the purposes of mobilising
the army within India and drawing out raw materials from the
countryside to the nearest railway station or the port to send these
to far away England or other lucrative foreign destinations. There
always remained an acute shortage of all weather roads to reach
out to the rural areas during the rainy season. Naturally, therefore,
people living mostly in these areas suffered grievously during natural
calamities and famines. The British introduced the railways in India
in 1850 and it is considered as one of their most important
14 Indian Economy
contributions. The railways influenced the structure of the Indian
economy in two important ways. On one hand, it enabled people to
undertake long distance travel and thereby break geographical and
cultural barriers, while, on the other, it fostered commercialisation
of Indian agriculture which adversely affected the comparative self-
sufficiency of the village economies in India. The volume of India’s
export trade undoubtedly expanded but its benefits rarely accrued
to the Indian people. The social benefits, which the Indian people
gained owing to the introduction of the railways, were thus
outweighed by the country’s huge economic loss. Along with the
development of roads and railways, the colonial rulers also took
measures for developing the inland trade and sea lanes. However,
these measures were far from satisfactory. The inland waterways,
at times, also proved uneconomical as in the case of the Coast
Canal on the Orissa coast. Though the canal was built at a huge
cost to the government exchequer, yet, it failed to compete with the
railways, which soon traversed the region running parallel to the
canal, and ultimately the canal had to be abandoned. The introduction
of the expensive system of electric telegraph in India, served the
purpose of maintaining law and order. The postal services, on the
other hand, despite serving a useful public purpose, remained all
through inadequate.
By the time India won its independence, the agricultural
sector was already saddled with surplus labour and extremely low
productivity. The industrial sector was crying for modernisation,
diversification, capacity building and increased public investment.
Foreign trade was oriented to feed the Industrial Revolution in Britain.
Infrastructure facilities, including the famed railway network, needed
upgradation, expansion and public orientation. Prevalence of
rampant poverty and unemployment required welfare orientation of
public economic policy. In a nutshell, the social and economic
challenges before the country were enormous.
Indian Economy 15
CHECK YOUR PROGRESS

(a) The population of British India was first
collected through a census in 1881. (T/F)
(b) By the time India won its independence, the agricultural sector
was transformed into a modern agricultural sector. (T/F)
Q 5: Mention the status of a few social indicators during the British
period. (Answer in about 60 words)
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Q 6: The introduction of the railways in our country brought enormous
prosperity to the Indian economy. Do you agree with this
statement? Justify your view. (Answer in about 60 words).
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1.4 INDIAN ECONOMY : CHARACTERISTICS &

EMERGING ISSUES
in this section, we shall discuss two major aspects of the Indian

economy, viz., its basic features as a developing economy, and the emerging
issues.
1.4.1 Characteristics of India as a Developing Economy
The Indian economy has all the characteristics of a developing

economy. The main characteristics of its economy are as follows:
 Low level of income : The per capita income in India is one of
the lowest in the world. Low level of income means low standard
16 Indian Economy
of living and low levels of consumption. Whatever progress has
been made in production since independence is not reflected in
the per capita income of the country. This is because of the high
growth in population. There are wide disparities in the level of
incomes and about one third of the Indian population live below
the poverty line. Due to low standards of living, the efficiency of
the labour is low.
 Pre-dominance of agriculture : About two-thirds of the Indian
workforce is engaged in agriculture and the contribution of the
agricultural sector to the GDP is around 27% to 30%. As against
this, in most developed countries, only 2% to 4% of the workforce
is engaged in agriculture and the contribution of this sector to
GDP happens to be only about 2% to 9%. In India, the agricultural
sector is still dependent on the monsoons and technology that
is used is very backward.
 Capital deficiency : Low level of income results in low level of
saving and low level of capital formation. Due to inadequate
availability of capital, other resources such as labour and natural
resources remain unutilised and unexploited.
 Technological backwardness : In most sectors, technology
used in production is still very backward. Investment in research
and development is very low and this results in import of
technology.
 Inadequate infrastructure : Infrastructure facilities such as
transport, communication, power are required both for industrial
production as well as agricultural production, and also in the
service sector. All these facilities are inadequate.
 High rate of growth of population : India’s population of
approximately 1.17 billion people (estimate for July, 2009) consists
of more than one-sixth of the world’s population. Demographers
expect India’s population to surpass the population of China,
currently the most populous country in the world, by 2030. At
that time, India is expected to have a population of more than
Indian Economy 17
1.53 billion while China’s population is forecast to be at its peak
of 1.46 billion (and will begin to drop in subsequent years). A
high growth rate of the population means additional pressure on
the available resources and low per capita income.
 High rate of illiteracy : High rate of illiteracy : As per 2011
Census, the overall literacy rate of India is 74%. The male literacy
rate is 82% and female literacy rate is 65.5%.
 High infant mortality rate : High infant mortality rate : India has
the highest infant mortality rate in the world, a nationwide survey
reveals. India still ranks much below in United Nations Human
Development report. In 2019, India's rank was 129 among 189
countries. This shows inadequate nutrition and poor sanitation
conditions.
1.4.2 Emerging Issues facing the Indian Economy
As India prepares herself for becoming an economic superpower

and a developed nation by the year 2020, it must expedite socio-
economic reforms and take steps for overcoming institutional and
infrastructure bottlenecks in the system. Steps should be taken for
improving the pace of development. The emerging issues that the
Indian economy faces are:
 Inflation : Fuelled by rising wages, property prices and food
prices, inflation in India is an increasing problem. Between the
fiscal year 2004-05 and 2007-2008, India had experienced an
average growth rate of more than 9%, but the global economic
crisis caused such adverse external shocks in the economy
that a few sectors experienced a slump. Inflation in India in 2009
stood at 11.49%. A decade later, which experienced certain ups
and downs in the growth rate of the economy, the rate of inflation
has come down to around 3.41 percent in 2018-19.
 Poor educational standards : Literacy is a key for socio-
economic progress and the Indian literacy rate grew to 74% in
18 Indian Economy
2011 from 12% at the end of British rule in 1947. Although this
was a greater than six fold improvement, the level is well below
the world average literacy rate of 86% There is a wide gender
disparity in the literacy rate in India: the adult literacy rate (15+)
for male is 78.8 against 59.3 of females in 2011. The low female
literacy rate has had a dramatically negative impact on family
planning and population stabilization efforts in India. It is worse
in rural areas and amongst women. Over 50% of rural Indian
women are illiterate.
 Poor Infrastructure : Many areas of India are serviced with
poor transport links and under developed communication
channels. Lack of energy supplies have also led to power
shortages in certain areas. Many Indians lack basic amenities
like access to running water. These problems are likely to
exacerbate with both a growing population and growing economy.
 Balance of Payments deterioration : Although India has built
up large amounts of foreign currency reserves the current
account deficit has deteriorated in recent months. This
deterioration is a result of the overheating of the economy.
Aggregate Supply cannot meet Aggregate demand so consumers
are consuming imports.
 Inequality has risen rather than decreased : It is hoped that
economic growth would help drag the Indian poor above the
poverty line. However so far economic growth has been highly
uneven benefiting the skilled and wealthy disproportionately. Many
of India’s rural poor are yet to receive any tangible benefit from
the India’s economic growth. Forbes report suggest that evern
after much efforts, nearly 31 million homes do not have electricity.
Significant portion of the the population still live on below the
poverty line. Furthermore with the spread of television, internet
and mobile, Indian villages the poor are increasingly aware of
the disparity between rich and poor.
 Large Budget Deficit : India has one of the largest budget
Indian Economy 19
deficits in the developing world. Thus, it allows little scope for
increasing investment in public services like health and
education. However, in the recent times, the fiscal deficit has
come down to 3.39% in 2018-19.
 Environmental costs of growth : The high economic growth
has led to a burgeoning middle class who have benefited in terms
of being able to buy more cars and consume more. However
this has led to increased problems of pollution and congestion.
This issue is magnified by the excessive crowding faced in many
Indian cities. Some economists are of the opinion that India
needs to try and control its growing population level to provide a
more stable economic and social environment.
 Barriers to entry : The Indian economy is still highly regulated
with costs and restrictions faced by businessmen wishing to
enter certain markets. This continues to limit entrepreneurship
and their removal is important to continue the flow of inward
investment. Procedures should be simplified and entry barriers
for business activities should be relaxed.
 Unemployment : Unemployment has remained a problem
despite the fast growth of the economy. There is an increase in
the number of people entering the Indian labour market,
particularly young women. It may be difficult to provide sufficient
jobs unless investment continues in manufacturing and the
service sector.
 Skills shortage : Although the Indian economy has relatively
good levels of education, there still exist severe shortages of
skilled manpower in certain areas such as IT. There is also a
growing gap between the rich and the poor in different areas of
the country. There is need for a concerted effort to increase
both academic and vocational skills to a broader section of the
population
 Fiscal reforms : One of the challenges in fiscal reform will be
reconciling the need for fiscal consolidation with appropriate tax
20 Indian Economy
reform. Indirect taxes not only affect efficiency of resource
allocation but also the investment climate.
 Foreign Direct Investment (FDI) : There is a need to attract
higher foreign direct investment to the country. Such investment
triggers technology spillovers, assists human capital formation,
contributes to international trade integration and particularly
exports, helps create a more competitive business environment,
enhances enterprise development, increases total factor
productivity and, more generally, improves the efficiency of
resource use.
CHECK YOUR PROGRESS

(a) India has one of the largest budget deficits
in the developing world. (T/F)
(b) India’s population is approximately one-sixth of the world’s
population. (T/F)
Q 8: ‘Inflation is one of the important emerging issues in India’. Do you
agree with the statement? Justify your point. (Answer in about 60
words)
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1.5 TREND IN NATIONAL INCOME : GROWTH AND

ITS COMPOSITION
1.5.1 Trend of Growth in National Income
To have a more comprehensive idea, the study of the trend in national
Indian Economy 21
income covers the last 65 years of planning. The structural
transformation that has occurred in the Indian economy over the
decades is a consequence of the development process witnessed
since the beginning of planning in 1951. These changes may be
reflected in the growth rate and in the changing sectoral composition
of the GDP. Some of the significant features of the long term trends
in real GDP have been shown in Table 1.1.
Table 1.1 : Average Annual Growth Rate in GDP
Period Year Growth rate (percent)
First Plan 1951-56 3.6
Second Plan 1956-61 4.3
Third Plan 1961-66 2.8
Annual Plans 1966-69 3.8
Fourth Plan 1969-74 3.3
Fifth Plan 1974-79 4.8
Annual Plans 1979-80 -6.0
Sixth Plan 1980-85 5.7
Seventh Plan 1985-90 6.0
Annual Plans 1990-92 3.0
Eight Plan 1992-97 6.8
Ninth Plan 1997-02 5.4
Tenth Plan 2002-07 7.6
Eleventh Plan 2007-12 8.0
Twelfth Plan 2012-17 8.0*
* Estimates only.
Source: MOSPI Website.
In the eighties, GDP has recorded a growth rate of 5.5%
with the average rate of growth at 5.8% which was slightly higher
than the targeted rate of growth. But during this period the annual
growth rate was very unstable. This high rate couldn’t sustain for
the crisis revealed in 1991-92, when the annual GDP growth rate
declined to a low of 0.8 percent.
22 Indian Economy
When the more recent period (2002 to 2012) was compared
with the last decade of the twentieth century (1992 through 2002), it
reveals some notable features. Against the recorded average rate
of growth of just over 6 percent in the last decade of twentieth
century, it was an encouraging 7.8 % in the first decade of planning
of the twenty first century.
1.5.2 Composition of National Income
Composition of national income shows break-down of economic

activity into different sectors and their contribution. As an economy
becomes more developed, the contribution of industry to the GDP
increases with agriculture registering for a relatively lower share.
The Indian economy was not an exception to it and experienced the
same as a result of the initiatives taken by the government for
development. Following broad trends in the changing composition
of the domestic production are shown in Table 1.2.
From the table, it can be seen that :
 The share of the primary sector which includes agriculture,
forestry and fishery has gone down from 57.7 % in GDP in 1950-
51 to 18% in 2005- 06.
 The share of fishing in GDP had remained stable at about 1%
throughout the last five decades.
 It is really shocking that the share of forestry in GDP has shown
a continuous decline from 6.1% in 1950-51 to barely 0.7% in
2005-06.
 As a whole, the share of secondary sector has increased from
1.48% of GDP in 1950-51 to 26.2% in 2005-06. In this steady
growth, the manufacturing sector including both registered &
unregistered sectors have played a major role.
 Again, the share of tertiary sector which includes trade, transport,
storage, communications, banking, insurance, real estate &
community and personal services improved from 28.0% in 1950-
Indian Economy 23
51 to about 54% in 2005-06. It is worth mentioning that the tertiary
sector comprises three components viz., transport,
communication and trade, and finance and real estate which
includes banking and insurance as well as community and
personal services like education, health & family welfare.
Table 1.2 : Share of Gross Domestic Product by Industry of Origin (at
1993-94 series) in percentage
Sector/Year 1950-51 1980-81 2005-06
I. Agriculture etc. 57.2 39.7 19.7
1. Agriculture 50.2 35.8 18.0
2. Forestry 6.1 3.0 0.7
3. Fishing 0.9 1.0 0.9
II. Mining, Manufacturing etc. 14.8 23.7 26.2
1. Mining and quarrying 1.5 2.1 2.1
2. Manufacturing 8.9 13.8 15.1
a. Registered 4.4 8.1 10.3
b. Unregistered 4.5 5.8 4.8
3. Electricity, gas &
water supply 0.3 1.7 2.2
4. Construction 4.1 6.1 6.8
III. Transport, Communication
& Trade etc. 11.9 18.4 26.1
IV. Finance & Real Estate 6.7 6.5 13.8
V. Community and Personal
Services 9.4 11.7 14.2
A. Commodity Sector (I+II) 72.0 63.4 45.9
B. Service Sector (III+IV+V) 28.0 36.6 54.1
Total 100.0 100.0 100.0
The structural change in the composition of national income
by industrial origin is the consequence of the process of economic
growth initiated during different plans. As industrialization spreads,
it brings about an improvement in the share of industry and services.
24 Indian Economy
Indian economy is passing through this process of transition from
an agrarian economy to an industrialized one. Since the growth
process involved a rapid expansion of manufacturing in the organized
sector, the share of the manufacturing sector was bound to increase.
However, agriculture did not indicate a fast rate of growth.
The share of GDP by industry of origin have also been shown
in Figures 1.1 and 1.2 respectively.
Figure 1.1: Share of GDP by Industry of Origin (1999 - 2000 Series)
(55%) (15%) (30%)
(38%) (24%) (38%)
(13.9%) (26.2%) (59.9%)
Figure 1.2: Share of GDP by Industry of Origin (2011-12 Series)
(16.1%) (31.4%) (52.2%)
Indian Economy 25
In Figure 1.1, the shares of GDP by industry of origin has
been shown in 1999-2000 series. In Figure 1.2, the share of GDP
by industry of origin has been shown for the year 2014-15 based on
recent data series 2011-12. Thus, it can be seen that in 2014-15,
the share of agriculture in India’s GDP has come down of 16.1
percent while shares of industry and services have gone up to 31.4
and 52.2 percent respectively.
The phenomenal expansion of services world-wide has led
to ‘services’ sectors being regarded as an engine of the growth and
even as a necessary concomitant of economic growth. Development
economists suggest that development is a three stage process.
The dominance of the services sector in the growth process is usually
associated with the third stage of growth. The development of service
sector in India which is 54.1% of GDP in 2005-06 in the growth
process is associated with the third stage of growth. Actually there
is a sudden jump of the Indian economy to pass on to the stage of a
post industrialized ‘service sector’ economy without completing the
phase of industrialization. But this gap has to be removed by
strengthening the manufacturing sector. This is possible with the
progress of industrialization. At the same time, measures should
be taken for accelerating the growth of the agricultural sector. This
happens because of the inevitable link between agricultural
development and industrial growth. It is only then the process of
transition of the Indian economy from a developing to developed
economy will be accomplished.
Trends of the share of public sector to GDP: The share
of Public sector in GDP was 7.6% in 1950-51 which rose to 14.9 %
in 1970-71 to 23.0% in 2005-06. This has been shown with the help
of Table 1.3.
The gradual increase in the share of the public sector has
been due to the expansion of the economy of the state-enlarging
administrative services as well as the increasing productive activities
in public enterprises. But after economic reforms were initiated in
26 Indian Economy
1991, there was restriction on the role of the public sector. In 2011-
12, the share of the public sector in GDP (at current prices) has
decreased to 20.5 percent. (Source: www.data.gov.in).
Table 1.3: Share of Public Sector in Gross Domestic Product at
Current Prices (In percentage)
Sector/Year 1970-71 1993-94 2005-06
Share of Public Sector in GDP 14.9 25.9 23.0
(i) Government administration 6.5 8.7 9.5
(ii) Departmental enterprises 4.1 3.7 2.7
(iii) Non-departmental enterprises 4.4 13.5 11.8
Source: Datt and Sundharam, Indian Economy, 2009
Share of organized and unorganized sector in NDP : Another
feature of economic development is the shift in the composition of
NDP from unorganized to organized sector. In India, as has been
shown in Table 1.4, the share of organized sector has risen from 30
percent in 1980- 81 to 42 percent in 2004-05. Consequently, the
share of the unorganized sector has declined from 70 percent to 58
percent during the same period.
Table 1.4: Percentage share in Net Domestic Product by Organised
and Unorganised Sectors
Year/Sector 1980-81 2004-05 2007-08

Organised Unorganised Organised Unorganised Organised Unorganised
1. Agriculture,
Forestry &
Fishing 4.8 95.2 5.6 94.4 8.8 91.2
2. Mining & manu-
facturing etc. 56.8 43.2 62.9 37.1 70.2 29.8
3. Services 39.9 60.1 61.9 38.1 46.0 54.0
4. Total 30.0 70.0 42.0 58.0 42.9 57.1
Source: Datt and Sundharam, Indian Economy, 2009 & 2016

From the composition of different sectors it has been found
that the share of the organised sector in mining, manufacturing etc.
Indian Economy 27
has improved from 56.8% in 1980-81 to 62.9 % in 2004-05 and then
to 70.2%. Besides, the overall growth in services in the organised
sector has also shown progress during the last three decades from
40% in 1980-81 to 61.9% in 2004-05. But in 2007-08, it came down
to 46.0%. On the other hand, the contribution of the unorganized
sector on overall declined from 70.0% in 1980-81 to 57.1% in 2007-
08.
CHECK YOUR PROGRESS
Q 9: Discuss the trend of the shares of the

secondary and the tertiary sectors in GDP of the
economy. (Answer in about 50 words)
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1.5 LET US SUM UP
 India had an independent economy before the advent of the British rule.
 V.K.R.V. Rao’s estimates of the national and per capita incomes during
the colonial period were considered very significant.
 The population of British India was first collected through a census in
1881.
 Various systems of land settlement were introduced by the colonial
government.
 The traditional handicrafts industries were ruined under the British rule.
India could not develop a sound industrial base under the colonial rule.
 There was always an acute shortage of all weather roads to reach out
to the rural areas during the rainy season.
 There are wide disparities in the level of incomes and about one third of
the Indian population live below the poverty line.
28 Indian Economy
 Many areas of India are serviced with poor transport links and under
developed communication channels.
 So far, economic growth in India has been highly uneven.
 There is an increase in the number of people entering the Indian labour
market.
 The agricultural sector needs increased investment in irrigation and
water supplies.
 One of the challenges in fiscal reform will be reconciling the need for
fiscal consolidation with appropriate tax reform.
 Farmers and enterprises should have access to finance at competitive
rates.
 The trend of national income growth is not so satisfactory. In certain
periods it was comparatively high but it could not be sustained in the
subsequent periods.
 There is also change in the structural composition of national income.
The contribution of agriculture is rapidly decreasing and the share of
industrial sector has been gradually increasing. Tremendous progress
has been shown by the service sector.
1.6 FURTHER READING
1) Agrawal, A. N. (2019). Indian Economy: Developmental Problems and

Policies. New Delhi: New Age International Publishers.
2) Datt, G and Mahajan, A. (2016). Datt & Sundharam’s Indian Economy.
New Delhi: S. Chand & Co.
3) Kapila, U. (2003). Indian Economy since Independence. New Delhi:
Academic Foundation.
4) Misra, S.K. & Puri, V.K. (2018). Indian Economy. New Delhi: Himalya
Publishing House.
1.7 ANSWERS TO CHECK YOUR PROGRESS
Ans to Q No 1: (a) True (b) True

Ans to Q No 2: TISCO was formed in 1907. Full form of the term is Tata
Indian Economy 29
Iron and Steel Company.
Ans to Q No 3: The primary motive of the colonial government behind its
policy to de-industrialise the India economy was two-fold. First, it sought
to reduce India to the status of a mere exporter of important raw
materials, such that the upcoming modern industries in Britain are
benefited. Secondly, it wanted to turn India into a market for the finished
products of those industries in Britain.
Ans to Q No 4: (a) True (b) False
Ans to Q No 5: The status of the social development indicators in India
during the British period was not quite encouraging. Literacy rate was
less than 16 per cent; of this, the female literacy rate was only about 7
per cent. Water and air-borne diseases were rampant and caused death
to many. Infant mortality rate was quite alarming —about 218 per
thousand. Life expectancy was also very low – only 32 years.
Ans to Q No 6: Introduction of the railways in India brought certain social
benefits like easy long distance travel, but it caused huge economic
loss to the country as well. First, railways fostered commercialisation
of Indian agriculture. This adversely affected the comparative self-
sufficiency of the village economies. Secondly, the volume of India’s
export rose significantly, but its benefits rarely accrued to the Indian
people.
Ans to Q No 8: Inflation is one of the emerging issues in India. With economic
growth of 9.2% per annum, inflationary pressures are likely to increase,
especially with supply side constraints such as infrastructure. Between
the fiscal year 2004-05 and 2007-2008, India had experienced an average
growth rate of more than 9%, but the global economic crisis caused
such adverse external shocks in the economy that a few sectors
experienced a slump. Inflation in India in 2009 stood at 11.49%.
Ans to Q No 9: On overall, the share of secondary sector has increased
from 1.48% of GDP in 1950-51 to 31.4% in 2014-15. The manufacturing
sector includes both registered & unregistered sectors. Similarly, the
share of tertiary sector which includes trade, transport, storage,
30 Indian Economy
communications, banking, insurance, real estate & community and
personal services improved from 28.0% in 1950-51 to about 54% in
2005-06.
1.8 MODEL QUESTIONS
Short Questions (Answer each question in about 150 words)

Q 1: Write a short note on the agricultural sector of India in the pre-
independence period.
Q 2: Briefly discuss the state of the industrial sector of India in the pre-
independence Period.
Q 3: What was the state of foreign trade in India during the pre-
independence period? Explain briefly.
Q 4: What were the demographic conditions and the pattern of
occupations structure of India during the pre-independence period?
Put forward a brief account.
Q 5: Make a brief sketch of the state of infrastructure during the pre-
independence period in India.
Q 6: Briefly discuss the structural change in the composition of national
income by industrial origin.
Essay-type Questions (Answer each question in about 500 words)
Q 1: Write an essay stating the scenario of the Indian economy in the
pre-independence period.
Q 2: Explain the emerging issues facing the Indian economy.
Q 3: Discuss the features of India as a developing Economy.
Q 4: Discuss the Trend of growth and composition of National Income in
India.
*** ****** ***
Indian Economy 31
UNIT 2 : POPULATION AND HUMAN RESOURCES
UNIT STRUCTURE
2.2 Introduction
2.3 The Theory of Demographic Transition
2.4 Size and Growth of Population in India
2.5 Characteristics of the Indian Population
2.6 Indicators of Human Development
2.7 Let Us Sum Up
2.8 Further Reading
2.10 Model Questions

 describe the concept of human resource,
 derive an idea about the different stages of demographic transition,
 discuss the growth and various characteristics of the Indian
population, and
 explain the concept of human development and its various indicators.
2.2 INTRODUCTION
We all know that man is the most intelligent creature on the earth.
By using his intelligence, man can innovate new skills and produce many
things. Thus, on account of his contribution to the production process,
human may be considered a valuable resource just like any other factor of
production.
Human resource may be considered as capital asset which yields
a stream of economic benefits over their working life. An improvement in
mental and physical capability enhances the quality of human capital. As
the human being contributes to growth and development by providing labour
as well as innovative and entrepreneurial skill, it is called human resource.
32 Indian Economy
Population and Human Resources Unit 2
Population can be considered a human resource as it contributes
to the production process. But population size should be optimum, it
shouldn’t be either too big or too small. A very small size of population may Optimum size of
not be able to supply labour force & fails to generate effective demand. population
Similarly, a huge size of population is a burden on the economy. Therefore, means that population
size, which the
it is important to maintain the optimum size of population for the balanced
ecology of the country
relationship between population size and economic development. But this
can sustain. But it is
relationship is a two way relationship. One important theory to explain how not the maximum
development affects population is the Theory of Demographic Transition number of population.
which states that population growth can be studied in three stages. This
unit begins with a brief outline of the Theory of Demographic Transition.
Then it discusses the size, growth and characteristics of the Indian
population. Then, finally we shall discuss the concept of human development
and the indicators of human devlopment viz., the Human Development Index
(HDI).
2.3 THE THEORY OF DEMOGRAPHIC TRANSITION
The theory of demographic transition postulates that birth rate and

death rate differ in different stages of development. Population growth can
be studied in three stages. Hence the sequence of birth and death rate are
typically associated with economic development.
First stage: In the first stage of population growth both birth rate
and death rate are very high. This keeps the actual growth rate of population
low. According to this theory, death rate is high in the first stage because of
several interrelated reasons. Developing countries are normally agrarian in
nature with low productivity. People suffer from malnutrition, improper
sanitation measures and absence of effective medical aid. In this stage,
birth rate is also high because of some deep-rooted social belief, religious
belief, early marriage, ignorance & absence of knowledge about family
planning measures. Thus, the first stage is characterised by a high death
and high birth rate. But such high birth rate shows the growth potentials
only. The actual growth rate is very low since high birth rate is balanced by
Indian Economy 33
Unit 2 Population and Human Resources
high death rate and vice versa. As a consequence, the growth rate of
population is slow.
Second stage: In the second stage of demographic transition, the
death rate starts falling rapidly, but the birth rate remains almost stable.
This leads to the widening of difference between the two, resulting in a very
fast rise in the growth of population. Rise in income level enables the people
to improve their diet. Economic development also brings about all-round
improvement including the progress of health and other facilities. All these
direct and indirect effects of development tend to reduce the death rate.
Thus, in this stage the actual rate of population growth is high because of
falling death rate even if birth rate remains stable or there is slight fall in it. In
fact, in the second stage, the birth rate may actually increase because the
number of persons in their reproductive age increases with a rise in life
expectancy. Therefore, we can say that in the second stage, the growth
rate of population becomes very rapid. India is in this phase of population
explosion. But such rapid population growth has very serious consequences
for the country’s economic growth.
Third stage: The continuing development process further changes
the basic characteristics of a developing country. Development brings about
industrialization and urbanisation. As a result, people gradually develop a
tendency to move from rural to urban areas. To cope up with the trend of
urbanisation & rising cost of living, women have to go out for work. Under
such circumstance, it becomes difficult to maintain large families and
children become a problem instead of being a matter of pride.
Further, because of the expansion of education, people change their
attitudes; they give up traditional beliefs & old values. Gradually, a stage
comes to life when people realise the advantage of small family. As a result,
birth rate falls gradually. On the other hand death rate is already very low
which however can’t be zero; because man can not escape death. In this
way, the gap between birth rate and death rate narrows down and the growth
of population becomes very slow. Thus, in the third stage, the birth rate and
death rate become stable at low level, resulting in a very slow rise in
population. The three stages explained above reveal the transformation of
34 Indian Economy
a primitive high birth & high death rate economy into a low birth & low death
rate economy.
CHECK YOUR PROGRESS
Q 1: Why is the human being considered a

capital asset? (Answer in about 30 words)
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...............................................................................................
Q 2: Outline the basic features of the three stages of demographic
transition. (Answer in about 40 words)
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2.4 SIZE AND GROWTH OF POPULATION IN INDIA
After the above discussion of the Theory of Demographic Transition,

we can definitely say that India is out of the first stage but it has not entered
the third stage either. Therefore, it can be said that India is passing through
the second stage. But there are some differences with the theoretical
formulation of this stage and the ground realities in India. In the beginning of
20th century the size of population in India was 236 million and this has
grown to the size of 1,027 million according to the census of 2001. A study
of the growth rate of India’s population falls into four phases:
1891-1921 : stagnant population
1921-1951 : Steady growth
1951-1981 : Rapid high growth
1981-2001 : high growth with definite sign of slowing down
Compound Annual Growth Rate (CAGR) : If we study the trend of Compound annual
India’s population growth, these four phases will be seen clearly. From Table growth rate (CAGR)
measures the annual
2.1 it has been found that during 1981-1921, compound annual growth
rate of growth of
rate (CAGR) of population was very low. But from 1951, population grew at return over time.
Indian Economy 35
almost 2.1 percent & the high growth rate continued up to 1981. Population
was still growing, but there was a slight fall in the compound growth rate.
Since the last census in 2011, population has grown at the rate of merely
1.64 percent per annum.
Table 2.1: Compound annual growth rate of population in India
Time period CAGR of population
1891-1921 0.19
1921-1951 1.22
1951-1981 2.15
1981-1991 2.11
1991-2001 1.93
2001-2011 1.64
Source: Census of India, 2011
Prior to 1921, India was at the first stage of demographic transition.
The year ‘1921’ is also called the year of great divide. This is so because
before 1921, the rise of population was very slow and irregular, but after
1921 there was rapid and uninterrupted increase in it. Thus, from 1921
onwards, India has entered into the second stage of demographic transition
in which the high growth potential of population was realised as a high actual
growth of population. In view of the trend, it has been realised that very
soon India will enter the third stage of demographic transition.
Causes of high birth rate in India : After knowing that India has
been experiencing population explosion, naturally a question arises in our
mind regarding the causes of such high birth rate. High birth rate is a special
feature of the under developed and developing countries. Several factors
are responsible for this high birth rate. Some of the important causes are
mentioned below–
 Poverty : Poverty, associated with illiteracy and ignorance makes people
believe that a large number of children can generate more income.
Besides, there is an intensification of reproductive capacity in chronically
starved people which develops through a complex process, involving
psychological factors.
36 Indian Economy
 Religious belief and social attitude : Especially among the Hindus, it
is a common belief that without a male child, it is not possible to get
deliverance from the cycle of birth and rebirth. Marriage is considered
as an universal custom that has to be followed at an early age. In general,
unmarried people don’t enjoy respect in the society. All these factors
contribute to increasing the reproductive rate.
 Illiteracy & ignorance about family control measure : India is yet to
obtain a high level of literacy. Particularly women folks are not advanced
in comparison to the male counterpart. Many of them don’t know the
merits of family control and the measures associated with it. Govt. of
India has adopted several policy measures in this respect but the results
are not so satisfactory.
CHECK YOUR PROGRESS
Q 3: Why is the year 1921 called ‘the year of

great divide’? (Answer in about 30 words)
...............................................................................................
...............................................................................................
...............................................................................................
Q 4: There are three stages in the theory of demographic transition.
In which stage is India at present?
...............................................................................................
...............................................................................................
2.5 CHARACTERISTICS OF THE INDIAN

POPULATION
Having acquired some knowledge about the size and trend of

population growth, it would be useful to know some of the characteristics of
Indian population. These have been discussed below:
 Sex ratio: Sex ratio shows the number of females per thousand males.
It can be calculated by dividing the total number of females by total
number of males and multiplying the resultant by 1000.
Indian Economy 37
As per 2011 census, there are 940 females for per thousand males.
This is marginally higher compared to the figure of 2001 census which
was 933. Table 2.2 shows the overall trend of sex ratio in the country
since 1901.
Table 2.2: Sex Ratio in India
Year Females per thousand Year Females per thousand
males males
1901 972 1961 941
1911 964 1971 930
1921 955 1981 934
1931 950 1991 927
1941 945 2001 933
1951 946 2011 940
Source: Indian Economy, Datt and Sundharam, 2016.
The above table shows that the sex ratio has been declining
continuously barring the marginal improvement at a few points. Also
note that among different states, Kerala alone shows a higher proportion
of females, 1084 per thousand males in 2011. The states which had
lower sex ratio than the national average are Assam, West Bengal,
Bihar, Rajasthan, U.P, Punjab & Harayana. There is no universally
acceptable explanation of declining sex ratio in India. This is because
female foetuses are biologically stronger than the male foetuses and
there is every possibility that women has longer life expectancy than
male. However, there are few a reasons which have been put forward
to explain this contradiction. First, a girl child is often ignored in the
society. Some societies practise infanticide and foeticide. Secondly,
because of ignorance, Indian women give birth to babies at a very short
interval. This leads to death of many women. Thirdly, it is doubtful whether
women were counted correctly. Because whenever any outsider comes,
they remain under the veil to maintain social tradition. So, some women
may refuse to appear before an enumerator with the resultant non
recording of such women.
38 Indian Economy
 Age Composition : Age composition of population gives an idea about
the proportionate number of persons in successive age categories in a
given population. A population with persistently high fertility, for instance,
has a large proportion of children and a small proportion of aged persons.
But against this, a population with low fertility for a long time, has a
smaller proportion of children and a larger proportion of aged persons.
Information on the age composition is important for several reasons.
The study of age composition is helpful in determining the proportion of
labour force in the total population, unproductive consumer and
dependent population. The census figure of 2001 shows that the
proportion of child population in the age group 0-14 was 35.6 percent.
The figure shows a high proportion of unproductive consumers in the
population size. But the proportion of unproductive consumers was even
higher in the previous four decades. The percentage of workforce which
considers the age group 15-60 is 58.2. But the percentage of population
in the age group of 60 and above is as low as 6 percent. This small
percentage in this age group is owing to the low life expectancy of the
Indian population.
 The Density of Population : The concept of density of population gives
an idea about the average number of people living in a given km. area.
It indicates the ratio of population to land. The density of population has
been rising since 1921. The increase has been rapid from 1951 onward.
The density of population was 77 persons living per square km. in 1901.
This very small figure jumped to 267 per square km. of area in 1991 &
further shot up to 324 per square km. in 2001 and then to 382 in 2011.
But there is variation in density of population among different states
& within states. There are differences in density in different regions
also. As per Census 2011 figures, the density of population is the highest
in the union territory of Delhi (11297). Among the states, the density of
population is the highest in West Bengal (1102) and the lowest in
Himachal Pradesh (123). There are many reasons for this; but the
main reasons behind such variation in density of population are due to
variation in climate, rainfall, irrigation facilities etc. Another reason may
Indian Economy 39
be disparity in industrial development.
 Rural Urban Ratio : Before discussing rural urban ratio in India, it would
be better if we have a glimpse of the concept of ‘urbanisation’. In a very
simple way urbanisation can be described as the process of conversion
of rural areas into urban areas. But the parameters used for describing
urbanisation vary among different countries. At present an urban area
has thus been defined in India as follows:
 All places with a municipality, corporation, cantonment board or
notified town area committee
 All other places which satisfy the following criteria:
o A minimum population of 5,000,
o At least 75 percent of the male working population engaged in
non agricultural activities, and
o Density of population is at least 400 persons per sq. km.
The main features of urbanisation in India are as follows:
 The urban population has grown rapidly since 1961, with the decadal
growth rate for 1961-71. at over 38 percent. During the period 1991-
2001, the urban population has increased at the rate of 31 percent.
As percentage of total population, the urban population was about
11 percent in 1901, about 18 percent in 1961, about 26 percent in
1991, 28 percent in 2001 and 31.2 in 2011.
 There has been a larger rise in the population of big towns. In
comparison to class I and Class II towns, the percentage of urban
population in smaller towns (class II) has in fact declined.
 There is variation in the level of urbanisation among different states.
But in spite of high rate of urbanisation, a majority of population lives
in rural areas. The percentage of total population living in rural area is
68.8 in 2011, thus, leaving the urban figure to be 31.2. In Table 2.3, the
percentage of rural and urban population in India over a period of hundred
years has been shown.
40 Indian Economy
Table 2.3: Relative growth rate of rural and urban population
Year Percentage Percentage Year Percentage Percentage
of rural urban rural urban
population population population population
1901 89.0 11.0 1961 82.0 18.0
1911 89.6 10.4 1971 80.1 19.9
1921 88.7 11.3 1981 76.7 23.3
1931 87.8 12.2 1991 74.3 25.7
1941 85.9 14.1 2001 72.2 27.8
1951 82.7 17.3 2011 68.8 31.2
Source: Indian Economy, Datt and Sundharam, 2016.
Over the time, the percentage of urbanisation has been increasing
gradually. But the overall picture remains the same; thus, the Indian
economy may be described as a rural economy as against western
economies which are often designated as industrial or urban economies.
This trend depicts the structure of the Indian economy. With
inadequate industrial infrastructure, there is little increase in the industrial
development. The result is two fold: first, urbanisation as indicated by
the urban population is no doubt, more than what it was before, but it is
still very small in magnitude. Secondly, since agriculture continues to
be the main occupation of the people, the absolute rural population is
much bigger in size.
 Occupational Distribution of population : Occupational distribution
of the working population of the country refers to the aggregate
distribution of occupations in society, classified according to skill level,
economic function, or social status. The occupational distribution of an
economy depends on the importance given to different industries, level
of technology, nature of labour market and on different social issues.
The occupational structure is described and analysed by means of
various classificatory schemes, which group similar occupations
together according to specific criteria such as skill, employment status,
or function. Such classifications are also used as a basis for the
empirical analysis of economic and social class. The working population
Indian Economy 41
42
Unit 2
Table 2.4: Occupational Distribution of the Indian Work Force over the Years
Industry, Division / Group 1961 1993-94 1999-2000

No. of Share No. of Share No. of Share
workers workers workers
(in 1000) (in 1000) (in 1000) (in 1000) (in 1000) (in 1000)
Agriculture, Forestry and Fishing 143,282 759 238,682 638 237,786 599
Mining & Quarrying 919 5 2,676 7 2,263 6
Manufacturing & Repairing
1961, 1993-94 and 1999- 2000 :
Services 17,906 95 43,218 116 48,296 122

Electricity, Gas & Water 257 1 1,394 4 1,048 3
Construction 2,768 15 12,127 32 17,618 44
manufacturing and repairing activities.
Trade, Hotels & Restaurants 8,171 43 28,459 76 37,728 94

Transport, Storage &
participation are 41.97 and 32.23%, respectively.
Communication 3,262 17 10,757 29 14,757 37

Finance, Insurance,
Real Estate &
Business Services 542 3 3,653 10 4,924 12
Community, Social &
Personal Services 11,571 62 32,866 88 33,200 83
TOTAL WORK FORCE 188,676 1000 373,832 1000 397,018 1000
share per thousand populations has been increasing in
population of the nation. In rural and urban areas the workforce
The following table 2.4 shows the different estimates of the
 Over the period of time, there has been a trend of decline in the
of India according to 2001 Census report is 39.26% among the total
share of the agriculture and allied activities. On the other hand, the
occupational distribution of the work force of India over the years viz.,
Indian Economy
Population and Human Resources
 The construction sector has also shown an increasing trend in the
work force participation. Similar trend has been recorded in work
force participation in transportation, storage and communication,
finance, insurance and real estate.
 Even when the share of the agricultural sector is declining over the
period of time, but the sector still engages the largest number of
workers. Thus, the Indian economy is still characterised as a primitive
economy, primarily led by farmers, fishermen and agricultural
labours.
CHECK YOUR PROGRESS
Q 5: State is the meaning of sex ratio. Trace

the causes behind the imbalance in sex ratio in
India. (Answer in about 50 words)
...............................................................................................
...............................................................................................
...............................................................................................
...............................................................................................
...............................................................................................
Q 6: Briefly enumerate the age composition of the population of
...............................................................................................
...............................................................................................
...............................................................................................
...............................................................................................
2.6 INDICATORS OF HUMAN DEVELOPMENT
The concept of human development emphasises on positive

freedom as a key element in any definition of a good society. It judges a
society by policies, procedures, and structures by which the needs are
met—whether they promote moral responsibility, rational choice and other
Indian Economy 43
features of full human development. Such a society can enable its citizen
to aspire to achieve greatness, to develop virtues and loyalty, to become
skilled and artistic, and also to attain wisdom. Such opportunities can build
capability.
Human-centered development has the ultimate objective of enabling
all people to enjoy long, healthy and creative lives. It weaves the development
process around people, rather than weaving people around the
developmental process. Economic growth is also important but it is a way,
not an end. In the long run, it is human growth that matters most, not
economic growth.
Since 1990s, the United Nations Development Programme has been
issuing the Human Development Report with the Human Development
Index as a comprehensive measure of human development. The basic
tenet of the Human Development Report is that a long and healthy life along
with the basic educational skills of reading and writing and being capable of
maintaining a decent standard of living are the essential components of
human development.
As a result, the HDI has been used to measure human development
through the following three indices:
 A long and healthy life, as measured by life expectancy at birth. Thus,
it indicates the number of years a newborn infant would live if prevailing
patterns of mortality at the time of its birth were to stay the same
throughout its life.
 Knowledge, as measured by the adult literacy rate (with two-third
weight) and the combined gross enrolment ratio in primary, secondary
and tertiary levels of education (with one-third weight), and
 A decent standard of living, as measured by Gross Domestic Product
(GDP) per capita in purchasing power parity (PPP) in terms of US
dollars.
44 Indian Economy
LET US KNOW
Gross enrolment ratio : The gross enrolment ratio

(GER) or gross enrolment index (GEI) is a statistical
measure used in the education sector by the UN in its Education
Index. The GER gives a rough indication of the level of education
from kindergarten to postgraduate education – known in the UK and
some other countries (mostly in the Commonwealth of Nations) as
primary, secondary, and/or tertiary – amongst the residents in a given
jurisdiction.
In the UN, the GER is calculated by expressing the number of
students enrolled in primary, secondary and tertiary levels of education,
regardless of age, as a percentage of the population of official school
age for the three levels.
Purchasing power parity (PPP): It is the rate of exchange that
accounts for price difference across countries, allowing international
comparisons of real output and incomes. In the calculation of PPP,
the economy of the United States is used as a reference, so that
country is set at 100.
Now, let us consider India's achievements in different indicators of
the Human Development Index in the recent years. We have taken the
HDI of 2007/08 and 2019.
Table 2.5: India’s Position in the Indices (HDR, 2007/08)
1. Life expectancy at birth (in years) 63.7
2. Adult literacy rate (in %) 61.0
3. Combined gross enrolment ratio (%) 63.8
4. GDP per capita (PPP US$) 3,452
Please note that some changes have been made in the methodology
of calculationg HDI from time to time. The latest HDR of 2019 reflects
that India was placed in 129th position and the different indicators
recorded in case of India are as follows:
Indian Economy 45
Table 2.6: India’s Position in the Indices (HDR, 2019)
1. Life expectancy at birth (in years) 69.4
2. Expected years of schooling 12.3
3. Means years of schooling 6.5
4. GNI per capita (PPP US$) 6,829
ACTIVITY 2.1
Try to find out the ranks of India and its neighbouring

countries in the Human Devlopment Reports (as many
as possible) published by the UNDP.
............................................................................................................
............................................................................................................
............................................................................................................
............................................................................................................
CHECK YOUR PROGRESS
Q 7: What does the life expectancy at birth

indicate? (Answer in about 40 words).
...............................................................................................
...............................................................................................
...............................................................................................
...............................................................................................
Q 8: What is meant bypurchasing power parity? (Answer in about
30 words)
...............................................................................................
...............................................................................................
...............................................................................................
2.7 LET US SUM UP
 To outline the scenario of population growth of India it is important to

know some of the characteristics of the population.
46 Indian Economy
 The first is sex ratio which shows the number of females per thousand
males. As per 2011 census, there are 940 females per thousand males.
 The second is age composition. The age composition in India shows
the percentage of workforce is the age group 15-60 is 58.2 but at the
same time a major portion is unproductive consumers.
 The third is density of population which shows the ratio of population to
land. The fourth is rural urban ratio. The urban population has grown
rapidly since 1961. But there is variation in the level of urbanisation
among different states. In spite of high rate of urbanisation, a majority of
population lives in rural area.
 The percentage of total population living in rural area is 72.2 in 2001.
Occupational distribution shows the aggregate distribution of occupation
in a society. The occupational structure is described and analysed by
means of various classificatory schemes, which group similar
occupations together according to specific criteria such as skill,
employment status, or function.
 As the human being contributes to growth and development by providing
labour as well as innovative and entrepreneurial skill, it is called human
resource.
 India is experiencing very high rate of population growth. But it has been
expected that the population size will soon become stable.
 Growth and development may contribute to the control of population
size.
 The human development index (HDI) is a summary measure of human
resource development. It measures the average achievements in a
country in three basic dimensions of human development viz. healthy
life, knowledge and standard of living. These three qualitative measures
are supported by quantitative parameters such as life expectancy at
birth, literacy/education and per capita GDP respectively.
2.8 FURTHER READING
Indian Economy 47
Publishing House.
Ans to Q No 1: We all know that human is the most intelligent creature on

the earth. By using its intelligence, it can innovate new skills and produce
many things. Thus, on account of its contribution to the production
process, human may be considered as resource just like any other
factor of production.
Ans to Q No 2:The basic features of the three stages of demographic
transition are:
In the first stage: both the birth rate and death rate are very high.
This keeps the actual growth rate of population low.
In the second stage: the death rate starts falling rapidly, but the
birth rate remains almost stable. This leads to the widening of difference
between the two, resulting in a very fast rise in growth of population.
In the third stage: the birth rate and death rate become stable at low
level, resulting in a very slow rise in population.
Ans to Q No 3: Prior to 1921, India was at the first stage of demographic
transition. The year ‘1921’ is also called the year of great divide. This is
so because before 1921, the rise of population was very slow and
irregular, but after 1921 there was rapid and uninterrupted increase in it.
Ans to Q No 4: At present India is in the second stage and it is predicted
that India will enter the third stage very soon.
Ans to Q No 5: Sex ratio shows the number of females per thousand males.
As per 2001 census, there are 933 females per thousand males. There
is marginal increase over the figure of 1991 census which was 927.
48 Indian Economy
There are several interrelated socio-economic and political causes
behind the imbalance in sex ratio in India. But the frequently quoted
cause are–
 First, a girl child is often ignored in the society. Some societies
practise infanticide and foeticide,
 Secondly, the interval between two babies is very short. This leads
to death of many women, and
 Thirdly, there may be problems in the methods of estimation of sex
ratio.
Ans to Q No 6: The age composition of India shows that-
 The working population in the age group 15-60 is 58.2. but against
this a high percentage of population(35.6 percent) is unproductive.
 But the percentage of population in the age group 60 and above is
as low as 6 percent because of low life expectancy.
Ans to Q No 7: Life expectancy at birth indicates the number of years a
newborn infant would live if prevailing patterns of mortality at the time of
its birth were to stay the same throughout its life.
Ans to Q No 8: Purchasing power parity is the rate of exchange that
accounts for price difference across countries, allowing international
comparisons of real output and incomes. In the calculation of PPP, the
economy of the United States is used as a reference, that country is set
at 100.
2.10 MODEL QUESTIONS

Q 1: Discuss the three stages of demographic transition.
Q 2: Write a short note on the construction of the Human Development
Index.
Q 3: What do you mean by occupational distribution of population? Briefly
discuss how the occupational distribution of population in India has
changed over the period of time.
Indian Economy 49
Essay type Questions (Answer each question in about 500 words)
Q 1: What is human resource? Is there any relation between development
and population size?
Q 2: Critically discuss the trends of population of India in the context of
the theory of demographic transition.
Q 3: What are the different characteristics of population? Discuss in the
context of Indian population.
Q 4: What is the meaning of human development? What are the different
components of human development considered in the construction
of the human development index?
*** ***** ***
50 Indian Economy
UNIT 3: INFRASTRUCTURE IN THE INDIAN
ECONOMY
UNIT STRUCTURE
3.2 Introduction
3.3 Energy and Power Infrastructure
3.3.1 Coal
3.3.2 Oil and Natural Gas
3.3.3 Biomass and Charcoal
3.3.4 Wind, Nuclear and Solar Energy
3.3.5 Electricity
3.4 Transport System
3.4.1 Rail Transport
3.4.2 Road Transport
3.4.3 Air Transport
3.4.4 Water Transport
3.5 Communication System
3.5.1 Postal Service
3.5.2 Telecommunication
3.5.3 Radio and Television
3.5.4 Internet
3.6 Urban Infrastructure in India
3.7 Smart Cities Mission
3.8 Industrial Corridor
3.9 Let Us Sum Up
3.10 Further Reading

 acquire an in depth knowledge about the latest development of
Indian Economy 51
Unit 3 Infrastructure in the Indian Economy
infrastructure in the field like energy and power and transport and
communication
 discuss development of urban infrastructure in India along with the
government schemes for development is also added to it
 acquire knowledge of the concepts like Industrial corridors and smart
cities mission
 describe the recent infrastructural development in the Indian
economy.
3.2 INTRODUCTION
The development of an economy depends on mainly its social

overhead capitals (SOCs) which we call as infrastructure. We also know
that Infrastructure, be it social or economic, offers foundations for the smooth
functioning of the economy and thereby increasing the pace of economic
development. In India the main catalyst for the development is nothing but
the Infrastructure sector. Realizing the great role of this sector as an agent
to speed up India'sall round development, government initiating various
policies for boosting up infrastructure in the country. Though, this sector is
one of the largest receivers of Foreign Direct Investment inflows in India, at
present the infrastructural sector of India is not much satisfactory to compete
globally. For instance, in 2018, India ranked 44th out of 167 countries in
World Bank's Logistics Performance Index (LPI) 2018. So the demand for
good and world class infrastructure in India is very high. However the
remarkable achievement has been made in the last four years in terms of
growth of transport and communication and energy sector. The total national
highways length increased from 92,851 kms in 2013-2014 to 122,434 kms
in 2017- 2018. Energy deficit reduced to 0.7 per cent in 2017-18 from 4.2
per cent in 2013-14. India's rank jumped to 24 in 2018 from 137 in 2014 on
World Bank's Ease of doing business - "Getting Electricity" ranking. Number
of airports has increased to 102 in 2018.
According to a report, for maintaining sustainable development with
strong infrastructural facilities India needs an investment of 50 trillion us
52 Indian Economy
Infrastructure in the Indian Economy Unit 3
dollar by 2022. In the coming years this sectors will become a source
of investment, employment and income. For instance only 24 per cent of
National Highway Network in India is four-lane. For expansion, there is much
greater scope for employment and investment in this field. The NDA
government announced the project like smart cities for urban development
andhousing for all .This kind of initiatives will boost up the investment and
optimism and growth of the sector and thus attract the global players in the
field of infrastructure.
The Government of India is expected to make a huge investmentin
the fields like highways, renewable energy and urban transport in the coming
years. For example in the Union Budget 2019-20, the following initiatives
were taken to boost up infrastructural sector.
 The Government of India has given a big push to the infrastructure sector
by allocating Rs 4.56 lakh crore (US$ 63.20 billion) for the sector.
 Rs 38,637.46 crore (US$ 5.36 billion) is allocated for Communication
sector to development of post and telecommunications departments.
 Rs 66.77 billion (US$ 9.25 billion) is allocated for the Indian Railways
under Union Budget 2019-20. Out of this allocation, Rs 64.587 billion
(US$ 8.95 billion) is capital expenditure.
 Road transport and highway receives Rs 83,015.97 crore (US$11.51
billion)
 Allocation of Rs 8,350.00 crore (US$ 1.16 billion) to boost telecom
infrastructure.
 Water supply for all households in 500 cities
 Rs 3,899.9 crore (US$ 540.53 billion) to increase capacity of Green
Energy Corridor Project along with wind and solar power projects.
 Allocation of Rs 888.00 crore (US$ 110.88 million) is made for the up
gradation of state government medical colleges (PG seats) at the district
hospitals and Rs 1,361.00 crore (US$ 188.63 million) for government
medical colleges (UG seats) and government health institutions.
Indian Economy 53
LET US KNOW
What is Infrastructure?
Infrastructure refers to the basic physical systems that
provide support to the structure of the economy. Infrastructure includes
transportation facilities, telecommunications networks, and water
supplies. Large scale infrastructure is generally provided by the
government or publicly regulated monopolies. Private firms or through
local collective action often smaller infrastructure can be generated.
The status of various infrastructures in India has been discussed in

this Unit.
3.3 ENERGY AND POWER INFRASTRUCTURE
Energy infrastructure deals with production consumption and import

of energy including electricity. Energy and power infrastructure include
production and distribution of Coal, Oil and Natural Gas, LPG, Biomass and
Charcoal, Biogas etc including solar energy and electricity. The energy policy
of India is largely defined by the country's expanding energy deficit and thereby
aimed on developing alternative source of energy, particularly solar energy,
tidal, wind and nuclear energy. India ranks 81 in overall energy self-sufficiency
in 2014 and energy sufficiency in India are 66 per cent. India ranks second
after China in renewables production with 208.7 Million Tons in 2016.In
India,during 2018, the total investmentin energy sector was 4.1% of total
global investment (US$ 75 billion of US$ 1.85 trillion global investment). The
primary energy consumption like consumption of coal, oil etc. in India grew
by 7.9% in 2018 and is the third biggest after China and USA with 5.8%
global share. So to meet the huge demand India has to import different
types of primary energy. In 2018, India's net imports are nearly 205.3 million
tons of crude oil and its products, 26.3 million tons of LNG (Liquefied Natural
Gas) and 141.7 Million Tons of coal, which is equal to the 373.3 Million tons
of primary energy or 46.13% of total primary energy consumption. It is seen
that India is largely dependent on fossil fuel imports to meet its energy
54 Indian Economy
demands. It is expected that by 2030, India's energy imports is expected to
exceed 53% of the country's total energy consumption.
Table 3.1 shows the primary energy consumption in India in the
calendar year 2018. From the table it is seen that the highest consumption
is of Coal followed by crude oil. The lowest consumption is of nuclear energy.
Table 3.1 : Primary energy consumption in India in 2018
Primary energy
Primary energy
consumption Percentage (%)
Head
(in Million tons)
Crude oil 239.1 29.55
Natural gas 49.9 6.17
Coal 452.2 55.88
Nuclear Energy 8.8 1.09
Hydro electricity 31.6 3.91
Renewable Energy 27.5 3.4
Total 809.2 100
In the field of electricity generation India is in advantageous position.

She is the surplus producer and even slight exporter of electricity.
In 2017-18, the energy consumption per capita is 55 lakh kcal
excluding traditional biomass use. The energy intensity of the Indian economy
is 56 Kcal /INR(0.2332 Mega Joules per INR). Due to rapid development
projects the demand for energy in India has increased manifolds. Therefore
the energy market is growing very rapidly in recent years. By 2035 Indian
market is expected to become the second-largest in global energy demand
and will consume 18% of the rise in global energy consumption. Now India's
growing energy demands and limited stock of nonrenewable energy like
domestic oil and gas reserves compels the country to harness the
nontraditional or alternative sources of renewable energy whose supplies
are unlimited. So importance of renewable energy like nuclear energy, solar
energy, wind energy or tidal energy has increased.
The various sources of energy are summarized in the following.
3.3.1 Coal
India was the fourth largest coal producer in 2017 with 294.2 million
tons (7.8% global share). You will be surprised to know that nearly
Indian Economy 55
80% of total electricity generated (utility and captive) in India is from
coal. According to Greenpeace, an International NGO, the largest
coal belt in India is at Jharia of Jharkhand having 19.4 billion tons of
cooing coal. Before coal mining Jharia had forests inhabited by tribes.
In 1971 the coal mines were nationalized and Bharat Cooking Coal
Limited (BCCL) took over Jharia coal mines.India accounts for the
world's greatest concentration of coal seam fires. So areas
surrounding coal fields usually suffers from pollution of air, water
and land.In India coal are mainly found in Eastern and South central
India. Jharkhand has the highest deposit of coal.
Table 3.2 shows the coal reserve in different states of India.
Table 3.2: Coal reserve in India by states
Coal Reserve (In Coal Reserve (In
States Billion Metric States Billion Metric
Tons) Tons)
Jharkhand 83.15 Bihar 1.37
Odisha 79.30 Uttar Pradesh 1.06
Chhattisgarh 57.21 Meghalaya 0.58
West Bengal 31.67 Assam 0.53
Madhya Pradesh 27.99 Nagaland 0.41
Telangana 21.70 Sikkim 0.10
Maharashtra 12.30 Arunachal Pradesh 0.09
Andhra Pradesh 1.58 India 319.0
Source: Ministry of Coal, GOI
3.3.2 Oil and Natural Gas
Crude oil and natural gas is the second and third largest producer of
electricity in India just after coal. They contributed 10.34 per cent
and 8.7 per cent of total electricity generated in India respectively. As
on 31 March 2018, India had estimated crude oil reserves of 594.49
million tons (MT) and natural gas reserves of 1339.57 billion cubic
meters (BCM). In 2017 , India was the third top crude oil consumer
globally. About 4.8% of global consumption was done in India which
is equivalent to 221 Mt. In the same year the net crude oil (including
crude oil products) importswas188 Mt which puts India in third rank
among Oil importer countries. India has a huge demand for oil and
imports 82% of its oil needs. But by 2022 India aims to reduce her oil
56 Indian Economy
import by 67 per cent and for this focus would be on local exploration,
extensive use of renewable and alternative source of energy. Oil
and natural gas are mostly found in Assam, Gujarat and East and
Western offshore of the country. Assam has a reserve of 159.96 MT
of crude oil and 158.57 BCM of natural gas which is the highest
among the states in India. However the largest reserve of oil and
natural gas is found in Western offshore
Liquefied petroleum gas:Nearly 10.52 million tons liquefied
petroleum gas (LPG) was consumed during April to September 2018
(six months) in domestic sector mainly for cooking. The number of
domestic connections are 247 million (one connection for five people)
with a circulation of more than 368 million LPG cylinders. India is
second largest consumer of LPG globally.Most of the LPG
requirement is imported. Piped city gas supply in India is not yet
developed on major scale.
3.3.3 Biomass and Charcoal
Biomass is a renewable energy source and its use for energy

generation in carbon neutral fuel. It is carbon neutral because it would
also release greenhouse gases like methane and carbon dioxide
when it is left to degenerate without using as energy source. India
produces about 450-500 million tonnes of biomass per year. 32
percent of all primary energy used in the country is from biomass.
Plants like Jatropha curcas, Neem, Mahua and other wild plants are
identified as the potential sources for biodiesel production in India.
Presently, only 20% of households in India use biomass and charcoal
for cooking purpose. In addition biomass is also used marginally in
commercial cooking, electricity generation, process industries, etc.
The total biomass use in India is nearly 177 Million tons in the year
2013. Nearly 750 million tons of nonedible (by cattle) biomass is
available annually in India which can be put to use for higher value
addition.
Indian Economy 57
3.3.4 Wind, Nuclear and Solar Energy
India's position in world's wind power market is fourth largest. The

Government is about to add 100,000 MW of solar power capacity by
2020.
India has also planned to increase the contribution of nuclear
power from 4.2% to 9% to overall electricity generation capacity within
25 years. The country has five nuclear reactors under construction
(third highest in the world) and plans to construct 18 additional nuclear
reactors (second highest in the world) by 2025.
Solar energy is also a renewable source of energy which
can be harnessed very effectively. The energy of sun is limitless
and can be converted to electricity using appropriate technology.
The cost of solar energy in India is lower than any other type of
power generation in India. Also the cost of solar thermal power project
plan in India is cheaper than fossil fuel plants. Very shortly, solar
electricity price is going to become the benchmark price for deciding
the other fuel prices based on their ultimate use and advantages.
3.3.5 Electricity
About 80% of the Indian population had access to electricity. By 2013,

India became the world's third largest producer of electricity with
4.8% global share, surpassing Japan and Russia.India ranks 7th
globally in hydropower generation during the year 2015.
India has 111 gigawatts (GW) (32%) installed capacity of
renewable energy and set a target of 175 GW by 2022. This would
include 100 GW capacity from solar energy sources, 60 GW from
wind power, 10 GW from bio power, and 5 GW from small
hydropower. India is one of the world leaders in renewable energy
investments and installations. In 2018 the central government set
up a US$350-million fund to finance solar projects.
58 Indian Economy
3.4 TRANSPORT SYSTEM
We know that the transport system in India includes Rail transport,

Road transport, Air transport, water transport and portal connectivity. India
has one of the largest road networks in the world, largest railway system in
Asia and second largest in the world.
3.4.1 Rail Transport
Indian Railway is the national railway network which is operated by

Ministry of Railway. The first rail railway line in India was operated for
public in 1853, between Bombay (Now Mumbai) to Thane over
distance of 34 km and it was nationalized in 1950.Indian Railway is
the 3rd largest rail network in the world after US and China. It is a
multi-gauge, multi-traction system covering Broad Gauge (1676
mm), Meter Gauge (1000 mm), Narrow Gauge (762/610 mm) with.
route length of 67,368-kilometre (41,861 mi) and total track length of
121,407-kilometre (75,439 mi) as of March 2017.Indian Railway runs
more than 20,000 passenger trains daily, on both long-distance and
suburban routes, from 7,349 stations across India. The fastest trains
in Indian railways are Rajdhani Expresss, Shatabdi Express and
Gatiman Express. Indian railways has also introducedthe semi-high
speedVande Bharat Express (also called asTrain-18), between Delhi-
Varanasi and Lucknow-Delhi with a maximum track speed of 180
km/h. Train 18 is so far the fastest train in India. The Vivek Express
- from Dibrugarh to Kanyakumari - travels 4,273 km, making it the
longest-run in terms of total time & distance. The Konkan Railways
passes through 3 states of India - Goa, Maharashtra and Karnataka.
It runs along the Indian west coast parallel to Arabian Sea and
Western Ghats. It is an extremely beautiful and scenic route running
from Maharashtra till Karnataka (112mph). The railways recognised
by UNESCO are Darjeeling, Himalayan Railways, Nilgiri Mountain
Railways, Chhatrapati Shivaji Terminus, and Kalka-Shimla Railways.
Indian Economy 59
Indian Railway runs more than 9,200 freight trains daily. Indian
Railway has 17 zones. The production units are Chitranjan
Locomotive works at Chitranjan, Diesel Locomotive works at
Varanasi, Diesel Loco modernization works at Patiala, Integral coach
Factory at Chennai, Rail coach Factory at Kapurthala, Rail wheel
factory at Bengaluru. Indian Railway becomes the world's eighth-
largest employer, it had 1.308 million employees as of March 2017.
In 2018, IR carried 8.26 billion passengers and transported 1.16 billion
tons of freight. In the fiscal year 2017-18, IR is projected to have
revenue of ?1.874 trillion (US$27 billion), consisting of ?1.175 trillion
(US$17 billion) in freight revenue and ?501.25 billion (US$7.3 billion)
in passenger revenue.
LET US KNOW
The Dedicated Freight Corridor Corporation of India

Limited (DFCCIL) is a corporation run by the Ministry of
Railways (India) to undertake planning & development, mobilization of
financial resources and construction, maintenance and operation of the
different dedicated freight corridors. It is both enabler and beneficiary of
other key Government of India schemes, such as Industrial corridor, Make
in India, Start-up India, Stand-up India, Sagarmala, Bharatmala, UDAN-
RCS, Digital India, BharatNet and UMANG.
Recently NITI Aayog has been planning to make a holistic

development in 150 trains and 50 railway station which a strong
potential to draw private investment. The cost of development of
railway stations in metro cities in India is pegged at about Rs 10,000
crores, while that in tier-2 cities could be between Rs 3,000 crores
and Rs 4,000 crores.
3.4.2 Road Transport
Roads help in connecting far-fetch villages, interior countryside and

hill areas which are not connected with railways. It is complimentary
60 Indian Economy
to railways. It acts as arteries for goods and passenger arriving at
the railway station and often provides last mile connectivity. India
has the one of largest road network across the world. India's road
network is the third largest in the world spanning over a total of 5.5
million km. This road network transports 64.5 per cent of all goods
in the country and 90 per cent of India's total passenger traffic uses
road network. Nagpur plan of 1943 classified the roads into four
categories- National Highway, Highway, State Highway, District roads
and Village roads. National Highways comes under jurisdiction of
National Highway Authority of India (NHAI). NH 44 covers the North-
South Corridor of NHDP and it is officially listed as running over
3,745 km (2,327 miles) from Srinagar to Kanyakumari is considered
as the longest highway.National Highway 47A has length of 6 km
that links the Junction with NH 47 at Kundanoor to the Town of
Willington Island in Cochin isconsidered as the shortest highway.
LET US KNOW
 Best Expressway in India: The Ahmedabad

Vadodara Expressway is known as one of the best
Expressway in India and also referred as the National Expressway1.
 Longest Elevated Freeway: Chennai Port Maduravoyal Elevated
Expressway will be the longest Elevated Expressway in India
 Golden Quadrilateral (GQ) stretch which connects the four metro
cities of India (Delhi, Mumbai, Kolkata and Chennai)
 National Highways are specified by Yellow and White colour
milestones. State Highways are specified by Green and White colour
milestones. City roads are specified by black and white colour
milestones.
3.4.3 Air Transport
The Air transport is the fastest and the costlier mode of transport. It
was started in 1911 in India between Allahabad and NainitalIn 1995,
Indian Economy 61
International Airport Authority of India and National Airports Authority
were merged to form Airports Authority of India. The authority
manages the Civil Aviation Training College at Allahabad and National
Institute of Aviation Management and Research at Delhi. Aviation in
India, broadly divided into military and civil aviation, is the fastest-
growing aviation market in the world. Prior to 2016, India had 75
operational airports, built over a century. In the year-and-a-half since,
that number has increased to 100. The credit for boosting in
connectivity goes to UDAN, a government scheme launched in
October 2016, that has linked 25 smaller cities and towns by air.
Pawan Hans Helicopter Limited has providing helicopter support
services to the petroleum sector like ONGC, ODL etc. and also
provides services to certain state Governments, PSU and in the
North-Eastern States.
3.4.4 Water Transport
Water transport in India is one of the cheapest modes of

transportation. Cost of water transportation per kilometer is 50 paise
only as compared to Rs 1 in railway and Rs 1.5 in roadways. India
has an extensive network of inland waterways in the form of rivers,
canals, backwaters and creeks. The total navigable length is 14,500
km (9,000 mi), out of which about 5,200 km (3,200 mi) of river and
4,000 km (2,500 mi) of canal can be used by mechanized crafts.
About 44 million tonnes (49,000,000 short tons) of cargo are moved
annually through these waterways using mechanized vessels and
country boats. Freight transport by waterways is highly under-utilized
in India compared to other large countries and geographic areas
such as the United States, China and the European Union. The total
cargo moved (in tonne kilometres) by inland waterways was 0.1
percent of the total inland traffic in India, compared to the 21 percent
figure for the United States. There are six national water ways set-
up by Inland water ways Authority of India in 1986. There are 13
62 Indian Economy
major ports and 187 minor ports in India.
LET US KNOW
Six National Water Ways:

NW1- Allahabad along Ganga River,
NW2- Sadiya-Dhubri along Brahmaputra River,
NW3- Kottapuram-Kollam,
NW4- Bhadrachalam to Rajahmundri and Wazirabad to Vijaywada along
Godavri and Krishna River,
NW5- Mangalgarhi to Paradeep and Talcher to Dharmara along Mahanadi
and Brahmnai River,
NW6- Lakhipur to Bhanga along the Barak River.
CHECK YOUR PROGRESS
Q 1: Name the four metro cities that are

connected by the Golden Quadrilateral.
.......................................................................................................
.......................................................................................................
Q 2: Which national waterway covers the Dhubri- Sadiya stretch of the
Brahmaputra?
.......................................................................................................
.......................................................................................................
Q 3: Which train in India cloaks the highest speed?
.......................................................................................................
.......................................................................................................
3.5 COMMUNICATION SYSTEM
We all know that the communication system of any country includes

postal and telegraph services, telecommunication systems, television and
broadcasting, and also information services, etc. The following are the
different types of communication system in India.
Indian Economy 63
3.5.1 Postal Service
India has the largest postal network in the world. The postal system
in India was started in 1854. At that time Department of Posts has
been created with on an around 700 post offices. Currently, there
are more than 1.5 lakh post offices across the country. In recent
years, the Government has given more importance on the tribal,
hilly, and rural areas and thereby accelerating the reach of country's
postal network. Now India's postal network has the few advanced
features like saving banks, satellite money order, a hybrid mail service
with electronic devices and metro channel service in metro cities etc.
3.5.2 Telecommunication
In 1851, telecommunication services were introduced in India and

the first telegraph message was sent between Kolkata (erstwhile
Calcutta) and Diamond Harbor. However telegraph service has been
closed permanently in 2013. In 1881-82, telephone services were
launched and in due course, telecommunications services have
undergone phenomenal growth and change. In the post liberalization
period the telephone service has shown a robust growth. The National
Telecommunications Policy of 1994, divided the country into 20
circles for basic telephones and 18 circles for mobile-related
services. The Mahanagar Telephone Nigam Limited (MTNL) and the
Bharat Sanchar Nigam Limited (BSNL) are the two public sector
telecom company in India.
3.5.3 Radio and Television
Radio services in India started in twentieth century only. Radio

broadcasting started in 1927 and commercial broadcasting started
in 1967. Television, on the other hand, started regularly from 1965.
In 1976, it was separated from the All India Radio (AIR) and
Doordarshan was formed. Currently, the television industry is a huge
64 Indian Economy
industry providing revenue and creating employment opportunities.
3.5.4 Internet
Internet has created a revolutionary change in the communication

sector of the country. The first publicly available internet service in
India was provided by Videsh Sanchar Nigam Limited (VSNL) on 15
August 1995.In 2018, India had a population of 130 crore people (1.3
billion) out of which internet user is 56 crore which accounts 41
percent of countries total population. With internet and smart phones
the countries total e commerce business has shown a growth of 51
per cent.
3.6 URBAN INFRASTRUCTURE IN INDIA
India's urban area has been growing rapidly. Nearly 31% of India's
current population lives in urban areas which contribute to 63% of India's
GDP (Census 2011). India's urban growth is largely concentrated in large
cities with a population of 10,00,000 or more, the number of cities with a
population exceeding 1 million has increased from 35 in 2001 to 53 in 2011,
accounting for 43% of India's urban population, and is expected to be 87 by
2030. With increasing urbanization, urban areas are expected to incorporate
40% of India's population and contribute to 75% of India's GDP by 2030.
Government of India has launched various urban development
schemes in the recent years with an aim to improve quality of life and attract
investment in urban areas and thereby promoting and boosting growth. One
of these scheme is smart city mission which is discussed below.
Various incentives have also been offered for building up and invest
in urban infrastructure. Promoting affordable housing through different rebate
and discount and National Investment and Infrastructural Funds are important
among them.
3.7 SMART CITIES MISSION
Government of India announced smart cities mission with an aim to

Indian Economy 65
develop 100 cities by providing core infrastructure and give a decent quality
of life to its citizens, a clean and sustainable environment and application of
'smart' solutions. Actually it is an urban renewal mission. The focus is on
sustainable and inclusive development and the idea is to look at compact
areas, create a replicable model which will be an example for other aspiring
cities. The major aspects of smart city mission are manifolds. A smart city
must have adequate water supply, assured electricity supply, proper
sanitation, including solid waste management ,efficient urban mobility and
public transport affordable housing, especially for the poor, robust IT
connectivity and digitalization, good governance, especially e-Governance
and citizen participation, sustainable environment safety and security of
citizens, particularly women, children and the elderly, and Health and
education. The central Government proposes to give financial support to
the Mission to the extent of USD 7.77 billion in the next five years (FY2015-
16 to FY2019-20). In the first year, Government proposes to give USD 30.77
million to each selected Smart City to create a higher initial corpus, followed
by USD 15.38 million every year for the next three years. The smart city
mission comprises of city improvement, city renewal and city
expansion.Smart Cities will feature urban development and expansion of
housing opportunities under different schemes like Atal Mission for
Rejuvenation and Urban Transformation (AMRUT), Pradhan Mantri Awas
Yojana and Swachh Bharat Mission.
ACTIVITY 3.1
Collect and study the main objectives of Atal Amrut,

Pradhan Mantri Awas Yojna and Swachh Bharat Mission.
..................................................................................................................
..................................................................................................................
3.8 INDUSTRIAL CORRIDOR
An industrial corridor is a package of infrastructure provided to a

specific area with an aim to stimulate industrialization. We know that investors
66 Indian Economy
will like to invest in an area which is well equipped with electricity,
water supply, transport communication etc. An industrial corridor will provide
all those basic infrastructural facilities to the investors and thereby attracting
them towards the region to invest more. In this way the industrialization has
boosted up and so economic development. An industrial corridor aims to
create an area with a cluster of manufacturing or other industry. Such
corridors are often created in areas that have existing infrastructure, such
as ports, highways and railroads beforehand. These modalities are arranged
such that an arterial modality, such as a highway or railroad, receives "feeder"
roads or railways. Before creating these corridors a proper assessment of
demand and viability should be made. Moreover transport option for goods
and workers, land values and economic incentives for companies should
be taken care of.
Economic Corridors of India or Industrial Corridors of India include:
Delhi-Mumbai Industrial Corridor Project, Shendra-Bidkin Industrial Park,
Chennai-Bangalore Industrial Corridor, Mumbai-Bangalore economic
corridor, Amritsar-Delhi-Kolkata Industrial Corridor, Udhana- Palsana
Industrial Corridor, East Coast Economic Corridor, Kochi-Bangalore
Industrial corridor.
LET US KNOW
India and Japan have joined hands for infrastructure

development in India's north-eastern states and are also
setting up an India-Japan Coordination Forum for Development of North
East to undertake strategic infrastructure projects in the northeast.
CHECK YOUR PROGRESS
Q 4: Briefly discuss the recent trend of

urbanization in India. (Answer in about 60 words)
.......................................................................................................
.......................................................................................................
Indian Economy 67
.......................................................................................................
.......................................................................................................
.......................................................................................................
.......................................................................................................
Q 5: Mention the major focus laid down by the Smart Cities Mission in
.......................................................................................................
.......................................................................................................
.......................................................................................................
Q 6: Name the economic corridors in India.
.......................................................................................................
.......................................................................................................
3.9 LET US SUM UP
 The infrastructural development is very crucial for rapid economic

development.
 Infrastructure includes energy and power, transport and communication
etc.
 In India the recent focus in the field of energy infrastructure is towards
alternative source of energy like solar, wind and nuclear energy.
 In India we have used four types of transportation like rail, road, air and
water.
 Water is the cheapest mode of transportation but operating in under
capacity. In the field of communication the internet users have increased
substantially.
 India's urban infrastructure has developed in the recent years and
expected to expand more in the coming years.
 Projects like smart cities attract investment and boost up urban
infrastructural development. Industrial corridors are built up to boost
industrialization and thereby economic development.
68 Indian Economy
3.10 FURTHER READING

2) Dhar, P.K. (2015). Indian Economy - Its Growing Dimension. New Delhi:
Kalyani Publishers.
3) Dash, L.N. (2008). Infrastructure Development and Indian Economy.
New Delhi: Regal Publications.
Ans to Q No 1: The four metro cities of India connected by the Golden

Quadrilateral (GQ) stretch are Delhi, Mumbai, Kolkata and Chennai.
Ans to Q No 2: National Waterway 2.
Ans to Q No 3: The Bande Bharat Expressway.
Ans to Q No 4: India's urban area has been growing rapidly. Nearly 31% of
India's current population lives in urban areas which contribute to 63%
of India's GDP (Census 2011). The number of cities with a population
exceeding 1 million has increased from 35 in 2001 to 53 in 2011,
accounting for 43% of India's urban population, and is expected to be 87
by 2030.
Ans to Q No 5: The major focus of the Smart Cities Mission is on sustainable
and inclusive development and the idea is to look at compact areas,
create a replicable model which will be an example for other aspiring
cities.
Ans to Q No 6: Economic Corridors of India or Industrial Corridors of India
include: Delhi-Mumbai Industrial Corridor Project, Shendra-Bidkin
Industrial Park, Chennai-Bangalore Industrial Corridor, Mumbai-
Bangalore economic corridor, Amritsar-Delhi-Kolkata Industrial Corridor,
Udhana- Palsana Industrial Corridor, East Coast Economic Corridor,
Kochi-Bangalore Industrial corridor.
Indian Economy 69
Short questions (Answer each question in about 150 words)

Q 1: Briefly describe the communication infrastructure in India.
Q 2: Briefly discuss Smart Cities Mission launched in India.
Long questions (Answer each question in about 300-500 words)
Q 1: Explain the energy infrastructure in India
Q 2: Explain the transport and Communication system in India
Q 3: Discuss the status alternative energy sources in India
Q 4: Explain smart city mission as a part of urban infrastructure in India.
Q 5: What do you mean by Industrial corridor? Do you think industrial
corridor helps to boost up industrial growth?
*** ***** ***
70 Indian Economy
UNIT 4 : INDIAN AGRICULTURE
UNIT STRUCTURE
4.2 Introduction
4.3 Role of Agriculture in Indian Economy
4.4 Trends in Agricultural Production and Productivity
4.4.1 Growth of Agriculture since 1951
4.4.2 Present Status of Productivity of Indian Agriculture
4.5 Factors Influencing Agricultural Productivity
4.6 The New Agricultural Strategy: Green Revolution in India
4.7 Impact of Green Revolution
4.7.1 Achievements of the New Agricultural Strategy
4.7.2 Weaknesses of the New Agricultural Strategy
4.8 Let Us Sum Up
4.9 Further Reading

 become familiar with the place of agriculture in the Indian economy,
 be acquainted with the nature of India’s agriculture,
 be able to draw the major objectives of agriculture in the context of
Indian Planning,
 describe the present status of agriculture in the Indian economy,
and point out the factors that affect agricultural production and
productivity, and
 discuss the new agricultural strategy, viz., Green Revolution and its
impact on the agricultural sector of the country.
Indian Economy 71
Unit 4 Indian Agriculture
4.2 INTRODUCTION
Agriculture in India has a long history dating back to ten thousand

years. Today, India ranks, in the world in terms of farm output. Agriculture
and allied sectors like forestry and logging accounted for 16.6% of the GDP
in 2007 employing 60% of the total workforce and despite a steady decline
of its share in the GDP, it is still the largest economic sector that plays a
significant role in the overall socio-economic development of India.
Agricultural growth has a direct impact on poverty eradication and is
also an important factor in containing inflation, raising agricultural wages
and for employment generation.
India is the largest producer of milk, cashew nuts, coconuts, tea,
ginger, turmeric and black pepper in the world. It also has the world’s largest
cattle population (281 million). It is the second largest producer of wheat,
rice, sugar, groundnut and inland fish. It is the third largest producer of
tobacco. India accounts for 10% of the world’s fruit production with first rank
in the production of banana and sapota.
Thus, it is clear that agriculture is the backbone of the Indian economy
particularly in the rural areas. The rural areas are the biggest markets for
low priced and middle priced consumer durables. Besides, rural domestic
savings are a ready and important source of resource mobilisation. This
unit will be helpful to you in getting an overall idea about Indian agriculture
and various issues of this sector.
4.3 ROLE OF AGRICULTURE IN INDIAN ECONOMY
The significance of agriculture in the Indian economy can be

discussed under the following major heads:
 Share of agriculture in national income,
 Role of agriculture in employment generation,
 Impact of the agricultural sector on industrial development,
 Role of agriculture in the earning of foreign revenue, and
 Its role in the overall economic growth of the country.
72 Indian Economy
Indian Agriculture Unit 4
 Other important roles of the agricultural sector
 Share of agriculture in national income: Since independence, the share
of agriculture in national income has declined continuously. This can be
viewed from the following table 4.1.
Table 4.1: Share of Agriculture in National Income (GDP)
Period Share of agriculture in GDP

1950-51 55%
1970-71 44%
1990-91 31%
2000-2001 26%
2005-06 20%
Source: Economic –Survey 2006-07, Table 1.3, RBI Annual Report, 2006-
07.
From the above table 4.1, it can be seen that in 1950-51, the share
of agriculture in the GDP was around 55%. As the process of
industrialization and economic growth gathered momentum under the
five year plans with manufacturing and service sectors growing rapidly,
the percentage share of agriculture in the GDP declined and reached a
level of only 20% in 2005-06 and 18% in 2006-07. In 2007-08, the share
of agriculture in the GDP was 17.8% (Source?).
 Role of agriculture in employment generation: Though the share of
agriculture in national income has considerably declined, yet a very high
proportion of the working population in India is still engaged in this sector.
Data provided by the Census of India reveal that in absolute terms,
agriculture provided employment to 98 million persons in 1951. The
number of people working on land (cultivators and agricultural labourers)
increased to 235 million in 2001. In terms of percentage, however, people
working on land came down from 70% to 59% during the five decades
between 1951 and 2001.
The Tenth five year plan (2002-2007) report estimated that the
agricultural sector still provides employment to 57% of India’s workforce
and is the single largest private-sector occupation. It is disturbing that
Indian Economy 73
the proportion of agricultural labourers has increased from 20 per cent
to 27 per cent between 1951 and 2001 but that of cultivators registered
a decline from 50% to 32%. This shows clearly the growing pauperisation
(pauperisation means making poorer than before) of the rural peasantry.
 Impact of the agricultural sector on industrial development: Indian
agriculture has been the source of supply of raw materials to its leading
industries. Cotton and jute textile industries, forest-based industries,
sugar, flour mills, edible oils etc depend on agriculture directly. Other
small-scale and cottage industries like handloom weaving, oil crushing,
rice husking etc depend upon agriculture for their raw materials. Together
they account for 50% of income generated in the manufacturing sector
in India.
However, in recent years, the significance of agriculture to industries
is going down as many new industries have come up which are not
dependent on agriculture. But the importance of food processing
industries in recent years is being recognized both for generation of
income and employment.
 Role of agriculture in the earning of foreign revenue: Agricultural
products like tea, sugar, oilseeds, tobacco, spices etc constitute the
main items of exports of India. Broadly speaking, the proportion of
agricultural goods which are exported is about 50% of our exports. Again,
certain manufactured products which use raw materials of this sector
viz., jute, clothes and sugar contribute to another 20% to the aggregate
export volume of the country. Thus, the agricultural sector contributes
to 70% of India’s export in terms of volume. The Tenth plan estimated
that agriculture contributed about 15% of the total export earnings in
terms of revenue. This has a great significance for economic
development. Increased export helps the country to pay for the increased
import of machinery and raw materials.
 Role of agriculture in the overall economic growth of the country:
Agriculture in India is one of the major factors for the growth of the Indian
economy which is still primarily agrarian. Agriculture is the most
74 Indian Economy
important sector in India. As the Indian economy is mainly based on
agriculture, the annual output of products from the agricultural sector is
an important factor in the growth of the economy. Agriculture also has a
crucial role to play in Indian exports, where it has a significant contribution.
Many of the industries in India are dependent on agriculture for raw
materials. So, without agriculture and agriculture-based products, the
Indian economy cannot sustain or accelerate its growth rate.
 Other important roles of the agricultural sector: Apart from the
above, the agricultural sector also plays the following roles:
 India’s transport system secures bulk of their business from the
movement of agricultural goods. The internal trade of the country is
mostly in agricultural products.
 Prosperity of the farmers leads to prosperity of industries. Prosperous
farmers have greater demand for manufactures. Likewise, bad crops
lead to a depression in business. Generally, a failure in the agricultural
sector leads to failure of economic planning.
 The 11th plan emphasises that the agricultural sector should act as
a bulwark (bulwark means protecting something against some evils)
in maintaining food security and in the process, national security as
well.
 Allied sectors like horticulture, animal husbandry, dairy and fisheries
have an important role in improving the overall economic condition
and health and nutrition of the rural masses.
 To maintain the ecological balance, there is a need for sustainable
and balanced development for both agriculture and allied sectors.
The 11th plan recognizes this fact and gives importance to the
development of the agricultural sector.
CHECK YOUR PROGRESS
Q 1: State whether True (T) or False (F).

a) In 1950-51, the share of agriculture in the GDP
was around 55%. (T/F)
Indian Economy 75
b) The share of agriculture in GDP declined to 17.8% in 2007-08. (T/
F)
Q 2: Do you agree that the condition of the rural cultivators in India has
turned worse over the years? Justify your position. (Answer in
about 50 words).
.......................................................................................................
.......................................................................................................
4.4 TRENDS IN AGRICULTURAL PRODUCTION AND

PRODUCTIVITY
4.4.1 Growth of Agriculture since 1951
A comparative picture of the growth rate of the agricultural and allied

sectors and the GDP growth rate at the same period has been shown
in the following table 4.2.
Table 4.2: Growth of the Agricultural Sector since 1950-51
Period Compound Annual Growth Growth rate
Rate of agriculture and allied sector of GDP
1951-1961 3.3 3.8
1961-1971 2.2 3.7
1971-1981 1.7 3.3
1981-1991 3.9 5.7
1991-2001 2.8 6.7
2002-2007 2.1 7.5
2007-2012 3.6 8.1
Source : Center for Monitoring Indian Economy; Basic statistics of the
Indian Economy, Vol 1,August 1992, August 1994; Economic
survey 2006-2007.
It can be seen from the table that the growth rate of agriculture
has lagged behind that of GDP all the decades of planning shown
here. Thus, during 1951-1961, the annual rate of growth in agriculture
was 3.3%, while the rate of growth of GDP was 3.8%. During the
subsequent decades of planning as well, the growth rate of agriculture
76 Indian Economy
was below the growth rate of GDP. Despite spectacular progress
achieved under the new agricultural strategy based on IADP
(Integrated Area Development Project) and HYVP, the overall
progress in agriculture was very poor. During 2001-2007, the annual
average rate of growth of agriculture declined to 2.2%, mainly
because of poor monsoon conditions, although the GDP growth rae
rose to 7.2%.
But it is gratifying to note that with the green revolution, India
not only became self-sufficient in food grains but also accumulated
a huge food surplus – about 58 million tonnes in January 2002. As a
result of adoption of improved inputs and management practices,
the total food grain production increased from a mere 50.8 million
tonnes in 1950-51, to 212 million tonnes in 2006-07. Thereafter, the
condition of agriculture improved during the fourth decade of planning
(1981-1991). The growth rate in the 1980s rose to 3.9%. But again,
the compound growth rate of agriculture for the period 1991-2001
declined to 2.8%. Since then, especially during 2002-2003,
agricultural production continued to decline. Although there was some
improvement in the agricultural growth; yet it was much lower than
the targeted growth rate of four per cent per annum. During the 11th
plan, the annual growth rate in agriculture was 3.6% while the annual
growth rate of GDP was 8.1%.
4.4.2 Present Status of Productivity of Indian Agriculture
During the last 57 years of planning, India’s agricultural development,

more commonly called the green revolution, has been applauded
the world over and many developing countries have started
considering India as their role model. Initially, India remained a food
deficit country for almost 2 decades since independence. But with
the green revolution, India not only became self-sufficient in food
grains but accumulated a huge food surplus – about 58 million tonnes
in January 2002. As a result of adoption of improved inputs and
Indian Economy 77
management practices, the total food grain production increased
from a mere 50.8 million tonnes in 1950-51, to 212 million tonnes in
2006-07 and productivity increased from 522 kg/ha to more than
1707 kg/ha. The productivity of wheat, rice and oilseeds increased
to a greater extent than other crops. The increase in production of
food grain was possible as a result of adoption of quality seeds,
higher dose of fertilizer and plant protection chemicals, coupled with
assured irrigation. As a result, not only has the country achieved self
sufficiency in foods but also has adequate agro-produce for export.
Our agriculture is now at the crossroads. The use of certified/
quality seeds by the farmers has increased to 700,000 tonnes. The
fertilizer consumption has increased to 21.65 million tonnes (more
than 112.69 kg/ha) in 2006-07 from 0.29 million tonnes in 1960-61.
The use of technical grade plant protection chemicals has increased
to 56.11 thousand tonnes (0.4 kg/ha) from a meagre 8.62 thousand
tonnes in 1960-61.
Crop and site specific agricultural mechanization and agro-
based small and medium enterprises in rural sector using a proper
blend of conventional and renewable energy sources will facilitate in
enhancing agricultural productivity and profitability resulting in higher
income for farmers and better quality of life.
The major factors for such success of agriculture were:
increase in the net areas sown, expansion of irrigation facilities, land
reforms, specially consolidation of land holdings.
However, in spite of the spectacular achievements, various
constraints and disturbing trends have continued to hamper the
required growth of the agricultural sector. These are mainly because
of the following factors:
 Agriculture in India continues to be a gamble in the monsoons.
 There is limited use of new agricultural technology. The new
technologies succeeded only in wheat and to a small extent in
rice. Other food crops and non-food crops did not show any
perceptible improvement in production.
78 Indian Economy
 Decline in investment in agriculture. (We shall discuss this issue
in some detail in unit 6 of the course.)
 Limited success of the land reform measures and growing
exploitation of tenants. (We shall discuss this issue in some
detail in unit 5 of the course.)
 Failure to control growth of rural population.
 Unbalanced regional agricultural development.
CHECK YOUR PROGRESS
Q 3: Which factors in India have contributed to

the success of its agricultural sector? (Answer in
about 30 words)
.......................................................................................................
.......................................................................................................
(a) Green revolution in India was a total failure. (T/F)
(b) Over the years in India, investments in the agricultural have
recorded tremendous growth. (T/F)
4.5 FACTORS INFLUENCING AGRICULTURAL

PRODUCTIVITY
India is striving to find ways and means to keep its burgeoning

population adequately fed. On the one hand it is facing the problem of
declining productivity and on the other, the challenges posed by liberalization.
Due to the small size of farm holdings (average farm holding size 1.6 ha)
and socio-economic disparities, Indian agriculture continues to be dependent
upon human (agricultural workers population 234.10 million in 2000- 01)
and the animal power (27 million pairs). Hand tools and animal drawn
implements are extensively used which involve a great amount of drudgery.
The factors that affect agricultural productivity include inputs such
as utilizing human, animal and mechanical power, use of fertilizers, irrigation,
crop technology, power, Agricultural Research and infrastructure. These
Indian Economy 79
have been discussed in some detail as follows :
 Fertilizers : After independence the use of fertilizers in India in the last
50 years has grown nearly 170 times. In 1950 the use of fertilizer per
hectare in India was 0.55 Kg but by 2001-02 this figure has increased to
around 90.12 Kg per hectare which further increased to 125.4 kg in
2013-14. The Green revolution during 1960s and subsequent increased
intensification of agriculture were the major causes behind this growth.
Fertilizers and pesticides have become a major cost of production
in India along with the cost of other inputs like seeds and labor cost.
 Irrigation : Water is an essential natural resource for the survival of life,
a key input for plant growth and is instrumental in the upkeep of the
environment. Although water is a renewable source, it is quite dynamic
and scarce. The source of all water is affected by a number of factors.
As a result, rainfall in India is highly variable, irregular and undependable
in terms of distribution and amount. The highest and lowest annual
average rainfall in India is 10,000 mm (Khasi-Jaintia Hill, Meghalaya)
and 100 mm in Rajasthan, respectively. The distribution of water is highly
skewed and to make the distribution more equitable it better the technical
feasibility of inter basin transfer of water by linking the Himalayan and
Peninsular rivers has been examined and the proposal is under
consideration of the Government of India.
 Farm mechanisation : Farm mechanisation in the agricultural sector
results in:
 Timely field operations. This increases productivity, reduces crop
losses and improves the quality of agro produce,
 Increased land utilization and ensuring efficient use of the inputs,
and
 Increased labour productivity by the use of labour saving devices,
which are also cost effective and eco-friendly.
So far, the use of tractors has been on the increase. The
sale of tractors during 2005-06 touched 2,92,000 units. Mechanisation
indicator is one of the measures of modernisation of agriculture of a
country.
80 Indian Economy
 Farm Power Availability : India has made remarkable progress in
agricultural mechanisation technology. The country has evolved a
selective mechanisation model using a power mix based on animate
(i.e., use of animal power) and inanimate (use of machine power) power
sources. The mix of power sources includes human beings, animals,
power tillers, tractors, engines and electric motors. The increasing use
of tractors and irrigation pumps operated by electric motors and diesel
engines are the indicators of the fact that the use of mechanical power
in India has increased many fold during the last two decades.
 Agricultural Drainage : Drainage has become a part of integrated water
management. This involves removing or conserving water as required
and also being much concerned about water quality and environmental
values. Land drainage and irrigation are complementary to each other
for maintaining sustainable agricultural productivity. Large areas have
been degraded in the country due to the problem of water-logging and
salinity, especially in the irrigated alluvial tracts in north-west India
(Haryana, Punjab, Gujarat etc.).
 Women Friendly Improved Tools and Equipment for Agriculture :
Women play a major role in rural India through their active participation
in agriculture. At present, the women engaged as work force in agriculture
and an allied sector are estimated at about 61 million which amounts to
about 30 per cent of the total rural workers in the country. Studies have
shown that the Indian women work for about 14-16 hours a day to carry
out various activities on farm and at home. There are more than 50
improved hand tools and equipment developed by various research
organizations in the country. Out of these, 30 hand tools/ equipment
have been identified which can be made suitable for women workers.
 Agricultural Research and Development : The apex body for
education, research and extension education in the field of agriculture is
the Indian Council of Agricultural Research (ICAR), established in 1929.
India’s transformation from a food deficit to a food surplus country is
largely due to ICAR’s smooth and rapid transfer of farm technology from
the laboratory to the land.
Indian Economy 81
The results of agricultural research include higher yielding crop
varieties, better livestock breeding practices, more effective fertilizers
and pesticides, and better farm management practices. Agricultural
research is required not only to increase agricultural productivity, but
also to keep productivity from falling.
 Agriculture Infrastructure: There is a positive relationship between
infrastructure and agricultural productivity. The most obvious example
of how public investment in infrastructure might affect agricultural
productivity is through investment in public transportation. An improved
highway system can reduce the farmers’ cost of acquiring production
inputs and of transporting outputs to market.
 Agriculture Infrastructure like seeds, fertilizers, irrigation sources should
be organized to achieve the maximum momentum of growth. Factors
like high soil productivity, supply of balanced crop nutrients, efficient water
management, improved crops, better plant protection, post-production
management for value-addition and marketing, are responsible for higher
yield in the Indian agriculture. To achieve this, the government has taken
definite steps to improve agriculture infrastructure in India. In the present
day agriculture, application of modern biotechnologies like DNA finger
printing, tissue culture, terminator gene technology and genetic cloning
will play a vital role in raising the productivity.
 Impact of Climate and Weather on Agriculture: Industrialization,
deforestation, encroachment of wetlands, grasslands etc. have affected
the annual rainfall and the availability of water. These are bound to affect
the land use system as well. Redistribution of rainfall and surface water
will also adversely affect the biodiversity, productivity of both the terrestrial
and aquatic eco-systems. In order to minimize the impact or to manage
climate changes, large scale investments into proactive or anticipatory
research is necessary to meet the emerging challenges of livelihood
gathering by the agrarian economies like of India.
 Government Programs: The role of the government in the agricultural
sector is pervasive. Government programs affect productivity through
the allocation of resources and outputs. Government farm programmes
82 Indian Economy
are the most common examples of government involvement in
agriculture. But other examples are numerous: Tax policies are
implemented to encourage private firms to undertake agricultural
extension programmes. Most of the state governments are encouraging
NGOs to take up extension activities.
CHECK YOUR PROGRESS
Q 5: How have the changes in climate affected

the agricultural sector? (Answer in about 40 words)
.......................................................................................................
.......................................................................................................
.......................................................................................................
.......................................................................................................
Q 6: Which organisation is called the apex body of education and
research of agricultural studies in India? What has been its role?
(Answer in about 50 words)
.......................................................................................................
.......................................................................................................
.......................................................................................................
.......................................................................................................
(a) Men and women in India can handle all the tools used in agriculture
with equal efficiency. (T/F)
(b) There is a positive relationship between infrastructure and
agricultural productivity. (T/F)
4.6 THE NEW AGRICULTURAL STRATEGY : GREEN

REVOLUTION IN INDIA
Between 1947 and 1967, efforts at achieving food self-sufficiency

were not entirely successful. Efforts until 1967 were largely concentrated
on expanding the farming areas. But starvation deaths were still being
reported in the newspapers. In a perfect case of Malthusian economics,
Indian Economy 83
population in India was growing at a much faster rate than food production.
In 1961 India was on the brink of mass famine. The government realized the
need for a dramatic improvement in food grain production. This called for a
drastic action to increase yield. The action came in the form of the Green
Revolution.
The term “Green Revolution” is a general one that is applied to
successful agricultural experiments in many developing countries. It is to
be noted that this concept is not specific to India. But it was most successful
in India. The Green Revolution in India is referred to the period between
1967 to 1978. Punjab was selected by the Indian government to be the first
site to try the new crops because of its reliable water supply and a history of
agricultural success.
Strategies of Green Revolution in India : There were three basic
elements in the method of the Green Revolution:
 Continued expansion of farming areas;
 Double-cropping in existing farmland; and
 Using seeds with improved genetics.
Let us now discuss a few points on each of these strategies.
 Continued expansion of farming areas: As mentioned above, the area
of land under cultivation was being increased right from 1947. But this
was not enough in meeting the rising demand. Other methods were
also required. Yet, the expansion of cultivable land also had to continue.
So, the Green Revolution continued with this quantitative expansion of
the farmlands.
 Double-cropping in existing farmland: Double-cropping was a
primary feature of the Green Revolution. Instead of one crop season per
year, the decision was made to have two crop seasons per year. The
one-season-per-year practice was based on the fact that there is only
one natural monsoon per year. The artificial monsoon came in the form
of huge irrigation facilities. Dams were built to arrest large volumes of
natural monsoon water which were earlier being wasted. Simple
irrigation techniques were also adopted.
84 Indian Economy
 Using seeds with superior genetics: This was the scientific aspect
of the Green Revolution. The Indian Council for Agricultural Research
(which was established by the British in 1929) was reorganized in 1965
and then again in 1973. It developed new strains of high yield variety
(HYV) seeds, mainly wheat and rice and also millet and corn.
As we have already mentioned, the introduction of high-yielding
varieties of seeds after 1965 and the increased use of fertilizers and irrigation
are known collectively as the Green Revolution. This has helped India to
become self-sufficient producer of food grain production, and thus to improve
the agricultural scenario of the country. Famine in India, once accepted as
inevitable, has not returned since the introduction of Green Revolution in the
country.
During the 1980’s in spite of three years of scanty rainfall and a
drought during the middle of the decade, India managed without large scale
food imports, because of the increase in food grain production and the
existence of a large buffer stock insulating against any agricultural crisis.
By the 1990’s India had attained self sufficiency in food grain production,
because the rate of increase in food grain production has kept pace with the
increase in population. This is the direct result of Green Revolution, improved
seeds and fertilizers, better irrigation and increased awareness among the
farmers.
Thus, we have discussed in the above that the growth in food-grain
production is a result of concentrated efforts to increase all the Green
Revolution inputs needed for higher yields: better seed, more fertilizer,
improved irrigation, and education of farmers. Although increased irrigation
has helped to lessen the year-to-year fluctuations in farm production resulting
from the uncertainities of the monsoons, it has not eliminated those
fluctuations. In the following section we shall make a critical analysis on the
impact of green revolution in the country.
Indian Economy 85
CHECK YOUR PROGRESS
Q 8: Mention the three basic elements of green

revolution in India. (Answer in about 30 words)
.......................................................................................................
.......................................................................................................
.......................................................................................................
(a) The concept of green revolution is confined to India only. (T/F)
(b) In spite of the introduction of the green revolution, India has not
been able to attain self sufficiency in food production. (T/F)
4.7 IMPACT OF GREEN REVOLUTION
4.7.1 Achievements of the New Agricultural Strategy
The following achievements are important.

 Boost to the production of cereals: The major achievement
of the new strategy is the increase in the production of major
cereals like wheat and rice.
 Increase in the production of commercial crops: The green
revolution was mainly directed to increase the production of
foodgrains. It did not affect the production of commercial crops
or cash crops such as sugarcane, cotton, Jute, oil seeds and
potatoes. However, significant improvement in the output of
sugarcane took place after 1973-74. Likewise, there was
considerable improvement in the production of other cash crops
such as oil seeds, potatoes etc.
 Significant changes in the crop pattern: As a result of the
green revolution, the crop pattern in India has undergone
significant changes. The output of cereals has risen at the rate
of 3% to 4% per annum but the output of pulses has remained
stagnant or even declined .This has resulted in a decline in the
86 Indian Economy
importance of pulses as foodgrains and its output has fallen from
16% in 1960-61 to 6% 2006-07.
 Boost to agricultural production and employment: The
successful adoption of the new agricultural technology has led
to a continuous expansion in the area under crops, increase in
total production and rising agricultural productivity. Impressive
results have been achieved in wheat, rice, maize, potatoes etc.
The adoption of new technology has given a boost to agricultural
employment because of diverse job opportunities created by
multiple cropping.
 Forward and backward linkages strengthened: The new
technology and modernisation of agriculture has strengthened
the linkages between industry and agriculture. Various agro food
processing units have been set up in many areas of the country.
4.7.2 Limitations of the New Agricultural Strategy
 Even today, India’s agricultural output sometimes falls short of

the demand. The Green Revolution, howsoever impressive, has
thus not succeeded in making India totally and permanently self-
sufficient in food. In 1979 and 1987, India faced severe drought
conditions due to poor monsoon; this raised questions whether
the Green Revolution was really a long-term achievement. In
1998, India had to import onions. Again, in recent years, it had to
import sugar as well.
 Nothing like the Bengal Famine can happen in India again. But
it is disturbing to note that even today, there are places like
Kalahandi (in India’s eastern state of Orissa) where famine-like Bengal Famine:
conditions have been existing for many years and where some Severe famine
occurred in Bengal in
starvation deaths have also been reported.
1943. It resulted in
 Farmers with 20 acres or more land have made the greatest huge loss of lives.
gains partly by mechanising farm operations and partly by
diversifying their cropping pattern. Again, the impact of
Indian Economy 87
mechanisation of farming has led to the problem of displacement
of Labour.
 About 75% to 90% of the farmers in the rice belt have experienced
a relative decline in their economic position.
 The term ‘high yielding varieties’ is a wrong name or word,
because it implies that the new seeds are high yielding of
themselves but actually they are highly responsive to certain key
inputs such as fertilizers and water. The new seeds performed
worse than the indigenous varieties. Increasing the nitrogen
uptake of plants by using artifical fertilizers upsets their carbon/
nitrogen balance causing matabolic problems to which the plant
reacts by taking up extra water.
 Because of their narrow genetic base, HYVs are inherently
vulnerable to major pests and disease. The Central Rice
Research Institute of Cuttack has found out that the ‘high yielding
varieties’ are susceptible to major pests with a crop loss of 30%
to 100%. The Green Revolution in India cannot therefore be
considered to be a 100 percent success story.
CHECK YOUR PROGRESS
Q 10: Do you think that high yielding varieties are

very suitable for India? Justify your point. (Answer
in about 50 words)
.......................................................................................................
.......................................................................................................
......................................................................................................
.......................................................................................................
.......................................................................................................
(a) Green revolution in India is a case of 100 percent success. (T/F)
(b) In spite of the introduction of the green revolution, India has not
been able to attain self sufficiency in food production. (T/F)
88 Indian Economy
4.8 LET US SUM UP
 Agriculture is the backbone of the Indian economy. Agriculture in India

has a long history dating back to ten thousand years. Today, India ranks
second in the world in farm output.
 Agriculture and allied sectors like forestry and logging accounted for
16.6% of the GDP in 2007 in India.
 Agriculture employed 60% of the total workforce in 2007.
 India is the largest producer in the world of milk, cashew nuts, coconuts,
tea, ginger, turmeric and black pepper.
 The importance of food processing industries is being recognized for
the generation of income and employment.
 Agriculture Planning in India is a very important tool to enhance and
maximize the total agriculture based produce.
 Growth in the Indian Agriculture is based on resources being used
efficiently and conservation of natural resources.
 From the third plan onwards, the greatest emphasis was laid on irrigation,
fertilisers and seed technology which led to the green revolution.
 The planning commission has fixed the target of 4% rate of growth to be
achieved in agriculture during the eleventh plan.
 Since 1966, the use of modern agricultural inputs has increased at a
compound rate of 10% per annum.
 The new technology and modernisation of agriculture has strengthened
the linkages between industry and agriculture. The new agricultural
technology has made the farmer market oriented.
 The term “Green Revolution” is a general one that is applied to successful
agricultural experiments in many Third World countries.
 In today’s globalised economic scenario, 100 % self-sufficiency is not
considered as vital a target as it was when the world political climate
was more dangerous due to the Cold War.
Indian Economy 89
4.9 FURTHER READING

Publishing House.

Ans to Q No 2: It is true that the condition of the rural cultivators in India has
turned worse over the years. This is evident from the fact that the
proportion of agricultural labourers has increased from 20 per cent to
27 per cent between 1951 and 2001 but that of cultivators registered a
decline from 50% to 32%. This shows clearly the growing pauperisation
of the rural peasantry of the country.
Ans to Q No 3: The major factors for such success of agriculture were:
increase in the net areas sown, expansion of irrigation facilities, land
reforms specially consolidation of land holdings.
Ans to Q No 4: (a) False (b) False
Ans to Q No 5: Industrialization, deforestation, encroachment of wetlands,
grasslands have affected the annual rainfall and availability of water.
These are bound to affect the land use system as well. Redistribution of
rainfall and surface water will also adversely affect the biodiversity,
productivity of both the terrestrial and aquatic eco-systems.
Ans to Q No 6: The apex body for education, research and extension
education in the field of agriculture is the Indian Council of Agricultural
Research (ICAR. India’s transformation from a food deficit to a food
surplus country is largely due to ICAR’s smooth and rapid transfer of
90 Indian Economy
farm technology from the laboratory to the land.
Ans to Q No 7: (a) False (b) True
Ans to Q No 8: The three basic elements in the method of the green
revolution in India are:
 Continued expansion of farming areas;
 Double-cropping in existing farmland; and
 Using seeds with improved genetics.
Ans to Q No 10: Because of their narrow genetic base, HYVs are inherently
vulnerable to major pests and disease. The Central Rice Research
Institute of Cuttack has found out that the ‘high yielding varieties’ are
susceptible to major pests with a crop loss of 30% to 100%.

Q 1: Write a short note on the growth of agriculture in India since
independence.
Q 2: Discuss briefly the present status of productivity of Indian agriculture.
Q 3: Trace the major achievements of the new agricultural strategy in
India.
Q 4: Enumerate the weaknesses of the new strategy of agriculture in
India.
Essay type Questions (Answer each question in about 500 words)
Q 1: Discuss the role of Agriculture in Indian Economy.
Q 2: Write an essay on the trends of agricultural production and
productivity.
Q 3: Explain the major impediments to Indian agriculture.
Q 4: What is meant by the new agricultural strategy in the context of India?
Discuss the new agricultural strategies and their impact on Indian
agriculture.
*** ***** ***

Indian Economy 91
UNIT 5 : LAND REFORMS
UNIT STRUCTURE
5.2 Introduction
5.3 System of Land Tenure at the Time of Independence
5.4 Land Reform Measures in India: Objectives and Strategies
5.5 Critical Appraisal of Land Reform Measures in India
5.6 Let Us Sum Up
5.7 Further Reading
5.9 Model Questions

 discuss the meaning of land tenure,
 know the system of land tenure at the time of independence,
 discuss the objectives and strategies of land reforms, and
 make a critical appraisal of the land reform measures in India.
5.2 INTRODUCTION
Land tenure means the way in which an individual holds land from
government. It shows the relationship between the land holder and the state.
The absolute ownership of land rests with the government. Government
gives the proprietary rights to individual or communities. Thus land owner is
the proprietor of that land and he has to pay land revenue for that.
The tenure system of the country identifies the ownership of the
land and the relation of the owner of the land with the cultivator and the
government. It is concerned with the cultivator and the government. It is
concerned with the rules and regulations, the terms and conditions under
which the cultivator cultivates the land.
92 Indian Economy
Land Reforms Unit 5
In the post-independence period, land reform measures were
introduced to remove the impediments of land tenure system. This unit
deliberates on these two issues.
5.3 SYSTEM OF LAND TENURE AT THE TIME OF

INDEPENDENCE
At the time of independence there were three types of land tenure

system prevailing in the country. These systems were the Zamindari System,
the Mahalwary system and the Ryotwari system.
Zamindari System : In the Zamindari system, the land revenue was
collected from the farmers by the Zamindars. This system was created by
the East India Company when in 1791, Lord Cornwallis entered into
permanent settlement with landlords with a view to increasing the revenue
of the company. Under the settlement, the landlords known as Zamindars,
were declared full proprietor of large areas of land. In return, the task of
collecting rent from the farmers was entrusted to them. Thus the Zamindars
were to function as intermediaries between the cultivators and the state.
The share of the government in total rent collected by the Zamindars was
kept at 10/11th, the balance going to the Zamindars as remuneration. At the
time of independence, this system was prevalent in West Bengal, Bihar,
Orissa, Uttar Pradesh, Andhra Pradesh, and Madhya Pradesh.
The Zamindari system suffered from a number of defects. It created
an agrarian structure in the country side which conferred the right of sharing
the produce of land without participating personally in the productive process.
The system was based on exploitation as it conferred unlimited rights on
the Zamindars to extract as much rent as they wished. The grabbing of
such a high proportion of income by a parasite class was not only socially
unjust but also highly detrimental to capital formation and economic
development. The actual cultivators were left with no surplus to invest in
better implements, improved seeds, fertilizer and neither was there any
incentive for him to increase agricultural production and productivity
Again, the record of rights in land was not systematically maintained
Indian Economy 93
Unit 5 Land Reforms
in most areas governed by the Zamindars. This made it difficult for the
farmers to mortgage their land for borrowing. As a result credit institutions
were slow to develop in Zamindari areas. Public investments in agriculture
were generally less in these areas. Communal rights in pasturs, forest etc
were encroached upon and the cultivator was made to pay to gain access
to these.
Mahalwari System : This system was introduced by William Bentinck
in Agra and Andhra and later extended to Madhya Pradesh and Punjab. In
this system the whole village was treated as a unit so far as land revenue is
concerned. The responsibility for collecting the land revenue and depositing
it in the treasury was the village head man or a co-sharer appointed for the
purpose. The ownership of land under this system was collective.
This system of land tenure also had some defects in the sense that
period of settlement, fixation of land revenue etc, were different in different
Mahalwari system.
Ryotwari System: Under this system the responsibility of paying land
revenue to the government was of the cultivator or individual Ryot himself
and there was no intermediation between him and the state. The Ryot had
full right regarding sale, transfer and the leasing of land and could not be
evicted from the land as long as he paid the land revenue. Under Zamindari
system these rights were not available.
Under the Ryotwari system, the settlement of land revenue was done
on a temporary basis. In Madhya Pradesh such temporary settlement was
done after every 20 years, in Maharastra or Bombay after 30 years and in
Madras or Tamilnadu and United Provinces (Uttar Pradesh) after every 40
years.
On the face of it though the Ryotwari system appears satisfactory
yet it also develops various loopholes. In these areas money lenders and
mahajans granted loan to cultivators by mortgaging their lands. A substantial
portion of land slipped out of cultivators hold and became the property of
money lenders and mahajans. The mahajans started giving land for
cultivation on lease and soon a new zamindar class with all its exploitative
practices started developing.
94 Indian Economy
Land Reforms Unit 5
CHECK YOUR PROGRESS
Q 1: W hen was the Zamindari system

introduced in India and what was it? (Answer in
about 60 words)
.......................................................................................................
.......................................................................................................
.......................................................................................................
.......................................................................................................
.......................................................................................................
Q 2: Name the states in which the Zamindari was prevalent at the time
of independence in India.
.......................................................................................................
.......................................................................................................
Q 3: Who introduced the Mahalwari system in India and what was it?
.......................................................................................................
.......................................................................................................
.......................................................................................................
.......................................................................................................
5.4 LAND REFORM MEASURES IN INDIA:

OBJECTIVES AND STRATEGIES
In the Zamindari system, a parasite class of zamindars did not work

on land but snatched away whatever surplus above the minimum
subsistence level the cultivators produced. Under the Mahalwari and Ryotwari
system as well the practice of cultivation by tenants became widely prevalent
and these tenants were also exploited in a number of ways.
In the post-independence period in India, to stop the exploitation of
the actual tillers of the soil and pass on the ownership of land to them, land
reforms were introduced. Land reform means the measures undertaken to
Indian Economy 95
Unit 5 Land Reforms
free the tillers of the soil from the clutches of parasite classes and to pass
on the ownership of the land to the actual tillers. The other objectives of the
land reforms were to remove all the barriers that existed in increasing
production and productivity of agriculture, to provide security to the tillers of
the soil, and to assure equality in status and opportunity to all the sections
of the rural population.
Objectives of Land Reforms : Land reform measures introduced
in India had the following major objectives:
 To remove the impediments to increase in agricultural production that
had arisen from the agrarian structure inherited from the past.
 To eliminate all forms of exploitation and social injustice within the
agrarian system.
 To provide security for the tillers of soil and assure equality of status and
opportunity to all sections of the rural population.
Strategies of Land Reforms: To achieve the objectives, the
strategies adopted were:
 Abolition of intermediaries,
 Tenancy reforms, and
 Reorganization of agriculture.
Let us now discuss these strategies in brief.
 Abolition of Intermediaries: On the eve of independence,
approximately 57 % area of the country was under the Zamindari system
as an intermediary between the state and the cultivators. There was
exploitation in agrarian relation which was the main cause of stagnation
in the economy. Hence, it was urgently required to abolish the
intermediaries for the cause of agricultural growth in the country.
Legislations were passed for their abolition after independence specially
during the period of the first five year plan. It was a very difficult task
because in permanently settled areas such as Bihar, Orissa and West
Bengal and in the areas under Zagirdary settlement such as Saurastra,
land records and administrative machinery had to be built up almost
from a scratch. It has been estimated that by the end of the first plan
96 Indian Economy
Land Reforms Unit 5
except a few small pockets in some areas in the country in all, 173
million areas of land was acquired from the intermediaries and as a
consequence about two crore tenants were brought into direct
relationship with the State.
 Tenancy Reforms: Tenants can be classified into i) Occupancy Tenants,
ii) Tenants-at-will, iii) Sub-tenants. Occupancy tenants enjoy permanent
rights like the owner and do not face the fear of eviction as long as they
pay rent on time. But the tenants-at-will and sub-tenants face a lot of
problems. Their existence depends on the mercy of landlords and this
makes them prone to various exploitative practices adopted by the
landlords. Therefore to protect these people, special laws had to be
enacted and implemented.
Under tenancy reforms, the measures adopted were–
a) Regulation of rent
b) security of tenure and
c) conferment of ownership rights on tenants.
a) Regulation of rent : In the pre-independence period, the rent charged
by the Zamindars from the tenants was very high. The British
Government was merely interested in its share and consequently gave
unlimited power of suppression to the Zamindars to squeeze the tenants.
On the whole, rate of rent varied in the range of 34% to 75% of the
produces in the country. Due to such highly exploitative rates, tenants
could hardly maintain the minimum standard of living. As a consequence,
legislations were enacted after 1947 to regulate the limits of rents and
reduce the burden on tenants. The first plan stated that maximum rent
should be fixed at one fourth or one fifth of the total produce.
b) Security of tenure : To protect tenants from ejection from their land
and to grant them permanent rights of land holdings, legislations have
been passed in most of the states. The essential aims for the legislations
for the security of tenure were: i) ejection should not take place except
in accordance with the provision of the law, ii) land may be resumed by
an owner only for personal cultivation and iii) in the event of resumption,
the tenant is assured of prescribed minimum area.
Indian Economy 97
Unit 5 Land Reforms
However, the degree of protection to tenants afforded by the law
in a particular area depends upon the following important factors:
 Definition of tenants,
 The circumstances in which landlords are allowed to resume
tenanted land for cultivation,
 Definition of the term personal cultivation, and
 Status of the land records.
c) Ownership Right for tenants : Sir Arthur Young once said “Give a
man the secure possession of a bleak rock and he will turn it into a
garden; give him a nine years’ lease of a garden and he converts in into
a desert.” These words underlie the importance of land ownership. In
the Second Five Year plan document, it was emphasized that ownership
right should be conferred on tenants. This means the tenants should be
made owners of the land they cultivate. Accordingly, many states passed
legislations to confer the right of ownership to tenants.
It has been estimated that as a result of laws conferring ownership
right on tenants in various states, about 12.42 million tenants have acquired
ownership right over 6.32 million hectares of lands. Provisions have been
made to confer the ownership right on the tenants who could not either
purchase land or unwilling to purchase land due to various socio-economic
reasons i.e. due to lack of purchasing power or pressure from the
landowners.
It is to be noted that, in all tenancy laws of the country, persons
cultivating in the lands of others on payment of rent either in cash or kind or
both are treated as tenants. However in some states, sharecroppers who
pay rent by division of produce are not regarded as tenants. Thus all laws
aiming at protecting tenants do not help them. A limited right of resumption
was thus granted by land owners for personal cultivation in all states except
Uttar Pradesh and West Bengal. In some states, land owners were permitted
to resume land rights up to the ceiling limit, while in others the permissible
limit was below the ceiling limit. Several states also passed laws requiring
the landlord to leave a certain minimum area with the tenants as and when
he resumes land for personal cultivation.
98 Indian Economy
Land Reforms Unit 5
The rights of resumption combined with defects in the definition of
personal cultivation rendered all tenancies insecure. The landlord could eject
any tenant on the plea of personal cultivation. On account of this fact the
fourth Five Year Plan recommended that all tenancies should be declared
non-resumable and permanent except in cases of landlord who are serving
in the defence forces or suffering from a specified disabilities and penalties
should be imposed for wrongful eviction.
Many landlords compelled their tenants to give up the tenancies on
their own accord. In this manner they succeeded in circumventing the
tenancy law, because no law can help the tenants if they give up their right
voluntarily. Landlords applied various kinds of threats and pressures on the
tenants to surrender their land. Because of their weak socio-economic
condition and abject poverty, the tenants easily succumbed to these
pressures. On account of this, the fourth Five Year Plan recommended that
voluntary surrender should be regulated by the state in such a way that
landowners are prohibited from taking possession of surrendered land which
could be given over to other eligible tenants selected by the government.
However this provision has been enacted only in some states.
Laws relating to securities of tenure can be implemented effectively
only if correct and up-to-date land records are available .In the absence of
land records a person cannot claim to be a tenant. In many states of the
country there were no land records or were in complete and out of date
.Thus, it was urgently required to keep the land records up-to-date and to
make provision for revision of records so as to provide security of the tenant.
CHECK YOUR PROGRESS
Q 4: What do you mean by the term ‘land

tenure’? (Answer in about 50 words)
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Indian Economy 99
Unit 5 Land Reforms
Q 5: What do you mean by land reform? (Answer in about 30 words)
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Q 6: State the main strategies of land reform. (Answer in about 60 words)
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5.5 CRITICAL APPRAISAL OF LAND REFORM

MEASURES IN INDIA
The various measures of land reforms introduced in India is a holistic

one. This has paved the way for agricultural progress in the country. The
land reform measures could have been more successful, if all the states
would have introduced the reforms without delay. In many cases, there was
a time leg between the enactment of the reform laws and their actual
implementation. Thus, in a number of cases, large amount of lands were
transferred before the legalities of the land ceiling acts were put in practice.
We have already discussed that the aims of land reform measures
were the fulfillment of all the five principles of National Land Reform Policy.
These principles were: abolition of intermediaries, tenancy reforms with
security to actual cultivators, redistribution of surplus ceiling land,
consolidation of holdings and updating land records. It is a known fact that
landlessness is one of the root causes of rural poverty. In an agriculturally
dominant country, principal means of livelihood is access to land, which is a
major source of employment and income. This access could be achieved
in any of the two ways: by more equitable redistribution of land, or by providing
security of tenure to tenants and sharecroppers. Out of these two ways, the
scope with respect to redistribution is limited. This is because, with the
100 Indian Economy

Land Reforms Unit 5
average size of land holdings declining, there is no possibility of any further
fresh ceilings. Hence, efforts should be made to detect the surplus land and
to distribute the existing surplus land expeditiously; and at the same time, it
should also be ensured that allottees retain possession of land.
Again, land reform measures should have promoted co-operative
farming in the country. But in many parts of the country, co-operative
movement The fid not take off in spite of much talked about Bhoodan
Movement and Gramdan Movements. Having set right the wrongs of the
British government, land reform measures have succeeded in taking the
agricultural economy out of stagnation.
In a nutshell, land reform measures recorded very limited success.
The following factors may be held responsible for such limited success:
 Loopholes in legislation : The following loopholes in legislations are
important :
 The term personal cultivation was not precisely defined.
 No limits for retention of land for personal cultivation in which
intermediaries were allowed to retain substantial areas of land for
personal cultivation.
 Limits of ceiling not uniform: It was noticed that in some cases,
the level of ceiling was not the same across the state. This created
a lot of confusion and frequent disputes.
 Definition of tenants inadequate: In many states, share croppers
were not accorded the status of tenants, even when they cultivated
a substantial part of land. Therefore, laws relating to tenancy reforms
could not be used for protecting their rights. A considerable number
of tenancies in India are verbal and informal. The tenants cultivating
in such land are not in position to prove that they are the actual tillers
of soil because their names do not appear in land records.
 The problem of voluntary surrender : Landlords often forced their
tenants to voluntarily surrender the land being cultivated by them
either by threatening or by other means.
Indian Economy 101

Unit 5 Land Reforms
 Lack of political will : Enactment of progressive measures of land
reforms and their efficient implementation call for sincere political
decisions and effective political support, direction and control. This crucial
factor has been wanting in the rural areas of the country. This can be
demonstrated by the large gaps between policy and legislation and
between law and its implementation. Since independence, no sphere of
public activity in the country the deviation between precept and practice,
between policy pronouncement and actual execution has been as great
as in the domain of land reforms.
 Apathy of bureaucracy : Side by side with the lack of political will goes
the apathy of bureaucracy in implementing the land reforms. Both are
intricately linked up together and the apathy of the bureaucracy flows
from the lack of political will in implementing the reforms strictly. This
has dampened the spirit of the approach and had an overall demoralizing
effect. The very instruments of implementing land reforms have turned
into instruments of subverting land reforms. The nexus between the
politicians, administrators and large landowners also acted in favour of
the landlords. The section of rich peasants dominates the state
government, regional and local administration and served as the main
instrument of land grabbing. This acted as a strong impediment in the
effective implementation of the land reform measures.
CHECK YOUR PROGRESS
Q 7: It is said that lack of political will is another

factor of limited success of land reform measures.
Do you agree? Justify your viewpoint. (Answer in about 50 words).
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102 Indian Economy

Land Reforms Unit 5
a) Tenants surrendered their land to the landlords at their own will as
they were very happy with their landlords.
b) Surplus land is always distributed among the landless cultivators.
5.6 LET US SUM UP
 Meaning of land tenure is the relation of the owner of the land with the
cultivator and the government. It is concerned with the rules and
regulations and the terms and conditions under which the cultivators
cultivate the land.
 At the time of independence there were three types of land tenure
system:-Zamindari, Mahalwari and Ryotwari.
 The meaning of land reform is to stop the exploitation of the actual tillers
of the soil and to pass the ownership of the land to them. Its main
objectives were to remove all the impediments in increasing the
agricultural productivity, to eliminate all forms of exploitation and social
injustice within the agrarian system, to provide security for the tiller of
the soil and assure equality of status and opportunity to all sections of
the rural population.
 The strategies of land reforms are:
 Abolition of intermediaries
 Tenancy reforms
 Re organisation of agriculture
 Land reforms in India is a positive milestone in the progress of agriculture
and the agricultural productivity, development of the land tenure system
and the source of generation of income and employment of the rural
population in the country
 The success recorded by the land reform measures is far less than the
actual potential. There are several snags in the process – in the sphere
of legislation, lack of political will and the apathy of bureaucracy which
retard the land reform policy and its implementation in the country.
Indian Economy 103

Unit 5 Land Reforms
5.7 FURTHER READING

Publishing House.
Ans to Q No 1: The Zamindari system was created by the East India

Company when in 1791, Lord Cornwallis entered into permanent
settlement with landlords with a view to increasing the revenue of the
company. Under the settlement, the landlords known as Zamindars, were
declared full proprietors of large areas of land. In return, the task of
collecting rent from the farmers was entrusted to them.
Ans to Q No 2: At the time of independence, this system was prevalent in
West Bengal, Bihar, Orissa, Uttar Pradesh, Andhra Pradesh, and Madhya
Pradesh.
Ans to Q No 3: The Mahalwari system was introduced by William Bentinck
in Agra and Andhra and later extended to Madhya Pradesh and Punjab.
In this system, the whole village was treated as a unit as for land revenue
is concerned. The ownership of land under this system was collective.
Ans to Q No 4: Land tenure means the way in which an individual holds
land from the government. It shows the relationship between the land
holder and the state. Land holder is the proprietor of the land pays land
revenue to the state.
Ans to Q No 5: Land reform means the process and measures undertaken
to free the tillers of the soil from the clutches of parasite classes and to
pass on the ownership of the land to the actual tillers. The other objectives
of the land reforms were to remove all the barriers that existed in
increasing production and productivity of agriculture, to provide security
104 Indian Economy

Land Reforms Unit 5
to the tillers of the soil, and to assure equality in status and opportunity
to all the section of the rural population.
Ans to Q No 6: The main strategies of the land reform are a) abolition of
intermediaries between the farmer and the state, e.g. zamindars etc.,
b) tenancy reforms. These include: regulation of rent, security of tenure,
resumption of the land only for personal cultivation, and in the event of
resumption, minimum area must be provided to the tenant, and c)
conferment of the ownership to the tenant.
Ans to Q No 7: The statement has been rightly made. It is a known fact that
the enactment of progressive measures of land reforms and their efficient
implementation require sincere political decisions and effective political
support, direction and control. This crucial factor is lacking in the rural
areas of the country. This can be demonstrated by the large gaps between
policy and legislation and between law and its implementation.
Ans to Q No 8: a) False b) False
5.9 MODEL QUESTIONS

Q 1: Discuss the main objectives of abolition of intermediaries in the land
tenure system of India.
Q 2: Briefly discuss the land tenure system prevalent in India prior to its
independence.
Essay type Questions (Answer in about 500 words)
Q 1: Discuss the success and failures of land reforms in India.
Q 2: In what way is the security of tenure provided to the tenants or tillers
of the soil in the land tenure system? Explain.
Q 3: Explain the objectives and strategies of the land reform measures
undertaken in India.
*** ***** ***
Indian Economy 105

UNIT 6 : AGRICULTURAL FINANCE AND
AGRICULTURAL MARKETING
UNIT STRUCTURE
6.2 Introduction
6.3 Need for Agricultural Finance
6.4 Sources of Agricultural Finance
6.4.1 Role of Co-operatives and Commercial Banks
6.4.2 Role of Regional Rural Banks (RRBs) and NABARD
6.5 Agricultural Marketing: Concept and Limitations
6.6 Role of Government in promoting Agricultural Marketing
6.7 Let Us Sum Up
6.8 Further Reading

 derive the meaning of agricultural finance,
 describe the need for agricultural finance,
 trace the source of agricultural finance,
 explain the role of co-operative, commercial banks and RRBs
including NABARD,
 put forward the meaning of agricultural marketing,
 discuss the concept and basic requirement of agricultural marketing,
 point out the limitations of agricultural marketing, and
 deliberate on the role of the Government in facilitating agricultural
marketing.
6.2 INTRODUCTION
Agriculture is in the unorganized sector and its success and failure
106 Indian Economy

Agricultural Finance and Agricultural Marketing Unit 6
depend to a large extent on climatic factors. The modernization of this sector
(such that farmers have to depend less on climatic factors) needs financial
support. The returns of investment from this sector are less compared to
the returns from the industrial sector. Again, there is the difficulty in
distinguishing between productive and unproductive loans of the farmers.
Hence, the banks or the financial institutions did not have interest earlier in
advancing loans to agriculture and allied activities for a long time. Therefore
the farmers were forced to depend on money lenders and mahajans. This
leads the farmers towards a debt trap, and they could not come out easily
from such debt traps. Ultimately, they have to lose their lands to the money
lenders. To save the farmers from such situation, it is urgently required to
finance the farmers through different institutional sources, such as credit
societies, commercial banks and rural banks. Governments have taken a
number of steps to make institutional funds available to this sector. For
example, a number of Regional Rural Banks (RRBs) were established for
this purpose. Similarly, the Reserve Bank of India set up National Bank for
Agriculture and Rural Development (NABARD) to help the agricultural and
development activities in the rural areas of the country.
Apart from non-availability of funds, marketing of the agricultural
produce at the right market price is another problem. Rural farmers often
have to sell out their produce to brokers or middle men at a much less price
than the actual market price. Thus, provision of the linkage between the
farmers and the market is also another important issue to be tackled. This
unit deliberates on the issues of agricultural finance and agricultural
marketing. The need for agricultural finance, various sources of agricultural
finance, role played by the co-operatives, commercial banks and regional
rural banks, especially, the roles played by NABARD has been discussed in
the unit. Apart from this, the meaning of agricultural marketing, its basic
requirement, major limitations of agricultural marketing and the role played
by the government in promoting agricultural marketing have been explained
in this unit. Let’s begin with the need for agricultural finance.The tenure
system of the country identifies the ownership of the land and the relation of
Indian Economy 107

Unit 6 Agricultural Finance and Agricultural Marketing
the owner of the land with the cultivator and the government. It is concerned
with the cultivator and the government. It is concerned with the rules and
regulations, the terms and conditions under which the cultivator cultivates
the land.
1.3 NEED FOR AGRICULTURAL FINANCE
Agricultural finance can be discussed under two major categories.

 On the basis of time, agricultural finance can be short, medium and
long term.
 Short term loans are required for the purchase of seeds, fertilizers,
pesticides, feeds and fodder of live stock, marketing of agricultural
produce, payment of wages of hired labor and a variety of
consumption and unproductive purposes The period of such loans
are less then 15 months.
 Medium term loans are generally needed for the purchase of cattle,
small agricultural implements, repair and construction of wells etc.
The period of such loan or credit extends from 15 month to 5 years.
 Long term loans are required for permanent improvements on land,
digging tube wells, purchase of larger agricultural implements and
machinery like tractors, harvestors etc. and repayment of old debts.
The period of such loans extends beyond 5 years.
 On the basis of purpose, the needs for agricultural finance can be
classified as productive, consumption needs and unproductive.
 Productive needs: Under productive needs are included all credit
requirements which directly affect agricultural productivity. To
increase agricultural productivity farmers need loans to purchase
seeds, fertilizers manures agricultural implements, livestock, digging
and repair of wells and tube wells, payment of wages permanent
improvements on land, marketing of agricultural produce etc.
 Consumption needs: often farmers need loans for consumption
purposes also. This happens in the period between marketing of
agricultural produce and the harvesting of next crops, in which there
108 Indian Economy

is a long interval of time and most of the farmers do not have sufficient
income to sustain them through this period. Again, if natural calamities
e,g. drought, flood etc. occur, the crop is damaged and the farmers
have to take loans for consumption purposes.
 Unproductive purposes: Farmers also require loans for some
unproductive purposes, such as litigation, performance of
marriages, social ceremonies or the birth or death of a family
member, religious functions, festivals etc. Since institutional agencies
do not grant credit for such unproductive purposes, farmers have to
seek assistance from money lenders and mahajans.
CHECK YOUR PROGRESS
Q 1: Mr. R Majumdar, a farmer from Lakhimpur

has taken a loan of Rs. 50,000 from NABARD to
purchase some minor agricultural implements. He has to pay back
the loan with interest within a period of 4 years. Will you consider
this loan as long-term? Justify your answer. (Answer in about 60
words)
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Q 2: When and why are the loans raised for consumption purposes?
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Indian Economy 109

6.4 SOURCES OF AGRICULTURAL FINANCE
Sources of agricultural finance can be divided into two categories:

non-institutional and institutional sources.
 Non-institutional Sources : The non-institutional sources are: a)
moneylenders, b) relatives c) traders d) Commission agents and e)
Landlords.
At the time of independence, the most important source of
agricultural credit was the money lenders. In 1951 money lenders
accounted for as much as 71.6 percent of rural credit. The reason was
that there was no other source and the farmers were forced to borrow
for them. This total dependence of the farmers on the money lenders
enabled the money lenders to dictate terms and exploit the farmers in a
number of ways. Therefore, the government has undertaken various
steps to regulate the activities of the money lenders. For this purpose
various legislations were enacted. The basic objectives of these
legislations were:
 To bring about an improvement in the terms on which private credit
was made available to the farmers and place legal restrictions on
the unreasonable exploitations of the moneylenders
 To enable the civil courts to do greater justice to both the lenders
and the borrowers than was possible under the ordinary code of
civil procedure, two sets of provisions were made in this regard.
The first set of provisions included: a) licensing or registration of the
money lenders b) fixation of maximum rates of interest and c)
maintenance of accounts by money lenders etc. The second set of
provisions included the empowerment of the court by execution of
decrees or to direct the payment in installment basis.
 Institutional Sources of Agricultural Finance: The major institutional
sources of agricultural finance in our country include: the co-operatives,
commercial banks, regional rural banks and the NABARD. We shall
discuss the role played by the Regional Rural Banks (RRBs) and
NABARD in the next section. In this section we shall discuss the role
110 Indian Economy
played by the co-operatives and the commercial banks.
6.4.1 Role of Co-operatives and Commercial Banks
Role of the co-operatives : The first institutions established and

promoted to offer agricultural credit were the institutions of co-
operative credit societies. Although the co-operative movement in
the country was started as early as 1904, its development was very
slow. In 1951 co-operatives provided only 3.1 percent of the total
rural credit. Hence, the dominance of money lenders in agricultural
credit continued. However, there has been massive expansion of its
operations afterwards. The co-operatives provided 15.5 percent of
the total credit in 1961-62 and 22.7 percent in 1970-71. In 1992-93,
the rural credit provided by the co-operatives was 53.4 percent.
However, thereafter, though the amount of rural credit provided by
the co-operative increased, their percentage of share in total
institutional credit declined. In 2006-07, co-operative provided only
20 per cent of the total institutional credit to agriculture in that year.
Thus, in the post-independence period, there has been an extensive
expansion both in terms of coverage and volume of operations of
these co-operatives. The performance of these co-operatives in the
advancement of loans is also commendable. Even when the entry
of commercial banks into the rural credit system was recommended,
it was stated clearly that this should be done to supplement and not
supplant the co-operative credit structure. However, large
accumulated losses, persistent non-performing assets, low recovery
levels and various other types of organizational weaknesses caused
serious problems to these co-operatives. In fact, many co-operative
institutions have continued to make losses over the years.
Role of Commercial Banks : Earlier, the share of
commercial banks in rural credit was very small. It was only 0.9
percent in 1951-52 and 0.7 percent in 1961-62. The reason was that
subsistence nature of agriculture and its unorganized individualistic
Indian Economy 111

functioning. As against the organized industrial sector, this sector is
uncertain in the sense that it is dependent on natural factors.
Consequently, to offer credit, commercial banks rated more on the
industrial sector than the agricultural sector.
However, after the nationalisation of 20 commercial banks in
1969, there has been much improvement in the state of affairs. The
banks have increased their branches in rural areas and have
increased their advances in these areas considerably. In 1969, out
of total branches of the commercial banks, only 22.2 percent was in
rural areas. This has increased to 42.4 percent in 2007. This shows
that total number of branches of commercial banks has been
increasing considerably. Similarly, the advances from the public
sector banks to the agriculture have also grown. In 1969, the
advances to agriculture aggregated to Rs. 164 crore only butin 2008-
09 this had risen to Rs. 2,28,951 crore, accounting for 78 percent of
the total institutional credit to agriculture. This further increased to
Rs. 5,09,005 cr. in 2013-14 accounting for 71 percent of institutional
credit to agriculture.
Thus, we can say that after nationalization, the commercial
banks have played an important role in providing rural credit. This
has enabled farmers to purchase agricultural inputs and adopt new
agricultural technology on an increasing scale. This has also resulted
in the expansion of activities in the non-farm sector in rural areas,
and thus also accelerating the pace of private agricultural investment.
It therefore follows that expansion of banking facilites has played a
pivotal role in India’s agricultural growth and modernisation of the
sector. In addition, large number of rural people has been able to
become free from the clutches of the money lenders.
Weaknesses : Despite the achievements of the commercial
banks in the field of rural credit their performance and operations
have a lot of limitations. These are:
 Rapid expansion of the bank branches compromises the quality
of scheme preparation, particularly the anti-poverty programmes.
112 Indian Economy
 Shortage of staff has led to the deterioration in the quality of
landing due to heavy workload on them. The staffs in rural
branches in commercial banks lack sufficient motivation to work
in rural areas for various reasons. Supervision of rural advances
has come to be neglected.
 Opening of a large number of branches in rural areas which do
not have adequate business potential, results in the rise of
establishment expenses, and increase in non-performing
advances. This has affected the profitability of the banks
adversely.
 The recovery position of the commercial banks is very bad.
 The credit-deposit ratio is an important indicator of the degree of
involvement of banks in lending. However the rural credit ration
has declined as for example; from 1.58 percent in 1991 to 0.73
percent in 2001 which shows that deposits mobilized from rural
India are being utilized elsewhere. In other words, the rural India
is financing the other sectors of the economy.
 The commercial banks have failed to fill the geographical gap in
the availability of credit not covered by the co-operatives.
 There is lack of co-ordination between one commercial bank
and another, and also between commercial banks and the co-
operative credit structure on the one hand, and the government
department on the other. Even the lead Bank scheme for each
district is not able to cover the entire system.
CHECK YOUR PROGRESS
Q 3: What are the main sources of agricultural

finance? (Answer in about 50 words)
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Indian Economy 113

Q 4: State the role of co-operatives in providing agricultural credit.
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Q 5: The rural India is financing the other sectors of the economy. Do
you agree with this statement? Justify your view. (Answer in about
60 words)
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6.4.2 Role of Regional Rural Banks (RRBs) and NABARD
Role of the Regional Rural Banks (RRBs) : The regional rural

banks came into existence since 1975 as per the recommendation
of the Working Group on Rural Banks (1975) to supplement the
efforts of the commercial banks and the co-operatives. Initially in
1975, 5 RRBs were formed. These banks were formed as joint
ventures of the Central Government, the State Government in which
the bank operated and the concerned commercial bank which
sponsored the RRB. The Central Government provided 50% of the
total capital; the concerned State Government provided 15%, while
the remaining share of 35% was provided by the sponsoring bank.
The objectives of establishment of RRBs are :
 To extend credit to weaker sections of the rural community, small
and marginal farmers, landless labours, artisans and other
residents of small means.
 To be an institutional device in consonance with the cooperatives
and commercial banks with modern outlook and to reach out
the rural poor more extensively.
 To act as low cost, low profile credit institution which the rural
114 Indian Economy
poor could walk in.
 The staff of the RRBs was to be recruited from the neighboring
areas, such that they have better understanding of the needs of
the area and its people.
Growth of RRBs : From the initial number of 5 in 1975, 196 RRBs
were set up by 1990 across India. In 2005-06, RRBs provided
Rs.15,223 crore as agricultural credit. This was 8.5% of the total
institutional credit to the sector in that year. Keeping in view the limited
success, Government of India in September 2005 initiated the
process of amalgamation of the RRBs. The main argument put
forward was that such amalgamation would help in consolidation
and strengthening of the RRBs. Till August 2006, such amalgamation
have reduced the number of RRBs from 196 to 104 which further
declined to 95 in 2007.
Weaknesses : In spite of the growth, the RRBs failed to record
impressive results. The main problems faced by the RRBs are:
 There is a multi agency control of RRBs. This contributed to a
lack of uniformity in their functioning. It has resulted in lack of
support from state governments and lack of proper monitoring
by sponsoring banks.
 Recovery position of RRBs is very bad; thus, its overdues are
very high. The high incidence of overdues is attributable to a
number of internal as well as external factors like defective loan
policies, weak monitoring and supervision, failure to link lending
with development and to ensure proper end use of the loan are
some of the internal factors. External factors included political
interference, willful default, bad effects of draughts and floods
on agriculture, lack of legal and administrative support from the
state government in the matter of loan recovery etc.
 The RRBs are so structured as to confine their lending to weaker
sections, where the interest earned as loans is the lowest in the
banking system. Low margins coupled with high cost of servicing
in a large number of small accounts added to the losses. Again,
Indian Economy 115
opening of RRB branches year after year added to increased
overhead costs, without proportionate increase in income. All
these factors led to mounting losses, ultimately leading to non-
viability in operation.
 Since the RRBs are district level small institution, the sponsoring
banks have been deputing only middle management staff to run
them. Such staff finds it difficult to take independent decisions in
a new environment.
Role of National Bank for Agriculture and Rural Development
(NABARD) : The most important development in the field of rural
agricultural credit has been the setting up of the National Bank for
Agriculture and Rural Development (NABARD) in July 1982. It took
over from Reserve Bank of India all the functions that it performed in
the field of rural and agricultural credit.
NABARD was set up with an authorized capital of Rs.500
crore and paid up capital of Rs.100 crore. The share of the
Government of India and the RBI is equal, i.e., 50:50. In 1999-2000,
the paid up capital was raised to Rs.2000 crore. NABARD also
receives funds from the World Bank and the International
Development Agency (IDA).
Functions of NABARD : NABARD was established as a
development bank to perform the following functions:
 To serve as an apex financing agency for the institutions providing
investment and production credit for promoting various
developmental activities in rural areas.
 To co-ordinate the rural financing activities of all institutions
engaged in developmental works at the field level and liaison
with the government of India, the State Governments, the Reserve
Bank of India and other national level institutions concerned with
policy formulation.
 To undertake monitoring and evaluation of projects refinanced
by it.
 To take measures towards institution building for improving
116 Indian Economy
absorptive capacity of credit delivery system including monitoring,
restricting of credit institutions and training of personnel.
NABARD’S role in the agriculture sector: The roles played by
the NABARD in the agricultural sector are as follows:
 NABARD provides short term credit facilities to state co-operative
bank for financing seasonal agricultural operations marketing of
crops pisciculture activities, production, procurement and
marketing activities of the co-operative weaver’s societies
purchase and sale of yarn by apex regional societies, purchase
and distribution of fertilizers and allied activities and marketing
activities.
 Medium term facilities are provided to state co-operative banks
and Regional Rural Banks for converting short term loans for
financing seasonal agricultural operations to medium term loans
and for approved agricultural purposes.
 Long term loans are provided to state government for contributing
to share capital of co-operative credit institutions.
 NABARD refinances to state co-operative agriculture and rural
development banks, state co-operative bank, regional rural banks,
commercial banks and other financial institutions approved by
the Reserve bank while ultimate beneficiaries of investment credit
can be individuals’ partnership concerns, companies, state
owned corporation or co-operative societies. Production credit
is generally provided to the individuals.
 NABARD has played a key role in the development and promotion
of Self Help Groups (SHGs) and other micro finance institutions
and in providing refinance at special rates. SHG-bank linkage
programme has emerged as a major micro-finance initiative to
reach out the doorsteps of millions of very poor household.
 The Kissan Credit Cards (KCC) scheme was introduced in 1998-
99 to facilitate short term credit to farmer, commercial bank, co-
operative banks and RRBs are implementing this scheme. Each
farmer is provided with a Kissan credit card and a pass book for
Indian Economy 117
providing revolving cash credit facilities. NABARD has
accelerated the pace of some of KCCS.
 NABARD has issued operational instructions to RRBs and co-
operative banks with regard to implementation of Swarnajayanti
Gram Swarozgar Yojna (SGSY) on similar line as was issued
by the Reserve Bank for commercial banks. Policy guidelines
for refinance support to SGSY were also issued to all financing
banks.
 NABARD set up the co-operative Development Fund (CDF) in
1993 with the objective of strengthening the co-operative credit
institutions in the area of organizational structure, human
resource development, resource mobilization, recovery position
etc. The assistance is provided to state co-operative banks, state
co-operative agriculture and rural development banks, by way of
a grant of a soft loan or both.
 NABARD is the supervisory authority for state co-operative Banks,
and certain other state level co-operative institutions. Accordingly,
NABARD undertakes periodic on-site and off site inspection of
these organizations.
 The three main functions of NABARD are refinancing, institutional
development and inspection of client banks.
CHECK YOUR PROGRESS
Q 6: When and how were the RRBs formed?

.......................................................................................................
.......................................................................................................
.......................................................................................................
.......................................................................................................
.......................................................................................................
Q 7: NABARD was set up by the SBI and Govt. of India. (True / False)
118 Indian Economy

Q 8: Why and to whom are the long term loans offered by NABARD.
.......................................................................................................
.......................................................................................................
.......................................................................................................
6.5 AGRICULTURAL MARKETING : CONCEPTS AND

LIMITATIONS
The Concept of Agricultural Marketing : The marketing of

agricultural produce involves several activities such as collecting and storage
of agricultural produce, their gradation, settlement of bargains of prices and
quantities etc. In facilitating the sale and purchase of agricultural products,
an effective agricultural marketing system provides a number of valuable
services to an economy. These include:
 A proper marketing system is essential for healthy functioning of an
economy. The existence of a good marketing system is an assurance
to the farmer that his produce will be taken off the field. Such a system
will indicate to the farmers the type of goods for which demand exists
and the quantities in which these goods are needed. This will help in an
optimum use of land.
 A well designed marketing set-up will help the farmers immensely in the
sense that they will get the highest possible price for their produce. They
will be induced to produce those goods and in that quantities, which
bring to them the maximum revenue.
 A good marketing system properly aligns the agricultural prices with
those of non agricultural prices which is the major contributor of GDP of
the Indian economy as a proper marketing arrangement can organize
surpluses from this sector and these are required to be used in the non-
agricultural sector, e.g., to feed the industrial labor and urban population.
This can provide raw materials for industries and goods for exports.
 Agricultural marketing can be designed in such a way that it helps in
maximising the rate of growth of the agricultural sector. In this framework,
Indian Economy 119

it can offer attractive and profitable opportunities to produce a variety of
products.
Limitations of Agricultural Marketing : Although there are many
advantages and need for agricultural marketing, limitations are also manifold.
Important ones are:
 Inadequacy of warehousing facilities and possibility of products being
damaged, the farmer’s capacity to store the produce for a longer period
is reduced. In the worst possible case, the farmers are keen on disposing
it and they do not get fair price and make the best of the market
opportunity. The country suffers because of the reduction in supply.
 Poor transport facilities such as poor road, rail and water transport cause
farmers a lot of difficulties in carrying the produce from fields to their
homes and from villages to markets. Apart from inadequate transport,
the country also suffers from the shortage of fast moving vehicles. This
hinders the quick movement of a large quantum of produce and
perishable goods to the market. As a consequence, the cost of carriage
of goods increases and a part of the produce is spoilt on the way.
Farmers also fail to get a good market price for their produce.
 An inadequate facility of credit, especially to fulfil the need of credit
between the harvesting period and the time it is sold out is another
limitation of agricultural marketing and finance. This adversely affects
the holding capacity of the farmers; more particularly, the small farmers.
The farmers are forced to sell the crop immediately after harvesting. All
the farmers bring their supplies together. This causes inundated supply
in the market; and consequently, the farmers do not get fair prices for
their produce.
 Another defect of the present marketing system is that agricultural
produce of different varieties is not graded properly. Arrangements for
the grading and standardization of products are not adequate. As a result,
the produce that comes to the market consists of a variety of qualities
and grades. This makes difficult to assign prices to these goods as per
their qualities. Hence prices, production and quality of the produce bear
120 Indian Economy

no relation to one another. As such, farmers find it difficult to secure
higher prices for their superior quality products. Thus, the producers do
not get incentive for their quality production; on the other hand, the
consumers as well do not get satisfaction from such transactions.
 Very often farmers are not supplied with correct information about market
price, demand, international trends, Government policies etc. As a result,
farmers visit markets occasionally and base their decisions on the
information supplied by money lenders, traders, other functionaries and
intermediaries. Such information is generally wrong and biased in favor
of purchasers and against the interest of the farmer.
 Another weakness of agricultural marketing is that arrangements for
institutional marketing are grossly inadequate. The farmers sell their
produce separately on individual basis. Against the powerful
intermediaries, these farmers possess only very weak bargaining
capacity. Consequently, they do not get fair price for their produce. Due
to having small number of co-operative marketing societies and
inadequate government arrangements to buy agricultural produce, only
a few regulated markets are found functioning properly. As a consequence
of such deficiencies, farmers are being exploited.
CHECK YOUR PROGRESS
Q 9: What is agricultural marketing? (Answer in

about 50 words)
.......................................................................................................
.......................................................................................................
.......................................................................................................
.......................................................................................................
.......................................................................................................
Q 10: How do the transport facilities affect the marketing of agricultural
produce? (Answer in about 40 words)
.......................................................................................................
.......................................................................................................
Indian Economy 121

.......................................................................................................
.......................................................................................................
Q 11: What happens when all the farmers bring their produce for sale in
the market just after harvesting? (Answer in about 50 words)
.......................................................................................................
.......................................................................................................
.......................................................................................................
.......................................................................................................
.......................................................................................................
6.6 ROLE OF GOVERNMENT IN PROMOTING

AGRICULTURAL MARKETING
After independence, the Government of India adopted a number of

measures to improve the system of agricultural marketing. These are:
establishment of regulated markets, construction of warehouses, provision
for grading and standardisation of agricultural produce, standardization of
weights and measures, daily broadcasting of market prices of agricultural
crops on all India Radio, improvement of transport facilities etc. Now, we
shall discuss them in brief.
 Regulated markets have been organized with a view to protect the
farmers from the malpractices of sellers and brokers. The management
of such markets is done by a marketing committee, consisting of
nominees from the state government, local bodies, brokers and farmers.
The functions performed by the committee are: a) fixation of charges
for weighing, brokerage etc., b) prevention of unauthorized deductions
by intermediaries, c) enforcing the standardized weight, d) providing
up-to-date and reliable market information to the farmers and e)
settlement of disputes among the parties arising out of market operations.
 For the improvement of agricultural marketing, gradation and
standardization are essential. To address these issues, government
passed the Agricultural Produce (Grading and Marketing) Act. This
provision presently covers 182 agricultural commodities. Again, the
government has also set up a central quality control laboratory at Nagpur
122 Indian Economy
and a number of regional subsidiary quality control laboratories. On the
basis of samples, agricultural commodities are collected and chemical
properties are tested at laboratories. Thereafter, grades are drawn up
and authorized AGMARK (Agricultural marketing) packets are issued
for these commodities.
 The Union Government adopted the Metric system of measures in 1958,
by passing an act to this effect in the Parliament. This system replaced
the age old system of weights and measures and has introduced a
uniform system of measurement in the country.
 It is necessary to provide a network of godown facilities all over the
country, so that farmers are not compelled to sell their produce
immediately after the harvesting of crops. This will enhance the
bargaining power of the farmers and save them from distress sale. To
meet this objective, the Rural Credit Survey Committee constituted in
1954 recommended a three tier system of warehousing, viz., a) The
national level b) state and district level and c) village and rural level. In
accordance with the recommendations, Central Warehousing
Corporation was set up in 1957 and this was followed by establishment
of state warehousing corporations in a number of states. At the national
level, Food Corporation of India (FCI) was set up for the storage of food
products. To prevent distress sales, a centrally sponsored scheme for
rural godowns was initiated at the village and rural level; so that the
small and marginal farmers need not to do so just after the harvesting of
the produce at the prevailing low price. After 2001, the government is
implementing a central sector scheme for the construction of rural
godowns.
 The government announces minimum support prices and procurement
prices for various agricultural commodities from time to time in a bid to
ensure fair returns to the farmers. These prices are fixed in accordance
with the recommendation of the commission for Agricultural costs and
prices. Government agencies like the Food Corporation of India purchase
agricultural commodities from the farmers at the remunerative prices.
These purchases in turn are sold of by the government at reasonable
Indian Economy 123
prices through the Public Distribution System (PDS) to the ultimate
consumers, especially the below poverty line (BPL) families.
 The government has initiated a number of measures to inform the farmers
about the prices prevailing in different markets, e.g., through all India
Radio, Doordarshan, news papers etc. Market intelligence reports
regarding stocks, current market prices etc are also published
periodically. Under a central scheme, a market research and information
network has been constituted for speedy collection and dissemination
of prices and market related information to farmers.
 The National Institute of Agricultural Marketing was established in 1988.
The main aims and objectives of the Institute are: a) to design and conduct
training courses to meet the specific needs of the personnel and
enterprises, b) to undertake research studies to demonstrate better
management techniques in the field of agricultural marketing, c) to offer
educational programmer in agricultural marketing for supplementing the
existing facilities, d) to provide consultancy services for formulating
investment projects and for problem solving advise, and e) to augment
the agricultural marketing infrastructure of the country through
programmes of teaching, research and consultancy services.
 The Directorate of Marketing and Inspections has been set up by the
Govt. of India to co-ordinate the agricultural marketing activities of various
agencies and to advise the central and state governments on the
problems of agricultural marketing. The activities to be performed by
the directorate are: a) promotion of grading and standardization of
agricultural and allied commodities, b) statutory regulation of markets
and market practices, c) training of personnel, d) market extension, and
e) market research, survey and planning.
CHECK YOUR PROGRESS
Q 12: Which of the following recommended a

three tier system of warehousing?
a) Agricultural Produce (Grading and Marketing) Act
124 Indian Economy

b) Food Corporation of India
c) The Rural Credit Survey Committee
d) Directorate of Marketing and Inspections
Q 13: Why was the Directorate of Marketing and Inspections set up by
the Govt. of India? Mention any of its two functions. (Answer in
about 60 words)
.......................................................................................................
.......................................................................................................
.......................................................................................................
.......................................................................................................
.......................................................................................................
Q 14: Expand the following terms.
a) AGMARK:...................................................................................
b) PDS:..........................................................................................
c) FCI:............................................................................................
d) BPL:..........................................................................................
6.7 LET US SUM UP
 To help the farmers and to increase agricultural productivity in the country,

institutional credit is provided by co-operatives, commercial banks, RRBs,
NABARD etc. and is treated as agricultural finance.
 The need for agricultural finance is manifold. For example, agricultural
finance is needed for production, consumption and even for unproductive
purposes.
 Sources of agricultural finance are of two types: a) institutional and b)
non-institutional. Sources of Non-institutional are money lenders,
relatives, traders, commission agents and landlords. The institutional
sources are co-operatives, commercial banks, regional rural banks
and NABARD. Out of these, NABARD is the apex institution.
 The role of co-operatives, commercial banks and Regional Rural Banks
in providing rural agricultural credit is tremendous, though each of them
has some limitations.
Indian Economy 125

 As the apex institution, NABARD plays the supervisory role in the
developmental refinancing functional operations in rural and agricultural
credit.
 Agricultural marketing is the marketing of agricultural produce which
involves collecting and storage of agricultural goods, their gradation,
settlement of bargaining etc.
 The requirement of agricultural marketing is manifold. It covers prices,
optimum use of land, demand for goods in the market, aligning prices of
agriculture to non-agricultural commodities, market set up, growth of
agricultural sector etc.
 There are many limitations or weakness in agricultural marketing. These
include: inadequate transport, storage facilities, non gradation of
agricultural goods, lack of credit facilities, non- availability of market
information, non-existent of institutional market, malpractices in the
marketing of agricultural goods etc.
 The government has taken a number of measures to improve agricultural
marketing in the country. For example, establishment of regulated market,
construction of warehouses, provision of grading and standardization
of agricultural produce, standardization of weights and measure,
dissemination of market information through print and electronic media
etc.
6.8 FURTHER READING

Publishing House.
Ans to Q No 1: Majumdar’s loan for the purchase of minor agricultural

126 Indian Economy
implements can not be termed as long term loans. This is because,
long term loans are offered for a period of 5 years or more. Again, such
loans are offered to for permanent improvement on land, digging tube
wells, purchase of larger agricultural implements and machinery like
tractors, harvestors etc. and repayment of old debts, etc.
Ans to Q No 2: Loans for consumption purposes are raised to meet the
need for credit during the period between marketing of agricultural
produce and the harvesting of next crops. Again, if natural calamities
e,g. drought, flood etc. occur, the crop is damaged and the farmers
have to take loans for consumption purposes.
Ans to Q No 3: Sources of agricultural finance can be divided into two
categories: non-institutional and institutional sources. The non-
institutional sources are: a) moneylenders, b) relatives c) traders d)
Commission agents and e) Landlords. On the other hand, institutional
Sources of Agricultural Finance include: the co-operatives, commercial
banks, regional rural banks and the NABARD.
Ans to Q No 4: After independence, the first institutions established and
promoted to offer agricultural credit were the institutions of co-operative
credit societies. In 1951 co-operatives provided only 3.1 percent of the
total rural credit. In 1992-93, the rural credit provided by the co-operatives
was 53.4 percent. However, thereafter, though the amount of rural credit
provided by the co-operative increased, their percentage of share in
total institutional credit declined.
Ans to Q No 5: It is rightly said that the rural India is financing the other
sectors of the economy. This can be substantiated from that the fact
the rural credit-deposit ratio has declined over the years. The ratio which
was 1.58 percent in 1991 has declined to 0.73 percent in 2001. This
clearly shows that deposits mobilized from rural India are being utilized
else were.
Ans to Q No 6: The regional rural banks were formed in 1975. These banks
were formed as joint ventures of the Central Government, the State
Government in which the bank operated and the concerned commercial
bank which sponsored the RRB. The Central Government provided 50%
Indian Economy 127
of the total capital; the concerned State Government provided 15%, while
the remaining share of 35% was provided by the sponsoring bank.
Ans to Q No 7: False.
Ans to Q No 8: NABARD offers long term loans to the state governments.
The basic purpose of such loans is to enable the state governments to
contribute to the share capital of co-operative credit institutions of the
state.
Ans to Q No 9: Agricultural marketing involves several activities such as
collecting and storage of agricultural produce, their gradation, settlement
of bargains of prices and quantities etc. In facilitating the sale and
purchase of agricultural products, an effective agricultural marketing
system provides a number of valuable services to an economy.
Ans to Q No 10: Poor transport facilities such as poor road, rail and water
transport cause farmers a lot of difficulties in carrying the produce from
fields to their homes and from villages to markets. As a consequence,
the cost of carriage of goods increases and a part of the produce is
spoilt on the way. Farmers also fail to get a good market price for their
produce.
Ans to Q No 11: Owing to lack of storage facilities, the farmers are forced
to sell the crop immediately after harvesting. All the farmers bring their
supplies together. This causes inundated supply in the market; and
consequently, the farmers do not get fair prices for their produce.
Ans to Q No 12: c) The Rural Credit Survey Committee
Ans to Q No 13: The Directorate of Marketing and Inspections was set up
by the Govt. of India to co-ordinate the agricultural marketing activities of
various agencies and to advise the central and state governments on
the problems of agricultural marketing. Two important functions performed
by the directorate are: a) promotion of grading and standardization of
agricultural and allied commodities, and b) market research, survey and
planning.
Ans to Q No 14: a) AGMARK : Agricultural Marketing.
b) PDS: Public Distribution System.
128 Indian Economy

c) FCI: Food Corporation of India.
d) BPL: Below Poverty Line.

Q 1: State the role of NABARD in providing rural agricultural credit.
Q 2: Discuss the main functions of NABARD.
Q 3: Write a short note on the role Regional Rural Banks in providing
rural agricultural credit.
Q 4: Briefly discuss agricultural marketing. What are the problems
cropped up in the agricultural marketing?
Essay type Questions (Answer each question in about 500 words).
Q 1: Discuss the sources of agricultural finance. Enumerate the role of
NABARD in providing rural agricultural credit.
Q 2: Write an essay on the roles of Regional Rural Banks and NABARD
in providing rural agricultural credit.
Q 3: What is agricultural marketing? What are its major problems? Explain
the measures adopted by the government to solve the problems of
agricultural marketing.
*** ***** ***
Indian Economy 129

UNIT 7:FOOD SECURITY AND PUBLIC
DISTRIBUTION SYSTEM IN INDIA
UNIT STRUCTURE
7.2 Introduction
7.3 Concept of Food Security
7.3.1 Prevalance of Malnutrition and Hunger
7.3.2 Dimensions of Food Security
7.4 Public Distribution System (PDS)
7.5 Food Security Act, 2013
7.6 Impact of PDS on Poverty
7.6.1 Food Subsidy under PDS
7.6.2 Incentive to the Farmers through Minimum Suport Price
7.7 Limitations of PDS
7.8 Suggestive Measures
7.9 Let Us Sum Up
7.10 Further Reading

 derive the meaning and concept of food security
 analyse the status and severity of food insecurity, malnutrition and
hunger in India
 discuss the working of the largest food safety net.i.e. Public
Distribution System (PDS).
 comprehend on the drawbacks and failure of PDS and to find out
dynamic strategies for wider coverage and implementation of PDS
and
 discuss the recently announced largest PDS reform- NFSA, 2013
and its features that aims to reduce poverty and hunger and to ensure
130 Indian Economy
Food Security and Public Distribution System in India Unit 7
basic right of food for all people for a decent life.
7.2 INTRODUCTION
Indian economy is characterized as a developing economy. Poverty

among the people is a basic characteristic of the economy. Eradication of
extreme poverty and hunger is a major challenge facing by the Indian
economy as well as the global economy. As per estimate of Global Food
Security Index, 2016(GFSI,2016) globally 800 million people -just over one
in nine people -remain hungry . One third of world's hungry live in India and
every year Indians have to die of hunger. The poor and vulnerable groups
are unable to consume required meal for nutrious diet and productive life
which is a basic need for survival. These group of people remain food
insecure and unable to lead an active life . In this unit we will discuss the
multidimensional and complex problem of food security and the system
(i.e. Public Distribution System) that Government follows to ensure food
security to the people.
7.3 CONCEPT OF FOOD SECURITY
Consumption of enough healthy food is a basic human right. When

an individual or group of individuals are unable to consume basic foods for
energy and nutrients to maintain a healthy and productive life then they are
termed as food insecure. The most acceptable definition of food security
was given by World Food Summit of Food and Agricultural Organization
(FAO) held in 1996. FAO states "Food Security exist when all people, at all
times have physical and economic access to sufficient, safe and nutritious
food to meet their dietary needs and food preference for a healthy and
active life " . The group of people who are mainly food insecure belongs to
people employed in ill-paid occupations, casual labourers, landless people,
petty self-employed, workers and destitute including beggars, the people
affected by natural disasters and most importantly the Women and Children.
Indian Economy 131

Unit 7 Food Security and Public Distribution System in India
7.3.1 Prevalence of Malnutrition and Hunger
Hunger and food insecurity affects the living condition of the people
by destroying their physical and mental health. Food security cannot
be achieved without nutrition security. In general the most widely
used indicator of nutrition is dietary energy orintake of calorie per
person per day. The National Sample Survey (NSS) use 2700 kcal
as standard norm of calorie intake per person per day to be food
secure. During 66th round NSS, average dietary energy intake per
person per day was 2147 kcal for rural India and 2123 Kcal for urban
India, indicates the existence of rural and urban food insecurity in
the country.
Food Insecurity results undernourishment and malnutrition
among the people. The number of undernourished people is highest
in India.
Malnutrition arises
According to FAO estimates in "The State of Food Insecurity
due to lack of essential
in the world ,2015" report 15.2% of Indian population is
nutrients such as
undernourished and 194.6 million people go hungry every day. The
proteins, vitamins, in
problem is more severe among women and children. 48% of women
the food
between 15 to 49 years of age are anemic whose Body Mass
Undernourished
Index(BMI) is less than 18.5. The low health status of women have
peoples are those who
detrimental effect on child health status. It results low birth
gets less than the
weight(<2.5kg) to the child. Low birth weight hampers the proper
minimum amount of the
physical and mental growth of the children and thereby their overall
foods (2500 calories/
cognitive development.
day) essential for sound
Some important points regarding India's status in Global
health and growth.
Hunger Index, 2016
 30.7% of children under 5 years of age are underweight
 38.7% of children under 5 years of age are stunted (low height
for age)
 1 in 4 children are malnourished
 3000 children in India die every day from poor diet related illness.
132 Indian Economy

LET US KNOW
Chronic Hunger: Inadequate diet for longer time

Seasonal Hunger: When a person unable to get food
entire year .
If such calamity happens in a very wide spread area or is
stretched over a longer time period, it may cause a situation of starvation.
A massive starvation might take a turn of famine. For example
the Bengal famine of 1943-44 was a major famine in the Bengal province
in British India during world war II, claiming the lives of at least three and
half million people.
7.3.2 Dimensions of Food Security
The prevailing situation of malnutrition and hunger indicates that India

is in serious condition of food security. With increasing demand for
growing population the problem will become more serious in near
future. It is, therefore, necessary to analyse properly the different
dimensions of food security so that effective policy can be adopted.
Broadly speaking there are four dimensions of food security.
 Food Availability: The availability of enough quality food is the
key component of food security. It may be through domestic
agricultural production or through import. In 1960 India adopted
Green Revolution (see unit 4 for details as an initiative to increase
agricultural production and to become self sufficient. Use of High
Yielding Variety (HYV) seeds, irrigation, fertiliser and modern
technology has increased production of agricultural output,
specially wheat and rice. However green revolution results
increase agricultural productivity of the states like Punjab,
Haryana, Western Uttar Pradesh, Tamil Nadu and Andhra
Pradesh. Some states like Bihar, Orissa and North Eastern states
were not able to enjoy the benefits of green revolution. As we
know India is the second populace country of the world, just after
Indian Economy 133

China with 1.21 billion population (Census, 2011). There is need
of more comprehensive strategy and agricultural research to
increase quality and quantity of diversified agricultural food so
that growing demand can be fulfilled.
 Food Access: Another most important dimension of food
security is accessibility of food i.e. the purchasing power of the
individuals for nutritious food. The income of the individual or the
household must be enough to purchase adequate amount of
nutritious food. Employment and income generation increases
the purchasing power of the individuals. Social and economic
empowerment of women is also important for their nutrition and
health status as well as of other family members. Economic
empowerment of women leads to income generation and thereby
increases purchasing power and helps to reduce malnutrition of
the children and the family.
 Utilisation: Along with adequate quantity and quality of food items,
some non-food components like clean drinking water, proper
sanitation and health care practices are essential to reach a
secured food and nutrition level. Proper utilisation of clean
drinking water and sanitation reduces health risk of common
diseases like diarrhea, cholera, malaria, fluorosis, arsenicosis ,
trachoma, intestinal worms, typhoid etc. Better health care
practices like exclusive breastfeeding up to six month, timely
introduction of complementary foods, minimum dietary diversity,
consumption of iron rich complementary foods, Vitamin A
supplementation, full vaccination and safe disposal of stool of
the child etc. are essential for better utilisation of nutrition
intervention.
 Stability: All time availability and accessibility of adequate
nutritious food is another most important dimension food security.
It requires stable food supply and accessibility by the individual
and households. There should not be seasonal food insecurity
due to natural calamities like flood, drought, earthquake and
134 Indian Economy
economic and cyclical fluctuations like price rise. Stable supply
and accessibility of nutritious food controls seasonal hunger and
malnutrition. The problem of food security has quantitative as
well as qualitative aspects. Availability and accessibility of
adequate amount of nutritious food is essential to maintain a
desired food security level. To tackle both qualitative and
quantitative aspects, the Government of India has relied on the
following three food based safety nets:
a. Public Distribution System (PDS)
b. Integrated Child Development Services (ICDS) and
c. Mid -Day Meals(MDM) Programme
PDS is the largest network initiated by the government and
have remarkable impact on poverty although lot of debates going on
over the years. Moreover, the employment generation programmes
has been initiated by the Government of India to increase the
purchasing power of the individuals .
CHECK YOUR PROGRESS
Q 1: State whether the following statements are

True (T) or False (F)
i) Food Security is a basic human right. .
ii) Food security can be achieved without nutrition security.
iii) Green Revolution is an initiative to increase agricultural production.
Q 2: Who are mainly Food Insecure? (Answer in about 40 words).
.......................................................................................................
.......................................................................................................
.......................................................................................................
.......................................................................................................
Q 3: Differentiate Seasonal hunger and Chronic Hunger. (Answer in
about 50 words)
.......................................................................................................
.......................................................................................................
Indian Economy 135

.......................................................................................................
.......................................................................................................
.......................................................................................................
7.4 PUBLIC DISTRIBUTION SYSTEM
As stated earlier PDS is the largest food based safety net introduced
by the Government of India. The basic objective of PDS in India is to provide
essential consumer goods to the consumers at cheaper and subsidized
prices so that they are able to maintain the minimum standard of food security
and nutrition status. The major items distributed under the network of PDS
in India have been rice, wheat or Atta, sugar and kerosene. The Food
Corporation of India (FCI), established in 1965, is the major agency to run
the network of PDS. FCI procures foodgrains from the farmers or producers
at Minimum Support Price (MSP).
MSP is fixed by the Govt. of India(before crop sowing) to protect the
producers or farmers against excessive fall in price during bumper production
years. It is a support to the farmers and producers that their product would
be definitely sold out without loss. FCI maintains the buffer stock of the
procured foodgrains at their warehouses. It is the central Issue Price(CPI)
Buffer Stock is the at which FCI allocate these food grains to the state governments. State
stock of foodgrains, governments hold the responsibility for distributing the same to the
namely wheat and consumers through the established network of regulated ration shops or
rice procured by the Fair Price Shops (FPSs). State governments are also responsible for
government through operational responsibilities including allocation and identification of families
FCI. below poverty line, issue of ration cards, supervision and monitoring the
functioning of FPSs.
The PDS was a general entitlement scheme till 1992. In June 1992,
the Revamped Public Distribution System (RPDS) was launched to
strengthen the PDS by emphasizing poorer section of the society living in
hilly, remote and inaccessible areas. Special focus was given to the poorer
section of the society with coordination of state governments. Area specific
programmes were initiated like Drought Prone Area Programme (DPAP),
136 Indian Economy

Integrated Tribal Development Projects (ITDP), Desert Development

Programme (DDP) and Programme for certain Designated Hill Areas (DHA).
Figure 7.1: Working of PDS
After five years of RPDS, in June 1997, the Government of India

introduced the Targeted Public Distribution System (TPDS) with a view to
identify the poor people and to distribute food items in a transparent and
accountable manner at the fair price shop level. The beneficiaries categorised
as: (a) Below Poverty Line (BPL), and (b) Above Poverty Line (APL).
It is the responsibility of the state government to identify the poor
beneficiaries (people falling in BPL category) with the help of Gram
Panchayats and Gram Sabha in rural areas and Nagar Palikas in urban
areas.
The reforming of PDS was not able to remove the problem of poverty
and hunger in the country as the poorest of the poor section of the society
sleeps without two square meals a day. In order to make TPDS more focused
and targeted towards this section of the society, the Antyodaya Anna Yojana
(AAY) was launched in December 2000. The identified Antyodaya families
are entitled to 35 kg of rice of food grain per family per month from 1st April
2002.
CHECK YOUR PROGRESS
Q 4: Why was FCI established? When it was

established? (Answer in about 30 words)
.......................................................................................................
.......................................................................................................
Indian Economy 137

.......................................................................................................
Q 5: Define MSP and CIP. (Answer in about 40 words)
.......................................................................................................
.......................................................................................................
.......................................................................................................
.......................................................................................................
Q 6: What are the different types of ration cards issued under PDS?
.......................................................................................................
.......................................................................................................
.......................................................................................................
7.5 FOOD SECURITY ACT, 2013
As a reform measure of the PDS and to ensure fundamental right of

food and nutrition security ,the National Advisory Council (NAC) submitted
its proposals on Draft National Food Security Bill in January-February 2011
and it was signed in to a law on September 12,2013. The National Food
Security Act (NFSA),2013 aims to "To provide for food and nutritional security
in human life cycle approach, by ensuring access to adequate quantity of
quality food at affordable prices to people to live a life with dignity''. The
salient features of NFSA,2013 are as follows -
 Coverage and Entitlement: The Act aims to cover up to 70% of the
rural population and 50% of the urban population. Under TPDS, the
household will be entitled with 5kg of rice, wheat and coarse grain at Rs.
3,Rs.2 and Rs. 1 respectively per person per month. However, the
entitlement of existing AAY households will be protected at 35 kg per
household per month. The beneficiaries will be identified by States/UTs
based on the criterion set by the central government.
 Revision of Subsidised Prices: The price of food grains Under TPDS
will remain same for the initial three years of commencement of the Act.
Thereafter, the central government will change these prices in relation
to Minimum Support Price(MSP).
138 Indian Economy

 Nutritional Support to Women and Children: The NFSA,2013 aims
to support health and Nutritional status of women and children through
the enhancement of Integrated Child Development Scheme (ICDS) and
Mid Day Meal(MDM) Scheme. The local Anganwadi will take the
responsibility to provide free meal to the children in the age group of 6
months to 6 years. The students up to class VIII are entitling to free mid
-day meal in the government schools. Pregnant and lactating mothers
are entitling to free meal at the local Anganwadi during pregnancy and
up to 6 months after child birth. They will also be entitled to receive
maternity benefit of not less than Rs. 6000.
 Women Empowerment: To serve the purpose of women empowerment
the Act decides to issue ration card to the eldest woman of the household
of age 18 years or above considering her as the head of the household.
 Grievance Redress Mechanism: Any grievances regarding the
implementation and corruption or manipulation of the Act can be put at
the Grievance Redress Mechanism at the District and State levels. States
will have the flexibility to use the existing machinery or set up separate
mechanism.
 Transportation cost assistance to States: Central Government will
provide assistance to States in meeting the expenditure incurred by them
on transportation of foodgrains within the State, its handling and FPS
dealers' margin as per norms to be devised for this purpose.
 Food Security Allowance: The concerned state government has to
made provision for food security allowance to entitled beneficiaries in
case of non-supply of entitled foodgrains or meals.
 Provision of State Food Commission: The State Food Commission
will monitor and evaluate the implementation of the Act, give advice to
the state governments and their agencies and enquire in to violation of
entitlements.
 Penalty: The State Food Commission will impose penalty on public
servant or authority in case of failure to comply with the relief
recommended by the District Grievance Redress Officer.
Indian Economy 139

The NFSA,2013 is an important step towards the right to food and to
bring it within the framework of legally mandated entitlements.
7.6 IMPACT OF PDS ON POVERTY
7.6.1 Food Subsidy under PDS
The main objective of PDS is to provide essential consumer goods

such as rice, wheat, sugar, edible oil and Kerosene at subsidized
prices and thereby to maintain a secured food security level. It is an
instrument of price stabilization and acts as a force against the
exploitation of traders or retailers to acquire more profit through
artificial food shortage.
There has been a continuous increase in public expenditure
of the government on PDS. In 2016-17 budget, food and public
distribution accounts 7.1% of total expenditure of the government.
The food subsidy component of central government rose from Rs.650
crores in 1980-81 (at current prices) to Rs. 1,34,834.61 crore in
2016-17 (Table 7.1).
Table 7.1: Central Government Expenditure on Food Subsidy
Expenditure (Rs. Expenditure (Rs.
Year Corers) at current Year Corers) at current
prices prices
1980-81 650 2010-11 63,844
1990-91 2450 2011-12 72,822
2000-01 12,010 2012-13 85,000
2004-05 25,746 2013-14 92,000
2005-06 23,071 2014-15 1,22,675
2006-07 23,828 2015-16 1,24,4119
2007-08 31,259 2016-17 1,34,834
2008-09 43,668 2017-18 1,45,338
2009-10 58,242 2010-11 63,844
2010-11 63,844 2011-12 72,822
Source: Datt, G. & Mahajan, A. (2016). Datt and Sundharam's Indian
Economy. Union Budget 2016-17 and 2017-18
Under NFSA, the component of food subsidy is expected to
be higher as the government aims to provide subsidized food grains
to cover 80 crore people from November, 2016.
140 Indian Economy
7.6.2 Incentive to the Farmers through Minimum Support

Price
The poor farmers productions are protected by the government at

the beginning of the sowing season by providing minimum support
price (MSP) to their produce on the basis of the recommendations
of the commission for Agricultural Costs and Prices (CACP). It
supports the farmers from distress sales and induce them to make
capital investment for the improvement of their farm. MSPs are
currently announced for 24 commodities including seven cereals
(paddy, wheat, barley, jowar, bajra, maize and ragi); five pulses (gram,
arhar/tur, moong, urad and lentil); eight oil seeds, copra, raw jute,
raw cotton and Virginia Flu Cured (VFC) tobacco. However the
farmers are aware about MSP on wheat and paddy only which is a
factor of changing cropping pattern towards these crops only. There
is need of more awareness among the farmers about the prevailing
MSP for different foodgrains to encourage a more diversified cropping
pattern and to maintain nutrition security of the poor. The MSPs for
wheat and paddy fixed by the department of Agriculture and
Cooperation on the recommendation of the CACP since 2009-10 to
2017-18 (marketing seasons) are under
Table 7.2: MSPs for Wheat and Paddy
Year(marketing MSP of Paddy
season) MSP of Wheat Common Grade A
2009-10 1080 1000 1030
2010-11 1100 1000 1030
2011-12 1170 1080 1110
2012-13 1285 1250 1280
2013-14 1350 1310 1345
2014-15 1400 1360 1400
2015-16 1450 1416 1450
2016-17 1525 1470 1510
2017-18 1625 1550 1590
Source: Department of Food and Public Distribution; Ministry of Consumer

Affairs, Food and Public Distribution, Govt. of India
Indian Economy 141

7.7 LIMITATIONS OF PDS
The PDS as a largest food safety net has not been able to attain its
objective of eradicating poverty and hunger in the country. The problem of
hunger still exist in many areas of India.
 Unscientific Storage and Wastage: There are three storage agencies-
FCI, Central Warehousing Corporation and State warehousing
Corporations. The storage capacity could be either owned by these
agencies or be hired from private owners. The grain is stored either in
covered godowns, or silos or in uncovered godowns called covered
and plinth (CAP). The storage capacity here is the grand total storage
capacity of all the three agencies-hired/owned and covered/CAP. Storage
capacity with FCI is largest and it is increasing reasonably. But capacity
under covered and plinth is increasing faster than covered ones. CAP is
unscientific and results quality deterioration, pilferage and theft at
substantially higher rate.
 Insufficient Storage: The storage capacity of PDS foodgrains is
insufficient also. There is a wide gap between the required and existing
storage capacity. The 11th five year plan has identified a gap of 16mt of
storage capacity of foodgrains that needed to be created.
 Excess Buffer Stock: Under 'open ended procurement' government
can't decide quantity it wants to buy. How much ever grains are offered
by farmers to government, has to purchase. It results excess stocks
than buffer norms which is always undesirable and wasteful. The storage
of massive food stock has been responsible for high carrying costs, in
addition to wastage and deterioration in grain quality. It also creates
shortage of foodgrains in open market and food inflation.
 Burden of Food Subsidy: Ever increasing subsidy in PDS foodgrains
has put a severe fiscal burden on the government. From Rs.650 crore
in 1980-81 ,food subsidy rose to Rs.1,35,173 crore in 2016-17 and further
to Rs. 1,45,338 crore in 2017-18. Food subsidy is the difference between
the issue price and economic cost. The government has been reducing
issue price to supply cheapest food grains to the poor. On the other
142 Indian Economy
hand, increasing MSP and storage cost results higher economic cost.
The result is the hike in food subsidy and severe fiscal burden on the
government.
 MSP and Cropping Pattern: Increasing MSP, on the one hand, leads
to a burden on the government and on the other hand distorts the cropping
pattern of the country. The farmers are more inclined to cultivate rice
and wheat due to its increasing MSP. However, the consumption pattern
has been changing towards non cereal foods, but no such corresponding
growth in production. As a result there is demand supply mismatch and
increased market price and higher cost of living of the people.
 Problem of Identification: The identification of BPL and APL families
are based on income level of the households which is quite difficult to
estimate in actual rate due to irregularity of income of the people working
in informal and unorganized sectors. The deserving households most
of the time excluded and it creates high exclusion errors. Moreover it
becomes difficult to distinguish between BPL and AAY families and arise
systematic inclusion error. Inclusion of non-poor with PDS ration card
creates high inclusion error.
The process of identification of APL and BPL families are carried out
by Gram Panchayats and Gram Sabha. Political pressure and corruption
of Gram Panchayats and Gram Sabha aggravates the problem of
exclusion and inclusion error. Thus given the problem of conceptual as
well as at operational level vulnerable population are unable to grab the
benefits of PDS.
 Malpractices by PDS Dealer: The malpractices on the part of PDS
dealers like diverting the grains to open market to get better margin,
selling poor quality grains at ration shops, irregular opening of the shops
etc. deteriorating the effective implementation of PDS and thereby unable
to solve the problem of food and nutrition security in the country.
 Lower Incentive to purchase to from PDS Shops: The price
differential between issue prices for APL families and the open market
prices had considerably narrowed down. The low income families just
above APL have to pay almost equal to open market rates. It lowers
Indian Economy 143
their incentives to buy from fair price shops. The average consumption
of PDS grain at the all India level is very low. It also declines the profit of
the fair price shop owner and creates a question of viability of fair price
shops.
7.8 SUGGESTIVE MEASURES
There are lots of structural and implementation problem of PDS,

but still it remains the best form of food security for the poor. To make the
system more vibrant and effective and for full realization of its potentials,
the PDS need reform. Some important reform measures are as follows.
 Identification of beneficiaries should be taken considering "exclusion
approach". Instead of identifying the poor, it would be effective to identify
the rich who are kept out and the rest are covered. It will increase coverage
under rural areas.
 The error of inclusion of non-poor in PDS can be minimized by providing
entitlements through employment generation programmes like
Jawahauar Rozgar Yojana (JRY) or Mahatma Gandhi National Rural
Employment Guarantee Act (MGNREGA).
 The state government should issue food stamps or coupons to the
Panchayati Raj Institutions (PRIs) so that they can distribute then to the
poor. This would reduce the problem of diversion and leakages.
 Proper estimation of buffer stock requirements and storage capacity of
the warehouses is essential to minimize and control the wastage of
foodgrains that are to be allocated under PDS.
 Efficient management and regular monitoring can improve the functioning
of the fair price shops removing inefficiency and corruption.
7.9 LET US SUM UP
 The government of India has been different measures to ensure the

basic right of food security to the people.
 The PDS having lots of drawbacks are unable to ensure food security to
the poor.
144 Indian Economy
 The NFSA, 2013 has been adopting as an innovative pro-poor PDS
reform. However, it is not free from criticism.
 Different studies have shown that the risk of leakages and identification
of beneficiaries problem still exist in NFSA, 2013.
 To ensure food security to the poor with wide coverage of PDS, it would
be more appropriate to emphasize strategies, which reduce poverty
and generate employment opportunities.
7.10 FURTHER READING

Publishing House.
3) Sen, A. K. (1983). Poverty and Famines: An Essay on Entitlement and
Deprivation. New Delhi: Oxford University Press.
Ans to Q No 1: (i) True (ii) False (iii) True

Ans to Q No 2: The group of people who are mainly food insecure belongs
to people employed in ill-paid occupations, casual labourers, landless
people, petty self-employed, workers and destitute including beggars,
the people affected by natural disasters and most importantly the Women
and Children.
Ans to Q No 3: Hunger and poverty is persistent in a food insecure economy.
According to FAO estimates in "The State of Food Insecurity in the world,
2015" report 15.2% of Indian population is undernourished and 194.6
million people go hungry every day''. Huger may be of two types-
Seasonal Hunger and Chronic Hunger.
Seasonal Hunger is related to the cycles of food security and
insecurity. Seasonal hunger is a type of hunger when a person doesn't
get proper food neither in terms of quantity nor in terms of quality for
some time during the year. On the other hand, Chronic Hunger is a
Indian Economy 145
consequence of diets persistently inadequate in terms of quantity and/
or quality. Poorer sections of the society suffer from chronic hunger
because of their very low income and in turn inability to buy food even
for their survival .
Ans to Q No 4. The Food Corporation of India(FCI) is the major agency to
run the network of PDS . FCI procures foodgrains, specially wheat and
rice from the farmers immediately after the harvesting of these crops.
The stocks of these grains are released through the Fair Price Shop to
distribute among the poorer section of the society. FCI was established
in the year 1965.
Ans to Q No 5. Minimum Support Price is the price fixed by the Govt. of
India (before crop sowing) to protect the producer-farmers against
excessive fall in price during bumper production years. The issue price
is the one at which goods are released from FCI. The difference between
MSP and CIP is known as Subsidy.
Ans to Q No 6: Ration cards issued under PDS are of three types-
(i) Below Poverty Line (BPL)
(ii) Above Poverty Line ( APL)
(iii) Antyodaya Anna Yojana (AAY)

Q 1: Discuss the problem of food security in India.
Q 2: Write a short note on the working of PDS in India.
Q 3: Explain the salient features of NFSA,2013
Q 4: Write short notes
a) Minimum Support Price
b) TPDS
c) Hunger and Malnutrition
Essay-type Questions (Answer each question in about 300-500 words)
Q 1: What is Food Security? Discuss different dimensions of food
security.
146 Indian Economy

Q 2: Illustrate the working of PDS. Discuss its limitations and suggest
some important strategies for its improvement.
Q 3: "PDS is the largest food based safety net introduced by the
Government of India"
Evaluate this statement considering the impact of PDS on poverty
in India.
*** ***** ***
Indian Economy 147

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GEC S6 01 (M/P)

Exam. Code: ECP6A/ECM6A

KRISHNA KANTA HANDIQUI STATE OPEN UNIVERSITY

Professor Madhurjya Prasad Bezbaruah, Dept. of Economics, Gauhati University

Structure, Format & Graphics: Bhaskar Sarmah, Ph.D. KKHSOU

Headquarters: Patgaon, Rani Gate, Guwahati-781017

1.1 LEARNING OBJECTIVES

After going through this unit, you will be able to:

1.3 INDIAN ECONOMY IN THE PRE-INDEPENDENCE

India had an independent economy before the advent of the British

1.3.1 Agricultural Sector

India’s economy under the British colonial rule remained

1.3.2 Industrial Sector

As in the case of agriculture, so also in manufacturing, India could

1.3.3 Foreign Trade

Q 1: State whether True (T) or False (F)

1.3.4 Demographic Condition & Occupational Structure

Demographic Condition : Various details about the population of

Roads constructed in India prior to the advent of the British rule

CHECK YOUR PROGRESS

Q 4: State whether True (T) or False (F)

1.4 INDIAN ECONOMY : CHARACTERISTICS &

in this section, we shall discuss two major aspects of the Indian

1.4.1 Characteristics of India as a Developing Economy

The Indian economy has all the characteristics of a developing

1.4.2 Emerging Issues facing the Indian Economy

As India prepares herself for becoming an economic superpower

Q 7: State whether True (T) or False (F)

1.5 TREND IN NATIONAL INCOME : GROWTH AND

1.5.1 Trend of Growth in National Income

To have a more comprehensive idea, the study of the trend in national

1.5.2 Composition of National Income

Composition of national income shows break-down of economic

(55%) (15%) (30%)

(38%) (24%) (38%)

(13.9%) (26.2%) (59.9%)

Figure 1.2: Share of GDP by Industry of Origin (2011-12 Series)

(16.1%) (31.4%) (52.2%)

Year/Sector 1980-81 2004-05 2007-08

Source: Datt and Sundharam, Indian Economy, 2009 & 2016

CHECK YOUR PROGRESS

Q 9: Discuss the trend of the shares of the

1.5 LET US SUM UP

1.6 FURTHER READING

1) Agrawal, A. N. (2019). Indian Economy: Developmental Problems and

1.7 ANSWERS TO CHECK YOUR PROGRESS

Ans to Q No 1: (a) True (b) True

1.8 MODEL QUESTIONS

Short Questions (Answer each question in about 150 words)

2.1 LEARNING OBJECTIVES

After going through this unit, you will be able to:

2.3 THE THEORY OF DEMOGRAPHIC TRANSITION

The theory of demographic transition postulates that birth rate and

Q 1: Why is the human being considered a

2.4 SIZE AND GROWTH OF POPULATION IN INDIA

After the above discussion of the Theory of Demographic Transition,

CHECK YOUR PROGRESS

Q 3: Why is the year 1921 called ‘the year of

2.5 CHARACTERISTICS OF THE INDIAN

* * *