Wa0007.

BUSINESS ECONOMICS-V
REFERENCE MATERIAL
2024-25
(For Private Circulation Only)

[Type here][Type here]AC 08/02/2021
Sr.No. Modules/Units
1 Policy Regimes in India
A. The evolution of economic planning in India- Planning Commissions
to Niti Aayog ( The story of growth, self – reliance, employment
generation, inequality reduction, poverty removal, modernization and
competitiveness)
B. New Economic Policy-1991
C. Policies to enhance Social Infrastructure with special reference to
Education and health - NEP 2020 and Ayushman Bharat ( Features
and Performance)
D. Current Policies- Disinvestment Policy, Make in India, Invest in India.
2 Sector-wise Trends and Issues-I
A. Indian agriculture- Agricultural reforms
B. Agricultural pricing and Finance
C. Industry: Relative roles of large scale industries post reforms. The
role and forms of foreign capital (Foreign Institutional Capital,
Foreign Direct Investment.)
D. Micro, Small and Medium Enterprises [MSME sector] since 2007;
Atmanirbhar Bharat Abhiyan, 2020
3 Sector-wise Trends and Issues -II
A. Service Sector: role, trends and performance
B. Banking Industry- recent trends, issues and challenges.
C. Money Market – structure of Call money market, Commercial bills
market, market for Commercial Papers and Commercial Deposits,
Treasury bills markets, Repo and reverse repo markets; Reforms in the
money market.
D. Foreign Trade: Role and importance of foreign trade in India; The balance
of trade and balance of payments situation.
4 Reading of the Economic Survey, Government of India (recent years) - Only
for Internal Assessment
Reading of the Economic Survey is essential to familiarise the students with basic
concepts related to contemporary economic issues. The aim is to equip students
with sufficient knowledge and skills so as to understand contemporary issues that
feature in the Economic Survey. Such capability is essential to understand
government policies and also to increase people’s participation in economic
decision making.
● Economic Survey (recent years), Government of India, Ministry
of Finance.
1. Volume-I- Relevant chapters to be determined each year by the
Department
2. Volume-II- Relevant chapters to be determined each year by the
Department
MODULE I
Class: TYBCom Semester-V Subject: B. Economics-V
Economic planning in India
Table of Contents
Introduction 1
Planning in independent India 2
The Five year Plans 2
Shift to NITI Aayog 5
Introduction
Planned economic development in India began in 1951 with the inception of the First Five
Year Plan. However, theoretical efforts had begun much earlier, even prior to independence.
Setting up of the National Planning Committee by Indian National Congress in 1938, The
Bombay Plan & Gandhian Plan in 1944, Peoples Plan in 1945 (by post war reconstruction
Committee of Indian Trade Union), Sarvodaya Plan in 1950 by Jaiprakash Narayan were
steps in this direction.
The Indian National Congress under the inspiration of Pandit Jawaharlal Nehru set up the
National Planning Committee (NPC) towards the end of 1938. The Committee produced a
series of studies on different subjects concerned with economic development. The Committee
laid down that the state should own or control all key industries and services, mineral
resources and railways, waterways shipping and other public utilities and in fact all those
large scale industries which were likely to become monopolistic in character.
Besides the NPC, eight Leading industrialists of India conceived “A Plan of Economic
Development” which was popularly known as the Bombay Plan. There was also a Gandhian
Plan which was prepared by Shriman Narayan. The world- famous revolutionary M.N. Roy
formulated the People’s Plan. All these stimulated thinking about the various aspects of
planning in India.
Starting from the Soviet experiment in 1928, planning slowly swept over almost two thirds of
the entire world. During the 1930s the whole world was affected by the great depression, only
the USSR was exempted from effects of this great depression. It was because of their
planning that the whole world was attracted towards the USSR because of its planning. Later
on the resolutions of the Indian National Congress from 1929 onwards stressed the need for
the revolutionary changes in the present economic structure of society and removal of great
inequalities in order to remove poverty and improve the economic and social conditions of
the masses. First systematic work came into existence in the year 1934 when the renowned
engineer and statesman M. Visvesvaraya formulated a ten-year plan for economic
Department of Economics and Foundation Course, R.A.P.C.C.E. (Autonomous) 1

development of the country in his book “Planned Economy for India.” On the other hand, the
Government of India Act – 1935, introduced provincial autonomy which led to the formation
of Congress Government in eight provinces. In August 1937 the Congress Working
Committee passed a resolution suggesting the committee of inter provincial experts to
consider urgent and vital problems, the solution of which is necessary to any scheme of
national reconstruction and social planning.
Planning in independent India

Post independence, India adopted a “Mixed Economy” approach to economic development.
The Planning Commission was set up by a Resolution of the Government of India in March
1950 in pursuance of declared objectives of the Government to promote a rapid rise in the
standard of living of the people by efficient exploitation of the resources of the country,
increasing production and offering opportunities to all for employment in the service of the
community. The Planning Commission was charged with the responsibility of making
assessment of all resources of the country, augmenting deficient resources, formulating plans
for the most effective and balanced utilization of resources and determining priorities. Some
of the functions of the Planning Commission:
1. Estimate the physical, capital and human resources of the country.
2. To prepare a plan for making effective and balanced utilization of human resources.
3. To determine various stages of planning and to propose the allocation of resources on
priority basis.
It was entrusted with the work of economic and social development as envisaged in the
preamble, the fundamental rights as well as Directive Principles of State Policy of the
Constitution.
The Five year Plans

The first Five-year Plan was launched in 1951 and two subsequent five-year plans were
formulated till 1965, when there was a break because of the Indo-Pakistan Conflict. Two
successive years of drought, devaluation of the currency, a general rise in prices and erosion
of resources disrupted the planning process and after three Annual Plans between 1966 and
1969, the fourth Five-year plan was started in 1969. The central importance assigned to the
public sector was first articulated in the Industrial Policy Resolution in 1956.and
subsequently documented in the second five-year plan in 1956. The Eighth Plan could not
take off in 1990 due to the fast-changing political situation at the Centre and the years
1990-91 and 1991-92 were treated as Annual Plans. The Eighth Plan was finally launched in
1992 after the initiation of structural adjustment policies. For the first eight Plans the
emphasis was on a growing public sector with massive investments in basic and heavy
industries, but since the launch of the Ninth Plan in 1997, the emphasis on the public sector
has become less pronounced and the current thinking on planning in the country, in general,
is that it should increasingly be of an indicative nature.

Summary of Five-Year Plans:

[1] First Plan (1951 - 56) Target growth: 2.1% Achieved growth: 3.6%
It was based on the Harrod-Domar Model. In this planning period, Community Development
Program was launched in 1952. Main focus was on agriculture, price stability, power and
transport. It was a successful plan primarily because of good harvests in the last two years of
the plan.
[2] Second Plan (1956 - 61) Target Growth: 4.5% Actual Growth: 4.27%
Second Five Year Plan also called Mahalanobis Plan named after the well known economist.
Focus was mainly on rapid industrialization. It Advocated huge imports through foreign
loans. It Shifted basic emphasis from agriculture to industry far too soon. During this plan,
prices increased by 30%, against a decline of 13% during the First Plan.
[3] Third Plan (1961 - 66) Target Growth: 5.6% Actual Growth: 2.84%
At its conception, it was felt that Indian economy had entered a take-off stage. Therefore, its
aim was to make India a 'self-reliant' and 'self-generating' economy. Based on the experience
of the first two plans, agriculture was given top priority to support exports and industry.
There was a complete failure in reaching the targets due to unforeseen events - Chinese
aggression (1962), Indo-Pak war (1965), severe drought 1965-66.
[4] Three Annual Plans (1966-69) Plan holiday for 3years.
Prevailing crisis in agriculture and serious food shortage necessitated the emphasis on
agriculture during the Annual Plans. During these plans a whole new agricultural strategy
was implemented. It involved wide-spread distribution of high-yielding varieties of seeds,
extensive use of fertilizers, exploitation of irrigation potential and soil conservation. During
the Annual Plans, the economy absorbed the shocks generated during the Third Plan It paved
the path for the planned growth ahead.
[5] Fourth Plan (1969 - 74) Target Growth: 5.7%; Actual Growth: 3.30%
Slogan of “Garibi Hatao” was given in 1971. Emphasis was on growth rate of agriculture to
enable other sectors to move forward. First two years of the plan saw record production. The
last three years did not measure up due to poor monsoon. Influx of Bangladeshi refugees
before and after 1971 Indo-Pak war was an important issue.
[6] Fifth Plan (1974-79) Target Growth: 4.4%; Actual Growth: 3.8%
The fifth plan was prepared and launched by D.D. Dhar. It proposed to achieve two main
objectives: 'removal of poverty' (Garibi Hatao) and 'attainment of self reliance'. Promotion of
a high rate of growth, better distribution of income and significant growth in the domestic
rate of savings were seen as key instruments. The plan was terminated in 1978 (instead of
1979) when Janta Party Govt. rose to power.
[7] Rolling Plan (1978 - 80)

There were 2 Sixth Plans. Janta Govt. put forward a plan for 1978-1983. However, the
government lasted for only 2 years. Congress Govt. returned to power in 1980 and launched a
different plan.
[8] Sixth Plan (1980 - 85) Target Growth: 5.2% Actual Growth: 5.66% Focus –
In this period there has been an increase in national income, modernization of technology,
ensuring continuous decrease in poverty and unemployment, population control through
family planning, etc.
[9] Seventh Plan (1985 - 90) Target Growth: 5.0% Actual Growth: 6.01%
Focus was on rapid growth in food-grains production, increased employment opportunities
and productivity within the framework of basic tenants of planning. First time the private
sector got priority over the public sector. The plan was very successful, the economy recorded
6% growth rate against the targeted 5%.
[10] Eighth Plan (1992 - 97) Target growth:5.6% Actual growth:6.8%.
Focus was on “Human Resource Development”. The eighth plan was postponed by two
years because of political uncertainty at the Centre. Worsening Balance of Payment position
and inflation during 1990-91 were the key issues during the launch of the plan. The plan
undertook drastic policy measures to combat the bad economic situation and to undertake an
annual average growth of 5.6%. Some of the main economic outcomes during the eighth plan
period were rapid economic growth, high growth of agriculture and allied sector, and
manufacturing sector, growth in exports and imports, improvement in trade and current
account deficit.
[11] Ninth Plan (1997- 2002) Target Growth: 6.5% Actual Growth: 5.35%
Aim was “Growth with Social Justice” . It was developed in the context of four important
dimensions: Quality of life, generation of productive employment, regional balance and
self-reliance.
[12] Tenth Plan (2002 - 2007) Target growth: 8.1% Growth achieved:7.7%
Plan aimed at “Double the Per Capita Income '' in the next 10 years To achieve 8.1% GDP
growth rate Reduction of poverty ratio by 5 percentage points by 2007. Providing gainful
high quality employment to the addition to the labour force over the tenth plan period.
Reduction in gender gaps in literacy and wage rates by at least 50% by 2007. Increase in
literacy rate to 72% within the plan period and to 80% by 2012. Reduction of Infant Mortality
Rate (IMR) to 45 per 1000 live births by 2007 and to 28 by 2012. Increase in forest and tree
cover to 25% by 2007 and 33% by 2012. Cleaning of all major polluted rivers by 2007 and
other notified stretches by 2012.
[13] Eleventh Plan (2007 - 2012) Target growth: 8.1% Growth achieved:7.9%

The Plan focused on “Faster and more Inclusive Growth”. Prepared by C Rangarajan to:
Accelerate GDP growth from 8% to 10%. Increase agricultural GDP growth rate to 4% per
year. Create 70 million new work opportunities and reduce educated unemployment to below
5%. Raise the sex ratio for age group 0-6 to 935 by 2011-12 and to 950 by 2016-17. Ensure
direct and indirect beneficiaries of all government schemes are women and girl children
Connect every village by telephone and provide broadband connectivity to all villages Attain
WHO standards of air quality in all major cities by 2011- 12. Increase energy efficiency by
20 percentage points by 2016-17.
[14] Twelfth Plan (2012 - 2017) Target Growth :8%
The Twelfth Plan focuses on “Faster and more Inclusive and Sustainable Growth”. Poverty
rate to be reduced by 10% than the rate at the end of 11th plan. End gender gap and social gap
in school enrolment. Reduce under nutrition of children in age group 0-3 to half of NFHS-3
levels. Increase green cover by 1 million hectare every year. Increase renewable energy
during the Five Year Period.
Shift to NITI Aayog

The Planning Commission formed the backbone of the Indian economy at the time when we
were a newly independent country. Its significance diminished vastly in the 1990s with
Liberalization, Privatization, and Globalization but it was still involved in the allocation of
funds to the states. As the Indian economy rapidly integrated with the global economy
contradictions arose between central planning and increasing private capital flows. For a long
time, there had been a feeling that for a country as diverse and big as India, centralised
planning could not work beyond a point due to its one-size-fits-all approach. Moreover, since
the Planning Commission used to be controlled by the Central government, it often ended up
as a tool to punish states ruled by the opposition parties when it came to allocating funds. Due
to the top-to-bottom approach in centralised planning, it was felt that the states needed to
have greater say in planning their expenditures. The Planning Commission was imposing its
decisions on states who could have taken better known what and how much they needed. An
internal evaluation in Government revealed that the Planning Commission was witnessing
policy fatigue necessitating structural changes in the central planning process. The
assessment identified the collapse of public investment in the face of rising subsidies, huge
demands on public resources from the Right to Education Act, the National Rural
Employment Guarantee Act and a poorly targeted Public Distribution System. Further rigid
labor laws were impeding progress, and there were difficulties in releasing land for public
housing and other public projects. A new Institutional framework was becoming essential.
The NITI Aayog, established in 2015, is one of Indian democracy’s youngest institutions. It
has been entrusted with the mandate of re-imagining the development agenda by dismantling
old-style central planning.The NITI Aayog was mandated to foster cooperative federalism,
evolve a national consensus on developmental goals, redefine the reforms agenda, act as a

platform for resolution of cross-sectoral issues between Center and State Governments,
capacity building and to act as a Knowledge and Innovation hub. It represented a huge
mandate for a nascent organization. The demise of the Planning Commission shows the shift
of the role of government from a “player” to an “enabler”.
The Institutional framework and the composition of both the Institutions are the same at the
top with the Prime Minister, the Chair and the Deputies at Cabinet Ministers ranks. But the
change in the focus on Members from retired Bureaucrats to experts in the field marks a
significant point of difference.
While the Planning Commission focused on preparing and implementing Five Year Plans,
NITI Aayog has no mandate to control resources.
Functions of NITI Aayog

1. To evolve a shared vision of national development priorities sectors and strategies
with the active involvement of States in the light of national objectives.
2. To foster cooperative federalism through structured support initiatives and
mechanisms with the States on a continuous basis, recognizing that strong States
make a strong nation.
3. To develop mechanisms to formulate credible plans at the village level and aggregate
these progressively at higher levels of government.
4. To ensure, in areas that are specifically referred to, that the interests of national
security are incorporated in economic strategy and policy.
5. To pay special attention to the sections of our society that may be at risk of not
benefitting adequately from economic progress.
6. To design strategic and long term policy and programme frameworks and initiatives,
and monitor their progress and their efficacy. The lessons learnt through monitoring
and feedback will be used for making innovative improvements, including necessary
mid-course corrections.
Contribution of the NITI Ayog

The NITI Aayog was formed to bring fresh ideas to the government. Its first mandate is to act
as a think tank. NITI Aayog is also bringing about a greater level of accountability in the
system. It can be visualised as a funnel through which new and innovative ideas come from
all possible sources — industry, academia, civil society or foreign specialists — and flow into
the government system for implementation. Initiatives like Ayushmaan Bharat, our approach
towards artificial intelligence and water conservation measures, and the draft bill to establish
the National Medical Commission to replace the Medical Council of India have all been
conceptualised in NITI Aayog, and are being taken forward by the respective Ministries.
NITI Aayog acted as an action tank rather than just a think tank. By collecting fresh ideas and
sharing them with the Central and State governments, it pushes frontiers and ensures that
there is no inertia, which is quite natural in any organisation or institution. NITI Aayog also

works to cut across the silos within the government. For example, India still has the largest
number of malnourished children in the world. NITI Aayog is best placed to achieve this
convergence and push the agenda forward in the form of POSHAN ABHIYAAN. The NITI
Aayog is also bringing about a greater level of accountability in the system. NITI Aayog has
established a Development Monitoring and Evaluation Office which collects data on the
performance of various Ministries on a real-time basis. The data are then used at the highest
policy making levels to establish accountability and improve performance. This performance-
and outcome-based real-time monitoring and evaluation of government work can have a
significant impact on improving the efficiency of governance. Using such data, we also come
up with performance-based rankings of States across various verticals to foster a spirit of
competitive federalism. NITI Aayog plays an important role of being the States’
representative in Delhi, and facilitates direct interactions with the line ministries, which can
address issues in a relatively shorter time.
Improving innovation:
The Atal Innovation Mission, which is also established under NITI Aayog, has already done
commendable work in improving the innovation ecosystem in India. It has established more
than 1,500 Atal Tinkering Labs in schools across the country and this number is expected to
go up to 5,000 by March 2019. It has also set up 20 Atal Incubation Centres for encouraging
young innovators and start-ups. NITI Aayog is mandated to monitor, coordinate and ensure
implementation of the Sustainable Development Goals. NITI Aayog undertook the extensive
exercise of measuring India and its States’ progress towards the SDGs for 2030, culminating
in the development of the first SDG India Index.
*********************

New Economic Policy – 1991
Table of Contents
New Economic Policy 1991 ...................................................................................................................2

Objectives of the New Economic Policy ...............................................................................................2
Branches of the New Economic Policy, 1991 .......................................................................................2
Liberalization .....................................................................................................................................3
Process of Liberalization ...............................................................................................................3
Effects of Liberalization ................................................................................................................4
Privatization .......................................................................................................................................6
Process of Privatization .................................................................................................................6
Effects of Privatization ..................................................................................................................7
Globalization ......................................................................................................................................9
Process of Globalization ................................................................................................................9
Effects of Globalization .................................................................................................................9
Other elements of Globalization .................................................................................................12
Impact of Economic Reforms Process on Indian Agricultural Sector ............................................13
Impact of Economic Reforms Process on Indian Social Infrastructure .........................................14
Impact on the Education Sector .....................................................................................................15
Impact on the Health Sector ...........................................................................................................15
Background
India’s post-independence development strategy showed all the signs of stagnation and a grave
economic crisis. It was characterized by an unprecedented adverse balance of payment
problem, inflation, a decline in the foreign exchange reserve, and the Gross Domestic Product
(GDP) growth rate. India stared at a significant crisis led by the foreign exchange crunch,
which, in turn, led to the country defaulting loans. The Balance of Payment crisis pushed the
country to the brink of bankruptcy.
Due to various controls, the Indian economy had become crippled. Indian entrepreneurs were
unwilling to establish new industries because of regressive laws like the Monopolistic and
Restrictive Trade Practice (MRTP) Act of 1969. The economy witnessed rising corruption,
undue procedural delays, and extreme inefficiencies. It was inevitable to introduce significant
economic reforms to reduce the restrictions imposed on the economy.
India was among the developing Asian countries, which experienced slow economic growth or
none at all in the 1980s. In cooperation with the IMF and World Bank, India undertook several

programs of structural reforms to make a macro and structural policy changes correcting the
macro-economic imbalances in exchange for external assistance. Intending to develop the
Social Infrastructure (SI), the Indian economy required a set of policies enabling economic
growth, enhancing the productivity of the poor, improving equity and efficiency of social
services, and compensating the poor for the nutrition and health service deficits.
Among other initiatives to improve the social infrastructure (health, education, and family
welfare), the New Economic Policy of 1991 aimed to transform the backward and
predominantly agrarian economy, lacking in basic infrastructure, into a modern developed
economy.
New Economic Policy 1991
The New Economic Policy of India was launched in the year 1991 under the leadership of P.
V. Narasimha Rao. This policy opened the door of the India Economy for global exposure for
the first time. In this New Economic Policy, the government reduced the import duties, opened
the reserved sector for the private players, and devalued the Indian currency to increase exports.
The reforms were popularly known as ‘structural adjustments’ or ‘liberalization’ or
‘globalization.’
Objectives of the New Economic Policy
The objectives of the new policy were:

• To bring down the rate of inflation and rectify the balance of payment position
• To allow the international flow of goods, services, capital, human resources and technology
• To stabilize the economy and convert the economy into a market economy by removing all
kinds of unnecessary restrictions
• To achieve a higher economic growth rate
• To open the economy and encourage the participation of private industries in all sectors
• To fully utilize the capabilities of entrepreneurs and indigenous technologies
Branches of the New Economic Policy, 1991
New Economic Policy, 1991
Liberalization Privatization Globalization
Figure 1: Branches of New Economic Policy, 1991
The focus of the New Economic Policy has been towards creating a more competitive
economic environment to improve the overall productivity and efficiency of the system. This

was to be achieved by removing the barriers to entry and the restrictions on the growth of firms.
The new economic model was popularly known as Liberalization, Privatization and
Globalization (LPG).
Liberalization: It refers to the process of making policies less constraining for economic
activity and reduction of tariff or removal of non-tariff barriers.
Privatization: It refers to the transfer of ownership of property or business from a government
to a privately owned entity.
Globalization: It refers to the expansion of economic activities beyond the political boundaries
of nation states.
Let us now discuss all the three processes – liberalization, privatization and globalization and
their impacts in detail.
Liberalization
The term “liberalization” in this context implies economic liberalization. Liberalization is the
loosening of government control by putting an end to the restrictions hindering national
development and growth. It is a situation where the means of production shifts in the hands of
the market and the economic efficiency is measured in terms of market-defined objectives.
Major economic activities are opened for private participation keeping only key issues of
welfare and other regulatory mechanism with the state.
This opening up of various sectors for private participation and allowing them to manage the
businesses for maximizing the profits will clearly underline the freedom available for the
market to have their own labour participation practices and deployment of human resources.
Liberalization, thus, aims at minimizing the labour participation and downsizing the workforce
in the industry in the name of removing the dead wood to maximize efficiency.
Process of Liberalization
Trade Liberalization involves removing barriers to trade between different countries and
encouraging free trade. Trade Liberalization involves reducing tariffs, reducing/eliminating
quotas and reducing non-tariff barriers.
Non-tariff barriers are factors that make trade difficult and expensive. For example, having
specific regulations on making goods can give an unfair advantage to domestic producers.
Harmonising environmental and safety legislation makes it easier for international trade. In
India, liberalization as part of the NEP included the following:
• Dismantling of industrial licensing system
• Reduction in physical restrictions on imports and import duties
• Reduction in controls on foreign exchange, both current and capital account
• Reform of financial system
• Reduction in levels of personal and corporate taxation
• Reduction in restrictions on foreign direct and portfolio investments
• Opening up public sector domains like power, transport, banking etc.

• Partial privatization of public sector units

• Change in approach towards industrial sickness
• Softening of MRTP regulations
Effects of Liberalization
The economic reforms of the 1990s swept away the oppressive licensing controls on industry
and foreign trade, allowed the market to determine the exchange rate, drastically reduced
protective customs tariffs, opened up to foreign investment, modernized the stock markets,
freed interest rates, and strengthened the banking system. The liberalization process has helped
the free movement of goods and services and led to better industrial performances. The
consequences have been far-reaching.
Free flow of capital Structural unemployment

Boost in exports, services and inward remittances Destabilization of the economy
Rise of strong Indian firms Impact of FDI in Banking sector
Increased competition Threat from MNCs
Economies of scale Technological impact
Inward investment Mergers and Acquisitions
Restored growth momentum Environmental costs
Improved economic and political profile Infant-industry argument
Figure 2: Effects of Liberalization
Positive effects of Liberalization

• Free flow of capital: Liberalization has improved flow of capital into the country, making
it inexpensive for the companies to access capital from investors. Lower cost of capital
enables to undertake lucrative projects which may not have been possible with a higher
cost of capital pre-liberalization, leading to higher growth rates.
• Boost in exports, services and inward remittances: The opening up of foreign trade and
investment (and a competitive exchange rate) boosted exports, services and inward
remittances enormously. Today, they account for around 40 per cent of the GDP compared
to 10 per cent in 1990. Flourishing external commerce and rising foreign investment
dethroned the baleful deity of ‘foreign exchange scarcity’, which had justified four decades
of dreadful economic policy and draconian, corruption-spawning controls. Today’s open
economy is more productive and more resilient to global shocks like high oil prices. With
over $500 billion of forex reserves, strong exports and low external debt, the recent surge
in global oil prices has not derailed the economy’s forward momentum.
• Rise of strong Indian firms: The mix of industrial decontrol, greater foreign competition
and a modernised capital market fostered the rise of strong Indian firms, built by unshackled

entrepreneurs able to compete globally. Industrial organizations have now become more
efficient and market responsive.
• Increased competition: Trade Liberalization means firms will face greater competition
from abroad. This should act as a spur to increase efficiency and cut costs, or it may act as
an incentive for an economy to shift resources into new industries where they can maintain
a competitive advantage.
• Economies of scale: Trade Liberalization enables greater specialisation. Economies
concentrate on producing particular goods. This can enable big efficiency savings from
economies of scale.
• Inward investment: If a country liberalises its trade, it will make the country more
attractive for inward investment. For example, former Soviet countries who liberalise trade
will attract foreign multinationals who can produce and sell closer to these new emerging
markets. Inward investment leads to capital inflows but also helps the economy through
diffusion of more technology, management techniques and knowledge.
• Restored growth momentum: The post-crisis reforms of the early 1990s restored (then
improved) the growth momentum of the 1980s and ensured nearly 6 per cent economic
growth for a quarter of a century. With average living standards rising at almost 4 per cent
a year, the poverty ratio dropped below a quarter of the population and the catch phrase of
“a rising middle class” gained substance.
• Improved economic and political profile: The strong improvement in the country’s
external finances and sustained growth over 25 years also raised India’s economic and
political profile in the world. In a real sense, the 1990s’ economic liberalization freed
India’s foreign and defence policies from economic weakness and dependence on foreign
aid. A more assertive strategic policy became possible.
Negative effects of Liberalization:

• Structural unemployment: Trade Liberalization often leads to a shift in the balance of an
economy. Some industries grow, some decline. Therefore, there may often be structural
unemployment from certain industries closing. Trade Liberalization can often be painful in
the short run, as some industries and some workers suffer from the decline in uncompetitive
firms. Though net economic welfare has improved, it is difficult to compensate those
workers who lose out to international competition.
• Destabilization of the economy: Tremendous redistribution of economic power and
political power could have destabilizing effects on the entire Indian economy.
• Impact of FDI in Banking sector: Foreign direct investment allowed in the banking and
insurance sectors resulted in decline of government’s stake in banks and insurance firms.
• Threat from Multinationals: Prior to 1991 MNC’s did not play much role in the Indian
economy. In the pre-reform period, there was domination of public enterprises in the
economy. On account of Liberalization, competition has increased for the Indian firms.

Multinationals are quite big and operate in several countries which has turned out a threat
to local Indian Firms.
• Technological Impact: Rapid increase in technology forces many enterprises and small-
scale industries in India to either adapt to changes or close their businesses.
• Mergers and Acquisitions: Acquisitions and mergers are increasing day-by-day. In cases
where small companies are being merged by big companies, the employees of the small
companies may require exhaustive re-skilling. Re-skilling duration will lead to non-
productivity and would cast a burden on the capital of the company.
• Environmental costs: Trade Liberalization triggered a greater exploitation of the
environment, e.g. greater production of raw materials, trading toxic waste to countries with
lower environmental laws.
• Infant-industry argument: Trade Liberalization may be damaging for developing
economies who cannot compete against free trade. The infant industry argument suggests
that trade protection is justified to help developing economies diversify and develop new
industries. Most economies had a period of trade protectionism. It is unfair to insist that
developing economies cannot use some tariff protectionism. Because of this argument,
some argue that trade Liberalization often benefits developed countries more than
developing countries.
Privatization
Privatization is a process that reduces the involvement of the state or the public sector in the
economic activities. Privatization simply means permitting the private sector to set up
industries, which were previously reserved for the public sector. Public sector enterprises have
traditionally received criticism for certain drawbacks in their processes, including:
• Low return on investment
• Insufficient growth in productivity
• Poor project management
• Lack of continuous technological up-gradation
• Inadequate attention to research and development and human resources development
• Mounting losses
• Low profitability
• Underutilization of capacity
Privatization implies that control of several sectors shifts from the government to the private
sector, enabling able private players to shape the industries’ growth.
Process of Privatization
The main reason for Privatization in India was that the PSU’s ran into losses due to political
interference. The managers could not work independently, and production capacity remained
under-utilized. To increase competition and efficiency Privatization of PSUs was inevitable.
The following steps were taken for Privatization:

• Sale of shares of PSUs: Indian Government started selling shares of PSU’s to public and
financial institution. The private sector started acquiring ownership of these PSU’s. The share
of private sector has been increasing over the years.
• Disinvestment in PSU’s: The Government started the process of disinvestment in those PSU’s
which had been running into loss. The Government sold these industries to the private sector
opening up new avenues that were earlier reserved only for public sector investments.
• Minimisation of Public Sector: Previously Public sector was given the importance with a
view to help in industralisation and remove of poverty. But these PSU’s were unable to achieve
this objective and the policy of contraction of PSU’s was followed under new economic
reforms. Number of industries reserved for public sector was reduces from 17 to 2.
Effects of Privatization
The private sector has effective policies to solve the problem of externalities, through costless
bargaining, driven by individual incentives. The effects of Privatization vary depending on the
industries privatized, quality of regulation, market conditions, and incentive creation to list a few.
Improved efficiency Negligence of social objectives

Profit maximization and Transparency Unfair trade practices
Increased competition Consumer exploitation
Adoption of global best practices Employee turnover
Other microeconomic advantages Conflict of interest
Other macroeconomic advantages Price inflation
Figure 3: Effects of Privatization
Positive effects of Privatization

• Improved efficiency: Private companies have a profit incentive to cut costs and be more
efficient. If you work for a government run industry managers do not usually share in any
profits.
• Profit maximization and Transparency: Since the system becomes more transparent all
underlying corruption are minimized and owners have a free reign and incentive for profit
maximization.
• Increased competition: Often Privatization of state-owned monopolies occurs alongside
deregulation – i.e. policies to allow more firms to enter the industry and increase the

competitiveness of the market. It is this increase in competition that can be the greatest spur to
improvements in efficiency.
• Adoption of global best practices: Privatization leads to adoption of the global best practices
along with management and motivation of the best human talent to foster sustainable
competitive advantage and improvised management of resources.
• Other Microeconomic Advantages:
o Effectively minimises corruption and optimises output and functions
o Development of the general budget resources and diversifying sources of income
o It frees the resources for a more productive utilisation
• Other Macroeconomic Advantages
o Helps in escalating the performance benchmarks of the industry in general
o Enables growth and prosperity of the employees and eliminates employment
inconsistencies
o Provides better and prompt customer services and helps in improving the overall
infrastructure of the country
Negative effects of Privatization
• Negligence of social objectives: Private sector focuses more on profit maximization and less
on social objectives unlike public sector that initiates socially viable adjustments in case of
emergencies and criticalities.
• Unfair trade practices: Privatization has provided the unnecessary support to the corruption
and illegitimate ways of accomplishments of licenses and business deals amongst the
government and private bidders. Lobbying and bribery are the common issues tarnishing the
practical applicability of privatization.
• Consumer exploitation: Privatization loses the mission with which the enterprise was
established, and profit maximization agenda encourages malpractices like production of lower
quality products, elevating the hidden indirect costs, price escalation, ultimately exploiting the
consumers.
• Employee turnover: Privatization results in high employee turnover due to the working
environment and competitive setup. A lot of investment is required to train the lesser qualified
staff and even making the existing manpower of PSU abreast with the latest business practices.
• Conflict of interest: There can be a conflict of interest amongst stakeholders and the
management of the buyer private company and initial resistance to change can hamper the
performance of the enterprise.
• Price inflation: Privatization escalates price inflation in general as privatized enterprises do
not enjoy government subsidies after the deal and the burden of this inflation affects the
common man.

Globalization
Broadly speaking, the term ‘globalization’ means integration of economies and societies through
cross-country flows of information, ideas, technologies, goods, services, capital, finance and
people. Cross-border integration can have several dimensions – cultural, social, political and
economic. Focusing on economic integration only, globalization consists of the following channels
• trade in goods and services
• movement of capital
• flow of finance
• movement of people
Process of Globalization
Globalisation means to make Global or worldwide, otherwise taking into consideration the whole
world. Broadly speaking, Globalisation means the interaction of the domestic economy with the
rest of the world with regard to foreign investment, trade, production and financial matters.
Following are the steps taken for Globalisation:
• Reduction in tariffs: Custom duties and tariffs imposed on imports and exports are reduced
gradually just to make India economy attractive to the global investors.
• Long term Trade Policy: Forcing trade policy was enforced for longer duration. Main features
of the policy are:
o Liberal policy
o All controls on foreign trade have been removed
o Open competition has been encouraged
• Partial Convertibility of Indian currency: Partial convertibility can be defined as to convert
Indian currency (up to specific extent) in the currency of other countries. So that the flow of
foreign investment in terms of Foreign Institutional Investment (FII) and foreign Direct
Investment (FDI). This convertibility stood valid for following transaction:
o Remittances to meet family expenses
o Payment of interest
o Import and export of goods and services.
• Increase in Equity Limit of Foreign Investment: Equity limit of foreign capital investment
has been raised from 40% to 100% percent. In 47 high priority industries foreign direct
investment (FDI) to the extent of 100% will be allowed without any restriction. In this regard
Foreign Exchange Management Act (FEMA) will be enforced.
Effects of Globalization
The new economic policy resulted in radical change in the structure and direction of Indian
economy. Globalization, a new key word of the 21st century to an economic event, a unifying

process that has drawn lives all around that world into its fold. Globalization is best understood in
terms of developing markets, deregulating business activities, privatizing state enterprises,
lowering national barriers and expanding world trade and investment, all creating world
community.
• Greater access to global markets • Slow Growth of Agriculture

• Employment opportunities • Rise in Rural-Urban Divide
• Access to advanced technology • Adverse Impact on Autonomy of State
• Increase in compensation • Adverse Impact on Culture
• Improvement in standard of living • Adverse Impact on Environment
Multilateral trade agreements • Bankruptcy of many Employment
• Blurring of physical and geographical Generating Firms
boundaries • Rising Unemployment
• Interlinked Global Economy • Human Rights Violation
Figure 4: Effects of Globalization
Positive Effects of Globalization

• Greater access to global markets: Physical and geographical boundaries are crumbling, and
the world is becoming a global village. Nation states today no longer have to play market-
making role, so wool, wine, perfumes can belong to any market anywhere in the world. Post-
globalization, Indians had better access to global markets and similarly, global markets had
easier access to the Indian markets.
• Employment opportunities: The increased access and reach, in turn, resulted in generation of
substantial employment opportunities in India. Another additional factor in India is cheap
labour. This feature motivates big companies in the west to outsource employees from other
region and cause more employment.
• Access to advanced technology: By opening up the economy, the existing industries received
substantial exposure to advanced global technologies. Leveraging these technologies provided
an opportunity for enhanced growth, improved productivity and optimum efficiency.
• Increase in compensation: With global players entering the Indian markets, a spirit of healthy
competition arose in the economy, resulting in heightened performance by the Indian players.
• Improvement in standard of living: With enhanced exposure to technology, better industrial
productivity and sectoral output, improved economic performance, and the increased
employment opportunities led to an overall improvement in the standard of living.
• Multilateral trade agreements: Multilateral agreements in trade, taking on such new agendas
as environmental and social conditions. New multilateral agreements for services, Intellectual

properties, communications, and more binding on national governments than any previous
agreements.
• Blurring of physical and geographical boundaries: Physical and geographical boundaries
are crumbling, and the world is becoming a global village. Nation states today no longer have
to play market-making role, so wool, wine, perfumes can belong to any market anywhere in
the world.
• Interlinked Global Economy: Globalization has created an economically interdependent
international Environment. Each country’s prosperity is interlinked with the rest of the world
and no nation can exist in isolation solely dependent on its domestic market. In an interlinked
global economy, the key success factor shifts from resources to the marketplace.
Negative Effects of Globalization
• Slow Growth of Agriculture: The agricultural sector has been and still remains the backbone
of the Indian economy playing a vital role in providing food and nutrition to the people, and in
the supply of raw material to industries and to export trade. In 1951, agriculture provided
employment to 72 per cent of the population and contributed 59 per cent of the gross domestic
product. However, by 2001 the share of agriculture in the GDP went down drastically to 24
per cent and further to 22 per cent in 2006-07. This has resulted in a lowering the per capita
income of the farmers and increasing the rural indebtedness. The agricultural growth of 3.2 per
cent observed from 1980 to 1997 decelerated to two per cent subsequently. With more than
half the population directly depending on this sector, low agricultural growth has serious
implications for the inclusiveness of growth.
• Rise in Rural-Urban Divide: Globalization has widened the gap between the rich and poor,
rises inequalities and mounts debt of developing countries. Globalization benefits only those
who have the skills and technology to ride the wave. The higher growth rate achieved by an
economy can be at the expense of declining incomes of people who may be rendered redundant.
In this context, it has to be noted that while globalization may accelerate the process of
technology substitution in developing economies, these countries even without globalization
will face the problem associated with moving from lower to higher technology.
• Adverse Impact on Autonomy of State: Globalization is also known to constrain the
authority and autonomy of the state. Free trade limits the ability of states to set policy and
protect domestic companies. Capital mobility makes generous welfare states less competitive.
Global problems exceed the grasp of any individual state, and global norms and institutions
end up becoming more powerful.
• Adverse Impact on Culture: Globalization leads to cultural homogeneity. Many cultural
flows, such as the provision of news, reflect exclusively western interests and control. This
influence tends to adversely impact the local culture towards loss of identity and potential
extinction.

• Adverse Impact on Environment: Globalization has also contributed to the destruction of the
environment through pollution and clearing of vegetation cover. With the construction of
companies, the emissions from manufacturing plants are contributing to environmental
pollution which further affects the health of many individuals. In India, Chlorine, petro-
chemicals, caustic soda and such other chemical industries have sprung up in large number
since 1991-92. This has encouraged import of chemicals polluting the environment.
• Bankruptcy of many Employment Generating Firms: Globalization has rendered many
companies and their operations redundant. So, either they are closed, wholly or partly, or are
hived off or their ancillary units are declared sick. For example, the decision of Hindustan
Organic Chemicals to cease its benzene operations has caused closure of many related units.
This in turn adversely affected the lives of its employees.
• Rising Unemployment: Another con of globalization has been the widespread unemployment
either due to technological innovations, diversifications, relocations or closure of companies.
Employees have also been retrenched because of the companies’ cost cutting measures due to
the recent global slow down.
• Human Rights Violation: As the supremacy of many states decline and that of corporations
rise, capacity of the latter to violate the rights of people or to create conditions in which rights
become harder to exercise or protect, has increased tremendously. Against this backdrop
several shocking reports have surfaced about MNCs making considerable profits at the expense
of its people.
Other elements of Globalization
From about the end of 19th century, key technological developments in transportation and
communication as well as of trade have contributed to the increasing economic integration of the
world. Some fundamental aspects of globalization include:
• Post Industrialism: According to David Harvey, there has been a transition (shift) from
‘fixed’ industrial system to regime of ‘flexible accumulation’ characterized by flexibility in
labour processes, products and patterns of consumption; and increasing mobility of capital and
labour. This ‘post industrial’ system is marked by increasing centralization of capital in the
hands of big corporations at one end, and flourishing of small business at the other, with the
former dominating the latter.
• World Trade: World trade links geographically dispersed produces and consumers. While
USA became the largest trading nation in 20th century, GATT established in 1947, aimed at
freer trade through agreed reduced tariffs, which led to the growth of world trade and reduction
in relative share of major industrial powers in world trade. Major push is towards globalization
of markets.
• Multinational Corporations: Integration of global economy has given rise to MNC’s which
are powerful not only economically but politically also. Overall, 51 of the largest economies

in the world are corporations. According to the UN Development Programme, 500

corporations now control 70% of the world’s trade and 80% of its foreign investment.
• New International Division of Labour: Internalization of capital since the 1970’s had led to
economic restructuring reflected in deindustrialization of developed countries and a shift to
tertiary (service) sector activities such as banking, finance, specialized administrative services,
etc. while manufacturing and assembly operations are exported to less developed countries
where labour is cheap and laws are lax. But it was noticed that with technological innovations
such as automation, computerization, the question of cheap labour did not arise. Labour
productivity could be enhanced with lesser number of workers. Hence major shift in industrial
organization is to new systems of flexible specialization, just-in-time delivery TQM, etc.
Rather than direct investment by first world MNC’s in third world through local subsidiaries,
there is now a wide variety of negotiated agreements: joint ventures, marketing agreements,
secondary sourcing, subcontracting various kinds of limited alliances. MNCs look at less
developed countries mainly not as a source of cheap labour and raw materials but as expanding
local markets and potential industrial partners.
• Financial Markets: IMF has started controlling the finance aspect. As a result of debt crisis,
countries turn to IMF, which then imposes devaluation of currency, structural adjustment
programme and other conditions. Global financial institutions exert enormous control over the
domestic policies of member countries and in 1980’s, they started advocating liberalization,
privatization and globalization. MNC’s have started demanding free capital movement and
opening of capital and other markets.
Impact of Economic Reforms Process on Indian Agricultural Sector
Agricultural sector is the mainstay of the rural Indian economy around which socio-economic
privileges and deprivations revolve. Any change in its structure is likely to have a corresponding
impact on the existing pattern of social equality. No strategy of economic reform can succeed
without sustained and broad-based agricultural development, which is critical for
• Raising living standards
• Alleviating poverty
• Assuring food security
• Generating buoyant market for expansion of industry and services
• Making substantial contribution to the national economic growth
Studies also show that the economic liberalization and reforms process have impacted on
agricultural and rural sectors deeply.
Of the three sectors of economy in India, the tertiary sector has diversified the fastest, the
secondary sector the second fastest, while the primary sector, taken as a whole, has scarcely
diversified at all. Since agriculture continues to be a tradable sector, this economic liberalization
and reform policy has far reaching effects on

• agricultural exports and imports • agriculture income and employment

• investment in new technologies and on • agricultural prices
rural infrastructure • food security
• patterns of agricultural growth
Reduction in Commercial Bank credit to agriculture, in lieu of this reforms process and
recommendations of Khusro Committee and Narasimham Committee, might lead to a fall in farm
investment and impaired agricultural growth. Infrastructure development requires public
expenditure which is getting affected due to the new policies of fiscal compression. Liberalization
of agriculture and open market operations will enhance competition in ‘resource use’ and
‘marketing of agricultural production’, which will force the small and marginal farmers to resort
to ‘distress sale’ and seek for off-farm employment for supplementing income.
Unfortunately, the reforms story is only half done. Large swathes of the economy remain stifled
by old systems and heavy handed, corruption-breeding controls. Reform is still absent in the
electricity sector, in the provision of roads, water and sanitation, in the decaying government
primary education and healthcare, in the tragically anti-employment legacy of labour laws, in the
bureaucratic machinery for agricultural support services, in municipal taxation and finances, and,
above all in the creaky, unresponsive edifice of public administration and governance. Until
reforms make headway in these areas, India’s “tryst with destiny” will remain elusively in the
future.
Impact of Economic Reforms Process on Indian Social Infrastructure
In developing countries like India, development of Social Infrastructure is vitally important for
achieving faster economic growth and alleviating poverty. India’s Five-Year Plans have failed to
eliminate poverty for at least four reasons - malnutrition, poor health, a lack of learning
opportunities, and limited choices. In a broad sense, health includes physical conditions, sanitation,
as also health-related areas such as sanitation and water supply.
Good education, health and nutrition and low fertility help reduce poverty by increasing
opportunities to generate the right income. By the same token, an improved standard of living leads
to gain in health and education, freeing people from the trap of ignorance and exposure to disease.
However, Indian economy is still characterised by low levels of literacy and school enrolments
and high levels of infant mortality, maternal mortality and malnutrition, relative to China and
Indonesia and even other low- income countries. It will be difficult to reduce poverty substantially
in the absence of major improvements in spending on and delivery of health and education
services.
The delivery of public services in health and education is fraught with problems related to limited
accountability for performance, low management and worker incentives, inadequate materials and
equipment for effective health care and education, demands for payment for public services and

poor targeting of services and subsides at the poor. As a result, private delivery of health and
education is expanding rapidly-to the public in general and even to the poor.
Impact on the Education Sector
The average educational attainment has improved in India. Yet, India still lags behind other
developing countries in average educational attainment—particularly among the poor.
The data across decades shows improvement, yet, a lot remains to be achieved to reach optimal
benefits of the reforms in the Education Sector.
2017/
Indicator 1991 2001 2011
2018
Literacy rate, adult total (% of people ages 15 and above) 48.2% 61.0% 69.3% 74.4%
Literacy rate, adult female (% of females ages 15 and above) 33.7% 47.8% 59.3% 65.8%
Literacy rate, adult male (% of males ages 15 and above) 61.6% 73.4% 78.9% 82.4%
Literacy rate, youth total (% of people ages 15-24) 61.9% 76.4% 86.1% 91.7%
Literacy rate, youth female (% of females ages 15-24) 49.3% 67.7% 81.8% 90.2%
Literacy rate, youth male (% of males ages 15-24) 73.5% 84.2% 90.0% 93.0%
School enrollment, preprimary (% gross) 3.2% 3.5% 7.7% 13.7%
School enrollment, preprimary, female (% gross) 3.1% 3.3% 7.6% 13.1%
School enrollment, preprimary, male (% gross) 3.3% 3.6% 7.8% 14.3%
School enrollment, primary (% gross) 91.1% 94.1% 108.3% 113.0%
School enrollment, primary, female (% gross) 79.0% 87.2% 110.3% 121.1%
School enrollment, primary, male (% gross) 102.3% 100.4% 106.6% 105.6%
School enrollment, secondary (% gross) - 45.2% 66.3% 73.5%
School enrollment, secondary, female (% gross) - 37.8% 64.7% 74.1%
School enrollment, secondary, male (% gross) - 51.8% 67.7% 73.0%
School enrollment, tertiary (% gross) 6.0% 9.7% 22.8% 27.4%
School enrollment, tertiary, female (% gross) 4.2% 7.8% 20.1% 28.0%
School enrollment, tertiary, male (% gross) 7.8% 11.4% 25.2% 26.9%
Impact on the Health Sector
These have also improved but have a long way to go, particularly among the poor. The poor suffer
from health and poverty related problems – high infant mortality rate, high mortality rates, high
fertility rate and high rates of child malnutrition. Children and women are particularly affected.
There have been only modest declines in the levels of severe and moderate malnutrition in children

in the last 20 years. The impact of the stubbornly high levels of disease and malnutrition is also
due to poor sanitation and water supply, particularly in the poorer states.
1990/ 2000/ 2010/ 2017/

Indicator
1991 2001 2011 2018
Life expectancy at birth, total (years) 58.4% 62.9% 67.1% 69.4%
Life expectancy at birth, female (years) 58.8% 63.7% 68.2% 70.7%
Life expectancy at birth, male (years) 58.0% 62.1% 66.1% 68.2%
Mortality rate, infant (per 1,000 live births) 88.6% 66.6% 45.1% 29.9%
Mortality rate, infant, female (per 1,000 live births) 86.4% 66.8% 45.9% 29.9%
Mortality rate, infant, male (per 1,000 live births) 90.6% 66.4% 44.4% 30.0%
Maternal mortality ratio (modeled estimate, per 100,000 live births) - 354 197 145
Fertility rate, total (births per woman) 4.0 3.2 2.5 2.2
*Source: https://data.worldbank.org/country/india
***************************

Policies to enhance Social Infrastructure with special reference to Education

and health - NEP 2020 and Ayushman Bharat
Table of Contents
Introduction ....................................................................................................................................................1
Defining Social Infrastructure ......................................................................................................................2
Trends in Social Infrastructure .....................................................................................................................2
Government Initiatives ...................................................................................................................................2
National Education Policy 2020 ....................................................................................................................5
Salient features of the NEP 2020 ................................................................................................................................ 5
School Education ......................................................................................................................................................... 5
Higher Education ........................................................................................................................................................ 7
Ayushman Bharat.........................................................................................................................................10
Introduction
The new Economic policy of 1991 introduced various macro economic stabilization measures
and structural adjustment reforms in India. Phased disinvestment in PSU's, encouragement to
private players to invest in various sectors of the economy led to high economic growth without
the development of the marginalized and disadvantaged sections of the population. In this
process India faced increased poverty, inequality and discrimination. Market led economy
provided informal jobs with less security. Government began to reduce subsidies to support the
social sector. Thus, in order to provide a safety net to India's population and to make growth
inclusive, the government of India made legislations like (National Rural Employment
Guarantee Act 2005), Right to Education 2008 and various health and education programs to
improve human resources. In 2000, the UN came up with the Millennium Development Goals
with measurable targets. These goals targeted food security, nutrition, gender equality and
eradication of poverty among other goals. This led to the importance of social infrastructure
among various developing and less developed countries.
The 2030 Agenda for Sustainable Development as reflected in the 17 Sustainable Development
Goals (SDGs) and 169 targets, calls for global partnership to ensure peace and prosperity for
people and the planet, now and into the future. It is recognized that ending poverty and other
deprivations must go hand-in-hand with strategies that improve health and education, reduce
inequality and spur economic growth in a sustainable manner.
India is committed to achieve these SDGs and a strong social infrastructure is key to achieve
them. The government has been focusing on provisioning of assets such as schools, institutes
of higher learning, hospitals, access to sanitation, water supply, road connectivity, affordable
housing, skills and livelihood opportunities. This gains significance given the fact that India is
home to the world’s youngest population as half of its population is below the age of 25. It has
also been estimated that demographic advantage in India is available for five decades from
2005-06 to 2055-56, longer than any other country in the world. This demographic advantage
can be reaped only if education, skilling and employment opportunities are provided to the
young population.

Defining Social Infrastructure

Social infrastructure refers to investment in areas of education, healthcare, family welfare, in
order to enhance socio economic development of the country. In this context, it plays an
important role in improving people's lifestyle through improved education, skill and
employability. In order to ensure inclusive growth, social infrastructure focuses on human
development which means the expansion and widening of people's choices and as well general
well being. eg. Health care, hospitals, education (Schools and Universities), community
housing transport, Social security, water supply, shelter and sanitation etc. The term social
infrastructure refers to factors / facilities that contribute to human capital formation and
human development. The central and the State Governments are increasingly providing public
goods in crucial areas like education, health, sanitation, housing etc. These include universal
facilities which lead to community development, targeted facilities that cater to all age groups
and to those with special needs. (SCs, STs, OBCs etc.).
Trends in Social Infrastructure
The expenditure on social services (education, health and other social sectors) by Centre and
States combined as a proportion of GDP increased from 6.2 to 8.8 per cent during the period
2014-15 to 2020-21 (BE). This increase was witnessed across all social sectors. For education,
it increased from 2.8 per cent in 2014-15 to 3.5 per cent and for health, from 1.2 per cent to 1.5
per cent during the same period. Relative importance of social services in the government
budget, as measured in terms of the share of expenditure on social services out of total
budgetary expenditure, has also increased to 26.5 per cent in 2020-21 (BE) from 23.4 percent
in 2014-15.
The objective of a robust social infrastructure is to promote human development. The Human
Development Index developed by the United Nations which considers a composite statistics of
age expectancy, education and per capita Income, ranked India 129 among 189 countries in
HDI in 2019. This represents a moderate human development level. Thus, investment in social
infrastructure is crucial to improve human development in India.
Government Initiatives
The government has been committed to provision of social security which is evident in the
initiation of major social sector schemes by the Government of India during the last five years
as given below:
Pradhan Mantri Suraksha Bima Yojana, 2015 - It offers a one-year accidental death and
disability cover with annual premium of Rs. 12. It is available to people in the age group 18 to
70 years.
Pradhan Mantri Jeevan Jyoti Bima Yojana, 2015 - It is government-backed life insurance
scheme with annual premium of Rs. 330. It is available to people between 18 and 50 years of
age.

Pradhan Mantri Vaya Vandana Yojana, 2018 - It is a pension scheme exclusively for the
senior citizens aged 60 years and above.
PM-KISAN, 2019 - It offers income support of Rs. 6000 per annum in three equal instalments
to all eligible farmers irrespective of land holdings.
National Nutrition Mission (POSHAN Abhiyaan) - It ensure attainment of malnutrition free

India by 2022. Targeted intervention in areas with high malnutrition burden.
Mission Indradhanush (MI) and Intensified Mission Indradhanush (IMI) - To vaccinate

unreached/ partially reached pregnant women and children so as to reduce vaccine preventable
under-5 mortality rate. The drive is focused on pockets of low immunization average and hard
to reach areas where proportion of unvaccinated and partially vaccinated children and pregnant
women is high.
Samagra Shiksha - A comprehensive programme subsuming Sarva Shiksha Abhiyan (SSA),

Rashtriya Madhyamik Shiksha Abhiyan (RMSA) and Teacher Education (TE). For first time,
it also includes provisions for support at preschool level, library grants and grants for sports
and physical equipment.
ICT Driven Initiatives - Shaala Sidhi (to enable all schools to self-evaluate their
performance), e-Pathshala (providing digital resources such as textbooks, audio, video,
periodicals etc.) and Saransh (an initiative of CBSE for schools to conduct self-review
exercises).
LaQshya - 'LaQshya - Quality Improvement Initiative' was launched in December, 2017 with
the objectives of reducing preventable maternal and newborn mortality, morbidity and
stillbirths associated with the care around delivery in Labour room and Maternity OT
(Operation Theatre) and to ensure respectful maternity care.
Pradhan Mantri Surakshit Matritva Abhiyan (PMSMA): PMSMA was launched in 2016
to provide comprehensive and quality Ante- Natal Care (ANC) to pregnant women on the 9th
of every month. Under PMSMA, doctors from both the public and private sector examine
pregnant women on 9th of every month at Government health facilities.
Skilling Ecosystem - Skilling ecosystem in India is equipping the youth to meet the challenges
of a dynamic labour market by providing various short term and long-term skilling under
programmes like 'Pradhan Mantri Kaushal Vikas Yojana' (PMKVY). PMKVY has had positive
impact on employment and incomes of the youth as per evaluation studies.
Rural Infrastructure - Connectivity is critical for rural areas to improve quality of lives of
the poor by enhancing access to various social services, education, health and access to
markets. PMGSY has played a crucial role in connecting the unconnected in rural India and
enhanced their livelihood opportunities. Government has accorded highest priority to rural
housing, by providing dwelling with all basic facilities to the neediest under Pradhan Mantri

Awas Yojana (Gramin) (PMAY-G). Government has also prioritized employment programmes
like MGNREGS which is reflected in the upward trend in budget allocation and release of
funds to the States in the last four years.
Financial Inclusion - Financial inclusion of women is considered as an essential tool for

empowerment of women as it enhances their self-confidence and enables financial decision-
making to a certain extent. As far as financial inclusion in India is concerned, significant
progress has been made during the last decade. At all India level, the proportion of women
having a bank or saving account that they themselves use have increased from 15.5 per cent in
2005-06 to 53 per cent in 2015-16.
Programmes and Schemes in School education
• The Department of School Education and Literacy has launched an Integrated

Scheme for School Education – Samagra Shiksha w.e.f. 2018-19, which subsumes
three erstwhile Centrally Sponsored Schemes of Sarva Shiksha Abhiyan (SSA),
Rashtriya Madhyamik Shiksha Abhiyan (RMSA) and Teacher Education (TE).
• Central RTE Rules have been amended to include a reference on class-wise and
subject-wise Learning Outcomes.
• The Navodaya Vidyalaya Scheme provides for the opening of one Jawahar Navodaya
Vidyalaya (JNV) in each district of the country to bring out the best of rural talent.
• NISHTHA – National Initiative for School Heads’ and Teachers’ Holistic
Advancement, under the Centrally Sponsored Scheme of Samagra Shiksha in 2019-
20 is being launched to improve learning outcomes at the elementary level
• Pradhan Mantri Innovative Learning Program (DHRUV) was launched to identify
and encourage talented students to enrich their skills and knowledge.
• To broad-base technology-aided teaching and learning, States and UTs are being
actively involved to contribute and use the Digital Infrastructure for Knowledge
Sharing (DIKSHA) platform).
Programmes and Schemes in higher education
• The government launched Pandit Madan Mohan Malaviya National Mission on

Teachers and Teaching (PMMMNMTT) which aims at building a strong
professional cadre of teachers by setting performance standards and creating top class
institutional facilities for innovative teaching and professional development of teachers
in higher education.
• Higher Education Financing Agency (HEFA) was established to provide a
sustainable financial model for higher education institutions, Kendriya Vidyalayas,
Navodaya Vidyalayas, AIIMS and other educational institutions of the Ministry of
Health with the objective to fund projects to the tune of ` 1 lakh crore by 2022.
• National Educational Alliance for Technology (NEAT) announced a PPP Scheme
for using technology for better learning outcomes in Higher Education. The objective
is to use Artificial Intelligence to make learning more personalised and customised as
per the requirements of the learner.

• The Department of Higher Education, in the Ministry of Human Resource

Development, has finalized and released a five-year vision plan named Education
Quality Upgradation and Inclusion Programme (EQUIP).
• SWAYAM 2.0 was launched to offer online degree programmes with enhanced
features and facilities by top-ranking universities.
• ‘Deeksharambh’ a guide to student induction programme and
‘PARAMARSH’ scheme is to mentor institutions seeking National Assessment and
Accreditation Council accreditation are some of the other major schemes of Department
of Higher Education launched in 2019.
National Education Policy 2020

The National Policy on Education was framed in 1986 and modified in 1992. Since then,
several changes have taken place that calls for a revision of the Policy.
The NEP 2020 is the first education policy of the 21st century and replaces the thirty-four-
year-old National Policy on Education (NPE), 1986. Built on the foundational pillars of Access,
Equity, Quality, Affordability and Accountability, this policy is aligned to the 2030 Agenda
for Sustainable Development and aims to transform India into a vibrant knowledge society and
global knowledge superpower by making both school and college education more holistic,
flexible, multidisciplinary, suited to 21st century needs and aimed at bringing out the unique
capabilities of each student.
Salient features of the NEP 2020
School Education
Ensuring Universal Access at all levels of school education
NEP 2020 emphasizes on ensuring universal access to school education at all levels- preschool
to secondary. Infrastructure support, innovative education centres to bring back dropouts into
the mainstream, tracking of students and their learning levels, facilitating multiple pathways to
learning involving both formal and non-formal education modes, association of counsellors or
well-trained social workers with schools, open learning for classes3,5 and 8 through NIOS and
State Open Schools, secondary education programs equivalent to Grades 10 and 12, vocational
courses, adult literacy and life-enrichment programs are some of the proposed ways for
achieving this. About 2 crores out of school children will be brought back into main stream
under NEP 2020.
Early Childhood Care & Education with new Curricular and Pedagogical Structure
With emphasis on Early Childhood Care and Education, the 10+2 structure of school curricula
is to be replaced by a 5+3+3+4 curricular structure corresponding to ages 3-8, 8-11, 11-14, and
14-18 years respectively. This will bring the hitherto uncovered age group of 3-6 years under
school curriculum, which has been recognized globally as the crucial stage for development of
mental faculties of a child. The new system will have 12 years of schooling with three years of
Anganwadi/ pre schooling.
NCERT will develop a National Curricular and Pedagogical Framework for Early Childhood
Care and Education (NCPFECCE) for children up to the age of 8. ECCE will be delivered
through a significantly expanded and strengthened system of institutions including
Anganwadis and pre-schools that will have teachers and Anganwadi workers trained in the
ECCE pedagogy and curriculum. The planning and implementation of ECCE will be carried

out jointly by the Ministries of HRD, Women and Child Development (WCD), Health and
Family Welfare (HFW), and Tribal Affairs.
Attaining Foundational Literacy and Numeracy

Recognizing Foundational Literacy and Numeracy as an urgent and necessary prerequisite to
learning, NEP 2020 calls for setting up of a National Mission on Foundational Literacy and
Numeracy by MHRD. States will prepare an implementation plan for attaining universal
foundational literacy and numeracy in all primary schools for all learners by grade 3 by 2025.A
National Book Promotion Policy is to be formulated.
Reforms in school curricula and pedagogy

The school curricula and pedagogy will aim for holistic development of learners by equipping
them with the key 21st century skills, reduction in curricular content to enhance essential
learning and critical thinking and greater focus on experiential learning. Students will have
increased flexibility and choice of subjects. There will be no rigid separations between arts and
sciences, between curricular and extra-curricular activities, between vocational and academic
streams.
Vocational education will start in schools from the 6th grade, and will include internships.
A new and comprehensive National Curricular Framework for School Education, NCFSE
2020-21, will be developed by the NCERT.
Multilingualism and the power of language

The policy has emphasized mother tongue/local language/regional language as the medium of
instruction at least till Grade 5, but preferably till Grade 8 and beyond. Sanskrit to be offered
at all levels of school and higher education as an option for students, including in the three-
language formula. Other classical languages and literatures of India also to be available as
options. No language will be imposed on any student. Students to participate in a fun
project/activity on ‘The Languages of India’, sometime in Grades 6-8, such as, under the ‘Ek
Bharat Shrestha Bharat’ initiative. Several foreign languages will also be offered at the
secondary level. Indian Sign Language (ISL) will be standardized across the country, and
National and State curriculum materials developed, for use by students with hearing
impairment.
Assessment Reforms
NEP 2020 envisages a shift from summative assessment to regular and formative assessment,
which is more competency-based, promotes learning and development, and tests higher-order
skills, such as analysis, critical thinking, and conceptual clarity. All students will take school
examinations in Grades 3, 5, and 8 which will be conducted by the appropriate authority. Board
exams for Grades 10 and 12 will be continued, but redesigned with holistic development as the
aim. A new National Assessment Centre, PARAKH (Performance Assessment, Review, and
Analysis of Knowledge for Holistic Development), will be set up as a standard-setting body.
Equitable and Inclusive Education

NEP 2020 aims to ensure that no child loses any opportunity to learn and excel because of the
circumstances of birth or background. Special emphasis will be given on Socially and
Economically Disadvantaged Groups (SEDGs) which include gender, socio-cultural, and
geographical identities and disabilities. This includes setting up of Gender Inclusion Fund
and also Special Education Zones for disadvantaged regions and groups. Children with

disabilities will be enabled to fully participate in the regular schooling process from the
foundational stage to higher education, with support of educators with cross disability training,
resource centres, accommodations, assistive devices, appropriate technology-based tools and
other support mechanisms tailored to suit their needs. Every state/district will be encouraged
to establish “Bal Bhavans” as a special daytime boarding school, to participate in art-related,
career-related, and play-related activities. Free school infrastructure can be used as Samajik
Chetna Kendras
Robust Teacher Recruitment and Career Path

Teachers will be recruited through robust, transparent processes. Promotions will be merit-
based, with a mechanism for multi-source periodic performance appraisals and available
progression paths to become educational administrators or teacher educators. A common
National Professional Standards for Teachers (NPST) will be developed by the National
Council for Teacher Education by 2022, in consultation with NCERT, SCERTs, teachers and
expert organizations from across levels and regions.
School Governance
Schools can be organized into complexes or clusters which will be the basic unit of governance
and ensure availability of all resources including infrastructure, academic libraries and a strong
professional teacher community.
Standard-setting and Accreditation for School Education

NEP 2020 envisages clear, separate systems for policy making, regulation, operations and
academic matters. States/UTs will set up independent State School Standards Authority
(SSSA). Transparent public self-disclosure of all the basic regulatory information, as laid down
by the SSSA, will be used extensively for public oversight and accountability. The SCERT will
develop a School Quality Assessment and Accreditation Framework (SQAAF) through
consultations with all stakeholders.
Higher Education
Increase GER to 50 % by 2035
NEP 2020 aims to increase the Gross Enrolment Ratio in higher education including vocational
education from 26.3% (2018) to 50% by 2035. 3.5 Crore new seats will be added to Higher
education institutions.
Holistic Multidisciplinary Education

The policy envisages broad based, multi-disciplinary, holistic Under Graduate education with
flexible curricula, creative combinations of subjects, integration of vocational education and
multiple entry and exit points with appropriate certification. UG education can be of 3 or 4
years with multiple exit options and appropriate certification within this period. For example,
Certificate after 1-year, Advanced Diploma after 2 years, Bachelor’s Degree after 3 years and
Bachelor’s with Research after 4 years.
An Academic Bank of Credit is to be established for digitally storing academic credits earned
from different HEIs so that these can be transferred and counted towards final degree earned.
Multidisciplinary Education and Research Universities (MERUs), at par with IITs, IIMs, to be
set up as models of best multidisciplinary education of global standards in the country.
The National Research Foundation will be created as an apex body for fostering a strong
research culture and building research capacity across higher education.

Regulation
Higher Education Commission of India (HECI) will be set up as a single overarching umbrella
body the for entire higher education, excluding medical and legal education. HECI to have four
independent verticals - National Higher Education Regulatory Council (NHERC) for
regulation, General Education Council (GEC) for standard setting, Higher Education Grants
Council (HEGC) for funding, and National Accreditation Council (NAC) for accreditation.
HECI will function through faceless intervention through technology, & will have powers to
penalise HEIs not conforming to norms and standards. Public and private higher education
institutions will be governed by the same set of norms for regulation, accreditation and
academic standards.
Rationalised Institutional Architecture
Higher education institutions will be transformed into large, well resourced, vibrant
multidisciplinary institutions providing high quality teaching, research, and community
engagement. The definition of university will allow a spectrum of institutions that range from
Research-intensive Universities to Teaching-intensive Universities and Autonomous degree-
granting Colleges.
Affiliation of colleges is to be phased out in 15 years and a stage-wise mechanism is to be
established for granting graded autonomy to colleges. Over a period of time, it is envisaged
that every college would develop into either an Autonomous degree-granting College, or a
constituent college of a university.
Motivated, Energized, and Capable Faculty

NEP makes recommendations for motivating, energizing, and building capacity of faculty
thorugh clearly defined, independent, transparent recruitment, freedom to design
curricula/pedagogy, incentivising excellence, movement into institutional leadership. Faculty
not delivering on basic norms will be held accountable
Teacher Education
A new and comprehensive National Curriculum Framework for Teacher Education, NCFTE
2021, will be formulated by the NCTE in consultation with NCERT. By 2030, the minimum
degree qualification for teaching will be a 4-year integrated B.Ed. degree. Stringent action will
be taken against substandard stand-alone Teacher Education Institutions (TEIs).
Mentoring Mission
A National Mission for Mentoring will be established, with a large pool of outstanding
senior/retired faculty – including those with the ability to teach in Indian languages – who
would be willing to provide short and long-term mentoring/professional support to
university/college teachers.
Financial support for students

Efforts will be made to incentivize the merit of students belonging to SC, ST, OBC, and other
SEDGs. The National Scholarship Portal will be expanded to support, foster, and track the
progress of students receiving scholarships. Private HEIs will be encouraged to offer larger
numbers of free ships and scholarships to their students.
Open and Distance Learning

This will be expanded to play a significant role in increasing GER. Measures such as online
courses and digital repositories, funding for research, improved student services, credit-based
recognition of MOOCs, etc., will be taken to ensure it is at par with the highest quality in-class
programmes.
Online Education and Digital Education:

A comprehensive set of recommendations for promoting online education consequent to the
recent rise in epidemics and pandemics in order to ensure preparedness with alternative modes
of quality education whenever and wherever traditional and in-person modes of education are
not possible, has been covered. A dedicated unit for the purpose of orchestrating the building
of digital infrastructure, digital content and capacity building will be created in the MHRD to
look after the e-education needs of both school and higher education.
Technology in education
An autonomous body, the National Educational Technology Forum (NETF), will be created
to provide a platform for the free exchange of ideas on the use of technology to enhance
learning, assessment, planning, administration. Appropriate integration of technology into all
levels of education will be done to improve classroom processes, support teacher professional
development, enhance educational access for disadvantaged groups and streamline educational
planning, administration and management
Promotion of Indian languages

To ensure the preservation, growth, and vibrancy of all Indian languages, NEP recommends
setting an Indian Institute of Translation and Interpretation (IITI), National Institute (or
Institutes) for Pali, Persian and Prakrit, strengthening of Sanskrit and all language departments
in HEIs, and use mother tongue/local language as a medium of instruction in more HEI
programmes.
Internationalization of education will be facilitated through both institutional collaborations,
and student and faculty mobility and allowing entry of top world ranked Universities to open
campuses in our country.
Professional Education
All professional education will be an integral part of the higher education system. Stand-alone
technical universities, health science universities, legal and agricultural universities etc will
aim to become multi-disciplinary institutions.
Adult Education
Policy aims to achieve 100% youth and adult literacy.
Financing Education
The Centre and the States will work together to increase the public investment in Education
sector to reach 6% of GDP at the earliest.
Outcomes of NEP 2020
● Universalization from ECCE to Secondary Education by 2030, aligning with SDG 4

● Attaining Foundational Learning & Numeracy Skills through National Mission by 2025
● 100% GER in Pre-School to Secondary Level by 2030

● Bring Back 2 Cr Out of School Children

● Teachers to be prepared for assessment reforms by 2023
● Inclusive & Equitable Education System by 2030
● Board Exams to test core concepts and application of knowledge
● Every Child will come out of School adept in at least one Skill
● Common Standards of Learning in Public & Private Schools
Ayushman Bharat
Ayushman Bharat, a flagship scheme of the Government of India, was launched as
recommended by the National Health Policy 2017, to achieve the vision of Universal Health
Coverage (UHC). This initiative has been designed to meet Sustainable Development Goals
(SDGs) and its underlining commitment, which is to "leave no one behind."
Ayushman Bharat is an attempt to move from sectoral and segmented approach of health
service delivery to a comprehensive need-based health care service. This scheme aims to
undertake path breaking interventions to holistically address the healthcare system (covering
prevention, promotion and ambulatory care) at the primary, secondary and tertiary level.
Ayushman Bharat adopts a continuum of care approach, comprising of two inter-related
components, which are -
● Health and Wellness Centres (HWCs)

● Pradhan Mantri Jan Arogya Yojana (PM-JAY)
1. Health and Wellness Centres (HWCs)
In February 2018, the Government of India announced the creation of 1,50,000 Health and
Wellness Centres (HWCs) by transforming the existing Sub Centres and Primary Health
Centres. These centres are to deliver Comprehensive Primary Health Care (CPHC) bringing
healthcare closer to the homes of people. They cover both, maternal and child health services
and non-communicable diseases, including free essential drugs and diagnostic services.
Health and Wellness Centers are envisaged to deliver an expanded range of services to address
the primary health care needs of the entire population in their area, expanding access,
universality and equity close to the community. The emphasis of health promotion and
prevention is designed to bring focus on keeping people healthy by engaging and empowering
individuals and communities to choose healthy behaviours and make changes that reduce the
risk of developing chronic diseases and morbidities.
2. Pradhan Mantri Jan Arogya Yojana (PM-JAY)
The second component under Ayushman Bharat is the Pradhan Mantri Jan Arogya Yojna or
PM-JAY as it is popularly known. This scheme was launched on 23rd September, 2018 in
Ranchi, Jharkhand by the Hon’ble Prime Minister of India, Shri Narendra Modi.
Ayushman Bharat PM-JAY is the largest health assurance scheme in the world which aims at
providing a health cover of Rs. 5 lakhs per family per year for secondary and tertiary care
hospitalization to over 10.74 crores poor and vulnerable families (approximately 50 crore

beneficiaries) that form the bottom 40% of the Indian population. The households included are
based on the deprivation and occupational criteria of Socio-Economic Caste Census 2011
(SECC 2011) for rural and urban areas respectively. PM-JAY was earlier known as the
National Health Protection Scheme (NHPS) before being rechristened. It subsumed the then
existing Rashtriya Swasthya Bima Yojana (RSBY) which had been launched in 2008. The
coverage mentioned under PM-JAY, therefore, also includes families that were covered in
RSBY but are not present in the SECC 2011 database. PM-JAY is fully funded by the
Government and cost of implementation is shared between the Central and State Governments.
Key Features of PM-JAY
● PM-JAY is the world’s largest health insurance/ assurance scheme fully financed
by the government.
● It provides a cover of Rs. 5 lakhs per family per year for secondary and tertiary
care hospitalization across public and private empanelled hospitals in India.
● Over 10.74 crore poor and vulnerable entitled families (approximately 50 crore
beneficiaries) are eligible for these benefits.
● PM-JAY provides cashless access to health care services for the beneficiary at the
point of service, that is, the hospital.
● PM-JAY envisions to help mitigate catastrophic expenditure on medical treatment
which pushes nearly 6 crore Indians into poverty each year.
● It covers up to 3 days of pre-hospitalization and 15 days post-hospitalization
expenses such as diagnostics and medicines.
● There is no restriction on the family size, age or gender.
● All pre–existing conditions are covered from day one.
● Benefits of the scheme are portable across the country i.e. a beneficiary can visit
any empanelled public or private hospital in India to avail cashless treatment.
● Services include approximately 1,393 procedures covering all the costs related to
treatment, including but not limited to drugs, supplies, diagnostic services,
physician's fees, room charges, surgeon charges, OT and ICU charges etc.
● Public hospitals are reimbursed for the healthcare services at par with the private
hospitals.
Benefit Cover Under PM-JAY
Benefit cover under various Government-funded health insurance schemes in India have
always been structured on an upper ceiling limit ranging from an annual cover of INR30,000
to INR3,00,000 per family across various States which created a fragmented system. PM-JAY
provides cashless cover of up to INR5,00,000 to each eligible family per annum for listed
secondary and tertiary care conditions. The cover under the scheme includes all expenses
incurred on the following components of the treatment.
● Medical examination, treatment and consultation

● Pre-hospitalization
● Medicine and medical consumables
● Non-intensive and intensive care services
● Diagnostic and laboratory investigations
● Medical implantation services (where necessary)

● Accommodation benefits
● Food services
● Complications arising during treatment
● Post-hospitalization follow-up care up to 15 days
The benefits of INR 5,00,000 are on a family floater basis which means that it can be used by
one or all members of the family. The RSBY had a family cap of five members. However,
based on learnings from those schemes, PM-JAY has been designed in such a way that there is
no cap on family size or age of members. In addition, pre-existing diseases are covered from
the very first day. This means that any eligible person suffering from any medical condition
before being covered by PM-JAY will now be able to get treatment for all those medical
conditions as well under this scheme right from the day they are enrolled.
PM-JAY Criticisms
There are certain criticisms and challenges in the implementation of PM-JAY. They are briefly
described below.
● There has been a criticism that while the allocation of funds for PM-JAY has increased
exponentially, the fund for the National Rural Health Mission (NRHM) has gone up
only by 2%. So, the scheme has been eating into the funds for NRHM.
● Under this scheme, the private sector has been given a large role in offering primary
health care to the people. This has been protested by many people in various states, as
regulation of the private sector is marginal.
● There is a shortfall of healthcare professionals and personnel needed to implement a
vast scheme as this.
● There is also a problem of infrastructure as many primary healthcare centres run without
even the basic facilities such as electricity, regular water supply, etc.
● The scheme excludes those economically weaker sections that fall under the organized
sector and have no access to health insurance.
Health And Wellness Centres: Performance So Far
Under the Ayushman Bharat scheme, 1.5 lakh health and wellness centres are to be made
operational by the end of 2022 and phased targets for each year have been set. At the end of
2020, the target is for 40,000 health and wellness centres to be operational; according to the
scheme’s dashboard, there are about 28,000 operational in January 2019.13 the states with the
highest score in state-wise ranking based on fulfilment of criteria and following the guidelines
were Andhra Pradesh, Gujarat, Odisha, Tamil Nadu and Haryana, as per rankings in September
2019.14
Apart from Odisha, the other states were high income states with fairly good infrastructure.
Other than the exception of Uttar Pradesh, which has the highest number of health and wellness
centres according to the dashboard, most of the health and wellness centres are in other high-
income states like Gujarat, Maharashtra and Tamil Nadu. Also, the allocation for health and
wellness centres in 2019-2020 was Rs. 1600 crores, nearly a fourth of the budget allocated to
PMJAY.
PMJAY: Performance So Far

The National Health Authority (“NHA”), which was created by the Union Cabinet, is
responsible for the design, rollout, implementation and management of PMJAY. Headed by a
full-time CEO at the level of secretary, NHA is governed by a governing board chaired by the
Union Health Minister with 11 other members. Its chief functions include: formulation of
policies, development of operational guidelines, implementation mechanisms, and
coordination with state governments, monitoring and oversight, among others.
Till December 2, 2019, PMJAY has issued over 67 million e-cards to beneficiaries, according
to the PMJAY website and the NHA.16 The scheme is operational in all states except Odisha,
Telangana, West Bengal and New Delhi. Almost 53% of 18,500 hospitals empanelled are
private sector hospitals.17 It has covered over 6.8 million hospitalisations worth Rs 7,160 crore
and has led to the saving of Rs 16,000 crore, as of October 2019, according to the National
Health Authority. Majority of the treatments have taken place in the areas of cancer, heart
ailments, bone-related problems and kidney ailments.18 Among the top specialties under
which patients have availed benefits are oncology, cardiology, orthopaedics, and urology.
At the state level, there is a State Health Authority (“SHA”), headed by a chief executive officer
appointed by the state government, which is responsible for implementing the scheme in the
state. The states have the flexibility to choose between a trust mode, insurance mode and mixed
or hybrid mode.19 In the trust mode, SHA makes the payment to the empanelled hospitals for
the claims approved; in the insurance mode, the insurance company makes the payment; and
in the hybrid mode, the insurance company makes the payment up to a coverage limit and the
claims higher than the limit are paid by the SHA.20 While 17 States or union territories are
implementing PM-JAY via the Trust Mode, 9 states or union territories via Insurance Mode
and 6 States or union territories are using the Mixed Mode which is a combination of Trust
mode and Insurance mode.
******************

Current Policies- Disinvestment Policy, Make in India, Invest in India
Table of Contents:
I. Disinvestment Policy 1
Critique of India’s Disinvestment Policy 4
II. Make in India 4
Objectives 5
Outcomes 5
Review of the Policy 5
II. Invest India 7
I. Disinvestment Policy
Disinvestment is defined as the action of a government aimed at selling or liquidating its

shareholding in a public sector enterprise in order to get the government out of the business of
production and increase its presence and performance in the provision of public goods and basic
public services such as infrastructure, education, health, etc. Funds from disinvestment would also
help in reducing public debt and bring down the debt-to-GDP ratio while competitive public
undertakings would be enabled to function effectively. The government undertakes
disinvestment to reduce the fiscal burden on the exchequer, or to raise money for meeting specific
needs, such as to bridge the revenue shortfall from other regular sources.
Disinvestment of a percentage of shares owned by the Government in public enterprises emerged

as a policy option in the wake of economic liberalization, globalization, and structural reforms
launched in 1991. Initially, it was not conceived as the privatization of existing public enterprises
but as limited sales of equity/shares with the objective of raising some resources to reduce the
budgetary deficit and ensuring market discipline to boost the performance of public enterprises.
Period from 1991-92 - 2000-01
The change process in India began in the year 1991-92, with 31 selected PSUs disinvested
for Rs.3,038 crore. In August 1996, the Disinvestment Commission, chaired by G V Ramakrishna
was set up to advice, supervise, monitor and publicize gradual disinvestment of Indian PSUs. It
submitted 13 reports covering recommendations on privatisation of 57 PSUs. Dr R.H.Patil
subsequently took up the chairmanship of this Commission in July 2001. However, the
Disinvestment Commission ceased to exist in May 2004.

The Department of Disinvestment was set up as a separate department in December, 1999 and was
later renamed as Ministry of Disinvestment from September, 2001. From May, 2004, the
Department of Disinvestment became one of the Departments under the Ministry of Finance.
Against an aggregate target of Rs. 54,300 crore to be raised from PSU disinvestment from 1991-
92 to 2000-01, the Government managed to raise just Rs. 20,078.62 crore (less than half).
Interestingly, the government was able to meet its annual target in only 3 (out of 10) years. In
1993-94, the proceeds from PSU disinvestment were nil over a target amount of Rs. 3,500 crore.
The reasons for such low proceeds from disinvestment against the actual target set were:
1. Unfavourable market conditions

2. Offers made by the government were not attractive for private sector investors
3. Lot of opposition on the valuation process
4. No clear-cut policy on disinvestment
5. Strong opposition from employee and trade unions
6. Lack of transparency in the process
7. Lack of political will
This was the period when disinvestment happened primarily by way of sale of minority stakes of
the PSUs through domestic or international issue of shares in small tranches. The value realized
through the sale of shares, even in blue chip companies like IOC, BPCL, HPCL, GAIL & VSNL,
however, was low since the control still lay with the government.
Most of these offers of minority stakes during this period were picked up by the domestic financial
institutions. Unit Trust of India was one such major institution.
Period from 2001-02 - 2003-04
This was the period when maximum number of disinvestments took place. These took the shape
of either strategic sales (involving an effective transfer of control and management to a private
entity) or an offer for sale to the public, with the government still retaining control of the
management. Some of the companies which witnessed a strategic sale included:
• BHARAT ALUMINIUM CO.LTD.

• CMC LTD.
• HINDUSTAN ZINC LTD.
• HOTEL CORP.OF INDIA LTD. (3 PROPERTIES: CENTAUR HOTEL,JUHU BEACH,
CENTAUR HOTEL AIRPORT,MUMBAI & INDO HOKKE HOTELS LTD.,RAJGIR)
• HTL LTD.
• IBP CO.LTD.
• INDIA TOURISM DEVELOPMENT CORP.LTD.(18 HOTEL PROPERTIES)
• INDIAN PETROCHEMICALS CORP.LTD.
• JESSOP & CO.LTD.
• LAGAN JUTE MACHINERY CO.LTD.,THE

• MARUTI SUZUKI INDIA LTD.

• MODERN FOOD INDUSTRIES (INDIA) LTD.
• PARADEEP PHOSPHATES LTD.
• TATA COMMUNICATIONS LTD.
The valuations realized by this route were found to be substantially higher than those from minority
stake sales.
During this period, against an aggregate target of Rs. 38,500 crore to be raised from PSU
disinvestment, the Government managed to raise Rs. 21,163.68 crore.
Period from 2004-05 - 2008-09
The issue of PSU disinvestment remained a contentious issue through this period. As a result, the
disinvestment agenda stagnated during this period. In the 5 years from 2003-04 to 2008-09, the
total receipts from disinvestments were only Rs. 8515.93 crore.
2009-10-2019-20
A stable government and improved stock market conditions initially led to a renewed thrust on
disinvestments. The Government started the process by selling minority stakes in listed and
unlisted (profit-making) PSUs. This period saw disinvestments in companies such as NHPC Ltd.,
Oil India Ltd., NTPC Ltd., REC, NMDC, SJVN, EIL, CIL, MOIL, etc. through public offers.
However, from 2011 onwards, disinvestment activity slowed down considerably. As against a
target of Rs.40,000 crore for 2011-12, the Government was able to raise only Rs.14,000 crore.
However, the subsequent years saw some improvement and the Government was able to raise Rs.
23,857 crore against a target of Rs. 30,000 crore (Revised Target : Rs. 24,000 crore) in 2012-13
and Rs. 21,321 crore against a target of Rs. 54,000 (Revised Target : Rs. 19,027 crore) in 2013-
14. The achieved target dropped to Rs. 24,338 crore against a target of Rs. 58,425 crore in 2014-
15. In 2015-16 the Government was able to raise Rs. 32,210 crore against a target of Rs. 69,500
crore (Revised Target : Rs. 25,312 crore) and Rs. 46,378 crore against a target of Rs. 56,500
(Revised Target : Rs. 45,500 crore) in 2016-17. In 2017-18, some steep improvement was seen
and the Government was able to raise Rs. 1,00,642 crore against a target of Rs. 72,500 crore
(Revised Target : Rs. 1,00,000 crore) and Rs. 85,063 crore against a target of Rs. 80,000 in 2018-
19.
Further, the achieved target dropped to Rs. 49,828 crore against a target of Rs. 90,000 crore
(Revised Target : Rs. 1,05,000 crore, further the Target Revised downward to Rs.65,000 crore) in
2019-20.
2020-21 onwards
The NDA Government has set an ambitious disinvestment target of Rs. 2,10,000 crore. As such,
2020-21 is likely to see some big ticket disinvestments taking place.

Critique of India’s Disinvestment Policy
Beginning in the early 1950s, with basic industries such as steel, the public sector helped lay strong
economic foundations with a diversified industrial base. In the first 4 decades of Independence,
there was a rapid expansion of the public sector into almost every area of economic activity and in
a short time span became a mega-conglomerate of both basic and consumer goods production units
and service enterprises. Many of them would have delivered a better account of themselves had
they been granted with maximum autonomy, freedom from bureaucratic controls, and made
accountable. Their net profit to turnover has been very low despite the outstanding performance
of a select group of PSEs, such as the oil majors.
Disinvestment was conceived in the context of not only the acute financial exigency of the
Government of India, which was bound to continually provide budgetary support to loss-making
public sector units but also of the failure of the public sector as a whole to provide a reasonable
rate of return on the total investments in various public sector undertakings. Disinvestment in India
has progressed at a snail’s pace, considering the rapid strides in privatization that developing
countries in East and Southeast Asia, Latin America, Central, and Eastern Europe have made by
transfer of ownership of productive assets to private investors, especially in the area of basic
infrastructure (power, telecommunications, oil, and minerals) and financial services.
II. Make in India
Make in India is a major national programme of the Government of India designed to facilitate
investment, foster innovation, enhance skill development, protect intellectual property and build
best in class manufacturing infrastructure in the country. The primary objective of this initiative is
to attract investments from across the globe and strengthen India’s manufacturing sector. It is being
led by the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of
Commerce and Industry, Government of India.
The Make in India programme is very important for the economic growth of India as it aims at
utilising the existing Indian talent base, creating additional employment opportunities and
empowering the secondary and tertiary sector. The programme also aims at improving India’s rank
on the Ease of Doing Business index by eliminating the unnecessary laws and regulations, making
bureaucratic processes easier, making the government more transparent, responsive and
accountable.
The focus of Make in India programme is on 25 sectors. These include: automobiles, automobile
components, aviation, biotechnology, chemicals, construction, defence manufacturing electrical
machinery, electronic systems, food processing, IT & BPM, leather, media and entertainment,
mining, oil and gas, pharmaceuticals, ports and shipping, railways, renewable energy, roads and
highways, space, textile and garments, thermal power, tourism and hospitality and wellness.

Objectives
1. To attract foreign investment for new industrialisation and develop the already existing
industry base in India to surpass that of China.
2. Target of an increase in manufacturing sector growth to 12-14% per annum over the
medium term.
3. To increase the share of manufacturing sector in the country’s Gross Domestic Product
from 16% to 25% by 2022.
4. To create 100 million additional jobs by 2022.
5. To promote export-led growth.
Outcomes
1. Foreign direct investment (FDI) has increased from $16 billion in 2013-14 to $36 billion
in 2015-16 but it has not increased further and is not contributing to Indian
industrialization.
2. FDIs in the manufacturing sector are becoming weaker than before. It has come down to
$7 billion in 2017-18 as compared to $9.6 billion in 2014-15.
3. FDIs in the service sector is $23.5 billion, more than three times that of the manufacturing
sector which shows Indian economy’s traditional strong points of having remarkably
developed computer services.
4. India’s share in the global exports of manufactured products remains around 2% which
is far less than 18% share of China.
Review of the Policy

The policy was intended to usher growth in three key variables of the manufacturing sector —
investments, output, and employment growth.
(a) Progress on the investment front:
i. Slow growth: The last five years witnessed slow growth of investment in the economy.
This is more so when we consider capital investments in the manufacturing sector.
ii. The decline in gross fixed capital formation: Gross fixed capital formation of the private
sector declined to 28.6% of GDP in 2017-18 from 31.3% in 2013-14 (Economic Survey
2018-19).
iii. Increase in private sector’s savings decrease in investment: Household savings have
declined, while the private corporate sector’s savings have increased. This is a scenario
where the private sector’s savings have increased, but investments have decreased, despite
policy measures to provide a good investment climate.
(b) Progress on the output growth front:

i. Double-digit growth only in two quarters: The monthly index of industrial production
(IIP) pertaining to manufacturing has registered double-digit growth rates only on two
occasions during the period April 2012 to November 2019.
ii. Below 3% for the most part: The data show that for a majority of the months, it was 3%
or below and even negative for some months. The negative growth implies a contraction
of the sector.
(c) Progress on the employment growth front:

i. No progress: The employment, especially industrial employment, has not grown to keep
pace with the rate of new entries into the labour market.
Challenges
1. Too much reliance on foreign capital: The bulk of these schemes relied too much on
foreign capital for investments and global markets for produce. This created an inbuilt
uncertainty, as domestic production had to be planned according to the demand and supply
conditions elsewhere.
2. Lack of implementation: The policy implementers needs to take into account the
implications of implementation deficit in their decisions. The result of such a policy
oversight is evident in a large number of stalled projects in India. The spate of policy
announcements without having the preparedness to implement them is ‘policy casualness’.
3. Ambitious target: The scheme set out too ambitious growth rates for the manufacturing
sector to achieve. An annual growth rate of 12-14% is well beyond the capacity of the
industrial sector. Historically India has not achieved it and to expect to build capabilities
for such a quantum jump is perhaps an enormous overestimation of the implementation
capacity of the government.
4. Too many sectors: The initiative brought in too many sectors into its fold. This led to a
loss of policy focus. Further, it was seen as a policy devoid of any understanding of the
comparative advantages of the domestic economy.
5. Timing: Given the uncertainties of the global economy and ever-rising trade
protectionism, the initiative was ill-timed.

II. Invest India
Invest India is the official agency dedicated to promote and facilitate investments in India. It was
set up in 2010, as a joint venture with the Department of Industrial Policy and promotion (DIPP),
Ministry of Commerce and Industries, GOI and Federation of G Indian Chambers of Commerce
and Industry (FICCI) and State Governments of India.
Invest India is a non-profit organization and acts as a single window facilitator the prospective
overseas investors and to those who wish to invest in foreign locations hence, it is a mechanism to
attract investments and can be seen as an Investment Promotion Agency (IPA) in India.
It aims to create an investment friendly climate in India by simplifying the business environment
for investors, provide various support systems like marketing strategies, industry analysis, partners
and location search and promotion policy decision making. It also provides state-specific and
sector-specific information to a foreign investor, assists in expediting approvals for investments
offers quick services and thereby helps the investors to make informed choices about investment
opportunities abroad.
It facilitates meetings with relevant government and corporate officials and organizes actions
investment road shows. It also provides remedial actions on problems faced by investors. It
promotes bilateral investments by MOUs as the one signed in 2016 with Africa (known as Korea
plus).
An Investor Facilitation cell was launched in India portal in September 2015 as a guide to assist
investors. A similar IPA known as the India Brand Equity Foundation (IBEF) set up by GOI,
Ministry of commerce and Industry was registered as a member of world-wide business portal
World Association of Investment Promotion Agencies (WAIPA) in August 2013 to access
information on business / investment opportunities. However, Invest India offers actual
consultancy and advisory services and is intended to become the first reference point for the global
investment community.
Functioning
It facilitates meetings with relevant government and corporate officials and organizes investment
road shows and roundtables. Invest India also provides aftercare services that include initiating
remedial action on problems faced by investors by involving the Government Departments
concerned.
Invest India regularly partners with similar agencies across the world in an endeavour to enhance
bilateral investment and economic engagement.
What makes Invest India unique is its close interaction with state governments (who is also a
stakeholder in the organisation) and private industry organisations. However, no Investor

Facilitation Cell has been set up under Invest India in the States. Several States have set up their
own one-stop facilitation centres to extend assistance and provide guidelines and cooperation to
the investors.
Invest India is intended to become the first reference point for the global investment community –
both domestic and foreign. The Make in India campaign / programme is managed by Invest India.
*************

MODULE II
Indian Agriculture- Agricultural Reforms

Table of Contents
Introduction ........................................................................................................................ 1
Background ......................................................................................................................... 2
Area, Production and Yield ......................................................................................... 2
Splendid phase (sixties to mid-eighties) ...................................................................... 2
The Green Revolution................................................................................................... 3
The stagnation phase (mid eighties & nineties) .......................................................... 4
Policy and initiatives .......................................................................................................... 4
Impact of globalisation on Indian agriculture............................................................ 5
The last two decades: the neglected phase .................................................................. 5
National Agricultural Policy 2000 ............................................................................... 6
Features of the National Agricultural Policy ..................................................................... 7
Recent agricultural sector reforms in India ....................................................................... 8
Government's Initiatives ..................................................................................................... 8
Agricultural Produce Market Committee (APMC) ............................................................ 8
E-NAM ................................................................................................................................ 9
Pradhan Mantri Krishi Sinchai Yojana (PMKSY) ............................................................. 9
Paramparagat Krishi Vikas Yojana (PKVY) ...................................................................... 9
Pradhan Mantri Fasal Bima Yojana (PMFBY) ................................................................ 10
PM-KISAN (Kisan Samman Nidhi) Yojana ...................................................................... 10
PM-KISAN Maan Dhan Yojana ....................................................................................... 10
Essential Commodities Act, 2020(Amendments to the act of 1955) ................................. 11
Farmers' Produce Trade and Commerce (Promotion and Facilitation) Act, 2020
....................................................................................................................................... 12
The Farmers (Empowerment and Protection) Agreement of Price Assurance and
Farm Services Act, 2020 ............................................................................................. 13
The way forward ............................................................................................................... 14
Introduction
Agriculture and allied activities contributed nearly 50 percent to India’s national income at the
time of independence. Around 72 percent of the total working population was engaged in
agriculture. After 70 years of Independence, the share of agriculture in total national income
declined from 50 percent in 1950 to 18 percent in 2016-17. But even today more than 60 percent
of the workforce is engaged in agriculture. In spite of this, the existing conditions of farmers
are pathetic in the country.
Many schemes have been forwarded by the government in seven decades but challenges in
terms of infrastructure, climate, market, inputs etc. are responsible for the poor situation.
Various efforts have been taken by many organizations but there is a need for strong policy to
work in this direction and also to engage the farming community to come up with a probable
solution to this challenge.

Background
The history of Agriculture in India dates back to the Indus Valley Civilization Era and even
before that in some parts of Southern India. Today, India ranks second worldwide in farm
output. Agriculture has always been pivotal for the Indian economy since independence. The
importance of the sector is due to the fact that nearly 55% of the population of the country
derives its livelihood from agriculture. It not only meets the food and nutritional requirements
of 1.3 billion Indians, but also contributes significantly to production, employment and demand
generation through various backward and forward linkages. Moreover, it plays a crucial role in
alleviating poverty and ensuring the sustainable development of the economy. Since
independence, Indian agriculture has come a long way. From the state of food deficit to food
surplus, the sector has witnessed various ups and downs.
Area, Production and Yield

With advancement in techniques and technology, the average yield has increased from mere
522 Kg/ha to 2143 Kg/ha, which is four times greater than with which we started at the time of
independence. Not only has the production of food grains increased but also the production of
other crops besides food grains like sugarcane, cotton, oilseeds, jute etc. has also increased
manifold.
When India became independent in 1947, the agricultural productivity was very low (about 50
million tonnes). The agriculture was mainly rainfed and was being done as subsistence farming
using mainly animate sources of farm power and traditional tools and equipment. More than
80% of the population living in rural areas was dependent on agriculture for their livelihood.
The Royal Commission on Agriculture in its report in 1928 had laid stress on harnessing
science to develop and spread new agricultural technologies for the irrigated, arid and semi-
arid areas. However, the quantum of efforts generated in agricultural engineering research and
education till 1947 was microscopic in relation to the magnitude and diversity of the problems
awaiting solutions. After Independence, India followed an agricultural development strategy
that focused on self-sufficiency in staple foods like wheat and rice. Agrarian reforms were
undertaken in the form of consolidation of holdings, abolition of landlordism etc. In initial
decades the farmer’s seemed to be in a glorious position but policy paralysis, ignorance and
poor vision led to the downfall of the condition.
Splendid phase (sixties to mid-eighties)

After independence when Five Year Development Plans were prepared in 1950, agriculture
was given priority. However, it was only during the sixties, when a number of major schemes
and programs initiated in the country and investment was done for farmer’s upliftment. While
the government imported high-yielding seeds of dwarf wheat from Mexico, and made available
irrigation along with external inputs like chemical fertilizer and pesticides, farmers did the rest.
In 1967, the first harvest after the Green Revolution technology was introduced was a record
three million tonnes higher. Since then, the country has not looked back. From an era of food
imports, India graduated to food self-sufficiency.

But what is little known is the financial impetus the government provided to farmers. In 1970,
the Minimum Support Price (MSP) for wheat was only 76 Rs. per quintal. Giving a higher
assured price to farmers as well as an assured market (by setting up the Food Corporation of
India), the policy makers have to be appreciated for ushering in what was essentially a famine-
avoidance strategy. For a country which witnessed 28 famines during the British Raj, the
remarkable turnaround was only made possible by a valiant farming community.
The splendid period for farmers lasted for a decade-and-a-half. Although the Green Revolution
had bypassed small farmers, an effort was made to paint a rosy picture of prosperity. In reality,
the increase in production did not commensurate with an accompanying increase in farm
incomes. While the successive governments were content with bumper harvests, farming as a
community remained neglected. Coupled with a declining rate of public sector investments,
the demise of agriculture began soon after the mid-1980s.
Agricultural policy followed during this period can be distinguished in two phases:
1. First phase considered from 1947 to mid-sixties,
2. Second phase considered period from mid-sixties to eighties
The first phase of agricultural policy witnessed tremendous agrarian reforms, institutional
changes, development of major irrigation projects and strengthening of cooperative credit
institutions. The most important contribution of land reforms was abolition of intermediaries
and giving land titles to the actual cultivators. This released productive forces and the owner
cultivators put in their best to augment production on their holdings. Land reforms were
important in increasing agricultural production during this phase. The Community
Development Programme decentralized planning and the Intensive Area Development
Programmes were also initiated for regenerating Indian agriculture that had stagnated during
the British period. In order to encourage the farmers to adopt better technology, incentive price
policy was adopted in 1964 and the Agricultural Price Commission was set up to advise the
Government on the fixation of support prices of agricultural crops. Despite the institutional
changes and development programmes introduced by the Government during this phase, India
remained dependent upon foreign countries for food to feed the rising population. The second
phase in Indian agriculture started in the mid 1960s with adoption of new agricultural strategies.
The new agricultural strategy relies on high-yielding varieties of crops, multiple cropping, the
package approach, modern farm practices and spread of irrigation facilities. The biggest
achievement of this strategy has been attainment of self-sufficiency in food grains. Agrarian
reforms during this period took back seat while research, extension, input supply, credit,
marketing, price support and spread of technology were the prime concern of policy makers.
The Green Revolution

To make the country self-sufficient in food grains and reduce our dependence on imports, high
input driven “green revolution” agriculture was introduced in the late 1960s in pockets of north
western and coastal peninsular India. The green revolution package comprised introduction of

high yielding varieties (HYV) of seeds, application of chemical fertilizers, pesticides and
expansion of irrigation. The country had just faced a severe drought in 1967 but was able to
achieve self-sufficiency in food grain production in a period of just five years. While the self-
sufficiency in Indian agriculture was highlighted by the proponents of the green revolution,
from the 1970s the concept came under criticism both on socio-economic and ecological
grounds. The main criticism directed against green revolution successes was that high yields
could only be obtained under certain optimum conditions: decent irrigation, intensive use of
fertilizers, and monoculture and pest control with chemical pesticides.
The stagnation phase (mid eighties & nineties)

Another important facet of progress in agriculture is its success in eradicating its dependence
on imported food grains. Indian agriculture has progressed not only in output and yield terms
but the structural changes have also contributed. All these developments in Indian agriculture
are contributed by a series of steps initiated by Indian Government. Land reforms, inauguration
of Agricultural Price Commission with an objective to ensure remunerative prices to producers,
new agricultural strategy, investment in research and extension services, provision of credit
facilities, and improving rural infrastructure are some of these steps. Notwithstanding these
progresses, the situation of agriculture turned adverse during the post WTO period and this
covered all the sub sectors of agriculture. By 1991, when the World Trade Organisation (WTO)
came into existence, a complacent nation began to shift focus from agriculture. With Europe
and America too building mountains of food, milk and butter surpluses in the same period, the
dominant economic thinking turned to global competitiveness thereby reducing import tariffs
to allow for cheaper imports. At the same time, the entire burden of keeping food inflation
under control was passed on to farmers. Farm output prices globally remained frozen.
According to an UNCTAD study, between 1990 and 2010, a period of 20 years, farm gate
prices had remained static. The dismal trend has since continued. While farmers were denied
their rightful income, huge salary jumps were provided to other sections of the society. Wheat
price for farmers on the other hand increased by 19 times in the same period. Agriculture turned
uneconomical, and repeated demands for providing a level playing field fell on deaf ears.
Policy and initiatives
The next phase in Indian agriculture began in the early 1980s. This period started witnessing a
process of diversification which resulted in fast growth in non-food grains output like milk,
fishery, poultry, vegetables, fruits etc. which accelerated growth in agricultural GDP during
the 1980s. There has been a considerable increase in subsidies and support to the agriculture
sector during this period while public sector spending in agriculture for infrastructure
development started showing decline in real terms but investment by farmers kept on moving
on a rising. Economic reforms (1991) process involved deregulation, reduced government
participation in economic activities, and liberalization. Although there are no direct reforms for
agriculture, the sector was affected indirectly by devaluation of exchange rate, liberalization of
external trade and deprotection to industry. During this period the opening up of the domestic

market due to the new international trade accord and WTO was another change that affected
agriculture. This raised new challenges among policymakers.
Impact of globalisation on Indian agriculture

Agricultural sector reforms and structural adjustments were initiated in India in the 1990s after
it accorded to the World Trade Organization (WTO) agreement to integrate with the global
trade. Globalisation of Indian agriculture though intended to improve the efficiency,
productivity and cost competitiveness has had adverse impacts with both growth rate in
agriculture as well as employment in rural areas declining during the post reform period (from
1990s till date). The growth in agriculture GDP which stood at 4.7 per cent per annum during
the 8th Plan (1992-97) progressively declined to 2.1 per cent per annum during the 9th Plan
(1997-02) and 1.8 per cent per annum during 10th Plan (2002-07). Public investment in
irrigation and other related infrastructure necessary for agricultural growth declined. Growth
rate in agricultural employment in rural areas was 1.38 per cent during 1983 to 1993-94 which
declined to 0.12 per cent during the post reform period of 1993-94 to 2005-06. Reduction in
public sector investment in agriculture, failure to encourage sustainable farming practices, and
unremunerated prices for agricultural produce were among the factors that turned agriculture
into a losing proposition. The damage was more pronounced in cash crops like cotton. Farm
suicides began as a trickle around 1987 or so and since then have taken a toll of nearly 3 lakh
farmers in the past 17 years.
The last two decades: the neglected phase

Farm suicides are the outcome of the continued neglect and apathy of the farm sector. About
20 years after the Green Revolution began, and somewhere in the early 1990s, the global
economic thinking shifted to shrinking agriculture and boosting industry. The World Bank/IMF
and the international financial institutions began to propose that economic growth can only
take place when fewer people are left in agriculture. Meanwhile, the emergence of the World
Trade Organisation in 1995 also shifted the focus to trade. The mainline economic thinking
shifted to reducing support for agriculture and importing highly subsidized cheaper food from
the developed countries. Subsequently, the World Bank and Multinational Corporations have
been pushing for land acquisitions, contract farming, and creation of super markets or in other
words paving the way for corporate agriculture.
The state intervention in the agricultural sector rendered large masses of small and marginal
farmers vulnerable as they found it difficult to compete in the global markets. The farmer is
faced with multiple threats from all fronts- uncertain yield, uncertain price, input (spurious
quality) and technology (limits to groundwater draft). Agriculture products are being
increasingly dumped from developed countries into India. To make agricultural markets
responsive and to allow contract farming, the Agricultural Produce Market Committee
(APMC) Act was revised. Restrictions were removed on futures trading on many commodities
and Foreign Direct Investment (up to 100 per cent) allowed in many agribusiness sectors.
Agriculture became riskier and a low return activity. The increase in input costs far outweighs
the increase in output prices and rise in productivity leading to agricultural profitability rates

going down (CACP, 2000). In addition, agricultural diversification by small and marginal
farmers towards high value crops rendered them food insecure and added to the malnutrition
problem.
National Agricultural Policy 2000
Agriculture is described as the backbone of Indian economy, mainly because of three reasons.
One, agriculture constitutes the largest share of the country's national income though the share
has declined from 55 per cent in early 1950 to around 18 percent in 2006.
Two, more than half of the workforce of India is employed in the agriculture sector.
Three, growth of other sectors and the overall economy depends on the performance of
agriculture to a considerable extent.
Besides, agriculture is a source of livelihood and food security for a large majority of the
population of India. Rapid growth of agriculture is essential not only to achieve self-reliance
at national level but also for household food security and to bring about equity in distribution
of income and wealth resulting in rapid reduction in poverty levels. Because of these reasons,
agriculture is at the core of socio-economic development and progress of Indian society.
Almost 60 per cent of India's population still depends on agriculture for their livelihood.
Objectives of National Agricultural Policy (NAP 2000)

1. Raising the productivity of inputs:
One of the important objectives of India’s agricultural policy is to improve the productivity of
inputs viz., HYV seeds, fertilizers, pesticides, irrigation projects etc.
2. Value-added per hectare:

Another important objective of the country's agricultural policy is to increase per hectare value-
added rather than raising physical output by raising the productivity of agriculture in general
and productivity of small and marginal holdings in particular.
3. Protecting the interest of poor farmers:
One of the important objectives of agricultural policy is to protect the interest of poor and
marginal farmers by abolishing intermediaries through land reforms, expanding institutional
credit support to poor farmers etc.
4. Modernizing Agricultural Sector:
Modernizing the agricultural sector is another important objective of the agricultural policy of
the country. Here the policy support includes introduction of modern technology in agricultural
operations and application of improved agricultural inputs like HYV seeds, fertilizers etc.
5. Checking Environmental Degradation:
Agricultural policy of India has set another objective to check environmental degradation of
the natural base of Indian agriculture.

6. Agricultural Research and Training:

Another important objective of the Indian agricultural policy is to promote agricultural research
and training facilities and to percolate the fruits of such research among the farmers by
establishing a close linkage between research institutions and farmers.
7. Removing Bureaucratic Obstacles:

The policy has set another objective to remove bureaucratic obstacles on the farmers’ Co-
operative societies and self-help institutions so that they can work independently.
The NAP aims at:
● Attaining a growth rate above 4.0 per cent per annum in the agricultural sector.
● Attaining growth which is based on efficient use of resources and also makes provision
for conservation of the soil, water and biodiversity.
● Attainment of growth with equity, i.e., attaining a growth whose impact would be
widespread across regions and different classes of farmers.
● Attaining growth that is demand-driven and caters to the needs of domestic markets and
ensuring maximization of benefit from exports of agricultural products in the face of
challenges from economic liberalization and globalization.
● Attaining a growth that is sustainable technologically, environmentally and
economically.
Features of the National Agricultural Policy
1. Privatization of agriculture and price protection of farmers in the post QR (Quantitative

Restrictions) regime would be part of the government’s strategy to synergise
agricultural growth.
2. Private sector participation would be promoted through contract farming and land
leasing arrangements to allow accelerated technology transfer, capital inflow, assured
markets for crop production especially of oilseeds, cotton and horticultural crops.
3. The policy envisages evolving a ‘National Livestock Breeding Strategy’ to meet the
requirement of milk, meat, egg and livestock products and to enhance the role of
draught animals as a source of energy for farming operations.
4. High priority would be accorded to evolve new location-specific and economically
viable improved varieties of farm and horticulture crops, livestock species and
aquaculture.
5. The restrictions on the movement of agricultural commodities throughout the country
would be progressively dismantled. The structure of taxes on food grains and other
commercial crops would be reviewed.

6. The excise duty on materials such as farm machinery and implements and fertilizers
used as inputs in agricultural production, post-harvest stage and processing would be
reviewed.
7. Rural electrification would be given high priority as a prime mover for agricultural
development.
8. The use of new and renewable sources of energy for irrigation and other agricultural
purposes would be encouraged.
9. Progressive institutionalization of rural and farm credit would be continued for
providing timely and adequate credit to farmers.
10. Endeavour would be made to provide insurance policy for the farmers, right from
sowing of crops to post-harvest operations including market fluctuations in the prices
of agricultural produce.
Recent agricultural sector reforms in India
Agriculture is a state subject as per our Indian Constitution; however, the Central government
also takes measures so that agricultural production can be improved and so the lives of the
farmers. We come across many instances like farmer’s suicide due to failures of crops in a
particular year other problem faced by farmers such as post-harvest losses, crop loss due to
change in rainfall pattern, flood, drought, etc. Central government always comes up with the
solution to all such problems so that the farming community as a whole can get the benefits.
Also, the present government has set a target of doubling the farmer’s income by 2022 which
is yet to achieve and on the road towards this they have come up with many of the initiatives
and the recent one is amendments in Essential Commodities Act, 1955.
Government's Initiatives
Agricultural Produce Market Committee (APMC)
Agricultural Produce Market Committees (APMC) is the marketing board established by the
state governments in order to eliminate the exploitation incidences of the farmers by the
intermediaries.
APMC:
● Agricultural Produce Market Committee (APMC) is a system operating under the State
Government since agricultural marketing is a state subject.
● The APMC has Yards/Mandis in the market area that regulates the notified agricultural
produce and livestock.
● The introduction of APMC was to limit the occurrence of Distress Sale by the farmers
under the pressure and exploitation of creditors and other intermediaries.
● APMC ensures worthy prices and timely payments to the farmers for their produce.

● APMC is also responsible for the regulation of agricultural trading practices. This
results in multiple benefits like:
● Needless intermediaries are eliminated
● Improved market efficiency through a decrease in market charges
● The producer-seller interest is well protected where they are forced to sell their produce
at extremely low prices.
● All the food produced must be brought to the market and sales are made through
auction. The marketplace i.e, Mandi is set up in various places within the states. These
markets geographically divide the state. Licenses are issued to the traders to operate
within a market. The mall owners, wholesale traders, retail traders are not given
permission to purchase the produce from the farmers directly.
E-NAM
● Electronic National agricultural Market works as a pan-India electronic trading portal

which has connected all the existing APMC mandis and provides a unified national
market for agricultural commodities.
● Small Farmers Agribusiness Consortium (SFAC) is the leading agency who
implements e-NAM under the Ministry of Agriculture and Farmers Welfare,
Government of India.
● This portal provides uniformity in the agriculture market, removes asymmetry between
buyers and sellers and promotes real time price discovery based on actual demand and
supply.
Pradhan Mantri Krishi Sinchai Yojana (PMKSY)
● Vision of this scheme is “Har Khet ko Pani".

● This scheme enshrines its priority towards conservation and management of water.
● This scheme is formulated with the vision of extending the coverage of irrigation ‘Har
Khet ko Pani’ and improving water use efficiency ‘More crop per drop’.
● It also provides end to end solutions on source creation, distribution, management, field
application and extension activities.
● It has been formulated by amalgamating ongoing schemes like Accelerated Irrigation
Benefit Programme (AIBP) of the Ministry of Water Resources, River Development &
Ganga Rejuvenation (MoWR, RD&GR), Integrated Watershed Management
Programme (IWMP) of Department of Land Resources (DoLR) and the On Farm Water
Management (OFWM) of Department of Agriculture and Cooperation (DAC).
Paramparagat Krishi Vikas Yojana (PKVY)
● It is an initiative to promote organic farming in the country.

● In this scheme, farmers are encouraged to form groups or clusters and take to organic
farming methods over large areas in the country.
● The produce will be pesticide residue free and will contribute to improve the health of
consumers.
● The aim is to form 1,000 clusters and bring up to 5 lakh acres of agricultural area under
organic farming.
● PKVY also aims at empowering farmers through institutional development through
clusters approach not only in farm practice management, input production, quality
assurance but also in value addition and direct marketing through innovative means.
● It aims to promote natural resource based integrated and climate resilient sustainable
farming systems that ensure maintenance and increase soil fertility, natural resource
conservation, on-farm nutrient recycling and minimize dependence of farmers on
external inputs.
Pradhan Mantri Fasal Bima Yojana (PMFBY)
It is a unique kind of insurance scheme that integrates multiple stakeholders on a single

platform. It provides insurance coverage and financial support to the farmers in the
event of failure of any of the notified crops as a result of natural calamities, pests and
diseases. It aims to stabilize the income of farmers to ensure their continuance in
farming. It encourages farmers to adopt innovative and modern agricultural practices.
A uniform premium of only 2% to be paid by farmers for all Kharif crops and 1.5% for
all Rabi crops. In case of annual commercial and horticultural crops, the premium to be
paid by farmers will be only 5%. The premium rates to be paid by farmers are very low
and balance premium will be paid by the Government to provide a fully insured amount
to the farmers against crop loss on account of natural calamities.
PM-KISAN (Kisan Samman Nidhi) Yojana
It is a direct cash transfer scheme with 100% funding from the Government of India.
An income support of Rs. 6,000 per year is provided to all farmer families (including
famer, wife and minor children) across the country in three equal instalments of Rs.
2000 each at every four months.
PM-KISAN Maan Dhan Yojana
It is a pension scheme for small and marginal farmers of the country. This scheme is
voluntary and contribution based for farmers at the entry of between 18-40 years of age.
In this, farmers will get Rs 3,000 as monthly pension after attaining the age of 60 years.

This scheme is launched to provide income support after a certain age to give them
financial freedom.
NEW FARM LAWS, 2020
The Government with the aim of transforming agriculture in the country and raising
farmers’ income have passed three important legislations. These legislations sought to bring
much needed reforms in the agricultural marketing system such as removing restrictions
of private stock holding of agricultural produce or creating trading areas free of middlemen
and take the market to the farmer.
● Essential Commodities (Amendment) Act, 2020.

● The Farmers' Produce Trade and Commerce (Promotion and Facilitation) Act,
2020,
● The Farmers (Empowerment and Protection) Agreement of Price Assurance and
Farm Services Act, 2020,
Essential Commodities Act, 2020(Amendments to the act of 1955)
● Recently, three ordinances were ordained with the aim at lifting restrictions on key
commodities like cereals, pulses, onion and potato and give freedom to sell their
produce directly or through e-trading platforms.
● Under this a legal framework has enabled farmers to enter into an "agreement" with
private sector players on pricing and purchase which is a step to provide contract
farming.
● The Essential Commodities Act was enacted at a time of food scarcity in the country,
and allowed the government to notify a commodity as “essential” under section 2(A),
take control of its production, supply and distribution, and impose a stock limit.
● The amended law provides a mechanism for the “regulation" of agricultural foodstuffs,
namely cereals, pulses, oilseeds, edible oils, potato, and supplies under extraordinary
circumstances, which include extraordinary price rise, war, famine, and natural
calamity of a severe nature.
● The Farming Produce Trade and Commerce (Promotion and Facilitation) Ordinance
promotes “trade and commerce” outside the physical premises of markets covered by
State Agricultural Produce Marketing legislation.
● It allows any trader to engage in inter-state and intra-state trade of scheduled
agricultural produce with a farmer or another trader in a trade area.

● A trade area is defined as any area, which is outside the APMC acts and existing private
mandis till now the farmers had to sell their produce only at Agriculture Produce Market
Committee (APMC) mandis. The ordinance also provides for an “electronic trading”
transaction platform for agricultural commodities.
● The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm
Services Ordinance, 2020 will allow farmers to engage directly with processors,
aggregators, wholesalers, large retailers and exporters.
● In case of the contract farming ordinance which is promulgated recently by the
President, called the Farmers (Empowerment and Protection) Agreement on Price
Assurance and Farm Services Ordinance 2020, will allows any company, or processors,
or FPO, or Cooperative Society to enter into a contract farming arrangement for a
minimum of one crop cycle in case of crops, or one production cycle, in case of
livestock.
● The maximum period for such an arrangement will be five years. The price paid to the
farmer in such a contract farming arrangement shall be mutually decided. In case of
volatility, a minimum price has to be paid on top of which a premium also needs to be
paid by the company.
Farmers' Produce Trade and Commerce (Promotion and Facilitation) Act, 2020
Need:
● Farmers in India suffered from various restrictions in marketing their produce.

● There were restrictions for farmers in selling agri-produce outside the notified APMC
(Agricultural Produce Market Committee) market yards.
● The farmers were also restricted to sell the produce only to registered licensees of the
State Governments.
● Further, barriers existed in the free flow of agriculture produced between various States
owing to the prevalence of various APMC legislations enacted by the State
Governments.
Provisions:
● It seeks to provide for the creation of an ecosystem where the farmers and traders have
the choice relating to sale and purchase of farmers' produce.
● This facilitates remunerative prices through competitive alternative trading channels.
● It thus promotes efficient, transparent and barrier-free inter-State and intra-State trade
and commerce of farmers' produce.
● The produce will have a reach outside the physical premises of markets or deemed
markets notified under various State agricultural produce market legislations.
● It will also provide a facilitative framework for electronic trading.

● It will also help farmers of regions with surplus produce to get better prices and
consumers of regions with shortages, lower prices.
The Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm
Services Act, 2020
Need:
● Indian agriculture is characterized by fragmentation due to small holding sizes.
● It has certain weaknesses such as weather dependence, production uncertainties and
market unpredictability.
● This makes agriculture risky and inefficient in respect of both input and output
management.
● In this context, this legislation will transfer the risk of market unpredictability from the
farmer to the sponsor.
Provisions:
● This seeks to provide for a national framework on farming agreements.
● It thus seeks to protect and empower farmers to engage with agri-business firms,
processors, wholesalers, exporters or large retailers.
● They can take up farm services and sale of future farming produce at a mutually agreed
remunerative price framework.
● It will also enable the farmer to access modern technology and better inputs.
● It will reduce the cost of marketing and improve income of farmers.
● Farmers will engage in direct marketing thereby eliminating intermediaries resulting in
full realization of price.
● Effective dispute resolution mechanism has been provided for with clear timelines for
redressal.
The Farmers’ protest
Recently, there have been strong protests from farmers, especially from the states of Punjab
and Haryana, against the Farm Acts.
These laws envisage to bring change in some of the key aspects of the farm economy - trade in
agricultural commodities, price assurance, farm services including contracts, and stock limits
for essential commodities.
These laws sought to bring much needed reforms in the agricultural marketing system such as
removing restrictions of private stock holding of agricultural produce or creating trading areas
free of middlemen and take the market to the farmer.
However, farmers are apprehensive that the free-market philosophy supported by these bills
could undermine the Minimum Support Price (MSP) system and make farmers vulnerable to
market forces.

Issues raised by the Farmers & opposition

● Federal Angle: The provisions in the Farmers’ Produce Trade and Commerce
(Promotion and Facilitation) Bill, 2020, provides for unfettered commerce in
designated trade areas outside APMC jurisdictions.
● Apart from this, the bill empowers the Central government to issue orders to States in
furtherance of the law’s objectives.
● However, matters of trade and agriculture being the part of subjects on the State list,
have caused resentment in States.
● Lack of Consultation: First the ordinance route and now the hasty attempt to pass the
Bills without proper consultation adds to the mistrust among various stakeholders
including farmers.
● Also, by allowing ‘trade zones’ to come up outside the APMC area, farmers have
become apprehensive that the new system would lead to eventual exit from the
minimum support price.
● Absence of any regulation in non-APMC mandis: Another issue that is raised by the
farmers is that the proposed bills give the preference for corporate interests at the cost
of farmers’ interests.
● In absence of any regulation in non-APMC mandis, the farmers may find it difficult to
deal with Corporates, as they solely operate on the motive of profit seeking.
● With rising input costs, farmers do not see the free market-based framework providing
them remunerative prices.
● These fears gain strength with the experience of States such as Bihar which abolished
APMCs in 2006. After the abolition of mandis, farmers in Bihar on average received
lower prices compared to the MSP for most crops.
The way forward
Indian farmers are facing great challenges; while income from farm activities is dwindling due
to higher input costs and errant weather, quality of natural resources such as soil nutrient and
water level is also degrading at a fast pace. Number of farmers also declined over the years
meanwhile whereas demand for grains and food is rising and on the other hand land resources
are shrinking due to rapid urbanization. It is clearly evident that as all these challenges are
interlinked and hence it must be tackled simultaneously. In this context the key requirements
are to substantially increase public investment in agriculture and allied activities, ensuring
better price to farmers, reducing input cost through innovation in agricultural techniques,
promotion of climate resilient crop varieties, better and more local storage and distribution of
food grains, improvement of soil and water quality, promotion of integrated and contract
farming, incentives for organic farming, better market access and information etc.
Implementation of reforms is crucial in making any plan effective and delivering the intent in
all its aspects. What is required for a better growth is market integration. Fragmented markets
are the result of notified areas of agriculture producing marketing committees. They do have
an undesirable impact on the competitiveness of agricultural marketing systems. Commodity

exchange for future trading of commodities created a single, nationwide market for various
agricultural commodities through an online trading platform.
Due to rising input costs which include seeds, fertilisers, pesticides, fuel to draw out water and
machinery the profit of the farmers is declining, on the contrary income from the non-farming
sector is increasing at a higher rate. Though the Central Govt announces every year assured
MSP for wheat, rice, sugar cane and cotton but it is also comparably lower than the rising input
cost, and also for other food grains such as pulses there is no assured MSP. Another problem
is that wholesale markets have a long chain of intermediaries which results in a wide gap
between producer and consumer prices. Henceforth direct marketing which removes the
intermediaries and would provide better price to farmers needs to be promoted. Farmer’s
market has shown good results in the case of vegetables and it promoted diversification so,
same can be replicated in food grains.
*************

Unit-II- Chapter-2: Agricultural Pricing

Table of Content
I. Introduction .................................................................................................................. 1
II. Rationale for Agricultural pricing policy ...................................................................... 2
1. Agricultural price and Income .................................................................................. 2
2. Agricultural price and Resource Allocation ............................................................... 2
3. Agricultural price and Income Distribution ............................................................... 2
4. Agricultural price and Industrial Output .................................................................... 3
5. Agricultural price and Technology ............................................................................ 3
6. Agricultural price and International Competitiveness ................................................ 3
III. Agricultural Pricing Policy........................................................................................... 5
1. Proper Remuneration ................................................................................................ 5
2. Income Distribution .................................................................................................. 5
IV. The Commission for Agricultural Costs and Prices ....................................................... 5
I. Introduction
In India, nearly two-third of the population is dependent on agriculture directly or indirectly for
their livelihood. However, agriculture and allied activities like fishing and forestry account for less
than 25 percent of the national income. Agriculture apart from being carried out using inefficient
technology, suffers from extremely low land and labour productivity. Unemployment, disguised
unemployment and poverty are some of the resultant ailments. In such a scenario the role of the
government in providing a system of just and remunerative prices to the farmers is quite important.
A remunerative price for agricultural products ensures that
a) farmers are not forced to sell at below cost prices in slump times (usually harvest times)
b) agricultural prices do not get out of control in a year of crop failure
c) prices that maximize long run growth of the economy prevail
In short, pricing of agricultural products tries to strike a right balance between:
(a) the producers (in terms of ensuring a minimum support price), and
(b) the consumers
In order to maintain a balance, the government has undertaken several measures such as:
(i) declaration of minimum support prices (MSP) and procurement prices for important crops
(ii) procurement of food grains
(iii) strengthening of agricultural marketing and warehousing
(iv) distribution of food grains through a public distribution system.

II. Rationale for Agricultural pricing policy

Fixing of prices of farm products not only determines the income level of the agricultural
producers, it has other significant effects as well. Since a large section of the Indian population
live below or just above the poverty line and spend a sizeable portion of their income on food, the
impact of food prices on budget allocation of individual households is quite significant. Moreover,
agricultural prices influence the pattern of farming in different regions of the country. Higher
prices for the farm produce, other things remaining the same, increase the farmers’ incomes, which
in turn, encourages them to go for newer technology in farming that raises productivity. Following
are the
1. Agricultural price and Income

The marginal and small farmers constitute a sizable majority of the Indian farming population.
This segment of the population does not have the economic power to withhold supply to the market
when prices are low. In case of a sudden drop in prices (which may happen due to bumper harvest)
or strategic collusive behaviour by the crop merchants which artificially suppresses the market
price, the income of the farmers is adversely affected. This affects adversely not only the absolute
level of poverty and inequality, the effect spills over to other sectors of the economy as well in
terms of low demand for industrial products and services. The entire economy may face a
downward trend.
2. Agricultural price and Resource Allocation

As a farmer opts for a more profitable crop in place of a less profitable one, the resources he has
at his command now get channelised for the production of the new crop. This is true at the
individual, micro level. At a broader level also as a large number of farmers start cultivating a
particular lucrative crop, the authorities get pressurized to divert more resources to facilitate its
production and marketing. Thus, every kind of resource gets transferred at the service of the crop
whose prices are more profit generating than the rest.
Before the 1990s there were many restrictions on agricultural products’ exports. As a result,
domestic production decisions were quite immune to international price movements. Crops of
coarse variety such as Jowar, Bajra and Ragi were produced in abundance which catered to the
needs of the poorer sections of the country. After the export restrictions were lifted, the cultivators
realised that production of cash crops such as sunflower, soya and cotton were much more lucrative
since these crops fetched higher prices in the international market. As a consequence, a shift in
production is taking place. Production of coarse cereals has been declining and that of cash crops
is rising. Results of this switching over have not all been positive. Coarse cereals which provide
fodder and fuel as well form a major part of the consumption basket of the poorer sections of the
population, are now available in lesser quantities.
3. Agricultural price and Income Distribution

Effects of changes in agricultural prices on income distribution work through demand and supply
channels. A rise in the agricultural prices, keeping other things constant, would result in a rise in

the income of the agricultural producers through the supply side. On the other hand, it would imply
a contraction in the real income of the purchasers of agricultural commodities. Particularly,
agricultural prices in a poor economy assume much more significance because food constitutes a
large part of the budget of the poor people. Moreover, for the poor, food is a commodity which
has very low price elasticity. This means that if food prices increase the demand for food does not
decrease much because it is a primary need for survival. In sum, therefore, a rise in agricultural
prices would have a strong effect in terms of lowering the real income level of a sizable portion of
the population in the country.
4. Agricultural price and Industrial Output

Output of the industrial sector is affected through both demand and supply as a result of changes
in agricultural prices. As we have seen above, as a result of the rise in agricultural prices the real
income of a large section of the population is adversely affected. Assuming that the rise in real
income of the sellers of agricultural goods is less than the fall in the real income of the rest, the net
effect would be a contraction of the aggregate income. That means people as a whole would be
left with less money to buy industrial goods and services. With output of the industrial sector and
services being demand determined their volume would fall.
5. Agricultural price and Technology

Profitability induces producers to raise the productivity of the crop in question by introducing
newer technology. Punjab and Haryana have been the birthplace of the Green revolution and these
are the areas where there is widespread use of more productive technology. This is explained by
the fact that a large quantity of grain procurement by the government is undertaken from these two
states alone. Regular procurement and higher assured prices offered by the government in
purchasing grains from the farmers have encouraged the farmers in these areas to go for more
productive techniques.
6. Agricultural price and International Competitiveness

In the international market, the Indian agricultural products have to compete with the products of
other countries. Hence, competitive prices are essential to get access to the global agricultural
market. Changes in agricultural prices in our country definitely affect agricultural products in the
global market.


III. Agricultural Pricing Policy

1. Proper Remuneration
Since independence, the government, stressed on the importance of subsidized inputs for
agriculture. But in the 1990s with economic liberalization and globalization, most of these
subsidies were scrapped. Free or low priced electricity to the farmers, subsidized fertilizers, seeds
and irrigation charges are slowly being withdrawn. This has adversely affected the farmers by
increasing the cost of production. In fact, the growth rate of output as well as investments in
agriculture have declined in the 1990s compared to the previous decade. This issue is also related
to the shrinkage of infrastructure facilities in agriculture. In order to cut overall expenditure, the
government is not spending enough on basic infrastructural facilities in agriculture. These
pressures ultimately lower the profitability of agriculture and the authorities are left with no other
choice than raising the prices of agricultural products.
2. Income Distribution
In post-independence India, the government envisaged an elaborate system of Minimum Support
Prices (MSP) and procurement prices. The procurement prices are the ones at which food grains
are purchased from the farmers by the government. This food is subsequently distributed through
the Public Distribution System (PDS) at controlled cheap rates (the issue price). Often the
procurement price is higher than the issue price. The loss is borne by the government as a subsidy
given partly to:
i) The consumers, since the issue price at the PDS outlets is lower than the open market
price; and the remaining part to
ii) The producers, since the procurement price would be higher than the market price.
The government intervention in the prices of agricultural products is not limited to food grains
only. Cotton, jute and other produce also are protected through the Minimum Support Price
scheme. For products which are of non-food nature, various agencies like the CCI (Cotton
Corporation of India), JCI (Jute Corporation of India) and Tobacco Board intervene in the market
to ensure that the prices harm neither the producer nor the buyer.
IV. The Commission for Agricultural Costs and Prices

The Agricultural Prices Commission was constituted in 1965 by the Government of India. The
commission was to advise the government on “the price policy of agricultural commodities with a
view to evolving a balanced and integrated price structure in the perspective of the overall needs
of the economy and with due regard to the interests of the producers and the consumers”. While
recommending the price policy and relative price structure, the Commission was enjoined to keep
in view among other things, “the need to provide incentive to the producer for adopting improved
technology and for maximizing production and the likely effect of the price policy on the rest of
the economy, particularly on the cost of living, on wages, industrial cost structure, etc.”

Operationally there has been failure more in respect of curbing the inflationary pressure on prices
than in maintaining the incentive level of prices. The minimum support prices (MSP) set by the
Commission was always set at a lower level then the procurement prices. Thus, MSP was
meaningless because the Food Corporation of India always procured necessary articles at
procurement prices. In fact, procurement operations by the government many a time led to a price
rise in the open market. Many state governments sought to protect the consumers by setting an
upper limit to the price level but these were never implemented properly. In the years following
1965, severe food crises due to drought resulted in many parts of the country. Starvation deaths
were reported from Andhra Pradesh, Bihar, Bengal and Orissa. Food riots broke out. However,
this was the time when the Green revolution was taking birth largely in Punjab, Haryana and
Western UP. This was possible with newer production technology, chemical fertilizers, HYV
seeds, etc. The rising prices of agricultural articles helped the Green revolution. The increasing
trend of agricultural prices continued till the middle of 1970s. Pricing policy of the government
therefore has been more in favour of the producers than the consumers.
The government renamed the Agricultural Prices Commission as Commission for Agricultural
Costs and Prices (CACP) in the year 1985, the emphasis now being more on costs. The main
objectives of the Government’s price policy for agricultural produce aimed at ensuring
remunerative prices to the growers for their produce with a view to encourage higher investment
and production. Towards this end, minimum support prices for major agricultural products are
announced each year which are fixed after considering the recommendations of the Commission
for Agricultural Costs and Prices (CACP). The CACP while recommending prices considers
important factors, viz.
1) Cost of production
2) Changes in input prices
3) Input/ Output price parity
4) Trends in market prices
5) Inter-crop price parity
6) Demand and supply situation
7) Effect on industrial cost structure
8) Effect on general price level and cost of living
9) International market price situation
10) Parity between prices paid and prices received by farmers (terms of trade)
The cost of production is the most tangible factor and it considers all operational and fixed costs.
Government organizes Price Support Scheme (PSS) of the commodities, through various public
and cooperative agencies such as FCI, CCI, JCI, NAFED, Tobacco Board, etc., for which the
MSPs are fixed. For commodities not covered under PSS, the Government also arranges for market
intervention on specific requests from the States for specific quantities at a mutually agreed price.
The losses, if any, are borne by the Centre and the State on a 50:50 basis.
*******************

Agricultural Finance
I. Introduction 2
II. Need for Agricultural Finance 2
1. Productive and Unproductive credit needs 3
2. Credit needs according to purpose 3
3. Credit needs according to the length of the loan period 4
III. Challenges of Agricultural Finance 4
1. Risks in Agriculture 4
2. Economic lags in agriculture 4
3. Credit for consumption purpose 5
4. Small Farm Size 5
5. Lack of proper Securities 5
IV. Sources of Agricultural Finance 5
A. Non-institutional Sources 5
B. Institutional Sources 5
1. Rural Co-operative Credit Institutions 6
2. Commercial Banks 7
3. Regional Rural Banks (RRBS) 7

I. Introduction
Agriculture plays a crucial role in the development of the Indian economy. It accounts for about
19 percent of GDP and about two thirds of the population is dependent on this sector. Agricultural
finance is a subset of rural finance dedicated to financing agricultural related activities such as
input supply, production, distribution, wholesale, processing and marketing. Financial service
providers face distinct challenges when dealing with this sector. For example, the seasonal nature
of production and the dependence on biological processes and natural resources leave producers
subject to events beyond their control such as droughts, floods or diseases. Modern agriculture has
increased the use of inputs specially for seed, fertilizers, irrigational water, machineries and
implements, which has increased demand for agricultural credit. The adoption of modern
technology, which is capital intensive, has commercialized agricultural production in India.
Besides, the farmers‟ income is seasonal while his working expenses are spread over time. In
addition, farmer's inadequate savings require the uses of more credit to meet the increasing capital
requirements. Furthermore, credit is a unique resource, since it provides the opportunity to use
additional inputs and capital items now and to pay for them from future earnings.
The rural population in India suffers from a great deal of indebtedness and is subject to exploitation
in the credit market due to high interest rates and the lack of convenient access to credit. Rural
households need credit for investing in agriculture and smoothening out seasonal fluctuations in
earnings. Since cash flows and savings in rural areas for the majority of households are small, rural
households typically tend to rely on credit. Rural households need access to financial institutions
that can provide them with credit at lower rates and at reasonable terms than the traditional money-
lender and thereby help them avoid debt-traps that are common in rural India. Timely and adequate
agricultural credit is important for the increase in fixed and working capital for farmers. In order
to provide sufficient credit to the farmers, many institutional and non-institutional agencies are
working. Under institutional agencies cooperative, commercial, regional rural banks and different
Government organizations are supplying credit to the needy farmers on priority basis.
II. Need for Agricultural Finance

The need of finance for agriculture can hardly be overemphasized where its productivity
is still low due to financial constraints. In this context, All India Rural Credit Survey has
observed: “Agricultural credit is a problem when it cannot be obtained; it is also a problem
when it can be had but in such a form that on the whole it does more harm than good.
It may be said that, in India, it is thus a twofold problem of inadequacy and unsuitability
that is perennially presented by agricultural credit”. Undoubtedly, an Indian farmer is not
able to make the maximum use of his time, labour and productive capacity of his land
because of the lack of adequate financial facilities. The need for various types of agricultural
finance can be discussed under the following heads:

1. Productive and Unproductive credit needs

An agriculturist requires credit for the purpose of production and consumption. In other
words, credit needs of the farmers can be classified into two parts
(i) Credit needed for productive purposes
(ii) Credit needed for unproductive purposes
The loans which are used in productive operation of agriculture are called the productive
credit. Productive requirements of the farmers include loans for purchase of cattle,
implements, fertilizers, inputs, better seeds and machinery etc. On the contrary, farmers
need credit for consumption purposes. The loans which are used for consumption purposes
are called the unproductive credit. Between selling agricultural produce and harvesting the
next crop, there is a long interval of time. Most of the farmers do not have sufficient
income to sustain them through this period. Therefore, they have to take loans for meeting
their consumption needs. In the times of drought or flood, when the crops are damaged,
the farmers have to insure such loans. In fact, unproductive loans are also taken for social
purposes like the celebration of the birth of a child, marriage or death of a person in the
family. Litigation too forces the farmers to borrow.
As a result, farmers pay a heavy rate of interest. The repayment of loan and interest
become almost impossible and the burden of debt accumulates. According to an estimate,
more than half of the borrowed funds are utilized for unproductive family expenditure and
only one third is spent on farm improvement.
2. Credit needs according to purpose
According to Reserve Bank of India, credit needs can be classified according to its purpose:
(i) For meeting family expenditure: This type of credit is needed for purchase of
domestic utensils and clothing, paying for medical, educational and other family
expenses etc.
(ii) For non-farm business purpose: Such credit is required for the repair of production
and transport equipment, furniture, construction and repair of building or non-farm
houses and other capital expenditure and non farms business.
(iii) For agricultural purposes: The farmers need credit for the purpose of seed, manure and
fodder, payment of rent, wages, irrigation of crops, hire charges of pumps, purchase of
livestock, repair of agricultural implements, land improvement, for laying of orchard and
capital expenditure on agriculture.
(iv) Other purposes: Such expenditure includes repayment of old debts, deposits with
cooperative agencies, shares and unspecified purposes etc.

3. Credit needs according to the length of the loan period

These credits can be classified into three parts, short term credit, medium term credit and long term
credit:
(i) Short Term Credit
These loans are needed for the purchases of seeds, fertilizers, pesticides, feed and fodder of
livestock etc. The period of such loans is up to 15 months. The farmers also need these loans to
support their family in those years when the crops are not good enough. Main agencies for the
grant of these loans are the money lenders and the co-operative societies. These loans may be both
for productive as well as for unproductive purposes.
(ii) Medium Term Credit

Farmers generally obtain these loans for the purchase of cattle, small agricultural implements,
repair and construction of wells, farm building and fencing etc. The period of these loans ranges
between 15 months to 5 years. These loans are provided by money lenders, relatives of farmers
and commercial banks etc.
(iii) Long Term Credit

It includes the loans for making improvements on land, purchase of expensive machinery, purchase
of additional land, digging of wells and repayment of old debts etc. The amount involved in such
loans is very large. The rate of interest on such loans is generally low. These loans are advanced
for a long period ranging between 5 to 20 years.
III. Challenges of Agricultural Finance
1. Risks in Agriculture
In the agriculture sector, it is difficult to foresee risks and uncertainties. A farmer has to
face numerous risks and uncertainties like droughts, floods etc. It may cause considerable
damage to the crops and earnings of the farmer. Moreover, agricultural produce tends to
deteriorate in storage due to lack of proper storage facilities to hold back surplus when supply
exceeds demand. It leads to further difficulties. Thus, with so much uncertainties, agriculture has
always been a risky affair to be handled by the commercial banks and insurance companies.
2. Economic lags in agriculture

In the agricultural production process, there is a long interval between the reward and effort
especially during the period when costs are incurred. During this period, demand for agricultural
produce may change upsetting the financial adjustments of the farmers. In this way, farmers have
to bear another uncertainty. This becomes an excuse for credit supplying agencies to refuse credit
for farm operations.

3. Credit for consumption purpose

Indian farmers require credit not only for production purposes but also for consumption purposes.
In the case of crop failure, small farmers need credit which they spend on consumption
requirements. Moreover, Indian farmers are accustomed to spend beyond their means on social
and religious functions. In addition to all this, litigation is another important non-productive
requirement for funds.
4. Small Farm Size

In India, the size of farms is very small in comparison to the amount of labour employed and the
extent of the capital invested. Moreover, there is no control over the yield and the quality of the
produce. Thus, there is a lack of security to be offered for loans.
5. Lack of proper Securities

The large farmers have their own resources which enable them to raise funds from the credit
institutions. Small farmers find it extremely difficult to raise credit for their needs. It is due to the
reason that small farmers neither possess proper securities to pledge against loans, nor they have
adequate repaying capacity. As a result, small farmers are forced to go to the money lenders.
IV. Sources of Agricultural Finance

There are two broad sources of agricultural credit in India, discussed as follows:
A. Non-institutional Sources
The non-institutional finance forms an important source of rural credit in India, constituting around
40 percent of total credit in India. The interest charged by the non-institutional lenders is usually
very high. The land or other assets are kept as collateral. The important sources of non-institutional
credit are as follows:
(a) Money-Lenders: Money-lending has been the widely prevalent profession in the rural
areas. The money-lenders charge high rates of interest and mortgage the property of the
cultivators and in some cases even the peasants and members of his family are kept as
collateral.
(b) Other private sources:
(i) Traders, landlords and commission agents: The agents give credit on the
hypothecation of crops which when harvested is used to repay loans.
(ii) Credit from relatives: These credits are generally used for meeting personal
expenditure
B. Institutional Sources
The general policy on agricultural credit has been one of progressive institutionalization aimed at
providing timely and adequate credit to farmers for increasing agricultural production and

productivity. Providing better access to institutional credit for the small and marginal farmers and
other weaker sections to enable them to adopt modern technology and improved agricultural
practices has been a major thrust of the policy. National Bank for Agriculture and Rural
Development (NABARD) is an apex institution established in 1982 for rural credit in India.
It doesn’t directly finance farmers and other rural people. It grants assistance to them
through the institutions described as follows:
1. Rural Co-operative Credit Institutions

Rural credit cooperatives are the oldest and most extensive form of rural institutional
financing in India. The major thrust of these cooperatives in the area of agricultural credit
is the prevention of exploitation of the peasants by moneylenders. The rural credit cooperatives
may be further divided into short-term credit cooperatives and long-term credit cooperatives.
The short-term credit cooperatives provide short-term rural credit and are based on a three-
tier structure as follows:
(a) Primary Agricultural Credit Societies (PACs): These are organized at the village
level. These societies generally advance loans only for productive purposes. The main
objective of a PACS is to raise capital for the purpose of giving loans and supporting the
essential activities of the members such as supply of agricultural inputs at cheap price,
improving irrigation on land owned by members, encourage various income-augmenting
activities such as horticulture, animal husbandry, poultry etc. In India, around 99.5 percent
of villages are covered by PACs.
(b) District Central Cooperative Banks: These cooperatives are organized at the district
level. The PACS are affiliated to the District Central Co-operative Banks (DCCBs). DCCBs
coordinate the activities of district central financing agencies, organize credit for PACs and
carry out banking business.
(c) State Co-Operative Banks: The DCCBs are affiliated to State Co-operative Banks
(SCBs), which coordinate the activities of DCCBs, organize provision of finance for credit
worthy farmers, carry out banking business and act as leader of the Co-operatives in the
States.
Long-term credit Cooperatives:
These cooperatives meet long-term credit requirements of the farmers and are organized at
two levels:
(d) Primary Co-operative Agriculture and Rural Development Banks: These banks
operate at the village level as an independent unit.
(e) State Co-operative Agriculture and Rural Development Banks: These banks
operate at state level through their branches in different villages.

2. Commercial Banks
Commercial Banks (CBs) provide rural credit by establishing their branches in the rural
areas. The share of commercial banks in rural credit was very meager till 1969. The All
India Rural Credit Review Committee (1969) recommended a multi agency approach to the
rural and especially agricultural credit. It suggested the increasing role of the CBs in
providing agricultural credit. Further, under the Social Control Policy introduced in 1967
and subsequently the nationalization of 14 major CBs in 1969 (followed by another six
banks in 1980), CBs have been given a special responsibility to set up their advances for
agricultural and allied activities in the country. The major expansion of rural branches took
place and CBs introduced the Lead Bank scheme and district credit plans for rural areas.
Banks were asked to lend 18 percent of their total advances to agriculture within the quota
of 40 percent of priority sector lending. This expansion of rural credit remained till the
late 1980s. However, during the late 80’s, CBs suffered huge losses due to waiving of
agricultural loans by the government. The financial liberalization process with the adoption
of the Narasimham Committee report in 1993 has necessitated the banks to focus on profitability
and adopt prudential norms. The proportion of bank credit to rural areas especially small borrowers
has come down steadily.
3. Regional Rural Banks (RRBS)

RRBs are the specialized banks established under the RRB Act, 1976 to cater to the needs of the
rural poor. RRBs are set-up as rural-oriented commercial banks with the low cost profile of
cooperatives but with the professional discipline and modern outlook of commercial banks.
Between 1975 and 1987, 196 RRBs were established with over 14,000 branches.
All RRBs were originally conceived as low cost institutions having a rural ethos, local feel and
pro poor focus. However, within a very short time, most banks were making losses. Currently,
RRB's are going through a process of amalgamation and consolidation. 25 RRBs were
amalgamated in January 2013 into 10 RRBs. On 31 March 2016, there were 56 RRBs (post-
merger) covering 525 districts with a network of 14,494 branches. As of 1st April 2020, there are
43 RRBs in India. After amalgamation, RRBs have become quite large covering most parts of the
State. Increased coverage of districts by RRBs makes them an important segment of the Rural
Financial Institutions (RFI). The branch network of RRBs in the rural area form around 43 per
cent of the total rural branches of commercial banks. A large number of branches of RRBs were
opened in the unbanked or under-banked areas providing services to the interior and far-flung areas
of the country. RRBs primarily cover small and marginal farmers, landless laborers, rural artisans,
small traders and other weaker sections of the rural community. However, even after so many
years, the market share of RRBs in rural credit remains low and have suffered huge losses. In
recent years the Government has initiated reforms to improve the functioning of RRBs.
**************

Industry: Relative roles of large -scale industries post reforms
Table of Contents:
What are Large Scale Industries? 1
Performance of Indian Industries post 1991 reforms 4
Major Industries in India- Post-reforms 6
Trends in Industrial Sector 8
The role and forms of foreign capital 10

Foreign Direct Investment (FDI) 11
Foreign direct investment and growth 11
FDI in India 12
Merits of Foreign Direct Investment 13
Demerits of Foreign Direct Investment 14
Classifications of Foreign Direct Investment 14
Regulatory Framework 14
Foreign Institutional Investment (FII) 16
FII Vs FDI: International standards and Indian definition: 17
What are Large Scale Industries?

Large scale industries are referred to as those industries that are having huge infrastructure,
raw material, high manpower requirements and large capital requirements. Those
organisations having a fixed asset of more than 10 crore rupees are considered to be large
scale industries.
The growth of the economy is very much dependent on these industries. Such industries work
towards bringing in foreign reserves, generating employment opportunities and paving the
way for economic growth.
Large Scale Industries in India
Large scale industries in India can be categorised into the following types of industries:
1. Iron and Steel Industry
Department of Economics ,R.A.P.C.C.E. (Autonomous) 1

2. Automobile Industry
3.Textile Industry
4.Telecommunication Industry
5. Information Technology Industry
6. Petroleum and Natural Gas Industry
7. Silk Industry
8. Fertiliser Industry
9. Jute Industry
10. Paper Industry
11. Cement Industry
Advantages of Large- Scale Industries
Large scale industries offer the following advantages:
1. Large scale industries use the latest machinery and technology, which helps in improving
the production. Due to large scale production, the companies benefit as well as it is beneficial
for the economy as a whole.
2. Large scale industries help in the development of industries in the economy, which is
essential for industrialisation.
3. Large scale industries require skilled workers and therefore, the development of large-
scale industries help in the development of a skilled workforce in the country.
4. Large scale industries require large amounts of raw materials, which opens up employment
opportunities in the related sectors.
5. As large -scale industries are involved in large scale production; it provides an opportunity
to reduce the cost of goods and services as these are produced in bulk.
6. Large scale industries help in the development of small -scale industries, as the
requirement of items cannot be met only by a single industry.
Hence, small scale industries are required to produce the ancillary products and therefore
small- scale industries thrive on the growth of large -scale industries.
7. Large scale industries can incur expenses required for research and development as they
have a high influx of capital. Such research will help in generating more profits in future.
8. Large scale industries also help improve the quality of life of its employees by providing
them with adequate remuneration and other benefits.

Major Industrial Regions of India-

1. Mumbai-Pune Industrial Region
2. Hugli Industrial Region.
3. Bangalore-Tamil Nadu Industrial Region
4. Gujarat Industrial Region
5. Chotanagpur Industrial Region
6. Vishakhapatnam-Guntur Industrial Region
7. Gurgaon-Delhi-Meerut Industrial Region
8. Kollam-Thiruvananthapuram Industrial Region.
Minor Industrial Regions–

1. Ambala-Amritsar in Haryana-Punjab.
2. Saharanpur-Muzaffamagar-Bijnaur in Uttar Pradesh.
3. Indore-Dewas-Ujjain in Madhya Pradesh.
4. Jaipur-Ajmer in Rajasthan.
5. Kolhapur-South Kannada in Maharashtra-Karnataka.
6. Northern Malabar in Kerala.
7. Middle Malabar in Kerala.
8. Adilabad-Nizamabad in Andhra Pradesh.
9. Allahabad-Varanasi-Mirzapur in Uttar Pradesh.
10. Bhojpur-Munger in Bihar.
11. Durg-Raipur in Chhattisgarh.
12. Bilaspur-Korba in Chhattisgarh.

13. Brahmaputra Valley in Assam.
Performance of Indian Industries post 1991 reforms

In 1990-91, industry (manufacturing) contributed 26 per cent of India’s gross domestic
product (GDP) (15%), employing 15 per cent (12%) of the workforce and using 39 per cent
(24%) of the economy’s net renewable capital stock.1 In the 1980s, industry was the
economy’s ‘leading’ sector, growing annually at over 6 per cent, while the domestic output
grew annually at around 5.5 per cent and exports (two-third of which were manufactures) at
8.5 per cent (in current dollar terms). The decade witnessed modernisation of the
production structure with a step up in infrastructure, de-licensing of investment and
output controls, and a shift in trade policy from quotas to tariff. However, in 1991, the
economy faced a liquidity crisis on account of (i) the Gulf War (leading to the drying up
of inward remittances and project exports), (ii) collapse of the Soviet Union (then
India’s largest trading partner) and (iii) the domestic political uncertainty, paralysing

policy making. Encouraged by the industrial and export boom of the 1980s, the orthodox
economic reforms initiated in 1991 sought to (i) make a bonfire of the remaining output and
investment controls that are said to have throttled private initiative; (ii) cut back public
investment as it is believed to have ‘crowded out’ private investment; (iii) undermine the
protective and promotional measures for small-scale industries that are claimed to have bred
inefficiency and failed to expand labour intensive manufactures; and (iv) sell minority equity
holding in public sector enterprises (called ‘disinvestments’) to reduce government’s fiscal
deficit. Policy makers apparently perceived an opportunity in the crisis to quickly undo
India’s state-led, inward-oriented industrialisation strategy, as it is claimed to have delivered
neither adequate growth nor measurable equity—unlike in East Asia and China that have
succeeded in export-oriented industrialisation following market friendly policies.
The growth rate of the industrial sector and the manufacturing has fluctuated widely in the
post-reforms period. After registering an increase in the growth rate in the early years, it
decelerated in the late 1990s. After an expected dip in 1991-92 on account of the crisis and
adjustment, output boomed for four years, peaking in 1995-96 at 13 per cent—following the
predicted ‘J’ curve. The average annual growth rate over the 17-year period from 1991-92 to
2008-09 was 6.6 per cent.

Post 2008-09, the industrial sector, consisting of manufacturing, mining, electricity, and
construction, showed remarkable recovery and steady growth for three years but lost
momentum thereafter owing to a combination of supply-side and demand-side constraints.
The long-term average annual growth of industries comprising mining, manufacturing, and
electricity, during the post-reform period between 1991-2 and 2011-12, averaged 6.7 per cent
as against GDP growth of 6.9 per cent. Inclusion of construction in industry raises this
growth to 7.0 per cent. The share of industry, including construction, in GDP remained
generally stable at around 28 per cent in the post-reform period.
Major Industries in India- Post-reforms

1. Cement Industry
○ India is the second-largest producer of cement in the world. It accounts for more than 8% of
the global installed capacity. India has a lot of potential for development in the infrastructure
and construction sector and the cement sector is expected to largely benefit from it.
Furthermore, on the back of rising rural housing demand, the consumption of cement in
India has been growing consistently as it is one of the cheapest products to buy in terms of
Rs./kg. Strong expansion of the industrial sector, which has fully recovered from the
COVID-19 pandemic shock, is one of the main demand drivers for the cement industry. As a
result, there is a strong potential for an increase in the long-term demand for the cement
industry. Some of the recent initiatives, such as the development of 98 smart cities, are
expected to significantly boost the sector.
○ In 2023, the market size of India’s cement industry reached 3.96 billion tonnes and is
expected to touch 5.99 billion tonnes by 2032, exhibiting a CAGR of 4.7% during 2024-32.
As India has a high quantity and quality of limestone deposits throughout the country, the
cement industry promises huge potential for growth. India has a total of 210 large cement
plants, of which 77 are in Andhra Pradesh, Rajasthan, and Tamil Nadu. Nearly 32% of
India's cement production capacity is based in South India, 20% in North India, 13% in
Central, 15% in West India, and the remaining 20% is based in East India. India's cement
production reached 374.55 million tonnes in FY23, a growth rate of 6.83% year-on-year
(yoy).
○ India’s cement production for FY24 is expected to grow by 7-8% driven by
infrastructure-led investment and mass residential projects.
○ The consumption of cement in India is expected to grow at a CAGR of 5.68% from FY16 to
FY22. India's cement industry, as per CRISIL Ratings, plans to increase its capacity by
150-160 MT between FY25 and FY28, building upon the 119 MT annual capacity addition
over the last five years, to cater to growing infrastructure and housing demands.
○ Cement consumption is expected to reach 450.78 million tonnes by the end of FY27.
○ Government Initiatives- The Union Budget allocated Rs. 13,750 crore (US$ 1.88 billion) and
Rs. 12,294 crore (US$ 1.68 billion) for Urban Rejuvenation Mission: AMRUT and Smart
Cities Mission and Swachh Bharat Mission. Government schemes like the Pradhan Mantri

Awas Yojana (PMAY) for affordable housing and PM Gati Shakti National Master Plan for
infrastructure are driving cement demand. PM Gati Shakti's focus on transport networks and
PMAY's expansion will further increase cement consumption in coming years.
2. Iron and Steel Industry
○ One of the primary forces behind industrialization has been the use of metals. Steel has
traditionally occupied a top spot among metals. Steel production and consumption are
frequently seen as measures of a country's economic development because it is both a
raw material and an intermediary product. Therefore, it would not be an exaggeration to
argue that the steel sector has always been at the forefront of industrial progress and that
it is the foundation of any economy. The Indian steel industry is classified into three
categories - major producers, main producers, and secondary producers.
○ India is the world’s second-largest producer of crude steel, with an output of 125.32 MT
of crude steel and finished steel production of 121.29 MT in FY23.
○ India’s steel production is estimated to grow 4-7% to 123-127 MT in FY24.
○ The growth in the Indian steel sector has been driven by the domestic availability of raw
materials such as iron ore and cost-effective labour. Consequently, the steel sector has
been a major contributor to India's manufacturing output.
○ The Indian steel industry is modern, with state-of-the-art steel mills. It has always strived
for continuous modernisation of older plants and up-gradation to higher energy
efficiency levels.
○ The steel industry and its associated mining and metallurgy sectors have seen major
investments and developments in the recent past.
○ According to the data released by the Department for Promotion of Industry and Internal
Trade (DPIIT), between April 2000-March 2024, Indian metallurgical industries
attracted FDI inflows of US$ 17.51 billion.
○ In FY22, demand for steel was expected to increase by 17% to 110 million tonnes,
driven by rising construction activities.
○ In the past 10–12 years, India's steel sector has expanded significantly. Production has
increased by 75% since 2008, while domestic steel demand has increased by almost
80%. The capacity for producing steel has grown concurrently, and the rise has been
largely organic.
○ In FY23, the production of crude steel and finished steel stood at 125.32 MT and 121.29
MT, respectively.
○ The annual production of steel is anticipated to exceed 300 million tonnes by 2030-31.
By 2030-31, crude steel production is projected to reach 255 million tonnes at 85%
capacity utilisation achieving 230 million tonnes of finished steel production, assuming a
10% yield loss or a 90% conversion ratio for the conversion of raw steel to finished
steel. With net exports of 24 million tonnes, consumption is expected to reach 206
million tonnes by the years 2030–1931. As a result, it is anticipated that per-person steel
consumption will grow to 160 kg.

○ In February 2024, The government has implemented various measures to promote

self-reliance in the steel industry.
○ Under the Union Budget 2023-24, the government allocated Rs. 70.15 crore (US$ 8.6
million) to the Ministry of Steel.
3. Textiles Industry
○ India’s textiles sector is one of the oldest industries in the Indian economy, dating back
to several centuries. The industry is extremely varied, with hand-spun and hand-woven
textiles sectors at one end of the spectrum, with the capital-intensive sophisticated mills
sector at the other end. The fundamental strength of the textile industry in India is its
strong production base of a wide range of fibre/yarns from natural fibres like cotton, jute,
silk, and wool, to synthetic/man-made fibres like polyester, viscose, nylon and acrylic.
○ The market for Indian textiles and apparel is projected to grow at a 10% CAGR to reach
US$ 350 billion by 2030. Moreover, India is the world's 3rd largest exporter of Textiles
and Apparel. India ranks among the top five global exporters in several textile
categories, with exports expected to reach US$100 billion.
○ The textiles and apparel industry contributes 2.3% to the country’s GDP, 13% to
industrial production and 12% to exports. The textile industry in India is predicted to
double its contribution to the GDP, rising from 2.3% to approximately 5% by the end of
this decade.
○ Textile manufacturing in India has been steadily recovering amid the pandemic. The
Manufacturing of Textiles Index for the month of April 2024 is 105.9.
○ India is the world’s largest producer of cotton. In the first advances, the agriculture
ministry projected cotton output for 2023-24 at 31.6 million bales. According to the
Cotton Association of India (CAI), the total availability of cotton in the 2023-24 season
has been pegged at 34.6 million bales, against 31.1 million bales of domestic demand,
including 28 million bales for mills, 1.5 million for small-scale industries, and 1.6
million bales for non-mills. Cotton production in India is projected to reach 7.2 million
tonnes (~43 million bales of 170 kg each) by 2030, driven by increasing demand from
consumers. It is expected to surpass US$ 30 billion by 2027, with an estimated 4.6-4.9%
share globally.
○ Exports for 247 technical textile items stood at Rs. 5,946 crore (US$ 715.48 million)
between April-June (2023-24).
○ India’s textiles industry has around 4.5 crore employed workers including 35.22 lakh
handloom workers across the country..
○ Total FDI inflows in the textiles sector stood at US$ 4.47 billion between April 2000-
March 2024.
○ India enjoys a comparative advantage in terms of skilled manpower and in cost of
production, relative to major textile producers.
○ In June 2022, Minister of Textiles, Commerce and Industry, Consumer Affairs & Food
and Public Distribution, Mr. Piyush Goyal, stated that the Indian government wants to
establish 75 textile hubs in the country.

4. Gems & Jewellery Industry

○ As of January 2022, India’s gold and diamond trade contributed ~7% to India’s Gross
Domestic Product (GDP). The gems and jewellery sector employs ~5 million. Based on
its potential for growth and value addition, the Government declared the gems and
jewellery sector as a focus area for export promotion.
○ The Government has undertaken various measures recently to promote investment and
upgrade technology and skills to promote ‘Brand India’ in the international market.
○ The Government has permitted 100% FDI in the sector under the automatic route,
wherein the foreign investor or the Indian company do not require any prior approval
from the Reserve Bank or the Government of India.
○ The Indian Government also signed a Comprehensive Economic Partnership Agreement
(CEPA) with the United Arab Emirates (UAE) in March 2022, this will allow the Indian
Gems and Jewellery industry to further boost exports. CEPA will provide the industry
with duty-free access to the UAE market. India’s Gems Jewellery Export Promotion
Council (GJEPC) aims to triple its exports to the UAE post the CEPA.
○ India’s gems and jewellery market size was at US$ 78.50 billion in FY21. Growth in
exports is mainly due to revived import demand in the export market of the US and the
fulfilment of orders received by numerous Indian exhibitors during the Virtual
Buyer-Seller Meets (VBSMs) conducted by GJEPC.
○ In FY24, India's gems and jewellery exports were at US$ 22.27 billion, a 14.94% decline
compared to the previous year's period. Exports of gems & jewellery stood at US$
2074.85 million in April 2024.
○ Cumulative FDI inflows in diamond and gold ornaments in India stood at US$ 1,276.52
million between April 2000-March 2024, according to the Department for Promotion of
Industry and Internal Trade (DPIIT). In January 2024, Prime Minister Mr. Narendra
Modi inaugurated the commencement of the Bharat Ratnam Mega CFC at the SEEPZ
SEZ in Mumbai in virtual mode (remotely). Bharat Ratnam Mega CFC is a
Socio-economic project promoted by the Ministry of Commerce and Industry, GJEPC
India and SEEPZ SEZ authority to drive exports from the country. This project aims at
creating a world-class infrastructure for promoting the inherent skills of the gems &
jewellery manufacturing industry. The Mega Common Facilitation Centre provides a
supportive and collaborative environment for entrepreneurs, MSMEs and small
businesses to grow and thrive.
○ India’s gems and jewellery industry is expected to reach US$ 100 billion by 2027.
5. IT Industry
○ The IT & BPM sector has become one of the most significant growth catalysts for the
Indian economy, contributing significantly to the country’s GDP and public welfare. The
IT industry accounted for 7.5% of India’s GDP in FY23, and it is expected to contribute
10% to India’s GDP by 2025.

○ As innovative digital applications permeate sector after sector, India is now prepared for
the next phase of growth in its IT revolution. India is viewed by the rest of the world as
having one of the largest Internet user bases and the cheapest Internet rates, with 76
crore citizens now having access to the Internet.
○ The current emphasis is on the production of significant economic value and citizen
empowerment, thanks to a solid foundation of digital infrastructure and enhanced digital
access provided by the Digital India Programme. India is one of the countries with the
quickest pace of digital adoption. This was accomplished through a mix of government
action, commercial innovation and investment, and new digital applications that are
already improving and permeating a variety of activities and different forms of work,
thus having a positive impact on the daily lives of citizens.
○ India’s rankings improved six places to the 40th position in the 2022 edition of the
Global Innovation Index (GII).
○ According to the National Association of Software and Service Companies
(NASSCOM), the Indian IT industry’s revenue touched US$ 227 billion in FY22, a
15.5% YoY growth and was estimated to have touched US$ 245 billion in FY23.
○ The IT spending in India is estimated to record a double-digit growth of 11.1% in 2024,
totalling US$ 138.6 billion up from US$ 124.7 billion last year.
○ The Indian software product industry is expected to reach US$ 100 billion by 2025.
Indian companies are focusing on investing internationally to expand their global
footprint and enhance their global delivery centres.
○ The data annotation market in India stood at US$ 250 million in FY20, of which the US
market contributed 60% to the overall value. The market is expected to reach US$ 7
billion by 2030 due to accelerated domestic demand for AI.
○ India's IT industry is likely to hit the US$ 350 billion mark by 2026 and contribute 10%
towards the country's gross domestic product (GDP), Infomerics Ratings said in a report.
○ The export of IT services has been the major contributor, accounting for more than 53%
of total IT exports (including hardware).
○ BPM and engineering and R&D (ER&D) and software products exports accounted for
22% and 25%, respectively of total IT exports during FY23.
○ Exports from the Indian IT industry stood at US$ 194 billion in FY23. The export of IT
services was the major contributor, accounting for more than 51% of total IT exports
(including hardware). BPM, and Software products and engineering services accounted
for 19.3% and 22.1% each of total IT exports during FY23.
○ The IT industry added 2.9 lakh new jobs taking the industry’s workforce tally to 5.4
million people in FY23.
○ In March 2024,The Cabinet approved an allocation of over Rs. 10,300 crore (US$ 1.2
billion) for the IndiaAI Mission, marking a significant step towards bolstering India’s AI
ecosystem.
○ India is the topmost offshoring destination for IT companies across the world. Having
proven its capabilities in delivering both on-shore and off-shore services to global

clients, emerging technologies now offer an entire new gamut of opportunities for top IT
firms in India.
○ By 2026, widespread cloud utilisation can provide employment opportunities to 14
million people and add US$ 380 billion to India's GDP.
6. Oil Industry
○ The oil and gas sector is among the eight core industries in India and plays a major role
in influencing the decision-making for all the other important sections of the economy.
○ India’s economic growth is closely related to its energy demand, therefore, the need for
oil and gas is projected to increase, thereby making the sector quite conducive for
investment. India retained its spot as the third-largest consumer of oil in the world as of
2023.
○ The Government has adopted several policies to fulfil the increasing demand. It has
allowed 100% foreign direct investment (FDI) in many segments of the sector, including
natural gas, petroleum products and refineries, among others. The FDI limit for public
sector refining projects has been raised to 49% without any disinvestment or dilution of
domestic equity in existing PSUs. Today, it attracts both domestic and foreign
investment, as attested by the presence of companies such as Reliance Industries Ltd
(RIL) and Cairn India.
○ The industry is expected to attract US$ 25 billion investment in exploration and
production.
○ India is already a refining hub with 23 refineries, and expansion is planned for tapping
foreign investment in export-oriented infrastructure, including product pipelines and
export terminals.
○ India’s crude oil production stood at 29.4 MMT during April-March 2024.
○ As of July 2023, India’s oil refining capacity stood at 253.92 million metric tons per
annum (MMTPA), making it the second-largest refiner in Asia.
○ Private companies owned about 35% of the total refining capacity.
○ India is expected to be one of the largest contributors to non-OECD petroleum
consumption growth globally. The consumption of petroleum products has increased
from 158.4 million metric tons (MMT) in the fiscal year 2013-14 to 234.3 MMT in the
fiscal year 2023-24.
○ High-Speed Diesel was the most consumed oil product in India and accounted for 38.6%
of petroleum product consumption in FY23.
○ Rapid economic growth is leading to greater outputs, which in turn is increasing the
demand of oil for production and transportation. Crude oil consumption is expected to
grow at a CAGR of 4.59% to 500 million tonnes by FY40 from 223.0 million tonnes in
FY23.
○ India is planning to double its oil refining capacity to 450-500 million tonnes by 2030.
7. Tea Plantation Industry

○ The Indian tea industry dates back to 172 years, and occupies a significant and distinct
position in the Indian economy.
○ India is the second-largest producer of tea globally. Indian tea is one of the finest in the
world owing to strong geographical indications, heavy investment in tea processing
units, continuous innovation, augmented product mix, and strategic market expansion.
○ As of 2022, a total of 6.19 lakh hectares of area was cultivated in India for tea
production. India is also among the world's top tea-consuming countries, with 80% of
the tea produced in the country consumed by the domestic population.
○ In 2022-23, India’s tea production stood at 1,374.97 million kgs, compared to 1,344.40
million kg in 2021-22.
○ The Assam Valley and Cachar are the two tea-producing regions in Assam. In West
Bengal, Dooars, Terai and Darjeeling are the three major tea producer regions.
○ The southern part of India produces about 17% of the country's total production with the
major producing states being Tamil Nadu, Kerala, and Karnataka.
○ India is among the top 5 tea exporters in the world making about 10% of the total
exports.
○ From April-February 2024, the total value of tea exports from India stood at US$ 752.85
million.
○ Indian Assam, Darjeeling, and Nilgiri tea are considered one of the finest in the world.
○ Majority of the tea exported out of India is black tea which makes up about 96% of the
total exports.
○ The types of tea exported through India are black tea, regular tea, green tea, herbal tea,
masala tea and lemon tea. Out of these, black tea, regular tea, and green tea make up
approximately 80%, 16% and 3.5% of the total tea exported from India.
○ India's total tea exports during 2022-23 in quantity were 228.40 million kg and worth
US$ 793.78 million.
○ During the financial year 2021-22 period, India exported tea in quantity 200.79 million
kg worth US$ 726.82 million.
○ In 2022-23, the unit price of tea was US$ 3.48 per kg. From April 2023-January 2024,
the quantity of India’s total tea exports stood at 199.84 million kg.
○ India exports tea to more than 25 countries throughout the world. Russia, Iran, UAE,
USA, the UK, Germany, and China are some of the major importers of tea from India.
○ To help the Indian exporters to market tea of Indian origin in overseas markets on a
sustained basis, the Tea Board of India started a scheme: Promotion for packaged tea of
Indian origin. The scheme assists in promotional campaigns - up to 25% of the cost
reimbursement, display in international departmental stores, product literature and
website development, and inspection charges reimbursement of up to 25% of the
charges.
○ The Tea Board also provides subsidies to domestic exporters to participate in
international fairs and exhibitions. The aim is to provide a platform for exporters to
showcase their products at international events for promotion.

○ Road Ahead-The primary driving force behind the sector is the widespread consumption
of tea across all socioeconomic strata in India. The country's rapid economic
development and rising disposable income of the middle class are also accelerating the
industry's growth. The rise in demand for packaged tea in urban and rural areas, where
there is less chance of adulteration and simpler storage, is also helping the Indian tea
sector expand rapidly.
○ In the next few years, the tea industry’s growth is anticipated to be driven by the rising
popularity of cafes and lounges serving different beverage varieties. The industry's
distribution networks, which include supermarkets and neighbourhood "Kirana" stores,
will also aid in the industry's growth. The RTD (ready to deliver) category has the
potential to grow favourably, as consumers explore more convenient foods and
beverages as a result of busier lifestyles and growing workforce participation. An
increase in packaging and flavour innovations will also fuel the market in the future.
8. Sugar Industry
○ The world's top producer, user, and second-largest exporter of sugar is now India.
○ Over 5,000 lakh metric tonnes (LMT) of sugarcane were produced in the nation during
the sugar season of 2021–2022, of which 3,574 LMT were crushed by sugar mills to
generate 394 LMT of sugar (sucrose). Out of this, 359 LMT of sugar was produced by
sugar mills, while 35 LMT of sugar was diverted to the manufacturing of ethanol.
○ The season has proven to be a turning point for the Indian sugar industry, according to
the Ministry of Consumer Affairs. The season saw the creation of all records pertaining
to sugarcane production, sugar production, sugar exports, cane procurement, cane dues
paid, and ethanol production.
○ The exports, which totaled roughly 109.8 LMT, were made without any financial aid up,
which is another season highlight. This achievement of the Indian sugar industry was
made possible by favourable worldwide prices and government policies in India. These
exports brought in roughly Rs. 40,000 crore (US$ 4.9 billion) in foreign money for the
nation.
○ According to the Indian Sugar Mills Association (ISMA), Indian mills have produced
25.4 million tonnes of sugar since the current season began on October 1, 2022,
registering a 5.39% growth year-on-year.
○ Mills have produced 22.8 million tonnes of the sweetener between October 1, 2022 -
February 15, 2023, as compared to 22.2 million tonnes during the year-ago period,
ISMA said. This was after the diversion of sugar for ethanol.
9. Cottage Industry
○ A cottage industry is a small business engaged in manufacturing and operated from the
owner’s homes.
○ Cottage industries form an important part of the Indian economy. Being a developing
economy, cottage industries create employment opportunities and drive incomes,

preserve local customs and traditions and popularise them by producing unique local
products, allow flexibility to owners and workers, and so on.
○ This industry caters to multiple sectors such as handloom, handicrafts and textiles.
Starting and operating a cottage industry business requires low capital and other
resources, which allows many families to start such businesses.
○ However, given the lower capital Investment, these industries operate using cheap and
outdated technology. This may lead to higher costs as well as more time to produce a
single unit.
○ Due to this cottage industries face competition from larger firms using modern
technology and efficient means of production.
○ As of 2020, around 65% of Indians were living in rural areas; of these, the majority have
low incomes and resources. Cottage industries are an important source of earning for
them. These industries support many Indians, lifting them from poverty. Cottage
industries also increase India’s export potential. Due mainly to these factors, the cottage
industry is called the backbone of India’s economy.
Trends in Industrial Sector
1. On 24 March 2020, when the 21-day national lockdown was imposed to prevent the
proliferation of COVID-19, it was expected that the economic activities would freeze
except for some essential services. The IIP growth started contracting immediately after
the lockdown, reaching its historical low in April-2020. The calibrated and gradual
unlocking process led to the resumption of economic activities translating into positive
growth in IIP for the first time in September-2020 since the lockdown. The subsequent
months have seen consistent improvement and the sub-components of the IIP have
gradually inched towards their pre-COVID levels, a reflection of the beginning of the
revival of the economy. The improvement has been broad-based in both the core and
non-core components of the IIP with a few exceptions like the petroleum products in the
core group that are still below the normal level.
2. The eight-core industries that support infrastructure, such as coal, crude oil, natural gas,
refinery products, fertilizers, steel, cement, and electricity have a total weight of nearly 40
percent in the IIP. The eight-core index recorded its all-time low growth of (-) 37.9 due to
covid-19 led nation-wide lockdown (April-2020). The fall in growth and index was
expected as was the recovery of the index too. The eight-core industries registered (-) 2.6
per cent growth in November-2020 as compared to 0.7 per cent in November-2019 and (-)
0.9 per cent in October-2020. The cumulative growth of core industries during
April-November 2020 was (-) 11.4 per cent as compared to 0.3 per cent during
April-November 2019.
3. Tracking the level of the index apart from the YoY growth enables us to understand the
revival of economic activity better. The trajectory of the eight-core index has been
improving since May-2020 and further recovery/expansion is expected in the remaining

months of FY21. The current level (November-2020) of the seasonally adjusted

eight-core index is 6 percent lower than the pre-lockdown levels in February-2020. The
highlights of the performance of eight-core industries in FY21 are presented in Table 2
and the trajectory of the respective index is in Figure 4. All the sub-components of the
eight-core index are inching up to the pre-COVID levels.
4. The overall IIP broadly follows the eight-core index. The IIP attained a growth of (-) 1.9
per cent in November-2020 as compared to 2.1 per cent in November-2019 (Table 3 and
Figure 2). The cumulative growth of IIP for the period April-November 2020 was (-) 15.5
percent as compared to 0.3 percent from April-November 2019. The improvement in the
eight-core index and the IIP from their nadir is evident as both the indices stood at 94 per
cent and 96.5 percent of the pre-lockdown (February-2020) levels, respectively on a
seasonally adjusted basis.
5. Based on the broad-sectoral classification, in November-2020, mining contracted by 7.3
per cent as against a contraction of 1.9 per cent in November-2019. The manufacturing
sector recorded a growth of (-) 1.7 per cent in November-2020 as against a growth of 3.0
per cent in November-2019, and the electricity sector recorded a growth of 3.5 per cent in
November-2020 as against a contraction of 5.0 per cent in November-2019
6. Industrial activities recovered sharply except the mining sector, which is still at lower
levels as compared to the pre-lockdown levels (Figure 6). A similar pattern has been
observed in all the major indices captured under the Used Based Classification (Figure 7).
However, performance of the primary goods sector, which has a weight of 34.05 per cent
was sluggish as compared to its counterparts in the IIP.

The role and forms of foreign capital

Forms and types of foreign Capital
Foreign capital flow in a country can take place either in the form of investment, concessional
assistance, foreign aid.
1. Foreign Investment includes Foreign Direct Investment (FDI) and Foreign Portfolio
Investment (FPI) / Foreign Institutional Investment (FII).

FPI includes the amounts raised by Indian corporations through Euro Equities, Global
Depository Receipts (GDR’s), and American Depository Receipts (ADR’s).
2. Non-Concessional Assistance mainly includes External Commercial Borrowings (ECB’s),

loans from governments of other countries/multilateral agencies on market terms, and
deposits obtained from Non-Resident Indians (NRIs).
3. Concessional Assistance includes grants and loans obtained at low rates of interest with
long maturity periods. Such assistance is generally provided on a bilateral basis or
through multilateral agencies like the World Bank, International Monetary Fund (IMF),
and International Development Association (IDA) etc. Grants do not carry any obligation
of repayment and are mostly made available to meet some temporary crisis. Foreign Aid
can also be received in terms of direct supplies of agricultural commodities or industrial
raw materials to overcome temporary shortages in the economy. Foreign Aid may also be
given in the form of technical assistance.
Foreign Direct Investment (FDI)

Foreign Direct Investment, briefly called FDI, is a form of investment that involves the
inoculation of foreign funds into an enterprise that operates in a different country of origin
from the financier. Foreign direct investment is a vital part of an open and real international
economic system and a major promoter to development. Foreign direct investment has
developed radically as a major form of international capital transfer since the last many years.
Between 1980 and 1990, world flows of FDI-defined as cross-border expenditures to acquire
or expand corporate control of productive assets-have approximately tripled. Advantages of
FDI do not increase automatically and evenly across countries, sectors and local
communities. National strategies and the international investment architecture matter for
attracting FDI to a huge number of developing countries and for reaping the full benefits of
FDI for development.
Determinants of FDI in Host Country:
Host Country Determinants:
· Policy framework for F.D.I.
· Economic, political & social stability
· Rules regarding entry & operations.
· Standards of treatment of foreign affiliates.
· Policies on functioning & structure of markets (esp. competition and M&A policies)
· International agreements on FDI
· Privatization Policy.
· Trade policy (barriers-tariff and non-tariff) and coherence of FDI and trade policies
Foreign direct investment and growth

Foreign direct investment has a great impact on growth by raising total factor productivity
and, more generally, the efficacy of resource use in the beneficiary economy. Many empirical

studies indicated that FDI contributes to both factor productivity and income growth in host
countries, beyond what domestic investment normally would trigger.
It is more challenging to assess the scale of this impact, because large FDI inflows to
developing countries often concur with unusually high growth rates triggered by dissimilar
factors. Whether, financial experts asserted, the positive effects of foreign direct investment
are lessened by a partial "crowding out" of domestic investment is far from clear. Some
investigators have found signs of crowding out, while others determine that foreign direct
investment may actually serve to increase domestic investment. Irrespective, even where
crowding out does take place, the net effect generally remains beneficial, not least as the
replacement tends to result in the release of scarce domestic funds for other investment
purposes.
In the least developed economies, foreign direct investment seems to have a somewhat
smaller effect on growth, which has been attributed to the presence of "threshold
externalities.”
Seemingly, developing countries need to have reached a certain level of development in
education, technology, infrastructure and health before being able to benefit from a foreign
presence in their markets. Defective and underdeveloped financial markets may also prevent
a country from gaining the full benefits of foreign direct investment. Weak financial
intermediation hits domestic enterprises much harder than it does multinational enterprises. In
some cases, it may lead to a lack of financial resources that precludes them from seizing the
business opportunities arising from the foreign presence. Foreign investors' participation in
physical infrastructure and in the financial sectors can help on these two grounds.
Foreign direct investment has also contributed to the process of globalization during the past
two decades. The speedy expansion in foreign direct investment by multinational enterprises
since the mid-eighties may be ascribed to significant changes in technologies, greater
liberalization of trade and investment regimes, and deregulation and privatization of markets
in many countries including developing countries such as India. Capital formation is an
important factor of economic development.
While domestic investments add to the capital stock in an economy, foreign direct
investment plays a harmonising role in overall capital formation and in filling the gap
between domestic savings and investment. At the macro-level, foreign direct investment is a
non-debt-creating source of extra external finances. At the micro-level, foreign direct
investment enhance productivity, technology, skill levels, employment and linkages with
other sectors and regions of the host economy.
FDI in India
In Indian context, foreign direct investment is reflected as a developmental tool, which helps
to accomplish self-reliance in numerous sectors and in general development of the economy.
In India, after liberalizing and globalizing the economy to the outside world in 1991, there
was an enormous increase in the flow of FDI. FDI inflow made its entry during the year
1991-92 with the aim to bring together the intended investment and the actual investments of

the country. To follow a growth of around 7 percent in the Gross Domestic Product of India,
the net capital flows should escalate by at least 28 to 30 percent on the whole. But the savings
of the country stood only at 24 percent. The gap formed between intended investment and the
actual savings of the country was lifted up by portfolio investments by
· Foreign Institutional Investors
· Loans by foreign banks and other places,
· Foreign direct investments.
Among these three forms of financial support, India chooses as well as possesses the
maximum amount of Foreign Direct Investments. The FDI may affect due to the government
trade obstructions and policies for the foreign investments and leads to less or more effective
towards contribution in economy as well as GDP of the economy. To increase the FDI
inflows in the country, Indian government is allowing frequent equity participation to foreign
enterprises apart from providing many incentives such as tax concessions, simplification of
licensing procedures and de-reserving various industries like drugs, fertilizers, aluminum.
FDI is permitted through following forms of investments:
· Financial collaborations.
· Joint ventures and technical collaborations.
· Capital markets via Euro issues (Foreign Currency Convertible Bonds
(FCCBs)/Equity Shares under the Global Depository Mechanism).
· Private placements or preferential allotments.
FDI is permitted in all sectors including the service sector in India, with certain restrictions in
a few sectors where the existing and notified sectoral policy does not permit FDI beyond a
ceiling. FDI for most cases can be brought through Automatic Route under the powers
delegated to the RBI and for the remaining case as elaborated below through the Government
approval.
Merits of Foreign Direct Investment

Given the appropriate host-country policies and a basic level of development, a majority of
studies demonstrations that foreign direct investment:
· Generates technology spill overs
· Helps human capital formation
· Contributes to international trade integration
· Helps create a more competitive business environment
· Enhances enterprise development
· Contribute to higher economic growth, which is the strongest tool to alleviate
poverty in developing countries
· Helps improve environmental and social conditions in the host country
· Brings in foreign expertise to improve the existing technical processes in the country
· Triggers advances in technology and processes
· Improves the competitiveness of countries in the domestic economy
· Improves the quality of products and processes in a particular sector

· Helps in the economic development of the country in which the investment is made,
creating both benefits for local industry and a more conducive environment for the
investor
· Creates jobs and increases employment in the target country
· Allows resource transfer, and other exchanges of knowledge whereby different
countries are given access to new skills and technologies
· Aids to upsurge the productivity of the workforce in the target country
Demerits of Foreign Direct Investment

There are some demerits of foreign direct investment.
· FDI can occasionally hamper domestic investment, as it focuses resources
elsewhere.
· Sometimes as a result of FDI exchange rates will be affected, to the advantage of one
country and the disadvantage of the other nation.
· FDI may be capital-intensive from the investor's point of view, and therefore
sometimes high-risk or economically non-viable.
· The rules governing FDI and exchange rates may negatively affect the investing
country.
· Investment in certain areas is banned in foreign markets, meaning that an inviting
opportunity may be impossible to pursue.
Classifications of Foreign Direct Investment

Foreign Direct Investment can be categorized depending on the direction of flow of money
as:
· Inward FDI: Inward Foreign direct investment occurs when foreign capital is
invested in local resources. The factors pushing the progression of inward FDI include
tax breaks, low interest rates and grants.
· Outward FDI: Outward Foreign direct investment which, also referred to as "direct
investment abroad", is funded by the government against all related risk.
Regulatory Framework
Major Indian regulatory authorities in the framework of Foreign Direct Investment are the
Foreign Investment and Promotion Board ("FIPB"), which formulates foreign investment
policy, and the Reserve Bank of India ("RBI"), India's central bank, with the primary
responsibility of implementing and enforcing foreign exchange regulations and government
policy
Major regulations:
· Foreign Exchange Management Act, 1999 (FEMA) and Regulations
· Securities and Exchange Board of India Act, 1992 and Regulations
· Foreign Trade (Development and Regulation) Act, 1992.
· Companies Act, 1956

· Indian Contract Act, 1872

· Arbitration and Conciliation Act, 1996
· Civil Procedure Code, 1908
· Income Tax Act, 1961
· Foreign Direct Investment Policy (FDI Policy)
· Competition Act, 2002
Major Government Authorities
· Department of Industrial Policy and Promotion (DIPP), Government of India
· Foreign Investment Promotion Board of India (FIPB), Government of India
· Reserve Bank of India (RBI)
· Securities and Exchange Board of India (SEBI)
· Directorate General of Foreign Trade (DGFT), Government of India
· Ministry of Corporate Affairs, Government of India
· Income Tax Department
· Industry specific ministries such as Ministry of Power, Ministry of Communications
& Information.
Recent Developments
● In FY21, total FDI inflow amounted to US$ 81.72 billion, a 10% YoY increase.
● In April 2021, FDI inflow stood at US$ 6.24 billion, registering an increase of 38%
YoY.
● In June 2021, Urban Company, a home services marketplace, announced that it has
raised ~Rs. 1,857 crore (US$ 255 million) in a fund raiser round led by Wellington
Management, Prosus Ventures and Dragoneer.
● In April 2021, Amazon India launched the US$ 250 million ‘Amazon Smbhav
Venture Fund’ for Indian start-ups and entrepreneurs to boost technology innovations
in the areas of digitisation, agriculture and healthcare.
● In November 2020, Rs. 2,480 crore (US$ 337.53 million) foreign direct investment
(FDI) in ATC Telecom Infra Pvt Ltd. was approved by the Union Cabinet.
● In November 2020, Amazon Web Services (AWS) announced to invest US$ 2.77
billion (Rs. 20,761 crore) in Telangana to set up multiple data centres; this is the
largest FDI in the history of the state.
● Since April 2020, the government has received over 120 foreign direct investment
(FDI) proposals worth ~Rs. 12,000 crore (US$ 1.63 billion) from China. Between
April 2000 and September 2020, India received US$ 2.43 billion FDI from China.
● According to the Reserve Bank of India (RBI), India’s outward foreign direct
investments (OFDI) in equity, loan and guaranteed issue stood at US$ 3.77 billion in
May 2021 vs. US$ 3.43 billion in April 2021.

● In May 2021, Ernst & Young (EY) ranked India as the most attractive solar markets
for PV investments and deployments.
Sectors attracting highest FDI equity inflows
Foreign Institutional Investment (FII)

Foreign Institutional Investor (FII) means an institution established or incorporated outside
India which proposes to make investment in securities in India. They are registered as FIIs in
accordance with Section 2 (f) of the SEBI (FII) Regulations 1995.
FIIs are allowed to subscribe to new securities or trade in already issued securities. This is
just one form of foreign investments in India.

FII Vs FDI: International standards and Indian definition:

● According to IMF and OECD definitions, the acquisition of at least ten percent of the
ordinary shares or voting power in a public or private enterprise by non-resident
investors makes it eligible to be categorized as foreign direct investment (FDI). In
India, a particular FII is allowed to invest upto 10% of the paid-up capital of a
company, which implies that any investment above 10% will be construed as FDI,
though officially such a definition did not exist.
● It may be noted that there is no minimum amount of capital to be brought in by the
foreign direct investor to get the same categorized as FDI
Following Foreign Entities / Funds are eligible to get registered as FII:
1. Pension Funds
2. Mutual Funds
3. Investment Trusts
4. Banks
5. Insurance Companies / Reinsurance Company
6. Foreign Central Banks
7. Foreign Governmental Agencies
8. Sovereign Wealth Funds
9. International/ Multilateral organization/ agency
10. University Funds (Serving public interests)
11. Endowments (Serving public interests)
12. Foundations (Serving public interests)
13. Charitable Trusts / Charitable Societies (Serving public interests)
Further, following entities proposing to invest on behalf of broad-based funds, are also
eligible to be registered as FIIs:
● Asset Management Companies
● Investment Manager/Advisor
● Institutional Portfolio Managers
● Trustee of a Trust
● Bank
A Foreign Institutional Investor may invest only in the following:
1. Securities in the primary and secondary markets including shares, debentures and
warrants of companies listed or to be listed on a recognized stock exchange in India; and
2. units of schemes floated by domestic mutual funds including Unit Trust of India,
whether listed on a recognized stock exchange or not
3. units of scheme floated by a collective investment scheme
4. dated Government Securities
5. derivatives traded on a recognized stock exchange
6. commercial papers of Indian companies
7. Rupee denominated credit enhanced bonds
8. Security receipts

9. Indian Depository Receipt

10. Listed and unlisted non-convertible debentures/bonds issued by an Indian company in
the infrastructure sector, where ‘infrastructure’ is defined in terms of the extant External
Commercial Borrowings (ECB) guidelines
11. Non-convertible debentures or bonds issued by Non-Banking Financial Companies
categorized as ‘Infrastructure Finance Companies(IFCs) by the Reserve Bank of India
12. Rupee denominated bonds or units issued by infrastructure debt funds
13. Indian depository receipts
Recent Developments
Some of the recent and significant FII/FPI developments are as below:
● Foreign portfolio investment inflows into equities stood at Rs. 7,968 crore (US$ 1.08
billion) between June 01, 2021 and June 04, 2021.
● The foreign direct investment inflows stood at US$ 81.7 billion in FY21. According
to a UN report, India received US$ 64 billion FDIs (foreign direct investments) in
2020, the fifth-largest recipient of inflows in the world.
● In December 2020, Embassy Office Parks REIT ('Embassy REIT'), India's first listed
REIT and one of Asia's largest by area, announced that through an institutional
placement of units, it has successfully completed a unit capital raise of Rs. 36.8
billion (US$ 501 million).
● On December 9, 2020, Indian stock markets achieved a record high, as the approval
of COVID-19 vaccines strengthened investor sentiments. BSE Sensex reached the
46,000-mark, rising over 1% during the day, while the Nifty topped the 13,500-level
for the first-time.
● On June 3, 2021, domestic institutional investors (DIIs) were the net sellers in the
Indian equity market and accounted for Rs. 278.97 crore (US$ 37.63 million).
● Foreign investors invested >Rs. 1.4 trillion (US$ 19 billion) in the Indian stock
market in 2020.
● In 2021 (until June 2021), ~ 19 IPOs (including Brookfield REIT and PowerGrid
Infrastructure Investment Trust) have raised >Rs. 29,000 crore (US$ 3.91 billion).
● In April 2021, Amazon India launched US$ 250 million the ‘Amazon Smbhav
Venture Fund’ (the venture fund) for Indian start-ups and entrepreneurs to boost
technology innovations in areas of digitisation, agriculture and healthcare.
According to a report published by the UN Conference on Trade and Development

(UNCTAD), India's robust fundamentals offer anticipation for rise in investments in medium
term. Increase in FDIs in 2020 indicated recovery in trade and industrial production and
provided a strong basis for FDI growth in 2021. India is being viewed as a potential
opportunity by investors with the economy having the capacity to grow tremendously.

Buoyed by strong support from the Government, FII investment have been strong and is
expected to improve going forward.

Micro, Small and Medium Enterprises [MSME sector] since 2007, Atmanirbhar Bharat
Abhiyan, 2020
Table of Contents:
Definition of MSME 1
Benefits provided to MSMEs 2
Significance of MSMED Act 2006 2
Importance and role of MSMEs in the Indian Economy 3
1. To generate large scale employment 3
2. To sustain economic growth and increase exports 3
3. Making Growth Inclusive 3
Challenges of MSME 3
Recent Initiatives 4
Atmanirbhar Bharat Abhiyan 5
Micro Small Medium Enterprises ( MSME) since 2007

The Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly vibrant and
dynamic sector of the Indian economy over the last five decades. It contributes significantly in the
economic and social development of the country by fostering entrepreneurship and generating
large employment opportunities at comparatively lower capital cost, next only to agriculture.
MSMEs are complementary to large industries as ancillary units and this sector contributes
significantly in the inclusive industrial development of the country. The MSMEs are widening
their domain across sectors of the economy, producing a diverse range of products and services to
meet demands of domestic as well as global markets.
Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 which was notified on
October 2, 2006, deals with the definition of MSMEs. The MSMED Act, 2006 defines the Micro,
Small and Medium Enterprises based on
1. The investment in plant and machinery for those engaged in manufacturing or
production, processing or preservation of goods and
2. the investment in equipment for enterprises engaged in providing or rendering of
services.
Definition of MSME
The Government of India has enacted the Micro, Small and Medium Enterprises Development
(MSMED) Act, 2006 in terms of which the definition of micro, small and medium enterprises is
as under:

Enterprises engaged in the manufacture or production, processing or preservation of goods as

specified below:
1. A micro enterprise is an enterprise where investment in plant and machinery does not
exceed Rs. 25 lakhs;
2. A small enterprise is an enterprise where the investment in plant and machinery is more
than Rs. 25 lakhs but does not exceed Rs. 5 crores;
3. A medium enterprise is an enterprise where the investment in plant and machinery is more
than Rs.5 crore but does not exceed Rs.10 crore.
In case of the above enterprises, investment in plant and machinery is the original cost excluding
land and building and the items specified by the Ministry of Small Scale Industries. Enterprises
engaged in providing or rendering of services and whose investment in equipment (original cost
excluding land and building and furniture, fittings and other items not directly related to the service
rendered or as may be notified under the MSMED Act, 2006 are specified below.
A micro enterprise is an enterprise where the investment in equipment does not exceed Rs. 10
lakhs;
A small enterprise is an enterprise where the investment in equipment is more than Rs.10 lakh but
does not exceed Rs. 2 crores;
A medium enterprise is an enterprise where the investment in equipment is more than Rs. 2 crores
but does not exceed Rs. 5 crores.
The MSMEs in India are playing a crucial role by providing large employment opportunities at
comparatively lower capital cost than large industries as well as through industrialization of rural
& backward areas, inter alia, reducing regional imbalances, assuring more equitable distribution
of national income and wealth. As per the National Sample Survey (NSS) 73rd round, conducted
by National Sample Survey Office, Ministry of Statistics & Programme Implementation during
the period 2015-16, there were 633.88 lakh unincorporated nonagricultural MSMEs in the country
engaged in different economic activities
Benefits provided to MSMEs

● Loans under the priority sector lending scheme.
● 25% share in procurement by government and government-owned companies.
● Promoters are allowed to bid for stressed assets under the insolvency law (unlike big
companies).
● Various government schemes and funds.
Significance of MSMED Act 2006

With the enactment of MSMED Act 2006, the paradigm shift that has taken place is the inclusion
of the services sector in the definition of Micro, Small and Medium Enterprises, apart from
extending the scope to Medium Enterprises.
Share of MSMEs in India

The Micro, Small and Medium Enterprises occupies strategic importance in terms of output (about
45% of manufacturing output), exports (about 40% of the total exports) and employment (about
69 million persons in over 29 million units throughout the country) based on the Planning
Commission, 2012. It is observed worldwide that as income increases the share of the informal
sector decreases and that of the formal SME sector increases.
Importance and role of MSMEs in the Indian Economy

1. To generate large scale employment
In India, capital is scarce and labour abundant. MSMEs have lower capital-output and capital-
labour ratios than large-scale industries, and therefore, better serve growth and employment
objectives. The MSME sector in India has grown significantly since 1960 with an average annual
growth rate of 4.4% in the number of units and 4.62% in employment (currently employing 30
million). Not only do MSMEs generate the highest employment per capita investment, but they
also go a long way in checking rural-urban migration by providing people living in isolated areas
with a sustainable source of employment.
2. To sustain economic growth and increase exports

Non-traditional products account for more than 95% of the MSME exports (dominating in the
export of sports goods, readymade garments, plastic products etc.). Since these products are mostly
handcrafted and hence eco-friendly, there exists a tremendous potential to expand the quantum of
MSME led exports. Also, MSMEs act as ancillary industries for Large Scale Industries providing
them with raw materials, vital components and backward linkages e.g. large scale cycle
manufacturers of Ludhiana rely heavily on the MSMEs of Malerkotla which produce cycle parts.
3. Making Growth Inclusive

MSMEs are instruments of inclusive growth which touch upon the lives of the most vulnerable
and marginalized. For many families, it is the only source of livelihood. Thus, instead of taking a
welfare approach, this sector seeks to empower people to break the cycle of poverty and
deprivation. It focuses on people’s skills and agency. However, different segments of the MSME
sector are dominated by different social groups.
Challenges of MSME
● Most of the unregistered MSMEs would predominantly comprise micro-enterprises,
particularly confined to rural India, operating with obsolete technology, limited access to
institutional finance etc. And there is a need to transform the huge unregistered MSME into
registered MSME.
● Need to improve the competitiveness of the overall MSME sector.
● Access to technology.
● IPR related issues.
● Design as a market driver.
● Wasteful usage of resources/manpower.
● Energy inefficiency and associated high cost.
● Low ICT usage.

● Low market penetration.

● Quality assurance/certification.
● Standardization of products and proper marketing channels to penetrate new markets.
● The definition for MSMEs must be updated – considering inflation and availability of
better technologies since the last change in 2006.
Recent Initiatives
As part of the National Manufacturing Competitiveness Programme (NMCP) – 10 specific
initiatives were taken to enhance the competitiveness of the entire value chain of the MSME sector.
Limited Liability Partnership (LLP) Act, 2008 was introduced to enable early corporatization of
MSMEs and tap the capital market for fundraising. Accordingly, MSME platforms were created
in BSE and NSE in 2012.
To develop a roadmap for the development and promotion of MSMEs, a task force was created by
the Prime Minister of India in 2009. The Task Force, which comprised, among others, six specific
theme-based sub-groups (on credit, marketing, infrastructure, technology, skill development, exit
policy, labour, and taxation) submitted its report in 2010 suggesting:
(1) Immediate policy measures
(2) Medium-term institutional measures
(3) Legal and regulatory structures to create a conducive environment for entrepreneurship
and growth of MSMEs.
The Inter-Ministerial Committee for Accelerating Manufacturing in Micro, Small and Medium
Enterprises made recommendations on –
(a) the promotion of start-ups
(b) facilitating operation and growth (covering credit, technology, and marketing)
(c) closure and exit
(d) labour laws and regulations.
These policy initiatives are clear and consistent, aimed at transforming the ecosystem for the
MSMEs sector by influencing:
(1) Birth (encouraging Start-Ups)
(2) Operations and growth (by simplifying laws and regulations, and facilitating their
access to credit. Better technology and dynamic markets, apart from skilled labour and
reliable infrastructure)
(3) Orderly and easy exit
Thus, the emerging focus of India’s MSME policy aims at covering the entire lifecycle of MSMEs
to ensure a healthy, vibrant and competitive MSME sector.

Atmanirbhar Bharat Abhiyan
The economic crisis triggered by the coronavirus pandemic in 2020 gave birth to the Atmanirbhar
Bharat Abhiyan.
The economic stimulus relief package announced by the government is touted to be worth Rs.20
Lakh crores. This includes the already announced Rs 1.70 lakh crore relief package, as the
PMGKY, for the poor to overcome difficulties caused by the coronavirus pandemic and the
lockdown imposed to check its spread.
Atmanirbhar means 'self-reliant'. On May 12, Prime Minister Narendra Modi announced in his
address to the nation an economic package of Rs 20 trillion to tide over the coronavirus crisis under
the Atmanirbhar Bharat Abhiyan. He said the economic package would play an important role in
making India 'self reliant' and that it would benefit labourers, farmers, honest tax payers, MSMEs
and the cottage industry. He said making the country self-reliant was the only way to make 21st
century belong to India. According to the government, it is not protectionist in nature.
Government Reforms
Policy Highlights
• Increase in borrowing limits: The borrowing limits of state governments will be
increased from 3% to 5% of Gross State Domestic Product (GSDP) for the year 2020-
21. This is estimated to give states extra resources of Rs 4.28 lakh crore. There will be
unconditional increase of up to 3.5% of GSDP followed by 0.25% increase linked to
reforms on - universalisation of ‘One Nation One Ration card’, Ease of Doing Business,
power distribution and Urban Local Body revenues. Further, there will be an increase of
0.5% if three out of four reforms are achieved.
• Privatisation of Public Sector Enterprise (PSEs): A new PSE policy has been
announced with plans to privatise PSEs, except the ones functioning in certain strategic
sectors which will be notified by the government. In strategic sectors, at least one PSE will
remain, but private sector will also be allowed. To minimise wasteful administrative costs,
number of enterprises in strategic sectors will ordinarily be only one to four; others will be
privatised/ merged/ brought under holding companies.
Measures for businesses (including MSMEs)
Financial Highlights
• Collateral free loans for businesses: All businesses (including MSMEs) will be provided
with collateral free automatic loans of up to three lakh crore rupees. MSMEs can borrow
up to 20% of their entire outstanding credit as on February 29, 2020 from banks and Non-
Banking Financial Companies (NBFCs). Borrowers with up to Rs 25 crore outstanding
and Rs 100 crore turnover will be eligible for such loans and can avail the scheme till

October 31, 2020. Interest on the loan will be capped and 100% credit guarantee on
principal and interest will be given to banks and NBFCs.
• Corpus for MSMEs: A fund of funds with a corpus of Rs 10,000 crore will be set up for
MSMEs. This will provide equity funding for MSMEs with growth potential and
viability. Rs 50,000 crore is expected to be leveraged through this fund structure.
• Subordinate debt for MSMEs: This scheme aims to support to stressed MSMEs which
have Non-Performing Assets (NPAs). Under the scheme, promoters of MSMEs will be
given debt from banks, which will be infused into the MSMEs as equity. The government
will facilitate Rs 20,000 crore of subordinate debt to MSMEs. For this purpose, it will
provide Rs 4,000 crore to the Credit Guarantee Fund Trust for Micro and Small Enterprises,
which will provide partial credit guarantee support to banks providing credit under the
scheme.
• Schemes for NBFCs: A Special Liquidity Scheme was announced under which Rs 30,000
crore of investment will be made by the government in both primary and secondary market
transactions in investment grade debt paper of Non-Banking Financial Companies
(NBFCs)/Housing Finance Companies (HFCs)/Micro Finance Institutions (MFIs). The
central government will provide 100% guarantee for these securities. The existing Partial
Credit Guarantee Scheme (PCGS) will be extended to partially safeguard NBFCs against
borrowings of such entities (such as primary issuance of bonds or commercial papers
(liability side of balance sheets)). The first 20% of loss will be borne by the central
government. The PCGS scheme will facilitate liquidity worth Rs 45,000 crores for
NBFCs.
• Street vendors: A special scheme will be launched within a month to facilitate easy access
to credit for street vendors. Under this scheme, bank credit will be provided to each vendor
for an initial working capital of up to Rs 10,000. This is estimated to generate liquidity of
Rs 5,000 crore.
Policy Highlights
• Expediting payment of dues to MSMEs: Payments due to MSMEs from the government
and CPSEs will be released within 45 days.
• Insolvency resolution: A special insolvency resolution framework for MSMEs under the
Insolvency and Bankruptcy Code, 2016 will be notified.
• Disallowing global tenders: To protect Indian MSMEs from competition from foreign
companies, global tenders of up to Rs 200 crore will not be allowed in government
procurement tenders.
• Reduction in TDS and TCS rates: The rates of Tax Deduction at Source (TDS) for the
non-salaried specified payments made to residents and Tax Collected at Source (TCS) will

be reduced by 25% from the existing rates. This reduction will apply from May 14, 2020
to March 31, 2021. This is estimated to provide liquidity of Rs 50,000 crore.
• Ease of doing business for corporates: Direct listing of securities by Indian public
companies in permissible foreign jurisdictions will be allowed. Private companies which
list Non-Convertible Debentures (NCDs) on stock exchanges will not be considered listed
companies. NCDs are debt instruments with a fixed tenure issued by companies to raise
money for business purposes. Unlike convertible debentures, NCDs cannot be converted
into equity shares of the issuing company at a future date.
Agriculture and Allied sectors
Financial Highlights
• Concessional Credit Boost to farmers: Farmers will be provided institutional credit
facilities at concessional rates through Kisan Credit Cards. This scheme will cover 2.5
crore farmers with concessional credit worth two lakh crore rupees.
• Agri Infrastructure Fund: A fund of one lakh crore rupees will be created for
development of agriculture infrastructure projects at farm-gate and aggregation points
(such as cooperative societies and Farmer Producer Organizations). Farm gate refers to
the market where buyers can buy products directly from the farmers.
• Emergency working capital for farmers: An additional fund of Rs 30,000 crore will be
released as emergency working capital for farmers. This fund will be disbursed through
NABARD to Rural Cooperative Banks (RCBs) and Regional Rural Banks (RRBs) for
meeting their crop loans requirements. This fund is expected to benefit three crore small
and marginal farmers. This is in addition to the financial support of Rs 90,000 crore that
will be provided by NABARD to RCBs and RRBs to meet the crop loan demand this year.
• Support to fishermen: The Pradhan Mantri Matsya Sampada Yojana (PMMSY) will be
launched for integrated, sustainable, and inclusive development of marine and inland
fisheries. Under this scheme, Rs 11,000 crore will be spent on activities in Marine, Inland
fisheries and Aquaculture and Rs 9,000 crore will be spent for developing infrastructure
(such as fishing harbours, cold chain, markets).
• Animal Husbandry infrastructure development: An Animal Husbandry Infrastructure
Development Fund of Rs 15,000 crore will be set up, with the aim of supporting private
investment in dairy processing, value addition, and cattle feed infrastructure. Incentives
will be given for establishing plants for export of niche dairy products.
• Employment push using CAMPA funds: The government will approve plans worth Rs
6,000 crore under the Compensatory Afforestation Management and Planning Authority
(CAMPA) to facilitate job creation for tribals/adivasis.2 Funds under CAMPA will be used
for: (i) afforestation and plantation works, including in urban areas, (ii) artificial
regeneration, assisted natural regeneration, (iii) forest management, soil and moisture
conservation works, (iv) forest protection, forest and wildlife related infrastructure

development, and wildlife protection and management. Note that the CAMPA funds are
currently used for protection of forest and wildlife management.
Migrant Workers
Policy Highlights
• One Nation One Card: Migrant workers will be able to access the Public Distribution
System (Ration) from any Fair Price Shop in India by March 2021 under the scheme of
One Nation One Card. The scheme will introduce the inter-state portability of access to
ration for migrant labourers. By August 2020 the scheme is estimated to cover 67 crore
beneficiaries in 23 states (83% of PDS population). All states/union territories are required
to complete full automation of fair price shops by March 2021 for achieving 100% national
portability.2
• Free food grain Supply to migrants: Migrant workers who are not beneficiaries under
the National Food Security Act ration card or state card will be provided 5 kg of grains per
person and 1 kg of chana per family per month for two months. Rs 3,500 crore will be
spent on this scheme, and eight crore migrants are estimated to benefit under it.2
• Affordable Rental Housing Complexes (ARHC) for Migrant Workers / Urban

Poor: The migrant labour/urban poor will be provided living facilities at affordable rent
under Pradhan Mantri Awas Yojana (PMAY).2 This will be achieved by: (i) converting
government funded housing in the cities into ARHCs through PPPs, and (ii) incentivising
manufacturing units, industries, institutions, associations to develop ARHCs on their
private land and operate them.
Defence
Policy Highlights
• FDI limit in defence manufacturing under automatic route will be increased from 49% to
74%.
• Make in India initiative will be promoted in the defence sector aiming to make the country
independent in terms of production. A list of weapons/platforms will be released which
will be banned for import based on a year wise timeline. Further, the government has
planned to improve the autonomy, accountability and efficiency in Ordnance Supplies by
corporatisation of Ordnance Factory Board.
Public health
Policy Highlights
The investment in public health will be increased along with investment in grass root health
institutions of urban and rural areas.3 The lab networks are being strengthened in districts and
block levels for efficient management of the pandemic. The National Digital Health Blueprint will

be implemented, which aims at creating an ecosystem to support universal health coverage in an

efficient, inclusive, safe and timely manner using digital technology.
• Allocation for MGNREGS: To help boost rural economy, an additional Rs 40,000 crore
will be allocated under MGNREGS. This increases the Union Budget allocation for
MGNREGS from Rs 61,500 crore to Rs 1,01,500 crore (65% increase) for 2020-21.
• Viability Gap Funding: Viability Gap Funding (VGF) for social infrastructure projects
will be increased by up to 30% of the total project cost. The total expense for developing
the social infrastructure is estimated be Rs 8,100 crore.
• Technology driven education: PM eVidya will be launched for multi-mode access to
digital/online education. This program will include facilities to support school education
in states/UTs under the DIKSHA scheme (one nation, one digital platform). National
Foundational Literacy and Numeracy Mission will be launched by December 2020 to
ensure that every child attains learning level and outcomes in grade 5 by 2025.
*****************

MODULE III
Service Sector: Role, Trends, And Performance

Table of Contents:
Introduction: 1
Role of the Service Sector in India: 2
Recent Developments 4
Trends in Service Sector 4
IT-BPM 5
Healthcare 5
Tourism 5
Space Sector 5
Financial Service Sector 5
Government Initiatives 6
Way forward: 7
Introduction:
In the sense of economics, services are any functions or tasks, performed by an individual or a
group of individuals, for which there is a demand and hence a price is determined if it is
available in the relevant market. Services are sometimes referred to as intangible goods. They
are consumed at the point of production and they are usually non-transferable, in the sense that
the service cannot be purchased and then resold at a different price.
The services sector is composed of a broad spectrum of service-providing entities spread
throughout the Country.
In a country like India, having a huge size of the population, the services sector has its huge
potential. Development of the services sector can transform this large size of manpower into
an asset by its proper utilization and thereby can generate a huge size of income for the nation
as a whole.
The services sector usually covers a wide range of activities from the most sophisticated
information technology (IT) to simple services provided by the unorganized sector like the
services of the plumber, mansion, barber, etc.
National Accounts classification of the services sector incorporates trade, hotels, and
restaurants; transport, storage, and communication; financing, insurance, real estate, and
business services; and community, social and personal services. In the World Trade
Organization (WTO) and Reserve Bank of India (RBI) classification, construction is also
included in the services sector.
The importance of the service sector is well-recognized everywhere. Tom Peters, a renowned
author once said, “When you build a manufacturing plant, it starts depreciating on the day it

opens. The well-served customer, on the other hand, is an appreciating asset. Every small act
on his or her part ups the odds for repeat business, add-on business, and priceless word-of-
mouth referral.”
Among the three important sectors (viz., agriculture and allied, secondary sector and
services sector), contributing to the development of the economy of a country, the
contribution of the services sector is increasing steadily over the past few years.
In most of the developed countries of the world, the services sector contributes the major
portion of its Gross Domestic Product and generates three times more employment than the
manufacturing sector.
In most developing countries, where agriculture and industry dominated the show In generating
employment till a few years ago, things started to change in the recent period. In recent years,
the services sector experienced a rapid shift in its favor in generating both income and
employment. Thus, it has been observed that the service sector has become a major player in
almost all the countries of the world.
The Covid-19 pandemic hurt most sectors of the economy, with the effect particularly profound
for contact-intensive services sectors like tourism, retail trade, hotel, entertainment, and
recreation. On the other hand, non-contact services such as information, communication,
financial, professional, and business services remained resilient. However, the services sector
witnessed a swift rebound in FY22, growing Year-on-Year (YoY) at 8.4 per cent compared to
a contraction of 7.8 per cent in the previous financial year. The improvement was driven by
growth in the ‘Trade, Hotel, Transport, Storage, Communication and Services related to
broadcasting’ sub-sector, which bore the maximum burden of the pandemic. The growth
momentum has continued in FY23 as well. As per the First Advance Estimates, Gross Value
Added (GVA) in the services sector is estimated to grow at 9.1 per cent in FY23, driven by
13.7 per cent growth in contact-intensive services sector.
Role of the Service Sector in India:

In India, the importance of the services sector has been increasing continuously decade after
decade. With the continuous expansion of the services sector, both in terms of volume and
diversity, the importance of the services sector has been increasing at a high speed.
1. Contribution of GDP:
India has the fastest-growing service sector which is contributing over 50% to the country’s
GDP. This sector has witnessed 10.8% growth in the first half of 2021-22 and as per first
advance estimates, the gross value added (GVA) in the service sector is estimated to grow at
9.1% in FY23. The growth of India’s service sector has drawn global attention because, unlike
other countries where economic growth has led to a shift from agriculture to industries, India
has registered a shift from agriculture to the service sector. The growth of the service sector
has led to the development of various industries such as IT, healthcare, tourism, transport, and
finance, among all others.
2. Market Size
The services sector of India remains the engine of growth for India’s economy and contributed
53% to India’s Gross Value Added at current prices in FY 21-22 (as per advance estimates).
India’s services sector GVA increased at a CAGR of 11.43% to Rs. 101.47 trillion (US$

1,439.48 billion) in FY20, from Rs. 68.81 trillion (US$ 1,005.30 billion) in FY16. Between
FY16 and FY20, financial, real estate and professional services augmented at a CAGR of
11.68% (in Rs. terms), while trade, hotels, transport, communication and services related to
broadcasting rose at a CAGR of 10.98% (in Rs. terms). India‘s IT and business services market
is projected to reach US$ 19.93 billion by 2025. In September 2022, the Manufacturing
Purchasing Managers’ Index (PMI) in India stood at 55.1. With the fastest growing (9.2%)
service sector globally, the sector accounts for 66% share in India's GDP and generates about
28% of the total employment in India.
3. Employment Generation of Services Sector:
The importance of the services sector can also be realized from its contribution towards the
generation of employment in India. Although the primary sector (mainly agriculture) is the
dominant employer followed by the services sector, the share of the services sector has been
increasing over the years and that of the primary sector has been decreasing.
While most of the Indian workforce is still employed in the agricultural sector, it is the services
sector that generates most of the country’s GDP. In fact, when looking at GDP distribution
across economic sectors, agriculture lags behind with a mere 15 percent contribution. Some of
the leading services industries are telecommunications, software, textiles, and chemicals, and
production only seems to increase – currently, the GDP in India is growing, as is employment.
4. Contribution to India’s Services Trade:
In 2020, the world trade in services was severely impacted by the COVID-19 pandemic and
the resultant supply chain disruptions worldwide. While the World Trade Organisation (WTO)
projects the global merchandise trade volume growth to fall by 9.2 percent in 2020, the IMF
expects the volume of global trade in goods and services to contract by 10.4 percent in 2020.
WTO services trade activity index indicated a decline in global trade in commercial services
of 4.3 percent in the first three months of 2020, reflecting partly the adverse effect from the
spread of COVID-19. During Q2 of 2020 (April-June), the global trade in commercial services
plunged by 30 percent YoY as several countries imposed lockdown and transportation
restrictions that covered cross-border measures as well.
India’s services export growth moderated to 2.5 percent in 2019-20 from 6.6 percent in 2018-
19 as receipts primarily on account of transportation, insurance, and communication services.
With contraction in global demand and implementation of COVID-19 induced lockdown
measures, services exports declined by 7.87 percent in H1 of FY2020-21 as against a growth
of 6.39 percent in the corresponding period of the previous year.
In 2022-23, India's services exports rose by 42%to US$ 322.72 billion from US$ 254 billion
in 2021-22 and are expected to reach US$ 400 billion in 2023-24.
India is the export hub for software services. The Indian IT outsourcing service market is
expected to witness 6–8% growth between 2021 and 2024.
5. Contribution towards Human Development:
The services sector has a lot of contribution towards human development in our country.
Accordingly, the services sector has been rendering some valuable services, viz., health
services, educational facilities, IT and IT-enabled services (ITes), skill development, health
tourism, sports, cultural services, etc. which are largely responsible for human empowerment
and improvement of quality of life of the people in general.

6. Contribution towards Development of Infrastructure and Communication

Services:
The services sector has also been playing an important role in developing, expanding, and
managing infrastructure with a special emphasis on the development of transportation and
communication services. In a developing country like India, the importance of the development
of infrastructural facilities is quite high.
Recent Developments
1. The Indian services sector was the largest recipient of FDI inflows worth US$ 96.76 billion
between April 2000-June 2022.
2. According to RBI:
a. Bank credit stood at Rs. 126.30 trillion (US$ 1.55 trillion) as of September 23, 2022.
b. Credit to non-food industries stood at Rs. 126.08 trillion (US$ 1.54 trillion) as of
September 23, 2022.
c. Coforge Limited, a global digital services and solutions provider announced the
opening of its center of excellence (CoE) for the Metaverse and Web3 on August 30, 2022.
3. In June 2022, HCL Technologies (HCL), a leading global technology company, announced
the opening of its new 9,000 sq. ft. delivery center in Vancouver, Canada. The new center will
significantly expand its presence in the country to serve clients primarily in the HiTech
industry.
4. India’s telephone subscriber base stood at 1,171.92 million as of September 30, 2022.
5. IT-BPM industry revenues stood at US$ 227 billion in FY22 with a YoY growth rate of
15.5%.
6. By October 2021, the Health Ministry’s eSanjeevani telemedicine service, crossed 14 million
(1.4 crore) teleconsultations since its launch, enabling patient-to-doctor consultations, from
the confines of their home, and doctor-to-doctor consultations.
7. The Indian healthcare industry is expected to shift digitally enabled remote consultations via
teleconsultation. The telemedicine market in India is expected to increase at a CAGR of 31%
from 2020 to 2025.
8. In December 2020, the 'IGnITE’ programme was initiated by Siemens, BMZ and MSDE to
encourage high-quality training and technical education. 'IGnITE' aims to develop highly
trained technicians, with an emphasis on getting them ready for the industry and future, based
on the German Dual Vocational Educational Training (DVET) model. By 2024, this
programme aims to upskill ~40,000 employees.
Trends in Service Sector

India is a rapidly developing country with a diverse and dynamic economy. The country is
known for its thriving service sector, which contributes significantly to the nation’s GDP. The
service sector in India is characterized by a broad range of industries which offer various
services to individuals, businesses, and the government. These sectors are critical to the growth
and development of the nation and provide employment opportunities to millions of people.
There are various sub-sectors in the Indian services industry. Below are some of the major
services sectors which demonstrate strong potential for future growth.

IT-BPM
The IT-BPM sector holds the potential to grow between 10-15% per annum. The IT and fintech
segments provide over US$ 155 billion in gross value to the economy annually. In the long
run, the IT and ITeS segments require significant upskilling to move beyond a low-cost & low
value-added service provider to a high-value-adding partner. The IT and business services
market will grow at a CAGR of 8.3% between 2021-26, reaching a US$ 20.5 billion valuation
by the end of 2026. This segment has the potential to leverage the skill sets to provide various
fintech solutions to global financial customers. Examples: financial risk management services,
insurance, natural disaster modelling and underwriting.
Healthcare
The current contribution of the healthcare industry is over US$ 110 billion and is expected to
reach US$ 280 billion by 2020. The health sector contributed 10.6% to the total employment
across various industries during 2021-22 (till September 27, 2022). This sector is growing at a
CAGR of 16% and the total public and private spending on healthcare is 4% of GDP. To boost
the growth of the healthcare sector, the government has launched various initiatives such as
Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (AB PM-JAY) to provide financial risk
protection against catastrophic health expenditure. It helps to the prevention of catastrophic
expenditures on medical treatment which forces approximately 6 crore people into poverty
each year.
Tourism
This industry is one of the largest employers of women’s workforce. By 2028, the contribution
from the tourism industry to India’s GDP is expected to be US$ 512 billion and around 53
million additions to the jobs market by 2029. Improved customer experience is one of the key
factors to attract significant revenues and contribute to the growth of these industries. In this
context, various government initiatives such as e-Visas, better infrastructure facilities, safety,
connectivity, etc. are supporting elements to improve the growth of the tourism industry.
Space Sector
Indian space services possess a distinct advantage over its global rivals owing to their
demonstrated experience in a variety of launch technologies. The government is actively
proving its ability with public-private participation to ensure the flow of capital as well as to
strengthen competencies in the space segment. It has the potential to capture 9% of the global
market share by 2030. According to a report by EY, the Indian space economy is projected to
grow to US$ 13 billion by 2025 at a CAGR of 6%.
Financial Service Sector

The financial services sector has been identified as one of the important service sectors by
government authorities. It helps to enable on-shoring of the India-related financial services, a
part of which is currently being rendered from global financial centres. This would encourage
the export of financial services and high-skilled jobs. In the past years, the growth of the
financial sector remained stagnant and created the need to render these services from global
financial centres. The involvement of technology with financial services has contributed
towards the growth of this sector in India. India is currently among one of the fastest-growing

fintech markets in the world and renders services across the globe. There are more than 2,000
DPIIT-recognised fintech start-ups in India which are striving towards comparatively more
contribution to the nation’s GDP. By 2023, the fintech sector in India is expected to be US$ 1
trillion in Assets Under Management (AUM) and US$ 200 billion in revenue. This sector is
estimated to reach US$ 150 billion by 2025. India took the lead with the fintech adoption rate
of 87%, substantially higher than the world average of 64%. The government has initiated
various schemes to boost the financial service sector such as Pradhan Mantri Jan Dhan Yojana
(PMJDY) in 2014 with the objective of ensuring comprehensive financial inclusion of all the
households in the country by providing universal access to banking facilities. This scheme also
ensured that every individual in the country has access to bank accounts without any minimum
limit and hence contributed towards adding more people to enjoy the financial services.
The Government of India recognises the importance of promoting growth in services sector
and provides several incentives across a wide variety of sectors like health care, tourism,
education, engineering, communications, transportation, information technology, banking,
finance and management among others.
The Government of India has adopted few initiatives in the recent past, some of these are as
follows:
• Centre has formulated ‘Action Plan for Champion Sectors in Services’ to give focused
attention to 12 identified Champion Services Sectors.
• The Government of India has adopted few initiatives in the recent past, some of these
are as follows:As of November 9, 2022, the number of bank accounts opened under the
government’s ‘Pradhan Mantri Jan Dhan Yojana (PMJDY)’ scheme reached 47.39
crore and deposits in Jan Dhan bank accounts totalled Rs. 1.76 lakh crore (US$ 21.59
billion).
• In October 2021, the government launched a production-linked incentive (PLI) scheme
to boost manufacturing of telecom and networking products in India. The scheme is
expected to attract an investment of ~Rs. 3,345 crore (US$ 446.22 million) over the
next four years and generate additional employment for >40,000 individuals.
• In October 2021, the government launched phase-II of the Mahatma Gandhi National
Fellowship to empower students and boost skill development.
• In October 2021, the PM Ayushman Bharat Health Infrastructure Mission was launched
by the government, to strengthen the critical healthcare network across India in the next
four to five years.
• The Indian government is planning to introduce a credit incentive programme worth
Rs. 50,000 crore (US$ 6.8 billion) to boost healthcare infrastructure in the country. The
programme will allow companies to access funds to ramp up hospital capacity or
medical supplies with the government acting as a guarantor.
• Under Union Budget 2021-22, the government allocated Rs. 7,000 crore (US$ 963.97
million) to the BharatNet programme to boost digital connectivity across India.
• The FDI limit for insurance companies has been raised from 49% to 74% and 100% for
insurance intermediates.
• On January 15, 2021, the third phase of Pradhan Mantri Kaushal Vikas Yojana
(PMKVY) was launched in 600 districts with 300+ skill courses. Spearheaded by the

Ministry of Skill Development and Entrepreneurship, the third phase will focus on new-
age and COVID-related skills. PMKVY 3.0 aims to train eight lakh candidates.
• In January 2021, the Department of Telecom, Government of India, signed an MoU
with the Ministry of Communications, Government of Japan, to strengthen cooperation
in the areas of 5G technologies, telecom security and submarine optical fibre cable
system.
• In the next five years, the Ministry of Electronics and Information Technology is
working to increase the contribution of the digital economy to 20% of GDP. The
government is working to build cloud-based infrastructure for collaborative networks
that can be used for the creation of innovative solutions by AI entrepreneurs and
startups.
• On Independence Day 2020, Prime Minister Mr. Narendra Modi announced the
National Digital Health Mission (NDHM) to provide a unique health ID to every Indian
and revolutionise the healthcare industry by making it easily accessible to everyone in
the country. The policy draft is under ‘public consultation’ until September 21, 2020.
• In September 2020, the Government of Tamil Nadu announced a new electronics &
hardware manufacturing policy aligned with the old policy to increase the state's
electronics output to US$ 100 billion by 2025. Under the policy, it aims to meet the
requirement for incremental human resource by upskilling and training >100,000
people by 2024.
• The Government of India has launched the National Broadband Mission with an aim to
provide Broadband access to all villages by 2022.
Way forward:
Both domestic and global factors influence the growth of the services sector. An extensive
range of service industries have experienced double digit growth in recent years, supported by
digital technologies and institutional frameworks made possible by the government. The ease
of doing business in India has significantly increased for domestic and foreign firms due to
considerable advancements in culture and the government outlook. Due to ongoing changes in
the areas of lowering trade barriers, easing FDI regulations, and deregulation, India's services
sector is poised to grow at a healthy rate in the coming years.
By 2025, the healthcare industry is expected to reach US$ 372 billion. India’s digital economy
is estimated to reach US$ 1 trillion by 2025. By the end of 2023, India’s IT and business
services sector is expected to reach US$ 14.3 billion with 8% growth. The implementation of
the Goods and Services Tax (GST) has created a common national market and reduced the
overall tax burden on goods. It is expected to reduce costs in the long run-on account of
availability of GST input credit, which will result in the reduction in prices of services. India's
software service industry is expected to reach US$ 1 trillion by 2030.
Due to ongoing changes in the areas of lowering trade barriers, easing FDI regulations, and
deregulation, India's services sector is poised to grow at a healthy rate in the coming years.
***************************

The Indian Banking Sector
Contents
Introduction ....................................................................................................................... 1
Structure of the Indian Banking System ......................................................................... 1
The Reserve Bank of India ............................................................................................... 2
Size of the Indian Banking Industry ................................................................................. 4
Evolution of the Indian Banking Industry ........................................................................ 5
Recent trends in Banking ................................................................................................. 7
Investments/Developments .............................................................................................10
Government Initiatives ....................................................................................................11
Challenges of the Banking Industry ...............................................................................13
Road Ahead ......................................................................................................................15
Introduction
The existing banking structure in India, evolved over several decades, is elaborate and has been
serving the credit and banking services needs of the economy. There are multiple layers in today's
banking structure to cater to the specific and varied requirements of different customers and
borrowers. The banking structure played a major role in the mobilization of savings and promoting
economic development.
India has a large bank-dominated financial system. Over the decades, the macroeconomic
environment in which the banking structure traversed and functioned has changed significantly.
On account of various policy initiatives and reform measures, resilience of the Indian banking
system has improved over the years and it was able to withstand adverse economic and financial
conditions from time to time. The muted impact of the global crisis on the Indian banking system
stands testimony to this fact.
Structure of the Indian Banking System

The Indian financial system comprises a large number of commercial and cooperative banks,
specialized developmental banks for industry, agriculture, external trade and housing, social
security institutions, collective investment institutions, etc. The banking system is at the heart of
the financial system. The Indian banking sector is broadly classified into scheduled banks and non-
scheduled banks. All banks included in the Second Schedule to the Reserve Bank of India Act,

1934 are Scheduled Banks. These banks comprise Scheduled Commercial Banks and Scheduled
Co-operative Banks. Scheduled Co-operative Banks consist of Scheduled State Co-operative
Banks and Scheduled Urban Cooperative Banks. Scheduled Commercial Banks in India are
categorized into five different groups according to their ownership and/or nature of the
operation:
a. State Bank of India and its Associates
b. Nationalized Banks
c. Private Sector Banks
d. Foreign Banks
e. Regional Rural Banks
f. Payments Banks
The Reserve Bank of India

The Reserve Bank of India is the central bank of India. The Reserve Bank of India was set up on
the basis of the recommendations of the Hilton Young Commission. The Reserve Bank of India
Act, 1934 (II of 1934) provides the statutory basis of the functioning of the Bank, which
commenced operations on April 1, 1935.
The Bank was constituted to
1. Regulate the issue of banknotes
2. Maintain reserves with a view to securing monetary stability and
3. To operate the credit and currency system of the country to its advantage.
The Bank, which was originally set up as a shareholder's bank, was nationalized in 1949. An
interesting feature of the Reserve Bank of India is that since its inception, the Bank has played an
active and direct role in supporting developmental activities in the country. Over the years, its
developmental role has extended to institution building for facilitating the availability of
diversified financial services within the country. The Reserve Bank today also plays an active role
in encouraging efficient customer service throughout the banking industry, as well as the extension
of banking service to all, through the thrust on financial inclusion.
a. Scheduled
Scheduled Banks in India refer to those banks which have been included in the Second Schedule
of Reserve Bank of India Act, 1934. RBI in turn includes only those banks in this Schedule which
satisfy the criteria laid down vide section 42(6) (a) of the said Act.

b. Non –Scheduled Banks

Banks not under the aforementioned Second Schedule are called Non-Scheduled Banks. At present
these are only three such banks in the country.
c. Commercial Banks
Commercial banks may be defined as any banking organization that deals with the deposits and
loans of business organizations. Commercial banks issue bank checks and drafts, as well as accept
money on term deposits. Commercial banks also act as moneylenders, by way of installment loans
and overdrafts. Commercial banks also allow for a variety of deposit accounts, such as checking,
savings, and time deposit. These institutions are run to make a profit and owned by a group of
individuals.
i. Public Sector Banks: These are banks where the majority stake is held by the
Government of India.
ii. Private Sector Banks: These are banks whose majority of the share capital of the
bank is held by private individuals. These banks are registered as companies with limited
liability.
iii. Foreign Banks: These banks are registered and have their headquarters in a foreign
country but operate their branches in India.
iv. Regional Rural Banks: Regional Rural Banks were established under the
provisions of an Ordinance promulgated on the 26th September 1975 and the RRB Act,
1976 with an objective to ensure sufficient institutional credit for agriculture and other rural
sectors. The area of operation of RRBs is limited to the area as notified by GOI covering
one or more districts in the State.
d.Cooperative Banks
The co-operative banks play a crucial role in the multi-agency approach to credit delivery in both
urban and rural areas. The cooperative banking system in India has a three-tiered structure
comprising state cooperative banks (SCBs) at the state level, DCCBs at the district level, and
Primary Agricultural Credit Societies (PACS) at the village level. One of the most important
functions of DCCB is to provide funds to the primary cooperative societies, particularly the PACS
affiliated to it in the district. Therefore, the success of the cooperative credit system critically
depends on the financial strength of DCCBS as they are a pivotal intermediary. With over 120
million customers, the rural cooperative banking structure in India has the largest outreach in rural
credit delivery anywhere in the world. Even though the amount of credit delivered is lower than
commercial banks, cooperative banking reaches out to more individuals. Nevertheless, in terms of
short-term credit delivery to the agricultural sector, district central cooperative banks (DCCBs)
deliver more credit in comparison with SCBs and regional rural banks (RRBs).

e. Payment’s bank
Payments Bank is a new model of banks conceptualized by the Reserve Bank of India (Section 22
of the Banking Regulation Act, 1949). This is for the first time in the history of India's banking
sector that RBI is giving out differentiated licenses for specific activities. The move is seen as a
major step in pushing financial inclusion in the country. These banks can accept a restricted
deposit, which is currently limited to Rs. 1 lakh per customer and may be increased further. These
banks cannot issue loans and credit cards. Both current accounts and savings accounts can be
operated by such banks. Payments banks can issue services like ATM cards, debit cards, net
banking, and mobile banking. The banks will be licensed as payments banks and will be registered
as public limited companies under the Companies Act, 2013. 11 were issued payments banks
licenses (August 19, 2015).
The Reserve Bank expects payment banks to target India’s migrant labourers, low-income
households, and small businesses, offering savings accounts and remittance services with a low
transaction cost. It hopes payments banks will enable poorer citizens who transact only in cash to
take their first step into formal banking. It could be uneconomical for traditional banks to open
branches in every village but the coverage of the mobile phone is a promising low-cost platform
for quickly taking basic banking services to every rural citizen. The innovation is also expected to
accelerate India’s journey into a cashless economy.
Size of the Indian Banking Industry

The Indian banking system consists of 12 public sector banks, 22 private sector banks, 46
foreign banks, 56 regional rural banks, 1485 urban cooperative banks and 96,000 rural
cooperative banks in addition to cooperative credit institutions. As of March 2023, the total
number of ATMs in India reached 14,74,548. Moreover, there are 1,21,894 on-site ATMs and
Cash Recycling Machines (CRMs) and 96,243 off-site ATMs and CRMs.
Bank assets across sectors have increased significantly since 2020. In 2022-23, total assets in the
public and private banking sectors were US$ 1,553.57 billion and US$ 901.3 billion, respectively.
In 2022-23, assets of public sector banks accounted for 59.24% of the total banking assets
(including public, private sector and foreign banks).
According to RBI’s Scheduled Banks’ Statement, deposits of all scheduled banks collectively
surged by a whopping Rs.1.98 lakh crore (US$ 24.32 billion) as on May 5, 2023, at a growth rate
of 10.2%.

According to the BCG Banking Sector Roundup Report of 9M FY23, credit growth is expected to
hit 18.1% in 2022-23 which will be a double-digit growth in eight years. As of November 4, 2022
bank credit stood at Rs. 129.26 lakh crore (US$ 1,585.09 billion).
Evolution of the Indian Banking Industry
Phase I – Pre-Nationalization Phase (Prior to 1955)

India's independence marked the end of a regime of Laissez-faire for Indian banking. The
Government of India initiated measures to play an active role in the economic life of the nation,
and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed
economy. This resulted in greater involvement of the state in different segments of the economy
including banking and finance. The major step to regulate banking included nationalizing The
Reserve Bank of India, India's central banking authority, on 1st January 1949 under the terms of
the Reserve Bank of India (Transfer to Public Ownership) Act, 1948. The Act vested RBI with
powers to regulate, control, and inspect the banks in India.
Phase II – Era of Nationalization and Consolidation (1955-1990)

By the 1960s, the Indian banking industry had become an important tool to facilitate the
development of the Indian economy. At the same time, it had emerged as a large employer, and a
debate had ensued about the nationalization of the banking industry. The Government of India
issued an ordinance (Banking Companies (Acquisition and Transfer of Undertakings) Ordinance,
1969) and nationalized the 14 largest commercial banks with effect from midnight of 19 July 1969.
This was done with a view of expanding the banking sector to the villages of India and inculcating
banking habits amongst people. In 1980, another 6 banks were nationalized. The nationalization
of banks helped build the confidence of the people in the banking sector. This is evident through
the fact that the deposits in banks increased by a whopping 800% post-nationalization.
Phase III – Introduction of Indian Financial & Banking Sector and Partial
Liberalisation (1990-2004)
In the early 1990s, the government embarked on a policy of liberalization, licensing a small
number of private banks. This move, along with the rapid growth in the economy of India,
revitalized the banking sector in India, which has seen rapid growth with strong contributions from
all three sectors of banks, namely, government banks, private banks, and foreign banks.
Phase IV – Period of Increased Liberalization (2004-present)

The next stage for Indian banking began with the relaxation of norms for foreign direct investment.
The new wave ushered in a modern outlook and tech-savvy methods of working for traditional
banks. All this led to the retail boom in India. People demanded more from their banks and received
more. Since April 2014, the Reserve Bank of India (RBI) has granted 23 banking licenses to new

players - two were given universal banking licenses (April 2, 2014), 11 were issued payments
banks licenses (August 19, 2015) and 10 were given licenses for small finance banks (September
16, 2015). The niche banks - small finance and payments banks -have been set up to further the
regulator's objective of deepening financial inclusion.
Financial Inclusion agenda of RBI: PMJDY Accounts

Pushing the financial inclusion agenda, the Pradhan Mantri Jan Dhan Yojana (PMJDY) was
introduced in August 2014 to ensure comprehensive financial inclusion of all the households in
the country. The scheme intends to ensure universal access to banking services and products with
at least one banking account for every household in the country. An individual above 10 years of
age can open an account. A RuPay debit card is issued for the account holder for withdrawal,
deposits, and payment purposes. The account holder is also covered for accidental insurance of
Rs. 1,00,000 and life insurance of Rs. 30,000 provided without premium, after 6 months of
satisfactory transaction of the account. Households can also avail Rs. 5,000 overdraft facilities.
The Indian Government is aggressively promoting digital transactions. The launch of the United
Payments Interface (UPI) and Bharat Interface for Money (BHIM) by the National Payments
Corporation of India (NPCI) are significant steps for innovation in the Payment Systems domain.
UPI is a mobile interface where people can make instant funds transfer between accounts in
different banks on the basis of virtual addresses without mentioning the bank account.
Perspectives on Indian Banking

The Indian banking sector has come a long way since independence, more so since the
nationalization of 14 major banks in 1969 and 6 banks in 1980. The primary objective of bank
nationalization was balance sheet growth or an increase in deposits and loans driven primarily by
an expansion of branches. The Indian banking system delivered admirably on these objectives. All
the major development indicators such as the number of branches, deposit mobilization credit
disbursed, per capita deposits and per capita credit marked a significant expansion during 1969-
1991.
The key feature that distinguished the Indian banking sector from the banking sectors in many
other countries was the fostering of different types of institutions that catered to the divergent
banking needs of various sectors of the economy. Credit cooperatives were created to cater to the
credit, processing and marketing needs of small and marginal farmers organized on cooperative
lines. Cooperatives expanded also in urban and semi-urban areas in the form of urban cooperative
banks to meet the banking and credit requirements of people with smaller means. Regional Rural
Banks were created to bring together the positive features of credit cooperatives and commercial
banks and specifically address credit needs of backward sections in rural areas.
With the reforms post 1991, the Indian banking sector, as it stands today, is mature in supply,
product range and reach, with banks having clean, strong and transparent balance sheets. The major

growth drivers are increase in retail credit demand, proliferation of ATMs and debit-cards,
decreasing NPAs due to Securitization, improved macroeconomic conditions, diversification,
interest rate spreads, and regulatory and policy changes (e.g. amendments to the Banking
Regulation Act).
Recent trends in Banking

1) Electronic Payment Services – E Cheques
Now-a-days we are hearing about e-governance, e-mail, e-commerce, e-tail etc. In the same
manner, a new technology is being developed in the US for the introduction of e-cheque, which
will eventually replace the conventional paper cheque. India, as harbinger to the introduction of e-
cheque, the Negotiable Instruments Act has already been amended to include; Truncated cheque
and E-cheque instruments.
2) Real Time Gross Settlement (RTGS)
Real Time Gross Settlement system, introduced in India since March 2004, is a system through
which electronic instructions can be given by banks to transfer funds from their account to the
account of another bank. The RTGS system is maintained and operated by the RBI and provides a
means of efficient and faster funds transfer among banks facilitating their financial operations. As
the name suggests, funds transfer between banks takes place on a ‘Real Time' basis. Therefore,
money can reach the beneficiary instantaneously and the beneficiary's bank has the responsibility
to credit the beneficiary's account within two hours.
3) Electronic Funds Transfer (EFT)
Electronic Funds Transfer (EFT) is a system whereby anyone who wants to make payment to
another person/company etc. can approach his bank and make cash payment or give
instructions/authorization to transfer funds directly from his own account to the bank account of
the receiver/beneficiary. Complete details such as the receiver's name, bank account number,
account type (savings or current account), bank name, city, branch name etc. should be furnished
to the bank at the time of requesting for such transfers so that the amount reaches the beneficiaries'
account correctly and faster. RBI is the service provider of EFT.
4) Electronic Clearing Service (ECS)
Electronic Clearing Service is a retail payment system that can be used to make bulk
payments/receipts of a similar nature especially where each individual payment is of a repetitive
nature and of relatively smaller amount. This facility is meant for companies and government
departments to make/receive large volumes of payments rather than for funds transfers by
individuals.

5) Automatic Teller Machine (ATM)

Automatic Teller Machine is the most popular device in India, which enables the customers to
withdraw their money 24 hours a day 7 days a week. It is a device that allows customers who have
an ATM card to perform routine banking transactions without interacting with a human teller. In
addition to cash withdrawal, ATMs can be used for payment of utility bills, funds transfer between
accounts, deposit of cheques and cash into accounts, balance enquiry etc.
8) Electronic Data Interchange (EDI)
Electronic Data Interchange is the electronic exchange of business documents like purchase order,
invoices, shipping notices, receiving advice etc. in a standard, computer processed, universally
accepted format between trading partners. EDI can also be used to transmit financial information
and payments in electronic form.
9) Universal Banking:
All the operations now can be performed in a single step. Electronic conveniences are provided
for busy life. There are various services provided by Electronic-Bank facilities:
1. Check account balance
2. Keep track of account transactions
3. Make third party payments
4. Transfer funds
5. Download transactions
6. Order check books
7. Request stop payments
10) Point of sale (POS): - POS is making a payment transaction in exchange for goods at that
time. The transaction can be done by using a debit or credit card. Every time PIN needs to be
entered to make a transaction.
Now, the bank will send that payment from the buyer account to the seller account. These
transactions are mostly used in malls where people do shopping from their cards.
11) Smart Wearable:
With smartwatch technology, the banking and financial services technology is aiming to create a
wearable for banking customers and provide more control and easy access to the data.
Therefore, this technology is for future retail banking trends by providing major banking services
with just a click on a user-friendly interface on their wearable device.
12) Demat Account:
A demat Account is an electronic account to store shares, securities. This eliminates the problems
regarding payment, holding physical securities certificates. Demat account is opened by several

banks and brokers. This trend in banking helps bank customers to buy shares online. Every investor
i.e., smaller or bigger investor can have registration through stockbrokers like HDFC Securities,
Kotak Securities, Upstox, etc.
13) Letters of credit: - The letter of credit is a legal document from a bank that says the bank will
pay the exporter when the conditions in the letter are met. In effect, the bank is liable to pay the
amount to the seller. The issuing bank (buyer’s Bank) pays the seller through the advising bank
(seller’s bank). The buyer of goods pays the issuing bank a fee for its services.
14) Phone Banking:

The next trend in banking is now banks pick up the phone to access a host of Bank services, day
or night. Phone and mobile banking are a fairly recent upgradation for the Indian banking industry.
Its channels function through an Interactive Voice Response System (IVRS) or Telebanking
executives of the banks.
15) UPI (Unified Payments Interface)

UPI has changed the way payments are made. It is a real-time payment system that enables instant
interbank transactions with the use of a mobile platform developed by the National Payments
Corporation of India. UPI makes funds transfer available 24 hours, 365 days unlike other internet
banking systems. UPI is quicker, safe, and easy to use. Examples – Google pay, Paytm, Bhim UPI,
etc.
16) Biometric verification system –

Biometric is Essential for security reasons, a Biometric verification system is changing the
national identity policies. Banking services are just one of the many other industries that are
experiencing new trends. With a duo or mixture of encryption technology and OTPs, biometric
authentication is projected to create a highly secure database protecting it from leaks and hackers.
17) Hybrid Cloud Technology
The biggest question that the digital or modern age has brought to banking is the need to
communicate quickly. Banks need to be able to provide resources across the enterprise in a timely
manner to solve business problems faster. Hybrid cloud also allows banks to offer new innovative
offerings to their customers. For example – ICICI Bank has partnered with Zoho Books which is
online accounting software. This allows Retail business or Shop owners to automate the basic
reconciliation process through Zoho Books. The partnership made with the need for online data
entry and to offer multiple payment options to the customers.

Investments/Developments
Key investments and developments in India’s banking industry include:
● M&A activity with an India angle hit a record US$ 171 billion in 2022.
● In April 2022, IDFC to sell Mutual Fund Business to Bandhan-Financial Holdings led
Consortium for US$ 550.23 million (Rs. 4,500 crore).
● In March 2022, aggressive Axis Bank acquired Citi's India consumer business for US$ 1.6
billion.
● In December 2022, HDFC Bank to buy 7.75% stake in fintech start-up Mintoak.
● As per report by Refinitiv, Domestic M&A activity saw record levels of activity in 2022 at
US$ 119.2 billion, up 156.3% from 2021. Companies like HDFC Bank, HDFC, Ambuja
Cements, ACC, Adani Group Biocon, Mindtree, L&T Infotech, AM/NS, Essar Ports were
involved in M&A deals in 2022
● On June, 2022, the number of bank accounts—opened under the government’s flagship
financial inclusion drive ‘Pradhan Mantri Jan Dhan Yojana (PMJDY)’—reached 45.60 crore
and deposits in the Jan Dhan bank accounts totaled Rs. 1.68 trillion (US$ 21.56 billion).
● In April 2022, India’s largest private bank HDFC Bank announced a transformational merger
with HDFC Limited.
● On November 09, 2021, RBI announced the launch of its first global hackathon
'HARBINGER 2021 – Innovation for Transformation' with the theme ‘Smarter Digital
Payments’.
● In November 2021, Kotak Mahindra Bank announced that it has completed the acquisition
of a 9.98% stake in KFin Technologies for Rs. 310 crore (US$ 41.62 million).
● In October 2021, Indian Bank announced that it has acquired a 13.27% stake in the proposed
National Asset Reconstruction Company Ltd. (NARCL).
● In July 2021, Google Pay for Business has enabled small merchants to access credit through
tie-up with the digital lending platform for MSMEs—FlexiLoans.
● In February 2021, Axis Bank acquired a 9.9% share in the Max Bupa Health Insurance
Company for Rs. 90.8 crore (US$ 12.32 million).

● In December 2020, in response to the RBI’s cautionary message, the Digital Lenders’
Association issued a revised code of conduct for digital lending.
● On November 6, 2020, WhatsApp started UPI payments service in India on receiving the
National Payments Corporation of India (NPCI) approval to ‘Go Live’ on UPI in a graded
manner.
● In October 2020, HDFC Bank and Apollo Hospitals partnered to launch the ‘HealthyLife
Programme’, a holistic healthcare solution that makes healthy living accessible and
affordable on Apollo’s digital platform.
● In 2019, banking and financial services witnessed 32 M&A (merger and acquisition)
activities worth US$ 1.72 billion.
● In April 2020, Axis Bank acquired additional 29% stake in Max Life Insurance.
● In March 2020, State Bank of India (SBI), India’s largest lender, raised US$ 100 million in
green bonds through private placement.
● In February 2020, the Cabinet Committee on Economic Affairs gave its approval for
continuation of the process of recapitalization of Regional Rural Banks (RRBs) by providing
minimum regulatory capital to RRBs for another year beyond 2019-20 - till 2020-21 to those
RRBs which are unable to maintain minimum Capital to Risk weighted Assets Ratio (CRAR)
of 9% as per the regulatory norms prescribed by RBI.
● In October 2022, Prime Minister Mr. Narendra Modi inaugurated 75 Digital Banking Units
(DBUs) across 75 districts in India.
● In Union Budget 2023, a national financial information registry would be constructed to
serve as the central repository for financial and ancillary data.
● In Union Budget 2023, the KYC process will be streamlined by using a 'risk-based' strategy
rather than a 'one size fits all' approach.
● Number of Jan Dhan Yojana Bank accounts are over 486 million. Jan Dhan Deposits grew
by 20% YoY. There are deposits of over ~US$ 24.2 billion in beneficiary accounts.
● National Asset reconstruction company (NARCL) will take over, 15 non-performing loans
(NPLs) worth Rs. 50,000 crore (US$ 6.70 billion) from the banks.
● National payments corporation India (NPCI) has plans to launch UPI lite which will provide
offline UPI services for digital payments. Payments of up to Rs. 200 (US$ 2.67) can be made
using this.

● In the Union budget of 2022-23 India has announced plans for a central bank digital currency
(CBDC) which will be possibly known as Digital Rupee.
● National Asset reconstruction company (NARCL) will take over, 15 Non-performing loans
(NPLs) worth Rs. 50,000 crore (US$ 6.70 billion) from the banks.
● In November 2021, RBI launched the ‘RBI Retail Direct Scheme’ for retail investors to
increase retail participation in government securities.
● The RBI introduced new auto debit rules with a mandatory additional factor of authentication
(AFA), effective from October 01, 2021, to improve the safety and security of card
transactions, as part of its risk mitigation measures.
● In September 2021, Central Banks of India and Singapore announced to link their digital
payment systems by July 2022 to initiate instant and low-cost fund transfers.
● In August 2021, Prime Minister Mr. Narendra Modi launched e-RUPI, a person and purpose-
specific digital payment solution. e-RUPI is a QR code or SMS string-based e-voucher that
is sent to the beneficiary’s cell phone. Users of this one-time payment mechanism will be
able to redeem the voucher at the service provider without the usage of a card, digital
payments app, or internet banking access.
● As per Union Budget 2021-22, the government will disinvest IDBI Bank and privatize two
public sector banks.
● Government smoothly carried out consolidation, reducing the number of Public Sector Banks
by eight.
● In May 2022, Unified Payments Interface (UPI) recorded 5.95 billion transactions worth Rs.
10.41 trillion (US$ 133.46 billion).
● According to the RBI, India’s foreign exchange reserves reached US$ 630.19 billion as of
February 18, 2022.
● The number of transactions through immediate payment service (IMPS) reached 430.67
million and amounted to Rs. 3.70 trillion (US$ 49.75 billion) in October 2021.
● The RBI has launched a pilot to digitalize KCC lending in a bid for efficiency, higher cost
savings, and reduction of TAT. This is expected to transform the flow of credit in the rural
economy.
● The RBI has launched a pilot to digitalize KCC lending in a bid for efficiency, higher cost
savings, and reduction of TAT. This is expected to transform the flow of credit in the rural
economy
● As per the Union Budget 2023-24, the RBI has launched a pilot to digitalize Kisan Credit
Card (KCC) lending in a bid for efficiency, higher cost savings, and reduction of TAT. This
is expected to transform the flow of credit in the rural economy.
● As per the Union Budget 2023-24, digital banking, digital payments and fintech innovations
have grown at a rapid pace in the country. Taking forward this agenda, and to mark 75 years
of our independence, it is proposed to set up 75 Digital Banking Units in 75 districts of the
country by Scheduled Commercial Banks.

● Additionally, the government proposed to introduce a digital rupee or a Central Bank Digital
Currency (CBDC) which would be issued by the RBI using blockchain and other
technologies.
● The government also proposed to bring all the 150,000 post offices under the digital banking
core business to enable financial inclusion.
● As per the economic survey 2022-23, the permission by RBI to lending institutions to grant
a total moratorium of 6 (3+3) months in case of payment failure due between 1st March 2020
to 31st August 2020, infusion of US$ 9.1 billion (Rs. 75,000 crore) for Non-Banking
Financial Corporations (NBFCs), Housing Finance Companies (HFCs) and Micro Finance
Institutions (MFIs), among others, have also contributed to the revival of the real estate
sector. The permission by RBI to lending institutions to grant a total moratorium of 6 (3+3)
months in case of payment failure due between 1st March 2020 to 31st August 2020, infusion
of US$ 9.1 billion (Rs. 75,000 crore) for Non-Banking Financial Corporations (NBFCs),
Housing Finance Companies (HFCs) and Micro Finance Institutions (MFIs), among others,
have also contributed to the revival of the real estate sector.
● According to the Economic Survey 2022-23, Over the last few years, the number of neo-
banking platforms and global investments in the neo-banking segment has also risen
consistently. Neo-banks operate under mainstream finance's umbrella but empower specific
services long associated with traditional institutions such as banks, payment providers, etc.
Challenges of the Banking Industry

The major challenges faced by banks today are as to how to cope with competitive forces and
strengthen their balance sheet. Despite positive macroeconomic trends, Indian banks face
problems, which have affected their profitability and financial stability. Inherent structural
challenges are getting exposed as the industry has been subjected to multiple shocks over the last
few years. The key challenges are high fragmentation levels, limited differentiation among players,
and the inherent restrictions of state ownership on the PSBs.
The key challenges are as follows: -
1. Growing NPAs (Asset Quality): -The biggest risk to India's banks is the rise in bad loans.
Statistics show that the largest NPA is from the infrastructure sector which is around 32%. Due
to this, banks are incurring huge losses. They are unable to maintain their Capital Adequacy
Ratio (CAR). In the last few years, CRAR has declined steadily for Indian banks, especially
for public-sector banks. Public-sector banks are more exposed to industry sectors with a higher
share of nonperforming loans than their private-sector counterparts are. These state-owned
institutions have deep networks and control 70 percent of banking’s asset base. From 2009 to
2016, the government made capital infusions of $15 billion into them. But over the years, value
has steadily shifted towards private-sector institutions, whose share of the sector’s assets has
grown to 25 percent, from 21 percent, in the past decade. The division is more apparent in the
value banks created from 2006 to 2016: private banks have grown faster and generated far

more value for their shareholders, with their share of market cap increasing from about 40
percent to nearly 70 percent in the same period. The stressed asset burden continues to grow
for all commercial banks, with the distressed loan volume crossing INR 10 lakh crores in
December 2016. The challenge is especially acute for the public-sector banks (PSBs), where
stressed assets surpass their net worth. Current provision levels are inadequate, with a gap of
nearly INR 600,000 crores between the level of stressed assets in the system and the provisions
made. As these stressed assets continue to turn bad, the entire equity base of the banks could
be at risk.Loan growth in fiscal year 2017 has remained anaemic—the banks’ credit books
shrank by 4 percent in the past quarter. With the balance sheets of major Indian companies
continuing to be under stress, the volume of corporate loans fell by 3 percent from April to
December 2016. Roughly 40 percent of the outstanding debt is to companies whose interest-
coverage ratio is less than one, making debt repayment difficult. Overall, the recovery of
wholesale-banking loans seems difficult in the medium term.
At the macroeconomic level, despite one of the deepest continuous rate cuts since the financial
crisis, credit growth has stagnated. Loan volume shrunk by 0.1 percent between March and
December 2016, as Indian corporations dealt with a large burden of distressed loans. Moreover,
the 2016 demonetisation exercise brought massive levels of surplus liquidity into the system—this
deposit surge, along with credit slowdown, has brought down the CD ratio of banks.
2. Basel III norms conformity by Banks : Basel III is a comprehensive set of reform measures
developed by the Basel Committee on Banking Supervision to consolidate the regulation,
supervision and risk management of the sector. These aim at propping up the banking sector’s
ability to absorb shocks arising from financial and economic stress and improve risk
management. Basel III introduced tighter capital requirements in comparison to Basel I and
Basel II. The impact of these reforms on banking is quite significant. Perhaps the Indian
banking sector deserves a small interregnum so as to meaningfully concentrate on issues
related to asset quality and credit growth.
3. Non-performing Public-Sector Banks: The core challenge is that many of the public sector
banks (PSBs) are undifferentiated, sub-scale, and with limited capabilities to be full universal
banks. About 80% of them own only 25% of the assets. They also operate in virtually every
market segment with very limited sector or vertical-focused specialization. In fact, they focus
on the same customer segments, offer similar products, and very often compete only on price.
Some of this is because PSBs face challenges that impede them from competing effectively.
They have to shoulder a disproportionate share of social and nation-building obligations.
Policies on compensation and human resources reduce management autonomy, and inhibit
their ability to attract and manage talent.
4. Competition from Non-Banking Financial Institutions:
As far as deposit mobilization is con-cerned, commercial banks have been facing stiff challenges
from non-banking financial interme-diaries such as mutual funds, housing finance cor-porations,

leasing and investment companies. All these institutions compete closely with commer-cial banks
in attracting public deposits and offer higher rates of interest than are paid by commer-cial banks.
The changing regulatory posture is facilitating the emergence of a digital, inclusive, interoperable,
and competitive financial services market. An overhauled banking license regime is encouraging
the entry of new players, both domestic and foreign. Government interventions are enabling digital
business models through the creation of hard, publicly accessible data assets. However, growing
restrictions on corporate lending practices could have a chilling effect on wholesale loan growth.
Essentially, a technologically advanced, transparent and efficient banking system is the need of
the hour for the growing economy like India. In India, the need for qualitative banking surpasses
the conservative economic or financial logic as financial inclusion is still a distant dream.
Road Ahead
Enhanced spending on infrastructure, speedy implementation of projects and continuation of
reforms are expected to provide further impetus to growth in the banking sector. All these factors
suggest that India’s banking sector is poised for robust growth as rapidly growing businesses will
turn to banks for their credit needs. The advancement in technology has brought mobile and
internet banking services to the fore. The banking sector is laying greater emphasis on providing
improved services to their clients and upgrading their technology infrastructure to enhance
customer’s overall experience as well as give banks a competitive edge.
In recent years India has experienced a rise in fintech and microfinancing. India’s digital lending
stood at US$ 75 billion in FY18 and is estimated to reach US$ 1 trillion by FY23 driven by the
five-fold increase in digital disbursements. The Indian fintech market has attracted US$ 29 billion
in funding over 2,084 deals so far (January 2017-July 2022), accounting for 14% of global funding
and ranking second in terms of deal volume. By 2025, India's fintech market is expected to reach
Rs. 6.2 trillion (US$ 83.48 billion).
Paperless future
Neobanks have led the way in streamlining cumbersome banking procedures. It takes a couple of
minutes on your phone to open a bank account online, whereas earlier, it would take a visit to the
branch and at least five different documents.
Developments such as the central KYC registry and the Account Aggregator (AA) framework
have allowed customers to digitally share their financial and identity data with institutions of their
choice, eliminating the need for physical verification of documents.

The National e-Governance Services (NeSL) can make loan agreements that usually require stamp
paper and various other physical documents, entirely paperless. This will completely digitize the
application process for all sorts of credit, from business to home loans.
Apps like Fi Money already provide paperless and instant personal loans. Such services could soon
cover home loans as well.
AI and Banking sector

Artificial intelligence (AI) has rapidly transformed various industries, including banking and
finance. AI technologies are increasingly indispensable in the BFSI market, and hence, banking
institutions must embrace these emerging technologies at scale to remain competitive and relevant.
According to a report by Business Insider, by implementing AI applications, banks are projected
to save $447 billion by the end of 2023
AI applications play a crucial role in detecting and preventing fraud in the banking and finance
industry. AI algorithms analyze vast troves of data to identify users’ behavior, transaction history,
pattern, and anomalies to indicate potential fraud.
*******************

Money Market
Table of Contents:
I. Introduction 2
II. Features of Money Market 2
III. Participants in Money Market 3
1. Central Government 3
2. Public Sector Undertakings 3
3. Insurance Companies 3
4. Mutual Funds 3
5. Banks 3
6. Corporates 3
IV. Structure of Indian Money Market 4
V. Constituents of the Indian Money Market 4
I. Supply of Funds 5
II. Demand for Funds 5
III. Sub-Markets of the Organised Money Market 5
A. Call Money Market 6
B. Treasury Bill Market 6
C. Commercial Bill Market 7
D. Collateral Loan Market 7
E. Certificate of Deposit and Commercial Paper Markets 7
VI. Constituents of Unorganised Money Market 7
1)Indigenous Bankers (IBs) 7
2)Money Lenders (MLs) 7
3)Non - Banking Financial Companies (NBFCs) 8
VII. Limitations of Indian Money Market 8
1. Dichotomy 8
2. Lack of Coordination And Integration 8
3. Diversity In Interest Rates 9
4. Seasonality of the Money Market 9
5. Shortage of Funds 9
6. Absence Of Organised Bill Market 9
7. Inadequate Banking Facilities 9
VIII. Reforms in the Indian Money Market 10
1. Deregulation of Interest Rates 10

2. Reforms in Call and Term money market 10

3. Introduction of new money market instruments 10
4. Setting up Discount and Finance House of India 10
5.Introducing Liquidity Adjustment Facility 10
6.Refinance by RBI 11
7.Regulation of Non-Banking Financial Companies 11
8.Debt Recovery 11
I. Introduction
Money market is a market for short-term funds. We define the short-term as a period of 364
days or less. In other words, the borrowing and repayment take place in 364 days or less. The
manufacturers need two types of finance: finance to meet daily expenses like purchase of raw
material, payment of wages, excise duty, electricity charges etc., and finance to meet capital
expenditure like purchase of machinery, installation of pollution control equipment etc.
The first category of finance is invested in the production process for a short-period of time.
The market where such short-time finance is borrowed and lent is called ‘money market’.
II. Features of Money Market

1. Money market has no geographical constraints as that of a stock exchange. The
financial institutions dealing in monetary assets may be spread over a wide
geographical area.
2. Even though there are various centers of money market such as Mumbai, Calcutta,
Chennai, etc., they are not separate independent markets but are inter-linked and
interrelated.
3. It relates to all dealings in money or monetary assets.
4. It is a market purely for short-term funds.
5. It is not a single homogeneous market. There are various sub-markets such as Call
money market, Bill market, etc.
6. Money market establishes a link between RBI and banks and provides information of
monetary policy and management.
7. Transactions can be conducted without the help of brokers.
8. Variety of instruments are traded in money market.

III. Participants in Money Market
A large number of borrowers and lenders make up the money market.
Some of the important players are listed below:
1. Central Government
Central Government is a borrower in the money market through the issue of Treasury Bills (T-
Bills). The T-Bills are issued through the RBI. The T-Bills represent zero risk instruments.
They are issued with tenure of 91 days (3 months), 182 days (6 months) and 364 days (1 year).
Due to its risk free nature, banks, corporates and many such institutions buy the T-Bills and
lend to the government as a part of it short- term borrowing programme.
2. Public Sector Undertakings

Many government companies have their shares listed on stock exchanges. As listed companies,
they can issue commercial paper in order to obtain its working capital finance. The PSUs are
only borrowers in the money market. They seldom lend their surplus due to the bureaucratic
mindset. The treasury operations of the PSUs are very inefficient with huge cash surplus
remaining idle for a long period of time.
3. Insurance Companies
Both general and life insurance companies are the usual lenders in the money market. Being
cash surplus entities, they do not borrow in the money market. With the introduction of CBLO
(Collateralized Borrowing and Lending Obligations), they have become big investors. In
between capital market instruments and money market instruments, insurance companies
invest more in capital market instruments. As their lending programmes are for very long
periods, their role in the money market is a little less.
4. Mutual Funds
Mutual funds offer varieties of schemes for the different investment objectives of the public.
There are many schemes known as Money Market Mutual Fund Schemes or Liquid Schemes.
These schemes have the investment objective of investing in money market instruments.
They ensure highest liquidity to the investors by offering withdrawal by way of a day’s notice
or encashment of units through Bank ATMs. Naturally, mutual funds invest the corpus of such
schemes only in money market. They do not borrow, but only lend or invest in the money
market.
5. Banks
Scheduled commercial banks are very big borrowers and lenders in the money market. They
borrow and lend in the call money market, short-notice market, repo and reverse repo market.
They borrow in the rediscounting market from the RBI and IDBI. They lend in the commercial
paper market by way of buying the commercial papers issued by corporates and listed public
sector units. They also borrow through issuance of Certificate of Deposits to the corporates.
6. Corporates

Corporates borrow by issuing commercial papers which are nothing but short-term promissory
notes. They are issued by listed companies after obtaining the necessary credit rating for the
CP. They also lend in the CBLO market their temporary surplus, when the interest rate rules
are very high in the market. They are the lender to the banks when they buy the Certificate of
Deposit issued by the banks. In addition, they are the lenders through purchase of Treasury
bills.
There are many other small players like non-banking finance companies, primary dealers,
provident funds and pension funds. They mainly invest and borrow in the CBLO market in a
small way.
IV. Structure of Indian Money Market
Broadly speaking, the money market in India comprises two sectors-
(a) Organised sector, and
(b) Unorganised sector.
The organised sector consists of the Reserve Bank of India, the State Bank of India with its
seven associates, twenty nationalised commercial banks, other scheduled and non-scheduled
commercial banks, foreign banks, and Regional Rural Banks. It is called organised because its
part is systematically coordinated by the RBI. Non-bank financial institutions such as the LIC,
the GIC and subsidiaries, the UTI also operate in this market, but only indirectly through banks,
and not directly. Quasi-government bodies and large companies also make their short-term
surplus funds available to the organised market through banks. Cooperative credit institutions
occupy the intermediary position between organised and unorganised parts of the Indian money
market. These institutions have a three-tier structure. At the top, there are state cooperative
banks. At the local level, there are primary credit societies and urban cooperative banks.
Considering the size, methods of operations, and dealings with the RBI and commercial banks,
only state and central, cooperative banks should be included in the organised sector. The
cooperative societies at the local level are loosely linked with it.
The unorganised sector consists of indigenous banks and money lenders. It is unorganised
because activities of its parts are not systematically coordinated by the RBI. The money lenders
operate throughout the country, but without any link among themselves. Indigenous banks are
somewhat better organised because they enjoy rediscount facilities from the commercial banks
which, in turn, have link with the RBI. But this type of organisation represents only a loose
link with the RBI.
V. Constituents of the Indian Money Market

Money market is a centre where short-term funds are supplied and demanded. Thus, the main
constituents of the money market are the lenders who supply and the borrowers who demand
short-term credit.
I. Supply of Funds
There are two main sources of supply of short-term funds in the Indian money market:
(i) Unorganised indigenous sector, and
(ii) Organised modern sector.
(i) Unorganized Sector

The unorganised sector comprises numerous indigenous bankers and village money lenders.
It is unorganized because its activities are not controlled and coordinated by the Reserve
Bank of India.
(ii) Organized Sector

The organized modern sector of Indian money market comprises:
(a) The Reserve Bank of India
(b) The State Bank of India and its associate banks
(c) The Indian joint stock commercial banks (scheduled and non-scheduled) of which 20
scheduled banks have been nationalised
(d) The exchange banks which mainly finance Indian foreign trade
(e) Cooperative banks
(f) Other special institutions, such as, Industrial Development Bank of India, State Finance
Corporations, National Bank for Agriculture and Rural Development, Export-Import Bank,
etc., which operate in the money market indirectly through banks and
(g) Quasi-government bodies and large companies also make their funds available to the
money market through banks.
II. Demand for Funds

In the Indian money market, the main borrowers of short-term funds are: (a) Central
Government, (b) State Governments, (c) Local bodies, such as, municipalities, village
panchayats, etc., (d) traders, industrialists, farmers, exporters and importers, and (e) general
public.
III. Sub-Markets of the Organised Money Market
The organised sector of the Indian money market can be further classified into the following
sub-markets:

A. Call Money Market

The most important component of organised money market is the call money market. It deals
in call loans or call money granted for one day. Since the participants in the call money market
are mostly banks, it is also called the interbank call money market. The banks with temporary
deficit of funds form the demand side and the banks with temporary excess of funds form the
supply side of the call money market.
The main features of Indian call money market are as follows:

(i) Call money market provides the institutional arrangement for making the temporary surplus
of some banks available to other banks which are temporary in short of funds.
(ii) Mainly the banks participate in the call money market. The State Bank of India is always
on the lenders’ side of the market.
(iii) The call money market operates through brokers who always keep in touch with banks and
establish a link between the borrowing and lending banks.
(iv) The call money market is highly sensitive and competitive market. As such, it acts as the
best indicator of the liquidity position of the organised money market.
(v) The rate of interest in the call money market is highly unstable. It quickly rises under the
pressures of excess demand for funds and quickly falls under the pressures of excess supply of
funds.
(vi) The call money market plays a vital role in removing the day-to-day fluctuations in the
reserve position of the individual banks and improving the functioning of the banking system
in the country.
B. Treasury Bill Market

The treasury bill market deals in treasury bills which are the short-term (i.e., 91, 182 and 364
days) liability of the Government of India. Theoretically these bills are issued to meet the short-
term financial requirements of the government. But, in reality, they have become a permanent
source of funds to the government. Every year, a portion of treasury bills are converted into
long-term bonds. Treasury bills are of two types: ad hoc and regular.
Ad hoc treasury bills are issued to the state governments, semi- government departments and
foreign central banks. They are not sold to the banks and the general public, and are not
marketable.
The regular treasury bills are sold to the banks and public and are freely marketable. Both types
of ad hoc and regular treasury bills are sold by Reserve Bank of India on behalf of the Central
Government. The treasury bill market in India is underdeveloped as compared to the treasury
bill markets in the U.S.A. and the U.K. In the U.S.A. and the U.K., the treasury bills are the
most important money market instrument. On the contrary, the Indian Treasury bill market has
no dealers except the Reserve Bank of India. Besides the Reserve Bank, some treasury bills are

held by commercial banks, state government and semi-government bodies. But, these treasury
bills are not popular with the non-bank financial institutions, corporations, and individuals
mainly because of absence of a developed treasury bill market.
C. Commercial Bill Market

Commercial bill market deals in commercial bills issued by the firms engaged in business.
These bills are generally of three months maturity. A commercial bill is a promise to pay a
specified amount in a specified period by the buyer of goods to the seller of the goods. The
seller, who has sold his goods on credit draws the bill and sends it to the buyer for acceptance.
After the buyer or his bank writes the word ‘accepted’ on the bill, it becomes a marketable
instrument and is sent to the seller.
The seller can now sell the bill (i.e., get it discounted) to his bank for cash. In times of financial
crisis, the bank can sell the bills to other banks or get them rediscounted from the Reserved
Bank. In India, the bill market is undeveloped as compared to the same in advanced countries
like the U.K. There is absence of specialised institutions like acceptance houses and discount
houses, particularly dealing in acceptance and discounting business.
D. Collateral Loan Market

Collateral loan market deals with collateral loans i.e., loans backed by security. In the Indian
collateral loan market, the commercial banks provide short- term loans against government
securities, shares and debentures of the government, etc.
E. Certificate of Deposit and Commercial Paper Markets

Certificate of Deposit (CD) and Commercial Paper (CP) markets deal with certificates of
deposit and commercial papers. These two instruments (CD and CP) were introduced by
Reserve Bank of India in March 1989 in order to widen the range of money market instruments
and give investors greater flexibility in the deployment of their short-term surplus funds.
VI. Constituents of Unorganised Money Market
The main constituents of unorganized money market are
1)Indigenous Bankers (IBs)
Indigenous bankers are individuals or private firms who receive deposits and give loans and
thereby operate as banks. IBs accept deposits as well as lend money. They mostly operate in
urban areas, especially in western and southern regions of the country. The volume of their
credit operations is however not known. Further their lending operations are completely
unsupervised and unregulated. Over the years, the significance of IBs has declined due to the
growing organized banking sector.
2)Money Lenders (MLs)
They are those whose primary business is money lending. Money lending in India is very
popular both in urban and rural areas. Interest rates are generally high. Large amounts of loans
are given for unproductive purposes. The operations of money lenders are prompt, informal
and flexible. The borrowers are mostly poor farmers, artisans, petty traders and manual

workers. Over the years the role of money lenders has declined due to the growing importance
of the organized banking sector.
3)Non - Banking Financial Companies (NBFCs)
They consist of
1.Chit Funds
Chit funds are savings institutions. It has regular members who make periodic subscriptions to
the fund. The beneficiary may be selected by drawing of lots. Chit fund is more popular in
Kerala and Tamil nadu. RBI has no control over the lending activities of chit funds.
2.Nidhis
Nidhis operate as a kind of mutual benefit for their members only. The loans are given to
members at a reasonable rate of interest. Nidhis operate particularly in South India.
3.Loan or Finance Companies
Loan companies are found in all parts of the country. Their total capital consists of borrowings,
deposits and owned funds. They give loans to retailers, wholesalers, artisans and self-employed
persons. They offer a high rate of interest along with other incentives to attract deposits. They
charge high rate of interest varying from 36% to 48% p.a.
4.Finance Brokers
They are found in all major urban markets especially in cloth, grain and commodity markets.
They act as middlemen between lenders and borrowers. They charge commission for their
services.
VII. Limitations of Indian Money Market
1. Dichotomy
A major feature of Indian Money Market is the existence of dichotomy i.e. existence of two
markets: -Organised Money Market and Unorganised Money Market. Organised Sector consist
of RBI, Commercial Banks, Financial Institutions etc. The Unorganised Sector consist of IBs,
MLs, Chit Funds, Nidhis etc. It is difficult for RBI to integrate the Organised and Unorganised
Money Markets. Several segments are loosely connected with each other. Thus there is a
dichotomy in the Indian Money Market.
2. Lack of Coordination And Integration
It is difficult for RBI to integrate the organised and unorganised sector of the money market.
RBT is fully effective in the organised sector but the unorganised market is out of RBI’s
control. Thus there is a lack of integration between various sub-markets as well as various

institutions and agencies. There is less coordination between co-operative and commercial
banks as well as State and Foreign banks. The indigenous bankers have their own ways of
doing business.
3. Diversity In Interest Rates
There are different rates of interest existing in different segments of the money market. In rural
unorganised sectors the rate of interest are high and they differ with the purpose and borrower.
There are differences in the interest rates within the organised sector also. Although wide
differences have been narrowed down, yet the existing differences do hamper the efficiency of
money market.
4. Seasonality of the Money Market
Indian agriculture is busy during the period November to June resulting in heavy demand for
funds. During this period the money market suffers from monetary shortage resulting in a high
rate of interest. During slack season rate of interest falls &s there are plenty of funds available.
RBI has taken steps to reduce the seasonal fluctuations, but still the variations exist.
5. Shortage of Funds
In Indian Money Market demand for funds exceeds the supply. There is shortage of funds in
the Indian Money Market on account of various factors like inadequate banking facilities, low
savings, lack of banking habits, existence of parallel economy etc. There is also a vast amount
of black money in the country which has caused a shortage of funds. However, in recent years
development of banking has improved the mobilisation of funds to some extent.
6. Absence Of Organised Bill Market
A bill market refers to a mechanism where bills of exchange are purchased and discounted by
banks in India. A bill market provides short term funds to businessmen. The bill market in India
is not popular due to overdependence of cash transactions, high discounting rates, problem of
dishonour of bills etc.
7. Inadequate Banking Facilities
Though the commercial banks, have been opened on a large scale, yet banking facilities are
inadequate in our country. The rural areas are not covered due to poverty. Their savings are
very small and mobilisation of small savings is difficult. The involvement of banking system
in different scams and the failure of RBI to prevent these abuses of banking system shows that
Indian banking system is not yet a well organised sector.

VIII. Reforms in the Indian Money Market
1. Deregulation of Interest Rates
Interest rates are now subject to market conditions as the ceiling limit on them have been
removed by RBI after 1989.The important interest rates in India are-Bank rate, Medium-term
lending rate, Prime Lending rate, Bank Deposit rate, Call rate, Certificate of Deposit rate,
Commercial paper rate etc. This deregulation got a major push after the economic liberalisation
of 1991. Chakravarty Committee was a strong proponent of free and flexible interest rates to
promote savings, investments, government financial system and stability. RBI removed the
upper ceiling of 16.5% and instead fixed a minimum of 16% per annum. The rates were further
relaxed after the Narasimhan Committee report in 1991.
2. Reforms in Call and Term money market
The reforms in the call and term money market were done to infuse more liquidity into the
system and enable price discovery. RBI undertook several important steps to check the
constraints and remove them systematically. It was in October 1998, RBI announced that non-
banking financial institutions should not participate in call/term money market operations and
it should purely be an interbank operating segment and encouraged other participants to migrate
to collateralised segments to improve stability. Also, reporting of all call/notice money market
transactions through a negotiated dealing system within 15 minutes of conclusion of transaction
was made mandatory. The volume of operations in this segment was not increased much even
after the reforms.
3. Introduction of new money market instruments
RBI introduced many new market instruments to diversify the market. These were certificates
of deposit in 1989, commercial papers in 1990 and inter bank participation certificates
with/without risk in 1988.
4. Setting up Discount and Finance House of India
Discount and Finance House of India was set up in 1988 to impart more liquidity and also
further develop the secondary market instruments. However, maturities of existing instruments
like CDs and CPs were gradually shortened to encourage wider participation. Likewise ad
hoc treasury bills were abolished in 1997 to stop automatic monetisation of fiscal deficit.
5.Introducing Liquidity Adjustment Facility
RBI introduced a Liquidity Adjustment Facility in June 2000 which operated through fixed
repo and reverse repo rates. This helped establish the interest rate as an important monetary
instrument and granted greater flexibility to RBI to respond to market needs and suitably adjust
liquidity in the market. Repo and Reverse Repo rates were introduced in 1992 and 1996
respectively.

6.Refinance by RBI
This is a potent tool by RBI to meet any liquidity shortages and for credit control to select
sectors. The export credit refinance facility to banks is provided under Section 17(3) of RBI
Act 1934. It is available to all scheduled commercial banks who are authorised to deal in
foreign exchange and have extended export credit. The SCBs are provided export credit to the
tune of 50% of the outstanding export credit. The concept of directed credit was also changed
as the Narasimham Committee recommended reduction of directed credit from 40 to 10%. It
also suggested narrowing the priority sector and realigning focus to small farmers and low
income target groups. The refinance rate is linked to the bank rate.
7.Regulation of Non-Banking Financial Companies
The RBI Act was amended in 1997 to bring the NBFCs under its regulatory framework. A
NBFC is a company registered under Companies Act, 1956 and is involved in making loans
and advances, acquisition of shares, stocks, bonds, securities issued by government etc. They
are similar to banks but are different from the latter as they cannot accept demand deposits and
cannot issue cheques. They have to be registered with RBI to operate within India. There are a
host of regulations which NBFCs have to follow to smoothly operate within India like accept
deposit for a minimum period, cannot accept interest rate beyond the prescribed rate given by
RBI.
8.Debt Recovery
RBI has set up special Recovery Tribunals which provide legal assistance to banks for recovery
of dues.
*****************

Role of Foreign Trade in India

Table of Contents:
Introduction 1
Foreign trade contributes to economic development in a number of ways 1
India’s foreign trade policy 2
The Balance of Payments and Balance of Trade situation 4
Meaning of Balance of Payments 4
Concept of Balance of Payments and its uses 5
Current BOP Situation in India (BOP during Q2:2023-24) 5
Introduction
When India was a colony of the British, the pattern of trade was typically colonial. India
exported raw materials and imported manufactured goods from England. With independence
the colonial pattern of trade had to be changed to suit the needs of a developing economy.
Foreign trade contributes to economic development in a number of ways

1. Foreign trade explores means of procuring imports of capital goods, without which no
process of development can start.
2. It provides for free flow of technology, which allows for increases in total factor
productivity, and some short run multiplier effects for countries with unemployed
labour.
3. Foreign trade generates pressure for dynamic change through
(a) competitive pressure from imports
(b) pressure of competing for export markets and
(c) a better allocation of resources.
4. Exports allow fuller utilization of capacity, increased exploitation of economies of scale,
separation of production patterns from domestic demand, and increasing familiarity with
absorption of new technologies.
5. Foreign trade increases domestic workers’ welfare. It does so at least in three ways: (a)
larger exports translate into higher wages
(b) since workers are also consumers, trade brings them immediate gains through
cheaper imports; and
(c) foreign trade enables most workers to become more productive as the goods they
produce increase in value.

India’s foreign trade policy

India’s Foreign Trade Policy 2024: Overview and Key Features
India’s Foreign Trade Policy (FTP) 2024 is an important strategic document that aims to
boost exports, diversify trade, and integrate India further into global markets. The policy
reflects India's growing ambition to be a significant player in global trade, while addressing
domestic challenges like the trade deficit, competitiveness, and compliance with international
regulations. Here’s a detailed note on the policy:
1. Background and Context

India's economy has been growing rapidly, and trade plays a crucial role in sustaining this
growth. The FTP 2024 builds on the previous FTP (2015-2020), which was extended due to
the COVID-19 pandemic and global economic uncertainties. The 2024 policy comes at a time
when global trade dynamics are shifting due to geopolitical tensions, supply chain
disruptions, and technological transformations.
2. Objectives of the Foreign Trade Policy 2024

The broad objectives of FTP 2024 are:
1. Enhancing Export Growth: Increasing India's share in global trade by improving the
competitiveness of Indian goods and services.
2. Diversification of Export Markets: Shifting focus to new and emerging markets in
Africa, Latin America, and other regions, reducing over-dependence on traditional
markets like the US and EU.
3. Promoting Make in India: Strengthening domestic manufacturing and integrating it
with global value chains.
4. Sustainable Development Goals (SDGs): Aligning trade policies with India's
commitments to SDGs, particularly in the areas of environmental sustainability and
inclusive growth.
5. Digitalization and Innovation: Encouraging technology adoption, digitization of
trade procedures, and leveraging emerging technologies like blockchain for efficiency.
3. Key Features of the Foreign Trade Policy 2024

1. Boosting Merchandise Export
a. Export Incentives and Subsidies: FTP 2024 continues to support exports through
schemes like Remission of Duties and Taxes on Exported Products (RoDTEP) and
Export Promotion Capital Goods (EPCG). These schemes aim to refund taxes and
duties, reducing the cost of exports.
b. Production-Linked Incentive (PLI) Scheme: Special focus on sectors like
electronics, pharmaceuticals, textiles, and automobiles through PLI schemes to
enhance production and exports.
c. Improving Quality Standards: Encouraging industries to adopt global quality
standards to improve the acceptance of Indian products in foreign markets.
2. Service Sector Exports
India's services sector, particularly IT and IT-enabled services (ITeS), plays a
significant role in its exports. The policy aims to enhance service exports through specific
incentives for sectors like healthcare, education, and financial services.

Special focus on Mode 3 (commercial presence) and Mode 4 (movement of natural

persons) under the WTO’s General Agreement on Trade in Services (GATS) to enhance
India's position in global services trade.
3. Promoting Exports from MSMEs
a. Cluster Development: Creating export clusters for Micro, Small, and Medium
Enterprises (MSMEs) to scale up production and ensure better access to international
markets.
b. Financial Support: Easy access to credit and working capital through Export Credit
Guarantee Corporation (ECGC) and subsidies for technology upgrades.
c. Market Access Initiative (MAI): Targeting specific MSME sectors with enhanced
market access through trade fairs, exhibitions, and online platforms.
4. Trade Infrastructure Development
a. Setting up Export Hubs: Identifying and developing regions that have the potential to
become export hubs. These will have better connectivity, logistics, and infrastructure
support.
b. Port and Logistics Infrastructure: Strengthening port infrastructure, streamlining
customs procedures, and enhancing multimodal transportation to reduce the cost and
time of exports.
c. Free Trade Warehousing Zones (FTWZs): Expanding FTWZs to offer a conducive
environment for traders by providing warehousing and logistics facilities with tax
benefits.
5. Bilateral and Multilateral Trade Agreements
a. FTP 2024 focuses on negotiating new Free Trade Agreements (FTAs) and Preferential
Trade Agreements (PTAs) with countries like the UK, EU, Australia, and Canada to
enhance market access for Indian products.
b. Leveraging India’s participation in multilateral forums like WTO, G20, and BRICS to
advance trade interests.
6. Export Credit and Financing
a. Enhancing credit facilities for exporters, particularly MSMEs, through financial
instruments like Trade Credit Insurance and improving access to Export Credit at
lower interest rates.
b. Strengthening the role of EXIM Bank in providing financial assistance and guarantees
to Indian exporters.
4. Special Focus Areas

1. Green and Sustainable Exports
a. FTP 2024 emphasizes increasing exports in green sectors like renewable
energy, electric vehicles (EVs), and other environmentally sustainable
products.
b. Encouraging the adoption of sustainable practices in traditional export sectors
like textiles and agriculture.
2. Skill Development for Exporters

a. Focus on capacity building and skill development through initiatives like

the Skill India Mission to ensure that Indian exporters, particularly from the
MSME sector, are equipped with the latest knowledge and technical expertise.
b. Special programs to upskill the workforce in emerging sectors like artificial
intelligence, data analytics, and digital trade.
3. Digital Trade and E-commerce
a. Supporting e-commerce exports by simplifying regulations and encouraging
small businesses to participate in cross-border e-commerce.
b. Enhancing trade through digital platforms, which include provisions for
quicker customs clearance and secure online payments.
5. Challenges and Constraints

● Global Economic Uncertainty : Geopolitical tensions, economic slowdown,
and protectionist policies in key markets may impact India’s export
performance.
● Infrastructure Gaps : Despite policy initiatives, gaps in logistics, port handling
capacity, and transport infrastructure may continue to hamper exports.
● Compliance with International Standards : Indian exporters need to constantly
upgrade product quality and processes to comply with stringent international
standards, particularly in developed markets.
● Trade Deficit : India continues to face a trade deficit, particularly with large
trading partners like China, which can offset some of the gains made through
export growth.
6. Conclusion and Way Forward

The Foreign Trade Policy 2024 is a forward-looking document that aligns with India's
broader economic goals of enhancing manufacturing, integrating with global value chains,
and boosting exports. The success of the policy will depend on effective implementation,
especially in areas like infrastructure development, FTA negotiations, and capacity building
in MSMEs. FTP 2024 is expected to position India as a key player in global trade,
contributing significantly to its economic growth.
India's ambition of becoming a $5 trillion economy hinges on a robust foreign trade policy
that not only enhances exports but also addresses structural challenges in the economy.
The Balance of Payments and Balance of Trade situation

Meaning of Balance of Payments
A balance of payments statement is essentially a double-entry system of record of all
economic transactions between the 'residents' of a country and the rest of the world carried
out in a specific period of time. It presents a classified record of all receipts on account of
goods exported, services rendered and capital received by residents and payments made by
them on account of goods imported and services received from, and capital transferred to
non-residents’ or foreigners. The balance of payments is a much wider term as compared to
balance of trade. Whereas the latter refers only to merchandise imports and exports, the
former refers to all economic transactions with the world outside.

Concept of Balance of Payments and its uses

The principal tool for the analysis of the monetary aspects of international trade is the balance
of international payments statement. This statement is also simply known as the balance of
payments (BOP). BOP is a systematic record of all international economic transactions,
visible as well as invisible of a country during a given period, usually a year. In other words,
the BOP statement is a device for recording all the economic transactions within a given
period between the residents of a country and the residents of other countries.
Current BOP Situation in India (BOP during Q2:2023-24)

Key Features of India’s BoP in Q2:2023-24
● India’s current account balance recorded a deficit of US$ 8.3 billion (1.0 per cent of GDP)
in Q2:2023-24, lower than US$ 9.2 billion (1.1 per cent of GDP) in Q1:2023-24 and US$
30.9 billion (3.8 per cent of GDP) a year ago.
● Underlying the lower current account deficit on a year-on-year (y-o-y) basis in Q2:2023-24
was the narrowing of merchandise trade deficit to US$ 61.0 billion from US$ 78.3 billion in
Q2:2022-23.
● Services exports grew by 4.2 per cent on a y-o-y basis on the back of rising exports of
software, business and travel services. Net services receipts increased both sequentially and
on a y-o-y basis.
● Net outgo on the primary income account, primarily reflecting payments of investment
income, increased to US$ 12.2 billion from US$ 11.8 billion a year ago.
● Private transfer receipts, mainly representing remittances by Indians employed overseas,
amounted to US$ 28.1 billion, an increase of 2.6 per cent from their level during the
corresponding period a year ago.
● In the financial account, net foreign direct investment witnessed an outflow of US$ 0.3
billion as against an inflow of US$ 6.2 billion in Q2:2022-23.
● Foreign portfolio investment recorded net inflow of US$ 4.9 billion, lower than US$ 6.5
billion during Q2:2022-23.
● External commercial borrowings to India recorded net outflow of US$ 1.8 billion in
Q2:2023-24 as compared with net outflow of US$ 0.5 billion in Q2:2022-23.
● Non-resident deposits recorded net inflow of US$ 3.2 billion as compared with net inflow of
US$ 2.5 billion in Q2:2022-23.
● There was an accretion of foreign exchange reserves (on a BoP basis) to the tune of US$ 2.5
billion in Q2:2023-24 as against a depletion of US$ 30.4 billion in Q2:2022-23.
************************

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BUSINESS ECONOMICS-V

(For Private Circulation Only)

Economic planning in India

Department of Economics and Foundation Course, R.A.P.C.C.E. (Autonomous) 1

Planning in independent India

The Five year Plans

Department of Economics and Foundation Course, R.A.P.C.C.E. (Autonomous) 2

Summary of Five-Year Plans:

Department of Economics and Foundation Course, R.A.P.C.C.E. (Autonomous) 3

Department of Economics and Foundation Course, R.A.P.C.C.E. (Autonomous) 4

Shift to NITI Aayog

Department of Economics and Foundation Course, R.A.P.C.C.E. (Autonomous) 5

Functions of NITI Aayog

Contribution of the NITI Ayog

Department of Economics and Foundation Course, R.A.P.C.C.E. (Autonomous) 6

Department of Economics and Foundation Course, R.A.P.C.C.E. (Autonomous) 7

New Economic Policy – 1991

New Economic Policy 1991 ...................................................................................................................2

Department of Economics and Foundation Course, R.A.P.C.C.E. (Autonomous) 1

New Economic Policy 1991

Objectives of the New Economic Policy

The objectives of the new policy were:

Branches of the New Economic Policy, 1991

New Economic Policy, 1991

Liberalization Privatization Globalization

Figure 1: Branches of New Economic Policy, 1991

Department of Economics and Foundation Course, R.A.P.C.C.E. (Autonomous) 2

Department of Economics and Foundation Course, R.A.P.C.C.E. (Autonomous) 3

• Partial privatization of public sector units

Free flow of capital Structural unemployment

Positive effects of Liberalization

Department of Economics and Foundation Course, R.A.P.C.C.E. (Autonomous) 4

Negative effects of Liberalization:

Department of Economics and Foundation Course, R.A.P.C.C.E. (Autonomous) 5

Department of Economics and Foundation Course, R.A.P.C.C.E. (Autonomous) 6

Improved efficiency Negligence of social objectives

Figure 3: Effects of Privatization

Positive effects of Privatization

Department of Economics and Foundation Course, R.A.P.C.C.E. (Autonomous) 1

Department of Economics and Foundation Course, R.A.P.C.C.E. (Autonomous) 8

Department of Economics and Foundation Course, R.A.P.C.C.E. (Autonomous) 9

• Greater access to global markets • Slow Growth of Agriculture

Figure 4: Effects of Globalization

Positive Effects of Globalization

Department of Economics and Foundation Course, R.A.P.C.C.E. (Autonomous) 10

Department of Economics and Foundation Course, R.A.P.C.C.E. (Autonomous) 11

Department of Economics and Foundation Course, R.A.P.C.C.E. (Autonomous) 12

in the world are corporations. According to the UN Development Programme, 500

Impact of Economic Reforms Process on Indian Agricultural Sector

Department of Economics and Foundation Course, R.A.P.C.C.E. (Autonomous) 13

• agricultural exports and imports • agriculture income and employment

Impact of Economic Reforms Process on Indian Social Infrastructure

Department of Economics and Foundation Course, R.A.P.C.C.E. (Autonomous) 1

Impact on the Education Sector

Impact on the Health Sector

Department of Economics and Foundation Course, R.A.P.C.C.E. (Autonomous) 15

1990/ 2000/ 2010/ 2017/

Department of Economics and Foundation Course, R.A.P.C.C.E. (Autonomous) 16

Policies to enhance Social Infrastructure with special reference to Education