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Development of Economics

Economics is the study of our economic activities. Development of economics is

connected to the nature of society.
There is exchange of goods in the barter system. In the barter system, there was need
to find persons with the relevant goods for exchange, so markets came into existence,
where everyone would gather for exchange of goods. Barter system is still in existence
in some of the backward remote areas. Barter system has its own limitations.
Metallic coins came into existence, whose values were equal to value of their metal.
These coins have their own limitations such as depreciation of metallic coins over long
use, carrying capacity and availability of metals. Then, eventually, token currency
came into use, which do not have any real value or whose real value is not equal to
their face value.

For industrial production, some elements were required, including

• Land, on which rent was to be paid
• Workers, who were to be paid in wages
• Capital, through various means such as banks, share market, debentures,
bonds, T-bills and various other schemes
• Entrepreneurship, in the form of businessmen, who earn profit
So, these all became part of the economic system and economy became complex
overtime. This all economic complexities are rooted in the collection of things as
property.

Three main branches of economy

• Individual or society or consumer
• Market – a place where goods, buyer and seller all are present
• State – state policies decide the nature of economy

Economics and Economy

Economics:

• A subject to study the economic activities of human society.

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• A study of how individuals, societies and states make optimal use of their
resources as needed.
Economy:

• It is a practical form of economics (theory).

• The field of economics is very wide (global). The economy is community based,
regional and national; Such as - Agricultural Economy, Economy of India,
Economy of developed countries etc.
• Economics has come up for proper management of the economy and solutions
to the challenges present.
• Economics is not as diverse as economies. Two economies can never be the
same.
• Economics is relatively permanent (stable), economy is temporary (unstable).

Three types of Economies

Basis:
• State
• Market
• Production, pricing and distribution.
(1) Capitalist Economy:
• Origin - Adam Smith (1723–1790), Professor of the University of Glasgow,
Scotland, published book "The Wealth of Nations" in 1776.
• Opposed government intervention in the economy.
• Support to bring balance in the economy through the invisible hands of market
forces.
• 'Competition' is required in the market.
• USA adopted it just after getting freedom.
• This economy was named till 1800 as Capitalism.
• Other names - Market Economy, Free Enterprise System.
(2) State Economy:
• Origin - Based on the ideas of the German philosopher Karl Marx (1818–1883).
• It started after the Bolshevik revolution in Russia in 1917.
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• It was in response to the capitalist economy.

• Production, pricing and distribution controlled by the state.
• Examples are economy of Russia and China.
• Other names - Centralized economy, non-market economy.
(3) Mixed Economy:
• Origin – “The General Theory of Employment, Interest and Money", published in
1936 by Prof. John Maynard Keynes (1883–1946), a British economist,
professor at the University of Cambridge.
• Questioned the policy of government non-interference. Even if invisible hands
create balance, it will be at the cost of the poor.
• There will be no flexibility in price and wages.
• Many people will remain unemployed.
• Due to decline in demand, condition of slowdown emerges.
• Great economic depression like 1929 may come in the economy.
• To overcome the recession, Keynes suggested increasing government spending,
prudent monetary policy (increasing the fiscal deficit, cutting interest rates and
cheaper supply of money) and increasing demand for goods and services,
because all these were the reasons for the recession.
• Keynes suggested that the socialist economy should be merged with the
capitalist economy.
• As a result, the idea of 'public goods' came up in capitalist countries. Under
this, governments started spending a lot of money on the public sector.
• India adopted this model after independence.
• In 1985, China also introduced the same system under the policy of open door.

Economic Development

• In 1952, the United Nations Organization (UNO) divided countries into three
parts on the basis of Gross National income (GNI);
1. Underdeveloped countries - Income less than 1005 US dollar -
Cambodia, North Korea.
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2. Developing countries - Income between 1005-12275 US dollar- India, Sri

Lanka, China etc.
3. Developed countries - more than 12276 US dollar: Britain, Japan etc.
• In 1980, Amartya Sen and Mahbub-ul-Haq spoke about human development.
In this, they gave importance to health and education etc. As a result it came
into existence.
• Amartya Sen and Jean Dreze wrote a book -
1. India: Development and Participation. In this, they gave the notion of
"Capability approach". In this, they attracted the attention of the states
to create an environment in which people can recognize their abilities
and develop them.

Difference between Economic Growth and Economic Development

Economic Growth Economic Development

Narrow perception – Broad perception - social, economic,

political and cultural changes also
Only GDP and Per Capita Income
included.

Easily attainable Extremely difficult to attain

Very little attention on equal distribution All these factors are very important
of income, reduction in unemployment,
elimination of poverty etc.

Easily measurable: GDP, agricultural Very difficult to measure, because it also

surplus, foreign trade etc. includes non-economic elements

Economic growth is possible without Economic development is not possible

economic development. without economic growth

It is at the center of developed countries It is a center of concern for developing

and underdeveloped countries
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Indian economy's growth journey

(1) Indian economy in the British period

• Manufacturer and exporter of raw materials (commercial crops)
• Importer of manufactured goods
• Decline of handicrafts industry
• Heavy taxes on manufactured goods imported by Britain.
• Lack of modern industries
• Some textile industries in western India and jute industry limited to eastern
India. Industry dominated by British industrialists.
• Industry in the public sector is limited to some sectors like railways, power,
communication and ports.

Manufacturing Sector 1750 1900 2015

India 25 % 2% 2%

China 33 % 6% 23 %

UK 2% 24 % 17 %

(2) From independence to Nehru Era (1947–1965)

Three main economic ideas present (for economic development)
1. Nehru Model - Mixed Economy - Socialism + Capitalism + Democracy
2. Bombay Plan (group of industrialists and traders)
• Lack of money in the country but abundance of labor,
• Therefore, people should be employed in the production of Wage goods.
• Note: cheap and simple consumer goods; Like jute, shoes, toys, radio,
bicycle etc.
• This will increase the demand for consumer goods, and will start the
cycle of the economy.
3. Calcutta Model (Group influenced by intellectual, technical and social welfare
ideas)
• Prashant Chandra Mahalanobis was its main supporter.
• Importance to capital based heavy industries led by public sector.
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• Private sector will play a supporting role in mixed economy.

• Note – P.C. Mahalanobis (Physicist, Statistician and Economist, studied
at Cambridge) became the first Deputy Chairman of the Planning
Commission.

Industrial Policy Resolution, 1948, 1948-IPR

• Basic Principle -
▪ Continuous increase in production
▪ Equal distribution of income
▪ Major role of states in industrial development.
• Classification of industries into four categories:
i. Government Monopoly: Areas like arms, ammunition, nuclear power,
railways and transport.
ii. Basic Industries: coal, iron and steel, ship and aircraft manufacturing,
telephones, and mineral oil, etc.
▪ Under Central Government.
▪ Government acquisition of such private sector industries already
present in this area within ten years
iii. Regulated industries: Sugar, paper, fertilizer, chemical, vehicle, heavy
machines, cement, clothes, woolen clothes etc. Since these goods are
important to the people, the government will regulate their prices and
quantity of production.
iv. Private industry: The remaining industries were left open to private
industrialists and cooperatives.
Note: First Five-Year Plan (1951-56) laid the main goal of development of
agriculture. During this time construction of dams like Bhakra-Nangal and
Hirakund started.

Industrial Policy Proposal of 1956

• In December 1954, the Parliament accepted the socialist nature of social and
economic policy.
• Classification of industries into three parts:
1) Schedule A

▪ Central Public Sector Undertaking

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▪ Total 17 industries; Such as nuclear power, production of military

materials, aircraft, iron and steel, power generation, coal and
major minerals etc.
2) Schedule B

▪ Industries to be established by the states

▪ But the presence of private sector as a helper too.
▪ Fertilizers, Road Transport, Marine Transport etc.
3) Schedule C

▪ All remaining industries.

▪ Open to the private sector.

(3) From the Nehru era to the beginning of liberalization (1965 to 1991)
Conditions
• War with China (1962) and Pakistan (1965)
• Famine of 1965-66
• Inflation rate - 12 percent
• 20% increase in the price of food items.
• Fiscal deficit - 7.3% of GDP
As a result, many revolutionary changes (steps) were made in economic policies under
the leadership of Prime Minister Indira Gandhi -
• Nationalization of banks in 1969
• In 1969, the Monopolies and Restrictive Trade Practices Act Passed. Under this,
the industrial expansion of industrialists with assets of more than Rs.20 crores
was stopped. Later Rajiv Gandhi increased it to hundred crores. It was
abolished in 1991 liberalization.
• Many types of government control over industries were increased.
• Nationalization of insurance companies in 1972.
• In 1973, Foreign Exchange Regulation Act were passed. As a result, many
restrictions on foreign investments and setting up of industries for them in
India became extremely difficult.
• The government acquired many sick industries instead of their closure;
especially textile mills.
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Note: The government of Rajiv Gandhi (1984-89), during its tenure, took some
corrective steps -
• Simplify the licensing process
• relaxed import rules, and
• Announced incentives for exports.
As a result, for the first time after independence, the country achieved growth rate
of 5.5 percent.

Result:
• Entrepreneurship discouraged.
• Lack of industrial competitiveness
• Initiation of license raj.
• Excessive government control (bureaucratic strictness)
• The beginning of crony capitalism.
• Lack of consumer goods
• Rise in inflation.
• The beginning of the black marketing.
• Upper class control over industries.
• Unnecessary patronage to labor organizations.
• Ignoring Technology.
• Lack of participation in the world market.
• Protection to Small Scale Industries - 800 items.
---

Liberalization

• The liberalization was started from the budget presented on 24 July 1991 by
Finance Minister Manmohan Singh under the leadership of Prime Minister
Narasimha Rao.
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The main reasons of the economic crisis of 1990:

1. External factors:
• Increase in prices of petroleum products due to Gulf War.
• Lack of foreign exchange due to non-remittance of funds by Non-
Resident Indians (NRIs).
• Withdrawal of funds from Indian banks by NRIs.
• Loss of a large and reliable foreign trade partner due to Soviet Union
disintegration in 1990-91.
• Indicators of the ability to take loans by India were downgraded by
foreign agencies. As a result, foreign investors started withdrawing their
money from India. Also IMF refused to give loans to India.
• India was pressurized to adopt 'free market' policies like South-East and
other Asian countries. For example, Malaysia, Thailand, South Korea,
and China had accelerated their economic development around 1980 by
successfully implementing it.
2. Internal factors:
• Extremely low annual growth rate of 3.5 percent so far.
• Continuous increase in non-developmental expenditure due to subsidies
and losses of public sector.
• Fiscal deficit reached to a worrisome state of 7.8 % in 1991.
• In 1990-91, foreign debt reached 23% of GDP.
• India did not have foreign currency to pay for ten days of imported goods.
• As a result, India took a 'conditional loan' from the IMF by mortgaging 67
tonnes of gold.
• Overall, these economic conditions eventually led to the country's new
economic policy, also known as the Rao-Manmohan model. It is also
known as the 'Policy of Economic Reforms'.

Three main pillars of the new economic policy:

1. Liberalization - "policy of openness"
• Reduction in government controls and interventions; Such as the
abolition of permits, licenses, quotas and quantitative controls etc.
• To allow economic activities to be governed by 'market forces',
• Make processes more transparent,
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• To speed up the decision making, etc.

2. Privatization - "importance to private sector"
• According to C. Rangarajan, "Privatization means change in ownership,
resulting in a change in management".
• Transfer of works from public sector to private sector.
• Prohibition of entry into new areas.
• Disinvestment of public sectors.
3. Globalization:
• Connection of Indian economy to world economy.
• Dependence on countries of the world for technical, capital, information,
goods and services etc.

Important steps taken under the new economic policy:

i. Industrial Policy (Revolutionary Change):
• Termination of license raj (limited to only a few industries)
• Massive reduction in the number of industries reserved for the public
sector.
• Many important areas were also opened for private industrialists.
• Reduction in the number of industries reserved for small, micro and
medium scale industries.
ii. Foreign investment:
• The process of foreign investment in India was simplified and liberalized.
• Foreign investors were allowed to invest in the share market.
iii. Trade and Exchange Policy;
• The process of importing capital goods and raw materials required for
production was liberalized.
• The process of gradually freeing the Indian currency from full control of
the exchange rate in foreign currency was started.
iv. Tax Reforms
• Income tax rate which was 56% in June 1991, was immediately reduced
to 40%. Later it was reduced gradually.
• The rate of corporation income tax was reduced from 51.75% to 46%
immediately.
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• Customs Duty which was 200% on an average, reduced to 65%.

v. Public sector Policy:
• Gradually the process of disinvestment started
• Shutdown of loss making public companies in three years.
• Public sectors were asked to raise resources themselves.
vi. Financial Sector Reforms:
• Permission for private banks to enter the banking sector.
• Increase in rights of SEBI to make capital markets more transparent. It
was given the Statutory Powers in 1992.
• Capital Market was opened for portfolio investment.
• Indian companies were also allowed to receive money from the
international capital market.

Achievements of economic reforms

• Increase in GDP. 3.5%-4% in 1990 to around 7% currently.
• Increase in foreign exchange reserves.
• Control over inflation - around 4%.
• Increase in foreign capital inflows.
• Benefits to the IT-sector by connecting to world.
• Increase in industrial competitiveness.
• Technological advancement.
• Reduction in percentage of poverty.
• Economic development of middle class.
• Growth in Export
• More employment for Indians abroad.

Negative impact of economic reforms:

1. Change in employment pattern:
• State of jobless economic growth.
• The impact of technology on employment.
• Brexit and America for Americans.
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2. Increase in economic inequality

• 1% is having 60% of wealth.
• 10% rich people have 81% of total wealth of the world (21% wealth was
there with 1% population in 1939-40)
3. Environmental crisis
4. Trade war

Positive impact on agricultural sector:

• Increase in use of improved seeds.
• Investment in agricultural infrastructure.
• Development of credit, marketing and food processing industries.
• Increase in agricultural product exports.
• New areas of employment.
• The importance of agriculture sector increased - contract farming.

Negative impact on agricultural sector

• Reduction in agricultural investment during reforms.
• The tremendous increase in the prices of fertilizers and pesticides.
• Small farmers are troubled by the low prices of the global market.
• Pressure on the government to reduce agricultural subsidies.
• Farmers upset by global pressure to reduce import duty on agricultural
products.
• Burden of debt.
-------------------------------------------------------------------------------

Indian Economy: Move from agriculture to service sector

(Ignoring manufacturing)
Status of 1949-50
• Contribution of Agriculture in GDP – 54 %
• Contribution of manufacturing in GDP – 12 %
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• Contribution of service sector in GDP – 34 %

FEB-2019
• Contribution of Agriculture in GDP – 16 %
• Contribution of manufacturing in GDP – 30 %
• Contribution of service sector in GDP – 54 %
Why did it happen?
• The following factors which are required for the manufacturing (industry) sector
could not be readily available. Whereas in the service sector, they are not so
essential.
Basic elements for industries:
1. Land availability.
2. Good and cheap transport facility.
3. Cheap electricity 24X7.
4. Simple labor law.
5. Simple Tax System.
6. Quick and easy process of obtaining permission (of environment, forest,
water etc.) from the government, and
7. Capital etc.
Circumstances in favor of service sector:
• Connected with the world market due to liberalization in 1991
• Revolution in Communication sector (Internet + Telecom)
• Availability of talent for service sector
• Great hike in IT-sector.
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Micro and Macro Economics

Micro Economics:
• The Greek word ‘micro’ means small, subtle.
• It is a study of the economic behaviors (decisions) of individuals and firms, that
how to use their limited resources optimally.
• Example:
▪ Study of flora and fauna of the lake.
▪ Reliance Petroleum Company.
• Some other topics:
▪ Demand and Supply
▪ Savings
▪ Price determination of goods
▪ Productivity of individuals and industries
▪ Competition
▪ Opportunity Cost
▪ Labour
▪ Market fluctuations
▪ Welfare Economics and
▪ Analysis of market (of success-failure) etc.
• Note: Since the company works for the benefit of the shareholders and not for
the government, it is a matter of 'microeconomics'.
• After the Great Depression in 1929, there was intense criticism of
microeconomics.

Macro Economics:
• Latin word ‘macro’ means large or big.
• Study of aggregate economic activities; like –
➢ Growth rate
➢ Inflation
➢ Unemployment.
➢ Fiscal policy
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➢ Import Export
➢ Monetary policy.
➢ Living standard.
➢ National Income/National consumption.
➢ National Savings.
➢ Allocation of National Resources (Budget)
➢ Global market, etc.
• John Maynard Keynes is considered as the father of macroeconomics.
• Book - General Theory of Employment Interest and Money (in 1936)

Conclusion:
• These two complement each other.
• If the condition of macroeconomics is good, then the condition of the micro
economics will also be good.

Factors of production

Meaning - Inputs used for the production of any goods or services

Factors - (mainly four factors):

1. Land:
• Primary factor of production.
• Its elements are –
▪ Land, farm, plot, etc.
▪ Natural resources such as water, air, light, temperature, minerals,
petroleum products, forests etc.
• The Reward of it is - Rent,
• Its quantity is limited.
• Land is an immovable factor.
• According to industries, its requirement may be less/more.
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2. Labor:
• Meaning - The human effort used for the production.
• Physical and mental labor.
• Reward - wages and salaries;
• It is the largest source of income.
• Active Factor.
• Quality of labor depends on skill, education and motivation.
• It cannot be stored and it is perishable.
• It is inseparable from laborer.
• The capacity of each laborer varies.
• The power of bargaining is low.
3. Capital:
• Meaning: Capital is the produced means of Production, such as
machines, computers etc.
• Reward- Interest;
• Made by humans.
• Passive factor
• High mobility
• Supply variations.
• Depreciation in value over the time.
4. Entrepreneur:
• Meaning – The person or institution, who bears risk and produces by
combining all three factors of production.
• Reward – Profit
• Engines of development
• Ability to create network
• Self-Motivated
• Risk takers
----------------------------------------------------------------------------------
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Opportunity Cost

Meaning –
• Opportunity cost is the profit lost when one alternative is selected over the
next best alternative.

Underlying Facts –
• Alternatives must be there.
• Comparison with the next best alternative only.
• It is like an iceberg; most of the part is hidden.
• Related to leaving out (sacrificing).
• It is expected that the person will make the best use of his available
resources.

Importance in life –
• In the context of decision making.
• Based on interests.
• Working not just for the sake of earning money.
• Keeping an eye on the future as well.

Circular Flow of Income

Meaning –
• Incomes of various individuals and groups follow a circular path and
ultimately reach back to their original sources, and this sequence keeps
going on.

Phases of Circular Flow of Income –

1. Production
• In this phase firms produce goods and services with the help of the
factors of production.
2. Distribution –
• In this phase firms pay money (rent, wages, interest and profit) to the
factors of production.
That is, the income reaches the individuals.
3. Disposition -
• Factors of production spend the income received to buy goods and
services.
Note: Thus, the income reaches back to its original source.
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Price Determination

Meaning:
• To determine the monetary value of an item or service.
• A managerial function and process.

Objective:
• To earn maximum profit.
• Maintaining stability in prices.
• Facing competition.
• Protect its existence.
• With a view to enter the market.
• Social welfare (trust etc.).

Components of Pricing:
• Two most important facts:
▪ Production cost, and
▪ Maximum consumer happiness
▪ Note: - Consumer surplus;
• Internal components:
▪ Production costs
▪ Company objectives
▪ Company Image
▪ Product’s lifecycle
• External components
▪ Competition
▪ Consumer Feedback
▪ Government policies
▪ Economic scenario
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Demand and Supply

Features of Demand:
• Willingness to purchase.
• Purchasing power.
• Fixed time.
• readiness, and
• Fixed price.

Demand depends on three factors:

1. Price of the item.
2. Consumer income, and
3. Prices of other related items.

Conditions of Law of demand -

1. No change in income of a person.
2. The object should be simple (not a car etc.).
3. The property of the object should not change.
4. Consumer habits remain unchanged.
5. The prices of substitute goods should be stable.
6. There is no substitute for the object.
7. There is no possibility of change in the price of the commodity in future.
8. Uneven distribution of wealth.
9. Weather.
10. Changes in business condition.

Determinants of Supply: -
1. Technological progress.
2. Changes in the prices of factors of production.
3. Government tax, etc.

Rule:
1. If the demand is constant and supply increases, then the price of the
commodity decreases.
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2. If supply is stable and demand increases, then the value of the commodity
increases.

National Income

Introduction:
There are four ways in economics to estimate the income of any country -
1. Gross Domestic Product - GDP
2. Net Domestic Product - NDP
3. Gross National Product - GNP
4. Net National Product - NNP
1. Gross Domestic Product:
• Definition- The sum of the final monetary value of all goods and services
produced in a year in any economy.
• Element:
▪ Goods and Services produced only within the country.
▪ Duration - One year
▪ Monetary calculation.
▪ Computation of values at prevailing prices.
▪ Calculate the prices of only those goods and services which are
available for sale in the market.
• GDP can be calculated using three methods:
▪ Income Method - Rent (land) + wages (labor) + interest (capital) +
profit (entrepreneur)
▪ Production Method/Value Added Method - Sum of all the goods
and services produced in an economy in a year.
▪ Expenditure Method – Consumption + Investment + Government
Spending + Net Exports
Note- In this calculation, the depreciation of capital goods, transfer payments,
sell of second hand goods, (subsidy, welfare, social security, money distributed
for free, because it is not being given in lieu of selling) and illegal economic
activity, Capital Gain (profit earned by selling shares) are not included, as they
do not contribute to production.
• Nominal GDP:
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▪ It is also the GDP.

▪ This includes inflation.
• Real GDP
▪ GDP minus inflation gives the real GDP.
• Application:
▪ The annual change in the GDP is the growth of an economy.
Therefore, it gives idea of growth rate.
▪ It refers only to the quantity of the products, not to the quality of
the products.
▪ Comparative analysis of member countries of IMF and World Bank
is done on the basis of this method.
• Limitations:
▪ Does not give clear idea about distribution of products.
▪ Non-monetary exchange not included, like –
➢ Commodity Exchange
➢ Women's domestic services etc.
▪ Ignoring other miscellaneous losses, such as –
➢ Effects of water pollution from petroleum production –
o Health
o Livelihood of sailors
o Environmental damage, etc.

2. Net Domestic Product (NDP):

• Definition- It is that GDP of any economy, which is obtained by
subtracting the depreciation during a year.
• Formula – GDP - Depreciation = NDP
▪ This depreciation is fixed by the Government (Central Ministry of
Commerce and Industry).
▪ This rate varies for each item.
▪ Naturally, the economy's NDP will always be less than GDP.
• Application:
▪ It is used to understand the loss to the domestic economy by
depreciation.
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▪ It is not used to compare the economies of the world, because

different countries have different rates of depreciation.
▪ The rates of price depreciation are also used by governments to
correct their economic policies.

3. Gross National Product (GNP):

• Definition - GNP includes income from abroad.
• Income from abroad includes:
▪ Money earned by Indians working in other countries.
• The important fact is that from this the income of foreigners who are
residing in India is reduced.
• Formula - GNP = GDP + N - F
▪ N means the income of Indians living abroad, and
▪ F means the income of foreigners living in India.
• Application of GNP:
▪ IMF determines the ranking of the countries of the world on the
basis of GNP.
▪ This standard of estimation of national income is more
comprehensive than GDP.
▪ It explains the internal as well as the external strength of any
economy.
▪ It also highlights the relationship of any economy with other
economies of the world.

4. Net National Product: (NNP)

• Definition - The income that remains after deducting the depreciation
from GNP is called the net national product of an economy.
• Formula – GNP – Depreciation = NNP
• Some facts:
▪ It is called the national income of any economy.
▪ This is the best method of estimation of national income.
▪ When we divide the NNP by the total population of the country,
then the per capita income of the country is known.
 24

Savings and Investment

Meaning:
1. Savings:
• Income not a part of consumption.
2. Investment:
• Use of savings for production and purchase of capital goods.
3. Capital formation:
• The rate of capital formation is the ratio of total investment in a year to
the GDP of that year.
• The economy of any country depends on the rate of capital formation of
that country.

Two important parts of capital formation:

1. Domestic Savings
2. The inflow of foreign funds;
1. Domestic Savings:
• After deducting the total consumption expenditure from the total
national income, the remaining amount is called Gross Domestic
Savings:
• Under this comes the savings of the following three sectors:
1. Household Sector
2. Private Corporate Sector
3. Public Sector
1. Household Sector:
It includes:
i. Savings of the individual and family.
ii. Non-profit Institution; Such as schools, colleges, hospitals
etc.
iii. Saving of small enterprises.
Note: Highest savings sector. 61% of total savings in 2017.
2. Private Corporate Sector:
 25

▪ Non-government companies + bank

3. Public Sector:
▪ Post Office, Railways etc.
▪ Government companies.
• Reasons behind reduction in savings rate:
▪ 9% in 1950-51
▪ 34% in 2010-11
▪ Low rate of income
▪ Demonstration effect:
➢ High corporate tax
➢ Other Taxes
▪ Minimum savings of public sector

2. Inflow of foreign funds:

• It includes:
▪ Money received as grant
▪ Money derived from other sources.
• Concerns:
(1) Economic dependence on foreign countries.
(2) Political interference.
(3) Effect on economic policies.
(4) Payment of interest amount.
(5) Impact on international relations.
Conclusion - The main basis of capital formation should be domestic savings.

Economic Cycle

Meaning:
Cycle of good and bad phase of economic activity in an economy is called the economic
cycle (also Trade/business cycle).
 26

• Here good phase means hike in GDP.

• Bad phase means fall in GDP.
• It is related to both shorter and longer period.

Phases of Economic Cycle:

1. Slowdown:
• Meaning:
▪ Slowing down of Overheated economy, but still the growth rate
remains positive.
▪ For example – Economy growing at the rate of 5% starts to grow
at the rate of 3%.
▪ India's growth rate slowed due to the Corona Virus.
• Reasons:
▪ Loss of confidence of investors and consumers on the economy.
▪ Reduction in demand.
▪ Reduction in investment, etc.
2. Recession:
• Meaning :
▪ Its character is somewhat similar to depression, but slightly less
effective.
▪ Generally, when two consecutive quarter results are weaker than
their predecessor results, it is considered a symptom of Recession.
This is a condition of negative growth rate.
▪ If it is not taken care of, it can have fatal consequences.
▪ Example – In USA in 2008 but no effect on India.
• Symptoms/ Features: -
▪ Normal decrease in demand due to weak economic activity.
▪ Lower inflation rate, which has signs of going down further in the
future.
▪ Reduction in employment rate (increase in unemployment rate)
▪ Industry to resort to 'price cut' to stay in the market. (Real Estate)
• Solution:
 27

▪ Reduction in direct and indirect taxes.

▪ Increase in wages and salaries.
▪ Reduction in interest rates.
▪ Tax exemption on new investment.
3. Depression:
• Reaching the lowest level of aggregate demand, where the pace of
economic activity stops.
• This period may last for ten years.
• Reduction in employment opportunities.
• Rising unemployment rate.
• Retrenchment in industries.
• During the depression, the economic situation gets so bad that the
government has no control over the economy.
• This type of economic depression in the global economy came only once
in 1929.
• Minimum 10% drop in GDP.
4. Recovery:
• Meaning – It is a situation of an economy coming out of a period of low
production.
• Low production conditions are very bad. Therefore, governments take
several fiscal and monetary measures to increase demand and
production.
• In this phase of the economy, the following symptoms are seen –
▪ Increase in aggregate demand.
▪ Consequently increase in total production.
▪ Increased inflation.
▪ Attraction of Investors for investment.
▪ Availability of new employment opportunities.
• To bring the economy back on track, governments usually take measures
like –
▪ Tax break,
▪ Reduction in interest rates, and
▪ Salary hike
 28

5. Boom (Upswing, upturn, Growth period etc.)

• Meaning - The rapid rise of economic activity.
• Symptoms/ Features:
▪ Quick and long term increase in demand.
▪ A clear sense of the difference between demand and supply.
▪ Increased inflation.
Note: Generally after Recovery, there is a possibility of boom.
▪ Increase in sales.
▪ Increase in profit.
▪ Increase in family income.
Note: This phase of economy generally lasts for 3-31/4 years.
• This is followed by the beginning of the Recession.
• In the US, from 1920 to 1929 (after the end of the First World War), there
were three phases of Boom. GDP-42% (Roaring Twenties). After this the
phase of Depression arrived.

Introduction to money
• Money is an important resource. But if money is more or less than the
ideal amount, it can cause harm to us.
• Economics in simple terms is a science of money.

Value of money
Money can only be used to purchase the things. It can:
• Purchase the goods.
• Purchase the services.
• Purchase the assets.

Purchasing power of money:

• The amount of goods or services we can buy with the same money changes with
time, which is known as purchasing power of money.
• The purchasing power of money depends on inflation and deflation.
 29

• Purchasing power of money can be decreased with inflation and it can be

increased with deflation.

Money supply and inflation

Inflation rate increases due to following factors:

• Increase in demand.
• Decrease in supply.
• Increase in money supply.
• Decrease in interest rates.

Inflation control
• Demand is good for growth of an economy, so supply should be increased
rather than decreasing the demand for controlling Inflation.
• To increase the supply, resources, that is, the four factors of production (land,
labor, capital, entrepreneur) should be utilized. Utilization of factors of
production -
▪ In developed countries, the factors of production are optimally utilized.
▪ In developing countries, they are under the process of utilizing resources.
▪ In underdeveloped countries, the factors of production are underutilized.
• Inflation can be controlled by the government in two ways:
▪ Fiscal policy
▪ Monetary policy

The aim of monetary policy is to control inflation through:

• Money supply
• Rate of interest

Cash reserve ratio:

• The percentage of money banks keep with the RBI.
• By increasing cash reserve ratio by RBI, the money supply in the market can be
decreased which can control the inflation.

Repo rate:
 30

• The interest rate at which banks can borrow money from the RBI.
• By increasing repo rate which will increase the rate of interest for the people,
inflation can be controlled.

WPI and CPI

Inflation can be of three types on the basis of its rate of increase:

• Creeping inflation (inflation increases at a very slow rate).
• Galloping inflation (inflation increases at a fast rate).
• Hyper-inflation (inflation increases at a very fast rate).
Inflation can be measured in following ways:
Wholesale Price Index (WPI):
• Average change in price of commodities at wholesale level.
• Published by - Office of economic advisor.
• It covers goods only.
• Focuses on prices of goods traded between business houses.
Consumer Price Index (CPI):
• Average change in price of commodities at retail level.
• Published by- Central Statistics Office.
• It covers goods and services.
• Focuses on prices of goods purchased by consumers.

Inflation
Currency:
• Currency is the medium for purchasing goods and services and the strength of
goods and services that they can buy is their strength.
• Liquid and symbolic means of purchasing goods and services.
• Purchasing Power is real value of currency – Rupee/Dollar.
Functions of Currency:
• Medium of exchange.
• Highly convenient unit of account
• Collection of property.
 31

Meaning of inflation:
• Increase in number of currency is called inflation.
• When the prices of services and goods are continuously increasing,
• When the purchasing power of the currency is continuously falling.
• In countries, where the rate of inflation is high, the interest rate of banks is also
higher in those countries.
• Inflation is also known as hidden tax.
Causes of inflation:
1. Demand-pull inflation:
• This inflation comes due to increase in demand for goods and services
due to any reason.
• Some reasons for the increase in demand.
▪ Increase in expenditure by the government.
▪ Increase in income of people.
▪ Increase in money supply etc.
• Generally this happens in developing countries.
• It is also known as 'more money chasing few things'.
• This is the most common type of inflation.
• To control such inflation Government –
▪ Imports some items.
▪ Increases the interest rate.
▪ Regulates the supply of money.
2. Cost-push Inflation:
• This situation occurs when the cost of production of goods and services
increases due to increase in the value of the four major factors of
production.
• There are other reasons also, such as –
▪ Devaluation of currency etc.
• It is also called commodity inflation;
• This inflation is rarely seen.
• Control measures:
▪ Government cut taxes,
 32

▪ Wage revision etc.

3. Deficit Financing;
• To meet the budget deficit, when the government borrows money from
the RBI or other places, inflation arises as the money supply in the
economy increases.
4. Devaluation of Rupee:
• Devaluation of rupee makes imports expensive. As a result, items based
on this also become expensive.
5. Increase in the price of crude oil -
• Expensive Energy
• Expensive Transport
6. Profit-Push inflation:
• When the profit is increased
• Generally in the enthusiastic market.
7. Some other reasons:
• Monopoly
• Natural Calamity
• Estimates about the rise in prices of goods in the future.
• Hoarding by traders;
• Nexus of some big producers/traders etc.

Types of Inflation:
1. Creeping Inflation
• Less than 3% yearly inflation.
• Better inflation.
2. Walking Inflation
• More than 3% and Less than 10%
3. Galloping Inflation:
• Its growth rate ranges from ten to 999 percent per year.
• Generally, this inflation is found in the event of weak government, war
and rebellion.
 33

• In this inflation, people start collecting things, buying houses, land and
gold.
• Because depositing in banks at prevailing interest rate becomes harmful.
4. Hyper-inflation:
• In this, the rate of inflation can be in lakhs and crores, and that too very
fast, in only some time.
• In 1923, German currency prices were so low that it was used for fuel. It
was 30 thousand percent per month.
• In 1985, its rate in Bolivia was 24 thousand percent per year.
Deflation:
• Inflation vs. Deflation
• Benefit to those who keeps Cash
• This is the opposite of inflation, i.e. Prices of goods/services begin to decrease.
• This is due to deductions made by the government and individuals in their
expenditure.
• It is a dangerous situation for the economy, because –
▪ People keep postponing purchases in the hope of further reduction in
prices in the future.
▪ This leads to beginning of slowdown in the economy.
▪ This leads to increasing unemployment and eventually to economic
depression.

Terms related to inflation

1. Disinflation:
• This is basically a slowing down of the rate of inflation. That is, the value
of goods is increasing, but the rate of increase is continuously
decreasing. Like rate of wheat
Year 2017 Year 2018 Year 2019 Year 2020
Price - Rs 10/ Kg Rs 11/ Kg Rs 12/ Kg Rs 12.50/ Kg
Inflation – 10% 9% 4.2%
• Deflation occurs after the end of this condition.
2. Reflation
 34

• When inflation is deliberately increased by the government, it is called

reflation.
3. Stagflation
• People are not demanding goods, but still there is inflation.
• An economy that is going through a period of Recession, but it also has
inflation, it is called as Stagflation.
4. Low Inflation:
• The increase in prices gradually slows and corresponds to the unit points
in accordance with the estimates.
• In such a situation people want to save money and keep the savings in
the bank.

Effects of Inflation:
1. On creditors and Debtors
• Loss to the lender.
• Benefit to the borrower.
• Situation in deflation exactly opposite to the above.
2. On lending institutions:
• Increased pressure in lending.
3. On Aggregate Demand
• Indicators of increasing production.
4. On investment:
• Investment growth, for two reasons –
▪ Expansion in production due to high demand.
▪ Negative impact on investment due to accessibility of lending and
increase in interest rate.
5. On income:
• A slight increase in the "nominal value" of income, but
• The "real value" of income as much as before.
6. On savings:
• More expense to maintain standard of living, consequently less savings.
• Low savings have a negative effect on bank deposits.
 35

7. On tax:
• Increase in tax burden of taxpayer.
• More collection of tax with the government, but a slight increase in real
value.
8. On exports:
• Due to increase in the price of goods, the competition in the world
market is weak, consequently loss to the export industry.
9. On Employment:
• Increase in short term employment due to expansion in production.
10. On Wages:
• The 'nominal value' of the wage increases, but the real value falls.
11. On the economy:
• Profit in the short term, but due to uncertainty prevailing in the market,
industrialists are hesitant to invest.
• 4 to 5% inflation is considered beneficial for the economy.
12. On those with a fixed income:
• Extreme negative effects
• Poor class worst affected
• Growth of inequality in the economy.
13. Social dissatisfaction:
• Labor movement
• Discontent in other classes as well

Banking
Meaning:
• The financial institution, which:
▪ Takes money from people,
▪ Return deposited money, and
▪ Lend money to people.
▪ Not all financial institutions are banks; like –
 36

▪ Post offices collect deposits from people, but they do not give loans.

Types of commercial banks –

There are two main types of commercial banks:
1. Scheduled Banks:
• These banks are listed under the Second Schedule to the RBI Act, 1934.
• Some rules have to be followed to be listed.
2. Non-scheduled banks:
• These banks are not registered under the charter of RBI.
• They cannot take loans from the RBI except in unusual circumstances.
• They are not obliged to provide banking services in accordance with the
policies and instructions of RBI.
• Jammu and Kashmir Bank comes under this category.

Type of Scheduled Banks –

There are 2 types of Scheduled banks:
1. Commercial Bank -
• These are banks that take deposits, return deposits when needed, and
give loans to people and industries.
2. Co-operative Bank -
• These are registered under the co-operative societies.
• They work on the principle of cooperative based on mutual cooperation.

Types of scheduled commercial banks - 5

Scheduled commercial banks are divided into 5 parts on the basis of ownership.
1. Public Sector Banks – PSUs
A. State Bank of India (SBI) and its associated banks.
• SB of Jaipur, Bikaner, Mysore, Hyderabad etc.
• Registered under the State Bank of India Act, 1955.
B. Nationalized Banks - State Bank of India (Subsidiary Banks) Act, 1959;
2. Private sector banks - Yes Bank, Axis, ICICI, HDFC etc.
 37

3. Small Finance Banks

• Functions – taking deposits + lending money

• These are founded as Public Limited Companies in the private
sector under the Companies Act, 2013.
• Their main objective is to provide banking facilities to small
traders, marginal and small farmers and micro and small
industries in the unorganized sector.
• These banks are set up by the individuals, corporates, trustees or
societies.
• These are governed by the rules and regulations of the RBI.
• These banks need to have paid up capital and reserves of at least
INR 100 crore.
4. Foreign banks - Citi bank, Standard Chartered Bank, Bank of America etc.
5. Regional Rural Banks;

Functions of commercial banks:

1. Current Account Deposit:
• Generally used by Businesses.
• No interest on deposits.
2. Fixed/ Term Deposit:
• Deposit for a fixed period.
• No cheque facility.
• Interest payable on deposit.
3. Savings account Deposit:
• Current and Term, a mixture of both deposits.
• Payment of money on demand up to a certain number time.
• Interest payable, but below the rate for fixed deposit.
4. Giving Loan:
• Different types of loans; for example, Cash credit, Demand loans, Short
term Loans, Overdraft etc.
5. Investment of Funds:
• Procurement of Government Securities and other approved corporate
securities from the remaining funds.
 38

• Under the SLR, it is mandatory for banks to keep some certain funds in
the form of government securities.
• Banks also prefer to invest their remaining funds in government
securities, because funds can be raised at any time by selling them in
the open market.
6. Other services for customers:
• Purchase and sale of foreign currency.
• Issuance of travelers’ cheques and gift cheques.
• Providing locker for valuables etc.
Note: In the era of Liberalization, commercial banks are continuously providing more
and more facilities to their customers.

Non-Banking Financial Companies (NBFC)

Definition - These are companies which are registered under the Companies Act,
1956.
Functions - Their main functions are:
• Lending for business.
• Investing in various types of shares/bonds/debentures, securities, lease
business, rent-purchase, insurance business and chit fund business.
• But it does not include any companies whose businesses are of–
▪ Agricultural activity
▪ Industry activity
▪ Purchase and sale of goods other than securities, and
▪ Purchase, sale and construction of immovable property.
Some NBFCs are regulated by RBI while some are not. Similarly insurance companies
Comes under the regulation of IRDA and mutual fund companies are under the
regulation of SEBI.
There are 2 types of RBI regulated NBFCs.
1. NBFCs receiving deposit, which require Rs.200 crores.
2. Those who cannot take a deposit (need 100 crore rupees), but they can take
investment of fixed deposits.
 39

The main difference between Bank and NBFCs:

Although both are important financial intermediaries, they provide almost the same
services to customers. Yet there are some important differences between these two.
These are:
• Unlike banks, NBFC cannot issue own cheques and demand drafts.
• Banks participate in the payment system of the country, while the NBFCs don’t
get involved in such transactions.
• Banks are involved in payment and settlement, which is called the 'clearing
system', but NBFCs don’t.
• It is not mandatory to maintain reserve ratios like CRR and SLR for the NBFCs.

NBFC Companies:
• Venture Capital Funds/ Stock broking companies (Registered in the SEBI)
• Registered insurance companies (Registered in IRDAI - Insurance Regulatory
and Development Authority of India).
• Nidhi Company - Urban Nidhi Ltd, Balaji Nidhi Ltd. Gramin Nidhi Ltd
• Chit fund Company
• Housing Finance Companies (Regulated by National Housing Bank)
• Stock exchange/Mutual benefit Company
For example:
• Reliance Capital
• Bajaj Finserv Ltd
• Dewan Housing
• Power Finance Corporation Ltd.
• Shri Ram Transport
• Manappuram Finance
• Muthoot Finance Ltd
 40

Some Banks and Financial Institutions

• Regional Rural Bank:

▪ Established on 2nd October 1975 (on the report of the Bank Commission
constituted under the chairmanship of M. Narasimham).
▪ Stake in Capital:
➢ Central Government - 50%
➢ State Government - 15%
➢ Promoter Bank - 35%
• Industrial Finance Corporation of India:
▪ First development finance institution of the country established in 1948.
▪ First organization converted into a public limited company in 1993.
▪ Main objectives - Long-term loans to Industrial Cooperative Units and
Public Limited companies.
• Industrial Development Bank of India:
▪ Long-term loan to industries.
▪ To provide other developmental services to industries.
▪ Coordinate with the work of other development banks as apex bank, and
▪ Funding of other development banks when required.

• Infrastructure Development Finance Corporation (IDFC)

▪ Established - In the budget of 1997-98.
▪ Main objectives - To provide long term finance for infrastructure
development.
• Exim Bank of India:
▪ Objective - To arrange finance for international trade.
▪ Acting as a Development Bank and Merchant Bank for export oriented
industries.
▪ To provide financial assistance for large construction works and joint
ventures abroad.
• Industrial Investment Bank of India:
 41

▪ Established in 1997 (by dissolving Industrial Restructuring Bank of

India)
▪ Purpose - to revive sick industries.
• National Bank for Agriculture and Rural Development:
▪ To provide loans for agriculture and rural development.
• Small Industries Development Bank of India:
▪ Providing finance for:
➢ Opening of new small scale industry.
➢ Modernization of Small Scale Industries (Technology)
➢ To encourage marketing of products of small scale industries in
India and abroad.
➢ To start employment generating industries in semi urban areas.
• MUDRA Bank: (Micro Unit Development and Refinancing Agency-MUDRA):
▪ Objective:
➢ Lending to small and backward people/industries at a lower rate.
➢ Creating standard rules for finance and regulating,.
➢ Suggesting and advising about the appropriate technology.
➢ It is registered as a non-financial company under the aegis of
SIDBI.
Note- There are more than 5.75 crore small businesses in India, employing
about 12 crore people.
• Payment Bank:
▪ Objective - To make financial inclusion of people by easing of opening a
bank account.
▪ Accepting deposits of up to one lakh rupees.
▪ It is connected to customers via mobile phone
▪ These banks cannot give loans to people.
• Chit Fund:
▪ Private ownership.
▪ Collection of small savings.
▪ Functioning and reliability controversial.
• Mutual Fund:
 42

▪ It is an investment financial intermediary, which invests the savings of

small investors in the stock market.
▪ Unit Trust of India (1964) is the first mutual fund in the country.
▪ Now it has also been opened for the private sector.
• NIDHI:
▪ These NBFC companies are registered under the Companies Act, 1956.
▪ These companies borrow from their members. And give loans to its
members only at relatively cheaper rates for works like the building and
repairing the house.
▪ Their other names are:
➢ Nidhi Permanent Fund
➢ Benefit Fund
➢ Mutual Benefit Fund and
➢ Mutual Benefit Company etc.
▪ Nidhi is more popular in South India.

Reserve Bank of India (RBI)

Introduction:
• Establishment - Under RBI Act 1934, as a private bank.
• In 1949, it was nationalized and given the status of Central Bank.
• With this, technically it was no longer a bank (general banking operations).
Functions:
1. Money Issuing Agency
• Except one rupee notes and coins (it is issued by the Finance Ministry),
all currency notes and coins are issued by RBI.
2. Distributor:
• Distribution of printed currency and coins by self and government.
3. Monetary Policy:
• Announcement of monetary policy every two months.
4. Regulatory Bank:
 43

• Inspection, regulation and control of all commercial banks in the

country.
• Regulation is related to licensing, opening of branches, liquidity of
assets, merger of banks etc.
• To maintain Cash reserve ratio of other banks.
• Providing Centralized Clearing and Remittance Facilities to the banks.
5. Banker of Government:
• Debt management of government and states.
• Providing funds to the government by purchasing treasury bills issued by
them.
• Operation of current account of the government.
6. Bank of Last Resort:
• To provide financial assistance (in the form of loan) to all scheduled
commercial banks in times of crisis.
7. Exchange Rate stabilization;
• Keeping the exchange rate of Indian currency 'Rupee' constant.
8. Keeper of the Foreign Exchange
• Collection and Issue.
• To ensure availability of foreign currency as required in the country.
9. Inflation stabilization:
• By monetary policy.
10. Agent of the Government:
• Representation of India in international organizations like IMF etc.
11. Developmental Functions:
• It has been given some developmental and promotional work by the
Government of India.
• For this, RBI has established some specialized financial institutions and
banks, such as-
▪ Industrial Development Bank of India (IDBI)
▪ Small Industries Development Bank of India (SIDBI)
▪ National Bank for Agricultural and Rural Development (NABARD)
▪ National Housing Bank (NHB)
 44

• In this regard, RBI also makes necessary rules for commercial banks,
which are concerned with the interests of the poor and weaker sections.
Some priority sectors of this kind -
▪ Agriculture
▪ Small and micro industries.
▪ Education
▪ Housing and
▪ Poor class.
• Domestic commercial banks have to keep a certain portion of their loans
for these priority sectors.

Monetary and Credit Policy

Definition:
• The policy of any economy, by which the supply of money (circulation) in it
(about 17 lakh crore rupees in India) is regulated, is called its monetary and
credit policy.
Facts:
• In India, this responsibility is entrusted to RBI.
• In these matters, RBI enjoys almost Working Autonomy.
• Based on the report of Urjit Patel Committee (2013), a six-member Monetary
Policy Committee, was formed in 2016. It consists of the following six members:
▪ Governor of RBI
▪ From RBI - Deputy Governor of RBI
▪ An officer nominated by the board
▪ Government nominates three other members, who are having knowledge
of economics.
• The term of these nominated members is 4 years. But the government can
remove them even earlier.
• Decisions are made by a majority of the members present. The governor has the
right to vote decisively (casting vote).
• Board is responsible to the Parliament.
 45

• The quorum of the meeting is of 4 members, in which presence of the governor

or a deputy governor is mandatory.

Monetary policy tools:

1. Cash Reservation Ratio (CRR):
• Ratio of gross deposits of all Scheduled banks in India (domestic or
foreign), which they must hold in cash with the RBI.
• The value of this ratio is determined by RBI.
• Generally this ratio can be between 0-15 percent.
• About one lakh crore rupees of banks are affected by a decrease or
increase in the amount of this ratio by one percent.
2. Statutory Liquidity Ratio (SLR):
• This is the ratio of the gross deposits of all scheduled banks (domestic
and foreign) operating in India, which the banks keep with them. This
amount can also be non-cash; like-
▪ Cash + gold + government approved securities etc.
• Banks earn profit on this amount.
3. Repo Rate:
• This is the rate of interest at which the RBI gives short-term loans to its
customers (banks).
• In practice it is neither called the "interest rate" nor the "bank rate".
• India's call money market operates at this rate.
• Banks use it for taking overnight loans.
• This rate is directly related to the rate at which banks lend to their
customers.
4. Reverse Repo Rate:
• This is the rate of interest that RBI gives on short-term loans taken from
its customers.
• This is the opposite of Repo rate.
5. Bank Rate:
• It is the rate of interest at which RBI gives long-term loans to its
customers (government, government-companies, banks, state
governments and financial institutions).
 46

6. Marginal standing facility-MSF

• It was started in 2011, because at that time the money market was very
volatile.
• It is an overnight loan to commercial banks by RBI.
• Now, its rate of interest has been made same as the bank rate as a
penalty.
• That is, if the bank taking the loan is unable to maintain the SLR set for
itself and wants a loan from RBI, then the bank will have to take a loan
at bank rate.
7. Open Market operations-OMO
• It is related to the purchase and sale of government securities to banks
and people by the RBI.
• When banks buy government securities from RBI, the amount of money
with the banks decreases.
• On the contrary, when the RBI buys it from banks, the amount of money
with the banks increases.
Note: - Base Rate
• This is the rate of interest below which the scheduled banks cannot lend to
their customers.
• This base rate is determined by each bank itself. Therefore, the base rates of
different banks vary according to their operational costs.
Use of tools of Monetary policy:

1. When RBI decreases CRR/SLR/REPO RATE or buys government securities ->

Money supply increases -> more money in people’s hand -> more demand of
goods and services -> Increased prices -> Inflation increases.

RBI decreases CRR/SLR/REPO RATE or buys government securities when

there is economic slowdown/deflation in the economy to boost the economy.

2. When RBI increases CRR/SLR/REPO RATE or sells government securities ->

Money supply decreases -> less money in people’s hand -> low demand of goods
and services -> lower prices -> Inflation rate decreased.
 47

Dosa Economics
Meaning –
• Through the change in the price of a dosa, this doctrine explains the fact
that -
"The lower rate of interest earned on savings is ultimately beneficial to the
depositor, provided that the rate of inflation is low."
Originator – Raghuram Rajan, former Governor of the Reserve Bank of India.
Clarification of the Doctrine –
1. Circumstance # 1.
• The amount deposited in the bank - INR 1,00,000.
• Rate of interest - 10% per annum.
• Total interest earned in one year - INR 10,000.
• A year ago, the price of a dosa was - INR 50.
• Today that dosa costs (with inflation rate going up to 10%) - INR 55.
Conclusion –
• A year ago the depositor could buy 2000 dosas for INR 1,00,000.
• Now, after one year, he is still in the position to buy 2000 dosas with the
money deposited in the bank (despite the fact that the price of that dosa
has increased). Why? Because his total capital has now become INR
1,10,000 (capital + INR 10,000 as interest).

2. Circumstance # 2.
• The amount deposited in the bank – INR 1,00,000.
• Rate of interest - 8% per annum.
• Total interest earned in one year - INR 8,000.
• Total amount - INR 1,08,000
• Rate of inflation - 5.5%
• A year ago, the price of a dosa was - INR 50.
• Today that dosa costs - INR 51.75
• Now the depositor will be able to buy 2047 dosas for INR 1,08,000.
Conclusion –
• In the second circumstance-
 48

▪ The interest rate has come down.

▪ Inflation has also come down.
▪ A total of 47 more dosas can be purchased.
Note: This proves that income is primarily related to inflation, and not the rate of
interest.

Non-Performing Assets – NPA

Meaning –
• Loans given by the banks, which are difficult to recover.
• The following time-limit has been set for any loan to be treated as a non-
performing loan –
(i) If the stipulated installment remains overdue for more than 90 days.
(ii) For agricultural loans,
(a) If the interest and/or the installment or principal amount of
a short-term loan is not repaid for two crop seasons, and
(b) If the interest and/or the installment or principal amount of
a long-term debt is not repaid for one crop season.

Categorization of NPA –
1. Sub-standard Assets - NPAs of duration equal to or less than 12 months.
2. Doubtful Assets - sub-standard asset for 12 months
3. Loss Assets – Assets that have been declared unrecoverable by the Reserve
Bank of India.

Factors Responsible for NPA –

• Slowdown in the economy.
• Delay in commencement of projects.
• Aggressive lending to large industries.
• Loan related frauds.
• Corruption prevailing in banking institutions
• Increasing number of willful defaulters.
 49

Willful Defaulter –
• The borrower who does not repay his loan intentionally. But there are some
conditions attached to it; like –
(i) He/she is in a position to repay the debt but is not repaying.
(ii) The money borrowed is not being used for the purpose it was
borrowed for; he/she is using it for some other purpose.
(iii) He/she may have sold the property for which he/she had taken a
loan.

Punishment –
• The bank or the financial institution can initiate proceedings for debt/loan
recovery. If required, legal action can also be taken or a criminal case can
also be filed against him.
• Such a person/institution is also barred for 5 years from taking another
loan.
• Such a person/institution cannot participate in the capital market.

NPA Recovery Measures –

• Selling out mortgaged property.
• Selling out pledged shares.
• Filing a case in Debt Recovery Tribunal.

Sectors with Higher Rate of NPAs –

• Textile, Aviation, Mining, Infrastructure, Cement.
• Agriculture sector.
• Most of the NPAs belong to the PSU Banks.

Capital adequacy ratio (CAR)

Purpose of CAR provisioning
• Risk management of banks
• Avoiding financial loss of banks
• Prevention of bankruptcy
 50

• Protection of interest of depositor

• Protection of Interest of banks

Some facts about car

• A ratio that a bank keeps to a certain proportion of its total capital to
minimize its risks.
• Capital Adequacy Ratio is also known as Basel agreement.
• The higher the Capital Adequacy Ratio, the better and stronger the bank will be.
• Central bank determines the percentage of Capital Adequacy Ratio. RBI
determines CAR in India.

Bad Bank

Meaning - The bank to which the loss making banks transfer their liabilities is called 'bad bank'.

Correct name - National Asset Reconstruction Company Limited (NARCL)

First Chief Executive Officer - CEO

- Padmakumar Madhavan Nair

Key points -

- To deal with the growing problem of NPAs, the idea of bad bank was first introduced in
the 2017 Economic Survey.

- This bank works like an Asset Reconstruction Company.

- This bank works to recover the amount stuck in the loan of other banks by buying it.

Benefit

- Other banks will be able to concentrate on their main work.

- Can give more loan.

- Ease of privatization.
 51

Loss -

- According to former Reserve Bank Governor Raghuram Rajan, “this concept can create a
moral crisis, and encourage the habit of irresponsible lending to banks.”

- Bad banks can also face losses.

Taxation

Meaning:
• Economy levy imposed on any product, income and economic activities by the
government.
• Money collected from it is called 'tax'.
• Government pays its expenses with this money.

Four main tax related goals:

1. Impact of Tax:
• The first stroke of tax is called taxation. Impact of tax is on the person to
whom the government lays the responsibility of depositing the tax.
• The point at which tax is really paid, is called taxation.
• That is, its effect can be shifted.
• It is levied from producer.
2. Incidence of Tax:
• Minor stroke of tax is called taxation. But it is also possible to increase
the price of the commodity and pass the tax on another person. The
incidence of tax will be considered on the person, who cannot pass on
the tax burden to anyone else.
• The point where the tax is seen levied, is called ' Incidence of Tax '.
• This tax cannot be transferred. For example, tax on consumer.
3. Direct Tax:
• It is levied directly on a person/institution, and he has to pay it.
 52

• This tax cannot be transferred.

• Some of these types of taxes are –
▪ Income tax,
▪ Professional tax
▪ Property tax,
▪ Taxes on capital gains etc.
4. Indirect tax:
• This tax is levied by the government and collected from an individual by
an arbitrator.
• This tax is basically paid by the consumers.
• Since this tax is transferred, it is called indirect tax.
• There are some taxes like this –
▪ Custom Duty
▪ Excise Duty
▪ Service Tax
▪ Value added tax
▪ Goods and Services Tax

Methods of taxation:
1. Progressive taxation:
• Under this method, the tax rate increases as income increases.
• Income tax in India is collected through this method.
• This method is the most popular method in the world.
• This method punishes the one who earns more income and rewards the
lesser one.
2. Regressive Taxation:
• This system is completely opposite to the progressive taxation system.
• In this, the tax rate decreases according to the increase of income.
• VAT and tax levied on food items, textile, transport and entertainment
etc. can be taken under it in such a way that although this rate is same
for all, poor and rich, but in proportion to income, its burden on the poor
falls more.
 53

• Therefore this method is also criticized.

3. Proportional Taxation:
• It has the same tax rate for each level of income and production, such as
10%, 15%, 20% etc.
• Sales tax is kept under it.

Taxation in India:
Three tier tax system:
1. By the Central Government:
• Income tax (except agricultural income)
• Custom duty
• Central Excise duty, and
• Service tax etc.
2. By States:
• Stamp duty
• State Excise Duty
• Land revenue
• Professional tax etc.
3. By Local bodies
• Property tax
• Water duty etc.

Some major taxes:

1. Direct Taxes - Under this, the following taxes are included:
i. Personal Income Tax:
• Tax on total annual income of a person.
• This tax rate increases according to income.
ii. Corporate Tax:
• It is levied on the total annual income of the company working in
India.
 54

• Foreign companies working in India also have to pay this tax.

• The rate of this tax is same for everyone.
iii. Minimum Alternate Tax (MAT):
• Companies that do not pay any income tax are also required to
pay minimum income tax.
• It is called MAT.
iv. Fringe Benefit Tax:
• This tax is paid by the employer;
• This tax is levied in lieu of various small benefits given by the
employer to its employees.
• Even if the employer is not paying income tax, he has to pay the
FBT.
v. Dividend Distribution Tax-DDT
• When a company pays dividend to its people, the tax on it is called
DDT.
• It is payable in addition to income tax.
vi. Capital gains tax:
• It is a tax on the profit arising from the sale of an investment.
• Here, Investment means - buildings, land, family business,
shares-bond-debentures etc.
• This tax is divided into two categories:
(1) Short-term capital gains:
▪ If the property is sold within three years of purchase.
(2) Long-Term capital gains:
▪ If the property is sold after three years of purchase.
2. Indirect tax:
i. Value Added Tax:
• This tax is collected at every stage of value addition of production
and distribution of goods.
• It is imposed only on goods and not on services.
• It is ultimately paid by the consumer.
• The rate of VAT on each object may vary.
 55

• These taxes are levied by the states. So they vary from state to
state.
ii. Excise Duty:
• It is levied on goods produced in India.
• It is imposed by center.
• It is paid by the producer, who then forwards it.
iii. Customs Duty;
• It is levied on goods imported from another country.
• The rate of duty varies on different items.
• It comes under the jurisdiction of the Center.
iv. Service Tax:
• It is a tax charged at a fixed price for many services such as
restaurants, entertainment, hotels and transportation.
• For this, the service provider has to register itself in the excise
office.
• Services provided to small service providers, UNO international
organizations and SEZ are exempted from this tax.
v. Stamp duty:
• When the transfer or accounting of a property/item etc. is done
(legally) through written documents, then the fee charged for it is
called stamp duty.
• It is imposed by the states.
• Under this, certain percentage of the value of the goods
transferred is taken.
vi. State excise Duty:
• States have the right to levy excise duty on alcohol, opium and
other intoxicants.
vii. Tax Deduction at Source:
• It is a deduction to be made on payment of income from salary,
interest, profits, lottery, horse racing, commission, rent and
technical services etc.
viii. Goods and Services Tax:
• Effective from 1 July 2017.
 56

• It is a value-added tax, which is a single tax on the supply of

goods and services from the manufacturer to the consumer.
• Indirect tax
• This system is the biggest economic reform after independence.
• By this, the uniform tax system has been adopted for the whole
country by eliminating various taxes being levied by the Central
and various state governments at different rates.
• It has integrated India's market.
• Under this, the maximum rate of tax has been kept at 28%.
• Some of the main taxes included under it –
▪ Excise Duty;
▪ Central sales tax, VAT, luxury tax, service tax etc.
• Three types of GST:
▪ Central GST
▪ State GST
▪ Integrated GST

--------------------------------------------------------------------------------------------

Budget
Meaning:
• The account of the income and expenditure of the upcoming year of the
government.

Budget has three parts:

(1) Actual data of the previous year.
(2) Temporary data for the current year and
(3) Financial estimations for the coming year.

The components of the Budget:

1. Budget Estimates:
• The amount allocated in the budget for any ministry and scheme.
 57

• More money is allocated to them as and when required after the start of
work.
2. Revised Estimate:
• During the current financial year, when a Ministry requests for more
funds, the Government submits a 'Supplementary Demand' under it in
the Monsoon/ Winter Session of Parliament.
3. Revenue Receipts:
• It shows the total income of the government.
• The government receives revenue from these two categories –
i. Tax Revenue Receipts:
▪ Money received from various types of direct and indirect
taxes.
ii. Non-tax revenue receipts:
▪ Income from loans given by the government.
▪ Dividends and profits from investment (from PSU etc.)
▪ Government fees and fines.
▪ Income from government services - electricity, banking,
insurance services etc.
▪ Grant-in-aid received from foreign and international
organizations.
▪ Income from financial services, such as printing of
currency, sale of postage stamp etc.
4. Revenue Expenditure:
• It includes all the expenses of the government, which are not productive
(asset creation). But the government has to make these expenses. like–
▪ Interest on internal and external loans.
▪ Salary, pension of government employees.
▪ Subsidies given by the government in various sectors;
▪ Defense, para-military and police related expenditure.
▪ Establishment expenses;
▪ Expenditure on social welfare programs.
▪ Grants to states and other nations.
5. Revenue Deficit:
 58

• Its formula is:

▪ Revenue expenditure - Revenue Income
• The opposite is the revenue surplus. Its formula is:
▪ Revenue Income - Revenue Expenditure.
6. Capital Budget:
• There are actually two types of budgets:
▪ Revenue Budget, and
▪ Capital budget.
• The capital budget has an account of the assets of the government and
the changes made in these assets.
7. Capital Receipts:
• This includes the following receipts:
▪ Public debt availed (money received from the sale of bonds,
treasury bills etc.)
▪ Loans taken from foreign and international organizations.
▪ Provident Fund;
▪ Amount received from disinvestment of PSUs etc.
8. Capital Expenditure:
• Expenditure to be made on the construction of assets; like –
▪ Land acquisition.
▪ Building construction.
▪ Purchase of machines and equipment.
▪ Investment in shares.
▪ Loans given to states and union territories.
▪ Loans given to Public Sector Undertakings, and
▪ Loans given to other parties, etc.
9. Fiscal deficit:
• If the total receipts of the government (revenue receipts + capital receipts)
are less than the total expenditure of the government (revenue
expenditure + capital expenditure), it is called fiscal deficit.
• Fiscal deficit is shown as a percentage of GDP.
 59

• The nature of fiscal deficit is larger than revenue deficit. Actually, the
revenue deficit is a part of this fiscal deficit.
• There is always a situation of fiscal deficit in India.
• NK Singh committee has recommended that the central government
should bring its fiscal deficit to 2.5% by 2022.

Impact of tax on economy:

1) Tax has a direct impact on people's income, their purchasing power,
consumption i.e. their standard of living.
2) It has a direct impact on the savings of individuals and companies.
3) There is an immediate effect on the value of goods and services.
4) Economic activities are affected by the increase in government expenditure.

Types of Budgeting

Meaning - Estimated account of the income and expenditure of the government for the
next one year.

Type:
1. Line-item Budgeting
• Conventional Budget
• It lays emphasis on items to be spent without creating budget objectives.
2. Performance Budgeting:
• First in America, on the recommendation of the First Hoover Commission
(1947–49).
• Implemented in India on the recommendation of the First Administrative
Reforms Commission (1966-70).
• This budget emphasizes on objectives rather than emphasizing spending
on items.
• The expenditure and achievements of each activity are discussed in the
budget.
 60

• Problem - It is a very difficult task to estimate the exact expense and

target of each activity.
3. Zero-Based Budget:
• There is no predetermined basis under it. That is, the preceding inputs
are assumed to be zero.
• A new economic basis is prepared for the budget of the current financial
year, based on a critical evaluation of the schemes operated in the
previous financial year.
• After the cost of the schemes, they are evaluated on the basis of 'cost-
benefit' analysis. Consequently, the scheme may be discontinued if
satisfactory results are not found.
• This ensures proper use of public funds.
• The concept was accepted in India in 1985-86.
4. Outcome Budget:
• Basis of current budgets.
• Started by Finance Minister P. Chidambaram in 2005-06, when 1 lakh
74 thousand crore rupees were placed in the budget for Bharat Nirman
Yojana.
• This budget looks through some indices to see if the money spent gives
results.
• In this way, this budget becomes a 'Progress Card’ for all government
ministries, departments and agencies.
• Due to this, good services are made possible, right decisions are taken,
programs are constantly evaluated, and there is a sense of responsibility
in the officers.
• Performance Budget was merged with Outcome Budget in 2007-08.
5. Gender Budget (Women's Welfare Budget)
• Implemented in 2005-06.
• Percentage of women in the population – 48%
• It is based on an analysis of the proportion of total budget expenditure to
be spent on men and women.
• Bringing women equal as men.
• Two parts of the budget:
▪ Part-A –
➢ Exclusive Schemes for Women
 61

➢ 100% expenditure on women.

▪ Part-B –
➢ Women oriented schemes.
➢ 30% of the money earmarked for it on women.
6. Child Budgeting (Children's welfare budget)
• Number of children upto 18 years of age – 40%
• Separate allocation of funds in the budget for schemes related to the
welfare of children, especially for education and health.
• Two grounds of evaluation:
▪ Evaluation of schemes based solely on children.
▪ Evaluation of comprehensive social schemes, as these schemes
also helps the welfare of children.

Fiscal Policy
Meaning –
• State's (government's) policy regarding treasury.
• GDP at the center –
▪ Production (Consumption)
▪ Investment (Production)
▪ Export – Import

Two Key Elements –

1. Income – from direct and indirect taxes.

2. Expenditure –

i. Current government spending

• Expenditure spending
• Spending on defense, health, education etc.
Note - It affects labor efficiency.
ii. Transfer Payments
• Expenditure on social welfare and social security related
programs; like –
 62

▪ Old age pension scheme

▪ Scholarship for the economically weaker classes.
▪ Unemployment allowance, etc.
Note –
(A) It is not included in GDP, as this payment is not made to
factors of production in exchange for their work.
(B) Through this, the government tries to influence the
distribution of income in the society.
iii. Capital Expenditure –
• Expenditure on infrastructure.
Note: This increases the production capacity of the economy.

Impact of Fiscal Policy on Economy –

• Influencing economic activities by influencing the Aggregate Demand.
• Influencing the distribution of income and wealth among different sections
of the population.
• Influencing economic activities by allocating resources between different
regions and economic agents.

Two Types of Fiscal Policies –

1. Expansionary Fiscal Policy
• During the recession, the government adopts a policy of increasing
employment and production by increasing its spending.
2. Contractionary Fiscal Policy
• When the economy is in a boom phase, that is, when there is a state
of full employment and wages and prices are increasing rapidly, then
the government-
▪ cuts down on its expenses
▪ Hikes taxes.

Fiscal Measures to Increase Aggregate Demand –

i. Increasing the availability of expendable funds by cutting down on
individual income tax rates. Hence, demand increases.
 63

ii. Reducing indirect taxes lowers the prices of goods, which results in the real
income of the people increasing. Hence, demand increases.
iii. Reducing corporate tax increases the profits of the companies. This leads to
an increase in capital expenditure.
iv. Spendable money can be increased by cutting the tax rates on income
received on savings.
v. Increase in purchasing power by increasing transfer payment.
vi. Increasing expenditure on infrastructure will increase people's income that
will ultimately translate into increased demand for goods.
Fiscal Policy and Monetary Policy –
• Effect and extent of monetary policy-
▪ Affects the aggregate demand by increasing or decreasing the money
supply in the market through repo and reverse repo rates.
▪ But it cannot take any decision regarding the deposits kept by the
individuals and companies with the banks.
▪ Similarly, it cannot give instructions about the money that banks
have with them.
▪ Therefore, monetary policy's ability to influence demand is very
limited.
Four Options –
1. Expansionary FP / Contractionary MP (FP - Fiscal Policy; MP - Monetary
Policy)
• Reduction in tax and increase in government spending will ultimately
increase aggregate demand.
• If the money supply is reduced under contractionary MP, the interest
rates would increase. This will have a negative impact on demand.
2. Contractionary FP / Expansionary MP
• Increase in tax rates + reduction in government spending. This will
reduce demand.
• Cutting down on interest rates will increase the money supply. This
will increase demand.
3. Expansionary FP / Expansionary MP
• Due to expansionary nature of both the policies, increased supply of
money will lead to inflation.
4. Contractionary FP / Contractionary MP
 64

• Due to contractionary nature of both the policies, supply of money

will be reduced. This will have a negative impact on aggregate
demand.
Conclusion - Both these policies should be declared in accordance to each other.

Index

(1) Consumer Price Index-CPI:

• It represents the cost of goods and services consumed by average household
consumers.
• It represents the change in prices of the object which occurred at the end point.
• Types of CPI:
1. CPI for agricultural Laborers: CPI-AL
▪ Base year - 1986-87
▪ Issued by the Labor Bureau of the Ministry of Labor and
Employment.
▪ Total 260 goods and services included.
2. Consumer Price Index for Industrial Workers: CPI-IW
▪ Base year – 2016
▪ Issued by the Labor Bureau of the Ministry of Labor and
Employment.
▪ Total 463 goods and services included.
3. Consumer Price Index for Rural and Urban Population
▪ Base year 2012
▪ Issued by Central Statistics Office.
▪ There are mainly eight sectors under it - education, textile, food
and beverages, communication, transportation, entertainment,
housing and medicine.
Note:
• Consumer price index is the main basis for determining inflation.
 65

• It provides knowledge of inflation on micro level.

(2) Wholesale Price Index:

• It represents the change in wholesale prices of goods.
• It refers to the change in price of the commodity in the beginning of the
distribution.
• Under this, primary items, fuel (energy) and 697 manufactured items have been
kept.
• Its base year is 2011-12.
• This index is released every month by the Office of the Economic Advisor of the
Ministry of Commerce and Industry.
• In the US, there is a prevalence of Producer Price Index instead of this.
• It is considered as an indicator of inflation.
• Its growth rate is less than the growth rate of CPI.
• Monetary and fiscal policy is related to change of WPI.

(3) Index of Industrial Production-IIP

• This index indicates the change in industrial production over a given period of
time.
• It is issued monthly by the Central Statistics Office (CSO).
• Under this, three main areas and their weightage are as follows:
▪ Manufacturing - 77.633%
▪ Mining - 14.373% and
▪ Electricity - 7.994%

(4) Index of Eight Core Industries:

• It is an indicator based on eight core industries.
• These eight industries and their weightage is as follows:
(1) Refinery - 28.0%
(2) Electricity- 19.9%
(3) Steel - 17.9%
(4) Coal - 10.3%
 66

(5) Crude oil: 9.0%

(6) Natural Gas: 6.9%
(7) Cement - 5.4% and
(8) Fertilizers: 2.6%
• The weightage of these eight core industries is about 40% in IIP.
• Its base year is 2011-12.

Central Statistical Organization

Key Facts:
• In 1949, the Central Government formed National Income Committee under the
chairmanship of Prof. PC Mahalanobis.
• The Central Statistical Organization was established in 1951 on the
recommendation of this committee.
• This organization works under the Ministry of Statistics and Program
Implementation.
• It is the organization responsible for the coordination of statistical activities in
the country and for the development and maintenance of statistical standards.
• Its functions include:
▪ Declaration of National Income.
▪ Compilation of National Accounts.
▪ Compilation of index of industrial production.
▪ Annual Survey of Industries.
▪ Organization of economic calculations, and
▪ Compilation of Consumer Price Index.
• It is headquartered in Delhi.
• It is headed by Director General.
• Prior to the year 2019, National Sample Survey Office compiled the data and
submitted it to the Central Statistical Organization. Then CSO used to calculate
them and used to announce GDP, GNP and national income etc.
▪ In the year 2019 with the merger of CSO and NSSO, the National
Statistical Office has been created.
 67

▪ Secretary, Ministry of Statistics and Program Implementation has been

made its head.

National Statistical Commission

Key Facts:
• It is an autonomous body.
• Establishment Year – 2005
• Status of Chairman equivalent to Union Minister of State
• Chairman's term - three years
• Chairman can be removed by the President only after the inquiry report of the
Supreme Court. (Article: 145)
• Status of members equivalent to the level of Secretary to the Government of
India.
• The CEO of the NITI Aayog is its ex-officio member.
• The Secretary of the Ministry of Statistics and Program Implementation is the
Secretary of this Commission.
• The main function of this commission is:
▪ Reduce the difficulties faced by agencies engaged in data compilation
work.

Foreign Investment
Meaning:
• Foreign funding received by India.

Main Forms of Foreign Investment:

(1) Foreign Direct Investment (FDI):
• Money received by any industry or business in India, from any company
or person from abroad, for the acquisition of a company or expansion of
business in India.
• There are two routes of FDI:
 68

i. Automatic route:
▪ Under this, the foreign company does not have to get any
prior permission for investment from Government of India
or RBI.
▪ Under this, the government releases the list of areas to be
invested. It is specified under the Regulation 16 of FEMA
20(R).
▪ For example - Insurance Company
▪ Most of the foreign investment in the country comes
through this medium.
ii. Government Route:
▪ Government permission is to be taken for foreign
investment in any sector other than those included in the
automatic route.
▪ This investment is cleared by concerned departments of the
government through the Foreign Investment Facilitation
Portal (FIFP), working under the Department for Promotion
of Industry and Internal Trade (DPIIT), Ministry of
commerce and industry.
• The percentage of investment in different companies is different.
• Restricted Sectors/fields for FDI:
▪ Nuclear Energy
▪ Lottery
▪ Chit Fund
▪ Nidhi Company
▪ Housing and Real estate business and
▪ Sectors related with cigars, cigarettes and tobacco.
• Benefits of FDI:
▪ Increase in Foreign Exchange reserve.
▪ Increase in Employment generation and production.
▪ Assistance in new technology, management skills, and intellectual
property.
▪ Capacity building by bringing competition in the domestic market.
▪ Hike in exports, and
▪ Increase in tax collection.
 69

(2) Foreign Portfolio Investment: (FPI)

• This investment is related to buying and selling by foreign investors in
the stock market.
• In the stock market, this work is done through foreign investment
institutions (FII).
• RBI authorizes any bank to work as bankers for FIIs in India.
• FII invests most of the money through Participatory Notes.
• FII can invest in:
▪ Notified securities in primary and secondary markets.
▪ Mutual fund
▪ Government securities.
▪ Derivatives available on the registered stock exchange, and
▪ Commercial paper, etc.
• No one FII can invest more than 10% of the total paid up capital of any
company.
• Collectively, they cannot invest more than 24% of the total Paid up
capital of any company.

(3) Participatory Notes (PN):

• These are issued to foreign investors by FII registered under SEBI.
• Through this, foreign investors can invest in Indian stocks even without
getting registered in the SEBI.
• In the Indian context, PN is primarily a derivative, which is issued in
foreign jurisdiction on the basis of Indian securities, securities, equity
loans and derivatives.
• A person investing in PN is not the owner of Indian securities. Its owner
is a PN-issuer institution. But the investor gets its benefit according to
the fluctuations in the prices of securities.
• It is a popular means of investment in India, because –
▪ For this, the investor does not have to register in SEBI.
▪ Saves time and expenses.
 70

▪ It is also a very safe and profitable way of investing illegal money

in the Indian securities market.
▪ When a PN is traded in a foreign exchange, then the regulator of
that area regulates it, not the SEBI.
• Concerns:
▪ Because of its easy transferability, many layers are formed in it.
Due to this, identifying the original beneficiary is difficult.
▪ It has also started working as a means of legalizing black money
in India.
▪ Since PNs are issued outside India, and its dealings are also
outside, so the SEBI has no control over it.

(4) Masala Bonds:

• In 2014, International Finance Corporation, which is an investing branch
of the World Bank, issued bonds worth one thousand crores rupees in
Indian currency.
• Its purpose was to provide funds to infrastructure projects in India.
• IFC named it 'Masala Bond' to give a local national taste, so that it gives
an idea of India's culture and food.
• Earlier this had been done in China and Japan too.
• These bonds are issued to foreign investors only.

Ease of Doing Business

• Annual report released by the World Bank

• As per Ease of Doing Business Report, 2020 –
▪ India's position in 190 countries is 63rd, where China is at 31st position.
▪ India ranked 63 in 2019.
• Main 10 parameters (having equal weightage)-
1. Starting a Business, cost and time during this process
2. Dealing with Construction permits, and cost and facilities available to a
company for constructing warehouse
 71

3. Time and cost for getting electricity connection,

4. Time and cost for registration of commercial property,
5. Taxation system of the concerned country,
6. Ease in getting credit – procedure, time and interest rate,
7. Protecting minority Investors,
8. Procedure of trading (import-export) across borders – between states and
between nations,
9. Rules, procedure and cost of Contracts between two companies and
corporates, and
10. Resolving Insolvency (Transparency).

Foreign Trade
Background –
• In ancient times, India's trade with foreign countries was very much
developed.
• The main items exported were - textiles, silk, spices, muslin, diamonds,
pearls, carpets etc.
• India accounted for about 25% of the total global industrial production in
the year 1750.

Some Key Facts –

• The character of Indian foreign trade has changed considerably since
liberalization.
• Increase in trade with nations known as emerging markets, and with
developing countries as well.
• Export increased, but import did increase more than that. This worsened
the status of BOP.
• There has been a considerable change in the nature of the goods being
exported traditionally.
• This subject falls under the Ministry of Commerce and Industry.

Key Exports –
 72

• Petroleum products (gasoline, jet fuel, kerosene, asphalt, naphtha etc.).

• Diamonds, pearls and other precious stones.
• Medicines.
• Iron and steel
• Marine products
• Electronic equipment
• Rice
• Aluminum, etc.

Key Imports –
• Crude Oil (the highest imported commodity)
• Gold
• Coal
• Telecom equipment
• Organic chemicals
• Edible oil
• Raw material for plastic
• Industrial Machinery, etc.

Top 5 Trading Partners –

• USA
• China
• United Arab Emirates
• Saudi Arabia
• Hong Kong

Major Countries We Export Products To -

• USA
• China
• Hong Kong
• Singapore
• Britain
 73

• Bangladesh
• Germany

Major Countries We Import Products From -

• USA
• China
• United Arab Emirates
• Saudi Arabia
• Switzerland
• Iraq.

Balance of Payment
Meaning –
• Balance of Payment (BOP) is an accounting statement that provides a
systematic record of all the economic transactions between residents of a
country and the rest of the world in a given period of time.
(i) Meaning of Residents –
• Individuals, Firms and Government Agencies
• Following will not be covered under this category:
Diplomats and other people working in embassies; foreign military
personnel; and branches of foreign companies (even if they are
operating within the borders of this country).
(ii) Economic Transactions –
A. Visible Items:
▪ All those physical/visible goods those are imported and
exported.
▪ Since these goods are made up of matter/some kind of
material, they can be seen, touched and measured.
B. Invisible Items:
▪ All the services that are taken and offered, such as
shipping, banking and insurance.
 74

▪ These things cannot be seen, touched and measured.

C. Unilateral Transfers:
▪ This includes gifts, personal remittances and other one-way
transactions.
D. Capital Transfers:
▪ Receipt of Capital (money received from lending or selling of
property).
+
▪ Payment of Capital (repayment of capital or purchase of
property).

Structure of Balance of Payment –

• 'Double Entry System' is used for BOP accounting. It has two sides:
i. Credit Side –
▪ Under this, foreign currency (income from exports) coming from
abroad is registered.
ii. Debit Side –
▪ Under this, foreign currency going out of the country (payment
made for import) is registered.
Equation of these two sides results in the formation of following three
conditions -
1. Balanced BOP:
▪ When the receipt of foreign currency and the payment of foreign
currency are equal.
2. Surplus BOP:
▪ When the receipt of foreign currency exceeds the payment of
foreign currency.
3. Deficit BOP:
▪ When the receipt of foreign currency is less than the payment of
foreign currency.

Meaning of Balance of Trade (BOT) –

• Definition - Balance of Trade means - the difference between the net value
of imports and exports of physical goods.
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• Formula - Balance of trade = Exports of goods - Imports of goods.

Two Types of BOT –

1. Surplus BOT-
• When exports are higher than imports.
• It is a favorable condition for any country.
2. Deficit BOT –
• When imports are higher than exports.
• It is unfavorable for the country.

There are two types of transactions done under Balance of Payments –

1. Current Account
Meaning - Current account contains the receipts and payments relating to
all the transactions of visible items, invisible items, unilateral transfers and
income from capital transfers.
Components –
i. Import-export of visible goods
ii. Import-export of invisible goods (services)
iii. Gifts and grants etc. (unilateral transfer)
iv. Income received and paid on domestic and foreign investment;
such as interest, rent, profit etc.
Balance on Current Account –
• The net value of credit and debit balance is the 'Balance on Current
Account'.
• There are two forms of 'Balance on Current Account' –
i. Current Account Surplus (CAS) –
▪ When credit items are more than the debit items.
▪ This situation arises when the value of goods and
services exported is greater than the value of goods and
services imported.
▪ This is indicative of the fact that this country is a lender
to the rest of the world.
ii. Current Account Deficit (CAD) –
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▪ When debit items are more than the credit items.

▪ This is the situation of foreign currency going to other
countries.
▪ This situation arises when the value of goods and
services imported is greater than the value of goods and
services exported.
▪ This is indicative of the fact that this country is a
borrower to the rest of the world.

2. Capital Account –
Meaning - Capital account of BOP records all those transactions between
the residents of a country and rest of the world that cause a change in the
assets or liabilities of the residents of the country or its government.
All these transactions are related to claims and liabilities of financial nature.
Note - Since capital account is related to financial transfers, it has no direct
effect on the income, production and employment of the country.
Components of Capital Account –
1. Borrowing and lending to and from India.
2. Investment to and from India.
Investment in shares + real estate
3. Change in Foreign Exchange.
Balance on Capital Account –
• Meaning - The net value of credit and debit balances is the balance
on capital account.
• Two Types –
i. Surplus in Capital Account –
▪ When credit items are more than the debit items.
▪ It is an indicator of the inflow of capital in the country.
ii. Deficit in Capital Account –
▪ When debit items are more than the credit items.
▪ It is an indicator of the net outflow of capital to foreign
countries.
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Inflation and currency

Purpose of money
• Purchase of goods
• Purchase of services
• Purchase of assets
Purchasing power of money is different for every currency.
Purchasing power of money reduces with increase in inflation.
Inflation increases when there is gap in demand and supply. For filling this gap,
supply has to be increased. Increase in supply requires increase in productivity.
Optimal utilization of resources (land, labour, capital and entrepreneur) will result in
increase of productivity.

Currency market

Foreign currency related decisions are taken by Reserve Bank of India.

India follows three tier system for trade in foreign currency.
• RBI and authorized dealer
• Authorized dealer to authorized dealer
• Authorized dealer to merchant
Currency trade control system
• Foreign exchange management act, 1999 (FEMA)
• Guidelines of RBI
• Authorized Dealers were permitted to make an organization to regulate
themselves under these broad regulations of RBI and FEMA. The organization
which was established came to be known as Foreign exchange dealer
association of India (FEDAI).
RBI is the regulator who oversees implementation of FEMA and its guidelines.

Authorized dealers
Authorized dealers have to do market making.
• Market making – if someone wants to trade in market making, buy and sell are
compulsory. It has to both buy and sell.
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• Market taking – can buy or sell. Do not require to do both buy and sell.
• Spread - The difference between buy and sell rate is known as spread. Buy and
sell can also be called as bid and ask or bid and offer.
• Different banks can quote different rates for buy and sell and do not require
permission of RBI for this.

Three systems of currency exchange rate

• Market determined – demand and supply. It is known as free float system.
• Central bank determined – fixed system
• Both market determined and central bank controlled. Daily changes due to
market forces but in case of abnormal changes, central bank intervenes.
Managed float system or dirty float system.

Price determination of foreign currency

Exchange rate is determined using purchasing power parity.

Effect of inflation on purchasing power

• Purchasing power is affected by inflation.
• Greater the inflation, weaker the currency.
• Lesser the inflation, stronger the currency.
• If we take absolute inflation rate, then we get absolute purchasing power
parity.
• If we take relative inflation rate, then we get relative purchasing power parity.
• If we take expected inflation rate, then we get expected purchasing power
parity.

When there is one same price for a commodity in every country then there will not be
inflation anywhere. This is called law of one price.
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Investments and foreign exchange

• For investment purpose, developed countries move towards developing and

underdeveloped countries.
• Political stability, social stability, peace and technological importance are the
main factors for attracting investments.
• For borrowing purpose, developing and underdeveloped countries move towards
developed countries, as the interest rate is lower in the developed countries.

Foreign investment
Foreign investment can be of two types:
• Foreign individual Investments
• Foreign institutional investments

Foreign investments are regulated by RBI and SEBI.

There are 2 ways in which foreign investors can enter the Indian market-
• Foreign indirect investment– it enters Indian market through indirect modes
like by purchasing shares of the companies from the share market. The money
invested through this type of investment is known as hot money because it is a
short term investment.
• Foreign direct investment– it enters Indian market through direct mode like by
meeting the management of the company and purchasing the shares of the
company through them.

In 2004, RBI eases the Foreign Indirect Investment (FII) by merging the FII and sub
accounts into the Foreign Portfolio Investment (FPI).
In 2014, designated depository participants were created for handling FPI. Regulators
and financial experts are appointed for managing the FPI.

Domestic investment
In India, there are two types of domestic investors - domestic individual investors and
domestic institutional investors.
Domestic individual investors are allowed to invest outside the country with the limit
of 2,50,000 dollar per person per year.
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• In 2004, RBI allowed overseas direct investment (ODI) and started schemes like
Liberalized Remittance Scheme (LRS) for domestic individual Investment.
• Domestic institutional investors are not allowed to invest outside India except
for some cases where our country’s growth is involved, but for that purpose
government's prior permission is required.

Foreign Currency Reserve

Meaning –
• The total capacity of an economy to manage liquid foreign exchange is its
forex reserve.
• This indicates the ability to pay off foreign debt.
• This reserve is owned by the central bank or the Monetary Authority.

Components of Forex Reserve –

1. Foreign Currency Assets (FCA)
• Foreign banknotes
• Foreign bank deposits.
• Foreign treasury bills.
• Short and long-term foreign government securities.
2. Gold reserves.
3. Special drawing rights (SDR).
4. International Monetary Fund reserve positions (Reserve Tranche position).

Objectives –
• Incentivizing foreign trade to maintain the country's balance of payments.
• Influencing the exchange rate of our currency.

Inflow of Foreign Exchange –

• Due to import.
• Due to foreign investment (industries, shares and assets).
• Due to tourism etc.
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Fluctuations in Foreign Exchange Rate

Meaning –
• The foreign exchange rate is the rate at which a country's currency is
exchanged with the currency of another country. In other words, the foreign
exchange rate is simply the amount of a nation’s currency that can be
bought at a given time for a specified amount of the currency of another
country.
• This rate keeps fluctuating all the time; even several times in a single day.

Exchange Rate Systems –

1. Flexible Exchange Rate System –
• Flexible exchange rate system refers to a system in which exchange
rate is determined by the forces of demand and supply of different
currencies in the foreign exchange market.
• It is free from government intervention.
• It is also called 'Floating Exchange Rate system'.
• Under this system, there are considerable fluctuations in the
exchange rate.
2. Fixed Exchange Rate System –
• Under this system, exchange rate is determined by the government.
• This rate is completely controlled by the government. Only the
government has the right to change it.
• Under this system, the exchange rate does not fluctuate much; most
of the times it remains constant.
3. Managed Floating Exchange Rate System –
• The system is a combination of fixed exchange rate system and
flexible exchange rate system.
• Under this system –
1. Exchange rate is determined by the market forces of demand
and supply.
2. The central bank influences the exchange rate by intervening
in the foreign exchange market.
3. It aims at maintaining the exchange rate within a desired
range.
4. For this, the central bank uses its reserves of foreign exchange.
It affects the exchange rate by increasing or reducing the
demand and supply of domestic or foreign currencies in the
market as required.
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5. It is also called 'Dirty Floating'.

For Example –
• Suppose a dollar is worth INR 75.
• The RBI wants the exchange rate to be in the range of INR 74 to INR
76.
• If the demand for Indian rupee starts increasing in the market, then
the value of 1 dollar may drop down to INR 73.
• In such a situation, RBI will increase the supply of Indian currency.
For this, it will start buying dollars itself. This will decrease the
supply of dollars and increase the supply of Indian currency. As a
result, the exchange rate will again come to around INR 74.
Note - Most of the countries have now adopted this Managed Floating Exchange
Rate system for managing foreign exchange rate. India is one of those countries.

Types of Fluctuation –
1. Currency Depreciation
Meaning –
• Decrease in the value of Domestic currency in terms of foreign
currency.
• That is, to use more domestic currency to buy foreign currency.
• Normal exchange rate - 1 dollar = 75 rupees
• Depreciation – 1 dollar = 76 rupees
Impact - (increase in exports)
• This means that now more items can be purchased from India by
paying the same amount of dollars.
• In other words, previously the commodity for which the USA had to
pay one dollar, now after depreciation it will have to pay a little less
than one dollar for the same commodity.
• Thus India's export to America will increase.
2. Currency Appreciation –
Meaning –
• Just opposite to the currency depreciation.
• Increase in the value of domestic currency in terms of foreign
currency.
For Example –
 83

• Normal exchange rate - 1 dollar = 75 rupees

• Appreciation – 1 dollar = 74 rupees
• That means the domestic currency became more valuable.
Impact - (increase in imports)
• This means that earlier where India had to pay 75 rupees to buy a
one dollar item from America, now after the currency appreciation it
would have to pay 74 rupees for this one dollar item.
• Thus American goods will become cheaper in India. Consequently,
import from America will increase.
3. Devaluation of Currency -
Meaning –
• Reducing the value of domestic currency.
• Reduction in the value of domestic currency is determined by the
government.
• This reduction in the value of domestic currency is done in the
context of all foreign currencies.
• This reduction is based on the Fixed Exchange Rate.

Difference between Devaluation and Depreciation –

Devaluation Depreciation

Reduction in the value of domestic This reduction may be in the context

currency in the context of all foreign of one, two or several currencies of
currencies. the world.

Reduction in the value of domestic This reduction is determined by the

currency is determined by the open market forces (demand and
government. supply).

This reduction is based on the Fixed This reduction is based on the

Exchange Rate system. Flexible Exchange Rate system.

4. Revaluation of Currency –
Meaning –
• It expresses the opposite situation of devaluation.
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• All other conditions are similar to devaluation.

Characteristics –
• Increase in the value of domestic currency.
• This increase in the value of domestic currency is done in the context
of all foreign currencies.
• Determined by the government.
• Based on the Fixed Exchange Rate system.

Financial system

Economic units
• Every unit that deals with money related matters is called economic unit.
• Two types of economic units
▪ One unit is deficit units who have less money than they require.
▪ On the other hand, one unit is surplus units who have more money than
their immediate requirement.
• These units collectively form financial system.
Three pillars of a good financial system
• Dedicated financial institutions: A good network of financial institutions is
needed. These include commercial banks and other organizations, rural banks
and cooperative banks, SIDBI, EXIM bank etc. These financial institutions are
to be connected with central reservoir which is Reserve Bank of India.
• Dedicated financial instruments: inlets and outlets of money from financial
institutions are financial instruments. Examples – savings deposit, fixed
deposit, personal loan etc.
• Dedicated financial market
Financial market is divided into following:
• Capital market
▪ Long term trade in money.
▪ It is regulated by Securities and Exchange Board of India (SEBI).
▪ Sources of money
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1. Owner - The people who give money become shareholders as they

take shares or equity in lieu of providing capital. These people are
called owners.
2. Loaner - People who give loans and take bonds or debentures are
loaners.
3. Donor - Donors such as subsidies etc.
▪ For long term money –
1. Equity/share market
2. Debt market
• Primary market
▪ New instruments market
▪ Initial public offer (IPO) for first time
▪ Follow on public offer after first time.
• Secondary market
▪ Old instruments market
▪ Secondary market is called stock exchange. Shares, bonds are traded
on stock exchange.
• Money market
▪ For short term funds.
▪ Regulated by RBI.
▪ Banks, financial institutions, government and corporate require short
term funds.
• Currency market - for foreign exchange. Regulated by RBI.
• Commodity market – regulated by SEBI.
• Derivatives market – regulated by both RBI and SEBI.

Securities Market
Introduction:
• It is that part of the capital market, from where long-term capital is arranged
through shares, securities, bonds and debentures etc.
• Under this comes stock exchanges, SEBI and brokers etc.
 86

Types - There are two types of security market:

(1) Primary Market:
• When buyers buy shares, bonds etc. directly from the company for the
first time, then that market is called primary market.
(2) Secondary market:
• Here, the primary shareholders buy and sell shares, bonds etc.
• Most of the business of the securities market is done here.

Three ways to raise capital from primary market:

(1) Initial Public Offer – IPO
• Companies raise capital by selling shares in primary market.
• All Indian citizens can trade in these.
• It is the largest and most popular way.
(2) Rights issue:
• The company offers shares at a fixed rate in a fixed proportion to already
existing shareholders.
(3) Private Placement:
• In this, companies sell shares to some selected industrial
houses/financial institutions in consultation with them.
• It is the fastest and least expensive.
• This threatens the ownership of the company.

Stock Exchange:
• Introduction:
▪ It is an institutionalized financial organization, where the purchase and
sale of shares, bonds and debentures etc. takes place.
• Main Function:
▪ To provide liquidity in the securities market by buying and selling shares
etc.
▪ To inform investors about the prices of stocks, and
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▪ To inform companies of their current shareholders.

(1) Bombay Stock Exchange (BSE)
▪ The Bombay Stock Exchange (BSE) established in 1875, is the oldest
stock exchange in Asia.
▪ The name of its index is- SENSEX (started in 1979)

▪ In this, there is also transaction of shares at international level.

▪ SENSEX is considered to be the representative index of the Indian stock
market.
▪ It includes 30 representative companies of the industrial sector.
▪ Initial Price - 100
(2) NIFTY (National Fifty):
▪ Starting in 1995.
▪ 50 Stocks in total
▪ Initial Price 1000
(3) Commodity Exchange:
▪ Here various commodities and derivatives products are traded; like-
➢ Wheat, millet, sugar, maize, cotton, cocoa, coffee, milk products,
oil and metals etc.
(4) Multi Commodity Exchange – (MCX)
▪ It is an independent commodity exchange established in Mumbai in
2003.
▪ It provides future trading of gold and silver, iron and non-ferrous metals,
energy and many agricultural products.
▪ Its regulator is – Securities and Exchange Board of India (SEBI)

Some terms related to stock market:

(1) Share:
• This makes the holder a partner in the company.
• Since the shares are directly related to the total value of the company, its
price keeps fluctuating a lot.
• As a result, there is also a greater profit and greater risk.
(2) Bond:
 88

• It is a type of loan given by the holder to the company.

• The company pays interest at a fixed rate. In this way its benefits are
fixed.
• But in case of insolvency of the company, it can refuse to give money to
the bond holder.
• These bonds can be bought and sold on the stock exchange.
• They are considered safer than shares, as their prices do not fluctuate
very much.
(3) Debentures:
• Trusted companies and governments issue debentures to raise funds.
• There is no security of any property behind them. So these are
completely based on the credibility of the company.
• Their holders do not have the right to vote in the general meeting.
• The interest paid on these depends on the profit of the company.
• They can be bought and sold on the stock exchange.
• They are of three types:
(I) Fully Convertible:
▪ After a certain time they are completely converted into
shares in a certain proportion.
(II) Partially convertible:
▪ Some part of it converts into shares. The remaining exist in
debentures.
(III) Non-Convertible:
▪ They don’t get converted in shares.
▪ Therefore, the interest received on these is high.
(4) Derivatives:
• This is a Contract Letter.
• It deals with future transactions.
• It happens in all things, metals, shares, Forex and Index etc.
• These are of various types. The most popular of these are:
- Future
They are almost same
 89

- Forward
• It is a financial tool to cover risk.
(5) Bulls and Bears:
• Bulls - The operator, who buys shares by anticipating a rise in price of
shares in the future.
• Bears: The operator who sells shares in anticipation of a decrease in
stock prices in the future. This causes a slowdown in the market.
(6) Authorized Capital:
• The maximum amount of money that a company can issue as shares.
(7) Issued Capital:
• The amount of maximum capital that a company declares to receive.

Causes of fluctuations in the prices of shares:

• Changes in the economy (production, income, employment etc.)
• Future Economic Prospects
• Industrial environment
• Status of agricultural production
• Import-export policies
• Monetary policy
• Other government policies related to economy
• Foreign Direct Investment prospects
• Effect of annual budget
• Political stability
• Global political environment
• Fluctuations in major stock markets of the world
• Economic policies of some major countries of the world
• Demand and supply of shares in stock market
• Availability of funds in the market.
• Fluctuations in gold prices, and
• Psychological effects etc.
 90

Securities and Exchange Board of India-SEBI

Introduction:
• Establishment of the SEBI by an Act of 1992.
• Objective - To protect the interests of investors by monitoring irregularities in
the stock market.
• A regulatory Authority.

Main Functions:
(1) Protective Functions:
• Monitoring of rigging of share prices.
• Preventing, investigating, punishing insider trading.
• Prevent misconducts, control over wrong statements made by companies.
• Creating a code of conduct for the stock market.
• Granting permission for IPO.
(2) Developmental Functions:
• System of training for stock market intermediaries.
• To work to make the functioning of the market accessible, clean and
transparent.
(3) Regulatory Functions:
• Formulation of rules, laws and codes of conduct for arbitrators,
merchant bankers, brokers etc.
• Monitoring of market related components.
• To register and regulate the stockbrokers, sub-brokers, share transfer
agents, trustees, merchant bankers and people in any form related to the
stock market.
• Registering and regulating mutual fund companies.
• To regulate the acquisition of a company, and
• Investigation and auditing of stock exchanges.
Other facts -
 91

• Its Chairman is appointed by the Central Government for three years.

• It is headquartered is in Mumbai.
• It has three branches - Kolkata, Chennai and Delhi.
--------------------------------------------------------------------------------------------------

Land Reforms

Pre-independence land ownership:

• Diwani rights to the British East India Company in 1765.
• Permanent settlement implemented by Cornwallis.
• Excessive rates of land tax.
• Greater population pressure on land due to Britain's economic policy.
• Increase in the rights of most landowners by making the land saleable.

Meaning/ purpose of land reform:

• Meaning –
▪ Generally, redistribution of the lands of rich to the poor people.
▪ In detailed form:
➢ Regulation of ownership
➢ Inheritance of Land
➢ Leasing of land
➢ Land Sales
➢ Abolition of Intermediaries, and
➢ Simplification and upgradation of land related processes.
• Purpose –
▪ To remove socio-economic inequality.
▪ To increase agricultural production, and
▪ To free the farmers from exploitation.

Major land reforms after independence:

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1. Abolition of Intermediaries
2. Tenancy Reforms
3. Ceiling on size of landholding and its redistribution
4. Consolidation of land
5. Land Acquisition, Rehabilitation and Resettlement Act, 2013.

Abolition of Intermediaries

Objective - To bring landowners into direct contact with the government.

Note - 'Land' is a state subject under the Constitution.
Steps -
• Complete abolition of all three previous methods:
▪ Permanent Settlement (Zamindari)
▪ Mahalwari and
▪ Ryotwari system.
• In 1949, the Zamindari Abolition Bill was introduced by many states on the
basis of "U.P. Zamindari Abolition Committee" report.
• Many landlords went to court against the bill. Basis - Violation of the
fundamental right to property (Article 31). Consequently-
• The situation was made favorable for the Zamindar Abolition Act in 1951 by the
first constitutional amendment and later by the fourth constitutional
amendment.
• By 1956 almost all the states passed the Zamindari Abolition Bill.

Note:
• This bill was very successful and about 2 crore people were made landowners.
• Since the zamindars supported the British during the independence movement,
they could no longer receive the support of the people. Due to this, the situation
of the landlords was not to resist.

Drawbacks/difficulties:
 93

1. The biggest difficulty was not having sufficient land records.

2. Many states gave landlords the right to own some land in the name of 'private
holdings'. But 'private holdings' was so loosely defined that it provided
landlords the possibility of owning considerable land.
3. The meaning of 'private holding' was-
• The land which is being plowed by oneself,
• The land which is being looked after by 'self',
• The land which is being looked after by the landlord's relatives; And
• The land on which capital is being invested by the landlord for farming;
Or a loan is being given for that.
4. Unfortunately this 'private landholding' had no limits.

Tenancy Reforms
Formation of laws related to it by all the states in the 1950-60s.
Three main functions under it were:
1. A fixed rate of rent to be paid by cultivators to the landowner. Earlier this rate
was very high.
2. Institutional arrangements for the protection of the land cultivators'
(sharecroppers) holding rights; And
3. Finally, efforts to make tenants the owner of land plowed by them.
Limitations:
1. A part of crop production was given to landowners by the majority of cultivators
as rent. Since the laws related to it referred to the cash, most of the cultivators
could not get the benefit.
2. The landowners started calling many of their tenants as 'agricultural laborers'
instead of 'sharecroppers'. As a result, they could not get the benefit of this law.
3. Small farmers were deprived of this benefit due to the influence of landlords in
their area.
 94

Ceilings on size of Landholdings and its redistribution

Meaning -
• Determination of the maximum size of land owned by an individual/family.

Objective:
• Redistribution of surplus land to the landless, so that it becomes almost equal.

Note:
• Although related laws were passed by almost all the states in the early 1960s,
the land could not be distributed until the 1970s. As a result, in 1972, national
guidelines were issued for this, in which three limits on land were laid.
1. Best Land - 10 to 18 acres
2. Second grade land - 18-27 acres, and
3. Remaining grade of land - 27-54 acres.
• This limit was slightly higher for the mountainous and desert areas.

Reasons behind very little success:

• Misuse of exemption given to some people in the limits of ceiling in the law such
as tea, coffee, and rubber industries, horticulture, sugar mill owners for
sugarcane production.
• Relaxation to religious and charitable institutions.
• Anonymous land transfer
• Land being given to others by wrong name.
• Court intervention and litigation.
• Many weaknesses inherent in ceiling laws.
• Lack of land records.
• Inefficient and corrupt administration.
• Lack of political will.
• Having unproductive land in the form of surplus, and
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• Lack of support provided by financial institutions, etc.

Consolidation of land
Meaning –
• Bringing small pieces of scattered land of farmers in different places at one
place, so that farmers can get the same large piece of land.
• This is done as because of the small pieces:
▪ The land was wasted
▪ Difficulty in land management
▪ Difficult to adopt new technology
▪ Disputes caused by boundaries of fields and
▪ Low-productivity, etc.
• In 1947 in Bombay, in 1948 in Punjab, in 1953 in U.P. and latter applicable to
almost all other states.

Note –
• Most states passed related laws.
• Greater benefits to large farmers.
• Opposition by small farmers.
• Extremely successful in states with green revolution.
Causes of failure:
• Scattered land is beneficial during times of floods, famines and other natural
calamities.
• Complex process of consolidation
• Very high variation in quality of land,
• Lack of implementing machinery
• Corruption, and
• Lack of political will.

Land Acquisition, Rehabilitation and Resettlement Act, 2013

Some facts -
 96

• According to the constitution, "land" is the subject of the state list, but "land
acquisition" comes under the concurrent list.
• The first land acquisition law was enacted by the British in 1894, which
continued till December 2013 with minor changes.
• The law of 1894 was anti-farmer, extremely rigid, and totalitarian. There was
neither any resettlement system, nor adequate compensation.
▪ The 2008 protests by farmers in Singur in West Bengal to acquire land
for Tata Motors' small car 'Nano project' were its peak.
• The Right to Property was removed from the Fundamental Right by the 44th
Amendment of the Constitution in 1978. Also, by adding Article 300 (a) to the
Constitution, it was provided that property of any person cannot be taken by
anyone except by the authority of law.
▪ This right has been called “eminent domain”. Under this, the government
has the right to acquire the property of any person even without his
approval. The government can acquire real estate for public interest such
as roads and hospitals.
▪ Thus at present the right to property is only a constitutional or statutory
right.
• Land Acquisition Act passed by Parliament in September 2013 and
implemented on 1 January 2014.
▪ This law is only concerned with the acquisition of land for public interest
projects.

Public interest projects:

• Projects related to army, navy and air force.
• Central Paramilitary Force and National Security.
• Railways, highways, roads, ports, power, industrial corridors, mining, food
processing and warehouses etc.
• Government and government funded educational and research institutes. Not
the Private hospitals, private educational institutions and private hotels etc.
• Schemes for the families affected by the projects. And
• Housing projects for poor and landless people.

Conditions:
 97

1. Consent of minimum 70 percent of affected people to acquire land under

public-private partnership (PPP model) mandatory.
2. Prior consent of at least 80 percent of the affected families is required for the
government to acquire land for a private company.
3. Irrigated-multi-cropped land cannot be acquired except under exceptional
conditions. This regulation does not apply to roads, irrigation, canals, railways
and power lines.
4. Compensation:
i. Market value of land and property
• Same for rural area
• Double for Urban Area
ii. Money of similar amount in the form of emotional compensation
5. Social Impact Assessment:
i. Before acquiring the land, the government has to know the opinion of the
panchayat and the municipality there.
ii. Together with these, the government will have to assess the impacts of
this project there.
iii. In this assessment, it has to be shown that –
• How many families will be affected by this,
• How many families will be displaced, and
• Whether it will be for public interest or not.
iv. This assessment report has to be made available to all people.
6. Rehabilitation and Resettlement-
• In addition to the compensation to the family affected by the project, the
following amount/facility should be given immediately –
▪ If there is a job, then provide job for each family or immediately
pay Rs.5 lakh per family or Rs.2 thousand per month to each
family (related to Consumer Price Index).
• One lump sum amount of Rs.50 thousand as 'Resettlement amount' to
each family.
• Three thousand rupees per month for one year for each family.
• If a family home has been acquired, then already built house should be
given.
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Drawbacks/ criticism:
• Obtaining consent of 80 percent of the affected people is extremely difficult and
impractical. As a result, the land acquisition work stopped.
• Assessing social impact correctly is a complex process. There was controversy
over this.
• Determining the value of land for compensation became very controversial, as
the prices of the surrounding land used to go up considerably high when the
projects were announced.
• This law of 2013 did not apply to the already existing laws. for example -
▪ National Highway Act, 1956
▪ Land Acquisition (Mining) Act - 1885 and
▪ Railway Act - 1989

Note:
• Seeing the impracticality of this law of 2013, in 2015, the government proposed
to change its two provisions mainly –
▪ Consent of affected families, and
▪ Social Impact Assessment.
• But these changes could not be made due to protest from the opposition.

Food Policy of India

1- The First Phase

• 1947 to 1980

• Objective - Physical access to Food grains.

• Help from Green Revolution to achieve this objective.
2- The Second Phase:
• 1980 to 2000
• Challenge –
▪ Economic access to Food grains;
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▪ By 2000, food grains production tripled, but death due to starvation

prevalent.
▪ Intervention of Supreme Court (PIL).
▪ Products are expensive due to Green Revolution.
• Steps -
▪ Introduction of Grain for Work (Kaam Ke badle Anaj) Scheme
▪ Higher subsidies on food grains
▪ Still no increase in the purchasing power of the poor.
• Measures –
▪ Increasing the number of remunerative employment, and
▪ Reduction in food prices.
3- The Third Phase:
• 1990 to present
• Challenge –
▪ Sustainable Development
▪ Declaration of agriculture as an industry by developed countries.
▪ Use of chemical fertilizers and pesticides due to Green Revolution.
▪ Increasing pollution as a result of industrial development.
• Consequently –
▪ the need for a new green revolution (Ecologically Sustainable)
▪ Emphasis on organic agriculture.
▪ Promotion of green agriculture.

Green Revolution:

World Bank - "Growth in agriculture is critical for any economy as research has
revealed that GDP growth originating in agriculture is at least twice as effective in
reducing poverty as GDP growth originating outside agriculture.”

Therefore, agricultural development is very important for “Inclusive growth”.

India adopted Top-down approach.

• From 1951 to 1966, our food production was 2.8 percent per year, which was
very less compared to the demand.
• Consequently the import of food grains increased.
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• In 1956, India signed the Public Law 480 agreement with the US to get food
grains, especially wheat, as an aid.
• This agreement had a pressurizing effect on India's independent foreign and
domestic policy.
• Lack of funds for investment in agriculture due to war with China in 1962 and
with Pakistan in 1965.
• Due to severe famine in 1965 and 1966, there was a severe food shortage.
• Pressure on India due to food aid provided by America.
Consequently –

• Emphasis given on the policy of becoming self-sufficient in food production.

• American agronomist Norman Borlaug was engaged in agricultural research in
Mexico since the 1940s. He had developed such high-yielding variety of wheat,
which was not affected by pests.
• Worldwide spread of these seeds in 1950–60s; Especially in Mexico and Taiwan.
• Based on this, 'Green Revolution' started in India.
Meaning of “Green”:

• Green (crop)
• Three colors in the tricolor flag, green colour of which represents agriculture.

Components of the Green Revolution:

1. High yielding variety seed

• Popular term "High yielding Variety (HYV) seeds”

• Seeds get more nutrition than plants.
• Small plants but larger seeds.
2. Chemical Fertilizer:

• Seeds need more nutrients.

• Need of Nitrogen (N), Phosphate (P) Potash (K): Urea, Superphosphate etc.
3. Chemical Pesticides:

• New seeds Less safe from local pests and diseases than indigenous varieties.
4. Chemical Weedicides:

• So that there is no unnecessary consumption of expensive fertilizers.

5. Better irrigation facility:

• Irrigation required on time.

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• The area should be flood proof.

6. Modern agricultural techniques:

• Equipment
• Knowledge of soil quality
• Sowing, spraying and irrigation time
• Proper use of fertilizers etc.
Note - MS Swaminathan - "Father of Green Revolution" in India

Three Phases of Green Revolution:

1. First Phase - (1966-72):

• Wheat
• In 1966, 18 thousand tonnes of HYV seeds of wheat were imported and
distributed in irrigated areas of Punjab, Haryana and Western UP.
2. Phase II - (1973-80):
• Wheat + Rice
• New areas with tube wells; Expansion in eastern UP, Andhra Pradesh, and
coastal areas of Karnataka and Tamil Nadu.
3. Phase III - (1981–90):
• Expansion even in less fertile areas of eastern India; Eastern part of West
Bengal, Bihar, Assam and Orissa.

Consequently a huge hike in food grain production

• Total food production in 1950-51 was 51 metric tons

• 1966-67 (at the beginning of the Green Revolution) - 74 metric tons
• 1971-72 - 105 metric tons
• 285 metric tons in 2018-19

Effects of Green Revolution:

1. Increased production, self-sufficiency, export of grain.

2. Inequality in Farmers' Income.
3. Regional imbalance
4. Unbalanced pattern of crops - Production of wheat and paddy instead of pulses,
oilseeds, maize, barley etc.
5. Increase in malaria victims due to water logging.
6. Ecological Impact:
▪ Reduction in soil fertility due to changes in crop pattern.
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▪ Fall in underground water level

▪ Poisoning of food products due to Chemical Fertilizers, Insecticides,
Weedicides
7. Agricultural Cost Increased/ Commercialization
8. Creation of Infrastructure:
▪ Credit
▪ Storage;
▪ Marketing

Agricultural sector revolutions in India

• Green Revolution - Food grains (wheat + rice)
• White Revolution – Milk production
• Pink Revolution – Onion production
• Blue Revolution - Fish Production
• Yellow Revolution – Oilseeds production
• Golden Fibre Revolution- Jute Production
• Silver Fibre Revolution- Cotton production
• Silver Revolution -- Egg production.
• Golden Revolution – Horticulture and Honey production
• Red Revolution - Meat and tomato production
• Brown Revolution - Leather and Cocoa production
• Black Revolution - Petroleum Production
• Round revolution - Potato production
• Evergreen Revolution - All-round Revolution, Complete Revolution

Types of Farming
Reasons for different agricultural types

1- Geographical Variation:

• Himalayan region
• Ganges-Yamuna Plain
• Southern Plateau and Central Plateau
• Coastal area, etc.

2- Different climatic zones

3- Different types of soils

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• Red Soil
• Yellow Soil
• Black soil
• Sandy soil

4- Irrigation facilities

5- Variation in rainfall

6- Ownership (size) of Farming;

7- Objective of Farming

8- Use of technology

Main types of farming:

1- Dry Farming:

• In areas with less than 80 cm rainfall (due to lack of soil moisture)

• Only one crop a year.
• Millets: Production of jowar, bajra, ragi and pulses.
• Regions: Rajasthan, Maharashtra, parts of Madhya Pradesh, South-Haryana,
parts of Gujarat and Karnataka.
• Importance of allied activities, such as animal husbandry.

2- Wet Farming:

• More than 200 cm rainfall

• Alluvial soil
• More than one crop due to excess moisture in the soil.
• Rice and jute are the main crops.
• Regions: West Bengal, Assam, Nagaland, Meghalaya, Tripura, Manipur,
Mizoram, Chhattisgarh, Madhya Pradesh and Malabar Ghats.

3-Irrigated farming:

• Where the average rainfall is 80-200 cm.

• Irrigation facilities (river, pond, canal, tube well etc.).
• Levelled agricultural Land
• Rice, wheat, and sugarcane are the main crops.
• Regions - Punjab, Haryana, Uttar Pradesh, North-West Tamil Nadu and
Maharashtra, Karnataka and Andhra Pradesh.

4 - Subsistence Farming:

• Cultivation done for self-consumption only.

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• No Surplus for sale

• Small and scattered fields.
• Traditional farming (labor based).
• Absolute lack of modern technology.
• Mainly cereals, pulses, oilseeds, vegetables and sugarcane etc.
• Regions - Chhattisgarh, Uttarakhand, Jharkhand and hilly regions.

5 - Shifting Farming

• Temporary agricultural land. Deforestation -> farming -> Deforestation and

shifting cultivation to new location. (2-3 years at one place)
• Mainly practiced in North-East India. Here, it is known as 'Jhum cultivation'.
• Regions - North East India, and in tribal dominated areas of Odisha,
Chhattisgarh and Andhra Pradesh.

6 - Terrace Farming;

• Making ridges in hilly areas (due to slope)

• Due to pressure of population
• Increase in its importance in place of shifting farming.
• Area – Himalayan slope, Peninsular Plateau and North-Eastern India.

7 - Plantation Farming:

• Well organised and managed

• Single crop on a large scale
• Completely for sale
• Need for more capital and modern technology
• Crops - Tea, Coffee, Rubber, Banana, Spices etc.
• Introduced in India in the 19th century by the British government.
• Regions - Assam, West Bengal and Nilgiri hills.

8 - Commercial Farming:

• The exact opposite of subsistence agriculture.

• Production of raw materials for industries (for market)
• Use of modern technology.
• For example - Sugarcane in UP, cotton in Gujarat and jute in West Bengal.
• In Haryana, rice is cultivated purely for commercial purposes, not for
consumption, as their staple food is wheat.

9 - Organic farming:

• No use of chemical fertilizers and pesticides.

• Crop rotation: use of manure made from animals and from garbage and leaves.
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• Preservation and enhancement of soil fertility in a natural way.

• Region- Rajasthan, Andhra Pradesh, Madhya Pradesh, Pondicherry and Punjab.
• Sikkim declared fully "organic state".
• Products are expensive. Subsidy needed.
• Beneficial for health.
• Helps in sustainable growth.
• In the budget of 2015-16, "Paramparagat Krishi Vikas Yojana" started –
• Group of 50 farmers having at least 50 acres of land can be formed under it. 20
thousand rupees per acre for every farmer for three years by the government –
for seeds, sowing, transport and sale.
• Certification

10 - Intensive and Extensive Farming:

Intensive farming:

• Special emphasis on production capacity per unit area, consequently higher

production.
• Prevalent in land deficient nations like Japan.
• Practiced in Kerala in India.

Extensive farming:

• Maximum land use for agriculture.

• Less production per unit (compared to intensive agriculture)
• Popular in America, Russia and India.

11 - Mixed Farming:

• Agriculture as well as animal husbandry.

• Hike in farmers’ income.
• Financial security.
• Mutual dependence between agriculture and animal husbandry.

12 - Contract Farming:

Pre-production agreements related to agricultural products, made between farmers

and buyers (super markets, food processing industries, big sellers etc.), which consists
mainly of -

• Price of Product,
• Quantity of product,
• Standard quality of the product and
• Product-supply time etc.
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The buyer in return ensures-

• Purchase of produce, and in some cases, if necessary, the goods needed for
production by the farmers; Such as fertilizer, improved seeds etc., assistance in
land preparation and other technical advice.

Examples:

• 1000 acres of land for horticulture in Punjab by Field fresh Foods

(multinational company).
• Pepsi and Mcdonald-Citrus fruits and Lettuce cultivation.
• Ballarpur Industry and ITC give cloned plants to the farmers, which get ready
in four years. Later they buy it.

Note - Contract farming is slowly becoming popular, especially in Punjab.

Benefits of contract farming:

To farmers –

• Assured market for farmers and

• Assured Price

To Purchasing Firms –

• Facilities for loans, inputs and advice.

• Receipt of standard quality products
• Availability of sufficient quantity, and
• Receipt of products on time.

Loss and risk:

• Heavy loss to the other party if any of the parties do not comply with the
contract.
• Selling of produce by farmers on getting higher prices.
• Describing the quality of production as low grade by the companies.
• Loss to farmers due to economic and social inequality between company and
farmers.
• Imbalance in crop pattern - More production of commercial / plantation crops
instead of food grains.

Unlike indigo cultivation of Champaran:

• Lack of voice of farmers/One-sided

• Obligation to grow crops
• Compulsion to sell at fixed price.
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Leasing Farming

• To rent (lease) the land to another for use (agriculture) for a certain period by
the owner (farmer) of the land.

Main components:

• The conditional agreement between the two for a fixed period.

• Consent on the use of land.
• Rent fixed for land in lieu of use.
• Return of the land to its owner on completion of the term.

Benefits:

• Proper use of land (instead of being barren)

• Increase in productivity.
• Ownership of land secured.
• Increase in income of the landowner (a fixed income)
• Availability of land to the landless
• Freedom for landowner to do other work.
• Leasing is more practical than acquiring land, consequently industries will get
land, and there will be less opposition from farmers.
• Reduction in unemployment of rural farmers.
• Large scale corporate farming possible.
• Increase in private sector investment in agriculture.

Drawbacks:

• Fear of being stripped of ownership.

• Not getting back the land on time.
• Fear of misuse of land.
• Litigation / Stress.
• Non-compliance to the terms of the lease.

Some important facts related to water

Critical points:

• India's contribution to world population is approximately 16%.

• India has 2.8% of land of the world.
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• India has 4% of the water of the world.

• India is deficient in freshwater.

Water availability

• Per capita water availability capacity in India is 1500 cubic meters.

• The availability is 5961 in the US and 2486 cubic meters in China.
• If per capita water availability less than 1700 cubic meters, it is called Water
stressed condition.
• If it is 1000 cubic meters, then it is called water scarce condition.
• In India in 1951, it was 5177 cubic meters per capita.
• In the 2011 census it was reduced to 1545 cubic meters.
• That is, during these 60 years, the availability of water has decreased by about
70 percent, which is very worrying.
• "World Water" Day is observed on 22 March.
• According to NASA (National Aeronautics and Space Administration), the level
of India's underground water is declining every year with a speed of 0.3 meters.

Status of Irrigation in India

• Total land area of India - 36.5 crore hectares

• Total Agricultural Area of India - 19.5 Crore hectares
• Total area usable for agriculture in India - 14.1 crore hectares
• India's total agricultural irrigated area is 6.1 crore hectares (about 40 percent)

Note- India's actual irrigation potential is about 14 crore hectares.

• 83% of water in India is used for irrigation only.

• According to the Economic Survey (2018-19) report, India uses per unit of water
twice as much as China for important crops like wheat and rice and 4 times
that of Brazil.
• Evaporation of water due to being in the tropical region.
• 16 percent of the world's population in India, while only 4 percent of the world's
fresh water in India.
• Average rainfall in India - 170 cm
• 75% of rainfall by monsoon in 3-4 months only.

Note - There is a centimeter of 10 mm.

Sources of irrigation
Classification of irrigation schemes by Planning Commission:
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1. Major Irrigation Schemes:- Irrigation of more than 10 thousand hectares of

land
2. Medium Irrigation Schemes: Irrigation of 2 thousand to 10 thousand hectares
of land.
3. Small Irrigation Schemes: Irrigation of less than 2000 hectares of land

Note- The amount of land that can be irrigated with an irrigation scheme is called
Culturable command area (CCA).

One hectare is equal to 2.5 acres.

Traditional:

1. Wells and tube well:

• Private sector investment in both.

• 64 percent of the total irrigation potential from both.
• It was 26 percent in 1950-51.
• Irrigation from these in almost all the country except Rajasthan.
• Well is a source of traditional and minor irrigation.
• Use of tube well rapidly after Green Revolution.
• Rapid drop in ground water level due to tube well. Due to wastage of water.
• Need of Water harvesting

2. Canal

• Second important source of irrigation.

• Mainly in Northern India.
Reasons:
➢ Large flat area of land,
➢ Fertile land,
➢ Perennial Rivers
• Coastal Lowland
• Some part of the peninsular plateau.
• Andhra Pradesh, Assam, Haryana, Punjab, Rajasthan, Jammu and Kashmir,
West Bengal, Bihar, Karnataka, Tamil Nadu.

3. Ponds:

• In the rocky plateau region of the country.

• Chhattisgarh
• “Pani Roko” campaign. Small-small ponds

Challenges in macro irrigation

• Need of capital
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• Only Personal irrigation

• Cover only Small areas
• Responsible for decline in water table of underground water
• Misuse of water

Micro Irrigation
Meaning- Increase in agricultural productivity by minimum use of water

Type/System:

1 - Sprinkler irrigation:

• Spraying water into the air and generating showers.

Technique

• Laying of pipeline in farm

• Rotating nozzles on the pipe.
• Pressurized water flow in the pipe at the time of irrigation
• Moving nozzles spread the water into the air.
• Plants get manure by adding water-soluble chemical fertilizer (Fertigation).

Benefit:

• Saving water (good use). No wastage of water.

• Saving of labor in fertilizing the crop.
• Even distribution of water by sprinkling.
• Particularly useful for uneven fields such as tea, coffee plantation etc., which
are on the hills.
• Saving of land for making weirs etc.

Drawbacks:

• High cost in the beginning.

• Technical knowledge required.
• Continuous water supply.
• Proper maintenance.
• Not possible in rice/wheat etc.

Drip Irrigation/Trickle Irrigation

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• Most modern system.

• Extremely useful for water scarce and saline soil. The concentration of salts is
less than the harmful level because of continuous presence of moisture in the
roots.
• Israel is expert in drip irrigation.
• Transporting water to plants through pipes.
• When necessary, water drops one drop at a time at the roots of the plants. Also
saving labor.
• Very useful for grapes, sugarcane, papaya, banana, guava and other fruits and
vegetables.
• Particularly useful in high-value crops.

Benefits:

• Savings from evaporation and leakage.

• Use of water as per requirement (Savings up to 70 percent)
• Irrigation capacity - 80-90 percent.
• Production possible in low rainfall (dry) regions.
• Useful for all types of soils, as water can be distributed as needed.
• Reduction in production costs
➢ Reduction in cost of irrigation.
➢ Less quantity of fertilizer required. (Saving 30-40 percent)
➢ Power saving.
• Increased production
➢ 45 percent in wheat
➢ 20 percent in gram
➢ 40 percent in soybean
• Substantial increase in income of farmers.
• High quality of produce.
• Reduction in weeds- Due to moisture in only some parts of soil.
• Due to less moisture concentration around plants, chances of diseases and
insects in the plants are less.
• Possible in the perfect and simple way.
• Nutrients of soil safe due to no drainage and runoff.
• No soil erosion due to wetting of only soil surface.

Drawbacks:

• Initial high cost.

• Requires technical knowledge.
• Maintenance.
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Fertigation:
Meaning:

It is consisting of two words:

1. Fertilizer and
2. Irrigation

= Ferti Gation

Along with water (irrigation), fertilizers are also dissolved in water and transported to
the plants.

Important points

• Used in Drip irrigation

• The best and most modern method of fertilizing.
• Best technique to maintain proper level of fertilizer and water as per
requirement of crop and soil.
• The key to high yields and high quality due to the right composition of water
and nutrients.
• Use of liquid + dry fertilizers (making solution).

Benefits:

• The right amount of water and nutrients (saving inputs).

• Regular supply of water and nutrients.
• Increase in growth rate of plants (due to the elements reaching directly to the
roots).
• There is no fear of damage of roots.
• Simple and convenient method.
• Saving of labor and money.
• Crops also in areas with sandy and rocky soil.
• Increased efficiency of fertilizer use due to being restricted to roots, resulting in
lower consumption of fertilizer.
• No pollution of underground water.
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Issues with Irrigation

1. Incomplete Projects:
• Land acquisition
• Construction delays on railways, highway crossings
• Protest
• Lack of coordination
• Contract mismanagement
• Corruption
2. Time & Cost overruns:
• 138 percent more than the cost price.
• Ten times of some, mostly 200 percent.
3. Under-utilization:
• Irrigation Potential created (IPC)
• Irrigation Potential utilized (IPU)
• Reason- Lack of operation and management:
• Main reason –
▪ Incomplete distribution schemes (budget constraints)
▪ Changes in crop pattern
▪ Changes in land use
4. Underground water:
• 70 percent of irrigation and 80 percent of domestic use.
• Mostly Non renewable
• Subsidy in Electricity.
5. Management
Integrated water Resource Management (IWRM) in agriculture is a concept of
sustainable development, allocation and monitoring of water resource and its
use in agriculture while meeting the social, economic & environmental
objectives. Successfully used in Korea, Australia, Mexico.

• Correct delivery
• Continuous monitoring
• Formation of law enforcement/ implementing organization (from farmers'
opinion)
• "Water Users Association” –
▪ Largely, women are members.
▪ Emphasis in 11th five year plan
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▪ AP, MP, CG, Rajasthan, Orissa - Many states also enacted laws.

Marketing of agricultural produce

Meaning

Making marketable agricultural products available in the market.

Two functions in agricultural marketing:

1. Main Functions:
By Indian Council of Agricultural Research (ICAR);
• Collection of Products
• Processing
• Distribution
2. Supporting functions:
• Storage;
• Grading and standardization
• Packaging
• Transportation
• Finance
• Market
• Fair price, and
• Risk management.

Problems of agricultural marketing:

• Presence of many intermediaries –
• Fragmented agricultural sector.
• Marketing related laws (APMC Act)
• Insufficient storage
• Lack of transport facilities
• Lack of packaging, grading and standardization
• Lack of information related to production and price
• Lack of proper estimate of demand
• Farmers' illiteracy
• Lack of farmer organizations

.Ways to resolve Issues:

• Reforms in APMC Act/ NAM/ E-Trading etc.

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• Storage system - FCI

• Transport – Pradhan Mantri Sadak Yojna
• Agmark for quality certification
• For information- radio, TV, internet, app etc.
• Minimum Support Price
• Distribution from public distribution system
• Attracting investment in infrastructure.
• Formation of cooperative societies for sale and purchase:
▪ Cooperative Marketing Societies
▪ National Cooperative Development Corporation (NCDC);
▪ Tribal cooperative Marketing Development Federation of India (TRIFED) -
1987
▪ Farmers Producers Organization.
• Agricultural and Processed Food Product Export Development Authority-
1985:
• Establishment of agricultural export zones.
• Financing:
▪ Loans at cheap rate. (NABARD)
▪ Loan against goods stored in warehousing, etc.
• Risk management – Fasal Bima Yojana

Storage
Meaning:

• Storing and preserving foods for consumption.

• An extremely important element of the Agri-marketing.

What is the need of storage?

• To supply the demand for the period between sowing to new production.
• Preventing the product from spoiling.
• To meet seasonal demand.
• For the stabilization of prices by harmonizing demand and supply.
• Increase in income of farmers
• Supply of raw materials to industries.

Storage methods:

• Ware house (scientific method warehouse)

• General Godown
• Silos
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• Indigenous method - storage of 65 percent food grains.

• Cover and Plinth (CAP)

Public sector arrangement of storage:

• Government Capacity - 8 Crore

• Private Sector Capacity - 2.5 Crore

1. Central Warehousing Corporation (CWC)

• Established in 1957.
• The largest public sector institution
• Storage capacity of about 125 million tons.
• Storage of 120 types of food and industrial products
• Other services also - handling and transport, distribution, clearing, container
front station etc.
• Air conditioned godowns at Kolkata, Mumbai, Delhi and Hyderabad.
• State Warehousing Corporations also exist.

2. Food Corporation of India:

• Established in 1964
• The main Objective:
▪ Effective price support to protect the interests of farmers.
▪ Distribution of food grains across the country under the public
distribution system.
▪ Operation of food security and maintenance of buffer stock to ensure
national food security.

Note - Important role in providing food grains during times of famine and other
disasters.

Problems associated with Storage:

• Rotting of grains in the absence of proper storage arrangement in godowns.

More than 10 percent of the product wasted by rats, insects etc.
• Lack of standardization of warehouses. Substandard Warehouses.
• Lack of decentralization, as a result, farmers are unable to take their produce to
the godowns.
• No refrigeration system for perishable products. Only 10 percent of total
requirement available.
• Lack of warehouses. As a result, thousands of tons of grains are wasted every
year. 3.5 crore MT capacity gap between demand and supply.
• Bad effects of lack of means of transport on storage.

Note- -
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• Recommendation of National Farmers Commission: A warehouse in every 5

kms.
• Mostly the rice get wasted, then wheat comes at second.
• Maximum wastage in Punjab and Haryana.
• In view of this wastage of food grains, in 2010, the Supreme Court remarked
that "The country where people are starving; It is a crime to waste even a
granule of grain. Every effort should be made to ensure that not a single grain
is wasted.
• The court asked the government to give free grain to poor. But the government
expressed its inability to do so.

Problems arising from inadequate and faulty storage:

• Waste of agricultural produce i.e. waste of public money, consequently,

pressure on treasury.
• Farmers are obliged to sell the product in the market immediately. Low value
realization.
• The quality of products also decline due to the hot and humid climate.

Measures:

• In 2001, the Central Scheme started in the name of 'Rural Storage Scheme'.
Under this, farmers, cooperative institutions, NGOs, self-help groups etc. are
provided subsidy for godown construction.
• New warehouses can be built by taking loans from banks by keeping the goods
produced in the warehouse.
• Special emphasis on PPP model.
• Plan for construction of tower-shaped modern silos (from 12th Five Year Plan).
• Financial facilities, etc. by National Cooperative Development Corporation.

Suggestion - Income and other taxes can be exempted.

Agricultural Produce Marketing Council Act (APMC Act)

Objective- A law for marketing of almost all the goods produced by farmers in the
states; such as food grains, pulses, oilseeds, fruits, vegetables, poultry, sheep, goats
and fishes etc.

Important points:

• Almost all the states have their own laws.

• Establishment and regulation of mandis according to law.
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• Division of the state into various mandi-regions.

• Formation of market committees for the operation of mandis, whose members
are - farmers, traders, local citizens, transporters etc.
• These market committees conduct their functions by making their own rules;
like-
▪ Appointment of commission agents,
▪ Determination of prices in the market
▪ Determination and recovery of fees for farmers and traders and
▪ Settlement of disputes in the market. etc.
• These agents charge from traders and farmers for buying and selling.
• State governments collect market tax and VAT (value added tax) from market
committees.
• Market Committees provide for all necessary facilities in Mandi; For example,
shops, canteens, roads, toilets, drinking water, godowns, light and farmer
assistance centers are available.

Law for Sale:

• If any area is declared within the jurisdiction of the Committee, then no person
and agency can buy and sell agricultural products in wholesale outside this
market.
• The law clearly states that the first purchase and sale of agricultural products
in that area will be done only by the agents authorized under this law.
• The sale of products will be done through auction, so that farmers can get fair
prices.

Problems arising from the Act/ Criticism:

• Even wholesalers, owners of super markets and food-processing industries

cannot buy directly from farmers. It is a type of Monopoly.
• The ultimate burden of VAT, Mandi tax, levy and many other charges on
commodity prices. - 14.5% and in Punjab, Odisha etc. - 10%
• The mandis of different states are not integrated. There is a fee to go to other
mandis.
• Different licenses have to be taken for purchase in different mandis of the state
itself.
• Bribery has almost became mandatory for obtaining and granting licenses.
• Horrific exploitation of farmers
• Violation of MSP –
▪ Boundation to sell in the market
▪ Very low prices due to group of buyers.
▪ Heavy exploitation in the price of vegetables.
• High Consumer Price
▪ Monopoly on goods
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• Great obstruction towards creating a national market.

• Since the revenue collected by the market does not go to the state treasury, so
▪ This does not require permission from the Legislative Assembly, and
▪ Its procedure is not even investigated.
• Holding of influential political people in the posts of market committees and
market boards (monitor of market committees).

Model APMC Act:

• Created in 2003 by Ministry of Agriculture, Government of India and allowed

the state governments to make changes accordingly.

Points

• Permission to farmers to sell their produce directly to companies.

• To create small markets for farmers and consumers.
• Permission to create new markets for special types of agricultural
products, especially for the perishable goods.
• To arrange single-market fee on agricultural products being sold.
• To arrange registration in place of license for agents, so that they can
work in more than one mandi.
• Provision for attracting investment for infrastructure.
• To facilitate e-trading.
• To provide farmers with information related to the market.
• Compulsory registration of contracts made under contract farming so
that contract is written and clear.

National Agricultural Market (NAM)

Objective - To make agriculture-product marketing national by providing a common
electronic platform to various mandis of the country.

Operator - By Small Farmers Agri Business Consortium under Department of

Agriculture, Cooperation and Farmers Welfare

Statutory provisions:

• Agriculture is primarily the subject of the state list.

• But some national level subjects related to it are also in the concurrent list.
• Item 33 of the concurrent list gives the Central Government the right to create a
common national market related to trade and commerce.
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• Item 42 of this gives the Government of India the authority to enact laws to play
a role for mutual trade and commerce between states.

Important points:

• Launched in April 2016.

• It is not parallel to mandis, but a link connecting them, by electronic trading
portal.
• A virtual market, behind which a physical market is present in the form of
mandis.
• NAM portal provides a single window for all information and services related to
APMC.

Three necessary reforms in the APMC laws to join the NAM:

1. Issue of a single license to conduct business across the state.

2. Provision for levy of market fees at one place in the entire state, and
3. System of e-auction and e-trading for purchase and sale.

Benefits of NAM:

• Uniformity in agro-product markets.

• Streamlining market processes.
• To provide fair price to farmers on the basis of quality.
• To bring transparency in auction of agri-mandis.
• To facilitate the reach of farmers to the nationwide market and provide facility
for choice to farmers.
• Determination of prices on the basis of demand and supply.
• To eliminate lack of information and lack of coordination.
• To get rid of various mandi charges etc.
• Increasing price-competitiveness.
• To provide quality products to consumers at reasonable prices.
• Increasing many marketing facilities; such as storage, transportation, grading
etc.
• Ensuring the quality of products.
• Reduce transaction costs.
• Timely payment of farmers' products, etc.

Agriculture transport

Meaning:

• System for transporting surplus production to the market (to the consumer).
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• Products = Foodgrains + Plants + Animals + Vegetables + Animal Products +

Flowers etc.

Form:

• Scattered and small product centers.

• Scattered and small markets.
• Most of the farmers are illiterate.
• Lack of storage system.
• 45% of the roads unpaved especially in rural areas.
• Long distances of villages from large markets (mandis).
▪ Average - 12 km
▪ North-East - 50 km
• Total 7500 mandis

Problems:

• Lack of paved roads connecting villages to cities.

• Extremely poor road conditions, especially during rainy days.
• Even today, the main transport mode in rural areas - bullock cart. Now the
tractors have become main transport mode.
• Lack of transport facilities.
• Seasonal transport services.
• Lack of assured national/ state agricultural transport policy.
• High rates of transportation costs.
• Lack of rail transport, especially in North-Eastern India.
• Lack of high speed road transport facilities. (For perishable items)
• According to Food and Agriculture Organization- 45% of such items in
developing countries and India destroyed. (India is the world's second largest
producer of vegetables after China)
• Lack of complementarity to various modes of transport.
• Absolute lack of air transport for floriculture.

Agricultural Insurance
Meaning:

A tool of risk management, whereby the farmer transfers his risk of damage of crops
due to the weather to a third party with a premium amount.

Need:
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• Agriculture based on monsoon (famine)

• Natural calamities; Floods, hailstorms, extreme rain, pests etc.
• Increase of investment in agriculture.
• Increasing demand for agricultural credit.
• Possibility of less profit in agriculture sector.
• Suicides carried out by farmers etc.

Previous Schemes:

1. Comprehensive Crop Insurance Scheme (CCIS):

• Implemented in 1985
• Only for Kharif crops
• For some areas
• Launched by General Insurance Corporation (GIC) of India
• Failed

2. National Agricultural Insurance Scheme (NAIS)-

• This scheme implemented in place of CCIS – 1999

• On all food crops.
• High rate of premium i.e. 5 percent

Note -

The government formed a study team for the failures of the insurance scheme. On its
recommendation, NAIS was implemented in a changed form. But there was no
success.

Reasons behind failure of previous schemes:

• Higher premium rate.

• Applicable in few crops and regions.
• Lack of information and ignorance of farmers.
• Non-payment of insurance amount on time.

Note:

• In America, the government subsidizes crop insurance. And this insurance is

done by private companies.

Pradhan Mantri Fasal Bima Yojana-PMFBY

Objective:
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• To provide compensation to farmers in case of crop failure.

• To stabilize the income of farmers.
• To encourage farmers to adopt innovations and modern methods in agriculture
and ensuring the flow of credit to the agricultural sector.
• It is a modified form of two earlier insurance schemes - (1) National Agricultural
Insurance Scheme, and (2) Modified National Agricultural Insurance Scheme.
• Implemented since 2016.
• Implemented by the Center in coordination with state governments.
Key Features:
• Farmers have to pay:
▪ For Kharif crops - 2 %
▪ For Rabi crops - 1.5% and
▪ For commercial and horticultural crops (annual) - 5 percent premium.
▪ For example, if the price of wheat produced in one acre is considered as
10 thousand rupees, then the farmer will have to pay a premium of 1.5
per cent, i.e. Rs. 150.
• Center and state governments will pay the remaining amount of premium to
insurance companies.
• There is no provision of upper limit on the insurance installment rate, so that
the farmers can get the Full sum insured.
• Insurance will be provided on local natural disasters, including post-harvest
losses.
• Anthropogenic disasters; such as fire and theft etc. are not included.
• There is a system of using smart technology for quick payment of the amount
by making immediate estimates of losses; such as smart phones, remote
sensing drones and GPS technology etc.
• All farmers, tenants and sharecroppers who grow crops in notified areas can
also take advantage of this scheme.
• Farmers who have not taken loan from the bank can also take advantage of this
by showing their land right record/land possession certificate.
• The scheme is applicable in the defined area for each notified crop. Crop loss
occurs equally in the notified area. That is, since the cost of the crop and the
production of the crop are the same in a particular area, the loss is also almost
the same.
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• There is only one insurance company for the entire state.

• It is the responsibility of the state-level coordination committee to implement
insurance in the states and make it successful.

In favour of Scheme:
• Very low premium rate.
• Farmers get the full amount of insurance.
• Compensation of losses due to sudden rain, hail etc. after harvesting of the
crop.
• Satellite technology for accurate estimation and early payment.
• The largest crop insurance scheme ever implemented by the government.
• Applied to almost all crops.

Criticism:
• Scheme in the name of the Prime Minister, but also the participation of states
in giving money. Consequently delay in payment of their share of premium by
the states. Due to this, farmers have difficulty in getting the amount of
insurance. Insurance companies take advantage of this.
• At present, farmers do not have any direct relationship with insurance
companies. Therefore farmers do not have any insurance related documents.
They are with the bank. The banks start deducting the premium amount from
the bank loan taken by farmers without their consent.
• Claims are often not made and are not made because of non-receipt.
• Farmers who do not take loans from the bank, their enrolment for insurance is
difficult.
• It is not easy to get a certificate of land (from Patwari)
• Corruption
• Complicated functioning of insurance companies.
• Higher profits for insurance companies. They have to pay only half of the
premium received as claim.
• Only 30 percent of the country's land is under this insurance. While it is 70
percent in China and 90 percent in America.
• Unawareness of farmers.
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• It has been found in the survey that about 65 percent of the farmers do not
know about PMFBY.

Agricultural Credit
Need of loan:

• Due to Green Revolution, demand for credit increased, agricultural cost

increased due to:
▪ Chemical fertilizer,
▪ Improved Seeds
▪ Equipment etc.
• Demand for long-term loans from modernization of agriculture.
• To buy land and make it fertile.
• For storage and marketing.
• In times of disasters like famine, floods.

Three types of loans defined by RBI:

• Short term loan - for less than 15 months.

• Medium term loan - from 15 months to 5 years.
• Long-term loan - for more than 5 years.

Two types of lending institutions:

1. Non-institutional:
• Money lender, landowner, trader etc.

In favour:

• The main source till independence - loans up to 70 percent by them only.

• Productive / non-productive both types of loans
• Loan process not complicated
• No loan limit.
• More convenient for villagers

Effect:

• High interest rate- up to 24 percent

• Great pressure of debt collection
• Mortgage - Exploitation
2. Institutional Sources:
• Government recognized institute
• Loans for productive purposes only
• Loans at cheap rate
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• Complex process
• Fixed loan limit
• 60 percent of total loans are Institutional loans.

Institutions:

• Commercial Bank, such as SBI, PNB etc.

• Co-operative bank;
• Regional Rural Banks
• Land Development Bank (LDB) etc.;

Lending institutions:

1. Land Development Bank:

• Long Term Credit

• Credit for capital expenditure and making the land fertile.

2. Lead bank scheme:

• Each district will have a lead bank.

• Any commercial bank will be considered a lead bank of a district.
• This lead bank will coordinate with all lending institutions in that
district.
• State Bank of India, has 16 thousand branches across the country.
• Mostly, about 43 percent of loans only by these commercial banks.
• The government sets the target of these banks every year.
• They have to give 40 percent of their loans to priority sectors. Priority
sectors are those which were neglected before nationalization.
• Lending boom after nationalization of banks (1969).

3. Regional Rural Bank:

• Established under the Regional Rural Banks Act, 1976.

• In the form of alternatives/partners to cooperative banks.
• To provide institutional credit to rural agriculture sector.
• Three partners
▪ Centre - 50 percent,
▪ State - 15 percent,
▪ Sponsored banks - 35 percent
• Total loan approximately 10 percent.
• Loans to only small/ marginal farmers, artisans and laborers of the
village.
• Loans for productive purposes only.
• Loan at very low interest.
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4. Co-operative bank:

• Formed on the principles of cooperatives.

• Private Sector Banks
• Banking and Cooperatives; Governed by both rules.
• Three levels - (1) Rural (2) District level (3) State level.
• Rural level banks - Loans mainly for agricultural activities. Also for some
small scale industries and self-employment.
• Urban co-operative banks - mainly small-scale industries, self-
employment and housing loans.
• Based on “No-profit, no-loss”. Interest rate cheaper.
• Cooperative bank system works as Primary Agriculture credit Supply -
PACS
• Its reach to about 85 percent region of the country.
• It provides about 15 percent of the total agricultural credit.
• Best source for rural credit.
• The number of customers of these banks is double the combined number
of customers of regional rural banks and commercial banks.
• Simple loan process.

Problems of Cooperative Banks:

• Lack of funds. The situation improved with the granting of money by the
NABARD from 1982.
• Huge drop in profit due to low interest rate.
• Very little debt recovery. Consequently, increase in NPA.

Problems of agricultural Credit:

• Incapacity of working institutions

• Lending less than required.
• Less attention to poor farmers.
• Failure to repay loan/suicide/debt waiver.
• Complex processes
• Corruption, etc.

Credit facilities:

NABARD (National Bank for Agriculture and Rural Development)

• Established in 1980.
• All loans related to agriculture under its purview;
• It works with the Government of India to promote the agriculture sector.
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Kisan Credit Card (KCC):

• Launched in 1998 to meet agricultural needs.

• Most Popular –
▪ Particularly beneficial for farmers unaware of the functioning of
banks.
▪ Instant loan for agriculture and home needs.
▪ Very low interest rate.

Loan from Ware House Receipt

• By keeping food grains in the warehouse, loan of about 70 percent of the

value on the basis of its receipt.
• Avoidance of pressurized sales.

Interest Subvention Scheme-ISS:

• A crop loan of maximum three lakh rupees for a year at a subsidized rate
of 7 percent to farmers.
• Additional 3 percent discount on early repayment of loan.

Loans to Joint Liability Groups:

• Like self-help groups.

• An informal group of at least 4 and maximum 20 small and marginal
farmers.
• Individual and Group Loans

Guidelines for Priority Sector Lending:

• Issued by RBI
• Mandatory for scheduled commercial banks to give 18 percent of their adjusted
net bank loans.
• 8 percent of it to small and marginal farmers.

Relief in times of natural disasters:

• Instructions issued by RBI.

• Provision applied as soon as disaster is declared by the concerned district
officials.
• Provision- Re-appropriation and rescheduling of existing crop loans and interest
payable.
• Prohibition on new lending, collateral relaxation and debt recovery.

No collateral on loan of one lakh rupees:

• Advice issued in 2010 by RBI.

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Farm Subsidy
Meaning:

• Latin word: Subsidium – assistance (Military)

• French – help, aid, contribution
• Sub – (Prefix) – below anyone, less than
• Subway, Substitute, suburban area
• Sidy – Very powerful, Godlike, helping, Beautiful

Definition –

Agricultural subsidy:

The difference between the price charged by the Agricultural Development Corporation
from the sellers and purchase value to the farmers by the Agricultural Development
Corporation.

Types of agricultural subsidies - mainly two types-

1 - Direct Farm Subsidy:

• Direct cash assistance to farmers;

2 - Indirect Farm Subsidy;

It is provided indirectly; like-

• Affordable Credit Facilities

• Lower rates of electricity and irrigation
• Providing fertilizers, pesticides at low prices
• Debt Waiver
• Agricultural research
• environmental support, and
• Farmers’ training etc.

Note - The Public Distribution System is the best example of indirect subsidy to
consumers.

Some key points:

• Indirect subsidy is much higher than direct subsidy in India.

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• 2 percent of the total GDP is spent on it; Approximately three lakh crore rupees
per year. (2018-19)
• About two-thirds of the total subsidy is given on fertilizers.
• Food + fertilizer + petroleum = 89 percent subsidy

Why subsidy?

• To keep prices of agricultural products down.

• To make agricultural work profitable.
• Social security sentiment.
• For the promotion of agriculture.
• For increase in agricultural production (national/international demand)
• To be competitive with international prices.

Note - There are many types of subsidies to merchants, individuals and institutions in
America; this can be seen in the Federal Domestic Assistance Catalog. Apart from
other areas, subsidy is also given for agriculture, marine-product industries and
public transport;

Benefits of direct subsidy/problems/limits

• Reach the right needy.

• Reduction in wastage Type-A
• Less complex
• Lack of comprehensive data
• Inability of government machinery and bureaucracy Type B

Criticism of Indirect subsidy:

• Benefit only to big farmers (fertilizer, electricity, irrigation etc.)

• Regressive - Use/misuse of facilities
• Discouraging/not taking interest in improving the production process.
• Use of inexpensive items for other purposes due to lack of proper identification
of beneficiaries;
▪ Sale of PDS goods in the open market
▪ Sales of fertilizers in other chemical industries + Sales in international
markets.
• Birth of intermediaries.
• Misuse of public money.

Cash transfers:

• In 2008, a committee headed by Nandan Nilekani recommended conversion of

all indirect subsidies into direct subsidies.
• This direct subsidy is in the form of cash.
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• The transfer of this cash money directly to the payee's account (DBT –Direct
Benefit Transfer) through the system of Aadhaar number.

Note - This system is becoming increasingly popular all over the world.

• Brazil's Bolsa Familia scheme has been extremely successful due to this
system.
• Since 2015-16, this system is being implemented in India gradually.

Cash transfer benefits:

• This increases the effectiveness of poverty reduction programs, as the benefit

goes directly to the beneficiaries.
• The distribution cost of this process is very low. At the same time, the number
of government departments also decreases.
• Corruption is controlled.
• The beneficiary is free to buy the goods they need from the market. Freedom of
choice.
• Intensification of market movements.
• There is considerable savings in government money. Savings in the LPG and
old-age pension schemes are its examples.

Minimum Support Price (MSP)

Meaning:

A tool of government intervention in the open market, so that

• Even on the decline in the prices of agricultural products

• Farmers could get the minimum price for their products.

Note – Food grain Prices and Policy Committee constituted under the chairmanship of
L.K. Jha in 1963, had stated the three main objectives of the food management:

1. Purchase of food grains from farmers at a profitable price,

2. Keeping buffer stock for food security and price stabilization; And
3. To provide food grains to consumers, especially the weaker sections at
affordable prices.
• The same committee had talked about 'minimum support price'.
• As a result, it was implemented in 1966-67, but only on wheat.

Objectives of MSP:

Main -
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• To protect farmers from losses due to fall in prices of products, and

• To prevent the prices of products from falling more when there is excess
production.

Others –

• Encouraging farmers to invest in agriculture.

• To motivate farmers to adopt advanced agricultural production techniques.
• Increasing production.
• To increase the income of farmers, and
• Purchase of food grains for public distribution, etc.

Salient facts:

• The Central Government sets the minimum price (since 1985) on the basis of
the recommendation of the Commission for Agriculture Costs and Prices
(CACP).
• Determination of MSP declared before sowing of crop.
• The final decision regarding the MSP is taken by the Cabinet Committee on
Economic Affairs;
• 25 products in the year 2018 are under this - Cereals + Pulses + Oilseeds +
Coconut kernels + Raw Cotton + Raw Jute + Virginia Flu Cured Tobacco etc.
• If the price of the MSP is not available in the market, the government buys at
this price.

Formula for determining MSP:

CACP first takes stock of many components related to products, such as -

• Production cost of products

• Demand and Supply Status
• Changes in prices of inputs for production
• Trends in national and international markets;
• Equality of mutual prices of different products etc.

The Commission sends its recommendation to the Central Government. The Central
Government considers it and sends it to the State Governments.

Finally, the Central Government makes a decision about the minimum support price
and announces it.

National Commission for Farmers (NCF):

• Formed in 2004 by the Central Government.

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• Agricultural scientist M.S. Swaminathan was its president.

• Objective:
1. Sustainable farming system, and
2. Suggesting measures to make agricultural products cost-competitive and
more profitable.
• Suggestions about determination of cost by NCF - Three levels
1. A-2 Level - Sum of all types of cash expenses; Such as seeds, fertilizers,
medicines, wages, irrigation, etc.
2. FL Level - In this, the value of labor done by all the people of the farming
family is also added.
3. C2 Level - All cost + Interest of loan for agriculture and capital invested
by self.

Benefits of MSP:

• Relief to both farmers and consumers.

• Helpful in balancing prices in both inflation and deflation.
• Supports the growth of agricultural products.
• A main tool of food safety, etc.

Criticism of MSP:

• Vote bank base for political parties.

• Responsible for increasing fiscal deficit.
• Only 6 percent big farmers benefited. 94 percent of the country's farmers are
either small farmers or landless.
• 25 percent products do not get benefit of MSP.
• There is no provision of MSP for fruits and vegetables.
• North-East India is nearly deprived of the benefits of MSP.
• Wastage of lot of products due to lack of government procurement and food
grain storage.

Criticism of determination of MSP and demands:

• For the Kharif crop, the government declares MSP by adding 50 percent to the
total value of the A-2 and FL formula.
• Farmers demand to add 50 percent to C-2.
• The cost to farmers is more than these three levels. Hence they demand MSP at
their actual cost.
• The rate of growth in the MSP has been gradually reduced –
▪ It was 19.3 percent per annum between 2009-13,
▪ It was only 3.6 percent between 2014-17.
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• The policy of the MSP is also criticized on the platform of the World Trade
Organization. Whereas the complaint of Australia is regarding MSP on wheat,
the complaints of America and European countries is regarding MSP on pulses
and sugarcane.
• If this current rate of MSP continues, it would be against the rule of maximum
10 percent subsidy. It will then be difficult to answer this global criticism.

Some other schemes parallel to the MSP:

1. Bhavantar Bhugtan Yojana (Price Deficit Financing Scheme)

• Implemented by the Government of Madhya Pradesh.
• The difference between MSP and average market price deposited by the
state in the account of the farmers.
• It also saves the government's expenses on storage, transportation and
maintenance etc.
2. Ryot Bandhu Scheme:
• Implemented by the state of Telangana.
• Rs. 4000 Paid per acre to farmers directly. (Year 2019-20).

Procurement Price:

• It is announced after the harvest is ready.

• Its purpose is to buy food grains for government storage.
• It is always more than the minimum support price.

Issue Price:

• It is the price at which the government provides food grains to the people
through the Food Corporation of India.
• It is much less than MSP.
• Due to this, the government has to suffer a lot of loss.

Public Distribution System: PDS

Meaning - Ensuring access of essential food grains to the people at a fair price.
National Food Security Act, 2013

Objective:
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• Improvement in distribution of essential goods

• Price control of essential commodities
• To maintain stability in prices of essential commodities, and
• Maintaining the quality of goods at low prices.
• Distribution of selected essential commodities (wheat, rice, sugar, kerosene oil)
through fair price shops.
• Keeping stock of goods to be distributed; and
• To keep the prices of the goods being distributed below the market price
through subsidy.

Key elements:

• Center-State Joint Scheme

• FCI is prime Operator.
• Ministry of Consumer Affairs, Food and Public Distribution

Beginning and Development:

1. Initial period of public distribution system

Given the shortage of food grains in 1939 as soon as the Second World started:

First Stage (1939-1965):

• System of rationing. Limited to cities.

• To provide food grains to the people during the famine in Bengal in 1943.
• Food crisis caused by China war in 1962 and Pakistan war in 1965 and
famine of 1965-66. Distribution by fair price shops.

Second stage (1965–75):

• Emphasis on production growth through Green Revolution.

• Establishment of some institutions –
▪ Food Corporation of India (FCI)
▪ Agricultural Price Commission (APC)
▪ Bureau of Agricultural Costs and Prices Commission, (BACP) which
determined the purchase price for the FCI.

Third stage (1975 to 1992):

• Buffer stock arrangement

• It was linked to reducing poverty.
• Special attention to expansion in rural areas.
• Various measures to improve distribution system, etc.
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2. Restructured Public Distribution System (Revamped PDS-RPDS)

• Launched in 1992

Objective:

• Strengthening and streamlining PDS and making it accessible to remote

areas, hilly and inaccessible areas, especially where the majority of the
population is poor.
• 1775 blocks covered.
• Start of Drought prone area program (DPAP), Integrated Tribal
Development Project (ITDP) and Desert Development Program (DDP) etc.
Some Designated Hills Areas' (DHA) has been identified.
• Quantity kept 20 kg per card.
• Items - mainly rice, wheat, sugar, kerosene oil, spices, tea, salt, pulses
and soap.
3. Targeted Public Distribution System
• Launched in June 1997.
• Targeting the poor.
• The group constituted by the Planning Commission under the
chairmanship of Professor Lakdawala (in 1989) gave the formula for
identifying the poor (in 1993). These were called BPL (Below Poverty
Line).
• States were asked to rightly identify the poor and provide them ration
cards.
• States were advised to involve Panchayats and Municipalities in
identifying the poor.
• While doing so, they were also asked to include these people of the poor
class - landless agricultural laborers, marginal farmers, artisans living in
slums (like potters, weavers, blacksmiths, carpenters etc.), those making
a living on a daily basis (e.g. porter, rickshaw puller, handcart puller and
vegetables sellers on the tracks, fruit and flower sellers etc.).
• Arrangements for providing 20 kg food grains per family through 4 lakhs
fair price shops at half the market price.

Note -

A study conducted by the National Sample Survey in 2000 found that 5 percent of the
country's population is living without food for two times. They were called 'starving
people'. After this, "Antyodaya Yojana" was launched in December 2000, targeting
these hungry people.

4. Antyodaya Anna Yojana:

• Applicable under the TDPS.
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• To reduce hunger among the poorest sections of the population below the
poverty line.
• Initially 25 kg grain per month per family, which was later increased to
35 kg.
• Rice - 3 rupees and wheat - 2 rupees per kg.

1. First Extension (2003-04)

• Widow head of family, incurable patients, disabled and helpless old-

age persons were also included.

2. Second expansion (in 2004)

• Involving nearly 50 lakh families at risk of hunger.

• All tribal families involved.
• Total 2 crore families under Antyodaya.

3. Third Extension (in 2005)

• 50 lakh other families included.

• Total number of beneficiaries of the scheme is 2.5 crores.

Criticism/ Drawbacks of public distribution system:

• Not getting food grains to the beneficiaries (poor).

• Selling of PDS goods in the open market.
• Corruption in releasing ration cards (for BPL).
• In some states Ghost BPL Cards issued.
• Wrong working methods of fair price shops in states like Bihar, U.P., Punjab
and Haryana etc.
• In a sting operation called 'Operation Black' conducted on October 14, 2013, it
came to light that how the grains of PDS reaches to the mill owners.
• Bribe in obtaining license for ration shop.

Measures to improve PDS

• Transparency and constant monitoring in the licensing of fair price shops.

• Strengthening grievance redressal mechanisms.
• Fully automated ration shops.
• To create awareness among people about rights through means of
communication.
• Inclusion of Panchayat, old-age people and other local bodies in the
identification of the poor and distribution of food grains. Some states are doing
this.
• To convert the sale of food grains from fair price shops to 'cash transfer
method'.
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• Including 'coarse grains' (maize, sorghum, bajra etc.) in food grains.

Steps taken by some states:

• Andhra Pradesh saved 20 thousand tons of food grains and 70 lakh liters of
kerosene oil in a year by launching ‘Food Coupon’ in 1999.
• In Andhra Pradesh, GPS technique is used, so that trucks loaded with food
grains can be traced.
• Government of Chhattisgarh, by informing the availability of food grains to the
beneficiaries through SMS, reduced the 50 percent leakage of grains (in 2004-
05) to 10 percent (in 2009-10).
• Chhattisgarh distributes food grains as 'rice festival' on 7th of every month.
• Distribution of food grains in Nashik (Maharashtra) is done on a certain day
under the supervision of the community.

Food security
Definition:

By the World Health Organization (WHO) and the World Bank (WB): “Access by all
people at all times for enough food for an active and healthy Life”

Note - In the 9th Five Year Plan, the Planning Commission clearly defined this idea
and defined food security in the following four stages -

• First stage - Availability of cereals

• Second stage - Cereal + Pulses
• Third stage - Cereals + Pulses + Milk + Milk Products
• Fourth stage - Cereals + Pulses + Milk + Milk-products + Animal-products (Fat,
meat etc.);

Three main requirements of food security (by Planning Commission) 3A’s -

1. Availability:

• In 2000, the Government of India announced a target of 4 percent

annual growth rate in the agricultural sector. For this –
▪ National Food Security Scheme announced in the year 2007.
Production up to 10 million tonnes by 2011-12.
▪ National Agricultural Development Programme (Rashtriya Krishi
Vikas Yojana – RKVY) launched in 2007–8;
➢ Incentives for states to attract investment in agriculture,
and
➢ The expansion of Green Revolution in Eastern India.
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2. Access:

• Targeted Public Distribution System.

• "Village Grain Bank Scheme," started in 2004 to provide food grains in
times of crisis.

3. Affordable

• Affordable/ purchasable
• For the Poor Class - Integrated Child Development Scheme; started in
1975 – for children below age of 6 years
• Mid-day meal; nourishing food, vaccination education and 10th five year
plan (2002-07).

National Food Security Act, 2013

Meaning and purpose:

1. Words of the Act – “to provide for food and nutritional security in human life
cycle approach, by ensuring access to adequate quantity of quality food at
affordable prices to people to live a life with dignity and for matters connected
therewith or incidental thereto.”
2. Commission for Agricultural Costs and Prices: “The biggest ever experiment in
the world for distributing highly subsidized food by any government through a
"rights based" approach.'

Key Features:

• Applicable to 75% of rural population and 50% of urban population (average

67% of population).
• Two categories of beneficiaries –
1. 35 kg of rice, wheat and coarse grains per family to Antyodaya Anna
Yojana beneficiaries. The price is 3, 2 and 1 rupees per kg respectively.
This scheme will continue as earlier.
2. 5 kg per person per month for priority families. Price same as for AAY
beneficiaries
• Pregnant and lactating mothers -
▪ Free food during pregnancy.
▪ To pay a total of 6000 rupees in installments through anganwadi for 6
months from the birth of the child.
• For children:
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▪ Free food by Anganwadi to children from 6 months to 6 years.

▪ Free mid-day meal in school for children from 6 years to 14 years old.
• Women empowerment:
▪ Ration card will be issued in the name of the girl/woman above 18 years
of age, considering her as the head of each family.
▪ Ration card in the name of a male member if no female under 18 years of
age, but in the name of a girl as soon as she turns 18.
• Grievance Redressal Mechanism:
▪ Mandatory constitution of the State Food Commission by states;
▪ Appointment of District Grievance Redressal Officer in each district;
▪ A fine of Rs 5000 on the officer for not redressing the grievances.
▪ The right of the beneficiary to receive food security allowance from the
State Governments if they do not receive grains.
▪ Right of Panchayat and local bodies to implement it properly.
▪ Provision of "Social Auditing" with a view to bring transparency and
efficiency.
• Central obligations:
▪ The price of rice, wheat and coarse cereals above the amount of 3, 2 and
1 rupees respectively will be borne by the central government.
▪ The Central Government will bear all the expenses related to sending
food grains to the fair price shops of the states.
• Some other provisions:
▪ Some similar welfare schemes launched by the states will not stop.
▪ States will be able to start similar better schemes from their own means.
▪ Its beneficiaries will be able to claim this right in addition to events
affecting food supply like war, flood, drought, arson, storm, earthquake
and volcano eruption.
• Drawbacks/ Criticism:
▪ Increase in fiscal deficit (3 percent of the GDP according to some and 1.5
percent of the GDP according to some)
▪ Not appointing District Grievance Redressal Officer in each district
▪ Lack of funds for developmental work.
▪ Change in crop pattern due to excessive emphasis on the production of
pulses and oilseeds.
▪ Heavy shortage of coarse grains.
▪ The adverse effect of pressure on production of fruits and vegetables and
other products.
▪ Crisis created by corruption etc.
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Note - Economist Prof. Jean Dreze has strongly supported this scheme by calling it
‘Investment in Human Capital’.

Measures:

• Shanta Kumar Committee (formed in 2014 for reorganization of FCI)

▪ The Food Security Act should be limited to only 40 percent of the
population,
▪ Direct cash transfer system should be introduced in place of public
distribution system.
▪ Changes should be made in such a way that the beneficiary becomes not
just a passive recipient but an active beneficiary.
• For this the successful plan (Bolsa Familia) of Brazil should be studied.
• Shops related to FSA should be computerized.
• Drinking water and sanitation should also be brought under this right.
• Providing protein rich items like egg, meat, fish, chicken etc. at a cheaper rate
and use of modern technology to increase their production.

Bolsa Familia:

• A social welfare program of the Brazilian government.

• A part of Fome Zero (anti-hunger) scheme.
• Cash subsidy to poor families.
• If there are children in the family, the family must ensure that –
➢ They go to school;
➢ Get vaccinated; and
➢ Attend school too.
• It is conditional cash transfer;
• Education for poor children for free.

Buffer Stocks
Other Names - Central Pool, Safe Storage, Intervention Storage

Meaning - A reserve of commodity that can be used to offset price fluctuation.

Note - In 1937, Benjamin Graham's book "Storage and Stability" (during great
depression) – more storage at more production.

Note - Price fluctuations of agricultural products more than industrial products.

The main objective - According to the Shanta kumar committee:

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(1) Emergency food grains

• "FCI is supposed to maintain buffer-stock of grains towards of any

emergency food shortage situation during natural disaster, Famine or
war"
(2) Ensuring food safety law,

(3) Ensuring the income of farmers,

(4) Promotion of production

(5) Promotion of investment in agriculture

(6) Mechanism that achieves its objectives quickly and directly etc.

Process:

(1) Purchase of surplus

(2) Storage, and

(3) Sale on requirement

Shanta kumar Committee Recommendations/Comments:

• FCI has been buying more grains than standard since last few years, due to
which there is shortage of grains in the open market, and also grains are
wasting.
• The reason for purchasing more grain than standard is that the FCI acts only
as the keeper of the grain. The Ministry is responsible for deciding the quantity
to be purchased.
• In case of buffer stock, vote bank politics works. Efforts are made to please the
farmers of rice and wheat by continuously increasing the minimum support
prices.
• As a result, farmers pay more attention to the production of these two crops,
and other areas remain neglected.
• FCI buys grain from everyone, even from traders. Not only from farmers.
• FCI should get an exemption that if the stock is high, it can sell it under "Pro-
active Liquidation Policy". In 2015, the government gave this permission.
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• Instead of keeping more buffer stock, it is better to keep only sufficient amount
of it and if more is required, then it should be imported. Lower import duty will
be helpful in this.
• Grain is sent from the states of Punjab and Andhra Pradesh etc. to North-East
India. It costs more on transportation. It is better to import grains from
Myanmar there. It will be cheaper.

Stock quantity recommended:

• For National Food Security Act – 61 MMT

• As a strategic reserve - 5 MMT
• Foreign Exchange Reserves - For 3 MMT wheat + 2MMT rice

Universal Basic Income (UBI)

• In UK - Citizen's income, Citizen's Basic income

• In USA + Canada – Basic Income Guarantee

Meaning - Cash amount to be given at a certain interval at the individual level without
any proof or work.

History:

• First of all, in the 16th century, Sir Thomas More in his book “Utopia” said that
every person should get a fixed income.
• Later in the second half of 18th century, Thomas Spence and Thomas Paine
supported welfare schemes and called for a fixed income for all citizens.
• In the 20th century, it began to be talked about a lot and it came to be known as
"State bonus".
• In 1946, Britain introduced the 'Family Allowance' to all children after the first
child of each family.
• Brazil's “Bolsa Familia” scheme is also a form of basic income.

Features:
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1. Unconditional - Giving basic income to all by ignoring any elements like sex,
employment, family, contribution to society, building etc. This amount may vary
according to age, but the amount will be the same for all people of the same
age.
2. Automatic
3. Non-withdrawable: Despite the increase and decrease of income, basic income
will remain the same.
4. Individual: Not at the level of couple or family.
5. As a right: Right of legal resident

Why UBI: Benefit

• Ensure social security.

• Protecting the dignity of the person.
• Supports reduction of poverty and inequality.
• To combat the unemployment crisis caused by technology.
• Encourages economic activities by increasing people's purchasing power.
• Freedom to choose the type of work.
• Financial inclusion (bank accounts will be active)

Criticism:
• There is a chance of people becoming lazy and dependent.
• There is no guarantee of spending of income on education, health etc. It can be
spent on alcohol, tobacco, drugs.
• Lack of funds for other functions due to high pressure on treasury.
• Hard to stop once started.
• If the tax rates are raised for this, then inflation will increase. As a result, due
to decrease in purchasing power of the people, the actual capacity of basic
income will decrease.
• Labor-shortage crisis for industries. The condition of higher wage rates.
Options suggested by Economic Survey 2016-17:
• First - It should be given to 75% of the lower strata. They named it Quasi
Universality. The project will cost around 4.9% of GDP.
• Second - it should be started only with women, because there are less
employment opportunities for them.
• Third - It should be started with widows, pregnant women, old-aged and
differently abled people.
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Genetically Modified Crops

Meaning:

Scientists change some of the properties of plant by introducing genes of other plants
into the genes of that plant.

WHO: the DNA of organism (plants, animal and microorganism) is changed in such a
way through GM technology that does not occur in natural reproduction process.

Other names:

• Gene Technology
• Recombinant DNA Technology
• Genetic Engineering

Benefits of GM Crops:

• Excessive nutritional element

• More resistant to bacteria, viruses and other diseases
• Ability to face climate change
• Cheap, and
• Higher production.

Arguments in favor of India

• To meet the food requirement of the growing population.

• To implement the Food Security Act of 2013.
• To provide food grains at lower price.
• To reduce the ill-effects of climate change on agriculture.
• In the form of compensation for limited agricultural land, lack of irrigation
facilities and lack of manure etc.

Counter Arguments:

• Abundance of unnecessary new weeds etc.

• Adverse effects on the environment
• Deadly effect on humans (allergic reaction and toxin), animals and flora.
• The fear of loss of bio-diversity of Eastern Himalayas and Western Ghats at a
later time.
• Extinction of native seeds (which are natural).
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• Complete dependence of farmers on expensive foreign seeds.

Facts:

1. After deliberating on the profit and loss from such crops, the Standing
Parliamentary Committee of the Ministry of Agriculture in its report in 2012
said that there should not be hurry in implementing these crops.
2. In 2014, the Ministry of Environment, constituted TSR Subramaniam
committee and entrusted it with the responsibility of examining various
environmental laws. This committee also said that -
• The government should be very cautious about allowing GM crops.
• The committee attracted the government's attention towards the
government policies of the European Union, where on-ground testing of
GM crops has been banned due to some reasons.
3. Social activists who oppose crops also say that our food production has
increased five times in the last three decades without using GM seeds. Thus,
our traditional seeds are also of advanced quality.
4. In 2015, 80% of the BT cotton crop in Punjab and Haryana was badly damaged
due to whitefly. The plants had stopped growing after four months and its
leaves had started falling.
5. It is noteworthy that Monsanto Company stopped selling BT cotton seeds in
Indonesia in 2003 (due to complaints).
6. Russia has denied the use of GM seeds.
7. 19 countries of the European Union have banned its use.
8. At present, mainly six countries are producing GM crops - America, Canada,
Brazil, China, India and Argentina.
9. Those opposing GM seeds also reasons that they are produced by companies
from three countries (America, Germany and Switzerland), and two of these
countries have banned their production there.
10. Its patent rights are also bizarre. For example mustard plants have more than
85 thousand genes. Patents can be claimed by putting only 2-3 genes
externally.

Bt Cotton:
• Here BT means Bacillus Thuringiensis (It is the name of bacteria harmful to
many crops found all over the world.)
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• India allowed commercial production of BT cotton from 2002. After this, this
cotton started being sown in India. This made India the second largest cotton
producing country in the world (after China) from the cotton importing country.
• In India, only BT Cotton is allowed as a GM crop.
• Field trials of mustard, pulses, vegetables and seeds of 21 types of food grains
have been done. But they have not been allowed due to opposition.

Note - The Ministry of Environment and Forests has constituted the Genetic
Engineering Appraisal Committee (GEAC) under Environment Protection Act 1986
regarding GM crops. It is the highest decision making body on this subject.

Technology Mission in Agriculture

Meaning of mission:

• A definite clear purpose

• area of work
• Time bound action, and
• Measurable results and services

Meaning of Technology Mission in Agriculture:

1. Use of technology for changing social and economic status of the country
keeping in mind the requirements of agricultural rural development is known as
technology mission.
2. Unlike the practice of conventional schemes.
3. With Innovative thinking;
4. Holistic approach;
5. Integrated development, and
6. Involvement of stakeholders
Objectives of Technology mission:

• To achieve self-sufficiency by increasing production.

• Improve quality.
• Control of crop diseases.
• Maximum use of irrigation water.
• Preservation of soil fertility (soil health card)
• Use of Neem coated urea for nitrogen-requirement of crops.
• Use of Drones and satellite technology for crop insurance.
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• Use of apps, mobile wallets and cards for cashless transfer.

• Establishment of e-NAM for the market, etc.

Beginning:

• In 1987, the National Technology Mission started by Prime Minister Rajiv

Gandhi under the leadership of his advisor Sam Pitroda, in the following five
main areas–
1. Drinking water (in extremely backward areas)
2. Immunization (pregnant women + children)
3. Literacy - (in the age group of 18-35)
4. Oilseeds - (to end the imports)
5. Telecommunication
6. Dairy Production –(Added later)

Applicable in various other fields:

• Technology Mission on Cotton (TMC)

➢ Sponsored by the Central Government, in 2000

➢ Improvement in production and quality of cotton

• Technology Mission on Oilseeds, Pulses and Maize (TMOPM)

➢ Oilseeds Mission in 1986
➢ Applied in pulses (1990), and maize (1995).
• Jute Technology Mission (JTM)
➢ Jointly implemented by Ministry of Agriculture and Textiles
➢ Year 2006
• Technology Mission on Coconut (TMC)

• Mission for Integrated Development of Horticulture (MIDH)

➢ Implemented by the Central Government in the 12th Five Year Plan with a
view of integrated development of horticulture.
➢ Started in 2014-15
➢ Incorporation of all ongoing schemes for this under it:
▪ National Horticulture Mission
▪ Horticulture Mission for North-East and Himalayan States.
▪ National Bamboo Mission,
▪ National Horticulture Board,
▪ Coconut Development Board, and
▪ Central Institute for Horticulture, Nagaland
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• Sugar Technology Mission (STM)

➢ Implemented in 1994

• National Mission on Sustainable Agriculture (NMSA)

➢ Mission based on the 2008 National Action Plan on Climate Change.

E-Technology in the aid of Farmers

After the revolution in Information Technology in India, its expansion took place in the
agricultural sector.

Two main Objectives:

1. To contribute directly to agricultural production growth. And

2. Empowering farmers by providing various information to the farmers as an
indirect tool, so that they can take right decisions for agriculture related
activities.

Three agencies mainly involved in these objectives:

1. Central Government- Provide information to the farmers through ICT

(Information and Communications Technology)
2. State Governments -
• Gyandoot Yojana - Madhya Pradesh
• Gramdoot scheme – Rajasthan
• Lokvani - Uttar Pradesh
• Akash Ganga - Gujarat, etc.
3. Private Sector:
• E-chaupal- operated by Indian Tobacco Company (ITC)
• To provide market and agricultural information to farmers through
computer/internet.
• Kisan Mitra:
▪ Operated by Mahindra & Mahindra Company,
▪ Soil and water quality testing and farmers training program.

Some other efforts

• Kisan Call Center

▪ Applicable since 2004 in all states.
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▪ By calling the toll-free number, farmers can find solutions to their

problems.
• Rural Knowledge Center
▪ Organised by Centre + NABARD.
▪ To provide information + training to farmers.
• Common Service Center:
▪ Around one lakh centers across the country.
▪ Knowledge of new technologies related to agriculture, agri-based market
prices and weather.
• SMS service
▪ The latest technology to send information over mobile.
▪ Most popular.
▪ To provide information as per local requirements.
Necessary steps
• Availability of content in local language.
• Intuitively useful.
• To be interesting.
• Training farmers.
• Wide promotion and dissemination of related means.
• Installation of convenient touchscreen booths.
• Internet connectivity in rural areas
• Availability of electricity.

Agriculture Extension Services

Definition:

"To provide all the information and services sought and required by the farmers and
assistance from others in rural areas in building their own technical skills,
organization and managerial skills, so that their standard of living be improved and
they can become prosper. "

- Global Forum for Rural Advisory Services.

Rural advisory services also.

Availability of services:

• NABARD and Department of Agriculture , Cooperation & Farmers’ Welfare

jointly established
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▪ Agri Clinics and

▪ Agri Business Centers.
• ICAR (Indian Council of Agricultural Research) has implemented Krishi Vigyan
Kendras (KVK) and Institute Village Linkage Programme (IVLP) across the
country.
• By Government of India:
▪ Kisan Channel
▪ Broadcast of programs by All India Radio
▪ Establishment of educational institutions.
▪ Model Training Course
▪ Establishment of National Institute of Agricultural Extension
Management for the training of officers.
• Other:
▪ State government agencies
▪ NGOs
▪ Cooperative Societies
▪ Farmers Organization, etc.

Drawbacks:

• Lack of autonomy
• Rigid hierarchical structure (bureaucracy)
• Lack of innovation
• Lack of coordination, etc.

Suggestions:

• Implement new schemes and measures.

• Need of 'One-stop-shop’.
• Emphasis on information of weather, fertilizer and soil.
• Emphasis on demand based advisory services.
• Coordination of traditional (personal contact) methods with Information
Technology (Mobile + Internet).
• Need for coordination among all the concerned agencies.

Krishi Vigyan Kendra (KVK)

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• Formed on the basis of Dr. Mohan Singh Mehta Committee Report (1974),
which was established in 1973.
• An organization that takes the work of the Indian Council of Agricultural
Research to the farmers.
• A KVK is established in each district.
• Originally a center of knowledge and important agency of Agricultural Extension
Service.

Three basic concepts:

1. Providing technical knowledge through experience, for which it is not

mandatory to be literate.
2. Training of only active farmers, women and fishermen.
3. Preparation of curriculum and programs based on local needs and availability
of natural resources.

Three main work areas:

1. Training -

• Most important work.

• to a group of 30-35 people
• Multidisciplinary training; Such as agriculture, animal husbandry,
poultry, dairy, fisheries etc.
• Home science training to women; Such as sewing, weaving, pickle and
papad making etc.

2. On-farm trials

• Inclusion of the "Lab to Land" program.

• Direct display of ICAR information.
• Knowledge of new technologies; Seeds, equipment, fertilizers, irrigation,
soil, disease, weather, food processing, organic farming and water
management etc.

3. Other activities -

• Farmer's Fair
• Field visit of farmers
• Farmer Seminar
• Agricultural Exhibition
• Literature publication
• Mobile Message
• Integrated National Portal
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Indian Council of Agricultural Research

• Autonomous Institution
• Registered under the Societies Registration Act, 1860, based on the Royal
Commission's Report on Agriculture.
• Established in 1929 as the Imperial Council of Agricultural Research.
• Responsibility to coordinate agricultural education and agricultural research.
• The Minister of Agriculture is its Chairman.
• The world's largest networked institution in the field of agricultural education
and research.
• Motto - " Agri search with a human touch"
• Headquarters - New Delhi (in Pusa)
• Coordination + direction + management of research and education in
agriculture + horticulture + zoology + aquaculture and other related fields.
• There are 103 institutes and 73 agricultural universities under it.
• Acts as Agricultural Advisor to Government.

Animal husbandry
Importance:

• Supporting activity of agriculture

• 4% contribution in GDP
• 26% contribution in agricultural GDP
• Engine of development; Animal Husbandry Growth Rate 4-5% in comparison to
agricultural growth rate 2%
• Important means of income –
▪ Especially for small farmers who have less land.
▪ Milk, meat, wool, cow dung, bones, dung cake etc.
▪ Supporting property (financial security) in emergency
▪ The basis of social status
▪ Higher income in comparison to only cultivators.
 154

• Means of employment
▪ For uneducated and unskilled people
▪ In additional days of agricultural work.
• Nutrition
▪ Milk, meat, eggs etc.
▪ Important source of protein.
▪ Helpful on drought etc.
• Activities related to agriculture
▪ Farm plowing
▪ Grain extraction
▪ Transportation
▪ Compost
• Women empowerment
▪ Basically Women are included
▪ Decision making authority
• The most important area for inclusive growth.

Challenges for Animal Husbandry Sector:

• Lack of public services related to animal health (impact on humans as well)

• Lack of appropriate marketing arrangements.
• Decreasing area of pastures.

National Livestock Mission:

• Started from 2014-15.

• Keeping sustainable development in mind.
• A holistic approach towards all activities and people related to animal
husbandry.
• Emphasis on increasing quantity and quality of production.
• Availability of the following elements –
▪ Quality animal feed and fodder
▪ Risk management (animal insurance)
▪ Facilities (Credit Card)
▪ Information, training and advisory services.
▪ Breed improvement and protection

Four sub-missions of the National Livestock Mission:

I. Fodder and feed development;

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II. Livestock Development

➢ Production Development
➢ Entrepreneurship Development
➢ Employment generation
➢ Construction of infrastructure and facilities
➢ Animal Insurance
➢ Construction of rural abattoirs, etc.
III. Pig Development in North-Eastern Region
➢ For all North Eastern states
IV. Skill development, technology transfer & extension
➢ To bring modern technology to cattle rearers.

Some Other steps:

• National Mission on Bovine Productivity
▪ Genetic upgradation to increase the number of animals through breeding
inputs.
▪ E-Pashuhaat Portal
• National Gokul Mission:
▪ Protection and development of indigenous breeds
▪ Establishment of National Kamadhenu Breeding Centers.
• Animal Disease Forecast Mobile App
• Cold chain
• Formation of farmers’ organizations
• Emphasis on establishment of food processing industries, etc.

White Revolution (Milk Production)

• Establishment of 'Amul' (Dairy Cooperative Society) by Dr. Varghese Kurien in
Anand (Kheda district) of Gujarat in 1949.
• Prime Minister Lal Bahadur Shastri came to Anand in 1964 and was impressed.
As a result, in 1965, the National Dairy Development Board was established
under the leadership of Dr. Kurien.
• In 1969, NDDB received loan from the World Bank for 'Operation Flood';

Main objectives of Operation Flood

• Increased milk production (milk flood)

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• Increase in rural income, and

• Availability of milk at a lower price to the consumer.

Note- 'Operation Flood' itself was called 'White Revolution'.

Implemented in three stages:

• Phase I (1970–1980):
▪ National Dairy Development Program started in ten states of the country.
▪ Development of basic facilities like milk collection, processing,
marketing, fodder and animal health.
▪ Establishment of Mother Dairy in Delhi, Mumbai, Kolkata and Chennai.
• Phase II (1980–85):
▪ Three-tier cooperative system at village, district and state level.
▪ Development of technical, processing and marketing facilities.
• Phase III (1985–96):
• Organization of 73,300 dairy societies with membership of 94 lakh
farmers under 170 milk shades.

Results of operation flood:

• During 40 years, milk production increased from 2 million metric tons to 10

crore metric tons.
• Today India is first in the world in milk production.
• Expansion of the network of cooperatives.
• Farmers encouraged for animal husbandry. India is also the first in the world in
this.
• Increase in protein rich nutritious diet in the form of milk.
• Increase in rural income.

Current scenario of dairy sector:

• About 6 crore families of the country (about 40% of the total rural households)
raise cows and buffaloes.
• 70% of Farmers with small holdings rear dairy animals. They have about half
the agricultural land.
• The per capita availability of milk which was 112 grams in 1970 increased to
352 grams.
• The annual value of milk produced by farmers is about Rs 5 lakh crore.
• About 25% of the income of rural households comes from milk.
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• 20% of milk production is managed by organized sector. Private sector

participation is also same.
• More than 1.5 lakh cooperative milk production associations/societies are
active in the country.

Dairy development Schemes

1. National Gokul Mission
• In 2014
• Conservation, promotion and productivity development of indigenous
breed cows.
• Facilities and support for both artificial insemination and natural
insemination for breed development.
• The process of giving birth to high-yielding calves was accelerated by the
embryo transfer technique in native cows.
• Other schemes under National Gokul Mission -
1. Gokul Village Project
▪ Conservation and development of regional indigenous
breeds in rural environment.
2. National Kamadhenu Breeding Center:
▪ Establishment of conception centers.
▪ Special emphasis on developing endangered breeds.
3. National Bovine Productivity Mission
•Operation of e-Livestock Haat portal for easy buying and
selling of high productivity cattles.
Three other important schemes:

1. National Dairy Project - 1 (NDP-1)

• Objectives –
1. Increasing productivity of milch animals,
2. Increasing milk production.
• Implemented by NDDB + State Governments.
2. National Dairy Development Program:
• Implemented by the states in collaboration with cooperative milk
organizations / milk federation.
• To provide financial assistance for development of cooperatives and
increasing their membership.
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3. Dairy Entrepreneurship Development Scheme:

• NABARD + State Government + Nationalized Bank.
• To provide loans to dairy entrepreneurs on easy terms for the
establishment and development of dairy.

Formation of a special fund called "Dairy Processing and Infrastructure Development

Fund" in 2017-18.

Challenges:

• Increased trend of adulterated milk.

• Incorrect immunization of milch animals.
• Extreme shortage of veterinarians.
• Lack of processing facilities/plants.
• Aggregation of milk from remote areas.
• Lack of cold chain shortage, and
• Availability of fodder and water
▪ 12 crore tons of green fodder required annually, of which only 1 crore
tons is available.
▪ Permanent pasture-only 3.6% of the geographical area

Fisheries
Important facts:

• Second place in the world.

• Livelihood of 1.5 crore people of the country.
• Contribution of 1.1% in the country's GDP.
• Contribution of about 5.15% in agricultural GDP.
• Availability of nine kg fish meal per person.
• Production growth of about 15 times after independence.

Natural resources for fisheries:

• About 7500 km long coastal area.

• 20 lakh square km Exclusive Economic Zone.
• One lakh 91 thousand km long rivers + canals.
• 31.5 lakh hectare reservoir area.
• Ponds and water tanks in an area of 23.5 lakh hectares.
• Lakes spread over an area of 13 lakh hectares.
• Saline water in an area of 12.4 lakh hectares.
• Nearly three million hectares of river-estuaries.
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• Around 39 lakh hectare areas connected with the estuaries of rivers, of which
only 15% is being used.

Blue Revolution

• Commenced in the Seventh Five-Year Plan (1985–90).

• The father of revolution - Hiralal Chaudhary.
• Objective -
▪ Economic prosperity of fishermen and fish farmers
▪ Holistic development of water resources capabilities for fisheries and
aquatic life farming in a sustainable manner.
▪ Maximum investment.
▪ Better training.
▪ Infrastructure Development; Construction of ports, modernization of
boats, etc.
▪ To ensure nutritional security of people through fisheries.

National Fisheries Development Board

• Established in 2006 as an autonomous organization.

• Ex-officio Chairman - Union Minister for Fisheries, Animal Husbandry &
Dairying.
• Objective - Contribute to sustainable increase in fish production and
productivity in the country. This includes:
▪ fish production
▪ Storage
▪ Processing
▪ Transportation
▪ Marketing &
▪ Management of water resources etc.

Challenges -

• Annual production per fisherman is only two tonnes (Norway-172 tonnes,

China-6 tonnes)
• Lack of necessary infrastructure –
▪ Road
▪ Electricity
▪ Cold chain storage etc.
• Not getting the right price due to marketing disorder (domination of
intermediaries)
• Uneducated and untrained class.
• Lack of food processing industries, and
• Unorganized sector.
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Efforts -

• Cage Aquaculture:
▪ It is an emerging, innovative and practical technique.
▪ Under this, fishes are raised in suitable cages built in marine estuaries,
creeks, small reservoirs and saline reservoirs.
• Fisheries in Integrated Agriculture -
▪ Residue of farming and animal husbandry can be beneficial in fish
farming.
▪ More earning in less work, less cost.
▪ Model –
➢ Paddy-Fisheries, Horticulture–Fisheries
➢ Poultry-fisheries, duck-fisheries,
➢ Pig-fisheries, cattle rearing-fisheries,
➢ Rabbit-fisheries etc.
Note- This model is prevalent in East and South Asian countries.

• Use of space science and ICT

▪ Beginning of m@krishi portal. With its help, fishermen were able to catch
30 to 40 percent more fish.
▪ It helps to know the exact location of the fish.
▪ Data received from satellites; getting information on the prediction of the
herd of fish, surface temperature, and the presence of marine plant
planktons (which form the diet of the fish).

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Horticulture
Sectors - Fruits, flowers, vegetables, mushrooms, spices, medicinal and aromatic
vegetation and ornamental plants etc.

Some facts:

• Contribution of horticulture in agricultural GDP is 30.5%

• India's second place in fruits and vegetables in the world.
• First in the world in the production of grapes, bananas, papaya, mangoes,
pomegranates, peas, cashews, spices and coconut.
• Gradual increase in importance of horticulture from the point of view of
nutrition because of decline in quality of grains up to 30%.
• Lower production costs, but higher profit.
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National Horticulture Mission:

• Implemented by Government of India during the Tenth Five Year Plan in the
year 2005-06.
• The contribution of the Center is 85% and of the states is 15% but in North-
eastern and Himalayan states, contribution of center is 100%.
• Objective and function:
▪ Construction of new fruit orchards
▪ Production of planting material
▪ Seed
▪ Infrastructure development
▪ Restoration of old gardens
▪ Construction of green-house /shed-net /hi-tech nursery.
▪ Development of water resources
▪ Pest and Disease Management
▪ Gardening training program etc.

National Horticulture Board

• An autonomous body registered under the Societies Registration Act, 1860.

• Established in 1984.
• To publish, survey and manage all the works related to development of high-
tech commercial horticulture.

Mission for Integrated Development of Horticulture (MIDH)

• Implemented from 2014-15
• Centrally Sponsored Mission
• For the holistic development of horticulture:
▪ Fruits, vegetables, tubers, mushrooms, spices, flowers, aromatic plants,
coconut, cashew, cocoa, bamboo etc.
• 85% center + 15% state
• The contribution of the Center to the North-Eastern states + Himalayan states –
100%
• Integration of the following six schemes:
1. National Horticulture Mission
2. Horticulture Mission for North-East & Himalayan States.
3. National Bamboo Mission.
4. National Horticulture Board.
5. Coconut Development Board, and
6. Central Institute of Horticulture, Nagaland
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• Active on all four levels:

▪ Pre-production
▪ Production
▪ Post-harvest management
▪ Processing and Marketing

Challenges -

• Loss of production.
• Unavailability of marketing.
• Export related problems.
• Lack of value addition and processing.
• Lack of modern scientific technology.
• Lack of publicity.
• Conservation problems, etc.

Bamboo Production
Some facts:

• Tree providing ecological, economic and livelihood security.

• Environmental conservation + raw material for domestic industries + domestic
use.
• Bamboo in 13% parts of forest area.
• 2/3rd of the total bamboo production in North-Eastern India.
• Bamboo shortage to about 20 lakh artisans.

National Bamboo Mission:

• Implemented in 2006-07 as a sub-mission under the National Horticulture

Mission.
• 100% centrally sponsored mission.
• Objective:
▪ To increase production by expanding the area of plantation of suitable
species of trees,
▪ Market arrangement for bamboo and bamboo made handicrafts.
▪ Discovery, upgradation and dissemination of technology.
▪ Creation of employment, especially for unemployed youth.

Restructured National Bamboo Mission:

• Launched in 2018-19
• In the budget speech, the Finance Minister called it 'green gold'.
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• Objective:
▪ To develop a complete value addition chain and
▪ Holistic development of bamboo sector, by creating an effective
relationship between producers (farmers) and industries.
▪ Providing quality plants.
▪ Establishment of nurseries.
▪ To arrange for marketing. And
▪ Training, capacity building and awareness.

Food Processing Industry

Meaning:

• Converting raw material into food or food into other usable items is called food
processing.

▪ Wheat into flour.

▪ Flour into Bread.
▪ Bread into Pav bread.
• It turns agricultural and animal products into:
▪ Attractive
▪ Marketable, and
▪ Of long-shelf life.

Main Food Processing Industries:

• Grain mills (paddy mills etc.)
• Sugar mills
• Beverages related
• Processing of fruits and vegetables
• Meat and Poultry
• Milk - Products
• Chocolate/ Sweets
• Cocoa Products
• Soya products
• Mineral water, and
• High protein foods etc.

Scenario:
• Only 6-7% food is processed in India, while it is 20% in China and 70% in the
USA.
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• 32% of total food market

• Contribution to World Food Processed Items – 1.2%
• 13% of total exports
• Only 6% of the total industrial investment
• About 15% of the total registered industrial workers involved in it.

Scope:
• Around 45 crore acres of arable land.
• 127 Agro climatic zones.
• In India, 46 varieties of soil found out of total 60 varieties.
• World's largest country for milk production /animal husbandry.
• Second largest vegetable and fruit producer in the world after China.
• One-third of the population living in cities.
• Changes in the nature of food and drink due to Economic and cultural changes
(changes in lifestyle).
• Increase in trend of super markets.
• Changes in family structure (nuclear family)
• Rapid growth of middle class.
• Awareness for Health (Low fat, wholegrain, organic food etc.)

Benefits of FPI (Food processing Industry):

• Includes additional nutritional elements and Removal of toxins:
• Increases in farmers’ income
• Reduce wastage of products
• Value addition
• Promotion to crop diversification
• Availability of employment opportunity (many small scale industries labor
based)
• Increase in export earnings
• Increase in longevity and availability of food products
• Multiple options and convenient for export
• Available all the time.

Regions of Food Processing Industries:

• Mostly coastal states; Such as Maharashtra, Andhra Pradesh, Gujarat, Kerala,

Karnataka and West Bengal.
• Non-Coastal States such as Uttar Pradesh and Punjab.
Reasons –
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• Maritime transport for export and

• Short distance from the exporting countries
• 70% export of processed food items is to developing countries of Asia, Africa
and South America continent.
• More demand for food grains, fruits and vegetables abroad.

Challenges:

1. Inadequate Infrastructure Facilities:

• Long and fragmented supply chain
• Inadequate cold storage and warehouse facilities
• Lack of transport - Roads, railways, airplanes and ports
• Lack of modern logistics infrastructure:
▪ Food park
▪ Integrated cold chain
▪ Lack of Last mile connectivity
▪ Reliance on roads rather than rail
▪ Reluctance to accept new technology
2. Lack of technology and applied research:
• Gap between industry and research + academic institutions.
• Lack of commercial inclination in research.
• No cooperation and connect with foreign research institutes.
• Dependency on imports.
3. Lack of skilled manpower
4. Mismanaged marketing system:
• APMC (Buying-Selling Limit)
• Gap between producers and consumers
• Lack of marketing system
5. Lack of holistic approach:
• No law for contracts and corporate farming, etc.

Government’s efforts:

• Agricultural and Processed Food Products Export Development Authority –

APEDA:
▪ Formed under an Act passed by the Parliament in 1985.
▪ Objective: for the development and promotion of industries related to
the export of scheduled products:
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➢ Providing financial assistance,

➢ survey,
➢ investment, and
➢ Other support.
➢ Setting standards and instructions.

• Ministry of Food Processing Industries

▪ The Ministry of Food Processing Industries was formed in 1988.
▪ Objective:

➢ Value addition of agricultural products.

➢ To prevent wastage at all levels.
➢ To eliminate the barriers between farmers and consumers.

• Mega Food Park:

▪ Launched in 2002.
▪ Objective:

➢ Connecting agricultural products with the market by bringing

together farmers, industrialists, retailers and exporters.
➢ To provide fair prices to farmers
➢ Reducing destruction of agricultural products
➢ Increasing the capacity of producers and industry owners,
➢ To create an efficient supply chain from farm to market

• National Mission on Food Processing-NMFP:

▪ A centrally sponsored comprehensive scheme.
▪ Launched in 2012.
▪ Key Features (Functions):
➢ Modernization of food processing industries.
➢ Establishment of Mega Food Parks.
➢ Integrating cold chain and Preservation system
➢ Modernization of abattoirs

▪ Objective:

➢ To increase the activity of State Governments and other related

stakeholders.
➢ Focusing on food processing to increase farm productivity and
farmer's income,
➢ Removing institutional, infrastructural and value chain
deficiencies, and
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➢ To encourage skill development, training and entrepreneurship in

the form of post-harvest management.
Note: The arrangement of funds for this:
➢ 75% Center + 25% State
➢ For North-Eastern States - Center 90% + State 10%
➢ For Union Territories - 100% by Center
Some other policies:
• Approval of 100% FDI under automatic route for FPI.
• 100% FDI under government approved route for manufactured food
products or goods manufactured in India for trading and e-commerce.
• Establishment of ‘Food Processing Fund’ under the leadership of NABARD
for setting up industries in designated food parks. Corpus of Rs.2000 crore
in 2015. Providing loan at a lower rate.
• To avail loans for making cold chains for food and food based processing
units, and agricultural activities, RBI has categorized them into Priority
Sector Lending. This will facilitate the entrepreneurs to take loans to set up
industries.
• Work like pickle making, which was earlier reserved for small scale
industries, has been unreserved in 2015.
• It is given priority sector status by the government.

Supply Chain Management

Meaning of supply chain:

1. A supply chain is a system of organization, people, activities, information and

resources involved in moving a product or service from supplier to customers.
2. Supply chain activities transform natural resources, raw materials and
components into a finished product that is delivered to the end customers.
3. All activities (links) from getting the raw material to reach to the consumer are
covered under it. That is –
• Logistic Management
• Manufacturing process
• Channel partner
• Suppliers, Intermediaries, other service providers
• Sale
• Customers etc.
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Chain - Supplier Manufacturers Wholesaler Retailer

Customers

Significance of Supply-Chain: For the success of the company and customer

satisfaction:

• Increase in consumer services:

▪ the right product
▪ At place of need
▪ At right time

• At the right price:

▪ Reduction in cost of production.
▪ Reduction in cost of whole supply chain.

• Improvement in financial condition:

▪ More probability of profit for the company.
▪ Makes the company competitive.

• Social benefit:
▪ Essential for survival in times of emergency.
▪ Making the life simple.
▪ Protection of health - in the context of medicines, foods, etc.
▪ Foundations of economic growth.
▪ Improvement of standard of living.
▪ Availability of employment opportunities.

Upstream and Downstream Requirements

Meaning:

• It is related to the production process.

• Initially, these words were used only in the oil, gas and metal industries. Now
these are being used for all industries.
• It is also a terminology associated with the supply chain.

Upstream:

• This is the first and initial phase of industrial production.

• It begins with the discovery and extraction of raw materials.
• Other activities under this are:
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▪ Storage facility
▪ Good transport facility
▪ Adequate necessary workforce, and
▪ Good testing technique etc.
• Importantly, this phase does not involve any work related to processing of raw
materials.
Downstream:
• In this phase, the entire activities of processing the collected material and
converting it into material for consumption are involved.
• A whole chain of taking the product to consumers also comes under it; such as
wholesalers, retailers, customers etc.

--------

Integration in Supply Chain

Meaning: Merger of upstream and downstream phases (all work done by the same
company/ person).

For example - Companies that make potato chips started cultivating potatoes
themselves.

Backward integration:

• Backward integration is when a company expands its role to fulfill tasks

formerly completed by businesses up the supply chain. Backward integration
often involves buying or merging with another company that supplies its
products.

Forward Integration:

• Conversely, if a potato growing farmer sets up a small scale industry to make

potato chips, it is called forward integration.
• (Chocolate - in Kerala)

Vertical integration:

• Backward + Forward integration = Vertical integration

• It has become a common thing in today's business, because in it –
▪ Various expenses related to the supply chain can be reduced.
▪ The industry can be made competitive by reducing production costs.
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• The consumer gets the item at a lower price.

• Example – Reliance Company
▪ Oil exploration + Refining + Retails outlet + Polyester manufacturing
▪ Due to this the company has a monopoly in this field.

Horizontal integration:

• When Reliance buys another company like its own, such as Hindustan
Petroleum.
Or
• Tata Power Company buys Reliance Power of its own field.

Micro, Small and Medium Enterprises

Definition- New definition of MSMEs

• Micro Enterprises
▪ Investment up to Rs. 1 Crore
▪ Annual Turnover up to Rs. 5 Crores
• Small Enterprise
▪ Investment up to Rs. 10 Crore
▪ Annual Turnover up to Rs. 50 Crore
• Medium Enterprise
▪ Investment up to Rs. 50 Crore
▪ Annual Turnover up to Rs. 250 Crore

Note:

• According to MSME Act, 2006, they were classified on the basis of investment
in plant and machinery. The turnover was added to this in 2020.
• There were different standards for manufacturing and service sector in act of
2006. In 2020 the same standards were adopted for both of them.

Some very important facts:

• There are about 6.33 crore such industries.

• About 45% of total registered industries are in villages.
• Contribution to GDP is 30%.
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• Contribution to manufacturing sector – 45%

• Contribution to exports – 45%
• Employs about 11.10 crore people. 69% of total employment
• Production of about 6000 items; Match boxes, tiles, straw boards, bakeries,
chocolate, furniture, biogas products, solar panels, plastic items, etc.

Importance:

• The most important sector after agriculture providing employment.

• To provide employment in rural areas.
• Employment for women, SC/STs and unskilled people – helpful in inclusive
development.
• Preventing rural migration.
• Working as a Nursery for Entrepreneurship and Innovation.
• Significant contribution to the balanced industrial development of the country.
• To serve as a center of social coordination.

Government schemes for promotion

• 50% subsidy in patent registration

• 1% interest discount on overdraft
• Eligibility for Industrial Promotion Subsidy.
• Mandatory government procurement up to a few percent from enterprises in
this sector.
• Discount in electricity rate.
• Mudra Bank Scheme, etc.

Problem

• Not registered.
• Unorganized sector
• Unskilled labor.
• Marketing.
• Lack of capital.
• Lack of technical skills.
• Old management, etc.

Cottage Industry
Definition recognized by the Second Planning Commission -
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"Cottage industries are those industries which are operated by members of the same
family in whole or in part at home and not in a factory."

- By the Economic Commission for Asia and the Far East

Two class

• Rural cottage industries

• Urban cottage industries

Industry:

• Poultry, making scented sticks, soap, papad, furniture, tiffin service, spices,
pottery, candles, pickles, bakery etc.

Small and cottage industries

1. Most of the cottage industries in the villages, small scale industries in the cities.
2. Cottage industry by members of the family, small scale industries by waged
laborers.
3. Cottage industry is expansive for fulfilment of local needs.
4. Cottage industries require very less capital and equipment, small scale
industries require comparatively more capital and machinery.
5. Cottage industry located in houses. Small scale industry located in factories.
6. Cottage industry unorganized, while small scale industry relatively organized.
7. Cottage industries produce traditional goods, small scale industries produce
modern goods - bulbs, radios, fans etc.

Manufacturing Sector
Meaning:

• To convert raw materials into manufactured goods through labor, machines,

chemicals, processes and formulas.
• Generally products ranging from handicraft to high technology are used under
it, but in practice it is used for large scale production.
• Area of industry (secondary sector of economic activity)

Development:
• Priority for development of industries under the Nehru-Mahalanobis model in
the Second Five-Year Plan (1956-61). Objective-industrial self-sufficiency.
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• Technical institutes were established for this. Higher education was started.
Research institutes were established. Manual Work-force was already available.
• But did not succeed.

Importance:
• Contribution of only 16% in GDP (China 29%, South Korea-29%)
• To provide employment to 14% of the total labor.
• Rapid growth of this sector is essential for rapid economic development. Due to
this, there was growth in Southeast Asia and China, South Korea, Hong Kong
and Singapore.
• Employment opportunity for one person in this field provides opportunities for
2-3 persons in other field.
• In view of the increasing labor force, it is very important to provide employment.

Reasons for failure -

1. Problem of Land acquisition
2. Lack of infrastructure
3. Stringent labor laws
4. Absence of focus on research and development – Expenditure on Research and
development - India 0.7% of GDP, China - 2.1%, South Korea 4.2%
5. Lack of capital
6. Competition from Chinese products
7. Service sector preferred by entrepreneurs
8. Strict policies of the government.
9. Skilled labor shortage –
• India 5% laborers skilled, China and South Korea-24%: Japan-80%
• Necessity - 13 crore people.
10. Low productivity - China 1.6 times and Brazil - 2.9 times as compared to India.

National Manufacturing Policy, 2011:

• Objective
▪ Industrial development in collaboration with states
▪ To increase the contribution of this sector from 16% to 25% in GDP by
2022.
▪ To provide 10 crore new jobs in this sector.
▪ To increase the number of goods exported.

• Solution:
▪ National Investment and Manufacturing Zones (NIMZs)
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▪ Rationalizing and Simplification of business regulations.

▪ Ease of doing business.
▪ Promotion of micro, small and medium scale industries;
▪ Industrial training and skill development.
▪ Financial and Institutional mechanisms for technology development,
including green technologies and
▪ Special Focus Sectors

Reforms in labour laws

Two aspects of labor laws:

1. Laws related to industry and labor; Such as Factories Act, 1998, Industrial
Disputes Act, 1947 etc.
2. Social Security related laws; Such as Minimum Wages Act, 1948, Employees
State Insurance Act, Mines Act, 1952 etc.
Constitutional provisions:
• Article 23 - Prohibition of forced labor.
• Article 24 - Prohibition of child labor in factories etc.
• Article 43 (a) - Participation of workers in management of industries (Directive
Principles of State Policy)
• Subject of Concurrent list:
▪ About 44 Acts by the Center.
▪ About 100 Acts by States.
Legalities of labor laws:
• Only applicable to organized sector –
➢ Areas originally engaged in manufacturing activities.
➢ it is compulsory for industries with ten or more than ten workers, if
using electricity,
And
➢ industries with twenty or more than 20 workers, if not using electricity,
to register under the Factories Act, 1948;
➢ These registered industries are called the organized sector industries.
Note: - From this point of view, even big companies like WIPRO, Infosys and
TCS are called unorganized sector, because they are not related to
manufacturing but are related to service sector. Therefore, they do not have to
be registered under the Factories Act.
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Therefore, a new term has been coined to include companies with ten and more
employees in the manufacturing and services sector – i.e. Formal sector.

Why to reform the labor laws?

• Most of the laws were enacted just before or just after independence.
• Not compatible with the post-liberalization economic scenario.
• The laws are more inclined towards the workers, consequently they are 'anti-
industry, due to which there is a negative impact on:
➢ Productivity
➢ Capital investment (industrial expansion) and
➢ Employment opportunities etc.

Some amendable labor laws:

1. Industrial Disputes Act, 1947:
• The owner cannot expel any workers without the permission of the
government.
• Later it was amended to make it mandatory for companies with more
than 100 workers.
• As a result, industrialists started employing less than 100 people.
• India's organized sector industries employ an average of 75 people,
compared to 191 in China.
• Even in the amendment act of 2010, no relaxation was given in it.
2. Contract Labor Act, 1970;
• According to this, contract workers cannot be employed for any of the
core activities of any industry. This can be done for the work that is
peripheral in nature.
• Problem - If an entrepreneur wants to keep people for some time to meet
a sudden demand; For example — in fashion garments, he cannot do
this. Although he is willing to pay them more salary, and he will remove
them only on one month's notice, even then the contract workers cannot
be employed.
• However, such recruitment is also not valid under the Industrial
Disputes Act.
• As a result, the industries with volatile demand could not come to India
and most of the employment remained concentrated in small enterprises.
3. The Trade Unions Act, 1926:
• Labor organizations can be formed at firms with seven and more than
seven personnel.
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• Consequently dispute, strike, labor court, lockout (West Bengal is the

best example of this).

Some other facts:

• There are about 140 labor laws, including the Central and the states, which
cause confusion due to lack of cohesion. Therefore it is said that without
breaking the 20% of the labor laws, you cannot apply it 100%.
• These laws have put a lot of unnecessary burden of paperwork on small firms.
• Many small firms are not even aware of them.
• These laws have opened up the doors of corruption.
Note: It has been found that in countries where labor laws are flexible, the
economy is more capable, the salaries of the workers are high, and they get
employment for a long time.

Some changes in labor laws by state governments:

1. In 2014, Rajasthan amended the Industrial Disputes Act, 1947 to give
industries with less than 300 workers the right to fire without the prior
permission of the government. This was for the 100 personnel before.
2. The Government of Maharashtra has approved it through the change in the
Contract Labor Act.
3. Madhya Pradesh government has also made changes in many laws related to
this.
Conclusion- There should be a balance between labor rights and industrial
development.

Labour Code, 2020

Role -

- Difference between law and code.

- In September, 2020, the Parliament passed three labor codes.
- But the 'Code on Wages' was passed in August, 2019.
- In these four codes, 29 laws related to labor have been integrated.
- These codes will regulate wages, industrial relations, social security and
occupational safety.
- These codes will be applicable to both organized and unorganized sector.
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Labor Codes -

(1) Industrial Relations Code, 2020 (Industrial Relation Code, 2020)

- This Code has replaced the following three laws -
(i) Trade Unions Act, 1926
(ii) Industrial Employment Act, 1946
(iii) Industrial Disputes Act, 1947
- It is not necessary for companies with less than 300 employees to take
permission from the government for retrenchment. (Earlier this number
was 100).
- No worker/employee can go on strike without prior notice of 60 days.
(Earlier this period was 6 weeks).

(2) Occupational Security, Health and Working Condition Code, 2020

- Under this, 13 laws related to social security have been consolidated.
- Companies have been given the freedom to give jobs on contract basis.
- The code is applicable to the establishments with 50 or more contract
workers. Earlier, the establishments with 20 or more contract workers
were included.
- This contract can be extended any number of times.
- No one can be recruited without the appointment letter.
- Employees shall not work for more than six days in a week.
- If women are to be stopped for work after 7 pm, then this can be done
only with their permission. The responsibility of security will rest with
the company.
- The maximum working hours will be 12. Earlier it was 10.5 hours.
- Overtime pay will be doubled.
- The duration of one working day will be of 8 hours.
- Payment of salary will be digital.
- Single license will be allowed for staffing firms.
- Inter-state migrant workers will have to be given the benefit of the public
distribution system.

(3) The Code on Social Security, 2020

- It has a consolidation of 9 laws.
- Under this, arrangements have been made for maternity leave, disability
insurance, health insurance, gratuity and old age protection.
- This is also for gig employees, platform workers, contract workers, free
lancers and domestic workers.
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- Those employed on fixed term basic will get gratuity on the basis of
working days. (Earlier it was mandatory to work for 5 years for this.)
- All workers will have to undergo health check-up once a year.
- In case of accident, 50% of the fine amount received will be given to the
victim. (Earlier the entire amount went to the government's account.)
- A 'Social Security Fund' will have to be created for gratuity in the
unorganized sectors.

(4) Code on Wages, 2019

- Consolidation of four laws.
- It is mandatory to pay minimum wages to all the workers.
- The minimum wage (fixed by the states or center) shall not be less than
the floor wage fixed by the Centre.
- It is for both organized and unorganized organizations.

Criticism -

- Most of the companies out of its range. (In case of retrenchment of workers)
- Restricted the rights of workers to strike.

Service Sector

(Tertiary Sector)
Some Important Statistics

• 56% contribution to GDP.

• 20% in exports
• Approximately 66% of FDI received from it.
• 27% of the population involved in this sector.
Some Services:
• Hotel, restaurant,
• Transport, storage, communication, information technology (software)
• Education, Medicine, Consultancy
• Culture, Entertainment, Tourism
• Finance, Insurance, Banking, Real Estate, Business Services.
• Defense, Space, etc.
Role:
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• The engine of economic growth, the fastest growing sector, the basis of
economic growth in the 2008–09 recession.
• Helpful in industrialization
• Helpful in agricultural expansion
• Development of marketing
• Helpful in high-level standard of living - transport, tourism, communication,
insurance, education, health, etc.
• Supports growth in productivity - Technical education
• Helpful in International Trade - Transport, Banking, Communication.

E-Commerce (Online Services)

• Meaning - Buying and selling through internet.
• Information Technology Act, 2000 was passed for the first time for the proper
operation of e-commerce in India.
• There are about 1.40 crore retail shops in India employing 4 crore people.
• Retail business contributes 10% in GDP.
Draft e-commerce policy:
• If a company holds shares of other group companies, or the company itself is
producing an item, it will not be able to sell it on its platform.
• E-companies will not be able to give any other special benefit or profit to a big
seller.
• Now companies will not be able to offer services like Cashback, Exclusive Sale,
Amazon Prime and Flipkart Plus.
• Under this new policy, the maximum number of goods any company can sell on
its portal has also been fixed.
Benefits/ Effects (Positive):
• The facility to buy any item from anywhere across the region.
• Availability of goods at lower prices.
• Access to the goods sitting at home.
• Availability of variety of goods - (in terms of quality and price)
• Generation of employment - delivery of goods, software app, digital
management/warehouse management etc.
Drawbacks:
• Great loss to the retail traders.
• Lack of contact between the shopkeeper and the customer.
• Flood of fake companies.
• Downfall in unskilled work (unemployment)
• Intense competition among companies.
• Promoting unnecessary consumerism.
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• No knowledge of the true quality of the item. (Problems in returning the items)
• Lack of protection of private data.
Consumer Protection Act 2019
Role -

- The first Consumer Protection Act in 1986.

- Current law signed by the President on 9 August 2019.
- Applicable on 20 July 2020.

Why this law?

- First law 33 years old.

- Major changes in the consumer market due to digital technology (e-commerce,
smart phones etc.).
- Online shopping, teleshopping, return of products, unsecured contracts and
misleading advertisements not covered by prior law.
- Increasing number of cases pending in consumer courts.
- Empowering the consumers by making the process simple and practical, etc.

Main provisions of the law -

- The definition of 'consumer' includes both online and offline consumers -

- Those who buy goods, and
- Those who receive the services.
- Constitution of Central Consumer Protection Authority (CCPA) - Main
functions -
- Action on unfair trade practices.
- Can order the product to be withdrawn and the services to be
discontinued.
- Can pass punitive orders like imposition of fine.
- Consumer can file suit before it.
- Can send complaints to other regulators.
- It can investigate cases.
- Three tier commission -
(i) District Consumer Commission –
- Hearing of cases with compensation up to one crore rupees.
- Cases will have to be disposed of within three months.
(ii) State Consumer Commission –
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- Hearing of cases ranging from one crore to ten crore rupees.

(iii) National Consumer Commission –
- Hearing of cases of more than ten crore rupees.
- Now any consumer will be able to register cases related to any other state and
other city from his/her city itself.
- The process of registering complaints and filing them online has been
simplified.
- Advertising companies are also now under its purview.
- The e-platform will have to listen to complaints within 48 hours and redress the
same within a month. For this they have to appoint a Grievance Officer.
- The consumer can also attend the hearing through video conferencing.
- Mediation has been provided for alternative dispute settlement.
- No appeal can be made against this settlement anywhere.
- For this, mediation centers will be set up in district, state and national
commissions.
- In this law, there is a provision of punishment for the manufacture and sale of
adulterated and counterfeit goods by a competent court.
- There is a provision for compensation in the Act.

Inclusive Growth
Meaning - Inclusion of marginalized people into the mainstream of society and
development.

Marginalized class:

• Rural Population
• Women;
• Scheduled Castes/Tribes/Backward Class persons
• Minorities
• Divyang, and
• Transgender etc.
Development of Concept:
• Article 38 of the Directive Principle of State Policy - State must secure social
order for the promotion of welfare of its people.
• Article 38 (2) - State will strive to minimize inequalities in income, status and
opportunities.
• The concept of inclusive development first came out in the 1999 report of Asian
Development Bank. Its main emphasis was on productive employment.
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• For the first time, India accepted inclusive development in the 11th Five Year
Plan (2007-2012) in these words -
"A growth process which yield broad-based benefits and ensure equality of
opportunity for all."

That is, "Equitable development".

or

Growth with social justice

Three possible dimensions of inclusive growth:

1. Social inclusion
In its absence, problems like communalism, Naxalism, and casteism arise.
2. Economic Inclusion
In the absence of this, economic dissatisfaction, displacement of population and
many other economic crimes may arise.
3. Regional Inclusion
In its absence, emotions like regionalism and separatism arise.
Note - The most prominent of these is "economic inclusion".
Financial inclusion:
• In 2008, C. Rangarajan Committee in its report talked about inclusive growth
through financial inclusion.
• This means, for individuals –
▪ Banking
▪ Loans, and
▪ Availability of insurance facilities, and
▪ Availability of these facilities at their doorstep and
▪ Availability at very low rates.
Note- In France, every citizen has the fundamental right of bank account. There
is a financial inclusion of 90% of people in the United States.

Financial inclusion efforts: JAM

• J - Jan Dhan Yojana

• A - Aadhaar Card
• M - Mobile Technology

Meaning of Economic Inclusion:

• Increasing capacity of people to enable them to have sustainable livelihood.
 183

Note- This is different from 'poverty alleviation programs'. In such schemes, people
remain the “Passive recipients”, whereas inclusion is concerned with activism,
enabling and empowering them.

Key features of inclusion:

1. Opportunity - To provide more opportunities for increase in income of the

people.
2. Capability - Development of skills and providing resources to make them use
available opportunities.
3. Accessibility - Ensuring people's access to opportunities and capabilities.
4. Security - protection against permanent or temporary abolition of means of
livelihood.
5. Sustainable growth
6. Emphasis on Productive Employment
7. Pro-poor

Four pre-conditions for inclusive growth: (By former Prime Minister Manmohan
Singh)
1. Policy environment
• The government should provide favorable environment for farmers and
entrepreneurs.

• It includes:

▪ Macro-economic stability;
▪ Efficient functioning Markets;
▪ Sound financial system;
▪ Good governance with transparency;
▪ Effective enforcement of the rule of Law;

2. Infrastructure Development
• Rural and Urban; Both regions, which support inclusive growth.

3. Livelihood related social programs

• Schemes targeted to poor and weaker sections, which will increase their
earning capacity and enable them to enter the mainstream of
development.

4. Access to essential public services

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• Essential Services; Such as health, education, skill development,

drinking water and sanitation etc.

Main concerns of inclusive growth:

1. Poverty
• Around 20% population is below poverty line.
• Without education and skill, consequently less income.
2. Unemployment:
• Due to heavy dependence on illiteracy and agriculture, not suitable for
adequate qualitative employment.
• 90% workforce is in unorganized sector. (Low wages and lack of social
security)
3. Agriculture:
• 56% of the population dependent on agriculture contributed only 16% to
GDP.
• Very low productivity of agricultural sector.
• Low wages of agricultural laborers.
• Negligence of the sector since liberalization.
4. Social development:
• Very little funds spent on health, education etc.
• The quality of both these areas is very low.
• gender bias
• Caste based discrimination
• Malnutrition in children and women.
5. Regional disparity:
• Inequality in per capita income of states due to imbalance in
development of industry and agriculture.
Key barriers to inclusive growth
• Corruption
• Nexus between politicians, bureaucrats and criminals.
• Lack of funds
• Lack of good governance
• Developmental activities to be concentrated in the periphery of cities.
• Weak state of law and order.
------------------------------------------------------------------------------------------------
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Poverty in India
Meaning - Lack of essential goods for a qualitative life.

Three types of concepts:

1. Relative poverty:
• Property of a class, group or individual in comparison to the property of
another class, group or person.
• In fact, it is mainly related with economic inequality.
2. Absolute poverty:
• Lack of minimum essentials for living, such as food, clothing, housing,
health, education etc.
3. Ultra poverty:
• Living at less than US $1.25 per day.
Poverty Line:
• Based on the expenditure required to maintain working capacity.
• Since the ability to work is based on getting food, therefore, keeping nutrition in
mind, it was linked to calories.
• For rural areas - 2400 calories, and 2100 calories for urban areas.
• Income was then determined by measuring the value of this calorie with the
price of items.
Three important determinations:
1. By Planning Commission:
• Rs.229 per month for rural areas,
• Rs.264 per month for urban areas
• Note - at prevailing rates of 1993-94.
• Later it was increased in 2004-2005 –
▪ Rural areas – Rs.356 per month
▪ Urban areas – Rs.538 per month.

2. Tendulkar Committee - (2011-12)

• The committee determined by including calories as well as education and
health related expenditure -
▪ Rural area – Rs.27 per day
▪ Urban area – Rs.33 per day.

3. Rangarajan Committee (2014):

• Rural areas - less than Rs.32 per day
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• Urban areas - less than Rs.47 per day

Note - Based on this formula, 29.5% of the country's population was living
below the poverty line. Whereas based on the formula of Tendulkar
committee it was 21.9%.
Reasons of poverty

Three most important reasons:

1. Underdevelopment of economy:
• Extremely low per capita income – 1/70 compared to USA, 1/50
compared to UK, 1/4.66 compared to China.
• Slow growth of agriculture and industry
• Lack of basic facilities, etc.
2. Economic inequality:
• In 1960, 35% wealth of the country was held by 1% population.
• According to Oxfam India report 2018, 73% of the total wealth is held by
10% people.
• The benefit of liberalization is not for the poor.
3. Fast growing population:
• 36 crores in 1951 to 121 crores in 2011.
• The rate of increase is higher in the poor and rural areas.
Other:

4. Unemployment:
• Poverty and unemployment is having a parallel relationship.
5. Inflation:
• Maximum impact on the poor
6. Social reasons:
• Joint family practice
• Trust on fate
• Non-materialistic view
Poverty alleviation measures:
• Acceleration in growth rate:
▪ China, Thailand, Indonesia etc.
▪ 9-10% every year
• Greater emphasis on rural development
▪ Emphasis on agriculture, dairy, animal husbandry, etc.
• Development of micro and small scale industries
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• Direct attack on poverty

▪ Direct assistance to the poor.
▪ Construction of income generating assets for the poor.
• Reducing income inequality
• Population control.
------------------------------------------------------------------------------------------

Multidimensional Poverty Index

Key Facts -

- The first global MPI was released in 2010. It is prepared by two agencies together -

1. Oxford Poverty and Human Development Initiative (OPHI), and

2. United Nations Development Program (UNDP)

Under this, not just 'wealth' is used as the basis of estimating poverty, but also other things
related to the need of life have also been included in the criteria.

For this, 12 indicators of 3 important areas have been used.

These three basic areas are-

1. Education,
2. Health, and
3. Life status.

There are 10 indicators such as nutrition, schooling, drinking water, sanitation, housing etc.

The national MPI of India is an extension of this global MPI. India has given this responsibility to
NITI Aayog.

The National Family Health Survey-4 of the year 2015-16 has been made the basis for preparing
the index.
 188

NITI Aayog released the first National MPI in November, 2021. This index displaces the former
poverty line.

Whereas the earlier poverty line was based on per capita income, the MPI is based on per
capita expenditure.

This MPI provides a guideline for formulating government programs by presenting a holistic
view of the country's poverty. From this, the performances of the states towards achieving the
Sustainable Development Goal is also evaluated.

Unemployment in India
Meaning: Unemployment is a situation in which:

• A qualified and willing person

• fails to get work,
• so that he can earn income for his livelihood.

Types of unemployment

• Cyclical Unemployment:
▪ In America and Western European countries.
▪ It is related to the ups and downs in the industry, trade and economy.
Employment during ups and unemployment during the situation of
downs.
• Structural unemployment:
▪ Severe form of unemployment.
▪ Unemployment created by permanent changes in the nature of demand.
For example, all the workers associated with coal industry get
unemployed when the production of electricity by coal is stopped.
▪ Also due to the changes in technology.
• Frictional Unemployment:
▪ Unemployment arising due to technology.
▪ Unemployment arising from transfer of industry from one place to
another.
 189

▪ Unemployment during the gap between employment in another industry

due to closure of one industry.
• Seasonal unemployment:
▪ The time between sowing and harvest in agriculture sector and during
non-cropping period.
▪ In industries based on weather; Such as ice factory, sugar mill, tourism
industry etc.
• Disguised unemployment (Hidden unemployment):
▪ Mostly in densely populated underdeveloped countries.
▪ Especially in the agricultural sector.
▪ More than necessary people are engaged on the farm, absence of some of
whom will not affect production. This unemployment is called disguised
unemployment.
• Under-employment:
▪ The case of non-utilization of capacity.
▪ Part-time employment.
▪ Reduction of income due to lower capacity work.
Employment:
Meaning: An activity, which provides a means of livelihood to the individual. But it
has two conditions:

• its legalization, and

• To be socially accepted.
Main areas of unemployment in India:
1. Rural Unemployment
2. Urban unemployment;
3. Unemployment among youths;
1. Rural unemployment (mainly in the agricultural sector):
i. Open and chronic unemployment:
• Presence of large number of agricultural laborers.
• Small farmers have less production.
• Excessive population pressure on agriculture.
ii. Seasonal unemployment:
• Unemployment between sowing and harvesting.
• The status of seasonal industries; Sugar mill, rice mill, etc.
iii. Disguised Unemployment:
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• Both in terms of number and quality.

• Hidden unemployment, or
• Living in the illusion that we have employment.
2. Urban unemployment:
i. Unemployment among industrial workers:
• Slow industrial development
• Displacement from village to cities.
ii. Unemployment among urban educated people:
• Increase in the number of educated due to the development of
education.
iii. Technology driven unemployment:
• Unemployment arising due to non-adaptation of new technology.
3. Unemployment among youth:
• Age group of 15 to 29 years
• In both urban and rural areas.
Negative effects of unemployment:
• Loss of valuable human resources.
• Increase in poverty
• Demoralizing;
• Rise in social problems.
• Reason for political instability.
• Increasing exploitation of workers.
Reasons of Unemployment:
• Slow Economic Growth - Agriculture and Industry
• Rapid growth of population growth
• Faulty education system
• Ignoring rural industries.
Solution:
Since there are many types of unemployment in India, different measures have to be
taken to eliminate it.
• Demand should be created in the market by increasing social and
developmental expenditure for rapid economic growth.
• Provide supplementary employment in villages; Animal husbandry, fisheries,
poultry etc. Also the establishment of village based industries.
• Education should be linked to professional competence.
• Population control.
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Black Money
Meaning:

• Money hidden from the government, (Unaccounted Money)

• Money, for which tax is not paid.
• Money earned illegally.
Types of illegally earned money:
• Currency
• Immovable property - land, house etc.
• Gold - Silver
• Money deposited in foreign banks.
Reasons and sources of black money:
• Higher tax rates
• Government corruption - bribery
• Flexible and complex laws
• Lack of harsh punishment
• Crony Capitalism
• NGO and Charitable Trust
.Effects of Black Money:
• Increased inflation
• Ineffective Economic Policies
• Hike in crimes (smuggling, arms and drug trade etc.)
• Luxurious life
• Loss to treasury etc.
Prevention Measures:
• Demonetization
• Digitalization
• Making financial accountants more accountable.
• Control over the rights of bureaucrats.
• Voluntary Asset declaration schemes.
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Self-Reliant India (Atma Nirbhar Bharat)

- Launched - by the Prime Minister on 12th May 2020.

- Basic Objective - To make India a large and important part of the world
economy.
- Five main pillars -
(i) Economy
- High Jump.
(ii) Infrastructure
- To make it the hallmark of modern India.
(iii) Technology driven System
- Technicalization of the entire system.
- Industry and
- Transactions (digitization).
(iv) Vibrant Demography
- Maximize the use of the Indian source of energy.
(v) Demand
- Supply in the domestic market.
- Measures -
(i) Less dependence on imports.
(ii) Production of essential commodities.
(iii) Increase in exports.
(iv) Eliminate import of goods produced by small scale industries.
(v) Use of goods manufactured by Self Help Groups.
(vi) To make the village, town, city, district, state and nation self-reliant.
(vii) Improve the supply chain.
- Two important slogans -
(1) Vocal for local
- To make products -
- Qualitative.
- Competitive.
- Global brand.
- Appreciation and use of local products.
(2) Made for World
- Export to the world.
- Steps taken -
- Special incentives to micro, small and medium industries.
- Expansion of PPP model to various sectors -
- Even in the field of satellites.
 193

- Import of 101 items banned by the Ministry of Defense in August 2020.

- Export of Akash missile allowed in December 2020.
- Special assistance to the solar energy sector.
- Indigenous development of 5G network, etc.

---

Special Economic Zone

Characteristics:

• A special area determined within the border of the country.

• The rules related to trade and commerce of this region differ from the rest parts.

Objective:
• To intensify economic activities in the country,
• Increase the trade balance,
• To provide employment,
• Attracting domestic and foreign investment (FDI);
• Production of quality goods.
• Make products competitive in the world market by reducing production costs.
• Expansion of Infrastructure.

Some facts
• India started the Export Processing Zone (EPZ) at Kandla port in Gujarat in
1965. Its purpose was to promote exports. But this experiment was
unsuccessful.
• In 2000, the Ministry of Commerce and Industry announced the Special
Economic Zone Policy. It had two main objectives -
▪ Increasing exports, and
▪ Attracting Foreign Investment.
• India adopted this model from China.
• In 2005, it was strengthened by bringing the SEZ Act and the states were asked
to implement it.
• It was also expected that the investors of the country would also be attracted to
this.

Classification:
 194

Four parts, which are entirely based on the size of the land -

1. Multi-sector – 1000 + Hectare

2. Sector-specific – 100 + Hectare
3. Free Trade and Warehousing Zone - 40+ Hectare
4. Tech, handicraft, non-conventional energy, gems and Jewellers- 10 + Hectare

Other forms of SEZ:

• Free Trade Zone (FTZ)
• Export Processing Zone (EPZ)
• Free Economic Zone (FEZ)
• Industrial Park (IP)
• Industrial estates (IE)
• Free Ports (FP)
• Bonded logistic Parks (BPL)
• Urban enterprise Zone (UEZ)
Incentives/facilities from the government:
• 'Single window' system for setting up industry;
• No duty on imported machines and goods for setting up industry in the SEZ.
• 100% exemption on income tax for 5 years from commencement and 50%
exemption for subsequent 5 years.
• Apart from this, they were given many types of rebate in sales tax and service
tax etc.
• Therefore, the region of SEZ came to be known as Custom-Free-Zone.

Causes of failure
• No foreign investors.
• Non-use of land earmarked for SEZ.
• Non-construction of basic infrastructure. Its complete dependence on
government, which was not right.
• Its main goal was to increase the export of manufactured goods. But it
remained mainly as a center of activities of Information Technology.
• There was an adverse effect of imposition of Minimum alternate Tax (MAT) on
the SEZ in 2012.
• SEZ goods were restricted from the domestic market. When exports fell due to
the global recession in 2008, it had a negative impact on the SEZ.
Note- Around 235 SEZs were approved in India.
 195

Public Private Partnership (PPP) Model P3, 3P

• A legal commercial relationship established between the government and the
private sector. Mainly in the area of infrastructure development.
• Especially construction and operation of infrastructure in the country with the
combined use of the capabilities of both (public and private sector).
• Mainly construction and operation work is done by private sector. For this, the
government works for land acquisition and getting permission for environment,
forest, water and electricity.
• Government has the authority over the assets created.
• Sometimes the government also provides demand guarantee for some services.
• Sometimes the government also bears private sector risks, and compensates
them.
• The service fee (price) is determined with the consent of the government.
• This is for a longer period.

• Key Areas of Participation:

▪ Road
▪ Port
▪ Airport
▪ Buildings etc.
Origin:

• Beginning in 1970 in Ireland, UK.

• Extremely popular in the United States.
• India started it during 11th Five Year Plan (2007-12), especially from
Karnataka, Gujarat and Andhra Pradesh.
• The Ministry of Finance executes it through its Department of Economic Affairs;
A PPP Cell has been made for this in the department.
• At the national level, there is a Public Private Partnership Appraisal Committee,
which approves these projects.
• The government has formed the following two main institutions to support the
model -
▪ Viability Gap Funding Scheme - to provide financial assistance (grant) to
projects.
▪ India Infrastructure Finance Company Limited (IIFCL) - to provide long
term loans to infrastructure projects.

Some popular models under PPP:

1. BOT (Build Operate Transfer) –
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• The government gives the right to the private company to build, operate
and maintain any infrastructure for a fixed period. When the time is up,
that structure is given back to the government.
• Electricity, Ports and Airports
• Airports of Delhi, Bengaluru and Hyderabad.
• The work is given to the company, which bids to give maximum revenue
to the government.
• Private parties bear the risk of cost overruns due to land acquisition,
breakdown, inflation, delay and any business reasons.
• Government takes the responsibility of making available loan and
permissions only through regulation.
• As a result, this model failed.

2. BOT Annuity Model:

• This was an improvement in the BOT model.

• In addition to sharing the cost of the project, the private side had to
build, maintain and run the road, but without collecting toll from traffic.
• It was the responsibility of the government to collect the toll.
• The private party is given a fixed amount of money every year (called the
annuity-fee).
• Those taking the lowest annual annuity-fee are awarded the project.
• This model is different from the BOT model in that the private side does
not have to take commercial risks. But other risks were to them.
• Pradhan Mantri Gram Sadak Yojana is based on this model.
3. Hybrid-Annuity Model (HAM)

• Launched in 2016, especially for road construction.

• 40% of the cost of the project by the government. The remaining 60% as
an annuity-fee over the life of the project.
• The private party will construct the project and hand it over to the
government.
• Revenue will be recovered by the government.
• The responsibility of maintenance will be with the private party.
• Every year a fixed annuity-fee (usually for 15 years) will be given to the
private party.
4. Swiss Challenge Model;
• Announced in 2015 especially for the redevelopment of railway stations.
• A person from the private side submits the proposal.
• That proposal is made public.
• After this, bidders submit their respective proposals after seeing it.
 197

• A high level committee examines all those proposals and assigns work to
the best proposal.
• States of Andhra Pradesh, Karnataka, Rajasthan, Madhya Pradesh,
Bihar, Punjab etc. are using this model.

Reasons behind failure of the PPP model:

• Current agreements lay special emphasis on earning for the government rather
than providing good services. The project is handed over to the one, who
ensures the high-profit to the government. Later, this entrepreneur begins to
compromise quality due to the possibility of losses.
• Most of the risk is upon the private sector.
• The government also left the responsibility of acquiring land and taking
environmental clearance etc. on the private sector. As a result, there was a lot
of delay in starting projects.
• Lack of provision for re-negotiation of a project in case of failure of a project.
Rather, initiation of investigation of corruption etc. in its place.
• Many projects get involved in court cases.

Essential Elements for success:

• Stable macroeconomic Framework
• Sound regulatory structure
• Timely resolution of disputes
• Investor friendly policies
• Sustainable project revenue
• Transparency and consistency of policies
• Effective regulation
• Liberal Labour Law
• Good corporate governance

Industrial corridors
• Providing state-of-the-art integrated facilities necessary for industrial
development, such as-

▪ High speed transport (rail, road) network.

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▪ Ports
▪ Airports
▪ Special economic zones/Industrial areas
▪ Logistic Parks
▪ Knowledge Parks focused on feeding industrial needs
▪ Township, real estate and other infrastructure.

• It paves the way for the overall economic and social development of the country
by providing effective integration of various parts of the economic sector,
especially for industries and infrastructure.

Industrial Corridors in India - Mainly 5

1. Delhi-Mumbai Industrial Corridor – UP, Haryana, Rajasthan, MP, Gujarat,

Maharashtra.
2. Bengaluru-Mumbai Economic Corridor;
3. Chennai-Bengaluru Industrial Corridor;
4. Visakhapatnam-Chennai Industrial Corridor;
5. Amritsar-Kolkata Industrial Corridor;
• The government is developing these corridors in collaboration with the state
governments.
• For this purpose, a National Industrial Corridor Authority (NICDA) has been
established.
Benefits:
• Industrialization and planned urbanization will be promoted.
• Manufacturing sector will be at their center. With this, the goal of Make in India
will be fulfilled. 25 percent of the GDP by 2022.
• 100 smart cities are being developed near these corridors. Labor force will be
available here.
• They are also being linked to coastal economic zones;

Defense industrial corridor

• Announced in 2018.
• Construction of two defense corridors to boost domestic defense industry:
1. Tamil Nadu Defense Industrial Corridor - Chennai, Hosur, Salem,
Coimbatore and Tiruchirappalli quadrilateral.
2. Uttar Pradesh Defense Industrial Corridor - Major locations - Agra,
Aligarh, Lucknow, Kanpur, Chitrakut and Jhansi.
 199

National Investment and Manufacturing Zones (NIMZ):

• Integrated industrial townships with state-of-the-art infrastructure.
• Clean and efficient energy technology.
• Essential social infrastructure
• Skill development facilities, so that entrepreneurs can get suitable environment
for production.
Main point:
• The responsibility of providing about 5000 hectares of suitable land on the state
governments.
• Manufacturing related industries will be set up on 30% of the entire area.
• Formation of Special purpose vehicle (SPV) for settlement of matters related to
NIMZ.
• The state government will provide water, electricity and other basic facilities.
• The Central Government will bear the expenses related to its Master Plan.
• The Central Government will make arrangements to connect NIMZ with external
infrastructure facilities.
• The Central Government will provide financial assistance through the Viability
gap Funding (VGF), but not more than 20% of the total cost of the project.
Difference between NIMZ and SEZ:
• An important instrument established under the National Manufacturing Policy,
2011; Whereas SEZ is concerned with all economic development activities.
• In terms of area, infrastructure, administration and regulation etc., NIMZ is
also different from SEZ.
• There is no exemption in taxes etc. for NIMZ, which is there for SEZ.
• NIMZ area is larger than the SEZ.

Make in India Campaign, 2014

• Started from 25th September, 2014.
• Campaign to promote manufacturing so that India can become a global center
of manufacturing.
Four main pillars -
1. New Processes
2. New Technology
3. New Infrastructure
4. New Mindset
 200

• Under this, about 25 sectors have been identified to attract domestic and
foreign investors. Some of these sectors are Automotive, Aviation, Chemicals,
Biotechnology, Construction, Defense, Food Processing, Leather, Railways,
Roads, Space, Media and Entertainment etc.
• Innovation will be accelerated.
• Intellectual property rights will be protected.
• Efforts will be made for skill development.
• Infrastructure development will be given attention; especially high tech; Such as
Bullet Train, Smart City, Digital India, Industrial Corridor, and Atal Innovation
Mission, etc.
Note - The emphasis of 'Make in India' is on export growth. Whereas former Reserve
Bank Governor Raghuram Rajan said that the emphasis should be on producing for
the domestic market - Make for India.

Human Development Index

• It is used to measure the level of development of countries - whether that
country is developed, developing, or underdeveloped.
• It was first published in 1990 by the United Nations Development Program
(UNDP) under the direction of Pakistani economist Maqbool-ul-Haq.
• Under this, indicators of three areas are included -
1. Longevity - how many years can a newborn be expected to live.
Obviously, if it is less, it means that there is a lack of social security and
welfare schemes.
2. Educational attainment - 2/3rd of it includes adult education and the
remaining 1/3rd includes primary, secondary and other education.
3. Standard of living - per capita income based on real GDP.
• India ranked 132 among 191 countries in 2021.
Criticism:
• It is not comprehensive.
• There are other important aspects of human development such as -
empowerment, respect for human rights and political freedom etc., which are
not included.
Later, United Nations Sustainable Development Solutions Network started issuing
'World Happiness Report'. It is wider in aspects than HDI.
India ranks 136 out of 146 countries in 2022.
Bhutan released the Gross National Happiness Index. India ranked 117th in 2019.
 201

Doha Round Talks

• Other Names - Doha Development Agenda/Doha Development Round.
• The fourth Ministerial level Conference of World Trade Organization (WTO) in
Doha, Qatar in November 2001.
• The main objective - "To improve the international trading system by reducing
trade barriers and keeping in mind the increasing trade potential of developing
countries."
Some other points
• Total 20 subjects like agriculture, service sector, intellectual property rights and
commercial facilities.
• Paying special attention to the needs of developing countries.
• Reforms in agricultural subsidies.
• Ensuring that the new global liberal policy ensures the sustainable
development of developing countries.
• Increasing world market exports of developing countries.
Barriers in Negotiation:
• Two sides of negotiators -
1. America and developed countries.
2. All developing countries including India, China, Brazil and South Africa.
• Main points of conflict:
▪ Developed nations want developing countries to

➢ Reduce agricultural subsidies, and

➢ Open their agricultural market to developed countries.

▪ Developing countries do not agree for this.

▪ This can be possible only with the consent of all the countries.
▪ After the Doha talks, there have been several meetings on this subject
from time to time. But the solution could not be found. Developing
countries are not ready to accept the conditions of developed countries.
Why India does not agree?
1. This can end India's self-sufficiency in food grain production.
2. The cost of agricultural products produced by farmers will increase. (Due to
reduced subsidies). This will adversely affect the farmers.
3. Public Distribution System and National Food Security Act will also be affected.
 202

4. Indian farmers will not be able to compete with the prices of imported cheap
agricultural products.
5. The situation of extreme fluctuations in the prices of agricultural products will
begin - due to global prices.
6. This will have an adverse effect on the crop pattern of the country.
7. This will have serious consequences on the weaker sections.
Bharatmala Pariyojnaa

• Centrally sponsored highways project.

• Decision was taken in October 2017. Earlier in 1998, the National Highways
Development Program was started. Under this, 5846 kms connecting highways
were constructed for Delhi, Mumbai, Chennai and Kolkata under Golden
Quadrilateral and 7142 km from Srinagar to Kanyakumari and Silchar to
Porbandar was to be constructed.
• Economic corridors are being built in this project to improve the movement of
freight.
• In its first phase, about 24,800 km roads will be made.
Benefits:
• The problems of freight and passengers are eliminated.
• Through this network, about 80% of the country's inter-district freight
movement will be ensured.
• This network will connect 550 districts of the country, which have a share of
90% in the GDP.
• The speed of traffic will increase by 20 to 25%.
• On completion of this network, the cost of the entire supply chain of the
economy will be reduced by 5 to 6 percent.
• The first phase of the scheme will generate 10 crore man-days of employment.
Also, the development of the Economic Corridor network will generate about 2.2
crore permanent jobs.

Setu Bharatam Program

• Launched in 2016
• Objective – to free all the highways of the country from railway crossing, so that
 203

▪ Transport can be seamless,

▪ Tourism increase,
▪ accidents on railway crossing can be prevented.

Sagarmala Project
• Implemented in 2015-16.
• Its main objective is to promote the development of ports in the country by
using strategic institutions on 7500 km coastline and 14,500 km potential
waterways and major sea routes. This is to-
▪ Reduce the expenditure on infrastructure, and
▪ Reduction in logistics cost. It is now 19% of the GDP in India, while it is
12.5% of GDP in China.
• There are 577 projects under it. 85.7 lakh crore rupees will be spent on these.
Projects:
• Modernization of ports
• Connecting ports to various industrial centers by other routes - Coastal
Employment Zone (CEZ);
• Make ports connectivity uninterrupted.
• To promote skill development in the port sector.
Coastal Economic Zone (CEZ):

• It is a part of Sagarmala project.

• The region consists of coastal districts and districts connected by ports. It
includes their development and sustainable development of its people.
• CEZ’s will be established within periphery of the 100 Kilometers, which will
have the capacity to produce the goods to be exported. Under this, inland water
transport, cruise, ship and production of solar and wind energy, auto, telecom
and IT etc. are included.
• In each CEZ there will be many Coastal Employment Units (CEU).
Benefits:
• Reduction in transportation expenses, time savings.
• Promotion of exports.
• Creation of around 1.5 lakh employment opportunities.
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• Possibility of increase of 2% in GDP.

• Increase in maritime trade. 2/3rd of the world's oil trade is done via Indian
Ocean.
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Smart City Mission (SCM)

• Launched in June 2015.
• Ministry of Urban Development and State Governments.
• Objective - To make 100 cities of the country citizen friendly and sustainable.
Key Statistics:
• Urban population 31% (about 40 Crores)
• Contribution to GDP is 60%
• Urban population estimated by 2030 - 60 crores
• Contribution of urban population to GDP by 2030 – 75%
Smart Cities will mainly provide quality life, employment and investment
opportunities. It can be understood on the following four grounds -
1. Institutional Infrastructure - (e-governance, law and order, security, banking
and financial institutions)
2. Physical Infrastructure - (Public transport, electricity, water supply and
sewage drainage system etc.)
3. Social Infrastructure - (education, health, housing etc.)
4. Economic Infrastructure - (employment generation, livelihood etc.)
Some key elements:
• Smart Governance
• Smart Energy
• Smart Environment
• Smart Transport
• Smart Information Technology & Telecommunications
• Smart Building
• Smart Hospital, and
• Smart education system.
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Financial setup:
• Total Rs.48,000 crores for 100 cities by the Central Government. This money
will be used only for infrastructure.
• The same amount by state governments (state + local bodies)
• Remaining necessary funds from other available sources.
This scheme will be implemented by a body called Special Purpose Vehicle (SPV),
which will be in every city. It will oversee the planning, evaluation, acceptance,
funding, implementation, management, development of the smart cities etc.
The project will be completed through Joint Ventures.
Smart City & Housing:
• Upgradation of existing cities in a planned manner.
• Construction of new cities near the cities so that the growing population can be
settled.
• Upgradation of slums - "Housing for All" - 2 crore houses by 2020.
Note - Comprehensive development of cities will improve the quality of life, provide
employment, income for all; Income of people especially poor and weaker sections will
increase. Overall, this will pave the way for inclusive growth.

Atal Mission for Rejuvenation and Urban Transformation (AMRUT)

• Started in June 2015. On this day, the 'Housing for All' scheme started.
• Centrally Sponsored Scheme.
Objective:
• Tap water supply to each house and Sewerage connection
• To provide open area by developing green areas and parks etc.
• Reducing urban pollution by arranging public vehicles and bicycle lane-foot
paths.
Note- In fact, by doing this, cities and towns will be prepared for being Smart cities.
• Under this, a total of 500 cities and towns are included, on which Rs.50
thousand crore will be spent.
• PPP model will be adopted.
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• Under this, cities and towns with a population of more than one lakh are
included. But apart from this there are other grounds, such as –
▪ Popularity from tourism point of view
▪ Proximity to the main river
▪ Popular hill station
▪ Some islands, etc.
• In fact, this scheme is a new version of the Jawaharlal Nehru National Urban
Renewal Mission (JNNURM).

Atal Innovation Mission

• Launched in February 2016 - One of the main schemes of NITI Aayog.
• Under this, Self Employment and Talent Utilization (SETU) Scheme is also
included. In fact, both of these are part of the Startup India Action Plan.
• The main objectives of this scheme are:
▪ Providing a platform as a world-class innovation center,
▪ To encourage start-ups and other self-employment related activities,
especially those based on technology
Two main Functions:
1. To encourage entrepreneurship through SETU. Under this, the inventors
(Innovator) are given help and guidance to become a successful entrepreneur.
2. A platform has been given to promote innovation, so that new ideas can be
generated.
Under this mission, 1500 schools have been selected for the establishment of Atal
Tinkering Labs across the country. Each school has been provided assistance of Rs.10
lakh, so that they can set up labs in the schools like cities. These schools will be from
class 6 to 12. Rural areas will be given importance in this.
Some Data:
• India ranks 46th in the Global Innovation Index, while China is 12th.
• 21% international patents are filed from China, while only 1% from India.
• China spends 2% of its GDP on the innovation, while India only 0.7%.
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Self Employment and Talent Utilization Scheme (SETU)

• Implemented in 2015 under the leadership of NITI Aayog
• Objective:
▪ To provide financial and technical assistance to small businessmen, self-
employed people and New Startups.
▪ Low expenditure, balance between work and life and being able to work
at home are its features.
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National Skill Development Mission

Pradhan Mantri Kaushal Vikas Yojna (PMKVY)
• Commencement - 2015, one of the flagship schemes.
• Ministry - Ministry of Skill Development and Entrepreneurship.
• Objective –
▪ To make young people capable of earning good livelihood by giving them
training related to industries.
▪ Less educated or 10th-12th class dropout. College students also eligible.
Process:
• To unite all the training institutions in the country.
• To prepare them to train according to demand by creating common standards
for them.
Special facts:
• No fees for training. Rather, the government gives some amount on its own.
• Certificate is given on completion of the course, which is valid throughout the
country.
• The government also helps such trained people in getting jobs.
• The training work is done by National Skill Development Corporation.
Fact:
• Maximum 5% of the total labour of the country is skilled labor and it is mostly
in the organized sector.
• Consequently loss of productivity. China's productivity is 1.6 compared to 1 in
India.
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Clean India Mission

• Started from Rajghat, memorial of Gandhiji on 2nd October 2014.
• To be completed till October 2, 2019 (One hundred and fifty years of Gandhi’s
Birth).
Note - Earlier, the Total Sanitation Campaign and Nirmal Bharat Abhiyan was
launched in 2012.
Objective:
• To free the cities, towns and villages from garbage.
• Freedom from open defecation.
• Under this, construction of about 9 crore personal and public toilets in rural
areas.
• Ensuring the use of these toilets later.
• Disposal of wastes of cities.
Two Ministries:
• Ministry of Drinking Water and Sanitation for Rural Areas.
• Ministry of Housing and Urban Affairs for urban areas.
Slogan:
• From Satyagraha (word derived from the Champaran movement of 1917) to
Swachhagraha. Its volunteers were called Swachhagrahi.
Some facts:
• Work in about 4000 towns and cities.
• About 30 lakh volunteers (government and students)
• The Railways made improvements in the toilets.
• Ministry of Human Resource Development executed 'Swachh Bharat Swachh
Vidyalaya Abhiyan'.
• Film - "Toilet Ek Prem Katha"
• Advertisement - Amitabh Bachchan, Sachin Tendulkar, Virat Kohli, Anushka
Sharma, Priyanka Chopra, Salman Khan, Baba Ramdev, Vidya Balan etc.
• Competitions
Benefits:
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• Clean city
• Reduction in cases of diarrhea disease according to the World Health
Organization.
• Reduction in women related crimes in rural areas.
Conclusion:
• Extremely successful campaign (due to public support)
• 39% of villagers had toilets in 2014, which was increased to 99% in 2019.
• 90% villages are open defecation free.
Challenges:
• Maintenance of toilets.
• To sustain the behavior of the villagers.
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"Namami Gange"
• Launched in 2014
• Flagship Programme of Central Government
• In 1986, Ganga Action Plan was started.
Importance of Ganga:
• There is an economic, environmental and cultural importance of river Ganga for
India.
• From the Himalayas to the Bay of Bengal, this river flows for approximately
2500 km.
• The Ganges basin constitutes 26 percent of the total land of the country.
• Religious faith of the countrymen is attached to it.
• 43 percent of the country's population lives on its banks, which get water, fish
and irrigation facilities from it.
Reasons behind pollution
• Due to increasing urbanization, the contaminated water flows into the river -
especially in Kanpur, Varanasi and Allahabad - about 50 crore liters of polluted
water per day flows in to Ganga.
• 20 percent of the total pollution is due to the industries - 764 industries -
paper, leather, pulp industry etc.
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• Impact on the stream due to dam formation in the upper regions.

• Reduced river flow capacity due to illegal sand mining.
• Flowing dead animals, material of worship, dead bodies and agricultural waste
products into the river.
• Agricultural pesticides, chemicals and fertilizers flow into the river.
Eight main works – (Integrated Ganga Conservation Mission)
1. To develop Sewerage Treatment Infrastructure
2. River-surface cleaning (collecting solids flowing into the river)
3. Afforestation: (planting trees in the surrounding areas on the river bank, so that
soil erosion is minimized).
4. River-Front Development
5. Biodiversity
6. Public Awareness.
7. Ganga Gram (making the banks open defecation free, construction of river
banks, rural sanitation, building cremation sites, rural sanitation etc.)
8. Industrial Effluent Monitoring
This program has been implemented by National Mission for clean Ganga (NMCG) and
its associate organizations in the states.

Giving Ganga a new life by making it pollution free

• Aviral Dhara - Continuous flow
• Nirmal Dhara - Unpolluted flow

Challenges -
• River flows in eleven states, resulting in mutual disputes.
• Delay in tender, non-availability of land, legal matters and delay in approval,
etc.
• Lack of staff in NMCG.
• Absence of proper arrangement of waste management by local bodies.
• Hesitation to take strict measures against industries.
• Lack of coordination among various agencies.
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Solution:
• To pressurize the industries to establish the Sewage treatment Plant and to
keep inspecting constantly.
• To provide financial assistance for Sewerage Treatment to the local bodies
situated on the banks of the river.
• Involvement of rural communities in the program.
• Promote sustainable agriculture, so that the polluted water of the agricultural
area does not flow into the river.
• To prevent illegal land encroachment, construction etc. around the Ganga.
• Conservation of Wetlands;
• Encouraging local communities to plant local environment friendly trees. There
are 1650 gram panchayats.
• Promote tourism on river banks.
Mahatma Gandhi National Rural Employment Guarantee Act (Scheme)
• Legislation passed in 2005 and implemented in 2006
• Basic objective - Guarantee to provide employment to the people of rural
areas.

Main characteristics:
• 33% Work reserved for women.
• The government will provide 100 days of work (which was later increased to 150
days) in the year to those youths who want to do unskilled manual labor.
• On demand, it will be compulsory to give work within 15 days. In case of failure
to give work, he be paid ‘unemployment allowance’.
• Wages will have to be paid within 15 days of completion of work. If failed to do
so, compensation will have to be paid at the rate of 0.05% per day.
• Rural assets should be built through these works. Such as water harvesting,
afforestation, canals, land development, roads, buildings etc.
• Later, the works were linked to the departments of agriculture, irrigation, roads
and animal husbandry etc.
• Machines will not be used in these works.
• This is the largest scheme of its kind in the world.
• Mahatma Gandhi's name was later added to the scheme in 2008.
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• This is the central government's employment and poverty elimination flagship

programme.

Achievements:
• Increase in income of villagers, especially the very poor.
• Contribution to women empowerment.
• Reduction in migration towards the city.
• Steps towards inclusive development, social justice.
• Worked as insurance in times of famine (drought) etc.
• Increased rural purchasing power during the global recession prevented its ill
effects.
• Political benefits.
• Increase in the ability of agricultural laborers to negotiate wages.
• Established the dignity of labor.

Negative aspect:
• No proper assets are built (only 20%)
• Poor quality of built assets.
• Increase in agricultural-wage rate.
• Lack of labor (for other areas).
• Decline in work culture (laziness).
• Skill development discouraged.
• Increase in corruption - delay in payment, wrong attendance, work from
machines, low wages, high-handedness of Sarpanches etc.

Conclusion:
• It is like a kind of unemployment allowance. It should be reduced, as much as
possible. The government should try to provide employment and not to provide
unemployment allowance.

Pradhan Mantri Ujjwala Yojana (PMUY)

• Launched in 2016
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• Ministry - Ministry of Petroleum and Natural Gas

• Objective - To provide free domestic gas and electricity connection to the
families living below the poverty line.
Benefit -
• Improvement in women's health,
• Protection from environmental pollution,
• Prevention from diseases caused by the effects of smoke on food
• Positive impact on children's health.
Financial setup:
• Rs.1600/- assistance is given to the families for availing gas connection under
the Financial Assistance Scheme.
• Along with this, installments are available to give the amount required to fill the
gas cylinders for the first time and stove.

Startup India Scheme

• Launched in January 2016
• Ministry of Commerce and Industry (Department for Promotion of Industry &
Internal Trade)
• Objective
▪ Generation of employment
▪ Wealth Creation
What is a Startup Company?
• To bring an idea into the business.
• A way of doing work.
• Organizations that provide those products or services that are not currently
available.
• They are still in their early stages, which require financial support and
research.
• They are expected to grow very fast and to any extent.
Note:-
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• At present, the term has been associated with technology-oriented service

companies; For example, Flipkart, Zomato, Swiggy, PayTm, Ola Cabs, Make My
Trip, Oyo Rooms etc.
• This happened because when there was a boom among the dot com companies,
these companies were new and people started calling these companies Startup
companies. Later it became a trend.
Financial setup:
• Stage I - By Angel Investors
• Stage II - By Venture Capitalist
• Stage III- In the form of Shares or Equity
Some facts:
• This business carries more risk than traditional business.
• India ranks third in the world in Startups - after USA, UK.
• 90% of the Startups in India fail badly in very early stage.
Three main pillars of Action Plan:
1. Simplification and Handholding.

2. Funding Support and Incentives.

3. Industry-Academia Partnership and Incubation.

Government incentives:
• Self-certification facility
• Providing micro-finance facility through Mudra Bank (Pradhan Mantri Mudra
Yojana) at low interest rate.
• Creating a Startup Funding pool from ten thousand crore rupees.
• Reduction in patent registration fee.
• Liberty from unnecessary government inspection for three years after starting.
• Exemption from capital gains tax for three years;
• Exemption from various other taxes for three years.
• Establishing Innovation hub under the Atal Innovation Mission.
• Supporting scheme related to Intellectual property rules for startup firms.
• Simplification of rules to quickly shut down the startups. They can be closed in
90 days.
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Other:
• The Ministry of Human Resource Development and Department of Science and
Technology have jointly formed 75 centers for the support of the Startups
nationwide.
• The Reserve Bank of India has simplified the rules for these under the Ease of
doing business.
Challenges:
• Lack of experience. Most people are young.
• Impatient enthusiasm to move fast.
• Lack of funds.
• Excess of unnecessary expenditure.
• Lack of skilled workforce.
• Short life span of companies.
• Intense competition – Flipkart v/s Amazon.

PM Gatishakti Yojana
Introduction-
• Commencement on 13 October 2021.
• Basically, it is a coordinating platform, which includes railways,
roadways, airways, airports, waterways, freight transport and logistics
infrastructure etc.
• 16 ministries have been integrated on this platform, so that projects
related to infrastructure can be completed on time.
• It also covers infrastructure projects being undertaken by state
governments.
• The scheme will cover infrastructure schemes of Bharatmala, Sagarmala,
inland waterways, ports, UDAN etc. Under this, various economic sectors
such as textile clusters, pharmaceutical clusters, defence corridors,
electronic parks, industrial corridors, Fisheries Cluster and Agri Zones
have also been included to improve connectivity and make Indian
businesses more competitive.
Aim-
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• Problems related to construction will be solved.

• Inter-sectoral coordination between various departments will be
encouraged.
• If the construction work is completed on time, the cost will be reduced.
• The logistics cost, which is currently around 13-14% of GDP, will come
down (below 10%). This will increase exports.
• Huge employment opportunities will be created.
• The pace of economic development will be faster.
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