1
Chairperson
:
Professor Neeru
Subject Co-ordinator
:
Prof. (Mrs.) Harsh Gandhar
Course Leader
:
Prof. (Mrs.) Harsh Gandhar
M.A. Economics Semester- III
Paper-2 : Issues in Indian Economy - I
(Code : MAECO-302) Block II
CONTENTS

Introductory Letter
(i)

Syllabus
(iii)
L. No.
Title
Author
Pages
Harsh Gandhar
1
UNIT I (contd.) : Indian Economy Since 1947
1.
Growth, Structural Changes and Occupational
Distribution in India Economy
2.
State of Indian Economy in 1990-91
Harsh Gandhar
32
3.
Features of Economic Reforms in India
Harsh Gandhar
43
4.
Economic Planning in India [Post Reforms]
Harsh Gandhar
62
5.
Economic Reforms : An Appraisal
Harsh Gandhar
87
Unit II : Labour Force, Poverty and Unemployment
6.
Unemployment in India-I
Harsh Gandhar
110
7.
Unemployment in India-II
Harsh Gandhar
126
8.
Poverty in India-I
Harsh Gandhar
148
9.
Poverty in India-II
Harsh Gandhar
166
10.
Occupational Distribution in India
Harsh Gandhar
190
11.
Inter-State Disparities in the Post-Reforms Period
Harsh Gandhar
206
Harsh Gandhar
224
UNIT III : Performance of Indian Agriculture
12.
Growth of Indian Agriculture
& Regional Disparities
13.
Green Revolution in India
Harsh Gandhar
255
14.
Agricultural Policy of Post-Reforms Period
Harsh Gandhar
268
2
15.
Emerging Trends in Indian Agriculture
Harsh Gandhar
290
Harsh Gandhar
300
Harsh Gandhar
312
& Secondary Agriculture
16.
Food Security in India
UNIT IV : Performance of Indian Industry
17.
Industrial Growth in India, its Structure
and Manufacturing Sector Growth
18.
New Industrial Policy I: Liberalisation in India
Harsh Gandhar
341
19.
New Industrial Policy II: Privatisation &
Harsh Gandhar
358
Disinvestment in India
E-Mail of Department
- coordeco@pu.ac.in
Contact No. of Department
- 0172-2534326
3
INTRODUCTORY LETTER
Dear Learners,
The Paper II of M.A. Sem. III titled Issues in Indian Economy- I acquaints you with the
performance of two major sectors of the Indian economy and the policy framework governing them. It
provides an insight into the past and present functioning of the Indian economy and strengthens
analytical capability of the learners.
The syllabus (enclosed) comprises growth of economy and its other dimensions like structural
transformation, regional disparties, economic reforms, growth of Indian Agriculture and related issues
and growth pattern of industrial sector, industrial policy & impact of reforms. The paper focuses on
current issues facing Indian economy, therefore it would be better if you.
(a) brush up your knowledge about Indian economy at the undergraduate level (b) get conversant with
emerging issues on Indian economic scene, and policy changes since independence. The performance
during the nineties and post reforms era is of utmost importance.
Despite best and sincere efforts, the lesson scripts may not able to prepare you fully for the
exams due to peculiar nature of this paper. The reading of National dailies like The Economic Times,
The Financial Express/Times; magazines like Yojana, EPW; and reference books mentioned at the end
of your syllabus would be of immense help. During Scheduled Personal Contact Programme you get an
opportunity to interact with the teacher and are trained how to support your argument with figures and
data.
The important additional readings (latest issues) are :
(i)
(ii)
(iii)
Indian Economy by Dutt & Mahajan
Indian Economy by Misra & Puri
Indian Economy by Uma Kapila and her various titles.
Model questions at the end of each lesson are given for better understanding. A question paper
of previous year is enclosed here. Assignments (that fetch 20 p.c. of total marks for internal
assessment) will be of MCQ type and will be conducted online.
Hard work is key to Success.
Best wishes.
Course Leader
Note:
(i)
Please refer to Prospectus (Online) for PCP details & important information.
(ii)
Please refer to usol notice board for important announcements and assignments (based on complete
Syllabus).
(iii)
Having gone through the study material and question paper of previous years, you are welcome with genuine
queries.
(ii)
4
SYLLABUS
MA. ECONOMICS (SEMESTER-III),
PAPER - MAECO 302: ISSUES IN INDIAN ECONOMY - I
Max. Marks
Theory
Internal Assessment
MarksTime
Teaching Hours
:
:
:
:
:
100
80 Marks
20
3 Hours
50
Objective:
Objective: The objective of this paper is to acquaint the students with the performance of different
sectors of the Indian economy and the policy framework governing them. This will provide them an
insight into the past, present and future functioning of the Indian economy and strengthen their
analytical capability.
The students would be evaluated at the end of each semester through subjective type
questions/answers (both short and essay type). The script would be evaluated by the examiners having
adequate postgraduate teaching experience in the paper/option concerned
Pedagogy of the Course Work:
The course relies on a combination of lectures, solving problems, and discussing of academic articles
or real-life situations. Teacher will assign topic for assignments on contemporary themes and issues
from the syllabi. Special tutorials/contact hour for one-to-one student-teacher interactions.
Instructions for the Paper-setter and candidates:
1.
The syllabus of this paper has been divided into four units.
2.
There shall be 9 questions in all.
3.
The first question would be compulsory, shall be short answer type (word limit 25-30 each). It
would carry 15 short questions, spread over the entire syllabus. The candidate will be required
to attempt any 10 short answer type questions. Each short answer type question would carry 2
marks (10x2=20).
4.
Rest of the paper shall contain 4 units. Each Unit shall have two questions and the candidates
shall be required to attempt on question from each Unit – 4 in all. Each question shall carry 15
marks (15 x 4 = 60)
UNIT-I
Indian Economy in Pre-Reforms Era:
Economic Consequences of British Rule in India (1850-1947).
Features of Indian Economy during Pre-Reforms Era (1947-1991).
State of Indian Economy in 1990-91: Features and Appraisal of Economic Reforms Programme.
UNIT-II
Labour Force, Poverty and Unemployment in India:
Labour Force Growth and Occupational Structure since Economic Reforms.
5
(iii)
Poverty and Unemployment: Nature, Extent and Estimates and Policy Initiatives since Economic
Reforms.
Inter-state Disparities in the Pattern of Development in the Post-Reform Period.
UNIT- III
Performance of Indian Agriculture:
Agriculture: Pattern of Growth of Indian Agriculture since 1950. Economic Reforms and Agricultural
Growth in India. Regional Imbalances in Indian Agriculture.
Secondary Agriculture: Need, Potential and Role in India. Food Security – Problems and Policy Options.
UNIT- IV
Performance of Indian Industry:
Industry: Trends in Growth and Structure of Indian Industry since 1950. Industrial Policy Initiatives
during Post-Reform Period. Economic Reforms and Manufacturing Sector Growth in India.
Recommended Readings:
Essential Readings :
Books :Acharya, S. & Rakesh, M. (2011). India’s Economic Performance and Challenges: Essay’s in Honour of
Montek S Ahluwalia. New Delhi: Oxford University Press.
Ahluwalia, I. J. & Little, IMD. (2008). India’s Economic Reforms & Development (Essays in Honour of
Manmohan Singh). New Delhi : Oxford University Press.
Datt, G & Ashwani, M. (Latest Edition). Indian Economy. New Delhi: S.Chand.
Dhar, P.K. (Latest Edition) Indian Economy-Its Growing Dimensions. Kalyani Publisher.
Fernando, A.C. (2016). Indian Economy. India: Pearson.
Kapila, U. (Latest Edition) Indian Economy since Independence. New Delhi: Academic Foundation.
Kapila, U. (Latest Edition) Indian Economy: Performance and Policies. New Delhi: Academic
Foundation.
Krueger, A.O. (2002). Economic Policy Reforms and the Indian Economy. New Delhi: Oxford University
Press.
Kumar, D & Raychaudhary, T. (Eds) (1983) The Cambridge Economic History of India (1751-1970),
Vol. 2, Cambridge University Press.
Mishra, S.K. & Puri, V.K. (Latest Edition). Indian Economy. Mumbai: Himalya Publisher House.
Roy, T. Economic History of India (1857-1947), (3rd ed.). India: Oxford University Press.
Economic and Political Weekly, Various Issues.
Government of India, Economic Survey (Various Issues).New Delhi: Oxford University Press.
Research Papers :Himanshu. (2011). Employment Trend in India: A Re-Examination. Economic & Political Weekly, XLVI
(37), 43-59.
6
(iv)
Mani, S. (2011). National Manufacturing Policy: Making India a Power House. Economic & Political
Weekly, XLVI (53), 16-19.
Mehrotra,S., Gandhi, A., Saha, P & B. K. S. (2013). Turnaround in India’s Employment Story Silver
Lining amidst Joblessness and Informalisation? Economic and Political Weekly, XLVIII (35), 87–96.
Nayyar, G. (2008). Economic Growth and Regional Inequality in India. Economic & Political Weekly,
43(06).
Panagariya, A. (2004). Growth and Reforms during 1980’s and 1990’s. Economic & Political Weekly, 29
(25), 2581-2594.
Paranjape, H.K. (1991). New Industrial Policy: A Capitalist Manifesto. Economic & Political Weekly, 26
(43).
Patnaik, U. (2013). Poverty Trends in India 2004-05 to 2009-10. Economic and Political Weekly, XLVIII
(40), 43-58.
Singh, M. (2018). Changing India, Vol. 1-5. Oxford University Press.
Further Readings:
Ahluwalia, M.S. (2002). Economic Reforms in India since 1991: Has Gradualism worked? Journal of
Economic Perspectives, summer, 16(3), 67–88.
Bhagwati, J & Arvind P. (2012). India’s Tryst with Destiny. India Harper Collins.
Bhalla, G.S. & Gurmail Singh. (2009). Economic Liberalisation and Indian Agriculture: A State wise
Analysis. Economic & Political Weekly, 44(52), 34–44.
Dreze J. & Sen, A. (2013). An uncertain Glory-India & its Contradictions. New Delhi: Penguin Books.
Essays from EPW-Quarter Century of Liberalisation in India (2018). Oxford University Press.
7
Lesson-1
GROWTH, STRUCTURAL CHANGES AND OCCUPATIONAL
DISTRIBUTION IN INDIAN ECONOMY
Structure
1.0
Objectives
1.1
Introduction
SECTION- I Growth of National Income
1.2
Growth Trends in National Income and Per-Capita Income
1.3
Average Annual Growth Rates
1.4
Causes of Slow Growth of National Income
1.5
Growth Drivers Since 2000
SECTION-II : Structural Changes : Usual Classification
1.6
Latest Trends on National Income Growth
1.7
Economic Development and Structural Changes
1.8
Distribution between Commodity and Non-Commodity Sectors
1.9
Distribution between Agriculture and Non-Agricultures Sectors
SECTION-III : Other Changes in Structure of National Income
1.10
Share of Rural and Urban Sectors
1.11
Share of Organised and Unorganised Sectors
1.12
Share of Public and Private Sectors
1.13
Structural Transformation of Industry Under Plans
SECTION-IV : Occupational Structure of National Income
1.14
Occupational Structure in India
1.14.1 Occupational Distribution in Pre-reforms Period
1.14.2 Occupational Distribution in Post-reforms Period
1.15
Summary
1.16
Glossary
1.17
References
1.18
Further Readings
1.19
Model Questions
1.0
OBJECTIVES
After going through this lesson script you shall be able to:
8
 bring out changes in National Income and Per capita income during post-independence era.
 compare the growth of India with its competitors.
 explain the contribution of various sectors in National Income, and changes that have taken
place during 1950-90 and post reforms era.
 list out changes in the structure of the economy, and occupational distribution of national
income.
 delineate the share of organised and unorganised sectors in the national income.
 explain the structural transformation that has taken place in Indian industry.
 discuss the regional imbalances in the decade of nineties.
 compare the shares of public and private sectors in national income of India.
1.1
INTRODUCTION
As you all know that the British rule in India is characterised by the systematic exploitation and
colonialisation of Indian economy. The Indian economy by and large stagnated during this rule. This
stagnation can be seen from the available data pertaining to compound growth rate in per capita
income. The average growth rate in per capita income from 1860 to 1945 has never been more than
0.5 percent. In addition to this there has been stagnation in agriculture productivity. The total output in
agriculture increased only by 10 percent in 52 years i.e. from 1883-84 to 1945-46. Demographically
also Indians were backward. The birth and death rates both were high.
No doubt Indian economy stagnated and poverty increased during British Rule, inspite of that
British rule can’t be called as total economic failure. Because it was only under British rule, foundations
were laid for modern development of Indian economy. They laid the foundations for modern Factories,
Railways etc. The Indian farmers started growing commercial crops. All these factors helped in earning
foreign exchange. The Foreign exchange reserves of India increased substantially.
All political pandits, social scientists and economic thinkers were unanimous in their views that
British rule has been the main cause of the underdevelopment of Indian economy. After independence
they were not clear about the model of economic development to be adopted which could break this
stagnant growth rate. They were facing three alternative paths such as Autonomous Free market path,
Wage goods dominated Agriculture development path, and the State led heavy Industrialisation path.
The Indian planners chose the third alternative path to short circuit the time length that is usually
associated with free market path to social economic transformation of country. As an inevitable
outcome of this strategy, the economy got locked into Mahalanobis model of planned economy within
the framework of mixed economy and transition from state indifference to state directed and state led
thrust towards economic development. This constitutes the first major break from the past and turning
point in the economic growth of free Indian economy.
The decade of 80s witnessed high growth rate but towards the end of the decade our country
faced severe balance of payment crisis and growth rate touched a low. As a compulsion Economic
Reforms were introduced and India started a new journey of high growth rate. The eighties, nineties
and later years have witnessed quite a high growth rate, with few exceptional gaps.
1.2
GROWTH TRENDS IN NATIONAL INCOME AND PER-CAPITA INCOME
In India the first systematic attempt was made by Dada Bhai Naroji to estimate National and
per-capita Income for the year 1867-68. Later on many other official as well unofficial individuals and
agencies tried to assess both National as well as Per-capita Income in different time periods before
9
Independence. But their approaches to estimate both national as well as per-capita Income were so
varied that they hardly provide any comparable data of free India with past.
The planning era started in free India in April 1951. There has been comparatively good
performance reflected in growth rate in free India compared with those in the British regime. During the
British regime, growth rate has never been more than one percent. Since then we have completed
more than 6 decades of planning. During these six plus decades, development in India has been
spectacular. But there has been wide fluctuations in year to year growth rates (see Appendix, Table 2).
The marked changes in growth rate mainly depend upon monsoons. When nature is kind, the there has
been an impressive growth rate.
The growth of Net National product at constant prices (NNP at Factor Cost) is an index of the
total productive effort on the part of the community and indicates the rate of growth of goods and
services in the economy, the growth of per capita income at constant prices is an indicator of the
change in the standard of living of the people. Actually the growth of national income should be
sufficient enough to neutralize the growth of population so that per capita income (PCNNP) also
increases.
Table 1 : Average Annual Growth Rates of National Income under Five Year Plans (1951-2015)
(% at 2004-05 prices)
Plan
Plan Period
NNP at Factor Cost
Per Capita NNP
First Plan
(1951-56)
4.2
2.4
Second Plan
(1956-61)
4.2
2.2
Third Plan
(1961-66)
2.6
0.3
Three Annual Plans
(1966-69)
3.7
1.5
Fourth Plan
(1969-74)
3.2
0.9
Fifth Plan
(1974-79)
4.9
2.6
Annual Plan
(1979-80)
-5.9
-8.2
Sixth Plan
(1980-85)
5.4
3.1
Seventh Plan
(1985-90)
5.5
3.3
Two Annual Plans
(1990-92)
2.8
0.8
Eighth Plan
(1992-97)
6.7
4.6
Ninth Plan
(1997-02)
5.5
3.5
Tenth Plan
(2002-07)
7.5
6
Eleventh Plan
(2007-12)
7.8
8
Twelfth Plan
(2012-17)
7.5
6.3
2014-15
7.2
2015-16
7.6
2018-19
6.8
2020-21
8.7
Source :Economic Survey, 2012-13, 2014-15, *Eco Survey 2015-16
10
Table 1 shows the increase in NNP and per capita NNP under various plans. Table 2 shows per capita
Income and Table 3 National Income at constant and current prices for the period 1950-51 to 2015-16.
Table 2 : Net National Product at Factor Cost and Per Capita NNP(At curent & constant prices)
NNP
Per Capita
Year
NNP
Per Capita
NNP
(Rs. crores)
(Rs.)
NNP
(Rs. crores)
At 1999-00 prices
(Rs.)
At Current Prices
1950-51
204,924
5,708
9,152
255
1960-61
3,09,045
7,121
15,593
359
1970-71
4,37,719
8,091
40,135
742
1980-81
5,83,548
8,594
1,21,129
1,784
1990-91
9,67,773
11,535
4,56,409
5,440
2000-01
16,47,903
16,172
17,00,467
16,688
2001-02
17,43,466
16,764
18,49,360
17,782
2004-05
21,04,520
19,325
25,26,408
23,199
Year
NNP (Rs.crores)
PCNNP(Rs.)
NNP
PCNNP
(Rs. crores)
At 2004-05 Prices
(Rs.)
At Current Prices
2004-05
26,29,198
24,143
26,29,198
24,143
2008-09
36,69,890
31,801
46,85,873
40,605
2009-10
39,59,653
33,843
53,95,688
46,117
2016-17*
106,86,776
82,269
134,08,211
1,03,219
2018-19
1,40,80,000
-----
1,90,00,000
1,26,406
2019-20
1,47,80,000
-----
2,04,40,000
1,35,050
Note : * R is Revised Estimate (First)
Source : CSO, National Accounts Statistics, and Economic Survey (various issues) 2012-13. and Dutt
and Mahajan. *Eco Survey 2016-17, Advanced Estimate at 2011-12 prices.
1.2.1
Decadal Growth of National Income.
It is clear from the Table 3 that during first 10 years of planning (1950-51 to 1960-61), net
national product at constant prices (1990-00 to 2K) increased at an annual rate of 4.2 percent and real
per capita income at 2.3 per cent per annum. But the performance of the economy slowed down
thereafter. During the next two decades the growth rate of NNP came out to be 3.5 percent and 2.9
percent per annum on average respectively and real per capita income grew at 1.2 per cent and 0.6 per
cent per annum. During three decades (1951-81), the national income grew an average at 3.5 percent
annually while (constant) per capita income grew at nerely 1.4 per cent annum. During eighties, there
was an appreciable increase in the growth of national income i.e. 5.2 per cent per annum and per
capita income 3 per cent per annum during 1981-91. This is a commendable achievement as India
11
managed to cross the barrier of Hindu growth rate of 3.5 percent (phrase coined by late Prof. Raj
Krishna).
Table 3 : Annual Average Growth Rates of National Income (NNP) in Rs. crores and Per
Capita Income in India in Rs.
At 2004-05 Prices
Year
National
Income
Per Capita
Income
At Current Prices
National
Per Capita
Income
Income
1950-51 to 1960-61
4.2
2.3
5.5
3.2
1960-61 to 1970-71
3.5
1.2
9.9
7.5
1970-71 to 1980-81
1980-81 to 1990-91
2.9
5.2
0.6
3.0
11.7
14.2
9.2
11.7
1990-91 to 2000-01
5.5
3.4
14.0
11.9
12.4
10.7
2000-01 to 2008-09
04
th
5.9
2006-07 to 2011-12 (11 plan)*
7.8
7.5
−
−
1950-51 to 1980-81
3.5
1.2
9.0
6.7
1980-81 to 2000-01
5.6
3.3
14.1
11.8
2000-01 to 2004-05
6.4
5.1
10.5
3.6
2004-05 to 2011-13
7.8
6.3
15.6
14.0
2017-18 (AE)**
9.7
8.3
6.7
5.3
Source: Economic Survey, various issues.2012-13 and 2015-16** Advanced Estimate (2011-12 base
year) Economic Survey, 2017-18.
This accelerated growth was a consequence of high growth in agriculture, manufacturing,
transport, communication, banking trade, hotels, electricity, construction etc. During 1990-91 and 200001, the average annual growth rate of NNP (at constant prices) was of the order of 5.5 percent and that
of per capita NNP was 3.4 percent. During the two decades (1980-81 to 2001-01), that of average per
capita income was 3.2 per cent. It implies that economy performed well during these two decades as
compared to early three decades. As compareed to 2000-01, in 2004-05 and 2004-05 to 2008-09, the
national income and per capita income growth was higher i.e. 7 percent and 5.7 percent respectively.
Following the slowdown induced by the global financial crisis in 2008-09, the Indian Economy
responded strongly to fiscal and monetary stimulus and achieved a growth rate of 8.6 p.c. and 9.3 p.c.
respectively in 2009-10 and 2010-11. However, with the economy exhibiting inflationary tendencies, the
Reserve Bank of India (RBI) started raising policy rates in March 2010. High rates as well as policy
constraints adversely impacted investment, and in the subsequent two years viz 2011-12 and 20122013, the growth rate slowed to 6.2 percent and 5.0 per cent respectively Neverthless, despite this
slowdown, the compound annual growth rate (CAGR) for Gross Domestic Product (GDP) at factor cost
over the decade 2002-03 to 2012-13 is 7.9 percent (Economic Survey 2012-13, P.1), and 6.8 p.c.
growth rate in 2018-19.
1.2.2
Slow down in Twenty First Century
Why has the economy slowed down so rapidly despite recovering strongly from the global
financial crisis? A number of factors are responsible, as mentioned below (Eco. survey 2012-13, p.3):
12
First, the boost to demand given by monetary and fiscal stimulus following the crisis was large.
Final consumption grew at an average of over 8 percent annually between 2009-10 and 2011-12. The
result was strong inflation and powerful monetary response that also slowed consumption demand.
Second, starting in 2011-12, corporate and infrastructure investment started slowing both as a
result of investment bottlenecks as well as the tighter monetary policy.
Thirdly, even as the economy slowed, it was hit by two additional shocks: a slowing global
economy weighed down by the crisis in Euro area and uncertainties about fiscal policy in the United
States and a weak monsoon initially.
1.3
AVERAGE ANNUAL GROWTH RATES UNDER FIVE YEAR PLANS
For this section, please refer to Table No. 1. Which depicts plan-wise growth rates.
During the First Plan, annual average growth rate of NNP was 4.4 per cent (at 1999-00 prices),
which declined to 3.8 per cent during the Second Plan. During the Third Plan annual average increase
in national income fell down to 2.6 per cent, just sufficient to neutralize the growth of population. This
validated by the fact that there was 0.4 rate of growth of per-capita income during the Third Plan. This
was largely the consequence of a serious drought in 1965-66 and thus the growth rate got depressed.
This was followed by another drought year as also a business recession. After 1967-68 the economy
started picking up and the growth rate showed signs of improvement. During the Fourth Plan (196974) period, the average annual rate of growth of national income declined to 3.1 per cent that of real
per-capita income to 0.8 percent per annum. The sharp increase in prices during 1972-73 and 1973-74
and the shortfalls in production on account of lower utilisation of capacity were the principal factors
responsible for a lower growth rate during the Fourth Plan. During the first four plans, we observe that
the growth rate of national income and per-capita income has been dismal.
During the Fifth Plan (1974-79) the average annual increase in national income was 4.9 per
cent and that of per-capita income was 2.6 per cent. On the whole, the performance of the economy
during the Fifth Plan can be considered to be very satisfactory.
India’s national income registered a growth rate of 5.4 per cent during the Sixth Plan (1980-85)
with a per capita income growth rate of 3.1 per cent. (1985-90), India’s NNP grew on the average at the
rate of 5.5% per annum and the annual growth of per-capita NNP was 3.3%.
The Seventh Plan achieved its objective of 5 per cent growth rate of NNP along with 3%
targetted growth rate of per capita NNP. This was a healthy development.
It is very important to note that Table 1 presents figures related to all plans at constant prices
(i.e. at prices of the year 2004-05). During the Eighth Plan (1992-97) NNP growth rate of the order of
6.7 per cent has been achieved with a per capita growth of about 4.6 per cent. The Ninth Plan target of
NNP growth was 6.5 per cent per annum but achievement was 5.5 per cent, lower than the eighth
plan’s achievement. During the Tenth Plan (2002-07), NNP growth rate was 7.5 per cent per annum
and the per capita NNP growth was 6.1 percent - the highest recorded so far. The target of the
Eleventh Plan was to achieve 9 per cent growth rate which has been downscaled many times, The
NNP growth rate was 7.8 percent per annum while the per capita NNP grew at 7.5 percent per annum
on average. During Twelfth plan, the national income grew at 7.5 percent per annum.
1.3.1 Assessment of Growth Performance & Causal Factors during 1950 to 2000.
Various economists have analyed the growth performance of Indian economy at different points
of time and brought out several factors. These studies pertain to different time periods. We shall study
different periods and comprehend the causal forces acting behind the scene. The time period is divided
as follows :
1. Study of Brahmananda & Panchmuki (1951-85)
13
2. Study of Deepak Nayar (1951-2000)
3. Growth Drivers in later period.
What did Independence accomplish? First, it removed the drain of annual surplus to the Imperial
Power. Second, it expanded the size of domestic market. Third, it brought in a government which was
interested in the promotion of the welfare of the people. Fourth, it released the latent energies, talents
and skills of the people. More than anything else, it brought into surface a will of the people to grow and
at a faster rate.
Development is often defined as sustained growth with structural breaks in its overall, rate, rates
of components, pattern, causal elements and sources for the same. India also experienced
development and structural breaks.
(A)
Study of Brahmananda & Panchmukhi:
Brahmanand & Panchmukhi (1989) noticed following Structural breaks during the period
(1951-85):
First, is the effect of Independence, of political freedom under established governmental and
administrative continuity. In the pre-Independence period, over the past fifty years, the rate of growth of
real national income was hardly 2 percent per annum. After independence, India witnessed, over a long
period, a rise in the annual rate of growth in income of 3½ per cent (between 1950-51 to 1980-81 see
table 3). All growth rates those of agriculture, of manufacturing, of industry, of infrastructure facilities of
education and social services, all rose significantly.
Second structural break occured around the middle of the First Plan when the agricultural
harvests suddenly boomed up. This carried the economy up to the early years of the sixties. But as the
impetus to agricultural growth was petering out the hopes of development started fading. In the second
half of the sixties occured the structural break of Green Revolution. Green Revolution refers to
immediate acceleration in the growth of yields of the leading crops due to application of modern
technology i.e. fertilisers, high yielding variety seeds increased irrigation, multiple cropping etc. Earlier,
the growth occured due to expansion in area under cultivation. The structural break was noticed in case
of wheat, rice, jawar and potatoes.
Third structural break occurred in the manufacturing sector. The manufacturing growth slowed
down during the mid-sixties mainly due to stoppage of project-aid of Indo-Pak wars; the after math of
diverse invasion and the steep rise in defence expenditure; the slowdown in the annual rate of increase
in public investment, a slowdown of agricultural growth for some time, the adverse terms of trade
against manufactures vis-a-vis agricultural goods, the erosion of the stimulus of import substitution, the
intensity of control in the area of ceilings, licenses and permits etc. Undoubtedly, the industrial growth
rate picked up after the mid-seventis though an 8 per cent annual growth rate was still far off.
Almost all the studies indicate that from the mid-seventies the steady growth rate has moved up
from around 3½ per cent to around 4½ per cent per annum. The fifth and sixth plans observed a 5 per
cent average growth rate. But there was a severe dip in 1979-80, the intervening year between the two
plans. The first two years of the Seventh Plan, also witnessed growth rates of around 4½ or so.
Agricultural remained more or less at plateau while industry and services are growing at 6 per cent and
6-7 per cent respectively.
The authors call it structural break with regard to the proportion of people living below the
poverty line as it came down from 50 per cent to 37 per cent during the 1977-78 to 1983 period.
(B)
Structural Breaks and Nayyar’s Study
Following Nayyar’s (2006) study (i.e. econometric analysis of time series data on GDP and GDP
per capita) for the period from the early 1950s to the early 2000s, the structural break in economic
growth since independence, (which was statistically most significant) occured around 1980. Equally
14
important is the fact that the pace of economic growth during the period 1950-80 constituted a radical
departure from the colonial past. During this period, India’s performance in terms of economic growth
was about the same as in most countries in world. It was certainly not as good as East Asia. But it was
definitely not as bad as Africa.
There was sharp acceleration in the rate of growth since 1980. It went almost unnoticed for
sometime and came into the limelight in the early 2000s. The second turning point in the economic
performance of independent India occured around 1980. In comparison with the preceeding 30 years,
there was distinct step-up in rates of growth for GDP and GDP per capita. In fact, between 1980-81 and
2004-05, GDP multiplied by 3.81 while GDP per capita multiplied by 2.37. This growth was impressive
not only in comparison with the performance of most countries in the world. While industrialised
countries experienced a slow-down, the transition economies and much of the developing world
performed badly, India performed much better than the industrialised world. It was only East Asia,
particularly China, which performed better (Nayyar, 2006).
According to Nayyar, the acceleration in economic growth, since 1980, was attributable to
several factors mentioned below First, expansionary macro economic policies which led to an increase in aggregate demand
stimulated an increase in the rate of growth of output.
Second, a significant increase in the investment - GDP rate in the late 70;s sustained through
the 1980s. This contributed to the step-up in economic growth during the 1980s.
Third, like late seventies, there was a significant increase in public investment which
contributed to the increase in aggregae demand.
Fourth, trade liberalisation beginning in the late 1970’s combined with some deregulation in
industrial policies introduced in the early 1980’s also probably contributed to productivity increase and
economic growth. In particular, liberalisation of the regime for the import of capital goods and broadbanding which reducd industrial licensing could have played a contributory role.
The cummulative impact of economic policies or public actions over the preceding 30 years
(1950-80) did play an important role in the turnaround of 1980. Nayyar (2006) explains it in these words
- “The social institutions and the legal framework for a market economy were put in place. A system of
higher education was developed. Entrepreneurial talents and managerial capabilities were fostered.
Science and technology was accorded a priority. The capital goods sector was established. Much of
this did not exist in colonial India. But it was in place by 1980 and probably provided the essential
roundation.”
Self Assessment Questions
Q.
Who Coined the term Hindu growth concerning which time period?
__________________________________________________________________________
1.4
CAUSES OF SLOW GROWTH OF NATIONAL INCOME
The planning experience of first thirty years (1951-81) witness growth rate of 3.5 pc, with credit
funded growth of 5.6pc in the eighties. Economic reforms accelerated the growth rate after 2000 (with
stabilisation in post reforms years). The national income grew very slowly. Following are important
causes of growth of national income-
15
1.
High Growth Rate of Population
Population being an important determinant of economic growth, high growth of Population is
mainly responsible for slow growth of national income in India. Whatever increase in nation income has
taken place, it is eaten away by the growing population. The recent rate of growth of population in India
is 1.4 percent per annum, the population growth retards the growth process, and is responsible for slow
growth of national income in India.
2.
Excessive Dependence on Agriculture
Indian economy is characterised by too much dependence on agriculture as sixty five percent
people are dependent on forms for employment/livelihood. A major share of national income from the
agriculture sector as it contributes nearly 34 percent of the total national income but engages a major
section of population i.e. about 66 percent of the total working population of the country. Such
excessive dependence on agriculture is not fruitful as the agriculture is not organised on commercial
basis rather it is not rewarding to many but has become way of life.
Excessive dependence on agriculture, small land-man ratio, soil erosion, inferior soils, poor ratio
of capital equipment, problems of land holding and tenures, tenancy rights etc. all are responsible for
slow growth of agricultural productivity, which, in turn, is also responsible for slow growth of national
income.
3.
Occupational Structure
The occupation structure of India suggests that is also responsible for slow growth of national
income in the country. At present about 42 percent of the working force works in agriculture and allied
activities, 27 percent in industry and mining and the remaining 31 percent in the tertiary sector.
Moreover, prevalence of under-employment among the agricultural labourers and the work force
engaged in other sectors is also responsible for the slow growth of national income.
4.
Less of Modern Technology and its Poor Adoption
Indian agriculture is dominated with poor and backward technology. Whatever technology that
has been developed in the country, is not properly utilised in its production process leading to slow
growth of national income in the country.
5.
Slow Industrial Development
Another important reason behind the slow growth of national income in India is the slow
development of its industrial sector over the past which has now picked upto 8% to 10% per annum.
The industrial sector in India could not maintain a consistent and sustainable growth rate during the
planned development period especially in recent years. Moreover, the development of basic industry is
not as per the need of the country's development. Consequently, the growth in the national income of
the country could not pick up fester.
6.
Inadequate development of Infrastructural Facilities
In India, the infrastructural facilities viz., transport, communication, power, irrigation have
developed at slow pace, not as per requirement of the country. This has crippled the growth of various
sectors namely agriculture and industrial sectors leading to slow growth of national income.
7.
Inconsistent and Insufficient Growth of Savings and Investment
The rate of savings and investment (i.e. GDS and GDCF as %age of GDP) in India is quite poor
and much behind the developed world. In 2008-09, the rate of gross domestic savings was 32.5
percent of GDP and that of investment was 33.00 percent of GDP in the same year. The low rate of
16
saving and investment as compared to China (48 pc app) and other developed countries had been
important factors leading to poor growth of national income in the country.
8.
Backward Socio-Political System
India falls in lower middle income countries category of the world. The Socio-political conditions
prevailing in the country are not conducive towards rapid development. Peculiar social institutions like
caste system, joint family system, fatalism, illiteracy, unstable political scenario and dualism
(technological and economic) all responsible for slow growth of national income in India, despite
various steps taken by the Government in form of schemes, laws programmes to attain a higher rate of
growth in its national income. The economic reforms and structural measures have created impact on
raising growth of national income of the country, but the socio-political structure is not developed.
[Note: GDP - Gross Domestic Product, GDS - Gross Domestic Savings, GDCF - Gross Domestic
Capital Formation].
9.
Unemployment, Poverty and Income Inequality
India is second largest populated country of the world after China. Around 20 percent of
population falls below poverty line. Around 7-8 percent of work force is unemployed and many of those
employed in agriculture sector are disguisedly unemployed. Around 1 percent of Top income group
captures 36 percent of income and bottom 33 percent gets one percent of income. Despite imposing
progressive rates of taxation, on the richer sections and also by the redistribution of wealth through
welfare and poverty eradication programmes, and imposing higher rates of taxation on the richer
sections aiming at sufficient revenue, equality of income, sufficient employment revenues, and quality
of life could not be achieved.
10.
Balanced Growth a distant dream
Different sectors of economy i.e. agriculture, industry and services sector have different growth
performance i.e. around 3.5 percent, 7.5 percent and 9 percent per annum respectively which dampens
the average overall growth rate of economy. In order to attain a higher rate of economic growth,
different sectors of the country should grow simultaneously so as to attain inter-sectoral balance in the
country.
11.
Growth of Foreign Trade (Exports and Imports)
Foreign trade also contributes positively towards the growth of national income in the country.
Lower value of export and higher value of import leading to un favourable balance of payment often
poses hurdle in the growth of economy. Insufficient forex reserves call for FPI, FDI and latest
technologies for the development of country.
1.5
Current Situation : Growth Drivers (since 2000)
Under this sub-head we shall read about the causal forces working in the present decade. The
figures have been taken from Economic Survey 2012-2013, and has been updated till 2015.
1.5.1
Investment Rate
The Gross Domestic Savings (Investment) as a percentage of GDP has increased from 23.4
percent (24 per cent) in 2000-01 to 36.8 per cent (38.1 per cent) in 2007-08. Higher levels of
investment aided by higher efficiency could reinforce the confidence in sustaining high growth.
The growth rate of the economy since 2003-04 has been strongly correlated with investment
rate. The investment rate averaged 34.5 p.c. between 2003-04 and 2011-12, much higher than before.
The real growth rate in the economy averaged 9.5 per cent per annum during 2005-06 to 2007-08,
17
which were also the years when the growth of investment in real terms averaged around 16 per cent.
Similarly the average growth of the economy was close to 9 per cent per annum in 2009-10 and 201011 with the growth rate of investment averaging around 16.2 per cent in these two years. The rate of
growth of GDP was lower in the year when growth rate of investment was low, as was the case in
2008-09 and 2011-12 (Eco survey 2012-13, P.7)
Year
Growth in
GDPFC
(2004-05 prices)
Share of Gross Capital
Formation (Investment
in GDP at current prices)
Share of Gross
Domestic Savings in
GDP (at current prices)
2005-06
9.5
32.8
32.4
2006-07
9.6
35.7
34.6
2007-08
9.3
38.1
36.8
2008-09
6.7
34.3
32.0
2009-10
8.6
36.5
33.7
2010-11
9.3
36.8
34.0
2011-12*
6.2
35.0
30.8
Note : * is First Revised Estimate for 2011-12
Source: Economic Survey, Table 1.1 and 1.5 (Selected Figures), 2012-13.
1.5.2
Growth of Service Sector
The belief of sustainability of the high growth phase gets reinforced by the emerging growth sectors of
bio-technology, tourism etc. beyond IT and ITES i.e. sub-sectors of the services Sector
The services sector is the dominant developing economics such as India. The CAGR
(compound annual growth rate) of the services sector GDP was 10 percent for the period 2004-05 to
2011-12. It has clearly out grown both the industry and agriculture sectors (Eco Survey 2012-13)
The slow down in the rate of growth of services in 2011-12, and particularly in 2012-13, from the
double digit growth of the previous six years, contributed significantly to slow down in overall growth of
the economy. While some slow-down could be attributed to the lower growth in agriculture and
industrial activities given the backward and forward linkages with services, lower demand from rest of
the world could also have played a part.
1.5.3
Middle Class
The emerging middle class estimated to be around 370 million by 2010 would expand demand
for consumer goods as also the supply of skilled labour.
1.5.4
Manufacturing Growth
Based on increased savings as well as increased flow of credit, the growth of manufacturing
sector would continue and it is believed that India would become as a base for global production in
sectors such as auto-components, electronic hardware and pharmaceuticals (Naik,2006).In 2015 India
accounts for 1.8 per cent of world’s manufacturing output.
18
1.5.5
FDI Inflows
FDI into India started increasing after the opening up of the economy, including relaxing of the
restrictive policy towards FDI. It has risen substantially in recent years from $ 4.3 billion to $ 19.5 billion
in 2006-07. It has flowed into manufacturing financial services, banking services, IT service and
construction (RBI, 2007). India can gain from FDI if it flows into capital and knowledge intensive sectors
and foreign enterprises get vertically integrated. (IDR, 2008). According to world Investment Report
2016, FDI inflow in India during 2015 stood at $44.2 billion.
The Indian economy has undisputedly moved on to a higher growth path during the last three
decades. The economy broke the Hindu growth rate bracket of 8.5 pc & moved on to higher growth
trajectory of 5.5 pc in 1980s. Lack of resilence and macro economic domestic mismanagement coupled
with external factors of Gulf war of 1991 & breakdown of erstwhile while USSR dragged economy into
high levels of domestic & foreign debts i.e. fiscal crisis and Balance of Payment Crisis.
The New Economic Policy Regme began in the year 1992, with the onset of Economic Reforms.
India face set backs – East Asian crisis of convertibility on of Capital account, 1997; Gulf war in 2000,
drought 2002; and Slow down in 2009-10. India had remarkable growth attainment of 8 pc
consecutively for five years : 2003 to 2007, followed by slowdown. During the last decade 2012-2020
annual growth rate on average has hovered around 7-8 percent :
With new base year and new numbers by NITI, Ayog and CSO, it is evident that growth is
slowing down (Kapila, 2020). Using the revised new base, it is observed that growth rate wa 8.2 pc in
2016-17 and was 7 percent in 2018-19.
1.6
STRUCTURAL FACTORS FOR HIGHER GROWTH IN 2010-2020 DECADE
Major structural factors for higher growth rate in last decade have been as follows :

Rise in Gross Capital Formation (Or Investment) rate from 25 pc of GDP to 38 pc of GDP during
2002-2008 – which dropped by 3 pc points after Global crisis :

Savings Rate (Gross Domestic Savings) to 35 pc of GDP in 2008, which also fell by 3 p.c.
 Raising government savings will be critical to raise investment, which needs
a) rationalisation and restructuring of government current expediture.
b) rasing the volume of tax revenue.
Moreover Subsidies (espeically non-merit goods) need to be prioritised. Support should be
given to infrastructure and social sector programmes.

Demographic dividend may contribute in pushing up the growth rate but necessary step is skiill
creation as per market demand. To provide employment, labour intensive industrial sector
should be promoted.

Land Market and Labour Market.
1.6.1
Revision of the data on annual National Accounts 2014
On Certain components of GVA, more comprehensive information becomes available with a lag.
Major changes include the following (Eco survey 2015-16) :
(i) The levels of GDP have been revised right from the base year
Growth of GDP at market prices
Year
Old Method
New Method
2012-13
5.1 pc
5.6 pc
19
2013-14
6.9 pc
6.6 pc
2014-15
7.3 pc
7.2 pc
Kapila (2020), p. 193
1.6.2
Growth Pattern of Recent years
The quarterly figures of growth (in GVA at basic duties at 2011-12 base) show that during
2016-17, the growth slowed down :
Quarter
Growth Rate
2016 Q1
7.6 pc
2016 Q2
6.8 pc
2016 Q3
5.6 pc
2016 Q4
5.6 pc
It is believed that despite adverse effects of demonetisation on consumption, the investment continue to
increase in India :
Year
GFCF (as % of GDP)

2007-08
35.8
2015-16
30.9
2016-17
29
Indian economy, since 2011-12, had been under the influence of slowing cycle of growth. i.e.
lagged impact of the investment rate of GDP growth.
Section – II
Structural Changes : Usual Classification
1.7
STRUCTURAL CHANGE IN NATIONAL INCOME :
The process of economic development of a country encompasses changing contribution of
various economic activities. Broadly these economic activities are classified as primary, secondary and
tertiary activities. Therefore the structure of an economy refers to the relative contribution of Primary
sector, Secondary sector and Tertiary sector in national income. Therefore Structural changes in
national income generally refer to the growth of primary, secondary and tertiary activities; and
consequently the changes that occur in the relative share of these sectors.
In underdeveloped countries relatively large number of people are engaged in agriculture and
allied activities while in case of developed countries, the non-agricultural activities grow faster resulting
into large shares of secondary and tertiary sectors in developed countries. The change from large
share of Primary Sector (which is predominant in developing or less developed countries) towards
larger shares of secondary and tertiary sectors is an indication of development process.
1.7.1
Structure of Indian Economy
The structure of the Indian economy has undergone significant changes over time. India is an
agricultural country as majority of population is dependent on agriculture for, livelihood. As far as
contribution (or share) of agriculture on national income of India is concerned, it was as high as 55 p.c.
in the year 1950-51. The agriculture sector witnessed technological changes and modernisation and
total output of foodgrains quadrupled between 1950-51 and 2012. But the relative share of agriculture
20
in national income kept declining, reaching 13.0 p.c. in 2014. This was due to relatively higher growth of
industry and services sectors. It needs to be noticed that in case of non-agricultural (i.e. industry &
services) activities, the industrial sector registed a higher growth rate than the services sector during
1950-51 and 1980-81. This resulted in an increase of 9 per cent in the share of industry sector in GDP
during 1950-51 to 1980-81, thus reaching the figure of 25.9 per cent. The converse (opposite) has been
the case since then. The share of services sector grew from 30.3 per cent in 1950-51 to 38 per cent in
1980-81, then started growing rapidly thereafter and this phenomenon later becoming pronounced in
1990s. Consequently since 1980-81, the share of industrial sector has remained in the range of 26 to
28 per cent of GDP, while the entire decline in the share of agriculture sector has been balanced by an
increase in the share of services sector. Lets study these structural changes in detail. The table given
below gives us figures regarding sectoral share in National Income between 1950-51 and 2014-15
before the change of calculation method.
Table-4 Share of GDP by Industry of Origin (at 1999-00 series)
Sector
1950-51
1980-81
2012-13
2014-15
I
Agriculture and allied activities*
55.4
38.0
13.7
16.1
II
Industry
15.0
24.0
26.7
31.4
(a) Mining & Quarrying
1.4
2.0
2.0
2.9
(b) Manufacturing
8.9
13.8
14.5
18.1
(c) Electricity, Gas & water supply & other utility
0.3
1.6
1.9
2.3
services
4.4
6.6
7.8
8.1
(d) Construction
29.6
38.0
59.6
52.5
11.3
17.4
27.8
19.4
(e) Trade, Transport, Storage & Communication
7.7
7.5
18.8
20.5
(f) Finance, Insurance, Real Estate
10.6
13.1
13.0
12.6
III Services
(g) Public Administration defences & Other
Services Community, Social & Personal Services.
A.
Commodity Sector (I+II)
70.4
62.0
40.4
47.5
B.
Non Commodity Sector/Services (III)
29.6
38.0
59.6
52.5
100.0
100.0
100.0
100.0
Total
Note:* It includes agriculture, forestry, & fishing.
Source: Calculated from the data provided by Reserve Bank of India. Handbook of Statistics of the
Indian Economy (2011-12). c.f. Dutt & Mahajan (2014)
1.7.2
Structural Changes :
In the pre-reforms period i.e. during 1950-51 and 1990-91, the primary, secondary and
tertiary sectors have grown at the rate of 2.6 per cent, 5.6 per cent and 4.9 percent respectively. The
share of these sectors in national income are shown in the following Table-4 for the period 1950-51 to
2008-09, calculated at constant prices (1999-2000, base year). For comparative picture, it is always
21
preferred to have national income at constant prices on the basis of information given in Table 4,
following observations can be made.
(1)
The share of the primary sector (including agriculture, forestry and fishery) went down
from 55.4 per cent of GDP in 1950-51 to 38 per cent in 1980-81 and further declined to 16.1 per
cent in 2014-15. The main cause of the decline is fall in the share of agriculture alone. There is
also a contraction in the share of forestry from about 6 per cent in 1950-51 to nearly 0.7 per cent
in 2008-09. The share of fishery has remained more or less constant at 1 per cent
approximately throughout the period.
(2)
The share of industry (including mining, manufacturing, electricity, gas & water supply
and construction) showed steady increase from 15 per cent in 1950-51 to 24 per cent in 198081 and to 31.4 per cent in 2014-15.
Two major components of industry are manufacturing and construction. The share of
manufacturing increased from 8.9 per cent in 1950-51 to 18.1 per cent in 2014-15. Similarly, the share
of construction improved from 4.4 per cent in 1950-51 to 8.1 per cent in 2014-15..
(3)
The share of the service sector has three components: (a) Trade, Transport, Storage and
Communication, (b) Finance, Insurance, Real Estate and Business Services and (c)
Community, Social and Personal Services. The share of the service sector showed a sharp
improvement from 29.6 per cent in 1950-51 to around 5.3 per cent in 2008-09. There was an
appreciable increase in the share of trade, transport and communication from 11.3 per cent in
1950-51 to 28.6 per cent in and 14.6 pc in 2014-15.
During the last decades, transport (esp. road transport) and communication (esp.
telecommunications and mobile revolution) have contributed significantly to this increase. The share of
finance, insurance, real estate and other services declined slightly from 7.7 per cent in 1950-51 to 7.5
per cent in 1980-81and thereafter rose to 14.8 per cent by and 14.6 pc in 2014-15.
With the development taking place, public administration has expanded especially the economic
and welfare services such as education, health and family welfare. The there has been increase in the
share of community and social services group from 10.6 per cent in 1950-51 to 13.9 per cent in
2008-09.
The share of agricultural activities (including forestry and fisheries) has declined as per
development thesis and it was 14 pc during the period 2011-13 and declined further in ensuing years
(See Table 5). With few exceptions.
During the Tenth Five Year Plan (2002-07). The sectoral share of industry in the GDP started
rising after several years of decline. The share of manufacturing also maintained a rising trend after
falling in the latest year of the Tenth Plan (see table).
Table 5 : Sectoral Share in GDP in X Plan and later years (in percentage)
Year
Agriculture Forestry
Fishing and Animal
Husbandry
Industry
(Manufacturing)
Services
2001-01
24.0
25.0 (14.8)
51.0
2002-03
21.5
25.8 (15.2)
52.7
2003-04
21.7
25.6 (15.0)
52.7
2004-05
20.2
26.1 (15.1)
53.7
22
2005-06
19.7
26.2 (15.1)
53.1
2006-07
18.5
26.6 (15.5)
54.9
2011-13
14.1
29.4
56.5
2018-19
16.1
29.6
54.3
Note : Figures in parintheses show share of Manufacturing sector in GDP
Source: Economic Survey 2012-13, Eco. Survey 2017-18
This structural change in the sectoral composition of national income is in accordance with the
theory of economic growth. As industrialization spreads, it brings about an improvement in the share of
industry and services, and the share of agriculture falls. India too has experienced an improvement in
the share of secondary and tertiary sectors. This is largely due to an expansion in transport and
communication, banking and insurance and public administration. This does not imply a neglect of
agriculture but relatively faster growth of industry and services sector, as compared to growth of
agriculture sector.
Self Assessment Question
Q.
Is there any difference between Structural change and Structural break?
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
1.7.3
Sectoral Growth Rates
For achieving high annual growth rate of 9 p.c. in 2005-06 to 2007-08, all the three
sectors have to performed well. Growth in agriculture, while small in overall contribution (low share)
witnessed years of small overall growth as well as years of more moderate growth (e.g years of
moderate growth and low agriculture growth: 2004-06, 2008-09). In the high growth years of the
previous decade i.e. 2005-06 to 2007-08 as well as in 2009-10 and 2010-11, the rate of growth of both
industry and services sector was over 9 percent.
With in the industry sector, the manufacturing sector in particular, outperformed most other
sectors of the economy in these years. Its growth averaged 11.6 p.c. between 2005-06 and 2007-08
and 10.5 p.c. for the years 2009-10 and 2010-11. It is evident from the foregoing analysis that for
growth to be strong, the contribution from the industry sector, and in particular from the manufacturing
sector, has to increase in the years to come. This is also important from the point of view of absorbing
surplus labour from the agriculture sector.
Since the growth process involves a rapid expansion of manufacturing in the organised sector,
the share of manufacturing was found to indicate a relatively sharp increase. However, agriculture did
not indicate a fast rate of growth. As is evident from Table-5, the rate of growth of agriculture showed a
decline from 3 per cent during the decade 1950-51 to 1960-61 and also to 1.5 per cent during 1970-71
to 1980-81 followed by an increase to 3.4 per cent during 1980-81 and 1990-91. Thereafter, it again
declined to 2.8 per cent between 1999-00 to 2007-08.
The growth rate of manufacturing sector which was 6.4 per cent during 1950-51 and
1960-61 improved to 7.6 per cent during 1980-81 and 1990-91 and to 8.1 per cent during 1999-00 and
2007-08.
23
The overall GDP growth of economy declined from 3.9 per cent in 1950-51 and 1960-61 to 3.1
per cent during 1970-71 and 1980-81, but improved to 5.6 per cent during 1980-81 and 1990-91 and
remained the same at the same level of 5.6 per cent during 1990-91 and 2000-01. Excluding the crisis
years 1990-92, the GDP grew at 6.1 per cent between 1993-94 and 2000-01. The overall GDP growth
further increased to 7.3 per cent during 1999-00 and 2007-08, while it was 8 per cent during 2004-05
and 2012-13.
In the post-reforms period, the growth of agricultural and manufacturing sector was relatively
slower (i.e. as compared to Services sector). It is only the fast growth of the services sector - the
principal driver of the economy which raised the GDP growth to over 6.5 per cent in the post reforms
period. In the four years preceding 2007-08, the growth rate of GDP accelerated to as high as 9.0 per
cent, and slowed later due to global financial crisis again picked up in 2009-10 and 2010-11 but dielined
again. It was just 5 per cent in 2012-13.
Similarly, the growth of the services sector was slow i.e. around 4.5 per cent during 1950-51
to 1980-81, showed a sharp increase to about 6.4 per cent during 1980-81 and 1990-91 and further
increased to 13.8 per cent during 1999-00 and 2007-08. The rate of growth of ‘transport, storage and
communications’ ranged between 5 to 6 per cent during first four decades i.e. 1950-51 to 1990-91, but
sharply increased to 8.0 per cent in the post-reforms period. During the period 2005-13, the average
groth of services sector was 9.6 per cent per annum.
The overall growth rate of GDP declined from 9% during 2005-2008 period to 6.7% during 200809. Three factors seemingly responsible for this are as follows :
a)
sharp increase in global commodity inflation (mainly food and oil)
b)
tightening in credit and equity markets.
c)
global slow-down in growth or Global Financial/Slowdown
The Global Financial Crises and Eurozone crises has been mainly responsible for slower growth
in 2008-09, 2012-13 and 2013-14. From the second half of 2014-15 we see signs at recovery. The data
indicates that Indian Economy is passing through transitional phase - transtition from an agricultural
economy to (not an industrialised one) services dominatra econmy as industry is progressing at a slow
pace, mainly because of slow rate of growth of the manufacturing output. Rather the share of tertiary
sector has increased faster largely due to an expansion in transport and communication, banking and
insurance and public administration. The rate of growth of all components of the tertiary sector has
been higher (at 4.9 per cent per annum) than the overall growth rate of Gross Domestic Product of
India (i.e. 4.1 per cent per annum) during 1950-51 and 1990-91. Same was the trend in the postreforms period. During 2000-01 and 2008-09, the growth rate of tertiary sector picked up to 10 per cent.
According to Dutt and Mahajan, (like other economists) Indian Economy has entered the phase of
service economy without completing the phase of industrial economy.
1.7.3a Slow Growth in 2011-12 and 2012-13 (Growth by Eco Activity)
As far as the moderation in growth in the years 2011-12 and 2012-13 is concerned, it is
primarily attributable to industry (comprising the mining & quarrying, manufacturing, electricity, gas &
water supply, and construction sectors), which registered a growth rate of only 3.5 per cent and 3.1 per
cent in 2011-12 and 2012-13 respectively. The growth of manufacturing was even lower at 2.7 percent
and 1.9 percent of these two years respectively. The growth in agriculture has also been weak in 201213, following lower than normal rainfall. After achieving double digit growth continuously for five years,
24
the growth of Services sector also declined to 8.2 percent and 6.6 percent respectively in 2011-12 and
2012-13, especially in sub-sectors of Trade, Hotels & Restaurants and Transport & Communication
(Eco. Survey 2012-13).
In the nutshell, since 1980-81, the share of industry in national income has remained more or
less the same (i.e. between 26 per cent to 28 p.c.) while the share of agriculture has continuously
declined (The present being 13.9 p.c.). The entire decline in the share of agriculture has been balanced
by an increase in the services sector. Thus the resilience of the economy to shocks/crisis our to (or
dependon) the services sector which has the largest share (above 60 p.c.) and more consistent growth
performance (around 9-10 p.c.).
Table 6 : Compound Annual Growth of GDP by Economic Activity (in Percentage)
2015
To
2016*
2.2
8.6
10.5
10.8
6.9
Note: *6+7 i.e. Trade + Transport sub-sectors are not available in the same table concerned details given separately in this
chapter
Source : c.f. Dutt & Mahajan (2013), Economic Survey 2012-13 p.3, *Eco Survey 2017-18, Vol. 2, Page A-14, (Base year
2011-12).
If we observe the growth rates of all the three sectors of economy since 1980-81, services
sector has recorded highest growth rate, followed by industrial sector. The growth rate of agriculture
sector was 3.5 pc per annum in the eighties but in the nineties it declined to 2.7 pc per annum. It is
25
mainly because the economic reforms concentrated on the industry and services while the agriculture
sector did not get desired focus. Unfortunately, after growing at 4 p.c. per annum during the 11 th Five
Year Plan (2007-12) agriculture came under heavy stress lately. At constant 2011-12 prices, growth
rate in agriculture fell to 1.6 per cent during the first four years of the 12 th plan. During 2015-16,
untimely rains and rail storms in Feb and March 2015 caused serious damage to Rabi crops in most of
the states.
Table 6: Sectoral Growth rates since 80s (% age per annum)
Plan/Year
Agricultural
Sector (%age)
Industrial
Sector (%age)
Services
Sector (%age)
Plan growth (%age)
(GDP at factor cost)
1980-81 to 1991-92
3.5%
7.1%
6.8
5.6
1992-93 to 2000-01
2.7%
5.7%
7.6
5.6
IX Plan (1997-02)
2.4%
4.3%
7.9
5.8%
X Plan (2002-07)
2.5%
9.4%
9.3%
7.8%
XI Plan (2007-13)
3.6%
7.2%
9.4%
7.9%
2001-02 to 2010-11
2.9%
7.8%
9% T
7.9%
XII Plan (2012-17)
4% (T)
7.6% (T)
12.4%
10.9%
2011-12 to 2014-15
6.3%
4.8%
10.6%
8% (T)
2014-15 +
1.1% (2012-13)
5.9%
10.6%
7.5% (2011-12)
2015-16
1.6% (2013-14)
7.4%
-
5.0% (2012-13)
2016-17
1.6%
5.2%
-
5
-
-
-
-
-
Notes : 1. * Initial Target was 9-9.5% (Approach Paper to Twelfth Plan)
**The growth figures are with respect to GDP at factor Cost.
2.
3.
T is Target Growth Rate
+ Kapila, Uma – Indian Economy since indepence (p. 191) Acadmic Fundation 2016, p671
As depicted in the Table 5b the industrial slow down of 2001 brought growth rate down to 5.8pc.
In the Xth plan, industry and services sectors performed well and growth of plan increased to 7.8 pc
and in XIth plan it was 7.9 pc. During 12th plan period:
(a)
Industrial growth varied: 5.9 pc in 2014-15; 7.4 pc in 2015-16; and 5.2 pc in 2016-17
(b)
Services sector growth was quite impressive in 2015-16 at 10.3 pc. The fast growing
sectors have been auto and auto parts, two-wheelers, machinery, chemicals, petroleum
refining, telecommunications, software and pharmaceuticals.
We may see the structural changes in the economy in respect of distribution of N.D.P. between
commodity & non commodity sectors (see Section 1.6)
26
1.7.4
STRUCTURAL CHANGES IN DEVELOPED ECONOMIES : A CONCLUSION
Table 6(a) reveals great similarity in the pattern of output and employment shares among the
seven selected countries. First, share of agriculture in their GDP was less than 5 per cent, that is
agriculture accounts for a very small portion of total output. Similarly, the share of labour force in
agriculture was below 5 percent. Second, the share of industry in GDP was in the range of 22 to 31 per
cent. Likewise, the share in employment by industry ranged between 20 to 29 per cent. Thirdly, the
share of services in GDP ranged from 69 to 77 per cent, while its share in employment was also
between 68 to 77 per cent. As there was shift from agriculture to industry in terms of share in national
income, there was similar shift in employment share also. Similarly, a rise in share of services in GDP
was accompanied with a commensurate increase in the share of services in total employment.
SECTION-III : OTHER CLASSIFICATION OF STRUCTURAL CHANGES
A. PRE-REFORMS PERIOD ONLY
1.8
Distribution of N.D.P. between Commodity and Non-Commodity Sector
We may also look into the structural change in terms of commodity and Non-Commodity since
1951. This we can see from Table 6 and Table 7 which pertain to pre-reforms period (1950-51 to
1980-81)
Table - 6 Compound Rates of Growth of Commodity and Non-commodity Sector
(in percentage)
Period
Commodity Sector
(Non-Commodity Sector)
1950-51 to 1959-60
3.2
4.40
1960-61 to 1969-70
2.30
4.80
1970-71 to 1976-77
2.10
4.40
1980-81 to 1990-91
2.90
4.90
Table 6 given above tells us that Non-commodity sector has been growing at a much faster rate
than the commodity sector. The non-commodity sector is growing at a faster rate simply because
expenditures on administration, Defence etc. has been continuously increasing. This is not a healthy
sign. The structural change in the composition of national income by industrial origin is the
consequence of the process of economic growth initiated during the plans. Since the growth process
involved a rapid expansion of manufacturing in the organized sector, the share of manufacturing was
bound to indicate a relatively sharp increase. While agriculture did not register a fast rate of growth. The
rate of growth of agriculture showed a decline from 3 percent during 1950-51 and 1960-61 to 1.5
percent during 1970-71 and 1980-81, and then increased to 3.4 per cent during 1980-81 and 1990-91.
Thereafter in post-reforms period the growth of agriculture it declined to 2.6 per cent during 1990-91 to
2000-01 and further to 2.4 percent during 2000-01 and 2004-05.
As industrialization spreads it brings about an improvement in the share of industry and
services. Indian economy has bypassed this process of transition from an agricultural economy to an
industrialized one. This structural change is taking place at a slow rate mainly because of slow rate of
growth of the manufacturing output by just 5.3 percent per annum during 1950-51 and 1990-91.
27
A sudden jump of the Indian economy to pass on to the stage of a post-industrial ‘service’
economy is witnessed that too without completing the phase of industrialization.
Note: See Table 5 for updating figures and looking at their shares for post-reforms details.
1.9
Distribution of N.D.P. between Agriculture and Non-Agriculture Income
The structural change in the composition on national income by industrial origin is the
consequence of the process of economic growth initiated during the plans. Since the planning process
involved a rapid expansion of manufacturing in the organised sector, the share of manufacturing was
bound to indicate a relatively sharp increase, while agriculture did not register a fast rate of growth. As
already discusses the rate of growth of agriculture showed a decline from 3 percent during 1950-51 and
1960-61 to 1.5 percent during 1970-71 and 1980-81, and then increased to 3.4 per cent during 1980-81
and 1990-91. Thereafter, it declined to 2.6 per cent during 1990-91 to 2000-01 and further to 2.4
percent during 2000-01 and 2004-05.
As industrialization spreads, it brings about an improvement in the share of industry and
services. There was slow rate of growth of the manufacturing output by just 5.3 percent per annum
during 1950-51 and 1990-91. (while witness higher growth in the previous decade).
A sudden jump of the Indian economy to pass on to the stage of a post-industrial ‘service’
economy is being witnessed, that too without completing the phase of industrialization. The services
sector has experienced on average 9 to 10 p.c. growth rate during the post-reforms period.
Table 8, gives the per capita G.D.P. in these two sub-sectors namely agriculture and nonagriculture.
We can see from the table that per capita G.D.P. in Agriculture has increased barely by 32.65
per cent in 40 years whereas in Non-Agriculture sector it has increased by 170 per cent. This is
because of difference in the basic structure of the sectors. If same amount of funds are invested in
industrial and agricultural sector, industry would definitely show higher growth. It is but natural.
Table 8: Income Per Capita G.D.P. in Agriculture and Non-Agriculture Sector
(At constant i.e. 1980-81 prices)
Year
Agriculture
Non-Agriculture
1950-51
860.83
1886.52
1960-61
956.17
2573.32
1970-71
956.60
3302.69
1980-81
940.48
3506.47
1990-91
1143.01
5189.36
III.B
PRE-REFORMS AND POST-REFORMS PERIOD BOTH [Till 2012 only]
1.10
Share of Organised and Unorganised Sector in National Income
Underdeveloped economies are more characterized by self-employment rather than wage
employment. Concentration of production in uncorporated enterprises, dominant position of
unorganized economic activity etc. are the main features. Broadly traditional economy is identified with
a subsistence rather a market economy.
28
But distinct changes have taken place in these features since independence. As we can notice
from Table 11.
Value of Factor Income by Organised and Unorganised Sectors
Table 9 : Percentage Share in N.D.P. (at Constant Prices)
By Organised and Unorganised sector
Year
Organized Sector
Unorganized Sector
1960-61
25.60
74.40
1965-66
29.22
70.78
1970-71
27.22
27.28
1975-76
31.56
64.44
1980-81
30.00
70.00
1995-96
40.30
59.07
2003-04
40.06
59.04
2007-08
42.9
57.1
Source: CSO 2003-04, National Accounts Statistics (1998, 2006). Dutt & Mahajan (2014).
Table 9 indicates that organized sector has grown faster. It would be mentioned here that public
sector accounts for 1/4th of G.D.P. in the country. Organised sector employment as on March 31, 2001
was 27.8 million out of which public sector employment stood at 19.1 million and private sector 8.7
million. With the growth of private sector in the post-reforms era, the expansin of private employment
has increased. The agriculture sector is largely un organized (above 90pc).
The break up of economic activities into organised and unorganised sectors presents the fact
that the share of the organised sector has risen from 30 per cent in 1980-81 to 42.9 per cent in 200708. Consequently, the share of the unorganised sector declined from 70 per cent to 57.1 per cent
during the same period. The share of the organised sector in mining, manufacturing etc. increased from
56.8 per cent to 70.2 per cent and that in the services sector rose from about 40 per cent in 1980-81 to
46 per cent in 2007-08. In agriculture, forestry and fishing, the contribution of the unorganised sector
slightly declined from 95.2 per cent in 1980-81 to 91.2 per cent in 2007-08. Obviously, the shift in the
composition of NDP from the unorganised to the organised sector is a consequence of the process of
development.
Table 12 : Percentage Share in Net Domestic Product by Organised and
Unorganised Sectors
1980-81
Organised (%)
1. Agriculture, Forestry
2007-08
Unorganised (%) Organised(%) Unorganised (%)
4.8
95.2
8.8
91.2
2. Mining manufacturing etc.
56.8
43.2
70.2
29.8
3. Services
39.9
60.1
46.0
54.0
4. Total
30.0
70.0
42.9
57.1
and fishing
29
Source : CSO, National Accounts Statistics (2007)
Share of Public and Private Sector in the G.D.P.
The role of public sector has been very dominant in our planning period. This we can see from
the table given below:
Table 13 : Share of Public and Private Sector in G.D.P.
(At current prices, percentage distribution)
Year
Organized Sector (%)
Unorganized Sector (%)
1960-61
10.56
89.34
1970-71
14.9
85.51
1980-81
19.7
80.03
1985-86
24.8
75.02
1990-91
26.04
73.06
1995-96
26.02
73.08
Source: CSO, National Accounts Statistics, 1976, 1986 and 1998.
1.12
Structural Transformation of Industry Under Plans
As the process of industrialization proceeds over a period of time some marked changes occur
in the industrial sector of the economy.
First stage of industrial development consists of marked dominance of consumer goods. The
net output of consumer goods, in this stage is five times more than capital. Second stage involves
greater progress of producer and intermediate goods. Third or ultimate stage again consists of greater
emphasis on mass consumption goods. This three staged industrial growth model is also known as the
Hoffman Model. Cross section analysis has confirmed the existence of Hoffman’s Model for a large
number of countries. In Soviet Union capital goods stage was brought earlier because of economic
planning and Government intervention. In Britain this was an evolutionary process.
In underdeveloped countries there is generally scarcity of capital. As a result labour intensive
consumer goods industries are given more importance at initial stages of development. However, the
stage to have more of capital goods will occur quite late in these countries as follows:
(a)
When they are in position to raise capital internally.
(b)
When their export earning is increased and is spent on import of producer goods.
However, this may not be easy and it takes greater time for underdeveloped countries to shift
from consumer goods stage to capital goods stage.
In India, greater emphasis was given to capital goods industries during second plan. Even 4th
and 5th plan allocated greater outlay to the growth of capital goods for example, 21% of the Industrial
outlay in 4th plan and 21% in the 5th plan was to be spent for the growth of iron and steel industry.
Similarly Non-Ferrous metals, Fertilizers, petrol exploration and refining, coal were given more
importance during these plans. (See Table 14)
30
Table 12 : Average Annual Growth Rate of Production (1979-2005)
(Use-based Industry)
Industry
V
(1974-79)
VI
(1980-85)
VII
(1985-90)
VIII
(1992-97)
IX
(1993-94-2005)
Basic
8.4
8.3
7.4
6.8
5.5
Capital Goods
5.7
7.1
15.7
8.9
8.5
Intermediate goods
4.3
6.2
5.5
8.5
6.6
Consumer goods
5.5
6.5
6.6
6.6
7.3
(a) Durables
6.8
15.2
12.1
13.2
11.0
(b) Non-Durables
5.4
5.3
5.4
4.9
7.2
Source: Govt. of India, Ministry of Industry., Handbook of Industrial Statistic (1987) and Eco. 1997-98
Note : Details in next samester
It is clear from the table that the growth rate of all groups of goods has been modest since 198081 except for consumer durables which has been zooming forward.
Industrial growth, however has not been uniform since 1951. We’ll study an detail alsect growth
of industrial sector. After a steady growth of about 8 percent during the intial period of 14 years (195165), there was a fluctuation trend since then near stagnancy during 1966-68, a high level of 9.5 percent
during 1976-77, a minus 1.4 per cent in 1979-80. In the sixties (1961-70) the average growth rate of
industrial output was around 5.5 percent. In the seventies (1971-80), the average growth rate was
about 4 percent per annum. Even during 1980-85 the growth rate of industrial production was 5.5
percent per annum. The basic fact was that the rate of growth of Indian industrial production had picked
up to an average of over 8 per cent per annum in the eighties while in the Eighth Plan, it had declined
to 7.1 per cent per annum.
During 1993-94 and 2005-06, a slow-down in the rate of growth of basic industries and
intermediate goods is witnessed. As against this, there has been a faster average rate of growth of
capital goods and consumer goods. A slight decline in the growth of consumer durables and an
increase in rate of growth of consumer non-durable is witnessed.
SECTION-IV : OCCUPATIONAL STRUCTURE IN INDIA
1.13
OCCUPATIONAL DISTRIBUTION BY INDUSTRY ORIGIN IN INDIA
We have studied the sectoral shares of agriculture, industries and services sectors in national
income. The emerging ‘Structural change in GDP shares’ shows a big decline in the share of
agriculture, coupled with a modest increase in the share of industry and a much sharper increase in the
share of services, which now account now for above 60 per cent of the total GDP. From an agrarian
economy of post-indendence years we have become service sector dominated economy.
1.13.1 Occupational Distribution in India (1972-1990)
But the question arises, had this structural shift in GDP share an impact on the employment
pattern or distribution of workforce in India. ‘Data provided in Table 15. (a) based on the various rounds
of the National Sample Survey reveals that the share of workforce deployed in agriculture declined from
74 per cent in 1972-73 for about 63.9 percent in 1993-94. Along with this declines, the share of
employment in industry increased from 11.2 percent in 1972-73 to 14.9 percent in 1993-94 and further
to 17.1 percent in 2001-02. Also the share of services in total employment increased from 14.6 percent
in 1972-73 to 22.1 percent in 2001-02.
31
Table 1.13 : Distribution of Working Force by Industry Division in India
(In Percentage)
Industry Division
Year
1972-73
1983
1993-94 2001-02
2009-10
Agriculture
Agriculture Forestry, Fishing
74.0
68.1
63.9
60.8
53.2
and Hunting
Industry
Mining and Quarrying
0.4
0.6
0.7
0.5
0.6
Manufacturing
8.8
10.7
10.6
11.9
11.0
Electricity, Gas & Water
0.2
0.3
0.4
0.2
0.3
Construction
1.8
2.3
3.2
4.5
9.6
Sub-total
11.2
13.9
14.9
17.1
21.5
Services
Wholesale and Retail trade &
Restuarants and Hotels
5.0
6.9
7.6
10.5
10.8
Transport, Storage and Communication
1.8
2.5
2.9
3.5
4.3
Other Services
7.8
8.8
10.7
8.1
10.3
Sub-total
14.6
18.2
21.2
22.1
25.4
Activities not classified
0.2
0.4
Total
100.0
100.0
100.0
100.0
100.0
Total Employment (Million)
236.3
302.8
378.1
428.2
Note : 1. Figures relate to usual status of individuals.
2. Workforce covers those involved in gainful activity regularly + those involved in gainful
occassionally.
3. NSSO Round 2017-18 yet awaited.
Source : Datt and Sundaram (2015)
activity
The upshot of this analysis is that the GDP share of agriculture declined sharply but the
corresponding decline in employment share did not take place in India. Meanwhile GDP share of
industry registered a very small increase of 5 per cent during the three decades (1970-71 to 2001-02).
And the corresponding increase in employment share was also only 6 per cent during the same period.
This only indicates that the process of industralization failed to absorb excess labour in agriculture in
the expansion of industry. Thirdly, share of services in GDP increased sharply to about 50 percent, but
there was meagre increase in employment which was barely 5 percent as against an 18 per cent
increase in GDP during 1970-71 and 2001-02. From this it follows that Indian economy did not
experience sequence in the growth of GDP and employment in industry during the process of
industrialization, but skipped to the post-industrialization phase of increasing its share of GDP as well
as employment in services, though a relatively much smaller increase in employment in the service
sector took place.
The growth of India becoming a post-industrial ‘service economy’, without passing through the
major phase of industrialization, needs explanation? A very plausible explanation is: Technological
changes during the last few decades have induced an increase in demand for services even at very
lower levels of per capita income. Moreover, development of communication technologies and
reduction of the barriers to commodity flows and movement of people, specially skilled persons due to
impact of globalization, have produced demonstration effects. This resulted in shifting the pattern of
32
demand in developing countries in favour of those prevailing in developed countries. As consequences,
both the production and consumption of services have shown a quantum jump. Unfortunately, the
pattern of production of services which is capital-intensive has failed to bring about a major proportion
of the workforce to services.
1.13.2 Occupational Distribution Since 1993-94
We have noticed in Table 15(a) that the share of agriculture in labour-force continued to decline
from 63.9 pc in 1993-94 to 60.8 percent in 2001-02 and further to 53.2 percent in 2009-10. The share of
employment in industry in 1993-94 was 14.9 percent which firstly increased in 2001-02 to 17.9 percent
but latter increased to 2.5 percent in 2009-10. Whereas the share of services in total employment
increased from 3.2 percent in 1993-94 to 4.5 percent in 2001-02 and to 9.6 percent in 2009-10.
Table 15 b presents figure related to participation of labour force in all three sectors during the
period 2000-10. In the year 1993-94, around 64 p.c. of population was engaged is agriculture (see
Table 15a) which declined to 60 pc in the year 2000 and 51 percent in 2010 (see Table 15a). The
shared show of industry and services sectors have increased from 16 pc to 22 pc and from 24 pc to 27
pc respectrely during the period 2000-2010.
Table 14, Share of Employment in the Three Sectors (2000-2010)
Indicators
2000
2010
Share of employment in
Agriculture (%)
60
51
Industry (%)
16
22
Service (%)
24
27
Labour force participation rate (%)
60
56
Population (in mn) (15%)
688
850
Labour force (in mn)
409
473
Employment (in mn)
392
456
Employment/Labour force (in%)
96
96
Employment in agriculture (in mn)
234
233
Employment in industry (in mn)
63
102
Employment in Services (in mn)
94
121
Source : Economic Survey, 2012-13, p.36 (World Development Indicators)
Note : Labour Force Participation rate in World Development Industries is defined as labour force/ population
sector has increased. The share of services sector has increased from 24 p.c. to 27 p.c. while that of industry has
increased 16 pc to 22 pc between 2000-10.
Self Assessment Question
Q.
Define occupational distribution.
____________________________________________________________________________
____________________________________________________________________________
Following the figures in Economic Survey 2012-13 (p. 34), the following points emerge:

Unlike the conventional wisdom, India does not have more people in agriculture than other
Asian countries at similar stages of developments. The share of workers dependent on agriculture has
been shrinking at a similar pace.
33

One problem is that while industry is creating jobs, these have been relatively low-productivity
jobs. As a result, per capita income in India has not benefited as much from inter-sectoral migration of
workers out of agriculture as Asian countries have.

A second problem is that the high productivity services sector is not able to create employment
commensurate with its growth in value added.
1.13
SUMMARY
Lets summarise the progress in the growth of national income growth of India and its
composition or structural changes since 1951 through flowchart.
Growth of National Income
and
Growth of Per Capital Income
under FyPs
Comparison with other Nations
National Income in India
Growth
Structures Breaks
Structural Changes
Commodity &
Non-Commodity
Inter State Variation
Gross & Per Capita Domestic Product
(Life Expectancy & Litercy
Agriculture &
Non-Agriculture
Independences
Green
Revoluation
Rural &
Urban Sectors
Causes
Agriculture
Development
Organised and
Unorganised
Structural Break
of 1980s
Economic
Reforms of 1990s
Industrial
Development
Public and
Private
Trends in the
decade of
nineties
Net State
Domestic
Product
Social Set-up
Structural Transformation
of Industry
Infrastructure
Per Capita
Net State
Domestic
Product
Service Sector
Basic
Goods
Capital
Goods
Durables
Consumer
Goods
Non-Durables
Poverty
Life Expectancy
at Birth
Literacy Rate
34
APPENDIX : Latest Figures on Lesson 1 [can be used in L-5,11&15]
Note: The base year for calculating national income has shiffted from 2004-05 t0 2011-12 and also
from factor cost to market prices. This change could have been adjusted to make data comparable with
old series. But crucial point is these sources of data are not readily available for time period before
2011-12 using old methodology, data has been updated made available till 2013-14 (2012-13 & 201314) are years common to both series.
Table 5 : Average Annual Growth Rates (at Constant Prices : Eleventh Plan (Percent Per Annum)
Plan
Net National Income (%)
Per Capital Income (%)
7.8
7.5
Eleventh Plan
2006-07 to 2011-12
Source: Eco Survey 2015-16
Table 6 : National Income Figure (Rs. ) at 2011-12 Series (New Series)
Year
Gross National Income
(Rs. Crore)
Net National Income
(Rs. Crore)
Per Capita Income
(Rs.)
Current
Price
Constant
Price
Current
Price
Constant
Price
Current
Price
Constant
Price
2011-12*
3659215
48659215
7742074
7742074
63400
63460
2012-13*
9834581
9118709
8774615
8109505
71052
65664
2013-14*
11132877
9717062
9934404
8615309
79412
68867
2014-15@
12340772
10427701
11007597
9235026
86879
72889
2015-16(AE)
13409892
11214077
111961524
9934339
93231
77431
Source : Eco Survey 2015-16
Note : *Second revised estimates; @ - First revised estimate; AE – Advance (Estimates)
Table : 7 Saving and Investment at Current Prices
Year
Domestic Saving (as
percent of GDP)
Gross Fixed Capital
Formation
(as % of GDP)
2011-12*
34.6
34.8
2012-13*
33.8
33.4
2013-14*
33.0
31.6
2014-15@)
33.0
30.8
29.4
Source : Eco Survey, 2015-16
Note : *Second revised estimates; @ - First revised estimate; AE – Advance (Estimates)
35
Table 8 : Growth of GDP and Manufacturing Sector : Important Figure [Percent per annum]
S.No
Item
2014-15
2015-16
1.
Growth Rate of GDP at Constant Prices
(percent per annum)
7.2
7.6
2.
Growth of Manufacturing (percent per annum)
5.5
9.5
Sources : Economy 2015-16
Table 9 : Level and Growth of Per Capita Income and Consumption.
(at 2011-12 prices)
Item
Per Capita Income in
2015-16 (in Rs.)
Growth at Constant Prices
(pc per annum)*
Current
Price
Constant
Price
2012-13
2013-14
2014-15
2015-2016
Per Capita GDP
105746
88472
4.3
5.3
5.9
6.3
Per Capita NDP
93231
77431
3.5
4.9
5.8
6.2
Source : Eco Survey 2015-16
Table 10 a : GDP at : GDP at Current Prices and Constant Prices (in Rs.)
Particulars
Year
GDP at
Current Prices
GDP at Constant
Prices
(Per Capita Annual
Net National Income
(at Current Prices)
2018-19
190 Lakh Crore
140.8 Lakh Crore
1,26,406
2019-20
204.4 Lakh Crore
147.8 Lakh Crore
1,35,050
Source : Eco Survey, 2019-20
Table 10 b : Growth in Real GDP (Percent per Annum)
Period
Agriculture
Industry
Services
GDP
1950s
2.7
5.6
3.9
3.6
1960s
2.5
6.3
4.8
4.0
1970s
1.3
3.6
4.4
2.9
1980s
4.4
5.9
6.5
5.6
1990s
3.2
5.7
7.3
5.8
2000s
2.5
7.7
8.6
7.2
Source CSO c.f. Kapila (2020) p. 205
36
Table 10 C : Growth rate of Various Sectors in the year 2018-19 (per cent)
Primary Sector
2.9%
Secondary Sector
6.9%
Teritary Sector
7.5%
Overall
6.8%
Source : ECO. Survey 2019-20
1.14
GLOSSARY

National Income (NY): National Income is the market value of final goods and services
produced in an economy during an accounting year.

Per Capita Income (PCY): It is the average income, received or average by a person in an
economy. PCY=NY/Population

Structure of an Economy: The structure of an economy comprises relatives haves of three
sectors namely primary, secondary and tertiary sectors.

Structural Changes: When an economy grows, the respective shares of all the three sector
change i.e. the share of agriculture is maximum in the initial stages of development which starts
declining with development taking place, the respective shares of industry and services starts
declining. These are known as structural changes.

Occupational Distribution: When an economy grows, the economic activities grow and all
sectors throw different occupation for the people. The respective shares of Primary, Secondary
and tertiary sectors in total employment refer to occupational distribution of that country.
1.15
REFRENCES

Government of India. Economic Survey of India. (various issues) till 2021-22.

Government of India, Drafts of various Five Year Plans (11th Plan & 12th Plans also).

World Development Indicators.

Datt and Mahajan (2015 and 2020). Indian economy, S Chand & Company Pvt.Ltd. New Delhi.

Uma Kapila (2016 and 2020). Indian Economy Service Independence (1947-2020) 31st edition,
Academic Foundation.

Government of India. RBI Handbook, Annual issues including recent one.
1.16
FURTHER READINGS

Kapila Uma (2016). Indian Economy since indepence. Academic Foundation. New Delhi.

Misra and Puri (2016). Indian economy (latest issue 2020). Himalaya Publishing House Pvt. Ltd.
New Delhi.
37
1.17
MODEL QUESTIONS
 Discuss the growth of national income and per capita income in post-independence period with
special reference to post reforms period.

Comment on the followings :
(a) Structural changes in National Income (1950-90 and post reforms period)
(b) Occupational Distribution in India (1950-90 and post reforms period)
Note : Consult Lesson 10 for NSSO data & Census data on Occupational Distribution.
----
38
Lesson-2
STATE OF INDIAN ECONOMY IN 1990-91
Structure
2.0
Objectives
2.1
Introduction
2.2
Origin of the Crisis 1990-91
2.3
State of Indian economy in 1990-91
2.4
Summary
2.5
Glossary
2.6
References
2.7
Further Readings
2.8
Model Questions
2.0
OBJECTIVES
After going through this lesson, you will be able to :


2.1
explain as to why Indian economy faced the economic crisis in 1990-91.
comment upon the state of Indian economy in the year 1990-91.
INTRODUCTION
We are aware of the fact that close to the end of the Seventh Five Year Plan, Indian economy
was entering into deep economic crisis which finally surfaced in the year 1991. This led to adoption of
economic reforms and changed strategy in the later plans namely Eighth, Ninth, Tenth and Eleventh
plans; and is continued in the Twelfth Plan. This lesson shall discuss the economic crisis of 1990-91
in detail i.e. the changes that took place in the decade of 80s culminating in the economic crisis of
1990-91, and features of Indian economy in the year 1991.
2.2
ORIGIN OF THE CRISIS 1990-91
We must know that the external debt crisis surfaced in early 1991 which brought India close to
default, the manifestations of this crisis were by no means unusual. Indeed they reflected the
experience of several developing countries a decade earlier. A deep fiscal crisis was juxtaposed with
an almost unmanageable balance of payments situation and an acceleration in the rate of inflation. For
a foreign exchange constrained economy that always lived hand-to-mouth existence, in terms of
external resources, and relied on foreign capital inflows at the margin to finance the process of
development, a difficult balance of payments situation was nothing new. This time around, however, the
problem was both more acute and more complex. For one, the magnitude of the financing need was
much larger. For another, the fragile balance of payments situation coincided with, and was partly the
outcome of, a deep macro-economic disequilibrium. This crisis in the economy, not attributable to any
significant endogenous or exogenous shock, was bound to disrupt the growth process and endanger
the price stability.
The origin of the crisis can be traced to the large and persistent macro-economic imbalances
during the 1980s. The widening gap between the income and the expenditure of the government led to
mounting fiscal deficits which were met by borrowing at home. The steady increase in the difference
between the income and the expenditure of the government as a whole meant persistent current
39
account deficits in the balance of payments, inevitably financed by borrowing from abroad. The internal
imbalance in the fiscal situation and the external imbalance in the payment situation were closely
related through the absence of prudence in the macro management of the economy. The macroeconomics of this relationship can be reduced to a simple proposition based on the national income
accounting identity: ex-post, the current account deficit in an economy is the sum of :
a)
The difference between, investment and saving in the private sector.
b)
The difference between expenditure and income in the government sector.
In retrospect, it appears that the government turned this identity into a strategy for the
macro-management of the economy during the 1980s. It sought to use the current account deficit in the
balance of payments as a means of financing the excess of investment over saving for the economy in
particular. Thus, mounting imbalances in the external sector became a convenient substitute for macroeconomic adjustment.
The fiscal crisis was neither an accident nor a coincidence. It was a direct consequence of the
financial profligacy on the part of the government. The gross fiscal deficit of the central government,
(which measures the difference between revenue receipts plus grants and total expenditure plus
domestic lending) was 8.2% of GDP during the second half of the 1980s, while it was 4% in the mid1970s. This fiscal deficit had to be met by borrowing mostly from the central bank and the people of
India. In the year 1991, it had reached the level of 8.4% of GDP. The consequences emerge clearly
from the evidence presented in Table 1 and explained in the next para.
Table 1 : Fiscal Imbalance and Internal Debt of the Central Government
1981-91 (as percentage of GDP at market prices)
Sources:
(i)
Col. (1), (2) & (3) : RBI, Annual Report, 1991-92
(ii)
Col. (4) : Ministry of Finance, Eco. Surveys, 1990-91 and 1992-93
(iii)
Col. (5) Ministry of Finance, Economic & Functional classification of the Centra l Govt.
Budget, annual issues.
40
The internal debt of the government accumulated rapidly, rising from 35.6 percent of GDP at
the end of 1980-81 to 53.5 percent of GDP at the end of 1990-91. The burden of debt-servicing also
mounted. Interest payments increased from 2 percent of GDP and 10 percent of total central
government expenditure in 1980-81 to 4 percent of GDP and 19 percent of the total central government
expenditure in 1990-91, i.e. almost doubled. It is quite obvious that any growth process based on such
borrowing was simply not sustainable. The underlying fiscal crisis was bound to create a situation
where the balance of payments situation would become unmanageable and inflation would exceed the
limits of tolerance. The decision makers then, oblivious to criticism, were convinced that they could
borrow and spend their way to prosperity. But the inevitable crunch did come.
The balance of payments crisis was neither sudden nor unexpected. It was man-made and
policy-induced. The liberalisation of the trade regime beginning in the late 1970s and the new regime
of industrial policies introduced in the early 1980s taken together created incentives for import
intensive industrialisation and increased the import intensity of production. The second half of the
1980s also witnessed a surge in imports for the defence sector. During this period, export performance
was at best modest while the growth in remittances tapered off and import substitution in the petroleum
sector slowed down. Consequently, the current account deficit doubled from an annual average of $2.3
billion or 1.3 percent of GDP during the first half of the 1980s to an annual average of $ 5.5 billion or 2.2
percent of GDP during the second half of the 1980s; being 2.3 per cent in the year 1990-91 (see Table
2). These persistent deficits were inevitably financed by borrowing from abroad. The result was a
continuous increase in the external debt which (see Table 2) rose from $23.8 billion or 14.3 percent of
GDP at the end of 1980-81 to $ 62.3 billion or 22.8 per cent of GDP at the end of 1990-91.
Consequently, the debt servicing also rose from 7.9 percent of current account receipts and 14.9
percent of export earnings in 1980-81 to 21. 7 percent of export earning in 1990-91.
Table 2: Current Account Deficit, External Debt and Debt Servicing (1981- 91)
Years
Current account
deficit as a
percentage
of GDP
(1)
Medium and Long term
Eternal Debt at the
end of year
in
as a
US$ million
percentage
of GDP
(2)
(3)
Debt Servicing as
a percentage of
Export
(4)
Current
Account
Receipts
(5)
1980-81
1.2
23.8
14.3
14.9
7.9
1981-82
1.4
24.3
14.2
13.5
7.7
1982-83
1.3
27.9
15.6
14.6
8.7
1983-84
1.1
31.1
16.0
17.2
10.3
1984-85
1.2
31.9
17.1
19.8
11.7
1985-86
2.3
37.0
17.4
26.7
15.9
1986-87
2.0
43.8
19.4
39.4
31.0
1987-88
1.9
50.8
19.5
41.3
26.4
1988-89
2.6
53.5
21.1
38.9
25.4
1989-90
1990-91
2.2
2.3
57.7
62.3
21.6
23.8
31.1
29.8
21.5
21.7
Source :
(i)
Col.(1) : Reserve Bank of India, Report on Currency and Finance, annual issues
41
(ii)
Col. (2) and (3) : Report of Economic Advisory Council, The Current Economic Situation and Priority Areas
for Action, Government of India, New Delhi, Dec., 1989, P5—9 (for the period 1980-81 to 1983-84); and
Reserve Bank of India, Annual Report 1991-92, P. 21 (for the period 1984-85 to 1990-91)
(iii)
Col. (4) & (5) : Economic Survey, annual issues and Report on Currency and Finance, annual issues.
Notes: (1)
The data in medium and long-term external debt reported in the Table include external assistance from
bilateral or multilateral sources of government account and non-government account, drawings from the
IMF, external commercial borrowing and outstanding non-resident deposits.
(2)
The data on debt servicing in this table are derived from balance of payments statistics as the sum of
utilisation payments and interest payments. The figures on debt servicing reported by the Ministry of Finance
or the Reserve Bank of India for this period underestimate burden by a significant proportion because of the
incomplete coverage of external debt statistics.
(3)
The current account deficit-GDP ratios and the external debt GDP ratios are based on the rupee values of
the current account deficit during each fiscal year and the outstanding medium and long-term external debt
at the end of each fiscal year, expressed as a percentage of GDP at current market prices (data on GDP are
from CSO, National Accounts Statistics)
(4)
The debt-service indicators are based on the rupee value of debt servicing expressed as a percentage of the
rupee value of exports and of current account receipts (data on exports and current account receipts are
from RBI balance of payment statistics).
The financial strains (discussed above) which mounted over the years, stretched to breaking
point on account of the Gulf crisis. The problems associated with the macro-economic imbalances were
sharply accentuated, and perhaps brought forward in time, by the impact of the Gulf crisis in late 1990.
This coincided with an uncertain and disturbed situation in the policy which was followed by a political
interregnum.
Taken together, these developments led to an erosion of international confidence in India.
Credit ratings in international capital markets plummeted. It is clear, however, that the problems of the
economy, which reached crisis proportions in 1991; did not come as a bolt from the blue. Actually they
accumulated over several years. The economy was able to cope with and adjust to much larger and
more sustained oil shocks in 1973 and 1979. Yet, the minor shock of 1990 had a disproportionately
large impact because of the fact that the macro-economic situation was already so fragile. The balance
of payments lurched from one liquidity crisis in mid-January 1991 to another in late-June 1991 and
came to the verge of collapse. On both occasions, foreign exchange reserves dropped to levels which
were not enough to finance imports even for a fortnight.
The vulnerability of the balances of payments was further aggravated by two factors. First, it
was almost impossible to roll over the then existing short-term debt in the range of $6 billion
because of adverse international perceptions of the situation and the overnight borrowing in
international capital markets was of the order of $ 2 billion. Secondly, the Non-Resident Deposits,
where the outstanding amount then was more than $ 10 billion, levelled off in September 1990 with a
modest inflow of $ 0.3 billIon in the period October 1990 to March 1991 and a massive net outflow of $
1.3 billion in the period April 1991 to September 1991. It becomes obvious that further any worsening of
expectation would have called in for fresh short-term debt, thus lending to pressure on non-resident
deposits.
India, hence, came close to default. The government was under pressure to use last resort
measures like sending gold stocks to obtain foreign exchange, seeking emergency assistance
(bilateral) from donor countries and going for loans under special facilities from multilateral financial
institutions. It can be concluded that the soft options used by the government in the late 1980s claimed
their pound of flesh. Actually the short-term debt was incurred mostly to finance imports of petroleum;
and the non-resident deposits; and borrowings in capital markets were used to sustain import
liberalisation and defence purchases. External resources were, of course, fungible in use but current
account deficits were financed by borrowing of one sort or another. The rapid pile up of external debt
42
and the increased burden of debt servicing ultimately eroded international confidence in India’s
capacity or repayment.
The price situation also came under mounting pressure. The rate of inflation, in terms of
Wholesale Price Index, increased from less than 5 percent in 1985-86 to more than 10 percent in 199091. The price behaviour was not clearly related to monetized deficits, which were, on average, larger
than 2 percent of the GDP, or monetary expansion which was, on average, about 17 percent per
annum throughout the 1980s. It must be recognised that rates of inflation in India have always been
strongly influenced by exogenous shocks such as oil price increases and endogenous shocks like bad
monsoons. At the end of the 1980s, however, when food prices rose in spite of three good monsoons in
a row, the build-up of inflationary pressures was also attributable to the large fiscal deficits and an
excessive growth in money supply. This liquidity overhang accumulated over several years, alone with
structural rigidities and underlying supply-demand imbalances, carried a potential for accelerating
inflation.
In retrospect, it is clear that the macro-economic disequilibrium which plunged the economy into
a crisis situation was, in a fundamental sense, attributable to the mounting imbalances in the fiscal
system. In the 1980s, the fiscal regime away from domestic resource mobilisation as direct taxes were
progressively reduced while indirect taxes, which contributed most of the revenues, could not be raised
any further because such a step could either be inflationary or regressive or both. The inadequate
resource mobilisation effort was compounded by an increase in public expenditures either in the form of
subsidies or in the form of consumption expenditure - a result of competitive policies of populism or
policies of soft options. The problem was further aggravated by the increasing expenditure on defence.
The fiscal deficit grew larger because total expenditure outpaced revenue receipts.
The principle cause of the fiscal crisis was obviously the revenue expenditure exceeding
revenue receipts. In case of the central government, the small but consistent revenue surplus of the
1970s got transformed into a revenue deficit which averaged 1.1 percent of GDP during the period
1980-81 to 1984-85 and 2.6 percent of GDP in the period 1985-86 to 1989-90. The financing of this
revenue deficit was made by borrowing, thus borrowing was made to support consumption expenditure.
Given the fact that capital expenditure was made on defence and the social sectors, which did not yield
tangible returns. Therefore, the ratio of return on public investment elsewhere were desired to be
exceptionally high so that it could yield a net income flow to the exchequer. Beyond a certain limit, this
type of fiscal regime was unsustainable. The rescue was made in the form of unconstrained domestic
borrowings by the government; borrowing from the central bank at low rates of interest and the preemptive borrowings from the commercial banks (based on high SLR, statutory liquidity ratio at modest
interest rates.
Given India’s credit-worthiness and low exposure in international capital markets, through
indirect borrowings from abroad, it was relatively easy for the government to finance the current
account deficit during the 1980s.
In principle, such a borrowing for financing development is sustainable if external resources are
used to support investment and not consumption, provided there is an adequate rate of return on such
investments in terms of domestic resources and the economy raises its capacity to transform domestic
resources into foreign resources : that is, for a given level of domestic savings, the government raised
the level of investment by an amount equal to the inflow of external resources.
The financial crunch faced by the government during the 1980s did not meet most of the above
stated conditions and the external resources were used in part as a substitute for domestic resources;
and were used in part to augment investment and rest to support consumption. The quite obvious
example was the use of short-term borrowings to finance imports of petroleum, fertilisers and edible oils
in the late 1980s ; the alternative would have been to curb imports or run down reserves. In addition to
43
this, the medium-term-borrowing provided balance of payment support to sustain import liberalisation,
thus creating opportunities for import intensive consumption. Thus it is observed that in either case whether domestic resources were not mobilised sufficiently for public investment or public expenditure
on consumption was not controlled adequately - borrowing abroad became a soft option for the
government. It is, therefore, plausible to agree that in the presence of foreign capital inflows, the central
public savings were lower than potential public savings.
Thus, it can be said that the origin of the crisis at the beginning of the 1990s can be traced in
the loose macro-management of the economy during the 1980s and, not as claimed by many, in a
misplaced strategy of development since the mid-1950s. It can not be claimed that the everything we
did was right but it would be unjust to say that everything we did was wrong. The real picture brings
forth a mix of the good, the bad and the indifferent.
2.3
STATE OF INDIAN ECONOMY 1990-91
It seems paradoxical that the decade of eighties which saw unprecedented growth was
immediately followed by the severe foreign exchange crisis in the year 1990. As shown in the table
given below, the Indian economy witnessed a turn around in the period of the “eighties;”, and recorded
very high growth during this period.
Robust Growth in 80s
As it is evident from Table 3, the growth rate of income (GDP) increased to 5.46 percent
compared to 3.45 percent during the seventies. Per capita income increased at 3.01 percent per annum
compared with a paltry figure of 1.2 percent during the previous 30 years. Actually, in the eighties while
agricultural GDP grew at 3.94 percent per annum income from the secondary and tertiary sector grew
at 6.86 percent and 6.58 percent per annum respectivily. Again, while agricultural output grew at a rate
of 3.47 percent per annum, the inudstrial growth rate rose to 8 percent per annum, the highest in the
country’s history. Not only that, exports from India recorded a growth rate of 10 percent per annum in
real terms.
This robust growth of the decade of eighties actually was the result of high level of
expenditure in the economy. This unsustainable level of expenditure could only be financed either
through external or internal savings.
Table 3: Growth Rates of GDP and Per Capita Income during 1950-51 to 1998-99
(at 1980-81 prices)
Years
Gross Domestic Product
Per Capita Income
1950-51 to 1964-65
4.00
1.69
1967-68 to 1979-80
3.45
1.11
1980-81 to 1990-91
5.46
3.01
1990-91 to 1998-99
6.23
4.30
1950-51 to 1998-99
4.16
1.77
Source : Economic Survey, various issues
The government was incurring large current and capital expenditure which was
unmatched by its revenues and had therefore to resort to borrowings. The development process
became unsustainable and expressed itself in the foreign exchange constraint. Simultaneously, there
took place a large: increase in internal borrowings.
44
The failure to raise sufficient savings can be traced to fiscal irresponsibility of governments both
at the centre and the states. During 1980-81 to 1990-91, while revenue receipts grew at rate of 16.6
percent per annum, revenue expenditure recorded a growth rate of 17.1 percent. The deficit on
revenue account kept on increasing from 1.5 percent of GDP during 80-81 to 3.5 percent of GDP
by 1990-91 (Table 6).
There were several reasons for revenue expenditure to increase disproportionately and for the
fiscal deficit to rise sharply. These included fiscal irresponsibility of the central and state governments
rising interest payments on mounting internal debt, inefficient functioning of public enterprises both at
the state and central levels, and mounting expenditure on subsidies.
Since the current revenue could not finance even the current expenditure, the only way
to finance investment was through internal and external borrowing. By 1990-91, internal liabilities
had increased to 53.3 percent of GDP compared with 35.6 percent of GDP in 1980-81. Further, gross
interest payments accounted for as much as 23.7 percent of total expenditure (or 4 percent of
GDP) compared with the figure of 11.6 percent of total expenditure or (or 1.9 percent of GDP) in 198081. Increasing expenditure on defence further aggravated the situation. Large increase in borrowings
from the RBI also led to an increase in money supply and inflationary pressure. Deficit also resulted
in balance of payment difficulties. Deficits were financed by pre-empting funds for the government and
this raised the cost of borrowing by the private sector for investment.
In addition to internal borrowings, the need to finance large capital expenditure and imports of
machinery and raw materials like oil necessitated large borrowings from abroad. This became
necessary since exports were not growing rapidly enough to pay for increasing imports and payment of
interest and principal on foreign debt. Although exports rose in real terms by 10 percent per annum
during 1985 to 1990, but these were insufficient to finance increasing expenditure on imports of
machinery and raw material. Further, because of much higher investment expenditure during this
period, the gap between domestic savings and investment became especially wide during the later half
of the ‘eighties (See Table 4). The result was the accumulation of large current account deficits which
were being financed by foreign borrowings, This led to a large enlargement in India’s external debt-from
$23.5 bn. in 1980-81 to $63.40 bn. by 1989-90 (the debt had further increased to $97.68 bn. by 1999)
(Table 5 see). The total external debt as percentage of GDP had increased from 13.7 percent in
1980-81 to 27.3 percent by 1990-91. This naturally aggravated the debt burden on the economy and
by 1990-91, nearly 28 percent of total exports were required to service the payment of interest and repayment of capital. The source of foreign borrowings also underwent some important changes from low
cost loans from IDA to the high cost commercial borrowings from the banks and the NRls who were
paid quite high interest rates to attract NRI deposits. So long as India’s credibility was good, this went
on quite merrily although the payment on account of interest and capital became quite onerous.
However, things started happening in quick succession in 1990 which brought India to the edge
of a precipice. The main developments were gulf war in the second half of 1990 which led a sharp rise
in oil prices and an increase in payments made for oil imports; the drying down of remittances from
workers in the gulf, and disruption of trade and drastic reduction in exports to Middle East. The
political situation also became unstable with the coming into power of a minority government in
November, 1990. This was accompanied by loss of confidence in the governments ability to manage
the situation’s. The result was drying up of short-term credit along with a net outflow of NRI deposits.
The downgrading of India’s credit rating by Moody further aggravated the situation. Thus, in spite of
borrowings from the IMF, the foreign exchange reserves declined from Rs. 5,480 crore in August 1990
to only Rs. 1,666 crore on January 16, 1991. There was a real danger of the government defaulting and
for the first time, the Government of India had to send gold physically to finance its necessary foreign
exchange transactions.
45
Self Assessment Question
Q.
Mention the external factors that contributed towards economic crisis of 1991.
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
Table 4
Gross Domestic Savings and Gross Domestic Capital Formation
(As per cent of GDP at current market price)
Period/Year
Gross Domestic
Gross Domestic Capital
Savings
Formation
Household
Private
Public
Total
Adjusted
Sector
Corporate
Sector
Savings
Total
Sector
1950-51 to 1954-55
6.9
0.96
1.7
9.58
9.82
1955-56 to 1959-60
9.12
1.12
1.74
11.96
14.22
1960-61 to 1964-65
8.06
1.72
3.04
12.86
15.24
1965-66 to1969-70
10.36
1.32
2.44
14.12
16.02
1970-71 to 1974-75
11.98
1.66
2.92
16.62
17.44
1975-76 to 1979-80
15.18
1.54
4.46
21.22
20.68
1980-81 to 1984-85
14.1
1.62
3.68
19.42
20.86
1984-85 to 1992-93
17.14
2.38
2.01
21.55
23.83
New Series (Base : 1993-94)
1993-94 to 1997-98
1998-99
18.56
4.16
1.48
24.2
25.44
18.5
3.8
0
22.3
23.4
Note : Q : Quick estimates
Source: Central Statistical Organisation, Economic Survey 1999-2000.
46
Table 5
Macroeconomic Indicators of the Indian Economy (1991-2000)
S.No.
1990-91
1991-92
1992-93
5.4
0.8
5.1
5.
7
4.1
-2.5
5.3
3
1. GDP (ann %age
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999--00
7.3
7.5
5
6.8
5.9
5
-0.9
9.6
-1.9
7.2
0.8
9.2
11.8
6
5.9
4
6.9
Increase)
2. Agriculture growth
3. Secondary Sector
Manufacturing growth
5
-1.8
2.3
3.6
10.7
14.9
7.9
4
3.6
7
82
4. Services growth
4.3
4.5
4.4
5.4
7
10.3
7.1
9
8.3
5. Inflation (% PA)*
10.3
13.7
10.8
10.8
10.2
4.4
6.9
5.3
4.8
2.9
6. Broad money
15.1
19.2
15.7
18.4
23.3
13.2
16.2
18
18.4
16.6
7. Investment as %GDP 27.1
23.6
22
21.6
26.1
27.2
24.6
26.2
23.4
23.7
23.1
20
21.4
25
25.5
23.3
24.7
22.3
(Real GFCF (%GDP) 21.3
20.3
20.6
20.8
21.6*
23.8*
23.6
23.6*
25.1*
Annual % Increase
Gross domestic
8. Gross domestic saving
(% GDP)
Public
8.6
8.7
7.7
7.9
8.8
7.8
7
6.5
6.7
Private
12.7
11.6
12.1
12.6
14.9
18.8
15.1
17.5
16.7
1.1
3.3
20.2
18.4
20.3
5.6
4.5
-3.9
12.9
-24.5
15.4
10
34.3
21.6
12.1
4.6
-7.1
9
-4.37
-4.06
-9.05
-11.35
-14.8
-15.5
-13.25
1.18
3.53
1.16
3.37
5.91
4.62
5.5
4.04
3.2
0.4
1.8
0.1
1
1.7
1.2
1.4
1
1.5
30.2
27.5
25.6
26.2
24.3
21.2
19.5
18.3
18
18.7
2.3
5.7
6.7
15.3
20.81
17.04
22.37
25.98
29.52
31.94
14. Fiscal Deficit (% GDP) 8.3
5.7
7.4
6.1
5.7
5.1
4.9
5.9
6.4
5.4**
15. Revenue Deficit (%GDP)
3.5
2.6
2.6
3.8
3.1
2.5
2.4
3.1
3.7
2.8
3
0.7
0.7
2.2
0.4
0
-0.3
0.5
0.6
-0.4
6.9
6.4
6.2
7.1
8.56
7.6
9. Exports Ann Growth% 9
10. Imports Ann Growth%
14.4
11. Trade Deficit US$bn
-9.44
12. Current Acct Def
9.68
-2.8
US$ bn Current Acct. deficit
(% GDP)
% Current Receipts
13. Foreign exchange
Reserves (in $ bn)
16. Primary Deficit(%GDP)
17. Fiscal Deficit (Central
10
& State) % GDP
Note : (1) At 1993-94 prices. Earlier estimates are at 1980-81 prices.
(2) Ann. Stands for Annual
Source : Government of India C.S.O. (1999) National Accounts Statistics Government of India.
Economic Survey, Various Issues.
47
As a result of the economic crisis of 1991 India had to go in for a radical policy change more
popularly known as economic reforms. The multilateral agencies like the IMF and the World Bank had
been advocating a structural adjustment programme for India for a long time. This time they helped the
country to come out of cerisis through carious financial packages attached with stringent conditions.
They actually insisted upon undertaking such reform (or imposed as conditions) to salvage the country
from the foreign exchange crisis of 1991, which we will study in the next lesson.
2.4
SUMMARY
The lesson has been presented through a flow chart given below:
1980s : Loose Macro-Economic Management
Liberalisation of Trade Regime
Import Intensive Industrialisation
Persistent Deficits
Increase in
State of Indian
Economy
1990-91
Disintegration
of Erstwhile
USSR
Internal Debt
Debt Servicing
Interest Payments
Inflation
External Debt
Short-term borrowings
Gulf War
Adverse Balance of Payment
Situation, and Macro
Economic Disequilibrium
Fall in foreign Remittances
Reduction in Exports to Middle East
Increased Oil Prices
Fall in Exports
of India
Dip in Forex Reserves
Fall in credit Ratting
Borrowing from Multi lateral Agencies
Economic Reforms in India
or
New Economic Policy 1991
(Liberalisation, Privatisation
& Globalisation)
48
2.5
GLOSSARY

Fiscal Imbalance: It refers to a situation when income from the government from all sources
falls short of public expenditure. It is reflected in terms of Fiscal Deficit, Primary deficit, etc.

Internal Debt: The debt raised by the Government of India in the form of National Saving
Scheme, Provident Fund, small saving schemes, etc. from within the territary of nation.

External Debt: The debt raised from other nature or international organisation.

Loss of Confidence: If the rating of the country by rating bodies like Moody’s etc. falls, it is
called loss of confidence.

Debt Servicing: Payment of interest on debt.

Balance of Payments deficit: The difference between payment of imports and earnings from
exports on current account and capital account.

Current Account: It refers to income and payments of the running/current year.

Gross Domestic Savings: The total savings of nation, emerging from private corporate sector,
household sector and government sector in an accounting year, an expressed as %age of GDP.

Gross Investment: The total Capital formation in a country in an accounting year, and
expressed as GDCF-in %age of GDP.

Macro Economic Fundamentals: The fundamental discipline that a nation must observe for
economic health is expressed in terms of Fiscal deficit, Balance of Payment deficit, Inflation etc.
2.6
REFERENCES

Government of India (2000). Economic Survey (1999-2000). Ministry of Finance. various issues.

Government of India (1993). Economic Survey (1992-93). Ministry of Finance, various issues.

Misra & Puri (2000). Indian Economy. Himalaya Publishing House Pvt. Ltd.

Government of India (1993). Report on Currency and Finance. Reserve bank of India, various
issues
2.7
FURTHER READING

Kapila, Uma (2015). Indian Economy since Independence. Academic Foundation.
2.8
MODEL QUESTIONS
1.
What were the factors that resulted in the economic crisis of 1990-91?
2.
Explain the state of Indian economy in the year 1990-91.
--00--
49
Lesson-3
FEATURES OF ECONOMIC REFORMS IN INDIA
(Stabilisation Policy and Structural Adjustment Programme)
Structure
3.0
Objectives
3.1
Introduction
3.2
Global History of Structural Adjustment Programme
3.3
Need for SAP in India
3.4
Economic Reforms in Early Nineties/Stabilisation
3.4.1
Stabilisation Policy
(i) What is a Stabilisation Policy
(ii) Stabilisation Policy in India
3.4.2
Structural Adjustment Programme
(i) What is SAP?
(a) Import Liberalisation
(b) Export Liberalisation
(c) Fiscal and Monetary Discipline
(ii) Structural Adjustment Programme in India : Need
3.4.3
Components of SAP in India
(i)
Trade & Capital Reforms
(a) Exchange Rate Adjustment
(b) Import Liberalisation
(c) Export Promotion
(d) Opening up Economy to Foreign Capital
(ii)
Industrial Deregulation
(a) Delicencing
(b) Amendment of MRTP
(c) Locational Requirements Changed
(d) Investment in Small Scale Industries
(e) Areas reserved for Public Sector Reduced
(f) Freedom of Enterprise
50
(iii)
(iv)
Public Sector Reforms
(a)
Disinvestment
(b)
Memorandum of Understanding
(c)
National Renewal Fund
(d)
Voluntary Retirement Scheme
(e)
Privatisation
Financial Sector Reforms
(a)
Changes in SLR & CRR
(b)
Reforms in Public Sector Banks
(c)
Mergers
(d)
Branch Expansion
(e)
Special Tribunals
(f)
Board of Financial· Supervision
3.5
Second Generation Reforms : Need & Strategy
3.6
Third Generation Reforms.
3.7
Transformational Reforms
3.8
Summary
3.9
References
3.10
Further Readings
3.11
Model questions
3.0
OBJECTIVES
After going through this lesson, you will be able to :
3.1



discuss global experience regarding Structural Adjustment Programme (SAP).

list out the components of SAP in India.
discuss the underlying need for initiating economic reforms (SAP) in India in 1990-91.
explain the stabilisation policy and Structural Adjustment Programme; and distinguish between
the two.
INTRODUCTION
The previous lesson has elaborated on the economic circumstances which led to the adoption
of structural adjustment programme (SAP) in India. Now it is clear to us why we went in for SAP or
need of SAP in India. This lesson is a step further and explain the features of Structural Adjustment
Programme in general and specifically in India.
3.2
STRUCTURAL ADJUSTMENT PROGRAMME : GLOBAL EXPERIENCE
Before elaborating upon economic reforms introduced in India, let’s see whether such changes/
reforms were made in the rest of the world or not. The strategy of economic reforms was first
introduced by Lenin in the USSR after revolution, in 1917 under the name “New Economic Policy”
which was designed for gradual transformation of private ownership of land, firms, service etc. to public
sector and was highly successful. When the Second World War was over, East Europe was largely
devoted to socialist reform policy led by USSR. China in the era of socialism, introduced new economic
51
policy in stages of development. In the year 1991, Chinese National Congress finally adopted market
oriented reforms under a Ten Year Development programme. Then a socialist market economic system
was adopted at the party Congress in October 1992, And lastly, Wu Jinglian emphasised a set of
integrated reforms in 1993.
Vietnam too initiated reforms during 1979-85 to foster high growth and to stabilise macro
economic policy and short-term adjustment of the problem. The second wave of Economic Reforms in
Vietnam was introduced for the transition from centrally planned economic system to “Socialist Market
Economy” system after wards.
IMF-WB package name structural adjustment policy (SAP) was under-taken in number of
countries namely ASEAN, EU, Latin American, Asian and many African states for sustainable
development since the late 1970s. In Asian countries, namely, Hong Kong, Singapore, Korea, and
ASEAN member nations, export oriented policy of reform under the free trade principles was followed.
Some of these adopted financial liberalisation during late 1990s. Latin American countries especially
Brazil, Argentina, Chile, Mexico, etc. adopted reform policy for macro economic stability package. The
same policy was adopted in most of the African countries, e.g. Namibia, Ghana, Zambia, Cad,
Mozambique, Bots wana etc, during late 1980s. Their progress is not satisfactory as per Board
Assessment of IMF. On the contrary, their report on Latin American countries reform measures through
structural adjustment have been progressing. The progress of their financial liberalisation are at the
beginning stage and privatisation policies are poor. But their growth rate and external sector
achievements are upto the expectation. The transitional economies of Europe and the States of
former USSR also adopted market economy.
The reform policy of EU started in 1979 which is mainly based on monetary integration and the
inception of the Maastricht Treaty. Later these policies converted to economic and political union
strategy for successful introduction of common currency - EURO in 1999.
3.3
NEED FOR REFORMS IN INDIA
(For details, refer to the previous lesson)
3.3.1
Need for SAP
It can be said that the strategic role of economic reform as discussed above contains different
goals and objectives in different countries. We have read in the last lesson (Lesson No. 3) that the year
1991 is an important landmark in the post independence economic history of India. The country faced a
severe economic crisis, triggered in part by a serious balance of payments situation. The crisis was
converted into an opportunity to effect some fundamental changes in the content and approach to
economic policy. Reforms in a sense, are product of circumstances. Changing environment, domestic
and international, as well as societal demands call for continuous adjustment of policies. At times the
changes that are required are radical.
Phases of Reforms in India
Economic reforms thus come in waves and in sequence. In our own country, the first wave of
reform started with the launching of planning with an emphasis on industrialisation, more particularly of
heavy industries. The second wave, the precise dating of which may be difficult but can be said that it
happened around the beginning of the fourth plan, began when it was found that the growth rate was
weak and the trickle down effect was not adequate and when the need to focus directly on poverty
alleviation became evident. The third wave which began in late Eighties gathered momentum after
1991. The new reform measures seek to redefine the roles of state and market so as to improve the
productivity and efficiency of the system and thereby accelerate growth and enable the state to focus
more intensively on certain socio-economic goals. The Indian economy during the period 1947-90
52
acquired a great degree of internal strength and resilience in terms of promoting a large and diversified
industrial base both in public and private sectors, bringing about a turn-around in the long-standing
stagnation of agriculture leading to achievement of near self-sufficiency in food, and creating a large
reserve of skilled man-power.
Constraints on Growth
However, over time several constraints became apparent in accelerating and sustaining growth
rates to the levels comparable with some of the fast growing economies of the contemporary times.
First, a major constraint on growth stemmed from the leading macro-economic balances in the
economy towards the end of the 1980s, caused by high levels of deficit in Government budgets,
rising inflation rates and deteriorating external payments situation. Sustaining the growth momentum of
the order (see previous Lesson) seen in the 1980s seemed less likely in the environment of increasing
macro-economic instability.
Second, despite some notable achievements in the real sector, such as a substantial
improvement in the domestic saving and investment rates, the gap between the potential and actual
rate of growth became evident and this was attributed to the lack of a proper incentive mechanism
and desired public policy environment to stimulate capital accumulation and productivity growth in the
economy. What made this gap appear glaring and provided the motivation for change was the fact that
it was around this time that a number of developing countries were undertaking structural reforms, and
gaining competitive strengths in response to the changing world economic environment. Public policy
reform was fast emerging as a pre-requisite to achieve the potential growth. These developments also
brought to focus the limitations of economic controls and regulations for attaining high growth.
Third, the erstwhile, relatively closed, structure of the Indian economy itself proved a barrier
to maximising the growth potential, particularly in an environment of shifting comparative advantages in
some of the key sectors in favour of the developing economies.
The prospects for improving growth through the outward oriented trade policies acquired a great
deal of importance in the context of changing world environment, highlighted by the growth of
multilaterism, the reduction of protectionism and the dismantling of the stiff trade barriers. These
developments enhanced the scope for promoting efficiency in domestic industry through trade
competition and creating conditions for augmenting the domestic capital base through crossborder flow
of savings.
To conclude, the crisis in 1991 provided an immediate context for the realignment of the macroeconomic fundamentals, through a programme of economic stabilisation and long-term structural
reforms to accelerate the growth potential of the Indian economy. The structural reforms in the early
stages covered the areas of industrial licensing, foreign trade, foreign investment, exchange rate
management and the financial sector.
3.4
NEED FOR STRUCTURAL REFORMS
In response to the crisis situation, the government set in motion a process of macro stabilisation
combined with both fiscal adjustment and structural reform, to intricate the economy from the mess and
long term reforms to raise the growth rate of the economy. It broadly replicates the response of several
developing countries in Latin America and Sub-Saharan Africa to the debt crisis in the 1980s which was
also guide by IMF programmes of Stabilisation and World Bank programmes of the structural
adjustment.
3.4.1
OBJECTIVES OF STABILISATION
53
In any programme of macro-economic stabilisation, there are two fundamental objectives. The
first object is to prevent a collapse of the balance of payments situation in the short-term and to reduce
the current account deficit as much as possible.
The second object is to curb inflationary pressures and expectations in the short-term and to
reduce the rate of inflation as soon as possible. Such programmes of stabilisation are concerned with
the demand side. The time horizon is the short-run. In a situation of deep macro-economic
disequilibrium, stabilisation is an imperative.
Stabilisation Episodes in India
The Indian economy had, in fact, experienced two stabilisation episodes in response to
exogenous shocks which were consequences of oil price increases during the mid-1970s and in the
early 1980s. This time around, however, the crisis was not confined to the balance of payments. And
stabilisation was not dictated by any exogenous or endogenous shock. All the same, the pursuit of
stabilisation does not represent any departure from the past. On the contrary, it represents an
attempted return to precedence in macro-management of the economy which, except for profligacy in
the 1980s, was the rule in independent India.
3.4.2
STABILISATION POLICY
Before going into the details of the stabilisation measures adopted in India, let’s discuss what is
meant by these two terms?
(i) What is a Stabilisation Policy?
Once the tendency to run deficits and an inflationary economy sets in, it is very difficult to get rid
of. This is especially the case if such deficits are financed for long periods of time through foreign
borrowings. The rapid inflow of foreign funds can actually permit a society to live extravagantly for a
while when the inflow dries up, the aspirations of different groups do not dry up with it, at least not
instantly. The underlying problem of governments running into deficits is at once simple; the profound
domestic demand is too high relative to domestic supply, because too many groups have to be given
economic concessions at the same time. The entire problem is compounded by the pressures from
large industrial groups and political circles to continue with the policy of over valued exchange rate,
which cheapens the imports under quota. An overvalued exchange rate means that export activities are
effectively discriminated against. One implication of discrimination is that an economy may not be able
to deal easily with a sudden balance of payments crisis (such as one aggravated by a termination of
loans) because its exports are unable to quickly rise to the occassion. Thus a time comes when the
Central Bank continues to lose foreign exchange reserves and there is little or no foreign inflow of funds
to compensate. The exchange rate collapses, and there is high and accelerating inflation. This is the
policy of stabilisation.
Following a crisis, (and usually in co-ordination with organisations like the International
Monetary Fund and the World Bank) an adjustment package is imposed. The standard IMF World Bank
Position in these situations is that
(1) fiscal excesses, funded by money creation, lead to a balance-of-payments crisis (in the absence
of a continuous injection of outside funds).
(2) an overvalued exchange rate is a tax on exports and a subsidy to entrenched groups that
benefit from protection and the ability to convert their gains into hard currency.
(3) all prices should reflect market supply and demand, and these include, in particular, wage rates
and import prices.
54
A typical reform package aims to restore some fundamental notion of external balance and goes
about this task by a mixture of domestic and international policies. There are two parts of the package.
First, short-term measures are applied to deal with the current crisis. The crisis usually takes the form
of a severe loss of foreign exchange reserves (e.g. India in 1991), but as in the case of Latin America in
the 1980s may stem from a huge outstanding debt (Argentina, Chile, Mexico, Brazil), or (later) an extraordinarily high rate of inflation, or (as exemplified by Mexico’s 1944 crisis) a speculative flight of
portfolio investment.
Stabilisation policy involves an immediate and large devaluation to bring the domestic currency
into line with international reality. The idea is to expand exports with a devalued currency, foreign
currency export earnings will now translate into a larger quantity of domestic currency. In theory, this
will lead to fall in the prices of non-tradables (goods which are not exported) and temptation to produce
export goods, as a consequence resources (especially capital and labour) would shift from non-tradable
goods sector to export goods sector. It is to be noticed here that a nominal devaluation, large though it
may be, may have no lasting real effects if continued inflation brings domestic prices up by the amount
of the inflation. Therefore, devaluation needs to be followed by an appropriate monetary restraint, and
simultaneous attack on inflation. The inflation can be stopped, but the burden will fall-unfairly, many
may add-on salaried employees. The more conservative the government, the more chances of
enforcing such a policy, because they are better equipped to sacrifice equity for overall macroeconomic stability.
One more thing needs to be added here. That, to hold both exchange rate depreciation and
reduced inflation in place, the government needs to avoid running a fiscal deficit. This would severely
and adversely affect government expenditure components discussed below:
(a) Social spending programmes like education, health, nutrition thus affecting poor unfavourably
and making public opinion against the government.
(b) Public investment projects we have read earlier that devaluation of currency shifts resources
(labour and capital) from the production of non-tradable to the sector, involved in the production
of export goods. Increasing the capacity of export industries often requires both private and
public investment. New export sectors generally require new and additional investment in
transport, communication and port facilities, which are usually the domain of public sector. This,
alongwith the fall in investment elsewhere in the economy, slows down the adjustment process.
The transition involves lower wages and/or rising unemployment. Like the cut in social
expenditures [discussed as point (a), this phenomenon appears to widen inequality as well.
(c) The interest on the outstanding debt needs to be paid off. The debt is owed either by the
government (as in case of borrowings going directly to finance public sector projects) or the
government is pressured to assume the debt as the private financial system gave way (as
happened in case of Chile). It is to be noted here the actually the reform packages were
principally aimed at getting repayments underway, and incidentally effected major changes in
developing countries which were good at improving their economic health.
(ii) Stabilisation Policy in India: Nineties
The policy has been described in detail in the previous lesson - State of Economy 1990-91.
3.4.3
STRUCTURAL ADJUSTMENT PROGRAMME?
Structural adjustment is the step beyond stabilisation. It involves lifting all controls that make for
inward orientation and a greater reliance on market prices. Thus, giving an indication that a free-market
economy leads to the best state of affairs for society. Markets are efficient in situations where wide
55
spread contracting is possible, in which externalities are minimal, and in which increasing returns to
scale can be held by competitive agents.
(i) What is a Structural Adjustment Programme?
The main tenets of a Structural Adjustment Programme (SAP) are mentioned below :
(a) Import Liberalisation
Import liberalisation means lifting of trade controls : i.e. quotas/quantitative restrictions giving
way to tariffs; tariffs being reduced or done away with altogether; thus minimising government
intervention. This issue represents a direction to liberalise imports. Because it is impossible to go in this
direction vehemently in the years immediately following the debt crisis, imports need to be curtailed in
order to generate a trade surplus or to check trade deficit. Many Latin American countries imposed
further import restrictions even after their devaluations occurred. Recognising that generating a trade
surplus was the only way to service the debt, the IMF implicitly supported these steps.
(b) Export Liberalisation
This tenet has gathered momentum around the developing world also. Perhaps the entrenched
domestic interest, created by long periods of inward orientation have gradually faded or shifted to new
outward-looking perspective. This second element of a SAP is to give free rein to exports by making
sure that they entail devaluation, that accompanies stabilisation, which is not eroded by inflationary
policies. This might require further small devaluations to check/ compensate the leftover inflation.
Although import restrictions are still there, many countries recognise the immense value of promoting
exports and have eagerly gone along with this aspect of the policy. Korea has experienced success in
its export-oriented policy but the government intervention has been high in promoting exports of the
nation.
(c) Fiscal and Monetary Discipline
This covers whole lot of the domestic policies - autonomy of central bank, check on
unproductive expenditure like subsidies, withdrawal of government from profit oriented sector &
concentrating on social development areas.
Now it is clear that whenever an economy is on the brink of collapse, as a last alternative it has
to approach IMF and World Bank for stabilisation and long-term reforms in the structure of the
economy. India too like other nations did the same. In the last lesson, we discuss in detail how the
economic crisis of the nineties was dealt with using the stabilisation measures. This lesson explains the
structural adjustment programme or economic reforms introduced under the dictates of IMF and World
Bank.
(ii) Structural Adjustment Programme in India:
Till the beginning of nineties, the most important achievements, in long term perspective was
the appreciable increase in savings, investment and growth which provided a sharp contrast with the
near stagnation in the colonial era, particularly during the first half of the twentieth century. This was
combined with the development of a diversified industrial sector and a sustained expansion in
agricultural output which ensured food security, but did not lead to a significant reduction in the
absolute poverty.
The most important shortcoming situated in a long-term perspective, were the neglect of
human resources, agrarian reforms and exports. The declining productivity of investment and the
lack of international competitiveness emerged as problems that required a reformulation of policies and
restructuring of the economy. These problems, however, were not simply about resource allocation or
56
relative prices, as orthodox economics teaches us about. Resource utilisation at a macro level was a
crucial determinant of efficiency just as resource mobilisation at a macro level was a crucial
determinant of growth. It appears that the short-comings that persisted in the long-run and the problems
that emerged in the medium-term, both, were a cause for concern but it precipitated the crisis in the
economy. It was the fiscal mess, as discussed, that began in the first half of the 1980s; the external
imbalances which worsened significantly in the second half of the 1980s and the debt-crisis which
surfaced in the early 1990s, brought economy to the verge of collapse. By early 1991, there was hardly
any room for manoeuvre in leaving borrowed money or borrowed time.
After independence India entered into an era of ambitious Industrialisation programme during
the mid 1950s based on the Mahalanobis strategy of development. The basic emphasis was on import
substitution, heavy industries and a central role for the public sector.
As you are aware that in a mixed economy both the private as well as the public sector have
important roles to play. Like most of the other developing countries of the world in the 1950, India
adopted inward-oriented, import-substituting model in industrialisation so as to achieve self
reliance; various restrictive trade practices and other policy measures were adopted to protect the
infant industry from foreign economic invasion.
Throughout the 50’s till late 70’s industrial and trade policies were restrictive. There were
tight regulatory policies. Monopolies & Restrictive Trade Practices Act was designed to present
concentration of economic power in a few hands. Firms were required to take clearance from the Deptt.
of Company Affairs before starting any project, the entrepreneur had to seek a number of licences
before he could finally begin work.
The trade policy regime was also highly protectionist & regulated three quantitative controls
on imports. Licences were required for import of foreign goods. Permission had to be sought even in
case of inflow of technology and man power proposals. Foreign exchange was not readily available to
anybody and everybody, it could be procured only from the RBI, only after providing details of the
cause of requirement. FERA earmarked a list of companies where foreign collaboration was
permitted but with equity participation only upto 40%.
As a result of these restrictive trade and industrial policies, the domestic industries remained
insulated from foreign competition. As it is pointed out, the policy of import substitution and
restrictive trade policies neither enhanced growth nor self reliance, it only resulted in lacklustre growth.
Since the domestic industries were highly protected and there was no exposure to international
competition, they failed to produce goods of international standards which could change our standing
in the world market. As a result export earnings remained minimal on the other hand imports
continued to increase, especially for maintenance of imported capital goods and raw materials also.
Thus resulting in acute Balance of Payment crisis.
The public sector also failed to perform upto the mark, instead of generating surplus they
became a drain on the economy. Huge subsidies had to be injected into the system. The expenditure of
the Indian Government on administrative purposes also increased. Government expenditure was much
more than its revenue, this resulted in perpetual fiscal deficits.
These policy measures as well as macro economic mismanagement during the 80’s resulted
in a severe economic crisis during 1990-91:
The inflow of foreign borrowings increased at a rapid rate during the 1980s as a result of
excess domestic expenditure over income, foreign currency reserves got depleted during the latter half
of the 80s because of increased imports and external debt. The matter was made worse by accelerated
inflation which reached double digit levels during 1990-91.
57
The Gulf crisis of 1990, which resulted in a sharp rise in the price of petroleum products
accentuated our macro economic troubles. There was political instability in the country at this juncture.
All these developments together eroded international confidence in the Indian economy. India’s credit
rating in the international capital markets declined steeply. A net outflow of NRI deposits commenced in
1990. India’s foreign exchange reserves which stood at US $ 1.1 billion were not enough for even two
weeks of import. India was on the verge of default.
Approaching IMF or World Bank
Default could be avoided only if credit was made available from IMF or the World Bank.
Assistance was indeed made available by these institutions but on the their own terms and conditions.
These terms and conditions entailed the adoption of a “Stabilisation and Structural Adjustment
Programme (SAP)” by India.
Thus under pressure from the IMF and the WB, India was forced to open up the doors of its
economy to the world. The economy which was hither to protected by high tariff walls, was closely
regulated by the Government was pushed towards globalisation, liberalisation and privatisation.
Self Assessment Question
Q.
What is a Structural Adjustment Programme? Mention its tenets
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
3.4.4
COMPONENTS OF SAP IN INDIA
The Structural Adjustment Programme marks shift from highly controlled economy towards a
more liberalised market oriented economy.
The SAP includes :
(i)
1.
Trade & Capital reforms
2.
Industrial deregulation
3.
Disinvestment & Public enterprise reforms
4.
Financial sector reforms
Trade and Capital Flows Reforms (Globalisation)
One of the most important constituent of the SAP laiddown by the IMF was Globalisation of the
economy i.e. integration of the domestic economy with the world economy.
Limitation of inwards oriented import substituting trade policy was obvious, therefore under trade
reforms there was greater emphasis on openness. Following steps were taken for globalisation.
58
(a)
Exchange Rate Adjustment & Rupee Convertibility
The first condition laid down by the IMF for granting assistance was the India should devalue its
currency which it felt been kept at a high level by the RBI. So in July 1991 the government devalued
the currency by 22%. We moved from a system of fixed exchange rates.
In 1992-93 the rupee was made partially convertible by introducing dual exchange rate system.
This made rupee partially convertible. In 1993-94 a unified exchange rate system was introduced and in
Aug, 1994 the rupee was made fully convertible on current account. This meant that there was freedom
to buy or sell foreign exchange for current account transactions. There was no need of exim scripts or
to take permission from the RBI.
(b)
Import Liberalisation
Import duty which had reached more than 300% in 1991-92 was reduced to in phases to 50%
till 1995. This meant free entry of consumer, capital & intermediate goods and raw materials into the
economy. Import duty cuts have been made in case of machine tools, steel ores and concentrates,
leather industry, electronic and telecommunication sectors.
A number of export and import used to be canalised through public sector agencies many such
items were decanalised.
(c)
Export Promotion
The government took up a number of measures to encourage exports. This includes
establishment of Export Oriented units for the promotion of agriculture & allied sectors, Export
Processing Zones where also extended to these sectors. Export Promotion Capital Goods Scheme
(EPCGS) was liberalised & extended to the service sector; more convenient and rational criterion for
recognition of Export Houses/Trading houses/Startrading houses; was laid down; and duty free imports
for exports under advance licensing were permitted.
(d)
Opening up Economy to Foreign Capital
Government liberalised capital flows in the form of foreign direct investment.
measures include :
Important
-
Immediately automatic approval of foreign equity participation upto 51 % in 48 industries (35
prior to Dec.96). approval of foreign equity participation of 51% in service sector. Which is
extended to even 100% in case of export-oriented units.
-
Import of capital goods was given automatic approval where foreign exchange is made
available through foreign equity.
-
FERA companies were placed at par with Indian ones for all operational purposes - they were
allowed to use their trademarks, appoint managements & technical advisors, borrow & accept
deposit from the public without RBI’s permission and repatriate profits. Thus opening the door
of the economy to the MNC’s.
(ii)
Industrial Deregulation
As a part of the SAP, the Indian Government resolved to liberate Indian industry from the
shackles of “controls” of various types. The “controls raj” had led to inefficiency and high cost structure
in the Indian industry and became a major source of corruption of various kinds in the bureaucratic
machinery. Government realised that market forces can look after the industrial progress.
59
Thrust was on deregulation in a substantial manner and opening up the economy to the private
sector.
(a)
Delicensing : Requirement of industrial licensing was abolished for all product categories except
for product categories. These are coal, petroleum, sugar, alcohol, drugs, cigarettes,
pharmaceuticals, hazardous chemicals, industrial explosive, animal fat & oil, electronics,
aerospace & defence equipment, paper & new print, asbestos, plywood and other wood based
products, tanned or dressed fur skin. At present the number stands at 5.
(b)
The MRTP Act of 1969 was amended. The limit of Rs. 100 crore was abolished as the
threshhold limits of assets. It was meant more for prevention & control of monopolistic,
restrictive & unfair trade practices. The prior approval of the central government for expansion,
Merger etc. was not required now.
(c)
Government clearance for the location of industrial units was no longer required except for 23
cities having population above 1 million each. In smaller cities no clearance was needed from
the Government except the industries subject to compulsory licensing.
(d)
Small scale industries were allowed to offer 24% of their equity to large scale & other industries.
(e)
The number of industries reserved for the public sector was reduced to 6 from 17 and presently
only to 3.
(f)
Entrepreneure are now free to invest, expand and modernise in response to market conditions,
under the broad band conditions.
(iii)
Public Sector Reforms
Reforms have also been initiated in public sector enterprises. There has been a move towards
privatisation which is an important feature of the New Economic Policy, 1991. To permit greater
participation of the private sector in core and basic industries, the number of industries for the public
sector were reduced from 17 to 8 further to six in 1993. The six reserved areas were mainly of strategic
and security concerns. Some of the core industries opened upto the private sector include iron & steel,
electricity, air transport, ship building heavy machinery industries such as telecommunication and
instruments. Now, only three industries - defence, railways, arms & ammunition - are reserved for the
public sector.
It was expected that the public enterprises should raise their own resources on the strength of
their performance. Pressures on performance orientation in the public sector was also increasing. They
were expected to boost their profitability & rate of return on capital. Memorandum of Understanding
(MOU) is an important thing used in this respect by which the management of PSE was granted greater
autonomy and was also held accountable for its results.
The Board for Industrial & Financial Reconstruction (BIFR) which was already dealing with sick
private units, was also entrusted the responsibility of dealing with sick PSE and to decide whether the
unit should be effectively reconstructed or closed down.
National Renewal Fund, was set up to look after the interests of the workers (Feb. 1992) of units
being shut down and compensate them suitably.
The Voluntary Retirement Scheme has also been introduced in the PSUs to reduce over
staffing.
60
Government also attempted at disinvesting shares of PSUs to raise resource and encourage
wider participation of general public and workers in the ownership of these undertakings.
(iv)
Financial Sector Reforms
Major reform measures were undertaken in the Indian financial sector, based on the report of
the Narsimham Committee of 1991. They are :
(a)
The Government is attempting to reduce both Statutory Liquidity Ratio (SLR) and cash Reserve
Ratio (CRR) in a phased manner.
(b)
Budgetory support provided by the central Government of public sector banks were not
sufficient, so the banks are required to raise debt and equity resources from the public.
(c)
Banks can now relocate branches, open specialised branches and set up controlling offices etc.
(d)
RBI laid down norms for setting up banks in the private sector. They will also have to observe
priority sector lending.
(e)
Maximum Limit to bank finances was made more flexible.
(f)
If Special tribunals have been set up for quicker recovery of loan arrears.
(g)
Supervisory role of RBI has been strengthened. The Board of Financial Supervision under
deputy Governor of RBI has been set up to ensure implementation of regulations.
To sum up, economic reforms attempted to increase productivity and efficiency of the economic
system. The initial economic reforms are known as First Generation Economic Reforms. A dicade later
it was that further reforms are needed to bring in more efficiency in this system. These reforms are
known as Second Generation Reforms. In the two-semester course we’ll study about the reforms
introduced in various segments of the Indian economy and improvement made therein. There is need
to see how far were these reforms successful in attaining objectives.
3.5
SECOND GENERATION REFOMS : NEED AND STRATEGIES
First generation reforms initiated in 1991 were mostly crisis driven. After continuing such
reforms for a decade experts were advocating to bring changes in the strategy and hence pleading for
the introduction of Second Generation Reforms.
On Nov. 27,2001, Prime Minister Atal Bihari Vajpayee consitituted a committee on Ecomonic
Reforms, betterknown as second generation of economic reforms. These second generation reforms
laid special shares on Fiscal reforms, Financial reforms, structural reforms and labour law reforms.
3.5.1
Need For Second Generation Reforms
The need for Second Generation reforms was felt in order to take care of following dimensions:(i)
To strengthen the foundations of growth of our rural economy, especially agriculture and allied
activities.
(ii)
To nurture the revolutionary potential of new knowledge-based industries such as infotech, biotechnology & pharmaceuticals.
(iii)
To strengthen and modernize traditional industries such as textiles, leather, agro-processing
and small scale industrial sectors.
61
(iv)
To mount a susained attack in frastructure bottenecks in power, roads, ports, telecom, railways
and airways.
(v)
To accord the highest priority to human resource development and other social programmes
and policies in education, health and other social services with special emphasis on the poorest
and weakest sections of the society.
(vi)
To strengthen our role in the world economy through rapid growth of exports, higher foreign
investment and prudent external debt management.
(vii)
To establish a credible framework of fiscal discpline without which other elements of our
strategy can fail.
(viii)
To create an environment so as to attain a better cost recovery in various social and economic
services maintained by centre as well as state govt.
Under the first generation reforms, the mixed type of the economy (with bent towards socialistic
pattern) moved strongly towards a marked-driven economy, private sector (domestic as well as foreign)
to have greater participation in the future.
3.5.2
Components of Second Generation Reforms
The Government launched second generation of the reforms in the year 2000-01m mainly
because, the reforms India launched in the early 1990s were not taking place as desired and a need for
another set of reforms was felt. The Government initiated of the Second Generation of economic
reforms. These reforms have been not only deeper and delicate but require a higher political will power
from the governments. The major components of the reform are as given below:
(i)
Factor Market Reforms
Many experts have emphaised dismantling of the Administered Price Mechanism (APM). There
are many products in the economy whose prices are fixed/regulated by the Government viz. petroleum,
sugar, fertilizers, drugs etc. Though a major section of the products under the APM were produced by
the private sector they were not sold on the market principles which hundered the profitability of the
manufactures as well as the sellers and ultimately the expansion of the concerned industries leading to
a demand-supply gap as a serious problem. Under the factor market reforms, these products were
expected to be brought into the market fold.
In the petroleum segment now only kerosence oil and the LPG remained under the APM while
petrol, diesel, lubricants have been phased out. Similarly, the income tax paying families now don’t get
sugar from the Targeted Public Distribution System (TPDS) on subsidies; only urea, among the
fertilizers, remain under APM while many drugs have also been phased out of the mechanism.
Opening the petroleum sector for private investment, cutting down the burden of levy on sugar,
etc. are now giving dividends to the economy. But it cannot be said that the Factor Market Reforms
(FMRs) are complete in India. It is a long process. Cutting down subsidies on the essential goods is a
socio-political question in India, therefore it is difficult to complete the FRMs.
(ii)
Public Sector Reforms
The second generation of reforms in the public sector especially deal with the areas like greater
functional autonomy, freer leverage to the capital market, international tie-ups and greenfield ventures,
disinvestment (strategic), etc.
62
(iii)
Reforms in the Government and Public Institutions
This involves all those which really go to convert the role of the Government from the ‘controller’
to the ‘facilitator’ i.e. administrative reforms in the remaining areas.
(iv)
Legal Sector Reforms
Though reforms in the legal sector were started in the first generation itself, now it was to be
deepened and newer areas were to be included-abolishing outdated and contradictory laws, reforms in
the Indian Penal Code (CrPC), labour Laws, Company Laws and enacting suitable legal provisions for
new areas like Cyber Law, etc.
(v)
Reforms in the Critical Areas
The second generation reforms also include suitable reforms in the infrastructure sector (i.e.
power, roads, especially the telecom sector, agriculture, agricultural extension, education and the
healthcare, etc. These areas have been called by the Government as the ‘critical areas’.
(vi)
Reduction of Poverty
The first generation reforms has not become successful on front of reduction of poverty from
which the country is suffering extensively, India has not being able to achieve to completely end it.
(a)
To enhance income earning opportunities for removing income poverty.
(b)
Empowerment of the poor by introducing various schemes.
(c)
To implement the poverty eradication programmes in a proper manner so as to assure that the
benefits of the programme reach the target group.
(d)
Providing security so as to overcome risk arising out of ill health epidemics natural disaster &
violence.
(vii)
Social Sector Reforms
Under the present scenario, the Second Generation Reform should give adequate stress on the
development of social sector by undertaking programmes on Education, Health & poverty reduction
(what has been incussed at point V). Such development of the social sector would go a long way in
improving the skills & abilities of the poor so that they can render positive & productive contribution to
the economy of the country.
(viii)
Fiscal Strategy
Fiscal Reforms means to control the fiscal deficit, revenue deficit both at central governemnt &
state level.
Considering the loopholes in the fiscal policy followed during 1990 in India, the second
generation reform should outline a broad fiscal strategy considering the praviling situation.
The basic element in this new fiscal strategy should be based on Fiscal Responsibility Budget
Management Act (FRBMA):
(a)
To attain zero revenue deficit during next three to four years.
(b)
To reduce fiscal deficit to the extent of 3% of GDP for the centre & 2% for the state.
63
(c)
To raise capital expenditure on infrastructure (rural) for stimulating the growth of agriculture &
allied activities along, with the rural development. It should include other expenditure reforms for
example.
(*) to reduction the volume of non-merit subsidies & hidden subsidies benefiting the richer &
well-to-do sections of the society.
(d)
To create an environment so as to attain a better cost recovery in various social & economic
services maintained by centre as well as state govt.
(ix)
Labour & Pension Reforms
First generation reforms failed to touch the various issues related to agriculture & Small Scale
Industries. Thus second generation reforms must enlarge its scope to include agriculture and small
industry for expanding employment opportunities.
(x)
Labour Law Reforms
Under 2nd generation reform labour laws also received considerable significance. The govt.
constituted the Second labour commission 1999 as to suggest rationalisation of exceeding labour laws
relating to labour in the organised sector & to suggest umberlla legislation for ensuring a minimum
protection of the workers engaged in an unorganized sector.
The commission has also taken the need to ensure minimum leave, protection & welfare to
labour & many other issues relating to health security of labourer in general.

The Labour commission has set up National Labour Relation Commission for hearing the
appeals against the decision taken by Central Labour Relation Commission & State Labour
Relation Commission.

The Commission argued in favour of allowing closure of companies & providing adequate
compensation to worker.

The commission proposed to reduce govt. holidays & to follow right attitude towards hours of
work.

The commission also recommended that contract labour should not be engaged for maintaining
core services.

The commission recommended amendments of Industrial Dispute Act & contract labour act.
NDA Government has proposed certain changes in its labour laws.

Prime Minister Manmohan Singh had set up Investment Ratan Tata. The major
recommendation of the commission is that labour flexibility should be provided be removing the
requirement of state govt. approvals and permitting contract labour in all areas.
Here it needs to be pointed out that in the year 2006. The Planning Commission Deputy
Chairman (Montek Singh Ahulwalia) favoured labour reforms but without adopting hire & fire system.
He emphasised that flexibility in labour laws contract farm & speedy Infrastructure development were
vital for attaining 10% economic growth. Bringing flexibility in the labour laws, hence, is the need of the
hour.
In India we must work for higher economic growth but a strategy of conducive labour law is
required & consideration should be given to safeguard the Interest of working class as well as tackle
64
the problem of unemployment faced by the country in recent times. The second labour commission was
also expected to suggest umbrella legistation for ensuring a minimum protection to the workers
engaged in an organised sector.
(xi)
Pension Reforms:-
The important aspect of second generation reforms is the pension reforms. The govt. is
contemplating to bring fundamental changes in the structure & rules governing the pension benefits in
the country, following the foot steps of various developed countries of the world. The steps taken in this
direction are as follows:
On 23rd Aug 2003, Govt. of India decided to introduce a new restructured defined contribution
system (pension). This New Pension System was operationalised for central govt. employees recurited
on or after April 1, 2004. Following it, Pension Fund Regulatory and Development Authority 2004 was
formulgated on Dec. 29, 2004. The Pension reforms initatives taken by the Govt. has attempted to
convert the pension structure in to funded one. It has attempted to make it broader by covering a huge
number of low paid workers of the underorganised sector of a country. The New social security
schemes, like Atal Pension Yojna, started by BJP government led by Prime Minister Narender Modi are
steps in this direction.
The first generation reforms failed to touch the various issues related to agriculture and small
scale industries. Thus second generation reforms are expected to enlarge its scope to agriculture &
small industries for expanding employment opportunities.
The second segment includes a broader dimension to the reforms viz. corporate farming,
research and development in the agriculture sector (which was till now basically taken care of by the
Government and needs active participation of the private sector), irrigation, inclusion of education and
the healthcare.
Other than the above-given focus of this generation of the reforms some other important areas
were also emphasized:
(a)
State’s Role in the Reforms : For the first time, an important role to the state was designed in
the process of economic reforms. All new steps of the reforms were to be started by the states
with the centre playing a supportive role.
(b)
Fiscal Consolidation : The area of fiscal consolidation though it was major co-ordinate of
reform in India since 1991 itself, gets a constitutional commitment and responsibility. The
FRBM Act is passed by the Centre and the Fiscal Responsibility Act (FRAs) is followed by the
states as an era of new commitments to the fiscal prudence started in the country.
(c)
Greater Tax Devolution to the States : Though such political tendency36 by the mid-1990s
itself after the second generation reforms started. We see a visible change in the central policies
favouring greater fiscal leverage to the states. Even the process of tax reforms takes the same
dimension Similarily, the Finance Commissions as well as the Planning Commission start taking
greater fiscal care of the states. And for the first time it planned that the states will have a net
revenue surplus allocations in the fiscal 2007-08.37
(d)
Focussing on the Social Sector : The social sector especially healthcare and education got
increased attention by the Government and many fold increases in the allocations as well as a
greater compliance to the performances of development programmes.
65
We see mixed results of the second generations reforms though the reforms continue.
3.6
THIRD GENERATION REFORMS
The economic benefits that accrued from the First Generation Reforms remained non-inclusive
in absence of an active public policy aimed at inclusion which commenced via the initiation of Third
Generation Reforms.
Announcement of the so-called third generation were made on the margins of the launching of
Tenth Plan (2002-07). This generation of reforms commits to the cause of a fully functional Panchayati
Raj Institution (PRIs), so as to spread the benetits of the economic reforms, in general at the grass-root
level.
Though the constitutional arrangement for decentralized developmental process was effected in
the early 1990s, it was in the Tenth plan that the Government gets convinced of the ‘inclusive growth
and development strategy for masses. The Eleventh Plan continued these reforms even though the
political combination at centre changed. Such reforms did not show much progress in India. Economic
Survey 2015-16, 2016-17 & 2017-18 advised in favour of an incremental approach to reforms.
In the forth coming lesson, we will study the impact of these economic reforms in detail.
3.7
TRANSFORMATIONAL REFORMS
These are examples of non gradual (stop and go) brand of reforms, as discussed in Union
Budget 2017-18:
1. Amendment to RBI Act, 1934; inflation targeting and setting up of Monetary Policy Committee.
2. Restarting Strategic Disinvestment of PSUs.
3. Demonetisation of high denomination currency notes.
4. Enactment of New Benami Law.
5. Bankruptey Law (aimed at promoting 'ease of doing business').
6. Enactment of Adhar Act (Aimed at rationlising the present subsidy regime).
7. Policymaking during Covid-19 pandemic i.e. providing safety nets to cushion hardships faced by
vulnerable groups.
Hence aims of major structural reforms were announced, all being non-gradual in nature.
3.8
SUMMARY
The previous lesson explained the economic crisis that we faced in the year 1990-91. The state
of Indian economy compelled the Government of India to make drastic changes in the economic policy
known as economic reforms (first generation, second generation, third generation and now
transformational reforms). These economic reforms have been explained at length in this lesson. Let us
summarise the economic reforms of 1991 through a flow chart, given on next page. The next chapter
will discuss the impact of these economic reforms on various dimensions of Indian economy.
66
Economic Reforms of 1991
Stabilisation
Policy
Concept
Policy
Measures
Structural Adjustment
Programme
Global History
of SAP
Reforms in
India
Or
Concept
Import Liberalisation
Export Liberalisation
Fiscal & Monetary
First
Generatin Second
Policy
Reforms Generation
Measure
or
Second Reforms
First
Generation
Generation
Reforms.
Reforms
Disciplint
Trade & Capital Reforms
Third
Generation
Reforms
Industrial Deregulation
Public Sector Reforms
Financial Sector Reforms
Fiscal Policy Reforms
3.9
REFERENCES

Kapila Uma (2017). Indian Economy since Independence. Academic Foundation.

Datt and Mahajan (2015). Indian Economy. Himalaya Publishing House

Economic Survey (2015). Various issues. Government of India.

Misra & Puri (2015). Indian Economy. Himalaya Publishing House.

Sing, Ramesh (2022). Indian Economy. 2022-23. 14th Edition, McGraw Hill.
67
3.10
FURTHER READINGS

Latest issues of Economic Survey. Ministry of Finance. Govt. of India.

Byres, T.J. (ed) (1998). The Indian Economy: Major Debates Since Independence. Oxford
University Press. New Delhi.
3.11
MODEL QUESTIONS
1.
Differentiate between a Stabilisation policy and a Structural Adjustment Programme (SAP).
2.
What was the underlying need for SAP in India.
3.
Explain the Second Generation Reforms introduced in India.
--00--
68
Lesson-4
ECONOMIC PLANNING IN INDIA : POST REFORMS
(Ninth, Tenth Eleventh and Twelfth Plans)
Note : This lesson does not form a part of syllabus directly but provides peep into the post-reforms
period. As such no direct question is expected from this topic. (Lesson provides consolidated and
comparative data based on 2004-05 base year, hence upto 2012 here).
Structure
4.0
Objectives
4.1
Introduction
4.2
Performance during the Ninth Plan
4.3
Tenth Five Year Plan
4.3.1
Achievement of Tenth FYP
4.4
Eleventh Plan
4.5
Performance of Indian Economy ; A Critical Appraisal
4.5.1
Growth of National and Per Capita Income
4.5.2
Investment
4.5.3
Agriculture
4.5.4
Industry
4.5.5
Transport and Communication
4.5.6
Foreign Trade
4.5.7
Employment
4.5.8
Poverty
4.5.9
Prices
4.6
NITI Ayog
4.7
Summary
4.8
References
4.9
Further Readings
4.10
Model Questions
4.0
OBJECTIVES
After going through this lesson-script, you shall be able to
•
analyse the performance of the Ninth Plan.
•
list out the major objectives of the Tenth Plan
69
•
4.1
give a critical appraisal of the performance of Indian economy during the planning
period.
INTRODUCTION
After going through the last two lessons, we have got familiar with the meaning, need and
features of the technique of economic planning along with the important objectives and strategy
adopted to achieve them during the various five year plans in India. This all would help us in gauging at
the changes that took place in the ninth and the tenth plans. The ninth plan was over in the year 2002
and the tenth plan started thereafter. We will study the performance of the ninth plan; objectives and
strategy of the tenth plan here. Towards the end we will critically analyse the achievements of
economic planning in India.
4.2
PERFORMANCE DURING THE NINTH PLAN (1997-2002)
The Ninth Plan’s focus was on four important dimensions of state policy, viz. (i) Quality of life (ii)
Generation of productive employment (iii) Regional balance, and (iv) self-reliance. The main thrust
areas were accelerated growth especially in agriculture, recognising the special role of agriculture in the
reduction of poverty and generation of employment (the same was to be carried out in the coming 15
years). The Ninth Plan viewed the role of the state and the private sector as complementary and both
are essential. Private sector activity needs properly organised markets and hence emphasis was laid
on economic liberalisation and decontrol. The growth rate of GDP during Ninth Plan was 5.35 percent
per annum as against the target of 6.5 percent. It is worth mentioning here that rate of GDP growth
during the eighth plan was close to 6.7 percent per annum which has dropped to 5.35 pe4cent for the
Ninth Plan. The causes of this decline can be traced in the slower growth of agricultural and
manufacturing sectors.
Table 1 : Sectoral Growth Rates of GDP - at Factor Cost
(% per annum)
Section
VIII Plan
IX Plan
Agriculture
Manufacturing
Services
4.69
7.58
7.54
2.06
4.51
7.78
Average Plan-Performance
(Plan Target)
6.7
(6)
5.35
(6.5)
Source : Planning Commission. Tenth Five Year Plan, (2002-2007), Vol. I
From the table, we can see that the performance during the ninth plan (5.4%) has been quite
below the revised target of 6.5% (first target was 7% which was downscaled). The growth in the
agriculture sector too was quite slower. The target growth rate of 3.9% seems quite high when
compared with the achievement of 2.06% approximately. The same had been the case of
manufacturing sector. The target growth rate of manufacturing sector was 8.2% during the ninth plan
period while the achievement was far behind i.e. 4.5% per annum on average. In case of service
sector, the growth was satisfactory. The Sub-sectors which achieved growth higher than the target
were - construction activity, public administration and community and personal services.
70
The decline in poverty especially in rural poverty has shown a slow-down. The poverty
alleviation programmes have perhaps been working inefficiently. The Targeted Public Distribution
System (TPDS) has also failed especially in the backward states of Bihar, UP and Assam. In 2002,
around 26% of population was living below poverty line while central government had spent Rs. 35,000
crore annually for the same during the ninth plan period and through which the poor household got
entitled to buy 3 kilograms of food grains at the rate of Rs.7.5 per Kg. with a purpose of alleviating
poverty. The employment generation also slowed down. The average annual growth of exports (7.4%)
and imports (6.6%) too was much below the respective targets of 14.5% and 12.2%.
Since agriculture sector and manufacturing activities account for nearly half of the GDP, they
together pulled down the overall growth to a level of 5.35 per cent. Following the Asian crisis in 1997
and subsequent reduction in growth rates in the other parts of the world, there was a slow down in the
Indian economy as well. In the agriculture sector public investment was low, performance was poor in
the first three years of the plan, consequently a reduction in demand for industrial goods led to reduced
growth rate of industrial sector. Moreover, few other developments also contributed to this shortfall like
Orissa cyclone, Gujarat earth quake and Kargil war - all resulting in diversion of resources from
investment.
The growth in the GDP in the post reforms period has improved to an average of 6 percent in
the Eighth and Ninth Plan from an average of 5.7 percent in the 1980s, making India one of the ten
fastest growing developing countries. Sector such as software services and IT enabled services
have emerged as new sources of strength creating confidence about India’s potential to be competitive
in the world economy. But the matter of great concern is that employment generation is less than what
was expected.
4.3
TENTH FIVE YEAR PLAN : OBJECTIVES AND PERFORMANCE
The Tenth Five Year Plan, that began on April 1, 2002 will cover the period 2002-07. The Plan
aims at an annual growth rate of 8 percent.
4.3.1
Achievements of Tenth Plan
After going through the objectives fixed to be achieved during the period 2002-07, let’s discuss
main achievements of the Tenth Plan :
1.
Against the target of 8 p.c. per annum, national income grew at 7.6 p.c. per annum - highest
amongst all previous plans. In the first year the growth rate was merely 3.8% while in the
remaining four years of plan, growth rate in the remaining four years was on average 8.6 p.c. In
the year 2006-07, national income increased by record 9.2. p.c. per annum.
2.
The highest contribution has come from the services sector. It grew at a rate above 9 p.c. per
annum during the plan period. In the year 2006-07, the growth rate in the services sector was
11.2 p.c. per annum. Main areas of growth had been information technology, I.T. enabled
services, BPO (Business Process Outsourcing) etc.
3.
The growth rate of per capita income was around 6 per cent per annum during the tenth plan.
4.
Growth in Infrastructure : Tremendous growth has been made in infrastructure like power
generation, development of roads, railways, airways, shipping, telecommunication. For example
cellular phones have become very common now. Metro trains, private airlines have developed
rapidly.
5.
Rural Development : For rural development Bharat Nirman Programme was launched for
upgrading rural infrastructre over the four year period from year 2005 to year 2009. It is a time
bound programme in which the decided targets of irrigation, rural roads, rural housing, rural
71
water supply, rural electrification and rural telephony will be achieved by the year 2009. During
tenth plan period, there has been significant increase in this area.
6.
Increase in Industrial Production : In tenth plan, industrial production has increased at the
rate of 8.8% per annum. In the year 2006-07, i.e. the last year of 10th plan, double digit growth
rate of 10% was witnessed. Special Economic Zones (SEZs) were set up for boosting industrial
production and it is expected that this trend will continue in the best plan also.
7.
Improvement in Performance of Public Sector : Because of threat of privatisation and with
constant efforts of policy makers, PSUs have stared generating significant profits. It the year
2005-06 PSUs earned a profit of Rs. 70,288 crore.
8.
Growth in Private Corporate Sector : Private Corporate sector has definitely gained strength
because of competition from MNCs. Some Indian private sector companies like Tata Steel,
Hindalco, Ranbaxy, Infosys, Wipro etc. are making global acquisitions i.e. taking over foreign
companies.
9.
Increase in Exports : The new EXIM Policy 2004-09 framed during 10th plan has promoted
exports significantly. During this plan, exports increased at the rate of 20% per annum. In year
2005-06, growth of exports was 23.4%. India’s share in world’s exports was 1% in the year
2006-07.
10.
Increase in Foreign Exchange Reserves: During 10th plan, Forex reserves increased
significantly. By February 2007, Forex increased to US dollar 185.1 billion.
11.
Increase in Foreign Investment : India has become second most attractive investment
destination after China. A lot of investment in the form of FDI and portfolio investment has come
to India.
12.
Reduction in Poverty : In the 61st report of NSSO for the year 2004-05, the percentage of
population living below poverty line came down to 22% from the earlier level of 26.1%. It was
expected that by the year 2006-07, this percentage would further come down to 21%, as was
targeted in the beginning of plan.
13.
Improvement in Social Services : Significant progress has been made in health services,
education, water supply, sanitation, pollution control, women empowerment, welfare of aged
persons, child welfare, SCs, STs. etc.
14.
Increase in rate of Savings and Investment : In the year 2005-06, rate of investment (Capital
Formation) increased to 33.8%, while saving rate increased to 32.4%. It is for the first time in the
whole planning period that savings have increased at a rate of more than 30%. This rate will
help the economy to maintain growth momentum.
4.3.2
Failure of Tenth Plan
(1)
Less Growth in Agriculture Sector : The target for increase in agricultural production
during 10th plan was 4%. But because of poor monsoon in year 2002, 2004, 2006 and
less attention of government, agricultural production increased by just 2.3%. As 52% of
population is still dependent on agriculture so this large segment has not benefited
much.
(2)
Inflation: Because of poor agriculture production, increase in population, increase in
money supply, the government has not been able to check inflation. In February 2007,
inflation rate was 6.73%. It has adversely affected the poor segment of society. In the
later years also, it went unabated.
72
(3)
Unemployment : It was projected that 10 million jobs will be created in the 10th plan.
But because of much use of capital intensive technology and automation, the plan failed
to solve the problem of unemployment. In December 2005, there were 3.93 crore
unemployed registered in 947 employment exchanges of the country.
(4)
Regional Imbalances : One of the objectives of tenth plan was to achieve balanced
regional development. But this objective could not be achieved as the states like Bihar,
Orissa, Jharkhand, Madhya Pradesh, Rajasthan, Uttar Pradesh could not make any
significant progress till the end of tenth plan.
(5)
Income Inequalities : The plan has failed to bridge the gap between rich and the poor.
Small and marginal farmers, landless farmers, persons engaged in unorganised sector
have not gained much of development. Still 24 crore persons are living below poverty
line. At the beginning of the Eleventh Plan, 20 percent of population was living below
poverty line. On one hand persons engaged in MNCs are getting huge salaries and
profits. On the other hand there are persons who are finding it difficult to get two square
meals.
(6)
Increased Competition from Foreign Units : Because of liberalisation and
globalisation, many foreign enterprises set up industrial units in India. It led to increase in
competition. Our domestic units were not competent enough to face this competition.
Thus, many small domestic units became sick and were closed.
Other failures :
4.4
(i)
The plan failed to prevent industrial sickness.
(ii)
Population growth rate is still high, as birth rate is still 23.8 per thousand as compared to
15 per thousand in China.
(iii)
Still 58.8% land is unirrigated (only rain-fed)
(iv)
Infant mortality rate is very high at 58 per thousand, indicating poor health facilities in
rural and sub-urban areas.
ELEVENTH PLAN
The economy enters the 11th plan period with saving rate at 32.4 percent of GDP and the
investment rate at 33.8 percent of GDP. Foreign Direct Investment inflows, exports, foreign exchange
reserves etc. are increasing and fiscal position has been continuously improving. The Indian economy
on the eve of the 11th Plan is in a much stronger position than it was a few years ago. Tenth plan has
achieved a growth rate of 7.6 percent, which is highest growth rate achieved in any plan period. The
11th Plan could not have expected a better start and it is essential to maintain this growth momentum.
The priority areas mentioned in the 11th Plan document entitled “Towards Faster and More
Inclusive Growth” are agriculture, irrigation and water resources, education, health, infrastructure and
employment, alongwith programmes for upliftment of SCs/STs, other backward classes, minorities,
women and children. Government has realised that in recent years although economic growth has
accelerated but it has failed to be ‘inclusive’. In other words benefits of growth have not reached all
sections of population. Particularly small farmers, landless labourers and persons working in
unorganised sector have remained beyond the benefits of development. The Eleventh Plan stresses
that benefits of development should reach all sections of population. The plan emphasizes to promote
social justice as it recognises that we need a growth process that brings faster reduction in poverty,
73
generates employment and ensures essential services such as health and education to all sections of
society.
The GDP growth target proposed in 11th plan involves slowly accelerating growth from 8
percent achieved in tenth plan to 10 percent by the end of 11th Plan, thus yielding an average growth
rate of 9 percent in the 11th Plan period as a whole. A faster growing economy makes it easier to
generate resources needed to finance social development programmes. Growth is not an end in itself
rather it is a means to achieve higher standard of livng. The 11th Plan must, therefore, set targets not
only for growth rate of GDP but also for other areas to ensure inclusive growth.
4.4.1
Targets of Eleventh Plan
As mentioned earlier, “Towards Faster and More Inclusive Growth” reflects the basic challenge
in the Eleventh Plan. We need faster growth to improve standard of living of our population. Agriculture,
Education, Health and Infrastructure are priority areas of this plan. The plan aims at doubling the
agricultural growth and massive employment generation.
A
Main targets of eleventh plan are as follows :
(1)
Income and Poverty :
•
Accelerate growth rate of GDP from 8 per cent to 10 per cent and then maintain it at 10
per cent in the 12th plan in order to double per capita income by 2016-17
•
Increase agricultural growth rate to 4 per cent per year.
•
Create 70 million new employment opportunities.
•
Reduce educated unemployment rate to below 5 per cent.
•
Raise real wage rate of unskilled workers by 20 percent.
•
Reduce poverty by 10 percentage points. It means reducing percentage of people living
below poverty line by 10 percent i.e. from present 20 per cent to 10 per cent.
(2)
Education :
•
Reduce drop out rates of children from elementary school from 52.2 percent in 2003-04
to 20 percent by 2011-12.
•
Develop minimum standards of education in elementary schools, and by regular testing
monitor effectiveness of education to ensure quality.
•
Increase literacy rate for persons of age 7 years or more to 85 percent.
•
Reduce gender gap in literacy from present 21 per cent to 10 percent.
•
Increase the percentage of each child going to higher education from the present 10
percent to 15 per cent by the end of the 11th Plan.
(3)
Health :
•
Reduce infant mortality rate IMR to 28 and maternal morality rate (MMR) to 1 per 1000
live births.
•
Reduce Total Fertility Rate to 2.1.
•
Provide clean drinking water for all by 2009.
74
B.
•
Reduce malnutrition among children of age group 0-3 to half its present level.
•
Reduce anaemia among women and girls by 50 percent by the end of the 11th Plan.
(4)
Women and Children :
•
Raise the sex ratio for age group 0-6 to 935 by 2011-12 and to 950 by 2016-17.
•
Ensure that at least 33 percent of the direct and indirect beneficiaries of all government
schemes are women and girl children.
•
Ensure that all children enjoy a safe childhood, without any compulsion to work.
(5)
Infrastructure :
•
Ensure electricity connection to all villages and BPL (Below Poverty Line) households by
2009 and round the clock power by the end of the Plan.
•
Ensure all weather road connection to all habitation with population 1000 and above
(500 in hilly and tribal areas) by 2009.
•
Connect every village by telephone by November 2007 and provide broadband
connectivity to all villages by 2012.
•
Provide homeshed sites to all by 2012 and increase the pace of house construction for
rural poor to cover all the poor by 2016-17.
(6)
Environment :
•
Increase forest and tree cover by 5 percentage points.
•
Attain WHO Standards of air quality in all major cities by 2011-12.
•
Treat all urban waste water by 2011-12 to clean river water.
•
Increase energy efficiency by 20 percent by 2016-17.
Sectoral Targets of Eleventh Plan
The main sectoral growth targets of 11th Plan are as follows :
Table 2 : Growth Targets of Various Sectors in the Eleventh Plan
Area
Target
Growth rate (Per cent, per annum)
Gross Domestic Product
9.0 per cent
Agriculture
4.1 per cent
Industry
10.5 per cent
Services
9.9 per cent
Export (in U.S.$)
16.4 per cent
Import (in U.S.$)
12.5 per cent
Source : Yojana, April 2007
75
The target growth rates for Industry and Services certainly appear feasible in the light of recent
performance, although the agricultural growth rate is much higher than recent trends. Nevertheless,
every effort will need to be made to achieve the agricultural growth targets, since failure on this count
may require excessively high targets for the non-agricultural sectors in order to attain the over-all GDP
growth rate.
C.
Basic Assumptions of Eleventh Plan
Faster and more inclusive growth, projected in 11th Plan will require total investment of 35.1 per
cent of GDP. The share of public sector and private sector in this investment is as follows:
Out of Total investment i.e. 35.1 per cent of GDP
Public Investment should be 11.2 per cent of GDP and
Private Investment should be 23.9 per cent of GDP
Therefore, Eleventh Plan depends primarily on private investment. So private sector will have to
play a major role in development process of the economy.
The Prime Minister highlighted an inclusive growth strategy and said, “We need faster growth to
the material well being of the population and also to generate resources for our development
programmes.”
D.
Achievements of the Eleventh Plan
Like the earlier plan, the Approach Paper of the Eleventh Plan was prepared and finalised
against a backdrop of high expectations arising from some aspects of the recent encouraging
performance of the economy. The UPA Government at the Centre while finalising the approach paper
has given high priority on more broad based and inclusive growth with a special thrust to reduce
poverty, create employment opportunities, reduction of gender gaps, raising literacy and also to target
robust agricultural growth.
As the Eleventh Plan has completed its term, thus under this backdrop it is quite necessary to
make a review of the achievements of the plan. “Although up-to-date information is not readily available
for making such appraisal but the observations made by Economic Survey, 2008-09 and 2009-10 can
be considered as an important inputs in this regard. Let us now examine the appraisal of the Eleventh
Plan on the basis of the statistics available so far.
1.
Growth Rate : In respect of attaining annual growth rate of GDP, although the approach paper
of the plan initially set the target of attaining 9.0 per cent annual growth rate of GDP but the plan started
with a positive sign. The Economic Survey 2012-13, reveals that the growth rate of GDP at 2004-05
prices was 9.7 per cent in 2007-08, 6.5 per cent in 2008-09, 8.6 per cent in 2009-10, 8.8 per cent in
2010-11 and 6.4per cent in 2011-12. GDP growth rate is likely to average 8.0 per cent over Eleventh
Plan. Thus during last two years, the plan experienced a slow growth rate as a result of global
economic slowdown.
2.
Gross Domestic Savings and Capital Formation : During the Eleventh Plant, the gross
domestic savings attained a growth rate of 36.8 per cent of GDP in 2007. 08 and then declined to 32.0
per cent of GDP in 2008-09, 33.7 per cent in 2009-10 and 34.0 per cent in 2010-11 and then to 30.8
per cent in 2011-12. The rate of capital formation as per cent of GDP was 38.1 per cent in 2007-08 and
then declined to 34.3 per cent in 2008-09 and 36.5 per cent in 2009-10 and then to 36.8 and 35.0 per
cent in 2010-11 and 2011-12 respectively. The targets for the domestic savings rate and investment
rate during the Eleventh Plan were 32.3 per cent and 35.1 per cent respectively.
76
3.
Employment Generation : The Eleventh Plant has also projected to create 58.0 million
employment opportunities during the plan period as against the projected increase in labour force of 45
million leading to reduction in unemployment rate below 5 per cent. During the first three years of the
plan, employment generations programme of the rural areas progressed satisfactorily. But the urban
employment scenario during first three years of the plan faces a setback as a result of global economic
slowdown.
4.
Sectoral Growth
Agriculture : Although the draft Eleventh Plan had set a target to attain annual average growth
rate of 4.1 per cent in Agriculture and allied sector, but during the Eleventh Plan it has attain d 5.8 per
cent growth rate in 2007-08, 0.1 per cent growth rate in 2008-09 and then to 1.0 per cent growth rate in
2009-10, 7.0 per cent in 2010-11 and finally by 2.5 per cent in 2011-11 The index of agricultural
production (2007-08 = 100) increased from 100.0 in 2007-08 'to 107.0 in 2008-09 and then further
declined to 102 8 in 2009-10 and then increased to 124.1 in 2011-12 showing a mixed performance.
Mining : In respect of mining and quarrying the Eleventh Plan set a target of 5.0 per cent but
during the five years of the plan, this sector could attain an average growth of 2.98 per cent. The yearly
growth rate of this sector was 3.7 per cent in 2007-08, 2.1 per cent in 2008-09, 6.3 per cent in 2009-10
and 5.0 per cent in 2010-11 and then to (-) 2 2 per cent in 2011-12.
Industry : As against the targetted growth rate of 10.5 per cent in industrial sector during the
Eleventh Plan, this sector could attain (m an average 5.29 per cent during the plan. The Electricity gas
and water supply could attain on an average 6.01 per cent during the Eleventh Plan. The growth rate
attained by the manufacturing sector was 10.3 per cent in 2007-08, 2.5 per cent in 2008-09, 4.8 per
cent during 2009-10 and 9.0 per cent in 2010-11 and 3.9 per cent in 2011-12.
Services sector : During the five years of the Eleventh Plan, the services sector attained an
annual average growth rate of 9.7 per cent on against the targeted growth rate of 9.9 per cent. The
services sector attained a growth rate of 8.7 per cent during 2011-12.
5.
Transport, storage communication etc. During the first two years of the Eleventh Plan, trade,
hotels, transport, storage and communication attained the growth rate of 10.7 per cent in 2007-08 and
7.6 per cent in 2008-09, 10.3 per cent in 2009-10, 11.1 per cent in 2010-11 and 11.2 per cent in 201112. Again the financing, insurance, real estate and business services attained a growth rate of 12.0 per
cent in 2007-08, 12,0 per cent in 2008-09, 9.4 per cent in 2009-10, 10.L per cent in 2010-11 and 9.1
per cent in 2011-12. Again community, social and personal services attained growth rate of 6.9 per cent
in 2007-08, 12.5 per cent in 2008-09, 12.0 per cent in 2009-10 and 4.5 per cent in 2010-11 and 5.9 per
cent in 2011-12.
6.
Price Behaviours : During the Eleventh Plan the. price behaviour of the country reflect initially
a moderate behaviour followed by sharp rise in the subsequent two years. Accordingly, the annual
average rate of inflation (WPI) which was 4.8 per cent in 2007-08 increased sharply to 8.4 per cent in
2008-09 and then to 9.56 per dent in 2010-11 and then to 9.1 per cent (upto December) in 2011-12.
Thus the appraisal of the Eleventh Plan shows that the Indian economy has been experiencing
a mixed performance during the plans Although the country experienced growth rate of 9.6 per cent in
the first year, i.e., 2007-08 of the Eleventh Plan but the country has experienced a slowdown in its
growth path in the next four years of the plan. However, the growth rate is likely to improve in the next
plan.
77
The Economic survey, 2009-10, observed in this connection, "the fiscal year 2009-10 began as
a difficult one. There was significant slowdown in the growth rate in the second half of 2008-09,
following the financial crisis that began in the industrialized nations in 2007 and spread in the real
economy across the world. The growth rate of the gross domestic product (GDP) in 2008-09 was 6.7
per cent, with growth in the last two quarters (of 2009-10) hovering around 6 per cent The continued
recession in the developed world, for the better part of 2009-10, meant a sluggish export recovery and
a slowdown in financial flows into the economy. Yet, over the span of the year, the economy posted a
remarkable recovery not only in terms of overall growth figures but, more importantly, in terms of certain
fundamentals, which justify optimism for the Indian economy in the medium to long term.1
On 24th March 2010, a meeting of the full Planning Commission conducted a mid-term review
of the Eleventh Five Year Plan and lowered Indian's targeted growth of 9 per cent per annum because
of past performances and prevailing situations. The appraisal document which was placed in the
meeting stated that "the average rate. of growth in the plan period could be a little over 8 per cent. The
economy would be well positioned for the transition to a growth rate higher than 9 per cent in the
Twelfth Plan period." While addressing the meeting Prime Minister Dr. Manmohan Singh observed that
the past two years were particularly difficult for the Indian economy due to the impact of the sharp
global slowdown that was exacerbated by lowering food production last year due to failure of monsoon.
Yet the country has been able to maintain a growth rate of 7.0 per cent during the last two years.
However, the target now would be to move towards 10 per cent growth in the medium term which can
be made possible by a strong rebound in agriculture and infrastructure development with greater
participation by the private sector.
Thus at the end of the Eleventh Plan, it is stated that although the draft plan set the target of
attaining 9.0 per cent annual average growth rate of GDP but it could manage to attain annual average
growth rate of 7.7 per cent during the Eleventh Plan under the prevailing global economic environment.
The Economic Survey, 2011-12 observed that "The global economic environment, which has been
tenuous at best throughout the year, turned sharply adverse in September 2011 owing to the turmoil in
the Eurozone, and questions about the outlook on the US economy provoked by rating agencies.
However, for the Indian economy, the outlook for growth and price stability at this juncture looks more
promising. There are signs from some high frequency indicators that the weakness in the economic
activity has bottomed out and a gradual upwing is imminent."1 (Eco Survey, 2011-12, P.1)
4.5
TWELFTH FIVE YEAR PLAN (2012-13 TO 2016-17)
In a full planning commission meeting held on 21st April, 2011 under the chairmanship of Prime
Minister Manmohan Singh, the Deputy Chairman of the Planning Commission Montek Singh Ahluwalia
presented an outline on the "Issues for approach to the 12th five year plan". In the meeting, the
planning commission made argument in favour of higher inflow of foreign capital and also stressed on
the importance of increasing the pace of economic reforms so as to reach the milestone of attaining 9.0
to 9.5 per cent growth rate in its economy. The meeting also agreed that under the regime of economic
reforms to attain all round development of the economy it is essential to reach the specific target of
growth of both agriculture and manufacturing industry. Likewise, it is also important to make necessary
changes in the foreign trade policy of the country.
1.
Economic Survey, 2009, p. 1
78
4.5.1 Assumptions
In this background, the Planmng Commission expected that during five years of Twelvth Plan
the attainment of economic growth rate would reach between 9.0 to 9.5 per cent. In order to attain the
targeted growth rate, the Planning Commission mentioned following primary conditions for achieving
targets :
1.
The door for foreign investment should be opened more to attract investment in different
important sectors including infrastructure.
2.
For the interest of development, the issues of foreign trade regulations need to be revisited
under the present regime of economic liberalisation.
3.
Additional importance should be given to development of agriculture for attaining at least 4
per cent growth rate. For that purpose the area under Rashtriya Krishi Vikash Yojana
(RKVY) needs to be expanded.
4.
Manufacturing industries has failed to fulfill the target during the Eleventh Plan. Thus this
sector should try to attain 11 to 12 per cent growth rate:
5.
More stress be given on health, education and infrastructure.
6.
After petrol, the price of diesel needs to be deregulated or decontrolled and be kept under
market determined price mechanism.
7.
Burden of subsidy on LPG cylinder and Kerosene needs to be reduced. Subsidy should
only be given on these two items only for people lying below the poverty line.
8.
During the five year period (2012-17) of the Twelfth plan, the country will require at least 1
lakh MW of electricity. Considering the shortage of coal, more importance should be given
on atomic energy and also on non-conventional sources of energy.
Thus Planning Commission in its meeting to find out approaches to the Twelfth Five Year Plan
give stress on attaining economic growth at a more faster rate, more inclusive and in a sustainable
manner.
4.5.2
An Overview of the Economy On the Eve of 12th FYP :
On the eve of Twelfth Plan, the overview of Indian Economy is characterised by strong macro
fundamentals and to some extent good performance over the Eleventh Plan period, though clouded by
some slowdown in its economic growth in recent years with continuing concern about inflation and a
sudden increase in degree of uncertainty about the global economy. Some of the challenges faced by
the economy emanate from the transition of the economy to a higher and more inclusive growth path,
the structural changes that come with it and the expectations it generates. Moreover, the global
economic environment was much less favourable in 2011 than it was at the beginning of the Eleventh
Plan. All these challenges call for renewed efforts on multiple fronts, on the basis of experiences gained
and also keeping in mind the global developments. The major issue at the beginning of the Twelfth
Plan are discussed below :
(i)
Inclusiveness : Attaining inclusiveness is an important agenda of economic
development. The progress towards inclusiveness is more difficult to assess, because inclusiveness is
a multi dimensional concept. Inclusive growth should result in lower incidence of poverty, broad based
and significant improvement in health outcomes, universal access for children to school, increased
access to higher education and improved standards of education, including skill development. It should
also be reflected in the form of better opportunities for both wage employment and livelihood and also
in improvements in basic amenities like water, sanitation, roads, housing, electricity etc and special
79
attention for backwards sections of population, like ST, SC and OBC, for women and children,
minorities and other excluded groups. Available evidence suggests that there have been considerable
gains comparatively on many of these fronts along with shortfalls which need special attention in future
plans.
(ii)
Reducing Poverty : One of the key element in the Country's inclusive growth strategy is
reduction of poverty and the country has attained some progress in this regard. The percentage of
population living below the poverty line declined from 45 per cent in 1993-94 to 37 per cent in 2004-05.
It is observed that the pace of poverty reduction has accelerated although it is still short of the target.
However, India is well poised, to meet the Millennium Development Goal (now as Sustainable
Development Goals or SDGs) target of 50 per cent reduction of poverty between 1990 and 2015.
(iii)
Reforms : Reforms in implementation of various schemes under plan are a priority and
it should receive focussed attention during the Twelfth plan. There is urgent need for more flexibility in
the design of the schemes, provisions for encouraging innovation and to promote convergence at the
level of implementation for preventing duplication and also create synergies that improve the quality of
outcomes.
(iv)
Demographics : The growth rate of population in India declined from 1.97 per cent per
annum during 1991-2001 decade to 1.64 per cent per annum during 2001-2011 decade. Total Fertility
Rate (TFR) also declined to 2.6 per cent and is expected to decline to 2.3 per cent in the first half of the
present decade. Moreover, India has a younger population as compared to the advanced and
developing economics and thus enjoying 'demographic dividend' which can add to growth potential
provided the country could achieve higher levels of health, education and skill development and could
enhance good quality employment/livelihood opportunities in order to meet the needs and aspirations of
the youth.
(v)
Employment and Livelihood : During the period 2004-05 to 2009-10, overall labour
force in the country expanded by 11.7 million. During the same period, 18 million job opportunities were
created on current daily status basis. Thus in absolute terms, unemployment come down by 6.3 million
and unemployment rate which increased from 6.06 per cent in 1993-94 to 7.31 per cent in 1999-2000
and then to 8.28 per cent in 2004-05, come down to 6,60 per cent in 2009-10.
4.5.3 Objectives of the Twelfth Plan
During the Tenth Plan average GDP growth rate was 7.5 per cent, while the GDP growth was
expected to average 7.74 per cent over Eleventh Plan, which was not short of the 9 per cent target, but
considered remarkable given to the global crisis and drought during Eleventh Plan..
The country attained progress on inclusiveness in respect of agricultural growth, poverty
reduction, education, health, upliftment of SCs/STs minorities etc. However, progress on inclusiveness
was less than expected. The country was likely to miss Millennium Development Goals (MDG), except
on poverty. Inflation accelerated in the last two years of the eleventh plan. At that time international
environment was very uncertain. There was global pressure on food, oil and other commodity prices.
Financial conditions and exchange rates were valatile and expected to be so in the forthcoming.
Basic Objective : The basic objective of the Twelfth Plan is to attain faster, more inclusive and
sustainable growth. The Twelfth Plan aims to achieve between 9.0 to 9.5 per cent growth in its economy.
Other Objectives :

Energy, water and environment are major sectoral challenges for the country. The plan wants to
address them without sacrificing growth.

The plan aims at finding adequate resources to create a world class infrastructure.
80

In order to make our growth more inclusive we need : (i) Better performance in agriculture, (ii)
Faster creation of jobs, especially in manufacturing (iii) Stronger efforts at health, education and
skill development; (iv) Improve effectiveness of programmes directly aimed at the poor; (v)
Special programme for socially vulnerable groups; and (vi) Special plans for disadvantaged and
backward regions.
4.5.4 Growth Targets for the Twelfth Plan
Setting the growth targets for the Twelfth Plan is an important and difficult task for the Planning
Commission under the present difficult economic scenario.
The Planning Commission explored two alternative targets for economic growth in the Twelfth
Plan. The first is restatement of the Eleventh Plan target of 9.0 per cent growth, which later seemed
difficult to be achieved. The second is an even higher target of 9.5 per cent average growth for the
Twelfth Five Year Plan. Several macro-economic models have been used to examine the feasibility of
these targets in terms of internal consistencies and inter-sectoral balances.
TABLE 3 : Sectoral Growth Rates-Previous Plans and Target for Twelfth Plan
Item
IXth
Plan
Xth
Plan
X1th
Plan
2.5
2.3
3.2
*
XIIth Plan
9.0% Target
1.
Agriculture,
Fishing
Forestry
and
2.
Mining and Quarrying
4.0
6.0
3.
Manufacturing
3.3
4.
Elect, Gas and Water Supply
5.
9.5% Target
4.0
4.2
4.7
8.0
8.5
9.3
7.7
9.8
11.5
4.8
6.8
6.4
8.5
9.0
Construction
7.1
11.2
7.8
10.0
11.0
6.
Trade, Hotels and Restaurant
7.5
9.6
7.0
7.
Transport,
Storage
Communication
and
8.9
13.1
12.5
6 &7.
Trade, Hotels etc. + Transport,
Communication, Storage
8.0
11.2
9.9
11.0
11.2
8.
Financing, Insurance, Real
Estate and Business services
8.0
9.9
10.7
10.0
10.5
9.
Community
Social
Personal services
7.7
5.3
9.4
8.0
8.0
Total GDP
5.5
7.8
8.2
9.0
9.5
Industry
4.3
9.4
7.4
9.6
10.9
Services
7.9
9.3
10.0
10.0
10.0
and
Note 1: See L.1 for update
2: *It is likely that on revision of farm sector GDP growth rates for the 2010-11 and an expected good
harvest in 2011-12, the average for the Eleventh Plan may be higher at 3.3-3.5 per cent.
Sources : An approach to the Twelfth Five Year Plan (2012-17), Planning commission, October, 2011.
81
The sectoral growth rates, been out and consistent with the 9.0 per cent and 9.5 per cent
alternatives presented in Table 3 The 9.0 per cent target requires a significant acceleration in growth in
agriculture; in electricity, gas and water supply; and also in manufacturing. Agricultural growth has
always been an important component for inclusiveness in India, and recent experience suggests that
high GDP growth without such agricultural growth is likely to lead to accelerating inflation in the coun†ry,
which would jeopardise the larger growth process. However, even if such agricultural gowth is achieved,
it is unlikely that the agricultural sector will absorb additional workers. Thus, the main onus for providing
additional jobs to the growing labour force will rest on manufacturing and construction and on the
services sectors. The target set for the mining sector, mainly reflecting additional production of coal and
natural gas, is also very demanding, but is necessary to meet the primary energy repuirements without
resorting to excessive imports.
As shown in Table 3 the growth rate 9.5 per cent would require extra much faster growth in the
manufacturing, as well as in electricity, gas and water supply sectors. The feasibility of achieving such
large acceleration in key sectoral performance needs to be considered lawfully before the growth
targets for the Twelfth Plan are fixed.
Table 3 reveals that taking 9.0 per cent as growth target in its GDP, the Planning Commission
fixed the sectoral growth rates as 1 per cent for agriculture, 8.0 per cent in mining and quarrying, 9.8
per cen in manufacturing industry, 10.0 per cent in construction, 8.5 per cent in Electricity, gas and
water supply, 9.6 per cent in industry as a whole, and 10.0 per cent for the services sector. Considering
the inflationary situation the plan takes into account the macro balancing needed for attaining 9.0 per
cent growth and accordingly wanted to provide a framework for managing aggregate demand in line
with the potential growth in supply for moderating the inflationary pressure.
GDP growth is expected to be 6.75pc in 2017-18, while retail inflation has averaged as 3.3%
durning the period 2015-18 (Eco survey, 2017-18).
Note: The base year was changed from 2004-05 to 2011-12 and methodology was also change. So
performance of Twelfth plan can not be compared with pervious years. Hence not given here.
But letest information (Revised Estimates) are revised for each aspect in every chapter.
4.6
PERFORMANCE OF INDIAN PLANNING : A CRITICAL APPRAISAL
Indian economy had been passing through an era of planned economic development. With
planning, a struggle automatically started against poverty, ignorance, disease and inequalities. Solving
these problems had been the primary concern for all these 50 years since 1950-51, and all out efforts
were continued to attain the cherished goals. During all these years, much water had flown to the river
Ganges. To appreciate the nature and extent of the changes in the economy, it was preferred to make
a deep probe and assess the situation. It is right time to state and fully consider the fundamentals of
Indian planning.
The main objectives of Indian planning may be considered under five broad headings;
First,
Increase the national income
Second, raising investment income ratio,
Third,
reduction the inequalities in the distribution of income, wealth and concentration of
economic power.
Fourth,
providing additional employment
Lastly,
removing bottlenecks, and raising agricultural production and manufacturing capacity
of producers’ goods and removing balance of payment difficulties.
82
The central objective of Indian planning at the present stage is to attain growth with social
justice, and to initiate a process of development which will raise the living standard and open out to the
people new opportunities for richer and more varied life.
It was seen that over a period of 40 year of economic planning spanning 1951-91 India’s real
national income had been estimated to have increased at an annual average rate of about 3.6%
whereas the per capita income increased by about 1.7%. The average GDP growth rate of about 5.5%
achieved in the 1980s was an improvement over the Hindu growth rate of 3.5% during the previous
three decades. One major criticism of this growth process which involved high fiscal deficit was that it
was unsustainable as it put pressure on inflation and balance of payments. A possible way to assess
our achievements on the basis of the targets that we had laid during different Plans, or a comparison of
our achievements with those of other countries.
During the decade of eighties, GDP of India grew on average at 5.7 percent annum while in the
post reform era (i.e. 1993 onwards) the growth rate has been 6.5 percent per annum. Now India is one
of the ten fastest growing developing countries in the world. The poverty has definitely declined but not
as expected, still a quarter (26%) of population is living below poverty line. The population growth is
estimated (as per Census 2001) as 1.93 percent per annum on average. It is commendable
achievement as the population growth has fallen below 2% for the first time in 2001 after four decades.
The literacy rate too has shown improvement from 52% (1991) to 65% (2001) and 75% (2011) with
male and female literacy ratios being 75 percent and 52 percent respectively. The high growth rate of
nineties has failed to show expected impact on employment generation, rather it has been termed as
jobless growth at many places. Many programmes were started since 2001, note worthy being NREGA.
All such developments are discussed on this lesson.
Self Assessment Questions
Q.
Mention the slogans of Xth, XIth and XIIth Plans.
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
India’s growth performance during the last fifty years can be measured with the help of several
indicators :
1. Growth of National Income and Per Capita Income
National income went up by 3.6% annually in the First plan and by 4.1% in the Second Plan.
During the 16 years 1961-62/1976-77 Gross Domestic Product at 1970-71 prices grew at the rate of
3.5% per year. The achieved rate may appear modest when compared to some other developing
countries which have recorded annual real rate of growth of 5.8%. But a realised rate of growth of 3.5%
over a long period is still very significant for a subcontinental country under extreme demographic
pressure.
The growth of per capita income has varied over the different plan periods. But we see that it
has improved during the last three plan periods by reaching above 5 percent level.
83
Table 1 : Annual Average Growth Rates of Per Capita Net National Product during Planning
Period (At 1993-94 Prices)
(% per ann.)
Plan Period
I
II
III
IV
V
VI
VII
(1951-56) (1956-61) (1961-66) (1969-74) (1974-78) (1980-85)
Growth of
Per Capita
Income
(% age)
1.8
2.0
0.2
1.0
2.7
VIII
IX
X
XII
(1985-90)
(1992-97)
(1997-02)
(2002-07)
(2007-12)
3.6
4.6
3.5
6.1
6.2
3.2
Source : Eco. Survey 2002-03, 2006-07, 2012-13, 2015-16
Now we will compare the targets and achievements of growth rate of NNP and during various
plans. (see the table 5)
Table 3 : Growth Performance in the Five Year Plans
(% per ann.)
I
II
III
IV
V
VI
VII
VIII
IX
X
XI
XII
Plan Period
(195156)
(195661)
(196166)
(196974)
(197478)
(198085)
(198590)
(199297)
(1997- (20022000)
07)
(2007- (201212)
17)
Target
2.1
4.5
5.6
5.7
4.4
5.2
5.0
5.6
6.5
8.0
9.0
8.0
Achievement
3.6
4.1
2.5
3.3
5.0
5.4
5.8
6.7
5.5
7.6
7.8
-
or Actual
Source: Planning Commission, Ninth FYP (1997-2002) Vol. I. Eco. Survey 2002-03, 2007-08, 2012-13, 2015-16
India’s national income grew at an average annual rate of 5.6 percent between 1980-81 and
1988-89, while agricultural output and industrial output rose at an annual rate of nearly 3.7 percent and
6.9 percent respectively. In per capita terms, national income growth was 1.5 percent per year,
foodgrains output grew at the rate of 1.3 percent per year. The output of foodgrains per hectare rose at
a annual rate of nearly 1.5 percent. The total addition to the population was very high. The total
population in India was 685 million in 1981 and it increased to nearly 850 million in 1991. This shows
that population has been growing in India at a very high rate. The per capita NNP was Rs. 3687 in
1950-51 and it increased to Rs.7323 in 1990-91 and Rs.9733 in 1998-99 at new base year 1993-94
prices. Inspite of rapid economic growth, the per capita income could not grow sufficiently because of
high growth rate of population. Per capita real income today is about two thirds higher than what it was
in 1950. Rural India has been transformed through agricultural development, largely because of the
planned efforts to extend irrigation, enlarge the supply of fertilisers, credit and other inputs and
intensifying research to evolve new varieties of seeds and better techniques. Agricultural production
during the first four decades (1951-97) has increased almost four fold i.e. from 50 mn tonnes to around
200 mm tonnes, and it is well ahead of the rate of growth of population. Between 1950-51 and 1996-97,
the growth process of the Indian economy can be divided into two broad periods (a) 1950-51 to
1980-81 (b) 1980-81 to 1996-97 (see Table 4). During the first period, Indian economy increased at an
annual average growth rate of 3.4 percent in NNP and 1.2 percent in per capita NNP (Contemptuously
called the Hindu rate of growth by Prof. Raj Krishna). However, during the second period (1980-81 to
1996-97) the Indian economy crossed the barrier of the Hindu rate of growth and showed and average
rate of growth of 5.3 percent in NNP and 3.2 percent in per capita income.
84
Table 4 : Average Annual Growth rates of NNP and per Capita NNP (1951-1997)
(percent per annum)
Item
1951-81
1981-97
1. Growth rate of NNP
3.4
5.3
2. Growth rate of Per Capital NNP
1.2
3.2
Source : Planning Commission.
It is clear from the table that in the latter phase the growth rate has appreciably increased. The
growth of per capita income was 5 p.c. and 6 p.c. respectively. During the eighth and ninth plan, the
national income grew at 6.1 p.c. per annum and during the tenure of the tenth plan, the growth of
national income was 7.6 pc. During X, XI and XII plans it has been more than seven percent (see L-1
and Table 3). In 2017-18 the quick estimate is 6.75pc (Eco survey 2017-18). Gross Value Added at
basic price increased at 4.1 pc in 2019-20, at – 6.2 pc in 2020-21, at 8.6 pc in 2021-22, advanced
estimate.
2.
Agriculture
Agriculture production went up by 41% in the first decade of Planning. Gross domestic product
from agriculture and allied sectors, at 1960-61 prices, increased at at annual compound rate of 2.7%
during the period from 1961-62 to 1973-74. In the same period foodgrains production grew by 2.72%
per annum.
Some other achievements may be noted in the passing. The Community Development Projects
were launched on 2nd Oct. 1952. Now they cover the entire country. These projects were a programme
of “aided self help” in which villagers were expected to initiate and implement schemes for their
advancement. Later on as a measure of democratic decentralisation, Panchayati Raj was introduced
over a large part of the country.
The land reforms policy was announced in the First plan. Its elements were : (a) Abolition of
Zamindari system ; (b) Tenancy legislation (c) Encouragement to cooperative farming ; (d) Stress on
consolidation of holdings; (e) Ceiling on land holdings. The zamindari system has been successfully
abolished. Twenty million farmers have been brought into direct contact with the State. About 2.5
million hectares of land was declared surplus in the country under the ceiling legislation. About 1/4th of
the area has been redistributed so far. The programme got a shot in the arm as a result of conference
of Chief Ministers of States in July, 1972. Ceilings were reduced in all the states and the upper limit on
holding of land was fixed for the whole family. The 20 point programme gave further impetus to
implement ceiling legislation. Bonded labour has been abolished. Regional Rural Banks are being set
up to provide more credit to the farmers and weaker sections of the society, especially landless and the
marginal farmers.
A very significant landmark along the road to agriculture process has been the increased output
per acre, technically called the “Green Revolution”. It has been the direct outcome of “New Agriculture
Strategy” adopted during the Annual Plans. The increased productivity has resulted from adoption of
hybrid high yielding varieties of seeds, increased use of pesticides and measures, multiple cropping,
better irrigation etc., employment and income of farmers have increased consequently.
The agricultural production increased to 126 million tons in 1977-78. The buffer stocks of rice
and wheat increased from 4.3 and 5.1in 1976-77 to 4.8 and 5.4mn tonnes in 1977-78 respectively, that
of foodgrains decreased from 20.7mn tonnes and 19.0mn tonnes during the same period. In the Sixth
Plan period, agricultural production increased at the rate of 4.3 percent per annum. The main thrust of
development in the latter plan was the generation of substantial employment opportunities; weakness in
85
infrastructure was to be overcome. Irrigation facilities were to be developed as rapidly as possible.
During the Sixth Plan period, actual production of foodgrains has risen to the target level of 154 million
tonnes particularly due to exceptionally good crops in 1983-84.
By the end of the 7th plan, output of foodgrains reached the level of 171 million tonnes. The 8th
plan laid emphasis on agriculture and main targets were raising the production of rice, pulses and oil
seeds, generating surplus for exports in foodgrains and attaining self-sufficiency in terms of pulses and
oil seeds. Its target of raising the foodgrains production to the level of 210 million tonnes remained
elusive. In the year 1996-97, the agriculture and allied sectors recorded growth rate of 8.7 percent per
annum higher than the targeted growth rate of 3.0 percent and the overall growth of agricultural
production reached record level of 9.3 percent. Foodgrains output in 1996-97 was estimated to have
risen to 199 million tonnes. During the Eighth Plan, the agriculture sector grew at the rate of 3.7 percent
per annum on average. Today food production has increased to 2.77 mn tonnes (2017-18).
Table 2 : Production of Foodgrains (Million tonnes) and Average Annual
Growth (%)
Year
Total Production
Compound Annual Growth
(mn tonnes)
(%)
Foodgrains
1950-51
50.82
-
1960-61
82.02
3.22
1970-71
108.42
2.8
1980-81
129.59
3.54
1990-91
176.39
1.73
1997-98
192.4
6.0*
1998-99
195.2
3.9*
2009-10
230.78
3.9*
2013-14
264.48
2017-18
277.0
3.0
Source : Economic Survey 1998-99 & recent issues.
Notes:
1. *Provisional 2. For a comparison of pre-reforms & Post reforms performance of agricultural growth & growth of
important crops, you can consult Table No. 6 on P-80 in L.No. 5.
Self Assessment Question/Activity
Q.
What is the Production of Foodgrains in 2017-18 in India and in this year.
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
86
During the seventies, an annual growth rate of 2.8% was recorded in the production of food
grains. The achievement of 3.5% per annum during the eighties is the hall mark of the green revolution
that enabled India to become self-sufficient in the production of foodgrains and even a marginal
exporter. During the nineties, the same momentum could not be maintained and the average growth of
foodgrains production fell to 1.7 percent, which is just equal to the rate of increase of population in
India. If the country can maintain 4 percent growth rate in agriculture production, then after meeting its
domestic demand the country can export the surplus amount of foodgrains to the foreign countries in
which it has favourable position. During the Tenth Plan, the target of 3.97 percent per annum could not
be achieved and the production of foodgrain was observed to grow at 2.35 percent per annum. While in
Eleventh plan it was around 3.6 pc. per annum but declined to 1.1% per annum in 2014-15.
Table 2(A) : Annual Growth Rate of GVA at constant (2011-12) prices percent
Ag & allied Sector
3.
2019-20
2020-21
2021-22
(Ist RE)
(PE)
(Ist Ag)
4.3
3.6
3.9
Industry
-1.2
-7.0
11.8
Services
7.2
-8.4
8.2
GVA at basic prices
4.1
-6.2
8.6
Industry
The Indian industry was in infant stage at independence hence public sector played on
important role in the development. The net output of organised manufacturing industries nearly doubled
during the first two plans, the share of public sector units going up from 1.5% to 8.4% over the decade.
Much of this increase was in key industries such as steel, coal mining and heavy chemical. The
production grew further by 8.2% over the 3rd plan. However, during the entire decade of 1965-1975 the
average annual rate of growth, was no more that 4% which rose to about 6% during the period 1974-74
to 1977-78. In the period 1980-85 this rate of growth of industrial production was 6.2 percent. Despite
what many may consider a slow rate of growth, Indian ranks today among the important industrial
nations. There are very few areas in which imports were necessary sustain the growth of the economy.
Engineering goods have become the largest component of four our exports and share of non traditional
manufacture articles among export goods is on the increase.
Another important and welcome development has been the dominant role of the public sector in
the industrial structure of the country. The total investment in the Central Public Sector stood at
Rs. 11097 crores in March, 1977. As a result of improved management many of these units compare
favourably with better units in the private sector. The share of public sector in the output of organised
industry and mining has moved up from 511 in 1960-61 to 305 in 1975-76. In 1984-85, they numbered
207 with an investment of Rs. 36390 crores. Under the 20 point economic programme, 21 medium
industries were exempted from the licensing provisions for setting up new undertakings, substantial
expansion of existing capacity and manufacture of new articles. The total value of production of all
minerals went up from Rs. 82 crores in 1951 to Rs.1005 crores in 1975, an increase of nearly 13 times
over a period of 24 years.
Nearly Rs. 45 crores were spent on the development of cottage and small scale industries in the
first three plans. The expenditure under the annual plans came to Rs. 132.6 crores and Rs. 250 crores
in the 4th plan. The provisions for 5th and Sixth Plans respectiely were Rs. 510 croes and 1945 crores
respectively. The outlay for seventh plan and 8th plan stand at Rs. 3752.74 crores and Rs. 6330 crores.
87
The Government was anxious to check the growth of monopolies and concentration of
economic power. Therefore, MRTP Act was passed in June, 1970. Later it been liberalised and was
renamed as Restrictive and Trade Practices Act to check (only) unfair practices in 1994. By 2002 it was
replaced by Competition Policy.
For latest figures, see Table 2(A).
Industrial Growth
Industrial growth is taken as an index of development in the modern world. During the first three
plans, the industrial sector witnessed the growth rates of 7.3 percent, 6.6 percent and 9.0 percent
respectively. The consolidated impacts of initial efforts in the post-independence era was witnessed
during the third plan. The period of green revolution (1966-69) had a slow growth of industry i.e. 2
percent. The index of industrial production (IIP) from 1971 onwards shows a consistent upward trend.
The growth rates achieved were 4.7 percent and 5.9 percent respectively for the fourth and fifth plans.
The industry took a dip and the growth rate was merely 1.4 percent during the annual plan 1979-80.
The sixth plan observed growth rate of 5.9 percent which increased to an appreciable level of 8.5
percent in the seventh plan.
Today our country has become almost self sufficient in the production of consumer goods
industry. Basic and capital goods industry like iron & steel, machinery, chemical fertilisers etc. have
been developed considerably in the country. There has been diversification and modernisation of
industries. Industrial production capacity has increased considerably.
During the eighties (1980-81 to 1991-92), the average annual growth rate of industrial
production (use-based) was 7.8 percent, which decreased to 7.4 percent during the eighth plan (199297) and 5.0 percent during the ninth plan ((1997-02). During the tenth plan (2002-07), elventh (200712), twelfth plans (2015-18) the growth of industry was at appreciable level of 9.4 percent, 7.2 percent
and 7.8 percent respectively.
Note : See Table 2(A) for growth in 2019 onwards.
4.
Transport and Communication
Much progress has been noted in this vital field. The length of roads, both surfaced, and
unsurfaced, went up 4.1 lakh km in 1950-51 to 7.7 lakh km in 1965-66. It was 9.6 lakh km in 1970-71
and 17.7 lakh km in 1984-85. In the first two plans, railways were mainly concerned with rehabilitation
and reconstruction of old assets. In the second stage of development starting with the beginning of the
Third plan, a market emphasis on development of sufficient capacity to support the expanding
agricultural and industrial has been noted.
In 2009-10, it has a capital base of about Rs. 58,000 crores; 63,000 routs kms length and
emplolying nearly 1.6 million staff. Today, the Indian railway system is the largest in Asia and the fourth
in the world. Orginated goods traffic has been estimated to go up from 93 million tonnes in 1950-51 to
240 million tonnes in 1977-78 i.e. an increase of 2.5 fold. Stream locomotives which number 8120 in
1950-51 are 5570 in 1985-86. The number of electric locomotives has increased from 72 in 1950-51 to
1300 in 1985-86. Diesel and electric locomotives carry over 85 percent of the total goods traffic which
was 286m. tonnes in 1985-86. The Seventh Plan has projected the demand for rail freight traffic around
340 million tonnes in 1989-90. During Fourth to Seventh Plans, modernisation of the system was
88
undertaken. During Ninth and Eighth Plans. The main thrust was on capacity generation and consumer
satisfaction. The same were taken care of under the tenth plan along with improvement in safety and
reliability of railways.
In 1992 national highway system covered 17 percent of the entire surfaced road length of the
country. It touches nearly all state capital, connects all the major parts with the hinterland and serves
many important industrial and tourist complexes. During the Sixth Plan about 2,700 kms of roads were
upgraded as National Highway; about 6 lakh kms of different types of roads were added to the road
grid; and about 18000 villages were connected with roads under minimum needs Programme. Despite
the scarcity of funds, the overall development of the road network in India has been quite satisfactory.
Since 1951, road length had increased from 4 lakh kms to 42.2 lakh kms by 2008; about 59%
of roads are surfaced. The Indian road network is the largest in the world today (2010).
Table 4 : Growth of Indian Transport System Since Independence
1.
1950-51
1970-71
1997-98
2009-10
53,600
59,800
62,500
64,000
93
196
429
888
400
915
3,320
4,236
Railways
Route Length (‘000’ Km.)
Freight Traffic
Originating (mn tonnes)
2.
Roads
Total length (‘000’ Km)
(in 2005)
Length of National Highways
3.
22.2
24
52
67
(in 2000)
(in 2008)
2.2
7.0
9.7
2600
11400
56900
Shipping
Overseas Shipping
0.2
(mn tonnes GRT)
4.
Civil Aviation
Number of passengers (000)
Source : Ninth Five Year Plan 1997-2002, Vol. - II and Eco. Survey 1998 and 2009-10
Table 4 shows that during the period 1950-51 and 2009-10 the transport sector has recorded
a substantial growth since 1951. Railways have recorded a growth of 3 percent per annum in freight
originating tonnage, though the growth in route length was indeed a growth of 3 percent per annum in
freight originating tonnage, though the growth in route length was indeed low. The road network has
expanded at an annual growth rate of 5 percent while road transport fleet has increased by 7 percent
per annum in respect of goods vehicles. The traffic handled by major ports has increased from 0.2
million tonnes to 2.2 million tonnes between 1951 and 1996, at an annual rate of over 5 percent.
Despite slow progress in the initial years, Indian shipping tonnage has grown significantly in the last
four decades and has reached 9.30 million GRT in 2007-08. Despite this, the share of Indian shipping
89
in the transportation of Cargo in Indian Overseas trade has declined from 30 p.c. in 1999-2000 to only
12.2 per cent in 2006-07.
The communication system comprises posts and telegraphs, telecommunication systems
broadcasting, television and information services. With more than 1.5 lakh post offices, the postal
network in India is the largest in the whole world. Indian telegraphs is one of the oldest Govt. owned
public utility organisations in the world. The number of the telegraph offices increased from 8,200 in
1951 to over 30,000 now. India has now a network comprising of over 20,500 telephone exchange with
a capacity of nearly 13 million lines and nearly 11 million working telephones. The annual growth rate of
providing new telephone connections has been increasing steadily from about 10 percent in 1988-89 to
22 pecent in 1994-95. In May 1994, the Govt. of India announced its new telecom policy, the salient
features of which are as follows:
(a)
Welcome to private sector including foreign investors.
(b)
Maximum foreign equity of 51 per cent.
(c)
Private telecom operators will agree to share revenue with Deptt of Telecome and PSU’s
like MTNL.
(d)
Telephone to be available on demand by 1997.
(e)
Installation of PCO for 500 persons in the urban areas by 1997.
(f)
Introduction of value added services at reasonable prices within VIII plan.
(g)
India a major exporter of telecom equipment and protect the defence and security
interest of the country.
We shall study the growth, problems and policy on the Indian infrastructure sectors in detail in
the second semester. Here only growth in Indian transport would suffice.
4.5
PRICES
The First Five Year Plan was free from inflation. But it marred the progress of 2nd and 3rd
Plans. Prices looked up by 30 percent in the Second plan and by 31 percent in the third. During 197273 and Sept. 30, 1974, price index registered a hike of 3.18 percent, but a comprehensive strategy
helped to bring down the prices. Procurement prices of major agricultural goods were not allowed to
rise. Growth in money supply was kept under restraint, there was crackdown on anti social elements.
Additional taxes were imposed by the Centre and the States. Dividends were restricted. The wholesale
Price Index was 180 in 1990-91. It went up to 298 in 1995-96. The annual rate of inflation in 1995-96
was 5.3 percent per annuam.
In the financial year 1998-99 inflation to a large extent was due to high prices of vegetables and
edible oils, but for which, the inflation would have been just about 6 percent. Other major reasons were
the general decline in the economy together with high growth of money supply (17 percent in M3) and
widening fiscal deficit (6.1 percent of GDP in 1997-98), registered decline in the production of wheat,
coarse grains, pulses, oil seeds, fruits and vegetables, consequently there was pressure on prices due
to supply shortfalls especially in edible oils, fruits and vegetable.
During three year period 2015-18, the inflation (CPI) has averaged at 3.3 percent (Eco survey
2017-18).
90
Table 5: Inflation in Recent Years
Indicator
2014-15
2015-16
2016-17
2017-18
CPI Average
5.9%
4.9%
4.5%
3.3%
WPI Average
1.2%
-3.7%
1.7%
2.9%
Note : CPI = Consumer Price Index, WPI = Wholesale Price Index.
Table 5A: Price Index
January
2017
2018
2019
2020
100
120
140
160
Table 5B: Inflation (in percent)
January
2018
2019
2020
20
16.67
14.29
Source: Eco Survey 2017-18.
The price index has increased by 20 points in 2018,while year on year inflation tends to decline.
4.6
NITI AYOG
With the new stable government formation at the centre in the year 2014, a pronounced policy
shift occured with abolition of Planning Commission and its replacement with NITI (National Institution
for Transforming India) Ayog– as a catalyst to the development process with nurturing an overall
enabling environment. Its important features are–
–
Co-operative Federalism.
–
Repository of good governance best practices and a Think Tank.
–
Collaborative Platform facilitating implementation.
It ensures making State governments and local bodies equal partners.
4.7
SUMMARY
We have noticed appreciable increases in almost all the segments of the economy.
However, there has been some glaring failures too. They have been indicated below
1.
Generally inflationary pressures have persisted in the economy, though not in 2015-16,
but in later years it was high but declined from 2017-20. The year on year inflation is
calculated as below:
Current Inflation Rate=
Current P.I. - Last Year P.I.
Last Year's P.I.
 100
Where P.I. = Price Index
2.
Unemployment has increased with every successive plan.
91
3.
Much deficit financing had to be done which simply pushed up the prices.
4.
Planning has been accompanied with increased inequality of income distribution
because the fruits of planning have been mostly grabbed by the rich.
5.
Per capita income has increased very slowly. It needs to be pushed.
6.
Persistent shortages of food led to large scale imports of food grains from abroad at
times.
7.
Rapid growth of population has continued unabated.
Note : You can upgrade the figures given in the lesson for the latest year from material in this block
itself. Every lesson deals with different sector and provides latest picture regarding that issue.
The lesson Economic Reforms: An appraisal is also useful for this purpose.
Note : The Planning Commission has been replaced by NITI Ayog and no FYP after 12th
plan.
4.8
REFERENCES

Yojna Magazine (April, 2007) and latest issues.

Economic Survey, various issues, Govt of India.

Misra & Puri (2015), Indian Economy Since Independence, Academic Foundation Ltd.

Datt and Mahajan (2017), Indian Economy, Himalaya Publishing House.

Ramesh Singh (2022). Indian Economy, 2022-23. McGraw Hill.
4.9
FURTHER READINGS

Economic Survey (2017-18). Ministry of Finance & Latest issues. Government of India.

Datt and Sundram (2017). Indian Economy. Himalaya Publishing House & Latest issues.

Misra & Puri (2017). Indian Economy. Academic Foundation Ltd. & Latest issues.
4.10
MODEL QUESTIONS

List out the objectives of the ninth plan and then explain the achievements of this plan.

Give major objectives of the Tenth Five Year Plan.

Critically analyse the performance of Indian economy during the planning period.
Note: Flow chart given on next page.
---00---
92
Lesson-5
ECONOMIC REFORMS : AN APPRAISAL
[Note : Latest data after 2012 in Appendix for each item]
Structure
5.0
Learning Objectives
5.1
Introduction
5.2
Economic Reforms : An Introduction
5.3
GDP Growth in Post Reforms Era
5.4
Impact of Stabilisation Policies or
Early Impacts of Reforms
5.5
5.4.1
Inflation
5.4.2
Fiscal Deficit
5.4.3
Revenue Expenditure
5.4.4
Exchange Management
5.4.5
Growth of Exports
5.4.6
Trade Deficit and Current Account Deficit
5.4.7
FDI Inflow
5.4.8
External Debt and Debt Servicing
Impact of Economic Reforms
5.5.1
Growth of GDP in the Post Reforms Period
5.5.2
Economic Reforms and Poverty
5.5.3
Impact of Economic Reforms on India’s Exports, Imports & Trade Deficit
5.5.4
Economic Reforms and External Debt
5.5.5
Foreign Direct Investment and Foreign Portfolio Investment
5.5.6
Economic Reforms & Sectoral Changes
5.5.7
Economic Reforms & Unemployment
5.5.8
Economic Reforms & Income Inequality
5.5.9
Investment and Savings in Post Reform Period
5.5.10 Inflation Scene in Recent Times.
5.6
Summary
5.7
Glossary
5.8
References
93
5.9
Further Readings
5.10
Model Question
5.0
OBJECTIVES
After going through this lesson script you will be able to :

trace the growth of GDP in the Post-Reforms period.

assess as to how far stabilisation policy was successful in India.

mention the impact of Economic Reforms on external debt, sectoral growth rates, agricultural
growth, employment growth, inequalities in income, poverty, imports and exports.
5.1
INTRODUCTION
As we have studied in detail that for about two and a half decades after independence, Indian
economic environment was controlled and regulated one. It provided an assured and protected market
to Indian capital. Such a policy, on the one hand, helped the Indian private capital to grow and on the
other, to become inefficient in the absence of competition. In fact this was the period when global
economy was experiencing boom and India followed an inward-looking development strategy. In the
1980’s, India started partial liberalisation and opening up. Since July 1991, the Indian economy has
been undergoing much changes-popularly known as LPG-Liberalisation, Privatisation and
Globalisation-following the Fund-Bank prescription of SAP (i.e. Structural Adjustment Programme).
Another important event was the signing of GATT (General Agreement on Tarriffs and Trade) finally
resulting into establishment of WTO (i.e World Trade Organisation) on the 1st January, 1995. These
reforms have been discussed in detail in the previous chapter will this chapter is devoled the impact of
economic reforms.
5.2
ECONOMIC REFORMS: AN INTRODUCTION
India embarked on a policy of comprehensive economic reforms in June 1991. The policy
consisted of two components. The short-term stabilisation measures included the devaluation of the
rupee, drastic fiscal compression and credit squeeze, and continuation of severe import controls. The
(medium term) Structural Adjustment Programme (SAP) was introduced after 1992-93. This included a
package of trade reforms, exchange rate reforms, reforms in industrial policy, capital market reforms,
reforms in financial policy, tax reforms, public sector reforms including a move towards disinvestment
and privatization of public sector enterprises and gradual dismantling of the process of planning in
favour of the market. The second generation reforms currently being envisaged are designed to carry
forward the process of economic liberalisation and globalisation and is aimed to put market and market
institutions as the prime movers in the development process replacing the state and public agencies in
as many spheres as possible. Moreover they assure larger involvementa of state governments and
reduced role of central government. As a step ahead, parchayate Raj Institutions have been involved
and some collect Third Generation Reforms.
After pursuing an inward-looking development strategy with the state assuming an important
role for more than four decades, India decided to take a historic step of changing tracks in 1991. It
embarked on a comprehensive reform of the economy to widen and deepen its integration with the
world economy as a part of structural adjustment programme. Reforms are a means to achieve the
ultimate goal of economic development of the country and the well-being of its people. The basic
rationale behind economic reforms was to reduce the discretionary role of government in the economic
arena and thereby increase the space for market forces to operate. An economy which has been highly
regulated since 1951 is “fast” dismantling the various controls and is on the road to become a market
economy. The fast growth in overall GNP of various Asian nations such as China, South Korea,
94
Malaysia, Indonesia, Thailand etc. is often cited as fine examples of speedy and systematic
privatisation and liberalisation having a positive effect on growth. These economic reforms are
popularly known as “New Economic Policy.” However, there has been a considerable debate on the
contents of the reform package, their sequencing and pace, their implementation and their impact. The
debate has become highly polarized one between two camps of scholars. One group of analysts hail
the achievements of reform and seek after implementation of the remaining issues on the reform
agenda. The other group is more critical of the approach to the reforms. It focuses on the adverse
effects on the society, especially the vulnerable groups, questions the sustainability of growth and
reforms themselves. Hence, they seek rethinking on the coverage, sequencing and pace of
implementation of reforms. Later to cover these dimensions, second generation reforms were taken up.
As a step further, the next leg of reforms 15 to involve grass-root level bodies-Panchayati Raj
Institutions. Let’s review the performance of the Indian economy during 90’s i.e. post-reform period in
terms of certain broad economic indicators.
During the post-1985 period (till 1999-2000), Indian economy grew at around 6 percent with an
increase in real per capita income of around 4 percent. The incidence of poverty declined from 44
percent to 26 percent and the life expectancy at birth grew significantly from 48 years to 64 years. The
picture is not rosy as it appears. It’s necessary to make a critical analysis. Let’s now study the impacts
in detail.
Self Assessment Question
Q.
What was growth of GDP in 1980s in India?
__________________________________________________________________________
5.3
GDP GROWTH IN POST- REFORMS ERA
After the economic crisis of 1990-92, the growth rate of GDP averaged at more than 7 percent
per annum during the period 1993-94 to 1997-98, thus showing the improvement in the growth
potential. However, thereafter, GDP growth rate showed deceleration. If we compare the annual
average growth rate during the pre-reform decade (1980-81 to 1990-91) which was of the order of 5.6
percent, the post-reform decade (1990-91 to 2000-01) shows the same average annual growth rate of
5.6 percent of real GDP. Therefore, some people argue that the reform process has not been able to
increase the average growth rate. But the noticeable achievement is that during the decade of 90s, the
growth rate many times was in the range of 6 to 7 per cent (as shown in the Table 1). Keeping aside
the crisis years i.e. 1990-91 and 1991-92, the GDP (real) grew at 6.4 p.c. during the period 1992-93 to
2000-01.
The positive impact of economic reforms in India is illustrated in Table 2 which shows the
narrowing of the growth gap vis-a-vis East Asian countries during the period 1980-1990. Post-1990 the
Indian economy has fared well in comparison. Economic growth in India averaged 6 percent per annum
during the decade of the 1990s. In comparison, (see Table 2) economic growth in east Asia except in
the case of China & Malaysia was adversely affected (unlike India, discussed earlier) by the financial
crisis in the second half of the 1990s.
95
Table 1a : Size and Growth rates of GDP
at factor cost (at 1993-94 Prices) during 1981-2001)
Year
GDP
(Rs. crores)
GDP
Growth Rate
1980-81
401,128
-
1990-91
692,871
-
1991-92
701,863
1.3
1992-93
737,792
5.1
1993-94
781,345
5.9
1994-95
838,031
7.3
1995-96
899,533
7.3
1996-97
970,083
7.8
1997-98
1,016,399
4.8
1998-99
1,082,472
6.5
1999-00
1,148,500
6.1
2000-01
1,193,922
4.0
Table 1b Annual Average GDP Growth Rate
Average Ann Grof GDP
1980-81 to 1990-91
5.6
1990-91 to 2000-01
5.6
1992-93 to 2000-01
6.4
Source: Compiled and Computed from CSO, National Accounts Statistics (2002) and earlier issues
For recent data, you can consult 5.5.3 on P.78 of this lesson.
Table 2 : GDP Growth: International Comparison
(Average percent per year)
1965-80
1980-90
1990-2000
GDP per Capita
2003
China
6.4
9.5
10.3
5,600
Korea, Republic of
9.5
9.7
5.7
26,230
Malaysia
7.4
5.2
7.0
13,250
Thailand
7.4
7.6
4.2
7,500
Indonesia
7.9
5.5
4.2
3,590
India
3.7
5.3
6.0
2,350
Source: Compiled from World Dev. Report, World Bank, various issues by Baijal (Oct 12, 2000) EPW.
World Development Indicators (2004) and (2005)
Note: Per Capita GDP are for 2003 and on PPP basis.
96
In order to see the growth of national income and per capita income in post-reformers, we recall
the growth of national income studied in lesson 1 (Table 3). The relevant past has been reproduced
below. As shown in Table, the first three decades withnessed very slow growth, around 3.5 pc on
average annally during the period 1950-51 to 1980-81. The decade of eighties withnessed annual
average growth of around 5.6 pc on average per annum. Barring two years of economic crsis (199092), the nineties (1993-2000) experienced average annual growth of 6.1 per cent. As shown in Table 1
(b) the growth rate has risen during the later years-around 6.4 p.c. per annum during 2000-01 and
2004-05 while 7.8 p.c per annum during 2004-05 and 2011-13.
Table. 1b Growth of National Income and Per Capita Income (1950-51 to 2013)
Base year : 2004-05
Time Period
Net National Product (Rs. Cr)
Per capita NNP (Rs.)
1950-51 to 1980-81
3.5
1.4
1980-81 to 2000-01
5.6
3.2
2000-01 to 2004-05
6.4
4.7
2004-05 to 2011-13
7.8
7.3
2012-2017
7.5
6.3
Source : CSO, Eco. Survey 2012-13
Note : 1) The national and per capita income growth rates have been calculated for the base year
2004-05
(2) Refer to Table 1 and 3 of Lesson 1
The Human Development Report, 2002 of UNDP highlights that rapid growth in two largest
countries - China since the 1970s and India since the 1980s has enabled them to catch up to some
extent with rich countries. In the 1990s only 24 countries, including China and India achieved a 3.7
percent annual growth in per capita GDP. Presently (after 2012), growth rates declined was to global
financial crisis. In 2015, both countries have picked up but India has picked up faster then China.
Note: Latest years' growth has been depicted in Table. 1(c)
Table 1c: Current Account Deficit, External Debt and Debt Servicing (1981- 91)
Years
Current account
deficit as a
percentage
of GDP
(1)
Medium and Long term
Eternal Debt at the
end of year
in
as a
US$ million
percentage
of GDP
(2)
(3)
Debt Servicing as
a percentage of
Export
(4)
Current
Account
Receipts
(5)
1980-81
1.2
23.8
14.3
14.9
7.9
1981-82
1.4
24.3
14.2
13.5
7.7
1982-83
1.3
27.9
15.6
14.6
8.7
1983-84
1984-85
1.1
1.2
31.1
31.9
16.0
17.1
17.2
19.8
10.3
11.7
97
1985-86
2.3
37.0
17.4
26.7
15.9
1986-87
2.0
43.8
19.4
39.4
31.0
1987-88
1.9
50.8
19.5
41.3
26.4
1988-89
2.6
53.5
21.1
38.9
25.4
1989-90
2.2
57.7
21.6
31.1
21.5
1990-91
2.3
62.3
23.8
29.8
21.7
Source :
5.4
(i)
Col.(1) : Reserve Bank of India, Report on Currency and Finance, annual issues
(ii)
Col. (2) and (3) : Report of Economic Advisory Council, The Current Economic Situation and Priority Areas
for Action, Government of India, New Delhi, Dec., 1989, P5—9 (for the period 1980-81 to 1983-84); and
Reserve Bank of India, Annual Report 1991-92, P. 21 (for the period 1984-85 to 1990-91)
(iii)
Col. (4) & (5) : Economic Survey, annual issues and Report on Currency and Finance, annual issues.
IMPACT OF STABILISATION POLICIES OR EARLY IMPACT OF REFORMS
No doubt, the performance of Indian economy has been impressive in the post-reform era. Now
in this section, we will study about the impact of stabilisation (short term) measures during the following
three years to see immediate impact and also in the recent years to see-how at the time of undertaking
reforms in 1991, Indian economy was going through one of the severest economic crises in its history.
The stabilisation policies initiated in 1991 were highly contractionary were designed to reduce inflation
from the then existing level of 17 percent per annum, improve precarious balance of payment situation,
reduce fiscal deficit and help pick up sagging industrial growth. The stabilisation policies turned out to
be quite successful.
For details see Table 3 from Lesson 3 which explains Macro economic indicators of the Indian
economy.
5.4.1
Inflation
The rate of inflation came down from 13.6 percent in 1991-92 to 10.1 percent next year. After
staying at that high level till 1993-94, inflation came down to about 4.4 percent pa during 1995-96 but
has stayed within a range of 4.8 to 6.9 percent since then.
5.4.2
Fiscal Deficit
The efforts to reduce fiscal deficit also were quite successful in the short run. The fiscal deficit of
the Centre decreased from 8.7 percent of GDP in 1990-91 to 5.7 percent of GDP in 1991-92. Since
1993-94, the fiscal deficit has hovered around 6 percent of GDP. While the reduction of fiscal deficit is a
welcome development, the axe of fiscal compression largely fell on investment in physical infrastructure
and social sectors like power, irrigation and on health and education and human capital formation. The
reduction of fiscal deficit through reducing investment in physical and human capital including higher
education was bound to adversely affect long term growth of the economy and erode India’s
comparative advantage in this important area. The revenue expenditure did not decline sufficiently and
the axe of fiscal compression had increasingly fallen on public investment. The most important reason
for revenue expenditure staying high is the large payments to be paid to service internal debt. The
internal debt accounted for as much as 47 percent of GDP in 1998-99 compared with 52.9 percent
during 1990-91. The interest payments accounted for about 47 percent of non-plan revenue and about
48 percent of plan expenditure during 1998-99.
5.4.3. Revenue Expenditure
98
Another reason is that despite fiscal reforms, the revenue expenditure did not decline
sufficiently. The policy makers were unable to resist the pressure of the vested interests be it
government administration, parliamentarians, rich farmers or other elite groups. For populist reasons
the successive governments have found it difficult to eliminate or even reduce major subsidies or curtail
unnecessary expenditure. One of the recent example is the acceptance of the Fifth Pay Commission
recommendations, which resulted in major hike in government expenditure. Actually, the poorer
sections were the sufferers who were made to pay higher prices of essential goods, including
foodgrains and the burden of structural reforms was being entirely shifted to the rural and urban poor in
the non-formal sectors of the economy.
5.4.4. Exchange Management
Exchange management has been another area of success. It may be recalled that the root
cause of the 1990-91 crisis was India’s inability to finance the large current account deficit in the
economy. The new policy has succeeded in restoring the confidence of foreign investors. This has
resulted not only in financing the current account deficit from year to year but also in building large
exchange reserves of above $ 96 bn approximately by Nov. 28, 2003 and by Jan. 2004, it has reached
$ 100. bn.
5.4.5. Growth of Exports
Trade liberalisation including exchange rate devaluation has failed to bring about a notable
acceleration in the growth of exports. Exports did show large buoyancy immediately after devaluation
and increased by 20 percent in 1995-96, but the growth stagnated to only about 5 percent per annum
then. The slow down in industrial exports is because of non-competitiveness of Indian manufacturing
industry because of reservations and lack of modernisation. Agricultural exports also rose sharply
initially after devaluation but have stagnated after 1995-96. This is mainly because of high protection
and large subsidies given by the developed countries to their agricultural sector.
5.4.6. Trade Deficit and Current Account Deficit
Both the trade deficit and current account deficit remained quite high in the early 90s, with trade
deficit running at about $ 13 bn to $ 15 bn a year and the current account deficit at about $ 4 bn to $ 6
bn a year. However, as a proportion of GDP, current account deficit came down from 3.2 percent of
GDP in 1990-91 to between 1.4 to 1.7 percent of GDP during the second half of the 90s. The current
account deficit is financed through aid, borrowing and through inflows as FDI and FII.
5.4.7. FDI Inflow
The total FDI inflow ranging between $ 1.5 bn to $ 2.5 bn remained rather small compared with
East Asian countries while on the other hand increased borrowings (internal as well as external)
resulted in accumulation of large debt which had accumulated to $ 87.68 bn by 1999.
5.4.8. External Debt and Debt Service
External debt constituted about 24 percent of GDP during the latter half of 90’s (compared with
41.0 percent during 1990-91) and debt service at 2.5 to 2.7 percent of GDP. Debt service constituted
nearly 18 percent of current receipts in 1998-99 compared to 30.2 percent in 1991-92 (Table 3, Lesson
3).
99
The details above give a bird’s eye view of performance of Indian economy during the first half
of the nineties mainly to review the success of stabilisation policies.
5.5
IMPACT OF ECONOMIC REFORMS
The following sub-heads present the long-term impact of economic reforms undertaken in 1991.
5.5.1
Growth of GDP in the Post Reforms Period
Economic reforms undoubtedly have been able to promote a relatively higher growth. After the
crisis years, the growth rate of GDP during the four years 1993-94 to 1997-98 averaged to more than 7
per cent per annum.
If the annual average growth rate of the pre-reforms period (1980-81 to 1990-91) which was of
the order of 5.2 percent is compared with post-reforms decade of 1990-91 to 2000-01, we find that it
was higher at 5.8 percent for the latter period. In the ensuing decade, there is further improvement in
the growth rate of GDP: it was 6% per annum during the five year period 2000-01 to 2003-04 and it was
7.8% per annum during 2004-05 to 2011-13.
Table 3 : GDP growth at Factor Cost (at 1999-2k prices)
Year
GDP (Rs. Crores)
1980-81
6,41,921
1990-91
10,83,572
2000-01
18,64,301
At 2004-05 Prices
2009-10
39,59,653
2018-19
1,40,80,000
2019-20
1,47,80,000
Decade
GDP average growth rate
1980-81 to 1990-91
5.6
1990-91 to 2000-01
6.4
2000-01 to 2003-04
7.8
2004-05 to 20011-13
7.8
2012-17
7.5 (NNP)
Source : Dutt & Sundaram, 2010, Eco Survey 2019, 2021 & 2022.
Note : You can refer to even section 5.1 with base year 2000-01 & Appendix Lesson-1.
5.5.2
Economic Reforms and Reduction of Poverty in India
The Planning commission estimated poverty using uniform Recall Period (1993-94 to 2004-05)
and revealed that
*
During the 11 year period, the overall poverty ratio has declined from 36 percent in 1993 to 27.5
p.c. i 2004-05 a decline by 8.5 percent.
100
*
The average annual reduction of poverty during this period has 0.74 percent.
*
During this period, rural poverty ratio has declined from 37.3 percent in 1993 to 28.3 percent in
2004- a decline of 9 percent.
*
During the 11 yr period, urban poverty ratio has declined from 32.4 percent in 1993-94 to 25.7
percent in 2004-05-a decline of 6.7 per cent.
Table 4a : Comparison of Poverty Estimates on Uniform Recall Period (Percentage)
Year
Rural
Urban
Total
1973-74
56.4
49.0
54.9
1987-88
39.1
38.2
38.9
1993-94
37.3
32.4
37.2
2004-05
41.8
25.7
27.5
2011-12
25.7
13.7
21.9
Source: Ninth Five Year Plan (1997-02), Eco. Survey 2014-15 (NSSO, 68th Round, 2011-12)
*
The number of persons below poverty line or the total number of poor was estimated at 320
million in 1993-94 and 300 million in 2004-05. The number of poor has declined very slowly in the post
reforms period-at the rate 0.7 per cent per annum while during 1973-74 to 1987-88, the rate of
reduction in Poverty was 1 percent (Dutt & Mahajan, 2010). {For details, see chapters on Poverty as
there are various estimates made in recent years).
Poverty estimates based on the Tendulkar committee methodology and using (household
consumption expenditure survey) data collected by NSSO in its 68th round shows that evidence of
poverty declined as shown in following Table 4b.
Table 4b : Tendulkar Committee Rural and Urban Poverty (in percent)
Year
2004-05
2009-10
2011-12
Poverty Ratio Combined
37.2 pc
29.8%
21.9 pc
Rural Poverty Ratio
41.8 pc
-
25.7 pc
Urban Poverty Ratio
25.7 pc
-
13.7 pc (Sharp decline)
Source : Eco. Survey 2014-15
During 11 year period 1993-94 to 2004-05, the average decline was 0.74 percentage points per
year. It accelerated to 2.18 percentage points per year during 7 year period 2004-05 to 2011-12 (GOI,
Press Release). Though there is sharper decline in number of rural poor, yet the rural poverty ratio still
remains higher than the urban poverty ratio. The high rural poverty can be attributed to following
factors in rural areas :
(i)
lower farmer incomes (subsistence agriculture)
(ii)
(iii)
(iv)
(v)
lack of sustainable livelihood
High food prices and rural income.
lack of skills
Underemployment and Unemployment
Prepared by using NFHS-4 (2015-16) Report, following are major facts related to poverty.
101

25% households were multidimensionally poor.
5.5.3 Impact of Economic Reforms on India’s Exports, Imports and Trade Defict
(details of foreign sector shall be studied in Sem IV)
We have read earlier that the policies of liberalisation in foreign trade were initiated in the year
1985-86, but their impact started showing result gradually i.e. in the year 1986-87. The period 1980-81
to 1986-87 showed stagnation in our foreign trade but during the period 1987-88 to 1990-91, the foreign
trade picked up substantially, the exports grew at 16.7 percent while imports rose at 11.2 percent per
annum on average.
After 1991, under the new economic policy, we went in for rapid globalisation, thereby reducing
quantitative restrictions and making reductions in tarriffs. This all was done with the objectives of
boosting exports and facilitating imports needed for developmental purposes especially for industrial
growth. The RBI, Report on Currency and Finance (1998-99) mentions. “On an average annual basis,
export growth during 1992-93 to 1998-99 at 9.8 percent was higher than that of 8.2 percent registered
during 1980-81 to 1990-91. Similarly, the average import growth during the nineties at 12.0 percent
remained substantially higher that of 7.8 percent recorded during the eighties”. The Report further
states: “Intia’s foreign trade exhibited considerable buoyancy during the period 1993-94 to 1995-96 with
both exports and imports recording, on an average, an increase of 20 percent per annum. The growth
of lndia’s foreign trade-, however, decelerated during the next three years, i.e., during 1996-97 and
1998-99.”
Moreover, the value of imports remained larger than the value of exports reflected in the
negative trade balance, popularly known as trade deficit. During the Eighth plan (1992-97), the average
trade deficit was of the order of $ 3456 million, while in the Ninth plan (1997-2002), this average trade
deficit was double that of the Eighth plan i.e. $ 8,412 million o r $ 8.4 bn. Taking the entire tenth plan
period (2002-07), annual average trade deficit was of the order $ 33.2 bn, about four times that of the
ninth plan. This is a cause of serious concern. During 2007-08, the situation has worsened still further
with the trade of deficit reaching a figure of $ 80.6 billion.
Several factors have contributed to the situation. Firstly, India underestimated the impact of
South-East Asian crisis of 1997-98 and that was a major factor for slump in exports. Secondly, China
and Taiwan are emerging as strong competitors. The textile sector is facing increasing competition from
China and has also been affected by the restrictive & protectionist policies of developed countries.
Fourth, large industrial houses have miserably failed to boost exports. Actually they contribute only 5
p.c. of total exports while import intensity is very high; and are not losers of foreign exchange. Fifth,nontariff barriers have been created by the developed countries to slow down Indian exports. The use of
antidumping duties by these countries have also affected exports. Fortunately, the service sectors in
the Indian export market have made some headway, for instance, software exports rose to record level
of Rs. 53,912 crores in 2003-04.
During 2000-01, exports increased largely due to rupee depreciation along with further trade
liberalisation, reduction in tariffs and more openers to foreign investment in export-oriented sectors like
information technology. The increase in the international ‘price of crude oil raised the import bill
drastically. The sharp increase in POL imports prevented non- POL imports to increase adequately.
Although the country recorded a 25.8 percent growth in exports in 2007-08 to $159 billion, marginally
missing its target of $ 160 billion, but this-big effort was more than neutralized by a high growth of
imports to reach $ 239 billion thus widening the trade deficit. India must restrict the relatively higher
increase of imports, if the goal is to reduce trade deficit with higher exports.
102
As shown in Table, exports rose from 5.8 percent of GDP in 1990-91 to 9.1 percent of GDP in
1995-96. Thereafter, there is gradual increase in exports to reach 14.4 percent of GDP in 2009-10. ln
case of imports, there is an increase in imports from 8.8% of GDP in 1990-91 to 12.3% in 1995-96.
After that even when ‘exports fell in 1996-97, imports continued to increase. ln the year 2000- 01, the
exports increased to a level of 9.9 percent of GDP, imports rose to 12.6 pc of GDP. By the year 200910, exports increased to 14.4 p.c. of GDP while imports increased to 28.1 p.c. of GDP. During 2017-18,
India’s exports rose by 9.8%, highest growth rate in years while imports pushed up by 20 pc.
5.5.4
Imports Trade deficit
lndia’s trade deficit during 1996-97 to 2000-01 ranged between 3.1 to 4.0 percent of GDP. The
situation improved .during 2001-02 and 2002-03 when trade deficit came down to 2.4 percent and 2.1
percent respectively. The situation, however, deteriorated in 2008-09 and the trade deficit sharply
increased to 9.7 p.c. of GDP, while in 2009-10 ‘it was a little lower at 8.7 p.c. of GDP. The trade difict
widened to USD 18.02 bn in July 2016.
Table 5 : Performance of External Sector : Exports, Imports, Trade Balance, Current Account
Balance & External Debt (as %age of GDP)
Year
Exports
Imports
Trade
Net Invisibles
Balance on
External
Balance
(or Balance on
Current
Debt
Invisibles A/C)
Account
1990-91
8.5
8.8
-3.0
-0.1
-3.1
28.7
1995-96
9.1
12.3
-3.2
1-6
-1.7
27.0
2000-01
9.9
12.6
-2.7
2.1
-0.6
23.3
2001-02
9.4
11.8
-2.4
3.1
+0.7
21.2
2002-03
10.6
12.7
-2.1
3.4
+1.3
20.3
2003-04
11.1
13.3
-0.2
4.6
+2.3
17.8
2004-05
12.2
17.1
-4.9
4.5
-0.4
18.5
2005-06
13.0
19.5
-6.4
5.2
-1.1
17.2
2006-07
14.0
20.9
-6.9
5.8
-1.1
17.9
2007-08
14.1
21.9
-7.8
6.3
-1.4
19.0
2008-09
15.4
25.1
-9.7
7.4
-2.4
20.5
2009-10
14.4
23.1
-8.7
6.4
-3.1
20.1
2010-11
14.9
22.6
-7.7
+5.0
-2.7
–
2011-12
16.8
27.0
-10.2
+6.0
-4.2
–
2012-13
16.3
26.7
-10.4
+5.6
-4.8
–
2021-22
–
–
–
–
-0.2
20.2
Source: Eco. Survey, Various Issues, Dutt & Sundaram 2010, 2014., http//data.gov.in
103
Eco. Survey, 2021-22
Table 5a : India’s Current Account Balance of Trade during Post-reforms Period
Year
Balance of trade or Trade Deficit
DGCI & S(in Rs. Crores)
RBI (in US $ Mn)
1990-91
-10,635
-5,928
1991-92
-3,809
-1,545
1992-93
-9,687
-3,345
1996-97
-20,103
-5,662
2001-02
-36,182
-7,856
2006-07
-2,68,727
-59,321
2009-10
-5,18,202
-1,09,622
2010-11
——
118.6 bn
2012-13
——
190.3 bn
2013-14
——
135.8 bn
*Calendar year.
Sources: 1. Government of India, Economic Survey, 2001-11. 2. RBI Handbook of Statistics on Indian
Economy,2009-10.
As shown in Table 7A, the external debt is hovering around 18-20 p.c. of GDP during last few
years.
India’s performance in achieving a net positive balance in invisibles contributed greatly towards
mitigating the trade deficit. Between 2000-01 and 2002-03, it created a positive balance in the current
account. The software exports have contributed towards it in major. The situation deteriorated since
2004-05 and had a negative Balance on current account. (see. Table 5 & 6 for further details.)
Year
1990-91
1995-96
1997-98
2000-01
2001-02
2002-03`
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
Table 6 : Export-Import Ratio and Currents Account Balance.
1) Exports as % of
Imports
66.2
74.0
69.7
78.5
79.5
83.4
67.3
66.4
61.4
60.6
65.7
62.0
61.0
2)Current Account
balance as % of
GDP
-3.2
-1.8
-1.4
-0..6
+6.7
+1.2
-1.1
-1.3
-2.5
-3.1
-2.7
-4.2
-4.8
Trade Policy has focussed on promoting exports and theory moderates the level of trade deficit,
which in turn had a salutary effect in bringing down overall balances of payments outcome in the
current fiscals. In the year 2021 (Apr.-Sep.) the Current Account Deficit (CAD) as %age of GDP was (–)
0.2 pc (Eco. Survey 2021-22).
5.5.5
Economic Reforms and External Debt
104
The period from 1980 to 2000 was marked by an increase in the share of India’s exports in
world exports from 0.42 to 0.67 and the restoration of export balance post 1992-93. The rates of
external debt to GDP declined from 5.5 percent in 1990-91 to 2.6 percent in 2000-01. Similarly of
external debt became more stable. The ratio of short term external debt to total external debt declined
from a peak of 10.2 percent in December 2000. Foreign exchange reserves increased from a level
equal to 8 month import in 1990-91 to a level of over 8.5 months’ import since 1993-94. By Nov. 2003 it
has reached $ 97 bn. By 2000, India’s short-term external debt was only 8.5 percent of foreign
exchange reserves, which is much lower than 10% in China, 15.5% in Malaysia, 45.6 percent in
Thailand and 112.6 percent in Argentina. Macro-economic stability and a higher degree of openness
have also resulted in an increase in inflow of foreign investment (portfolio plus FDI) from a level of $
113 million in 1990-91 to $ 14,294 million in 2000-01, though these are far below the potential inflow.
India’s external debt burden rose from Rs. 1630 billion (US $ 83.8 billion) in 1991 to Rs. 4293
billion (US $ 98.4 billion) in 2000, as is evident from Table 7. The per capita debt-burden on India rose
from Rs. 1926 in 1991 to Rs. 4208 in 2000. World Bank had put India among top 15 indebted
countries and is classified as moderately indebted. The exchange rate of Indian rupee depreciated from
Rs. 17.94 in 1990-91 to Rs. 46.75 per dollar in December 2000 (GOI, 2001). Clearly, the reforms have
exposed Indian economy to a greater external vulnerability.
Table 7 : India’s External Debt during Post-reforms Period 1991-2000
Year
External Debt*
(Rs.bn.)
$ bn.
1991-92
1630
83.8
1992-93
2529
85.3
1995-96
3117
99.0
1998-99
3697
93.5
1999-2000
4149
97.7
Sources: 1. Government of India, Economic Survey, 2000-01.
2. RBI Handbook of Statistics on Indian Economy (Various issues) (From P.P. Arya).
(Note: update data from previous point regarding External Debt)
The prendent external debt policy of GOI has resulted us maintaining external debt within safe
and comfortable limits and in containing use the external debt increase to $ 475 bn in 2014-15, due to
predminans of long-time bar rowings, US dominated borrowings, non-government debt. Still it is with in
satements.
Table 7A : External Debt since 2011-12.
Year
External Debt
(US $ bn)
Total External Debt
As %age To GDP
2011-12
360.8
20.5
2012-13
409.4
22.3
2014-15
475.2
23.7
(June) 2021-22
—
20.0
Source: Kapila Uma; 2016, Eco Survey 2021-22
105
5.5.6
Foreign Direct Investment and Foreign Portfolio Investment
Foreign investment takes two forms - foreign direct investment (FDI) and foregin portfolios
investment (FPI). Foreign direct investment helps to increase the productive capacity of the economy,
while FPI is of more speculative nature & is thus volatile. A careful perusal of the data on foreign
investment given in table reveals that during the period 1990-91 and 1994-95, the share of FDI in total
investment inflow was only 24.2 per cent and that of FPI was 75.8 percent. For the 5 year period (199596 to 1990-00), the proportion of FDI in total investment improved to 54.8 p.c. During the next 10 year
period (2000-01 to 2010-11), the share of FDI was 60.8 per cent and that of FPI was 39.2 per cent. The
fluctuations in FPI were much sharper. (see Table 8).
The trends in FDI show a gradual upward growth from $ 3557 mn in 1997-98 and to $37763
million by 2009-10. Out of the total approved FDI from January 1991 to March 2004, nearly 69 p.c.
pertained to five high priority sectors namely energy, tele communications, electrical equipment
(including computer software & electronics) transportation and metallurgical industries. And, there was
gap between approved FDI and actual inflows, and needs to be reduced.
Table 8 : Foreign Direct Investment Inflows in India (in US $ mn)
Year
1990-91 to 1994-95
1995-96 to 1999-2K
2000-01 to 2010-11
Apr.- Oct. 2021
Foreign Direct
Foreign Portfolio
Total Foreign
Investment
Investment
Investment
2441
7645
10086
(24.2)
(75.8)
(100)
13139
10853
23992
(5438)
(45.2)
(100)
191376
123209
314585
(60.8)
(39.2)
(100)
–
–
48.4 (in billions)
Source: Dutt & Sundaram, 2010.
A number of sectors have been liberalised in 2015 and various reforms have been useful taken,
so FDI inflows into India increase from $ 27.7 bn in April-Nov 2014 to $ 34.8 bn in April-nov 2015 a 26
per cent surge. The higher inflows were made in services sector. In 2017-18, FDI increased to $ 61.96
billion. Theportfolis investment was record high of 18.76 USD bn in Sep 2010 and a record low of -Ò.31
USD bn in Dec 2016 (RBI Quorterly Report).
Note : Figures in parentheses are percentages of the total in row.
5.5.7
Economic Reforms and Sectoral Changes
The Table 9A shows the rates of growth of all the three sectors Agriculture & allied activities,
Industry and services - during the decade of 80s and 90s. It is noticed that in both the decades, the
growth rate of the tertiary sector is highest, followed by industrial sector; and in both the sectors, growth
rates are higher than the average growth rate. The growth rate of agriculture and allied activities was
106
3.5 p.c. in the eighties but in the nineties, it declined to 2.7 p.c., mainly because the economic reforms
concentrated on the industry and services the agriculture did not get the desired focus.
Table 9 A : Sectoral Growth Rates in GDP (at factor cost) in India
during Pre-and Post-reform Periods [Percent per annum]
Sectors
1980-81 to 1991-92
1992-93 to 2000-01
2001-02 to 2010-11
2021-22
Agriculture and
Allied activities
3.5
2.7
2.9
8.9
Industry
7.1
5.7
7.8
11.8
Services
6.8
7.6
9.4
8.2
Total GDP
5.6
5.6
7.9
–
GDP Per Capita
3.4
3.7
6.2
–
Source : Uma Kapila, 2016, p 671, Eco Survey (2021-22).
Table 9 B : Sectoral Growth Rate in Recent Plans (Percent per annum)
Sector
Eighth Plan
Ninth Plan
Tenth Plan
(1992-97)
(1997-2002)
(2002-07)
Eleventh
Plan Target
(2007-12)
End
Year
XII Plan
20202021
2017-18
1. Agriculture
4.72
2.41
2.30
3.6
2.1
3.6
2. Industry
7.29
4.29
9.17
7.2
4.4
-7.0
3. Services
7.28
7.87
9.30
9.4
8.3
-8.0
4. Total GDP Growth
6.54
5.52
7.74
7.9
6.75
-7.3
Source : Pratiyogita Darpan, Exam Oriented Series I, 2009; Economic Survey, Various issues, *Eco Survey
2017-18, Eco Survey 2021-22.
Note : Latest data- See in Lesson 1.
The average annual growth rate of GDP (at factor cost) increased to 6.4 percent during 1992-93
and 2000-01, 5.6 percent between 1980-81 and 1991-92. The rise from 7.9 pc in 2002-11 was mainly
due to growth in tertiary sector, which during the corresponding period was 8.2 percent and 6.4 percent,
respectively. The sectoral growth rates in agriculture and its allied activities and in industry during the
corresponding periods were 3.3 and 3.9 percent and 6.5 and 6.3 percent, respectively as given in Table
9A. Not with standing the higher annual average growth rate of GNP during the post-reform period, the
trend growth rate of the industrial production was higher in the pre-reform period than that in the postreform decade. It was 7.8 percent between 1980-81 and 1989-90 and 6.7 percent between 1990-91
and 2000-01 which increased to 7.8 pc in 2002-11.
As it is quite evident from Table 9B the GDP grew, during the eighth plan at rate 6.54 p.c per
annum. In the ninth plan it was slower at 5.52 p.c. per annum mainly because of relatively slow growth
of agricultural and industrial sectors while services sector performed robustly. In the tenth plan, the
107
GDP growth was appreciable i.e. 7.7 p.c. per annum, on the strength of good industrial performance
and performance of the services sector while agriculture sector put up a poor show. The Eleventh plan
recorded growth of 7.9 p.c. per annum with sectoral growth rates of − 3.6 p.c.of agricultural sector, 7.2
p.c. of industrial sector and 9.4 p.c. of services sector.
5.5.8
Economic Reforms and Unemployment. [See L-1 and L-19]
Following table makes comparison of employment position in the eighties and the nineties.
Note: Please consult the lessons on poverty and unemployment in India (L.No.6,7,8 & 9 for updating
data)
As per the results of the latest quin-quennial survey of National sample Survey Organisation
(NSSO) on Employment and Unemployment (55th Round : 1999-2000), the rate of growth of
employment, on Current Daily Status (CDS) basis, declined from 2.7 per cent per annum in 1983-1994
to 1.07 per cent per annum in 1994-2000 (See Table 10a). The decline in the rate of growth of
employment during the 1990s was associated with a comparatively higher growth rate of GDP,
indicating a decline in the labour intensity of production.
On the basis of the data collected and analysed by the special group it was found that in the
unorganised sector, the employment elasticity was as high as 0.2/3 in 1999-2k where as in the
organised sector, it was as low as 0.066 i.e. almost jobless growth. Moreover, in the year 1999-2000,
the total contribution to employment by the organised sector was only 8 p.c. of which the private sector
segment’s contribution was hardly 2.5 p.c. The balance 92 p.c. (of the workforce) came from the
unorganised sector, while its contribution to the GDP was nearly 50 p.c. Thus the S.P. Gupta Special
Group Report was thus path-breaking document which emphasised on unorganised sector if the growth
process has to be made inclusive to promote the interests of 92 p.c. of labour force.
Annual employment growth in the organised sector decelerated from 1.2 p.c. during 1983-94 to
(-) 0.38 p.c. per annum during 1999-2004.
Table 10 Annual Employment Growth in Organised Sector
1983-94
1994-2004
Public Sector
1.53
-0.80
Private Sector
0.44
0.61
Total Organised
1.20
-0.38
Source : Ministry of Labour. C.F. Rudardutt & Sundaram.
As the table shows, the public sector annual employment growth declined by (-) 0.80 pc. during
1994-2004 from 1.53 p.c. during 1983-94. While it was expected that the private sector would
compensate or more than compensate for it (i.e. fall in public sector employment) by raising the private
sector employment growth, which got belied by the actual employment growth in private sector (i.e.
marginal increase from 0.44 p.c. in 1983-94 to 0.61 p.c. in 1994-04).
Table 10a Employment and unemployment by usual Principal Status
(Various Rounds of NSSO Survey)
1983
1993
1999-00
2004-05
Labour Force(million)
277.34
343.56
377.88
428.37
Work Force(million)
269.36
333.54
367.37
415.27
108
No. of unemployed (million)
7.98
9.02
10.51
Unemployment Rate
(As % of Labour Force)
2.88
2.62
2.78
13.3
3.06
Rate of Growth (% per annum)
Labour Force
Work Force
1983 to
1993-94
1993-94 to
1999-00
2.06
2.06
1.60
1.57
1999-00 to
2004-05
2.54
2.48
Source : Rudardutt & Sundaram, 2009
After going through the facts that the growth of employment has declined during the postreforms-era, it remains to be seen as how unemployment rate performed (i.e. increased or decreased).
Table 10 provides the related details.
It is quite evident that unemployment rate has increased during the period 1993-2k (i.e. 2.8%)
and further in 2000-05 (i.e. 3.1%). But the hope lies in the fact that the labour force growth rate has
increased to 2.54 p.c. in 1999-00 to 2004-05 period. But in the light of the facts that share of agriculture
in GDP is decreasing & there is lesser scope for absorption of additional labour; and employment
growth in manufacturing is disappointing, the scope of increasing employment lies in the change in the
manufacturing sector and proper policy for services sector i.e. promotion of transport, trade and
communications, construction i.e. where elasticity of employment is high.
The NSSO quin quennial survey has reported an increase in work opportunities to the tune of
18 million under the Current Daily Status between 2004-05 and 2009-10. However overall labour force
expanded by only 11.7 million, considerably lower than the comparable periods earlier. As a result,
unemployment in absolute terms came down by 6.3 million (Table 10, a, b). The stagnancy between
2004-05 and 2009-10 (i.e. 2.5 mn per year) took a twin between 2009-10 and 2011-12. A growing
proportin of the work forcs is moving to non form activities.
Table 10b : Estimated Persons/Persons Days (in million)
Approach
Indicator
2004-05
2009-10
UPSS
(NSS 61st Round)
(NSS 66th Round)
469
457.9
11.3
445.2
425.2
20.0
417.2
382.8
34.3
468.8
459.0
9.8
450.4
434.2
16.1
428.9
400.8
28.0
Labour Force
Work Force
Unemployed
CWS
Labour Force
Work Force
Unemployed
CDS
Labour Force
Work Force
Unemployed
Source: Eco. Survey, 2011-12 (Govt. of India)
Note : Consult chapter on unemployment for more details.
Note: Update data using lessons on Poverty and Appendix
109
5.5.9
Savings in Post Reforms Period (see Appendix for update)
A notable feature of the Post-reforms growth experience was the rising trend in Gross Domestic
Investment and Savings.
The CSO’s estimates of saving since 2003-04 have shown a dramatic increase in India’s
savings rate. This changes the country’s macroecomic scenario radically from one with relatively low
and stagnant domestic saving to quite high and rising rate. According to these estimates, the domestic
saving rate which was roaming around 22-26 percent for nine years from 1994-95 to 2002-03 made a
sudden jump from 25.9 percent in 2002-03 to 29.0 percent in 2003-04 and further to 33.4 percent in
2005-06, 34.6 in 2006-07 and 36.8 percent in 2007-08 (the highest level achieved so far). It stood at
30.6 percent in 2013-14. Although 30.6 percent saving rate is far lower from the levels of 38 percent in
China and other East and South East Asian economies, these estimates of savings radically alter
development potential of the economy.
According toTwelfth Five year Plan, two factors were responsible for raising the domestic saving
rate in the period upto 2007-08. One was the big improvement in government finance and the other
was the improvement in the level of retained earnings of the private corporate sector. Between 2001-02
and 2007-08, the savings of government administration improved from minus 1.6 percent of GDP to
plus 5.0 percent of GDP –an improvement of 6.6 percent points. This was more than half of the 11.9
percent point increase in the overall saving rate- the retained earnings of the private corporate sector
improved from 3.3 to 9.4 percent of GDP-an increase of 6 percentage points. The decline in domestic
savings rates witnessed other 2007-08 is also attributed to these two factors.
Self Assessment Question
Q.
What do you know about Savings and Investment in the post-reforms India?
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
5.5.10 Investment in Post Reforms Period (see Appendix for update)
The Indian economy was caught in a sevese economic crisis in 1990-91. However, for three
years the rate of capital formation remained depressed and fluctuated around 23.0 percent. The
process of recovery started in 1994-95 and the rate of capital formation rose to 24.7 percent-There was
a further improvement in the rate of capital formation in 1995-96 and it rose to 25.3 percent. It fell to
23.7 percent in 1996-97 but rose to 26.8 percent in 1999-2000. In 2001-02, it stood at 24.3 percent.
Gross Domestic Capites Formation or Investment (or GDCF) increased significantly in the
period of the Tenth Plan-from 24.8 percent of GDP in the First year of the Plan, i.e. 2002-03 to 35,7
percent in the last year of the plan i.e 2006-07. In fact, total investment as percentage)
GDP at market prices which was 23.8 percent an average, in the Eight Plan and 25.1 percent in
the Ninth Plan. Jumped to as high as 30.1 percent on an average in the Tenth Plan.
The rate of investment in 2007-08 (the first years of Eleventh Plan) was 38.1 percent of GDP
(the highest recorded so far). This fell to 34.3 percent in 2008-09, following the slowdown in the global
economy, though later It picked up to 36.5 percent in 2009-10 and 2010-11. However, the investment
rate fell to 35.5 percent of GDP in 2011-12-the last year of the Eleventh Plan.
110
A noteable feature of the growth experience was the sharply rising trend in gross domestic
investment and saving. The investment rate (Gross Domestic Inv./GDP) rose to 32 p.c. in 2004-05. The
investment climate was imbued with business confidence, entrepreneurial optimism, and an
improvement in corporate competitiveness and profitability. This, in turn, resulted in an upsurge in
foreign direct investment (FDI). By 2007-08, the investment rate had risen to 39.1 percent of GDP while
the saving rate reached 37.7 percent. Both private and public savings contributed to the increase. The
savings from the private corporate sector was particularly buoyant, supported by the turnaround in the
public sector saving from dissaving since 2003-04 onwards. Saving of the household sector was stable
at 23 to 24 p.c. of GDP. The upsurge in private corporate investment was due to a capital expenditure
boom.
5.5.11 Inflation Scene in Recent Times (see Appendix for update)
Inflation, measured by the WPI, rose from 4.4 p.c in 2005-06 to 5.4 p.c. in 2006-07 but fell back
to 4.7 p.c. in 2007-08. Prices of primary articles and mineral oils started moderating from June 2007
onwards because of a number of reasons:
a)
rollback in the increase in the prices of petrol & diesel between November 2006 midFebruary 2007 levels.
b)
Improved availability of primary articles
c)
Fiscal and monetary measures to contain.
Inflation has touched 5.6 pc in December 20-21. (using CPI details) while it was 7 pc in USA (e.g.
Eco Survey, 2021-22).
Note: Add the Performance of Agriculture Sector and Industrial Sector in Post-reforms period as
separate points using data from lessons on Ag. growth and Ind. growth. Even you can expand and add
information on regional disparities, poverty, unemployment, occupational structure from all the chapter.
5.6
SUMMARY
The indicators of economic growth touched the lowest in the year 1990-91 and Indian economy
necessitated drastic changes in its policy-track initiated in the year 1951, which had continued with little
variations till 1990-91. Privatisation, Liberalisation and Globalisation became the buzz word in 1991.
The First Generation. Economic Reforms were introduced in two phases. First was the stabilisation
policy. Its main objective was to check the macro-economic imbalances like fiscal deficit, revenue
deficit, foreign exchange reserves, inflation etc immediately. The second component was the Structural
Adjustment Programme (SAP), a comprehensive programme in nature or embracing almost all
dimensions, namely industrial sector, financial sector, fiscal sector, internal and external trade, public
sector, private sector etc. This all has been presented in a flowchart given on next page:
5.7
GLOSSARY
Stabilisation Policy: It involves short term measures to deal with the crisis mainly to collapse
of balance of payments situation and reduce the current account deficit as much as possible. It may
involve devaluation, which needs to be followed by an appropriate monetary constraint and a check on
fiscal deficit
111
Structural Adjustment programme: It is a step beyond stabilisation. It involves lifting all
controls that makes for inward orientation and a greater reliance on market prices. The message is that
a free market economy leads to best state of affairs for a society. Its main tenets are (a) Import
libaralisition (b) export liberalisition (c) fiscal discipline (d) monitary discipline.
5.8
REFERENCES
 Rudardutt and Sundaram (2001). Indian Economy. Himalaya Publishing House Private Ltd.
 Datt and Mahajan (2015) . Indian Economy. various issues since 2006 S. Chand Publications.
 Economic Survey, (2000-01). Ministry of Finance. Government of India
 Economic Survey, (2011-12). Ministry of Finance. Government of India.
112
 Economic Survey, (2014-15). Ministry of Finance. Government of India.
 Economic Survey, (2015-16). Ministry of Finance. Government of India.
 Economic Survey, (2020-21). Ministry of Finance. Government of India.
 Pratiyogita Darpan, Exam Oriented Series, 2009, issue to 2014 issue.
5.9
FURTHER READINGS
 Kapila, Uma (2016). Indian Economy. Academic Foundation.
 Ninth Five Year Plan (1997-02). Planning Commission. Government of India
 Economic and Political Weekly. various issues
5.10
MODEL QUESTIONS

What has been the impact of Economic Reforms on the problems of unemployment, poverty
and income inequality.

Discuss major economic reforms introduced in India. Analyse major achievements and failures
of Economic Reforms.

Critically analyse the impacts of New Economic Policy in India.
--00--
113
APPENDIX : Latest Figures
ECO. REFORMS
Item-1
Table 1 : Average Annual Growth Rates (at Constant Prices : Eleventh Plan (Percent Per Annum)
Plan
Net National Income (%)
Per Capital Income (%)
7.8
7.5
Eleventh Plan
2001-06 to 2011-12
Source: Eco Survey 2015-16
Item-2
Table 2 : National Income Figure (Rs. ) at 2011-12 Series (New Series)
Year
Gross National Income
(Rs. Crore)
Net National Income
(Rs. Crore)
Per Capita Income
Current
Price
Constant
Price
Current
Price
Constant
Price
Current
Price
Constant
Price
2011-12*
3659215
48659215
7742074
7742074
63400
63460
2012-13*
9834581
9118709
8774615
8109505
71052
65664
2013-14*
11132877
9717062
9934404
8615309
79412
68867
@
12340772
10427701
11007597
9235026
86879
72889
2015-16(AE)
13409892
11214077
111961524
9934339
93231
77431
2021-22
14536732
–
2014-15
91,481
Source : Eco Survey 2015-16
Note : *Second revised estimates;
@ - First revised estimate;
AE – Advance (Estimates)
Item-3
Table : 3 Saving and Investment at Current Prices
Gross Domestic Savings
Gross Fixed Capital
(as % of GDP)
Formation
(as % of GDP)
Year
2011-12*
34.6
34.8
2012-13*
33.8
33.4
2013-14*
33.0
31.6
33.0
30.8
@)
2014-15
2021-22
Source : Eco Survey, 2015-16
47.84 Lakh Crore
114
Note : *Second revised estimates;
@ - First revised estimate;
AE – Advance (Estimates)
Item-4
Table 4 : Growth of GDP and Manufacturing Sector : Important Figure [Percent per annum]
S.No
Item
2014-15
2015-16
2021-22
1.
Growth Rate of GDP at Constant
Prices (percent per annum)
7.2
7.6
9.3
(-7.8)
2.
Growth of Manufacturing (percent
per annum)
5.5
9.5
9.9
-(0.6)
Sources : Eco Survey 2015-16, 2021-22 Note : *(2021)
Item- 5
Table 5 : Level of Per Capita Income (in Rs.) in 2015-16 (in Rupees)
Concept
Current Price
Per Capita Gross Domestic Product (GDP)
Per Capita Net National Income (NNI)
Constant Price
2015-16
2018-19
1,05,746
--
88,472
93,231
1,26,406
77,431
Source : Eco. Survey 2015-16
Table 6 : Growth of Per Capita Income At Constant Prices (in per cent per annum)
S.No.
Concept
2012-13
2013-14
2014-15
2015-16
1.
Per Capita GDP
4.3
5.3
5.9
6.2
2.
Per Capita NNI
3.5
4.9
5.8
6.2
2021-22
Source : Eco. Survey 2015-16
Item- 6 HDI of India
HDI of India : As per Human Development Report (HDR) 2016 India ranks 130 out of 188 countries
India’s HDI value for 2014 is 0.609. First rank is held by Norway (0.944)
115
Table 7 : Rank and Value of HDI of India & China
Year
HDI Rank (Improvement
over 2013 Rank)
HDI Value (Recent)
India 130 (+6)
India 0.609
China 90 (+ 13)
China 0.727
India 131/189
India 0.645
2014
2021
Source : Eco. Survey 2015-16, 2021-22.
India has improved its HDI rank by 6 places while China has improved its HDI rank by 13 places.
Item- 8
Wholesale Price Index (WPI) has been in negative territory since Nov. 2014.
Consumers Price Index (CPI) – New Series inflation has fluctuated around 51/2 percent in last few years.
Indian CPI touched 4.9 pc in Nov. 2021, 5.6 pc in Dec. 2021, 7pc in USA. (Eco Survey 2021-22)
116
Lesson-6
UNEMPLOYMENT IN INDIA-I
(Meaning, Nature and Extent)
Structure
6.0
Objectives
6.1
Introduction
6.2
Unemployment and Economic Theory
6.3
Nature of Unemployment in India
6.3.1
Rural Unemployment
(a) Seasonal Unemployment
(b) Disguised Unemployment
6.3.2
Urban Unemployment
(a) Structural Unemployment
(b) Industrial Unemployment
(c) Educated Unemployment
(d) Cyclical Unemployment
(e) Frictional Unemployment
6.4
6.5
6.3.3
Open Unemployment
6.3.4
Under-employment
Methodology, Sources and Concepts

Usual Status

Current Weekly Status

Current Daily Status
Magnitude / Extent of unemployments
6.5.1
Pre-Reforms Period
6.5.2
Post Reforms Period

Period 1983-2000

Period 1993-94 to 2003 -04

NSSO 64th Round 2007-08

Plan-wise picture till XIth Plan
117
6.6
Special Group on Employment
6.7
Effect of Global Financial Crisis
6.8
Impact of Economic Reforms on Unemployment/Employment
6.9
Summary
6.10
Glossary
6.11
References
6.12
Further Readings
6.13
Model Questions
6.0
OBJECTIVES
After going through this lesson, you shall be able to :
6.1
 describe the term ‘unemployment, as given in economic theory.
 explain the nature and extent of unemployment in India.
 comment upon the growth of employment in India.
 analyse the impact of economic reforms on unemployment in India.
INTRODUCTION
The term ‘unemployment’ is not new for you. As you all have read at under-graduate level, the
term unemployment refers to a situation of no employment. In this lesson, we shall study the definition
and types of unemployment. Then we will try to have a glimpse of this problem in India through the
topics-extent, nature and trends. The measurement of employment and unemployment in India will be
discussed in the next chapter.
6.2
Unemployment and Economic Theory
The word “unemployment” first came in the common use in English-speaking countries only in
the late nineties of the nineteenth century. As a matter of fact, even Alfred Marshall did not refer to any
unemployment problem in the first volume of his work ‘Principles of Economics’, published in the year
1890. He talks about ‘inconsistency of employment’ there. Later unemployment in a developed
economy emerged as a problem. The views on unemployment are classified in two categories (a) Classical View (b) Keynsian View.
The classical economists rejected the possibility of employment as a long-time problem in an
economy. They believed that an economy tends to reach the state of full employment (a state where
there is no involuntary unemployment). According to classical economists, full employment is ensured
by the fact that there is automatic adjustment in the economy as whatever is produced is consumed:
“Supply creates its own demand”. However different types of unemployment can exist temporarily like
frictional unemployment, cyclical unemployment, technological unemployment, seasonal unemployment
and structural unemployment. These situations, according to classicals, can exist due to conditions and
factors inherent in a dynamic economy and which are beyond control.
The classical concept of full employment was strongly rejected by J.M. Keynes. According to
Keynsian theory of employment, an economy is determined by the level of effective demand, i.e.
where aggregate demand equals aggregate supply. This equilibrium need not be established at the
point of full employment. Here you can recall the Keynsian theory of Effective demand - a topic in
Macro Economics. Thus, according to Keynes, a state of unemployment can exist even when a
developed capitalist economy is in a state of equilibrium. He was of the view that if 95pc to 97pc of the
working population is employed we can call it a state of full employment.
118
From the point of view of economy as a whole, unemployment means inefficient utilisation of
human resources, lower production and therefore, low standard of living of the people. The Classical
economists believed in full employment. But Keynes challenged this view-point and said that normally
there is less than full employment. If 95% to 97% of the working population is employed, we can call it a
state of full employment; and 3% to 5% of the working population will normally remain unemployed due
to different reasons. If this percentage is higher than 5% then there is something wrong in the economic
system.
6.3
NATURE OF UNEMPLOYMENT IN INDIA
The nature of unemployment in an under-developed country (UDC) differs from what we have
read about developed capitalist economy explained in various theories. In an UDC, unemployment
occurs not by a deficiency of effective demand; it is rather because of other factors like slow growth of
capital formation, more dependence on agriculture etc. In the developed countries, the unemployment
is temporary because everybody gets work in course of time or unemployment is frictional arising out of
technological improvements and cyclical fluctuations. In the developing countries unemployment is
chronic rather than temporary. It is mainly due to slow growth of capital formation as compared with the
increase in labour force. The organised sector of a developing country faces almost that same type of
unemployment as the advanced countries experience the large section of UDC or developing country
resides in rural areas and agriculture is the main occupation and nature of unemployment diffuses. For
Example, about 65% of the India’s people depend upon agriculture, seasonal unemployment and
disguised unemployment there (described later).
Unemployment problem in India is basically structural in nature. It is associated with the
inadequacy of productive capacity to create enough jobs for all those who are able and willing to work.
But unfortunately in India capital stock is much below the needed quantity which is increasing in postreforms period but at a rate slower then the requried figure. As against this during the last three
decades population in India has been increasing at an alarming rate i.e. above 2 percent per annum,
whereas employment opportunities have not increased correspondingly due to slow economic growth.
Hence there has been an increase in the volume of unemployment from one plan to another. This
unemployment can be eliminated only by introducing certain radical reforms in the structure of the
economy. This unemployment problem of the country can now be broadly classified as given below:
UNEMPLOYMENT
Rural Unemployment Urban Unemployment Open Unemployment
Under-employment
Disguised
Seasonal
Disguised
Industrial
Education
Cyclical
Frictional
Unemployment Unemployment Unemployment Unemployment Unemployment Unemployment Unemployment
6.3.1 Rural Unemployment : Unemployment in rural areas is further classified into two :
(a) Seasonal Unemployment (b) Disguised Unemployment.
119
(a) Seasonal Unemployment
Seasonal unemployment is peculiar feature of Rural Unemployment in India. Agriculture is a
seasonal occupation. Crops are sown according to season. After the sowing season, farmers are out of
work for some period. The magnitude of seasonal unemployment varies from region to region. The
region in which farmers grow single crop, they remain unemployed for 6-7 months i.e. half of the year.
Only in the 25 percent area of cultivable land, Indian farmers grow two or more crops and in 75 percent
of area, we find seasonal unemployed.
(b) Disguised Unemployment
It refers to a state in which more people are engaged in given job than are really needed. If
some are withdrawn from the job, it will not lead to fall in any output. For example, 2 persons are
needed, but 4 to 5 are actually working. This type of unemployment prevails both in urban and rural
areas. But this is very commonly found in agriculture sector. Actually 25 to 30 percent of rural
population suffers from this type of unemployment in India. The main reason behind this phenomenon
is less availability of alternatives to agriculture.
Self Assessment Question
Q.
In which sector of economy we find seasonal and disguised unemployment?
_________________________________________________________________________
_________________________________________________________________________
Rural unemployment is due to heavy pressure of population on land, decline of handicrafts and
village industries and absence of alternative occupations in rural areas. In decades following the
introduction of mechanisation of agriculture resulting from Green Revolution has further increased
unemployment has further increased in rural areas and especially agricultural areas.
In rural area more than 80 percent people are engaged in agriculture activities and 20 percent
are engaged in non-agriculture activities. In non-agri-activities they normally do carpentry, dairying,
black smithy etc. It is estimated that 2/3 rural labourers are self employed. Only 1/3 labourer work for
others. In rural area main problem is of seasonal unemployment. People get work for few months in a
year. In rest of the year they remain unemployed. Rural people suffer from under employment too.
6.3.2
Urban Employment
In urban areas nature of unemployment is different from rural areas.
(a) Structural Unemployment: It is associated with inadequate productive capacity to create
jobs for all those who are willing to work. India’s problem is basically structural. Because here jobs are
less and growth in population is more.
(b) Unemployment in Industrial Sector: Industrial sector refers to manufacturing industries,
mining, trade, transport, construction activities etc. Unemployment in this sector has increased manifold
due to rapid increase in population and urbanization of population. The industry is not expandingly
accordingly. Moreover to avoid labour trouble in industries and to increase productivity most of the
industrialists have resorted to labour saving devices by modernizing their plants. In this way less
persons are employed in this sector. Moreover industry can provide jobs only to trained persons who
are capable of improving the quality and increasing the quantity of goods in the country. The industrial
unemployment in India has been increasing at a rapid rate for the last many years. The increase in
120
population is faster than the progress of industrial sectors, it has led to increase in unemployment. The
decay of cottage and small scale industries is another cause. The widespread disguised unemployment
in rural sector has compelled rural population to shift to urban areas, further accentuating the
unemployment rate in industries sector.
(c) Unemployment in Education Sector: The educated unemployment is most serious. This
type of unemployment constitutes a great danger to the stability and security of the country. Dr. Radha
Krishan opened poverty and unemployment among the educated collectively gave birth to an act of
sabotage. According to Ministry of Labour and Employment total number of educated unemployed
increased in India from 2.4 lakhs in 1951 to 5.9 lakhs in 1961 and then 22.96 lakhs in 1971. It increased
to 90.81 in 1981 and then 230 lakhs in 1993. Educated unemployed are divided in two categories :
(i) Technical Unemployment : In this category we include Doctors, Engineers, Agriculture,
Scientists etc. who are unemployed in India in recent past.
(ii) General Educated Unemployment: In India not only matriculates, a large number of
graduates and post graduates are unemployed.
In developed countries, we can find cyclical unemployment and frictional unemployment very
commonly, but these are quite uncommon for developing countries like India.
Activity
Q.
Find the recent level of technical and general educated unemployment in India using internet
sources.
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
(d) Cyclical Unemployment: This type of unemployment is found in capitalist countries where
depression and boom are inherent features. During the phase of depression, many people are
rendered jobless. And during the phase of boom, employment opportunities get enhanced and
unemployment almost disappears. So it is a temporary phase.
(e) Frictional Unemployment: This is also peculiar to developed countries. In these countries,
industry is the most important occupation and many changes take place in the industrial structure. Old
industry die out and new industries continue to come up due to technological changes and changes in
the market demand. Actually it is the survival of the fittest. Consequently, workers move from the
industries whose products get obsolete to the ones which are flourshing. During the shifting process,
they are rendered jobless. This type of unemployment is known as frictional unemployment.
6.3.3
Open Unemployment
Open unemployment in a UDC can be defined as a situation wherein a large labour force does
not get work opportunities that may yield them regular income. This type of unemployment is the result
of a lack of complementary resources, specially capital. Since, this type of unemployment results from a
structural disequilibrium in the economy, it can be identified as ‘structural unemployment’. We also
experience open unemployment in India.
121
6.3.4
Underemployment
In addition to the open unemployment, underemployment of the labour force also exists in a
UDC. Underemployment can be defined in two different ways :
a situation in which a person does not get the type of work he is capable of doing; he may
possess abilities and expertise to do a type of work that could yield a larger income, but he may
not get this opportunity due to lack of suitable jobs;
a situation in which a person does not get sufficient work to absorb him for the total length of the
working hours of a day. This second type can also be identified as a situation in which a person
gets some work during some days, weeks or months of a year, but not regularly throughout the
year. This type of unemployment is also known as seasonal unemployment, and is caused
largely by natural circumstances.
6.4
METHODOLOGY, SOURCES AND CONCEPTS
Before giving the data, it is important to share with you - who measures unemployment in India
and how?
For the first two decades, the estimates regarding unemployment were given to us by the
Planning Commission. But experts raised various objections regarding their estimates of
unemployment. These estimates were found to be defective on conceptual and statistical grounds by
the Western economists. But the fact is that we cannot make use of western techniques for collecting
data regarding unemployment in India.
In India, the rate of unemployment is expressed either as (a) a percentage of the population
(age 5+ or 15-29 years) or as (b) a percentage of corresponding labour force, i.e. total population minus
those who are outside the labour force. The latter rate is necessarily higher, but gives a more reliable
estimate of ‘incidence of unemployment’. There are three basic sources of data on employment and
unemployment in India - (a) the various rounds of National Sample Survey Organisation (NSSO), (latest
being the 66th survey) (b) Population census (c) Employment Exchanges (by Directorate of Training).
The National Sample Survey was established in 1950 to fill gaps in the data needed for the
estimation of national income and also for planning social and economic development. In March 1970,
the National Sample Survey Organisation (NSSO) was set up with a Governing Council and was given
autonomy as well authority to select various activities. The N.S.S.O conducts three types of surveys (a) annual survey of industries (b) socio-economic surveys (c) area and yield of crops. The data on
unemployment is mostly collected by N.S.S.O in their respective rounds. For three decades no
researcher made use of this data. It was only in the early eighties - Dr. K.N. Roy made use of this data
pertaining to earlier period. He made some valuable recommendations. The N.S.S.O in its later rounds,
on the recommendations of the committee of experts, standardised the concept and definitions of
labour force, employment and unemployment. Later these concepts were accepted by the expert group
of Planning Commission for estimating the dimension of unemployment.
We give in brief, three concepts to measure unemployment which were developed by N.S.S.O
on the recommendations of Dantwala Committee. It is to be noted here that a person working for 8
hours a day for 273 days in a year is regarded as fully employed.
6.4.1
Usual Status
It refers to the status of the employment of the person which prevailed over a long past period.
This method estimates the number of chronically unemployed - whatever type of work it may be,
however low paid job it may be and however short duration job it may be. It excludes the degree of
underemployment. Obviously, this method gives the lowest estimate of persons for a country.
122
In terms of this concept, a person is considered unemployed if he is not working but was either
seeking or was available for job for a longer time or throughout the reference year. Generally all those
who are found unemployed in reference year are considered as unemployed. Actually, who remain
unemployed for major part of the year, fall in this category. This unemployment is known as open or
chronic unemployment. This type of unemployment can not clearly be distinguished from seasonal and
disguised unemployment. This measure is more appropriate for measuring educated and skilled
unemployment, as educated and skilled labour are in search of regular employment and are not
interested in casual work.
6.4.2
The Current Weekly Status
This method reduces the reference period of one year (as in case of usually status) to one
week. According to this method, those people are considered unemployed who have not worked even
for one hour on any of the seven days of the reference week, though the person might have remained
unemployed for the rest of the week.
6.4.3
The Current Daily Status
In this method, the reference period is a day. This measure counts and records everyday’s (half
day’s) activity status of the person over the week, thus removing the above limitation. For working out
the rate of unemployment (or unemployed person days), the total of unemployed days during the
reference weeks constitutes the numerator and the aggregated estimated of the total number of labour
force days constitutes the denominator. In this method, if a person has worked for an hour or more than
that or have worked for half a day or less (as more than that is considered as employed for whole day),
he is considered as unemployed.
There is no doubt that large number of workers are forced to remain jobless both in rural and
urban areas in India. The Dantwala Committee says “In an economy like this (i.e. Indian economy),
there is little open or outright unemployment but there would be considerably seasonal unemployment
and/or underemployment.” This is true even today.
6.5
MAGNITUDE/EXTENT OF UNEMPLOYMENT
We do not possess a precise estimate of the size of the problem. It is not possible to give any
factual information as to how many workers are generally unemployed in India in different types of
labour-markets and for how long? Neither the Planning Commission, Census reports nor the
Directorate General of Employment and Training (D.G.E.T) nor any other agency like the C.S.O or L.S.I
or the N.S.S. could give the accurate measure of quantitative estimate or magnitude of the
unemployment in India, we can have just estimates.
6.5.1
PRE- REFORMS PERIOD
The unemployment rates in the three alternative concepts of the usual status, the Current
Weekly Status and daily status have become available from the various rounds of NSSO (National
Sample Survey Organisation) surveys the years 1972-73, 1977-78, 1983, 1987-88 and 1993-94. The
rate of unemployment do not indicate any clear trends over the 21 year period, that is, from 1972-73 to
1993-94. However if we compare unemployment position in 1993-94 with that in 1983 and 1972-73 we
observe that there has been marginal decline in unemployment rates.
Till recently the latest Survey based estimates of unemployment were available for 1987-08 only
Planning Commission itself estimated labour force and employment on April 1, 1992 to assess the
magnitude of unemployment. Estimation in terms of Current Weekly Status of total employment was
301.7 million as against the labour force estimate of 319 million. Backlog of unemployed in terms of
Current Weekly Status was 17 million as on 1.4.1992. According to N.S.S.O about 2% of those
recorded by Centre Weekly Status had work for half or less than half the time. These severely
unemployed were also included in the estimates of backlog the employment planning. Those who were
123
looking for new full time employment opportunity were estimated to be 23 million in April 1992
according to Planning Commission.
6.5.2

POST REFORMS PERIOD
Growth of Labour Employment and Unemployment in India (1983-2000)
As per the results of the 55th Round survey of National Sample Survey Organization on
Employment and Unemployment (55th Round, 1999-2000) the rate of growth of employment, on
Current Daily Status (CDS) basis, declined from 2.7 percent per annum in 1983-1994 to 1.07 percent
per annum in 1994-2000 (Table 1) The decline in the rate of growth of employment during the 1990s
was associated with a comparatively higher growth rate in COP, indicating a decline in the labour
intensity of production.
Table 1 : Past and present macro-scenario
on employment and unemployment
(CDS Basis) (Person Years)
Million
1983
1993-94
Growth per annum (%)
1999-2000
1983 to
1993-94 to
1993-94
1999-2000
All India
Population
718.20
894.01
1003.97
2.00
1.98
Labour Force
261.33
335.97
363.33
2.43
1.31
Workforce
239.57
315.84
336.75
2.70
1.07
Unemployment rate(%)
(8.30)
(5.99)
(7.32)
No. of unemployed
21.76
20.13
26.58
0.08
4.74
Rural
Population
546.61
658.83
727.50
1.79
1.67
Labour Force
204.18
255.38
270.39
2.15
0.96
Workforce
187.92
241.04
250.89
2.40
0.67
Unemployment rate (%)
(7.96)
(5.61)
(7.21)
No. of unemployed
16.26
14.34
19.50
-1.19
5.26
Urban
Population
171.59
234.98
276.47
3.04
2.74
Labour Force
57.15
80.60
92.95
3.33
2.40
Workforce
51.64
74.80
85.84
3.59
2.32
Unemployment rate (%)
(9.64)
(7.19)
(7.65)
5.51
5.80
7.11
0.49
3.45
No. of unemployed
* Source : Planning Commission.
Some of the other important findings emerging from the 55th Round (1999-2000) of NSSO are
summarized below :
124
(i)
The decline in the rate of growth of employment was associated with a sharp decline in the rate
of growth of labour force.
(ii)
The absolute number of unemployed as well as the incidence of unemployment, (expressed in
terms of unemployed as a percentage of the labour force) increased during this period.
(iii)
The decline in the overall growth rate of employment in 1994-2000 was largely attributable to a
near stagnation of employment in agriculture. As a result, the share of agriculture in total
employment dropped substantially from 60 percent in 1993-94 to 57 percent in 1999-2000.
(iv)
On the other hand, employment growth in all the sub-sectors within services, (except
community, social and personal services having negative growth rate) exceeded 5 percent per
annum.
(v)
As has been the trend in the past, the share of casual labour in total employment has gone up.
* Source : [Eco. Survey 2002-03]

Unemployment in Urban Areas :
The estimates of urban unemployment has not been prepared on a regular basis. National
Sample Survey Organisation (NSSO) has made estimates of unemployment in different years. These
surveys suggest that unemployment in the urban sector has fluctuated around 10% of the labour force
in recent decades. In urban area as clear from Table 2 the rate of employment growth declined very
sharply during 1990.
 Eleventh Five Year Plan:
It identifies the following weeknesses on the employment front during the period of economic
reforms.

Unemployment Situation (1993-94 to 2004-05)
1.
The rate of unemployment has increased from 6.1% in 1993-94 to 7.3% in 1999-2000
and further to 8.3% in 2004-05.
2.
Unemployment among agricultural labour households has risen from 9.5% in 1993-94 to
15.3% in 2004-05.
3.
While non-agriculture employment expanded at a robust annual rate of 4.7% during the
period 1999-2000 to 2004-05, this growth was largely to the unorganised sector.
4.
Despite fairly healthy GDP growth, employment in the organised sector actually declined
leading to frustration among the educated youth.
Unemployment increased in India during the period following the economic reforms because
growth in the period has been mostly jobless. The trend of unemployment rates has been as follows :
1.
The unemployment rate went up between 1993-94 to 2004-05. On the basis of current
daily status (unemployed on an average in the reference week) during the reference
period, unemployment rates for males increased from 5.6% to 8% in rural areas and from
6.7% to 7.5% in urban areas.
2.
Similarly unemployment rate for females increased for 5.6% in 1993-94 to 8% in 2004-05
in rural areas and from 10.5% to 11.5% in urban areas.
3.
Unemployment rates on the basis of current daily status were much higher than those on
the basis of usual status (unemployed on an average in the reference year) implying a
125
high degree of intermittent unemployment, this could be mainly because of the absence
of regular employment for many reasons.

4.
Under unemployment rates (current daily status) were higher than rural unemployment
rates for both males & females in 1993-94 but in ‘2004-05, rural unemployment rate for
males was higher than that of urban males.
5.
Unemployment rates varied sharply across states. States where wages are higher than
in neighbouring ones because of strong bargains or social security provision such as
high minimum wage, had high incidence of unemployment in general.
Unemployment and 64th NSSO Round and later
An estimate of unemployment rates based on the 64th round is shown in Table 2. A
comparative study of different estimates of unemployment during 2007-08 indicates that the CDS
estimate of unemployment rate being the broadest is the highest. The higher unemployment rates
according to the CDS approach vis-a-vis weekly and usual status approaches indicate a high degree of
intermittent unemployment.
Table 2 : All-India Rural and Urban Unemployment Rates * from the NSS 64th Round 2007-08 :
Different Estimates
Sr. No.
Estimate
Rural
Urban
1
UPS
2.2
4.5
2
US(adj.)
1.6
4.1
3
CWS
3.9
5.0
4
CDS
8.4
7.4
Notes:* As per cent of labour force.
UPS - usual principal states; US (adj.) - usually unemployed excluding subsidiary status workers; CWS
- current weekly status.
Source : NSS Report No. 531 (64/10.2/1)
The CDS captures the unemployed days of the chronically unemployed, the unemployed days
of the usually employed who become intermittently unemployed during the reference week, and
unemployed days of those classified as employed according to the current weekly status criteria.

Planwise Picture of Back Log of unemployment:
During the planning period, providing employment to its population has remained an important
objective of Indian economy especially from the Fourth Five Year Plan period, during which many
adhoc programmes were started like Marginal Farmer’s and Agricultural Labour’s Development Agency
(MFALDA), Small Farmer’s Development Agency (SFDA), Desert Development Programme (DDP) etc.
Before going into the details of these programmes it is important to know the size of unemployment in
India. The size of unemployment is estimated at the beginning and end of the plan-period which is
known as back-log of the unemployment. The following table shows that despite the completion of ten
five year plans, the objective of full employment is quite far and the backlog of unemployment is
increasing with each five year plan.
126
Table 3 : Estimates of Employment and Unemployment During
Five Year Plans in India (in Millions)
I
II
III
Annual
IV
V
VI
VII
VIII
IX
X
Plan
Plan
Plan
Plan
Plan
Plan
Plan
Plan
Plan
Plan
Plan
(1951-56)
(1956-61)
(1961-66)
(1966-69)
(1969-74)
3.3
5.3
7.1
9.6
12.6
14.0
20.6
9.2
8.6
14.0
2. Net addition of labour force
9.0
11.8
17.0
14.0
20.4
22.0
35.4
39.39
36.0
-
3. Total Job needed
12.3
17.1
24.1
23.6
33.0
36.0
56.0
48.67
59.0
4. New jobs created
7.0
10.0
14.5
—
17.0
15.4
46.8
40.36
45.0
5. Back-log at the end of the
5.3
7.1
9.6
12.6
14.0
20.6
9.2
8.6
14.0
1.Back-log of Unemployment
(1974-78) (1980-85)
(1985-90)
(1992-97) (1997-2002) (2002-07)
36.8
at the beginning of the plan
36.8
20+
plan
________________________________________________________________________________________________________________________
Note: + Projected
Source : Various Plan Drafts.
The above table shows that in 1951 there were 33 lakh unemployed persons in India, while the
ninth plan (1997-2002) estimates the number of unemployed as 36.8 millions in the year 1996. As per
the official estimate, total employment in the country was 41 crores (i.e. 410 million) and it grew at the
rate of 41 lakh annually during the period 1994-2000. This official figure is somewhat inflated as it
includes disguised unemployment prevalent especially in the rural areas in the country. To ensure
availability of work opportunity in sufficient numbers, a special group was constituted, explained later
(section 7.5.1).
The Eleventh Plan (2007-12) aims at generation of 58 million work opportunities in twenty-one
high growth sectors so that the unemployment rate falls to 4.83 per cent by the end of the Plan. The
64th round (2007-08) of NSSO survey on employment-unemployment indicates creation of 4 million
work opportunities between 2004-05 and 2007-08.
As highlighted in Economic Surveys of previous years based on NSSO data, employment on a
current daily status (CDS) basis during 1999-2000 to 2004-05 had accelerated significantly as
compared to the growth witnessed during 1993-94 to 1999-2000. During 1999-2000 to 2004-05, about
47 million work opportunities were created compared to only 24 million in the period between 1993-94
and 1999-2000 and employment growth accelerated from 1.25 per cent per annum to 2.62 per cent per
annum. However, since the labour force grew at a faster rate of 2.84 per cent than the workforce,
unemployment also rose. The incidence of unemployment on CDS basis increased from 7.31 per cent
in 1999-2000 to 8.28 per cent in 2004-05.
Following Economic Survey 2012-13 (p. 276) unemployment rates in 2009-10 (per 1000)
according to usual status is 16 (rural areas) and 34 (urban areas).
NSSO Round 2017-18 claimed unemployment to be highest in last 45 years.
127
As per PLFS (Periodic Labour Force Survey) Round 2019-20, the employment at usual status
continued to expand. As compared to 2017-18, three times more employment was created between
2018-19 & 2019-20, i.e. 3.45 crores additional workers joined the workforce.

Educated Unemployment :
Unemployment is higher among the youth and the educated who are looking for better quality
jobs. The incidence of an employment by level of education in India (by UPSS) indicates that illiterates
have the lowest rate of unemployment, and the rate of unemployment level to rise with every level of
education, with the highest education.
6.6
SPECIAL GROUP ON EMPLOYMENT
The Special Group on targetting ten million employment opportunities per year over the Tenth
Plan Period, constituted by Planning Commission under the Chairmanship of Dr. S. P. Gupta, Member
Planning Commission, has noted the decline in the rate of growth of population, labour and work-force,
but an increase in the unemployment rate during 1993-94 and 1999-2000 (See Table 3) although the
overall growth performance of the economy has been better than the previous decade. Considering the
need for generating employment opportunities which are gainful, the Special Group has recommended
the use of Current Daily Status for measuring employment, as this measure of employment is net of the
varying degrees of underemployment experienced by those who are otherwise classified employed on
usual status basis. The Group has noted the decline in the rate of growth of population, labour and
work force, but an increase in the unemployment rate during 1993-94 and 1999-2000 (Table 9)
although the overall growth performance of the economy has been better than the previous decade
(1983-1994).
In view of the declining employment elasticity of growth, observed during 1994-2000, the Group
has recommended that over and above the employment generated in the process of present structure
of growth, there is a need to promote certain identified labour intensive activities. These sectors are
agriculture and allied activities, small and medium industries, information technology, construction,
tourism, financial sector, education and health etc. With proper policy initiatives taken in these labour
intensive sectors, an additional 20 million jobs will be created during the Tenth Plan. The Report also
identified ministry-wise programmes/targets for achieving the ten million employment opportunities per
year.
Other major conclusions of the Special Group are :
(i)
Employment elasticity of output has gone down from 0.52 over the years 1983 to 199394 to 0.16 over 1993-94 to 1999-2000. This decline in employment elasticity is observed
in most sectors except transport, financial services and real estate.
(ii)
Employment in the organized sector had been hardly 8.34 percent, of which public
sector accounts for 5.77 percent and private sector only 2.58 percent in the total
employment generated.
(iii)
Under organized manufacturing, the employment generation potential of the private
sector is seen to be higher than of public sector manufacturing (the former contributing
more than 75 percent of total organized manufacturing output), but it hardly constitutes
1.5 percent of the total employment in the country and 16.5 percent of total
manufacturing employment.
(iv)
The main employment generating activities are (a) agriculture and allied, (b) trade,
restaurant and hotels including tourism, (c) some of the social sectors like education and
health, (d) the small and medium enterprises, mainly in the rural non-farm sector
(e) transport and construction.
128
(v)
Agriculture including allied activities, comprises 57 percent of India’s total employment.
Between 1983 and 1993-94, its employment elasticity was as high as 0.70 and now in
the later period of 1993-94 to 1999-2000, it has come down to 0.01.
(vi)
There are large inter-State differentials in the unemployment scenario (Table 11)
The Special Group recommended policies and programmes which would enable the skill levels
of the labour force to match those required for the new jobs to be created during the Tenth Plan. The
recommendations of the Special Group were suitably incorporated in the employment strategy for the
Tenth Five Year Plan by the Planning Commission.
6.7
EFFECT OF GLOBAL FINANCIAL CRISIS AND ECONOMIC SLOWDOWN ON
UNEMPLOYMENT (Eco-Survey 2010-11)
The global financial crisis of 2008 lowered the growth rate for 2008-09 to 6.8 per cent from over
9.0 per cent during each of the previous three years. As the Government was concerned about the
possible fallouts of the global slowdown on the Indian economy, including job loss and on creation of
additional employment, financial and fiscal stimulus packages were announced. As a result, the Indian
economy started to recover robustly, climbing back to near pre-crisis levels, and recording one of the
fastest growth rates in the world. The Government has been continuously monitoring the effect of the
global financial crisis and economic slowdown on employment in India. The Quarterly Quick
Employment Surveys conducted by the Labour Bureau indicate that the upward trend in employment
since July 2009 has been maintained.
6.8
IMPACT OF ECONOMIC REFORMS ON UNEMPLOYMENT/EMPLOYMENT
There were apprehensions that economic reforms would lead to reduction in employment
growth. From the table - it is clear that the employment growth based on usual status declined during
1983-88 period but it showed higher growth during 1988-94. Current daily status also shows that the
growth of employment was over 2 per cent in the 1980s as well as in the early 1990s. Thus, there was
no sign of decline in the growth of employment at the aggregate level in the post-reform period.
Following Economic Survey 2012-13 the last decade i.e. 1999-2000 to 2009-10, witnessed an
employment growth of 1.6 percent annum based on usual Principal and Subsidiary Status (UPSS).
Employment growth in second half of the decade was relatively modest. This as per NSSO survey,
2009-10 was largely on account of a lower labour force participation rate across all ages in 2009-10 visa-vis 2004-05 (declined from 430 per 1000 persons in 2004-05 to 400 per 1000 persons in 2009-10).
The unemployment rate increased at a slow pace on UPSS basis and at a relatively higher pace
on CDS basis from 1993-94 to 2004-05. However in 2009-10, there was a fall in the unemployment rate
which was relatively more on CDS basis (see figure). Despite negligible employment growth, the
unemployment rate (CDS method) fell from 8.2 per cent in 2004-05 to 6.6. percent in 2009-10. The
decline in CDS unemployment rate implies a decline in unemployed person days. The total number of
unemployed person days declined by 6.5 million persons, from around 34.5 million in 2004-05 to 28
million in 2009-10. (Economic Survey). Amongst the educated unemployment, the highest
unemployment rate is that of diploma and certificate holders (2009-10). The demographic window
available to India can make it skill capital of the world. It is estimated (Boston consultancy Group Study
2007) that by 2020 while India will have surplus of 56 million working people, the rest of the world will
encounter a shortage of 47mn working people.
129
Activity
Q.
Find the recent extent of unemployment in India using internet services.
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
6.9
SUMMARY
Let us sum up this lesson of unemployment in India with the help of flow-chart given on the next
page:
6.10
GLOSSARY

Unemployment: It means insufficient use of human resources. It refers to a situation in which
people who are willing to work cannot find work.

Underemployment: It means a situation in which a person is not able to get the type of work he
is capable of doing, and he works for a lower income. It happens due to lack of suitable jobs
usually.

Seasonal Unemployment: When a person gets work for some days, weeks or months, but not
regularly throughout the year, largely because of natural circumlances, it is called seasonal
unemployment. Agriculture is a seasonal occupation.

Disguised Unemployment: It refers to a state in which larger numbers of people are employed
than the required number, and the marginal Product (See Micro Economics) of some workers is
Zero or Negative.

Cyclical Unemployment: In developed capitalist economy, depression and boom are inherent
features. During depression people loose jobs temporarily, it is called cyclical unemployment

Frictional Unemployment: Overtime, the structure of economy undergoes change, many
changes takes place in industrial structure due to technological advancement, some industries
die and people lose jobs (frictional unemployment) and gradually move on to another industry.
6.11
REFERENCES

Boston consultancy Group Study, 2007 http// planning commission.nic.in/hackathon/skills%20
development.pdf p.157

Economic Survey, Various issues, Ministry of Finance, Government of India.

Sixth Five Year Plan Droft, vol.II, Government of India.

Seventh Five Year Plan Droft, vol.II, Government of India.

Eighth Five Year Plan Droft, vol.II, Government of India.

Approach Paper to Tenth Five Year Plan Government of India.

NSSO Report no.531 (64/10.2/1) Government of India.
130
6.12
FURTHER READINGS

Datt and Mahajan (2017). Indian Economy. S. Chand Publications

Misra and Puri (2017). Indian Economy. Himalaya Publications
6.13
MODEL QUESTIONS
Q1.
Explain the nature and extent of unemployment in India.
Q2.
Explain the impact of economic reforms on the extent of unemployment in India.
---00---
131
132
Lesson-7
UNEMPLOYMENT IN INDIA-II
(Causes, Measures, Govt. Programmes for Employment Generation)
Structure
7.0
Objectives
7.1
Introduction
7.2
Causes of unemployment in India
7.3
7.4
7.2.1
Policy of Laissez Faire
7.2.2
Slow Rate of Economic Development
7.2.3
High Population Growth
7.2.4
Backwardness of Agriculture
7.2.5
Decay of Cottage and Small Industries
7.2.6
Defects in Education System
7.2.7
Modernisation and Privatisation of Industries
7.2.8
Other Causes
Measures to Eradicate Unemployment
7.3.1
Change in the Pattern of Investment
7.3.2
Encouragement to Small Entrepreneurs
7.3.3
Problem of Choice of Technique
7.3.4
Encouragement to Growth of New Centres
7.3.5
Subsidies and Employment Generation
7.3.6
Re-orientation of Education Policy
7.3.7
Checking Under-employment in Rural Areas
7.3.8
Control on Increasing Population
7.3.9
Accelerate Economic Growth
Major Employment Programmes (Early Times)
7.4.1
Programmes in First Three Decades
7.4.1.1
Rural Works Programme
7.4.1.2
MFAL Recommendations of Special GroupDevelopment Agency
7.4.1.3
Small Farmers Development Agency
7.4.1.4
Integrated Dry Land Ag. Dev. Prog.
7.4.1.5
Agro Service Centres
7.4.1.6
Area Development Schemes
133
7.4.2
7.5.
8.4.1.7
Crash Scheme for Rural Employment
7.4.1.8
EGS of Maharashtra
7.4.1.9
FWP
Programmes in The Eighties & Early Nineties
7.4.2.1
NREP
7.4.2.2
RLEGP
7.4.2.3
IRDP
7.4.2.4
JRY
Programmes or Schemes in the Decade of 90s and later
7.5.1
EAS
7.5.2
MSY
7.5.3
PM’s RY
7.5.4
PM’s IUPEP
7.5.5
Ganga Kalyan Yojna
7.5.6
SJSRY
7.5.7
JRY after 1998
7.5.8
TRYSEM
7.5.9
MWS
7.5.10
Indira Awas Yojna
7.5.11
SGSY
7.5.12
DWCRA
7.5.13
SGRY
7.5.14
Pradhan Mantri Gramodaya Yojna
- PMGY : Gramin Awas
- PMGY : Rural Drinking Water Project
- PMGY : Sadak Yojna
7.5.15
Antyodya Anna Yojana
7.5.16
Annapurna
7.5.17
SJSRY
7.5.18
VAMBAY
7.5.19
MNREGS
7.6
Summary
7.7
Glossary
7.8
Reference
7.9
Further Readings
7.10
Model Questions
134
7.0
OBJECTIVES
After going through this lesson script you will be able to :
 explain causes of unemployment problem in India.
 suggest measures to eradicate unemployment.
 comment upon the various programmes initiated by the Government of India to tackle
unemployment.
 delineate the programmes and schemes in the decade of nineties and comment on their
performance.
7.1
INTRODUCTION
The problem of unemployment in India is the cumulative result of a number of factors, namely,
lopsided and inadequate industrial development, the rapid growth of population, the decay of small
scale and cottage industries leading to greater pressure of population on land, the low level of
investments resulting in lack of expansion of the secondary and tertiary sectors etc. In other words, the
failure of the Indian economy to expand at a rate commensurate with the needs to absorb the additions
to the labour force had a cumulative effect of increasing the backlog of unemployment and
underemployment in the country.
In this Section we shall study the courses of unemployment programme and then suggestion in
this regard.
7.2
GENERAL CAUSE OF UNEMPLOYMENT IN INDIA
Unemployment is a complicated problem and many causes are responsible for unemployment
in India. These causes are as follows :
7.2.1 Policy of Laissez-faire : Before independence the British Government followed the policy
of laissez-faire in the economic field. Industrialisation of India was not in the British interest, hence no
steps were taken for economic development of the country. As a result of this policy, the employment
opportunities were less and it resulted in unemployment.
7.2.2 Slow Rate of Economic Development : Since the rate of economic development has
been very slow in almost all the sectors like agriculture, industry, commerce, means of transport and
communications etc., the Indian economy has remained underdeveloped. It cannot absorb its huge and
growing labour force. The opportunities of employment have not kept pace with the additions to the
labour force of the country, which are taking place as a result of the rapidly increasing population.
7.2.3 High Population Growth : The galloping increase in population of our country at the
average annual rate of 1.9% in the nineties and 1.6% in the previous decade has added to the
unemployment problem. At least 3 million jobs are required every year which the Indian economy
cannot generate at this stage. Due to ever-rising population a dangerous situation has arisen in which
the magnitude of unemployment goes on increasing with every five year plan. Moreover India is
Experiencing/Demographic Dividend and 65pc of indian population is in the working age-group i.e.
15-59 years.
7.2.4 Backwardness of Agriculture : The appalling nature of unemployment and under
employment in the rural sector is due to heavy pressure of population on land and the backward nature
of farming. The land policies did not take into consideration man-power planning in rural sector. It being
a seasonal occupation, all the people cannot get work throughout the year.
7.2.5 Less Alternatives to Agriculture : The agriculture sector is not able to also to the
millions of youth entering working age group. The problem is their alternatives to forming are also not
available for this youth founded jobless.
135
7.2.6 Decay of Cottage and Small Industries : There has been decay of cottage and small
industries in India due to many reasons. Most of the artisans and workers depending upon them had to
go to agriculture for their livelihood. As a result of this, the pressure of population on land increased
leading to less per capita land area and fall in their income.
7.2.7 Defects in Education System : Indian universities are producing matriculates,
undergraduates and graduates on a mass scale aggravating the problem of educated unemployment.
This type of education imparted is neither job-oriented nor skill-oriented and as such, every year the
backlog of unemployment is increasing.
7.2.8 Modernisation and Privatization : In order to increase efficiency of production
privatisation and modernisation has been introduced in some of the industries. As a result of use of
automatic and modern machines, there has been retrenchment and unemployment.
7.2.9 Other Causes: Non-agriculture sector has not been made labour-intensive to absorb
unemployed people. Slowing down of production rate in some industries, due to import restrictions has
also resulted in inability to absorb the growing labour force in the country.
7.3
MEASURE TO ERADICATE UNEMPLOYMENT
A close study of the Five Year Plan reveals that in every five year plan, employment expansion
has been emphasized as an objective of development. Despite all the pronouncements in the plans, the
fact of the matter is that, not to speak of coping with the backlog of unemployment, every plan failed to
absorb even the new entrants to labour force. The following measures may be suggested for relieving
or mitigating the unemployment problem in our country.
7.3.1 A Change in the Pattern of Investment: The planning process in the initial stages laid
emphasis on an investment-allocation pattern with a high investment-employment ratio. Therefore, it
would be appropriate to shift emphasis to consumer goods industries, more especially to essential
consumer goods sector, so that on the one hand more employment is generated to absorb the
unemployment labour force and on the other, increase in the supply of consumer goods may help to
arrest the rising price level. At present juncture, such a policy shall foster not only economic stability,
but also social stability.
7.3.2 Encouragement to Small Enterprises: The employment objective and the output
objective do not appear to be in conflict but can be harmoniously reconciled if greater investment is
directed to small enterprises rather than to large enterprises. Now that the government is pledged to the
path of decentralised development with emphasis on small scale enterprises, it would be desirable to
reorient credit, licensing, raw material allocation and other policies in such a manner that both
employment and output are enlarged significantly.
7.3.3 Problem of choice of Technique: It would be appropriate to make detailed studies of the
spread and backwash effects of new technology in terms of employment. In case the backwash effects
to be of large dimensions, efforts to force new technology should not be made. It would be better to
switch over to intermediate technologies, till the process of industrialisation gets such a powerful
momentum that the new entrants to labour force can be absorbed. For the period of high population
growth potential, in which labour force is also expected to increase at a rapid rate, it would be advisable
to adjust the choice of techniques consistent with the employment objective.
7.3.4 Encouragement to Growth of new Centres: Experience of planning has revealed that
the overcrowded metropolitan centres are the recipients, of a large chunk of investment. This also
restricts the scope of investment. It is therefore, suggested that the towns, in the population range of
10,000 to 50,000 should be developed as new growth centres for the future. The establishment of small
industrial complexes by providing dispersal of industries can bring about a greater resilience in the
economy on the one hand and lead to much greater expansion of employment opportunities on the
other.
136
7.3.5 Subsidies on the Basis of Employment: All schemes of subsidies and incentives to
industries, large and small, have so far been geared to output maximization and greater use of capital
resources. It is suggested that pattern of subsidies be altered and creation of more employment be
treated as the basis of grant of subsidies and incentives. Such a scheme may appear to be
revolutionary, because it may shift the entire structure of government support from the large scale
producer as it exists today in favour of the small scale producer, but nevertheless, it is called for,
because this is more consistent with the objective of employment as well as that of equity and social
justice.
7.3.6 Re-orientation of Education Policy: Discussing the problem of the educated
unemployed, the Bengal Unemployment Committee observed, “One great defect of the educational
system is that it leads one to the M.A., M.Sc. or B.A. examination. It is like a bamboo, each joint being
an examination and the diameter remaining practically of the same size for the root to very near the top.
It has no branches going off in as many directions as possible definite point along the trunk, not all at
the top.” The existence of large scale unemployment among the educated is a reflection of the
overproduction of matriculates and under-graduates in our country.
The high degree of unemployment among the educated signifies the urgent need to reorientate
our educational system to employment opportunities. The Report of the National Labour Commission,
has therefore, recommended a labour utilization approach to the problem of unemployment in the
planning process, and a reorientation of the educational system so as to be in consonance with the
demands of high-level manpower.
7.3.7 Checking Under-employment in Rural Areas: N.S.S. data have also brought to the core
the existence of the high-degree of under-employment in India. For this purpose, it is necessary to
organise the Rural Works Programme. Failure of implementation of rural works programme only
underlines relatively low importance given to the rural sector to provide subsidiary employment to
millions of landless labourers and small peasants. Urgent action is called for in this direction so that
work opportunities grow in the rural areas. This will raise the level of income and employment in the
rural areas.
7.3.8 Control on Increasing Population: It may be pointed out that unemployment will
continue to increase, if the population continues to grow at the rate of 1.6 percent per annum. So far,
the employment generating measures, as envisaged in the Plans, have not been able to provide jobs to
the additional labour-force, not to speak of tackling backlog of unemployment. Consequently, vigorous
population policy aiming at reducing fertility should be implemented. Thus, the solution of
unemployment is still to be found. The economy should have the absorptive capacity so as to provide
employment to larger number of people, as well as a positive population policy should be adopted so
that additions to the labour force, continuously taking place, over the last two decades may register a
decline in future. There are no shortcuts to solve the problem of unemployment, a long-term two
pronged drive alone can salvage the country out of the menace of unemployment.
Unemployment can be removed by raising the level of investment in the Indian economy and
accelerating the process of industrialization. To conclude, it can be said that it was generate more
employment. Planning in India should be employment-oriented, if it is to have any meaning for the
masses.
7.4
MAJOR EMPLOYMENT MEASURES AND PROGRAMMES (PRE-REFORMS ERA)
The eradication of unemployment has been the major thrust of planning in India. There was a
need to create 12.3 million jobs during 1st Plan. But Government could create jobs only for 7 million
people. In this way at the end of 1st plan there was a backlog of 5.3 million people. These people could
not get jobs. During Second Five Year Plan inspite of various measures taken by Government to
eradicate unemployment, the numbers of unemployed figure further increased to 7.1 million people.
137
It was only Third Five Year Plan when Government launched certain special programmes for
removing unemployment in the country. The Government started various schemes such as rural
electrification, road building, rural housing and minor irrigation works. These programmes were aimed
at to provide employment to 14 million people. But inspite of all these measures, the backlog of
unemployment at the end of third plan went upto 9.6 million.
Thereafter in Three Annual Plans i.e. from 1966-69 the unemployment further increased
because growth rate in employment was decelerated in these years because of slackness in economy.
The employment policy envisaged in IVth Five Year Plan was greatly influenced by the Report
of I.L.O. on world employment programmes. This Report suggested to make maximum use of labour
force as a substitute for scarce capital. The Government adopted the following such Programmes.
(a) Rural works Programme, (b) Marginal Farmers and Agri-Labours Development. Agencies
(M.F.A.L.), (c) Small Farmers Development Agency (S.F.D.A.), (d) Half a million job programme,
(e) Drought Area Programme, (f) Crash Programme for Rural Employment.
But all these schemes introduced during Fourth Plan could not solve the problem of Rural as
well as urban unemployment. The backlog of unemployment touched 28 million.
The Fifth Plan gave high priority for removing unemployment. Like fourth Plan it also stressed
on Labour intensive Programme for generating employment. This plan also emphasized on self
employment measures.
In Sixth Five Year Plan the Planning Commission acknowledged, the hard reality of alarming
figure in unemployment. Keeping this in view it suggested two ways strategy (a) It suggested Rapid
Economic growth is necessary for removing unemployment as long term measures. (b) At the same
time it suggested various short term measures for tackling this problem so that it could give some relief
to unemployed persons on temporary basis.
During Seventh Five Year Plan the magnitude to employment was worked out at 47.58 million.
It supplemented Employment generation Programme with following schemes such as I.R.D.P.,
N.R.E.P., R.L.E.G.P., TRYSEM etc. to achieve the target of creating 40.38 million jobs during this plan.
Inspite of various measures undertaken during different plans the situation remained grave.
Total unemployment in the country was 23 million in 1992.
In Eighth Five Year Plan top most priority was accorded to unemployment. It was realised that
it must be tackled on priority basis. The Eighth Five Year Plan sought to achieve 2.6 percent rate of
growth of employment. It emphasises on high growth in the economy combined with faster growth of
sectors, such sectors and areas which have selectively high employment potential for increasing. The
pace of economic generation to achieve this target 2.6 percent rate of growth rate in employment. This
plan was expected to generate employment for 42.5 million people.
To achieve the target of Full Employment by the end of 20th century, the following steps were
proposed to be taken in the Eighth plan.
(1)
Agriculture will get special attention. Because Agriculture is such sector which will give
employment to maximum people. In Agriculture much of the employment potential lies in
the regions which have lagged behind in the Agriculture such as Andhra Pradesh, Bihar,
Madhya Pradesh, Maharashtra, Orissa, Tamil Nadu, Uttar Pradesh and West Bengal.
(2)
The eighth plan gives importance to Non-Agri. sector for purposes of giving employment
to large no. of people. The areas identified are Textile Based and Agro based Industries
and those producing construction materials.
(3)
The development of cottage and small scale Industries will get special attention.
138
7.4.1
(4)
The idle land will be brought under cultivation.
(5)
Education and Health services will also get special attention.
EMPLOYMENT PROGRAMMES (EARLY PROGRAMMES TILL 1980)
Though the removal of unemployment has been the main objective of our planning, since 1951
i.e. First Plan, yet certain special measures were taken in Third Five Year plan.
The Government of India set up a Committee in December, 1970 with Mr. Bhagwati as its
Chairman, to assess the extent of unemployment and under-employment in all its aspects and to
suggest remedial measures. The final report of committee was published in May, 1973. The committee
suggested schemes like rural electrification, road building, rural housing, minor irrigation works,
vocationalising education, unemployment Insurance, population planning and labour-intensive
industries. These schemes were expected to alleviate rural under-employment and unemployment. It
also suggested that the schemes for an agro-service centre should be implemented on a high priority
basis as it has potential for providing employment and self-employment to engineering graduates and
technicians in the rural areas. Consequently, the government took the following measures to provide
employment and alleviate under-employment in the seventies.
7.4.1.1 Rural Works Programme: The emphasis under the programme was on the
construction of civil works of a permanent nature as would contribute to the mitigation, if not the total
eradication, of the scarcity condition in the area concerned.
7.4.1.2 Marginal farmers and Agricultural Labourers Development Agency : Under the
scheme families were to be assisted with subsidies credit support for agricultural and subsidiary
occupation like dairy, poultry, fishery, piggery-rearing, horticultural operations etc.
7.4.1.3 Small Farmers Development Agencies: The object to the scheme was to make
available to small farmers credit to enable them to make use of the latest technology to practice
intensive agriculture and diversify their activities.
7.4.1.4 Integrated Dry Land Agricultural Development: Under the scheme permanent works
like soil conservation, land development and water harnessing were undertaken. These programmes
were labour-intensive and it was estimated that for an expenditure of everyone crore of rupees, about
15,000 persons would get employment.
7.4.1.5 Agro-service Centres: The scheme provided for assistance for self-employment to the
unemployed graduates and diploma holders in mechanical, agricultural and electrical engineering and
allied fields and graduates in agriculture and science with experience in industry or agriculture. It aimed
to help in establishing workshops, organising agricultural machinery, repairing and hiring facilities and
other technical services like supply of spare parts, inputs etc.
7.4.1.6 Area Development Schemes: These scheme related to the development of adequate
infrastructure facilities like roads, market complex etc. in areas commanded by ten major irrigation
projects.
7.4.1.7 Crash Scheme for Rural Employment (CSRE) : The primary objective of the scheme
was to generate additional employment through a network of rural projects of various kinds which are
labour-intensive and productive. These projects relate to minor irrigation, soil conservation and
afforestation, land reclamation, flood protection and anti-water logging, drinking water and construction
of roads.
The various schemes or the Crash Plans could not succeed in removing rural unemployment
and underemployment because efforts were not made to organise the army of the rural unemployed
into appropriate supply camps to be shifted to places of demand at the desired minimum wage. These
programmes on which the central government had spent Rs. 170 crores during the Fourth Plan had
been wholly instructions.
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7.4.1.8 Employment Guarantee Scheme (EGS) of Maharashtra : The scheme was
introduced by the Government of Maharashtra in 1972-73 to provide employment to all able bodied
unskilled adjusts aged 18 years and above in rural areas (since extended to work seekers in ‘C’ class
Municipal areas also).
The objective of the scheme is to provide to persons an opportunity of honourably earning a
livelihood through wage employment on rural public works; at the same time to utilise the surplus labour
resources for building up productive assets which would promote economic growth. The EGS is
basically a scheme for the residual labour force.
The Maharashtra EGS is the first attempt of its kind to provide minimum wage guarantee in our
rural people. This is welcome scheme moved by noble intentions. This scheme is a right step in the
right direction. There is much greater appreciation of the scheme now. It may, however, be understood
that the EGS provides subsistence wages only. The answer of a decent standard of living in rural
industrialisation.
7.4.1.9 Food for Work Programme (FWP) : It was started in April, 1977 as a non-plan scheme.
Originally the scheme was meant for the maintenance of public works in rural areas, Betterment of
employment offered to persons below the poverty line. The basic objective of the programme was to
generate additional gainful employment for the large number of unemployed and under employed
persons, both men and women in rural areas. The food for work programme failed to generate
permanent avenues for employment. This was due to the fact that it was not conceived as a part of the
integrated rural development programme. For its success coverage of the programme needed by
including a wide range of goods than just foodgrains.
7.4.2
IMPORTANT UNEMPLOYMENT & POVERTY ALLIEVATION PROGRAMMES
(IN THE EIGHTIES & NINETIES)
First we explain the important national programmes of the eighties which are not existing these
days - NREP, RLEGP, IRDP & JRY. Either they were merged with some other programmes or related
with other programmes. These programmes were significant as they were initiated at national level for
the first time.
7.4.2.1.
National Rural Employment Programme (NREP) : Keeping in view the shortcomings,
the Food for Work Programme was restructured and later on renamed as National Rural Employment
Programme from October, 1980. NREP was implemented as a centrally sponsored scheme on a 50 :
50 sharing basis between the Centre and the States. Wages could, depending upon possibilities, be
paid partly in cash and partly in grain. Where such programmes are in progress, commodities like salt,
vegetable oil, cloth and other principal necessaries can be made available to the workers. In short, the
NREP’s objectives were :
(a) employment creation to provide all citizens with their daily bread, and
(b) efficient public distribution, system for the essential commodities needed by the poor.
In the Mid-term Appraisal of the Seventh Plan, It was revealed that employment provided was
for a very short duration and could not make an impact on the levels of living of the rural people. The
wages paid under NREP were often lower than the market wage rates. The selection of the
beneficiaries was not proper, in as much as the poorest of the poor for whom the programme is meant
are sometimes left out altogether.
There is no doubt that NREP is a step in the right direction. To supplement it, a new Rural
Landless Employment Guarantee Programme (RLEGP) was also launched.
7.4.2.2.
Rural Landless Employment Guarantee Programme (RLEGP) : This programme was
started on 15th August, 1983 with an aim of expanding employment opportunities for the rural landless.
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It aimed at providing guarantee of employment to atleast one member of the landless household for
about 100 days in a year. Under this programme, preference in employment is given to landless
labourers, women, scheduled castes and scheduled tribes.
This programme is founded by the Central Government on 100% basis. During the 6th plan this
programme generated 260 million man-days of employment against the target of 360 million man-days.
In the 7th plan an outlay of Rs. 1744 crores was provided. The 7th plan Mid-term Appraisal noted
several weaknesses of implementation. The guarantee of 100 days of employment was not provided,
muster rolls had been manipulated by the contractors and wages paid were different from those
documented. There was not systematic selection of landless labourers. A much more serious
consideration should be given to develop a much tighter administration of rural employment scheme to
eliminate malpractices so that beneficiaries can be helped to cross the poverty line.
Under this programme, the wages of the labourers are given according to Minimum Wages Act.
Some part of the wages is given in the form of foodgrains on reduced prices. A condition has been
made in the programme that the labour cost amount of any project should not be less than 50% of the
total expenditure. Under this programme, contractors were permitted. Out of the total expenditure 10%
had been planned for SCs & STs. Since 1989-90 this programme is merged with Jawahar Rozgar
Yojna.
7.4.2.3.
Integrated Rural Development Programme (IRDP) : This was conceived as an
antipoverty programme under the self-employment in variety of activities in the primary, secondary and
tertiary sectors. The IRDP was initiated on October 2, 1980 in all the 5011 blocks in the country. During
the 6th plan, a total of 15 million families of about 75 million persons below the poverty line were
targeted to be beneficiaries. Integrated Rural Development Programme (IRDP) and its allied
programmes of Training Rural Youth for Self-Employment (TRYSEM) and Development of Women and
Children in Rural Areas (DWCRA) are major self-employment programmes for poverty alleviation. The
basic aim of IRDP is to enable identified rural poor families to augment their incomes and cross the
poverty line through acquisition of credit based productive assets. Assistance is given in the form of
subsidy by the government and term credit by the financial institutions for income generating activities.
This is centrally sponsored scheme funded on 50 : 50 basis by the Centre and the states. It is
stipulated that at least 50 percent of the assisted families should belong to Scheduled Caste and
Scheduled Tribe categories. It is also required that at least 40 percent of those assisted should be
women under this programme.
The total investment under IRD during the 6th plan was Rs. 4762 crores as against the target of
Rs. 4500 crores. The total number of beneficiaries covered during the 5 year period was 16.56 million
as against the target of 15 million.
The 7th plan envisaged a target of assisting 20 million households under IRDP. The total
allocation provided by the Centre would be of the order of Rs. 2643 crores. During the first four years of
the 7th plan 13.4 million families were assisted and Rs. 2273 crores were utilised. Besides this, term
credit of Rs. 3683 crores was mobilised by financial institution.
About 535 lakh families have been covered up to November 1998 since 1980-81 under the
programme out of which coverage of SC/ST families had been 45 percent. The level of per family
investment is currently more than Rs. 17441 as compared to Rs. 1642 during 1980-81. A sum of Rs.
800 crore (including Rs. 60 crore for Rural Artisans) has been provided in 1998-99 (BE), an increase of
about 45 percent over 1997-98 (R.E).
Some of the studies undertaken to evaluate this programme indicated certain weaknesses i.e.
wrong identification of beneficiaries, outright leakage through corruption, inadequate banking
infrastructure, lack of proper training to majority of the beneficiaries. The 7th Plan Mid-term Appraisal
admits 9% of the beneficiaries to be ineligible. The benefits of the programme went to the upper layers
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of the poor and therefore, the poorest of the poor continue to be bypassed. A more positive suggestion
to improve its working is the greater participation of the rural poor in the implementation of these
programmes.
7.4.2.4.
Jawahar Rozgar Yojana (JRY) : Jawahar Rozgar Yojana (JRY) is a wage employment
programme with its main objective of generation of employment in the lean agriculture season to the
unemployed and under employed rural people both men and women living below the poverty line. Rural
unemployment and under employment have been major contributing factors to the high incidence of
poverty in the rural areas notwithstanding the economic development during the last 40 years. During
1989-90, the government announced a new scheme for intensive employment in backward districts
with acute poverty and unemployment. The scheme known as Jawahar Rozgar Yojana came into effect
from August, 1989. It was implemented in 120 districts for which a provision of Rs. 500 crores was
made. The expenditure was to be shared between the Centre and the States on 80 : 20 basis. It was
also announced that NREP and RLEGP would be merged into one programme and implemented as a
Centrally sponsored scheme.
New programme will provide fuller employment opportunities to at least one member of each
family living below the poverty line who seek unskilled employment. The programme aims at creation of
productive community assets for direct and continuing benefits to the poverty groups and to strengthen
rural, economic and social infrastructure. As a result there will be improvement in the quality of life in
the rural areas.
The Jawahar Rozgar Yojana (JRY) aims at reaching every single panchayat. The scheme will
be administered by the village panchayats to implement rural employment programmes benefitting 440
lakh families living below the poverty line in India. JRY intends to provide village panchayats adequate
funds to run their own employment schemes in the interests of the vast masses of the rural poor. A
special feature of the scheme is that 30% of the employment generated win be reserved for women.
In order to mobilise resources for the programme, it was proposed to levy a surcharge at the
rate of 8% on resident taxpayers with income above Rs. 50,000 from assessment year 1990-91. The
purpose of the scheme is to generate more employment in rural areas to benefit the vulnerable sections
of our society.
The critics have raised certain issues regarding JRY which need consideration.
(a)
The entire administration and implementation of the scheme has been placed under the
village panchayats. This has been done so that the benefits reach directly to the people.
But this may not happen. A better course would have been to develop a judicious mix of
development administration and panchayat representative for the purpose so that a
system of checks and balance could be introduced. It is far more difficult to bring to
book elected representative guilty of nepotism and corruption as against officials of the
administration who can be made directly answerable.
(b)
In the absence of technical staff, it would be very difficult to develop blueprints of the
schemes to be implemented and thus implement them. Thus, the maximum, benefit in
terms of the poverty alleviation may not be possible.
(c)
Under the JRY, 50 to 100 days employment in a year to one member of the family of a
rural household is likely to make no dent on poverty.
The alarming magnitude of the unemployment problem in any economy needs to be tackled
seriously. In India, planning for full employment calls for a multi-dimensional approach. The problem is
of such a colossal magnitude that no single measure would ever succeed in eradicating this problem. A
comprehensive policy must be evolved to make use of the available manpower resources to the
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maximum extent. A bold and imaginative policy must be pursued to solve this serious economic
problem in the country.
The plan strategy is rightly directed to employment as one of the major objectives. Adhering to
the conventional strategy of economic growth, however, will not eliminate massive unemployment.
There is a clear need to encourage the use of more labour-intensive of employment intensive
technology. Fiscal policy should be designed accordingly and tax benefit could be related to the number
of workers employed or to the amount of wages paid. An outlay of Rs. 1953 crore has been allocated
during 1997-98 (RE) for JRY. Since 1989 6,861 million man-days of employment were generated under
JRY.
This scheme is not in existence at present. Since April 1, 1999, IRDP with five other
employment schemes - TRYSEM, DWCRA, SITRA, GKY & MWS (all six) have been merged in newly
introduced scheme - ‘Swaran Jayanti Gram Swarozgar Yojana.’
7.5
PROGRAMMES OR SCHEMES IN THE DECADE OF 90S & LATER
During Eighth Five Year Plan N.D.C. endorsed three special employment generating schemes EAS, MSY & PM’RY. Accordingly in 1993-94 three such schemes were launched. Towards end of the
eighth plan PM’s IUPEP, GKY & SJSRY were introduced.
7.5.1.
Employment Assurance Scheme (E.A.S.)
Employment Assurance Scheme (EAS) which was launched in 1993 for the rural has been
universalised so as to make it applicable to all the rural blocks of the country. It aims at providing 100
days of unskilled manual work up to two members of a family in the age group of 18 to 60 years
normally residing in villages in the lean agriculture season, on demand, within the block covered under
EAS. This scheme aims at covering 3175 Blocks which are most Backward. Its funding pattern is 80: 20
which means 80 percent will be financed by centre and 20 percent by states.
A sum of Rs. 1990 crore has been provided during 1998-99 (BE). During 1998-99, a total of
237.61 million man-days have been generated under the scheme with an expenditure of Rs. 1572 crore
up to November, 1998. This programme was recorganised from April 1, 1999 and was made the single
wage employment programme and started as a centrally sponsored scheme on a cost sharing rates of
75:25. The central anistance was given directly to District Rural Development Agency or to Zila
Parishad. As it was a Demand Driven Programme so no physical targets were prescribed.
7.5.2. Mahila Samridhi Yojana (MSY)
This was also launched on second October, 1993 with a aim to give greater control ones
household finances. All those adult women who shall open an account of Rs. 300 in a year shall get on
incentive of Rs. 75 in a year. The Department of Women and Child Development, the model agency in
MSY, decided in April 1997 that no new MSY accounts should be opened from 1 April, 1997 onwards
but the existing accounts could be continued. This scheme now stands merged with ‘Mahila Swayam
Sidha Yojana’ while came into force w.e.f. July 12, 2001.
7.5.3.
Prime Minister’s Rozgar Yojana (PMRY)
This scheme was also launched on October 2, 1993. The aim of this scheme is also to give
employment. But this scheme has specially been launched for educated unemployed. This scheme
shall give loan upto one lakh to individual and more can also be given in case of partnership. The Govt.
also gives subsidy equal to 15 percent under this scheme. The existing scheme for Self employment of
Educated Unemployed Youth (SEEUY) will be subsumed in PMRY. Prime Minister’s Rozgar Yozana
(PMRY) for providing self-employment to educated unemployed youth had been lesigned to provide
employment to more than a million persons by setting up of seven lakh micro enterprises in Eighth
Plan. During the Eighth Plan, loan in 7.70 lakh cases were sanctioned and 5.76 lakh cases disbursed.
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The scheme is being continued in the Ninth Plan. Since inception of the scheme up to the programme
year 1997-98, over 7.52 lakh cases have been disbursed. During 1998-99, 57527 cases have been
sanctioned loans and 27533 cases disbursed by the end of October, 1998. A sum of Rs. 110 crore has
been provided in 1998-99 (BE).
After this, several programmes have been added to this list. During 9th plan period this scheme
has been revised. Under the scheme every selected educated unemployed youth falling in the age
group of 18-35 years but with a family income of less than Rs. 40,000 per year was entitled to a loan
upto Rs. 1 lakh for opening his enterprise and Rs. 2 lakhs for other activities. Projects involving more
than two or more than two partners were given a loan upto Rs. 10 lakh. Under the scheme 15% of the
total project cost not exceeding Rs. 15000 was given to the beneficiary as subsidy, 5% of the equity
was expected to be invested by the beneficiary himself and the remaining cost of the project was to be
given by the banks.
Micro enterprises from commercial sector should not comprise more than 30%. The scheme
was taken care of by Union Industry Ministry. Reservation to the extent of 22.5% and 27% respectively
were given to SC/St and OBC.
Self help groups (SHGs) also became eligible for financing under this scheme w.e.f. December
8, 2003. The term were for this modified w.e.f. July 30, 2004.
This Scheme was ultimately merged with Prime Minister’s Employment & Generation
Programme (PMEGP) w.e.f. 15 August, 2008.
7.5.4.
Prime Minister’s Integrate Urban Poverty Eradication Programme
This was launched in 1995-96, this scheme aims at achieving social sector goals, employment
generation and upgradation of skill, shelter upgradation and Environmental improvement programme. It
was later merged into SJSRY discussed at point 6. The scheme involved financial support to the urban
poor for shelter upgradation with a loan upto Rs.10,000 to be arranged from HUDCO/any other financial
institution including commercial banks with a rider that the beneficiary holds a title to the land. A
subsidy to the tune of 25% not exceeding Rs. 25000 per unit was given. This scheme was replaced by
Swarna Jyanti Shalin Rojgar Yojana (SJSRY) w.e.f. December 1, 1997.
7.5.5.
Ganga Kalyan Yojana
A new centrally sponsored scheme namely Ganga Kalayan Yojana has been launched in all
districts w.e.f. 1.2.1997 with the objective of providing irrigation to small and marginal farmers below
poverty line. The farmers were provided Rs. 5,000 per hectare. The benefit of this yojana was provided
only to the people of targeted group. The expenditure incurred on this scheme was divided between
Central Government and the State Government’s in the ratio of 80:20. Since April 1, 1999 Ganga
Kalyan Yojna has been merged with Swarna Jayanti Gram Swarozgar Yojana.
7.5.6.
The Swarna Jayanti Shahari Rozgar Yojana (SJSRY)
This scheme came into operation on 1.12.1997, subsumming the earlier urban poverty
alleviation programmes viz., Nehru Rozgar Yojana (NRY), Urban Basic Services Programme (UBSP)
and Prime Minister’s Integrated Urban Poverty Eradication Programme (PMIUPEP). The scheme aims
to provide gainful employment to the urban unemployed or underemployed poor by encouraging the
setting up of self-employment ventures or provision of wage employment. It is being funded on a 75:25
basis between Centre and the states. It comprises two special schemes i.e. The Urban Self
Employment Programme (USEP) and the Urban Wage Employment Programme (UWEP). The scheme
gives a special impetus to empowering and uplifting the poor women and launches a special
programme namely, Development of Women and Children in urban areas under which groups of urban
poor women sitting up self employment ventures are eligible for subsidy up to 50% of the project cost.
During the year 1997-98, a sum of Rs. 98.63 crore was released to States and UTs under SJSRY. A
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sum of Rs. 189 crores has been provided in 1998-99 (BE) out of which Rs. 64.59 crore has been
released to twelve states till 30.11.1998.
The SJSRY launched by the Government of India in December 1997 has been revamped with
effect from Arpil 2009. The scheme provides gainful employment to the urban unemployed and
underemployed through encouraging the setting up of self-employment ventures or provision of wage
employment. The revamped scheme has the following five components : (i) Urban Self Employment
Programme (USEP) (ii) Urban Women Self-help Programme (UWSP) (iii) Skill Training for Employment
Promotion amongst Urban Poor (STEP-UP) (iv) Urban Wage Employment Programme (UWEP), and
(v) Urban Community Development Network (UCDN). The annual budgetary provision under the
SJSRY for the year 2010-11 is Rs. 589.68 crores of which Rs. 427.91 crore had been released by 31st
December 2010. A total of 6,80,325 beneficiaries have been benifitted upto 31st December, 2010.
7.5.7. Jawahar Rozgar Yojana (JRY) after 1998
The JRY was restructured and streamlined in the year 1998. The Indira Awas Yojana (IAS)
Million Wells Schemes (MWS) which were earlier sub-schemes in the year 1998 under JRY have now
became separate programmes with effect from 1-1-98. The sub-scheme under JRY called Intensive
JRY (IJRY) has been abolished and (EAS) Employment Assurance Scheme has been extended to the
areas where IJRY was being implemented.
The significant aspect of the scheme at present is that it is implemented by the Panchayats at
the village block and district levels in the ratio of 70: 15: 15 respectively. An amount of Rs. 2095 crores
was allocated during 1998-99 (BE) for JRY. Against a target of 396.66 million man-days during 199899, a total of 190.28 million man-days were generated up to November, 1998 with an expenditure of
Rs. 1244 crores.
Jawahar Rozgar Yojana at present is not in existence because since April 1, 1999 it was
replaced by Jawahar Gram Samridhi Yojana. Later on Jawahar Gram Samridhi Yojana was merged
with Sampoorna Gramin Rozgar Yojana w.e.f September 25, 2001.
7.5.8. The Training of Rural Youth for Self Employment (TRYSEM) is to train rural youth from the
target group of families in skills so as to enable them to take up self-wage employment. It has been laid
down that the coverage of youth from SC and ST communities should be at least 50 percent of the rural
youth trained. Out of the total beneficiaries, at least 40 per cent should be women.
7.5.9. The Million Wells Scheme (MWS) was started as a sub-scheme of NREP/RLEGP and later
JRY from 1989; and was funded by the Centre and States in the ratio of 80:20. The objective of the
MWS is to provide open irrigation wells free of cost to poor, small and marginal farmers belonging to
SCs/STs and freed bonded labour. A sum of Rs. 450 crore were provided in 1998-99. Up to November,
1998, a sum of Rs. 225.90 crore were incurred during 1998-99 and 49821 wells were constructed.
Presently it has been merged with Swarna Jayanti Gram Swarozgar Yojana w.e.f. April 1, 1999.
7.5.10. Indira Awas Yojana (IAY)
The Indira Awas Yojana was started in 1985-86 as a sub-plan of RLEGP. In 1989-90, after
merging of RLEGP (alongwith NREP) with Jawahar Rozgar Yojana, it became a part of Jawahar Rojgar
Yojana (JRY). Since January 1, 1996, it was again separated from JRY and was given an independent
status. At present it is the flagship programme for rural housing. The objective of IAY is to provide
financial assistance for construction/upgradation of houses to BPL rural households belonging to
Scheduled Castes and Scheduled Tribes, freed bonded labourers, non-SC/ST rural households,
widows and physically handicapped persons living in the rural areas.
‘The Indira Awas Yojana (lAY) aims at providing dwelling units, free of cost, to the poor families
of the Scheduled Castes, Scheduled Tribes, freed bonded labourers and also the non-SC, ST persons
below the poverty lines in rural areas. The scheme is funded on a cost sharing basis of 75:25 between
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the Centre and the States. The ceiling on construction assistance under the lAY is Rs. 20,000 per unit
for the plain areas and Rs. 22,000 for the hilly/difficult areas. Since inception, upto February, 2003
about 94 lakh houses have been constructed by incurring an expenditure of Rs. 16,202.25 crore. A
major scheme for construction of houses to be given to the poor, free of cost, it has an additional
component, namely, conversion of unserviceable kutcha houses to semi pucca houses. Further, a
Credit-cum-Subsidy Scheme for rural housing was launched from 1.4.1999 targetting rural families
having annual income up to Rs. 32,000.
It was started in September 1982 in the form of a sub-plan of IRDP. At present it is not in
existence because it is merged with newly introduced programme Swaran Jayanti Gram Swarojgar
Yojana w.e.f. April, 1, 1999.
At present, it is the flagship programme for rural housing. The main points of this scheme are as
follows:
1. Since 1993-94, the benefit of Indira Awas Yojana is being provided even to those rural poor
of non-schedule caste/schedule tribe who are living below the poverty line.
2. A minimum of 60% of funds are to be utilized for construction of houses for the SC/ST
people.
3. From 1995-96, IAY benefits have been extended to widows or next of kin of defence
personnel killed in action.
4. Benefits have also been extended to ex-servicemen and retired members of para military
forces as long as they fulfil the normal eligibility conditions of IAY.
5. 3% of funds are reserved for the disabled persons living below the poverty line in rural areas.
6. Under the plan, the allocation of the house is done in the name of the female member of the
benefited family or in the joint names of husband and wife.
7. Sanitary latrine and smokeless chulha are integrral to an IAY house.
8. The ceiling on assistance for construction of new houses has been increased from Rs.
25,000 to Rs. 35,000 per unit for the plain areas and from Rs. 27,500 to Rs. 38,500 pe unit for the hilly
difficult areas w.e.f. April 1, 2008.
9. Under the scheme financial resources are shared between the Centre and the State on a
75:25 basis. In case of North Eastern States, the finding pattern has recently been revised to 90:10.
7.5.11. The Swarna Jayanti Gram Swarozgar Yojana (SGSY)
The IRDP was started in 1980-81 in all major self-employment scheme till April 1, 1999. Then it
was restructured as the SGSY the only self employment programme currently being implemented. It
aims at promoting micro enterprises and to bring the assisted poor families (Swarozgaris) above the
poverty line in three years by organizing them into Self Help Groups (SHGs) through the process of
social mobilization, training and capacity building and provision of income generating assets through a
mix of bank credit and Government subsidy. The scheme is being implemented on a cost-sharing ratio
of 75 : 25 between the Centre and the States. Since inception of the Scheme upto December, 2002 a
total allocation of Rs. 4,335.70 crore was made available by the Centre and the States. Total funds
utilized were Rs. 3,496.66 crore, to benefit 32.48 lakh Swarozgaris. All Allied programmes such as
TRVSEM, DWCRA, MWS, SITRA and GKY all have been merged under SGSY from April, 1, 1999
along with the erstwhile IRDP.
The SGSY is a very important ongoing scheme started in April 1999 to help poor rural families
(Swarozgaris, cross the poverty line by assisting them to take up income generating economic activities
through a mix of bank credit and government subsidy. Several existing schemes such as Training of
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Rural Youth for Self-Employment (TRYSEM), supply of Imporved Toolkits to Rural Artisans (SITRA)
and Ganga Kalyan Yojana have been merged and revamped into a self-employment programme called
Swarnajayanti Gram Swarozgar Yojana (SGSY) with following objectives.
(i)
Focussed approach to poverty alleviation.
(ii) Utilising the advantages of group lending.
(iii) Overcoming the problems associated with multplicity of programmes.
This scheme envisages the programme of micro enterprises covering all aspects of selfemployment which includes organising rural poor into Self-Help Groups (SHG’s). It integrates various
agencies Distinct Rural Development Agencies, Banks, Panchayati Raj Institutions, NGO’s and other
Semi Govt. Organisation. It is the only Self-employment programme currently in operation for the rural
poor. The scheme aims at establishing a large number of micro-enterprises in rural area of the country.
Subsidy under the scheme is 30% of the project cost not exceeding the limit of Rs. 7500. For SC/ST
the subsidy is 50% but not exceeding the maximum limit of Rs. 10,000. For groups the subsidy is 50%
subject to maximum of Rs. 1.25 lakh. SGSY is financed both by Centre and State in the ratio of 75:25.
SGSY focuses on creation of infrastructure, Skill Development and specially focuses on the vulnerable
section among rural poor with SC/ST to account for at least 50% and women 40% of the Swarozgaris.
The share of minorities and disabled persons will be 15% and 3% respectively. Also 15% of SGSY
allocation is earmarked for special projects that are implemented with different models of selfemployment generation and to enhance income-generation capacity of the rural poor. Upto December
2010, since its inception, 40.04 lakh SHGs have been formed under SGSY, with women SHG’s
accounting for about 68% of the total. During this period beneficiaries receiving bank credit and subsidy
were 154.87 lakh. Total investment under SGSY is Rs. 37,927 crore including Rs. 25,743.29 crore
bank-credit and Rs. 12,183.58 crore subsidy. About 9.00 lakh rural BPL beneficiaries are to be covered
through 116 projects sanctioned/approved so far with an outlay of about Rs. 1200 crore. About 2.25
lakh youths have been trained/are under training and 1.75 lakh placed so far. A new scheme has also
been started for setting up a Rural Self Employment Training Institute (RSETI) in each district of the
country for basic and skill development training of rural BPL youth in order to enable them to undetake
micro-enterprise and wage employment. Govt. has approved 215 RSETI out of which funds to 149
have been released. During 2009-10 about 77,000 rural youth (including 54,000 BPL youth) were
trained in 99 RSETI functioning in the country.
The SGSY is a major ongoing scheme launched in April 1999 to help poor rural families
(Swarozgaris) cross the poverty line by assisting them to take up income-generating economic activities
through a mix of bank credit and government subsidy. The scheme involves selection of key activities,
planning of activity clusters, organization of the poor into self-help groups (SHGs), and building of their
capacities through training and skill development, creation of infrastructure, and technological and
marketing support. The SGSY specially focuses on vulnerable sections among the rural poor with
SCs/STs to account for at least 50 per cent and women 40 per cent of the swarozgaris. The share of
minorities and disabled persons will be 15 per cent and 3 per cent respectively. Also, 15 per cent of the
SGSY allocation is set apart for special projects that are implemented with different models of selfemployment generation and to enhance the income-generating capacity of the rural poor. Since its
inception, up to December 2010, 40.04 lakh SHGs have been formed under the SGSY, with women
SHGs accounting for about 68 per cent of the total. During this period, a total of about 154.87 lakh
swarojgaris have been assisted with bank credit and subsidy. The total investment unde the SGSY is
Rs. 37,927 crore, including Rs. 25,743.29 crore credit and Rs. 12,183.55 crore subsidy. Under the
Special Project Component of the SGSY, a placement-linked skill development programme has been
taken up with the objective of helping a specific number of BPL families cross the poverty line through
regular wage employment. About 9 lakh rural BPL beneficiaries are to covered through 116 projects
sanctioned/approved so far with an outlay of about Rs. 1200 crore. About 2.25 lakh youth have already
147
been trained/are under training and 1.75 lakh placed so far. A new initiative has also been taken up for
setting up a Rural Self Employment Training Institute (RCETI) in each district of the country for basic
and skill development training of rural BPL youth to enable them to undertake micro-enterprises and
wage employment. The Government has approved 215 RSETIS out of which funds have been released
to 149. During 2009-10 approximately 77000 rural youth (including 54,000 BPL youth) were trained in
99 RSETIs functioning in the country.
12.
The Programme of Developing of Women and Children in Rural Areas (DWCRA) aims to
improve the socio-economic status of the poor women in the rural areas through creation of group of
women for income generating activities on a self-sustaining basis.
13.
Sampoorna Grameen Rozgar Yojana (SGRY)
The Sampoorna Grameen Rozgar Yojana (SGRY) was launched on 25th September, 2001. The
schemes of Jawahar Gram Samridhi Yojana (JGSY) and Employment Assurance Scheme (EAS) have
been fully integrated with SGRY. The objective of the scheme is to provide additional wage
employment alongwith food security, creation of durable community, social and economic assets and
infrastructure development in the rural areas. The scheme envisages generation of 100 crore man days
of employment in a year. The cost of the programme is to be shared between the Centre and the State
on a cost sharing ratio of 87.5 : 12.5 (including foodgrains component). During 2001-02, 22.00 lakh
tonnes of rice and 12.49 lakh tonnes of wheat were allocated under the scheme. Offtake upto April,
2002 was 13.18 lakh tonnes of rice and 5.64 lakh tonnes of wheat. Under SGRY (Spl. Comp.)
foodgrains are separately released, free of cost, to the State Governments for facilitating employment
generation programmes in drought prone areas.
Preference was given to BPL families for providing wage employment under this scheme but
poor families above the poverty line were also offered employment. Annual outlay was
Rs. 10,000 crore which included 50 lakh tonnes of food grains. Distribution of foodgrain are the
responsibility of State Government. Minimum wages are paid to the workers through a mix of minimum
5 kg of foodgrain and at least 25% of wages in cash. The scheme has been subsumed in ‘National
Rural Employment Guarantee Programme (NREGP) which has been initiated since February 2, 2006.
14.
Pradhan Mantri Gramodaya Yojana (PMGY)
PMGY was launched in 2000-2001 in all the States and the UTs in order to achieve the
objective of sustainable human development at the village level. The PMGY envisages allocation of
Additional Central Assistance to the States and UTs for selected basic minimum services in order to
focus on certain priority areas of the Government PMGY initially had five components viz., Primary
Health, Primary Education, Rural Shelter, Rural Drinking Water and Nutrition. Rural Electrification has
been added as an additional component from 2001-02.
The allocation for PMGY in 2000-01 was Rs. 2,500 crore. This has been enhanced to Rs. 2,800
crore for 2001-02. For the year 2002-03, Rs. 2,800 crore have been provided.
During the last two annual plans, the six sectoral programmes of PMGY were managed by the
concerned Central Administrative Departments. However, from the current year, the Planning
Commission is to directly implement this programme. New guidelines on the implementation of the
PMGY during Annual Plan 2002-03 have been issued to all the State Governments and UTs.
Pradhan Mantri Gramodaya Yojana (Gramin Awas)
The scheme seeks to achieve the objective of sustainable habitat development at the village
level. Central allocation for rural shelter component of PMGY : GA in 2001-02 was Rs. 406.85 crore out
of which Rs. 291.51 crore has been released by Ministry of Finance.
148
Pradhan Mantri Gramodaya Yojana-Rural Drinking Water Project
Under this programme, a minimum 25 percent of the total allocation is to be utilised by the
respective States/UTs on projects/schemes for water, conservation, water harvesting, water recharge
and sustainability of the drinking water sources in respect of areas under Desert Development
Programme/Drought Prone Areas Programme.
Pradhan Mantri Gram Sadak Yojana (PMGSY)
The PMGSY, which was launched on 25th December, 2000 is a programme to provide road
connectivity through good all-weather roads to 1.60 lakh Unconnected Habitations with a population of
500 persons or more in the rural areas by the end of the Tenth Plan period (2007) at an estimated cost
of Rs. 60,000 crore. The programme is being executed in all the States and six Union Territories. While
the focus of the Programme is on providing road connectivity to Unconnected Habitations of the
population size, connectivity is being provided to all Panchayat Headquarters and places of tourist
interest under the PMGSY irrespective of the population size. Since inception, project propose also for
Rs. 7,553.26 crore have been cleared. About 56,200 kms. of rural roads have been taken up under the
programme, benefitting about 37,225 Habitations. The programme is being executed in all states and
six Union Territories. Till December 2002, 10,882 road works have been completed providing
connectivity to 12,508 Habitations with an expenditure of Rs. 3,321.59 crore.
The present source of funding for PMGSY is diesel cess, 50 percent of which is earmarked for
PMGSY. Efforts are under way to raise additional resources for programme with financial asstetanu
from the World Bank.
Under Bharat Nirman,goal has been set to provide connectivity to all the hebitations and
population of more than 1000 in the plain areas and habitations with a population of 500 or more in hilly
and tribal area in a time bound manner by 2009. An Action Plan Connecting 66802 habitations with
1,46,185 km of all weather road has been prepared. This plan also focuses on the upgradation/renewal
of 1,94,130 km of existing rural road network. Under rural road component of Bharat Nirman 38575
habitations have been provided all weather connectivity upto December 2010 and projects for
connecting 14595 hebitations are at different stages of implementation. During 2010-11 over 28,963 km
of all weather roads have been completed upto December 2010. New connectivity has been provided
to nearly 3949 habitation with an expenditure of Rs. 9677 crore under PMGSY.
15.
Antyodya Anna Yojana
The scheme was launched by the Minister on 25th December 2000. Under the scheme 1 crore
poorest families out of the BPL families covered under the Target Public Distribution System are
identified 25 grains well made available to each eligible at a highly subsidy of Rs. 2 per Kg for wheat
and Rs. 3 Kg for rice. This quantity has been enhanced from 25 to 35 Kgs with effect from April 2002
for a period of 1 year i.e. upto March 31, 2000. Against on allocation of 19.60 lakh tonnes of foodgrain
from April, 2001 to March, 2002 10.78 lakh tonnes have been lifted. During the current year, the off take
of foodgrains from the Control Pool, up to December, 2002, was 24.08 lakh tonnes.
AAY scheme was expanded to include another 50 lakh households from the BPL families. It
was further expanded w.e.f. 1st August, 2004 by another 50 lakh BPL families by including all
households facing hunger. Again in 2005-06 it was expanded to cover another 50 lakh BPL
households. Thus totalling its coverage of 2.5 crore households.
16.
Annapurna
This scheme was launched on April 1, 2000 as a 100 percent Centrally Sponsored Scheme. It
aims at providing food security to meet the requirement of those senior citizens who though eligible for
149
pension under the National Old Age Pension Scheme, are not getting the same. 10 kgs of foodgrains
per person per month are supplied free of cost. 1.62 lakh tonnes of foodgrains (wheat & rice) at BPL
rates was allotted to Ministry of Rural Development during 2001-02. Off take was 0.37 lakh tonnes of
wheat and 0.56 lakh tonnes of rice. During 2002-03, 0.87 lakh tonnes of foodgrains have been lifted
upto December, 2002, the scheme has been transferred to the State Plan from 2002-03.
17.
Swarna Jayanti Shahari Rozgar Yojana (SJSRY)
The Urban Self-Employment Programme and the Urban Wage Employment Programme are two
special schemes of the SJSRY initiated in December 1997, which replaced various programmes
operated earlier for urban poverty alieviation. This is funded on a 75:25 basis between the Centre and
the States. During 2001-02 an allocation of Rs. 168 crore was provided for various components of this
programme, which was reduced to Rs. 45.50 crore at RE stage. The expenditure was Rs. 39.21 crore
during 2001-02. For 2002-03 an allocation of Rs. 105 crore has been provided for various components
of this programme. The expenditure during the current financial year, upto January. It is funded on a
75:25 basis by the centre and the states. Three urban schemes already in operation were merged with
this new scheme. (i) Nehru Rozgar Yojana (NRY) (ii) Urban Basic Service for Poor (UBSP) (iii) Prime
Minister’s Integrated Urban Poverty Eradication Programme.
This programme has been further revamped w.e.f from April 2009. The scheme provides gainful
employment to the urban unemployed and under employed through encouraging the setting up of selfemployment ventures or provision of wage employment. The new revamped scheme has the following
five components.
(i) Urban Self Employment Programme (USEP) (ii) Urban Women Self help Programmes
(UWSP) (iii) Skill Training for Employment Promotion amongst Urban Poor (STEPUP) (iv) Urban Wage
Employment Programme (v) Urban Community Development Network (UCDN). The annual budgetary
provision under the SJSRY for the year 2010-11 is Rs. 589.68 crore of while Rs. 427.91 crore had been
released by 31 December, 2010. A total of 6,80,325 beneficiaries have been benefited upto 31
December, 2010.
18.
Valmiki Ambedkar Awas Yojana (VAMBAY)
This scheme was formally launched by the Prime Minister on the 2nd December, 2001. The
scheme seeks to ameliorate the conditions of the urban slum dwellers living below the poverty line who
do not possess adequate shelter. The scheme has the primary objective of facilitating the construction
and upgradation of dwelling units for the slum dwellers and providing a healthy and enabling urban
environment through community toilets under Nirmal Bharat Abhiyan, a component of the scheme. The
Central Government provides a subsidy of 50 percent the balance 50 percent being arranged by the
State Government with ceiling cost prescribed both for dwelling units/community toilets.
Till January, 2003, a total sum of Rs. 211.87 crore has been released as Government of India
subsidy for the construction/upgradation of 1,06,038 dwelling units and 20,817 toilet seats under the
scheme. Under this scheme since its inception Rs. 932.56 crore has been spent by Government of
India as subsidy towards the upgradation/construction of 4,59,728 dwelling units and 65,580 toilet
seats. This shceme was first of its kind meant for slum dwellers with a subsidy of 50% from
Government of India and rest 50% from State Governments. This scheme along with National Slum
Development Programme (NSDP) has been merged in Integrated Housing and Slum Development
Programme launched on 3 December, 2005 along with Jawahar Lal Nehru National Urban Renewable
Mission. (JNNURM)
150
Self Assessment Question
Q.
Mention 4 programmes’ for Rural and 4 programmes’ for Urban (Unemployed Youth or)
Employment in post reforms era.
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
19.
Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNRES)
After the notification of the National Rural Employment Guarantee Act on September 7, 2005, a
new scheme named “National Rural Employment Guarantee Programme (NREGP)” has been launched
on February 2, 2006. It has been renamed as the Mahatama Gandhi National Rural Employment
Guarantee Scheme (MGNRES). The ongoing programmes of Sampoorna Grameen Rozgar Yojana
(SGRY) and National Food for Work Programme (NFFWP) were subsumed within the NREGP in the
200 districts identified in the initial stage. Implemented by the Ministry of Rural Development, National
Rural Employment Guarantee Act (NREGA) is a flagship programme of the government that directly
touches lives of the poor and promotes inclusive growth. NREGP has been launched with following
guidelines:
 To enhance livelihood security of households in rural areas of the country by providing at least
100 days of guaranteed wage employment in every financial year to every household whose
adult members volunteer to do unskilled manual work.
 Until such time as a wage rate is fixed by the Central Government, the minimum wage for
agricultural labourers shall be applicable for the scheme.
 An applicant not provided employment within fifteen days, to be entitled to a daily
unemployment allowance as specified by the State Government subject to its economic
capacity, provided such rate is not less than a quarter of the wage rate for the first thirty days
during the financial year and not less than a half of the wage rate for the remaining period of the
financial year.
 Central Employment Guarantee Council to be constituted to discharge various functions and
duties assigned to the Council. Every State Government to also constitute a State Council for
this purpose.
 Panchayat at the district level to constitute a Standing Committee of its members to supervise,
monitor and oversee the implementation of the Scheme within the district.
 For every Block, State Governments to appoint a Programme Officer for implementing the
Scheme.
 Gram Panchayat to be responsible for identification of the projects as per the recommendations
of the Gram Sabha and for executing and supervising such works.
 Central Government to establish a National Employment Guarantee Fund. State Governments
to establish State Employment Guarantee Funds for emplementation of the Scheme.
 The Scheme to be self-selecting in the sense that those among the poor who need work at the
minimum wage would report for work under the scheme.
NREGA is the first ever law, internationally, that guarantees wage employment at an
unprecedented scale. The primary objective of the Act is augmenting wage employment. Its auxiliary
151
objective is strengthening natural resource management through works that address causes of chronic
poverty like drought, deforestation and soil erosion and so encourage sustainable development. The
process outcomes include strengthening grass-root processes of democracy and infusing transparency
and accountability in governance.
This flagship programme of the Government of India touches the lives of the rural poor and
promotes inclusive growth. The MGNREGS aims at enhancing livelihood security of households in rural
areas of the country by providing at least one hundred days of guaranteed wage employment in a
financial year to every household whose adult members volunteer to do unskilled manual work.It also
mandates 33 per cent participation for women. The primary objective of the Scheme is to augment
wage on strengthening natural resource management through works that address causes of chronic
poverty like drought, deforestation, and soil erosion and thus encourage sustainable development. The
MGNREG ACT was notified in 200 districts in the first phase with effect from 2 February, 2006 and then
extended to an additional 130 districts in the financial year 2007-08. The Act has been notified
throughout the country with effect from 1 April 2008. During 2009-10, 5.26 crore households were
provided employment under this scheme as against more than 4.51 crore during 2008-09. During 201011, the budget estimate for the MGNREGS is Rs. 40,100 crore out of which Rs. 29,822.59 crore have
been released to the States/UTs till February 10, 2010.
19A Major Initatives for Effective Implementation of MGNREGS : These are follows :
(a)
Increasing Transparency and Public Acountability:

Social Audits: States have reported that social audits have been conducted in 93 per
cent of the Districts. Around 2.41 lakh social audit reports have been uploaded on the
MGNREGS website indicating veritication of 45,428 lakh documents in 2009-10.

A new scheme for monitoring by eminent citizens has been introduced whereby 61
eminent citizens have been engaged. Each has been assigned one district to provide
first hand feed back on the implementation of the MGNREGS.
An onbudsman has been instituted in each district for effective grievance redressal
(b)
Effective Administrative and Financial Management of the MGNREGS:

Labour Budget : Under Section 14(6) of the NREGA, District Programme Coordinators
are required to prepare labour budgets in the month of December for the next financial
year containing the details of anticipated demand of unskilled manual work. The
procedures and principles for labour budget have been put in place and operationalized
in 2010-11. The labour budget principle ensures smooth fund flow on rational basis to the
districts for implementation of the MGNREGS scheme.

State Employment Guarantee Fund : Under Section 21(1) of the NREGA, States have
instructed to establish State Employment Guarantee Funds. The State Funds will give
greater flexibility to the States in fund management for implementation of the
MGNREGS. State Funds have been set up in eleven States, namely Rajasthan, Andhra
Pradesh, Karnataka, Himachal Pradesh, Orisa, West Bengal, Madhya Pradesh, Uttar
Pradesh, Tamil Nadu, Punjab and Gujarat. The Central fund for the MGNREGS has
been directly released to State Fund accounts of the respective States.

Strengthening administrative Support Systems : Permission is given for the use of 6
per cent of the budget available for administrative expenses by the State. The Central
Government has recommended for the recruitment of one Gram Rozgar Sewak Sahayak
in every panchayat, one technical assistant for every five gram panchayats, at least one
computer assistant per block, and one full-time dedicated programme officer in every
block. This issue has been constantly monitored with States.
152

Pilot Initiatives : To build on the current programme implementation and to leverage the
MGNREGS for sustainable development, the Central Government has started pilot
projects in Rajasthan. These initiatives include training and skill building for MGNREGS
workers, basic literacy, computer and financial literacy, and facilitating wage payment
through the business correspondent mode.

Convergence: In view of the inter-sectoral linkages of the MGNREGS, the need to creat
durable assets, improve livelihood security, facilitate more flexibility in choice of works to
suit the specific conditions of States and serve better the common target groups of
certain development programmes with the MGNREGS, the Central Government has
developed and disseminated convergence guidelines with different schemes and specific
programmes, namely the Indian Council of Agricultural Research, National Aforestation
Programme, and other schemes of the Ministry of Forest under Environment Schemes of
the ministry of water resources of the PMGSY (Department of Rural Development),
Swarnjayanti Gram Swarozgar Yojana (SGSY) (Department of Rural Development),
Watershed Development Programmes (Department of Land Resources, Ministry of Rural
Development), Ministry of Agriculture and Fisheries, and schemes of the Ministry of
Agriculture. Convergence pilot projects have been taken up in 115 districts and 23 States
across India. State-level reviews and field visits are being undertaken to monitor these
initiatives. The National Institute of Rural Development (NIRD) and independent agencies
are closely monitoring the convergence projects.
Self Assessment Question
Q.
What do you know about NREGA.
__________________________________________________________________________
__________________________________________________________________________
7.6
SUMMARY
The problem of unemployment existed even when we adopted economic planning in the year
1951. The gravity of the problem can be gauged from the fact that the backlog increases with every
plan. The government has started numerous programmes but has failed in making a dent in this area.
The problem of unemployment aggravates the problem of poverty. The employment programmes play
an important role in controlling the menace of poverty. In the next lesson, we will study about “Poverty
in India”. Various Programmes and schemes have been started by the Central opportunities to them,
sometimes temporary in nature. These government programmes are shown in the flow chart given on
the next page. With a view to achieve inclusive development - the main focus of Eleventh Plan, a
special emphasis has been laid on poverty allieviation and employment generation programme.
7.7
GLOSSARY

Nature of employment: It refers to type of unemployment (Refer lesson 8)

Extent of Unemployment: It refers to magnitude of unemployment

Laissez Faire: It refers to free play of market forces and no government intervention.

Demographic Dividend: It refers to the section of population in the working age group.
153
7.8
REFERENCE

Datt and Mahajan: Indian Economy, S. Chand Publication Pvt. Ltd.

Singh, Ramesh (2017): Indian Economy (For civil Services, Universities and Other
Examinations) various editions : McGraw Hill. (Hindi and English mediums)
7.9
FURTHER READINGS

Datt and Mahajan (2017). Indian economy. S. Chand Publications Pvt. Ltd.

Misra and Puri (2017). Indian Economy. Himalaya Publications House.
7.10
MODEL QUESTIONS
1.
Write short notes on
2.
(a)
causes of unemployment problem in India.
(b)
suggestions of removing unemployment
(c)
impact of economic reforms on the unemployment problem.
Discuss in detail the various government programmes to tackle the problem of unemployment in
the post reforms period.
or
“The unemployment programmes been successful in checking unemployment in the post
reforms era”. Do you agree with it.
--00--
154
155
Lesson-8
POVERTY IN INDIA - I
(Poverty Line and Extent)
Structure
8.0
Objectives
8.1
Poverty in India: An Introduction
8.2
Preliminaries (Concept of Poverty)
8.2.1
Conceptualising Poverty
8.2.2
Defining Poverty: The Indian Version
8.2.3
Poverty Line in India : Early Estimates
(i) Estimate of Dandikar and Rath
(ii) Ojha’s estimate
(iii) Estimate of P.K. Bardhan
(iv) Estimates of B.S. Minhas
(v) Estimates of M.S. Ahluwalia
(vi) Conclusion on Poverty Line in India
8.3.
Planning Commission and Estimates of Poverty
8.3.1
Expert Group Methodology of 1993 and Planning Commission
8.3.2
Eighth Plan
8.3.3
MDI and Latest Poverty Estimates
8.4
Methodology for Estimating Poverty and BPL Families in Recent Times in India
8.5
Poverty Reduction in Post-Reforms Period.
8.6
Global Hunger Index and India
8.7
Summary
8.8
Glossary
8.9
References
8.10
Model Questions
8.0
OBJECTIVES
After going through this lesson, you shall be able to :



explain the concept of poverty.
comment upon the poverty line in India.
delineate various causes of poverty problem.
156
8.1
POVERTY IN INDIA-AN INTRODUCTION
How is India doing? asks an economist. His description goes, “India’s reputation as a land of
riches is as ancient as the history of its poverty. That mixed reputation changed in recent centuries, and
India was seen these days primarily as a land of poverty, famines, diseases, squalor, aste;
untouchability, separation and chaos” (Sen. 1990 : p. 71). The statement stands true even today. While
all of these problems do ‘aquire serious thought, this lesson focuses on just a single problem; the
problem of poverty. It may however be added that this problem is intimately related with all the
aforesaid problems: these maladies come from the same socio-economic structure. Logically, one
would have loved to trace the inter-connections and comment on the system. But that would take us to
the realm of political economy much away from the scope of this lesson. Therefore, without any claims
about completeness, we would limit it to a routine discussion on the nature, dimensions, variations and
correlates of poverty in India. Since many a such have been launched for eradicating poverty, it would
be customary on our part to touch upon these programmes as well.
What is Poverty?
Poverty limits human freedoms and deprives a person of dignity. The Vienna Declaration
adopted at the 1993 World Conference on Human Rights affirms that “extreme poverty and social
exclusion constitute a violation of human dignity”. Human Development Reports take the view that
poverty is broader than lack of income -that is deprivation across many dimensions. The Human
Development Report 1997, on poverty, defined it as deprivation in the valuable things that a person can
‘do or be. The term human poverty was coined to distinguish this broad deprivation from the narrower
income poverty, a more conventional definition limited to deprivation in income or consumption. Today
the buzz word is multidimensional poverty.
8.2
PRELIMINARIES (CONCEPT OF POVERTY)
The moment one decides to count the poor and describe the change, two problems come to the
fore : How to support the Poor? How to group them? A feeling of pity or disdain won’t do; you have to
specify the procedure.
8.2.1
(P-I) Conceptualizing Poverty
It is not easy to define poverty, as it manifests in varied moulds. It is customary to view poverty
as deprivation. But any inadequately satisfied human want presents deprivation. And since human
wants are numerous, so one can confront many a ‘poverties’. However, it is tile deprivation of adequate’
food that is the sole concern of all those who want to eradicate poverty. Thus insufficiency of incomes
necessary to buy a basket of goods and services deemed essential for a minimum level of living, is
viewed as ‘absolute poverty’.
So, it is hunger that is the main focus of absolute poverty. All those who cannot afford to eat
enough for carrying out the routines of a normal, productive and disease-free, life can be called poor.
Their very survival is threatened for want of the ‘basic necessities of life’. Hence, “Absolute poverty is
simply grounded in the raw facts of a brutalized life and early death regardless of culture of perception”
(Harrison, 1989; p. 34).
As against this, we also observe relative poverty a suffering that derives from the inequality. In a
world characterized by a high degree of economic inequality, the phenomenon of relative poverty is
here to stay.
Absolute Poverty
In simple words Absolute Poverty means that his or her income or consumption expenditure is
so meagre that he lives below the minimum subsistence level. Because of his absolute poverty
157
condition, he is not able to maintain his or her health and efficiency and in fact he or she may be
starving.
Relative Poverty
On the other Relative Poverty means large inequalities of income. Those who are in the lower
income brackets receives less than those in the higher income groups. The people with lower incomeare relatively poor as compared ‘with those with higher incomes even though they may be living above
the subsistence level. We are mainly concerned with absolute poverty. The advanced countries are in a
position to remove absolute from their countries but relative poverty i.e. uneven distribution remains.
We can gauge the extent of poverty when we know the meaning of poverty. Therefore in the
next section, we shall study about poverty as per its definitions.
8.2.2
(P-II) Defining Poverty: The Indian Version
The problem of poverty might have been with us even in ancient India or ‘golden age’ but the
visible concern over it is very recent. Atleast, the systematic treatment of the subject is our post
independence vocation.
It was at the Indian Labour Conference (1957), where the idea of defining the poverty line got
floated. And ever since a score of poverty norms have been made available to us. The basic issue has
been to work out the desirable minimum level of consumer expenditure needed to provide a specified
nutritional diet. But the notion of ‘nutritional diet’ itself was a debatable proposition. Does that comprise
‘energy’ alone, ‘energy-protein’ combine, or some ‘balanced-diet’ ? Many scholarly debates adorned
the pages of reputed journals without arriving at a final conclusion.
Following tile recommendations of the Nutrition Advisory Committee of the Indian Council of
Medical Research (ICMR), 1958, the calorie norm prevailed Dandekar and Rath (1971) recommended
the average calorie norm of 2250 per capita per day. Earlier, Ojha (1970) had worked with the FAO
norm of 2300 calorie per person per day.
In contrast, Bardhan (1974) adapted 2100 Calories and 55 gram protein as the norm. But
Professor Rao’s (1977) argument remained: “Poverty has to be identified with deficiency the total level
of living and total level of living includes not only energy requirements but also balanced diet needed for
health, and the other components of basic needs essential for man’s existence at a tolerable level. This
exercise on the connotation and identification of poverty has still to be undertaken in India.”
An ‘augmented poverty line’ was also mooted, somewhere on the path. (The Seventh Finance
Commission) but it is ‘physical survival’ or calorie norm that has the official patronage. The Planning
Commission, invariably works with the standard 2400 calorie (per person per day) for rural areas, and
2100 calorie (per person per day) for urban areas.
It is this ‘minimum nutritional diet’ in terms of calorie that is translated into ‘a minimum
consumption expenditure’ at a specified set of prices. Accordingly, you hear about Rs. x per capita
monthly expenditure as the poverty-line.
8.2.3
(P-III) Poverty-line in India
As stated earlier, Poverty-line is a monetary transformation of some minimum nutritional
requirement, demand essential for biological survival: The chosen nutrition level is first translated into a
food basket. Starting with a standard basket for the country as a whole, now we have State-specific
baskets too.
The requisite food basket is converted into expenditure level; or the associated income level for
arriving at a poverty line.
158
A.
Earlier Estimates (Not important from Examination’s point of view)
At various times, estimates have been made by different study groups, which are
presented below:
(i) Estimate of Dandekar and Rath
For estimating the extent of poverty in India: Dandekar and the Rath do not accept the poverty
line drawn by the distinguished study group set up by the Planning Commission. Whereas Planning
Commission accepts Rs. 20 per capita per month (or Rs. 240 per annum) as the minimum desirable
standard, they suggest that it would not be fair to use this figure for both the urban and rural areas.
They, therefore, suggest somewhat lower minimum for rural population i.e. Rs. 180 per capita
per annum, the corresponding figure for the rural and urban population work out to be Rs. 324 and Rs.
486 per capita per annum respectively interpolating at the same basis, Dandekar and Rath have
estimated that in 1968-69 about 400 of the population lived below the poverty line. The total number of
the persons living below tile poverty line showed an increase from 177m in 1960-61 to 216 m in 196869, but there was no change in the percentage of rural and urban poor to the population in the two
years -it stood at 41 percent.
(ii) Ojha’s Estimate of Poverty
P.O. Ojha has estimated the number of persons below the poverty line on the basis of an
average calorie intake of 2250 per capita per day. This entailed monthly per capita consumption
expenditure of Rs. 15-18 (at 1960-61 prices) in urban areas and of Rs. 8-11 in rural areas. On the basis
Ojha has estimated that 184 m persons in rural areas (51.8 percent of rural population) and 6 m
persons in the urban areas (7.6 percent of urban population) lived below the poverty line. For
the country as a whole, 190 m persons (44 percent of total population) could be classed as poor in
1960-61.
For 1967-68, he estimated that 289 m persons (70 percent of the rural population) lived below
the poverty line. He therefore concludes; “Compared to 1960-61, the nutritional deficiency in rural areas
widened considerably in 1967-68. As compared to only 52 percent of the rural population in 1960-61,
70 percent of the population in 1967-68 was found to be below the poverty level”.
(iii) Estimates of P. K. Bardhan
Bardhan’s poverty line is lower than that of Dandekar and Rath. He has used Rs. 15 per capita
per month at 1960-61 prices for the rural poverty line and Rs. 18 for the urban area using the NSS data
on consumption expenditure and Agricultural labour consumer price Index data for price deflation.
Bardhan finds that in 1968-69 about 55% of the rural population was below the poverty line. He uses
the NSS data on consumption expenditure distribution and the working class Consumer Price Index
Numbers for price deflation to obtain the estimates of poverty in urban areas. His study reveals that in
1968-69 about 41 percent of urban population was below the poverty line. Had Bardhan accepted the
poverty line suggested by the study group of the Planning Commission, incidence of poverty would
have been much greater both in rural and urban areas.
(iv) Estimates of B.S. Minhas
Minhas estimated the extent of poverty in rural India during 1956-57 to 1967-68 period on the
basis of two different poverty lines, one proposed by the study group of the Planning Commission and
second his own which he determines as Rs. 200 per capita year at 1960-61 prices. Minhas rightly
thinks that if tile desirable minimum standard in cities could be achieved with Rs. 240 (at 1960-61 prices
per capita per annum as suggested by the group, the same could be achieved by the rural population
159
with Rs. 200 (at 1960-61 prices) per capita per annum. Although there is an element of arbitrariness in
Minhas approach, yet it is quite logical. For estimating the extent of poverty, like Dandekar and Rath
and Bardhan, Minhas utilizes the data on the distribution of private consumption expenditure by fractile
groups of population available in the different rounds of the NSS. However, use of national income
defaulter by him for computing consumption at 1960-61: prices is not entirely satisfactory.
According to Minhas if poverty line is to be determined at per capita annual consumption of Rs.
240 (at 1960-61 prices) then the absolute number or poor had not changed significantly by between
1956-57 and 1967-68. However the proportion of people below this bare minimum level had steadily
declined from 65.0 percent in 1956-57 to 50.6 percent in 1967-68. If the poverty line is fixed at Rs. 200
(at 1960-61 prices) per capita per annum, as Minhas does not only the proportion of population below
this minimum falls from 52.4 per cent in 1956-57 to 37.1 percent in 1967-68, but the absolute number of
the poor also shows a considerable decline.
(v) Estimates of M.S. Ahluwalia
Ahluwalia has drawn his poverty line at Rs.15 at 1960-61 prices for the rural populations and
has used Consumer Price Index for agricultural labourers to adjust the poverty line to prices prevailing
in each year. According to estimate, 54.1 percent of rural population in 1956-57 was below the poverty
line. This percentage declined to 38.9 percent in 1960-61. Again it rose to 56.5 percent in 1966-67.
Again it declined to 46.1 percent in 1973-74. Ahluwalia’s study is important in the sense that it covers
the longest period i.e. from 1957-58 to 1973-74. This study shows that incidence of poverty showed a
tendency to decrease in tile years of good harvests with relatively low food prices and increase in the
years of crop failures with relatively high food prices.
These estimates of poverty in India are now quite old and do not indicate exactly the same
incidence of poverty. One would note that the divergence between the results of the various economists
is quite larger. According to Minhas, only 37.1 percent of the rural population was below the poverty line
in 1967-68, as against Ahluwalia’s estimate of 56.5% and Bardhan’s estimate of 54% in the same year
and Dandekar and Rath’s estimate of 40 percent for 1968-69. Ahluwalia, Bardhan and Dandekar and
Rath have determined poverty line slightly lower than the one determined by Minhas, and yet incidence
of poverty according to their estimates is greater than what is indicated by Minhas’s estimates.
The Planning Commission Working Group (1962) gave a figure of minimum consumption
expenditure of Rs. 100 (at 1960-61 prices) for a family of 5 persons. It also suggested that for urban
areas the line be set at Rs. 25 per capita, per month, in view of the higher cost of living. By implication,
the corresponding figure for rural areas came out to be Rs. 18.90.
8.3
PLANNING COMMISSION AND ESTIMATES OF POVERTY
The Planning Commission in India has been preparing estimates of the proposition and number
of poor in the country. Such estimates were prepared in 1972-73, 1977-78, 1983-84, 1987--88 and
1993-94. These were based on the concept of poverty line and data on household expenditure
obtained through N.S.S. rounds. Following the recommendation of task force on protection of minimum
needs and effective consumption demand (1979), the poverty line was defined as the per capita
monthly expenditure needed to obtain calorie norms of 2400 per capita per day in rural areas and 2100
per capita per day in urban areas in base year 1973-74. The poverty line so defined was Rs. 49.19 for
rural areas and 56.60 urban areas. In recent years, tile Planning Commission has estimated the
incidence of poverty in India taking Rs. 77 per capita per month at ,1979-80 prices as the base
minimum consumption for drawing the poverty line for the Rural Population.
160
Table 1 : Number and Percentage of Population Below Poverty Line
(Percentage)
Areas/Year
1972-73
1977-78
Rural
56.4
53.1
Urban
49.0
All India
54.9
1983-84
1987-88
1993-94
145.7
39.1
37.3
45.2
40.8
38.2
32.4
51.3
44.5
38.9
36.0
Source: Planning Commission, Eco. Survey 1998.
These estimates shows that the proportion of Rural as well as urban population living below the
poverty line has declined. The total percentage of poverty both in Rural and Urban declined from 51.5
percentage in 1972-73 to 29.9 percentage in 1987-88 and 18.96 percentage in 1993-94.
Table 2 : Number and Percentage of Population Below Poverty Line
(Number in Million and Poverty Ratio in Percentage)
Year
Rural Sector
Urban Sector
Combined All India
Number
Poverty
Number
Poverty
Number
Poverty
(million)
ratio
(Million)
ratio
(million)
ratio
1973-74
261
56.4
60
49.0
321
54.9
1977-78
264
53.1
65
45.2
329
51.3
1983
252
45.7
71
40.8
323
44.5
1987-88
232
39.1
75
38.2
307
38.9
1993-94
244
37.3
76
32.4
320
36.0
Source : Planning Commission, Eco. Survey 1998-99.
Table 3 : Poverty Incidence and Growth Rates in India and
Selected Asian Countries (1975-95)
(in per cent)
Country
Poverty
Poverty
Annual Reduction in
Average GDP
Average GDP
ratio
ratio
1975-95
growth 1970-80
growth 1980-95
1975
1995
Percentage point
India
54.9
36.0
0.9
3.2
5.6
China
59.6
22.2
1.9
5.0
11.1
Indonesia
64.3
11.4
2.6
7.8
6.6
Korea
23.0
5.0
0.9
9.0
8.7
Malaysia
17.4
4.3
0.7
7.8
6.4
Philippines
3.7
25.5
0.5
6.2
1.4
Thailand
8.1
0.9
0.4
7.2
7.9
Source: For India, Planning Commission, for other World Bank Report on Social Consequences of the
East Asian Financial Crisis, September, 1988, Eco. Survey 1998-99.
Note : For India, poverty ratio refers to the years 1973 and 1983 respectively and GDP growth rates
are based on old series with base 1980-81.
161
The poverty ratio has declined from 55 percent in 1973-74 to 36 percent in 1993-94 (Table 3).
Large Sample surveys on common expenditure on the basis of which poverty ratios estimated are not
available in subsequent years.
Although reduction of the overall poverty ratio in India from 55 per cent to 36 per cent during a
period of two decades is significant, India’s performance in poverty reduction has been weak as
compared with some of the East Asian Countries. It may be observed from Table-3 that the success of
some of the East Asian Countries (like China. and Indonesia) lies in faster economic growth. In general,
the faster the rate of overall growth, the faster is the rate of poverty reduction. It is, therefore,
reasonable to expect that a sustained and long lasting solution to the problem of poverty depends on
creation of opportunities for broad based economic development and higher growth.
8.3.1 Expert Group Methodology of 1993 and Planning Commission
The Planning Commission constituted an expert group in 1989 for considering methodology and
computational aspect for estimating proportion and numbers of poor people in the country. It retained
the concept of poverty as recommended by the task force. The working group recommended certain
basic changes in the price deflates to update the poverty line for its application in later years. This
group suggested the use of state specific price indices which can reflect the changes in the cost of
consumption basket of the people around the poverty line, it also relied exclusively on the N.S.S. data
on consumption expenditure to assess the incidence of poverty without adjusting the N.S.S.
consumption to that obtained from Macro aggregates to national accounts. The estimates of
percentage of population living, below poverty line, the report of this group was submitted in July, 1993.
The estimates of poverty in the country are made at national and state level by the Planning
Commission at an interval of approximately five years from the large sample survey data on consumer
expenditure conducted by the National Sample Survey Organisation (NSSO). Comparable estimates
based on a consistent methodology and data set are available until 1999-2000. These estimates show
a secular decline in the poverty ratio, though the number of poor remained stable for a fairly long period
of three decades (1973-2000) as shown in Table 4 mainly due to increase in population.
Table 4 : Estimates of Poverty
1999-2000
Year
1973-74
1977-78
1983
1987-88
1993-94
30-day recall 7-day recall
All India
54.9
51.3
44.5
38.9
36.0
26.10
23.33
Rural
56.4
53.1
45.7
39.1
37.3
27.09
24.02
Urban
49.0
45.2
40.8
38.2
32.4
23.62
21.59
Source : Planning Commission.
Some of the key results of the latest large sample survey data on consumer expenditure have
been made available by the NSSO from its 55th Round Survey (July 99 to June 2000). In this Round,
the NSSO introduced certain innovations in the manner and method of data collection which may have
a bearing on the compatibility of the poverty estimates made from this Round relative to earlier Rounds.
Using the 55th Round, two separate estimates -(1) 30 day recall (2) 7 day recall -have been made,
which give all India poverty estimates as 26.1 percent and 23.33 percent respectively. Because of
changes in methodology of data collection, these two sets of estimates are not strictly comparable to
earlier estimates.
According to U.N.D.P. estimates, the number of people living below poverty line was 40 percent
in 1992. Compared with this, in China only 9 percent and in Pakistan 28 percent were living below
poverty line.
162
8.3.2 Eighth Plan
The choice of poverty line is but one step in measuring poverty, the notions of ‘how many’ and
‘how poor’ from the other. But these are crucial steps, so let me elaborate.
The Planning Commission has projected poverty ratios for 1996-97 on the basis of :
(a) observed trend in 1993-94 and other earlier years.
(b) the impact of 6.5 percent overall growth rate realised in the Eighth Plan; and
(c) 3.7 percent growth rate in agriculture.
Table 5 shows that the incidence of poverty had declined to 30.6% in rural, 25.6% in urban and
29.2% for the country as a whole. The trend rate of decline of poverty during the period 1973--74 and
1993-94 was from 55% to 36%, indicating an average decline in poverty ratio at the rate of 1% per
annum, while during the period 1993-94 and 1996-97, the decline in poverty ratio is at an annual
average rate of about 2.3 percent. This is a matter of great satisfaction.
Table 5: Projections of National Poverty Ratios
(Percent)
Region
1993-94
1996-97
Rural
37.3
30.6
Urban
32.4
25.6
It was noticed that the decline in poverty ratios has been uneven among the states. The pace of
poverty reduction was relatively rapid in Kerala, Andhra Pradesh, Tamil Nadu, Gujarat, Punjab and
West Bengal. The decline in poverty ratio, however, was not enough to reduce the number of poor in
eight major states. The average 7.5 per cent growth perspective over the course of the Ninth Plan is
estimated as 18.6 percent in rural areas, 16.5 percent in urban areas and 17.7 percent for the country
as a whole. By the end of the perspective period (2011-12) the poverty ratio is projected to be less than
five percent.
A.K. Sen, S. Anand, A Beckerman, H. Takayama, D. Ulph, M. Orshansky and several others
attempted to described the complete picture of poverty, in their own respective ways. Consequently,
each one of them has an index of Poverty against his name. But Sen’s poverty index remained popular
in the literature on poverty.
Whereas the Head-count Ratio just counted the number, Sen’s Index recognizes the income
deficits (poverty-gaps) and their distribution as well. Naturally, the index conveys much more
information on poverty than the traditional measure (H = p/n). Where H=Head-Count Ration, P=Number
of Poor, N=Size of population.
Now we are ready to observe the poverty scene, and the variations thereof.
8.3.3
MULTIDIMENSIONAL POVERTY INDEX (2010) AND LATEST POVERTY ESTIMATES
Following Human Development Report’ 2010, India is not favourably placed as regards povety.
The HDR 2010 measures poverty in terms of new parameter, namely Multidimensional Poverty
Index (MPI), which has replaced the Human Poverty Index (HPI) (used since 1997).
The MPI indicates the share of the population that is multidimensionally poor adjusted by the
intensity of deprivation in terms of living standards, health, and education. According to this parameter,
India with a poverty index of 0.296 and poverty ratios of 41.6 per cent (in terms of PPP $ 1.25 a day)
and 28.6 per cent (as per national poverty line indicator) is not favourably placed when compared with
163
coutries like China and Sri Lanka. In fact, the difference in population below the poverty line (BPL)
widens substantially in case of India when this indicator is used instead of the national poverty line
indicator, while for other countries, there is less of a difference and in some cases even there is
negative difference i.e. it is on lower side. (Table 6).
Table 6 : Multidimensional Povery Index
Population below Income Poverty Line
Country
Multidimensional
PPP $ 1.25
National Poverty
Poverty Index*
a day
Line
2000-2008**
2000-2008**
2000-2008**
Poland
- (41)
Less than 2
14.8
Malaysia
- (57)
Less than 2
12.8
Russia
0.005(65)
Less than 2
19.6
Brazil
0.039 (73)
5.2
21.5
Turkey
0.039 (83)
2.6
27
China
0.056(89)
15.9
2.8
Sri Lanka
0.021(91)
14
22.7
Thailand
0.006(92)
Less than 2
-
Phillippines
0.067(97)
22.6
-
Egypt
0.026(101)
Less than 2
16.7
Indonesia
0.095 (108)
29.4
16.7
South Africa
0.014(110)
26.2
22.0
Vietnam
0.075(113)
21.5
28.9
India
0.296(119)
41.6
28.6
Pakistan
0.275(125)
22.6
-
Kenya
0.302(128)
19.7
46.6
Bangladesh
0.291(129)
49.6
40.0
Source : HDR 2010 c.f. Eco. Survey 2010-Ò, update data
Note : * Not all indicators were available for all countries; Caution should thus be used in cross-country
comparisons.
** Data refer to the most recent year available during the period specified.
Figures in parentheses in Column 2 give ranking among 169 countries.
The Planning Commission which is the nodal agency for estimating the number and proportion
of people living below the poverty line at national and State levels, separately for rural and uban areas,
makes poverty estimates based on a large sample survey of household consumption expenditure
carried out by the National Sample Survey Organization (NSSO) after an interval of approximately five
years. The Commission has been estimating the poverty line and poverty ratio since 1997 on the basis
of the methodology spelt out in the report of the Expert Group on ‘Estimation of Number and Proportion
of Poor’ (known as Lakdawala Committee Report). On the basis of NSS 61st Round (July 2004 to June
164
2005) consumer expenditure data, the poverty ratio is estimated at 28.3 per cent in rural areas, 25.7
per cent in urban areas, and 27.5 per cent for the country as a whole in 2004-05 using uniform recall
period (URP). In URP, consumer expenditure data for all the items are collected for a 30-day recall
period.
Based on mixed recall period (MRP) for the same period, the poverty ratios are 21.8 per cent in
rural areas, 21.7 per cent in urban areas, and 21.8 per cent for the country as a whole. In MRP,
consumer expenditure data for five non-food items, namely clothing, footwear, durable goods,
education and institutional medical expenses, are collected for a 365-day recall period and the
consumption data for the remaining items are collected for a 30-day recall period.
The poverty estimate in 2004-05 based on URP consumption (27.5%) is comparable to that of
1993-94(36 %). The poverty estimates in 2004-05 based on MRP consumption (about 21.8%) is
roughly(but not strictly) comparable to that of 1999-2000. Table 9 shows the comparable poverty
estimates based on the URP and MRP methods.
Table 7 : Poverty Ratios By URP and MRP
(in percentage)
Sr. No. Category
By URP Method
Years
1993-94
2004-05
Rural
Urban
37.3
32.4
28.3
25.7
All India
36.0
1999-2000
27.5
2004-05
4.
5.
Rural
Urban
27.1
23.6
21.8
21.7
6.
All India
26.1
21.8
1.
2.
3.
By MRP Method
Source : Planning Commission c.f. Eco Survey 2010-11
8.4
METHODOLOGY FOR ESTIMATION OF POVERTY AND BPL HOUSEHOLDS:
RECENT SITUATION
While the estimation of poverty at national and State levels, separately for rural and urban
areas, is done by the Planning Commission, the Ministry of Rural Development has been conducting
the BPL census to identify individual households below the poverty line in rural areas while ensuring
that the total number of such households corresponds, to the Planning Commission estimates. The
methodology of estimating poverty and the identification of BPL households have been a matter of
debate. Two committees under the chairmanship of Prof. Suresh D. Tendulkar and Dr. N.C. Saxena
have submitted their reports on methodology for estimation of poverty and methodology for conducting
BPL census in Rural areas, respectively. Further, an expert Group under the chairmanship of Prof. S.R.
Hasim has been set up to recommend methodology for identification of BPL families in urban areas as
follows.
Expert Groups For Estimating Poverty and BPL Families in Recent Times are as follows:
I.
Tendulkar Committee Report to Review the Methodology for Estimation of
Poverty
The Planning Commission constituted an Expert Group in December 2005 under the
chairmanship of Professor Suresh D.Tendulkar to review the methodology for estimation of poverty.
The Expert Group submitted its report in December 2009. While acknowledging the multidimensional
165
nature of poverty, the Expert Group recommended moving away from anchoring poverty lines to the
calorie - intake norm to adopting MRP based estimates of consumption expenditure as the basis for
future poverty lines and MRP equivalent of the urban poverty line baksket (PLB) corresponding to 25.7
per cent urban headcount ratio as the new reference PLB for rural areas. On the basis of the above
methodology, the all-Indian rural poverty headcount ratio for 2004-05 was estimated at 41.8 per cent,
urban at 25.7 per cent, and all-India at 37.2 per cent. It may, however, be mentioned that the Tendulkar
Committee’s estimates are not strictly comparable to the official poverty estimates because of different
methodologies. The relevant estimates for 1993-94 and 2004-05 are shown in the Table 8.
Table 8: Poverty Ratios (1993-94 and 2004-05)
1993-94
Year
Planning Commission (URP)
2004-05
Rural
Urban
Total
Rural
Urban
Total
37.3
32.4
36.0
28.3
25.7
27.5
50.1
31.8
45.3
41.8
25.7
37.2
Tendulkar Estimates
(2004-05) (MRP)
Source : Eco. Survey, 2010-11
As has been indicated in the Mid Term Appraisal of the Eleventh Five Year Plan, the revised
poverty lines for 2004-05 as recommended by the Tendulkar Committee have been accepted by the
Planning Commission. The Tendulkar Committee has specifically pointed out that the upward revision
in the percentage of rural poverty in 2004-05, resulting from the application of a new rural poverty line
should not be interpreted as implying that the extent of poverty has increased over time. These
estimates, as reported by the Committee, clearly show that whether we use the old method or the new,
the percentage of BPL, population has declined by about the same magnitude.
II.
Saxena Committee Report to Review the Methodology for Conducting BPL Census
in Rural Areas
An expert Group headed by Dr. N.C. Saxena was constituted by the Ministry of Rural
Development to recommend suitable methodology for identification of BPL families in rural areas. The
Expert Group submitted its report in August 2009 and recommended doing away with score-based
ranking of rural households followed for the BPL census 2002. The Committee has recommended
automatic exclusion of some privileged sections and automatic inclusion of certain deprived and
vulnerable sections of society, and a survey for the remaining population to rank them on a scale of 10.
Automatic Exclusion

Households that fulfil any of the following conditions will not be surveyed for BPL census.

Families who own double the land of the district average of agricultural land per agricultural
household if partially or wholly irrigated (three times if completely unirrigated).

Families that have three or four wheeled motorized vehicles, such as, Jeep and SUVs.

Families that have at least one mechanized farm equipment, such as, tractors, power tillers,
threshers and harvesters.

Families that have any person who is drawing a salary of over Rs. 10,000 per month in a nongovernment/private organization or is employed in government on a regular basis with
pensionary or equivalent benefits.

Income tax payers.
Automatic Inclusion
166
The following would be compulsorily included in the BPL list:

Designated primitive tribal groups.

Designated most discriminated against SC groups, called Maha Dalit groups.

Single women-headed households.

Households with a disabled person as breadwinner.

Households headed by a minor.

Destitute households which are dependent predominantly on aims for survival.

Homeless households.

Households that have a bonded labourer as member.
Survey of the remaining rural households is to be conducted and scores given depending upon
the different socio-economic parameters recommended by the committee. The Ministry of Rural
Development is in the process of conducting the pilot studies and participatory rural appraisal (PRA)
exercises to fine tune the methodology.
III.
World Bank
The World Bank’s criteria are different from those adopted in India. Projected poverty reduction
during the 11th five-year plan takes into account income levels that are different for urban and rural
areas in all the states, instead of the international poverty line. In the last three plans, different criteria
have been used to identify the poor - income was the basis in 1992 while it was consumption patterns
in 1997. World Bank StudyAccording to the data revealed by the World Bank, India has brought down
the number of people living below $ 1 a day by 2 percentage point to 24.3 per cent in three years
between 2005 and 2008. It happened because of the fact that Asia’s third largest economy accelerated
to seven per cent plus growth in those years.
In absolute numbers, 9.6 million people came out of poverty between 2002 and 2005, the
largest reduction between two consecutive surveys released by World Bank since 1981. If $ 1.25 per
day is taken as a benchmark for defining the poverty line, then 4.7 million people in India came out of
poverty during 2005-2008.
World Bank also presents the view that India has upwardly adjusted the cost of living among
developing nations to $ 1.25 per day against $ 1 per day.
World Bank data show improvements on all three categories of poverty measurements. On
measuring poverty as below $ 1 per day, poverty percentage comes down to 24.3% in 2005 from
26.3% of 2002. On standards below $ 1.25 per day, poverty reduced to 41.6% in 2005 from 43.9% in
2002 and even on criteria of $ 2 per day, poverty percentage has come down to 75.6% in 2005 from
77.5% in 2002.
World Bank says that high GDP growth in India has reduced poverty. However, to achieve a
higher rate of poverty reduction. India will also need to address inequalities in opportunities that impede
the poor from participating in the growth process.(Table 9).
Table 9 : Poverty Reduction in India
167
(Figures in %)
1990
1993
1996
1999
2002
2005
India
33.3
31.1
28.6
27
26.3
24.3
World
29.9
26.9
23.5
22.8
20.8
16.1
India
51.3
49.4
46.6
44.8
43.9
41.6
World
41.7
38.9
34.7
33.7
31.1
25.7
India
82.6
81.7
79.8
78.4
77.5
75.6
World
63.1
61.4
58.3
57
53.6
47.6
Below $ 1 A Day
Below $ 1.25 A Day
Below $ 2 A Day
Self Assessment Question/ Activity
Q.
Mention Poverty lines as per World Bank’s criterion and its incidence in India.
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
IV
Rangrajan Committee Report (2014) : Methodology for Poverty
With Rangarajan Committee Report (June 2014), we now have yet another methodology for
measurement of poverty. The main criticism of the Tendulkar methodology was that its poverty lines
had no explicit normative context and were based on the level of urban poverty as obtained from the
earlier Lakdawala methodology. Rangarajan’s brief was to arrive at normative poverty lines more widely
acceptable than Tendulkar’s. Rangarajan has attempted to extend the normative concerns beyond food
to some basic non-food essential like clothing, education, home rent and conveyance and what was
actually spent on these by those at the relevant fractiles class. This takes Rangarajan’s final 2011-12
poverty lines from B933 to 972 per capita per month in rural areas and from B1,181 to B1,407 per
capita per month in urban areas. The corresponding final Rangarajan poverty estimates are 30.9 per
cent rural and 26.4 per cent urban which although only modestly more than Tandulkar in rural areas
nearly doubles for urban poverty. (Table 9)
Table 9 A : Number and Percentage of Poor*
168
Year
Poverty Line
Number of Poor
(million)
(in B)
Poverty Ratio
(%)
Rural
Urban
Rural
Urban
Total
Rural
Urban
Total
1993-94
-
-
328.6
326.3
403.7
50.1
31.8
45.3
2004-05
446.68
578.80
216.5
74.5
407.1
41.8
25.7
37.2
2011-12
816.00
1000.00
80.8
52.8
269.3
25.7
13.7
12.9
0.75
0.55
0.74
2.32
1.69
2.18
Annual Average Decline :
1993-94 to 2004-05
(Percentage points per annum)
Annual Average Decline :
2004-05 to 2011-12
(per annum, percentage)
Note * Estimated Tendulkar Method.
Source : Plan Drafts, Planning Commission. Economic Survey 2012-13, 2013-14, 2014-15.
Poverty estimates based on the Tendulkar Committee methodology using household
consumption expenditure survey data collected by the NSSO in its 68th round (2011-12) shows that the
incidence of poverty declined from 37.2 per cent in 2004-05 to 21.9 per cent in 2011-12 for the country
as a whole, with a sharper decline in the number of rural poor. While the rural poverty ratio declined
from 41.8 per cent in 2004-05 to 25.7 per cent in 2011-12, the urban poverty ratio declined from 25.7
per cent in 2004-05 to 13.7 per cent in 2011-12. The rural poverty ratio still remains much higher than
the urban. The high rural poverty can be attributed to lower farm incomes due to subsistence
agriculture, lack of sustainable livelihoods in rural areas, impact of rise in prices of food.
Self Assessment Question
Q.
Mention the change in poverty ratio during the periods 1993-94 to 2004-05 and 2004-05 to
2011-12
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
8.5
POVERTY REDUCTION IN POST-REFORMS PERIOD
The new poverty data reveals that the poverty levels fell around 0.86% points per year between
1993-94 and 2004-05 i.e., post reform period which is marginally higher than the 0.81 per centage
points between 1983 and 1993-94 (i.e., pre-reforms period). However, the rate of decline in poverty in
the post-reforms period is faster because poverty declined by 1.8% per annum between 1983 and
1993-94 but his poverty decline rate rose to 3.3% per annum between 1999-2000 and 2004-05.
The percentage of poor in 2004-05 estimated from URP consumption distribution of NSS 61st
Round of consumer expenditure data are comparable with the poverty estimates of 1993-94 (50th
round) which was 36 per cent for the country as a whole. The percentage of poor in 2004-05 estimated
from MRP consumption distribution of NSS 61st Round of consumer expenditure data are roughly
169
comparable with the poverty estimates of 1999-2000 (55th round) which was 26.1 per cent for the
country as a whole.
8.5.1
Latest Position
Poverty has declined in the country, though how poverty is measured is currently being
examined. Based on the methodology suggested by the Tendulkar committee, the percentage of
people living below the poverty line in the country declined from 37.2 p.c. in 2004-05 to 29.8 p.c. in
2009-10. Even in absolute terms, the number of poor people declined by 52.4 million during this period.
Of this, 48.1 million are rural poor and 4.3 million urban poor. Thus poverty has declined on the average
by 1.5 percentage points per year between 2004-05 to 2009-10. This annual average rate of decline
(during 2004-05 to 2009-10) is twice the rate of decline during the period 1993-94 to 2004-05.
Today (in 2022), two thirds i.e. 68.8 percent of Indian population lives below poverty line of $2 a
day and 30 percent even less than $1.25 per day. India is second most populated country in the world
after China.
8.5.2
NSSO Report : Consumption Expenditure in Rural & Urban Areas
According to the the NSSO’s report on the level and pattern of consumer expenditure in 200405, nearly 20% of the Indian population (about 250 million people) spent less than Rs. 14 per person
per day on consumption during 2004-05. The average Monthly Per capita Consumer Expenditure
(MPCE) in 2004-05 stood at Rs. 559 in rural India and Rs. 1052 in Urban India. NSSO data reveals that
rural population on an average spends about 55% of its consumption of food and remaining 45% on
non-food items.
In terms of MPCE of the rural population, Orissa, Chhatisgarh, Madhya Pradesh, Bihar,
Jharkhand and Uttar Pradesh have been categorised as poorest states in the country. Compared with
30% at the all India level, about 55% to 57% of rural people in Orissa and Chhattisgarh were found
living below the MPCE level of Rs. 365 or Rs. 12 a day in 2004-05. Report also reveals that nearly 10%
of the nationwide rural population spent just Rs. 9 per day.
Urban scenario is slightly better off, with 30% being able to spend Rs. 580 per month or Rs. 19
per day. Urban poverty seems to be concentrated in those states where rural poverty is also high. In
Bihar as much as 55% of urban population spent Rs. 19 per day, followed by Orissa (50%), Uttar
Pradesh and Chhattisgarh (44% each). Madhya Pradesh (43%) and Rajasthan (36%).
The report also notices a few important features like 1.
Between 1972-73 and 2004-05, the share of food in total consumer expenditure also fell from
73% to 55% in rural areas and from 64% to 42% in the urban areas.
2.
Quantity of cereals consumed per person per month declined between 1993-94 and 2004-05
(from 13.4 kg to 12.1 kg in rural India and from 10-6 kg to 9.9 kg in Urban India.)
3.
About 5% of the urban population of India in 2004-05 had monthly per capita consumer
expenditure of Rs. 2540 or more. Another 5% spent between Rs. 1880 and Rs. 2540.
8.6
GLOBAL HUNGER INDEX AND INDIA’S POSITION
Washington-based International Food Policy Research Institute has presented latest report
entitled, The World’s Most Deprived : Characteristics and Causes of Extreme Poverty and
Hunger”. The report presents the latest hunger scenario in different nations using Global Hunger Index
(GHI). India has been ranked at 97th place among 118 developing countries according to global
Hunger India. India's rank has dropped to 101/116 countries in Global Hunger Index, 2021.
170
Unfortunately, India’s rank is well below all its neighbours, barring Bangladesh, and falls in the
category in which the hunger situation is deemed as ‘alarming’. Even Nepal is four ranks above India.
8.7
SUMMARY
The summary has been presented in the form of Flow Chart :
NSSO
Tendulkar Committee
Appendix : Poverty Ratios Across States
8.8
GLOSSARY

Absolute Poverty: If a person has meagra income or consumption expenditure that he lives
below minimum substance level.

Relative Poverty: People with lower incomes are poorer relative to those with higher income.

Poverty Line: Monitory transformation of some minimum nutritional requirements.
8.9
REFERENCES

Government of India. Economic Survey. Various issues.

World Bank Report on Social Consequences of the East Asian Financial Crisis, Sept (1988). c.f.
Economic Survey 1998-99

Human Development Report. 2010. UNDP.

Kapila, Uma (2016). Indian Economy. Academic Foundation.
8.10
FURTHER READINGS

Kapila Uma (2016). Indian Economy since indepence. Academic Foundation New Delhi.

Misra and Puri (2017). Indian Economy. Himalaya Publication House.

Datt and Mahajan (2017). Indian Economy. S. Chand Publications
8.11
1.
MODEL QUESTIONS
What is poverty line? What is the extent of poverty in India.
171
2.
3.
4.
What do you know about problem of poverty in India?
List out various causes of poverty problem in India?
Comment upon various programmes started by Government of India to tacks the problem of
poverty in India? (see next chapter)
Note : During last few year, officially committees have been set up by planning Commission and Prime
Minister office to decide about the poverty line. You can mention the latest estimates/poverty
lines.
APPENDIX
1.
The Multi Dimensional Poverty, based on NITI Ayog, Report by NFHS, 2015-16 shows that
Poverty Ratio was as high as 32.75 percent in rural areas and 8.81 per cent in urban areas.
2.
NITI Ayog (2021) estimated that 25 percent of population in India is poor on average.
3.
See P 181 & 182 for estimates.
State-wise Poverty Situation in 2011-12
(in %)
Population below
poverty line
Rural poverty
Urban poverty
Total poverty
Less than 10
Goa, Punjab,
Himachal Pradesh,
Kerala, Sikkim
Goa, Sikkim, Himachal
Pradesh, J&K, Mizoram,
Kerala, Andhra Pradesh,
Tamil Nadu, Meghalaya,
Maharashtra, Punjab,
Tripura
Goa, Kerala, Himachal
Pradesh, Sikkim, Punjab,
Andra Pradesh
10 to 20
Andhra Pradesh,
Haryana, Meghalaya,
Rajasthan, J&K,
Nagaland, Tripura,
Tamil Nadhu,
Uttarakhand
Gujarat, Haryana,
Uttarkhand, Rajasthan,
West Bengal, Karnataka,
Nagaland, Odisha
J&K, Haryana,
Uttarakhand, Tamil Nadhu,
Meghalaya, Tripura,
Rajasthan, Gujarat,
Maharashtra, Nagaland,
West Bengal
20 to 30
Gujarat, West
Bengal, Maharashtra,
Karnataka
Arunachal Pradesh,
Assam, Madhya
Pradesh, Chhattisgarh,
Jharkhand, Uttar
Pradesh
Mizoram, Karnataka, Uttar
Pradesh
30 to 40
Arunachal Pradesh,
Manipur, Madhya
Pradesh, Assam,
Uttar Pradesh, Bihar,
Odisha, Mizoram
Bihar, Manipur
Madhya Pradesh, Assam,
Odisha, Bihar, Arunachal
Pradesh, Manipur,
Jharkhand, Chhattisgarh
Above 40
Jharkhand,
Chhattisgarh
Source : Based on NITI Aayog estimates, 2011-12, see for latest (Activity).
Economic Survey 2015-16. c.f. Uma Kapila, 2016
172
Lesson-9
POVERTY IN INDIA -II
[Causes and Poverty Alleviation Programmes]
Structure
9.0
9.1
9.2
9.3
9.4
9.5
9.6
9.7
9.8
9.9
9.10
9.11
9.12
9.13
9.14
9.15
9.16
Objectives
Introduction
Poverty: The Socio-Economic Process
Down/Below the Poverty Line: Who are they?
Poverty in India : Causes
Alleviating Poverty : The Indian Experience
Anti-Poverty Programmes: (In the Pre-Reforms Period & Decade of 90s)
Critical Evaluation of Programmes
Recent Poverty Alleviation Programmes
Millenium Development Goals to be achieved by 2015
Impact of Economic Reforms on Poverty
Recent Poverty Allievation Programmes
Word Bank Report
Summary
References
Further Readings
Model Questions
9.0
OBJECTIVES
After going through this lesson script you shall be able to :

discuss the various anti-poverty programmes in India.

analyse the impact of economic reforms on poverty.
9.1
INTRODUCTION
In the previous lessons, you have learnt about the nature and extent of poverty problem in India
along with its various dismensions small urban and its causes. You have also studied about the growth
of employment in India under various five years plans.
9.2
POVERTY: THE SOCIO-ECONOMIC PROCESS
If we go by the official figures then a significant decline in the incidence of poverty is observed.
But several keen observers of the Indian scene point out that the official procedure of up-dating the
poverty line, and hence the reported incidence of poverty, is incorrect. Going by the revised procedures
of these authorities one can state that the poverty graph is much more adamant than the government
wishes us to believe.
Thus the problem of poverty continues to pose a threat to our collective existence; it demands a
serious attention and corrective measures. But suitable ways of tackling the problem cannot be evolved
in a vacuum. The process of poverty generation has to be understood at the first instance. So let me
spend some time on this aspect.
173
As per the latest World Inequality Report 2022, India is a "poor and very unequal country with
bottom 50 pc people having share of 13 percent national income in 2021, while top 10 percent hold 57
percent of national income.
According to NITI Ayog's first Multidimensional Poverty Index Report 2021, the National
Multinational Poverty Index (MPI) Score of India is 0.118 (using 12 indicators).
9.2
POVERTY: THE SOCIO-ECONOMIC PROCESS
No doubt we are living in the age of individuality but the individual has a meaning only in the
social context. Furthermore, for a society as ours, it is the household or family that comprises the basic
unit of our socio-economic existence. Therefore one should focus on the operations of a household for
understanding poverty. Abstracting from many a complexities, the main interactions shown in the flow
chart (see Fig.).
Every family possesses same stock of wealth, labour power, information poor and a set of
attitudes and beliefs. It belongs to a caste, social or economic group and on area. Besides these
localities, the state also enters as an intervening and supervisory organ. At any instance of time a
variety of economic opportunities are available to the household. Given its endowments, the household
participates in different activities as an economic unit. The nature and extent of its participation is
determined by the endorsements, paragraph pressure, legislature, and the objectives of the family. It is
institutional arrangement given the level of development, that decides the economic compensation for
the participants-wage rate, interest, rent and profits.
In addition, there is a two way interaction with the State Organ and Social net-work. The sum
total of these : net returns, extending over a period, is the flow of income :
Yn = Wage and salaries + income from property (i.e. Interest, profits, and Rent) + net Transfer
payments.
Notice that assets, abilities, opportunities, institution and individual propensities have been
treated to determine this pool. Of course, chance also has a role in deciding the economic fate but you
cannot count on it. If you could control that mystery (chance) then you won’t call it chance.
FLOW CHART: THE HOUSEHOLD AND THE SOCIO - ECONOMIC SETTING
174
It is this entity, the household income that limit its command over goods and services. Compare
this income with the incomes of all other units, you might sense inequality. Weigh this income, or the
corresponding expenditure, against a pre-determined level (the poverty line), you classify, the units, into
‘poor’ and ‘non-poor’. So the poverty status is an officially determined classification of the population. It
need not reflect the true levels of deprivation and need-satisfaction. But once the poverty-line is fixed
the questions about socio-economic characteristics of the poor, their locational and occupational
attributes receive priority.
"Poverty rate means economic and social corditions characterised by Severe deprivation of
basic needs, including foods, safe drinking water, sanitation facilities & health care and education."
9.3
DOWN/BELOW THE POVERTY LINE: WHO ARE THEY?
The study of poverty is not number game, its calculus requires a bit deeper thought. By now you
must have realized that poverty springs from specific socio-economic milieu. Its perpetuation for
eradication cannot be divorced from the logic of the system itself. The plot of poverty has four major
characters -Poverty (P), Labour (L) Opportunities (O), and Transfers (T). A political system directs this
PLOT to ensure its own survival. Therefore, if poverty persists in system then, rest assured, the system
feeds on the same; the two are co-terminus. Without further probing the real issues at this stage, let us
focus on the visible the characteristics of the poor.
Our familiarity with the socio-economic processes should make it obvious that poverty
manifests.
(i)
Deficiency of productive wealth;
(ii)
Fewer earners the unit;
(iii)
Inadequacy of returns;
(iv)
Lesser opportunities;
(v)
Deficient social services and
(vi)
Inability to seize opportunities;
So the poor families can be perceived as the collectivities of these deficiencies, variously
combined. In certain situations even very simplistic generalizations about the poor are not widely off the
mark. Here is a sample for you :
“One could identify the rural poor with reference to the degree of possession and utilization of
the two assets of land and labour-power”’. Mathew (1981) ;
“The rich households do not consist exclusively of big land holders nor are all big landlords”
‘rich’ “Vaidyanathan” (1974) ;
“Current poverty status can cut across simple farm categories, though the chances of being
poor are much reduced in the medium and large categories”.
“Poverty is not directly linked with low caste status, indebtedness or sale of labour”
“The rural poor consist largely of the landless, marginal and small farmers and other marginal
workers” -Planning Commission (1988).
“Urban poverty is a spill-over of the rural deprivation and lack of regular employment further
aggravates the Malady”
175
“The poorest of the (urban) poor do not develop a foot-hold in life due to erratic job-situation,
intermittent sickness ....”
-Sacithandan and A. Ramesh (1989)
All these popular notions about the poor revolve around lack of assets and employment. At
times certain occupational groups are singled out for the attention. And, in a society wherein
occupational divisions and caste divisions merge to a considerable extent, poverty becomes
automatically linked with caste groups. This is how the issues about reservation of various types spring
up. Crude approximations usually considerable usually bring in mis-classifications. But all said and
done, the problem of absolute poverty remains intimately related with the distribution of assets, and the
lack of regular remunerative employment compounds it further.
9.4
POVERTY IN INDIA: CAUSES
The basic causes for poverty in India are mentioned as following (a) Low per capita Income,
scarcity of capital, unemployment, over-population, Illiteracy etc. No doubt these factors are responsible
for poverty in India but basic causes of poverty in India are different. We give below those causes in
brief.
1. Colonial Exploitation During British Rule
The main cause of poverty in India is the colonial exploitation of this country during British rule.
Throughout the British rule India was mercilessly impoverished. There was huge drain of capital from
India to England. India due to loss of this huge capital could not develop well industrially as well as in
the field of agriculture in 19th century. Failure to Industrialise at the right time led to this stagnation in
the economy and in course of time country was caught in vicious circle of poverty. According to
Dadabhai Naroji, R.C. Dutt and others, this exploitative nature of British rule in the form of drain theory
is the principal cause of all ills, suffering and poverty in India.
2. Semi-Feudal Relations of Production in Agriculture
The zamindari system in India in fact was introduced by Britishers for their convenience. This
system was unjust and exploitative in nature. That is why in free India different states made legislations
in their respective assemblies to abolish this system but fact is that this system of Agriculture
Production is still continuing, we can see this fact from the following data that 70 percent of household
engaged in agriculture possesses 13.8 percent of Agriculture Land and 10 percent of big farmers are
still possessing 56.2 percent of Agriculture Land. These landlords employ agriculture labourers at a
very low wages because of the exploitative nature of landlords. This system of production is also
responsible for poverty of Indian population.
3. Inequalities of Income and Wealth
The inequality of income is also responsible for poverty in India. The extent of inequality can be
seen from the following data: Human Development Report 1994 tells us that in 1960 the rich, 20
percent of population, earned 70 percent of National Income and 20 percent poor earned only 2.3
percent of National Income. In 1993 this disparity has further been widened. The 20 percent rich
possesses 85 percent of National Income and 20 percent of poor possesses only 1.4 percent of
National Income. As Human development Report 2008, the India’s HDI index is 0.60 with rank 132
while Brazil is at 70th rank & China is at 94th rank. No one says equal distribution of wealth will make
everyone rich but there is no doubt that it will ensure the minimum consumption for all. It is generally
agreed in this country that only those who fail to reach the certain minimum consumption standard
should be regarded as poor. The inequalities have increased in the post-reforms period as rich have
become richer and there has been tremendous growth of middle-income class.
176
4. Low Rate of Economic Growth
The process of development had been very slow in India. This slow development has led to
widespread poverty in India. Moreover Indian Planners in the beginning were of the opinion to give
emphasis on growth and this growth will automatically percolate down to poor. But this has not
happened. The benefit of growth has been mainly appropriated by rich; and poor have remained poor.
Even after attaining high rate of growth in post-reforms era, the associated problems of inflation and
participation of private sector etc. have affected poor people badly.
5. Capitalist Relations in Urban Sector
The capitalist system is also responsible for poverty in India in urban sector. The labourers are
exploited by our capitalist structure. These capitalist give them very un-remunerative wages because of
huge unemployment. In urban sector, labour is reduced to state of commodity and it is purchased and
sold like other commodities in the market. The recent MGNREGS has changed scenaris to some
extent. Therefore, in many areas, there is problem of labour-shortage.
6. Other Important reasons are mentioned below :
Rural Poverty
(1)
Rapid Population Growth (1.7 per cent app., 2010)
(2)
Inadequate capital to absorb labour. (Despite high Rate of Capital formation i.e. 37% of
GDP, 2010)
(3)
Execessive Pressure of Population on Agriculture. (52% of pop. dependent on Ag.)
(4)
Lack of alternate employment opportunities (other than agriculture).
(6)
Other reasons : Illiteracy Joint family systemand social backwardness.
Urban Poverty
9.5
(1)
Lack of vocational education (leading to shortage of skilled labour).
(2)
Limited jobs opportunities in cities (compelling more qualified to work at low-standard jobs).
(3)
Migration of rural youth to cities (in search of better opportunities).
ALLEVIATING POVERTY: THE INDIAN EXPERIENCE (In Pre-Reforms Period)
Right from day one of our ‘Tryst with destiny’ we have been very articulate and concerned about
the degraded mass of humanity (the poor) in India. Our first Prime Minister was sentimental about it
and the present one is pretty thoughtful about the same. In between we have had a spate of resolves,
pledges and assaults on poverty. But poverty stays with us..... it is our lasting companion. ‘Trickledown’ and ‘Target-approach’ have been given in fairly longer run; perhaps many more rounds would
figure in the policy documents...... the day of reckoning seems too distant.
Independent India opted for a more or less evolutionary strategy of socio-economic
transformation. Growth rate was the new economic anthem. It was believed that an expansion of the
size of the cake would automatically wipe out hunger; the benefits of development would percolate to
all the sections of our population. That is what is known as the ‘Trickle-down’ thesis.
A socialist, secular and democratic order was to be established, scarcities had to be addressed
at the first instance. But for some cosmetic redistribute policies, the emphasis had been on growth,
productivity and efficiency. Mind you! I am talking only about our declaration; so far as our motives and
practices are concerned, the less said the better. Even the first two decades witnessed significant
177
change in the macro aggregates, starting with an emphasis on ‘basic’ key heavy industries and
infrastructure, agriculture became the central concern in the sixties. Green revolution of the mid-sixties
is counted as one of our major achievements of planned development.
By 1970-71, the economy was vibrating with activity. The scare of food shortages was no longer
haunting. The growth rate consistently outstripped population growth, the rate of saving was picking up.
The state had weaved a plethora of controls and regulations for directing the economic activities. And
then the epitome of our socialistic learnings, the public sector, was being nurtured with great fanfare.
Growth of Poverty : Trickle !! Trickle !! May ‘Trickle-down’
In contrast with the half-century before independence, the per capita income of the economy
was consistently looking up. A steady movement of the terms of trade in favour of agriculture was also
being reported for this time stretch (i.e. between mid-fifties and early seventies). Agricultural
productivity and the production of food grains were also on the up. So growth was there for everyone to
see, if not for everyone to enjoy.
Because, instead of a secular decline in the proportion of the poor, a near stability or an
increase of varied proportions was reported for different states of the Indian Union. Absence of any
discernible trend across states was the most cited conclusion accompanying growth records.
Obviously, the policy of trickle down failed. The benefits of growth spread most unevenly across
states and groups. It appears that the gains of development went with the level of the then existing
riches of the groups and the manipulative skills of an enterprise.
Moreover, the character of growth itself left much to be desired. The NDP growth owed much to
a faster growth of the services sector. The material commodity producing sectors did not experience
any acceleration; on the contrary, even a slight deceleration has been reported by some authors (see
Patnaik, 1987) and the composition of agricultural growth itself has been questioned by many. But it
was the failure on the employment front that was worrying the most.
The concentration of agricultural growth in advanced regions, its capital using and labour
displacing character, marginal increases in the total employment in the organised sector, and ever
expanding urban slums bear testimony to the faulty content of our growth experience. So affluence did
not trickle down but the number of poor did increase. It was realized that growth by itself won’t ensure
reduction of ‘poverty’ highly skewed distribution of assets and access to resources comes in the way.
Specific beneficiary oriented programmes were envisaged for ‘Garibi-Hatao’.
9.6
ANTI-POVERTY PROGRAMMES: FROM ‘GARIBI HATAO’ TO ‘JAWAHAR ROZGAR
YOJANA’ (in pre-reforms period)
Once it was realized that the percolation of increased income to the poor (who were
resourcefulness, by and large, and unskilled workers) was a thin trickle, if at all, a direct assault on
poverty was envisaged. This is how ‘growth with social justice’ and ‘Garibi Hatao’ entered the plan
documents. The mass poverty in India has been an old concept. It was only in free India, the precise
nature and extent of poverty, began to be studied officially and unofficially in a more systematic
manner. Since the inception of 1st Five Year Plan, the govt. ‘started taking various steps to launch an
onslaught on this alarming proportion of poverty. The govt. took measures to accelerate the economic
growth rate. Land Reforms, Expansion of social facilities like education, health etc., encouragement to
cottage and small scale industries, measures to check rapid population growth rate etc. But these steps
were not enough to reduce poverty.
178
179
The govt. was of the opinion that rapid economic growth rate of the country will automatically
reduce poverty in the country. Once country is developed benefits will percolate to poor. But this has
not happened in India. Over the Plan periods Inequalities of Income and wealth have rather increased
and therefore there are more poor people in India, than at the time of Independence. The burden of
growth no doubt has been put on the shoulders of poor. The rich have been allowed, to appropriate all
the gains of growth. This situation has led to widespread discontentment among the poor sections of
population. In face of this challenge, the govt. had to revise its strategy and for the first time in the Fifth
Plan, removal of poverty was one of the main objectives of Planned Economic Development. In the
Fifth Plan, Poverty Alleviation came to be accepted as one of the principal actions of Planning in the
country. There was little change in the approach. But the Planning Commission was clicking to its
earlier understanding that the basic cause of poverty in India was lack of adequate growth and
development. Therefore it continued to give emphasis on rapid growth along with special measures to
remove poverty from the country. At the time of Fifth Plan, 220 million people were estimated to be
below poverty line according to Planning Commission. The govt. found whatever steps had been taken
till Fourth Plan were not sufficient to remove poverty. Therefore since Fifth Plan govt. started taking
certain measures like S.F.D.A., M.F.A.L., D.P.A.P., C.S.R.E., F.W.P. etc. were introduced. Later on
I.R.D.P. was introduced in 1978-79. The N.R.E.P. and R.L.E.G.P were also introduced during Sixth
Five Year Plan. Later on in 1989, NREP and RLEGP programmes were merged into single programme
known as JRY. The IRDP is also being implemented as one of the major instrument for removing
poverty.
At the end of March, 1993 about 21 lakhs families below the poverty line were given income
generating assets with a mixture of credit and subsidy. Besides TRYSEM was introduced in 1979. In
1992-93 alone 2.8 lakhs youth were trained under TRYSEM and JRY schemes.
The imperative laid down for the plan for rural areas of the country is increasing productivity
through a strategy with social justice and providing full employment to the rural sector within a ten year
time frame. As a comprehensive strategy and approach for translating these objectives into specific
programmes the integrated - Rural Development now contemplated involves the multi-pronged attack
on the problem of rural development.
Herein, “a better co-ordination between growth, removal of poverty and employment generation”
was sought through an integration of sectional programmes, spatial dimensions, and social and
economic processes. However, the programme got reduced to just another anti-poverty programme
rather than a strategy for social change.
You might have noticed that all through the focus was on rural poverty. Concentration of
population in rural areas was the dominant motivation for this approach. Moreover, urban poverty itself
was not viewed independent of the rural scene. And, in addition, the ‘urban bias’ in our development
strategy was also to be discounted. Thus a vast net-work of anti-poverty schemes got started in the
country. Let us have an overview:
As a matter of fact, the Govt. of independent India always has had special programmes for the
under privileged. Prior to the seventies, those policies attempted to protect the interests of the
Scheduled Castes and Scheduled Tribes. Even the landless and the tenants had received some
attention. However, since the seventies, more and more programmes have been directed towards
poverty-alleviation.
For the Sixth Plan Period (1980-85), an outlay of Rs. 37,000 million was earmarked for these
poverty programmes (IRDP 15,000; NREP 18,000 and RLEGP 4,000). The Seventh Plan saw an
enhancement of funds allocated for the purpose [for details you can refer to tables A-I to A-III].
With so much attention having been paid to this problem no one would be expecting much
poverty in the country. Alas! it were so. I have two sets of estimates for your consumption (See Table
V). Whichever set you consider, the incidence of poverty is baffling indeed. It seems that the schemes
180
have had very little effect. “One can question the design, implementation, and allocations for these
schemes. All these aspects have been” thoroughly debated in the literature.
Performance of (Existing) Programme in the Nineties
The Finance Minister in his Budget speech for the year 1989-90 announced a new scheme for
intensive employment in backward districts with acute poverty and unemployment. The intention was
that the funds allotted under the new scheme would be an additionality to the existing NREP/RLEGP so
that greater employment opportunities get created in backward areas. However, later it was decided to
merge NREP/RLEGP and the programme (announced by the Finance Minister) into one single rural
employment programme to be known as Jawahar Rozgar Yojana (JRY). It is expected that the
programme would provide fuller employment opportunities to atleast one member of each family, living
below the poverty line, who seek unskilled employment. Roping in village panchayats for the
programme was a move to enlist greater support and wider participation.
In the main, the focus has been on rural poverty. Nevertheless, a new programme, Self
Employment Programme for the Urban Poor (SEPUP) was initiated during the second year of the
Seventh Five Year Plan. And the Nehru Rozgar Yojana (NRY) happens to be the Urban counterpart of
the Jawahar Rojgar Yogana [JRY, for rural areas].
During Eighth Plan eradication of poverty continued to be the main objective of our planners.
They hoped to fulfill this objective by pursuing the same employment oriented strategy. Under Eighth
Plan short-term employment opportunities were provided to unemployed youths both in Rural and
Urban areas under the same special employment programmes namely IRDP, JRY etc. In 1993-94 two
new schemes were introduced to remove poverty. These schemes are EAS and PM’s R.Y. The
Employment Assurance Scheme is implemented in 3175 Blocks which are backward in the country.
This scheme aims at providing 100 days of employment to unskilled workers upto 2 members of family
in the age group of 18 to 60 years. Under this scheme total man days of employment generated in
1993-94 was 495 lakhs, in 1994-95 it was 2740 lakhs in 1995-96 it was 3466 lakhs in eight months of
1996-97 it was 1378 lakhs.
Under Prime Minister Rozgar’s Yojana in 1993-94, total employment generated was 0.45 lakhs
in 1994-95 it was 2.83 lakhs in 1995-96. It was 3.75 lakhs in eight months of 1990-91.
In 1995-96 another programme was launched which is known as Prime Minister’s Integrated
Urban Poverty Eradication Programme (PMIUPEP) with a special objective of achieving social sectoral
goal, community, empowerment, shelter and still up-gradation and environmental improvement
programme.
The National Social Assistance Programme (NSAP) was announced in 1995 for providing relief
to aged families below the poverty line”.
(1)
Old age Pension upto Rs. 35 per month to poor persons above the age group of 65years.
(2)
National Family Benefit Scheme in case of death of Primary bread earner in a poor family
upto Rs. 10000 in case of accidental death and Rs. 5000 in case of unnatural deaths.
(3)
National Maternity Benefit Scheme upto Rs. 300 for expected mothers living below
poverty. The Swarna Jayanti Shahri Rozgar Yojana (SJSRY) which came into operation
from 1.12.97 shall seek to provide gainful employment to the urban unemployed or
underemployed poor through encouraging the setting up of self-employment ventures of
provision of wage employment. It shall be funded on a 75 : 25 basis between centre and
the states. It shall consist of two special schemes i.e. the Urban Self-Employment
Programme and the Urban Wage Employment Programme.
It needs to be mentioned here that the number of people living below poverty line in Sixth Plan
was 317 million people i.e. 48.4 percentage. Out of this 260 million i.e. (50.73 percentage) were
181
residing in Rural area and 57 million i.e. (40.3 percentage) in urban area. The Sixth Plan defined
poverty on the basis of nutritional requirements. It was, estimated that the amount of calories required
per person per day in rural area was 2400 and in urban area 2100.
The Planners were hopeful that by taking special steps along with growth would bring down
poverty percentage from 48.4 to 38.9 in at the end of Sixth Plan i.e. 1984-85. But if the impact of plan
programme specially designed to help the weaker sections particularly Scheduled Castes & Scheduled
Tribe is also taken into consideration, then by 1984-85 the proportion of people living below poverty line
will come down to 30 percentage i.e. 166 million in (rural area and 49.2 million) in urban area. The
total No. of poor people in both Rural and Urban will come down to 215.2 million i.e. 30 percentage in
1984-85.
During Seventh Five Year Plan it was hoped that percentage of people living below poverty line
will further come down to 25.8 percent by 1989-90. They further project that the percentage of people
below poverty-line is expected to decline to 10 percent by 1994-95 and to 5 percent by 2000 as a result
of Anti Poverty Programmes as per information provided in N.S.S. Round 38th.
The economist criticised the approach adopted by Planning Commission to assess the number
of poor people below poverty line. That Planning Commission appointed a team of Experts. The Expert
Group submitted its Report in 1993. No doubt this group also accepts that there is declining trend of
poverty but their assessment is widely different from Planning Commission assessment. According to
estimate of Planning Commission 37% were below poverty line in 1987-88. But according to Expert
Group 40 percentage of people are living below poverty line. The estimates made by World Bank,
Minhas, Jain & Tendulkar etc. have also close proximity to estimate made by Expert Group of Planning
Commission. All this assessment confirms that Planning Commission has exaggerated the assessment
of people living below poverty line. The govt. has accepted the methodology used by Expert group
headed by Dr. Lakadawala. They have made estimates for the following Years.(See Table IV)
Table I : Population Below Poverty Line
(Number and Percentage) Modified Expert Group Methodology
Years
Rural
Percentage
(in Lakh)
Urban
Percentage
(in Lakh)
Total
Percentage
(in Lakh)
1973-74
2613
56.4
600
49.00
3213
54.9
1977-78
2642
53.1
647
45.2
3289
51.3
1983
2520
45.7
709
40.8
3229
44.5
1987-88
2319
39.1
752
38.2
3071
38.9
1993-94
2440
37.3
763
32.4
3203
36.00
Source: Planning Commission, Ninth Five Year Plan (1997-2002), Vol. I, p.29
The Ninth Five Year Plan has used the concept of ‘Poverty gap’ (PG) developed by World Bank
to measure the severity of poverty rather than normal head count Ratio or poverty ratio i.e. number of
people below poverty line. The ‘Poverty Gap’ (PG) index adjust the poverty ratio with difference
between the per capita consumption of poor and poverty line. A mere comprehensive, measure of the
severity of poverty is the Squared Poverty Gap (SPG). The SPG not only of the poverty ratio and the
poverty gap ratio but it also captures the consumption in distribution of the poor as measured by the
coefficient of variation.
182
Table II. : Indices of Poverty
Year
Poverty Ratio
Poverty Gap Index
SPG Index
R
Y
Total
R
U
Total
R
U
Total
1973-74
56.4
49.0
54.9
16.56
13.64
15.95
0.81
5.26
6.48
1977-98
53.1
45.2
51.3
15.73
13.13
15.15
6.48
5.25
6.21
1982-84
45.7
40.8
44.5
12.32
10.61
11.96
4.78
4.07
4.61
1987-88
39.1
38.2
36.9
9.11
9.94
9.32
3.15
3.60
3.26
1993-94
37.3
32.4
36.0
8.45
7.88
8.30
2.78
2.82
2.79
2.05
2.09
3.31
2.71
3.21
4.38
3.07
4.13
Annual Average
Decline
2.05
Note: 1. For recent data check the previous lesson.
2. for Anti-Poverty Programmes of the decade of nineties See Chapter 12 of Unemployment
removing programmes.
Source: Planning Commission (1998), Ninth Five Year Plan (1991-2002) Vol. 1. p. 30.
9.7
CRITICAL EVALUATION OF (EXISTING) PROGRAMS (TILL 90S)
Elimination of inequalities in the distribution has always been one of the proclaimed objectives
of the government in this country. Plan documents and policy declarations of the state from time to time
have indicated various measures also for reducing income inequalities. These measures can broadly
be grouped into two categories; (i) those expected to affect income generation, and (ii) those expected
to affect income accruing to individuals and/or households. In the first category we may thus include
measures which affect the distribution of wealth and productive assets, investment and technological
choices and return to factors. Taxation policies, provision of commodities and/or services at subsidized
prices, social security and welfare measures etc. belong to the second category.
In the early phase of economic planning the whole approach of the government towards
redistribution of existing income and wealth is aptly summarized in Nehru’s off-quoted phrase, “in a
poor country there is only poverty redistribute”. The government thus never appreciated the idea of
transfer of resources from the rich to the poor to ameliorate their condition. In fact, it insisted that only
through rapid overall growth of the economy a lasting impact could be made on the living standards of
the poorer sections of the society. This strategy was evolved under the ideological influence of the
world bank economists who had made a lot of noise in that period about the ‘spread effects’ of overall
growth. But in a society with an unequal distribution of assets and power growth often failed to
redistribute income and to eradicate poverty. In India also economic growth had been slow and there is
enough evidence to show that the most valuable sections of population had not benefitted from it. In the
light of this experience, government revised its policy and the focus was shifted from relative inequality
to absolute poverty. Certain measures have been taken by government to alleviate poverty and to
reduce inequalities. The measures include Land reforms and redistribution of agricultural landlegislative measures were taken to abolish landlords and other intermediaries and ceilings on holdings
were fixed control over monopolies and restrictive trade practices the act was passed in 1969 which
permits operation of the economic system only in that manner that the growth of monopolies resulting in
concentration of economic power does not take place. Employment and wage policies-since the
183
beginning of the Fourth Plan some special Programes have been undertaken such as the Crash
Scheme of Rural Employment, the Drought Prone Areas Programme, Self employment Schemes for
Engineers etc. The Sixth Plan initiated the National Rural Employment programme to alleviate poverty.
Social Security measures such as workmen’s Compensation Act which entitles industrial workers with a
monthly wage of Rs. 1000 or less to compensate in case of injury resulting death, disability or disease
etc. and Maternity Benefit Act which covers women workers who have been in service for not less than
five months etc. Minimum needs Programme which was started in 1970 and since then has been
continued is not only directed towards the alleviation of the poverty but also to assist economic growth.
Programmes for the uplift of the rural poor like Resource and Income Development programmes
Special Area development programme and Integrated Rural Development Programme etc. and
Taxation.
These various measures undertaken by the government during the three and a half decades
(1970-95) have hardly made any impact on poverty and thus income inequalities perpetuate in their
ugliest form. For the removal of inequalities of income two measures are most necessary. First, the
private ownership of property must be abolished and secondly, the unnatural and arbitrary law of
inheritance should be done away with.
9.8
POVERTY ALLIEVATION IN THE POST REFORMS PERIOD (First Decade)
The Eighth Plan 1992-97 stresses the “need to reorient development policy in such a way that it
gives primacy to the immediate and urgent needs of the poor namely, employment opportunities to all
at minimum wages and access to adequate means of livelihood and skills, as also supplies of food,
education, health and child care services and other basic necessities, such as housing. The
government was therefore committed to giving much greater emphasis to rural development.
Restructuring of agrarian relationships will be crucial to rural transformation. Steps will be initiated to
review and reformulate the land legislations and ensure effective implementation. It is also envisaged
that the proportion of development outlays on schemes benefiting the rural population must be
significantly raised, the target being 50 percent. Investments benefiting the rural population include not
only outlays on programmes for agriculture and irrigation, village industries, rural schools, hospitals,
and roads, but also investments to provide inputs for the rural economy (such as fertilizers pesticides,
diesel oil and electricity) as also investments in transport and other infrastructure which facilitate better
distribution of inputs and marketing of rural produce.
So far as the urban poverty is concerned, the plan envisages a comprehensive programme for
investment and improved marketing facilities, transport, repair and technical services and in related
training activities and basic minimum municipal services such as conservancy, potable water, drainage
and housing in small towns so that migration to big towns can be checked to some extent.
It is necessary to address the housing needs of urban poor. This calls for steps to expand
availability of developed land, housing finance and materials and scaling up proven technology for
reducing costs of construction and promoting the use of innovative materials. Steps would be taken to
encourage construction of houses for weaker sections through mobilisation of profits from commercial
construction activities, particularly in the cities.
The challenge is one of generating employment and income opportunities for the urban poor.
The strategy should focus on the needs of different sections of the urban unemployed and
under-employed ranging from the educated to the unskilled casual labour and women and selfemployed workers in the informal sector.
These anti poverty measures could not bring the desired results because of the following
reasons:
(1)
Insufficient Allocation of Fund.
184
(2)
Wrong Identification of families
(3)
Selection of schemes was not done on rational basis
(4)
These schemes neglected the handicapped persons.
There has been much concern that reform might hurt the poor. It was feared that stablisition
measures and structurel adjustment programme may have some adverse distributional effects in the
medium run which should be countered by improving various poverty alleviation measures. This,
together with reforms of education and health policies, should anyway be part of the longer-run reform
strategy. The concern for redundancy in the public sector and organised industry is not primarily a
concern for the poor. The great majority of those made redundant will either have enough to retire on,
or will quickly find other employment. However, this puts pressure on the unorgarnised sectors; and
persons losing their jobs there may well be poor. The seriousness of this will however, be limited by the
increased demand for labour which is generated by the general reforms we advocate, and by the public
employment schemes like Jawahar Rozgar Yojna (JRY) and other poverty alleviation measures like
Public Distribution System (PDS).
Tenth Plan: Apart from an indicative target of an 8 percent average GDP growth rate, specific
monitorable targets for key indicators have been finalised for the Tenth Plan (2002-07) and beyond.
One of these pertains to the reduction in poverty ratio by five percentage points by 2007 and by 15
percentage points by 2012. The poverty reduction target set by the Planning Commission for the Tenth
Five Year Plan aims at achieving a poverty ratio of 19.3 percent for the country as a whole by 2007,
21.1 percent for the rural, and 15.1 percent for the urban areas.
Anti-poverty programmes have been strengthened over the years to generate additional
employment, create productive assets, impart technical and entrepreneurial skills and raise the income
level of the poor. For the year 2002-03 (BE) an outlay of Rs. 11,170 crores has been provided under
plan provisions as compared to Rs. 9,765 crore (BE) made available in 2001-02 to the Ministry of Rural
Development for rural development, provision of drinking water supply, rural employment and poverty
alleviation programmes, etc. (excluding Pradhan Mantri Gram Sadak Yojana for which Rs. 2,500 crore
has been separately provided in 2001-02 as also in 2002-03).
Source: Human Development Report 2002 of UNDP
The Poverty Line Approach was abandoned by NITI Ayog (2015) and used Multi Dimensional
Poverty Approach. See P. 165 for latest position on it.
9.9
Millennium Development Goals
Goals for development and poverty eradication set at the UN General Assembly in 2000 and
which are to be achieved by 2015 are mentioned below :
(1)
Eradicate extreme poverty and hunger :
 Halve the proportion of people living on less than $ I a day.
 Halve the proportion of people suffering from hunger.
(2)
Achieve universal primary education
 Ensure that children everywhere - boys and girls alike - complete a full course of primary
education.
(3)
Promote gender equality and empower women
 Eliminate gender disparities in primary and secondary education, preferably by 2005, and in
all levels of education by 2015.
185
(4)
Reduce child mortality
 Reduce infant and under-five mortality rates by two-thirds.
(5)
Improve maternal health
 Reduce maternal mortality ratios by three-quarters.
(6)
Combat HIV, AIDS, Malaria and other diseases.
 Halt and begin to reverse the spread of HIV or AIDS
 Halt and begin to reverse the incidence of malaria and other major diseases*.
(7)
Ensure environmental sustainability
 Integrate the principles of sustainable development into country policies and programmes
and reverse the loss of environmental resources.
 Halve the proportion of people without sustainable safe drinking water.
 Achieve, by 2020, a significant improvement in the lives of at least 100 million slum dwellers.
(8)
Develop a global partnership for development
9.10
IMPACT OF ECONOMIC REFORMS ON POVERTY
The economic reforms in India were initiated in mid-1991 in response to economic crises and to
improve the economic situation. The market oriented reforms have different effects on different groups
within an economy. The trends during the first 24 years of pre-reform period shows that the rural
poverty varied between 44 percent and 64 percent and urban poverty varied between 36 percent and
53 percent. Both rural and urban poverty ratios showed a decline in the late 1970s and in the 1980s,
but rural poverty has not declined in the 1990s. It has increased to 40 percent in 1992-95.
On the other hand, urban poverty declined significantly in 1990s. According to the estimates of
Planning Commission the 1980s recorded faster decline in rural poverty and the decline solved down
considerably after the introduction of reforms, whereas urban poverty showed faster decline in the postreform period. If we make a comparison of 1987-88 and 1993~94 surveys, we find that the rate of
decline in poverty in the 1990s has been slower as compared to that of the 1980s.
The large sample survey data on consumer expenditure for the 55th Round* [covering the
period July 1999 to June 2000 see Table 3]. shows as the combined poverty ratio decline from 54.9
percent to 36.0 percent in 1993-94. The poverty ratio declined by nearly 10 percentage points in the 5
year period between 1993-94 to reach 26.1 percent in 1999-2K. While the proportion of poor in the rural
area declined from 56.4 percent in 1973-74 to 27.1 percent in 1999-2K, the decline in urban areas has
been from 49 percent to 23.6 percent during this period. In absolute terms, the number of poor declined
to 260 million in 1999-2K, with about 75 percent of these being in the rural areas. The poverty reduction
target set by the Planning Commission for the Tenth Five Year Plan (2002-07) aims at achieving a
S. Murthy (Ed.) Chapter Eco. Reforms, p-22
*
The Planning Commission has been estimating the incidence of poverty at the national and state level using the
methodology explained in the report of the Expert Group on Estimation of Proportion and Number of Poor (Lakadwala
Committee) and applying it to consumption expenditure data from the large sample surveys on consumption expenditure
conducted by National Sample Survey Organisation (NSSO) at an interval of 5 years approximately.
*
Delivering V.B. Singh Memorial Lecture on Nov. 18, 1999 captioned “Trickle down theory revisited: The Role of Employment
and Poverty” at the 41st Annual Conference of the Indian Society of Labour Economics, p-1 c.f. Rudardutt’s “Eco. Reforms,
Labour and Employment” p-4 and 5.
186
poverty rates of 19.3 percent for the country as a whole by 2007, 21.1 percent for the rural and 15.1
percent for the urban areas.
Table 3 : Estimates of incidence of poverty in India
Year
Poverty ratio (%)
Number of poor (million)
Rural
Urban
Combined
Rural
Urban
Combined
1973-74
56.4
49.0
54.9
261.3
60.0
321.3
1977-78
53.1
45.2
51.3
264.3
64.6
328.9
1983
45.7
40.8
44.5
252.0
70.9
322.9
1987-88
39.1
38.2
38.9
231.9
75.2
307.1
1993-94
37.3
32.4
36.0
244.0
76.3
320.3
1999-2k
27.1
23.6
26.1
193.2
67.1
260.3
2007*
21.1
15.1
19.3
170.5
49.6
220.1
* Poverty Projection for 2007
* Source: Tenth Five Year Plan, Vol. I, Planning Commission.
Dr. S.P. Gupta, member, Planning Commission in his Study on post reforms era, after 1991,
mentioned “In India, the poverty reduction (i.e. reduction of the percentage of people below the poverty
line) over 1983 to 1990-91 was around 3.1 percent per annum but it reversed to 1 per cent in the 1990s
i.e. between 1990-91 and 1997. In contrast to this, The GDP growth in India between 1983 to 1990-91
was around 5.6 percent and between 1990-91 and 1997, this went beyond 5.7 percent".
Thus Dr. Gupta underlines the pro-elitist bias of economic-reforms when he states “The inverse
relationship observed between poverty reduction and GDP growth becomes even more prominent if
one obtains the trends over the recent years. For example, between 1993-94 and 1997, the estimates
of poverty reduction went down when poverty percentage (i.e. people below poverty line) increased
from 35.07 percent to 37.23 percent in the aggregate. This is the period when GDP growth rate
increased to around 6.9 per cent per annum, the highest ever, witnessed consecutively for four years in
India.”
Dr. Gaurav Datt of the World Bank compares the decline in Head Count Index, Poverty Gap
Index and Squared Poverty Gap Index for rural and urban India in the pre-reform and the post reform
period. The main conclusions of the study are as follows :
1.
Mid -1980s seemed to be a significant watershed in the evolution of living standards in India .....
While there was a marked decline in both rural and urban poverty rates between 1973-74 and
1986-87, there has no sign of anything comparable.
2.
For the rural sector, the results indicated that while there was a significant trend decline in all
the three poverty measures up to mid-1991 (at an annual rate of 2.7 per cent for the head-count
index, 4.5 percent for the Poverty Gap Index and 5.9 percent for the Squared Poverty Gap
Index), the rate of decline since then is not significantly different from zero.
3.
For the urban sector, in the pre-reform period (1973-74 to 1990-91), the results indicate a
declining trend in all the three poverty measures upto mid-1991 (at an annual rate of 2.2 per
cent for head count index, 2.8 per cent for Poverty Gap Index, and 3.1 per cent for Squared
187
Poverty Gap Index) the same trend is continued even in the post-reforms period (1990-91 to
1996-97) and all the three poverty measures register a decline (at an annual rate of 2.2 per cent
for head-count index, 2.65 per cent for poverty gap index and 3.7 per cent for squared poverty
gap (Refer Table).
4.
While the urban sector appears to have continued its trajectory of growth and poverty reduction
through the 1990s rural poverty reduction was choked off because of short fall in the rural
growth. The stagnant rural growth is identified as the major cause for slowdown in the reduction
of rural poverty. If questions direction of reform process as it seems to concentrate only on the
corporate sector as the engine of growth and relatively lower importance given to agriculture
and agro based industries located in rural areas, resulting in the lack-luster performance of
poverty reduction in the post-reforms period.
Wider inter-state disparities are visible in the poverty ratios between rural and urban areas as
also in the rates of decline of poverty. Among major states, Orissa, Bihar, West Bengal and Tamil Nadu
had more than 50 percent of their population below poverty line in 1983. By 1999-2K, while Tamil Nadu
and West Bengal had reduced their poverty ratios by nearly half, Orissa and Bihar continued to be the
two poorest states with poverty ratios of 47 and 43 percent respectively. In 1999-2000, 20 states and
Union Territories had poverty ratios which were less than the national average. Among other states,
Jammu & Kashmir, Haryana, Gujarat, Punjab, Andhra Pradesh, Maharashtra & Karnatka also
succeeded in significantly reducing the incidence of poverty.
Latest Position on Poverty Front:
Poverty has declined in the country, though how poverty is measured is currently being
examined. Based on the methodology suggested by the Tendulkar committee, the percentage of
people living below the poverty line in the country declined from 37.2 p.c. in 2004-05 to 29.8 p.c. in
2009-10. Even in absolute terms, the number of poor people declined by 52.4 million during this period.
Of this, 48.1 million are rural poor and 4.3 million urban poor. Thus poverty has declined on the average
by 1.5 percentage points per year between 2004-05 to 2009-10. This annual average rate of decline
(during 2004-05 to 2009-10) is twice the rate of decline during the period 1993-94 to 2004-05.
Table 4 : Poverty Rate in India
A. Poverty Estimates on Uniform Recall Period (% age, URP)
Year
Rural
Urban
Total
1973-74
56.4%
49.0%
54.9%
1987-88
39.1%
38.2%
38.9%
1993-94
37.3%
32.4%
36.0%
2004-05
28.3%
25.7%
27.5%
Soures : Ninth Five Year Plan (1997-02), Datt & Mahajan (2010)
B. Tendulkar Committee Methodology (based on household consumption expenditure survey of
NSSO 68th Round) in % age
Poverty Ratio/ Year
2004-05
2011-12
Combined
37.25
21.9%
Rural
41.8%
25.7%
Urban
25.7%
13.7% (Sharp deeline)
188
As shown above in Table the rural poverty ratio still remains higher than urban poverty ratio due to
following factors:
(a) Lower farm incomes
(b) Lack of sustained livelihood
(c) High food prices and rural income
(d) Lack of skills
(e) Unduremployment and unemployment
(f)
State wise disperities− high poverty in low development states (see Appendix on page 175)
Multidimensional Poverty (MDPI)
Oxford Poverty and Human Development Initiatives (OPHDI) and the United Nations Development
Programme (UNDP) together developed the Multidimensional Poverty Index or MPDI. It made use of
10 indicators relating to health, education and standard of living. However, these multidimensional
indicators/measures raise several issues regarding their measurability.
As per the Global Multi dimensional Poverty Index – 2019 India is amongst the first ten
countries in the world & though with fastest reduction in poverty rate, as given below :
Reduction in Poverty
:
Multi Dimensional Poverty Rate :
2006 - 2016
fastest reduction in MDPI
lifted 271 mn people out of Poverty, half of them children
27.9 pc in 2015-16
55.1 pc in 2005-06
2005-06
2015-16
44.3 pc
21.2 pc
Child Mortality :
4.5 pc
2.2 pc
People deprived of Cooking fuel:
52.9 pc
26.2 pc
Deprivation in Sanitation :
50.4 pc
24.6 pc
Deprivation in drinking water:
16.6 pc
6.2 pc
Deprivation in electricity :
29.1 pc
8.6 pc
Deprivation in housing
44.9 pc
23.6 pc
NITI Ayog, 2021
25 pc of Population in India are poor.
Deprivation in Nutrition
9.11
:
RECENT POVERTY ALLIEVATION PROGRAMMES [Programmes are discussed here]
In addition to Employment Generation Programmes explained in Lesson no. 7, few other
programmes have been initiated by the Govt. of India for social assistance as subsidy for education,
free education, National Rural Employment Guarantee Programmes, Old age pension, Loan and
Subsidy for house construction. Major Programmes are explained below.
1.
Aam Admi Bima Yojana
Under a new scheme called “Aam Admi Bima Yojana” (AABY), launched on October 2, 2007,
insurance to the head of the family of rural landless households in the country is provided against
natural death as well as accidental death and partial/permanent disability. This cover is Rs. 75,000 on
death due to accident and permanent disability due to accident, Rs. 37,500 in case of partial permanent
disability due to accident and Rs. 30,000 in case of death of a member, prior to terminal date. The
189
premium to be charged under the scheme is Rs. 200 per annum per member, 50 per cent of which is to
be contributed by the central Government and remaining by State Governments.
2.
Rashtriya Swasthya Bima Yojana
The Rashtriya Swasthya Bima Yojana was formally launched on October 1, 2007. All workers in
the unorganized sector who come in the category of Below Poverty Line (BPL) and their families are
covered under the Scheme. The scheme also has a provision of smart card to be issued to the
beneficiaries to enable cashless transaction for health care. Total sum insured would be Rs. 30,000 per
family per annum with Government of India contributing 75 per cent of the annual estimated premium
amount of Rs. 750 subject to a maximum of Rs. 565 per family per annum while State Governments
are expected to contribute 25 per cent of the annual premium as well as any additional premium. The
cost of smart card would also be borne by Central Government.
3.
National Rural Employment Guarantee Scheme (NREGS)
NREGS, which was launched on February 2, 2006, in 200 most backward districts in the first
phase, has been expanded to 330 districts in the second phase. The remaining 266 districts have been
notified on September 28, 2007 where the scheme has come into effect from April 1, 2008.
4.
Bharat Nirman
This programme, which was launched in 2005-06 for building infrastructure and basic amenities
in rural areas, has six components, viz. rural housing, irrigation potential, drinking water, rural roads,
electrification and rural telephony.
5.
Mid-day Meal Scheme
This Scheme, which was launched in August 1995, is intended to give boost to universalization
of primary education by increasing enrolment, retention and attendance while contributing to the
nutrition of students in primary classes. The government on September 13, 2007 decided to extend the
Mid Day Meal Scheme also to the children in the upper primary stage i.e. from class VI to class VIII in
the government and government aided schools in 3479 educationally backward blocks in the country.
The ambitious scheme, which so far covered students till class V will now be extended to all areas
across the country. The rationale for extension of the scheme to the upper primary stage of education
was aimed at physical and mental development of children in the 11-14 age group.
6.
Rajiv Gandhi National Drinking Water Mission
This programme was introduced as one of five Societal Missions in 1986 and was called the
National Drinking Water Mission. It was renamed as Rajiv Gandhi National Drinking Water Mission in
1991.
7.
National Rural Health Mission
The National Rural Health Mission was launched on April 12, 2005, to provide accessible,
affordable and accountable quality health services to the poorest households in the remotest rural
regions.
8.
Jawahar Lal Nehru National Urban Renewal Mission (JNNURM)
JNNURM, which is for a seven-year period from 2005-06, has two main components- Basic
Services to the Urban Poor (BSUP) Programme and Integrated Housing & Slum Development
Programme (IHSDP). BSUP was launched to assist cities and towns in taking up housing and
infrastructural facilities for the urban poor in 63 selected cities in the country. IHSDP, which was
launched simultaneously with BSUP in December 2005, is taking up housing and slum upgradation
190
programmes in non-BSUP cities. Jawaharlal Nehru National Urban Renewal Mission (JNNURM) was
launched in December 2005 to take care of urban infrastructure projects including water supply,
sanitation, sewerage, solid waste management, road network, urban transport and redevelopment of
inner cities areas. About 260 projects worth over Rs. 22,000 crore have been approved under JNNURM
since its inception to provide funds to overhaul urban infrastructure. Four states account for 60% of the
projects under the mission. Maharashtra has the largest number of projects (48 projects) worth Rs.
6600 crore. Gujarat is a close second with 44 projects followed by Andhra Pradesh and Karnataka
having 33 and 32 approved projects respectively. Bulk of the approved funds are for water supply,
sewerage works and drainage having shares of 34%, 26% and 11.4% respectively in the total approved
funds. The mission has a target to pump in at least Rs. 1,00,000 crore into the 63 identified cities over
its seven-year term (2005-12) to ensure basic services to a fast-rising urban population. Of this Rs.
50,000 crore will be in the form of direct grant by the Central Government, while the balance will be
mobilised by state governments and urban local bodies (ULBs). For projects under the Public-Private
Partnership (PPP) mode, there would be some contribution from the private sector also.
9.
Scheme of Providing Loan for House Construction in the Rural Areas
In the budget of 1997-98, the Central Finance Minister had declared that from August 15, 1997
a special scheme for house construction would be started in the rural areas. In this scheme which is
prepared by the National Housing Bank, a loan of Rs. 2 lakh can be provided for constructing a house
on one’s own land or for repairing an old house on the condition that the recipient of loan must
contribute one-third amount of the total cost by his own sources.
10.
Ganga Kalyan Yojana
The Ganga Kalyan Yojana was another scheme sponsored by the Centre. This Yojana was
started from Feb. 1, 1997 in all the districts of the country. The objective of this yojana was to assist the
farmers by means of subsidy, maintenance support and loan related arrangement for undertaking minor
irrigation schemes covering both surface and ground water. The farmers were provided Rs. 5,000 per
hectare. The benefit of this yojana was provided only to the people of targeted group (that is small and
marginal farmers below the poverty line). The assistance provided to these people was the mixture of
government subsidy and term loans by financial institution. The expenditure incurred on this scheme
was divided between the Central Government and the State Governments in the Ratio of 80:20. Since
April 1, 1999 Ganga Kalyan Yojana has been merged with Swarna Jayanti Gram Swarozgar
Yojana.
11.
Shiksha Sahayog Yojana
The scheme was launched on 31 December, 2001, with the object to lessen the burden of
parents in meeting the educational expenses of their children. It provides scholarships to students of
parents living below or marginally above poverty-line and who are covered under Jan Shree Bima
Yojana and are studying in 9 to 12 standard.
A scholarship amount of Rs. 300 per quarter per child is paid for a maximum period of four
years and for maximum two children of a member covered under Jan Shree Bima Yojana.
No premium is charged for this benefit. As on 31 March, 2006 scholarships were disbursed to
320253 beneficiaries.
12.
Sarva Shiksha Abhiyan
A broad objective of the National Policy on Education (NPE), 1986 modified in 1992 has been
that education should play a positive and interventionist role in correcting social and regional
imbalances, empowering women and in securing rightful place for the disadvantaged and the
191
minorities. At the international level, India is committed to the “Millennium Development Goals’ and
‘Education For All’. At the national level there is the commitment under the NCMP for increasing public
expenditure on education to 6 per cent of GDP and for universalizing elementary education. There is
also an obligation, under the Constitution’s 86th Amendment, for making available free and compulsory
education to all children in the age group of 6-14 years. To achieve these objectives, a number of
programmes are being implemented out of which the two flagship programmes of the Government are
the Sarva Shiksha Abhiyan and the Mid-Day Meal Scheme.
The Scheme of Sarva Shiksha Abhiyan (SSA) a national flagship programme, is being
implemented in all districts of the country. The aim of SSA is to provide useful and relevant elementary
education for all children in the 6-14 age group by 2010. The scheme of Sarva Shiksha Abhiyan (SSA)
was launched in 2010. The goals of SSA are as follows : (i) All 6-14 age children in school/EGS
(Education Guarantee Scheme) centre/Bridge Course by 2005. (ii) Bridge all gender and social
category gaps at primary stage by 2007 and at elementary education level by 2010. (iii) Universal
rentention by 2010. (iv) Focus on elementary education of satisfactory quality with emphasis on
education for life.
The assistance under the programme of Sarva Shiksha Abhiyan was on a 85.15 sharing
arrangement during the Ninth Plan, 75.25 sharing arrangement during the Tenth Plan, and 50:50
sharing thereafter between the Central Government and the State Government except for 8 NE states,
where 15% of the assistance is met by Ministry of DONER for the two years 2005-06 and 2006-07.
The programme covers the entire country with special focus on educational with special focus
on educational needs of girls, SCs/STs and other children in difficult circumstances. The programme
seeks to open new schools in habitations which do not have schooling facilities and strengthen existing
school infrastructure.
13.
National Social Assistance Programme
In accordance with the Directive Principles of State Policy, the Government of State Policy, the
Government of India introduced in 1995 the National Social Assistance Programme (NSAP) to lay
foundation to a National Policy for Social Assistance for the poor. The NSAP aims at ensuring minimum
national standard for social assistance in addition to the benefits that state are currently providing or
might provide in future. At present NSAP comprises Indria Gandhi National Old Age Pension Scheme
(IGNOAPS), National Family Benefit Scheme (NFBS) and Annapurna.
Under IGNOPAS which was launched on 19th November, 2007, Rs. 200 per month per
beneficiary is provided by way of central assistance to all persons who are 65 years of higher and
belonging to a family living below the poverty line. Earlier under National Old Age Pension Scheme
(NOAPS), the pension was restricted to destitutes only. The number of beneficiaries under IGNOAPS is
estimated to reach 160 lakh persons as compared to 87 lakh under NOAPS.
The amount of old age pension was increased from Rs. 75 to 200 per month with effect from 1st
April, 2006 and the States were urged to contribute at least another Rs. 200 so that an old age pension
beneficiary could get at least Rs. 400 per month. At present 25 States/UTs are providing pension which
is more than Rs. 200 per month.
Annapurana Scheme was introduced on Ist April, 2000 to provide 10 kgs of foodgrains per
months free of cost to eligible beneficiaries who could not be covered under NOAPS. Under NFBS, Rs.
10000 is provided to a BPL family in case of natural or accidental death of a primary bread winner in
the family while in the age group of 18 to 64 years.
192
Steps/Programmes to Eradicate Poverty
I.
II.
1.
Legal elimination of bonded labourers.
2.
Preventing the centralisation of wealth by modifying the law.
Rural Programmes
3.
Antyodaya plan.
4.
Small Farmer Development Programme (SFDP).
5.
Drought Area Development Programme (DADP).
6.
Twenty point programme.
7.
Food for work programme.
8.
Minimum Needs Programme (MNP)
9.
Integrated Rural Development Programme (IRDP).
10.
Jawahar Gram Samriddhi Yojana (JGSY) (Formerly known as Jawahar Rojgar Yojana)
11.
Family Planning/welfare programme for population control.
12.
Employment Assurance Scheme.
13.
Scheme for Rural artisans/craftsmen.
14.
DWCRA programme.
15.
Swarna Jayanti Gram Swarozgar Yojana.
16.
Mahila Samriddhi Yojana.
17.
National Social Assistance Programme (NSAP)
18.
Group Life Insurance Scheme for Rural Areas.
19.
Rural Housing Programme
20.
Pradhan Mantri Gramodaya Yojana (PMGY)
21.
Swarna Jayanti Gram Swarojgar Yojana
22.
Sampurna Gramin Rojgar Yojana
23.
Indira Awaas Yojana
24.
Samagar Awaas Yojana
25.
Pradhan Mantri Rojgar Yojana
26.
Agriculture Income Insurance Scheme
27.
National Rural Employment Guarantee Scheme.
Urban Programmes
1.
Emphasis on Vocational education.
2.
Nehru Rozgar Yojaya (NRY)
3.
Self-Employment Programme for the Urban Poor (SEPUP)
4.
Financial assistance for constructing houses.
5.
Self-Employment to the Educated Urban Youth (SEEUY) Programme.
193
9.12
6.
Prime Minister’s Rozgar Yojna (Also implemented in rural areas)
7.
National Social Assistance Programme
8.
Urban Basic Services for the Poor (UBSP) programme.
9.
Prime Minister’s Integrated Urban Poverty Eradication Programme (PMIUPEP).
10.
Swarna Jayanti Shahri Rozgar Yojana.
World Bank Report On Poverty Allevation Programmes
(The Tribune, May 22, 2011)
Although India is spending over 2 per cent of its Gross Domestic Product (GDP) on various
social protection programmes, including the Public Distribution System (PDS) and the National Rural
Employment Guarantee Scheme (MNREGA), overall returns in terms of poverty reduction have not
reached their potential, a new World Bank report has found.
Titled “Social Protection for a Changing India” the report prepared by the World Bank on the
request of Government of India, adds that while amount allocated to each rural household on major
centrally sponsored schemes is significant at 40 per cent of the annual rural poverty line, the poor have
not been able to reap full benefits of such large investments. The administrative capacity of poorer
states is typically low. While states with higher poverty are allocated more funds from the Central
Budget, they continue to have the lowest capacity to spend effectively.
The report is particularly critical of the PDS and says it continues to absorb substantial public
resources at almost 1 per cent of the GDP. Where as it covers up to 25 per cent of the households, its
benfits for the poor have been limited with leakage and diversion of grains being high. Only 41 per cent
of the grains released by the government are reaching the households with some states faring even
worse. In 2001, the Planning Commission had estimated this leakage at 58 per cent nationally.
Analysing the losses, the report firmly recomments offering households the option of a cash
transfer while continuing food-based support for specific situations such as in areas where access is an
issue, for disaster relief and for specific vulnerable groups. This reform would not eliminate the need for
buffer stocks, it adds. referring to states like Bihar, for example, which have successfully introduced
food stamps or coupons to improve access.
On Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGA), the review
indicates the programme has achieved impressive coverage when compared with previous public
works programmes. Data shows that 31 per cent of the Scheduled Castes, 25 per cent of the
Scheduled Tribes and about 50 per cent of women workers have been included in this program under
which employment generation has been much higher than under any other wage employment
programme in the past.
The challenge to the progamme, however, is unspent balances, with field studies indicating
severe delays in the transfer of funds to grampanchayats. In 2008-09, about 25 per cent of NREGA
funds were unspent. Fund utilisation rates range from 56 per cent in Tamil Nadu to 89 per cent in
Rajasthan. There are also significant variations across districts within states, with some districts in
Orissa and Karnataka even reporting expenditure in excess of available funds.
9.13
SUMMARY
Various factors like high population growth, low level of development contribute towards
aggravating the problem of poverty. Therefore, the Government of India has initiated numerous
schemes and programmes for removal of poverty from time to time. The flow chart presents the
summary of the lesson :
194
Note: You can add the latest programme started by NDA Government under the leadership of PM
Narendra Modi namely Atal Pension Yojna and other such social security schemes.
Allievation of Poverty
in India
Millinium
development Goals
of UN to be
achieved by 2015
Poverty Removal
Programmes
Impact of
Economic
Rerforms on
Poverty
Poverty Ratio : 1999-2k
Rural
27.1
Programmes of
Pre-1991
Period
Individual
beneficiary
Oriented
Programmes
SFDA + MFAL
SFDA
Supplemental
by
IRDP
Combined
36.0
Programmes of
Post-1990
Period
Additional
Wage
Employment
Ecologically
Disadvantaged
Areas
CSRE
DDAP
Twenty Point
NREP
DDP
Programme
RLEGP
Urban
23.6
Disadvantaged
Groups
MNP
These have been
explained at length
in lesson no. 12
195
9.14
9.15
9.16
REFERENCES

Kapila, Uma (2012). Indian Economy Since Independence. Academic Foundation

Puri, Misra (2014). Indian Economy. Himalaya Publishing House. New Delhi.

Dutt and Mahajan (2015). Indian Economy. S. Chand Publications Pvt. Ltd. New Delhi.
FURTHER READINGS

Singh, Ramesh (2017). Indian Economy (Latest Issues), Spectrum.

Government of India. Economic Survery. Ministry of Finance (2017 and Latest issues)
MODEL QUESTIONS

Explain in detail various anti-poverty programmes started in Indian.

Critically evaluate the performance of anti-poverty programme.

What has been the impact of economic reforms on the state of poverty in India?
--00--
196
Lesson-10
OCCUPATIONAL STRUCTURE IN INDIA
Structure
10.0
10.1
10.2
10.3
Objectives
Introduction
Employment Trends and Growth in India
Sectoral Distribution of Employment
10.3.1 Gender wise sectoral Distribution of Employment
10.4 Work-Foce Participation
10.5 Definition and Concepts as used in Census
10.6 Industrial Categories as used in Census
10.7 An Analysis of Census Data (1981-2011)
10.8 Summary
10.9 References
10.10 Further Readings
10.11 Model Questions
10.0




OBJECTIVES
After going through this lesson, you’ll be able to :
discuss growth in India and growth in employment in India
explain structure of employment i.e. employment share of agriculture, industry and services
sectors
describe the concepts used in census serveys
cerment upon comment on employment trends regarding
(1) Main & Marginal workers (2) Gender-wise distribution of workers, during the 1981, 1991,
2001 and 2011 Censuses.
Notes: (1) The data regarding employment trends can be utilised for updating ‘extent of unemployment’ also.
(2) Related information of NSSO data is provided in lesson I also, under the heading ‘occupational
distribution of national income’.
10.1
INTRODUCTION
The size of employment in a country depends to a great extent on the level of development.
When a country makes progress and its production expands, the employement opportunities
automatically grow across various sectors of economy. In India, during the post-reforms period
especially production has expanded in all the sectors of the economy namely agriculture, industry and
services sectors. In response to these developments the absolute level of employment has also grown.
However, during the planning period, unemployment in absolute number has increased i.e. the number
of employ people has definitely increased. This has happened because during the first three decades of
economic planning, trend rate of growth of national income was considerably lower than the targeted
rate. Therefore, jobs in adequate number were not created with the end of fourth plan it was realised
that. Further, economic growth by itself does not solve the problem of unemployment. Moreover, the
possibility of an increase in unemployment can not be completely ruled out in a rapidly growing
economy.
197
Economists Hazari and J. Krishnamurthy (Misra Puri, 2014) have brought out the conflict
between growth and employment inherent in the Mahalonobis Strategy which guided India’s
development efforts for about two decades. However, until the Five year plan 1978-83 was formulated,
this conflict was not recognised by the government. The assumption of the plans was the growth would
atuomatically solve the unemployment problem. However, this was not to be since the adoption of nesliberal economic policies in India since 1991. India has witnessed “Jobless” growth and sometimes
even “Jobloss”. As a result, unemployment has increased (Mishra and Puri, 2014)
10.2
EMPLOYMENT TRENDS AND GROWTH IN INDIA
In the recent past, there has been deceleration in the growth of employment in India in spite of
the accelerated economic growth.
For example, when GDP gew at 4.7 per cent per annum during the period 1972-73 to 1983,
employment growth was 2.4 per cent; the GDP growth increased to 5 per cent, but employment growth
declined to 2.0 per cent during the period 1983 to1993-94; in the next decade i.e. during 1993-94/200405, GDP growth accelerated to 6.3 per cent, but employment growth further declined to 1.8 per cent;
and during the latest period 2004-05/2011-12, when GDP growth was as high as 8.5 per cent,
employment grew at an insignificant rate of 0.5 per cent (see Table 19.1). This can be explained in
terms of a steady decline in employment elasticity in all major sectors of economic activity except in
construction. Overall employment elasticity (ratio of employment growth in value aded) which was 0.52
during 1972-73 to 1983, declined to 0.41in the next 10- year period and further to 0.29 during 1993-94
to 2004-05. During 2004-05 to 2011-12, in declined to just 0.04 (i.e., almost zero). Employment
elasticity in agriculture, in fact, which was 0.46 during 1972-73 to 1983 fell quite fast and turned
negative (-0.42) during 2004-05 to 2011-12. In simple words elasticity of employment tells if national
income grows at a certain rate of growth, what will be the expected growth in employment. Details on
employment trends are available from various Rounds of National sample Survey Organisation
(NSSO): 55th Round (for 1999-2k), 61st Round (2004-05), the 66th Round (for 2009-10) and 68th
Round (for 2011-12). The NSSO Rounds provide information on labour force and ‘work force’. As
defined by NSSO, the population is bufrcated into two categories = (a) as ‘labour force’ and (b) ‘those
not in labour’ force’. Labour force refers to those who are seeking work - out of this labour force some
will be employed and few will be unemployed. Those who find employment are designated as work
force. Hence work-force is a part of labour force.
The second group ‘not in labour force’ refers to those people who are not seeking work. This
section of population stays away from employment due to several factors namely - sickness, domestic
work, disability or pursuit of education.
Table 10.1
Growth of GDP and Employment Growh in India (1972-2012)
(in percent)
Time Period
Growth of GDP(%)
Growth of Employment
1973 – 83
4.7
2.4
1984 – 94
5.0
2.0
1995 – 05
6.3
1.8
2005 - 12
8.5
0.5
Source : Figures taken from Misra & Puri (2014)
The information on NSSO Rounds (55th to 68th) are provided below in Table 19.2
198
Table 10.2
Employment and Unemployment (by UPSS)
1993-94
to
1993-94 1999-2000 2004-05
2009-10
to
2011-12 1999-2000 2004-05
In million
to
2009-10
to
2009-10 2011-12
CAGR%
Labour force
381.94
406.85
468.73
472.32
483.75
Workforce
374.45
397.88
457.56
462.49
472.91
7.49
8.97
11.17
9.84
10.84
2.0
2.2
2.4
2.1
2.2
Unemployed
1999-2000 2004-05
1.06
1.02
2.87
0.15
1.20
2.83
0.21
1.12
Unemployment
Rate:
Notes:
1. All figures pertain to UPSS, i.e., usual principal and subsidiary status.
2. CAGR is compound annual growth rate.
Source: C. Rangarajan, Seema and E.M. Vibeesh, “Developments in the Workforce between
2009-10 and 2011-12”, Economic and Political Weekly, June, 7, 2014 Table 2, p. 118.
As evident from Table 10.2 the labour force increased by 25 million over the period 1993-94 to
1999-2000 and by 62 million over the period 1999-2000 to 2004-05. However, the labour force
increased by only 3.6 million over the next five year period 2004-05 to 2009-10. The two year period
2009-10 to 2011-12 recorded an increase of as much as 11.43 million people in the labour force. As
against the labour force of 381.94 million in 1993-94, workforce was 374.45 million which implies that
the number of unemployed people was 7.49 million. As a ratio of labour force, this works out at 2.0
which therefore was the unemployment rate in 1993-94. The number of unemployed rose to 8.97
million in 1999-2000 and 11.17 million in 2004-05. As a result, the unemployment rate also increased to
2.2 per cent in 1999-2000 and further to 2.4 per cent in 2004-05. The situation improved somewhat
over the period 2004-05 to 2009-10 with number of unemployed people decreasing to 9.84 million and
the unemployment rate to 2.1 per cent. However, it can be calculated from the data on workforce given
in Table 10.2 that while 23 million jobs were created during the period 1993-94 to 1999-2000 and
as 60 million during five year period 1999-2000 to 2004-05, only 5 million jobs could be created
over the five year period 2004-05 to 2009-10. Given against the fact that the country had witnessed a
robust economic growth during the period 2004-05 to 2009-10, this represents a dismal performance on
the employment front. As evident from the Table, the CAGR of the workforce declined from 2.83 per
cent during the period 1999-2000 to 2004-05 to just 0.21 per cent during the period 2004-05 to 200910. However, the data for the year 2011-12 is based on 68th Round of NSSO, persents a rosy picture.
As calculated from Table 19.2 over the two year period 2009-10 to 2011-12, around 11 million jobs
were created (as against only 5 million jobs during the earlier five year period). There was a significant
improvement in the CAGR of the labour force and workforce between 2009-10 and 2011-12 as
compared to the period falling between 2004-05 and 2009-10. Both the labour force and workforce
grew at a rate of around 1.2 per cent per annum from 2009-10 to 2011-12 as compared to a low rate of
199
around 0.1 to 0.2 per cent per annum from 2004-05 to 2009-10. This is still much behind the growth
rate of around 3 per cent per annum observed between 1999-2000 and 2004-05. (Misra & Puri 2015).
Some economists have pointed out the fact that there is withdrawal of rural female from the
total labour force in recent times. For example, The rural female LFPR (labour force participation rate)
hovered around 33 percent for most of the period spanning 1977-78 to 2004-05, it came down
significantly to 26 per cent from 2004-05 to 2009-10 and further to 25 per cent between 2009-10 to
2011-12. They provide two ‘Plausible reasons’ for the withdrawal of rural women from the labour force
on such a large scale as explained below:
1. Education Effect (larger Participation of women’s in education)
A large number of rural females are opting for education rather than joining the labour force.
The women participating in education has increased; the number of girls enrolled in secondary and
senior secondary education has increased from 16 million to 23 million between 2005-06, and 2010-11
and more that doubled in higher education from 5.5 million to 12 million during the same period. NSSO
data also show the same trend in rural women education. In 1999-2000, around 18 per cent of rural
women were opting for education; this percentage increased to 25 per cent in 2011-12. In the younger
age groups of 5-24 years, the increase is sharper and the share reached 63 per cent in 2011-12 from
43 per cent in 1999-2000
2. Income Effect (due to rising rural family income)
Taking per capita household expenditure as a proxy for the income level, the latest two rounds
of NSSO clearly show a sharp increase of around 3 per cent annum in the real per capita consumption
expenditure between 2004-05 and 2011-12 as compared to only 0.2 per cent per annum between
1999-2000 and 2004-05. With the rise in the level of income in rural India, rural females engaged in
casual work/unpaid work in agriculture are, perhaps, withdrawing from the labour force and getting
engaged in the domestic activities.
10.3
SECTORAL EMPLOYMENT IN INDIA OR OCCUPATIONAL DISTRIBUTION OF
EMPLOYMENT:
The employment generated by different sectors (agriculture, industry and services) is termed as
sectoral distribution of employment. Table 19.3 presents information and estimates of employment by
sectors, as provided in various NSSO rounds. The National Statistical survey Organisation collects
information after every 2 years. The information is based on the sample drawn every time.
The main results that can be obtained from Table 10.3 are as follows:
1. The main sector as far as employment is concerned, continues to be agriculture although
there has been a decline in employment in this sector in percentage terms (from 73.9 per cent in 201112). In absolute terms, the number of people employed in this sector rose from 241.5 million in 1993-94
to 268.6 million in 2004-05 (a rise of 27.1 million). However, the number of people employed in
agriculture fell after 2004-05 and finally the employment in agriculture has 231.9 million in 2011-12.
Thus, over the seven year period 2004-05 to 2011-12, as many as 36.7 million workers abandoned
agriculture (which was nearly 16 per cent of the total workforce in agriculture in 2011-12).
200
Table 10.3
Estimated Number of UPSS workers Across Broad Industrial Categories: 1972-73 to 2011-12
Industry
Percentage of Employment
1972-73
1983
1993-94
2004-15
2011-12
I. Agriculture and allied activities
73.9
68.6
64.8
58.5
48.9
II. Industry
11.3
13.8
14.7
18.1
24.4
(i) Mining and Quarrying
0.4
0.6
0.7
0.6
0.5
(ii) Manufacturing
8.9
10.6
10.5
11.7
12.8
0.2
0.3
0.4
0.3
0.4
1.8
2.3
3.1
5.6
10.6
14.8
17.6
20.5
23.4
26.7
5.1
6.3
7.4
10.2
11.4
1.8
2.5
2.8
3.8
4.4
0.5
0.7
0.9
1.5
2.6
7.4
8.1
9.4
7.7
8.2
100.0
100.0
100.0
100.0
(iii) Electricity, Gas and
Water Supply
(iv) Construction
III. Services
(i) Trade, Hotels and
Restaurant
(ii) Transport, Storage
and Communication
(iii) Financing, Real Estate,
Business Services
(iv) Community, Social &
Personal Services
Total
100.0
Source: Institute for Human Development, India Labour and Employment Report 2014 (Delhi, 2014), Table 3.5,
P. 208
This absolute decline in the number of workers in Indian agriculture after 2004-05 occurred for
the first time in India’s post-Independence economic history; and this is indicative of a structural
transformation that is now taking place on the employment front in our economy. Many economics too
agree that this is actually the kind of progressive structural change in employment that is generally
expected to accompany a structutral shift in output among the primary, secondary and tertiary sectors
in any developing economy.
2. The number of workers employed in manufacturing rose from 38.9 million in 1993-94 to 53.9
million in 2004-05 and further to 59.8 millin 2011-12. However, in percentage terms, there has been to
significant change in employment in the manufacturing sector during the period of the last three
decades. As is clear from Table 19.3, as agianst 10.6 per cent of workers employed in manufacturing in
1983, 12.8 per cent of workers were employed in this sector in 2011-12.
3. Next is the segament of services sector i.e. trade, hotels and restaurants. Which employed
7.4 per cent of workers in 1993-94 and 11.4 per cent in 2011-12.
4. The Sector which has registered the fastest growth in employment generation has been the
construction sector. A large number of infrastructure projects being undertaken in recent years
201
(particularly projects of road construction under National Highway Development Project or NHDP and
projects under Mahatma Gandhi National Rural Employment Guarantee Scheme or MGNREGS) have
generated employment. As a result, while only 3.1 per cent of workers were engaged in the
construction sector in 1993-94 and 5.6 per cent in 2004-05, there was a sudden jump to 10.6 per cent
in 2011-12.
5. In the post - 1991 period, there has been substantial expansion in employment in:
(i) transport, storage and communication and (ii) financing, real estate and business services. As shown
other Segaments of Services sector in Table 19.3, while 3.2 per cent of workers were employed in
these sectors in 1983, this percentage rose to 5.3 per cent in 2004-05 and 7.0 per cent in 2011-12.
6. Following sectors have shown stability in terms of employment over 1983 to 2011-12
(i) mining and quarrying, and (ii) electicity, gas and water supply. Their combined share in total
employment was 0.9 per cent both in 1983 and 2011-12.
7. A structural change in employment is witnessed (see Table 19.3) with the share of agriculture
declining over the entire five decade period 1972-73 to 2011-12 from as high as 73.9 per cent on 197273 to 48.9 per cent in 2011-12 Second, the share of industry over the period 1973-2012 rose from 11.4
per cent to 24.4 per cent and the share of services from 14.8 per cent to 26.7 per cent. However, as
can be seen from Table 19.3, this structrurl shift has been the result of changes taking palce in the post
reforms period, i.e., the post 1991 period only. In this context, two comments are in order
(i) The increasing share of industry in total emplopyment is mainly the result of the massive
expansion in the construction sector. However, the ‘quality’ of employment in the sector is not good as
most of the people working in the construction sector have casual and temporary jobs and, are thus,
not entitled to the benefits that accompany regular and permanent jobs (like casual and sick leave,
medical benefits, social security cover etc.)
(ii) The ‘backbone’ of the industrial and economic progress, is the manufacturing sector, which
continues to face stagnation in term of employment. Even in 2011-12, this sector could employ only
12.8 per cent of the people. Without a rapid growth of the manufacturing sector, the country, will not be
able to push up economic growth to any significant heights. The Government of India has realised this
fact and now it, is putting in efforts to expand the manufacturing sector. As far as employment is
concerned, the National Manufacturing Policy (NMP) announced by the government on November 4,
2011 calls for the creation of 100 million additional jobs in the manufacturing sector by 2022. The ‘Make
in India’ flagship programme of Government may bring in desuid changes.
10.3.1 Gender wise Sectoral Distribution of Employment in India
Gender-wise sectoral distribution of workers reveals the follwing information:
(1) As far as male workers are concerned, 58.3 per cent of these workers were employed in
agriculture in 1993-94 and this percentage fell by 43.6 per cent in 2011-12 (a decline of almost 15
percentage points). This was basically due to the fact that more and more male workers are now
shilfting to other sectors of the economy, particularly the construction sector. In fact, the share of the
construction sector in total male employment rose from 4.1 per cent in 1993-94 to as high as 12.3 per
cent in 2011-12.
(2) The 78.1 per cent (i.e., more than three-fourths) of female workers were employed in
agriculture in 1993-94. This percentage fell to 62.8 per cent in 2011-12 (a decline of about 15
percentage points). The share of the construction sector in female employment rose from a meagre 1.2
per cent in 1993-94 to 6.1 per cent in 2011-12.
202
10.4
WORK-FORCE PARTICIPATION
Changes in the size, compostion and distribution of population are closely associated with the
demographic structure of workforce. Moreover the workforce participation rates vary according to the
stages of economic development, across age groups, and between sexes. While in case of India, it is
well known fact that the with contribution of about 14% in the National income of economy and
employing about half of the workforce. The agriculture is understandably not able to absorb a significant
number of additional workers. However, with modernization, urbanization and industrial development
picking up, there is likely to be a shift in the occupational structure of the Indian workforce. Moreover, a
major change in the economic policy has taken place in 1991 with the introduction of liberalization of
Indian economy. It was expected to bring a qualitative shift in the occupational structure of the
workforce. Many have argued that the economic reforms have virtually stimulated economic growth
during the last one decade. The economy has grown over 5 per cent per annum during the 1990s. But
the implication of economic reforms and the outcome of high economic growth in terms of its impact on
the level and composition of workforce is the major concern, being addressed here. Economists have
generally relied on aggregate data at the state level on the employment and unemployment released by
the NSSO (as explained in lesson 1, section 1.12).
10.5
DEFINITION AND CONCEPTS USED IN CENSUS DATA : AN UNDERSTANDING
In recent Indian censuses, work is defined as participation in any economically productive
activity with or without compensation, wages or profit. Such participatioh may be physical and/or mental
in nature. Work involves not only the physical work but also includes supervision and direction given to
other workers. However, the concept of ‘economically productive activity’ has considerable value
loaded connotations, and influenced by the social desirability of what constitutes economically
productive activity (for detail discussion, see Lauterbach 1977).
(i) Work and Workers: Work is taken as basis to identify workers. The concept of work in
Indian census was introduced since 1961 census, but the reference period was changed and the
concept of main activity was introduced in 1971. The 1971 census did record the marginal category of
workforce. Thus the figures of 1961 and 1971 censuses were not comparable. On the other hand, we
find that since 1981 the census definition of work remains unchanged, but more efforts have been
made to enumerate female workforce in later censuses. In the 1981 census, attempt was made to get a
detailed profile of the working characteristics of the population. Also, usual status of the work was given
emphasis instead of the current status of the work. A question was to divide the population who have
worked any time and not worked at all during the last year. Those who have worked any time in the last
one-year were categorised as workers, and those who did not work at all were clasified as non-workers.
This type of classification of population into workers and non-workers category was followed in later
censuses as well. Workers were categoried into main and marginal workers since 1981 census.
(ii) Main Workers: All those workers who had worked for the major part of the year preceding
the date of enumeration i.e., those who were engaged in any economically productive activity for 183
days (six months) and more during the last year termed as main workers.
(iii) Marginal Workers: All those workers who had worked any time in the year preceding
enumeration but did not work for a major part the year i.e. those who worked less than 183 days or less
than six months wre termed as marginal workers.
Keeping in view the criticism of census having failed to capture the women workforce fully, it is
worthwhile to mention here that the 2001 census made a special effort to capture women workforce
particularly engaged as unpaid family work by improving the instruction manual of enumerators. The
manual included several sketches of unpaid work for sensitizing the enumerators. Apart from various
activities in agriculture, milching or milk production was included in work. The enumerators employed in
203
backward and low literacy districts have been specially tarined through Census Advisors to enumerate
the women workforce (Study by Sikri 2005).
Self Assessment Question
Q.
Define Main Workers and Marginal Worker.
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
10.6
INDUSTRIAL
CENSUSES
CATEGORIES:
CHANGES
ACROSS
1981,
1991
AND
2001
In 1981 and 1991, workers were categorzied into nine industrial categories, viz. i) cultivators, ii)
agricultural labourers iii) livestock, forestry, fishing, hunting, plantation, orchards and allied activities, iv)
mining and quarrying, v) manufacturing and reparis (a) household industries (b) other than household
industries, vi) construction vii) trade and commerce, vii) tranxport, storage and communication, ix
services.
But, the 2001 census provided information on four categories of workers only i.e. cultivators,
agriculture labourers, household industries and other workers. The first two are related to agrucultural
activities while the rest are treated as non-agricultural workforce in this report.
10.6.1 Agricultural Workforce [(i) & (ii)] and Non Agricultural Workforce [(iii) & (iv)]
(i)
Cultivators: According to Census definition, cultivators included persons engaged in cultivation
of land owned or held from government or private persons or institutions for payment in money
kind or share. It includes effective supervisions or direction in cultivation. A person who has
given out his/her land to another person or institution for cultivation, for money, kind or share of
crop and also does not even supervise or direct cultivation of land will not be treated as
cultivators.
(ii)
Agricultural Labourers: The agricultural labourers are defined as a person who works on
another person’s land for wages in money or kind or share is regarded as agricultural labourers.
He has no risk in the cultivation but merely works in another person’s land on wages. The
agricultural laboueres are usually more economically and socially vulnerable group in our
society.
Some recent studies show that there is no healthy impact of liberalization on the growth of
employment paricularly in the rural sectors (Sundaram, 2001; Chadha and Sahu 2002). The overall
growth rate in employment has slowed down in 1990s compared to the 1980s (Papola, 2004). The
release of the 2001 census data provides an opportunity to corroborate the findings emerging from the
NSS data regarding the decade of the nineties.
This lesson presents an analysis of workforce data derived from censuses for the period 1981 to
2001. Earlier studies based on census data show that work participation rates are significantly lower
than the NSS rates of comparable rounds. This led to the conclusion that census undercounts the
workforce especially in case of women (Sinha, 1982). Thus in this study, a comparison of of the 2001
census is also made with NSS 55th round (1999-2000). Some of the concepts used in the censuses
are presented below:
204
10.7
AN ANALYSIS OF CENSUS DATA ON OCCUPATIONAL DISTRIBUTION
The major objective economic reforms is accelerating growth and expanding the employment
opportunities. India in its vision programme the government has stressed more on empoyment
generation at least two per cent per annum to be compatible with the nine per cent growth in the
economy. Further, it emphasized on promoting labour intensive and high employment elasticity sectors
to achieve the quantitative employment growth target (Government of India, Ministry of Labour and
Employment, 2011). Again, one of the objectives of the 12th Five Year Plan is more inclusive growth’
(Planning Commission, 2011), which is possible through the growth of productive employment. Despite
of having grand plan design and vision, the overall employment growth rate is decelerating during the
post reform period, in particular, during the last decade. Realising the vision and plan objective seems
to be doubtful in the context of decelerating employment growth in the recent past.
The recent estimates of NSSO 2011 with respect to its employment and unemployment survey,
brings out a virtual stagnation in the employment growth indicatin jobless growth in the Indian economy.
These results have raised a concern over the employment situation among the policy makers,
academicians and development activist (see, Chaudhary, 2011; Rangarajan et. al, 2011; Kannan and
Ravindran, 2012; Papola, 2012).
This Chapter presents analysis of the trend in growth of workforce and change in its structure in
India during the last three decades using Census data and also presents the changes in workforce
particularly in the context of recent release of Primary Census of Abstract 2011 of Census of India. The
analysis also shows changes during last decade (2001-11) and the relative performance over the
previous two decades (1980s and 1990s) for which Census data for workers is comparable. The
present analysis is confined to Census data only; it does not make any comparison with NSSO based
estimates.
10.7.1 Overall trends
The trends regarding occupational distribution are mentioned below:Fast decline in the rate of growth in female workforce
The analysis of recent census data 2011 reveals that overall rate of growth in workforce is 1.8%
between 2001 and 2011 and it is observed to be marginaly higher than the 1.6% growth rates of the
population (Table 10.4) during the same period.
Further, the rate of growth in work force during the 2001-2011 is lower than that of previous two
decades (1980s and 1990s) a deceleration. In the 1980s and 1990s the rate of growth of workforce was
2.5 percent, as shown in Table 2. The rate of growth in the workforce as well as population both has
decelerated between 2001 and 2011. However, the rate of growth in workforce has always been higher
than that of population growth during the last three decades of 1980s, 1990s and 2000s. It means that
there must be increase in work participation rate (WPR).
Table 10.4
Size of the Population and Total Workers - All India
Year
Population (in millions)
Male
Female
Persons
1981
354.14
330.8
645.2
1991
439.2
407.1
2001
532.2
2011
623.7
Total Workers (in millions)
Female
Persons
181.1
63.5
244.6
2.0
29.2
9.0
846.3
224.4
89.8
314.1
1.2
28.4
9.0
496.5
1028.6
275.5
127.0
402.5
13.0
42.9
22.4
586.5
1210.2
331.9
149.9
481.7
17.7
40.4
24.8
Note: 1. Rural and urban combind
Source: Census of India.
Male
% of Marginal Workers
Male
Female
Persons
205
With the introduction of economic reforms in the early nineties and a subsequent high rate of
economic growth achieved in the country, during 1990s and 2000 high growth in workforce too was
expected during this period. Before going into details, it needs to be pointed out that there are two
constrains in the growth of workforce.
(1)
First constraint is the growth of population, wherein, at a given labour/workforce participation
rate (a constant), labourforce of workforce cannot grow more that the rate at which population
grow.
(2)
Second the other constraints in the labourforce participation rate itself. Given the rate of growth
in population, the rate of growth in labourforce depends on the change in the participation rate.
On the one hand, as it is evident from the recent trend mentioned in Table 19.4 the rate of
growth in population in India is fast decelerating [2.1% in 1990s and 1.6% in 2000s]. Therefore, a large
part of the deceleration in rate of growth in workforce must be due to declining population growth. On
the other hand, in the context of increasing demand for education, a large proportion of younger age
population is either withdrawing from labourforce or have been postponting their entry intro labourforce
for attending educational institution or purusing higher studies. Several research studies (based on
NSSO data), have also pointed out towards this fact (Chaudhary, 2011; Kannan and Ravidran, 2012).
The Twelth plan draft has mentioned that such an increase in deman for education would increase the
human capital base of the country and hence it is considered as a welcome feature (Planning
Commission, 2011). Therefore, given the above mentioned fact, the scope for increase in labourforce
participation rate appears to be limited unless if the participate rate increases among the adults (25
year and above) and old age (60 + age) population. In contrast to NSSO estimations, the Census data
does not show any decline in the work participation rate (see Table 10.4). As shown on Table 19.4 the
increasing participation of adults and old age seems to replace the decline in the workforce in younger
ages.
Table 10.4 Growth Population and Workforce - All India
Person
Category
1981-91
Total Pop.
2.1
Total Workers
Male
1991-01
Female
2001-11
1981-91
1991-01
2001-11
1981-91
1991-01
2001-11
2.0
1.6
2.2
1.9
1.6
2.1
2.0
1.7
2.5
2.5
1.8
2.2
2.1
1.6
3.5
3.5
1.7
Main Workers
2.5
0.9
1.5
2.2
1.9
0.8
3.6
1.2
2.1
Marginal Workers
2.5
12.3
2.8
-2.6
1.9
29.5
3.2
7.9
2.1
Note: 1. Rural and urban combined; 2 compound Annual Growth Rate (CAGR) in %
Source: Census of India, 2011
2.
Gender wise workforce Participation: The Census data show that the rate of growth in female
workforce and in the female population are almost equal between 2001 and 2011 (see Table 2). It is
observed that the rate of growth in female workforce was 1.75 times higher than of its population duing
the eighties and the nineties. Such a relatively high growth of female workforce over their population
resulted from increasing Work Participation Rate (WPR) between 1981 and 2001 (see Table 19.5) in
case of males, not much difference has been noticed.
It is possible if those adults who otherwise have not been participated in the labourforce and are
incentivized to participate. Here, there is a little scope for increasing participation rate among the adult
males wherein it is already saturated. But there is a possibility among adult females whose participation
rate is considerbly low. Nevertheless their labour makket participation depends upon their time spent
for household chors and child care, and also athe cultural factors particularly in India, Besides, the
206
demand for their labour in the labour market especially in the context of poor educational levels among
women plavs critical role in labour for participation rate of females. Between the rate of growth of male
population on and a rate of grwoth of male workforce particularly during 1980s. But in 1990s and 2000s
the rate of growth in male workforce has been noticed to be marginally higher than that of male
population. In both cases of males and females, the rate of growth in their population and workforce is
decelerating over a period. However, the deceleration was faster among the female workforce. Thus a
significant part of the deceleration in overall workforce could be because of faster decelaration in the
female workforce.
3.
Fast growing Marginal Workers Category: Census classifies workers into two categories i.e
main and marginal workers. The main workers are those who worked for more than six months in a
year and the marginal workers are those who worked for less than six months. The analysis of Census
data shows that during the last two decades (1991-2011). The rate of growth in marginal workers is
higher than that of main workers (see Table 19.4). The rate of growth in main workers has decelerated
during 1990s when compared with previous decade (1980s), whereas among marginal workers it
accelerated during the same period. However, it appears that there is revival of growth in main workers
during 2000s but the rate of growth is still less than that of 1980s. On the other hand there is a
deceleration in the rate of growth of marginal workers between 2001 and 2011 but the rate is still higher
than that of 1980s and higher that that of main workers. The analysis shows that marginal workers are
growing faster than main workers. Marginal workers have known to account for one fourth of the total
workforce in India in 2011 (see Table19.1).
4.
Genderwise analysis of Main and Marginal Workers: The genderwise analysis of main and
marginal workers has shown that the above pattern is observed particularly for males. In case of
females the pattern is little different. The rate of growth of female marginal workers increased during
1990s when compared to that of 1980s. There after decelerated drastically during 2001-11 to the rate
that is less than that of 1980s. Although there is acceleration in growth of female main workers during
2001-11 it could not compensate the deceleration in female marginal workers during the same period
and hence hte deceleration total workforce of the female. Between males and females the rate of
growth in female marginal workers was higher than that of their male counterparts during 1990s.
However, during 1990s and 2000s, the rate of growth in male marginal workers turns up to be higher
than their female counterparts. In case of main workers the rate three decades. The analysis indicates
that on the one hand, the rate of growth in female marginal workers has decelerated fast and, on then
other hand, it has accelerated for the main marginal workers. As result the percentage of marginal
workers in the total workforce has increased for males since 1991, but for female it increased during
1991-2001 and thereafter it declined between. 2001 and 2011 (see Table 19.1). However, the share of
female marginal workers, accounting for about 40% of the total female workforce in 2011, is still
considerably higher than that of their male counterparts.
5.
Improved Main Workers’ Sex Ratio: Sex ratio of population is increasing since 1991 after a
down fall between 1981 and 1991 (see Table 18.5). In the total workerforce, the sex ratio has improved
between 1981 and 2001, and declined thereafter in recent decade. The sex ratio among main workers
has infact, continuously been increasing since 1981 (see Table 19.5). Thus, the decline in sex ratio in
the total workforce is due to fast decline in sex ratio among the marginal workers. While the improved
sex ratio in main workers reflects the accelerated rate of growth among female main workers and at the
decline in high concentration of males among marginal workers reflects the deceleration in the growth
of female marginal workers (See Table 2).
207
Table 10.5 Sex Ratio in Population and Workforce in India.
Year
Population
Total Workers
Main Workers
1981
933
351
253
1991
927
400
290
2001
933
461
303
2011
910
452
327
Note: 1. Rural and Urban combined.
2. Sex Ratio refers to Number of females per thousand Males
Source: Census of India.
APPENDIX 1 : Review of Relevant Census Data 2001
WORK FORCE PARTICIPATION RATES IN INDIA (Based on Census data)
1. Review of Concept Explanation in Different Censues : 1951 to 1981
The work force participation rate in a country, i.e., proportion of working population to total
population, depends upon such factors as age and sex composition, attitude to work, availability of
work etc. All these factors differ in different countries and may differ even within the same country in
different periods. In advanced countries like England, Japan and others, work participation rate often
ranges between 45 to per cent, while in India it has been around 33 per cent.
The work force participation rate had declined between 1901 and 1951 from 46 per cent to 39
per cent. Since 1951, however, there has been contradictory trend. But it should be emphasised here
that the work force participation figures over the years are not really comparable as the concept of
“worker” or labour force has been changing in the different Censuses. For instance, the preIndependence censuses used the concept of “status” of workers and lumped together as part of the
work force both principal workers along with unpaid family workers. Naturality, the work force
participation rate was high in pre-Independence period. For the first time, the 1951 Census adopted a
strict definition of worker -as one gainfully employed or one working for a livelihod and excluded unpaid
family workers. The work force participation rate naturally came down in 1951 Census. The position
was however reversed in the 1961 census.
In the 1961 Census, the basis of work was considered to be satisfied if a person in the case of
seasonal work like cultivation, livestock, dairying, household industry etc. had some regular work of
more than one hour a day throughout the grater part of the working season. During 1961 census, many
such presons whose many activity was not economic were classified as worker. This resulted in an
exaggeration of the work force participation rate and thus it rose to 43 per cent in 1961.
A rigorous and more meaningful definition was again adoped in 1971 census. A worker,
according to the 1971 census, is a person whose main activity in participation in any economically
productive work by his physical or mental activity. Work involves not only actual work but effective
supervison and direction of work. This implies that a man or woman who is engaged primarily in
household activites such as cooking for own household or a boy or girl who is primarily a student
attending an institution, even if such a person helps in the family economic activity but not as a full time
worker should not be treated as a worker for the main activity.
The Census of 1981 carries forward the tradition of the Census of 1971 in making the definition
of “worker” rigorous and more meaningful and has classified the worker into ‘main worker’ and
‘marginal worker’. Main workers are those who have worked in some economic activity over a period
208
of six months or more and marginal workers are those who have not worked for a major part of the
year.
Against the participation rate of 43 per cent of total population recorded in 1961 census, the
proportion of working population recorded in 1971 Census came down to 33 per cent. This was mainly
due to the fact that many of the housewives and students who were treated as workers on the basis of
some marginal contribution in 1961 census were not included in 1971 Census as workers.
Consequently, the ratio of female workers in total female population got considerably reduced in 1971
census. Whereas in the 1961 Census, about 29 per cent of the females were recorded as workers.
There was no major change in the 1981 census.
2.
Work Participation Rate as Mentioned in 2001 Census [1981 to 2000].
The adoption in 1991 and 2001 Census of almost the same definitions and concepts of workers
(main and marginal) of 1981 census has rendered the direct comparison of the result possible.
Table 2: Work Participation Rate in India. (1961 - 2001)
Year
Category
Persons
Males
Females
1981
Total
Rural
Urban
Total
36.7
38.8
30.0
37.7
52.6
53.8
49.1
51.6
19.7
23.1
8.3
22.7
Rural
40.2
52.5
27.2
Urban
30.4
49.0
9.7
Total
39.2
51.9
25.7
Rural
42.0
52.4
31.0
Urban
32.2
50.9
11.6
1991
2001
Source: Census of India 1991 Series-1, (India) Paper 3 of 1991, Provisional Population Tables:
Workers and Their Distribution. c.f. Dutt Sundram, 2015
Main findings of the 2001 Census are as under:
1.
In general, the total Work Participation Rate (WPR) has shown an increasing trend from 1981
onward. WPR was 36.7 per cent in 1981, it improved to 37.7 per cent in 1991 and further
improved to 39.2 per cent in 2001.
2.
Increase in Work Participation Rate is more perceptible in rural areas than in urban areas. Work
participation rate in rural areas was 42% in 2001 as against 40.2% in 1991 and that in urban
areas was 32.2% in 2001 as against 30.4% in 1991.
Table 3: Total Workers in India (2001) and work Participation Rates.
Total
Persons
Males
Females
Population
1025.2
530.4
494.8
Workers
402.5
275.5
127.0
% of Workers
39.2
51.9
25.7
209
Rural
Urban
Population
740.2
380.4
359.8
Workers
310.6
199.2
111.5
% of Workers
42.0
52.4
31.0
Population
285.0
150.0
135.0
Workers
91.9
76.3
15.6
% of Workers
32.2
50.9
11.6
Source: Registrar General of India
3.
In the case of males, WPR in rural area was 52.4 per cent in 2001 which was also the level
attained in 1991; however, there is a slight improvement in WPR in urban areas in the WPR
rising to 50.9 per cent in 2001 as against 49.0 per cent in 1991.
4.
The Work Participation Rate for females in rural areas has increased from 27.2 per cent in 1991
to 31.0 per cent in 2001 - an increase by 3.8 per cent, but in the case of urban areas, WPR
increased from 9.7 per cent in 1991 to 11.6 per cent in 2001, an increase by merely 1.9 per
cent.
Table 4: Main and Marginal Workers in India (2001)
In Million
India
Rural
Urban
5.
6.
7.
8.
Percentage
Total
Main
Marginal
Main
Marginal
Persons
402.5
313.2
89.3
77.8
22.2
Males
275.4
240.5
34.9
87.3
12.7
Females
127.0
72.6
54.4
57.2
42.8
Persons
310.6
229.7
80.9
74.0
26.0
Males
199.2
169.3
29.9
85.0
15.0
Females
111.4
60.3
51.1
54.1
45.9
Persons
91.8
83.5
8.3
91.0
9.0
Males
76.2
71.2
5.0
93.4
6.6
Females
15.6
12.3
3.3
78.8
21.2
Out a total population of 1,025 million, 402.5 million person were workers, of these 275.5 million
are males and 127.0 million are females. In relative terms, the share of males in total work force
was 68.4per cent and that of females was 31.6 per cent.
Out of a total rural population of 740.2 million, workers accounted for 310.6 million with 199.2
million being females. Among the rural workers, the share of male was of the order of 64.1 per
cent and that of females was of the order of 35.9 per cent.
In the urban population, out of a total of 285.0 million, 91.9 million persons constituted the urban
workforce. Among them, 76.3 million were males and 15.6 million were females. This implies
that the share of males in rural workforce was 83 per cent and that of females was 17 per cent.
From the Census data, the conclusion example that rural women are more burdened; not only
they participate in larger numbers in economic activity, they have to return from home that
210
activity to undertake domestic work like cooking, cleaning, tending of cattle, not to mention child
bearing and child rearing.
As against them vast majority of the urban women have withdrawn from economic activity
outside the home and look after only domestic work.
The Census 2001 has defined the ‘main workers’ as those who have worked for 183 days or
more in a year and marginal workers who work less than 183 days in a year. Out of a total
workforce of 402.5 million, 313.2 million are main workers accounting for 77.8 per cent and 89.3
million are marginal workers accounting for 22.2 per cent. Among male workers, the proportion
of main workers was 87.3 per cent and among female workers, it was 57.2 per cent. This
implies that females account for a much larger proportion as marginal workers - nearly 43 per
cent. In rural areas, proportion of main and marginal workers among female workforce was 54%
and 46% respectively, but in urban areas, this proportion was 79 per cent and 21 per cent
respectively.
Out of total of 80.9 million marginal worker in rural areas, 29.9 million (37%) were males and
51.1 million (63%) were females. In other words, gender distribution of marginal workers in rural
areas was more titled towards females. As against them, out of total 8.3 million marginal
workers in urban areas, 5.0 million (60.2%) were males and 3.3 million (39.8%) were female,
male, The share of females in urban gender distribution of workers was relatively higher as
compared with that rural areas.
9.
10.
10.8
SUMMARY
In this lesson we have studied about employment trends in India, their sectoral shares and
gender-wise employment pattern. Using NSSO and Gensus data the employment pattern and trends
have been analysed.
10.9







REFERENCES
Government of India, Census of India, 1991
Government of India, Census of India 2001.
Government of India, Census of India 2011.
Government of India, NSSO Rounds.
Datt and Mahajan (2017) - Indian Economy
Rangarajan, Seema & Vibeesh, S. Chand Publication Pvt. Ltd. (2014) Developments in Work
force 2009-10 and 2011-12. Economic and Political weekly, 2014.
Misra & Puri (2014) – Indian Economy, Himalaya Publications, New Delhi.
10.10 FURTHER READINGS



Government of India. Census of India 2011.
Datt and Mahajan (2017) - Indian Economy and recent issue
Misra & Puri (2014) – Indian Economy. Himalaya Publications. New Delhi and recent issue.
10.11 MODEL QUESTIONS
Q1.
Q2.
What do you know about occupational structure of India?
Write short notes on
(1) Laboures Force and Work Force
(2) LFPR in India
(3) Declining femakle participation in Labour Force.
211
APPENDIX : TRENDS MENTIONED IN SURVEY 2015-16
A.
EMPLOYMENT AND UNEMPLOYMENT (ECONOMIC SURVEY 2015-16) FIGURES
I.
According to the Fourth Annual Employment – Unemployment Survey conducted by the Labour
Bureau during the period January 2014 to July 2015 following trends are noticed :
1. This Labour Force Participation Rate or LFPR, (Usual Principal Status) is 52.5 for all persons
(Table ).

LFPR for Rural areas at 54.7 pc is greater than that for Urban areas i.e. 47.2 pc.

LFPR for men is significantly greater tha that for female both in rural and urban areas.
Table : Labour Force Participation Rae
LFPR
Male
Female
Total
Rural LFPR (%)
74.7
29.1
54.7
Urban LFPR (%)
73.8
18.5
47.2
Total LFPR (%)
74.4
25.8
52.5
2. The unemployment Rate (UR) for persons aged 15 yrs and above according to usual Principal
Status is as follows :
II.
1.
Total UR is 4.9 pc
2.
Rural UR is 4.7 pc
3.
Urban UR is 5.5 pc
The above mentioned (see point I) Labour Bureau Survey figures are much higher than the all India unemployment rates arrived at by the National Sample Survey office (NSSO, 2011-12)
which have been reported as follows :
1.
Total UR is 2.7 pc for India as a whole
2.
Rural UR is 2.3 pc
3.
Urban UR is 3.8 pc
B. SCHEMES TO ADDRESS ISSUE OF LOW FEMALE LABOUR FORCE PARTICIPATION
RATE (LFPR) & WORK PARTICIPATION RATE (WPR).
I.
Legislation based schemes and other programmes/schemes are mentioned below :

MGNREGA guarantees atleast 100 days of employment to every Household in rural areas
and ensures one third participation by women.

Women Self Help Groups under National Rural Livelihood Mission (NRLM), a restructured
version of Swaranjayanti Gram Swarozgar Yojna (SGSY).
212
Lesson -11
INTER-STATE DISPARITIES IN THE POST-REFORMS PERIOD
[Background needed for understanding, Examination purpose : 11.3 onwards]
Structure
11.0
Objctives
11.1
Introduction
11.2
Background
11.3
Inter-regional Disparties in India (80s and 90s)
11.4
Trends in Inter State Inequality in Growth Performance
11.5
Casual Factors
11.6
Inter-State Disparities in India : Various Aspects
11.6.1 Growth Related Disparities
11.6.2 Poverty Related Disparities
11.6.3 Health Related Disparities
11.6.4 Education Related Disparities
11.6.5 Performance of MGNERGS
11.6.6 NRHM
11.6.7 Bharat Nirman Programme
11.6B Govt. Programme
11.7
Conclusion
11.8
Summary
11.9
Glossary
11.10 References
11.11 Further Readings
11.12 Model Questions
11.0
Objectives
After going through this lesson, you shall be able to

comment upon inter-regional disparities in India as existed in the 80s and the 90s.

enlist the factors/causes for these disparities

implications of these inequalities

explain the disparities across states in various dimensions in the previous decade (till
2008-09)
213
11.1
INTRODUCTION
In the previous lesson we have studied about the growth of national income and per capita
income in the post-independence India. After studying the growth of national income and share of
various sector-rural-urban, organised-unorganised, commodity-non-commodity, public-private-and
structural changes, this lesson is a step ahead. Here we’ll study about the disparities in the growth
performances of various statesof India.
11.2
BACKGROUND
11.2.1 Inter State Variations in Levels of State Domestic Product and Per Capita State Domestic
Product
There are wide variations as regard per capita income and domestic income generated in
different parts of the country. Measuring regional disparities is a difficult task. Differences in per capita
income or per capita state domestic product are often highlighted to bring out disparities in different
states.
But it is not a sufficient indicator of development. Differences in industrial growth disparities in
agricultural development, level of literacy among different states, total road length, infant mortality rate
etc. should be assignged` weights to finalise an from alise an indicator for assessing. Here we will not
consider such indices. Table 1 shows the size of income generated in the states while Table 16b shows
the level of per capita income in the states.
Table 1: Net State Domestic Product at Current Prices (Rs. Crore) New Series
State/U.T
1. Andhra Pradesh
2. Arunachal Pradesh
1980-81
1990-91
2004-05
2011-2012
2015-16
7324
31165
201303
608921
545638
98
460
3188
8691
18566
3. Assam
2298
9498
47181
103559
200347
4. Bihar
6349
22828
70167
230843
351871
41387
118762
233023
53056
113114
211905
5. Chattisgarh
6. Jharkhand
−
-
−
-
7. Delhi
2456
10126
94717
297843
501104
8. Goa
315
1024
10999
34658
49222
9. Gujarat
6547
24269
172265
87721
908442
10. Haryana
3032
12238
86222
279616
438140
723
2521
21189
51688
96038
12. J&K
1050
2763
23292
49846
100341
13. Karnatka
5587
20550
148729
408737
911472
14. Kerala
3823
12173
104776
290593
502689
15. Madhya Pradesh
7012
26515
99940
281812
483969
16. Maharashtra
15163
581751
370023
1150616
1748771
17. Manipur
200
723
4603
9115
17542
18. Meghalya
180
767
5846
3979
23124
11. Himachal Pradesh
214
State/U.T
1980-81
1990-91
19. Mizoram
62
306
2400
N.A.
13651
20. Nagaland
110
663
5421
11299
17368
21. Orissa
3443
9664
67987
194869
300236
22. Punjab
4449
16738
86108
220618
351198
23. Rajasthan
4126
18281
112636
325266
542657
24. Sikkim
25. Tamil Nadu
26. Tripura
27. Uttar Pradesh
28. Uttrakhand
2004-05
2011-2012
2015-16
49
213
1511
7481
13556
7218
7646
193645
572020
957447
264
917
8170
18478
N.A.
14012
49496
231029
609538
991836
22288
82415
157456
190029
493399
-
31500
−
29. West Bangal
9594
30. A & N Island
49
160
1633
4691
124851
31. Chandigarh
-
-
7610
21025
229076
32. Pondicherry
167
533
5033
12082
73618
Source: Economic Survey 1998-99, 2012-13
Note: Owing to difference in source material used, the figures for different States/UTs are not
strictly comparable.
Table 2 shows, per capita Net domestic product at current pieces. From the pervious section we
have noticed that Maharashtra generated the highest state domestic product in India followed by U.P.,
A.P and West Bengal successively. Tamil Nadu has picked up in 1993-94. Sikkim generated the lowest
size of income. But the state domestic product depends upon the area available to state and the
number of people working in the state. Therefore it is better to compare per capita income of the states
to have an idea of standard of living of people in different regions of the country.
Note : For latest addition to data you may consult any book out of the refrences mentioned on the first
page, For post-reforms period, see the next section of the chapter.
Of all the states, Punjab had the highest per capita income for several years. Earlier to it,
Maharashtra enjoyed the first rank. In the new series, Delhi has captured the first rank. On the whole,
Maharashtra, Punjab, West Bengal, Gujarat, Goa and Delhi continue to be rich states while Bihar,
Orissa, UP., M.P. and Rajasthan continue to be poor. The reasons for inter-regional differences may be
indicated as follows:
215
Table 2: Per Capita Net State Domestic Product at Current Prices (New Series 2011-2012)
( in Rs)
State/U.T.
1980-81
1990-91
2015-16
1.
Andhra Pradesh
1380
4728
137955
2.
Arunachal Pradesh
1571
5397
122466
3.
Assam
1284
4281
60526
4.
Bihar
917
2665
31454
5.
Chattisgarh
−
−
84767
6.
Jharkhand
−
−
54628
7.
Delhi
4030
10931
501109
8.
9.
Goa
Gujarat
3145
1940
8797
5913
827059
141504
2370
7508
162034
11. Himachal Pradesh
12. J & K
1704
1776
4910
3625
134376
74653
13. Karnatka
1520
4598
142906
14. Kerala
1508
4200
147190
15. Madhya Pradesh
16. Maharashtra
1385
4049
62334
147399
17. Manipur
1419
3976
55603
18. Meghalya
1361
4375
70613
19. Mizoram
20. Nagaland
1289
1448
4135
5498
114524
83621
21. Orissa
1314
3077
68293
22. Punjab
12674
8318
1192611
23. Rajasthan
24. Sikkam
11222
1571
4191
5302
82325
233954
25. Tamil Nadu
1498
4978
137837
26. Tripura
1307
3370
N.A.
27. Uttar Pradesh
1278
3590
46299
10.
Haryana
28. Uttrakhand
146826
29. West Bengal
1773
4673
−
30. A & N Island
2613
5590
5248
31. Chandigarh
32. Pondicherry
All India
Source: Economic Survey, 1998-99
25941
2794
6683
22212
12236662
216
11.2.2 Causes for Regional Differences in Growth of Income

Disparities in agricultural development: Punjab, Haryana and Western Uttar Pradesh are
well ahead of other states due to Green Revolution. Green Revolution was limited to wheat and
rice growing areas; and rich areas with capacity to adopt new strategy.

Disparities in industrial development: The initial distribution of industries in India was
determined by British interests. So, most of the industries get concentrated at a few centres.
This pattern of concentration had not changed substantially despite all attempts. Maharashtra,
West Bengal, Gujarat and Tamil Nadu are the industrially most developed states.

Social set-up: Differences in education or literacy, female literacy, infant mortality rates etc. do
matter a lot in economic and especially industrial areas.

Differences in the development of infrastructure, like roads, railways, airways, power
telecommunication etc. do play a major part in growing regional inequalities.

Services Sector: Differences in banking services, health services, political environment,
government policies etc. magnify regional imbalances.

Percentage of people below poverty line is not same in all the states. Poverty is also a major
cause for regional disparity.
11.2.3 Regional Imbalances in the decade of nineties
India, presents a picture of extreme regional variations, in terms of such indicators of economic
growth as per capita income, the proportion of population living below the poverty line, the percentage
of population living in urban areas, working population in agriculture, the percentage of population
working in manufacturing industries etc. The co-existence of economically developed and relatively
depressed states/regions is known as regional disparities/imbalances. Balanced regional growth was
adopted as a major plan objective during the sixth plan. It was realized that the balanced regional
growth is necessary for the harmonious development of our country. The Sixth Five Year Plan
document declares:
“The fact that there are vast areas of the country which have remained backward over the years
is both a challenge and an opportunity.”
To have an estimate of regional imbalances, 15 major states are being studied here. These 15
states taken together account for 96% of total population in 1991 census-about 50% in forward states
and 46% in the backward states. Among the forward states are included Punjab, Gujarat, West Bengal,
Karnataka, Kerala, Tamil Nadu and Andhara Pradesh. Among the backward states are Bihar, Madhya
Pradesh, Rajasthan, Uttar Pradesh, Orissa and Assam. The following table shows the various
indicators of regional imbalances in India like, state domestic product, per capita state domestic
product, life expectaney and literacy rate.
The extent of regional imbalances can be gauged by comparing the maximum and minimum
level of per capita state domestic product. The data reveal that in the year 1990-91, the ratio between
maximum per capita income of Punjab and the minimum per capita income of Bihar was 2.74 which
has risen to 4.6 by the year 2000-01. Thus, it shows that the regional disparities have widened during
the decade (1991-2001).
In terms of Net State Domestic product at factor cost, we find that the group performance of
forward states improved (from 5.2% to 6.3%) while that of backward states faced a decline (from 4.9%
to 3.0%). Except Punjab and Haryana all other forward states witnessed a higher growth rate in the
post reforms era while in case of backward states, all states underwent a decline excepting Orissa.
217
Moreover, all the states in the backward group progressed at rates lesser than the Indian average of
5.5% during the nineties. To quote Dutt and Sundaram - “The planning process by helping the
backward regions made an effort to reduce regional disparities, but the forces of liberalization and
globalization strengthened investment in forward states much more than in backward states.
Consequently, regional disparities in growth rates widened further”.
Table 18 : Regional Disparities in India
STATES
Annual Average Growth
Per Capita Net State Domestic
Life Expectancy
Literacy
Rateof NSDP at Factor-Cost
Product at Factor Cost
at Birth
Rate
(1980-81 Prices)
(at 1993-94 Prices)
(in Years)
1990-91 to 2000-01
1991-95
2001
1980-81 to
1990-91
1990-91
to 1997-98
FORWARD STATES
Punjab
5.3
4.4
2.7
67.2
60.9
Maharashtra
6.0
6.7
4.0
64.8
77.3
Haryana
6.5
4.0
2.6
63.4
68.6
Gujarat
5.2
7.9
3.9
61.0
70.8
West Bengal
4.2
6.7
5.0
62.1
69.2
Karnataka
5.0
(6.0)
6.0
62.5
67.0
Kerala
3.2
5.8
4.6
72.9
90.9
Tamil Nadu
5.6
5.6
4.9
63.3
73.5
Andhra Pradesh
4.8
6.3
3.8
61.8
61.1
Sub-Total
5.2
6.3
N.A
N.A
N.A
Madhya Pradesh
1.7
4.1
1.0
54.7
64.1
Assam
4.1
3.3
1.0
55.7
64.3
Uttar Pradesh
5.0
2.6
0.8
56.8
57.4
Rajasthan
7.4
4.0
1.6
59.0
61.0
Orissa
2.3
4.7
1.9
56.5
63.6
Bihar
4.9
0.6
-2.8
59.3
47.5
Sub-Total
4.9
3.0
N.A.
N.A.
N.A.
(5.2)
(6.3)
(3.4)
(60.3)
(65.4)
BACKWARD STATES
(ALL INDIA)
Even in terms of human development, wide disparities are observed among different states.
Kerala and to some extent Tamil Nadu have shown that it is possible to achieve higher levels of human
development even with low levels of economic development. But, by and large, higher levels of per
capita income are associated with higher human development levels. To achieve higher levels of
human development, it is necessary that investment in education and health infrastructure be stepped
up. Among the backward states, Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh have very poor
record in terms of literacy especially female literacy and lower life expectancy. To quote N.J. Kurien.
218
The accelerated economic growth since the early 1980s with increased participation by the
private sector appears to have aggravated regional disparities. The better - off states are able to attract
considerable amount of private investment, both domestic and foreign) to improve their development
potential because of existing favourable investment climate including better socio-economic
infrastructure. The backward states are unable to attract private investment because of unfavourable
investment climate including poor infrastructure due to lack of resources. Their lack of resources is
linked to their poor development. Then they are truly in a vicious circle.
The balanced regional development has always been one of the declared objectives of national
policy in India. Moreover, India’s federal democracy is increasingly categorised by regionalisation of
politics, with politics at state level being driven by state rather than national issues. The variation in the
state-level performance is of considerable importance. How for the economic reforms of early nineties
have succeeded in dealing with the issue of regional inequality - is an interesting subject. This lesson is
an attempt to present the picture of regional imbalances and their behaviour. In this lesson results of
study by Ahluwalia (2005) have been presented and that has been updated by the figures given in
Economic Survey, 2010-11.
11.2.4 Govt. Steps
Because of the glaring regional disparities in India, the planners have accepted the importance
of a balanced regional development and was included even in second plan.
The third plan and fourth plan had different programmes for the benefit of rural and poor
regions. These policies and programmes were continued in fifth plan. The sixth plan laid special
emphasis on these programmes. The seventh and eighth plan too worked in this direction. It was one of
the important objectives of ninth plan (1997-2002) also.
Historical experience of the present day developed countries indicate that regional disparities. in
economic development do increase in the intial stages but the ‘spread effect’ of growth in advanced
regions ultimately overpower the “backwash effects” and the disparities may narrow down. This
experience, however, is and cannot be our guide because the balanced regional development is a
basic policy postulate in Indian scheme of things. Secondly, the absolute levels of economic well-being
in economically underdeveloped regions are so low that any further deterioration is fraught with
socio-political dangers.
However, in spite of our policies and pronouncements for balanced regional development, the
actual experience seems to corroborate the path of those who followed free market approach to
economic development.
Table 17 : State Domestic Product Rankings of Indian States (1970-95)
State
Rank
Rank
Rank
Rank
1970/71
1985/86
1989/90
1995/96
Punjab
1
1
1
1
Haryana
2
2
2
2
Gujarat
3
4
4
4
Maharashtra
4
3
3
3
West Bengal
5
5
7
6
Rajasthan
6
9
-
12
Karnataka
7
8
6
5
219
Kerala
8
11
9
10
Andhra Pradesh
9
7
5
11
Tamil Nadu
10
6
8
8
Uttar Pradesh
11
12
10
15
Madhya Pradesh
12
10
12
16
Orissa
13
13
11
14
Bihar
14
14
13
17
Poorest states viz. Uttar Pradesh, Madhya Pradesh, Orissa and Bihar have remained at the
bottom of the table while top 5 also seem to be maintaining their relative position. There seems little
change in ranking over 15 years of economic development. No doubt ranking procedure would retain
some states at the bottom but lack of change does not speak well about our success. Disparity ratio i.e.
ratio between the richest and poorest states domestic product / per capita income has also increased
over this period. Disparity between Punjab and Bihar representing the top and the bottom of the table
12 has increased from 2.66 : 1 in 1970/71 to 3.4: 1 in 1985/86. (see Datt. P. 370). The richer states
seem to be growing faster than the poor states. The policy, therefore has to address itself to this
worrying aspect as well.
11.3
INTER-REGIONAL DISPARITIES IN INDIA (80s and 90s)
Prior to 1980, the growth rate of the Indian states was mediocre but relatively uniform. After
1980, however, the fortunes of the states diverged considerably.
A study by Montek Ahluwalia on economic performance of the states in the post-reform period
(1990-91 to 1997-98) brings out that there is considerable variation in the performance of individual
states, with some states growing faster than the average and others slower. What is important is that
the degree of dispersion in growth rates of SDP (state domestic product) across states increased
significantly in the 1990s. The range of variation in the growth rate of SDP in the 1980s was from a low
of 3.6 per cent per year in Kerala to a high of 6.6 per cent in Rajasthan. In the 1990s the variation was
much larger, from a low of 2.7 per cent per year for Bihar to a high of 9.6 per cent for Gujarat. (see
Table 1)
The difference in performance across states becomes even more marked when he allowed for
the differences in the rates of growth of population and evaluate the performance in terms of growth
rates of per capita SDP (Table 1). The variation in growth rates in the 1980s ranged from a low of 2.1
per cent for Madhya Pradesh to a high of 4.0 for Rajasthan, a factor of 1:2. In the 1990s, it ranged from
a low of 1.1 per cent year in Bihar and 1.2 per cent in U.P. to a high of 7.6 per cent per year in Gujarat,
with Maharashtra coming next at 6.1 per cent. The ratio between the lowest (Bihar) and the highest
(Gujarat) is as much as 1:7.
The increased variation in growth performance across states in the 1990s reflects the facts that
whereas growth accelerated for the economy as a whole, it actually decelerated sharply in Bihar. Uttar
Pradesh and Orissa, all of which had relatively low rates of growth to begin with and were also the
poorest states. There was also a deceleration in Haryana and Punjab, but the decelaration was from
relatively higher levels of growth in the 1980s, and these states were also the richest.
Six states depicted increase in growth of SDP in 1990s. The acceleration was particularly
marked in Maharashtra & Gujarat, both of these figure amongest the richer states, but there was also
220
increase in West Bengal, Kerala, Tamil Nadu and Madhya Pradesh all belonging to the middle group of
states in terms of per capita SDP.
Table – 1, Annual Rates of Growth of Gross State Domestic Product (SDP) 1981-98
State
1980-81 to 1990-91
1990-91 to 1997-98
(Per cent)
1.
Bihar
2.45
1.12
2.
Rajasthan
3.96
3.96
3.
Uttar Pradesh
2.60
1.24
4.
Orissa
2.38
1.64
5.
Madhya Pradesh
2.08
3.87
6.
Andhra Pradesh
3.34
3.45
7.
Tamil Nadu
3.87
4.95
8.
Kerala
2.19
4.52
9.
Karnataka
3.28
3.45
10.
West Bengal
2.39
5.04
11.
Gujarat
3.08
7.57
12.
Haryana
3.86
2.66
13.
Maharashtra
3.58
6.13
14.
Punjab
3.33
2.80
3.03
4.02
Combined SDP of 14 States
Source : C.F. Montek Ahluwalia (2005)
It is important to note that the high growth performance in the 1990s were not concentrated in
one part of the country. The six states with growth rates of SDP in the 1990s above 6.0 per cent per
year are fairly well distributed regionally i.e. Gujarat (9.6 per cent) and Maharashtra (8.0 per cent) in the
west, West Bengal (6.9 per cent) in the east, Tamil Nadu (6.2 per cent) in the south and Madhya
Pradesh (6.2 per cent) and Rajasthan (6.5 per cent) in the north.
The performance of Kerala deserves special attention. Kerala has justly celebrated for its
achievements in human development but it has also been criticised for under performance in economic
growth. It is important to note that its performance in the 1990s showed a marked improvement
compared with the 1980s. From a SDP growth rate much below the 14 states average in the 1980s, it
accelerated to a growth rate only marginally below the average in the 1990s. However, because of the
low population growth, its performance in per capita SDP growth in the 1990s was actually much better
than the average.
The fact that Gujarat and Maharashtra grew at rates normally associated with ‘miracle growth’
economies also deserves special mention. Superior performance of Gujarat and Maharashtra in the
post-reform period must be attributed to the fact that the states were able to provide an environment
most conducive to benefiting from the new policies (or reforms).
221
2.4
TRENDS OF INTER-STATE INEQUALITY IN GROWTH (Various Studies of 20th Century)
The differences in per capita income and other indicators of social development across states
have attracted attention and for good reasons. Punjab has remained the richest state for many years
and its per capita SDP was five times that of Bihar (1997-98) which was at the other end of the
spectrum. Inter-state differences would narrow with development only if the poorer states actually grow
faster than the richest states but the pattern of growth witnessed in the 1990s has been quite different,
generating concern that we may be witnessing an incrase in regional inequality with the poorer states
being left further behind.
According to Montek S. Ahluwalia, while inter-state inequality (is measured by the ginicoefficient) has clearly increased, the common perception that the rich states got richer and the poor
states got poorer is not entirely accurate.
i.
It is not true that all the rich states got richer relative to poorer states. Punjab and Haryana were
the two richest of the 14 states in 1990-91. The growth rates of per capita SDP of these two
states in the 1990s were not only lower than in the 1980s but in both cases actually fell below
the national average. Except for Bihar, UP and Orissa, all the other states therefore narrowed
the per capita income gap with the two richest states.
ii.
Maharastra and Gujarat, which were just below Punjab and Haryana in terms of per capita
income levels and therfore in the richer group, accelerated very significantly in the 1990s and
grew at rates much higher than the national average.
iii.
It is important to note that not all the poorer states lagged behind. Rajasthan, which was also
one of the poorer states, experienced much stronger growth in per capita SDP, more than
double that of the other poor states. Rajasthan’s performance in terms of SDP growth is actually
better than the averge of the 14 states but it slips below the average in per capita SDP growth
because of higher rates of population growth.
iv.
Performance of six middle income states (Tamil Nadu, Kerala, West Bengal, Madhya Pradesh,
Andhra Pradesh and Karnataka) was clustered around the average rate. All six of these states
grew faster in terms of per capita GDP than they did in the 1980s, though in some cases the
differences was very marginal.
According to Ahluwalia (2006) the inter-state disparities in the growth of gross state domestic
product (GSDP) have increased in the post-economic reforms period (1990-91 to 1997-98) i.e.
beginning from the early nineties when compared to the eighties. In general, the richer states have
grown faster than the poorer states (Ahluwalia, 2000: Dev and Ravi, 2003: Bhattacharya and Sakthivel,
2004). The regional disparities in per capita GSDP growth are even greater because the poorer states
in general have experienced a faster growth in population.
According to Rao (2007) although these disparities have accentuated in the post-reforms
period, they have been building up in the pre-reform period itself. For example, in the early 1960s the
per capita GSDP of the richer states like Punjab, Maharashtra and Gujarat was, on an average, about
80 per cent higher than the average per capita SDP of the bottom four states viz., Bihar, Uttar Pradesh,
Orissa, and Madhya Pradesh. This disparity increased to 125 per cent by the early 1970s (Rao, 2006),
was contained at a little over 100 per cent during the eighties and escalated steeply to 200 per cent
towards the end of the nineties.
States whose per capita GSDP is below the national average together account for over 60 per
cent of the country’s population and as high as the 75 percent of the country’s population below the
poverty line. Further, these states account for nearly 60 per cent of the population belonging to the
socio-economically disadvantaged sections like Scheduled Castes and Scheduled Tribes. There is
thus, a large potential for growth which needs to be exploited for sustaining development in the country
over a long period. This is necessary for improving regional and social equity and for strengthening
national integration.
222
11.4.1 Latest Trends in Regional Disparities
This section is divided into three sub-parts (A), (B) and (C).
Table 2 provides information of. State Domestic Product during the 8th, 9th and 10th plan for
major states of India. The data has been classified into two categories — Forward States and
Backward States. The data reveal that among the forward states, Gujarat recorded highest growth of
9.6 p c per annum during the 11th plan against the national average of 7.9 Pc and followed by Tamil
Nadu, Maharashtra, Goa and Haryana. The State of Punjab has been lagging behind during 8th 9th &
10th plan with growth rate between 4.4 pc .— 4.7 pc and improved it to 6.8 Pc in the 11th plan. Among
the backward states, Orissa, Chattisgarh and Jharkhand have recorded sharp increase in growth rates
while Rajasthan with high growth of 7.5 pc in 8th plan witnessed a slow down (to 5 pc) during the 10
plan, but later again rose to 7.7 pc in the 11th plan. Bihar (12.0 pc) and Madhya Pradesh (8.9 pc) have
also shown improvement. A strong need is felt to accelerate the growth of the backward states so that
the regional disparity is reduced.
(A)
Net State Domestic Product Across Major States (1992-2012)
Table 2: Growth Rate of State Domestic Product in Different States
(Percent Per annum)
Eighth Plan Ninth Plan
Tenth Plan Eleventh Plan
1992-97
1997-02
2002-07
2007-12
FORWARD STATES
Gujarat
Tamil Nadu
Maharashtra
Goa
Haryana
Kerala
Karnataka
Andhra Pradesh
West Bengal
Punjab
BACKWARD STATES
Jharkhand
Chattisgarh
Odisha
Rajasthan
Bihar
Uttar Pradesh
Madhya Pradesh
ALL INDIA
12.4
7.0
8.9
8.9
5.2
6.5
6.2
5.4
6.3
4.7
4.0
6.3
4.7
5.5
4.1
5.7
7.2
4.6
6.9
4.4
10.6
8.0
7.9
7.8
7.6
7.2
7.0
6.7
6.1
4.5
9.6
8.3
9.4
8.9
9.1
8.0
8.0
8.3
7.3
6.8
Na
Na
2.1
7.5
2.2
4.9
6.3
Na
Na
5.1
3.5
4.0
4.0
4.0
11.1
9.2
9.1
5.0
4.7
4.6
4.3
7.0
8.4
8.2
7.7
12.0
6.9
8.9
6.5
5.3
7.6
.
7.9
Note : Arranged in descending order.
Source: CSO (based on 1999-2000 prices as given in the XI FYP (2007-12) Vol. I)
223
Activity
Q.
Find the state with highest Per Capita Income in the current year. Give figure for per Capita of
India also.
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
(B)
Per Capita Net State Domestic Product of Major States in India (1990.91 to 2011-12)
In this section we visualize the growth rate of Net State Domestic Product and Per Capita Net
Domestic Product at Constant prices for the periods 1990-91 to 2004-05 and 2004-05 to 2011-12 but with
different bases. Now the new series of national income is being developed with the base year 2011-12.
Table: Statewise Net Domestic Product (NSDP) and Per Capita Net State Domestic (PCNSDP)
at Constant Prices
STATES of India
Annual Average Growth Rate
1990-91 to 2004-05
2004-05 to 2011-12
(at 1993-94 prices)
(at 2004-05 prices)
A. FORWARD STATES
NSDP
PCNSDP
NSDP
Punjab
4.37
2.5
5.0
Maharashtra
6.06
4.1
8.9
Haryana
5.37
3.0
7.5
Gujrat
6.79
4.8
8.7
West Bengal
6.88
5.3
-
Karnataka
6.91
5.4
6.7
Kerala
5.86
4.9
7.8
Tamil Nadu
5.26
4.2
8.9
Andhra Pradesh
5.65
4.3
7.5
SUBTOTAL
6.03
B. BACKWARD STATES
Madhya Pradesh
1.78
1.8
6.7
Assam
3.18
1.4
4.4
Uttar Pradesh
2.79
1.0
5.0
Rajasthan
5.11
2.7
6.5
Odisha
5.52
3.7
4.4
Bihar
-0.99
-1.2
7.6
SUBTOTAL
2.69
ALL INDIA
5.76
3.9
224
Source: Col (1) — Statistical Abstract of India
Col (2) — National Accounts Statistics 2012-13
C. f. Datt & Mahajan (2013) p. 508.
Note : Net State Domestic Project =NSDP and Per Capita Net State Domestic Product= PCNSDP.
(C) Socio-Economic Disparities As per Latest Census
Going by recent Census (2011), the regional disparities in human development have reduced
across the states of India as the backward states show better results in terms of quality of population
(Datt and Mahajan 2013; 57-58). The following facts confirm it (1)
Twenty five states have shown population growth less than 2 per cent.
(2)
Six states/UTs indicate improvement in sex ratio for population under 6 years of age; including
most infamous states of Haryana and Punjab in this regard.
(3)
As regards literacy rate, Bihar (47 Pc in 2001 to 64 pc in. 2011), Jharkhand (53.6 Pc in 2001 to
67.6 pc in 2011), Rajasthan, Uttar Pradesh and Orissa etc have shown better performance.
Except for decline in sex-ratio in 0-6 age group, other results of the census 2011 are
encouraging in terms of reduction in population growth, literacy rates, over all sex ratio, regional
disparities in human development including health and education of female population.
11.5
CAUSAL FORCES (POST REFORMS PERIOD)
First, different states had different pre-existing capabilities. The pre-existing capability refers to
the ability or as we have read as background a state’s level of development or educational level or
geography, probably a proxy for some generalised capability- human capital, entrepreneurial spirit,
organisational capital - that could exploit (or utilise) a favourable economic environment. But these
remained latent (or unutilesed) and could not find expression until the economic environment changed
in sucha way (or reforms) to reap benefits of these talent forces.
The trigger- the second set- was the liberalisation that began in 1980s and especially the
decentralisation of economic power that was forced by the changing political landscape after 1980.
Thus, it was the interaction between pre-existing capabilities and the twin triggers of liberalisation and
decentralisation that explains how the different states fared (Subramaniam, 2007).
Greater economic decentralisation meant states could differentiate themselves in their ability to
attract private-sector investment, facilitated by the gradual dismantling of the industrial licencing system
(that used regional equity as one of the primary criteria guiding industrial investments.) Further
contributing to differentiation over this period was the rising trend in private investment as well as the
falling trend in public investment, with private investment likely to be more sensitive to differences in
policies across states.
1)
During the pre-1980s era, states could not do much to affect economic performance with in their
borders (most decided at the central level. Subramaniam (2007) found that State level policies
and institutions had little role in explaining the state growth in the pre-1980s era while they
played an important role in explaining post-1980s, especially post 1990s growth.
2)
Rao (2007) studies emerging regional disparities with regard to the individual sectors,
agriculture, industry and services. His results are Summarized RIise un the points 2 and 3. As
far as agriculture is concerned, there are, no doubt, significant regional disparities in the
availability of physical and institutional infrastructure like irrigation, institutional credit, electricity
etc. Despite this, new technology (i.e. Green Revolution) was adopted widely in the country by
the end of the eighties. He finds
225
a) Co-efficient of variation has been lower for that originating from primary sector than the
secondary sector and higher in the post-reforms period. It means disparities were more
because of secondary sector than because of primary sector and also higher in post-reforms
period.
b) no evidence of an increase in the variations across regions in the post-reforms period, when
compared with eighties.
c) the tertiary sector which has been prime mover of GDP growth in the posts-reforms period,
expanded faster in the industrially developed states -led to increase in variation across regions.
3)
As regards public investments, in the irrigation, power and social sectors, the share of states
declined from around 50% of total plan expenditure in the country in the eighties to 40% towards
the close of nineties. Within the states, the per capita outlays have always been much lower
than those of the better - off states. The proportion of the poorest four states in the actual per
capita plan expenditure on an average, was a little over half of the average per capita plan
expenditure of the better-off states like Gujarat, Maharashtra, Punjab in the sixth plan, which
came down to around 40 percent (Rao, 2007).
4)
The inability of the less developed states to access sufficient resources for the development of
infrastructure through higher plan outlays has been a critical constraint in accentuating regional
disparities.
5)
Private investment has gone to the high income states where per capita plan outlays have been
higher and infrastructure is developed. In the year 2003, investment plus credit- deposit ratios of
scheduled commercial banks were high for the western (75%) and southern regions (79%) and
quite low for the eastern (54%) and central regions (50%). As regards FDI and Foreign
Technical Collaborations during August 1991 to December 2000, the share of developed states
(of Maharashtra, Gujarat, Tamil Nadu and Karnataka) together was half the share as against the
combined share of less than 10 per cent by the four poorest states (GOI, 2001).
6)
Historically, the developed state have had relatively more efficient systems of governance in
terms of skills, responsiveness and the quality of delivery systems.
7)
Ahluwalia (c.f. Krueger) found that the percentage of the population below the poverty line in the
fourteen major states declined steadily from 43.8 per cent to 26.4 percent in 1999-2000. The ten
year period 1983-84 to 1993-94 saw a relatively modest reduction of about 7.5pc per centage
points as regards the percentage of population living below the poverty -while the subsequent 6
years period 1993-94 to 1999-2000 saw a larger decline of ten percentage points. The faster
growth in the post-reforms period led to faster pace of reduction in poverty. In 1980, the three
states of Bihar, Uttar Pradesh and Orissa accounted for 37.5 per cent of the total population
below poverty line in India, but by 1999-2000 this had increased to 46 per cent.
Hence, it can be concluded that there are states which have adjusted rapidly to the evolving
economic circumstances and have benefited from the ongoing growth process. There are others which
are untouched by the change and have seen little improvement in their economic conditions; and
remain at the lowest rungs of the devleopment ladder.
The 11th Five Year Plan (2007-12) also gave priority to bridge the regional divides or disparities.
It has been recognised that there exist severe imbalances within states. Backward districts of otherwise
well performing states present a dismal picture. This discontent & despair has led to inter-state
disparities during the current years i.e. 2002-03 to 2008-09 and also to several other problems like
communalism, terrorism etc. The next section portrays latest trends in this regard.
226
11.6
A BROADER VIEW : GROWTH & CAUSAL FORCES : Latest Trends 2003-09
(Inter-State Socio-Economic Disparities in India) 2003-09 : A Broader View : Growth & Causal Forces :
Latest Trends 2002-03 to 2008-09 (Socio-Economic Disparities)
Economic Survey 2010-2011 presents the regional disparities regarding socio-economic
variables across Indian States as follows :
11.6.1 Growth Related Disparities

The best performer in terms of growth during 2002-03 to 2008-09 was Gujarat, followed by
Bihar, Orissa, Haryana, and Uttarakhand. States like Madhya Pradesh, Assam, Punjab and
Uttar Pradesh registred a relatively lower growth rate. Interestingly, the best performer in 200809 was Bihar with a growth rate of 16.59 per cent. While the good growth performance of some
of the hitherto backward states like Bihar and Orissa is a welcome sign, this may also be
partially due to the low base effect because of the growth deficit in earlier years. In fact, many
states like Bihar, Chattisgarh, Orissa and Uttarakhand that showed high growth in 2002-03 to
2008-09, had witnessed low growth in 1994-95 to 2001-02.
11.6.2 Poverty Related Disparities

The percentage of people below the poverty line is very high in states like Orissa, Bihar,
Chhattisgarh, Jharkhand, Uttarkhand, and Madhya Pradesh, both in terms of URP and MRP.
Punjab is the best performing state in terms of this indicator.

Income inequality measured by the Gini Coefficient (in rural areas) is found to be highest in
Haryana followed by Kerala, Maharastra, Punjab, Tamil Nadu, and West Bengal. Though
inequality is lowest in rural areas of Bihar and Assam, this may mean greater equality at low
levels of income.

For urban areas, income inequality is measured to be highest in Madhya Pradesh followed by
West Bengal, Haryana, Karnataka, Kerala, Maharashata, and Chhattisgarh.
11.6.3 Health Related Disparities (IMR, Birth Rate and Death Rate)

Infant mortality rates (IMR) i.e. the number of infant deaths (one year of age or younger) per
1000 live births, for which relatively recent data are available, were highest in Madhya Pradesh,
Orissa, Uttar Pradesh, Assam, Rajasthan, Chhattisgarh, and Bihar. Kerala was by far the best
performing State, way above Tamil Nadu and Maharasthra.

Birth rates in 2008 were lowest in Kerala, while UP had the highest rates, followed by Bihar,
Madhya Pradesh, and Rajasthan.

While death rates do not show large variation across States, the worst performer in this regad
was Orissa, followed by Madhya Pradesh, Assam, and Uttar Pradesh.
11.6.4 Education Related Disparities : Elementary Education

Interestingly, the best performer in terms of Gross Enrolment Ratio (GER) for elementary
education was Jharkhand, followed by Madhya Pradesh, Chhattisgarh, and Gujarat and the
worst performers were Haryana, Kerala, and Punjab which were the best performers in many
other areas. This may be due to overage children studying in primary schools in backwards
states and double entry of data in some states.
GER for secondary education was highest in Himachal Pradesh, Tamil Nadu, Kerala, and
Madhya Pradesh while Bihar was the worst performing State.
227
11.6.5 Performance of Mahatma Gandhi National Rural Employment Gurantee Scheme
MGNRMGS

Regarding the performance the Mahatma Gandhi National Rural Employment Guarantee
Scheme (MGNREGS) in various states, maximum employment during 2009-10 was provided in
Rajasthan followed by Andhra Pradesh, Uttar Pradesh, Madhya Pradesh, Tamil Nadu and
Bihar.

In terms of share in person days under the MGNERGS, the share of SCs was highest in Punjab
followed by Tamil Nadu, Uttar Pradesh, Haryana, and Bihar while the share of STs was highest
in Madhya Pradesh followed by Jharkhand, Gujarat and Chhattisgarh.

The share of women was highest in Kerala followed by Tamil Nadu, Rajasthan and Andhra
Pradesh.
11.6.6 Working of National Rural Health Mission

Under the National Rural Health Mission (NRHM), the maximum number of primary health
centres were found to be operating in Tamil Nadu, followed by Karnataka, Andhra Pradesh,
Maharashtra, Uttar Pradesh and Bihar.
11.6.7 Bharat Nirman Programme and Development of Rural Infrastructure
In 2005-06, Bharat Nirman Programme was launched covering main components of
infrastructure development like rural roads, rural electrification, rural irrigation etc. to develop agriculture
in backward areas. Its performance varies across states indrectly offecting the development of states.
11.6B GOVT. INTERVENTION TO REDUCE REGIONAL IMBALANCE

Higher Resourse Transfer i.e. "Income Distance" by 14th Finance Commission.

Development Programme in Agriculture, Infrastructure, Industry etc..

Programmes for expansion of Rural & Small Industy.

Diffusion of industrial activity.

Schemes for Development of Backward Areas.

Competetive Federalism.
11.7
CONCLUSION
During the first four plans, the emphasis was on raising the GDP growth rate and it was
assumed that per capita income will also rise automatically. But the ‘trickle down’ effect did not happen.
As a result emphasis shifted towards dealing with poverty & unemployment problems, reducing income
inequality and regional imbalances. The Sixth Plan put renewed emphasis on the reduction of income
inequalities. Likewise all the plans in the post-reforms period as mentioned in the chapter inch-ding the
recent elements and Twelfth Planslaid emphasis on reduction in inter-state disparities. Even the
laggard state like Bihar has experienced high growth rate in the recent years. But still the gap between
the rich & poor states is quite large, due to low-base effect.
11.8
SUMMARY
Lets summarise the contents of the lesson. Inter State Disparities in Post Reforms Period in
terms of a flow chart on next page.
228
Regional Disparties in India
11.9
GLOSSARY

Regional Disparities: The uneven or non-uniform growth of different regions of a nation is
called regional disparity. This may relate to state income, agriculture sector, infrastructure,
poverty, unemployment, etc.

Structure of Economy : The respective shares of three sectors of economy i.e. primary,
secondary and tertiary in the national economy is known as structure of economy.

Structural change in National Income : The change in the shares of three sectors of economy
overtime is called structural change which happens due to different growth rates of the sectors.

Occupational Distribution : The occupation (or employment) of the population, emerges in
three sectors - primary, secondary and tertiary sectors with growth over time in an economy.
The share of three sectors in total employment of the country is called occupational distribution.

Ginni Coefficient : A measure of income inequality.

GDP and SDP : GDP is measure of national income, and SDP is measure of state income.

Real Income : Money income divided by Prices gives Real income.

PCSDP : Per Capita Income calculated for State Domestic Product (i.e. SDP ÷ POP = PCSDP).
11.10 REFERENCES

Government of India, (2015-2018) - Economic Survey of India Ministry of Finance, various
issues.

Datt and Mahajan (2015) - Indian Economy, S. Chand Publications. Pvt. Ltd., various issues.

Ahluwalia, Montek S. (2005) – State Level Performance under Economic Reforms in India c.f.
Anne O. Krueger (ed). Economic Policy Reforms and the Indian Economy (2002). University of
Chicago Press.
229
11.11 FURTHER READINGS

Government of India Economic Survey 2017-18. Ministry of Finance 2017 and latest issues,
Ministry of Finance. www.indiabudget.gov.in

Website of Niti Ayog. (For state progress) http://www.niti.gov.in

Website of Planning Commission. (For Progress till 2005) www.planning commission.nic.in
11.12 MODEL QUESTIONS
1.
Comment upon the inter-state disparties in India in the post-reforms period.
2.
Explain the factors that have contributed towards the disparities in the growth performance of
Indian states. Also comment upon the inter-state disparities in India.
3.
Critically analyse the inter-state disparities in India. What government steps have been taken
and comment on progress in this regard.
---00--
230
UNIT III
Lesson-12
GROWTH OF INDIAN AGRICULTURE AND
REGIONAL DISPARITIES
Structure
12.0
Objectives
12.1
Introduction
12.2
Indian Agricultural Production : Phases of Growth
12.2.1 General Phase (1947-61)
12.2.2 Intensive Phase (1961-65)
12.2.3 Specialised Phase (1965- onwards)
Twenty First Century
A. Ninth, Tenth & Eleventh Plans
B. Agriculture in Twelfth Plan
12.2.4 Compound Growth Rates of Area, Production and Yield
A. Pattern of Growth since 1950
B. Growth in Recent Years
12.3

Eleventh Plan

State wise Spresd : Food grains & Non-Foodgrains

Yield Per Hectare in Indian Agriculture
Low level of productivity
12.3.1 Low Productivity (Extent)
12.3.2 Causes of Low Productivity
12.4
Agriculture Policy Under Recent Plans
12.4.1 Tenth Plan
12.4.2 Eleventh Plan
12.4.3 Twelfth Plan
12.5
Gross Capital Formation in Ag. & Allied Sector
12.6
Deceleration in Nineties
12.7
Recent Growth Concerns
12.7.1 Important Observations on growth
12.7.2 Reasons
12.7.3 Yield per Hectare
231
12.7.4 Investment in Agriculture
12.8 Regional Disparities in India Agriculture (1962-65 to 1992-95)
12.8.1 Regionwise details
12.8.2 Statewise details
12.9 Regional Disparities in Post-1995 Period
A. Studies (3) :
12.9.1 Mathur’s Study (1993-03)
12.9.2 Singh’s Study (1996-2003)
12.9.3 Vaidyanathan’s Study (1994-2012)
B. On the Basis of Eco. Survey
12.0
OBJECTIVES
After going through this lesson, you shall be able to :
 comment upon the phases of growth of Indian Agriculture sector.
 discuss pattern of growth of agriculture in post reforms era.
 explain the deceleration of agriculture in the nineties.
 delineate the growth of area, production and yield of agriculture.
 discuss low level of agricultural productivity and causes responsible for it.
 explain policy measures for agriculture under recent plans.
 comment on investment in agriculture.
 elaborate on growth concerns of agriculture sector in recent times.
 illustrate regional disparities in agriculture in post-GR period till 90s and post reforms period.
12.1
INTRODUCTION
India is an agricultural country with 49pc of population dependent on agriculture sector for
livelihood and contributing 17pc of share in (Gross Domestic Product or) national income. Due to its
dependence on monsoons there is a valuation in the growth of sector. Moreover there is shift from crop
and traditional sector to non-crop and non-traditional sector. The productivity of agriculture sector is low.
In this lesson we shall study about growth pattern, growth of area under cultivation, yield, causes
responsible for it, latest policy measures, latest plan performance, slow down in nineties and regional
disparities.
In the previous lesson we have read about the recent policy changes that have taken place in
Indian economy in the year 1991 and its impact, on the growth of national income, regional disparities,
human development, extent of unemployment and size of population below poverty line.
12.2
INDIAN AGRICULTURE PRODUCTION: PHASES OF GROWTH
It is well recognised that agriculture is an engine of economic growth, provided new techniques
of cultivation are adopted. Keeping this in view, our government accorded top priority to agriculture in
order to accelerate the overall growth rate of the economy as well as achieve self-sufficiency in
foodgrains and to save valuable foreign exchange resources which might be utilized for the
establishment of basic and heavy industries. The strategy adopted by our government for the
development of agriculture may be classified in three phases, namely :(i)
General Phase, from 1947 to 1961
(ii)
Intensive Phase, from 1961 to 1965
(iii)
Specialized Phase, from 1965 onwards. This phase embodies green revolution.
(iv)
Agricultural Growth in the Nineties and beyond.
Next we discuss the first two phases in brief and the third in detail.
232
12.2.1 The General Phase (1947-61)
This period includes the first two five year plans. To change the character of our traditional
agriculture, may institutional and infrastructural changes were introduced during this period. Their main
objectives was to create a favourable atmosphere for simulating the interests of farmers, to produce
more by introducing permanent improvements in land; and to accelerate the growth of agricultural
production.
Major institutional changes were introduced in the year 1952, listed below
(a)
Abolition of the Zamindari System
(b)
Tenancy Laws
(c)
Ceiling on Land Holdings
(d)
Consolidation of Holdings
(e)
Co-operative Farming
During this stage, some other steps needed for the development of agriculture, were also taken.
These were the construction of new roads, provision of additional irrigation facilities as well as credit
facilities and production of more fertilizers in the country.
As a consequence of these changes, foodgrains output rose from 51 million tonnes in 1951 to
68 million tonnes in 1956 and it was 82 million tonnes in 1960-61. Community Development
Programme formed the core of this phase.
Despite the institutional changes and development programmes introduced by our Government
during this phase, we remained dependent upon foreign countries for food to feed, the rising population
and for raw-materials to feed the running machines. Our government was very much worried about the
food situation and invited a team of agricultural experts of Food Foundation to suggest remedies for the
solution of food problem. After examining the whole problem, the team submitted its report entitled
“India’s Food Crisis and steps to meet it”. It advised the Government to concentrate only upon certain
crops and upon certain areas which have potential for growth because India, in general, was lacking in
necessary inputs. This lead to the introduction of intensive phase.
12.2.2 Intensive Phase (1961-65)
This period includes the third five year plan. Immediately after this plan we had green revolution.
During this period, Intensive Agricultural District Programme (IADP) was launched (1961). It
emphasized the concentration of efforts and resources in particular regions rather than on their wide
diffusion. It was also called “Package Programme” due to the package of improved practices such as
the use of improved seeds, balanced use of fertilizers and manures, pesticides, improved implements
and proper soil and water management. Package of practices were evolved for all important crops and
farmers were instructed about the quantity of fertilizers, the doses and the time when these should be
applied as well as about the number of watering and about the use of insecticides if necessary.
Farmers of the selected districts were provided all types of facilities such as magic seeds, improved
implements, easy credit, soil testing facility, instructions about plant protection measures and better
marketing arrangements.
As a result foodgrain output rose to 89 million tonnes in 1964-65 from 82 million tonnes in the
year 1960-61.
In the beginning, IADP programme was started in three districts. Later on, it was extended by
stages to thirteen other districts. In 1964-65 and in subsequent years, a modified version of IADP was
extended to several other parts of the country in the form of Intensive Agricultural Programme (IAAP)
which was concerned with specific crops. In order to encourage the farmers to adopt better technology,
incentive price policy adopted was in 1964 and the Agricultural Prices Commission was set up to advice
the Government on the fixation of support prices of agricultural crops.
The following table indicates compound growth rates for production, area and productivity of all
crops from 1951 to 1965.
233
Table : 2 (a)
Table : Growth Rates of Production, Area under the Cultivation and Productivity
(% per annum)
Plan Period
First Plan (1951-56)
Second Plan (1956-61)
Third Plan (1961-66)
Production
Area
Productivity
4.1
3.1
3.3
2.6
1.3
0.6
1.4
1.8
2.7
The productivity of agriculture improved over each plan period but the improvement was significant
in the intensive phase which can be attributed to the concentration of efforts and resources in selection
areas. It is the growth rate in area under cultivation which had declined.
12.2.3 Specialised Phase (1965-onwards)
The specialised phase, often known as the period of new agricultural strategy or GREEN
REVOLUTION, is concerned not only with higher yield of a particular crop per hectare but with greater
cropping intensity. New emphasis has come to be attached to the role of new agricultural technology as
a major input for agricultural production. New crop rotations have been introduced which have been
made possible by the development of short duration varieties of wheat, paddy, maize, jowar, bajra
suited to different agro-climatic conditions. The new strategy relied on high yielding varieties of crops,
multiple cropping, the package approach, modern farm practices and spread of irrigation facilities. (The
second lesson of this block gives details about Green Revolution).
The result of this strategy in the form of enormous increase in food grains output is often
referred to as the green revolution.
Various developmental programmes introduced by the Government and the receptivity of the
farmers have started a new trend in agricultral production, particularly tremendous increase in the
production of food grains which has shown remarkable progress. The increasing production of food
grains has been identified as green revolution and is depicted in the schedule given below (in Italics).
Table 2 (b) : Production of Foodgrains in India (1965 - 2008)
Year
Production
Year
Production
(Million Tonnes)
(Million Tonnes)
1964-65
89.0
1985-86
150.47
1965-66
72.0
1989-90
171.6
1966-67
74.2
1990-91
176.4
1967-68
95.1
1993-94
184.3
1968-69
94.0
1994-95
191.3
1969-70
99.1
1995-96
180.4
1970-71
107.8
1996-97
199.4
1971-72
105.17
1997-98
192.4
1972-73
97.03
2004-05
210.0
1973-74
104.67
2006-07
217.3
1975-76
121.03
2007-08
230.80
1976-77
111.17
2008-09
234.5
1977-78
126.48
2012-13
274.0
1978-79
131.90
2013-14
265.6
1980-81
129.50
2020-21
305.0
Note :
Source :- Economic Surveys, Various Issues.
234
The magnificent increase in agricultural production that occurred during 1967-71 revived hopes
that were dampened during 1965-66 and 1966-67 by the unpreceded fall in foodgrain production due to
the failure of monsoons in many parts of the country. The two successive years of drought caused a
several set back to foodgrains production and dislocated the whole economy. It picked up in later year.
The increased production of foodgrains created new hopes of restoring India’s image in the
outside world once again as exporter of food products. It was felt that a break through has been made
in Indian agriculture. Some economists had gone a step further by identifying the increasing
production of foodgrains as green revolution. Since then, the term green revolution is on our lips to
indicate the increasing production of agriculture crop which is the gift of new agricultural technology.

Twenty First Century
In the year 2004-05, the agricultural production was about 210 million tonnes. For three
consecutive years (2005-06 to 2007-08), foodgrain production recorded an average annual increase of
over 10 million tonnes. The total production of foodgrains recorded on average annual increasing 10
million tonnes. The total foodgrains production in 2007-08 was estimates at 230.80 million tonnes.
The year 2008-09 was record production year of 234.47 milion tonnes food production which
cnereeed to 257.07 milion tonnes in 2014-15 and further to 305 milion tones in 2021-22.
During the first three years of the Eleventh Plan (2007-2010), the agriculture sector (including
allied activities) recorded an average growth of 2.03 per cent against the plan target of 4 per cent per
annum (due to impressive growth of 5.8 per cent in 2007-08, then fell into the negative zone of –0.1 per
cent in 2008-09 although it was record production year of 234.47 million tonnes food production while
there was fall in the production of oil seeds, cotton, jute, sugarcane etc.) In 2009-10, despite
experiencing the worst south-west monsoon since 1972, the growth marginally recovered to 0.4 per
cent. Several advance measures taken by the government to salvage the rabicrop had the desired
imapct.
(A) Ninth, Tenth & Eleventh Plans
During the Ninth and Tenth plans the average annual growth of the agriculture and allied
sectors has been 2.5 p.c. and 2.4 p.c. respectively. During Eleventh Five Year Plan, the realized
growth of 3.6 percent of agriculture allied sector was much higher but still below the target growth of
4 p.c. (which continues to be target growth of agriculture sector in the Twelfth Plan). Moreover, this
growth rate has been double the growth rate of population during the Eleventh Plan Period. The Table
(2c) given below shows the growth trends in Agriculture and allied activities during Eleventh Plan.
Table (2c) : Agriculture and Allied Sectors: Share in GDP and Growth
(in %age)
2008-09
2009-10
2010-11
5.8
0.1
0.8
7.9
Share of Agriculture &
Allied Sectors in Total GDP (%
age) of which :
16.8
15.8
14.6
14.5
18.8
Agriculture
14.3
13.4
12.3
12.3
–
Forestry & Logging
1.7
1.6
1.5
1.4
–
Fishing
0.8
0.8
0.8
0.7
–
Growth in GDP in Agriculture
& Allied Sector (Percent)
2007-08
Source : Economic Survey 2012-13, 2021-22.
2021-22
235
(B) Agriculture in Twelfth plan: [An Appraisal by NITI Ayog]
Unfortunately after growing at 4 per cent per annum during 11th Five Year Plan (2011-12),
Agriculture came under heavy stress lately. At constant 2011-12 prices growth in agriculture fell to 1.6
per cent during the first four years of the 12th plan. The fourth year of 2015-16 faced untimely rains and
hailstorms in Feb & March 2016 and caused serious damage to Rabi Crops in 14 states The Appraisal
of 12th FYP by NITI Ayog has noticed following points:
1.
(a)
To address issue of declining water table, micro irrigation should be promoted.
(b)
Moreover rice production should move from Punjab (where water tables have declined the
most) to eastern part of India where water is plentiful and soil is conductive to rice
production.
(c)
Fuller advantage of incomplete major, medium and minor irrigation schemes be taken.
(d)
Priority must be given to improving the irrigation potential utilized (IPU) which is 70% of
IPC (irrigation potential created).
2.
A shift towards high value commodities such as horticulture, fisheries and livestock. Food
processing industry is in infancy.
3.
Small and marginal farmers, seeking non-form employment want to lease their land. NITI Ayog
has framed an Expert Group to Model Land lease Act.
4.
The key to Green Revolution was high yielding variety seeds. Massive research into improving
seed varieties including genetically modified ones (i.e. GMO Seeds) is required. China is far
ahead for us.
Note: In 2011-12, the latest year for which data are available, agriculture employed 49 pc. of workers
while produced just 17.9 pc. of India’s GDP at current prices.
12.2.4. COMPOUND GROWTH RATES OF AREA, PRODUCTION AND YIELD :
In this section, we’ll study the compound growth rates of Cereals, Coarse Cereals, Pulses, Food
Grains and other crops since independence.The comparison has been discussed for the rice and wheat
crops only.
A. Pattern of Growth of Indian Agriculture Since 1950
The growth of agricultural output is analysed under two categories: (a) foodgrains output; and
(b) non-foodgrains output. As far as foodgrains output is concerned, the total production increased from
50.8 mn tonnes in 1950-51 to 230.7 million tonnes in 2007-08 and to 230 mn tonnes in 2010-11. The
plan average production increased from 63.2 mn tonnes in I plan to 74 mn tonnes in II plan and 81 mn
tonnes in the III plan. The period after the third plan is often referred to as the period of the Green
Revolution and as depicted in the Table 2 & 3, was marked by rapid strides in wheat production with
jowar, bajra and maize continuing to show erratic trends like before. Excepting few years, rice has also
shown steady upward trend.
The food grain production increased to 187 mn tonnes (average annual production) in the
Eighth plan and further to 202.9 million tonnes in the Ninth plan (annual average). The foodgrains
output in the Tenth plan (annual average) was 202.2 million tonnes less than that recorded in the Ninth
Plan. However, the last year of the X plan, 2006-07, registered an impressive foodgrains output of
217.3 million tonnes. Because of drought conditions in the first year of the Tenth plan 2002-03, the
foodgrains output had declined to 174.8 million tonnes but it improved to 213.2 million tonnes in the
next year 2003-04. It may be mentioned here that for three consecutive years 2005-06 to 2007-08,
foodgrain production recorded an annual increase of over 10 million tonnes.
236
B. Growth in Recent Year
Eleventh Plan During the Eleventh Plan period (2007-2012) food grains production in the
country recorded an increasing trend, except in 2009-10. When total foodgrains production declined to
218.1mn tonnes due to severe drought experienced in various parts of the country. During 2011-12,
total food grains production reached an all time high of 259.3 million tonnes.
The slowdown in agricultural output adversely affects the growth of the GDP. Noted agricultural
scientist Dr. Swaminathan gave a new call for ‘Evergreen Revolution’ for doubling the production level
of foodgrains from 210 mn tonnes in 2005-06 to 420 mn tonnes in future.
The estimates at disaggregated level (Table 4A) indicate that agriculture and allied sectorsincluding crops, livestock, forestry and logging and fishing - picked up growth in the year 2013-14. This
was not unexpected as the year 2013-14 happened to be an exceptionally good year from the point of
view of rain fall.
Table 4A : Growth in GVA at Constant (2011-12 Base Year) Prices [percent]
Sectors of Economy
2012-13
2013-14
2014-15
Agriculture, forestry and fishing
1.2
3.7
1.1
Industry
2.3
4.5
5.9
Services
8.0
9.1
10.6
GVA at basic prices
4.9
6.6
7.5
GDP at market prices
5.1
6.9
7.4
As shown in Table 4 A, the GDP has grown at 5.1 pc, 6.9 pc and 7.4 pc during 2012-13, 201314 and 2014-15 respectively. The contribution of agriculture can be gablged through growth rate of the
agricultural sector as follows-1.2 pc, 3,7 pc and 1.1 pc during the years 2012-13, 2013-14 and 2014-15
respectively.
According to the new series of national income released by the CSO, (with base year 2011-12
prices), against the growth target of 4 pc for agriculture and allied sectors in the Twelfth Plan, the
growth registered by agriculture has been appreciable only in the year 2013-14 (and low in others
year).
Looking back we find that the agriculture sector registred an annual growth of 3.8 pc in Value
added in the decade since 2004-05 on the back of increase in real prices (31 pc during 2004-05 to
2011-12, as mentioned in Economic Survey 2014-15, Vol II, p. 75.)
 State –wise Spread : Foodgrains and non-foodgrains
Regarding state-wise spread, UP accounted for a share of 18.97% in India’s total foodgrains
production (I rank) in 2006-07 followed by Punjab with a share of 11.65 p.c., Andhra Pradesh with 7.47
p.c., West Bengal 7.35 p.c. and Haryana with 6.79 p.c. The largest producing three states have been
presented in Table 15 & 16.
Uttar Pradesh is the highest wheat producing state (1st rank) in India, Punjab and Haryana hold
second and third positions respectively.
As regards the rice production, West Bengal (1st Rank) Andhra Pradesh, Uttar Pradesh and
Punjab the top four producers and all the four cumulatively accounting for half of the country’s rice
production.
The highest cereals producing area was Maharashtra (1st rank). Karnatka and Rajasthan
second and third position respectively.
The highest pulses producing state is M.P. (1st rank), U.P. and Maharashtra hold the second
and third places respectively. The production of pulses in the country has been stagnant at around 14
to 15 million tonnes as against domestic demand of 20 million tonnes. In the year 2008-09, total
production of pulses was 2008-09.
237
238
In the non-foodgrains group, jute and cotton show slow progress in the pre and post Green
Revolution periods both. However the production of oilseeds rose considerably in the latter half of
1980s and in certain years of 1990s. For instance, oilseeds production increased from 12.7 million
tonnes (1987-88) to 18.6 mn tonnes (1990-91) and then to record level of 24.7 mn tonnes (1998-99).
However, it fell thereafter to 14.8 mn tonnes (2002-03), then rose to 28 mn tonnes (2005-06) & 28.8 mn
tonnes (2007-08). Nine oil seeds which are produced in India are: groundnuts, mustard, toria,
soyabean, sunflower, sesame (til), castorseed, nigerseed, linseed and safflower (kardi). Madhya
Pradesh has the highest production of soyabean in India. Similarly production of cotton rose from 3.9
million bales (annual average) in the I plan to 8.4 mn bales (annual average) in the VII plan and further
to 18.5 mn bales (annual average) in the X plan. The production of sugarcane also witnessed more or
less a steady path during the entire period 1950-51 to 2002-03. Thereafter, it fell sharply in the
subsequent year 2003-04 and 2004-05. However, it rose again in 2005-06 & 2007-08 aand reached the
levels of 281.2 million tonnes and 340.6 million tonnes respectively. India holds first position in the
world in the production of sugarcane and sugar.

Yield Per Hectare in Indian Agriculture :
During the period 1950-51 to 2007-08 yield per hectare of all foodgrains has increased by
more than three times from 552 kgs per hectare in 1950-51 to 1,854 kgs per hectare in 2007-08. There
has been slow and steady rise in productivity during 1950-51 and 2007-08 for most of the crops. Wheat
has recorded the most significant increase in the yield increasing from 655 kgs per hectare in 1950-51
to as high as 2,785 kgs per hectare in 2007-08. As far as coarse cereals are concerned, the
productivity of maize has significantly increased during the recent years while the productivity of jowar
and bajra has increased relatively slowly. The performance of pulses has been the most disappointing
as the productivity (of pulses) remained stagnent during four decades i.e. from 1960-61 to 2000-01.
Thereafter, it rose a little to reach the level of 638 kgs per hectare in 2007-08.
Table 5 : Yield Per Hectare of Major Crops
(kgs. per hectare)
Crop
1950-51 1960-61
1970-71
1980-81
1990-91
2000-01 2007-08
2011-12
2021-22
(10)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Rice
668
1,013
1,123
1,336
1,740
1,901
2,203
2370
–
Wheat
655
851
1,307
1,630
2,281
2,708
2,785
3140
–
Jowar
353
533
466
660
814
764
981
Bajra
288
286
622
458
658
688
1,030
Maize
547
926
1,279
1,159
1,518
1,822
2,337
Pulses
441
539
524
473
578
544
638
Total Foodgrains 552
710
872
1,023
1,380
1,626
1,854
Oilseeds*
481
507
579
532
771
810
1,086
1140
–
Cotton
88
125
106
152
225
190
466
491
–
Jute
1,043
1,049
1,186
1,245
1,833
2,026
2,093
2500
–
–
1560
–
–
690
–
305
Note: * includes groundnuts, rapeseed and mustard, sesamum, linseed and castorseed for columns
(2) to (4) and four other oilseeds for columns (5) to (8) also as in the case of Table 19.1
Source : (i) Economic Survey 1980-81, (Delhi, 1981). Statement 17, p.77; (ii) Economic Survey, 200708 (Delhi, 2008), Appendix Table 1.14 p. A-19, and (iii) Agricultural Statistics at a Glance, 2008 (Delhi,
2008), Tables, 4.5 to 4.22.C. F. Misra and Puri, 2009, Eco. Survey 2021-22.
239
AREA, PRODUCTION AND YIELD
Table 6(a) gives figures regarding area, production and yield for different crops in the year
2013-14. In 2013-14, total foodgrain production has been estimated at 265.6 million tonnes as per the
second Advance Estimates (AE), [which is higher by 8.5 million tonnes than the 2012-13 production
and 22.1 million tonnes than average foodgrain production during the last five years].
It is the fourth highest quantity of annual foodgrains production in the country. This decline has
occurred on account of lower production of rice, coarse, cereals and pulses due to erratic rainfall
conditions during the monsoon season 2014. See Table 6.
To improve resilience of the agricultural sector and bolster food security-including availability
and affordable sccess-our strategy for agriculture has to focus on improving yield and productivity.
Though yield/productivity in foodgrains and pulses has increased post-2000, the yield gaps vis-à-vis
other countries are wide and even within different states yields vary widely, showing that there are
possibilities of raising production by increasing yield of most of the crops without necessarily increasing
prices.
Table 6(a) : Area, Production and Yield (2013-14*)
(Area : million ha; Prod; million tonnes; Yield: kg/ha)
Group/
commodity
AREA
Actual
PRODUCTION
(%) Percent
change
Actual
(%) Percent
change
YIELD
Actual
(%) Percent
change
Foodgrains
126.0
4.3
264.8
3.0
2101
-1.3
Rice
43.9
2.7
106.5
1.3
2424
-1.5
Wheat
31.2
4.0
95.9
2.6
3075
-1.3
Jowar
5.8
-6.1
5.4
1.7
850
-8.2
Maize
9.4
8.3
24.4
9.2
2566
-0.7
Bajra
7.9
8.0
9.2
5.5
1198
2.9
Pulses
25.2
8.3
19.3
5.3
764
-3.2
Gram
10.2
20.3
9.9
12.3
967
-4.7
Tur
3.9
0.0
3.3
9.2
848
9.2
Oilseeds
28.5
7.6
32.9
6.4
1153
-1.3
Groundnut
5.5
17.6
9.7
105.8
1750
75.9
Rapeseed and
mustard
6.7
4.7
8.0
-0.5
1188
-5.9
11.7
-2.3
36.7
7.2
532
9.4
5.0
0.0
350.0
2.6
70
0.0
Cotton
Sugarcane
Source : Directorate of Economics & Statistics, Department of Agriculture & Cooperation. cf. Economic
Survey,2014-15
Notes : * Fourth Advanced Estimate, a includes cereals, coarse cereals and pulses
b Bale of 170 kg.
240
12.3
LOW LEVEL OF PRODUCTIVITY IN INDIAN AGRICULTURE
In order to comment upon the pace of agricultural productivity (or yield per hectare), it would be
appropriate to compare Indian agriculture’s productivity with its potential and with leading nations.
12.3.1
LOW PRODUCTIVITY (Extent) :
As it is clear from Table there has been a slow and steady rise in productivity during 1950-51 to
2007-08 for most of the crops. However, as compared with other countries and as compared with the
potential, actual productivity levels in agriculture continue to be very low.
A.
Potential and Actual Productivity :
Not only is productivity in Indian agriculture lower than that in other countries, it is much lower
than the potential. This would be clear from Table 3.
Table 7: Potential and Actual Productivity
Crop
Potential
(kgs. per hectare)
Actual (2007-08)
Rice
4000/5810
2203
Wheat
6000/6800
2785
Jowar
3000/4200
981
Maize
6000/8000
2337
Cotton
700/850
Jute
Sugarcane
466
2500/3000
2093
96000/112000
67531
Source :- (i) S. Gangadharan, “Agriculture : New Thrust on Dry-land Farming Needed”, The Economic Times, January 2,
1992, P. 13, and (ii) Government of India, Agricultural Statistics at Glance, 2008 (Delhi, 2008), Table 4.5 to 4.23.
C. F. Misra & Puri, 2009
Even in the case of wheat (the success crop of Green Revolution), the actual productivity in
2007-08 was only 2785 kgs. per hectare as against the potential of 6,000/6,800 kgs per hectare. In the
case of rice, the actual productivity in 2007-08 was only 2,203 kgs. per hectare as against the potential
of 4,000/5,810 kgs. per hectare, The same story holds for all other crops.
B.
Agricultural Productivity in Comparison with Other Countries :
A comparison of productivity levels in Indian agriculture with the levels in other countries shows
how low the productivity in Indian agriculture is. Table 8 compares the productivity of some crops in
India with their productivity in some other countries. As is clear from this table, productivity of wheat in
India is about 35 per cent of the productivity in U.K. and 64 per cent (i.e., less than two thirds) of the
productivity in China. As far as rice is concerned, productivity in India is 45 per cent of the productivity
in Korea and 37 per cent of the productivity in USA. The productivity of cotton in India is 41 per cent of
the productivity in China and less than one-half as compared with USA and Brazil. As far as major
oilseeds are concerned, productivity in India is 33 per cent of the productivity in USA and 42 per cent of
the productivity in China. Similar conclusions hold for most of the other crops not included in the table.
241
Table 8
Productivity of Land in Some Countries, 2004-05
(Metric tonnes/hectate)
Rice/ Paddy
Wheat
Maize
Egypt
9.8
China
4.25
USA
9.15
India
2.9
France
7.58
France
7.56
Japan
6.42
India
2.71
India
1.18
Myanmar
2.43
Iran
2.06
Germany
6.69
Korea
6.73
Pakistan
2.37
Philippines
2.1
Thailand
2.63
U.K.
7.77
China
4.9
USA
7.83
Australia
1.64
3.96
World
2.87
World
3.38
World
Cotton
Major Oilseeds
China
11.10
Argentina
2.51
USA
9.58
Brazil
2.48
Uzbekistan
7.98
China
2.05
India
4.64
India
0.86
Brazil
10.96
Germany
4.07
Pakistan
7.60
USA
2.61
Nigeria
1.04
World
1.86
World
7.33
Source : Government of India, Economic Survey 2006-07, (Delhi, 2007), Table 8.4 p.160., C. F. Misra
& Puri, 2009
Although India happens to be one of the largest growers and producers of most of the
agricultural crops, still ranks very low in terms of yield. For instance, it has the largest area under rice
(paddy) and wheat in the world and is the second largest producer of these crops. However, in terms of
productivity, its rank is 52nd in the world in rice and 38th in wheat. It has the largest area under pulses
in the world and is also the world’s largest producer of pulses, but in terms of productivity its rank is low
as 138th in the world.
12.3.2 CAUSES OF LOW PRODUCTIVITY :
The causes of low productivity in Indian agriculture can be divided into the following three
categories (i) general, (ii) institutional, and (iii) technical.
General Causes :
1.
Pressure of Population of Land :- There is heavy pressure of population on land as the nonagricultural sectors of the economy have not been able to expand at a sufficiently rapid pace over the
period of last five and a half decades, this pressure has continuously increased. In 2001, about 228
million workers, or nearly three-quarters of the rural working population (which was 310.7 million) was
242
employed in the agricultural sector. Increasing pressure of population on land is partly responsible for
the subdevision and fragmentation of holdings. Productivity on small uneconomic holdings is low.
2.
Social Environment :- The social environment of villages is often stated to be an obstacle in
agricultural development. It is said that the Indian farmer is illiterate, superstitious, conservative, and
unresponsive to new agricultural techniques. A few studies don’t agree with the view e.g. G.S. Sahota
concludes that it is inappropriate to regard Indian farmer as superstitious, inefficient and irrational or to
say that marginal productivity of labour is zero in agriculture.
3.
Land degradation :- Government of India has recently estimated that nearly half of the
country’s 329 million hectares of soil could be categorised as degraded. Almost 43 per cent of the land
suffers from high degradation resulting in 33-67 per cent yield loss while 5 per cent is so damaged that
it has become unusable.
Institutional Causes :
1.
Land tenure system :- perhaps the most important reason of low agricultural productivity has
been the zamindari system. Higly exploitative in character, this system drained out the very capacity,
willingness and enthusiasm of the cultivators to increase production and productivity. Legislations
passed for abolition of intermediaries in the post-independence period exploitative practices continued.
Regulation of rent, security of tenure, ownership rights for tenants, etc., did not make the position of
tenants better. Tenancy of most of the tenants continues to be insecure and they have to pay exorbitant
rates of rent. In this land tenure system, it is difficult to increase productivity only through technological
means.
2.
Lack of credit and marketing facilities : Indian farmer continues to produce the same
agricultural output even on more attractive prices. However, the facts are different. Frequently on
account of lack of marketing facilities or non-availability of loan on fair rate of interest, the cultivators are
not able to invest the requisite resources in agriculture. This keeps the level of productivity on land and
per cultivator low. If the government can revitalize the credit co-operative societies and the regional
rural banks to grant more credit to the small farmers, the level of productivity can undoubtedly increase.
3.
Uneconomic holdings : According to the National Sample Survey, 52 per cent holdings in
1961-62 had a size of less than 2 hectares. In 2000-01, 81 per cent of total holdings fell under this
category. Most of these holdings are not only extremely small they are also fragmented into a number
of tiny plots so that cultivation on them can be carried out only by labour intensive techniques as it is
not feasible economically /viable to introduce modern techniques of production.
Technical Causes :
1.
Outmoded agricultural techniques : As discussed before, most of the Indian farmers continue
to use outmoded agricultural techniques. Use of fertilizers and new high-yielding varieties of seeds is
also extremely limited. In summary, Indian agriculture is traditional. Therefore productivity is low.
2.
Inadequate irrigation facilities : The irrigation potential country has increased from 81 mm
hectares in 1991 to 108 mn hectares in March 2010. Thus, 42.8 per cent of gross cropped area had
irrigation facilities in 2005-06. This shows that even now 57.2 per cent of the gross cropped area
continues to depend on rains. Rainfall is often insufficient, uncertain and irregular. According
productivity is bound to be law in all those areas which irrigation facilities, and are totally dependent on
rains. Even in areas having irrigation facilities, potential is not wholly utilised because of defective
management. The costs irrigation are also increasing continuously and the small farmer is, therefore,
unable to make use of available irrigation facilities.
12.4
AGRICULTURE POLICY UNDER RECENT PLANS
Under this head, we shall study tenth, eleventh and twelfth plans
243
12.4.1 TENTH PLAN
In line with the New Agriculture Policy 2000 which envisaged a growth rate exceeding 4 per cent
per annum in the agricultural sector, the Tenth Plan aimed at a 4 per cent per annum growth. The
demand for foodgrains estimated on the behaviouristic approach was put at 236 million tonnes by the
end of the Plan, i.e., 2006-07, while in that year (the actual production of foodgrains in 2006-07 was,
however, only 216.1 million tonnes). As far as the strategy for agriculural growth is concerned, the
Tenth Plan endorsed the regionally differentiated strategy based on agro-climatic conditions and natural
resources envisaged for the Ninth Plan, for increasing the pace of growth in every region of the country.
The three pronged strategy envisaged for the Ninth Plan to meet the basic food requirements
for all was continued. This strategy involved : (i) increase in overall employment and incomes by raising
farm productivity and the growth of other economic activities in the rural areas; (ii) provision of gainful
supplementary employment through poverty alleviation schemes; and (iii) distribution of foodgrains
through the public distribution system at subsidised prices to those living below the poverty line.
Thrust areas for the Tenth Plan were defined as follows : (i) utilisation of wastelands and
unutilised/under-utilised lands; (ii) reclamation/development of problem soils/lands; (iii) rainwater
harvesting and conservation for the development of rainfed areas; (iv) development of
irrigation/especially minor irrigation; (v) conservation and utilisation of biological resources; (vi)
diversification of high value crops/activities; (vii) increasing cropping intensity; (viii) timely and adequate
availability of inputs; (ix) strengthening of marketing, processing/value addition infrastructure; (x)
revamping and modernising the extension systems and encouraging private sector to take up extension
services; (xi) bridging the gap between research and farmers’ yields; (xii) cost-effectiveness while
increasing productivity; (xiii) promotion of farming system approach; (xiv) promotion of organic farming
and utilisation of organic waste; (xv) development of eastern and north-eastern regions, hills and
coastal areas; and (xvi) reforms to introduce proactive policies for the farm sector.
The Tenth Plan laid down a number of policy recommendations pertaining to practically each
and every facet of agriculture and rural development like agricultural inputs (seeds, fertilisers, farm
implements, pesticides, credit, insurance etc.), agricultural extension, agricultural research and training,
land reforms, agricultural infrastructure, warehousing, godowns and cold storage, agricultural
marketing, agricultural exports, agricultural statistics etc.
The Tenth Plan also placed due emphassis on horticulture and plantation crops as they can
help in diversification of agriculture. It noted that the target of 4 per cent per annum growth in
agriculture can be achieved if the annual growth rate of horticulture is maintained at 6-8 per cent.
As far as irrigation is concerned a total number of 490 projects spilled over into Tenth Plan from
previous plans, and another 231 projects were to be taken up during Tenth Plan. The reasons for noncompletion of the projects from the projected level include “inadequate funds due to thin spread of
funds over man projects, revision in the estimated costs, change in scope of the works, unforeseen
bottlenecks involving other agencies, opposition by the Project Affected Persons (PAPs) etc. As far as
creation of irrigation potential is concerned, the Tenth Plan targeted the creation of 19.14 mn hectares
while achievement was only 8.82 mn hectares (5.3 million hectares through major and medium sector
and 3.52 mn hectare through minor irrigation-under achievement of the plan target.
12.4.2 ELEVENTH PLAN
The Eleventh Five Year Plan notes that although GDP from agriculture had more than
quardrupled, from Rs. 1,08, 374 crore in 1950-51 to Rs. 4,81,547 crore in 2006-07 (both at 1999-2000
prices), the increase per worker has been rather modest. GDP per agricultural worker was noted to be
Rs. 2,000 per month, which was only about 75 per cent higher in real terms than in 1950 compared to a
four-fold increase in overall real per capital GDP. While slower growth of GDP in agriculture than nonagriculture is expected, the main failure has been the inability to reduce the dependence of the
workforce on agriculture significantly by creating enough non-farm opportunities to absorb the labour
244
surplus in rural areas and equipping those in agriculture to access such opportunities. In this context, it
may be pointed out here that even growth of agricultural GDP decelerated from over 3.5 per cent per
annum during 1981/82 to 1996/97 to only around 2 per cent per annum during 1997/98-2004/05. As a
result, growth of GDP has been well below the target of 4.0 per cent set in both Ninth and Tenth Plans.
However, due to improved performance in recent times (growth in agricultural sector increasing to 5.9
per cent in 2005-06 and 3.8 per cent in 2006-07), the Eleventh Plan hopes that some of the causes of
poor agricultural growth are being reversed. Accordingly, it sets a target of 4 per cent growth in the
agricultural sector. According to the plan, achievement of this growth rate requires action in the
following broad areas:
*
Bringing technology to the farmers;
*
*
Improving efficiency of investments, increasing systems support and rationalising subsidies;
Diversifying, while also protecting food security concerns;
*
Fostering inclusiveness through a group approach by which the poor will get better access to
land, credit and skills.
Bringing Technology to Farmers :
(i)
The Eleventh Plan identifies the following ‘immediate action points
(i)
priority in agriculture research should be given to strategic research;
(ii)
research priorites have to shift towards evolving cropping systems suited to various
agro-climatic conditions and towards enhancing the yield potential rainfed areas through development
of drought and pest resistant varieties;
(iii)
the ICAR needs to restructure accordingly, and to increase its accountability;
and
(iv)
State agricultural universities also need to be made more accountable and strengthened
to develop, refine and promote location specific technologies. Public expenditure (both Plan and nonplan, Center and States) on agriculture research will need to increase from around 0.7 per cent of
agriculture GDP at present to 1 per cent by end of Eleventh Plan.
(ii)
Improving efficiency of investments :
The Plan proposes a number of steps to improve the efficiency of investments and increasing
systems support particularly in the field of irrigation like improving the utilization of funds under AIBP
(Accelerated Irrigation Benefit Programme), more emphasis on PIM (Participatory Irrigation
Management), exploiting the abundant availability of ground water in Assam, Bihar, Chattisgarh, Orissa
and parts of Jharkhand, Uttar Pradesh and West Bengal, etc. Regarding rationalisation of subsidies .
The Plan notes that the present unbalanced and irrational system of fertiliser subsidy is an important
cause of deteriorating soil quality. It, therefore, calls for rationalizing subsidy across nutrients and also
examine methods by which the delivery of some part of the presently huge subsidies can be transferred
from fertiliser producers to farmers or a group of farmers directly.
(iii)
Promoting Diversification :
According to the Plan, demand for foodgrains (including for uses other than for direct human
consumptions) was expected to grow at 2 to 2.5 per cent per annum during the Eleventh Plan,
Diversification towards horticulture and livestock therefore was considered to be a very major element
in the strategy for achieving 4 per cent agricultural growth. Since agricultural marketing is a critical
element of the diversification strategy, the Plan advocated a number of steps to improve the agricultural
marketing system.
(iv)
Fostering inclusiveness group approach :
Given that 80 per cent of farmers are small and marginal, and increasingly female, the Eleventh
Plan advocates a number of steps to improve their effective access to inputs, credit, extension services,
245
and output markets. The Plan argues that the best way to empower the poor is to encourage ‘group
approach’ by giving greater benefits to subsidies farmer groups rather than individuals).
Table 9 : Growth Rates of Agriculture under Tenth and Eleventh Plan
(per cent per annum)
Growth Rate of
Target
Achievement
GDP
8%
7.8%
Agriculture
4%
2.5%
GDP
9%
5.5%
Agriculture
4%
3.6%
Tenth Plan
Eleventh Plan
The agriculture contributed 14.2 pecent of the Gross Domestic Product (GDP at factor cost at
1999-00 prices) in 2010-11 compared to 21.7 per cent in 2003-04. Notwithstanding the fact that the
share of this sector in GDP declined over the years, its role remained critical as it provides employment
to large sectors (52 per cent) of the population. The most important factor has been the public
investment or Gross Capital Formation. (See Table 10).
Table 10 : GCF in Agriculture and Allied Activities (Rs. Crore at 2004-05 prices)
Year
GDP
Agriculture & allied
activities
GCF
GDP
GCF/GDP in
GCF in agriculture
agriculture &
as per cent of total
allied activities
2004-05
29,71,464
76,096
5,65,426
13.46
2.56
2005-06
32,54,216
86,611
5,94,487
14.57
2.66
2006-07
35,66,011
90,710
6,19,190
14.65
2.54
2007-08
38,98,958
1,05,034
6,55,080
16.03
2.69
2008-09
41,62,509
1,28,659
6,54,118
19.67
3.09
2009-10QE
44,93,743
1,33,377
6,56,975
20.3
2.97
Source: Economic Survey, 2010-11.
Notes : P-provisional Q - quick estimates
(i) See Table 12(b) as an extension to Table 10.
The role of agriculture sector, however remains critical as it accounts for about 58 percent of
employment in the country (as per 2001 census). Moreover, this sector is a supplier of food, fodder and
raw materials for a vast segment of industry. Hence the growth of Indian agriculture can be considered
a necessary condition for inclusive growth.
According to the new series of national income released by the CSO, at 2011-12 prices the
share of agriculture in total GDP is 18 percent in 2013-14. As against a growth target of 4 percent for
agriculture and allied sectors in the Twelfth Plan, the growth registered in the First year at 2012-13
prices was 1.2 percent, 3.7 percent in 2013-14 and 1.1 percent in 2014-15 (see Table 11).
246
In terms of composition, out of a total share of 18 percent of the GDP in 2013-14 for agriculture
and allied sectors, agriculture alone accounted for 11-8 percent followed by livestock 3.9 percent,
forestry and logging 1.4 percent and fishing by 0.9 percent (Table 11 (b).
Table 11 Agriculture Sector-Key indicators (per cent 2011-12 prices)
Sl.
No.
Item
2011-12
2012-13
2013-14
2014-15
1
Growth in GDP in agriculture & allied sectors
-
1.2
3.7
1.1
Share of agriculture & allied sectors in total
GDP
18.4
18.0
18.0
12.0
11.7
11.8
4.0
4.0
3.9
1.6
1.5
1.4
0.8
0.8
0.9
8.5
7.7
7.9
7.4
6.5
6.6
0.8
0.7
0.7
0.1
0.1
0.1
0.4
0.4
0.5
18.3
15.5
14.8
Crops
Livestock
Forestry and logging
Fishing
2.
Share of agriculture & allied Sectors in total
GCFCrops
Livestock
Forestry and logging
Fishing
3.
GCF in agriculture & allied Sectors as per cent
to GDP of the sector (at current 2011-12 prices)
N.A.
Source : CSO, 2016-17
Note : GCF is Gross Capital Formation.
In this table the classification of Ag and allied activities has changed. Earlier (as in Table 11)
was agriculture, forestry & logging and fishing. Since 2011-12 it has been Crops, Livestock,
forestry & logging and fishing.
12. 4.3 Twelfth Plan
The Twelfth Plan has been discussed on page 204.
12.5
GROSS CAPITAL FORMATION (GCF) IN AGRICULTURE AND THE ALLIED SECTOR :
The GCF in agriculture and allied sectors as a proportion to the GDP in the sector stagnated
around 14 per cent during 2004-05 to 2006-07. However, there is a marked improvement in this figure
during the Eleventh Five Year Plan. It increased to 16.03 per cent in 2007-08 and further to19.67 per
cent in 2008-09 -0.99(provisional) and to 20.30 per cent in 2009-10(quick estimates {QE}). However,
the GCF in agriculture and allied sectors relative to over all GDPhas remained stagnant at around 2.5
to 3.0 per cent (Table 9).As a result the share of GCF in agriculture and allied sector in total GCF has
remained in the range of 6.6 to 8.2 per cent during 2004-05 to 2009.10 (Table10). There is need to
significantly step up investment in agriculture, both by the private and public sectors to ensure
sustained target growth of 4 per cent per annum.
247
12.6
DECELERATION IN THE INDIAN AGRICULTURE NINETIES
The data has been taken from Economic Survey 2010-11 and 1981-82 was taken as base year.
The figures deal with nineties (and and compared with eighties).
Agriculture Growth in the Eighties and Nineties: A Comparison
It has been witnessed that the growth rate of gross product from agriculture including allied
sectors declined sharply from 3.2 per cent pa during 1980-91 to 1990-91 to only 1.93 per cent during
1990-91 to 1998-99. Again, taking the output of crop sector alone, as compared with the growth rate of
3.5 per cent pa during the eighties, the growth rate of agricultural output decelerated to only 2.37 per
cent pa during the nineties. This was the lowest growth achieved during any period.(Table 12 & Fig.1)
Table 12 Growth Rate of Gross Product from Agriculture
1980-81 to 1990-91
(% per annum)
1990-91 to 1998-99
Gorss Product from agriculture & allied
3.2%
1.93%
Crop Sector
3.5%
2.37%
Secondly, a more serious development during the 90’S was that the yield growth for all crops
taken together decelerated from 2.65 per cent pa during the eighties to 1.38 per cent pa during the
nineties. There was a decline in the yield growth rate of wheat, rice and cotton. Growth rate of yield in
rice decelerated from 3.21 to 1.27 and in wheat from 3.15 to 2.32 per cent pa. In the case of cotton
yield growth rate has gone down from 4.15 per cent pa during the eighties to only 0.51 per cent during
the nineties (See Table 13 & Fig.2).
Figure 1
Growth Rate of Production During 80s and 90s
248
Figure 2
Growth Rate of Yield During 80s and 90s
Table 13 Growth Rate of Yield During 80s and 90s (Per cent per annum)
Yield (Rate of Growth)
Item
80s
90s
All Crops
2.65
1.38
Rice
3.32
1.27
Wheat
3.15
2.32
Cotton
4.15
0.51
Third, the regional pattern of growth shows that the green revolution which was mainely
confined to the Northwestern and the southern region, during 1970-73 to 1980-83, spread to almost
all the states of India during the period 1980-83 to 1990-93. Specially creditable was the performance
of eastern states in general and West Bengal in particular, whether the growth rate increased to an
unprecedented level of 5.4 per cent per annum. The rainfed states of Madhya Pardesh and
Rajasthan and many southern states also record high rates of growth primarily as a result of large
shifts of area coarse cereals to oilseeds. Higher agriculture growth was instrumental in marking a big
dent on rural poverty in many states.
As against this, during the 90s almost all the states except J&K, Bihar, Gujarat and Kerala
have experienced deceleration in their growth rates. (Gujarat is a special case since it recovered from a
very severe drought during 1980-83). Specially steep has been the deceleration of growth in the
hitherto fast growing north western states of India. The deceleration of growth in most of the rainfed
central states is bound to adversely affect their living standards.
Agriculture and allied sector growth has registed a decline of 5.2 per cent in 2002-03 due to
the severity of drought. This as obvious, adversely affected the year’s GDP growth rate, which fell to
4.0 per cent compared to 56 per cent of the previous year (Table 14). The growth rate of the sector for
2003-04 was the highest in that period and only marginally lower than the previous high of 9.6 per cent
achieved in 1996-97.
249
Table 14 GDP and Agriculture Growth Rates (per cent per annum)
Year
GDP
GDP in Agri. & Allied Sector
1992-93
5.1
5.8
1993-94
5.9
4.1
1994-95
7.3
5.0
1995-96
7.3
-0.9
1996-97
7.8
9.6
1997-98
4.8
-2.4
1998-99
6.5
6.2
1999-00
6.1
0.3
2000-01
4.4
-0.4
2001-02
5.6
5.7
2002-03
4.0
5.2
2003-04
8.1
9.1
2006-07
9.7
4.0
2007-08
9.0
4.9
2006-09
6.7
1.6
Note : update with data in Apendix
Source : Economic Survey, various Issues.
12.7
RECENT GROWTH CONCERNS :
It has been observed that all through the growth in Indian agriculture has remained less than the
overall growth in the economy. While the growth of non-agriculture sector picked up in the postliberalisation or post-reforms period, the growth in the agricultural sector deceleration (See Table 8).
There has been a serious set back to agriculture sector during the period of Ninth and Tenth Plans with
the growth rate in this sector decelerating to merely 2.5 per cent (while GDP growth had been 5.5 per
cent and 7.8 per cent respectively). Since agriculture continues to support more then 52% of the work
force, urgent steps are required to accelerate the growth rate. The National Policy on Agriculture, 2000
and the recent plans including Eleventh Five Year Plan aim at pushing up the rate of growth in
agriculture sector to 4 per cent per annum.
12.7.1 Important observations regarding Agricultural Growth
Important observations regarding agricultural growth in Indian economy are presented below :
* While the rate of growth in agriculture sector has always been less than the overall growth rate
of economy, the gap between the growth of agriculture and non-agriculture sector began to widen since
1981-82, because of an acceleration in the growth of industry and services sector. This gap has been
most prominent during the Tenth Plan.
* During Tenth Plan, the overall GDP increased at the rate of 7.8 per cent per annum, the
agriculture sector grew at 2.8 per cent per annum (at 1999-2K prices). Not only this, the agricultural
250
growth witnessed high fluctuations (as in 2002-03, it was negative i.e. - 5.9 p.c., then it rose to 9.3 p.c.
in 2003-04 & again fell merely 0.7 p.c. in 2004-05).
* Between 1950-51 and 2006-07, the production of foodgrains grew at 2.5 per cent per annum on
average in comparison to 2.1 per cent average annual growth of population. As a result, India has
become self-sufficient in the production of foodgrains.
However the annual rate of growth of foodgrains production deceleratal to 1.2 per cent during
1990-2007 while population growth (annual average) was 1.9 per cent. Hence, the per capital
availability of cereals and pulses witnessed decline during this period.
Table 15: Average GDP Growth Rates of Agricultural and Other Sectors
(at 1999-2000 Prices in per cent per annum)
Period of
Pre-Green
Tenure
Total
Agriculture
Crops and
Economy
and Allied
Live Stock
Non
Agriculture
1951-52 to 1967-68
3.7
2.5
2.7
4.9
1968-69 to 1980-81
3.5
2.4
2.7
4.4
Disemmination
1981-82 to 1990-91
5.4
3.5
3.7
6.4
Early Reforms
1991-92 to 1996-97
5.7
3.7
3.7
6.6
Ninth and
1997-98 to 2006-07
6.6
2.5
2.5
7.9
Revolution
Green Revolution
Wider Technology
Tenth Plans
Source : Economic Survey 2007-08, Table 7.1, P.155.
12.7.2 Reasons
The reasons attributed to slow growth of agriculture during the new millenium are structural
weaknesses, namely low public investment, exauhstion of yield potential of HYVS of wheat and rice,
unscientific & unbalanced fertiliser use low seeds replacement rate, an inadequate incentive system
and post hervest value addition (Eco. Survey 2006-07)
12.7.3 Yield per hectare
In addition, it can be mentioned that Indian paddy yield per hectare was about a third of Egypt
which had the highest yield per hectare in 2004-05, eventhough India contributed 12.8 pecent of global
paddy production. In case of wheat India contributed 12 per cent of global (wheat) production and its
average yield was less then a third of the highest level attained by UK in 2004-05. As regard coarse
grains and major oilseeds, Indian yields are one third and 46 p.c. of the global average respectively.
Regarding cotton, the Indian yield is 63 p.c. of the global average. As we have discussed earlier, the
productivity of Indian agriculture is lower than its potential and global average.
251
Table 16a: Compound Growth Rates of Area, Production and Yield
(as per cent per annum with base Year 1981-82=100)
Crops
1980-81 to 1989-90
1990-91 to 1999-2000
2000-01 to 2011-12
Area Production Yield
Area Production Yield
Area Production Yield
Rice
0.41
3.62
3.19
0.68
2.02
1.34
0.00
1.78
1.78
Wheat
0.46
3.57
3.10
1.72
3.57
1.83
1.35
2.61
1.24
Coarse
-1.34
0.40
1.62
-2.12
-0.02
1.82
-0.80
3.01
3.85
Total Pulses
-0.09
1.52
1.61
-0.60
0.59
0.93
1.60
3.69
2.06
Sugarcane
1.44
2.70
1.24
-0.07
2.73
1.05
1.38
2.07
0.68
Total Oilseeds
1.51
5.20
2.43
0.86
1.63
1.15
2.12
3.36
1.22
Cotton
-1.25
2.80
4.10
2.71
2.29
-0.41
3.22
13.53
9.99
Cereals
Source: Economic Survey, 2012-13
12.7.4 Investment
In order to raise the productivity and growth rate of agricultural production, pushing up public
investment is the basic requirement. As mentioned in the Eleventh Plan, the projected growth rate of 4
p.c. in agriculture, increase in public investment up to 15 p.c. per annum is required. The focus should
be on rural infrastructure as being done under Bharat Nirman Programme. The other significant fators
are technological breakthrough, iliser usage, irrigation and agricultural prices.
The 11th Five Year Plan gave emphasis to existing technology and reducing yield gaps
rather than new technology. The increase in growth rates since 2005-06 has been higher in states
with low productivity and low irrigated states. In relatively high irrigated states such as Punjab, Haryana,
Uttar Pradesh (UP), West Bengal and high productivity states such as Kerala, the growth was lower
since 2005-06. The low irrigated and low productivity respectively 4.5 per cent and 5.1 per cent during
2005-06 to 2011-12 registered. During the same time, high irrigated and high productivity states
recorded respectively 2.7 per cent and 2.1 per cent respectively.
During the post-reform period, in response to the growing domestic and export demand for
non-cereal items of food, there has been a discernible shift in the allocation of resources in Indian
agriculture in the recent period away from cereals, particularly coarse cereals, to dairy farming, poultry,
edible oils, meat, fish, vegetables, fruits, etc. These enterprises, being labour intensive, are suited to
small holders and lead to a rise in wage employment. Besides they are environment friendly, as they
are generally less land and water intensive, and there is also a rise in incomes of farmers growing high
value products. The deceleration in agricultural growth during the period 1997-98 and 2004-05,
although most marked in rainfed areas, occurred in almost all state covered almost all sub-sectors,
including those such as horticulture, livestock and fisheries where growth was expected to be high (Gol,
2007).
However, there have been some positive developments in the last decade. Eleventh plan
period recoded 4.1 per cent agricultural growth. Total foodgrain production was 264.4 million tonnes in
2013-14. Pulses production was 19.6 million tonnes during the same year. Exports in agriculture rose
252
significantly. Both public and private investment in agriculture increased. Total investment in agriculture
was 21 per cent of agriculture GDP. There were large expenditures on programmes like Rashtriya
Krishi Vikas Yojana (RKVY), National Horticulture Mission (NHM), National Food Security Mission
(NFSM) and Agricultural Technology Management Agency (ATMA). Apart from revolutions in BT cotton
and hybrid maize, there has been some increase in high value agriculture. Terms of trade for
agriculture improved. Some of the lagging regions like Bihar showed relatively high growth in recent
years. Similarly, Gujarat recorded high growth of 9 per cent per annum during 2001-02 to 2007-08.
There is also now recognition of climate change issues in India.
Table: 16(b) Agricultural Production in mn tunnes
Particulars
2017-18
2016-17
Last 5 years average
Food grains
277.5
275.1
260.2
Rice
111
110
106.3
Wheat
97
98.5
93.3
Coarse Cereals
45
43.8
41.7
Pulses
24
23
18.9
Oilseeds
30
31.3
30.0
Cotton
34
32.6
33.5
Sugarcane
353
306.1
342
Note: Cotton in mn bales (170 kg each)
Sources: Dept of Ag. Coop and Farmers Welfares
Self Assessment Question
Q.
What do you know about neglect of agriculture in nineties? Mention 4 factors.
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
12.8
REGIONAL DISPARTIES INDIAN AGRICULTURE (1962-65 to 1992-95)
There is evidence to show that the inter-regional imbalances in the growth of agricultural
production have been corrected to some extent during the last 30 years or so. Studies by Rao, Sawant,
I.J. Singh, Bhalla & Gurmail Singh and by Parthasarthy confirm this trend. These studies are
independent of each other and use different data and different base periods. However, these all
confirm that during eighties and after, the central and southern agricultural regions of the country
developed at a higher pace when compared with the green revolution belt. Inter-regional disparities in
agricultural development were thus corrected to some extent. (However, green revolution belt is still the
most developed one). The following section provide region-wise and state-wise details for the period
1962-65 to 1992-95 performance.
253
12.8.1 Region wise details
As evident from Table 16 the North-Western Region has been the best performer (3.35% p.a.)
followed by the Central (2.68% p.a.) and far as the growth rates for output (at 1990-93 prices) during
the period 1962-65 and 1992-95 are concerned. The Eastern and North-Eastern Regions, however,
continue to be the tail enders so far as the development of agriculture since independence is
concerned (Only West Bengal and recently Bihar-also in the Eastern region) have experienced an
impressive growth during the 1980s and after. Unless their development picks up at a greater pace, the
goal of a balanced regional agricultural development of the country as a whole, will remain a far cry. TABLE 16
Growth Rates for out put (at 1990-93 prices for different Regions of India for
the period 1962-65 to 1992-95
Percent Per annum
S. No.
Regions
Sub-Periods
1962-65 to
1970-73
Combined
1970-73 to
1980-83 to
1980-83
1992-95
1962-65 to
1992-95
1.
North Western
3.60
3.21
3.29
3.35
2.
Central
0.73
3.13
3.62
2.68
3.
Eastern
1.57
1.09
3.01
1.98
4.
Southern
2.40
1.36
3.58
2.52
Note :
1.
2.
3.
4.
North Western Zone consists of Haryana, Punjab, J & K and Himachal Pradesh and U.P.
Central Zone consists of Rajasthan, Gujarat, Madhya Pradesh and Maharashtra.
Eastern Zone includes Bihar, Orissa, West Bengal and Assam. Sometimes, Assam
and other North Eastern states are included in a separate zone called NorthEastern Zone.’
Southern Zone contains Kerala, Karnataka, A.P and Tamil Nadu.
Source: Bhalla and Singh (2002).
12.8.2 State wise details
The share of agriculture in the overall Gross Domestic Product of India continued to decline.
While it was 35.6% in 1978-79 (at 1980-81 prices), it came down to 29.3% in 1990-91 (at 1980-81
prices). According to the next series started with 1993-94 prices as the base, the share of agriculture in
the overall Gross Domestic Product of India further fell down further from 28,4% in 1993-94-to 22.7% in
2001-02. In 2006-07, it further fell to 18% (at 1999-2000 constant prices). In 2009-10 this share fell
down to 14.6% (at 2004-05 prices). As per capita availability of cereals and pulses has shown only an
insignificant rise in the period after 1978 and that too, upto the year 1991, the year when economic
reforms were introduced in the country. In that year, it was 510.1 grams per day. After.1991, there has
been, on the whole, a decline in per capita availability of cereals and pulses, this being about 440
grams per day in year 2009. Main reason for this decline was the fall in the over all growth rate for
foodgrains during 1990s and after. When compared with that for 1980s, there was, however,
a perceptible increase in the availability of other items of daily consumption. For example, per
capita availability of edible oils and sugar increased from 3.8 kg. per annum and 7.3 kg. per
annum respectively (in 1977-78) to 13.1 kg. per annum and 18.6 kgs. per annum respectively in 20092010.
254
sector (which includes North Eastern sub-sector also), has lagged behind all other sectors so far as the
agricultural development since 1962-65 is concerned.
TABLE - 17
Overall growth of Agriculture in different states during the period 1962-65 to 1992-95, in terms
of net area sown, yield (at 1990-93 prices) & output (at 1990-93 prices)
Growth Rates
S.No. State
Region
Net area
yield
Output
Sown
1.
Punjab
North Western
0.26
3.13
4.89
2.
Haryana
North Western
0.01
3.21
4.14
3.
Rajasthan
Central
0.51
2.56
3.56
4.
Karnataka
Southern
0.10
2.62
3.04
5.
West Bengal
Eastern
-0.10
2.27
2.99
6.
Madhya Pradesh
Central
0.54
2.04
2.83
7.
Uttar Pradesh
North Western
-0.23
2.63
2.73
8.
J&K
North Western
0.23
2.10
2.70
9.
Andhra Pradesh
Southern
-0.23
2.83
2.68
10.
Tamil Nadu
Southern
-0.29
2.51
2.36
11.
Gujarat
Central
-0.03
2.39
2.30
12.
Maharashtra
Central
-0.03
1.95
2.29
13.
Assam
Eastern
0.82
1.20
2,29
14.
Himacnal Pradesh
North Western
0.23
1.79
2.08
15.
Kerala
Southern
0.35
1.06
1.66
16.
Orissa
Eastern
0.21
1.25
1.60
17.
Bihar
Eastern
-0.44
1.46
0.99
Source: Bhalla and Singh, 2002
Table- 18
Growth Rates for different Regions for the Period 1962-65 to 1992-95
S. No.
Region
Growth Rates
Yield
Output
Net area Sown
1.
North Western
0. 04
2.88
3.35
2.
Central
0. 27
2.10
2.68
3.
Eastern
-0.04
1.76
1.98
4.
Southern
-0.08
2.42
2.52
5.
All India
0.12
2.30
2.71
Source: Bhalla & Singh, 2002
255
In Table 16, we have examined the rates of growth for agriculture for different regions of the
country. This however, does not mean that each state in a given region has the same rate of growth.
For example, in the most developed region of the country, i.e., the North-Western region, the state of
Himachal Pradesh has not developed much. In the same way, in the least developed region, i.e.,
Eastern region, West Bengal has shown a very impressive progress in agriculture, especially during the
eighties and after. Tables 16 and 17 confirm this assertion.
Whereas Table 2 A confirms the fact that in any region, the growth’ rate for agriculture is not the
same for each state, table 17&18 studied together, bring out another important fact concerning
agricultural development in the country. It is that in each state as well as in each region, it is mainly the
increase in productivity, rather than the increase in Net area shown, which is responsible ‘for the
growth in its agriculture. According to Bhalla & Singh 8.0% of the total increase in agricultural output
during 1962-95 is because of increase in productivity.
12.9 Regional Disparities Position in Post - 1995 period
The Regional ais parities pertaining to agriculture have been discussed on the basis of following
studies:
A. STUDIES
12.9.1 Mathur’s Study for the period 1993-03.
The preceding tables describe the imbalance in the agricultural development in India till 1995.
A recent study by Mathur (2007), has examined the agricultural development of 15 major
states after 1993-96. This study again shows that agriculture in different states has developed at
different rates, during the period 1993-96 to 2002-03 (on the basis of 1993-94 prices). For example,
while West Bengal and Bihar in the Eastern region have shown a very high level of over all growth in
agriculture during this period, (28.28% and 28.19% respectively). Assam and Orissa are almost the tail
enders (2.9% and (-) 9.40% respectively).
Same is the case with the Southern region (Karnataka 25.10%, A.P. 19.63%, Tamil Nadu 1.40%
and Kerala (-)18.59%.
The Western region also shows a similar situation and that too, at a much lower level of over all
regional development (Maharashtra 14.29%, Rajasthan 5.58%, Gujarat (-) 6.03% and M.P. (-) 7.94%).
The North Western Region shows a positive development in all the major states (Punjab 15.82%
U.P. 14.06% and Haryana 11.86%). The study does not give any conclusion about the agricultural
development for different regions as a whole but it still enables us to confirm the earlier conclusion that
interstate disparities in agricultural growth persist and that North-East region continues to be the most
backward region. Infact, the study also gives the impression that as follows :
There is a slight improvement in the pace of development of the Eastern Zone which when
considered separately from the North Eastern region, consists of Bihar, West Bengal, and Orissa. West
Bengal still continues to be one of the rapidly developing states. Bihar, too has achieved a high growth
rate in agriculture during the last decade or so. However, at the same time, the growth rate of
agriculture in Orissa has become negative. Upto 1995, its rate of growth of agriculture was the lowest in
the country.
12.9.2 Singh’s Study for 1996-2003
Recently, Singh has estimated the growth rates of agricultural production for different zones for
the period 1996-2003. (He has included Northern Eastern States in the Eastern Zone.) His estimates
are given in Table 19.
256
Table - 19
Growth rates of agricultural production for different zones of India (1996-2003)
(Per cent Per Annum)
Zone of India
Growth Rate
(% per annum)
Northern
1.2
Eastern
1.1
Western
0.6
Southern
-1.3
All India
0.6
Source : Singh’s Study for 1996-2003
Sources Singh’s study estimates for the period 1996-2003 show that the growth of Agricultural
production was the lowest in Western and Southern Zones during this period. However, if we keep in
mind his estimates for the previous period 1961-1995, we still get the impression that while agriculture
of Northern Zone developed at the highest rate till date, the development rate was the lowest for the
Eastern Zone.
12.9.3 Vaidyanathan’s Study (1994-2012)
There are large regional disparities in output across regions (see Vaidyanathan, 1994). Certain
regions such as Punjab, Haryana, western Uttar Pradesh, parts of Andhra Pradesh and Tamil Nadu
have benefited more during the initial phase of the Green Revolution than others. This had accentuated
regional disparities in the immediate post-Green Revolution period. An important feature of the 1980s
and the early 1990s, however, is that there has been much more equitable spread of agricultural growth.
According to Bhalla and Singh (1997), the period 1980-1983 to 1990-1993 marks a turning point (in
terms of growth) in India’s agricultural development. After performing poorly during the early years of
the Green Revolution, many of the states where poverty is widespread—Assam, Bihar, Odisha,
Madhya Pradesh and West Bengal— have shown significant growth in the 1980s. Oilseeds have also
gained in the dry belt of Rajasthan, Madhya Pradesh, Karnataka and Maharashtra.
B. On the Basis of Economic Survey :
Growth rates in the post-reform period are given in Table 20. The all-India growth rate recoded
4.1 per cent during 2005-06 to 2011-12 compared to 3.3 per cent during 1994-95 to 1999-2000 and 1.7
per cent during 2000-01 to 2004-05. Some of the states with large rainfed areas such as Jharkhand,
Chhattisgarh, Rajasthan, Gujarat, Maharashtra, Karnataka and Andhra Pradesh registered growth rate
of 5 and above in the latest five year period compared to earlier five year periods Table-20.
257
Table 20
States
1994-95 to 1999-2000
2000-01 to 2004-05
2005-06 to 2011-12
AndhraPradesh
2.8
4.7
5.0
Bihar
3.1
7.4
3.3
Chhattisgarh
-2.1
4.6
7.3
Gujarat
5.2
9.1
5.5
Haryana
2.1
2.7
4.2
Jharkhand
4.3
5.0
8.0
Karnataka
4.1
-2.9
5.1
Kerala
1.9
1.7
-0.2
Madhya Pradesh
1.6
2.2
4.4
Maharashtra
3.1
1.6
5.3
Odisha
0.0
3.5
3.1
Punjab
2.5
1.8
1.8
Rajasthan
5.5
10.9
5.5
Tamil Nadu
1.8
-0.5
4.6
Uttar Pradesh
3.5
1.0
2.8
Uttarakhand
2.4
3.3
2.0
West Bengal
4.1
2.4
2.6
All India
3.3
1.7
4.1*
High Irrigated States
3.2
1.7
2.7
Medium Irrigated States
1.8
3.1
4.2
Low Irrigated States
2.8
1.5
4.5
High Productivity States
2.9
2.5
2.1
Medium Productivity States
2.4
2.1
3.7
Low Productivity States
2.6
2.5
5.1
Source: 12 Five Year Plan, Govt. of India. *Economic
258
APPENDIX
LATEST FIGURES ON INDIAN AGRICULTURE
[Budget 2016-17]
I.
AGRICULTURE
discussed below :
Budget 2016-17 attempted to address some of the long standing issues
(A)
Ag. Growth (% per annum) : 1.5% (2013-14), 4.2% (2013-14), - 0.2% (2014-15) 1.1% (201516, projected).
(B)
New initiatives for Agriculture Sector (as mentioned in Eco Survey 2015-16)
(C)

Pradhan Mantri Krishi Sinchai Yojana (PHKSY) with oulay of 17,000 Cr. rupees

Automation of 3 lakh Fair Price Shops out of total of 5.35 lakh - connecting 585 regulated
markets under this scheme – National Agricultural Markets (NAM) through Agricultural Produce
Marketing Committee (APMC)

Post Harvest Horticulture : 15 pc of total production of fruits and vegetables in India is lost due
to spoilage at various Post Harvest stages of Production, 2015-16.

Gross Capital Formation in agriculture (as a percentage of Gross Value Added in Ag) has
declined from 18.3 pc in 2011-12 to 15.8 pc in 2014-15.

Genetically Modified Crops with improved irrigation, farm mechanization, markets and inputs to
be promoted to increase productivity and food security.
Suggestions : Taxation of agricultural income of rich farmers and withdrawal of fertilizer
subscribes (Eco Survey 2015-16).
Table: Sectoral Contribution to GVA at current prices
Item/Year
2013-14
2014-15
2015-16
2020-21
Agriculture, forestry and 18.2
fishing
18.3
17.4
17.0
18.85 pc
Industry
31.7
30.8
30.0
29.7
(of which Manufacturing)
(17.1)
(16.5)
(16.1)
(16.2)
Services
50.0
50.9
52.6
53.2
Basic 100
100
100
100
Total GVA
Prices
2012-13
at
Source: Appraisal of 12th FYP: NITI Aayog, Table: 2.3, P.47, Eco Survey 2021-22.
II.
PRODUCTION OF AGRICULTURE
Table : Production of Food Grain in Mn Tonnes (2012-21)
Year
Food grains
2011-12
2012-13
2013-14
2014-15*
2016-17
2017-18*
2020-21
259.3
257.1
265.0
252.7
275
277.5
305.4
(Mn Tonnes)
Note : *4th Advanced Estimate, + 2nd Advanced Estimate
Source : Eco Survey 2015-16 and recent issue.
Record high
259
III.
Gross Capital Formation in Ag. & Allied Sector.
It reflects the investment rate in agriculture.
Year
Ag. & Allied Sector
Share of GCF in
GVA of Ag. (%)
GVA
GCF
2011-12
1501816
274432
18.3
2012-13 (RE II)
1680797
274727
16.3
2013-14 (RE II)
1902452
322723
17.0
2014-15 (RE I)
1995251
314640
15.8
Note : RE-Revised Estimate, GVA= Gross Value Added, GCF= Gross Capital Formation
Source : Economic Survey 2015-16
The declining trend needs to be arrested : The investment in agriculture has to come from both
the public & private sectors.
IV.
Growth Rates in Agriculture GDP
Period
Growth Rate (% per annum)
1950-51 to 1964-65
2.51
1967-68 to 1980-81
2.20
1980-81 to 1990-91
3.07
1992-93 to 1996-97
3.85
1992-93 to 2001-02
2.76
1997-98 to 2004-05
1.60
Ninth FYP (1997-2002)
2.50
Tenth FYP (2002-07)
2.40
Eleventh FYP (2007-12)
4.10
2012-13
1.40
2013-14
4.70
2001-2020
3.70
1951-21
2.60
Note : 1950-51 to 1980-81 at 1980-81 constant prices
1980-81 to 2004-05 at 1993-94 constant prices
2004-05 to 2013-14 at 2004-05 prices
Source: Uma Kapila, 2016, Eco Survey 21-22, Kurukshetra Aug. 2021.
260
12.10 SUMMARY
Agriculture Sector: Growth & Pattern
Phases of
Growth
Low Productivity
Comparision
With
Potential
With
Leading
nations
Suggestion
s
Recent
Plans
Growth
Rates of
Tenth
Eleventh
Area
Production
Twelfth
Yield
Crop Production
Gross
Capital
Formation
in Indian
Agriculture
12.11 MODEL QUESTIONS
1.
Discuss the growth pattern of Indian Agriculature since 1950.
2.
Explain the growth trajectory of Indian Agriculture in the nineties and beyond.
3.
Write short note on
a)
Agricultural Performance in Ninth & Tenth Plans
b)
Growth of Foodgrains production in India
c)
Growth of Agriculture & allied sectors production in India
---00---
261
Lesson - 13
GREEN REVOLUTION IN INDIA [1966-2010]
(Not Directly a part of Syllabus : Prepare a short Note- Meaning, Factors,
benefits & problems)
Structure
13.0
Objectives
13.1
Introduction
13.2
Progress Under Green Revolution
13.3
Factors of Green Revolution in India
13.4
13.5
13.3.1
Adoption of High Yielding variety Seeds
13.3.2
Expansion of Irrigation Facilities
13.3.3
Provision of Agriculture Credit
13.3.4
Supply of New Agriculture Inputs
13.3.5
Development of Infrastructure
13.3.6
Plant Protection and Pest Control
13.3.7
Development Programme for Small and Marginal Farmers
13.3.8
Incentive Prices
13.3.9
Multiple Cropping Programme
Economic Benefits of Green Revolution
13.4.1
Increase in Foodgrain output
13.4.2
Generation of Employment Opportunities
13.4.3
Rural Development
13.4.4
Saving of Foreign Exchange
13.4.5
Increased Income of Rural People
13.4.6
Stimulus to Industrialisation
13.4.7
Other Benefits
Problems Created by the Green Revolution
13.5.1
Imbalances in the Indian Economy
13.5.2
Wide Disparity in the distribution of Income
13.5.3
Reduction in Employment Opportunities on Large Farms
262
13.6
13.5.4
Social Tension in Rural Areas
13.5.5
Uneven Progress
13.5.6
Unproductive Expenditure by Affluent Farmers
13.5.7
Growth of Capitalistic Farming
13.5.8
Storage problem
13.5.9
High Land Price
Need for Second Green Revolution or Evergreen Revolution
13.6.1
Multiple Cropping Programme
13.6.2
More Area under Irrigation
13.6.3
Price Parity among Principal Crops
13.6.4
High yielding Varieties
13.6.5
Land Reforms and Capital Reforms
13.6.6
Development of New Dry Land Farming Technology
13.6.7
Integrate Post-harvest Technology
13.6.8
Crop Insurance Schemes
13.7
Summary
13.8
Glossary
13.9
Model Questions
13.0
OBJECTIVES
After going through this lesson, you shall be able to :
-
assess the contribution of various factors towards accelerated agriculture growth of the midsixties, popularly called the Green Revolution in India
-
delineate economic benefits emerging out of Green Revolution
-
analyse the problems created by the Green Revolution
-
suggest various measures that can make Green Revolution successful even today
-
test your knowledge through model questions.
13.1
INTRODUCTION
The tremendous increase in agriculture production that took place in the mid sixties is popularly
known as Green Revolution in India. In this lesson we shall study about various factors of Green
Revolution, problems created by it, economic benefits arising out of it and measures required to
maintain this growth.
13.2
PROGRESS UNDER GREEN REVOLUTION
With the passage of time, the term green revolution has led to the emergence of new question
such as
(a)
Is Green revolution complete or partial?
(b)
Is Green revolution at cross roads?
(c)
Has Green revolution failed?
263
Regarding first question, there is no dispute that the green revolution is partial, being confined to
wheat and rice production. There has been tremendous increase in the production of wheat and rice.
As such it should be better named as wheat-rice revolution. The increasing production of these two
principal crops is shown below in Table 1.
Table 1 : Production of Wheat and Rice in India (million tonnes)
YEAR
RICE
WHEAT
1966-67
30.44
11.40
1967-68
37.62
16.54
1968-69
39.76
18.65
1969-70
40.43
20.09
1971-72
43.07
26.41
1972-73
39.25
24.74
1973-74
44.05
21.78
1974-75
39.58
24.10
1975-76
48.74
28.85
1976-77
41.92
29.01
1977-78
52.67
31.75
1978-79
53.77
35.51
1980-81
53.63
36.31
1989-90
73.6
49.7
1990-91
74.3
55.1
1993-94
80.3
59.8
1994-95
81.1
65.5
1996-97
81.3
69.3
1997-98
82.3
65.9
2008-09
97.0
77.0
2009-10
89.09
80.80
Source : Economic Survey of India, various issues.
Table 1 indicates a major breakthrough in rice and wheat production, offering better prospects
or higher production in future. As shown above, between 1966-67 and 1997-98, the production of rice
and wheat increased two and a half times and six times respectively. The recent figures on agricultives
development are given in next section.
In the year 2008-09, the rice production increased further to 97 mn tonnes while production of
wheat grew to 77 mn tonnes and in 2009-10, it was 89 mn tonnes and 81 mn tonnes respectively.
13.3
FACTORS OF GREEN REVOLUTION IN INDIA
Various developmental programmes introduced by the State and Central Government resulted
in spectacular agriculture development. These programs known as factor of green revolution are
discussed below.
264
13.3.1 Adoption of High-Yielding Varieties of Seeds
The use of high-yielding of seed since 1966 has resulted in substantial increase in foodgrains
production. Wheat production has increased by more than four times. Bajra production has also
registered some increase but the progress under maize and jowar is relatively slow. The break through
in the production of wheat and rice has been attributed to magic seeds adopted by our farmers. Some
important quality seeds of wheat are used in the beginning Lara Rojo, $ 308, WG-357, WI-212 and of
rice are IR- S and Jaya. To emulate the interest of farmers for the cultivation of quality seeds the
Government had made various arrangement for evolving, multiplying and distributing these seeds
among farmers. Setting up of National Seeds Corporation, State Farms Corporation and of Agriculture
Universities are some of these measures. As a consequence of these efforts, the use of quality seeds
has become a way of life and farmers are always eager to get new seeds so they reap the benefits of
new technology. Thus the cultivation of quality seeds has ushered in an era of green revolution and
India can compete with any country of the world in quality seeds of rice. Ludhiana district of Punjab tops
the world in the per hectare yield of wheat.
In 1969-70, 4.34 m hectare of land were under high yielding variety of rice and 4.92 m
heactares of land were high yielding varieties of wheat. These are increased to 17.0 m hectare and
6.10 m hectare respectively in 1978-79. In 1994-95, 3.10 m. hectares were under high yielding varieties
of wheat. In 1996-97, 33.4 m hectare and 23.7 m hectare of land was under HYV seeds in case of rice
and wheat respectively.
13.3.2 Expansion of Irrigation Facilities
Irrigation has been accorded a high place in the national development plans for providing
assured supplies of water for irrigation purposes. Area under irrigation has been increasing under each
plan.
Total irrigation potential in 1950-51 was 22.6 million hectares. In 1996-97 it increased to about
80.69 m hectare of this area, 32.8 m hectare were under major and medium projects. It has been
estimated that the ultimate irrigation potential in India is 113.5 hectares. It has been observed that the
progress on account of major and medium project so far has been slower than that of minor works.
Despite the fact that so much concern was shown for joint ventures in this field.
This facility has enabled the farmers to adopt the new agriculture technology which has resulted
in more agricultural production particularly of foodgraining which in turn, has eliminated our
dependence upon food imports. There is no denying in the fact that great advances in agricultural
technology especial in high yielding varieties of seeds and in the use of chemical fertilizers have been
possible by the availability of an assured water supply particularly in the cultivation of rice, wheat and
sugarcane because these crops need regular supply of water. Irrigation has also increased area under
double- cropping and has also stepped up farm productivity. Thus expansion in irrigation has stimulated
the interest of farmers for the adoption of new agriculture technology which has led to more production.
As irrigation is also a source of additional employment, its extension gains further importance as a part
of the new agricultural strategy.
13.3.3 Provision of Agricultural Credit
The provision of cheap agricultural credit facilities has facilitated the adoption of new agricultural
technology which has yielded very encouraging results in terms of increase in agricultural production.
Farmers need credit for the purchase of new seeds, better implements, chemical fertilizers, insecticides
and for introducing permanent improvements in land. It is necessary in this connection to emphasize
that is the institutional credit rather than the credit flowing from private money lenders that need
expansion. Accordingly, it is encouraging that co-operative credit institutions such as primary cooperative societies, central co-operative banks state co-operative banks for short –term credit and land
development banks for long- term credit are being progressively established by our government
265
throughout the country. In addition to this, commercial banks are being directed by the Government to
advance loans to farmers so that they may adopt better methods of cultivation. Regional Rural Banks
have also been set-up by the Government throughout the country. National bank for agricultural and
Rural Development has also been established.
The volume of institutional credit for agriculture has been expanding appreciably from year to
year. In 1961-61 the co-operative advances were of Rs.203 cr. In agriculture sector that has increased
to Rs. 14399 crore in 1997-98. The short term loans given by Commercial Banks and Regional Rural
Banks have increased from Rs.212 cr. in 1976 to Rs. 16637 crore in 1997-98.
13.3.4 Supply of New Agricultural Inputs
The availability of new agricultural inputs such as quality seeds, better implements, chemical
fertilizers, insecticides and pesticides has enabled our farmers to modernize our traditional agriculture.
The application of these inputs has raised farm productivity as well area under double cropping. Proper
arrangements are being made for the timely supply of these inputs to farmers all over the country. For
example, Agro Industries Corporations have been set up as state sector undertaking for the distribution
of agriculture machinery, for setting up machinery hiring centers and repair works- shops and for supply
of other agricultural inputs. Factories have been set up in the public and private sector to augment
production of chemical fertilizers and insecticides. These inputs are supplied to the farmers at
reasonable prices and at proper time so that agricultural production may not suffer. Fertilizers
consumption was 5.12 m tonnes in 1978-79 and 3.15 m tonnes in 1994-95 and it increased to 16.5 m
tonnes in 1997-98.
13.3.5 Development of Infrastructure
Infrastructure comprises those activities and facilities, which did not increase the production
directly. The part played by infrastructure in the development of agriculture in our country is second to
none. These facilities have created a favourable atmosphere for investment in agriculture, which has
increased agricultural production and has saved foreign exchange spent on food import. Important
items of infrastructure are transport and communication, regulated and co-operative markets. Storage
and warehousing, agricultural education and training, agricultural extension and administration and
power. The provision of these amenities has enable the farmers to change the mode of cultivation i.e.,
from traditional of modern.
13.3.6 Plant Protection and Pest Control
The application of science and technology to farming has changed the character of our
agriculture. At the same time, it has necessitated the need for the control of plant pest and diseases.
This is because high yielding variety of seeds and growth of plants induced by application of chemical
fertilizers invites pest and diseases which hamper the plant growth. Thus, to protect the crop from
damage by pests and diseases and to induce the farmer to adopt the new technology, plant protection
and pest control measures are being adopted. These measures keep not only the standing crop in
good condition and the produces crop sage in storage but also create atmosphere which helps in
controlling the spread and multiplication of plant diseases. Our Government has made concerted efforts
in order to ensure adequate and timely supply to pesticides and plant protection equipment to farmers.
These measures have resulted in the proper growth of plants and farm productivity has increased.
In the Sixth and Seventh Plan, plant protection measures were strengthened to reduce crop
losses and to improve yield crops, horticulture crops and plantation crops. Special attention was given
to control pests in cotton, pulses and oil-seeds. In 1993-94 about 83,000 tonnes of human and animal
health, could disturb the ecological balance. Therefore ‘Integrated Post Management’ was introduced in
the country. Under this system, neem based and biological pesticides are used to control pests. That’s
why use of chemical pesticides has come down to 61260 tonnes 1995-96
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13.3.7 Development programme for Small and Marginal Farmers
The role of small and marginal farmers is not less important than medium and big farmers is
ushering both the era of green revolution because these farmers have not lagged behind in the
adoption of production raising technology. They are as responsive as big farmers to the adoption of
new inputs provide these inputs are supplied on easy term to them. Special agencies such as small
Farmers Development Agency (SFDA) and Marginal Farmers and Agricultural Labour Agency (MFALA)
were set up to enable these farmers to adopt production raising technology.( Now these two agencies
have been merged to form one agency, called (Rural Development Agency). Under the programmes
prepared by these agencies special attention has been given to the problem of small and marginal
farmers and needed inputs are supplied to these categories of farmer at subsidized rates. As a
consequence of these facilities, productivity on small farms as increased and the government has also
taken special steps for ensuring that a greater proportion of the institutional credit for agriculture flows
to small and marginal farmers.
13.3.8 Incentive Prices
The adoption of new agricultural technology has increased not only production but also
expenditure because new inputs are to be purchased from the market. Therefore, prices of agriculture
commodities must be reasonably high to meet the expenditure incurred by farmer in the purchase of
new inputs. Therefore, to induce the farmers to adopt production raising technology. ‘Agriculture Prices
Commission’ (Now called ‘Commission for Agricultural Costs and Prices, was set up in 1965. It
recommends support procurement prices for various crops every year. but fixing prices for agricultural
crops is done by the Government.
13.3.9 Multiple Cropping Programme
Special emphasis was laid on Multiple Cropping Programme in 1967-68. It’s object was to
increase the area soon more than once in a particular year not only by using the existing irrigation
facilities in a better way but also by adding to the available irrigation facilities. In 1970-71, area
cultivated more than once was 2.5 crore hectares. In 1995-96, this area rose to 4.43 crore hectares.
Self Assessment Question
Q.
Name the factors which brought Green Revolution in India.
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
13.4
ECONOMIC BENEFITS OF GREEN REVOLUTION
In its wake, green revolution has brought some economic benefits to all people irrespective of
their class-affiliation as well as the country as a whole. By giving birth to these economic benefits,
green revolution has infused a new life in rural and urban areas which is assisting in accelerating the
tempo of economic development. This should lead to an atmosphere of optimism, security and stability
in respect of availability of foodgrains and also in respect of their prices. Below, we discuss various
economic benefits resulting from the adoption of new agricultural technology.
13.4.1 Increase in Foodgrain Output :
This main achievement of green revolution is the magnificent increase of foodgrains output
which had gone up from 51 million tonnes in 1951-52 to over 259 million tonnes 2012-13. It has
reduced our dependence upon food imports to almost zero and has also create confidence in the
people about the availability of food grains throughout the year at reasonable prices. It has also
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produced good effect upon Government policies because now it can concentrate upon other
development programme with greater confidence about their success.
13.4.2 Generation of More Employment Opportunities in the Agricultural and Non- agricultural
Sector
The new agricultural technology has generated more employment in the agricultural as well as
the non- agricultural sector of the economy. In the agricultural sector, bio- logical changes such as
quality seeds and chemical fertilizers have created more demand for labour to look after sowing,
weeding and harvesting activities. Double cropping has also necessitated more labour so that the
standing crop may be harvested and the next crop may be shown in time. For example in Punjab,
wheat- rice sequence has increased the demand for labour during October and November months.
Extra irrigation facilities, too have been responsible for creating more demand for labour at the farm
level. In fact, the demand for labour in Punjab during the last 15 years or so has increased so much that
even labour from other States big migrates to Punjab and is able to find employment during the peak
period.
In the manufacturing sector, factories have been set up to produce chemical fertilizers,
insecticides and pesticides and for the manufacturing of agricultural machinery which have provided
employment to workers. In addition to this employment has alsi expended in the tertiary sector i.e., in
the marketing and transporting of agricultural produce. There servicing of agricultural machinery has
also provided employment to technical persons.
Green revolution has also increased the purchasing power of rural people which has increased
demand for non- traditional commodities such as Radio, fans, watches, motorcycle, etc. resulting in
more employment in these lines. Construction activities have also increased especially in the rural
areas due to the green revolution. The overall impact of green revolution is the expansion of
employment opportunities in the country.
13.4.3 Rural Development
Green revolution has also resulted in the overall rural development. The growing income of the
people in the rural areas has encouraged various types of construction (both public and private)
activities in the rural areas. A part of the expenditure on construction of school and hospital buildings
and roads, in quite a few causes, has been met by the rural people themselves. Banks have moved into
the rural areas for mopping up the saving of the rural people for rural development.
13.4.4 Saving of Foreign Exchange
India had been spending crore of rupees upon food imports every year to feed its population but
green revolution has saved the foreign exchange which was paid for import of foodgrains. The same
foreign exchange has been used for the imports of capital goods and other essential commodities
needed for the economic development of the country.
13.4.5 Increased Income of Rural People
The new agricultural technology has increased the income of rural people, thus falsifying the old
saying that Indian farmer is born in debt, lives in debt and dies in debt. There is an evidence that
standard of living of the farmers who have adopted new technology has gone up. Luxury goods, tool,
are finding there way into the rural areas.
13.4.6 Stimulus to Industrialization
Green revolution has also stimulated the peace of industrialization in the country by creating
demand for industrial goods among the farmers. The rapid development of industries manufacturing
agricultural inputs such as fertilizers, insecticides and machinery is the gift of green revolution.
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Similarly, increased income has created demand for non-traditional goods which has led to the
expansion of the consumer goods industries.
13.4.7 Other Benefits
In addition to economic benefits, green revolution has also produced political benefits. First of
all, it has changed world opinion about our farmers as well as about our Government. The outside world
is now convinced that our farmer, too, can do miracles provided he is supplied with necessary inputs.
The green revolution has also boosted the image of our government as a world force to reckon with.
Secondly, it has enabled the image of our Government to raise its head high among world powers. For
example, Nixon Government tried to use food as political weapon, during Indo- Pak war of 1971 to
pressurize our government to come to terms with Pakistan. However, a comfortable food situation in
the country enabled our Government to reject Nixon’s proposals.
Self Assessment Question
Q.
Mention the benefits of Green Revolution in India.
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
13.5
PROBLEMS CREATED BY THE GREEN REVOLUTION
There is no difference of opinion about the new agriculture technology has increased agriculture
production, particularly of foodgrains. As a consequence of more foodgrains production, marketed
surplus has increased and foodgrain reserves went up from 7.5 million tonnes in 1974-75 to aabout 47
million tonnes in October, 2001. This is one side of the situation- the positive side of the green
revolution. But we should not ignore the other side which has been responsible for the emergence of
new problems in the countryside. Below we discuss problems which have arisen from the adoption of
new technology.
13.5.1 Imbalances in the Economy
The green revolution has created and accentuated imbalance in the economy because it has
benefited mainly those areas which already had the advantage of irrigation facilities. The farmers of
these areas were already better off in comparison to farmers of areas have got the full advantage of
modern research and technology and have received quality seeds, chemical fertilizers, and credit
facilities while the farmers, who are dependent upon monsoon for cultivation have been denied such
facilities. For example, area comprising Punjab, Haryana and Western U.P have, made remarkable
progress in the agriculture field due to favourable situation which has enabled the farmers to adopt new
agriculture technology. On the other hand, in some other areas e.g. in Rajasthan, Jammu and Kashmir,
Bihar and Assam, farmers have not been able to reap the benefits of new agricultureal technology due
to poor quality of land.
The new agricultural technology has also created difference in agricultural productivity within the
same region. For example, Ropar and Hoshiarpur districts of Punjab and Narnaul district and its
adjoining blocks of Haryana are still backward in agriculture due to inferior quality of land which has
stood in the way of adoption of new-inputs. Thus new technology (green revolution) has resulted in the
concentration of efforts and resources in selected areas having irrigation facilities and areas without
irrigation facilities have remained under developed.
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13.5.2 Wide Disparity in the Distribution of Income
The adoption of new agricultural technology involves huge expenditure because new input such
as quality seeds, chemical fertilizers, better implements and insecticides are to be purchased from the
market which are beyond the cap of a city of small and marginal farmers who constitute the bulk of
population. Thus, rich farmers have adopted new technology and reaped its benefits whereas small and
poor farmers have not gained richer, small famers remain poor, it goes against the objective of social
justice which has been the soul of our Five Year Plans. Various studies conducted by economists have
supported the view that income distribution is becoming skewed in the agriculture sector due to the
intensive use of modern input by well- to –do farmers. In case remedial measures are not taken in time
the income disparity will grow over time.
13.5.3 Reduction in Employment Opportunities on large farms
New agriculture technology mainly comprise of three types of changes, (a) biological,
(b) chemical, (c) mechanical. The biological and chemical change refer to change in inputs that raise
agricultural productivity. The introduction of quality seeds and application of fertilizers fall in the
category. The mechanical changes refer to the introduction of better implements which generally
displace human and animal labour. Thus whereas biological and chemical changes are generally
labour absorbing, mechanical changes are labour saving. A few example will make this assertion clear.
At present, transplantation of paddy is done with hands and its creates more demand for labour. Every
year farmers of Punjab have to face acute shortage of labour during the sowing season whereas
demand for labour is minimized during the harvesting season due to the operation of combine
harvesters. In the case of wheat, the story is different. Here the demand for labour on the part of rice
farmers is rather limited because wheat is sown with seed-drils operated by farm tractors and is
harvested with a highly sophisticated machine called combine harvester. Mostly labour was demanded
by rich farmers. These very farmer have adopted mechanization which has resuled in the reduction of
employment opportunities in agriculture. It was rightly pointed out by Mr. M.S. Gurupadaswa my, a
former Minister of State for Food and Agriculture, ”If new opening for their productive involvement
in alternative occupation are not created simultaneously, unemployment or under employment of
agriculture labour might land us in a situation which might become explosive both politically and
economically.
13.5.4 Social Tension in Rural Area
The new agriculture technology has created a class of farmers who have resources, access to
market and choice for mechanization while other have lagged behind. By creating a gulf between the
two classes of farmers, the new seeds are sowing seed of hatred. It is feared that new seeds may
prove to be the seeds of new conflicts in the country-side if effective measures are not taken in tie to
bridge- the gap between two classes of farmers.
13.5.5 Uneven Progress
There is uneven progress in the spread of high yielding varieties of different crops. Among the
five crops (wheat, rice, maize, jowar, and bajra) originally selected, there is break- through in the
production of wheat and rice. In the production of rice, non-traditional states have beaten the rice
production states. This tendency has adversely affected the cultivation of maize in the non- traditional
states (Maize crop competes with rice crop). The production of pulses has remained stagnant due to
the inadequate supply of quality seeds of pulses. For example, farmers in Punjab have substituted
wheat in place of gram due to more yield of wheat per acre and the absence of pests in case of wheat.
Similarly, the inadequate supply of quality seeds in respect of oil seed cotton and jute have been a
constraint in increasing their poplution. Thus the green revolution is not as green as the term implies
because it has resulted in raising the production of wheat and rice whereas the output of other principal
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crops such as oilseeds, pulses, cotton and jute has almost remained stagnant. Therefore, it should be
named wheat- rice revolution.
13.5.6 Unproductive Expenditure by Affluent Farmers
The new agriculture technology has created a class of affluent farmers who spend lavishly upon
unproductive activities such as marriages, births, celebration of festivals have to borrow either from cooperative banks or form land development banks or commercial banks to purchase agriculture input
from the market. The result is that these institutions are not able to meet the credit requirements of
small and marginal farmers who are still at the mercy of money lenders. If the rich farmers had invested
their surplus funds in the purchase of new inputs, these banks would have advanced loans in sufficient
amount to small and marginal farmers to enable them to adopt new agricultural technology.
13.5.7 Growth of Capitalistic Farming
The new agricultural technology necessitates heavy investment in machinery, fertilizers and
irrigation which is beyond the capacity of small and marginal farmers. According to All India Rural
Credit Review Committee of the Reserve Bank of India(1969) small and marginal farmers household
constitute 72 per cent of the total farm house hold and accounted for 30 per cent of the of the total farm
which is making investment in the installation of pumping sets, tubewell, fertilizers and agriculture
machine and has reaped the benefits of the new research and technology. Thus the new agricultural
technology has resulted in the growth of capitalistic farming as well as in the concentration of income in
a few hands. It has also created a class of gentleman farmers who comprise ex-service men, retired
civil servant and urban based businessman who have adopted agriculture as an industry. They are all
capitalist farmers.
13.5.8 Storage Problem
A large stock of foodgrains created a problem of proper storage. The stock procured by the
public agencies from the farmers increased. The number as well as the quantity of various crops
procured by the public agencies also increased. However, the expansion of storage capacity with these
agencies did not pace with this progress. As a consequence of this, a large stock of foodgrains and
fodder crops if procured, were stored in the open, exposed to rain, birds and dust-storm. The openstorage of foodgrains and other crops resulted in wastage which is a national loss. Now this problem
has been solved to a great extent.
13.5.9 High Land Prices
The green revolution has put more purchasing power in the hand of farming community which
had led to speculative buying and selling of land. Average price of an acre of land have increased
enormously after the green revolution.
The former UN Secretary General U.Thant had rightly observed. The green revolution may
indeed prove to be Pandora’s box rather than a Pharmacopoeia, unless developing countries
immediately enforce land reform measures.”He further added, “There are many observes who content
that if left to market forces, the green revolution is likely to benefit primarily those farmers who are
already engaged in commercial production rather the subsistence farmers, and among commercial
farmer big ones than small ones.”
Regarding further economic policy, the analysis made by Martin H. Billings and Arjan Singh is
an eye- opener i.e. green revolution unaccompanied by massive programme of “Rural
Industrialisations” will cause nothing but frustration among the large mass of India peasantry. Besides,
this if an attempt is not made to (a) supply credit to small and marginal farmers (b) provide security of
tenure to the cultivating tenants, (c) reduction the rents charged from tenants and share- croppers,
there is every danger of the green revolution turning “Red Revolution”. It will be a strange paradox of
rising production and rising frustration. In case of provision of credit to small farmers, we would like to
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support Mellor’s view who has suggested loans in kind to the farmers. Cash loans may be used for
purchase of land by the farmers or for purchasing consumer goods.
Self Assessment Question
Q.
Name few problems created by Green Revolution in India.
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
13.6
MEASURES FOR REPLICATING GREEN REVOLUTION
After analyzing the forces leading to green revolution, benefits and problems created by green
revolution, we proceed to examine the forces which may initiate, stimulate and sustain the all round
development of agriculture. It had resulted in the concentration of generated income in a few hands.
Efforts were be made to diffuse the benefit of new agricultural technology so that it may benefit people
of all classes. Making of green revolution a success, was not out of choice but out of necessity- the
necessity of raising production of principal crop, oil-seeds, cotton, pulses and jute to estimate our
dependence upon imports and the necessity or reducing concentration of income by diffusing the new
agricultural technology so as to create a congenial social atmosphere. A few steps taken in this
direction are mentioned below:
13.6.1 Multiple Cropping Programme
This programme aims at increasing the cropping intensity of land . Efforts should be made to
produce two and if possible, three crops on the same piece of land during on agricultural year. This, of
course, will necessitate assured supply of irrigation through out the year. In rain fed areas the approach
should be mixed cropping. In order to utilize the potential in these, the watershed management
approach should be tried on a larger scale for moisture consvertion and checking the deterioration of
the soils.
13.6.2 More Area Under Irrigation
Irrigation is essential for sustained and successful agricultural operation in arid and semi- arid
zone. New irrigation scheme, should, therefore, be started in these areas to enable the farmers to reap
the benefits of new agricultural technology.
13.6.3 Price Parity among Principal Crops
The faulty price policy of agricultural crops has resulted in lop- sided development. Price parity
be maintained to initiate and sustain the production of all principal crops.
13.6.4 High- Yielding Varieties of Pulses, Cotton, Jute and Oilseeds
There has been a break through in the production of quality seeds of cereals which have
resulted in stepping up foodgrain output. We should now put more emphasis on evolving and
multiplying quality seeds of the other above mentioned crops so that we may achieve self- sufficiency in
their case also.
13.6.5 Land Reforms and Capital Reforms
Land and capital reforms must be emphasised to make the green revolution successful. New
agriculture technology requires capital for special arrangements must be made for providing these
inputs to the farmers to enable them to adopt and to get the gains of new technology. A large share of
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bank loans is revived by well- to do farmers. Restrictions must be imposed upon borrowings by rich
farmers from banks because they are in an position to purchase the new agriculture inputs with their
own resources. Land reforms should also be implemented effectively so that surplus land may be
disturbed among the marginal farmers and landless workers.
With regard to land reforms, we may point out that though the green revolution of the type that
has taken in India has also been experienced even in those countries of South East Asia which did no
introduce land reforms, these reforms have now become necessary if the effects of green revolution
have to be sustained. Redistribution of land is necessary because it would help to increase demand for
the crops whose production is increasing. If this does not happen, it is quite possible for the stocks to
pile up and this may adversely affect the production of these crops. Redistribution of land will also make
small farm a bit larger and thus will encourage the use of modern technology on greater area of land.
13.6.6 Development of New Dry Land Farming Technology
The dry areas of the country are faced with twin problems of low production and high instability.
Therefore, more emphasis should be put on evolving and multiplying short duration high- yielding and
drought resistant varieties of crops that the farmers of such areas may also share the benefits of
modern agricultural technology.
13.6.7 Integrated Post- harvest technology
As agricultural production increases, problem of harvesting, threshing, drying storage and
marketing become important. Therefore, integrated post harvest technology should be emphased
because it is important not only for minimizing losses in harvesting but is also essential for developing
value added products within the village itself. This will help in the generation of more income and
employment within the village.
13.6.8 Crop Insurance Scheme
Infact, crop insurance was introduced in quite a few states and at union territories with effect
from a Kharif season of 1985. Such a scheme saves the insured farmers from adverse fluctuation in
crop yield. The scheme should be extended to other parts of the country mainly because of the fact that
the new technology implies a compact package of inputs for an assured output and there is every
chance for some input to be either short in supply or even completely absent from the package. In such
a case, the output will be below normal. In order to meet such eventualities it is desirable that farmers
should be compensated for the loss suffered. This is what the crop – insurance is expected to do.
Conclusion
Thus, the new agricultural technology represented a break through in traditional agriculture. It
changed the outlook of farmers who looked upon agriculture as a way of life. Their outlook is now more
business oriented. But the gains of new agricultural technology had been reaped only by well-to –do
farmer in irrigated areas. As a consequence of this, income disparities widened. The Government of
India has addressed these problems in the later years through various policy measures that we shall
study in detail in the next lesson.
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13.7
SUMMARY
This lesson has covered the factors of Green- revolution of India, Progress under Green
Revolution, economic- benefits arising out of it, problems generated by it and suggested measures for
making Green Revolution successful.
Factors of Green Revolution
Adoption of HYVs
Irrigation Facilities
Agriculture Credit
New Agricultural Inputs
Incentive Prices
Development of Infrastructure
Plant Protection and pest Control
Development Programme of
Small and Marginal Farmers
Multiple Cropping Programme
Economic Benefits
Output of Foodgrains
Employment Generation
Rural Development
Foreign Exchange Savings
Increased Income of Rural People
Stimulus to Industrialisation
Other Benefits
Problems Created
Imbalances in the Economy
Unproductive Expenses
Wide disparity in Income
Capitalistic Farming
Distribution
Storage Problem
Employment on Large Farms
High Land Prices
Social Tensions
Uneven Progress
Need for Second Green Revolution to North East or Evergreen Revolution
Note : For recent position, read chapter 14 and 15.
13.8




GLOSSARY
Green Revolution: The spectacular increase in the production of food grains during 1966-69
due to adoption of new technology is termed as Green Revolution in India.
HYVS: High Yielding Variety Seeds, are improvised varieties of seeds which are expected to
give higher yield.
Multiple Cropping: When two or more than two crops are grown simultaneously on a farm, it is
called multiple cropping.
Capitalistic Farming: When heavy capital is invested in machinery, fertilisers and irrigation, it is
called capitalistic Farming. The new agricultural technology has led to capitalistic farming. In
India.
13.9
MODEL QUESTIONS
1.
Explain in detail the factors that resulted in the Green Revolution in the mid-sixties.
2.
Critically analyse the impacts of Green Revolution in India.
[Hint: Economic Benefits and Problems]
---00---
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Lesson-14
AGRICULTURE POLICY IN INDIA
(Post-Reforms Period)
Structure
14.0
Objectives
14.2
Introduction
14.2
Major Policy Changes in Indian Agriculture in Nineties
14.2.1 Domestic Market Restriction & Reforms
14.2.2 External Trade Reforms
14.2.3 Administered Price Reforms
14.2.4 Spread of Technology
14.2.5 Liberalisation Measures
14.3
Policy Change and Recent Trends
14.3.1 NEP 1991 in Brief
14.3.2 New Economic Policy and Agriculture
14.3.3 National Agriculture Policy 2000
14.3.4 National Policy for Farmers 2007
14.4
Centre-State Participation in Agricultural Schemes
14.4.1 National Mission for Sustainable Agriculture
14.4.2 Macro Management of Agriculture
14.4.3 National Food Security Mission
14.4.4 Bringing GR to Eastern States
14.4.5 Rashtriya Krishi Vikas Yojana
14.4.6 ISOPOM
14.4.7 Drought Management
14.5
Allied Sectors and Recent Programmes
14.5.1 NHM
14.5.2 Technological Mission for Integrated Development of Horticulture
14.5.3 Micro Irrigation
14.5.4 NBM
14.5.5 Animal Husbandry & Dairying
14.5.6 Livestock Insurance
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14.5.7 Poultry
14.6
Recent Policy Measures on Agricultural Credit, Insurance and Marketing
14.6.1 Agricultural Credit
14.6.2 Agricultural Insurance Schemes
14.6.3 Reforms in Agricultural Marketing Acts
14.7
Suggestions for Acceleration in Agricultural Growth
14.7.1 Productivity Enhancement
14.7.2 Increase in Investment
14.7.3 Land Reforms
14.7.4 Export Promotion
14.7.5 Other Reforms
14.8
Conclusion
14.9
Summary
14.10 References
14.11 Glossary
14.12 Model Question
14.0
OBJECTIVES
After going through this lesson you shall be able to:

discuss agricultural policy in India in the post independence times.

explain the change in agricultural policy during the post-reforms era.

describe the recent policy measures introduced for agriculture by central and state govts.
14.1
INTRODUCTION
The performance of agriculture and the allied sector has been resilient to the Covid-19 shock. It
grew at annual average rate of 3.6 percent in 2020-21, improved to 3.9 percent in 2021-22. There is
need to improve productivity, to go for crop diversification, to address core issues of sustainability,
investment, credit land reforms. Thus policy making becomes crucial for sutained growth, food, fodder
etc. Apart from being the provider of food and fodder, its importance also stems from the raw materials
that it provides to industry. The prosperity of the rural economy is also closely linked to agriculture and
allied activities. Agricultural sector contributed 10 per cent of national exports in 2017-18. The rural
sector (including agriculture) is being increasingly seen as a potential source of domestic demand; a
recognition, that is shaping the marketing strategies of entrepreneurs wishing to widerthe demand for
goods and services. Agriculture contributes 17pc to the $ 2-3 Trillion economy. In this lesson we shall
study about various policy measures adopted for the development of agriculture sector in the post
reforms period.
14.2
MAJOR POLICY CHANGES IN INDIAN AGRICULTURE IN NINETIES
As a part of the Structural Adjustment Programme of early nineties and new economic policy,
the government has made some policy changes in the agricultural sector also. The major changes, in
this respect, can be accounted as follows :
276
14.2.1 Domestic Market Restriction and Reforms
Zonal restrictions on the movement of agricultural commodities were removed in February,
1993. Informal restrictions were frequently imposed in the surplus states of Punjab, Haryana
and Western UP to generate surpluses of wheat and rice for the PDS at lower prices. But still indirect
restrictions on the movement of commodities remain, e.g., discrimination by Indian Railways against
private traders in favour of parastatals.
*
The Union Budget 1997-98 proposed - (a) to repeal the Rice Milling industires (Regulation)
Act, 1958, and the Ginning and Pressing Factories Act, 1925; (b) to remove licensing price
control and requisitioning under the Cold Storage Order, 1964; (c) to resume domestic futures
trading in respect of ginned and baled cotton, baled raw jute and jute goods this has been done
after 31 years.
*
DAP and MOP fertilizers were decontrolled on the recommendation of the Joint
Parliamentary Committee on Fertiliser Pricing. But a subsidy of Rs. 1,000 per tonne was
reintroduced and the price of urea reduced by 10 per cent. The DAP subsidy of Rs. 1,000
continues for the domestically produced DAP.
*
The Union Budget for 1998-99 proposed to introduce futures trading in edible oil seeds,
their oils and their cakes.
*
Several regulatory policies, however, remain in place. The more important ones inter alia
are : the levy price (compulsory acquisition) system for rice and sugar, the operation of the FCI
and PDS and the associated regulatory controls implemented by the Department of Civil
supplies, periodic control on the movement of groundnuts and groundnut oil out of Gujarat;
monopsonistic purchase of rice by the Government in Thanjavour disctrict of Tamil Nadu and of
cotton by Maharashtra, controls on the operatins of price traders, the regulatory and other
activities of various commodity-specific boards or other government organisations, e.g. the
Cotton Corporation of India, the National Dairy Development Board, the Jute Corporation of
India, the Tea, Coffee and Tobacco Boards, the Ministry of Textiles, regulation of sugar
industry, price and other regulatory controls over processing of primary commodities etc.
14.2.2 External Trade Reforms
*
The canalisation of agricultural trade flows, which enabled the Government to determine the
value and the volume of imports and exports, has been almost abandoned. All agricultural
imports, other than cereals, oil seeds and edible oils, have been decanalised. All agricultural
exports, except onions, have been decanalised.
*
Many of the quantitative restrictions on agricultural trade flows have been dismantled. Apart
from the general restrictions on imports of consumer goods (neither pulses nor dry fruits are
defined as consumer goods for this purpose), there , no longer are quantities restrictions on
agricultural imports. In the sphere of agricultural exports, however, there has not been a
symmetrical liberalization : exports of coconut, copra, oil cakes, pulses, paddy rice bran and
vegetable oils are subject to licensing, exports of specified variety of natural rubber and cotton
seed cakes are subject to quantitative ceilings, exports of foodgrains, sugar and raw cotton
are in the theory possible without licensing but in practice subject to limits on quantities,
with effect from November 1, 1995, exporters of basmati rice are allowed to procure the
produce only from four states, viz., Punjab, Haryana, Rajasthan and UP, and exports of
groundnuts and tobacco are subject to Minimum Export Prices (MEP).
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*
The government has recently allowed commodities to be hedged on global exchange. The
government has also amended the Forward Market Commission and has freed agricultural
commodities to go for international future exchange.
*
The decanalisation of a substantial proportion of agricultural trade flows and dismantling of
quantitative restrictions on agricultural imports have not been associated with a systematic
restructuring on tariffs. There is no evidence that the trade policy regime has attempted to
tarriffication of erstwhile quantitative restriction in terms of equivalence. There is some
evidence, however, of a reduction in tarrifs on selected agricultural imports, which is obviously
not part of the multilateral trade negotiations but possibly reflects conditions of the programme
negotiated with multilateral financial institutions.
14.2.3 Administered Price Reforms
Administered Price cover 22 commodities, which account for about 90 per cent of the area and
production of crops. The degree of implementation of these prices varies widely. The support prices of
various commodities have been raised considerably since 1990-91 compared to their increase in the
early years. These increases in price have tendered to bring down the gap between the domestic prices
of wheat, rice and cotton and their border prices but the former are still substantially lower than the
latter.
14.2.4 Spread of Technology
The nature of new agriculture technology is also influencing the reforms process. Unlike in the
past when the green revolution technologies emerged from the publicity funded internal and national
research organisation. The new generation bio-technologies are frequently the products of price
organisations. The divisible nature of technology examplified by price tubewells, sprinkler and drip
irrigation and promoted by price companies are already ensuring a much larger role of the private
sector.
14.2.5 Liberalisation Measures undertaken in Agricultural Sector
After the economic reforms in 1991-92 that removed the restrictive and protective licensing
regime for industry, the policy focus turned to agriculture. There is still the general impression that
agriculture in India operates amidst a number of restraints and controls and that farmers do not receive
the benefits of free trade as compared to other sectors of the economy.
National Agriculture Policy 2000 has took note of this and proposed freeing agriculture of
various restricition. The Central Government has taken a lead in repealing some of the restrictive
legislation such as (i) Rice Milling Industries (Regulations) Act, 1958; (ii) Ginning & Pressing Factories
Act, 1925; (iii) Licensing, Price Control & Requisitioning under Cold Storage Order 1965 (as amended
in 1980) etc. In the dairy sector only milk & Milk product, Order (MM, PO) is yet to be repealed. It must,
however, be pointed out that agriculture is a State subject and most of the current restrictions are
actually imposed by states such as Andhra Pradesh, Tamil Nadu, Gujarat and Maharashtra.
For the Indian farmer, it is essential that he looks to the whole country as a single unrestricted
market. After further opening up of the trade regime under WTO from April 2001, it is all the more
necessary that farmers look not only to the domestic market but also seize opportunities in the global
market the improved valued added realization and diversification. Export of processed agri-products
would be the key to improved export realization which is possible only if the domestic policies
allow unrestricted movement, storage and liberal trade regime. Thus, for agriculture related
products, inputs and services, all restrictions including SSI reservation would have to be removed.
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14.3
POLICY CHANGE IN AGRICULTURAL SECTOR : BACKGROUND & RECENT
TRENDS
The first Five Year Plan accorded highest priority to agriculture. But in the second plan, it was
not given due importance. This was corrected in the third plan period to some extent unfortunately,
during 1966-69, 73 and 1978-79, India faced serious crises. All these were triggered by severe
droughts and food shortages.
It was in the context of food shortages and humiliation of getting aid for food imports at
agriculture was given high priority in the planning process. Special efforts were made to build rural
infrastructure. And after the discovery of high yielding varieties of seeds and introduction of new seedfertilisers technology in the late sixties, the policy markers sought to promote new technology through
research and extension net works as well as through the provision of subsidised credit and other inputs.
The achievement of self-sufficiency in foodgrains by the beginning of eighties and the building
up of a comprehensive food management system consisting of procurement, building of stocks and
food distribution through PDS was one of the greatest successes of planning. The result was that India
was able to overcome the several droughts in a much better manner and famines became a thing of the
past. Fortunately, now India has built sufficient stocks. This policy is being desired and it is argued that
the whole food management system was inefficient and ill-targeted which is not true.
14.3.1 New Economic Policy of 1991
After the installation of Congress Government at the Centre under P.V. Narsimha Rao in 1991,
an era of new-economic policy started in India. Some traces of this policy were, however, visible even
during the rule of earlier Governments during the eighties.
The basic aims of this policy were (a) to correct macro imbalances which had destablished the
economy during the late eighties and early nineties, such as acute foreign exchange shortage, high rate
of inflation, unsustainable fiscal and current account deficits and mounting internal and external debt on
the one hand and (b) to accelerate the over-all growth of the economy, on the other. This policy has
been introduced mainly in response to the suggestions made by multilateral agencies like the World
Bank and the International Monetary Fund. This policy consists of two major sets of measures. These
pertain to :
1.
Stabilization of the economy at the macro level, and
2.
Structural adjustments in the economy.
As we all know that macro economic stabilization referes to short term measures to correct
macro economic imbalances and structural adjustments refer to measure relating to improvement in the
productivity of labour and capital in specific sectors of economy. Specifically, in the Indian context, the
measures for stabilisation of the economy at the macro level and the structural adjustment include the
following (for detail see the first block of lessons)
Policy for macro economic stabilisation includes measures, that are expected to correct the
macro economic imbalances in a short period and can be adopted even independently of the structural
adjustments measures if the imbalances are of temporary nature. These are, so to say, crisis
management measures.
Structural adjustments as the phrase implies, are adjustments in the structure of various sectors
of the economy. These adjustment policies are micro in character as against the stabilization policies
which are macro in character. These policies as stated earlier, are basically meant for increasing the
productivity of labour and capital (and of land also, in case of agriculture) in various sectors of the
economy. It is felt that the macro stabilization measures act only as temporary and adhoc correctives
for the imbalances faced by the economy. The permanent correction of imbalances is achieved only
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through a process of growth which, in turn, needs some basic changes in the structure of various
sectors of the economy.
Here, we may point out that structural adjustments do not imply the same set of changes at all
times. The political ideology and other factors have always affected the direction in which these
changes have taken place even when the basic economic objective was the same (i.e. increase in the
productivity of labour and capital). In India, for example, till the existence of socialistic regimes,
structural adjustments implied a change which led to an expanding public sector, greater control over
the activities of private enterprise, control over private property rights and interference in the operation
of market forces. The structural changes in the present day context, on the other hand, imply some
other changes. It is said that main basis of structural changes, in the context of present day India, is the
deregulation of domestic as well as external market transactions. To be specific, the present structural
adjustment policy of India, (which covers almost every sector of the economy), consists of the following
measures :
(i)
Privatisation : Windng up (wholly or partly) of the public sector undertaking and providing
greater space to private sector.
(ii)
Marketisation : Free operatin of market forces and absence of all/many types of administered
prices.
(iii)
Liberalisation : Complete freedom of enterprise, reduction in Government regulations to the
minimum so far as the operations of the private sector are concerned, eg. reduction in tariffs
and taxes etc., and
(iv)
Globalisation : No restriction on imports and exports of commodities, on flow of foreign capital
into the various sectors of the economy and on the movement of the rate of exchange.
(Unrestricted movement of labour, as a factor of production between any two countries,
however, is not covered by the concept of ‘globalisation’.
It may be noted here that these categories of policy measures are not water tight. Some
measures can fall in more than one category. The degree also varies from sector to sector and country
to country.
Important sectors where the structural adjustments are intended to be made in India, are the
industrial sector, the public sector, the financial sector, trade and various public utilities.
To put the whole narration differently, we can say that the present structural adjustment are
broadly meant to ensure a completely competitive as well as external market for factor as well as
products.
14.3.2 New Economic Policy and Agriculture
Agriculture has been rightly described as India’s ‘giant in chains’. Few sectos are regulated by
so many central state laws relating to land holdings, supply, pricing, stocking, transportation, marketing,
export import, taxation and credit. The net effect of these measures has been to reduce agriculture to
an over-regulated activity.
For a liberalized economy to take off it is necessary that fundamental reforms are introduced
that make the agricultural sector more productive and equitable. A more productive agriculture will,
through increased profits, enlarge the capital base that the Green Revolution has already created in the
rural economy. A more equitable spread of the benefits of this growth, covering dryland regions and the
poor in the irrigated areas will also increase the demand for the products of both the rural and urban
economies. The interests of sustained liberalization, therefore, demand that the government identify the
major constraints on productivity and equity in the agrarian economy and then intervene in a manner
that would remove the constraints.
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One major direct impact of the new economic policy on agriculture was a reduction in fertilizer
subsidy. The agricultural subsidies had however reached fiscally unsustainable levels. Budgeted
subsidies for food and fertilizer, at the central level, and non-budgeted irrigation and power
subsidies at the state level; and its credit subsidies through the banking system have distorted
relative price with in agriculture.
The export restriction on agricultural products kept domestic agricultural prices lower than
world prices, causing many commodities such as rice, wheat, pulses and cotton to be disprotected.
This disprotection rates (defined as percentage excess of world prices over domestic prices) had
been as high as 34% for rice, 30% for protein feeds and 12% for wheat.
Thirdly, an artificially over valued exchange rate negated the export potential of agriculture.
Fourthly, industrial inputs into agriculture had been expensive due to policy (and price till in
favour of industry.
Finally, a fiscal crunch at the central and state level meant that productive and public
investments into agriculture were declining.
All these factors worked to the detriment of agriculture. The disprotection of agriculture was
sought to be corrected by input subsidies and output support price to the farmers. A regime of low input
prices (through input subsidies) and low output prices (through food subsidies to consumers) was
followed.
14.3.3 National Agricultural Policy : 2000
National Agriculture Policy aims at above 4 per cent growth. Various significant issues, included
in it, are discussed below :
*
The Government on 28th July 2000 made public a National Agriculture Policy aimed at
catapulting agricultural growth to over 4 per cent per annum by 2005. This growth is to be
achieved through a combination of measures including structural, institutional, agronomics
and tax reforms.
*
Privatisation of agriculture and price protection of farmers in post OR regime would be part of
the Government’s strategy to synergicl agricultural growth. The focus of the new policy is on
efficient use of resources and technology, adequate availability of credit to farmers and
protecting them from seasonal and price fluctuations. Over the next two decades the policy
aims to attain a growth rate in excess of four per cent per annum in the agriculture
sector.
*
Private sector participation would be promoted through contract farming and land leasing
arrangement to allow accelerated technology transfer, capital inflow, assured markets for crops
production, especially of oilseeds, cotton and horticultural crops.
*
private sector investment in agriculture would be encouraged, particularly in areas like
agriculture research, human resource development, post harvest management and marketing.
*
In view of dismantling of quantitative restriction (QRS) on imports as per WTO agreement on
agriculture, the policy has recommended formulation of commodity-wise-strategies and
arrangement to protect farmer from adverse impact of undue price fluctuation in the world
market and promote exports.
*
Government would enlarge coverage of futures markets to minimise the wide fluctuation in
commodity price as also for hedging their risks. The policy proposes to achieve sustainable
development of agriculture, create gainful employment and raise standards of living.
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*
The policy envisages evolving a : National Livestock Breeding Strategy” to meet the
requirement of milk, meat, egg and livestock product and to enhance the role of draught animals
as a source of energy for farming operations.
*
Plants varieties would be protected through a legislation to encourage research and
breeding of new varieties. Development of animal husbandry, poultry, dairy and agriculture
would receive top priority.
*
High priority would be accorded to evolve new location-specific, economically viable and
improved varieties of farm and horticulture crops, livestock species and aquaculture. Domestic
agriculture market would be liberalised.
*
The restrictions on the movement of agricultural commodities throughout the country
would be progressively dismantled. The structure of taxes on foodgrains and other commercial
crops would be reviewed.
*
The excise duty on materials such as farm machinery and implement and fertilisers, outputs in
agricultural production, post harvest storage and processing would be reviewed.
*
Appropriate measures would be accepted to ensure that agriculturists, by and large,
remained outside the regulatory and tax collection system.
*
Rural electrification would be given high priority as a prime mover for agricultural
development.
*
The use of new and renewable sources of energy for irrigation and other agriculture
purposes would be encouraged.
*
Progressive institutionalisation of rural and farm credit would be continued for providing
timely and adequate credit to farmers.
*
Endeavour would be made to provide a package insurance policy for the farmers, right from
sowing of crops to post harvest operations, including market fluctuation in the prices of
agricultural produce.
14.3.4 National Policy for Farmers, 2007
Government of India has approved the National Policy for Farmers, 2007 taking into account the
recommendations of the National Commission on Farmers and after consulting the State Governments.
The National Policy for Farmers, among other things, provides for a holistic approach to development of
the farm sector. The broad areas of its coverage include.
1.
Focus will be on the economic well-being of the farmers in addition to production and
productivity.
2.
Asset reforms : To ensure that a farmer housefold in villages either possesses or has access
to a productive asset or marketable skill.
3.
Water use efficiency : The concept of maximizing yield and income per unit of irrigation water
in all the crop production programmes would be accorded priority with stress on awareness and
efficiency of water use.
4.
New technologies like biotechnology, information and communication technology (ICT),
renewable energy technology, space applications and nano-technology would be encouraged
for improving productivity per unit of land and water on a sustainable basis.
5.
National Agricultural Bio-security System would be established to organise a coordinated
agricultural biosecurity programme.
6.
Seeds and Soils Health : Quality seeds, disease free planting material and soil health
enhancement hold the key to raising small farm productivity. Every farmer is to be issued with a
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soil health passbook containing integrated information on farm soils with corresponding
advisories.
7.
Support services for women : Appropriate support services like creches, child care centres
and adequate nutrition needed by women working in fields would be funded.
8.
Credit and insurance : The financial services would be galvanised for timely, adequate and
easy reach to the farmers at reasonable interest rates.
9.
Gyan Chaupals at village level with the help of ICT and farm schools in the fields of outstanding
farmers to promote farmer to farmer learning would be setup through the State Governments for
strengthening extension services.
10.
Necessary steps would be taken to put in place an appropriate social security scheme for
farmers.
11.
Minimum Support Price (MSP) mechanism to be implemented effectively across the country
so as to ensure remunerative price for agricultural produce.
12.
Food security basket is to be enlarged to include nutritions millets such as bajra, jowar, ragi
and millets, mostly grown in dryland farming areas.
An inter-ministerial committee has been set-up to operationalise the implementation of the
policy.
14.4
OTHER SCHEMES/PROGRAMMES IN THE AGRICULTURE SECTOR (Centre &
State Participation)
Agriculture is a state subject. Hence the primary responsibility for increasing agricultural
production, enhancing productivity, and exploring the vast untapped potential of the sector rests with
the State Governments. Central Government supplements the efforts of the State Governments
through a number of centrally sponsored and Central sector schemes. The major schemes/
programmes are as follows :
14.4.1 National Mission for Sustainable Agriculture
While agricultural productivity is adversily affected climate change, agricultural activity itself
contributes to global warming. The adoption of ‘ecological agriculture’ (which integrates natural
regenerative processes, minimizes non-renewable inputs, and forsters biological diversity) has
tremedous scope for reducing emissions. At the same time, many ecological agricultural practices also
constitute effective strategies for adapting to climate change, which is a priority for developing
countries. This calls for more investment and policy support to de devoted to this productive and
sustainable form of farming. Recognizing the challenge of climate change to Indian agriculture, the
National Mission for Sustainable Agriculture (NMSA) [which is one of the eight Mission under the
National Action Plan on climate Change (NAPCC)] has been conceptualized. It seeks to address issues
regarding ‘sustainable agriculture’ in the context of risks associated with climate change by devising
appropriate adaptation and mitigation strategies for ensuring food security, enhancing livelihood
opportunities, and contributing to economic stability at nation level. While promotion of dry land
agriculture would receive prime importance by way of developing suitable drought and pest resistant
crop varieties and ensuring adequacy of institutional support, the Mission would also expand its
coverage to rainfed areas for integrating farming systems with livestock and fisheries, so that
agriculture continues to grow in a sustainable manner. The Mission identifies ten key dimensions for
promoting sustainable agricultural practices, which will be realized by implementing a programme of
action (PoA). The Mission also emphasizes the need to harness tradional knowledge and agricultural
heritage for in-siti conservation of genetic resources.
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The PoA would be operationalized by mainstreaming adaptation and mitigation strategies in
ongoing R & D programmes and in flagship schemes including the Rashtriya Krishi Vikas Yojana
(RKVY), National Horticulture Mission (NHM), and National Food Security Mission (NFSM).
14.4.2 Macro Management of Agriculture
The Macro Management of Agriculture (MMA) scheme was revised in 2008 to improve its
efficacy in supplementing / complementing the efforts of the States towards enhancement of
agricultural production and productivity and provide opportunity to draw upon their agricultural
development programmes relating to crop production and natural resouce management, with the
flexibility to use 20 per cent of resources for innovative components. The revised MMA Scheme has
formula-based allocation criteria and provides assistance in the form of grants to the States/UTs on
90:10 basis [except in case of the north-eastern States and Union Territories where the Central share is
100 per cent]. MMA assistance during 2010-11 has been used to treat 3.02 lakh hactare of land under
the National Watershed Development Project for Rainfed Areas (NWDPRA) and 1.94 lakh under River
Valley Projects (RVP) sub-schemes.
14.4.3 The National Food Security Mission (NFSM)
The NFSM was launched in rabi 2007-08 with a view to enhancing the production of rice, wheat
and pulses by 10 million tonnes, 8 million tonnes and 2 million tonnes respectively by the end of the
Eleventh Plan. The Mission aims to increase production through area expansion and productivity;
create employment opportunities; and productivity; create employment opportunities; and enhance the
farm-level economy to restore confidence of farmers. The NFSM is presently being implemented in 476
identified districts of 17 States of the country. Besides a series of activities for more vigorous promotion
of pulse crops has been adopted under the NFSM to intensify the pulse production programme from
2010-11. These are :
(i)
Merging of the pulse component of the Integrated Scheme of Oilseeds, Pulses, Oil Palm
and Maize (ISOPOM) with the NFSM so as to increase the scope and area coverage of
the pulses programme. Jharkhand and Assam have also been included under the
programme since there is immense potential for pulse promotion in rice fallows.
(ii)
Through a new programme under the NFSM called the Accelerated Pulses Production
Programme (A3P), 1000 block demostrations of technology have been launched from
2010-11. This programme will essentially promote plant nutrients-and plant protectioncentric technologies in compact blocks of 1000 hactare each for five major pulse crops,
namely, tur, moong, urad, gram, and lentil.
Focused and target-oriented technological intervention under the NFSM has made significant
impact since its inception, reflected in the increase in production of rice and wheat in 2008-09 and
2009-10.
From 2010-11, as a new initiative, the A3P has been launched as a part of NFSM Pulses.
Additional Central Assistance under the ongoing RKVY was provided to the States of Andhra Pradesh,
Gujarat, Karantaka, Madhya Pradesh, Maharashtra, Rajasthan, and Uttar Pradesh for promoting dryland farming in 60,000 pulses & oilseeds villages.
14.4.4 Bringing Green Revolution in the Eastern States
Another programme, namely Bringing Green Revolution in the Eastern States is operational in
seven states - Uttar Pradesh, Jharkhand, Bihar, West Bengal, Assam, Orissa and Chhattisgarh. The
Rice Development and Organizing Pulses and Oilseeds Villages is another programme, beside the
pulses promotion strategies and other initiatives undertaken to boost agricultural productivity in these
states.
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The progress reports received from the States indicate significant achievements under the
NFSM during the course of its implementation in the last four years, i.e. during 2007-08 to 2010-11 (till
date). New farm practices have been encouraged through 3.24 lakh demonstrations of improved
package of practices. As many as 63,273 demonstrations of the system of rice intensification (SRI), and
32,344 demostrations of hybird rice have been conducted. Nearly, 96.84 lakh quintals of high yielding
variety seeds of rice, wheat and pulses and hybird rice have been districuted. About 72.27 lakh hactare
of area has been treated with soil ameliorants, such as gypsum/lime/micro nutrients to restore soil
fertility for higher productivity. An area of about 29.25 lakh hactare has been treated under Integrated
Pest Management (IPM). Further, nearly 21.27 lakh improved farm machineries, including water-saving
devices have been districuted. As a capacity-building initiative, 33,205 farmers’ field school (FFS) level trainings have so far been held. In addition, about 353 (3.53 lakh hactare) block demostrations
have been conducted during the 2010 kharif under the A3P.
14.4.5 The Rashtriya Krishi Vikas Yojana (RKVY), 2007
The RKVY was launched in 2007-08 with an outlay of Rs. 25,000 crore for the Eleventh Plan to
incentivize States to enhance public investment so as to achieve a 4 per cent growth rate in agriculture
and allied sectors during the Plan. During the three year period 2007-10, an amount of Rs. 7895.12
crore was released under the RKVY. Out of the budget provision of Rs. 6722 crore for implementation
of the RKVY in the States, an amount of Rs. 3986.76 crore has been released as on 25 November
2010. Specific allocation has to be made for the following three new initiatives introduced under the
RKVY in 2010-11 :
(i)
Extending the Green Revolution to the eastern region of the country, covering the States
of Assam, Bihar, Chhattisgarh, Jharkhand, Orissa, Eastern UP and West Bengal with the
objective of increasing the crop productivity of the region by intensive cultivation through
recommended agricultural technologies and package of practices.
(ii)
Special initiatives for pulses and oilseeds in dry-land areas by organizing 60,000 pulses
and oilseeds villages in identified watersheds where pulse and oilseed farmers are
provided farm machinery and equipment on custom hiring basis. These initiatives
dovetail with other schemes of the Government of India having components for
promotion of oilseeds and pulses production.
(iii)
Implementation of the National Mission on Saffron - Economic Revival of Jammu &
Kashmir Saffron Sector during 2010-11.
The RKVY has linked 50 per cent of Central assistance to the percentage of State Plan
expenditure on agriculture and allied sectors. This has incentivized States to step up allocation to
agriculture and allied sectors, which was 5.11 per cent of total State Plan Expenditure in 2006-07, to
6.29 per cent in 2009-10. The RKVY has emerged as the principal instrument in financing development
of agriculture and allied sectors in the country. Its convergence with other schemes like the Mahatma
Gandhi National Rural Employment Scheme (MGNREGA) is expected to boost development of the
agrarian economy. The States will take up projects under the RKVY primarily from amongst those that
appear in their District and State Agriculture Plans. There will be increased synergy between
agricultural planning and implementation of schemes in the coming years, which will play a crucial role
in promoting holistic development of agriculture and allied sectors.
14.4.6 The Integrated Scheme of Oilseeds, Pulses, Oil Palm and Maize (ISOPOM)
The ISOPOM is being implemented in 14 major States for oilseds and pulses, 15 for maize, and
10 for oil palm. The pulses component has been merged with the NFSM with effect from 1 April 2010.
The Scheme provides flexibility to the States in implementation based on a regionally differentiated
approach to promoting crop diversification. Under the Scheme, assistance is provided for various
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activities : purchase of breeder seed, production of foundation seed, production and distribution of
certified seed, distribution of seed minikits, plant protection chemicals, plant protection equipment,
weedicides, sprinkler sets and water carrying pipes and improved farm implements, publicity, etc. The
Oil Palm Development Programme under the ISOPOM is being implemented in the States of Andhra
Pradesh, Karnattaka, Tamil Nadu, Gujarat, Goa, Orissa, Kerala, Tripura, Assam and Mizoram. Its
Maize Development Programme is under implementation in15 States, viz. Andhra Pradesh, Bihar,
Chhatisgarh, Himachal Pradesh, Jammu and Kashmir, Gujarat, Karnataka, Madhya Pradesh,
Maharashtra, Orissa, Punjab, Rajasthan, Tamil Nadu, Uttar Pradesh and West Bengal.
14.4.7 Drought Management
Due to deficit rainfall during south-west monsoon 2010 in Bihar, Jharkhand, Orissa and West
Bengal, the Central share of the State Disaster Response Fund (SDRF) for 2010-11 has been released
to enable these States to expenditiously take the necessary drought-mitigation measures. In view of
drought/deficit rainfall in certain regions, it was decided to implement a Diesel Subsidy during kharif
2010 (14th July 2010 to 30 September 2010) in drought/deficit rainfall areas to save the standing crops
in the field.
14.5
ALLIED SECTORS & RECENT SCHEMES
Many new schemes have been started for the allied activities in the twenty first century under
National Agricultural Policy 2000 and its extension.
14.5.1 The National Horticulture Mission (NHM)
The Ministry of Agriculture has been implementing the centrally sponsored NHM for the holistic
development of the horticulture sector since 2005-06, duly ensuring forward and backward linkages,
and with the active participation of all the stakeholders. All the States and the three Union Territories of
Andaman and Nicobar Islands, Lakshadweep and Puducherry are covered under the Mission except
the eight north eastern State (including Sikkim and the States of Jammu and Kashmir, Himachal
Pradesh and Uttarakhand). The latter are covered under the Horticulture Mission for the North Eash
and Himalayan States (HMNEH). The scheme is being implemented in 372 districts in the country.
During 2005-06 to 2009-10, an additional 16.57 lakh hactare of identified horticulture crops has been
adopted.
With the implementation of the NHM and other schemes the production of horticulture crops has
increased from 170.8 million tonnes in 2004-05 to 214.7 million tonnes in 2008-09. The per capita
availability of fruits and vegetables has increased from 391 gram/day in 2004-05 to 466 gram/day in
2008-09. and to 522 gram/day in 2011-12.
14.5.2 Technology Mission for Integrated Development of Horticulture in North Eastern States
(Sikkim, Jammu and Kashmir, Himachal Pradesh and Uttarakhand)
The Technology Mission for Integrated Development of Horticulture was launched in 2001-02 to
address issues related to production and productivity, post harvest handling, marketing and processing
of horticultural crops in the north-eastern States. The Mission was extended to the three
Himalayan States, namely Himachal Pradesh, Jammu and Kashmir and Uttarakhand in 2003-04.
It covers the entire spectrum of horticulture development right from production to consumption through
backward and forward linkages. During the course of its implementation, it was realized that some
additional components need to be introduced to achieve the objective of holistic growth of the
horticulture sector. Accordingly, some new components such as high density planting, vegetable seed
production, and horticulture mechanization have been included in the Mission. This has now been
renamed the Horticulture Mission for North East and Himalayan States (HMNEH) along with
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revision of the cost norms so as to incentivize investment and supplement income generation for the
beneficiaries.
The implementation of the Mission has helped to bring an additional 5, 12, 614 hactare under
various horticulture crops (fruits, vegetables, spices, plantation crops, medicinal plants, aromatic
plants, root and tubar crops) in these States. In addition, senile and unproductive orchards have been
rejuvenated to increase productivity. The Mission has succeeded in bringing 54,938 hactare under
organic farming. Drip irrigation has been extended to 16,303 hactare. Twenty five model floriculture
centres, fifty-nine herbal gardens, twenty five tissue culture units, and twenty five disease forecasting
units have also been set up. The Mission gave special thrust to protected cultivation of high value crops
like tomato, coloured capsicum, strawberry and flowers to ensure quality production. Special attention
has been given to promoting and popularizing mechanization in horticulture. Power tillers, manually
operated machines, power operated implements and diesel engines have been distributed among the
farmers of the region.
To strengthen the hands of women farmers, self-help groups (SHGs) have been promoted. Till
now 8527 SHGs have been formed that are involved in the promotion of floriculture and in exports. For
proper handling and marketing of horticultural produce, 47 wholesale markets, 344 rural primary/Apni
Mandies, 35 cold storages, and 64 processing units have been set up. Under the Mission 2.65.435
persons, including 53,276 women, have so far been trained.
Micro Irrigation
The Centrally sponsored National Mission on Micro Irrigation (NMMI) was launched in June
2010 in addition to the easlier Micro Irrigation Scheme launched in January 2006. The Mission is being
implemented during the Eleventh Plan period for enhancing water-use efficiency by adopting drip and
sprinkler irrigation systems in all States and Union Territories for both horticultre and agricultural crops.
The scheme provides assistance at 60 per cent of the system cost for small and marginal farmers and
at 50 per cent for general farmers. Since 2005-06 the 2.27 lakh hactare land has been brought under
micro-irrigation. The system is beneficial for farmers in increasing crop productivity and water-use
efficiency; reducing fertilizer consumption (fertigation through drip system) and electricity and labour
consumption; and enhancing income.
National Bamboo Mission (NBM)
With a view to harnessing the potential of the bamboo crop in the country, the Ministry of
Agriculture has been implementing the centrally sponsored NBM in 27 States in the country with a total
outlay of Rs. 568.23 crore. The Mission aims to promote holistic growth of the bamboo sector by
adopting an area-based, regionally differentiated strategy and to increase the area under bamboo
cultivation and marketing. To address forward integration, the Mission is taking steps to strengthen the
marketing of bamboo products, especially handicraft items.
14.5.5 Animal Husbandry and Dairying
Livestock sector is an important subsector of agriculture in India. Its share in GVA of agriculture
and allied activities (at constant prices) has increased from 24 pc (2014-15) to 29 pc (in 2019-20). It
grow at CAGR of 8.15 pc during the period.
Recently Govt. of India has started –

National Animal Disease Programme in 2020 (largest ever).
287

Animal Husbandry Infrastructure Development Fund worth Rs. 15000 crore in 2020.
Livestock Insurance
A centrally sponsored scheme of livestock insurance is being implemented in all the States with
twin objectives: providing protection mechanism to the farmers and catle rearers against any eventual
loss of their animals due to death; and demonstrating the benefits of insuring livestock to the people.
The scheme, which was introduced in 100 selected districts on pilot during 2005-06, has now been
extended to 300 selected districts covering all states. The scheme benefits farmers and cattle rearers
having milch cattle and buffaloes.
Table 14.1 : Milk Production in India
Year
Production
(million tonnes)
Per capita availability
(grams/day)
1991-92
56
180
2000-01
81
220
2011-12
128
290
2014-15
146
319
2016-17
166
351
2018-19
183
398
2020-21
210
427
Source : Department of Animal Husbandry, Dairying and Fisheries, Ministry of Ag., GOI, 2017-18, Eco
Survey, 2021-22, P. 278.
India is ranked 1st in milk production contributing 23 percent of global milk production. Dairy is
the single largest agricultural commodity contributing 5 percent of national income employing more than
8 percent of farmers directly. Between 2015-2021, the milk production has increased at CAGR of 6.2
percent per annum to reach 210 million tones in 2020-21.
Indian milk production, increased its production from 17 million tonnes in 1950-51 to about
112.5 million tonnes in 2009-10 (Table 8.12). The per capta availability of milk also increased from 112
grams per day in 1968-69 to 263 gram per day in 2009-10. It is however still low compared to the world
average of 279.4 grams/day, as per FAOSTAT (Food and Agriculture Organization Statistical
Database) 2009 data.
A major programme for genetic improvement called the National Project for Cattle and Buffalo
Breeding (NPCBB) was launched in October 2000 to be implemented over a period of 10 years in two
phases of five years each. The NPCBB envisages genetic upgradation and development of indigenous
breeds on priority basis. At present, 28 States and one Union Territory are participating in the project.
Annual milk production in India has grown more than six times since independence. The
average annual grwoth rate in the production of milk in recent years has been close to 4 per cent. Even
though the level of per capita availability at 263 gram/day for India in 2009-10 is much lower than that in
developed countries, it is well above the developing country average. With higher growth of the
economy, increase in population, and increased health consciousness among the polulace, it is only
natural that the demand for milk and milk products will increase leading the proportion of income spent
on milk products to increase. Further, urban centres will demand more and more processed and
288
packaged dairy, products but in the rural areas people may still prefer to purchase from the local
milkmen.
About 80 per cent of milk produced in the country is still handled in the unorganized sector and
only the remaining 20 per cent is equally shared by cooperatives and private dairies. Despite the
appreciable growth in the milk production in the last six decades, the productivity of our animals is still
low. Our marketing systems are also not modernized or developed to a satisfactory level. Other issues
in this sector are ineffective breeding programmes, limited availability and affordability of quality feed
and fodder, improper veterinary infrastructure, lack of vaccinations, inadequate access to formal credit
mechanisms, inadequate research capacity, limited processing capacity and lack of transport.
14.5.6 Poultry : (Central Poultry Development Organisations)
Poultry development is one of the most resilient sectors in the country, fast adapting itself to the
changing biosecurity, health and food safety needs. India ranks 3rd in egg production in the world in
2022. Egg production in India has increased from 78 billion (in 2014-15) to 122 billion (in 2021). Per
capita availability increased to 91 eggs per annum in 2020-21. To provide necessary services to the
farmers, four regional Central Poultry Development Organizations (CPDOs) have been restructured on
the principle of one-window service. These are located at Chandigarh, Bhubaneswer, Mumbai and
Hessarghatta. They impart training to farmers to upgrade their technical skills. The Central Poultry
Performance Testing Center (CPPTC), located at Gurgaon is entrusted with responsibility of testing the
performance of layer and broiler varieties. The Centrally sponsored Poultry Development scheme has
three components, Assitance to State Poultry Farms, Rural Backyard Poultry Development, and Poultry
Estates. The main objective of the Rural Backyard Poultry Development component is to provide
supplementary income and nutritional support to below poverty line (BPL) people. Poultry Estates are
aimed primarily at educated, unemployed youth and small farmers with some margin money, to make
profitable ventures out of various poultry-related activities.
14.5.7 Natural Farming
Natural farming aims at elimination of chemical fertilizers and pesticides usage and promotion of
agronomic practices; and raise production using eco friendly processes. BHARTIYA PRAKRITIK
KRISHI PADDHATI PROGRAMME is dedicated to Natural Farms.
14.6
RECENT POLICY MEASURES CONCERNING AGRICULTURAL CREDIT AND INSURANCE
Agriculture credit forms the basis of all activities and also for their expansion and extension.
14.6.1 Agricultural Credit
From Kharif 2006-07 to 2008-09, farmers were receiving crop loans up to a principal amount of
Rs. 3 lakh at 7 per cent interest. In the year 2009-10, Government provided an additional 1 per cent
interest subvention to those farmers who repaid their short-term crop loans as per schedule. The
Government has raised this subvention for timely repayment of crop loans from 1 per cent to 2 per cent
from the year 2010-11. Thus the effective rate of interest for such farmers has been 5 per cent per
annum.
(i)
Revamping of Cooperative Credit Structure
In January 2006, the Government announced a package for revival of the short-term Rural
Cooperative Credit Structure involving financial assistance of Rs. 13,596 crore. The National Bank for
Agriculture and Rural Development (NABARD) has been designated the implementing agency for the
purpose. States are required to sign memorandums of understanding (MoUs) with the Government of
India and NABARD, committing to implementation of the legal, institutional and other reforms as
envisaged in the revival package. So far twenty-five states have executed such MoUs. This covers 96
per cent of the primary agricultural cooperative societies (PACS) and 96 per cent of the Central
289
Cooperative Banks (CCBs) in the country. As of July 2012, an amount of Rs. 9002.11 crore has been
released by NABARD as Government of India’s share for recapitalizations of 53,202 PACS in
seventeen states.
(ii)
Rehabilitation Package for Distressed Farmers
The Government is implementing a rehabilitation package for 31 suicide-prone districts in the
States of Andhra Pradesh, Karnataka, Kerala and Maharashtra involving a financial outlay of 16,978.69
crore. Special packages are being implemented in Kerala for the development of Kuttanad wetland
ecosystem and mitigation of agrarian distress in Idukki district with an outlay of Rs. 1840.75 crore and
Rs. 764.45 crore, respectively.
(iii)
Revised Kisan Credit Card (KCC) Scheme
The KCC scheme was introduced in August 1998. The scheme includes reasonable
componants of consumption credit and investment credit within the overall credit limit sanctioned to the
borrowers to provide adequate and timely credit support to the farmers for their cultivation needs. A
revised KCC scheme was introduced in March 2012 in which KCC passbook has been replaced by an
ATM-cum-debit card. About 5.47 crore KCCs have been issued by co-operative banks by March 2012.
(iv)
Task Force on Private Moneylenders
A Task Force has been constituted under the chairmanship of Chairman, NABARD, to look into
the issue of a large number of farmers who had taken loans from private moneylenders in the country.
The Task Force has submitted its report in June 2010. This has been circulated to stakeholders for
furnishing their comments/views.
(v)
Flow of Agriculture Credit
The flow of agricultural credit since 2003-04 has consistently exceeded the target. The target of
agriculture credit flow the year 2012-13 was fixed at 5,75,000 crore, against which achievement as of
September 2012 was 2,39,629 crore.
(vi)
Crop Loans
Crop loans have been provided to farmers upto a principal amount of 3 Lakh at 7 p.c. rate of
interest since 2006-07. The effective rate of interest for farmers who promptly repay their crop loans
during 2012-13 will be 4 p.c. per annum.
(vii) Post-Harvest Loans
Farmers were granted post harvest loans against negotiable warehouse receipts at commercial
rates. In order to discourage distress sales by farmers and to encourage them to store their produce in
warehouses against warehouse receipts, the benefit of interest subvention has been extended to small
and marginal farmers having KCCs for a further period up to six months post harvest on the some rate
as crop loans.
(viii) Recapitalisation of Short-Term Rural Co-operative Credit Structure
The government is implementing a revival package for short-term Rural co-operative credit
structure involving a financial outlay of 13,596 crore. Twenty five state governments have signed
memorandums of understanding (MoU) with the GoI and National Bank for Agriculture and Rural
Development (NABARD).
290
Self Assessment Question
Q.
What do you know about crop Insurance Scheme?
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
2.
Agricultural Insurance Schemes
Four crop insurance shcemes, namely the National Agricultural Insurance Scheme (NAIS), Pilot
Modified NAIS (MNAIS), Pilot Weather Based Crop Insurance Scheme (WBCIS), and Pilot Coconut
Palm Insurance Scheme (CPIS) and under implementation in country.
(i)
The National Agricultural Insurance Scheme (NAIS)
The NAIS is being implemented in the country from rabi 1999-2000 season. The Agriculture
Insurance Company of India Ltd. (AIC) is the implementing agency (IA) for the scheme. The main
objective of the scheme is to protect farmers against crop losses suffered on account of natural
calamities. The scheme is available to all the farmers - loanee and non loanee - irrespective of their
size of holding. It is operating on the basis on an area approach. It envisages coverage of all the food
crops, oilseeds, and annual commercial/horticultural crops in respect of which past yield data are
available for adequate number of years. In case of annual commercial/horticultural crops, actuarial
premiums are being charged. A 10 per cent subsidy is available for small and marginal farmers. All
financial liabilities under the scheme are shared by the Central and State Governments on 50:50 basis.
The scheme is at present being implemented by 25 States and two UTs.
(ii)
The Pilot Modified NAIS (MNAIS)
Keeping in view the limitations/shortcomings of the existing scheme, the Government has
approved the Modified NAIS for implementation on pilot basis in 50 districts from rabi 2010-11 season.
The major improvements made in the MNAIS are : (a) actuarial premium with subsidy in premium at
different rates, i.e. 40 per cent to 75 per cent depending upon the slab, provided to farmers, all claims
liability on the insurer (b) unit area of insurance reduced to village panchayat level for major crops, (c)
indemnity for prevented/sowing/planting risk and for post harvest losses due to cyclone, (d) payment up
to 25 per cent advance of likely claims as immediate relief, more proficient basis for calculation of
threshold yield, (e) minimum indemnity level of 70 per cent instead of 60 per cent, and (f) private sector
insurers adequate infrastructure allowed (at present, ICIC-Lombard, IFFCO-Tokio and Cholamandalam-MS)
Only upfront premium subsidy is shared by Central and State Governments on 50:50 basis and
claims are the liability of the insurance companies.Seven States have already notified the areas for
implementation of the scheme during rabi 2010-11. During 2011-12 about 11.80 lakh farmers with an
area of about 13.48 lakh have been covered, insuring a sum amounting to `. 3195 crore.
(iii)
Pilot Weather Based Crop Insurance Scheme (PWBCIS)
Efforts have been made to bring more farmers under the folder of crop insurance by introducing
a Pilot Weather Based Crop Insurance Scheme (PWBCIS), as announced in the Union Budget 2007 in
selected areas on pilot basis. The PWBCIS is intended to provide insurance protection to farmers
against adverse weather incidences, which are deemed to unfavourably impact crop production. It has
the advantage of setting claims with in the shortest possible time. The PWBCIS is based on actuarial
rates of premium but to make the scheme attractive, premium actually charged from farmers have been
restricated on a par with the NAIS.
291
In addition to the Agriculture Insurance Company of India Ltd. (AIC), private insurers have also
been included for implementing the scheme in selected areas. During kharif 2007 to rabi 2011-2012,
about 12,370 lakh farmers have been covered under the pilot scheme. Cultivating an area of about 520
ha. with sum insured about `. 64,905.
(iv)
Coconut Palm Insurance Scheme (CPIS)
The CPIS is being implemented on pilot basis since 2009-10 in selected areas of Andhra
Pradesh, Goa, Karnataka, Kerala, Maharashtra, Orissa, Tamil Nadu and West Bengal. The scheme is
administered by the Coconut Development Board (CDB). As on 30 July 2010, 14.33 lakh palms of
about 27,023 farmers have been covered under the scheme.
14.6.3 Reforms in Agricultural Marketing Acts
Development of an appropriate agriculture marketing infrastructure is the foremost requirement
for the growth of a comprehensive and integrated marketing system in the country. Organized
marketing of agricultural commodities is being promoted in the country through a network of regulated
markets. Most of the States and Union Territories have enacted legislations [the Agriculture Produce
Marketing Committee (APMC) Act] to provide for regulation of agricultural produce markets. In order to
bring out reforms in the sector, a model APMC Act was prepared in 2003. Though the process of
market reforms has been initiated by different state governments through amendments in the present
APMC Act on the lines of the Model Act, many of the states are yet to adopt the model Act uniformly.
Seventeen States/UTs have amended their APMC Acts and the remaining are in the process of doing
so (Table 8.14). There are 7157 regulated markets in the country as on 31 March 2010. The country
has 21,221 rural periodical markets, about 15 per cent of which function under the ambit of regulation.
The advent of regulated markets have helped to mitigate the market handicaps of producers/sellers at
wholesales assembling level. Internet connectivity is being provided to important agricultural markets in
the country to establish a nation wide information network for speedy collection of prices and market related information. Presently, wholesale prices of 300 commodities and about 2000 varities are being
reported on the Agricultural Marketing Information Network (AGMARKNET) portal from morethan 1900
markets. But rural periodic markets in general and tribl markets in particular have remained outside the
ambit of the APMC Act.
Other major initiatives include setting up of terminal market complexes (TMC) for fruits,
vegetables, and other perishables in important urban centres in those States which provide for market
reforms as per the Model Act.
Table :14.13. Progress of Reforms in Agricultural Markets (APMC Act) (as on 31 October 2010)
S. No.
Stage of reforms
Name of State/Union Territory
1.
Reforms of the APMC Act have been done for
Andhra Pradesh, Arunachal Pradesh,
Direct Marketing; Contract Farming and Markets
Chhatisgarh, Goa, Gujarat, Himachal
in Private/Coop. Sectors.
Pradesh, Jharkhand, Karnnataka, Madhya
Pradesh, Maharashtra, Mizoram,
Nagaland
Orissa, Rajasthan, Sikkim and Tripura.
2.
Reforms to APMC Act have been done partially.
(a) Direct Marketing : NCT of Delhi
(b) Contract Farming : Haryana, Punjab,
Chandigarh.
(c) Private Markets : Punjab & Chandigarh
3.
There is no APMC Act and hence not requiring
Bihar*, Kerala, Manipur, Andaman &
292
forms.
Nicobar Islands, Dadra & Nagar Haveli,
Daman & Diu, and Lakshadweep
4.
The APMC Act already provides for reforms.
Tamil Nadu
5.
Administrative action has been initiated for the
Meghalaya, Haryana, J&K, Uttarakhand,
reforms.
West Bengal, Pondicherry, NCT of Delhi
and Uttar Pradesh
Note : * APMC Act has been repealed with effect from September 1, 2006.
14.6.4
14.6.5
Other Measures

New Urea Policy 2015 has been notified. Govt. has made it mandatory for all domestic
producers of urea to produce only neem coated urea.

Govt. brought Potash Derived from Molasses (PDM) under Nutrient Based Subsidy (NBS)
scheme, for the first time since inception in 2010, in 2020.
Doubling Farmers Income by 2022
The Govt. has announced a seven point strategy – (1) ‘Per Drop More Crop’ for irrigation, (2)
Quality Seeds & Nutrient based on soil health, (3) Stop Post-harvest crop losses by Warehousing &
Cold Storage, (4) Value addition through Food Processing, (5) National Farmer e-Market, (6) Mitigating
risks at affordable cost, (7) Promotion of ancilliary activities i.e. poultry, fisheries, bee-keeping etc..
14.6.6
Operation Greens
Central Scheme in 2018-19 for integrated development of TOP (Tomato, Onion & Patato) value
chain – has been extended from TOP to 22 perishable crops in long term and 41 fruits & vegetables in
short term under Atamnirbhar Bharat Abhiyan 2021.
14.7
SUGGESTIONS FOR ACCELERATION IN AGRICULTURAL GROWTH
After going through the trends in agriculture growth since 1951, we can suggest few measures
for increasing agricultural growth, as given below :
14.7.1
Productivity Enhancement
But the real gains from trade can only acquire if the country improves its competitiveness by
increased productivity. This requires large investment in rural Infrastructure, in agricultural research
and in biotechnology, and creation of institutional arrangements for reaching the benefits of research to
all the cultivations including the small farmers.
14.7.2
Increase in Investment
First, keeping in view the deceleration of growth rate in agriculture during the 90’s, there exists a
strong case for increasing investment in rural infrastructure. It is essential to accord very high
(i) Priority to Public Sector investment in agriculture which has been neglected during the last two
decades. Since there exists a strong complimentary between public and private sector investment
in agriculture, increasing public sector investment is also likely to faster private sector investment. The
availability of (ii) adequate institutional credit is another means that would faster investment
specially by the small and marginal farmers. Streamlining the produres, (iii) cutting down the red
tapism and (iv) involvement of village Panchayats would help local participation.
293
14.7.3
Land Reforms
There is a need to proceed further with consolidation of holdings and other land reforms. One of
the lessons that can be learnt from East Asian and Chinese experience is that land reforms become
instrumental in fostering more rapid and equitable growth in agriculture. Keeping in mind the
interests of existing occupancy tenants, steps should be taken to gradually free the lease market. On
the other hand, despite the pressure by industrial interests, kulak lobby and some liberalisers for their
abolition, under no circumstances should be legislation on ceilings on land holdings be diluted.
The is because a country where small and marginal farmers constitute 70 per cent of the land
holders, it would be disastrous to endanger their only source of livelihood.
14.7.4 Export Promotion
There is a need to create innovations including (i) integrated co-operatives like the mother
dairy and other service co-operative. Special efforts should be made to (ii) develop new
technologies for the farming sector and reach these to the small farmer for enabling them to
(iii) diversify their production towards high value commercial and export commodities. The efforts
on the production front should be supplemented by creation of institutions like trading houses, market
intelligence services and creation of network of information on national and international prices.
Reforms in agricultural sector are likely to open up export possibilities. There is also a need to create
necessary infrastructure in processing, marketing and grading of produce. Investment in
information infrastructure through market committees would percolate the information to the local
levels.
14.7.5
Other Reforms
India being a founder member of the WTO is bound to undertake further economic reforms in
agriculture. These would include removal barriers to internal trade in agricultural commodities, abolition
of zonal restrictions, and compulsory procurement, opening future markets, and protecting patent rights
etc. But India should also do hard bargaining on the issue of market access and removal of subsidies
by the developed countries.
14.8
CONCLUSION
The crises in Indian agriculture is manifest in various ways. First, the growth in agriculture
decelerated in the nineties. Most serious is the fact that because of absence of any technological
breakthrough, there is stagnation in yield levels of various crops. This can have very serious
implications for a land scarce country. (relative to the size of population) where land area is limited and
there is a need to accelerate growth rates in agriculture for feeding increasing population. Some
economists say that there is need for second Green Revolution i.e. need for technological
breakthrough. Further more, the aspiration to increase exports in a big way would also need growth in
agriculture to accelerate for generating adequate surpluses. The crisis in agriculture is manifest in lack
of diversification and increasing burden of workforce in agriculture. This has led to a state of low
productivity employment for a larger section of agricultural population and the persistence of large scale
rural poverty in most of the states in India. The hope that export boom as a consequence of economic
reforms would lead to increasing incomes and employment has also been belied to large extent.
294
14.9
SUMMARY OF THE LESSON THROUGH FLOW CHART
Suggestions for Improvement
Productivity
Enhancement
Export Promotion
Other Reforms
Increase in
Investment
Land Reforms
14.10 GLOSSARY



Domestic Market Reconstructions: Zonal reconstructions on the movement of agricultural
commodities
Administered Price: The Commission on Agriculture Costs and Prices (CACP) announces
Minimum Supports Prices (MSPs) for most of the crops.
Liberalisation Measures in Agriculture: Freeing Agriculture sector from various restrictions
(mainly under National Agriculture Policy, 2000)
14.11 REFERENCES
Datt, Gaurav and Mahajan, Ashwani (2012). Indian Economy. 64th Revised Edition. S. Chand
and Company Limited
Kapila, Uma (2012). Indian Economy Since Independence. Academic Foundation. New Delhi.
Kapila, Uma (2016). Indian Economy Since Independence. Academic Foundation. New Delhi.
Kapila, Uma (2012). Indian Economy. Prospects and Policies Academic Foundation. New Delhi
Misra, and Puri, (2012). Indian Economy. Himalaya Publishing House.
295
Government of India (various issues). Economic Survey, 2010-11; Economic Survey, 2011-12;,
Economic Survey, 2012-13; Economic Survey, 2015-16; Economic Survey, 2016-17; and Economic
Survey 2021-22, Ministry of Finance, New Delhi.
Pratiyogita Darpan, 2012 & all later issues.
14.12 FURTHER READINGS

Government of India (imp. issues), Economic Survey. 2015-16, 2016-17, 2017-18, 201819, 2019-20, 2020-21; Ministry of Finance, New Delhi.

Pratiyogita Darpan Magazine.
14.13 MODEL QUESTION
1.
Critically analyse the recent major policy changes undertaken in the domain of Indian
agriculture.
---00---
296
Lesson-15
EMERGING TRENDS IN INDIAN AGRICULTURE IN
LIBERALISED TIMES & SECONDARY AGRICULTURE
Structure
15.0
Objectives
15.1
Introduction
15.2
Emerging Trends in Indian Agriculture in the Post-Reforms Period
15.2.1
Increase in the Production of Foodgrains
15.2.2
Agricultural Exports increasing Funds
15.2.3
Increase in the Production of Horticulture and Floriculture
15.2.4
Diversification of Agriculture
15.2.5
Food Processing
15.2.6
Horticulture
15.2.7
Future Trading in Agriculture Commodities
15.2.8
E-trading
15.2.9
Increasing lnstitutionalisation of Agricultural Credit
15.2.10 Growing -Realisation on’ Unscientific Use of Fertilisers & Pesticides
15.3
Public investment in Agriculture
15.4
Conclusion
15.5
Summary
15.6
Glossary
15.7
Reference
15.8
Further Readings
15.9
Model Questions
15.10 Secondary Agriculture
15.1 INTRODUCTION
As we have studied in the previous lessons that India adopted Economic Planning and in the
year 1951, with the First five Year Plan. During the first four decades of planning (1951-91), the
development was mainly beacuse of the flourishing public sector. Under this license-permit-quota raj,
the private sector experienced limited growth. By the year 1991, the economic conditions arrived at
such a point that the Government of India had to adopt the policies of Liberalisation, Privatisation and
Globalisation. ln this lesson, we will study the impact of liberalisation Policy on the growth of the
agricultural sector, and the changes that have taken place.
297
ln the Pre-reforms period, the main aim of the agricultural policy in lndia was to attain selfsufficiency in the production of food grains investment in agriculture and the use of the latest
technology were concentrated in the areas of achieving food security and improving irrigation facilities.
This was mainly due to the reason that the states with good irrigation facilities experienced
better results. With the introduction of economic reforms, liberalisation measures were adopted
Economic liberalisation refers to reducing governmental interference in economic activities and
encouraging privatisation. The main objectives of economic liberalisation are :
(i) Removal of hindrances like licensing policy in the process of economic development, (ii)
increasing productivity, effectiveness and competitiveness of the Indian industry in order to enter the
international markets, (iii) ensuring fast development of the agricultural sector, (iv) widening the scope
of the private sector, (v) developing strong money and capital markets by making infrastructural
changes in the financial sector, (vi) giving priority to research and innovation, and (vii) dealing with the
basic problems of the economy (such as poverty, unemployment, illiteracy, etc.) and also maintaining
better co-ordination with the global economies. ln tune with these objectives, the agricultural policy also,
aimed at strengthening Indian agriculture and making it more export-oriented.
The liberalised atmosphere provided greater strength to the already achieved food security, and
helped in availing the opportunities like increase in agri-exports and agro-based-industries. ln the
following section the main emerging trends in Indian agriculture, as the result of liberalization
measures, are being discussed.
15.2
EMERGING TRENDS IN INDIAN AGRICULTURE IN THE POST-REFORMS PERIOD
There were some restrictions in moving certain agricultural products from one place to
another. There has always been full freedom to transfer industrial goods from one part to other part of
the country but the industrialists themselves used to determine the price of their products as per the
conditions prevailing in the market. As a result of liberalisation, the trade in agricultural goods was also
freed from all restrictions, on transferring foodgrains from one state to another; and the farmer can sell
his produce in any market he wants. This has benefited both the farmers as well as the consumers. In
these liberalised times, following trends are being noticed.
15.2.1 Increase in the Production of Foodgrains : The liberal import of good quality seeds,
fertilizers, pesticides has resulted in increasing the agriculture production and productivity. Today Indian
agricultural production is sufficient to meet domestic demand of agricultural products. A shift in the
tastes and preference of the consumers is being noticed. Now people consume not only food grains but
of agriculture production also other things like fruits, juices, salads, snacks, etc. The current target
growth rate in Twelfth Plan was 4 per cent. After meeting the domestic demand, the surplus foodgrains
may be exported. Therefore, exports may suffer due to declining growth rates.
During the Eleventh Plan Period, production of foodgrains in the country recorded an increasing
trend (excepting 2009-10 when it fell to 218.1 mn tonnes due to severe drought). During 2011-12, total
food grains production reached an all time high of 259.32 million tonnes. (Eco. Survey 2012-13). In the
year 2017-18, there has been record production if foodgrains i.e. 277 mn tonnes.
[Given the sufficient food stocks, the government allowed exports of 4.5 million tonnes of wheat
from central pool in 2013.] India is the second largest producer of foodgrains globally. In the year 202021, it has increased to 314.51 million tonnes.
15.2.2 Agricultural Exports : increasing Trend : One of the major trends emerging in agriculture as
a result of liberalisation is the ‘possibility of growth of agricultural exports. India is favourably placed as
compared to other countries as far as agricultural exports are concerned because of the low import
requirements of commodities required in agriculture, low cost of labour and diverse climate conditions
which are favourable for agriculture. india has tremendous export potential in the areas of dairy farming,
298
sericulture, floriculture, horticulture and the like. The improved quality of agricultural products has
further increased the scope of agricultural exports. The Export-import Policy 2004-09 provided many
facilities for agricultural exports. Under it, a special export promotion scheme for agricultural products
named Vishesh Krishi Upaj Yojana has been started. Export of certain commodities was prohibited
earlier but now these commodities can be exported by acquiring licences. These commodities include
oilseeds, edible oils, pulses, coconut, sugarcane, etc. During 2005-06, the value of exports of
agricultural products was Rs. 46703 crore.
As per WTO International World Trade Statistics (quoted in Eco. Survey 2012-13). India has
improved its position in agricultural and food exports to 10th globally. Exports of agriculture and allied
products during 2011-12 accounted for 9.08 p.c of India’s total exports, against 6.9 pc during 2010-11.
Given sufficient stocks of foodgrains in the central pool, the government has allowed exports of
4.5 mn tonnes of wheat from the central pool in the year 2013. Moreover, wheat and rice have been
placed under Open General License. Agricultural export constitutes 10 pc. of the country’s exports
(2017-18) and is the fourth largest exported Principal commodity.
Indias agricultural exports have crossed $ 50 bn in the FY 2022.
15.2.3 Increase in the Production of Horticulture and Floriculture : India produces a variety of
horticultural crops such as fruits, vegetables, spices, cashew nuts, coconut, cocoa, betel, medicinal and
aromatic herbs, etc. India ranks second in the world in the production of fruits and vegetables.
Production of horticulture crops is showing trends of constant increase.
In 1991-92 (i.e. before liberalisation) the annual production of fruits was only 290 lakh tonnes,
which increased to 576 lakh tonnes in the year 2005-06, with bananas and mangoes forming more than
half of the total production. India is largest producer of mango and banana in the world. India is the
largest producer of coconut, cashew nuts, ginger, turmeric and black pepper. National Horticulture
Mission, 2005 intended to double the horticulture production by 2010.
Floriculture i.e., production of flowers and the exports of flowers from India are also increasing
constantly. ln the year 1994-95, flowers worth Rs. 30 crore were exported from India and, by 20012002, this figure had increased to Rs. 110 crore.
During the Eleventh Plan, the National Horticulture Mission covered 18 states and 3 UTs and
16.7 lakh ha of land was brought under horticulture/high value horticulture crops. Over the years the
availability of horticulture produce has improved significantly, still India’s share in global horticulture
market is 1pc. globally (APFPED)
Table 15.1 : Per Capita Availability and Production of Fruits and Vegetables
Per Capita Availability
(gram/per person/day)
Fruits
Vegetables
2001-02
114
236
2007-08
158
2011-12
2016-17
2020-21
Production of Fruits & Vegetables
(million tonnes)
Total
Fruits
Vegetables
Total
350
43
89
132
309
467
66
128
194
172
350
522
76
156
232
−
−
−
–
–
300.64
41 pc
(Share)
59 pc
(Share)
326.58
(Total)
Source: Economic Survey 2011-12, www. ibef.org.on 12/05/18, Kurukshetra, Aug. 2021, p18.
299
15.2.4 Diversification of Agriculture : Other Activities [update Figure from Eco Survey latest issue]
Now apart from traditional crops, many commercial crops like cashew nuts, spices, cocoa,
oilseeds, rubber, jute, flowers, fruits, medicinal plants, herbs etc. are increasingly cultivated.
In additon poultry, fisheries, animal husbandry, horticulture etc. are being promoted. Kerala,
Rajasthan and Gujarat are most diversified states.
(a) Poultry :
In order to encourage entrepreneurship skills of individuals, a central-sector Poultry Venture Capital
fund Scheme is being implemented in capital subsidy made since 1 April, 2011, covering various
poultry activities. Per capita availability of eggs was around 55 per year in 2012. (Eco survey 2012-13).
India is the third largest egg producer state after China and USA. (see p 283)
(b) Fishery :
Fish is an important source of protein and also an important source of livelihood. Production of
fish (both marine and inland has gone up from 5.6 million tonnes in 2000-01 to 8.7 million tonnes in
2011-12 to 14.2 mn tones in 2019-20 registering ACGR of 4.35 pc during 1951-20. India topped the list
of shrimp exporters globally in 2016 with exports of US $ 3.8 billion. (see p 283)
(c) Milk-Production :
India has been world largest producer of milk which has gone up from 55.6 million tonnes in
1990-91 to 127.9 million tonnes in 2011-12. The per capita availability of milk has also increased from
176 grams per day in 1990-91 to 290 grams per day in 2011-12. This is comparable with the world per
capita availability of milk at 289.31 grams per day for 2011 and 355 gm in 2016-17.
This represents sustained growth in the availability of milk and milk products for the growing
population of the country, apart from being in important secondary source of income for rural families.
Some of the existing schemes/programmes of Government of India are: Intensive Dairy Development
Programme, (IDDP) Assistance to Co-operatives. Dairy Entrepreneurship Development Scheme
(DEDS), National Project for Cattle and Buffalo Breeding (2000) etc. A new scheme called the National
Dairy Plan Phase I has been launched in March 2012. (see p 281 & 282)
This diversification has helped Indian farmers in increasing their income.
[For (a), (b), (c) : Source: Economic Survey 2012-13, p. 185, Economic Survey 2017-18 & Economic Survey 2020-21 p 278]
15.2.5 Food Processing : A Favoured Venture :
The food processing industries have also picked up in recent times. Fruits, vegetables and milk
are all perishable commodities. It is estimated that goods worth Rs. 3000 crore are lost in this manner
every year. Food processing industries such as, Meat, Fish, Fruits, Vegetables, Milk, Cereal based etc.
are being developed in order to prevent such losses. India’s food processing industry accounts for 32
pc. of country is total food market. The Production Linked Incentive Scheme was introduced by the
Govt. in Nov. 2020 for 10 key sectors including Food processing sector for raising production and
exports.
15.2.6 Horticulture
The National Horticulture Board provides infrastructure for the packaging, storage and
transporation of horticultural products. This industry offer great opportunities in providing widespread
employment and bosting agricultural exports. Many steps are being taken to attract the private sector to
the food processing industry. For example, the products of this industry have been exempted from the
300
central excise duty. ln the year 2005-06 government announced 100 per cent tax rebate, for the newly
set up food processing industry, on profits, for first five years. Foreign equity participation upto 100 per
cent and agreements for foreign technology are given prompt approval in case of food processing
industry. Moreover, there are no restrictions on entry of foreign companies in this industry. During 1991,
non- traditional food items worth Rs. 194 crore were exported and by 2005-06, their exports rose to Rs.
1589 crore. Upto March 2006, 49 Food Parks were sanctioned in the country. Various fiscal incentives
like reduction in imports duty on machinery for food processing, exemption of excise duty on food
products etc. were provided.
Total horticulture production in 2021 is estimated to be 334 mn tonnes – a record level high.
(See Table 15.1)
15.2.7 Future Trading in Agriculture Commodities : ln the post economic reforms period
government has permitted future trading in agricultural commodities like - gur, potato, jute, cotton,
coffee, oilseeds, edible oils, etc.
The commodity futures market facilitates the price discovery process and provides a plat form
for price-risk management in commodities. Currently 113 commodities are notified for futures trading of
which 51 are actively traded in five national and 16 reginoal commodity-specific exchanges.
15.2.8 E-trading : A new scheme named AGMARKNET was implemented in the year 2005 to provide
electronic connectivity to important wholesale agricultural markets in the country. Government has
interconnected 993 agricultural markets through internet and started e-trading in year 2005-06 and this
number has increased to 2700 in March, 2007. Recently E-NAM has been sterted in year 2017-18.
15.2.9 Increasing lnstitutionalisation of Agricultural Credit : There has been a growing trend for
institutionalisation of agricultural credit in liberalisedworld. Earlier the Indian farmer had to rely upon
unorganised sources, such as money lenders; as Sahukars. Borrowings of money from unorganized
sources has many ill effects, such as high rates of interest, manipulation of accounts etc. But now, the
maximum amount of funds is borrowed from organised sources like - cooperative societies, regional
rural banks, commercial banks, etc. The share of organised sources in agriculture credit has increased
from 10 per cent in year 1951-52 to 66 per cent in the year 2002-03. On the other hand share of
unorganised sources like mahajans, has decreased from 90 per cent in 1951-52 to 34 per cent in year
2002-03. Moreover, the farmers are showing an increasing trend of repaying a greater percentages of
the loans. In the year 2020, 56 percent of credit for agriculture goes through bank.
15.2.10 Growing -Realisation on’ Unscientific Use of Fertilisers & Pesticides : The unlimited
exploitation of natural resources is damaging the environment. The use of chemical fertilisers;
pesticidies, etc. in agriculture has also raised the possibilities of occurrence of serious problems. In
order to avoid this and protect the environment, there is a growing tendency in agriculture to give more
emphasis to the development of new biological techniques which are environment friendly. Chemical
fertilisers have played an important role in making India self-reliant in production of food grains.
However the unbalanced use of nutrients and micro nutrients has destabilised the optimum
combination of fertiliser consumption and food grains production. Consumption of fertiliser has
increased from 151 kg per hectare in Financial Year 2010 to 166 kg per hectare in 2012. Fertiliser
subsidy also increased sharply. So in 2010-11 the GoI launched a Nutrient Based subsidy expects for
urea. Retail prices of fertilisers will be fixed by manufactures under this scheme: I.
15.2.11 Incentives for Backward Areas : During the decades following Green Revolution, agricultural
research and technology were concentrated in certain specific areas especially for foodgrains. After
liberalisation, with the demand being favourable for exports many changes took place. For rain-fed
301
areas and dry land areas more emphasis is being laid on animal husbandry, horticulture, floriculture,
dry farming, etc. Many new techniques are being developed for these activities and for benefiting the
agricultural areas where there is widespread poverty and backwardness. ln 2005-06 ‘Bharat Nirman’
programme was launched covering main components of infrastructure development including improving irrigation, constructing rural roads, rural electrification etc. to develop agriculture in backward
areas.
15.3
PUBLIC INVESTMENT IN AGRICULTURE
(A)
Falling Share of Public investment in Agriculture :
ln case of agriculture, the percentage contribution of public sector investment is decreasing,
whereas the percentage share of private sector investment in agriculture is increasing. The trends in
public and private sector investment in agriculture are presented in the following table :
Table 15.2 : Trends of Investment in Agriculture
Year
Total
Public
Investment Sector
(Rs. Crore) Investment
(Rs. Crore)
Percentage
Share
of
Public Sector
Private Sector
Investment
Percentage
(Rs. Crore)
Share of Private
Sector
Investment
Investment
1993-94
13,523
4,467
33
9,056
67
2000-01
38,735
7,115
18.5
31,580
81.5
2004-05
43,123
12,591
29.2
30,532
70.8
2005-06
54,539
13,219
24.2
41,320
75.8
Source: Eco Survey 2006-07
The above table shows that in 1993-94, out of the total investment made in the agricultural
sector, the share of the public sector was 33 per cent and by 2005-06 it has fallen to 24.2 per cent.
Public sector investment, which was Rs. 4,467 crore in 1993-94, has increased to Rs. 13,219 crore in
2005-06. Thus, the share of public sector investment in agriculture is declining. On the other hand,
private investment, which was Rs. 9,056 crore in 1993-94, increased to Rs. 41,320 crore in 2005-06. In
terms of percentage, private investment which was 67 per cent of the total investment in 1993-94
increased to 75.8 percent of the total investment in 2005-06.
(B)
Gross Capital Formation in Agriculture:
Overall GCF (Gross Capital Formation) in Agriculture (including the allied sector) almost
doubled in last 10 years and registered an average annual growth of 8.1 percent. Rate of Growth of
GCF accelerated to 9.7 percent in the Eleventh Plan (2007-12) compared to a growth of 2.7 percent
during the Tenth Plan (2002-07). Average annual growth of private investment at 12.5 percent during
Eleventh Plan (first four years) was significantly higher as against nearly stagnant investment during the
Tenth Plan. During the Eleventh Plan the growth of agriculture has been reasonably stable despite
large weather shocks (deficient South West monsoon of 2009, drought of 2010-13 and delayed
monsoon of 2012-13. An important reason for this dynamism has been due to a step-up in the gross
capital formation in this sector relative to GDP of this sector, Which has consistently been improving
from 16.1 percent in 2007-08 to 19.8 percent in 2011-12 (at constant prices, 2004-05).
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Table 15.3 : Gross Capital Formation in Agricultures (as % age of GDP in Agriculture)
2007-08
2008-09
2009-10
2010-11
2011-12
2007-12 2021
GCF in Ag. and
Allied Sectors as
% age to GDP of
the Sector
16.1
19.4
20.1
18.4
19.8
19.7
Growth of GDP
in Ag. and Allied
Sector
5.8
0.1
0.8
7.9
3.6
−
3.6
2022
3.9
Source: Eco. Survey 2012-13, Eco Survey 2021-22.
It needs to be noted that 3 years including 2015-16, the investments in agriculture is increasing
but productivity is not increasing. It is declining and as with in the range of 15% to 17%. [See Appendix
L-11, for update on GCF in Ag.]. Eco Survey (2021-22) mentions that GCF in agriculture and allied
sector is fluctuating in recent years mainly because of fluctions in private sector.
Activity
Q. Check the amount/share of Public sector and private sector in investment in agriculture.
__________________________________________________________________________
__________________________________________________________________________
Seeing the decline in public investment, India is considering simpler regulations to attract more
corporate investment in agricultural to double farmer’s income by 2022.
Conclusion
In the post-reforms era we witness few emerging trends in agriculture in the post liberalization
era namely increased exports, use of modern techniques in production, processing and marketing of
agricultural, institutionalization of agricultural credit, growing private investment etc.
15.4
SECONDARY AGRICULTURE
The canvas of secondary agriculture in India is huge, and can range from new crops, organic
produce, herbal and medicinal plants to manufactured commodities like starches from cereals, proteins,
legumes, oils, organic crops, resins, gums, rubbers and latexes etc.
15.4.1 Secondary Agriculture: The Shift Indian Farming Needs
Secondary Agriculture assumes prominence with the announcement of the goal of doubling
farmers’ incomes.
Ashok Dalwai Committee on doubling the farmer’s income defined secondary agriculture as a
production activity at enterprise/farm level, and it devised a four-fold strategy:
1. Sustainability of production;
2. Monetisation of farmers’ produce;
3. Strengthening of extension services;
303
4. Recognising agriculture as an enterprise, and enabling it to operate as such, by addressing
various structural weaknesses.
The term ‘secondary’ has a bearing on climate change adaptation and its mitigation, small farm
viability and profitability, food security, nutrition, sustainable utilization of natural resources, and optimal
usage of produce from primary agriculture and farm incomes.
In other words, promoting secondary agriculture has implications on attaining sustainable
development goals, which aim to connect primary, secondary and tertiary sectors by using slack/idle
factors of production, such as land and labour – contributing to primary agriculture production, capturing
‘value’ in primary agricultural activities, and generating additional income at the enterprise level.
15.4.2 Importance of Secondary Agriculture
Secondary agriculture, as is defined, can help drive the growth of primary agriculture, and three
avenues have been identified that adequately help utilize capital, human resources, technology,
organizational capabilities, and risk management:
a) Type A: Value-addition to primary agriculture production systems;
b) Type B: Alternative enterprises, but linked to rural off-farm activities;
c) Type C: Enterprises that thrive on crop residues and waste materials of primary agriculture.
Type A can be achieved by improving livelihood enhancement action plans that are
implemented by farmer-based/community-based organizations.
Linking farmers with the market through aggregation and assaying/grading of agricultural
produce can help them in value enhancement to build this avenue.
Type B is based on utilization of alternative enterprises to primary agriculture, but is associated
with rural off-farm activities. For example, poultry, bee-keeping, duck farming and livestock
management are off-farm enterprises that can be promoted as part of integrated farming system.
Integrated farming can hedge farm risk in the period of crop failure, or ease out the seasonality
in the stream of cash flows.
Type C are such enterprises that strive on crop residues, or by-products of primary agriculture.
For example, after recovering sugar from cane, cane can be used as bagase for molasses production.
Similarly, cotton stalk and seed (after ginning) can be used for de-oiled cake preparation or
utilized in the secondary/tertiary sector.
15.4.3 Measures to Promote Agricultural Entrepreneurship

Recognition of priority sector status for institutional credit;

Low-cost skilling and knowledge-based exposure of farm communities;

Specialised extension services for enterprises owned by females;

Priority under rural electrification objectives;

Fast-track procedures to avail benefits under the ongoing central sector schemes;
304

Label geographical indicators to products of village-scale secondary agriculture.
Conclusion
Agribusiness incubation and acceleration, if made marketable, can benefit farm communities,
and appropriate market linkages can improve farmers’ realizations through collectivization.
However, a concerted effort at both policy and implementation levels at the Centre ans States
are necessary to attain this goal.
15.5
SUMMARY
In this lesson we have studied about agriculture allied activities, mentioned below:
A.
Emerging Trends in Agriculture
Increase in Production
Foodgrains
Agriculture Exports
Horticulture
Floricultre
Poultry/ Fishery/ Milk
Food- Processing
Hortriculture
B.
Other Dimensions
Future Trading
E-Trading
Institutionalnation of Ag. Credit
Fertiliser (unscientific)
Incentive for Backward Areas
C.
Investment
Declining share in Nineties
Increased from 2007-08 (16.1 p.cc.)
to 2011-2012 (19.8p.c)
D.
15.6
Secondary Agriculture
GLOSSARY

Economic Liberalisation: It refers to reducing governmental interference in economic activities
and encouraging privatisation.

Diversification of Agriculture: It refers to shift from cultivation of traditional crops to growing
commercial crops and non-traditional activities like animal husbandry, poultry, fisheries,
horticulture, plantation crops, floriculture, etc.
305

Gross Capital Formation: It refers to investment in newer assets in the current year including
depreciation. It is expressed as percentage of Gross Domestic Product.

Secondary Agriculture: It covers new crops, organic produce, herbal medicinal plants and
manufactured commodities like starches from cereals, proteins etc.
15.7
REFERENCE

Government of India. Economic Survey. Ministry of Finance. (Various issues) 2021 latest.

http:// data.gov.in

Agricultural Statistics at a Glance. Deptt of Ag,Coop and Farmer’s Welfare. GoI, New Delhi.

Jairath, MS (2008). Trends in Public Investments in Agricultural Marketing Infrastructure in
India. Agricultural Economic Research Review. Vol 21 (Conference Number) 2008,pp 371-376.

www/indiaagri.in> basic-data
15.8
FURTHER READINGS

http:// data.gov.in

Agricultural Statistics at a Glance, Deptt of Ag,Coop and Farmer’s Welfare, GoI, New Delhi.

www/indiaagri.in> basic-data
15.9
MODEL QUESTIONS
1.
Comment upon the recent trends in Indian agriculture in liberlised times.
2.
Write short notes on:
(i)
Diversification of Agriculture
(ii)
Public Investment in Agriculture.
---00---
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Lesson-16
STRUCTURE & FOOD SECURITY IN INDIA
(Need, Provisions of Act, Policies and Options)
Structure
16.0
Objectives
16.1
Introduction
16.2
Food Security: Meaning
16.3
Food Security: Components
16.4
Food Security in India
16.4.1 Availability of Food
16.4.2 Access
16.4.3 Nutritional Content
16.4.4 Financial Requirements
16.5
Food Security Act in India
16.5.1 Origin
16.5.2 NFSA
16.5.3 Challenges Ahead
16.6
Conclusion
16.7
Summary
16.8
References
16.9
Further Readings
16.10 Model Questions
16.0
OBJECTIVES
After going through this lesson, you shall be able to :

understand the concept of food security and its components.

comment upon the provisions of NFS Act, financial requirements and challenge ahead

explain the availability of food, access to food and nutritional food in India.
16.1
INTRODUCTION
In this lesson we shall study about food security, its components and related Act in India. The
National Food Security Act, its provisions, progress under it, its coverage through various programmes,
Targeted Public Distribution Programme, Annapurna Yojna etc and challenges ahead.
307
16.2
FOOD SECURITY : MEANING
According to Food and Agriculture Organisation, food security exists when all people, at all
times, have physical and economic access to sufficient, safe and nutritious food to meet their dietary
needs and food preferences for an active and healthy life. Food security has three components:
availability, access and absorption (nutrition). All the three are interconnected. Many studies have
shown that improvement in nutrition is important, even for increase in productivity is works. Thus food
security has intrinsic (for its own sake or health) as well as instrument (for increasing productivity)
value.
The concept of food security has undergone stupendous changes. To begin with it meant just
availability of food there by, emphasising on the production or supply aspect. In spite of food
availability, there can be pockets of hunger or malnutrition. Here comes in the issue of mal- distribution
of food in the country and therefore access became more important in the eighties. The focus shifted
from the supply side to demand side. Despite the access the malnutrition can exist. So the nutritional
value is also an important components of food security.
16.3
FOOD SECURITY HAS THREE COMPONENTS.

Food availability meaning thereby sufficients quantities of food available on constant basis.

Food access : It refers to having sufficients recources to obtain appropriate food for a nutrilious
diet.

Food absorption/use : It signifies apporiate use (after adequate availability and getting accoss
to food based on knowledge of basic nutrients and care, as well as adequate water & savitation.
Let’s discuss all these aspects in relation to India in this lesson under the following heads
16.4
A.
Food Security in India (further divided into three parts)
B.
Right to Food and National Food Security Act
FOOD SECURITY IN INDIA
India today has the largest mass of poor and malnourished people in the world. India has onesixth of the world’s people and one third of the world’s poor. India’s share of the world’s poor in 2010
(33pc) was higher than it was 30 years ago in 1981 (22 pc) as recorded by World Bank, 2013. One in
every three malnourished children in the world is from India (2011). Poverty, difined globally as those
living on less than $ 1.25 per day, in possibly leads to food insecurity and malnutrition as the poor don’t
have economic access to sufficient and nutritious food.
The concept of food security encompssses not only making enough quantites of food available
in the market through enhanced production / availability but also making it economically affordable.
Self Assessment Question
Q.
What is Food Security and name its Components.
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
16.4.1 Availability of Food
Food Security at the national level refers mainly to availability in the country of sufficient stocks
of food to meet domestic demand, either through domestic supply or through imports.
308
Today India is self-sufficient as regards food grains production. There have hardly been any
food grain imports after the mid-1970s. Food grain production in the country increased from 50 million
tonnes in 1950-51 to around 233.9 million tonnes in 2008-09. The growth rate of food grains has been
around 2.5 percent perannum between 1950-51 and 2006-07. The diversification of agriculture has
increased the production of fruits, vegetables, milk, egg etc.
Agriculture growth in India was high from Fifth plan period to Ninth Plan period, highest 5.7 pc
during the 6th plan. The growth of agriculture decelerated from 3.5 pc in the period 1981-82 to 1986-97
to the level of 2 p.c. between 1997-98 and 2004-05 although there was improvement in later years.
Per Capita Availability of Food grains:- Per Capita net Availability of food grains increased by
about 10 P.c over the last 56 years between 1951 and 2007. It is observed that
(a)
net availability declined from 469 gm (1961) to 443 gm (2007)
(b)
net availability was highest in 1991 (501 gm)
(c)
per capita availability of pulses declined between 1951 to 2007.
(d)
per capita availability of sugar and edibles has increased over time.
Moreover it was observed in the NSSO surveys (1970-71,1990-91, 1993-94 and 2004-05) that
(a)
per capita cereal intake has declined in both rural and urban areas.
(b)
fall in cereal consumption is offset by increase in consumption of non-cereal food.
(c)
Share of cereals in total consumtion has declined significantly even for the bottom 30
percent of population in both rural and urban areas between 1971 and 2004-05
Note : (see Lesson on Ag growth for latest data on Ag. Production)
Per capita net availability of foodgrains has seen a significant improvement from 395gm in 1951
to 512 gm/day an impressive achievement.
Given the shifts in the consumption patterns towards non-cereal food, and even to non-food, it is
expected that these would be enough supply to meet the demand for food grains by 2020 as the
demand projection made by the Ministry of Agriculture (2009) on food grains indicate demand of around
250 million tonnes by 2020.
16.4.2 FOOD GRAIN MANAGEMENT IN INDIA OR ACCESS:As is well known, soon after the disastrous decade of the 1960s (in terms of food grains
production and availability) The Union government of India strengthened the existing Public Distribution
System (PDS). Until 1992, the PDS was a general entitlement scheme for all household without any
specific target. However soon after launching neo-liberal reforms in the early 1990’s the government
introduced the Targeted Public Distribution System (TPDS) in June 1997.The PDS is operated through
the Food Corporation India (FCI) which procures food grains from organissed grain markets, stores and
distributes to state for further distribution through ration shops under PDS the FCI seeks to ensure
adequate domestic production through assuring minimum support price/ procurement price. At the
same to me. It seeks to provide food grains to consumer at a low price through the PDS. The
government bears the difference of amount. The MSP/ Procurement price is fixed by the Commission
for Agriculture Costs and Pricing (CACP) to facilitate procurement by FCI in surplus states, while food
grains movement across states was restricted for long time. In 2003 such restrictions were removed.
309
Basu (2011) has noted from 1 April 2003 till 1 April 2010 the stock of wheat and rice in every quarter
has been above the buffer stock norms.
Currently the food security system and price policy consists of three instruments:
(1) Procurement price/ minimum support price (2) Buffer stocks and (3 )Public Distribution
System (PDS) The PDS ensures availability and distribution of essential commodities like price, wheat,
edible oils and kerosene worth Rs. 300 billion to around 160 million families with a network of around
4,62000 Fair Price Shops. The PDS in India is perhaps the largest distribution network of its kind in the
world.
In order to provide food security to the country, buffer stocks of food grains normally wheat and
rice- are built up. As agriculture output depends upon the monsoon, adequate buffer stocks are built up
from the surpluses in good production years in order to release than in deficient years. Various
committees have suggested the optimal stocked amount 15-25 million tonnes .
Performance of TPDS:*
Provisions Under TPDS
The improvised form of PDS named as Target Public Distribution system was introduced in
1997. Under this Scheme, special cards were issued to families below poverty line (BPL) and food
grains were issued to them at lower prices as compared to the APL households and under Antodyata
Anna yojna (AAY) The destitute household covered under AAY (a part of BPL population) are provided
a monthly provision of 35 kg of food grains at specially subsidized rates (Rs. 2 per kg for wheat and Rs.
3 per kg for rice). Around 38 percent of BPL are covered under AAY programme. Presently the stocks
hover around 50 mn tonnes of food grain.
*
Enforceable by Law and Force Majeure : In case of non-provision the central and the state
governments can be liable for a claim by evry person entitled under the Act. In situation of force
Majeure (like war, fire, drought, flood, cyclone and earth quake) where the regular supply of food
grains/ meals to adversely affected, the wait by does not apply.
*
Subsidy Elements
TPDS is subsidized by the Central government, in the main, and to some extent by the State
governments. The total subsidy of TPDS is distributed as follows: 18 p.c. for APL, 46 p.c. for BPL and
36 p.c. for AAY households.
*
Problems of TPDS
The main problems in TPDS are set in two recent documents:
(a) Report of the High Level Committee on Long Term Grains Policy (GOI, 2002)
(b) Performance Evaluation of Targeted Public Distribution System (TPDS)
(Programme Evaluation Organisation, Planning Commission, 2007)
Three problems in the main, are highlighted by these government documents on TPDS:
1. High exclusion errors : Indentefication of Brenelaries
2. Non- viability of FPS
310
3. Leakages (which vary across the states highest being 75 p.c. in Bihar & Punjab), low quality
of food grains, infrequent supply of food grains, inefficiency of FCI, low margins making FPS
unviable, Political interference and Corruption.
*
Maintenance of Assets
In addition to dealing with these issues there is a need for computerization of records (for deletion &
inclusion of beneficiary), opening of grievance cells, Streng Thening the role of Panchayats and NGOs
and punishment system for defaulters.
*
New Mode of Food Coupons
Few states have introduced food coupons like Andhra Pradesh, Rajasthan, and recently Bihar.
This measure has helped in reducing the number of bogus ration cards. As regards exclusion, It is felt
that it should be made the responsibility of the State government to proactively identify all of these
categories and cover them all under AAY/ BPL cards.
*
Coverage of Additional Food Items
However there are states who have gone beyond the provisions made under the TPDS. These states
have included other items like edible and cooking oils, sugar, pulses etc. while also extending its
coverage to other segments of population. For instance, Tamil Nadu has had a universal system for
some time, and has now started distributing food grains free of cost since June 2011. In Andhra
Pradesh and Chhattisgarh, the systems are near universal.
16.4.3 NUTRITIONAL CONTENT
The nutritional content of the food supplied is mainly covered under health studies and are not
being discussed here.
16.4.4 FOOD SECURITY AND FINANCIAL REQUIREMENTS
The Presidential address to Parliament in 2009 indicates that implementation of the National
Food Security Act will provide a Statutory basis for a framework which assures food security for all.
Although the ongoing TPDS is supposed to provide subsidized food grains to the BPL population, the
legislative measure may lead to better accountability by making the PDS system more responsive in
reaching out to the target population.
According to this proposed law (the bill got passed in Lok Sabha on 28th August, 2011) financial
requirements are to be borne by various levels of government.
Financial/ Expenditure Requirements:- The quantum of food subsidy in India’s GDP has been
less than 1%, which clearly needs to be scaled up if food security is to be expanded. This share was 0.8%
in 2004-05, which declined marginally to 0.89% in 2009-10 and dropped significantly to 0.74% in 2012-13.
When the proposed Act aims at covering 68% of the population, the financial requirement are bound
to increase- an estimated annual expenditure of 1.83 crores of Rupees. Here two points need attention.
1. A large section of population is covered under TPDS and AAY. So out of the total estimated
expenditure, the expenditure through TPDS needs to be deducted to find the actual additional burden.
2. The present provision of food subsidy has been made on the basis of economic costs of per quintal
of wheat and rice. The estimate for Rights to Food may not be calculated at the economic costs.
311
16.5
FOOD SECURITY ACT OF INDIA
In this section, we will discuss about origin, provisions & functioning of Food Security
System and the Act.
16.5.1 Origin
The National Food Security Act (NFSA) was enacted by the Ministry of Consumer Affairs, Food
and Public Distribution by end Decenber 2013.
The Central Government approved the revised Food Security Bill aimed at to provide for a
uniform distribution rate of 5 kg of foodgrains per month per person at a highly subsidised price of
maximum of Rs. 3 per kg to nearly two-thirds of countrys population. Besides, the poorest class of
people who are covered under Antyodaya Anna Yojana scheme and who constitute more than 24
million of India's population will get a legal coverage of entitlement under Public Distribution System to
35 kg of foodgrains per family per month.
Brushing aside all political opposition the Government finally decided on July 3, 2013 to issue
an ordinance for the implementation of food security programme and to salad the Food Security
Ordinance to the Rashtrapati Bhavan for its assent. On July 5, 2013, President of India Mr. Pranab
Mukherjee signed the Ordinance which give nation's three-fourth of total population the right to get 5 kg
of foodgrains every month at a highly subsidised price of Rs.1-3 per kg.
The Food Security Programme, an ambitious programme of India, is the biggest, in the world
with the government spending estimated at Rs. 1,25,000 crore annually on supply of about 62 million
tonnes of rice, wheat and coarse cereals to 67 per cent of the total population of the country up to 75 pc
in rural and 50 pc in urban areas.
As per the Ordinance, the new food security programme needed to be rolled out in all the states
within six months after making necessary provision for its implementation. The rules for implementation
of this programme were being framed separately by the Centre and the respective State governments.
However, the greatest challenge in proper implementation of the programme is identification of
beneficiaries, which has to be done entirely by the State governments.
16.5.2 National Food Security Act (NFSA)
The National Food Security Act (NFSA) is one of the most important social security measure
undertaken its India in order to provide security to the people in respect of its food requirement. The
NFSA was notified on 10th September, 2013, with objective of providing food and nutritional security by
ensuring access to adequate quantity of quality food at affordable prices. The Act was retrospectively
implemented since 5 July, 2013.
Provisions/Benefits
(1)
It provides for coverage of up to 75 per cent of the rural population and upto 50 per cent of
the urban population, making coverage of 67 pc at national level.
(2)
It clearly stipulates an entitlement of 5 kg of foodgrains per person per month for priority
househohls and 35 kg per household per month for Antyodaya Anna Yojana (AAY)
households at subsidized prices of Rs. 3 per kg of rice, Rs. 2 per kg of wheat and Rs. 1 per
kg of course grains.
312

(3)
The States and UTs needed to identify eligible households under the NFS by July 2014. So
far it is implemented in all states/UTs covering around 80 crore people. In Chandigarh,
Panduchery, urban areas of Dadar & Nagar Haveli, it is implemented in cash transfer
mode.
(4)
The NFSA also has special focus on nutritional support to women and children. Pregnant
Women and lactating mothers during pregnancy and six months after the child birth will
also be entitled to material benefit of not less than 6,000 : Wheat Based Nutrition
Programme of Integrates Child Development Services (ICDS) and Mid Day Meal Schemes.
(5)
All children upto 14 years of age will be entiled to nutritious meals or take home rations as
per prescribed nutritional standards.
(6)
In case of non supply of entitled foodgrains or meal the beneficiaries will receive a food
security allowance. The Act also contains provisions for setting up grievance redressal
mechanisms at district and State levels.
(7)
Separate provisions have been made in the Act for ensuring transparency and accountability.
(8)
Besides the Act also contains measures for reforms in the TPDS to be undertaken
progressively by Central and State governments.
(9)
These reforms, inter alia, include doorstep delivery of foodgrains to TPDS outlets,
application of Information and Communication Technology Tools, including end to end
computerisation, coveraging Aadhar for identification of beneficiarees & diversification of
commodities under TPDS.
(10)
The Act combines an existing conditional-cash transfer scheme called the Indira
Gandhi Matriya Sahyog Yojna (INMSY) under which cash benefits are provided to
pregnant women & lactating mothers. The Act is globally serious the biggest experiments in
the world history of food-based welfare schemes by any governments. Its motive is to
ensure that majorty of population was India has access to adequate quentity of food at
affordable prices.
(11)
The Act provisions state and district level redressal mechanism. It also provides for penalty
on penalty on guilty public servants or authority.
(12)
Eldest woman of 18 years or above will be head of the household for issue of ration card. If
not available, then eldest member would be head of the HH.
(13)
Provisions have been made for disclosure of records related to PDS, Social audits and
committee to ensure transparency & accountability.
(14)
Certain arrangements will made for Migrant Labourers during Covid-time. Long term
changes have been made to enable Migrant Labour to access PDS from any FPS in India
by March 2021 – One Nation One Ration Card i.e. inter state potability introduced in 20
states.
Requirements
On the basis of the provision of the Act, the foodgrain requirement for the TPDS and other
schemes is estimated at 614.3 lakh tonnes. The average annual procurement of wheat and rice had
been 617.8 lakh tonnes during 2008-09 to 2012-13, i.e. 33.2 per cent of average annual production.
313
The estimated annual food subsidy for implementation of the NFSA at 2014-15 costs is about Rs.
1,31,066 crore. [ Eco Survey 2013-14, P, 156]
Estimates : Change Over to Direct Cash Transfer
After the implementation of the programme, the food subsidy quantum will rise by around Rs.
20,00 crore over the current level and the required amount of foodgrains will be more than 6 million
tonnes. But this high food subsidy may add more fuel to mounting fiscal deficit, now touching more than
5.0 per cent of GDP in 2013-14. According to a Ministery of Finances Reports (Mishra, 2013) the food
subsidy with NFSA implementation is estematted to increase to B1,40,192 crore and B1,57,701 crore in
2014-15 and 2015-16 recpectively.The Agricultural Costs and Prices Commission (ACPC) thus rightly
advised to keep down to the lowest possible level the quantum of public expenditure necessary to
finance the food security programme. The Commission's study report accompanies a good advice
which seeks to replace the tradinonal Public Distribution System by a system of direct cash transfer in
lieu of rationed subsidy to the intended beneficiaries. This direct cash transfer will, not only reduce the
misuse and pilferage of foodgrains associated with transformation, storage and distribution mechanism
of PDS system but also reduce the cost of exchanger with respect to maintenance of public distribution
system. The Chairman of the Commission (CACP) also stated that the savings from change over to the
system of Direct Cash Transfer of subsidies be achieved without any adverse impact on beneficiaries
would be around Rs. 60,000 crore. This will definitely help reduce the extent of fiscal deficit.
16.5.3 Challenges Ahead and Options
In a country like India, the maintenance of food security and management of surplus foodgrains both
issues are equally important. What is required at this moment is that the country has to strike a balance
between food security and management of surplus food stock in a most rational manner. Faulty policy
will unnecessarily increase the burden of food subsidy on the Central Government, which is already very
high.

Leakages of PDS
The vehicle through which identified benefits or entitlements will be delivered is the archaic PDS.
The system is plagued with inefficiency and leakages. Studies based on NSSO data show that on
average 40 pc of what is supplied by all states/UT’s does not reach the intended consumers. In case of
Bihar, the rate of leakage is 71 pc (NSSO, 2009).

Management
Moreover, the accumulation and measurement of three times the foodgrains than that of its
requirement in State godowns on the one hand and reports of starvation deaths from a couple of States
has been raising the questions on the foodgrain policy of the country. The Government is also
considering a proposal to do away with procurement and instead compensating the farmers with an
"income-support system". A necessary complementary requirement of the government' is suggestion in
doing away with the policy of procurement to put in place a system that outlines the medium and longterm forecast of supply and demand, especially of the weak and vulnerable sections of the society.

Large Number of Poor People
It has also been ärgued that food security in India is only notional despite maintaining a
foodgrain buffer stock of nearly 58 million tonnes (as on January 1, 2002) since food deprivation and
financial indebtedness of scores of small and marginal farmers still ex isting at wide level.
314

Food Security : not Feasible
The notion of food security in India has failed to conform to the accepted definition of food
security as adopted by the Rome Declaration, which observed, "...food security exists when all people,
at all time have physical and economic access to sufficient, safe and nutritious food to meet their
dietary needs and food preferences for an active and healthy life."

Production of New Food Grains a Challenge
Purchasing capacity of all the buyers however is not at par with the prices at which the
foodgrains are marketed in many parts of the country. Thus adequate arrangement has to be made by
the Government to meet such gap.
Moreover, the production system in the country is also not a balanced one. As the country is
self-sufficient in respect of wheat and rice, but still deficient in pulses and vegetable oils, reflected in
import of huge quantities of vegetable oils and pulses in recent past.
Similarly, production and access to vegetables, fruits and livestòck products, which are also
important contributors to food security, have not received as much attention as they deserve. Thus the
biggest challenge faced by the agricultural sector in India is to diversify from wheat and rice to millets,
pulses and vegetables.

Unique System of India
The WTO regime recognises unique evolutionary points of ethnic strengths of Indian system of
agri-research which has kept the uniqueness of our agriculture in its folds, should build upon this base
of traditional advantage that cannot be easily attained by competing economies like China.

Ironic Withdrawal of NFSA Provisions under ‘Force Majeure’ :
Through this provision government withdraws its responsibility of providing food security to the
needy in the times when they need it the mose. This dilutes the very objective of the Act of ensuring
food security to the poor who are worst affected in situation like drought etc.
In essence NFSA tries to achieve an equity objective by using a price policy investment, instead
on income policy instrument. So there is huge probability that it wall fall to deliver on the promises
media.
16.6
Conclusion
India has many policies and programmes for dealing with the problem of poverty in India e.g.
Aam Admi Yojna, Public Distribution System etc.. However food insecurity and malnutrition continue to
be high despite plenty of such programmes. The focus needs to be shifted towards more efficient
delivery systems of public services. The better governance, undoubtedly, is very important for effective
functioning of food- based programmes. The Right to Food Act would definitely play an important role in
improving implementation of the existing programme like Targeted Public Distribution System (TPDS).
Self Assessment Question
Q.
Write a Short note on NFSA.
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
315
16.7
SUMMARY
The lesson can be summarised through the following Flow Chart :
Food Security in India
Availability of Food
Access or Food Management
(Per Capita Availability
in India
and Nutrients)
Right to Food and
National Food Security
Act, 2009
TPDS : Performance
AAY
State- Level Picture
Provisions
Threats/ Challenges
Options
16.7(A) CONTENT SUMMARY

Food Security in India
India attained self sufficiency in food by late 1980s, though food security still evades the country.
Though India's GDP growth has been impressive and the agricultural production has also increased
over the past few decades, hunger and starvation still persists among the poorest sections of the
population : 14.5 pc undernourished, 51.4 pc of reproductive age group women anaemic, 37.9 pc of
children aged under five Stunted and 20.8 pc of children suffer from wasting, and 102 rank out of 117
countries in the Global Hunger Index – 2019.
Around 23 pc of India's population lives below poverty line (i.e BPL) and 75 pc of their
household income is spent on food. There is a strong correlation between stability in agricultural
production and food security. Volatility in agricultural production impacts food supplies and can result in
spikes in food prices, which adversely affect the lowest income groups of the population.

India has one the largest number of food schemes in the world to ensure food security
1) Integrated Child Development Science (ICDS)
2) Mid Day Meal Scheme (MDMS)
3) Targeted Public Distribution System (TPDS) – National Food Security Act is being implemented
through this scheme
4) Mahatma Gandhi National Rural Employment Guarantee Scheme, and
5) Annapurna (10 Kgs of fee food grain for destritute poor)

Food Subsidy bill has risen tremendously in the last few years – 30 pc growth rate by 2019-20
(Rs. 1,55,000 crore from Rs. 45,000 cr) due to following resons :

wider coverage of NFSA in comparison to TPDS.

Antyodaya beneficiaries also get foodgrain at NFSA prices.

Under NFSA, the categorisation of APL and BPL has been abolished.
316

Coverage of Act deliinked from poverty estimates – so all the Vulnerable and needy sections
of the society are beenfitted.

The build-up of the foodgrain stocks much higher than buffer norms.

Increase in cost and real Minimum Support Prices (MSP).

Decline in Sale to the APL household.
Food subsidy = MSP of wheat & rice – economic cost of handling grains = procurement, stocking and
distribution to the targeted households (HH).
While the interest of the vulnerable sections of the population need to be safeguarded, the food
subsidy also need to be rationalised as it distorts market for foodgrains, pulls prices down and restricts
sustainability of food security in the country.

National Food Security Act (NFSA)

enacted by Ministry of Consumer affairs, Food and Public Distribution by end- December 2013

provides legal right to around 82 crore people (in all states & UTs)

Covers upto 75 percent rural and 50 percent urban population (i.e. around 2/3rds of population)

Implemented in Cash transfer mode in Chandigarh Puducherry & Dadra & Nagar Haveli (urban
areas)

Provision of foodgrains :
poorest of poor households continue to receive 35 kg food grains per household per month
under AAY.
Contains provisions for reforms in PDS through doorstep delivery of foodgrains, use of ICT,
emerging Aadhar for identification of beneficiaries, diverstification of commodities under TPDs.
Provision of redressal mechanism at state and district levels.
Provides for penality on public servants or authority if found quality.

Following flow chart covers beneficiaries of NFSA.
Beneficiaries of NFSA
Household under
Households under
AAY
Priority Households
entitled for 35 Kg
entitled for 5 Kg foodgrains
foodgrains per month
per Person per smonth
317
16.8
REFERENCES
1.
Jha and Acharya (2013). Security Food for Ace: Is it Realy Difficult to Afford?. Economic and
Political Weekly. Vol. 48, No.4, Jan. 26, 2013-14.
2.
Parikh (2013). Right to Food and Foodgrain Policy Economic and Political Weekly. Vol. 48, No
11, March 16,2013.
3.
Uma Kapila (2016). Indian Economy Since Independence. Academic Foundation.
16.9 FURTHER READINGS

Uma Kapila recent issue. Indian Economy Since Independence. Acadmic Foundation.

Uma Kapila recent issue. Indian Economy: Policy and Prospects. Academic Foundation.
16.10 MODEL QUESTIONS
Q1.
What do you understand by the concept ‘Food Security’?
Q2.
What do you know about Food Security in India. Critically evaluate the present policies in this
regard and suggest few options.
Q3.
Write a short note on Right to Food and National Food Security Act.
---00---
318
Lesson-17
INDUSTRIAL GROWTH, ITS STRUCTURE AND
MANUFACTURING SECTOR GROWTH
Structure
17.0
Objectives
17.1
Introduction
17.2
Indian Industry at the time of Independence
17.3
Policy of Indian Industry
17.4
Growth of Indian Industry
17.2.1 Growth of Indian Industry in The First Seven Plans (Post – Reforms Period)
17.2.2 Industrial Growth and Economic Crisis of 1991
17.2.3 Industrial Growth in The Nineties
17.2.4 Comparison of Growth Rates in the Eighties and Nineties (till 2002)
(i)
Rate of Growth of Industry
(ii)
Sector-wise Growth of Industrial sector
(iii)
Growth of Manufacturing Sector Across Regions
(iv)
Unsatisfactory Growth of Indian Industry in The Nineties
17.2.5 Relative Contribution of Sub-Sectors of industry
17.2.6 Industrial Growth in Recent Decade (2001-13)
17.2.7 Disparities in Industrial Growth
17.3
Industrial Policy Resolution in India
17.3.1 Period of Government controls
17.3.2 Period of Liberalisation
17.4
Growth of Manufacturing Sector in India Since 1951
17.5
Structural Transformation of Industry
17.6
Growth of Industry in Nineties and Slowdown
17.7
Widespread Industrial Slowdown of 2001-02
17.7.1 Causes of slowdown
17.8
(i)
Structural factors
(ii)
Cyclical factors
Problems of Industrial Development
17.8.1 Agricultural Drag on Industry
16.8.2 Low Planned Linkage between Agriculture and Industry
319
17.8.3 Income Distribution
17.8.4 Infrastructural Constraints
17.8.5 Inputs Supply Constraints
17.8.6 State Controls and Regulatory Mechanism
17.9
Summary
17.10 Glossary
17.11 Reference
17.12 Further Readings
17.13 Model Questions
17.14 APPENDIX
17.0
OBJECTIVES
After going through this lesson, you shall be able to -

trace the growth of industrial sector in India, especially in the eighties nineties

critically analyse the growth patterns of Manufacturing sector in India

delineate major policy changes (IPR’s) especially New Industrial policy of 1991

discuss structural transformation of industry

explain causes of the widespread industrial slowdown (2002 & 2008)

identify fundamental problems of industrial development in India
17.1
INTRODUCTION
In the previous unit, we studied about the growth trends & policies of agricultural sector in India.
The other important sector of Indian economy is the industry. This lesson covers growth & structure of
industrial growth of India with special reference to manufacturing sector..
It is well known that industrial development is the basis of overall development, Development
strategy of India recognizes the importance of industrialization. There has been an impressive industrial
growth after independence. Industrial horizon has been widened. Range of industrial products has
tremedously increased. The availability of technological skill at present is much higher and multifold.
However, when we compare our industrial growth with growth rate of advanced countries of the
world. We realise we have lagged behind. Backwardness of industrial structure in India prior to
independence has also continued to act as a drag on the industrial growth rate after independence.
Even middle income group countries such as China, Yugoslavia, Mexico recorded better industrial
growth rate. The significant performers in this group are Taiwan, Korea, Singapore and Hong Kong
popularly known as Tiger Economics.
17.2
INDIAN INDUSTRY AT THE TIME OF INDEPENDENCE
When India achieved independence in 1947, the country stood at a very low level of industrial
development in comparison to that of the developed countries of the world. The origin of the factory
sector in India goes back to a period about a century prior to independence, although in the ineteenth
century India’s factory sector remained confined essentially to Bengal, the Bombay state and a few
other towns. It was only during the first decade of the twentieth century when steel industry was
established (in 1904) and more particularly after the First World War when the policy of discriminating
protection had been implemented by the British Government, that industries started coming up on a
320
wider front e.g. in the North in Kanpur and in Southern India, in Coimbatore and Madurai. Despite such
developments, the size and level of industrialisation at the time of independence was pretty poor.
Industrial sector contributed less than 10 per cent of GDP whereas nearly three fourth of its national
income emanated from agriculture and allied activities, displaying characteristics of a backward,
traditional and agricultural economy. Therefore, our country needed a big push to come out of the state
of backwardness and industry was identified as a key factor. It was quite obvious that due to lack of
financial strength and underdeveloped market infrastructure, private sector was incapable to enter into
industry.
It was in this background that India became the first country in the Third World which adopted
the path of planned transition as the erstwhile Soviet Russia had done. The economic conditions
existing at the time of independence resulting in slow overall growth required a determined effort and
initiative on part of the state to bring about structural transformation through stepping up of the rate of
capital formation and a matching allocation of resources needed for building up the capital goods and
infrastructure base to support a higher rate of capital formation in view of (a) requirement of massive
resources, and (b) Long gestation period before an adequate return could be expected to meet the
requirements. This provided logic for the planning mechanism to raise and allocate resources in
keeping with the needs of a rapid pace of development and secondly, of the key role assigned to the
public sector in establishing basic lines of industrial production. The other main objective was of
establishing a socialistic pattern of society, aimed at providing greater societal control over industrial
activities. It was this street which explains the growth of public sector enterprises not only in the key
industrial activities like production of steel, heavy equipment, electricity, fertilisers but also in some
consumer oriented goods and services.
17.3
POLICY ON INDIAN INDUSTRY
Prior to 1947 Indian growth was lopsided: only 16.6% of the national income came from mining
and manufacture while 49% of the national product came from agriculture and allied activities. There
was high concentration of employment in small scale and household industries. Moreover, techniques
of production were such that there was very low capital per worker employed. During the British regime
Government did not intervene in the industrial growth because of their policy of Lasseiz Faire i.e. Nonintervention by the state, as followed in British itself. They wanted India to be supplier of raw material
and receiver of manufactured goods.
Government of India, after independence, gave lot of attention to the growth of industry. The
Government brought out various industrial policy resolutions to govern the growth of industry in a
planned manner. Industrial policy resolution of 1948 and 1956 were quite significant.
The objectives of the Industrial Policy in India have been (a)
(b)
(c)
(d)
(e)
(f)
To increase production of industry especially in priority sectors.
To promote balanced development.
To prevent concentration of economic power and to control monopolies.
To encourage small scale industries.
To pursue self reliance through import substitution and
To provide significant role to the public sector in the process of development.
Industrial Policy Resolution (IPR) envisaged a structure of mixed economy while public sector
was to provide a leading role and private sector a complementary role.
Indsutrial Policy Resolution (IPR' 48) 1948 also emphasized on import substitution. It also had
an emotional appeal since India was enslaved by the British who initially came for achieving trade
objective and conquered whole of the country. There was also an infant industry argument. We wanted
to protect our own industry from foreign competition in the course of development.
321
Successive Five Year Plan in India followed the industrial growth strategy as suggested in
various Industrial Policy Resolutions (IPR' 48, IPR'56, IPR'77, IPR'80 and IPR' 91). To understand the
trend and structure of industry in India it will be necessary to understand briefly the industrial policy of
India after independence. Industrial policy can be divided into two period.
(a)
Period of Government Control
(b)
Period of Liberalization [esp. Post 1991 period], discussed in detail later.
17.3.1 Period of Government Controls : [1950 to Mid 1970's]
This period of industrial policy remained until the middle of 1970’s. During the period we find
that 1.
A system of industrial licensing was provided under the industrial Development and Regulation
Act, 1951.
2.
Import substitution oriented industrialization was encouraged through a system of import
licensing. Government wanted to control the inflow of foreign capital.
3.
The Government also put control on the prices and distribution of various industrial items such
as steel so as to encourage the indigenous industrial growth.
4.
Government envisaged measures to control the monopoly power. Monopolies Restrictive and
Trade practices Act was passed in 1965.
5.
Special steps were taken to encourage the small scale sector.
6.
Public sector was to play a dominant role in the growth of the industry and to provide
infrastructure in India.
The Industrial Policy Resolutions of the years 1948 and 1956, supported the move of the
Government regulated industrial development. The Industrial Policy Resolutions 1978 and 1980, by an
large, followed the framework of earlier policies but were comparatively less rigid in following the
Government regulated industrial structure, as explained in the upcoming section.
17.3.2 Period of Liberalization [1975-1991]
Around mid seventies, a number of official committees were set up to review the system of
domestic control, import licensing, export promotion and infrrastructure development. These
committees submitted the reports by the late seventies and the pace of liberalization was visible in
eighties.
In October, 1975, the Government delincesed 21 industries and in 30 other important industries
permitted unlimited expansion.
Liberalisation mreasures got fillip after 1985 Rajiv Gandhi’s Government introduced a large
number of changes.
(a)
To achieve economies of scale the companies were allowed to raise their capacity by 49%.
(b)
The concept of broad banding was introduced such as Machine Tools, Motorized four wheelers
chemical, paper and pulp, electronics etc. Industries covered under this facility could
manufactured any item covered. However, the total product should not exceed the overall
licensed capacity.
(c)
Asset Limits of the MRTP companies were raised from Rs. 20 crores to Rs. 100 crores. It
enable 112 companies to come out of the preview of MRTP Act.
322
Further liberalization measures were announced by the Government by June 3, 1988.
(a)
Non-MRTP and Non FERA companies involving investment in fixed asset up to Rs. 50 crores
and located in centrally backward areas would not require licensing.
(b)
The number of industries requiring compulsory license were reduced from 56 to 26.
(c)
Government was also very keen to promote computerization and electronics.
(d)
There was also dereservation of about 200 items for the small scale sector.
17.3.3 New Industrial Policy 1991
The Janta Dal Government also announced its Industrial Policy on May 31, 1990. It laid down
that all units with an investment of Rs. 25 crores in fixed assets in areas which are not backward and
units with Rs. 75 crores of such assets in centrally declared backward areas would be exempted from
taking license.
(a)
Foreign companies were allowed equity 40 per cent so as to encourage the inflow of
technology.
(b)
Units set up in Export Processing Zones (EPZs) and 100 per cent Export Oriented Units (EOUs)
were also delicensed up to an investment of Rs. 75 crores.
The liberalization process further got filling with the coming of the Congress Government in the
Centre and also because of the break down of Russian and Eastern European experiment.
Beginning with the develuation of rupee several changes occurred in the industrial policy.
(a)
Controls on the private industrial sector and inter-national trade were dismantled.
(b)
Industrial licensing system was to be done away with except for a small list of 18 industries.
Other industries can start anywhere except in cities with population of more than a million.
(c)
Private Sector was allowed greater population.
(d)
The sick public undertaking were to be referred to BIFR.
(e)
On January 22, 1992, the Finance Minister suggested to give these undertakings to workers
cooperatives. The earlier Loans outstanding with these organization were to be waved off.
(f)
Subsidies on food and fertilizers were to be gradually abolished.
(g)
Foreign investments were to be encouraged.
(h)
To further strengthen the liberalization trend, steel was decontrolled on January, 19, 1992.
17.4
GROWTH OF INDIAN INDUSTRIES
This section has been divided into the Reforms and Post Reforms sub-periods.
17.4.1 Trends in the Growth and Indian Industry till 1990
Indian industry needed to be made internationally competitive and self relaint. To achieve the
aim emphasis was given to industrial development under various Five Year Plans.
The industrial growth rates achieved actually invariably fell short of the targets set in the
successive Five Year Plans (Table 1). The target was marginally exceeded only in the First Five Year
323
Plan. In the Seventh Plan spanning second half of 1980s, the target of 8.7 per cent was nearly
achieved, reflecting the improvement in the performance during the 1980s.
Table 17.1 : Growth Rates of Industrial Production
(Per cent per annum)
Five Year / Annual Plan (s)
Target
Actual
(1)
(2)
(3)
I
1951-52 to 1955-56
7.0
7.3
II
1956-57 to 1960-61
10.5
6.6
III
1961-62 to 1965-66
11.0
9.0
Annual Plans 1966-67 to 1968-69
---
2.0
IV
1969-70 to 1973-74
12.0
4.7
V
1974-75 to 1978-79
8.0
5.9
Annual Plan1979-80
---
1.4
VI
1980-81 to 1984-85
8.0
5.9
VII
1985-86 to 1989-90
8.7
8.5
Source : Ahluwalia (1991), Table 1.1 Page 11
Having understood the industrial control regime and the performance of the industrial licensing
system under different policy regimes and the trade liberalisation and industrialisation policy reforms of
the 90s, let us now look at the industrial growth since Independence – the rate and pattern of growth
and the structural changes.
(A)
Division into Phases of Industrial Growth [Till 90s]
One can identify four distinct phases of industrial growth in India since the planning era. The first
phase of rapid growth ends from 1965-66. The second phase of slow growth or deceleration extends
from 1965-66 to 1979-80. The third phase is a phase of recovery and revival of growth since 1980s and
the fourth phase starts with the 1991 economic policy reform. This classification of four phases of
industrial growth has been done by Uma Kapila (2010).
During the period 1959-60 to 1965-66, value added in orgainsed industry grew at the rate of 8.0
percent per annum. The growth rate declined to 5.7 per cent in the period 1966-67 to 1989-90. The
corresponding growth rates for the registered manufacturing were 7.6 and 5.5 percent respectively. In
capital goods and basic goods, the decline was very pronounced from 15.4 to 6.6 and 11.0 to 5.0
percent per annum, respectively. Consumer goods and its sub-category consumer non-durables
experienced slight acceleration. In intermediate goods and consumer durables, there was mild
deceleration. This deceleration was largely confined to heavy industry which accounted for about 50
percent of value added in industry in 1979-80.
Ahluwalia (1985) after empirically examining different hypotheses of other economists identified
four factors :
(i)
slowdown in public investment,
(ii)
poor management of the infrastructure sector,
(iii)
slow growth of agricultural incomes, and
324
(iv)
restrictive industrial and trade policies.
Their exercises established that one or more of the following factors, namely public investment,
agricultural performance, infrastructure, the policy of import substitution and domestic terms of trade
turned out to be significant for the different industry groups.The demand constraints were observed to
be more important than supply constraints.
In the 1980s, the industrial sector performed well compared to the preceding 15 year period.
The annual rates of growth for manufacturing; registered manufacturing and unregistered
manufacturing were 7.0 pc, 8.1 pc and 5.8 pc respectively.
In the first six years of the eighties, consumer durables recorded a growth rate of 14.2 percent,
while capital goods recorded a relatively modest growth of 7.8 percent per annum.
The manufacturing sector witnessed an upward trend in growth rates registering a growth rate
of 8 to 9 per cent in the second half of 80s. (See Table 2, Row 2)
Table 3 presents the growth of value added for the use-based sectors. Capital goods emerged
as the larggard sector. After its golden period in the first half of the 1960s, the capital goods sector in
the Indian economy never really recovered from the setback. A long period of stagnation after the mid60s was followed by only a modest improvement in the 1980s and some further increase in the growth
rate in the 1990s.
The consumer non-durables sector was a slow growing sector till the end of the 1980s. The
process of domestic deregulation of the 1980s provided a major stimulus to the growth of this sector.
The recovery of this sector after 1991-92 was also robust as the sector recorded an average growth of
11 percent.
Table – 17.2
Trends in Growth in Value Added Two Digit Industry Groups (First Five Groups)
(Per cent per annum)
Share in
Value
Added
(1990-91)
1960-61
to
1965-66
1965-66
to
1980- 81
1980-81
to
1990-91
1991-92
1991-92
to
1997-98
(VIII Plan)
Manufactured goods (NA)*
100.0
8.3
4.1
8.5
-2.3
9.1
Manufactured goods
100.0
8.9
4.5
8.2
-3.7
9.9
Food
10.7
2.6
2.4
11.2
6.5
8.4
Beverages
1.2
20.0
7.9
10.7
12.4
11.3
Tobacco
2.0
4.0
4.4
13.5
13.2
5.6
Textiles
15.5
5.5
3.8
5.8
-13.3
7.2
Note : * National Accounts.
Source : Annual Survey of Industries. c.f. Uma Kapila, 2010.
17.4.2 Industrial Growth in the 90s (Eighth Plan onwards Annual Growth Rates)
Economic reforms of the 1990s had the dual objective of macroeconomic stabilisation and
enhancing the growth potential of the economy. Policies to promote competition both within the
325
economy and from imports were expected to contribute to cutting costs, improving quality and
enhancing competitiveness of Indian industry. It would respond to a much improved investment outlook
in the economy. The private sector was given more room for greater participation in the process.
The 1990s have certainly been an eventful period for the industrial economy of India. Crisis,
reform, adjustment, recovery, rapid growth and then a downward slide - this decade has seen it all. The
collapse from a growth rate of 8.5 perent in value added of manufacturing in the decade 1981-1991 to 2.3 per cent in 1991-92 was followed by a rapid and perhaps unprecedented recovery in such
adjustment episodes (Table 17.2). The three years from 1993-94 to 1995-96 saw an average growth of
13 per cent per annum (not reported in the table). Even though a major slowdown began in 1996-97,
the average growth of value added in the period 1991-92 to 1997-98 was still as high as 9.1 per cent
per annum, higher than the rapid growth of the early phase of Indian industrialisation in the first half of
the 1960s. However, by 1999-2000, the average growth for the decade (not reported in the table) had
declined to 8.0 per cent, based on the data for value added in manufacturing from National Accounts,
which are available for more recent years.
(A) Economic Reforms and (Use Based) Industrial Growth (Eighties and Nineties : A Comparison)
The year 1991 ushered in a new era of economic liberalisation. Major liberalisation measures
were undertaken to improve performance of the industrial sector-wide scale reduction in the scope of
industrially licensing, simplification of procedural rules and regulations, reductions of areas exclusively
reserved for the public sector, disinvestment of equity of selected public sector undertakings, enhancing
the limits of foreign equity participation in domestic industrial undertakings, liberalisation of trade and
exchange rate policies, rationalisation and reduction of customs and excise duties and personal and
corporate income tax etc. To witness the effect of these liberalisation measures on the performance of
the industrial sector in post reform period let’s have a glance on the figures contained in Table 17.3
which compares the performance of the industrial sector during the pre-reform decade and post-reform
period (i.e., the period since 1991).
Table 17.3
Average Annual Growth Rate of Industrial Production (Use Based)
in Pre-Reforms and Post-Reforms Decade
Use Based or Functional
1980-81 to
EighthPlan*
Ninth Plan*
Classification
1991-92*
1992-93 to
1997-98 to
1996-97
2001-02
(1)
(2)
(3)
(4)
1. Basic Goods
7.4
6.8
4.1
2. Capital Goods
9.4
8.9
4.7
3. Intermediate Goods
4.9
8.5
5.8
4. Consumer Goods
6.0
6.6
5.5
(i) Durables
10.8
13.4
10.7
(ii) Non-durables
5.3
4.8
3.8
General Index
7.8
7.4
5.0
Note: see chapter 1 for later years (under structural changes)
326
As it clear from this table, the rate of growth of industrial production was lower in the post
reforms decade as compared with the pre-reform decade. A comparison of data in column (3) and
(4) shows that the performance during the latter half of 1990s (the Ninth Plan period) deteriorated
considerable as compared with former half of 1990s (the Eighth Plan period).
Features Industry Growth : 80s vs 90s
Some important observation regarding industrial growth in the post-reform decade are as follows :
(i) Rate of Growth of Industry
The rate of growth of industrial production in the eighth Plan (1992-97) was 7.4 per cent per
annum which was the same as the targeted rate of growth. Thus the performance was satisfactory on
this count.
The rate of growth of industrial production in the Ninth Plan (1997-2002) was only 5.0 per cent
per annum which was considerably less than the targeted rate of 8.2 per cent per annum.
The industrially sector registered a dismal performance in the last year of the Ninth Plan, 200102, with its rate of growths being just 2.7 per cent. While for the entire decade 1992-93 to 2001-02 had
sales factory growth excepting the year 1992-93 when the rate of industrial growth was 2.3 per cent.
However, industrial growth picked up to 5.8 per cent in 2002-03 (the first year of the Tenth Plan) due to
robust performance of the capital goods sector and the consumer nondurables sectors.
(ii) Sector-wise Growth of Industrial Sector
It is evident from the Table 17.3 that the performance of capital goods sector and basic goods
sectors has deteriorated in 1990s as compared with 1980s more particularly during the latter half of
1990s. For instance, the capital goods sector registered average annual rate of growth of 9.4 per cent
in 1980s. It fell to 8.9 per cent over the Eighth Plan period and to only 4.7 per cent over the Ninth Plan
period. The basic goods sector also shown similar trends with 7.4 growth rate for the decade of 80s,
declining to 6.8 per cent in VIII plan, then further declining to 4.1 per cent in IX plan.
The intermediate good sector and the consumer goods sector put up a better performance in
the post-reforms decade as compared with the pre-reform decade. The consume durables’ sector's
growth was impressive. In fact, this is the only sector to have witnessed double-digit growth both in the
pre-reform decade and the post-reform decade while it declined in 2002-03.
The above trends are in line with government’s policy which focuses more on the consumer
durable sector. Easing of financing facilities to buy consumeer, durables has been important factor.
(iii) Slow Growth of Manufacturing Sector Across Regions
Another observation is that the performance of the industrial sector during the post-reform
period has been highly unsatisfactory. In this context, we may also consider the results of a study by
Sudip Chaudhuri. Chaudhuri has calculated the compound annual rate of growth (CARG) of Gross
Value Added by the registered manufacturing sector over the period 1950-51 to 1998-99. His study
shows that the rate of growth of Gross Value Added in industry during 1990-91 to 1998-99 was just
5.91 per cent per annum-lower than the rate of growth of 7.47 per cent per annum registered during the
Second and Third Five Year Plans (when a conscious effort was made to develop the basic and heavy
industries) and the rate of growth of 7.66 per cent per annum registered during the period of 1980s
(when an attempt was made to reform the control mechanism without totally negating the role of
government).
327
How is the manufacturing sector growth distributed across the regions? The question is of
considerable significance for policy as it is popularly believed that the States that have initiated the
reforms improved their performance. In this context, Nagaraj’s study shows that there is no evidence of
a statistically significant improvement in the registered manufacturing growth rates in any of the 17
major States of India, after the reforms. (Nagaraj)
(iv) Causes for Unsatisfactory Growth of Indian Industry in The 90s
The Mahalanobis strategy pursued vigorously by the country in the first four decades of
economic planning (which emphasized the development of heavy industry and was basically an import
substituting, public sector dominated, industrialisation strategy) has been severely criticised by a
number of economists who agree that it was this strategy that was primarily responsible for the
economic crisis of 1991. For instance, Joshi and Little have argued that the Indian economic strategy,
as reflected in various controls was the main cause.
The main causes for unsatisfactory performance of the industrial sector in the post reform
period are as follows :
An important reason for the slow-down of industrial growth in the recent past has been the slowdown of investment. It is a known fact that capital formation in the public and private sectors provides a
stimulus for industrial growth in the form of both the direct demand for purchases that such
expenditures involve and the indirect demand resulting from income generation by investments.
However, with the economic reforms of 1991 programme of the Government of India was forced to cut
down public expenditure drastically. “With a pre-existing stock of debt which make a reduction in
Government consumption spending and interest outflows public expenditure cuts result in cutback in
capital formation in the public sector.
According to Planning Commission, the most important reason for lower growth rate during the
Eighth Plan period as compared to the Seventh Plan period was that the industrial sector which had
been almost totally protected from both industrial as well external competition during the previous four
decades was suddenly exposed to foreign competition through a significant liberalisation of imports and
a drastic reduction in import duties. The industry was not much prepared for it and the slowdown was
reflected in the very low growth rates realised in the first two years of the Eighth Plan. The worst
affected in the early post-reform period was the capital goods sector. One the user sector now had the
option of importing the most modern capital goods and equipments instead of buying them from the
domestic industry - Two, with a progressive reduction in import duties, many of the user sectors
adopted a ‘wait and watch’ policy and postponed their investment plans. A number of industries were
not able to meet external competition due to a variety of reasons, an important one being their historical
background.
(B)
Comparative Growth Rates in the ‘80s and the 90s’ (till 2002) : Both Classifications
Uma Kapila (2010) draws a comparison between the average growth rate of Industrial sector
(measured by the Index of Industrial Production) during the period 1992-93 to 1999-2000 and 1980-81
to 1991-92. It has estimated that average industrial growth during the period 1992-93 to 1999-2000 was
lower than that observed during the period 1980-81 to 1991-92. The growth rate was lower in all the
three sub sectors (i.e. manufacturing, mining and electricity. ) of industiral sector.
In terms of use-based classification also there was a lower growth rate in basic and capital
goods. However, the GDP from manufacturing sector at constant prices showed higher growth rates
during the period 1992-93 to 1999-2000 when compared to the period 1980-81 to 1991-92 at the
aggregate (total) level and amongst both registered and unregistered segments (Table 17.4a)
328
Table 17.4a
COMPARATIVE GROWTH RATES IN THE INDUSTRIAL SECTOR 1980-2000
Parameter
Average Annual growth rate
Average Annual growth rate
(1980-81) to (1991-92)*
(1992-93) to (1999-2000)*
Index of Industrial Production
General
7.8
6.0
Manufacturing
7.6
6.3
Mining
8.4
3.3
Electricity
9.0
6.6
Basic goods
7.4
6.1
Capital goods
9.4
5.9
Intermediate goods
4.9
9.1
Consumer goods of which
6.0
6.3
consumer durables
10.8
11.2
(ii) consumer non-durables
5.3
5.1
Use-based classification
(i)
GDP - Manufacturing at 1993-94 prices
Total
6.1
7.4
Registered
6.8
8.1
Unregistered
5.0
6.2
Note : *Simple average of the annual growth rate
Source : Economic Survey 2000-01.
Table 17.4b
Trends in Growth in Value Added Used-based Sectors
(per cent per annum)
Growth Rate
Used-based Sectors
(1990-91)
1960-61
1965-66
1980-81
1991-92
1991-92
Share in
Value
Added
to
to
to
to
1965-66
1980-81
1990-91
1997-98
Manufactured goods
100.0
8.5
4.3
7.8
-3.8
9.3
Capital goods
Intermediate goods
19.8
35.5
15.9
10.8
6.7
3.9
8.2
8.6
1.3
-4.3
9.2
11.4
Consumer durables
4.6
11.1
8.1
11.0
5.8
12.9
40.1
5.1
4.0
10.7
3.9
11.0
Consumer non-durables
Source : Annual Survey of Industries.
Relative Contribution of Sectors to Total Production (or change in Strucutre of Industry)
329
17.4.4 Industrial Growth in the Ist 15 years of Post Reforms Era : (1991-2008)
A survey of the industrial growth rate over the first half of 1990s shows that it rose consistently
from 0.6 per cent in 1991-92 to 13.0 per cent in 1995-96. This accelerated industrial growth during the
first five post-reform years encouraged the view that after a short period estabilisation-induced-decline
in the industrial growth rate, the industrial sector was on a steady growth path. However, there was a
steep fall in the rate of industrial growth 1996-97 raising serious doubts about the validity of this view.
For instance, the industrial growth rate was only 6.1 per cent in 1996-97 and just 2.7 per cent in 200102. The average rate of growth of industrial production during Ninth Plan (1997-98 to 2001-02) works
out to only 5.0 per cent per annum which was, by all means, an unsatisfactory performance. The
performance of the capital goods sector and the basic goods sector was particularly discouraging
during the period of the Ninth Plan. From 9.4 per cent per annum in the pre-reform decade (1980-81 to
1991-92), the rate of growth of the capital goods sector fell to only 4.7 per cent per annum during the
Ninth Plan. Over the same period, the annual rate of growth of the basic goods sector fell from 7.4 per
cent to 4.1 per cent. The performance of the intermediate goods sector and the consumer goods sector
(particularly the durable consumer goods sector) was relatively better.
The target for industrial growth in the Tenth Plan (2002-03 to 2006-07) was kept at 10 per cent
per annum. As against this, the achievement was 8.2 per cent per annum. The last year of the Tenth
Plan, 2006-07, registered a rate of growth of 11.5 per cent in industrial production. However, this fell to
8.5 per cent in the first year of the Eleventh Plan, 2007-08. The industrial sector recorded a rebust rate
of growth in excess of 8 per cent during 2004-05 to 2006-07 and in 2007-08 it modurated a little. The
year 2008-09 has been marked by a very strong down turn in growth rate due to multitude of factors,
the most important being the global finanical shock that not only influence the financing of industries but
also their domestic and external demand. Almost all commodity groups, barring a handful, have been
affected by the downturn. According to R. Nagaraj, the actual rate of grwoth in the industrial sector is
less than what is being claimed by the government as method of estimation has been changed. (Misra
& Puri, 2009)
17.4.5 Industrial Growth (2008 onwards)
The growth of Indian industry since 2008 is discussed below:
Period 2008-09 to 2013-14
Industiral Growth showed fluctuating trends between 2008-09 and 2013-14. It reached 15.5 pc
in 2007-08 and started decelerating afterwards, account of global economic meltdown, i.e. 2.5 pc in
2008-09. It increased to 5.3 pc in 2009-10 and 8.2 pc in 2010-11.
Industry grew by just 1.0 per cent in 2012-13 and slowed further in 2013-14 to 0.4 pc. The
industry post momentum owing to a combination of supply-side and demand-side constraints.
New Series of National Accounts (Base shifting from 2004-05 to 2011-12). Due to base shifting
and changed methodlogy, a little higher growth is recorded for 2012-13 and 2013-14 years.
During 2014-15, industrial sector registered slow growth was 5.9% which rose to 7.2% in 201516 but then fell to 5.2% in 2016-17.
330
Table 17.6 : Growth Rate of Industrial Sector (Percent Per annum)
(Base Year 2011-12)
Industry Growth
Rate
(pc per annum)
2013-2014
2014-15
2015-2016
2016-17
5.3
5.9
7.2
5.2
(Manufacturing only)
The modernation in industrial growth, particularly manufacturing sector is largely attributed to
sluggish growth of investments, squeezed margins of corporate sector, deceleration in the rate of
growth of credit flows and the fragile global economic recovery (Economic Survey 2012-13). Even the
government policies created challenges :
17.5
(a)
decient business environment
(b)
labour deployment rigidity
(c)
legacy issues related to labour
(d)
an extensive infrastructure deficit (affecting manufacturing)
(e)
costs of time over runs
(f)
uncertainty in getting environment clearaness and in land aquisitions
(g)
high cost of commercial bank credit especially for Small & Medium Enterprises.
(HSMEs).
RELATIVE CONTRIBUTION OF SUB SECTORS
Changes in the relative contribution of different sectors to the general Index of Industrial
Production reflect another dimension of the structural changes in industrial production. Data presented
in Table 6 reveal that the relative contribution of the manufacturing sector rose from 70.0 percent during
the eighties to 81.6 percent during the nineties. However, in case of mining and quarrying, there was a
noticeable decline. This was reflected in the changes in the weights assigned to different sector in the
construction of IIP series. The weight for the manufacturing sector rose from 77.1 per cent in the earlier
series of IIP with base 1980-81 = 100, to 79.36 percent in the current series with base 1993-94=100.
Correspondingly, the relative weights of Mining and Quarrying and Electricity sectors declined from
11.46 percent and 11.43 percent in the old series to 10.47 percent and 10.17 percent, respectively, in
the new series (Table 17.7)
Table 17.7
Relative Contribution of Sectors to the Industrial Production and Recent Growth Rate
(A comparison of 80s and 90s)
(Per cent)
Relative Contribution (Share)
Sector
1
1980-82 to 1990-91
(Average)
2
1992-93 to 1998-99*
(Average)
3
Growth Rate
2011-12
4
(i) Manufacturing
70.0
81.6
3.00
(ii) Electricity
14.4
14.4
8.16
(iii) Mining and Quarrying
15.6
4.0
-1.97
General Index
100.0
100.0
2.89
331
Note : * The data relating to 1991-92 were excluded in this period because production was almost
stagnant.
Source : Eco Survey 2012-13
During the nineties, the relative contributions of basic and capital goods sectors declined and
those of intermediate and consumer goods sectors raise (Table 18.10).
Table 17.8
Relative Contribution of Sectors to Industrial Production and Recent Growth Rate
(Use-based Classification)
(A comparison of 80s and 90s)
(Per cent)
Relative Contribution (Share)
Sector
1980-82 to 1990-91
1992-93 to 1998-99*
Growth Rate
(Average)
(Average)
2011-12
1
2
3
4
Basic goods
43.6
35.8
5.48
(ii) Capital goods
25.0
7.1
-3.97
(iii) Intermediate goods
(iv) Consumer goods
14.6
16.8
35.2
21.9
-0.62
4.97
General Index
100.0
100.0
(i)
Durable -2.6
Non Durable -5.9
General : 2.89
Note : * The data relating to 1991-92 were excluded in this period because production was almost stagnant.
*
See Table 8 for Recent Data on Relative Contribution
The relatively low contributions of the basic and capital goods sectors to overall industrial output
in the nineties reflect, among others, the impact of trade liberalisation, particularly imports, and of
financial liberalisation that enabled the corporate sector to make financial gains through “other income”,
as also the lack of competitiveness requiring industrial restructuring and modernisation of technologies
in a number of industries.
Indian Industry put up modest performance during 1996-97 to 1998-99 and then experienced a
turnaround. Several macroeconomic and business indicators were showing signs of a broad-based
industrial recovery. The cumulative growth of industrial production, as measured by the Index of
Industrial Production (IIP), was 6.2 per cent for April-December 1999, significantly higher than the 4.0
percent of April-December 1998. The higher growth in the 1999-2000 was largely contributed by the 7.0
per cent growth in manufacturing and the 7.7 per cent growth in electricity (Table 17.9)
17.5.1 Industrial Slow-down 2002 and Shares
Industrial growth (measured by the IIP) again slowed down during the year 2000-01 and in
2001-02 registered 2.1 per cent rate of growth against 6.2 per cent in 2000-01.
The industrial deceleration was due to a number of structural and cyclical factor such as (Uma,
Kapila, 2010) :
(i)
normal business and investment cycles,
(ii)
a lack of both domestic and external demand,
(iii)
continuing high real interest rates,
(iv)
infrastructure bottlenecks in power and transport,
332
(v)
lack of reforms in land and labour markets,
(vi)
inherent adjustment lags resulting from industrial restructuring through merger and acquisitions,
and
(vii)
delays in establishing appropriate institutional and regulatory frameworks in some key sectors.
Table 17.9
Annual Growth Rate of Industrial Production in
Major Sectors of Industry
(Based on the index of industrial production)
Base : 1993-94 = 100
(Per cent)
Period
Mining & Quarrying
Weight
10.47
79.36
10.17
100.00
1994-95
9.8
9.1
8.5
9.1
1995-96
9.7
14.1
8.1
13.0
1996-97
-1.9
7.3
4.0
6.1
1997-98
6.9
6.7
6.6
6.7
1998-99
-0.8
4.4
6.5
4.1
1999-00
1.0
7.1
7.3
6.7
2000-01
2.8
5.3
4.0
5.0
2001-02
1.2
2.9
3.1
2.7
2002-03
5.8
6.0
3.2
5.7
2003-04
5.2
7.4
5.1
7.0
2004-05
4.4
9.2
5.2
8.4
2005-06
1.0
9.1
5.2
8.2
2006-07
5.4
12.5
7.2
11.6
2007-08
4.9
9.8
7.0
9.2
(4.2)
(11.8)
(7.3)
(10.9)
(Apr-Nov)*
Manufacturing
Electricity
General
Note : A Figure for April-Nov. 2006-07
Source : Central Statistical Organisation, Economic Survey 2007-08
The difficulties caused by internal constraints were accentuated by the sluggish growth in the
world economy, which contributed to a substantial slowdown in manufactured exports. While the
government was contemplating further reforms, external factors such as the attack on the World Trade
Centre in September 2001 and related events slowed down the recovery through lack of external
demand and adverse impact on air transport, communications and tourism.
333
Following the use based classification, shown in Table 8 consumer non-durable (like capital
goods) showed sharp growth : an acceleration from 3.2 per cent in 1999-2000 to 12 per cent in 200203, the growth rate after declining to 5.8 per cent in 2003-04 rose again to 10.8 per cent in 2004-05, 11
per cent in 2005-06. Last two years witnessed growth rate of 8.9 per cent and 7.8 per cent (AprilNovember) respectively.
Table – 17.10
Growth Rates of Industrial Production by Use-based Classification
(Per cent)
Sectors
(Weight) Weight
1999- 2000-
2001- 2002- 2003- 2004- 2005-
Use-based Classification
2007-08 2012-13
2000
2001
2002
2003
2004 2005
Basic goods
35.5
45.68
5.5
3.7
2.6
4.9
5.4
Capital goods
2006- 2010
2011
2006
2007
2011
2012
5.5
6.7
10.3
5.97
5.46
9.3
8.83
6.9
1.8
-3.4
10.5
13.6
13.9
15.8
Intermediate goods
26.5
15.69
8.8
4.7
1.5
3.9
6.4
6.1
2.5
18.2 14.75 -3.97
12.0
7.39 -0.62
Consumer
28.7
29.81
5.7
8.0
6.0
7.1
7.1
11.7
12.0
10.1
8.56
4.37
5.4
8.46
14.1
14.5
11.5
-6.3
11.6
14.4
15.3
9.2 14.16
2.60
Consumer non-durables
23.3
21.35
3.2
5.8
4.1
12.0
5.8
10.8
11.0
10.4
IIP (Index of
100.0
100
6.7
5.0
2.7
5.7
7.0
8.4
8.2
11.6
goods of which:
Consumer durables
4.26
5.86
Industrial Production)
Note : The indices are based on revised itemwise weights of 2007-08 and 2012-13.
Source : Central Statistical Organisation, Economic Survey, 2005-06, 2006-07, 2007-08, 2012-13.
17.5.2 Industrial Growth in 2002 onwards (after slow-down)
The industrial recovery reflects a variety of factors, including : the lagged effect of the strong
rabi harvest of the previous year, improvements in infrastructure, the demand impact of public
investment and improvement in exports through the recovery of the US and EU markets after the
September 11, 2001 incidents in the United States.
A.
With respect to use based classification of industries, the growth rate in the capital goods
sector in April-November 2005-06 at 15.7 per cent indicated a substantial improvement over the growth
of 13.8 per cent during the same period last year. If further improved to 16.2 per cent in 2005-06 and
16.1 per cent in 2006-07 (April-November). Consumer goods, both the durables and non-durables
segments, also recorded improved performance with double-digit growth in the last two years. The
turnaround in consumer durables since 2003-04 continued rising from 11.6 per cent in 2003-04 to 14.4
per cent in 2004-05 and 15.3 per cent in 2005-06.
The double-digit growth since 2003-04 in capital goods sector indicates the capital formation
taking place in the industrial sector, which can help in strengthening the upswing. The ongoing growth
process, which is investment-led and fairly evenly spread within manufacturing sector, reflects the
medium and long-term optimism on the part of investors.
B.
Growth of Manufacturing Industry
The rising demand in both domestic and external markets was a major contributory factor but
the impressive performance of manufacturing was due in no small measure to the cumulative effect of
industrial and fiscal policy changes carried out since the economic reforms of 1991-92. The competitive
environment created by the reduction of external barriers to trade finally started to bear fruit. Against a
334
CAGR of 6.3 per cent in the Ninth Five Year Plan, exports of manufactures registered a CAGR of more
than 19 per cent during the Tenth Five Year Plan.
During the Tenth Five Year Plan, the sectoral share of industry in the GDP started rising after
several years of decline. The share of manufacturing also maintained a rising trend after falling in the
first year of the Tenth Plan (Table 17.11a).
Table – 17.11a : Sectoral Share in GDP (at Factor Cost)
(Per cent)
Year
Agriculture, Forestry and Fishing
Industry (Manufacturing)
Services
2001-02
24.0
25.0 (14.8)
51.0
2002-03
21.5
25.8 (15.2)
52.7
2003-04
21.7
25.6 (15.0)
52.7
2004-05
20.2
26.1 (15.1)
53.7
2005-06
19.7
26.2 (15.1)
53.1
2006-07
18.5
26.6 (15.5)
54.9
2011-13
14.1
29.4
56.5
Source : Eco. Survey 2012-13
Note : Share of Manufacturing activities in Parentheses
Though growth of the industrial sector witnessed slow-down in the first half of 2007-08, the
overall annual growth was as high as 8.5 per cent. The index of industrial production for 2008-09 points
towards a sharp slowdown with rate of growth being 2.4 per cent.

Developments that influenced Industrial Growth in 2007-08 and after effects
The following factors impacted the industrial growth from the first quarter of 2007-08 :
(i)
During period Jan 06 to July 08, the price of erude oil witnessed persistent increase. In July 08
Indian crude oil basket was priced at US$ 132.47 per barrel. This increase was passed on to
domestic market. Therefore, it impacted petro-based industrial inputs adding to fuel costs. It
further led to rise in the price of other commodities particularly metals and ores affecting the
cost side of the manufacturing sector.
(ii)
As interest rates increased, there was sharp rise in interest costs from the third quarter of
2007-08.
(iii)
The sudden freezing of trade credit by foreign banks, in mid September 2008, coupled with
depreciation in nominal exchange rate made it difficult for manufacturers to finance their on
going operations.
(iv)
On the domestic front, following factors contributed towards the down-trend :
*
Sharp slow-down in financing, especially the foreign capital from mid-Sept, 2008. All the
sources of industrial financing, bank credit remained the biggest strength during 2008-09 and in some
ways had to fill gap due to sudden shrinkage of other sources.
335
*
Shrinkage in demand for exports during Sep. 2008 to March 2009 affected the export
oriented industry, namely textiles, leather and fur products and transport equipment.
The growth in exports from India declined from 28.9 per cent (in US dollar terms) in 2007-08 to
3.6 per cent in 2008-09.
Table 17.11b: Industrial Growth in Recent Plans (Percent per annum)
Plan/Plan Period
Growth rate of
Industrial Sector
(%) Growth
rate
of
Manufacturing Sector (%)
Ninth Plan (1997-2002)
4.3
3.3
Tenth Plan (2002-2007)
9.4
9.3
Eleventh Plan (2007-2012)
7.2
7.7
Twelfth Plan (2012-2017)
7.6 (T)
7.1 (T)
Source: Prati Yogita Darpan, P. Econ./38
As evident from Table 17.11b, the growth of manufacturing and industrial sector has been
above 7 percent during the Eleventh and Twelveth Plans covering the decade 2007-17. With 6.9 pc
growth of industrial output in 2018-19, it fell in 2019-20 to 2.5 pc. Public private partnerships addressed
infrastructure gaps, with sector is pecific flagship programmes such as SAUBHAGYA SCHEME, PMAY
etc.
17.2.9 Disparities in Industrial Growth
The initial distribution of industries in India was determined by the historical prcesses of growth
reflected in the interests of the British rulers. As a result, most of the industries get concentrated at a
few centres. This pattern continued in spathic-independence period as well. For instance, a study of 28
large-scale manufacturing industrious in India in 1950 showed the dominance of the Western region
and West Bengal in the regional distribution of industries. Thus, 34.60 per cent of total productive
capital was concentrated in Western region while 24.65 per cent was concentrated in West Bengal,
their combined share being as much as 59.25 per cent. Taken together, the Western regin and West
Bengal accounted for 63.03 per cent of total persons employed, 60.41 per cent of gross ex-factory
value of output, and 63.95 per cent of value added by manufacture.
This pattern of concentration has not change substantially during the planning period despite all
attempts made at regional dispersal of industries. For instance, as late as 2000-01 the two States of
Maharashtra and Tamil Nadu accounted for 28.5 per cent of factory employment, 27.9 per cent of
invested capital, 31.1 per cent of gross output and 33.3 per cent of value added by manufacture. If the
three industrially advanced States of Maharashtra, Gujarat and Tamil Nadu are considered together,
the true picture of regional concentration of industries is explicitly brought into prominence. In 2000-01
these three States together (having 20.4 per cent of total populatin according to 2001 census)
accounted for 44.9 per cent of gross output, 45.0 per cent of value added, 44.2 per cent of total
invested capital, and 40.8 per cent of employment in factor sector. The mere fact that approximately
two fifths of the total output, value added, employment and fixed capital in factory sector is found in
these three States alone while the remaining States and Union Territories contributes only a little more
than half of total value added and total output is a proof of substantial regional concentration of
industries in the three industrially advanced States of Maharashtra, Gujarat and Tamil Nadu.
336
First Three Plans showed significant growth rate of industry. However, the performance of
industry received a severe setback after third five year plan. During 1965 and 1975 the average, annual
growth rate was 3.1% in 1971-72, for example it was as low as 0.2%. However, after 1984-85 it viewed
a steady growth. The average annual growth rate remained around 8% 1990-91.
Post 1970s Policy for Regional Dispersal of Industries :
Fourth Plan - (1966-1974) adopted the strategy of altering central assistance to states on the
basis of population (60 per cent), backwardness (10 per cent) etc. in a bid to divert more resources to
relatively overpopulated industrially underdeveloped states like U.P., Bihar, Orissa. The policy of
locating central projects in backward areas was continued and over 77 per cent of outlay on central
projects was provided for backward states.
Following Wanchoo Committee recommendations, industrial units in industrially backward
districts were made eligible for a host of monetary and fiscal concession. State governments were
encouraged to offer concessions in terms of subsidized plots, exemptions in water rates, octroi, Sales
tax etc. for a number of years. Focus was shifted to non-industrial districts in order to concentrate
efforts.
Fifth plan continued measures initiated by fourth plan in respect of priority and concessional
finance from term lending institutions, preference to units in terms of licensing, (Proposing location in
backward areas transport subsidy, subsidy on investment in fixed capital etc. was raised from 10 per
cent of fixed capital of 10 lakh to 15 per cent or 15 lakh rupees whichever was less (1973).
Inspite of policy pronouncements and measures taken, the problem of regionally imbalanced
industrial development could not be tackled and new committee (Sivaraman Committee) “National
Committee for the Development of the Backward Areas” was constituted in November, 1978 which
submitted its report in 1980. The Committe, while reviewing the existing schemes, found that 55 per
cent of Central Investment Subsidy and a similar percentage of concessional finance by term lending
institutions went to industrially advanced states as defined by Pande Group. It also found that industrial
estates programme failed to reallocate industrial units away from metropolitan areas and industrial
licesing of its own could not promote development of industry in backward area.
As a matter of fact the problem was giving of concessions, subsidies etc. for units dropping
location in industrially backward districts. Since such districts existed even in advance states
entrepreneurs were able to take incentives and concession only by marginally moving with the
advanced states and NOT MOVING TO BACKWARD Districts of Backward States:
Sixth Plan (1980-85) also performed the ritual of emphasising the importance of balanced
regional industrial development and prepared schemes of the basis of recommendations of Sivaraman
Committee. A three fold division of industrially backward districts was attempted as follows :
Category A : Constiuted by NO INDUSTRY DISTRICTS (87) and special regions, total 131 districts.
Category B : Constiuted by 55 districts which were receiving central subsidy and not included in A
above.
Category C : Constiuted by 11 districts which were receiving concessional finance and not included in
either A or B.
337
Central subsidy on a graduating scale, 25 per cent fixed capital or 25 lakh rupees for category
A, 15 per cent or Rs. 15 lakh for category B and 10 per cent or 10 lakh for category C, was made
available. Concessional finance was also continued for these districts.
Changes were brought about in MRTP Act and licensing policy in order to let MRTP and FERA
companies invest in industries they were not ordinarily permitted; provided they were located in
designated backward areas (e.g. in December, 1985 delicensing was extending to 22 industries for
MRTP and FERA companies provided they invested in centrally declared backward areas. Similarly
export obligations of MRTP and FERA companies investing in Non Appendix I industries have been
reduced from 50 per cent to 25 per cent category B and C from 30 per cent for category A to Zero,
provided new units are established in industrially backward areas.
Inspite of Government efforts to promote regional distribution of industry, the situation does at
seem to have improved much. As noted earlier the top 5 states account for 40 per cent of factories,
55% of employment, 50 per cent of output and 58 per cent of value added in industrial 1985-86. Briefly
speaking reasons were lack buster success of licence as a negative measure (out of 2823 licences
issued during 1979-83 only 876 licences went to industrially backward areas), failure of public sector
units in backward states like Bihar, Madhya Pradesh and Orissa to promote ancillary units and other
industries around their location, failure of financial institutions to divert loans towards the backward
states (During 1964-83 only 36 per cent of IDBI, assistance was given to industrially backward states.
Similarly only 40 percent of total disbursed assistance by all financial institutions went to industrially
backward states and even in case of central subsidy 50 per cent was covered by Tamilnadu,
Karnataka, Maharashtra and Gujarat and the following by small scale industry of large indsutrial units
and urban areas.
Indian Industry registered a modest growth rate of 7.1 per cent which is much lower than 12.1
per cent growth in 1995-96. The weaker performance of industry in 1996-97 is principally attributable to
the mining and electricity generation sector which recorded meager growth rates of 0.7 per cent and 3.9
per cent respectively. Capital goods sector has performed poorly registering a negative growth of (-) 1.8
per cent during April-February 1997-98.
Note: Recent data has not been added on disperities as this does not form part of syllabus directly.
17.2.10 Growing Potential of Indian Industry :
Though the current global and domestic scenario presents Indian Industry with major
challenges, yet there are a number of positive factors that present the future of industry in bright :
1.
The large size of Indian market and unmet demand for industrial products provide reasonable
hope of expansion. To reach the bottom of the pyramid, cost effectiveness is the key element.
2.
Innovation is the key driver of growth. Also the large pool of scientific manpower and research
labs in India, espacially in public domain, provide a potential for innovation.
3.
The strong entrepreneurial abilities and dynemism of Indian industrial corporate sector provide
hope to adjust to the current changes.
4.
Infrastructural constraints, that affect the supply side, are taken care of by the large investment
plans made for infrastructure during the Eleventh Five Year Plan.
338
5.
As the Indian market has the capacity to absorb investment and provide a return on productive
growth, the foreign direct investment would continue to flow into the country. It also points
towards foreign investor confidence in the Indian economy.
6.
The industrial sector faces acute storage of skills. On the other hand India has demographic
advantage and has excelled in creating skilled pool. Hence, India can move up the value chain
in manufacturing.
17.5
STRUCTURAL TRANSFORMATION OF INDUSTRY
Note: See P. 329 for additional Information on structure of Industy.
As the process of industrialisation proceeds over a period of time some marked changes
occurred in the industrial sector of the economy. First stage of industrial development consists of
marked dominance of consumer goods. Second stage involves greater stren on producer and
intermediate goods. Third or ultimate stage again consists of greater emphasis on the consumption
goods. This three staged industrial growth model is known as the Hoffman’s model. In India greater
emphasis was given to capital goods during second plan, and 4th and 5th plan.
Table 17.12
Used Based Growth of Industrial Production in the decade of 80s
Industrial Group
1985-86
1986-87
1987-88
1988-89
1989-90
6.8
9.2
5.6
9.9
5.4
Capital Goods
10.6
18.2
15.9
7.0
22.4
Consumer Goods
(a) Consumer, Durable
12.5
18.7
7.1
18.9
6.5
7.8
4.2
12.0
6.3
---
(b) Consumer Non Durable
11.5
4.9
6.2
2.5
7.5
Basic Goods
Source : Economic Survey 1990-91.
It is seen that growth rate of capital goods was 10.6% in 1985-86 and 18.2% in 1986-87. It
declined to 7.0 per cent in 1988-89. Similarly demand for consumer durables has also shown a decline.
It was nearly 11% in 1985-87 while it decline to 7.8 per cent in 1987-88.
By and large, the growth rate of capital and intermediate goods was much higher as compared
to the growth rate consumer goods industry when we compare the average growth rate of six and
seventh Five Year Plans.
During the year immediately after the policy of liberalisation was introduced in 1991, the Indian
economy showed a negative rate of manufacturing growth. Thereafter, it exhibited signs of surfacing
back and during 1995-96, it registered an all time high of 13.6%.
Table 17.13
Annual Rates of Manufacturing Growth
(Per cent Per Annum)
Year
1987-88
1988-89
1989-90
Growth Rate
7.31
8.75
11.67
339
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
6.10
-3.70
4.18
8.48
10.20
13.60
8.6
4.2
Source : Mathur.
However for the period 1991-96 as a whole the average rate of manufacturing growth at 6.55
per cent per annum emerges to be lower than the 8.17% registered in the preceding quinquennium of
1986-91.
17.6 GROWTH OF MANUFACTURING INDUSTRY IN THE NINETIES AND SLOWDOWN
OF 1997
As we have read earlier that manufacturing sector witnessed an upward trend in growth rates
registering growth rate of 8 to 9 per cent in the second half of 80s. In the 90s, the period immediately
following the reforms was marked by low growth rates. However, the growth rates quickly recovered.
After a decline of 0.8 per cent in 1991-92, the rate of growth climbed in 2.2 per cent in 1992-93, 5.5 per
cent in 1993-94, 8.6 per cent in 1994-95 and an estimated 12 per cent in 1995-96. However in 1996-97
Indian Industry registered a modest growth rate of 5.6 per cent.
The major policy changes initiated in the industrial sector since July 1991 viz removal of entry
barriers, reduction of areas reserved exclusively for public sector, rationalisation of the approach
towards MRTP, liberalisation of foreign investment policy, far reaching liberalisation of import policy
with respect to intermediates and capital moods may have all contributed to the upsurge in industrial
growth.
Industrial production registered a higher down of 6.6 per cent in 1997-98 compared to the 5.6
per cent in 1996-97. The improvement in 1997-98 was due to better performance of minimising and
electrocute generation, which recorded higher growth rates of 5.9 per cent and 6.6 per cent compared
to 2.2 per cent and 4 per cent respectively in 1996-97. Higher growth of mining could be attributed to
improved performance of crude oil (2.9 per cent in 1997-98 compared to - 6.5 in 1996-97) and that of
electricity generation to improved performance of hydroelectricity (8.2 per cent in 1997-98 compared to
- 5.4 per cent in 1996-97). The growth of manufacturing in 1997-98 at 6.6 per cent remained almost at
the level of the previous year. In 1998-99 year, industrial production has registered a growth rate of 4.0
per cent during April-December 1998, lower than the 6.7 per cent growth in April-December 1997. The
low growth is noticeable in mining and manufacturing sectors. Electricity generation has posted a
higher growth in the year 1999-2000 (Table – 17.14).
Table 17.14
Annual Growth Rate of Industrial Production in Major Sectors of Industry
(Per cent)
Period
(weight)
1992-93
1993-94
Mining
(10.4)
(11.5)*
0.5
3.5
Manufacturing
(79.4)
(77.1)*
2.2
6.1
Electricity
(10.2)
(11.4)*
5.0
7.4
General
(100.0)
(100.0)*
2.3
6.0
340
1994-95
9.8
9.1
8.5
9.1
1995-96
9.7
14.1
8.1
13.0
1996-97
-1.9
7.3
4.0
6.1
1997-98
6.9
6.7
6.6
6.7
1998-99
-0.8
4.4
6.5
4.1
1999-00
1.0
7.1
7.3
6.7
2000-01
3.7
5.3
4.0
5.0
1992-93
0.2
4.7
4.7
4.3
1993-94
3.6
5.9
7.4
5.3
1994-95
5.3
5.0
6.3
5.2
1995-96
10.5
13.8
8.9
12.9
1996-97
-1.3
9.1
3.8
7.5
1997-98
6.4
6.9
6.0
6.8
1998-99
0.5
4.1
6.8
4.0
1999-2000
0.5
7.0
7.7
6.4
2000-2001
4.4
6.0
4.8
5.8
2001-2002
1.1
2.4
2.7
2.3
Apr.-Dec.
Notes: Growth rates from 1994-95 onwards are based on IIP Base : 1993-94 = 100 and those for
earlier years are based on IIP Base : 1980-81 = 100.
*
Source :
Relates to weights for IIP Base : 1980-81 = 100
Economic Survey, 1998-99, 2000-01 and 2001-02.
The slowdown industrial growth may be attributed primarily to slackening in aggregate demand.
This includes factors such as falling export growth due to an overall slump in world trade compounded
by an erosion in competitive advantage of Indian exports on account of steep depreciation in East
Asian currencies; decline in rural demand owing to low agricultural output in 1997-98; price competition
from imports in certain key industries; and slow take-off of actual investment in infrastructure projects. A
few supply-side factors which have affected production are : relatively low new investment by the
corporate sector due to surge in capacity in mid-1990s and the concomitant inventory build-up; drying
up of source of funds due to continuing sluggishness in capital markets (primary and secondary); and
infrastructural bottlenecks.
After a relatively modest performance in 1998-99, the Indian industry experienced a turnaround.
Several macro-economic and business indicators were showing sings of a broad-based industrial
recovery. The cumulative growth of industrial production, as measured by the index of industrial
Production (IIP), was 6.2 per cent for April-December 1999, significantly higher than the 4.0 per cent of
April-December 1998. The higher growth in the 1999-2000 has been largely contributed by the 7.0 per
cent growth in manufacturing and the 7.7 per cent growth in electricity. (Table 17.14).
After a turnaround in 1999-2000, industrial growth (measured by the idex of Industrial
Production) has again slowed down during the year 2000-01 (April-December). Overall industrial
341
growth during April-December 2000-01 (latest data available) at 8 per cent is lower than 6.4 per cent
during the corresponding period of last year.
The industrial deceleration was due to a number of structural and cylindrical factors such as
normal business and investment cycle, a lack of both domestic and external demand, continuing high
real interest rates, infrastructure bottlenecks in power and transport, lack of reforms inland and labour
markets, inherent adjustment lags resulting from industrial restructuring through merger and acquisition
and delays in establishing appropriate institutional and regulatory frameworks in some key sectors.
The difficulties caused by internal constraints were exacerbated by the slow growth in the world
economy, which contributed to a substantial slowdown in manufactured exports. While the government
was in the process of seeking a consensus for further reforms, external factors such as the attack on
the World Trade Centre in September 2001. And related events slowed down the recovery through lack
of external demand and adverse impact on air transport, communications and tourism.
17.7
WIDESPREAD INDUSTRIAL SLOWDOWN (2001-02)
Industrial slowdown in 2001 and 2002 was widespread covering all broad sectors such as
manufacturing electricity and mining and all end use based groups such as capital goods, intermediate
goods consumer goods both durables and non-durables. The slowdown in domestic and global
demands appear to be the major factors constraining industrial growth. This is reflected by low level of
prices for manufactured goods in 2001-02. However, given the relatively low level of external sector for
the Indian economy, domestic demand and supply side factors have played the key roles for industrial
slowdown.
Causes of Slowdown
The slowdown in industrial growth in 2000-01 and 2001-02 was due to a number of Structural
and Cyclical factors.
(i)
Structural factors
*
The adjustment process of industry of response to increased competition in the form of Mergers
and Acquisitions is taking longer time than expected.
*
Infrastructural bottlenecks and high costs and inadequate and unreliable supply of services in
transport, communications and the power sector.
*
Low levels of productivity in the industry because of low volumes and inability to reap
economies of scale, outdated technology and restricted labour laws.
*
Lower speculative demand for sectors like automobiles and real estate due to expectation of
lower prices and reduction of taxes and duties in the short and medium term.
*
High real interest rates.
(ii)
Cyclical factors
*
Periodic investment cycles, reinforced by government’s decision to reduce customs duties to
levels in East Asian countries by 2004. Which might have deferred investment decisions.
*
Business cycles affecting demand of some cyclical industries like cement, automobiles and
steel.
*
There is no pent up demand for consumer durables. The above cycles have been reinforced by
reduction in inventory levels resulting from the introduction of e-business and e-commerce and better
management of supply and demand by industry to cut costs.
*
100 per cent FDI has been permitted in many of the sectors such as B to B commerce,
manufacturing activity in Special Economic Zones with some exceptions, many activities of the telecom
342
sector, airports, courier services, for development of integrated townships, drugs and pharmaceutical,
hotel and tourism sector.
*
Defence industry sector has been opend up for private sector participation with FDI permitted
upon 26 per cent.
*
Foreign equity upto 100 per cent will be allowed in Non-Banking Financial Companies (NBFCs).
*
Excise duty rationalised to a single rate of 16 per cent CENVAT.
*
Central Excise Rules, 1944 were simplified and drastic reduction of rules made.
*
Peak duty of customs reduced from 38.5 per cent to 35 per cent with the abolition of 10 per cent
surcharge.
*
Interest rates have been reduced.
Source : Economic Survey 2001-02.
Note: For later years i.e. slow-down of 2007 and Industrial Growth in recent years see.
17.8
PROBLEMS OF INDUSTRIAL DEVELOPMENT IN INDIA :
There was a significance slow down of industrial growth rate after 1965. This downward trend,
by and large continued in 1970’s. However, the industrial production started rising in 1990’s but the rate
of growth was not sufficient to meet the development needs. Indian industrial development was facing
several problems.
17.8.1 Agricultural Drag on Industry
The agricultural sector still dominates the Indian economy. Agricultural supplies food grains and
raw material to the industrial products.
Compound rate of growth of foodgrains products was 2.5% during 1950-51 to 1980-81 and
around 2 per cent during first four decades 1951-91.
The annual average growth rate of production during Seventh Plan was 4.1% while during Sixth
Plan it was 6%.
Inspite of green revolution the income of the people involved in agriculture and could not
increase. This acts as a drag on industry. Since the purchasing power could not increase and
subsequently demand for consumer add produce goods could not be enhanced substantially.
17.8.2 Low planned Linkage between Agriculture and Industry
There is a limit on the availability of raw material. However, this constraint is more relevant in
the agro-based industries. Such as cotton, jute or food manufacturing industries.
Moreover, the requirement of Green revolution (during 1960 and 1970s) could not be visualized
at an appropriate time. Production of fertilizers, tractors, threshers and insecticides was inadequate to
meet the requirements of rising demand. Major parts of the inputs had to be imported from abroad.
Linkages should have been planned in such a manner that the growth of agriculture and industry
should have been mutuality supportive.
17.8.3 Income Distribution
Income distribution affects industrial growth in two ways (a)
Income distribution affects the purchasing power of the people and thereby affects the pattern of
demand and
343
(b)
Income distribution also affects the propensity to save the people and thereby the level of
investment in industry.
Several studies have shown that income distribution in India is skewed.
For example, data relating to the mass consumption goods industries such as Cotton Textiles
shows that their rate of growth is lower. It is mainly because of the lack of purchasing power with
masses. Income is concentrated in a few hands. This also shows the reason for the higher rate of
production of luxury and semi-luxury goods. High inequalities of income reduce purchasing power and
are thus not conductive of industrial development.
17.8.4 Infrastructural Constraints
The investment of infrastructural (i.e. Transport and power) has mainly come from government
in India. Industrial development is greatly influenced by the existence of infrastructural facilities. Slowing
down of public investment has weakened the growth of infrastructure and thereby adversely affected
the industrial growth. For example electricity generation, production of crude oil, and coal declined in
1990-91 as compared to the previous year under New Industrial Policy 1991, the Government of India
extensively went for liberalisation mainly to bring in competitiveness in the market structure. Today,
only strategic areas are kept in public sector. In 1997-98, the Government has granted enhanced
autonomy to nine selected Public Sector Enterprises (PSEs) referred to as “Navaratanas”. These are
IOC, IPCL, ONGC, BPCL, HPCL, NTPC, SAIL, VSNL and BHEL. It is done in the hope that liberalized
atmosphere would bring better results. The Govt. of India has widened the scope of infrastructure
industry and it is bound to give better performance.
17.8.5 Inputs Supply Constraints
Apart from infrastructural inputs, shortage of other inputs such as raw material, labour, requisite
skill could not allow the industry to work at full capacity. Labour problem because of strike lock-out
absenteeism, indiscipline has also led to reduction in production and productivity.
17.8.6 State Controls and Regulatory Mechanism
Several economists felt the Govt’s Industrial policy has been more regulatory rather than
development. Industrial licensing policy, instead of checking the concentration of industry, has checked
the entry of new entrepreneur. It has bureaucratised the whole industrial structure and lead to a corrupt
system. In July 1991, under the New Industrial Policy delicensing was an important issue which was
pursued even in the later years. In 1997-98, the number of industries subject to compulsory, industrial
licensing has been reduced from 14 to 9. The performance of the economy in the coming years would
show the actual change in the scenario.
Similarly setting up of the giant public sector industries in backward areas not only proved
uneconomical but also failed to generate further growth of those areas. However, it may also be
mentioned that even liberalization have not contributed to industrial growth.
Conclusion : We have highlighted the trend and structure of industrial growth in India in this
lesson. We have also seen some of the weaknesses that have surfaced in the industrial economy.
There is need to make Indian industry internationally competitive and self reliant. There is also a need
to decentralize industrial activity and improve its employment generation capacity. Industry should also
344
strive to serve the poorest of the poor. The next lesson shall throw light on this aspect through
structural changes i.e. change in the contibution of various sub-sectors like luxury goods, consumption
goods, capital goods etc. in the gross industrial output.
17.9
SUMMARY
Let’s summarise the contents of this lesson in this section. The industrial development got fillip
with the second five year plan when basic and key industries were established with the foreign
assistance. But this structure of industry transformed with the change in the industrial policy resolutions.
The New Industrial Policy of 1991 brought about rapid changes and industrial growth got a boost. In the
past few years, industrial growth has shown signs of deceleration.
Industrial Growth
Growth of Industry
Industrial Growth in the
Disparities in the
Comparative Industrial
in the First Seven
Nineties
Industrial Sector
Growth in the 80s and 90s
Plans
(after New Industrial
Policy of 1991)
Rate of Growth
Sector-Wise Growth
Growth of Manufacturing
Sector Across Regions
Unsatisfactory Growth in
the Nineties
Industrial Policy Resolutions
Period of Government
Period of Liberalisation
Controls (1951-91)
(post 1991 period)
Structural Transformation of Industry
Basic Goods
Capital Goods
Consumer Goods
Durable
Causes of Industrial Slowdown in 1997 and 2001-02
Cyclical Factors
Structural Factors
Non-Durable
345
Problems of Industrial Developmet
Agricultural Drag
on Industry
Income Distribution
Low Planned
Linkage between
Agriculture and
Industry
Input Supply
constraints
Infrastructural
State Controls
Constraints
and
Regulatory
Mechanism
17.10 REFERENCES

Kapila, Uma (2010), Indian economy. Academic House Foundation

Sudip Chaudhary and Nagraj (2015)

Economic Survey (2015). Government of India, Various issues since 2001
17.11 FURTHER READINGS

Economic Survey (2015). Government of India, Various issues since 2001
17.12 MODEL QUESTIONS
1.
Discuss the pattern of industrial growth in India since independence. How has manufacturing
sector grown during this period?
2.
Explain main constituents of New Industrial Policy 1991.
3.
Has the NIP 1991 brought any change in the growth pattern of industry in the 90s?
4.
What can be plausible explanation of the widespread, industrial slowdown of (a) 2000-01 and
2001-02 (b) 2008-09
Note : Prepare answer on the growth of Indian industry in the post-reform period by rearranging the
matter provided in the lesson.
17.13 APPENDIX
A)
Relative Contribution of Sectors to Total Production : A comparison
Changes in the relative contribution of different sectors to the general Index of industrial
production reflects another dimension of the structural changes in industrial production. Data presented
in Table 5 reveal that the relative contribution of the manufacturing sector rose from 70.0 per cent
during the eighties to 81.6 per cent during the nineties. However, in case of mining and quarrying, there
was a noticeable decline. This was reflected in the changes in the weight assigned to different sectors
in the construction of IIP series. The weight for the manufacturing sector rose from 77.1 per cent in the
earlier series of IIP with base 1980-81 = 100, to 79.36 per cent in the current series with base 19931994 = 100. Correspondingly, the relative weights of mining and quarrying and electricity sector
declined from 11.46 per cent and 11.43 per cent in the old series to 10.47 per cent and 10.17 per cent,
respectively in the new series (See Box).
346
Table 1
RELATIVE CONTRIBUTION OF SECTORS TO THE INDUSTRIAL PRODUCTION
(Per cent)
Sector
1981-82 to 1990-91
1992-93 to 1998-99*
(Average)
(Average)
2
3
(i) Manufacturing
70.0
81.6
(ii) Electricity
14.4
14.4
(iii) Mining and Quarrying
15.6
4.0
100.0
100.0
1
General Index
* The data relating to 1991-92 were excluded in this period because production was almost stagnant.
Note: See Table 6 of Previous Chapter for latest date.
The relatively low contributions of the basic and capital goods sectors to overall industrial output
in the nineties reflect, among others, the impact of trade liberalisation, particularly imports, and of
financial liberalisation that enabled the corporate sector to make financial growth through ‘other
income’, as also the lack of competitiveness requiring industrial restructuring and modernisation of
technologies in a number of industries. It is in respect of the last factor that decisions need to be taken
by the industries themselves, given the policy environment that is imbued with the spirit of incentivizing
foreign trade, financial and real sectors to play their due roles in economic growth.
Table 2
RELATIVE CONTRIBUTION OF SECTORS TO INDUSTRIAL PRODUCTION
(Ues-based Classification)
Sector
1
(Per cent)
1981-82 to 1990-91
1992-93 to 1998-99*
(Average)
(Average)
2
3
(i)
Basic Goods
43.6
35.8
(ii)
Capital Goods
25.0
7.1
(iii)
Intermediate Goods
14.6
35.2
(iv)
Consumer Goods
16.8
21.9
100.0
100.0
General Index
Note: See Table 8 of Previous Chapter for latest date.
---00---
347
Lesson -18
NEW INDUSTRIAL POLICY I : LIBERALISATION IN INDIA
Structure
18.0
Objectives
18.1
Introduction
18.2
Definition and Meaning
18.3
Role of State and Market
18.4
Control and Regulation of Industry till 1990
18.4.1 Licensing in India

Negative Impacts
(a)
Constraints on Growth of Industry
(b)
Absence of Competition
(c)
Discrimination against exports
(d)
Concentration of Economic Power
(e)
Capital Intensive Production
(f)
Accumulation of Losses in PSEs
18.4.2. Modification in Licensing Policy Post Seventies
18.4.3 Government Shift Towards Liberalisation in 1980s
18.5
(i)
Requirement for Accelerating Growth
(ii)
Domestic Resource Situation
The 1991 Liberalisation Package
18.5.1 Delicensing and Decontrol
18.5.2 Critical Appraisal of Liberalisation Package
(i)
Growth Rates
(ii)
Balance of Payment Position and Foreign Capital
(iii)
Increasing Dependence on Imports
(iv)
Small size of Market and Inequity
(v)
Declining Investment
(vi)
Employment and Poverty
18.6
Summary
18.7
References
18.8
Further Readings
18.9
Model Questions
348
18.0
OBJECTIVES
After going through this lesson, you shall be able to :
18.1

explain the meaning of liberalisation

critically analyse the role of state

comment upon the regulation and control of Indian Industry till Nineties

identify the need for liberalisation in India

appraise the 1991-liberalisation package
INTRODUCTION
With the New Industry Policy 1991, Liberalisation and Privatisation have become the buzz
words. Efforts were being made to reduce government control. Indian economy at that time, was overcontrolled, over-regulated. Therefore, The New Industrial Policy Resolution of 1991 included, inter-alia,
reduction in state intervention. In this lesson we will study about Licensing Policy, its appraisal, New
Industrial Policy 1991–II and Liberalisation of Indian Industry.
18.2
DEFINITION AND MEANING
The word ‘liberalisation is ill-defined and unfortunatetly prone to multiple interpretations. The
most common connotation of the term when used in the context of economic policy is that of reducing
government regulation of economic activity and the space for state intervention (except in the allimportant matter of guaranteeing private property right) and allowing for the unfettered operation of
market forces in determining economic processes. The recent focus on economic liberalization India as
well as in case of other developing and formerly socialist countries has created the widespread
impression that this is a qualitatively new approach which the longevity of both, the idea and the
associated practical economic policies has been forgotten.
18.3
ROLE OF STATE AND MARKET
The lineage of liberal economics (free market functioning) can of course be traced much further
back. Classical liberalism as it developed in western Europe in the eighteenth and nineteenth centuries,
was inseparable from the promotion of market capitalism. The central idea of this liberalism was liberty
under the law, that is the idea that people must be allowed to follow their own interests and desires,
constrained only by rules which prevent their encroachment on the freedom of others. The economic
application of this idea led inevitable to the promotion of the free market mechanism as the dominant
regulation of the economic activity. In this view, Adam Smith had argued that the market is the form in
which equal right of access and participation, in combination with divergent and competing interests,
lead to greatest welfare of all in society through the operation of the ‘invisible hand’. The limitations of
this liberatarian system were most clearly highlighted in the nineteenth centry by Karl Marx. He was
aware not only of the historical advance represented by the market but also of the price paid by most
people in society for the anarchaic operations of free market. Related to this was the emphases that
market operations are not neutral but favour certain players to the systematic disadvantage of others. In
particular, market functioning cannot be separated from the ownership of and control over assests and
resources. These inequalities in ownership in turn mean that access to markets in terms of equality for
everyone is simply not possible.
In fact those very countries typically in Western Europe – where liberal thought flourished the
progress of the economy was also marked by the growing involvement of the government as regulator
of market activity. Labour agitations and social reform movements played a crucial role in pushing
governments to make greater use of regulations and controls designed to mitigate the harsher effects
of free markets. Subsequently the Keynesian revolution emphasized more general role of governments:
349
not only in greater equity and economic justice but simply in creating and maintaining levels of
economics activity which were not delivered by market functioning. And in those backward economies
where socialist planning came to dominate, State involvement in the industrialization process was
obvious.
By the mid-twentieth century, state intervention in the economy and government controls on
economic activity were widely accepted and justified a cross the world not only on grounds of equity
and the need to achieve particular social goals which were not inevitably delivered by the market
mechanism, but also theoretically in terms of the possibilities of market failures. For developing
economies which were seen to have structural constraints on growth which had to be overcome, the
consensus was that late industrialization required systematic and planned government economic
activity which limited controlled and directed market functioning. The main characteristics of the
economies were identified as inadequately developed physical infrastructure, the presence of
numerous externalities in production, the likelihood of strong forward and backward linkages in
investment and production and the need for major catching up in terms of technology. In other words,
the consensus was that liberated markets alone could not deliver ‘development’ and that systematic
state intervention at the very least to guide markets, was essential.
Opposition to these ideas was evident from their inception but gained ground in the period since
1980. Consequently, the case for liberalization of internal and external markets and freeing economic
agents from government controls and regulations has been made.
18.4
CONTROL AND REGULATION OF INDUSTRY TILL 1990
The system of Indian industrial licensing had its origin in a combination of thinking resulting from
the exigencies and requirements of a war situation, Indian nationalistic aspirations and the socialistic
leanings of some of the founding fathers of the country. The leaders of the private sector of the time
were also in favour of strong governmental assertion. The industrial licensing system has operated in
the country with the simultaneous operation of other schemes of governmental allocations and controls
such as :
Five Year Plan documents, Import and export controls, Control of capital issues, Control of
foreign exchange, Transport controls including allocation of raw materials, Price controls, Allocations of
credit etc.
The planners and policy makers in India understood the need for using a wide variety of
instruments and controls to steer Indian industrial development in a desired direction. It should also be
noted that, whereas the original intention of licensing was to use this power selectively for the
promotion of selected important industries, it was later used to control almost all industries with the
result that regulation rather than development became the more important feature of the system.
18.4.1 Industrial Licensing System in India
Until the recent industrial and trade policy reforms, the establishment and operation of an
industrial enterprise in India required approvals from the Central government at almost every step (see
Paranjape, 1988).
Before making an investment, an entrepreneur had to first obtain approval in principle from the
Ministry of Industry. The granting of this approval resulted in the is issuance of a Letter of Intent (LoI).
1.
Armed with this LoI, the entrepreneur would satisfy other requirements for setting up the project.
For example, he needed to import a capital good, he had to obtain a capital goods import license from
the Chief Controller of Imports & Exports (CCI&E) in the Ministry of Commerce.
2.
The approval for the import, however, was given by a committee set up in the Ministry of
Industry. If there was also need for a foreign technology collaboration agreement, the entrepreneur had
350
to obtain a specific approval for this (a Foreign Collaboration– FC approval) from a committee chaired
by the Finance Secretary but serviced by the Ministry of Industry.
3.
In order to raise funds for the project, if an entrepreneur wanted to go to the capital market, he
needed separate approval from the Controller of Capital Issues in the Ministry of Finance.
For imports of raw material and components, separate licenses had to be obtained on an annual
basis from the CCI&E.
In each case, an ‘essentiality’ and indigenous non-availability clearance had to be given by the
technical wing of the Ministry of Industry (the Directorate General of Technical Development – DGTD).
Once everything was tied up and the unit was about to go into production, the entrepreneur had to go
back to the Ministry of Industry for an ‘Industrial License’.
4.
Since the enactment of the MRTP Act (1969), the firms covered under it needed to obtain
separate MRTP clearances from the Department of Company Affairs.
5.
Further, to promote small-scale industries, 836 items were reserved for production in smallscale enterprises. Since 1956, there has also been a list of industries reserved for exclusive production
in the public sector.
6.
Since 1977, there has also been a ban on the location of industries in the largest 20 to 30 cities.
In 1988, this ban was extended to include municipal areas of all towns and cities and to specified areas
of influence around the largest 21 cities.
Very soon it was realised that since the early 1960s, this system was unsuited for directing
investments. The government appointed various committees, in the 1960s to examine the industrial
licensing system (The Swaminathan Committee, 1964; the Mahalanobis Committee, 1964; the Hazari
Report, 1967; the Dutt Committee Report, 1969; and the Administrative Reform Commission, 1969).
Most of these early committees found that the licensing mechanism was not serving its purpose of
channelising investments into desired directions. There seemed to have been a continuing inability of
the government, to bring any substantative changes to the industrial licensing system.
Actually the interests of politicians, bureaucrats, multinationals as well as domestic industrial
houses all coincided to keep Indian industry sheltered through the operation of the industrial control
system (i.e. licensing).
18.4.2 Industrial Progress under Licensing System
Indian industrial production stagnated between the mid 1960s upto the late 1970s. Towards the
end of the 1970s and by the early 1980s, there emerged a growing consensus that Indian industry was
witnessing a slowdown in industrial growth due to low productivity, high costs, low quality of production
and obsolete technology (Ahluwalia, 1985).
In the early 1980s - the Abid Hussain Committee on trade policy, the Narasimham Committee
on the shift from physical to fiscal controls and the Sengupta Committee on the public sector were set
up. These committees clearly recommended flexibility of trade policy, the replacement of physical and
quantitative controls by fiscal and other means of macroeconomic management, greater public sector
autonomy in business and operating decisions and the need for measures for enhancing productivity
efficiency and modernisation.
Consequently, there happened little deregulation during the 1980s, though perhaps not as
significant as is often believed. Two kinds of delicensing activity took place :
First, 32 groups of industries were delicensed without any investment limit.
351
Second, in 1988, all industries were exempted from licensing except for a specified negative list
of 26 industries. This exemption from licensing was, however, subject to investment and location
limitations.
On the trade policy front, the exporters could access inputs at international prices. However, it
seems that tariff protection to industry increased significantly during the 1980s relative to previous
decades.
As has often been done in the past, this announcement also contained further restrictions which
reduced significantly the effectiveness of exemption from licensing that was provided in this
announcement.
While the industrial licensing system underwent some changes regarding ‘terms of threshold
level’, and types of products’, it formed an important part of Government policy until the end of the
1980s.
A debate on ‘the need for a change in policies’ emerged in India in the second half of the 1970s.
India used the decade of the 1980s for little experimentation in domestic deregulation. Its highly
protectionist trade policy regime and its loss-making public sector remained intact.
On the other hand, the Government of India’s policies became expansionary mainly to support
growing levels of current government expenditure. Due to increasing expenditures on sharply rising
interest payments, defence and subsidies, the gross fiscal deficit of the government increased from 6.2
per cent of GDP in 1980-81 to 8.3 per cent by 1990-91. Thus the reforms in industrial policy coincided
with deterioration on fiscal front of the Government.
The reorientation of industrial and trade policies evoked a better productivity response and
resulted in substantially higher industrial growth in the 1980s. While the deteriorating fiscal position and
growing macroeconomic imbalances posed a serious challenge to the sustainability of the higher
growth of the 1980s. The Gulf War of 1990 provided the trigger, which brought the underlying economic
crisis to the fore.
It was evident from the experience of the 1980s that the better industrial performance could not
be sustained because of the growing macroeconomic imbalances during the 1980s. The response to
the crisis therefore was two fold more domestic deregulation and foreign competition and striving to
attain macroeconomic balance. In opening up the economy to foreign trade and foreign investment, the
policies witnessed a more radical break from the past.
As we know that a large number of control instruments were introduced to regulate producers,
and to ensure a more effective utilization of resources, but as the efforts of Monopolies Inquiry
Commission (1966), Hazari Committee (1967), the Industrial Licensing Policy, Inquiry Committee
(ILPIC) (1969) and the Committee on Controls and Subsidies (1979) show, government regulation was
not successful in achieving the declared objectives.
18.4.3 Licensing in India : An Appraisal
The report of the ILPIC (1969) has been one of the most exhaustive. ILPIC (1969) found that
the licensing system and other controls for example, financial assistance failed to develop industries
according to plan priorities. Licensing did not always prevent the growth of no-essential industries and
ensure the development of the more essential ones. The ILPIC Report identified 45 companies
producing far in excess of the licensed capacities. In many cases the excess capacities were later
approved by the government. Influential applicants often pre-empted the entry of competitors by
obtaining licenses and keeping these unimplemented. Meanwhile other applications were turned down
on the grounds that there was no scope of further capacity. Enterprises belonging to the large industrial
sector were favoured with a disproportionately large share of licensed capacity. It was followed by a
study – the Corporate Studies Group (1983), based on 769 companies. The Group found that the
352
situation had basically remained the same. The companies continued to produce in excess of the
licenses capacity level; and the changes remained on paper only i.e. unimplemented and continued to
flout the conditions for example regarding exports-imposed in the licenses. No legal or administrative
action was taken against the violators though the licensing system was governed by an Act of the
Parliament. The case study on the Alcoholic Beverages industry, regarded as no-essential by the
government, reveals that most of the important companies not only produced more than the licensed
capacities but contined to expand capacities despite the official ban. The gap between declared policies
and actual practice here was so wide that the Corporate Studies Group (1973), wondered whether any
regulatory system existed in the country at all.

Negative Impacts of licensing
Now we shall discuss negative impacts of licensing :
(a)
Constraints on Growth of Industry
A number of economists - Bhagwati and Desai (1970), Bhagwati and Srinivasan (1975),
Ahluwalia (1985) and Bhagwati (1993) - consider the controls and regulations as a fundamental
constraint on economic growth in general and industrial growth in particular. The basic argument is that
the weak growth performance reflected a disap pointing productivity performance. And the low
productivity is primarily due to India’s policy framework, comprising extensive bureaucratic controls over
production, investment and trade and a substantial public sector.
(b)
Absence of Competition
Targets fixed by the government were often wrong. The firm chosen for licenses were not
necessarily the most productive. The industrial licensing system (a) by creating barriers to entry, (b) the
import controls and (c) by protecting domestic firms resulted in absence of competition and hence high
costs, low productivity and poor quality of goods and services. Administrative hurdles, uncertainties and
inflexibilities associated with licensing discouraged long-term planning on the part of industry. Private
initiatives were stifled. Firms were compelled to turn towards speculation and resources were diverted
to unproductive rent seeking activities. As firms tried to influence decisions in their favour, corruption
developed. Restrictions on foreign capital and technology reduced the use of the latest technology.
Limitation imposed on the size of the plant, for example, reservation of some products in the small
scale sector denied firms of the ‘economies of scale’.
(c)
Discrimination against exports
The policies discriminated against exports. It was easier to operate in the protected domestic
market than compete in the international market. Exports were also less attractive because of high
domestic costs, the overvalued currency etc. If this had not been so then the demand bottleneck in
industry could have been tackled through expansion of exports.
(d)
Concentration of Economic Power
Social objectives were also not realized. concentration of economic power was supposed to be
prevented by licensing the creation and expansion of capacities in large firms. This was doomed to fail
because the larger and more resourceful the firms, the greater their access to the control system.
(e)
Capital Intensive Production
Scarce resources, for example imports, were often allocated on the basis of capacities installed.
This prompted producers to go for more capital intensive production than was otherwise necessary.
Employment suffered as capital intensity was artificially raised.
(f)
Accumulation of Losses in PSEs
In addition to all this, the growth of the large public sector, which did not operate efficiently,
inflicted further losses on the economy and industry. The rate of profit being low, the public sector was
353
unable to finance the growth of necessary investment. Since some of the vital sectors, for example,
electricity and rail transport were in the public sector, the lack of growth and inefficient operation
created severe supply bottlenecks.
The objectives behind government controls and regulations were not realized. Some are critical
of the government because they expected more than was delivered, others are critical because they
wanted less government intervention.
18.4.2 Modification in Licensing Policy
ILPIC was critical of the way the licensing system was used but it recommended modifications
and not abolition of licensing. Both ILPC (1969) and Bhagwati and Desai (1970) agreed that India’s
regulatory mechanism was too detailed to be effective. But unlike Bhagwati who has greater faith in
market forces, ILPIC explicitly pointed out that for industrialization of the country, industrial planning is
essential. It was realised that the government machinery worked on incomplete and unsystematic
information. The decisions taken were often adhoc without having much economic rationale. According
to ILPIC, a basic problem was that there was no long term strategic plan for industry which could be
used as the reference point. To make the government more effective, ILPIC and other committees
basically wanted to reduce the work load and restrict licensing to the really vital areas, and eliminate as
far as possible the discretionary element which results in abuses. ILPIC recommended that there must
be a detailed perspective plan for a small number of strategic industries; and licensing be restricted to
these industries. Discretionary licensing would be eliminated for the remaining industries. Bans might
be used to prevent capacities from being created in the non-priority areas. Some industries might be
reserved for small scale units. For others, entry and expansion would be banned. Once the
banned/reserved lists were drawn up, individual decision for enterprises/products would not be
necessary and hence the discretionary element would be reduced. Licensing might be eliminated for
the large middle group between the banned, reserved and the strategic industries except for the larger
business house whose entry might be banned.
(a)
Post 1970s Period
Since 1970, the industrial policies of the government have been revised several times. On the
one hand the government enlarged the regulatory framework by introducing the Monopolies and
Restrictive Trade practices (MRTP) Act in 1974 and the Foreign Exchange Regulation Act (FERA) in
1974 to separately control large firms and foreign firms respectively on the other hand licensing
provision were substantially liberalized. Exemption limits in terms of investment for applicability of
licensing were raised some industries were de-licensed for certain categories of products. The
liberalization process was accelerated in the 1980s under the Prime Ministership of Rajiv Gandhi. The
exemption limit under the MRTP Act was raised. New elements included the policy of broad banding
whereby the firms in a number of industries could diversify in related business without licenses (CMIE
1986). But, significantly enough, some of the important ideas of ILPIC, for example long term bans of
no-priority activities were never implemented (Paranjape 1985, 1988). Much of the liberalization was
adhoc and arbitrary. The perspective plan for industries and the positive use of licensing to develop
strategic industries were conspicuous by their absence. As the Committee on Controls and Subsidies
(1979) commented there were hardly any programme guidelines to make licensing an instrument to
achieve the plan priorities. Even the programs of Industrial Development issued at the time of the Third
Five Year plan were discontinued.
A group of economists (Bhagwati, Srinivasan and others), however, argued that market forces
are better and government is inherently incapable of delivering the goods. Hence rather than
modifications they wanted the controls to be dismantled (Bhagwati 1993). In line with such opinions, the
new economic policies since 1991 were introduced and have accelerated the process of liberalization
started earlier. They have introduced fundamental changes in economic policies to explicitly reduce the
role of the government both as a producer and as a regulator and to enhance the role of private
354
economic decision making. Under NEP 91, the industrial licensing has been abolished except for a
small group of hazardous and environmentally sensitive industries, MRTP houses were no longer
required to take separate permission for investment and expansion : the list of industries reserved for
the public sector has been reduced; equity in public enterprises is being diverted; access to foreign
capital and technology has been made free; quantitative restrictions on imports have been virtually
abolished, import duties have also been significantly reduced. Recently the MRTP Act has been
replaced by Competition Policy of Industry.
This needs to be mentioned here that in the 1950s, the dominant view in the literature in
development economics was the Government had an important role to play and that it should
undertake activities that would compensate for “market failure”. “Market failure” was perceived as the
inability of markets to optimally allocate resources over time. It is this line of reasoning that led most of
the developing countries including India to formulate economy wide plans. However, four decades of
development experience have shown that there can be “Government failure” as well. The regulatory
state in many countries has resulted not only in economic losses due to misallocation of resources.
One of the reasons for the emergence of skepticism regarding the benefits of state intervention has
been the growing perception that government failure on account of political factors and
bureaucratization may, in many cases, exceed market failures. Moreover, it is felt that markets may
provide better incentive frame work in many activities. Closely related to these institutional factors is the
belief that a competitive environment tends to create a better climate conductive to enhancing
efficiency. In other words, while there can be some doubt as to the capacity of the competitive market
structures to determine the ends, there is more confidence in competition as a means of achieving the
desired ends. Thus, if there is a lesson to be drawn from the development of the first four decades of
economic planning it is that there can be both “Government failure” and “Market failure” and the critical
issue is not so much the presence or absence of state intervention, as the extent and quality of that
intervention. The new economic policy builds on this experience. There was enough evidence of the
slowing of the growth rate of the economy and the deterioration of efficiency by the beginning of 1970s.
However, these signals were not picked up to bring about changes in policy. A group of economists like
Jayati Ghosh divided liberalisation drive in India in four phases (explained later in the lesson). But most
of the economists argue that while a policy of liberalisation of Indian economy was initiated in the mid1980s, the change was slow and lacked a comprehensive and self-sustaining character, which is an
essential requirement of a successful reform strategy. As a result, liberalisation formed a major plan of
New Economic Policy 1991.
Jayati Ghosh (2002) has come out with four episodes of liberalisation in India. The first relates
to the controversy surrounding the food controls of the 1940s was years, which were extended into the
early years of independence, and covered arguments about whether liberal markets or government
control could better ensure domestic food security. The second covers the period 1965-66 and a few
years thereafter, when the combination of agricultural financing, as well as the related rupee
devaluation and trade liberalisation exercised. The third episode is from the early 1980s, when the
governments decision to take a medium term loan from the IMF (which also involved commitments to
liberalize economic policy in specified ways) and paved the way for the policy changes of the later
1980s. And finally, the last episode is one which is still underway, having begun officially in mid-1991
as a package of ‘economic reforms’ supposedly in response to the balance of payments and fiscal
crisis of the economy, as determined by the broader international forces of ‘globalization’. Joshi and
Little (1994) commented on the liberalisation measures introduced between 1975-76 and 1984-85 in
following words : while the reforms ‘largely pointed in the right direction’, they were lacking in boldness
and were lopsided and slow. On this basis, if the 1991 liberalisation measures had any true roots in the
past, they date from 1985, and even then were doubtfully shallow.
In this lesson, restricting to our syllabus guidelines, we will study the last two episodes of
liberalisation (as a sub topic under industry - unit).
355
18.4.3 Government Shift Towards Liberalisation in 1980s
India sought self - sufficiency till 1980s while East Asian countries aggressively sought export
competitiveness for domestic manufactures. The reduction in the share of India in World exports from
1.85 per cent in 1951 to 0.42 per cent in 1980 shows the degree of insulation of Indian economy.
With small beginnings in policy changes required to absorb the first oil shock to experiments
and with some important liberalisation measures since the early 1980s, the process of economic reform
gathered momentum. The Government set up several committees to examine its fiscal, monetary,
industrial and trade policies. The general outcome of their findings and recommendations can be
expressed in two sets of inter-related propositions.
I.
Requirement for Accelerating Growth
(i)
accelerated growth requires increased imports
(ii)
it has become absolutely necessary to increase exports to pay for increased imports
owing to decrease in concessional aid and risks of onerous debt burdens connected with large scale
commercial borrowing
(iii)
(iv)
policies.
II.
to enhance the competitive advantage of exportables to increase exports
the competitive advantage for exportables require changes in industrial, trade and fiscal
Domestic Resource Situation
(i)
The Government budget is no longer a source of finance for investment. Current
expenditure is for greater than current revenue on account of sharp increases in amounts spent on
defence, subsidies and interest payments.
(ii)
The defence expenditure cannot be reduced.
(iii)
Subsidies, especially the larger ones like food and fertiliser, can be reduced gradually to
avoid social and political upsets.
(iv)
Therefore, it was observed that the only way to raise additional resources for raising the
growth rate to even a modest 5 per cent level as envisaged for the seventh plan had been to make the
tax system more responsive and to make public sector enterprises generate resources through greater
efficiency.
A part from all these, an additional factor of liberalisation was given importance as it was
observed over the years that some domestic controls had really failed to achieve their stated objectives.
Post 1985, the Indian economy was gradually liberalised and restructured on the basis of an
extensive policy review. The first phase of economic reforms was initiated under the Prime
Ministership/Leadership of Mr. Rajiv Gandhi in 1985 when the country was facing chronic balance of
payment crisis, a vast budget deficit and severe industrial sickness in private as well as public sectors.
The important targets were : improvement in productivity, absorption of modern technology, fuller
utilisation of capacity and great role for the private sector. Mr. Gandhi stated categorically “Public sector
has sperad in too many areas where it should not be ....... we will be developing our public sector to
undertake jobs that the private sector cannot do. But we would be opening up to the private sector so
that it can expand and the economy can grow more freely.” Since the budget of 1985-86 some changes
in policy were introduced and several other were announced in broad terms in the Statement of “Long
Term Fiscal Policy and the Seventh Plan (1985-90) document. The major premise in the reforms was
based on the consideration since the investment rate can be raised only marginally, the acceleration in
growth had to be squeezed out through greater efficiency in the use of capital and other resources. And
the sector that was considered to lead this acceleration was none other than the industrial sector, with
356
greater (than past) reliance on private sector. With an objection of giving larger scope to the private
sector a number of policy measures were introduced regarding industrial licensing, import-export policy,
fiscal policy, technology upgradation, foreign equity capital, removal of control and restrictions
rationalising and simplifying the system of fiscal and administrative regulations. A number of measures
which were initiated in this regard are listed below :
1.
Licensing system for textiles industries was liberalised.
2.
94 drugs were delicensed and 27 industries were virtually placed outside MRTP Act.
3.
Cement was decontrolled and some private sector units were sanctioned addtional capacity.
4.
In sugar, the share of free sugar was increased.
5.
The ceiling of asset limit of big business houses was raised for Rs. 20 crore to Rs. 100 crore.
6.
The electronics industry was freed from the MRTP Act.
7.
For 25 categories of industries a scheme of “broad banding” licensing was introduced.
8.
The government introduced long term fiscal policy for successful implementation of the seventh
plan.
9.
New liberalised import-export policy was announced.
But these efforts did not yield the desired result. The country’s balance of trade deficit, instead
of narrowing down, increased where as the overall trade deficit during the 6th plan (1980-85) was Rs.
5,935 crore, it jumped to Rs. 10,841 crore during the 7th plan (1985-86 to 1989-90).
Thus, we can say that between 1985-86 and 1989-90, some dilution of licensing requirements
and import deregulation took place. The reforms during the Rajiv Gandhi era began strongly, but then
petered out as they came to face increasing resistance (Joshi and Little, 1994). Actually, the eighties,
saw growth rates excluding 5 per cent (India GDP grew at about 5.5% per annum during the 1980s)
while the economy had grown by only 3.4 per cent per year in the previous thirty (1950-80) years. But
the major criticism of the growth process of the 1980s was that it was unsustainable as it put pressure
on inflation and balance of payments. The expansionary fiscal policy followed by the government since
the mid-eighties lid to substantial increase in fiscal deficits from 3% of GDP in 1975-76 to 6% in 198081 and further to above 8% in 1990-91. At the same time the revenue deficit (the difference between
revenue receipts and revenue expenditure) which is a measure of ‘how much the government is eating
up its capital, or getting into debt’, rose sharply during these years. This led to the crises of 1990-91.
The Narsimha Rao Government was forced by this crisis situation to take the plunge and introduce a
liberalised regime in major spheres of economic activity, inter alia other reforms.
18.5
THE 1991 LIBERALISATION PACKAGE
It is often suggested that the liberalization measures of the 1990s came about as a result of the
economic crisis of 1990-91 and the subsequent need for the Indian government to approach the IMF for
another major loan. There was already a significant lobby which India, and even within the Indian
government, in favour of decontrol and more market-friendly policies.
When the new government came to power in the middle of 1991, its first two economic policy
initiative were to approach the IMF for an immediate stand-by loan, and a two stage devaluation of the
rupee by about 20 per cent. Subsequently, a wide-ranging programme of ‘economic reforms’ was set in
motion, in which the immediate aim of stabilization was conjoined with a broader structural adjustments
package based on the strategy of liberalization. The strategy was broadly similar to that typically found
in IMF-World Bank structural adjustment programme, with the difference that the stabiliation element
was relatively underplayed and the fiscal compression did not last more than two years.
357
New Economic Policy
The year 1991 is an important landmark in the economic history of post-Independent India. The
country went through a severe economic crisis triggered by a serious balance of payments situation.
The crisis was converted into an opportunity to introduce some fundamental changes in the content and
approach to economic policy. The response to the crisis was to put in place a set of policies aimed at
stabilisation and structural reform.
While the stabilisation policies were aimed at correcting the weaknesses that had developed on
the fiscal and the balance of payments fronts, the structural reforms sought to remove the regidities that
had entered into the various segments of the Indian economy. The structural reforms introduced in the
early 1990s broadly covered the areas of (1) industrial licensing, (2) foreign trade, (3) foreign
investment, (4) exchange rate management and (5) the financial sector. From the point of view of
industrialisation, changes in the areas of licensing and foreing trade and investment had important
implications. Even before the onset of reforms, the problems associated with industrial licensing were
well recognised.
The approach document of the Eighth Plan (p.191-96) had remarked : “A return to the regime of
direct, indiscriminate and detailed controls in industry is clearly out of question. Past experience has
shown that such control system is not effective in achieving the desired objective. Also the system is
widely abused and leads to corruption, delays and inefficiency” (Government of India, 1990).
One early step that was undertaken as part of the structural reform process was to dispense
with licensing. Changes in foreign trade policy focused on reducing the tariff rates and dismantling
quantitative controls over imports. The tariff rates have been brought down in stages. Some caution in
this regard had become necessary to enable the Indian industries set up behind high protective tariff
walls to adjust to the changed situation. The policy towards foreign investment underwent a significant
change with foreign investors given the freedom to own majority shareholding over a wide spectrum of
industries.
Without going into details, the common thread running through the various policy measures
introduced since 1991 has been the improvement of the efficiency of the system. The thrust of the New
Economic Policy has been towards creating a more competitive environment in the economy as a
means to improving the productivity and efficiency of the system. This was to be achieved by removing
the barriers to entry and the restrictions on the growth of firms. While the Industrial Policy of 1992
sought to bring about a greater competitive environment domestically, the counterpart Trade Policy set
out in the same year, sought to improve international competitiveness subject to the degree of
protection offered by the tariffs. The private sector was to be given a large space to operate in as such
as some of the areas, reserved exclusively earlier for the public sector were now to be opened to the
private sector. In these areas, the public sector would have to compete with the private sector, even
though the public sector might continue to play the dominant role in the foreseeable future. What was
sought to be achieved was the improvement in the functioning of the various entities, whether they
were in the private or in the public sector.
The 10 years from 1991 to 2001 therefore, marked a significant transition for the Indian
economy from a policy regime with very high rates of protection and all-pervasive quantitative
restrictions to moderate rates of protection and removal of quantitative restrictions. The degree of tariff
protection, however, was still higher than in most developing economies.
Opening up to Foreign Investment
The reforms of the 1990s marked a significant break with the past in respect of the policy
towards foreign investments. From a policy which was restrictive and selective and supported mainly
358
technology transfers, foreign investments policy in the 1990s become more open and more protactive
as the rules were liberalised over time with a view not only to gain better access to technology but also
to build strategic alliances to penetrate world markets. Besides enlarging the scope for automatic
approval over the years, the Foreign Investment Promotion Board was set up to expedite other
applications for foreign investment. specifically, liberal conditions were set up for attracting foreign
investment in infrastructure sectors and export-oriented sectors. As of 2001, foreign ownership upto
100 per cent is permitted in large number of industries. Also majority ownership is permitted in all
except banks, insurance companies, telecommunications and airlines.
Reforms in Industrial Policy
Industrial policy changes of 1980s were made in response to heavily felt need for domestic
deregulation. Major steps taken in the direction of domestic deregulation were industrial delicensing,
weakend MRTP provisions, policies for major industries like textiles & sugar, gradual introduction of
price decontrol for cement & aluminium etc. The underlying thrust of policy changes was moving away
from financial incentives/ , disincentives to more market-oriented regulation. Public sector reform &
privatisation did not form part of industrial reforms in 1980s.
During the 1990s, old industrial policy reforms were introduced namely, doing away with barriers
to entry, removing of industrial licensing, opening up all but few strategic areas, replacement of MRTP
Act with Competition Law, dereserving areas from SSI reservation, etc.
To start with, the Government concentrated on selective disinvestments of public sector equity
with a view to finance fiscal deficits. In 1997, disinvestment commission was set up to review the
process. Public sector reforms were introduced - greater autonomy to PSUs, freedom to access capital
market, non-performing PSUs to be referred to BIFR. Later disinvestments commission was wound up
and a Department of Disinvestment/Privatisation was created.
18.5.1 Delicensing and Decontrol
We have read in detail in the previous chapter. You can take up material from there.
18.5.2 Critical Appraisal of Liberalisation Package :
Here the arguments made by supporters and critics of the broad strategy of economic
liberalization are briefly considered. To a large extent, these arguments are mainly repetitions of past
debates, since the essential position have not altered, and nor have the analytical bases been revised.
(i)
Growth Rates
The argument of the ‘liberalizers’ has been that it is the complex of government controls which
has operated to shackle the post-independence Indian economy, prevented higher growth rates form
being achieved, reduced chances of greater efficiency and productivity increase, and in general been
responsible for most of India’s economic ills from the low growth of exports to the persistence of
poverty. From this argument follows the expectation that the very lifting of controls and ‘freeing’ the
economy will lead to a massive unleashing of enter-preneurial animal spirits which will generate high
investment rates, as well as force Indian producers to become more efficient according to international
standards. The main task for the government therefore is simply to withdraw from the economy as far
as possible and to stop interfering in the naturally efficient functioning of unfettered markets.
Bhagwati (1993) opines that the main elements of India’s policy framework that stifled efficiency
and growth until the 1970s and somewhat less so during the 1980s as limited reforms began to be
attempted, and whose surgical removal is, for the most part, the objective of the substantial reforms
begun in mind 1991, are easily defined. Bhagwati divides them into three major groups : (1) extensive
359
bureaucratic controls over production, investment and trade; (2) inward looking trade and foreign
investment policies; (3) a substantial public sector, going well beyond the conventional confines of
public utilities and infrastructure. The former two adversely affected the private sector’s efficiency. The
last, with inefficient functioning of the public sector enterprise’s additionally impaired the public sector
enterprises’s contribution to the economy. Together, the three sets of policy decisions broadly set strict
limits to what India could get out of its investment.
The critics of the current liberalization policies has been that this argument mistakenly believes
that economic liberalization is the simple and universally applicable panacea for India’s economic
maladies. However, the opponents of liberalization put far greater emphasis on the social-economic
context within which controls are both put up and dismantled. Without far-reaching changes in this
basic structure in which productive assets, economic and political power and the bargaining strength of
different groups are all highly unequally distributed, liberalization polices that give a greater role to
market processes will neither lead to higher growth nor promote greater equity, but are likely to intensify
existing inequalities. Not only are these undesirable in themselves, but such inequalities are the
associated social and political tensions may defeat even the limited and wrongly - directed increase in
investment and output that do occur.
(ii)
Balance of Payment Position and Foreign Capital
Several more specific points are made by critics about this specific liberalization pattern, which
relies very heavily on attracting foreign capital to raise the rate of investment, and which assumes that
free trade policies will promote rather than inhibit further industrial diversification. The combination of
trade liberalizations with financial sector reforms created a situation in which, while the balance of
payments remained vulnerable and became increasingly fragile over the past few years, the
government had reduced the efficacy flows.
(iii)
Increasing Dependence on Imports
The 1980s had already created an industrial structure that became more dependent upon and
sensitive to imports than ever before; this import dependence grew in the 1980s as domestic producers
of manufactured goods relied increasingly on assembly of improved inputs rather than creation of
higher value - added goods and entered into collaborations based on exploiting multinational brand
names in fairly standard consumer products.
(iv)
Small size of Market and Inequity
The growth pattern of India was the one which is based on the market created by (at most) the
upper one third of the population. This not only had distributive and welfare implications but also meant
that the market remained narrower than its potential, given the size of the population. This in turn
affects the productive structure, as static and dynamic economies of scale cannot be truly exploited
within the economy.
(v)
Declining Investment
The stabilization element in the reforms, which has emphasized cuts in the overall fiscal dificit
rather than specifically on revenue spending, has subsequently focused almost entirely on declines in
public productive spending (the ‘capital expenditure deficit’). In the period 1991 this has translated into
real cuts in such expenditure, which are criticized because of their negative effect on infrastructure
availability and future growth prospects, as well as on private investment through the linkage (which is
empirically well established in India) between public and private investment.
360
Table : Selected Economic Indicators, 1990/91 - 1995/96
1990-91
1991-92
1992-93
1993-94
1994-95
5.2
0.5
5
4.5
6.7
3
-2.1
2.9
2.3
4.8
Fiscal deficit as % of GDP
8.3
5.9
5.7
7.5
6.5
5.5
Govt. revenue deficit as % of GDP
3.5
2.6
2.6
4.1
3.6
3.4
Govt. capital expenditure as % of GDP
5.9
4.7
4.2
4.2
4.2
3.4
Current account deficit as % of GDP
3.2
0.4
1.8
0.1
0.8
1.5
Foreign exchange reserves ($ billion)
3.2
5.8
6.4
15.1
20.8
16.3
-Rural
36.4
37.4
43.5
38.7
-Urban
8.5
8.2
8.8
7.6
Rate of growth real GNP
Rate of growth of per capita NNP
1995-96
% population living in absolute poverty :
Sources : Govt. of India, Economic Surveys.
CSO, National Accounts Statistics.
Jayati Ghosh P.327, Liberalisation Debates.
Note : Please update the data from the previous lesson.
(vi)
Employment and Poverty
Two more citical concerns voiced by the opposition to the recent reform relate to employment
generation and poverty. The 1980s were characterized by a relatively slow expansion of employment,
but also by riding real wages and a fairly substantial drop in both the incidence and the severity of
poverty, particularly in rural India. It has been argued that this can relate at least partially to the rapid
increase in various subsidies and transfers from the government to the household, the large increase in
revenue (rather than capital) expenditure on agriculture by central and state government, and a very
large increase in rural development expenditure. Thus, while there were some linkage effects with
modern industry and commerce in the rural areas, these were geographically limited, and the pivotal
role in the expansion of rural nonagricultural employment in particular, may have been played by
government in this period. However, since 1991 government economic strategy has implied further
reductions in the employment generation capacity of the organized sector, as well as adversely affected
rural non-agricultural employment. This is a because of the following policies : actual declines in
government spending in the fertilizer subsidies reduced central government transfer to state
government which have thereby been forced to cut back on their own spending : diminished real
expenditure on rural employment and anti-poverty schemes : declines in public infrastructure and
energy investment, which affect the entire country but also specifically the rural areas; reduced spread
and rise imprecisely under the public distribution system for food; cuts in social expenditure such as on
education, health and sanitation; financial liberalization measures, which have effectively reduced the
availability or rural credit.
As a result there has been as absolute decline in rural non-agricultural employment since 1991.
Since the rate of growth of agricultural output has slowed down after the reforms and there have been
increase in rural poverty this appear to be an evidence of a distress shift into agriculture given the lack
of alternative income opportunities (Ghosh 1996). What is probably most significant is the reversal,
since the marketist reforms of the 1990s of a long run tendency towards the decline of poverty. This
has been particularly marked in the rural areas (Sen 1996).
361
Conclusion
The focus on foreign investment as an important addition to domestic investment is crucial to
the liberalization debate in the current context. As suggested earlier each of the episodes of
liberalization has focused on overcoming of peculiar constraint within the economy; and the most
evident current constraint lies, apparently in the fisc realm. The growth pattern of the 1980s, based on
large government expenditures financed by the accumulation of internal and external debt, is no longer
feasible without a significant increase in government revenues, since this appears to be politically not
an option, the hope of the liberalized is that private investment both domestic and foreign will fill the gap
and prevent a reduction in investment from translating into lower overall growth. This in turn is expected
to emerge from the animal spirits of entrepreneurs unleashed by domestic deregulation, and
strengthening foreign investment through fiscal and other incentives. Critics of this strategy argue that
foreign direct investment does not necessarily flow into countries or area were it is most needed, but
rather to where it is most profitable and this turn is affected by the growth of the economy. It is overoptimistic to expect foreign investment flows to increase substantially if domestc investors themselves
are not buoyant, but this typically tends to occur also when there were public investment rates are also
high. The critics also points to the fact that much of the rather limited foreign investment (of the nonportfolio variety) that has come into India in the past five years has been oriented to taking advantage
of the domestic market rather than export production, and has often implied simply replacing domestic
investment or acquiring domestic assets through increases in shareholding, mergers and acquisitions.
18.6
SUMMARY
The lesson has been summarised in the following flow chart :
362
18.7
REFERENCES

Kapila, Uma – Indian Economy since Independence, Academic Foundation.

Datt and Mahajan – Indian Economy,

Misra and Puri – Indian Economy, Himalaya Publishing House
18.8
FURTHER READINGS
Ahluwalia I.J. & Little IMD (Eds) 1988-India’s Economic Reforms & Development (Essays in Honour of
Manmohan Singh) Oxford University Press, New Delhi.
Uma Kapila (2009-10) Indian Economy Performance and Policies, Ninth Edition, Academic Foundation,
New Delhi.
18.9
MODEL QUESTIONS
1.
Explain the meaning and need for liberalisation in India.
2.
Critically appraise the Liberalisation Package of the New Industrial Policy of 1991.
3.
What do you know about Regulation and Control of the Industrial Policy of the Pre-1991
Period?
4.
Give a critical appraisal of Liberalising Policy of Pre-reforms era.
APPENDIX L.-18
Monopolies & Restrictive Trade Practices - MRTP Act, 1969
MRTP Act 1969 has not been replaced by Competition Act 2002.
The important objectives of MRTP Act, 1969 were :
1.
To prevent centralisation of economic power and to put a control on monopolies.
2.
To check restrictive and un-healthy trade practices.
After the enforcement of this Act, all those companies whose assets were more than a
prescribed limit (Rs. 100 crore w.e.f. 1989) and which were classified as MRTP companies were given
the permission of entry in some selected industries only (That too on the basis of separate permission
in different matters). Besides control through industrial licensing, these big firms had to obtain
permission separately in matters of investment proposals. Consequently, an adverse effect on the
development and extension plans of many large private firms was observed. In order to remove the
initial limits of assets related to MRTP the Parliament passed MRTP (Amendment) Act, 1991. The
Amendment Act had totally eliminated pre-entry restrictions. No prior approval of the Central
Government was made required for expansion establishment of new undertakings, major
amalgamation take over or appointment of directors in respects of the undertakings.
Competition Act, 2002
In the era of LPG (Liberalisation, Privatisation & Globalisation) it was felt that the then existing
Monopolies and Restrictive Trade Practices Act, 1969 has become obsolete in certain respects and
there is a need to shift our focus from curbing monopolies to promoting competition. Hence a new law,
the Competition Act has been enacted and published in the gazette of India on 14 January, 2003 for
bringing competition in the Indian market. The main objectives of the Act are to provide for the
establishment of a commission to prevent practices having adverse effect on competition, to promote
363
and sustain competition in markets in India, to protect the interests of consumers and to ensure
freedom of trade carried on by participants in market in India and for related matters.
The Act mainly covers the following aspects : (i) Prohibition of anti-competitive agreements;
(ii) Prohibition of abuse of dominance; (iii) Regulation of combination (acquisitions, mergers and
amalgamations of certain size); (iv) Establishment of Competition Commission of India (CCI); and
(v) Functions and powers of CCI.
The Act is expected to curb those practices, which would have an appreciable adverse effect on
competition. The Act identifies three such ways in which such practices could occur, as under (i) Anticompetitive agreements (Horizontal Agreements, Vertical Agreements), (ii) Abuse of dominant positionenjoying a dominant position will not be crime but its abuse will be a crime. (iii) Elimination/reduction of
competitors in market achieved through acquisitions, amalgamations or mergers.
---00---
364
Lesson -19
INDUSTRIAL POLICY II : PRIVATISATION AND DISINVESTMENT
IN INDIA
Structure
19.0
Objectives
19.1
Introduction
19.2
Public Sector Reforms in India under NIP’ 91
19.3
Privatisation of Public Sector Enterprises under NIP’ 91
19.4
Privatisation Measures Undertaken in India
19.4.1 Why Disinvest PSUs?
19.4.2 Private Sector Efficiency
19.4.3. Central Public Sector Enterprises in India : Recent Position
19.4.4. Disinvestment in India : Meaning & Rational
19.4.5 Disinvestment Policy in India since 1991-92
19.5
Methods/Types of Disinvestment in India
19.6
Review of Disinvestment Policies
19.6.1 Disinvestment Policy 2009 onwards
19.6.2 Recent Policy 2022
A Objectives
B Features
C Comprihensive Management of Public Assets
19.7
Proceeds of Disinvestment: Debate
19.8
Methods of Disinvestment in India
19.9
Disinvestment Commission of India: Short Note
19.10 Conclusion
19.11 Summary
19.12 References
19.13 Further Readings
19.14 Model Questions
19.0
OBJECTIVES
After going through this lesson, you shall be able to-
365
19.1
*
delineate public sector reforms undertaken under the New Industrial Policy1991
*
comment upon the need to disinvest PSUs and privatisation measures under taken in
India
*
Explain the process and program of disinvestment
*
critically analyse disinvestment policy measures
*
analyse Indian Disinvestment Scenario in view of global experience.
INTRODUCTION
Under the Economic Reforms of 1991, New Industrial Policy was initiated. The main object of
this policy was to accelerate the growth of industrial enterprises- public and private both. The mounting
losses in the Public Sector Enterprises compelled drastic reforms and changes in Public Sector Policy.
Need was feel to withdraw from those areas (mainly profit making) which can be taken care of by the
private sector. In this lesson we shall study major changes that have taken place in the policy towards
PSEs.
19.2
PUBLIC SECTOR REFORMS IN INDIA UNDER NEW INDUSTRIAL POLICY OF 1991
Public enterprises are experiencing sweeping changes all over the world, and India is also doing
the same. At the time of independence, India opted for a socialistic pattern of development, which
involved limited but strategic intervention by the state in the market. The period from 1950 to 1980 saw
a very rapid growth of public enterprises, both under the central and the state government. The total
number of enterprises, as given in the Economic Survey 1998-99, is about 1200 in the country. There
are 236 public enterprises at the central level with an investment of $2020.2 billion; and 900 state level
public enterprise with investment of $20 billion. By the rate eighteen disenchantment with these public
enterprises starlit due to there failure in meeting one of their major objective, namely, generation of
surpluses. This situation become alarming in the beginning of the nineties ultimation into macro
economic imbecile about which we have read in detail in the first set of lesson-scripts. In case of public
sector enterprises the situation worsened. For example, the ratio of net profit to capital employed was
only 2.23 per cent in 1990-91 which declined marginally to 2.00 per cent in the year 1991-92 (The
Economic Survey, 1992-93). The poor financial performance of PSUs made a constant drag on the
government exchequer. The external payment crisis, domestic resources crescent, coupled with
pressure from IMF-word Book – all formed the Government of India to make a “u- turn” on its policy on
public sector and announce drastic measures in its New Industrial Policy (NIP) 1991.The NIP 1991,
influenced by market forces seducred the monopoly of the public sector and assigned increasing role to
the private sector. The major features of the NIP’91 are given as(i)
Formulation of Revival/ Rehabilitation schemes for chronically sick PSUs by the BIFR.
(ii)
A social security mechanism (NRF i.e. National Renewal Fund) for the welfare of the workers.
(iii)
Raising resources thought wider public participation, a part of the government’s share holding in
the public sector be offered to mutual funds, financial institutions, general public workers.
(iv)
Performance improvement through signing of Memorandum of Understanding (MOUs) between
Board Directors and the Management.
(v)
Selling Off the chronically sick Public Sector Units (PSUs).
(vi)
Dereservation of public sector.
(vii)
Opening up the private sector.
There is a common thread running through all the measures interdiffused since July 1991. The
objective is simple and that is to improve the efficiency of the system. The regulatory mechanism
366
involving multitudes of controls has fragmented capacity and reduced competition even in the private
sector. The thrust of new economic policy is towards creating a more competitive environment in the
economy as a means to improving the productivity and efficient of the system. This is to be achieved by
removing the barriers to entry and the restrictions on growth of firms. While the industrial policy seeks
to bring about a greater competitive environment domestically, the trade policy seeks to improve
international competitive. Ness subject to the protection offered by tariffs which are coming down.
The private sector is being given a larger space to operate in as some of the areas earlier
reserved exclusively for the public sector are also now allowed to the private sector, even though the
public sector may continue to play the dominant role. What is sought to be achieved is an improvement
in the functioning of the various neckties whether they are in the private or public sector by injecting an
element of competition. There is however, nothing in the new economic policy which takes away the
role of the state or the public sector in the system. The New Economic Policy of India has not
necessary diminished the role of the state, it has only redefined it, expanding it in some areas and
reducing it in some others. As it has been said, somewhat paradoxically “more raked” does not mean ‘
less Government, but only different governments’.. However, if the public sector is truly to play into role,
it needs to improve to efficiency and productivity and generate necessary surpluses as were originally
envisaged. It is only an efficient public enterprises system that can enable the Government to meet its
social obligations. If one hears the word ‘market’ more often these days, it was only because ‘market’
and ‘state’. It is necessary to create a matrix of activities and the kinds of intervention and determine for
each activity what form of intervention works best. Even in relation to government intervention a view
must be taken whether it should take the form of ownership or retortion. With limited resources
availability, as discussed error, government has a comparative advantage over the market and vacate
those where it has use of an advantage.
Self Assessment Question
Q.
Define Privatisation.
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
19.3
PRIVATISATION OF P.S.E AND INDUSTRIAL POLICY OF 1991
Privatisation of Public Sector Enterprises or PSEs is a major component of new economic
policy. These the reform of the public sector enterprises. The policy contains four major decisions.
1.
Reduction in the number of industries for the public sector 17 to less than a dozen and
introduction of selective competitions in the reserved area.
2.
The disinvestment of shares of a select set of PSEs in order to raise resources and encourage
wider participation of general public and workers and workers in the ownership of PSEs.
3.
A drastic reduction in the budgetary support to stick or potentially sick PSEs.
4.
An improvement of performance through performance contracts.
5.
No new central public enterprise will be created expect for industries reserved for public sector
and essential infrastructure, exploitation of oil and mineral resources and strategic- related
activities.
6.
There will be no nationalization or take- over of sick private firms.
367
7.
Sick units falling under the Sick Industries Companies Act, 1985 will be referred to the BIFR for
restoring and winding up.
8.
A policy of eliminating budgetary transfers and loans to PSEs will commence from 1992-93.
9.
A comprehensive program of disinvestment of public holdings will be formulated with the
objective of increasing the scale of disinvestment from 20 to 49 per cent of equity through a mix
of sale to mutual funds, stock markets, labour buy outs, and joint ventures with private investors.
The government’s overall NEP lays special stress on an increased rate for the market forces,
and consequently a reduction in the role of the state. The public sector equity is being disinvested up to
49 per cent in a selected set of profit making enterprises. The Sick Industrial Companies Act has been
amended to bring public sector enterprises with in the jurisdiction of the BIFR the Board for Financial
Reconstruction, which has to decide whether these units can be effectively restructured or whether they
should be closed down. The govt. is also planning to offer PSE shares to workers and is in the process
of working out the details of floating new scrip offerings on the stock market.
One of the significant components of the policy of the Government of India, announced in 1991,
was disinvestment of government equity in its selected PSUs. The major objectives of this policy on
public sector in India has been:
(i)
To raise resources to reduce the fiscal deficit in the government’s budget.
(ii)
To promote ownership of public enterprises shareholdings by the general public at large.
(iii)
Exposing PSUs to the discipline of market; and
(iv)
Involving workers in PSUs shareholders
The change in the approach was centered on the idea that government ownership has been
mainly responsible for most of the malaise afflicting PSUs performance. The successive governments
since 1991 have implemented disinvestment seriously.
Public Sector still continues to dominate the economy in several important sectors. Even as
attempts are being made to disinvest wherever feasible, there is no doubt that we must pay adequate
attention to improving the functioning of public sector enterprises (PSEs) where there presence is
essential. In fact, in certain area, disinvestment can only follow the strong thinning of the enterprise.
This is very much true in case of electricity generation and distribution. Many Committees and
Commissions have studied these problems. It is high time that a policy package is put together and
implemented for bringing about a significant improvement in the efficiency of pulic sector enterprises.
Clearly, the lesson of Indian development experience is that monopolies whether of state or private
sector don’t lead to efficiency. The need to create, promote and sustain a competitive environment is
absolutely essential. At the minimum, they have to meet global competition. However, even as we do
create conditions for more effective functioning of the enterprises, public sector enterprises need
special reforms.
19.4
PRIVATISATION MEASURES UNDERTAKEN IN INDIA
Even in the capitalist societies, it was believed that post-war economics can be rebuilt with large
scale state intervention. After attaining independence, the colonval economics too realized the need of
active public sector in India, the culmination of this thinking is reflected in the (PR’1956). The Indian
industry, consequently was divided into three categories.
(i)
Complete ownership of the public sector,
(ii)
Sector regulated by the state, and
(iii)
Under private ownership and control
368
But in the eighties, the functioning of the public sector began to be questioned. Since majority of
the PSUs (central and state) incurred losses for many years, it was argued that the state should not be
called upon to meet the losses of these enterprises out of tax payers money and hence it should
withdraw from these area. As we have read in the previous block of lesson- scripts, privatization, interalia, was undertaken under the New Economic Policy of 1991. “Disinvestment” is a term which
indicates the process of privatisation. In other words, disinvestment is a process through which
privatization could take place. In the post 1991 period, government equity was divested. The objective
for disinvesment was stated to provide farther market discussion to the performance of public
enterprises.
In the year 1996, a Disinvestment Commission was set up. By August, 1999, it made
recommendations on 58 PSEs. The Disinvestment Commission recommended even ownership
changes in PSUs excepting strategic areas where interests of the workers were at stake.
19.4.1 Why Disinvest PSUs?
A desperate bid to bail out the State from the heavy responsibility of funding PE’s from the
exchequer has occasioned the need to go in for disinvestment. Even through industrial policy in many
countries especially in the third World visualizes pivotal position for the PEs so as to attain commanding
heights of the economy as per the overly expressed social objectives yet, aggravating financial crisis
has blinded many national Governments to the pitfalls of disinvestment which reforms minded States
must stoutly resist in normal times.
But as sinking PEs in many countries have closed the option of many a financially week
Government and threatened their economic viability, fresh policy initiatives like privatization of some of
the perennially loss- making units ushered in a new era of countervailing measures to stall the
economic malaise by the countervailing growth of PEs. Sick units or the ones, which are terminally sick
and obviate all efforts to resuscitate them and keep them afloat even on heavy public subsidy across a
range of ventures, come in handy for mercy killing or transfer to private entrepreneurs. Belied
expectations about the real and scope of contribution to modernization, social transformation, economic
power, political clout and completive edge in the global context, have given further impetus to the antiPE lobby to advocate shedding- off, or decapitations or some of the potential loss- makers. Even joint
venture philosophy has not arrested the deterioration and eroding credibility of PEs as potent
instruments of social good and economic prosperity. In fact, worsening balance sheets and negative
bottom line results of many a PE have unraveled implication of unqualified and unending financial
support to PEs from the public pure at the cost of other social priorities which, if pursued outside the PE
content, would have ameliorated the national situation in a large measure.
Size and scope of activity gradually of PE Units has created its own problems. While private
sector or units gradually evolve in the sequence of the individual enterprise, partnerships, Private
company national corporation multi- national corporation and translational cooperation public sector
does not necessarily follow this sequence and most of the enterprises assume the status of national
corporation at the very outsed when the memorandum of understanding of the company is drafted.
Thus the physical size of the corporation and massive financial outlay differential would show
that the private sector companies would not stand any comparison to the public sector. PEs in steel oil
chemical and pharmaceuticals, coal, engineering, minerals and metals in India account for an
investment of the order of several thousand crores in each individual sector. Reliance, Tatas and Birlas
etc. could be exceptions.
19.4.2 Private Sector Efficency (Relative to Public Sector) :
Some other features which make private sector conspicuous for the efficiency and profitability
bound be listed as under:
369
1.
Entrepreneurial spirit
2.
Constant focus on the adjustment of the products, market segments and pricing
3.
Means (even unethical) are of no consequence as far as the predetermined ends are met
effectively.
4.
Dynamic personnel policies. Redundancy removal help to rationalize manpower.
5.
Orientation to market situation is the guiding principal and flexibility is the key word.
As against this, public sector enterprises are bound by certain rules and procedures and have to
operate within certain fixed parameters and flexibility gets restrained in the areas of objectives, policymaking implementation and adjustment. Most of the enterprises being engaged in key sectors like
power. Fertilisers heavy machine building steel making oil and soon monopolies almost 90 to 100 per
cent of the market share.
Their operating practices in terms of pricing, marketing and customizing are set within fixed
parameters. Some other features which distinguish public sector from private sector and result in low
efficiency of the public sector excepting oil and heavy electrical are as under:
1.
The entrepreneurial spirit is almost non- existent in the rank and file.
2.
A few dare- devil top ranking executives who distinguish themselves in terms of dynamism, flair
and buoyancy becomes visible that instead of getting Kudos and support generate only jealousies and
become victims of criticism and wrath of the powers that be. This is particularly so in India where public
enterprises have achieved a fair measure of success in terms of corporate excellence and financial
viability. Instead of being worshipped, the top executives of such corporation are made an object of
criticism and humiliation. To add insult to injury, various agencies of the Government like CBI. Vigilance
and so on are set in motion to demoralize them.
3.
Loss- making units headed by mediocre level executives usually attract sympathy and support
from the people in power and the various other agencies.
4.
Because of the size of the public sector corporation the elements of flexibility or responsiveness
sufferes a set back.
5.
Administrated prices, distribution control, slotted markets, favoured customers and constant
monitoring and control by the people who are far removed from the action points, create further
complications for the public sector enterprises.
6.
Lack of ownership, belonging, vested interests and indifferent altitude to the public assets make
thinks all the more complicated.
7.
Responsive gestures for political favours result in wasteful expenditure as also distortion of well
laid down policies and promonitories. This causes haemorrhage of fund and PE’s have become almost
bottomless pits.
Indiscriminate state intervention in the economic sphere and inordinate cost and burgeoning
deficits have left only a few option with the Government : (i) to close down the sick units or (ii) to see
them off the private entrepreneurs, and (iii) to delicence units reserved for state ventures and throw
them open to private individuals or companies. Privatisation has assumed almost global proportions.
Various countries on the South American, Africa, European and Asian continents are taking recourse to
this in the hope that resources so garnered would be put to more effective and profitable use.
This process is superimposed on the desperate efforts of some of the countries in Africa and
Asia to stage recovery and rehabilitant of some of the PEs in the hope that improvement in this sphere
would reverberate throughout the national economy. Other equally popular measures like contact
370
system and MOU too have proved ineffective. In the case of India MNCs and private banks to have
belied similar assumptions.
However, all Government rich and poor consider PEs as white elephants and are in a hurry to
stem haemorrhage of funds. Countries like Brazil, Argentina, Maxico, Britain, France, Spain and Turkey
have already disposed of a number of units.
USA, UK, Japan and Saudi Arabia are actively pursing denationalisation of local Government
services, China and Russia too are gradually loosening their grip on the productive capacity of the
nation.
Virtually, the lead give by Margaret Thatcher in Britain to privatisation as a doctrinaire approach
has come to be seen as progmatic and routine economic and industrial strategy in some parts of the
world. However, India, China, Russia and many other countries still remain unaffected to much extend
as, except for national level debate on the subject of privatisation hardly anything perceptibly concrete
has emerged so far. Perhaps, other hardly anything perceptibly concrete has emerged so far. Perhaps,
other countries too where private enterprise system does not attain requisite measure of maturity may
have to cry halt to denationalisation of well run PEs after sometimes.
Hence, let us wait and see that what shape Public sector accrues in the 21st century. No doubt
total privatisation of the giant public sector being a vexed trade of ‘socio-political philosophy of the
State and economic reality looks like melting the polar ice.
Co-incidentally, some of the giant public enterprises in India are doing exceedingly well.
At the same time, some of the State like Andhra Pradesh have made a good progress with
regard to the closure, divestment and complete privatisation of some of the PSEs.
Needless to mention that Public vs Private sector should not be viewed as a zero-sum game of
Government vs labour as, both could play compemlentary roles. While the market could accomplish
riches and growth, the Government could focus on socio-economic goals through the PSUs, moreover,
Private sector could support the PSU initiatives and also create some more initiative in addition to
playing the consultative, collaborative and community centric role to the Government. Coexistence of
the two sectors would thus ensure harmony and synchronisation.
19.4.3 Central Public Sector Enterprises (CPSEs) in India : Recent Position
At the time of independence, the Indian economy was basically agrarian with a weak industrial
base, low level of saving and investment. With a view to address the large scale poverty in the country
through higher economic growth, the Government embarked upon the Five Year Plans for raisng
resources and for making investment in the economy. Public sector investment in our Plan models was
moreover, assumed to bridge the gap between the required investment in the different sector and the
investment forthcoming from the private sector. CPSEs have been the result of Plan process as
mandated under the Five Year Plans. The CPSEs, in turn, have been established primarily in areas that
are delineated under the central (or the Concurrent) List of the Constitution of India.
On the eve of the First Five Year Plan there were 5 CPSEs with a total investment of Rs. 29
crore. Both the number of enterprises and the total investment in CPSEs saw an over-whelming
increase over the years.
There were 242 Central Public Sector Enterprises (CPSEs) under the administrative control of
various Ministries / Departments as on 31-3-2008. The cumulative investment (paid-up capital plus long
terms loans) in all the CPSEs stood at Rs. 4,55,409 crore as on 31-3-2008. The largest share in this
investment belonged to the service sector (40-40 per cent) followed by electricity (27.95 per cent),
manufacturing (22.23 per cent), mining sector (8.83 per cent) and agriculture (0.04 per cent). The
remaining 0.55 per cent belonged to CPSEs under construction. While ‘investment’ in all the CPSEs
grew by 8.31 per cent in 2007-08 over 2006-07, “capital employed” in all the CPSEs went up by 15.63
371
per cent during the same period. A great deal of investment in CPSEs is being made through internal
resources rather than through investment from outside.
I
Navratna Companies
‘Navratna’ Companies Number Becomes 18
(Status As on October 31, 2008)
*
Bharat Heavy Electrical Ltd. (BHEL)
*
Bharat Petroleum Corporaton Ltd. (BPCL)
*
Hindustan Petroleum Corporation Ltd. (HPCL)
*
Indian Oil Ltd. (IOL)
*
Mahanager Telephone Nigam Ltd. (MTNL)
*
Oil and Natural Gas Corporation (ONGC)
*
National Thermal Power Corporation (NTPC)
*
Steel Authority of India Ltd. (SAIL)
*
Gas Authority of India Ltd. (GAIL)
*
Bharat, Electronic Ltd. (BEL)
*
Hindustan Aeronautical Ltd. (HAL)
*
Power Finance Corporation (PFC)
*
National Mineral Development Corporation (NMDC)
*
Power Grid Corporation of India Ltd. (PGCIL)
*
Rural Electrification Corporation (REC)
*
National Aluminium Company (NALCO)
*
Shipping Corporation of India (SCI)
*
Coal India Ltd. (CIL)
II
Mini Ratna Scheme
The Government grants enhanced autonomy and delegation of financial powers to other profit
making companies (other than Navratna CPSEs) subject to certain eligibility conditions and guidelines.
These companies, called Miniratnas, are classified into two categories, namely, Category - I and
Category-II. The criteria for conferring the Miniratna status are : (i) PSE should be profit making for the
last 3 years continuously and should have positive net worth, (ii) it should not have defaulted in
repayment of loans/ interest payment on loans due to government, (iii) it should not depend upon
budgetary support or Government guarantee (Government guarantee required under the standard
stipulations of external donor agencies will not affect the Miniratna status); and (iv) restructuring of the
Board of Directors by inducting non-official Directors. CPSEs which have made pre-tax profit of Rs. 30
crore or more in at least one of the 3 years are given Category I status while others are given Category
Miniratna if it fulfils the eligibility conditions.
Highlights of Central Public Sector Enterprises Survey 2007-08
*
ONGC top profit making central PSU with total earning of Rs. 16702 crore.
*
National Aviation Company of India Ltd. biggest loser with a total loss of Rs. 2226 crores.
*
Persons employed by CFSEs down to 1.57 milliion from 1.61 million.
372
*
Market capitalisation of 41 listed companies rises 65 percent during 2007-08
*
CPSEs contribution to the exchaquer increases of Rs. 1.66 lakh crore from Rs. 1.49 lakh
crore.
*
Net worth of the CPSEs rise 14.66 percent to Rs. 5.21 lakh crore
*
Profit of CPSEs up marginally to Rs. 91,140 crore from Rs. 89578 crore.
*
Lossess too up at Rs. 11254 crore from Rs. 8457 crore.
*
Salary bill of CPSEs rises 16 per cent to Rs. 64,306 crore.
*
Foreign exchange earning rise to Rs. 74283 crore from Rs. 70906 crore.
*
Paid up capital of 242 companies up 2 percent to Rs. 1.34 lakh crore.
*
Turover of CPSEs rises to Rs. 10.81 lakh crore from Rs. 9.64 lakh crore.
II.
Investment in PSUs :
As we all know that PSUs operate at two levels - Centre Level PSUs and State Level PSUs.
Data about Central Government PSUs is compiled annually in Public Enterprises Survey is very
authentic. As per information provided, during the 17 year (1990 to 2007), investment in Central
Government PSUs has risen from Rs. 99,330 crores on 31st March 1990 to Rs. 4,21,089 crores as on
March 31, 2007, indicating an annual average growth rate of 9.0%. Total proceeds realised from
disinvestments is of the order of Rs. 51,609 crores, i.e. 12.3% of total investment in CPSUs.
Disinvestment has also been undertaken in States. As per information complied by Institute of
Public Enterprises, Hyderabad, out of 222 State Level Public Enterprises (SLPEs) identified for
disinvestment/winding up/Restructuring, the process of disinvestment/ privatisation has been initiated in
124 enterprises, 30 SLPEs have been privatised and 68 SLPEs have been closed down, as per
information available at the Website of Ministry of Disinvestment upto 25.12.2002.
According to the Ministry of Disinvestment, estimated total investment in State Level Public
Enterprises was of the order of Rs. 1,62,063 crores as on 31st March 2000. Six states, viz., Gujarat,
Maharashtra, Karnataka, Uttar Pradesh, West Bengal and Punjab accounted for a total investment of
Rs. 1,03,084 crores, accounting for 63.6% of total investment in all SLPEs.
19.4.4 Disinvestment in India : Meaning and Rational
The term ‘disinvestment’ is used to indicate the process of privatisation. Since the beginning of
1980s, the functioning of the Indian public sector began to be questioned. It was held that the public
sector performed well only when protected through state monopolies, entry reservations, high tariffs
and quotas etc. public enterprises incurred losses year after year, it was argued that the State should
not be called upon to meet the losses of these enterprises. Since the public sector had entered into too
many areas, the question of withdrawing from these areas was also raised. Disinvestment is the
process through which privatisation could take place.
The collapse of the Soviet Union towards the end of the eighties followed by several East
European countries eroded the faith in the public sector still further. Since in the erstwhile socialist
economies, disinvestment of state owned enterprises was undertaken on a big scale, the critics of the
public sector argued for reducing the area of operation of the public sector.
Objectives :
Giving the rational for disinvestment, the Ministry of Disinvestment outlined the following as the
primary objectives :
373
1.
Releasing the large amount of public resources locked up in non-strategic PSEs and
redeployment in areas that are much higher on the social priority such as basic health, family, welfare,
primary education, social and economic infrastructure
2.
stemming further outflow of these scarce public resources for sustaining the unviable nonstrategic PSEs;
3.
reducing the public debt;
4.
transferring the commercial risk to the private sector wherever the private sector is willing and
able to step in; and
5.
releasing other tangible and intangible resources, such as, large manpower currently locked up
in managing PSEs, and their time and energy, for redeployment in high priority social sectors that are
short of such resources.
Self Assessment Question
Q.
Define Disinvestment.
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
19. 4.5 DISINVESTMENT POLICY IN INDIA SINCE 1991-92
The disinvestment policy of the Government of India evolved over a period. Following policy
statements enlist the various measures taken to disinvest.
Disinvestment Policy Statements in the Nineties
1.
Industrial Policy Statement of 24th July 1991 :
The Industrial Policy Statement of 24th July 1991 stated that the government would divest part
of its holdings in selected PSEs. The objective for disinvestment was stated to be to provide further
market discipline to the performance of public enterprises.
2.
Report of Rangarajan Committee (on the Disinvestment of Shares in PSEs) April 1993 :
The Rangarajan Committee emphasised the need for substantial disinvestment. It stated that
the percentage of equity to be divested could be upto 49% for industries explicitly reserved for the
public sector. In exceptional cases, such as the enterprises, which had a dominant market share or
where separate identity had to be maintained for strategic reasons, the target public ownership level
could be kept at 26%, that is, disinvestment could take place to the extent of 74%. In all other cases, it
recommended 100% disinvestment of Government Stake Holding.
3.
Strategic & Non-Strategic Classification, 1999 :
On 16th March 1999, the Government classified the Public Sector Enterprises into strategic and
non-strategic areas for the purpose of disinvestment. It was decided that the Strategic Public Sector
Enterprises would be those in the areas of :
*
war-ships.
Arms and ammunitions and the allied items of defence equipment, defence air-crafts and
*
Atomic energy (except in the areas related to the generation of nuclear power and
applications of radiation and radio-isotopes to agriculture, medicine and non-strategic industries).
374
*
Railway transport.
All other Public Sector Enterprises were to be considered non-strategic. For the non-strategic
Public Sector Enterprises, it was decided that the reduction of Government stake to 26% would be
worked out on a case-to-case basis.
Phases of Disinvestment Policy in India Since 1991-92 :
The policy of Government on disinvestment station from 1991-92 be divided into phases :
I
(i)
Initial phase 1991-92 to 1997-98
(ii)
Second phase 1998-99 to till 2005
(iii)
Third Phase : 2005 onwards
Initial Phase :
This can be further divided into two periods :
Year 1991 to 1995
The first policy on disinvestment was announced in 1991-92 by the then Finance Minister. He
stated that “Government of India would disinvest 20% of equity in selected public undertakings in favour
of mutual funds and financial investment institutions in public sectors”.
Later in Budget speech of 1991-92 eligible investor universe was modified to include mututal
funds and workers.
Year 1996 to 1997
The main highlight of disinvestment policy announced by the Central Government in 1996-97
was disinvestment of shares in PEs to 26% with the exception that it will be done in the case of nonstrategic public enterprises only.
II
Second Phase : This can be described as follows:
Policy 1999-2000
In this policy announced in 1999-2000 budget, regarding disinvestment government classified,
public sector enterprises into strategic and non-strategic for the purpose of disinvestment. This
happened for the first time in the history of disinvestment in India.
Barring the following three all other Public Enterprises (PEs) were to considered non-strategic:
1.
Arms and Ammunition and allied items of defence equipments, defence air crafts and
work shop.
2.
Atomic energy
3.
Railway Transport
Disinvestment Measures since 2000-2001 :
For the first time the Government in its Budget Speech 2000-01 made the statement that it may
reduce its stake in the non-strategic PSEs even below 26% if necessary. Moreover there would be
increasing emphasis on strategic sales and that the entire proceeds from disinvestment/privatisation
would be deployed in social sector, restructuring of PSEs and retirement of public debt.
375
There were many PSUs, which were sick and not capable of being revived. The only option left
was to close down these undertakings after providing an acceptable safety net for the employees and
workers. Resources under the National Renewal Fund were not sufficient to meet the cost of Voluntary
Retirement Scheme (VRS) for such PSUs. At the same time these PSUs had assets which realised
could be used for funding VRS.
Disinvestment Measures (2002-2003) : Progress and Experience
In the Budget speech 2002-03, it was mentioned that other than Modern Food Industries (India)
Limited, only minority stakes in differnet PSEs were sold before the year 2000. The Government
modified its policy to emphasise on strategic sale? The disadvantages of sale of minority stakes by the
Government were found to be as follows : [For Methods of Privatisation, pl. see the Appendix] :
*
Lower realisations as the management control was not transferred.
*
With the limited holding remaining with the Government after minority sales, only small
stakes could be offered to the strategic partner, if decided to go for a strategic sale subsequently.
Hence, it reduced the possibility of higher realisations from the strategic partner.
The minority sales also give the impression that the main objective of the Government is to
obtain funds for reducing its fiscal deficit, and not to improve performance of government.
The Government finalised the privatisation/disinvestment of 12 companies through strategic
sales and 18 hotels of ITDC and 3 of HCI through demerger/slump sale (till 15th July, 2002).
Despite opposition from left parties, the Government has pursued very modest privatisation of
CPSEs till 2007-08.
III
Third Phase : Two developments took place
1.
Setting up of National Investment Fund, 2005
The Government of India decided to constitute 'National Investment Fund' (NIF) in the year
2005 to channelise proceeds from disinvestment in it. (outside Consolidated Fund of India)
- Corpus of NIF of permanent nature
- Professionally managed Fund by selected Public Sector Mutual Funds of UTI, SBI and LIC
- 75 pc of annual income of Fund will enter into social sector sentences (on education, health and
employment) list given below :
JNNURM, AIBP, RGGVY, APDRP, IAV, NREGS.
- 25 pc of annual income of Fund will be used to meet capital investment requirements of
Profitable and revivable PSUs.
2.
Restructuring of NIF, 2009
The Government approved change in the policy on utilisation of disinvestment proceeds for the
period 2009-12 (further extended to 2012-13) due to major difficulties
- Global Slowdown of 2008-09
3.
Severe drought in 2009-10
Revision of Policy on NIF, 2013
The Government approved restructuring of NIF w.e.f. fiscal year 2013-14 : disinvestment
proceeds will be credited to Public Account under the head NIF – can be invested for approved purpose
only
376
Process of Using Proceeds :
Proceeds of disinvestment (Classified as Non-Debt Capital Receipt) have emerged as a major source
of fund for the Central Government's budgetary allocation.
For the year 2019-20, target was set at Rs. 1.05 lakh Crore (revised downward to Rs. 65,000 Crores),
till Feb 2020 only Rs. 34,845 coule be mobilised.
The Union Budget 2020-21 targetted disinvestment worth Rs. 2.10 lakh Crore while only Rs. 90,000
crore is expected to be mobilised from PSAS
Table 1 : Targeted and Actual Disinvestment from April 1991 onwards
(Rs. crores)
Year
Targeted Receipts
Actual Receipts
1991-92
2,500
3,038
1992-93
2,500
1,913
1993-94
3,500
Nil
1994-95
4,000
4,843
1995-96
7,000
168
1996-97
5,000
380
1997-98
4,800
910
1998-99
5,000
5,371
1999-00
10,000
1,860
2000-01
10,000
1,871
2001-02
12,000
5,658
2002-03
12,000
3,348
2003-04
14,500
15,547
2004-05
4,000
2,765
2005-06
No target
1,570
2006-07
No target
Nil
2007-08
No target
4,181
2008-09
No target
23,553
2009-10
No target
22,763
2010-11
No target
99,739
Total
99,738,92
2019-20
65.000
2020-21 (T)
2.10 Cr. (Rs. 90,000 cr from
dis inv of PSB and FIs.)
34,845 till late Feb 2019
Source : Government of India, Public Enterprises Survey, 2008-09 c.f. Misra & Puri, 2009.
377
As discussed in the previous sections Government-owned firms, namely the PSUs and public
sector enterprises (PSEs), played a important role in India’s development process. The Government
‘redefined’ (disinvestment and privatisation) the role for these firms once the reform process began in
1991. By that time, the Government had invested a total of Rs. 2.4 lakh crores in 244 firms (the journey
with 5 firms and a modest investment of Rs. 29 crores in March, 1951). By 2019, the Government1 had
invested with Rs. 16.41 lakh crores in a total number of 348 such firms.
Meaning
Disinvestment is the process of ‘selling ownership’ in a company. Technically, the term many be
used in case of any company (i.e., privately owned company), but in practice, it is used only in case of
a government-owned company. Disinvestment commenced in the country with three inter-related coordinates:
1. As a tool of public sector reforms;
2. As a part of the economic reform process.
(i.e., as part2 of the de-reservation of industries); and
3. As a tool of resource3 mobilisation for. budgetary needs.
The approach towards public sector reforms in India has been much more cautious than that of
the other developing countries. India did not follow the radical solution to it-under which outright
privatisation of commercially viable PSUs is done and the unviable ones are completely closed4. There
was an emphasis on increasing functional autonomy of public sector organisations to improve their
efficiency in the 1980s in India as part of the public sector reforms. Once the process of economic
reforms started in the early 1990s, disinvestment became a part of the public sector reforms. The C.
Rangarajan Commission on Disinvestment of the Public Sector Enterprises (1991) suggested the way,
taking empirical notes from the experiences of disinvestment around the world. The government started
the process of disinvestment in 1991. In 1997, the government did set up a Disinvestment Commission
to advise upon the various aspects of the disinvestment process. The financial year 1999-2000 saw a
serious attempt by the government to make disinvestment a political process to expedite the process of
disinvestment in the country – first a Disinvestment Department and later a full -fledged Ministry of
Disinvestment was set up. The new government (UPA) dismantled the Ministry of Disinvestment and
1
Economic Survey 2019-20, vol. 2 (New Delhi: Ministry of Finance, Gol). Pp. 221-22.
2. The de-reservation of industries had allowed the private sector to enter the areas hitherto reserved for the Central
Government. It means in the coming times in the unreserved areas the PSUs were going to face the international class
competitiveness posed by the new private companies. To face up the challenges the existing PSUs needed new kind of
technological, managerial and marketing strategies (similar to the private companies). For all such preparations there was
a requirement of huge capital. The government thought to partly fund the required capital out of the proceeds of
disinvestment of the PSUs. In this way investment should be viewed in India as a way of increasing investment in the
divested PSUs (which we see taking place in the cases of BALCO, VSNL, etc.).
3. Right since 1991 when disinvestment began, governments have been using the disinvestment proceeds to manage fiscal
deficits in the budget at least up to 2000-01. From 2000-01 to 2002-03 some of the proceeds went for some social sector
reforms or for labour security. After 2003, India established National Investment Fund to which the proceeds of
disinvestment automatically flow and is not regarded as a capital receipt of the Union Government. This idea of Indian
experiment with disinvestment was articulated by Sach, Varshney, and Bajpai, India in the Era of Economic Reforms, op.
cit. pp. 62-63.
4. As was done by Margaret Thatcher in the UK in the mid-1980s. Her brand of privatisation was driven by the conviction that
government control makes PSUs inherently less efficient and privatisation, therefore, improves its economic efficiency and
is good for the consumers. However, this idea has been rejected around the world on the empirical bases. A PSUs could
also have comparable economic efficiency even being under full government control. This was followed by Mrs. Thatcher
(1979-90) forcefully in Great Britain conjoined with the supply-side economics as was done by Ronald Reagan (1981–89)
in the United States as discussed by P. A. Samuelson and W. D. Nordhaus, Economics (New Delhi: Tata McGraw Hill,
2005), p. 703.
378
today only the Department of Disinvestment is taking care of the matter, working under the Ministry of
Finance.
III.
Disinvestment Policy : An appraisal :
Various issues raised by the critics are:
*
Is the Government classification of 1999 into strategic and non-strategic sectors correct?
*
It is desirable to disinvest profit-making public enterprises, while keeping the loss-making PSUs
under state ownership?
*
What should be the procedure for disinvestment - public offering through stock exchange or
strategic sale to a private party?
*
Should disinvestment create private monopoly in place of public monopoly?
*
What should be the method of valuation of a PSU before a bid for disinvestment is made?
*
Should PSUs be allowed to participate in the bids for disinvestment of PSUs?
*
How should the proceeds from disinvestment be utilised?
*
How should the interests of workers and employees be safeguarded?
A.
Profit-making Public Enterprises :
The question of privatising profit making PSUs had been an issue for debate. It would be
relevant to understand the logic of disinvestment of highly profitable public sector enterprises like the
VSNL (Videsh Sanchar Nigam Limited) and the IBP.
The first question that needs an answer is : Were these two firms loss-making organisations and
did the government, to ward off the impending danger of avoiding loss, undertake disinvestment?
It was not an inefficient concern as the Tatas have given a bid for a price per share at 20 per
cent premium over the share market price. While losing state monopoly, it moved in the direction of
creating ‘private monopoly’. All this was done apparently to reduce fiscal deficit by selling the family
silver. The entire policy of privatisation of the VSNL, a highly profit-making public sector giant, was
hence irrational.
The IBP, another public sector concern, has been taken over by the IOC for the highest bid of
Rs. 1,154 crores to acquire 33.6 per cent stake. It is being argued that this is not privatisation. In other
words, privatisation appears to be the end itself, whereas it is only a means to achive certain ends. All
this is based on the belief that the efficiency of the private sector is taken for granted. Conversely, it is
also believed that the sub-standard performance of the public sector is an unquestioned hypothesis.
S.R. Mohnot, who very meticulously compared the performance of the public and the private sectors in
the study commission