B.A.(Programme)
Semester-VI
Economics
DISCIPLINE SPECIFIC COURSE (DSC)
Economic Development and Policy in India-II
Reading Material (compiled from web): Unit 1-4
SCHOOL OF OPEN LEARNING
University of Delhi
Department of Economics
Graduate Course
DISCIPLINE SPECIFIC COURSE (DSC)
Economic Development and Policy in India-II
Contents
Lesson-1: MACROECONOMIC POLICIES AND THEIR IMPACT
Lesson-2: AGRICULTURE-POLICIES AND PERFORMANCE
Lesson-3: INDUSTRY: POLICIES AND PERFORMANCE
Lesson-4: SERVICES AND TRADE
SCHOOL OF OPEN LEARNING
UNIVERSITY OF DELHI
5, Cavalry Lane, Delhi-110007
UNIT-1
MACROECONOMIC POLICIES AND THEIR IMPACT
Macroeconomic policies and the changes in global economic trends have a profound
impact on human welfare as indicated by poverty, hunger, and malnutrition levels.
Understanding the pathways through which such changes affect nutritional outcomes is
important for designing policies that will improve nutritional outcomes, and protect
vulnerable sections of the population from sliding into poverty and malnutrition. Yet such
analysis continues to be the domain of very few macroeconomists. The purpose of this
chapter, to explain A Conceptual Framework for Investing in Nutrition: Issues,
Challenges, and Analytical Approaches on microeconomic issues and their application to
food consumption and nutrition, is to expose the readers to the approaches to studying the
nutritional implications of macroeconomic policies.
The conceptual frameworks reviewed above help to connect macro policy levels to the
sector level outcomes, which in turn influence household and individual welfare
indicators. The applications of the analytical methods to the study of nutritional impacts
were also presented to provide an introduction and motivation to readers to explore the
methods further. For example, the recently announced Social Development Goals and
their achievement can be tested under various globalization, macroeconomic, and trade
policy scenarios.

Macroeconomic policy induced: Under this hypothesis, the financial crisis is the
result of the pursuit of a set of inconsistent macroeconomic policies. This includes
the case of a Krugman-type (1979) balance of payment crisis, where the exchange
rate collapses as domestic credit expansion by the central bank is inconsistent with
the exchange rate target, as well as the type of self-fulfilling crises of (Obstfeld,
1986, 1996). This explanation presumably also includes the presence of some
structural weaknesses (e.g., declines in competitiveness as a result of poor labour
upgrading, weak financial systems) that make macro policies more likely to be
inconsistent to begin with.

Financial panic: Under this hypothesis, a crisis occurs because the country is
subject to the equivalent of a run on a bank (such as Diamond and Dybvig, 1983),
where creditors, particularly those with short-term claims, suddenly withdraw
from the country, leaving the country with an acute shortage of foreign exchange
liquidity. The withdrawal may be rational for each creditor, as there is lack of
coordination among creditors and each individual's incentive is to withdraw first,
as she fears that others will withdraw before her.
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
Collapse of a bubble: Under this hypothesis, the crisis occurs with the collapse of
a stochastic speculative bubble as in Blanchard and Watson (1982). Although the
bubble is itself a rational equilibrium, but nevertheless is ex post irrational and has
a positive probability of collapse all along.

Moral hazard crisis: Under this hypothesis, a crisis occurs because of excessive,
overly risky investment by banks and other financial institutions that are able to
borrow, as they have implicit or explicit guarantees from the government on their
liabilities and are undercapitalized and/or weakly regulated (as in Akerlof and
Romer, 1993). Foreign and domestic creditors go along with this risky behavior,
as they know that the government or international financial institutions will bail
them out. Krugman (1998) applies this model to the East Asian crisis.

Disorderly workouts: Under this hypothesis, the crisis occurs because there is an
equivalent of a grab for assets in the face of a liquidity problem of a corporate in
the absence of a domestic bankruptcy system (Miller and Zhang, 1997; Sachs,
1994a,b). Since there is no means of reorganizing claims in case of an
international liquidity problem, a disorderly workout results, which in turn
destroys value and creates a debt overhang.
An Overview of Fiscal Policy
Fiscal Policy
Fiscal policy is a government's decisions regarding spending and taxing. If a government
wants to stimulate growth in the economy, it will increase spending for goods and
services. This will increase demand for goods and services. Since demand goes up,
production must go up. If production goes up, companies may need to hire more people.
People that were once unemployed may now have jobs and money to spend on goods and
services.
This will further increase the demand and require more production and, hopefully, the
cycle of growth will continue. Barry may even get more business as people have more
money to spend on products at his store. Consequently, government spending tends to
speed up economic growth.
If the government thinks the economy is overheating - or growing too fast - the
government may decrease spending. A decrease in government spending will decrease
overall demand in the economy.
Businesses will slow production, which means profits will decline, resulting in less hiring
and business investments. A cut in government spending may hurt Barry's business,
because there will be less money in people's pockets to spend at his store, possibly from
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being laid off. If Barry provides goods or services to the government, he may take a
double-hit.
The other side of fiscal policy is taxes. Decreasing taxes tends to stimulate economic
growth. If taxes go down, Barry will have more money in his pocket. He'll either spend it
or save it. If he spends it, he increases demand and businesses have to produce more. This
means they may have to hire more people. These people will then have more money to
save or spend - maybe at Barry's store. On the other hand, if Barry saves the money, he'll
put it in his bank. The bank will loan the money he deposited, and borrowers will spend
it.
Some economists are concerned that government spending and reduction in taxes will
create a crowding out effect. If the government doesn't have enough revenue to support
spending, it will have to borrow money. According to some economists, government
borrowing tends to increase interest rates. And, increased interest rates discourage
individuals and businesses, like Barry, from borrowing money for spending and
investment. According to these economists, government spending may crowd out private
investment.
If the government wants to slow down an overheating economy, it may decide to raise
taxes. This means people have less money to spend. Fewer people will be hired because
there is less demand. Unemployed people don't have extra money to spend at Barry's
store. Barry may not make as much money, which means he'll have less money to invest
in his business and less money to spend for his personal consumption. The economy will
slow down.
Fiscal policy refers to the tax and spending policies of a nation's government. A tight, or
restrictive fiscal policy includes raising taxes and cutting back on federal spending. A
loose or expansionary fiscal policy is just the opposite and is used to encourage economic
growth. Many fiscal policy tools are based on Keynesian economics and hope
to boost aggregate demand.
When it comes to influencing macroeconomic outcomes, governments have typically
relied on one of two primary courses of action: monetary policy or fiscal policy.
Monetary policy involves the management of the money supply and interest rates
by central banks. To stimulate a faltering economy, the central bank will cut interest
rates, making it less expensive to borrow while increasing the money supply. If the
economy is growing too rapidly, the central bank can implement a tight monetary policy
by raising interest rates and removing money from circulation.
Fiscal policy, on the other hand, determines the way in which the central government
earns money through taxation and how it spends money. To stimulate the economy, a
government will cut tax rates while increasing its own spending; while to cool down an
overheating economy, it will raise taxes and cut back on spending.
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There is much debate as to whether monetary policy or fiscal policy is the better
economic tool, and each policy has pros and cons to consider.
KEY TAKEAWAYS

Central banks use monetary policy tools to keep economic growth in check and
stimulate economies out of periods of recession.

While central banks can be effective, there could be negative long-term
consequences that stem from short-term fixes enacted in the present.

Fiscal policy refers to the tools used by governments to change levels of taxation
and spending to influence the economy.

Fiscal policy can be swayed by politics and placating voters, which can lead to
poor decisions that are not informed by data or economic theory.

If monetary policy is not coordinated with a fiscal policy enacted by governments,
it can undermine efforts as well.
An Overview of Monetary Policy
Monetary policy refers to the actions taken by a country's central bank to achieve
its macroeconomic policy objectives. Some central banks are tasked with targeting a
particular level of inflation. In the United States, the Federal Reserve Bank (the Fed) has
been established with a mandate to achieve maximum employment and price stability.
When a country's economy is growing at such a fast pace that inflation increases to
worrisome levels, the central bank will enact restrictive monetary policy to tighten the
money supply, effectively reducing the amount of money in circulation and lowering the
rate at which new money enters the system. Raising the prevailing risk-free interest rate
will make money more expensive and increase borrowing costs, reducing the demand for
cash and loans.
When a nation's economy slides into a recession, these same policy tools can be operated
in reverse, constituting a loose or expansionary monetary policy. In this case, interest
rates are lowered, reserve limits loosened, and bonds are purchased in exchange for
newly created money. If these traditional measures fall short, central banks can undertake
unconventional monetary policies such as quantitative easing (QE).

Monetary Tools Are General and Affect an Entire Country—Monetary policy
tools such as interest rate levels have an economy-wide impact and do not account for
the fact some areas in the country might not need the stimulus, while states with high
unemployment might need the stimulus more. It is also general in the sense that
monetary tools can't be directed to solve a specific problem or boost a specific
industry or region.
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
The Risk of Hyperinflation—When interest rates are set too low, over-borrowing at
artificially cheap rates can occur. This can then cause a speculative bubble, whereby
prices increase too quickly and to absurdly high levels. Adding more money to the
economy can also run the risk of causing out-of-control inflation due to the premise
of supply and demand: if more money is available in circulation, the value of each
unit of money will decrease given an unchanged level of demand, making things
priced in that money nominally more expensive.
What Is the Difference Between Fiscal Policy and Monetary Policy?
Fiscal policy is policy enacted by the legislative branch of government. It deals with tax
policy and government spending. Monetary policy is enacted by a government's central
bank. It deals with changes in the money supply of a nation by adjusting interest rates,
reserve requirements, and open market operations. Both policies are used to ensure that
the economy runs smoothly; the policies seek to avoid recessions and depressions as well
as to prevent the economy from overheating.
What Are the Main Tools of Monetary Policy?
The main tools of monetary policy are changes in interest rates; changes in reserve
requirements (how much reserves banks need to keep), and open market operations,
which is the buying and selling of U.S. Treasuries and other securities.
What Are Examples of Fiscal Policy?
Fiscal policy involves two main tools: taxes and government spending. To spur the
economy and prevent a recession, a government will reduce taxes in order to increase
consumer spending. The fewer taxes paid, the more disposable income citizens have, and
that income can be used to spend on the economy. A government will also increase its
own spending, such as on public infrastructure, to prevent a recession.
Monetary and fiscal policy tools are used in concert to help keep economic growth stable
with low inflation, low unemployment, and stable prices. Unfortunately, there is no silver
bullet or generic strategy that can be implemented as both sets of policy tools carry with
them their own pros and cons. Used effectively, however, the net benefit is positive to
society, especially in stimulating demand following a crisis.
Why and how are the impacts of monetary and fiscal policies different in a closed
economy versus an open economy?
Fiscal policy is weaker in an open economy than in a closed one, because some stimulus
leaks away as imports. The same link from GDP to imports limits the effectiveness of
fiscal policy in an open economy.
Monetary policy and fiscal policy are two different tools that have an impact on the
economic activity of a country.
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Monetary policies are formed and managed by the central banks of a country and such a
policy is concerned with the management of money supply and interest rates in an
economy.
Fiscal policy is related to the way a government is managing the aspects of spending and
taxation. It is the government’s way of stabilising the economy and helping in the growth
of the economy.
Governments can modify the fiscal policy by bringing in measures and changes in tax
rates to control the fiscal deficit of the economy.
Below are certain points of difference between the monetary and fiscal policy
Monetary Policy
Fiscal Policy
Definition
It is a financial tool that is used by the It is a financial tool that is used by the
central banks in regulating the flow of central government in managing tax
money and the interest rates in an economy revenues
and policies related to
expenditure for the benefit of the economy
Managed By
Central Bank of an economy
Ministry of Finance of an economy
Measures
It measures the interest rates applicable for It measures the capital expenditure and
lending money in the economy
taxes of an economy
Focus Area
Stability of an economy
Growth of an economy
Impact on Exchange rates
Exchange rates improve when there is It has no impact on the exchange rates
higher interest rates
Targets
Monetary policy targets inflation in an Fiscal policy does not have any specific
economy
target
Impact
Monetary policy has an impact on the Fiscal policy has an impact on the budget
borrowing in an economy
deficit
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Financial sector
Sound financial systems underpin economic growth and development, and are crucial to
the World Bank Group’s mission of alleviating poverty and boosting shared prosperity.
Also, tapping into capital markets is needed to attract additional sources to help finance
global development goals, which are projected to require “trillions of dollars” in
financing.

Financial stability, both globally and within countries, generates jobs and
improves productivity. It gives people confidence to invest and save money.
Robust banking systems and capital markets efficiently flow funds toward their
most productive uses, help governments raise investment capital, maintain
financial safety nets and speed payments securely across borders.

Good access to finance improves a country’s overall welfare because it enables
people to thrive and better manage their needs, expand their opportunities and
improve their living standards. When people are financially included, it’s easier to
manage consumption, payments and savings, access better housing, healthcare
and education, start a small business, and use insurance products to protect
themselves from shocks. Finance also helps level the playing field – making
significant wealth and connections less relevant.

Capital markets are becoming essential to financing infrastructure such as roads,
power plants, schools, hospitals and houses and to help manage unforeseeable
risk. They are increasingly relevant for the Sustainable Development Goals as
reaching many of them will require long-term financing that traditional funding
sources won’t be able to cover. Attracting private sector finance and investment to
help cover the huge financing gaps is necessary to help the world meet these
global goals.
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UNIT-2
AGRICULTURE-POLICIES AND PERFORMANCE
Agricultural Productivity
By the term agricultural productivity, we mean the varying relationship between the
agricultural output and one of the major inputs such as land. The most commonly used
term for representing agricultural productivity is the average yield per hectare of land.
After the introduction of modern agricultural technique along-with the adoption of hybrid
seeds, extension of irrigation facilities and application of intensive method of cultivation
in India, yield per hectare of all crops has recorded a steep rising trend. Table 3.1 shows
the trend in agricultural productivity in India, i.e., the average yield per hectare.
The Table 3.1 reveals that in India the average yield per hectare for all food-grains has
recorded an increase from 5.5 quintals in 1949-50 to 7.6 quintals in 1964-65 and then to
18.98 quintals in 2008- 09 showing an annual growth rate of 1.4 per cent during 1950-65
and 2.4 per cent during 1965-2007.
Moreover, the average yield per hectare in respect of rice and wheat which were 7.1
quintals and 6.6 quintals respectively in 1949-50 gradually increased to 10.8 quintals and
9.1 quintals in 1964-65 showing an annual growth rate of 2.1 per cent and 1.3 per cent in
respect of rice and wheat respectively.
Green revolution (GR), great increase in production of food grains
(especially wheat and rice) that resulted in large part from the introduction into
developing countries of new, high-yielding varieties, beginning in the mid-20th century.
Its early dramatic successes were in Mexico and the Indian subcontinent. The new
varieties require large amounts of chemical fertilizers and pesticides to produce their
high yields, raising concerns about cost and potentially harmful environmental effects.
Poor farmers, unable to afford the fertilizers and pesticides, have often reaped even lower
8
yields with these grains than with the older strains, which were better adapted to local
conditions and had some resistance to pests and diseases.
Positive impacts on poverty reduction and lower food prices were driven in large part by
crop germplasm improvements in CGIAR centres that were then transferred to national
agricultural programs for adaptation and dissemination. The productivity gains from crop
germplasm improvement alone are estimated to have averaged 1.0% per annum for wheat
(across all regions), 0.8% for rice, 0.7% for maize, and 0.5% and 0.6% for sorghum and
millets, respectively. Adoption rates of modern varieties in developing countries
increased rapidly, reaching a majority of cropland (63%) by 1998.
However, global aggregates mask great geographic disparities. In Asian countries
(including China), the percentage of area planted to modern varieties was 82% by 1998,
whereas improved varieties covered only 27% of total area planted in Africa. This
difference may be, in part, because of the later introduction of CGIAR research programs
focused on Africa as well as the lag in breeding efforts for the orphan crops—crops that
did not benefit from a backlog of research conducted before the GR period but had
improvement that came during the GR and post-GR periods, such as cassava, sorghum,
and millets—which are of greater relative importance to the African poor. For instance,
the first CIMMYT maize program focused on Africa only began in the late 1980s.
Although the International Institute for Tropical Agriculture research for cassava started
in 1967, its impact was felt only since the 1980s. Although it lagged behind in the GR
period, Africa has witnessed positive growth in the post-GR period. Adoption of
improved varieties across sub-Saharan Africa reached 70% for wheat, 45% for maize,
26% for rice, 19% for cassava, and 15% for sorghum by 2005.
Impact on Productivity and Food Prices
The rapid increase in agricultural output resulting from the GR came from an impressive
increase in yields per hectare. Between 1960 and 2000, yields for all developing countries
rose 208% for wheat, 109% for rice, 157% for maize, 78% for potatoes, and 36% for
cassava. Developing countries in southeast Asia and India were the first countries to show
the impact of the GR varieties on rice yields, with China and other Asian regions
experiencing stronger yield growth in the subsequent decades. Similar yield trends were
observed for wheat and maize in Asia. Analysis of agricultural total factor productivity
(TFP) finds similar trends to the partial productivity trends captured by yield per hectare
[TFP is defined as the ratio of total output to total inputs in a production process. For the
period 1970–1989, change in global TFP for agriculture was 0.87%, which nearly
doubled to 1.56% from 1990 to 2006.
Crop genetic improvement focused mostly on producing high-yielding varieties (HYVs),
but the decrease in time to maturity was also an important improvement for many crops,
allowing for an increase in cropping intensity. The rapid spread of the rice–wheat system
in the Indo-Gangetic plains (from Pakistan to Bangladesh) can be attributed to the
shortening of the crop growing period. Other improved inputs, including fertilizer,
irrigation, and to a certain extent, pesticides, were also critical components of the GR
9
intervention. Asia had already invested significantly in irrigation infrastructure at the start
of the GR and continued to do so throughout the GR and post-GR periods.
Widespread adoption of GR technologies led to a significant shift in the food supply
function, contributing to a fall in real food prices. Between 1960 and 1990, food supply in
developing countries increased 12–13%. Estimates suggest that, without the CGIAR and
national program crop germplasm improvement efforts, food production in developing
countries would have been almost 20% lower (requiring another 20–25 million hectares
of land under cultivation worldwide) . World food and feed prices would have been 35–
65% higher, and average caloric availability would have declined by 11–13%. Overall,
these efforts benefited virtually all consumers in the world and the poor relatively more
so, because they spend a greater share of their income on food.
Limitations of GR-Led Growth Strategies
The GR contributed to widespread poverty reduction, averted hunger for millions of
people, and avoided the conversion of thousands of hectares of land into agricultural
cultivation. At the same time, the GR also spurred its share of unintended negative
consequences, often not because of the technology itself but rather, because of the
policies that were used to promote rapid intensification of agricultural systems and
increase food supplies. Some areas were left behind, and even where it successfully
increased agricultural productivity, the GR was not always the panacea for solving the
myriad of poverty, food security, and nutrition problems facing poor societies.
Poverty and Food Insecurity Persisted Despite the GR Success.
There is a large econometric literature that uses cross-country or time series data to
estimate the relationship between agricultural productivity growth and poverty. These
studies generally find high poverty reduction elasticities for agricultural productivity
growth. In Asia, it has been estimated that each 1% increase in crop productivity reduces
the number of poor people by 0.48% . In India, it is estimated that a 1% increase in
agricultural value added per hectare leads to a 0.4% reduction in poverty in the short run
and 1.9% reduction in the long run, the latter arising through the indirect effects of lower
food prices and higher wages. For low income countries in general, the impact on the
poverty headcount has been found to be larger from agricultural growth relative to
equivalent growth in the non-agricultural sector at a factor of 2.3 times. In sub-Saharan
Africa, agriculture’s contribution to poverty reduction was estimated to be 4.25 times the
contribution of equivalent investment in the service sector.
Because the GR strategy was based on intensification of favourable areas, its contribution
to poverty reduction was relatively lower in the marginal production environments. In
South Asia, the poorest areas that relied on rain-fed agriculture were also the slowest to
benefit from the GR, contributing to widening interregional disparities and an incidence
of poverty that still remains high. Technologies often bypassed the poor for a number of
reasons. Among these reasons were inequitable land distribution with insecure ownership
and tenancy rights; poorly developed input, credit, and output markets; policies that
10
discriminated against smallholders, such as subsidies for mechanization or crop and scale
bias in research and extension; and slow growth in the nonfarm economy that was unable
to absorb the rising numbers of rural unemployed or underused people . Migration from
less-favoured rural areas has been cited as a strategy for poverty reduction; however,
when migration out of rural areas occurs faster than the growth in employment
opportunities, only a transfer of poverty results rather than true poverty reduction
associated with agricultural transformation.
Sex played a major role in determining the distribution of benefits from the GR. Women
farmers and female-headed households are found to have gained proportionally less than
their male counterparts across crops and continents. Technology transfer largely focused
on male farmers, with few measures to address women’s technology needs or social
conditions, and thus, they largely missed women farmers. Cross-country empirical
evidence shows that women farmers are no less efficient than their male counterparts
when using the same productive assets; however, women consistently face barriers to
accessing productive resources and technologies.
Nutrition: Calorie Availability Increases but Micronutrient Intake Is Still Lagging.
Between 1960 and 1990, the share of undernourished people in the world fell
significantly. Improved availability and decreased staple food prices dramatically
improved energy and protein consumption of the poor. The pathways through which the
GR improved nutritional outcomes depended on whether a household was a net producer
or net consumer; however, for virtually all consumers, the supply shifts and GR-driven
rise in real incomes had positive nutritional implications.
Again, during the post-green revolution period (1965-2009), the average yield per hectare
in respect of rice and wheat has again increased to 21.86 quintals and 28.91 quintals
respectively showing a considerable annual growth rate of 3.4 per cent in respect of
wheat and 2.3 per cent in respect of rice. But the annual growth rate of coarse cereals
increased by only 1.3 per cent and that of pulses of only 0.5 per cent during the period
1967-2009. Moreover, the annual growth rate of yield per hectare of all crops went up to
2.49 per cent during the period 1980-81 to 1993-94 as compared to that of 1.28 per cent
during 1967-68 to 1980-81.
Among the non-food-grains, cotton and sugarcane achieved a modest growth rate of 2.0
per cent and 1.0 per cent respectively during 1950-65 and again to the extent of 2.4 per
cent and 1.2 per cent respectively during 1967-2009.
Moreover, potato has recorded a considerable increase in annual growth rate from 1.6 per
cent during 1950-65 to 3.0 per cent during 1967-2009. Again, taking all crops together,
the annual average growth rate of all crops rose from 1.3 per cent during 1950-1965 to
1.9 per cent during 1967-2009. Thus, the above data reveal that the green revolution and
the application of new bio-chemical technology have become very much effective only in
case of wheat and potato but proved ineffective in case of other crops.
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Moreover, if we compare the average yield per hectare of various crops in India with
foreign countries then we find that India lags far behind the other developed countries of
the world.
In 1990- 91, the annual average yield of rice per hectare was only 17.5 quintals in India
as against 41 quintals in U.S.A., 61.9 quintals in Japan and 54 quintals in China. Again,
the annual average yield of wheat per hectare was only 22.7 quintals in India as against
68 quintals in Germany, 61 quintals in France and 30 quintals in China.
Trends in Agricultural Production:
Agricultural production in India can be broadly classified into food crops and commercial
crops. In India the major food crops include rice, wheat, pulses, coarse cereals etc.
Similarly, the commercial crops or non-food crops include raw cotton, tea, coffee, raw
jute, sugarcane, oil seeds etc.
In India, total agricultural production has been increasing with the combined effect of
growth in total cultivated areas and increases in the average yield per hectare of the
various crops. Table 3.2 reveals the trend in total agricultural production in India since
independence.
The Table 3.2 reveals that total production of food grains had increased from 55 million
tonnes in 1949-50 to 89 million tonnes in 1964-65 and then increased to 176 million
tonnes in 1990-91. But in 1991-92, total production of food grains came down to 167
million tonnes mainly due to fall in the production of coarse cereals and in 1993-94, the
production was around 184 million tonnes
In 2002- 03, total production of food grains has further decreased to 174.8 million tonnes.
As per advance estimates, total production of food grains has again increased to 233.9
million tonnes in 2008-09. Thus in the pre-green revolution period (1950-65) the food
grains production had experienced impressive annual growth rate of 3.2 per cent and in
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the post-green revolution period (1967-2007), the same annual growth rate was to the
extent of 2.7 per cent.
The major cereals like rice and wheat recorded a high growth rate, i.e., 3.5 and 4.0 per
cent respectively during the first period (1950-65) and again to the extent of 2.2 and 5.0
per cent respectively during the second period (1967-2007). But the growth rate in coarse
cereals and pulses remained quite marginal.
Total production of rice and wheat have increased from 24 million tonnes and 6 million
tonnes in 1949-50 to 39 million tonnes and 12 million tonnes in 1964-65 and then to 99.2
million tonnes and 80.6 million tonnes respectively in 2008-09. In respect of non-food
grains the trends in production in respect of potato and sugarcane were quite impressive
and that of cotton and oilseeds were not up to the mark.
The table further shows that the new agricultural strategy could not bring a break-through
in agricultural output of the country excepting wheat and potato which recorded about 4.8
per cent and 6.7 per cent annual growth rate respectively during the post-green revolution
period. The growth in output in respect of all other crops remained low and that of coarse
cereals and pulses were only marginal where the annual growth rates were only 0.4 and
1.04 per cent respectively.
From the above analysis we can draw the following important observations:
(i) In the pre-green revolution period, the growth of output has mainly contributed by
the growth or expansion in area but in the post-green revolution period, improvement
in agricultural productivity arising from the adoption of modern technique has
contributed to growth in output.
(ii) In-spite of adopting modern technology, the growth rate in output, excepting wheat
could not maintain a steady level.
(iii) During the post-green revolution period the growth rate in output was comparatively
lower than the first annual growth rate in food grains was maintained at the level of
2.7 per cent in the second period.
(iv) The growth rate in output of oil seeds, pulses and coarse food grains declined
substantially in the second period as the cultivation of these crops have been shifted
to inferior lands.
(v) Although agricultural production attained a substantial increase since independence
but these production trends have been subjected to continuous fluctuations mainly
due to variation of monsoons and other natural factors.
Importance of Agriculture in Indian Economy:
Though industry has been playing an important role in Indian economy, still the
contribution of agriculture in the development of Indian economy cannot be denied.
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1. Agricultural influence on national income: The contribution of agriculture
during the first two decades towards the gross domestic product ranged between
48 and 60%. In the year 2001-2002, this contribution declined to only about 26%.
2. Agriculture plays vital role in generating employment: In India at least twothirds of the working population earn their living through agricultural works. In
India other sectors have failed generate much of employment opportunity the
growing working populations.
3. Agriculture makes provision for food for the ever increasing population: Due
to the excessive pressure of population labour surplus economies like India and
rapid increase in the demand for food, food production increases at a fast rate. The
existing levels of food consumption in these countries are very low and with a
little increase in the capita income, the demand for food rise steeply (in other
words it can be stated that the income elasticity of demand for food is very high in
developing countries).
4. Contribution to capital formation: There is general agreement on the necessity
capital formation. Since agriculture happens be the largest industry in developing
country like India, it can and must play an important role in pushing up the rate of
capital formation. If it fails to do so, the whole process economic development
will suffer a setback.
To extract surplus from agriculture the following policies are taken:
(i) Transfer of labour and capital from farm non-farm activities.
(ii) Taxation of agriculture should be in such a way that the burden on agriculture
is greater than the government services provided to agriculture. Therefore,
generation of surplus from agriculture will ultimately depend on increasing
the agricultural productivity considerably.
5. Supply of raw material to agro-based industries: Agriculture supplies raw
materials to various agro-based industries like sugar, jute, cotton textile and
vanaspati industries. Food processing industries are similarly dependent on
agriculture. Therefore the development of these industries entirely is dependent on
agriculture.
6. Market for industrial products: Increase in rural purchasing power is very
necessary for industrial development as two- thirds of Indian population live in
villages. After green revolution the purchasing power of the large farmers
increased due to their enhanced income and negligible tax burden.
7. Influence on internal and external trade and commerce: Indian agriculture
plays a vital role in internal and external trade of the country. Internal trade in
food-grains and other agricultural products helps in the expansion of service
sector.
14
8. Contribution in government budget: Right from the First Five Year Plan
agriculture is considered as the prime revenue collecting sector for the both
central and state budgets. However, the governments earn huge revenue from
agriculture and its allied activities like cattle rearing, animal husbandry, poultry
farming, fishing etc. Indian railway along with the state transport system also earn
a handsome revenue as freight charges for agricultural products, both-semi
finished and finished ones.
9. Need of labour force: A large number of skilled and unskilled labourers are
required for the construction works and in other fields. This labour is supplied by
Indian agriculture.
10. Greater competitive advantages: Indian agriculture has a cost advantage in
several agricultural commodities in the export sector because of low labour costs
and self- sufficiency in input supply.
land reform, a purposive change in the way in which agricultural land is held or owned,
the methods of cultivation that are employed, or the relation of agriculture to the rest of
the economy. Reforms such as these may be proclaimed by a government, by interested
groups, or by revolution.
The concept of land reform has varied over time according to the range of functions
which land itself has performed: as a factor of production, a store of value and wealth, a
status symbol, or a source of social and political influence. Land value reflects its relative
scarcity, which in a market economy usually depends on the ratio between the area of
usable land and the size of that area’s population. As the per capita land area declines, the
relative value of land rises, and land becomes increasingly a source of conflict among
economic and social groups within the community.
The patterns of wealth and income distribution and of social and political influence are
partly determined by the laws governing land tenure. These laws specify the acceptable
forms of tenure and the privileges and responsibilities that go with them. They define the
land title and the extent to which the owner can freely dispose of it and of the
income accruing from its use. In this sense, the form of tenure determines the wealth and
income distribution based on the land: if private ownership is permitted, class
differentiation is unavoidable; in contrast, public ownership eliminates such distinctions.
The forms of tenure range from temporary, conditional holding to ownership in fee
simple, which confers total unencumbered rights of control and disposal over the land.
Historically, land reform meant reform of the tenure system or redistribution of the land
ownership rights. In recent decades the concept has been broadened in recognition of the
strategic role of land and agriculture in development. Land reform has therefore become
synonymous with agrarian reform or a rapid improvement of the agrarian structure,
which comprises the land tenure system, the pattern of cultivation and farm organization,
the scale of farm operation, the terms of tenancy, and the institutions of rural credit,
marketing, and education. It also deals with the state of technology, or with any
15
combination of these factors, as shown by modern reform movements, regardless of the
political or ideological orientation of the reformers.
Objectives of reform
Reform is usually introduced by government initiative or in response to internal and
external pressures, to resolve or prevent an economic, social, or political crisis. Thus,
reform may be considered a problem-solving mechanism. The true motives for reform,
however, may well differ from those announced by the reformer. The distinction between
the real and proclaimed objectives may be especially significant if the proclaimed
objectives have been forced upon reformers who do not support those objectives. The
reformers may proclaim certain objectives merely to appease the peasants, to undermine
opposition, to win international backing, or to safeguard their own positions.
Agricultural credit
Agriculture is a dominant sector of our economy and credit plays an important role in
increasing agriculture production. Availability and access to adequate, timely and low
cost credit from institutional sources is of great importance especially to small and
marginal farmers. Along with other inputs, credit is essential for establishing sustainable
and profitable farming systems. Most of the farmers are small producers engaged in
agricultural activities in areas of widely varying potential. Experience has shown that
easy access to financial services at affordable cost positively affects the productivity,
asset formation, income and food security of the rural poor. The major concern of the
Government is therefore, to bring all the farmer households within the banking fold and
promote complete financial inclusion. II. AGRICULTURAL CREDIT POLICY The
Government of India has initiated several policy measures to improve the accessibility of
farmers to the institutional sources of credit. The emphasis of these policies has been on
progressive institutionalization for providing timely and adequate credit support to all
farmers with particular focus on small and marginal farmers and weaker sections of
society to enable them to adopt modern technology and improved agricultural practices
for increasing agricultural production and productivity. The Policy lays emphasis on
augmenting credit flow at the ground level through credit planning, adoption of regionspecific strategies and rationalization of lending Policies and Procedures. These policy
measures have resulted in the increase in the share of institutional credit of the rural
households.
INSTITIUTIONAL ARRANGEMENTS Agricultural credit is disbursed through multiagency network consisting of Commercial Banks (CBs), Regional Rural Banks (RRBs)
and Cooperatives. There are approximately 121225 million village level Primary
Agricultural Credit Societies (PACS), 371 District Central Cooperative Banks (DCCBs)
with 13327 branches and 31 State Cooperative Banks (SCBs) with 1028 branches
providing primarily short-term and medium term agricultural credit in the country. The
long term cooperative structure consists of 19 State Cooperative Agriculture and Rural
Development Banks (SCARDBs) and 755 Primary Cooperative Agriculture and Rural
Development Banks (PCARDBs) with 1219 branches and 689 branches respectively,
16
which are catering to the requirement of investment credit. Besides, there are 45957 rural
and semi-urban branches of Commercial Banks, 14462 branches of RRBs and more than
7 million micro finance institutions.
Agriculture labour
Agricultural workers constitute the most neglected class in Indian rural structure. Their
income is low and employment irregular. Since, they possess no skill or training, they
have no alternative employment opportunities either. Socially, a large number of
agricultural workers belong to scheduled castes and scheduled tribes. Therefore, they are
a suppressed class. They are not organised and they cannot fight for their rights. Because
of all these reasons their economic lot has failed to improve even after four decades of
planning. Agricultural Labour in India - A Close Look Dr. Kulamani Padhi This can also
be seen from the Prime Minister's speech made in Lok Sabha on August 4, 1966. The
Prime minister emphasized - "We must give special consideration to the landless
agricultural labour. Although there has been tremendous progress in India since
Independence, this is one section, which has really a very hard time and which is
deserving very special consideration."1 Seasonal unemployment is a characteristic feature
of Agricultural Industry and under employment of man power is inherent in the system of
family farming. According to first A.L.E.C., adult male agricultural labourers were
employed on wages for 189 days in agricultural work and for 29 days in non-agricultural
work i.e., 218 days in all. They were self-employed for 75 days. Casual male workers
found employment for only 200 days, while attached workers were employed for 326
days in a year. Women workers employed for 134 days in a year. Unlike industrial
labour, agricultural labour is difficult to define. The reason is that unless capitalism
develops fully in agriculture, a separate class of workers depending wholly on wages does
not come up.
Difficulties in defining agricultural labour are compounded by the fact that many small
and Orissa Review * February-March - 2007 24 marginal farmers also work partly on the
farms of others to supplement their income. To what extent should they (or their family
members) be considered agricultural labourers is not easy to answer. However, it will be
useful to refer some of the attempts made by experts in this connection.
1. The First Agricultural Labour Enquiry Committee 1950-55 defined Agricultural
Labourer as - "Those people who are engaged in raising crops on payment of wages"
2. The Second Agricultural Labour Enquiry Committee 1956-57 enlarged the
distribution to include –
"Those who are engaged in other agricultural occupations like dairy, farming,
horticulture, raising of live-stock, bees, poultry etc. "In the context of Indian conditions,
the definition is not adequate, because it is not possible to completely separate those
working on wages from others. There are people who do not work on wages throughout
the year but only for a part of it.
17
Therefore, the first A.L.E.C. used the concept of agricultural labour household. If half or
more members of household have wage, employment in agriculture then those
households should be termed as agricultural labour household. This concept was based
upon the occupation of the worker.
The Second Committee submitted that to know whether a household is an agricultural
labour household, we must examine its main source of income. If 50% or more of its
income is derived as wages for work rendered in agriculture only, then it could be classed
to agricultural labour household. According to the National Commission on Labour "an
agricultural labourer is one who is basically unskilled and unorganised and has little for
its livelihood, other than personal labour."
Thus, persons whose main source of income is wage, employment fall in this category.
Mishra and Puri have stated that "All those persons who derive a major part of their
income as payment for work performed on the farms of others can be designated as
agricultural workers. For a major part of the year, they should work on the land of the
others on wages.
Classification of Agricultural Labourers : Agricultural labourers can be divided into four
categories1. Landless Labourers, who are attached to the land lords;
2. Landless labourers, who are personally independent, but who work exclusively for
others;
3. Petty farmers with tiny bits of land who devote most of their time working for
others and
4. Farmers who have economic holdings but who have one or more of their sons and
dependants working for other prosperous farmers. The first group of labourers
have been more or less in the position of serfs or slaves, they are also known as
bonded labourers. Agricultural labourers can also be divided in the following
manner :
1. Landless agricultural labourers
2. Very small cultivators whose main source of earnings due to their small and
sub-marginal holdings is wage employment.
Landless labourers in turn can be classified into two broad categories :
1. Permanent Labourers attached to cultivating households.
2. Casual Labourers.
The second group can again be divided into three subgroups :
(i) Cultivators
(ii) Share croppers
(iii) Lease holders.
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Permanent or attached labourers generally work on annual or seasonal basis and they
work on some sort of contract. Their wages are determined by custom or tradition. On the
other hand, temporary or casual labourers are engaged only during peak period for work.
Their employment is temporary and they are paid at the market rate. They are not
attached to any landlords. Under second group comes small farmers, who possess very
little land and therefore, has to devote most of their time working on the lands of others as
labourers. Share croppers are those who, while sharing the produce of the land for their
work, also work as labourers. Tenants are those who not only work on the leased land but
also work as labourers.
Characteristics of Agricultural Labourers
Before any attempt is made to evolve a rational policy to improve the living conditions of
agricultural labours which happens to belong to the lowest rung of social and economic
ladder, it is essential to know the distinguishing features that characterize agricultural
labourer in India. The main features, characterizing Indian agricultural labour are as
follows :
1. Agricultural Labourers are Scattered Agricultural labour in India is being widely
scattered over 5.6 lakh villages, of which half have population of less than 500 each.
And therefore, any question of building an effective organization, like that of
industrial workers, poses insurmountable difficulties. Thus, as the vast number of
agricultural labours lies scattered all over India, there has been no successful attempt
for long, to build their effective organization even at the state level not to speak of the
national level.
2. Agricultural Labourers are Unskilled and Lack Training Agricultural labourers,
especially in smaller villages away from towns and cities, are generally unskilled
workers carrying on agricultural operation in the century’s old traditional wages.
Most of them, especially those in small isolated villages with around 500 population,
may not have even heard of modernization of agriculture. Majority of them are
generally conservative, tradition bound, totality and resigned to the insufferable lot to
which according to them fate has condemned them. There is hardly any motivation
for change or improvement. Since, there is direct supervision by the landlord, there is
hardly any escape form hard work and since there is no alternative employment. The
agricultural labourer has to do all types of work-farms and domestic at the bidding of
the landlord.
3. Unorganised Sector Agricultural labourers are not organized like industrial labourers.
They are illiterate and ignorant. They live in scattered villages. Hence, they could not
organize in unions. In urban areas workers could generally organize themselves in
unions and it is convenient for political parties to take interest in trade union
activities. This is almost difficult in case of farm labour. Accordingly, it is difficult
for them to bargain with the land owners and secure good wages.
4. Low Social Status Most agricultural workers belong to the depressed classes, which
have been neglected for Orissa Review * February-March - 2007 26 ages. The low
caste and depressed classes have been socially handicapped and they had never the
19
courage to assert themselves. They have been like dump-driven cattle. In some parts
of India, agricultural labourers are migratory, moving in search of jobs at the time of
harvesting. Government measures to improve their lot by legislation have proved
ineffective so far due to powerful hold of the rural elite classes in the rural economy.
5. Demand and Supply of Labour the number of agricultural labourers being very large
and skills they possess being meagre, there are generally more than abundant supply
of agricultural labourer in relation to demand for them. It is only during the sowing
and harvesting seasons that there appears to be near full employment in the case of
agricultural labourers. But, once the harvesting season is over, majority of agricultural
workers will be jobless especially in areas, where there is single cropping pattern.
6. Less Bargaining Power Due to all the above mentioned factors, the bargaining power
and position of agricultural labourers in India is very weak. In fact, quite a large
number of them are in the grip of village money lenders, landlords and commission
agents, often the same person functioning in all the three capacities. No wonder, the
agricultural labour is the most exploited class of people of India.
7. At the Bidding of the Landlord There is generally direct and day to day 'contact
between agricultural labourers and the landlords' on whose farm they are working.
Unlike industrial workers, this direct contact between the employer and employees is
a distinct feature of agriculture labourer.
The above mentioned few important characteristics distinguish agricultural labourers in
India from industrial workers. Thus partly because of factors beyond their control and
partly because of their inherent bargaining weakness, the farm labourers have been
getting very low wages and have therefore to live in a miserable sub-human life.
Agricultural Serfs or Bonded Labourers
At the bottom of the agricultural cadre in India are those labourers whose conditions are
not very different from those of serfs. Agricultural serfdom has been most prevalent in
those parts of India where the lower and the depressed classes and most in numerous. The
ethnic composition of villages which governs the social stratification is responsible for
the survival of the slavish conditions. In Gujarat, Maharashtra, Kerala, Tamil Nadu,
Karnataka, Bihar, Orissa, Madhya Pradesh, a large aboriginal population live and the
condition of this agricultural labours is very much like that of slaves. These are called in
different names in different States.
Conclusions
Developing country agriculture is faced with a growing set of challenges: meeting the
demands of diet diversity resulting from rapidly rising incomes; feeding rapidly growing
urban populations; accessing technologies that are under the purview of proprietary
protection; and gearing up for the projected negative consequences of climate change.
Even as it absorbs the new challenges, the food policymaking community continues to
grapple with its traditional preoccupation of the persistence of hunger and poverty in low
income countries, particularly in sub-Saharan Africa, and lagging regions of emerging
economies.
20
UNIT-3
INDUSTRY: POLICIES AND PERFORMANCE
Industrial condition on eve of Independence
The sole objective of British colonial rule in India was to exploit the available resources
for fulfilling the rising demand for raw materials in the wake of Industrial revolution in
Britain.
The British government did not ever focus on the development of either agriculture sector
or industrial sector to boost up the economy of India, they always exploited in a severe
way possible to increase the income of their native land. There may be arguments that
they developed railway system and quite successful irrigational canal system which are
landmarks in the development of India, but we have to understand that they did it only for
the convenience of better exploitation of Indian resources.
The imperative characteristics of the industrial scenario on the eve of independence have
been illustrated in below mentioned points.
The industrial scenario was depicting lopsided industrial development. The industries
were mostly concentrated in consumer goods over producer goods sector.
The ratio of consumer goods to producing goods was 62:38 in 1953.
The industrial sector possessed very weak infrastructures and was highly underdeveloped.
The ownership of existing industries was concentrated to a minimal population. The
human resources possessing technical and managerial skills were scarce.
There was a lack of intervention from the side of government.
Because of various structural and economic inadequacies on the eve of independence, the
policy makers took the charge and considered industrialization as a tool to fasten and
sustain the economy of the country. The industrial development of the country can be
looked at the different policies framed by contemporary policy makers; those are –
Statement of Industrial Policy, 1945: This policy issued in April 1945, was an important
economic policy document. It ensured the greater role of the state in the process of
industrialization by bringing control of more than 20 industries under it for purpose of
common policy and goal.
Industrial Policy Resolution (IPR), 1948: It was presented in the parliament by then
Industry Minister Shyama Prasad Mukherjee. The sole element of this resolution was that
it introduced India into a system of Mixed Economy. This policy categorized industry
into four folds – Strategic Industries (Public Sector), Basic/Key Industries (Public-cum21
Private Sector), Important Industries (Controlled Private Sector), and Other Industries
(Private and Cooperative Sector). This policy recognized some industries to be reserved
for the production by the public sector as – arms and ammunition, production and control
of atomic energy, and ownership and management of railway.
Industries Development and Regulation Act, 1951: This act was passed to implement
the IPR of 1948. This act ensured and powered the government to direct, regulate and
control industrial investment, location, expansion, management, growth, etc. This act
empowered the government to –
 Make rules for registration of existing industries
 License all new undertakings
 Make rules for regulating production and development of industries
 Consult state governments on these related matters
 Constitute Central Advisory Council and Development Councils
 First and Second Five Year Plans
The first five-year plan was based on Harrod-Damor model and aimed to acquire the
growth rate of 2.1% (Actual growth – 3.6%). The government allocated Rs. 2069 crore as
planned budget, and distributed among seven different broad sectors for its developments.
The industrial sector was allotted 8.4% of the total planned budget. The second five-year
plan was based on Mahalanobis Model, it is an economic development model developed
by statistician Prasanta Chandra Mahalanobis in 1953. Many hydroelectric power projects
and steel plants were installed in the country under this plan to enhance the industrial
growth.
Under this plan, the aim was to achieve the growth rate of 4.5% (Actual growth – 4.27%).
These five-year plans stated that the objective of industrial planning was to make good
the deficiencies in production of key industrial items and to initiate development which
would enable the cumulative expansion of such basic production (Kapila, 2011).
Indian Industrial Licensing System and its Effects
Before the recently introduced trade and industrial policy reforms, it was not an easy task
to set up an industrial enterprise in the country. The central government possessed a
tough control over giving the licenses to industrial units to start their productions and
operations in the country.
It was estimated that about 80 government agencies permit would have been required to
start a private enterprise/industry in that time.
This license system was the result of the decision of policy makers to have a sustainable
economic growth of the country with ensuring tight control of the state in all aspects of
22
the economy, in which licenses were provided to very few satisfying all pre-requisites set
by the government earlier.
This system of Licensing proved itself ineffective and inefficient in promising the
industrial development of the country. This system emerged as a resistance in economic
development as it led to spread the feeling of disinterest among entrepreneurs and
investors.
Industrial Sector Performance Since 1980
The growth rate of the 1980s depicted a good picture of industrial growth in the country
after 30 years of policy experiments. It has been better explained by Chandrasekhar
(2003) as, the stable growth rates of the 1980s suggest that the factors that accounted for
growth during that decade were operative right through those years.
The performance of industrial sector since 1980 can be assessed through segmenting it
into two broad timelines –
Limited Liberalization Period (1980-81 to 1991-92)
Post-Reform Period (1991-92 onwards)
This division has been done into two time periods to better understand the performance of
the industrial sector, on the basis of major industrial policy changes in these time-periods.
The year of 1991 is well known for New Economic Policy introduced by state by taking
stabilization measures and pertaining structural reforms to boost up and enhancing the
growth of the economy. This process is better known through the term of Liberalization,
Privatization, and Globalization. It advocated for free market economy.
In limited liberalization period, the growth rate of industrial sector was quite sound. The
industrial sector accounted for 75% of growth rate averagely in this period, whereas if we
talk about the growth of manufacturing sector in this period it grew at the rate of 5%.
According to L. G. Burange (2011), the reason for sound growth rate in this period were
the fiscal stimulus provided by a rising fiscal deficit to GDP ratio in a still protected
market and the greater access to international liquidity which allowed firms to modernize
capacity and introduce some new product innovations based on imported capital goods,
intermediates, and components.
Joshi and Little (1994) attribute the high growth during this period to the fiscal expansion
financed by external and internal borrowing. This view is also supported by Ahluwalia
(2002) who states that the build-up of external debt culminated in the crisis of 1991.
However, according to Nagaraj (1990), the improved rate of growth in the manufacturing
sector in the eighties was possibly due to a spurt in the production of consumer durables
secured largely by import liberalization giving rise to the term ‘import-led growth’.
23
In post-reform period, the new economic policy was introduced to accelerate the
industrial growth in the country. It started in the year 1991-92 followed by Balance of
Payment crisis.
The aim to enhance the industrial growth was set by removing different related
constraints. Chandrasekhar (2003) pointed out three principal supply-side mechanisms to
boost up Indian industrial sector, these are
 Breaking up of controls was expected to increase domestic competition
 Trigger a process of industrial restructuring that would involve closure of
uneconomic units of production
 Improve capacity utilization and increase efficiency.
The LPG system attracted the investments from around the globe and diminished the role
of the state in the industrial sector. Including these and all other reasons boosted the
economy.
Conclusion
It is found that when the policy of India’s industries is reviewed there have three regimes
which were followed after independence.
These are the planned and controlled period till the end of the 1970s, the liberalization
period of 1980s and the post-reform period of 1990.
It is clearly seen that there was substantial growth in the industrial sector during the
1980s but however the growth was stagnant in the 1990s.
The mining and quarrying, as well as electricity, gas and water supply sectors of the
industry, were decelerated in the post-reform period.
The growth of industrial output has improved if we compared the last two decades with
the previous period of ‘relative stagnation’.
During the mid-1980s there was the approach of relaxation and de-licensing to foster the
industrial technology.
The growth of industrial output also improved as the restrictions on the import was
moved from quotas to tariffs.
India achieved the growth rate of 6.8 percent per year during the 1980-2000 and this led
to liberalization, public sector improvement and investment. But in the 1990s compared
with the previous decade a little change has been shown in the growth rate of industrial
output, moreover, in the mid-1990s there were clear signs of a slowdown in growth for
seven years now.
24
The trade policy reforms and industry were accelerated in 1990 due to orthodox
initiatives since1991. Industrial markets produced a quality product, become more
competitive and improvement in varieties.
The cheapening of machinery and construction become more productive due to fixed
investment. The share of construction sector doubled in the total workforce because of
improvement in the supply of cement and steel which led to increasing in industrial sector
share of the total workforce.
The industrial sector share in GDP in 1990 remained the same in India where industrial
sector share of America in GDP declined. The share of India in manufacturing sector in
1980 was 13.8%, in 1990 16.6% and in 2000 17.2%.
The share of manufacturing sector in workforce remained constant around 12%. The
growth rate of capital goods has not declined during 1992-1998 from that in 19811991.The share of capital goods was constant during the mid-1980s but in 1990 the share
was increased by 1% showing the negative effect of reforms.
The question arises that there was no acceleration in industrial and export growth in the
1990s, unregistered manufacturing suffered in the 1990s and the growth rates of the
output for total and registered manufacturing were lower in the 1990s.
The reason for this question which led to industrial deceleration was ‘stalled’ reforms.
There needs a removal of bottlenecks and to operationalize the reforms which can lead to
sustainable growth.
In1991, when there were huge gains in the economy because of foreign direct investment,
trade barriers the economy started to boom 7 to 8%.
There were cyclical fluctuations in the 1980s but then also employment has not shown up
to the mark even the economy was growing. Therefore, it may be concluded that there is
the growth of small-scale industries and industrial sector, but the rate is below
expectations, especially after liberalization.
Small Scale Industries (SSI) are those industries in which the manufacturing, production
and rendering of services are done on a small or micro scale. These industries make a
one-time investment in machinery, plant, and equipment, but it does not exceed Rs.10
crore and annual turnover does not exceed Rs.50 crore.
Small Scale Industries (SSIs):
Earlier industries that manufactured goods and provided services on a small scale or
micro-scale basis were granted Small Scale Industries (SSI) registration by the Ministry
of Small-Scale Industries. However, after the government passed the MSME (Micro,
Small and Medium Enterprises) Act in 2006, the small and micro-scale industries came
under the MSME Act.
25
On 9 May 2007, subsequent to the amendment of the Government of India (Allocation of
Business) Rules, 1961, the Ministry of Small-Scale Industries and the Ministry of Agro
and Rural Industries were merged to form the Ministry of Micro, Small and Medium
Enterprises. Thus, the SSIs are included under the Ministry of MSME.
Currently, the SSIs are classified as small or micro-scale industries based on the turnover
and investment limits provided under the MSME Act and they need to obtain MSME
registration. The government provides many benefits to the small-scale industries having
MSME registration at present.
Introduction of SSI
Essentially the small-scale industries are generally comprised of those industries which
manufacture, produce and render services with the help of small machines and less
manpower. These enterprises must fall under the guidelines, set by the Government of
India.
The SSIs are the lifeline of the economy, especially in developing countries like India.
These industries are generally labor-intensive, and hence they play an important role in
the creation of employment. SSIs are a crucial sector of the economy both from a
financial and social point of view, as they help with the per capita income and resource
utilization in the economy.
Characteristics of SSI
Ownership
SSIs generally are under single ownership. So, it can either be a sole proprietorship or
sometimes a partnership.
Management
Generally, both the management and the control are with the owner/owners. Hence the
owner is actively involved in the day-to-day activities of the business.
Labor Intensive
SSI’s dependence on technology is pretty limited. Hence, they tend to use labor and
manpower for their production activities.
Flexibility
SSIs are more adaptable to their changing business environment. So, in case of
amendments or unexpected developments, they are flexible enough to adapt and carry on,
unlike large industries.
Limited Reach
Small scale industries have a restricted zone of operations. Hence, they can meet their
local and regional demand.
26
Resources utilization
They use local and readily available resources which helps the economy fully utilize
natural resources with minimum wastage.
Role in the Indian Economy
Employment
SSIs are a major source of employment for developing countries like India. Because of
the limited technology and resource availability, they tend to use labor and manpower for
their production activities.
Total Production
These enterprises account for almost 40% of the total production of goods and services in
India. They are one of the main reasons for the growth and strengthening of the economy.
Make in India
SSIs are the best examples for the Make in India initiative. They focus on the mission to
manufacture in India and sell the products worldwide. This also helps create more
demands from all over the world.
Export Contribution
India’s export industry majorly relies on these small industries for their growth and
development. Nearly half of the goods that are exported from India are manufactured or
produced by these industries.
Public Welfare
These industries have an opportunity to earn wealth and create employment. SSIs are also
important for the social growth and development of our country.
Seedbed for Large Scale Industries
SSI acts as the seedbed for Large Scale Industries (LSI) as it provides conducive
conditions for the development and growth of entrepreneurs. Small enterprises require
low investment and simple technology and use local resources to meet local demands
through personal contacts. Thus, it creates scope for the growth and development of LSI.
Objectives of SSI
The objectives of the small-scale industries are:

To create more employment opportunities.

To help develop the rural and less developed regions of the economy.

To reduce regional imbalances.
27

To ensure optimum utilization of unexploited resources of the country.

To improve the standard of living of people.

To ensure equal distribution of income and wealth.

To solve the unemployment problem.

To attain self-reliance.

To adopt the latest technology aimed at producing better quality products at lower
costs.
Types of SSI
SSI are primarily categorized into 3 types, based on the nature of work carried out, which
are as follows:
Manufacturing Industries
The manufacturing industries manufacture finished goods for consumption or used
further in processing. Some examples of such SSIs are food processing units, power
looms, engineering units, etc.
Ancillary Industries
Ancillary industries manufacture components for other manufacturers. These
manufacturers then assemble the final product. Big companies manufacture finished
goods, but they do not generally make all the parts themselves. The vendors of such big
companies are ancillary industries.
Service Industries
Service-based industries are not involved in any kind of manufacturing products. They
provide services such as repair, maintenance and upkeep of the products after-sales.
Public Sector
public sector, portion of the economy composed of all levels of government and
government-controlled enterprises. It does not include private companies, voluntary
organizations, and households.
The general definition of the public sector includes government ownership or control
rather than mere function and thereby includes, for example, the exercise of public
authority or the implementation of public policy. When pictured as concentric circles, the
core public service in central and subnational government agencies defines the inner
circle of the public sector. In this case, the distinction of the public sector from the private
sector is relatively straightforward—it is evident in terms of employment relationships
and the right of exercising public power. The next circle includes a number of different
quasi-governmental agencies that are, however, placed outside the direct line of
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accountability within government. Examples range from social security funds to regional
development agencies. The outer circle is populated by state-owned enterprises, usually
defined by the government’s ownership or it’s owning the majority of shares. From the
1980s, a number of developed countries witnessed extensive privatizations of stateowned enterprises, whether in parts or in full (examples range from airlines to the
telecom sector), although public ownership continues to be a widespread feature—for
example, in the field of local public transport.
The term public sector is also used for analytical purposes, in particular, as a contrast to
the private sector and third, or voluntary, sector. That allows for the mapping of the scope
of state activities within the wider economy (also allowing for comparison across space
and time). Furthermore, it highlights distinctive patterns and operating procedures within
the public sector.
Objectives of Setting up Public Sector Unit (PSU)

To create an industrial base in the country

To generate a better quality of employment

To develop basic infrastructure in the country

To provide resources to the government

To promote exports and reduce imports

To reduce inequalities and accelerate the economic growth and development of a
country.

Role of Public Sector in the Upliftment of Society

The public sector plays a major role in uplifting the economic condition of society
in various ways.
The major role of the public sector can be explained below:
Public sector & capital formation – This sector has been a major reason for the
generation of capital in the Indian economy. A large amount of the capital comes from
the public sector Units in India
Creation of Employment opportunities – Public sector has brought about a major
change in the employment sector in the country. They provide a lot of opportunities under
various domains and thus helps in uplifting the Indian economy and society.
Development of Different Regions – The establishment of major factories and plants has
boosted the socio-economic development of different regions across the country.
Inhabitants of the region are impacted positively concerning the availability of facilities
like electricity, water supply, township, etc.
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Upliftment of Research and Development – Public sector units have been investing a
lot to introduce advanced technology, automated equipment, and instruments. This
investment would result in the overall cost of production.
Public Sector Undertakings (PSU) – Problems
The major problems of PSUs can be stated below:
 Inappropriate investment decisions
 Improper Pricing Policy
 Excessive overhead cost
 Lack of Autonomy & Accountability
 Overstaffing
 Trade Unionism
 Under Utilization of capacity
 What is Foreign Investment?
Foreign investment is when a domestic investor decides to purchase ownership of an
asset in a foreign country. It involves cash flows moving from one country to another to
execute the transaction. If the ownership stake is large enough, the foreign investor may
be able to influence the entity’s business strategy.
Direct vs. Indirect Foreign Investments
Foreign investments are typically defined as either direct or indirect. Foreign direct
investments are when investors purchase a physical asset such as a plant, factory, or
machinery in a foreign country. In contrast, foreign indirect investments are when
investors buy stakes in foreign companies that trade on their respective stock exchanges.
Generally speaking, direct foreign investments are favoured by the foreign country over
indirect foreign investments because the assets they purchase are considered long-term.
Therefore, they help boost the foreign country’s economy over time.
Alternatively, indirect foreign investments are typically shorter-term investments that
aren’t always used for the growth and development of another country’s economy over
time.
Commercial Foreign Investments and Official Flows
Beyond direct and indirect foreign investments, commercial foreign investments and
official flows are two other types of investing methodologies conducted internationally.
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Commercial loans are essentially bank loans issued by a domestic bank to a foreign
business or government. Similarly, official flows are various forms of development
assistance that developing or developed countries receive from a foreign country.
The Role of Multilateral Development Banks
Multilateral development banks are financial institutions that invest in foreign assets in
developing countries with the objective to stimulate and stabilize economic activity.
Rather than focusing on profit, multilateral development banks invest in projects to
support their respective country’s economic development.
An example may be infrastructure investments, such as toll roads or bridges in foreign
countries, where the financing is composed of very low to zero interest debt. By doing so,
it creates new industries and opportunities within that area.
For example, the World Bank may decide to invest in a toll road in South Africa with
large amounts of debt but with very low interest. By doing so, the World Bank is not only
opening the potential of new trade opportunities for South Africa, but it also enhances
transportation activity and increases new job opportunities for the country.
Labour Laws
Indian labour law refers to law regulating labour in India. Traditionally, Indian
government at the federal and state levels have sought to ensure a high degree of
protection for workers, but in practice, this differs due to form of government and
because labour is a subject in the concurrent list of the Indian Constitution.
The Minimum Wages Act 1948 requires companies to pay the minimum wage set by the
government alongside limiting working weeks to 40 hours (9 hours a day including an
hour of break). Overtime is strongly discouraged with the premium on overtime being
100% of the total wage.
The Payment of Wages Act 1936 mandates the payment of wages on time on the last
working day of every month through a bank transfer or through postal services. The
Factories Act 1948 and the Shops and Establishment Act 1960 mandates 15 working days
of fully paid vacation leaves each year to each employee with an addition 10 fully paid
sick days.
The Maternity Benefit (Amendment) Act, 2017 gives female employees of every
company the right to take 6 months’ worth of fully paid maternity leave. It also provides
for 6 weeks’ worth of paid leaves in case of miscarriage or medical termination of
pregnancy.
The Employees' Provident Fund Organisation and the Employees' State Insurance,
governed by statutory acts provides workers with necessary social security for retirement
benefits and medical and unemployment benefits respectively. Workers entitled to be
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covered under the Employees' State Insurance (those making less than Rs 21000/month)
are also entitled 90 days’ worth of paid medical leaves.
A contract of employment can always provide for more rights than the statutory
minimum set rights. The Indian parliament passed four labour codes in 2019 and 2020
sessions. These four codes will consolidate 44 existing labour laws.[2] They are: The
Industrial Relations Code 2020, The Code on Social Security 2020, The Occupational
Safety, Health and Working Conditions Code, 2020 and The Code on Wages 2019.
1. The Trade Unions Act, 1926: Trade unions are a very strong medium to safe the
rights of the employees. These unions have the power to compel higher management to
accept their reasonable demands.
Article 19(1)(c) of the Indian Constitution gives everyone the right "to form associations
or unions". The Trade Unions Act 1926, amended in 2001 and contains rules on
governance and general rights of trade unions.
2. The Payment of Wages Act 1936: This act ensures that workers must get
wages/salaries on time and without any unauthorised deductions. Section 6 of the Wages
Act 1936 says that workers must be paid in money rather than in kind.
3. Industrial Disputes Act 1947: This act has the provisions regarding the fair dismissal
of permanent employees.
As per this law, a worker who has been employed for more than a year can only be
dismissed if permission is sought from and granted by the appropriate government
office/concerned authority.
A worker must be given valid reasons before dismissal. An employee of permanent job
nature can only be terminated for proven misconduct or for habitual absence from the
office.
4. Minimum Wages Act, 1948: This act ensures minimum wage/salary to workers of
different economic sectors. State and Central governments have the power to decide
wages according to the kind of work and location.
This wage may range between as much as Rs 143 to 1120/ day. This minimum wage can
be different in states to states.
The average per day wage rate for unskilled work under the MGNREGA is set to rise by
11% from Rs. 182 to Rs. 202 for 2020-21.
A MGNREGA worker gets Rs 258/day in Dadra and Nagar Haveli while Rs 238 in
Maharashtra and Rs 204 in West Bengal.
5. Maternity Benefits Act, 1961: This Act entitles maternity leave for pregnant women
employees i.e. full payment despite absence from work. As per this act, female workers
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are entitled to a maximum of 12 weeks (84 days) of maternity leave. All the organised
and un-organised offices that have more than 10 employees shall implement this act.
maternity-leave-India-duration
So, this law protects the job of the female workers during pregnancy and post-delivery.
This act has been amended in 2017.
6. Sexual Harassment of Women employees at Workplace Act, 2013: This act
prohibits any kind of sexual Harassment of the women workers at the workplace. This
Act came into force from 9 December 2013.
Conclusion
There are various labour laws which deal with different labour and industrial issues. The
Acts have been enacted with the objective of social and economic justice.
The provisions laid down in various conventions and treaties which India has ratified
have also been incorporated in these Acts time and again.
However, they fail to achieve the objectives completely because of certain reasons.
The penalties given under the various Acts are inadequate so as to create a deterrent in the
mind of an offender.
There are so many legislations that the workmen or the employees are more often than
not unaware of their rights under these laws.
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UNIT-4
SERVICES AND TRADE
Performance of the Service Sector in the Indian Economy
In the world economy, the importance of the service sector cannot be overstated. The
share of services in the world economy stands at 66% in 2013. The sector also accounted
for 45.1% of the jobs in the world economy in 2013 according to estimates by the
International Labour Organization (ILO). Over the years from 2001 to 2013, the
percentage share of service sectors’ contribution to GDP has marginally declined from
68.8% in 2001 to 66% in 2013. It comes as a bit of a surprise as the share of employment
has increased from 39.1% to 45.1% over the same period.
Similarly, the importance of the service sector can also be gauged from the fact that
service sector accounted for 19.8% of the world exports in 2013. It has mildly increased
from 19.4% in 2001. Also, the sector is important from the point of view of Foreign
Direct Investments, which is the largest source of cross-border flows in the world
economy.
An analysis of the service sector of various economies brings and interesting point to the
forefront. The stage of the economy as also the per capita income levels determines the
contribution to the GDP of an economy. High-income countries have the maximum
contribution to the GDP by service sectors in their respective economies. India is a
notable exception to the above-mentioned rule as it has roughly 58% contribution to the
GDP coming from the service sector of the economy. It is exceptionally high and is even
more than China, which is at least ten years ahead of India in the per capita income
levels.
The Indian service sector has been the growth driver for the Indian economy for the past
20 years. In 2014-15, 72.4% of the growth came from this sector. At a sub-national level
too the service sector is the dominant sector. It has more than 40% share in GDP in all the
states and Union territories (UT) barring the northeastern states of Sikkim and Arunachal
Pradesh. Among the states and UT’s Chandigarh and Delhi are UT’s with more than 85%
share of GDP coming from the service sector alone.
There are a variety of services that come in the service sector ambit. The range of
services is truly phenomenal. Service activities are a diverse bunch with services ranging
from the very basic services like those offered by a barber to more complex ones like IT
and some financial services. Under the NIC 2008 classification system of the economy,
services have been classified into the following five broad areas. These include- (a)
Trade, hotels, & restaurants, (b) Transport, storage, & communication (c) Financing,
34
insurance, real estate, & business services (d) Community, social, & personal services
and (e) Construction.
Their relative share or contributions to the GDP and their respective growth rates over the
years show an interesting trend. Financing, insurance, real estate, & business are the
biggest contributor in GDP followed by Trade, hotels, & restaurants. Together they
account for roughly 40% of the total gross value addition in the service sector.
Exceptional growth is presently being witnessed in the trade and repairs sub-segment.
FDI in services has been a critical component of the services growth in the past 15 years
or so. The share of services in the cumulative FDI Inflows over the period from April
2000- November 2014 is 53.8%. The majority of flows came to the financial and nonfinancial service sector, followed by construction development. From a period of April
2000- November 2014, these sectors attracted 65 billion US dollars of FDI. These
accounted for a little over 27% of cumulative FDI inflows during the same period.
According to economic survey 2014-15, India has shown ‘reasonably good performance’
in different services like telecom, aviation, tourism, railways, and shipping on various
performance parameters. In the telecom sector, India has roughly 91 crore telephone
connections. Similarly, aviation services were rendered to 10 crore domestic and
international passengers in 2013-14. In the tourism space, India is expected to receive a
total of 7.5 million international tourists, which is expected to bring in 19.7 billion USD
of foreign exchange earnings. Indian Railways similarly carried 1051 million tonnes of
freight traffic in 2013-14. The port traffic of 975 million tonnes 2013-14 shows an
increase of 125 million tonnes over the previous year reflecting a deepening shipping
sector. The growth in these sub-sectors over the years shows the deepening of the
services’ sector and the importance it has in the growth and development of the Indian
economy.
In the coming years, services will continue to dominate the growth story. Even if the
manufacturing sector picks up service sector importance will not diminish. It is because
manufacturing has a multiplier effect in the economy with one manufacturing job creating
a multiple of service sector jobs. The service sector growth is here to stay.
Some of the developments in the services sector in the recent past are as follows:

In October 2021, India's service exports increased by 23.52% to reach US$ 20.86
billion, while imports stood at US$ 12.71 billion.

In June 2021, India's exports increased by 48.34% to US$ 32.5 billion, marking
the seventh consecutive month of growth.

The Indian services sector was the largest recipient of FDI inflows worth US$
88.95 billion between April 2000 and June 2021. The services category ranked 1st
35
in FDI inflow as per data released by the Department for Promotion of Industry
and Internal Trade (DPIIT).

In the first-half of 2021, private equity investments in India stood at US$ 11.82
billion, as compared with US$ 5.43 billion in the same period last year.

In August 2021, the Department of Telecommunications (DoT) issued a letter of
intent (LoI) to One Web (backed by Bharti Group) for satellite communication
services licence.

In July 2021, Tata Teleservices collaborated with Zoom Video Communications
to offer bundled communication services.
In April 2021, the Ministry of Education (MoE) and University Grants Commission
(UGC) started a series of online interactions with stakeholders to streamline forms and
processes to reduce compliance burden in the higher education sector, as a follow-up to
the government's focus on ease of doing business to enable ease of living for Growth of
Services sector in India
The services sector is not only the dominant sector in India’s GDP, but has also attracted
significant foreign investment, has contributed significantly to export and has provided
large-scale employment. India’s services sector covers a wide variety of activities such as
trade, hotel and restaurants, transport, storage and communication, financing, insurance,
real estate, business services, community, social and personal services, and services
associated with construction.
The services sector is a key driver of India’s economic growth. The sector contributed
55.39% to India’s Gross Value Added at current price in FY20#. GVA at basic prices at
current prices in the second quarter of 2020-21 is estimated at Rs. 42.80 lakh crore (US$
580.80 billion), against Rs. 44.66 lakh crore (US$ 633.57 billion) in the second quarter of
2019-20, showing a contraction of 4.2%. According to RBI, in February 2021, service
exports stood at US$ 21.17 billion, while imports stood at US$ 10.61 billion.
India’s GDP growth rate was modest before 1980, but it accelerated once economic
reforms began in 1981. After the reforms were fully implemented in 1991, it was
strengthened. In the three decades from 1950 to 1980, the growth rate of GNP was only
1.49 percent. During this time, government policies were based on socialism. The income
tax rate has risen to as high as 97.75 percent. A large number of industries were
nationalized. The government had stepped up its efforts to gain complete control of the
economy. Mild economic liberalism in the 1980s boosted GNP per capita growth to 2.89
percent per year. Per capita, GNP increased to 4.19 percent after major economic
liberalization in the 1990s.
The Indian government announced important economic reforms in 1991, which were
huge initiatives in terms of foreign trade liberalization, financial liberalization, tax
36
reforms, and demands for foreign investment. These policies aid in revving up the Indian
economy. Since then, India’s economy has progressed significantly. The average growth
rate of Gross Domestic Product (at factor cost) increased from 4.34 percent between 1951
and 1991 to 6.24 percent between 1991 and 2011. In 2015, the Indian economy exceeded
the $2 trillion mark.
Trade policy reforms since 1991
The Indian government implemented extensive economic reforms in 1991, including
foreign trade liberalization, banking liberalization, tax reforms, and demands for foreign
investment. These policies aided the Indian economy in gaining traction. India’s economy
has progressed significantly since then.
The following are the key characteristics of the new trade policy:
Free imports and exports:
Before 1991, India’s imports were regulated by a positive list of items that may be freely
imported. Imports have been monitored by a limited negative list since 1992. For
example, the 1 April 1992 trade policy liberalized imports of practically all intermediate
and capital items. At that time, only 71 goods were still prohibited. On March 31st, 1996,
the tariff line voice import policy was initially announced, and 6161 tariff lines were
rendered free at the time. Until March 2000, this amount had risen to 8066. From 2001 to
2002, the excise policy removed quantitative limits. India’s obligation to the World Trade
Organization has been fulfilled. Quantitative limitations on all import products have been
lifted by the World Trade Organization, allowing India to import and export more freely.
Quantitative constraints and rationalization of tariff structure:
In its report, the Chelliah Committee suggested a large reduction in import duties. It had
predicted a 50 percent peak rate. As a first step toward a gradual reduction in tariffs, the
1991-92 budgets reduced the top rate of import tax from more than 300 percent to 150
percent. The strategy of lowering customs rates was continued in the following budgets.
The government has decreased the maximum rate of duty throughout the years in
response to the Chelliah Committee’s proposal. The government decreased tax from 110
percent to 85 percent in the 1993 to 1994 budget discussion. The duty was reduced
further in stages in the future budget. The highest important duty rate on all nonagricultural commodities is currently merely 10%.
Under the 1991 policy, export houses and trading houses were allowed to import a wide
variety of goods. For the objective of encouraging exports, the government also allowed
the establishment of trading houses with 51 percent foreign equity. Export houses and
trading houses, for example, were given the benefit of self-certification under the advance
licensing system, which allows duty-free imports for Houses of Commerce:
37
 exports, under the 1992-97 trade strategy.
 Rupee Depreciation and Convertibility in Current Account:
On July 1 and 3, 1991, the government made a two-step downward adjustment in the
rupee’s exchange rate of 18-19%. The introduction of Liberalized Exchange Rate
Management System (LERMS), which included partial rupee convertibility in 1992-93,
full convertibility on the trading account in 1993-94, and complete convertibility on the
current account in August 1994, was followed by the introduction of LERMS.
The rupee’s convertibility was another international trade protection mechanism in the
Indian economy. In the 1992-93 budgets, the Indian government made the rupee partly
convertible. This was excellent news for India’s economic connection with the global
economy. In August 1994, the rupee was rendered fully convertible on the current
account. The currency rate of the rupee in India is now determined by the market (since
March 1993). Supply and demand dynamics now play a significant role in determining
the exchange rate of the rupee in this system.
Investment Policy Reforms Since 1991
During the post-reform period, the government made several steps to encourage foreign
investment in India. The following are some of the most crucial indicators:
In 1991, the government established a list of high-tech and high-investment priority
industries for which automatic authorization for foreign direct investment (FDI) up to 51
percent foreign equity was granted. For several of these industries, the cap was lifted to
74 percent and then to 100 percent. Furthermore, over time, several new industries have
been added to the list.
The Foreign Investment Promotion Board (FIPB) was established to engage with
international companies and approve direct foreign investment in certain sectors.
From time to time, steps were taken to encourage foreign institutional investment (FII) in
India.
Foreign investors that participate in Special Economic Zones benefit from a variety of tax
breaks, including exemptions from taxes on export earnings, capital gains, dividend
distribution, customs tariffs on imported goods, and local excise.
The 1991 industrial policy justified foreign investor entry by noting FDI’s inherent
benefits, such as advanced technology, established management competence, and current
marketing strategies.
Conclusion
India faced an economic crisis in 1991 as a result of its external debt. Since then, the
government implemented a new set of policy measures that shifted the direction of our
development strategies. Furthermore, it has increased to improve the international
38
competitiveness of industrial output, foreign money, and technology, trade and
investment were liberalized. Govt. also used modern technology to increase domestic
industrial efficiency, by added quantitative restrictions on imports and exports were
relaxed as an aim to reform the trade policies of India.
39