Indian Economy - Quick Guide

Economy before British Rule

To understand the present level of the Indian economy, it is important to understand the economic system of India during the British rule and post-independence economic development policies.

Before the advent of British rule, India had an independent economy. It was largely primary sector economy and the major occupations were agriculture, handicrafts, and many other primary sector works.

The economy was full of resources and a prosperous one. Therefore, high quality agricultural products and handicrafts made by the Indians were traded across the world.

Economy during British Rule

During the British rule, India’s economy became a net raw material supplier and a net importer of finished products.
No British economist attempted to measure the per capita income and national income of India.

Some of the Indian economists Dadabhai Naoroji, V.K.R.V. Rao, R.C. Desai and British Findlay Shirras and William Digby attempted to measure India’s national income. Among all, V.K.R.V. Rao was the most successful.
Before independence, India’s economy was solely dependent upon agriculture.
85 percent of the Indian population were rural and their main source of subsistence was agriculture.
During the British colonial period, agriculture (in spite of being the main occupation) was suffering from many problems and hence the effective growth was zero percent.
Land settlement system was totally in favour of the British.
Agricultural system was stagnant; however, later there was a gradual growth, but that was not because of improvement and development of the agricultural system, but because of the expansion of agricultural land.

Zamindari System

Many parts of India (especially Bengal region of east India, today’s West Bengal and Bangladesh) were practising Zamindari system (Land-lordship).
The main work of the Zamindars was to collect the land tax/rent. They almost did nothing either to improve the agriculture system or the conditions of the farmers.
Zamindars’ inhumane attitude affected farmers’ lives very badly. Most of the regions of the country were facing famine and many other social issues and problems.
Some of the regions, during the Zamindari system, evidenced growth that was only because of the commercialisation of agriculture. In these regions, the farmers had been forced to produce cash crops instead of staple food crops.

Major Problems

The major problems were −
- Drought,
- Flood,
- Poor irrigation system,
- Desalination of soil,
- Absence of technology, and
- Poverty.
India did not undergo any industrialisation as all the raw materials were exported to the UK.
Handicrafts and other small-scale industries suffered badly.
The main intention of British rule was to make India, a market of their finished products.
In India, many industries developed even in the time of crisis. For example, the jute industry in West Bengal and the cotton textile industry in regions of Gujarat and Maharashtra.

The Industries

Tata Iron and Steel Company (TISCO) was incorporated in the year 1907.

By the middle of the 20^th century, some other industries such as cement, sugar, paper, etc. were established.
As all the above discussed industries were concentrated in some specific pockets of the country; therefore, there was no improvement in the condition of the farmers.
During the colonial period, India became the exporter of jute, cotton, sugar, indigo, wool, etc. and importer of finished products such as cotton and silk fabrics, woollen cloth, machinery, and other items.
More than 50 percent of India’s trade was directed to Britain; remaining 50 percent were traded in other countries including China, Sri Lanka, and Persia (Iran).
‘Muslin’ is a type of cotton textile which originated in Bengal, particularly, places in and around Dhaka (previously Dacca), now the capital city of Bangladesh. Hence, it was also popular as ‘Daccai Muslin’.
Because of its quality, Muslin earned popularity across the world. Sometimes, foreign travelers also used to refer to it as malmal shahi or malmal khas implying that it was worn by, or fit for, the royalty .

The following image shows the dress made up of Muslin (the dress worn by the lady) and inset (image) shows the Muslin fabrics.

Other Facts

The surplus income of India was used in setting up the official infrastructure for the British officers.
During the British period, some of the infrastructure such as road, rail, telegraph, ports, water transport, etc. were developed, but all these were developed not for the benefit of Indians, but, rather to serve the interests of British officials.

The railway, which was developed in the 1850s broke the barrier of long distance travel and trade. It also fostered the commercialisation of Indian agriculture. But this could hardly be of any help to the farmers.
The regional disparity was high, as the Madras Presidency (entire South India) was more into manufacturing and services sector and rest of India was in the agricultural sector.

Indian Economy - Planning

Introduction

After independence, one of the most difficult choices that the leaders had to make was to decide the type of economic system that was capable enough to promote welfare equally across the country.
Among different types of economic system, Pandit Jawaharlal Nehru, the first Prime Minister of India, suggested Socialist Economy; however, it was not the same that was practiced in the USSR.
After great efforts, the planning committee decided to adopt a mixed economic system − a judicious mix of both socialist and capitalist systems.
Mixed economy was finally chosen with the help of Industrial Policy Resolution of 1948 and Directive Principle of Indian Constitution.
Planning Commission was set up in 1950, and the Prime Minister of India was made the chairperson of the commission.

Five-year Plans

The First Five-Year Plan was one of the most important as it paved for the development of the country then and for the years to come.

Five-Year Plans are formulated very systematically in which all the problems are considered and addressed on priority basis. For example, agriculture development wasthe most important after independence, hence, the first five-year plan was drafted to strategically propel its growth and development.

Goals of Five-year Plan

Any plan should have a specific goal to fulfil. The goals of the Five-Year Plans are mentioned in the following image −

Growth

This goal was directed towards an increase in Gross Domestic Product (GDP) of the country. The different sectors of the economy — the agricultural sector, the service sector, and the industrial sector are considered when a country’s GDP is derived.

Modernization

For the swift growth and also to increase the productivity, modernization was necessary; hence, new agricultural technology (use of machinery and hybrid seed varieties) as well as advanced machinery for factories were used.
Apart from the modern technology, social status of women was also considered and they were granted equal rights.

Self-Reliance

To develop all the sectors and make India a self-reliant country, only indigenous resources and technology were promoted during the first seven five-year plans.
Another purpose of self-reliance was − India did not want to depend on any other country for food and important technologies, as it could be a threat to country’s sovereignty as well.

Equity

The above mentioned goals would not be fruitful or lead to the betterment of the people unless there is equality.

To ensure equity, the following steps have been taken −

Implementation of the Land Reforms Act was a turning point under which, the government abolished the existing ‘Zamindari’ system and the tillers (farmers) were made the owners of the respective land.
Land Ceiling was another commendable act under which the maximum size of land plots an individual can own was fixed.
The purpose of land ceiling was to prevent the concentration of land ownership in the hands of few people.
There were some loopholes in the land ceiling law and the implementation methods were also poor; therefore, the land ceiling was not as successful as it should have been. Only Kerala and West Bengal adopted this policy with full commitment.
The Green Revolution marked a significant change in the field of agriculture in India. It promoted the use of High Yielding Variety (HYV) seeds. This further increased the yield of wheat and rice.
Primarily, the use of HYV seeds was limited to a few states — Punjab, Andhra Pradesh, and Tamil Nadu, but after the late 1970s, many other states also started benefitting from the use of HYV seeds and improved the agricultural production on their fields.
Use of HYV seeds benefited farmers in the form of market surplus, i.e., farmers were now producing sufficient grains that could also be sold into the market.

For the equal distribution and fair opportunity among rich and poor farmers, the government made a policy to provide agricultural loans to farmers at subsidized rates.
Debate on Subsidy − Many economists accepted that the subsidies are good for the grass root level development, but there were a few who questioned it. However, unquestionably, subsidies brought change in India and proved beneficial for the farmers.
A major drawback is that about 65 percent of the population is still occupied in the agriculture sector and is not finding employment in any other sector.
Because of several problems and issues including poor infrastructure, lack of proper policy, lack of skilled human resources, the industrial sector could not undergo development until independence. Over a period of time, formulation of several industrial policies and the development of infrastructure merged in to mark the progress of the industrial sector in India.
The focus of the second five-year was industrial growth. All major industries, that drove the progress of the Indian economy were in the public sector and the government’s control over these increased during this period.

Industrial Policy

Industrial Policy Resolution is a resolution adopted by the Indian Parliament in 1956. It was formulated under the Second Five-Year Plan.

This resolution categorized industries into three sectors −
- State owned industry;
- Mixed i.e. state and private individual running industry together; and
- Private sector.

According to the industrial policy, the private sector (industry) was also kept under the state control. To open a new industry or to expand an existing one, the first prerequisite was to obtain a license from the government. Small Scale Industry.

In 1955, Village and Small-Scale Industries Committee (which is also known as Karve Committee) proposed to promote small-scale industries for rural development.

To set up a small-scale industry in those days, maximum investment one could make was Rs.5 Lakh. The limit has gone up to Rs.1 Crore now.

Trade Policy

As self-reliance was the primary objective, trade policy was not in favour of import of foreign goods.
Import taxes of various goods were very high. This thereby, increased the cost of the goods in the target market.
In addition to the above discussed conditions, quotas were also imposed and these quotas had an effect on the supply of these imported goods.
This system was practiced only to protect domestic firms from the foreign competition.
Thanks to these policies, results were also positive; GDP increased from 11.8 percent (1950-51) to 24.6 percent (1990-91) and the industrial growth rate was a remarkable 6 percent.
After the implementation of the Trade Policy, industries were no more limited to just jute and textile, rather, they expanded their operations and new units were started.
In spite of a significant growth, many economists criticized the economic policy, as it was largely controlled by the government. For example, in the telecommunication sector, people used to submit their applications months before they could actually get the connection.
There was a huge debate on public vs private sector. Many believe, emphasis on public sector restrained the potential economic growth of India.
On the other hand, the regulation of private sector through licensing system (which people call permit license raj) curtailed the industrial growth potential of the country.
High import tax and restriction on foreign trade also drew criticism.
With the introduction of the new liberal economic policy of 1991, Indian economy addressed the prevailing economic problems through the following −
- Liberalization
- Privatization
- Globalization

Prasanta Chandra Mahalanobis

Many of the economists and other scholars contributed to the formation and nurturing of the Indian economic system.

Some of them were simply outstanding and their names cannot be forgotten. For example, statistician Prasanta Chandra Mahalanobis.

P.C. Mahalanobis is a well-known architect of Indian Planning

The second five-year plan (which in a real sense, was the beginning of economic planning in India), was based on the ideas of Mr. Mahalanobis.

Born and brought up in Calcutta, Mr. Mahalanobis went to Cambridge University (England) for his higher studies. Because of his contribution in the subject statistics, he was appointed as the Fellow (member) of Britain’s Royal Society.

The Indian Statistical Institute in Calcutta was established by Mahalanobis. He also started a journal namely ‘Sankya.’

Indian Economy - Sectors

Introduction

Economy is normally categorized into three sectors namely −
- Primary Sector
- Secondary Sector
- Tertiary Sector

Primary Sector

Primary Sector is directly dependent on environment for manufacture and production. For example, agriculture, mining, farming etc.

Secondary Sector

Secondary Sector adds value to the produ by transforming raw materials into valuable products. For example, processing and construction industries.

Tertiary Sector

Tertiary Sector is involved in production and exchange of services. For example, transportation, communication, and other services of such kind.
Tertiary Sector is also known as Services Sector as it facilitates the production and exchanges of services.

Measurement of Economy

Gross Domestic Product (GDP) is the value of all goods and services produced by all the three sectors over a period of time.

The majority of workers employed in a particular sector illustrate the economic and technological advancement of the country. For example, if the majority of the people of a country is employed in a primary sector or secondary sector, it means, this country is at a developing stage; whereas, if most of the people are employed in the tertiary sector, it means the country is at a developed stage. Considering this statement we can say that India is a developing country.
India started its growth from the primary sector and over a period of time gradually developed itself in the other sectors too.
The tertiary sector contributes the most to the GDP of our country.
The primary sector still has a large portion of India’s population occupied in it.
Workers in the primary sector remain unemployed for most of the time in a year; hence, if some of these workers are transferred from the primary sector to other sector, there would be no change in the total production of the primary. This type of unemployment is known as disguised unemployment.
The problems of disguised unemployment can be mitigated by improving the level of transport and communication in the rural areas. This will help the people living in these parts to commute from place to another for employment reasons.
We need to promote alternative sources of income such as small scale industries. These industries generate employment opportunities for many who are under employed or totally unemployed.
As per the government’s policy known as National Rural Employment Guarantee Act 2005 (NREGA 2005), all people who are able to, and are in need of work will be given guaranteed 100 days’ employment in a year.

Organized Sector

The sector that is permanently established and offers permanent jobs is known as Organized Sector.

Employees of organized sector work for fixed number of hours in a day. If any employee works beyond the fixed number of hours, then he/she will be paid for the overtime.
Besides, employees of the organized sector have many advantages such as paid leave, weekly off (paid), festival holiday (paid leave), provident fund, gratuity, and some other perks and incentives.

Unorganized Sector

Unorganized Sector consists of all unincorporated private enterprises owned by individuals or households engaged in the sale or production of goods and services operated on a proprietary or partnership basis and with less than ten total workers. The employees here are not guaranteed of any advantages as in the organized sector and there is no concept of overtime payment. Disadvantages like low wages and job insecurity prevail here.

Because of faulty and weak government’s policies and corruption, employees of unorganized sectors are facing exploitation in the hands of their employers.
There are many organized sectors that (to evade the tax) manufacture their goods and services by informal means and for that force their employees to work for extra hours or work in unorganized sector. As these workers are largely illiterate and poor; hence, they don’t have any other option.
Government needs to make protective laws and take sincere action to protect the rights of these vulnerable workers.
In addition to the above discussed points, the government could also play a significant role in areas such as −
- Children’s education.
- Providing employment to poor people.
- Giving subsidies to the people living below the poverty line.
- Providing basic medical facilities, drinking water, and other sanitation facilities.

Indian Economy - Demography

Introduction

Hauser and Duncan defined Demography as the study of the size, territorial distribution, and composition of population, changes therein, and the components of such changes.

Population Status B/W 1881 and 1941

The first synchronous Census in India was conducted in 1881.
Thereafter, censuses are being conducted at ten-year intervals.
India’s growth in population remained very low till 1921. Until 1921, India was it’s first stage of demographic transition.
The literacy rate was terribly low at 16 percent out of which female literacy accounted to 7 percent.
The lack of public health system was a major drawback. There were outbreaks of water-borne and other fatal diseases. These diseases caused more illnesses and deaths. This led to an increase in the mortality rates.
Infant mortality rate was 218 per thousand (at present, it is about 63 per thousand).
The average life expectancy was only about 44 years.
Agricultural Sector had the largest workforce i.e. about 70—75 percent. This sector was followed by the Service Sector at 15—20 percent, and the Manufacturing Sector at about 10 percent.

Phase of Population Growth

India’s population growth can be classified into four distinct phases −
- Phase I, the period between 1901 and 1921: During this period, India experienced a fluctuating but more or less a stagnant growth in population. This period marked a high in both the birth and death rates.
- Phase II, the period between 1921 and 1951: This period witnessed a steady declining trend in population growth.
- Phase III, the period between 1951 and 1981: It was a rapid high growth period of population explosion in India.
- Phase IV, from 1981 to till date: India continues to grow in size. But, its pace of net addition is on the decrease.

As per census 2011, 68.8 percent of the total population reside in villages and 31.2 percent reside in the urban areas.

Indian Economy - People As Resource

Introduction

Knowledge is the most significant and valuable property of a human being.
Human resource has a great contribution to the Gross National Income.
Human resources development is the process of increasing the knowledge, the skills, and the capacities of all the people in a society. It is the accumulation of human capital.

Human capital is more superior to other types of resources (such as land and other natural resources), as human capital has the capability to exploit these resources and use them for other developmental purposes.
Economists and experts of other fields have advocated that education should be made accessible to every stratum of the society. Education is indispensable for overall national growth.

Features of Human Capital

Transformation of a child into a successful educated man/woman after educational attainment (for example, doctor, engineer, teacher, government official, business man, etc.) facilitates the development of the human capital.
Human capital is the sole source of overall development of the nation; therefore, investment in a child’s education, health, and other activities related to his/her growth is equivalent to the capital formation.

Health expenditure includes preventive medicine (e.g. vaccination), curative medicine (medicines given during the illness), and social medicine (spreading the health literacy).
Providing training either in public sector or private sector is also a kind of investment that produces knowledgeable and expert employees.
Expenditure on human migration and acquiring information about the market is also a source of human capital formation.
The contribution of a skilled and highly educated person is much more valuable than that of an unskilled labourer.
The seventh five-year plan has emphasized on the need for human capital formation. It stated that Human resources development (read human capital) has essentially to be assigned a key role in any development strategy, especially in a country with huge population.
Though the two terms human capital and human development sound similar, there is a basic difference between them.
Education and health are the major assets of human capital that enhance the labour productivity.
On the other hand, human development considers education and health as an integral part of human well-being.
Human Capital considers human beings as a means to an end. So, if an educated person with good health does not increase productivity, then the investment made on goes futile.
The expenditure on education is measured on the basis of the percentage of total expenditure (by the government) and the percentage of Gross Domestic Product (GDP).
In 1998, the Government of India appointed Tapas Majumdar Committee to estimate the expenditure in education sector.
The Right to Education Act of 2009, makes education a fundamental right for all children aged between 6 and 14.
The percentage of expenditure on education sector has also been increased in comparison to previous decades.
Various loan schemes have been made available for higher studies (in home country and also other countries).
Moreover, with consistent efforts by the Indian Government, the literacy rate of India is increasing at an appreciable rate.
Besides, the gap between male and female literacy rate has progressively narrowed.

Success Rate of Education in India

The following table illustrates the literacy growth rate −

Numbers	Details	1990	2000	2008-12
1	Adult Literacy Rate (Age group 15+) Male Female	61.9 37.9	68.4 45.4	76.7 67.6
2	Youth literacy rate (Between 15 & 24) Male 88 Female 54.2 64.8 74	76.6 54.2	79.7 64.8	88 74
3	Primary completion rate Male Female	78 61	85 69	96.6 96.3

Numbers

Details

1990

2000

2008-12

Adult Literacy Rate (Age group 15+)

Male

Female

61.9

37.9

68.4

45.4

76.7

67.6

Youth literacy rate (Between 15 & 24)

Male 88

Female 54.2 64.8 74

76.6

54.2

79.7

64.8

Primary completion rate

Male

Female

96.6

96.3

Education and Life Expectancy Development Rate

The following table illustrates the life expectancy growth rate −

Details		1951	1981	1991	2001	2012
Per Capita Income		5,708	8,594	11,535	16,172	38,037
Literacy Rate (in %)		16.67	43.57	52.21	65.20	74
Life Expectancy at Birth (In Years)	Male Female	37.2 36.2	54.1 54.7	59.7 60.9	63.9 66.9	64.7 67.7
Crude Death Rate (per 1,000/)		25.1	12.5	9.8	8.1	7
Infant Mortality Rate		146	110	80	63	42

Indian Economy - National Income

Introduction

The economic wealth or well-being of a country does not only depend upon the possession of resources, it also depends upon the optimum utilization of resources is more important.
The consumer may refer to an individual or enterprise that purchases goods and services for their personal use or for industrial or household use.

When goods are used for further production, they lose their original characteristics and get transformed into other commodities.
An item that is meant for the final use and will not pass through any more stage of production or transformation is called a final good or an end product.
Cooking at home is not an economic activity because home cooked food is not to be sold in the market, but when the same food is cooked in a restaurant for the customers, it becomes an economic activity.

Types of Goods

Goods and services, which are purchased and consumed by their ultimate consumer are called consumption goods or consumer goods. For example, cloth, shoe, pen etc.
Goods, which are durable in nature and used in the production process like tools, machinery and implements are also called final goods because they can’t change themselves at the time of production.
Commodities like television sets, automobiles or home computers are also durable goods, which are used by their ultimate consumer. These commodities are also called consumer durables.
Goods, which are used as raw material or input for the production of other commodities are called intermediate goods. These are not final goods. For example, plastics used for making chair, iron & steel used for making vehicles, etc.

Calculating National Income

Money is the common measuring means for the calculation of total final goods and services produced in the economy.
The calculation of the value of final goods and services does not consider the value of intermediate goods.
Depreciation refers to a fall in the value of fixed assets due to normal wear and tear.
Net investment = Gross investment – Depreciation.
Total final output produced in an economy includes output of consumer goods and services and output of capital goods.

More sophisticated and heavy capital goods raise the ability of a labourer to produce goods. For example, the traditional weaver would take months to weave a sari, but with modern machinery, thousands of pieces of clothing are produced in a day.
There are mainly four kinds if contributions that can be made during the production of goods and services −
- Contribution made by human labour (remuneration which is also called wage);
- Contribution made by capital (remuneration which is called interest);
- Contribution made by entrepreneurship (i.e. profit); and
- Contribution made by fixed natural resources/land (remuneration which is called rent).
In a simple economy, the aggregate consumption by the household of an economy is equal to the aggregate expenditure on goods and services produced by the firm in the economy.
There is no leakage from the economic system because in a simple economy, we assume that there is no government; where there is no government, there is no tax payment, there are no exports and imports and that the domestic economy is a closed economy.
Value added, is the term, which is used to denote the net contribution made by a firm during the production process.
The replacement investment is always the same as the depreciation of the capital.
If we include depreciation in the Value Added, we obtain Gross Value Added and when we deduct the value of depreciation from Gross Value Added, we obtain the Net Value Added.
The stock of finished goods, or semi-finished goods, or raw materials, which a firm carries from one year to the next year is called inventory.
Change of inventories of a firm during a year = production of the firm during the year – sale of the firm during the year.
Production of the firm = value added + intermediate goods used by the firm.
Change of inventories of a firm during a year = value added + intermediate goods used by the firm during a year.
The change in inventories taking place over a period of time is called flow variables.
Addition to the stock of capital (like inventories) of a firm is known as investment.
There are mainly three categories of investment −
- The rise in the value of inventories of a firm over a year, which is treated as investment expenditure undertaken by the firm;
- The fixed business investment, which is defined as the addition to the machinery, factory buildings, and equipment employed by the firms; and
- The residential investment, which refers to the addition of housing facilities.
If there is unexpected fall in sales, there will be an unplanned accumulation of inventories, but if there is unexpected rise in the sales, there will be an unplanned shortage of inventories.
Gross value added (GVA) = Value of sales by the firm + Value of change in inventories – Value of intermediate goods used by the firm.
Net value added of the firm = Gross Value Added – Depreciation of the firm.
Net value added of the firm = Gross Value Added – Depreciation of the firm.
Gross Domestic Product of the economy is the sum total of the net value added and depreciation of all the firms of the economy. Summation of the net value added of all firms is called Net Domestic Product (NDP).
The final expenditure is calculated on the following accounts −
- The final consumption expenditure on the goods and services produced by the firm.
- The final investment expenditure incurred by other firms on the capital goods produced by a firm.
- The expenditure that the government makes on the final goods and services produced by a firm.
- The export revenues that a firm earns by selling its goods and services abroad.
According to the expenditure method, GDP = Sum total of all the final expenditure received by the firms in the economy.
When government expenditure exceeds the tax revenue earned by the government, it is called the budget deficit.
When import expenditure is more than the revenue earned from export, it is called the trade deficit.
Gross National Product = GDP + Factor income earned by the domestic factors of production employed in the rest of the world – Factor income earned by the factors of production of the rest of the world employed in the domestic economy.
If we deduct depreciation from GNP, the measure of aggregate income that we obtain is called Net National Product (NNP). Thus, NNP = GNP – Depreciation.
Income which is earned by a household is called Personal Income.
Personal Income (PI) = National Income – Undistributed profits – Net interest payments made by households – Corporate tax + Transfer payments to the households from the government and firms.
Personal Disposable Income (PDI) = Personal Income – Personal tax payments – Non-tax payments.
National Disposable Income = Net National Product at market prices + Other current transfers from the rest of the world.
Private Income = Factor income from net domestic product accruing to the private sector + National debt interest + Net factor income from abroad + Current transfers from government + Other net transfers from the rest of the world.
Real GDP is calculated at constant price (base year price) of goods and services; on the other hand, Nominal GDP is calculated at the current price of goods and services.
In the calculation of real and nominal GDP of the current year, the volume of production is fixed.
The ratio of nominal to real GDP is known as index of prices it is also known as GDP Deflator.

Methods for Measuring National Income

There are different methods of estimating National Income. The methods are as follows −

In product method, national income is measured on the basis of the flow of goods and services. We calculate money value of all final goods and services produced in an economy during a year.
In expenditure method, national income is measured as a flow of expenditure. Government consumption expenditure, gross capital formation (Government and private) and net exports (Export-Import).
In income method, national income is measured as a flow of income factor. There are generally four factors of production −
- Labor (gets wages/salary)
- Capital (receives interests)
- Land (receives rent)
- Entrepreneurship (gets profit as remuneration)

Indian Economy - Poverty

Introduction

Poverty in India is deep rooted. The 200 years under British further intensified it.
After independence, several programs have been brought forward through Five-Year Plans in an attempt to alleviate poverty.

Dadabhai Naoroji was the first person who talked about the concept of Poverty Line before independence.
Dadabhai Naoroji used ‘jail cost of living’ formula to calculate the poverty line.
The Task Force on Projections of Minimum Needs and Effective Consumption Demand constituted by the Planning Commission in 1979 also attempted to measure poverty.
Poverty is further categorized on parameters such as absolute poor, very poor and poor. Another categorization is based on parameters such as always poor, usually poor, chronic poor, churning poor, etc.

Poverty Measurement

To demarcate the poverty line normally per capita calorie intake parameters is used, under which the minimum calorie intake (which is 2,400 calories/day for people in rural areas and 2,100/day for people in urban areas) is considered.
Many economists criticize the minimum calorie intake technique of measuring poverty because it does not solve many issues and also does not identify the real poor people.
To remove the drawbacks of this technique, many other techniques were invented; significant of them are −
- Sen Index (by Nobel Laureate economist Amartya Sen),
- Poverty Gap Index, and
- Squared Poverty Gap.
Head Count Ratio is the number of poor as the proportion of people living below the poverty line.
In 1973-74, there were more than 320 million people below poverty line; the number has come down to 270 million in 2011-12. Likewise, more than three-fourth of the country’s poor people live in rural areas.
Many of the states in past three and four decades improved and the ratio of poverty declined; however, four states i.e. Odisha, Madhya Pradesh, Bihar, and Uttar Pradesh still have poverty levels, less than the national poverty level.

Reasons of Poverty

The major causes of poverty in India are −
- Illiteracy
- Unemployment
- Unequal distribution of wealth
- Excessive population
- Discrimination on the basis of caste and religion, etc.
The farmers’ plight is worst in many parts of India. There is an increase in the number of farmers’ suicides especially in Maharashtra, Telangana, and Andhra Pradesh.
There are many reasons that instigate the farmers to take this extreme step −
- High interest rate loans
- Lack of state investment
- Low productivity
- Availability of subsidised or low rate foreign products
- Lack of infrastructure
- No advice for farmers
- Poor irrigation systems
- Spurious seeds and pesticides
- Crop failure (because of drought), etc.

Poverty Reduction Programs

Starting from the first five-year plan, the government has kept on introducing various poverty reduction programs and policies.

The Concept of Trickledown Theory

Growth oriented approach was adopted with the assumption that all sectors would grow, and percolate into every level of society and help to remove poverty.
But even after such growth orientation, the condition has not improved, rather the gap between rich and poor has further widened.
The green revolution further worsened the condition by creating disparity between large and small scale farmers.
A special program — Food for Work aimed at eradication of poverty was launched in the 1970s.
Many other programs including self-employment programmes (listed below) were also launched around the same time −
- Rural Employment Generation Programme (REGP)
- Prime Minister’s Rozgar Yojana (PMRY)
- Swarna Jayanti Shahari Rozgar Yojana (SJSRY)
Later in 1990s, the government changed the policy and started promoting Self-Help Groups (SHG). It primarily encourages people to save their own money and lend among themselves. At a later stage, government through banks will facilitate partial financial support.
Swarnajayanti Gram Swarozgar Yojana (SGSY) is an example of SHG. SGSY has now been restructured as National Rural Livelihoods Mission (NRLM).

In the year 2005, the Parliament passed a new Act — Mahatma Gandhi National Rural Employment Guarantee Act. This Act guaranteed wage employment to those rural households whose adult members volunteer to do unskilled manual work for a minimum of 100 days in a year.
During the period 2013-14, about five crore households got employment opportunities and benefitted from this act.
Further, three major programs have been launched to improve the nutritional status of the poor −
- Public Distribution System
- Integrated Child Development Scheme
- Midday Meal Scheme
Some other programs launched for the better of the people in rural areas are −
- Pradhan Mantri Gram Sadak Yojana
- Pradhan Mantri Gramodaya Yojana, and
- Valmiki Ambedkar Awas Yojana

Reasons of Failure

Though a number of poverty reduction programs have been launched by the government the outcome has not been satisfactory enough. There are many areas, which are facing segregation and are being deprived of basic development. The reasons for the underperformance of these programs are −
- Poor execution
- Systemic corruption
- Unequal distribution of land and wealth

Pressure from the local elite
Lack of participation by the poor people, etc.
This calls for participation of people from every stratum of the society. This will further facilitate inclusive growth and successful poverty eradication. For this, we need to encourage and educate people to participate from the grass root level.

The following table illustrates the poverty ratio −

	Poverty Ratio
Year	Rural	Urban	Total
1993-93	50.1	31.8	44.3
2004-05	41.8	25.7	37.2
2011-12	25.7	13.7	21.9

Indian Economy - Food Security

Introduction

Food Security is a comprehensive term that includes −
- Availability
- Accessibility
- Affordability of food for all
Availability of Food means, there should be enough food for everyone irrespective of his or her income; no one should starve (from hunger). It also includes the availability of food in government’s stock.

Accessibility means, every person can have it. Or in other words, its price should not be so high that only a class of people can afford it.
Affordability means, a person should have sufficient money to buy a balanced food for himself/herself and/or for his/her family.

Problems of Food Insecurity

A large section of people in India is facing food insecurity, as they don’t have affordability and accessibility to food even for two times a day.
In addition to this, natural calamities such as drought, heavy rainfall, earthquake, cyclone further increase the level of food insecurity.
Natural calamities directly affect the production of food and lead to food shortage. The demand remains high, but the supply level falls down. Further, natural calamities cause a rise in the price of food, which is beyond the affordability of the poor.
Food insecurity normally leads to Famine. Famine, in fact, is a curse to any society. It brings with it problems such as −
- Food insecurity
- Diseases
- Unemployment, etc.

Vulnerable Groups

The most vulnerable groups that have been suffering with the problem of food insecurity in India are −
- The people who don’t have their own land (for agriculture).
- The traditional artisans.
- The workers (working on daily wages especially on agricultural land).
- The seasonal workers (who finds work only in certain seasons).
- Self-employed workers such as rickshaw-pullers and hawkers.
The poor people in India normally belong to the Scheduled Castes, the Scheduled Tribes, or other backward classes. There is also a section of poor people in India, who have migrated from neighbouring countries.

These poor people are more vulnerable to natural calamities or any other disaster.

Hunger Problem

Hunger is another parameter of measuring food insecurity. It includes not only the unavailability of food, but it also reflects the overall poverty of a society.
Hunger could be temporary or seasonal (because of calamity) or permanent (chronic hunger).
Chronic hunger illustrates permanent food insecurity, inadequate food supply, and inability of people to buy food.
Seasonal hunger, on the other hand, occurs temporarily. It is normally related to cycles of food growing and harvesting. For example, people suffering with this problem have inadequate food availabilities for only part of the year.
As per the latest government report, the percentage of seasonal hunger, as well as chronic hunger, has declined over the years in India.

Regions of Food Insecurity

Some Indian states such as Odisha, Bihar, Uttar Pradesh, West Bengal, Jharkhand, Chhattisgarh, Madhya Pradesh, and Maharashtra have extreme levels of food insecurity.
There are still many districts (of a few states), which have permanent food insecurity and famine-like conditions. The districts are −
- Kalahandi and Kashipur districts of Odisha.
- Palamau district of Jharkhand.
- Baran district of Rajasthan, etc.

Development

India, after independence, experienced many remarkable achievements. For example, the introduction of ‘green revolution’ increased the agricultural produce many folds. But the substantial increase in the production of grains (especially rice and wheat) is not equal across the country.
The states Punjab and Uttar Pradesh achieved high growth rate; on the contrary, Jharkhand, Assam, Tamil Nadu, Uttarakhand, recorded decrease in their food grain production (for the year 2012—13).
In spite of all the disparities (discussed above), over the last few decades, India is self-sufficient in the production of food grains.
To mitigate adverse conditions, the Indian government has come up with initiatives such as special food security system (maintaining buffer reserves of food stock) and public distribution system.

Food Security and Governance

Government of India set up a special agency — Food Corporation of India (FCI). The agency is responsible for the execution of food policies of Central Government.

FCI purchases food grains (wheat and rice) from the farmers in states where there is surplus production.
FCI purchases food grains on pre-determined rates (fixed by the government in advance). This price is known as Minimum Support Price.
Later, the government makes the food grains available (from the buffer stock) to the areas where the production of food grains was insufficient and to the poor section of the society.
Government provides a platform where the stock is sold at a lower price (lower than the market rate), which is known as Issue Price.
The system through which FCI makes the food grains available to the poor society is known as Public Distribution System (PDS). The ration shops in most localities, villages, towns, and cities serve as channels and facilitate this distribution system.

The government issues ration cards and the people who have low income can apply and get ration cards from the ration card offices and avail the benefits of PDS.
Only those people, who hold ration cards can purchase subsidised food.
The high levels of food insecurity forced the Indian Government to introduce three food intervention programmes during the 1970s. The programmes are as follows −
- Public Distribution System (PDS) for food grains (though it was already existing, the execution of responsibilities was strengthened further).
- Integrated Child Development Services (ICDS).
- Food-for-Work (FFW).
Currently, there are dozens of such programmes functional across the country.
Targeted Public Distribution System was introduced in 1997. This system aims to focus on the Poor in all areas. For this system, different prices are fixed for the poor and non-poor group.
The following two schemes have been launched recently −
- Antyodaya Anna Yojana (AAY)
- Annapurna Scheme (APS)

Reasons of Food Insecurity

In spite of the various initiatives for food security in India, there are many regions suffering from food insecurity.
Some of the major reasons for the failure of these initiatives are −
- Poor implementation
- Corruption (ration shop owners often sell the food grains of better quality to other buyers and provide food grains of poor quality to the ration card holders);
- The process involved in availing a ration card is a lengthy one; etc.

Indian Economy - Employment

Introduction

The motive behind working is not only to earn for ourselves, but also to support our dependents.

Being employed gives a sense of self-worthiness and dignity as well as recognition in the society.
Above all, a working employee not only earns for himself/herself, but he/she also contributes to the national income of the country.

Features of Employment

A study on the employment types and the living style of people gives an information on the following areas −
- National income
- Employment structure
- Management of human resources, etc.
The study helps us analyse the different levels of employment and the levels of income generated by different sectors that contributes to the national income.
On the basis of employment study, we can address the persistent social issues such as poverty, child labour, exploitation, etc
When we calculate all the goods and services produced in a year, it is known as Gross Domestic Product (GDP).
When we add all the earning of exports and deduct the amount paid for import, the final number is known as Gross National Product (GNP).
If the export is greater than the import, then the GNP’s measurement is on positive side and if the export is lesser than the import, then it is on negative side.

Seasonal Unemployment

Employment in India is multifaceted. There are people who are permanently unemployed; and there are people who are temporarily employed or temporarily unemployed (known as seasonal unemployment/employment).
On the other hand, a task that requires only 5 workers to handle it, is being handled by 12 workers. This condition is known as disguised unemployment.
Among all the workers of the country −
- 70 percent of the workforce are men.
- Three-fourth of the workforce is from rural areas.
- Women workers account to one-fifth of the total workforce (in urban areas).
Population refers to a group of people living in a given area in a given time period.
As per the 2009-10 data, about 39 persons of every 100 persons, are employed.
In urban areas, the number of employed people is 36 per 100 persons, whereas, it is about 40 per 100 persons in rural areas.
People in the urban areas are more literate, and they have more options to look out for a permanent job. This could mainly be the reason for this gap.
The number of female workers in rural areas (25/100 women) is more than in urban (15/100 women) areas.
The income of the male counterpart in the urban areas is high. Hence, the need for a female member of a family to go and earn does not arise,
The disparity between self-employed workers and salaried workers is also high.
In India, there are more number of men as salaried workers than women.