Indian Economy Growth and Development of the Economic

Indian Economy

Growth and Development of the Economic Firmament

Define GDP Gross Domestic Product - GDP : The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory. GDP = C + G + I + NX where: "C" is equal to all private consumption, or consumer spending, in a nation's economy "G" is the sum of government spending "I" is the sum of all the country's businesses spending on capital "NX" is the nation's total net exports, calculated as total exports minus total imports. (NX = Exports - Imports)

Define GNP Gross national product (GNP), in economics, a quantitative measure of a nation's total economic activity, generally assessed yearly or quarterly. The GNP equals the gross domestic product plus income earned by domestic residents through foreign investments minus the income earned by foreign investors in the domestic market. Gross domestic product, often confused with GNP, is calculated from the total value of goods and services produced in an economy over a specified period. Since World War II, GNP has been generally regarded as the most important indicator of the status of an economy. In the United States, the economy is considered to be in recession if there are two consecutive quarters of decrease in GNP. Despite the fact that GNP does not allow for inflation, overall value of production, and other factors, it is nevertheless a significant measurement of economic health. In 1995 the International Bank for Reconstruction and Development (World Bank) created a new system for measuring national wealth, based on the value of natural and mineral resources. Bibliography

Define Growth : Economic growth may be defined as a rate of expansion that can move an underdeveloped country from a near subsistence mode of living to substantially higher levels in the comparatively short period of time ie : , in decades rather than centuries.

Define Economic Development Economic development implies progressive changes in the socio-economic structure of a country. Economic development involves a steady decline in agriculture’s share in GNP and a corresponding increase in the share of industries, trade, banking, construction and services.

ADAM SMITH Ø Ø Ø Amongst the early classical economists, Adam Smith had first formulated a cogent and comprehensive theory of economic growth. Smith established what is called the link theory of growth. He established a cause-consequence relationship between population growth, accumulation of capital, and (What he called) “ propensity to truck, barter or exchange” on one side, and economic specialization, invention, technology transfer, use of machinery and development of skill and expertise on the other. Smith felt that saving was Sine qua non for development. He stated eve: “ every increase or diminution of capital, therefore, naturally tends to increase or diminish the real quantity of industry, the number of productive hands and, consequently, the exchangeable value of the annual produce of the land labour of country, the real wealth and revenue of all its inhabitants…. Smith continued : Capital is increased by parsimony and diminished by prodigality and misconduct. Adam Smith had felt that these factors were the forerunners amongst accepted growth impulses.

Contd >>>>>> Added free trade and international marketability of products, the phenomena of economic growth would gather momentum and produce increasing gross national investible surplus, leading to further phases of development. There were however, three kinds of criticism about Adam Smith’s theory: 1. Free trade : It was Frederich List of Germany who said that free trade of the kind Smith had visualized would perpetuate economic differences between nations, already marked by unequal developments and dissimilar growth rates. 2. Innovations : Referring to Adam Smith’s emphasis on the role of machinery and skill (technology) some economists suggested that Smith had accounted for adaptive innovations but no autonomous innovations. 3. Institutional changes : some economists felt that Smith perhaps had thought too much of the role immutability of central economic-sociological forces leading to development as a process of evolution. As a consequence, they had felt that he had not perhaps adequately explained the phenomenon of changing institutions. Ø

DAVID RICARDO Ø Ø Ø Ø Then came Ricardo. Agriculture, according to him, should be the principle spectrum of economic growth. Capitalists, labourers and big and small landholders are three performing economic groups in the scenario. Their proportionate respective shares in gross revenue would determine the growth rate. From gross and net revenues, Ricardo finally deduced the concept of economic surplus necessary for further economic growth, which is however, available in deferring proportions as between countries and sectors respectively. The Ricardian concept on economic development, as also Marxian materialism, had both somewhat lacked an appreciation of the role of innovations. Contrarily, these theories became too much involved with the respective roles played by the reactions by economic phenomena of value, marginal return, consumers surplus and such other value-concepts. These theories, however, had served their purpose in their own ways in that these brought out the reaction between the forces exerted by the different factors of production on the growth process.

Contd >>>>>>. Ø But in carrying out a pragmatic concept of economic growth which could also interpret the role of all-important catalyst factors, this was not adequate enough. Ø The need for a full-blooded concept was evident.

SCHUMPETER AND INNOVATIONS Ø Ø Ø 1. 2. 3. 4. 5. Then came Schumpeter; with his overwhelming emphasis on change or innovation. Schumpeter was the first economist to seriously and precisely lay his finger on this fundamental factor catalytic to development. The central figure in Schumpeter’s analysis is the entrepreneur. He is the innovator, the one who undertakes new combinations of the factors of production. Innovations may occur in the following forms : Introduction of a new product Use of a new method of production Conquest of a new source of supply of raw material Opening of a new market Reorganization of an industry

KEYNES AND THEREAFTER Ø Ø Ø Keynesian theory of employment and income, which eventually led to the concept of secular stagnation, has important bearings on the concept of economic development. This is so as it emphasizes the role of the statecraft in playing upon the force of marginal efficiency of capital and propensity to consume in a well-activised programme of economic development. The objectives behind the developmental plans and programmes are that these should lead the economy to annually yield a net investible surplus, generate capital and wealth for further investment, produce higher ranges of national product and income and eventually achieve accelerated economic development. Economic development, in effect is antipodal to economic stagnation. Keynes General Theory revolutionized theory of business fluctuations, it was confined to short-period analysis. Keynes assumed the following elements as given and constant : “ existing skill and quantity of available labour, existing techniques, the degree of competition, the tastes and habits of the consumer…”

Contd >>>>>>. . Ø Ø The frame of analysis in the Keynesian formulation in this context was more static than dynamic, and is in more senses than one related more to short-range issues than long-range phenomena which were the concern of his earlier compeers. It would appear that the post- keynesian economists, Hansen et al, have developed the Keynesian short-range concepts as sockets or sequences of a long- range macro level phenomenon. These economists have been able to extend the Keynesian system into a more comprehensive long- period theory of output and employment which analyses short- term fluctuations as being embedded in a long- range setting of economic growth. Keynes, however, continues to remain the focus of interpretation of economic development for the last few decades to date.

A SYNOPTIC VIEW Economic growth in the context of the developing countries of the Third World : Ø Is a function of optimum utilization of available and procurable resources; Ø At the least possible resource-cost to the economy Ø Deriving eventually the maximum feasible national product or income; Ø On the strength of a period- programme of resource- mobilization; Ø To produce the maximum range of capital and consumption- goods; Ø With optimization of employment and income per capita for the multitude; Ø So as to leave for the economy an adequate measure of both investible and exportable surplus.

Development, Underdevelopment and the Growth Divide

The Three worlds l l l The countries of the world are ranged on the two sides of Mahbub Ul Haq called the poverty curtain. On the one side are industrialized developed countries like the USA, Canada, Russia, the France, Germany and the other countries of Europe, Australia and Newzealand, Japan, and the oil-rich OPEC countries, all of which the agencies now rate as countries in the high-income strata. Ranged of the other are the rest of the world : South and South East Asia, New Africa and Latin America. The second cluster of countries are lately being called the Third World, Third World economies is a new and developing subject, and a part of the fast-growing discourse on economic growth. Economically advanced capitalist (First World) and Socialist (Second World) countries. The term Third World has become widely accepted and is generally used by economically poor nations in the context of critical international trade, foreign aid, depletion of natural resources, and dwindling food supplies.

UNDERDEVELOPMENT The UN agencies and some economists called these countries as underdeveloped, generally signifying their poverty and backwardness. What they meant by underdevelopment : 1. The United Nations interpreted an “underdeveloped economy” as an economy “in which per capita income was low when compared with the per capita real income of the USA, Canada, Australia and Western Europe. ” 2. It was further explained that : I. An economically underdeveloped country was one which could afford its inhabitants consumption and material well-being appreciably inferior to that provided by the developed countries to theirs. II. To designate a country as underdeveloped also would imply that its present economic performance could be improved by known and determined logistics. 3. Eugene Staley stated that an underdeveloped economy was characterized by chronic mass poverty. Staley believed that poverty in these countries was not endemic and could be substantially reduced by methods already proved in other countries.

CONTD >>>. Earlier, Viner had explained that such an underdeveloped economy “had good prospects for using more capital or more labour or more available natural resources or all of these to support its present population on a higher level of living” and sometimes a large 4. population . Amlan Datta agreed that underdevelopment was not endemic and that an underdeveloped economy had inherent potential for development provided the correct impulses were generated in the economy and an adequate programme for development launched and progressed. 5.

The Rationale The report of the Brandt Commission itself has been entitled North-South: A Programme for survival 1. The issues cannot be too simplified. The North would include two rich industrialized countries south of the equator, Australia and New Zealand. The south would range from a booming halfindustrial nation like Brazil to poor landlocked or island countries such as Chad and Maldives. 2. Most of the South-North dialogue has been between the developing countries and the marketeconomy industrialized countries. This is how we would usually interpret the North and the South. 3. But many of our observations would also apply to industrialized Eastern Europe, which did not want to be lumped together with the west, or included in the South. These socialist developed countries are also sometimes called as mentioned by Torado, the second world. When we speak of the south, we also exclude china. 4. But we would attach great importance to the participation of the East European countries and China in the international economic system and institutions.

Define Under – Developed Economy : According to Professor Jacob Viner, an under-developed country is “a country which has good potential prospects for using more capital or more labour or more available natural resources, or all of these, to support its present population on a higher level of living or if its per capita income level is fairly high, to support a large population on a not lower level of living.

Characteristics of the Indian Economy as an Under-Developed Economy : Ø Low Per Capita Income US $ Exchange rate basis Purchasing parity basis switzerland 39, 880 32, 050 USA 37, 610 37, 500 Japan 34, 510 28, 620 Germany 25, 250 27, 460 U. K 28, 350 27, 650 India 530 2, 880 2003

Characteristics Contd>>>>. Occupational pattern : primary Producing : Ø Industrial origin of GDP Percentage Distribution country Active population engaged in agriculture Agriculture Industry Services U. K 2 1 25 74 U. S. A 2 2 27 71 Japan 5 7 32 61 Egypt 35 17 33 50 Pakistan 48 26 23 50 China 69 16 49 35

Characteristics contd ………. . Ø Heavy Population Pressure : The main problem in india is the high level of birth rates coupled with a falling level of death rates. Ø Low rate of capital formation : Another basic characteristic of the indian economy is the existence of capital deficiency which is reflected in two ways ie : • The amt of capital per head available is low • The current rate of capital formation is also low This can be explained with the help of table

Charactersitics contd…………. U. S. A Per capita consumption of electricity (kilowatthours)(2000) 12, 331 U. K 5, 601 JAPAN 7, 628 CHINA 827 INDIA 355

Chracteristics contd …………… Ø Maldistribution of wealth/assets : Rural (%) Asset group Group Less than Rs. 20, 000 Rs 50, 000 urban (%) Households Assets 27. 0 2. 4 33. 5 1. 4 23. 8 7. 5 17. 2 3. 9

Characteristics Contd >>>>>>>. Ø Poor Quality of human capital : country Life. Adult expectan Literacy cy 2001 (%) 2001 Combined nrolment Ratio (%) 2000 -01 Per HDI capita Rank real GDP $ (PPP) 2001 canada USA Japan 79. 2 76. 9 81. 3 94 94 83 27, 130 34, 320 25, 130 99. 0 8 7 9

Characteristics contd>>>>>>> Ø Ø Prevalence of low level of technology Low Level of living of the average Indian total rural (in million) urban permanent 99. 4 (51. 8) 56. 8 (41. 1) 42. 6 (79. 3) Semipermanent 57. 7 (30. 0) 49. 4 (35. 7) 8. 3 (15. 4)

Characteristics of underdeveloped countries: Ø Low GNP per capita GNP Per capita and ppp estimates of GNP per capita in dollars (2003) Developed regions Developed Countries GNP Per capita Ppp Under developed estimates regions of gnp per capita Underdeveloped countries

Characteristics contd >>>>. Ø Ø Ø Scarcity of capital Rapid population growth and high dependency burdens Low levels of productivity Technological backwardness High levels of unemployment

Major issues of Development : Ø Ø Ø Ø Low Per Capita income and low rate of economic growth High proportion of people below the poverty line Low level of productive efficiency due to inadequate nutrition and malnutrition. Imbalance between population size, resources and capital Problem of unemployment Instability of output of agriculture and related sectors. Imbalance between heavy industry and wage goods Imbalance in distribution and growing inequalities.

The Characteristics of Economic Development : Ø • • Economic Factors : Capital Formation Marketable surplus of agriculture Conditions in foreign trade Economic system

Non-Economic Factors in Economic Development : Ø Ø Ø Human resources Technical know-how and general education Political freedom Social organization corruption Desire to develop

Primary Economy The overall scene is still of a primary economy. This is because of certain important reasons: 1. The sale of primary goods, substantially to industrialized countries, renders trade subject to cyclical fluctuations. 2. Such trade would normally consist of the expert of raw material and agricultural product in exchange for finished products and manufacturers. 3. In international pricing manoeuvres, primary goods are always at a disadvantage to manufactured and finished goods. The primary produce of the Third World, therefore, normally receives a raw deal in international trade. 4. The average Third World worker shares little in prosperity, but he carries the full burden of depression in the developed world outside. 5. Ownership is highly concentrated in nature and a small percentage or group of people, generally not exceeding 10% of the population, control the economic apparatus. Pakistan and Bangladesh are a telltale example each. There is excessive situation also poses a rigid barrier to growth. 6. In fact, demographic pressure is too profound and deep seated. Even though the mortality rate is high, the birth rate is even higher and this overtakes the economy in an iron grip.

CONTD >>> 7. 8. 9. 10. Capital is reluctant and investment archaic. Reources have a tendency to slip into the folds of the parallel economy, manifest in hoarding and black-money storage, instead of the generation of investible surplus for production of wealth and income. Institutional finance also tends to be rather choosy, rigid and largely nondevelopmental. The productivity of the average labourer is poor, in view of lack of skill, inferior or inadequate training, and due to his general upbringing, as also his background steeped in poverty, crowded surrounding, malnutrition and unhealthy living. Malcontent and militancy further detract their output. The growth- rate is poor, and is sometimes even negative. The gross national product is also poor, the per capita income low, and the standard of living for the multitude sub –normal. What is worse there is enormous inequity in distribution. Finally the government of the country generally devoid of sound perspective and runs the country generally by adhocism very often the atmosphere is vitiated by inefficiency, unrest, graft and corruption.

CONTD >. . 11. 12. As a result, economic mismanagement combined with inept developmental effort do generate multiple impulses which feed the economy with an inflationary fever, combined with a poor or negative rate of economic growth. There is a situation of low-key economic equilibrium which may sooner than later degenerate into the state of structural disequilibrium. With an unsatisfactory growthrate, coupled with an atrophied situation of the balance of payments, the stagnation in the economy gradually tends to perpetuate itself.

Partners in development The commission on International Development came into being in the late sixties… It was at the initiative of George Woods, then President of the World Bank, that a grand assize was contemplated. Ø The idea was to set up a conclave of eminent persons who could, in the background of their appraisal of “twenty years of development assistance. ” identify the false steps taken in the recent past, and develop a sound strategy for the future. Ø As a result the commission on International Development started functioning in the late 1968, with L. B Pearson, former Prime Minister of Canada as the chairman, and seven other distinguished persons from different parts of the world. , taken in their individual capacity, as members of the commission.

Contd >>>>>> Perspective before the commission was as follows: 1. The widening gap between the developed and developing countries has become a central issue of our times. The efforts to reduce it has promoted the developing nations to organize internal resource mobilization and transfer of technology and resources from rich to poor countries. 2. The state of economic underdevelopment was susceptible of a change for the better by determined national Endeavour's, coupled with well-meaning external assistance. 3. Many of the developing countries have shown themselves capable of major development efforts. 4. Against this background, “ a strategy could be developed for a partnership in development” between the developed and developing countries. 5. The “development relationship”, which is at the heart of such participation, must be based on a clear division of responsibilities which meets the needs of both partners.

Contd >>>>>. . In their report, the commission outlined a strategy for development : I. The recommendations for action are addressed to the developing countries, to the industrialized countries, and to international organizations. II. The recommendations embody a strategy for the strengthening of international cooperation for development, in order to: A. Create a framework for free and equitable international trade; B. Promote mutually beneficial flow of foreign private investment; C. Establish a better partnership, a clearer purpose and a greater coherence in development aid; D. Increase the volume of aid; E. Meet the problem of mounting debts; F. Make administration of aid for development more effective; G. Organize direct technical assistance; H. Slow down the growth of population; I. Revitalize aid to education and research; and J. Strengthen the multilateral aid system.

Emerging Growth Philosophy Many of these recommendations have been instrumental to the shaping of the commission’s policy and programme of these institutions in the next two decades. In the years pursuant to the presentation of the Pearson Commission’s Report, there has been a clear step- forward on lines advocated by the commission. 1. A wide expansion of aid and investment-credit, together with technology and expertise, for development in the economies of the developing countries, at much liberal terms, by both the unitary and multilateral agencies. 2. Considerable research has been undertaken at both national and international levels. On issues and problems relating to socio-economic development, and narrowing the gap between the developed and developing countries. 3. Many changes and liberalizations in the policy and programmes of international agencies like the IMF and the World Bank have come about. 4. The patterns of county-assessments by donor countries and the UN Agencies have become more intimate and more liberal. 5. Many international covenants, conferences and committees have gone into many complex and involved issues and have deliberated on and explored into the same in an Endeavour to find appropriate solutions and work out a strategy for development, with varying degrees of success.

The Brandt Commission On 28 September 1977, Willy Brandt, a Nobel Laureate for peace, announced at a press conference in New York, that he was ready to launch and chair an Independent Commission on International Development Issues(ICIDI). With a distinguished group of the world’s elite as its Commissioners, the Brandt Commission thus came into being, also with the supplementary function “to present recommendations which could improve the climate for further deliberations for North-South relations. ” The commission took upon itself the following overwhelming cluster of responsibilities; 1. To study the grave global issues arising from the economic and social disparities of the world community. 2. To suggest ways of promoting adequate solutions to problems involved in development and in attacking absolute poverty. 3. To pay careful attention, in the above context, to the UN resolutions on development problems and other issues explored in international fora in the recent past. 4. To seek to identify desirable and realistic directions for international development policy.

Recommendations A summary of the fundamental recommendations of the Brandt Commission will be in order: 1. The poorest countries Ø An action-programme be launched comprising emergency and longer term measures, to assist the poverty-belts of Africa and Asia. Ø Such a programme would require substantial additional financial assistance. 2. Hunger and Food Ø There must be an end to mass hunger and malnutrition. Ø International food-security should be assured, inter alia through food financing facility. Ø Programmes be funded and launched on land irrigation, production, research, grain storage and other agrarian efforts. Ø Greater North-South cooperation be stabilized. 3. Population Ø Population control needs highest attention. Ø National population control programmes be launched and funded.

Contd >>> 4. Ø Ø Ø 5. Ø Ø Ø 6. Ø Ø Production A broader package of policy improvements be programmed for agronomy. Strengthening of overall indigenous technological capacity to the optimum. Regional, sub-regional and international cooperation to be organized. Commodity-trade and Development The commodity-sector of developing countries should contribute more to economic development. Tariffs and other trade-barriers against developing countries be relaxed and removed. Common fund financing be instituted. Energy An emergency programme on energy development be launched and funded. A global energy research centre under UN auspices be set up.

Contd >>>>. . 7. Ø Ø Ø 8. Ø Ø Ø Industrialization and World Trade For developing countries, both industrialization and world trade be facilitated as matters of international policy. Protectionism against the developing countries be rolled back, and new trading rules and principles evolved. Arrangements be rationalized for sharing of technology. World Monetary Order Reform in international monetary order be urgently under-taken The exchange rate regime, the reserve system, the balance of payments adjustment-process, and the overall monetary management be rationalized. Special drawing rights (SDRs) be worked out. The IMF be entrusted to monitor and liberalise financing facilities for developing economies.

Contd >>>>>> 9. Ø Ø 10. Ø Ø New Approach to Development Finance There should be wider functioning to the Third World to find food, fight hunger and poverty and develop physical resources. Flow of official development finance be enlarged. Lending through international financial institutions be improved. A World Development Fund be set-up for the unmet needs of programme- lending. Internationalization Policies, agreements and institutions be guided by the principle of universality. Summit meetings be considered to advance the cause of consensus and change.

Define Human Development : Human Development is a process of widening people’s choices as well as raising the level of well-being achieved.

Why Human Development q q q Human Development is the end while economic growth is only a means to this end. Human Development I a means to higher productivity. It helps in lowering the family size by slowing human production. Human Development is good for physical environment. Human Development and reduced poverty contributes to a healthy civil society, increased democracy and greater social stability.

Human Development Index : Human development index is a composite of three indicators: i. e. : longevity, educational attainment, and standard of living.

Changes in HDI Over Time : q q q The rate of progress in human development has not be uniform in various countries. Some countries such as Ireland, China and Egypt have made rapid advancement. Some countries in Africa saw a reversal in human development during the period of 1990’s bcoz of decline in life expectancy due to HIV/AIDS. HDI declined in six countries in Eastern Europe and the commonwealth of Independent States –Bulgaria, Estonia, Latvia, the Republic of Moldova, Romania and the Russian Federation in 1985 -2002 becoz of transition from socialism to capitalism.

Some Development Options for the Third World

Some Development Options for the Third World Ø Developing countries should give importance to the development of GDP/GNP but the vital fact is that all development is basically human development. Ø Therefore, the aspects of human development which bring about multispectrum growtheducation, healthcare, food & agriculture, employment, good governance should be given in any developmental efforts in these countries.

Real Requisites Education: Ø Ø Ø Ø In the Development process the basic requirement is knowledge which comes out of learning, which comes out of education. Education gives the capacity to detect, discriminate, & judge. Education has to be directed towards the full development of the human personality & should provide opportunities for learning throughout life. Education & Development are synonymous. In fact, all other concepts & parameters of development & realization of the need for ‘development’ flow from education. On this the view of Azim Premji is very relevant: “(basic) education has a direct positive impact on a number of social & economic indicators like popn stabilisation, healthcare & sanitation, law & order, employment, productivity, GDP, economic growth, & the opportunity to make choices for each citizen leading to the practice of true democracy. ” Therefore, developing countries has to place education on the top of the agenda for the development.

CONTD >… Ø Population control, child care, nutrition, etc. are unavoidably linked to the education/learning of the girl child. And yet, through out the developing world, this aspect has not received the attention it deserves. Ø At the level of higher & technical education, developing countries have the problems of lack of funds for providing better amenities. Deserving students are not deprived of the opportunity merely because they can not afford it.

Suggestions: Ø The creation of clusters of villages with excellent internal connectivity through roads & communications which are also linked to nearby urban centers Ø There is also need for creating greater facilities for distance education & the extension of the open school system to larger areas to enable womenfolk Ø The initiative taken by the GOI for ‘policy framework for reforms in education’ is thus a step in the right direction

Healthcare Ø Ø Ø Ø Inequalities in life expectancy persist & are strongly associated with socio-economic attainment even in countries that enjoy an average of quite good health. In the world’s poorest countries, the poor have to pay for healthcare from their own pockets. The concept of ‘new universalism’ that the World Health Organisation is promoting- delivery to all of high quality essential care, defined mostly by criteria of effectiveness, cost & social acceptability and respecting the ethical principal. Women of child- bearing age & children under five represent the maternal & child category in any population profile. Anaemia, chronic under nutrition, & complications during the pregnancy and child birth are the orders of priority for maternal health. In the case of children, the priorities are diarrhoeal diseases, anameia, & vitamin A deficiency. These issues are linked with the education of girl child. Tuberculosis, AIDS, Cancer are major killers in developing countries. Blindness is another area of neglect- India having one- fourth of the world’s visually handicapped.

CONTD >>>>>. Ø There is a total absence of health education among the poor & low income groups in the developing world. Ø Sanitation, proper drainage of dirty water, disposal of garbage are the issues that do not get comprehensive attention these deserves.

Food & Agriculture Ø Ø Ø Improving agricultural performance is the key to increasing household incomes & reducing poverty & malnutrition. For this land & water mgt, soil fertility mgt, transfer & exchange of information, biotechnology development, improvement in fertilizer use & better land degradation studies are very important. The FAO(Food & Agriculture Organisation) of the UN recognizes that every country has the right to persue non-objectives e. g development of rural areas, environmental protection. Measures for improving the efficiency of domestic production, processing & marketing, new mechanisms for international market, actions on tariffs & dumping etc. are called for to cope with the WTO regime. Agriculture & agro food processing will require some of the finest inputs from engineering industries, biotechnology etc.

Employment Ø Growth in job creation has not been proper proportion with population growth. Ø Services now constitute a significant portion of GDP in many developing countries, therefore emphasis have to be given to human resource development. Ø Advice of Dr. Abdul Kalam: In India 60 -70% workforce in agri- therefore it requires special attention- by helping some with better inputs- finding avenues for many of them in related or other professions to reduce their dependency.

Governance & Government Ø The government of the developing countries need to emphasize on laying the institutional & social foundations for promoting opportunity, enhancing security for their peoples, & globally striving for promoting global financial stability, opening the markets of rich countries to poor countries, providing financial & non-financial resource for international public good, increasing aid & debt relief to help the poorer countries. Ø People need to be empowered through elections, responsive administrations, an effective judiciary & good governance. Ø Minorities of all sorts – women, illiterate underclass – need a greater voice in managing their future.

Suggestions: Ø Governments of these countries have to examine the role of FDI, through the mergers & acquisitions (M& A) route by MNCs. Ø The most important policy instrument is, competition policy. The threat of monopoly or tight oligopoly is most important negative effect of cross-border M & As. Ø Considering that competition policy, developing nations should proceed to ensure that they need to have in place, & to strengthen cooperation mechanism among themselves. Ø Against such diverse & immense challenges, the focus of the governments should be on developmental capacity of their peoples with the role of the government to that of a facilitator/regulator, besides being a provider of basic social & economic infrastructure.

Economic Planning

Economic Planning: A Mechanism of Growth Economic planning is development of the economy itself. Ø It aims to achieve an orderly economic growth. Planning is not a way of life, it is a means to an end i. e. better socio-economic life. Ø The aim of planning in a developing country like India is abolition of poverty, liquidation of unemployment, reduction of income inequality, development of agronomy, industrialization. Ø Economic planning should cover all socio-economic sectors – Mining and industry, commerce, international trade, infrastructure, banking, money market, capital market and agronomy. Ø And it should normally not concentrate on one sector at the expense of another. Ø The basic principle of planning is that state will take a decisive role 1. Direct acts of investment 2. Control over public/private and joint sectors to determine priorities Ø

Planning practices of various countries: Ø Ø Ø • • USA: There is no formal economic planning. Soviet Russia: The entire scope of socio-economic development used to be both programmed and executed in the minutes details. Britain: There is still a relatively greater role assigned to the public sector and nationalisation moving backward and forward. France: Certain industrial sectors are exclusively with the state, for the rest of the national economy, there is more or less directional planning. Developing countries: The new economies, most of which have undergone centuries of exploitation, are in a hurry to make up for the lost time. Most of the developing economies can not accelerate economic growth without first going through a period of gestation & take-off. Which would increase per capita output, NNP, PCI. Gestation Period- Devt of leading sectors i. e I&S Industry, Coal Industry, Sugar Industry.

Growth from Within Ø Economic Growth needs to be generated from within the economy. Ø A country may require external assistance to begin with, but it must take measures to build up an institutional structure of banking, finance, money market, arrangement for technology transfers, personnel & mgt development.

Suggestions: Ø Ø Ø Reorganize the plans & programmes as necessary Identify the areas of slack & stagnation Reduction in International Borrowing which would reduce dependency Promote Entrepreneurs for innovative ideas Importance to S& T, R& D

11 th FIVE YEAR PLAN (2007 -12)

ELEVENTH FIVE YEAR PLAN Ø Ø Ø The Eleventh Five Year Plan started on April 1, 2007 and covered the five year period 2007 -12. The Eleventh plan document starts on an optimistic note pointing to the robust economic growth registered in the Tenth Plan which was 7. 8% per annum (higher than the rate of growth registered in any other plan) Infact, the last four years of the Tenth Plan recorded a rate of growth of as high as 8. 6 % per annum making India one of the fastest growing economies of the world. However , according to the plan, “a major weakness in the economy is that the growth is not perceived as being sufficiently inclusive for many groups, especially SCs, STs, and minorities. Gender inequality also remains a pervasive problem and some of the structural changes taking place have an adverse effect on women. The lack of inclusiveness is borne out by data on several dimensions of performance.

VISION AND STRATEGY FOR THE ELEVENTH PLAN Ø Ø Ø The Eleventh plan emphasized “faster and more inclusive growth. ” While the target of economic growth was kept as high as 9% per annum (higher than the target set in any other plan), it was expected to yield broad based benefits and ensure equality of opportunity to all. “This broad vision of the Eleventh Plan includes several inter-related components: rapid growth that reduces poverty and creates employment opportunities, access to essential services in health and education especially for the poor, equality of opportunity, empowerment through education and skill development, employment opportunities underpinned by the National Rural Employment Guarantee, environmental sustainability, recognition of women’s agency and good governance. ” According to this plan, its strategy for inclusive growth is not just a conventional strategy to which some elements aimed at inclusion have been added. On the contrary, it is a strategy which aims at achieving a particular type of growth process which will meet the objectives of inclusiveness and sustainability. This strategy must be based on sound macro economic policies which establish the macroeconomic pre-conditions for rapid growth and support key drivers to this growth.

Contd >>>. Ø It must also include sector-specific policies which will ensure that the structure of growth that is generated, and the institutional environment in which it occurs, achieves the objective of inclusiveness in all its many dimensions.

Monitor able Targets of the Eleventh Plan Ø Ø Ø 1. 2. 3. 4. 5. 6. With its strategy of faster and inclusive growth, the Eleventh Plan identified 27 monitor able targets at the national level of which 13 can be disaggregated at the level of individual states. Justifying the adoption of these highly ambitious targets, the Plan Document stated, “These targets are ambitions but it is better to aim high and fail than to aim low” The 27 monitor able targets at the national level were divided into 6 main categories : Income and poverty Education Health Women and Children Infrastructure Environment

The targets in each of these categories are given below: 1. Income and Poverty Ø Ø Average GDP growth rate of 9% per year in the Eleventh Plan period; Agricultural GDP growth rate at 4 % per year on an average; Generation of 58 million new work opportunities; Reduction of unemployment among the educated to less than 5%; 27% rise in the real wage rate of unskilled workers; and Reduction in the head-count ratio of consumption poverty by 10 % points. 2. Education Ø Reduction in the drop-out rates of children at the elementary level from 52. 2% in 2002 -03 to 20% by 2011 -12. Developing minimum standards of educational attainment in elementary schools, to ensure quality education; Increasing the literacy rate for persons of age 7 years or more to 85 % by 2011 -12; Reducing the gender gap in literacy to 10% points by 2011 -12; Ø Ø Ø Ø

CONTD >…. Ø Increasing the percentage of each cohort going to higher education from the present 10% to 15% by 2011 -12. 3. Health Ø Infant mortality rate (IMR) to be reduced to 28 and maternal mortality ratio (MMR) to 1% 1000 live births by the end of the Eleventh Plan; Total Fertility rate to be reduced to 2. 1 by the end of the Eleventh Plan; Clean drinking water to be available for all by 2009; ensuring that there are no slip-backs by the end of the Eleventh Plan; Malnutrition among children of age group 0 -3 to be reduced to half its present level by the end of the Eleventh Plan; and Anaemia among women and girls to be reduced to half its present level by the end of the Eleventh Plan. Ø Ø 4. Women and Children Ø Sex ratio for age group 0 -6 years to be raised to 935 by 2011 -12 and to 950 by 2016 -17; Ensuring that at least 33% of the direct and indirect beneficiaries of all government schemes are women and girl children; and Ø

CONTD >>>> Ø Ensuring that all children enjoy a safe childhood, without any compulsion to work. 5. Infrastructure Ø To ensure electricity connection to all villages and BPL household by 2009 and reliable power by the end of the plan; To ensure all weather road all connection to all habitations with population 1000 and above (500 and above in hilly and tribal areas) by 2009, and significant habitations by 2015. To connect every village by telephone and provide broadband connectivity to villages by 2012; and To provide homestead sites to all by 2012 and setup the pace of house construction for rural poor to cover all the poor by 2016 -17. Ø Ø Ø 6. Environment Ø To increase forest and tree cover by 5% points; To attain WHO standards of air quality in all major cities by 2011 -12; To treat all urban waste water by 2011 -12 to clean river waters; and To increase energy efficiency by 20 % points by 2016 -17. Ø Ø Ø

State Specific Targets. Ø 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Thirteen of the 27 monitor able national targets were disaggregated into appropriate targets for individual states. These are : GDP growth rate; Agriculture growth rate; New work opportunities; Poverty ratio; Drop out in elementary schools; Literacy rate; Gender gap in literacy rate; Infant Mortality Rate (IMR); Maternal Mortality Rate (MMR); Total Fertility Rate (TFR); Child malnutrition; Anaemia among women and children; and Sex-ratio.

MACROECONOMIC FRAMEWORK Ø Ø Consistent with achieving the target of GDP growth rate of 9 % per annum on an average over the Eleventh Plan period, the major macroeconomic parameters were worked out in the plan document. According to the document, “These projections are not based on a single model of the economy, but on the result of several different models which have been used to explore feasible levels of growth and derive a broadly consistent macro economic picture covering the broad sect oral composition of growth, savings and investment and projections of the balance of payments which are consistent with external viability of the strategy being proposed. ”

Macro economic parameters Tenth Plan Eleventh Plan 1. Investment Rate (% of GDP mp) 32. 05 36. 72 2. Domestic Saving Rate (% of GDP mp) 30. 77 34. 84 3. Current Account Deficit (% of GDP mp) 1. 28 1. 88 4. Incremental Capital Output Ratio (ICOR) 4. 3 4. 1 5. GDP growth rate (% per annum) 7. 5 9. 0

Contd > Ø Ø Ø 1. 2. 3. Ø As it is clear from table the higher growth target in the Eleventh Plan was premised upon a significant increase in the investment rate from an average of 32% of GDP in the Tenth Plan to an average of 36. 7% of GDP in the Eleventh Plan. The Eleventh Plan envisaged a marginal improvement of Incremental Capital Output Ratio (ICOR) from 4. 3 in the Tenth Plan to 4. 1 in the Eleventh Plan. The sect oral growth targets to achieve a 9 % per annum rate of growth in the Eleventh Plan were as follows : Agriculture : 4. 0 % per annum ( as against 2. 5 % per annum achieved in the Tenth Plan, 200207) Industry : 10 -11 % per annum ( as against 8. 2% per annum achieved in the Tenth Plan) Services : 9 -11 % per annum (as against 9. 3% per annum achieved in the Tenth Plan) However, the Eleventh Plan did not present detailed sect oral targets based on input-output balances established on the basis of detailed multi-sector models because it felt that such detailed sect oral targets have little relevance in an open economy where necessary balances for all the tradable goods can be achieved through exports and imports.

CONTD >>>>>>. Ø According to the plan, “the only sectors where it is necessary to plan for a balance between domestic production and likely demands are the non- tradable sectors which are mainly in infrastructure, e. g. ; electric power, road transport , ports, airports, telecommunications, etc. ”

Financing Pattern The Eleventh Five year plan document pointed out the following major challenges in financing the plan : 1. The total resources for the Central and State Plans taken together have to increase from an average of 9. 76% of GDP in the Tenth Five Year Plan to an average of 13. 54% of GDP in the Eleventh Five Year Plan. Ø It may be noted that while the total size of the plan was projected at 13. 54% of GDP, the total public investment in the economy was projected to be lower at 8. 6% Ø This difference reflects the fact that a great deal of plan expenditure finances current expenditure on various items of public service delivery which are not counted as investment. 2. The increase of 4. 08% of GDP in total resources for the plan had to be achieved while keeping borrowing within the FRBM (Fiscal Responsibility Budget Management) requirement of reducing the fiscal deficit of the Centre and the States to 3% on each account. 3. The combined BCR (Balance From Current revenues) of the Centre and the States had to increase by more than the projected increase in Plan resources.

CONTD >>>>>. . Ø Ø As against the Centre’s BCR (Balance from current revenues)of an average of (-) 0. 84% of GDP, realized in the Tenth Five Plan, it was projected to average 2. 31% of GDP over the Eleventh Five Year Plan, i. e. ; an improvement of 3. 15% points of GDP. Similarly, the BCR of States was also expected to improve substantially from (-)0. 18% of GDP as realized in the Tenth Plan to 1. 41% of GDP in the Eleventh plan. The projected improvement required in the combined BCR of the Centre and the States taken together was therefore 4. 74% of GDP. As emphasized in the Document, achievement of these BCR targets was a key element in the financing of the plan.

SECTOR-WISE ALLOCATION OF ELVENTH PLAN PUBLIC SECTOR OUTLAY Sector Eleventh five year plan % To Total Tenth plan realization % To Total Centre States & UT Total (2) (3) (4) (5) (6) (7) 1. Agriculture and Allied Activities 50, 924 85, 458 1, 36, 381 3. 74 60, 702 3. 75 2. Rural Development 1, 90, 330 1, 10, 739 3, 01, 069 8. 26 1, 37, 710 8. 51 3. Special Area programme - 26, 329 0. 72 16, 423 1. 01 4. Irrigation and food control 6, 747 2, 03, 579 2, 10, 326 5. 77 1, 12, 415 6. 95 5. Energy 6, 28, 739 2, 25, 385 8, 54, 123 23. 43 3, 635 22. 47 6. Industry and Minerals 1, 21, 579 32, 021 1, 53, 600 4. 21 64, 655 3. 99 7. Transport 3, 86, 306 1, 86, 137 5, 72, 443 15. 71 2, 63, 934 16. 31 8. Communications 95, 337 43 95, 380 2. 62 82, 945 5. 12

THE EMPLOYMENT PERSPECTIVE Ø The employment scenario presented by the Eleventh Five Year Plan during the period of Eleventh Plan and beyond in Table Basis 1993 -94* 2004 -05 2006 -07 2011 -12 2016 -17 Population (age 0+) 893676 1092830 1128313 1207971 1283242 Population (age 15 -59) 501760 652940 687120 760110 820570 Labour Force UPSS 378650 471250 492660 541840 586440 Labour Force CDS 334197 419647 438948 483659 524057 Employment Opportunities CDS 313931 384909 402238 460310 5183203 Unemployed (000) CDS 20266 34738 36710 23348 5853 Unemployment Rate (%) CDS 6. 06 8. 28 8. 36 4. 83 1. 12

CONTD >>>>>>. Ø Ø Ø Ø According to the Eleventh Plan, population growth is expected to decelerate through the period 2006 -07 to 2016 -17 with a corresponding deceleration in labour force growth from 2. 01% per annum over the period 1993 -94 to 2004 -05 to 1. 92 % per annum over the period 2006 -07 to 2011 -12 & further to 1. 59% per annum over the period 2011 -12 to 2016 -17. However, although labour force growth is projected to decelerate, the absolute increase in the labour force is very large. As data on labour force (CDS) in given table shows, labour force is expected to grow from 438. 95 million in 2006 -07 to 483. 66 million in 2011 -12 implying a growth of 44. 71 million. Thus, the projected increase in labour force during the Eleventh Plan period is about 45 million. The projected increase over the period 2011 -12 to 2016 -17 (the Twelfth Plan period) can be calculated from the table as 40 million. The growth of total employment over the period has been estimated by the Planning Commission on the basis of employment projections for individual sectors which are then aggregated. These sectoral employment projections are based on sectoral GDP growth rates combined with assumption about employment elasticities moderated by the implicit growth in productivity.

CONTD >>>>> Ø Ø Ø As can be calculated from the table the resulting projections indicate that 58 million employment opportunities were expected to be created in the Eleventh Plan period. Thus the plan projections show that the employment opportunities created in the plan were expected to exceed the projected addition to labour force. This was expected to lead to a reduction in unemployment rate from 8. 36 % in 2006 -07 to 4. 83 % in 2011 -12. “since the labour force will increase by 85 million in this period, a substantial part of the surplus of labour force that exists at the commencement of the Eleventh Plan could get the absorbed into gainful employment by the end of the period. The unemployment rate at the end of the Twelfth Plan period is projected to fall to a little over 1 %. ” Sect oral Employment Projections : As far as sectoral growth projections are concerned, the Eleventh Plan estimated that agriculture sector was not expected to generate any increase in employment during the plan. Employment in manufacturing was expected to grow at 4% while employment in construction, and transport and communication was expected to grow at 8. 2% & 7. 6% respectively.

CONTD >>…. Ø Ø Eleventh plan identified the following sectors with prospects of high growth of output creation of new establishments & for creation of new employment opportunities (direct as also indirect). Services : IT – enabled services; telecom service; tourism; transport services; health care; education and training; real estate and ownership of dwellings; banking and financial services; insurance; retail services; and media and entertainment services. Other Sectors and Sub-Sectors : production, distribution and consumption of energy; horticulture; floriculture; construction of buildings; and infrastructure projects construction. Industry Groups : automotive; food products; chemical products; basic metals; non-metallic mineral products; plastic and plastic processing industry; leather; rubber and rubber products; wood and bamboo products; gems and jewellery; handicrafts; handlooms; and khadi and village industries.

SECTORAL ISSUES Volume III of Eleventh Year Plan is devoted to a discussion of “Agriculture, Industry, Services and Physical Infrastructure. ” Ø It discusses the policies envisaged for these sectors of the economy during the Eleventh Plan period in a very elaborate way. Agriculture : Ø The Eleventh Five Year Plan noted that although GDP from agriculture had more than quadrupled, from ƻ 1, 08, 374 crore in 1950 -51 to ƻ 4, 81, 547 crore in 2006 -07 , the increase per worker had been rather modest. Ø GDP per agriculture worker was around ƻ 2, 000 per month, which was only about 75% higher in real terms than in 1950 compared to a four-fold increase in overall real per capita GDP. Ø “While slower growth of GDP in agriculture than non-agriculture is expected, the main failure has been the inability to reduce the dependence of the workforce on agriculture significantly by creating enough non-farm opportunities to absorb the labour surplus in rural areaas and equipping those in agriculture to access such opportunities. ” Ø In this context it may be pointed out here that even growth of agriculture GDP decelerated from over 3. 5% per annum during 1981/82 -1996/97 to only around 2% per annum during 1997/982004/05.

Contd >… Ø Ø I. III. IV. As a result, growth of GDP had been well below the target of 4. 0% set in both Ninth and Tenth plans. However, due to improved performance in the last two years of the Tenth Plan the Eleventh plan stated that some of the causes of poor agriculture growth were being reversed. Accordingly, it set a target of 4 % growth in the agricultural sector. According to the plan, achievement of this growth rate required action in the following areas. Bringing technology to the farmers; Improving efficiency of investments, increasing systems support and rationalizing subsidies; Diversifying, while also protecting food security concerns; Fostering inclusiveness through a group approach by which the poor will get better access to land, credit and skills.

Contd >>… Technology : In the field of technology, the Eleventh Plan identifies the following immediate action plans : I. Priority in the agriculture research should be given to strategic research; II. Research priorities have to shift towards evolving cropping systems suited to various agroclimatic conditions and towards enhancing the yield potential in rain fed areas through development of drought and pest resistant varieties; III. The ICAR (Indian Council of Agricultural Reaearch) needs to restructure accordingly, and to increase its accountability; and IV. State agricultural universities need to be made more accountable, and strengthened to develop, refine and promote location specific technologies. Their teaching capacity also needs to be strengthened. Public expenditure on agriculture research will need to increase from around 0. 7% of agriculture GDP at present to 1 % by end of Eleventh Plan.

Contd >……. . Improving efficiency of investments : Ø The Plan proposed a number of steps to improve the efficiency of investments and increasing systems support particularly in the field of irrigation like improving the utilization of funds under AIBP (Accelerated Irrigation Benefit Programme), more emphasis on PIM (Participatory Irrigation Management), exploiting the abundant availability of ground water in Assam, Bihar, Chhattisgarh, Orissa and parts of Jharkhand, Uttar Pradesh and West Bengal, etc. Ø As far as rationalizing subsidies is concerned, the Plan noted that the present unbalanced and irrational system of fertilizer subsidy is an important cause of deteriorating soil quality. Ø It, therefore, called for rationalizing subsidy across nutrients and also examine methods by which the delivery of some part of the presently huge subsidies can be transferred from fertilizer producers to farmers or a group of farmers directly.

Contd >>>>>. Diversification : Ø According to the plan, demand for food grains, including for uses other than for direct human consumption was expected to grow at 2 to 2. 5 % per annum during the Eleventh Plan, traditional cash crops such as oilseeds, fibers, and sugarcane at 3 to 4 % per annum, and livestock and horticulture at 4 to 6 % per annum. Ø Diversification towards horticulture and livestock was therefore to be a very major element in the strategy for achieving 4 % agricultural growth. Ø Since agricultural marketing is a critical element of the diversification strategy, the Plan advocated a number of steps to improve the agricultural marketing system. Fostering inclusiveness : Ø Given that 80 % of farmers are small and marginal, and increasingly female, the Eleventh Plan advocated a number of steps to improve their effective access to inputs, credit, extension services, and output markets. Ø The plan argued that the best way to empower poor is to encourage “group approach”

CONTD >…… Ø Ø In this context, it advocated redesigning the subsidies in the current schemes, giving greater benefits to farmer groups rather than individuals, so as to incentivize group formation particularly amongst small, marginal, and female farmers. To promote gender equity, the plan advocated steps to ensure women’s rights to land infrastructure support.

CONTD >>>… Restructuring Agricultural Planning : Ø An important innovation during the Eleventh Plan was the introduction of the Rashtriya Krishi Vikas Yojana (RKVY) Ø This scheme was approved by the Government on August 16, 2007 with an allocation of ƻ 25, 000 crore. Ø The RKVY aimed at achieving 4 % annual growth in the agriculture sector during the Eleventh Five Year Plan period by ensuring a holistic development of agriculture and allied sectors. Ø The RKVY is a state plan scheme and eligibility for assistance under the scheme depends upon the amount provided in the state budgets for agriculture and allied sectors, over and above the baseline percentage expenditure incurred on agriculture and allied sectors. Ø The funds under the RKVP are provided to the states as 100 % grant by the central government.

CONTD >>>>>. The main objectives of the scheme are : Ø Ø Ø To incentivize the states to increase public investment in agriculture and allied sectors. To provide flexibility and autonomy to the states in planning and executing agriculture and allied sector schemes. To ensure the preparation of plans for the districts and the states based on agro-climatic conditions, availability of technology and natural resources. To ensure that the local needs/crops/priorities are better reflected. To achieve the goal of reducing the yield gaps in important crops, through focused interventions. To maximize returns to the farmers.

CONTD >>>>>>> Industry Ø The Eleventh Plan targeted 10 % per annum growth in industry. Ø According to the Plan document, , “ This will not only provide the additional job opportunities needed to absorb some of the surplus labour in the rural workforce but also generate employment for the new entrants that are expected to join the labour force both in rural and urban areas. ” Ø However, the plan noted that industry faces a number of impediments in the county, which need urgent attention if industrial growth is to be sustained over a long period. Ø Improvement of physical infrastructure comes at the top of the agenda of action for achieving rapid industrialization. Ø Continuous supply of good quality electrical power from the grid is critical for industry, but the situation in this regard is very unsatisfactory. Ø The plan noted that while large-scale units can deal with this problem by setting up captive power plants this is not an economical option for small and medium units.

CONTD >>>>>. . Ø Ø Ø Ø Manufacturing also entails movement of large volume of goods in order to compete in a globalised context and manufacturers need transport infrastructure which can ensure speedy and reliable movement. The same thing is true for ports where insufficient port capacity and inadequate navigation aid facilities and cargo handling equipment lead to longer pre-berthing detention and turnaround time for ships. On account of all these problems, the plan advocated massive investment and large scale extension in infrastructural facilities for the industrial sector. The second important impediment referred to by the Eleventh Plan is the “Skill deficit. ” There is a shortage of skilled personnel at all levels. The Plan noted that there is a huge gap in the vocational training capacity, which is less than one -fourth of the entrants to the work-force per annum. Accordingly, the plan advocated a number of steps to attend to this problem- the most important being expansion of capacity in our institutions of higher education and technical and professional education.

CONTD >>… Ø Ø Ø Ø The GER (Gross Enrolment Ratio) for higher education in India is presently around 10% whereas it is 25% for many other developing countries. China has increased GER in higher education from 10 % in 1998 to 21% in 2005. The Plan advocated increasing the GER to 15% by 2011 -12 and to 21% by the end of the Twelfth Plan. For this purpose, the Plan advocated more participation by the private sector in the field of higher education. As far as development of skills is concerned, the plan emphasized removal of deficiencies in the skill provision programmes and improving the quality of vocational education and training system. It proposed to launch a major “National Skills Development Mission” to improve the public sector skill development infrastructure and promote private-public partnership in the field. The programme was to support private skill development initiatives in 28 high growth sectors of the economy by providing governmental support in different forms and fee subsidization of candidates.

CONTD >……… Ø Ø Ø According to the Eleventh Plan document, lack of flexibility in labour laws is another important impediment. The focus of labour laws on job protection acts as a psychological block for entrepreneurs against establishing new enterprises with a large work force. “In a globalised world where our manufacturers have to compete with others who enjoy greater flexibility, it is necessary to find practical solutions for the problems created by these laws. ”

CONTD >>>> Small-Scale and Medium Enterprises : Ø The Plan noted that small-scale and medium enterprises are the main beneficiaries of the investment incentives for modernization, up gradation, and additional capacity creation given in schemes like Technology Up gradation Fund Scheme (TUFS) for the textile sector. Ø The schemes for establishment of industrial parks such as the Scheme for Integrated Textile Park (SITP) in the same sector are also aimed at obtaining additional investment in small-scale and medium enterprises. Ø The plan proposed to continue these schemes and replicate them in other areas as well. Ø Since small-scale units are handicapped by insufficient flow of credit, the Plan advocated monitoring and improvement of credit flows to these units.

CONTD >>>… Infrastructure : Ø The Eleventh Plan outlined a comprehensive programme for development of infrastructure, especially in rural areas, and in the remote and backward parts of the country, consistent with the requirements of inclusive growth at 9 % per year. Ø It noted that total investment needed in infrastructure will have to increase from an estimated 5% of GDP in 2006 -07 to almost 9 % by the terminal year of the plan. Ø To make this possible, the plan proposed a strategy for infrastructure development which involves a combined response------- an increase in public sector investment in infrastructure as a percentage of GDP, and also an increase in private sector investment some form of publicprivate partnership.

CONTD >>>>…. Energy Ø Rapid economic growth is not possible if energy is not available at reasonable costs. Ø Electricity is a crucial energy input in this context. Ø The National Electricity Policy (NEP) 2005 recognized electricity as a “ basic human need” and targeted a rise in per capita availability from 631 units to 1, 000 units per annum by the end of 2012. Ø To fulfill the objectives of the NEP, a capacity addition of 78, 577 MW was proposed for the Eleventh Five Year Plan of which 39, 865 MW (50. 7 % ) was expected to be in the central sector, 27, 952 MW in the state sector and 10, 760 MW in the private sector. Ø The targeted growth rate in the power sector was 9. 5% per annum. Ø In addition to the target of 78, 577 MW capacity addition the plan also focused on the following other thrust areas: i. Improvement in the efficiency of the distribution system; ii. Rural electrification; iii. Setting up of Ultra Mega Power Projects (UMPPs) each with a capacity of 4, 000 MW or above to attract private investment;

CONTD >>>>>>> iv. v. vi. To introduce competition in the coal sector for increasing efficiency and injecting new technology Encouraging national and international oil companies to come and explore for oil and gas in the country; and Encouraging renewable energy sources.

CONTD >>>>>>> Transport Sector : Ø In the field of transport, the Eleventh plan proposed a number of initiatives in all sub-sectors like railways, roads, water transport and air transport. Ø In the railway sector, the following objectives were laid down: i. Capacity enhancement in the short-term, through maximum utilization of existing capacity; ii. Significant enhancement of capacity in the medium and long-term through route-wise planning and capacity augmentation on the high density network and other measures; iii. Achieving higher maintenance standards; iv. Technology up gradation, and v. Safety and passenger amenities. Ø In the roads sector, the plan envisaged a major programme of road development covering the National Highways based on a combination of public investment and public-private partnership and completion of rural road connectivity through the Pradhan Mantri Gram Sadak Yojana (PMGSY) Ø A comprehensive Master Plan was also proposed to be formulated for construction of Access Controlled Expressways over a length of 15, 600 km.

CONTD >>>>…. As far as the water transport sector is concerned, the plan noted that Indian ports suffer from inefficiency and congestion as reflected in the high turnaround time of ships. Ø It, accordingly, envisaged a major programme of expansion in port capacity based on publicprivate partnership. Ø In the field of air transport, the Eleventh Plan proposed to accelerate the programme launched in the last two years of the Tenth Plan to upgrade airports and related facilities. Telecommunications Ø The Eleventh Plan envisaged continued progress towards developing a world-class telecommunications infrastructure with an emphasis on broadening access. Ø It fixed a target of reaching a telecom subscriber base of 600 million and a rural teledensity of 25% Ø Expanding rural telephony was defined as a priority area for the plan. Ø Total investment in infrastructure was kept at ƻ 20, 56, 150 crore. Ø This level of investment amounted to an average of about 7. 6% of GDP during the Eleventh Plan as a whole. Ø

TWELFTH FIVE YEAR PLAN (2012 -17)

TWELFTH PLAN (2012 -17) Ø The Twelfth Five Year Plan commenced on April 1, 2012 and covers the five year period 2012 -17.

CONTD >>>>> HANDOUT FOR TWELFTH PLAN GIVEN

Hunger & Food: A recent report of the Food and Agricultural Organisation (FAO), indicates that over a fifth of India's population still suffers from chronic hunger. Indeed, India is one among 17 countries where the number of the undernourished increased substantially in the second half of the 1990 s Volume 21 - Issue 05, February 28 - March 12, 2004, India's National Magazine

Causes for Low Productivity: a) General Factors l l l Overcrowding in Agriculture Discouraging Rural Atmosphere: poor, illiterate, ignorant, superstitious farmers- satisfied with the primitive system of cultivation- change is much slower in BIMARU states Inadequate non farm services: inadequate finance & mktg services Indian Economy: Datt & Sundaram

CONTD >>>>. . b) Institutional factors: l Size of Holdings: fragmentation, small holding- no scientific cultivation with improved implements & seeds l Wastage of crops in the absence of fencing

CONTD >>>>. c) Technological factors: l l Poor Techniques of Production: only in recent years, farmers have started adopting improved implements like steel ploughs, small pumping sets, seed drills, fodder cutters etc. Because of poverty they do not have capacity to purchase good quality seeds therefore quality of output deteriorates- Bad storage conditions Inadequate Irrigation Facilities: Dependency on rainfall

Analysis of South Asia gives 4 basic conclusions: l l The Economy still being overwhelmingly Rural Agriculture- key factor in national progress Production of foodgrains being central to the devt of agriculture Family planning & population control being a focal national priority Planning, Growth & Economy: S. K. Ray

Finance from across the Seas n. The pattern of flows under foreign aid does not depend upon the pure economic factors but more on politico-economic factors. n Criteria for Aid: The donor countries look into their own capacity to grant aid & recipient countries capacity to absorb aid. n Recipient countries capacity is judged by overall performance of the economy, relative pop, avg std of living, natural resource endowments, planning efforts, etc. International. Financial Management: V. A. Avadhani

Types of Aid: l l Two major types of aid are tied & untied. Tied aid is that which is linked to a country or project for specific use- The tying may be to a project specified in India or to a currency or country for import of the corresponding goods & services mostly from the donor country.

World Bank: l Is the sister organisation of IMF. Located in Washington- has 184 member countries- came into existence in 1945 - started operation in 1947 - Primary Objective is to fight poverty & assist developing countries to improves standard of living International Economics: Charles Van Marrewijk

World Bank Group consists 5 Institutions: l l l International Bank for Reconstruction & Development (IBRD): established in 1945 Aims to reduce poverty in middle income & creditworthy poor countries It is able to borrow at low cost & offer its clients good borrowing terms.

CONTD >>>> l l International Development Association (IDA): established in 1960 It provides interest free credits & grants to the world’s 81 poorest countries those have little or no capacity to borrow on market terms.

CONTD >>>>> l International Finance Corporation (IFC): established in 1956 l IFC fosters sustainable economic growth in developing countries by financing private sector investment, mobilizing capital in the international financial markets, and providing advisory services to businesses and governments. l IFC is teaming up with the Gujarat state government to develop a university campus that could address the higher education needs of students in the tribal area of Khedbhramma, which has limited education facilities.

Multilateral Investment Guarantee Agency ( MIGA): l l Established in 1988 It helps to promote FDI in developing countries by providing non- commercial risks such as war, natural calamities, civil disturbance etc.

International Centre for Settlement of Investment Disputes (ICSID): l l Established in 1966 It helps encourage foreign investment

IMF: Objectives: Main objective is to promote exchange stability & encourage multilateral trade & payments. l Other objectives: International Monetary Co-operation Help members with temporary BOP difficulties & thus expand world trade & aid. l Intrnational Financial Mgt: V. A. Avadhani

SDRs: l l Gold was originally the unit of account in which the various currencies were denominated. This was subsequently replaced by SDRs which is std unit of a/c whose value is fixed in terms of basket of currencies. This is an asset specially intended to take the place of gold & as such called paper gold.

Investment Planning v v The formulation of the plan for a specific period is critical job. The programming & Later the implementation of a plan requires adequate resources. Resource mobilization is imp stone of planning. Planning in India has also extensively suffered because of inadequate domestic mobilization of resources. Planning, Growth & Economy: S. K. Ray

Priorities & Pattern of Investments: l l l For each planning commission fixed an overall total outlay for economic growth. During the 1 st six plans, planning commission distinguished between five sectors of development, viz. agri & irrigation, power, industry, transport & communication and social services. From the seventh & onwards there was greater refinement of the sectors of development. Allocation on power, industries, transport & communication had increased considerably but most significant increase was on industries. Indian Economy: Dutt & Sundaram

Sectoral Investment during the Plans: Agri & irrigati Powe Indus Trans & Comn Social Serv Total 1 st Plan 600 260 120 520 460 1, 960 7 th Plan 48, 100 61, 690 29, 220 41, 000 38, 720 2, 18, 730 9 th Plan 2, 01, 442 2, 19, 243 60, 362 2, 36, 085 2, 23, 909 9, 41, 041 Figures in Rs. crores, Economic Survey 2000 -01

Allocation Pattern in Diff. Plans: Agri & Irrigation: Only in 1 st FYP argi & Irri. was allotted 31% where as all other plans allotted 20 - 24% l Power( Energy) Programmes: composed of l a) power b) petroleum c) coal d) non- conventional sources of energy l Industries & Minerals: From 2 nd FYP, share of this sector raised sharply from 6% to 24% in 2 nd FYP. l Transportation & Comm: for the development of all 3 ways investment in this is continuosly increasing after 6 th plan. It is 25% in 9 th plan. l

CONTD l Social & Miscellaneous services: i. e. education, health, family planning, housing, urban devt, labour welfare etc. outlay on social services varies from 15% 25% in 1 st to 9 th Plan.

The Teeming millions :

Meaning of Population Explosion : According to neo-Malthusians, population problem is an inevitable result of the reproductive behaviour of man. Theory of Demographic Transition, however, rejects this view & asserts that the population explosion implying a sudden spurt in the rate of population growth in a transitory phenomenon that occurs in the second stage of demographic transition due to a rapid fall in the mortality rate without a corresponding fall in the birth rate.

Stages of Demographic transition Ø Ø Ø The First stage : Both birth & death rates are high. The Second stage : Rapid growth of population because despite substantial reduction in the mortality rate there is corresponding decline in the birth rate. The Third stage : The birth rate declines significantly & thus the rate of population growth remains low

Causes of the rapid growth of population Ø A high birth rate Ø A relatively lower death rate Ø Immigration India's population has not increased much due to immigration. In india the population has rapidly increased singularly due to steady decline in the death rate, while the birth rate remained high.

Causes of the Decline in the mortality rate : Ø Elimination of famines Ø Control of epidemics & decline in the incidence of malaria & tuberculosis Ø Other factors

Causes of the High Birth Rate : Economic Factors : Ø Ø Ø Predominance of agriculture Slow urbanization process & predominance of villages Poverty

Contd>>>>>>> Social Factors : Ø Ø Ø Near universality of marriage Lower age at the time of marriage Religious & social superstition Joint family system Lack of education

Remedies for Population Explosion : Economic Measures : Ø Ø Ø Expansion of the industrial sector Creation of employment opportunities in urban areas Equitable distribution of income & removal of poverty

Contd >>>>> Social Measures : Ø Ø Ø Education Improving the status of women Raising the minimum age of marriage

The Family Planning Programme Ø Ø Public information programme Incentives & disincentives Family planning centres Research

Green Revolution :

Objectives of economic planning for the agricultural sector: Ø Increase agricultural production : A>to bring more land under cultivation B> raise the per hectare yield through intensive application of such agricultural inputs as irrigation, improved seeds, fertilisers & C >bring about increased agricultural production.

Contd>>>>> Ø Increase employment opportunities Ø Reduce the pressure of population on land Ø Reduce inequality of income in the rural sector

Agricultural Progress under the five year plans : Ø Ø Ø The first plan aimed at solving the food crisis India was facing at the time & ease the critical agricultural raw material situation, particularly the acute shortage of raw cotton & raw jute. The planning commission wanted the second plan to lay the foundation of industrialization & secure equal opportunities for all, particularly for the weaker sections of the people in the country. It was during the third plan that the government introduced the new agricultural technology known as Intensive Agricultural District Programme (IADP) which was followed by a programme of using improved seeds i. e. : High Yielding Varieties Programme (HYVP)

Contd >>>>>>>. Ø Ø Ø None of the agricultural targets except sugarcane was achieved during the third plan period & The actual output at the end of the third plan in the case of food grains, oil seeds & raw cotton was lower than the output at the end of the second plan, indicating that the third plan wash-out as far as agriculture was concerned. The fourth plan for instance emphasized the necessity to create favorable economic conditions for the promotion of agriculture & a systematic effort to extend the application of science & technology to improve agricultural practices.

Contd >>>>>>>. Ø Ø Ø None of the agricultural targets except sugarcane was achieved during the third plan period & The actual output at the end of the third plan in the case of food grains, oil seeds & raw cotton was lower than the output at the end of the second plan, indicating that the third plan wash-out as far as agriculture was concerned. The fourth plan for instance emphasized the necessity to create favourable economic conditions for the promotion of agriculture & a systematic effort to extend the application of science & technology to improve agricultural practices.

Contd >>>>>. Ø Ø The fifth plan was prepared with great care with total plan outlay at Rs 39, 430 crores out of which outlay on agriculture would be Rs 8, 740 crores The fifth plan period also witnessed the declaration of emergency. The sixth plan was hailed as a great success, particularly because of the success on the agricultural front. The seventh plan & the eighth plan laid emphasis on specific projects in the field of agriculture. They included a special rice production programme in the eastern region, national watershed programme for rain fed agriculture, national oilseeds development project, social forestry, etc.

Contd >>>>. . Ø Ø The eighth was basically sound in its approach in the strategy of development & in the targets of agricultural crops. Fortunately, weather & climate conditions were favourable & broadly many of the targets could be fulfilled. The ninth plan was not much of a success, as far as the agricultural targets were concerned. For instance, the ninth plan fixed the target of food grains production at 234 million tonnes in 2001 -02 but the actual production was only 212 million tonnes.

Causes for slow growth rate in agriculture under the five year plans : Ø Ø Ø Agriculture still a gamble in the monsoon Limited use of new agricultural technology Decline in investment in agriculture Failure of land reforms Growing exploitation of the tenants Failure to control growth of population

New Agricultural Strategy & Green Revolution: Ø Ø Ø Since the mid-1960’s the traditional agricultural practices are gradually being replaced by modern technology & farm practices in India & a variable revolution is taking place in our country. As result of the new agricultural strategy, area under improved seeds has gone up from about 15 million hectares during 1970 -71 to nearly 75 million hectares in 1995 -96. Traditional agriculture relies heavily on indigenous inputs such as the use of organic manures, seeds, simple ploughs & other primitive agricultural tools, bullocks, etc.

Lessons from the green revolution : Ø Ø Ø The green revolution initiated by the new strategy initially limited to wheat, maize & bajra only. The major crop of India, i. e. : rice, responded to the impact of the high-yielding varieties much later. Progress in major commercial crops, viz : oilseeds, cotton & jute is very slow Spectacular rise in food grains production has taken place since the 1960’s in Punjab, Haryana, western U. P. & in some selected districts of Andhra Pradesh, Maharashtra & Tamil Nadu. The adoption of new technology depends upon the level of literacy of the farmers. D. P Chaudhri in his study, Education & Agricultural Productivity in India has shown that large farmers, invariably are always early adopters of yield-raising, costreducing innovations, while small farmers, who are generally illiterate, are among the laggards.

Contd >>>>>> Ø Ø Ø It has been observed that in the present rural set-up of cooperative societies & rural banks, it is the big farmer who is able to secure a loan at low rate of interest. The small farmer who wields very little influence in the village has to borrow from the village money-lender at exorbitant rates of interest varying between 24 to 36% The adoption of new technology depends upon control over water supply & ability of the farmer to regulate its timing. It requires lumpy investment in tube wells or diesel pump sets. The new strategy has created three kinds of conflicts, namely, between large & small farmers, between owners & tenant farmers & between employers & employees on agricultural farms

Contd>>>>>>… Ø Ø Ø The holders of large farms are capable of making heavy investment in the form of fertilizers, pump sets, tube wells, & agricultural machinery. In India quite a significant group of peasants have small size holdings & consequently, they hire land on tenancy from the large owners. The application of new technology in large farms has led to the substitution of human lab our with mechanical processes.

public sector in India & the Third World :

The Evolution of the Public Sector In India : o o Prior to 1947, there was virtually no “public sector” in the Indian economy. In the post-independence period, the expansion of public sector was undertaken as an integral part of the 1956 Industrial Policy. The Industrial Policy Resolution 1956 gave the public sector a strategic role in the Indian economy. At the time of independence, the country was backward & underdeveloped basically an agrarian economy with a weak industrial base, heavy unemployment, low level of savings & investment & near absence of infrastructural facilities, Indian economy needed a big push.

Contd>>>>> o o o The basic argument for the expansion of the public sector, the government added additional reasons over time: To accelerate the growth of core sectors of the economy. To serve the equipment needs of strategically important sectors like Railways, Telecommunications, Nuclear Power, Defence, etc To exert countervailing power on the operation of private monopolies & multinationals in selected areas; To ensure easier availability of articles of mass consumption, to check prices of important articles etc- the rationale behind setting up consumer-oriented industries; To protect employment, the government was forced to take over sick industrial units.

Objectives of Public Sector : o o o o To promote rapid economic development through creation & expansion of infrastructure. To generate financial resources for development; To promote redistribution of income & wealth To create employment opportunities; To promote balanced regional growth To encourage the development of small scale & ancillary industries & To promote exports on the one side & import substitution, on the other.

Role of public sector in Indian economy : Ø l l Ø l Public sector & capital formation: The role of public sector is collecting savings & investing them during the planning era has been very important The nationalized banks, state bank of India, Industrial Development bank of India Development of infrastructure : the primary condition of the economic development in any under-developed country is that infrastructure should develop at a rapid pace. Strong industrial base : The share of the industrial sector in Gross Domestic Product at factor cost has increased slowly but steadily during the period of planning. The share of the industrial sector in GDP at factor cost rose from 13. 3% in 1950 -51 to 21. 6% in 1980 -81 & further to 24. 5% in 2003 -04.

Contd >>>> Ø l l Economies of scale: In the case of those industries where for technological reasons, the plants have to be large requiring huge investments, setting up of these industries in the public sector can prevent the concentration of economic & industrial power in private hands. It is a known fact that in the presence of significant economies of scale, the free market does not produce the best results.

Contd >>>>> Ø l l Removal of regional disparities : The government in India has sought to use its power of setting up of industries as a means of removing disparities in industrial development. In the pre-independence period, most of the industrial progress of the country was limited in & around the port towns of Mumbai, Kolkata & Chennai. Import substitution & export promotion : The foreign exchange problem often emerges as a serious constraint on the programmes of industrialization in a developing economy. This constraint appeared in a rather strong way in India during the second plan & the subsequent plans.

Contd >>>>>. Ø l l o Check over concentration of economic power : In a capitalist economy where the public sector is practically non-existent or is of a very small size, economic power gets increasingly concentrated in a few hands & inequalities of income & wealth increase. Public sector can help in reducing inequalities in the economy in a number of ways. Profits of the public sector can be used directly by the govt on the welfare programmes of the poorer sections of community.

Contd >>>> o Public sector can adopt a discriminatory policy by supplying materials to small industrialists at low prices & big industrialists at high prices. o Public sector can give better wages to the lower staff as compared to the private sector & can also implement programmes of labour welfare, construction of colonies & townships for labourers slum clearance, etc; & o Public sector can orient production machinery towards the production of mass consumption goods.

Causes for the expansion of public enterprises : o o Rate of economic development & public enterprises. Pattern of Resource Allocation & Public Enterprises. Removal of Regional Disparities through Public Enterprises. Sources of funds for economic development.

Shortcomings of the Public Sector : o Mounting Losses : l It has been estimated that the losses incurred by state electricity boards (sebs) rose from Rs 4, 117 crores in 199192 to Rs 24, 063 crores in 2001 -02 these losses were incurred because power was supplied at mere 240 paisa per unit as against the production & distribution cost of 350 paisa per unit.

Contd>>>>>>> o o o Political factors influence decision about location. Delays in completion & increase in costs of construction. Over capitalism Price policy Use of man-power resources in excess of actual requirements.

Problems of Public Sector Enterprises : Price policy of public enterprise As regards the pricing policy of public sector enterprise, we can find 2 different approaches v The public utility approach v The rate of return approach Ø Under utilization of capacity Ø

Contd >>>> Ø l l l Problems related to planning & construction of projects Selection of site was not based on detailed soil investigations There were serious omissions & understatements of several elements of the projects. The actual costs of projects far exceeded the original estimates. The projects took much longer time to complete than originally envisaged & The projects often embodied inappropriate technology or product mix

Disinvestment of Public Enterprise :

Meaning & Rationale of Privatization : Privatization is a process by which the government transfers the productive activity from the public sector to the private sector. According to the supporters of privatization, the rationale for privatization & disinvestment is as follows: q The private sector introduces the ‘profit-oriented’ decision making process in the working of the enterprise leading to improved efficiency & performance. q While personnel in the public enterprises cannot be held responsible for any lapse, the areas of responsibility in the private sector are clearly defined.

Contd>>>>> q q q Private sector firms are subject to capital market disciplines & scrutiny by financial experts According to Bimal Jalan, political interference is unavoidable in public corporations & is a major cause of decline in operational efficiency. “ such political decision making reflects itself in the less company are preferred as the expectation is that the foreign company will bring with it world-class technology & expertise to run the PSU. Equal-Access voucher programmes. This form of privatization involves distribution of vouchers across the population & attempts to allocate assets approximately evenly among voucher holders.

Contd >>>> q Management-Employee Buyouts. In this route to privatization, managements & employees themselves buy major stakes in their firms.

The Disinvestment Programme In India ü The New Industrial Policy, 1991, advocated privatization of public sector enterprises. ü For purposes of Privatization, the government has adopted the route of disinvestment which involves the sale of the public sector equity to the private sector & the public at large. ü Till 1998 -99, the government used to sell minority stakes through domestic or international issue of shares in small tranches every year.

Contd >>>>>. ü Post 1999 -2000, there has been a greater stress on strategic sale- involving an effective transfer of control & management, to a private entity, the argument being that the government would get a better price from the private sector if it is ceding actual control.

Objectives of the Disinvestment Programme : The Government of India laid down the following objectives for its privatization programme. Ø Raising the resources Ø Reducing day to day interference in the working of the public sector enterprises by loosening the shackles of bureaucratic government control, Ø Giving the managements the autonomy to act on their commercial judgment.

Contd >>>>>. . The policy on investment aims at : ü Modernization & up gradation of public sector enterprises ü Creation of new assets ü Generation of employment ü Retiring of public debt ü To ensure that disinvestment does not result in alienation of national assets, which, through the process of disinvestments remain where they are. It will also ensure that disinvestment does not result in private monopolies. ü Setting up a Disinvestment proceeds fund.

Contd >>>> ü ü ü Formulating the guidelines for the disinvestment of natural asset companies; Preparing a paper on the feasibility & modalities of setting up Asset Management Company to hold, manage & dispose the residual holding of the government in the companies in which government equity has been disinvested to a strategic partner. In this statement, the government also announced its decision to disinvest in two oil companies i. e. : Bharat Petroleum Corporation Ltd (BPCL) & Hindustan Petroleum Corporation Ltd (HPCL).

Ragarajan Committee on Disinvestment of shares : The Government appointed a committee on Disinvestment in public sector under the chairmanship of C. Rangarajan in 1993 to suggest correct method of divestiture. The other important recommendations of the committee were as follows : ü As far as the target level of disinvestment is concerned, it should be decided on the basis of the desirable level of public ownership in an activity or unit consistent with industrial policy. In those units which are reserved for the public sector, the percentage of equity disinvested should be 49% so that the government retains control over the management.

Contd >>>>>>. ü ü ü Instead of year-wise targets of disinvestment, a clear action plan should be evolved. A number of steps need to be undertaken which may include corporatisation of the PSEs, restructuring of finance with a proper debt-equity gearing & an independent regulatory commission for the concerned sector, if necessary. The choice of method of valuation of shares of a PSE needs to take into account the special circumstances affecting PSEs operations, such as, the past focus on social responsibilities rather than pure commercial considerations.

Contd>>>> ü ü ü A scheme of preferential offer of shares to workers & employees in PSEs may be devised. Ten % of the proceeds of disinvestment may be set apart by the government for lending to the PSEs on concessional terms to meet their expansion & rationalisation needs. A standing committee on Public Enterprises Disinvestment may be constituted to oversee the action plan for reform, restructuring & disinvestment as well as monitoring the evaluation of progress made.

Role of the private sector : ü ü The dominant sector Importance of development Extensive modern industrial sector. Potentialities due to personal incentive in the small sector.

Problems of the private sector : ü ü ü ü ü Profit generation is the main motive Focus on consumer durables sector Monopoly & concentration Declining share of net value added in total output contribution to trade deficit Industrial disputes Industrial sickness. Problems related to finance & credit Threat from foreign competition

Institutional & Industrial Finance :

Define Balance of Payments : A balance of payments statement is essentially a doubleentry system of record of all economic transactions between the “residents” of a country & rest of the world carried out in a specific period of time. Balance of payments is divided into 2 major accounts: ü Current account ü Capital account

Current account : The transactions relating to goods, services & income, constituting the current account on the balance of payments, are functionally classified into 2 broad categories: merchandise & invisibles.

Capital Account : Capital account is classified into 3 main sectors : ü Private capital ü Banking capital ü Official capital

Components of foreign capital : ü ü Foreign capital can be obtained in the form of concessional assistance or non-concessional flows or foreign investment Concessional assistance includes grants & loans obtained at low rates of interest with long maturity period. Non- Concessional assistance includes mainly external commercial borrowings, loans from other governments/multilateral agencies on market terms & deposits obtained from non-residents. Foreign investment is generally in the form of private foreign participation in certain sectors of the domestic economy.

Need foreign capital : ü ü ü Sustaining a high level of investment. The technological gap Exploitation of natural resources Undertaking the initial risk Development of basic economic infrastructure Improvement in the balance of payments position

Foreign Direct Investment :

Sources of Foreign Direct Investment : Rank Country -wise position investment (Rs. Crore) Investment (US $ million) % to total 1 Mauritius 37, 551 8, 898 34. 49 2 Usa 17, 811 4, 389 17. 08 3 Japan 7, 897 1, 891 7. 33 4 Netherlands 7, 845 1, 847 7. 16 5 Uk 7, 009 1, 692 6. 56 6 Germany 5, 066 1, 254 4. 86 7 France 2, 822 679 2. 63 8 South Korea 2, 601 682 2. 64 9 Singapore 2, 573 639 2. 48 10 Switzerland 2, 130 525 2. 04 1, 385 32, 290 Total FDI inflows

Sector wise Inflows of FDI : Rank sector Amount of FDI approved % of Amount of FDI total inflows FDI approv ed % of total Inflows as % FDI of approvals inflows 1. Energy *power *oil refinery Total (1+2) 43, 687 26, 079 17. 5 10. 4 - - - 69, 766 27. 9 10, 433 9. 8 15. 0

Reasons for growth of MNCs’ ü ü ü Expansion of market territory Marketing superiorities Financial superiorities Technological superiorities Product innovations

Foreign collaboration & MNC’s : A common form of MNC participation in Indian industry is through entering into collaboration with Indian industrialists. The policy of the government in the field of foreign collaboration has been criticized on the following counts : ü A large no of agreements were concluded for the manufacture of products which are non-essential or which could be produced with the help of local technology. ü The government permitted multiple collaborations, i. e.

Contd >>>>>> ü ü The terms of agreements were mostly weighted in favour of the foreign collaborators & were against Indian interests. Since the responsibility of specification & supply equipment was entrusted to the foreign collaborators, there was close tie-up between the designers & suppliers resulting not only in price mark- up but also in over-import of equipment.

Implementation of FERA : ü ü There were substantial delays in implementing FERA. More of the companies directed to dilute the foreign holdings had carried out the process of stipulated. As far as the drugs & pharmaceuticals industry is concerned, India's heavy dependence on MNC’s for bulk drugs came in the way of compliance of FERA regulations.

New Concessions for FERA companies : Important concessions were announced in Nov 1991, Jan 1992 & Jan 1993 were as follows : ü Companies with foreign shareholding were allowed to increase foreign equity to 51% by remittances in foreign exchange in specified high priority industries. ü Section 26, sub-section 7, which required the FERA companies to get Reserve Bank’s permission before raising working capital or accepting deposits was revoked.

Contd >>>>>. ü ü ü Indians were allowed to keep foreign currency upto $500 or Rs. 15, 000 Restrictions regarding assets held in India by nonresidents were removed. Import & Export in gold & silver was exempted from FERA implying that these commodities were now to be governed by Exim policy.

Foreign Exchange Management Act (Fema ) 1999 : The Foreign Exchange Management bill (FEMA ) was introduced by the Government of India in parliament on August 4, 1998. the bill aims “to consolidate & amend the law relating to foreign exchange with the objective of facilitating external trade & payments & for promoting the orderly development & maintenance of foreign exchange market in India. ”

Contd >>>>>>. Current Account & Capital Account Transactions : Sections 5 & 6 deal with current account & capital account transactions. ü Realization & Repatriation of Foreign Exchange : section 8 lays down that save as otherwise provided in the act, where any amount of foreign exchange is due or has accrued to any person resident in India such persons shall take all reasonable steps to realise ü

Securities Exchange Board Of India :

Define SEBI : The Securities & Exchange Board Of India (sebi ) setup in 1988 was given statutory recognition in 1992 on recommendation of the Narsimhan Committee

The purpose & Aims of SEBI : ü ü Regulating the business in stock markets & other securities markets. Registering & regulating the working of stock brokers & other intermediaries associated with the securities markets Registering & regulating the working of collective investment schemes including mutual funds. Promoting & regulating the self-regulatory organizations.

Steps taken by SEBI for the development : ü SEBI has drawn up a progamme for inspecting stock exchanges has already been carried out. ü SEBI has introduced a number of measures to reform the primary market. The objective is to strengthen the standards of disclosure, introduce certain procedural norms for the issuers & intermediaries, & remove the inadequacies & systematic deficiencies in the issue procedures. ü The process of registration of intermediaries such as stock brokers & sub-brokers has been provided under the provisions of the Securities & Exchange Board of India Act, 1992.

Contd >>>> ü ü ü Through an order under the Securities Contracts (Regulations) Act, 1956, SEBI has directed the stock exchanges to broad-base their governing boards & change the composition of their arbitration, default & disciplinary committees. Merchant banking has been statutorily brought under the regulatory framework of SEBI issued regulations pertaining to “Insider Trading” in November 1992 prohibiting dealings, communication or counseling in matters relating to insider trading.

Contd >>>>. ü SEBI issued a separate set of guidelines for developing ü ü ü financial institutions in September 1992 for disclosure & investment protection regarding their raising of funds from the market. SEBI has notified the regulations for mutual funds. To bring about greater transparency in transactions, SEBI has made it mandatory for brokers to maintain separate accounts for their clients & for themselves. SEBI has issued directives to the staock exchanges to ensure that contract notes are issued by brokers to clients within 24 hours of the execution of the contract.