Economic and

Social Issues
 ESI Notes 1 – Growth and Development Intro
Economic Growth is a narrower concept than economic development. It is an increase in a countrys
real level of national output which can be caused by an increase in the quality of resources (by
education etc.), increase in the quantity of resources & improvements in technology or in another
way an increase in the value of goods and services produced by every sector of the economy.
Economic Growth can be measured by an increase in a country’s GDP (gross domestic product).
Economic development is a normative concept i.e. it applies in the context of people’s sense of
morality (right and wrong, good and bad). The definition of economic development given by Michael
Todaro is an increase in living standards, improvement in self-esteem needs and freedom from
oppression as well as a greater choice.
The most accurate method of measuring development is the Human Development Index which takes
into account the literacy rates & life expectancy which affects productivity and could lead to
Economic Growth. It also leads to the creation of more opportunities in the sectors of education,
healthcare, employment and the conservation of the environment. It implies an increase in the per
capita income of every citizen.
ECONOMIC GROWTH
The modern conception of economic growth began with the critique of Mercantilism, especially by
the physiocrats and with the Scottish Enlightenment thinkers such as David Hume and Adam Smith,
and the foundation of the discipline of modern political economy. It is an increase in the value of
goods and services produced by an economy. It is conventionally measured as the percent rate of
increase in real gross domestic product, or GDP.
Growth is usually calculated in real terms, i.e. inflation-adjusted terms, in order to net out the effect
of inflation on the price of the goods and services produced. In economics, “economic growth” or
“economic growth theory” typically refers to growth of potential output, i.e. production at “full
employment” rather than growth of aggregate demand. Economic growth is the increase of per capita
gross domestic product (GDP) or other measure of aggregate income. It is often measured as the rate
of change in real GDP.
Economic growth refers only to the quantity of goods and services produced. Economic growth can
be either positive or negative. Negative growth can be referred to by saying that the economy is
shrinking. Negative growth is associated with economic recession and economic depression. In order
to compare per capita income across multiple countries, the statistics may be quoted in a single
currency, based on either prevailing exchange rates or purchasing power parity.
To compensate for changes in the value of money (inflation or deflation) the GDP or GNP is usually
given in “real” or inflation adjusted, terms rather than the actual money figure compiled in a given
year, which is called the nominal or current figure.
Economists draw a distinction between short-term economic stabilization and long- term economic
growth. The topic of economic growth is primarily concerned with the long run. The short-run
variation of economic growth is termed the business cycle.

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The long-run path of economic growth is one of the central questions of economics; despite some
problems of measurement, an increase in GDP of a country is generally taken as an increase in the
standard of living of its inhabitants.
Over long periods of time, even small rates of annual growth can have large effects through
compounding (see exponential growth). A growth rate of 2.5% per annum will lead to a doubling of
GDP within 29 years, whilst a growth rate of 8% per annum (experienced by some Four Asian Tigers)
will lead to a doubling of GDP within 10 years. This exponential characteristic can exacerbate
differences across nations.
India’s Growth Strategy:
India’s Growth strategy has evolved over successive five year plans. It reflected the growing strength
of our economy, structural transformation taking place in the domestic economy and also
developments in the world economy. In the early stages of planning, government was viewed as the
principal actor in development exercising strict control over private investment, ensuring a dominant
role for the public sector in all important industries.
Trade policy was inward oriented and it focussed on industrial development through import
substitution. The limitations of this policy became evident by the end of the 1970s and early 1980s.
It was realized that these policies reduced efficiency and competitiveness and economic growth was
much lower than targeted. Some efforts were made to reform the system in the second half of the
1980s by trying to remove the shortcomings in our development strategy. In 1991 a wide ranging
programmes of economic reforms aimed at decontrolling and de-bureaucratizing the economy was
initiated.
The Indian economy has responded well to change in policy direction. GDP growth in the post reform
period has increased from an average of about 5.7 percent in the 1980s to an average of about 6.1
percent in the Eighth and Ninth Plan periods, making India one of the ten fastest growing countries
in the world.
Economic Growth is the basic aim:
The basic aim of economic planning in India is to bring about rapid economic growth through the
development of agriculture, industry, power, transport and communication and other sectors of the
economy. Increase in real national income is taken as the basic measure of economic growth.
Accelerating the growth rate of the economy with stable prices is central to the attainment of a
number of objectives such as poverty reduction, employment generation and so on.
Rapid growth has strong poverty reducing effects especially when it is complimented by a public
policy which is sensitive to the needs of the poor. Accelerated growth will 6 also help to increase
employment and through that, spread of income generation and poverty eradication. However, the
linkage between growth, employment and poverty reduction depends crucially upon the sectorial
pattern of growth and oh the degree to which the poor sections of the population and the backward
regions of the country are integrated into the growth process.
The growth objective also subsumes a number of subsidiary objectives which have, at one time or
another, been explicably identified as objectives in the Five Year Plans.
Agricultural development, industrialisation, productivity growth and infrastructural development are
examples of such subsidiary objectives.

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The objective of economic growth demands that most of these subsidiary objectives are met in order
to achieve the primary objective of accelerating the overall economic growth. However, it must be
recognised that the growth rate of the economy is probably the most important summary measure
of the degree of success of the development strategy and macroeconomic management.
Economic growth is the outcome of numerous factors interacting with each other. In a developing
economy like India, which is constrained by lack of resources, capital accumulation or investment is
the most important factor for increasing the productive capacity of the economy as well as for
improving the productivity of the other factors of production. Thus, the Indian Five Year Plans have
emphasized on investments as well as on the allocation of investible resources among different
sectors.
Growth Performance in the Five Year Plans:
The growth performance of the Indian economy, relative to the targets in the various plans, is given
in Table. It can be seen from the table that except for the Third and Fourth Plans, the economy has
performed better than the target in five of the nine plans, and even in the Second Plan, the gap was
not large.
During the Third and Fourth Plans, the shortfalls were largely due to exogenous shocks that could
not possibly be predicted. The Third Plan witnessed the drought years of 1965 and 1966, and the
Indo-Pakistan war of 1965.
The Fourth Plan experienced three consecutive years of drought (1971-1973) and the first oil-price
stock of 1973. It may be noted that since the Fourth Plan, the growth rate of the economy had
improved steadily until the Ninth Plan. The growth rate has increased to 6.02 per cent in the Seventh
Plan and further to 6.68 per cent in the Eighth Plan. However, in the Ninth Plan the growth rate has
come down to 5.35 per cent. This shows that the Indian Economy has responded well to the changes
in policy direction introduced since 1991.

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 ESI Notes 2 – National Income Accounting
National Income accounting or NIA refers to methods or techniques used to measure the economic
activity in the national economy as a whole. As one can calculate income for a single person or an
entity the same can be done for a country also.
Significance of National Income Accounting:
International Comparison: The National Income Accounting measures growth rate and development
of nations which can be used to compare standard of living of different countries.
Business Decision: It reflects the relative contribution and potential of each various of the sectors of
the economy which guides the business class to plan for future production.
Policy Formulation: It throws light on the distribution of income and resources in the economy which
helps government in proper allocation of resources to bring equality and development in nation.
Policy Evaluation: The income accounting identifies specific economic achievements and failures
which helps people of nation in evaluating the policies of governments. National statistics gives clear
picture of how the national expenditure is divided into investment and consumption.
Annual Budget: It shapes the budgetary policy of the Government makes the borrowing and tax policy
in order to neutralize the fluctuations of income and employment. Government takes to deficit or
surplus budget to arrest depression or inflation in an economy.
Concepts of National Income-:
Over a period of time four ways to calculate the income of a nation have been developed by the
economists. These four ways to calculate the national income of a nation are GDP, GNP, NDP and
NNP.
GDP or Gross Domestic Product
GDP or Gross domestic product refers to total market value of all final goods and services produced
in an economy in a one year period. For India, this calendar year is from 1st April to 31st March. This
means it measures the value of final goods and services produced within a geographic boundary
regardless of the nationality of the individual or firm.
It refers to only final output of such goods and services. The rule that only finished or final goods
must be counted is necessary to avoid double or triple counting of raw materials, intermediate
products, and final products. For example, the value of automobiles already includes the value of
the steel, glass, rubber, and other components that have been used to make them. To be precise,
we define the following:
a. Final Output: Goods and Services purchased for final use.
b. Intermediate Goods/Factors of Production/Raw Materials: Products used as input in the
production of some other product. There are two ways to take in account double counting:
1. Calculate only the value of the final product.
2. Calculating the value added at each stage of production, from the beginning of the process
to the end. Specifically, it is derived by subtracting the value of the intermediate good from
the value of the sale.

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Real GDP and Nominal GDP
Nominal GDP refers to current year production of final goods and services valued at current year
prices.
Real GDP on the other hand refers to the current year production of goods and services valued at
base year prices. Such base year prices are constant prices.
Real GDP is a much better way to calculate the GDP because in a particular year GDP may be bloated
up because of high rate of inflation in the economy. Real GDP therefore allows us to determine if
production increased or decreased, regardless of changes in the inflation and purchasing power of
the currency.
The concept of base year has been covered in detail in subsequent sections.
GNP or Gross National Product
The concepts of GNP or Gross National Product and GDP are closely related. As mentioned before,
GDP reflects the production of goods and services produced within the boundaries of the country by
both the citizens and the foreigners. The focus of GDP is on where the output is produced rather
than who produced it. On the other hand GNP is a measure of the value of output produced by the
nationals of a country irrespective of the geographical boundaries of a nation. It refers to the output
of Indian citizens both within India and in all the countries of world.
To make it simpler, a few examples have been considered here. The Microsoft is a US based firm.
When it opens up a production utility in India, value of output from that utility is added to India’s
GDP, but it is not added while calculating GNP of India.
Similarly, when Indian companies such as Infosys or TCS produce services in the US, the value of
those services are not added in the Indian GDP but they are utilized while calculating the Indian GNP.
GDP is about where production takes place. GNP, on the other hand, is about who produces them.
GNP = GDP + Net Factor Income from Abroad. In case of an economy with great levels of inflows of
FDI and very less outgoing FDL the GDP would generally be more than the GNP. On the other hand if
in an economy, more of its nationals move abroad and generate economic activity when compared
to foreigners those who come in and perform any economic activity its GNP would be larger than its
GDP. In India’s case, GNP is lower than its GDP as net income from abroad has always been negative
in India.
Even though GDP is a figure which is prominently used by economists across the world, some
economists criticize it for not reflecting the true state of a nation’s economy. GDP takes into account
the profits earned in a nation by overseas companies that are remitted back to foreign investors. If
these remitted profits are very large compared with earnings from the nation’s overseas citizens and
assets, the GNP will be significantly below GDP. The difference between GDP and GNP of a nation
also reflects how much the outside world is dependent on its products and how much it depends on
the world for the same.
Net Factor Income from Abroad
Net Factor Income from Abroad (NFIA) is the difference between the aggregate amount that a
country’s citizens and companies earn abroad, and the aggregate amount that foreign citizens and
overseas companies earn in that country.

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In short, Net Factor Income from Abroad = GNP - GDP. Net foreign factor income in most of the
countries is very small since factor payments earned by citizens and those paid to foreigners more
or less offset each other.
Why GDP is most acceptable indicator worldwide?
GDP growth (as a measure of economic growth) is a major contributor to welfare and GDP tends to
be correlated with several other measures of ‘development, such as literacy and healthcare provision.
As currently defined, it has a clear methodology and is relatively easy to calculate.
Since it is a monetary/mathematical/accounting calculation with an established methodology, it is
objective (in contrast, such things as ‘happiness’ and ‘political freedom’ are subjective and difficult
to measure).
It is widely used and all GDP calculations are made using broadly the same methodology. This
facilitates cross-country and over-time comparisons. Given its long history and standard methodology
it is reasonably well-understood by policy-makers.

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 ESI Notes 3 – Concept of Depreciation and Factor Cost

In the process of production, all machines and equipment used to produce other goods, are subject
to some wear and tear. In economic parlance, this loss of capital which every economy has to suffer
is called as Depreciation.
The part of capital goods production in economy must be devoted to replace this wear and tear.
Otherwise, the productive capacity of a nation would be depleted. This replacement of the capital
used is capital consumption allowance.
In this scenario, the investment expenditure of the firms is made up of two parts. One part is to buy
new capital goods and machinery for production. It is called Net Investment because the production
capacity of the firms can be expanded. Another part is spent on replacing the used-up capital goods
or the maintenance of existing capital goods. The expenses incurred for this are called depreciation
expenditure.
The total investment by firms comprising these two amounts is called Gross Investment.
Gross Investment = Net investment + Depreciation or, Net Investment = Gross Investment -
Depreciation.
The Net investment increases the production capacity and output of a nation. This can easily be
verified at the level of a single plant: the number of new machines installed in any given year must
be greater than the machines that have been used up during that year.
The governments of the economies decide and announce the rates by which assets depreciate and a
list is published, which is used by the different sections of the economy to determine the real levels
of depreciations in different assets.
NDP or Net Domestic Product
Net Domestic Product (NDP) is the GDP calculated after adjusting the value of the value of
‘depreciation’. This is, basically, net form of the GDP, i.e. GDP minus the total value of the ‘wear
and tear’ (depreciation) that happened in the assets while the goods and services were being
produced.
NDP = GDP - Depreciation
NDP of an economy is always less than it’s GDP, because the Depreciation can never be reduced to
zero and will always be positive.
NNP or Net National Product
The Net national product (NNP) is equal to gross national product (GNP) minus Depreciation.
NNP = GNP - Depreciation
The concept of NDP and NNP are not used to compare different economies because the method of
calculating depreciation varies from nation to nation.
The concept of Market Price and Factor Cost

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Market price refers to the actual transacted price of goods and services. It includes the indirect taxes
which raise the prices and subsidies which lower the price
Factor cost refers to cost of all factors of production used or consumed in producing goods and
services. It includes rent for land interest for capital, wages for labour and profit for
entrepreneurship. It is actual production cost at which the goods and services are produced by firm.
Thus, the indirect taxes are excluded and subsidies by government are included while calculating
factor cost.
In other words, Factor Cost (FC) = market price - Net Indirect Taxes.
Where Net Indirect Taxes (NIT) = Indirect Taxes - Subsidies
Therefore, Factor Cost = Market Price - Indirect Taxes + Subsidies
Using this concept, the GDP at factor cost can be calculated by subtracting Net
Indirect Tax from GDP at Market Price.
Or, GDP at Factor Cost = GDP at Market Price - Net Indirect Tax
Or, GDP at Factor Cost = GDP at Market Price - Indirect Tax + Subsidies
Similarly, GNP at Factor Cost = GNP at Market Price - Net Indirect Tax
NDP at Factor Cost = NDP at Market Price - Net Indirect Tax
NNP at Factor Cost = NNP at Market Price - Net Indirect Tax
National Income (NI)
The National income is a measure of the sum of all factor incomes earned by the citizens of a country
for their land, labour, capital, and entrepreneurial talent, whether within the country or abroad. It
is equal to the Net National Product (NNP) at Factor Cost. It is obtained, as explained above, by
deducting Net Indirect Tax from NNP at Market Price.
National Income at Factor Cost = NNP at Market Price - Indirect Taxes + Subsidies
The reasons for choosing NNP at factor cost as National Income are:
NNP shows the income earned by all citizens of country. This makes sense, since the earnings of
foreigners should not be included in the India’s national income. Thus NNP is preferred over NDP.
Factor Cost is used because Net Indirect taxes like sales taxes, excise taxes are not the payments for
factors of production.
There is lack of uniformity in taxes among the countries. The goods are not printed with their prices
in developing countries like India.
Transfer Payments
Transfer payments refer to the payments made by the government to individuals for which there is
no economic activity produced in return by these individuals. A few examples of transfer payments
include old age pensions, scholarships etc.

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 ESI Notes 4 – Personal Income and National Income

Personal income includes all income, which is received by all the individuals in a year. It also includes
transfer payments such as LPG subsidy. The welfare payments are received by households, but they
are not elements of national income because they are transfer payments.
Similarly, in national income accounting, some income is attributed to individuals, which they do not
actually receive, such as undistributed profits, employee’s contribution for social security, corporate
income taxes etc. These are part of national income but are not received by individuals. Therefore,
they are to be deducted from national income to estimate the personal income. The Personal income
thus is:
PI = NI + transfer payments - Corporate retained earnings, income taxes, social security taxes.
Disposable Income (DPI)
Disposable personal income refers to the amount which in actual is at the disposal of individuals to
spend as they like. It is the amount which is left with the individuals after paying personal taxes such
as income tax, property tax, professional tax etc.
Therefore, Disposable personal income = Personal income - personal taxes.
DPI = PI - Personal Taxes.
This concept is very useful for studying and understanding the consumption and saving behaviour of
the individuals. It is the amount which households can spend and save.
Disposable income = Consumption + Savings
Factors affecting National Income
Several factors affect the national income of a country. Some of them have been listed below:
Factors of Production: Normally, the more efficient and richer the resources, higher will be the
level of National Income or GNP Land: Resources like coal, iron and timber are essential for heavy
industries so that they must be available and accessible.
In other words, the geographical location of these natural resources affects the level of GNP.
Capital: Capital is generally determined by investment. Investment in turn depends on other factors
like profitability, political stability etc.
Labour and Entrepreneur: The quality or productivity of human resources is more important than
quantity. Manpower planning and education affect the productivity and production capacity of an
economy.
Technology: This factor is more important for Nations with fewer natural resources.
The development in technology is affected by the level of invention and innovation in production.

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Government: Government can help to provide a favourable business environment for investment. It
provides law and order, regulations.
Political Stability: A stable economy and political system helps in appropriate allocation of resources.
Wars, strikes and social unrests will discourage investment and business activities.
Comparing National Income across Countries
To compare GDP between two countries having different currencies in use, GDP figures must first be
converted into a common currency. The conversion of currency can be done using exchange rates.
These exchange rates express the national currencys quotation in respect to foreign ones. For
example, if exchange rate of dollar is 60 Rupees then the Indian GDP of 120 trillion Rupees would be
worth 2 trillion Dollars.
Types of Exchange Rates
Economists distinguish between two exchange rates: the nominal exchange rate and the real
exchange rate. Let’s discuss each in turn and see how they are related.
The nominal exchange rate is the relative price of the currencies of two countries. For example, if
the exchange rate between the U.S. dollar and the Indian Rupee is 60 ₹ per dollar, then you can
exchange one dollar for 60 Rupees in world markets for foreign currency. When people refer to “the
exchange rate” between two countries, they usually mean the nominal exchange rate.
Nominal exchange rates are established on currency financial markets called “forex markets”, which
are similar to stock exchange markets.
The real exchange rate is the relative price of the goods of two countries. That is, the real exchange
rate tells us the rate at which we can trade the goods of one country for the goods of another. The
real exchange rate is sometimes called the terms of trade.
Till now we have discussed the bilateral exchange rates which facilitate conversion of one’s currency
into other. There is a concept of Effective Exchange Rate which describes the relative strength of a
currency relative to basket of other currencies.
Thus, the Nominal Effective Exchange Rate (NEER) is the weighted average value of nominal exchange
rate of the rupee against the currencies of major trading partners of India. On the other hand, the
Real Effective Exchange Rate (REER) is the weighted average of Real Exchange Rates of Rupee against
the currencies of major trading partners of India.
The weights are determined by the importance a home country places on all other currencies traded
within the pool, as measured by the balance of trade. Unlike NER and RER, NEER and REER are not
determined for each foreign currency separately.
Rather, each is a single number that expresses what is happening to the value of the domestic
currency against a whole basket of currencies. It gives some reference or benchmark about how the
currency is performing in relation to the rest of the world as a whole, rather than just individual
countries.
Even though Indian GDP calculated in rupees can be converted to dollars using market determined
exchange rate but such an exercise has its own flaws limitations.

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Such a market determined exchange rate only takes into account exports and imports and neglects
non-traded GDP, which produced and consumed domestically. In such a situation the concept of
Purchasing Power Parity (PPP) is used.
The Purchasing Power Parity tells us how much of a basket of internationally traded goods and
services can be bought with India n rupee in India vis-à-vis how much of the same basket can be
bought in the US with the help of a dollar. Therefore, whereas the market determined exchange rate
might be Rs 60 for a US dollar, the PPP exchange rate may show this parity at Rs 30 for a US dollar.
This ultimately results in a greater GDP at PPP rates when compared to GDP at market rates for India.

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 ESI Notes 5 – Measurement Methods

In India, GDP is estimated by Central Statistical Office (CSO). There are three different ways of
estimating the national income of a country, these three methods are:
a. Value Added Method (or the Product Method)
b. Income Method
c. Expenditure Method
Which method is to be employed depends on the availability of data and purpose.
Value Added Method
Under the value added or production method, the GDP is calculated at market prices, which is the
total value of outputs produced at different stages of production. It needs to be mentioned that
caution should be taken to take Final Goods and not Intermediate goods, as it will result in Double
Counting.
Some of the goods and services included in production are:
a. Goods and services sold in the market.
b. Goods and services not sold but supplied free of cost.
c. Services provided by the agents.
Some of the goods and services not included in production are:
a. Second hand items and purchase and sale of the same. Sale and purchase of second cars, for
example, are not a part of GDP calculation as no new production takes place in the economy.
b. Production due to illegal activities.
c. Non-economic goods such as air and water.
d. Transfer Payments such as scholarships, pensions etc. are excluded as there is income
received, but no good or service is produced in return.
e. Imputed rental for owner-occupied housing is also excluded.
Income Method
This approach focuses on aggregating the payments made by firms to households, called factor
payments. This gives the National Income, defined as total income earned by citizens and businesses
of a country.
There are four types of factors of production and four types of factor incomes accordingly i.e.
Land, Labour, Capital and Organization as Factors of Production and Rent, Wages, Interest and
Profit as Factor Incomes correspondingly.
We need to add indirect taxes, less subsidies and add depreciation to get GDP.
GDP = Wages+ Interest Income + Rental Income +*Profit +Indirect Taxes – Subsidies + D
The term *profit can be further sub-divided into: profit tax; dividend to all those shareholders; and
retained profit (or retained earnings). Such an approach is adopted in India to calculate the
contribution of services sector to the economy.
Any income corresponding to which there is no flow of goods and services or value added, it should
not be included in calculation by Income method.

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Expenditure Method
The expenditure method measures the final expenditure on GDP. Amount of Expenditure refers to
all spending on currently-produced final goods and services only in an economy. In an economy, there
are three main agencies, which buy goods and services. These are: Households, Firms and the
Government
This final expenditure is made up of the sum of 4 expenditure items, namely:
a. Consumption (C): Personal Consumption made by households, the payment of which is paid by
households directly to the firms which produced the goods and services desired by the
households.
b. Investment Expenditure (I): Investment is an addition to capital stock of an economy in a given
time period. This includes investments by firms as well as governments sectors.
c. Government Expenditure (G): This category includes the value of goods and service purchased
by Government. Government expenditure on pension schemes, scholarships, unemployment
allowances etc. are not included in this as all of them come under transfer payments.
d. Net Exports (X-IM): Expenditure on foreign made products (Imports) are expenditure that
escapes the system, and must be subtracted from total expenditures. In turn, goods produced
by domestic firms which are demanded by foreign economies involve expenditure by other
economies on our production (Exports), and are included in total expenditure. The combination
of the two gives us Net Exports.
GDP= C+I÷G+X-IM
Application of Various Methods
Each approach gives a different perspective on the economy. However, the fundamental principle
underlying national income accounting is that, all three approaches give identical measurements of
the amount of current economic activity.
We can illustrate why these three approaches are equivalent by an example. Imagine an economy
with only two businesses, called Khanna Fruits and Sharma Juices. Khanna Fruits owns and operates
orange groves. It sells some of its oranges directly to the public. Rest of these oranges are sold to
Sharma Juices which is involved in the production and sale of orange juice. The following table shows
the transactions of each business during a year.
Product Method
Khanna Fruits produces output worth ₹ 35,000 and Sharma Juices produces output worth ₹ 40, 000.
However, measuring overall economic activity by simply adding ₹ 35,000 and ₹ 40,000 would “double
count” the ₹ 25,000 of oranges that Sharma Juices purchased from Khanna Fruits and processed into
juice. To avoid this double counting, we sum value added rather than output: Because Sharma Juices
processed oranges worth ₹ 25,000 into a product worth ₹ 40,000, Sharma Juices value added is ₹
15,000 (40,000 - 25,000). Khanna Fruits doesn’t use any inputs purchased from other businesses, sot
its value added equals its revenue of ₹ 35,000. Thus total value added in the economy is ₹ 35,000 +
₹ 15,000 = ₹ 50,000
Income Approach

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As seen before, the (before-tax) profits of Khanna Fruits equal its revenues of 35,000 minus its wage
costs of ₹ 15,000. The profits of Sharma Juices equal its revenues of ₹ 40,000 minus the ₹ 25,000 the
company paid to buy oranges and the ₹ 10,000 in wages to its employees. Adding the ₹ 20,000 profit
of Khanna Fruits, the ₹ 5,000 profit of Sharma Juices, and the ₹ 25,000 in wage income received by
the employees of the two companies, we get a total of ₹ 50,000, the same amount determined by
the product approach.
Expenditure Approach
In this example, households are ultimate users of oranges. Sharma Juices is not an ultimate user of
oranges because it sells the oranges (in processed, liquid form) to households. Thus ultimate users
purchase ₹ 10,000 of oranges from Khanna Fruits and ₹ 40,000 of orange juice from Sharma Juices
for a total of ₹ 50,000, the same amount computed in both the product and income approaches.
Output or Value added method is primarily used in the registered manufacturing units and primary
sector in India. Income method is used in services sector. Whereas, the expenditure method is
adopted to calculate the contribution of Real Estate Sector.
The product method is the principal method used in underdeveloped economies, whereas income
method is generally used in developed economics for the estimation of national income.

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 ESI Notes 6 – Revision in GDP Estimation
GDP Deflator: It is a tool to measure the inflation comprehensively. It represents the ratio of GDP at
current prices to GDP at constant prices. GDP deflator is published on a quarterly basis since 1996
with a lag of two months. It is because of this very reason that economists prefer the use of WPI or
CPI for deflating nominal price estimates to derive real price estimates.

Essentially GDP deflator = (Nominal GDP/Real GDP)*100.

Unlike the WPI and the CPI, GDP deflator is not based on a fixed basket of goods and services, it
covers the whole economy. One of the other advantages of GDP deflator is that changes in
consumption patterns or the introduction of new goods and services are automatically reflected in
the deflator, such a feature is missing in WPI/CPI.

Base Year: To make the calculation of GNP/GDP easier, economists use a price index to find the real
GNP/GDP. A Price index is a number showing the changes in the overall level of prices. It shows a
change in the general price level of an economy.

Base year is the year used as the beginning or the reference year for constructing an index, and
which is usually assigned an arbitrary value of 100. Recently the Indian Government changed the
base year for calculating national accounts to 2011-12 from 2004-05. The basis for selection of the
base year are:
a. Stability of macroeconomic parameters. It has to be a normal year without large fluctuations in
production, trade and prices of goods and services.
b. Data availability: Data available for the year should be reliable.
c. Comparability- so that same parameters should be in use in both the years.
d. Therefore it should be a recent year and not go long back into history.

Difficulty of Measurement (with special reference to India)

Economists face a number of problems while calculating the National Income some of them are:
a. Non-Monetization of transactions: When National Income is calculated it is generally assumed
that any products or services would be exchanged for money. But in India especially in rural
areas, a large number of economic transactions occur in the form of barter. Such activities are
difficult to account for in the GDP estimates therefore resulting in lower levels of GDP than
actual.
b. Unreported Illegal Income: A major part of Indian Economy operates as hidden or parallel
economy and the income generated in this goes unreported. As per a study, black economy
accounts for about 40% of total income generated in the country. This poses a great problem to
calculate accurate GDP estimates.
c. Non-availability of data about households, small producers etc.: A large number of producers
carry out production at a family level or run household enterprises. Data about these enterprises
is very difficult to find. NIA does not include care economy such domestic work and housekeeping.
Even the valuable work done by housewives in India is not accounted as a part of GDP estimates.
d. Absence of data on growing service sector: In India, service sector has witnessed an
exponential growth rate. However, value addition in several parts of service sector industry are
not based on accurate reporting and hence underestimated in national income measures.

16
Recent development in GDP measurement
The growth rate will now be measured by GDP at constant market prices, which will henceforth be
referred to as ‘GDP’. This is the international practice. Earlier, growth was measured in terms of
growth rate in GDP at factor cost at constant prices.
The sector-wise estimates of gross value added (GVA) will now be given at basic prices instead of
factor cost.
Use of MCA21 database which is the annual accounts of companies filed with Ministry of Corporate
Affairs. It will expand the coverage of corporate sector both in manufacturing and services. Also, the
database for manufacturing companies will help account for activities other than manufacturing
undertaken by these companies
Comprehensive coverage of the financial sector by inclusion of information from the accounts of
stock brokers, stock exchanges, asset management companies, mutual funds and pension funds, and
the regulatory bodies - SEBI, PFRDA and IRDA.
Improved coverage of activities of local bodies and autonomous institutions, covering around 60 per
cent of the grants/transfers provided to these institutions.

Gross Value Added

Gross value added (GVA) is defined as the value of output less the value of intermediate consumption.
Value added represents the contribution of labour and capital to the production process. The GVA at
basic prices will include production taxes and exclude production subsidies available on the
commodity.

On the other hand, GVA at factor cost includes no taxes and excludes no subsidies and GDP at market
prices include both production and product taxes and excludes both production and product subsidies.
When the value of taxes on products (less subsidies on products) is added, the sum of value added
for all resident units gives the value of gross domestic product (GDP).

GVA at basic prices = GVA at factor cost + Production taxes - Production subsidies

GDP = ∑ GVA at basic prices + product taxes - product subsidies

The Production taxes or production subsidies are paid or received with relation to production. They
are independent of the volume of actual production. Some examples of production taxes are land
revenues, stamps and tax on profession. Some production subsidies are subsidies to Railways, input
subsidies to farmers.

The Product taxes or subsidies are paid or received on per unit of product. Some examples of product
taxes are excise tax, sales tax, service tax and import and export duties. Product subsidies include
food, petroleum and fertilizer subsidies.

17
 ESI Notes 7 – Debates and Other Indices
Traditionally, economic growth is treated as a measure of improvement in quality of lives of the
citizens of a country. Economic growth per se is calculated in the form of growth in GDP year over
year. However, the achievement of high growth - even high levels of sustainable growth - must
ultimately be judged in terms of the impact of that economic growth on the lives and freedoms of
the people. However, as has been the experience it must be noted that the economic growth in
several countries has not transformed into better quality of lives for the people.

Let us take the example of India. India has witnessed rapid economic growth in last two decades.
Over this period of rapid growth, while some people, particularly among the privileged classes, have
done very well, many more continue to lead unnecessarily deprived and precarious lives. It is not
that their living conditions have not improved at all, but the pace of improvement has been very
slow for the bulk of the people, and for some there has been remarkably little change. While India
has climbed rapidly up the ladder of economic growth rates, it has fallen relatively behind in the
scale of social indicators of living standards, even compared with many countries India has been
overtaking in terms of economic growth.

For example, over the last two decades India has expanded its lead over Bangladesh in terms of
average income (it is now about twice as rich in income per capita as Bangladesh), and yet in terms
of many typical indicators of living standards (other than income per head), Bangladesh not only does
better than India, it has a considerable lead over it (just as India had, two decades ago, a substantial
lead over Bangladesh in the same indicators).

Another typical example is that of the Gulf Countries which have witnessed rapid economic growth
but they have done rather poorly on development indicators. Therefore, several economists today
define economic development differently from what the world meant by economic growth. For
economists, development indicates the quality of life in the economy which might be seen in
accordance with the availability of so many variables such as:
a. The level of nutrition.
b. The expansion and the reach of healthcare facilities—hospitals, medicines, safe drinking water,
vaccination, sanitation, etc.
c. Education levels

From the above discussion it is clear that today, economists believe that higher economic growth
may not necessarily transform into higher economic development.
But at the same time economic growth and development go hand in hand and one cannot survive
without the other.
When we use the term growth we mean numerical increase in some parameters and when we use
the term development we mean numerical as well as qualitative progress. If economic growth is
properly used for development, it results in accelerating the growth and ultimately in greater
population coming under the arena of development. Similarly, high growth with low development
and ill-cared development finally results into fall in growth. Thus, there is a circular relationship
between growth and development.

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Other Arguments against GDP as a Parameter to Judge Progress
Gender disparities not indicated: For this a Gil or Gender Inequality Index has been devised in recent
years.
Does not measure sustainability of growth: Growth in a country may be also at the cost of hefty
exploitation of natural resources.
Condition of poor is not indicated: As an example even though Indian economy grew at a rate of over
7-8% in last decade the food inflation was at the highest levels adversely affecting the poorest strata
of the society.
Economic inequality not revealed by GDP: GDP does not reveal the economic inequality which is
created as a side effect of economic growth. Inequality in earnings has doubled in India over the last
two decades which were incidentally the years of highest GDP growth also.
Other intangibles not measured: Does not value intangibles like leisure, quality of life etc. since
quality of life is measured by many other intangibles except the materialistic things provided by
economic growth.

For the reasons mentioned above, several economists have tried to create replacements for GDP
which try to address the above criticisms regarding GDP. Some of these indices include HDI, HPI
(human poverty Index), GNH (Gross National Happiness Index), Green GDP etc.

Other indices to calculate the development

HDI or Human Development Index

United Nations Development Programme (UNDP) published its first Human Development Report (HDR)
in 1990. The report had a human development index (HDI) which was the first attempt to define and
measure the levels of development.
The index focuses on longevity, knowledge and decent living standards.
a. Standard of living: to be indicated by the real per capita income adjusted for the differing
purchasing power parity (PPP).
b. Knowledge: To be measured by indicators related to the level of education:
- Educational attainment among the adults (given 2/3rd weightage).
- School enrolment (given 1/3rd weightage).
c. Longevity: Life expectancy to be calculated at the time of birth. Initially reported for 14
countries, the UN’s 20153 report presented HDI results for 1885 countries. The India ranked
130th in 2015 Human Development Report with HDI score of 0.609 in the medium human
development category. This was an improvement from 135 rank in 2014 report.

Green GDP
Green GDP is an index of economic growth with the environmental consequences of that growth
factored in. From the final value of goods and services produced, the cost of ecological degradation
is deducted to arrive at Green GDP.
Green GDP calculations have been developed for countries as diverse as Australia, Canada, China,
Costa Rica, Indonesia, Mexico, Papua New Guinea, and the US, although none of these efforts have
resulted in regular reporting of the results.
In 2009, the government of India declared unilaterally that India aims to factor the use of natural
resources in its economic growth estimates by 2015. Under this, the country seek to make “green
accounting” part of government policy on economic growth.

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Gross National Happiness
With many of the world’s countries about as unhappy as they can get because of their dwindling GDP
figures, the tiny nation of Bhutan has gone in the opposite direction. Officials in Bhutan came up
with a different indicator, called gross national happiness (GNH). The country’s beloved former king,
Jigme Singye Wangchuck, envisaged the concept of gross national happiness since 1972, and the
country adopted it as a formal economic indicator in 2008.
Beginning in November 2008, all the economic factors started measuring gross domestic product
analyzed for their impact on Bhutan’s residents’ happiness. The factors of production are still there
such as unemployment, agriculture, retail sales but GNH represents a paradigm shift in what’s most
valued by Bhutanese society compared to the rest of the world. In short, happiness matters, not
money. Following parameters are used in the GNH:
a. Higher real per capita income.
b. Good Governance.
c. Environmental Protection.
d. Cultural Promotion
Genuine Progress Indicator
While GDP is a measure of current income, GPI is designed to measure the sustainability of that
income GPI uses the same personal consumption data as GDP but make deductions to account for
income inequality and costs of crime, environmental degradation, and loss of leisure and additions
to account for the services from consumer durables and public infrastructure as well as the benefits
of volunteering and housework. By differentiating between economic activity that diminishes both
natural and social capital and activity that enhances such capital, the

GPI and its variants are designed to measure sustainable economic welfare rather than economic
activity alone. Proponents of the GPI see it as a better measure of the sustainability of an economy
when compared to the GDP measure. Since 1995 the GPI indicator has grown in stature and is used
in Canada and the United States.

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 ESI Notes 8 – Theories of Development

Development, as we have seen, is a multi-faceted process involving reorganization of the economic

and social system. There are different theories of development and they advocate and stress
different sets of economic and social factors that lead to development. In this section we will
highlight some of the important theories of development.
Rostow’s Stages of Growth
The transition from underdevelopment to development must proceed along a series of steps
according to Rostow, an American development theorist. The four stages of growth are:
a. Traditional society
b. Pre-conditions for take-off
c. Take-off
d. Age of mass consumption
The developing countries, it was argued, were still at a stage in which the “preconditions” for “take-
off” were not present. The industrialized countries developed because they had fulfilled the
conditions necessary for the “take-off” towards self-sustaining economic growth. Rostow implied
that the developing countries had only to replicate similar conditions to attain development. They
had only to mobilize enough domestic and foreign savings to finance investment in order to attain
the objectives of development. Rostow even went as far as to suggest that once a country was able
to save 15-20 per cent of its Gross National Product
(GNP), it would automatically reach the “take-off” stage. Events, since the theory was first
presented, have clearly proved its inadequacies. For instance, India has consistently managed a high
rate of saving without being able to solve many of its developmental objectives. Clearly, this
mechanical approach towards development has proved to be insufficient.
The Lewis Theory of Development
During the 1950s Arthur Lewis put forward a different theory of development. According to Lewis,
underdeveloped countries are characterized by the presence of two sectors:
a. The traditional rural sector, which is of the nature of a subsistence economy, providing for self-
consumption within this sector. This sector also has a surplus of labour.
b. The modern urban industrial sector where productivity is higher.
Arthur Lewis argued that labour can be transferred from the rural to the urban sector without
adversely affecting productivity in the rural sector. He thus envisioned a dynamic role for the
industrial sector, which would lead to sustained economic development. This theory, though correct
in its description of situations prevailing in large parts of the developing world, is found lacking in
terms of its ability to suggest measures leading to development. It, for instance, ignores the fact
that unemployment is also fairly rampant in urban areas as well as rural areas. This means that
surplus rural labour cannot be meaningfully absorbed by the urban industrial sector.

International Dependence Theories

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International Dependence Theories gained ground during the 1970s, particularly among the
economists in the developing countries. Essentially, these theories view the problem of
underdevelopment as one arising out of the domination of the poorer countries by the richer ones.
They argue that in an unequal power structure, poor countries lose out to the richer and more
powerful countries. They also note that large multinational companies are involved in the process by
which wealth is transferred from developing countries to developed ones. Further, it is argued that
institutions such as the World Bank and the International Monetary Fund (IMF) have aligned with the
rich countries.
This, according to them, has accentuated the problem of inequality, poverty and other aspects of
underdevelopment in these countries. For instance, long-term trends in the distribution of income
in the global economy show that the income gap distance between the richest and the poorest
country in 1820 was 1:3; in 1950 it stood at 1: 35 and by 2003 it had zoomed to 1: 82. To take another
indicator, at the beginning of the 20th century, world’s population was approximately 1.5 billion,
which quadrupled by the end of the century and the absolute number of population trapped in a
narrowly defined notion of poverty was about 1.2 billion, and almost all of them were in developing
countries. Sure enough, such numbers lend credence to the unsavoury outcomes suggested by the
dependency theorists. These theories, however, are too simplistic and often the mechanisms and
processes underlying are either not fleshed out with adequate care or are not quite robust.
Marxian Concept of Development
The Marxist view of development, on the other hand, emphasizes the role of classes and class
antagonisms in society. In this system, vested class interests can inhibit overall development of
society. The question of poverty in society is seen as a result of exploitation of the poor. Property
relations in the society create and accentuate the problem of poverty and development. Since land
and other productive assets are privately owned and concentrated in the hands of a few, the problem
of inequalities remains unsolved. The Marxist view of development is a complex one, allowing for
the possibility of progress, or otherwise, depending on the class structure and conflicts, the nature
and activity of the state, etc. any society, divided into class, is necessarily an exploitative one as
the dominant classes appropriate the surplus produced by the working class.
Gandhian View of Development
Unlike the western concept of development, the Gandhian concept of development attaches more
importance to the question of relationships between individuals and economic micro-groups.
According to this theory of development, micro-groups such as village communities in turn interact
with the society at large. The Gandhian view of development also visualizes a smaller role for the
state in the development process.
The village at the local level would be the focal point of economic development in the Gandhian
scheme. In this situation, it was visualized that the role of the individual would be brought into play
thereby leading to overall development of the individual as well as the society at large. Decision
making at the local level through institutions such as panchayats also plays a key role in the Gandhian
scheme.

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 ESI Notes 9 – Task Force on Elimination of Poverty

In the first meeting of the Governing Council of NITI Aayog held under the Chairmanship of Prime
Minister on 8th February, 2015 it was decided to constitute a Task Force in NITI Aayog on Elimination
of Poverty in India under the Chairmanship of Dr. Arvind Panagariya, Vice Chairman, NITI Aayog.
It was also decided that parallel Task Forces on Poverty Elimination will be constituted by each State.
Accordingly, a Task Force on Elimination of Poverty in India was constituted by Nm Aayog on 16th
March, 2015.
The states were required to submit their respective Task Force report to NITI Aayog as an input for
preparing the Task Force Report on Elimination of Poverty in India.
Based on the work of the NITI Aayog’s Task Force on Elimination of Poverty in India and inputs
provided in the States’ Task Force reports, an occasional paper on ‘Eliminating Poverty: Creating
Jobs and Strengthening Social Programs’ has been posted on official website of NITI Aayog
(www.niti.gov.in) on 21st March 2016.
This paper forms the basis of regional consultation meetings to prepare a roadmap for elimination of
poverty in the country.
The regional consultation meeting for Western and Northern States/UTS was held in Jaipur today.
The States/UTs that participated in this meeting include- Gujarat, Maharashtra, Rajasthan, Punjab,
Haryana, Daman & Diu and Dadra & Nagar Haveli.
In the meeting, the discussions were held on broadly four issues:
a. Measurement of poverty and identification of beneficiary households Issues relating to tracking
progress in poverty reduction
b. Use of SECC-2011 data for identification of beneficiary households
c. Strategies for employment-intensive sustainable rapid growth of the economy, primarily focus
was on generation of increased employment opportunities in industrial and services sector.
d. Ways to make anti-poverty programs more effective, possible modifications, use of technology
and JAM trinity
e. Innovative poverty reduction program of the State/UT that has been developed.
The States agreed with the view of NITI Aayog on poverty line that it should be used for tracking
progress in poverty reduction and not for identification of poor to provide benefit under welfare
schemes.
Gujarat opined that poverty is a multidimensional concept and shared its life cycle and area based
approach to be followed to combat poverty. It briefed about some of its best practices which have
been successful in addressing the poverty in the state such as Vanbandhu Kalyan Yojana, Sagarkhedu
Sarvangi Vikas Yojana, Krishi Mahotsava and Garib Kalyan Mela.
One of the innovative model worth consideration for rephcating in other states was that of
rehabilitation of slum dwellers. This has reduced slum population drastically from 2001 to 2011 in
Gujarat. However it raised concern that more and more children are going for private schools but
they are not covered under Mid-Day Meal Scheme to provide nutritional support to children.

23
Maharashtra flagged that managerial issues of MGNREGS should be looked into. They opined that
there should be common MIS for all rural development schemes addressing poverty to leverage
optimal resource utilization. Rajasthan highlighted that its communitization has brought paradigm
shift in poverty alleviation wherein all interventions in Rajeevika are led by women resource persons
from the community. It stressed that capacity development at least to block level functionaries need
urgent attention as large amount of resources are being dealt at this level.
Haryana is adopting Poly house model to boosting the productivity of exotic flowers and vegetables
in view of small land holdings. This is helping farmers to move away from water intensive paddy crop
in the state.
The participating states particularly Maharashtra and Rajasthan wanted the issue of watershed
development to be looked into and some remedial measures on availability of drinking water may be
taken up by NITI Aayog. All the states raised concern over quality of education in government schools.

24
 ESI Notes 10 – Poverty

Poverty is a social phenomenon wherein a section of society is unable to fulfil even its basic
necessities of life. The UN Human Rights Council has defined poverty as “a human condition
characterized by the sustained or chronic deprivation of the resources, capabilities, choices, security
and power necessary for the enjoyment of an adequate standard of living and other civil, cultural,
economic, political and social rights’.
The determination of a poverty line cannot be based on an arbitrary selection of a low level of
income. Only scientific criteria independent of income can justify where the poverty line should be
drawn. The multiplicity and severity of different types of deprivation can constitute those criteria.
The key is therefore to define a threshold of income below which people are found to be thus
deprived.
Types of Poverty
The poverty has two aspects:
a. Absolute poverty
b. Relative poverty.
1. Absolute Poverty: It is a situation in which the consumption or income level of people is less than
some minimum level necessary to meet basic needs as per the national standards. It is expressed in
terms of a poverty line,
2. Relative Poverty: It is expressed in the form of comparisons of the levels of income, nutrition or
consumption expenditure of the poor strata vis-à-vis rich strata of the society. It shows the extent
of inequality.
Dimensions of Poverty
Although household expenditure levels remain the main measure of living standard by which
incidence of poverty is measured, and the Human Consumption Rate has become the main indicator
of poverty.
But the UN Human Development Index (HDI) captures the multidimensional nature of deprivation in
living standards. Income should be regarded as a means to improve human welfare, not as an end in
itself. Further Human and gender development indicators have been used successfully for advocacy,
for ranking of geographical spaces and to capture improvements in human well-being more reliably
than per capita income.
The HDI is a simple average of three dimension indices, which measure average achievements in a
country with regard to ‘a long and healthy life’, knowledge and a decent standard of living. Related
to this only the Ministry of Women and Child Development uses the infant mortality rate (IMR) and
life expectancy at age 1 to estimate a long and healthy life; the 7+ literacy rate and mean years of
education for the 15+ age group to estimate knowledge; and estimated earned income per capita
per year to capture a decent standard of living.
Multidimensional Poverty Index (MPI) reflects the deprivations that a poor person faces
simultaneously with respect to education, health and living standards. This reflects the same three

25
dimensions of welfare as the HDI but the indicators are different in each case and are linked to the
MDGs.
The components of MPI are:
1. Education (each indicator is weighted equally at 1/6) Years of Schooling: deprived if no
household member has completed five years of schooling
Child Enrolment: deprived if any school- aged child is not attending school in years 1 to 8
2. Health (each indicator is weighted equally at 1/6)
Child Mortality: deprived if any child has died in the family.
Nutrition: deprived if any adult or child for whom there is nutritional information, is malnourished.
3. Standard of Living (each indicator is weighted equally at 1/18).
Electricity: deprived if the household has no electricity.
Drinking water: deprived if the household does not have access to clean drinking water or clean
water is more than 30 minutes’ walk from home.
Sanitation: deprived if they do not have an improved toilet or if their toilet is shared.
Flooring: deprived if the household has dirt, sand or dung floor.
Cooking Fuel: deprived if they cook with wood, charcoal or dung.
Assets: deprived if the household does not own more than one of radio, TV, telephone, bike, or
motorbike, and do not own a car or tractor.
Hence, poverty is determined with regard to not only income or expenditure but also access to a
number of other necessities.
How Poverty Line is estimated in India?
The Planning Commission (Now NITI Aayog) is the nodal agency in the Government of India for
estimation of poverty. It estimates the incidence of poverty at the national and state level separately
in rural and urban areas. The incidence of poverty is measured by the poverty ratio, which is the
ratio of number of poor to the total population expressed as percentage.
It is also known as head-count ratio. The poverty ratio is measured from an exogenously determined
poverty line quantified in terms of per capita consumption expenditure over a month and the class
distribution of persons obtained from the large sample survey of consumer expenditure data of the
National Sample Survey Office (NSSO)
The history of counting the poor in India can be dated back to the 19th century. The earliest effort
to estimate the poor was Dadabhai Naoroji’s Poverty and Un-British Rule in India.
After independence the Planning Commission has been estimating the number of people below the
poverty line (BPL) at both the state and national level based on consumer expenditure information
collected as part of the National Sample Survey Organization (NSSO) since the Sixth Five Year Plan.

26
Various committees for estimation of poverty:
1. Lakdawala Committee
The Lakdawala Committee defined the poverty line based on per capita consumption expenditure as
the criterion to determine the persons living below poverty line. The per capita consumption norm
was fixed at ₹49.09 per month in the rural areas and ₹56.64 per month in the urban areas at 1973-
74 prices at national level, corresponding to a basket of goods and services anchored in a norm of
per capita daily calorie intake of 2400 kcal in the rural areas and 2100 kcal in the urban areas.
2. Tendulkar Committee Report
The Planning Commission constituted an Expert Group in December 2005 under the Chairmanship of
Professor Suresh D. Tendulkar to review the methodology for estimation of poverty. The Expert Group
submitted its report in December 2009.
While acknowledging the multidimensional nature of poverty, the Expert Group recommended
moving away from anchoring poverty lines to the calorie – intake norm to adopting MRP based
estimates of consumption expenditure as the basis for future poverty lines and MRP equivalent of
the urban poverty line basket (PLB) corresponding to 25.7per cent urban headcount ratio as the new
reference PLB for rural areas.
3. Saxena Committee Report
An Expert Group headed by Dr N.C. Saxena was constituted by the Ministry of Rural Development to
recommend a suitable methodology for identification of BPL families in rural areas. The Expert Group
submitted its report in August 2009 and recommended doing away with score-based ranking of rural
households followed for the BPL census 2002.
The Committee recommended automatic exclusion of some privileged sections and automatic
inclusion of certain deprived and vulnerable sections of society, and a survey for the remaining
population to rank them on a scale of 10.
Automatic Inclusion
The following would be compulsorily included in the BPL list:
1. Designated primitive tribal groups.
2. Households headed by a minor.
3. Single women-headed households.
4. Households with a disabled person as breadwinner.
5. Designated most discriminated against SC groups, called Maha Dalit groups.
6. Destitute households which are dependent predominantly on alms for survival.
7. Homeless households.
8. Households that have a bonded labourer as member.

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Automatic Exclusion
Households that fulfil any of the following conditions will not be surveyed for BPL census:
1. Families who own double the land of the district average of agricultural land per agricultural
household if partially or wholly irrigated (three times if completely unirrigated).
2. Families that have at least one mechanized farm equipment, such as, tractors, power tillers,
threshers, and harvesters.
3. Families that have three or four wheeled motorized vehicles, such as, jeeps and SUVs.
4. Families that have any person who is drawing a salary of over ₹10,000 per month in a non-
government/ private organization or is employed in government on a regular basis with pensioner or
equivalent benefits.
5. Income tax payers.
World Bank Approach for Calculating Poverty
The World Bank uses the money metric approach. Whereby it converts the one dollar per day
international poverty line into local currencies using purchasing power parity conversion factors. It
then uses national household surveys to identify the number of persons whose local income is lower
than the national poverty lines.
Both the dollar a day and $1.25 measures indicate that India has made steady progress against
poverty since the 1980s, with the poverty rate declining at a little under one percentage point per
year.
Causes of Poverty in India
All types of poverty and deprivation in India are caused by the following factors.
1. Colonial Exploitation
2. Lack of Investment for the Poor
3. High Unemployment
4. Over-reliance on Agriculture
5. Heavy Population Pressures
6. Social System in India
7. Lack of appropriate policy measures
Linkage between Poverty and Development
Economic growth is the most powerful instrument for reducing poverty and improving the quality of
life in developing countries. Thus Poverty is inter-related to problems of underdevelopment. In rural
and urban communities, poverty can be very different. In urban areas people often have access to

28
health and education but many of the problems caused by poverty are made worse by things like
overcrowding, unhygienic conditions, pollution, unsafe houses, etc.
In rural areas there is often poor access to education, health and many other services but people
usually live in healthier and safer environments.
Growth can generate virtuous circles of prosperity and opportunity. Strong growth and employment
opportunities improve incentives for parents to invest in their children’s education by sending them
to school. This may lead to the emergence of a strong and growing group of entrepreneurs, which
should generate pressure for improved governance. Strong economic growth therefore advances
human development, which, in turn, promotes economic growth. A typical estimate from cross-
country studies reveal that a 10 per cent increase in a country’s average.
Note: Poverty Alleviation Programs will be covered in ESI Test No.1 and Comprehensive ESI Tests.

29
 FM Notes 11 – Sustainable Development

Definitions
The Brundtland Commission’s brief definition of sustainable development as the “ability to make
development sustainable - to ensure that it meets the needs of the present without compromising
the ability of future generations to meet their own needs” is surely the standard definition when
judged by its widespread use and frequency of citation. The use of this definition has led many to
see sustainable development as having a major focus on intergenerational equity.
Although the brief definition does not explicitly mention the environment or development the
subsequent paragraphs, while rarely quoted, are clear. On development the report states that human
needs are basic and essential; that economic growth - but also equity to share resources with the
poor—is required to sustain them; and that equity is encouraged by effective citizen participation.
On the environment the text is also clear: The concept of sustainable development does imply limits—
not absolute limits but limitations imposed by the present state of technology and social organization
on environmental resources and by the ability of the biosphere to absorb the effects of human
activities.
The Millennium Development Goals (MDGs) have produced the most successful anti-poverty
movement in history and will serve as the jumping-off point for the new sustainable development
agenda to be adopted this year.
The MDG Report 2015 found that the 15-year effort to achieve the eight aspirational goals set out in
the Millennium Declaration in 2000 was largely successful across the globe, while acknowledging
shortfalls that remain. The data and analysis presented in the report show that with targeted
interventions, sound strategies, adequate resources and political will, even the poorest can make
progress.
The final MDG report confirms that goal-setting can lift millions of people out of poverty, empower
women and girls, improve health and well-being, and provide vast new opportunities for better lives.
Highlights
The number of people now living in extreme poverty has declined by more than half, falling from 1.9
billion in 1990 to 836 million in 2015.
The number of people in the working middle class—living on more than $4 a day - nearly tripled
between 1991 and 2015.
The proportion of undernourished people in the developing regions dropped by almost half since 1990.
The number of out-of-school children of primary school age worldwide fell by almost half, to an
estimated 57 million in 2015, down from 100 million in 2000. Gender parity in primary school has
been achieved in the majority of countries.
The mortality rate of children under-five was cut by more than half since 1990. Since 1990, maternal
mortality fell by 45 percent worldwide. Over 6.2 million malaria deaths have been averted between
2000 and 2015. New HIV infections fell by approximately 40 percent between 2000 and 2013.

30
By June 2014, 13.6 million people living with HIV were receiving antiretroviral therapy (ART) globally,
an immense increase from just 800,000 in 2003. Between 2000 and 2013, tuberculosis prevention,
diagnosis and treatment interventions saved an estimated 37 million lives. Worldwide 2.1 billion
people have gained access to improved sanitation.
Globally, 147 countries have met the MDG drinking water target, 95 countries have met the MDG
sanitation target and 77 countries have met both. Official development assistance from developed
countries increased 66 percent in real terms from 2000 and 2014, reaching $135.2 billion.
Sustainable Development Goals (SDGs)
“World leaders have an unprecedented opportunity this year to shift the world onto a path of
inclusive, sustainable and resilient development” - Helen Clark, UNDP Administrator.
At the United Nations Sustainable Development Summit on 25 September 2015, world leaders
adopted the 2030 Agenda for Sustainable Development, which includes a set of 17 Sustainable
Development Goals (SDGs) to end poverty, fight inequality and injustice, and tackle climate change
by 2030.
What are the Sustainable Development Goals?
The Sustainable Development Goals, otherwise known as the Global Goals, build on the Millennium
Development Goals (MDGs), eight anti-poverty targets that the world committed to achieving by 2015.
The MDGs, adopted in 2000, aimed at an array of issues that included slashing poverty, hunger,
disease, gender inequality, and access to water and sanitation.
Enormous progress has been made on the MDGs, showing the value of a unifying agenda underpinned
by goals and targets. Despite this success, the indignity of poverty has not been ended for all.
The new SDGs, and the broader sustainability agenda, go much further than the MDGs, addressing
the root causes of poverty and the universal need for development that works for all people.
UNDP Administrator Helen Clark noted: “This agreement marks an important milestone in putting
our world on an inclusive and sustainable course. If we all work together, we have a chance of
meeting citizens aspirations for peace, prosperity, and wellbeing, and to preserve our planet.”
What is UNDPs role with the Sustainable Development Goals?
All 17 Sustainable Development Goals are connected to UNDP’s Strategic Plan focus areas: sustainable
development, democratic governance and peacebuilding, and climate and disaster resilience. SDGs
Number 1 on poverty, Number 10 on inequality and Number 16 on governance are particularly central
to UNDP’s current work and long-term plans.
Having an integrated approach to supporting progress across the multiple goals is crucial to achieving
the Sustainable Development Goals, and UNDP is uniquely placed to support that process.
UNDP supports countries in three different ways, through the MAPS approach: mainstreaming,
acceleration and policy support.
1. Providing support to governments to reflect the new global agenda in national development plans
and policies. This work is already underway in many countries at national request;

31
2. Supporting countries to accelerate progress on SDG targets. In this, we will make use of our
extensive experience over the past five years with the MDG Acceleration Framework; and
3. Making the UN’s policy expertise on sustainable development and governance available to
governments at all stages of implementation.
Collectively, all partners can support communication of the new agenda, strengthening partnerships
for implementation, and filling in the gaps in available data for monitoring and review.
As Co-Chair of the UNDG Sustainable Development Working Group, UNDP will lead the preparation of
Guidelines for National SDG Reports which are relevant and appropriate for the countries in which
we work.
UNDP is deeply involved in all processes around the Sustainable Development Goal roll out. We are
bringing our extensive programming experience to bear in supporting countries to develop their
national SDG efforts.

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34
VALUES UNDERLYING THE MILLENNIUM DECLARATION
The Millennium Declaration - which outlines 60 goals for peace; development; the environment;
human rights; the vulnerable, hungry and poor; Africa; and the United Nations - is founded on a core
set of values described as follows:
We consider certain fundamental values to be essential to international relations in the twenty-first
century. These include:
Freedom: Men and women have the right to live their lives and raise their children in dignity, free
from hunger and from the fear of violence, oppression or injustice. Democratic and participatory
governance based on the will of the people best assures these rights.
Equality: No individual and no nation must be denied the opportunity to benefit from development.
The equal rights and opportunities of women and men must be assured.

35
Solidarity: Global challenges must be managed in a way that distributes the costs and burdens fairly
in accordance with basic principles of equity and social justice. Those who suffer or who benefit
least deserve help from those who benefit most.
Tolerance: Human beings must respect one other, in all their diversity of belief, culture and language.
Differences within and between societies should be neither feared nor repressed, but cherished as a
precious asset of humanity. A culture of peace and dialogue among all civilizations should be actively
promoted.
Respect for nature: Prudence must be shown in the management of all living species and natural
resources, in accordance with the precepts of sustainable development. Only in this way can the
immeasurable riches provided to us by nature be preserved and passed on to our descendants. The
current unsustainable patterns of production and consumption must be changed in the interest of
our future welfare and that of our descendants.
Shared responsibility: Responsibility for managing worldwide economic and social development, as
well as threats to international peace and security, must be shared among the nations of the world
and should be exercised multi-laterally. As the most universal and most representative organization
in the world, the United Nations must play the central role.”

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 FM Notes 12 – Sustainable Development Goals

SDG Goal 1: Poverty Reduction

Poverty is multidimensional and is not simply a lack of adequate income. For instance, earning
US$1.90 PPP (purchasing power parity) per day is unlikely to mean the end of the many overlapping
deprivations faced by poor people, including malnutrition, poor sanitation and a lack of electricity
or inadequate schools. Time poverty adds another dimension. Rural women in developing countries,
for instance, spend most of their time on unpaid household and subsistence activities.
Little time is left for market-related and remunerated activities, thereby exacerbating poverty.
According to the Global Multidimensional Poverty Index (MPI) 1.6 billion people in 108 countries,
home to 78 percent of the world’s population, are identified as multidimensionally poor.
MPI reflects the combined simultaneous disadvantages poor people experience across different areas
of their lives, including education, health and living standards.
End poverty in all its forms everywhere
Eradicating poverty in all its forms remains one of the greatest challenges facing humanity. While
the number of people living in extreme poverty has dropped by more than half - from 1.9 billion in
1990, to 836 million in 2015 - too many are still struggling for the most basic human needs.
Globally, more than 800 million people are still living on less than $1.25 a day; many lacking access
to adequate food, clean drinking water and sanitation. Rapid economic growth in countries like China
and India has lifted millions out of poverty, but progress has also been uneven. Women are
disproportionately more likely to live in poverty than men due to unequal access to paid work,
education and property.
Progress has also been limited in other regions, such as South Asia and Sub - Saharan Africa, which
account for 80 percent of the global total of those living in extreme poverty. This rate is expected
to rise due to new threats brought on by climate change, conflict and food insecurity.
The Sustainable Development Goals (SDGs) are a bold commitment to finish what we started, and
end poverty in all forms and dimensions by 2030. This involves targeting those living in vulnerable
situations, increasing access to basic resources and services, and supporting communities affected
by conflict and climate-related disasters.
Ending poverty is one of 17 Global Goals that make up the 2030 Agenda for Sustainable Development.
An integrated approach is crucial for progress across the multiple goals.
SDG Goal 2: Zero hunger
End hunger, achieve food security and improved nutrition and promote sustainable agriculture
Rapid economic growth and increased agricultural productivity over the past two decades has seen
the proportion of undernourished people drop by almost half.
Many developing countries that used to suffer from famine and hunger can now meet the nutritional
needs of the most vulnerable. Central and East Asia, Latin America and the Caribbean have all made
huge progress in eradicating extreme hunger.

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These are all significant achievements in reaching the targets set out by the first Millennium
Development Goals. Unfortunately, extreme hunger and malnutrition remain a huge barrier to
development in many countries.
795 million people are estimated to be chronically undernourished as of 2014, often as a direct
consequence of environmental degradation, drought and loss of biodiversity. Over 90 million children
under the age of five are dangerously underweight. And one person in every four still goes hungry in
Africa.
The Sustainable Development Goals (SDGs) aim to end all forms of hunger and malnutrition by 2030,
making sure all people - especially children and the more vulnerable - have access to sufficient and
nutritious food all year round. This involves promoting sustainable agricultural practices: improving
the livelihoods and capacities of small scale famers, allowing equal access to land, technology and
markets.
It also requires international cooperation to ensure investment in infrastructure and technology to
improve agricultural productivity. Together with the other goals set out here, we can end hunger by
2030.
Goal 3: Good health and well-being
Ensure healthy lives and promote well-being for all
Since the creation of the Millennium Development Goals there have been historic achievements in
reducing child mortality, improving maternal health and tackling HIV/AIDS, tuberculosis, malaria and
other diseases.
In 15 years, the number of people newly infected by HIV each year has dropped from 3.1 million to
2 million and over 6.2 million lives were saved from malaria. Since 1990, maternal mortality fell by
45 percent, and worldwide there has been an over 50 percent decline in preventable child deaths
globally.
Despite this incredible progress, AIDS is the leading cause of death among adolescents in sub-Saharan
Africa, and 22 million people living with HJV are not accessing life-saving antiretroviral therapy. New
HIV infections continue to rise in some locations and in populations that are typically excluded or
marginalized.
Chronic and catastrophic disease remains one of the main factors that push households from poverty
into deprivation. Non-communicable diseases (NCDs) impose a large burden on human health
worldwide. Currently, 63% of all deaths worldwide stem from NCDs - chiefly cardiovascular diseases,
cancers, chronic respiratory diseases and diabetes. The cumulative economic losses to low- and
middle-income countries from the four diseases are estimated to surpass US$ 7 trillion by 2025.
Additionally, there continues to be underinvestment in the social circumstances and environmental
factors affecting health. The job on HIV and health is far from done.
Recognizing the interdependence of health and development, the Sustainable Development Goals
(SDGs) provide an ambitious, comprehensive plan of action for people, planet and prosperity and for
ending the injustices that underpin poor health and development outcomes.
SDG 3 aspires to ensure health and well-being for all, including a bold commitment to end the
epidemics of AIDS, tuberculosis, malaria and other communicable diseases by 2030. It also aims to

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achieve universal health coverage, and provide access to safe and effective medicines and vaccines
for all. Supporting research and development for vaccines is an essential part of this process as well
as expanding access to affordable medicines.

Goal 4: Quality education

Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all
Since 2000, there has been enormous progress in achieving the target of universal primary education.
The total enrolment rate in developing regions reached 91 percent in 2015, and the worldwide
number of children out of school has dropped by almost half.
There has also been a dramatic increase in literacy rates, and many more girls are in school than
ever before. These are all remarkable successes.
Progress has also faced tough challenges in developing regions due to high levels of poverty, armed
conflicts and other emergencies. In Western Asia and North Africa, ongoing armed conflict has seen
an increase in the proportion of children out of school. This is a worrying trend.
While Sub-Saharan Africa made the greatest progress in primary school enrolment among all
developing regions - from 52 percent in 1990, up to 78 percent in 2012 - large disparities still remain.
Children from the poorest households are four times more likely to be out of school than those of
the richest households. Disparities between rural and urban areas also remain high.
Achieving inclusive and quality education for all reaffirms the belief that education is one of the
most powerful and proven vehicles for sustainable development. This goal ensures that all girls and
boys complete free primary and secondary schooling by 2030. It also aims to provide equal access to
affordable vocational training, and to eliminate gender and wealth disparities with the aim of
achieving universal access to a quality higher education.
Goal 5: Gender equality
Achieve gender equality and empower all women and girls Empowering women and promoting gender
equality is crucial to accelerating sustainable development. Ending all forms of discrimination against
women and girls is not only a basic human right, but it also has a multiplier effect across all other
development areas.
Since 2000, UNDP together with our UN partners and the rest of the global community has made
gender equality central to our work, and we have seen some remarkable successes. More girls are
now in school compared to 15 years ago, and most regions have reached gender parity in primary
education. Women now make up to 41 percent of paid workers outside of agriculture, compared to
35 percent in 1990.
The Sustainable Development Goals (SDGs) aim to build on these achievements to ensure that there
is an end to discrimination against women and girls everywhere.
There are still gross inequalities in access to paid employment in some regions, and significant gaps
between men and women in the labour market. Sexual violence and exploitation, the unequal division
of unpaid care and domestic work, and discrimination in public decision making, all remain huge
barriers.

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Ensuring universal access to sexual and reproductive health, and affording women equal rights to
economic resources such as land and property, are vital targets to realizing this goal. There are now
more women in public office than ever before, but encouraging more women leaders across all
regions will help strengthen policies and legislation for greater gender equality.

Goal 6: Clean water and sanitation

Ensure access to water and sanitation for all water scarcity affects more than 40 percent of people
around the world, an alarming figure that is projected to increase with the rise of global
temperatures as a consequence of climate change. Although 2.1 billion people have gained access to
improved water sanitation since 1990, dwindling supplies of safe drinking water is a major problem
impacting every continent.
In 2011, 41 countries experienced water stress; ten of them are close to depleting their supply of
renewable freshwater and must now rely on non-conventional sources. Increasing drought and
desertification is already exacerbating these trends. By 2050, it is projected that at least one in four
people are likely to be affected by recurring water shortages.
Ensuring universal access to safe and affordable drinking water by 2030 requires we invest in
adequate infrastructure, provide sanitation facilities and encourage hygiene at every level.
Protecting and restoring water-related ecosystems such as forests, mountains, wetlands and rivers is
essential if we are to mitigate water scarcity. More international cooperation is also needed to
encourage water efficiency and support treatment technologies in developing countries.
Goal 7: Affordable and clean energy
Ensure access to affordable, reliable, sustainable and modern energy for all between 1990 and 2010,
the number of people with access to electricity has increased by 1.7 billion, and as the global
population continues to rise so will the demand for cheap energy. A global economy reliant on fossil
fuels and the increase of greenhouse gas emissions is creating drastic changes to our climate system.
This is having a visible impact on every continent.
However, there has been a new drive to encourage alternative energy sources, and in 2011 renewable
energy accounted for more than 20 percent of global power generated. Still one in five people lack
access to electricity, and as the demand continues to rise there needs to be a substantial increase
in the production of renewable energy across the world.
Ensuring universal access to affordable electricity by 2030 means investing in clean energy sources
such as solar, wind and thermal. Adopting cost-effective standards for a wider range of technologies
could also reduce the global electricity consumption by buildings and industry by 14 percent. This
means avoiding roughly 1,300 mid-size power plants. Expanding infrastructure and upgrading
technology to provide clean energy sources in all developing countries is a crucial goal that can both
encourage growth and help the environment.
Goal 8: Decent work and economic growth
Promote inclusive and sustainable economic growth, employment and decent work for all
Over the past 25 years the number of workers living in extreme poverty has declined dramatically,
despite the long-lasting impact of the economic crisis of 2008/2009. In developing countries, the

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middle class now makes up more than 34 percent of total employment - a number that has almost
tripled between 1991 and 2015.
However, as the global economy continues to recover we are seeing slower growth, widening
inequalities and employment that is not expanding fast enough to keep up with the growing labour
force. According to the International Labour Organization, more than 204 million people are
unemployed in 2015.
The Sustainable Development Goals (SDGs) aim to encourage sustained economic growth by achieving
higher levels of productivity and through technological innovation. Promoting policies that encourage
entrepreneurship and job creation are key to this, as are effective measures to eradicate forced
labour, slavery and human trafficking. With these targets in mind, the goal is to achieve full and
productive employment, and decent work, for all women and men by 2030.
Goal 9: Industry, innovation, infrastructure
Build resilient infrastructure, promote sustainable industrialization and foster innovation
Sustained investment in infrastructure and innovation are crucial drivers of economic growth and
development. With over half the world population now living in cities, mass transport and renewable
energy are becoming ever more important, as are the growth of new industries and information and
communication technologies.
Technological progress is also key to finding lasting solutions to both economic and environmental
challenges, such as providing new jobs and promoting energy efficiency. Promoting sustainable
industries, and investing in scientific research and innovation, are all important ways to facilitate
sustainable development.
More than 4 billion people still do not have access to the Internet, and 90 percent are from the
developing world. Bridging this digital divide is crucial to ensure equal access to information and
knowledge, and as a consequence foster innovation and entrepreneurship.
Goal 10: Reduced inequalities
Reduce inequality within and among countries
It is well documented that income inequality is on the rise, with the richest 10 percent earning up
to 40 percent of total global income. The poorest 10 percent earn only between 2 and 7 percent of
total global income. In developing countries, inequality has increased by 11 percent if we take into
account the growth of population.
These widening disparities are a call for action that require the adoption of sound policies to
empower the bottom percentile of income earners and promote economic inclusion of all regardless
of sex, race or ethnicity.
Income inequality is a global problem that requires global solutions. This involves improving the
regulation and monitoring of financial markets and institutions, encouraging development assistance
and foreign direct investment to regions where the need is greatest. Facilitating the safe migration
and mobility of people is also key to bridging the widening divide.
Goal 11: Sustainable cities and communities

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Make cities inclusive, safe, resilient and sustainable
More than half of the world’s population now live in urban areas. By 2050, that figure will have risen
to 6.5 billion people - two-thirds of humanity. Sustainable development cannot be achieved without
significantly transforming the way we build and manage our urban spaces.
The rapid growth of cities in the developing world, coupled with increasing rural to urban migration,
has led to a boom in mega-cities. In 1990, there were ten mega cities with 10 million inhabitants or
more. In 2014, there are 28 mega-cities, home to a total 453 million people.
Extreme poverty is often concentrated in urban spaces, and national and city governments struggle
to accommodate the rising population in these areas. Making cities safe and sustainable means
ensuring access to safe and affordable housing, and upgrading slum settlements. It also involves
investment in public transport, creating green public spaces, and improving urban planning and
management in a way that is both participatory and inclusive.
Goal 12: Responsible consumption, production
Ensure sustainable consumption and production patterns
Achieving economic growth and sustainable development requires that we urgently reduce our
ecological footprint by changing the way we produce and consume goods and resources. Agriculture
is the biggest user of water worldwide, and irrigation now claims close to 70 percent of all freshwater
appropriated for human use.
The efficient management of our shared natural resources, and the way we dispose of toxic waste
and pollutants, are important targets to achieve this goal. Encouraging industries, businesses and
consumers to recycle and reduce waste is equally important, as is supporting developing countries
to move towards more sustainable patterns of consumption by 2030.
A large share of the world population is still consuming far too little to meet even their basic needs.
Halving per capita global food waste at the retailer and consumer levels is also important for creating
more efficient production and supply chains. This can help with food security and shift us towards a
more resource efficient economy.
Goal 13: Climate action
Take urgent action to combat climate change and its impacts
There is no country in the world that is not seeing first-hand the drastic effects of climate change.
Greenhouse gas emissions continue to rise, and are now more than 50 percent higher than their 1990
level. Further, global warming is causing long lasting changes to our climate system, which threatens
irreversible consequences if we do not take action now.
The annual average losses from just earthquakes, tsunamis, tropical cyclones and flooding count in
the hundreds of billions of dollars, requiring an investment of US$ 6 billion annually in disaster risk
management alone. The goal aims to mobilize $100 billion annually by 2020 to address the needs of
developing countries and help mitigate climate-related disasters.
Strengthening the resilience and adaptive capacity of more vulnerable regions, such as land locked
countries and island states, must go hand in hand with efforts to raise awareness and integrate
measures into national policies and strategies. It is still possible, with the political will and a wide

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array of technological measures, to limit the increase in global mean temperature to two degrees
Celsius above pre-industrial levels. This requires urgent collective action.

Goal 14: Life below water

Conserve and sustainably use the oceans, seas and marine resources
The world’s oceans - their temperature, chemistry, currents and life - drive global systems that make
the Earth habitable for humankind. How we manage this vital resource is essential for humanity as a
whole, and to counter balance the effects of climate change.
Over three billion people depend on marine and coastal biodiversity for their livelihoods. However,
today we are seeing 30 percent of the world’s fish stocks overexploited, well below a level at which
they can produce sustainable yields.
Oceans also absorb about 30 percent of the carbon dioxide produced by humans, and we are seeing
a 26 percent rise in ocean acidification since the beginning of the industrial revolution. Marine
pollution, an overwhelming majority of which comes from land-based sources, is reaching alarming
levels, with an average of 13,000 pieces of plastic litter to be found on every square kilometre of
ocean.
The Sustainable Development Goals (SDG5) create a framework to sustainably manage and protect
marine and coastal ecosystems from land-based pollution, as well as address the impacts of ocean
acidification. Enhancing conservation and the sustainable use of ocean-based resources through
international law will also help mitigate some of the challenges facing our oceans.
Goal 15: Life on land
Sustainably manage forests, combat desertification, halt and reverse land degradation, halt
biodiversity loss
Human life depends on the earth as much as the ocean for our sustenance and livelihood. Plant life
provides 80 percent of our human diet, and we rely on agriculture as an important economic resource
and means of development. Forests account for 30 percent of the Earth’s surface, providing vital
habitats for millions of species and important sources for clean air and water; as well as being crucial
for combating climate change.
Today we are seeing unprecedented land degradation, and the loss of arable land at 30 to 35 times
the historical rate. Drought and desertification is also on the rise each year, amounting to the loss
of 12 million hectares and affects poor communities globally. Of the 8,300 animal breeds known, 8
percent are extinct and 22 percent are at risk of extinction.
The Sustainable Development Goals (SDG5) aim to conserve and restore the use of terrestrial
ecosystems such as forests, wetlands, drylands and mountains by 2020. Promoting the sustainable
management of forests and halting deforestations is also vital to mitigating the impact of climate
change. Urgent action must be taken to reduce the loss of natural habitats and biodiversity which
are part of our common heritage.
Goal 16: Peace, justice and strong institutions

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Promote just, peaceful and inclusive societies
Peace, stability, human rights and effective governance based on the rule of law are important
conduits for sustainable development. We are living in a world that is increasingly divided. Some
regions enjoy sustained levels of peace, security and prosperity while others fall into seemingly
endless cycles of conflict and violence. This is by no means inevitable and must be addressed.
High levels of armed violence and insecurity have a destructive impact on a country’s development,
affecting economic growth and often resulting in long standing grievances among communities that
can last for generations. Sexual violence, crime, exploitation and torture are also prevalent where
there is conflict or no rule of law, and countries must take measures to protect those who are most
at risk.
The Sustainable Development Goals (SDG5) aim to significantly reduce all forms of violence, and
work with governments and communities to find lasting solutions to conflict and insecurity.
Strengthening the rule of law and promoting human rights is key to this process, as is reducing the
flow of illicit arms and strengthening the participation of developing countries in the institutions of
global governance.
Goal 17: Partnerships for the goals
Revitalize the global partnership for sustainable development
The Sustainable Development Goals (SDGs) can only be realized with a strong commitment to global
partnership and cooperation. While official development assistance from developed countries
increased by 66 percent between 2000 and 2014, humanitarian crises brought on by conflict or natural
disasters continue to demand financial resources and aid. Many countries also require Official
Development Assistance to encourage growth and trade.
The world today is more interconnected than ever before. Improving access to technology and
knowledge is an important way to share ideas and foster innovation.
Coordinating policies to help developing countries manage their debt, as well as promoting
investment for the least developed, is vital to achieve sustainable growth and development.
The goals aim to enhance North-South and South-South cooperation by supporting national plans to
achieve all the targets. Promoting international trade, and helping developing countries increase
their exports, is all part of achieving a universal rules-based and equitable trading system that is fair
and open, and benefits all.

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 FM Notes 13 – Economic Reforms

The economy of India is one of the fastest growing economies in the world. Since its independence
in the year 1947, a number of economic policies have been taken which have led to the gradual
economic development of the country. On a broader scale, India economic reform has been a blend
of both social democratic and liberalization policies.
Economic reforms during the post-independence period-:
The post-independence period of India was marked by economic policies which tried to make the
country self-sufficient. Under the economic reform, stress was given more to development of defense,
infrastructure and agricultural sectors.
Government companies were set up and investment was done more on the public sector. This was
made to make the base of the country stronger. To strengthen the infrastructure, new roads, rail
lines, bridges, dams and lots more were constructed.
During the Five Years Plans initiated in the 1950s, the economic reforms of India somewhat followed
the democratic socialist principle with more emphasis on the growth of the public and rural sector.
Most of the policies were meant towards the increase of exports compared to imports, central
planning, business regulation and also intervention of the state in the finance and labor markets.
In the mid 50’s huge scale nationalization was done to industries like mining, telecommunications,
electricity and so on.
Economic Reforms during 1960s and 1980s-:
During the mid-1960’s effort was made to make India self-sufficient and also increase the production
and export of the food grains. To make the plan a success, huge scale agricultural development was
undertaken.
The government initiated the ‘Green Revolution’ movement and stressed on better agricultural yield
through the use of fertilizers, improved seed and lots more. New irrigation projects were undertaken
and the rural banks were also set up to provide financial support to the farmers.
The first step towards liberalization of the economy was taken up by Rajiv Gandhi. After he became
the Prime Minister, a number of restrictions on various sectors were eased, control on pricing was
removed, and stress was given on increased growth rate and so on.
Economic Reforms during 1990s to the present times
Due to the fall of the Soviet Union and the problems in balance of payment accounts, the country
faced economic crisis and the IMF asked for the bailout loan.
To get out of the situation, the then Finance Minister, Manmohan Singh initiated the economic
liberation reform in the year 1991. This is considered to be one of the milestones in India economic
reform as it changed the market and financial scenario of the country. Under the liberalization
program, foreign direct investment was encouraged, public monopolies were stopped, and service
and tertiary sectors were developed.

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The reform process in India was initiated with the aim of accelerating the pace of economic growth
and eradication of poverty. The process of economic liberalization in India can be traced back to the
late 1970s.
It was only in 1991 that the Government signalled a systemic shift to a more open economy with
greater reliance upon market forces, a larger role for the private sector including foreign investment,
and a restructuring of the role of Government.
The reforms of the last decade and a half have gone a long way in freeing the domestic economy
from the control regime.
An important feature of India’s reform programme is that it has emphasized gradualism and
evolutionary transition rather than rapid restructuring or ‘shock therapy’. This approach was adopted
since the reforms were introduced in June 1991 in the wake a balance of payments crisis that was
certainly severe. However, it was not a prolonged crisis with a long period of non-performance.
The economic reforms initiated in 1991 introduced far-reaching measures, which changed the
working and machinery of the economy. These changes were pertinent to the following:
- Dominance of the public sector in the industrial activity
- Discretionary controls on industrial investment and capacity expansion
- Trade and exchange controls
- Limited access to foreign investment
- Public ownership and regulation of the financial sector
The reforms have unlocked India’s enormous growth potential and unleashed powerful
entrepreneurial forces. Since 1991, successive governments, across political parties, have
successfully carried forward the country’s economic reform agenda.
Reforms in Industrial Policy-:
Industrial policy was restructured to a great extent and most of the central government industrial
controls were dismantled. Massive deregulation of the industrial sector was done in order to bring in
the element of competition and increase efficiency.
Industrial licensing by the central government was almost abolished except for a few hazardous and
environmentally sensitive industries.
The list of industries reserved solely for the public sector - which used to cover 18 industries,
including iron and steel, heavy plant and machinery, telecommunications and telecom equipment,
minerals, oil, mining, air transport services and electricity generation and distribution was drastically
reduced to three: defense aircrafts and warships, atomic energy generation, and railway transport.
Further, restrictions that existed on the import of foreign technology were withdrawn.
Reforms in Trade Policy
It was realized that the import substituting inward looking development policy was no longer suitable
in the modern globalising world.
Before the reforms, trade policy was characterized by high tariffs and pervasive import restrictions.
Imports of manufactured consumer goods were completely banned. For capital goods, raw materials
and intermediates, certain lists of goods were freely importable, but for most items where domestic

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substitutes were being produced, imports were only possible with import licenses. The criteria for
issue of licenses were non-transparent, delays were endemic and corruption unavoidable.
The economic reforms sought to phase out import licensing and also to reduce import duties.
Import licensing was abolished relatively early for capital goods and intermediates which became
freely importable in 1993, simultaneously with the switch to a flexible exchange rate regime.
Quantitative restrictions on imports of manufactured consumer goods and agricultural products were
finally removed on April 1, 2001, almost exactly ten years after the reforms began, and that in part
because of a ruling by a World Trade Organization dispute panel on a complaint brought by the United
States.
Financial sector reforms
Financial sector reforms have long been regarded as an integral part of the overall policy reforms in
India. India has recognized that these reforms are imperative for increasing the efficiency of resource
mobilization and allocation in the real economy and for the overall macroeconomic stability.
The reforms have been driven by a thrust towards liberalization and several initiatives such as
liberalization in the interest rate and reserve requirements have been taken on this front. At the
same time, the government has emphasized on stronger regulation aimed at strengthening prudential
norms, transparency and supervision to mitigate the prospects of systemic risks.
Today the Indian financial structure is inherently strong, functionally diverse, efficient and globally
competitive.
During the last fifteen years, the Indian financial system has been incrementally deregulated and
exposed to international financial markets along with the introduction of new instruments and
products.
The salient features of new economic policy are Liberlisation, Privatisation and Globalisation of
the economy (LPG policy).
(1) Liberalisation: Simply speaking liberalisation means to free to economy from the controls
imposed by the Govt. Before 1991, Govt. had put many types of controls on Indian economy. These
were as follows:
a. Industrial Licensing System
b. Foreign exchange control
c. Price control on goods
d. Import License.
Due to all these controls, the economy became defective. The entrepreneurs were unwilling to
establish new industries. Corruption, undue delays and inefficiency rose due to these controls. Rate
of economic growth of the economy came down.
Economic reforms were introduced to reduce the restrictions imposed on the economy.
Steps taken for Liberalization: The following steps have been taken for liberalization:
Independent determination of interest rate: Under the policy of liberalisation interest rate of the
banking system will not be determined by RBI rather all Banks are independent to determine the rate
of interest.

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Increase in the investment limit of the Small Scale Industries: Investment limit of the small scale
industries has been raised to ₹ 1 crore. So that they can modernize their industry.
Freedom to import capital goods: Indian industries will be free to buy machines and raw materials
from foreign countries to expand their business.
Freedom to import Technical know-how: Under new economic policy the entrepreneurs are free to
import technical know-how and develop modernisations.
The main aim of the policy is to develop computers and electronics.
Freedom for expansion and production to Industries: Industries are free to expand and produce under
the policy of liberalisation. Previously, the govt. used to fix the maximum limit of production capacity.
No industry could produce beyond that limit.
Now the industry can produce freely. Also they can produce anything depending on the demand.
Freedom from Monopolies Act: According to Monopolies and Restrictive Trade Practices (MRTP) Act
all those companies having assets worth ₹ 100 crore or more were called MRTP firms and were
subjected to several restrictions. Now these firms have not to obtain prior approval of the Govt. for
taking investment decision.
Removal of Industrial Licensing and Registration: Previously private sector had to obtain license from
Govt. for starting a new venture. In this policy private sector has been freed from licensing and other
restrictions.
Industries licensing is necessary for following industries:
a. Liquor
b. Cigarette
c. Defence equipment
d. Industrial explosives
e. Drugs
f. Hazardous chemicals.
(2) Privatisation:
Simply speaking, privatisation means permitting the private sector to set up industries which were
previously reserved for the public sector. Under this policy many PSU’s were sold to private sector.
In privatisation, the Govt.s role is only reduced it does not disappear. Literally speaking, privatisation
is the process of involving the private sector-in the ownership of Public Sector Units (PSU’s).
The main reason for privatisation was in currency of PSU’s are running in losses due to political
interference. The managers cannot work independently. Production capacity remained under-
utilized. To increase competition and efficiency need of privatisation was felt.
Step taken for Privatisation:
Sale of shares: Indian Govt. has been selling shares of PSU’s to public and financial institution e.g.
Govt. sold shares of Maruti Udyog Ltd. This was the private sector will acquire ownership of these
PSU’s. The share of private sector has increased from 45% to 55%.

48
Disinvestment in PSU’s: The Govt. has started the process of disinvestment in those PSU’s which
had been running into loss. It means that Govt. has been selling out these industries to private sector.
Govt. has sold enterprises worth ₹ 30,000 crores to the private sector.
Minimisation of Public Sector: Previously Public sector was given the importance with a view to help
in industralisation and removal of poverty. But these PSU’s could not able to achieve this objective
and policy of contraction of PSU’s was followed under new economic reforms. Number of industries
reserved for public sector was reduces from 17 to 4.
a. Transport and railway
b. Mining of atomic minerals
c. Atomic energy
d. Defence equipment
(3) Globalization: Literally speaking Globalisation means to make Global or worldwide, otherwise
taking into consideration the whole world. Broadly speaking, Globalisation means the establishment
of relations of the economy with world economy in regard to foreign investment, trade, production
and financial matters.
Globalisation may be defined as integrating the economy of a country with the economies of other
countries under conditions of free-flow of trade and capital and movement of persons across the
borders, Economic reforms aim at close association of India economy with world economy. There will
be an increased co-operation of
India economy with world economies across the world. Capital and technology will flow from the
developed countries of the world towards India.
Steps taken for Globalisation:
Reduction in tariffs: Custom duties and tariffs imposed on imports and exports are reduced gradually
just to make India economy internationally beneficial.
Long term Trade Policy: Forcing trade policy was enforced for longer duration. Main features of the
policy are:
a. Liberal policy
b. All controls on foreign trade have been removed
c. Open competition has been encouraged.
d. Partial Convertibility: Partial convertibility can be defined as to sell foreign currency like dollar
($) or pound, for foreign transaction at a price determined by the market.
e. Partial convertibility of Indian rupee was allowed to achieve the objectives of globalisation.
f. Increase in Equity Limit of Foreign Investment: Equity limit of foreign capital investment has
been raised from 40% to 100% percent. In 47 high priority industries foreign direct investment
(FDI) to the extent of 100% will be allowed without any restriction. In this regard Foreign
Exchange Management Act (FEMA) will be enforced.
Due to the global meltdown, the economy of India suffered as well. However, unlike other countries,
India sustained the shock as an important part of its financial and banking sector is still under
government regulation. Nevertheless, to cope with the present situation, the Indian government has
taken a number of decisions like strengthening the banking and tertiary sectors, increasing the
quantity of exports and lots more.

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 FM Notes 14 – Labour Policy and Reforms

Reforms in labour laws are an ongoing process to update legislative system to address the need of
the hour and to make them more effective and contemporary to the emerging economic and
industrial scenario. The Second National Commission on Labour has recommended that the existing
Labour Laws should be broadly grouped into four or five Labour Codes on functional basis. Accordingly,
the Ministry has taken steps for drafting four Labour Codes on Wages; Industrial Relations; Social
Security & Welfare; and Safety and Working Conditions respectively, by simplifying, amalgamating
and rationalizing the relevant provisions of the existing Central Labour Laws.
Similarly, the Ministry has taken steps to draft Small Factories Bill, a special legislation for the small
manufacturing units, based on the recommendations of 2nd National Commission of Labour. Ministry
has also taken steps for amendment of individual Labour Acts. The process of Legislative reforms
includes consultation with stakeholders including Central Trade Unions, Employers’ Association and
State Governments in the form of tripartite consultation.
During recent months, several such tripartite meetings have been held for considering suggestions
on various legislative reform proposals where the representatives of Central Trade Unions
participated and gave their suggestions on the legislative proposals which are considered by the
Government appropriately.
Future of Work in India and Young People’s Aspirations
The Ministry of Labour and Employment V.V. Gin National Labour Institute and International Labour
Organization are organizing an event on “The Future of Work in India and Young People’s Aspiration”.
This event will focus on India’s youth and their aspirations in the world of work. It will seek to
highlight both challenges in the labour market and how youth can be an agent of change them to
address them.
The Minister of Labour and Employment Shni Bandaru Dattatreya, will be speaking at the event along
with the United Nations Resident Coordinator for India, Shri Yuri Afanasiev, and Secretary, Labour
and Employment Shri Shankar Aggarwal. Young people from different backgrounds will be sharing
their views and aspirations.
The world of work is undergoing a major process of change. There are several forces transforming it,
from the onward march of technology and the impact of climate change to the changing character
of production and employment, and demographics to name a few.
At the same time, the youth of India are facing an exciting period of change and new opportunities.
With higher levels of education, access to information and awareness of the world around them,
young people across the country are seeking to make the transition from school to work and
contribute to the country’s development through employment and entrepreneurship.
It is necessary to understand and to respond effectively to new challenges in the world of work in
order to be able to advance social justice. For this reason, the International Labour Organization’s
Director-General Guy Ryder has launched the “Future of Work initiative”. The initiative seeks to

50
involve ILOs member-states fully and universally, but also to reach beyond them to all relevant and
interested stakeholders, including youth.
Labour policies are devised to maintain economic development, social justice, industrial harmony
and welfare of labour in the country. To promote these activities, various reforms and initiatives
have been brought upon by the government. This section covers employment oriented programmes,
activities, schemes, recruitment, notifications, labour welfare acts, rules, laws, online services,
grievance cells, etc. Details of organised and unorganised sector workers are also available.
Labor Market-: Current Scenario
- India’s growth story has remained incomplete as it did not match with the required employment
growth. During the period, 2000 to 2009 the Indian economy grew at an average rate of 8 per cent
but employment growth was rather sluggish. Table provides ample evidence.
- At present, overwhelmingly large percentage of workers (about 92 per cent) is engaged in informal
employment that has low earnings with limited or no social protection.
- The labour-force participation rate is comparatively low in India largely because lower female
participation.
What Reforms are needed?
Eighty per cent of Indian manufacturing output comes from enterprises in the formal sector while a
similar proportion of manufacturing employment is generated by enterprises in the informal sector.
This is a fundamental disconnect: one set of enterprises accounts for most of the output while
another set of enterprises accounts for most of the employment. It has also created a labour
aristocracy that seeks to protect its privileges but in effect keeps the majority of industrial workers
trapped in informal enterprises.
Following reforms are essential for the efficient labour markets in India-:
 Labour to be shifted to ‘State List’-: Labour being in the concurrent list of the constitution, both
central and state government legislate on it. But the State Governments have limited space to
enact labour laws to address their own requirements - promoting investment and employment
generation. It is in best interest of all to shift labour in State list.
 Simplification of archaic laws-: We must create single window system under the common
headlines/sets. Initially we can start with reducing these to four sets of labour laws as following-
- Laws governing terms and conditions of employment.
- Laws governing wages.
- Laws governing welfare.
- Laws governing social security.
 A uniform definition of terms like ‘industry’ and ‘worker’ is necessary across statutes. For better
interpretation and understanding, industry should be termed as ‘enterprise’ and workman should
be termed as ‘employee’.
 A separate set of simple labour laws should apply to enterprises employing less than 50 employees
to promote micro and small enterprises with a self-contained code covering laws on employment
relations, wages and social security. These enterprises termed as ‘smaller enterprises’ should be
exempted from the application of the Industrial Disputes Act, 1947 and the Industrial Employment
(Standing Orders) Act, 1946 as recommended by the 2nd National Commission on Labour.

51
 The penal provisions in all labour laws need to be revisited and the penalty of imprisonment,
wherever it appears, should be converted into pecuniary fines. It will reduce the compliance cost
and fear in the employers.
 Separate independent judicial system: Due to already overburdening of judicial system, a
separate independent judicial system for labor issues may be created. It should be entrusted with
interpretation of all the labor laws and regulations.
 Inter State Council: Many labors migrate from one State to another but no record is maintained
anywhere. An Inter State Council should be setup to look into their issues.
Improving Enforcement of Labor Laws:
- Strengthening of enforcement machinery: Increased manpower, improved infrastructure is
essential for effective implementation of labor laws.
- All India Service for labor administration must be formed that will provide professional experts in
the field of labor administration.
- Dispute resolution: Regular Lok Adalats could enable faster disposal of cases.
- Digitization of the Employment Exchanges, digital sharing of data on registered job seekers should
be made mandatory for all Employment Exchanges.
- Insurance mechanism: An insurance scheme should be started for the retrenched workers from
the time the industry commenced operations, so that workers were not put to hardship later.
Benefits limited to Organised Sector only
These labour laws apply to organised sector which employs only 8 to 9 percent of workforce leaving
vast majority of Indian workforce remain unregulated. The workers under unorganised sector have
limited rights and are faced deplorable working conditions.
Multiplicity, Complexity and Rigidities
The multiplicity of labour laws and difficulty in coping with them are the impediment to industrial
development in India. Many of the laws are obsolete and are required to be reviewed to align them
with current economic situation. Some of such laws and provisions are discussed below:
a. Industrial Disputes Act (IDA). This Act requires firms employing more than loo workers to seek
permission from their respective state governments to retrench or lay off workers. This permission
is seldom granted.
b. Industrial Employment (Standing Orders) Act makes job description modifications and interplant
transfers within a firm (with more than 100 workers in some states and more than 50 in others)
very difficult and virtually impossible.
c. The Trade Union Act allows formation of trade union in firms having more than any seven workers
provide right to strike. The multiplicity of unions becomes a potentially difficult situation for
employers to manage.
d. Contract Labour Act regulates and restricts the use of contract labour. It is argued that it limits
the substitutability between permanent and contract workers, and thereby restricts an important
channel through which, the firms can reduce costs. For certain tasks, the use of contract labour
is prohibited.

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Regulation of Labor Market
 Currently, there are 44 labour laws under the purview of Central Government and more than loo
under State Governments, which deal with a host of labour issues.
 Unfortunately, these labour laws protect only 7-8 percent of the organised sector workers
employed at the cost of 93 per cent unorganised sector workers.
 Following are some of the Central legislations passed under different articles of the Constitution-:
- Minimum Wages Act, 1948.
- Industries (Regulation and Development) Act of 1951.
- Industrial Disputes Act, 1947.
- Factories Act of 1948.
- Contract labour Act 1970.
- Trade Unions Act 1926.
 In addition multiplicity of statutes, there are concerns around the protection of the workforce and
effective implementation of statutes.
Ease of Doing Business is affected
 Employers contend that labour laws in India are excessively pro-worker in the organized sector.
There is too much of inspection, and industries are looked upon with suspicion when comes to
enforcing labour laws.
 The legal provisions of job security and institutional factors like the pressure of trade unions make
adjustment of the workforce of enterprises difficult and discourage organised sector enterprises
from expansion. The small size of labour- intensive firms prevents them from reaping economies
of scale, thereby lowering India’s comparative advantage in labour-intensive manufacturing.
 Studies show states with relatively easier labour regulations have experienced higher growth of
labour intensive industries and their overall employment than have other states.
Jobless Growth
Several economists, industry associations believe deceleration in employment growth in India is due
to inflexibility in the labour market. The existing labour laws designed to protect employment and
do not encourage employability. They are a major cause for greater acceptance of capital-intensive
methods in the organized sector and affect the sector’s long run demand for labour.
Skill Development
The industries play crucial role in skill development. However, these laws discourage firms from
employing a large number of permanent workers and steer them towards employing more casual or
contract workers. In such temporary workers, firms show no inclination to invest for skill
development and training. To encourage apprenticeship in India, labour market need to be reformed
legally and institutionally both.
Global Competitiveness
The Restrictive labour regulations prevent firms from making the required adjustments to their inputs
in response to shocks to demand and technology. It makes them difficult to compete with firms in
countries where labour market rigidity is not a problem.

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These regulations constrain the firms by curtailing their size and depriving them of significant
potential economies of scale. Thus, Indian manufacturing firms, especially in labour-intensive
industries such as textiles and apparel, are seriously disadvantaged relative to their counterparts in
China, Bangladesh, and Vietnam etc. where labour markets are much more flexible.
Recent Steps taken by Government
Central Government
 Dedicated Shram Suvidha Portal: That would allot Labour Identification Number (LIN) to units
and allow them to file online compliance for 16 out of 44 labour laws.
 Random Inspection Scheme: To eliminate human discretion in selection of units for inspection,
and uploading of Inspection Reports within 72 hours of inspection mandatory.
 Universal Account Number: Enables 4.17 crore employees to have their Provident Fund account
portable, hassle-free and universally accessible.
 Apprentice Protsahan Yojana: Government will support manufacturing units mainly and other
establishments by reimbursing 50% of the stipend paid to apprentices during first two years of
their training.
 Revamped Rashtriya Swasthya Bima Yojana: Introducing a Smart Card for the workers in the
unorganized sector seeded with details of two more social security schemes.
 The National Career Service is being implemented as a mission mode project to provide various
job-related services information on skills development courses, internships etc.
State Government
 Madhya Pradesh, Gujarat, Maharashtra and Rajasthan have taken positive steps towards reforming
labour laws.
 For instance, Madhya Pradesh has expedited the process for registration and grant of licences
under several legislations by introducing a maximum time period of 30 days within which, if an
application is not rejected, it will be deemed to be registered.
 Rajasthan Government initiated reforms in labour statutes. Companies can retrench up to 300
employees, up from 100 without seeking government permission. Now, it requires membership of
30 percent of the total workforce for a union to obtain recognition in Rajasthan.

HRD (Human Resources Development) has been defined by various scholars in various ways. Some of
the important definitions of HRD (Human Resources Development) are as follows:

54
1. According to Leonard Nadler, ‘Human resource development is a series of organized activities,
conducted within a specialized time and designed to produce behavioural changes.”
2. In the words of Prof. T.V. Rao, “HRD is a process by which the employees of an organization are
helped in a continuous and planned way to (i) acquire or sharpen capabilities required to perform
various functions associated with their present or expected future roles; (ii) develop their journal
capabilities as individual and discover and exploit their own inner potential for their own and /or
organizational development purposes; (iii) develop an organizational culture in which superior-
subordinate relationship, team work and collaboration among sub-units are strong and contribute
to the professional well-being, motivation and pride of employees.” .
3. According to M.M. Khan, “Human resource development is the across of increasing knowledge,
capabilities and positive work attitudes of all people working at all levels in a business
undertaking.”
Human resource development is an integral part of Human resource function of an organization that
deals with development of the human resource through trainings and experiential learning. HRD
develops the key competencies of a person through performance analysis, identifying the gap and
providing training to fill the gaps.
The efficiency of the system can be measured by comparing the performance of employees before
and after the various trainings, counselling etc. Human Resource development has a dual objective
of growth of the employee and the growth of organization. As this provides learning and growth for
employees, it also leads to higher levels of employee satisfaction. HRD is the integrated use of:
training and development, organizational development, and career development to improve
individual, group and organizational effectiveness.”
Features of Human Resource Development HRD
The nature / scope / characteristics or features of HRD are as follows:
1. Training and Development
HRD involves training and developing the employees and managers. It improves their qualities,
qualifications and skills. It makes them more efficient in their present jobs. It also prepares them
for future higher jobs.
2. Organizational Development (OD)
HRD also involves Organizational Development. CD tries to maintain good relations throughout the
organization. It also solves problems of absenteeism, internal conflicts, low productivity and
resistance to change.
3. Career Development
HRD also involves career planning and development of employees. It helps the employees to plan and
develop their careers. It informs them about future promotions and how to get these promotions. So
HRD helps the employee to grow and develop in the organization.
4. Performance Appraisal
HRD conducts Performance Appraisal, Potential Appraisal, etc. It informs the employees about their
strengths and weaknesses. It also advises them about how to increase their strengths and how to
remove their weaknesses.
5. Multidisciplinary

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HRD is multidisciplinary. That is, it uses many different subjects. It uses education, management,
psychology, communication, and economics. HRD uses all these subjects for training and developing
the employees.
6. Key Element for solving problems
Now-a-days an organization faces many different problems. These problems are caused due to the
economic, technological and social changes. These problems can be solved only by knowledge, skill
and creative efforts. This knowledge, skill, etc. is achieved from HRD. Therefore, HRD is a key
element for solving problems in the organization.
7. Continuous in Nature
HRD is not a onetime affair. It is a continuous process. Development of human resources never stops.
This is because continuous changes happen in the organization and environment.
8. Integrated use of sub-systems
HRD system involves the integrated use of sub-systems such as performance appraisal, potential
appraisal, career planning, training, etc.
9. Placement
HRD places the right man in the right job. Placement is based on performance appraisal, potential
appraisal, training, etc. Proper placement gives satisfaction to the employee, and it increases the
efficiency.
10. Promotions and Transfer
HRD also gives promotions and transfers to the employees based on performance appraisals, etc.
11. Motivation by Rewards
HRD also motivates the employees by giving those rewards for performing and behaving better,
suggesting new ideas, etc. Financial and non-financial rewards are given.
12. Human resource development is a process in which employees of the organizations are recognized
as its human resource. It believes that human resource is most valuable asset of the organization.
13. It stresses on development of human resources of the organization. It helps the employees of the
organization to develop their general capabilities in relation to their present jobs and expected
future role.
14. It emphasize on the development and best utilization of the capabilities of individuals in the
interest of the employees and organization.
15. It helps is establishing/developing better inter-personal relations. It stresses on developing
relationship based on help, trust and confidence.
16. It promotes team spirit among employees.
17. It tries to develop corn petencies at the organization level. It stresses on providing healthy
climate for development in the organization.
18. HRD is a system. It has several sub-systems. All these sub-systems are inter related and
interwoven. It stresses on collaboration among all the sub-systems.

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19. It aims to develop an organizational culture in which there are good senior- subordinate relations,
motivation, quality and sense of belonging.
20. It tries to develop competence at individual, inter-personal, group and organizational level to
meet organizational goal.
21. It is an inter-disciplinary concept. It is based on the concepts, ideas and principles of sociology,
psychology, economics etc.
22. It forms on employee welfare and quality of work life. It tries to examine/identify employee
needs and meeting them to the best possible extent.
23. It is a continuous and systematic learning process. Development is a lifelong process, which never
ends.
Difference between HRD and HRM
Both are very important concepts of management specifically related with human resources of
organization. Human resource management and human resource development can be differentiated
on the following grounds:
1. The human resource management is mainly maintenance oriented whereas human resource
development is development oriented.
2. Organization structure in case of human resources management is independent whereas human
resource development creates a structure, which is inter-dependent and inter-related.
3. Human resource management mainly aims to improve the efficiency of the employees whereas
aims at the development of the employees as well as organization as a whole.
4. Responsibility of human resource development is given to the personnel/human resource
management department and specifically to personnel manager whereas responsibility of HRD is
given to all managers at various levels of the organization.
5. HRM motivates the employees by giving them monetary incentives or rewards whereas human
resource development stresses on motivating people by satisfying higher-order needs.

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 ESI Notes 15 – Very Important Terms

Assets: Anything owned by a person, family or institution is called asset. It is broadly classified into
three categories: (1) physical assets like land, building machinery etc.; (2) Financial assets like cash,
bank deposits, share, debentures, bonds etc.; and (3) Non-physical assets like brand name, patent,
trade mark, technical knowledge etc.
Absolute poverty: Low level of income which is not sufficient to fulfil required basic minimum needs
is called absolute poverty.
Allocative efficiency: Allocation of scare resources in most efficient and optimal manner is called
all locative efficiency. It may be in production as well as consumption.
Administered Price: If the price is decided by the government or an agency specified by the
government in place of market forces of demand and supply. It is called administered price.
AEZ: Agriculture Export Zones announced in export- import policy 2001 with the objective of
promoting export of specified agricultural products from specified areas.
Agricultural inputs: Inputs such as high yielding varieties of seeds, chemical fertilizers, pesticides
and irrigation are called agricultural inputs.
Amortization: When industrial dispute is settled. With the help of some neutral person (s) or some
government authority. It is called amortization.
Authorized capital: it is the maximum permitted share capital that can be raised by a company by
selling equity shares.
Advance-decline: It is an indicator of share market trends. It is calculated as a ratio of number of
shares with rising prices with number of share with falling prices.
Annuity: A contract by which a financial institution agrees to provide a regular income for life. The
name annuity arises from annual payment but the payment can be on any agreed frequency.
Anticipated inflation: Expected rate of inflation in the near future is called anticipated are often
taken taking into consideration anticipated inflation.
Arbitrage: Buying a good or asset in one market where price is low, and simultaneously selling in
another market where price is higher. Interest arbitrage is borrowing in a market with lower arbitrage
is borrowing in a market with lower interest rates and simultaneously lending in a market with higher
interest rates.
Ability to pay principle: This principle is based on the Principle of equity’ According to this principle;
tax should be levied according to the paying capacity of the tax payers.
Accrued income: If the income has been earned but not received during the accounting year, it is
called accrued income. For example: Interest earned on term deposit during the year on a five year
term deposit.
Ad valorem: Tax imposed on goods according to value it is termed as Ad valorem tax. In Ad valorem
tax, the tax amount changes with the change in the value of the product.

58
Anti-dumping duty: A duty imposed to protect domestic producers of goods from dumping by
exporting country. It is additional import duty imposed by the importing country only after
investigation.
Appreciation of currency: A rise in the price of domestic currency against foreign currency. It makes
imported goods cheaper and exports dearer. Due to this, there is tendency of more imports and less
exports. It is generally considered bad for the country’s balance of trade but it is good for inflation
as imported goods are cheaper.
Arbitrage: Buying an asset in one market where it is cheap and simultaneously selling it in another
market where it is costlier. (Interest arbitrage is borrowing in a market where rate of interest is low
and lending in another market where rate of interest is high.
Boom: Faster expansion of economic activities in country / countries is called boom. This is just
opposite of recession when economic activities slowdown in the economy.
Buffer cost: The expenses between purchase and sale point of food grains is called buffer cost, it
includes expenses like storage, transport, and other miscellaneous expenses.
Buffer Stock: If some quantity of good is stored to overcome the likely shortage in future it is known
as buffer stock. In India, there is provision of buffer stock for wheat and rice.
Balance Sheet: It is the detail of assets and liabilities of any business organization on the last day of
the financial year.
Basic goods industry: The industry producing goods which are very basic for the development of the
economy. For example: petroleum, electricity, steel and cement.
Bearer bond: These bonds don’t bear name of the holder and on maturity any person/ institution
holding the bond is entitled to get the payment on maturity.
Bears: Investors who expect the prices of securities to fall in the near future are called bears. These
investors sell securities in the expectation that in the near future, after the price falls. They will get
the opportunity to buy at lower prices and make profits.
Blue Chip: The term is used for the shares of the companies which are financially strong their
management is efficient and future prospect is good. Investors are always ready to buy these shares
in the market
Bond or debenture: These are debt Instruments issued by governments, semi government
organizations or companies to borrow from the market at a fixed rate of interest.
Bonus shares: The shares allotted by a company free to its existing shareholders, is called bonus
shares. Shares are issued in proportion to the shares already held by the shareholders.
Breakeven: The level of production and sale at which the producer/ Seller is able to recover the
cost only. At this level of production/sale, there is not profit or loss but the costs are recovered.
Bridge loan: The short term loans given by banks and financial institutions to companies to bridge
short term gap/ imbalance in their income and expenditure.
Bulls: Investors who expect the prices of securities in the expectation that in the near future, after
the price rise, they will get the opportunity to sell at higher prices and make profits.

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Bad debt: Debt whose repayment is known to be impossible or unlikely. A debt can become bad even
before the due date if the debtor is known or believed to be insolvent.
Bad debt provision: A statement in the account that a specified amount of bad debt may be required
to be written off. This amount will not be part of the assets in the accounts.
Bankruptcy: A legal arrangement for dealing with the situation where the debtor is unable to repay
the debts.
Bank rate: The rate at which the central bank rediscounts permitted securities. It is used to affect
the cost of funds of banks and thus the lending rates. It is one of the many monetary tools in the
hands of central banks.
Base Rate: The rate of interest which is used by banks, as the basis for deciding other rates are
higher than this base rate depending on the extent of risk involved.
Branch banking: The banking system in which banks are allowed to have branches over specified
region or the country as a whole.
Broad Money: A relatively broader definition of money is called broad money. For example, in India,
M3 is called broad money as it includes more items as compared to M1.
Balanced budget: Equality between total government receipts and total government expenditure is
called balanced budget.
Black money: The income that is not reported to the tax authorities and due tax is not paid on this
income, is called black money.
Budget: Estimated income and expenditure is called balanced budget.
Budget deficit: The difference between total expenditure and total receipts of the government is
called budget deficit.
Balance of payment (BOP): An overall statement of a country’s economic transaction with rest of
the world over a period of time generally a year. It is divided into two parts current account and
capital account.
Balance of trade: An excess of visible exports over visible imports. This is a part of the current
account.
Bretton Woods: The venue of a conference held in 1944 to discuss the new international monetary
arrangement after the Second World War. This led to the creation of International Monetary Fund
(TM F) and International Bank for Reconstruction and Development (IBRD).
Capital formation: Increases/ creation of resources which can be used for production is called capital
formation.
Capital Output Ratio (COR): Amount of capital used per unit of production in the economy is called
COR. Core Sector Important sectors for the development of economy is called core sector. For
example: Steel, petroleum, cement etc.

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Conspicuous consumption: In under developed and developing countries, with growth in income
there is a rising tendency of consuming more luxury goods which in turn, reduces the availability of
saving and investment in the economy. This type of consumption is called conspicuous consumption.
Cyclical unemployment: Unemployment due to downturn in the economic cycle is called cyclical
unemployment. It is short term unemployment. It is short term unemployment and it automatically
disappears when the economy starts moving in the upward direction.
Cooperative sector: When some people or small industrial groups organize their economic activities
through cooperative societies. It called cooperative sector.
CACP: Commission for Agricultural Costs and prices established in 1965 and renamed in 1985 which
is responsible for recommending MSP for crops known as CACP.
Ceiling on landholding: A limit for land holding notified by the government beyond which no one can
hold the land.
Command area: The area which can be irrigated with the help of one irrigation project is called
command area of that project.
Consolidation of landholding: To convert fragmented landholding into one single piece of land is
called consolidation of landholding.
Consumer subsidy: The difference between procurement price and issue price of food grains is
known as consumer subsidy because the benefit accrues to the consumers.
Call money market: It is a sub-market of call money market where money is transacted between
borrower and lender for a very short period of time, even for one day.
Capital good industry: The industry which produces producer goods (Plant and machinery) is called
capital goods industry.
Capital Market: Transaction of money for medium and long term is called capital market. Important
instruments of this market are - shares, debentures, bank loan etc.
CDSL: The Central Depository Services (India) Limited. It is the second securities depository in India
setup by BSE and others in 1998.
Core Industries: Core industries are those which are important for the development of a country. In
India, eight core industries included in lIP are- Cement, Fertilizers, Natural gas Refinery products,
coal crude oil, steel and electricity.
Current account: It is a type of demand deposit account where money is payable on demand. In this
account interest is not paid but some facilities are provided.
Cash credit account: It is a loan account in which the account holder is eligible for overdraft up to
specified amount. It is used for business purposes for short term to overcome short term imbalances
in income and expenditure flow.
Cash reserve Ratio (CRR): A fixed percentage of demand and time liabilities of bank are to be kept
with the central bank (RBI). This percentage (ratio) is called cash reserve ratio. Its objective is to
reduce the lending capacity of the banks.

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Cheque: It is a type of bill of exchange which is drawn on some bank and payable on demand.
Cheap money policy: When the rates and rations are kept at low levels, lending rate is also low and
loan is available at low rates. This causes increase in credit in the economy.
Clearing house: An institution where claims by various banks against each other are settled.
Collateral Security: For additional protection of the loan given by financial institutions, additional
security is demanded other than the primary security. It is called collateral security.
Cost-push inflation: It is a type of inflation when prices of goods and services increase due to
increase in input costs.
Credit squeeze: In conditions of inflation and excess liquidity in the economy. Monetary policy tries
to reduce credit availability; this is known as credit squeeze.
Creeping inflation: When prices of goods and services increase at a very slow rate over a long period,
it is called creeping inflation.
Corporation tax: The tax levied on the net profit of the corporate is called corporation tax. It is a
direct tax.
Countervailing duty: Additional import duty imposed equivalent to domestic taxes and duties is
called countervailing duty, its objective is to neutralize the effect of tax rebates in the country of
origin on imported items.
Crowding - out: The possibility that an increase in one form of spending may cause another form to
fall. Due to excess borrowing by the government, there may be a deficiency of funds for the private
sector. This situation is called crowding out.
Custom duty: The duty levied when goods and services cross the boundary of the country is called
custom duty. It has two parts: import duty on import of goods and services and export duty on export
of goods and services.
Cairn group: A group of countries formed in 1986 to negotiate on liberalization of agricultural trade
in the ‘Uruguay Round’ of trade talks. Its members are - Argentina, Australia, Brazil, Canada, Chile,
Colombia, Fiji, Hungary, Indonesia, Malaysia, the Philippines, New Zealand, Thailand and Uruguay.
Copyright: The exclusive right to reproduce artistic, dramatic, Itinerary or musical work or to
authorize its reproduction by others.
Capital account: The transaction which does not involve income or expenditure is called capital
account. In balance of payment the capital account is the record of increase/ decrease in assets and
liabilities of a country through international exchanges.
Capital flight: Large scale movement of capital from a country by residents or foreigners due to fear
of loss due to sudden changes in taxation, inflation, market conditions, state of the economy, change
in the value of currency etc.
Counter trade: It is a form of international trade where money is not used in transactions. It is
conducted by barter.

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Crawling peg exchange rate: In this form, intervention of the central bank in the foreign exchange
market is to limit the rate of change rather than setting any particular level of exchange rate. This
helps in checking sudden change in exchange rate and discourages speculation in the market.
Creeping inflation: When inflation rate is moderate but it continues for a long time, it is called
creeping inflation.
Current account: A country’s current account in balance of payment includes trade in goods and
services, payment for factors of production and other transfers.
Current account balance: It is excess of a country’s exports of visible and invisibles over imports of
visible and invisibles.
C.I.F.: The term is used to calculate the value of imports of goods. It is the short form of cost
insurance and freight.
Demonstration effect: When people try to follow the consumption pattern of higher income groups
considering it ideal. The tendency is called demonstration effect. In underdeveloped and developing
countries sometimes this contributes to higher consumption and adverse effect on saving and
investment in the economy.
But it also provides impetus to the growth of nonessential items because demand of these items
increase due to demonstration effect.
Disguised unemployment: Due to excess labour force in any sector of the economy. More than
required labour force is employed. This excess labour force is example of disguised unemployment.
Division of labour: When a work is divided into different stages and performed by different people,
it is called division of labour.
Demutualization: It is separation of management from ownership. It was introduced in the Indian
Stock exchanges by SEBI to make stock exchanges more transparent in their working.
Depository System: A system where there is no physical transfer of securities. Change is ownership
is through electronic ledge entry transfer.
Dividend: It is a part of net profit of a company that is distributed among the shareholders on the
basis of their shareholding in the company.
Dear money policy: when rates in the economy are kept at higher rates with the objective of credit
control, it is called dear money policy, it increases the cost of capital.
Debt burden: Total cost of loan including principal amount and interest is called debt burden.
Debt deflation: It is a situation when expenditure by individuals and firms decrease because of
burden of payment of debt.
Debt recovery tribunals: Special courts for the recovery of bank loans set up on the basis of an act
passed in 1993 in India.
Deflation: Deflation is the continuous decrease in prices of goods and services. Deflation occurs when
the inflation rate becomes negative (below zero) and stays there of a longer period.

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Deflationary spiral: During deflation the price of goods and services is falling and consumers will
tend to delay their purchases until prices fall further. This will cause for a lower production, lower
wages and demand which will lead to further decrease in prices. This is known as deflationary spiral.
Demand deposit: The deposit in the bank that can be withdrawn any time by the depositor is called
demand deposit. Saving bank deposit and current account are demand deposits.
Demand pull inflation: When demand of goods and services increase at faster rate as compared to
its supply, there is increase in prices of goods and services. This is called demonetization.
Direct action: If the commercial banks disobey the instructions of the central bank, it may use some
direct measures like withdrawing some facilities to the bank. It is known as direct action.
Deficit financing: When the government receipts are less than expenditures required, it borrows
from the banking system. It is called deficit financing.
Debt conversion: When the government does not pay the debt on due date but issues fresh securities
to convert it into a new loan, it is called debt conversion.
Death duty: On the death of the person a tax is levied on the transfer of assets to the heirs. It is
called death duty. It is also known as estate duty.
Direct tax: The tax, in which the impact and incidence of the tax is on the same entity and it cannot
be shifted, is called direct tax, in India, income tax and corporate tax are examples of direct tax.
Double taxation: When the same income is subjected to taxation two times, it is called double
taxation. For example. A company may be paying tax in the country of origin as well as in the country
where it is operating on the same income.
Debt-service ratio: The ratio of a country’s debt service payments to its total export earnings,
represented in percentage is called debt-service ratio. High debt-service ratio is a sign of weakening
in a country’s ability to repay debt out of export earnings.
Debt Service: Payment of principal amount along with interest during a period is called debt service.
In the short term loans, principal part is more but in long term loans, interest part is more in debt
service.
Depreciation of currency: Decrease in the value of a currency in terms of other currencies is called
depreciation of currency. After depreciation of currency imported goods are costlier and exports are
cheaper.
Devaluation of currency: It is similar to depreciation. The only difference is that depreciation is
cause by market forces whereas devolution is a matter of policy.
Discrimination in trade: It is just opposite to the principle of ‘MFN” If a country treats imports on a
different basis according to the country of origin, it called discrimination of trade. In MFN, there is
no discrimination and all countries are granted most favourable terms in trade.
Dumping: Exporting goods at a price which is lower than the price in home markets or selling it cheap
which producers in the importing country cannot compete.
Economic Growth: Growth in real per capital income in a country is called economic growth.

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Economic Development: Improvement is technology, institutional systems and distribution systems
accompanied by growth is called economic development. It is a wider concept as compared to
economic growth. Growth is a quantitative concept while development is a qualitative concept.
Economic development is also about structural change in the economy and reduction of poverty,
unemployment and inequalities.
Engel’s Law: According to this law, as income of the poor families increase, they increase their share
of spending on non-food items. In other worlds, at low level of income, families tend to spend more
on food items. When the income starts rising. They try to spend on other items and the process
continues and share of food expenditure in total expenditure declines over time.
Economic federalism: When there is coordination between small, medium and large units or
industries are established in backward areas for balanced regional development, it is called economic
federalism.
Economic Planning: assessment of the availability of resources and their allocation on the basis of
priorities to achieve predicated economic targets in a specified time frame is called economic
planning.
Export - led growth: When export becomes leading sector of the economy and its contribution in
GDP increase over time, it is called export-led growth.
Ex ante: Expected outcome of a decision taken by a business firm is called ex ante.
Ex post: Actual outcome of a decision taken by a business firm is called ex post. Ex post may be
equal to ex ante or may be different from ex ante.
East Asian tigers: Since 1950s, income and trade has grown fairly rapidly in four Asian countries.
These are known as Asian tigers. These countries are Hong Kong Singapore, South Korea and Taiwan.
Effective exchange rate: A country’s exchange rate based on a weighted average of its bilateral
exchange rates against other currencies. Weights are decided on the basis of share of different
trading partners in total trade of the country.
Embargo: It is a type of trade restriction by one or few countries against any country. It is one of the
extreme steps in international trade.
Enter port trade: When the good is exported in the same form in which it was imported it is called.
In other words, import of goods for export purpose, is called inter port trade.
Exchange control: A system under which holders of a currency require official permission to convert
it into other currencies. Exchange control may be of applied with varying degree of strictness.
Exchange rate: It is the price of one currency in terms of another currency.
Easy fiscal policy: A policy of cutting taxes, increasing government spending which increases
government debt, is called easy fiscal Policy.
Financial Inclusion: To provide financial services to all sections of the population, especially those
which are outside the formal banking system.
Fixed capital: Capital invested in capital assets like land, plant, machinery etc. which cannot be
changed in the short term is called fixed capital.

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Frictional unemployment: Unemployment due to short term reasons like change in technology.
Full employment: in India, employment for a period of six months or more in a year is called full
employment.
Financial planning: Financial planning is related with assessment of financial requirements and their
management in a planned manner.
Food Subsidy: The difference between economic cost and issue price of food grains is called food
subsidy. It includes consumer subsidy and buffer cost.
Fiduciary issue: The money issued by the central bank which is not backed by holding of precious
metals like good and silver.
Fiat money: The money which is in circulation because of government order. The intrinsic value of
this money (currency note) is less than the face value.
Fiscal drag: Due to inflation, despite increase in monetary income, purchasing power decreases. At
the same time, in a progressive tax structure, burden of direct tax further reduces the purchasing
power. It is known as fiscal drag.
Financial intermediary: Institutions engaged in intermediation between borrowers and lenders are
called financial intermediary.
Financial Security: The securities issued by companies, government or any other organization for
arranging capital or for borrowing are called financial security. For example, shares, debentures,
treasury bills, bonds etc are financial securities.
Fringe benefit: The benefits provided by the employer to the employees other than the normal
wages and allowances, is called fringe benefit.
Fully convertible debenture: On maturity of debenture, if all the money borrowed is converted into
shares of the company, it is called fully convertible debenture.
Floating capital: The capital that is used for purchase of raw materials, payment of wages and
salaries, transportation, energy etc and not on creation of fixed assets like plant and machinery, is
called floating capital . It is also known as working capital
Forward market: The market in which there is an agreement between buyer and seller about sale
of goods or securities at some future date and at pre-decided price.
Fixed exchange rate: A system in which, exchange rate of a currency remains constant or fluctuates
within a very narrow band against other currencies. This can be done by following a fixed exchange
rate system or by market intervention using forex reserves by the central bank.
Floating exchange rate: An exchange rate without any intervention by the government or the central
bank to keep the exchange rate stable. In ‘clean float’ there in no intervention at all but in ‘managed
or dirty’ float there may be some intervention.
Foreign exchange market: The market where foreign exchange is traded or one currency is
converted into another currency is called foreign exchange market. There are two types: spot market
and futures Market.

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Foreign exchange reserves: The liquid assets held by the government of central bank that can be
used to intervene in the foreign exchange market is called foreign exchange reserves. It includes
gold, foreign currency assets and special Drawing Rights.
F.O.B.: This is short form of ‘free on board’ it is the value of goods at the point of delivery, like port,
from where it will leave the country.
Free port: Any airport or sea port where goods can be imported for export and domestic duties are
not levied .If the goods enter the domestic territory of the country. Then duties are levied.
Free Trade: A policy of unrestricted trade without any tariff, non-tariff or quota barriers is called
policy of free trade.
Free Trade area: An agreement between two countries or groups for free trade between them but
independent trade and tariff policies for other countries.
Free trade Zone: An area within the country where domestic tariffs are not levied. Its objective is
to promote production especially of those goods in which large amount of imported inputs are used.
Fiscal deficit: The difference between total expenditure and total receipts except loans and other
liabilities is called fiscal deficit.
Fiscal drag: The tendency in taxes to rise under inflation under the progressive tax system.
Fiscal neutrality: A system which does not cause distortions in the economy.
Fiscal policy: The use of taxation and government spending to influence the economic activities in
the economy is called fiscal policy.
Gender Inequality Index (GIl): Gil measures inequalities existing between men and women across
three dimensions:
Dimensions and Indicators
Reproductive health
Maternal Mortality Rate
Adolescent Fertility Rate
Empowerment
Parliamentary Representation
Attainment at secondary and Tertiary education
Labor market
Market Participation
Green GNP: The net value after deducting consumption of natural resources and degradation of
environment from GNP is called Green GNP.
Gini Coefficient: This coefficient is calculated with the help of Lorenz Curve. It provides Quantitative
information about inequality of income. Its value ranges from 0 to 1.

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Gestation period: The period between beginning of the project and its completion and start of
production is called gestation period.
Green Revolution: Increase in production and productivity through new agricultural techniques is
known as Green Revolution.
Gilt edged securities: The term gilt edged is used for government or government. Guaranteed
securities as there is no risk involved in such type of investments.
Gilt Funds: Gilt funds are those mutual fund schemes that dedicatedly invest in government
securities. These government securities include dated central government securities, state
government securities and treasury bills.
Green Investment Bank: It is like any other investment bank, but is focused on deals in environment-
friendly projects. The concept has come into vogue very recently with environment consciousness
gaining popularity. Such banks are mostly set up by the governments in the UK and other parts of
Europe.
Gilt edged security: Security issued by the government. In this security risk is negligible but returns
are also low.
Gold Standard: A system of fixing the exchange rate by the central bank of the government making
its currency freely convertible into gold is called gold standard.
Gresham’s Law: According to this law, Bad money drives out good money.
Gift tax: The tax on exchange of gifts is called gifts is called gift tax. It may be levied from the donor
or the done.
GATT: General Agreement on Tariff on Trade established in 1948 with the objective of reducing tariff
barriers in international trade.
GATS: General Agreement on Trade in Services, an international agreement in the Uruguay Round of
GATT and is being negotiated in the Doha Round of WTO for liberalization in services exports.
G-7: informal group of leading industrial countries. It includes-Canada, France, Germany, Italy,
Japan, the UK and the US. Its first meeting was held in 1975 in Paris. After the inclusion of Russian
Federation (in 1997.) It is known as G-8
High cost economy: Due to high lending rates, cost of capital and cost of production is also high in
the economy. Economies facing this situation are called high cost economy. Often, this is the result
of over-protection of the economy from outside competition.
Hire-Purchase: It is a type of consumer credit where the consumer pays only a part of the price and
the rest is paid in installments with interest over a period of time.Consumer gets the ownership right
on the good only after the payment of last installment.
Holding company: When a company holds majority shares in one or more other companies, it is
called holding company.
Hard Currency: A currency which it is stable and is convertible in other currencies is known as hard
currency. It is used by countries to maintain their foreign exchange reserves because it is acceptable
in the international market for payments.

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Hot money: The money with a tendency to escape in adverse circumstances or more favourable
conditions in other competitive markets. It is short term in nature.
Though it helps in balancing the BOP in the short term, more dependence on it is considered
dangerous. For example: foreign institutional investments.
Inequality Adjusted HDI (IHDI): IHDI adjusts the IHDI for inequality in distribution of the dimensions
Life expectancy
Years of schooling
Household income or consumption that exists across the age (life expectancy) and individual
(Schooling and income/ Consumption). Adjust means the inequality in each dimension is discounted
from the average level of achievement in each dimension. If HDI and IHDI are equal. It means there
is no equality.
Incremental Capita Output Ratio (ICOR): Amount of additional capital used per unit of additional
production in the economy is called ICOR.
Induced investment: Investment to take advantage of the autonomous investment is called induced
investment. 1st primary objective is profit.
Informal Sector: People engaged in small, labour intensive self-employment constitute informal
sector in the economy. People engaged in various activities in villages and small towns are part of
this sector.
Innovation: Improvement in existing practices and technologies in the economy is called innovation.
Involuntary unemployment: When the labour force fails to get employment at the prevailing wage
rates, it is called involuntary unemployment. According to J.M.Keynes, the cause of involuntary
unemployment is lack of effective demand in the economy.
Issue Price: Issue Prices are the Prices at Which the Government supplies food grains through fair
price shops.
ICRA: Investment Information and Credit Rating Agency of India. It is a credit rating institution set
up by some financial institutions in 1991.
IIP: The Index of Industrial Production (lIP) conveys the status of production in the industrial sector
of an economy in a given period of time, in comparison with a fixed reference point in the past. The
lIP numbers are released every month in India. The HP figures are released every month in India. The
TIP figures are generally seen as an important but short-term indicator of whether industrial activity
in a country has risen or dipped.
Import substitution: Production of goods in a country, on which there was dependence on imports
due to shortage or non-production, is called import substitution.
Insider trading: Trading in the securities market on the basis of information provided by the insiders
of a company is called insider trading. This is illegal in the securities market.
Intangible assets: No - physical assets are known as non-tangible assets. For example patent copy
right, reputation of a company or product, location of a firm etc.

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Islamic finance: Islamic finance refers to a financial system that is consistent with the principles of
Sharia, the sacred law of Islam. It is different from regular banking in that it prohibits earning of
interest (or riba ) through the business of lending. It also prohibits direct or indirect association with
businesses involving alcohol, park products, firearms and tobacco. It also does not allow speculation,
betting and gambling.
Import quota: Setting a quantitative limits to import of certain specified goods in terms of value or
quantity with the objective of balancing trade or protecting the domestic industry.
International money: The money (currency) which is freely convertible into other currencies and is
acceptable in international payment is called international money.
Inward oriented policy: The strategy in which trade and incentives are biased in favour of production
of domestic market over export market.
Intensity of deprivation of multidimensional poverty: Average percentage of deprivation
experienced by people in multidimensional poverty.
Indicative planning: Indicative planning is a flexible planning system in which the government
decides about targets in those areas also on which there is no direct control of the government. In
these areas the government tries to achieve targets through incentives and inducements.
Incidence of tax: It is the ultimate burden in indirect tax, the liability to pay tax is on the seller or
the service provider.
Indirect tax: The tax, in which the impact and incidence of tax is on different entities. It is paid by
one entity but the burden is shifted on the other entity. In India, central excise, custom duty, service
tax and sales tax are important indirect taxes.
Joint sector: A sector in which management, ownership and control on production and distribution
activities are jointly done by the government and the private sector.
Laissez faire: When the government does not interfere in any way in economic activities and it is
left on market forces to decide about what to produce, when to produce and how to produce, it is
called the policy of laissez faire.
Lay off: Due to decline in demand if the production is to be reduced and in the process some
labourers lose their jobs it is called lay off.
Letter of credit: It is an instrument issued by a bank or financial institution in the name of a person
(s) / institution, guaranteeing the payment of cheques or bills issued by the concerned person (s)/
institution.
Lorenz curve: It is used for the measurement of inequality in a given distribution.
For example: inequality of income.
Laffer curve: The curve shows the relationship between tax rate and tax revenue. According to this
curve, if tax rates are increased, tax revenue increases up to a point and beyond that tax revenues
start to decline.

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Lump sum tax: A tax whose amount is not affected by tax payers’ action or his ability to pay tax.
For example, tax on having a car without the consideration of the type of car and its model and
make.
Lease: An agreement under which a person or organization gets the right to use some capital good
for a specified period of time on the payment of rent, is called lease agreement.
Limited company: In a company where liability of the shareholders is limited to their contribution
in the share capital, it is called Limited Liability Company’.
Listing: Registration of a company in any stock exchange for permission of sale and purchase of
securities of the company from that platform is called listing.
Lock out: If the management of a unit locks the unit and stops production, it is called lock out. It is
often used by the labourers.
Legal tender money: Forms of money which a creditor is obliged to accept in settlement of a debt.
Misery index: An index of overall economic performance, taking account of unemployment and
inflation. A simple form of misery index is the sum of inflation and unemployment rates, but equal
weights are not necessarily the best.
Moratorium: Postponement of repayment of a loan for some time is knows as moratorium. The period
of postponement is called moratorium period.
Monetary Policy: The use of interest rates or controls on the money supply by the central bank to
influence the economy is called monetary policy.
Money laundering: Use of long and complex chain of transactions to conceal the ultimate source of
money holdings.
Margin: It is a part of the total value that is paid by the buyer to the seller to make him confident
that the he will fulfill the liabilities. The term is also used for difference in value of securities pledged
with some lending institution and the amount of loan given by it.
Merchant banking: This is financial intermediation where merchant banks provide financial services
to their client institutions like management of new issues, arrangement of loan and financial advice.
Money market: Transaction of money for short period (normally less than one year) is called money
market. In this market bills of exchange and other short term securities are used for transaction of
money.
MTN: It is an instrument through which companies can get long term from abroad.
Multinational Organizations: Organization involved in production, trade and services in a number of
countries outside their country of origin are called multinationals. The policy decisions of these
organizations are taken on the basis of global scenario and not only the country of origin.
Mutual Funds: Institutions engaged in collecting small savings for investment in the financial market
and in the process providing investment opportunities to the small investors and funds to the market,
are called mutual funds.

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MAT: Normally, a company is liable to pay tax on income computed in accordance with the provisions
of the income tax Act, but the profit and loss account of the company is prepared as per provisions
of the Companies Act. There were large number of companies who had book profits as per their profit
and loss account but were not paying any tax because income computed as per provisions of the
income tax act was either nil or negative or insignificant. In such case, although the companies were
showing book profits and declaring dividends to the shareholders, they were not paying any income
tax. These companies are popularly known as Zero Tax companies. In order to bring such companies
under the income tax act net, MAT was introduced in India with effect from 1996-97.
Monetized deficit: Net increase in the Reserve Bank credit to the Government of India is called
monetized deficit.
Marketable surplus of agriculture: Agricultural produce brought in the market for sale by the
farmers, which is surplus after taking care of their personal consumption.
Multidimensional poverty Index: Percentage of the population that is multidimensionality poor,
adjusted by the intensity of the deprivations.
Multidimensional poverty headcount: Percentage of the population with a weighted deprivation score
of at least 33 percent.
Marginal holding: Land holdings between zero and one hectare (less than one hectare) is called
marginal holding.
Minor irrigation Project: Projects with culturable command area of less than 2000 hectares is
classified as minor irrigation project in India.
Micro irrigation: Sprinkle irrigation and drip irrigation is known as micro irrigation. It is used in areas
with less water availability to ensure efficient use of water.
Minimum Support Price (MSP): Minimum prices are in nature of a guarantee to the producers so that
in the event of over production, prices are not allowed to fall below the announced minimum prices.
Maastricht treaty: The treaty between members of European Community in 1993 to change the name
of the European Community to European Union and setting up of the European Central Bank. It paved
the way for a common currency now known as ‘Euro’
Monetary Union: When two or more countries use a single currency or use different currencies but
a stable exchange rate, it is called monetary union.
Non-convertible debentures: If the debenture holders get back their money on maturity and are
not allowed converting their money into equity shares, these debentures are called non-convertible
debentures.
NSDL: The National Securities Depository Limited, it is the first securities depository in India set up
by NSE and other in 1996.
NASDAQ: National Association of Securities Dealers Automated Quotation System-it is the second
important securities exchange of the second important securities exchange of the United States after
NYSE (New York Stock Exchange).

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Non-tariff barriers: These are barriers in international trade other than trade barriers in
international trade other than trade barriers on various grounds such as technical standards or
harmful for humans and environment.
Occupational structure: Share of different sector in total employment in the total employment in
the economy is called occupational structure. Similar to structural change, occupational structure
also changes with development in the economy. Share of agriculture declines and share of other
sectors like industry and services increase over time.
Outward oriented policy: The Strategy in which trade and industrial policies do not discriminate
between production from domestic consumption and exports.
Operational deficit: Fiscal deficit adjusted for inflation is called operational deficit.
Primary deposits: The cash deposit by the public in the banks is called primary deposit. It is not
created by the banking system.
Pump Priming: A temporary injection of purchasing power by the government through borrowing on
the assumption that increase in purchasing power will recover the economy from the slump.
Paid up capital: The capital collected by companies, through sale of equity shares, is called paid up
capital. Authorized capital is the upper limit of paid up capital.
Penetration price: It is low level of price often fixed by the seller with the objective of increasing
their share in the market or for establishing their control in the market.
Preference shares: The holders of the preference shares get dividend at a fixed rate and are not
affected by any fall in profitability but they don’t have voting rights.
Primary market: When companies issue new shares or debentures and are purchased by the investors,
it is called primary market.
Proxy: On the absence, when a person, he is called proxy. Like on absence, a shareholder can be
represented by his proxy.
Perspective planning: Perspective planning means planning with long term perspective. In this type
planning. There is a long term target which is divided into short term targets to be achieved in the
short but overall objective is to achieve long term targets.
Physical Planning: Physical planning is related with assessment and planning about physical
resources. The plan is prepared on the basis of availability and efficient use of physical resources.
Plan holiday: In some years, five year plans could not be implemented in the country. These years
are called plan holiday. For example: 1966-69
Planning by inducement: In this type of planning there is no compulsion for production. Distribution
and consumption. The government tries to influence the decisions of economic agents in the economy
through in special situations, the government may use the tool of regulation and control
Public sector: The sectors in which ownership management and control of production and
distribution in the hands of the government is called public sector.

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Pump Priming: During deflationary or recessionary conditions in the economy, there is deceleration
investment. To arrest decline in investment and put the economy back on the growth path, the
government may invest to boost income, demand and investment. This investment by the government
is called pump priming.
Partial employment: In India, employment for a period of less than six months in a year is called
partial employment.
Philips curve: The curve provides the relationship between unemployment and inflation. The curve
shows a negative correlation between the two.
Poverty gap: Poverty gap measures the transfer that would bring the income of every poor person
exactly upon the poverty line.
Poverty Line: The level of income below which the person or family will not be able to achieve
minimum required level of nutrition is called poverty line.
Poverty Trap: If unemployment allowance provided by the government is more than the possible
income through employment there will be a tendency to continue receiving unemployment allowance
than trying for. This situation is referred to as poverty trap.
Portfolio investment: Investment in financial securities such as equity, bonds and debentures.
Poll tax: If tax is per person in place of income earned by the person, it is called poll tax.
Primary deficit: The difference between fiscal deficit and interest payments is called primary deficit.
It was introduced in Indian budgetary system in 1996-97.
Progressive tax: A tax system, in which tax rates increase with increase in the tax base, is called
progressive tax system. In India, income tax is progressive in nature.
Proportional tax: A tax system, in which there is no change in the tax rate with the change in the
tax base, is called proportional tax system.
Public goods: Those goods in the economy on which all the citizens have equal right to use, is called
public goods. These goods are produced for welfare and not for profit normally by government or
government agencies.
Population vulnerable to poverty: Percentage of the population at risk of suffering multiple
deprivations - that is, those with a deprivation score of 20-33 percent.
Prices Stabilization Fund: The Fund was established in 2003 with the objective of controlling
fluctuations in prices, Tea, coffee, rubber and tobaccos are included in this scheme.
Procurement prices: Procurement prices are fixed at a higher level as compared to the minimum
support prices and are meant essentially for the purchase of quantities need by the government for
maintaining the public distribution system and for maintaining buffer stocks.
Real interest rate: Interest rate adjusted for inflation is called real interest rate. In other words, it
is the difference between nominal interest rate and inflation rate.
Recession: A Situation when demand is sluggish, real output is not rising and unemployment is
increasing.

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Regional Trade Agreement (RTA): Agreement between groups of countries for movement of goods
freely between them with reduced tariffs and other favours as compared to other countries.
Regressive tax: A tax system, in which tax rates decrease with increase in the tax base, is called
regressive tax system.
Revenue deficit: The difference between revenue expenditure and revenue receipts of the
government is called revenue deficit.
Reserve currency: A currency used as foreign exchange reserves by the other countries. To be used
as reserve currency. It should be convertible and should belong to a large country with low inflation
rate.
Rule of origin: This rule applies in free trade agreements to determine whether the goods qualify
for the tariff concession. This rule specifies a minimum value addition in the country of origin to
qualify for the concession.
Refinancing: The loan given by the apex financial institution to lending institutions on the basis of
their lending operations is called refinancing. For example, loan by NABARD to credit cooperative
bank is refinancing.
Relative poverty: It measures inequality of income between two groups or persons on the basis of
income levels.
Reverse takeover: If a small but progressive company take over any large unit. It is called reverse
takeover.
RTGS: Real Time Gross Settlement. The System was introduced by the RBI in 2004 for speedy transfer
of funds from one bank to the other. In this system, the fund gets transferred almost instantaneously
Stagflation: A Situation where a country suffers simultaneously from high inflation and high
unemployment rate.
Self-financing: When an entrepreneur arranges initial capital from own sources and gradually
expands the business by reinvesting the profits, it is called self-financing.
SENSEX: It is the short of sensitive index. This term is used for 30 share price index of BSE and in is
considered to be the most sensitive of all the indices in India.
Secondary market: When shares debentures and other securities are bought and sold, after being
issued. In the open market through some platform like stock exchange, this is called secondary
market.
Share capital: Under the Companies Act. Companies are authorized to sell equity shares of the
company. The capital received by selling shares is known as share capital.
STCI: Securities Trading Corporation of India. It was promoted by Reserve Bank of India in 1994 for
transaction of government securities.
Structural retrogression: When growth rate of basic and capital good industry slows down, it is
called structural retrogression.

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Sweat Equity: Equity share issued by the company to its employees, directors or strategic partners
free of cost in consideration of their services rendered to the company, it is called sweat equity.
Structural Change: With the growth of the economy. Share of agriculture sector in the economy
decreases and share of industrial and services sector increases. This is known as structural change in
the economy.
Structural retrogression: when the growth rate of basic and infrastructure sector lags behind other
sector of the economy and there is infrastructural deficiency. It is called structural retrogression.
Sun rise industry: Refers to new industry that is expanding rapidly and is accepted to gain
prominence in future. e-g: In 1990s, it was Telecom and IT industry Now Hydrogen Fuel production,
Space tourism, social media, cloud computing online encyclopaedia are being called sunrise
industries.
Sinking fund: With the objective of repayment of a loan if a fund is created through regular credit
of money into this fund, it is called sinking fund.
Soft loan: Loans for a long term period and at low rate of interest are termed as soft loan.
Seasonal Unemployment: Unemployment during a certain period of the year is called seasonal
unemployment. For example, unemployment in agriculture sector in India is of seasonal type.
Seed Replacement Rate: It is the percentage of area sown out of total area of crop planted in the
reason using certified quality seeds other than the farm saved seed.
Small holding: Land holding between one and two hectares is called small holding.
Structural change in the economy: In the growth process, there is a tendency of falling share of
agriculture sector and rising share of non-agriculture sectors (industry and services) in the GDP. This
is known as structural change in the economy. It is considered positive development for any economy.
Soft Currency: A currency which is not convertible in other currencies and the value is expected to
fall in terms of other currencies. There are no takers of this currency in the international transactions.
Secured advances: Loan against some physical or financial security are known as secured advances.
Transgenic Crop: A transgenic crop plant contains a gene or genes which have been artificially
inserted instead of the plant acquiring them through pollination. The inserted gene sequence (Known
as the trans - gene) may come from another unrelated plant or from a completely different species.
Terms of foreign trade: Ratio between per unit export price and per unit import price is called terms
of foreign trade.
Terms of trade: The ratio of an index of a country’s export prices to an index of its import prices is
called terms of trade. If this ratio increases, ‘terms of trade’ is positive and vice versa.
Trading currency: The currency used to invoice international trade transactions is called trading
currency. For example, if exporters are quoting export price in dollar terms, it will be called trading
currency.
Tangible assets: Physical assets are known as tangible assets. For example land, plant machinery
furniture or any other physical thing is tangible asset.

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Tax- allowance: A deduction from gross income allowed under the tax laws to reduce the taxable
income of the individual or the firm.
Tax- avoidance: Planning one’s activities in such a way that tax allowances and other tax rebates
are availed to the level possible and thus, paying less tax to the government.
Tax evasion: The failure to pay tax using illegal means is called tax evasion knowingly or unknowingly.
Tax holiday: As an incentive, the government may exempt companies from paying certain taxes for
some time. This exemption is called tax holiday.
Tight fiscal policy: The fiscal policy which tends to restrict effective demand. This may be through
higher tax rates or less government spending.
Tobin tax: A tax suggested by James Tobin on international transaction or capital flows between
nations.
Turnover tax: A tax proportional to the turnover of the firm is called turnover tax. In this inputs are
subjected to double taxation. It is different from VAT where credit is allowed for tax paid on inputs.
Take over: Transfer of management of a company to another company is called take over.
Shareholders of the company being merged will get their investment back in the form of money,
shares in the new entity or any other form agreed upon by the two companies.
Unit banking: When a bank has only one unit or some units in a limited area, it is called unit banking.
Under employment: When someone fails to get employment according to his/her ability or it not a
full time job, it is called under employment.
Ultimate Irrigation Potential (UIP): The area which can be covered through all the possible means
of irrigation is called UIP.
Under-valued currency: The currency with the exchange rate which is lower than is necessary for
maintaining external balance.
Value addition: In the process of manufacturing addition in the value of the product is called value
of the product is called value addition. For example converting steel into some steel product.
VAT: Value added tax, an indirect tax levied on goods and services as a percentage of the value
addition in the product or service.
Ways and Means advances: It is a short term loan to the government by the central bank in situations
of short term imbalances between receipts and expenditure.
Working capital: Money required for expenditure in the production process such as raw material,
energy, wages, and transport and similar other expense is called working capital. It is different from
fixed capital because it can be changes as per the requirement even in the short period.
Wealth tax: A tax based on personal wealth of the individual is called wealth tax.
Withholding tax: A tax levied at a standard rate on all receipts of income without consideration of
individual’s tax liability. It is also called retention tax and tax deducted at source. It is a government
requirement for the payer of an item of income to withhold or deduct tax from the payment and pay
that tax to the government. In many countries, withholding tax applies to employment income,

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interest dividend, royalties, rent etc. Governments use withholding tax as a means to combat tax
evasion.
Zero base budgeting: To prepare the budget without considering the provisions of receipts and
expenditure in the previous year’s budget. Zero base budgets is prepared from scratch or it is entirely
a new budget.
Zero - rated VAT: If the good and services included in the value added tax system with the VAT rate
of zero, it is called zero-rated VAT.

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 ESI Notes 16 – Namami Gange Project

Union Budget 2014-15 has taken cognizance of the substantial amount of money spent in the
conservation and improvement of the Ganga, which has a very special place in a collective
consciousness of this country.
However, the efforts are not yielded desired results because of the lack of concerted efforts by all
the stakeholders Namami Gange Project or Namami Ganga Yojana is an ambitious Union Government
Project which integrates the efforts to clean and protect the Ganga river in a comprehensive manner.
Accordingly, an Integrated Ganga Conservation Mission called “Namami Gange” has been proposed
to be set up and a sum of ₹ 2,037 crores has been set aside for this purpose. In addition a sum of ₹
100 crores has been allocated for developments of Ghats and beautification of River Fronts at
1. Kedarnath,
2. Haridwar,
3. Kanpur,
4. Varanasi,
5. Allahabad,
6. Patna and
7. Delhi in the current financial year.
This project aims at Ganga Rejuvenation by combining the existing ongoing efforts and planning
under it to create a concrete action plan for future.
About Ganga Basin
Ganga Basin is the largest river basin in India in terms of catchment area which is spread over 11
states that constitutes 26% of the country’s land mass and supports about 43% of its population.
Salient Project features
1. Over ₹ 20,000 crore has been sanctioned in 2014-2015 budget for the next 5 years.
2. Will cover 8 states, 47 towns & 12 rivers under the project.
3. Over 1,632 gram panchayats on the banks of Ganga to be made open defecation includes -
Environment, Urban Development, Shipping, Tourism & Rural Development Ministries.
5. Prime focus will be on involving people living on the river’s banks in this project.
6. Under the aegis of National Mission for Clean Ganga (NMCG) & State Programme Management
Groups (SPMGs) States and Urban Local Bodies and Panchayati Raj institutions will be involved in this
project.
7. Setting river centric urban planning process to facilitate better citizen connects, through
interventions at Ghats and River fronts.
8. Expansion of coverage of sewerage infrastructure in 118 urban habitations on banks of Ganga.
9. Enforcement of Ganga specific River Regulatory Zones.
10. Development of rational agricultural practices & efficient irrigation methods.

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11. Setting Ganga Knowledge Centre.
Pollution will be checked
The Ganga Action Plan or GAP was a program launched in January 1985 by the Prime Minister Rajeev
Gandhi, to reduce the pollution load on the river.
1. Introduction of 4-battalion of Territorial Army Ganga Eco-Task Force.
2. Treatment of waste water in drains by applying bio-remediation method.
3. Treatment of waste water through in-situ treatment.
4. Introducing immediate measures to arrest inflow of sewage.
5. Introducing PPP approach for pollution control.
6. Treatment of waste water by the use of innovative technologies.
7. Treatment of waste water through municipal sewage & effluent treatment plants.
Earlier approaches for Ganga cleaning Ganga Action Plan
The Ganga action plan was, launched by Shri Rajeev Gandhi, the then Prime Minister of India on 14
Jan. 1986 with the main objective of pollution abatement, to improve the water quality by
Interception, Diversion and treatment of domestic sewage and present toxic and industrial chemical
wastes from identified grossly polluting units entering in to the river.
Phase I 1985: Covered 25 Ganga towns in three states over Rs 862.59 crore were spent.
Phase II: Covered 59 towns in five states over Rs 505.31 cr were spent.
Separate action plans for rivers- Yamuna, Damodar, Gomti & Mahananda. This Action plan was
failure.
National Ganga River Basin Authority (NGRBA)
The need for revamping the river conservation programme was widely recognised in view of the
shortcomings in the approach followed in GAP. It was felt necessary that a new holistic approach
based on river basin as the unit of planning and institutional redesign may be adopted.
Facts at a glance
Length: 2,525 sq. km
Source: Gaumukh (Gangotri Glacier) at 4,000 km above MSL
Ganga Basin: More than one million sq. km
Drainage area: 861,404 sq. km
States: 11 states viz U.P., H.P., Uttrakhand, Rajasthan, Haryana, Himachal Pradesh, Chhattisgarh,
Jharkhand, Bihar, West Bangal and Delhi.
Rivers: 14 rivers viz Batwa, Chambal, Damodar, Gandak, Ganga, Ghagra, Gomti, Hindon, Kali, Khan,
Kosi, Kshipra, Ramganga and Yamuna.

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Population Support: 43% of its population (448.3 million as per 2001 census).
Average Rainfall: varies between 39 cm to 200 cm, with an average of 110 cm.
Position: East longitudes 7330 and 890, North longitudes 2230 and 3130.

Morale can be defined as the total satisfaction derived by an individual from his job, his work-group,
his superior, the organization he works for and the environment. It generally relates to the feeling
of individual’s comfort, happiness and satisfaction.
According to Davis, “Morale is a mental condition of groups and individuals which determines their
attitude.”
In short, morale is a fusion of employees’ attitudes, behaviours, manifestation of views and opinions
- all taken together in their work scenarios, exhibiting the employees’ feelings towards work, working
terms and relation with their employers.
Morale includes employees’ attitudes on and specific reaction to their job.
There are two states of morale:
High morale
High morale implies determination at work- an essential in achievement of management objectives.
High morale results in:
1. A keen teamwork on part of the employees.
2. Organizational Commitment and a sense of belongingness in the employees mind.
3. Immediate conflict identification and resolution.
4. Healthy and safe work environment.
5. Effective communication in the organization.
6. Increase in productivity.
7. Greater motivation.
Low morale
Low morale has following features:
1. Greater grievances and conflicts in organization.
2. High rate of employee absenteeism and turnover.
3. Dissatisfaction with the superiors and employers.
4. Poor working conditions.
5. Employee’s frustration.
6. Decrease in productivity
7. Lack of motivation

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Though motivation and morale are closely related concepts, they are different in following ways:
1) While motivation is an internal-psychological drive of an individual which urges him to behave in
a specific manner, morale is more of a group scenario.
2) Higher motivation often leads to higher morale of employees, but high morale does not essentially
result in greatly motivated employees as to have a positive attitude towards all factors of work
situation may not essentially force the employees to work more efficiently.
3) While motivation is an individual concept, morale is a group concept. Thus, motivation takes into
consideration the individual differences among the employees, and morale of the employees can be
increased by taking those factors into consideration which influence group scenario or total work
settings.
4) Motivation acquires primary concern in every organization, while morale is a secondary
phenomenon because high motivation essentially leads to higher productivity while high morale may
not necessarily lead to higher productivity.
5) Things tied to morale are usually things that are just part of the work environment, and things
tied to motivation are tied to the performance of the individual.
Human behaviour is difficult to explain. A clerk working under an authoritarian boss might be quite
happy with himself, the boss and the organization. Yet an officer with a five figure salary can
experience moral problems. What affects the status of morale? Let’s explain these factors in greater
detail.
1. The organization:
The goals of the organization influence the attitudes of employees greatly if the goals set by the
management are worthwhile, useful and acceptable, then workers develop positive feelings towards
the job and the organization. Likewise a clear structure with well-defined duties and responsibilities
encourages people to work with confidence. The reputation of the company is another important
factor worth mentioning here. Persons working in reputed organizations experience feelings of pride
and a spirit of loyalty.
2. Leadership:
The actions of managers exert a strong influence over the morale of the workforce Fair treatment;
equitable rewards and recognition for good work affect morale greatly. Workers feel comfortable
when they work under a sympathetic caring leader in place of one who is authoritarian, dictatorial
and dominating. Negativism, inconsiderateness and apathy are not conducive to development of a
good work climate.
3. Co-worker:
Poor attitude of co-workers influence others. Imagine working with a person who talks about the
negative points of an organization all day long. Such a person can make each workday an unpleasant
experience for others. He can cause co-workers to think negatively and even if they don’t such an
attitude is certainly not a morale booster.
4. The nature of work:
Dull, monotonous repetitive work affects employees’ morale adversely. On the other hand if an
employee is asked to do something interesting and challenging his morale may be high.

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5. Work environment:
Morale is a direct function of the conditions in the workplace. Clean, safe, comfortable and pleasant
work conditions are morale boosters.
6. The employees:
How the employees look at him (the self-concept) also influences morale greatly. For example,
individuals who lack self-confidence or who suffer from poor physical or mental health frequently
develop morale problems.

Further, how the employees’ personal needs are satisfied can significantly influence their morale.
Salary fringe benefits, DA rates, allowances may affect employees morale in a positive or negative
manner, when they compare themselves with others doing similar jobs. Employees can become
disgruntled when they feel that their pay and benefits are not in line with current industry rates or
are not in keeping with rising prices.
Morale and productivity:
Generally it is believed that high morale will lead to high productivity. However, Prof Keith Davis
points out that there is not always a positive correlation between the two. A manager can push for
high productivity by using scientific management time studies and close supervision. High production
and low morale may result but it is doubtful whether this combination can last. The opposite can
also occur - there can be low production with high morale. In this case the manager works so hard to
please his subordinates that they are too happy to work hard for themselves.
Research carried out by Rensis Likert indicated the fact that there can be different combinations of
morale and productivity: high morale and low productivity; high morale and high productivity; low
morale and high productivity; and low morale and low productivity as shown below:
In the final analysis the manager has to work for improving the morale of his employees. High morale
makes the work more pleasant and will go a long way in improving the work climate.
It helps the work group to attain goals easily, smoothly and more importantly in a higher cooperative
manner.

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 ESI Notes 17 – Nature and Planning of Indian Economy

Early on at the outset itself, independent India chose to adopt a mixed approach instead of veering
either towards an economy wholly determined by market forces or an economy wholly and only
controlled by the state. The Indian Constitution itself expresses the hope that India will function as
a welfare state, and to do so would require state intervention. However, India did not wish to build
a monopolistic economy either with no private players, and hence, a mixed approach was followed.
Types of Economies
Every economy is a system in which the production of goods and services is organized to satisfy the
wants of people. Based on the organization of production process, the economies are classified into
3 types: Capitalist economy, State economy (or socialist economy) and Mixed economy.
CAPITALIST ECONOMY
Capitalism is a system of economic organization characterized by the private ownership and use of
capital with profit motive. Everyone has the freedom to form any firm anywhere he likes, provided
he has the requisite capital and ability.
The decisions of what to produce, how much to produce and at what price to sell are taken by the
market by private enterprises in this system, with the state having no economic role.
It is based on the doctrine of laissez faire which would mean that the state interference in economic
activity should be kept down to the minimum. It proposed that the ‘invisible hand’ of the ‘market
forces’ (price mechanism) will bring a state of equilibrium to the economy and a general well-being
to the countrymen.
Advantages of Capitalistic economy are: increase in productivity, maximizes the welfare, flexible
system, non-interference of the state and technological improvement.
Disadvantages of Capitalistic economy are; extreme inequalities in income and wealth, leads to
monopoly, over-production leads to glut in the market and hence depression, mechanization and
automation lead to unemployment welfare ignored and exploitation of labour
STATE ECONOMY OR SOCIALIST ECONOMY
In state economy, the decisions related to production, supply and prices were all suggested to be
taken by the state only. Such economies were also known as centralized economy, Centrally Planned
economy, Non-market economy.
The Socialistic economy of erstwhile USSR emphasized the collective ownership of the means of
production (property and assets) and it also described a large role to the state in running the economy.
Communist economy of China advocated state ownership of all properties including even labour and
absolute power to state in running the economy.
Advantages of State economy are : efficient use of resources, economic stability, maximization of
social welfare, absence of monopoly, basic needs are met and no extreme inequality.

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Disadvantages of state economy are: bureaucratic expansion, no freedom of occupation, absence of
technology and absence of competition makes the system inefficient.
MIXED ECONOMY
In the system, we find the characteristics of both capitalism and socialism. Both private and public
enterprises operate mixed economy. The government intervenes to regulate private enterprises in
several ways.
The capitalistic economies faced a serious setback during the Great Depression of 1929. The ideas of
self-correcting quality of the market and the ‘invisible hand’ of Adam Smith failed to check the
slowdown of market and the depression.
John Maynard Keynes suggested Strong government intervention in the economy. To get the economy
out of the depression, he suggested an increase in the government expenditures, discretionary fiscal
policy to boost the demand of goods and services as this was the reason behind the depression. He
suggested the capitalistic order to assimilate the goals of the socialistic economy.
Advantages of Mixed economies are: sovereignty to choose what to produce and what to consume
under the government’s regulation, less income inequality, monopolies may be existing, but under
close supervision of the government.
Disadvantages of Mixed economies are: heavy taxes reduce incentives to work hard, less efficient
than private sector, excessive control over business activity can add costs.
ECONOMIC PLANNING
The main objective of Indian planning is to achieve the goal of economic development economic
development is necessary for under developed countries because they can solve the problems of
general poverty, unemployment and backwardness through it.
Planned economy is one in which the state at least partially owns and directs the economy. In this
economic system, investment and production decisions are embodied in a plan formulated by a
central public authority. The state decides the priorities and objectives for the economy for long and
short- term.
TYPES 0F ECONOMIC PLANNING
Every state needs some sort of planning to guide its economy towards some desirable ends. However,
different states use different models of planning to pursue their goals. Based on the nature of such
planning, there are three broad models of economic planning.
1. States where a relatively rigid form of economic planning takes are referred to as command
economies. Command economies, almost invariably, follow a centralized mode of planning. In
command economies, state can control all major sectors of the economy, legislate on their use and
control the income distribution patterns, state could even decide on what needs to be produced and
how much and sold at what price. Private ownership of property could be partially or wholly
restricted. This kind of model was exemplified by the USSR and China.
2. On the other hand, in market economies states play a minimal role in economic management.
That is decisions related to production, consumption, distribution etc. are mostly market based.

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State plays a certain role in distribution. Such a state is called ‘Laissez Faire’ which is French for
‘let do’. This kind of model is exemplified by the US and other market economies.
3. The third type of model of economic planning emerged partly as a reaction and partly as a synthesis
of the command and market economies. In the Mixed Economy Model, the government performs the
role of both the producer and the distributor.
Such economic model introduced a new category of functions of the government, called public goods,
which aimed at the good of the masses. By late 1990s, the world saw a sea change and most of the
countries embraced the Mixed Economic Model, to such an extent that it is hard to find a true
capitalist or socialist economy today.
It was in this background that India too, adopted the mixed economic model. By late 1990s, most of
the countries of the world had neither the pure capitalist model, nor the pure socialist model. Thus,
the contemporary economies of the world became mixed economies. Under this model, the state
owns the responsibility of maintaining the basic infrastructure of the society, while the private sector
is given the freedom to explore the markets. Thus, state gives a sufficient degree of freedom to the
private sector and ensures that the economy grows in a right direction.
DIFFERENT MODELS OF PLANNING
Five-Year Plans (FYPs) are centralized and integrated national economic programs. Joseph Stalin
implemented the first FYP in the Soviet Union in the late 1920s. Most communist states and several
capitalist countries subsequently have adopted them.
China and India both continue to use FYPs, although China renamed its Eleventh FYP, from 2006 to
2010, a guideline (Guihua), rather than a plan (Jihua), to signify the central government’s more
hands-off approach to development. India launched its First FYP in 1951, immediately after
independence under socialist influence of first Prime Minister Jawaharlal Nehru.
IMPERATIVE PLANNING
This kind of planning was followed by the command economies. Such planning model sets very
specific goals for each sector of the economy. It is also known as Directive or Target Planning. Under
Socialist systems like USSR, all economic decisions were centralized in the hands of the state with
collective ownership of resources, except labour. However, under the communist systems, like china,
all resources, including labour, were to be owned and utilized by the state. Features of such planning
model are as follows.
a. Quantitative targets of growth and development;
b. State control of resources;
c. Negligent role of market, no independent price mechanism and
d. No/ Negligent private participation in the economy.
Such economies were also known as Centrally Planned Economy. E.g. USSR, China, Poland, Hungary,
Austria and Romania.
INDICATIVE PLANNING
This model of planning was used by the democratic, liberal states. The main idea behind this model
is that - planning required only to provide a framework to the economy. Thus, this kind of planning

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model gives a wide degree of autonomy and freedom to the private sector. Most of these countries
were mixed economies.
The early use such model was done by France, with its 1st Six Year Plan in 1947, which came to be
known as Monnet Plan. Indicative planning is also called Basic Structure Planning, as the government
select a few sectors/industries, as the core of development, for which planning is necessary.
In India, the Indicative model was used in the 8th Five year Plan (1992-97), to free trade and industry
from the government control and boosts the process of economic growth and development. This
model is oriented to assist the private sector with information and logistic supports essential for the
realization of goals. The government and corporate sector are the equal partners and both are
together responsible for the accomplishment of goals.
NORMATIVE PLANNING
This type of planning gives less emphasis upon the social and institutional dimensions of the society.
Here, planner merely search for the best possible results in relation to the established goals, giving
less importance to the issues like - caste, creed, ethnicity, religion, region, language etc. thus, this
is not a very popular model of economic planning among the modern states.
SYSTEMS PLANNING
This model gives due importance to the socio-institutional factors. It is planning from social -
technical point of view, but only suitable for a country which has lesser degree of social diversity.
The economic survey 2012-13 advocated a need for the systems approach to planning in India, as
there is a need to connect the policies with the customs and traditions of the people, to enhance
their acceptability.
HISTORY OF ECONOMIC PLANNING IN INDIA
A number of efforts were made to formulate a plan of Socio-Economic Development in the Pre-
Independence era of 2O Century.
VISVESVARAYA PLAN (1934)
The first blueprint of Indian planning was given by a popular civil engineer and Ex-Dewan of Mysore
Sir M Visvesvaraya in his books — The Planned Economy of India (1934).
His idea of state planning emphasized on industrialization, as he proposed a shift from agriculture to
industries and targeted to double the national income in one decade.
He argued that industries and trade do not grow of themselves, but have to be willed, planned and
systematically developed.
FICCI PROPOSAL (1934)
FICCI, the leading organization of Indian capitalists, recognized a serious need for national planning.
It emphasized that the days of Lassiz faire were over and for a backward country like India; a
comprehensive plan for economic development was a necessity.

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THE CONGRESS PLAN (1938, 1949)
Subhash Chandra Bose, took the initiative and made the National Planning Committee (NPC) in
October 1938, under the chairmanship of Jawaharlal Nehru, to work out concrete programmes for
development, encompassing all major areas of the economy.
Despite the opposition from a number of businessmen and Gandians, the 15 members NPC, along
with the total of 350 members working in 29 sub - committees, produced 29 volumes of
recommendations.
The work of the committee was interrupted by the outbreak of the Second World War and later by
the Quite India Movement Tus, the final report of the NPC was published only in 1949.
THE BOMBAY PLAN (1944-45)
Also known as A Plan of Economic Development of India, it was prepared by India’s leading capitalists,
like- Purshotamdas Thakurdas, JRD Tata, GD Birla, Lala Sri Ram, Kasturbhai lalbhai, AD shroff,
Avdeshir Dalai and John matahi. Many of the points of this plan overlapped with those of the NPC
proposals.
The Bombay plan agreed over the issue of agrarian restructuring, abolition of intermediaries,
guarantee of minimum wages, credit and marketing support, rapid industrialization with emphasis
on heavy capital goods and basic industries, simultaneous development of consumer goods industries,
promotion of medium, small - scale and cottage industries.
It was also agreed that state was to play an important role through planning, controlling and
overseeing the different areas of the economy; large - scale measures for social welfare; planning to
reduce the gross inequalities through measures like - progressive taxation and prevention of
concentration of wealth.
GANDHIAN PLAN (1944)
This plan was made by Sriman Narayan Agarwar
Unlike the Bombay Plan, it laid more emphasis on agriculture and cottage and village industries.
This plan visualized a decentralized economic structure for India with self - contained villages.
Though not made by Gandhi himself, the plan was based on Gandhian principles and ideas.
Gandhi himself was not in agreement with the proposals of the NPC and the Bombay plan and differed
on the issues of centralized planning, dominant role of state and industrialization. He viewed
industrialism as the root cause of Indian poverty.
THE PEOPLE’ S PLAN (1945)
It was Radical Plan, made by MN Roy, Chairman of the Post-War Reconstruction Committee of India
n Trade Union.
The plan was based on the principles of Marxist socialism and advocated the need for providing the
people with the basic necessities of life.
The plan gave agriculture and industry and equal importance.

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ADVISORY PLANNING BOARD (1946)
In October 1946, the Government of India appointed this board to review the planning that had
already been done by the British Government, the work of the NPC and other plans and proposals for
planning. The board recommended the creation of a single, compact, authoritarian organization,
responsible directly to the Cabinet.
Later, this body came to be known as the National Planning Commission.
THE SARVODAYA PLAN (1950)
This plan was made by the famous socialist leader- Jayaprakash Narayan - in January 1950 and drew
inspiration from the Gandhian techniques of constructive work by the community and trusteeship
and the concept of Sarvodaya, given by Acharya Vinoa Bhave. The main ideas of this plan were very
similar to the Gandhian plan.
NUI AAYOG
The Government has replaced Planning commission with a new institution NUI Aayog (National
Institution for Transforming India). The institution will serve as “Think Tank’ of the Government- a
directional and policy dynamo. The decision came after extensive consultation across the spectrum
of stakeholders, including state government’s domain experts and relevant institutions.
Role of NITI AAYOG
The centre - to - state one way flow of policy, that was the hallmark of the Planning Commission era,
is now sought to be replaced by a genuine and continuing partnership of states, NITI Aayog will seek
to provide a critical directional and strategic input into the development process.
NITI Aayog will emerge as a ‘think-tank’ that will provide Governments at the central and state levels
with relevant strategic advice across the spectrum of key elements of policy.
The NITI Aayog will also seek to put an end to slow and tardy implementation of policy, by fostering
better- inter - Ministry coordination and better centre – state coordination. It will help evolve a
shared vision of national development priorities, and foster cooperative federalism, recognizing that
strong states make a strong nation.
The NITI Aayog will develop mechanisms to formulate credible plans to the village level and aggregate
these progressively at higher levels of government. It will ensure special attention to the sections of
society that may be at risk of not benefitting adequately from economic progress.
The NITI Aayog will create a knowledge, innovation and entrepreneurial support system through a
collaborative community of national and international experts, practitioners and partners. It will
offer a platform for resolution of inter-sect oral and inter- departmental issues in order to accelerate
the implementation of the development agenda.
In addition, the NITI Aayog will monitor and evaluate the implementation of programmes, and focus
on technology up gradation and capacity building.

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The Niti Aayog will comprise the following:
Prime Minister of India as the Chairperson.
Governing Council comprising the Chief Ministers of all States and Lt. Governors of Union Territories.
Regional councils will be formed to address specific issues and contingencies impacting more than
one state or a region. These will be formed for a specified tenure. The regional councils will be
convened by the Prime Minister and will comprise of the Chief Ministers of States and Lt. Governors
of Union Territories in the region. These will be chaired by the Chairperson of the NITI Aayog or his
nominee.
Experts, specialists and practitioners with relevant domain knowledge as special invitees nominated
by the Prime Minister.
The full-time organizational framework will comprise of, in addition to the Prime Minister as the
Chairperson.
Vice - Chairperson: To be appointed by the Prime Minister.
Members: Full - time.
Part-time members: Maximum of 2 from leading universities research organizations and other
relevant institutions in an - ex-officio capacity. Part time members will be on a rotational basis.
Ex Officio members: Maximum of 4 members of the Union Minister for a fixed tenure, in the rank of
Secretary to the Government of India.
Secretariat as deemed necessary.
Comparison of Planning Commission with NITI Aayog

Parameter NITI Aayog Planning Commission

To be advisory body, or a think tank. The
powers Enjoyed the power to allocate
Financial The powers to allocate funds might be vested funds to ministries and state
in governments
the finance ministry
The number of full-time members could be
Full-time The last Commission had eights
fewer
members Full-time members
than Planning Commission
State’s role was limited to the
State Government are expected to play a National Developmental
more Council
State Role
Significant role than they did in the Planning and annual international
Commission during
Plan meetings.
To be known as the CEO and to be appointed Secretaries or members
Member
by Secretaries we appointed
secretary
the Prime Minister through the usual process

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 Full Planning Commission had
Par-time To have a number of part-time members no
members depending on the need from time – to -time Provision for part-time
members

ESI Notes 18 – 11th and 12th Five Year Plans

The Indian economy on the eve of the 11th Plan is in a much stronger position than it was a few
years ago. After slowing down to an average growth rate of about 5.5% in the Ninth Plan period
(1997-98 to 2001-02), it has accelerated in recent years and the average growth rate in the Tenth
Plan period (2002-03 to 2006-07) is likely to be about 7%. This is below the Tenth Plan target of 8%,
but it is the highest growth rate achieved in any plan period.
This plan set a faster, more broad - based and inclusive GDP growth rate target of 9% per annum,
with a growth rate target of 10% in the terminal year of the plan (2011-12). The main objective of
the plan was to bring an inclusive growth.
The plan had to be implemented in the troubling context of a higher inflation rate, of above 6%,
which led to a tightening of the Credit Policy, forcing lower investment in the economy and a
stronger rupee which made exports earnings shrink faster. Further, high prices of oil became a
burden for the national exchequer.
The plan envisaged creation of about 7 crore job opportunities and doubling the per capita income
in 10 years. It also wanted to revive the agriculture, by making a growth of 4% per annum in the
plan. Similarly, the growth targets for industry and service sectors were revised to 9-11%.
The Plan also seeked to reduce the drop-out rates of children from elementary schools from 52.2%
(2003-04) to 20% in 2011-12, while seeking to increase the literacy rate for persons of age 7 years
or more, to 85% .
In the field of health, the plan aimed - to reduce the infant mortality rate to 28 per 1000 births
and maternal mortality rate to 1 per 1000 births. The target for total fertility rate was set at 2.1
It also seeked to reduce the occurrence of anemia in girls and women.
Plan seeked to ensure that at least 33% of the direct and indirect beneficiaries of all government
schemes are women and girls. The government proposed to spend atleast 2% of the GDP on health
(presently it is 1% only).
In infrastructure, it seeked to ensure all weather roads to all habitations will population 1000 and
above (500 and above in case hilly and tribal areas) by 2009, connect every village by telephone by
November 2007 and broadband connectivity to all villages by 2012.
In Fiscal scenario, the expansionary fiscal measures taken by the government to counter the global
slowdown, were continued in 2009-10, which led to further increase in deficit indicators. The fiscal
deficit stood at 2.5% for 2007-08 and reached a level of 6% in 2008-09 and 6.4% in 2009-10. However,
it improved to 5.1% in 2010-11 and 4.6% in 2011-12. Similarly, the revenue deficit after increasing

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 from a level of 1.1% in 2007-08 to 5.2% in 2009-10, declined to a level of 3.4% in 2010-11. The
Average annual growth rate of GDP during 11th Plan was 8%.
TWELTH PLAN (2012-2017)
This plan was titled faster, sustainable and more inclusive growth. The Indian economy on the eve
of the Twelfth Plan was characterized by strong macro fundamentals due to good performance over
the Eleventh Plan period. However, it was also clouded by some slowdown in growth in the current
year with continuing concern about inflation and sudden increase in uncertainty about the global
economy.
The objective of the Eleventh Plan was faster and inclusive growth and the initiatives taken in the
Eleventh Plan period resulted in substantial progress towards both objectives. To address some
weaknesses that needed addressing and new challenges in light of the economy’s transition to a
higher and more inclusive growth path, the structural changes that came with it and the
expectations it generated a more focused approach was desired.
The strategy challenges associated with the Twelfth Plan refer to some core areas that require new
approaches to produces the desired results. These challenges called for renewed efforts on multiple
fronts.
Focus Areas of Twelfth Plan

Enhancing the Enhancing Skills and Managing the Market for

capacity Faster Generation Environment Efficiency
For Growth of
Employment
Decentralization Inclusion, Securing the Accelerated
Empowerment Energy Future Development of
For India Transport
Infrastructure
Rural Transformation Managing Improved Access to Better Preventive
and Sustained Growth Urbanization Quality Education and
of Agriculture Curative Health Care

HIGHLIGHTS OF TWELFTH PLAN (2012-17)

 Average growth target has been lowered to 8.2% from the 9.0% projected earlier in view adverse
domestic and global situation. Areas of main thrust are infrastructure, health and education.
 Agriculture in the current plan period grew at 3.3%, compared to 2.4% during the Tenth Plan
period. The growth target for manufacturing sector has been pegged at 10%.
 The Twelfth Plan seeks to achieve 4% agriculture sector growth during the Five Year Period.
 A full Planning Commission chaired by Prime Minister has endorsed the document which has fixed
the total plan size at ₹ 47.7 lakh crore.
 On poverty alleviation, the commission plans to bring down the poverty ratio by 10% at present,
the poverty is around 30% of the population.
 The outlay on health would include increased spending in related areas of drinking water and
sanitation.
ALTERNATIVE SCENARIOS DURING TWELFTH PLAN

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 To illustrate the consequences of inaction of key growth promoting policies, the Planning
Commission has undertaken a systematic process of ‘scenario planning’ based on diverse views and
disciplines to understand the interplay of the principal forces, internal and external, shaping India’s
progress. This analysis suggests three alternative scenarios of how India’s economy might develop
titled ‘Strong Inclusive Growth’ ‘Insufficient Action’ and ‘Policy Logjam’.
Strong Inclusive Growth describes the conditions that will emerge, if a well - designed strategy is
implemented, intervening at the key leverage points in the system. This in effect in the scenario
under planning the Twelfth Plan growth projects of 8.2% starting from 6.7% in the first year to
reach 9% in the last year.
Policy Logjam projects the consequences of policy inaction persisting too long. The growth rate in
this scenario can drift down to 5% to 5.5%
Insufficient action describes the consequences of halfhearted actions, in which the direction of
policy is endorsers, but sufficient action is not taken. The growth in this scenario declines to 6% to
6.5%
The scenarios are not to be understood as alternatives, from which one can choose.
The only scenario that can meet the aspirations of the citizens is that of ‘strong inclusive growth’.
The other scenarios merely present the consequences of inaction.
MONITORABLE TARGETS OF THE TWELTH PLAN
ECONOMIC GROWTH
- Real GDP Growth Rate of 8.0%
- Agriculture Growth Rate of 4.0%
- Manufacturing Growth Rate of 10.0%
- Every State must have an average growth rate in the Twelfth Plan preferably higher than that
achieved in the Eleventh Plan.
POVERTY AND EMPLOYMENT
Head - count ratio of consumption poverty to be reduced by 10 percentage points over the
preceding estimate by end Twelfth Five Year Plan.
Generate 50 million new work opportunities in the non-farm sector and provide skill certification
to equivalent numbers during the Twelfth Five Year Plan.
EDUCATION
Mean years of Schooling to increase 7 years by the end of Twelfth Five Year Plan.
Enhance access to higher education by creating two million additional seats for each age cohort
aligned to the skill needs of the economy.
Eliminate gender and social gap in school enrolment (i.e. between girls and boys and between SCs,
STs, Muslims and the rest of the population) by the end of Twelfth Five Year plan.
HEALTH

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 Reduce IMR to 25 and MMR to 1 per 1000 live births and improve Child Sex Ratio (0-6 years) to 950
by the end of the Twelfth Five Year Plan.
Reduce total Fertility Rate to 2.1 by the end of Twelfth Five Year Plan.
Reduce under-nutrition among children aged 0.3 years to half of the NFHS-3 levels by the end of
Twelfth Five Year Plan.
INFRASTRUCTURE, INCLUDING RURLA INFRASTRUCTURE
Increasing investment in infrastructure as a percentage of GDP to 9% by the end of Twelfth Five
Year Plan.
Increase the Gross Irrigated Area from 90 million hectare to 103 million hectare by the end of
Twelfth Five Year Plan.
Provide electricity to all villages and reduce AT & C losses to 20% by the end of Twelfth Five Year
Plan.
Connect all villages with all-weather roads by the end of Twelfth five Year Plan.
Upgrade National and state highways to the minimum two - lane standard by the end of Twelfth
Five Year Plan.
Complete Eastern and Western Dedicated Freight Corridors by the end of Twelfth five Year Plan.
Increase rural tele - density to 70% by the end of Twelfth Five Year Plan.
Ensure 50% of rural population has access to 40 Ipcd piped drinking water supply and 50% Gram
Panchayats achieve Nirmal Gram Status by the end of Twelfth Five Year Plan.
ENVIRONMENT AND SUSTAINABILITY
Increase green cover (as measure by satellite imagery) by 1 million hectare every year during the
Twelfth Five Year Plan.
Add 30000 MW of renewable energy capacity in the Twelfth Plan.
Reduce emission intensity of GDP in line with the target of 20% to 25% reduction over 2005 levels
by 2020.
SERVICE DELIVERY
Provide access to banking services to 90% Indian households by the end of Twelfth Five Year Plan.
Major subsidies and welfare related beneficiary payments to be shifted to a direct cash transfer by
the end of the Twelfth Plan, using the Aadhar Platform with linked bank accounts.
PLANNED ECONOMY AND SOCIO- ECONOMIC TRANSFORMATION IN INDIA
Since, the inception of First Five year Plan (1951-1956) to the present or twelfth on (2012-17), we
can trace the socio-economic transformation of India society: planning has reasonably ensured high
per capita income, development of secondary and tertiary sector and moderately good
infrastructural development.

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 The increased level of means of traditional and communication, health, technology etc. are the
consequences of planning. These are largely associated with the corresponding change in social
values problems, beliefs etc. The traditional caste and feudal based social order is losing its ground
Social equality, welfare, inclusiveness, social justice etc. have remained the principal ethos of
planning in India.
The formulation of planning in India is largely guided by the socialist ethos and values, India is
emerging a big economically powerful state, which is largely credited to the planning. In different
annual and Five Years Plans, in an orderly and phased manner, the different social problems like
poverty and unemployment have been addressed. In terms of housing, child and women
development planning is playing constructive roles.

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 ESI Notes 19 – Regulators of Banks and Financial Institutions

INTRODUCTION
With economic liberalization in the 1990s, the private sector’s participation in providing
infrastructure and services grew. Functions that were previously performed by the government
were now also performed by private operators.
The shift in the approach necessitated the regulation of sectors where private operators were
permitted. Regulators were established through statutes to ensure their independence from the
government departments and to provide a level playing field for public and private agencies. In
this regard, India followed the broad model adopted by several other democracies. According to
the OECD, the key benefits sought from the independent regulatory model are to shield markets
from interference by politicians and bureaucrats.
The financial system in India is regulated by independent regulators in the field of banking,
insurance, capital market, commodities market, and pension funds.
However, Government of India plays a significant role in controlling the financial system in India
and influences the roles of such regulators at least to some extent.
REGULATORS IN INDIA
Reserve Bank of India-:
The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the
Reserve Bank of India Act, 1934. The Central Office of the Reserve Bank was initially established
in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is where the
Governor sits and where policies are formulated. Though originally privately owned, since
nationalization in 1949, the Reserve Bank is fully owned by the Government of India.
Preamble-: The Preamble of the Reserve Bank of India describes the basic functions of the Reserve
Bank as: “...to regulate the issue of Bank Notes and keeping of reserves with a view to securing
monetary stability in India and generally to operate the currency and credit system of the country
to its advantage.”
Securities and Exchanges Board of India-:
Securities and Exchange Board of India (SEBI) was first established in the year 1988 as a non-
statutory body for regulating the securities market. It became an autonomous body in 1992 and
more powers were given through an ordinance. Since then it regulates the market through its
independent powers.
The Preamble of the Securities and Exchange Board of India describes the basic functions of the
Securities and Exchange Board of India as “...to protect the interests of investors in securities and
to promote the development of, and to regulate the securities market and for matters connected
therewith or incidental thereto’.

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 Insurance regulatory and development authority (IRDA)
IRDA is also an important regulatory body in India for the insurance sector. Any company who want
to come in the field of insurance in India will need the approval of the IRDA to star its business. It
makes the guidelines for the Insurance sector to work.
Headquarter - Hyderabad
The Insurance Regulatory and Development Authority (IRDA) is a national agency of the Government
of India and is based in Hyderabad (Andhra Pradesh). It was formed by an Act of Indian Parliament
known as IRDA Act 1999, which was amended in 2002 to incorporate some emerging requirements.
Mission of IRDA as stated in the act is “to protect the interests of the policyholders, to regulate,
promote and ensure orderly growth of the insurance industry and for matters connected therewith
or incidental thereto.”
Insurance regulatory and development authority of India is the regulator of all Private sector
insurance business and public sector insurance business in India. IRDA issues guidelines for various
insurance companies and also decides the type of policy which can be issued by these insurance
companies. It keeps an eye on the functioning of insurance companies to direct them to work in
the public interest.
IRDA chairman is appointed for a period of 5 years.
Pension Fund Regulatory & Development Authority (PFRDA)-:
Pension fund regulatory and development authority of India is the organization which decides what
funds have to be invested in what securities and based on the interest paid on these funds it decides
the rate for public provident fund and also it provides old age securities to the people. It is the
regulator of all the pension related
PFRDA was established by Government of India on 23rd August, 2003. The Government has, through
an executive order dated 10th October 2003, mandated PFRDA to act as a regulator for the pension
sector. The mandate of PFRDA is development and regulation of pension sector in India.
Term of PFRDA chairman is for five years and appointed by GOT.
Present Chairman of PFRDA - Hemant Contractor
Headquarter - New Delhi.
Financial Sector Legislative Reforms Commission-:
The Financial Sector Legislative Reforms Commission (FSLRC) was asked to comprehensively review
and redraw the legislations governing India’s financial system. The Commission submitted its report
containing an analysis of the current regulatory architecture and a draft Indian Financial Code to
replace the bulk of the existing financial laws. We present the snapshot of the Report.
The Financial Sector Legislative Reforms Commission (FSLRC), constituted by the Ministry of
Finance in March 2011, was asked to comprehensively review and redraw the legislations governing
India’s financial system.
According to the FSLRC, the current regulatory architecture is fragmented and is fraught with
regulatory gaps, overlaps, inconsistencies and arbitrage. To address this, the FSLRC submitted its

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 report to the Ministry of Finance on March 22, 2013, containing an analysis of the current regulatory
architecture and a draft Indian Financial Code to replace the bulk of the existing financial laws.
The Draft Indian Financial Code
The draft Code is a non-sectoral, principles-based law bringing together laws governing different
sectors of the financial system. It addresses nine components, which the FSLRC believes any
financial legal framework should address:
Consumer protection: Regulators should ensure that financial firms are doing enough for consumer
protection. The draft Code establishes certain basic rights for all financial consumers and creates
a single unified Financial Redressal Agency (FRA) to serve any aggrieved consumer across sectors.
In addition, the FSLRC considers competition an important aspect of consumer protection and
envisages a detailed mechanism for cooperation between regulators and the Competition
Commission.
Micro-prudential regulation: Regulators should monitor and reduce the failure probability of a
financial firm. The draft Code specifies five powers for micro - prudential regulation: regulation of
entry, regulation of risk-taking, regulation of loss absorption, regulation of governance and
management, and monitoring/supervision.
Resolution: In cases of financial failure, firms should be swiftly and sufficiently wound up with the
interests of small customers. A unified resolution corporation, dealing with various financial firms,
should be created to intervene when a firm is close to failure. The resolution corporation would
charge a fee to all firms based on the probability of failure.
Capital controls: While the FSLRC does not hold a view on the sequencing and timing of capital
account liberalisation, any capital controls should be implemented on sound footing with regards
to public administration and law. The FSLRC sees the Ministry of Finance creating the ‘rules’ for
inbound capital flows and the RBI creating the ‘regulations’ for outbound capital flows. All capital
controls would be implemented by the RBI.
Systemic risk: Regulators should undertake interventions to reduce the systemic risk for the entire
financial system. The FSLRC envisages establishing the Financial Stability and Development Council
(FSDC) as a statutory agency taking a leadership role in minimizing systemic risk.
Development and redistribution: Developing market infrastructure and process would be the
responsibility of the regulator while redistribution policies would be under the purview of the
Ministry of Finance.
Monetary policy: The law should establish accountability mechanisms for monetary policy. The
Ministry of Finance would define a quantitative target that can be monitored while the RBI will be
empowered with various tools to pursue this target. An executive Monetary Policy Committee (MPC)
would be established to decide on how to exercise the RBI’s powers.
Public debt management: The draft Code establishes a specialised framework for public debt
management with a strategy for long run low-cost financing. The FSLRC proposes a single agency
to manage government debt.
Contracts, trading and market abuse: The draft Code establishes the legal foundations for
contracts, property and securities markets.

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 Regulators: With respect to regulators, the FSLRC stresses the need for both independence and
accountability. The draft Code adopts ownership neutrality whereby the regulatory and supervisory
treatment of a financial firm is the same whether it is a private or public company.
The draft Code seeks to move away from the current sector-wise regulation to a system where the
RBI regulates the banking and payments system and a Unified Financial Agency subsumes existing
regulators like SEBI, IRDA, PFRDA and FMC, to regulate the rest of the financial markets.
Regulators will have an empowered board with a precise selection-cum-search process for
appointment of members.
The members of a regulatory board can be divided into four categories: the chairperson, executive
members, non-executive members and Government nominees. In addition, there is a general
framework for establishing advisory council to support the board.
All regulatory agencies will be funded completely by fees charged to the financial system. Finally,
the FSLRC envisages a unified Financial Sector Appellate Tribunal (FSAT), subsuming the existing
Securities Appellate Tribunal (SAT), to hear all appeal in finance.
Financial Stability & Development Council-:
In pursuance of the announcement made in the Union Budget 2010 -11 and with a view to strengthen
and institutionalize the mechanism for maintaining financial stability and enhancing inter-
regulatory coordination, Indian Government has setup an apex-level Financial Stability and
Development Council (FSDC), vide its notification dated 30th December, 2010. The first meeting
of the Council was held on 31st December, 2010.
FSDC has replaced the High Level Coordination Committee on Financial Markets (HLCCFM), which
was facilitating regulatory coordination, though informally, prior to the setting up of FSDC.
Composition: The Chairman of the FSDC is the Finance Minister of India and its members include
the heads of the financial sector regulatory authorities (i.e. SEBI, IRDA, RBI, PFRDA and FMC),
Finance Secretary and/or Secretary, Department of Economic Affairs (Ministry of Finance),
Secretary, (Department of Financial Services, Ministry of Finance) and the Chief Economic Adviser.
The commodities markets regulator, Forward Markets Commission (FMC) was added to the FSDC in
December 2013 subsequent to shifting of administrative jurisdiction of commodities market
regulation from Ministry of consumer Affairs to Ministry of Finance. The Joint Secretary (Capital
Markets Division, Department of Economic Affairs, and Ministry of Finance) was the Secretary of
the Council till August 2013. Now this post is being held by the Additional Secretary in the Ministry
of Finance.
A sub-committee of FSDC has also been set up under the chairmanship of Governor RBI. The Sub-
Committee discusses and decides on a range of issues relating to financial sector development and
stability including substantive issues relating to inter-regulatory coordination.
As a result of the deliberations of the Sub-Committee of the FSDC held on August 16, 2011, two
Technical Groups were set up a Technical Group on Financial Inclusion and Financial Literacy and
an Inter Regulatory Technical Group.
The Inter Regulatory Technical Group is chaired by an Executive Director of RBI and corn prices of
ED level representatives from the SEBI, IRDA and PFRDA. The Group will meet once every two

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 months. It will discuss issues related to risks to systemic financial stability and inter regulatory
coordination and will provide essential inputs for the meetings of the Sub-Committee.
The Technical Group on Financial Inclusion and Financial Literacy is headed by the Deputy Governor
of RBI and comprises of representatives of all Regulators and Ministry of Finance.
In addition, an Inter-Regulatory Forum for Monitoring of Financial Conglomerates has also been set
up under the aegies of FSDC.
FSDC also functions through working group and a macro financial monitoring group. More may be
seen here.
Mandate-:
Without prejudice to the autonomy of regulators, this Council would monitor macro prudential
supervision of the economy, including the functioning of large financial conglomerates. It will
address inter-regulatory coordination issues and thus spur financial sector development. It will also
focus on financial literacy and financial inclusion. What distinguishes FSDC from other such similarly
situated organizations across the globe is the additional mandate given for development of financial
sector.

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