1. What are the causes of income inequality in India?

Income inequality is the gap between rich and poor i.e. is the differences in the distribution of
economic assets (wealth) and income within or between populations or individuals. It is the state
of an economy in which the shares of total income earned by the rich and poor are highly
unequal
There are various factors responsible for this phenomenon such as:
Growth Factor:
As development proceeds, the earnings of different groups rise differently. The incomes of the
upper-income and middle-income groups rise more rapidly than those of the poor. Apart from
this the use of capital-intensive type of growth leads to concentration of income in those few
hands who supply capital.
Highly Unequal Asset Distribution:
Incomes are derived from two main sources, namely, assets like land, cattle, shares, etc., and
labour. In India a few own a large chunk of income earning assets. Some others, who do not
own, or own a part of the assets they operate, organise finances through banks, cooperatives, etc,
and acquire/hire productive assets.
These inequalities enable the few to get incomes in the form of rent, interest and profit. As these
assets accumulate and pass on from generation to generation, the earning capacity of these
increases continuously.
Inadequate Employment Generation:
People at the bottom could raise their economic status and to an extent reduce the distance
separating them from those at the top, if they could get work. In other words, if they did not
possess adequate earning assets, they could at least earn from their labour.
But there too the situation was not favourable. For long the increase in employment opportunities
remained less than the rise in the labour force.
Differential Regional Growth:
A very great proportion lives in the poor backward states regions, and most of the few at the top
live in the high- income states regions.
This is the geographical facet of income inequalities for the country as a whole
2. State

various

sources

of

rural

There are two broad sources of agricultural credit in India:

(1) Non-Institutional Sources
(2) Institutional Sources

credit

in

India

(1) Non-Institutional Sources: The non-institutional finance forms an important source of rural
credit in India, constituting around 40 percent of total credit in India. The interest charged by the
non-institutional lenders is usually very high. The land or other assets are kept as collateral. The
important sources of non-institutional credit are as follows:
(i) Money-Lenders: Money-lending has been the widely prevalent profession in the rural
areas. The money-lenders charge huge rate of interest and mortgage the property of the
cultivators and in some cases even the peasants and members of his family are kept as collateral.
(ii) Other Private Sources:
(a) Traders, landlords and commission agents: The agents give credit on the hypothecation of
crops which when harvested is used to repay loans.
(b) Credit from relatives: These credits are generally used for meeting personal expenditure.
(2) Institutional Sources: The general policy on agricultural credit has been one of progressive
institutionalization aimed at providing timely and adequate credit to farmers for increasing
agricultural production and productivity. Providing better access to institutional credit for the
small and marginal farmers and other weaker sections to enable them to adopt modern
technology and improved agricultural practices has been a major thrust of the policy. National
Bank for Agriculture and Rural Development (NABARD) is an apex institution established
in 1982 for rural credit in India. It doesnt directly finance farmers and other rural people. It
grants assistance to them through the institutions described as follows:
1. Rural Co-Operative Credit Institutions:
Rural Credit cooperatives are the oldest and most extensive form of rural institutional financing
in India. The major thrust of these cooperatives in the area of agricultural credit is the prevention
of exploitation of the peasants by moneylenders. The rural credit cooperatives may be further
divided into short-term credit cooperatives and long-term credit cooperatives.
2. Commercial Banks:
Commercial Banks (CBs) provide rural credit by establishing their branches in the rural areas.
3. Regional Rural Banks (RRBs):
RRBs are the specialised banks established under RRB Act, 1976 to cater to the needs of the
rural poor.
4. Micro Finance Institutions (MFIs):
Banks offer concessional interest rates for the rural credit. However; small farmers are unable to
access them because of borrower-unfriendly products and procedures, inflexibility and delay, and
high transaction costs, both legitimate and illegal. Thus, Non-Government Organisations (NGOs)
are providing alternative means to enhance access to credit by the poor since mid-70s. After
pioneering efforts by organizations like SEWA, MYRADA, PRADAN and CDF, in 1992 the

RBI and NABARD encouraged commercial banks to link up with NGOs to establish and finance
self-help groups (SHGs) of the poor. The RBI has included financing of SHGs under priority
sector lending. At present, there are three groups of SHGs viz. SHGs formed and financed by the
banks (20 percent); SHGs formed by other formal agencies but financed by banks; SHGs
financed by banks using NGOs and other agencies (8 percent).These institutions provide small
loans to the poor at low interest rates without collateral.
3. What is WTO? Write a note on the impact of the WTO regime on Indian economy.
India is a founder member of World Trade Organization, and also treated as the part of
developing countries group for accessing the concessions granted by the organization. As a
result, there are several implications for India for the various agreements that are signed under
WTO. Let us understand each agreement in general, what it means and its implications for India
in specific.
1. India was a signatory of the General Agreement on Tariffs & Trade (GATT), and as a part
of the commitment had to change several laws and policies; the major changes that were
incorporated were as a follows

Reduction of peak and average tariffs on manufactured products

Commitments to phase out the quantitative restrictions over a period as these were
considered non-transparent measure in any countries policy structure.

The result of this agreement as mentioned earlier was limited as, GATT was only an agreement
and there was no enforcing agency to strictly implement the clauses and punish the country
which breaks the clauses. Thus the impact was partial. However, with WTO coming into effect,
the competition from imports for the domestic firms has increased. WTO had the deadline till
2005, for the domestic policy was supposed to phase out the QR's; for those countries which face
severe balance of payments problems special concession period was given. Thus it is very clear
that only those firms that have competitive advantage would be able to survive in the long run,
and those firms which are weak would fade into history in the process.
2. Trade Related Investment Measures (TRIMS)
The agreement relates to investments originating from one country to another. The agreement
prohibits the host country to discriminate the investment from abroad with domestic investment,
which implies that it favours national treatment of foreign investment. Besides this, there are
several other clauses of the agreement totaling to 5 in this segment, one agreement requires
investment to be freely allowed within domestic borders without any maximum cap on it.
Another restricts to impose any kind of export obligation or import cap on the investment.
Another requires that there should not be any domestic content requirement on foreign firms
operating and manufacturing in other countries.
These agreements have a direct impact on our Trade, Investment and foreign exchange policy,
domestic annual budgetary proposals and also on the industrial policy.

Implementation process for the above requires proper preparation by the industries and policy
makers, as sudden change may result in loss of revenue and decline of foreign exchange for the
government and economy, and it may result in decline of market share and profitability of
businesses, decline in employment opportunities and over all decline in growth.
3. Trade Related Intellectual Property Rights (TRIPS)
An intellectual property right refers to any creation of human mind which gets legal recognition
and protection such that the creator of the intangible is protected from illegal use of his creation.
This agreement includes several categories of property such as Patents, Copyrights, Trademarks,
Geographical indications, Designs, Industrial circuits and Trade secrets.
Since the law for these intangibles vastly varied between countries, goods and services traded
between countries which incorporated these intangibles faced severe risk of infringement.
Therefore the agreement stipulated some basic uniformity of law among all trading partners. This
required suitable amendment in the domestic IPR laws of each country. Since this process is not
a simple one, a time period of 10 years was given to the developing countries.
As a result, in India there was a requirement to change the patents act, Trade and merchandise
mark act and the copyright right act. Besides these main laws, other related laws also required
changes.
The main impact of this is on industries such as pharma and bio-technology, because now with
the law in place, it is not possible to reverse engineer the existing drugs and formulas, change the
process and produce the same product. Now new investment in fresh research is required. This is
quite a burden for small industries and there is a possibility that they are thrown out of business
due to competition.
Besides these, the technology transfer from abroad is expected to become costly and difficult.
Strict implementation of law is very important in India, otherwise there could be disastrous affect
on the revenue of industries which invest millions of rupees in Research and development if their
products get infringed.
4. Agreement on Agriculture (AOA): The Agriculture happens to be one of the most protected
sectors in all the countries without any exceptions, and therefore an agreement on the agricultural
issues have always been evading and debated strongly by all the countries involved in trade in
agriculture.
The agreement on agreement deals with market access, Export subsidies and government
subsidies. Broadly, as of now the requirement is to open up the markets in specific products in
market access and incase of subsidies, it is to go for tarrification and phase it out eventually or
reduce it to bound limits. The immediate impact of the agreement would be on the policy makers
to scrutinize all the items under subsidy, QRs and tariffs. However, the calculation of AMS
reveals that the subsidy given to Indian farmers are much below the acceptable levels and
therefore need not be changed. Looking from other perspective, the reduction of tariffs and

subsidy in export and import items would open up competition and give a better access to Indian
products abroad. However, the concern is on the competitiveness and sustainability that the
Indian farmer would be able to prove in the long run once the markets open up. Thus there is a
requirement to change policy support to meet the changing needs of Indian agriculture to gear it
up for future.
5. Agreement on Sanitary and psyto-sanitary measures (SPM): this agreement refers to
restricting exports of a country if they do not comply with the international standards of
germs/bacteria etc if the country suspects that allowing of such products inside the country
would result in spread of disease and pest, then there is every right given to the authorities to
block the imports.
Indian standards in this area are already mentioned and therefore there is no need to change the
law, but the problem is that of strictly implementing the laws. There is an urgent need to educate
the exporters regarding the changing scenario and standards at the international arena, and look
at the possible consequence and losses to be incurred if the stipulations are not followed.
Therefore, to meet the standards certain operational changes are required in the industries such as
food processing, marine food and other packed food that is being currently exported from India.
6. Multi-Fiber Agreement (MFA): This agreement is dismantled with effect from 1 January
2005. The result was removal of QR on the textile imports in several European countries. As a
consequence a huge textile market is opened up for developing countries textile industry as well
as for other countries that have competitive advantage in this area. The immediate impact is on
the garment and textile manufacturers and exporters. However, it still needs to be seen whether
the industry is able and ready to take advantage of the large markets. This requires quite an
amount of modernization, standardization, cost efficiency, and customization and frequent up
gradation of designs to meet the changing need of global customers. The dismantling of QR also
mean more competition to Indian textile exporters and therefore, it becomes imperative to
enhance the competitiveness in niche areas.
Besides these major agreements there are several other agreements such as agreement
on Market Access , which propagates free market access to products and reduction of tariff and
non-tariff barriers; agreement to have Safeguard Measures if there is an import surge and it is
liable to affect the domestic industries in the transition economies. These measures can include
imposing QR for a certain period and also imposing tariffs on the concerned products. There are
other agreements that call for direct reduction of S ubsidies on Exports, which are not
permissible, and phasing it out over a period of time. Besides these there are other CounterVeiling Duties (CVD) that are permitted to be used in certain conditions. These are supposed to
have an impact positive if they help the industries and negative if they reduce the cost
competitiveness.
The trading countries are allowed to impose an Anti-Dumping Duty (ADD) against imported
products if the charge of Dumping is claimed against them. The requirement is to prove that the
product is being sold at a price, which results in material injury to the domestic industries. There
are several cases in which the duty is imposed but it still remains to be proven by the Dispute
settlement tribunal in case the other trading party opposes the duty imposed as "unfair".

However, the proposal always should come from the representatives of the industries affected;
this may result in a problem, as small industries voice may remain unheard in the process.
4. What is national income? Describe one method of estimating it. What are the problems
of measurement of national income in India?
National income is the total value a countrys final output of all new goods and services
produced in one year.
The national income of a country can be measured by three alternative methods: (i) Product
Method (ii) Income Method, and (iii) Expenditure Method.
1. Product Method:
In this method, national income is measured as a flow of goods and services. We calculate money
value of all final goods and services produced in an economy during a year. Final goods here
refer to those goods which are directly consumed and not used in further production process.
Goods which are further used in production process are called intermediate goods. In the value of
final goods, value of intermediate goods is already included therefore we do not count value of
intermediate goods in national income otherwise there will be double counting of value of goods.
To avoid the problem of double counting we can use the value-addition method in which not the
whole value of a commodity but value-addition (i.e. value of final good value of intermediate
good) at each stage of production is calculated and these are summed up to arrive at GDP.
The money value is calculated at market prices so sum-total is the GDP at market prices. GDP at
market price can be converted into by methods discussed earlier.
2. Income Method:
Under this method, national income is measured as a flow of factor incomes. There are generally
four factors of production labour, capital, land and entrepreneurship. Labour gets wages and
salaries, capital gets interest, land gets rent and entrepreneurship gets profit as their
remuneration.
Besides, there are some self-employed persons who employ their own labour and capital such as
doctors, advocates, CAs, etc. Their income is called mixed income. The sum-total of all these
factor incomes is called NDP at factor costs.
3. Expenditure Method:

In this method, national income is measured as a flow of expenditure. GDP is sum-total of

private consumption expenditure. Government consumption expenditure, gross capital formation
(Government and private) and net exports (Export-Import).

All the countries face some special difficulties in estimating national income. Some of these
difficulties are given below:
a. Problems of Definition:
What should we include in the National Income?
Ideally we should include all goods and services produced in the course of the year, but there
are some services which are not calculated in terms of money, e.g., services of housewives.
b. Lack of Adequate Data:
The lack of adequate statistical data makes the task of estimation of national income more
acute and difficult.
c. Non-availability of Reliable Information:
The reason of illiteracy, most producers has no idea of the quantity and value of their output
and do not follow the practice of keeping regular accounts.
d. Choice of Method:
The selection of method while calculating National Income is also an important task. The
wrong method leads to poor results.
e. Lack of Differentiation in Economic Functioning:
In all the countries the occupational specialization is still incomplete so that there is a lack of
differentiation in economic functioning. An individual may receive income partly from farm
ownership and partly from manual work in industry in the slack season.
f. Double Counting:
Double counting is also an important problem while calculating national income. If the value
of all goods and services totaled, the total will overtake the national output, because some
goods are currently consumed being used in the making of others. The best way to avoid this
error is to calculate only the value of those goods and services that enter into final
consumption.

5. Discuss the silent Features of New Industrial Policy of 1991.

After Independence, the first-industrial policy was declared on 6th April, 1948, which was based
on mixed and controlled economy in India and clearly divided the industrial sectors into public
and private sectors. Later on this policy was replaced by other industrial policy of 1956, with the

objectives of socialistic pattern of society in the country. Though the government had declared a
number of new industrial policies accepted the 1956 industrial policy resolution as its base.
In June 1991, Narsimha Rao Government took over charge and the wave of reforms and
liberalization was observed in the economy. In this new atmosphere of economic reforms the
government declared broad changes in Industrial Policy on 24th July, 1991. This Industrial
Policy initiatives undertaken by the government since July 1991 have been designed to build on
the past industrial achievements and to accelerate the process of making Indian industry
internationally competitive.
It recognizes the strength and maturity of the industry and attempts to provide the competitive
stimulus for higher growth. The thrust of these initiatives has been to increase the domestic and
external competition through extensive application of market mechanisms and facilitating
forging of dynamic relationship with foreign investors and suppliers of technology.
In this new Industrial Policy of 1991 major changes have been introduced during the last few
years is new to Indian economy such as:
a. Industrial licensing system has been almost abolished. No license is required from the
government.
b. Producers are free to decide their scale and level production.
c. Imports of almost all the goods are freely allowed without any restriction.
d. MRTP Act has been liberalized.
e. Doors have been left open for MNCs. These are given automatic approval.
f. Whole of the economy has been left open to the private capital. Exclusive reservation for the
public sector has been cut down to only areas of strategic importance.
g. Foreign exchange regulation has been almost totally dispensed with.
6. Discuss the objectives of Indias Five year Plans. How far these objectives be fulfilled?
Planning without an objective is like driving without any destination. There are generally two
sets of objectives for planning, namely the short-term objectives and the long-term objectives.
While the short-term objectives vary from plan to plan, depending on the immediate problems
faced by the economy, the process of planning is inspired by certain long term objectives. In case
of our Five Year plans, the long-term objectives are:

(i) A high rate of growth with a view to improvement in standard of living.

(ii) Economic self-reliance;
(iii) Social justice and
(iv) Modernization of the economy
(v) Economic stability
(i) High Rate of Growth
All the Indian Five Year Plans have given primary importance to higher growth of real national
income. During the British rule, Indian economy was stagnant and the people were living in a
state of abject poverty. The Britishers exploited the economy both through foreign trade and
colonial administration. While the European industries flourished, the Indian economy was
caught in a vicious circle of poverty. The pervasive poverty and misery were the most important
problem that has to be tackled through Five Year Plan.
During the first three decades of planning, the rate of economic growth was not so encouraging
in our economy Till 1980, the average annual growth rate of Gross Domestic Product was 3.73
percent against the average annual growth rate of population at 2.5 percent. Hence the per-capita
income grew only around 1 percent. But from the 6 th plan onwards, there has been considerable
change in the Indian economy. In the Sixth, Seventh and Eight plan the growth rate was 5.4
percent, 5.8 percent and 6.8 percent respectively. The Ninth Plan, started in 1997 targeted a
growth rate of 6.5 percent per annum and the actual growth rate was 6.8 percent in 1998 - 99 and
6.4 percent in 1999 - 2000. This high rate of growth is considered a significant achievement of
the Indian planning against the concept of a Hindu rate of growth.
(ii) Economic Self Reliance
Self reliance means to stand on ones own legs. In the Indian context, it implies that dependence
on foreign aid should be as minimum as possible. At the beginning of planning, we had to import
food grains from USA to meet our domestic demand. Similarly, for accelerating the process of
industrialization, we had to import, capital goods in the form of heavy machinery and technical
know-how. For improving infrastructure facilities like roads, railways, power, we had to depend
on foreign aid to raise the rate of our investment.
As excessive dependence on foreign sector may lead to economic colonialism, the planners
rightly mentioned the objective of self-reliance from the third Plan onwards. In the Fourth Plan
much emphasis was given to self-reliance, more specially in the production of food grains. In the

Fifth Plan, our objective was to earn sufficient foreign exchange through export promotion and
important substitution.
By the end of the fifth plan, Indian became self-sufficient in food-grain production. In 19992000, our food grain production reached a record of 205.91 million tons. Further, in the field of
industrialization, now we have strong capital industries based on infrastructure. In case of
science and technology, our achievements are no less remarkable. The proportion of foreign aid
in our plan outlays have declined from 28.1 percent in the Second Plan to 5.5 percent in the
Eighth Plan. However, in spite of all these achievements, we have to remember that hike in price
of petroleum products in the inter national market has made self-reliance a distant possibility in
the near future.
(iii) Social Justice:
Social justice means to equitably distribute the wealth and income of the country among different
sections of the society. In India, we find that a large number of people are poor; while few lead a
luxurious life. Therefore, another objective of development is to ensure social justice and to take
care of the poor and weaker sections of the society. The Five-Year Plans have highlighted four
aspects of social justice. They are:
(i) Application of democratic principles in the political structure of the country;
(ii) Establishment of social and economic equity and removal of regional disparity;
(iii) Putting an end to the process of centralization of economic power; and
(iv) Efforts to raise the condition of backward and depressed classes.
Thus the Five Year Plans have targeted to uplift the economic condition of socio-economically
weaker sections like scheduled caste and tribes through a number of target oriented programmes.
In order to reduce the inequality in the distribution of landed assets, land reforms have been
adopted. Further, to reduce regional inequality specific programmes have been adopted for the
backward areas of the country.
In spite of various efforts undertaken by the authorities, the problem of inequality remains as
great as ever. According to World Development Report (1994) in India the top 20 percent of
household enjoy 39.3 percent of the national income while the lowest 20 percent enjoy only 9.2
percent of it. Similarly, another study points out that the lowest 40 percent of rural household
own only 1.58 percent of total landed asset while the top 5.44 percent own around 40 percent of
land. Thus the progress in the field of attaining social justice has been slow and not satisfactory.
(iv) Modernization of the Economy:

Before independence, our economy was backward and feudal in character. After attainment of
independence, the planners and policy makers tried to modernize the economy by changing the
structural and institutional set up of the country. Modernization aims at improving the standard
of living of the people by adopting a better scientific technique of production, by replacing the
traditional backward ideas by logical reasoning's and bringing about changes in the rural
structure and institutions.
These changes aim at increasing the share of industrial output in the national income, upgrading
the quality of products and diversifying the Indian industries. Further, it also includes expansion
of banking and non-banking financial institutions to agriculture and industry. It envisages
modernization of agriculture including land reforms.
(v) Economic Stability:
Economic stability means to control inflation and unemployment. After the Second Plan, the
price level started increasing for a long period of time. Therefore, the planners have tried to
stabilize the economy by properly controlling the rising trend of the price level. However, the
progress in this direction has been far from satisfactory.
Thus the broad objective of Indian plans has been a non-inflationary self-reliant growth with
social justice.
The main achievements of Indian Plans are as under:
1. Increase in National Income:
During planning period national income has increased manifold. The average annual increase in
national income was registered to be 1.2 percent from 1901 to 1947.
This increase was recorded to be 3 percent in two decades i.e. 1950-70. Moreover, average
annual growth rate of national income was 4 per cent in 1970-80 which, further, increased to 5
percent in 1980-90. From 1980-81 to 2000-01, it increased to 5.8 per cent. Thus, a rise in
national income has been key indicator for economic development of India.
2. Increase in Per Capita Income:
Before independence, increase in per capita income was almost zero. But after the adoption of
economic planning in free India, per capita income has continuously been increased. In the first
plan, it raised .by 1.8 per cent and in Second Plan, it was 2.0 per cent.
During Third Plan, it declined to (-) 6.8 per cent. In Three annual plans, growth of per capita
income was registered at 1.5 per cent.

In Fourth Plan, it came down to 1.0 per cent. In Fifth Plan, it was 2.7 per cent. During Sixth and
Seventh Plan, it was 3.2 per cent and 3.6 per cent respectively. In Eighth Plan, it rose to 4.6 per
cent. In 2000-01, its rise was registered at 4.9 at 1993-94 prices.
3. Development in Agriculture:
Agricultural productivity has also marked an upward trend during the plan period. The
production of food grains which has 510 lakh tonnes in 1950-51 increased to 1804 lakh tonnes in
1990-91 and further to 212.0 million tonnes in 2000-01.
Similarly, the production of cotton which was 21 lakh bales in 1950-51 was expected to be 10.1
million bales in 2000-01. In the same period, the production of sugarcane was expected to be
300.1 lakh tonnes in 2000-01 against the 69 lakh in 1950-51.
Thus, agriculture production during planning period has increased. During the entire planning
period, growth rate of agricultural production remained 2.8 per cent per annum.
However, use of chemical fertilizer, better seeds, irrigation and improved methods of cultivation
has increased productivity per hectare and per worker many times. This development has laid the
foundation of green revolution and other institutional changes in agriculture sector.
4. Development of Industry:
In the first five year plan much of the capital was invested to develop the industry and defense.
About fifty percent of the total outlay of the plan was invested for their development.
As a result, industrial production increased to a great extent. For instance, the production of
cotton cloth which was 4210 million sq. meters in 1950-51 increased to 18989 million sq. metres
in 1999-2000.
The production of finished steel increased to 31.1 million tones in 2001-02 from 10 lakh tonnes
in 1950-51. In the same fashion, the production of coal was recorded to be 3226 million tonnes
in 2001-02 against the 323 million tonnes in 1950-51.
5. Development of Transport and Communication:
During the planning period, much attention has been paid towards the development of transport
and communication. In the first two plans, more than one-fourth of the total outlay was invested
on the development of transport and communication.

In 1990-91, the total length of roads increased to 1024.4 thousand kms from 157.0 thousand km.
However, further it increased to 1448.6 thousand km in 1998-99. In order to encourage trade
goods rail was developed.
6. Self Reliance:
During the last four decades, considerable progress seems to have been made towards the
achievement of self reliance. We are no longer dependent on other countries for the supply of
food grains and a number of agricultural crops.
In the same fashion, we have made substantial investment in basic and heavy industries. We are
in a position to produce all varieties of basic consumer goods.
7. Employment:
During the planning period, many steps have been taken to increase the employment
opportunities in the country. In the first five year plan employment opportunities to 70 lakh
people were provided.
In the fourth and fifth plans about 370 lakh persons got employment. In the seventh five year
plan, provisions have been made to provide employment to 340 lakh people.
8. Development of Science and Technology:
In the era of planning, India has made much progress in the field of science and technology. In
reality, the development is so fast that India stands third in the world in the sphere of science and
technology. Indian engineers and scientists are in a position that they can independently establish
any industrial venture.
9. Capital Formation:
In India due to the development of agriculture, industry and defense, the rate of capital formation
has also increased. In 1950-51, the rate of capital formation was 11.5 percent.
The rate of capital formation during Second, Third and Fourth plan was 12.7 per cent, 13.5 per
cent and 14.5 per cent respectively. It was 24.1 per cent in seventh plan and 26 per cent in Eighth
plan and 24 percent in Ninth Flan.
10. Social Services:
Social services, like, education, health and medical facilities, I family planning have also
expanded considerably.

As a result of these services: (i) Death rate reduced from 27 per thousand in 1951 to 8 per
thousand in 2000-01. (ii) Average life-expectancy increased from 32 years in 1951 to 638 in
2000-01. (iii) Several deadly diseases like malaria etc. have been eradicated, (iv) The number of
school going students has increased three-fold and that of collegiate five-fold since 1951. The
number of annual admissions to degree courses in Engineering Colleges increased from 7100 in
1950 to 1, 33,000 and the number of universities increased from 27 to 254 by now. (v) A chain of
National Laboratories and Research Centers has been set up across the country. (vi) Number of
hospital-beds, doctors, nurses, medicines and family planning clinics and medical facilities has
greatly increased. Number of hospitals and dispensaries has increased to 68396. Now there is one
doctor per 5.2 per ten thousand.
Despite the fact that India had made rapid progress in the sphere of agricultural as well as
industrial sectors but it is most disheartening to observe that it has miserably failed on many
fronts. Its gains turn into insignificance when we highlight how it has failed to achieve declared
objectives.
However,
its
main
failures
are
under
mentioned:
1. Stagnant Economy:

When India was freed, it had deep marks of stagnation. During the phase of forty years of
economic
planning,
its
growth
rate
is
zero
or
near
zero.
According to one estimate, growth of national income was about 1.15 per cent during 1950to
1980 per year and growth of per capita income was at less than 0.5 percent.
Similar trend has been noticed after the adoption of plans. This fact is also reflected from the
national income by industrial origin. The occupational structure also provides gloomy picture as
more than 70 per cent people are still engaged in agriculture sector.

2. Poverty:

These five year plans have miserably failed to make a dent on poverty as 40 per cent of
population is still in tight grip of poverty. Poverty is greatly responsible for poor diets, low health
and
poor
standard
of
living.
A proportion of the population has to go even without the most essential needs of daily life. In
short, both underdevelopment and inequality are responsible for poverty in the country.

3. Unequal Distribution of Income and Wealth:

Another failure of the planning is that the distribution of income and other assets in rural and

urban
areas
continues
to
be
skewed.
The bulk of increased income has been pocketed only by the rich few while weaker section of
the society lives from hand to mouth and lead a very miserable life. There is no second opinion
to say that 2 per cent people of this country possessed 98 per cent wealth.

4. Mounting Unemployment:

The unemployment is a constant threat to the social atmosphere of the country as they resort to
various unlawful activities. In rural areas disguised unemployment and in urban are white collar
unemployment (educated unemployment) are found. The rising unemployment may be attributed
to galloping population, capital intensive techniques, defective j education system and unstable
agriculture.

5. Abnormal Growth of Population:

In all plans, main objective was to check over-population but it has miserably failed to bridge the
galloping population. The rapid growth of population has aggravated the situation to the worst.
This problem gives birth to twin problems of poverty and unemployment.

6. Inflationary Pressure:

Inflation has started with the onset of heavy doses of investment programmes during different
five year plan periods. Now, it turned to the gravity of the problem as it has created serious
imbalances
in
the
socio-political
and
economic
relations.
The people with fixed income group find it extremely difficult to maintain the standard of living.
Abnormal rise in prices has generated other problems of corruption, black marketing, dishonesty
and immorality etc.

7.
Adverse
Balance
of
Payments:
Truly, the production of agricultural and industrial sector has increased manifold but still we are
dependent on imports. In our plans, we have stressed on export promotion and import
substitution to correct the adverse balance of payments but no headway has been made in this
direction.
It has continuously been un favourable. The situation has further deteriorated since the

penultimate year of the Sixth Five Year Plan. The situation in Seventh Plan has not improved
rather it is still dismal. During nineties also, position of external debt is not encouraging.

8.
Unproductive
Expenditure:
India is deficient in capital due to rising expenditure on unproductive channels. Moreover, huge
investments are made on the construction of five star hotels and other wasteful consumption.
Its benefits go in the hands of few affluent people where generally wealth concentrates.
Consequently,
the
rich
becomes
rich
and
the
poor
lag
behind.
9.
Huge
Amount
of
Deficit
Financing:
To mobilize the resources for different plans, government has absolutely failed to manage from
internal resources. The government at this time is left with no alternative but deficit financing. At
every
successive
plan,
there
is
huge
amount
of
deficit
finance.
From 1950-51 to 1984-85 total amount of deficit financing in the country was Rs. 24,440 crores.
During Seventh Plan, it was proposed to be Rs. 14,000 crores and Rs. 18,000 crore in Eighth
Plan.

10.
Biased
Growth
At last, Indian plans have given many evils like the growth of monopolistic practices,

Profile:

7. What is land reform? What are the objectives of land refoms in india? Evaluate the
achievements in India in this context.

Land reform refers to all those institutional changes aiming at the redistribution of operational
land holdings in favour of the less privileged classes from the view point of optimum utilization
of land.
Objectives
The objectives of economic planning and land reforms in India are to achieve maximum
production and to attain a measure of social justice. It further seeks to reduce economic
inequalities and avoid concentration of economic power and to prevent exploitation of the under
privileged classes. To accelerate development of agriculture, it is necessary to bring about a
change in the agrarian (agricultural) structure.

Since 1951, the Govt. has undertaken a number of land reform measures. In the following we are
going to discuss the reforms and objectives behind these reforms.
1. Abolition of intermediaries:
Even before independence it was widely recognized that main cause of stagnation in the
economy was due to the stagnation in the agricultural structure and that stagnation comes to a
large extent by the exploitative nature in agrarian relation. The chief instrument of exploitation
was the Zamindars, patronized and promoted by the Govt. It was on account of this reason that
not only was the desirability of bringing about changes in agrarian relation accepted but was
adopted as a kingpin of land reform policy.
Approximately 57% area of the country was under the Zamindari system on the eve of
independence. In some states legislation was passed for the abolition of intermediaries. However,
most of the work relating to enactment of laws and acquisition of areas was carried out during
the period of The First Five Years plan.
It has been estimated that in all 173 million acres of land was acquired from the intermediaries.
More than 20 million tenants were brought under direct relationship with the state. A Sum of
nearly Rs 320 crore out of a total estimated amount of Rs 670 crore have been paid to the
intermediaries as compensation in cash or in bonds. By June 92, 110.42 lakhs tenants had
acquired ownership rights in 144.29 lakhs acres.
2. Tenancy reform
Provisions for Security of tenure and regulation of rent have been adopted. In several States,
provision has also been made for bringing tenant into direct relationship with the state and
conferring on them the rights of ownership in areas where intermediary tenures did not obtain.
As result about 3 million tenants and shore croppers have acquired ownership of more than 7
million acres.
3. Ceilings on holdings
The ceiling legislation have been passed in all states, though the implementation there of has
made progress in some states only. A ceiling on agricultural holding means statutory absolute
limit on the amount of land which an individual may hold. According to a estimate (June 1997)
72.81 lakhs acres of land have been identified as surplus on the basis of revised ceiling laws. Out
of this total, 49.75 lakhs acres had been distributed among the 47.59 lakhs land less. On the
whole, the imposition of land ceiling has tended to reduce disparities.

4. Consolidation of holdings
With a view to enlarging the size of land holding; consolidation of uneconomic holdings was
undertaken and substantial progress has been made in this connection in Punjab, Haryana, U.P.,
Maharashtra and H. P. Measures have also been initiated for the prevention of fragmentation.
5. Reorganization of agriculture
Besides measures like consolidation of holdings, ceiling on holdings, steps have been taken, to
develop cooperative farming as measure to the reorganization of agriculture. More recently, to
benefit the small farmers and to enable them to participate in the new farm technology, Small
Farmers Development Agency has been set up in selected areas.

8. Write a note on GATT vs WTO

GATT is known as the General Agreement on Tariffs and Trade, and the WTO, World Trade
Organization, are both different and the same in some aspects. Despite the fact that they are two
distinct bodies that help regulate international trade and commerce, it is unquestionable that
WTO came from GATT itself.
The WTO was actually formed in 1995 to monitor GATTs provisions, and the members of the
latter were all responsible for creating the WTO. Today, the WTO is constantly creating its own
set of rules and regulations and acts independently from other organizations. The WTO is now
recognized as the official body that governs the policies and standards of international trade. In
fact, it oversees over 95 per cent of the trading around the globe (almost all the countries
worldwide). This clearly excludes the giant, economic power of China. Perhaps this Communist
country feels more at a disadvantage if they join the WTO.
Looking back at GATT, it was formed in 1948 to improve cross-country trading and help
eradicate trade barriers through clear and sound negotiations. It was originally under the ITO
(International Trade Organization), which was supported by the U.N. Because of the failure to
ratify the ITO, GATT further evolved into what is now known as the WTO. Many have seen
GATTs weakness throughout its years of operations. For one, it has been criticized because of
its lack of enforcement power which ended in so many disputes. Moreover, their provisions were
more or less temporary in nature a problem that is now addressed by the WTO in creating more
stringent rules and permanent legal provisions.
By contrast, the WTO is a more effective organization because it is actively involved in dispute
resolutions by accepting complaints and even imposing sanctions to the member at fault
whenever it is deemed appropriate. Unlike GATT, they treat their trading partners as WTO
members rather than naming them as simply contracting parties. They also widened the scope of
trade by including not only goods but also intellectual property rights and even services.
Summary:

1.The WTO is the newer, more effective, and more powerful organization that came from GATT
itself.
2.The WTO has made an effective system of dispute resolution for any complaints or problems
surrounding trade. As such, it can impose sanctions against the ill-performing WTO member.
3. The WTO recognizes participants in their trading as their actual members as opposed to GATT
that
simply
acknowledged
them
as
contracting
parties.
4. The WTO has a broader scope of trade than GATT which now includes intellectual property
rights and services on top of the standard trading goods.

9. Discuss the various components of Business environment

Business environment refers to those factors which have bearings on the operation of the
business organization.
A. Internal environment
Internal environment includes all those factors which influence business and which are present
within the business itself. These factors are usually under the control of business. The study of
internal factors is really important for the study of internal environment. These factors are:
(i) Objectives of Business, (ii) Policies of Business, (iii) Production Capacity, (iv) Production
Methods, (v) Management Information System, (vi) Participation in Management, (vii)
Composition of Board of Directors, (viii) Managerial Attitude, (ix) Organisational Structure, (x)
Features of Human Resource, etc.
Note:
All the above factors do influence the decisions of business, but since all these factors are usually
under the control of business, they cannot be wholly included in the business environment.
B. External Environment
External environment includes all those factors which influence business and exist outside the
business. Business has no control over these factors. The information about these factors is
important for the study of the external environment.
Some of these factors are those with which a particular company has very close relationship.
However, there are some other factors which influence the entire business community.
Micro environment means that environment which includes those factors with which business is
closely related. These factors influence every industrial unit differently. These factors are as
under:
(i) Customers (ii) Suppliers (iii) Competitors (iv) Public (v) Marketing Intermediaries.
(i) Customers:

Customers of an industrial unit can be of different types. They include household, government,
industry, commercial enterprises, etc. The number of different types of customers highly
influences a firm.
For example, suppose a firm supplies goods only to the government. It means that firm has only
one customer. If because of some reason their relations get soured, the supply of goods will stop
and in that case the closure of that firm is certain.
This clearly indicates that the customers do influence business. Therefore, a firm should make
efforts to have different kinds of customers,
(ii) Suppliers:
Like the customers, the suppliers also influence business. If a business has only one supplier and
he gets annoyed because of some reason, the supply of goods can be stopped and the very
existence of the business can be threatened or endangered. Hence, efforts should be made to have
various suppliers.
(iii) Competitors:
The competing firms can influence business in a number of ways. They can do so by bringing
new and cheap products in the market, by launching some sale promotion scheme or other
similar methods.
(iv) Public:
Public has different constituents like the local public, press or media, etc. The attitude or
behaviour of these constituents can affect business units. For example, the local population can
oppose some established firm whose business is excessively noisy.
Similarly, if the media gives some favourable report about a particular company the price of its
share can register an increase on this count.
(v) Marketing Intermediaries:
The marketing intermediaries play a significant role in developing any business unit. They are
those persons who reduce the distance between the producers and agents.
For example, a company sells its goods with the help of agents and if because of some reason all
the agents get annoyed with the company and refuse to sell its goods, there can be a crisis for the
company.

10. What are the causes of Industrial sickness and discuss its remedies.

Industrial sickness is defined in India as "an industrial company (being a company registered
for not less than five years) which has, at the end of any financial year, accumulated losses equal
to, or exceeding, its entire net worth and has also suffered cash losses in such financial year and
the financial year immediately preceding such financial year
The different types of industrial sickness in Small Scale Industry (SSI) fall under two important
categories. They are as follows:
Internal causes for sickness
We can say pertaining to the factors which are within the control of management. This sickness
arises due to internal disorder in the areas justified as following:
a) Lack of Finance: This including weak equity base, poor utilization of assets,
inefficient working capital management, absence of costing & pricing, absence of planning and
budgeting and inappropriate utilization or diversion of funds.
b) Bad Production Policies : The another very important reason for sickness is wrong selection of
site which is related to production, inappropriate plant & machinery, bad maintenance of Plant &
Machinery, lack of quality control, lack of standard research & development and so on.
c) Marketing and Sickness : This is another part which always affects the health of any sector as
well as SSI. This including wrong demand forecasting, selection of inappropriate product mix,
absence of product planning, wrong market research methods, and bad sales promotions.
d) Inappropriate Personnel Management: The another internal reason for the sickness of SSIs is
inappropriate personnel management policies which includes bad wages and salary
administration, bad labour relations, lack of behavioural approach causes dissatisfaction among
the employees and workers.
e) Ineffective Corporate Management: Another reason for the sickness of SSIs is ineffective or
bad corporate management which includes improper corporate planning, lack of integrity in top
management, lack of coordination and control etc.
External causes for sickness
a) Personnel Constraint: The first for most important reason for the sickness of small scale
industries are non availability of skilled labour or manpower wages disparity in similar industry
and general labour invested in the area.
b) Marketing Constraints: The second cause for the sickness is related to marketing. The sickness
arrives due to liberal licensing policies, restrain of purchase by bulk purchasers, changes in
global marketing scenario, excessive tax policies by govt. and market recession.

c) Production Constraints: This is another reason for the sickness which comes under external
cause of sickness. This arises due to shortage of raw material, shortage of power, fuel and high
prices, import-export restrictions.
d) Finance Constraints: The another external cause for the sickness of SSIs is lack of finance.
This arises due to credit restrains policy, delay in disbursement of loan by govt., unfavorable
investments, fear of nationalization.
e)credit squeeze initiated by the government policies.
Remedial Measures
1. Steps taken by banks. - giving adequate working capital when there is a shortage. - recovery of
interest reduced rate - defining the special cell in the RBI - arrange the special committee of state
level in the local branch for link between financial institution and government agency.
2. Policy framework of the government - according the guideline that are lying on the october
1981 that monitor the sickness of industry .- swot analysis of industry- liberalization on sick
industries
3.Consessions by government - giving high facilities to large industry who take over the small
sector for revival - high liberalizations in terms of financial rather than intervention.- Introduce
the scheme for sick industry
4. Steps for detecting sickness early - corrective action taken by the RBI
5. The industrial investment bank of India- set up the IRCI (industrial reconstruction corporation
of india.)- convert IRCI into IRBI in March 20 ,1985- convert IRBI into IIBI in march 27, 1997

11. What are the roles of public sector enterprises in India?

Since 1948, when for the first time the importance of the public sector in the Indian economy
was recognized, the public sector has experienced a phenomenal growth both in terms of number
and volume of investment. The Government has made sustained efforts to break the vicious
circle of poverty and undevelopment by setting up public sector enterprises or by nationalizing
certain key industries. The most recent instances are the nationalization of the bigger commercial
banks and that of coal mines.

Role of Public Sector enterprises in India

We may enumerate below the various arguments put forth in support of the public sector in India.
1. Maximizing the rate of economic growth :
Originally, the activity of the public sector enterprises was to be limited to a definite field of
basic and key industries of strategic importance. There were certain fields where the private
enterprise was shy to operate as they involved huge investment or risk. It was the public sector
alone which could build the economic overheads such as power, transport, etc. Since then the
ideological objective of capturing the "commanding heights" by the public-vector bas been duly
fulfilled, it succeeded in creating the necessary infrastructural base for sustained industrial
growth. It has tremendously boosted the technological capabilities.
The public enterprises have firmly established the foundation for the construction of a selfgenerating, industrial economy. During the planned era, the public sector has-diversified its
activities to cover a wide spectrum of industries. The public sector today has entered into the
production of consumer goods such as bread, paper, watches, scooters, T.V. and transistor parts,
cement, drugs,, etc. Prof. Lakdawala is of the view that the public sector should now enter the
fields of distribution and rural development as well.
2. Development of capital-intensive sector :

Industrial development of a country necessitates the foundation of an infrastructure! base. This

foundation is provided by the development of capital-intensive industries and the basic
infrastructure. The private sector neither has the zeal nor the capacity to invest in such
infrastructural programmes. From this point of view, the public sector has a magnificent record.
The State has successfully implemented various schemes of multi-purpose river projects,,
hydroelectric projects, transport and communication, atomic power,, steel, etc. It has vastly
contributed in the fields such as nuclear or steel technology, aeronautics, defense materials, shipbuilding and so on. It has laid down a good network of transport and communications.
3. Development of agriculture :

The public sector has an important role in the field of agriculture as well. The public sector
assists in the manufacture of fertilizers, pesticides, insecticides and mechanical implements used
in agriculture. Through the various research institutes the public sector has augmented
agricultural productivity by introducing new high-yielding variety of seeds, preventing crop
diseases and innovating new agricultural practices.
4. Balanced regional development :

In the pre-independence period a major problem was regional economic disparities. There were
certain areas where there was a heavy concentration of industrial activity. On the other hand,
there were certain backward areas which went without industries. Industrial development was
highly lopsided. Thus Maharashtra, West Bengal, Gujarat and Tamil Nadu, etc., were highly
developed industrially. States like Orissa, Assam, Bihar, Madhya Pradesh etc. were highly
backward. Besides, industries used to be gravitated towards the metropolitan areas, rather than
the smaller towns. But imbalanced economic development is as bad as underdevelopment.
Through the extension of public sector enterprises the Government desired to remove such
regional imbalances. The State, consequently, participated in the industrial growth of the less
developed areas by setting up public enterprises. Normally the private sector cannot be induced
to start industries in the backward areas. White locating new public enterprises the claims of the
relatively backward areas are given due consideration. The policy of dispersal of Industries aims
at removing regional disparities. A conscious attempt has been made-in the successive five-year
plans to accelerate the development of relatively backward areas.
5. Development of ancillary industries :

Establishment of a few big public enterprises is not enough to unleash forces of industrial
development in an area. There are states like Bihar where in spite of lavish public sector
investment, industrial development has not been satisfactory. On the other hand. States like
Punjab have made a vast progress because of the development of small and ancillary units. This
realization made the public sector take a close interest in the development of small and ancillary
units. It is expected that the development of ancillaries would have the way for rapid industrial
growth of a region and lead to balanced economic development. The number of such ancillary
units was 432 in 1974-75 and the number rose to 888 in 1979-80 with purchases from them
increasing from Rs. 29 crores to Rs. 120 crores. It is expected that in future, ancillary
development would receive more attention from the Government.
6. Increasing employment opportunities :

The growth of the public sector has led to the expression of gainful employment opportunities. In
addition to the primary effect of the public sector in creating employment opportunities, public
sector investments also have a multiplier effect on other sectors of the economy. This has a
beneficial effect on the total employment position. In 1963-61, the number of people employed
in public enterprises was only 1.82 lakhs. This figure rose to 14.08 lakhs in 1974 75 involving an
increase of 671 per cent. Similarly the total amount of salaries and wages increased from Rs.
4091 crores to Rs. 1,053 35 crores, involving an increase of 2,474.8 per cent, during the same
period, In 1986-87 the number of working population in these industries stood at 22 lakhs.
7. Model employer :

Dr. R.K. Gupta has observed that in India "the State has inaugurated the era of the model
employer in contrast to the employer with a feudal outlook. It has laid down guidelines for employer-employee relations and for developing good and efficient personnel." The public sector has
been the pacesetter in the field of labour welfare and social security. The State aims at
establishing an industrial democracy which will provide a fair deal to the workers. The public
enterprises have been investing liberally on matters pertaining to labour welfare and social
security. Not only the wages have been substantially increased, conditions of service have vastly
improved. For instance, wages in the coal industry have nearly trebled since nationalization and
many other amenities also are being provided.
8. Preventing concentration of economic power :

Preventing private monopolies and concentration of economic power is the avowed objective of
our economic policy. Nationalization is considered as an antidote for the concentration of
economic power in private hands. In India the public sector enterprises have grown both in
number and in strength. Today, the public sector not only occupies the commanding heights in
the economy, it has also penetrated into the production of essential consumer goods. The share of
the public sector in the overall industrial production, has substantially gone up. This has
effectively curbed the concentration of economic power. It has created a countervailing force
against the growth of larger industrial houses.
9. Export promotion :

The public sector enterprises are substantially contributing to the country's export earnings. The
public sector has-built up a reputation abroad in selling plants, heavy equipment's, machine-tools
and other industrial products. She has created a goodwill in the third world countries-for her
consultancy services and technical know-how. Public sector exports also include consumer
goods. The role of the State Trading Corporation, or the Minerals and Metals Trading Corporation has been quite creditable in promoting exports. Between 1968-69' and 1984-85, the
percentage share of public sector enterprises in India's export trade went up from 20.05 to 38.1
per cent. Public sector exports increased from Rs. 272 crores in 1968-69 to Rs. 4,522 crores in
1984-85. In 1976-77 the public enterprises earned Rs. 2,248 crores in foreign exchange. The
public enterprises thus bad a splendid performance.
10. Import substitution :

The public sector enterprises have also-succeeded in their efforts in import substitution. Today
many commodities starting from basic drugs to highly advanced equipments are manufactured in
the public sector, which previously used to be imported from abroad. In certain fields public
enterprises were specially started to reduce imports from abroad, and achieve self-sufficiency.
Public enterprises like Hindustan Antibiotics Ltd. or Bharat Electronics Ltd. or Hindustan

Machine Tools etc., have done a remarkable job in import substitution. This has resulted in
saving of precious foreign exchange. Today there is a special drive in the public enterprises to
utilize indigenous materials and domestic skill.
11. Production and sales :

While taking up the production of any goods or services, the private entrepreneur is guided
solely by the profit motive. To maximize profit, he even does not hesitate to exploit the
consumers. Very often maximization of profit is achieved at the cost of public welfare. It is only
the public sector which can produce according to special needs. Sometimes it may even sell at a
price lower than its cost. The total turnover of the State-owned manufacturing enterprises and
service enterprises amounted to Rs. 2,650 crores in 1969-70; Total turnover of these enterprises
increased to Rs. 3644.3 crore in 1981-82. This indicates that the contribution of the public sector
to the flow of goods and services in the economy was quite considerable.
12. Mobilization of resources :

The public sector undertakings have played an important role in financing the planned
development of the country. They have significantly contributed to the Central Exchequer in the
form of interest and various taxes, etc. Besides public enterprises show an increasing trend in the
generation of internal resources. From a mere Rs. 194 crores in 1969-70 it increased to Rs. 5,068
crores in 1986-87. In the total capital formation of the country more than 50 percent is
contributed by the public sector.
13. Research and development :

Today no country can industrially prosper without research and development. Such research is
highly essential for the introduction of new goods and new technologies of production, lowering
the cost of production and improving the quality of the product. In this respect the public sector
is playing a crucial role. A lot of research activities are being carried on in the laboratories of the
public sector undertakings. In 1576-77, the total expenditure on research and development
amounted to Rs. 32.79 crores.
14. Establishment of a socialist pattern :

In India the public sector was desired to be extended rapidly so as to establish a socialist pattern
of economy. There was abject misery and poverty all round prior to the adoption of planning.
Through our planned effort we not only wanted rapid economic growth but also social justice.
The public enterprises aim at achieving equality of opportunity and reduction of economic
inequalities.

12. Write a note on Disinvestment

Disinvestment means privatising ownership of Government undertaking by sale of equity shares.
The disinvest may be full or partial, ie., the Government may either sell its entire share holding
or a part of it to the general public. In the post independence era India was not industrialised and
was basically a agriculture-oriented country. Industrialisation meant huge investment, capital was
scarce and not easily available.
The private sector was not well developed and did not have the necessary resources to set up the
heavy industries. The Government took upon itself the task of setting up of heavy industries like
Steel, Petrochemicals, Telecom etc. The President of India owned the shares in these companies
on behalf of the Government. Since these Companies / Corporations were owned by the
Government they were called as the Public Sector Undertakings.
In the recent past disinvestment has assumed greater significance due to the Govt's decision to
sell its share holdings in various public sector enterprises. The Government of India has offered
to sell its holdings in a few very successful public sector enterprises like ONGC, GAIL, IPCL,
VSNL, Maruti Udyog, CMC etc.
Disinvestment is a measure towards participative ownership of the public sector enterprises. Till
disinvestment process was set in motion the public sector enterprises were owned by the
Government, which was a people's representative. Now the general public is given a chance to
own a share in the public sector enterprises to promote the concept of participative and joint
ownership.
Till the early 1990s the Government's policies were protectionist in nature and control oriented
rather than supporting free enterprise, which resulted in technological backwardness and
inefficiencies. I" the early 90's there was a shift in the policy of the Government and the
economy was opened up. The role of the Govertment is now only that of a regulator than that of
a protector. This change in the policy has resulted in the Government's decision to sell its stake in
various Government owned enterprises or public sector enterprises.
Rural indebtness

One of the major problems concerning to the rural society is indebtedness. This problem is just
not related to one individual but is passed on from one generation to the next generation. Taking
or incurring debt for the purpose of agricultural production is indeed necessary as it contributes
to production.

However, the rural people incur debts for nonproductive purposes such as to meet the family
needs, perform social functions (related to marriages, birth, death), litigation, etc. Since money
taken does not contribute to production but instead to consumption, it drags the rural people into
indebtedness.
Thus, it becomes impossible to repay these loans. To clear these loans, the rural people incur
debts again. In this way, they are stuck in the clutches of indebtedness, which passes on from one
generation to another. For many small farmers, the agricultural production is so less that they are
not able to provide for such unproductive expenditure.
13. What are the causes and consequences of Indebtedness?

Poverty:

Poverty is perhaps a major cause for rural indebtedness. The low level of rural incomes, the
uncertain and primitive farming of small landholdings makes it impossible to meet the needs
required for their living. Often, the rural people take debts to meet these needs.
Ancestral/Inherited Debt:

Most of the rural debts of the present day are inherited from the past and which increases with
the passage of time. An inheritor is liable to the repayment of the debt only to the extent of the
property inherited by him.
Despite this law, the rural people continue to repay the debts of their forefathers, as they are not
fully conversant with law as they are illiterate. As these people are bound by the traditions and
values they regard it as their sacred social duty to repay the debts of their forefathers.
Such increasing debt is passed on from one generation to another making its repayment
increasingly difficult, whenever it is passed on. Thus, the Royal Commission has rightly stated
that the Indian farmer is born in debt, lives in debt and dies in debt.
Social and Religious Needs:

Villagers are mostly bound by the social traditions and customs, which are considered to be
sacred and had to be performed. Some of these ceremonies are marriage, births, deaths, religious
occasions, etc. The expenditure is usually very high for the performance of these ceremonies. In
order to meet these needs, the villagers take loans. As their incomes are not sufficient enough,
they are not able to repay these loans. Thus, they remain unpaid and increase with the passage of
time.

Litigation:

Generally, the agriculturists in India are involved in various kinds of disputes related to land,
property, etc., which force them to go to a court of law. Often, they view it important to win the
case as it is related to the family prestige and honour. Such litigations involve heavy expenditure
and time. In order to meet these needs, the agriculturists take loans that they are not able to repay
and are caught into indebtedness.
Backwardness of Agriculture:

Indian agriculture is an uncertain business. It virtually depends on unreliable rains for the supply
of water. If there are no rains or untimely rains, the entire crop is lost and the credit invested in
the agriculture goes waste. As a result, the loan taken for the productive purposes also becomes a
burden, leading to indebtedness of the farmers.
Excessive Burden of Land Revenue and Rent:

Land revenue, where it is levied by the government in some states and the rent payable to the
landowners is becoming excessive burden on small farmers. In order to pay these land revenue,
mid-rent, the farmers take loan. Sometimes, the farmers have to pay these rents and land
revenues even during the floods and drought. This make the farmers run into debts.
Defective Money Lending System:

The village money lending system is very much defective. The sole aim of the moneylenders is
to extract the maximum from the farmers. The moneylenders make wrong entries in their account
books, charge very high interest rates and extract high prices for the goods they sell to the
farmers but purchase the farmers produce at very low prices.
In course of time, as the amount debt increases, the moneylenders are much interested in seizing
the farmers lands, and other valuable assets than the debt being repaid by the farmers. Thus, the
farmers are trapped in the hands of the moneylenders.
Consequences of Indebtedness:
There are many economic and non-economic consequences, which are caused by rural
indebtedness. They are categorized into economic, social and political consequences. Let us have
a look at them in detail.
Economic Consequences:

As the farmer is deprived of the substantial part of his produce in clearing the debts, payment of
interests and principal amounts, he loses interest in agricultural production. This leads to low
agricultural production and income.
The farmer is forced to sell all his produce to the moneylender and he is deprived of selling his
produce in the open market and obtaining the prices of the market. Such a situation adversely
affects the inducement for work and agricultural production of the farmer.
The trade between the moneylender and the farmer is always beneficial to the moneylender. The
farmer is priced heavily for what he purchases and receives little for what he sells to the
moneylender. Thus, such trade leads to loss of a substantial part of his income.
In the process of obtaining loans, payment of interest and repayment of principal to the
moneylender, the farmer often loses his land, as he is not able to repay the loan. As a result, the
farmer, the owner of the land, becomes a landless labourer.
Social Consequences:

The relations between the moneylenders and the farmers become venomous and poisoned the
social life. Therefore, the social groups get divided into two classesthe exploiting class and the
exploited class. Due to the loss of land, the farmer feels deprived and pushed down in the social
hierarchy. Land ownership gets concentrated in few hands, which builds up tensions between the
moneylenders and farmers.
As the farmers lose their lands, they have to render services to the farmer. Their self- respect is
lost as they become slaves. Though there are many laws to protect them, they are difficult to
enforce where the farmers are illiterate or do not have enough resources to go to the courts.
Political Consequences:

The indebted farmers are treated by the moneylenders as mere commodities of votes. The
moneylenders use these farmers as their private property. As their economic position is not
sound, they do not have a political status of their own.
Their political participation is completely dominated by the moneylenders who use them for their
own political advantages. To free themselves from the clutches of the moneylenders, farmers
indulge in illegal means to repay loans.
The moneylenders in their attempts to drag and squeeze the farmers indulge into all kinds of
illegal practices and poison the political atmosphere of the villages. Thus, the rural indebtedness
adversely affects all the aspects of rural life. It hampers the agricultural production and rural

economy, reduces the farmer to a landless labourer and poisons the social and economic life of
the rural people.

Measures for the Removal of Indebtedness:

The problem of indebtedness can be solved by two means. The first is to take up measure to
reduce the burden of present indebtedness and the second is to prevent the evil from rising again
in the future.
To reduce the present burden of indebtedness, the following measures have to be taken:
1. Canceling all the debts paid to the moneylenders by the farmers, which are more than the
principal amount itself, debts which are already been repaid but still stand in the account books
of the moneylenders, debts that are created by the moneylenders by fraud, loans for which
repayments have been received in the form of money, produce and other services like labour
from the indebted farmers.
2. Debts should be properly scaled down. According to law, the inheritors are liable to pay the
debts only to the extent they have inherited. In this way, most of the debts will be reduced. Debts
that are so excessive and standing are since a long time, should be settled between the concerned
parties or through the village panchayats. Debts, which do not have records or exist with
incomplete records, should also be reduced.
3. Apart from the above two steps, the remaining part of the debts should be handled by special
institutions such as banks. Such banks pay the amount to the moneylenders on one hand and
recover the same from the debtors on easy terms. These banks also collect funds and provide
credit facilities to their members.
To control the problem of indebtedness in future, the following steps are recommended:
1. The income of the farmers should increase so that they could meet the unproductive expenses
and are not forced to take any loan. In order to achieve this goal, it is necessary that agriculture
should be conducted on scientific basis not depending totally on the natural climatic factors.
Some other measures have also been undertaken such as the introduction of land reforms
providing market for the agricultural produce, etc.
2. The panchayats and such other village level institutions should try to solve the village disputes
and try to prevent them from going to the courts of law, which need heavy expenditure.

3. Information regarding the laws and their implementation should be given to the villagers so
that they do not get into the clutches of the moneylenders for generations.
4. Adequate credit facilities on reasonable terms should be arranged to the farmers. Co-operative
credit is a good solution in this regard. Private lending should be eliminated in this field.
The above-mentioned two types of measures should be carried on simultaneously. Mere
prevention without any preventive measures for future would not help the situation; moreover,
there is every possibility of this evil to rise again and again. Thus, both these measures should go
hand in hand so that the problem of rural indebtedness vanishes completely.
14. What are the causes of poverty in India? Also explain the remedies.
The causes of poverty are as follows
1. Rapidly Rising Population:
The population during the last 45 years has increased at the rate of 2.2% per annum. On average
17 million people are added every year to its population which raises the demand for
consumption goods considerably.
2. Low Productivity in Agriculture:
The level of productivity in agriculture is low due to subdivided and fragmented holdings, lack
of capital, use of traditional methods of cultivation, illiteracy etc. This is the main cause of
poverty in the country.
3. Under Utilized Resources:
The existence of under employment and disguised unemployment of human resources and under
utilization of resources has resulted in low production in agricultural sector. This brought a down
fall in their standard of living.
4. Low Rate of Economic Development:
The rate of economic development in India has been below the required level. Therefore, there
persists a gap between level of availability and requirements of goods and services. The net
result is poverty.
6. Price Rise:

The continuous and steep price rise has added to the miseries of poor. It has benefited a few
people in the society and the persons in lower income group find it difficult to get their minimum
needs.
7. Unemployment:
The continuously expanding army of unemployed is another cause of poverty. The job seeker is
increasing in number at a higher rate than the expansion in employment opportunities.
8. Shortage of Capital and Able Entrepreneurship:
Capital and able entrepreneurship have important role in accelerating the growth. But these are in
short supply making it difficult to increase production significantly.
9. Social Factors:
The social set up is still backward and is not conducive to faster development. Laws of
inheritance, caste system, traditions and customs are putting hindrances in the way of faster
development and have aggravate" the problem of poverty.
10. Political Factors:
The Britishers started lopsided development in India and reduced Indian economy to a colonial
state. They exploited the natural resources to suit their interests and weaken the industrial base of
Indian economy.
In independent India, the development plans have been guided by political interests. Hence, the
planning a failure to tackle the problems of poverty and unemployment.
The recent famine in Somalia brought the fate of eighty percent of the worlds population to the
spotlight. With catastrophic events such as this famine, poverty resurfaces yet again in the global
consciousness. A consciousness that is mostly preoccupied with the rapid advances of its more
exciting urban economies. Questions are then raised on the prevalent quality of poverty and the
horrors of its consequences.
The causes of poverty are manifold. War, disease, famine and unemployment being the big
players. What steps can then be taken towards addressing the massive social issue of global
poverty that has afflicted humanity for centuries?
1. Employment generation

Carefully and extensively planned employment programs funded by the government can spur
growth in jobs. Industries requiring substantial labour forces can also be given significantly
larger aid from the government. Focus should be placed on developing companies that offer
sustainable and long-term jobs to the community. Companies should also budget sufficiently for
employee training and related community programs, so that employees and prospective
employees can keep their skills relevant and up-to-date.
2. Drawing on various social institutions to fund poverty fighting programs e.g. charities,
research institutions, U.N. , non-profit organizations, universities.
Money funnelled from every organization available adds up to powerful sums that can produce
tangible change. When organizations develop an interest, albeit vested, they tend to be more
strongly motivated. Organizations that have a concrete goal to achieve with strict project plans
are able to efficiently concentrate their efforts into producing change. For this reason charities
with numerous middlemen organizations should be discouraged to ensure money reaches those
in need. Importance should be given to organizations that follow the teach a man to fish ideology
rather than the give the man a fish one, unless in extremely dire emergency circumstances.
3. Transparency in government spending
Where and how a government chooses to spend taxpayers money and its own revenue should be
visible to the media and the common man. This makes governments accountable for their actions
and inaction becomes easier to pinpoint and address. It also discourages corruption in
government systems. For example, transparency will be especially beneficial to civilians whose
government might be allotting money to its nuclear weapons program instead of to its poverty
programs.

4. Cancelling impossible to repay world debts

Many developing countries are trapped in the cycle of constantly repaying debts that are
impossible to pay off. This ensures that they never get a chance to develop and become selfsufficient. The priorities of these countries are therefore unnecessarily skewed and the citizens of
these debt-ridden nations are devoid of any hope for a better future.
5. Prioritizing programs that target fundamental human rights
Every individual should have access to housing, food, clean water, healthcare and electricity.
Technically governments should only move on to other projects after they have made sure that
programs that provide these basic amenities to their people are up and running. This might prove
to be the hardest step yet.

6. Taxing the rich more and the poor less

Redistribution of wealth will be an imperative step in eradicating poverty. The rich get richer
while the poor get poorer. Taxing methods need to be tailored to an individuals financial bracket
to ensure that upward social mobility becomes an absolute possibility.
7. Building self-sufficient economies
Creating reduced dependence on oil, external financial aid and imports will help to ensure that
alleviation of poverty remains on an upward but permanent curve, as opposed to a temporary
revivalist injection in a dying economy. Steps in this area include investment in local
infrastructure, transportation and schools that keep the ball of development rolling. Projects to
launch new industries and businesses will also need monetary encouragement.
8. Education
As much as poverty is a social condition it is also a mental and psychological cage. With
education, impoverished populations are able to visualise their way out of poverty and are able to
work towards it in an organised and reliable manner. Education provides training to tomorrows
workforce and thus fortifies the economy against poverty. Education in rich populations about
poverty invokes sentiments of compassion and a sense of responsibility to the misfortunes of the
rest of the world. Education also has the power to bring about social changes such as fights
against racism and sexism both conditions that happen to be linked intrinsically with poverty.
9. Involvement of the media
The media has the power to draw the eye of the global conscience to issues of poverty. It
becomes too easy to forget the state of the less fortunate when the world is advancing at lightning
speed. With effective media coverage of poverty-related catastrophes, the demand for social
change rises collectively all over the world.
10. Microfinancing
Microfinancing makes financial services like insurance, savings and loans available to
individuals in developing nations who wish to run their own small businesses. These individuals,
suffering from lack of employment opportunities and financial backing from governments or
banks, are able to create a profitable means of survival through microfinancing. Flourishing
small businesses, in turn, create jobs, provide much needed services to their communities and
help stimulate the economy for the long run.