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BECE-002

INDIAN ECONOMIC DEVELOPMENT: ISSUES AND PERSPECTIVES

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Answer all the questions

A. Long Answer Questions (word limit-500 words) 2x20=40 marks

1) How is unemployment in India measured? Discuss the nature of employment in India.

SOLUTION The National Sample Survey Organization (NSSO),since its inception in 1950, does the measurement of

employment / unemployment in India.

The National Sample Survey Organization (NSSO) provides three different estimates of employment and unemployment based
on different approaches / reference periods used to classify an individual’s activity status. These are the

1. Usual status approach with a reference period of 365 days preceding the date of survey

2. Current weekly status approach with a reference period of seven days preceding the date of survey

3. Current daily status approach with each day of the seven days preceding date of survey as the reference period.

In order to find out whether an individual is employed or unemployed it needs to be first determined whether h/she belongs to
the ‘Labour Force’ or not, which in turn depends on the Activity Status of the individual during the chosen reference period.

Activity Status refers to the activity situation in which the individual is found during the reference period with respect to his
participation in economic or non-economic activities.

The NSSO defines following three broad Activity Status i) Working (engaged in an economic activity) i.e. ‘Employed’ ii) Seeking
or available for work i.e. ‘Unemployed’ iii) Neither seeking nor available for work.

All those individuals having a broad activity status as i) or ii) above are classified as being in the Labour Force and those having
activity status iii) are classified as outside the Labour Force. Thus labour force constitutes of both employed and unemployed.

In other words, Labor force (also called work force) is the total number of people employed or seeking employment in a
country or region.One is classified as ‘not in labour force’, if he or she was engaged in relatively longer period in any one of the
non-gainful activities.

Unemployment rate is the percent of the labor force that is without work.

Unemployment rate = (Unemployed Workers / Total labor force) X 100

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As far as the situation in India was concerned, the longer the reference period, the smaller will be the rate of
unemployment and the shorter the reference period, the larger the unemployment rate.

The Work participation rate is also estimated which is defined as the percentage of total workers (main and
marginal) to total population.

Work participation rate = (Total Workers (Main+Marginal) / Total Population) X 100

The NSSO collected employment data based on ‘usual status (UPS)’ only upto its eighth round. However from
9th round onwards, it started collecting data based on ‘current weekly status (CWS)’ approach also. Planning
Commission set up the Committee of Experts on Employment Estimates (Dantwala Committee) in 1960. The
Committee recommended concepts and definitions for conducting such surveys. It recommended collection of
data based on CDS in addition to UPS and CWS. Accordingly, beginning with the 27th round (1972-
73),quinquennial(5-yearly) surveys were being conducted by NSSO to collect employment-unemployment data
based on all the three approaches of UPS,CWS and CDS.

In the annual survey rounds of NSSO, only employment-unemployment data based on ‘usual activity status’
and ‘current weekly status’ were collected up to 59th round. However in 60th round, a separate schedule was
canvassed to collect employment and unemployment data on ‘current daily status’ also. In fact, since 60th
round, NSSO is collecting data on employment and unemployment on current daily status also in its annual
rounds.

For NSSO reports please see the website of Ministry of Statistics and Programme Implementation

http://mospi.nic.in/Mospi_New/site/inner.aspx?status=3&menu_id=31

NSSO surveys are conducted on quinquennial basis. In order to measure employment-unemployment on an

annual basis, Employment-Unemployment Survey is being conducted by Labour Bureau since 2009. This
survey also captures the labour estimates in terms of usual principal status, usual principal and subsidiary

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status, current weekly status and current daily status. The findings of the survey may be viewed
at http://labourbureau.nic.in/rep_1.pdf

Besides this, a quick quarterly enterprise level surveys(Quick Employment Survey)are also conducted by
Labour Bureau to capture the changes in the employment –unemployment scenario at much shorter interval.
However the intent of this survey was to mainly assess the impact of global financial crisis on the Indian
economy.

some observers, the dramatic growth of the services sector in India reflects rapid strides made by educated
professionals. Some others see it as the expansion of an employer of last resort. Given this heterogeneity, the
object of the paper is to analyze the nature of employment being created in the different sub-sectors of
services, relative to the industrial sector. The nature of employment is defined to include educational
requirements and quality, where the latter comprises wages, job security and social protection. Using
different econometric models to analyse household survey data from India in 1993-94 and 2004-05, we find
the following. First, sub-sectors of services are generally either ‘good’ or ‘bad’ employers. Second, service sub-
sectors with low educational requirements have low overall quality of employment, and vice-versa. Moreover,
employment expansion appears to be more in sub-sectors where educational requirements and quality of
employment is low.

2) Discuss the achievements and weaknesses of the Indian education sector.

SOLUTION

Major Achievements of the Education Sector in India!

Under the Five-Year Plans, educational facilities in India have been expanded at all levels. At
present, there exist abundant facilities for elementary, higher and technical education. The
ratio of literacy persons to total population of age seven or more is known as literacy ratio
(children below the age of seven are excluded because they may not receive an education
before that age).

An increase in literacy is generally accepted as an indicator of the spread of education. Spread

of education in India at all levels has contributed in raising the literacy ratio in the country. The

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number of literates in the country has increased from 5.7 crores in 1951 to 57 crores in 2001,
increasing by ten times over this period of 50 years. The literacy rate has increased from 18 per
in 1951 to 67.5 Per cent in 2007.

Some of the positive achievements in the sector are as follows:

Primary Education:
(1) Primary education covers students from class 1 to class 8 in the age group of 6 to 14 years.

(2) The number of primary and middle schools has considerably increased. In 1950-51 their
number was 2.23 lakh. In 2005-06 it increased to 12.83 lakh.

(3) As many as 89 per cent children in the age-group of 6-14 years have been receiving
education in schools. Universalisation of primary education is still a distant dream.

(4) Educationally backward states in India are: Bihar, Rajasthan, UP and Arunachal Pradesh.

(5) Main factor responsible for educational backwardness is social and economic poverty of the
people.

(6) Government started many schemes and programmes to boost universalisation of primary
education, like:

(a) National Programme of Mid-day Meals in schools (1995)

(b) District Primary Education Programme (1994)

(c) Sarva Shiksha Abhiyan (2000)

(d) Education Guarantee and Alternative Innovative Education

(e) Kasturba Gandhi Balika Vidyalaya

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(f) National Programme for Education of Girls or Elementary Education.

Secondary Education:
It serves as a bridge between primary and higher education and prepares young person’s
between the age group of 14-18 years for entry into higher education.

i. In 1950-51, there were 7.4 thousand secondary schools with 1.5 million total enrolled
students. In 2006-07, the number of schools rose to 168 thousand and the number of students
went up to 39.4 million (Source: Economic Survey 2008-09).

ii. In 1987-88, Navodaya Vidyalaya were established to give modem education of a good
standard to talented students of rural areas. Presently, 539 Navodaya schools are functioning.

iii. The central government has established Kendriya Vidyalaya for the benefit of the children of
transferable employees.

iv. NCERT was set up in 1981. It functions as an academic advisor to the Ministry of Human
Resource Development, Government of India. The main objectives of the NCERT arc to assist
and advise the Ministry in implementing policies and majors programmes in the field of school
education. NCERT has five regional institutes and field offices in major states ail over the
country. The Council conducts, aids, promotes and coordinates research in school education
and teacher education aid develops, prints distributes textbooks.

v. During the Tenth Plan, a centrally sponsored scheme ‘Quality Improvement in School’ was
introduced. It had the following main components: (i) National Population Education Project;
(ii) Environmental Orientation to school. Education; (iii) Improvement of Science Education in
Schools; and (iv) Promotion of Yoga in Schools.

Higher Education:
i. As many as 304 universities are providing higher education in the country in 2005-06. Of
these, there are 20 central universities. Besides, there are 40 deemed to be universities.

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ii. The total number of colleges in the country is 12,178. The number of students in all
universities is 11.61 million (Economic Survey 2008-09).

iii. University Grants Commission controls and guides higher education. University Grants
Commission was established in 1956. It takes measures for promotion and co-ordination of
university education and determination and maintenance of standards in teaching, examination
and research in universities, and allocation and disbursement of grants to them.

iv. Indira Gandhi National Open University (IGNOU) was established in September 1985. It is
responsible for the introduction and promotion of Open University and distance education
system on the educational pattern of the country and for the co-ordination and determination
of standards in such systems. At present, there are ten open universities in the country. There
are 104 correspondence course institutions, imparting education through the distance mode in
the conventional system.

Weaknesses in education sector in India!

Notwithstanding the progress made, there are several shortcomings in the education sector.
The main shortcomings are as under:

i. Inadequate Facilities:
Despite large expansion, education facilities are still short of the needs of the country.
Education still covers a limited population of the country. The country still has 46 per cent
illiterate females and 24 per cent illiterate males. Illiteracy among the scheduled castes and
scheduled tribes is still very high. The dropout rate is very high. 60 per cent of the children do
not attend the secondary schools. Only 2.5 per cent of the Indian population attends colleges
and university compared with 66 per cent in the USA and 38 per cent in Korea.

ii. Unequal Accessibility:

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Opportunities and benefits of education are highly unequal. For example, education of females
is far less than that of the males.

iii. Irrelevant and Poor in Quality:

The quality of education in terms of its contents is low. Besides, the course contents of
education are less relevant to the needs of the country. For example, there is too much
emphasis on general education as compared to technical and vocational education.

iv. Imbalances:
The education system also suffers from various imbalances. For instance, a greater proportion
of resources is allocated to elementary education and higher secondary education meant for
the common people. The university and other higher education have low priority in allocation
of funds, which is a matter of concern. There are inequalities in enrolment in higher education
across various social groups, rural and urban areas, and different gender. Women belonging to
SCs and STs are the most disadvantaged lot.

Similarly, while there is large unemployment among the educated persons with general
degrees, those with relevant technical education are in short supply. In the same way, the
education system is biased in favour of urban areas and against the rural areas.

v. Low Access Level in Rural Areas:

There is a high degree of disparity in access to education. The ‘access level’ is considerably low
for the rural population compared to the urban population.

vi. Privatisation:
There is a growing trend towards privatisation of education. It makes education expensive. In
view of the above weaknesses, India’s record in the field of education is held to be abysmal

B. Medium Answer Questions (word limit-250 words) 4X12=48 marks

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1) Outline the concept of investment.

SOLUTION

In general, to invest is to distribute money in the expectation of some benefit in the future – for
example, investment in durable goods, in real estate by the service industry, in factories for manufacturing,
in product development, and in research and development. However, this article focuses specifically on
investment in financial assets.

In finance, the benefit from investment is called a return. The return may consist of a profit from the sale of
property or an investment, or investment income including dividends, interests, rental income etc., or a
combination of the two. The projected economic return is the appropriately discounted value of the future
returns.

Investors generally expect higher returns from riskier investments. When we make a low risk investment, the
return is also generally low.

Investors, particularly novices, are often advised to adopt a particular investment

strategy and diversify their portfolio. Diversification has the statistical effect of reducing overall risk.

2) What are the risks of high fiscal deficit?

SOLUTION Fiscal deficit is a wider concept. It is over and above budgetary deficit, i.e., if borrowings and
other liabilities are added to the budgetary deficit, we obtain fiscal deficit.

It measures addition to liabilities of the Government of India. It is calculated as:

1st Method:
Fiscal Deficit = Budgetary Deficit + Borrowing and other Liabilities

2nd Method:

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Fiscal Deficit = Total Expenditure – (Revenue Receipts + Recoveries + Sale of Public Assets) The fiscal deficit as
a proportion of GDP is budgeted at 4.5 per cent in 2003-04 and 4.1 per cent in 2004-05.

Risks of High Fiscal Deficit:

There are several risks with high fiscal deficits. These are:
i. Fiscal deficits, spilled over, could lead to macro-economic instability particularly if the government resorts to
deficit financing (i.e. borrowing beyond a limit and the printing of new currency);

ii. High fiscal deficits imperil national saving rates, thereby reducing overall aggregate investment. This further
jeopardises the sustainability of growth. Low levels of public -investment renders poor physical infrastructure
incompatible with a large increase in the national domestic product.

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iii. The continuing large fiscal deficits, even if they do not spill over, lead to macro-economic instability in the
short run, requiring higher taxes to cover the burden of internal debt. High tax rates will place the country at a
significant disadvantage relative to other fast-growing countries by reducing the competitive strength of the
domestic producers;

iv. Larger fiscal deficits have adverse effects on balance of payment (BoP) too. Aggregate excess demand
representing a shortage of domestic supplies spills over as current account deficit (CAD). External loans raised
to finance the CAD, ultimately leads to a BoP crisis; and

v. With large fiscal deficits, even an independent monetary management cannot sustain a low interest rate
regime. This, therefore, impinges on a necessary condition for macro-economic stability that ‘real interest rate
must be lower than the GDP growth rate’.

3) Discuss any two important components of ‘new agricultural strategy’.

SOLUTION

Although it is proper to identify the new strategy with the HYV seeds, there are other components of the strategy which
are also important. These can be identified as follows:

I Greater Intensity of Farming

The new strategy is concerned not only with cropping. Entirely new crop relations have been made possible by the
development of chori duration varieties of paddy, jower, maize and bajra suited to different agro-climatic conditions.
Among other crops included in the rotation are barley, oilseeds, potato and vegetables. Besides, the other factors
contributing to the cropping intensity are: programmes like major irrigation projects, flood control, development of
markets and rural infrastructure, urbanisation and rural industrialisation, pricing policies, etc.

II. Agricultural Technology

(i) A new emphasis has come to be attached to the role of agricultural technology as a major input of agricultural
production. A number of steps have been taken to facilitate organisation and development of agricultural research
through the state-funded National Agricultural Research System (NARS). Towards this end, the Indian Council of
Agricultural Research (ICAR) was reorganised in 1965. To it were transferred the research institutes which had been
previously Impact of Green Revolution administered by the union Government. An important step was the

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establishment of agricultural universities which were conceived as extension of education. Another development of
importance was the organisation of all-India co-ordinated research projects. All these constituted a significant advance
towards the planning of agricultural research on a national basis.

(ii) Monsoon Rainfall Predictions: This has been another major technological breakthrough facilitated by recent advances
in remote sensing techniques. The Indian Meteorological Department has managed to develop a fairly reliable monsoon
prediction model based on 16 global weather-related parameters. Preliminary monsoon rainfall predictions made as
early as in March-April by using this model have consistently been holding true for several years. An early monsoon
forecast and advance knowledge of the likely pattern of rainfall makes crop planning possible and efficient. In case of an
anticipated unsatisfactory rainfall, farmers can evolve contingency crop plans and make necessary arrangements for
their implementation to minimise the damage. Technology is now available for mitigating the impact of such a situation.

III.Package of Inputs

The approach in the new agricultural technology, is the application of the package or a ‘combination’ of improved
practices. In other words, instead of recommending to the farmers to adopt an improved practice in isolation, the
strategy aims at making them adopt simultaneously all the elements needed for augmenting production. The
constituents of package are: improved seeds, fertilisers, plant protection, manures, improved agricultural practices, etc.
It is only when a standard combination of all components as recommended by agricultural scientists is applied that the
yield can be maximum.

4) Explain the phase of industrial growth during the period 1991-2007 under the New Economic Policy.

SOLUTION

During this phase, industry and trade policy reforms were accelerated. Public investment contracted sharply to reign in
the fiscal imbalance. Financing of industrial development changed considerably as part of the financial sector reform
which cut into directed lending. Although formal changes in industrial labour laws were avoided due to lack of political
consensus, there were adequate signals to employers that the government would not come in the way of restructuring
the industrial relations. While the trend in the growth rate in the 1990s is the same as in the previous decade of 1980s,
the yearly growth rates showed a marked difference. After an expected contraction in response to the external payment
crisis in 1991-92, industrial output rebounded rapidly in the following four years, reaching a new peak in 1995-96 with
an annual growth rate in output of over 14 per cent. The sharp upturn is widely credited to policy reforms leading to a
liberalised and competitive industrial atmosphere. However, the expectation of further acceleration with more reforms

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was short-lived as the growth rate steadily decelerated in the following seven years, except for a minor improvement in
the year1999-2000. The policy initiatives of the 1990s were based in theory from the mainstream economics. They were,
in principle, expected to set right what was widely believed to have been wrong with India’s industrialisation effort. As
the noted economist, T N Srinivasan argued, the reforms were based on an understanding of the experience of Indian
development strategy since the 1950s that delivered ‘neither rapid growth nor appreciably greater equity’. In the words
of an yet another leading economist, Jagdish Bhagwati’s views, the three main elements of India’s policy framework that
stifled growth and efficiency were: (i) extensive bureaucratic controls over production, investment and trade; (ii)
inward looking trade and foreign investment policies, and (iii) a substantial public sector going well beyond the
conventional confines of public utilities and infrastructure. The control system followed by India has also been argued
differently to imply that the industrial policy pursued was responsible for persistent fiscal deficits and periodic balance
of payment crises. Although in broad terms, none of these features of the policy framework remained any more after
1991, the question that still remains to be answered is one of ‘why the growth of the industrial sector, especially the
manufacturing sector’s growth, slowed down in the mid-1990s’?

The slowdown (or lack of sustained improvement witnessed in some years of 1990s) is also attributed to the delayed
reforms in other complementing areas of the economy. It is argued that measures like: (i) a quick and sharp reduction in
tariffs to the average levels of many Asian economies; (ii) scaling down the remaining restrictions on foreign direct
investment, and (iii) removal of rigidities in the industrial labour market would deliver better fruits of reforms. If this
argument is given credence, then the hastening of the reforms in the post-1990s, compared with the moderate
liberalisation policies practiced during the decade of late 1970s and early1980s, ought to have improved the industrial
growth rate during the 1990s. However, this has not happened as the industrial growth rates of 1980s (6.5%) and the
period in post-1990s, from 1991-2004 (5.8%), presented in Table 17.3 reveals. Notwithstanding the lower long term
average in the latter period as compared to the former, it is relevant to recall from the data presented earlier in Table
17.1 that the year 2006-07 marked an yet another solitary year when both the registered and the unregistered segment
of manufacturing recorded significantly high growth rates. Thus, although high sustained growth rates in the industrial
performance is not observed during the post 1991-years, with the reforms in the complementary sectors (e.g. finance,
insurance) introduced in the post-2000 years, the industrial growth of the decade 2001-2010, compared with the decade
of 1991- 2000, should be higher if the positive relationship between the pace of reforms and the economic outcomes,
argued by many, holds good.

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C. Short Answer Questions (word limit 100 words) 2x6=12 marks

1) Current account deficit.

SOLUTION

2) National rural health mission.

SOLUTION

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