Economics 3939291
Economics 3939291
ECONOMICS
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DIRECTOR
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CONTENTS
8 Balance of Payments 23 to 36
Economics_SrSec_20
22-23.pdf
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Unit: 1- NATIONAL INCOME AND RELATED AGGREGATES
Real flow
It refers to flow of factor services from households to firms and the corresponding flow
of goods and services from firms to households
The household provides factor services to the firms which in turn provide goods and
services to them as reward for their productive services.
It determines the magnitude of growth process in an economy
Money flow
It refers to flow of factor payments from firms to households for the factor services
rendered by households and the corresponding flow of consumption expenditure from
households to firms for the purchase of goods and services
It involves exchange of money
It is known as Nominal flow
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FACTOR PAYMENTS
FACTOR SERVICES R
REAL FLOW
HOUSEHOLD FIRM
CONSUMPTION EXPENDITURE
BASIC CONCEPTS
1. Normal Resident – it refers to an individual or an institution who resides in a country for more
than one year and whose economic interest lies in that country
a. Foreign tourists who visit for recreation, holiday, medical treatment, study
b. Foreign staff of embassies, diplomats and members of armed forces of a foreign country
located in the given country etc
c. International organisations like UNO, WHO.- they are treated as residents of
international area
d. Employees of international organisation are considered as residents of the countries to
which they belong and not of the international area. But if the employees work for more
than one year in such international institutions, then they become the normal residents of
the country in which such institutions are located.
e. Crew members of foreign vessels provided their stay is less than one year
f. Border workers who live near international border and cross the border on a regular basis
to work in the other country. They are treated as normal resident of the country where
they live.
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2. Factor Income and Transfer Income
It refers to income earned by the factors of It refers to income received without rendering any
It is included in National and Domestic income It is not included in National and domestic income
sector
These are those goods which are used for final These are those goods which are either used for
consumption or for investment resale or for further production in the same year
Included in National and domestic income Not Included in National and domestic income
They cross the production boundary They are within the production boundary
Ready to use by their final users and no value has Not ready for use by their final users and value has
Milk purchased by households Milk used in sweets shop for preparation of sweets
These goods satisfy human wants directly These goods satisfy human wants indirectly
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Most consumption goods (except durable goods) Capital goods ) has expected limited life of more
a. Gross Investment – addition to stock of capital before making allowance for capital.
b. Net investment – actual addition made to the capital stock during a given period of time.
c. Depreciation – Fall in the value of fixed assets due to normal wear and tear, passage of
6. Net Factor Income from Abroad (NFIA) = Factor income Received from Abroad minus
1. GROSS DOMESTIC PRODUCT at market price – it is the money value of all final goods and
services produced within the domestic territory by residents and non-residents during a given
period of time including depreciation
2. GROSS DOMESTIC PRODUCT at factor cost – it is the sum of all factor income earned by
the factors of production within the domestic territory by residents and non-residents during a
given period of time including depreciation
3. NET DOMESTIC PRODUCT at market price – it is the money value of all final goods and
services produced within the domestic territory by residents and non-residents during a given
period of time excluding depreciation
NDP mp = GDP mp - depreciation
4. NET DOMESTIC PRODUCT at factor cost – it is the sum of all factor income earned by the
factors of production within the domestic territory by residents and non-residents during a given
period of time excluding depreciation
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NDP fc = GDP mp - depreciation– Net Indirect Tax
Domestic factor income (NDP fc) = Compensation of Employees (wages and salary
+employer’s contribution to social security+ bonus +
pension of retired person)
5. GROSS NATIONAL PRODUCT at market price – it is the money value of all final goods and
services produced by residents within the domestic territory and abroad during a given period of
time including depreciation
6. GROSS NATIONAL PRODUCT at factor cost – it is the sum of all factor income earned by
the factors of production by residents within the domestic territory and abroad during a given
period of time including depreciation
GNP fc = GDP mp + Net factor income from abroad – Net indirect tax
OR
GNP fc = GNP mp - Net indirect tax
7. NET NATIONAL PRODUCT at market price – it is the money value of all final goods and
services produced within the domestic territory and abroad by residents during a given period of
time excluding depreciation
8. NET NATIONAL PRODUCT at factor cost – it is the sum of all factor income earned by the
factors of production within the domestic territory and abroad by residents during a given period
of time excluding depreciation
NNP fc = GDP mp - depreciation– Net Indirect Tax +Net factor income from abroad
OR
NNP fc = NDP fc (DFI) +Net factor income from abroad
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+ Operating Surplus ( rent + interest + royalty+ profit)
All the production units will be classified into primary, secondary and tertiary
sectors
(NDP at FC)
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Step 2- Calculation of expenditure from all the Four sectors of the economy
E-Material
https://drive.google.com/file/d/1HqYbBd3gOLtXgABtyQitpV5YtDNLh4Pd/view?usp=share_li
nk
https://www.youtube.com/watch?v=tQ0sHBg_W_M&t=21s
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Domestic Factor Income=
NDP at FC
https://drive.google.com/file/d/1Dq35J_UrG37G96dEXVCJAgllxvl6M34u/view?usp=sharing
(Video Lesson):
https://drive.google.com/file/d/10Vmm5oEX2JvRJ8EmNVBxY7B7Ijusij9c/vie
w?usp=sharing
8. GDP and Welfare: ( Audio Explanation)-
https://drive.google.com/file/d/1URkrx726SHuzhtOpDfz5TwZ6QTKRwcWp/view?usp=sharing
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Unit-2: MONEY AND BANKING
4 Lack of divisibility
Money: Money is anything which is generally acceptable as a medium of exchange and at the
same time acts as a measure of value, store of value and standard of deferred payment.
Functions of Money:
1. Primary Functions
a. Medium of exchange
2. Secondary Functions
a. Standard of deferred payment
b. Store of value
c. Transfer of value
Supply of Money: Total stock of money (currency notes, coins and demand deposit of banks) in
circulation are held by the public at a given point of time.
Measures of Money Supply
M1 = C + DD + OD
C = Currency and coins with the public
DD = Demand deposits of the public with the banks
OD = Other deposits
M2 = M1+ Post office savings deposits
M3 = M1+ Time deposits of commercial banks
M4= M3+ Total deposits with the post office saving organisation excluding NSC
Banking :
Commercial Banks: Commercial Banks are financial institutions which accept deposits from
the public and provide loans facilities for investment with the aim of earning profit.
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Functions of Commercial Banks
(a) Accepting deposits
(f) Purchase and sale of shares and securities on behalf of the customers
Central Banks: The central Bank is the apex institution of monetary and financial system of a
country. It makes monetary policy of the country in public interest. It manages, supervises and
facilitates the banking system of the country.
Functions of Central Banks
1. Bank of Issue
3. Banker’s Bank
4. Controller of credit.
I. Quantitative Measures:
1- Bank Rate Policy:- Rate charged by centreal bank from commercial banks for providing
loans to them.
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Repo rate : Repo rate is the rate at which the central bank of a country (Reserve Bank of India in
case of India) lends money to commercial banks in the event of any shortfall of funds
Reverse repo rate : Reverse repo rate is the rate at which commercial banks can park their
surplus funds with central bank
2. Open Market Operations: It means the purchase and sale of securities in the Open Market by
Central Bank.
3- Legal Reserve Ratio(LRR):- is fixed by the central bank of a country and it is the sum of
CRR and SLR.
(a)Cash Reserve Ratio(CRR):- It is a part of LRR which is to be kept with the central bank in
the form of cash.
(b)Statutory Liquidity Ratio(SLR):- It is a part of LRR which is to be kept with the bank
themselves in the form of liquid assets.
E- MATERIAL
1. Money- Functions and Money Supply (Video Lesson):
https://drive.google.com/file/d/1JMwoPU_NXDGHw1LRCsKGFMvBzCBdZhZu/view?usp=sharing
BANKING:
https://drive.google.com/file/d/1-kq1PbRPubAe3WOCBH7Xy_I667xSpmXq/view?usp=sharing
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Unit 3: DETERMINATION OF INCOME AND EMPLOYMENT
Hence, AD=C+I+G+(X-M).
In a two sector economy AD =C + I.
Aggregate supply (AS): is the total supply of goods and services in the economy.
It is also the value of total output available is an economy during a given period of
time.
It is the sum total of consumption expenditure and saving.
AS = C + S
Aggregate supply represents the national income of the country.
AS = Y (National Income)
IMPORTANT FORMULAE.
AD=C+I (two sector economy).
APC=C/Y.
APS=S/Y.
APC+APS=1
MPC=∆C/∆Y
MPS=∆S/∆Y
MPS+MPC=1 AND 1-MPC=MPS
Multiplier K=∆Y/∆I or K=1/MPS or K=1/1-MPC
C= C₀ +b(Y)
S= - C₀ +(1-b)Y
C₀ = autonomous consumption
b= MPC
- C₀ = negative saving
(1-b) = MPS
E-MATERIAL
https://drive.google.com/file/d/1BUG4HxHkB1RO3SNXIIUt6iC1QQRQHoZ_/vie
w?usp=sharing
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2. Meaning of Excess Demand and Deficient Demand (Video Lesson):
https://drive.google.com/file/d/1xYGhcNV5pTit-5iCNP-dIl9m8-
4SSgeC/view?usp=sharing
https://drive.google.com/file/d/18EWZIOoNz2XEAZ5LiyfokQd-
HvfbuSLL/view?usp=sharing
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Unit 4: GOVERNMENT BUDGET AND THE ECONOMY
It is the statement of expected revenue and proposed expenditure for the coming financial
year.
There must be a sanctioning authority
Has periodicity
It shows procedure to collect revenue and administer expenditure.
1. Reallocation of resources –
Many a times the market forces are not able to reallocate the resources. The government has to
reallocate resources based on social and economic aspect. For example consumption of harmful
consumer goods can be discouraged by imposing high taxes and production of socially useful
goods such as food grains, medicine, housing etc can be encouraged through subsidies and tax
concessions.
3. Economic stability-
The government budget is used to prevent economic fluctuations. Economics fluctuations refer to
the situation of inflation and deflation. Inflation means continuous rise in prices. This happens
when demand is more than supply. Deflation refers to situation when prices keep falling
continuously. This happens when demand is less than supply. It uses various fiscal policy
measures to reduce these fluctuations. Economic stability increases the rate of investment and in
turn increases the rate of economic growth and development
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4. Management of Public enterprises-
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Government undertakes commercial activity through its public enterprise. The management and
operation of these enterprises is the responsibility of the government as these enterprises promote
social welfare. Example railways, electricity, oil exploration etc.
COMPONENETS OF BUDGET
A. BUDGET RECEPITS
B. BUDGET EXPENDITURES:
Budget expenditures are revenue expenditure and capital expenditure:
I. Revenue Expenditure:
Implications / Significance
2. Fiscal deficit – it is the excess of total expenditure (revenue expenditure and capital
expenditure) over total receipts ( revenue receipts and capital receipts excluding borrowings)
FISCAL DEFICIT = total expenditure (revenue expenditure + capital expenditure) –total receipts
(revenue receipts and capital receipts excluding borrowings)
1. Debt trap – Borrowing creates problem of not only paying the interest but repayment of
loans. As government borrowing increases, its future liability to repay the loan amount
along with interest also increases. Increase in interest payments increases the revenue
expenditure of the government, leading to high revenue deficit and the government has to borrow
more to repay the past loans. Thus there is a cycle of debt trap.
2. Inflation – as government borrows from RBI, it results in printing of new currency notes and
coins. If the loan is used by the government for unproductive purpose then it may result in
inflation as the money supply increases due to increase in employment, hence demand increases
without corresponding increase in output/ supply in the economy. Unproductive purpose means
which does not result in the production of goods and services.
Foreign Dependence- if the government borrows money from other countries or financial institutions
then these countries and institutions will try to interfere in the economic policies of the government
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3. Retards economic growth- borrowings put a financial burden on the future generation to repay
the past loan and its interest thereon. This retards the growth of the economy.
Implications / Significance:
1. It shows how much government borrowing is able to meet other expenses other than the
interest payments
2. If primary deficit is zero it means the whole borrowings is used to cover the interest
payments of previous borrowings. It is not adding to the existing loans.
E-MATERIAL:
1. Video Lesson:
https://drive.google.com/file/d/1BwIwvE79E3ZpmGAt0YetKtMKs26Un57Z/view?
usp=sharing
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UNIT-5: BALANCE OF PAYMENTS
Gist of the Lesson:
Balance of payments (BoP)
Balance of payments is a systematic record which shows all international transactions of
a country with the rest of the world during a year.
Balance of payments takes into account the exchange of both visible and invisible
items. Hence the balance of payment represents a better picture of a country’s economic
transactions with the rest of the world than the balance of trade.
Trade account of the balance of the payments includes exports and imports of only goods in a
year. The difference between the value of exports of goods and value of imports of goods is
called balance of trade.
Generally, a positive value (+) is assigned to exports—and that includes exports of money or
other financial assets as well as exports of products.
Generally, a negative value (-) is assigned to imports—and that includes imports of money and
other financial assets as well as imports of products
The actual accounting simply records the flows as they are measured over any specified time
period.
The balance of trade is a part of balance of payment. Balance of trade simply deals with the
export and import of goods. Balance of trade doesn’t include any services (not even the import
and export of services; we have a different name for that).
Balance of payment, on the other hand, is a much broader concept. It includes the balance of
trade, the balance of services, balance of unilateral transfers, and balance of payment on capital
account.
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The idea behind the balance of payment is to see whether both sides match. In other words, we
will see whether the total of both sides (debit and credit) will equal to zero (we will see the
examples in later sections).
In this article, discuss head to head differences between balance of trade vs balance of payments.
Balance of trade is just a smaller part of balance of payments. Let’s look at the differences
between balance of trade and balance of payments below –
Here are the key differences between balance of trade and balance of payments –
Balance of trade can be calculated by deducting the value of imports of goods from the value of
exports of goods. Balance of payments, on the other hand, can be calculated by adding balance
of payments at current account and balance of payments at capital account or by finding out the
net balance between inflow of foreign exchange and outflow of foreign exchange.
Balance of trade portrays a partial picture of foreign exchange. Balance of payments, on the
other hand, provides a holistic picture.
The net effect of balance of trade can be positive, negative, or zero. The net effect of balance of
payments would always be zero.
Capital and unilateral transfers are not included in the balance of trade. Capital and unilateral
transfers are major parts of balance of payments.
Non-factor services are a part of invisible. This includes shipping, banking, insurance and
(a) Services-banking, insurance, shipping etc.: When a country gets such services from
other countries, it is called import of services for which payments in foreign currencies
are made. Similarly when a country provides these services to the other countries it is
called exports of services for which it gets payments in foreign currencies?
(b) Foreign Travel (Tourism): When foreign tourists visit a country, in receipts foreign
currencies which they spend during their stay. Similarly when people of a country visit
other countries, they require foreign currencies for their spending in those countries. This
is outflow of foreign currencies.
(c) Investment Income: a country may receive interest on given loans to other countries.
These receipts are also foreign currencies. Similarly payment of interest and dividends
on loans and investment by people of other countries results in outflow of foreign
currencies.
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(i) Private Transactions: These are transactions that are effecting assets or liabilities
by individuals, businesses etc.
(ii) Official Transactions: Transactions affecting assets and liabilities by the
government and its agencies.
(iii) Direct Investment: It is the act of purchasing an asset and at the same time
acquiring control of it. An example is the acquisition of a firm in one country by a
firm in another country.
Similarly transaction by individuals could be the purchase of a house abroad etc.
(iv) Portfolio Investment : It is the acquisition of an asset that does not given the
purchase control on the asset
Ex-such investment is the purchase of shares in a foreign company or bonds
issued by a foreign government, or loans made to foreign forms or government.
The capital outflow is awarded a negative sign and capital inflows are awarded a
positive sign. The net value of the balances of direct and portfolio investment is
called the balance on capital account.
Structure of balance of payment accounting:
The transactions are recorded in the balance of payments account in double-entry book
keeping.
Each international transaction undertaken by the country will result in a credit entry and
debit entry of equal size. As international transactions are recorded in double entry
accounting, the BOP accounting must always balance: that is total amount of debits must
equal total amount of credits. Of course, the balancing item. Errors and Omissions must
be added to ‘balance’ the BOP accounts.
Transactions in BOP are classified into five major categories as given below :
(1) Goods and Services account
(2) Unilateral transfers account
(3) Long-term capital account
(4) Short-term private capital account
(5) Short-term official capital account
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Autonomous items in the BOP : Autonomous items or transactions in the BOP refer to
international economic transactions that take place due to some economic motive such as
profit maximization. These transactions are independent of the state of the country’s
balance of payments. These transactions take place both on current account and capital
account.
Example; Export of tea to England, Imports of crude oil, Loan raised by Tata Motors
from abroad
These items are often called above the line items in the BOP as first item before
calculating surplus or deficit in BOP.
The balance of payments is in deficit if the autonomous receipts are less than autonomous
payments. This means that the foreign country has some net claims against the foreign
country.
Autonomous receipts > Autonomous payments = Surplus in BOP
Autonomous receipts <Autonomous payments = Deficit in BOP
Accommodating Items of BOP; Accommodating Items or transactions refer to those
transactions which are done to cover the deficit or surplus in BOP. These items take place
only in the capital account.
Example;-
Loan taken by India from IMF to cover BOP deficit.
Reducing foreign exchange reserves.
These transactions are related to establish BOP identity.
These items are also called below the line items’ in the BOP as secondary item after
calculating surplus or deficit in BOP.
(1) Balance of Trade is calculated on the basis of exports and imports of goods only.
(2) If the value of exports > value of imports of goods, the balance of trade shows a surplus.
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(3) If the value of exports of goods < value of imports of goods, the balance of trade shows a
deficit.
(4) The balance of trade of our country has always been in deficit because our imports of
goods have increased at a faster rate than the exports of goods.
(5) The current account includes both trade account and invisible account. So the sum of
trade balance and invisible balance is called balance on current account.
(6) Capital account includes 2 types of transactions (i) accommodating (ii) autonomous.
(7) Autonomous transactions are not undertaken on account of deficit or surplus in the BOP.
(8) Accommodating transactions are taken on account of deficit or surplus in BOP.
(9) Balance of payments always balances because total receipts are always equal to
payments. It is made possible by the accommodating transactions.
Foreign exchange rate is the rate at which one currency is exchanged for another. Thus, an
exchange rate can be regarded as the price of one currency in terms of another. An exchange rate
is a ratio between two monies. If 5 UK pounds or 5 US dollars buy Indian goods worth ₹ 400
and ₹ 250 then pound- rupee or dollar-rupee exchange rate becomes ₹ 80 = £1 or ₹ . 50 = $1,
respectively.
Exchange rate is usually quoted in terms of rupees per unit of foreign currencies. Thus, an
exchange rate indicates external purchasing power of money. For example, at present , Rs.82 =
1 US$
A fall in the external purchasing power or external value of rupee (i.e., a fall in exchange rate,
say from ₹ 80 = £1 to ₹ 90 = £1) amounts to depreciation of the Indian rupee. Consequently, an
appreciation of the Indian rupee occurs when there occurs an increase in the exchange rate from
the existing level to ₹ 78 = £1.
In other words, external value of the rupee rises. This indicates strengthening of the Indian rupee.
Conversely, the weakening of the Indian rupee occurs if external value of rupee in terms of
pound falls. Remember that each currency has a rate of exchange with every other currency.
Not all exchange rates but about 150 currencies are quoted, since no significant foreign exchange
market exists for all currencies. That is why exchange rate of these national currencies are quoted
usually in terms of US dollars and euros.
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2. Exchange Rate Determination:
Now two pertinent questions that usually arise in the foreign exchange market are to be answered
now. Firstly, how is equilibrium exchange rate determined and, secondly, why exchange rate
moves up and down?
There are two methods of foreign exchange rate determination. One method falls under the
classical gold standard mechanism and another method falls under the classical paper currency
system. Today, gold standard mechanism does not operate since no standard monetary unit is
now exchanged for gold.
All countries now have paper currencies not convertible to gold. Under inconvertible paper
currency system, there are two methods of exchange rate determination. The first is known as the
purchasing power parity theory and the second is known as the demand-supply theory or balance
of payments theory. Since today there is no believer of purchasing power parity theory, we
consider only demand-supply approach to foreign exchange rate determination.
Since the foreign exchange rate is a price, economists apply supply-demand conditions of price
theory in the foreign exchange market. A simple explanation is that the rate of foreign exchange
equals its supply. For simplicity, we assume that there are two countries: India and the USA. Let
the domestic currency be rupee. US dollar stands for foreign exchange and the value of rupee in
terms of dollar (or conversely value of dollar in terms of rupee) stands for foreign exchange rate.
Now the value of one currency in terms of another currency depends upon demand for and
supply of foreign exchange.
Import of goods & services; investment in other countries; gifts & grants to abroad; direct
purchase made in abroad; other payments involved in international transactions etc. The demand
for foreign exchange is made for the purpose of payments of foreign loans, import ofproducts,
making investments & giving loans to other countries, tour & travel in abroad etc. The demand
for foreign exchange is inversely related to the exchange rate.
When Indian people and business firms want to make payments to the US nationals for buying
US goods and services or to make gifts to the US citizens or to buy assets there, the demand for
foreign exchange (here dollar) is generated. In other words, Indians demand or buy dollars by
paying rupee in the foreign exchange market.
A country releases its foreign currency for buying imports. Thus, what appears in the debit side
of the BOP account is the sources of demand for foreign exchange. The larger the volume of
imports the greater is the demand for foreign exchange.
The demand curve for foreign exchange is negative sloping. A fall in the price of foreign
exchange or a fall in the price of dollar in terms of rupee (i.e., dollar depreciates) means that
foreign goods are now more cheaper.
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Thus, an Indian could buy more American goods at a low price. Consequently, imports from the
USA would increase resulting in an increase in the demand for foreign exchange, i.e., dollar.
Conversely, if the price of foreign exchange or price of dollar rises (i.e., dollar appreciates) then
foreign goods will be expensive leading to a fall in import demand and, hence, fall in the demand
for foreign exchange.
Since price of foreign exchange and demand for foreign exchange move in opposite direction,
the importing country’s demand curve for foreign exchange is downward sloping from left to
right.
In Fig. 1, DD1 is the demand curve for foreign exchange. In this figure, we measure exchange
rate expressed in terms of domestic currency that costs 1 unit of foreign currency (i.e., dollar per
rupee) on the vertical axis. This makes demand curve for foreign exchange negative sloping.
In a similar fashion, we can determine supply of foreign exchange. Supply of foreign currency
comes from its receipts for its exports. If the foreign nationals and firms intend to purchase
Indian goods or buy Indian assets or give grants to the Government of India, the supply of
foreign exchange is generated.
In other words, what the Indian exports (both goods and invisibles) to the rest of the world is the
source of foreign exchange. To be more specific, all the transactions that appear on the credit
side of the BOP account are the sources of supply of foreign exchange.
A rise in the rupee-per-dollar exchange rate means that Indian goods are cheaper to foreigners in
terms of dollars. This will induce India to export more. Foreigners will also find that investment
is now more profitable. Thus, a high price or exchange rate ensures larger supply of foreign
exchange. Conversely, a low exchange rate causes exchange rate to fall. Thus, the supply curve
of foreign exchange, SS1, is positive sloping.
Now we can bring both demand and supply curves together to determine foreign exchange rate.
The equilibrium exchange rate is determined at that point where demand for foreign exchange
equals supply of foreign exchange. In Fig. 5.4, DD1 and SS1 curves intersect at point E. The
foreign exchange rate thus determined is OP. At this rate, quantities of foreign exchange
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demanded (OM) equals quantity supplied (OM). The market is cleared and there is no incentive
on the part of the players to change the rate determined.
Suppose that at the rate OP, ₹ 50 = $1, demand for foreign exchange is matched by the supply of
foreign exchange. If the current exchange rate OP1 exceeds the equilibrium rate of exchange
(OP) there occurs an excess supply of dollar by the amount ‘ab’. Now the bank and other
institutions dealing with foreign exchange—wishing to make money by exchanging currency—
would lower the exchange rate to reduce excess supply.
Thus, exchange rate will tend to fall until OP is reached. Similarly, an excess demand for foreign
exchange by the amount ‘cd’ arises if the exchange rate falls below OP, i.e., OP 2. Thus, banks
would experience a shortage of dollars to meet the demand. Rate of foreign exchange will rise
till demand equals supply.
The exchange rate that we have determined is called a floating or flexible exchange rate. (Under
this exchange rate system, the government does not intervene in the foreign exchange market.) A
floating exchange rate, by definition, results in an equilibrium rate of exchange that will move up
and down according to a change in
Let us assume that national income rises. This results in an increase in the demand for imports of
goods and services and, hence, demand for dollar rises. This results in a shift in the demand
curve from DD1 to DD2. Consequently, exchange rate rises as from OP1 to OP2 determined by
the intersection of new demand curve and supply curve. Note that dollar appreciates from ₹ 50 =
$1 to ₹ 53 = $1, while rupee depreciates from $1 = ₹ 50 to $1 = ₹ 53.
Similarly, if supply curve shifts from SS1 to SS2, as shown in Fig. 3, new exchange rate thus
determined would be OP2. If Indian goods are exported more, following an increase in national
income of the USA, the supply curve would then shift rightward. Consequently, dollar
depreciates and rupee appreciates. New exchange rate is settled at that point where the new
supply curve (SS2) intersects the demand curve at E2.
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Fig. 3. Equilibrium Exchange Rate
This is the balance of payments theory of exchange rate determination. Wherever government
does not intervene in the market, a floating or a flexible exchange rate prevails. Such system may
not necessarily be ideal since frequent changes in demand and supply forces cause frequent as
well as violent changes in exchange rate. Consequently, an air of uncertainty in trade and
business would prevail.
Such uncertainty may be damaging for the smooth flow of trade. To prevent this situation,
government intervenes in the foreign exchange rate. It may keep the exchange rate fixed. This
exchange rate is called a fixed exchange rate system where both demand and supply forces are
manipulated or calibrated by the central bank in such a way that the exchange rate is kept pegged
at the old level.
Often managed exchange rate is suggested. Under this system, exchange rate, as usual, is
determined by demand for and supply of foreign exchange. But the central bank intervenes in the
foreign exchange market when the situation demands to stabilise or influence the rate of foreign
exchange. If rupee depreciates in terms of dollar, the RBI would then sell dollars and buy rupee
in order to reduce the downward pressure in the exchange rate.
There may be variety of exchange rate systems (types) in the foreign exchange market. Its two
broad types or systems are Fixed Exchange Rate and Flexible Exchange Rate as explained
below.
In between these two extreme rates, there are some hybrid systems like Crawling Peg, Managed
Floating.
Broadly when government decides the conversion rate, it is called fixed exchange rate. On the
other hand, when market forces determine the rate, it is called floating exchange rate.
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(a) Fixed Exchange Rate System:
Fixed exchange rate is the rate which is officially fixed by the government or monetary authority
and not determined by market forces. Only a very small deviation from this fixed value is
possible. In this system, foreign central banks stand ready to buy and sell their currencies at a
fixed price. A typical kind of this system was used under Gold Standard System in which each
country committed itself to convert freely its currency into gold at a fixed price.
In other words, value of each currency was defined in terms of gold and, therefore, exchange rate
was fixed according to the gold value of currencies that have to be exchanged. This was called
mint par value of exchange. Later on Fixed Exchange Rate System prevailed in the world under
an agreement reached in July 1994.
Merits:
(i) It ensures stability in exchange rate which encourages foreign trade, (ii) It contributes to the
coordination of macro policies of countries in an interdependent world economy, (iii) Fixed
exchange rate ensures that major economic disturbances in the member countries do not occur,
(iv) It prevents capital outflow, (v) Fixed exchange rates are more conducive to expansion of
world trade because it prevents risk and uncertainty in transactions, (vi) It prevents speculation in
foreign exchange market.
Demerits:
(i) Fear of devaluation. In a situation of excess demand, central bank uses its reserves to maintain
foreign exchange rate. But when reserves are exhausted and excess demand still persists,
government is compelled to devalue domestic currency. If speculators believe that exchange rate
cannot be held for long, they buy foreign exchange in massive amount causing deficit in balance
of payment. This may lead to larger devaluation. This is the main flaw or demerit of fixed
exchange rate system, (ii) Benefits of free markets are deprived; (iii) There is always possibility
of under-valuation or over-valuation.
The system of exchange rate in which rate of exchange is determined by forces of demand and
supply of foreign exchange market is called Flexible Exchange Rate System. Here, value of
currency is allowed to fluctuate or adjust freely according to change in demand and supply of
foreign exchange.
There is no official intervention in foreign exchange market. Under this system, the central bank,
without intervention, allows the exchange rate to adjust so as to equate the supply and demand
for foreign currency In India, it is flexible exchange rate which is being determined. The foreign
exchange market is busy at all times by changes in the exchange rate. Advantages and
disadvantages of this system are listed below:
35
Merits:
(i) Deficit or surplus in BOP is automatically corrected, (ii) There is no need for government to
hold any foreign exchange reserve, (iii) It helps in optimum resource allocation, (iv) It frees the
government from problem of BOP
Demerits:
(i) It encourages speculation leading to fluctuations in foreign exchange rate, (ii) Wide
fluctuation in exchange rate hampers foreign trade and capital movement between countries,
(iii) It generates inflationary pressure when prices of imports go up due to depreciation of
currency.
Fixed exchange rate is the rate which is officially fixed in terms of gold or any other currency
by the government. It does not change with change in demand and supply of foreign
currency. As against it, flexible exchange rate is the rate which, like price of a commodity, is
determined by forces of demand and supply in the foreign exchange market. It changes
according to change in demand and supply of foreign currency. There is no government
intervention.
Managed Floating:
This refers to a system of gradual adjustments in the exchange rate deliberately made by a central
bank to influence the value of its own currency in relation to other currencies. This is done to
save its own currency from short-term volatility in exchange rate caused by economic shocks and
speculation. Thus, central bank intervenes to smoothen out ups and downs in the exchange rate
of home currency to its own advantage.
E-MATERIAL
https://drive.google.com/file/d/1fVy0c77ThcAE4rnJO0KHSySmrDq0P2uL/view?usp=shari
ng
36
SECTION- B
Indian agriculture at the time of independence was marked with the following features
5. State/Features of Foreign Trade: India has been an important trading nation, since
ancient times. But when the restrictive policies of commodity production, trade and tariff
were imposed by the colonial government, it adversely affected the structure, composition and
volume of India's foreign trade.
Following were the reasons behind the poor growth of foreign trade
(i) Exporter of primary products and importer of finished goods.
(ii) Britain's monopoly control over foreign trade.
6. State of Occupational Structure: During the colonial period, the occupational structure
of India exhibited backwardness.
37
The agricultural sector accounted for the largest share of the workforce which remained at a
high of 70-75% Of the workforce and the manufacturing and service sectors accounted for
only 10 and 15-20%, respectively.
7. State of Infrastructure: Infrastructure comprises of such industries which help in the
growth of other industries.
Under the colonial period, basic infrastructure such as railways, ports, water, air transport,
post and telegraphs were developed.
8. Demographic Condition: Various details about the population of British India were first
collected through a census in 1881. Before 1921, India was in the first stage of demographic
transition. The second stage began after 1921.
9. Positive contribution of British rule – (i) Commercial Outlook of the Farmers (ii)
Better means of transportation, (iii) Control on famines, (iv) Shift to monetary economy, and
(v) Effective administration set up.
10. Economic System: It is defined as an arrangement by which the central problems of an
economy are solved.
The three basic central problems of an economic system are
(i) Choice of goods to be produced
(ii) Choice of technology of production
(iii) Distribution of goods and services
11. Types of Economic Systems:
(i) Socialist Economy: It is an economic system in which all economic decisions are
taken by the government.
In this system, the government decides what goods are to be produced in accordance
with the needs of society, how goods are to be produced and how they should be
distributed. Socialist economy promotes equitable distribution of income. However, it
also suffers from the drawbacks of a bureaucratic set-up in the form of red-tapism and
corruption. In Cuba and China, most of the economic activities are governed by the
socialistic principles.
(ii) Capitalist Economy: It depends upon the market forces of demand and supply.
In this type of economy, only those consumer goods will be produced that have good
demand in the market and yield profit to the producers. In this economy, the goods and
services produced are distributed among people not on
the basis of what people need but on the basis of
purchasing power.
Capitalist economy is also called laissez faire or free market economy. It exists in North
America, Japan, Australia, Western Europe, etc.
(iii) Mixed Economy: It is an economic system in which public sector and private
sector exist side by side. In this economy, the market will provide whatever goods and
services it can produce well and the government will provide essential goods and
services which the market fails to provide. India follows this economic system.
38
12. Economic Planning: It is a process by which a central authority of a country defines a
set of goals to be achieved within a specified period, sets out a plan to achieve those goals,
keeping in view the country’s resources.
13. Five Year Plans: In India, planning was launched in 1951, as a five yearly exercise,
therefore it came to be popularly known as ‘five Year Plans’.
14. Common Goals Of Five Year Plans: All the Five Year Plans were formulated keeping
the below objectives in mind:
Before 1991, the Indian economy and Indian companies were living under a shelter of
protection that was created by the Indian government to protect the domestic companies from
outside or international competition. The economy was not ready to step out in the international
market and compete with big established companies and organisations. But, during 1991, the
government agreed to the reforms that were advised by the foreign banks and hence announced
New Economic Policy (NEP) in order to develop the Indian economy and also for its future
growth. We can broadly categorise or classify the measures into two groups:
Structural reforms
Stabilization measures
Stabilization Measures
Stabilization measures were taken and accepted by the Indian government to revamp the Indian
economy. These measures were undertaken in order to correct the inherent and carried forward
40
weaknesses that had been developed in BOPs (Balance of Payments) and also to control
inflation. These were mainly short term measures, unlike the structural reforms.
Structural Reforms
Liberalization
Privatization
Globalization
The major factors that were responsible and let the government came up with the economic
reforms since 1991 were:
I. Liberalization
Liberalization was one of the three structural reforms that were adopted by the Indian
government. It was adopted to put an end to various restrictions and reforms which later on
became a hindrance in the development and the growth of the Indian economy. The government
decided to loosen up its influence and let private sector organisations and companies enter the
Indian economy and start working without or with fewer government restrictions. This allowed
the economy to become liberal and grow eventually.
There were many reasons due to which the structural reform of liberalization was undertaken by
the government. They are mentioned below.
o Change in the role of the central bank or the RBI from the regulator to facilitator
of the economy and banks.
2. Foreign exchange reforms- these included factors and reforms like:
o Devaluation of rupee
3. Trade and investment reforms
4. Fiscal reforms
42
5. Tax reforms
II. Privatization
Moving further, Class 12 Economic Reform Since 1991 talks about Privatization. This was the
second policy among the three policies of LPG that were adopted by the government.
Privatization policy has been used to enhance the dominant role of private sector enterprises
and the diminished role of public sector enterprises. In other words, it’s reducing the ownership
of the management of a government-owned company. Now these State-owned enterprises can be
turned into private enterprises in two ways:
By disinvestment
By withdrawal of governmental ownership or stakes from these public sector companies
Objectives Of Privatization
Class 12 Economic Reform Since 1991 also talks about the various objective of privatization as a
policy. They are mentioned below.
As per the unit of class 12 on Economic Reforms Since 1991, the policies that were adopted for
privatisation by the government of India are as follows:
3. Globalization
43
Globalisation refers to the integration of the economy of the nation with the global economy.
During globalization, the emphasis is placed on foreign trade and private and institutional foreign
investment. It was the final LPG policy to be implemented in India. Having said that,
globalization as a term is a very complicated phenomenon. The main objective is to transform
the world into an independent and integrated world by defining various strategic policies.
Globalisation tries to create a world without borders, where the needs of a country can come
from all over the world and become a great economy.
The most important outcome of globalisation in the Indian economy is the concept of
outsourcing model. Outsourcing refers to when a company of a country hires professionals from
other countries to get their work done at cheap prices. The best part about outsourcing is that the
work can be done at a low cost and from the top source and human resources available
throughout the world. Services such as legal advice, marketing, technical assistance, etc were
being outsourced from companies based in the US, UK, and other parts of Europe. As
information technology or IT was also developing in recent years, outsourcing of contract work
from one country to another increased considerably due to globalisation. As a means of
communication has broadened their reach, all economic activities have increased around the
world.
Having said that, various business process outsourcing (BPOs) companies or call centers, which
have their voice business process model, are being developed in India. Activities such
as accounting and bookkeeping services, clinical counselling, banking or even education were
being outsourced from developed countries to India.
Benefits Of Globalization
44
Towards the end, Class 11 Liberalization, Privatization and Globalisation talks about the many
benefits of Globalization. You can have a look here:
The biggest advantage of globalisation and its outcome outsourcing is that large
multinational corporations or even small businesses can benefit from good services at a
lower rate than their country’s standards.
The skill set and the availability of the human resource capital in abundance in India is
regarded as the most dynamic and effective throughout the world.
The professionals in India are the best at what they do.
The low wage rate and highly skilled personnel have made India the most favourable
global outsourcing destination in the subsequent phase of the reform.
It has helped in the growth and development of the tertiary sector of the economy and
creation of more jobs and employment for the people.
As per the unit of Class 12 of Economic Reforms since 1991, the main policies that were adopted
by the government of India to promote and implement globalisation were:
45
investments in the Indian economy. neglected in the economic reforms since 1991.
Increase in foreign exchange reserves Jobless growth
A decrease in the Inflation rates A rise in the income inequalities in the country
Increase in the national income Adverse effects of the disinvestment policies could be see
Increase in the exports of the country Spread of consumerism
Consumer sovereignty Encouragement of economic colonialism
Cultural erosion
World Trade Organisation
The last topic of the class 12 unit on Economic Reforms Since 1991 is about the World Trade
Organisation. Also known as WTO, this institution or organisation was established in 1995. It
successfully replaced the General Agreement on Trade and Tariffs (GATT) which was in place
since 1946. The overarching goal of the World Trade Organization or WTO is to always
contribute to smooth, free, fair and predictable trade. To meet this objective, they perform these
functions:
46
8.
1. Economic crisis: A situation wherein the expenditures are much more than the revenues
and there is no source (such as world Bank) to lend (as the borrower already has a large
outstanding loan to repay with interest)
3. Remittances: These are foreign currencies transferred by those working outside the
country to their families and friends in their own countries.
4. Delicensing: Removal of controls, especially on industries.
5. Dereservation: Taking off certain industries from the sole domain of public sector by
allowing Private capital investment, such as in coal, medicine etc.
6. Devaluation: It is the fall in the value of domestic currency with respect to foreign
currency under the fixed exchange system (Presently, the synonymous term is
depreciation-under flexible exchange system).
47
7. Outsourcing: Contracting another agency to conduct a process during production of
services Foreg. Contract for maintaining software, customer services etc.
8. Quantitative restrictions: Restrictions in the form of total quantities or quotas
imposed on imports to reduce Balance of Payments (BoP)deficit and protect domestic
industry.
9. Import Licensing: Permission required from the government to import goods into a
country.
10.Foreign Direct investment(FDI) : refers to the investment of foreign assets into
domestic structures,
equipment and organizations. It does not include investment into the stock markets.
IMPORTANT POINTS: -
• • Meaning: Economic reforms refer to a set of economic policies directed to accelerate
the pace of 'growth and development'
• • Economic reforms or structural adjustment is a long term multi-dimensional package of
various policies (Liberalisation, privatisation, and globalisation) and programme for the speedy
growth, efficiency in production and make a competitive environment. Economic reforms are
adopted by Indian Govt. in1991.
• • Factors responsible or Need for Economic reforms:-
• • Fall in foreign exchange reserve.
• • Adverse balance of payments
• • Mounting fiscal deficit.
• • Rise in prices
• • Failure of public enterprises.
• • Gulf crisis.
• 1.• Stabilization measures: These are short run measured introduced by Govt. to control
rise in price, adverse balance of payment and fall in foreign exchange reserve.
• 2• Structural adjustment: These are long-run policies the goal of structural reforms is to
abolish controls, eliminate bureaucratic hurdles. and red tapism and make the decision-making
process efficient and transparent.
• • In the new economic policy 1991, Structural reforms can be seen with respect to: 1.
Liberalisation. 2. Privatisation 3. Globalisation.
Broadly, taxes are classified as: (a) direct taxes, and (b) indirect taxes. Direct taxes are those
taxes, the burden of which cannot be shifted onto others. (Examples: Income tax, wealth tax.)
Indirect taxes (levied on goods and services) are those taxes, the burden of which can be shifted
onto others. [Examples: GST (Goods and Services Tax), custom duty.]
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• Foreign exchange reforms: -External sector reforms include: (i) foreign exchange reforms, and
(ii) foreign trade policy reforms.
DEMONETISATION IN INDIA
“Demonetisation is the act of stripping a currency unit of its status as legal tender”.
The current form or forms of money is pulled from circulation and retired, and replaced
with new notes or coins.
Objectives of Demonetisation:
1. To discourage cash system and promote digital transactions.
• 2. To combat corruption and thereby eliminate black money.
• 3. To eradicate counterfeit currency .
• 4. To reduce tax evasion.
• 5. To arrest the flow of money for terrorism, radical groups, and insurgency.
• 6. To expand the tax base.
• 7. To integrate the formal and informal economies of India.
• Demonetisation on 08th November 2016:
• Currency notes of Rs. 500 and Rs.1000 were demonetised.
• These notes accounted for 86% of the country’s currency supply
• The Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016, was issued on 28
December 2016, ending the liability of the government for the demonetised banknotes.
•
• Benefits of Demonetisation:
E-MATERIAL
https://drive.google.com/file/d/1yf1yrdkGW_XhSqHEbI4v2Tq7nXETqw8j/vie
w?usp=sharing
https://drive.google.com/file/d/1BlXW0S9qcGs0vL1LCzieq7AwO1p45uju/vie
w?usp=sharing
https://drive.google.com/file/d/1AcsJY0VryEfoWKDWxZ-
rTJvM2cY2_R17/view?usp=sharing
https://drive.google.com/file/d/1wqXzJbuAyOEO18skOYcAv5PcUyaercXb/vi
ew?usp=sharing
https://drive.google.com/file/d/1BnERUW1tLTJblet58IVf6zwmwTM-
rQP5/view?usp=sharing
50
Unit 7: CURRENT CHALLENGES FACING INDIAN ECONOMY
Human Capital formation: Human capital formation means the development of abilities
and skills among the population of the country.
1. Expenditure on education:
(It is one of the most important sources of human capital formation) proper utility of man
power depends on the system of education, training and industrial experience of the people.
Spending on education by individuals is similar to spending on capital goods by companies
with the objective of increasing future profits once a period of time. This increases the
income of the people and their standard of living. Investment in education is not only highly
productive but also it is yields increasing return and accelerates economic growth of all the
resources education receives most importance because it gives maximum contribution to the
development of the country.
2. Expenditure on Health:
Health is an important input for a development of a nation. Expenditure on health is needed
in the following areas.
A preventive medicine known as vaccination curative medicines, i.e., medical intervention
during the time of illness is very important. Provision of clean drinking water and good
sanitation is very important for improvement of health. Health expenditure directly
51
increases the physical capacity of human being and it raises the supply of healthy labor
force.
3. On-the-job training:
Productivity of physical capital is substantially increased with the improvement in human
capital. Due to this reason many firms provide on the job training to their workers. Such
training has the advantage that it can be provided fast and without much cost. It increases
the skill and efficiency of the workers and leads to an increase in production by
productivity. Expenditure regarding on-the-job training is the source of human capital
formation because it increases labor productivity than its cost.
4. Expenditure on migration: -
People migrate to one place to another that gives them higher salaries. Unemployment
people from rural migrate to urban areas technically qualified people migrate to other
countries for higher salaries. Though it results in cost of migration and higher cost of living
due to migration in migrated place it enhances earning that their cost of migration. Hence it
is a source of human capital formation.
5. Expenditure on Information: -
Expenditure is incurred to acquire information relating to labour market and other market.
It involves amount spent on seeking information about educational institutions, education
standard their educational needs and cost of education. This information is necessary to
make decisions regarding investment in human capital as well as for efficient utilization of
the acquired human capital stock.
1. Human Capital consider education & health as a means to increase labour productivity.
Human Development is leased on the Idea that education & health are integral to human
well-being.
3. Human capital treats human beings as a means to an end; the end being the increase in
productivity In the human development perspective, human welfare should be increased
through investment in education & health as every individual & health as every individual
has a right to be literate &lead a healthy life
There has been considered growth in the field of Education. The number of schools
increased from 230.7 thousand (1950-51) to 1,215.8 thousand (2005-06). The no. of
teachers in the same period increased from 751 thousand to 6010 thousands & no of
students from 23,800 thousand to 2, 22,700 thousand.
Literacy Rate
The literacy rate has increased from 18.33% to in 1951 to 64.84% in 2001
53
I. Primary Education Schemes
Government has made number of schemes to make “Education for all” The following are
the few schemes
Sarva Shiksha Abhiyan (SSA):
It was launched in 2001 to universalize & improve the quality of Elementary Education in
India through community ownership of Elementary Education. The SSA is being
implemented in partnership with states to address the needs of children in age group of 6-14
years. The achievements under SSA up to September 30, 2007, include constructions of 7,
13,179 additional classrooms, 1, 72,381 drinking water facilities, construction of 2, 18,075
toilets. Supply of free textbooks of 6.64 crore children & appointment of 8.10 lakh teachers
besides opening of 1, 86,985 (till 31.3.07) new schools.
54
Weakness of the Education Sector
High Illiteracy: According to 2001 census, the literacy rate of 64.8 percent is still far off
the 100 percent mark.
Gender Bias: Education in India is gender biased. The enrolment of girls in both primary
and upper primary classes is much below the boys.
Low Quality Education: The quality of the education is fairly low.
Lack of Vocational and Technical Training: Too much emphasis on general education
neglecting the Vocational and Technical Education.
Low Level of Government Expenditure: Actual level of expenditure is only 3.46%
compared to the desired level of 6%
E-MATERIAL
1. Video Lesson:
https://drive.google.com/file/d/1fCn-Tw61pDXtpZUp0pdNyL7yZ-
HJb1o0/view?usp=sharing
https://drive.google.com/file/d/1l-
jLl3QaBNd4HBNncuz48zjHqs4ccE6R/view?usp=sharing
55
2. RURAL DEVELOPMENT
Rural Credit: Rural Credit means provision of loans especially in production for
agriculture and non- agricultural sectors. Credit facilities in the rural areas have contributed
a large increase in agricultural productivity and employment facilities in non-agricultural
sectors. The loans have provided in rural areas to the frames in order to purchase
machineries agricultural implements etc. The government had also provided long term loans
which can be repaved in 15to 20 years for improvement of the land, digging tube well,
purchase of tractors etc.
Unproductive Lone: There are some loans which are provided to farmers to celebrate
religious ceremonies, marriages for settlements of old loans and to support the family in
case of a crop failure. These loans are called as unproductive loans.
The Self-Help Groups (SGHs) have been set up to promote thrift in small proportions by a
minimum contribution from each member. From the pooled money, credit is given to the
needy numbers to be repayable in small instalments at reasonable interest rates.
Regulated Markets: - The first measure was regulation of markets, to create orderly and
transparent marketing condition. This is organized in order to protect farmers from
malpractices of sellers and brokers.
Cooperative Marketing: Marketing societies are formed by farmers to sell the output
collectively and to take advantages of collective bargaining, for obtaining a better price.
Cooperatives are not functioning properly in a recent past due to inadequate coverage of
56
farmer members and processing cooperatives and also inefficient management.
Infrastructural facilities: - Govt. had also provided infrastructural facilities like roads,
railways, warehousing, old storage and processing units.
Standardization and Grading: - Grading And quality control helps farmers to get good
price for quality products produced by them.
Minimum Support Price: - To safeguard the Interest of the farmers government fixes the
minimum support price for agricultural products like wheat, rice, maize, cotton, sugarcane,
pulses etc. the government willingly will buy any amount of grains from the farmers at a
price higher than the market price in order to help them recover their loss. This is normally
done by good cooperation of India & the Government in turn will supply these products in
public distribution system against BPL & APL card.
Lack of storage facility: Food grain and crops has damaged the products either by rats or
insects or due to rain.
Distress Sale: Most Indian farmers are poor and they have no capacity to wait for better
price. They sell the commodities at whatever the price available immediately. As a result,
they go for distress sale of their output, to the village money lenders or traders at low price.
Lack of transportation: as a result, farmer cannot reach nearly mandis to sell their produce
at a fair price.
Long chain of middleman: Intermediaries between the cultivator and the consumer will
also reduce the profit of the farmers.
There are also other defects like lack of institutional finance, lack of guiding etc. This makes
Indian marketing system disorganized.
1. Extension of storage facilities at the farm level and storage and warehousing facilities in
the markets and consumption centers.
2. Establishments of regulated markets.
3. Improvement of transport facilities between the village and the mandis.
4. Establishment of cooperation marketing societies.
5. Provision of cheap credit, especially from institutional sources.
6. Provision for grading of the produce to ensure good quality to the consumers and better
prices for the producers.
7. Prompt supply of marketing information.
It also has a posture impact on the agricultural sector as it circulates information regarding
technologies and its application prices, weather and soil condition for growing different
crops.
This has increased the knowledge about agriculture.
The aim for increasing the role of information technology is to make ever village a
knowledge Centre, where IT provides a sustainable option of employment and livelihood.
Sustainable Development: It is the development which aims to develop the present
generation without affecting the quality of life of future generation.
Sustainable development does not prohibit the use of any resources, but aims to restrict their
use in such a way it is left for the future generation.
Organic Farming
Organic farming is the process of producing food naturally.
This method avoids the use of synthetic chemical fertilizers and genetically modified
organisms.
It is very eco-friendly and very essential for sustainable development. It has a zero impact
on environment.
E-Material
Video Lesson:
https://drive.google.com/file/d/1SSH2yaoxdjqUsFzznpR5yc2eWvLeGmJA/vie
w?usp=sharing
(pdf)
https://drive.google.com/file/d/11XEtNln579kyCVl0ncPEb8dP0D3Pe8w1/view?us
p=sharing
59
3. Employment:
People included in workers: It is not only people those who are paid workers also includes
self-employed people like shopkeepers, barbers, cobblers etc. Workers include all those
people who are engaged in work whether for others (paid workers or self-employed)
Labour Force: All persons, who are working (who have a job) and though not working, are
seeking and are available for work, are dram to be in the labour force.
Work force: The number of persons, who are actually employed at a particular time are
known as work force.
Worker – population ratio: Worker- population ration is the percentage of total population
engaged in work.
WPR = Total number of workers in India X 100 No. of work population In India
Labour force participation rate: The ratio of labour force to total participation is called
labour force participation rate.
Characteristics of workforce:
More rural women are found working because of their poor economic condition as
compared to urban women.
People in rural areas are engaged mostly in agriculture, which is a seasonal activity. So,
rural workforce migrates to urban areas during some part of the year.
Regular salaried employees are more in urban areas as considerable section of urban
people are able to study in various educational institution and it enables them to look for
an appropriate job to suit their qualifications and skills. However, in rural areas, most of
the people are illiterate and lack skills, which are needed for regular employment.
Casual Wage Labourer: Workers who are not hired by their Employers on a regular or
permanent basis (i.e., do not have job security) and do not get social security benefits, are
termed as casual wage labour.
Jobless growth refers to a situation when the Economy is able to produce more goods and
service without a proportionate increase in Employment opportunities.
Regular workers: Workers who are hired by their employers on a permanent basis and also
get social security benefits (like pension, provident fund, etc.) are higher in regular workers.
Casualisation of work force: The process of moving from Self- Employment and regular
salaried employment to casual wage work is known as Casualisation of Workforce.
60
Types of urban unemployment:
Industrial unemployment: It refers to the unemployment among the illiterates who wish to
work in industrial establishment
Full employment: Full employment refers to a situation in which all the workers who are
capable of working and willing to work get an Employment in prevailing wage rates.
Formal sector: All the public enterprises and private establishments, which Employ 10 or
more hired workers are called formal sector establishments.
Informal sector: All those private enterprises which hire less than 10 workers are called
Informal sectors.
Ex: Workers who work in farms, owners of Small Enterprises, Agriculture laborer. Here
they do not get regular income. No protection or regulation by government can be dismissed
at any time. Live in slums, use outdated technology and do not maintain accounts.
Labour Force: Number of people who are able and willing to work at the existing wage
rate.
People those who are not working and are neither seeking nor available for work are
considered to be outside the labour force.
Labour force = Person’s working + Persons seeking & available for work.
After 66 years & below 15 years not included labour force. A handicapped person not
included. People those who are not interested not included. People are not available not
included.
Unemployed people = Labour force – Work force
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E-Material:
Video Lesson:
https://drive.google.com/file/d/1NotYUAkLxp4_zVNzLRAS5HnFKzB1ZKAw
/view?usp=sharing
(pdf):
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Tf2SdWXtg1/view?usp=sharing
62
4. SUSTAINABLE ECONOMIC DEVELOPMENT
Functions of Environment
Pollution
Pollution is the introduction of contaminants into an Environment that causes instability,
disorder, harm and or discomfort in the ecosystem.
Pollution is substances, chemicals or factors which cause adverse effect on natural quality
of any constituent of environment.
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STRATEGIES FOR SUSTAINABLE DEVELOPMENT
The following strategies should be adhered to, for sustainable development.
1. Use of Non-conventional source of Energy – India is mostly dependent on thermal and
hydropower plants which have adverse environmental impact. Non-conventional sources
like wind and solar says are cleaner and greener technologies, which can be effectively
used to replace thermal and hydropower.
2. Use of Cleaner fuels – Use of Compressed Natural Gas (CNG) is being promoted to be
used as fuel. In Delhi, the use of CNG as fuel in public transport system has lowered air
pollution and the air has become cleaner. The use of LPG and Gobar Gas is being
promoted which reduces air pollution.
3. Establishment of Mini-Hydel plants – Mountain regions and streams are used to
generate electricity through mini-Hydel plants. These are environment friendly.
4. Traditional Knowledge and Practices – Traditionally all practices relating to
agriculture system, health care system, housing, transport etc. used to be environment
friendly. The shift from the traditional system has caused large scale damage to the
environment as our social heritage.
Change in unsustainable patterns of consumption and production – India has taken large
number of steps for sustainable development.
E-MATERIAL
Video Lesson:
https://drive.google.com/file/d/1qmvOJ7aTRy5RfZ_xSemx3qleKJVXAVvh/vi
ew?usp=sharing
(pdf)
https://drive.google.com/file/d/1ioASNBRbschcCZfO6B2jTyPXN7ctHQjs/view?u
sp=sharing
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Unit 8: DEVELOPMENT EXPERIENCE OF INDIA- A COMPARISON
WITH NEIGHBOURS
• 1. India and Pakistan got independence in 1947 and, PRC was established in 1949.
• 2. India announced its Five Year Plan in 1951, China in 1953 and Pakistan in 1956.
• 3. India and Pakistan have made slow and irregular progress as compared to China, which
has made a miraculous progress.
• 4. Dual Pricing
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With a per capita income of US $ 1627 in nominal terms (2018), India is ahead of Pakistan
whose per capita income was US $ 1343 in nominal terms , in 2018. In PPP terms, India’s PCI
is US $ 5855 and that of Pakistan is US $ 4736 in 2018.
China’s PCI in 2018-19 is US $ 10,153 in nominal terms and US $ 19,520 in PPP terms.
Population
• India today is the second largest populous country (133.92 crores in 2017)in the world
after China (142.06 crores).
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Demographic Facts (2015)
Primary 17 9 25 50 28 43
Secondary 30 43 21 21 29 23
Tertiary 53 48 54 29 43 34
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Human Development Indicators
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E-MATERIAL
1. Video Lesson:
https://drive.google.com/file/d/1essEZ5bpGIpoxl3kg993JqvGE-A_oAjh/view?usp=sharing
https://drive.google.com/file/d/1RxeoPCI4P1e1PSH2dwezFticaDnlHWA5/view?usp=sharing
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Use for commercial purpose, if any, is prohibited as per applicable laws.
Gwalior
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