SYBA-SEM-IV-Economics-Paper-VI-Indian-Economy-English-Version-1-munotes

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1 Module -I
1
TRENDS IN INDIA’S NATIONAL INCOME
AND PCI
Unit Structure:
1.0 Objectives
1.1 Introduction
1.2 Basic Information about National Income
1.3 Trends in India’s National Income Since 1990
1.4 Trends in Per Capita Income (PCI) Since 1990
1.5 Structural Changes in Indian E conomy
1.6 Summary
1.7 Questions
1.0 OBJECTIVES
 To study the meaning of national income.
 To study the various concepts of national income.
 To study the trends in India’s national income since 1990.
 To study the trends in per capita income since 1990.
 To study t he structural changes in Indian economy.
1.1 INTRODUCTION
National income measures the money value of goods and services
produced by a country during a given year. National income is usually
expressed in the form of Gross National Product (GNP) or Gross
Domestic Product (GDP). GDP is the money value of all the goods and
services produced within the economy. When the net foreign income is
added to the GDP, we have the GNP. GDP and GNP can be measured
either at current prices or at constant prices. The nation al income prices
reveals the real growth rate of an economy. The growth of national income
requisite for economic development.
1.2 BASIC INFORMATION ABOUT NATIONAL
INCOME
In India, a systematic measurement of national income was first attempted
in 1949. Earli er, many attempts were made by some individuals and
institutions. The earliest estimate of India‘s national income was made by munotes.in

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2 DadabhaiNaoroji in 1867 -68. Since then many attempts were made,
mostly by economists and the government authorities to estimate I ndia‘s
national income These estimates differ in coverage, concepts and
methodology and are not comparable. Besides, earlier estimates were
mostly for one year, only some estimates covered a period of 3 to 4 years.
It was therefore not possible to construc t a consistent series of national
income and assess the performance of the economy over a period of time.
In 1949, a National Income Committee (NIC) was appointed with P.C.
Mahalnobis as its Chairman, and Dr. D.R. Gadgil and V.K.R.V. Rao as
members. The NI C not only highlighted the limitations of the statistical
system of that time but also suggested ways and means to improve data
collection systems. On the recommendation of the Committee, the
Directorate of National Sample Survey was set up to collect addi tional
data required for estimating national income. Besides, the NIC estimated
the country’s national income for the period from 1948 -49 to 1950 -52. In
its estimates, the NIC also provided the methodology for estimating
national income, which was followed till 1967.
In 1967, the task of estimating national income was given to the Central
statistical Organization (CSO). Till 1967, the CSO had followed the
methodology laid down by the NIC. Thereafter, the CSO adopted a
relatively improved methodology and pro cedure which had become
possible due to increased availability of data. The improvements pertain
mainly to the industrial classification of the activities. The CSO publishes
its estimates in its publication, Estimates of National Income.
Concepts of Nation al Income
1. Gross Domestic Product (GDP):
GDP refers to the value of final goods and services produced within the
country in a, particular year. GDP is different from GNP. A part of GNP
may be produced outside the country For example the money earned by
the lndian’s working in USA is a part of India's GNP But it is not a part of
GDP since they are earned abroad. Therefore the boundaries of GNP are
determined by the citizens of a country whereas the boundaries of GDP
are determined by the geographical limits o f a country. It is also clear that
the difference between GDP and GNP is due to the "net revenue from
abroad." If the citizens of a country are earning more from abroad than
foreigners are earning in that country, GNP exceeds GDP If the foreigners
in the c ountry are earning more than its citizens are earning abroad, GNP
is less than GDP.
2. Net National Product :
This is a very important concept of national income. In the production of
gross national product, during a year, some capital is used up or consumed
i.e. equipment, machinery etc. the capital goods wear out or undergo
depreciation. Capital goods fall in value due to its use in production
process. By deducting the charges for depreciation from the gross national
product, we get the net national product. It means the market value of all munotes.in

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Trends in India’s National
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3 the final goods and services after providing for depreciation. It is called
national income at market prices. In other words, net national product is
the total value of final goods and services produced in the country duri ng a
year after deducting the depreciation, plus net income from abroad.
3. Net Domestic Products:
NDP is obtained by subtracting the depreciation from the GDP. NDP
differs from MNP due to the net income from abroad. If the net income
from abroad is positive, NDP will be less than NNP If the net income from
abroad is negative, NDP will be greater than NNP NDP is also calculated
either at market price or at factor cost.
National Income at Factor Cost:
It means sum total of all income earned by resource supplie rs for their
contribution of land, labour, capital and entrepreneurial ability which go
into the years net production. National income at factor cost shows how
much it costs society In terms of economic resources to produce the net
output. We use the term national income for the national income at factor
prices.
National Income at factor cost = Net national product (National
Income at market prices) - (indirect taxes +Subsidies).
4. Personal income :
It is the sum of the income actually received by individuals or households
during a given year. Personal incomes earned are different from national
income. Some incomes which are earned such as social security
contributions corporate income taxes and undistributed corporate profits
are not actually received by hous eholds. In the same manner, some
incomes which are received like transfer payments are not currently
earned ex Old age pension, unemployment compensation, relief payments
interest payments etc. To get personal income from national we must
subtract from Nat ional income the three types of incomes which are
earned but not received and add incomes that are not currently earned,
Personal income = N.I. - Social Security - contributions - corporate
income taxes -undistributed corporate profit + Transfer Payments .
5. Disposable Income:
The personal income which remains after payment of taxes to the
government in the form of income tax, personal property tax etc., is called
disposable income. Disposable income = Personal Income - Personal
Taxes. An individual can decid e to consume or save the disposable income
as he wishes.
1.3 TRENDS IN INDIA’S NATIONAL INCOME SINCE
1990
The Central Statistical Organization (CSO) has changed the base year of
calculate of national income at constant prices from 1993 -94 to 1999 -munotes.in

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4 2000. The bas e year is revised to 2004 -05 prices. The trends in national
income, in terms of GDP at factor cost, are shown in Table 1.1 the
national income of the country (GDP at factor cost) at current prices
increase from Rs. 9,719 crore in 1950 - 51 to Rs. 71,57,412 crores in 2010 -
11 that is by 736 times increase in national income at current prices is
largely on account of rise in prices.
Table 1.1
Gross Domestic Product at Factor Cost
Sr.
No. Financial
Year Gross Domestic
Product at Current
Prices (In Rupees) Gross Domestic
Product at Constant
Prices (In Rupees)
1. 1950 -51 9719 224786
2. 1990 -91 515032 1083572
3. 2010 -11 7157412 4885954
(Source: Economic Survey 2011 -12)
The national income at constant prices shows the real increase in national
income, the increa se in the production of goods and services. The GDP at
factor cost at prices increased from Rs. 2,24,786 crore in 1950 -51 to Rs.
48,85,954 crore in 2010 -11, only by 22 times during the period 1950 -51 to
2010 -11.
1.4 TRENDS IN PER CAPITA INCOME (PCI) SINCE
1990
Per capita income is one of the important indicators of the 'Human
Development Besides other things, it shows an increase in the standard of
living. Traditionally the of per capita income has been regarded as a
summary indicator of the economic well of th e country. The trends in per
capita income are shown in Table 1.2. The per capita at constant prices
increased only by 6.3 times during the period 1950 -51 to 2010 -11.and Rs.
5,708 in 1950 -51 to Rs. 35,993 in 2010 -11.
The rise in per capita income has been very slow as compared to rise in
real income. Poor growth rates coupled with rapid increase in population
are the main for such dismal performance.
Table 1.2
Per Capita NNP at Constant Prices
Sr. No. Financial Year Per Capita NNP at Constant
Prices (In R upees)
1. 1950 -51 5708
2. 1990 -91 11535
3. 2010 -11 35993
(Source: Economic Survey 2011 -12)
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5 1.5 STRUCTURAL CHANGES IN INDIAN ECONOMY
The different sectors have been grouped under three heads, namely,
Agriculture and allied activities, Indus try and services. The share of GDP
originating from agriculture and allied activities has steadily declined,
while that originating from industry and services sectors has increased.
These changes show that Indian economy has transformed from the
production structure of a backward economy to that of developing
economy.
Table 1.3
Percentage Share of Different Sectors in GDP at Cost
(At Constant 2004 -05 Prices)
Sr.
No. Sector 1950 -51 1990 -91 2010 -11
1 Agriculture and
Allied 56.1 33.3 16.8
2 Industry 14.4 24.1 25.6
3 Services 29.5 42.6 57.6
Total 100.00 100.00 100.00
Source: Economic Survey 2011 -12
1. Decreasing Share of Agriculture and Allied Activities:
Agriculture has been a way of life and continuous to be the single most
important livelihood of the ma sses Agriculture and allied activities include
agriculture, forestry and fishing, mining and quarrying. The share of
agriculture and allied activities has declined from about 56 % in 1950 -51
to 33.3 % in 1990 -91 and further to about 17% in 2010 -11. The gap
between the growth of agriculture and non -agriculture sector started to
widen since 1996 - 97 because of acceleration in the growth of industry
and service sectors. The continuous fall in the share of agriculture and
allied activities in the GDP is partly due to the high growth in other sectors
in the economy and partly to the low growth in this sector especially
agriculture. During the Ninth and Tenth Five Year Plans agricultural
sectoral growth rate was 2.44% and2.3% respectively compared to 4.72%
during the 8 th Plan. During the Eleventh Plan agricultural growth is
estimated at 3.28 % against the target of 4%. Low investment, imbalance
in fertilizer use, low seeds replacement rate, a distorted incentive system,
low post harvest value addition and erratic rainfall continued to affect the
performance of agricultural sector.
2. Rising Share of Industry:
`The share of industry comprising manufacturing, construction, electricity,
gas and water supply has steadily increased from 14.4 percent of GDP in
1950 -51 to 24 percent in 1990 -1991 and further to 25.6 % in 2010 -11 (see
Table 1.7). Industrial sector is comprised of manufacturing, construction, munotes.in

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6 electricity, gas and water supply. The near stability of the share of industry
in GDP indicates that the potential of this sector has not yet been fully
exploited. The manufacturing is the most dominant sector within industry.
The share of manufacturing in GDP remained in the range of 14 -16 %
during the post -reform period between1991 -92 and 2011 -12. The
industrial sector is open to international trade environment and rapid
technological change. Thus, this sector is required to be innovative and
competitive.
3. Increasing Share of Services:
The services sector comprises of three components, i.e., (i) Trade, hotels,
transp ort and communication; (ii) Financing insurance, real estate and
business services; and (iii) Public administration, defense and other
services. The share of services increased steadily from 29.5 percent of
GDP in 1950 -51 to 42.6 percent in 1990 -91 and fur ther to about 57.6
percent in 2010 -11. Services sector has acted as the important engine of
overall growth of Indian economy for more than a decade. The Indian
economy has successfully navigated the difficult years of the recent global
economic crisis beca use of the vitality of this sector in the domestic
economy.
4. Increasing Share of sub -sectors in the Services :
The services sector is composed of three components and their share in the
GDP have increased. This is given in Table 1.8.
a) Share of trade, hotels, transport and communication: Their share in
GDP have increased from 11.3 percent in 1950 -51 to 27.2 percent in 2010 -
11. Trade, hotels, transport and communication services have been
growing rapidly in the recent years, impressive progress in expand ing
railway passenger network and production of commercial vehicles, and
fast addition of existing stock of telephone connections, particularly
mobiles, have played key roles in such growth.
b) Share of financing, insurance, real estate and business servi ces:
Their shares have grown from 7.7 percent of GDP in 1950 -51 to about
17.4 % in 2010 -11. This is due to the growth in financial services
(comprising banking, insurance and real estate services). The progressive
maturing of Indian financial markets and t he ongoing construction boom
has contributed to this.
c) Share of public administration and defence and other services:
Their share has steadily increased from 10.5 percent of GDP in 1950 -51 to
13 percent in 2010 -11. The slow increase in the share of comm unity,
social and personal services, public administration and defence reflect the
process of fiscal consolidation and increasing efficiency of fiscal
expenditure management.
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7 Percentage Share of Different Components of Services in GDP at
Factor Cost
(At 2004 -05 Prices)
Components of Services 1950 -51 2010 -11
a) Trade, hotels, transport &
communication 11.3 27.2
b) Financing, insurance, real estate
and business services 7.7 17.4
c) Public administration and
defence and other 10.5 13.0
Total Sha re of Services Sector in
GDP 29.5 57.6
(Source: Economic Survey, 2011 -12)
According to the theory of economic development has the process of
economic development takes place, the share of secondary and tertiary
sectors in the national income increases and that of primary sector
declines. Such sectoral change is taking place in India, but at a slow pace.
The changes in the sectoral composition of national income bring out the
effect of the process of economic development in India.
1.6 SUMMARY

 GNP is the total market value of all final goods and services produced
in a year plus net income from abroad. This is the basic social
accounting measure of the total output or aggregate supply of goods
and services.

 GDP refers to the value of final goods and services p roduced within
the country in a, particular year. GDP is different from GNP.

 Net national product is the total value of final goods and services
produced in the country during a year after deducting the depreciation,
plus net income from abroad.

 NDP is obtained by subtracting the depreciation from the GDP.

 Personal income is the sum of the income actually received by
individuals or households during a given year. Personal income = N.I -
Social Security - contributions - corporate income taxes -undistri buted
corporate profit + Transfer Payments.

 The personal income which remains after payment of taxes to the
government in the form of income tax, personal property tax etc., is
called disposable income. Disposable income = Personal Income -
Personal Taxes . Table 1. 4
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8  National income may be measured by three different corresponding
methods : A) Net product method B) Factor -income method C)
Expenditure method

1.7 QUESTIONS

1. What is the meaning of per capita income? Explain the trends in per
capita income of India since 1 990.

2. Give the definition of national income and explain the trends in India’s
nation income since 1990.

3. Write note on ‘Structural Changes in Indian Economy’.


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9
2
EMPLOYMENT GENERATION AND
POVERY ALLEVIATION PROGRAMMES
AND REGIONAL INEQUALITIES

Unit Structure:
2.0 Objectives
2.1 Meaning of Employment Generation and Poverty Alleviation
2.2 Brief Overview of Employment Generation and Poverty Alleviation
Progra mmes
2.3 Meaning of Regional Inequalities
2.4 Measures to Reduce Regional Inequalities in India
2.5 Summary
2.6 Questions
2.0 OBJECTIVES
 To study the meaning of Employment Generation.
 To study the meaning of Poverty Alleviation.
 To take brief overview o f Employment Generation and Poverty
Alleviation Programmes.
 To know the meaning of Regional Inequalities.
 To study the measures to reduce Regional Inequalities in India.
2.1 MEANING OF EMPLOYMENT GENERATION AND
POVERTY ALLEVIATION
Poverty eradication is o ne of the major objectives of planned economic
development. Economic growth has always been recognized as an
important among various factors contributing to poverty alleviation. It is
now recognized that it is not the rate of growth but the composition of
growth which determines the pace of the "trickle down" effect of growth.
India's anti -poverty programmes are mainly run by the Central
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10 programmes :(1) rural works, (2) self -employment and (3) f ood subsidy.
All three have been subject to reforms in the recent years. Plan allocations
have been enhanced in areas of health, education, sanitation and other
facilities in order to promote capacity building and wellbeing of the poor.
Anti-poverty progra mmes have been strengthened and restructured
through special programmes for the weaker sections of the -society.
According to the World Bank, Poverty is pronounced deprivation in well -
being and comprises many dimensions. It includes low incomes and the
inability to acquire the basic goods and services necessary for survival
with dignity. Poverty also encompasses low levels of health and education,
poor access to clean water and sanitation, inadequate physical security,
lack of voice, and insufficient capaci ty and opportunity to better one’s life.
As per the Planning Commission of India, the level of poverty in a country
can be estimated based on the consumer expenditure surveys that are
conducted by the National Sample Survey Office (NSSO) under the
Ministry of Statistics and Programme Implementation. This article will
talk about the various Poverty Alleviation Programmes in India and the
initiatives taken by the Government of India towards poverty alleviation.
Why is employment generation important in povert y alleviation in
India?
The unemployment issue in India is considered as one of the major causes
of poverty in India. The poverty rate of a country can be reduced with high
economic growth and by reducing the unemployment problem. Various
poverty alleviati on programmes are set up under the Government of India
that aims to eradicate poverty by providing employment on -demand and
through specific guaranteed wage employment every year to the
households living below the poverty line.
The generation of employmen t is important in poverty alleviation because
of the following reasons:
 It will increase the income level of the poor household families and
will help in reducing the rate of poverty in the country. Hence, there is
a significant relationship between unempl oyment and poverty.
 It will decrease the rural -urban migration through the generation of
employment programs in rural areas.
 An increase in the income level through the generation of employment
programs will help the poor in accessing basic facilities inc luding
education, health facilities, and sanitation.
2.3 BRIEF OVERVIEW OF EMPLOYMENT
GENERATION AND POVERTY ALLEVIATION
PROGRAMMES
The major employment generation and poverty alleviation programmes
currently operating in the country are discussed below: munotes.in

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Programmes and Regional
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11 1. National Food for Work Programme
In line with the NCMP, National Food for Work Programme was launched
on November 14, 2004 in 150 most backward districts of the country with
the objective to intensify the generation of supplementary wage
employment. The programme is open to all rural poor who are in need of
wage employment and desire to do manual unskilled work. It is
implemented as a 100 per cent centrally sponsored scheme and the food
grains are provided to States free of cost. However, the transportati on cost,
handling charges and taxes on foodgrains are the responsibility of the
States. The collector is the nodal officer at the district level and has the
overall responsibility of planning, implementation, coordination,
monitoring and supervision. For 2 004-05, Rs.2020 crore have been
allocated for the programme in addition to 20 lakh tones of foodgrains.
2. Swaranjayanti Gram Swarozgar Yojana (SGSY)
SGSY, launched in April 1999, aims at bringing the assisted poor families
(Swarozgaris) above the poverty li ne by organizing them into Self Help
Groups (SHGs) through a mix of Bank credit and Government subsidy.
3. Sampoorna Grameen Rozgar Yojana (SGRY )
SGRY, launched in 2001, aims at providing additional wage employment
in all rural areas and thereby food securi ty and improve nutritional levels.
The SGRY is open to all rural poor who are in need of wage employment
and desire to do manual and unskilled work around the village/habitat. The
programme is implemented through the Panchayati Raj Institutions (PRIs).
4. Rural Housing – Indira Awaas Yojana (IAY)
The Indira Awaas Yojana (IAY) operationalised from 1999 -2000 is the
major scheme for construction of houses for the poor, free of cost. The
Ministry of Rural Development (MORD) provides equity support to the
Housing and Urban Development Corporation (HUDCO) for this purpose.
5. Pradhan Mantri Gramodaya Yojana (PMGY )
PMGY launched in 2000 -01 envisages allocation of Additional Central
Assistance (ACA) to the States and UTs for selected basic services such as
primary heal th, primary education, rural shelter, rural drinking water,
nutrition and rural electrification. For 2003 -04 as well as 2004 -05, the
annual allocation of ACA for PMGY was Rs.2, 800 crore.
6. Rural Employment Generation Programme (REGP)
REGP, launched in 1995 with the objective of creating self -employment
opportunities in the rural areas and small towns, is being implemented by
the Khadi and Village Industries Commission (KVIC). Under REGP,
entrepreneurs can establish village industries by availing of margin m oney
assistance from the KVIC and bank loans, for projects with a maximum
cost of Rs.25 lakh. Since the inception of REGP, up to 31 March 2004,
1,86,252 projects have been financed and 22.75 lakh job opportunities munotes.in

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12 created. A target of creating 25 lakh new jobs has been set for the REGP
during the Tenth Plan. 8.32 lakh employment opportunities have already
been created during 2003 -04. For 2004 -05, a target of creating 5.25 lakh
job opportunities has been fixed.
7. Prime Minister’s Rozgar Yojana (PMRY)
PMRY st arted in 1993 with the objective of making available self -
employment opportunities to the educated unemployed youth by assisting
them in setting up any economically viable activity. So far, about 20 lakh
units have been set up under the PMRY, creating 30.4 lakh additional
employment opportunities. The targets for additional employment
opportunities under the Tenth Plan and in 2004 -05 are 16.50 lakh and 3.75
lakh, respectively. While the REGP is implemented in the rural areas and
small towns (population up t o 20,000) for setting up village industries
without any cap on income, educational qualification or age of the
beneficiary, PMRY is meant for educated unemployed youth with family
income of up to Rs.40, 000 per annum, in both urban and rural areas, for
engaging in any economically viable activity.
8. Pradhan Mantri Gram Sadak Yojana (PMGSY)
The PMGSY, launched in December 2000 as a 100 per cent Centrally
Sponsored Scheme, aims at providing rural connectivity to unconnected
habitations with population of 500 persons or more in the rural areas by
the end of the Tenth Plan period. Augmenting and modernising rural roads
has been included as an item of the NCMP.
The programme is funded mainly from the accruals of diesel cess in the
Central Road Fund. In addition, support of the multi -lateral funding
agencies and the domestic financial institutions are being obtained to meet
the financial requirements of the programme.
Up to October, 2004, with an expenditure of Rs 7,866 crore, total length of
60,024 km. of road w orks has been completed. The National Rural Roads
Development Agency (NRRDA), an agency of the Ministry of Rural
Continue...... Social SectorsDevelopment registered under the Societies
Registration Act, provides operational and technical support for the
programme.
9. Drought Prone Areas Programme (DPAP), Desert Development
Programme (DDP) and Integrated Wastelands Development
Programme (IWDP)
DPAP, DDP and IWDP are being implemented for the development of
wastelands/degraded lands. During 2004 -05 allocation of Rs. 300 crore,
Rs. 215 crore and Rs. 368 crore were provided for DPAP, DDP and
IWDP, respectively. So far, during 2004 -05, 2,550 projects covering 12.75
lakh hectares, 1,600 projects covering 8 lakh hectares and 165 projects
covering 8.32 lakh hectares, have been sanctioned under DPAP, DDP and
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Inequalities
13 10. Antyodaya Anna Yojana (AAY)
AAY launched in December 2000 provides foodgrains at a highly
subsidized rate of Rs.2.00 per kg for wheat and Rs.3.00 per kg for rice to
the poor families under the Targeted Public Distribution System (TPDS).
The scale of issue, which was initially 25 kg per family per month, was
increased to 35 kg per family per month from April 1, 2002. The scheme
initially for one crore families was expanded in June 2003 by adding
another 50 lakh BPL families. During 2003 -04, under the AAY, against an
allocation of 45.56 lakh tonnes of foodgrains, 41.65 tonnes were lifted by
the State/UT Governments. Budget 2004 -05 expanded the scheme further
from August 1, 2004 by adding another 50 lakh BPL families. With this
increase, 2 crore families have been covered under the AAY.
11. Swarna Jayanti Shahari Rozgar Yojana (SJSRY)
The Urban Self Employment Programme and the Urban Wage
Employment Programme are the two special components of the SJSRY ,
which, in December 1997, substituted for various extant programmes
implemented for urban poverty alleviation. SJSRY is funded on a 75:25
basis between the Centre and the States. The expenditure during 2003 -04
was Rs.103 crore. For 2004 -05, the allocation is Rs.103 crore, out of
which Rs. 90.38 crore were utilized by December 31, 2004.
12. Valmiki Ambedkar Awas Yojana (VAMBAY)
The VAMBAY launched in December 2001 facilitates the construction
and upgradation of dwelling units for the slum dwellers and provide s a
healthy and enabling urban environment through community toilets under
Nirmal Bharat Abhiyan, a component of the scheme. The Central
Government provides a subsidy of 50 per cent, the balance 50 per cent
being arranged by the State Government. Since its inception and up to
December 31, 2004, Rs. 753 crore have been released as Government of
India subsidy for the construction/upgradation of 3,50,084 dwelling units
and 49,312 toilet seats under the scheme. For the year 2004 -05, out of the
tentative Central Fund allocation of Rs.280.58 crore, up to December 31,
2004, an amount of Rs. 223.66 crore has been released covering 1,06,136
dwelling units and 20,139 toilet seats.
Reference: http:/indiabudget.nic.in
2.4 MEANING OF REGIONAL INEQUALITIES
Regional Dispa rity means divergence or inequality of characters,
phenomena or processes having specific territorial allocation (can be
allocated in defined territorial structure) and occurring at least in two
entities of the territorial structure’.

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14 2.5 MEASURES TO RED UCE REGIONAL
INEQUALITIES IN INDIA
The various programmes undertaken to remove/reduce regional disparities
can be identified as follows:
1) Resource Transfers from the Centre to the States, Weighed in
Favour of Backward States:
The resource transfers, ta ke place via (a) the Planning Commission mainly
in the form of plan transfers, and (b) the Finance Commission in the form
of non -plan transfers. The location of Central projects and Centrally -
sponsored schemes are determined in the planning process by the Planning
Commission in collaboration with the relevant wings of the Government.
A recent study on the subject suggests that the poorer states have been
receiving proportionately larger amount of funds for developmental
purpose relative to their rich counte rparts.
2) Priority given to Programmes which spread over the entire Area
within the Shortest Possible Time:
Programmes of agriculture, community development, irrigation and
power, transport and communications and social services have the widest
coverage, and aim at providing basic facilities and services to people in all
the regions. Since, these programmes are included in the plans of States, it
is largely through the shape given to State plans and the changes through
which they pass in the course of the plan period that the benefits of
development are carried to every part of the country.
3) Provision of Facilities in Areas which Lag Behind Industrially:
River valley projects form the most important segment in the plans of
several States and large inves tments have been made in multi -purpose
projects. These and other projects are essential for the development of vast
regions in the country, some of which suffer from scarcity or
unemployment or are otherwise poorly developed. The implementation of
agricult ural production and community development programmes, and of
education and health schemes also carries the benefits of development to
the remotest areas.
4) Programmes for the Expansion of Village and Small Industries:
Village and small industries are spr ead all over the country and various
forms of assistance provided by the Central and State Governments are
made available in the areas according to programmes undertaken.
Industrial estates have been set up in all States, and increasingly, they are
being l ocated in smaller towns and rural areas.
5) Diffusion of Industrial Activity:
In the location of public sector projects, the claims of relatively backward
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Employment Generation and
Povery Alleviation
Programmes and Regional
Inequalities
15 up essential technical and e conomic criteria. The location of several
important projects has been determined on the basis of expert study and on
economic considerations. But as they are situated in areas which were
hitherto industrially backward, the latter will benefit. While in the
selection of sites for basic capital and producer goods industries,
proximity to raw materials and other economic considerations have
naturally been important, it is felt that in a wide range of consumer goods
and processing industries, it is possible to foster a regional pattern of
development. To some extent, the development of new processes and new
uses of raw materials have assisted in the spread of industry. To encourage
such elements, care need to be taken to ensure that a balance is maintained
in the regional spread of industrial activities.
6) Schemes for Development of Backward Areas:
The present policy for the development of backward areas comprises a set
of special schemes under which plan funds are provided over and above
the funds allocated fo r general sectoral programmes.
The special schemes to reduce regional disparities can be classified as
follows:
 Schemes focusing on areas with special features: The Desert
development programme, the Drought -Prone Area Programme, the
Command Area Developm ent Programme, the Hill Area Development
Projects and sub -plans, the North Eastern Council set -up, and the
Tribal Area Sub -Plans and Tribal Development Agency projects).

 Schemes focusing on target group: Small farmers’ development
agencies and the special component plan for Scheduled Castes).

 Schemes providing incentives and concessions for particular
activities in backward areas (concessional finance from financial
institutions, tax relief, investment subsidy, transport subsidy and
priority in raw mater ial allocations and hire -purchase of machinery, for
industries located in 246 backward district/areas, and relaxed viability
and loan repayment terms for extensions of electricity by the Rural
Electrification Corporation in backward areas).

 Rashtriya Sam Vikas Yojana has been launched in 150 districts. A
Rs. 25,000 crore Backward States Grant Fund has been set up; the
Fund will be operational for five years starting 2005 -06.
2.6 SUMMARY
The regional disparity in India has been a major challenge for planne rs and
policy makers. Despite a number of development programmes overtime,
regional disparities have persisted. Regional disparities are observed in
growth rates, per capita SDP, per capita consumption expenditure, sectoral
contribution to GSDP, agricultur al development, Industrial development,
infrastructural development and also in human 77 development. The munotes.in

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16 important factors responsible for regional disparities are: variation in the
occupational structure of workers, historical factors like variation in
infrastructure development, decline in budgeting support for financing
infrastructure, financial institutions, provision of education and training
facilities etc. various programmes have been launched towards removal of
regional disparities. However, all th ese schemes and programmes have
suffered from several limitations and a lot need to be done for ensuring
balanced regional development.
2.7 QUESTIONS
1. Give the meaning of employment generation and poverty alleviation.
2. Give brief overview of employmen t generation and poverty alleviation
Programmes.
3. What is regional inequalities? Explain the measures to reduce regional
inequalities in India.


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17 Module - II
3
AGRICULTURAL SECTOR – I
Unit Structure:
3.0 Objectives
3.1 Introduction
3.2 Role of Agriculture in Economic Development
3.3 Causes of Low Productivity
3.4 Agricultural Inputs
3.5 Agricultural Price Policy
3.6 Recent Minimum Support Price Policy
3.7 Summary
3.8 Questions
3.0 OBJECTIVES
 To study the role of agriculture in economic development.
 To study the causes of low productivity of agriculture.
 To know the concept of agricultural inputs.
 To study the income support for farmers.
 To study recent minimum support price polic y
 To study the agricultural price policy.
3.1 INTRODUCTION
At the time of independence, India‘s agriculture was in a state of
backwardness. Productivity per hectare and per worker was extremely
low. The techniques employed were age -old and traditional. B ecause of
low productivity, agriculture merely provided subsistence to the farmers.
Following causes explains the backward and traditional nature of Indian
agriculture.
1. Feudal relations of production:
At the time of Independence, three types of land ten ure system were
prevalent in the country – zamindari, mahalwari and ryotwari. The
zamindari system was based on exploitation since zamindars pressurized
peasants in a variety of ways. Ryots in the Ryotwari system also leased out
their land to tenants for c ultivation and these tenants were also subjected
to the exploitation. After Independence, the State governments enacted munotes.in

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18 laws to abolish the intermediaries. However, these were entirely
inadequate to have any drastic impact on the agrarian structure.
2. Us urious capital and rural indebtedness :
During the pre -Independence period, moneylenders charge exorbitant rates
of interest, manipulate accounts to their advantage and often seize the land
of small and marginal farmers on one or the other pretext. Since l ong the
Indian peasant has been living the life of bonded land slave. After
Independence, the government has initiated a number of steps to curb their
activities. One of the important policy measures being the development of
cooperative credit institutions and the increasing participation of banks in
providing rural credit. However, because of a number of factors, the small
and marginal farmers continue to depend on moneylenders for fulfilling
their credit.
3. Labour market dualism :
Because of the excessi ve pressure of population on land, wages in the
agricultural sector tend to be considerably lower as compared to the
modern (industrial) sector. This leads to a labour market dualism. This
dualism is explained by the fact that large number of workers remai n
sticking to traditional agriculture despite low wage due to either to
ignorance of better opportunities outside agriculture, or to their inability to
obtain a modern sector job despite wishing to do so, or to the cost of
moving being unacceptably high in relation to the expected wage
premium. These cheap labour leads to the adoption of labour -intensive
methods of production.
4. Outmoded farming techniques:
Most of the Indian farmers continue to use outmoded farming techniques.
The traditional agriculture depends on the biological sources of energy,
rains and drug manure. Returns to farmers under this technique of
production are very meagre and the nature of farming is appropriately
described as subsistence farming. However, with the advent of the new
agricultural strategy in 1966, modern techniques of production and new
high-yielding varieties of seeds, agricultural productivity registered
substantial increases in these areas. However, since large areas of the
country continue to use outmoded agricultural techniques.
5. Fluctuations and instability in crop output:
The Indian agriculture has rightly been called a ‘gamble in monsoons ‘.
Even now as much as 60 per cent of gross cropped area continues to
depend on rainfall. Therefore, nature continues to play a major role in
determining the level of agricultural production.
6. Diversities in the agricultural sector and the problem of
generalization:
India is a large country having substantial agricultural diversities.
Different regions exhibit entirely differ ent characteristics so that no one munotes.in

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19 plan can be conceived for all agricultural regions of the country. For e.g.,
take a case of rainfall. Western Rajasthan and a part of the Thar Desert
have a very uncertain rainfall of 4 to 5 inches a year, whereas Cherrap unji
in Assam has an annual rainfall of more than 450 inches. While
considerable areas face drought conditions in a particular year, some areas
encounter the fury of floods. Some areas face the problems of
waterlogging and salinity. There are substantial r egional inequalities in
regard to sub -division and fragmentation of holdings.
The presence of large diversities in the agricultural sector makes it
necessary to devise separate agricultural policies for different regions. It is
not possible to generalize and formulate a single agricultural policy for the
nation as a whole.
3.2 ROLE OF AGRICULTURE IN ECONOMIC
DEVELOPMENT
3.2.1 ROLE OF AGRICULTURE IN DEVELOPING ECONOMY
In developing and the underdeveloped nations agriculture has always and
is still playing very crucial role in their economic development and
employment generation. In our following discussion we will have a look at
the detailed role of agriculture in its contribution to the economic growth
of such underdeveloped or developing nations.
1. Product Contribution:
Majority of the underdeveloped or developing nations depend on their
own agricultural activity for food grains and pluses for their own self
consumption. However, as exceptions do exist there are a few nations like
Malaysia and Saudi Arabia w ho exports their natural resources like oil and
gas which in turn helps them earn foreign exchange in huge volumes, and
this huge amount of foreign exchange which they earn helps them import
their entire food requirements for their population. These countr ies being
exceptions, all the other developing nations don’t earn or don’t have such
a huge reserve of foreign exchange from which they can import the entire
food requirement of the population of their entire country, and hence they
have to rely on their o wn agriculture to produce enough quantity of food
grains to feed their entire population.
In developing or underdeveloped nations, the farmers have to produce
food grains well above their survival requirements as they have to supply
necessary quantity of f ood grains to their urban population. Farmers in the
developing nations should have marketable surplus of food grains which
will help meet the food requirements of population employed as workforce
in both secondary as well as the tertiary sectors which is ultimately
necessary for the growth of both these sectors. With the growth of
secondary and the tertiary sectors, it is equally important that the
agricultural sector also grows at such a rate which matches the food grain
requirement of the increasing work force and helps in sustaining both the
growth of secondary as well as the tertiary sector. munotes.in

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20 The agricultural growth has to match the industrial development because if
there is a shortfall in the agricultural production then the food grains
import is not pos sible due to the shortage of foreign exchange reserves.
This is turn will adversely affect industrial or the secondary sector as the
terms of trade will turn against the secondary or the industrial sector and
this will ultimately halt the growth process, a s the industrial production
will no longer be profitable. This will ultimately result in the economy
coming to a grinding halt.
2. Factor Contribution:
Nearly 60% of the population of the developing countries is engaged in
the agriculture, so agriculture can supply a huge quantity of workforce to
the secondary and tertiary sectors provided if proper training is given to
such a workforce employed in the agricultural sector. This can only
happen when the productivity in industrial or tertiary sector rises. In
Lewis’s “Model Of Development With Unlimited Supplies Of Labour”
surplus labour mobilization which is disguisedly unemployed in the
agricultural sector is necessary for the growth and expansion of the
industrial or secondary sector and capital accumulation is necessary for
generating employment in the expanding industries. Lower wage rate for
workers implies lower will be the cost of production for the industrial or
secondary sector which in turn will generate huge profits for the
industrialists, who can rei nvest these profits for further industrial
development and capital accumulation.
In countries like India, where there is a democratic set up and everyone
has a right to choose their own occupation, the labour employed in the
agricultural sector cannot be f orced to migrate to the industrial sector until
and unless there is an increase in the agricultural productivity and hence
there is a marketable surplus of food grains. Green Revolution of mid
1960s played a crucial role in revolutionizing the use of techn ology in the
agricultural sector and leading to a marketable surplus generation in the
agricultural sector. This led to a growth in the industrial sector of many
developing countries of South -East Asia using cheap labour so freed from
the agricultural sect or.
3. Source of Capital:
Agriculture can be a key source capital formation for the industrial growth
in the developing nations. In many poor developing nations, the
agricultural income is unequally distributed, so people living in the rural
areas and having high income can invest their savings in the industrial
development.
Land revenue generated from agriculture forms an insignificant source of
State income in India. A committee led by late Dr K. N. Raj suggested
‘Agricultural Holding Tax’ to transfer sav ings from agricultural sector for
economic development.
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21 4. Market Contribution:
It reflected in the demand for the industrial products. In the initial stages
of development, when the urban sector is not very well developed or very
small and export market is still a distant dream, agriculture sector in the
underdeveloped nations is a major market for industrial products. The
farmers spend their money income on industrial goods which they earn by
selling their production of cash crops like sugar, jute, cotton, etc. Income
generated by the farmers by selling their marketable surplus of food grains
is also used in creating the demand for the industrial goods.
For the industrial growth to be high, the demand for industrial products
has to expand or increase. It has been observed in India, that whenever
there is a slow or a negative growth in the agricultural sector, there has
been no growth in the industrial sector due to deficiency of demand for the
industrial products. When there is an increase in the agricultural
productivity and production leads to an increase in the demand for
industrial goods and services and this leads to an acceleration in the rate of
economic development. According to World Development Report of the
year 1979, “a stagnant rural economy with low purchasing power holds
back industrial growth in many developing countries.”
There is a direct relationship between agriculture and the industries,
agriculture creates a demand for the various industrial products and in turn
supplies food and raw mater ials to the industries, raw materials include
items like sugarcane, jute, cotton, oilseeds etc. Agriculture also provides
raw materials to the agro -based industries like sugar manufacturing, rice -
husking, oil -crushing, handloom weaving, etc. Hence, when th e
agricultural growth is slow or sluggish, these agro -based industries will
not be able to get regular and required supply of their raw -materials.
From the above discussion it is clear that a rapid and a healthy growth in
the agricultural sector is a prere quisite for a rapid industrial growth. This
has an impact on the pricing of the agricultural products in relation to the
industrial goods, that is this decides the terms of trade between agriculture
and the industry. Lower agricultural prices imply cheaper raw materials
and food for the industry which in turn leads to lower cost and which
ultimately leads to higher profitability. From the agriculture point of view
lower prices means lower income for farmers, which in turn would impact
their purchasing power to buy industrial goods.
As lower agricultural prices would only discourage the agricultural
productivity. So for balancing of the terms of trade between the
agricultural sector and the industrial sector, the agricultural prices should
neither be to high to make industrial production an unprofitable bargain,
nor should they be so low that leads to the exploitation of the agricultural
sector and farmers are not encouraged to increase their agricultural
productivity.

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22 5. Foreign Exchange Contribution:
In initi al stages of economic development with low industrial
development, exports of agricultural products can be the main source of
foreign exchange earnings for an underdeveloped country, agriculture
earns foreign exchange from its exports of primary goods.
In the initial stages of economic development, the developing countries
face a major crisis of foreign exchange or what is often referred to a
‘foreign exchange gap’ to meet their requirements of imports of industrial
goods for their industrial development. A griculture by exporting primary
goods contributes to the foreign exchange earnings thereby enabling the
developing nations to be able to import the industrial goods needed for
their industrial growth, these are the goods which cannot be produced in
the imp orting country or even if produced will be produced at a higher
opportunity cost.
So, here we can see that agriculture can play an important role in
contributing to the economic development of the nation by earning foreign
exchange needed to import the ind ustrial raw materials and capital goods
needed for industrial expansion. The shortage or lack of foreign exchange
acts as a big hindrance for the growth process of a developing nation. In
India’s Second and Third Five Year Plan the agricultural sector was
relatively ignored in allocation of investment resources, so the growth
process too came to a halt as even the basic food requirements were
needed to be imported with lack of enough foreign exchange balance, the
balance of payments problems were being expe rienced and it increasingly
became more difficult to import even necessary inputs for the industrial
growth.
6. Agriculture and Poverty Alleviation:
In India, majority of the poor population lives in the rural areas of the
country. Still around 40% of the Ind ian rural population lives below
poverty line, even after 60 years of independence, and majority of them
are marginal farmers, Scheduled Castes and Tribes, landless agricultural
labourers. Among others, Montek Singh Ahluwalia the former Deputy
Chairman of Indian Planning Commission that agricultural growth leads to
a decline in the poverty. Agricultural growth plays an important role in
any strategy framed to eradicate poverty. Agricultural growth helps in
increasing both the productivity as well as the inc ome levels of small and
marginal farmers and improves the employment level as well as the wage
level of the agricultural workers. In this way, it helps in both the poverty
as well as the disguised unemployment. An increase in the agricultural
productivity ensures lower food prices and thus, helps in keeping inflation
under control and thus contributes in lowering of the poverty level.
7. Contribution of Agriculture to Employment Generation:
In key growth models for labour -surplus developing nations, eminent
among them are ‘Lewis’ model of growth with unlimited supply of
labour,’ Mahalanobis growth model of assigning higher importance to munotes.in

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23 basic and heavy industries highlighted the point of withdrawal of surplus
labour from the agricultural sector to be employed i n the growing or
expanding industrial sector. However, it was observed that instead of
withdrawing of surplus labour from agriculture, the modern industries
were highly capital intensive and generated very little or limited
employment opportunities which w ere not even able to employ the openly
unemployed workforce in the urban areas.
Agricultural growth provides a good employment potential, however to
generate this employment potential from agricultural growth it is
necessary that a proper strategy of agric ultural growth is followed. The use
of new agricultural technology like High Yield Value Seeds, pesticides,
fertilizers accompanied by optimum quantity of water for irrigation
purposes will help in increasing the level of agricultural employment.
Adaptatio n of inputs like high -yielding technology helps the farmers to
adopt multiple cropping which in turn leads to a large employment
potential generation in the agricultural sector.
In order to improve and expand the irrigation facilities and other
agricultura l infrastructural needs so that the farmers across India can draw
benefits from the new high -yielding technology, there is need to increase
in the capital investment in the agricultural sector. The extensive
dispersion of the high -yielding technology in th e rural areas of India will
not only raise the agricultural productivity but will also raise the
employment level in the agricultural sector. In order to achieve full
employment potential agricultural growth, mechanisation in agriculture
should be used in a selective manner so that there is no reckless
substitution of manpower by machines leading to an increase in the
unemployment level. Further to increase the employment level in the
agricultural sector, land reforms like tenancy reforms and distribution o f
land through imposition of ceiling on land holdings should be effectively
be implemented as small farmers employ more labour, have higher
cropping intensity and higher productivity.
3.2.2 ROLE OF AGRICULTURE IN A DEVELOPED ECONOMY
Agriculture sector has always played a tactical role in the economic
development of any country. It has made an important contribution to the
economic well -being of advanced countries.
If we have a look at the history, we find that there is clear evidence that
Agricultural Revol ution led to the Industrial Revolution there. Similarly,
in U.S. and Japan also we see that the agricultural development aided in a
huge way in the process of industrialization.
Over the years it has been witnessed that an increased agricultural
productiv ity and output contributes to the overall economic development
of the nation in a big way. So it will be more logical and correct to give
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24 According to all leading economists like Pro f. Kinderberger, Todaro,
Lewis, Nurkse etc. agriculture contributes to the economic development in
several ways, viz
1. As it not only provides food for the entire population but also provides
raw material to the non -agricultural sectors of the economy.

2. It creates a demand for non -agricultural sectors in the rural areas, as it
increases the purchasing power of the rural population which happens
when they sell their marketable surplus.
1.3.1 Role of Agriculture in A Developed Countries
1. Contribution to National Income
If we have a look at the economic history of many advanced and
developed countries, we find that the agricultural prosperity has
immensely contributed in encouraging economic progress. It has been
rightly said that today’s well developed and indust rialized economies were
once mainly agricultural economies, and today’s underdeveloped
economies are primarily agricultural countries, and agriculture contributes
a major chunk of income to their national income.
2. Source of Food Supply
Even though, agricul ture may not be the prime source of income for the
developed nations, it is of significant importance to the developed nations
as well, because if there is any shortfall in the agricultural production and
it fails to meet the ever -increasing food demand, t hen it will adversely
affect the growth rate of even the developed economies. So increasing the
agricultural output has been of prime importance for the economic growth
of any nation, whether it’s a developed nation or a developing one.
3. Pre-Requisite for R aw Material
A steady growth and advancement in the agricultural sector is a must for
any economy irrespective of the fact whether it’s a developing or a
developed economy. As far as the developing economies are concerned
agricultural sector forms a substan tial part of their national income, the
importance of agricultural sector is no less in developed countries either,
as it provides raw materials to the industries which in turn converts them
into finished products. Say, for example flour mills converts whe at into
flour which is ultimately supplied to bread manufacturers who
manufacture bread from the same flour. There are many such examples
where industries take their raw materials from agriculture products and
later manufacture them into finished goods for final consumption.
4. Shift of Manpower
When the economy is a developing economy, agriculture absorbs large
amount of workforce. However, it is important for the economy that there
is a progress in the agricultural sector through automation, which will
force the workforce to shift from agricultural sector to non -agricultural munotes.in

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25 sectors which will ultimately lead to economic development. This will
help in reducing the burden of the workforce on land which is always
limited in supply. Once the economy turns into a developed economy, the
percentage of labour employed by agriculture will be very low mainly due
to the fact that the advanced technology has replaced the huge labour force
from the agricultural sector. Which ultimately leads to high productivity
and limit ed employment of labour in the agricultural sector.
5. Helpful in Phasing out Economic Depression
In times like economic depression when the industrial production hits the
rock bottom and survival for any economy whether developed or
underdeveloped becomes re ally difficult, it is at this time agriculture plays
a vital role in not only the production of necessities of the society but more
importantly providing employment to the people and thus creating demand
for other goods and services.
Progress in the agricu ltural sector is essential as it provides for the ever -
growing non -agricultural population of the nation. Agricultural progress is
further necessary as it provides raw materials to many industries which in
turn helps the nation in earning foreign exchange and in generating
employment in the nation.
Check Progress
1. What is the role of agriculture in Developing country?
2. What is the role of agriculture in developed country?
3.3 CAUSES OF LOW PRODUCTIVITY
A comparison of productivity levels in Indian agricultur e with the levels in
other countries shows the low level of productivity in Indian agriculture.
Productivity of wheat in India is about 34 percent of the productivity in
U.K. and 67 percent of the productivity in China. As far as rice is
concerned, product ivity in India is 49 percent of the productivity in China
and 40 percent of the productivity in USA. The productivity of seed cotton
in India is about one -fifth as compared with China and less than one -half
as compared with USA and Pakistan. As far as grou ndnut is concerned,
productivity in India is 26 percent of the productivity in USA and 36
percent of the productivity in China. India happens to be one of the largest
growers and producers of most of the agricultural crops but ranks very low
in terms of yi eld. The causes of low productivity in Indian agriculture can
be divided into the following categories:
A. General causes.
B. Institutional causes.
C. Technical causes.

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26 A. General causes:
1. Social environment: The Indian farmer is illiterate, superst itious,
conservative and non responsive to the new agricultural techniques of
production which helps to increase productivity. This type of social
environment of villages is often stated as an obstacle in agricultural
development.
2. Pressure of populatio n on land: There is heavy pressure of population
on land. Since the non -agricultural sectors of the economy have not been
able to expand, the pressure on agricultural sector continued to increase. In
2001, nearly three quarters of the rural working populat ion was employed
in the agricultural sector. Increasing pressure on land is partly responsible
for the subdivision and fragmentation of holdings. Productivity on small
economic holdings is low.
3. Land degradation: Government of India has recently estimat ed that
nearly half of the country‘s 329 million hectares of soil could be
categorised as degraded. Almost 43 percent of the land suffers from high
degradation resulting in 33 -67 percent yield loss while 5 percent is so
damaged that it has become.
B. Insti tutional causes:
1. Land tenure system: In the pre independence period, the agrarian
structure depended solely on the presence of a few big landlords and
zamindars. The status of the actual cultivator was not more than a slave or
serf, had no incentive to increase productivity. In the post -independence
period, legislations were passed to abolish intermediaries. But it only
changes their garb and became big landowners. Regulation of rent,
security of tenure, ownership rights for tenants, etc. did not make th e
position of tenants better. In this land tenure system, it is difficult to
increase productivity only through technological means.
2. Lack of credit and marketing facilities : The weak agricultural
structure is not supported by any sound infrastructure li ke marketing
system, in spite of large trading being carried out by the government
agencies like Food Corporation of India and the NAFED, continues to be
faulty. In case of the credit finance system, services of regional rural banks
and NABARD are inadequa te.
3. Uneconomic holdings: According to National Sample Survey, 52
percent holdings in 1961 -62 had a size of less than 2 hectares. In 1995 -96,
80 percent of the total holdings fell under this category. Most of these
holdings are not only extremely small they are also fragmented into a
number of tiny plots so that cultivation on them can be carried out only by
labour intensive techniques. This results in low productivity. Until the
excessive labour employed on agriculture is transferred to alternative jobs
and the holdings are consolidated, modern techniques of production
cannot be adopted and the possibilities of increasing agricultural
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27 C. Technical causes:
1. Outmoded agricultural techniques: most of the Indian farmers
continue to use outmoded agricultural techniques. Wooden ploughs and
bullocks are still used by a majority of farmers. Use of fertilizers and new
high yielding varieties of seeds is also extremely limited.
2. Inadequate irrigation facilities: Despite substa ntial expansion of
irrigation, even now 60 percent of the gross cropped area continues to
depend on rains. Rainfall is often insufficient, uncertain and irregular.
Accordingly, productivity is bound to be low in all those areas which lack
irrigation facili ties, and are totally dependent on rains. Even in areas
having irrigation facilities, potential is not wholly utilised because of
defective management. The costs of irrigation are also increasing
continuously and the small farmer is, therefore, unable to m ake use of
available irrigation facilities.
Check Your Progress:
1. Explain the nature of Indian agriculture.
2. Discuss the institutional causes of low productivity in Indian
agriculture.
3.4 AGRICULTURAL INPUTS
The agricultural inputs are defined as products permitted for use in
organic farming . Agricultural inputs include feedstuffs, fertilizers and
permitted plant protection products as well as cleaning agents and
additives used in food production.
The types of agricultural inputs are as belows –
1. Consumable Inputs
Consumable inputs are the types of inputs that will be consumed
naturally by the crops. The most commonly used consumable inputs
arehigh -quality seeds, soil, fertilizers, insecticides, pesticides, insect
traps, straw, hay, water etc.
The consumable inputs are the most basic yet necessary aids to
smallholder farmers’ harvest. Pesticides and insecticides are crucial to
deter pests. Mulch can act as a deterrent against weed growth. And
don’t forget about the importance of high -quality seeds. High -quality
seeds are a necessity for ensuring healthy crops from the verybeginning.
2. Capital Inputs
Capital inputs are agri -inputs that are often mechanical and more
technologically advanced. These agricultural inputs cannot be consumed
by the crops them selves. Capital inputs are necessarily thought of as
tools for larger farms, but that’s not completely true. There are plenty of munotes.in

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28 agri-inputs that can aid both larger farms and smallholder farmers alike
such as reflective mulches and trellising materials.
Some other common forms of capital inputs are: nylon netting, stakes,
tractors, plows, irrigation systems etc.
Capital inputs such as tractors and plows are not commonly used by
smallholder farmers since they are such a large investment. We
recommend sma llholder farmers utilize capital inputs like nylon netting
and reflective mulches to aidtheiryield.
3. Eco-Friendly Agri -Inputs
Certain types of agricultural inputs are greener than others. And with
global warming rapidly advancing, we recommend that every f armer
attempts to be as sustainable as possible. We understand that sustainable
farming is often a challenge for smallholder farmers since they have
limited resources, but it’s not impossible.
Smallholder farmers can be eco -friendly by incorporating an In tegrated
Pest Management approach into their daily routine. An Integrated Pest
Management approach utilizes both organic and non -organic materials
to deter pests. By finding the precise balance between the two,
smallholder farmers can use sustainable farmi ng methods while
ensuring a high yield.
3.5 AGRICULTURAL PRICE POLICY
Price policy plays a pioneer role in the economic development of a
country. It is an important instrument for providing incentives to farmers
for motivating them to go in for productio n-oriented investment and
technology.
Objectives of Agricultural Price Policy:
Objectives of agricultural price policy vary from country to country
depending upon the place of agriculture in national economy. In
developed countries, the major objective of price policy is to prevent
drastic fall in agricultural income while in developing economies it is to
increase the agricultural production.
However, the main objectives of agricultural price policy are summarized
below:
(i) To Ensure Relation between Pr ices of Food -grains and
Agricultural Goods:
The foremost objective of agricultural price policy is to ensure the
appropriate relationship between the prices of food grains and non -food
grains and between the agricultural commodities so that the terms of tr ade
between these two sectors of the economy do not change sharply against
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29 (ii) To Watch Interests of Producers and Consumers:
To achieve the balance between the interest of producers and consumers,
price policy should keep a close eye the fl uctuations within maximum and
minimum limits.
(iii) Relation Between Prices of Crops:
The price policy should be such which may sustain the relationship
between the prices of competing crops in order to fulfill the production
targets in respect of differe nt commodities in accordance of its demand.
(iv) To Control Seasonal Fluctuations:
Another object of price policy is to control cyclical and seasonal
fluctuations of price rise to the minimum extent.
(v) Integrate the Price:
The agricultural price policy should also aim at to bring the greater
integration of price between the various regions in the country so that
regular flow of marketable surplus could be maintained and exports of
farm products stimulated regularly.
(vi) Stabilise the General Price:
To stabilize the general price level, it should aim at increasing the public
outlay to boost economic development in the country.
(vii) Increase in Production:
The agricultural price should aim at to raise the production of various
commodities in the countr y.
Therefore, it must keep balance between output and input required by the
cultivations.
3.6 MINIMUM SUPPORT PRICE
Food grains and prices committee in 1964 recommended the establishment
of Agriculture price commission to enforce a balanced and integrate d price
structure in the country, and accordingly it was set up in the year 1965.
However, in 1985 the agriculture price commission was renamed as
commission for agriculture Costs & prices. The main function of the
commission is to announce Minimum Support Price (MSP) procurement
prices and to fix prices for number of agricultural commodities to be sold
to public minimum price is also called Reserved Price.
Definition of MSP:
Support price is defined as price at which the government would be under
obligati on to buy the entire stocks that may be offered to it for sale. the
support prices would have no direct incentives, role to play, but ensure
farmers against risk of price falling below particular level. munotes.in

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30 The main objectives of announcing MSP are –
1. To pr event fall in prices in the situation of over production.
2. To protect the interest of farmers by ensuring them minimum price for
their crop in situation of price fall in the market.
The support price would no direct incentive role to play but would ensu re
farmers against risk of prices falling below a particular level. Under this
policy govt. attempts to stabilize the incomes of farmers by entering the
market itself buying and selling in open market when there is shortage.
What should be the minimum supp ort price?
Guidelines for determining support prices of agricultural products would
depend on objectives that are sought to be achieved. Objective of
agricultural price support policies can be and are in fact diverse in
different countries. By definition a support price policy assures the
farmers against a fall in prices beyond the stipulated level, in some
countries (mainly advanced), such price insurance has primary objective
of maintaining the general level of farm income. i.e. income – oriented
approac h.
In several other countries (specially developing countries) the main
objective of support price policy is to help augment – overall agriculture
production i.e. product oriented approach.
In most developing countries, including India the main objective i n
present context is to step up the rate of growth of agriculture production so
as to match the growth of consumer demand. The support price policy,
which is production oriented therefore would seen to have greater
relevance. The objective of improving agr icultural incomes will be
achieved as a sequel to increased production and productivity.
For fixation of minimum support price some economist believed that it
should be based on cost of production. But question is what cost should be
considered? As the cos t of production of a commodity depends on number
of factors which vary from farm to farm, size of the farm, soil ty pe,
cropping pattern, farm as well as techniques of production employed. As
such it is not easy to work out the average cost of production. T o avoid
these difficulties support price has to be related to the costs of a farms for
which the inputs are mostly purchased and not home produced. The
reserve price has to be related to the cost of production of a “model”.
Commercial farm, for which alone the cost is measurable concept the
reserve price may thus be deformed as “The price than ensures the cost of
production of commercial farm under normal weather condition.” Thus
defined it will vary from year to year depending upon changes in the
condition of supply & hence it will have to be flexible.
However we must sure that primary objective of the support price policy
in our country has to be that of augmenting agriculture production and not
of achieving income redistribution between agricultural and n on-munotes.in

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31 agricultural sector. The deterring support prices will have to be involved
keeping this objective firmly in view.
According to this programme, the govt. should fix the price of farm
produce at a level which is higher than the market price and to buy fro m
the farmers. Whatever surpluses are not cleared in market in Fig. P0 is
market price of say wheat

Figure 3.1
The support price by the govt. pegs the price P1 at that price, according to
demand curve D0 only OA units of wheat are taken by consumers. But on
the other hand, OB units of wheat are offered for sales. Thus the
government under the obligation to purchase this surplus supply and keep
it in the buffer stock.
In case this policy is successful we will, firstly have smaller fl uctuations in
the price of farm produce than there would be if price were determined on
the basis of completely free market. Secondly total revenue of the farm
producers will get stabilized in face of fluctuations in production.
In case of long run one can increased the output as the producer knows he
can expand production by increased inputs or costs. Higher support prices
fixed by govt. may stimulate agricultural production by causing farmers to
use none labour and variable resource inputs to reach higher output level
with existing methods of production and the discovery and adoption of
new agricultural technologies that result in new, lower cost production
possibilities by farmers. Thus it brings about the growth in production in
long run.
3.7 SUMMARY
1. At the time of independence, India‘s agriculture was in a state of
backwardness. Productivity per hectare and per worker was extremely munotes.in

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32 low. The techniques employed were age -old and traditional. Due to
large diversities in the agricultural sector it is not possible to
generalize and formulate a single agricultural policy for the nation as a
whole.
2. Indian agriculture in the pre -Independence period can be correctly
described as a subsistence occupation. Some farmers started adopting
agriculture on a comme rcial basis only after Independence and more
specifically when planning era and Green Revolution started.
3. A comparison of productivity levels in Indian agriculture with the levels
in other countries shows the low level of productivity in Indian
agricu lture.
4. Agriculture’s role in the developed countries if we see is mainly limited
to maintaining a regular food supply for its population, providing raw
materials to the industries which depend on agriculture for regular
supply of their raw material the se are mainly agro -based industries.
Another important role agriculture plays in the developed countries is
during depression as it helps revive the economy when all the
industrial production is down.
5. However, if we talk about the role of agriculture i n developing
countries, it plays really a very vital role, be it creating job
opportunities nearly 50% of the population in such countries are still
employed in the agriculture. Besides this agriculture still contributes to
economic development as it suppl ies raw material to various agro -
based industries which still form the backbone of the economy in such
countries. Agriculture still forms a major part of the national income of
the developing nations and even supports them in earning foreign
exchange in th eir initial years of development.
3.8 QUESTIONS
1. Indian agriculture is backward and traditional in nature – Explain.
2. What are the causes of low productivity in Indian agriculture?
3. Explain the role of agriculture in economic development.
4. Give no te on Agricultural Inputs.
5. Give note on Agricultural Price Policy.
6. Give note on Minimum Support Price.


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33 4
AGRICULTURAL SECTOR - II

Unit Structure:
4.0 Objectives
4.1 Introduction
4.2 Meaning of Agricultural Finance
4.3 Sources of Agricultural Finance
4.4 Micro Finance
4.5 NABARD: Role and Function
4.5.1 Role of NABARD
4.5.2 Function of NABARD
4.6 Agricultural Marketing: Structure and Problems
4.6.1 Structure of Agricultural Marketing
4.6.2 Problems of Agricultural Marketing
4.7 National Policy for Farmers, 2007
4.8 Organic Farming Policy
4.9 Food Security in India
4.10 Summary
4.11 Questions
4.0 OBJECTIVES
 To study the meaning and sources of agri culture finance.
 To understand the concept of micro finance.
 To study the role and function of NABARD.
 To study the structure and problems of agricultural marketing.
 To study the national policy for famers, 2007.
 To study the organic farming policy.
 To stu dy the food security in India.
4.1 INTRODUCTION
In the economic growth of any nation agriculture plays a very important
role. Agriculture has made an immense contribution the economic growth
of the developed nations and its role in the underdeveloped or de veloping
nations is equally important. Nearly 75% of the Indian population is munotes.in

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34 depending on agriculture for its livelihood thus making it the largest
source of economic activity for the entire nation. Although with rapid
development in the technology leadin g to a substantial growth in the
secondary and tertiary sectors, agriculture still remains a very important
source of occupation.
4.2 MEANING OF AGRICULTURAL FINANCE
Agricultural finance generally means studying, examining and analyzing
the financial aspe cts pertaining to farm business, which is the core sector
of India. The financial aspects include money matters relating to
production of agricultural products and their disposal.
4.2.1 Definition of Agricultural finance:
Murray (1953) defined agricultura l finance as “an economic study of
borrowing funds by farmers, the organization and operation of farm
lending agencies and of society’s interest in credit for agriculture .”
Tandon and Dhondyal (1962) defined agricultural. finance “as a branch of
agricult ural economics, which deals with and financial resources related to
individual farm units.”
4.2.2 Nature and Scope:
Agricultural finance studied at both micro and macro level. Macrofinance
deals with different sources of raising funds for agriculture as a whole in
the economy. It is also concerned with the lending procedure, rules,
regulations, monitoring and controlling of different agricultural credit
institutions. Hence macro -finance is related to financing of agriculture at
aggregate level.
Micro -finance refers to financial management of the individual farm
business units. And it is concerned with the study as to how the individual
farmer considers various sources of credit, quantum of credit to be
borrowed from each source and how he allocates the sam e among the
alternative uses with in the farm. It is also concerned with the future use of
funds.
Therefore, macro -finance deals with the aspects relating to total credit
needs of the agricultural sector, the terms and conditions under which the
credit is available and the method of use of total credit for the
development of agriculture, while micro -finance refers to the financial
management of individual farm business.
4.2.3 Significance of Agricultural Finance:
1) Agricultural finance assumes vital and significant importance in the
agro – socio – economic development of the country both at macro and
micro level.
2) It is playing a catalytic role in strengthening the farm business and
augmenting the productivity of scarce resources. When newly munotes.in

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35 developed potential seeds are combined with purchased inputs like
fertilizers & plant protection chemicals in appropriate / requisite
proportions will result in higher productivity.
3) Use of new technological inputs purchased through farm finance helps
to increase the agricultural productivity.
4) Accretion to in farm assets and farm supporting infrastructure provided
by large scale financial investment activities results in increased farm
income levels leading to increased standard of living of rural masses.
5) Farm finance can also reduce the regional economic imbalances and is
equally good at reducing the inter –farm asset and wealth variations.
6) Farm finance is like a lever with both forward and backward linkages to
the economic development at micro and macr o level.
7) As Indian agriculture is still traditional and subsistence in nature,
agricultural finance is needed to create the supporting infrastructure for
adoption of new technology.
8) Massive investment is needed to carry out major and minor irrigati on
projects, rural electrification, installation of fertilizer and pesticide
plants, execution of agricultural promotional programmes and poverty
alleviation programmes in the country.
4.3 SOURCES OF AGRICULTURAL FINANCE
Agricultural finance is the provisi on of multiple types of services
dedicated to supporting both on - and off -farm agricultural activities and
businesses including input provision, production, and distribution,
wholesale, processing and marketing.
This can be divided into two categories:
(i) Non -institutional sources.
(ii) Institutional sources
(i) Non -Institutional sources:
Non-Institutional sources of agricultural finance is a unorganized segment
of the rural money market. Non -institutional or private sources include
money lenders, traders, commission agents, relatives and landlords. These
sources are not come under purview of the Indian banking Company act.
The accounts of these agencies are not assessed by the Government. There
is not any control of the Government on these agencies. These agencies
have informal relationship with their borrowers. There is elasticity about
rate of interest, rules and guarantor. The non -institutional sources are the
following i) moneylenders ii) relatives iii) traders iv) commission agents
v) landlords.
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36 (ii) Institutional sources:
(a) Cooperatives
(b) Scheduled Commercial Banks
(c) Regional Rural Banks (RRBs)
(a) Co operatives:
(i) Primary Agricultural Cooperative Societies (PACSs) provide short and
medium term loans.
(ii) PCARDBs provide long term loan for ag riculture.
(b) Commercial banks:
In fact up to 1970 the government policy was to depend entirely on the
cooperative banks as a major source of institutional credit in rural areas.
Government felt that Cooperative Bank alone cannot meet the growing
demand. Therefore Govt, policy changed and a number of institutions
were developed to give rural credit. In 1969, 14 major banks were
nationalised.
In 1980, six more banks were nationalised. In 2004, the number of total
branches had shot up to 67062, of this 32,20 0 in rural areas. Despite the
achievement of the commercial banks in the field of rural creditmentioned
above, their performance and operations have invited a lot of criticism.
(c)Regional Rural Banks:
The Working Group on Rural Banks (1975) recommended th e
establishment of Regional Rural Bank (RRBs) to supplement the efforts of
the commercial banks and the cooperatives in extending credit to weaker
sections of the rural community, small and marginal farmers, landless
labourers, artisan and other rural resi dents of small means.
The intention in having these new banks was that there should, in the
Indian context, be an institutional device which combined the local feel
and familiarity with the rural problems which the cooperatives possessed
and the degree of business organisation and modernised outlook which the
commercial banks had, with a view to reaching the rural poor more
extensively.
Consequent upon the recommendations of the Working Group, 5 RRBs
were initially set up in 1975. Their number later rose to 196. In 2003 -04,
RRBs provided Rs. 7,581 crores as credit to the agricultural sector. This
was 8.7% of total institutional credit to agriculture in that year.
4.4 MICRO FINANCE
Micro credit or micro finance is a novel approach to ―banking with
poor wher e bank credit is extended to the poor through Self 67 Help
Groups (SHGs), Non -Governmental Organizations (NGOs), credit unions, munotes.in

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37 etc. It attempts to combine lower transaction costs and high degree of
repayments. The SHG -bank linkage programme, introduced an d
encouraged by NABARD, is now being implemented vigorously by more
than 30,000 branches of commercial banks, RRBs and cooperative banks
in over 520 districts in 30 states and Union Territories. At the end of
March 2007, as many as 2.9 million SHGs are lin ked with banks and
7,000 NGOs are associated with the scheme.
4.5 NABARD: ROLE AND FUNCTION
A National Bank for Agricultural and Rural Development (NABARD) or
the National Bank was set up in July 1982 by an Act of Parliament to take
over the functions of the Agricultural Refinance Development Corporation
(ARDC) and the refinancing functions of RBI in relation to co -operative
banks and RRBs. NABARD is linked originally with the RBI by the latter
contributing half of its share capital and the other half bein g contributed
by the Government of India and nominating three of its Central Board
Directors on the board of NABARD, besides a Deputy Governor of RBI
being appointed as Chairman of NABARD.
4.5.1 ROLE OF NABARD
1. It is an apex institution which has power to deal with all matters
concerning policy, planning as well as operations in giving credit for
agriculture and other economic activities in the rural areas.
2. It is a refinancing agency for those institutions that provide investment
and production credit for promoting the several developmental
programs for rural development.
3. It is improving the absorptive capacity of the credit delivery system in
India, including monitoring, formulation of rehabilitation schemes,
restructuring of credit institutions, a nd training of personnel.
4. It co -ordinates the rural credit financing activities of all sorts of
institutions engaged in developmental work at the field level while
maintaining liaison with Government of India, and State Governments,
and also RBI and oth er national level institutions that are concerned
with policy formulation.
5. It prepares rural credit plans, annually, for all districts in the country.
6. It also promotes research in rural banking, and the field of agriculture
and rural development.
4.5.2 FUNCTION OF NABARD
NABARD has a dual role to play (a) as an apex institution and (b) as a
refinance institution. NABARD has inherited its apex role from RBI i.e. it
is performing all the functions formerly performed by RBI with regard to
agricultural cr edit. At the same time, NABARD has taken over the
functions of ARDC and thus provides refinance facilities to all banks and
financial institutions lending to agriculture and rural development. munotes.in

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38 i) NABARD services as a refinancing institution for all kinds of
production and investment credit to agriculture, small scale
industries, cottage and village industries, handicrafts and rural crafts
and real artisans and other allied economic activities with a view to
promoting integrated rural development

ii) It provides short term, medium term and long term credit to State
Co-operative Banks (SCBs), RRBs, LDBs and other financial
institutions approved by RBI.

iii) NABARD gives long term loans (up to 20 years) to State
Governments to enable them to subscribe to the share capi tal of co -
operative credit societies.

iv) NABARD gives long term loans to any institution approved by the
Central Government or contribute to the share capital or invests in
securities of any institution concerned with agriculture and rural
development.

v) NABA RD has the responsibility of co -ordinating the activities of
Central and State Governments, the Planning Commission and other
all India and state level institutions entrusted with the development
of small scale industries, village and cottage industries, r ural crafts,
industries in the tiny and decentralised sectors, etc.

vi) It has the responsibility to inspect RRBs and co -operative banks,
other than primary co -operative societies.

vii) It maintains a Research and Development Fund to promote research
in agricultu re and rural development, to formulate and design
projects and programmes to suit the requirements of different areas
and to cover special activities.
4.6 AGRICULTURAL MARKETING: STRUCTURE
AND PROBLEMS
Agricultural marketing covers the services involved i n moving
an agricultural product from the farm to the consumer . These services
involve the planning, organizing, directing and handling of agricultural
produce in such a way as to satisfy farmers, intermediaries and consumers.
Numerous interconnected activities are involved in doing this, such as
planning prod uction, growing and harvesting , grading , packing and
packaging , transport, storage , agro - and food processing , provision
of market information , distribution , advertising and sale. Effectively, the
term encompasses the entire range of supply chain operations for
agricultural products, whether conducted through ad hoc sales or through
a more integrated chain, such as one involving contract farming .

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39 4.6.1 STRUCTURE OF AGRICULTURAL MARKETING
The important types of agricultural markets in India are as follows:
1. Primary or local markets :
These markets are organised by Village Panchayats, who charge some rent
from shopkeepers for the space occupied. These markets are known as
‘shandies‘, in southern states, or ‘chuna‘ in Kerala, hat, painth or bazar in
northern and north eastern states, held once or twic e in a week in the
neighbourhood of a group of villages. More than 50 percent of the total
marketed surplus is sold at these markets. The village bania acts as a
middleman in these markets.
2. Secondary markets:
Business in these markets is transacted regula rly throughout the year. The
markets provide facilities of storage, handling and banking services, and
are well served by roads and railways. These are also known as
‘wholesale‘ or ‘assembling‘ markets and are called mandis or gungs. A
number of middlemen operate in these markets.
3. Terminal markets:
These markets perform the function of carrying goods to consumers, final
buyers or to places of processing. Such markets are located in big cities or
at ports.
4. Fairs:
Fairs held at religious occasions at pilgri m centres are important sources
of marketing of agricultural produce in India. Such fairs are held annually
and are organised by district officers, local bodies or private agencies.
They are very popular in states like Bihar, Orissa, U.P., Maharashtra, W.
Bengal and Rajasthan.
5. Regulated markets:
These have been set up by the Government for the purpose of checking
fraudulent practices which are generally practised by traders in the
primary and secondary markets. Government rules and regulations govern
the m arket practices.
6. Cooperative marketing:
These markets function on the basis on the basis of principles of
cooperation. A cooperative marketing society can carry the agricultural
produce direct to the consumers, thus dispensing with a large army of
middlem en and intermediaries.
7. State Trading:
In agricultural produce has become an important element of agricultural
marketing in India. State agencies, like the Food Corporation of India, set munotes.in

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40 up their exclusive centres in and around villages and mandis at harve st
time to procure produce from peasants at Government -fixed prices.
4.6.2 PROBLEMS OF AGRICULTURAL MARKETING
a. In the agricultural marketing in India there are a large number of
middlemen indulging in widespread malpractices.
b. Lack of proper warehousi ng facilities in the villages, therefore the
farmer was compelled to store his products in pits, mud -vessels, kutcha
storehouses etc. These unscientific methods of storing led to
considerable wastage.
c. There was not any provision for grading, thus there was no incentive to
use better seeds and produce better varieties.
d. Transportation facilities were also highly inadequate and only a small
number of villages were joined by railways and pucca roads to mandis.
The produce was carried on slow moving tran sport vehicles like
bullock -carts which could not be used to carry produce to far -flung
places and the farmer force to sell his produce in nearby market at low
prices.
e. Farmers are illiterate and they are not aware about the prices of their
produce in d ifferent markets, so there is no option for them but to
accept the price offered to them by the middlemen.
f. Indian farmer is poor and lack staying power, so he tried to sell his
produce immediately after harvest at less prices.
g. There was a total lac k of institutional sources of credit and the farmers
were almost totally dependent on the moneylenders whose sole
objective is to exploit the farmers by forcing them to sell produce to
them at low prices than the market prices in turn for the loans granted
to them.
4.6.3 GOVERNMENT MEASURES TO IMPROVE
AGRICULTURAL MARKETING SYSTEM IN INDIA
An efficient agricultural market may lead to increase in efficiency of
farmers and provide an incentive to produce more. Following measures
have been adopted by Governmen t to overcome the defects of agricultural
marketing.
1. Establishment of Regulated markets:
Regulated markets are places where transactions are governed by various
rules and regulations. The market committees consist of representatives of
growers, traders and the government, who look after functioning of these
markets. These committees are responsible for the enforcement of fair
grading practices, licensing of market functionaries, stopping the
deduction of unauthorised market charges, introduction of the open
auction system of sales and enforcement of standard weights and to secure munotes.in

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41 impartial arbitration in case of disputes. The markets provide yards,
godowns, sheds, etc. Reliable and up -to-date market news are made
available to the farmers. There are 7,161 regulated markets in the country.
2. Private terminal markets:
Private parties are being permitted to set up terminal markets for
agricultural produce. These markets are being set up by corporate, other
private enterprises and cooperatives. The facilitie s provided at the markets
include electronic auction, cold chain and logistics support from the
primary collection centres located at convenient places.
3. Provision for Storage and Warehousing facilities:
Improved storage performs the function of regulat ing supply in relation to
demand, stabilisation of prices and maintenance of buffer stocks. A
warehouse is a godown where goods are stored on the journey from places
of manufacture or consumption. Storage and warehousing facilities for
agricultural crops o n commercial basis are available both in the public and
private sectors. The main institutional agencies providing these facilities
are the Central and State Warehousing Corporations, the Food Corporation
of India and the Cooperatives.
4. Corporate market ing:
Corporates are more capable of undertaking risks and can face financial
losses than small and medium farmers. The corporate buy the produce on
contract basis from farmers, and pay them the prevailing market prices.
The farmers can sell their produce e lsewhere if they get a better price. The
corporate are paying detailed attention to several aspects of retail chain
right from seed distribution, fertiliser application, improving irrigation
technologies, facilitating credit, processing and setting up cold storage,
transporting and finally selling the produce.
5. Standard weights and Grading:
The Standard weights and Measures Act was brought into force in 1958.
Under the Act, only Government weights and measures can be used for
transactions. Grading of agr icultural produce is done under the provisions
of the Agricultural Produce (Grading and Marketing) Act, 1937, for which
purpose the insignia AGMARK is used. This insignia is the hallmark of
quality. Grading standards have been laid down for 150 agricultura l and
allied commodities. Compulsory grading before export is carried out in
respect of 41 commodities.
6. Market information:
Relating to agricultural products collected by public agencies and co -
operatives is made available to farmers. For dissemination of information
all sorts of media, like display boards, radio, television, weekly, monthly
and yearly publications, conferences, etc. are used. This information
service is a part of the infrastructure that is needed for a healthy
functioning of the market . Further, during 2005 -06, a scheme for munotes.in

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42 Marketing Research and Information Network, AGMARKNET, was
implemented to provide electronic connectivity to important wholesale
markets in the country for collection and dissemination of price and
market related inf ormation.
7. Transport arrangements:
In an integrated road development programme, rural roads have been
assigned a higher priority so as to bring lakhs of our villages into the
national mainstream. As at the beginning of the Tenth Plan, 61,947
villages ou t of a total of 67,915 villages with a population of 1,500 and
above had been connected by all -weather roads. Similarly, 40,551 villages
out of a total of 57,859 villages with a population between 1,000 and
1,500 had been so connected.
8. State Trading in Food -grains:
It has been introduced mainly with the object of providing food -grains to
the deficit States. However, it has also been adopted as a measure to
support the farmers in securing reasonable prices. It is carried out partly
by the Food Department s and partly by the FCI.
9. Market Intervention Scheme (MIS):
In order to protect the growers of the horticultural / Agricultural
commodities which are perishable in nature, from making distress sales in
the event of bumper crop during peak arrival period when prices fall to
very low level, Government implements MIS for a particular commodity
on the request of a State Government concerned. Losses suffered are
shared on 50:50 basis between Central and the State. The NAFED has
been appointed as a Central Noda l Agency which operates the scheme
through the State designated agencies i.e., State Marketing Federations.
10. Marketing Inspection, Research and Training :
The government has paid attention to the requirements of adequate
arrangements for market inspect ion, research and training. Occasional
surveys of markets can help in identifying problems and finding solutions
for them. The directorate of Marketing and inspection undertakes
inspection and research of major agricultural products.
11. Cooperative marke ting:
It requires that individual farmers organise themselves into a cooperative
society; they pool their produce together, and market it collectively. The
sales proceeds are distributed among the individual members in proportion
to their share in the prod uce marketed.
CHECK YOUR PROGRESS:
1. What are the different types of agricultural markets in India?
2. Write a note on Co -operative marketing in India. munotes.in

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43 4.7 NATIONAL POLICY FOR FARMERS, 2007
The Government of India has approved the National Policy for Fa rmers,
2007. The national policy for farmers, among other things, has provided
for a holistic approach for development of the agriculture sector. The
broad areas of the National Policy for Farmers, 2007 are as follows:
1. The focus of this policy is on the economic well -being of the farmers
in addition to production and productivity.

2. Asset Reforms: To ensure that a farmer household in villages either
possesses or has access to a productive asset or marketable skill.

3. Wate use efficiency: The concept of maximi zing yield and income per
unit of irrigation water in all the crop production programmes would
be accorded priority with stress on awareness and efficiency of water
use.

4. New technologies like bio -technology, information and
communication technology (ICT), renewable energy technology, space
applications and nano -technology would be encouraged for improving
productivity per unit of land and water on a sustainable basis.

5. National Agricultural Bio -security System would be established to
organize a coordinated agricultural bio -security programme.
4.8 ORGANIC FARMING
According to FSSAI, ‘organic farming’ is a system of farm design and
management to create an ecosystem of agriculture production without the
use of synthetic external inputs such as chemical fertil isers, pesticides and
synthetic hormones or genetically modified organisms.
Government Initiatives to Promote Organic Farming
1. Mission Organic Value Chain Development for North East Region
(MOVCD):
Mission Organic Value Chain Development for North East Reg ion
(MOVCD -NER) is a Central Sector Scheme, a sub -mission under National
Mission for Sustainable Agriculture (NMSA)
It was launched by the Ministry of Agriculture and Farmers Welfare in
2015 for implementation in the states of Arunachal Pradesh, Assam,
Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura.
The scheme aims to develop certified organic production in a value chain
mode to link growers with consumers and to support the development of
the entire value chain.

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44 2. Paramparagat Krishi Vikas Yojan a (PKVY):
Paramparagat Krishi Vikas Yojana was launched in 2015 is an elaborated
component of Soil Health Management (SHM) of major project National
Mission of Sustainable Agriculture (NMSA).
Under PKVY, Organic farming is promoted through adoption of org anic
villages by cluster approach and Participatory Guarantee System (PGS)
certification.
3. Certification Schemes:

i) Food Safety and Standards Authority of India (FSSAI) is the food
regulator in the country and is also responsible for regulating organic
food in the domestic market and imports.

ii) Participatory Guarantee System (PGS): PGS is a process of certifying
organic products, which ensures that their production takes place in
accordance with laid -down quality standards. PGS Green is given to
chemical free produce under transition to ‘organic’ which takes 3
years. It is mainly for domestic purpose.

iii) National Program for Organic Production (NPOP): NPOP grants
organic farming certification through a process of third party
certification for export purposes.

iv) Soil Health Card Scheme has led to a decline of 8 -10% in the use of
chemical fertilizers and also raised productivity by 5 -6%.

4. Agri -export Policy 2018:
Focus on clusters and Marketing and promotion of “Produce of India”
have positively impacted the organic farming in India
5. One District - One Product (ODOP):
The programme aims to encourage more visibility and sale of indigenous
and specialized products/crafts of Uttar Pradesh, generating employment
at the district level.
The presence of aggregators is imperat ive to bring about economies of
scale for the small and marginal farmers.
6. PM Formalization of Micro Food Processing Enterprises (PM
FME):
The Ministry of Food Processing Industries (MoFPI) launched the PM
FME scheme as a part of ‘Atmanirbhar Bharat Abhiyan ’.
It aims to bring in new technology, apart from affordable credit to help
small entrepreneurs penetrate new markets.
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45 7. Zero Budget Natural Farming:
Zero budget natural farming is a method of chemical -free agriculture
drawing from traditional Indian practi ces.
4.9 FOOD SECURITY IN INDIA
Meaning and definition of food security:
World Development Report (1986) defined food security as ―access by
all people at all times to enough food for an active, healthy life.
Food and Agriculture Organisation (FAQ) define d food security as
―ensuring that all people at all times have both physical and economic
access to basic food they need.
Food Policy in India:
Objectives:
a) To avoid localised and widespread famine and open under nutrition;
b) To maintain remunerative p rices to farmers, encourage them to use
modern inputs and technology;
c) To stabilise prices due to market distortions;
d) To provide price support when there is a rapid fall in food -grain prices;
e) To attempt through administrative means to keep down prices when
there is a strong upward pressure;
f) To supply vulnerable classes with food -grains at below market prices;
g) To procure food -grains for public distribution at below market prices;
h) To build and maintain a buffer stock of food -grains to f acilitate
government operations;
i) To use the agricultural price policy to resist general inflationary forces
in the economy.
Instruments of Food Policy:
The various instruments of food policy in India can be explained under
three sections,
A) Productio n and Supply of food -grains,
B) Consumption of food -grains,
C) Distribution of foodgrains.

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46 A) Production and Supply of food -grains:
The basic objective of agricultural planning in India has been to achieve
self-reliance in production of food -grains.
1. Production:
Production of food -grains in particular, and agricultural production in
general, has been sought to be raised through the adoption of a package of
measures which can be grouped under three heads, viz., technological
improvements, institution al and infrastructural reforms, and support
services. Technological improvements and institutional reforms have
aimed at providing infrastructure that proves conducive to the goal of a
rapid increase in agricultural production. Minimum support prices
guara ntee the producers that the prices will not be allowed to fall below
the minimum economic levels. Since 1977 -78, the support prices have
been raised from year to year.
2. Supply:
Domestic production of food -grains has always been sought to be
supplemented by imports, whenever warranted by the domestic situation.
The primary objective of imports as of the food policy in general has been
to help sustain the public distribution system and to protect the interests of
the weaker sections of society.
B) Consumpt ion of food -grains:
There are two aspects of consumption of food -grains in India:
 There is increasing number of mouths to be fed.
 The consumption pattern of people have been loaded in favour of
cereals, specially wheat and rice.
1. Population Policy:
The aim of the Government policy in this regard has been to give the
facilities and incentives to people to check the size of their families. The
family welfare planning programme which forms a part of the nation‘s
population policy has striven hard to bring down the fertility rate.
2. Nutrition policy:
The National nutrition Policy, formulated in 1993, recognises the
significance of short term measures such as nutrition interventions for
special vulnerable groups, fortification of food items, control of mic ro-
nutrient and protein -energy deficiencies through inter -sectoral
programmes such as universalisation of supplementary feeding for pre -
school children and expectant and nursing mothers through Integrated
Child Development Scheme, basic minimum services in cluding mid -day
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47 programme to extend nutrition and universal immunisation. To achieve
these, the National Plan of Action was initiate in 1995.
C) Distribution of food -grains:
1. Public Dist ribution System (PDS):
The basic objective of the public distribution system in India is to provide
essential consumer goods at cheap and subsidised prices to the consumers.
To run this system, the government resorts to levy purchases of a part of
the mark etable surplus with traders / millers and producers at procurement
prices. The grain thus procured, is used for distribution to the consumers
through a network of ration / fair price shops and / or building up buffer
stocks. PDS has been also used in India for the distribution of edible oils,
sugar, coal, kerosene and cloth. The most important items covered under
PDS in India have been rice, wheat, sugar and kerosene. Together these
four items have accounted for 86 percent of the total PDS sales. PDS
distri butes commodities worth more than Rs.30,000 crore annually to
about 160 million families and is perhaps the largest distribution network
of its kind in the world.
The main agency providing food -grains to the PDS is the Food
Corporation of India (FCI) set u p in 1965. The primary duty of the
Corporation is to undertake the purchase, storage, movement, transport,
distribution and sale of food -grains and other foodstuffs. It ensures on the
one hand that the farmers get remunerative prices for their produce, and on
the other hand, the consumers get food -grains from the central pool at
uniform prices fixed by the government of India.
2. Buffer stocks:
This is the stock which would enable the Government to maintain the
supply line even in a year of crop failure. T he primary objectives of buffer
stocks are price stabilisation and achievement of stability of farm incomes.
These objectives determine the optimum size of buffer stocks that the
Government should hold. The holdings of food -grains involve costs in the
form of interest lost, go -down rentals and wastage in storage. These costs
have been estimated to have gone up from Rs.77.55 per quintal in 1991 -92
to Rs.390.0 per quintal in 2005 -06 and are estimated to be rising at the rate
of 15 percent per annum.
3. Procu rement:
Buffer stock operations can be successfully maintained only if these are
supported by a proper procurement of food -grains by the government. The
following systems of procurement have been adopted in India in recent
years:
 A monopoly purchase in whi ch the whole of the marketable surplus is
to be sold to the State only;
 A graded levy on producers on his total land holdings and with a
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48  Purchase through licensed wholesale dealers incl uding millers;
 Support purchase in open market.
National Food Security Act 2013:
The National Food Security Act 2013 (also 'Right to Food Act') is an
Indian Act of Parliament which aims to provide subsidized food grains to
approximately two thirds of the country's 1.2 billion people. It w as signed
into law on 12 September 2013, retroactive to 5 July 2013.
The National Food Security Act, 2013 (NFSA 2013) converts into legal
entitlements for existing food security programmes of the Government of
India. It includes the Midday Meal Scheme , Integrated Child Development
Services scheme and the Public Distribution System . Further, the NFSA
2013 reco gnizes maternity entitlements. The Midday Meal Scheme and
the Integrated Child Development Services Scheme are universal in nature
whereas the PDS will reach about two -thirds of the population (75% in
rural areas and 50% in urban areas).
4.10 SUMMARY
1. Th e credit needs of the Indian farmers can be classified as short -term
credit for the period up to 15 months, medium term credit for the period
between 15 months to 5 years and long term credit for the period
exceeding 5 years.
2. There are two sources of c redit available to farmers – institutional and
private. Institutional credit refers to loans provided to farmers by co -
operative societies and co -operative banks, and commercial banks
including regional rural banks (RRBs).
3. Private or Non institutional sources include money -lenders, traders and
commission agents, relatives and landlords.
4. A National Bank for Agricultural and Rural Development (NABARD)
or the National Bank was set up in July 1982 by an Act of Parliament to
take over the functions of th e Agricultural Refinance Development
Corporation (ARDC) and the refinancing functions of RBI in relation to
co-operative banks and RRBs.
5. There are various types of agricultural marketing in India such as
primary markets, secondary markets, terminals, f airs, regulated
markets, co -operative markets, state trading corporations etc.
6. Government adopted several measures to correct the defects of
agricultural marketing in India.
7. The agricultural Prices Commission was, accordingly, set up in January
1965. It was renamed Commission for Agricultural Costs and Prices
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49 8. The CACP performs functions such as organisation of food zones,
fixation of minimum support prices and procurement prices, rationing
and sale through fair price shops etc.
9. Food and Agriculture Organisation (FAQ) defined food security as
―ensuring that all people at all times have both physical and economic
access to basic food they need.
10. The various instruments of food policy in India can be explained under
three sect ions, A) Production and Supply of food -grains, B)
Consumption of food -grains, C) Distribution of food -grains.
11. The basic objective of the Public Distribution System (PDS) in India is
to provide essential consumer goods at cheap and subsidised prices to
the consumers.
12. To overcome the shortcomings and weaknesses in the PDS, Targeted
Public Distribution System (TPDS) have been suggested.
4.11 QUESTIONS
1. Explain the need and purpose of rural credit.
2. What are the sources of rural credit in Indian agriculture?
3. Write a note on NABARD.
4. Discuss the different types of Agricultural markets in India.
5. What are the defects of agricultural markets in India?
6. Explain the measures adopted by the Government to correct the defects
of agricultural markets.
7. Explain the Agricultural Price Policy in detail.
8. Examine the Food Policy in India.

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50
Module -III
5
INFRASTRUCTURE AND POLICIES FOR
INDUSTRIAL DEVELOPMENT IN INDIA
Unit Structure:
5.0 Objectives
5.1 Introduction
5.2 Infrastructure for Industrial Development
5.2.1 Introduction to Infrastructure
5.2.2 Important Constituents of Infrastruc ture
5.2.3 Importance of Infrastructure
5.2.4 Basic Infrastructure Services
5.2.5 Evaluation of the Performance of Infrastructural Services
5.3 Role of Industrial Development in Economic Growth
5.5 New Economic Policy of 1991: Objectives, Features, and I mpacts.
5.6 Micro, Small, Medium Enterprises (MSME’s).
5.7 Large Scale industries And Economic development.
5.8 Summary
5.9 Questions
5.0 OBJECTIVES
 To understand the concept of Infrastructure for Industrial
Development .
 To familiar students with the Industrial policies in India .
 To enable the learners to grasp fully the role, importance of MSME
sector.
 To explain the studentsgrowth of Large scale industries in India.
 To understand the role of large -scale industries in economic
development of India.
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51 5.1 INTRODUCTION
Infrastructure sector is a key driver for the Indian economy. The sector is
highly responsible for propelling India’s overall development and enjoys
intense focus from Government for initiating policies that would ensure
time-bound creation of world class infrastructure in the country.
Infrastructure sector includes power, bridges, dams, roads, and urban
infrastructure development.
5.2 INFRASTRUCTURE FOR INDUSTRIAL
DEVELOPMENT
5.2.1 Introduction to Infrastructure:
The infrastructure is importan t for faster economic growth and alleviation
of poverty in the country. The adequate infrastructure in the form of road
and railway transport system, ports, power, airports, and their efficient
working is also needed for integration of the Indian economy w ith other
economies of the world.
5.2.2 Important Constituents of Infrastructure:
The following are the important constituents of infrastructure are as
follows -
1. Power and the source of its production such as coal and oil;
2. Roads and road transport;
3. Railways;
4. Communication, especially telecommunication;
5. Ports and airports; and
6. For agriculture, irrigation constitutes the important infrastructure.
A distinguishing feature of infrastructure is that while the demand -supply
gap in case of othe r factors can be met by importing some of them, the
deficiency of infrastructure cannot be made up through imports. Because
location -based the need for relevant infrastructure facility can be met
through development of its capacity in the domestic economy. For
example, you cannot import power facility, roads, ports, or railways as
they have to be built up in the domestic economy.
5.2.3 Important Features of Infrastructure:
It is worthwhile to mention some distinctive features of infrastructure –
 First, the building of infrastructure requires large and lumpy
investment, and they contribute to output, after a long time that is
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52  Second, due to large overhead capital and lumpy investment, the
significant economies of scale a re found in most of them. Due to the
significant economies of scale found in many infrastructure services,
they have the characteristics of natural money.

 The third important feature of infrastructure facilities is they create
externalities.
For example, building of rural roads will benefit agriculture as the farmers
are able to sell their products in towns where they can get remunerative
prices. Besides, they can get some inputs such as fertilizers, pesticides and
other industrial products at relatively cheaper prices as their transport costs
decline due to improved transportation. Power plants generate both
positive and negative externalities. The construction of power plants
produces electricity which is used for industrial helps production and
commerci al use and thereby helps in acceleration of economic growth. A
power plant also produces negative externalities in the form of emission of
pollutants, especially CO 2.
The above feature of infrastructure means that competitive market system
will not be able to achieve a socially optimal level of infrastructural
services in most of the cases. Besides, in many of infrastructural facilities,
there are significant economies of scale and therefore they have the
features natural monopoly. In other words, we find m arket failure to
achieve their socially optimal level.
Therefore, these infrastructural facilities are either built or run by the
government and public sector enterprises or if private sector is permitted
to make investment in them and run them, they need to be regulated by the
government, so that they should not exploit the consumers. For example,
the distribution of electricity which is an infrastructural service is being
provided by two power Companies of Tata and Reliance in different
regions of Delhi, the electricity rates and other charges are being regulated
by an authority appointed by the government. Similarly, in
telecommunication, which is another infrastructural service, various
companies such as Airtel, Vodaphone, Idea, MTNL are providing this
service of wireless telephony (i.e., mobile service) are being regulated by
TRAI.
5.2.3 Importance of Infrastructure:
It needs to be emphasized that good quality infrastructure is important not
only for faster economic growth but also to ensure inclusive gr owth. By
inclusive growth we mean that benefits of growth are shared by most of
the people of a country. Thus, the inclusive growth will lead to the
alleviation of poverty and reduction in income inequality in the country.
For example, micro, small and med ium enterprises (MSME) are dispersed
throughout the economy and production by them, and their growth require
access to quality and reliable infrastructure services to compete efficiently
with large -scale enterprises which can often build some of their own
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53 generators. Besides, large -scale firms can even locate themselves near
ports and near transport hubs where required infrastructure is available.
Small enterprises, on the other hand, are dis persed widely in the economy
and have to rely on the availability of the general infrastructure facilities.
Thus, by building up general infrastructure facilities helps the small
enterprises to compete successfully with large -scale industries and being
labour-intensive generate large employment opportunities for the workers.
This will help to alleviate the poverty in developing countries.
The expansion in infrastructure facilities such as irrigation, rural
electrification, roads and road transport will prom ote agricultural growth
and setting up of agro -processing industries. These general infrastructure
facilities will help farmers and owners of processing industries to get their
requirements of raw materials, fertilizers and other inputs at cheap rate and
also help them to bring their products to the markets which are located in
big towns and cities.
Thus, according to Thirlwall, “For poor farmers improved infrastructure
will reduce their input cost and increase agricultural production and reduce
traders’ mo nopoly by improving their access to markets. Nearly two -thirds
of African farmers are cut off from national and world markets, because of
poor infrastructure and market access. Better transport means greater
access to public resources including schools, ho spitals and other health
facilities”.
It follows from above that the expansion of infrastructure facilities will
ensure sustained growth of employment in agriculture and small -scale
rural industries and bring prosperity in the rural areas and in this way
ensure inclusive growth. Besides, this will also help to prevent the mass
exodus of the rural people to urban areas where they cause problems of
urban congestion, growth of slums and acute housing shortage.
Lack of adequate infrastructure not only holds lac k economic
development, it also causes additional costs in terms of time, effort and
money of the people for accessing essential social services such as
healthcare and education. Emphasizing the importance of adequate
infrastructure, authors of Economic Su rvey of India for the Year 2013 -14
quite rightly write, “Rural economic growth in recent years has put
enormous pressure on existing infrastructure particularly on transport,
energy and communication. Unless it is significantly improved
infrastructure wil l continue to be a bottleneck for growth and obstacle to
poverty reduction”. In other words, it is the challenge to ensure strong,
sustainable and balanced development through integration of the economy
with environmentally sustainable development of infra structure.
It may be noted that with large investment in infrastructure during the last
decade (2003 -04 to 2013 -14) India has become the second fastest growing
economy of the world but in the two years (2012 - March 2014) economic
growth slowed down and thi s has been mainly due to the stalled
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54 environment clearance quickly and investment in them be speeded up if
the Indian econom y is to be brought back on the fast growth trajectory.
The availability of good quality infrastructure raises productivity levels in
the economy and brings down costs of the enterprises. Besides, the
availability of adequate infrastructure helps to expand trade not only
within a country by improving transport facilities but also promote foreign
trade through improvement of ports and airports. It also helps to diversify
production by the firms as they are able to get the required supplies of raw
materials an d other inputs from the places where these are available in
abundance. Furthermore, with improved infrastructure the firms can
produce goods in accordance with the demands of the people of different
regions and countries.
According to World Bank estimates, in the year 2008 developing countries
made investment of around $ 500 billion a year in new infrastructure —
transport, power, water, sanitation, telecommunication, irrigation and so
on equal to 20 per cent of GDP but the need for infrastructure investment
is still large. In developing countries one billion people still lack access to
clean water, two billion people lack access to sanitation and electric power
and adequate transport facilities are still lacking in developing countries.
Having discussed the i mportance of infrastructure in general, we now
discuss below the importance of sector -specific infrastructure for
economic growth of a country.
5.2.4 Basic Infrastructure Services:
1. Road Transport:
Road transport is another important infrastructure which is essential for
movement of goods, raw materials, and fuel. The availability of transport
expands the market for agricultural and industrial products and thereby
enables the producers to produce on a large scale and reap the benefits of
the economies of sca le.
Besides, transport development helps to open up more regions and
resources for production. Some parts of a country may have abundant
forests and reserves of mineral resources, but they remain unexploited for
production because they are remote and inacc essible through means of
transport. There is thus a need for linking these backward regions with
building of roads and railways so that their untapped mineral and forest
resources be utilized for production. India has one of the largest road
networks in th e world spread over around 49 lakh kilometers. It comprises
national highways, expressways, state highways, district roads with length
details given in Table 35.2. In the last few years there has been some
progress in the development of national highways a nd in rural roads but
much more needs to the done.

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55 Table No. 5.1
Road Network in India (as in May 2014)
Type of Road Length (in km)
National Highways and Expressways 92851
State Highways 142687
Other Roads 4629482

The National Highways (NHs) with a total length of 92,851 km serve as
the arterial network of the country. The development of National
Highways is the responsibility of the Central Government which has been
mandated to upgrade and strengthen a total of 54,478 km of NHs, through
various ph ases of the National Highways Development Project (NHDP). A
total length of around 22,000 km has been completed till March 2014.
There are some difficulties in the way of developing national highways
due to acquisition of land from the owners from which na tional highways
have to pass through.
In India a special effort is needed to speed up road connectivity in Jammu
and Kashmir, Northeast, and other special category States. A good start
had been made in the development of roads in Northeast in the Eleventh
Five Year Plan and is proposed to be pursued with greater vigour in the
12th Plan in which enhanced connectivity of Northeast has been given a
high priority. Furthermore, the construction of roads and upgradation of
national highways (NHs) in the districts affected by Left -Wing extremism
in Andhra Pradesh, Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh,
Odisha, and Uttar Pradesh have been taken up for inclusive growth of
these areas.
2. Railways:
Railways are an important infrastructure as a means of transport whose
expansion and efficient working is required for rapid growth of the
economy. The demands of a growing economy such as ours require
railways to expand its freight network, increase its ability to carry larger
weight per wagon and the efficiency of th e rail system for faster delivery.
Besides, the railway requires improving the reach and quality of its
passenger services. To meet the growing demand for carrying goods and
passengers the current focus of Indian Railway should be the creation of
additiona l capacity, modernisation of its existing network, improvement in
asset utilisation and productivity. Besides, it should pay attention to
modernisation of its rolling stock and maintenance practices to bring about
overall improvement in the quality of its services.
It may be further noted that the Indian Railways is expected to generate its
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56 objective of Indian Railways should be to develop a strategy to be a part of
an effective multi -modal t ransport system and to ensure an environment -
friendly and economically efficient transport system.
3. Airports:
Airport development is a basic infrastructure requirement for international
connectivity, especially because the demand for air travel is projecte d to
grow rapidly in India. There had been a significant progress of airport
development in the Eleventh Plan period with the development of four
new airports at Bangalore, Hyderabad, Delhi and Mumbai under public -
private participation (PPP) mode. To expan d airport infrastructure in
India, modernisation of airport infrastructure in metro and non -metro cities
and construction of Greenfield airports are under consideration of the
government.
Development of 35 non -metro airports which have been identified base d
on regional connectivity, development of regional hubs etc. has been
undertaken by Airports Authority of India (AAI). Out of 35 metro airports
work has been completed in 33 metros and in the remaining two airports
of Vadodara and Khajuraho work is in pro gress.
4. Ports:
Ports are another important infrastructure for international trade
connectivity. It is mainly through these that the goods are exported to
other countries and the goods and raw materials are imported. Without
efficient ports it is not possibl e to expand foreign trade. In the Eleventh
Plan period (2007 - 12) some problems were faced for expansion of the
Indian ports because several issues had to be resolved for the proposed
public -private participation (PPP) in this connection. These have now be en
resolved and it is expected that in the next five years there will be
significant progress in this area. As regards minor ports which come under
State governments, there has been good progress in the Eleventh Plan
period.
During 2013 -14 major and non -major ports in India handled a total cargo
of 980 million tonnes reflecting increase of 5.0 per cent over 2012 -13.
This can mainly be attributed to an increase of 1.8 per cent in the cargo
handled at major ports. In contrast, traffic at non -major ports incre ased at
around 9.6 per cent during 2013 -14 as compared to 9.8 per cent in
2012 -13.
5. Telecommunications:
Telecommunications occupy an important place in the modern economy.
E-commerce and E -governance require the efficiency of
telecommunicat ion services. The companies like Amazon, Flipkart,
Snapdeal are engaged in E -commerce for sale of goods. They work
through mobiles and internet network. Besides, many BPO companies are
providing outsourcing services through telecommunication. Without the
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57 and BPO is not possible. Telecommunications and the associated increase
in Internet connectivity is a productivity enhancing development and India
is well based to benefit from this.
Teleco mmunications in India have seen impressive expansion and large
investment in the past several years with a tele -intensity increasing from
26.2 per cent in 2008 to 78.7 per cent in 2012. The expansion of
telecommunications in India has been led by private s ector whose market
share (in terms of number of connections) increased from 73.5 per cent in
2008 to 86.3 per cent in 2012. However, due to arbitrariness and
irregularities in the allocation of 2G Spectrum in 2008, 2G licenses and
associated spectrum were cancelled by the Supreme Court in 2011 and
ordered for reallocation of the spectrum through auction. The new auction
of 2G spectrum was completed by January 2013.
There is a very large scope for further expansion in the
telecommunications, especially with the introduction of 3G and 4G
services. Besides, recently in July 2015, Prime minister has launched
Digital India scheme to promote the role of telecom. In India many
companies providing telecom services have come into being. Business
firms and even farmer s can sign up for a telecom service which provides
information through SMS or E -mail about market prices and other
prevailing market conditions. This will help them to take optimal
decisions regarding their business. Banks are also providing their
customer s, through SMS or E -mail, the status of their deposits and
withdrawal. Besides, the banks are providing through E -mail the
information regarding investment avenues open to them.
Keeping in view the role of an efficient telecom network in E -commerce
and E -governance and delivery of public services provisions for state -of-
art IT facilities in the country need to be put in place. Issues requiring
attention include the policy for better spectrum management,
strengthening a national fibre -optic network, network mobile number
possibility and rural telephony.
5.2.5 Evaluation of the Performance of Infrastructural Services:
Whether in the public sector or regulated private sector the performance of
infrastructural services has been quite poor. In many developing cou ntries,
most of the population, does not have access to the electricity and until
recently in telephone services. After over 50 years of independence, in
India the adequate pucca rural roads had not been built and natural
highways were in very bad shape an d not properly built and maintained
lack of good ports and ports in India affected foreign trade of the country.
It is only since 2001 that the work of building rural roads, highways, good
ports and airports has been started in the 10th, 11th and 12th Five Year
Plan.
In the case of electricity, the quality of service has been quite poor. There
have been quite often fluctuations in voltages and often supply -cuts even
in capital city of Delhi. In UP, Haryana and other states there are
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58 their own big generators. Besides, State Electricity Boards which are
usually responsible for distribution of electricity are running heavy losses.
Prices charged by them even do not cover variable costs o f supply, let
alone contributing to overhead costs.
Similarly, until recently before the extensive use of mobile -phone wireless
technology, telephone connections were very few and were a luxury
consumer service rather than an essential productive service r equired to
link markets, producers, and consumers. Besides, one must wait for many
years to get telephone connection. However, in the last 12 years, regarding
telephone service things have improved a lot in India, especially with the
widespread use of mobi le telephone service. Likewise, in India, the
performance of railways port and airport services has been quite
inefficient and poor and need drastic reforms to be undertaken to improve
their services.
To conclude, Prof. T.N. Srinivasan is right in saying t hat, the said
performance of enterprises providing infrastructural services has been a
factor in the poor performance of many developing countries including
India. Thus, the case for reforming the infrastructural sectors is very
strong, both for improving their own performance and for removing the
drag of an unreformed and poorly performing infrastructure sector on the
realization of potential benefits of reforms in other sectors.
India has shown very promising results in investments in infrastructure,
due to the vast resources both in labour and capital format. Therefore,
there has been a steady growth in industrial and business infrastructure in
India that has been giving significant returns and contributing to the
economic growth of the country. One of th e key drivers for the Indian
economy is the Infrastructure Sector. To create world -class infrastructure
in the country it is crucial to investigate India's overall development in
respect to how the government helps in the growth of this sector and the
way in which it ensures time -bound creation. According to World Banks,
Logistics Performance Index India ranked 44 out of all the countries in the
world. In 2019, it ranked 2nd in the Agility Emerging Markets Logistics
Index.
5.2.6 What is Infrastructure Deve lopment?
Infrastructure provides the most basic facilities that help serve different
economic activities and thereby help in the facilitation of the growth of the
country, development of the country, education, communication, transport,
banking and insuran ce, health, technology. The example just provided are
some of the basic needs that are required to fuel the growth of the
economy. For the economy, these do not produce services or goods for the
economy but help in inducing the production of the industry, agriculture,
and trade by creating an external economy. The best examples of
economic infrastructure are the railway line or the national highway. They
help induce external investment and generate economies.
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59 5.2.7 Infrastructure and Development:
For the b asic development of the most basic goods in the economy, it is
required as it does not help in the direct production of any goods or
services, but it does help in the facilitation of the various goods and
services in different sectors of the economy i.e. t he primary, secondary
and tertiary sectors. It is a fact that the level of economic development is
dependent on the infrastructure development of the country. If we are to
look at the most developed countries in the world it is easily seen that
there is a tremendous amount of growth in terms of economic and social
infrastructure.
With communication and transport, there has been revolutionary progress
in these countries. The financial sector in these countries is also doing
well because of the best planned and organized banking and insurance. In
terms of technology and science, there is a tremendous amount of progress
as well. But in counties like India, we do not have such high standards of
qualitative infrastructure and because of this, the level of econom ic
development is slow and low.
5.2.3 Infrastructure in Indian Economy
To facilitate production and investment in the economy we need the best
infrastructure in terms of quality and also should be sufficient. The bigger
infrastructure facilities pave th e way for bigger investments in that sector.
But the problem with underdeveloped countries is the shortage of these
facilities because of less economic development. The Indian economy was
behind by the time it got its independence with respect to the rest of the
world. So once we got independent the priority for the planners of the
country was infrastructure development.
Out of the total planned expenditure about 50 percent was devoted to
infrastructure. In the first plan, thirteen percent was spent on po wer, ten
percent on flood and irrigation control and twenty -seven percent was
given to transport and communication. Because of all the infrastructure
development we have done since independence, we have caught up with
the rest of the world and the country has become one of the most
promising countries in terms of development and growth.
5.3 ROLE OF INDUSTRIAL DEVELOPMENT IN
ECONOMIC GROWTH
The following points explain the role of industrial development in
economic growth:
1. Modernisation of Industry:
Industrial development is necessary for modernisation of agriculture. In
India, agriculture is traditional and backward. The cost of production is
high, and productivity is low. We need tractors, threshers, pump sets and
harvesters to modernize agriculture . To increase productivity, we need
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60 products. Without industrial development, these goods cannot be
produced. Agricultural products like jute, cotton, sugarcane etc. are raw
materials. To prepare finished products like flex, textiles and sugar etc. we
need industrialisation. So industrial development is necessary for
modernisation of agriculture.
2. Development of Science and Technology:
Industrial development encourages the deve lopment of science and
technology. The industrial enterprises conduct research and develop new
products. Ethanol in the form of biofuel is an example of industrial
development. Industry conducts research on its wastes and develops
byproducts like biodiesel from Jatropha seeds. Due to industrialisation, we
have made progress in atomic science, satellite communication and
missiles etc.
3. Capital Formation:
Acute deficiency of capital is the main problem of Indian economy. In
agricultural sector, the surplus is small. Its mobilisation is also very
difficult. In large scale industries, the surplus is very high. By using
external and internal economies, industry can get higher profit. These
profits can be reinvested for expansion and development. So
industrialis ation helps in capital formation.
4. Industrialisation and Urbanisation:
Urbanisation succeeds industrialisation. Industrialisation in a particular
region brings growth of transport and communication. Schools, colleges,
technical institutions, banking, and health facilities are established near
industrial base. Rourkela was dense forest but now is ultra -modern town in
Orissa. Many ancillary units have been established after setting up of big
industry.
5. Self-reliance in Defence Production:
To achieve self -reliance in defence production, industrialisation is
necessary. During war and emergency dependence on foreign countries for
war weapons may prove fatal. Self -reliance in capital goods and industrial
infra -structure is also necessary. Atomic explosion at P okhran (Rajasthan)
and Agni Missile are examples of industrial growth.
6. Importance in International Trade:
Industrialisation plays an important role in the promotion of trade. The
advanced nations gain in trade than countries who are industrially
backwar d. The underdeveloped countries export primary products and
import industrial products. Agricultural products command lower prices
and their demand is generally elastic. While industrial products command
higher values & their demand is inelastic. This caus es trade gap. To meet
the deficit in balance of payments we have to produce import substitute
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61 7. Use of Natural Resources:
It is a common saying that India is a rich country inhabited by t he poor. It
implies that India is rich in natural resources but due to lack of capital and
technology, these resources have not been tapped. Resources should be
properly utilized to transform them into finished industrial products. The
British people took India’s cheap raw materials for producing industrial
goods in their country. India was used as a market for their industrial
products. So India fought with poverty and England gained during
industrial revolution. Hence industrialisation plays important rol e for
proper utilisation of resources.
8. Alleviation of Poverty and Unemployment:
Poverty and unemployment can be eradicated quickly through rapid
industrialisation. It has occurred in industrially advanced countries like
Japan. The slow growth of industr ial sector is responsible for widespread
poverty and mass unemployment. So, with fast growth of industrial sector,
surplus labour from villages can be put into use in industry.
9. Main Sector of Economic Development:
Industry is viewed as leading sector to economic development. We can
have economies of scale by applying advanced technology and division of
labour and scientific management. So production and employment will
increase rapidly. This will bring economic growth and capital formation.
10. Fast Grow th of National and Per Capita Income:
Industrial development helps in the rapid growth of national and per capita
income. The history of economic development of advanced countries
shows that there is a close relation between the level of industrial
develop ment and the level of national and per capita income. For instance,
the share of industrial sector to national income was 26% and the per
capita income in year 2000 was 36,240 dollars in USA.
The share of agriculture in the same year was only 2%. In Japan, the share
of industrial sector in her GDP was 36% and her per capita income was
36210 dollars. In India due to industrialisation, the contribution of
industrial sector to GDP has gone up to 28.5% in 2000 -01 and per capita
income has risen to Rs. 16,486 in 2000.
11. Sign of Higher Standard of Living and Social Change:
A country cannot produce goods and services of high quality in order to
attain decent living standard without the progress of industrial sector.
5.4 INDUSTRIAL POLICY OF INDIA SINCE
INDEPEND ENCE
Industrialization is an important component of economic growth .
Industrial Policy refers to the strategies adopted by government for
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62 amended first industrial policy of India in 1948. T he new industrial policy
was brought to address the changing environment. The objective of
present industrial policy is to globalize the Indian economy and provide
freer play of market forces in domestic economy.
 Government action to influence the ownershi p & structure of the
industry and its performance. It takes the form of pay ing subsidies or
providing finance in other ways, or of regulation.
 It includes procedures, principles (i.e., the philosophy of a given
economy), policies, rules and regulations, i ncentives and punishments,
the tariff policy, the labour policy, government’s attitude towards
foreign capital, etc.
5.4.1 Objectives:
The main objectives of the Industrial Policy of the Government in India
are:
1. to maintain a sustained growth in producti vity.
2. to enhance gainful employment.
3. to achieve optimal utilization of human resources.
4. to attain international competitiveness; and
5. to transform India into a major partner and player in the global arena.
5.4.2 Industrial Policies in India since Independe nce
1. Industrial Policy Resolution of 1948 :
It defined the broad contours of the policy delineating the role of the
State in industrial development both as an entrepreneur and authority.
It made clear that India is going to have a Mixed Economic Model.
It classified industries into four broad areas:
 Strategic Industries (Public Sector): It included three industries in
which Central Government had monopoly. These included Arms and
ammunition, atomic energy and Rail transport.
 Basic/Key Industries (Public -cum-Private Sector): 6 industries viz.
coal, iron & steel, aircraft manufacturing, shipbuilding, manufacture of
telephone, telegraph & wireless apparatus, and mineral oil were
designated as “Key Industries” or “Basic Industries”.
These industries were to be set-up by the Central Government.
However, the existing private sector enterprises were allowed to continue.
Important Industries (Controlled Private Sector): It included 18
industries including heavy chemicals, sugar, cotton textile & woollen
industry, ce ment, paper, salt, machine tools, fertilizer, rubber, air and sea
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63 These industries continue to remain under private sector however, the
central government, in consultation with the state government, had general
control over them.
Other Industries (Private and Cooperative Sector): All other industries
which were not included in the above mentioned three categories were left
open for the private sector.
The industries (Development and Regula tion) Act was passed in 1 951 to
implement the Industrial Policy Resolution, 1948.
2. Industrial Policy Statement of 1956:
Government revised its first Industrial Policy (i.e. The policy of 1948)
through the Industrial Policy of 1956.
It was regarded as the “Economic Constitution of India” or “The Bible
of State Capitalism”.
The 1956 Policy emphasized the need to expand the public sector, to build
up a large and growing coop erative sector and to encourage the separation
of ownership and management in private in dustries and, above all, prevent
the rise of pri vate monopolies.
It provided the basic framework for the government’s policy regarding in -
dustries till June 1991.
IPR, 1956 classified industries into three categories -
 Schedule A consisting of 17 industries was the exclusi ve
responsibility of the State. Out of these 17 industries, four industries,
namely arms and ammunition, atomic en ergy, railways and air transport
had Central Government monopolies; new units in the remaining
industries were developed by the State Governm ents.
 Schedule B, consisting of 12 industries, was open to both the private
and public sectors; however, such industries were progressively State -
owned.
 Schedule C - All the other industries not included in these two
Schedules constituted the third category which was left open to the pri vate
sector. However, the State reserved the right to undertake any type of
indus trial production.
The IPR 1956, stressed the importance of cottage and small -scale
industries for expand ing employment opportunities and for wider
decentralization of economic power and activity
The Resolution also called for efforts to maintain industrial peace; a fair
share of the proceeds of production was to be given to the toiling mass in
keeping with the avowed objectives of democratic so cialism.
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64 Criticism:
The IPR 1956 came in for sharp criticism from the private sector since this
Resolution reduced the scope for the expan sion of the private sector
significantly.

The sector was kept under state control through a system of licenses.
Industrial Licenses
 To open new industry or to expand production, obtaining a license
from the government was a prerequisite.
 Opening new industries in economically backward areas was
incentivized through easy licensing and subsidization of critical inputs
like electricity and water. This was done to counter regional disparities
that existed in the country.
 Licenses to increase production were issued only if the government
was convinced that the economy required more of the goods.
3. Industrial Policy Statement, 1977 -
In December 1977, the Janata Government announced its New Industrial
Policy through a statement in the Parliament.
 The main thrust of this policy was the effective promotion of cottage
and small industries widely dispersed in rural areas and small towns.
 In this policy the small sector was classified into three groups —
cottage and household sector, tiny sector and small scale industries.
 The 1977 Industrial Policy prescribed different areas for large scale
industrial sector - Basic industries,Capital goods industries, High
technology industries and Other industries outside the list of reserved
items for the small scale sector.
 The 1977 Industrial Policy restricted the scope of large business
houses so that no unit of the same business group acquired a dominant
and monopolistic position in the market.
 It put emphasis on reducing the occurrence of labour unrest. The
Government encouraged the worker’s participation in management
from shop floor level to board level.
Criticism:
The industrial Policy 1977, was subjected to serious criticism as there was
an absence of effective measures to curb the dominant position of large
scale units and the policy did not envisage any socio economic
transformation of the economy for curbing the role of big business
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65
4. Industrial Policy of 1980 sought to promote the concept of
economic federation, to raise the efficiency of the public sector and to
reverse the trend of industrial production of the past three years and
reaffirmed its faith in the Monopolies and Restrictive Trade Practices
(MRTP) Act and the Foreign Exchange Regulation Act (FERA).
5.5 NEW ECONOMIC POLICY OF 1991: OBJECTIVES,
FEATURES AND IMPACTS
5.5.1 Introduction:
New Economic Policy of India was launched in the year 1991 under the
leadership of P. V. Narasimha Rao. This policy opened the door of the
India Economy for the global exposure for the first time. In this New
Economic Policy P. V. Narasimha Rao government reduced the import
duties, opened reserved sector for the private play ers, devalued the Indian
currency to increase the export. This is also known as the LPG Model of
growth.
New Economic Policy refers to economic liberalisation or relaxation in the
import tariffs, deregulation of markets or opening the markets for private
and foreign players, and reduction of taxes to expand the economic wings
of the country.
Former Prime Minister Manmohan Singh is the father of New Economic
Policy (NEP) of India. Manmohan Singh introduced the NEP on July
24,1991.
5.5.2 Main Objectives of Ne w Economic Policy:
The main objectives behind the launching of the New Economic policy
(NEP) in 1991 by the union Finance Minister Dr. Manmohan Singh are
stated as follows:
The main objective was to plunge Indian Economy into the arena of
‘Globalization an d to give it a new thrust on market orientation.
1. The NEP intended to bring down the rate of inflation.
2. It intended to move towards higher economic growth rate and to build
sufficient foreign exchange reserves.
3. It wanted to achieve economic stabilization an d to convert the
economy into a market economy by removing all kinds of un -
necessary restrictions.
4. It wanted to permit the international flow of goods, services, capital,
human resources, and technology, without many restrictions.
5. It wanted to increase the participation of private players in all sectors
of the economy. That is why the reserved numbers of sectors for
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66 Beginning with mid -1991, the govt. has made some radical changes in its
policies rela ted to foreign trade, Foreign Direct Investment, exchange rate,
industry, fiscal discipline etc. The various elements, when put together,
constitute an economic policy which marks a big departure from what has
gone before.
The thrust of the New Economic Po licy has been towards creating a more
competitive environment in the economy to improving the productivity
and efficiency of the system. This was to be achieved by removing the
barriers to entry and the restrictions on the growth of firms.
5.5.3 Main Measu res Adopted in the New Economic Policy :
Due to various controls, the economy became defective. The entrepreneurs
were unwilling to establish new industries (because laws like MRTP Act
1969 de-motivated entrepreneurs). Corruption, undue delays, and
inefficiency risen due to these controls. Rate of economic growth of the
economy came down. So, in such scenario economic reforms were
introduced to reduce the restrictions imposed on the economy.

1. Liberalization
Removal of Industrial Licensing and Registration:
Previously private sector had to obtain license from Govt. for starting a
new venture. In this policy private sector has been freed from licensing
and other restrictions.
Industries licensing is necessary for following industries:
(i) Liquor
(ii) Cigarette
(iii) Defence equipment
(iv) Industrial explosives
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67 Following steps were taken under the Liberalization measure:
(i) Free determination of interest rate by the commercial Banks:
Under the policy of liberalization interest rate of the banking system will
not be determined by RBI rather all commercial Banks are independent to
determine the rate of interest.
(ii) Increa se in the investment limit for the Small -Scale Industries
(SSIs):
Investment limit of the small -scale industries has been raised to Rs. 1
crore. So, these companies can upgrade their machinery and improve their
efficiency.
(iii) Freedom to import capital goods:
Indian industries will be free to buy machines and raw materials from
foreign countries to do their holistic development.
(v) Freedom for expansion and production to Industries:
In this new liberalized era now the Industries are free to diversify th eir
production capacities and reduce the cost of production. Earlier
government used to fix the maximum limit of production capacity. No
industry could produce beyond that limit. Now the industries are free to
decide their production by their own based on the requirement of the
markets.
(vi) Abolition of Restrictive Trade Practices:
According to Monopolies and Restrictive Trade Practices (MRTP) Act
1969 , all those companies having assets worth Rs. 100 crore or more were
called MRTP firms and were subjected to several restrictions. Now these
firms have not to obtain prior approval of the Govt. for taking investment
decision. Now MRTP Act is replaced by the competition Act, 2002.
2. Privatisation:
Simply speaking, privatisation means permitting the private sec tor to set
up industries which were previously reserved for the public sector. Under
this policy many PSUs were sold to private sector. Literally speaking,
privatisation is the process of involving the private sector -in the ownership
of Public Sector Units (PSU’s).
The main reason for privatisation was PSUs were running in losses due to
political interference. The managers cannot work independently.
Production capacity remained under -utilized. To increase competition and
efficiency privatisation of PSUs was inevitable.

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68 The following steps are taken for privatization:
i) Sale of shares of PSUs:
Indian Govt. started selling shares of PSUs to public and financial
institution e.g. Govt. sold shares of Maruti Udyog Ltd. Now the private
sector will acquire owner ship of these PSU’s. The share of private sector
has increased from 45% to 55%.
ii) Disinvestment in PSU’s:
The Govt. has started the process of disinvestment in those PSU’s which
had been running into loss. It means that Govt. has been selling out these
industries to private sector. Govt. has sold enterprises worth Rs. 30,000
crores to the private sector.
iii) Minimization of Public Sector:
Previously Public sector was given the importance with a view to help in
industralisation and removal of poverty. But these PSUs could not able to
achieve this objective and policy of contraction of PSU’s was followed
under new economic reforms. Number of industries reserved for public
sector was reduces from 17 to 2.
(a) Railway operations
(b) Atomic energy
3. Globaliza tion:
Literally speaking Globalisation means to make Global or worldwide,
otherwise taking into consideration the whole world. Broadly speaking,
Globalisation means the interaction of the domestic economy with the rest
of the world about foreign investment , trade, production, and financial
matters.
Following steps are taken for Globalisation:
(i) Reduction in tariffs:
Custom duties and tariffs imposed on imports and exports are reduced
gradually just to make India economy attractive to the global investors.
(ii) Long term Trade Policy:
Forcing trade policy was enforced for longer duration.
Main features of the policy are:
 Liberal policy
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69 (iii) Partial Convertibility of India n currency:
Partial convertibility can be defined as to convert Indian currency (up to
specific extent) in the currency of other countries. So that the flow of
foreign investment in terms of Foreign Institutional Investment (FII) and
foreign Direct Investm ent (FDI).
This convertibility stood valid for following transaction:
 Remittances to meet family expenses
 Payment of interest
 Import and export of goods and services.
(iv) Increase in Equity Limit of Foreign Investment:
Equity limit of foreign capital inve stment has been raised from 40% to
100% percent. In 47 high priority industries foreign direct investment
(FDI) to the extent of 100% will be allowed without any restriction. In this
regard Foreign Exchange Management Act (FEMA) will be enforced.
If the In dian economy is shining at the world map currently, its sole
attribution goes to the implementation of the New Economic Policy in
1991.
5.6 MICRO, SMALL, MEDIUM ENTERPRISES
(MSME’S)
Micro, Small, Medium Enterprises (MSME’s) are entities that are
involved in production, manufacturing and processing of goods and
commodities.
The MSME sector is considered the backbone of the Indian economy that
has contributed substantially to the economic development of the nation. It
generates employment opportunities and w orks in the development of
backward and rural areas. India has approximately 6.3 crore MSMEs.
In addition, due to the following features, they are considered a viable
source of income for those looking to venture into the manufacturing
industry
Export Prom otion and potential for Indian products
 Funding – Finance & Subsidies
 Government’s Promotion and Support
 Growth in demand in the domestic market
 Less Capital required
 Manpower Training
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70 MSMEs contribut e to approximately 8% of India’s GDP, employ over 60
million people, have an enormous share of 40% in the exports market and
45% in the manufacturing sector. Hence, they are of paramount
importance for overall economic development of India.
The concept of MSME was first introduced by the government of India
through the Micro, Small & Medium Enterprises Development (MSMED)
Act, 2006.
Government of India enacted Micro, Small and Medium Enterprises
Development Act, 2005 ( MSME Act ) under which classification of
micro, small and medium enterprises ( MSME ) was dependent on two
factors: (i) investment in plant and machinery; and (ii) turnover of the
enterprise. It is also pertinent to note that different thresholds were
prescribed for being classified as an MSME bas ed on the aforesaid factors,
for enterprises engaged in manufacturing and services sector.
However, recently, under Aatmanirbhar Bharat Abhiyan ( ABA ), Ministry
of Micro, Small and Medium Enterprises, vide its notification dated June
1, 2020, revised MSME c lassification by inserting a composite criterion
for both investment in plant and machinery and annual turnover of
enterprises. Also, the distinction between the manufacturing and the
services sectors under erstwhile MSME definition has been done away
with. This removal will create parity between the sectors.
5.6.1Classification of MSMEs:
The new classification of MSME's shall be effective from July 1, 2020.
This new classification has been introduced by the Government to boost
businesses and put to rest th e growing fear among MSMEs of losing
benefits granted under the MSME Act on account of outgrowing the
erstwhile thresholds of classification. While this is a welcome initiative by
the Government, various questions remain unanswered, namely - what
constitut es "plant and machinery", will the previous guidelines on
calculation of investment towards plant and machinery still be applicable.
Further, it is pertinent to note that Finance Minister has clarified that start -
ups are eligible to avail relief measures a nnounced for MSME under the
ABA. While start -ups are not explicitly covered under the definition of
MSMEs, start -ups operating and engaged in the manufacturing and
services sector may consider registering themselves as an MSME on the
Udyog Aadhar Portal (c onsidering the revised classification of MSMEs).
By registering as an MSMEs, start -ups can avail the various other benefits
offered to MSMEs under the ABA. Official notifications, in this regard are
waited.
A comparison of the erstwhile MSME classification to the revised
classification where the investment and annual turnover, both are to be
considered for classification of an enterprise as an MSME, is set out
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71 Erstwhile MSME Classification
Criteria: Investment in Plant and Machinery/Equipment Classi fication Micro Small Medium Manufacturing
Enterprises Investment not
more than INR
25 lakhs Investment not
more than INR 5
crores Investment not
more than INR
10 crores Enterprises
rendering
Services Investment not
more than INR
10 lakhs Investment not
more than INR 2
crores Investment not
more than INR 5
crores Revised MSME Classification (w.e.f. July 1, 2020)Composite Criteria:
Investment in Plant and Machinery/Equipment and Annual Turnover Classification Micro Small Medium Manufacturing
Enterprises
and
Enterprises
rendering
Services Investment in
P&M/Equipment
not more than
INR 1 crore and
Annual Turnover
not more than
INR 5 crores Investment in
P&M/Equipment
not more than
INR 10 crores
and Annual
Turnover not
more than INR
50 crores Investment in
P&M/Equipment
not more than
INR 50 crores &
Annual Turnover
not more than
INR 250 crores

5.6.2 Features of MSMEs:
Here are some of the essential features of MSMEs
1. MSMEs are known to provide reasonable assistance for improved
access to the domestic as well as export markets for businesses.
2. MSMEs support product development, design innovation,
intervention, and packaging elements of a business.
3. MSMEs support the upgrading of technology, infrastructure, and the
modernization of this sector.
4. MSMEs provide empl oyment opportunities and loans.
5. MSMEs provide credit limits or funding support to various banks in
the country.
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72 5.6.3 Role of MSMEs in the Indian Economy
1. The MSME sector has proven to be a highly dynamic factor in the
forecasting of the Indian economy. Since MSMEs produce and
manufacture a variety of products for both domestic as well as
international markets, they have helped promote the growth and
development of various product segments and industries.
2. MSMEs have played an essential role in providing employment
opportunities in underprivileged areas.
3. They have helped in the industrialization of such areas with a low
capital cost compared to the larger industries in cities.
4. MSMEs have also contributed and played an essential role in the
country’s develo pment in different areas like the requirement of low
investment, flexibility in operations, low rate of imports, and a high
contribution to domestic production.
5.7 LARGE SCALE INDUSTRIES
5.7.1 What are Large Scale Industries?
Large scale industries are re ferred to as those industries that are having
huge infrastructure, raw material, high manpower requirements and large
capital requirements. Those organisations having a fixed asset of more
than 10 crore rupees are large scale industries.
The growth of the economy is very much dependent on these industries.
Such industries work towards bringing in foreign reserves, generating
employment opportunities and paving the way for economic growth.
5.7.2 Large Scale Industries in India
Large scale industries in India can be categorised into the following types
of industries:
1. Iron and Steel Industry
2. Automobile Industry
3.Textile Industry
4.Telecommunication Industry
5. Information Technology Industry
6. Petroleum and Natural Gas Industry
7. Silk Industry
8. Ferti liser Industry
9. Jute Industry
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73 5.7.3 Advantages of Large -Scale Industries
Large scale industries offer the following advantages:
1. Large scale industries use the latest machinery and technology, which
helps in impr oving the production. Due to large scale production, the
companies benefit as well as it is beneficial for the economy.
2. Large scale industries help in the development of industries in the
economy, which is essential for industrialisation.
3. Large sca le industries require skilled workers and therefore, the
development of large -scale industries help in the development of a
skilled workforce in the country.
4. Large scale industries require large amounts of raw materials, which
opens up employment oppor tunities in the related sectors.
5. As large -scale industries are involved in large scale production; it
provides an opportunity to reduce the cost of goods and services as
these are produced in bulk.
6. Large scale industries help in the development of small -scale
industries, as the requirement of items cannot be met only by a single
industry.
Hence, small scale industries are required to produce the ancillary
products and therefore small -scale industries thrive on the growth of
large -scale industries.
7. Large scale industries can incur expenses required for research and
development as they have a high influx of capital. Such research will
help in generating more profits in future.
8. Large scale industries also help improve the quality of life of its
employees by providing them with adequate remuneration and other
benefits.
5.7.4 Problems of Medium and Large -scale Industries
1. Lack of capital
For the establishment of medium and large -scale industries huge amount
of capital is required which is very difficult to be formed in the context of
Nepal. So, lack of capital is the problem of medium and large -scale
industries.
2. Lack of infrastructure
Infrastructures such as transportation, communication and electricity are
the most essential elements f or a industry to be operated. In our country all
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74 3. Lack of skilled manpower
Generally, medium, and large -scale industries need skilled manpower for
handling th e delicate task but there is a situation of Brain Drain in our
country. So, there is scarcity of skilled manpower.
4. Lack of competitiveness
Most of the Nepalese industrial products are of low quality. Such low -
quality products pose a formulate diffi culty to complete in both domestic
and international market. Car telling is the major problem of Nepalese
market.
5. Limited Market
The domestic market for Nepalese industrial products is very limited due
to low purchasing power of the people. There i s lack of transport and
communication facilities to sell the commodity throughout the country.
5.8 SUMMARY
Recent Policy Initiatives Impacting Industrial Growth
1. Implementation of GST
The GST is a game changing reform introduced by the government. It is
expected that implementation of GST will facilitate the creation of one
common market in the country by removing tax barriers; eliminate
cascading of taxes thereby reducing cost of production of manufacturing
goods; and enhance ease of doing business by cut ting down transaction
costs associated with the complex tax regime. The implementation of GST
is also going to cover the unorganized sector industries.
2. Make in India
The ‘Make in India’ programme has been launched globally on 25th
September 2014 which aims at making India a global hub for
manufacturing, research and innovation and integral part of the global
supply chain. This initiative is based on four pillars of New Processes,
New Infrastructure, New Sectors and New Mindset.
3. Start -up India
Start-up India is a flagship initiative of the Government of India, intended
to build a strong eco -system for nurturing innovation and Start -ups in the
country that will drive sustainable economic growth and generate large
scale employment opportunities. The G overnment through this initiative
aims to empower Startups to grow through innovation and design.
4. Ease of Doing Business
The Government has taken up a series of measures to improve Ease of
Doing Business. The emphasis has been on simplification and
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75 technology to make governance more efficient and effective. States too
have been brought on board in the process to expand the coverage of these
efforts.
5. Intellectual Property Rights (I PR) Policy
In May 2016, Government for the first time adopted a comprehensive
National Intellectual Property Rights (IPR) policy to lay future roadmap
for intellectual property. This aims to improve Indian intellectual property
ecosystem, hopes to create a n innovation movement in the country and
aspires towards “Creative India; Innovative India”.
5.9 QUESTIONS
1. Write the Introduction to Infrastructure and Important Constituents of
Infrastructure.
2. What are the basic infrastructure services.
3. Evaluate the Performance of Infrastructural Services.
4. What is the role of Industrial Development in Economic Growth
5. What are the objectives of New Economic Policy of 1991.
6. What are the features of New Economic Policy of 1991.
7. Write a note on Micro, Sma ll, Medium Enterprises (MSME’s).
8. Large Scale industries and Economic development.


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76 6
RECENT POLICIES AND PROGRAMS
FOR INDUSTRIAL DEVELOPMENT
Unit Structure:
6.0 Objectives
6.1 Startup India
6.2 Make in India
6.3 Skill Development: Meaning, Schemes & Initiatives through NSDC
6.4 FDI in India
6.5 Summary
6.6 Questions
6.0 OBJECTI VES:
 To understand the different policies and programmes for Industrial
Development in India .
 To familiar students with the Start Up India Initiative and its role and
challenges.
 To enable the learners to grasp fully the Make in India Mission & its
advanta ges.
 To explain the students the skill India initiative to generate
employment in India.
 To understand the role of Foreign Direct Investment in economic
development of India.

6.1 STARTUP INDIA
The Startup India initiative was announced by Hon’ble Prime Minis ter of
India on 15th August 2015. The flagship initiative aims to build a strong
eco-system for nurturing innovation and Startups in the country that will
drive sustainable economic growth and generate large scale employment
opportunities. Further to this, an Action Plan for Startup India was
unveiled by Prime Minister of India on 16th January 2016. The Action
Plan comprises of 19 action items spanning across areas such as
“Simplification and handholding”, “Funding support and incentives” and
“Industry -academia partnership and incubation”.
Government of India has made fast paced efforts towards making the
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77 made under the Startup India initiative, which has stirred entrepreneurial
spirit across the country.
The Department for Promotion of Industry and Internal Trade (DPIIT) is
mandated to coordinate implementation of Startup India initiative with
other Government Departments. Apart from DPIIT, the initiatives under
Startup India are dri ven primarily by five Government Departments viz.
Department of Science and Technology (DST), Department of
Biotechnology (DBT), Ministry of Human Resource Development
(MHRD), Ministry of Labour and Employment and Ministry of Corporate
Affairs(MCA) and NIT I Aayog.
Since the launch of initiative in January 2016, there has been a substantial
progress under Startup India Action Plan. A detailed progress made on 19
Action Points of Startup India Action Plan is at Annexure -I.
Many other initiatives beyond the Startup India Action Plan have been
undertaken for development of overall growth of Startup movement in the
country. Summary of ac hievements made so far under such initiatives is
at Annexure -II.
Startup India Scheme is an initiative by the Government of Ind ia for
generation of employment and wealth creation. The goal of Startup India is
the development and innovation of products and services and increasing the
employment rate in India. Benefits of Startup India Scheme is
Simplification of Work, Finance suppo rt, Government tenders, Networking
opportunities. Startup India was launched by Prime Minister Shri. Narendra
Modi on 16th January 2016. Let us learn more about Benefits and Eligibility
of Startup India.
6.1.1 Action Plan of Startup India Scheme
The action plan of Startup India is based on the following factors:
1. Simplification of Work :
This initiative simplifies the work for the new entrants in order to motivate
them. This includes following steps taken by the government:
 Firstly, the government has set -up Startup India hubs where all the
works related to incorporation, registration, grievance handling, etc.
 Secondly, an application and an online portal is set -up by the
government to facilitate registration from anywhere and anytime.
 Thirdly, the patent acqui sition and registration is now fast for the
startups.
 Lastly, according to the Insolvency and Bankruptcy Bill, 2015
facilitates fast winding up of the startups. A new startup can wind -up
itself within 90 days of the incorporation.
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78 2. Finance Support:
 To moti vate the startups, the government provides various financial
supports. These steps taken by the government are as follows:
 The government has set up a corpus of Rs.10,000 crores for 4 years
(Rs.2500 crore each year). From such fund, the government invests in
various startups.
 Special funds are provided, investment in which leads to exemption from
the income tax on the Capital Gain.
 Income tax exemption is available for the startups for the first 3 years
after the incorporation.
 Under The Income Tax Act, whe re a Startup (company) receives any
consideration for issue of shares which exceeds the Fair Market Value of
the shares, such excess consideration is taxable in the hands of the
recipient as Income from Other Sources.
 Investment by venture capital funds in Startups is exempted from the
application of this provision. The same extends to the investment made
by incubators in the Startups.
6.1.2 Benefits of Startup India
 Financial Benefits
 Income Tax Benefits
 Registration Benefits
 Government Tenders
 Huge Networking O pportunities
1. Financial Benefits
Most of the startups are patent based. It means they produce or provide
unique goods or services. To register their patents, they have to incur a heavy
cost which is known as the Patent Cost.
Under this scheme, the govern ment provides 80% rebate on the patent costs.
Moreover, the process of patent registration and related is faster for them.
Also, the government pays the fees of the facilitator to obtain the patent.
2. Income Tax Benefits
Startups enjoy a good amount of be nefits under the Income Tax head. The
government exempts their 3 years income tax post the incorporation year.
But they can avail it only after getting a certificate from the Inter -Ministerial
Board. Also, they can claim exemption from tax on Capital Gains if they
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79 3. Registration Benefits
Everyone believes that incorporation and registration of business are far
more difficult than running it. It is because of the long and complex steps of
registration.
Under the Startup Indi a scheme, an application is there to facilitate
registration. A single meeting is arranged to at the Start -up India hub. Also,
there is a single doubt and problem -solving window for them.
4. Government Tenders
Everyone seeks to acquire Government tenders b ecause of high payments
and large projects. But it is not easy to acquire the government tenders.
Under this scheme, the startups get priority in getting government tenders.
Also, they are not required to have any prior experience.
5. Huge Networking Oppor tunities
Networking Opportunities means the opportunity to meet with various
startup stakeholders at a particular place and time. The government provides
this opportunity by conducting 2 startups fests annually (both at domestic as
well as the internationa l level).
Startup India scheme also provides Intellectual Property awareness
workshop and awareness.
6.1.3Challenges faced by Startup India
1. People generally believe startups are just about thinking about a new idea
or plan. But, execution of such plan i s more necessary than just thinking
about it.
2. The view or perspective of the government on startup India plan is quite
short -term in nature. It does not look at the long -term path of the startups.
3. For the success of any new business, competent workfo rce is necessary.
But in case of startups, skilled workforce is not possible due to the lack of
funds at the initial phase.
4. The risk of reaching failure is greater in the startups as compared to other
organizations. It is because they tend to take steps quite fast.
6.2 MAKE IN INDIA
Make in India Mission Logo

The logo of ‘Make in India’ – a lion made of gear wheels – itself reflects
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80 development. The logo was designed by the India n branch of a foreign
company Weiden+ Kennedy India Limited .
Make in India is an initiative which was launched on September 25, 2014,
to facilitate investment, foster innovation, building best in class
infrastructure, and making India a hub for manufacturi ng, design, and
innovation. The development of a robust manufacturing sector continues
to be a key priority of the Indian Government. It was one of the first
'Vocal for Local' initiatives that exposed India's manufacturing domain to
the world. The sector h as the potential to not only take economic growth
to a higher trajectory but also to provide employment to a large pool of our
young labour force. Make in India initiative has made significant
achievements and presently focuses on 27 sectors under Make in India 2.0.
Department for Promotion of Industry and Internal Trade is coordinating
action plans for manufacturing sectors, while Department of Commerce is
coordinating service sectors.
The Government of India is making continuous efforts under Investment
Facilitation for implementation of Make in India action plans to identify
potential investors. Support is being provided to Indian Missions abroad
and State Governments for organising events, summits, roadshows, and
other promotional activities to attract investment in the country under the
Make in India banner. Investment Outreach activities are being carried out
for enhancing international co -operation for promoting FDI and improve
Ease of Doing Business in the country.
India has registered its highest e ver annual FDI Inflow of US $74.39
billion (provisional figure) during the last financial year 2019 -20 as
compared to US $ 45.15 billion in 2014 -2015. In the last six financial
years (2014 -20), India has received FDI inflow worth US$ 358.30 billion
which i s 53 percent of the FDI reported in the last 20 years (US$ 681.87
billion).
Steps taken to improve Ease of Doing Business include simplification and
rationalization of existing processes. As a result of the measures taken to
improve the country’s investme nt climate, India jumped to 63rd place in
World Bank’s Ease of Doing Business ranking as per World Bank’s Doing
Business Report (DBR) 2020. This is driven by reforms in the areas of
Starting a Business, Paying Taxes, Trading Across Borders, and Resolving
Insolvency.
Recently, Government has taken various steps in addition to ongoing
schemes to boost domestic and foreign investments in India. These include
the National Infrastructure Pipeline, Reduction in Corporate Tax, easing
liquidity problems of NBFCs a nd Banks, policy measures to boost
domestic manufacturing. Government of India has also promoted domestic
manufacturing of goods through public procurement orders, Phased
Manufacturing Programme (PMP), Schemes for Production Linked
Incentives of various Mi nistries.
Further, with a view to support, facilitate and provide investor friendly
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81 2020 has approved constitution of an Empowered Group of Secretaries
(EGoS), and also Project Dev elopment Cells (PDCs) in all concerned
Ministries/ Departments to fast -track investments in coordination between
the Central Government and State Governments, and thereby grow the
pipeline of investible projects in India to increase domestic investments
and FDI inflow.
The activities under the Make in India initiative are being undertaken by
several Central Government Ministries/ Departments and various State
Governments. Further, Ministries formulate action plans, programmes,
schemes and policies for the sectors being dealt by them. This Department
does not maintain information on such formulations by the line ministries.
6.2.1 Make in India – Focus on 25 Sectors:
The Make in India website also has listed the 25 focus sectors and
furnished all relevant det ails about these sectors, and related government
schemes, including the FDI policies, IPR, etc. The main sectors (27
sectors) covered under this campaign are given below:
Manufacturing Sectors:
1. Aerospace and Defence
2. Automotive and Auto Components
3. Pharmaceu ticals and Medical Devices
4. Biotechnology
5. Capital Goods
6. Textile and Apparels
7. Chemicals and Petro chemicals
8. Electronics System Design and Manufacturing (ESDM)
9. Leather & Footwear
10. Food Processing
11. Gems and Jewellery
12. Shipping
13. Railways
14. Construction
15. New and Renewa ble Energy
Services Sectors:
16. Information Technology & Information Technology enabled Services
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82 17. Tourism and Hospitality Services
18. Medical Value Travel
19. Transport and Logistics Services
20. Accounting and Finance Services
21. Audio Visual Services
22. Legal Serv ices
23. Communication Services
24. Construction and Related Engineering Services
25. Environmental Services
26. Financial Services
27. Education Services
6.2.3 Pillars of Scheme
The initiative is built on four pillars which are as follows:
1. New Processes:
The introduction of new reforms to attracting Foreign Direct Investment
and updating of archaic business laws has been one of the main
characteristics of the scheme.
2. New Infrastructure:
Development of industrial corridors and smart cities with state -of-the-art
technology and high-speed communication to boost the innovation and
research base. Training of skilled workforce and timely registration of
business is also an interesting and much -needed element of this initiative.
Major Industrial corridor that were developed are -
 Delh i-Mumbai Industrial Corridor (DMIC)
 Chennai -Bengaluru Industrial Corridor (CBIC)
 Bengaluru -Mumbai Economic Corridor (BMEC)
 Vizag -Chennai Industrial Corridor (VCIC)
 Amritsar Kolkata Industrial Corridor (AKIC)
3. New Sectors
Proposal to promote the developme nt of 25 sectors. The sectors that are
covered under the scheme can be accessed at www.makeinindia.com .
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83 4. New Mindset
Encouraging a paradigm shift in the manner of the Government’s
interaction with industries.
Key Stakeholders
 Invest India
 Department of Defence Production
 Ministry of Information & Broadcasting
 Department of Space
 Department of Promotion of Industry & Internal Trade
 Department of Financial Services
 Ministry of Mines
 Foreign Investment Facilitation Board
 Ministry of Home Affairs
 Ministry of Civil Aviation
 Department of Telecommunications
 Department of Economic Affairs
 Department of Pharmaceuticals
6.2.4 Why Make in India?
There are multiple reasons why the government has chosen to focus on
manufacturing. T he key ones are discussed below:
1. For the past two decades, India’s growth story seems to have been led
by the services sector. This approach paid off in the short -run, and India’s
IT and BPO sector saw a huge leap, and India was often dubbed the ‘back
office of the world’. However, even though the share of the services sector
in the Indian economy rose to 57% in 2013, it contributed to only 28% in
the share of employment. So, the manufacturing sector needed to be
augmented to boost employment. This is becau se the services sector
currently has low absorption potential considering the demographic
dividend in the country.
2. Another reason to launch the campaign is the poor condition of
manufacturing in India. The share of manufacturing in the overall Indian
econo my is only about 15%. This is way lower than our neighbours in
East Asia. There is an overall trade deficit when it comes to goods. The
trade surplus in services hardly covers one -fifth of India’s trade deficit in
goods. The services sector alone cannot ho pe to answer this trade deficit.
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84 encourage businesses, both Indian and foreign to invest in manufacturing
in India, which will help this sector and also generate employment in both
skilled and unskilled levels.
3. To focus on manufacturing is that no other sector seems to have such a
huge multiplier effect on economic growth in a country, according to
various studies. The manufacturing sector has larger backward linkages
and hence, growth in deman d in manufacturing spurs growth in other
sectors as well. This generates more jobs, investments, and innovation,
and generally leads to a higher standard of living in an economy.
6.2.5 Make in India – Objectives
There are several targets aimed by the Make in Ind ia mission. They are:
1. Raise in manufacturing sector growth to 12 -14% per year.
2. Create 100 million additional jobs in the manufacturing sector by
2022.
3. Increase in the manufacturing sector’s share in the GDP to 25% by
2022.
4. Creating required skill sets amon g the urban poor and the rural
migrants to foster inclusive growth.
5. A rise in the domestic value addition and technological depth in the
manufacturing sector.
6. Having an environmentally sustainable growth.
7. Augmenting the global competitiveness of the Indian manufacturing
sector.
6.2.6 Make in India – Initiatives
1. For the first time, the sectors of railways, insurance, defense, and
medical devices have been opened for more Foreign Direct Investment
(FDI).
2. The maximum limit in FDI in the defense sector under the auto matic
route has been raised from 49% to 74%. This increase in FDI was
announced by Finance Minister Nirmala Sitaraman on May 16, 2020.
3. In construction and specified rail infrastructure projects, 100% FDI
under the automatic route has been permitted.
4. There is an Investor Facilitation Cell that assists investors from the
time of their arrival in India to their departure from the country. This
was created in 2014 for giving services to investors in all phases such
as the pre -investment phase, execution, and al so after delivery
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85 5. The government has taken steps to improve India’s ‘Ease of Doing
Business’ rank. India climbed 23 points in the Ease of Doing Business
index to 77th place in 2019, becoming the highest -ranked in South
Asia in this index.
6. The Shr am Suvidha Portal, eBiz portal, etc. have been launched. The
eBiz portal offers single -window access to eleven government services
connected with starting a business in India.
7. Other permits and licenses required to start a business have also been
relaxed. Reforms are being undertaken in areas like property
registration, payment of taxes, getting power connection, enforcing
contracts, and resolving insolvency.
8. Other reforms include licensing process, time -bound clearances for
applications of foreign investor s, automation of processes for
registration with the Employees State Insurance Corporation and the
Employees Provident Fund Organization, adoption of best practices by
states in granting clearances, decreasing the number of documents for
exports, and ensur ing compliance through peer evaluation, self -
certification, etc.
9. The government hopes to improve physical infrastructure chiefly
through the PPP mode of investment. Ports and airports have seen
increased investment. Dedicated freight corridors are also bei ng
developed.
6.2.7 Make in India – Schemes
Several schemes were launched to support the Make in India programme.
These schemes are discussed below:
Skill India
This mission aims to skill 10 million in India annually in various sectors.
Make in India to turn int o a reality, there is a need to upskill the large
human resource available. This is important because the percentage of
formally skilled workforce in India is only 2% of the population.
Startup India
The main idea behind this programme is to build an ecosy stem that fosters
the growth of startups, driving sustainable economic growth, and creating
large -scale employment.
Digital India
This aims to transform India into a knowledge -based and digitally
empowered economy. To know more about Digital India, click o n the
linked page.

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86 Pradhan Mantri Jan Dhan Yojana (PMJDY)
The mission envisages financial inclusion to ensure access to financial
services, namely banking savings & deposit accounts, remittances, credit,
insurance, pension in an affordable manner. Click the linked article to
know more about Pradhan Mantri Jan Dhan Yojana (PMJDY).
Smart Cities
This mission aims to transform and rejuvenate Indian cities. The goal is to
create 100 smart cities in India through several sub -initiatives.
AMRUT
AMRUT is the Atal Mission for Rejuvenation and Urban Transformation.
It aims to build basic public amenities and make 500 cities in India more
livable and inclusive.
Swachh Bharat Abhiyan
This is a mission aimed at making India cleaner and promoting basic
sanitation and hy giene. For more information on Swachh Bharat Mission,
click on the linked article.
Sagarmala
This scheme aims at developing ports and promoting port -led
development in the country.
International Solar Alliance (ISA)
The ISA is an alliance of 121 countries , most of them being sunshine
countries, which lie either completely or partly between the Tropic of
Cancer and the Tropic of Capricorn. This is India’s initiative aimed at
promoting research and development in solar technologies and
formulating policies i n that regard.
AGNII
AGNII or Accelerating Growth of New India’s Innovation was launched
to push the innovation ecosystem in the country by connecting people and
assisting in commercializing innovations.
6.2.8 Make in India – Progress
There have been sever al milestones attributed to the Make in India
scheme. Some of the prominent ones are listed below:
1. The introduction of the Goods and Services Tax (GST) has eased the
tax procedural system for businesses. The GST has been a fillip to the
Make in India campa ign.
2. Digitization in the country has gained momentum. Taxation, company
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87 the overall process and improving efficiency. This has upped India’s
rank in the EoDB index.
3. The new insolvency cod e namely, the Insolvency and Bankruptcy
Code 2016 integrated all laws and rules relating to insolvency into a
single legislation. This has taken the bankruptcy code of India on par
with global standards.
4. Due to schemes of financial inclusion such as the PM JDY, as of May
2019, 356 million new bank accounts were opened.
5. FDI liberalization has helped India’s EoDB index to be favourable.
Larger FDI inflows will create jobs, income, and investments.
6. Infrastructure and connectivity have received major push throug h
schemes like Bharatmala and Sagarmala, as well as various railway
infrastructure development schemes.
7. BharatNet – this is a telecom infrastructure provider set up by the GOI
to enhance digital networks in the rural areas of the country. This is
perhaps t he world’s largest rural broadband project.
8. India is ranked four in the world in terms of its capacity to harness
power from winds and ranked number 6 in the world in harnessing
solar power. Overall, India is ranked fifth in the world in installed
renewabl e energy capacity.
6.2.9 Make in India – Advantages
The Make in India campaign has had several positive developments for
the country. Below are some more benefits that have been derived from
this mission.
1. Generating employment opportunities.
2. Increasing the GDP b y expanding economic growth.
3. When FDI inflows become more, the rupee will be strengthened.
4. Small manufacturers will get a thrust, particularly when investors
from abroad invest in them.
5. When countries invest in India, they will also bring with them the
latest technologies in various fields.
6. Due to the various initiatives taken under the Mission, India has
moved up the ranks in the EoDB index.
7. Setting up manufacturing centres and factories in rural areas will
foster the development of these areas as well.
6.2.10 Make in India – Challenges
Even though the campaign has seen success in some quarters, there have
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88 if she is to achieve the lofty targets set by the establishment. Some of the
critici sms are laid out below.
1. India has about 60% of cultivable land. The thrust on manufacturing is
said to affect agriculture negatively. It can even cause a permanent
disruption of arable land.
2. It is also believed that the rapid industrialization (even with t he thrust
on “going green”) can lead to a depletion of natural resources.
3. A fallout of inviting large -scale FDI is that local farmers and small
entrepreneurs may not be able to face the competition from
international players.
4. The campaign, with all its foc us on manufacturing, can cause pollution
and environmental side -effects.
5. There are serious lacunae in the physical infrastructure facilities in the
country. For the campaign to be successful, it is necessary to build up
the infrastructure available in the country and reduce problems like
corruption at the lowest levels. Here, India can take lessons from
China, which has dramatically improved its share of global
manufacturing from 2.6% in the 1990s to 24.9% in 2013. China
rapidly developed its physical infra structure like railways, roadways,
power, airports, etc.
6.3 SKILL DEVELOPMENT IN INDIA
6.3.1 What is Skill Development?
Our whole life is simply a long period of developing our skills. We learn
to walk. We learn to speak. We learn how to take care of our selves. All of
this is achieved through the same general method of repeating something
over and over before it becomes a subconscious act. We follow the same
trend as we develop skills later in life. The only distinction is that we are
much more conscious and interested in our engagement in studying.
Skill Development can be basically defined as the process of:
 Identifying a person’s skills and knowledge gaps
 To develop and strengthen these skills. It’s critical because your skills
decide your ability to effectively implement your plans.
Skill Development can be broadly classified into two categories. They are:
 Hard skills: Skills relevant to some specific task; typically readily
quantifiable. They aim to be knowledge -based, such as subject
proficiency, t raining, and specialized qualifications. Fluency in a
language, XYZ tech skills, graphic design and scripting are all hard
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89  Soft skills: Personality skills that tend to be transferable, such as
collaboration, management, problem -solving, stress mana gement,
decision -making, flexibility, ability to cope with challenges, and
communication.
6.3.2 Free Skill Development Courses Online
To encourage the initiative of Skill India and Made in India, the National
Skill Development Corporation offers a wide ran ge of online skill
development courses in the country. You can explore many free online
courses at MOOCs, i.e., Massive Open Online Course. Here are the top
learning platforms offering free Skill Development Courses Online:
1. National Skill Development Corpo ration (NSDC)
2. MOOCs
3. Coursera
4. Allison
5. Skillshare
6. eSkill India by NSDC
Here are the most popular skill development courses online:
 The Science of Well -Being by Yale University on Coursera
 Machine Learning by Stanford University on Coursera
 Go Digital by NSDC
 Employability and Digital Literacy by NSDC
 Pradhan Mantri Aarogya Mitra by eSkill India
 Introduction to Psychology by University of Toronto on Coursera
 Academic Writing by University of California, Irvine on Coursera
6.3.3 Schemes & Initiatives through NS DC
1. Pradhan Mantri Kaushal Vikas Yojana 2016 -2020
Ministry of Skill Development and Entrepreneurship through National
Skill Development Corporation has implemented Pradhan Mantri Kaushal
Vikas Yojana (PMKVY) 2015 -16 with a target to cover 24 lakh youth i n
the country. The scheme is implemented with the objective to enable many
Indian youths to take up industry -relevant skill training that will help them
in securing a better livelihood. Individuals with prior learning experience
or skills were also assesse d and certified under Recognition of Prior
Learning (RPL) category.
During its pilot phase, PMKVY trained 19.85 lakh candidates in 375 job
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90 Development Corporation’s (NSDC’s) training partn ers to report
employment data. The employment data available reflects only a fraction
of the actual employment provided under the scheme. Out of the total
trained candidates, around 2.53 lakh candidates have been reported as
placed. It was a reward -based s cheme, which provided entire cost of
training as reward to successful candidates.
Common Norms for uniformity and standardization of skill development
ecosystem existing in the country was notified on 15th July 2015. Based
on the learnings of PMKVY 2015 -16 and aligning it with Common
Norms, the scheme has been revamped and the Union Cabinet in its
meeting held on 13th July 2016, has approved the new version with
modification and continuation of the Pradhan Mantri Kaushal Vikas
Yojana (PMKVY) 2016 -2020 as ‘S kill Development Component’ of
umbrella PMKVY to skill 1 crore people over four years (2016 -2020) with
an outlay of Rs.12,000 crore.
PMKVY (2016 -2020) is a grant -based scheme, providing free of cost skill
development training and skill certification in ove r 252 job roles to
increase the employability of the youth. The scheme was launched on
2nd October 2016 with the following objectives:
a. Provide fresh skill development training to school dropouts, college
dropouts and unemployed youth through short term cou rses.
b. Recognize the skill available of the current work force through skill
certification.
c. Engage States in the implementation of the scheme leading to capacity
development of the states.
d. Improved quality of training infrastructure along with alignment of
training with the needs of the industry.
e. Encourage standardization in the certification process and initiate a
process of creating a registry of skills.
2. Pradhan Mantri Kaushal Kendra (PMKK)
Under Skill India Mission, Ministry of Skill Development and
Entrepreneurship (MSDE) has initiated the establishment of state -of-the-
art, visible, and aspirational model training centers in every district of
India, ensuring coverage of all the parliamentary constituencies. These
model training centers are referred to as “Pradhan Mantri Kaushal
Kendra” (PMKK).
PMKK is MSDE’s initiative towards creation of standardized
infrastructure for delivery of skill development training which are
equipped to run industry -driven courses of high quality with focus on
employability an d create an aspirational value for skill development
training. PMKK envisions to transform the short -term training ecosystem
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91 The PMKK program provides financial support in form of a soft loan up
to INR 70 lakhs to create training infrastructure and complements the
delivery of the Pradhan Mantri Kaushal Vikas Yojana (PMKVY), the
flagship skill development program of the Government at the district level.
6.4 FOREIGN DIRECT INVESTMENT I N INDIA
6.4.1 Introduction
Apart from being a critical driver of economic growth, Foreign Direct
Investment (FDI) has been a major non -debt financial resource for the
economic development of India. Foreign companies invest in India to take
advantage of rel atively lower wages, special investment privileges like tax
exemptions, etc. For a country where foreign investment is being made, it
also means achieving technical know -how and generating employment.
The Indian Government’s favourable policy regime and ro bust business
environment has ensured that foreign capital keeps flowing into the
country. The Government has taken many initiatives in recent years such
as relaxing FDI norms across sectors such as defence, PSU oil refineries,
telecom, power exchanges, an d stock exchanges, among others.
6.4.2 Market size
According to the Department for Promotion of Industry and Internal Trade
(DPIIT), FDI equity inflow in India stood at US$ 547.2 billion between
April 2000 and June 2021, indicating that the government's ef forts to
improve ease of doing business and relaxing FDI norms have yield results.
FDI equity inflow in India stood at US$ 17.56 billion between April 2021
and June 2021. Data between April 2021 and June 2021 indicates that the
automobile sector attracted the highest FDI equity inflow of US$ 4.66
billion, followed by computer software & hardware sector (US$ 3.06
billion), services sector (US$ 1.89 billion) and metallurgical industries
(US$ 1.26 billion).
Between April 2021 and June 2021, India recorded the highest FDI equity
inflow from Singapore (US$ 3.31 billion), followed by Mauritius (US$
3.29 billion), the US (US$ 1.95 billion), Cayman Islands (US$ 1.32
billion), the Netherlands (US$ 1.09 billion), Japan (US$ 539 million) and
the UK (US$ 345 million). I n the same period, Karnataka registered the
highest FDI equity inflow of US$ 8.45 billion, followed by Maharashtra
(US$ 4.09 billion), Delhi (US$ 1.95 billion) and Gujarat (US$ 765
million).
6.4.3. Advantages of foreign direct investments in India:
1. Prom otion of investment in key areas:
By allowing FDI, we can promote investment in key areas such as
infrastructure development because of which there will be more
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92 can generate more elec tric power which will enable the growth of more
industries.
2. New technologies:
FDI can bring in more new technologies which were not adopted in the
country till now. Examples are the recent developments in the
Communications System. The launching of sate llites with the help of other
countries has enabled the growth of communication system in the country.
Nokia has come to India for promoting India’s communication system.
3. Increase in Capital inflow:
FDI promotes more capital inflow into the country espe cially in key and
core sectors. We have a shortage of capital not only in the form of money
but also in the form of material. FDIs will bridge this gap by which there
will be speedy economic growth in the country.
4. Increase in Exports:
With the help of F DI, the exports of many underdeveloped countries have
increased. The creation of Economic Zones and promotion of 100%
export -oriented units have helped FDIs in increasing their exports from
other countries. Certain consumer products produced by them have w orld-
wide markets. There is a change in the composition of exports and
direction of exports with the presence of FDI.
5. Promotion of Employment opportunities:
The advent of FDI in developing countries has promoted the service
sector. This has resulted in a change in the advertising and marketing
technologies. This provides more scope for employment opportunities.
Educated unemployment to some extent is reduced by the FDI as they
could absorb some of Indian work force.
6. Promotion of financial services:
FDI strengthens financial services of a country by not only entering its
banking industry but also by extending other activities such as merchant
banking, portfolio investment, etc., which has resulted in the promotion of
more new companies. It has also help ed the capital market in the country.
7. Exchange rate stability:
Reserve Bank of India has been maintaining the exchange rate in the
country through its exchange control measures. But the constant and
continuous supply of foreign exchange is a must for co ntinuing exchange
rate stability. With more FDIs coming into the country, this is made
possible and today RBI is having a comfortable foreign exchange reserve
position of more than 1 billion dollars.

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93 8. Development of backward areas:
Foreign direct inves tments are in a way responsible for the development of
backward areas. There are so many industries started by them in far
reaching and backward areas, as a result of which these areas have
developed into industrial centres. Some of the backward regions ha ve
utilized the services of FDIs for starting industries in backward areas.
Examples are Hyundai and Ford car units started at Sriperumbadur and
Maraimalainagar in India.
9. Utilization of natural resources:
The natural resource in the country is put to be tter use by the FDIs which
otherwise would have remained unutilized. The examples are Saint
Gobain glass company and manufacture of paper and newsprint.
10. Change in the lifestyle of people:
The presence of FDIs has no doubt changed the life -style pattern of
people. The purchase of consumer goods such as TV, fridge, automobiles
are made possible as these goods are made available through hire purchase
system. The increasing number of automobiles in most ofthe cities is a
standing example for the change in t he lifestyle.
India has been one of the top recipients of Foreign Direct Investment
(FDI) across the globe over the last decade. Despite the pandemic, India
has recovered steadily and is a crucial destination for investors. The
country witnessed a 9.8% ris e in total FDIs for Financial Year (FY) 2020 -
21, making it the 5th highest recipient of FDI over the last year.

6.4.4 FDI in India and its economic impact
7. Foreign Direct Investment (FDI) leads to the long -term growth of the
economy. M N C s b r i n g a b o u t t e chnology transfer to the domestic
companies. Organic growth or expansion takes place in the companies.
Employment too rises.

8. FDI strengthens the balance sheet as it raises the assets of the companies.
Profits of the businesses increase, and labor product ivity too increases.

9. Per capita income increases and consumption improves. Tax revenues
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94 10. GDP increases and there is also a lagged effect due to which subsequent
years GDP too increases.

11. Furthermore, investment has gestation period and returns increase after
few years.

12. FDI puts the companies and hence the economy on higher growth mode
and the right process of FDI is selection of the strategic sectors in the
economy that generate highest RoI.

13. FDI also acts as a so lid complement to domestic stock of investment
which is low ( about 32%) in India because of low savings. This
investment raises competitiveness among the businesses, breeds
innovation and efficiency and increases standard of living through better
products and services in the market.

14. Exports get a fillip and balance of payments show surplus which causes
rupee to appreciate vis a vis the Dollar. Forex reserves rises significantly,
and this causes RBI ‘s assets to increase due to which money supply rises
and thus inflation too rises according to Quantity Theory of Money.

15. FDI is better than Foreign Institutional Investment (FII) or hot money
which is volatile in nature and moves to the stock and bond markets.
Because of FDI, there is solid growth in the comp anies and hence stock
market rallies and attracts more capital which raises more funds for the
businesses.

16. In FDI there is technology transfer or the movement of technical know -
how to the domestic country due to which skill development takes place
and to gether with higher capital this raises productivity and profitability.
Total FDI inflows in the country in the last 20 years (April 2000 –
September 2020) are $729.8 bn while the total FDI inflows received in
the last 5 years (April 2014 - S e p t e m b e r 2 0 1 9 ) was $319 bn which
amounts to nearly 50% of total FDI inflow in last 20 years.
6.3 SUMMARY
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95

6.4 QUESTIONS
Write note on –
1. Benefits of Start Up Indian
2. Challenges faced by Startup India
3. Objectives and Initiatives of Make in India.
4. Advantage and Chal lenges of Make in India.
5. Skill Development in India

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96
Module IV
7
ROLE OF SERVICES SECTOR IN INDIAN
ECONOMY

Unit Structure:
7.0 Objectives
7.1 Introduction to the Service Sector in India
7.2 Advantages of the Service Sector
7.3 Significance of the Service Sector
7.4 Some Contribution of Service Sector in Indian Economy
7.5 Growth & Performance of Healthcare in India
7.6 Indian Tourism and Hospitality Industry
7.7 Information Technology (It) and It Enabled Services (Ites)
7.8 Questions
7.0 OBJECTIVES
 To study the advantages and significance of service sec tor in India.
 To see some contribution of service sector in Indian economy.
 To familiar students with the growth & performance of healthcare
sector in India .
 To enable the learners to grasp fully the performance of Trade &
Tourism in India.
 To understand the Growth & performance of IT and IT -enabled
services.
7.1 INTRODUCTION TO THE SERVICE SECTOR IN
INDIA
The growth of the Services Sector in India is a unique example of leap -
frogging traditional models of economic growth. Within a short span of 50
years since independence, the contribution of the service sector in India to
the country’s GDP is a lion’s share of over 60%. However, it still employs
only 25% of the labour force. Consequently, agriculture (which is munotes.in

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97 stagnant) and manufacturing (which has not y et risen to its full potential)
continue to sustain most of our employed population. This presents a
unique challenge to future economic growth in India and requires out of
the box solutions that will help rapidly harness the potential of the service
indus try in India. Invest India looks at the contribution of the services
sector in the Indian economy, its successes and explores potential enablers
for future equitable economic growth.
The economic development of any country is directly dependent on the
adva ncement and progress of the three sectors of the economy viz.
primary sector, secondary sector, and tertiary sector. The primary
sector of an economy making direct use of natural resources that are
involved in the production and extraction of raw materials from
agriculture, fishing, forestry, mining, dairy, etc. and secondary sector
also known as the industrial sector is associated with the activities
which involve the conversion of raw material into usable products. Most
of the India’s population is engage d in the primary sector which in turn
is the main reason for underemployment in the country. Though in the
last couple of years, manufacturing has been a great focus not much
growth has been seen in the secondary sector (includes heavy
manufacturing, light manufacturing, energy -producing, food processing,
etc.) due to lack of infrastructure. So, in order to quickly absorb this
underemployed population, there is a need to shift to the tertiary sector.
The tertiary sector also known as the service sector involves a variety
of things in its umbrella. Some of which are health and welfare, tourism,
leisure, and recreation activities as well as retailing and sales of goods to
the people. In the past six years, the service sector has undergone a great
evolution whi ch in turn has given it the independent status of the
productive sector of the country. Moreover, this sector also provides a
major impact on foreign exchange and thus contributes greatly to the
modern economic development of the country.
7.2 ADVANTAGES OF THE SERVICE SECTOR
1. No Inventory:
In the service sector, there is no need to built -up a reserve of inventory
that needs to be stored in a warehouse. Because the product that you are
selling is your skills and expertise wherein, you’ll only need to have the
necessary equipment required to perform the required services, no
warehouse full of inventory needed.
2. Easy to start up:
In comparison to other business industries, starting a business in the
service sector is relatively easy. Because business in t he service sector
requires little more than a license, phone, and a person with the required
skills and expertise to get up and going. This not only makes it quite
easier but also very affordable to get started.
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98 3. Flexible hours:
Working in the service sec tor provides flexibility in the working hours,
which in turn allows you to get an opportunity to further increase your
skill and education and to accomplish other important tasks at times you
might not otherwise be able to.
4. Greater adaptability to changes:
The service sector companies are able to adapt to the changes in
customer needs much easily and quickly in comparison to product -based
companies.
5. Provides job even during economic crisis:
During an economic dip, when people are cutting down their expend iture
and are only paying for necessities, the service sector helps to keep the
job and bring in the revenue as service sector experts are always in
demand.
7.3 SIGNIFICANCE OF THE SERVICE SECTOR
1. Gross Value Added (GVA) at current prices for the services s ector is
estimated at 96.54 lakh crore INR in 2020 -21 and accounts for
53.89% of total India’s GVA of 179.15 lakh crore Indian rupees.
Thus, holds the highest share in the country’s Net National
Product.
2. Promotes industrialization: The service sector provi des various
facilities such as transportation, banking, electricity, repair, or
communication in support of the distribution of the manufactured
goods which directly affects the development of an industry in a
country. For example -transport systems helps t o carry laborer, raw
material and finished goods to their destination, communication
networks are required to make a market for the product and for the
industries to prosper, we require banking and electricity. Moreover,
the feedback from the marketplace, fast delivery as well as the ability
to customize products are all dependent on the service industry.
3. According to World Bank data in the year 2017, India has become
the 6th largest economy with a GDP of 2.59 trillion USD, demoting
France to the 7th positi on, allowing for the growth of the service
sector in the country.
4. Growth of Agriculture: By providing network facilities, service
sectors help in the development of agricultural products such as
helping in the transport of raw material and finished goods f rom one
place to another.
5. Increase in the productivity of the goods : The service sector helps
in providing appropriate technical knowledge/education to the
workers as well as provide them with proper medical facilities.
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99 communication and transport systems which helps in increasing
mobility and information among the workers. This results in an
increase in the productivity.
6. Provides Good Quality Life: By providing better services in the
field of education and health, banking and insurance as well as
communication and transportation, the service sector has helped in
increasing the quality of life in the country and thus helping in
raising the country’s human development index (HDI).
7. Growth of Market : This sector provides various services catering to
the needs of both primary and secondary sectors and thus helps in
providing a market for the finished goods as well as raw materials or
semi -finished goods for both i.e. agriculture and industries.
8. Increase in international trade : India’s trade in services recorded
substantial growth as the country became globally competitive in ICT
services which increased exports manyfold and led to an increase in
India’s trade surplus. Service exports have contri buted to the
inclusive economic processes by increasing the number of well -paid
jobs and by reallocating labor to a high -productivity sector.
9. Removes regional disparities : The service sector has made it
possible to connect every small town and village thr ough a well -
organized system of communication and transport. Moreover, the
expansion of education, medical as well as banking services in
various backward areas of the country has helped in removing the
regional imbalances and disparities throughout the na tion.
7.4 SOME CONTRIBUTION OF SERVICE SECTOR IN
INDIAN ECONOMY
The service sector is the largest recipient of FDI in India with an inflow
of 83.14 billion USD between April 2000 and June 2020. Some of the
services in the umbrella of the service sector are li sted below:
1. Research and Development services :
In the Global Innovation Index of 2020, India ranks 48 among the top 50
countries. This sector presents a significant opportunity for multinational
corporations across the world due to the highly trained Indi an manpower
available at competitive costs and intellectual capital available in the
Indian market. For that reason, in recent years, several MNCs have
shifted or are shifting their research and development part to India. It
helps those MNCs to either deve lop new innovative products to serve the
local market or help the parent company to deliver products faster to the
world markets. India’s expenditure in R&D is targeted to be about 2% of
the country’s total GDP by the year 2022.

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100 2. Telecom services :
Accord ing to FY20 by TRAI, India has an average wireless data usage of
about 11 GB per month per subscriber which is expected to reach 18 GB
by 2024. Thus, making India one of the biggest consumers of data
worldwide.
3. IT Enabled Services (ITES) :
Owing to the soc io-economic conditions of India and rapidly changing
business, as well as the proliferation of the internet, the Indian ITES
industry is now day by day increasing its area and has become a tough
competitor for the world market. India’s success in software and IT -
enabled serviced exports has made it a major exporter of services with a
share in world service exports rising from 0.6% to 3.3% from the
year 1990 to 2013 .
4. Tourism services :
Due to historical heritage, variety in ecology, terrains, the rich cultur e,
and places of natural beauty spread across the country, the Indian
tourism and hospitality industry has emerged as one of the important
services sectors in India. Thus, Tourism is a significant source of foreign
exchange for our country. During 2019, th e total contribution of travel &
tourism to GDP was 6.8% of the total economy, and in the financial year
2020, the tourism sector in India accounted for 8 percent of the total
employment in the country. It is expected that about 53 million jobs will
be cre ated in the Indian market by 2029.
Conclusion:
The service sector in India has the highest employment generation
among all sectors. So, it has the potential for great growth and capability
to provide highly productive jobs, thus resulting in revenue gener ation.
To overcome the problem of job creation, the Skill India program aims
to provide market -relevant skills to about 40 crores of people by 2022. It
aims to do this mainly by adopting private sector initiatives in skill
development programs, and by prov iding them with the necessary
funding. Similarly, the Make in India program aims to boost the
manufacturing sector in the country and thus, will cause a multiplier
effect in adding to the portfolio of the Service Sector. In these
circumstances, the Startup India initiative is a key enabler for both the
manufacturing as well as the service industry in India by offering to
support innovative startups. Thus, we can say that the service sector is
going to play a major role in shaping the future of the country i n the
coming years.


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101 7.5 GROWTH & PERFORMANCE OF HEALTHCARE
IN INDIA
7.5.1 Introduction:
Healthcare has become one of India’s largest sectors, both in terms of
revenue and employment. Healthcare comprises hospitals, medical
devices, clinical trials, outsourcing , telemedicine, medical tourism, health
insurance and medical equipment. The Indian healthcare sector is growing
at a brisk pace due to its strengthening coverage, services and increasing
expenditure by public as well private players.
Indian healthcare del ivery system is categorised into two major
components public and private. The Government, i.e. public healthcare
system, comprises limited secondary and tertiary care institutions in key
cities and focuses on providing basic healthcare facilities in the fo rm of
primary healthcare centres (PHCs) in rural areas. The private sector
provides majority of secondary, tertiary, and quaternary care institutions
with major concentration in metros and tier I and tier II cities.
India's competitive advantage lies in it s large pool of well -trained medical
professionals. India is also cost competitive compared to its peers in Asia
and Western countries. The cost of surgery in India is about one -tenth of
that in the US or Western Europe. India ranks 145 among 195 countries in
terms of quality and accessibility of healthcare.
7.5.2 Market Size:
The healthcare market can increase three -fold to Rs. 8.6 trillion (US$
133.44 billion) by 2022.Indian medical tourism market is growing at 18%
y-o-y and is expected to reach US$ 9 bil lion by 2020. There is a
significant scope for enhancing healthcare services considering that
healthcare spending as a percentage of Gross Domestic Product (GDP) is
rising. The Government’s expenditure on healthcare sector has grown to
1.6% of the GDP in F Y20BE from 1.3% in FY16.Health insurance is
gaining momentum in India. Gross direct premium income underwritten
by health insurance grew 17.16% y -o-y to Rs. 51,637.84 crore (US$ 7.39
billion) in FY20.
7.5.3 Investment:
Hospitals and diagnostic centers attr acted Foreign Direct Investment (FDI)
worth US$ 6.72 billion between April 2000 and March 2020, according to
the data released by Department for Promotion of Industry and Internal
Trade (DPIIT). Some of the recent investments in the Indian healthcare
indus try are as follows:
1. In September 2020, AYUSH Ministry inked a MoU with industry
bodies to promote cultivation of medicinal plants.
2. In October 2020, All India Institute of Ayurveda signed a MoU with
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102 3. In May 2020, Jubil ant Generics Ltd entered into a non -exclusive
licensing agreement with US -based Gilead Sciences Inc to
manufacture and sell the potential COVID -19 drug Remdesivir in 127
countries, including India.
4. In May 2020, Carlyle Group acquired 74% stake in animal he alth
focused pharmaceutical company, SeQuent Scientific Ltd, for about
Rs. 1,580 crore (US$ 224.15 million).
5. In April 2020, first COVID -19 sample collection mobile lab of the
country, namely ‘Mobile BSL -3 VRDL Lab’, was launched, which can
process more tha n 1,000 samples in a day and enhance country’s
capabilities in fighting COVID -19.
6. The value of merger and acquisition (M&A) deals across hospitals
jumped by a record 155% to Rs. 7,615 crore (US$ 1.09 billion) in
FY19.
7. In August 2019, Microsoft India and Ap ollo Hospitals Group entered
in agreement to set up a National Clinical Coordination Committee for
AI-powered Cardiovascular Disease Risk Score API.
8. In January 2019, National Company Law Tribunal (NCLT) approved
Tri-County Premier Hearing Services Inc’s pl anned to acquire Bhilai
Scan and Research Pvt Ltd (BSR) Diagnostics Ltd for Rs. 67 crore
(US$ 9.29 million).
9. India and Cuba signed a memorandum of understanding (MoU) to
increase cooperation in the areas of health and medicine, according to
Ministry of Hea lth and Family Welfare, Government of India.
10. Fortis Healthcare approved the de -merger of its hospital business with
Manipal Hospital Enterprises. TPG and Dr Ranjan Pal could invest Rs.
3,900 crore (US$ 602.41 million) in Manipal Hospital Enterprise.
7.5.4 Government Initiatives:
Some of the major initiatives taken by the Government of India to promote
Indian healthcare industry are as follows:
1. In Union Budget 2020 21, Rs. 35,600 crore (US$ 5.09 billion) has
been allocated for nutrition -related programmes.
2. The Government has announced Rs. 69,000 crore (US$ 9.87 billion)
outlay for the health sector that is inclusive of Rs. 6,400 crore (US$
915.72 million) for PMJAY in Union Budget 2020 –21.
3. The Government of India aims to increase healthcare spending to 3%
of the Gross Domestic Product (GDP) by 2022.
4. In February 2019, the Government of India established a new All India
Institute of Medical Sciences (AIIMS) at Manethi, District Rewari,
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103 5. The Union Cabinet approved setting up of National Nutrition Mission
(NNM) with a three -year budget of Rs. 9,046 crore (US$ 1.29 billion)
to monitor, supervise, fix targets, and guide the nutrition related
interventions across ministries.
6. On September 23, 2018, Government of India launched Pradhan
Mantri Jan Arogya Yojana (PMJAY), to provide health insurance
worth Rs. 500,000 (US$ 7,124.54) to over 100 million families every
year.
7. In August 2018, the Government of India approved Ayushman Bharat -
National Health Protection Miss ion as a centrally sponsored scheme
contributed by both center and state Government at a ratio of 60:40 for
all States, 90:10 for hilly Northeastern States and 60:40 for Union
Territories with legislature. The center will contribute 100% for Union
Territor ies without legislature.
8. The Government of India launched Mission Indradhanush with an aim
of improving coverage of immunisation in the country. It aimed to
achieve at least 90% immunisation coverage by December 2018 and
cover unvaccinated and partially va ccinated children in rural and urban
areas of India.
7.5.5 Achievements:
Following are the achievements of the Government:
1. As of July 2019, around 125.7 million families enrolled as
beneficiaries under Pradhan Mantri Jan Arogya Yojana (PMJAY). The
scheme e nrolled 16,085 hospitals, including 8,059 private hospitals
and 7,980 public hospitals. It included 19 AYUSH packages in the
treatment scheme.
2. As of September 2019, about 50 lakh people received free treatment
under the Ayushman Bharat -Pradhan Mantri Jan A rogya Yojana.
3. The number medical colleges in India increased to >560 in November
2020 from 412 in FY16.
4. According to Sample Registration System Bulletin -2016, India has
registered a 26.9% reduction in Maternal Mortality Ratio (MMR) since
2013.
5. In November 2020, National Telemedicine services completed 8 lakh
teleconsultations since its launch, enabling patient -to-doctor
consultations from the confines of their home, as well as doctor -to-
doctor consultations.
7.5.6 Road Ahead:
India is a land full of opportu nities for players in the medical devices
industry. The country has also become one of the leading destinations for
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104 advanced diagnostic facilities, thus catering to a greater proportion of
population. Besides, Indian medical service consumers have become more
conscious towards their healthcare upkeep.
Indian healthcare sector is much diversified and is full of opportunities in
every segment, which includes providers, payers, and medical tec hnology.
With the increase in the competition, businesses are looking to explore for
the latest dynamics and trends which will have positive impact on their
business. The hospital industry in India is forecast to increase to Rs. 8.6
trillion (US$ 132.84 bi llion) by FY22 from Rs. 4 trillion (US$ 61.79
billion) in FY17 at a CAGR of 16 –17%.
The Government of India is planning to increase public health spending to
2.5% of the country's GDP by 2025.India's competitive advantage also lies
in the increased success rate of Indian companies in getting Abbreviated
New Drug Application (ANDA) approvals. India also offers vast
opportunities in R&D as well as medical tourism. To sum up, there are
vast opportunities for investment in healthcare infrastructure in both urba n
and rural India.
Indian healthcare sector is expected to reach US$ 193.83 billion by 2020.
Rising income level, greater health awareness, increased precedence of
lifestyle diseases and improved access to insurance would be the key
contributors to growth. Health insurance is gaining momentum in India.
Gross direct premium income underwritten by health insurance grew
17.16% y -o-y to Rs. 51,637.84 crore (US$ 7.39 billion) in FY20.
The country had 393 Ayurveda and 221 homeopathy Government
recognized colleges . As of April 2020, number of sub centres reached
169,031 and number of primary health centres (PHCs) increased to
33,987.The hospital industry size is estimated to touch US$ 193.83 billion
by 2020 and US$ 372 billion by 2022.
In November 2020, National Te lemedicine services completed 8 lakh
teleconsultations since its launch, enabling patient -to-doctor consultations
from the confines of their home, as well as doctor -to-doctor
consultations. Private sector has emerged as a vibrant force in India's
healthcar e industry, lending it national and international repute. It
accounts for almost 74% of the country’s total healthcare expenditure.
Telemedicine is a fast -emerging trend in India. Major hospitals (Apollo,
AIIMS, and Narayana Hrudayalaya) have adopted telem edicine services
and have entered several public -private partnerships (PPP). Further,
presence of world -class hospitals and skilled medical professionals has
strengthened India’s position as a preferred destination for medical
tourism.
Indian medical touri sm market is growing at the rate of 18% y -o-y and is
expected to reach US$ 9 billion by 2020. The value of merger and
acquisition (M&A) deals in hospital sector jumped to a record 155% at Rs.
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105 The Government of India has approved the continuation of National
Health Mission with a budget of Rs. 34,115 crore (US$ 4.88 billion) under
Union Budget 2020 –21. National Nutrition Mission is aimed to reduce the
level of stunting by 2%, under -nutrition by 2%, anaemia by 3% and lo w
birth babies by 2% ever year. The Ayushman Bharat -Pradhan Mantri Jan
Arogya Yojana (PMJAY), the largest Government funded healthcare
program targeting more than 500 million beneficiaries, has been allocated
Rs. 6,429 core (US$ 919.87 million) under Union Budget 2020 –21. As of
November 2019, nearly 63.7 lakh people received free treatment under
PMJAY.
Under Pradhan Mantri Swasthya Suraksha Yojana (PMSSY), allocation of
Rs. 3,000 crore (US$ 429.25 million) has been made under Union Budget
2020 –21. Intensifi ed Mission Indradhanush (IMI) 2.0 was launched by the
Ministry of Health and Family Welfare from December 2019 to March
2020.
Under Union Budget 2020 –21, Rs. 65,012 crore (US$ 9.30 billion) and
Rs. 2,100 crore (US$ 300.47 million) has been allocated to the Ministry of
Health and Family Welfare and the Department of Health Research,
respectively.The Government’s expenditure on the health sector has
grown to 1.6% of the GDP (Gross Domestic Product) in FY20 from 1.3%
in FY16. The Government is planning to incr ease its public health
spending to 2.5% of the country's GDP by 2025. Healthcare’s share of
GDP is expected to rise by 19.7% by 2027.During April 2000 –March
2020, Foreign Direct Investment (FDI) inflow in drugs and
pharmaceuticals sector stood at US$ 16.50 billion.
7.6 INDIAN TOURISM AND HOSPITALITY INDUSTRY
7.6.1 Introduction:
The Indian tourism and hospitality industry has emerged as one of the key
drivers of growth among the services sector in India. Tourism in India has
significant potential considering the rich cultural and historical heritage,
variety in ecology, terrains and places of natural beauty spread across the
country. Tourism is also a potentially large employment generator besides
being a significant source of foreign exchange for the country . In FY20,
39 million jobs were created in the tourism sector in India; this accounted
for 8.0% of the total employment in the country. The number is expected
to rise by two% annum to 52.3 million jobs by 2028.
According to WTTC, India ranked 10th among 18 5 countries in terms of
travel & tourism’s total contribution to GDP in 2019. During 2019,
contribution of travel & tourism to GDP was 6.8% of the total economy, ~
Rs. 13,68,100 crore (US$ 194.30 billion).
7.6.2 Market Size:
India is the most digitally adv anced traveller nation in terms of digital
tools being used for planning, booking, and experiencing a journey.
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106 supported the growth of domestic and outbound tourism.During 2019,
foreign touri st arrivals (FTAs) in India stood at 10.89 million, achieving a
growth rate of 3.20% y -o-y. During 2019, FEEs from tourism increased
4.8% y -o-y to Rs. 1,94,881 crore (US$ 29.96 billion). In 2019, arrivals
through e -Tourist Visa increased by 23.6% y -o-y to 2.9 million.
International hotel chains are increasing their presence in the country, and
it will account for around 47% share in the tourism and hospitality sector
of India by 2020 and 50% by 2022.
7.6.3 Investments:
India was globally the third largest i n terms of investment in travel and
tourism with an inflow of US$ 45.7 billion in 2018, accounting for 5.9%
of the total investment in the country.Hotel and Tourism sector received
cumulative FDI inflow of US$ 15.57 billion between April 2000 and
September 2020.
7.6.4 Government Initiatives:
The Indian Government has realized the country’s potential in the tourism
industry and has taken several steps to make India a global tourism
hub.Some of the major initiatives planned by the Government of India to
boost the tourism and hospitality sector of India are as follows:
1. On November 4, 2020, the Union Minister of State (I/C) for Tourism
& Culture, Mr. Prahlad Singh Patel inaugurated the “Tourist
Facilitation Centre” facility constructed under the project
“Develop ment of Guruvayur, Kerala” (under the PRASHAD Scheme
of the Ministry of Tourism).
2. The Ministry of Tourism’s ‘DekhoApnaDesh’ webinar series titled ‘12
Months of Adventure Travel’ on November 28, 2020, is likely to
promote India as an adventure tourism desti nation.
3. In October 2020, Prime Minister Mr. Narendra Modi inaugurated four
new tourist attractions in Gujarat namely, Arogya Van, Ekta Mall,
Children's Nutrition Park and Sardar Patel Zoological Park/ Jungle
Safari, near the Statue of Unity at Kevadiya in Narmada district.
4. The initiative is a part of 17 new projects that are planned.
Additionally, the government will also launch seaplane service from
Ahmedabad to Statue of Unity in a major push to India’s tourism.
5. The Ministry of Tourism developed an initia tive called SAATHI
(System for Assessment, Awareness & Training for Hospitality
Industry) by partnering with the Quality Council of India (QCI) in
October 2020. The initiative will effectively implement
guidelines/SOPs issued with reference to COVID -19 for safe
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107 6. Ministry of Tourism launched Dekho Apna Desh webinar series to
provide information on many destinations and sheer depth and expanse
on the culture and heritage of India.
7. Ministry of Tourism la unched Audio Guide facility App called Audio
Odigos for 12 sites in India (including iconic sites).
8. Prime Minister, Mr. Narendra Modi urged people to visit 15 domestic
tourist destinations inIndia by 2022.
9. Statue of Sardar Vallabhbhai Patel, also known as ‘Statue of Unity’,
was inaugurated in October 2018. It is the highest standing statue in
the world at a height of 182 meter. It is expected to boost the tourism
sector in the country and put it on the world tourism map.
10. Government of India is working to ac hieve one% share in world's
international tourist arrivals by 2020 and 2% share by 2025.
11. Under Budget 2020 -21, the Government of India has allotted Rs. 1,200
crore (US$ 171.70 million) for development of tourist circuits under
Swadesh Darshan for eight Nor theast states.
12. Under Budget 2020 -21, the Government of India has allotted Rs.
207.55 crore (US$ 29.70 million) for development of tourist circuits
under PRASHAD scheme.
13. In 2019, Government reduced GST on hotel rooms with tariffs of Rs.
1,001 (US$ 14.32) to Rs. 7,500 (US$ 107.31) per night to 12% and
those above Rs. 7,501 (US$ 107.32) to 18% to increase India’s
competitiveness as a tourism destination.
7.6.5 Achievements:
Following are the achievements of the Government during 2019 -20:
1. During 2019 -20, an add itional fund Rs. 1,854.67 crore (US$ 269.22
million) was sanctioned for new projects under the Swadesh Darshan
scheme.
2. Ministry of Tourism sanctioned 18 projects covering all the
Northeastern States for Rs. 1,456 crore (US$ 211.35 million) to
develop and p romote of tourism in the region under Swadesh Darshan
and PRASHAD schemes.
3. Statue of Sardar Vallabhbhai Patel, also known as ‘State of Unity’,
was inaugurated in October 2018 and the total revenue generated till
November 2019 stood at Rs. 82.51 crore (US$ 11.81 million).
7.6.6 Road Ahead:
Staycation is seen as an emerging trend were people stay at luxurious
hotels to revive themselves of stress in a peaceful getaway. To cater to
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108 & Res orts and Oberoi hotels are introducing staycation offers were guests
can choose from a host of curated experiences, within the hotel.
India’s travel and tourism industry has huge growth potential. The
industry is also looking forward to the expansion of e -Visa scheme, which
is expected to double the tourist inflow in India. India's travel and tourism
industry has the potential to expand by 2.5% on the back of higher
budgetary allocation and low -cost healthcare facility according to a joint
study conducted b y Assocham and Yes Bank.
India is a large market for travel and tourism. It offers a diverse portfolio
of niche tourism products - cruises, adventure, medical, wellness, sports,
MICE, eco -tourism, film, rural and religious tourism. India has been
recognize d as a destination for spiritual tourism for domestic and
international tourists. In his Independence speech from Red Fort, Prime
Minister Mr. Narendra Modi urged people to visit 15 domestic tourist
destinations in India by 2022 to promote tourism. India r anked 34 in the
Travel & Tourism Competitiveness Report 2019 published by the World
Economic Forum.
In WTTC’s Economic Impact 2019 report, India’s Travel & Tourism GDP
contribution grew by 4.9%, which was the third highest after China and
Philippines. Addi tionally, the report also highlights that between 2014 -
2019, India witnessed the strongest growth in the number of jobs created
(6.36 million), followed by China (5.47 million) and the Philippines (2.53
million).
Total contribution by travel and tourism se ctor to India’s GDP is expected
to increase from Rs. 15.24 lakh crore (US$ 234.03 billion) in 2017 to Rs.
32.05 lakh crore (US$ 492.21 billion) in 2028. Total earning from the
sector in India is targeted to reach US$ 50 billion by 2022.
In FY20, 39 million jobs were created in the tourism sector in India; this
accounted for 8.0% of the total employment in the country. International
Tourists arrival is expected to reach 30.5 billion by 2028. e -Visa facility
was offered to 169 countries as of December 2019.
During 2019, foreign tourist arrivals (FTAs) in India stood at 10.89
million, achieving a growth rate of 3.20% y -o-y. During 2019, FEEs from
tourism increased 4.8% y -o-y to Rs. 1,94,881 crore (US$ 29.96 billion). In
2019, arrivals through e -Tourist Visa inc reased by 23.6% y -o-y to 2.9
million.
Under the Swadesh Darshan scheme, 77 projects have been sanctioned of
worth Rs. 6,035.70 crore (US$ 863.60 million). In Union Budget 2020 -21,
the Government has allotted Rs. 1,200 crore (US$ 171.70 million) for the
development of tourist circuits under Swadesh Darshan for Northeast.
The launch of several branding and marketing initiatives by the
Government of India such as ‘Incredible India!’ and ‘Athiti Devo Bhava’
has provided a focused impetus to growth. The Indian G overnment has
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109 encourage medical tourism in the country. The Government is working to
achieve 1% share in world's international tourist arrivals by 2020 and 2%
share by 2025.
Amid the r elaxation provided by the government after the covid
lockdown, the Indian Association of Tour Operators (IATO) has urged the
government to finalize a roadmap for resumption of international flights
and facilitate e -visas and tourist visas.
Subsequently in November end, India introduced a graded relaxation of its
visa and travel restrictions for more categories of foreign nationals and
Indian nationals.Post the pandemic crisis, the government plans to tap into
regional tourism by opening doors for South Asia n country tourists.
The Government is also making serious efforts to boost investment in the
tourism sector. In the hotel and tourism sector, 100% FDI (Foreign Direct
Investment) is allowed through the automatic route. A five -year tax
holiday has been offe red for 2 -, 3- and 4 -star category hotels located
around UNESCO World Heritage sites (except Delhi and Mumbai).
The Government of India also announced to develop 17 iconic tourist sites
in India into world -class destinations as per Union Budget 2019 -20.
Ministry of Tourism launched Dekho Apna Desh webinar in April 2020 to
provide information on the many destinations and the sheer depth and
expanse of the culture and heritage of Incredible India. Till August 17,
2020, 48 webinars were conducted under the ser ies.
The Ministry of Tourism developed an initiative called SAATHI (System
for Assessment, Awareness & Training for Hospitality Industry) by
partnering with the Quality Council of India (QCI) in October 2020. The
initiative will effectively implement guide lines/SOPs issued with
reference to COVID -19 for safe operations of hotels, restaurants, B&Bs
and other units.
7.7 INFORMATION TECHNOLOGY (IT) AND IT
ENABLED SERVICES (ITES)
India is regarded as the back office of the world owing mainly to its IT
and ITES industry. The sector in India grew at a Compound Annual
Growth rate (CAGR) of 15 per cent over 2010 -15, which is 3 -4 times
higher than the global IT -ITES spend and is estimated to expand at a
CAGR of 9.5 per cent to US$ 300 bn by 2020. India is also the w orld's
largest sourcing destination for the information technology (IT) industry,
accounting for approximately 67 per cent of the US$ 124 -130 bn market.
7.7.1 IT enabled Services (ITeS) , also called web enabled services or
remote services or Tele -working, covers the entire gamut of operations
which exploit information technology for improving efficiency of
an organization. These services provide a wide range of career options that
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110 databases, content development, payrolls, logistics management , GIS
(Geographical Information System ), HR services , web services etc.
Information Technology that enables the business by i mproving
the quality of service is IT enabled services. The most important aspect is
the Value addition of IT enabled service. The value a ddition could be in
the form of - Customer relationship management, improved database ,
improved look and feel, etc. The outcome of an IT enabled service is in
the two forms:
 Direct Im proved Service
 Indirect Benefits.
Whereas direct benefits can be realized immediately, indirect benefits can
accrue over a period, and can be harnessed very effectively, if planned
well upfront.



7.7.2 Information Technology Enabled Services (ITeS) Processes and
Services
ITeS provide a range of IT -intensive processes and services, which
includes businessprocess outsourcing (BPO) and knowledge process
outsourcing (KPO), provided from a distant location and delivered
over telecom networks. ITeS focus on verticals such as content
management, finance and accounts, research and analytics segment. ITeS
includes:
 Customer Interaction services -includ ing call center facilities with
adequate telecom infrastructure, trained consultants, access to requisite
databases, Internet and other online information infrastructure to
provide information and support to customers
 Backofficeoperations -data entry, data conversion including finance
and accounting and HR services.
 Transcription/Translation services
 Content development/animation/engineering/design and GIS
 Other services including remote education, data search, Market
research, Network consultancy and manag ement.
The favored application areas are areas where there is huge amount of data
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111 data is the outcome of the service. In all cases, without use f IT the task
would otherwise be unmanageable. Some of the most important areas
where IT enabled services can be deployed are:
 Telemarketing
 Helpdesk
 Customer Support Centres
 Data Warehouse
 Transcription Centres
 GIS Mapping for Transport tracking
 Electron ic Distribution.
7.7.3 Opportunities and Challenges of Information Technology
Enabled Services (ITES):
The changing economic and business conditions, rapid technological
innovation, proliferation of the internet and globalization are creating an
increasi ngly competitive environment. The role of technology has evolved
from supporting corporations to transforming them. Global companies are
increasingly turning to offshore technology service providers in order to
meet their need for high quality and cost com petitive technology solutions.
As such a company can encounter a wide variety of risks and challenges in
their endeavor to create and maintain a seamless, successful, sustainable
and scalable business. Some of the challenges faced include:
 Ability to creat e and maintain a truly world class proven global
delivery model which would allow your organization to provide
services to customers on a best shore basis. This would require round
the clock execution capabilities across multiple time zones, access to a
large pool of highly skilled technology professionals and a knowledge
management system to reuse solutions where appropriate
 Develop and expand a strong, comprehensive, best in class end to end
solutions and service offerings in order help your clients gain market
differentiation or competitive advantage and thus capture a greater
share of your client’s technology budgets
 Ability to scale when the opportunity arises. This would require
constant investment in infrastructure and rapidly recruit, train and
deplo y new professionals
 Manage revenue and expenses during economic downturn, enhance
your organization’s capacity to withstand pricing pressures,
commoditization of services and decreased utilization rates
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112  Expand your client list across business verticals to reduce over
dependency and risk of losing substantial market share
 Maintain superior and sophisticated project management methodology
in line with global quality standards and ensure timely, consistent, and
accurate execution to achieve highest client satisfaction
 Ensuring successful integration of inorganic growth opportunities that
your organization may under take from time to time across geographies

7.7.4 Factors Which Have Propelled the Growth of the Indian ITES
Sector:
India is regarded as the back office of the world owing mainly to its IT
and ITES industry. The sector in India grew at a Compound Annual
Growth rate (CAGR) of 15 per cent over 2010 -15, which is 3 -4 times
higher than the global IT -ITES spend and is estimated to expand at a
CAGR of 9.5 per cent to US$ 300 bn by 2020. India is also the world's
largest sourcing destination for the information te chnology (IT) industry ,
accounting for approximately 67 per cent of the US$ 124 -130 bn market.
With the rising influence of online shopping, social media and cloud
computing, this trend will on ly further increase. Some of the most
important factors behind India's rise as an IT information technology
services giant include -
 Newly emerging verticals, such as retail, healthcare, utilities, etc.
 A revival in the demand for IT services from both US and Europe
 Focused government initiatives leading to an increased adoption of
technology and telecom, eventually leading to increased ICT adoption
 Growth in the number of high -value clients (> $1million)
 A spurt in the SMAC market (social, mobility, analyt ics, cloud) to
support ITES services
 Growing R&D expenditure across the globe
 Rising costs to train new workforce ($1.6 billion in 2016)
 Plan of the Indian government to lay down a large -scale optical fiber
network connecting the whole country
 Partial priv atization of telecommunication
 Low operating costs as compared to most other developed and
developing nations
 Tax breaks and SOPs offered by the government
 Development of multiple SEZs in tier -2 cities across the country
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113 7.7.5 Benefits and Threats of ITe S
BENEFITS:
1. Increases company’s flexibility: Through Business Process
Outsourcing (BPO) which is a part of ITeS the companies will
increase their flexibility. Most services provided by ITeS vendors are
offered on a feefor -service basis. This helps the comp any to change
their structure of cost from Fixed to Variable cost. A variable cost
helps a company to respond to changes very quickly and make the firm
more flexible through outsourcing.

2. One more way in which ITeS contributes to a company’s flexibility is
that a company focuses on its core competencies, without any burdens
from bureaucratic restraints. With this main employee are released
from performing non -core operations or administrative processes and
can spend more time and energy in building the firm ’s main
businesses.

3. Another way in which ITeS increases organizational flexibility is by
increasing the speed of business processes. Using techniques such as
linear programming we can decrease the production time
and inventory levels, which can increase effectiveness and controls or
decreases cost.

4. Supply chain management (SCM) with the effective use of chain
partners and business process outsourcing increases the speed of
several business processes. Lastly, flexibility is one of the stages of
organizat ional life cycle.

5. ITeS helped to convert Nortel from a bureaucratic organization to a
very reliable competitor.

6. ITeS therefore helps the firms to retain their speed and ability, which
they must otherwise sacrifice to become efficient. A company grows a t
a faster rate as it will be less constrained by large capital expenditures
for people or equipment which may take years together to gradually
write -off the cost. Though the above -mentioned arguments are in favor
of ITeS and increases the flexibility of o rganizations, management
needs to be very careful with the implementation of it.

7. The company must look into the challenges before it decides to engage
in business process outsourcing. Another issue is that in many cases
there is less scope to differentia te BPO from other with size. They
provide same services, have same geographic footprints, same
technology stacks, and have same Quality Improvement approaches.


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114 THREATS:
1. Risk is the major threat with ITeS .: Outsourcing an Information
system can cause se curity risks both from part of communication and
from privacy. The Security of North American or European company
data is very difficult when accessed or controlled in the Sub -Continent.

2. From the perspective of knowledge, a change in attitude in employees ,
underestimation of present costs and the major risk of losing
independence, outsourcing leads to a different relationship between
organizations.

3. Risks and threats of outsourcing can be managed, to achieve any
benefits. If we can manage outsourcing in a structured way,
maximizing positive outcome, minimizing risks, and avoiding any
threats, a Business Continuity Management (BCM) model arises.
7.8 QUESTIONS
1. Explain the a dvantages of the Service Sector.
2. Explain the significance of the service sector .
3. What is the Contribution of Service Sector in Indian Economy.
4. Write a note on Growth & Performance of Healthcare in India .
5. Write a note on Indian Tourism and Hospitality Industry
6. Write a note on the Information Technology (It) and It Enabled Services
(Ites)











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8
RESEARCH & DEVELOPMENT SERVICES
WITH REFERENCE TO EDUCATION

Unit Structure:
8.0 Objectives
8.1 Research and Development Services with Reference to Education
8.2 Educational Research
8.3 Characteristics of Research in the Field of Education
8.4 Purpo ses of Research in Education
8.5 Importance of Research in Education
8.6 Challenges of Research in Present Educational Context
8.7 Skill Development in Employment Generation in India
8.8 12thFive Year Plan (2012 -2017)
8.9 Summary
8.10 Questions
8.0 OBJE CTIVES
 To explain the students Research & development in Education sector.
 To acquaint the students with role of skill development in employment
generation in India.
 To understand the performance of Service sector during 12th Five -year
Plan.
8.1 RESEARCH A ND DEVELOPMENT SERVICES WITH
REFERENCE TO EDUCATION
8.1.1 Introduction
Like any other business, organization or field of life, Education is also
facing many challenges in this rapid changing era. To cope with the
challenges, development in the field of e ducation is a must, which can be
brought best through research. Research and Development activities can
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116 methodologies and techniques, and current assessment systems. So,
research through devel opment leads to innovation.
The term research consists of two words,’ Re’+’Search’. “Re” means
again and again and “Search” means to find out something. Actually
research is simply the process of arriving as dependable solution to a
problem through the pla nned and systematic collection, analysis and
interpretation of a data as revealed by Best, & Kahn (1998). Boykin
(1972) stated that research in the field of education is the more formal,
systematic and intensive process of carrying on a scientific method o f
analysis. Research in education primarily aims at systematic investigation
of educational problems and tries to provide possible solutions to those
problems. Research in education has enabled significant progress to be
made in curriculum development and reform, educating learners with
difficulties, understanding the individual differences and preferences and
in adapting methods of instruction to the needs of individual learners.
8.1.2 Definitions:
Research and development (R&D) is the creation of new body of
knowledge about existing products or processes, or the creation of an
entirely new product. This is systematic creative work, and the resulting
new knowledge is then used to formulate new materials or entire new
products as well as to alter and improve existing ones.
Research and development (R&D) is a general term for all those
investigative activities that an educational institute conducts with the
intention of making a discovery that can either lead to the development of
new educational products (e.g . curricula, learning materials) or procedures
(e.g. teaching or assessment procedures), or to improvement of existing
educational products or procedures.
8.1.3 Forms of Research and development (R&D):
Research and development is a key element for the succ ess of any
educational institute. R & D involves two major types of research by
purpose. It combines systematically both basic and applied research and
aims at discovering solutions to problems or creating new educational
products. It involves researching the market and the learners’ needs and
developing new and improved products and services to fit these needs.
8.1.4Development:
Development is when findings of a research are utilized for the production
of specific products including materials, systems and methods. Design and
development of prototypes and processes are also part of this area.
Development is research that generates requisite knowledge and designs
for production and converts these into prototypes e.g. developing course
materials or developing computer software for self -paced learning.

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117 8.1.5 General R&D Process:
The R&D may take months or years to yield useful products. Universities
utilize this process for new product development and innovation. Though
each college or university may have its own unique research methodology,
a general research process will form the framework for it.
1. Generate the ideas
1. Research the market
2. Identify learners’ needs
2. Refine the ideas
1. Focus ideas
2. Identify the objectives
3. Basic Research
1. Hypothesize and clarify
2. Synthesi ze and theorize
4. Applied Research
1. Concept testing research
2. Design and test the product
5. Development
1. Develop and test prototype
6. Innovation
1. Development and marketing of technical invention
7. Scaling up
1. Commercialization of the product
8.1.6 R&D Cell in Universit ies:
Research and development (R&D) is a valuable tool for growing and
improving universities. Almost all the universities have R&D Cell for this
purpose. R&D depends on the size of university. In small universities,
R&D tends to focus more on product impr ovement because of budget and
cost limitations. Larger universities may be able to dedicate more time and
resources to R&D to introduce new products as well as improve existing
ones. The benefits of R&D are often long -term, so it’s important to
remember th at investment in it may not result in short -term profits. R&D
can help to develop more efficient processes and new ways of delivering
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118 that have an R&D Cell have a greater chance of succe ss than universities
that don’t.
8.2 EDUCATIONAL RESEARCH
Educational research refers to the systematic collection and analysis of
data related to the field of education. Research may involve a variety of
methods and various aspects of education including student
learning, teaching methods, teacher training, and classroom dynamics.
Educational researchers generally agree that research should be rigorous
and systematic. However, there is less agreement about specific standards,
criteria, and research proce dures. Educational researchers may draw upon
a variety of disciplines including psychology, economics, sociology,
anthropology, and philosophy. Methods may be drawn from a range of
disciplines. Conclusions drawn from an individual research study may b e
limited by the characteristics of the participants who were studied and the
conditions under which the study was conducted.
The purpose of educational research is to develop new knowledge about
the teaching -learning situation to improve educational pract ice.
Educational research can address the following variables:
 Learning: How do students best learn various subjects?
 Teaching: What are the best teaching practices to foster student
achievement?
 Motivation: What are the best practices for teachers to moti vate
their students to achieve?
 Development: How do children and adults change over time,
including their cognitive, social, and emotional skills?
 Classroom management: What classroom or school practices
make the classroom optimal for student learning?
8.3 CHARACTERISTICS OF RESEARCH IN THE FIELD
OF EDUCATION:
Characteristics of research are as follows:
a) Research is a systematic and critical investigation to a phenomenon
embedded in our society and education system.

b) Research aims at interpreting and explain ing a phenomenon logically
and systematically by adopting a scientific method.

c) Research is based on empirical evidence and observable experience
and develops generalizations, principles or theories and is directed
towards finding answer to the questions and solutions to the education
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119 d) Research in education deals with social, educational, economic and
cultural phenomena related to process, product and system of
education and studies human behavior and their feelings.

e) Research in education field is carried out on both for discovering new
facts and verification of the old ones and tries to establish casual
connection between various human activities, social institutions, and
teaching learning process.
8.4 PURPOSES OF RESEARCH IN EDUCATION
a) Research provides answer to questions of what, when, how and why of
man, social life and institutions. The main purpose is to discover various
facts and their inter relationship and to help us to discard distortions and
contribute to our understanding of reality.
b) Another purpose of research is to diagnose different problems prevalent
in our society and education system and to make critical and logical
analysis of those problems. Our society has innumerable problems such as
poverty, unemployment, econo mic and gender inequality, social
stratification etc. and these problems put impact on our education system.
The nature and dimensions of such problems must be diagnosed and
analyzed. An analysis of problems leads to an identification of appropriate
remedi al actions.
c) Research provides firsthand information about the nature of social and
educational institutions. This knowledge helps us to control over the social
phenomena. Research also has potential to investigate and assess latest
needs and level of a dvancement.
d) Another important purpose of research is to suggest possible remedial
measures and effective solutions to various problems and challenges.
Researchers come up with innovative and creative strategies and ideas to
improve the education system and its associated components. Researchers
can identify the causes of existing evils and problems and thus it can help
in taking appropriate remedial actions.
8.5 IMPORTANCE OF RESEARCH IN EDUCATION
The research is a scientific and systematic tool to stu dy & has immense
value in the field of education.
1. Research in education helps to understand any subject and its
principals in much better and easier way which will encounter new
questions and search for answers of those questions will lead us to
learn new theories of any subject.

2. Research helps in identifying the research gaps, learning gaps at
various levels of education system and tries to bridge the gap between
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120 aspects of education ensure s the development of children and teaching
method.

3. Research professionals are always learning, finding out things,
analyzing information, adapting their behaviour according to
information received, looking to improve and adapting to modern
demands and thu s social science research helps in wellbeing of
society, social and educational institutions.

4. Research findings could be beneficial for teachers, teacher educators,
administrators, policy makers, parents and other stakeholders involved
in the education se ctor. Research findings could be implemented in
classroom teaching learning process to bridge the learning gaps.
Findings could be used in teacher training programmes, curriculum
development programmes and in formulating education policies.

5. Research meth odologies give teachers the tools to analyze and make
informed decisions about their practice. Research can help in
professional development of teachers and teacher educators and orient
and prepare them to acquire 21st century skills in order to implement
new educational strategies, evaluation techniques in education system.
Teachers should be enabled to use and integrate relevant findings and
scientific theories of educational research in their professional actions
and decisions.

6. Research in education hel p in analyzing perceptions, attitudes of
students’ teachers, teacher educators, parents and other stakeholders on
different issues related to education sector, local and global
environment. Thus, research findings indicate and suggest possible
remedies to those issues keeping in mind the views of stakeholders
involved.
8.6 CHALLENGES OF RESEARCH IN PRESENT
EDUCATIONAL CONTEXT
There are several challenges related to research and these are as follows:
1. The political nature of education: The problems of effect iveness of
educational research begin with the political -partisan nature of
education. Public education is a social construction that responds and
is regulated by the government. It is difficult to investigate the social
and political ideals that are embed ded in educational systems in the
form of educational objectives or standards.

2. The problem of lack of definition of research as a science: From its
beginnings, the expectation has been that educational research solves
the problems of education and that p rescribes its practice. In this
respect, educational research in social science are often ignored and
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121 3. The dislocation between educational research and the practice of
education: A third argu ment to explain the ineffectiveness of
educational research lies in its relation to the practice of the profession.
There is a gap between research embedded in education system and
the practice of education in schools, colleges, and other institutions.
Most of the times, the ongoing practice of classroom processes,
evaluation techniques, and teaching learning materials differ from the
research suggestions.
There are many complexities under which educational research work.
Other challenges are as follows:
1. The learning and teaching experience be based upon research and
evidence, but it runs the risk of being any one of theory, ideology,
convenience and prejudice.

2. The main purpose of research in education should be liberate and
promote democracy and equality of opportunity but in reality, biasness
and other influences are affecting researchers.

3. Education has its sole responsibility to develop active citizens. But in
real context by following an ideological route restricts choice, which is
the opposite to th e real purpose of education the system runs the risk
of being outdated and not being forward -looking.

4. Learning is complex, and success is influenced by a multitude of
factors, social backgrounds, family background, personality, age,
gender, location etc. Theories are needed to be combined, tested and
challenged in order to allow us to adapt to suit local and personal
environments. Convenience and manageability are important.
Funding and availability of resources, Influences of National policy and
provisi ons, knowledge depth and understanding level of researchers,
policy implementation and willingness to apply research findings in real
life scenario by administrators, policy makers, teachers, ethical issues,
plagiarism, and many other issues are also assoc iated with research in
present context which are needed to be replaced to ensure positive impacts
of research in the field of education.
The current education system needs a transformation and drastic changes
are required to be incorporated in the system t o maintain quality. Research
can help us to understand what works and why, what the short and long -
term implications are, provide a justification and rationale for decisions
and actions, help to deal with the unexpected by identifying problems, and
promote s improvement. Hence, effective implementation of research in
education is what we need the most. Further research can be extended to
identify the research challenges and to provide possible solutions and
implementation strategies to deal with those challe nges for betterment of
education sector and for the well -being of our education system as well as
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122 8.7 SKILL DEVELOPMENT IN EMPLOYMENT
GENERATION IN INDIA
8.7.1 Skill Development and Employment Opportunity
Fundamentally, skill development i s the time one invests in to improve
their proficiency and to stay future -ready, any agilities that one follows as
a passion, and the ability to complete a task with higher rates of success at
the right time. It is essential because one’s skills determine their ability to
execute their plans with success.
In today’s world, lack of proper education and training restricts people
from the opportunities for self -advancement by limiting their access to
well-paid employment. Eventually, this prevents such individ uals from
making an influential contribution to economic growth. Thus, adequate
education quality and training are recognized as fundamental ways of
breaking down the eco -system of poverty. One individual, Sweta Mishra,
has rightly said that “Skill develop ment is no longer a matter of choice. It
is imperative to adapt, survive and succeed.”
8.7.2Skill development in India
India has a literacy rate of around 70%, which is less than some of the
least developed countries, and when it comes to employability, on ly 20%
of them are employable. Literacy is not just restricted to education but
even broadens to the concept of skills, which comprises technical
expertise, vocational skills, transferrable skills, digital skills, and other
such knowledge and abilities req uired for employment and livelihood.
According to a survey, only 25% of the Indian workforce has undergone a
skill development program, and India needs a higher number of skilled
workforces.
In this era, many organisations prefer skilled employees over les s skilled
ones as they have outstanding career growth, and they help boost the
organisation in the same way with proficient working. Skills intensify the
productiveness and quality of work for more significant results. According
to the World Trade Organiza tion, the GDP level can increase up to 3% -5%
in 2035, if India focuses on skill development and training. There is a
great need for India to train and skill the youth for the overall development
of the country.
The Ministry of Skill Development and Entrepr eneurship (MSDE) is
accountable for coordinating skill development activities in India. It has
supported various organisations like National Skill Development
Corporation (NSDC) , which aims to promote skill development in the
country by establishing instit utes across the country and National Skill
Development Agency (NSDA) , which seeks to coordinate the efforts of
the government and the private sector and aid in skill development.
Hon’ble Prime Minister Shri Narendra Modi launched the Skill India
Mission , under the Ministry of Skill Development and Entrepreneurship
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123 different skills by 2022. The mission seeks to vocational training and
certification of Indian youth for a better livelihood a nd respect in the
society. Various initiatives under this campaign are National Skill
Development Mission, National Policy for Skill Development and
Entrepreneurship, 2015, Pradhan Mantri Kaushal Vikas Yojana
(PMKVY), Skill Loan scheme, Rural India Skill etc.
Private organisations, such as CLR Skill training foundation works
under the provision of NEEM Scheme of the government to serve skill
development, technical skills training and employment, earn and learn,
non-technical skills and soft skills to the yo uth.
We must support programmes that enhance access and improve
educational opportunities from early -stage to education and skill
development of the people of the country.
Skill development is a vital tool to empower people, to safeguard their
future and for the overall development of an individual. It is an important
aspect that enhances employability in today’s globalization. Skills are as
essential as one’s academic status. Education and skills should now go
hand in hand. They are the roots behind the economic growth and
community development of a country.
In this context, the acquisition of education and skills can lead to industrial
advancement, economic diversification, innovation, technological
evolution and overall development of the country.
8.7.3 ADVANTAGES OF SKILL DEVELOPMENT IN INDIA
 Increase in proficiency
 Grow skill sets
 Achieve task in less time with more results
 Increase in performance level
The Government of India has taken out several plans for skill
development, but they are also not suf ficient to create opportunities for
skill development training in India. They need to emphasize skill
development programs and help individuals to make use of their talent and
knowledge. Today, everyone wants to establish a good career and for this,
proper skill development trainings are required. It comes up to be an
important part of any individual’s career.
The skill development training in India should be made compulsory to
enhance all -round expertise of the people. They need proper guidance and
trainin g initiatives to develop. Communication, technological know -how,
etc. are important for individuals to have a hold on. This can only be
possible if they get enough opportunities to grow and develop through
skill development trainings.
Since many universiti es have given importance to skill development, it
was found that many students were placed easily. Organizations today
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124 work effectively and achieve success in whatever they do. There can be
increased chances of promotions and individuals can experience a lift in
their careers. All in all, skill development training in India is a must!
8.7.4 SIGNIFICANCE OF TECHNOLOGY IN SKILL
DEVELOPMENT TRAINING IN INDIA
Technology is essential in sca ling up the Skill development training in
India Initiative. Technology helps to define standard training tools for the
candidates so that all tests and tutorials can be conducted easily.
The main aim of creating a skilled workforce must be united with
empl oyment opportunities for young people. Without the required
opportunities the core challenges of unemployment in the country will
never get resolved.
8.7.5 How is Skill Development shaping the future of India?
1. Improved scenarios of employability : Since th e government and
universities have focused on skill development, it was found that many
students were placed easily during the placement drives. Any
organization requires for an effective, productive, and proficient
employee. With the skill development, th e people were able to work
productively and achieved the greater number of targets in lesser time,
with a better self -growth and the corporate.
2. Government is providing good opportunities to the youth as per
their choice and requirement: This aims to increa se the
employability rate to at least 70% people. Skill awareness programs
are helping the people to understand the prospectus of skill training
initiative and help to achieve more targets.
3. Personal Development: Skill development enhances the proficiency
of a person in any area. Skill enhances to build the professional
network, better communication, time management and negotiation
skills.
4. Nurturing Talent: Skills are something that can be acquired by
learning. Skill training is helping the people to identif y, train and
nurture their innate talent in the desired field.
5. Less number of Dropouts: One of the biggest issues of India is
unemployment. Skill development of helping the students to process
the basic skills required by the employers today and direct a g ood
direction towards their career.
6. Increased Career Growth Opportunities: Everyone aspires to
embellish a good career in their life. Skill development is the most
important part of any successful career journey. Skill makes a person
flexible, reliable, pr oductive, and efficient in the job prospectus and
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125 The foundations for an effective, efficient, and sustainable skill
development ecosystem had been laid over the course of the last few
years, however, it is time now to build upon it. As per a Bloomberg
Economic article and its projections, India’s GDP will grow from $2.7
trillion in 2019 to $5 trillion by 2025 and $8.4 trillion by 2030. Whether
we achieve it or not depends on how we capitalize this decade and how
effect ively we eliminate the causes of disruptions. We must utilize this
opportunity to rebuild ourselves rationally and critically with greater
impetus. The task is herculean but not impossible. The distance between a
probable future and a possible future is al ways shortened by resilience and
determination.
8.7.6 Importance of Skill Development to Reduce Unemployment
Recruiters across industries are struggling to find skilled candidates as
most of the educated Indian youth is not necessarily ready for
employment . They still lack new -age skills that companies are using on a
day-to-day basis. Tech professionals may be the most impacted. With
limited online and offline courses for industry -specific training such as
engineering, IT, etc., most young professionals lac k confidence while
encountering on -the-floor problems at their workplace. Moreover, since
schools, colleges and universities are following age -old curricula, there is
a significant dearth of knowledge of new technologies being adopted by
industries. This p oses a hurdle when professionals come to face with a
real-life circumstance.
But this is where skill development can help. Skill development can end
the disparity between the numbers of skilled and unemployed youth. Skill
development goes a notch above edu cation and makes students ready to be
professionals. Being one of the youngest nations in the world, India has
the potential to be a preferred destination for global sourcing. Skill
development can bring this to reality by instilling more confidence in
young professionals.
As their employability will increase, unemployment rates will decrease
and ultimately lead to the nation’s financial growth.
8.7.7 Solution
Only 3% of India’s workforce is formally trained. On the other hand, over
80% of China’s workforce is trained. With immediate competition in our
neighborhood, we need to adopt better strategies too. It is time to say
goodbye to mediocre standards of education and adopt newer methods.
The higher the standards of training and skill development, the bette r our
workforce can be.
Edtech platforms are bridging the gap by offering programmes that
provide insights from industry experts and a curriculum that helps an
Indian youth take the journey from bei ng students to professionals and,
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126 The National Skill Development Corporation (NSDC) can also contribute
to solving the problem. Skill development still does not get the kind of
attention it deserves. The NSDC can create more aware ness around it and
come up with suitable programmes that can help professionals. Its current
success rate of placements is only 12%. This speaks volumes of the cracks
that still exist in the curriculum.
These issues may likely take many years to solve. But a step in the right
direction can help us get there eventually. Change can only come when the
government, the education system, industries and students unanimously
understand and acknowledge the importance of skill development and
hands -on knowledge.
Glob al mega trends such as the rising role of technology, climate change,
demographic shifts, urbanization, and the globalization of value chains are
changing the nature of work and skills demands. To succeed in the 21st
century labor market, one needs a compr ehensive skill set composed of:
1. Cognitive skills , which encompass the ability to understand complex
ideas, adapt effectively to the environment, learn from experience, and
reason. Foundational literacy and numeracy as well as creativity,
critical thinking , and problem -solving are cognitive skills.
2. Socio -emotional skills , which describe the ability to navigate
interpersonal and social situations effectively, and include leadership,
teamwork, self -control, and grit.
3. Technical skills , which refer to the acqu ired knowledge, expertise,
and interactions needed to perform a specific task, including the
mastery of required materials, tools, or technologies.
4. Digital skills , which are cross -cutting and draw on all of the above
skills, and describe the ability to a ccess, manage, understand, integrate,
communicate, evaluate, and create information safely and
appropriately.
The development of skills can contribute to structural transformation and
economic growth by enhancing employability and labor productivity and
helping countries to become more competitive. Investment in a high -
quality workforce can create a virtuous cycle, where relevant and quality
skills enable productivity growth and foreign direct investment, which
result in more and better jobs for the current workforce and more public
and private investment in the education and training system. This, in turn,
increases the employability and productivity for both the current and
future workforce.
Yet, most countries continue to struggle in delivering on the pr omise of
skills development. There are huge gaps in basic literacy and numeracy of
working -age populations, as 750 million people aged 15+ (or 18 percent
of the global population) report being unable to read and write, with
estimates being nearly twice as large if literacy is measured through direct
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127 generally point to skills mismatches as well as large variation in the
returns to education across fields of study, institutions, and population
groups. Employers in many developing countries report that a lack of
skilled workers is a major and increasing bottleneck for their operations,
affecting their capacity to innovate.
The COVID -19 pandemic has brought the pre -crisis vision of equitable,
relevant, and quality skills development into sharper relief, adding
unforeseen urgency to the calls for reform and highlighting the huge costs
of inaction.
8.7.7 The key issues countries need to tackle for skills development
are:
1. Access and completion . Across the world, investments in education
and skills development —from preschool through post -secondary
education to vocational training —have high returns. The wage penalty
for low literacy is nine percentage points in Colombia, Georgia and
Ukraine, and 19 pe rcentage points in Ghana. And the opposite is also
true: in Brazil, graduates of vocational programs earn wages about 10
percent higher than those with a general secondary school education.
Still, provision of equitable access is a challenge in many low -income
and middle -income countries. Furthermore, many students who
manage to enroll in education or training programs do not complete
their studies and miss out on obtaining formal qualifications, which
can dramatically reduce the return on the educational i nvestments in
terms of lifetime earning potential.

2. Quality . Many young people attend schools without acquiring basic
literacy skills, leaving them unable to compete in the job market. More
than 80 percent of the entire working age population in Ghana and
more than 60 percent in Kenya cannot infer simple information from
relatively easy texts. For those who access technical and vocational
training at secondary and post -secondary levels, returns can vary
substantially by specialization and institution. Techn ical and
vocational training (TVET) systems in many countries face challenges
related to quality assurance, resulting in perceptions of the vocational
track being a second -best option compared to general secondary or
tertiary education.

3. Relevance . Tech nical and vocational education and training —which
can last anywhere from six months to three years — can give young
people, especially women, the skills to compete for better paying jobs.
Nevertheless, more needs to be done in terms of engaging local
emplo yers to ensure that the curriculum and delivery of these
programs responds to labor market needs.

4. Efficiency . Challenges related to governance, financing, and quality
assurance also impact the efficiency of skills development programs.
The resulting unnec essarily high costs can limit opportunities for
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128 Now, we are going to explore how this comprehensive pan India
movement can play an integral part in reforming the future of our country.
1. Increase in Ra te of Employment: So far, the Job market in India was
mostly comprised of candidates who, despite being well educated, lost
out on several opportunities because they may have lacked the skills
required for a specific job profile. With the ‘Skill India’ ini tiative,
individuals can get appropriate training across various fields from
designated skill development institutions and become job -ready prior
to venturing into professional realm.

2. Increase in Productivity: Through Skill development, individuals
will b e able to gradually improve their productivity with proper
guidance, which can further maximize their efficiency. Since the
mission aims to create a skilled workforce – this factor can greatly
improve the situation of India’s labor force and help in accele rating the
growth of our country manifold.

3. Enable the youth to get Blue -collar Jobs: The PMKVY scheme
under ‘Skill India’ Mission can enable the youth to get several blue -
collar jobs since those who undergo training under this initiative
receive an offici al certificate upon successful completion of the same.
This can validate their training and also help them get access to better
job prospects.

4. Skill development at primary & secondary education level: The
‘Skill India’ mission encourages and promotes skil l development at
school level to further bridge the skills gap. Doing so can help create
job-ready individuals soon – enabling them to embark on their
professional journey without any hurdles on their way.

5. Improve employment scenario within rural demograp hy: Since the
problem of skills gap is mostly prevalent within the rural population of
India, it has become extremely important to upskill this section and
recognize their skills to improve their employability. With ‘Skill
India’, many individuals from rur al regions have been able to secure
well-paying jobs after undergoing training in various programmes,
and/or further honing skills which they may have acquired at some
point in their life. If this trend continues, the rural demography will be
able to signi ficantly contribute its share in furthering the development
of India to greater extent.
Although it may seem like a difficult task to achieve, the facts can surely
restore the faith of people within the system as well as for this mission.
Therefore, we can say that these factors can certainly help ‘Skill India’ in
revolutionizing the future of India – creating a workforce that can
overcome any challenges and contribute significantly to the nation’s
economy.
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129 8.8 TWELFTH FIVE YEAR PLAN (2012 -2017)
The Twelft h Five -Year Plan of the Government of India has been decided
to achieve a growth rate of 9% but the National Development Council
(NDC) on 27 December 2012 approved a growth rate of 8% for the
Twelfth Plan.
With the deteriorating global situation, the Deput y Chairman of the
Planning Commission Montek Singh Ahluwalia has said that achieving an
average growth rate of 9 percent in the next five years is not possible. The
Final growth target has been set at 8% by the endorsement of the plan at
the National Devel opment Council meeting held in New Delhi.
The government intends to reduce poverty by 10% during the 12th Five -
Year Plan. Ahluwalia said, "We aim to reduce poverty estimates by 9%
annually on a sustainable basis during the Plan period". Earlier, addressing
a conference of State Planning Boards and Planning departments, he said
the rate of decline in poverty doubled during the Eleventh Plan. The
commission had said while using the Tendulkar poverty line, the rate of
reduction in the five years between 2004 –05 and 2009 –10, was about
1.5% points each year, which was twice that when compared to the period
between 1993 –95 to 2004 –05. The plan aims towards the betterment of the
infrastructural projects of the nation avoiding all types of bottlenecks. The
document presented by the planning commission is aimed to attract private
investments of up to US$1 trillion in the infrastructural growth in the 12th
five-year plan, which will also ensure a reduction in the subsidy burden of
the government to 1.5 percent from 2 p ercent of the GDP (gross domestic
product). The UID (Unique Identification Number) will act as a platform
for cash transfer of the subsidies in the plan.
The objectives of the Twelfth Five -Year Plan were:
 To create 50 million new work opportunities in the non-farm sector.
 To remove gender and social gap in school enrolment.
 To enhance access to higher education.
 To reduce malnutrition among children aged 0 –3 years.
 To provide electricity to all villages.
 To ensure that 50% of the rural population has access to proper
drinking water.
 To increase green cover by 1 million hectares every year.
 To provide access to banking services to 90% of households.
The sectoral contribution of GVA given in Table 2.3 indicates that the
share of agriculture and industry has be en declining over the Twelfth plan
period, whereas the share of services has steadily increased. The share of
agriculture in GVA is expected to drop to 17.0 per cent and that of
industry to 29.7 per cent in 2015 -16 (PE). However, the share of services
is expected to touch 53.2 per cent in 2015 -16 (PE). Such a large share for
services in total output at a relatively early stage of development is not
typical and a matter of concern as, in India, the structural shift from
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130

It is important to note that the share of the manufacturing sector in GVA
has been falling in the first three years of the Twelfth Plan and is further
expected to decline to 16.2 per cent in 2015 -16 (PE). To lead the economy
to a hi gh-growth trajectory, it is highly essential to harness the potential of
the industrial sector – especially manufacturing – thereby boosting overall
growth. With the aim of making India the manufacturing hub of the world,
the Government has initiated progr ammes such as ‘Skill India’ and ‘Make
in India’.
The country presently faces a dual challenge: a severe paucity of highly
trained, quality labour, as well as the non -employability of large sections
of the workforce which, while educated, possess little or no job skills. The
National Policy for Skill Development and Entrepreneurship 2015
supersedes the policy of 2009.
The primary objective of the new policy is to meet the challenge of
skilling at scale with speed, standard (quality) and sustainability. The
policy links skills development to improved employability and
productivity to pave the way to inclusive growth in India. The ‘Make in
India’ program includes major new initiatives designed to facilitate
investment, foster innovation, protect intellectual property, and build best -
in-class manufacturing infrastructure. One of the most comprehensive and
significant policy initiatives taken by the Government in this regard is the
National Manufacturing Policy.
The policy is the first of its kind for the manuf acturing sector; it addresses
regulations, infrastructure, skill development, technology, the availability
of finance, exit mechanisms and other pertinent factors that determine the
sector’s growth. The focus sectors identified include employment
intensive industries like textiles & garments, leather & footwear, gems &
jewellery and food processing; capital goods industries like machine tools,
heavy electrical equipment, earthmoving & mining equipment, and heavy
transport; industries with strategic signific ance like aerospace, shipping,
IT hardware & electronics, telecommunication equipment, defence
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131 competitive advantage such as automobiles, pharmaceuticals, medical
equipment.
To revive grow th and overcome structural constraints in the economy, key
policy reforms have been undertaken by the Government. The needs of
short -term economic management, in particular taming inflation and
reducing imbalances in the external sector, along with a mediu m to long
term vision for sustainable development, are addressed in the policy
changes.
8.9 SUMMARY
 Research and development (R&D) is the creation of new body of
knowledge about existing products or processes, or the creation of an
entirely new product.

 Educational research refers to the systematic collection and analysis
of data related to the field of education.

 Hon’ble Prime Minister Shri Narendra Modi launched the Skill India
Mission , under the Ministry of Skill Development and
Entrepreneurship on 1 5 July 2015, which aims to train over 40 crore
people in India in different skills by 2022.
8.10 QUESTIONS
1. Explain Research and Development Services with Reference to Education.
2. Write note on ‘Educational Research’.
3. Explain the characteristics of Research in the Field of Education.
4. Write the purposes of Research in Education.
5. Explain the importance of Research in Education.
6. What are the challenges of Research in Present Educational Context.
7. Give note on 12thFive Year Plan (2012 -2017).


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