Unit - 4
Indian Economy
Post- independence
The post-independence period of the Indian economy was a Lithomas test for economic planners. Countries that have escaped the shadow of colonial rule faced the major challenge of cancelling colonial exploitation. The founding father had to use economic uplifting as a nation-building tool. After that, the economy essentially retreated.
The industry was characterized by poorly equipped technology and unscientific management. Agriculture was feudal in nature and was characterized by low productivity. Inadequately developed transportation and communication systems, inadequate education and medical facilities, and complete lack of social security measures.
Poverty was visible and unemployment was widespread, resulting in a decline in living standards. To guide the Indian economy on the path of growth and development, economic planners decided to adopt a mixed economy course and assigned important roles to public sector enterprises and economic planning. The participation of private companies was negligible. A licensed large system has been developed. This required entrepreneurs to obtain permission from the government to establish a manufacturing sector. The government managed everything effectively. During this period, banks were nationalized in the late 1960s and early 1970s.
Having gone through the background of the Indian economy, the main aims and objectives of the various Five-Year Plans of development.
First Plan (1951-56):
In fact, the first five-year plan paved the way for the country's planned economic development. It had two main purposes. First, to get the Indian economy out of the stagnation caused by World War II and the division of the country. Second, to initiate a process of full-balanced development of the Indian economy to ensure a steady improvement in people's living standards over a period of time.
The first plan gave agriculture a top priority, with particular emphasis on land reform, including rural reconstruction programs and the start of various irrigation and electricity projects. About 44.6% of total Rs spending. 2,069 /-Crore has been assigned for its development. The plan, quite optimistically, predicted that savings and investment as a percentage of national income would rise from an estimated 5 to 6 percent in the early 1950s to 20 percent by 1968-69 and then stabilize at that level. Total income was expected to double in about 20 years, and per capita income was expected to double in 27 years.
Second Year Plan (1956-61)
In 1954, Parliament declared that economic policy must achieve the socialist patterns of society with a view to equality of income and wealth. Therefore, the main purpose of the Second Plan was to promote development patterns that could lead to the establishment of socialist social patterns in India.
The purpose of the second plan is to:
25 percent increase in national income.
I. Rapid industrialization with a particular emphasis on the development of basic and heavy industries.
ii. Significant expansion of employment opportunities
iii. Reduction of income and wealth inequality and more equal distribution of economic power.
The second plan focused on industrialization and also aimed to increase national income by 11% annually by 1960-61. The development strategy for economic growth through modern industrialization was taken over by the Third Plan.
Third Year Plan (1961-66)
The immediate objectives of Plan 3, which aims to be self-sufficient, are as follows.
I. Secure an annual increase in national income of over 5% and at the same time secure an investment pattern that can sustain this growth rate during the subsequent planning period.
ii. Achieve self-sufficiency in edible grains and increase agricultural production to meet industrial and export requirements.
iii. Expand basic industries such as steel, chemicals, fuels and electricity, establish machine manufacturing capacity and enable them to meet further industrialization requirements, mainly from national resources, within a period of about 10 years.
iv. Make full use of the country's human resources and ensure significant expansion of employment opportunities. And
v. Gradually increase equality of opportunity, narrow the gap between income and wealth, and distribute economic power more evenly.
Therefore, in this development strategy, the public sector was expected to promote the growth of infrastructure facilities such as basic industry and heavy industry, while reducing the concentration of economic power through the expansion of public ownership of means of production.
The first phase of development over the first three five-year planning periods is characterized by a fairly sustainable growth in per capita income, a compound annual growth rate of 8-10% of industrial production, and 3 ~ of edible grain production. Compound annual growth rate of 3.5% Per capita income has increased by approximately 1.75%, indicating a steady improvement over the pre-independence past.
Annual Plans (1966-69):
During the fifties and sixties, there was a stable government, thus paving the right way of planning and development. However, the Indo- Pakistan conflict of 1965, two successive years of severe drought, devaluation of the currency, general rise in prices and erosion of resources available for Plan purposes delayed finalisation of the Fourth Plan. Therefore, instead of the Fourth Plan, three Annual Plans were formulated between 1966 and 1969.
Fourth Plan (1969-74):
The fourth plan emphasized improving the condition of the less privileged and vulnerable parts of society through the provision of employment and education. It aimed to raise the standard of living of people through various programs to promote equality and social justice.
Plan 5 (1974-79):
During this period, the economy faced severe inflationary pressure. The main purpose of the plan was to adopt measures to increase self-reliance and consumption levels for people below the poverty line, but it also focused on controlling inflation and achieving stable economic conditions.
Plan 6 (1980-85):
The 6th Five-Year Plan was developed taking into account the outcomes and shortcomings of the last 30 years of the plan. The main purpose of the plan was to eliminate poverty. Therefore, this strategy was adopted to strengthen both agricultural and industrial infrastructure. Emphasis was also placed on increasing employment opportunities, especially in rural areas.
Plan 7 (1985-90):
The main purpose of the Seventh Plan was to provide employment opportunities and increase productivity and grain production growth, with a focus on reducing poverty and improving the quality of life of poor villages and towns.
Eighth (1992-97) and Ninth Plan (1997-2002):
The 7th Five-Year Plan was uninterrupted, but unstable political conditions such as the assassination of former Prime Minister Rajiv Gandhi shortened the life of the government and caused an economic crisis due to a lack of foreign exchange. did. Therefore, the 8th Five-Year Plan (1992-97) returns to normal in 1992 with a focus on creating adequate employment near full employment and achieving self-sufficiency by the turn of the century. It started after.
The 8th plan was started with the introduction of economic liberalization and the structural adjustment program. This plan proved to be a turning point when the role of the plan in development was questioned and analyzed from various perspectives. Therefore, Plan 9 was formulated with the roles of the state and the private sector as complementary, both of which were considered essential. The plan prioritized agriculture and rural development with the aim of accelerating economic growth.
10th Plan (2002-2007):
The 10th Five-Year Plan is currently in place, closing the gap, achieving a target growth rate of 8.0 per year and focusing on expanding social and economic opportunities for all individuals and groups.
The 10th Five-Year Plan is currently in place, closing the gap, achieving a target growth rate of 8.0 per year and focusing on expanding social and economic opportunities for all individuals and groups.
Key Takeaway:
Economic inclusion, the opening of economic opportunities to underserved social groups, is important to realize a transition to sustainable market economies.
An inclusive market economy ensures that anyone, regardless of gender, birthplace, family background, age or other circumstances, over which they have no control, has full and fair access to labor markets, finances and entrepreneurship and, more generally, to economic opportunities. Inclusion is therefore an intrinsic element of a sustainable market economy.
Promoting an inclusive market-based system is about efficient (human) resource allocation rather than being a social policy option.
But there's also a political dimension to inclusion. Beyond its contribution to efficient markets, fair and equitable access to economic opportunities is essential to foster broad support for market reforms and, ultimately, sustainable market economies.
Therefore, economic inclusion is an important transition quality. If people have a chance to be successful, they are more likely to participate in the workforce, get educated, or get involved in other activities that lead to economic growth. This, in turn, strengthens the transition process.
Through its model of private sector inclusion, the EBRD builds elements of inclusion directly into its investments in all sectors and regions, creating pathways to employment and training for youth, women and rural populations, while addressing the challenges companies face due to skills shortages, lack of workforce diversity. or inadequate access to new markets.
Examples of EBRD economic inclusion projects include: investments in the manufacturing, retail and infrastructure sectors that create pathways to employment and training for youth, women and people in underdeveloped regions, while addressing the challenges faced by businesses due to skills shortage; lines of credit and business advice for women entrepreneurs; and investments that facilitate access to a quality water supply, resulting in better economic opportunities for men and women in underserved regions.
The EBRD launched its first economic inclusion strategy (2017-2021) in May 2017. The aim of the inclusion strategy is to accelerate countries' transition to inclusive market economies by harnessing the power of the private sector to create economic opportunities for all.
In this context, the EBRD will strengthen its political and project activities to improve access to economic opportunities for women, youth and the regions. It will also carefully and gradually expand its inclusive approach to other groups, such as aging populations, refugees or Roma, according to the country's priorities. The EBRD will work through its projects and associated political dialogue to improve economic inclusion in three key thematic areas:
Access to employment and skills.
Entrepreneurship and access to finance.
Access to services that improve economic opportunities.
The Economic Inclusion Strategy is based on the EBRD's Environmental and Social Policy (ESP) and is aligned with its Strategy for the Promotion of Gender Equality (SPGE).
The EBRD Refugee Response and Inclusion
Economic inclusion is one of the three central pillars of the EBRD's refugee crisis response program: infrastructure development, small and medium-sized business growth, and economic inclusion and gender.
In support of refugee-hosting countries, the EBRD builds on its private sector-driven economic inclusion to improve access to work-based learning opportunities and skills verification mechanisms in the most affected regions, especially as part of a global effort, such as the Jordan Pact.
To foster entrepreneurship opportunities, the EBRD is additionally supporting financial institutions as they expand the services they provide to local businesses, including people who are owned or operated by refugees or that employ refugees. A gender focus has been appointed to make sure that gender considerations are reflected altogether parts of the EBRD refugee response program.
In parallel, the EBRD conducts research on its refugee inclusion activities, in Jordan and Turkey, to improve understanding of the impact of refugee influx on host communities, identify measures to address hard and soft barriers to integrating refugees Pact. in the labor market, and monitoring and evaluating the impact to learn and apply lessons in ongoing programs.
In all these efforts, we work closely with the International Labor Organization, the European Training Foundation, UNHCR and relevant local and international agencies.
The EBRD Just Transition Initiative
Guided by its economic inclusion strategy and its approach to transition to the green economy, the Bank will help its countries of operations achieve a just transition to sustainable and inclusive market economies. This will build on the EBRD's experience of enhancing economic inclusion through private sector investments and associated political commitments to achieve structural changes to support workers and communities who are at risk of being left behind due to the transition to a green economy.
The EBRD will proactively identify investment and policy activities which can accelerate a just transition, attentively on three priority themes:
Transition to a green economy: The EBRD will work with clients with high-carbon assets within the transition to a low-carbon economy. This includes targeting high-carbon asset conversion, land remediation and rehabilitation, and a variety of other green investments that create access to local employment.
Support workers: The Bank will promote access to alternative livelihoods for those whose livelihoods are affected by the transition process through requalification and improved entrepreneurship in the context of addressing the underlying factors of the inequality.
Regional economic development: emphasizing activities that provide access to quality jobs, including personalized support for competitive SMEs and larger companies, as well as financing of projects in sustainable infrastructure.
In particular, the Bank will support green investments that can be implemented alongside investments and policy interventions to improve green skills. It will promote access to alternative employment opportunities through active labor market policies, employment programs and improvement of labor skills, in the context of promoting digitization and the greening of local, regional and national economies. The EBRD will also support regional development strategies that can mitigate regional disparities and address the underlying factors of inequality at the regional and national levels by providing equal access to skills and employment; finance and entrepreneurship; and public services that improve economic opportunities. This will include support with: the development of inclusive regional development strategies, education policies and skills development for the future of work, investments in TVET and PPPs for higher education and private provision; support for women- and youth-led SMEs and larger companies in labor-intensive sectors.
To promote such efforts, we will work closely with local, regional, and national governments, public and private sector employers, training providers, employment agencies, as well as donors.
Urbanization (or urbanization) refers to the migration of population from rural to urban areas, the corresponding decline in the proportion of rural people, and the way societies adapt to this change. It is primarily the process by which towns and cities are formed and grown as more people live and work in the center.
Causes or issues of Urbanization
Expansion of government services as a result of World War II
Movement of people during division of India [14] [15] [16]
Industrial Revolution [citation needed]
11th Five-Year Plan for Urbanization for India's Economic Development [17]
Economic opportunities are just one of the reasons people move to cities
Urban infrastructure [18]
Growth in the private sector since 1990. [19]
Employment growth in cities is attracting people from rural areas to small cities to large towns. According to McKinsey, India's urban population will increase from 340 million in 2008 to 590 million in 2030.
Therefore, it is driven by the economic urge to move for economic progress to areas where people offer better employment opportunities.
It is also caused by the disappearance of villages due to land fragmentation, road and highway construction, dam construction and other activities.
Agriculture is a major source of livelihood, but there is no further benefit. India's rural economy is primarily based on agriculture. India's agricultural sector is estimated to account for 18% [20] of India's gross domestic product (GDP) and provide employment to 50% of the country's workforce, but the reality is different. Many farmers in various states of India are quitting farming mainly because of high input costs and low agricultural income. On the other hand, the use of fertilizers, chemicals and hybrid seeds has reduced the fertility of the land. This encourages many farmers to commit suicide. In 2014, India's National Crime Records Agency reported suicides of 5,650 farmers. According to figures released by the central government in 2015, there were 12602 farmers committing suicide. This includes 8,007 farmers-cultivators and 4,595 agricultural workers.
Employment –Organised
In India, an important part of the workforce is employed in the unorganized sector. Unorganized / informal work consists of causal and contributory family workers; self-employed in the unorganized sector and in private households; and other employees in organized and unorganized enterprises who are not entitled to paid, sick or annual leave or employer-provided social security benefits was of the order of 406 million. About 7% of the total workforce is employed in the formal or organized sector (all public sector institutions and all non-agricultural institutions in the private sector with 10 or more workers) while 93% remain in the informal or unorganized sector. The NSS 55thround, 1999-2000 also covered non-agricultural enterprises within the informal sector in India. According to that survey, there were 44.35 million businesses and 79.71 million workers employed in the informal non-agricultural sector of the economy. Among these 25.01 million enterprises employing 39.74 million workers were in rural areas while 19.34 million enterprises with 39.97 million workers in the urban area. Of the workers employed in the informal sector, 70.21 million are full-time and 9.5 million part-time. The percentage of female workers out of the total number of workers is 20.2%.
Informal Employment
Informal, on the opposite hand, is what doesn't respect forms. This adjective is usually wont to describe what's not governed by the principles or regulations effective.
With these clear ideas, we will advance to the definition of informal work. this is often what refers to figure whose conditions aren't regulated by law. This particularity leaves the worker during a situation of lack of protection.
Informal work is additionally referred to as undeclared work or irregular work. The worker, during this context, isn't registered with the state. this enables the employer to save lots of money by not paying the corresponding charges, for instance, for supplementary benefit and retirement. the worker, on his part, doesn't pay the taxes like his income.
Due to the characteristics of employment relationships, the worker is that the one who is harmed by informal work. Not only does he not have supplementary benefit or pays for his retirement, but he also doesn't have insurance, vacation, bonuses, allowances et al. rights provided for by the legislation.
In addition to the above, it should be emphasized that the one that carries out informal work isn't entitled to compensation within the event of dismissal, that he will have difficulty in claiming his salary if the employer dismisses him without paying one or more salary, which if had suffered an accident at work wouldn't even be entitled to the corresponding compensation ...
It should even be borne in mind that if an individual is discovered that he's completing informal work by the competent bodies, he will need to assume several important consequences: yes, not only will he need to return the sums perceived as unemployment benefit but, moreover, he is often convicted of a Social Security fraud offense. within the latter case, you'll be punished with imprisonment from six months to 3 years.
Key Takeaway:
Unorganized worker
Under Section 2 (m) of the Unorganized Workers Social Security Act, 2008, the term "unorganized worker" means a home worker or self-employed or paid worker within the unorganized sector. It includes an organized sector worker who is not covered by any of the welfare-related acts as mentioned in the Schedule - II of Unorganized Workers Social Security Act, 2008. Unorganized workers take control of the Indian labor market and represent 90% of the total Indian workforce. The unorganized sector in India is one of the largest in the post-industrial world.
Unorganized workers are people who are not entitled to a pension, maternity leave, pension fund, gratuity, etc. These workers work on a daily and hourly wage. Unorganized work in India is huge when it comes to its range of numbers and hence, they are ubiquitous in India. The unorganized sector has to endure cycles of excessive seasonality of employment because most unorganized workers do not have durable and safe ways of employment. Unorganized workers do not have a formal employer: the employment relationship is scattered and disintegrated. Unorganized workers are subject to debt as their income does not meet their living needs. These workers face exploitation, harassment and discrimination from the rest of society [3].
Public Private challenges and policy debates in monetary, fiscal, social external sectors
Initially, monetary and fiscal policies were introduced into the economy where these policy changes affect production. In reality, there's no real link between monetary policy and real variables. In other words, total production is determined by factors of production, not financial variables, so changes in monetary or fiscal policy do not affect total production. This is called money neutrality.
So, what really happens when the Fed and government use monetary and fiscal policy? You can start this analysis by recalling the formula for the output of Y = C (Y-T) + I + G + NX. Given that Y is fixed by the factor of production, a change in G or T, or fiscal policy, needs to bring about another variable change to maintain a constant Y. This Y change works directly through interest rates.
Each of the variables within the output equation is tied to the rate of interest. Consumption tends to decrease as the interest rate increases, as the incentive to save increases. Investments tend to fall as the interest rate rises as the cost of borrowing increases. Government spending isn't really suffering from the rate of interest. Net exports tend to rise with rising interest rates, as domestic investments are relatively more attractive to both domestic and foreign investors.
When applying monetary and fiscal policy, the interest rate is influenced. Expansionary monetary policy directly lowers the interest rate by making it easier and cheaper to raise money. Contractive monetary policy directly increases the interest rate by making it more difficult and expensive to raise money. The expansionary fiscal policy increases the interest rate by lowering the savings rate through lower taxes and higher government spending. Contractive fiscal policy lowers the interest rate by increasing the savings rate through higher taxes and lower government spending. Monetary policy and fiscal policy thus have a direct impact on consumption, investments and net exports through the interest rate.
For example, suppose the Fed uses expansionary monetary policies like buying government bonds, lowering reserve requirements, or lowering the interest rate on federal funds. This leads to a decrease in the interest rate, which increases consumption and increases investment. However, in order for the overall level of production to remain unchanged, net exports must fall by the same amount as consumption and investment increase. In this way, total production does not change from monetary policy, but the distribution of total production is influenced.
Another example is needed. Suppose the Fed uses a contractionary monetary policy such as selling government bonds, increasing reserve requirements, or increasing the federal key interest rate. This leads to an increase in the interest rate, as a result of which consumption decreases and investments decrease. However, in order for the overall level of production to remain unchanged, net exports must rise by the same amount, while consumption and investments fall by the same amount. In this way, total production does not change from monetary policy, but the distribution of total production is influenced.
What are the tools of monetary policy?
The tools of monetary policy used by the Fed include reserve requirement, the open market operation and the federal funds interest rate.
What are the tools of fiscal policy?
The tools of fiscal policy used by the government include taxing and spending.
Key Takeaway:
References:
1. Tech max.
2. Mankiw Gregory N. (2002), Principle of Economics, Thompson Asia
3. Acts Related to minimum wages, workman’s compensation, contract and
arbitration
4. Typical PWD Rate analysis document
5. M Chakravarty, Estimating, Costing Specification and Valuation
6. World Bank Approval Contact Document
