Unit 3
Problems of Growth
Unemployment is a situation when a person actively searches for a job and is unable to find a job. National Sample Survey Organisation NSSO defines employment and unemployment on the following activity measures of an individual-
Under this approach, a person having no gainful work even for one hour in a day is considered as unemployed for that day.
2. Weekly status report:
This approach highlights the record of those persons who did not have gainful work or were unemployed for an hour on one day of the preceding the date of the survey.
3. Usual status approach:
It gives the estimates of those persons who were unemployed or had no gainful work for a major time during 365 days.
Types of unemployment
When the people employed in a particular industry are more than actually needed, than it is known as disguised unemployment. Unorganised manufacturing sector, agricultural sector witnessed disguised unemployment.
2. Structured Unemployment:
Such unemployment occurs when people unable to find employment due to lack of skills required for a particular job.
3. Seasonal unemployment:
Such unemployment occurs when people do not have work during certain seasons of the year. It occurs in tea industry, sugar industry etc.
4. Vulnerable unemployment:
Under this type of unemployment, people are employed but without proper job contracts and thus records of their work are not maintained. For example, employment of people during peak season only.
5. Technological unemployment:
Such type of unemployment occurs when people lose their jobs due to advancement in technologies.
6. Cyclical unemployment:
Unemployment caused due to trade cycles like recession, decline is known as cyclical unemployment. For example, job losses due during lock down due to Pandemic.
7. Frictional unemployment:
Such unemployment occurs when people are unemployed for short span of time while searching for a new job or switching a job.
Some of the reasons for unemployment are-
Key takeaways-
1) Unemployment is a situation when a person actively searches for a job and is unable to find a job.
Poverty is a shortage or shortage of a certain (variable) amount of physical property or money. Poverty is a multifaceted concept that can include social, economic and political factors. Absolute poverty, extreme poverty, or poverty is the complete lack of the means necessary to meet basic personal needs such as food, clothing, and shelter. The thresholds at which absolute poverty is defined are considered to be about the same regardless of the person's permanent location or age. Relative poverty, on the other hand, occurs when people living in a country do not enjoy a certain lowest standard of living compared to the rest of the country. Therefore, the thresholds at which relative poverty is defined vary from country to country or from society to society. Poverty reduction remains a major issue (or goal) for many international organizations such as the United Nations and the World Bank. There are many aspects to poverty, which certainly involve a shortage of human and physical wealth and inadequate material means to obtain food and other necessities. But it also means vulnerabilities to unhealthy, drought, unemployment, economic decline, violence and social conflict. And that often means a deep state of incapacity, even humiliation (World Bank, 1990). Some people describe poverty as a lack of essential items such as food, clothing, water and shelter for a proper life. Poverty is a condition characterized by a serious deprivation of basic human needs such as food, safe drinking water, sanitation, health, shelter, education and information (World Social Development Summit, 2005).
Types of poverty
Different types of poverty are-
Absolute or extreme poverty is when people lack the basic necessities of survival. For example, they may be hungry, lacking clean water, adequate housing, sufficient clothing and medicine, and struggling to stay alive. This is the most common in developing countries. Absolute poverty is defined as a situation in which the basic needs of an individual are not covered, that is, there is a lack of basic goods and services (usually related to food, housing and clothing). This concept of poverty is strongly linked to poverty and is applicable to all countries and societies. Those who are considered poor under this standard are similarly classified around the world.
2. Relative poverty
Relative poverty is when some people's lifestyles and incomes are much worse than the standard of living in the country or region in which they live, leading a normal life, normal economic and social life. Relative poverty varies from country to country, depending on the standard of living that the majority enjoy. Although not as extreme as absolute poverty, relative poverty remains very serious and harmful. Relative poverty identifies the phenomenon of poverty in the society under investigation. Relative poverty occurs when people do not enjoy a certain minimum standard of living determined by the government (and enjoyed by most of the population), country by country, sometimes within the same country. Relative poverty is said to be ubiquitous and increasing and may never be eradicated.
Key takeaways-
1) Poverty is a shortage or shortage of a certain (variable) amount of physical property or money. Poverty is a multifaceted concept that can include social, economic and political factors.
Regional imbalance means differences in income, literacy, health, education infrastructure, roads and connectivity, electrification, industrialisation etc. between regions. Although remarkable growth has been achieved by some regions and sectors of India, some locations and sectors have been developing since independence. The reasons for the imbalances in these regions are rooted in historical processes and the bounty of different levels of natural resources in different parts of the country. During the period of British rule, the level and size of surplus creation and absorption differed from region to region due to differences in production relationships between regions and differences in production levels due to differences in efforts in each region. The type of urbanization at that time was based on the strategy of exporting primary products and consuming mechanically imported products. As a result, some port towns such as Kolkata, Mumbai and Chennai, as well as the capitals of some princely states, got off to a better start than the rest of the world. In contrast to the developed regions, the poor regions begin the reverse cycle of underdevelopment. At the time of independence, there were large regional disparities between different regions in terms of per capita income, per capita consumer education and medical facilities, infrastructure and employment. Due to early political unrest, this disparity had a serious impact. Therefore, it was felt that the nation played a major role in closing the gap. This commitment was reflected in the Constitution and planning goals, but there were deviations from these goals due to the strategic position of the ruling class and the macro and sector models of development adopted by the planners.
Reasons for regional imbalance/disparity
There are many factors that contribute to relative regional disparities. Some of the root causes of inequality are:
Governments (central and state) have been politically weakened due to asylum politics, government collapse or collapse, and voting politics. Therefore, the government's priority was to please the rich minority to make it happen. To relieve resentment and dissatisfaction among the general public, it had to play a fake role to bail out the poor masses through various failed employment and poor welfare programs. Therefore, rich minorities and regions or regions associated with rich minorities were rather developed by gaining most of the overall outcome of national development. In addition, regions and communities associated with educated and politically conscious people have also gained a greater share of economic development due to increased political pressure on government.
2. Administrative cause:
People in the management group either belong to a thriving group of societies or are under pressure from politicians and socio-economic elites to discriminately direct development interests to these politicians and elites. The elite and politicians seduced and seduced executives by not only putting pressure on them freely, but also by bribing the government sector for corruption. This corruption began with these high-level managers and later spread to the lowest levels of society, becoming the current state of corruption in India. In addition, these managers have made early profits by supporting investment and development projects in more developed areas to demonstrate high performance and good work.
3. Unequal distribution of natural resources:
The distribution of natural resources is not equal across different regions of the country. Since then, industrialization has been rapidly brought about in regions and areas blessed with natural resources. This has accelerated the development of education and employment levels in these regions and regions compared to regions and regions where natural resources are not available.
4. Caste system:
The Indian masses, especially Hindus, are divided into different castes under a strong social class-based caste system. Government and non-governmental organizations have made considerable efforts for social reform to eradicate malignant traditions and unruly social evils, although a powerful stratification curse of society, many parts, especially those in the lower segments (caste) of remote societies, are still hampered by equal rights to education, employment, professions and institutions. This makes them economically weak. Access to public health systems and their benefits are heterogeneous between the general public and those in the SC / ST category. The resources allocated to the welfare of SC and ST are not proportional to their needs. Policies and programs specifically designed for these categories of population are not being effectively implemented. Therefore, discrimination against the population of SC and ST continues even after more than 60 years of independence.
5. Geographical factor:
The area surrounded by hills, mountains, deserts, dense forest etc. are mostly backward due to its inaccessibility and other inherent difficulties.
6. Failure of planning commission:
Sometimes due to lack of planning capability, poor implementation of plan, lack of adequate resources etc. ensures regional imbalances.
7. Low and order problem
Terrorism, violence, disturbed law and order etc. also leads to regional imbalances of a country.
8. Historical factors:
British developed only those areas of the county which possessed rich potential for prosperous manufacturing and trading activities. As a result, some port towns such as Kolkata, Mumbai and Chennai, as well as the capitals of some princely states, got off to a better start than the rest of the world. In contrast to the developed regions, the poor regions begin the reverse cycle of underdevelopment.
Some of the policy measures to solve the economic disparities are
1. Planning commission:
The planning committee has three measures-
(I) Transfer of financial resources from the centre to developing countries.
(II) Special regional development program for the rear region. And
(III) Measures to encourage private investment in underdeveloped areas.
2. Finance commission:
The government offers the following incentives:
(A) Income tax concessions
(B) Central investment subsidy system and
(C) Transportation subsidy system.
The state government also offers several measures such as providing water and electricity on a profit-free and loss-free basis, sales tax-free loans, octroi tax exemptions, and property tax exemptions. In addition, major financial institutions such as IDBI, IFCI and ICICI, provide concessional financing for industrial projects.
3. Development programmes:
The programme of agriculture, community development programme, Drought Prone Area Programme, irrigation and power, transport and communication, social services etc. aimed at providing basic facilities and services to people in all regions.
Key takeaways-
1) Regional imbalance means differences in income, literacy, health, education infrastructure, roads and connectivity, electrification, industrialisation etc. between regions.
Social injustice emanates from the structured inequality prevalent in a society. Inequality at once refers to incapacity to acquire entitlements as citizen, goal achievements, and material advancements due to social discrimination and differentiation on account of social stationing of a person; such as we find in the case of caste system as practised in India, racial discrimination as performed in the western societies, exclusionary identity politics inspired by one nation – one culture theories of nationality formation in many of the world societies; monopoly capitalism and amassing corporatism, and distributive failure or favoured discrimination as affirmed by a constitutional democratic state. Inequality and injustices are produced in the socio-political process and economic policies of a state. In India social injustice found in-
a) Inequality of income and wealth.
b) Increase in unemployment.
c) Increase in absolute poverty.
d) Increase in child and women labour.
e) Lack of infrastructure and social services in rural areas.
Causes of social injustice in India
Key takeaways-
1) Social injustice emanates from the structured inequality prevalent in a society.
2) Inequality and injustices are produced in the socio-political process and economic policies of a state. In India social injustice found in-
3) Inequality of income and wealth.
4) Increase in unemployment.
5) Increase in absolute poverty.
6) Increase in child and women labour.
7) Lack of infrastructure and social services in rural areas.
Inflation is a quantitative measure of the speed at which the average price level of a basket of selected goods and services in an economy increases over a period of time. It is the constant rise within the general level of prices where a unit of currency buys but it did in prior periods. Often expressed as a percentage, inflation indicates a decrease within the purchasing power of a nation’s currency.
The causes of inflation are as -
a) Increase in Public Spending
In any modern economy, Government spending is an important element of the total spending. It is also an important determinant of aggregate demand. Usually, in lesser developed economies, the Govt. spending increases which invariably creates inflationary pressure on the economy.
b) Deficit Financing of Government Spending
There are times when the spending of Government increases beyond what taxation can finance. Therefore, in order to incur the extra expenditure, the Government resorts to deficit financing.
c) Increased Velocity of Circulation
In an economy, the total use of money = the money supply by the Government x the velocity of circulation of money. When an economy is going through a booming phase, people tend to spend money at a faster rate increasing the velocity of circulation of money.
d) Population Growth
As the population grows, it increases the total demand in the market. Further, excessive demand creates inflation.
e) Hoarding
Hoarders are people or entities who stockpile commodities and do not release them to the market. Therefore, there is an artificially created demand excess in the economy. This also leads to inflation.
f) Genuine Shortage
It is possible that at certain times, the factors of production are short in supply. This affects production. Therefore, supply is less than the demand, leading to an increase in prices and inflation.
g) Exports
In an economy, the total production must fulfill the domestic as well as foreign demand. If it fails to meet these demands, then exports create inflation in the domestic economy.
h) Tax Reduction
While taxes are known to increase with time, sometimes, Governments reduce taxes to gain popularity among people. The people are happy because they have more money in their hands.
However, if the rate of production does not increase with a corresponding rate, then the excess cash in hand leads to inflation.
i) The imposition of Indirect Taxes
Taxes are the primary source of revenue for a Government. Sometimes, Governments impose indirect taxes like excise duty, VAT, etc. on businesses. As these indirect taxes increase the total cost for the manufacturers and/or sellers, they increase the price of the product to have a minimal impact on their profits.
j) Price-rise in the International Markets
Some products require to import commodities or factors of production from the international markets like the United States. If these markets raise prices of these commodities or factors of production, then the overall production cost in India increases too. This leads to inflation in the domestic market.
Consequences of Inflation are-
- Creditors and debtors - During inflation creditors lose as they receive the repayments during a period of low prices. On other hand, debtors during inflation gain, since they repay their debts in currency that has lost its value
- Producers and workers - Producers gain during inflation as they get higher prices and leads to earn more profits from the sale of their products. Producers can earn more during inflation, as the rise in prices is usually higher than the increase in costs. But, workers lose because there is a fall in their real wages as their money wages do not usually rise proportionately with the increase in prices.
- Fixed income earners – during inflation, fixed income earners suffer greatly because inflation reduces the value of their earnings.
- Investors – in equity shares investor gains s they get dividends at higher rates. But the bondholders lose because they get a fixed interest on the real value of which has already fallen
- Farmers – Farmers gains during inflation as rise in the price of agricultural products is higher than the rise in the price of other goods
Key takeaways-
1) Inflation is a quantitative measure of the speed at which the average price level of a basket of selected goods and services in an economy increases over a period of time.
Parallel economy means functioning of an unsanctioned sector in the economy whose objectives run parallel and in contradiction with the objectives of official or sanctioned or legitimate sector in the same economy. This is variously referred to as ‘unaccounted economy’, ‘illegal economy’, ‘subterranean economy’, or ‘unsanctioned economy’. There are many reasons for the creation of back money in India. Some of them are as follows:
i. Controls and licensing system: Black money is increasing in India for the reasons of controls, permits, quotas and licenses.
ii. Higher Rates of Taxes: Higher rates of taxes has resulted a growing tendency of tax evasion among the tax payers. Tax evasion is common in income tax, corporate tax, corporation tax, union excise duties, custom duties, sales tax, etc.
iii. Ineffective enforcement of tax laws: In India, the enforcement of tax laws in respect of income tax, sales tax, excise duty, stamp duty etc. is quite weak. This has led to enormous unrestrained evasion of taxes and piling up of black money.
iv. Funding of political parties: There is an upward tendency of supporting of political parties with the help of black money. Big trade houses are donating an enormous amount of black money to the political parties, especially the ruling party with the sole objective to tame the political leadership for deriving undue profit by manipulating policy decisions.
v. Second World War after influence: During the time of Second World War, a lot of the Indian industry found circumstances favourable for black marketing. Supply industrial goods from the traditional supplies of the West were cut off, which resulted severe shortages in many essential fields. This formed the sentiment of making of marketing money out of shortages and not out of extension of the business activities.
vi. Inflation: The addition in prices of commodities like petrol, etc. in international market, boost in prices of commodities due to high increase in duties and taxes imposed by the government, the conspicuous utilization created by people with unaccountable money, diverting resources from manufacture to speculation‐ all these is the root of inflation which in turn creates black money.
vii. Agricultural Income: The reluctance to bring agricultural earnings in the realm of income tax has also contributed to creation of black money. Big industrial houses, over the past few decades have entered the agriculture sector in a big way by acquiring big farms. The black money accrued from other sources is sought to be transformed into white by viewing it on the agricultural returns account.
viii. Privatization: Privatization has opened up a new area to the private sector as well as to ministers and bureaucrats for making black money. It is expected that many scams come to light for making black money through privatization.
Government initiatives to combat parallel economy
Key takeaways-
1) Parallel economy means functioning of an unsanctioned sector in the economy whose objectives run parallel and in contradiction with the objectives of official or sanctioned or legitimate sector in the same economy.
According to the criteria accepted by the Reserve Bank of India “a sick unit is one which has reported cash loss for the year of its operation and in the judgment of the financing bank is likely to incur cash loss for the current year as also in the following year.”
According to Companies (Second Amendment) Act, 2002 "'Sick Industrial Company' means an industrial company which has
i) The Accumulated losses in any financial year equal to 50 per cent or more of its average net worth during four years immediately preceding such financial year; or
ii) Failed to repay its debts within any three consecutive quarters on demand made in writing for its repayment by a creditor or creditors of such company."
Causes of industrial sickness
a) External Causes
(i) General Recessionary Trend:
Sometimes a general depression hits industrial units. This is reflected in lack of demand for industrial products in general. An overall slowdown in economic activities affects the performance of individual projects. Improper demand estimation for the products to project lands the industrial units in difficulties.
(ii) High Prices of Inputs:
When the costs of manufacture are high and sales realisation low, the industrial unit cannot stand in the market. This happens when the prices of inputs such as price of fuel such as petroleum during energy crisis goes up whereas the competitive forces keep down the prices of the products.
iii) Non-Availability of Raw Materials:
When the supplies of raw materials are not available regularly or in good quality, the industrial units are bound to be in trouble. This often occurs in case of supply of imported raw materials.
(iv) Changes in Government Policies:
The industrial sickness is also caused by certain changes in policy designs of the government. These frequent changes affect the long-term production, financial and marketing planning of an industrial unit. Changes in Government policies regarding imports, industrial licensing, taxation can make viable units sick. For example, liberal import policy since 1991 has rendered many small-scale industrial units sick.
(v) Infrastructure Bottlenecks:
Often the infrastructure difficulty is responsible for industrial sickness. No industrial unit can survive prolonged transport and power bottlenecks.
b) Internal Factors:
(i) Project Appraisal Deficiencies:
The industrial unit becomes sick when the unit has been launched without a comprehensive appraisal of economic, financial and technical viabilities of the project.
(ii) Industrial Unrest and Lack of Employee Motivation:
When there is labour discontent, no industrial unit can function smoothly and efficiently. When labour lacks motivation no good results can be expected and this results in sickness and non-viability of several industrial units.
(iii) Wrong Choice of Technology:
If the promoters use wrong technology, results are bound to be unsatisfactory. Many industrial units, especially in the small-scale sector, do not seek professional guidance in installing the correct machinery and plant. If the machinery and plant installed turn out to be defective and unsuitable, they are bound to suffer losses and become sick and non-viable.
(iv) Marketing Problems:
The industrial unit becomes sick due to product obsolescence and market saturation. The industrial unit becomes sick when its product-mix is not attuned to the consumers’ demand.
(v) Wrong Location:
If the location of an industrial unit happens to be defective either from the point of the market or the supply of inputs, it is bound to experience insurmountable difficulties.
(vi) Lack of Finance:
Inadequate financial arrangements or in the absence of timely financial aid an industrial unit is bound to come to grief. It will not be able to withstand operational losses.
(vii) Improper Capital Structure:
If capital structure proves to be unsound or unsuitable especially on account of delayed construction or operation, it will result in cost overruns or unduly large borrowing and create financial trouble for the unit concerned.
(viii) Management Deficiencies:
The biggest cause of industrial sickness is the managerial inefficiency. Lack of professional management or experienced management and the existence of hereditary management is an important cause of industrial sickness. Inefficient management results in inability to perceive things in proper perspective devoid of routine considerations. Inefficient management is also unable to build up good team and inspire confidence for an organised collective effort and takes autocratic and high-handed decisions.
Key takeaways-
1) According to the criteria accepted by the Reserve Bank of India “a sick unit is one which has reported cash loss for the year of its operation and in the judgment of the financing bank is likely to incur cash loss for the current year as also in the following year.”
References-
