Assignment Code: BCOG-172/TMA/2021-22

Course Code: BCOG-172

Assignment Name: Indian Economy

Year: 2021-2022

Verification Status: Verified by Professor

Maximum Marks: 100

Note: Attempt all the questions.

Section-A

Q.1 What are major determinants of development of an economy? Discuss (10)

Ans) The major determinants of development of an economy are:

1. Natural Resources: Natural resources include anything that exists in nature and which has exploitable economic value. Rate of economic growth increases on increase in quantity and quality of natural resources. Examples of natural resources which can have major effect on rate of economic growth include fossil fuels, valuable metals, oceans, and wild life.

2. Human Resources: Human resources include both skilled and unskilled workforce. Increase in the quantity and quality of the workforce increases rate of economic growth. Here, increase in quality refers to improvement of skills the workers possess. When more people work, more goods and services are produced and when more skilled workers do a job, they produce high value goods and services.

3. Capital Goods: Capital goods are tangible assets such as plant and machinery that can carry out processes which result in the production of other goods and services. Capital goods require big investments initially but they increase production and growth rate in future periods.

4. Technology: Technology includes methods and procedures used to produce various goods and services. New technology may be invented or current technology may be improved gradually by investing in research. Better techniques once devised, allow faster production and increase rate of economic growth.

5. Demand Factor: The increased supply of goods and services caused by the supply factors must be sustained by increased demand for goods and services in the economy.

6. Efficiency Factor: Achieving high output to input ratio is the result of efficiency. Efficiency includes both productive and allocative efficiency. High efficiency increases growth rate when it is coupled with full employment. To achieve maximum growth rate, an economy must use its available resources in the least costly way to produce the optimum mix of goods and services and it must use its resources to the maximum extent possible

Q.2 “India in transition”. Elaborate (10)

Ans) Since Independence, Indian economic development has gone through  three broad phases. These can be termed (a) Public Infrastructure (b) Industrial  Control and (c) Reform & De-control. These phases are distinguished by two  important policy variables: The degree to which policy favoured the public  sector vis-à-vis the private sector, and the degree to which industrial policy was  control oriented rather than market oriented.

In the first phase, which ended around 1964-5, the rate of growth of  Gross Domestic Product at factor cost averaged 4.2% per annum. The second  phase, starting from around 1965-6 is characterised by a slowing of the rate of  growth to an average of 3.5% per annum. This phase lasted till about 1978-9,  when the Reform phase started. The Reform phase has seen a reversion of  growth to higher levels, which despite the BOP crises of 1990-91 to 1991-92  averaged 4.8% per annum. This paper will focus on the last two phases of  development.

The second sub-phase of the Reform phase started in 1991-2. The mean  growth rate for this period at 4.7% is however quite misleading because of the  problem of rainfall fluctuations. The mean rainfall index for this period is -0.28  compared to a mean of 1.87 for the first sub-phase. We must therefore either  adjust for the low rainfall during 1991-92 or focus on the period 1992-3 to  1995-6.

The average growth rate during this period was about 5.7% per annum,  while the mean rainfall index was 0.88, both of which are lower than in the first  sub-phase. As there is a standard problem of separating the after effects of a  crisis from the effects of the new policies it is instructive to look at the pattern  of growth. After a sharp fall in growth in 1991-2 to less than 1% growth  averaged around 5.1% in the next two years, and about 6.3% in the subsequent  two years.

Q.3 Discuss salient features of the new economic policy instituted in 1991. Highlight the growth of Indian economy in post planning era. (5+5)

Ans) The salient features of the new economic policy instituted in 1991 are:

1. Delicencing. Only six industries were kept under Licencing scheme.

2. Entry to Private Sector. The role of public sector was limited only to four industries; rest all the industries were opened for private sector also.

3. Disinvestment. Disinvestment was carried out in many public sector enterprises.

4. Liberalisation of Foreign Policy. The limit of foreign equity was raised to 100% in many activities, i.e., NRI and foreign investors were permitted to invest in Indian companies.

5. Liberalisation in Technical Area. Automatic permission was given to Indian companies for signing technology agreements with foreign companies.

6. Setting up of Foreign Investment Promotion Board (FIPB). This board was set up to promote and bring foreign investment in India.

7. Setting up of Small Scale Industries. Various benefits were offered to small scale industries.

The growth of Indian economy in post planning era is:

The 1960s ushered in a decade of various economic and growth challenges for India. The consecutive deaths of Nehru and Shastri had created a situation of political unrest and Indira Gandhi’s rupee devaluation had led to prices rising in general. On July 19, 1969, Indira, the then Prime Minister and Finance Minister, decided to nationalise 14 largest banks of the country with the aim of increasing the credit given by banks to the agricultural sector as opposed to big businesses alone. When PV Narasimha Rao took over as Prime Minister in 1991 he announced a new industrial policy which marked a sharp departure from the earlier policy of 1956.

The new industrial policy laid emphasis on liberalisation, privatisation and globalisation thereby increasing India’s GDP growth rate, increase in foreign direct investment and increase in the per capita income. Ten years of economic liberalisation saw Indian companies flourishing and the first decade of the 21st century bore witness to this changing tide. November 8, 2016, a red-letter day in the history of India’s economy, saw Prime Minister Narendra Modi make history as he said, “To break the grip of corruption and black money, we have decided that the five hundred rupee and thousand-rupee currency notes presently in use will no longer be legal tender from midnight tonight.”

Until 1991, India’s slow social and economic growth made it irrelevant in the global scenario, other than as a recipient of financial aid from other nations. But today leading nations view India as a potential superpower. Once a country that had to rebuild itself from ground zero, India now has the third-largest GDP in the world in purchasing power parity terms and an environment that is conducive for the growth of budding entrepreneurs and industries alike.

Q.4 Explain the relationship between infrastructure and economic growth. Describe main features of infrastructure. (5+5)

Ans) The relationship between infrastructure and economic growth is:

1. The relationship between infrastructure and economic growth is quite complex. Although infrastructure development is important and necessary for industrial take-off and economic growth, the desire for growth does not necessarily mean higher or increased need for infrastructure and more infrastructure does not necessarily guarantee more economic growth.

2. Infrastructure services exhibits high network effects. As the number of users increase, the marginal productivity of investments on infrastructure rise with scale and spread of the network and exceeds the average productivity of investment until the market is saturated

3. Sub-Sahara Africa (SSA) remains the poorest region of the World despite the recent obvious increase in per capital income growth rates of many countries in the region. Thanks to decades of economic stagnation, poor standard of living, ethnic cleansing and tribal wars, political instability and environmental disasters which had left infrastructure development uncared for.

The main features of infrastructure are:

1. First, the building of infrastructure requires large and lumpy investment and they contribute to output, after a long time that is their gestation period is quite long.

2. Second, due to large overhead capital and lumpy investment, the significant economies of scale are found in most of them. Due to the significant economies of scale found in many infrastructure services, they have the characteristics of natural money.

3. The third important feature of infrastructure facilities is they create externalities.

Q.5 Discuss various suggestions to solve unemployment problem. (10)

Ans) The various suggestions to solve unemployment problem are:

1. Change in industrial technique: Production techniques should suit the needs and means of the country. It is essential that labour-intensive technology should be encouraged in place of capital-intensive technology.

2. Policy regarding seasonal unemployment: Seasonal unemployment is found in the agriculture sector and agro-based industries.

3. Change in the education system: The educational pattern should be completely changed. Students who have a liking for higher studies should be admitted to colleges and universities. Emphasis should be given to vocational education.

4. Expansion of Employment exchanges: More employment exchanges should be opened. Information regarding employment opportunities should be given to people.

5. More assistance to self-employed people: Most people in India are self-employed. They are engaged in agriculture, trade, cottage and small scale industries etc.

6. Full and more productive employment: The main objective of the county’s employment policy should be to increase employment opportunities and the productivity of labour.

7. Increase in Production: To increase employment, it is essential to increase production in the agriculture and industrial sectors. Development of small and cottage industries should be encouraged.

8. More importance to employment programmes: The programmes like irrigation, roads, flood control, power, agriculture, rural electrification can provide better employment to people.

9. High rate of capital formation: Capital formation should be particularly encouraged in such activities which generate greater employment opportunities.

10. Industries in the co-operative sector: Industries in the cooperative sector should be encouraged. Kerala Govt.’ set up a textile mill covering 600 unemployed persons on a cooperative basis. This is a novel approach to fight against unemployment. Different State Govt. should take necessary steps in this direction.

11. Decentralisation of industrial activity: Decentralisation of Industrial activity is necessary to reduce unemployment. If industrial activities are centralised in one place, there will be fewer employment opportunities in underdeveloped areas.

12. Population control: The growth of the population should be checked in order to solve the unemployment, problem. Family planning programmes should be implemented widely and effectively.

Section-B

Q.6 Explain main functions of human resource development in the context of India. (6)

Ans) The main functions of human resource development in the context of India are:

1. Acquire or sharpen capabilities required to perform various functions associated with their present or expected future roles.

2. Develop their general capabilities as individuals and discover and exploit their own inner potential for their own and/or organizational development purpose.

3. Develop an organizational culture in which superior-subordinate relationships, teamwork and collaboration among sub-units are strong and contribute to the professional well-being, motivation and pride of employees. Put simply, HRD also man’s competence building, commitment building and culture building.

In the organization context, scope of HRD is not limited to the development of the organizational role of the employees but extends to the individuals inner feelings, genius and latent potentialities of those working in the organization. Individuals in an organization have unlimited potential for growth and development and this can be multiplied and channelised through systematic efforts. Megginson viewed human resources as the total knowledge, skills, creative, abilities, talents and aptitudes of an organization’s workforce as well as the values, attitudes and beliefs of the individual involved.

Q.7 Describe briefly the cause of poverty and inequality in India. (6)

Ans) The cause of poverty and inequality in India are:

The high population growth rate is one of the major reasons of poverty in India. This further leads to a high level of illiteracy, poor health care facilities and lack of access to financial resources. Also, high population growth affects the per capita income and makes per capita income even lower. This means a shortage of jobs. For this much population, near about 20 million new jobs would be required. The number of poor will keep on increasing if such a big number of jobs won’t be created.

The ever-increasing prices of even basic commodities is another reason for poverty. A person below the poverty line finds it difficult to survive. The caste system and unequal distribution of income and resources is another reason for poverty in India.

Apart from all these, unskilled workers are paid very low in spite of the hard work they put in daily. The problem lies with the unorganized sector as owners do not bother with the way their workers live and the amount they earn. Their area of concern is just cost-cutting and more profit. Because of the number of workers looking for a job is higher than the jobs available, unskilled workers have no other option but to work for less money. The government should really find a way to impose minimum wage standards for these workers. At the same time, the government should ensure that this is implemented well.

Q.8 Discuss weaknesses of education sector in our country. (6)

Ans) The weaknesses of education sector in our country are:

1. Inadequate Facilities: The country still has 46 per cent illiterate females and 24 per cent illiterate males. Illiteracy among the scheduled castes and scheduled tribes is still very high. The dropout rate is very high. 60 per cent of the children do not attend the secondary schools.

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

3. Irrelevant and Poor in Quality: The quality of education in terms of its contents is low. Besides, the course contents of education are less relevant to the needs of the country.

4. Low Access Level in Rural Areas: There is a high degree of disparity in access to education. The ‘access level’ is considerably low for the rural population compared to the urban population.

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

   
   

Q.9 Explain any two indicators measuring income inequality. (6)

Ans) The two indicators measuring income inequality are:

Coefficient of variation: This measure of income inequality is calculated by the dividing the standard deviation of the income distribution by its mean. More equal income distributions will have smaller standard deviations; as such, the CV will be smaller in more equal societies. Despite being one of the simplest measures of inequality, use of the CV has been fairly limited in the public health literature and it has not featured in research on the income inequality hypothesis.

Decile ratios: A simple but effective way to examine income inequality is to calculate decile ratios. The calculation is done by taking, for example, the income earned by the top 10% of households and dividing that by the income earned by the poorest 10% of households. Decile ratios were used by Gold et al. in their study of income inequality and teen birth rates in the US and by Lob Mayer and Wilkinson in their study of income inequality and mortality in 14 countries. An important advantage of this measure is that it enables sensitivity analyses; for example, the correlations between population health and the 20:80, 30:70, 40:60 decile ratios may be compared. This allows researchers to examine which sections of the income spectrum may be most important as a social determinant of health.

Q.10 Describe briefly the importance of agriculture in India’s national economy. (6)

Ans) The importance of agriculture in India’s national economy is as follows:

1. Agricultural influence on national income: The contribution of agriculture during the first two decades towards the gross domestic product ranged between 48 and 60%. In the year 2001-2002, this contribution declined to only about 26%.

2. Agriculture plays vital role in generating employment: In India at least two-thirds of the working population earn their living through agricultural works. In India other sectors have failed generate much of employment opportunity the growing working populations.

3. Agriculture makes provision for food for the ever increasing population: Due to the excessive pressure of population labour surplus economies like India and rapid increase in the demand for food, food production increases at a fast rate. The existing levels of food consumption in these countries are very low and with a little increase in the capita income, the demand for food rise steeply.

4. Contribution to capital formation: There is general agreement on the necessity capital formation. Since agriculture happens be the largest industry in developing country like India, it can and must play an important role in pushing up the rate of capital formation.

5. Supply of raw material to agro-based industries.

6. Market for industrial products.

7. Influence on internal and external trade and commerce.

8. Contribution in government budget.

9. Need of labour force.

10. Greater competitive advantages.

Section-C

Q.11 Distinguish between the following: (10)

a) Capitalism and Socialism

Ans) The differences between Capitalism and Socialism are:

b) Labour force and out-of-the-labour force

Ans) The differences between Labour force and out-of-the-labour force are:

Labour force: The labour force, or currently active population, comprises all persons who fulfil the requirements for inclusion among the employed (civilian employment plus the armed forces) or the unemployed. The employed are defined as those who work for pay or profit for at least one hour a week, or who have a job but are temporarily not at work due to illness, leave or industrial action. The armed forces cover personnel from the metropolitan territory drawn from the total available labour force who served in the armed forces during the period under consideration, whether stationed in the metropolitan territory or elsewhere. The unemployed are defined as people without work but actively seeking employment and currently available to start work. This indicator is seasonally adjusted and it is measured in persons.

Out-of-the-labour force: A person is outside the labour force, according to the International Labour Organisation definition, if he or she is not part of the labour force, meaning he or she is neither employed nor unemployed. The set of people outside the labour is also called the "inactive population" and can include pre-school children, school children, students, pensioners and housewives or -men, for example, provided that they are not working at all and not available or looking for work either; some of these may be of working-age. The inactivity rate is the proportion of people outside the labour force in the total population of the same age group.

c) Absolute poverty and relative poverty

Ans) The differences between Absolute poverty and relative poverty are:

d) Cyclical unemployment and seasonal unemployment

Ans) The differences between Cyclical unemployment and seasonal unemployment are:

Cyclical unemployment is caused by the lack of demand that is a consequence of business cycle downturns. Businesses facing lower demand have lower revenues and usually have to reduce their costs to prevent taking losses; frequently, this is done by laying off workers. When the economy begins to expand and demand returns to former levels, employers need those workers again. For example, construction workers who lost their jobs in the wake of the 2008 financial crisis and the associated fall in housing demand experienced cyclical unemployment; when housing demand returns to its former levels, demand for those workers will also return.

Unlike cyclical unemployment, seasonal unemployment occurs on a more or less fixed and predictable basis, as it is caused by shifts in demand that depend on the time of year. Seasonal unemployment is actually a type of structural unemployment, as the structure of the economy changes on a seasonal basis and demand for workers changes accordingly. For example, in November and December, there is a surge in demand for holiday ornaments and holiday-related products, and in July and August there is a surge in demand for vacations. The demand for these goods and services creates demand for workers who can supply them.

Q.12 Write short notes on the following: (10)

a) Challenges of skill gap in India

Ans) The Challenges of skill gap in India are:

1. Insufficient capacity: Current infrastructure facilities available in the educational institutions throughout the country are inadequate considering the huge demand for skilled labour. There are not many trained and highly skilled trainers available. The faculty needs to be motivated and skilled to take up higher responsibilities.

2. Mobilisation: The outlook of people associated with skill development is still very traditional. The enrolment of the students for vocational education and training has become an extremely challenging task.

3. Scalability: Any model to be successful needs a lot of support from different stakeholders. Since there is limited buy-in from the corporate sector, the progress of such initiatives is slow.

4. Skills Mismatch: There are lot of issues related to the skills needed by the industry and the skills imparted by the educational and training institutes. There is lack of industry-faculty interaction because of which the skill sets provided by the educational and training institutes do not end up suiting the employers’ requirements. As a result, though the people may be skilled but they do not get employment. It becomes extremely important that the industry professionals are also included in the design of the skill development curriculum.

b) Balance of Payments

Ans) The balance of payments (BOP), also known as the balance of international payments, is a statement of all transactions made between entities in one country and the rest of the world over a defined period, such as a quarter or a year. It summarizes all transactions that a country's individuals, companies, and government bodies complete with individuals, companies, and government bodies outside the country. Funds entering a country from a foreign source are booked as credit and recorded in the BOP. Outflows from a country are recorded as debits in the BOP. For example, say Japan exports 100 cars to the U.S. Japan books the export of the 100 cars as a debit in the BOP, while the U.S. books the imports as a credit in the BOP.

c) Indian Foreign Trade Policy

Ans) The Department of Commerce has the mandate to make India a major player in global trade and assume a role of leadership in international trade organizations commensurate with India’s growing importance. The Department devises commodity and country-specific strategy in the medium term and strategic plan/vision and India’s Foreign Trade Policy in the long run. India’s Foreign Trade Policy (FTP) provides the basic framework of policy and strategy for promoting exports and trade. It is periodically reviewed to adapt to the changing domestic and international scenario. The Department is also responsible for multilateral and bilateral commercial relations, special economic zones (SEZs), state trading, export promotion and trade facilitation, and development and regulation of certain export oriented industries and commodities.

d) Principles of WTO

Ans) The Principles of WTO are:

1. Non-Discrimination: Non-Discrimination has two aspects: Most favoured nation (MFN) and National Treatment. Under the MFN, all WTO member countries should be treated equally, without discrimination. For example- India decides to lower basic customs duty for imports of iron-ore from China. This favour will have to be extended to all other countries. National treatment– Foreign goods and local goods must be treated equally. [You may read this to know about MFN in detail- What is most favoured nation status?]

2. Freer trade: All trade barriers should be lowered gradually through negotiations.

3. Predictability: There should be stability and predictability in the trade rules of a nation.

4. Promoting fair competition.

5. Encourage development and economic reforms.