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MEC-205: Indian Economic Policy

MEC-205: Indian Economic Policy

IGNOU Solved Assignment Solution for 2022-23

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Assignment Code: MEC-205/TMA/2022-23

Course Code: MEC-205

Assignment Name: Indian Economic Policy

Year: 2022-2023

Verification Status: Verified by Professor


Answer all the questions.



Answer the following questions in about 700 words each. 20x2


Q1) “India has the advantage of harnessing the benefits of demographic dividend, but this is neither obvious nor guaranteed” Explain.

Ans) India has the advantage of harnessing the benefits of demographic dividend, but this is neither obvious nor guaranteed. To realise the benefits in a timely manner, favourable policies, institutions, and excellent governance are needed. The difference between the prospective demographic dividend and the actual demographic dividend will be reduced by properly implementing the relevant policies. In the fields of health and education, India offers enormous potential and prospects.


A key milestone in the promotion and protection of health, including the training and deployment of health professionals who concentrate on prevention, treatment, and care, was the founding of the Public Health Foundation of India and the National Rural Health Mission. Similar to this, according to actual data from study publications, India's demographic dividend is nothing more than an education dividend. The young of India will be given the skills necessary for a knowledge- and technology-based economy through secondary and higher education. The demographic dividend must be unlocked in order to have a productive workforce and plenty of employment options.


To benefit from the demographic dividend, a new model of development is required. Three development pillars education, health, and employment should be highlighted in the approach. For India to take advantage of the window of opportunity, a combination of different techniques, policies, and effective execution are required. Growth rate, employment creation, and "good work for all" should all be considered as goals of the development model. The government should invest money in building watersheds and small irrigation systems in rural areas to increase production and employment possibilities rather than subsidising farmers.


Falling fertility rates and an increase in the proportion of people in working age have been observed in poor states like Bihar, Madhya Pradesh, Rajasthan, and Uttar Pradesh. However, for the millions of young people entering the workforce, favourable demographics are not accompanied by possibilities for gainful education and employment. Therefore, if the untapped demographic potential is not utilised at the appropriate time, it will be wasted. Government must identify skill gaps in various states and implement appropriate policies to benefit from the demographic dividend.


All societal groups must contribute positively to the development of a country, but young people and children in particular must have the chance to express themselves. Investments made by households and the country in children and young people pay off in the long run through the high productivity of the economically active population up until they join the elderly generation.


The share of the young population decreases as fertility reduces and the share of the older, dependent population increases. The population of working age will expand significantly if fertility declines quickly, producing a "demographic dividend." Higher investment can be made per child due to the lower proportion of children in the population. Therefore, future workers will be more productive, which will increase their pay. The proportion of the older population increases with time while the proportion of people in working age starts to decline; as a result, the dividend is available for a limited time, or "the window of demographic opportunity."


However, the benefits of the prospective demographic dividend are not always realised, and this creates numerous difficulties. Without appropriate policies, the rise in the working-age population could result in increased unemployment, posing threats to the economy and society. This necessitates future-focused policies that take into account population dynamics, education and skill development, healthcare, gender sensitivity, and giving the next generation rights and options.


Q2) What do you mean by fiscal imbalance? What are the measures of fiscal imbalance? How far the FRBMA has been effective to correct fiscal imbalances?

Ans) Fiscal imbalance occurs when there is a mismatch between a government's future debt obligations and future income streams. Vertical and horizontal fiscal imbalance are the two types of imbalance that can impact a government's expenditures and revenues.


According to Keynes, low aggregate demand was to blame for the high unemployment rates in Britain and the US. Keynes favoured using fiscal policy measures to boost demand during the Great Depression. As a result, Keynesian economics, a new school of thought in the field of economics, was born.


In Great Britain at the time, much of the discussion surrounding economic policy was centred on whether or whether government expenditure on public works was desirable as a remedy for unemployment, or what is now referred to as an expansionary fiscal policy move. Such measures, according to Keynes and others, would boost output and employment. Such expenses would have a direct and indirect impact because they would raise the income and consequently the consumer spending of individuals working on public works projects, creating additional jobs.


Major tools of Fiscal Policy are:

  1. Spending by the government: A change in government spending (revenue or capital expenditure) that has a direct impact on the GDP and is frequently employed as a countercyclical tool.

  2. Taxes: Changes in taxes, such as those in direct and indirect taxes, can affect how people behave in the economy and, as a result, have an effect on GDP.


Some of the major recommendation of the 12th FC to restructure the public finances include:

  1. The aggregate tax-to-GDP ratio for the federal government and the states should rise to 17.6% by 2009–10, primary spending should reach a level of 23% of GDP, and capital spending should reach almost 7% of GDP.

  2. By the end of 2009–10, the ratio of total debt to GDP, including external debt calculated using historical exchange rates, should at the very least be reduced to 75%.

  3. Over time, the on-lending system should be abolished, and the long-term debt-to-GDP ratio target for the federal government and each state should be set at 28%.

  4. The targets for the fiscal deficit to GDP ratio for the Center and the States may be set at 3% of GDP each.

  5. By 2009–10, the center's interest payments as a percentage of revenue should be around 28%. For States, the level of interest payments as a percentage of revenue should drop to around 15% by 2009–2010.

  6. By 2008–09, both the Center and the States' combined and individual revenue deficits as a percentage of GDP should be eliminated.

  7. Each State should pass laws promoting economic discipline that at the very least includes the following provisions:

a)  By 2008–2009, the revenue deficit will be eliminated. By reducing the fiscal deficit to 3% of GSDP or its equivalent—the ratio of interest payments to revenue receipts—the deficit will also be eliminated.

b) Setting annual targets for reducing revenue and fiscal imbalances;

c) Releasing annual statements that provide economic forecasts for the state and fiscal strategies related to those forecasts; releasing special statements alongside the budget that provide detailed information on the number of employees in government,

d) The public sector and supported institutions as well as their employment rates.


The implementation of the securities transaction tax (STT) in 2004 and the inclusion of the fringe benefit tax (FBT) in the budget for 2005–06 were additional steps to broaden the tax base and boost revenues.


The Finance Bill proposes making March 31, 2015, the new deadline for reducing GFD and RD and eliminating the effective revenue deficit. FRBMA was amended as a result of these ideas in May 2013. Through the Finance Bill of 2012, the phrase "effective revenue deficit" was also added to the FRBMA. In the Finance Bill of 2015, the government further changed the FRBMA by changing Section 4 to move the deadline from March 31, 2015, to March 31, 2018, to provide the newly elected administration in May 2014 additional budgetary leeway to meet deficit targets.


Reviewing the FRBMA is necessary in order to improve the conduct of macroeconomic policy's credibility, discipline, transparency, and accountability. The Centre should establish a procedure for the independent assessment and monitoring of the FRBMA's implementation, according to the 13th Finance Commission's recommendation. As a result, the Act was changed in 2012 to allow the government to entrust the Comptroller and Auditor-General with a periodic evaluation of compliance with the Act's requirements (CAG).

Section B


Answer the following questions in about 400 words each. 12x5


Q1) Discuss the challenges involved in meeting the stated aim of doubling farmer’s income. Briefly discuss the role of non-agricultural activities in this regard.

Ans) Indian agriculture sector is plagued with issues that have reduced its profitability. The role of agriculture sector in our GDP has been declining day by day. To regenerate this sector, the government plans to double the income of farmers by 2022.


Challenges in Doubling Farmers’ Income

  1. High input costs

  2. The input costs involved in farming is increasing day by day. Farmers have to invest lots of money in buying seeds, fertilizers, equipment etc, which has reduced the profit margins significantly.

  3. Crop losses

  4. Climate change and bad practices have led to crop losses in the country. Farmers are forced to make hefty loans and these loans ultimately consume them.

  5. Middle-men culture

  6. Majority of agriculture profits are pocketed by middle-men and growers are left with meagre amount for all their trouble.

  7. Lack of rural infrastructure

  8. Critical infrastructure such as cold storage, roads and markets are absent in rural areas. These have prevented farmers from getting value for their crops.

Role of Non-Agricultural Activities

Over the past several decades, India's agrarian structure has seen a decrease in the size of farms and a rise in the marginalisation of holdings. One of the main causes of rural poverty in India is the tiny amount of land that Indian farmers have access to. Most small landowners would live well below the poverty line if agriculture were their only source of income. According to a number of studies from emerging nations, expanding the rural economy to include non-farm activities has a significant potential to increase farmer income and lower rural poverty. Diversification into nonfarm enterprises removes the land restriction on income growth, enabling farmers to withstand the shocks of crop failure, and increases their capacity to invest in agricultural inputs and technology that increase productivity. According to a NABARD survey, 35% of agricultural households' income comes from farming, 34% from wage work, 16% from salaries, 8% from livestock, and the remaining 7% from non-farm industries.


NABARD survey also provides that:

  1. Only 13% of farming households are solely dependent on one source of income.

  2. Most of these households—about 50%—have two sources.

  3. 30% from three sources.

  4. 10% from four sources.


It demonstrates how farming households rely on a variety of revenue sources in addition to farm income to make ends meet. In order to increase the income of agricultural households, both agriculture and non-agriculture are crucial. The income of households was divided into four categories, including agriculture, agricultural wages, livestock, and non-farm income, according to NSSO SAS Surveys and NABARD Survey.


Q2) Compare and contrast the positive and negative effects of liberalization on the Indian Industrial sector during post 1991 reforms.

Ans) The industrial economy of India would undergo a substantial shift as a result of accelerated manufacturing expansion, radical restructuring, and the introduction of "sunrise" sectors under an appropriately adapted governmental framework.


Positive Effects

The liberating power of what Joseph Schumpeter referred to as "creative destruction," or the death of the antiquated at the hands of the modern, has awakened India. One or more of the advantages include the following:

  1. Companies are reorganising aggressively in the post-liberalization age; they are getting rid of their unprofitable ventures. The speed of corporate divestitures is unprecedented.

  2. Through mergers and acquisitions, more ambitious players have begun combining. Entrepreneurs now have the view that "large is always beautiful in business."

  3. Indian manufacturing firms have become competitive with the best in the world during the past 20 years in terms of quality.

  4. India's percentage of the global market capitalization now more closely mirrors its percentage of the global GDP.

  5. Economic reforms have facilitated the growth of low-cost innovation. This will result in an income pyramid that bulges in the middle sooner than anticipated due to the combination of this and growing pressures for inclusivity.

  6. In terms of procedure, quality, and funding, Indian company has grown leaner, more effective, and competitive on a global level. Today, both organic and nonorganic methods are being used by Indian businesses to develop their operations in foreign markets. There is a feeling of hope, and people can imagine big and carry out ambitious ideas.


Negative Effects

Markets are increasingly seen as an institution that seems emblematic of homo homini lupus man is wolf to another man and capitalism's genius of "creative destruction" appears in popular discourse as a force that is more destructive and less creative. Previously, markets were seen as a force that unleashed India's creative energies. Additionally, a closer examination of the current investment period following liberalisation is necessary.


The government has apparently expressed its concern over the slow pace of investment in a few basic and strategic industries, such as engineering, power, machine tools, etc., even though significant investments may have been flowing into a few businesses. It has frequently been noted that the rate of return in these industries is not higher than what is anticipated in the more recent or "Sunrise" regions. As a result, the growth rate of the industries where insufficient investment is coming may slow down. For the sake of a balanced growth of the industrial economy, such distortions in the investment pattern must be corrected.

Q3) State the various dimensions of deterioration in the quality of employment in India. Also examine the policy implications of slowdown in women’ workforce participation rate.

Ans) The various dimensions of deterioration in the quality of employment in India are as follows:


Increased employment in the unorganised sector: Because wages, employment regularity, working conditions, and social security benefits differ greatly between the organised and unorganised sectors, increased employment in the unorganised sector reflects a decline in the quality of employment. Workers in the organised sector enjoy higher pay and benefits, job stability, generally respectable working conditions, and social protection from risks including sickness, injury, disability, and death resulting from hazards, workplace accidents, separations, and old age. Aside from job instability, those working in the unorganised sector typically earn poor wages—often less than the meagre statutory minimum wages—have irregular schedules, and they are not protected against these dangers.


Greater percentage of contract workers: Low wages, irregular and uncertain work availability, poor working conditions, lack of social protection, and vulnerability to risks and hazards are some aspects of declining employment quality that can be investigated. The rise in casualization of the workforce is a result of this. The Indian labour market is shifting away from regular employment and toward temporary employment. Additionally, the workforce has become more casualized, as evidenced by the rise in the percentage of workers who seek out casual employment.


Increasing workforce: Not only is the country's unemployment rate rising, it is also at an all-time high. The unemployment rate has increased across all states. The availability of consumption support programmes, particularly in rural areas, growing employment opportunities for young educated and school-age adults, and higher wages as a result of the MNREGA effect have all helped to alleviate the situation of widespread underemployment, which is evident in the persistence of labour absorption in low productivity activities. A higher rate of open unemployment is the outcome of this. In addition, many young boys and girls choose to continue looking for acceptable jobs while still unemployed due to the rise in the need for education and skills. The unemployment rate has become more apparent as a result of growing urbanisation, which is reflected in the widespread appearance of census towns. Regarding the sectorial pattern of employment, the share of the workforce employed in the primary sector has been declining while the share of the workforce employed in the secondary and tertiary sectors has been increasing. The policy implications of slowdown in women’ workforce participation rate are as follows:

  1.  During 2005 to 2012 and 2012-2018, there has been a net loss of women’s labour force as well as workforce.

  2. The female labour force participation rate (FLFPR) in India has been one of the lowest among the emerging economies and has been falling over time. This has resulted in a decrease in the ratio of working females to the population of females in the working age group.

  3. Work participation drops sharply for women with primary and secondary education and rises only with college-level education. Factors like income of other members of the household, social background and place of residence also add to the lack of women’s participation in the workforce.

  4. Further, the non-availability of white collar jobs, disproportionate long hours and lesser job security narrow downs the job opportunities for educated women in India.

  5. In rural areas, not only are women withdrawing from the labour force, they are also being outcompeted by men in the existing jobs. This situation necessitates a deeper understanding of issues that hinder female labour force participation.


Women not only suffer from demand-side constraints and inadequate state-level interventions but also women's low work participation and disproportionate burden of unpaid care work results in structural rigidities that reinforce prevalent sociocultural practices.


Q4) What is the distinction between social security and social protection? Why social security has become the need of the hour?

Ans) Social protection typically refers to laws and initiatives that aim to combat poverty or other forms of unfortunate circumstance. There is no means test for Social Security. In actuality, those with the finest jobs throughout the longest careers receive the highest amount of benefits. Old-age insurance is a sensible expense, and Social Security is more comparable to it. Just like auto insurance or health insurance, it will reduce elder poverty. Old-age insurance is provided through Social Security. High-wage individuals typically pay more for benefits, but they also receive more of them.


Therefore, Social Security isn't actually a safety net. There is no means test to determine who gets what benefits. The majority of our most vulnerable seniors do not even qualify for assistance. Policies and programmes that promote effective labour markets, lessen people's exposure to risks, and improve people's ability to manage economic and social hazards, such as unemployment, exclusion, illness, disability, and old age, are typically considered to be social protection. The primary source of retirement income in the United States is through Social Security pay-outs. The distribution of income by source among the elderly population has changed over time due to trends in employer-provided pension plans, societal shifts, and modifications to Social Security programme rules. According to some experts, the Current Population Survey overstates reliance on Social Security benefits because it improperly measures income from retirement savings.


The Census Bureau changed the questions about income for the 2015 CPS in order to allay these worries. This note analyses the 2015 CPS and two other significant surveys' findings regarding the use of Social Security benefits by people 65 and older. According to all three surveys, about half of the elderly population live in households where Social Security accounts for at least 50% of the family's overall income, and about a quarter of the elderly populace live in households where Social Security accounts for at least 90% of the family's income. Throughout the entirety of human history, all peoples have had to deal with the uncertainties that come with unemployment, illness, disability, death, and old age. These ineluctable aspects of life are referred to as risks to one's economic security in the field of economics. Economic security for the ancient Greeks was represented by amphorae of olive oil. Olive oil had a high nutritional value and was reasonably easy to preserve. The Greeks kept olive oil in reserve as a means of financial security so they could take care of themselves in difficult times.


Q5) ‘The quality of life in India is far from satisfactory’. Comment.

Ans) By establishing a poverty line based on household consumption spending or income, the poor are identified. A person's well-being cannot be fully understood by defining it in terms of consumption or money alone because this is a one-dimensional view of well-being. In the majority of circumstances, it may be preferable to consider additional characteristics of poverty, such as a number of non-income indicators such housing status, hygienic status, health status (child mortality, maternal mortality rate, morbidity), educational level, etc.


The Human Development Index has been created by UNDP since 1990 utilising the three most significant accomplishments that people value:

  1. Longevity: The choice to lead a healthy life.

  2. Educational attainment: The choice to acquire knowledge.

  3. Economic attainment: To possess the means required for maintaining a respectable standard of existence.


These three components of well-being, or the three decisions that are essential for individuals to live decent lives, are used as composite indicators to rank the nations. In order to calculate the Human Poverty Indices, the HDR considers three different deprivations, including:

  1. Proportion of population not expected to survive beyond 40 years.

  2. Adult literacy rate.

  3. The percentage of people without reliable access to a better water source and the proportion of kids under the age of five who are underweight for their age.


India receives the second-worst results worldwide in the Quality of Life Index (58th) — only ahead of Kuwait (59th) — and performs especially poorly in the Quality of the Environment subcategory (59th): 67% of expats rate the air quality negatively (vs. 20% globally), and more than half (54%) are unhappy with the water and sanitation infrastructure (vs. 12% globally). What is more, close to one in three expats (32%) are dissatisfied with the natural environment in the country (vs. 8% globally).


The pollution is a problem. The overall quality of life is also lowered by India’s poor performance in the Safety & Security subcategory (56th). Just around three in ten expats (29%) are satisfied with the country’s political stability, compared to 64% globally. Moreover, 28% rate its peacefulness negatively (vs. 9% globally), and less than three-quarters (72%) feel personally safe in India’s cities (vs. 84% globally). India also lands in the bottom 5 of the Digital Life (55th) and Travel & Transportation (57th) subcategories: a quarter of expats (25%) finds it difficult to get high-speed internet access at home (vs. 12% globally), and 62% rate the transportation infrastructure negatively (vs. 15% globally).

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