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The Indian Economy

India- An Underdeveloped Economy Characteristics, as mentioned below, of an underdeveloped economy is still present in the Indian economy 1)Low per capita income-according to World Development Report 2005, India was one of the 46 low income economies in 2003-even in this category, 8 countries had higher per capita GNP than that in India-in2003 Indias Purchasing Power Parity estimate of GNP per capita was only $2880 compared to $37500 of USA and $29450 of other developed countries

2)Inequitable distribution of income and high incidence of poverty-private ownership of means of production resulted in concentration of wealth in a few hands-according to World Development Report 2000/01 while the lowest 40% households accounted for 19.7% of the aggregate household expenditure in India, the share of top 20% was as large as 46%-since the 1990s inequalities in consumption expenditure has increased due to liberalization policies

3)Predominance of agriculture-in 1951 about 70% of population was engaged in agriculture and allied activities while in 1991 it was about 65% of the working population-in 2001 agric. contributed 24% of GDP compared to more than 50% in 1950-51 4)Rapid population growth and high dependence ratio-according to population census of 2001, Indias population is 1025 m against 439 m in 1961 ie a rough increase of 2.14% p.a.

5)Low level of human development in terms of longevity, knowledge and standard of living 6)Widespread unemployment 7)Scarcity of capital-in 1950-51 the savingsinvestment rate in the country was around 8.9% which was inadequate for its economic growthby 90-91 the rates of gross domestic saving and gross domestic capital were 23.1 and 26.3% resply which were for a modest growth rate 8)Technological backwardness

India A Developing Economy With the beginning of economic planning an era of economic development was ushered in ie quantitative and structural changes 1)Rise in Net National Product-it rose from Rs132367 cr in 1950-51 to about Rs 1266005 cr in 2003-04-the first 5-year plan which began in 1951 had a target of only 2.1% pa-second plan achieved a rise of 4.1% in NNP-third plan (196166) achieved only 2.5% pa- fourth plan recorded a growth rate of 3.3% during the period 1969-74fifth plan achieved 5% pa etc

2)Rise in per capita income-it rose from Rs 3687/- in 1950-51 at 1993-94 prices to Rs 11798/- in 2003-04 Structural Changes -significant changes have taken place in Indias economic structure due to the process of devt. 1)Significant changes in sectoral distribution of domestic product-there is a steady decline in the importance of agriculture and allied activities in terms of contribution to GDP 2)Slowly changing occupational distribution of population 3)Growth of basic capital goods industries-iron and steel ind., heavy chemicals, fertilizers, heavy engineering, machine tools etc 4)Expansion in social overhead capital-transport facilities, irrigation system, energy production units, education, health etc 5)Progress in banking and financial sector-money and capital mkts have improved, specialized industrial financing institutions set up, banking services increased and spread to small towns and villages etc

India- A Mixed Economy Pvt ownership of the means of production and profit induced commodity production Decisive role of the mkt mechanism Public sector Economic planning

Role of Agriculture In India


Indian agric. In the pre-independence period was described as a subsistence occupation Only after advent of planning (and more precisely after the advent of green revolution in 1966) that farmers started adopting agric. on a commercial basis Role of agric. in Indian economy 1)Share in national income-about 60% of GDP in 1950-51, at factor cost-declined to about 24% in 2003-04 (at 1993-94 prices) 2)Largest employment providing sector

3)Provision of food surplus to the expanding population 4)Contribution of capital formation 5)Providing raw material to industries-sugar industry, jute industry, cotton textile industry etc 6)Mkt for industrial products 7)Importance in international trade

Nature of Indian Agriculture


1)Feudal relations of production 2)Rural indebtedness 3)Labour mkt dualism-lower wages in agric. sector compared to industrial sector 4)Outmoded farming techniques 5)Fluctuations and instability in crop output 6)Diversities in agricultural sector and the problem of generalization-different regions exhibit different characteristics and so no one plan can be conceived for all agricultural regions of the country-difference in soil, level of rainfall, availability of water etc

Policies for Agricultural Devt.


Several important policy measures introduced in the rural sector, in India, during the period of planning 1)Technological measures-which helped in extensive and intensive cultivation 2)Land reforms 3)Cooperation and consolidation of holdings 4)Institutions involving peoples participation in planning 5)Institutional credit 6)Procurement and support prices

7)Input subsidies to agriculture 8)Food security system-thro public distribution system Trends in Investment 1)Declining gross capital formation and public investment in agriculture 2)Interdependence between public and pvt investmentdecrease in public investment on medium and major irrigation works, storage facilities etc are more or less compensated by pvt investment (of short term asset building in nature) in areas of mechanization, ground levelling , pvt irrigation etc 3)Increasing subsidies reduce capital formation

National Agricultural Policy


National Agricultural Policy announced by GOI on 28th July, 2000-to tap the untapped potential of Indian agric, strengthen rural infrastructure to support agric devt, promote value addition, accelerate the growth of agro business, create employment and secure a fair standard of living for farmers and agricultural workers and their families

The main features of the Policy are 1)Privatization of agric and price protection of farmers, efficient use of resources and technology, adequate availability of credit to farmers and protection from seasonal and price fluctuations 2)Pvt sector participation thro contract farming and land leasing- to facilitate technology transfer, capital inflow and assured mkt for produce 3)Pvt sector investment in areas like agric research, human resource devt, post harvest mgt and mktg

4)With the dismantling of quantitative restrictions on imports under WTO agreement on agric, policy has suggested formulation of commodity wise strategies to protect farmers from adverse impact of price fluctuations in world mkt and promote exports 5)Govt would enlarge coverage of future mkts to minimize wide fluctuations in commodity prices as also for hedging their risks

6)Evolving a National Livestock Breeding Strategy to meet requirements of milk, meat, eggs and livestock products 7)Plant varieties would be protected thro legislation to encourage research and breeding of new varieties-devt of animal husbandry, poultry, dairy and fish-breeding to receive top priority 8)Restriction on movement of agric commodities throout the country to be gradually dismantled 9)Excise duty on farm equipments and fertilizers to be reviewed

10)To keep agriculturists out of tax collection system 11)Rural electrification on high priority for agric devt 12)Use of new and renewable source of energy for irrigation and other agric purposes 13)Provision of timely and adequate credit 14)Providing package insurance to cover sowing of crops to post harvest operations including mkt fluctuations in the prices of agric produce

WTO and Agriculture


Agreement on Agriculture Under the Uruguay Round of negotiation in Jan 1995, all member nations of GATT committed themselves to widespread reduction in tariff, removal of quantitative restrictions and opening up of their economy to international competition in most fields of economic activity In agric. the agreement provides framework for long term reforms of agricultural trade and domestic policies over the years to come, to increase mkt orientation in agricultural trade The agreement deals specifically with :1)providing mkt access 2)regulating domestic support and 3)containing export subsidies

Globalization and Priority Issues for Indian Agriculture


Altho agric contributes 24% of our GDP, it accounts for only 0.67% of global trade Altho India has initiated several measures in keeping with the agreement, developed countries have not opened up their economies to increase exports from developing countries Hence need for following measures 1)For a level playing field and free trade, high level of subsidies and support in devd countries must be reduced 2)Food self sufficiency at national level is desirable so that reliance on trade can be kept within limits

3)Since world mkt prices are more volatile than domestic prices dismantling of trade barriers could cause volatility in domestic mkt-hence caution to be exercised in case of large scale imports 4)Domestic agric policy needs to provide safety net to protect interest of domestic crop, people and regions which are likely to be affected by globalization 5) The argument that trade liberalization would organize international production of food grains in an optimal way and help deliver cheap food to the poor in devg countries is hypothetical-hence need for govt to put necessary safeguards in place

6)TRIP (Trade Related Intellectual Property Right) agreement under WTO requires all member countries to grant IPRs (intellectual property rights) protection for plant varieties-move aimed to benefit MNC for expanding mkt for improved seed varieties to developing countries-hence need for national and international laws to ensure adequate access to agricultural resources and not aimed only at establishing ownership rights

7)Since investment in agric in declining, need to increase investment in research, integrated mkt devt, storage and warehousing facilities, road devt etc Priorities in Agriculture-Approach of 10th Plan 1)Raising the cropping intensity of our existing agric land 2)Devt of other rural infrastructure that supports agric and other rural activities 3)Devt and dissemination of agricultural technology 4)Diversification of agricultural products both geographically and overtime-to meet food and nutritional requirements of people for leading healthy life 5)Devt of forest area The 10th plan targets a growth rate in excess of 4% pa in the agric sector

Causes of Low Productivity in Agriculture


General Causes 1)Social environment-farmer is illiterate, superstitious, conservative and unresponsive to new agricultural techniques 2)Pressure of population 3)Land degradation-leading to yield loss Institutional Causes 1)Land tenure system-zamindari system lead to farmers exploitation draining out the very capacity, willingness and enthusiasm of cultivators to increase production and productivity 2)Lack of credit and marketing facilities 3)Uneconomic holdings Technical Causes 1)Outmoded agricultural techniques 2)Inadequate irrigation facilities

Measures to Increase Productivity


Implementation of land reforms Integrated mgt of land and water resources-thereby reducing loss due to waterlogging, salinization, human induced water erosion etc Improved seeds Fertilizers Irrigation Plant protection Farm mechanization Provision of credit and mktg facilities Incentives to the producer-by way of prompt availability of inputs, remunerative prices, crop insurance etc Better management Agricultural research

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