Chapter: 1

Module – I: Indian Economic Development

TEXT BOOK QUESTIONS WITH ANSWERS

Intext Questions 1.1

Fill in The Blanks:

1. India’s per capita income is _________of that of China?

(a) Twice.

(b) One third.

(c) Same as.

(d) None of the above.

Ans: (b) One third.

2. USA’s per capita income is __________ of that of India?

(a) 15 times.

(b) 10 times.

(c) Less than.

(d) None of the above.

Ans: (a) 15 times.

3. As per 2011 census, India’s population stands at:

(a) More than 100 crore.

(b) Less than 100 crores.

(c) More than 121 crores.

(d) None of the above.

Ans: (c) more than 121 crores.

4. India’s Birth rate in 2010 was:

(a) 20.2

(b) 21.2

(c) 22.1

(d) 23.2

Ans: (c) 22.1

5. India’s death rate in 2010 was:

(a) 7.2

(b) 7.4

(c) 7.8

(d) 7.9

Ans: (a) 7.2.

6. India’s population growth was rapid because:

(a) Death rate is more than birth rate.

(b) Birth rate is more than death rate.

(c) Birth rate is same as death rate.

(d) None of the above.

Ans: (b) Birth rate is more than death rate.

7. In 2011, __________ percent of India’s working population was engaged in agriculture?

(a) 70

(b) 80

(c) 68

(d) 58

Ans: (d) 58.

8. Contribution of agriculture to India’s national income in 2011 was around

(a) 10 percent.

(b) 20 percent.

(c) 17 percent.

(d) 25 percent.

Ans: (c) 17 percent.

Intext Questions

1. What was the share of agriculture in India’s national income in 1950 – 57?

Ans: The share of agriculture in India’s national income in 1950 – 51 is 56.5 percent.

2. With economic development, labour force tend to shift from industry to agriculture. (True or False).

Ans: False.

3. What was the share of agriculture in India’s export in 2011 – 12?

Ans: The share of agriculture in India’s import in 2011 – 12 is 12.3 percent.

4. Give the full form of LPG?

Ans: Liberalisation, Privatisation and Globalisation.

5. The industrial policy of 1956 emphasized on the strategy of

(a) Light industries.

(b) small and medium industries.

(c) Heavy industries.

(d) none of the above.

Ans: (c) Heavy industries.

Terminal Exercise

Short Answer Type Questions

1. Give one positive and one negative features of Indian economy.

Ans: India has a planned economy. The allocation of resources is determined by a comprehensive plan of production which specifies output requirements. There are five year plans and the government prepares budgets for the country one the basis of which the expenses are made and the investments can be made. The second positive feature is that India has been getting much investment.

The negative feature of India economy is that it is characterised by low per capita income. India’s per capita income-the ratio of national income over population-is very low as compared with developed countries like USA and China.

2. Give two reasons for low productivity in agriculture in India.

Ans: Low productivity in agriculture in India is because of:

(i) Traditional Methods of Cultivation: Traditional methods of cultivation like manual ploughing two crop pattern and old system of irrigation are mainly responsible for low productivity of agriculture.

(ii) Insufficient Irrigation Facilities: Indian agriculture is mainly dependent on rain. Even after 60 years of independence only 40% of the agriculture land has permanent irrigation of facility.

3. What is the main cause of increase in population in India?

Ans: The main cause of increase in population in India is decline in the death rate and rise in birth rate. The fall in death rates that is decline in mortality rate is one fundamental causes of overpopulation. The new inventions in medicine have brought in treatments for most of the dreadful diseases. This has resulted in an increase in the life expectancy of individuals. The birth rate also has increased. Science has led to an increase in birth rate. This is certainly a reason to be proud and happy but advances in medicines have also become a cause of overpopulation.

4. Why is India called planned economy?

Ans: India is a planned economy. Its development process has been continuing through five year plan since the first plan period during 1951 – 56. The advantage of planning is very well known. Through planning the country sets its priorities first and provides the financial estimates to achieve the same. Accordingly efforts are made to mobilise resources from various sources at least cost. Indía has already completed eleven five year plan periods and the twelfth plan is in progress. After every plan al review is made analysing the achievements and short falls. Accordingly, things are rectified in the next plan. Today India is a growing economy and recognised every where as a future economic power. The per capita income of India is growing at a higher rate than before. India is seen as a big market for various products. All these are possible due to planning in India.

5. Define poverty line in rural area.

Ans: Poverty line is an economic benchmark and poverty threshold used by the government of India to indicate economic disadvantage and to identify individuals and households in need of government assistance and aid. It is determined using various parameters which vary from state to state and within states. According to 2011-12 estimates, about 269.3 million people were poor. A person is considered as poor, if he is not able to consume minimum 2400 calories in rural areas. The government has also estimated that a person should have minimum Rs. 816 in rural areas.

Long Answer Type Questions

1. India suffers from heavy population pressure. Explain.

Ans: India is world’s second largest populated country after China. As per 2011 census India’s population stands at more than 121 crores. It increased at a rate of 1.03 percent during 1990-2001. The main cause of fast rise in India’s population is the sharp decline in death rate while the birth rate has not decreased as fast. Death rate is defined as the number of people died per thousand of population while birth rate is defined as the number of people taking birth per thousand of population.

In 2010, the birth rate was 22.1 persons per one thousand population while the 5 death rate was only 7.2 persons per one thousand population. Low death rate is not a problem. In fact it is a sign of development. Low death rate reflects better public health system. But high birth rate is a problem because it directly pushes the growth of population. After 1921, India’s population increased very fast because birth rate declined very slowly while death rate declined very fast. From 49 in 1921 the birth rate declined to 22.1 in 2010 while during the same time period, death rate declined from 49 to 7.2. Hence the population growth was very rapid in India.

Heavy population pressure has become a major source of worry for India. It has put burden on the public exchequer to mobilize enough resources to provide public education, health care, infrastructure etc.

2. Explain two positive features of Indian economy.

Ans: Positive features of Indian economy are high rate of capital formation and planned economy. India currently is among the high – saving economies of the world. However, India’s saving rate is still far lower compared with China’s, which is around 50% of GDP.

Contribution to Gross Capital Formation: Currently, private sector leads in investments in the economy at 37% of total investments. The saving rate was 31.7 per cent of GDP in 2011. The ratio of gross capital formation was 36.6 per cent. This lias been possible because people are now saving in banks and other financial instruments like bonds and mutual funds.

The country has systematic plans for economic development: The process of development has been continuing through five year plans. The per capita income is growing at a higher rate than before and the country has been the centre of manufacturing all types of products. All these have been possible because of the planing.

3. India’s per capita income is low? Do you agree. Give reasons.

Ans: Yes, India’s per capita income is low.

India is known in the world as a country with low per capita income. Per capita income is defined as the ratio of national income over population. It gives the idea about the average earning of an Indian citizen in a year, even though this may not reflect the actual earning of each individual. India’s per capita income for the year 2012-2013 is estimated at 39,168. This comes to about 3,264 per month. If we compare India’s per capita income with other countries of the world then it can be seen that India is well behind many of them. For example, the per capita income of USA is 15 times more that of India while China’s per capita income is more than three times of India.

4. Describe India as agricultural country.

Ans: Agriculture is one of the most important sectors of Indian economy. It is the supplier of food and raw materials in the country. At the time of independence more than 70 per cent of India’s population depended on agriculture to earn livelihood. Accordingly the share of agriculture in the national product/ income was as high as 56.6 per cent in 1950-51. However with development of industries and service sector during the plan periods, the percentage of population depending on agriculture as well as the share of agriculture in the national product has come down. In 1960, the percentage of labour force engaged in agricultural activities was 74 which gradually came down over the years to 51 per cent in 2012. In 1960 the share of labour force in industry and service sectors stood at 11 and 15 percent respectively. But in 2012 these shares increased to 22.4 and 26.5 percent respectively. It has been observed in most of the economies that along with economic development shift in labour force from agriculture to industry and service sector takes place.

Agriculture is the source of food supply. The production of food grains has increased from nearly 55 million tonnes in 1950-51 to 259 million tones in 2012-13. Because of the growth in food grain production, India’s dependence on import of food grains has declined and almost become nil. Keeping in view the rapid growth in India’s population, increase in food grain was a necessity which the country achieved significantly. Except for pulses, increase in food grains has been mode possible by increase in circles and various cash crops.

Agriculture is also a major source of foreign exchange earning through export. The share of agriculture in India’s export in the year 201112 was 12.3 percent. The major items of export include tea, sugar, tobacco, spices, cotton, rice, fruits and vegetables etc.

5. Briefly discuss the poverty and inequality situation in India.

Ans: Another very disheartening thing about India is that it has world’s largest number of poor people. As per reports of government of India, in 2011-12 about 269.3 million people in India were poor. This was about 22 percent of India’s population. A person is termed poor if he/she is not able to consume the required amount of food to get a minimum calorie value of 2400 in rural area and 2100 in urban area. For this the person must earn the required amount of money as well to buy the food items. The government has also estimated that the required amount of money is ₹ 816 in rural area and ₹ 1000 in urban area per head per month. This comes to about ₹ 28 in rural area and ₹ 33 in urban area per head per day. This is called poverty line. This implies that 269.9 million people of India were not able to earn such little amount in 2011 – 12.

Poverty goes with inequality in income and wealth distribution. Very few in India posses materials and wealth while majority have control over no or very little wealth in terms of land holding, house, fixed deposits, shares of companies, savings etc. Only top 5 percent of households control about 38 percent of total wealth in India while the bottom 60 percent of household has control over only 13 percent of the wealth. This indicates concentration of economic power in a very few hand.

Another issue linked to poverty is the problem of unemployment. One of the most important reasons of poverty in India is that there is lack of job opportunities for all the persons who are in the labour force of the country. Labour force comprises of the adult persons who are willing to work. If adequate number of jobs are not created every year, the problem of unemployment will grow. In India every year large number of people are added to the labour force due to increase in population, increase in number of educated people, lack of expansion of industrial and service sector at the required speed etc.

6. Explain the role of agriculture in Indian Economy.

Ans: In India, the agricultural sector occupies a vital position in the overall economy of the country as would be clear from the following:

(i) Share of Agriculture in National Income: Agriculture has got a prime role in Indian economy. Though the share of agriculture in national income has come down, still it has a substantial share in GDP. The contributory share of agriculture in Gross Domestic Product was 55.4 per cent in 1950 – 51, 52 per cent in 1960 – 61 and is reduced to 18.5 per cent only at present. The share of the agricultural sector’s capital formation in GDP has declined from 2.2 per cent in the late -1999s to 1.9 per cent in 2005 – 06.

(ii) Important Contribution to Employment: Agriculture sector, at present, provides livelihood to 65 to 70 per cent of the total population. The sector provides employment to 58.4 percent of country’s

workforce and is the single largest private sector occupation.

(iii) Important Source of Industrial Development: Various important industries in India find their raw material from agriculture sector – cotton and jute textile industries, sugar, vanaspati, etc. are directly dependent on agriculture. Handlooms, spinning, oil milling, rice thrashing, etc. are various small scale and cottage industries, which are dependent on

agriculture sector for their raw material. This highlights the importance of agriculture in industrial development of the nation.

(iv) Importance in International Trade: India’s foreign trade is deeply associated with agriculture sector. Agriculture accounts for about 14.7 per cent of the total export earnings. Besides, goods made with the raw material of agriculture sector also contribute’ about 20 per cent in Indian exports. In other words, agriculture and its related goods contribute about 38 per cent in total exports of country.

In short, agriculture occupies a central place in the Indian economy. Its performance sets the pace of growth in the economy as a whole. It should, however, be noted that Indian agriculture is still in the state of backwardness, the per capita productivity in agriculture is less than in industry.

7. Explain the growth of industrialization in India.

Ans: Industry or the secondary sector of the economy is another important area of economic activity. After independence, the government of India emphasized the role of industrialization in the country’s economic development in the long run. Accordingly, the blue print for industrial development was made through the Industrial Policy Resolution (IPR) in 1956. The 1956 policy emphasized on establishment of heavy industries with public sector taking the lead in this area. Adoption of heavy or basic industries strategy was justified on the ground that it will reduce the burden on agriculture, enable growth in the production of consumer goods industries as well as small industries that are helpful for employment generation and achieving self reliance. After the adoption of the IPR, 1956 there was tremendous growth in industrialization during the second and third plan periods i.e. 1956-61 and 1961-66. Public sector contributed maximum to this growth. But towards the end of 1960s, investment in industries was reduced which adversely affected its growth rate. In the 1980s, this trend was reversed and investment in industries was increased by making the infrastructure base such as power, coal, rail much stronger.

In early 1990s it was found that the public sector undertakings were not performing up to expectation. There has been reports of mismanagement in these under takings resulting in loss. So in 1991 the government of Indian decided to encourage the role of private sector in industrial development, remove the rigid licence system which is known as liberalization and allow international players to compete in the domestic country as well as domestic players to explore foreign territories. The aim of taking all these steps was to strengthen the process of industrialization in the country. Such a model of industrial development is called Liberalization, Privatization and Globalization (LPG) model.

After the adoption of this new policy in 1991, there has been phases of growth followed by slow down in the industrial development process. In the early years of 1990s there was significant growth in industrialization due to increase in investment in infrastructure, reduction in excise duty, availability of finance etc. But towards the end of 1990s the growth rate slowed down due to stiff competition from international companies, inadequate infrastructure support etc. However, in the beginning of the new millennium, between 2002-08 there was again some recovery due to increase in saving rate from 23.5 percent in 2001-2 to 37.4 percent in 2007 – 08. Even the competition from the foreign companies helped during this phase as the domestic companies could create enough internal strength in term of quality control, finance and customer care etc. to withstand the competition. However after 2008-09 there was some slow down in industrial growth due to rise in petroleum price, interest rate and borrowings from abroad which has created lot of liabilities for the domestic companies.