12

CBSE

ECONOMICS

PART – B : INDIAN ECONOMIC DEVELOPMENT (As per the latest CBSE Syllabus)

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Note from the Publishers FULL MARKS ECONOMICS-12, based on the NCERT Textbooks, has been developed as per the latest CBSE Curriculum. It is also useful for other State Board Curricula which follow the NCERT Textbooks. It includes Part-A: Micro Economics and Part-B: Indian Economic Development. Salient features of the book are: • An elaborate description of concepts pertaining to the syllabus covered in Chapter at a Glance. • The language used is quite easy and student friendly. • Facts that Matter: A summarized view of the Chapter helps the students to understand the chapter clearly. • NCERT Textbook Questions Solved: Provides solutions to all the textual questions as per the Marking Scheme of CBSE. • Additional Questions Solved: Provides additional questions as per the latest CBSE Design of Question Paper. • Test Assignment: Provides Worksheets (at the end of each chapter) which help the students evaluate their learning. • Objective Type Questions (MCQs): Introduced by CBSE recently, have been added in each chapter. • Important statistics (Facts, Figures & Years) given in each chapter of Paper-1 in a learner friendly manner which makes it easy to learn. The book, as a whole, is a comprehensive study cum reference book making the subject easy. It is a complete, up-to-date and dependable resource book. The support website www.fullmarks.org is an added benefit for the users where one can get much more and also an opportunity to share one’s academic complexities.

(iii)

SYLLABUS Theory: 80 Marks

3 Hours

Project: 20 Marks UNITS Part – A

MARKS

PERIODS

Introductory Macroeconomics

1.

National Income and Related Aggregates

10

28

2.

Money and Banking

6

15

3.

Determination of Income and Employment

12

27

4.

Government Budget and the Economy

6

15

5.

Balance of Payments

6

15

40

100

Part – B

Indian Economic Development

6.

Development Experience (1947-90) and Economic Reforms since 1991

12

28

7.

Current Challenges facing Indian Economy

20

60

8.

Development experience of India - A Comparison with Neighbours

6

12

Theory Paper [40 + 40 = 80 Marks]

40

100

Project Work

20

20

Part – C

PART – A: INTRODUCTORY MACROECONOMICS Unit 1: National Income and Related Aggregates

28 Periods

What is Macroeconomics? Basic concepts in macroeconomics: consumption goods, capital goods, final goods, intermediate goods; stocks and flows; gross investment and depreciation. Circular flow of income (two sector model); Methods of calculating National Income Value Added or Product method, Expenditure method, Income method. Aggregates related to National Income: Gross National Product (GNP), Net National Product (NNP), Gross and Net Domestic Product (GDP and NDP) - at market price, at factor cost; Real and Nominal GDP. GDP and Welfare

(iv)

Unit 2: Money and Banking

15 Periods

Money - meaning and supply of money - Currency held by the public and net demand deposits held by commercial banks. Money creation by the commercial banking system. Central bank and its functions (example of the Reserve Bank of India): Bank of issue, Govt. Bank, Banker’s Bank, Control of Credit through Bank Rate, CRR, SLR, Repo Rate and Reverse Repo Rate, Open Market Operations, Margin requirement. Unit 3: Determination of Income and Employment

27 Periods

Aggregate demand and its components. Propensity to consume and propensity to save (average and marginal). Short-run equilibrium output; investment multiplier and its mechanism. Meaning of full employment and involuntary unemployment. Problems of excess demand and deficient demand; measures to correct them - changes in government spending, taxes and money supply. Unit 4: Government Budget and the Economy

15 Periods

Government budget - meaning, objectives and components. Classification of receipts - revenue receipts and capital receipts; classification of expenditure – revenue expenditure and capital expenditure. Measures of government deficit - revenue deficit, fiscal deficit, primary deficit their meaning. Unit 5: Balance of Paymentsy

15 Periods

Balance of payments account - meaning and components; balance of payments deficitmeaning. Foreign exchange rate - meaning of fixed and flexible rates and managed floating. Determination of exchange rate in a free market. PART – B: INDIAN ECONOMIC DEVELOPMENT Unit 6: Development Experience (1947-90) and Economic Reforms since 1991: 28 Periods A brief introduction of the state of Indian economy on the eve of independence. Indian economic system and common goals of Five Year Plans. Main features, problems and policies of agriculture (institutional aspects and new agricultural strategy, etc.), industry (IPR 1956; SSI – role & importance) and foreign trade. Economic Reforms since 1991: Features and appraisals of liberalisation, globalisation and privatisation (LPG policy); Concepts of demonetization and GST

(v)

Unit 7: Current challenges facing Indian Economy

60 Periods

Poverty- absolute and relative; Main programmes for poverty alleviation: A critical assessment; Rural development: Key issues - credit and marketing - role of cooperatives; agricultural diversification; alternative farming - organic farming Human Capital Formation: How people become resource; Role of human capital in economic development; Growth of Education Sector in India Employment: Growth and changes in work force participation rate in formal and informal growth; problems and policies. Infrastructure: Meaning and Types: Case Studies: Energy and Health: Problems and Policies- A critical assessment; Sustainable Economic Development: Meaning, Effects of Economic Development on Resources and Environment, including global warming. Unit 8: Development Experience of India:

12 Periods

A comparison with neighbours India and Pakistan India and China Issues: growth, population, sectoral development and other Human Development Indicators. PART – C: PROJECT IN ECONOMICS

20 Periods

Prescribed Books: 1. Statistics for Economics, NCERT 2. Indian Economic Development, NCERT 3. Introductory Microeconomics, NCERT 4. Macroeconomics, NCERT 5. Supplementary Reading Material in Economics, CBSE Note: The above publications are also available in Hindi Medium.

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CONTENTS

PART – B Indian Economic Development

1. Indian Economy on the Eve of Independence................................................................... 9 2. Indian Economy 1950-1990............................................................................................... 25 3. Economic Reforms Since 1991.......................................................................................... 44 4. Poverty............................................................................................................................... 65 5. Human Capital Formation in India.................................................................................... 81 6. Rural Development............................................................................................................ 97 7. Employment: Growth Information and other Issues.......................................................... 115 8. Infrastructure...................................................................................................................... 137 9. Environment and Sustainable Development...................................................................... 161 10. Comparative Development Experiences of India and its Neighbours............................... 177

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SUGGESTED QUESTION PAPER DESIGN Theory: 80 Marks

Duration: 3 hrs.

S. No.

Typology of Questions

Marks

Percentage

1

Remembering and Understanding: Exhibit memory of previously learned material by recalling facts, terms, basic concepts, and answers. Demonstrate understanding of facts and ideas by organizing, comparing, translating, interpreting, giving descriptions, and stating main ideas.

44

55%

2

Applying: Solve problems to new situations by applying acquired knowledge, facts, techniques and rules in a different way.

18

22.5%

3

Analysing, Evaluating and Creating: Examine and break information into parts by identifying motives or causes. Make inferences and find evidence to support generalizations. Present and defend opinions by making judgments about information, validity of ideas, or quality of work based on a set of criteria. Compile information together in a different way by combining elements in a new pattern or proposing alternative solutions.

18

22.5%

80

100%

TOTAL

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1

Indian Economy on the Eve of Independence

FACTS THAT MATTER 1. India’s present day economy has its roots in British rule. British rule started with the conquest of Plassey battle in 1757, and lasted for about 200 years. Indian poverty is caused by this British rule. According to Prof. R.C. Dutt, “Though India is not a poor country, thanks to the British rule, it is a country of poor people.” 2. All industrial and trade policies were formulated keeping in mind this objective only. If British would have given equal value to Indians as they did to British, probably, they would have been ruling India till date. Had there been no exploitation, there would have been no struggle for independence. 3. No sincere efforts were made by government officials before independence for estimating India’s national income and growth rates but some Indian economists made an effort in this direction. It included Dada Bhai Naroji, William Digby, Shindlay Shirras, V.K.R.V. Rao and R.C. Desai. 4. Amongst these the V.K.R.V. Rao’s estimates are most reliable which claim that Indian economy grew @2% p.a. and per capita income increased at a meager of 0.5% p.a. It indicates that India economy was developing at an extremely low rate.

Agriculture Sector 1. According to a French traveler, Bernier, Indian agriculture was flourishing before British rule which is clear in his words, “the knowledge, I have acquired of Bengal in two visits inclines me to believe that it is richer than Egypt. It exports, in abundance, cottons and silks, rice, sugar and butter. It produces amply-for its own consumption—wheat, vegetables, grains, flocks, ducks and geese. It has immense herds of pigs, and flogs of sheep and goats. Fish of every kind it has in profusion. From Rajmahal to seas an endless number of canals, cut in bygone ages from the Ganges by immense labour for navigation and irrigation.” 2. But during British rule Indian agriculture began to stagnate. The main causes of the stagnation of agricultural sector were as follows: • The new land tenure system was introduced by British rulers in India. This land tenure system had three forms: Zamindari, Mahalwari and Ryotwari. This gave birth to two classes – the landlords and the landless cultivators. Especially under the Zamindari system, the Zamindars used to exploit the cultivators to the maximum. They used to charge a very high rate of land revenue from the agriculturalists as a result the surplus left with the cultivators was insufficient even for their barest minimum sustenance. • The British rulers did not give much of attention to increase irrigation facilities and technological upgradation in- India. • British rulers initiated commercialisation of agriculture in which they encouraged the production of cash crops. As a result British transformed Indian agriculture into a 9



raw material activity to England. As a result of reduction in the production of food crops and lack of proper policies the country had to suffer from frequent occurrence of famines. • The partition of the country had also adversely affected the India’s agricultural production. It created a serious problem of shortage of raw material for jute mills of Calcutta and textile mills of Bombay and Ahmadabad. Also, rich food producing areas of the West Punjab and Sindh went to Pakistan which created food crises in the country.

Industrial Sector

1. The prime motive behind the de-industrialisation by the colonial government in India was done: • To get raw material from India at cheap rate and thus to reduce India into a mere exporter of raw materials to the British industries • To sell British manufactured goods in India at higher prices to get maximum profits. 2. Decline of the handicraft industries made the following impacts: • It created large scale unemployment in the country. • Unemployed craftsmen migrated from cities to villages. This increased the burden of population on villages and agriculture. • Consumer demand in the Indian market could not be met by the supply of locally made goods. This encouraged the imports of goods made in Britain. 3. The credit of beginning of iron and steel industries in India during the British rule goes to Jamshedji Tata. Tata Iron and Steel Company known as TISCO was incorporated in August 1907 and it established its first plant in Jamshedpur in Bihar. The plant started producing iron in 1912. 4. Two main drawbacks of the industrial sector during colonial rule were: • The growth rate of the industrial sector and its contribution towards the GDP was very small. • There was very limited area of operation of the public sector in the new industrial sector of the country. • Public sectors in those days remained confined to railways, power generation, communication, ports and some other departmental undertaking.

Foreign Trade

1. Before the advent of British rule in India, India used to get gold, silver and other precious stones. 2. A very significant feature of India’s foreign trade during colonial rule was the generation of a large surplus. Export surplus implies that the countries’ total exports were greater than the imports. But this export surplus was disadvantageous to the country’s economy on the following bases: • Because of more exports several commodities were not available in the domestic market to the common consumers. • This export surplus did not bring in gold or silver in the country. Rather this surplus was used to make payments for the expenses of war fought by the Britain and to finance the deficit in invisible items like tourism, transport, insurance and banking services.

10 n Economics (Indian Economic Development) – XII

3. Suez canal was opened in 1869 and used a highway between India and Britain. It reduced the cost of transportation and made Indian market more accessible. Its map is depicted below: North Atlantic Ocean

London Europe Asia

SUEZ CANAL Africa

7.200 Miles 11.600 Km

Mumbai

Equator

Indian Ocean

12.300 Miles 19.800 Km South Atlantic Ocean

Fig. 1.  Suez Canal

Demographic Conditions • India was in the first stage of demographic transition till 1921. • The first stage implies that there was high birth rate and high death rate in pre 1921 India. • Since in this stage both birth rate and death rate were high, the growth of population remained slow. • Because of very slow growth in population this period was termed as ‘the period of stagnant population’. • The main reasons for the slow rate of growth of population during the British rule were poverty, malnutrition, famines, epidemics and poor health facilities. • After 1921 India entered the second stage of demographic transition. • The average literacy rate was 16 % and woman literacy rate was only 7%. Infant mortality rate was as high as 218 and life expectancy was as low as 32 years.

Theory of Demographic Transition • The theory of demographic transition is the latest and the widely acclaimed theory among economists. It was formulated by Frank Notestien. • The demographic transition theory postulates three distinct stages in population growth and economic development.  Stage1: The stage of high birth and death rates and a consequent stable population level.  Stage2: The stage of high birth rate and a declining death rate and a consequent high growth rate of population which may be aptly termed as ‘population explosion’.  Stage3: The stage of low birth and death rates and a consequent low growth rate of population.



Indian Economy on the Eve of Independence  n

11

Three Stages of the Demographic Transition Theory 10000

Number in Millions

9.075 Billion in 2050 9000 8000 7000 6000 5000 4000 3000 2000 1000

Stage 1 Pre-Industrial Rev. Birth Rates Death Rates

Stage 2 Ind. Rev. Birth Rates Death Rates ↓

Stage 3 Post-Ind. Rev. Birth Rates ↓ Death Rates ↓

0

7 Million

1 AD

Occupational Structure

1. Occupational Structure is defined as the distribution of work force of a country amongst different sections. 2. There are two important features of India’s occupational structure during the British period: • 70% to 75% of India’s working population was involved in agricultural sector.10% was engaged with manufacturing sector and 15% to 20% were with service sector. • Regional variations in occupational structure had been growing. In states like Tamil Nadu, Andhra Pradesh, Kerala and Karnataka (called Madras Presidency at that time) were facing a decline in the dependence of the workforce on agriculture while there had been an increase in the share of workforce in agriculture in Orissa, Rajasthan and Punjab. • There is a theory called “Flight From Land” which says that as an economy grows, the share of agriculture in Occupational structure decline and that of secondary increases and with further development, tertiary sector starts dominating in occupational structure. Therefore, 75% workforce engagement in agriculture also indicates low level of development of Indian economy.

Infrastructure

1. The state of infrastructure facilities especially in the fields of transport, communication and energy was very poor in India during the British rule. However some efforts were made to develop basic infrastructures like roads, railways, ports, water transport, and post by the British. 2. The British rulers introduced railways in 1850 and Indian railways began operations in 1853. 3. The development and the construction of railways by the British rulers had affected the Indian economy in the following ways: • It provided cheap and rapid transport system especially for distant travel. • It broke geographical barriers and thus promoted national unity and understanding.

12 n Economics (Indian Economic Development) – XII

• It created new employment opportunities. • It helped in controlling famines. • It promoted foreign trade but benefited British more than Indians. • It encouraged the process of industrialization. 4. The main reasons of British rulers behind the beginning of railways in India were as follows: • To have effective control and administration over the vast country. In view of this British tried to link important administrative and military centres through railway. • Earning profit.

IMPORTANT FACTS, FIGURES AND YEARS • British rule converted the Indian economy into a colonial, semi feudal, backward, poor, depleted and eaten away economy. It made some positive contributions without any positive intentions. These were actually side effects of their negative deeds. • Indian economy had a dual character at the time of independence. On the one hand, it had isolated and self sustaining villages while on the other hand, it had towns which were seats of administration, pilgrimage, commerce and handicrafts. • India’s per capita income was not more than 1,274 in 1950-51 at 1980-81 prices. • 75% of work force was dependent on primary sector. • Zamindari system was introduced by Lord Cornwallis in 1793. • Bengal famine occurred in 1943. • First census operation was undertaken by British in 1881 in India. • Last census by British was undertaken in 1941. • 17% of total population was literate. • India entered second stage of demographic transition in 1921. • Six out of every seven persons were living in a village. • Tata Iron and Steel Company (TISCO) was incorporated in 1907. • 82% of total population was left to India at the time of partition. Suez canal was an artificial water way running from north to south across the Isthumus of Suez in northeastern Egypt. • Suez canal was opened in 1869. • British introduced railways in India in 1850. • First stamp was released in 1852. • The first telegraph was operated in 1853 between Calcutta and Agra. • The first railway was started between Bombay to Thane in 1853.

WORDS THAT MATTER 1. Economic Development: Economic development generally refers to the quantitative and qualitative changes in the economy. Such actions can involve multiple areas including development of human capital, critical infrastructure, regional competitiveness, environmental sustainability, social inclusion, health, safety, literacy, and other initiatives. 2. National Income: It refers to total value of all final goods and services produced in an economy in a financial year inclusive of net factor income from abroad. 3. Gross Domestic Product: It is value of all final goods and services produced within the domestic territories of an economy in a financial year.



Indian Economy on the Eve of Independence  n 13

4. Per Capita Income: It refers to per head income earned by the resident of an economy. 5. Agricultural Productivity: It refers to average output in agriculture. It may be calculated productivity per hectare or productivity per labour employed or productivity per unit of capital employed. Generally we speak of productivity per hectare. 6. Land Settlement: It refers to the act of arranging the terms and incidence of the land tax in specific areas. 7. Commercialisation of Agriculture: Shifting of land area from food crops to cash crops is called commercialisation of agriculture. In other words, it means production of crops for selling in the market and not for self consumption. 8. Capital Goods Industry: Those industries which produce such products which are used in further production are a part of capital goods industry. In simple words, industry producing capital goods is called capital goods industry. Capital goods are those goods which are meant for use in production of other goods not as raw material but as machines, tools and equipments. 9. Suez Canal: It was a canal that was used as a highway between India and Pakistan. It was opened in 1869 and it reduced the cost of transportation for goods to be sent to Britain. 10. Demographic transition: This concept was developed by Frank Notestein in the year 1945. He co-related economic development with the birth and death rates claiming that for an underdeveloped country both birth rate and death rate are high and population remains stable but as an economy grows, birth rate remains the same but death rate falls causing population explosion and with further development birth rate also falls making population growth once again stable. 11. Life Expectancy: It refers to the average number of years a newly born child is expected to live. 12. Infant Mortality Rate: It refers to the number of children die before attaining age 1 per 1000 live birth. Suppose out of 1000 live births, every 24 children die on an average before attaining age 1, then we shall say that IMR is 254 per thousand. 13. Maternal Mortality Rate: It refers to number of mothers die due to reproduction process (during birth of the child, due to abortion or miscarriage or uterus problems) per thousand live births. 14. Land Tenure System: Land tenure is the name given, particularly in common law systems, to the legal regime in which land is owned by an individual, who is said to “hold” the land. 15. Ryotwari System: The ryotwari system, instituted in some parts of British India, was one of the two main systems used to collect revenues from the cultivators of agricultural land. These revenues included undifferentiated land taxes and rents, collected simultaneously. Where the land revenue was imposed directly on the ryots (the individual cultivators who actually worked the land)—the system of assessment was known as ryotwari. Where the land revenue was imposed indirectly—through agreements made with Zamindari -- the system of assessment was known as zamindari. In Bombay, Madras, Assam and Burma the Zamindar usually did not have a position as a middleman between the government and the farmer. 16. Mahalwari System: The word Mahalwari is derived from the Hindi word ‘Mahal’ which means house, district, neighborhood or quarter. This system consisted of landlords or Zamindars claiming to represent entire villages or even groups of villages. Along with the village communities, the landlords were jointly responsible for the payment of the revenues. But, individual responsibility was always there. The land included under this system consisted of all land of the villages, even the forestland, pastures etc.

14 n Economics (Indian Economic Development) – XII

17. Occupational Structure: The distribution of work force of a country amongst different sectors of the economy is termed as occupational structure. 18. Zamindari System: It was a land revenue system developed by Lord Cornwallis. Under this system, a triangular relationship was established among the government, the owner of the soil and the tiller of the soil. Under this system, the Zamindars were considered as permanent owners of the soil. They had to pay a fix sum to the government and they were completely free to appropriate as much from the tillers of the soil as they could. 19. Stagnant economy: When an economy either does not grow or grows at an extremely low rate, it is called stagnant economy.

NCERT TEXTBOOK QUESTIONS SOLVED Q1. What was the focus of economic policies pursued by the colonial government in India? What was the impact of these policies? Ans. The economic policies adopted by the colonial government in India were concerned more with the protection and promotion of the economic interests of their home country than with the development of Indian economy. Its sole purpose was: (a) To convert India into an exporter of raw material and (b) An importer of finished goods produced in the factories of Britain. It left India as a depleted and stagnant economy. According to M. Mukherjee, the annual growth rate of real per capita income during 1857-1956 was as low as 0.5% p.a. Therefore, the economy remained stagnant during British rule. At the end of British rule, India was left as a backward and depleted economy. (a) There was mass illiteracy and very high birth rates and death rates. 17% of the total population was literate. Similarly, the birth rate and death rate were 45.2per thousand (during 1931-41) and 40 per thousand (up to the 1911-21) respectively. (b) The country was almost completely dependent on other countries for plant and machinery needed for economic development. It had to import many essential items to maintain current life and activity. (c) Indian economy at the time of independence was agrarian in nature. 70-75% of working population was engaged in agriculture. In spite of this, the country was not self sufficient in food grains. (d) Infrastructure was quite under developed. Q2. Name some notable economists who estimated India’s per capita income during the colonial rule. Ans. Dada Bhai Naroji, V.K.R.V. Rao, William Digby, Findlay Shirras and R.C. Desai. Q3. What were the main causes of India’s agriculture stagnation during the colonial period? Ans. Indian agriculture was primitive and stagnant during British rule. The main causes of stagnation of agriculture sector were as follows: (a) Land Tenure System: The British government in India invented a new land tenure system. They introduced Zamindari System in India. Under Zamindari System, a triangular relationship was established among the government, the owner of the soil and the tiller of the soil. Under this system, the Zamindars were considered as permanent owners of the soil. They had to pay a fix sum to the government and



Indian Economy on the Eve of Independence  n 15

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