Tuesday 15 December 2015
Tuesday 27 October 2015
government budget only for plus two students
Government Budget and
Economy
Government Budget and
the Economy
Contents of the Chapter:-
• Government Budget – Meaning, Objective
• Components of Government Budget
• Classification of receipts – Capital and revenue
• Classification of expenditure
- Capital and revenue
• Balanced budget surplus budget, deficit budget
- meaning and implication
• Revenue deficit, Fiscal deficit, primary deficit
- Meaning and implication.
Meaning of Government Budget:-
A government budget is an annual statement of the estimated receipts and estimated expenditure of the government during a fiscal year.
Objective of the Government Budget
The objective that are pursued by the government through the budget are-
I. Reallocation of resources -:It means managed and proper distribution of resources. As private sector can not provide all the goods and services the government has to provide these goods.
II. To reduce inequalities in income and wealth-: Through budget government tries to reduce the gap between Rich and poor. This is achieved through taxing the rich and subsidizing the needs of poor people. Taxing the income of rich people reduces their purchasing power and subsidies to poor people increases real income of poor people.
III. To achieve economic stability -: There may be inflation or depression in the economy. Inflation is the situation of rise in price level whereas depression is lack of demand. Both the situations are undesirable. During depression government reduces rate of tax and borrowing and increases public expenditure. During inflation government increases the rate of tax and borrowing and decreases public expenditure.
IV. Management of Public Enterprises
V. To achieve economic growth
Components of Government Budget:-
1. Budget Receipts
2. Budget Expenditure
Classification of Budget Receipts:-
1. Capital Receipts: - Capital Receipts refer to those receipts of the government which i) tend to create a liability or ii) Causes reduction in its assets. All the Capital receipts are broadly classified into three categories.
1) Recovery of loans :- These are Capital receipts because they reduce financial assets of the government
2) Borrowings: - Funds raised by the government form the borrowing are treated as capital receipts such receipts creates liability.
3) Other Receipts: - Funds raised through disinvestment are included in this category. By this government assets are reduced.
2. Revenue Receipts:-
Any receipts which do not either create a liability or lead to reduction in assets is called revenue receipts. Revenue receipts consist of 1) Tax Revenue and 2) Non-Tax Revenue.
1) Tax Revenue: - A tax is a legal compulsory payment imposed by the government on the people. All taxes are broadly classified into i) Direct Tax and ii) Indirect Tax.
When the liability to pay a tax and the burden of that tax falls on the same person, the tax is called direct tax. e.g. Income tax, corporation tax, Gift tax etc.
When the liability to pay a tax falls on one person and burden of that tax falls on some other person, the tax is called an Indirect tax. e.g. Sales tax, Custom duties, Service tax etc.
2) Non-Tax Revenue: - Non tax revenue consists of all revenue receipts other than taxes. For eg.:-
i) Interest
ii) Profit and dividend
iii) Fees and fines
iv) External grant-in-aid
Meaning of Budget Expenditure:-
Budget expenditure refers to the estimated expenditure to be incurred by the government under different heads in a year.
Revenue Expenditure:-
An expenditure which do not creates assets or reduces liability is called Revenue Expenditure.
Examples are – Salaries of government employees, interest payment on loan taken by the government, pension, subsidies, grants etc.
Capital Expenditure:-
It refers to the expenditure which leads to creation of assets and reduction in liabilities eg. Expenditure incurred on construction of building, roads, bridges etc.
Balanced Budget:-
A Government budget is said to be a balanced in which government receipts are shown equal to government expenditure
Surplus Budget:-
When government receipts are more than government expenditure in the budget, the budget is called a surplus budget.
Budget Deficit
Deficit Budget:-
When government expenditure exceeds government receipts in the budget is said to be a deficit budget.
Types:-
Revenue Deficit:-
Revenue deficit refers to the excess of revenue expenditure of the government over its revenue receipts.
Revenue deficit = Total revenue expenditure – Total revenue receipts.
Importance: - Since it is largely related with the recurring expenditure. Therefore, high revenue deficit gives a warning to the government either to cut expenditure or to increase revenue receipts. It also implies requirement burden in future.
Fiscal Deficit:-
Fiscal deficit is defined as excess of total expenditure over total receipts excluding borrowings.
Fiscal Deficit = Total budget expenditure - Total budget receipts net of borrowings.
Importance: - Fiscal deficit is a measure of total borrowings required by the government. Greater fiscal deficit implies, greater borrowings by the government. This creates a large burden of interst payments in the future that leads to increase in revenue expenditure, causing an increase in revenue deficit. Thus a vicious circle sets in. In the present, a large fiscal deficit may also lead to inflationary pressures.
Primary Deficit:-
Primary deficit is defined as fiscal deficit minus interest payment. It is equal to fiscal deficit reduced by interest payment.
Primary deficit = Fiscal deficit – interest payment.
Importance: - Primary deficit signifies borrowing requirements of the government. A low or zero primary deficit means that while government’s interest requirement on earlier loans have compelled the government to borrow but it is aware of the need to tighter its belt.
Government Budget and the Economy
Very Short Answer Question ( 1 Mark)
Q1. Give the meaning of budget.
Ans. A budget is an annual statement of the estimated receipts and
Expenditure of the government over the fiscal year.
Q2. Name the two components of budget.
Ans. 1) Budget Receipts 2) Budget Expenditure.
Q3. Why is borrowings considered as Capital receipt?
Ans. It increases the liability of the government, so it is considered as
Capital receipt.
Q4. Define tax
Ans. Tax is legal compulsory payment imposed by the government on
the people.
Q5. Give two example of direct tax.
Ans. 1) Income tax 2) Gift tax
Q6. Give two example of indirect tax.
Ans. 1) Sales tax 2) Custom duty
Q7. Give two example of non-tax revenue.
Ans. 1) dividend 2) Fees and fines
Q8. When Budget is normally presented in the Parliament?
Ans. On 28th February.
Q9. Why is tax not a Capital receipt?
Ans. Tax neither creates liability nor reduces assets, so it is not
Considered as capital receipt.
Q10. Give two example of revenue expenditure.
Ans. 1) Payment of Salaries 2) Interest payment
Q11. Give two example of Capital expenditure.
Ans. 1) Loan to public 2) Acquiring land, building, machine and
investment in shares etc.
Q12. What is balanced budget?
Ans. A Government budget is said to be a balanced in which government
receipts are shown equal to government expenditure
Q13. What is Surplus budget?
Ans. When government receipts are more than government expenditure
in the budget, the budget is called a surplus budget.
Q14. What is deficit budget?
Ans. When government expenditure exceeds government receipts in the
budget is said to be a deficit budget.
Q15. Give the formula to calculate ‘ revenue deficit’.
Ans. Revenue deficit = Total revenue expenditure – Total revenue
receipts.
Q16. Give the formula to calculate ‘ fiscal deficit’.
Ans. Fiscal Deficit = Total budget expenditure = Total budget receipts
net of borrowings.
Q17. Give the formula to calculate ‘ primary deficit’.
Ans. Primary deficit = Fiscal deficit – interest payment.
Q18. Define Capital receipts.
Ans. Capital Receipts refer to those receipts of the government which i)
tend to create a liability or ii) Causes reduction in its assets.
Q19. Define revenue receipts.
Ans. A revenue receipts are those receipts which neither create a liability
nor reduce assets of the government. eg. Tax and non-tax receipts.
Q20. Define revenue expenditure.
Ans. It does not result in creation of assets or reduction in liabilities
eg. Payment of salaries.
Q21. Define Capital expenditure.
Ans. It refers to the expenditure which leads to creation of assets and
reduction in liabilities eg. Expenditure incurred on construction of
building, roads, bridges etc.
Q22. Give two sources of Capital receipts.
Ans. 1) Recovery of loans 2) Borrowings.
Q23. Give one objective of budget.
Ans. To reduce inequalities of income and wealth.
Q24. Define direct tax.
Ans. These taxes are those tax in which liability to pay and burden of tax
falls on same person.
Q25. Define indirect tax.
Ans. Liability to pay and burden of indirect tax falls on different persons.
Short Answer Question (3/4 Mark)
Q1. Write any three objective of government Budget.
Ans. The objective that are pursued by the government through the
budget are-
i) To achieve economic growth.
ii) To reduce in equalities in income and wealth.
iii) To achieve economic stability.
Q2. Explain the basis of classifying government receipts into revenue
receipts and capital receipts.
Ans. Revenue Receipts :-A government revenue receipts are those
receipts i) which neither create liability ii) nor reduce assets of the
government eg. Dividend.
Capital Receipts :- Capital Receipts refer to those receipts of the
government which i) tend to create a liability or ii) Causes
reduction in its assets of the government. eg. Borrowings
Q3. Distinguish between direct tax and indirect tax
Ans.
Direct Tax Indirect Tax
1. Liability to pay and burden of
direct tax falls on same person.
2. Levied on income and property
of person.
3. eg. Income tax 1. Liability to pay and burden
of direct tax falls on some
other person.
2. Levied on goods and
services on their sale,
production, import and export.
3. eg. Sales tax
Q4. Define revenue receipts. Write the groups in which they are
classified.
Ans. Any receipts which does not either create a liability or lead to
Reduction in assets is called revenue receipts. Revenue receipts
consist of
1) Tax Revenue and 2) Non-Tax Revenue.
Q5. Distinguish between Revenue and Capital expenditure.
Ans.
Revenue Expenditure Capital Expenditure
1. It does not result in creation of
assets
2. It is for short period and
recurring in nature
3. eg. Expenditure on salaries of
employees 1. It result in creation of assets
2. It for long period and non-
recurring in nature
3. eg. Expenditure on acquisition
of assets like land, building etc.
Primary Deficit is the difference between Fiscal deficit and interest payments. It determines whether the fiscal deficit in government budget has arisen due to interest payment or any other activity of the government.
A large primary deficit indicates that the difference between fiscal deficit and interest payment is more. It means government is spending more than its receipt on other activities. The government may be spendthrift.
A zero primary deficit indicates that interest payments and fiscal deficit is equal. The fiscal deficit has arisen due to interest payment.
Contents of the Chapter:-
• Government Budget – Meaning, Objective
• Components of Government Budget
• Classification of receipts – Capital and revenue
• Classification of expenditure
- Capital and revenue
• Balanced budget surplus budget, deficit budget
- meaning and implication
• Revenue deficit, Fiscal deficit, primary deficit
- Meaning and implication.
Meaning of Government Budget:-
A government budget is an annual statement of the estimated receipts and estimated expenditure of the government during a fiscal year.
Objective of the Government Budget
The objective that are pursued by the government through the budget are-
I. Reallocation of resources -:It means managed and proper distribution of resources. As private sector can not provide all the goods and services the government has to provide these goods.
II. To reduce inequalities in income and wealth-: Through budget government tries to reduce the gap between Rich and poor. This is achieved through taxing the rich and subsidizing the needs of poor people. Taxing the income of rich people reduces their purchasing power and subsidies to poor people increases real income of poor people.
III. To achieve economic stability -: There may be inflation or depression in the economy. Inflation is the situation of rise in price level whereas depression is lack of demand. Both the situations are undesirable. During depression government reduces rate of tax and borrowing and increases public expenditure. During inflation government increases the rate of tax and borrowing and decreases public expenditure.
IV. Management of Public Enterprises
V. To achieve economic growth
Components of Government Budget:-
1. Budget Receipts
2. Budget Expenditure
Classification of Budget Receipts:-
1. Capital Receipts: - Capital Receipts refer to those receipts of the government which i) tend to create a liability or ii) Causes reduction in its assets. All the Capital receipts are broadly classified into three categories.
1) Recovery of loans :- These are Capital receipts because they reduce financial assets of the government
2) Borrowings: - Funds raised by the government form the borrowing are treated as capital receipts such receipts creates liability.
3) Other Receipts: - Funds raised through disinvestment are included in this category. By this government assets are reduced.
2. Revenue Receipts:-
Any receipts which do not either create a liability or lead to reduction in assets is called revenue receipts. Revenue receipts consist of 1) Tax Revenue and 2) Non-Tax Revenue.
1) Tax Revenue: - A tax is a legal compulsory payment imposed by the government on the people. All taxes are broadly classified into i) Direct Tax and ii) Indirect Tax.
When the liability to pay a tax and the burden of that tax falls on the same person, the tax is called direct tax. e.g. Income tax, corporation tax, Gift tax etc.
When the liability to pay a tax falls on one person and burden of that tax falls on some other person, the tax is called an Indirect tax. e.g. Sales tax, Custom duties, Service tax etc.
2) Non-Tax Revenue: - Non tax revenue consists of all revenue receipts other than taxes. For eg.:-
i) Interest
ii) Profit and dividend
iii) Fees and fines
iv) External grant-in-aid
Meaning of Budget Expenditure:-
Budget expenditure refers to the estimated expenditure to be incurred by the government under different heads in a year.
Revenue Expenditure:-
An expenditure which do not creates assets or reduces liability is called Revenue Expenditure.
Examples are – Salaries of government employees, interest payment on loan taken by the government, pension, subsidies, grants etc.
Capital Expenditure:-
It refers to the expenditure which leads to creation of assets and reduction in liabilities eg. Expenditure incurred on construction of building, roads, bridges etc.
Balanced Budget:-
A Government budget is said to be a balanced in which government receipts are shown equal to government expenditure
Surplus Budget:-
When government receipts are more than government expenditure in the budget, the budget is called a surplus budget.
Budget Deficit
Deficit Budget:-
When government expenditure exceeds government receipts in the budget is said to be a deficit budget.
Types:-
Revenue Deficit:-
Revenue deficit refers to the excess of revenue expenditure of the government over its revenue receipts.
Revenue deficit = Total revenue expenditure – Total revenue receipts.
Importance: - Since it is largely related with the recurring expenditure. Therefore, high revenue deficit gives a warning to the government either to cut expenditure or to increase revenue receipts. It also implies requirement burden in future.
Fiscal Deficit:-
Fiscal deficit is defined as excess of total expenditure over total receipts excluding borrowings.
Fiscal Deficit = Total budget expenditure - Total budget receipts net of borrowings.
Importance: - Fiscal deficit is a measure of total borrowings required by the government. Greater fiscal deficit implies, greater borrowings by the government. This creates a large burden of interst payments in the future that leads to increase in revenue expenditure, causing an increase in revenue deficit. Thus a vicious circle sets in. In the present, a large fiscal deficit may also lead to inflationary pressures.
Primary Deficit:-
Primary deficit is defined as fiscal deficit minus interest payment. It is equal to fiscal deficit reduced by interest payment.
Primary deficit = Fiscal deficit – interest payment.
Importance: - Primary deficit signifies borrowing requirements of the government. A low or zero primary deficit means that while government’s interest requirement on earlier loans have compelled the government to borrow but it is aware of the need to tighter its belt.
Government Budget and the Economy
Very Short Answer Question ( 1 Mark)
Q1. Give the meaning of budget.
Ans. A budget is an annual statement of the estimated receipts and
Expenditure of the government over the fiscal year.
Q2. Name the two components of budget.
Ans. 1) Budget Receipts 2) Budget Expenditure.
Q3. Why is borrowings considered as Capital receipt?
Ans. It increases the liability of the government, so it is considered as
Capital receipt.
Q4. Define tax
Ans. Tax is legal compulsory payment imposed by the government on
the people.
Q5. Give two example of direct tax.
Ans. 1) Income tax 2) Gift tax
Q6. Give two example of indirect tax.
Ans. 1) Sales tax 2) Custom duty
Q7. Give two example of non-tax revenue.
Ans. 1) dividend 2) Fees and fines
Q8. When Budget is normally presented in the Parliament?
Ans. On 28th February.
Q9. Why is tax not a Capital receipt?
Ans. Tax neither creates liability nor reduces assets, so it is not
Considered as capital receipt.
Q10. Give two example of revenue expenditure.
Ans. 1) Payment of Salaries 2) Interest payment
Q11. Give two example of Capital expenditure.
Ans. 1) Loan to public 2) Acquiring land, building, machine and
investment in shares etc.
Q12. What is balanced budget?
Ans. A Government budget is said to be a balanced in which government
receipts are shown equal to government expenditure
Q13. What is Surplus budget?
Ans. When government receipts are more than government expenditure
in the budget, the budget is called a surplus budget.
Q14. What is deficit budget?
Ans. When government expenditure exceeds government receipts in the
budget is said to be a deficit budget.
Q15. Give the formula to calculate ‘ revenue deficit’.
Ans. Revenue deficit = Total revenue expenditure – Total revenue
receipts.
Q16. Give the formula to calculate ‘ fiscal deficit’.
Ans. Fiscal Deficit = Total budget expenditure = Total budget receipts
net of borrowings.
Q17. Give the formula to calculate ‘ primary deficit’.
Ans. Primary deficit = Fiscal deficit – interest payment.
Q18. Define Capital receipts.
Ans. Capital Receipts refer to those receipts of the government which i)
tend to create a liability or ii) Causes reduction in its assets.
Q19. Define revenue receipts.
Ans. A revenue receipts are those receipts which neither create a liability
nor reduce assets of the government. eg. Tax and non-tax receipts.
Q20. Define revenue expenditure.
Ans. It does not result in creation of assets or reduction in liabilities
eg. Payment of salaries.
Q21. Define Capital expenditure.
Ans. It refers to the expenditure which leads to creation of assets and
reduction in liabilities eg. Expenditure incurred on construction of
building, roads, bridges etc.
Q22. Give two sources of Capital receipts.
Ans. 1) Recovery of loans 2) Borrowings.
Q23. Give one objective of budget.
Ans. To reduce inequalities of income and wealth.
Q24. Define direct tax.
Ans. These taxes are those tax in which liability to pay and burden of tax
falls on same person.
Q25. Define indirect tax.
Ans. Liability to pay and burden of indirect tax falls on different persons.
Short Answer Question (3/4 Mark)
Q1. Write any three objective of government Budget.
Ans. The objective that are pursued by the government through the
budget are-
i) To achieve economic growth.
ii) To reduce in equalities in income and wealth.
iii) To achieve economic stability.
Q2. Explain the basis of classifying government receipts into revenue
receipts and capital receipts.
Ans. Revenue Receipts :-A government revenue receipts are those
receipts i) which neither create liability ii) nor reduce assets of the
government eg. Dividend.
Capital Receipts :- Capital Receipts refer to those receipts of the
government which i) tend to create a liability or ii) Causes
reduction in its assets of the government. eg. Borrowings
Q3. Distinguish between direct tax and indirect tax
Ans.
Direct Tax Indirect Tax
1. Liability to pay and burden of
direct tax falls on same person.
2. Levied on income and property
of person.
3. eg. Income tax 1. Liability to pay and burden
of direct tax falls on some
other person.
2. Levied on goods and
services on their sale,
production, import and export.
3. eg. Sales tax
Q4. Define revenue receipts. Write the groups in which they are
classified.
Ans. Any receipts which does not either create a liability or lead to
Reduction in assets is called revenue receipts. Revenue receipts
consist of
1) Tax Revenue and 2) Non-Tax Revenue.
Q5. Distinguish between Revenue and Capital expenditure.
Ans.
Revenue Expenditure Capital Expenditure
1. It does not result in creation of
assets
2. It is for short period and
recurring in nature
3. eg. Expenditure on salaries of
employees 1. It result in creation of assets
2. It for long period and non-
recurring in nature
3. eg. Expenditure on acquisition
of assets like land, building etc.
Primary Deficit is the difference between Fiscal deficit and interest payments. It determines whether the fiscal deficit in government budget has arisen due to interest payment or any other activity of the government.
A large primary deficit indicates that the difference between fiscal deficit and interest payment is more. It means government is spending more than its receipt on other activities. The government may be spendthrift.
A zero primary deficit indicates that interest payments and fiscal deficit is equal. The fiscal deficit has arisen due to interest payment.
Friday 18 September 2015
Indian Economy 1950-1990 ( point wise notes)
Indian Economy 1950-1990
INDEPENDENCE
ECONOMY :
An economy is an organisation of economic activities
which provide people with the means to work and earn a living.
Economy
Capitalist Socialist Mixed
Economy Economy Economy
* Capitalist economy : In which major economic decisions
(what to produce, how to produce and for whome to produce) are left to the free
play of the market forces.
* Socialist economy : In which major economic decisions
are taken by the Govt. keeping in view the collective interest of the society as
a whole.
* Mixed Economy : In which major economic decisions are
taken by the central Govt. authority as well as are left to the free play of the
market forces.
* Economic Planning : Means utilisation fo country’s
resources in different development activities in accordance with national priorities.
Goals of Planning in India
Long - term goals Short term goals
To be achieved over a To be achieved over a Period of
long term period of 5 years 20 years
LONG TERM GOALS / OBJECTIVES OF PLANNING
A. Modernisation - Adoption of new technology
B. Self reliance - Reducing dependence on imports.
C. Economic Growth - Increase in the aggregate output of Goods
& services.
D. Equity - reduction inequality of income or wealth
E. Full employment - Refers to a situation when all the people
in the working age group are actually engaged in some gainfull employment.
SHORT TERM GOELS / OBJECTIVES OR
OBJECTIVES OF FIVE YEAR PLANS
Short term objectives vary from plan to plan depending on
current needs of the country. For example first plan
(1951-56)
focused on higher agricultural production while in second
plan (1956-61) shifted the focus from agriculture to Industry. In India growth
and equity are the objectives of all the five year plans. The goal of current
five year plan (11th, 2007-2012) is faster, broad-based and inclusive growth.
Agriculture
Main Features of Indian Agriculture
1. Low productivity
2. Disguised unemployment.
3. Dependence on rainfall
4. Subsistance farming - objective of farmer is to secure
subsistence for his family not to earn profit.
5. Traditional inputs
6. Small holdings
7. Backward technology.
8. Landlord tenant conflict.
Problems of Indian Agriculture
Institutional Problems.
1. Small and scattered holdings.
2. Poor implementation of land reforms.
3. Lack of credit and marketing facilities.
Technical Problems.
1. Lack of irregation facilities.
2. Wrong cropping pattern.
3. Outdated techneque of production.
General Problems :
1. Pressure of population on land
2. Land degradation
3. Subsistance farming
4. Social environment.
5. Crop losses- by pest, insect, flood, draught etc.
Reforms in Indian Agriculture
A. Institutional Reforms also called Land reforms.
(i) Abolition of intermediaries.
(ii) Regulation of rent.
(iii) Consolidation of holdings.
(iv) Ceiling on land holdings.
B. General reforms.
(i) Expansion of irrigation facilities
(ii) Provision of credit
(iii) Regulated markets and co-operative marketing
societies.
(iv) Price support policy.
C. Technical Reforms or Green Revolution
(i) Use of HYV seeds
(ii) Use of dumical fortilizers.
(iii) Use of insecticides and pesticides for crop
protection
(iv) Scientific rotation of crops
(v) Modernised means of cultivation.
ACHIVEMENTS OF GREEN REVOLUTION
1. Rise in production and productivity.
2. Increas in income.
3. Rise in commercial farming.
4. Impact on social revolution - use of new technology
HYV seeds, fertilizers etc.
5. Increase in employment.
FAILURES OF GREEN REVOLUTION
1. Restricted to limited crops and areas such as two
crops wheat & rice growing states like Punjab, Haryana, U.P and Andhra
Pradish.
2. Partial removel of poverty.
3. Neglected land reforms.
4. Rise in un employment.
5. Ecological degradation.
INDUSTRY
ROLE OF INDUSTRIAL SECTOR IN INDIA
Industrialisation is important for an overall growth of a
country.
following points highlight the importance of Industry is
an economy.
1. Provides employment.
2. Raising people income
3. Promotes regional balance.
4. Leads to modernisation.
5. Helps to modernise agriculture.
6. Leads to self-sustainable developement
7. High potential for growth.
8. Key to high volume of exports.
9. Growth of civilisation.
* Industrialisation is a pre-condition for the final
take-off of an economy.
INDUSTRIAL DEVELOPMENT SINCE INDEPENDENCE
Share of industrial sector in the GDP has increased upto
8.3% in the 10th plan. It is expected to be 10.5% in the 11th plan.
The following important changes have taken place :
(i) Development of infrastructure like power transport,
communication, banking & finance, qualified and skilled human resource.
(ii) Much progress in the field of research and
development.
(iii) Expansion of public sector
(iv) Building up of capital goods industry
(v) Growth of non-essential consumer goods industries.
PROBLEMS OF INDUSTRIAL DEVELOPMENT IN INDIA
1. Sectoral imbalances - agriculture and infrastructure
have failed to provide the support to the industrial sector.
2. Regional imbalance - restricted to few states.
3. Industrial sickness- which raised the problem of
unemployment.
4. Highter cost of industrial product due to lack of
healthy competition.
5. Dependence on the Government - for reduction in tax or
duty to make import easier.
6. Poor performance of the public sector
7. Underutilisation of capacity.
8. Increasing capital - output ratio
ROLE OF PUBLIC SECTOR / GOVT. IN
INDUSTRIAL DEVELOPMENT
Direct intervention of the state was considered essential
in view of the following factors.
1. Lack of capital with the private enterpreneurs.
2. Lack of incentive among the Pvt. enterpreneures - low
demand due to limited size of the market.
3. Socialistic pattern of society - main aim of Govt. is
to generate employment rather than profits.
4. Development of infrastructure.
5. Development of backward areas.
6. To prevent concentration of economic power.
7. To promot import substitution.
INDUSTRIAL POLICY RESOLUTION (IPR) 1956
Industrial policy is an important instrument through
which the govt.
regulates the industrial activities in an economy.
The 1956 resolution laid down the following objectives of
industrial policy.
(a) To accelerate the growth of industrialisation.
(b) To develop heavy industries.
(c) To expand public sector.
(d) To reduce disparities in income and wealth.
(e) To prevent monopolies and concentration of wealth and
income in
the hand of a small member of individuals.
FEATURES OF INDUSTRIAL POLICY RESOLUTION
(IPR) OF 1956
Features of Industrial policy resolution of 1956 were.
1. New classification of Industries : Industries were
classified into three schedule depending upon role of state.
(a) Schedule-A - 17 industries listed in schedule-A whose
future development would be the responsibility of state.
(b) Schedule-B - 12 industries were included in
schedule-B, which could be established both as the private and public sector enterprises.
(c) Schedule-C - other residual industries were left open
to private sector.
2. Stress on the role of cottage and small scale
industries.
3. Industrial licensing : Industries in the pvt. sector
could be established only through a licence from the government.
4. Industrial concessions - were offered of pvt. entrepreneurs
for establishing industry in the backward regions of the country. Such as tax rebate
and concessional rates for power supply.
SMALL SCALE INDUSTRY (SSI)
A small scale industry is presently defind as the one
whose investment does not exceed Rs. 5 crore.
CHARACTERISTICS OF SSI OR
ROLE OF SMALL SCALE INDUSTRIES
1. Labour intensive - employment oriented
2. Self - employment.
3. Less capital intensive.
4. Export promotion.
5. Seed beds for large scale industries.
6. Shows locational flexibility.
PROBLEMS OF SMALL SCALE INDUSTRIES
1. Difficulty of finance.
2. Shortage of raw material.
3. Difficulty of marketing.
4. Outdated machines & equipments
5. Competition from large scale industries.
FOREIGN TRADE
At the time of independence raw material was exported
from India to Britain in abundance on the other hand finished goods from
Britain were imported into India.
Notably our balance of trade was favourable (exports >
imports) After independence India’s foreign trade recorded a noticeable change
such as.
(i) Decline in percentage share of agricultural exports.
(ii) Increase in percentage share of manufactured goods
in total exports.
(iii) Change in direction of export trade and import
trade.
TRADE POLICY
In the first seven five year plans of India, the trade
was commonly called an ‘inward looking’ trade strategy. This strategy is technically
known as ‘import substitution’.
Import substitution means substituting imports with
domestic production. Imports were protected by the imposition of tariff and quotas
which protect the domestic firms from foreign competition.
Impact of Inward looking Trade strategy on
the domestic industry.
1. It helped to save foreign exchange by reducing import
of goods.
2. Created a protected market and large demand for
domestically produced goods.
3. Helped to build a strong industrial base in our
country which directly lead to economic growth.
Criticism of import substituting strategy
1. It did not led to growth.
2. Lack of competition implied lack of modernisation.
3. Growth of inefficient public monopolies
4. It did not lead to efficiency.
INDUSTRIAL LICENSING
Licensing is a tool for channelising scare resources in predetermined
priority sector of an economy.
The Industries developement and resolution act (IDRA) was
enacted in 1951.
MAIN OBJECTIVES OF IDRA act of 1951
1. Regulation of industrial development in accordance
with planned priorities.
2. Avoidance of monopoly
3. Balanced regional development.
4. Prevention of undue competition between large-scale
industries and small scale industries
5. Optimum utilisation of scare foreign exchange
resoures. Under this objective the following were applicable.
A. All the scheduled industries should be registered with
the govt.
B. A licence must be obtained by all the new industries.
C. Govt. is authorised to examine the working of any
industrial undertaking.
D. If the undertaking continued to be mismanaged, govt
can take over its management.
CRITICISM AGAINST INDUSTRIAL LICENSING
1. There was an adhoc system for accepting or rejecting
an application for licence.
2. The quality of techno economic examination conducted
by Director general of technical developement was generally poor.
3. Licensing policy resulted in under utilisation of
capacity ln many industries.
4. In reality the policy helped large business houses in
accumulating economic power.
PERMIT LICENCE RAJ
The licensing authorities many a times granted licence to
big business houses without proper scrutiry of their applications.
INDIAN ECONOMY 1950-1990
ONE MARK QUESTION
1. Define economy.
2. Who is the chairman of the planning commission in
India?
3. What was the idea behind abolition of intermediaries?
4. Write the classification of industries according to
IPR-1956.
5. What do you mean by green revolution?
6. What is meant by small scale industries?
7. What is marketable surplus.
8. Who formulates five year plans in India.
9. Write the duration of current five year plan.
10. Name any two Common goals of five year plan.
11. Name the type of economy adopted in India.
12. Name three general problems of an economy.
13. What is import - substitution?
3/4 MARKS QUESTIONS
1. Explain how import substitution can protect domestic
industry.
2. Why was public sector given a leading role in
industrial developement during the planning period?
3. How subsidies encourage farmers to use new technology?
explain.
4. What were the benefits of green revolution.
5. How has India’s occupational structure changed during
the period from 1950 to 1990.
6. Small scale industries promote rural development.
explain.
7. Write the limitation of green revolution.
8. What are the main goals of the five year plans in
India?
9. Distinguish between planning objectives and plan
objectives.
6 MARKS QUESTIONS
1. Explain the problems of industrial development in
India.
2. Explain the role of small scale industries in the
socio economic development of our country.
3. How did green revolution benifit and harm the farmers?
4. Describe the objectives and main features of
industrial policy resolution 1956.
5. What is import substitution policy? why was it adopted
in the initial period of development in India?
6. Describe the achievements and failures of economic
planning in India.
7. Evaluate inward looking trade policy of the government
during
1950-90
ANSWER OF ONE MARK QUESTIONS
1. It is organisation of economic activities which
provides people with the means to work and earn a livlihood.
2. Prime minister is the chairman of planning commision
in India.
3. The aim of abolition of Zamindar was to make direct
link between government and real cultivators so that cultivators can get
maximum profit
4. Classification of industries according to IPR 1956
was.
(a) Schedule ‘A’ includes 17 in dustries governed by
public sector.
(b) Schedule ‘B’ includes 12 industries governed by
public & pvt. Sector both.
(c) Schedule ‘C’ includes other residual industries under
pvt. sector.
5. Green revolution refers to the tremendous increase in
agricultural production and productivity with the introduction of new
technology.
6. Small scale industires are those in which the
investment limit is Rs 5 crores.
7. Marketable surplus means production soldin the market
after self consumption by the farmers.
8. Planning commision
9. First april 2007 to 31 March 2012.
10. Growth and equity.
11. Mixed economy
12. What to produce, how to produce and to whom to
produce.
13. Import substitution means encouraging domestic
production of such goods which the country is importing.
Indian Economy on the Eve of Independence ( only point wise notes)
Unit - 5
Indian Economy
on the Eve of Independence
* The sole purpose of the
British colonial rule in India was to reduce the country to being a feeder
economy for Great Britain’s own rapidly expanding modern industrial base.
* Conditions in the Indian
economy on the eve of independance
(i) Law level of economic
development : the colonial govt, never made any sincere attempt to estimate
India’s national and percapita income.
The estimates given by Dr.
Rao - growth of GDP was only 2% while the growth of percapita output was just
1/2 (0.5) percent.
(ii) Backward agricultural
sector : Due to
A. Land tenure system -
Zamidari system, Mahalwari system and Ryotwari system.
B. Forced commercialisation
of Agriculture
C. Partitian of the country.
(iii) Less developed
Industrial sector
A. De-industrialisation -
decline of Indian handicraft industry.
B. Capital good industries
were lacking
C. Limited operation of
public sector
D. Discriminatory tarrif
policy.
(iv) Unfavourable foreign
trade :
(A) Net exporter of raw
material and importer of finished good.
B. Britain had monopoly
control on foreign trade.
C. Drain of India’s wealth.
(v) Adverse demographic
condition :
A. High death rate - 40 per
thousand.
B. High infant martality
rate - 18 per thousand.
C. Mass Illiteracy - 83%
illiterate.
D. Low life expectancy - 32
years
E. Low standard of living -
people used to spend 80% to 90% of their
income on basic needs.
(vi) Under developed
infrastructure :
Abscence of good roads,
electricity generation, health, education and communication. However some
efforts have been made to develop basic infrastructure like roads, railway
ports, water transportpost & telegraph by the British rulars. The main
motive was not to provide basic amenties to the Indian people but for their
colonial interest.
(vii) More dependence on
primary sector
* Largest share of work
force which was 72% was engaged in agriculture.
* 10% marufacturing while
18% warkforce were engaged in service sector.
* Some positive side-effects
of the British rule in India :
A. Provide transport
facilities, largly in terms of railway.
B. Development of ports.
C. Provision of post and
telegraph service.
D. British Govt. left a base
of a strong and efficient administrative set up.
ONE MARK QUESTIONS
1. What was the infant
mortality rate of India during British rule?
2. State the life expectancy
in India during British rule.
3. What do you mean by
infant mortality rate?
4. Give the name of one
economist who estimated India’s per
capital income during
colonial period.
5. What is meant by
commercialisation of agriculture?
6. What was the motive
behind the de-industrialisation by the
colonial Govt. in India?
7. Which industries were
adiversly affected due to partition.
8. What does the export
surplus mean?
9. What percentage of India’s
working population was engaged in
secondary and tertiary
sector during British rule?
3/4 MARKS QWESTIONS
1. Mention four features of
India’s agriculture on the eve of
independence.
2. What were the objectives
of the British Govt. in bringing about
infrastructural change in
the Indian economy.
3. How would you explain the
drain of wealth during the British rule.
4. Discuss occupational
structure of Indian economy at the time of
independence.
5. State three main features
of Indian economy at the time of
independence.
6. Mention the state of
Indian industries on the eve of independence.
6 MARKS QUESTIONS
1. Critically appraise some
of the shortfalls of the industrical policy
pursucs by the British
colonial administration.
2. What were the main causes
of India’s agricultural stagnation
during the colonial period.
3. Give a quantitative
appraisal of India’s demographic profile during
the colonial period.
4. Were there any positive
contribution made by the British in India?
Discuss.
ANSWER OF ONE MARK QUESTIONS
1. Infant mortality rate was
18 per thousand.
2. Life expactancy was 32
years.
3. Infant mortality rate
means number of deaths of children below the
age of one year per thousand
live birth.
4. Dada Bhai Nauroji, &
Prof V.K.R.V. Rao.
5. Commercialisation of
agriculture means production of crops for
sale in the market rather
than for self - consumption.
6. (i) To get raw materials
from India at cheap rate.
(ii) To sell British
manufactured goods in Indian market at high
prices.
7. Jute and textile
industries.
8. When export of a country
is more than import.
9. 10% in secondary sector
and 18% in tertiary sector.
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